SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 2054
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FORM 10KSB
[/] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the fiscal year ended August 31, 1997
Commission File Number: 333-16535
MEGA HOLDING CORP.
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(Name of Small Business Issuer in its charter )
New York 13-2793653
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(State or other Jurisdiction (IRS Employer Identification
of Incorporation or Organization) Number)
278A New Dorp Lane
Staten Island, New York 10306
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(Address of principal executive Offices) (Zip Code)
Issuer's telephone number: (718) 667-9117
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, $.01 par value per share
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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.
[x] Yes [ ] No
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [x]
State issuer's revenues for its most recent fiscal year $200,203.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days.
As of August 31, 1997, there were 1,171,431 shares of common stock held by
non-affiliates ("Shares") outstanding having an aggregate market value of $-0-.
Documents incorporated by reference:
None
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PART I
Item 1. Description of Business
General
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The Company has been in the mortgage brokerage business since 1987, has
been involved in providing business and financial consulting services since 1970
and retains a royalty interest in a coal mine that it acquired in 1973 and sold
in 1980.
Mortgage Brokerage
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Since 1987, the Company has been licensed by the New York State Banking
Department as a mortgage broker, dealing in both residential and commercial
mortgages. The Company also conducts commercial mortgage brokerage throughout
the United States on a co-brokerage basis with brokers who are licensed to do
business in such states. The Company's fees for its service as a mortgage broker
vary with each transaction. The fees are computed as a percentage (point) of the
amount of the mortgage. The number of points charged varies with each
transaction depending on a variety of factors such as, the applicant's credit,
value of the property and term and type of mortgage loan; and range from 1% of
the principal mortgage amount to 3% of the principal mortgage amount.
The Company uses a number of banks and other lending institutions to place
its mortgages, including Greenpoint Bank, Ford Consumer Finance and Republic
National Bank. These mortgages generally carry a fixed rate of interest and are
self-amortizing. For the fiscal years ended August 31, 1997 and 1996, the
Company generated revenues from mortgage brokerage activities of $-0- and $909,
respectively, all of which were generated from residential mortgages originated
in the State of New York. The principal amounts of the mortgages brokered during
the foregoing periods were $-0- and $345,450, respectively. The Company is
attempting to place a $2,000,000 mortgage for a client with a major credit
company and has received preliminary approval. If the mortgage closes, of which
there is no assurance, the Company would receive a commission of 2%.
The Company does not advertise its mortgage brokering services; rather, it
receives most of its business through referrals from professionals such as
attorneys and accountants.
Business and Financial Consulting Services
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The Company provides business and consulting services. 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 and the Company
receives fees for such services. The Company may refer clients to financial
institutions (banking and other lenders and/or investment institutions). 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 subsequently proceed to provide
acquisition or financing services to the client.
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In the process of providing financial consulting activities, the Company
typically performs due diligence and assists the client in preparing a business
plan, which plan would typically 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 break down of how funds from a potential private
placement of its securities will be used. The Company does not raise funds for
clients; however, the Company may refer clients to financial institutions such
as banking and other lenders and/or investment institutions.
Rule 504 Offerings.
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One method of financing recommended by the Company to clients who are
seeking to raise up to $1,000,000 is an offering of stock pursuant to the
exemption from registration under the Securities Act of 1933 (the "Act")
provided by Rule 504 of Regulation D under the Act. Under Rule 504, a company
that is not an investment company, a blank check company (i.e., a company that
has no specific business) or a company subject to the reporting requirements of
the Securities Exchange Act of 1934 (the "Exchange Act"), can raise up to
$1,000,000 through the sale of its securities in any 12 month period. Rule 504
does not require investors to purchase the stock with investment intent.
Accordingly, provided that a company sells its stock in one or more
jurisdictions that permit the sale without requiring investment intent on the
part of the investor, the shares can be sold to investors without resale
restrictions.
Consulting services provided by the Company with regard to Rule 504
offerings include educating the client on the availability, benefits and
restrictions of raising funds through the sale of stock under Rule 504 and
introducing the client to attorneys, accountants and underwriters. The Company
also assists the client in finding registered broker dealers to make a market in
the client's stock. For its services the Company may receive cash and/or shares
of the client's stock. The Company generally plans to spin-off some or all of
the shares transferred from such clients to its shareholders. Spin-offs require
registration under the Act (see "Spin-offs" below).
To date, the Company has provided consulting services to three companies
that have attempted to raise funds through Rule 504 offerings: Fleetclean
Systems, Inc. ("FSI"), DALUZ, Inc. ("DI") and Southeast Tire Recycling, Inc.
("STR").
FSI is a manufacturer and distributor of truck washing equipment and
chemicals. FSI, with the assistance of Castle Securities Corp., offered up to
150,000 shares of its Common Stock at a price of $5.00 per share on a "best
efforts only" basis. 20,000 shares were sold. That offering expired on May 20,
1997; however, FSI is in the process of determining whether to reopen this
offering. As of April 30, 1996, FSI had total assets of approximately $608,700,
total liabilities of approximately $483,500 and, for the four months then ended,
total revenues of approximately $312,000 and a profit of approximately $3,000.
FSI intends, upon completion of its financial statements to have its common
stock trade on the NASD Electronic Bulletin Board.
DI is a start-up marketing company with approximately $225,400 in total
assets as of October 31, 1996, that is marketing a self-help package of books,
video tapes and audio tapes based upon the book, "Psychic For Life Home Study
Program," written by James T. Weiss, DI's President. DI offered up to 150,000
shares of its Common Stock at a price of $5.00 per share on a "best efforts
only" basis. The offering closed on April 30, 1997. The Company sold 80,000
shares. The Company and DI have mutually terminated the Company's consulting
agreement.
STR is involved in collecting and processing used tires into useful
byproducts. STR, in a series of offerings under Rule 504 raised in excess of
$750,000. Application has been made by a market maker to have STR's common stock
trade on the NASD Electronic Bulletin Board.
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Reverse Acquisitions.
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The Company also has been involved in purchasing, selling and brokering
"shell" companies for reverse acquisitions. A shell company is a corporation
that, for one reason or another, no longer has substantive business operations,
but has many shareholders and issued and outstanding shares, many of which
shares are free trading or eligible to be free trading under Rule 144 of the
Act. In a reverse acquisition, the shareholders of a private corporation with an
existing or proposed business, exchange all of the shares of the private company
for a significant number (generally between 85% and 95%) of the shell company's
stock. In form, the shell company acquires 100% of the stock of the private
company but, in substance, the shareholders of the private company have acquired
control of the shell company. Reverse acquisitions are attractive to a private
company that is seeking a trading market for its securities without having to
undergo the time-consuming and costly process of filing a registration statement
with the Securities and Exchange Commission (the "Commission") and without
having to find an underwriter willing and capable of selling its shares to the
public. The trading market enhances the ability of the private company (now a
subsidiary of the shell company) to raise funds. Such funds are often raised
through Rule 504 offerings (see "Rule 504 Offerings" above).
Where the Company acquires control of a shell company, it purchases a
majority block of stock of the shell company from some or all of the shell
company's principal stockholders. The Company then "cleans up" the shell
company; it reviews and updates the company's corporate books, revives the
company's corporate charter (if voided) and, where necessary, files back tax
returns and pays any back taxes. Once the shell company has been cleaned up, the
Company seeks private companies for potential reverse acquisitions.
The Company finds shell companies and private companies seeking to effect
reverse acquisitions through the business contacts of its executive officers and
from professionals, primarily accountants.
During the fiscal years ended August 31, 1997 and 1996, the Company was
involved in the following four reverse acquisitions:
1. In April 1994, the Company was engaged by a foreign business consultant to
find, evaluate and perform due diligence on shell companies for reverse
acquisitions by the consultant's client companies. The Company located two
shell companies, Parkway Capital Corporation and Hiawatha Oil and Gas
Corporation (see paragraph numbers 2 and 5 below for information on
Hiawatha Oil and Gas Corporation). For its services, the Company received
fees of approximately $190,000. From these fees, the Company was required
to pay all the expenses, professional and otherwise, related to the reverse
acquisitions. The Company netted approximately $95,000 from these
transactions.
2. In September 1994, for $30,000, the Company received approximately 6% of
the shares of Parkway Capital Corporation, which changed its name to QCS
Corporation ("QCS"), acquired by the foreign business consultant. In
February 1995, QCS effected a reverse acquisition with QCS Development
Company S.A., a company in the business of catalogue computer software.
Following the reverse acquisition, the Company owned approximately 2.0% of
the outstanding shares of QCS. As of June 30, 1996, QCS, on a consolidated
basis, had total assets of approximately $2,607,000 and total liabilities
of approximately $1,325,000 and, for the year then ended, QCS had total
revenues of approximately $1,039,000 and a net loss of approximately
$2,712,000.
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3. In January 1995, the Company acquired approximately 52% of the outstanding
shares of Sherman Goelz & Associates, Inc., which changed its name to First
Nordic Equity Partners Corp. ("FNEP"), for $32,000. In May 1995, FNEP
effected a reverse acquisition with First Nordic Equity Partners Corp., a
company in the business of industrial machinery. Following the reverse
acquisition, the Company owned approximately 8.0% of the outstanding shares
of FNEP. The Company has no current financial information on FNEP.
4. In August 1995, the Company acquired approximately 51% of the outstanding
shares of Major League Enterprises Inc., which changed its name to ARXA
International Energy Inc. ("ARXA"), for $19,000. In November 1995, ARXA
effected a reverse acquisition with ARXA International Energy Inc., a
company in the business of oil and gas exploration. Following the reverse
acquisition, the Company owned approximately 5.5% of the outstanding shares
of ARXA. As of July 31, 1997, ARXA, on a consolidated basis, had total
assets of approximately $1,800,000 and total liabilities of approximately
$400,000 and, for the six months then ended, ARXA had total revenues of
approximately $25,000 and a net loss of approximately $264,000.
5. In January 1996, the Company acquired approximately 52% of the outstanding
shares of Hiawatha Oil and Gas Corporation, which changed its name to
Hiawatha Industry Internet Corporation ("HIIC"), for $40,000. In August
1996, HIIC effected a reverse acquisition with Hiawatha Industry Internet
Corporation, a company in the business of merchandising computer software.
Following the reverse acquisition, the Company owned approximately 5.0% of
the outstanding shares of HIIC. As of June 30, 1996, HIIC, on a
consolidated basis, had total assets of approximately $321,000, total
liabilities of approximately $701,000 and, for the nine months then ended,
HIIC had total revenues of approximately $104,000 and a net loss of
approximately $843,000.
Spin-Off Transactions.
----------------------
One of the potential problems with dealing with shell companies is the
inability to be completely certain that there are no undisclosed problems or
liabilities that may be inherited by the new shareholders of a private company
that acquires control of a shell company in a reverse acquisition. To alleviate
this potential problem and still provide a trading market for corporate clients,
the Company plans to do spin-off transactions. In a spin-off transaction, one
company ("Company A") acquires stock of another company ("Company B"). Company A
then distributes shares of Company B to Company A's shareholders. Assuming
Company A has a significant number of shareholders, following the spin-off
transaction, Company B will have a significant number of shareholders.
The Company's spin-off transactions are intended to be structured as
follows: For each transaction, the Company will create a new wholly-owned
subsidiary ("Subsidiary A"). Pursuant to a reverse acquisition, the private
company will become a wholly-owned subsidiary of Subsidiary A. As a result of
the reverse acquisition, the former shareholders of the private company will own
between 91% and 95% of Subsidiary A's issued and outstanding shares of Common
Stock and the Company will own between 5% and 9% of Subsidiary A's issued and
outstanding Common Stock. Thereafter, the Company will spin-off approximately
85% of its holding of Subsidiary A's stock to its stockholders, retaining
approximately 15% of its holdings of Subsidiary A's stock. In essence, the
Company anticipates retaining between approximately 1/2% and 3/4% of the Common
Stock of Subsidiary A after the Company makes its distribution to its
shareholders.
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Spin-off transactions will require registration under the Act. Accordingly,
before the Company can distribute the shares of Subsidiary A to its
shareholders, the Company will be required to file a registration statement with
the Commission and have the registration statement declared effective by the
Commission.
Before agreeing to conduct a spin-off transaction, the Company will conduct
standard due diligence on the private corporation, including a review of the
private company's corporate and tax records, material agreements, audited
financial statements and background of the private company's executive
management. The Company anticipates that it will not conduct spin-off
transactions with start-up companies unless they have substantial gross assets,
experienced management and a well-developed business plan.
The Company has completed one spin-off. Southern Security Bank Corp., a
bank holding company, was merged into Southern Security Financial Corp., formed
by the Company. Of the 256,088 issued shares of class "A" common stock of
Southern Security Financial Corp., prior to the merger, 161,516 shares
distributed to the Mega's shareholders as a dividend and 51,000 shares
transferred to the Company's management and consultants in lieu of cash
compensation and 43,572 shares were retained by Mega. Shareholders of the target
received 4,970,308 shares.
The Company has two spin-off candidates at present. The Company has formed
two Delaware corporations: Phoenix Energy Corp. and Western American Resources,
Inc. The Company has not spun-off any shares nor have either subsidiary combined
with a target company.
As a result of the foregoing activities, especially the proposed spin-off
transactions, the Company could be deemed to be an "underwriter" as that term is
defined under the Act. Under federal securities laws, other laws and court
decisions with respect to underwriters' liabilities and limitations on the
indemnification of underwriters, an underwriter is subject to substantial
potential liability for misstatements or omissions of material facts in
prospectuses and other communications with respect to offerings in which it is
deemed to have acted as an underwriter.
Korean Project.
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The Company, in conjunction with certain others (collectively,
"Consultants"), entered into an agreement ("YU Agreement") with YU Corporation
pursuant to which Consultants would provide management services related to a
proposed construction project in Korea. Consultants were instrumental in
introducing YU Corporation to Lehrer McGovern Bovis ("LMB"). YU Corporation, in
conjunction with Bovis International, Inc., an affiliate of LMB, has entered
into an agreement with the Korean Veterans Association, a Korean corporation,
pursuant to which YU Corporation will act as project manager for the
"Twenty-First Century United Freedom Bridge," a planned multi-use memorial to
the Korean-United States collaboration in resolving the Korean conflict. The
memorial, as currently proposed, will include a convention center, a 600 room
hotel, a sky tower and memorial, and a multi-purpose stadium.
Pursuant to the YU Agreement, for this introduction, the Consultants are
entitled to receive a consulting fee equal to one half of one percent of the
greater of the gross cost of the project or the gross amount of the working
charges covering all phases of the project. The Company is entitled to 25% of
any fee to be paid to Consultants. There is no assurance that this project will
be completed and that the Company will receive any consulting fee.
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Government Program Consulting
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The Company also assists clients in obtaining funding and other benefits
from federal and state programs. In this regard, the Company has been retained
by a power boat company to assist it in obtaining a credit line from the Rhode
Island Economic Development Corporation ("RIEDC"). RIEDC provides financing, tax
incentives, training grants and other benefits. The Company's fee will be
$10,000 and 2% of any credit line established. The Company also has been
retained by a hotel resort to assist it in obtaining a loan guarantee from the
Rural Economic and Community Development Business and Cooperative Services
("RECDBCS"), a Division of the United States Department of Agriculture. RECDBCS
provides business loan guarantee programs. The Company's fee will be $20,000 and
2% of any loan guarantee obtained for the hotel resort.
Colorado Coal Mine Royalties
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In 1973, the Company purchased a coal mine located in Palisade, Colorado.
In 1980, the Company disposed of its interest in the mine to Powderhorn
International, Inc. ("Powderhorn"), a professional mine operator, but retained a
royalty interest. In September 1994, a dispute with Powderhorn relating to the
royalty was resolved. As a result of such settlement, Powderhorn is required to
pay the Company additional royalties totaling $624,044 at the rate of $12,750
per annum, payable on January 1st of each year as a non-production royalty
through the year 2043. As of May 31, 1997, the balance of the additional
royalties totaled $585,794. In addition, the Company is to receive a royalty
("Production Royalties") of four and one-quarter cents ($.0425) per ton of coal
for each ton over 300,000 tons produced per year, which royalty is due and
payable in January of each year. During the fiscal years ended August 31, 1997
and 1996, respectively, the Company received Production Royalties of $-0- and
$2,914, respectively.
Competition
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The Company encounters significant competition in all aspects of its
business and competes directly with many other mortgage brokers, mortgage
companies, banks and investment banking and financial consulting firms, most of
which have significantly greater financial and personnel resources than the
Company and most of which are more widely known than the Company. Such other
companies may offer their clients a more extensive range of financial services,
have substantially greater financial resources and may have greater operating
efficiency than the Company. In addition, many of the companies with which the
Company competes are able to dedicate significant resources to advertising,
active solicitation of potential clients and distribution of investment research
publications. The Company also competes with a number of small and regional
mortgage brokers, mortgage companies, banks and investment firms which may offer
a wider range of services than the Company.
Marketing
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Business consulting and mortgage banking revenues and sales activities are
generated by the Company's executive officers through personal contacts. The
Company conducts no advertising. All its clients come from referrals from former
clients, from attorneys and accountants who have been involved in transactions
with the Company on behalf of clients or other brokers, and, from time to time,
from various banks with which the Company does business.
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Government Regulations
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Mortgage brokers are regulated on a state by state basis. As a mortgage
broker in the State of New York, the Company is licensed by the New York State
Banking Department. The Company is required to provide specific disclosures and
follow specific procedures with regard to all mortgage applicants. The Company
is also required to keep and maintain specific records of all mortgage
transactions. The Company is subject to periodic examination by the New York
State Banking Department to assure compliance with its requirements.
On residential loans, where the Company is not licensed in a particular
state and the loan is effected through a third party lender, the Company would
sign a referral co-broker agreement with the borrower. This agreement must be
fully disclosed to all parties. Commercial loans do not require licensing.
Management does not believe that the Company's business and financial
consulting activities require the Company to register as a broker-dealer under
federal or state securities laws because the Company does not believe that it
comes within the definition of either a "broker" or a "dealer" as those terms
are defined in the rules and regulations under the Exchange Act. The Company's
most significant activities are operating in an advisory capacity for
acquisitions, particularly reverse acquisitions, and arranging for customers'
financing, as opposed to actually raising the money for such customers. The
Company does not have a base of investors to whom it presents a customer as a
possible investment vehicle; rather, the Company may refer the customer to a
broker-dealer or other entity which may decide to raise the money for that
customer. For both services - advising on reverse acquisitions and referring
customers to capital-raising entities - the Company may receive fees consisting
of cash and/or stock. The Company believes that these activities, separately and
together, do not rise to the level of being either a broker or a dealer. The
Company is not a "broker" because it does not effect securities transactions for
the account of others in any manner. The Company is not a "dealer" because the
Company's activities consist of acting only as an advisor, and do not consist of
buying and selling securities in the traditional sense: any securities received
by the Company are received as a fee for services rendered as opposed to being
acquired.
If the Company were deemed to be a broker or a dealer it would be subject
to extensive regulation under federal and state laws. The principal purpose of
regulation and discipline of broker-dealers is the protection of customers and
the securities markets rather than protection of creditors and stockholders of
broker-dealers. The Commission is the federal agency charged with administration
of the federal securities laws. Much of the regulation of broker-dealers,
however, has been delegated to self-regulatory organizations, such as the
National Association of Securities Dealers, Inc. (the "NASD") and national
securities exchanges. The NASD most likely would be the Company's primary
self-regulatory organization if the Company were deemed to be a broker or a
dealer. These self-regulatory organizations adopt rules (which are subject to
approval by the Commission) which govern the industry and conduct periodic
examinations of member broker-dealers. Broker-dealers are also subject to
regulation by state securities commissions in the states in which they are
registered. The regulations to which broker-dealers are subject cover all
aspects of the securities business, including net capital requirements, sales
methods, trading practices among broker-dealers, capital structure of securities
firms, record keeping and the conduct of directors, officers and employees. The
Commission and the self-regulatory bodies may conduct administrative proceedings
which can result in censure, fine, suspension or expulsion of a broker-dealer,
its officers or employees. If the Company were deemed to be a broker or dealer
by the Commission or any state securities commission, the Company would not be
in compliance with requisite federal or state laws and regulations or the
regulations of self-regulatory bodies and the Company's business would be
materially and adversely affected.
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Employees
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As of August 31, 1997, the Company employed seven full-time employees at
its office located in Staten Island, New York consisting of five executives and
two staff members.
Seasonality
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The Company's business and revenues are determined by consummation of
contemplated transactions and, thus, are not seasonal.
History of the Company
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Mega Holding Corp. was incorporated in the State of New York under the name
"Serina-Denise Associates, Inc." on March 31, 1970 and changed its name to Mega
Holding Corp. in October 1973.
In November 1981, Real-Med Industries, Inc., a publicly held corporation,
acquired all of the Company's issued and outstanding shares in exchange for
Real-Med shares and changed its name to Mega Energy Corp. In May 1983, Mega
Energy Corp., changed its name to Megatron Holding Corp. ("Megatron"). In
February 1987, certain shareholders of Megatron returned 32% of their respective
shares of Megatron to Megatron, agreed to a 1-for-20 reverse stock split and, in
exchange for such shares, received an equivalent number of the Company's shares,
which Company shares represented all of the Company shares held by Megatron.
In June 1988, Interactive Businesses, Inc., a Delaware corporation
("Interactive") issued a total of 3,615,000 of its authorized but unissued
common shares to acquire all of the issued and outstanding shares of the
Company. Thereafter, certain shareholders of Interactive donated their
Interactive shares to Interactive's Treasury, and received in exchange
therefore, the equivalent number of shares of the Company held by Interactive,
representing 100% of Interactive's holdings in the Company.
Item 2. Description of Property
The Company maintains its principal executive offices at 278A New Dorp
Lane, Staten Island, New York in an approximately 1,300 square foot office
facility pursuant to a lease originally entered into in January, 1984, and
thereafter renewed periodically. The current renewal term expires on January 31,
1999. The annual rental is $8,400 per annum ($700 per month) plus tenant's
proportionate share of Real Estate Taxes and escalations for the subject
premises in the amount of $602.29 per month for a total annual rental of
$15,627.48.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
None.
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PART II
Item 5. Market For Common Equity and Related Stockholder Matters
As of August 31, 1997, there were approximately 279 holders of Common
Shares. The Common Shares have not and do not trade. On that date, there were
outstanding approximately 3,615,000 Shares of Common and -0- Preferred Shares.
The Company has not declared any cash dividends and does not expect to do
so in the foreseeable future. The Company has distributed stock dividends of the
stock of certain corporations of which it is a shareholder as follows:
Southeast Tire Recycling, Inc. 178,960 shares of common stock
Southern Security Financial Corp. 256,088 shares of common stock
Item 6. Management's Discussion and Analysis or Plan of Operation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
for the years ended August 31, 1997 and 1996
The matters discussed in this Management's Discussion and Analysis of
Financial Condition and Results of Operations contain forward-looking statements
that involve risks and uncertainties. The Company's actual results could differ
materially from those discussed here. Factors that could cause or contribute to
such differences include, but are not limited to, those discussed in the
sections entitled "Business" and " Risk Factors," as well as those discussed
elsewhere in this Annual Report on Form 10-KSB. The Company disclaims any intent
or obligation to update these forward-looking statements.
Fiscal Year Ended August 31, 1997 Compared to the Fiscal Year Ended August
31, 1996
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Revenues for the fiscal year ended August 31, 1997 decreased $459,509 or
68.3% when compared to the fiscal year ended August 31, 1996. During the fiscal
year ended August 31, 1997, the Company generated $200,258 (94.0%) from business
and financial consulting services and $12,750 (6.0%) from its mining royalty
interest. During the fiscal year ended August 31, 1996, the Company generated
$649,944 (96.6%) from business consulting services, $15,664 (2.3%) from its
mining royalty interest, and $6,909 (1.1%) from its mortgage brokering
activities.
Business and financial consulting service revenues decreased $449,686
primarily because the Company was concentrating its efforts on spin-off
companies rather than acquiring and reselling shell companies. In the early
stages of this transition, revenues will decrease before increasing again. The
mining royalties decreased between these periods by $2,914 (18.6%) due to the
extraction of coal was less than the agreed upon 300,000 tons. As a result, the
Company received no additional royalty revenues. Mortgage revenues also
decreased in the amount of $6,909 (100%) due to the current transitional period.
Cost of sales for the year ended August 31, 1997 increased by $6,375 (7.1%)
when compared to the year ended August 31, 1996. General and administrative
expenses however, decreased $84,510 (22.9%) for the fiscal year ended August 31,
1997 when compared to the fiscal year ended August 31, 1996 primarily due to a
decrease in commissions in the amount of $159,016. This decrease in commissions
is directly attributable to the decrease in revenues. Additionally, executive
compensation, office expense, taxes, payroll and related costs and professional
fees increased while travel and entertainment expenses decreased by $52,716
(87.1%); $10,858 (161.5%); $10,089 (577.8%); $6,658 (100%); $2,216 (58.6%) and
$4,600 (17.4%), respectively. While office expenses, payroll & related costs,
and professional fees increased as a result of continuing operations, taxes
increased due to penalties incurred on prior year's taxes. The increase in
executive compensation and the decrease in travel and entertainment expenses for
the same period were an indirect result of the current business transition
taking place.
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As a percentage of sales, cost of sales increased from 13.7% in fiscal 1996
to 48.3% in fiscal 1997, general and administrative expenses increased from
54.8% in fiscal 1996 to 141.8% in fiscal 1997, and commissions increased from
33.9% in fiscal 1996 to 34.5%. These percentage increases are attributable to
the Company showing lower revenues for the year ended August 31, 1997 as
compared to the year ended August 31, 1996; again resulting from the current
business transition occurring.
Marketable securities and restricted securities at August 31, 1997 both
decreased when compared to August 31, 1996 due to the sale and depreciation of
various securities during the fiscal year. Accordingly, the fiscal year ended
August 31, 1997 shows an unrealized holding loss whereas the fiscal year ended
August 31, 1996 showed an unrealized holding gain.
The Company has gained interest in other companies by acquiring shares of
such companies' stocks. The Company acquires these securities with the intent to
sell them within the next twelve months. The Company's marketable securities for
the year ended August 31, 1997 decreased $186,982 from the prior year. This
decrease is attributable to two factors: (1) the Company performed transactions
during the fiscal year whereto the result was a lower basis; and (2) those
securities remaining at August 31, 1997 depreciated in value to the extent that
the Company showed an unrealized holding loss of $41,127. Management classifies
these marketable securities as trading securities because the Company purchases
these securities principally for the purpose of selling them in the near term.
The securities are therefore reported on the balance sheet at fair market value
with any unrealized holding gains and losses included in current earnings.
As a result of the foregoing, the Company realized a net loss of $137,803
for the fiscal year ended August 31, 1997 compared to net income of $243,874 for
the fiscal year ended August 31, 1996.
Liquidity and Capital Resources
- -------------------------------
As of August 31, 1997, the Company's current assets exceeded its current
liabilities by $191,118; however, only $15,060 was cash with the remainder being
comprised of various receivables.
Historically, the Company has financed its operations through cash flow
from operations. Due to the current operating cash flow, the Company has no need
to maintain any external funding sources.
At August 31, 1997, the Company had no material commitments for capital
expenditures.
For the fiscal years ended August 31, 1997, 1996, and 1995, the value of
fees received by the Company in the form of stock was $113,216, $60,500, and
$29,000, respectively, of which $- 0 -, $10,000, and $10,000, respectively are
in stock which contain restrictive legends with regard to transfer. To date, the
amounts received in stock are minimal, thus having no material effect on the
Company's liquidity and overall financial position. In the future, the Company
plans to continue distributing to its shareholders most of the stock that it
receives in other entities. If the fees received are more so in the form of
stock than cash, and continue to be distributed to the Company's shareholders,
the Company's liquidity may be adversely affected. However, management
anticipates, but cannot assure, that the cash portion of fees received and the
proceeds from the sale of stock not distributed to the Company's shareholders
will be sufficient to meet the Company's anticipated cash flow needs. Where the
Company receives shares with restrictions on transfer, the Company will be
required to hold such shares indefinitely and will only be able to sell such
shares if and when the shares are registered on an exemption from registration
and it becomes available, and if and when a market for such securities develops.
Accordingly, such shares will not be able to be used to meet cash flow needs.
10
<PAGE>
At August 31, 1997 and August 31, 1996, royalties due from Powderhorn
represented 37.5% and 27.3% of the Company's total assets, respectively. Based
upon Powderhorn's prior history in payment of like kind transactions, management
believes that all royalties will be collected on a timely basis.
Item 7. Financial Statements
a. Balance Sheets at August 31, 1997 and 1996
b. Statements of Operations for the three years ended August 31, 1997,
1996 and 1995
c. Statements of Cash Flows for the three years ended August 31, 1997,
1996 and 1995
d. Statement of Stockholders' Equity for the three years ended August 31,
1997, 1996 and 1995
e. Notes to Financial Statements
11
<PAGE>
To the Board of Directors and Stockholders
of Mega Holding Corp.
We have audited the accompanying balance sheets of Mega Holding Corp. as of
August 31, 1997 and 1996, and the related statements of operations,
stockholders' equity, and cash flows for the years ended August 31, 1997, 1996
and 1995. These financial statements are the responsibility of Mega Holding
Corp.'s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the financial statements referred to
above present fairly, in all material respects, the financial position of Mega
Holding Corp. as of August 31, 1997 and 1996, and the results of their
operations, stockholders' equity, and their cash flows for the years ended
August 31, 1997, 1996 and 1995 in conformity with generally accepted accounting
principles.
McManus & Co., P.C.
Certified Public Accountants
Morris Plains, New Jersey
November 20, 1997
12
<PAGE>
MEGA HOLDING CORP.
BALANCE SHEETS
AUGUST 31, 1997 AND 1996
ASSETS
1997 1996
---- ----
Current Assets:
Cash $ 15,060 $ 4,682
Accounts Receivable 51,671 43,500
Royalties Receivable (Note 2) 375 343
Notes Receivable (Note 3) 129,200 35,000
---------- ---------
Total Current Assets 196,306 83,525
Property and Equipment:
Office Equipment at Cost (Note 1) 66,664 51,415
Less: Accumulated Depreciation (39,192) (31,360)
---------- ---------
Total Property and Equipment 27,472 20,055
Investments and Other Assets:
Marketable Securities (Note 4) 31,765 218,747
Notes Receivable (Note 3) -- 100,000
Restricted Marketable Securities (Note 5) 3,287 30,000
Royalties Receivable (Note 2) 154,493 154,868
---------- ---------
Total Investments & Other Assets 189,545 503,615
---------- ----------
Total Assets $ 413,323 $ 607,195
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ -- $ 6,257
Officer's Loan 5,000 --
Payroll Taxes Payable 188 --
---------- ----------
Total Current Liabilities 5,188 6,257
Long - Term Liabilities:
Deferred Taxes (Note 8) 2,233 57,233
---------- ----------
Total Long - Term Liabilities 2,233 57,233
Commitments and Contingent Liabilities (Note 7)
Stockholders' Equity:
Common Stock - $.01 par value
Authorized 20,000,000 shares
Issued 3,615,000 shares 36,150 36,150
Paid In Capital 488,616 488,616
Retained Earnings (118,864) 18,939
---------- ----------
Total Stockholders' Equity 405,902 543,705
Total Liabilities and Stockholders' Equity $ 413,323 $ 607,195
========== ==========
See accompanying accountant's report and notes to the financial statements.
13
<PAGE>
MEGA HOLDING CORP.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31, 1997, 1996 & 1995
1997 1996 1995
---------- --------- ----------
Net Sales $ 200,203 $ 659,767 $ 201,573
---------- --------- ---------
Cost Of Sales 96,794 90,419 39,408
---------- --------- ----------
Gross Profit 103,409 569,348 162,165
---------- --------- ----------
General and Administrative Expenses:
Advertising 27 500 552
Commissions 69,078 228,094 111,266
Depreciation 7,832 7,847 9,006
Dues and Subscriptions 275 275 275
Executive Compensation 113,216 60,500 29,000
Insurance 889 -- --
Licenses and Application Fees 671 1,153 74
Miscellaneous 3,860 7,611 8,793
Office Expense 17,580 6,722 10,954
Payroll and Related Costs 6,658 -- --
Professional Fees 6,000 3,784 24,779
Rent 14,348 15,765 5,714
Taxes 11,835 1,746 3,885
Telephone and Utilities 9,728 7,910 8,872
Travel and Entertainment 21,883 26,483 19,824
---------- --------- ----------
Total Operating Expenses 283,880 368,390 232,994
---------- --------- ----------
Earnings/(Loss) Before Gains on
Marketable Securities,
Other Income and Income Taxes (180,471) 200,958 (70,829)
Unrealized Holding Gain/(Loss)on
Marketable Securities (41,127) 102,334 --
----------- --------- ---------
Other Income:
Royalties Income 375 343 --
Interest Income - Royalties 12,375 12,407 --
Interest Income - Other 55 -- --
---------- --------- ----------
Total Other Income 12,805 12,750 --
---------- --------- ----------
Earnings/(Loss) Before Income Taxes (208,793) 316,042 (70,829)
Provision For Income Taxes (70,990) 72,168 --
---------- --------- ----------
Net Earnings/(Loss) $(137,803) $ 243,874 $ (70,829)
========== ========= ==========
Net Earnings/(Loss) Per Share:
Net Earnings/(Loss) $ (0.04) $ 0.07 $ (0.02)
Weighted Average Number of
Common Shares Outstanding 3,615,000 3,615,000 3,615,000
See accompanying accountant's report and notes to the financial statements.
14
<PAGE>
MEGA HOLDING CORP.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1997, 1996 and 1995
1997 1996 1995
--------- --------- ----------
Cash Flow from Operating Activities:
Net Income $(137,803) $ 243,874 $ (70,829)
Adjustments To Reconcile Net Income
To Net Cash Provided/(Used) In
Operating Activities:
Depreciation 7,832 7,847 9,006
Unrealized Holding Gain on
Marketable Securities 41,127 (102,334) --
(Increase)/Decrease in
Accounts Receivable (8,171) (43,500) 64,803
(Increase)/Decrease in
Royalties Receivable (Current) (32) (26) --
(Increase)/ Decrease in
Royalties Receivable (Long-term) 375 343 (155,528)
Increase/(Decrease)in Payroll Taxes Payable 188 -- --
Increase/(Decrease)in Accounts Payable (6,257) (2,743) 9,000
Increase/(Decrease)in Deferred Taxes (55,000) 57,233 (7,853)
--------- --------- ----------
Total Adjustments (19,938) (83,180) (80,572)
--------- --------- ----------
Net Cash provided/(used)by
Operating Activities (157,741) 160,694 (151,401)
Cash Flow from Investing Activities:
(Purchase)/Disposal of
Property, Plant & Equipment (15,249) (367) 66,933
(Increase)/Decrease in
Marketable Securities 145,855 (116,413) 814
(Increase)/Decrease in
Restricted Securities 26,713 (30,000) --
--------- --------- ----------
Net Cash provided/(used)
by Investing Activities 157,319 (146,780) 67,747
Cash Flow from Financing Activities:
Increase/(Decrease) in
Notes & Dividends Receivable 5,800 (35,000) --
(Increase)/Decrease in
Officer's Loan Payable 5,000 -- --
--------- --------- ----------
Net Cash provided/(used) by
Financing Activities 10,800 (35,000) --
--------- --------- ----------
Net Increase/(Decrease)in Cash 10,378 ( 21,086) (83,654)
Cash at the Beginning of the Year 4,682 25,768 109,422
Cash at the End of the Year $(15,060) $ 4,682 $ 25,768
See accompanying accountant's report and notes to the financial statements.
15
<PAGE>
MEGA HOLDING CORP.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 1997, 1996 and 1995
Additional Total
September 1, 1995 Common Paid In Retained Stockholders'
To August 31, 1997 Stock Capital Earnings Equity
- ------------------ ------ ---------- -------- -------------
August 31, 1994 $ 36,150 $ 488,616 $ (154,106) $ 370,660
Net Loss 1995 (70,829) (70,829)
--------- ---------- ----------- ----------
Total Stockholders' Equity
As Of August 31, 1995 36,150 488,616 (224,935) 299,831
Net Earnings 1996 243,874 243,874
--------- --------- ----------- ----------
Total Stockholders' Equity
As Of August 31, 1996 36,150 488,616 18,939 543,705
Net Loss 1997 (137,803) (137,803)
--------- --------- ----------- ----------
Total Stockholders' Equity
As Of August 31, 1997 $ 36,150 $ 488,616 $(118,864) $ 405,902
See accompanying accountant's report and notes to the financial statements.
16
<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 banking and investment banking relationships. The
Company charges a fee for these services and at times earns an equity interest
in these companies. Fees are also earned from clients that wish to go public
and/or raise capital. 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 to expense as incurred
whereas major improvements are capitalized.
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 expenditures 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.
17
<PAGE>
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.
Note 2 - Royalties Receivable: (continued)
August 31
1997 1996
---- ----
Royalties Receivable From Court Settlement:
Non-interest bearing receivable,
receivable in annual installments
of $12,750; due 2043. $ 585,794 $ 598,544
Less unamortized discount based
on imputed interest rate of 8%. 430,926 443,333
--------- ---------
Royalties receivable less unamortized
discount. 154,868 155,211
Less: Current Portion 375 343
--------- ---------
Total Long-Term Royalties Receivable $ 154,493 $ 154,868
========= =========
Due to the large nature of Powderhorn and its prior history in payment of
like kind transactions, management believes all royalties will be collected on a
timely basis.
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 August 31, 1997, Bonsangue has repaid
$13,300.
During 1997, the Company received a note from the Berkshire Group in the
amount of $20,000. This note is non-interest bearing and is due within the next
six months. At August 31, 1997, the Berkshire Group has repaid $12,500.
18
<PAGE>
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 August 31, 1997 and 1996, 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 $76,179 and $116,488 at August 31, 1997 and
1996, respectively; determined by multiplying the number of shares being
purchased by the fair market value of those shares. At the balance sheet dates
of August 31, 1997 and 1996, the market values were $35,052 and $218,747,
respectively; multiplying the number of shares held by the fair market value of
those shares at the respective balance sheet date. The difference between the
cost and fair market value represents an unrealized holding gain/loss 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 $3,287. 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. This non-cash compensation approximates $23,000; $60,500; and
$29,000; for the years 1997, 1996, and 1995 respectively. Although value has
been given to these securities, at the August 31, 1997 balance sheet date, a
portion of these securities were not being traded.
In addition to Mr. Abate, other officers/directors of the Company received
shares of common stock as compensation for the year ended August 31, 1997. This
non-cash compensation approximates $90,216. No non-cash compensation was issued
to any officers/directors aside from Mr. Abate for the years ended August 31,
1996 and 1995.
Note 7 - Commitments and Contingent Liabilities:
The Company is engaged in a three year lease for its office space in the
amount of $1,302.29 per month. This non-cancelable lease began January 1, 1996
and expires January 31, 1999.
Future minimum lease payments are summarized as follows:
August 31, Amount
---------- ---------
1998 $ 15,624
1999 6,510
---------
Total $ 22,134
=========
19
<PAGE>
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:
August 31,
1997 1996 1995
% % %
---- ---- ----
U.S. Federal Statutory Tax Rate 34 34 34
Valuation allowance for deferred tax
assets allocated to income tax expense (34) (11) (34)
---- ---- ----
Effective Tax Rate 0 23 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.
Note 9 - Subsequent Events:
Subsequent to August 31, 1997, the Company is scheduled to receive an
additional 100,000 shares of ARXA International Energy, Inc. common stock.
20
<PAGE>
Item 8. Changes in and Disagreement With Accountants
Not applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons:
Compliance with Section 16(a) of the Exchange Act
Directors and Officers
- -----------------------
The following sets forth the names of the Company's directors and officers.
Directors of the Company are elected annually by the shareholders and the
officers are appointed annually by the Board of Directors.
Name Age Position Since
- ---- --- -------- -----
Thomas M. Abate 60 President and a Director 1986
James D. Paulsen 58 Executive Vice President, 1991
Secretary and a Director
John M. Seroor 67 Treasurer and a Director 1994
John Catricola 52 Vice-President 1992
Silvio Codispoti 54 Senior Vice President 1991
Nancy Montanaro 24 Assistant Secretary 1995
THOMAS M. ABATE has been President and Director of the Company from its
inception and served as Chairman of the Board of Directors of Megatron Holding
Corp. (OTC) from 1983 to 1987. He was the Manhattan Area Manager of the U.S.
Treasury Department, SB Division from 1974 to 1984. Mr. Abate received a B.S. in
Finance from Wagner College.
JAMES D. PAULSEN has been Executive Vice President, Secretary and Director
of the Company since 1991, and has been associated with the Company from its
inception. He was an officer of AIG Risk Management, Inc. and American Home
Assurance Co. from 1977 to 1991. He is a graduate of The City University of New
York and The College of Insurance.
SILVIO CODISPOTI has been Senior Vice President of the Company since 1991.
From, 1961 to 1991, he was a Vice President, Commercial Lending with National
Westminster Bank, USA. Mr. Codispoti is a graduate of Bernard M. Baruch College
of the City University of New York where he earned an A.A.S. in Accounting and
B.B.A. in Finance.
JOHN CATRICOLA has served as a Vice President of the Company since 1992.
Since September, 1997, he serves as President of Olde Monmouth Capital Corp.
From 1985 to 1992, he was Vice President of Promote Personnel, Inc. He was
President of JAC Associates, Inc. from 1982 to 1985 and prior to 1982 he was
associated with various brokerage firms. Mr. Catricola is a graduate of The New
York Institute of Finance.
21
<PAGE>
NANCY MONTANARO has been Assistant Secretary of the Company since 1995.
From January, 1994 to January, 1995, she was an associate for Dean Witter
Reynolds on the trading floor of The New York Commodities Exchange.
JOHN M. SEROOR has been Treasurer & Director of the Company since 1994 and
has been associated with the Company since its inception. From 1963 to 1968 he
was a chemist for the Food and Drug Administration in Cincinnati, Ohio and
Brooklyn, New York, and from 1968 to 1994 he was a quality control supervisor
for Carter-Wallace, Inc. Mr. Seroor graduated from the University of Connecticut
where he earned a B.A. in Chemistry.
Item 10. Executive Compensation
The following table shows all the cash compensation paid by the Company as
well as certain other compensation paid during the fiscal years indicated, to
the Chief Executive Officer for such period in all capacities in which he
served. No other Executive Officer received total annual salary and bonus in
excess of $100,000.
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
Long Term Compensation
Annual Compensation Awards Payouts
- --------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted All
Name and Annual Stock Options LTIP Other
Principal Fiscal Salary Bonus Compen- Awards SARs Payouts Compen-
Position Year ($) ($) sation ($) (#) ($) sation
- ---------- ----- ------ ---- ------ ----- ------- ------ -------
Thomas M. 1997 (1) N/A N/A 0 0 0 0
Abate 1996 (2) N/A N/A 0 0 0 0
1995 (3) N/A N/A 0 0 0 0
(1) Consists of 50,000 shares of the common stock of ARXA at market value of
$2.25 per shares or a total of $112,500.
(2) Consists of 75,000 shares of QCS Corp. at fair market value $.50 per share;
46,000 shares of ARXA International Energy, Inc. at fair market value $.50
per share; 50,000 shares of Hiawatha Industries, Inc. (Restricted) no
market value.
(3) Consists of 20,000 shares of Capital Communications Corp. at fair market
value of $.50 per share; 40,000 shares of First Nordic Equity Partners
Corp. at fair market value $.10 per share; 30,000 shares of Republic
International Corp. at fair market value $.50 per share.
The amount of securities distributed to Mr. Abate has been, and will
continue to be, determined by the Company's Board of Directors.
22
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of August 31, 1997, the number and
percentage of shares of the common stock of the Company, owned of record and
beneficially, by each officer and directors of the Company and by any other
person owning more than 5% of the Company's outstanding common stock and by all
officers and directors as a group.
Shares of
Name and Address Common Stock Percentage(1)
- ----------------- ------------ ------------
Thomas M. Abate 1,173,405(1) 32.5%
231 Clarke Avenue
Staten Island, NY 10306
James D. Paulsen 367,000(2) 10.1%
511 East 80th Street
New York, NY 10021
T.G.J. & Associates 496,664(3) 13.7%
618 74th Street
Brooklyn, New York 11209
Emco Enterprises 230,000(4) 6.4%
1388 Paterson Plane Road
Secaucus, NJ 07094
Silvio Codispoti 127,000(5) 3.5%
115 Sylvia Street
Staten Island, NY 10312
John Catricola 140,000(6) 3.9%
79 Belfast Avenue
Staten Island, NY 10306
Nancy Montanaro 42,000(7) 1.2%
88 Rivington Avenue
Staten Island, NY 10314
John M. Seroor 102,500 2.8%
11 Emerson Road
Somerset, NJ 08873
All Officers and Directors
As a Group (6 Persons) 2,678,569(1) 74.1%
23
<PAGE>
1. Includes 100,000 shares as joint tenant with Renee Abate and 50,000 shares
in the name of Renee Abate, 15,000 shares as custodian for Amanda
Alexander, 15,000 shares as custodian for Megan Abate, 15,000 shares as
custodian for Samantha Alexander and 15,000 shares as custodian for James
Abate. Mr. Abate has sole investment power and sole voting power over these
shares.
2. Includes 25,000 shares as joint tenant with Judith Paulsen and 2,000 in the
name of Judith Paulsen. Mr. Paulsen has sole investment power and sole
voting power over these shares.
3. Of the Common Shares owned by TGJ Associates, 248,332 shares are
beneficially owned by Thomas Abate and 248,332 shares are beneficially
owned by James Paulsen. Messrs. Abate and Paulsen have shared investment
power and shared voting power of these shares. All of the shares of TGJ
beneficially owned by Messrs. Abate and Paulsen are included in the shares
owned by all officers and directors as a group.
4. Emco Enterprises is owned by Greg Marinelli.
5. Includes 500 shares as joint tenants with Dina Codispoti, 4,000 shares in
the name of Dina Codispoti, 500 shares as joint tenant with Dennis
Codispoti, 4,000 shares as joint tenant with Florence Codispoti and 4,000
shares in the name of Dennis Codispoti. Mr. Codispoti has sole investment
power and sole voting power over these shares.
6. Includes 65,000 shares in the name of Mary Catricola and 10,000 shares as
joint tenant with Mary Catricola. Mr. Catricola has sole investment power
and sole voting power over these shares.
7. Includes 5,000 shares as joint tenant with Paul T. Montanaro, 5,000 shares
in the name of Paul T. Montanaro and 2,000 shares as custodian for Paul R.
Montanaro. Mrs. Montanaro has sole investment power and sole voting power
over these shares.
Item 11. Certain Relationships and Related Transactions
-------------------------------------------------------
During the fiscal years ended August 31, 1997 and 1996, there were no
transactions, and there are no proposed transactions to which the Company was or
is to be a party in which any of its directors, executive officers, principal
shareholders or any member of the immediate family of any such person has or is
to have direct or indirect material interest.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, "hereunto duly authorized.
MEGA HOLDING CORP.
Dated: December 11, 1997 By: /s/ Thomas M. Abate
------------------------
Thomas M. Abate
President and Principal
Executive Officer
By: /s/John M. Seroor
-------------------------
John M. Seroor
Treasurer and Principal
Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule for 10KSB for the period ended August 31, 1997 for
Mega Holding Corp.
</LEGEND>
<S> <C>
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0
0
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