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, 1998
Commission File Number: 001-12509
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 $1,530,610.
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, 1998, there were approximately 1,123,681 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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Mega Holding Corp. (the "Company") has been a mortgage broker since 1987,
has provided 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
------------------
Since 1987, the Company has been licensed by the New York State Banking
Department as a mortgage broker. The Company deals in both residential and
commercial mortgages. The Company also conducts commercial mortgage brokerage
activities throughout the United States on a co-brokerage basis with brokers who
are licensed to do business in states other than New York. The Company's fees
for its service as a mortgage broker vary with each transaction. These fees are
computed as a percentage (each percentage point referred to as a "point") of the
amount of the mortgage. The number of points charged varies with each
transaction depending on a variety of factors, including, but not limited to,
the applicant's credit, value of property and term and type of mortgage loan.
Points range from 1% to 3% of the principal amount of the mortgage.
The Company places its mortgages with a number of banks and other lending
institutions, including Greenpoint Bank, Ford Consumer Finance and Republic
National Bank. Mortgages placed by the Company generally carry a fixed rate of
interest and are self-amortizing.
The Company does not advertise its mortgage brokering services, but rather
receives most of its business through referrals from professionals such as
attorneys and accountants.
Business and Financial Consulting Services
------------------------------------------
The Company provides business and consulting services, including advice on
the structure and conduct of private offerings of securities, mergers and
acquisitions and other strategic business areas. Most of the Company's clients
use a combination of these services and pay fees to the Company for rendering
such services. From time to time, the Company's fees are taken in the capital
stock of the client company or a combination of cash and stock. In addition, the
Company may begin a relationship with a client on an business advisory basis and
subsequently proceed to provide acquisition or financing services to the client.
In the process of providing financial consulting activities, the Company
performs due diligence and assists the client in preparing a business plan,
which typically includes 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 funds from a potential 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 banks and other
lenders and/or investment banks.
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Rule 504 Offerings
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One method of financing recommended by the Company to clients which are
seeking to raise up to $1,000,000 is an offering of stock pursuant to the
exemption from registration provided by Rule 504 ("Rule 504") of Regulation D
under the Securities Act of 1933 (the "Securities Act"). The Securities and
Exchange Commission (the "Commission") is considering proposals to modify Rule
504 so that the securities issued pursuant to an offering under Rule 504 would
not be freely tradable.
Under Rule 504, as presently constituted, 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 sales of its securities in any twelve 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 relating to Rule 504 offerings
include educating the client on its availability, benefits and restrictions and
introducing the client to attorneys, accountants and selling agents. The Company
also may assist its clients in finding registered broker dealers to make a
market in the clients' stock. The Company generally plans to spin-off some or
all of the shares transferred from such clients to its shareholders. Securities
spun-off to the Company's shareholders require registration under the Securities
Act (see "Spin-offs") below).
During the fiscal year ended August 31, 1998, the Company has provided
consulting services to four companies relating to Rule 504 offerings: Advanced
Lubrication Technologies, Inc., ("Advanced"), Ifield Technologies Ltd.
("Ifield"), Quantum Aviation International Ltd. ("Quantum") and Parkway
Technology Corporation ("Parkway"). Advanced owns a license to manufacture and
distribute synthetic automotive lubrication and engine additives. An offering
memorandum for Advanced has been finalized and is being distributed. Ifield
designs and manufactures high performance variable speed hydrostatic
pump/transmissions, using patented and proprietary technology. Quantum intends
to service a special niche within the airline industry, namely the acquisition
and refurbishment of pre-owned aircraft and the resale of aircraft to qualified
end users. Quantum is preparing an offering memorandum. Parkway is a subsidiary
of Mega Holding Corp. and is in a very preliminary stage of acquiring a European
- - based Company.
On August 28, 1998 Fleetclean Systems, Inc. was approved by the National
Association of Securities Dealers, Inc. ("NASD") to commence trading on the NASD
electronic bulletin board (the "Bulletin Board") under the trading symbol
"FLSY." Fleetclean is a manufacturer and distributor of truck washing equipment
and chemicals. The Company gave assistance to Fleetclean in its attempt to gain
approval from the NASD to trade on the Bulletin Board
3
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On April 30, 1998, Southeast Tire Recycling, Inc. ("Southeast") (which
traded on the Bulletin Board under the symbol "STHT") completed its merger with
Millennium Integration Technologies, Inc. On May 18, 1998, Southeast Tire
changed its name to Clearworks Technologies, Inc.("Clearworks") and changed its
trading symbol to "CLWK." Clearworks is a provider of information technology,
offering state of the art solutions for voice, data and video communications.
The Company gave assistance to Southeast on becoming a trading company,
introduced its management to Millennium and helped structure the merger.
Reverse Acquisitions
--------------------
The Company has also 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
Securities 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 or its business 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 or the business 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.
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 other professionals, primarily accountants.
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Spin-Off Transactions
---------------------
One of the potential problems 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
does 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, Company B will have a significant number of
shareholders following the spin-off transaction,.
The Company's spin-off transactions have generally been and are intended to
be structured in a standard pattern. For each transaction. the Company creates a
new wholly-owned subsidiary (the "Subsidiary"). Pursuant to a reverse
acquisition, the private company either becomes a wholly-owned subsidiary of the
Subsidiary or is merged into the Subsidiary. As a result of this "reverse
acquisition," the former shareholders of the private company would own between
91% and 95% of the Subsidiary's issued and outstanding shares of common stock
and the Company would own between 5% and 9% of the Subsidiary's issued and
outstanding common stock. Thereafter, the Company would spin-off to its
shareholders approximately 25-50% of its holdings of the Subsidiary's common
stock. In essence, the Company anticipates retaining between approximately 4%
and 7% of the common stock of the Subsidiary after the Company makes its
distribution to its shareholders.
Spin-off transactions require registration under the Securities Act.
Accordingly, before the shares of the Subsidiary distributed to the Company's
shareholders may trade, the Company must file a registration statement with the
Commission; and the registration statement must be 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 the 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.
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.
On November 11, 1997, a merger agreement was entered into between Southern
Security Financial Corp. a Mega Subsidiary, and Southern Security Bank Corp.
(SSBC) a Florida bank holding company. SSBC is in the process of completing a
private placement to expand its branch operations in Florida.
5
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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.
Korean Project
--------------
The Company, in conjunction with certain others entered into an agreement
with a Korean corporation pursuant to which it would provide management services
related to a proposed construction project in Korea. Due to adverse business
conditions in South Korea, the Company's activity in the Korean Project has been
terminated.
Government Program Consulting
-----------------------------
The Company also assists clients in obtaining funding and other benefits
from federal and state programs. In this regard, the Company was retained by a
power boat company to assist it in obtaining a credit line from the Rhode Island
Economic Development Corporation. The credit line has not been obtained and this
area of business has not developed.
Financial Consulting/Advisory Services
--------------------------------------
The Company entered into a consulting agreement with Eagle Wireless
International, Inc. wherein the company is providing certain consulting
activities which include financing, mergers and acquisitions.
The Company has entered into an agreement with South Beach Concepts, Inc.,
in which the Company is providing consulting services relating to the offering
of its securities and trading on the Bulletin Board.
The Company arranged for a $2.1 million dollar loan for a State Island -
based supper club for which the Company received a fee of $15,000.
A $661,000 loan was arranged by the Company for Brooklyn based physician
for which the Company received a fee of $13,220.
The Company is in early stage negotiations for the possible acquisition of
the business of a company involved in the manufacture and distribution of
security systems.
On September 30 1998 the Company formed Environmental Power Group, Inc., a
Delaware corporation, which is, at present, inactive.
6
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Colorado Coal Mine Royalties
----------------------------
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. Pursuant to the settlement of a dispute relating to the
royalties, 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 August 31,
1998, the unpaid balance of the additional royalties totaled $570,144. In
addition, the Company is to receive a royalty ("Production Royalties") of four
and one-quarter cents ($.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 year ended August 31, 1998, the Company received Production
Royalties of $2,900. In January, 1998, Powderhorn was acquired by Quaker Holding
Company, Inc. Coal production for 1998 has increased approximately 61% over the
1997 level.
Competition
-----------
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
---------
The Company conducts no advertising. Business consulting and mortgage
banking revenues and sales activities are generated by the Company's executive
officers through personal contacts and from referrals from former clients, and
from attorneys and accountants who have been involved in transactions with the
Company, and, from time to time, from various banks with which the Company does
business.
Government Regulation
---------------------
Mortgage brokers are regulated by the state in which they do business. 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
disclosure and follow specified procedures with regard to all residential
mortgage applicants. The Company is also required to keep and maintain 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.
7
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On residential loans in states where the Company is not licensed and the
loan is effected through a third party lender, the Company signs a referral
co-broker agreement with the borrower. This agreement must be fully disclosed to
all parties. Commercial loans do not require licensing.
The Company has not registered as a broker-dealer under either federal or
state securities laws with respect to its business and financial consulting
activities because its management does not believe that the Company 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 acting as advisor for acquisitions, particularly reverse
acquisitions, and arranging for clients' financing, as opposed to actually
raising money for its clients. The Company does not have a client base of
investors to whom it presents a customer as a possible investment vehicle;
rather, the Company may refer the client 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 is not a "broker" because it does not effect securities transactions for
the account of others in any fashion. 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 as any securities
received by the Company are received as a fee for services rendered as opposed
to being acquired from the issuer.
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 Securities and Exchange Commission (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 and 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
---------
As of August 31, 1998, the Company had seven full-time employees consisting
of five executives and two staff members at its office located in Staten Island,
New York.
Seasonality
-----------
The Company's business and revenues are determined by consummation of
contemplated transactions and, thus, are not seasonal.
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, 1998, 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
Fleetclean Systems, Inc. 300,000 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, 1998 and 1997
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, 1998 Compared to the Fiscal Year Ended August 31,
1997
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Revenues for the fiscal year ended August 31, 1998 increased $1,339,112 or
628.2% when compared to the fiscal year ended August 31, 1997. During the fiscal
year ended August 31, 1998, the Company generated $1,505,950 (97.0%) from
business and financial consulting services, $15,650 (1.0%) from its mining
royalty interest, and $30,520 (2.0%) from its mortgage brokering activities.
During the fiscal year ended August 31, 1997, the Company generated $200,258
(94.0%) from business consulting services, $12,750 (6.0%) from its mining
royalty interest, and $ - 0 - (- 0 -%) from its mortgage brokering activities.
Revenues from business and financial consulting services, mining royalties,
and mortgage services increased $1,305,692 (664.5%), $2,900 (22.7%), and $30,520
(100.0%), respectively. Business and financial consulting service revenues and
mortgage revenues increased due to increased activities in their respective
areas whereas mining royalties increased between these periods due to the
extraction of coal in excess of the base level of 300,000 tons.
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Cost of sales and general and administrative expenses have both increased
for the year ended August 31, 1998 when compared to the fiscal year ended August
31, 1997 by $149,575 (154.5%) and $22,064 (7.8%), respectively. The increase in
cost of sales is directly attributable to an increase in revenues. Additionally,
commissions, office expense, payroll and related costs, and depreciation
increased whereas executive compensation, taxes, and travel and entertainment
decreased by $39,295 (56.9%); $4,951 (28.2%); $2,470 (37.1%); $4,668 (59.6%);
$24,600 (21.7%); $10,556 (89.2%); and $9,324 (42.6%), respectively. While the
changes in office expenses, payroll and related costs, travel and entertainment,
and depreciation are a result of continuing operations, the change in
commissions is attributable to an increase in revenues. Executive compensation,
however, decreased as a result of the Company issuing property dividends in the
form of investment stocks to its shareholders compared to its officers and
directors whereas the decrease in taxes is attributable to penalties paid during
fiscal 1997 incurred in prior periods.
As a percentage of sales, cost of sales decreased from 48.37% in fiscal
1997 to 16.1% in fiscal 1998, general and administrative expenses decreased from
141.8% in fiscal 1997 to 20.0% in fiscal 1998, and commissions decreased from
34.5% in fiscal 1997 to 7.1%. These percentage decreases are attributable to the
Company showing higher revenues for the year ended August 31, 1998 as compared
to the year ended August 31, 1997 from the business strategy of concentrating
its efforts on spin-off companies rather than acquiring and re-selling shell
companies.
Marketable securities and restricted securities at August 31, 1998 both
increased when compared to August 31, 1997 due to the acquisition of various
securities during the fiscal year and due to the conversion of a note receivable
into common stock (currently restricted), respectively, during the fiscal year.
Accordingly, the fiscal years ended August 31, 1998 and August 31, 1997 show
unrealized holding losses (below earnings and included in earnings),
respectively.
The Company has gained interest in other companies by acquiring shares of
such companies' stocks. The Company acquires these securities as compensation
for its business and consulting services. The Company's marketable securities
for the year ended August 31, 1998 increased $722,670 from the prior year. This
increase is primarily attributable to the Company having a profitable year.
Prior to September 1, 1997, management had classified these marketable
securities as trading securities because the Company had acquired them with the
intent of reselling them in the near future. The securities were therefore
reported on the balance sheet at fair market value with any unrealized holding
gains and losses included in current earnings. For the fiscal year ended August
31, 1997, this resulted in a $41,127 unrealized holding loss. During the fiscal
year ended August 31, 1998, management has changed its position on how to carry
these marketable securities; rather than classifying them as trading securities,
management has elected to treat these securities as available-for-sale which
requires a separate valuation account on the balance sheet to bring these
securities to their fair market value with the offset being shown as an
unrealized holding gain or loss below net earnings of the statement of
operations. For the year ended August 31, 1998, the Company showed an unrealized
holding loss of $97,661 (net of tax).
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As a result of the foregoing, the Company realized net income of $448,735
and a net comprehensive income of $351,074 for the fiscal year ended August 31,
1998 compared to a net loss of $243,874 for the fiscal year ended August 31,
1997. There was, however, no comprehensive income or loss for the fiscal year
ended August 31, 1997.
Liquidity and Capital Resources
- -------------------------------
As of August 31, 1998, the Company's current assets exceeded its current
liabilities by $22,690; however, only $19,612 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, 1998, the Company had no material commitments for capital
expenditures.
For the fiscal years ended August 31, 1998, 1997, and 1996, the value of
fees received by the Company in the form of securities was $1,416,090, $113,216,
and $60,500, respectively, of which $- 0 -, $- 0 -, and $10,000, respectively
were in stock which contain restrictive legends with regard to transfer. During
the fiscal year ended August 31, 1998, the amounts received in stock are
increasing. However, due to the unrestricted nature of these securities, this
method of compensation has no material effect on the Company's liquidity and
overall financial position. In the future, the Company plans to continue
distributing to its shareholders the majority of the securities that it receives
in other entities. If the fees received are more in the form of securities 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 securities 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 becomes
available, and if and when a market for such securities develops. Accordingly,
such shares will not be able to be used to meet current cash flow needs.
At August 31, 1998 and August 31, 1997, royalties due from Quaker Holding
Company, Inc., formerly from Powderhorn International, Inc., represented 6.5%
and 37.5% of the Company's total assets, respectively. Based upon Quaker's prior
history in payment pursuant to the royalty agreement, management believes that
all royalties will be collected on a timely basis for the foreseeable future.
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Item 7. Financial Statements
a. Balance Sheets at August 31, 1998 and 1997
b. Statements of Operations for the three years ended August 31, 1998,
1997 and 1996
c. Statements of Cash Flows for the three years ended August 31, 1998,
1997 and 1996
d. Statement of Stockholders' Equity for the three years ended August 31,
1998, 1997 and 1996
e. Notes to Financial Statements
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Independent Accountant's Report
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, 1998 and 1997, and the related statements of operations,
stockholders' equity, and cash flows for the years ended August 31, 1998, 1997
and 1996. 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 audit, the financial statements referred to
above present fairly, in all material respects, the financial position of Mega
Holding Corp. as of August 31, 1998 and 1997, and the results of their
operations, stockholders' equity, and their cash flows for the years ended
August 31, 1998, 1997 and 1996 in conformity with generally accepted accounting
principles.
McManus & Co., P.C.
Certified Public Accountants
Morris Plains, New Jersey
November 17, 1998
14
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MEGA HOLDING CORP.
BALANCE SHEET
AUGUST 31, 1998 AND 1997
ASSETS
1998 1997
---- ----
Current Assets:
Cash $ 19,612 $ 15,060
Accounts Receivable 12,810 51,671
Royalties Receivable (Note 2) 376 375
Notes Receivable (Note 3) 28,200 129,200
---------- ----------
Total Current Assets 60,998 196,306
Property and Equipment:
Office Equipment at Cost (Note 1) 69,793 66,664
Less: Accumulated Depreciation (51,692) (39,192)
---------- ----------
Net Property and Equipment 18,101 27,472
Investments and Other Assets:
Deferred Tax Asset (Note 9) 96,740 --
Marketable Securities (Notes 1 & 4) 754,435 31,765
Marketable Securities -
Valuation Allowance to FMV (194,401) --
Restricted Marketable Securities (Note 5) 109,124 3,287
Royalties Receivable (Note 2) 154,116 154,493
---------- ----------
Total Investments & Other Assets 920,014 189,545
---------- ----------
Total Assets $ 999,113 $ 413,323
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accrued Expenses $ 11,432 $ --
Officer's Loan 26,500 5,000
Payroll Taxes Payable 376 188
---------- ----------
Total Current Liabilities 38,308 5,188
Long - Term Liabilities:
Deferred Taxes (Note 9) 515,345 2,233
---------- ----------
Total Long - Term Liabilities 515,345 2,233
Commitments and Contingent Liabilities (Note 8)
Stockholders' Equity:
Common Stock - $.01 par value
Authorized 20,000,000 shares
Issued 3,630,250 shares 36,303 36,303
Paid In Capital 488,463 488,463
Retained Earnings (79,306) (118,864)
---------- ----------
Total Stockholders' Equity 445,460 405,902
---------- ----------
Total Liabilities and Stockholders' Equity $ 999,113 $ 413,323
========== ==========
See accompanying accountant's report and notes to the financial statements.
15
<PAGE>
MEGA HOLDING CORP.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31, 1998, 1997 & 1996
1998 1997 1996
---- ---- ----
Net Sales $1,530,610 $ 200,203 $ 659,767
Cost Of Sales 246,369 96,794 90,419
Gross Profit 1,284,241 103,409 569,348
General and Administrative Expenses:
Advertising 1,982 27 500
Commissions 108,373 69,078 228,094
Dues and Subscriptions 2,463 275 275
Education/Seminars 1,100 -- --
Executive Compensation 88,616 113,216 60,500
Insurance 2,667 889 --
Licenses and Application Fees 579 671 1,153
Miscellaneous 2,914 3,860 7,611
Office Expense 22,531 17,580 6,722
Payroll and Related Costs 9,128 6,658 --
Postage 4,092 -- --
Professional Fees 10,000 6,000 3,784
Rent 15,765 14,348 15,765
Taxes 1,279 11,835 1,746
Telephone and Utilities 9,396 9,728 7,910
Travel and Entertainment 12,559 21,883 26,483
Depreciation 12,500 7,832 7,847
Total Operating Expenses 305,944 283,880 368,390
Earnings/(Loss) Before Gains/(Loss)
on Marketable Securities, Other
Income, Income Taxes, and
Comprehensive Income (net of taxes) 978,297 (180,471) 200,958
Loss on Sale of Marketable
Securities (37,960) -- --
Unrealized Holding Gain/(Loss)
on Marketable Securities (Note 4) -- (41,127) 102,334
Other Income:
Royalties Income 3,275 375 343
Interest Income - Royalties 12,375 12,375 12,407
Interest Income - Other 5,860 55 --
Total Other Income 21,510 12,805 12,750
Earnings/(Loss) Before Income Taxes 961,847 (208,793) 316,042
Provision For Income Taxes 513,112 (70,990) 72,168
Net Earnings/(Loss) 448,735 (137,803) 243,874
Comprehensive Income, net of taxes:
Unrealized Holding Loss (Note 4) (97,661) -- --
Comprehensive Income $ 351,074 $(137,803) $ 243,874
Net Earnings/(Loss) Per Share:
Net Earnings/(Loss) - net income $ 0.12 $ (0.04) $ 0.07
Net Earnings/(Loss) -
comprehensive income $ 0.10 $ (0.04) $ 0.07
Weighted Average Number of
Common Shares Outstanding 3,630,250 3,630,250 3,630,250
See accompanying accountant's report and notes to the financial statements.
16
<PAGE>
MEGA HOLDING CORP.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1998, 1997 & 1996
1998 1997 1996
---- ---- ----
Cash Flow from Operating Activities:
Net Income/(Loss) $ 448,735 $(137,803) $ 243,874
Adjustments To Reconcile Net Income/
(Loss) To Net Cash Provided/(Used)
In Operating Activities:
Depreciation 12,500 7,832 7,847
Unrealized Holding (Gain)/Loss on
Marketable Securities Trading -- 41,127 (102,334)
Unrealized Holding Gain/(Loss) on
Marketable Securities-AFS (97,661) -- --
(Increase)/Decrease in Marketable Securities (722,670) 145,855 (116,413)
(Increase)/Decrease in Marketable Securities
- Valuation Allowance 194,401 -- --
(Increase)/Decrease in Notes Receivable 100,000 -- --
(Increase)/Decrease in Restricted Securities (100,000) -- --
Property Dividends (311,516) -- --
(Increase)/Decrease in Accounts Receivable 38,861 (8,171) (43,500)
(Increase)/Decrease in Royalties Receivable
(Current) (1) (32) (26)
(Increase)/Decrease in Royalties Receivable
(Long-term) 377 375 343
(Increase)/Decrease in Deferred Tax Asset (96,740) -- --
Increase/(Decrease)in Accounts Payable 11,432 (6,257) (2,743)
Increase/(Decrease)in Payroll Taxes Payable 188 188 --
Increase/(Decrease)in Deferred Tax Liability 513,112 (55,000) 57,233
Total Adjustments (457,717) 125,917 (199,593)
Net Cash Provided/(Used) by
Operating Activities (8,982) (11,886) 44,281
Cash Flow from Investing Activities:
(Purchase)/Disposal of Property, Plant
& Equipment (3,129) (15,249) (367)
(Increase)/Decrease in Notes Receivable 1,000 5,800 (35,000)
(Increase)/Decrease in Restricted Securities (5,837) 26,713 (30,000)
Net Cash Provided/(Used) by Investing Activities (7,966) 17,264 (65,367)
Cash Flow from Financing Activities:
Increase/(Decrease) in Officer's Loan Payable 21,500 5,000 --
Net Cash Provided/(Used)by Financing Activities 21,500 5,000 --
Net Increase/(Decrease)in Cash 4,552 10,378 (21,086)
Cash at the Beginning of the Year 15,060 4,682 25,768
Cash at the End of the Year $ 19,612 $ 15,060 $ 4,682
Additional Disclosure of Operating Cash Flow
Cash paid during the year ended August 31, 1998
Tax Expense . . . . . . . . $ 1,279
See accompanying accountant's report and notes to the financial statements.
17
<PAGE>
MEGA HOLDING CORP.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 1998, 1997 & 1996
Additional Total
September 1, 1996 Common Paid In Retained Stockholders'
To August 31, 1998 Stock Capital Earnings Equity
- ------------------ ------ ---------- -------- -------------
August 31, 1995 $ 36,303 $ 488,463 $(224,935) $ 299,831
Net Earnings 1996 243,874 243,874
--------- --------- ---------- ----------
Total Stockholders' Equity
As Of August 31, 1996 36,303 488,463 18,939 543,705
Net Loss 1997 (137,803) (137,803)
--------- --------- ---------- ----------
Total Stockholders' Equity
As Of August 31, 1997 36,303 488,463 (118,864) 405,902
Dividends (311,516) (311,516)
Net Earnings 1998 448,735 448,735
Unrealized Holding Loss (97,661) (97,661)
--------- --------- ---------- ----------
Total Stockholders' Equity
As Of August 31, 1998 $ 36,303 $ 488,463 $ (79,306) $ 445,460
See accompanying accountant's report and notes to the financial statements.
18
<PAGE>
MEGA HOLDING CORP.
NOTES TO THE FINANCIAL STATEMENTS
Note 1 - Basis of Presentation and Significant Accounting Policies:
Mega Holding Corp. (the Company) was incorporated as a New York corporation
and commenced business on March 31, 1970. The Company offers its services to
corporations 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 advice to 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 Quaker Holding Company, Inc.,
formerly Powderhorn International, Inc., located in Prestonsburg, Kentucky.
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 that 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
trading are reported in earnings. Unrealized holding gains and losses on
securities classified as available-for-sale were previously carried as a
separate component of stockholders' equity. SFAS No. 115, as amended by
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 130, "Other Comprehensive Income." Management determines the
appropriate classification of marketable equity and debt securities at the time
of purchase an re-evaluates such designation as of each balance sheet date.\
19
<PAGE>
Note 1 - Basis of Presentation and Significant Accounting Policies: (continued)
C) Other Comprehensive Income
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Other Comprehensive Income," effective
for fiscal years beginning after December 15, 1997. This statement considers the
presentation of unrealized holding gains and losses attributable to debt and
equity securities classified as available-for-sale. As stated, any unrealized
holding gains or losses affiliated to these securities are carried below net
income under the caption "Other Comprehensive Income."
D) Revenue Recognition
The Company recognizes revenues at the point in time when the stock in the
newly formed company is sold.
E) Cost of Sales
The cost of sales consist wholly of those expenditures accumulated when
acquiring the original company.
F) 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.
G) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumption that affect the reported amounts of assets and liabilities and
disclosure of contingent asset and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
H) Advertising
All advertising costs are expensed as incurred. The Company does not incur
any cost for direct-response advertising.
20
<PAGE>
Note 1 - Basis of Presentation and Significant Accounting Policies: (continued)
I) Net Earnings/(Loss) Per Common Share
Net earnings/(loss) per common share is shown as both basic and diluted.
Basic earnings per common share are computed by dividing net income less any
preferred stock dividends (if applicable) by the weighted average number of
shares of common stock outstanding. Diluted earnings per common share are
computed by dividing net income less any preferred stock dividends (if
applicable) by the weighted average number of shares of common stock outstanding
plus dilutive potential common shares.
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.
August 31
1998 1997
---- ----
Royalties Receivable From Court Settlement:
Non-interest bearing receivable,
receivable in annual installments
of $12,750; due 2043. $ 573,044 $ 585,794
Less unamortized discount based
on imputed interest rate of 8%. 418,552 430,926
Royalties receivable less unamortized
discount. 154,492 154,868
Less: Current Portion 376 375
Total Long-Term Royalties Receivable $ 154,116 $ 154,493
======= =======
Due to the large nature of Quaker Holding Company, Inc. 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 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, 1998, 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 considered current.
At August 31, 1998, the Berkshire Group has repaid $13,500.
21
<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" and Statement of Financial Accounting
Standards (SFAS) No. 130, "Accounting for Other Comprehensive Income." At August
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 investment in various
corporations which the Company considers as trading securities. The securities
had an original cost of $76,179 at August 31, 1997; determined by multiplying
the number of shares being purchased by the fair market value of those shares.
At the balance sheet date of August 31, 1997 the market value was $35,052;
determined by 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.
During the year ended August 31, 1998, however, management has reclassified
all marketable securities to be treated as available-for-sale. During the
transfer of securities from trading to available-for-sale, no adjustment is
necessary due to the fact that any gain or loss has previously been recognized
in income.
At August 31, 1998, the securities had an original basis of $711,047;
determined by multiplying the number of shares being acquired by the fair market
value of those shares. At the August 31, 1998 balance sheet date, the fair
market value of these securities was $516,646; 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 below current earnings in "Other
Comprehensive Income." This unrealized holding loss of $194,401 is reported on
the balance sheet as a marketable security valuation allowance whereas the
statement of operations carries this loss net of $96,740 tax.
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.
Additionally, the Company has converted a note receivable due from Capitol
Communities Corp. (formerly AWEC) into 55,000 shares of common stock. Based upon
the lack of a readily available market for these shares, the Company has agreed
to carry these securities with a legend; thus making it restricted from sale.
22
<PAGE>
Note 6 - Executive Compensation:
As president, Thomas Abate intermittently receives shares of stock as
compensation. This non-cash compensation approximates $24,375; $23,000; and
$60,500; for the years 1998, 1997, and 1996 respectively. Additionally, the
Company has issued a property dividend. Mr. Abate's portion consists of 35,000
and 79,835 shares of Southern Security Financial Corp. and Fleetclean Systems,
Inc., respectively, common stock. These property dividends had an approximate
value of $74,918. Although value has been given to these securities, at the
August 31, 1998 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 years ended August 31, 1998,
1997, and 1996. This non-cash compensation approximates $62,241, $90,216, and $
- - 0 -. Additionally, the Company has issued a property dividend to other
officer/directors consisting of 21,633 and 45,578 shares of Southern Security
Financial Corp. and Fleetclean Systems, Inc., respectively, common stock. These
property dividends had an approximate value of $44,422.
Note 7 - Warrants:
During January 1998, the Company entered into a consulting agreement with
Eagle Wireless International, Inc. (Eagle), a supplier of telecommunications
equipment and related software sold by service providers in the paging and other
wireless personal communications markets. In consideration of the services to be
performed by the Company, the Company has received one million three hundred
thousand (1,300,000) warrants.
Each warrant gives the Company the right to acquire one share of Eagle
common stock. The warrants, currently restricted with a legend, are comprised of
seven classes containing various exercise prices and periods as shown below:
Shares Exercise Average Stock
Exercise Underlying Period Stock Days
Class Price Warrants (Years) Price Traded
----- -------- ---------- --------- ------- ------
A $ 1.50 150,000 1 $ 4.00 61
B 2.00 150,000 1 5.50 61
C 3.00 200,000 2 7.50 61
D 5.00 200,000 3 10.00 31
E 7.00 200,000 3 12.00 31
F 9.00 200,000 5 14.00 31
G $ 11.00 200,000 5 $ 16.00 31
23
<PAGE>
In order for any warrants to be exercisable, an average stock price must be
attained for consecutive days traded as noted above. Any and all warrants not
exercised during the allocated time period shall become null and void.
Note 8 - 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
---------- ------
1999 $ 6,510
Total $ 6,510
=======
Note 9 - 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,
1998 1997 1996
% % %
---- ---- ----
U.S. Federal Statutory Tax Rate 34 34 34
Valuation allowance for deferred tax
assets allocated to income tax expense 21 (34) (11)
----- ----- -----
Effective Tax Rate 53 - 0 - 23
=== === ===
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 10 - Dividends:
During the fiscal year, the board of directors declared and paid property
dividends to its common shareholders. These dividends were comprised of shares
of common stock which had been received as compensation by the Company for its
assistance in taking Southern Security Financial Corp. and Fleetclean Systems,
Inc. public. Thus, allowing them the immediate opportunity to become tradable on
the NASD Electronic Bulletin Board. The issuances consisted of one hundred
sixty-one thousand five hundred sixteen (161,516) common shares of Southern
Security Financial Corp. and three hundred thousand (300,000) common shares of
Fleetclean Systems, Inc. The combined approximate value of these property
dividends is $311,516.
24
<PAGE>
Note 11 - Risk Factors:
At August 31, 1998, the majority of the Company's business activity
consists of assisting companies to become publicly traded. In doing so, the
Company receives compensation generally in the form of stock. If the stock
market should take a severe down-turn in small company stocks, there is the
potential that this would have an adverse affect on the Company's future cash
flows. Although this risk exists, it is management's belief that its other
consulting activities would provide the necessary cash flow to continue its
operating activities.
Note 12 - Subsequent Events:
Subsequent to August 31, 1998, the Company is scheduled to receive an
additional 20,000 shares of ARXA International Energy, Inc. common stock. These
shares are currently under restriction which is expected to be lifted in the
near future.
Additionally, in September 1998, the Company has executed a subscription
agreement for one hundred thousand (100,000) shares of common stock of
Fleetclean Systems, Inc. This agreement has been given in consideration of
financial consulting services to be performed by the Company.
Item 8. Changes in and Disagreement With Accountants
Not applicable.
25
<PAGE>
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 61 President and a Director 1986
James D. Paulsen 59 Executive Vice President, 1991
Secretary and a Director
John M. Seroor 68 Treasurer and a Director 1994
Silvio Codispoti 55 Senior Vice President 1991
Lorraine Zarzana 38 Assistant Secretary 1998
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 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.
LORRAINE ZARZANA has served as Office Manager for the Company since April,
1997. Prior to joining the Company, Ms. Zarzana was a housewife.
26
<PAGE>
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. 1998 (1) N/A N/A 0 0 0 0
Thomas M. 1997 (2) N/A N/A 0 0 0 0
Abate 1996 (3) N/A N/A 0 0 0 0
(1) Consists of 15,000 shares of the common stock of ClearWorks Technologies,
Inc., 35,000 shares of the common stock of Southern Security Financial
Corp. and 79,835 shares of the common stock of Fleetclean Systems, Inc.,
for a total of $99,293.
(2) Consists of 50,000 shares of the common stock of ARXA for a total of
$112,500.
(3) 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.
The amount of securities distributed to Mr. Abate has been, and will
continue to be, determined by the Company's Board of Directors.
27
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of August 31, 1998, 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) 32.3%
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) 6.3%
1388 Paterson Plane Road
Secaucus, NJ 07094
Silvio Codispoti 127,000(5) 3.5%
115 Sylvia Street
Staten Island, NY 10312
John M. Seroor 102,500 2.8%
11 Emerson Road
Somerset, NJ 08873
Lorraine Zarzana 10,000 0.0%
23 State Court
Staten Island, New York 10312
All Officers and Directors
As a Group (6 Persons) 2,538,569 68.8%
28
<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 share 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.
Item 11. Certain Relationships and Related Transactions
-------------------------------------------------------
During the fiscal years ended August 31, 1998 and 1997, 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.
29
<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: November 30, 1998 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
30
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule for 10KSB for the period ended August 31, 1998 for
Mega Holding Corp.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-1-1997
<PERIOD-END> AUG-31-1998
<CASH> 19,612
<SECURITIES> 669,158
<RECEIVABLES> 195,502
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 60,998
<PP&E> 69,793
<DEPRECIATION> 51,692
<TOTAL-ASSETS> 413,323
<CURRENT-LIABILITIES> 38,308
<BONDS> 0
0
0
<COMMON> 36,303
<OTHER-SE> 409,157
<TOTAL-LIABILITY-AND-EQUITY> 999,113
<SALES> 1,530,610
<TOTAL-REVENUES> 1,552,120
<CGS> 246,359
<TOTAL-COSTS> 552,313
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 961,847
<INCOME-TAX> 513,112
<INCOME-CONTINUING> 448,735
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 448,735
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
