U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 2000
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 NUMBER: 000-28083
THE MAJESTIC COMPANIES, LTD.
(Exact name of registrant as specified in its charter)
Nevada 88-0293171
(State or jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
8880 Rio San Diego Road, 8th Floor, San Diego, California 92108
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (619) 209-6077
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 Par Value
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) been subject to such filing
requirements for the past 90 days. Yes X No.
As of July 5, 2000, the Registrant had 36,061,770 shares of
common stock issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2000 3
CONSOLIDATED STATEMENTS OF LOSSES
FOR THE THREE MONTHS AND SIX MONTHS
ENDED JUNE 30, 2000 AND JUNE 30, 1999 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
AND JUNE 30, 1999 5
NOTES TO FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
PART II
ITEM 1. LEGAL PROCEEDINGS 11
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS 12
ITEM 5. OTHER INFORMATION 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURE 13
PART I.
ITEM 1. FINANCAL STATEMENTS.
THE MAJESTIC COMPANIES, LTD.
CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS June 30
2000
ASSETS
Current Assets:
Cash and Equivalents $ 35,982
Accounts Receivable 222,443
Deposits and Other Prepaid Expenses 285,771
Inventory, at Cost 890,771
Total Current Assets 1,434,951
Property and Equipment 646,158
Accumulated Depreciation (95,915)
Net Property and Equipment 550,143
Other Assets 92,289
Amortization (27,702)
Net Other Assets 64,587
2,049,781
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Current Maturities of Long Term Debt $ 599,498
Accounts Payable and Accrued Liabilities 1,026,171
Customer Deposits 437,750
Total Current Liabilities 2,063,419
Long Term Debt, Less Current Maturities 1,065,649
Stockholders' Equity:
Convertible Preferred Stock, Par Value, $.01
per share 2,000,000 shares authorized; none
issued at June 30, 2000 -
Common Stock, Par Value $.001 per Share:
50,000,000 shares authorized,
36,491,070 shares issued at June 30, 2000 36,491
Additional Paid-In Capital 8,023,488
Stock Subscription Receivable -
Accumulated Deficit (9,139,267)
(1,079,288)
$ 2,049,781
See Accompanying Notes to Unaudited Financial Statement
THE MAJESTIC COMPANIES
CONSOLIDATED STATEMENTS OF LOSSES
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30
2000 1999 2000 1999
Net Sales $1,589,668 $ 352,213 $ 1,652,909 $ 1,642,259
Cost of Goods Sold 1,434,595 293,759 1,487,399 1,572,259
Gross Profit 155,073 58,454 165,510 70,000
Research and
Development 57,389 89,704 80,919 132,029
Sales and Marketing 51,245 90,777 53,176 110,662
General and
Administrative 1,120,632 378,154 2,253,566 1,287,618
Depreciation &
Amortization 22,590 9,133 37,521 18,161
Total Operating
Costs 1,251,856 567,768 2,425,182 1,548,470
Operating Loss (1,096,784) (509,314) (2,259,673) (1,478,470)
Interest Expense 22,249 12,536 45,018 15,986
(Loss) Before Income
Tax (1,119,033) (521,850) (2,304,691) (1,494,456)
Income Tax Expense - - - -
Net (Loss) $(1,119,033) $(521,850) $(2,304,691) $(1,494,456)
Loss Per Common Share
Basic and Assuming
Dilution $(0.03) $(0.02) $(0.07) $(0.06)
Weighted Average
Common Shares
Outstanding 35,689,068 24,659,937 32,375,844 23,737,535
See Accompanying Notes to Unaudited Financial Statement
THE MAJESTIC COMPANIES, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months Ended
2000 1999
Increase(Decrease) in Cash and
Equivalents
Cash Flows from Operating Activities
Net Loss for the Period $(2,304,691) $(1,494,456)
Adjustments to Reconcile Net (Loss) to
(Loss) to Net Cash Provided By Operating
Activities:
Common Stock Issued in Connection with
Services Rendered 1,499,980 297,575
Depreciation and Amortization 37,521 18,161
(Increase) Decrease in:
Accounts Receivables (153,261) 34
Prepaid Expenses and Other (231,122) (70,155)
Inventory (391,179) 1,009,322
Increase(Decrease) in:
Accounts Payable and Accrued
Expenses, net (172,883) 216,200
Customers Deposits 151,575 (919,121)
Net Cash (used) by Operating
Activities (1,564,060) (942,440)
Cash Flows Used in Investing Activities:
Capital Expenditures, Net of Disposals (8,044) (206,284)
Net Cash Used in Investing Activities (8,044) (206,284)
Cash Flows Used in Financing Activities:
Proceeds from Sale of Common Stock, Net
of Costs - 645,799
Proceeds from Loans 2,695,320 286,680
Repayments of Loans, Net (1,092,204) (34,976)
Net Cash, Provided (Used) in
Financing Activities 1,603,116 897,503
Net (Decrease) Increase in Cash
and Equivalents 31,012 (251,221)
Cash and Equivalents at Beginning of Year 4,970 305,639
Cash and Equivalents at End of Year 35,982 54,418
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Year for Interest 45,018 15,986
Common Stock Issued for Services 1,499,980 297,575
Common Stock Issued for Capital
Expenditures - 286,084
NONCASH FINANCING ACTIVITIES
Issuance of Common Stock In Exchange for Debt 960,000 -
See Accompanying Notes to Unaudited Financial Statement
THE MAJESTIC COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - SUMMARY OF ACCOUNTING POLICIES
General
The accompanying unaudited consolidated financial statements have
been prepared in accordance with the instructions to Form 10-QSB,
and therefore, do not include all the information necessary for a
fair presentation of financial position, results of operations
and cash flows in conformity with generally accepted accounting
principles.
In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three
month and six month period ended June 30,2000 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 2000. The unaudited condensed consolidated
financial statements should be read in conjunction with the
consolidated financial statements and footnotes thereto included
in the Registrant's December 31, 1999 Annual Report on Form 10-KSB.
Basis of Presentation
The consolidated financial statements include the accounts of the
Registrant, and its wholly-owned subsidiaries, Majestic Modular
Buildings, Ltd., Majestic Financial, Ltd., and Majestic
Transportation, Ltd. Significant intercompany transactions have
been eliminated in consolidation.
Segment Information
During 2000 and 1999, the Registrant operated in three reportable
segments: Majestic Modular, Majestic Financial and Majestic
Transportation. The Registrant's three reportable segments are
managed separately based on fundamental differences in their
operations.
Majestic Modular develops, manufactures and markets re-locatable
modular classrooms, offices, office buildings, telephone
equipment bunkers and modular structures. Majestic Modular's
customers are primarily in the State of California.
Majestic Financial originates and services modular building
leases. Majestic Financial's customers are primarily in the State
of California.
Majestic Transportation is developing and marketing a proprietary
passenger restraint system for the school bus industry. While
Majestic Transportation is in the developmental stage and has not
reported sales from its inception, the Registrant believes its
products will be sold to customers throughout North America.
Segment operating income is total segment revenue reduced by
operating expenses identifiable with that business segment.
Corporate includes general corporate administrative costs.
The Registrant evaluates performance and allocates resources
based upon operating income. The accounting policies of the
reportable segments are the same as those described in the
summary of accounting policies. There are no inter-segment
sales.
Three Months Ended Six Months Ended
June 30, June 30
2000 1999 2000 1999
Net Sales to
External Customers
Modular Buildings $1,577,935 $ 330,802 $1,630,991 $1,617,415
Leases 10,037 20,267 20,075 23,700
Transportation - - - -
All Other 1,696 1,144 1,843 1,144
Total Sales to
External Customers 1,589,668 352,213 1,652,909 1,642,259
Segment Operating
Income
Modular Buildings (269,510) (255,770) (498,037) (600,892)
Leases 5,971 (11,301) 11,253 (9,851)
Transportation (41,084) (90,340) (87,503) (157,665)
All Other - - - -
Total Segment
Operating (Loss) (304,623) (357,411) (574,287) (768,408)
June 30 Dec 31
2000 1999
Segment Assets
Modular Buildings 1,484,703 1,694,915
Leases 214,072 99,754
Transportation 56,979 6,348
All Other - -
Total Segment Assets 1,755,754 1,801,017
Three Months Ended Six Months Ended
June 30, June 30
2000 1999 2000 1999
Operating Income
Total Segment
Operating
Income (304,623) (357,411) (574,287) (768,408)
Unallocated
Corporate (Expense) (814,411) (164,439) (1,730,405) (726,048)
Total Consolidated
Operating (Loss) $(1,119,034) $(521,850) (2,304,692) (1,494,456)
June 30 Dec 31
2000 2000
Assets
Total Segment Assets 1,755,754 1,801,017
Corporate Assets Not Assigned to
Operating Units 294,026 244,206
Total Consolidated Assets 2,049,780 2,045,223
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the
Registrant's Consolidated Financial Statements and Notes thereto,
included elsewhere within this Form 10-QSB.
Description of Registrant.
The Registrant is a holding company that operates a group of
wholly-owned subsidiaries involved in the manufacture and
distribution of re-locatable modular buildings, the acquisition
and lease of modular buildings and the development and marketing
of a school bus safety restraint device known as the SAFE-T-BAR
T. A complete description of the subsidiaries is included in the
Registrant's December 31, 1999 Annual Report on Form 10-KSB.
Results Of Operations
Six Months Ended June 30, 2000 and 1999
(a) Net Sales. Net sales for the six months ended June 30,
2000 were $1,652,909, a one-percent increase from $1,642,259 for
the same period in 1999. The modular division accounted for
$1,630,991 of the sales for the first six months in 2000 and, for
$1,617,415 in sales for the same period in 1999. At the quarter
ended June 30, 2000, the modular division had $547,319 in Work-
In-Progress compared to $122,240 ay June 30, 1999. Furthermore,
whereas a great majority of the sales recognized through June 30,
1999 had been Work-In-Progress at year-end 1998, sales through
June 30, 2000 were projects started and completed in the latest
six-month period. Lease of modular units generated revenues of
$20,075 as of June 30, 2000 compared to $13,471 for the same
period in 1999. The increase of $6,604, 49%, was a result of
having four additional modular units leased during the six-months
ended June 30, 2000 as compared to the same period in 1999.
(b) Cost Of Sales. Cost of sales decreased by five and
one-half percent to $1,487,399 through June 30, 2000 from
$1,572,259 in the same period 1999. Cost of sales was made up of
the modular division operations that have been improved in areas
such as labor efficiency, estimating, bidding and costing
procedures.
(c) Research and Development. Research and Development
expenses decreased from $132,029 for the six month period ending
June 30, 1999 to $80,919 in the same period of 2000. The
decrease is the result of reduced consulting fees related to
ongoing development projects.
(d) Selling And Marketing. Selling and marketing expenses
decreased fifty-two percent from $110,662, for the six months
ending June 30, 1999, to $53,176, for the same period in 2000.
This continued to be a result of a reduction in corporate and
modular selling and marketing expenses, as well as, a mild
increase in transportation selling and marketing activities for
the first six months in the year 2000.
(e) General And Administrative. General and Administrative
expenses increased seventy-five percent to $2,253,566 for the six
month period ending June 30, 2000, from $1,287,618 for the same
period in 1999. General and Administrative expenses consisted
largely of corporate consulting fees of $1,319,480 paid in shares
for the period ending June 30, 2000.
(f) Other Expenses. Other expenses for depreciation
increased to $37,521 for the six-month period ending June 30,
2000 from $18,161 for the same period ending in 1999. Interest
expense increased three-fold from $15,986 for the period ending
June 30, 1999 to $45,018 for the same period in 2000. The
increase is reflective of the Registrant's costs associated with
the proceeds from additional dent financing in 1999 and 2000.
Three Months Ended June 30, 2000 and 1999
(a) Net Sales. Net sales for the three months ended June 30,
2000 were $1,589,668, a four and half-fold increase from $352,213
in the same period in 1999. The increase in 2000 is directly
related to modular division Work-In-Progress completed from the
first quarter. The modular division accounted for $1,577,935 of
second quarter sales. Lease of modular units generated revenues
of $10,037 during the second quarter of 2000 as compared to
$7,613 during the same period in 1999.
(b) Cost Of Sales. Cost of Sales increased nearly five-fold
from $293,759 for the three months ending June 30, 1999 to
$1,434,595 for the same period in 2000. The increased cost is
attributable directly with the increased second quarter modular
sales in 2000. Modular division costs have been gradually
improving as a result of better control measures such as
estimating, bidding and manufacturing efficiencies.
(c) Research and Development. Research and Development expenses
decreased from $89,704 for the three months ended June 30, 1999
to $57,389 for the same period ended in 2000. The costs, all
incurred by the transportation division, is reflective of reduced
consulting fees related to ongoing development projects.
(d) Selling and Marketing. Selling and marketing expense
decreased forty-three percent from $90,777 for the three-month
period ending June 30, 1999, to $51,245, for the same period in
2000. Nonetheless, selling and marketing expense have increased
from first quarter in 2000 denoting increased sales and marketing
activity in the transportation and modular divisions.
(e) General And Administrative. General and Administrative
expenses increase nearly three-fold to $1,120,632 for the three
month period ending June 30, 2000 from $378,154 for the same
period in 1999. This marked increase consists largely of
corporate consulting fees of approximately $760,380 paid in
shares for the same period ending June 30, 2000.
(f) Other Expenses. Other expenses for depreciation increased
to $22,590 for the three-month period ending June 30, 2000 from
$9,133 for the same period 1999. Interest expense increased to
$22,249 for the three-months ended June 30,2000 from $12,536 for
the same period in 1999. The increase is representative of the
Registrant's acquisition of debt financing in 1999 and 2000.
Liquidity And Capital Resources.
(a) General Statement.
As of June 30, 2000, the Registrant had a working capital deficit
of $628,468 compared to a deficit of $1,457,573 at December 31,
1999, an increase in working capital of $829,105. The increase
in working capital was substantially due to the Registrant
increasing inventories and accounts receivable during the first
six months of 2000. As a result of the Registrant's operating
losses during the first six months ended June 30, 2000, the
Registrant generated cash flow deficits of $1,564,060 from
operating activities. The Registrant invested $8,044 in the
acquisition of plant equipment during the first six months of
2000. The Registrant met its cash requirements during the first
six months of 2000 through the proceeds of $2,695,320 of debt
secured by the Registrant's assets. In addition, during the
first six months of 2000, the Registrant repaid $1,092,204 of
previously borrowed funds.
On June 8, 2000, the Registrant closed on a private placement
funding with investors represented by May Davis Group, Inc., a
registered investment banking firm. This funding was structured
as $520,000 principal amount, 4% coupon convertible debentures
due in 2005. The second part of the funding consists of a
$2,000,000 equity line of credit agreement that is backed by 4%
convertible debentures due in 2005.
(b) $520,000 Convertible Debenture.
The $520,000 part of the funding was placed with a total of 11
investors, all of which are accredited. The $520,000 convertible
debentures that have been issued pursuant to this private
placement have the following terms and conditions:
The debenture holder receives an interest rate of 4% annually on
the outstanding debenture face amount.
Debentures are convertible into common stock of the Registrant at
either:
120% of the closing bid price on the closing date (this amount
has been calculated and agreed upon by both the Registrant and
May Davis as being a conversion price of $0.20), or
80% of the average closing bid price (as reported by Bloomberg)
for any four (4) days of the previous five (5) days immediately
preceding the date of conversion.
The Registrant has entered into a securities purchase agreement,
and a registration rights agreement with each of the
aforementioned investors regarding their investment in
convertible debentures with the Registrant.
The Registrant maintains the right to redeem any outstanding
debentures with five days advance notice at the redemption price
of 120% of the face amount plus any accrued interest due.
The investor can begin converting the debenture 90 days from the
date of closing.
(c) $2,000,000 Equity Line of Credit.
The Registrant has entered into a $2,000,000 equity line of
credit agreement with an institutional investor, GMF Holdings,
arranged through the placing agent, May Davis Group, Inc.; none
of this line of credit has been drawn against as of the date of
this prospectus). This line of credit is based on the following
terms and conditions:
The $2,000,000 line of credit is structured whereby the
Registrant can request advances from the investor in exchange for
4% debentures that are then convertible into the Registrant's
common stock at an exchange rate equal to 80% of the average
closing bid price (as reported by Bloomberg) of the Registrant's
common stock for any four (4) of the five (5) trading days
immediately preceding the date of conversion.
The Registrant has a period of 24 months from the date of closing
(June 8, 2000) in which to draw against the line of credit and is
able to request advances on a 30-day basis as outlined by a pre-
defined table of previous 30-day average daily trading amounts as
follows:
30-Day Average Daily Trading (1) Maximum Advance Amount (2)
$25,000 - $50,000 $100,000
$50,001 - $100,000 $200,000
$100,001 - $200,000 $350,000
$200,001 and Over $500,000
(1) The 30-Day Average Trading Volume shall be equal to the average
of the Bid Price multiplied by the volume for each of the 30
calendar days preceding the Advance Date.
(2) Assuming that no Advances have been made pursuant to this
Agreement during the preceding 30 calendar days.
The investor has the right to begin converting its debentures to
shares of the Registrant's common stock 90 days from the closing
date. In the event that the registration statement has not been
deemed effective by the Securities and Exchange Commission, the
Registrant will issue restricted shares to the investor.
The Registrant has entered into a convertible debenture
agreement, registration rights agreement and a line of credit
agreement with GMF Holdings.
(d) Both Funding Transactions.
Regarding both funding transactions as outlined above:
Any debentures that have not been converted as of the due date,
which is five years from the closing date, are to be converted to
common stock in the Registrant per the above rates. The
Registrant has agreed to register shares that will be issued
pursuant to the convertible debentures and the line of credit
agreement in a Form SB-2 registration statement. This
registration was filed on July 24, 2000 and will become effective
approximately August 21, 2000. Therefore, there are no penalties
that will attach as set forth under the Registration Rights
Agreement.
The registration is to remain effective for the life of the
convertible debentures (five years from June 8, 2000).
The Registrant has entered into a placement agency agreement with
May Davis Group, Inc. and has agreed to pay a commission equal to
10% from net proceeds of both offerings. The Registrant has also
issued a total of: 400,000 warrants to May Davis Group, Inc.
and/or its assigns pursuant to this underwriting to purchase
common stock of the Registrant. The warrants have a strike price
equal to 110% of the closing bid price on the date of closing.
The warrants were granted on June 21, 2000 and have an exercise
life of 5 years. The warrants can be exercised on either a cash
or cashless basis.
Net proceeds of the first portion of this funding package equal
$443,000 which is the amount funded ($520,000) less 10% brokers
commission ($52,000) and $25,000 in legal fees. The Registrant
will pay a 10% commission to May Davis Group, Inc. out of
proceeds of each advance made against the line of credit. The
proceeds from this offering are designated for use as working
capital.
(e) Future Capital Raising.
While the Registrant has raised capital to meet its working
capital and financing needs in the past, additional financing is
required in order to meet the Registrant's current and projected
cash flow deficits from operations. As previously mentioned the
Registrant has obtained financing in the form of equity in order
to provide the necessary working capital. The Registrant
currently has no other commitments for financing. There are no
assurances the Registrant will be successful in raising the funds
required.
The Registrant has issued shares of its common Stock from time to
time in the past to satisfy certain obligations, and expects in
the future to also acquire certain services, satisfy indebtedness
and/or make acquisitions utilizing authorized shares of the
capital stock of the Registrant. Subsequent to the period ending
June 30, 2000, the Registrant has granted 2,950,000 options to
employees under an authorized Employee Stock Option Plan.
Additionally, 400,000 warrants have been issued for services
rendered during the period ended June 30, 2000.
Year 2000 Issue.
The Year 2000 issue arises because many computerized systems
use two digits rather than four to identify a year. Date
sensitive systems may recognize the year 2000 as 1900 or some
other date, resulting in errors when information using the year
2000 date is processed. In addition, similar problems may arise
in some systems which use certain dates in 1999 to represent
something other than a date. The effects of the Year 2000 issue
may be experienced after January 1, 2000, and if not addressed,
the impact on operations and financial reporting may range from
minor errors to significant system failure which could affect the
Registrant's ability to conduct normal business operations. This
creates potential risk for all companies, even if their own
computer systems are Year 2000 compliant. It is not possible to
be certain that all aspects of the Year 2000 issue affecting the
Registrant, including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.
The Registrant currently believes that its systems are Year 2000
compliant in all material respects. Although management is not
aware of any material operational issues or costs associated with
preparing its internal systems for the Year 2000, the Registrant
may experience serious unanticipated negative consequences (such
as significant downtime for one or more of its suppliers) or
material costs caused by undetected errors or defects in the
technology used in its internal systems. Furthermore, the
purchasing patterns of consumers may be affected by Year 2000
issues. The Registrant does not currently have any information
about the Year 2000 status of its potential material suppliers.
The Registrant's Year 2000 plans are based on management's best
estimates.
Forward Looking Statements.
The foregoing Management's Discussion and Analysis contains
"forward looking statements" within the meaning of Rule 175 of
the Securities Act of 1933, as amended, and Rule 3b-6 of the
Securities Act of 1934, as amended, including statements
regarding, among other items, the Registrant's business
strategies, continued growth in the Registrant's markets,
projections, and anticipated trends in the Registrant's business
and the industry in which it operates. The words "believe,"
"expect," "anticipate," "intends," "forecast," "project," and
similar expressions identify forward-looking statements. These
forward-looking statements are based largely on the Registrant's
expectations and are subject to a number of risks and
uncertainties, certain of which are beyond the Registrant's
control. Actual events may differ materially from those
anticipated in the forward-looking statements. Important risks
that may cause such a difference include: general domestic and
international economic business conditions, increased competition
in the Registrant's markets and products. Other factors may
include availability and terms of capital, and/or increases in
operating and supply costs. Market acceptance of existing and
new products, rapid technological changes, availability of
qualified personnel also could be factors. Changes in the
Registrant's business strategies and development plans, and
changes in government regulation could adversely affect the
Registrant. Although the Registrant believes that the
assumptions underlying the forward-looking statements contained
herein are reasonable, any of the assumptions could be
inaccurate. There can be no assurance that the forward-looking
statements included in this filing will prove to be accurate. In
light of the significant uncertainties inherent in the forward-
looking statements included herein, the inclusion of such
information should not be regarded as a representation by the
Registrant that its objectives and expectations will be achieved.
The Registrant disclaims any intent or obligation to update
"forward looking statements."
PART II.
ITEM 1. LEGAL PROCEEDINGS.
Other than as set forth below, the Registrant is not a party to
any material pending legal proceedings and, to the best of its
knowledge, no such action by or against the Registrant has been
threatened.
Citibank, Federal Savings Bank, a federal savings bank, by and
through its service agent, Citibank, N.A., a national banking
association v. Majestic Modular Buildings, Ltd., Cal-American
Building Company, Inc. et al. (Case No. 182714, Superior Court of
the State of California, County of Stanislaus). On October 19,
1998, Plaintiff commenced an action by filing a complaint
alleging that Majestic Modular Buildings, Ltd., leased raw
materials from Cal-American Building Company, Inc. that was
subject to a security interest owned by Plaintiff. The complaint
also alleges that Majestic Modular Buildings, Ltd.'s entering
into a license agreement and real property lease with Cal-
American Building Company, Inc., constituted fraudulent transfers
or conveyances by Cal-American Building Company, Inc. to Majestic
Modular Buildings, Ltd. Plaintiff sought damages against Majestic
Modular Buildings, Ltd., and the other defendants in the amount
of $299,822 and sought to set aside the transfers of any asset
that occurred under the Equipment Lease Agreement, the license
agreement and the real property lease between Majestic Modular
Buildings, Ltd. and Cal-American Building Company, Inc. The
Registrant answered Plaintiff's complaint. In July 2000, the
Registrant settled this litigation with a total payment to
Citibank of $68,000; in return, the action was dismissed with
prejudice.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On June 8, 2000, the Registrant closed on a private placement
funding with investors represented by May Davis Group, Inc., a
registered investment banking firm. The Registrant issued
$520,000 principal amount, 4% coupon convertible debentures due
in 2005. These debentures were placed with a total of 11
investors, all of which are accredited. This firm received a
placement fee and certain warrants in connection with these
transactions. The convertible debentures have the specific
terms and conditions as set out under Management Discussion and
Analysis of Financial Condition and Results of Operations.
These transactions were exempt from the registration
requirements under the Securities Act of 1933 based on Rule 506
of Regulation D. These offerings were made only to sophisticated
investors; that is, the investor either alone or with his
purchaser representative(s) has such knowledge and experience in
financial and business matters that he is capable of evaluating
the merits and risks of the prospective investment, or the issuer
reasonably believes immediately prior to making any sale that
such purchaser comes within this description
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Reports on Form 8-K. No reports on Form 8-K were filed
during the three month period covered this Form 10-QSB.
(b) Exhibits. Exhibits included or incorporated by
reference herein: See Exhibit Index.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
The Majestic Companies, Ltd.
Dated: August 9, 2000 By: /s/ Francis A. Zubrowski
Francis A. Zubrowski, President
EXHIBIT INDEX
Exhibit Description
No.
2.1 Agreement and Plan of Merger between Skytex International,
Inc., and The Majestic Companies, Ltd., dated October 8, 1998
(incorporated by reference to Exhibit 8.1 to the Form 10-SB/A
filed on February 8, 2000).
2.2 First Amendment to Agreement and Plan of Merger between
Skytex International, Inc., and The Majestic Companies, Ltd.,
dated December 10,1998 (incorporated by reference to Exhibit 8.2 to
the Form 10-SB/A filed on February 8, 2000).
2.3 Articles of Merger of Domestic and Foreign Corporations into
Skytex International, Inc., dated November 3, 1998 (incorporated by
reference to Exhibit 8.4 to the Form 10-SB/A filed on February 8,
2000).
2.4 State of Delaware Certificate of Merger of
Domestic Corporation andForeign Corporation, dated December 16, 1998
(incorporated by reference to Exhibit 8.3 to the Form 10-SB/A filed on
February 8, 2000).
3.1 Articles of Incorporation, including all amendments
thereto (incorporated by reference to Exhibit 2.1 to the Form 10-
SB/A filed on February 8, 2000).
3.2 Amended and Restated Bylaws (incorporated by reference
to Exhibit 2.2 to the Form 10-SB/A filed on February 8, 2000).
4.1 Warrants to purchase 100,000 shares of the Registrant,
owned by Margaret C. Hubard expiring August 27, 2001 and executed
on August 27, 1999 (incorporated by reference to Exhibit 6.16 to
the Form 10-SB/A filed on February 8, 2000).
4.2 Form of Securities Purchase Agreement between the Registrant
and investors (incorporated by reference to Exhibit 4.2 to the
Form SB-2 filed on July 24, 2000).
4.3 Form of Subordinated Convertible Debenture issued by the
Registrant to investors (incorporated by reference to Exhibit 4.4
to the Form SB-2 filed on July 24, 2000).
4.4 Form of Subordinated Convertible Debenture issued by the
Registrant to GMF Holdings (incorporated by reference to Exhibit
4.4 to the Form SB-2 filed on July 24, 2000).
4.5 Form of Registration Rights Agreement between the Registrant
and investors (incorporated by reference to Exhibit 4.5 to the
Form SB-2 filed on July 24, 2000).
4.6 Warrant to Purchase Common Stock issued by the Registrant to
May Davis Group, Inc. and its designees (incorporated by
reference to Exhibit 4.6 to the Form SB-2 filed on July 24,
2000).
4.7 Line of Credit Agreement between the Registrant, May Davis
Group, Inc., and GMF Holdings, dated June 8, 2000 (incorporated
by reference to Exhibit 4.7 to the Form SB-2 filed on July 24,
2000).
10.1 Office Lease between Majestic Motor Car Company, Ltd.
and Mission Valley Business Center LLC, dated December 31, 1997
(incorporated by reference to Exhibit 6.1 to the Form 10-SB/A
filed on February 8, 2000).
10.2 Patent License Agreement between Majestic Motor Car Company,
Ltd. and Adrian P. Corbett, dated February 20, 1998 (incorporated
by reference to Exhibit 6.12 to the Form 10-SB/A filed on
February 8, 2000).
10.3 License Agreement dated April 22, 1998, between
Majestic Modular Buildings, Ltd., Steven D. Rosenthal, and Cal-
American Building Company, Inc., dated April 22, 1998
(incorporated by reference to Exhibit 6.8 to the Form 10-SB/A
filed on February 8, 2000).
10.4 Real Property Lease between Majestic Modular Buildings,
Ltd. and Berberian Farms, dated May 1, 1998 (incorporated by
reference to Exhibit 6.2 to the Form 10-SB/A filed on February 8,
2000).
10.5 Promissory Note payable from Skytex International, Inc.
to Mei Wah Company, Inc., dated October 1, 1998 (incorporated by
reference to Exhibit 6.13 to the Form 10-SB/A filed on February
8, 2000).
10.6 Employment Agreement between the Registrant and Francis
A. Zubrowski, dated November 1, 1998 (incorporated by reference
to Exhibit 6.5 to the Form 10-SB/A filed on February 8, 2000).
10.7 Assignment by Mei Wah Company, Inc. Note of $260,000 to
Gail E. Bostwick, dated April 8, 1999 (incorporated by reference
to Exhibit 6.6 to the Form 10-SB/A filed on February 8, 2000).
10.8 Security Agreement between the Registrant and Gail E.
Bostwick, dated May 21, 1999 (incorporated by reference to
Exhibit 6.7 to the Form 10-SB/A filed on February 8, 2000).
10.9 Agreement for a Funding Source between Majestic Modular
Buildings, Ltd. and Rick Griffey, dated May 21, 1999
(incorporated by reference to Exhibit 6.11 to the Form 10-SB/A
filed on February 8, 2000).
10.10 Consulting Agreement between The Majestic Companies,
Ltd. and Venture Consultants, LLC, dated May 28, 1999
(incorporated by reference to Exhibit 6.14 to the Form 10-SB/A
filed on February 8, 2000).
10.11 Equipment Lease between Majestic Modular
Buildings, Ltd. and Saddleback Financial, dated August 10, 1999
(incorporated by reference to Exhibit 6.3 to the Form 10-SB/A
filed on February 8, 2000).
10.12 Disbursement Agreement between The Majestic Companies,
Ltd., Majestic Transportation Products, Ltd., and Margaret C.
Hubard, dated August 26, 1999 (incorporated by reference to
Exhibit 6.18 to the Form 10-SB/A filed on February 8, 2000).
10.13 Security Agreement between The Majestic Companies,
Ltd., Majestic Transportation Products, Ltd., and Margaret C.
Hubard, August 26, 1999 (incorporated by reference to Exhibit
6.17 to the Form 10-SB/A filed on February 8, 2000)
10.14 Promissory Note payable to Margaret C. Hubard by
the Registrant and Majestic Transportation Products, Ltd., dated
August 27, 1999 (incorporated by reference to Exhibit 6.9 to the
Form 10-SB/A filed on February 8, 2000).
10.15 Lease/Purchase Agreement between the Registrant
and A-Z Bus Sales, Inc., dated August 31, 1999 (incorporated by
reference to Exhibit 6.4 to the Form 10-SB/A filed on February 8,
2000).
10.16 Investment Banking Services Agreement between the
Registrant and NC Capital Markets, Inc. dated September 29, 1999
(incorporated by reference to Exhibit 6.15 to the Form 10-SB/A
filed on February 8, 2000).
10.17 Promissory Note between the Registrant and Francis A.
Zubrowski, dated October 20, 1999 (incorporated by reference to
Exhibit 6.19 to the Form 10-SB/A filed on February 8, 2000).
10.18 Consulting Services Agreement between the Registrant
and Richard Nuthmann, dated February 5, 2000 (incorporated by
reference to Exhibit 10.18 of the Form 10-QSB filed on May 15,
2000).
10.19 Consulting Services Agreement between the Registrant
and Robert Schuster, dated February 8, 2000 (incorporated by
reference to Exhibit 10.19 of the Form 10-QSB filed on May 15,
2000).
10.20 Consulting Services Agreement between the Registrant
and Dominic Migliorini, dated February 15, 2000 (incorporated by
reference to Exhibit 10.20 of the Form 10-QSB filed on May 15,
2000).
10.21 Escrow Agreement between the Registrant, May Davis
Group, Inc., and First Union National Bank, dated June 8, 2000
(incorporated by reference to Exhibit 10.21 to the Form SB-2
filed on July 24, 2000).
10.22 Placement Agency Agreement between the Registrant and
May Davis Group, Inc., dated June 10, 2000 (incorporated by
reference to Exhibit 10.22 to the Form SB-2 filed on July 24,
2000).
10.23 Escrow Agreement between the Registrant, May Davis
Group, Inc., and First Union National Bank, dated June 8, 2000
(incorporated by reference to Exhibit 10.23 to the Form SB-2
filed on July 24, 2000).
21 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21 to the Form SB-2 filed on July 24, 2000).
27 Financial Data Schedule (see below).
