U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended November 30, 1997.
[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934.
For the transition period from to
Commission File Number: 001-12509
MEGA HOLDING CORP.
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(Exact name of registrant as specified in its charter
New York 13-2793653
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
278A New Dorp Lane, Staten Island, New York 10306
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Address of principal executive offices)
718-667-9117
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(Registrant's telephone number, including area code)
(Not Applicable)
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(Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark, whether the registrant:: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the 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 the number of shares outstanding of each of the issuer's classes
of stock as of the close of the period covered by this report.
Class Number of Shares Outstanding
Common Shares 3,615,000
Transitional Small Business Disclosure Format: Yes No x
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
The condensed financial statements for the periods ended November 30, 1997
included herein have been prepared by Mega Holding Corp. (the "Company"),
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (the "Commission"). In the opinion of management, the
statements include all adjustments necessary to present fairly the financial
position of the Company as of November 30, 1997, and the results of operations
and cash flows for the three month periods ended November 30, 1997 and 1998.
The Company's results of operations during the three months of the
Company's fiscal year are not necessarily indicative of the results to be
expected for the full fiscal year.
2
<PAGE>
MEGA HOLDING CORP.
BALANCE SHEET
NOVEMBER 30, 1997
ASSETS
Current Assets:
Cash $ 4,835
Accounts Receivable 46,979
Royalties Receivable (Note 2) 375
Notes Receivable (Note 3) 129,200
----------
Total Current Assets 181,389
----------
Property and Equipment
Office Equipment at Cost (Note 1) 66,664
Less: Accumulated Depreciation (41,368)
----------
Total Property and Equipment 25,296
----------
Investments and Other Assets:
Marketable Securities (Notes 1 & 4) 26,436
Restricted Securities - par value (Note 5 3,287
Royalties Receivable (Note 2) 154,493
----------
Total Investments & Other Assets 184,216
----------
Total Assets $ 390,901
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes Payable $ 1,500
Officer's Loan 4,600
----------
Total Current Liabilities 6,100
----------
Long - Term Liabilities:
Deferred Taxes (Note 7) 2,233
----------
Total Long - Term Liabilities 2,233
----------
Commitments and Contingent Liabilities (Note 6)
Stockholder's 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 (142,198)
----------
Total Stockholder's Equity 382,568
----------
Total Liabilities and Stockholders' Equity $ 390,901
==========
See accompanying notes to financial statements.
F - 2
<PAGE>
MEGA HOLDING CORP.
STATEMENT OF EARNINGS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1997
Net Sales $ 66,652
Cost Of Sales 26,018
----------
Gross Profit 40,634
----------
General and Administrative Expenses:
Commissions 11,391
Credit Reports 381
Depreciation 2,176
Dues 976
Miscellaneous 401
Office Expense 5,394
Payroll and Associated Costs 1,459
Rent 3,941
Telephone and Utilities 1,536
Travel and Entertainment 755
----------
Total Operating Expenses 28,410
----------
Earnings Before Unrealized Holding Loss on
Marketable Securities and Income Taxes 12,224
Unrealized Holding Loss on Marketable Securities (35,558)
----------
Loss Before Income Taxes (23,334)
----------
Provision For Income Taxes --
----------
Net Loss $ (23,334)
==========
Net Earnings/(Loss) Per Share:
Net Earnings/(Loss) $ (0.0065)
Weighted Average Number of Common Shares 3,615,000
See accompanying notes to financial statements.
F - 3
<PAGE>
MEGA HOLDING CORP.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1997
Cash Flow from Operating Activities:
Net Loss $ (23,334)
Adjustments To Reconcile Net Income To Net
Cash Used in Operating Activities:
Depreciation 2,176
Decrease in Accounts Receivable 4,692
Decrease in Payroll Taxes Payable (188)
----------
Total Adjustments 6,680
----------
Net Cash Used by Operating Activities (16,654)
Cash Flow From Investing Activities:
Decrease in Marketable Securities 5,329
----------
Net Cash Provided by Investing Activities 5,329
Cash Flow From Financing Activities:
Increase in Notes Payable 1,500
Decrease in Officer's Loan Payable (400)
----------
Net Cash Provided by Financing Activities 1,100
----------
Net Decrease in Cash (10,225)
Cash at the Beginning of the Period 15,060
----------
Cash at the End of the Period $ 4,835
==========
See accompanying notes to financial statements.
F - 5
<PAGE>
MEGA HOLDING CORP.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1997
Additional Total
September 1, 1997 Common Paid In Retained Stockholders'
To November 30, 1997 Stock Capital Deficit Equity
-------------------- ------ ---------- -------- -------------
September 1, 1997 $ 36,150 $ 488,616 $(118,864) $ 405,902
Net Loss (23,334) (23,334)
--------- --------- ---------- ----------
Total Stockholders'
Equity
As Of November 30, 1997 $ 36,150 $ 488,616 $(142,198) $ 382,568
========= ========= ========== =========
See accompanying notes to financial statements.
F - 4
<PAGE>
MEGA HOLDING CORP.
FOOTNOTES TO FINANCIAL STATEMENTS
Note 1 - Basis of Presentation and Significant Accounting Policies:
Mega Holding Corp. (the Company) was incorporated in New York York and
commenced business on March 31, 1970. The Company offers its services to
corporations seeking banking and investment banking relationships. The Company
charges fees for providing these services and, at times, earns equity interests
in these companies. Fees are also earned from clients desiring to go public
and/or raise capital. The Company is licensed and registered with the New York
State Banking Department as a mortgage broker from which activities it earns
fees. In addition, the Company receives royalties from Powderhorn Incorporated
(a subsidiary of Peabody Coal Company).
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. The recovery classifications
are five years for furniture and fixtures and for 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 mandates debt securities which the Company has both the
positive intent and ability to hold to maturity to be 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.
F - 5
<PAGE>
MEGA HOLDING CORP.
FOOTNOTES TO 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.
November 30,
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
=========
Due to the fact that Powderhorn is a substantial company and its prior
history in payment of like kind transactions, management of the Company 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. This note provides
the Company with two options. The first permits the Company carry the note to
maturity and receive face value. The second gives the Company the right to
convert the outstanding note receivable into AWEC common stock at fair market
value during 1998.
In 1996, the Company loaned money to and received notes from Bonsangue and
Nocito companies the amounts of $30,000 and $5,000 respectively. Both notes are
non-interest bearing and are considered current. At November 30, 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 November 30, 1997, the Berkshire Group has repaid $12,500.
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 November 30, 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. These
securities had an original cost of $55,960; determined by multiplying the number
of shares purchased by the fair market value of those shares. At November 30,
1997 the market value was $20,402, 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 loss and is included in current earnings.
F - 6
<PAGE>
Note 5 - Restricted Securities:
The Company owns various securities that are restricted by the Securities
Act of 1933 from public 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 of
subsidiaries as compensation. At November 30, 1997, no non-cash compensation had
been received.
Note 7 - Commitments and Contingent Liabilities:
The Company entered into lease for its office space calling for rent 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:
November 30, Amount
------------ ------
1998 $ 15,624
1999 2,604
---------
Total $ 18,228
=========
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:
November 30,
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 - 7
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Plan of Operation
Mega Holding Corp. (the Company) was incorporated in New York and commenced
business on March 31, 1970. The Company offers its services to corporations
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 a advisory services. Most of the
Company's clients use a combination of these services for which the Company
receives fees. 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 services, the Company
typically performs due diligence and assists the client in preparing business
plans, which plans include an analysis of the client's business and 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).
During this period the following developments have taken place:
On October 22, 1997, the Company was retained by Western American
Resources, Inc. for business consulting services. Western American Resources,
Inc., based in Houston, Texas, is in the oil and gas exploration business.
Southern Security Financial Corp. merged with Southern Security Bank Corp.
on November 11, 1997.
On November 26, 1997, the Company was retained by the Wall Street Coffee
Company for business consulting services. The Wall Street Coffee Company is a
Connecticut-based retailer of coffee and investment related items through a
chain of coffee shops with a "Wall Street" theme.
On December 1, 1997, a commercial mortgage loan for $2.0 million closed for
M.J.'s Supper Club located in Staten Island, New York. The loan was financed by
AT&T Capital Corporation. Mega acted as a broker for M.J.'s Supper Club.
On December 5, 1997, Mega was retained by RDM Holdings, Inc. for business
consulting services. RDM Holdings, Inc. is a marketing research and product
development firm located in Louisiana.
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."
3
<PAGE>
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 is anticipated to result increases in both the Company's mortgage
brokerage business and to a greater extent, in the Company's financial
consulting activities. This increase in activity, in turn is expected to
generate increased revenues and net profit, thereby reducing their effect on
cash used from operations and net income.
Results of Operation
During the three months ended November 30, 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 November 30, 1997 totaled $139,040
with an operating loss of $57,490. The Company expects revenues to increase
during the next three months which, if such expectation is realized, should
result in operating profits.
Management of the Company does not anticipate that the Year 2000 will
present any problems relating to its software programs or its business or
business relationships.
4
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
There are no legal proceedings. The Company is not aware of any threatened
legal proceedings to which it may be a party or to which its property may be
subject.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities.
Not applicable.
None.
Item 4. Submission of Matters to a Vote of Security-Holders.
Not applicable.
Item 5. Other Information
Not applicable.
Item. 6, Exhibits and Reports on Form 8-K.
No report on Form 8-K was filed with the Securities and Exchange commission
for the period covered by this report.
5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
MEGA HOLDING CORP.
(Registrant)
s/Thomas M. Abate
-----------------------
Thomas M. Abate,
President and Principal
Executive Officer
s/John M. Seroor
-----------------------
Treasurer and Principal
Financial Officer
Dated: January 12, 1998
6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
financial statements for the six month period ended November 30, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> NOV-30-1997
<CASH> 4,835
<SECURITIES> 29,723
<RECEIVABLES> 331,047
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 181,389
<PP&E> 66,664
<DEPRECIATION> 41,368
<TOTAL-ASSETS> 390,901
<CURRENT-LIABILITIES> 6,100
<BONDS> 0
0
0
<COMMON> 36,150
<OTHER-SE> 346,418
<TOTAL-LIABILITY-AND-EQUITY> 390,901
<SALES> 66,652
<TOTAL-REVENUES> 66,652
<CGS> 26,018
<TOTAL-COSTS> 54,428
<OTHER-EXPENSES> 35,558
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,224
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,224
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,334)
<EPS-PRIMARY> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
