SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 2054
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FORM 10KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934. For the fiscal year ended August 31, 1999
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 $ 423,334.
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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, 1999, there were 3,858,450 shares of common stock held by
non-affiliates ("Shares") outstanding having an aggregate market value of $-0-.
<PAGE>
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.
Rule 504 Offerings
- ------------------
In prior years, the Company provided consulting services to companies seeking
to raise up to $1,000,000 by offering 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"). Since last year, the Securities
and Exchange Commission (the "Commission") modified Rule 504 is a less
attractive financing alternative than prior to the modifications. As a result,
the Company did not consult on any Rule 504 offerings and does not anticipate
doing so in the future.
(1)
<PAGE>
Rule 506 Offering
- ---------------------
In February 1999, the Company announced that it was offering pursuant to Rule
506, pursuant to Regulation D under the Securities Act of 1933, as amended,
200,000 units at $2.50 per unit. Each unit consisted of one share of the
Company's common shares and one redeemable common share purchase warrant
exercisable at $5.00 per share. The company had raised $180,500 pursuant to this
offering. 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 of 1933, as amended. In a reverse acquisition, the shareholders
of a private Corporation with an existing or proposed business, exchange all of
the shares of that private company or its business assets 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.
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.
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,.
(2)
<PAGE>
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 October 30, 1998, a Mega subsidiary, Parkway Technology Corporation, merged
with Eurocash Funding, a Jersey, Channel Islands, Ltd. Company. Mega
shareholders of record as of October 30,1998, will be receiving pro-rata
distribution of shares in Eurocash, Inc..
On May 7, 1999, a Mega subsidiary, Galaxy Financial Services Corp., merged with
American EcoBoard, Inc. to form AEB Acquisition Corp. Your Board of Directors
had authorized a pro-rata distribution of shares in Ecoboard Holdings, Inc., to
Mega shareholders of record as of June 26, 1997.
On September 22, 1999, another Mega subsidiary, Advanced Lubrication
Technologies, Inc. merged with a French based company named Advanced
Communication Research, SA. To form Advanced Communication Research, Inc..
Consulting / Marketing Services
- --------------------------------
Securus Corp. a wholly owned subsidiary of Mega Holding Corp., was formed in
November 1998 as a consulting and sales/marketing organization. In June 1999,
Securus Corp. entered into an agreement with Olympic Capital, Inc. to act as
marketing agent of its services to hospitals and health institutions.
The Company has a consulting agreement with Eagle Wireless International,
Inc., wherein the Company is providing certain consulting activities related to
financing, mergers and acquisitions.
(3)
<PAGE>
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. Powderhorn was acquired by Quaker Holding Co., Inc. in January
1998. Pursuant to the settlement of a dispute relating to the royalties, Quaker
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, 1999, the unpaid
balance of the additional royalties totaled $554,744. In addition, the Company
is to receive a royalty ("Production Royalties") of four and one-quarter cents
($.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. Coal production for 1999 has
decreased approximately 49% over the 1998 level.
Competition
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The Company encounters significant competition in all aspects of its business
and competes directly with many other mortgage brokers, mortgage companies,
banks and investment banking and financial consulting firms, most of which have
significantly greater financial and personnel resources than the Company and
most of which are more widely known than the Company. Such other companies may
offer their clients a more extensive range of financial services, have
substantially greater financial resources and may have greater operating
efficiency than the Company. In addition, many of the companies with which the
Company competes are able to dedicate significant resources to advertising,
active solicitation of potential clients and distribution of investment research
publications. The Company also competes with a number of small and regional
mortgage brokers, mortgage companies, banks and investment firms which may offer
a wider range of services than the Company.
Marketing
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Generally, the Company conducts no advertising. However, during 1999, the
Company has completely revamped its web site. It is expected that this will
present a clearer description of its business and further enhance its business
opportunities.
Government Regulation
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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.
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
(4)
<PAGE>
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.
Employees
- ---------
As of August 31, 1999, 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,
2001. The annual rental is $12,300 per annum ($1,025. per month) plus tenant's
proportionate share of real estate taxes and escalations for the subject
premises in the amount of $288.72 per month for a total annual rental of
$15,764.64.
(5)
<PAGE>
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market For Common Equity and Related Stockholder Matters
As of August 31, 1999, there were approximately 300 holders of Common
Shares. The Common Shares have not and do not trade. On that date, there were
outstanding approximately 3,858,450 Shares of Common and -0- Preferred Shares.
On October 25,1999. Public Securities, Inc. of Spokane, Washington has filed
15c2-11 with the NASD on behalf of the company.
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:
Ecoboard Holdings, Inc. 178,681 shares of common stock
Eurocash, Inc. 275,000 shares of common stock
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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 included, 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, 1999 Compared to the
Fiscal Year Ended August 31, 1998
Revenues for the fiscal year ended August 31, 1999 decreased $1,128,786 or 72.7%
when compared to the fiscal year ended August 31, 1998. During the fiscal year
ended August 31, 1998, the Company generated $405,847 (95.9%) from business and
financial consulting services, $16,959 (4.0%) from its mining royalty interest,
and $528 (0.1%) from its mortgage brokering activities. During the fiscal year
ended August 31, 1997, the Company generated $1,505,950 (97.0%) from business
consulting services, $15,650 (1.0%) from its mining royalty interest, and
$30,520 (2.0%) from its mortgage brokering activities.
Revenues from business and financial consulting services and mortgage services
decreased $1,100,104 (73.1%), and $29,992 (98.3%), respectively whereas mining
royalties increased $1,309 (8.4%). Business and financial consulting service
revenues and mortgage revenues decreased due to decreased activities in their
respective areas whereas mining royalties increased between these periods due to
the extraction of coal in excess of the agreed upon 300,000 tons.
Cost of sales decreased by $198,975 (80.8%) and general and administrative
expenses increased by $381,278 (124.6%) when compared to the fiscal year ended
August 31, 1998. The decrease in cost of sales is attributable to lower
revenues. Additionally, bad debt expense, consulting fees, and office expense
increased whereas executive compensation decreased by $21,310 (100.0%); $390,000
(100.0%); $19,459 (86.4%); and $73,815 (83.3%), respectively. The aforementioned
expenses changed as a result of continuing operations. Executive compensation,
however, decreased as a result of the Company issuing property dividends in the
form of investment stocks to its shareholders rather than only to its officers
and directors.
As a percentage of sales, cost of sales decreased from 16.1% in fiscal 1998 to
11.7% in fiscal 1999 whereas general and administrative expenses increased from
20.0% in fiscal 1998 to 169.7% in fiscal 1999. These percent changes are
attributable to the Company showing lower revenues for the year ended August 31,
1999 when compared to the year ended August 31, 1998.
Marketable securities at August 31, 1999 decreased when compared to August 31,
1998 due to the sale of various securities during the fiscal year. Accordingly,
the fiscal years ended August 31, 1999 and August 31, 1998 show realized losses
on the sale of marketable securities as well as 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 under
its business and consulting activities. The Company's marketable securities for
the year ended August 31, 1999 decreased $519,176 from the prior year. This
decrease is attributable to the Company selling a number of shares within its
portfolio. 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, 1999, the Company showed an
unrealized holding loss of $61,691 (net of tax).
As a result of the foregoing, the Company realized a net loss of $371,476 and a
net comprehensive loss of $433,167 for the fiscal year ended August 31, 1999
compared to net income of $448,735 for the fiscal year ended August 31, 1998.
Liquidity and Capital Resources
As of August 31, 1999, the Company's current assets exceeded its current
liabilities by $242,996 with $252,500 being comprised of cash.
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, 1999, the Company had no material commitments for capital
expenditures.
For the fiscal years ended August 31, 1999, 1998, and 1997, the value of fees
received by the Company in the form of securities was $377,222, $1,416,090, and
$113,216, respectively. 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 so 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. When the Company
receives shares with restrictions on transfer, the Company will be required to
hold such shares indefinitely and will only be able to sell such shares if and
when the shares are registered on an exemption from registration and it becomes
available, and if and when a market for such securities develops. Accordingly,
such shares will not be able to be used to meet cash flow needs.
At August 31, 1999 and August 31, 1998, royalties due from Quaker Holding
Company, Inc., formerly known as Powderhorn Incorporated, represented 16.7% and
6.5% of the Company's total assets, respectively. Based upon Quaker's prior
history in payment of like kind transactions, management believes that all
royalties will be collected on a timely basis.
Item 7. Financial Statements
Item 8. Changes in and Disagreements With Accountants
Not applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons:
Compliance with Section 16(a) of the Exchange Act
Directors and Officers
- ------------------------
The following sets forth the names of the Company's directors and officers.
Directors of the Company are elected annually by the shareholders and the
officers are appointed annually by the Board of Directors.
Name Age Position Since
- -------------- --- -------- -----
Thomas M. Abate 62 President and a Director 1986
James D. Paulsen 63 Executive Vice President, 1991
Secretary and a Director
John M. Seroor 70 Treasurer and a Director 1994
Silvio Codispoti 56 Senior Vice President 1991
Lorraine Zarzana 39 Assistant Secretary 1997
(6)
<PAGE>
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 BS 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 from 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 BA 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.
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.
(7)
<PAGE>
SUMMARY COMPENSATION TABLE
The following table provides information as to annual long-term and other
compensation paid by the Company to its Chief
Executive Officer and to each of the other named executive officers of the
Company who earned in excess of $100,000 per year for services rendered in all
capacities to the Company.
<TABLE>
<CAPTION>
Long Term Compensation
- -------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Annual Restricted Options LTIP All Other
Name and Fiscal Salary Bonus Compen- Stock SARs Payouts Compensation
Principal Position Year ($) ($) sation ($) Awards (#) ($) ($)
- ------------------ ----- ------ ----- ----------- ------- ---- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas M. Abate 1999 (1) N/A N/A 0 0 0 0
1998 (2) N/A N/A 0 0 0 0
1997 (3) N/A N/A 0 0 0 0
1996 (4) N/A N/A 0 0 0 0
1995 (5) N/A N/A 0 0 0 0
- --------------------------------------------------------------------------------------
</TABLE>
(1) $4,721 consisting of 7,000 common shares of American Ecoboard, Inc. at a
fair market value of $0.35 per share; 10,000 common shares of Eurocash, Inc. at
a fair market value of $0.23 per share. $14,770. Consisting of dividends of
41,842 common shares of American Ecoboard, Inc. and 52,040 common shares of
Eurocash, Inc, with a value of $11,709.
(2) $24,375 consisting of 15,000 common shares of Clearworks.net at fair market
value of $1.625 per share; $74,918 consisting of dividends of 35,000 common
shares of Southern Security Bank Corp.; 79,835 common shares of Fleetclean
Systems, Inc., for a total value of $99,293.
(3) Consists of 50,000 common shares of ARXA at fair market value of $2.25 per
share.
(4) Consists of 75,000 shares of QCS Corp. at fair market value $.50 per shares;
46,000 shares of ARXA International Energy, Inc. at fair market value $.50 per
shares; 50,000 shares of Hiawatha Industries, Inc. (restricted) no market value.
(5) Consists of 20,000 shares of Capital Communications Corp. at fair market
value of $.50 per share; 40,000 shares of First Nordic Equity Partners Corp. at
fair market value $.10 per share; 30,000 shares of Republic International Corp.
at fair market value $.50 per share.
The amount of securities distributed to Mr. Abate has been, and will continue to
be, determined by the Company's Board of Directors.
(8)
<PAGE>
Item 11. Security Ownership of certain Beneficial Owners and Management
The following table sets forth information as of August 31,1999, the number
percentage of shares of the common stock of the Company, owned of record
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
officers and directors as a group.
Shares
Name & Address Beneficially Owned Percent
- -------------- ------------------ -------
Thomas M. Abate 1,158,405 (1) 30.007%
231 Clarke Avenue
Staten Island, NY 10306
James D. Paulsen 367,000 (2) 9.508%
511 East 80th Street
New York, NY 10021
T.G.J. & Associates 496,664 (3) 12.865%
618 74th Street
Brooklyn, NY 11209
Emco Enterprises 230,000 (4) 5.958%
45 Park Place South
P.O. Box 174
Morris Town, NJ 07950
Silvio Codispoti 127,000 (5) 3.289%
115 Sylvia Street
Staten Island, NY 10312
John M. Seroor 102,500 2.655%
11 Emerson Road
Somerset, NJ 08873
Lorraine Zarzana 10,000 .255%
23 Stare Court
Staten Island, NY 10312
All Officers and Directors 2,491,569 64.541%
As a Group
(6 persons)
- ---------------------------
1. Includes 100,000 shares as joint tenant with Renee Abate and 35,000 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 for James Abate, and 15,000 shares
as custodian for Emily Ann Abate. Mr. Abate has sole investment power and sole
voting power over these shares.
(9)
<PAGE>
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 ("TGJ"), 248,332 shares
are beneficially owned by Thomas M. Abate and 248,332 shares are
beneficially owned by James D. Paulsen. Messrs. Abate and Paulsen have
shared investment power and shared voting power of these shares. All of
the shares of TGJ beneficially owned by Messrs. Abate and Paulsen are
included in the shares owned by all officers and directors as a group.
4. Emco Enterprises is owned by Greg Marinelli.
5. Includes 500 shares as joint tenants with Dina Codispoti; 4,000 shares
in the name of Dina Codispoti; 500 shares as joint tenant with Dennis
Codispoti; 4,000 shares in the name of Dennis Codispoti; and 4,000
shares as joint tenant with Florence 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, 1999 and 1998, 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.
(10)
<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 24, 1999 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
(11)
<PAGE>
- --------------------------------------------------------------------------------
MEGA HOLDING CORP. and SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1999 AND 1998
- --------------------------------------------------------------------------------
Table of Contents
Page
----
Independent Accountant's Report . . . . . . . . . . . . . . . . . . . .. . .1
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . .. . .2
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Changes in Shareholders' Equity . . . . . . 4
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . .. . .5
Notes to the Consolidated Financial Statements . . . . . . . . . . 6 - 16
<PAGE>
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. and
Subsidiaries as of August 31, 1999 and 1998, and the related statements of
operations, stockholders' equity, and cash flows for the years ended August 31,
1999, 1998 and 1997. 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, 1999 and 1998, and the results of their operations,
stockholders' equity, and their cash flows for the years ended August 31, 1999,
1998 and 1997 in conformity with generally accepted accounting principles.
McManus & Co., P.C.
Certified Public Accountants
Morris Plains, New Jersey
November 19, 1999
<PAGE>
- --------------------------------------------------------------------------------
MEGA HOLDING CORP. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
1999 1998
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 252,500 $ 19,612
Accounts Receivable (Note 2) 0 12,810
Royalties Receivable (Note 3) 407 376
Notes Receivable (Note 4) 16,700 28,200
Inventory (Note 1) 10,710 0
Employee Advance 500 0
Prepaid Expenses 1,250 0
------------ ------------
Total Current Assets 282,067 60,998
Property and Equipment:
Office Equipment at Cost (Note 1) 92,737 69,793
Less: Accumulated Depreciation (62,447) (51,692)
------------ ------------
Net Property and Equipment 30,290 18,101
Investments and Other Assets:
Deferred Tax Asset (Note 12) 220,078 96,740
Marketable Securities (Notes 1 & 5) 235,259 754,435
Marketable Securities - Valuation Allowance to FMV (107,978) (194,401)
Restricted Marketable Securities (Note 6) 109,124 109,124
Royalties Receivable (Note 3) 153,660 154,116
------------ ------------
Total Investments & Other Assets 610,143 920,014
============ ============
Total Assets $ 922,500 $ 999,113
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable & Accrued Expenses $ 13,442 $ 11,432
Officer's Loan 24,500 26,500
Payroll Taxes Payable 1,129 376
------------ ------------
Total Current Liabilities 39,071 38,308
Long - Term Liabilities:
Deferred Taxes (Note 3) 418,227 515,345
------------ ------------
Total Long - Term Liabilities 418,227 515,345
Commitments and Contingent Liabilities (Note 9)
Stockholders' Equity:
Common Stock - $.01 par value
Authorized 20,000,000 shares
Issued 3,858,450 and 3,630,250 shares, respectively 38,585 36,303
Paid In Capital 1,056,681 488,463
Retained Earnings / (Deficit) (630,064) (79,306)
------------ ------------
Total Stockholders' Equity 465,202 445,460
============ ============
Total Liabilities and Stockholders' Equity $ 922,500 $ 999,113
============ ============
</TABLE>
2
<PAGE>
- --------------------------------------------------------------------------------
MEGA HOLDING CORP. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -------------
<S> <C> <C> <C>
Net Sales $ 404,971 $ 1,530,610 $ 200,203
------------ ------------ -------------
Cost Of Sales 47,394 246,369 96,794
------------ ------------ -------------
Gross Profit 357,577 1,284,241 103,409
------------ ------------ -------------
General and Administrative Expenses:
Advertising 557 1,982 27
Bad Debt Expense 21,310 0 0
Commissions 97,247 108,373 69,078
Consulting Fees 390,000 0 0
Dues and Subscriptions 2,109 2,463 275
Education / Seminars 0 1,100 0
Executive Compensation 14,801 88,616 113,216
Exposition/Shows 3,150 0 0
Insurance 4,612 2,667 889
Licenses and Application Fees 725 579 671
Miscellaneous 1,385 2,914 3,860
Office Expense 41,990 22,531 17,580
Payroll and Related Costs 17,755 9,128 6,658
Postage 5,913 4,092 0
Professional Fees 23,132 10,000 6,000
Rent 15,765 15,765 14,348
Taxes 350 1,279 11,835
Telephone and Utilities 11,557 9,396 9,728
Travel and Entertainment 24,109 12,559 21,883
Depreciation 10,755 12,500 7,832
------------ ------------ -------------
Total Operating Expenses 687,222 305,944 283,880
------------ ------------ -------------
Earnings/(Loss) Before Gains/(Loss) on Marketable
Securities, Other Income, Income Taxes,
and Comprehensive Income(net of taxes) (329,645) 978,297 (180,471)
Loss on Sale of Marketable Securities (212,542) (37,960) 0
Unrealized Holding Gain / (Loss) on Marketable
Securities (Note 5) 0 0 (41,127)
------------ ------------ -------------
Other Income/Expenses:
Royalties Income 4,585 3,275 375
Interest Income - Royalties 12,374 12,375 12,375
Interest Income/Expense - net (405) 5,860 55
------------ ------------ -------------
Total Other Income 16,554 21,510 12,805
------------ ------------ -------------
Earnings / (Loss) Before Income Taxes (525,633) 961,847 (208,793)
Provision For Income Taxes (154,157) 513,112 (70,990)
------------ ------------ -------------
Net Earnings / (Loss) (371,476) 448,735 (137,803)
Comprehensive Income / (Loss), net of taxes:
Unrealized Holding / ( Loss) (Note 5) (61,691) (97,661) 0
============ ============ =============
Comprehensive Income / (Loss) $ (433,167) $ 351,074 $ (137,803)
============ ============ =============
Net Earnings / (Loss) Per Share:
Basic Net Earnings / (Loss) - net income $ (0.10) $ 0.12 $ (0.04)
Diluted Net Earnings / (Loss) - net income $ (0.10) $ 0.12 $ (0.04)
Net Earnings / (Loss) - comprehensive income $ (0.12) $ 0.10 $ (0.04)
Weighted Average Number of Common Shares
Outstanding 3,723,500 3,630,250 3,630,250
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
MEGA HOLDING CORP. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional Retained Total
September 1, 1997 Common Stock Paid In Earnings / Stockholders'
To August 31, 1999 Shares Dollar Value Capital Deficit Equity
------------------------- ------------ ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
September 1, 1997 3,630,250 $ 36,303 $ 488,463 $ 18,939 $ 543,705
Net Loss 1997 (137,803) (137,803)
------------ ------------ ------------ -------------- -------------
Total Stockholders' Equity
As Of August 31, 1997 3,630,250 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 3,630,250 36,303 488,463 (79,306) 445,460
Issuance of Common Stock 72,200 722 179,778 0 180,500
Common Stock Issued
For Services Rendered 156,000 1,560 388,440 0 390,000
Dividends (117,591) (117,591)
Net Loss 1999 (371,476) (371,476)
Unrealized Holding Loss (61,691) (61,691)
------------ ------------ ------------ -------------- -------------
Total Stockholders' Equity
As Of August 31, 1999 3,858,450 $ 38,585 $ 1,056,681 $ (630,064) $ 465,202
============ ============ ============ ============== =============
</TABLE>
4
<PAGE>
- --------------------------------------------------------------------------------
MEGA HOLDING CORP. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flow from Operating Activities:
Net Income / (Loss) $ (371,476) $ 448,735 $ (137,803)
Adjustments To Reconcile Net Income /
(Loss) To Net Cash Provided / (Used) In Operating Activities:
Depreciation 10,755 12,500 7,832
Stock Issued For Services Rendered 390,000 0 0
Unrealized Holding (Gain) / Loss on Marketable Securities-Trad. 0 0 41,127
Unrealized Holding Gain / (Loss) on Marketable Securities-AFS (61,691) (97,661) 0
(Increase) / Decrease in Marketable Securities 519,176 (722,670) 145,855
(Increase) / Decrease in Marketable Securities-Valuation Allow. (86,423) 194,401 0
(Increase) / Decrease in Notes Receivable 0 100,000 0
(Increase) / Decrease in Inventory (10,710) 0 0
(Increase) / Decrease in Restricted Securities 0 (100,000) 0
Property Dividends (117,591) (311,516) 0
(Increase) / Decrease in Accounts Receivable 12,810 38,861 (8,171)
(Increase) / Decrease in Employee Advance (500) 0 0
(Increase) / Decrease in Royalties Receivable (Current) (31) (1) (32)
(Increase) / Decrease in Royalties Receivable (Long-term) 456 377 375
(Increase) / Decrease in Prepaid Expenses (1,250) 0 0
(Increase) / Decrease in Deferred Tax Asset (123,338) (96,740) 0
Increase / (Decrease) in Accounts Payable and Accrued Expenses 2,010 11,432 (6,257)
Increase / (Decrease) in Payroll Taxes Payable 753 188 188
Increase / (Decrease) in Deferred Tax Liability (97,118) 513,112 (55,000)
------------ ------------ ------------
Total Adjustments 437,308 (457,717) 125,917
------------ ------------ ------------
Net Cash Provided / (Used) by Operating Activities 65,832 (8,982) (11,886)
Cash Flow from Investing Activities:
(Purchase) / Disposal of Property, Plant & Equipment (22,944) (3,129) (15,249)
(Increase) / Decrease in Notes Receivable 11,500 1,000 5,800
(Increase) / Decrease in Restricted Securities 0 (5,837) 26,713
------------ ------------ ------------
Net Cash Provided / (Used) by Investing Activities (11,444) (7,966) 17,264
Cash Flow from Financing Activities:
Proceeds From Sale of Common Stock 180,500 0 0
Increase / (Decrease) in Officer's Loan Payable (2,000) 21,500 5,000
------------ ------------ ------------
Net Cash Provided / (Used) by Financing Activities 178,500 21,500 5,000
------------ ------------ ------------
Net Increase / (Decrease) in Cash 232,888 4,552 10,378
Cash at the Beginning of the Year 19,612 15,060 4,682
------------ ------------ ------------
Cash at the End of the Year $ 252,500 $ 19,612 $ 15,060
============ ============ ============
Additional Disclosure of Operating Cash Flow Cash paid during
the years ended August 31,
Tax Expense $ 350 $ 1,279 $ 0
</TABLE>
5
<PAGE>
MEGA HOLDING CORP. AND SUBSIDIARIES
Notes To The Financial Statements
August 31, 1999
Note 1 - Basis of Presentation and Significant Accounting Policies:
Mega Holding Corp. (the Company) incorporated as a New York corporation
and commenced business on March 31, 1970. The Company offers its
services to corporations that are seeking banking and investment
banking relationships. The Company charges a fee for these services and
at times earns an equity interest in these companies. Fees are also
earned from clients that wish to go public and/or raise capital. The
Company is licensed and registered with the New York State Banking
Department as a mortgage broker wherein it earns fees. In addition, the
Company receives royalties from Quaker Holding Company, Inc., formerly
known as Powderhorn Incorporated, located in Prestonsburg, Kentucky.
Additionally, 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.
A) Consolidation
At August 31, 1999, the Company has a wholly owned subsidiary, Securus
Corp.
B) Cash and Cash Equivalents
The Company has $252,500 and $19,612 invested at August 31, 1999 and
1998, respectively of which $232,651 and $8,136, respectively are in
interest bearing accounts.
C) Inventory
Inventories are valued at the lower of cost or market. The cost is
determined by using the FIFO method. Inventory consists of the
following:
August 31,
--------------------
1999 1998
Raw Materials $ 10,710 $ - 0 -
------- -------
$ 10,710 $ - 0 -
======= =======
6
<PAGE>
Note 1 - Basis of Presentation and Significant Accounting Policies: (continued)
---------------------------------------------------------
D) 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.
E) Impairment of Long Lived and Identifiable Intangible Assets
The Company evaluates the carrying value of long-lived assets and
intangible assets for potential impairment on an ongoing basis. An
impairment loss would be deemed necessary when the estimated
non-discounted future cash flows are less than the carrying net amount
of the asset. If an asset were deemed to be impaired, the asset's
recorded value would be reduced to fair market value. In determining
the amount of the charge to be recorded, the following methods would be
utilized to determine fair value:
1) Quoted market prices in active markets.
2) Estimate based on prices of similar assets.
3) Estimate based on valuation techniques.
As of August 31, 1999 and 1998, no impairment exists.
F) Revenue Recognition
The Company recognizes revenues at the point in time when the stock in
the newly formed company is sold.
G) Cost of Sales
Cost of sales consists wholly of those expenditures accumulated when
acquiring the original company.
7
<PAGE>
Note 1 - Basis of Presentation and Significant Accounting Policies: (continued)
---------------------------------------------------------
H) Marketable Securities
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No.115, "Accounting for Certain
Investments in Debt and Equity Securities," effective for fiscal years
beginning after December 15, 1993. This statement considers debt
securities that the Company has both the positive intent and ability to
hold to maturity are carried at amortized cost. Debt securities that
the Company does not have the positive intent and ability to hold to
maturity and all marketable equity securities are classified as
available-for-sale or trading securities and are carried at fair market
value. Unrealized holding gains and losses on securities classified as
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 and re-evaluates
such designation as of each balance sheet date.
I) 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."
J) 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.
8
<PAGE>
Note 1 - Basis of Presentation and Significant Accounting Policies: (continued)
---------------------------------------------------------
K) 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.
L) Advertising
All advertising costs are expensed as incurred. The Company does not
incur any cost for direct-response advertising.
M) Net Earnings/(Loss) Per Common Share
Net earnings/(loss) per common share is shown as both basic and
diluted. Primary 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 any dilutive common
stock equivalents. The components used for the computations are shown
as follows:
August 31, 1999 August 31, 1998
--------------- ---------------
Weighted Average Number of Common
Shares Outstanding Including:
Basic Common Stock Equivalents 3,723,500 3,630,250
Diluted Common Stock Equivalents 3,723,500 3,630,250
Note 2 - Accounts Receivable:
Accounts receivable consist of the following:
August 31, 1999 August 31, 1998
--------------- ---------------
Accounts Receivable $ - 0 - $ 12,810
Allowance for Doubtful Accounts - 0 - - 0 -
------ ------
Net Accounts Receivable $ - 0 - $ 12,810
====== ======
9
<PAGE>
Note 3 - 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.
<TABLE>
<CAPTION>
August 31
--------------------------
1999 1998
--------- ---------
<S> <C> <C>
Royalties Receivable From Court Settlement:
Non-interest bearing receivable,
receivable in annual installments
of $12,750; due 2043. $ 560,294 $ 573,044
Less unamortized discount based
on imputed interest rate of 8%. 406,227 418,552
--------- ---------
Royalties receivable less unamortized
discount. 154,067 154,492
Less: Current Portion 407 376
--------- ---------
Total Long-Term Royalties Receivable $ 153,660 $ 154,116
========= =========
</TABLE>
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 4 - 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, 1999,
Bonsangue has repaid $13,300 and Nocito has been deemed uncollectable.
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 and during 1999, the balance has been deemed uncollectable.
10
<PAGE>
Note 5 - 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, 1999, the securities had an original basis of $133,651;
determined by multiplying the number of shares being acquired by the
fair market value of those shares. At the August 31, 1999 balance sheet
date, the fair market value of these securities was $25,673; 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 $107,978 is reported on the balance sheet as
a marketable security valuation allowance whereas the statement of
operations carries this loss net of $46,287 tax.
Note 6 - 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.
11
<PAGE>
Note 6 - Restricted Securities: (continued)
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.
Note 7 - Executive Compensation:
As president, Mr. Abate intermittently receives shares of stock as
compensation. This non-cash compensation approximates $4,721; $24,375;
and $23,000; for the years 1999, 1998, and 1997 respectively.
Additionally, the Company has issued a property dividend to its
shareholders. Mr. Abate's portion consisted of 41,842 and 52,040 common
shares of American Ecoboard and Eurocash, Inc., respectively, for the
year ended August 31, 1999. For the year ended August 31, 1998, 35,000
and 79,835 common shares of Southern Security Financial Corp. and
Fleetclean Systems, Inc., respectively, were issued to Mr. Abate. These
property dividends had an approximate values of $26,479 and $74,918,
respectively for the years ended August 31, 1999 and 1998. Although
value has been given to these securities, at the August 31, 1999
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, 1999, 1998, and 1997. This non-cash compensation
approximates $10,080; $62,241; and $90,216. Additionally, the Company
has issued a property dividend to other officer/directors consisting of
23,890 and 12,569 common shares of American Ecoboard, Inc. and
Eurocash, Inc., respectively, for the year ended August 31, 1999. For
the year ended August 31, 1998, 21,633 and 45,578 common shares of
Southern Security Financial Corp. and Fleetclean Systems, Inc.,
respectively, were issued. These property dividends had an approximate
values of $11,261 and $44,422.
Note 8 - 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 offered units at $2.50 per unit. During the year
ended August 31, 1999, the Company sold 72,200 shares of the Company's
common stock. An additional 156,000 shares of common stock were issued
as compensation for services rendered. These services were valued at
$390,000.
12
<PAGE>
Note 9 - Warrants:
In conjunction with the stock offering in accordance with the
Securities and Exchange Commission Rule 506 under the Rule 501(a) of
Regulation D under the Securities Act of 1933 as stated in note 8, the
Company has issued the following warrants which have not been exercised
as of August 31, 1999:
228,200 stock purchase warrants. The warrants are to purchase
fully paid and non-assessable shares of the common stock, par
value $.01 per share at a purchase price of $5.00 per share.
These warrants will expire in February, 2004. As of August 31,
1999, the underlying shares of common stock have not been
registered for resale under the Securities Act of 1933 and
thus are not yet exercisable.
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
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.
13
<PAGE>
Note 10 - Earnings Per Share:
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
For the Year Ended August 31, 1999
---------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Net Loss $ (371,476)
Basic EPS:
Loss available to common stockholders (374,476) 3,723,500 $ (0.10)
======
Effect of Dilutive Securities:
Warrants - 0 - - 0 -
-------- ---------
Diluted EPS:
Loss available to common stockholders
and assumed conversions. $ (374,476) 3,723,500 $ (0.10)
========= ========= ======
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended August 31, 1998
--------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Net Income $ 448,735
Basic EPS:
Income available to common stockholders 448,735 3,630,250 $ 0.12
====
Effect of Dilutive Securities: - 0 - - 0 -
------- ---------
Diluted EPS:
Income available to common stockholders
and assumed conversions. $ 448,735 3,630,250 $ 0.12
======== ========= ====
</TABLE>
For the years ended August 31, 1999 and 1998, no anti-dilutive
securities existed.
For the period September 1, 1999 to November 19, 1999, there were no
transactions that would have materially changed the number of common
shares or potential common shares outstanding.
14
<PAGE>
Note 11 - 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 expired January 31, 1999. Subsequently, the lease
has been extended through January 31, 2001.
Future minimum lease payments are summarized as follows:
August 31, Amount
---------- ---------
2000 $ 15,627
2001 6,511
-------
Total $ 22,138
=======
Note 12 - 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,
-----------------------
1999 1998 1997
% % %
----- ----- -----
U.S. Federal Statutory Tax Rate 34 34 34
Valuation allowance for deferred tax
assets allocated to income tax expense (5) 19 (34)
---- -- ----
Effective Tax Rate 29 53 - 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.
15
<PAGE>
Note 13 - Dividends:
During the fiscal years ended August 31, 1999 and 1998, 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 various clients public. Thus, allowing them the
immediate opportunity to become tradable on the NASD Electronic
Bulletin Board. For the year ended August 31, 1999, the issuance
consisted of one hundred fifty-seven thousand eight hundred
thirty-seven (157,837) common shares of American Ecoboard, Inc. and two
hundred seventy-five thousand (275,000) common shares of Eurocash. For
the year ended August 31, 1998, the issuance 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 value of these property
dividends is $117,591 and $311,516 at August 31, 1999 and 1998,
respectively.
Note 14 - Risk Factors:
At August 31, 1999, the majority of the Company's business activity
consists of assisting companies to go public. In doing so, the Company
receives compensation 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.
16
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001027642
<NAME> Mega Holding Corp.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> AUG-31-1999
<EXCHANGE-RATE> 1
<CASH> 252,500
<SECURITIES> 236,405
<RECEIVABLES> 170,767
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 282,067
<PP&E> 92,737
<DEPRECIATION> 62,447
<TOTAL-ASSETS> 922,500
<CURRENT-LIABILITIES> 39,071
<BONDS> 0
0
0
<COMMON> 38,585
<OTHER-SE> 426,617
<TOTAL-LIABILITY-AND-EQUITY> 883,429
<SALES> 404,971
<TOTAL-REVENUES> 423,334
<CGS> 47,394
<TOTAL-COSTS> 734,616
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (525,633)
<INCOME-TAX> (154,157)
<INCOME-CONTINUING> (371,476)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (371,476)
<EPS-BASIC> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
