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 February 28, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 001-12509
MEGA HOLDING CORP.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
NEW YORK 13-2793653
- --------------------------------------------- ----------------------------
(State or other jurisdiction of (Internal Revenue Service
incorporation or organization) Employer Identification No.)
278A New Dorp Lane, Staten Island, NY 10306
---------------------------------------------------
(Address of principal Executive offices Zip Code)
(718) 667-9117
----------------------------------------------
Issuer's telephone number, including area code
(NOT APPLICABLE)
- --------------------------------------------------------------------------------
Former name, former address and formal 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 Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No _____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the close of the period conered by this report.
Class Number of Shares Outstanding
- ------ ----------------------------
Common Shares 3,630,250
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 February 28,1999
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 the management the statements
include all adjustments necessary to present fairly the financial position of
the Company as of February 28, 1999, and the results of the operations and cash
flows for the three and six month periods ended February 28,1999 and 1998.
The Company's results of operations during the six months of the Company's
fiscal year are not necessarily indicative of the results to be expected for
full fiscal year.
<PAGE>
Mega Holding Corp.
MDA Section - February 1999 Review
Results of Operations
Six Months Ended February 28, 1999 Compared to Six Months Ended
February 28, 1998
- --------------------------------------------------------------------------------
Revenues for the six months ended February 28, 1999 increased $13,651 or 9.9%
when compared to the six months ended February 28, 1998. During the six months
ended February 28, 1999, the Company generated $134,831 (88.7%) of its revenues
from business and financial consulting services, $ -0- (0.0%) of its revenues
from mortgage brokering activities, and $17,092 (11.3%) from its mining royalty
interest. During the six months ended February 28, 1998, the Company generated
$92,302 (66.8%) of its revenues from business and consulting services, $30,320
(21.9%) of its revenues from mortgage brokering activities, and $15,650 (11.32%)
from its mining royalty interest.
Business and financial consulting service revenues increased by $42,529 (46.1%)
due to everyday operating activities. Additionally, mortgage brokering activity
revenues decreased $30,320 due to no activity during the first six months of
fiscal 1999.
Cost of sales for the six months ended February 28, 1999 decreased by $22,284
(68.7%) when compared to the six months ended February 28, 1998. General and
administrative expenses however, increased by $72,694 (93.1%) for the six months
ended February 28, 1999 when compared to the six months ended February 28, 1998
As a percentage of sales, cost of sales decreased from 26.5% for the six months
ended February 28, 1998 to 7.5% for the six months ended February 28, 1999
whereas general and administrative expenses increased from 63.7% for the six
months ended February 28, 1998 to 111.8% for the six months ended February 28,
1999. These percentage changes are attributable to the Company showing higher
revenues and general and administrative costs and lower cost of sales for the
six months ended February 28, 1999 as compared to the six months ended February
28, 1998. Additionally, the increase in general and administrative costs for the
period ended February 28, 1999 is due to the start-up of operations on the
Company's wholly owned subsidiary, Securus Corp.
Marketable securities and restricted securities both increased at February 28,
1999 when compared to February 28, 1998 due to the acquisition of various
securities during the interim period. Due to a decline in market price of these
newly acquired marketable securities, a negative valuation allowance has been
created. Accordingly, an unrealized holding loss has been accounted for as other
comprehensive income / (loss) for the six month periods ended February 28, 1999.
For the six-month period ended February 28, 1998, however, an unrealized holding
loss was shown as a component of net income. This occurrence was due to the
securities acquired prior to February 28, 1998 depreciating in value from August
31, 1997. Beginning August 31, 1998, the Company has changed its position on how
it treats its marketable securities and thus the movement from net income to
other comprehensive income. Additionally, a number of securities had been
acquired and disposed of during the interim periods.
<PAGE>
Mega Holding Corp.
MDA Section - February 1999 Review
The Company gains interests in other companies by acquiring shares of such
companies' stocks as payment for services rendered. Prior to August 31, 1998,
the Company acquired these securities with the intent to resell them within the
next twelve months. At August 31, 1998, however, the Company has decided it will
hold these securities as long as possible; until it requires cash flow for
operations. The Company's marketable securities for the six months ended
February 28, 1998 increased $624,429 from the same period in the prior fiscal
year. This increase is attributable to the fact that the Company acquired
additional securities. As of August 31, 1998, management classifies these
marketable securities as available-for-sale because the Company now intends to
hold these securities until a time when cash is required to continue operations.
For the period ended February 28, 1998, management had classified these
marketable securities as trading securities because the Company acquired these
securities principally for the purpose of reselling them in the near term.
During both periods, the securities are reported on the balance sheet at their
fair market values. At February 28, 1998, any unrealized holding gains and
losses were included in current earnings. At February 28, 1999 however, any
unrealized holding gains and losses are included in other comprehensive income
that is a component of stockholders' equity. As a result, for the six months
ended February 28, 1999, the Company's net unrealized loss increased $216,261
(218.4%) when compared to the six months ended February 28, 1998.
Liquidity and Capital Resources
- ----------------------------------
At February 28, 1999, the Company's current assets exceeded its current
liabilities by $27,079. Cash constituted $14,030 of current assets with the
remainder being comprised of various receivables and inventory.
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.
As of February 28, 1999, the Company had no material commitments for capital
expenditures.
During the six months ended February 28, 1999, the Company received
approximately $129,475 in the form of stock. Although the Company is receiving a
greater percent of its revenues in stock, there is no material effect on the
Company's liquidity and overall financial position. Although the Company
anticipates continuing to distribute to its shareholders a portion of the stock
that it receives in other entities, it is retaining a greater percentage of
these stocks to be used as working capital. If the fees received are more so in
the form of stock than cash, and the majority are 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. These shares will
only be available for sale if and when the restriction is lifted 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.
<PAGE>
Mega Holding Corp.
MDA Section - February 1999 Review
At February 28, 1999, royalties due from Quaker Holding Company, Inc.
represented 18.8% of the Company's total assets. Based upon Quaker Holding's
prior history in payment of like kind transactions, management believes that all
royalties will be collected on a timely basis.
Item 3. Description of Properties
The Company maintains its principal executive offices at 278A New Dorp Lane,
Staten Island, NY 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, 2000. 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.
<PAGE>
MEGA HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
February 28 August 31,
1999 1998
(Unaudited) (Audited)
--------------- --------------
Current Assets:
<S> <C> <C>
Cash ............................................... $ 14,030 $ 19,612
Accounts Receivable ............................... 13,310 12,810
Royalties Receivable .............................. 376 376
Inventory .......................................... 19,980 0
Notes Receivable .................................. 25,200 28,200
--------------- --------------
Total Current Assets ........................... 72,896 60,998
--------------- --------------
Property and Equipment:
Office Equipment at Cost ........................ 69,793 69,793
Less: Accumulated Depreciation ................. (56,526) (51,692)
Total Property and Equipment .................. 13,267 18,101
Investments and Other Assets:
Deferred Tax Asset ............................... 145,128 96,740
Marketable Securities ............................. 671,420 754,435
Marketable Securities - Valuation Allowan(343,388) (194,401)
Restricted Securities - par value ................ 109,124 109,124
Royalties Receivable .............................. 154,116 154,116
--------------- --------------
Total Investments & Other Assets............... 736,400 920,014
--------------- --------------
Total Assets ........................................ $ 822,563 $ 999,113
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Expenses$ ......... 942 $ 11,432
Notes Payable ..................................... 19,000 0
Officer's Loan .................................... 25,500 26,500
Payroll Taxes Payable ............................ 375 376
Total Current Liabilities ...................... 45,817 38,308
--------------- --------------
Long - Term Liabilities:
Deferred Taxes .................................... 515,345 515,345
--------------- --------------
Total Long - Term Liabilities .................. 515,345 515,345
--------------- --------------
Commitments and Contingent Liabilities
Stockholders' Equity:
Common Stock - $.01 par value
Authorized 20,000,000 shares
Issued 3,630,250 shares........................... 36,303 36,303
Paid In Capital .................................. 488,463 488,463
Retained Earnings / (Deficit) ..................... (263,365) (79,306)
--------------- --------------
Total Stockholder's Equity ..................... 261,401 445,460
--------------- --------------
Total Liabilities and Stockholders' Equ$ ......... $ 822,563 $ 999,113
=============== ==============
</TABLE>
See accompanying notes.
F - 2
<PAGE>
MEGA HOLDING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 28, February 28, August 31,
1999 1998 1999 1998 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited)
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Sales .................................. $ 5,350 $ 55,970 $ 134,831 $ 122,622 $ 1,530,610
Cost Of Sales ............................. 6,059 6,427 10,161 32,445 246,369
------------ ----------- ----------- ----------- -----------
Gross Profit ............................. (709) 49,543 124,670 90,177 1,284,241
------------ ----------- ----------- ----------- -----------
General and Administrative Expenses:
Advertising and Promotion ............... 3,150 2,483 3,150 2,483 1,982
Commissions ............................... 46,025 17,334 75,666 28,725 108,373
Credit Reports ........................... 70 66 339 447 0
Dues ...................................... 145 328 545 1,304 2,463
Education / Seminars ...................... 0 800 0 800 1,100
Executive Compensation ................... 0 0 0 0 88,616
Insurance ................................. 1,665 747 2,461 747 2,667
Licenses and Application Fees .......... 1,125 1,125 579
Miscellaneous ............................. 961 817 1,017 1,218 2,914
Office Expense ........................... 11,223 8,963 17,585 14,109 22,531
Office Supplies .......................... 0 0 1,135 0 0
Payroll and Associated Costs ........... 3,313 1,422 8,222 2,881 9,128
Postage ................................... 1,448 863 3,185 1,111 4,092
Printing .................................. 1,331 0 1,331 0 0
Legal and Professional .................. 0 1,000 0 1,000 10,000
Rent ...................................... 3,941 3,942 7,882 7,883 15,765
Taxes ..................................... 351 0 351 0 1,279
Telephone and Utilities ................. 4,540 1,496 7,373 3,032 9,396
Travel and Entertainment ................ 7,278 6,174 14,583 6,929 12,559
Depreciation .............................. 2,417 3,245 4,834 5,421 12,500
------------ ----------- ----------- ----------- -----------
Total Operating Expenses ................ 88,983 49,680 150,784 78,090 305,944
------------ ----------- ----------- ----------- -----------
Earnings Before Unrealized Holding
Loss on Marketable Securities,
Other Income, Income Taxes, and
Other Comprehensive Income (net of taxes) (89,692) (137) (26,114) 12,087 978,297
Loss on Sale of Marketable Securities .. (50,902) 0 (74,438) 0 (37,960)
Unrealized Holding Loss on
Marketable Securities .................... 25,183 0 (10,375) 0
------------ ----------- ----------- ----------- -----------
Other Income:
Royalties Income ......................... 4,585 3,275 4,585 3,275 3,275
Interest Income - Royalties .............. 12,374 12,375 12,374 12,375 12,375
Interest Income - Other .................. 36 0 133 0 5,860
------------ ----------- ----------- ----------- -----------
Total Other Income ...................... 16,995 15,650 17,092 15,650 21,510
------------ ----------- ----------- ----------- -----------
Income Before Income Taxes ................. (123,599) 40,696 (83,460) 17,362 961,847
------------ ----------- ----------- ----------- -----------
Provision For Income Taxes ............... (42,022) 0 (28,376) 0 513,112
------------ ----------- ----------- ----------- -----------
Net Income / (Loss) ........................ $ (81,577) $ 40,696 $ (55,084) $ 17,362 $ 448,735
=========== =========== =========== =========== ===========
Unrealized Holding Loss ................. (86,122) 0 (226,636) 0 0
------------ ----------- ----------- ----------- -----------
Comprehensive Income / (Loss) .............. (167,699) 40,696 (281,720) 17,362 448,735
=========== =========== =========== =========== ===========
Net Earnings / (Loss) Per Share:
Net Earnings / (Loss) .................... $ (0.02) $ 0.01 $ (0.02) $ 0.00 $ 0.12
Weighted Average Number of
Common Shares .......................... 3,630,250 3,630,250 3,630,250 3,630,250 3,630,250
</TABLE>
See accompanying notes.
F - 3
<PAGE>
MEGA HOLDING CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Retained Total
September 1, 1996 Common Paid In Earnings/ Stockholders'
To May 31, 1998 Stock Capital (Deficit) Equity
- ---------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
September 1, 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 .............. -- -- 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
Net Earnings .............. -- -- (55,084) (55,084)
Unrealized Holding Loss .. -- -- (128,975) (128,975)
--------- --------- --------- ---------
Total Stockholders' Equity
As Of February ........... $ 36,303 $ 488,463 $(263,365) $ 261,401
========= ========= ========= =========
</TABLE>
See accompanying notes.
F - 4
<PAGE>
MEGA HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED
<TABLE>
<CAPTION>
February 28 August 31,
1999 1998
(Unaudited) (Audited)
----------- ----------
Cash Flow from Operating Activities:
<S> <C> <C>
Net Income / (Loss) .................................................. $ (55,084) $ 448,735
Adjustments To Reconcile Net Income / (Loss) To Net
Cash (Used) / Provided in Operating Activities:
Depreciation ........................................................ 4,834 12,500
Unrealized Holding Gain / (Loss) on Marketable Securities - AFS (128,975) (97,661)
(Increase) / Decrease in Marketable Securities ................... 83,015 (722,670)
(Increase) / Decrease in Marketable Securities - Valuation Allow 148,987 194,401
(Increase) / Decrease in Notes Receivable ........................ 3,000 100,000
(Increase) / Decrease in Restricted Securities ................... 0 (100,000)
Property Dividends ................................................. 0 (311,516)
(Increase) / Decrease in Accounts Receivable ..................... (500) 38,861
(Increase) / Decrease in Royalties Receivable (Current) .......... 0 (1)
(Increase) / Decrease in Royalties Receivable (Long-Term) ........ 0 377
(Increase) / Decrease in Inventory ................................ (19,980) 0
(Increase) / Decrease in Deferred Tax Asset ..................... (48,388) (96,740)
Increase / (Decrease) in Accounts Payable ........................ (10,490) 11,432
Increase / (Decrease) in Payroll Taxes Payable .................. (1) 188
Increase / (Decrease) in Deferred Tax Liability ................. 0 513,112
----------- ----------
Total Adjustments .................................................. 31,502 (457,717)
----------- ----------
Net Cash (Used) / Provided by Operating Activities ............... (23,582) (8,982)
Cash Flow From Investing Activities:
(Purchase) / Disposal of Property, Plant, & Equipment ............ 0 (3,129)
(Increase) / Decrease in Notes Receivable ........................ 0 1,000
(Increase) / Decrease in Restricted Securities ................... 0 (5,837)
----------- ----------
Net Cash Provided / (Used) by Investing Activities ............... 0 (7,966)
Cash Flow From Financing Activities:
Increase / (Decrease) in Notes Payable ........................... 19,000 0
Increase / (Decrease) in Officer's Loan Payable ................. (1,000) 21,500
----------- ----------
Net Cash Provided by Financing Activities ........................ 18,000 21,500
----------- ----------
Net Increase / (Decrease) in Cash .................................... (5,582) 4,552
Cash at the Beginning of the Period ............................... 19,612 15,060
----------- ----------
Cash at the End of the Period ..................................... $ 14,030 $ 19,612
=========== ==========
</TABLE>
See accompanying notes.
F - 5
<PAGE>
Note 1 - Basis of Presentation:
The accompanying unaudited financial statements have been prepared by
Mega Holding Corp. (the "Company") in accordance with generally
accepted accounting principles for interim financial statements and
with the instructions to Form 10-QSB and Item 310 of Regulation S-B.
Accordingly, they do not include all of the information and disclosures
required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company's management, all
adjustments (consisting of normal recurring accruals) necessary for a
fair presentation have been included. Results of operations for the
six-month period ended February 28, 1999 are not necessarily indicative
of future financial results. For further information, refer to the
financial statements and footnotes thereto for the fiscal year ended
August 31, 1998, included with the Company's Form 10-KSB, as filed with
the Securities and Exchange Commission.
Note 2 - Business Combinations:
In December 1998, the Company formed and began operations of a wholly
owned subsidiary, Securus Corp. Securus Corp. operates as a marketing
and sales organization for its security-related products as well as for
such products produced by other manufacturers.
Note 3 - Capitalization Activities:
On February 26, 1999, the Company initiated a stock offering in
accordance with the Securities and Exchange Commission rule 506 under
the guidelines of Rule 501(a) of Regulation D under the Securities Act
of 1933. The Company is offering 200,000 units at $2.50 per unit until
April 30, 1999 or all units have been sold whichever occurs first. The
proceeds from this offering will be used to fund the activities of its
wholly owned subsidiary, to provide bridge financing to clients, and
for working capital.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
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 Report on Form 8-K.
No report on Form 8-K was filed with the Commission for the period
covered by this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MEGA HOLDING CORP.
------------------
(Registrant)
/s/ Thomas M. Abate
-----------------------------------
Thomas M. Abate,
President and Principal
Executive Officer
/s/ John M. Seroor
-----------------------------------
John M. Seroor,
Treasurer and Principal
Financial Officer
Dated: April 13, 1999
This schedule contains summary financial information extracted from
financial statements for the three six month period ended February 28,1999 and
qualified in its entirety by reference to such financial statements.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001027642
<NAME> Mega Holding Corp.
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Aug-31-1999
<PERIOD-START> Sep-01-1998
<PERIOD-END> Feb-28-1999
<EXCHANGE-RATE> 1
<CASH> 14,030
<SECURITIES> 437,156
<RECEIVABLES> 193,002
<ALLOWANCES> 0
<INVENTORY> 19,980
<CURRENT-ASSETS> 72,896
<PP&E> 69,793
<DEPRECIATION> 56,526
<TOTAL-ASSETS> 822,563
<CURRENT-LIABILITIES> 45,817
<BONDS> 0
0
0
<COMMON> 36,303
<OTHER-SE> 225,098
<TOTAL-LIABILITY-AND-EQUITY> 822,563
<SALES> 134,831
<TOTAL-REVENUES> 151,923
<CGS> 10,161
<TOTAL-COSTS> 160,945
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (83,460)
<INCOME-TAX> (28,376)
<INCOME-CONTINUING> (55,084)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (55,084)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
