SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED May 31, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES ACT OF
1934 FOR THE TRANSITION PERIOD FROM
TO
------- --------
COMMISSION FILE NO. 001-12509
MEGA HOLDING CORP.
(Exact name of small business issuer as specified in its charter)
NEW YORK 13-2793653
(State or other jurisdiction (IRS Employer Identification
of incorporation or organization) Number)
278A New Dorp Lane, Staten Island, NY 10306
(Address of principal executive offices)
(718) 667-9117
Issuer's telephone number
Check whether registrant (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act of 1934 during the past 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
As of May 31, 1997, 3,615,000 Shares of Common Stock were outstanding.
Transitional Small Business Disclosure Format: Yes No x
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1- Financial Information
For financial information, please see the Financial Statements on pages F1
through F10
Item 2- Management's Discussion and Analysis or Plan of Operation.
Plan of Operation
Mega Holding Corp. (the Company) incorporated as a New York corporation and
commenced business on March 31, 1970. The Company offers its services to
corporations that are seeking business and financial consulting relationships.
Such services include advice on how to structure and conduct private offerings
of securities, mergers and acquisitions and other strategic business advisory
services. Most of the Company's clients use a combination of these services for
which the Company receives fees for such services. The Company may refer clients
to financial institutions (banking and other lenders and/or investment
institutions). Very often the Company's fees are taken as stock in the client
company or the fees are a combination of cash and stock. In addition, the
Company may begin a relationship with a client on an advisory basis and proceed
to provide acquisition or financing services to the client.
In the process of providing financial consulting activities, the Company
typically performs due diligence and assists the client in preparing business
plans, which plans include an analysis of the client's business, its history,
the market for its products, the competitive environment in which the client
operates and a breakdown of how the funds will be used. The Company does not
raise funds for clients; however, the Company may refer clients to financial
institutions (Banking and other lenders and/or investment institutions) for such
purposes. The company is licensed and registered with the New York State Banking
Department as a mortgage broker wherein it earns fees. In addition, the Company
receives royalties from Powderhorn Incorporated (a subsidiary of Peabody Coal
Company) located in Palisade, Colorado.
<PAGE>
The following discussion of the results of operations and financial condition
should be read in conjunction with the financial statements and related notes
appearing subsequently under the caption "Financial Statements".
Overview
Past revenues have been derived principally from commissions on mortgage
brokerage and Business and Financial Consulting activities, and royalties from
Powderhorn Incorporated. Future income is dependent on management's ability to
generate new business in the mortgage brokerage and consulting segments of its
business, which are more particularly discussed in Item 1, above.
Management anticipates that sales, gross profit and income from operations will
continue to increase in fiscal 1997 at a greater rate than in 1996. This
increase will result from an anticipated increase in both the Company's mortgage
brokerage business and to a greater extent, an increase in the Company's
financial consulting activities. This increase in activity, in turn should
generate more cash flow and net profit, thereby reducing their effect on cash
used from operations and net income.
Results of Operation
During the nine months ended May 31, 1997, the Company principally provided for
its cash needs through normal operations of its business as more particularly
discussed in Item 1, above.
Net revenues for the nine months ended May 31, 1997 totaled $139,040 with an
operating loss of $57,490. We expect revenues to increase during the next three
months which should result in operating profits.
<PAGE>
PART H - OTHER INFORMATION
Item 1. Legal Proceedings
There are no legal proceedings and the Company is not aware of any threatened
legal proceedings to which the Company is a party to or to which its property is
subject.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Report on Form 8-K.
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
July 14, 1997
- -------------
Date
MEGA HOLDING CORP.
- ------------------
Registrant)
/s/ Thomas M. Abate, President
- --------------------------
Thomas M. Abate, President
/s/ James V. Paulsen, Secretary
- ---------------------------
James V. Paulsen, Secretary
<PAGE>
MEGA HOLDING CORP.
FINANCIAL STATEMENTS
MAY 31, 1997
McManus & Co., P.C.
Certified Public Accountants
Morris Plains, New Jersey 07950
<PAGE>
(LETTERHEAD)
Independent Accountants' Report
To the Stockholders of
Mega Holding Corp.
We have reviewed the accompanying balance sheet of Mega Holding Corp. as of May
31, 1997, and the related statements of operations, shareholder's equity, and
cash flows for the nine months then ended in accordance with Statements on
Standards for Accounting and Review Services issued by the American Institute of
Certified Public Accountants. All information included in these financial
Statements is the representation of the management of Mega Holding Corp.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with general accepted accounting principles.
McManus & Co., P.C.
Certified Public Accountants
Morris Plains, New Jersey
July 9, 1997
F-1
<PAGE>
MEGA HOLDING CORP.
BALANCE SHEET
MAY 31, 1997
<TABLE>
ASSETS
<S> <C>
Current Assets:
Cash $ 8,346
Accounts Receivable 41,028
Royalties Receivable (Note 2) 375
Notes Receivable (Note 3) 34,500
---------
Total Current Assets 84,249
---------
Property and Equipment
Office Equipment at cost (Note 1) 51,415
Less: Accumulated Depreciation (32,556)
---------
Total Property, Plant, and Equipment 18,859
---------
Other Assets:
Marketable Securities (Note 4) 194,542
Notes Receivable (Note 3) 100,000
Restricted Securities at par value (Note 5) 15,000
Royalties Receivable (Note 2) 154,493
---------
Total Other Assets 464,035
---------
Total Assets $ 567,143
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 3,674
Officer's Loan 4,500
Payroll Taxes Payable 586
---------
Total Current Liabilities 8,760
---------
Long - Term Liabilities:
Deferred Taxes (Note 7) 72,168
---------
Total Long - Term Liabilities 72,168
---------
Commitments and Contingent Liabilities (Note 6)
Shareholders' Equity:
Common Stock - $.01 par value
Authorized 20,000,000 shares
Issued 3,615,000 shares 36,150
Paid In Capital 488,616
Retained Deficit (38,551)
---------
Total Shareholders' Equity 486,215
---------
Total Liabilities and Shareholders' Equity $ 567,143
=========
</TABLE>
See accompanying accountant's report and notes to the financial statements.
F-2
<PAGE>
MEGA HOLDING CORP.
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MAY 31,1997
<TABLE>
<S> <C>
Net Sales $ 139,040
Cost Of Sales 73,422
---------
Gross Profit 65,618
---------
General and Administrative Expenses:
Advertising 27
Commissions 39,520
Depreciation 1,196
Equipment Lease 256
Insurance 889
Licenses and Application Fees 504
Miscellaneous 2,971
Office Expense 15,826
Payroll& Associated Costs 4,660
Postage 542
Professional Fees 6,000
Rent 13,022
Taxes 11,223
Telephone and Utilities 5,644
Travel and Entertainment 9,373
---------
Total Operating Expenses 111,653
---------
Loss Before Unrealized Holding Loss on Marketable
Securities, Other Income, and Income Taxes (46,035)
Unrealized Holding Loss on Marketable Securities (Note 4) (24,205)
---------
Other Income:
Royalties Income 343
Interest Income 12,407
---------
Total Other Income 12,750
---------
Loss Before Income Taxes (57,490)
---------
Provision For Income Taxes --
---------
Net Loss $ (57,490)
=========
Net Loss Per Share:
Weighted Average Number of Common Shares Outstanding 3,615,000
Net Loss $ (0.0159)
</TABLE>
See accompanying accountant's report and notes to the financial statements.
F-3
<PAGE>
MEGA HOLDING CORP.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MAY 31,1997
<TABLE>
<CAPTION>
Additional Total
September 1, 1996 Common Paid In Retained Shareholders'
To May 31, 1997 Stock Capital Earnings Equity
- ---------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
September 1, 1996 $ 36,150 $ 488,616 $ 18,939 $ 543,705
Net Loss (57,490) (57,490)
------------- ------------- ------------- -------------
Total Shareholders' Equity
As of May 31, 1997 $ 36,150 $ 488,616 $ (38,551) $ 486,215
============= ============= ============= =============
</TABLE>
See accompanying accountant's report and notes to the financial statements.
F-4
<PAGE>
MEGA HOLDING CORP.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED MAY 31,1997
<TABLE>
<S> <C>
Cash Flow from Operating Activities:
Net Loss $ (57,490)
Adjustments To Reconcile Net Loss To Net
Cash Provided/(Used) In Operating Activities:
Depreciation 1,196
Unrealized holding loss on marketable securities 24,205
(Increase) Decrease in accounts receivable 2,472
(Increase) Decrease in royalties receivable 343
Increase/(Decrease) in accounts payable (2,583)
Increase/(Decrease) in officer's loan payable 4,500
Increase/(Decrease) in payroll taxes payable 586
Increase/(Decrease) in deferred taxes 14,935
---------
Total Adjustments 45,654
---------
Net Cash provided/(used) by Operating Activities (11,836)
Cash Flow from Financing Activities:
(Increase)/Decrease in notes & dividends receivable 500
---------
Net Cash provided/(used) by Financing Activities 500
---------
Cash Flow from Financing Activities:
(Increase)/Decrease in restricted securities 15,000
---------
Net Cash provided/(used) by Investing Activities 15,000
---------
Net Increase in Cash 3,664
Cash at the Beginning of the Period 4,682
---------
Cash at the End of the Period 8,346
=========
</TABLE>
See accompanying accountant's report and notes to the financial statements.
F-5
<PAGE>
MEGA HOLDING CORP.
NOTES TO THE FINANCIAL STATEMENTS
Note 1 - Basis of Presentation and Significant Accounting Policies:
Mega Holding Corp. (the Company) incorporated as a New York corporation and
commenced business on March 31, 1970. The Company offers its services to
corporations that are seeking business and financial consulting
relationships. Such services include advice on how to structure and conduct
private offerings of securities, mergers, and acquisitions and other
strategic business advisory services. Most of the Company's clients use a
combination of these services for which the Company receives fees for such
services. The Company may refer clients to financial institutions (banking
and other lenders and/or investment institutions). Very often the Company's
fees are taken as stock in the client company or the fees are a combination
of cash and stock. In addition, the Company may begin a relationship with a
client on an advisory basis and proceed to provide acquisition or financing
services to the client.
In the process of providing financial consulting activities, the Company
typically performs due diligence and assists the client in preparing
business plans, which include an analysis of the client's business, its
history, the market for its products, the competitive environment in which
the client operates and a breakdown of how the funds will be used. The
Company does not raise funds for clients; however, the Company may refer
clients to financial institutions (banking and other lenders and/or
investment institutions) for such purposes. The Company is licensed and
registered with the New York State Banking Department as a mortgage broker
wherein it earns fees. In addition, the Company receives royalties from
Powderhorn Incorporated (a subsidiary of Peabody Coal Company) located in
Palisade, Colorado.
A) Property and Equipment
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is calculated by using the modified accelerated cost recovery
system as provided by the tax reform act of 1986 for property acquired
after December 31, 1986. The recovery classifications are five years for
furniture and fixtures and office equipment.
Expenditures for maintenance and repairs are charged against income as
incurred whereas major improvements are capitalized.
F-6
<PAGE>
MEGA HOLDING CORP.
NOTES TO THE FINANCIAL STATEMENTS
Note 1 - Basis of Presentation and Significant Accounting Policies: (continued)
B) Marketable Securities
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," effective for fiscal years beginning after December
15, 1993. This statement considers debt securities that the Company has both the
positive intent and ability to hold to maturity are carried at amortized cost.
Debt securities that the Company does not have the positive intent and ability
to hold to maturity and all marketable equity securities are classified as
available-for-sale or trading securities and are carried at fair market value.
Unrealized holding gains and losses on securities classified as
available-for-sale are carried as a separate component of stockholders' equity.
Unrealized holding gains and losses on securities classified as trading are
reported in earnings. Management determines the appropriate classification of
marketable equity and debt securities at the time of purchase and reevaluates
such designation as of each balance sheet date.
C) Revenue Recognition
The Company recognizes revenues at the point in time when the stock in the
newly formed company is sold.
D) Cost of Sales
The cost of sales consist wholly of those expenses accumulated when
acquiring the stock of the original company.
E) Income Taxes
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes", which requires a
change from the deferral method to the assets and liability method of
accounting for income taxes. Timing differences exist between book income
and tax income which relate primarily to the recognition of income.
F) Net Earnings/(Loss) Per Common Share
Net earnings/(loss) per common share is computed by dividing net
earnings/(loss) by the weighted average number of shares of common stock
outstanding during the period.
F-7
<PAGE>
MEGA HOLDING CORP.
NOTES TO THE FINANCIAL STATEMENTS
Note 2 - Royalties Receivable:
On September 29, 1994, the Company resolved a royalty dispute whereby
Powderhorn Incorporated will pay the Company additional royalties with a
future value of $624,044. This amount will be payable at $12,750 per annum
for non-production royalty and an 8.5% royalty should production resume.
May 31, 1997
------------
Royalties Receivable From Court Settlement:
Non-interest bearing receivable,
receivable in annual installments
of $12,750; due 2043. 585,794
Less unamortized discount based
on imputed interest rate of 8%. 430,926
-------
Royalties receivable less unamortized
discount. 154,868
Less: Current Portion 375
-------
Total Long-Term Royalties Receivable $ 154,493
=======
Note 3 - Notes Receivable:
In 1993, the Company entered into a loan agreement with AWEC for the sum of
$100,000. This loan is non-interest bearing and due in 1998. With this
note, the Company has two(2) options. Option one maintains the Company
carry the note to maturity and receive face value. Option two gives the
Company the right to convert the outstanding note receivable into AWEC
common stock at fair market value. This right may be exercised at the
Company's option during 1997.
In 1996, the Company received notes from Bonsangue and Nocito companies in
the amounts of $30,000 and $5,000 respectively. Both notes are non-interest
bearing and are considered current. At May 31, 1997, Bonsangue has repaid
$10,500.
In 1997, the Company received a note from the Berkshire Group in the amount
of $20,000. This note is non-interest bearing and is within the next six
months. At May 31, 1997, the Berkshire Group has repaid $10,000.
F-8
<PAGE>
MEGA HOLDING CORP.
NOTES TO THE FINANCIAL STATEMENTS
Note 4 - Marketable, Securities:
As discussed in Note 1, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." At May 31, 1997, all of the
Company's marketable equity securities are classified as trading
securities; they were purchased with an intent to resell them within the
next year.
The current marketable securities represents an equity investment in
various corporations which the Company considers as trading securities. The
securities had an original cost of $116,488; determined by multiplying the
number of shares being purchased by the fair market value of those shares.
At the balance sheet date, the market value was $194,542; determined by
multiplying the number of shares held by the fair market value of those
shares at the balance sheet date. The difference between the cost and fair
market value represents an unrealized holding gain and is included in
current earnings.
Note 5 - Restricted Securities:
The Company owns various securities that are restricted by the Securities
and Exchange Commission from sale. These restricted securities are carried
at par value totaling approximately $15,000. The fair market value of the
restricted securities held at the balance sheet date is determined by the
cost basis of those securities. If there were no cost basis, the number of
shares multiplied by the given par value would be used.
Note 6 - Executive Compensation:
As president, Mr. Abate intermittently receives shares of stock as
compensation. At May 31, 1997, no non-cash compensation has been issued.
F-9
<PAGE>
MEGA HOLDING CORP.
NOTES TO THE FINANCIAL STATEMENTS
Note 7 - Commitments and Contingent Liabilities:
The Company is engaged in a three year lease for its office space in the
amount of $1,302 per month. This non-cancelable lease begins January 1,
1996 and expires December 31, 1998.
Future minimum lease payments are summarized as follows:
May 31, Amount
------- ------
1998 $ 15,624
1999 9,114
---- -------
Total $ 24,738
=======
Note 8 - Income Taxes:
As discussed in Note 1, the Company adopted the provisions of Statement of
Financial Standards (SFAS) No. 109 "Accounting for Income Taxes".
Implementation of SFAS 109 did not have a material cumulative effect on
prior periods nor did it result in a change to the current year's
provision.
A) The effective tax rate for the Company is reconcilable to statutory tax
rates as follows:
May 31,
1997
----
%
U.S. Federal Statutory Tax Rate 34
Valuation allowance for deferred tax
assets allocated to income tax expense (34)
----
Effective Tax Rate - 0 -
====
B) Deferred income taxes are provided for differences between financial
statement and income tax reporting. The principal difference is the manner
in which income is recognized for financial and income tax reporting
purposes.
F-10
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001027642
<NAME> Mega Holding Corp.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 8,346
<SECURITIES> 209,542
<RECEIVABLES> 330,396
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 84,249
<PP&E> 51,415
<DEPRECIATION> 32,556
<TOTAL-ASSETS> 567,143
<CURRENT-LIABILITIES> 8,760
<BONDS> 0
0
0
<COMMON> 36,150
<OTHER-SE> 450,065
<TOTAL-LIABILITY-AND-EQUITY> 567,143
<SALES> 139,040
<TOTAL-REVENUES> 151,790
<CGS> 73,422
<TOTAL-COSTS> 185,075
<OTHER-EXPENSES> 24,205
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (57,490)
<INCOME-TAX> 0
<INCOME-CONTINUING> (57,490)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (57,490)
<EPS-PRIMARY> (0.0159)
<EPS-DILUTED> (0.0159)
</TABLE>
