U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
______________ TO ______________
COMMISSION FILE NUMBER: 000-28083
THE MAJESTIC COMPANIES, LTD.
(Exact name of registrant as specified in its charter)
Nevada 88-0293171
(State or jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
8880 Rio San Diego Road, 8th Floor, San Diego, California 92108
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (619) 209-6077
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 Par Value
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) been subject to such filing
requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ ].
The Registrant had revenues of $2,289,138 for the fiscal year
ended on December 31, 1999. The aggregate market value of the
voting stock held by non-affiliates of the Registrant as of March
15, 2000: Common Stock, par value $0.001 per share -- $8,751,620.
As of March 15, 2000, the Registrant had 26,834,070 shares of
common stock issued and outstanding.
TABLE OF CONTENTS
PART I PAGE
ITEM 1. BUSINESS 3
ITEM 2. PROPERTIES 10
ITEM 3. LEGAL PROCEEDINGS 10
ITEM 4. SUBMISSION TO MATTERS TO VOTE OF SECURITY HOLDERS 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS 11
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 21
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 21
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 21
ITEM 10. EXECUTIVE COMPENSATION 25
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 26
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 27
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES,
AND REPORTS ON FORM 8-K 28
SIGNATURES 29
PART I.
ITEM 1. BUSINESS.
A. Business Development.
The Majestic Companies, Ltd. ("Registrant") was incorporated
under the laws of the State of Nevada on December 3, 1992 under
the name of Rhodes, Wolters & Associates, Inc. ("Rhodes"). In
May 1998, Rhodes changed its name to SKYTEX International, Inc.
("SKYTEX"), 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 Delaware.
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."
B. Business of the Registrant.
The Registrant engages in the business of manufacturing, leasing
and selling modular structures such as classrooms, office
buildings, medical facilities and telecommunication equipment
shelters by its subsidiary, Majestic Modular Buildings, Ltd.,
and, the acquisition and lease of modular buildings by its
subsidiary, Majestic Financial, Ltd. Additionally, the Registrant
has developed and is in the process of marketing a school bus
safety restraint device known as the SAFE-T-BAR(R) through its
third subsidiary, Majestic Transportation Products, Ltd.
The Registrant 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 Registrant's business units have not generated
sufficient earnings to cover the cost of operations. Therefore,
the Registrant 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 Registrant: $23,529 for year-
ended 1999 (audited). In order for the Registrant 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 Registrant will be able to
attain such additional financing on terms satisfactory to the
Registrant.
Also due to the fact that the Registrant 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 by the pre-merger Delaware
corporation, The Majestic Companies, Ltd. in April of 1998 and no
direct prior operating experience in the safety transportation
industry prior to development of the Registrant's transportation
safety product by the pre-merger Delaware corporation, The
Majestic Companies, Ltd. in the first quarter of 1998.
(1) Modular Business.
(a) Modular Structure Products-General Background.
The Registrant's core business is the manufacturing and sale or
leasing of modular classrooms. The pre-merger Delaware
corporation, The Majestic Companies, Ltd., began these operations
in April of 1998. These classrooms are being sold and leased to
California school districts as well as to third party dealers
including G.E. Capital Modular Space, a division of General
Electric. The Registrant'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 believed
to be more rigorous than the standards that typically regulate
other classes of commercial portable structures. The Registrant
also manufactures modular re-locatable structures for use as
offices, temporary construction facilities, medical facilities
and equipment bunkers for the cellular telecommunications
industry. These structures are designed and manufactured to
conform to Department of Housing (DOH) specifications.
(b) Modular Structure Products-Current Market Environment.
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 for each student
enrolled in each school. Many of the most crowded schools are at
their maximum land to building use ratio. In order for these
schools to add modular classrooms and conserve their land use
they must build compliant two story structures. The Registrant
is currently attempting to obtain DSA approval for a clustered
modular building that would comprise eight to ten classrooms in a
two-story building.
As a result of net enrollment increase in California schools and
budgetary constraints experienced by the state, California public
schools are among the most crowded in the nation. As the
country's fastest growing State, California public classrooms
have experienced class sizes averaging 35 students to one
teacher. In an attempt to improve the quality of public
education offered to the state's student population, California
voters approved Proposition 1A. This bond measure provides $9.2
billion aimed at lowering the teacher to student class size ratio
to 20 students per one teacher. The aim of the bond measure
therefore is to provide funding for additional classroom space,
teaching staff, and, curriculum.
With the passage of this bond measure, Proposition 1A, classroom
space became an issue. The public school system administrators
were anxious to create a better learning environment for the
students through the addition of extra classrooms. In the
formula for class size reduction, California, therefore,
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.
Recently approved public school bond measures to assist school
districts in meeting classroom size reduction goals include:
Prop. 1A and Prop. MM, which collectively provide an aggregate of
over $10.7 billion to California education facilities for
programs to reduce class size, to relieve overcrowding, to
accommodate student enrollment growth, to repair older schools
and to obtain additional teaching staff.
Since 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.
Modular re-locatable classrooms cost significantly less and take
much less time to construct and install than conventional school
facilities. Currently, modular classroom space costs $30 per
square foot, versus, $125 per square foot for traditional non re-
locatable classroom construction. Also, their use permits a
school district to relocate the units as student enrollments
shift. Most importantly, the Registrant's modular products
provide added flexibility to school districts in financing the
costs of adding classroom space because modular classrooms are
considered personal property that can be financed out of a
district's operating budget rather than by Bond facility only.
Although there can be no assurance, the Registrant believes these
factors will continue to fuel the demand for modular re-locatable
classrooms.
(c) Modular Structure Products-Leasing Operations.
The Registrant entered into an agreement in May 1999 to purchase
a selected number of modular buildings currently under lease by
several School districts in California from Custom Modular
Structures, located in Pleasanton, California. The modular
buildings, valued at approximately $200,000, were purchased in
exchange for 390,000 Registrant shares of common stock. The
lease contracts are for terms of between 12 and 46 months. At the
end of the current contract term, the Registrant believes the
modular buildings will have a residual value of $150,000.
Presently, the Registrant has a total of 14 modular classrooms
under lease to various school districts. Of the 14 modular
classrooms under lease, 13 of these were leased in 1999, and, 1
was under lease in 1998. Although there can be no assurance, the
Registrant hopes that given the present demand for modular
buildings, the Registrant will have the opportunity to re-lease
the buildings under essentially the same terms and conditions.
(d) Modular Structure Products-Dependence On One Or Few Major
Customers.
During fiscal year 1999 the Registrant recognized approximately
forty percent (40%) of its revenues from Cal-American Building
Co., Inc. ("Cal-American"), a California corporation which
subsequently filed a Chapter 11 bankruptcy and ceased operations.
In April of 1998, Majestic Modular Buildings, Ltd., entered into
a subcontract agreement with Cal-American to manufacture an order
of re-locatable classrooms for a client, GE Capital Modular
Space. Also, at this time, Majestic purchased raw materials from
Cal-American, and, obtained licensing rights from Cal-American to
utilize its PC's (Plan Checks) for the manufacture of these
units. The Registrant has obtained contracts from new customers
that replace the revenues from Cal-American, and does not expect
the loss of Cal-American to materially, adversely affect the
Registrant's operations.
(e) Modular Structure Products-Marketing Strategy.
The Registrant has approached marketing of its modular structures
in a common-sense, long-term fashion. The Registrant 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 parts that the Registrant believes are favorable.
In addition, the Registrant is designing a new multiple story
clustered modular classroom structure for DSA review.
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 Registrant's modular production capacity is capable of one
(1) standard 24' x 40' unit per 1.5 days, giving it an annual
production capacity of 240 units per year. The Registrant
believes it can increase this capacity to 1 unit per day, or, 360
units annually with the addition of automation equipment, i.e.,
overhead cranes. The Registrant also plans on adding at least
one additional manufacturing facility within one year to increase
its current output capacity. The Registrant believes that this
growth strategy is warranted to gain market share early and help
ensure stability and profit margin for the long term.
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 the Registrant as a market
leader in the construction of quality modular structures.
(f) Modular Structure Products-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
Registrant'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 Registrant and could
adversely impact the Registrant's marketing plans.
(g) Modular Structure Products-Potential Acquistions: Walden
Structures Inc.
On September 29, 1999, the Registrant entered into preliminary
discussions to acquire Walden Structures and Constructions, Inc.
("Walden"), a privately held manufacturer of modular structures
primarily for use by commercial enterprises. The Registrant
believes the addition of Walden's operations could add
significantly to the Registrant's annual revenues and allow the
Registrant to become more involved in manufacturing modular
structures other than classrooms. No formal Letter of Intent
outlining the price, terms, and timetable of the proposed
acquisition has been executed and there can be no assurance that
a transaction will be consummated with Walden.
(2) Safety Restraint Business.
(a) Safety Restraint Products-General Background.
In the U.S. there are approximately 24,000,000 students
transported daily to and from school utilizing approximately
440,000 school buses. Less than 20% of these buses have any type
of occupant restraint. No federal requirement currently exists
for requiring restraints to be installed on these school buses
and this lack of federal regulation has resulted in five separate
states (NY, NJ, FL, LA, & CA)adopting their own occupant
restraint regulations, three of which have just passed in 1999
(California, Florida & Louisiana), with over 20 states having
planned or pending legislation. During the past five years New
Jersey and New York have mandated two-point lap belts to be
installed in all new school buses purchased and as a result more
than 80% of the school buses in these two states now have seat
belts. Although the law in these two states require the belts to
be installed, there is no law mandating that the students wear
them and while questioning officials from these areas, it was
stated that the percentage of students voluntarily buckling up
was well below 50%.
The SAFE-T-BAR(R) is a passive restraint and one of it's main
advantages is that it has an almost 100% use 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.
The SAFE-T-BAR(R) is patent pending and has been designed to lock
in the down position during the events that take place during a
collision thus holding the occupant within the padded seating
area.
The cost to retrofit a school bus with the SAFE-T-BAR(R) is less
than the cost to add seat belts, as the SAFE-T-BAR(R) does not
require the seat to be changed. At the point of manufacture, the
SAFE-T-BAR(R) 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
resulting in the need to purchase additional buses and adding an
additional financial burden.
With 440,000 school buses in the U.S. and an average of 22 seats
per school bus, this represents a potential market for 9.7
million restraints. Industry 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).
(b) Safety Restraint Products-Safe-T-Bar(R).
The Registrant has the exclusive manufacturing and marketing
rights for an innovative new product known as the SAFE-T-BAR(R)
that the Registrant's management believes 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. The
Registrant 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-BAR(R) completed and passed the
full complement of testing required under FMVSS 222 & 302
(Federal Motor Vehicle Safety Standards) and is ready for market
roll-out. The test results were delivered to the Registrant 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-BAR(R) school bus passenger restraint
have been met, the Registrant is moving quickly into the Pilot
Program stage of this new product on a state by state basis. The
Marketing Department for Majestic Transportation Products, Ltd.,
has spoken with or is currently in talks 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-BAR(R)
passenger restraint system.
The Registrant 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-BAR(R)'s outfitted bus. The
Registrant has not sold any SAFE-T-BAR(R)'s to date and has no
existing contracts or orders to produce SAFE-T-BAR(R)'s.
(c) Safety Restraint Products-Safe-T-Seat(Tm).
The Registrant is in the process of developing a new seat design
for school buses, officially labeled the "SAFE-T-SEAT(TM)"
restraint system. The Registrant envisions that the SAFE-T-
SEAT(TM) will enhance students' safety in school buses and hopes
to commence the marketing of SAFE-T-SEAT(TM) devices in the year
2000. The Registrant expects to release details of the new SAFE-
T-SEAT(TM) design in the near future.
(d) Safety Restraint Products-Intellectual Property Rights.
SAFE-T-BAR(R). The Registrant has the exclusive right and license
to manufacture and sell the SAFE-T-BAR(R) product under a patent
that is owned individually by Adrian P. Corbett, the Registrant's
Vice President of Engineering. The license from Mr. Corbett is
for a period of seven (7) years renewable for two (2) additional
terms of five (5) years. The mark SAFE-T-BAR(R) is a trademark
registered by the Registrant with the United States Patent and
Trademark Office ("PTO").
SAFE-T-SEAT(TM). The Registrant's new proposed product SAFE-T-
SEAT(TM) is the subject of a patent application currently pending
with the PTO filed by Mr. Corbett and the Registrant has applied
to register this mark with the PTO as a trademark.
(e) Safety Restraint Products-Amount Spent On Research And
Development Activities.
During the last two (2) fiscal years the Registrant has spent
approximately $382,117 on research and development activities.
(f) Safety Restraint Products-Competition In School Bus Safety
Restraint Industry.
The Registrant's competition in the safety restraint products is
with companies that produce different safety restraint devices
for school buses such as Seat Belts. The Registrant has n
knowledge of any other company that produces a lap bar restraint
device similar to the SAFE-T-BAR(R).
Most of the larger sized C & D type school buses currently rely
on the concept of "compartmentalization" to ensure the safety of
onboard passengers. This is a passive type of protection that is
meant to contain the child within a structurally reinforced
passenger compartment of padded high-back seats and crash
barriers. There is no assurance that this "compartmentalization"
approach will not continue to be the dominant approach in the
school bus safety restraint industry or that one of the
Registrant's safety restraint competitors will not succeed in
marketing a competing product as the chosen lap belt solution.
Further, there is no assurance that the federal government, the
states, local governments, and/or school districts will not opt
to use seat belts instead of the Registrant's SAFE-T-BAR(R)
product to enhance school bus safety.
Companies such as Bus Belts Development, Indiana Mills, BESI and
Kinedyne are involved in the manufacturing of seat belts and are
competitors of the Registrant.
(3) Employees.
As of December 31, 1999, the Registrant has thirty-one employees,
none of whom have entered into an employment agreement with the
Registrant, other than the Registrant's President and Chief
Executive Officer, Francis A. Zubrowski. The Registrant 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
Registrant considers relations with its employees to be good.
ITEM 2. PROPERTIES.
The Registrant'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 Registrant leases
these offices from Mission Valley Business Center LLC at a
monthly rental of $5,361.00 for a term scheduled to expire June
30, 2000. The Registrant considers these offices to be adequate
and suitable for its current needs.
The Registrant'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 Registrant considers this
property to be adequate and suitable for its current needs.
ITEM 3. LEGAL PROCEEDINGS.
Other than as set forth below, the Registrant is not a party to
any material pending legal proceedings and, to the best of its
knowledge, no such action by or against the Registrant has been
threatened.
Citibank, Federal Savings Bank, a federal savings bank, by and
through its service agent, Citibank, N.A., a national banking
association v. Majestic Modular Buildings, Ltd., Cal-American
Building Company, Inc. et al. (Case No. 182714, Superior Court of
the State of California, County of Stanislaus). On October 19,
1998, Plaintiff commenced an action by filing a Complaint
alleging that Majestic Modular Buildings, Ltd., leased raw
materials from Cal-American Building Company, Inc. that was
subject to a security interest owned by Plaintiff. The Complaint
also alleges that Majestic Modular Buildings, Ltd.'s entering
into a License Agreement and Real Property Lease with Cal-
American Building Company, Inc., constituted fraudulent transfers
or conveyances by Cal-American Building Company, Inc. to Majestic
Modular Buildings, Ltd. Plaintiff seeks damages against Majestic
Modular Buildings, Ltd., and the other defendants in the amount
of $299,822 and seeks to set aside the transfers of any asset
that occurred under the Equipment Lease Agreement, the License
Agreement and the Real Estate Property Lease between Majestic
Modular Buildings, Ltd. and Cal-American Building Company, Inc.
The Registrant has answered Plaintiff's complaint and believes it
has properly responded to Plaintiff's Discovery Demands to date.
No trial date has yet been set. The Registrant believes it bears
no liability to Plaintiff, intends to vigorously defend this
lawsuit.
The business relation between Majestic Modular Buildings, Ltd.,
and, Cal-American Building Company, Inc., was a
contractor/subcontractor relationship. Majestic entered into an
agreement with Cal-American to perform subcontract work on an
order belonging to Cal-American. Additionally, Majestic Modular
Buildings made a one-time purchase of raw materials from Cal-
American's inventory. Majestic Modular paid fair market value
for these materials valued at approximately $68,000. These
building materials consisted of items such as steel, electric
wiring, insulation, etc. A licensing agreement mentioned in the
complaint by Citibank consisted of an agreement between Majestic
Modular Buildings, Ltd., and, Cal-American Building Company,
Inc., in which Majestic was allowed the use of building specific
plans called "P.C.'s" belonging to Cal-American for construction
of the buildings called for in the subcontract.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) Market Information.
On July 22, 1998, the Registrant's common stock began trading on
the Over the Counter Bulletin Board under the symbol SKTX. On
January 5, 1999 the Registrant's ticker symbol changed due to the
change in the name of the Registrant, 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, 1999
High Low
Quarter Ended December 31, 1999 0.33 0.16
Quarter Ended September 30, 1999 0.50 0.20
Quarter Ended June 30, 1999 0.94 0.37
Quarter Ended March 31, 1999 1.62 0.37
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended December 31, 1998
High Low
Quarter Ended December 31, 1998 * 4.00 1.00
Quarter Ended September 30, 1998 ** 5.50 4.00
* The Registrant's common stock did not trade from December 18,
1998 through the end of this quarter.
** The Registrant's common stock commenced trading on July 22,
1998
(b) Holders of Common Equity.
As of March 15, 2000, there were 307 shareholders of record of
the Registrant's common stock.
(c) Dividends.
The Registrant 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
Registrant 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 Registrant's
earnings, capital requirements and other factors.
(d) Equity Securities Sold Without Registration.
(1) The Majestic Companies, Ltd., a Nevada corporation.
On December 8, 1998, the Registrant 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.
Between March 18, 1999 and June 29, 1999, the Registrant 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.
Between March 10, 1999 and August 30, 1999, the Registrant 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.
(2) 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.
(3) 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, Majesticsold 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.
No commissions or fees were paid in connection with these
sales. 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 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The following Management Discussion and Analysis should be read
in conjunction with the financial statements and accompanying
notes included in this Form 10-KSB.
General.
Since its inception in Nevada in 1992, under the name Rhodes,
Wolters & Associates, Inc., the Company has undergone a
succession of developmental changes, ultimately bringing it to
focus on its current operations carried out by three wholly owned
subsidiaries. The manufacture and sale of re-locatable modular
buildings by its subsidiary, Majestic Modular Buildings, Ltd.,
and, the acquisition and lease of modular buildings by the
subsidiary, Majestic Financial, Ltd. Additionally, the Registrant
has developed and is in the process of marketing a school bus
safety restraint device known as the SAFE-T-BAR(R) through its
third subsidiary, Majestic Transportation Products, Ltd.
Rhodes, Wolters & Associates changed its name to SKYTEX
International, Inc. in May 1998 and in December 1998 merged with
the Majestic Companies, Ltd., a Delaware corporation that
formerly did business as Majestic Minerals, Ltd. ("Majestic
Minerals") and Majestic Motor Car Company. Majestic Minerals was
incorporated under the laws of British Columbia, Canada in 1995.
In April 1997 Majestic Minerals changed its name to Majestic
Motor Car Company, Ltd. and in March 1998, to reincorporate under
the laws of Delaware, Majestic Motor Car Company, Ltd. merged
with and into The Majestic Companies, Ltd., a Delaware
corporation created for that purpose. Subsequently, in December
1998, The Majestic Companies, Ltd. was merged with and into
SKYTEX, which was the surviving corporation in the merger. As a
part of the merger SKYTEX's name was changed to The Majestic
Companies, Ltd., the name under which it now operates. Prior to
consummation of the merger, SKYTEX had no material operations.
The financial and other information contained in this
Registration Statement therefore describes the operations of
Majestic Motor Car Company,the pre-merger Delaware corporation
The Majestic Companies, Ltd., and the post merger Nevada
corporation, The Majestic Companies, Ltd..
In April of 1997 Majestic Motor Car Company, Ltd., entered into a
Master Licensing agreement with World Transport Authority. The
licensing agreement allowed Majestic Motor Car Company, Ltd., to
market and sell micro-manufacturing facilities that were capable
of producing a low cost, all composite vehicle, designed
especially for use in Mexico and South America. After waiting
nearly a year for completion of a prototype composite vehicle by
World Transport Authority, and, not knowing when a production
model would be completed, Majestic Motor Car Company, Ltd.,
determined that it was in its best interests to abandon the
project. The licensing agreement was terminated in June of 1998
with the mutual consent of World Transport Authority and Majestic
Motor Car Company, Ltd."
The Registrant's manufacturing division, Majestic Modular
Buildings, Ltd., which began operations in April of 1998 as a
subsidiary of the pre-merger Delaware corporation, The Majestic
Companies, Ltd., provides Department of State Architects (DSA),
and, Department of Housing (DOH), certified modular buildings to
public, private and commercial consumers throughout the State of
California. Buildings are manufactured to meet customer
specifications while complying with specifically licensed design
plans known as PC's (Previously Checked-State plans). Typically,
the market for DSA approved modular classrooms experiences a
seasonal demand during the first four months of the calendar year
when school districts prepare for the new school year later in
the Fall. However, the Registrant's management believes recent
legislation and statewide funding has resulted in a higher year-
round demand to satisfy an increasing student population and
statewide mandates. Majestic Modular Buildings, Ltd., is in the
process of developing a two story modular classroom design that
has been inspired by the need for schools to maximize the
utilization of economic resources and limited lands available to
them. The Registrant's management feels that the above need, as
well as, state mandated classroom size reduction policies and
statewide enhanced funding of nearly 11 billion dollars, will
continue to substantiate the production and demand of modular
classrooms for years to come.
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. Although Majestic Financial, Ltd.'s current fleet is only
a modest fourteen units, Majestic Financial, Ltd., is seeking to
augment its fleet while providing schools with limited budgetary
resources the ability to obtain much needed classroom space under
affordable lease terms.
The SAFE-T-BAR(R) school bus safety restraint has been designed
to fulfill a critical need in the area of school bus safety
transportation. Majestic Transportation Products, Ltd.'s
development of a safety restraint device similar to lap bars
found on high velocity amusement park rides was designed to
provide an effective passive restraint system for school buses.
The SAFE-T-BAR(R), as the device is known, has passed a battery
of computerized, sled, and federal testing requirements. The
passive application of the device while in a 'down' position
provides student riders an increased measure of security not
found in conventional seat belts which have proven expensive to
install, easily vandalized, and, not always utilized by the
student rider. Currently, Majestic Transportation Products, Ltd.,
is aggressively marketing the SAFE-T-BAR(R) throughout the United
States with emphasis being placed on the states with existing and
pending legislation requiring safety restraints for school buses.
A test program with a school bus retrofitted with the SAFE-T-
BAR(R) in Oceanside, California has resulted in successful
utilization of a pilot program.
Beginning in 1998 with the start up of Majestic Modular
Buildings, Ltd., the Registrant experienced a modest revenue flow
along with the costs and growing pains of venturing into a new
business. At the quarter ending September 30, 1999, the
Registrant's modular division has posted an increase of 500% in
sales compared to its total first year results. The Registrant
desires to augment Majestic Financial, Ltd., lease fleet in a
modest fashion and establish an asset base capable of generating
a consistent stream of revenues to complement its modular
manufacturing operations. Revenues generated by leases this year
have been modest and have provided the Registrant with a source
of liquid cash alternatives to fund operations. After two years
of development and testing, the Registrant expects that Majestic
Transportation, Ltd.'s extensive SAFE-T-BAR(R) marketing efforts
will start resulting in its first revenues within the first
quarter of year 2000.
Although, the Registrant has experienced growth in revenues since
the inception of operations in 1998, the Registrant has
experienced losses in each year of its operations, and, there can
be no assurance, that, in the future, the Registrant will sustain
revenue growth or achieve profitability. The Registrant has
identified several steps it feels will begin to move it toward
profitability: (I) provide timely and adequate working capital
for the modular division, (II) further automate the modular
production process, which the Registrant has started with the
purchase of an overhead crane system, (III) pursue volume
purchase discounts for raw materials, (IV) capitalize on federal
and state legislation requiring safety restraints on school
buses, and, begin realizing sales from, Majestic Transportation
Products, Ltd., marketing efforts, (V) continual improvement and
development of safety restraint devices within the same
transportation division, and, (VI) control all-around general
overhead cost.
Further, as a development stage company, purchasers of the
Registrant's securities are subject to the risk that the
Registrant will be unable to continue as a going concern. See
Footnote O to the Financial Statements.
Results Of Operations (Years Ended December 31, 1999 And 1998).
NET SALES. In fiscal year ending December 31, 1999, the
Registrant 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 Registrant'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 Registrant 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 Registrant'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 Registrant's
transportation division, which was is on the threshold of
obtaining its first orders for its safety restraint known as the
SAFE-T-BAR (R).
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 Registrant'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.
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 Registrant'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-BAR(R).
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
Registrant'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 Registrant'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 Registrant's transportation division increase is
reflective of its continuing efforts to introduce its safety
restraint, SAFE-T-BAR (R), into the public school transportation
market.
GENERAL AND ADMINISTRATIVE. The Registrant'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-BAR (R), legal
and professional, and other general overhead expenses.
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 Registrant'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.
The Registrant 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 Registrant has raised $978,275 through a Section
504 offering in 1999. From December 31, 1997 through December 31,
1999, the Registrant 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 PC's. The Registrant
anticipates no other material capital commitments in the near
term future.
Cash flow used in the Registrant'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 Registrant'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 Registrant'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 Registrant 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
Registrant 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
Registrant. The principal use of funds in 1998 were also used
primarily to fund the operations of the Registrant.
The Registrant'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 Registrant is negotiating a line of credit
totaling $1 million dollars, of which $275,000 became available
in the last quarter of 1999. The Registrant 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 Registrant 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
Registrant's principal operating segment.
The Registrant 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 Registrant 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
Registrant 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 Registrant 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 Registrant's consolidated financial statements is
not expected to be material as the Registrant has not historically
used derivative and hedge instruments.
Year 2000 Issue.
The Year 2000 issue arises because many computerized systems
use two digits rather than four to identify a year. Date
sensitive systems may recognize the year 2000 as 1900 or some
other date, resulting in errors when information using the year
2000 date is processed. In addition, similar problems may arise
in some systems which use certain dates in 1999 to represent
something other than a date. The effects of the Year 2000 issue
may be experienced after January 1, 2000, and if not addressed,
the impact on operations and financial reporting may range from
minor errors to significant system failure which could affect the
Registrant's ability to conduct normal business operations. This
creates potential risk for all companies, even if their own
computer systems are Year 2000 compliant. It is not possible to
be certain that all aspects of the Year 2000 issue affecting the
Registrant, including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.
The Year 2000 Problem could affect computers, software and other
equipment used, operated or maintained by the Registrant.
Accordingly, the Registrant is reviewing its internal computer
programs and systems to ensure that the programs and systems will
be Year 2000 compliant. The Registrant 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 Registrant's financial position or
any year's results of operations, there can be assurance to this
effect.
The Registrant 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 Registrant's internal review of such systems did
not identify any material Year 2000 Problem. If the Registrant
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 Registrant. The Registrant
estimates the total cost to the Registrant of completing any
required modifications, upgrades, or replacements of these
internal systems would not have a material adverse effect on the
Registrant'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 Registrant's efforts, and management's
expectations, relating to Year 2000 compliance are forward-
looking statements. The Registrant'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.
Forward Looking Statements.
The foregoing Managements Discussion and Analysis of Financial
Condition and Results of Operations "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
Registrant's business strategies, continued growth in the
Registrant's markets, projections, and anticipated trends in the
Registrant's business and the industry in which it operates. The
words "believe," "expect," "anticipate," "intends," "forecast,"
"project," and similar expressions identify forward-looking
statements. These forward-looking statements are based largely
on the Registrant's expectations and are subject to a number of
risks and uncertainties, including but not limited to, those
risks associated with economic conditions generally and the
economy in those areas where the Registrant has or expects to
have assets and operations; competitive and other factors
affecting the Registrant's operations, markets, products and
services; those risks associated with the Registrant's ability to
maintain the exclusive right and license to use the patent owned
by Adrian Corbett; those risks associated with the Registrant's
ability to successfully negotiate with certain customers, risks
relating to estimated contract costs, estimated losses on
uncompleted contracts and estimates regarding the percentage of
completion of contracts, risks relating to the ability of the
Registrant to raise the funds necessary to operate, design,
develop, construct, and manage modular classrooms, risks related
to the outcome of Cal-American's Chapter 11 bankruptcy proceeding
because Cal-American has been one of the Registrant's primary
customers; those risks involved in lobbying the appropriate
governmental units or agencies in California or elsewhere to
allocate funding to school districts to purchase or lease modular
classrooms; associated costs arising out of the Registrant's
activities and the matters discussed in this report; risks
relating to changes in interest rates and in the availability,
cost and terms of financing; risks related to the performance of
financial markets; risks related to changes in domestic laws,
regulations and taxes; risks related to changes in business
strategy or development plans; risks associated with future
profitability; and other factors discussed elsewhere in this
report and in documents filed by the Registrant with the
Securities and Exchange Commission. Many of these factors are
beyond the Registrant'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 Form 10-KSB will,
in fact, occur. The Registrant 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
Registrant with the Securities and Exchange Commission.
ITEM 7. FINANCIAL STATEMENTS.
Financial statements as of and for the year ended December
31, 1999, and for the year ended December 31, 1998 are presented
in a separate section of this report following Part IV.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable
PART III.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS AND COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT.
(a) Officers and Directors.
The names, ages, and respective positions of the directors and
officers of the Registrant are set forth below. The Directors
named below will serve until the next annual meeting of the
Registrant'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
Registrant's affairs.
Francis A. Zubrowski, President/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 Registrant'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 Registrant.
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 Registrant since April, 1999 and has been
employed by the Registrant since 1998. Mr. Chase has nearly 10
years' experience in representing and raising capital for both
public and private companies. He passed the NASD Series 7
registered representative exam in 1987. 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.
Lawrence W. Holland, Vice President of Sales and Marketing.
Mr. Holland, age 32, has served as Vice President of The Majestic
Companies Ltd. since December 23, 1998. Mr. Holland has over 10
years in sales and marketing as an owner of Pinnacle Trading
Company, a company which conducts commerce primarily with Mexico
and Central American. He has served as a Senior Account Executive
at Physicians Capital Company, and First Nationwide Investment
Center from March, 1993 to September, 1996. His most recent
project was a direct sales program for Collegiate Sports of
America. Mr. Holland received his Bachelor of Science in
Business Administration with an emphasis in Finance from San
Diego State University. His graduate studies include a
Professional Degree in International Business, with an emphasis
in Mexican and Latin American Trade, from the University of
California, San Diego.
Adrian P. Corbett, Vice President of Engineering.
Mr. Corbett, age 37, has been the Registrant's Vice President of
Engineering from April, 1998 to the present and has served as
President, Vice President and Director of the Registrant's
subsidiary, 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.
Michael Hecker, Vice President of Manufacturing.
Mr. Hecker, age 51, has served as Vice President of Manufacturing
of the Registrant since December 23, 1998. He has a background
in the construction industry as well as over 27 years' experience
in product development, production control and manufacturing.
Mr. Hecker's background in construction began with his early
involvement in the family roofing contractor business until
joining the Navy where he attended the U.S. Naval Construction
School in Port Hueneme, California in 1966. Upon graduation Mr.
Hecker was assigned as a Heavy Builder to U.S. Mobile
Construction Battalion Eleven. He spent two tours, attached to
the 3rd Marine Division, in Vietnam building storage facilities,
mess halls, bunkers, medical facilities and airstrips from 1967
through 1968. After leaving the military service, Mr. Hecker
focused on remodeling homes and was Project Manager for several
public utility construction contracts in the Southern California
area. Mr. Hecker joined Industrial Automation Corporation in
1970. He served as both Engineering and Production Manager and
was responsible for the development and manufacturing of
equipment for automated packaging lines. He worked closely with
such customers as Coca-Cola, Procter & Gamble, Lever Brothers,
Labatts Breweries and was instrumental in the design,
manufacturing and installation of the first Pepsi-Cola plant in
China. When Industrial Automation Corporation was purchased by
Figgie International, Mr. Hecker became General Manager of
Research & Development for the Packaging Machinery Division.
Ralph D. Morren, Jr., Director.
Mr. Morren, age 43 was the Registrant's President from May, 1998
through December, 1998. Mr. Morren has been a Director of the
Registrant 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.
(b) Compliance with Section 16(a) of the Exchange Act.
Section 16(a) of the Securities Exchange Act of 1934 requires
executive officers and directors, and persons who beneficially
own more than 10% of any class of the Registrant's equity
securities to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission
("SEC"). Executive officers, directors and beneficial owners of
more than 10% of any class of the Registrant's equity securities
are required by SEC regulations to furnish the Registrant with
copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to
the Registrant during or with respect to fiscal 1999, and certain
written representations from executive officers and directors,
the Registrant is aware that each such reporting persons
inadvertently failed to file a Form 3 at the time the Registrant
became registered under Section 12 of such act (January 11,
2000). Such forms have been prepared and filed.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth certain information relating to
the compensation paid by the Registrant during the last three (3)
fiscal years to the Registrant's Chief Executive Officer. No
other executive officer of the Registrant received total salary
and bonus in excess of $100,000 during the fiscal year ended
December 31, 1998.
SUMMARY COMPENSATION TABLE
Annual Long-Term
Compensation Compensation
Awards Payouts
Securi
Other ties
Name and annual under All
Principal Year compen lying other
Position Salary Bonus sation Restrict options/ LTIP compen
stock SARs pay sation
award outs
($) ($) ($) ($) (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Francis A.
Zubrowski
CEO/Pres
Ident 1999 $180,000 0 0 0 0 0 0
1998 60,000 0 0 $18,000 0 0 0
1997 48,000 0 0 $18,000 0 0 0
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.
Employment Contract.
On November 1st, 1998, the Registrant and its President and Chief
Executive Officer, Francis A. Zubrowski, renewed and amended a
five year employment agreement ("Employment Agreement") whereby
the Registrant 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 Registrant also granted Mr. Zubrowski non-statutory stock
options for 250,000 shares of the Registrant's common stock for
each year of Mr. Zubrowski's employment. The exercise price for
the stock option is $0.25 per share for year 1999, $0.35 per
share for year 2000, $0.50 for year 2001, $0.75 for year 2002,
and $1.00 for year 2003. 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).
Other Compensation.
(a) There are no annuity, pension or retirement benefits
proposed to be paid to officers, directors, or employees of the
Registrant 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 Registrant.
(b) No remuneration is proposed to be paid in the future
directly or indirectly by the Registrant 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.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information regarding the
beneficial ownership of shares of the Registrant's common stock
as of March 15, 2000 (26,834,070 issued and outstanding) by (i)
all stockholders known to the Registrant to be beneficial owners
of more than 5% of the outstanding common stock; and (ii) all
directors and executive officers of the Registrant as a group:
Title of Name and Address Amount of Percent of
Class Beneficial Owner Beneficial Class
Ownership
Common
Stock Francis A. Zubrowski 1,693,578(2) 6.31%
880 Rio San Diego Road
8th Floor
San Diego, CA 92108
Common
Stock Clayton S. Chase 224,800 0.84%
8880 Rio San Diego Road
8th Floor
San Diego, CA 92108
Common
Stock Ralph D. Morren 150,000 0.56%
8880 Rio San Diego Road
8th Floor
San Diego, CA 92108
Common
Stock Adrian P. Corbett 100,000 0.37%
8880 Rio San Diego Road
8th Floor
San Diego, CA 92108
Common
Stock Alejandro V. Tovar 100,000 0.37%
8880 Rio San Diego Road
8th Floor
San Diego, CA 92108
Common
Stock Lawrence W. Holland 60,000 0.22%
8880 Rio San Diego Road
8th Floor
San Diego, CA 92108
Common
Stock Michael Hecker 0 0.00%
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 2,328,378 8,68%
executive officers as a
group (8 persons)
(1) Each person has sole voting power and sole dispositive power
as to all of the shares shown as beneficially owned by them
(2) Also includes the 500,000 shares which could be obtained
upon the current exercise of nonstatutory stock option for the
years 1999 and 2000.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Other than as set forth below, there are no relationships,
transactions, or proposed transactions to which the registrant
was or is to be a party, in which any of the named persons set
forth previously had or is to have a direct or indirect material
interest.
The Registrant executed a Promissory Note in October, 1998,
whereby the Registrant agreed to pay the aggregate amount of Two
Hundred Sixty Thousand Dollars ($260,000.000) to Mei Wah Company,
Inc., a California corporation, by December 31, 1999 ("Promissory
Note"). The terms, rights, title and interest to the Promissory
Note were restructured and assigned to Francis A. Zubrowski's
wife, Gail E. Bostwick, on April 8, 1999. The Registrant 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 Registrant obtained a $1,250,000 line of credit
from a private lender for use in its modular operations in
Modesto, California. The Registrant 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, the Registrant's CEO, Francis
Zubrowski, liquidated the balance payable on the line of credit
in a private transaction with an exchange of restricted stock he
owned. The Registrant 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 Registrant 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 Registrant
and its officers and directors. The Registrant will attempt to
resolve such conflicts of interest in favor of the Registrant.
The officers and directors of the Registrant are accountable to
it and its shareholders as fiduciaries, which requires that such
officers and directors exercise good faith and integrity in
handling the Registrant's affairs. A shareholder may be able to
institute legal action on behalf of the Registrant 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 Registrant.
PART IV.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) Index to Financial Statements and Schedules Page
Report of Independent Accountants 30
Balance Sheets of the Registrant as
of December 31, 1999 and December 31, 1998 31
Consolidated Statements of Operations for the year ended
December 31, 1999 and the year ended December 31, 1998 33
Consolidated Statements of Shareholders' Equity for the year
ended December 31, 1999 and the year ended December 31, 1998 34
Consolidated Statements of Cash Flows for the year ended
December 31, 1999 and the year ended December 31, 1998 35
Notes to Financial Statements 36
(b) Reports on Form 8-K. There were no reports on Form 8-K
filed during the last quarter of the fiscal year covered by this
report.
(c) Exhibits included or incorporated by reference herein: See
Exhibit Index
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
The Majestic Companies, Ltd.
Dated: April 12, 2000By: /s/ Francis A. Zubrowski
Francis A. Zubrowski, President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the date
indicated:
Signature Title Date
/s/ Francis A. Zubrowski President/Chief Executive April 12, 2000
Francis A. Zubrowski Officer/Director
/s/ Alejandro V. Tovar Secretary/Controller April 12, 2000
Alejandro V. Tovar (Principal Financial and
Accounting Officer)
/s/ Ralph D. Morren, Jr. Director April 12, 2000
Ralph D. Morren, Jr.
/s/ Paul S. Hewitt Director April 12, 2000
Paul S. Hewitt
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
See accompanying notes to consolidated financial statements
THE MAJESTIC COMPANIES, LTD.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999 AND 1998
1999 1998
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)
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 LOSSES
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 DEFICIENCY IN 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 No.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 $(.17) in 1999 and $(2,383,188) and $(.20) in
1998, respectively.
NOTE H-INCOME TAXES
The Company has adopted Financial Accounting Standard number 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)
EXHIBIT INDEX
Exhibit. Description
No.
2.1 Agreement and Plan of Merger dated October 8, 1998,
between Skytex International, Inc., and The Majestic
Companies, Ltd. (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 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).
2.4 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).
3.1 Articles of Incorporation of The Majestic Companies,
Ltd., 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 of The Majestic Companies, Ltd.
(incorporated by reference to Exhibit 2.2 to the Form 10-
SB/A filed on February 8, 2000).
4 Warrants to purchase 100,000 shares of The Majestic Companies, Ltd.,
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).
10.1 Office Lease dated December 31, 1997, between Mission
Valley Business Center LLC and The Majestic Companies, Ltd.
(incorporated by reference to Exhibit 6.1 to the Form 10-SB/A filed
on February 8, 2000).
10.2 Real Property Lease dated May 1, 1998, between Berberian Farms
Corporation and Majestic Modular Buildings, Ltd. (incorporated by
reference to Exhibit 6.2 to the Form 10-SB/A filed on February 8,
2000).
10.3 Equipment Lease dated August 10, 1999, between Saddleback
Financial Corporation and Majestic Modular Buildings, Ltd.
(incorporated by reference to Exhibit 6.3 to the Form 10-SB/A filed
on February 8, 2000).
10.4 Lease/Purchase Agreement dated August 31, 1999, between
A-Z Bus Sales, Inc., and The Majestic Companies, Ltd. (incorporated
by reference to Exhibit 6.4 to the Form 10-SB/A filed on February 8,
2000).
10.5 Employment Agreement dated November 1, 1998, between
Francis A. Zubrowski and The Majestic Companies, Ltd. (incorporated
by reference to Exhibit 6.5 to the Form 10-SB/A filed on February 8,
2000).
10.6 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).
10.7 Security Agreement dated May 21, 1999, between Gail E. Bostwick
and The Majestic Companies, Ltd. (incorporated by reference to
Exhibit 6.7 to the Form 10-SB/A filed on February 8, 2000).
10.8 License Agreement dated April 22, 1998, between Cal-American
Building Company, Inc., Steven D. Rosenthal and Majestic Modular
Buildings, Ltd. (incorporated by reference to Exhibit 6.8 to the
Form 10-SB/A filed on February 8, 2000).
10.9 Promissory Note dated August 27, 1999, payable to
Margaret C. Hubard by The Majestic Companies, Ltd. and Majestic
Transportation Products, Ltd. in the Aggregate Amount of $100,000
(incorporated by reference to Exhibit 6.9 to the Form 10-SB/A
filed on February 8, 2000).
10.10 Agreement for a Funding Source dated May 21, 1999,
between Rick Griffeyand Majestic Modular Buildings, Ltd.
(incorporated by reference to Exhibit 6.11 to the Form 10-SB/A
filed on February 8, 2000).
10.11 Patent License Agreement dated February 20, 1998,
between Adrian P.Corbett and Majestic Motor Car Company, Ltd.
(incorporated by reference to Exhibit 6.12 to the Form 10-SB/A filed
on February 8, 2000).
10.12 Promissory Note payable in the aggregate amount of $260,000
from Skytex International, Inc. to Mei Wah Company, Inc.
(incorporated by reference to Exhibit 6.13 to the Form 10-SB/A
filed on February 8, 2000).
10.13 Consulting Agreement dated May 28, 1999, between The
Majestic Companies, Ltd., a Delaware corporation and
Venture Consultants, LLC, terminating May 28, 2000 (incorporated
by reference to Exhibit 6.14 to the Form 10-SB/A filed on
February 8, 2000).
10.14 Investment Banking Services Agreement date September 29, 1999
between NC Capital Markets, Inc. and The Majestic Companies, Ltd.
(incorporated by reference to Exhibit 6.15 to the Form 10-SB/A
filed on February 8, 2000).
10.15 Security Agreement dated August 26, 1999 between The Majestic
Companies, Ltd. and Majestic Transportation Products, Ltd. and
Margaret C. Hubard (incorporated by reference to Exhibit 6.17
to the Form 10-SB/A filed on February 8, 2000)
10.16 Disbursement Agreement dated August 26, 1999 between The Majestic
Companies, Ltd., Majestic Transportation Products, Ltd. and
Margaret C. Hubard in the aggregate amount of $100,000 (incorporated
by reference to Exhibit 6.18 to the Form 10-SB/A filed on February
8, 2000).
10.17 Promissory Note between Francis A. Zubrowski and The
Majestic Companies, dated October 20, 1999 (incorporated by reference
to Exhibit 6.19 to the Form 10-SB/A filed on February 8, 2000).
27 Financial Data Schedule (see below).
<TABLE> <S> <C>
<S> <C>
<PAGE>
<ARTICLE>5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE AUDITED FINANCIAL STATEMENTS IN REGISTRANT'S FORM 10-KSB
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER>1
<S>
<C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 4,970 305,639
<SECURITIES> 0 0
<RECEIVABLES> 69,182 147,238
<ALLOWANCES> 0 0
<INVENTORY> 499,575 1,214,026
<CURRENT-ASSETS> 628,376 1,743,616
<PP&E> 727,728 314,095
<DEPRECIATION> 100,549 18,430
<TOTAL-ASSETS> 1,347,239 2,045,223
<CURRENT-LIABILITIES> 2,085,949 1,663,368
<BONDS> 0 0
0 0
0 0
<COMMON> 26,834 21,112
<OTHER-SE> (1,234,575) 360,117
<TOTAL-LIABILITY-AND-EQUITY> 1,347,239 2,045,223
<SALES> 2,265,609 393,382
<TOTAL-REVENUES> 2,289,138 395,857
<CGS> 2,234,812 425,281
<TOTAL-COSTS> 2,234,812 425,281
<OTHER-EXPENSES> 4,100,483 2,342,436
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 77,959 1,428
<INCOME-PRETAX> (4,123,634) (2,373,288)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (4,123,634) (2,373,288)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,123,634) (2,373,288)
<EPS-BASIC> (.17) (.20)
<EPS-DILUTED> (.17) (.20)
</TABLE>
