U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
THE MAJESTIC COMPANIES, LTD.
(Name of Small Business Issuer in its Charter)
Nevada 336000 88-0293171
(State or jurisdiction (Primary Standard Industrial I.R.S. Employer
of incorporation Classification Code Number) Identification No.)
8880 Rio San Diego Road, 8th Floor, San Diego, California 92108;
(619) 209-6077
(Address and telephone number of Registrant's principal executive
offices and principal place of business)
Brian F. Faulkner, Esq., 3900 Birch Street, Suite 113, Newport
Beach, California;
(949) 975-0544
(Name, address, and telephone number of agent for service)
Approximate date of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration number of
the earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If the delivery of the prospectus is expected to be made pursuant to Rule 434
check the following box.
CALCULATION OF REGISTRATION FEE
Title of Amount to be Proposed Proposed Amount of
Securities Registered Maximum Aggregate Registration
to be Offering Offering Fee
Registered Price Per Price
Share (1)
Common
Stock 120,000,000 $0.155 $18,600,000 $4,910.40
The company hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date
until the company shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
(1) Pursuant to Rule 416, such additional amounts to prevent dilution
from stock splits or similar transactions.
(2) Calculated in accordance with Rule 457(c): The average of
the bid and asked price as of July 17, 2000
PROSPECTUS
THE MAJESTIC COMPANIES, LTD.
120,000,000 Shares
Common Stock*
The Majestic Companies, Ltd., a Nevada corporation, is hereby
offering up to 120,000,000 shares of its $0.001 par value common
stock on a delayed basis under Rule 415 pursuant to the following
plan: (a) Shares of common stock of the company will be sold
under a shelf registration under Rule 415: (a) 15,000,000 shares
to cover the debenture to be issued under a Line of Credit
Agreement; (b) 6,000,000 shares to cover the debenture already
issued under a $520,000 convertible debenture offering; (c)
400,000 shares to cover the shares underlying warrants issued in
connection with an underwriting of the sale of these debentures;
(d) 9,000,000 shares to issued to the president of the company in
consideration of, and in lieu of, one year's worth of
compensation due under his existing employment contract with the
company and the cancellation of this contract, and entering into
a new employment contract between the parties; and (e) 89,600,000
shares to be sold for cash to the public and/or institutional
investors, for possible future acquisitions of companies and/or
assets, and for consulting services for the company.
The shares offered hereby are highly speculative and involve a
high degree of risk to public investors and should be purchased
only by persons who can afford to lose their entire investment
(See "Risk Factors" on page 5).
These securities have not been approved or disapproved by the
U.S. Securities and Exchange Commission or any state securities
commission nor has the U.S. Securities and Exchange Commission or
any state securities commission passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary
is a criminal offense.
Price to Public Underwriting Proceeds to
Discounts and Isser (3)
Commissions
Per Share $ (1) $ (2) $ (1)
Total Maximum $ (1) $ (2) $ (1)
Information contained herein is subject to completion or
amendment. The registration statement relating to the securities
has been filed with the U.S. Securities and Exchange Commission.
The securities may not be sold nor may offers to buy be accepted
prior to the time the registration statement becomes effective.
This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of
these securities in any state in which such offer, solicitation
or sale would be unlawful prior to registration or qualification
under the securities laws of any such state.
Subject to Completion, Dated: ______________, 2000
* Pursuant to SEC Rule 416, there will be a change in the amount
of securities being issued to prevent dilution resulting from
stock splits, stock dividends, or similar transaction.
(1) The price per share, the maximum amount to be raised under this
offering and the proceeds to the issuer will be dependent on the
market price at the times the shares are sold, including the
timing of to be taken under a line of credit agreement.
(2) Except as noted under Plan of Distribution with regard to a line
of credit agreement, no commissions will be paid in connection
with the sale of the shares on this delayed basis. The exact
amount of the commission will be dependent upon the amount drawn
under the line of credit.
(3) The Proceeds to the company is before the payment of certain
expenses in connection with this offering. See "Use of Proceeds."
TABLE OF CONTENTS
PROSPECTUS SUMMARY 5
RISK FACTORS 7
USE OF PROCEEDS 16
DETERMINATION OF OFFERING PRICE 17
PLAN OF DISTRIBUTION 17
LEGAL PROCEEDINGS 22
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS 22
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 24
DESCRIPTION OF SECURITIES 26
INTEREST OF NAMED EXPERTS AND COUNSEL 28
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES 28
ORGANIZATION WITHIN LAST FIVE YEARS 33
DESCRIPTION OF BUSINESS 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 49
DESCRIPTION OF PROPERTY 54
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 54
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 55
EXECUTIVE COMPENSATION 56
FINANCIAL STATEMENTS 59
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 86
AVAILABLE INFORMATION 86
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed
information appearing elsewhere in this prospectus. Each
prospective investor is urged to read this prospectus in its
entirety.
The Company.
(a) Background.
The Majestic Companies, Ltd. was incorporated under the laws of
the State of Nevada on December 3, 1992 under the name of Rhodes,
Wolters & Associates, Inc. In May 1998, Rhodes changed its name
to SKYTEX International, Inc., and in December, 1998, merged with
a Delaware corporation named "The Majestic Companies, Ltd."
SKYTEX had no material operations during the period prior to this
merger. The Delaware corporation SKYTEX acquired in the merger
had operations and formerly did business as "Majestic Motor Car
Company, Ltd." and prior to that "Majestic Minerals, Ltd." As a
part of the merger, SKYTEX's corporate name was changed to "The
Majestic Companies, Ltd." Majestic Minerals, Ltd. was a British
Columbia, Canada corporation that changed its name to Majestic
Motor Car Company in April, 1997. Subsequent to the name change,
in March 1998, Majestic Motor Car Company merged with and into
The Majestic Companies, Ltd., the Delaware corporation SKYTEX
acquired in December, 1998. The Delaware corporation had no
prior material operations and was organized for the purpose of
reincorporating under the laws of the State of Nevada.
To consummate the SKYTEX merger, stockholders of the pre-merger
Delaware corporation, "The Majestic Companies, Ltd.", were issued
one share of SKYTEX common stock with par value of $0.001 for
each one share of common stock owned as of December 11, 1998, of
the pre-merger Delaware corporation "The Majestic Companies,
Ltd."
(b) Business.
The Majestic Companies, Ltd. is the parent of: Majestic Modular
Buildings, Ltd., Majestic Transportation Products, Ltd., and
Majestic Financial, Ltd. All operations of The Majestic
Companies, Ltd. are conducted through its three wholly owned
subsidiaries:
The Majestic Modular division designs, builds, leases and sells
re-locatable modular structures including classrooms, office
buildings, medical facilities and telecommunication equipment
shelters to primarily end users located in California. The
Modular division operates from and maintains administrative and
manufacturing facilities in Modesto, California.
Majestic Transportation designs and markets transportation
related safety equipment for the school bus market. The
Transportation Products division operates from an administrative
and design engineering facility located in San Diego, California.
Majestic Financial is engaged in the business of acquiring and
leasing re-locatable modular structures to private and public
California school districts as well as commercial end users.
The Offering.
Shares of common stock of the company will be sold under a shelf
registration under Rule 415. A total of 120,000,000 shares are
to be registered under this offering for the following purposes:
15,000,000 shares to cover the debenture to be issued under a
line of credit agreement.
6,000,000 shares to cover the debenture already issued under a
$520,000 convertible debenture offering
400,000 shares to cover the shares underlying warrants issued in
connection with an underwriting of the sale of these debentures.
9,000,000 shares to issued to the president of the company in
consideration of, and in lieu of, all compensation due under his
existing employment contract with the company and the
cancellation of this contract.
89,600,000 shares for the following purposes:
to be sold for cash to the public and/or institutional investors
for possible future acquisitions of companies and/or assets
for consulting services for the company
Liquidity of Investment.
Although the shares will be "free trading," there has been only a
limited public market for the shares. Therefore, an investor may
not be able to sell his or her shares when desired; therefore, an
investor may consider his or her investment to be long-term.
Risk Factors.
An investment in the company involves risks due in part to a
limited previous financial and operating history of company, as
well as competition in the industry of the company. Also,
certain potential conflicts of interest arise due to the
relationship of the company to management and others.
RISK FACTORS
The securities offered hereby are highly speculative in nature
and involve a high degree of risk. They should be purchased only
by persons who can afford to lose their entire investment.
Therefore, each prospective investor should, prior to purchase,
consider very carefully the following risk factors among other
things, as well as all other information set forth in this
prospectus.
Limited Prior Operations.
(a) History of Losses; Accumulated Deficit; Working Capital Deficiency.
The company has incurred losses of $2,373,288 and
$4,123,634 for the fiscal years 1998 and 1999, respectively.
The likelihood of the success of the company must be considered
in the light of the problems, expenses, difficulties,
complications, and delays frequently encountered in connection
with the expansion of a business and the competitive environment
in which the company operates. Unanticipated delays, expenses
and other problems such as setbacks in product development, and
market acceptance are frequently encountered in connection with
the expansion of a business. As a result of the fixed nature of
many of the company's expenses, the company may be unable to
adjust spending in a timely manner to compensate for any
unexpected delays in the development and marketing of the
company's products or any capital raising or revenue shortfall.
Any such delays or shortfalls will have an immediate adverse
impact on the company's business, operations and financial
condition.
There is only a limited operating history upon which to base an
assumption that the company will be able to achieve its business
plans. In addition, the company has only limited assets. As a
result, there can be no assurance that the company will generate
significant revenues in the future; and there can be no assurance
that the company will operate at a profitable level. If the
company is unable to obtain customers and generate sufficient
revenues so that it can profitably operate, the company's
business will not succeed.
Significant Working Capital Requirements.
The working capital requirements associated with the
plan of business of the company will continue to be significant.
The company anticipates, based on currently proposed assumptions
relating to its operations (including with respect to costs and
expenditures and projected cash flow from operations), that it
cannot generate sufficient cash flow to continue its operations
for an indefinite period at the current level without requiring
additional financing. The company will need to raise additional
capital in the next six months, through debt or equity, to fully
implement its sales and marketing strategy and grow. In
addition, the company currently plans one or more acquisitions
over the next twelve months and will need financing in excess of
$1,000,000 during the year 2000 in order to pay for these
anticipated acquisitions and to sustain the company. In the
event that the company's plans change or its assumptions change
or prove to be inaccurate or if cash flow from operations proves
to be insufficient to fund operations (due to unanticipated
expenses, technical difficulties, problems or otherwise), the
company would be required to seek additional financing sooner
than currently anticipated or may be required to significantly
curtail or cease its operations.
Company Only Has Limited Assets.
The company has only limited assets. As a result, there can be
no assurance that the company will generate significant revenues
in the future; and there can be no assurance that the company
will operate at a profitable level. If the company is unable to
obtain customers and generate sufficient revenues so that it can
profitably operate, the company's business will not succeed.
Significant Long-Term Indebtedness Could Adversely Impact
Company's Business.
The company has incurred substantial short-term indebtedness and
long-term indebtedness which aggregated $228,139 and $386,900,
respectively, as of March 30, 2000. Funds generated both by the
company's operations and through private placements have been
sufficient to pay the interest on its short-term and long-term
indebtedness. There can be no assurance, however, that the
company will be able to pay the principal due on its short-term
and long-term indebtedness.
Limited Safety Product Demand and Acceptance of SAFE-T-BART
System.
Management believes that demand for the company's SAFE-T-BART
product will depend, in part, upon the continued interest in
improving safety on public and private bus transportation. There
are no assurances that current trends towards passenger safety
will continue. Even if such trends continue, there are no
assurances that the company's products will find acceptance with
purchasers and operators of school bus fleets, or if accepted,
that such acceptance will continue. While the conclusions reached
by the company's limited market research have been favorable,
there are no assurances that actual operating results will reach
the levels indicated by such research.
Dependence on Certain Customers and Lack of Long-Term Supply
Contracts with Customers.
Although the company sells its products both through distributors
and directly to end users, it relies significantly on
relationships with several customers. The company does not have
any long-term supply agreements with any of its customers. The
loss of any of these customers could adversely affect the
company's profitability.
During fiscal year 1999, the company recognized approximately
forty percent (40%) of its revenues from Cal-American Building
Co., Inc., a California corporation which subsequently filed a
Chapter 11 bankruptcy and ceased operations. Management of the
company has obtained new customers to replace the Cal-American
revenues, and although there can be no assurance, does not
anticipate the loss of Cal-American to have a material adverse
effect on the company.
Dependence on Certain Suppliers and Lack of Long-Term Contracts
with Suppliers.
Although the company has a favorable relationship with its
suppliers, marketplace variants such as a bankruptcy, strike,
liquidation, acquisition or merger, war, civil unrest, and
atmospheric and other weather-related phenomenon could disrupt
these relationships at any time. The company currently has no
long term supply agreements to control costs and assure
availability of inventory.
Historically, the company has generally been able to obtain its
inventory without significant difficulty or delay. There have,
however, been times when the company was forced to pay a premium
for inventory in short supply and has experienced occasional
delays. Any significant changes in supply, including increased
costs, could adversely affect planned growth. The company has
not experienced any such significant changes in supply or
increased costs, other than the moderate effect of changes in the
exchange rate of foreign currencies against the U.S. dollar, and
does not anticipate significant difficulty regarding these
matters.
Government Regulations Could Adversely Impact Company's Business.
The company's design, manufacturing, and construction activities
are subject to various federal, state, local and foreign laws and
regulations designed to protect the environment from waste
emissions and the handling, treatment and disposal of solid and
hazardous wastes, as well as California, Federal and other state
regulations governing the design and construction of classroom
and other modular structures, and transportation safety devices.
Although the company believes that it is and has been in
substantial compliance with all such laws, ordinances and
regulations applicable to these operations, there may be
liabilities or conditions associated with such activities of
which the company is not aware. Accordingly, there can be no
assurance that future compliance with such requirements will not
have a material adverse effect on the company's financial
condition and operations.
The company is also subject to the Federal Occupations Safety and
Health Act and other laws and regulations affecting the safety
and health of employees and the Fair Labor Standards Act and
various state laws governing such matters as minimum wage
requirements, overtime and other working conditions and
citizenship requirements. The company is also subject to various
state and local building codes and licensing requirements.
Company management believes the company has obtained all
necessary licenses and permits and that the company is in
substantial compliance with applicable federal, state and local
laws and regulations.
Liability Insurance May Not Be Adequate.
The company is and may be subject to product liability
claims arising out of the use of the company's products. In
addition, the company is and may be subject to other liability
resulting from its day to day operations, including claims for
negligence and environmental liability. On April 20, 1999, the
company procured general liability, automobile and property
insurance coverage with limits in the respective amounts of
$1,000,000 ($10,000,000 umbrella), $1,000,000, and $2,250,000
($5,000,000 umbrella). If not renewed, these coverages are
scheduled to expire on April 20, 2001. Although management of the
company believes these coverage limits to be adequate, there can
be no assurance that these limitations are adequate or that the
coverage will continue to be
available at affordable rates.
States Other Than California May Not Approve the Company's
Existing Modular Structures.
Currently, the company's modular classroom structures used in
various California school districts have been approved by the
State of California. There is no guarantee or assurance that
other states will approve the form, composition, size,
specifications, materials or components of the company's modular
classroom or other structures that have already been approved in
California. If other states require the company to modify the
company's basic modular classrooms or other structures used in
California, the company could incur substantial costs to make
these classrooms and/or other structures comply with other states
laws and building codes. The incurring of such costs could
significantly, adversely affect the company's profitability,
revenues and operations.
Reduced Labor Availability and Employee Relations.
Currently, skilled and unskilled labor is reasonably available in
California, but additional light industry moving to the area
could reduce these labor pools. Furthermore, there can be no
assurance that the unskilled work force currently available will
be trainable as employees for the company that such labor will
remain available. Any increase in the competition for employees
could have a significant adverse effect upon both the
availability and the price of skilled and unskilled labor.
The company currently believes its employee relations are
good. Currently, none of the company's employees are unionized.
There can be no assurance, however, that a collective bargaining
unit will not be organized and certified in the future. If
certified in the future, a work stoppage by a collective
bargaining unit could be disruptive and have a materially adverse
effect on the company until normal operations resume.
Dilution Could Adversely Affect Value of Stock and Percentage of
Stock Owned.
The company has warrants and stock options outstanding that could
result in the issuance of 5,445,000 shares of common stock. To
the extent such shares are issued, the percentage of common stock
held by existing company common stockholders will be reduced.
Under certain circumstances, the exercise of any or all of the
warrants or stock options might result in further dilution of the
net tangible book value of the existing company stockholders'
shares. For the life of the warrants or stock options, the
holders thereof are given, at nominal cost, the opportunity to
profit from a rise in the market price of the common stock, if
any. The holders of the warrants or stock options may be
expected to exercise them at a time when the company may, in all
likelihood, be able to obtain needed capital on more favorable
terms. In addition, sales under this offering could cause
further dilution in the value of the outstanding shares of common
stock of the company.
Uncertainty of Government Funding to School Districts for
Purposes of Purchasing or Leasing Modular Structures in
California or Elsewhere.
The company has historically relied on the financial ability of
various school districts to purchase or lease the company's
modular classrooms. Since the school district's source of
funding originates from the government or various state bonds,
there is no guarantee that the government or state bonds will
continue to be available to provide the funding necessary for the
school districts to purchase or lease the company's modular
classrooms.
Uncertainty That School Districts Will Continue to Purchase or
Lease Modular Relocatable Structures Over More Fixed, Permanent
Structural Alternatives.
Although the company believes the conditions affecting the market
for modular buildings to be favorable, there is no assurance that
individual school districts will choose to purchase or lease the
company's modular re-locatable classrooms over more fixed,
permanent structural alternatives.
Uncertainty of Protection of Patents, Licenses, Trade Secrets and
Trademarks Could Adversely Impact Company's Business.
The company is the exclusive licensee for a patent related to its
SAFE-T-BART product. The company's success depends, in part, on
its ability to maintain the exclusive right and license to
manufacture and sell the SAFE-T-BART. There can be no assurance
that the Patent License Agreement between the company and Adrian
Corbett will continue in full force and effect. If the Patent
License Agreement was to be terminated, or the patent for the
SAFE-T-BART cancelled for any reason, the company's prospects
could be adversely affected.
There is also no assurance that Adrian Corbett will be able to
obtain a patent on the SAFE-T-SEATT product, or that the company
will be successful in obtaining the exclusive right and license
to use the SAFE-T-SEATT product from Mr. Corbett. However, there
can be no assurance that such a patent, if granted, will provide
the company with significant protection against competitors.
Litigation may be necessary in the future to protect the
company's patent, and there can be no assurance that the company
will have the financial or managerial resources necessary to
pursue such litigation or otherwise to protect its patent rights.
In addition to pursuing patent protection in appropriate
cases, the company also relies on trade secret protection for its
unpatented proprietary technology. However, trade secrets are
difficult to protect. There can be no assurance that other
companies will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access
to the company's trade secrets, that such trade secrets will not
be disclosed or that the company can effectively protect its
rights to unpatented trade secrets. The company pursues a policy
of having its employees and consultants execute non-disclosure
agreements upon commencement of employment or consulting
relationships with the company, which agreements provide that all
confidential information developed or made known to the
individual during the course of employment shall be kept
confidential except in specified circumstances. There can be no
assurance, however, that these agreements will provide meaningful
protection for the company's trade secrets or other proprietary
information.
Success of Company Dependent on Management.
The company's success is dependent upon the hiring of key
administrative personnel. Only three of the company's officers,
directors, and key employees have an employment agreement with
the company; therefore, there can be no assurance that other
personnel will remain employed by the company after the
termination of such agreements. Should any of these individuals
cease to be affiliated with the company for any reason before
qualified replacements could be found, there could be material
adverse effects on the company's business and prospects. In
addition, management has no experience is managing companies in
the same business as the company.
In addition, all decisions with respect to the management of
the company will be made exclusively by the officers and
directors of the company. Investors will only have rights
associated with minority ownership interest rights to make
decision which effect the company. The success of the company,
to a large extent, will depend on the quality of the directors
and officers of the company. Accordingly, no person should
invest in the shares unless he is willing to entrust all aspects
of the management of the company to the officers and directors.
Limitations on Liability, and Indemnification, of Directors and
Officers.
The company's Articles of Incorporation include
provisions to eliminate, to the fullest extent permitted by the
Nevada Revised Statutes as in effect from time to time, the
personal liability of directors of the Company for monetary
damages arising from a breach of their fiduciary duties as
directors. The Bylaws include provisions to the effect that the
Company may, to the maximum extent permitted from time to time
under applicable law, indemnify any director, officer, or
employee to the extent that such indemnification and advancement
of expense is permitted under such law, as it may from time to
time be in effect. In addition, the Nevada Revised Statutes
provide for permissive indemnification of officers and directors
and the company may provide indemnification under such
provisions. Any limitation on the liability of any director, or
indemnification of directors, officer, or employees, could result
in substantial expenditures being made by the company in covering
any liability of such persons or in indemnifying them.
Potential Conflicts of Interest Involving Management.
Currently, the officers and directors of the company devote 100%
of their time to the business of the company. However, conflicts
of interest may arise in the area of corporate opportunities
which cannot be resolved through arm's length negotiations. All
of the potential conflicts of interest will be resolved only
through exercise by the directors of such judgment as is
consistent with their fiduciary duties to the company. It is the
intention of management, so as to minimize any potential
conflicts of interest, to present first to the board of directors
to the company, any proposed investments for its evaluation.
Influence of Other External Factors on Prospects for Company.
The industry of the company in general is a speculative venture
necessarily involving some substantial risk. There is no
certainty that the expenditures to be made by the company will
result in a commercially profitable business. The marketability
of its products will be affected by numerous factors beyond the
control of the company. These factors include market
fluctuations, and the general state of the economy (including the
rate of inflation, and local economic conditions), which can
affect companies' spending. Factors which leave less money in
the hands of potential customers of the company will likely have
an adverse effect on the company. The exact effect of these
factors cannot be accurately predicted, but the combination of
these factors may result in the company not receiving an adequate
return on invested capital.
No Cumulative Voting
Holders of the shares are not entitled to accumulate their votes
for the election of directors or otherwise. Accordingly, the
holders of a majority of the shares present at a meeting of
shareholders will be able to elect all of the directors of the
company, and the minority shareholders will not be able to elect
a representative to the company's board of directors.
Absence of Cash Dividends
The board of directors does not anticipate paying cash dividends
on the shares for the foreseeable future and intends to retain
any future earnings to finance the growth of the company's
business. Payment of dividends, if any, will depend, among other
factors, on earnings, capital requirements, and the general
operating and financial condition of the company, and will be
subject to legal limitations on the payment of dividends out of
paid-in capital.
Quarterly Fluctuations and Seasonality of Operating Results Could
Adversely Affect Value of Stock.
Operating results may fluctuate on a quarterly basis due to a
variety of factors, including the cycles of orders, shipment of
products from suppliers, the number and timing of new product
introductions, the timing of operation and advertising
expenditures, weather, the year end purchasing cycle, and other
factors. The company believes that factors such as fluctuations
in the quarterly operating results could affect the value of the
company's stock.
Limited Public Market for Company's Securities.
Prior to this offering, there has been only a limited public
market for the shares of common stock being offered. There can
be no assurance that an active trading market will develop or
that purchasers of the shares will be able to resell their
securities at prices equal to or greater than the respective
initial public offering prices. The market price of the shares
may be affected significantly by factors such as announcements by
the company or its competitors, variations in the company's
results of operations, and market conditions in the industries of
the company in general. The market price may also be affected by
movements in prices of stock in general. As a result of these
factors, purchasers of the shares offered may not be able to
liquidate an investment in the shares readily, or at all.
No Assurance of Continued Public Trading Market; Risk of Low
Priced Securities.
There has been only a limited public market for the
common stock of the company. The common stock of the company is
currently quoted on the Over the Counter Bulletin Board. As a
result, an investor may find it difficult to dispose of, or to
obtain accurate quotations as to the market value of the
company's securities. In addition, the common stock is subject to
the low-priced security or so called "penny stock" rules that
impose additional sales practice requirements on broker-dealers
who sell such securities. The Securities Enforcement and Penny
Stock Reform Act of 1990 requires additional disclosure in
connection with any trades involving a stock defined as a penny
stock (generally, according to recent regulations adopted by the
U.S. Securities and Exchange Commission, any equity security that
has a market price of less than $5.00 per share, subject to
certain exceptions), including the delivery, prior to any penny
stock transaction, of a disclosure schedule explaining the penny
stock market and the risks associated therewith. The
regulations governing low-priced or penny stocks sometimes limit
the ability of broker-dealers to sell the company's common stock
and thus, ultimately, the ability of the investors to sell their
securities in the secondary market.
Effects of Failure to Maintain Market Makers.
If the company is unable to maintain a National Association
of Securities Dealers, Inc. member broker/dealers as market
makers, the liquidity of the common stock could be impaired, not
only in the number of shares of common stock which could be
bought and sold, but also through possible delays in the timing
of transactions, and lower prices for the common stock than might
otherwise prevail. Furthermore, the lack of market makers could
result in persons being unable to buy or sell shares of the
common stock on any secondary market. There can be no assurance
the company will be able to maintain such market makers.
Offering Price.
The offering price of the shares will be determined in relation
to the then current market price of the shares on the Over the
Counter Bulletin Board. Because of market fluctuations, there
can be no assurance that the shares will maintain market values
commensurate with the offering price.
"Shelf" Offering
The shares are offered on a delayed basis. No assurance can be
given that all or a majority of the shares will be issued. No
broker-dealer has been retained as an underwriter and no broker-
dealer is under any obligation to purchase any of the shares.
Use of Proceeds Not Specific.
The proceeds of this offering have been allocated only generally.
Proceeds from the offering have been allocated generally to legal
and accounting, and working capital. Accordingly, investors will
entrust their funds with management in whose judgment investors
may depend, with only limited information about management's
specific intentions with respect to a significant amount of the
proceeds of this offering.
Shares Eligible For Future Sale
All of the 1,451,353 shares of common stock which are currently
held, directly or indirectly, by management have been issued in
reliance on the private placement exemption under the Securities
Act of 1933. Such shares will not be available for sale in the
open market without separate registration except in reliance upon
Rule 144 under the Securities Act of 1933. In general, under
Rule 144 a person (or persons whose shares are aggregated) who
has beneficially owned shares acquired in a non-public
transaction for at least one year, including persons who may be
deemed affiliates of the company (as that term is defined under
that rule) would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of 1%
of the then outstanding shares of common stock, or the average
weekly reported trading volume during the four calendar weeks
preceding such sale, provided that certain current public
information is then available. If a substantial number of the
shares owned by these shareholders were sold pursuant to Rule 144
or a registered offering, the market price of the common stock
could be adversely affected.
Potential Status as a Pseudo California Corporation.
Section 2115 of the California General Corporation Law
subjects certain foreign corporations doing business in
California to various substantive provisions of the California
General Corporation Law in the event that the average of its
property, payroll and sales is more than 50% in California and
more than one-half of its outstanding voting securities are held
of record by persons residing in the State of California.
Currently, less than one-half of the outstanding voting shares of
the company are owned by residents of California; however, this
percentage may change in the future as a result of this offering.
Some of the substantive provisions include laws
relating to annual election of directors, removal of directors
without cause, removal of directors by court proceedings,
indemnification of officers and directors, directors standard of
care and liability of directors for unlawful distributions.
Section 2115 does not apply to any corporation which, among other
things, has outstanding securities designated as qualified for
trading as a national market security on NASDAQ if such
corporation has at least eight hundred holders of its equity
securities as of the record date of its most recent annual
meeting of shareholders. It is currently anticipated that the
company may be subject to Section 2115 of the California General
Corporation Law which, in addition to other areas of the law,
will subject the company to Section 708 of the California General
Corporation Law which mandates that shareholders have the right
of cumulative voting at the election of directors.
Uncertainty Due to Year 2000 Problem.
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
company'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
company, including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.
The Year 2000 Problem could affect computers, software and other
equipment used, operated or maintained by the company.
Accordingly, the company is reviewing its internal computer
programs and systems to ensure that the programs and systems will
be Year 2000 compliant. The company presently believes that its
computer systems will be Year 2000 compliant in a timely manner.
However, while the estimated cost of these efforts is not
expected to be material to the company's financial position or
any year's results of operations, there can be assurance to this
effect.
The company believes that it has reviewed and assessed all of the
major computers, software applications, and related equipment
used in connection with its internal operations that would
potentially require modification, upgrade, or replacement to
minimize the possibility of a material disruption to its
business. The company's internal review of such systems did not
identify any material Year 2000 Problem. If the company had
identified an exposure to the Year 2000 Problem, Management
currently estimates the total cost of internal reprogramming of
its software products and the upgrading of purchased hardware and
software would not be material. While this is management's best
current estimate, items outside management's control relating to
the Year 2000 Problem may impact the company. The company
estimates the total cost to the company of completing any
required modifications, upgrades, or replacements of these
internal systems would not have a material adverse effect on the
company's business or results of operations.
In addition to computers and related systems, the operations of
office and facilities equipment such as fax machines,
photocopiers, telephone switches, security systems, and other
common devices may be affected by the Year 2000 Problem.
The discussion of the company's efforts, and management's
expectations, relating to Year 2000 compliance are forward-
looking statements. The company's Year 2000 compliance status
and the level of incremental costs associated therewith, if any,
could be adversely impacted by, among other things, the
availability and cost of programming and testing resources,
vendors' ability to modify proprietary software, and
unanticipated problems identified in ongoing internal compliance
reviews.
USE OF PROCEEDS
The amount of proceeds from this offering will depend on the
offering price per share and the number of shares sold for cash.
When the initial offering price is determined, this prospectus
will be amended to so indicate; then the amount of proceeds from
this offering can be estimated. The proceeds of the offering,
less the expenses of the offering, will be used to provide
working capital for the company.
The following table sets forth the use of proceeds from this
offering (the blank number will be completed upon the amendment
of this prospectus with the initial offering price):
Use of Proceeds Maximum Offering
Amount Percent
Transfer Agent Fee $ 1,000
Printing Costs $ 1,000
Legal Fees $25,000
Accounting Fees $ 1,500
Working Capital
Total
Management anticipates expending these funds for the purposes
indicated above. To the extent that expenditures are less than
projected, the resulting balances will be retained and used for
general working capital purposes or allocated according to the
discretion of the board of directors. Conversely, to the extent
that such expenditures require the utilization of funds in excess
of the amounts anticipated, supplemental amounts may be drawn
from other sources, including, but not limited to, general
working capital and/or external financing. The net proceeds of
this offering that are not expended immediately may be deposited
in interest or non-interest bearing accounts, or invested in
government obligations, certificates of deposit, commercial
paper, money market mutual funds, or similar investments.
DETERMINATION OF OFFERING PRICE
The cash offering price of the shares will be determined, from
time to time, based on the current market price of the shares on
the Over the Counter Bulletin Board.
PLAN OF DISTRIBUTION
On June 8, 2000, the company closed on a private placement
funding with investors represented by May Davis Group, Inc., a
registered investment banking firm with offices in New York City
and Baltimore, Maryland. The funding consists of two parts. The
first part was structured as a $520,000 principal amount, 4%
coupon convertible debenture 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.
$520,000 Convertible Debenture.
The $520,000 part of the funding was placed with a total of 11
investors, all of which are accredited. An accredited investor is
generally defined under federal and state securities laws and
regulations as:
any person whose individual net worth, or joint net worth with
that person's spouse (in either event inclusive of home,
furnishings, and automobiles), at the time of purchase exceeds
$1,000,000, or
any person who had an individual gross income in excess of
$200,000 in each in the two most recent years (or joint income
with that person's spouse in excess of $300,000 in each of those
years), and has a reasonable expectation of reaching that same
income level in the current year.
These investors are as follows:
The following is a list of investors that participated in the
$520,000 portion of the funding, all of which are accredited
investors:
Investor State Amount Invested
Gordon D. Mogerley NJ $320,000
Gerald Holland CT $ 30,000
James Ratliff TX $ 10,000
Rance Merkel TN $ 50,000
John Bolliger ID $ 20,000
Ronald Horner ID $ 20,000
George Knox, II NY $ 10,000
Lowell F. Gill & Shiela G. Gill UT $ 20,000
Tom Jackson UT $ 10,000
Frank Collins NV $ 10,000
Anthony E. Rakos &
Dorothy L. Rakos IL $ 20,000
Total $520,000
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 company at
either:
120% of the closing bid price on the closing date (this amount
has been calculated and agreed upon by both the company 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 company 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 company.
The company 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.
$2,000,000 Equity Line of Credit.
In addition to the $520,000 convertible debenture funding, the
company 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 company
can request advances from the investor in exchange for 4%
debentures that are then convertible into the company's common
stock at an exchange rate equal to 80% of the average closing bid
price (as reported by Bloomberg) of the company's common stock
for any four (4) of the five (5) trading days immediately
preceding the date of conversion.
The company 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 company'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
company will issue restricted shares to the investor.
The company has entered into a convertible debenture agreement,
registration rights agreement and a line of credit agreement with
GMF Holdings.
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 company per the above rates. The company 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.
The company is subject to late penalties should it miss the
filing date, which is 45 days from the date of closing (June 8,
2000) and/or the effectivity date, which is 120 days from the
date of closing.
In the event the registration statement is not filed by the
company with the Securities and Exchange Commission by the
applicable scheduled filing date, the conversion percentage to be
used in determining the conversion price shall be reduced by an
additional 2% for the first thirty days and every thirty days
thereafter the registration statement is not filed. In the event
the registration statement is not declared effective by the
Commission by the applicable scheduled effective deadline, then
the conversion percentage to be used in determining the
conversion price shall be reduced by an additional 2% for the
first thirty days and every thirty days thereafter the
registration statement is not declared effective. The
registration is to remain effective for the life of the
convertible debentures (five years from June 8, 2000).
If the registration statement is not declared effective by the
Commission by the applicable scheduled effective deadline, the
company will pay liquidated damages in the amount equal to one
percent of the aggregate purchase price of all of the registrable
securities then held by investor for the each thirty calendar day
period (prorated for partial periods) of such ineffectiveness.
The company 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 company 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 company. 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 for Butler
Gonzalez, the law firm that prepared the underwriting documents.
This amount is broken down into: $20,000 in legal fees for the
$520,000 convertible offering, and a $5,000 advance on the legal
fees due regarding the line of credit offering. At the time the
registration statement is deemed effective, an additional $20,000
in legal fees will become due to Butler Gonzalez for the balance
of the legal fees due regarding the line of credit agreement.
The company 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.
Warrants issued on June 21, 2000 pursuant to this underwriting
(exercisable at $0.20 per share until June 21, 2005)
Awarded to # of warrants
May Davis Group 60,000
Mark A. Angelo 60,000
Joseph W. Donahue 60,000
Hunter S. Singer 60,000
C. Max Rockwell 60,000
Adam Mayblum 4,000
Blair Spruill 24,000
James Gonzalez 8,000
Persia Consulting 64,000
Total 400,000
Registration of Shares.
Shares of common stock of the company will be sold under a shelf
registration under Rule 415. A total of 120,000,000 shares are
to be registered under this offering for the following purposes:
15,000,000 shares to cover the debenture to be issued under the
line of credit agreement.
6,000,000 shares to cover the debenture already issued under the
$520,000 convertible debenture offering
400,000 shares to cover the shares underlying said underwriting
warrants.
9,000,000 shares to issued to the Chief Executive Officer of the
company in consideration of, and in lieu of, all compensation due
under his existing employment contract with the company and the
cancellation of this contract.
89,600,000 shares for the following purposes:
to be sold for cash to the public and/or institutional investors
for possible future acquisitions of companies and/or assets
for consulting services for the company
The cash sale price of the shares will be modified, from time to
time, by amendment to this prospectus, in accordance with changes
in the market price of the company's common stock.
There can be no assurance that all of these shares will be issued
or that any of them will be sold for cash. The gross proceeds to
the company will depend on the amount actually sold for cash and
the sales price per share. Except as disclosed above, no
commissions or other fees will be paid, directly or indirectly,
by the company, or any of its principals, to any person or firm
in connection with solicitation of sales of the shares. These
securities are offered subject to prior issue and to approval of
certain legal matters by counsel.
Opportunity to Make Inquiries.
The company will make available to each offeree, prior to any
sale of the shares, the opportunity to ask questions and receive
answers from the company concerning any aspect of the investment
and to obtain any additional information contained in this
prospectus, to the extent that the company possesses such
information or can acquire it without unreasonable effort or
expense.
Execution of Documents.
Each person desiring to be issued shares, either as a conversion
of a debenture, or an exercise of a warrant, must complete,
execute, acknowledge, and deliver to the company certain
documents, By executing these documents, the subscriber is
agreeing that such subscriber will be, a shareholder in the
company and will be otherwise bound by the articles of
incorporation and the bylaws of the company in the form attached
to this prospectus.
LEGAL PROCEEDINGS
Other than as set forth below, the company is not a party to any
material pending legal proceedings and, to the best of its
knowledge, no such action by or against the company 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
company answered Plaintiff's complaint. In July 2000, the
company settled this litigation with a total payment to Citibank
of $68,000; in return, the action was dismissed with prejudice.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS,
AND CONTROL PERSONS
The names, ages, and respective positions of the directors and
officers of the company are set forth below. The Directors named
below will serve until the next annual meeting of the company's
stockholders or until their successors are duly elected and have
qualified. Directors will be elected for a one-year term
at the annual stockholders' meeting. Officers will hold their
positions at the will of the board of directors, absent any
employment agreement, of which none currently exist or are
contemplated. There are no arrangements, agreements or
understandings between non-management shareholders and management
under which non-management shareholders may directly or
indirectly participate in or influence the management of the
company's affairs.
Francis A. Zubrowski, Chief Executive Officer/Director
Mr. Zubrowski, age 64, has over 39 years of senior management
experience and has served as a managing director of The Owen
Stringfellow Ltd., a Baltimore based consulting firm with offices
in New York, Connecticut and Massachusetts. Owen Stringfellow
provides services in relation to mergers and acquisitions, debt
restructuring, public offerings and turn-around situations.
Prior to joining Owen Stringfellow, Mr. Zubrowski was Chairman
and Chief Executive Officer of Consolidated Industries, a New
England based group in the chemical manufacturing and heavy
equipment industries. He has also worked with Bethlehem Steel,
U.S. Steel and Union Carbide operating mining and transportation
companies. He represented Kaiser-Roth Industries on the New York
Stock Exchange. Mr. Zubrowski holds a Bachelors degree in
Theology from Fordham University and a Masters in Business
Administration from New York University.
Alejandro V. Tovar, Secretary/Controller.
Mr. Tovar, age 41, has served as the company's secretary and
controller since December 23, 1998. With several years
experience as a management accountant, controller and manager
with Bonaventure Minerals, Inc., a California corporation, and
Grana Baja, S.A. de C.V. a Mexican corporation, Mr. Alejandro V,
Tovar controls a wide range of business functions involving the
daily and strategic administrative activities of the company. Mr.
Tovar was also an audit supervisor for Doubletree Hotels and a
branch manager for Norwest Financial in Southern California. Mr.
Tovar has extensive tax preparation education and experience
having worked both with H&R Block and as an independent tax
preparer. He served as a captain in the United States Marine
Corps in which he specialized in artillery and logistics. Mr.
Tovar is fluent in Spanish and has maintained an in depth
knowledge of Mexican business and accounting practices. Mr. Tovar
attended the University of California, San Diego, where he
received a Bachelors degree in Biology and Certificate of
Accounting. He received his Masters degree in Business
Administration from National University and was recognized with a
University Leadership Award.
Clayton S. Chase, Vice President of Investor Relations.
Mr. Chase, age 41, has served as Vice President of Investor
Relations of the company since April, 1999, and has been employed
by the company since 1998. Mr. Chase headed the Arete' Design
Group, a company that designs and markets audio accessories from
1994 to 1998. He was responsible for the identification and
certification of a manufacturer in Tecate, Mexico, which mass
produced these audio accessories. Mr. Chase graduated from the
University of Colorado with a B.S. in Engineering Design and
Economic Evaluation. He has served as an account executive for
several businesses including: Royale Securities (public) and Moa
Investment Corp. (private), both located in San Diego,
California. Moa Investment Corp. acted as the General Partner in
Limited Partnership syndications that purchased mostly all-cash
real estate properties in the hospitality industry and Royale
Securities acted as the General Partner in Limited Partnership
syndications that purchased and developed oil and natural gas
reserves.
Adrian P. Corbett, Vice President of Engineering.
Mr. Corbett, age 37, has been the company's Vice President of
Engineering from April, 1998 to the present, and has served as
President, Vice President and Director of one of the company's
subsidiaries, Majestic Transportation Products, Ltd. He is also
the inventor of the SAFE-T-BARr bus seat safety restraint
product. Mr. Corbett has an extensive background in automotive
and mechanical design work. He served as Program Manager for
Santa Barbara based ASHSA Corporation in which he was responsible
for concept-to-production of a third world public transit bus
development program. As an engineering planner for Lockheed
Space Operations at Vandenberg Air Force Base from February, 1984
to October, 1986, Mr. Corbett's responsibilities included
coordinating management, engineering, logistics and operations
personnel for launch construction schedules. He received his
education in Aerospace at Northrop and Arizona State University.
Ralph D. Morren, Jr., Director.
Mr. Morren, age 43, was the company's President from May, 1998
through December, 1998. Mr. Morren has been a Director of the
company since May 22, 1998 and has over 17 years of managerial
and operational experience in both domestic and international
businesses. From 1994 to 1998, Mr. Morren was the President/CEO
of Morren/Laurin Marketing, LLC, President CEO of Morren Laurin,
LLC and President/Chairman of Creation Homes, Inc.
Responsibilities with these businesses have included the day to
day management of corporate affairs and operations and planning
implementation, identification, acquisition and development of
company objectives. Mr. Morren has been the Chief Executive
Officer of several companies specializing in Custom Homebuilding,
Real Estate Sales and Marketing, and Management Asset Evaluation
Services. Mr. Morren has extensive expertise in organizing and
technically analyzing project management's optimal critical
paths. Mr. Morren was the President of SKYTEX International, Inc.
Paul S. Hewitt, Director.
Mr. Hewitt, age 47, has served as Executive Director of the
National Taxpayers Union Foundation ("NTUF") from 1990 to
present. The NTUF has been one of Washington's most effective
and widely publicized research and public education programs,
focusing on policy issues ranging from demographics and interest
group behavior to health care, budget process and Social Security
reform. From 1988 to 1989, Mr. Hewitt served as Corporate
Development Consultant for New Century Petroleum in which he
assisted in raising $1.3 million in seed capital from private
investors. Mr. Hewitt has also served as a Professional Staff
Member and Staff Director on the U.S. Senate Subcommittee on
Inter-Government Relations. Mr. Hewitt graduated from the
University of Berkeley with a B.A. in Economics. He received a
Masters of Public Administration from American University in
Washington, D.C.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the
beneficial ownership of shares of the Company's common stock as
of July 5, 2000 (36,061,770 issued and outstanding) by (i) all
shareholders known to the Company to be beneficial owners of more
than 5% of the outstanding Common Stock; (ii) each director and
executive officer; and (iii) all officers and directors of the
Company as a group. Except as may be otherwise indicated in the
footnotes to the table, each person has sole voting power and
sole dispositive power as to all of the shares shown as
beneficially owned by them.
Title of Name and Address of Amount of Percent
Class Beneficial Owner Beneficial of
Ownership(1) class
Common
Stock Francis A. Zubrowski 2,923,553(3) 7.56%
880 Rio San Diego Road
8th Floor
San Diego, CA 92108
Common
Stock Clayton S. Chase 524,880(4) 1.36%
8880 Rio San Diego Road
8th Floor
San Diego, CA 92108
Common
Stock Alejandro V. Tovar 400,000(5) 1.03%
8880 Rio San Diego Road
8th Floor
San Diego, CA 92108
Common
Stock Ralph D. Morren 103,000 0.27%
8880 Rio San Diego Road
8th Floor
San Diego, CA 92108
Common
Stock Adrian P. Corbett 100,000 0.26%
8880 Rio San Diego Road
8th Floor
San Diego, CA 92108
Common
Stock Paul S. Hewitt 0 0.00%
8880 Rio San Diego Road
8th Floor
San Diego, CA 92108
Common
Stock Shares of all directors and 4,051,353 10.48%
executive officers as a
group (6 persons)
(1) Other than as footnoted, none of these security holders has
the right to acquire any amount of the Shares within sixty days
from options, warrants, rights, conversion privilege, or similar
obligations.
(2) The percent of class is based on the issued and outstanding
common stock, plus the options for the persons shown which are
currently exercisable.
(3) Includes the following currently exercisable options: (a)
options granted on November 1, 1998 to purchase 250,000 of shares
of common stock at an exercise price of $1.00 per share, expiring
on November 1, 2000; (b) options granted on November 1, 1999 to
purchase 250,000 of shares of common stock at an exercise price
of $1.25 per share, expiring on November 1, 2001; and (c) options
granted on July 3, 2000 under The Majestic Companies Ltd.
Employee Stock Option Plan to purchase 1,500,000 shares of common
stock at an exercise price of $0.20 per share, expiring on July
3, 2010.
(4) Includes options granted on July 3, 2000 under The Majestic
Companies Ltd. Employee Stock Option Plan to purchase 300,000
shares of common stock at an exercise price of $0.20 per share,
expiring on July 3, 2010.
(5) Includes options granted on July 3, 2000 under The Majestic
Companies Ltd. Employee Stock Option Plan to purchase 300,000
shares of common stock at an exercise price of $0.20 per share,
expiring on July 3, 2010.
DESCRIPTION OF SECURITIES
General Description.
The securities being offered are shares of common stock. The
company's articles of incorporation authorize the issuance of
50,000,000 shares of common stock, with a par value of $0.001.
The company is in the process of seeking the written consent of
shareholders holding a majority of the outstanding shares to
increase the authorized the number of common shares to
200,000,000 (this prospectus will be amended accordingly to
decrease the number of shares available for sale if this increase
is not approved).
The holders of the shares:
have equal ratable rights to dividends from funds legally
available therefore, when, as, and if declared by the board of
directors of the company
are entitled to share ratably in all of the assets of the company
available for distribution upon winding up of the affairs of the
company
are entitled to one non-cumulative vote per share on all matters
on which shareholders may vote at all meetings of shareholders.
These securities do not have any of the following rights
special voting rights
preference as to dividends or interest
preemptive rights to purchase in new issues of shares
preference upon liquidation
any other special rights or preferences.
In addition, the shares are not convertible into any other
security. There are no restrictions on dividends under any loan
other financing arrangements or otherwise. As of July 5, 2000,
the company had 36,061,770 shares of common stock issued and
outstanding..
Non-Cumulative Voting.
The holders of shares of common stock of the company do not have
cumulative voting rights, which means that the holders of more
than 50% of such outstanding shares, voting for the election of
directors, can elect all of the directors to be elected, if they
so choose. In such event, the holders of the remaining shares
will not be able to elect any of the company's directors.
Dividends.
The company does not currently intend to pay cash dividends. The
company's proposed dividend policy is to make distributions of
its revenues to its stockholders when the company's board of
directors deems such distributions appropriate. Because the
company does not intend to make cash distributions, potential
shareholders would need to sell their shares to realize a return
on their investment. There can be no assurances of the projected
values of the shares, nor can there be any guarantees of the
success of the company.
A distribution of revenues will be made only when, in the
judgment of the company's board of directors, it is in the best
interest of the company's stockholders to do so. The board of
directors will review, among other things, the investment quality
and marketability of the securities considered for distribution;
the impact of a distribution of the investee's securities on its
customers, joint venture associates, management contracts, other
investors, financial institutions, and the company's internal
management, plus the tax consequences and the market effects of
an initial or broader distribution of such securities.
Possible Anti-Takeover Effects of Authorized but Unissued Stock.
Upon the completion of this offering, assuming the maximum
offering of 120,000,000 is sold, the company's authorized but
unissued capital stock will consist of 43,938,230 shares of
common stock. One effect of the existence of authorized but
unissued capital stock may be to enable the board of directors to
render more difficult or to discourage an attempt to obtain
control of the company by means of a merger, tender offer, proxy
contest, or otherwise, and thereby to protect the continuity of
the company's management. If, in the due exercise of its
fiduciary obligations, for example, the board of directors were
to determine that a takeover proposal was not in the company's
best interests, such shares could be issued by the board of
directors without stockholder approval in one or more private
placements or other transactions that might prevent, or render
more difficult or costly, completion of the takeover transaction
by diluting the voting or other rights of the proposed acquiror
or insurgent stockholder or stockholder group, by creating a
substantial voting block in institutional or other hands that
might undertake to support the position of the incumbent board of
directors, by effecting an acquisition that might complicate or
preclude the takeover, or otherwise.
Transfer Agent.
The company has engaged the services of ChaseMellon Shareholder
Services, Overpeck Center, 85 Challenger Road, Ridgefield Park,
New Jersey 07660-2108, to act as transfer agent and registrar.
INTEREST OF NAMED EXPERTS AND COUNSEL
Other than as set forth below, no named expert or counsel was
hired on a contingent basis, will receive a direct or indirect
interest in the small business issuer, or was a promoter,
underwriter, voting trustee, director, officer, or employee of
the company.
Counsel for the company named in this registration statement
as giving an opinion on the validity of the securities being
registered has previously received 240,000 shares of stock under
the Retainer Plan for Non-Employee Directors and Consultants
under a Form S-8 in exchange for legal services consisting of
advice and preparation work in connection with reports of the
company under the Securities Exchange Act of 1934 and general
corporate legal work.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Limitation of Liability.
The articles of incorporation of the company provide that
except for acts or omissions which involve intentional
misconduct, fraud or knowing violation of law or for the payment
of dividends in violation of NRS 78.300, there shall be no
personal liability of a director or officer to the company or its
stockholders for damages for breach of fiduciary duty as a
director or officer.
Indemnification.
(a) Articles of Incorporation.
The articles of incorporation of the company provide the
following with respect to indemnification:
Pursuant to NRS 78.751 Paragraphs 1 through 6 inclusive, and any
amendments, additions or changes thereto, the company may
indemnify any person for expenses incurred, including attorneys
fees, in connection with their good faith acts if they reasonably
believe such acts are in and not opposed to the best interests or
the company and for acts for which the person had no reason to
believe his or her conduct was unlawful.
The company will indemnify the officers and directors for
expenses incurred in defending a civil or criminal action, suit
or proceeding as they are incurred in advance of the final
disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the director or officer to repay
the amount of such expenses if it is ultimately determined by a
court of competent jurisdiction.
(b) Bylaws.
The bylaws of the company provide the following with respect to
indemnification:
(1) In General. Subject to the laws of the State of Nevada, the
company shall indemnify any director, officer, employee or agent
of the company, or any person serving in such capacity for any
other entity or enterprise at the request of the company, against
any and all legal expenses (including attorneys fees), claims and
liabilities arising out of any action, suit or proceeding, except
an action by or in the right of the company.
(2) Lack Of Good Faith; Criminal Conduct. The company shall not
be required to indemnify any person unless such person acted in
good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the company and, with respect to
any criminal action or proceeding, where there was no reasonable
cause to believe the conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order of settlement,
conviction or upon a plea of nolo contendere or its equivalent
shall not, of itself, create a presumption that the person did
not act in good faith and in a manner reasonably believed to be
in or not opposed to the best interests of the company, and that,
with respect to any criminal action or proceeding, there was
reasonable cause to believe that the conduct was unlawful.
Moreover, the company shall not indemnify any person adjudged to
be liable for negligence or misconduct in the performance of a
duty to the company unless and only to the extent that the court
in which such action or suit was brought determines upon
application that, despite the adjudication of liability, such
person is fairly and reasonably entitled to indemnity for such
expenses as the court deems proper.
(3) Successful Defense Of Actions. The company shall
reimburse or otherwise indemnify any director, officer, employee
or agent against legal expenses (including attorneys fees)
actually and reasonably incurred in connection with the defense
of any action, suit or proceeding herein above referred to, to
the extent such person is successful on the merits or otherwise.
(4) Authorization. Indemnification shall be made by
the company only when authorized in the specific case and upon a
determination that indemnification is proper by:
(i) The shareholders;
(ii) Majority vote of a quorum of the board of directors
consisting of directors who are not parties to the action, suit
or proceeding; or
(iii) Independent legal counsel in a written opinion if a
quorum of disinterested directors cannot be obtained.
(5) Advancing Expenses. Expenses incurred in defending
any action, suit or proceeding may be paid by the company in
advance of the final disposition, when authorized by the board of
directors, upon receipt of an undertaking by or on behalf of the
person defending to repay such advances if indemnification is not
ultimately available under these provisions.
(6) Other Rights; Continuing Indemnification. The indemnification
provided by the bylaws does not exclude any other rights to which
the person seeking indemnification may be entitled under the law,
shall continue as to a person who has ceased to be a director,
officer, employee or agent, and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(7) Insurance. The company may purchase and maintain insurance
on behalf of any person who is or was a director, officer,
employee or agent of the company or who is or was serving at the
request of the company in any capacity against any liability
asserted against such person.
The board of directors may from time to time adopt further bylaws
with respect to indemnification and may amend these bylaws to
provide at all times the fullest indemnification permitted by the
Nevada Revised Statutes.
(a) NRS 78.7502 Discretionary and mandatory indemnification of
officers, directors, employees and agents: General provisions.
(1) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, except an action by or
in the right of the corporation, by reason of the fact that he is
or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against
expenses, including attorneys' fees, judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in
connection with the action, suit or proceeding if he acted in
good faith and in a manner which he reasonably believed to be in
or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its
equivalent, does not, of itself, create a presumption that the
person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests
of the corporation, and that, with respect to any criminal action
or proceeding, he had reasonable cause to believe that his
conduct was unlawful.
(2) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise against expenses, including amounts paid in settlement
and attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit
if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the
corporation. Indemnification may not be made for any claim, issue
or matter as to which such a person has been adjudged by a court
of competent jurisdiction, after exhaustion of all appeals
therefrom, to be liable to the corporation or for amounts paid in
settlement to the corporation, unless and only to the extent that
the court in which the action or suit was brought or other court
of competent jurisdiction determines upon application that in
view of all the circumstances of the case, the person is fairly
and reasonably entitled to indemnity for such expenses as the
court deems proper.
(3) To the extent that a director, officer, employee or
agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred
to in subsections 1 and 2, or in defense of any claim, issue or
matter therein, the corporation shall indemnify him against
expenses, including attorneys' fees, actually and reasonably
incurred by him in connection with the defense.
(b) NRS 78.751 Authorization required for discretionary
indemnification; advancement of expenses; limitation on
indemnification and advancement of expenses.
(1) Any discretionary indemnification under NRS 78.7502
unless ordered by a court or advanced pursuant to subsection 2,
may be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances. The
determination must be made:
(i) By the stockholders;
(ii) By the board of directors by majority vote of a quorum
consisting of directors who were not parties to the action, suit
or proceeding;
(iii) If a majority vote of a quorum consisting of directors
who were not parties to the action, suit or proceeding so orders,
by independent legal counsel in a written opinion; or
(iv) If a quorum consisting of directors who were not
parties to the action, suit or proceeding cannot be obtained, by
independent legal counsel in a written opinion.
(2) The articles of incorporation, the bylaws or an
agreement made by the corporation may provide that the expenses
of officers and directors incurred in defending a civil or
criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the director or officer to repay
the amount if it is ultimately determined by a court of competent
jurisdiction that he is not entitled to be indemnified by the
corporation. The provisions of this subsection do not affect any
rights to advancement of expenses to which corporate personnel
other than directors or officers may be entitled under any
contract or otherwise by law.
(3) The indemnification and advancement of expenses
authorized in NRS 78.7502 or ordered by a court pursuant to this
section:
(i) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under
the articles of incorporation or any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, for either
an action in his official capacity or an action in another
capacity while holding his office, except that indemnification,
unless ordered by a court pursuant to or for the advancement of
expenses made pursuant to subsection 2, may not be made to or on
behalf of any director or officer if a final adjudication
establishes that his acts or omissions involved intentional
misconduct, fraud or a knowing violation of the law and was
material to the cause of action.
(ii) Continues for a person who has ceased to be a director,
officer, employee or agent and inures to the benefit of the
heirs, executors and administrators of such a person.
(c) NRS 78.752 Insurance and other financial arrangements
against liability of directors, officers, employees and agents.
(1) A corporation may purchase and maintain insurance or
make other financial arrangements on behalf of any person who is
or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise for any
liability asserted against him and liability and expenses
incurred by him in his capacity as a director, officer, employee
or agent, or arising out of his status as such, whether or not
the corporation has the authority to indemnify him against such
liability and expenses.
(2) The other financial arrangements made by the corporation
pursuant to subsection 1 may include the following:
(i) The creation of a trust fund.
(ii) The establishment of a program of self-insurance.
(iii) The securing of its obligation of indemnification by
granting a security interest or other lien on any assets of the
corporation.
(iv) The establishment of a letter of credit, guaranty or
surety.
No financial arrangement made pursuant to this subsection may
provide protection for a person adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be
liable for intentional misconduct, fraud or a knowing violation
of law, except with respect to the advancement of expenses or
indemnification ordered by a court.
(3) Any insurance or other financial arrangement made on behalf
of a person pursuant to this section may be provided by the
corporation or any other person approved by the board of
directors, even if all or part of the other person's stock or
other securities is owned by the corporation.
(4) In the absence of fraud:
(i) The decision of the board of directors as to the propriety
of the terms and conditions of any insurance or other financial
arrangement made pursuant to this section and the choice of the
person to provide the insurance or other financial arrangement is
conclusive; and
(ii) The insurance or other financial arrangement:
(A) Is not void or voidable; and
(B) Does not subject any director approving it to personal
liability for his action, even if a director approving the
insurance or other financial arrangement is a beneficiary of the
insurance or other financial arrangement.
(5) A corporation or its subsidiary which provides self-
insurance for itself or for another affiliated corporation
pursuant to this section is not subject to the provisions of
Title 57 of NRS.
Undertaking.
The company undertakes the following:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the small business issuer pursuant to
the foregoing provisions, or otherwise, the small business issuer
has been advised that in the opinion of the U.S. Securities and
Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
ORGANIZATION WITHIN LAST FIVE YEARS
The names of the officers and directors as disclosed
elsewhere in this Form SB-2. None of these individuals, as
promoters, have received anything of value from the company.
DESCRIPTION OF BUSINESS
Company History.
The Majestic Companies, Ltd. was incorporated under the laws of
the State of Nevada on December 3, 1992 under the name of Rhodes,
Wolters & Associates, Inc. In May 1998, Rhodes changed its name
to SKYTEX International, Inc., and in December, 1998, merged with
a Delaware corporation named "The Majestic Companies, Ltd."
SKYTEX had no material operations during the period prior to
this merger. The Delaware corporation SKYTEX acquired in the
merger had operations and formerly did business as "Majestic
Motor Car Company, Ltd." and prior to that "Majestic Minerals,
Ltd." As a part of the merger, SKYTEX's corporate name was
changed to "The Majestic Companies, Ltd." Majestic Minerals,
Ltd. was a British Columbia, Canada corporation that changed its
name to Majestic Motor Car Company in April, 1997. Subsequent to
the name change, in March 1998, Majestic Motor Car Company merged
with and into The Majestic Companies, Ltd., the Delaware
corporation SKYTEX acquired in December, 1998. The Delaware
corporation had no prior material operations and was organized
for the purpose of reincorporating under the laws of the State of
Nevada.
To consummate the SKYTEX merger, stockholders of the pre-merger
Delaware corporation, "The Majestic Companies, Ltd.", were issued
one share of SKYTEX common stock with par value of $.001 for each
one (1.00) share of common stock owned as of December 11, 1998,
of the pre-merger Delaware corporation "The Majestic Companies,
Ltd."
The Majestic Companies, Ltd. is the parent of: Majestic Modular
Buildings, Ltd., Majestic Transportation Products, Ltd., and
Majestic Financial, Ltd. All operations of The Majestic
Companies, Ltd. are conducted through its three wholly owned
subsidiaries:
The Majestic Modular division designs, builds, leases and sells
re-locatable modular structures including classrooms, office
buildings, medical facilities and telecommunication equipment
shelters to primarily end users located in California. The
Modular division operates from and maintains administrative and
manufacturing facilities in Modesto, California.
Majestic Transportation designs and markets transportation
related safety equipment for the school bus market. The
Transportation Products division operates from an administrative
and design engineering facility located in San Diego, California.
Majestic Financial is engaged in the business of acquiring and
leasing re-locatable modular structures to private and public
California school districts as well as commercial end users.
The Majestic Companies, Ltd. maintains its Executive Offices at
8880 Rio San Diego Drive, 8th Floor, San Diego, California;
telephone number (619) 209-6077. The executive office is the
company's principal operating office from which it manages and
coordinates the activities of its wholly owned subsidiaries.
The Majestic Companies, Ltd. is a development stage company and
therefore is subject to certain risks going forward including the
risk of being unable to continue as a going concern. To date, the
operations of the company's business units have not generated
sufficient earnings to cover the cost of operations. Therefore,
the company has incurred a net loss of; $301,952 for year-ended
1997 (audited), $2,373,288 for year-ended 1998 (audited), and
$4,123,624 for year-ended 1999 (audited). To date, revenues have
been generated from the manufacture and sale of Modular
Buildings; $395,857 for year-ended 1998 (audited) and $2,265,609
for year-end 1999 (audited), and from the leasing of modular
classroom buildings owned by the company: $23,529 for year-ended
1999 (audited). In order for the company to continue as a going
concern, it will be necessary to raise additional equity and or
debt financing to cover the cost of future operations. There can
be no assurance that the company will be able to attain such
additional financing on terms satisfactory to the company.
Also due to the fact that the company is a development stage
company, the management team has no direct operating experience
in the manufacture of modular buildings prior to inception of
modular construction operations in April of 1998, and no direct
prior operating experience in the transportation safety product
industry prior to development of the company's transportation
product division in the first quarter of 1998.
Although, the company has experienced growth in revenues
since the inception of operations in 1998, the company has
experienced losses in each year of its operations, and, there can
be no assurance, that, in the future, the company will sustain
revenue growth or achieve profitability. The company has
identified several steps it feels will begin to move it toward
profitability:
provide timely and adequate working capital for the modular
division
further automate the modular production process, which the
company has started with the purchase of an overhead crane system
pursue volume purchase discounts for raw materials
capitalize on federal and state legislation requiring safety
restraints on school buses, and, begin realizing sales from,
Majestic Transportation Products, Ltd., marketing efforts
continual improvement and development of safety restraint devices
within the same transportation division
control all-around general overhead cost.
Majestic Modular Buildings, Ltd.
(a) General.
Majestic Modular Buildings, Ltd., commenced operations on
April 15, 1998, and is engaged in the business of designing,
manufacturing and marketing re-locatable modular structures such
as classrooms, office buildings, medical facilities and
telecommunication equipment shelters to end users as well as to
third party leasing agents for use primarily within the state of
California. Majestic Modular maintains administrative and
manufacturing facilities at 320 9th Street, Modesto, California.
The company's principal product line consists of a variety
of re-locatable modular classroom structures that are sold to
both to public and private California school districts. The
company's modular classroom structures are engineered and
constructed in accordance with pre-approved building plans,
commonly referred to as "P.C.'s" or "pre-checked" plans, that
conform to structural and seismic safety specifications adopted
by the California Department of State Architects ("DSA"). The DSA
regulates all California school construction on public land and
the DSA's standards are considered to be more rigorous than the
standards that typically regulate other classes of commercial
portable structures.
Modular classrooms have increased in popularity with school
facility planners looking to increase classroom capacity for a
number of reasons, including the fact that they cost
significantly less to build and can be built and put in place in
much less time than traditional "brick and mortar" built school
facilities. Other factors that have contributed to the rise in
popularity of re-locatable modular classrooms is the fact that
they are considered personal property versus real property and
therefore can be financed out of a district's operating budget as
well as their capital budget. In light of these benefits, the
California legislature set up guidelines that specify, with
certain exceptions, that at least 20% of all classroom space
within a district be comprised of re-locatable modular
classrooms.
In addition to building re-locatable modular classrooms, the
company designs, manufactures and markets a line of modular re-
locatable structures for use as offices, temporary construction
facilities, medical facilities and telecommunications equipment
bunkers. These structures are designed and manufactured to
conform to Department of Housing specifications.
(b) Industry Overview.
Commercial re-locatable modular buildings are defined as non-
residential factory built structures generally designed to meet
or exceed federal, state and local building specifications. Based
on a survey conducted by the Modular Building Institute, the
commercial mobile office and modular industry as a whole
(including all manufacturers, dealers, and suppliers) produced an
estimated total aggregate revenue figure of approximately $4.85
billion during 1998. The use of modular re-locatable structures
for commercial applications emerged as a distinct segment of the
traditional method of construction methods shortly after the end
of World War II. Early producers of modular buildings modeled
their structures after the mobile command centers in use during
the war that could be moved quickly and efficiently from location
to location. Since that time, the added flexibility that this
mobile or re-locatable feature provides for has broadened the use
of modular buildings to include: classrooms, medical/surgical
facilities, bank offices, rental car offices, daycare centers as
well as a wide variety of industrial and commercial building
applications.
By combining the cost savings of factory controlled manufacturing
methods with the advantages and flexibility of re-locatable
modular structures, the industry has developed a process whereby
a quality, cost-efficient product can be delivered in a timely
manner that is adaptable to a wide variety of building
applications.
The commercial modular building industry is made up of three
primary participants: independent manufacturers, integrated
manufacturers, and dealers. Independent manufacturers generally
supply factory built structures to independent third-party
industry dealers that transact the sale or lease directly with
the customer. Integrated manufacturers on the other hand deal
directly with the end-user and perform sales and marketing
functions in-house by maintaining an active sales presence in the
field.
Over the last decade, school enrollments in California have grown
as a direct result of both increased births and the influx of net
immigrations. The California Department of Finance estimates that
the public school K-12 population of California will further
increase by an estimated 5% from 1999 to the year 2009. This
increase in California's K-12 student population has put
considerable pressure on the states existing public and private
school facilities infrastructure and in many cases the build-out
of additional adequate school facilities has not kept pace with
this growth. This situation has led to a condition of
overcrowding in many California school districts with the net
result being class sizes reaching 30 or more students per
classroom, making California schools some of the most crowded
in the nation in terms of students per classroom.. This ratio is
in sharp contrast to a national average of approximately 17
students per class. As state budget deficits have lessened in
recent years, additional funds have been allocated to the
building of additional classrooms in a concerted effort to reduce
class size of California schools to a targeted ratio below 20
students per teacher. Contributing to the shortage of school
classrooms, due to growth issues, has been a general shift in
population demographics. Student enrollments are shrinking in
older, more established residential areas that typically utilize
permanent site-built construction, resulting in excess and under-
utilized classroom capacity, while in neighboring, newer
residential areas, high growth rates of school aged children have
created acute shortages of school classrooms and infrastructure.
The state-wide educational systems ability to add new classroom
capacity to satisfy the needs of California's growing and
shifting student demographics are contingent upon three primary
factors. The collection and distribution of state tax revenues,
capital allocations of state funding for educational concerns
governed by existing fiscal budgetary policy, and the passing of
state and local bond initiatives by the general electorate
earmarked for the construction, updating, and maintenance of
state school facilities. One of the primary methods of financing
classroom construction in the past was greatly reduced in 1978
with the passing of Proposition 13, a measure that rolled back
property taxes. At that time, property taxes were one of the
primary sources of financing new and existing school growth
plans. After the passing of Proposition 13, schools were forced
to actively pursue alternative funding sources for the
construction of new school capacity. These efforts were best
served by the passing of several key legislative statutes.
In 1976 California adopted a measure that, with certain
exceptions, at least 30% of all classrooms added using state
funds must be re-locatable structures. This measure helped school
systems to adopt a more flexible classroom infrastructure plan
that could be better adapted to changing demographic requirements
as their student populations grew. In 1979, the California
legislature allocated additional state funding to schools for the
purchase and leasing of re-locatable modular structures. In the
early 1990's, funding sources for classroom expansion failed to
keep pace with the demand caused by rising student enrollments
and class-size again became an issue. This situation created a
down cycle in the modular industry with statewide sales
experiencing declines. In the latter half of the decade, state
budget factors turned around and once again capital became
available from the state for the addition of additional classroom
space.
To alleviate overcrowding, the California legislature in 1996
appropriated funds from the operating budget to build additional
classrooms in a concerted effort to reduce the number of students
per teacher, especially in the primary grades K through 5, to a
target ratio of under 20. This collective group of measures came
to be known as the "Class Size Reduction Program." During the
1996-1997 school year, the state spent approximately $820 million
on this program. Approximately $200 million of the funds were
spent directly on re-locatable modular classrooms. During the
1997-1998 school year, the state followed up the initial funding
with an additional $1.5 billion targeted for school facility
upgrades and general operating budgets for the educational
system. In November of 1998, public voters approved a sweeping
$9.2 billion measure, Proposition 1A, which provided for
additional school facility construction, facility upgrading,
teaching staff, and curriculum. With the passage of this bond
measure, classroom space once again became a major issue. The
public school system intended to create a better learning
environment for the students through the addition of extra
classrooms.
In the formula for class size reduction, state administrators
earmarked money for the purchase of modular classrooms for each
school district that identified the need and presented a proposal
to the state. Once approved, the state sends $35,000 per class
to the individual school district for the purchase of each
modular classroom. A 1976 State adopted Senate Bill (SB50)
mandated at least 30% of all new classroom space added using
State funds must be re-locatable unless re-locatable classrooms
are not available, or, the terrain of the school property being
utilized would make the use of re-locatable classrooms
impracticable. Proposition 1A, coupled with Senate Bill SB50,
has increased the demand for re-locatable modular classrooms as a
material percentage of these funds have been allocated for both
the purchase and lease of re-locatable modular classroom in an
effort to further advance the Class Size Reduction Program. Due
to the fact that classroom staffing and curriculum development
must be considered within the scope of bond measure funding, it
is difficult to ascertain precisely the amount of funding these
bond measures will allow school districts to utilize toward
modular classroom acquisitions. These bond measures funds,
nonetheless, provide school districts with a budgetary allowance
to comply with classroom size reduction.
Many of the school districts located within larger cities of the
state are experiencing space restrictions for expansion. The
State regulates the amount of open land required in each school
based on the number of students enrolled. Many of the more
crowded schools have reached, or are about to reach, their
maximum land-to-building use ratio. In order for these schools
to add modular classrooms and conserve their land use, they are
being forced to build compliant multi-story structures. The
company is currently attempting to obtain DSA approval for a
clustered modular building that would comprise eight to ten
classrooms in a multi-story configuration.
(c) Re-Locatable Modular Classrooms.
The company designs, builds and markets re-locatable modular
classrooms to conform to specifications adopted and administered
by the California Department of State's Architects . These
specifications are generally more stringent than the building
codes that apply to other types of commercial portable structures
and must be compliant with existing fire, seismic and handicapped
accessibility requirements.
Majestic Modular builds an assortment of re-locatable modular
structures for the California education industry consisting of
classrooms, administrative office structures and restroom
facilities as well as additional special use buildings. These
structures vary in overall size but normally consist of a number
of standard sized units measuring 12' x 40' in size. These
standard sized units are commonly referred to in the industry as
"floors", and are built to this size so that they may be easily
transported from the factory to the end-use site by an eighteen-
wheel flatbed tractor-trailer. The most common type of structure
built by the company consists of two of these floors assembled
together at the end-user's site to complete a 24' x 40' re-
locatable classroom totaling 960 square feet. Larger structures
are typically designed and built by using additional 12' x 40'
(or similarly sized) building sections. These standard sized
classrooms are normally supplied to the end-user with a minimum
amount of finished interior features. Standard appointments for
the company's re-locatable classrooms consist of carpeting and
student access ramps. In some cases, interior walls and or
built-in cabinetry can be specified and completed at the factory
level.
The typical price range for standard 24' x 40' classroom
manufactured by the company is between $25,000 and $35,000,
before ramps, carpeting, interior walls or cabinetry. Custom
classrooms supplied by the company can range anywhere from
$40,000 to $80,000 or more, depending on the finished size and
number of custom features specified by the end-user.
The standard type of re-locatable classroom structure
manufactured by Majestic Modular consists of a welded box-steel
perimeter frame with steel floor joists of "perlins" welded in
place to complete the structural sub-floor. The finished floor
and walls are constructed with materials typically utilized in
site-built construction. The interior and exterior finished
surfaces can be varied based on customer specifications and can
consist of a variety of wood, aluminum and other specified
exterior materials such as brick or stone facing, etc. Building
features such as electrical wiring, heating and air conditioning,
plumbing, ceiling acoustics and floor coverings are installed
and/or completed at the factory level before the buildings are
prepared for final delivery. The company generally does not
participate in the delivery, site preparation and set-up of its
re-locatable modular structures, choosing instead to employ the
services of third-party sub-contractors that perform these
services on a regular day-to-day basis.
In general, re-locatable modular classrooms cost significantly
less and take much less time to construct and install than
conventional site-built school facilities. Currently, modular
classroom space costs roughly $35 per square foot, versus roughly
$125 per square foot for traditional site-built, non re-locatable
classroom construction. Also, their use permits a school
district to relocate the units as student enrollments shift.
Most importantly, the company's modular products provide added
flexibility to school districts: modular classrooms are
considered personal property, and therefore can be financed out
of a district's operating budget rather than by bond facility
only. Although there can be no assurance, the company believes
these factors will continue to contribute to the demand for re-
locatable modular classrooms.
Majestic Modular's production output for 1998 was 35 units built
and 12 units sold, in 1999 there were 80 units built and 54 units
sold. At present, the company's modular production capacity is
capable of one (1) standard 24' x 40' unit per day, giving it an
annual production capacity of 250 units per year. The company
also plans on adding at least one additional manufacturing
facility the near future to increase its current output capacity.
The company believes that this growth strategy is warranted in
order to gain the sufficient market share required to ensure
stability and profit margins for the long term.
(d) Sales and Marketing.
Within the modular construction industry, Majestic Modular is
considered to be an "integrated manufacturer". This
characterization is based on the fact that the company employs
and maintains an in-house sales and marketing staff to generate
sales of modular structures. The sales and marketing staff of
Majestic Modular works with both industry "dealers", (agents that
lease classrooms to end-users), and ultimate end-users in order
to increase business for its manufacturing unit. The company's
customers generally purchase re-locatable modular structures for
use within the State of California. The sales team of Majestic
Modular has concentrated their marketing efforts into three
distinct geographic regions or territories, which are comprised
of Northern California, Central California and Southern
California. In addition to maintaining existing and/or repeat
customers, each sales associate calls on prospective customers in
the field in an effort to expand the company's customer base.
The re-locatable modular structures industry is a highly
competitive field. The company competes for customer orders based
on price, product quality, availability, delivery terms and
reliability. During the preparation of a quotation, the marketing
staff assists the customer in adhering to current modular
construction code specifications. The company maintains a set of
"pre-checked" or pre-authorized building plans that conform to
Department of State's Architects stringent specifications for
re-locatable modular classrooms. These standard plans ("PC's or
"Pre-Checks") generally provide for the basic architecture of
most buildings ordered from the company. In some cases, a
previously awarded order for modular classrooms for a particular
school district can remain open. This situation is known in the
industry as a "piggy-back bid" and it allows other school
districts to order this specific class of building directly from
the manufacturer without entering into a new bidding process.
When modular classrooms are specified by the customer that fall
outside the design parameters of standard PC's, the company
employs both in-house as well as contract engineering services to
complete the necessary design adjustments in order to complete
the job.
Majestic Modular has approached marketing of its modular
structures in a common-sense, long-term fashion. The company
developed or obtained architectural plans that are or have been
previously approved, obtained contracts with school districts for
long-term orders, hired personnel with modular construction
experience, and negotiated favorable terms with suppliers of
construction materials and components that the company believes
are favorable. In addition, the company is designing a new
multiple story clustered modular classroom structure for
Department of State's Architects review.
The goal of the marketing effort is to gain additional market
share through a concentrated campaign of: direct contact with
customers using in-house marketing representatives, a high
visibility presence at modular industry trade shows, open bids,
and print advertisements carefully placed in industry trade
periodicals. Management believes that this comprehensive
marketing plan will help establish Majestic Modular as a leader
in the construction of quality modular structures.
(e) Competition.
There are approximately 19 companies currently building modular
structures in California. The largest of these companies,
Modtech, Inc., operates from multiple facilities located in
Lathrop and Perris, California. Other primary competitors in
California for modular structures include American Modular
Systems and Design Mobile Systems. Outside of California, the
company's competitors include a number of publicly traded
companies currently manufacturing pre-fabricated modular
structures, and pre-fabricated housing. This industry group
includes; Miller Business Systems (MBSI NASD), Nobility Homes
(HOBH NASD), Cavalier Homes (CAV NYSE), Palm Harbor Homes (PHHM
NASD) and Clayton Homes (CMH NYSE). All of these competitors have
capital and other resources greater than the company and could
adversely impact the company's marketing plans.
Majestic Transportation Products Ltd.
(a) Industry Overview.
In the U.S., approximately 440,000 school buses transport daily
approximately 24,000,000 students to and from school. Less than
20% of these buses are outfitted with any type of occupant safety
restraint. Currently, no federal legislation exists that
requires restraints to be installed on these buses. This lack of
regulation at the federal level has prompted five separate
states: New York, New Jersey, Florida, Louisiana and California,
to adopt their own legislation regarding the installation of
occupant restraints on school buses, three of which have just
passed laws in 1999 (California, Florida & Louisiana); over 20
additional states have planned or have pending legislation.
During the past five years, New York and New Jersey have mandated
two-point lap belts to be installed in all new school buses, and
as a result more than 80% of the school buses in these two states
now have seat belts. Although the laws in New York and New
Jersey require the belts to be installed, there is no law
mandating that the students must wear them. While questioning
officials from these areas, it was stated that the percentage of
students voluntarily buckling up was well below 50%.
The main reason existing school bus fleets do not utilize
restraints is due to a seat design implemented several years ago
called "compartmentalization". In 1977, the Federal Motor
Vehicle Safety Standards mandated the use of a seat design which
raised the height of the seat back and allowed the seat back to
"flex" in the event an occupant was thrown into the seat back
during a crash. This new seat design provided a compartment area
for seated passengers resulting in reduced chances of serious
injury in the event of a crash. Although compartmentalization
does provide increased safety to passengers, it has been
determined after evaluating many school bus accidents; passengers
can still be ejected from their seats during a bus crash.
Over the past several years, the concern for school bus
restraints has raised enough attention that two states, New York
and New Jersey, currently mandate passenger restraints in all
buses in their fleets. Three states, Florida, Louisiana and
California, recently passed legislation requiring seat restraints
in new, and in some cases both new and existing buses effective
in 2001. As of January 2000, there are 25 states with pending
legislation for seat type restraints to be implemented this
decade. Most of the states with pending legislation have not
specifically determined the type of seat restraint that will be
mandated due to the controversy over what type of restraint is
considered best for school bus applications.
After studying various school bus crashes during the past twenty
years, transportation officials and state legislators continue to
debate which type restraint is best; lap belt, 3-point harness
type restraint, or new designs like the SAFE-T-BART. While the
governing bodies continue their discussions on the type of
restraint, most officials throughout the education and
transportation industry concur; the issue of seat restraints in
school buses is not going away. The school bus transportation
industry predicts, by the year 2005, at least 37 states will have
mandates requiring schools to provide seat restraints in their
bus fleet.
Parents have played an active role in raising the concern for
student bus safety. Each time the media reports a school bus
accident, parents become more concerned that the next time it may
involve one of their children. This parental concern and
awareness has triggered the initiative for lawmakers to take a
more active role in the implementation of school bus safety
restraints.
Majestic Transportation Products, Ltd. offers a new approach to
school bus passenger safety. The product is called the SAFE-T-
BART - a padded horizontal bar which rests above the lap of
passengers similar to lap bars on roller coasters. The bar
operates on a simple, but effective design, employing inertia to
lock a mechanism similar to the locking mechanism in an
automobile seat belt retractor. In the event of a sudden stop,
crash or roll-over, the bar automatically locks in place,
resulting in passengers staying within their seating
(compartment) area. The mission behind the design of the SAFE-T-
BART is too keep the passengers in their seating area during a
bus crash, roll-over or other unforeseen mishap.
Documented case history reveals that schools who have utilized
seat belts experienced less than a 15% usage rate. Bus drivers
try their best to enforce the seat belt policy, however, once the
driver sits behind the wheel of the bus; they have no means of
effectively enforcing that students are staying buckled-up.
Implementation of the SAFE-T-BART eliminates the need for bus
drivers to enforce any restraint policies. It's a passive device
in the sense the passenger doesn't have to do anything to make it
function. SAFE-T-BART provides virtually a 100% usage rate since
the seat occupant has no choice but to use the bar. SAFE-T-BART
appears to cause passengers to sit in a more controlled manner
facing forward, thus, reducing driver distractions.
Majestic Transportation has completed and passed the full
complement of testing required under the Federal Motor Vehicle
Safety Standards by a federally approved testing lab in Adelanto,
California, and is ready for installation in existing school bus
fleets throughout the U.S. SAFE-T-BART is maintenance free and
can be conveniently installed by factory trained personnel at
the school transportation yard site. It can be installed on any
type of school bus manufactured after 1977.
(b) Products.
(1) SAFE-T-BART.
The SAFE-T-BART is a heavily padded lap bar style restraint,
similar to the restraints commonly found on amusement park rides.
The purpose of the SAFE-T-BART is to hold an occupant within the
padded seating area during an accident. Many of the 13,000
children hurt each year on school buses are ejected from this
padded seating area, resulting in serious injuries. The SAFE-T-
BAR's patent pending locking mechanism is hidden within the seat
back and operates on the same principal as standard seat belt
retractors common to almost every car on the road today. During
sudden stops, collision, rollover etc., a small weighted pendulum
swings and engages a latch, locking the SAFE-T-BART in the down
position, controlling and restraining the passenger within the
padded seating area.
The SAFE-T-BART has been carefully designed to fit all standard
school bus seats post 1997, as well as being fitted as original
equipment at the various school bus manufacturers. The SAFE-T-
BART mounts on the seat back and is designed to bend the seat
during a collision therefore absorbing impact energy. The SAFE-
T-BART is also padded with over 10 pounds of Urethane foam adding
in the ability to absorb impact energy. Evacuation of the school
bus in the event of an emergency is very quick as the SAFE-T-
BART's unique locking mechanism is designed to release once the
bus comes to rest; occupants can then lift the bar and quickly
move to the exit.
Installation time of the SAFE-T-BART is approximately 30 minutes
per seat and is performed by Majestic Transportation to ensure
proper fit and function. The bar is designed to last the life of
the school bus (usually 12 years) with critical internal
components being heat-treated to provide superior strength and
durability. Replacement of just the bar alone is done in less
than 10 minutes.
(2) SAFE-T-SEATT.
Majestic Transportation is in the process of developing a new
seat design for school buses, officially labeled the "SAFE-T-
SEATT" restraint system. The SAFE-T-SEATT system was conceived to
increase the effectiveness of the SAFE-T-BART by designing a
school bus seat that would perform more efficiently with the
SAFE-T-BART during a crash. The current school bus seat was
designed in the early 1970's and federal standards were set at
that time. Since then, a great deal of Federal and private crash
testing has been done relating to school buses and Majestic
Transportation has used this information in the development of
the SAFE-T-SEATT occupant restraint seat system.
The main advantage of the SAFE-T-SEATT system is that the upper
portion of the seat back is designed to better absorb the impact
of the head and upper torso. The upper frame is made from an
aluminum tube bent in such a manner to crush if either a vertical
or a lateral load is applied. The attachment points for the SAFE-
T-BART are designed to allow the horizontal portion of the bar to
be free to ride down lower in the abdominal area during a crash.
In addition, the SAFE-T-SEATT system allows for the bar lock
assemblies to be mounted in the center of the seat frame,
eliminating the need for the "knee pads" normally required for
retrofit of the SAFE-T-BART on existing school bus seats.
Additional padding on the seat cushion and seat back will also be
an integral part of the new system.
It is anticipated that the SAFE-T-SEATT system will be primarily
installed on new school buses at the point of manufacture.
Majestic will either supply the manufacturer with the SAFE-T-
SEATT system or license the manufacturer to produce their own.
The additional cost to produce a SAFE-T-SEATT (less the SAFE-T-
BART) will be no more than 50% above today's cost to produce a
standard school bus seat. The company envisions that the SAFE-T-
SEATT will enhance occupant safety in school buses and hopes to
commence the marketing of SAFE-T-SEATT devices in the year 2000.
(3) SAFE-T-GUARDT.
The SAFE-T-GUARDT was developed with the knowledge that there are
many fatalities outside of the school bus, in the loading and
unloading zone. The typical scenario is that as a child exits
the bus and remains close to the bus as it is departing the stop
area, a child may trip or fall in the path of the bus's tires.
The task became to develop a "guard" to hang in front of the rear
tires that would "scoop" a child out and away from the tires if
he or she fell under the bus. An additional technical
requirement was to enable this same guard to ride up and over a
curb without being damaged or ripped off the bus. These
requirements and others led to the SAFE-T-GUARDT, a unique system
that incorporates a hanging flap much like a mud flap on a
tractor trailer only it hangs on the front side of the rear
tires. At the bottom of the "flap" is a hard plastic scoop with
two rollers mounted to the backside between the "flap" and the
"tire". This entire assembly hangs to within two inches of the
ground. If the SAFE-T-GUARDT encounters any object up to 500
pounds it will remain in place and the roller object will roll
until it moves out of the path of the tires. If it encounters an
immovable object such as a curb or edge of a pothole for example,
the roller wheels will contact the bus tires and the SAFE-T-
GUARDT will "roll up" and over the obstacle.
The SAFE-T-GUARDT is designed to retrofit to any of the existing
440,000 school buses on the road today. The installation time is
approximately one to two hours per bus. It is anticipated that
new buses will also be fitted with the SAFE-T-GUARDT at the point
of production.
(c) General.
Majestic Transportation owns the exclusive manufacturing and
marketing rights for the SAFE-T-BART. The company's management
believes it has the potential to become a preferred solution for
on-board school bus passenger restraint systems. The general
product design closely approximates the type of lap bar safety
restraint systems commonly found on high velocity amusement park
rides. Majestic Transportation plans to produce and currently is
marketing the product to school bus manufacturers and operators
nationwide, including governmental agencies and school systems.
As of March 3, 1999 the SAFE-T-BART completed and passed the full
complement of testing required under Federal Motor Vehicle Safety
Standards 222 & 302 and is ready for market roll-out. The test
results were delivered to the company in a comprehensive fifty-
page report rendered by KARCO Engineering, a Federally approved
collision testing facility located in Adelanto, California. Now
that all federal compliance testing milestones for the SAFE-T-
BART school bus passenger restraint have been met, the company is
moving quickly into the Pilot Program stage of this new product
on a state by state basis. The marketing department of Majestic
Transportation has discussed or is currently discussing with
transportation officials and/or legislators in the States of
Minnesota, New Jersey, Delaware, Florida, Illinois, Tennessee,
New Mexico and New York that have requested information about the
SAFE-T-BART passenger restraint system.
Majestic Transportation conducted its first pilot program with
the Oceanside (California)Unified School District and recently
completed the program on August 24, 1999. The program received
high marks from the Transportation Staff as well as the many bus
drivers who drove the SAFE-T-BART outfitted bus. The company has
not sold any SAFE-T-BART's to date but has one existing orders
to install SAFE-T-BART's.
The SAFE-T-BART is a passive restraint in that it has a nearly
100% usage rate. The design requires the occupant to lift, sit
and allow the bar to rest down in place and requires virtually no
attention from the driver. SAFE-T-BART is patent pending and has
been designed to lock in the down position during a collision,
thus holding the occupant within the padded seating area. The
cost to retrofit a school bus with the SAFE-T-BART is less than
the cost to add seat belts, as the SAFE-T-BART does not require
the seat to be changed. At the point of manufacture, the SAFE-T-
BART cost is approximately the same as that of a lap-shoulder
belt restraint although a lap-shoulder belt system reduces the
typical three position seat to a two position seat. This results
in the need to purchase additional buses and adds an additional
financial burden.
With of an average of 22 seats per school bus, this represents a
potential market for 9.7 million restraints. Analysts predict
the growth of the industry to continue at around 2% to 4% per
year. (Industry statistics source: School Bus Fleet Magazine
Annual Fact Book 1999).
(d) Sales And Marketing.
To date, sales and marketing efforts have been concentrated in
the Southern California region, focusing on the public school
market. Plans are currently underway to commence penetration
into public schools in other states.
Sales and marketing efforts are conducted by the Vice President
of Sales & Marketing in conjunction with the VP of Engineering.
Sales calls are most effectively performed by visiting school
transportation yards with a school bus owned by Majestic
Transportation outfitted with the SAFE-T-BART. Prospective
customers, including school transportation officials, bus
drivers, administrators, board members, etc. can sit in seats
representing various seat manufacturers and experience the SAFE-
T-BART first hand. This sales approach permits interested
prospects to thoroughly evaluate the product and raise any
questions they may have regarding the bar's functionality,
varying bus applications and other questions relating to
passenger safety. Demonstrating the SAFE-T-BART in a real bus
application has more impact to the prospective customer than
demonstrating the bar with installed on a stand-alone seat.
Majestic Transportation is scheduled to participate in three
major school bus transportation industry trade shows before the
end of 2000. These trade shows draw the attendance of several
thousand pertinent decision makers within the education industry
including prominent representatives from the Parent Teachers
Association.
The company's focus for the remainder of 2000 will be to increase
public awareness of the SAFE-T-BART through industry conferences
along with demonstrating the product to both the public and
private school sector. Also, the company will continue to secure
the support and endorsement of the SAFE-T-BART through
appropriate government officials who believe passenger safety in
school buses is an important issue that needs continued
attention.
(e) Market.
The current market breakdown is as follows:
Private and public schools who possess their own bus fleet
School bus contractors
New bus manufacturers
Existing market size (existing bus fleets only):
# of existing buses in U.S. market: 440,000
Average seat capacity per bus: 22
Potential SAFE-T-BART installations: 9,700,000
Cost per seat installation: $229.00
Potential revenue: $2.2 billion (approximate)
Note: The potential market projection for "new" school buses
is 48,000 annually. At a cost to the manufacturer of $159.00 per
SAFE-T-BART, the overall annual revenue potential is
approximately $150,000,000.
(f) Competition.
(1) SAFE-T-BART.
Currently, to the knowledge of the company's management there are
no other bar type restraints on the market for school buses. The
only known competition to the SAFE-T-BART presently on the market
is a lap belt style seat belt system commonly found in smaller
style school buses and on older cars. A three-point seat belt
system (lap & shoulder) is not currently available due to
conflicts in Federal standards, engineering and design criteria
related to school bus seats. Lap style seat belts have been
tried in New Jersey and in New York for the last 5 years on the
larger style school buses. It has been estimated that only about
15% of the students riding on the school buses outfitted with
these belts are buckling them up for the ride to or from school.
In comparison, the SAFE-T-BART is a passive restraint system
that is designed for a virtual 100% use rate. In addition, it is
commonly reported by school bus operators that the children that
choose not to wear the seat belts during the ride will often use
the belts in a manner for which they were not designed, i.e. as a
weapon by swinging the buckle, tying the belts in knots or
picking apart the latch mechanism. By comparison, the SAFE-T-BART
has only one exposed moving part, the bar, and cannot be
manipulated by occupants.
(2) SAFE-T-SEATT.
The SAFE-T-SEATT is a unique arrangement of a seat with a built-
in restraint system. Again, the only competition to this would be
a three-point seat belt system that is currently not available
for school buses due to engineering conflicts with Federal
standards. If a three point system were available, it would
reduce the seating capacity of a school bus by 1/3. In addition,
seat backs would be much higher (children would be out of view of
the driver and along with the normal use problems of a two point
system, a three point system requires the children to adjust the
shoulder harness each time they sit down. This further reduces
the likelihood that they will buckle-up.
(3) SAFE-T-GUARDT.
There is currently no known competition in the school bus market
for a guard system for the front side of the tires.
(g) Regulation.
(1) SAFE-T-BART & SAFE-T-SEATT.
Standards for school buses are set by the Federal government and
come under the Code of Federal Regulations . Under the Code of
Federal Regulations are the Federal Motor Vehicle Safety
Standards ("FMVSS") and two standards within FMVSS that apply to
the SAFE-T-BART, FMVSS 222 & FMVSS 302. FMVSS 222 pertains to
school bus seat strength and FMVSS 302 relates to vehicle
interior materials burn rates. Majestic Transportation
contracted with one of the west coast's largest federally
approved FMVSS compliance testing facility in Adelanto,
California. Karco Engineering was supplied with all the different
school bus seats currently available, this included BlueBird,
Thomas Bus, Amtran and Carpenter. Each of these seats were
fitted with a SAFE-T-BART and each were run through the very
specific procedures of testing as prescribed by FMVSS 222. This
series of tests included:
Forward loading of the seat to determine seat frame deflection
with a 2200 pound load
Aft loading to determine deflection
Head impact using a high velocity ram
Knee impact using a high velocity ram also.
At the end of this testing, Karco Engineering issued Majestic
Transportation a 78 page report and the report indicated that the
SAFE-T-BART had passed all the requirements of FMVSS 222 on the
first try. FMVSS 302 was conducted by US Testing Labs in Los
Angeles, California. A sample section of the SAFE-T-BART was
used in a controlled burn to determine if the self-skinning
urethane foam would self extinguish per the requirements of the
test. US Testing Labs issued a written report indicating that
the SAFE-T-BART had met FMVSS 302 standard on the first try.
Although all equipment produced relating to school buses must
meet Federal Motor Vehicle Standards it is up to each state
individually to decide the optional equipment it would like on
its buses, i.e. flashing lights & signs, restraints etc. New
Jersey and New York have had laws requiring restraints on all
school buses for the last 5 years. Florida, Louisiana and
California passed laws last year requiring that all new school
buses purchased beginning within the next 1 to 2 years must be
equipped with occupant restraints. It is expected that during
the 2000 legislative session, an additional 30 states will have
pending legislation requiring occupant restraints on school
buses.
(2) SAFE-T-GUARDT.
There are no existing Federal or State regulations pertaining to
guards that hang in front of the tires. The only known
requirement is that the SAFE-T-GUARDT must not protrude beyond
the side bodywork of the bus.
(h) Manufacturing.
(1) SAFE-T-BART.
The SAFE-T-BART is currently produced using five subcontractors
in California, Nevada and Mexico. The "self-skinning urethane
foam" process for the bar and knee pads is done at Universal
Urethane in North Las Vegas, NV. Universal Urethane is one of the
largest independent suppliers of molded foam products in the US
today, with an annual output of over one million pounds of
material. Purpose built aluminum molds were produced at
Universal Urethane specifically for the SAFE-T-BART. The steel
tube portion of the bar is produced in Mexico. The Mexican
subcontractor is a large supplier of steel tube furniture, with
90% of the final product for export into the US. They are
equipped with multiple automatic tube forming machines and
presses for forming the two ends of the bar. This bar, produced
in Mexico, is shipped directly to Universal Urethane to be
covered in the molded foam. The remaining metal and plate
components are produced in San Diego by Jiffy Machine and
MetalTek. Critical Internal locking components are heat treated
for maximum strength and durability. Final components are acid-
etched, cleaned and yellow zinc-plated for corrosion protection.
A San Diego based cardboard box manufacturer is used and produces
a custom-made shipping box for the SAFE-T-BART. The box holds
two complete bar assemblies and 20 of these boxes can be arranged
on a pallet and shrink-wrapped for bulk shipping or
containerizing.
At the appropriate level of production, a shift will be made to
use an automotive components manufacturer in Taipei, Taiwan.
Golden Legion automotive, Taipei, is an ISO 9000 automotive
component manufacturer with 90% of production for export. Golden
Legion is a supplier to both Ford and Honda of Asia.
Representatives from Majestic Transportation have already
inspected Golden Legions facilities in Taipei and completed the
first go-around of technology transfer. Start-up with Taiwan
would be phased in over a six-month period.
The product, as shipped from Taiwan, would be received at Long
Beach in Sea-Land containers and warehoused and distributed from
Long Beach using a contract service. Import duty on bus
components is 1.75%. Shipping costs from Taiwan to Long Beach
are about 2%.
(2) SAFE-T-SEATT & SAFE-T-GUARDT.
The SAFE-T-SEATT and SAFE-T-GUARDT are both currently under
development but will use the same approximate suppliers as the
SAFE-T-BART. The SAFE-T-SEATT will require an additional
supplier of vinyl seat covering material and urethane sponge
rubber - both expected to be sourced in San Diego. The SAFE-T-
GUARDT will require additional cast urethane for the lower edge
of the guard. In addition, caster wheels will also be needed, but
will be purchased as an individual item and bolted to the final
product. Both products are excellent candidates for production in
Taiwan given predetermined production levels.
Majestic Financial, Ltd.
With the placement of its first single unit operational lease,
Majestic Financial, Ltd. began operations in December of 1998.
Its primary mission is to supply modular classrooms for lease to
school districts. This is accomplished by directly providing
modular classrooms for lease, or, through the acquisition of
existing leased fleets from small to medium size entities. The
focus is to establish an asset base that will continuously
provide a turnover of revenue from the renewal of existing
leases. Majestic Financial, Ltd.'s plan of operation includes
providing schools that have limited budgetary resources the
ability to obtain much needed classroom space under affordable
lease terms.
Employees.
As of July 14, 2000, the company had fifty-two employees, none of
whom have entered into an employment agreement with the company,
other than: the company's President and Chief Executive Officer,
Francis Zubrowski, the company's Controller & Secretary, Alex
Tovar, and the company's Vice President of Investor Relations,
Clayton Chase. The company has no collective bargaining
agreements covering any of its employees, has not experienced any
material labor disruption and is unaware of any efforts or plans
to organize its employees. The company considers relations with
its employees to be good.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
company's Consolidated Financial Statements and Notes thereto,
included elsewhere within this Form 10-QSB.
Results of Operations.
(a) Three Months Ended March 31, 2000 and 1999.
(1) Net Sales. Net sales for the three months ended March 31,
2000 were $63,241, a ninety-five percent decrease from $1,290,046
for the same period in 1999. The modular division accounted for
$53,056 of the first quarter sales in 2000, and, for $1,286,613
in for the same period in 1999. This decrease can be attributed
to the modular division's completion and recognition of $873,000
of Work-In-Progress in the first quarter of 1999. At quarter end
March 31, 2000, the modular division had $766,107 in work-in-
progress. Lease sales accounted for $10,038 as of March 31, 2000
compared to $3,433 for the same period in 1999. This was a
result of the lease fleet acquired in the first quarter of 1999.
(2) Cost of Sales. Cost of sales decreased by ninety-six
percent to $52,804 through March 31, 2000 from $1,278,500 in the
same period 1999. Once again, the decrease can be attributed
primarily to sales and cost recognition of $873,000 worth of
Work-In-Progress for the same period in 1999. Cost of sales was
made up of the modular division operations that have been
improved by the acquisition of manufacturing equipment such as, a
panel roll-former and spray-booth.
(3) Research and Development. Research and Development
expenses decreased to $23,250 through the period March 2000 from
$42,325 in the same period 1999. The decrease is the result of
reduced consulting fees related to ongoing development projects.
(4) Selling and Marketing. Selling and marketing expenses
decreased ninety percent from $19,885, for the period ending
March 31, 1999, to $1,931, for the same period in 2000. This is
a result of a reduction in corporate and modular selling and
marketing expenses, as well as, scheduling of transportation
selling and marketing activities after first quarter 2000.
(5) General and Administrative. General and administrative
expenses decreased slightly from $1,159,062 for the period ending
March 31, 1999 to $1,132,934 for the same period in 2000.
General and administrative expenses consisted largely of
corporate consulting fees of $663,000 paid in shares for the
period ending March 31, 2000.
(6) Other Expenses. Other expenses for depreciation
decreased from $17,475 for the period ending March 31, 1999 to
$14,931 for the same period ending March 31, 2000. Interest
expense increased nearly seven-fold from $3,450 for the period
ending March 31, 1999 to $22,769 for the same period in 2000.
The marked increase is reflective of the company's acquisition of
debt financing in 1999 and 2000.
(b) Fiscal Years Ended December 31, 1999 And 1998.
(1) Net Sales. In fiscal year ending December 31, 1999, the
company achieved annual sales of $2,289,620. Net sales in 1998
were $395,857. Sales in 1999 represent over a five and a half-
fold increase over 1998. Ninety-nine percent of 1999 sales
originated from the company's modular division. Modular division
sales fell short of management annual projections due to internal
and external scheduling issues, as well as, the inadequate
availability of working capital. However, prior to year-end 1999,
the modular division had acquired an additional $3.5 million
dollars in orders. The company has acquired cranes, a roll-
former, and other equipment in order to assist the modular
manufacturing process in completing future orders. The remaining
one-percent of sales for 1999 was comprised of lease revenue from
the company's lease division, which, in itself posted a ten-fold
increase over 1998 lease revenues. The increase resulted from the
addition of 13 modular units currently under lease to various
school districts throughout central california. There were no
sales posted in 1999 for the company's transportation division,
which was is on the threshold of obtaining its first orders for
its safety restraint known as the SAFE-T-BART.
(2) Cost of Sales. Cost of sales for the modular division
totaled $2,234,812 in 1999. This is over a five and half-fold
increase over 1998 costs of, $393,382. The unusually high cost-
of-sales compared to revenues were impacted by inadequate
bidding, ordering and manufacturing procedures. The modular
division's effort to establish accurate estimating and bidding
techniques are crucial in projecting adequate sales pricing.
Material cost also affected total costs since the modular
division had to pay premium pricing due to small volume ordering.
The company's leasing division costs in association with the
lease fleet in acquired in 1999 were minimal and had no costs to
compare in 1998 since it had commenced its operation in December
of that year. There were no cost-of-sales in the transportation
division.
(3) Research and Development. Research and development expenses
in 1999 totaled, $190,430. This is in comparison to research and
development expenses in 1998 of $191,687. The company's
transportation division continues to be the only division with
research and development expenses associated with the continual
development of the safety restraint known as the SAFE-T-BART.
(4) Selling and Marketing. Selling and marketing expenses for
1999 were $251,806. This marked an increase of seventy-five
percent from selling and marketing expenses in 1998 of $144,044.
The company's corporate headquarters accounted for $163,641 of
these expenses, $30,222 was within the modular division and the
balance of $57,943 was a result of marketing within the
transportation division. The company's corporate increase
resulted primarily from the contracting of various public
relations groups in 1999. Selling and marketing expenses for the
modular division did not significantly increase over those of
1998. The company's transportation division increase is
reflective of its continuing efforts to introduce its safety
restraint, SAFE-T-BART, into the public school transportation
market.
(5) General and Administrative. The company's general &
administrative expenses in 1999 totaled, $3,539,276, a seventy-
eight percent increase from 1998 expenses of, $1,987,527. A
substantial portion of the general & administrative expenses,
thirty-one percent or $1,092,787, resulted from consulting
services involving management, legal, and public relations and
investment advice. Salary expenses made up another twenty-nine
percent, $1,034,455, of total general expenses. Total salary
expenses were attributed as follows: $338,459 from corporate,
$592,648 from modular, and, $103,349 from transportation. The
remaining balance of general expenses, $1,235,356, consisted of
insurance, the addition of two new office locations, financing
fees, licensing royalties in regards to the SAFE-T-BART, legal
and professional, and other general overhead expenses.
(6) Other Expenses. Other expenses increased four-fold from
$19,178, in 1998 to $83,403 in 1999. This was due to, a full
year's depreciation and amortization schedule. Corporate
depreciation amounted to $5,571 in 1999. Modular division
depreciation and amortization expenses resulting from the
acquisition of equipment such as, cranes, a roll-former, paint
booth and new PC licenses for the modular division totaled,
$57,349. The purchase and depreciation of 13 modular buildings
for the company's leasing division also contributed to the total
increase in depreciation, $14,621. Finally, the acquisition of a
school bus by the transportation division accounted for
depreciation expenses, $5,861, in 1999.
Liquidity And Capital Resources.
(a) Three Months Ended March 31, 2000 and 1999.
As of March 31, 2000, the company had a working capital deficit
of $ 811,909 compared to a deficit of $ 1,457,573 at December 31,
1999, an increase in working capital of $ 645,664. The increase
in working capital was due to the company reducing its reliance
on short term borrowings to meet current obligations during the
first three months of 2000 as compared to the same period in 1999
and an increase in inventory and work-in-progress.
As a result of the company's operating losses during the three
months ended March 31, 2000 and 1999, the company generated cash
flow deficits of $662,136 in 2000 as compared to a deficit of
$536,837 in 1999 from operating activities. The company met its
cash requirements during the first three months of 2000 through
loan proceeds of $1,614,820 from private sources.
While the company has raised capital to meet its working capital
and financing needs in the past, additional financing is required
in order to meet the company's current and projected cash flow
deficits from operations. The company is seeking financing in
the form of equity in order to provide the necessary working
capital. The company currently has no commitments for financing.
There are no assurances the company will be successful in
raising the funds required.
The company 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 company.
(b) Three Months Ended March 31, 2000 and 1999.
The company has largely financed its operations through private
placements of common and preferred stock, raising net proceeds of
approximately $2.5 million from sales of these securities. The
company has raised $978,275 through a Section 504 offering in
1999. From December 31, 1997 through December 31, 1999, the
company has invested approximately $726,951 (net of accumulated
depreciation) in leasehold improvements, plant and office
equipment to support its developmental, production and
administrative activities. An additional $91,684 has been
invested into licenses of trademarks and standard plans. The
company anticipates no other material capital commitments in the
near term future.
Cash flow used in the company's operations was $2,372,352 for
December 31, 1999, and ($313,318) for the year ended December 31,
1998. Cash flow for operating activities in 1999 was primarily
attributable to the company's net income (loss) of ($4,123,634),
adjusted for depreciation of $83,403, common stock issued for
services of $890,584, an increase of $740,736 in accounts payable
and a decrease of $78,057 in accounts receivable. Cash flow for
operating activities in 1998, $1660,313, was largely attributable
to the company's net income (loss) of ($2,373,288), adjusted for
depreciation of $19,178, common stock issued for services of
$688,315, a write-down in a value of asset of $260,000, an
increase of $219,860 in accounts payable, and in increase of
$933,446 in customer deposits.
Cash flows used in investing activities for the year-ended
December 31, 1999, was $413,633 and $313,318 for the year-ended
1998. In 1999 the company invested in the acquisition of
overhead cranes, roll-former, paint-booth, school bus, and
purchase of a thirteen-unit modular lease fleet. In 1998 the
company invested $313,318 in one modular unit used for leasing,
computers and office equipment, two forklifts, a heavy press, 8
welding units and a multitude of leasehold improvements.
Cash flow provided from financing activities was $2,608,396
during the year ended December 31, 1999 and cash flows used in
financing activities during the year ended December 31, 1998 was
$ 2,169,377. The principal source of financing in 1999 consisted
of $1,256,121 in loans, and $1,352,275 in proceeds raised from
the sale of common stock and private placements. The proceeds
were largely utilized to finance the operations of the company.
The principal use of funds in 1998 were also used primarily to
fund the operations of the company.
The company's principal sources of liquidity are short and long
term debt financing, of which $1,096,585 remains outstanding as
of December 31, 1999. Other credit facilities of $1,250,000 for
Majestic Modular Buildings, Ltd., and, $2,000,000 for Majestic
Transportation Products, Ltd. were intended for working capital
use, but subsequently became unavailable due to the fact that the
lending source ceased operations and became inactive.
Additionally, the company is negotiating a line of credit
totaling $1 million dollars, of which $275,000 became available
in the last quarter of 1999. The company continues to seek out
additional facilities to fulfill its working capital needs
throughout the year 2000.
The loss of Cal-American Building Company, Inc., as a major
customer in 1999 did not materially affect Majestic Modular
Buildings, Ltd., sales or market development. Majestic has
focused the development of modular sales directly with end users,
i.e., school districts or modular dealers, versus, subcontracting
work from modular manufacturers.
Recent Accounting Pronouncements.
The company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise
and Related information" ("SFAS 131") in the year ended December
31, 1998. SFAS establishes standards for reporting information
regarding operating segments in annual financial statements and
requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS 131
also establishes standards for related disclosures about products
and services and geographic areas. Operating segments are
identified as components of an enterprise about which separate
discrete financial information is available for evaluation by the
chief operating decision maker, or decision making group, in
making decisions how to allocate resources and assess
performance. The information disclosed herein, materially
represents all of the financial information related to the
company's principal operating segment.
The company adopted Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pension and
Other-Post Employment Benefits" (SFAS 132") in the year ended
December 31, 1999. SFAS No. 132 establishes disclosure
requirements regarding pension and post employment obligations.
SFAS No. 132 does not effect the company as of December 31, 1999.
In March 1998, Statement of Position No. 98-1 was issued,
which specifies the appropriate accounting for costs incurred to
develop or obtain computer software for internal use. The new
pronouncement provides guidance on which costs should be
capitalized, and over what period such costs should be amortized
and what disclosures should be made regarding such costs. This
pronouncement is effective for fiscal years beginning after
December 15, 1998, but earlier application is acceptable.
Previously capitalized costs will not be adjusted. The company
believes that it is already in substantial compliance with the
accounting requirements as set forth in this new pronouncement,
and therefore believes that adoption will not have a material
effect on financial condition or operating results.
In April 1998, Statement of Position No. 98-5 was issued
which requires that companies expense defined previously
capitalized start-up costs including organization costs and
expense future start-up costs as incurred. Adoption of this
statement does not have an effect on financial condition or
operating results.
The company adopted Statement of Financial Standards No.
133, "Accounting for Derivative Instruments and for Hedging
Activities" ("SFAS No. 133") in the year ended December 31, 1999.
SFAS No. 133 requires that certain derivative instruments be
recognized in balance sheets at fair value and for changes in
fair value to be recognized in operations. Additional guidance is
also provided to determine when hedge accounting treatment is
appropriate whereby hedging gains and losses are offset by losses
and gains related directly to the hedged item. SFAS No. 133's
impact on the company's consolidated financial statements is
not expected to be material as the company has not historically
used derivative and hedge instruments.
Forward Looking Statements.
This prospectus contains "forward looking statements" within the
meaning of Rule 175 under the Securities Act of 1933, as amended,
and Rule 3b-6 under the Securities Act of 1934, as amended,
including statements regarding, among other items, the company's
business strategies, continued growth in the company's markets,
projections, and anticipated trends in the company'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 company's
expectations and are subject to a number of risks and
uncertainties, including but not limited to the risk factors as
set forth in this prospectus. Many of these factors are beyond
the company's control. Actual results could differ materially
from these forward-looking statements. In light of these risks
and uncertainties, there can be no assurance that the forward-
looking information contained in this prospectus will, in fact,
occur. The company does not undertake any obligation to revise
these forward-looking statements to reflect future events or
circumstances and other factors discussed elsewhere in this
report and the documents filed or to be filed by the company with
the Securities and Exchange Commission.
DESCRIPTION OF PROPERTY
The company's principal executive and administrative offices are
located in San Diego, California at 8880 Rio San Diego Drive, 8th
Floor, San Diego, California 92108. The company leases these
offices from HQ Global Workplaces (formerly: Mission Valley
Business Center LLC) on an annually renewable lease basis at an
approximate monthly rental rate of $5,000 on a one-year renewable
lease basis. The company considers these offices to be adequate
and suitable for its current needs.
The company's subsidiary, Majestic Modular Buildings, Ltd.,
leases property at 320 9th Street, Modesto, California from
Berberian Farms Corporation at a monthly rental of $12,500.00 for
a term scheduled to expire April 30, 2003. The monthly rental for
this property will increase to $13,500.00 in December 1999,
$14,500.00 in December, 2000, $15,000.00 in December 2001, and
$15,500.00 in December 2002. The company considers this property
to be adequate and suitable for its current needs.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past two years, there have not been any transactions
that have occurred between the company and its officers,
directors, and five percent or greater shareholders, except as
follows:
The company executed a promissory note in October, 1998, whereby
the company agreed to pay the aggregate amount of $260,000.000 to
Mei Wah Company, Inc., a California corporation, by December 31,
1999. The terms, rights, title and interest of the promissory
note were restructured and assigned to Francis A. Zubrowski's
wife, Gail E. Bostwick, on April 8, 1999. The company thereby
received more favorable terms and conditions permitting payment
over a period of seventy (70) months rather than maturing on
December 31, 1999.
In May, 1999 the company obtained a $1,250,000 line of credit
from a private lender for use in its modular operations in
Modesto, California. The company had drawn a total of $186,680
in proceeds from this facility as of September 30, 1999, but was
unable to draw further sums under the line of credit due to the
fact that the lending source ceased operations. Subsequent to
these events, Mr. Zubrowski liquidated the balance payable on the
line of credit in a private transaction with an exchange of
restricted stock he owned. The company thereupon agreed to repay
to Mr. Zubrowski the amount of $186,680 that Mr. Zubrowski paid
on the line of credit.
Certain of the officers and directors of the company are engaged
in other businesses, either individually or through partnerships
and corporations in which they have an interest, hold an office,
or serve on a board of directors. As a result, certain conflicts
of interest may arise between the company and its officers and
directors. The company will attempt to resolve such conflicts of
interest in favor of the company. The officers and directors of
the company are accountable to it and its shareholders as
fiduciaries, which requires that such officers and directors
exercise good faith and integrity in handling the company's
affairs. A shareholder may be able to institute legal action on
behalf of the company or on behalf of itself and other similarly
situated shareholders to recover damages or for other relief in
cases of the resolution of conflicts is in any manner prejudicial
to the company.
MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Market Information.
On July 22, 1998, the company's common stock began trading on the
Over the Counter Bulletin Board under the symbol "SKTX." On
January 5, 1999 the company's ticker symbol changed due to the
change in the name of the company, and subsequent to that date
trades on the Bulletin Board under the symbol "MJXC." The range
of closing prices shown below is as reported by this market. The
quotations shown reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily
represent actual transactions.
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ending on December 31, 2000
High Low
Quarter Ended June 30, 2000 0.28 0.11
Quarter Ended March 31, 2000 0.45 0.20
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended on December 31, 1999
High Low
Quarter Ended December 31, 1999 0.33 0.16
Quarter Ended September 30, 1999 0.50 0.21
Quarter Ended June 30, 1999 0.94 0.37
Quarter Ended March 31, 1999 0.87 0.44
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended on December 31, 1998
High Low
Quarter Ended December 31, 1998 4.00 1.00
Quarter Ended September 30, 1998 * 5.50 4.00
* The company's common stock commenced trading on July 22, 1998
(b) Holders of Common Equity.
As of July 1, 2000, there were 272 shareholders of record of the
company's common stock.
(c) Dividends.
The company has not declared or paid a cash dividend to
stockholders since it became a "C" corporation. The board of
directors presently intends to retain any earnings to finance
company operations and does not expect to authorize cash
dividends in the foreseeable future. Any payment of cash
dividends in the future will depend upon the company's earnings,
capital requirements and other factors.
EXECUTIVE COMPENSATION
The following table sets forth certain information relating to
the compensation paid by the company during the last three (3)
fiscal years to the company's Chief Executive Officer. No other
executive officer of the company received total salary and bonus
in excess of $100,000 during the fiscal years set forth (the
information set forth relative to periods prior to the
consummation of the merger of the Majestic Companies, Ltd., a
Delaware corporation, into SKYTEX International in December,
1998, represents sums paid to Mr. Zubrowski by The Majestic
Companies, Ltd., a Delaware corporation and prior to March, 1998
by Majestic Motor Car Company).
SUMMARY COMPENSATION TABLE
Annual compensation Long-term
compensation
Awards Payouts
Other Securi All
Annual ties other
Name and compen Restrict under compen
Principal Year Salary Bonus sation stock lying LTIP sation
Position award options payouts
SARs
($) ($) ($) ($) (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Francis
A. Zubrowski 1999 $180,000 0 0 0 250,000 0 0
CEO/Pres. 1998 $ 60,000 0 0 $18,000 500,000 0 0
1997 $ 48,000 0 0 $18,000 250,000 0 0
OPTION/SAR GRANTS IN LAST FISCAL YEAR (1)
Number of Percent of total
securities options/SARS
underlying granted to Exercise or
options/SARs employees in base price Expiration
Name granted (#) fiscal year ($/Sh) date
(a) (b) (c) (d) (eO
Francis
A.
Zubrowski 250,000 100% $1.25 November 1,
CEO/Pres 2001
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Shares acquired Value Number of Value of
Realized securities unexercised
($) underlying in-the-money
Unexercised options/SARs
options/SARS at FY-end ($)
at FY-end(#) Exercisable/
Exercisable/ Unexercisable(2)
Name Unexercisable
(a) (b) (c) (d) (e)
Francis
A.
Zubrowski 390,909 $537,500 500,000 $0
CEO/Pre Exercisable
(1) For the fiscal year ended December 31, 1999.
(2) As of fiscal year end (December 31, 1999), none of the
unexercised options are in-the-money.
Employment Contract.
On November 1, 1998, the company and its President and Chief
Executive Officer, Francis A. Zubrowski, renewed and amended a
five year employment agreement whereby the company paid Mr.
Zubrowski an annual salary of $180,000 for 1999 and 10% increases
in Mr. Zubrowski's salary per year for years 2000, 2001, 2002,
and 2003. Under the Employment Agreement the company also granted
Mr. Zubrowski non-statutory stock options for 250,000 shares of
the company's common stock for each year of Mr. Zubrowski's
employment. The exercise price for the stock option is $1.00 per
share for year 1998, $1.25 per share for year 1999, $1.50 for
year 2000, $1.75 for year 2001, and $2.00 for year 2002. The
Employment Agreement also grants Mr. Zubrowski $1,000 a month as
an automobile allowance, $500.00 per month medical insurance
allowance, and a term life insurance policy in the face amount of
one million dollars ($1,000,000).
The company and Mr. Zubrowski have determined to cancel this
contract. In consideration of this cancellation and the new
agreement, the company has agreed to issue to Mr. Zubrowski a
total of 9,000,000 shares of common stock, all of which are to be
registered under this registration statement.
Other Compensation.
(a) There are no annuity, pension or retirement benefits
proposed to be paid to officers, directors, or employees of the
company in the event of retirement at normal retirement date as
there was no existing plan as of December 31, 1999 provided for
or contributed to by the company.
(b) No remuneration is proposed to be paid in the future
directly or indirectly by the company to any officer or director
since there no existing plan as of December 31, 1999 which
provides for such payment, including a stock option plan. The
company subsequently on March 8, 2000 adopted a non-qualified
Employee Stock Option Plan. Certain options have been granted
under this plan to the officers and directors of the company, as
shown on the chart of security ownership of officers and
directors.
FINANCIAL STATEMENTS
THE MAJESTIC COMPANIES, LTD.
CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, 2000
ASSETS
Current Assets:
Cash and Equivalents $ 28,110
Accounts Receivable 69,181
Deposits and Other Prepaid Expenses 142,520
Inventory, at Cost 850,147
Total Current Assets 1,089,958
Property and Equipment: At cost
Less Accumulated Depreciation 730,162
94,939
635,223
Other Assets:
Intangible Assets 71,143
Total Assets $1,796,324
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Current Maturities of Long Term Debt $ 209,205
Accounts Payable and Accrued Liabilities 1,385,960
Customer Deposits 306,703
Total Current Liabilities 1,901,867
Long Term Debt, Less Current Maturities 615,091
Stockholders' Equity:
Common Stock, Par Value, $0.001
31,974,070 shares issued and
outstanding at March 31, 2000 31,974
Additional Paid-In Capital 7,267,625
Accumulated Deficit (8,020,233)
Shareholders' Equity (720,634)
Total Liabilities and Equity $1,796,324
See Accompanying Notes to Unaudited Financial Statement
THE MAJESTIC COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Three Months
Ended Ended
March 31, 2000 March 31, 1999
Net Sales $ 63,241 $1,290,046
Cost of Goods Sold 52,804 1,278,500
Gross Profit 10,437 11,546
Operating Expenses:
Research and Development 23,530 42,325
Sales and Marketing 1,931 19,885
General and Administrative 1,132,934 1,159,062
Depreciation & Amortization 14,931 17,475
Total Operating Costs 1,173,326 1,238,747
Interest Expense 22,769 3,450
Income Before Income Taxes (1,185,658) (1,230,650)
Income Tax Expense - -
Net Income $(1,185,658) $(1,230,650)
Loss Per Common Share
(Basic and Diluted) $(0.04) $(0.06)
Weighted Average Common 29,201,848 20,117,735
Shares Outstanding
See Accompanying Notes to Unaudited Financial Statement
THE MAJESTIC COMPANIES, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Three Months
Ended Ended
March 31, 2000 March 31, 1999
Cash Flows from Operating Activities
Net Loss for the Year $(1,185,658) $(1,230,650)
Adjustments to Reconcile Net Earnings
(Loss) to Net Cash Provided By Operating
Activities:
Common Stock Issued in Connection with
Services Rendered 739,600 275,000
Write Down in Value of Asset - -
Depreciation and Amortization 14,931 17,475
(Increase) Decrease in:
Accounts Receivables - 119,262
Prepaid Expenses and Other (87,871) 1,500
Inventory (350,572) 907,302
Increase(Decrease) in:
Accounts Payable and Accrued
Expenses, net 186,906 173,800
Customers Deposits 20,528 (800,526)
Net Cash (used) Provided by Operating
Activities (662,136) (536,837)
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 - 343,000
Proceeds from Loans 1,614,820 286,680
Repayments of Loans, Net (921,500) (12,866)
Net Cash, Provided (Used) in
Financing Activities 693,320 616,814
Net (Decrease) Increase in Cash
and Equivalents 23,140 (126,307)
Cash and Equivalents at Beginning of Year 4,970 305,639
Cash and Equivalents at End of Year 28,110 179,332
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Year for Interest 22,769 -
Common Stock Issued for Services 739,600 275,000
Common Stock Issued for Capital
Expenditures - 201,756
Notes Incurred for Capital Assets Acquired - -
NONCASH FINANCING ACTIVITIES
Issuance of Common Stock In Exchange for Debt 863,000 -
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 period ended March 31,2000 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
company's December 31, 1999 Annual Report on Form 10-KSB.
Basis of Presentation
The consolidated financial statements include the accounts of the
company, 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 company operated in three reportable
segments: Majestic Modular, Majestic Financial and Majestic
Transportation. The company'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 company 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 company 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.
THE MAJESTIC COMPANIES, LTD.
INDUSTRY SEGMENTS
(Unaudited)
Three Months Ended
31-Mar
Net Sales to External Customers 2000 1999
Modular Buildings $ 53,056 $1,286,613
Leases 10,038 3,433
Transport - -
All Other 148 536
Total Sales to External Customers 63,241 1,290,582
Segment Operating Income
Modular Buildings (228,527) (345,122)
Leases 5,282 1,450
Transport (46,419) (67,325)
All Other - -
Total Segment Operating Income (269,664) (410,997)
2000 1999
March 31 December 31
Segment Assets
Modular Buildings 1,413,643 1,041,325
Leases 217,453 222,531
Transport 53,114 56,217
All Other - -
Total Segment Assets 1,684,210 1,320,073
Three Months Ended
31-Mar
Operating Income 2000 1999
Total Segment Operating Income (269,664) (410,997)
Unallocated Corporate (Expense) (915,994) (573,416)
Total Consolidated Operating
Income $(1,185,658) (984,413)
2000 1999
31-Mar 31-Dec
Assets
Total Segment Assets 1,684,210 1,320,073
Corporate Assets Not Assigned to
Operating Units 112,114 27,166
Total Consolidated Assets 1,796,324 1,347,239
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
The Majestic Companies, Ltd.
San Diego, California
We have audited the accompanying consolidated balance sheets
of The Majestic Companies, Ltd. and subsidiaries as of December
31, 1999 and 1998 and the related consolidated statements of
losses, deficiency in stockholders' equity, and cash flows for
the two years then ended. These financial statements are the
responsibility of the company's management. Our responsibility
is to express an opinion on these financial statements based upon
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
misstatements. 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 our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of The Majestic Companies, Ltd. and subsidiaries as of December
31, 1999 and 1998, and the results of its operations and its cash
flows for the two years ended, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared
assuming that the company will continue as a going concern. As
discussed in Note P, the company is experiencing difficulty in
generating sufficient cash flow to meet it obligations and
sustain its operations, which raises substantial doubt about its
ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note P. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Stefanou & Company, LLP
Stefanou & Company, LLP
Certified Public Accountants
McLean, Virginia
April 2, 2000
THE MAJESTIC COMPANIES, LTD.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999 AND 1998
ASSETS 1999 1998
CURRENT ASSETS:
Cash and equivalents $ 4,970 $ 305,639
Accounts receivable, net of
allowance for doubtful accounts 69,182 147,238
Inventory, at lower of cost or market 499,575 1,214,026
Deposits 53,263 64,213
Prepaid expenses 1,386 12,500
Total current assets 628,376 1,743,616
PROPERTY AND EQUIPMENT-AT COST:
Buildings under operating leases (Note E) 236,084 35,000
Furniture, equipment and leasehold
Improvements 491,644 279,095
727,728 314,095
Less accumulated depreciation 100,549 18,430
627,179 295,665
OTHER ASSETS:
Intangible assets (Note F) 91,684 5,942
$1,347,239 $2,045,223
LIABILITIES
CURRENT LIABILITIES:
Current maturities of long-term
debt (Note D) $ 600,720 $ 271,604
Accounts payable and accrued expenses 1,199,054 458,318
Customer deposits 286,175 933,446
Total current liabilities 2,085,949 1,663,368
LONG-TERM DEBT, less current maturities
(Note D) 495,865 21,738
COMMITMENTS AND CONTINGENCIES (Note K)
STOCKHOLDERS' EQUITY (NOTES G AND J)
Common stock, par value $.001 per share
50,000,000 shares authorized;
26,834,070 issued at December 31, 1999;
21,111,863 shares issued at December
31, 1998 26,834 21,112
Additional paid-in-capital 5,573,165 3,073,945
Stock subscription receivable - (24,000)
Accumulated deficit (6,834,574) (2,710,940)
(1,234,575) 360,117
1,347,239 2,045,223
See accompanying notes to consolidated financial statements
THE MAJESTIC COMPANIES, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 and 1998
1999 1998
Revenues:
Modular buildings $ 2,265,609 $ 393,382
Rental income 23,529 2,475
2,289,138 395,857
Cost and expenses:
Modular Buildings 2,234,812 425,281
Selling, general and administrative 3,726,650 2,131,571
Research and development 190,430 191,687
Interest 77,959 1,428
Depreciation and amortization 83,403 19,178
6,413,254 2,769,145
Operating loss (4,124,116) (2,373,288)
Interest income 482 -
Income (taxes) benefit - -
Net loss $(4,123,634 $(2,373,288)
Loss per common share (basic and
assuming dilution) $ (.17) $ (.20)
Weighted average common shares
outstanding (Note L) 24,942,985 11,998,422
See accompanying notes to consolidated financial statement
THE MAJESTIC COMPANIES, LTD.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
Common Stock Add'l Stock Accumu Total
Shares Amount Paid-in Subscrip lated
Capital tion Deficit
Receiv
able
Balance at
December 31,
1997 4,024,758 40,247 445,053 - (337,652) 147,648
Shares issued in
connection with
merger with
Skytex,
International
Inc. 2,500,000 25,000 - - 25,000
Shares issued to
consultants and
employees in
exchange for
services 5,162,044 51,620 636,695 - 688,315
Sale of stock
issued pursuant
to private
placement, net
of costs 2,855,403 28,554 1,047,888 1,076,442
Stock split
(Note J) 4,904,658 49,047 (49,047) -
Reduction in par
value of
common stock - (190,006) 190,006 -
Issuance of
stock in
exchange for
debt (Note M) 1,665,000 16,650 803,350 820,000
Subscription
note
receivable - - - (24,000) (24,000)
Net loss - - - - (2,373,288) (2,373,288)
Balance at
December 31,
1998 21,111,863 21,112 3,073,945 (24,000)$(2,710,940) 360,117
Sale of stock
issued
pursuant to
private
Placement
(Note J) 2,115,498 2,115 976,159 978,274
Sale of stock
issued to a
private placement
(Note J) 725,000 725 349,725 350,000
Shares issued
to consultants
and employees
in exchange for
services 2,321,709 2,322 888,262 890,584
Issuance of
Stock in
Exchange for
Debt 560,000 560 285,524 286,084
Receipt of
Subscription
Note Receivable 24,000 24,000
Net loss - - - - (4,123,634) (4,123,634)
Balance at
December 31,
1999 26,834,070 26,834 5,573,165 - (6,834,574) (1,234,575)
See accompanying notes to consolidated financial statement
THE MAJESTIC COMPANIES, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 and 1998
1999 1998
Increase (decrease) in cash and equivalents
Cash flows from operating activities
Net loss for the year $(4,123,634) $(2,373,288)
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Common stock issued in connection for
services rendered 890,584 688,315
Depreciation and amortization 83,403 19,178
Write-down in value of asset 260,000
(Increase) decrease in:
Accounts receivable 78,057 (111,143)
Prepaid expenses and other (63,678) (82,655)
Inventory 714,451 (1,214,026)
Increase (decrease) in:
Accounts payable and accrued
expenses, net 740,736 219,860
Customer deposits (647,271) 933,446
Net cash (used) provided by operating
Activities (2,327,352) (1,660,313)
Cash flows used in investing activities:
Capital expenditures, net of disposals (413,633) (313,318)
Net cash used in investing activities (413,633) (313,318)
Cash flows used in financing activities:
Proceeds from sale of common stock, net
of costs 1,352,275 1,076,442
Proceeds from loans 1,256,121 1,092,935
Repayments of loans, net (168,080) (31,426)
Net cash, provided (used) in financing
activities 2,440,316 2,137,951
Net (decrease) increase in cash and
equivalents (300,669) 164,320
Cash and equivalents at beginning of year 305,639 141,319
Cash and equivalents at end of year 4,970 305,639
Supplemental Disclosures of Cash Flow
Information
Cash paid during the year for interest 177,959 1,428
Acquisition:
Assets acquired - 10
Accumulated deficit - 3,334
Liabilities assumed - (115)
Common stock issued - (3,229)
Net cash paid for acquisition - -
Non-cash financing activities
Common stock issued for services 890,584 688,315
Issuance of common stock in exchanged for
debt (Note M) 286,084 820,000
Common stock subscriptions receivable 24,000
See accompanying notes to consolidated financial statements
THE MAJESTIC COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 and 1998
NOTE A-SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the
preparation of the accompanying consolidated financial statements
follows.
Business and Basis of Presentation
On December 11, 1998, The Majestic Companies, Ltd., a Delaware
corporation, hereinafter referred to as "Majestic (Delaware)"
("Company"), completed a merger with Skytex International, Inc. (
or "Skytex"), an inactive Nevada corporation with no significant
assets or operations. The resulting merged Nevada corporation
was subsequently renamed " The Majestic Companies, Ltd.",
hereinafter referred to as the "Company". Effective with the
merger, all previously outstanding common stock of Majestic
(Delaware) was exchanged for common stock of Skytex , resulting
in the previous security holders of Majestic (Delaware) owning
approximately 84% of the voting stock of Skytex,, in an exchange
ratio of one (1) share of the Company in exchange for one (1)
share of Skytex.
The Company develops, manufactures and markets relocatable
modular classrooms, office buildings, telephone equipment bunkers
and modular structures. This activity is conducted primarily in
the western part of the United States. The Company is also
engaged in the origination and servicing of new modular building
leases. This activity is conducted primarily in the state of
California. All of the leases which the Company enters into are
accounted for as operating leases. The Company is also in the
business of developing and marketing a proprietary passenger
restraint system for the school bus industry.
The consolidated financial statements include the accounts of the
Company, and its wholly-owned subsidiaries, Majestic Modular
Buildings, Ltd., Majestic Financial, Ltd., and Majestic
Transportation, Ltd. Significant intercompany transactions have
been eliminated in consolidation.
Inventories
Inventories are stated at the lower of cost or market determined
by the first-in, first-out (FIFO) method. Inventories consist of
modular buildings available for sale to contract clients and the
public, along with materials and work-in progress.
Components of inventories as of December 31, 1999 and 1998 , are
as follows:
1999 1998
Raw materials $ 178,700 $ 143,119
Finished goods and work-in-progress 320,875 1,070,907
$ 499,575 $1,214,026
Revenue Recognition
The Company follows a policy of recognizing modular building
sales at the time of shipment. The Company follows a policy of
recognizing revenue from leasing modular buildings as operating
leases. At the inception of the lease, no lease revenue is
recognized and the leased building appears on the balance sheet
as "buildings under operating leases". The capitalized cost of
each modular building is depreciated over the lease term on a
straight-line basis down to the Company's original estimate of
the projected value of the building at the end of the scheduled
lease term (the "Residual"). Monthly lease payments are
recognized as rental income.
Advertising
The Company follows the policy of charging the costs of
advertising to expenses incurred. For the years ended December
31, 1999 and 1998, advertising costs were $47,125 and $33,303,
respectively.
Property and Equipment
For financial statement purposes, property and equipment are
depreciated using the straight-line method over their estimated
useful lives (five years for furniture, fixtures and equipment
and 15 years for building and improvements). The straight-line
method of depreciation is also used for tax purposes.
Intangible Assets
Intangible assets consist of patents, trademarks, and licensing
agreements to build transportation equipment and organization
costs, which are amortized using the straight line method over
the estimated useful lives of the assets which range from five to
seven years. In 1999 the Company capitalized the costs to
develop state certified building plans used in the manufacture of
modular buildings. The plans are amortized over the course of
their useful lives of three years. Organization costs incurred
after December 31, 1999 will be expensed as incurred in
accordance with AICPA Statement of Position 98-5.
In 1998 the Company abandoned the development of building
transportation equipment and, accordingly, the asset was disposed
of (See Note F).
Income Taxes
Income taxes are provided based on the liability method for
financial reporting purposes in accordance with the provisions of
Statements of Financial Standards No. 109, "Accounting for Income
Taxes".
Under this method deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which
those temporary differences are expected to be removed or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the consolidated statements
of operations in the period that includes the enactment date.
Cash Equivalents
For purposes of the Statements of Cash Flows, the Company
considers all highly liquid debt instruments purchased with a
maturity date of three months or less to be cash equivalents.
Impairment of Long-Lived Assets
The Company has adopted Statement of Financial Accounting
Standards No. 121 ("SFAS 121"). The Statement requires that
long-lived assets and certain identifiable intangibles held and
used by the Company be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. SFAS 121 also requires assets to
be disposed of be reported at the lower of the carrying amount or
the fair value less costs to sell.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly actual results could differ
from those estimates.
Research and Development
Company-sponsored research and development costs related to both
present and future products are expended in the year incurred.
Total expenditures on research and product development for 1999
and 1998 were $190,430 and $191,687, respectively.
Concentrations of Credit Risk
Financial instruments and related items which potentially subject
the Company to concentrations of credit risk consist primarily of
cash, cash equivalents and trade receivables. The Company places
its cash and temporary cash investments with credit quality
institutions. At times, such investments may be in excess of the
FDIC insurance limit. The Company's customers are concentrated
primarily in the state of California and it periodically reviews
its trade receivables in determining its allowance for doubtful
accounts. The allowances for doubtful accounts were $0 at
December 31, 1999 and 1998, respectively.
Stock Based Compensation
The Company accounts for stock transactions in accordance with
APB Opinion 25, "Accounting for Stock Issued to Employees." In
accordance with statement of Financial Accounting Standards No.
123, "Accounting for Stock Based Compensation," the Company has
adopted the proforma disclosure requirements.
Liquidity
As shown in the accompanying financial statements, the Company
incurred a net loss of $4,123,634 during the year ended December
31, 1999 and $ 2,373,288 during the year ended December 31, 1998.
The Company's current liabilities exceeded its current assets by
$1,457,573 as of December 31, 1999. At December 31, 1999 a
substantial portion of all of the Company's assets are illiquid.
Comprehensive Income
The Company does not have any items of comprehensive income in
any of the periods presented.
Segment Information
The Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131") in the year ended December 31, 1998.
SAFAS establishes standards for reporting information regarding
operating segments in annual financial statements and requires
selected information for those segments to be presented in
interim financial reports issued to stockholders. SFAS 131 also
establishes standards for related disclosures about products and
services and geographic areas. Operating segments are identified
as components of an enterprise about which separate discrete
financial information is available for evaluation by the chief
operating decision maker, or decision making group, in making
decisions how to allocate resources and assess performance. The
information disclosed herein, materially represents all of the
financial information related to the Company's principal
operating segment.
New Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards
No. 132, "Employers' Disclosures about Pension and Other -Post
Employment Benefits" ("SFAS 132") in the year ended December 31,
1999. SFAS No. 132 establishes disclosure requirements regarding
pension and post employment obligations. SFAS No. 132 does not
effect the Company as of December 31, 1999.
In March 1998, Statement of Position No. 98-1 was issued, which
specifies the appropriate accounting for costs incurred to
develop or obtain computer software for internal use. The new
pronouncement provides guidance on which costs should be
capitalized, and over what period such costs should be amortized
and what disclosures should be made regarding such costs. This
pronouncement is effective for fiscal years beginning after
December 15, 1998, but earlier application is acceptable.
Previously capitalized costs will not be adjusted. The Company
believes that it is already in substantial compliance with the
accounting requirements as set forth in this new pronouncement,
and therefore believes that adoption will not have a material
effect on financial condition or operating results.
In April 1998, Statement of Position No. 98-5 was issued which
requires that companies expense defined previously capitalized
start-up costs including organization costs and expense future
start-up costs as incurred. Adoption of this statement does not
have an effect on financial condition or operating results.
The Company adopted Statement of Financial Standards No. 133,
"Accounting for Derivative Instruments and for Hedging
Activities" ("SFAS No. 133") in the year ended December 31, 1999.
SFAS No. 133 requires that certain derivative instruments be
recognized in balance sheets at fair value and for changes in
fair value to be recognized in operations. Additional guidance is
also provided to determine when hedge accounting treatment is
appropriate whereby hedging gains and losses are offset by losses
and gains related directly to the hedged item. SFAS No. 133's
impact on the Company's consolidated financial statements is
not expected to be material as the Company has not historically
used derivative and hedge instruments.
Earnings Per Share
The Company has adopted Statement of Financial Accounting
Standard No. 128, "Earnings Per Share," specifying the
computation, presentation and disclosure requirements of earnings
per share information. Basic earnings per share has been
calculated based upon the weighted average number of common
shares outstanding. Stock options and warrant's have been
excluded as common stock equivalents in the diluted earnings per
share because they are either antidilutive, or their effect is
not material. There is no effect on earnings per share
information for the years ended December 31, 1999 and 1998
relating to the adoption of this standard.
NOTE B-BUSINESS COMBINATION
On December, 11, 1998, Majestic (Delaware) merged, in an
exchange for common stock, Skytex International, Inc. (Skytex) in
a transaction accounted for using the purchase method of
accounting. The total purchase price and carrying value of net
assets acquired of Skytex was $3,229. The net assets acquired
were as follows:
Net assets $ 10
Accumulated deficit 3,334
Net liabilities (115)
$ 3,229
As Skytex was an inactive corporation with no significant
operations, Majestic (Delaware) recorded the carryover historical
basis of net tangible assets acquired, which did not differ
materially from their fair value. The results of operations
subsequent to the date of acquisition are included in Majestic
(Delaware)'s consolidated statement of losses. Majestic
(Delaware) expensed in 1998 $21,771 which represents the excess
of the purchase price of Skytex over the net assets acquired.
NOTE C-ACQUISITIONS
In April, 1998, Majestic (Delaware) purchased the inventory
(consisting of primarily raw materials) and licensing rights of
Cal-American Building Company for $68,000. Cal-American
manufactures, markets and distributes modular classrooms, office
buildings, medical facilities and telephone communication
shelters.
The purchase of inventory and licensing rights were accounted for
accordingly and, the operating results of the business has been
included in Majestic (Delaware)'s consolidated financial
statements since the date of purchase and inception of
operations.
NOTE D-LONG-TERM DEBT
Long-term debt at December 31, 1999 and 1998 consists of the
following:
1999 1998
Note payable in monthly installments of
$5,000, including interest at 12% per annum,
unsecured; payable to related party and secured
third party collateral (See Note M) $ 211,308 $ 260,000
Note payable in monthly installments of
$1,187 including interest at 9.75% per annum;
secured by office equipment 20,828 33,342
Note payable in monthly installments of
interest only at 10% per annum, secured by
accounts receivable, inventory and
equipment 25,000 -
Note payable in monthly installments of
interest only at 10% per annum, secured by
accounts receivable , inventory and
equipment 50,000 -
Note payable in monthly installments of
interest only at 10% per annum, secured by
accounts receivable , inventory and
equipment 100,000 -
Note payable in monthly installments of
principal and interest at 19.57% per annum,
secured by equipment 21,917 -
Note payable in monthly installments of
$1,276, interest only at 10% per annum,
secured by accounts receivable, inventory
and equipment 100,000 -
Note payable in monthly installments of
interest only at variable rates ranging
from 12% to 40% per annum, secured by
specified accounts receivable 252,517 -
Note payable to related party at 0 %
interest per annum; unsecured (See Note M) 70,300 -
Note payable in monthly installments of $
682 , including principal and interest at
12% per annum, secured by equipment 14,209 -
Note payable in monthly installments of $
820, including principal and interest at
21% per annum, secured by equipment 40,706 -
Note payable to related party at 0% per
annum; unsecured (See Note M) 57,039 -
Note payable to officer at 12% per annum;
unsecured (See Note M) 132,761 -
1,096,585 293,342
Less: current portion 600,720 271,604
$ 495,865 $ 21,738
Aggregate maturities of long-term debt as of December 31, 1999
are as follows:
Year Amount
2000 $ 600,720
2001 140,000
2002 110,000
2003 95,000
2004 80,000
2005 and after 70,865
$1,096,585
NOTE E-BUILDINGS UNDER OPERATING LEASES
Buildings under operating leases consist of the following:
1999 1998
Buildings $236,084 $ 35,000
Less: accumulated
Depreciation 14,816 194
$221,268 $ 34,806
The buildings are depreciated to their estimated residual value
of $28,000 over the life of the lease contracts.
The following is a schedule by years of minimum future rentals on
noncancellable operating leases as of December 31, 1999:
Year ending December 31,
2000 $39,670
2001 28,305
2002 18,750
$86,725
NOTE F-INTANGIBLE ASSETS
The costs and accumulated amortization of intangible assets at
December 31 are summarized as follows:
1999 1998
Trademarks $ 12,884 $ 5,168
Organization costs - 1,642
Plans 78,800 -
91,684 6,810
Less: accumulated
Amortization 17,758 868
Intangible assets, net $ 73,926 $ 5,942
Amortization expense included as a charge to income amounted to
$17,758 and $ 868 for the year ended December 31, 1999 and 1998,
respectively.
Majestic (Delaware) determined that there would be no cash flows
derived from a previously acquired product license agreement .
Accordingly, Majestic (Delaware) recognized an asset impairment
loss of $208,000, the carrying value of the asset, as of December
31, 1999.
NOTE G-STOCK OPTIONS AND WARRANTS
The following table summarizes the changes in options outstanding
and the related prices for the shares of the Company's common
stock issued to a key employee of the Company (See Note O).
Number Weighted Average Number of
of shares Exercise Price Shares Exercisable
Outstanding at
December 31, 1997 250,000 $ .25 250,000
Granted 500,000 .45 500,000
Exercised- - - -
Cancelled - - -
Outstanding at
December 31, 1998 750,000 - 750,000
Granted
Exercised (500,000) .45 (500,000)
Cancelled - - -
Outstanding at
December 31, 1999 250,000 $ .25 250,000
For disclosure purposes the fair value of each stock option grant
is estimated on the date of the grant using the Black-Scholes
option pricing model with the following weighted-average
assumptions used for stock options granted during the years ended
December 31, 1999 and 1998, respectively: annual dividends of
$0.00 for both years, expected volatility of 50%, risk free
interest rate of 6.0% an expected life of two years for all
grants. The weighted-average fair values of the stock options
granted during the years ended December 31, 1999 and 1998 were
$.19 and $.03, respectively.
If the Company recognized compensation cost for the employee
stock option plan in accordance with SFAS No. 123, the Company's
pro forma net loss and net loss per share would have been
$(4,171,134) and $(0.17) in 1999 and $(2,383,188) and $(0.20) in
1998, respectively.
NOTE H-INCOME TAXES
The Company has adopted Financial Accounting Standard No. 109
which requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that
have been included in the financial statement or tax returns.
Under this method, deferred tax liabilities and assets are
determined based on the difference between financial statements
and tax bases of assets and liabilities using enacted tax rates
in effect for the year in which the differences are expected to
reverse. Temporary differences between taxable income reported
for financial reporting purposes and income tax purposes are
insignificant.
For income tax reporting purposes, the Company's aggregate unused
net operating losses approximate $6,834,574, which expire through
2015. The future utilization of the operating loss carryforwards
or the time period in which the carryforwards could be utilized
could be limited if certain historical stockholders of Majestic
sell their shares within two years of the purchase of Skytex.
The deferred tax asset related to the carryforward is
approximately $2,300,000. The Company has provided a valuation
reserve against the full amount of the net operating loss
benefit, since in the opinion of management based upon the
earning history of the Company, it is more likely than not that
the benefits will be realized.
Components of deferred tax assets as of December 31, 1999 are as
follows:
Non Current:
Net operating loss carryforward $ 2,300,000
Valuation allowance 2,300,000
Net deferred tax asset $ -
NOTE I-MAJOR CUSTOMERS
Revenue from three (3) major customers approximated $1,659,929 or
73% and $178,000 or 45% of sales for the year ended December 31,
1999 and 1998, respectively.
NOTE J - CAPITAL STOCK
Majestic Minerals, Ltd., the original Predecessor to Majestic
(Delaware), was incorporated in August, 1995 and formed under the
laws of British Columbia, Canada. In 1995, Majestic Minerals,
Ltd. issued a total of 150,329 shares of its common stock in a
private placements to sophisticated investors in the United
States and Province of British Columbia, Canada and 770,000
shares to consultants for services rendered on its behalf. In
April, 1997, Majestic Minerals, Ltd. changed its name to Majestic
Motor Car Company, Ltd., hereinafter referred to as "Majestic
Motors". During 1997, Majestic Motors issued a total of
1,624,429 shares of its common stock in private placement to
sophisticated investors, primarily in the United States in
exchange for $301,600 net of costs and fees. In addition,
Majestic Motors issued 1,480,000 shares to consultants and
employees for services rendered during 1997.
In February, 1998, Majestic Motors' Board of Directors approved a
three (3) share for one (1) common stock split.
In March, 1998, the Shareholders of Majestic Motors exchanged
all of the outstanding shares of common stock of Majestic Motors
on a share for share basis for shares of common stock in Majestic
(Delaware), a corporation at the time with no material operations
organized for the sole purpose of reincorporating Majestic Motors
under the laws of the State of Delaware.
In 1998, Majestic (Delaware) issued a total of 4,520,403 shares
of common stock in a private placements and exempt offerings to
sophisticated investors, primarily in the United States in
exchange for $1,896,442 net of costs and fees. Certain investors
received warrants to purchase Majestic (Delaware)'s common stock
at exercise prices ranging from $1.50 to $2.00 per share. The
warrants expire at various dates through December 31, 2000. As
of December 31, 1999, Majestic (Delaware) had outstanding
warrants for 1,445,000 shares.
In December 1998, Majestic (Delaware) completed a merger with
Skytex International, Ltd. (Skytex), a Nevada corporation with no
material operations. The shareholders Majestic (Delaware)
exchanged all of the outstanding shares of common stock of
Majestic (Delaware) on a one for one basis for shares of common
stock in Skytex.
Immediately following the merger, Skytex was renamed The Majestic
Companies, Ltd., a Nevada corporation.
In 1999, Majestic (Delaware) issued a total of 2,840,498 shares
of common stock in a private placements and exempt offerings to
sophisticated investors, primarily in the United States in
exchange for $1,325,434 net of costs and fees. Majestic
(Delaware) issued 2,321,709 shares to consultants and employees
for $890,584 of services rendered during 1999. The shares issued
to the consultants and employees were based upon the value of the
services rendered or the market price of the Company's common
stock during the period the services were rendered. In addition,
Majestic (Delaware) issued 560,000 shares of common stock in
exchange for $286,084 of previously incurred debt.
Share amounts presented in the consolidated balance sheets and
consolidated statements of stockholders' equity reflect the
actual share amounts outstanding for each period presented.
NOTE K-COMMITMENTS AND CONTINGENCIES
Lease Commitment
The Company leases office and warehouse space on a year-to-year
basis in San Diego, California for its Corporate offices. The
Company also leases warehouse and plant facilities in Modesto,
California. Commitments for minimum rentals under non-cancelable
leases at the end of 1999 are as follows:
2000 $204,950
2001 186,475
2002 180,000
2003 60,000
$631,425
Employment and Consulting Agreements
The Company has an employment agreement with the Company's
President and Chief Executive Officer. In addition to salary and
benefit provisions, the agreement includes defined commitments
should the employee terminate the employment with or without
cause. At December 31, 1999, the Company's President and Chief
Executive Officer waived any and all claims for unpaid
compensation of $140,000 under the employment agreement.
The Company has consulting agreements with outside contractors,
certain of whom are also Company stockholders. The Agreements
are generally for a term of 12 months from inception and
renewable automatically from year to year unless either the
Company or Consultant terminates such engagement by written
notice.
License and Royalty Agreements
The Company has entered into a licensing and royalty agreement
which allow the Company to use certain patent rights in the
passive restraint products the Company is currently developing.
The licensing agreement requires royalty payments ranging from 2%
to 4% of specified product sales. Minimum royalty payments due
under this agreement for the period 2000 through 2004 total
approximately $250,000.
For the years ended December 31, 1999 and 1998, royalty payments
charged to expense were $25,000 and $0, respectively.
Litigation
In 1998, a financial institution filed a complaint against
Majestic Modular Buildings, Ltd, a wholly-owned subsidiary of the
Company in the Stanislaus County Superior Court. The complaint
alleges the previous owners of Cal-American Buildings, Inc. (See
Note C) improperly transferred property to the Company in
connection with the Sale of certain assets. The Company believes
that it has meritorious defenses to the plaintiff's claims and
intends to vigorously defend itself against the bank's claims.
NOTE L-LOSSES PER COMMON SHARE
The following table presents the computation of basic and diluted
loss per share:
1999 1998
Net loss available for common
Shareholders $(4,123,634) $(2,373,288)
Basic and fully diluted loss per share $ (.17) $ (.20)
Weighted average common shares
Outstanding 24,942,985 11,988,422
Net loss per share is based upon the weighted average number of
shares of common stock outstanding. In February, 1998, a three
(3) for one (1) stock split of the Company's common stock was
effected in the form of a 200 percent stock split (See Note J).
Accordingly, all historical weighted average share and per share
amounts have been restated to reflect the stock split.
NOTE M-RELATED PARTY TRANSACTIONS
In 1998, the Company's President and Chief Executive Officer
advanced the Company in the form of a loan, $820,000. The loan
was unsecured and was payable on demand at 0% interest per annum.
The loan was paid in full in 1998 in exchange for 1,665,000
shares of restricted common stock in the Company. The Company
valued the shares based upon the Company's estimated fair market
value of the Company's common stock at the time of the exchange.
In 1998, the spouse of the Company's President and Chief
Executive Officer purchased, for consideration, the $260,000 note
payable from the Note holder (See Note D). The Company and the
note holder amended the repayment terms of the note to provide
for seventy (70) equal monthly installments of principal and
interest at 12% per annum.
In 1999, the Company's President and Chief Executive Officer and
his spouse advanced funds in the form of unsecured notes to the
Company for working capital purposes. As of December 31, 1999
the amounts due the Company's President and Chief Executive
Officer and his spouse were $ 132,761 and $ 70,300, respectively.
The notes are unsecured and non-interest bearing.
In 1999, a company whose shareholders include officers of the
Company, advanced funds in the form of an unsecured note to the
Company for working capital purposes. As of December 31, 1999 the
amount due the company was $ 57,039. The note is unsecured and is
non-interest bearing.
NOTE N-SEGMENT INFORMATION
The Company's operations are classified into three reportable
segments: Majestic Modular, Majestic Financial and Majestic
Transportation. The Company'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 Company 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 Company 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.
1999 1998
Sales:
Majestic Modular $2,265,609 $ 393,382
Majestic Financial 23,529 2,475
Majestic Transportation - -
Total Sales 2,289,138 395,857
Operating Income(Loss):
Majestic Modular (1,522,237) (638,897)
Majestic Financial (37,461) 2,229
Majestic Transportation (362,128) (182,463)
Corporate General and
Administrative Expenses (2,202,290) (1,554,157)
Total Segment Operating Loss (4,124,116) (2,373,288)
Segments Assets:
Majestic Modular 1,041,325 1,694,915
Majestic Financial 222,531 99,754
Majestic Transportation 56,217 6,348
Corporate 27,166 244,206
Total Segment Assets 1,347,239 2,045,223
Capital Expenditures:
Majestic Modular 168,402 247,583
Majestic Financial 201,084 35,000
Majestic Transportation 44,147 1,239
Corporate - 29,496
Total Capital Expenditures 413,633 313,318
Depreciation and Amortization:
Majestic Modular 57,349 15,460
Majestic Financial 14,621 194
Majestic Transportation 5,861 60
Corporate 5,572 3,464
Total Depreciation and Amortization 83,403 19,178
NOTE O-SUBSEQUENT EVENTS
Subsequent to the date of the Company's financial statements, the
Company's Board of Directors adopted the Majestic Companies,
Ltd., Stock Incentive Plan. The purpose of the plan is to
provide incentives to officers and employees of the Company who
may be designated for participation and to provide additional
means of attracting and retaining personnel. The plan provides
for the reservation of 8,000,000 shares of the Company's common
stock for issuance upon the exercise of the options granted under
the Plan. The number of shares of common stock reserved for the
grant of options and the number of shares granted under the Plan
are subject to adjustment to give effect to any stock splits,
dividends, or other relevant changes in capitalization of the
Company. The exercise price for such options shall be $.20 per
share and vest at the date of the award.
Subsequent to the date of the Company's financial statements, the
Company adopted a Retainer Stock Plan for Non-Employee Directors
and Consultants ("Retainer Stock Plan"). The Retainer Stock Plan
is intended to allow the Company to pay non-employee Directors
and consultants shares of the Company's common stock for the
services provided to the Company.
Subsequent to the date of the financial statements, a complaint
against Majestic Modular Buildings, Ltd., a wholly-owned
subsidiary of the Company was filed by the United States
Bankruptcy Trustee in the bankruptcy of Cal-American Buildings,
Inc., United States Bankruptcy Court of the Eastern District of
California. The complaint seeks damages for an alleged breach of
contract of a license agreement between the defendant and the
debtor. (See Note C). The Company believes that it has
meritorious defenses to the plaintiff's claims and intends to
vigorously defend itself against the bank's claim.
NOTE P-GOING CONCERN MATTERS
The accompanying statements have been prepared on a going concern
basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As
shown in the financial statements during the years ended December
31, 1999 and 1998, the Company incurred loses from operations of
$4,123,634 and $ 2,373,288 respectively. These factors among
others may indicate that the Company will be unable to continue
as a going concern for a reasonable period of time.
The Company's existence is dependent upon management's ability to
develop profitable operations and resolve it's liquidity
problems. Management anticipates the Company will attain
profitable status and improve it liquidity through the continued
developing, marketing and selling of its products and additional
equity investment in the Company. The accompanying financial
statements do not include any adjustments that might result
should the Company be unable to continue as a going concern.
In order to improve the Company's liquidity, the Company is
actively pursing additional equity financing through discussions
with investment bankers and private investors. There can be no
assurance the Company will be successful in its effort to secure
additional equity financing.
If operations and cash flows continue to improve through these
efforts, management believes that the Company can continue to
operate. However, no assurance can be given that management's
actions will result in profitable operations or the resolution of
its liquidity problems.
COMPUTATION OF LOSSES PER COMMON
AND COMMON EQUIVALENT SHARES
For the years ended December 31, 1999 and 1998
1999 1998
Shares outstanding at beginning of period 21,111,863 4,024,758
Weighted average of common
shares issued during the period 3,831,122 7,963,664
Weighted average of common
Shares outstanding during the period
(adjusted for 3 for 1 stock split in 1998) 24,942,985 11,988,422
Stock options and warrants
outstanding-not included as they have
no dilutive effect - -
Shares used in computing earnings per
common share 24,942,985 11,988,422
Loss per common share
($4,123,634)/24,942,985) $ (.17)
Loss Per common share
($2,373,288/11,988,422) $ (.20)
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On January 8, 1999, the company engaged the services of Ernst &
Young LLP to provide auditing services for the company. On
February 11, 1999, the company dismissed the former accountant
before it performed any auditing functions for the company as
management determined that a smaller firm could provide the
appropriate level service for the company. On February 18, 1999,
the company engaged the services of Stefanou & Company, LLP, the
current independent accountant for the company, to provide
auditing services for the company. The decision to change
accountants and the selection of the successor accountant was
approved by the company's board of directors. The company and
its former accountants had no disagreement on any matter of
accounting principles or practices, financial statement
disclosure, or auditing scope or procedure. In addition, there
have been no such disagreements with the current independent
accountant for the company.
AVAILABLE INFORMATION
The company has filed with the U.S. Securities and Exchange
Commission, Washington, D.C. 20549, a Registration Statement on
Form SB-2 under the Securities Act of 1933 with respect to the
shares of common stock offered by this prospectus. This
prospectus does not contain all of the information set forth in
the registration statement and the exhibits and schedules filed
with the registration statement. Certain items are omitted in
accordance with the rules and regulations of the Commission. For
further information with respect to the company and the common
stock offered by this prospectus, reference is made to the
registration statement and the exhibits and schedules filed with
the registration statement. Statements contained in this
prospectus as to the contents of any contract or any other
document referred to are not necessarily complete, and in each
instance, reference is made to the copy of such contract or other
document filed as an exhibit to the registration statement, each
such statement being qualified in all respects by such reference.
A copy of the registration statement, and the exhibits
and schedules filed with it, may be inspected without charge at
the public reference facilities maintained by the Commission in
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
the Commission's regional offices located at the Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago
Illinois 60661 and Seven World Trade Center, 13th Floor, New
York, New York 10048, and copies of all or any part of the
registration statement may be obtained from such offices upon the
payment of the fees prescribed by the Commission. The public may
obtain information on the operation of the public reference room
by calling the Commission at 1 (800) SEC-0330. The Commission
maintains a World Wide Web site that contains reports, proxy and
information statements and other information regarding
registrants that file electronically with the Commission,
including the company. The address of the site is
http://www.sec.gov. The registration statement, including all its
exhibits and any amendments, has been filed electronically with
the Commission.
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Information on this item is set forth in the propsectus under the
heading "Disclosure of Commission Position on Indemnification for
Securities Act Liabilities."
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Information on this item is set forth in the prospectus
under the heading "Use of Proceeds."
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The Majestic Companies, Ltd., a Nevada corporation.
(a) On December 8, 1998, the company sold an aggregate of
2,500,000 shares of common stock in transactions exempt from
registration under Rule 506 of Regulation D under Section 4(2) of
the Securities Act of 1933, as amended, at a basis cost of $.001
per share (par value at that time) to the 35 individuals who were
security holders prior to the merger of the Delaware corporation,
the Majestic Companies, Ltd., into SKYTEX International and the
related change of the name of SKYTEX to the Majestic Companies,
Ltd.
(b) Between March 18, 1999 and June 29, 1999, the company sold
725,000 common shares at a basis cost of between $0.40 and $0.50
to two accredited investors, none of whom was an affiliate, in
transactions exempt of registration under Rule 506 of Regulation
D for an aggregate consideration of $350,000.
(c) Between March 10, 1999 and August 30, 1999, the company sold
2,115,498 shares of common stock to a total of 64 individuals,
none of whom was an affiliate, at a basis cost between $0.40 and
$0.85 cents, in transactions exempt from registration under Rule
504 of Regulation D for an aggregate consideration of $978,275.
(d) On June 8, 2000, in a private placement exempt from
registration, the Company sold $520,000 in face value 4% coupon
rate convertible debentures to a total of ten investors, each of
which were accredited investors as that term is defined under
Regulation D under the Securities Act of 1933.
As defined by the Securities Purchase agreement between the
Company and the investors, the debentures are convertible into
common stock of the Company for a period of five years from the
date of closing, at a price equal to either 120% of the Company
stock's closing bid price on the day of closing, or 80% of the
Company stock's average closing bid price any four of the five
days immediately preceding the date of conversion.
The $520,000 in convertible debentures was placed by May Davis
Group, Inc., a licensed investment banking firm with offices in
Baltimore, Maryland and New York, New York. As the placing agent
for the transaction, May Davis received a placement fee of 10% of
funds raised. Additionally, May Davis and/or its assigns received
a total of 400,000 warrants to purchase common stock in the
Company at a strike price equal to either 110% of the Company
stock's closing bid price on the day of closing. The warrants
have an expiry date of June 8, 2005 and can be exercised either
on a cash or cashless basis.
The Majestic Companies, Ltd., A Delaware Corporation.
Between July 3, 1998 and December 9, 1998, the pre-merger
Delaware corporation sold 127 units of preferred convertible
offering comprised of a class of preferred shares with detachable
warrants to a total of 48 individuals, none of whom was an
affiliate, in transactions exempt from registration under Rule
506 of Regulation D at a price of $6,000 per unit raising a total
of $762,000. Each unit was broken down to 5,000 preferred shares
at a basis cost of $1.00 per share and 10,000 warrants (price at
$0.10 each) to purchase the common stock in the future at a
strike price of $1.50, $1.75 or $2.00 (depending on the exercise
date). All unit holders elected to convert their preferred shares
to common shares immediately upon acceptance of the investment by
the Delaware corporation. Each unit of 5,000 preferred shares
converted to 7,500 shares of common resulting in a total of
952,000 shares of common stock issued for a total amount raised
of $635,000 (approx. $0.67 per share basis) and the issuance of
1,270,000 (at $0.10 cents each) warrants raising an additional
$127,000.
Majestic Motor Car Company, Ltd.
Between April 16, 1997 and June 15, 1998, Majestic Motor Car
Company, Ltd. ("Majestic") sold 1,000,000 special warrants (each
warrant good for the purchase of one share of common stock, no
strike price) at a basis cost of $0.10 to 18 individuals, none of
whom was an affiliate, in transactions exempt from registration
under Rule 506 of Regulation D for an aggregate consideration of
$100,000.
Between September 16, 1997 and April 7, 1998, Majestic sold
1,013,322 special warrants (each warrant good for the purchase of
one share of common stock, no strike price) at a basis cost of
$0.25 to 51 individuals, none of whom was an affiliate, in
transactions exempt from registration under Rule 506 of
Regulation D for an aggregate consideration of $253,333.
Between January 2, 1998 and June 2, 1998, Majestic sold 1,200,000
special warrants (each warrant good for the purchase of one share
of common stock, no strike price) at a basis cost of $0.35 to 32
individuals, none of whom was an affiliate, in transactions
exempt from registration under Rule 506 of Regulation D for an
aggregate consideration of $420,000.
Between May 1, 1998 and June 29, 1998, Majestic sold 400,000
special warrants (each warrant good for the purchase of one share
of common stock, no strike price) at a basis cost of $0.50 to 18
individuals, none of whom was an affiliate, in transactions
exempt from registration under Rule 506 of Regulation D for an
aggregate consideration of $200,000.
General.
No commissions or fees were paid in connection with any of
the above these sales, except as noted. All the offerings were
made 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 27. EXHIBITS
The Exhibits required by Item 601 of Regulation S-B, and an index
thereto, are attached.
ITEM 28. UNDERTAKINGS
The undersigned company hereby undertakes to:
(a) (1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and Notwithstanding
the forgoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation From the
low or high end of the estimated maximum offering range may be
reflected in the form of prospects filed with the U.S. Securities
and Exchange Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in the volume and price represent no more
than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act of 1933,
treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the
securities at that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
(d) Provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to permit
prompt delivery to each purchaser.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the small business issuer pursuant to
the foregoing provisions, or otherwise, the small business issuer
has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses
incurred or paid by a director, officer or controlling person of
the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion
of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the company certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form
SB-2 and authorized this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorize, in the
City of San Diego, State of California, on July 21, 2000.
The Majestic Companies, Ltd.
By: /s/ Francis A. Zubrowski
Francis A. Zubrowski, President
Special Power of Attorney
The undersigned constitute and appoint Francis A. Zubrowski their
true and lawful attorney-in-fact and agent with full power of
substitution, for him and in his name, place, and stead, in any
and all capacities, to sign any and all amendments, including
post-effective amendments, to this Form SB-2 registration
statement, and to file the same with all exhibits thereto, and
all documents in connection therewith, with the U.S. Securities
and Exchange Commission, granting such attorney-in-fact the full
power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that such
attorney-in-fact may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the date indicated:
Signature Title Date
/s/ Francis A. Zubrowski President/Chief Executive July 21, 2000
Francis A. Zubrowski Officer/Director
/s/ Alejandro V. Tovar Secretary/Controller (Principal July 21, 2000
Alejandro V. Tovar Financial and Accounting
Officer)
/s/ Ralph D. Morren, Jr. Director July 21, 2000
Ralph D. Morren, Jr.
/s/ Paul S. Hewitt Director July 21, 2000
Paul S. Hewitt
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 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 and
Foreign 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 company,
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
company and investors (see below).
4.3 Form of Subordinated Convertible Debenture issued by
the company to investors (see below).
4.4 Form of Subordinated Convertible Debenture issued by
the company to GMF Holdings (see below).
4.5 Form of Registration Rights Agreement between the
company and investors (see below).
4.6 Warrant to Purchase Common Stock issued by the company
to May Davis Group, Inc. and its designees (see below).
4.7 Line of Credit Agreement between the company, May Davis
Group, Inc., and GMF Holdings, dated June 8, 2000 (see below).
5 Opinion Re: Legality (see below).
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 company 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 company 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 company 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 company 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
company 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 company 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 company
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 company
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 company
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 company, May Davis
Group, Inc., and First Union National Bank, dated June 8, 2000
(see below).
10.22 Placement Agency Agreement between the company and
May Davis Group, Inc., dated June 10, 2000.
10.23 Escrow Agreement between the company, May Davis
Group, Inc., and First Union National Bank, dated June 8, 2000
(see below).
21 Subsidiaries of the company (see below).
23.1 Consent of Accountant (see below).
23.2 Consent of Counsel (see below).
27 Financial Data Schedules (see below).
