U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended November 30, 1998.
[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934.
For the transition period from to
Commission File Number: 001-12509
MEGA HOLDING CORP.
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(Exact name of registrant as specified in its charter
New York 13-2793653
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
278A New Dorp Lane, Staten Island, New York 10306
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Address of principal executive offices)
718-667-9117
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(Registrant's telephone number, including area code)
(Not Applicable)
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(Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark, whether the registrant:: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
Indicate the number of shares outstanding of each of the issuer's classes
of stock as of the close of the period covered by this report.
Class Number of Shares Outstanding
Common Shares 3,630,250
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 November 30, 1998
included herein have been prepared by Mega Holding Corp. (the "Company"),
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (the "Commission"). In the opinion of management, the
statements include all adjustments necessary to present fairly the financial
position of the Company as of November 30, 1998, and the results of operations
and cash flows for the three and nine month periods ended November 30, 1998 and
1997.
The Company's results of operations during the nine months of the Company's
fiscal year are not necessarily indicative of the results to be expected for the
full fiscal year.
2
<PAGE>
MEGA HOLDING CORP.
BALANCE SHEETS
ASSETS
November 30 August 31,
1998 1998
(Unaudited) (Audited)
----------- ----------
Current Assets:
Cash $ 29,908 $ 19,612
Accounts Receivable 12,810 12,810
Royalties Receivable 376 376
Notes Receivable 27,200 28,200
---------- ----------
Total Current Assets 70,294 60,998
---------- ----------
Property and Equipment:
Office Equipment at Cost 69,793 69,793
Less: Accumulated Depreciation (54,109) (51,692)
---------- ----------
Total Property and Equipment 15,684 18,101
---------- ----------
Investments and Other Assets:
Marketable Securities 788,444 754,435
Marketable Securities - Valuation Allowance (212,902) (194,401)
Restricted Securities - par value 109,124 109,124
Royalties Receivable 154,116 154,116
Deferred Tax Asset 72,387 96,740
---------- ----------
Total Investments & Other Assets 911,169 920,014
---------- ----------
Total Assets $ 997,147 $ 999,113
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable & Accrued Expenses $ 12,185 $ 11,432
Payroll Taxes Payable 375 376
Officer's Loan 26,500 26,500
---------- ----------
Total Current Liabilities 39,060 38,308
---------- ----------
Long - Term Liabilities:
Deferred Taxes 528,991 515,345
---------- ----------
Total Long - Term Liabilities 528,991 515,345
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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 Deficit (95,670) (79,306)
---------- ----------
Total Stockholders' Equity 429,096 445,460
---------- ----------
Total Liabilities and Stockholders' Equity $ 997,147 $ 999,113
========== ==========
See accompanying notes to the financial statements.
3
<PAGE>
MEGA HOLDING CORP.
STATEMENTS OF EARNINGS
Three Months Ended
November 30,
1998 1997
(Unaudited) (Unaudited)
Net Sales $ 129,481 $ 66,652
Cost of Sales 4,103 26,018
Gross Profit 125,378 40,634
General and Administrative Expenses:
Commissions 29,641 11,391
Credit Reports 270 381
Depreciation 2,417 2,176
Dues 400 976
Insurance 796 --
Miscellaneous -- 401
Office Expense 6,363 5,146
Office Supplies 1,135 --
Payroll and Associated Costs 4,909 1,459
Postage and Express Mail 1,737 248
Rent 3,941 3,941
Repairs and Maintenance 56 --
Telephone and Utilities 2,833 1,536
Travel and Entertainment 7,305 755
Total Operating Expenses 61,803 28,410
Earnings Before Realized/Unrealized Holding Loss on
Marketable Securities, Other Income, Income Taxes,
and Comprehensive Income (net of taxes) 63,575 12,224
Loss on Sale of Marketable Securities (23,536) --
Unrealized Holding Loss on Marketable Securities -- (35,558)
Other Income
Interest Income 97 --
Total Other Income 97 --
Earnings/(Loss) Before Income Taxes 40,136 (23,334)
Provision For Income Taxes 13,646 --
Net Earnings/(Loss) 26,490 (23,334)
Comprehensive Income/(Loss), net of taxes
Unrealized Holding Loss (140,515) --
Comprehensive Income/(Loss) $(114,025) $ (23,334)
Net Earnings/(Loss) Per Share:
Net Earnings/(Loss) - net income $ 0.01 $ (0.01)
Net Earnings/(Loss) - comprehensive income (0.03) (0.01)
Weighted Average Number of
Common Shares Outstanding 3,630,250 3,360,250
See accompanying notes to the financial statements.
4
<PAGE>
MEGA HOLDING CORP.
STATEMENTS OF CASH FLOWS
November 30,
1998 1997
(Unaudited) (Unaudited)
----------- -----------
Cash Flow from Operating Activities:
Net Earnings $ 26,490 $ (23,334)
Adjustments To Reconcile Net Income To Net
Cash (Used)/Provided from Operating Activities:
Depreciation 2,417 2,176
Unrealized Holding Gain/(Loss) on Marketable Securities (42,854) --
(Increase)/Decrease in Marketable Securities (34,009) --
(Increase)/Decrease in Marketable Securities 18,501 --
(Increase)/Decrease in Accounts Receivable -- 4,692
(Increase)/Decrease in Deferred Tax Assset 24,353 --
Increase/(Decrease) in Accounts Payable
and Accrued Expenses 753 --
Increase/(Decrease) in Payroll Taxes Payable (1) (188)
Increase/(Decrease) in Deferred Tax Liability 13,646 --
---------- ---------
Total Adjustments (17,194) 6,680
---------- ---------
Net Cash (Used)/Provided from Operating Activities 9,296 (16,654)
Cash Flow From Investing Activities:
(Increase)/Decrease in Notes Receivable 1,000 --
(Increase)/Decrease in Marketable Securities -- 5,329
---------- ---------
Net Cash (Used)/Provided by Investing Activities 1,000 5,329
Cash Flow From Financing Activities:
Increase/(Decrease) in Notes Payable -- 1,500
Increase/(Decrease) in Officer's Loan Payable -- (400)
---------- ---------
Net Cash (Used)/Provided by Financing Activities -- 1,100
---------- ---------
Net Increase in Cash 10,296 (10,225)
Cash at the Beginning of the Period 19,612 15,060
---------- ----------
Cash at the End of the Period $ 29,908 $ 4,835
========== ==========
See accompanying notes to the financial statements.
5
<PAGE>
MEGA HOLDING CORP.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Additional Total
September 1, 1997 Common Paid In Retained Stockholders'
To November 30, 1998 Stock Capital Deficit Equity
- -------------------- --------- ---------- -------- ------------
September 1, 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 -
November 30, 1998 26,490 26,490
Unrealized Holding Loss (42,854) (42,854)
-------- ----------- ---------- ----------
Total Stockholders' Equity
As of November 30, 1998 $ 36,303 $ 488,463 $ (95,670) $ 429,096
========= =========== ========== ===========
See accompanying notes to the financial statements.
6
<PAGE>
MEGA HOLDING CORP.
NOTES TO THE FINANCIAL STATEMENTS
NOVEMBER 30, 1998
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 adjustments (consisting of normal recurring accruals) necessary for a
fair presentation have been included. Results of operations for the three month
period ended November 30, 1998 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.
7
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Management's Discussion and Analysis
of Financial Condition and Results of Operations
for the nine months ended May 31, 1998 and 1997
-----------------------------------------------------
The Private Securities Litigation Reform Act of 1995 provides a safe harbor
for forward-looking statements. In order to comply with the terms of the safe
harbor, the Company notes that except for the description of historical facts
contained herein, this Form 10-QSB contains certain forward looking statements
that involve risks and uncertainties as detailed herein and from time to time in
the Company's filings with the Securities and Exchange Commission and elsewhere.
Such statements are based on management's current expectations and are subject
to a number of factors and uncertainties which could cause actual results to
differ materially from those described in the forward-looking statements.
Results of Operations
Three Months Ended November 30, 1998 Compared to Three Months Ended
November 30, 1997
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Revenues for the three months ended November 30, 1998 increased $62,829 or
94.3% when compared to the three months ended November 30, 1997. During the
three months ended November 30, 1998, the Company generated $129,578 (100.0%) of
its revenues from business and financial consulting services, and $ -0- (0.0%)
of its revenues from mortgage brokering activities. During the three months
ended November 30, 1997, the Company generated $64,552 (96.9%) of its revenues
from business and consulting services, and $2,100 (3.1%) of its revenues from
mortgage brokering activities.
Business and financial consulting services revenues increased by $65,026
(100.7%) due to everyday operating activities. Additionally, mortgage brokering
activity revenues decreased $2,100 due to no activity during the first quarter
of fiscal 1999.
Cost of sales for the three months ended November 30, 1998 decreased by
$21,915 (84.2%) when compared to the three months ended November 30, 1997.
General and administrative expenses however, increased by $33,393 (117.5%) for
the three months ended November 30, 1998 when compared to the three months ended
November 30, 1997 due to normal operating activities.
As a percentage of sales, cost of sales decreased from 39.0% for the three
months ended November 30, 1997 to 3.2% for the three months ended November 30,
1998 whereas general and administrative expenses increased from 42.6% for the
three months ended November 30, 1997 to 47.7% for the three months ended
November 30, 1998. These percentage changes are attributable to the Company
showing higher revenues and general and administrative costs and lower cost of
sales for the three months ended November 30, 1998 as compared to the three
months ended November 30, 1997.
8
<PAGE>
Marketable securities and restricted securities both increased at November
30, 1998 when compared to November 30, 1997 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 three month period ended November 30,
1998. For the three month period ended November 30, 1997, however, an unrealized
holding loss was shown as a componet of net income. This occurrence was due to
the securities acquired prior to November 30, 1997 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.
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 three months ended
November 30, 1998 increased $762,008 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 requried to continue operations.
For the period ended November 30, 1997, 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 November 30, 1997, any unrealized holding gains and
losses were included in current earnings. At November 30, 1998 however, any
unrealized holding gains and losses are included in other comprehensive income
which is a component of stockholders' equity. As a result, for the three months
ended November 30, 1998, the Company's net unrealized loss increased $104,957
(295.2%) when compared to the three months ended November 30, 1997.
9
<PAGE>
Liquidity and Capital Resources
- -------------------------------
At November 30, 1998, the Company's current assets exceeded its current
liabilities by $31,234. The majority, $29,908, of current assets was cash with
the remainder being comprised of various receivables.
Historically, the Company has financed its operations through cash flow
from operations. Due to the current operating cash flow, the Company has no need
to maintain any external funding sources.
As of November 30, 1998, the Company had no material commitments for
capital expenditures.
During the three months ended November 30, 1998, 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 to continue to distribute to its shareholders a portion of the stock
that it receives in other entities, it is retaining a sufficient 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.
At November 30, 1998, royalties due from Quaker Holding Company, Inc.
represented 15.5% of the Company's total assets. Based upon Quaker Holding's
prior history in payment of like kind transaction, 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, New York in an approximately 1,300 square foot office
facility pursuant to a lease originally entered into in January, 1984, and
thereafter renewed periodically. The current renewal term expires on January 31,
1999. The annual rental is $8,400 per annum ($700 per month) plus tenant's
proportionate share of Real Estate Taxes and escalations for the subject
premises in the amount of $602.29 per month for a total annual rental of
$15,627.48.
10
<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 Reports on Form 8-K.
No report on Form 8-K was filed with the Securities and Exchange commission
for the period covered by this report.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
MEGA HOLDING CORP.
(Registrant)
s/Thomas M. Abate
------------------------
Thomas M. Abate,
President and Principal
Executive Officer
s/John M. Seroor
------------------------
Treasurer and Principal
Financial Officer
Dated: January 14, 1999
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
financial statements for the three month period ended November 30, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> NOV-30-1998
<CASH> 29,908
<SECURITIES> 897,568
<RECEIVABLES> 194,502
<ALLOWANCES> 212,902
<INVENTORY> 0
<CURRENT-ASSETS> 70,294
<PP&E> 69,793
<DEPRECIATION> 54,109
<TOTAL-ASSETS> 997,147
<CURRENT-LIABILITIES> 39,060
<BONDS> 0
0
0
<COMMON> 36,303
<OTHER-SE> 392,793
<TOTAL-LIABILITY-AND-EQUITY> 429,096
<SALES> 129,481
<TOTAL-REVENUES> 129,578
<CGS> 4,103
<TOTAL-COSTS> 65,906
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 23,536
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 40,136
<INCOME-TAX> 13,646
<INCOME-CONTINUING> 26,490
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,490
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
