MEGALITH CORP, 10QSB, 1997-04-16

MEGALITH CORP
10QSB, 1997-04-16
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U. S. Securities and Exchange Commission
Washington, DC 20549

-------------------------------

Form 10-QSB

(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D)OF THE SECURITIES EXCHANGE ACT
OF 1934

For the quarterly period ended December 31, 1996

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT

For the transition period from ________ to ________

Commission File Number 33-11875-A

MEGALITH CORPORATION
- ------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)

Colorado 22-2701047
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)

4720 Esco Drive, Fort Worth, Texas 76140
----------------------------------------
(Address of principal executive offices)

(817) 478-4299
--------------
(Issuer's telephone number)

Not applicable
-------------------------
(Former name, former address and former fiscal year, if changed since last
report)

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes ___X___ No _______

The number of shares outstanding of the Company's common stock, $.005 par
value, as of March 25, 1997 is 18,096,170 shares.

<PAGE>

MEGALITH CORPORATION

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PART I--FINANCIAL INFORMATION

Item 1. Financial Statements........................................................... 3

Consolidated Unaudited Balance Sheets as of December 31 and September 30, 1996.... 3

Consolidated Unaudited Statement of Operations for three months ended
December 31, 1996 and 1995........................................................ 4

Consolidated Unaudited Statements of Changes in Stockholders Equity for
three months ended December 31, 1996.............................................. 5

Consolidated Unaudited Statements of Cash Flows for three months ended
December 31, 1996 and 1995........................................................ 6

Notes to Unaudited Consolidated Financial Statements.............................. 8

Item 2. Management's Discussion and Analysis or Plan of Operation...................... 14

PART II--OTHER INFORMATION

Item 1. Legal Proceedings.............................................................. 16

Item 2. Changes in Securities.......................................................... 16

Item 3. Defaults Upon Senior Securities................................................ 17

Item 4. Submission of Matters to a Vote of Security Holders............................ 17

Item 5. Other Information.............................................................. 17

Item 6. Exhibits and Reports on Form 8-K............................................... 17
</TABLE>

Page 2

<PAGE>

PART I--FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

MEGALITH CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------ -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash.................................................. $ -- $ 131,438
Trade accounts receivable, net........................ 440,981 195,343
Other receivables..................................... 579,668 75,000
Inventory............................................. 616,126 616,126
Prepaid expenses...................................... 3,000 --
----------- -----------
Total Current Assets.......................... 1,639,775 1,017,907
----------- -----------

Plant, Property and Equipment................................. 9,102,366 9,102,366
Less: Accumulated depreciation........................ (651,577) (525,630)
----------- -----------
Net Plant, Property & Equipment............... 8,450,789 8,576,736
----------- -----------

Investment in foreign joint venture........................... 113,100 --
Goodwill, net of amortization................................. 623,134 655,930
Other Assets, net of amortization............................. 2,180 2,180
----------- -----------
Total Assets.................................. 10,828,978 10,252,753
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, trade............................... 804,900 594,767
Customer prepayments.................................. 56,041 74,760
Property and payroll taxes payable.................... 553,126 538,963
Accrued interest payable.............................. 352,739 292,728
Other accrued expenses................................ 95,887 26,000
Obligations on Dalcom Acquisition..................... 416,000 516,000
Short term notes payables............................. 647,925 400,000
Short term obligations to related parties............. 548,962 534,262
Current portion of long term debt..................... 983,700 876,000
----------- -----------
Total Current Liabilities..................... 4,459,280 3,853,480
----------- -----------

Long term notes payables, net of current portion.............. 2,905,722 3,034,689

Stockholders' Equity:

Convertible preferred stock, Series A, $10 par value;
5,000,000 shares authorized; 5,574 and 8,807
shares outstanding at Dec. 31 and Sep. 30, 1996...... 55,740 88,070
Common stock, $.005 par value; 50,000,000 shares
authorized; 16,838,442 and 14,597,862 shares
issued and outstanding at December 31, 1996
and September 30, 1996............................... 84,192 72,989
Additional paid-in capital............................. 5,907,932 5,395,809
Stock subscriptions received........................... -- 99,850
Accumulated deficit.................................... (2,583,888) (2,292,134)
----------- -----------
Total Stockholders' Equity.................... 3,463,976 3,364,584
----------- -----------
Total Liabilities and Stockholders' Equity.... $10,828,978 $10,252,753
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.

Page 3
<PAGE>
MEGALITH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended December 31,

(Unaudited)

<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
Revenues........................................................... $ 1,216,003 $ 344,175
Cost of Goods Sold................................................. 951,760 205,904
------------ ----------
Gross profit...................................................... 264,243 138,271
Expenses:
Property taxes.................................................... 8,500 --
Selling, general & administrative expenses........................ 285,969 75,128
Depreciation and amortization..................................... 158,743 40,815
------------ ----------
453,212 115,943
------------ ----------
Operating loss................................................... (188,969) 22,328
Other Income (expense):
Interest expense.................................................. (91,421) (22,000)
Other expenses.................................................... (11,364) (5,077)
------------ ----------
Net loss......................................................... $ (291,754) $ (4,749)
------------ ----------
------------ ----------
Net loss per common and common equivalent shares................... $ (0.02) $ (0.00)
------------ ----------
------------ ----------
Weighted average number of common and common
equivalent shares outstanding.................................... 15,252,172 3,446,737
------------ ----------
------------ ----------
</TABLE>

See accompanying notes.

Page 4

<PAGE>

Megalith Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
Three Months Ended December 31, 1996

(Unaudited)

<TABLE>
<CAPTION>
SERIES A
PREFERRED STOCK COMMON STOCK
ISSUED ISSUED
---------------------- ------------------------------ ADDITIONAL COMMON RETAINED
AMOUNT AMOUNT PAID IN STOCK EARNINGS
SHARES (AT $10 PAR) SHARES (AT $.005 PAR) CAPITAL SUBSCRIBED (DEFICIT)
-------- -------------- ------------ ---------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>

Balance September 30, 1996 8,807 $ 88,070 14,597,862 $ 72,989 $ 5,395,809 $ 99,850 $ (2,292,134)

Proceeds from sale of
shares pursuant to a
private placement 715 7,150 1,020,150 5,101 291,249 (99,850) --

Stock issued for services,
expenses and interest 101 1,010 624,148 3,121 183,365 -- --

Preferred stock converted
to common stock (4,049) (40,490) 596,282 2,981 37,509 -- --

Current year earnings
(loss) -- -- -- -- -- -- (291,754)
------ -------- ---------- -------- ----------- ----------- ------------
Balance December 31, 1996 5,574 $ 55,740 16,838,442 $ 84,192 $ 5,907,932 $ -- $ (2,583,888)
------ -------- ---------- -------- ----------- ----------- ------------
------ -------- ---------- -------- ----------- ----------- ------------

TOTAL
STOCKHOLDERS'
EQUITY
--------------
<S> <C>

Balance September 30, 1996 $ 3,364,584

Proceeds from sale of
shares pursuant to a
private placement 203,650

Stock issued for services,
expenses and interest 187,496

Preferred stock converted
to common stock --

Current year earnings
(loss) (291,754)
-----------
Balance December 31, 1996 $ 3,463,976
-----------
-----------
</TABLE>

See accompanying notes

Page 5

<PAGE>
Megalith Corporation and Subsidiaries

Consolidated Statements of Cash Flows

Three Months Ended December 31,

(Unaudited)

<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss):........... .................................. $ (291,754) $ (4,749)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization.............................. 158,743 40,832
Common and preferred stock issued for services............. 74,396 --
Change in operating assets and liabilities:
Accounts receivables, trade............................ (245,638) (138,117)
Other receivables...................................... (459,668) 18,467
Prepaid expenses....................................... (3,000) --
Accounts payable, trade................................ 210,133 73,417
Customer prepayments................................... (18,719) (51,699)
Accrued interest payable............................... 60,011 --
Accrued compensation to officers....................... 25,700 --
Other accrued expenses................................. 69,887 8,137
Property and payroll taxes payable..................... 14,163 --
----------- ----------
Net cash provided (used) by operating activities........... (405,746) (53,712)
----------- ----------
----------- ----------
Cash flows from investing activities:
Purchase of assets from Esco Elevators Inc...................... -- (808,000)
Proceeds from sale of subsidiary................................ 35,000 (1,000)
----------- ----------
Net cash provided (used) in investing activities........... 35,000 (809,000)
----------- ----------
Cash flows from financing activities:
Proceeds from loans............................................. 250,000 --
Proceeds from loans from related parties........................ -- 895,910
Proceeds from sale of stock..................................... 123,650 25,000
Principal payments on notes..................................... (123,342) (37,790)
Repayment on notes to related parties........................... (11,000) (10,000)
----------- ----------
Net cash provided by (used in) financing activities........ 239,308 873,120
----------- ----------
Net increase (decrease) in cash...................................... (131,438) 10,408

Cash, beginning of year.............................................. 131,438 489
----------- ----------
Cash, end of period.................................................. $ -- $ 10,897
----------- ----------
----------- ----------
</TABLE>

See accompanying notes.

Page 6

<PAGE>

MEGALITH CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Continued)

Three Months Ended December 31, 1996 and 1995

(Unaudited)

Non-cash Investing and Financing Activities:
- --------------------------------------------

Three months ended December 31, 1996:

During the quarter the Company issued 242,424 shares of Common pursuant to
subscriptions for which the payments were deferred, and the amount due to the
Company of $80,000 has been recorded as a receivable at December 31, 1996.

Also during the quarter the Company issued 624,148 shares of its Common and
101 shares of its Series A Preferred in exchange for services, for expenses for
which the Company was obligated, and for accrued but unpaid interest on
indebtedness of the Company. The value of the shares so issued were recorded
based upon the amounts at which other shares had been sold in private
placements during the same time period.

Three months ended December 31, 1995:

In connection with the acquisition of substantially all of the assets of
Esco Elevators Inc. from the Bankruptcy Estate effective as of November 27,
1995, through its newly formed subsidiary, (Esco Elevator Corporation), the
Company assumed various obligations and issued 4,268,000 shares of its common
stock. The fair value of the assets received and the liabilities assumed are
summarized below:

Accounts receivables, trade............... $ 243,856
Other receivables......................... 62,681
Inventory................................. 616,126
Plant, property and equipment............. 8,959,420
Other assets.............................. 2,575
----------
Total assets....................... 9,884,658
----------

Accounts payables......................... 53,469
Customer prepayments...................... 115,836
Current property taxes payable............ 130,644
Accrued interest to McMillian assumed
for periods prior to the acquisition.... 187,489
Installment notes assumed................. 5,211,270
----------
Total liabilities assumed.......... 5,698,708
----------

Net assets acquired................ 4,185,950

Less: Cash paid at closing................. (808,000)
----------
Net increase in equity............. $3,377,950
----------
----------

Also during the quarter ended December 31, 1995, $200,000 of debt due to the
CEO of the Company was reduced through the issuance of 2,000,000 shares of
Common stock of the Company.

See accompanying notes.

Page 7

<PAGE>

MEGALITH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1996
(UNAUDITED)

NOTE A--BASIS OF PRESENTATION

The accompanying unaudited financial statements include Megalith Corporation
("Megalith" or the "Company") and its wholly-owned subsidiaries, Esco Elevator
Corporation and Dalcom Elevator Corporation. Overline Corporation ("Overline"),
the former registrant, was formed in 1986 under the laws of the State of
Delaware. Megalith Corporation ("Megalith" or the "Company") was incorporated on
November 3, 1995 in the State of Colorado. Pursuant to a Plan and Agreement of
Merger dated as November 6, 1995, Overline was merged with and into Megalith,
and Megalith was the surviving entity of the merger. In connection with the
merger, all outstanding shares of Overline were exchanged for an equal number of
shares of Megalith. For approximately five years prior to the merger in November
1995, Overline had been essentially inactive, other than for its efforts in
seeking business opportunities. As more fully described in Note B below,
effective as of November 27, 1995, the Company, through its newly-formed
subsidiary (Esco Elevator Corporation), acquired substantially all of the
assets (the "Esco Assets") of Esco Elevators Inc. and Esco Properties, Inc.
Upon the acquisition of the Esco Assets on November 27, 1995, the Company's
principal business became the manufacture and sale of custom passenger and
freight elevators.

In the opinion of management of the Company, the Company's unaudited
consolidated financial statements as of December 31, 1996 and for the interim
periods ended December 31, 1996 and 1995 include all adjustments which are
necessary for a fair presentation in accordance with generally accepted
accounting principles. Such adjustments consist of normal recurring adjustments
and accruals, except for the entries to record the acquisition of Esco Assets
described in Note B. These interim results are not necessarily indicative of the
results to be expected for the year ending September 30, 1997.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Certain information and disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted in this Quarterly Report on Form 10-QSB, pursuant
to the rules and regulations of the U.S. Securities and Exchange Commission.
These financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on Form
10-KSB for the year ended September 30, 1996, as filed with the U.S. Securities
and Exchange Commission. The balance sheet amounts contained herein were derived
from the audited financials on Form 10-KSB at September 30, 1996; however,
certain amounts within the liability accounts have been reclassified in this
Form 10-QSB for clarity and comparison purposes.

Page 8

<PAGE>

NOTE B--ACQUISITION OF ESCO ASSETS

The Company, through its wholly-owned subsidiary, Esco Elevator Corporation,
acquired substantially all of the assets (the "Esco Assets") of Esco Elevators
Inc. and Esco Properties, Inc. effective as of November 27, 1995. The Esco
Assets were acquired by the Company pursuant to a Plan of Reorganization of Esco
Elevators Inc. and Esco Properties Inc. which was approved by the U.S.
Bankruptcy Court on October 12, 1995. Esco Elevators Inc. and Esco Properties
Inc. (collectively, "Old Esco"), two affiliated companies based in Fort Worth,
Texas, had filed for relief under Chapter 11 of the U.S. Bankruptcy Code on
December 14, 1994. During the period from January through November, 1995, Old
Esco was operated by a private company, Epsitek, Inc., under a management
agreement with the Bankruptcy Trustee. Pursuant to an agreement between Epsitek,
Inc. and Overline dated as of November 6, 1995, Epsitek acquired the right from
Overline to negotiate for the purchase of the assets of Old Esco from the
Bankruptcy Estate. Effective November 27, 1995, Epsitek, Inc. assigned to Esco
Elevator Corporation, the wholly-owned subsidiary of the Company, all of its
rights and equity in Old Esco, including the right to acquire the Esco Assets
pursuant to the Plan of Reorganization and the accounts receivable generated
during the time of the management agreement, subject to expenses required to be
paid during the same period. Upon the acquisition of the Esco Assets, the
Company began the operation of its principal business in the manufacture and
sale of custom passenger and freight elevators.

The Esco Assets were acquired in exchange for $808,000 cash paid to the
Bankruptcy Estate of Old Esco, assumption by the Company of certain installment
debt and other obligations of Old Esco aggregating $4,273,642, and the issuance
to Epsitek, Inc. of 4,268,000 shares of the common stock of the Company. The
assets were recorded at their appraised values and the Common Stock issued in
the transaction was recorded at the residual amount determined by subtracting
the debts assumed from the total appraised value of the assets. $800,000 of the
cash consideration was borrowed from certain shareholders or related parties of
the Company on short term notes bearing interest of eight percent, of which
$200,000 of principal on the notes was canceled in exchange for shares of common
stock of the Company upon the exercise of a stock option agreement by the chief
executive officer of the Company on December 4, 1995. Subsequently, an
additional $325,000 of that debt has also been canceled upon the issue of shares
of the Company's Common Stock to the noteholders. Of the debt assumed by the
Company, $3,407,177 was due to an individual who holds first lien rights to the
substantial portion of the Esco Assets, including the land, buildings and all
equipment not encumbered by other priority liens. The remaining debt assumed by
the Company is owed to various financing institutions and vendors for certain
items of equipment or improvements which are included in the assets acquired by
the Company, and generally have long term installment payment provisions of up
to 10 years as specified in the Plan of Reorganization.

NOTE C--LONG TERM NOTES PAYABLE

Long term notes payable consists of the following:

<TABLE>
<CAPTION>
DEC. 31, SEP. 30,
1996 1996
------------ ------------
<S> <C> <C>
Promissory note to Ms. McMillan, secured by first lien
deed of trust on substantially all equipment and real estate,
assumed effective as of November 27, 1995 as part of the
Esco Asset acquisition, principal and interest of 6.5% due
in monthly installments of $45,425, payable in full July 10,
2002 $3,269,820 $3,269,820
</TABLE>

Page 9

<PAGE>

<TABLE>
<CAPTION>
<S> <C> <C>
Various installment notes payable, assumed on November
27, 1995 as part of the Esco Asset acquisition, with
various remaining terms from one to nine years at interest
rates ranging from 3% to 9.9%; secured by certain
property and equipment 451,150 454,437

Installment note payable to an individual, assumed on
November 27, 1995 as part of the Esco Asset acquisition;
due in monthly installments of principal only over five
years, with interest at 10% due at maturity; unsecured 168,452 186,432
---------- ----------
$3,889,422 3,910,689
Less short term portion of long term debt -983,700 -876,000
---------- ----------
Net long term debt $2,905,722 $3,034,689
</TABLE>

In addition to the promissory note due to Ms. McMillan as indicated above,
she is due $187,489 for interest accrued on the note during the months prior to
the acquisition of the Esco Assets by the Company and the assumption of the
subject note. This accrued interest has been reported as Accrued Interest
Payable, together with an interest accrual to December 31, 1996 of $165,250 on
all other accrued and unpaid interest.

NOTE D--SHORT TERM NOTES AND OBLIGATIONS

Short term notes payable consists of the following:

<TABLE>
<CAPTION>
DEC. 31, SEP. 30,
1996 1996
--------- ----------
<S> <C> <C>
Short term notes payable to an individual; unsecured;
interest at 8.5% paid monthly; due on demand; loan was
incurred in connection with Esco Asset acquisition $ 50,000 $ 50,000

Short term notes payable to two individuals, non-interest
bearing; due on demand; loans were incurred in connection
with Esco Asset acquisition 150,000 150,000

Notes payable to a former officer/director; $200,000 is
non-interest bearing, which note was issued for cash
advanced to the Company in connection with the Dalcom
Acquisition and was due in October 1996; secured by
3,025,862 shares of the Company owned by Epsitek, Inc.;
a separate note for $250,000 accrues interest at 18% and is
due October 27, 1997, and is secured by inventory, of
which $247,925 remains unpaid 447,925 200,000
-------- --------

Total $647,925 $400,000
</TABLE>

The Company was also obligated in the amount of $416,000 to the seller of
Dalcom Elevator Corporation as of December 31, 1996 in connection with the
acquisition in July, 1996. The obligation consists of the assumption of
indebtedness of Dalcom of $166,000 and $250,000 due to the seller. Also, Dalcom
currently has a negative reserve account with American Factoring of Texas, Inc.
of $252,000 which the Company disputes.

Page 10
<PAGE>
MEGALITH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996
(UNAUDITED)

NOTE E--SHORT TERM NOTES AND OBLIGATIONS TO RELATED PARTIES

Notes and accounts due to related parties consists of the following:

<TABLE>
<CAPTION>
DEC. 31, SEP. 30,
1996 1996
---------- ---------
<S> <C> <C>
Short term note payable to Epsitek, Inc., unsecured,
payable on demand, with interest at 8%; issued in
exchange for receivables (net of liabilities) transferred
from Epsitek, Inc. in connection with the acquisition of the
Esco Assets $141,355 $152,355

Short term note payable to the chief executive officer of
the Company; unsecured, with interest at 8%, principal
and interest due on demand; loan incurred in connection
with Esco Asset acquisition 180,109 180,109

Accrued compensation due to an officer/director for
amounts unpaid pursuant to an employment agreement 71,798 56,798

Accrued compensation ($130,700) and travel expenses
($25,000) due to the chief executive officer for amounts 155,700 145,000
unpaid ------------ ------------
- ----
Total $ 548,962 $ 534,262
</TABLE>

NOTE F--STOCKHOLDERS' EQUITY

Capital Stock

The authorized capital stock of the Company consists of 50,000,000 shares
of common stock, par value $.005 per share ("Common Stock") and 5,000,000
shares of preferred stock, par value $10.00 per share ("Preferred Stock").
At a special meeting of shareholders on December 18, 1996, an amendment to the
Company's Certificate of Incorporation was adopted to (i) divide the Company's
authorized Preferred Stock into series of Preferred shares and to fix and
determine the relative rights, limitations, and preferences of the shares of
the Company's Series A, B, and C Preferred Stock, and (ii) to grant the
authority to the Board of Directors of the Company to fix and determine the
relative rights, limitations, and preferences of the remaining series of the
Company's Preferred Stock.

Preferred Stock

During the fiscal year ended September 30, 1996, the Company issued 11,307
shares of its Preferred Stock and in the quarter ended December 31, 1996 issued
an additional 816 Preferred shares. These shares were issued primarily in
exchange for the cancellation of obligations to various individuals in
connection with loans to the Company, or its predecessor, for the initial
financing of the Company, and certain of the shares were issued for cash
pursuant to a private placement offering or as compensation for financial
consulting services provided to the Company. Pursuant to the amendments to the
Articles of Incorporation adopted by the shareholders at the

Page 11

<PAGE>

special meeting on December 18, 1996, each of the 11,307 shares issued to that
date were designated as Series A Preferred Stock. Of the 12,123 shares of
Series A Preferred issued up to December 31, 1996, a total of 6,549 shares have
been exchanged for 862,949 shares of Common Stock as of December 31, 1996, as
provided for such conversion by the designation of the Series A Preferred Stock.
Subsequent to December 31, 1996, an additional 2,050 shares of Series A
Preferred have been exchanged for 292,855 shares of Common Stock

Pursuant to the amendments to the articles of incorporation of the Company
adopted at the special meeting of shareholders on December 18, 1996, three
million shares of the five million authorized Preferred shares are divided into
three series and designated as Series A, Series B, and Series C Preferred Stock,
and the corporation is authorized to issue one million shares each for Series A,
B and C. The Board of Directors is authorized to divide the two million
remaining shares of Preferred Stock into series, to designate each series, to
fix and determine separately for each series the relative rights, limitations,
and preference of such series, and to issue shares of any series of Preferred
Stock then or previously designated, fixed, or determined. Although the Board of
Directors has designated the term for Series A, Series B and Series C of its
Preferred Stock, only the Series A shares have been issued. Each share of each
series of Preferred Stock will have rights identical to each other share of that
series of Preferred Stock. No dividend on any share of Series A, B or C
Preferred Stock will accumulate.

Each share of Series A Preferred Stock has a stated value of $40.00, and is
convertible, at the option of the holder of such share, into Common Stock. The
conversion rate into Common is determined by dividing the $40 per share stated
value of the Preferred by 50% of the closing bid price of the Common Stock. The
term "Closing Bid Price" means, if the corporation stock is actively traded, the
published closing bid price of the Common on the trading day immediately
preceding the date of conversion. Series A shares may be converted into Common
Stock after the Preferred Stock has been issued and outstanding for at least six
months.

Common Stock

During the quarter ended December 31, 1996, the Company issued 624,148
shares of its Common Stock together with 101 shares of Series A Preferred to
satisfy certain obligations of the Company for services, for expenses, and for
accrued but unpaid interest on indebtedness of the Company. Additionally,
1,020,150 shares were issued during the period pursuant to a private placement
offering for cash to be used for working capital.

Holders of Common Stock are entitled to one vote for each share held of
record on all matters voted on by stockholders. The shares of the Common Stock
do not have cumulative voting rights, which means that the holders of more than
50% of the shares of the common Stock voting for the election of the directors
can elect all of the directors to be elected by holders of the Common Stock, in
which event the holders of the remaining shares of Common Stock will not be able
to elect any director. Upon any liquidation, dissolution, or winding-up of the
affairs of the Company, holders of the Common Stock would be entitled to
receive, pro rata, all of the assets of the Company available for distribution
to stockholders, after payment of any liquidation preference of any Preferred
Stock that may be issued and outstanding at the time. Holders of the Common
Stock have no subscription, redemption, sinking fund, or preemptive rights.

Common Stock is stated at the lower of par value or consideration
received, as permitted by state law. Common stock subscribed reflects amounts
received in September, 1996 for shares of the Company's Common Stock for which
the shares were not issued until October, 1996.

Page 12

<PAGE>

Stock Options

On April 1, 1996 and on September 1, 1996 the Company granted to an
individual options to acquire up to 200,000 shares, or 400,000 shares in the
aggregate, of restricted common stock of the Company in conjunction with
agreements to provide services to the Company. The earlier option agreement
provided for an exercise price of $.50 per share and the latter agreement was
at $.25 per share. Each of the two agreements expire 24 months from the date
the option was granted.

On May 29, 1996, the Company granted to Stacy Investments Partnership Ltd.
the option to purchase 50,000 shares of restricted common stock at a price of
$.60 per share. The option expires in 24 months from the date of the agreement.

On September 5, 1996, the Company acknowledged to Dr. Arthur Malcolm, a
former Director of the Company, that the Company has previously granted to him
the option to purchase 100,000 shares of restricted common stock at $.37 per
share and 100,000 shares at $1.00 per share, both expiring March 5, 1998.

On May 1, 1996, the Company accepted certain subscriptions for 105,000
shares of the Company's common stock from five individuals which could require
the Company to buy the shares back at a price of $1.20, only upon the election
of the holder and in the event that within 12 months the bid price of the
Company's Common Stock falls below $1.20 for any consecutive 60 day period. The
Company has not been requested to buy back any of the shares under the
agreements and, based upon the current level of the trading price of the Common
Stock which is in excess of the price required for an election of the put
option, management does not anticipate that the Company will be required to buy
back any shares prior to the expiration date of April 30, 1997. Accordingly, no
provision has been made in the financials for any obligation that might arise in
connection with any put option.

Page 13

<PAGE>

ITEM 2. Management's Discussion and Analysis or Plan of Operation.

Historical Background and Description of Current Operations

Megalith Corporation ("Megalith" or the "Company") was incorporated on
November 3, 1995 in the State of Colorado. Overline Corporation ("Overline"),
the former registrant, was formed in 1986 under the laws of the State of
Delaware. Pursuant to a Plan and Agreement of Merger dated as November 6,
1995, Overline was merged with and into Megalith, and Megalith was the
surviving entity of the merger. In connection with the merger, all
outstanding shares of Overline were exchanged for an equal number of shares
of Megalith. For approximately five years prior to the merger on November 27,
1995, Overline had been essentially inactive, other than for its efforts in
seeking business opportunities.

Results of Operations

Revenues of the Company are derived from the sale of passenger and freight
elevators, components, and replacement parts. To a lesser extent, the Company
obtains revenues from the installation and servicing of elevators generally
within the State of Texas, and relies upon sub-contractors to perform the
majority of such services. The revenues and expenses reflected in the
accompanying unaudited financial statements of the Company for the previous
quarter ended December 31, 1995 include only the period from the purchase of the
Esco Assets on November 27, 1995 to the end of the calendar, or a period of
about one month. The Company did not have active operations prior to November
27, 1995, and the only expenses incurred were in the maintenance of the
corporate entity and in seeking other business opportunities. Therefore, the
lack of active operations for a period of only one month in the same quarter
in the preceding year provides only limited operating information for the
purposes of comparative analysis.

For the quarter ended December 31, 1996, the revenues from the sales of
elevators, components, replacement parts, and service was $1,216,003, with a
gross profit of $264,243 (or 22% of sales). The revenues for the same quarter of
the previous year were $344,175 with a gross profit of $138,271, although, as
indicated above, the previous period consisted of only approximately one month.
The operating loss for the current quarter was $188,969, as compared to an
operating loss of $22,328 for same quarter in the previous year. After interest
and other non-operating expenses, the Company had a net loss of $291,754 for the
current quarter, as compared to a net loss of $4,749 for the same quarter in the
previous year.

All revenues in the periods presented were generated in operations of the
elevator manufacturing subsidiary. The interest expense was incurred
primarily in connection with the installment debt related to the Esco Asset
purchase. The Company's efforts are currently directed primarily to
reorganizing its operations for profitability and raising capital, which are
necessary to increase sales and obtain operating profits

Page 14

<PAGE>

at its elevator manufacturing subsidiary, following a period of severe sales
decline as a result of the bankruptcy of Old Esco. The gross revenues are
expected to remain at an average of approximately $300,000 per month until such
time as the Company has completed satisfactory financing arrangements that will
ultimately permit a steady growth in sales provided by a sustained marketing
effort, both domestically and in the foreign markets. However, more rapid growth
could potentially be obtained by commencing deliveries on the China Joint
Venture, although that venture is also dependent upon adequate financing. Upon
the completion of financing, the Company intends to commit funding to its
marketing for the remainder of the year, which will tend to increase S,G&A costs
over present levels. Conversely, such refinancing is also expected to reduce the
interest expense burden of the Company. The manufacturing plant is operating at
far less than its design capacity and, with the present low volumes results in
cost inefficiencies. The present headcount of 63 employees compares
with a total headcount of approximately 150 in the predecessor company during
periods immediately prior to the bankruptcy.

Liquidity and Sources of Capital

The Company had a working capital deficit of $2,819,505 as of December 31,
1996, which has been created in large part by the short term debt assumed in
connection with the acquisition of the Esco Assets in November 1995, and
followed by the operating losses in the intervening periods. The capital
resources to fund operations and complete the acquisition of the Esco Assets was
provided primarily by short term loans to the Company and by sales of the
capital stock of the Company. Until such time as revenues have increased
substantially over the current level, or the current debt burden is refinanced,
or both, the Company can be expected to utilize additional working capital in
its operations. For the liquidity needs of the Company in the following twelve
months, the Company is dependent upon the operating cash flows generated from
the elevator business and on proceeds from loans and the sale of capital stock.
However, the Company does not presently have available lines of credit to
provide the necessary working capital for expansion expected to occur in the
coming year. Therefore, the Company is currently seeking to refinance a
substantial portion of its existing short and long term debt with a combination
of long term debt and equity, while simultaneously providing additional working
capital. In the interim period, however, the Company intends to factor its
accounts receivable to provide an immediate source of working capital. Also,
subsequently to December 31, 1996, the Company has sold shares of its capital
stock in private placements for cash, and the Company also intends to complete a
private for the sale of its shares in the near future in order to raise capital.

Joint Venture Agreement with China Province

On January 16, 1997 Shaanxi Elevator Corp. in the Province of Shaanxi in
China and Esco Elevator Corporation entered into a Joint Venture Agreement to
manufacture and market a full line of hydraulic and traction elevators and
related products. Under the terms of the agreement, the provincial government
will provide a large plant capable of producing $100 million in products a year.
Esco will equip and manage the plant and China Shaanxi Elevator Corp. will
market the Joint Venture's elevators through its 36 offices in China. Esco will
have the right to market the products of the Joint Venture throughout North,
Central and South America, as well as to continue to manufacture and market
elevators from its existing facilities in Fort Worth, Texas.

Simultaneous with the execution of the Joint Venture Agreement, Esco
received an order from China Shaanxi Elevator Corp. for a minimum of 250, and up
to 400, hydraulic elevators valued at $19 million to $30 million. Esco is to
commence the production of this order immediately so as to open the China market
as soon as possible for the benefit of the Joint Venture. The Company believes
this order will be a "perpetual order" since the joint venture plant, when
operating at full capacity, is expected to supply only a small portion of
China's total needs.

In connection with the Joint Venture agreement, the Company agreed to
provide cash of $1,020,000 during 1997. The Company must obtain these funds from
outside sources which the Company is seeking in a

Page 15

<PAGE>

$2.5MM placement of its capital stock, and management believes that it will be
successful in obtaining the required funds.

PART II -- OTHER INFORMATION

Item 1. Lgal Proceedings.

AMERICAN FACTORS OF TEXAS, INC. V. ESCO ELEVATORS COMPANY AND DALCOM
ELEVATORS COMPANY, in the 68th District Court, Dallas County, Texas, Cause No
97-00900-C, was filed on approximately February 16, 1997 and is a suit by
American Factors of Texas, Inc. (AFT) to enforce continuance of an existing
factoring agreements between AFT and Esco Elevator Corporation (Esco) and
Dalcom Elevator Corporation (Dalcom), following the attempt by Esco/Dalcom to
unilaterally cancel the agreements because of the high interest factor
contained in the agreements. Esco and Dalcom counterclaimed for cancellation
of the agreements. The suit is pending; however, there appears to be no
potential liability for Esco or Dalcom in the matter.

In MEGALITH V. PETER DEWAN, File #07-00022, 298th Judicial District
Court Dallas County, a suit on tortuous interference with contact was filed
by Megalith and is pending. There is no potential for liability to the
Company because, as of the deadline date of November 19, 1996, no
counterclaim had been filed. Furthermore, Mr. Dewan has subsequently been
indicted on various counts by the U.S. Dept. of Justice and the Company
anticipates that the suit will be dismissed within thirty days.

Item 2. Changes in Securities.

At a special meeting of shareholders on December 18, 1996, an amendment to
the Company's Certificate of Incorporation was adopted to (i) divide the
Company's authorized Preferred Stock into series of Preferred shares and to fix
and determine the relative rights, limitations, and preferences of the shares of
the Company's Series A, B, and C Preferred Stock, and (ii) to grant the
authority to the Board of Directors of the Company to fix and determine the
relative rights, limitations, and preferences of the remaining series of the
Company's Preferred Stock.

Pursuant to the Articles of Amendment to the Articles of Incorporation of
Megalith Corporation adopted December 18, 1996 at the special meeting of
shareholders, each of the 11,307 issued and outstanding shares of Preferred
Stock were designated as Series A Preferred Stock. Each share of Series A
Preferred has a stated value of $40.00, and is convertible, at the option of the
holder of such share, into Common Stock. The conversion rate into Common is
determined by dividing the $40 per share stated value of the Preferred by 50% of
the closing bid price of the Common Stock. The term "Closing Bid Price" means,
if the corporation stock is actively traded, the published closing bid price of
the Common on the trading day immediately preceding the date of conversion.
Series A shares may be converted into Common Stock after the Preferred Stock has
been issued and outstanding for at least six months.

The Articles of Amendment to the Articles of Incorporation also provided
that three million shares of the five million authorized Preferred shares are
divided into three series and designated as Series A, Series B, and Series C
Preferred Stock, and the corporation is authorized to issue one million shares
each for Series A, B and C. The Board of Directors is authorized to divide the
two million remaining shares of Preferred Stock into series, to designate each
series, to fix and determine separately for each series the relative rights,
limitations, and preference of such series, and to issue shares of any series of
Preferred Stock then or previously designated, fixed, or determined. Although
the Board of Directors has designated the term for Series A, Series B and Series
C of its Preferred Stock, only the Series A shares have been issued. Each share
of each series of Preferred Stock will have rights identical to each other share
of that series of Preferred Stock. No dividend on any share of Series A, B or C
Preferred Stock will accumulate.

Page 16

<PAGE>

Item 3. Defaults Upon Senior Securities.

In connection with the purchase of the Esco Assets from the Bankruptcy
Estate on November 27, 1995, Esco Elevator Corporation, a subsidiary of the
Megalith, assumed an indebtedness in the amount of $3,407,177 due to an
individual (the surviving spouse of the founder of the Old Esco) who holds first
lien rights to the substantial portion of the Esco Assets, including the land,
buildings and all equipment not encumbered by other priority liens. Esco
Elevator Corporation has not made payments of principal and only $10,000 of
interest due under the note for the months of May, 1996 through March, 1997.
The total amount of arrearage is approximately $485,000 as of the date of
this report.

Item 4. Submission of Matters to a Vote of Security Holders.

On December 18, 1996, a special meeting of shareholders was held and the
following actions were adopted:

(1) Syed G. Zaidi, James W. Landrum, Mohammed Sharabash, Bashir G. Ahmed
and Arthur Steber were elected to serve as members of the Board of Directors.

(2) An Amendment to the Articles of Incorporation was adopted to
(i)divide the Company's authorized Preferred Stock into series of preferred
shares and to fix and determine the relative rights, limitations, and
preferences of the shares of the Company's Series A, B, and C Preferred Stock,
and (ii) to grant the authority to the Board of Directors of the Company to fix
and determine the relative rights, limitations, and preferences of the
remaining series of the Company's Preferred Stock.

Item 5. Other Iformation.

Not applicable.

Item 6. Exhibits and Reports on Form 8-K.

(a) Furnish the exhibits required by Item 601 of Regulation S-B.

<TABLE>
<CAPTION>
Exhibit No. Exhibit Description
- ----------- -------------------
<C> <S>

3.4 Articles of Amendment to the Articles of Incorporation of Megalith
Corporation adopted December 18, 1996

10.4 Contract for Establishment of Sino-America Joint Venture Corporation
to Produce Elevator Products and Auto Stairs, between China Shaanxi
Elevator corporation and Esco Elevator Corporation, dated as January
16, 1997

27 Financial Data Schedule
</TABLE>

(b) Reports on Form 8-K.

No reports on Form 8-K were filed during the quarter ended December 31,
1996.

Page 17

<PAGE>

SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

MEGALITH CORPORATION:
- ---------------------
(Registrant)

/s/ Syed G. Zaidi April 16, 1997
- --------------------------- --------------
Syed G. Zaidi, Chief Executive Officer and Date
Chairman of the Board of Directors

Page 18

<PAGE>
EXHIBIT 3.4

ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
MEGALITH CORPORATION

Pursuant to the provisions of Section 7-110-106 of the Colorado Business
Corporation Art, the undersigned, MEGALITH CORPORATION, a Colorado corporation,
adopts the following Articles of Amendment to its Articles of Incorporation.

ARTICLE I

The name of the corporation is MEGALITH CORPORATION,

ARTICLE II

The amendments set forth herein to the articles of incorporation of Megalith
Corporation were approved and adopted by a vote of the shareholders of Megalith
Corporation at a duly-convened shareholders' meeting held on December 18, 1996.
The number of votes cast for each amendment by each voting group entitled to
vote separately on the amendment was sufficient for approval by that voting
group.

ARTICLE III

The text of Article Four: Capital Stock is deleted in its entirety, and the
following text is substituted therefor:

Section 1. Authorized Shares. The aggregate number of all classes of stock
which the corporation will have authority to issue is sixty million (55,000,000)
shares, divided into (a) one class of fifty million (50,000,000) shares of
Common Stock, with a par value of $0.005 per share, and (b) Twenty-six classes
of five million (5,000,000) shares of Preferred Stock. with a par value of
$10.00 per share, issued in series.

Section 2. General Rights. Each share of Common Stock will have rights
identical to every other share of Common Stock, and each share of each series of
Preferred Stock will have rights Identical to each other share of that series of
Preferred Stock. Nothing herein will limit the right of the corporation to
purchase any of its outstanding shares of Common or Preferred Stock in
accordance with law, by public or private transaction. All the voting power of
the corporation will be vested in the Common Stock, and no share of Preferred
Stock will have any voting right on any matter, except for and to the extent of
any preferred dividends declared by the corporation's Board of Directors, none
of the shares of corporation's Preferred Stock will participate in the
corporation's equity growth.

Page 1 of 4

<PAGE>

Section 3. Preferred Shares.

(a) Three million (3,000,000) of the five million (5,000,000) authorized
shares of Preferred Stock will be divided into three series and designated;
Series A, Series B, and Series C Preferred Stock The corporation is authorized
to issue one million (1,000,000) shares of Series A Preferred Stock, one million
(1,000,000) shares of Series B Preferred Stock, and one million (1,000,000)
shares of Series C Preferred Stock. The Board of Directors is authorized, from
time to time, to divide the two million (2,000,000) remaining shares of
Preferred Stock into series, to designate each series, to fix and determine
separately for each series the relative rights, limitations, and preference of
such series, and to issue shares of any series of Preferred Stock then or
previously designated, fixed, or determined.

(b) No dividend on any share of Series A, Series B, or Series C Preferred
Stock will accumulate. Upon the conversion of any share of Preferred Stock, the
corporation may issue Common Stock that has not been registered pursuant to any
state or federal securities law, If unregistered Common Stock is issued
upon the conversion of any share of Preferred Stock, the recipient will take
such Common Stock subject to all restrictions imposed by applicable law.

(c) Each share of Series A Preferred Stock is convertible, at the option of
the holder of such share, into the number of shares of Common Stock that is
determined by the closing bid price of the Common Stock. The term "Closing Bid
Price" means, if the Corporation Stock is actively traded, the published closing
bid price of the Common Stock on the trading day immediately preceding the date
of conversion. No share of Series A Preferred Stock may be converted into Common
Stock until such share of Series A Preferred Stock has been issued and
outstanding for at least one year.

(d) During each of the eighteen calendar months following the first full
calendar month after the date of issuance of the Series B Preferred Shares, the
holders thereof may collectively convert up to 2,778 of such shares into a
number of shares of Common Stock equal to (i) the result of dividing 12.5 by the
Common Stock Market Value and (ii) multiplying the result thereof by the number
of shares of Series B Preferred Stock so converted. The term "Common Stock
Market Value" means, if the Common Stock is actively traded, the average
published closing price of the Common Stock for the five trading days
immediately prior to the date of conversion.

(e) During each of the eighteen calendar months following the first full
calendar month after the date of issuance of the Series B Preferred Shares,
the holders thereof may collectively cause the corporation to purchase up to
2,778 of such shares at a price of $10.00 per share. If the holders of the
Series B Preferred Stock do not notify the corporation to the contrary, at
least ten days prior to the first day of each of the eighteen calendar
months, the holders will be deemed to have exercised their right to cause the
corporation to purchase 2,778 of such the following calendar month. Payment
for the shares purchased by the corporation during any of the eighteen
calendar months will be payable in cash.

Page 2 of 4

<PAGE>

(f) During each of the eighteen calendar months following the first full
calendar month after the date of issuance of the Series B Preferred Shares, the
corporation may, by resolution of the Board of Directors and upon providing at
least ten day written notice to the holders thereof, redeem up to 2,778 shares
of the Series B Preferred Stock at a price of $10.00 per share. If the shares of
Series B Preferred Stock is held by more than one shareholder, the shares to be
redeemed will be selected ratably or by lot or by any other equitable method
determined by the Board of Directors. Payment for any shares so redeemed during
any of the eighteen calendar months will be payable in cash on the first day of
the succeeding calendar month. The corporation's right to redeem shares is
subordinate to the rights of the holders of the Series B Preferred Stock to
convert such shares into Common Stock (as set forth in paragraph 4(d) hereof) or
to cause the corporation to purchase such shares (as set forth In paragraph 4(e)
hereof). The corporation may redeem shares of the Series B Preferred Stock
without redeeming shares: of any other class or series of stock. Shares that are
redeemed will be deemed canceled and will be restored to the status of
authorized and unissued shares.

(g) No dividends will be payable on any share of Series B Preferred Stock.

(h) Each share of Series C Preferred Stock is convertible, at the option of
the holder of such share, into the number of shares of Common Stock of the
Corporation that is determined by dividing 100 by the Common Stock Market Value.
No share of Series C Preferred Stock may be converted into common Stock until
such share of Series C Preferred Stock has been issued and outstanding for at
least twelve months. No dividends will be payable on any share of Series C
Preferred Stock.

(i) If any dividends are declared by the Board of Directors, the holders
of the Series A Preferred Stock will be entitled to share an amount equal to
twenty-five percent (25%) of the Corporation's Year Net Income, up to a
maximum preferred dividend to the Series A Preferred Stock of $500,000 during
any one-year period, before any other series of Preferred Stock or any Common
Stock will share in any declared dividend. The Corporation's Prior Year Net
Income will be the sum of the net income of the corporation reported in its
periodic filings with the Securities and Exchange Commission for the four
quarters immediately preceding the date of the declaration of dividends. If
for any reason the corporation has not made periodic filings with the
Securities and Exchange Commission for such periods, the Corporation's Prior
Year Net Income equal the corporation's net income for the four quarters
immediately preceding the date of the declaration of dividends, as determined
in accordance with generally accepted accounting principles, consistently
applied.

Page 3 of 4

<PAGE>

(J) In the event of dissolution, liquidation, or winding up of the
corporation (whether voluntary or involuntary), after payment or provision for
payment of debts but before any distribution to the holders of Common Stock, the
holders of each series of Preferred Stock then outstanding will be entitled to
receive an amount equal to (a) $40.00 per share for each share of Series A
Preferred Stock, (b) $10.00 per share for each share of Series B Preferred
Stock, (c) $50.00 per share for each share of Series C Preferred Stock, and(d)
the amount fixed and determined by the Board of Directors for the shares of any
other series of Preferred Stock, plus all declared or accumulated and unpaid
dividends, if applicable, and no more. All remaining assets will be distributed
pro rata among the holders of Common Stock. If the assets distributable to the
holders of the Preferred Stock are insufficient to permit full payment to them,
the entire assets will be distributed among the holders of the Preferred Stock
in proportion to their respective liquidation preferences. Neither the
consolidation, merger, or reorganization of this corporation with any other
corporation or corporations, nor the sale of all or substantially all the assets
of the corporation, nor the purchase or redemption by the corporation of any of
its outstanding shares will be deemed to be a dissolution, liquidation, or
winding up within the meaning of this paragraph.

ARTICLE IV

Each of the 1 1,307 shares of the corporation's Preferred Stock
outstanding on the date of these Articles of Amendment will be re-designated,
without any further act on or consent by the holders thereof, as Class A
Preferred Stock by canceling the existing certificates evidencing outstanding
shares and issuing new certificates for 11,307 shares of Class A Preferred
Stock.

ARTICLE V

Section 2 of Article Five: Shareholders is deleted in its entirety, and
the following section is substituted therefor:

2. No holder of any security issued by the corporation has or will have
any preemptive right whatsoever with respect to any security issued by the
corporation.

The undersigned Chairman of the Board of Directors of Megalith Corporation
subscribes his name hereto effective as of the 18th day of December, 1996.

MEGALITH CORPORATION

Syed Zaidi
Chairman, Board of Directors

Page 4 of 4

<PAGE>
EXHIBIT 10.4

CONTRACT FOR ESTABLISHMENT
OF SINO-AMERICA JOINT VENTURE CORPORATION TO PRODUCE
ELEVATOR PRODUCTS AND AUTO STAIRS

Chapter One General

China Shaanxi Elevator Corporation and ESCO Elevator Corporation based on the
principle of equality and mutual benefit, through friendly discussions, agree to
establish a Joint Venture corporation capitalized by both parties to produce
elevator products and auto stairs in Weinan City, Shaanxi Province of People's
Republic of China in accordance with "China-Foreign Country Joint Venture
Enterprise Law of the People's Republic of China" and other laws concerned, and
for which this contract is concluded.

Chapter Two The Parties Involved in the Joint Venture

Clause 1. The following parties are involved in this contract:
China Shaanxi Elevator Corporation (hereinafter called Party A),
registered in Shaanxi Province of China, its lawful address: 16
Zhan Nan Road No. 1, Lin Wei District, Weinan City,
Shaanxi Province of the People's Republic of China. Legal
representative: Ma Zonggi, President, citizen of China. ESCO
Elevator Corporation of the USA(hereinafter called Party B),
incorporated in Colorado, United States of America, its lawful
address: 4720 Esco Drive, Fort Worth, Texas 76140 USA.
Legal representative: Syed Zaidi, Chairman/CEO

Chapter Three Establishment of the Joint Venture
Corporation

Clause 2. Party A and Party B agreed to establish a Joint Venture to
manufacture and market elevators and auto stairs (hereinafter
called the Joint Venture) in China based on "China-Foreign
Country Joint Venture Enterprise Law of the People's Republic
of China" and other laws concerned.

Clause 3. The name of the Joint Venture is "China Shaanxi-ESCO Elevator
Corporation, Ltd." The English name: China Shaanxi-ESCO Elevator
Corporation Ltd. The lawful address of the Joint Venture: 16
Zhan Nan Road No. 1, Lin Wei District, Weinan City, Shaanxi
Province.

JV Contract - Page 1 of 17

<PAGE>

Clause 4. All the activities of the Joint Venture should be conducted in
accordance with the laws and decree and concerned rules of the
People's Republic of China.

Clause 5. The organization form of the Joint Venture is a Limited Liability
Corporation. Each party shall share the profits, risks and
losses according to the percentage of outstanding shares owned
by all xownership parties.

Chapter Four Target, Scope and Production Scale

Clause 6. The target of the Joint Venture is described as the following:
based on the desire for enhancement of economic co-operation
and technical exchange, adopting advanced and proper techniques
and scientific management methods, improving product quality,
developing new products and obtaining the competitive ability in
the international markets relating to quality, price and so on,
and raising the economic benefits so that both of the investors
would obtain the satisfied interest.

Clause 7. The production and business scope of the Joint Venture are as
follows: production, sales and assembling of hydraulic elevators,
electrically controlled traction elevators and auto stairs and
conducting after-sale service to the said elevators and auto
stairs.

Clause 8. The production of elevators and autostairs when the Joint Venture
has gone into operation shall have the capacity to produce
products valued at at least USD $100,000,000. (SAY ONE HUNDRED
MILLION US DOLLARS) annually. Said capacity will be achieved by
infusing capital in three stages on as needed basis to satisfy
the cash needs for the growth and as outlined in clause 10.

Chapter Five Ownership, Registered Capital and
Investment

Clause 9. The percentage of ownership for Party A and Party B are as
follows:

Party A: Forty (40%) percent
Party B: Sixty (60%) percent

Clause 10. Party A and Party B shall respectively invest cash registered
capital as follows:

JV Contract - Page 2 of 17

<PAGE>

Stage 1.(Production Capacity USD $30,000,000.):

Party A: Cash of USD $680,000.

Party B: Cash of USD $1,020,000.

Stage 2. (Production Capacity USD $60,000,000.):

Party A: Cash of USD $1,320,000.

Party B: Cash of USD $1,980,000.

Stage 3. (Production Capacity USD $100,000,000.):

Party A: Cash of USD $2,000.000.

Party B: Cash of USD $3,000,000.

Note: Both parties agree to provide additional cash,
proportionate to their respective ownership on as needed basis,
to satisfy additional growth.

Clause 10.1 Non-Cash contribution by:

Party A: Domestic marketing network, electrically controlled
traction elevators and auto stairs technology, future revenue
relating to electrically controlled traction elevator and
autostair technology which includes current purchase orders from
Party A's clients that is not manufactured, and right to use
land.

Party B: Hydraulic elevator technology, technicians and other
US based personnel, international marketing network.

Clause 11. The investment of the Joint Venture shall be handed over in
three stages. Both parties shall hand over the total amount for
Stage 1 of their respective investment within 60 days after this
contract is signed.

Clause 12. When either of the parties wants to transfer all or part of his
investment shares to a third party, he should get the consent of
the other party and then submit a report to the authoritative
office for approval. When one party transfers all or part of his
investment shares, the other party shall enjoy priority to buy
the shares.

JV Contract - Page 3 of 17

<PAGE>

Clause 12.1. The sole exception to Clause 12 shall be that Party B may sell up
to eight (8%) percent shares of the Joint Venture owned by Party
B to Dai Tong Co. Inc. or its designee without regard to
Clause 12.

Chapter Six Responsibilities for the Parties Involved in
the Joint Venture

Clause 13. Party A and Party B shall be responsible for handling the
following matters respectively:

Responsibilities for Party A:
to submit application to the higher levels of China for approval
of the establishment of the Joint Venture;

to submit application to the land control department to get the
use of land;

to have personnel engage in the design, construction of the
workshops and other engineering projects for the Joint Venture;
to supply cash, mechanical facilities, workshops, office building,
special railway and so on to the Joint Venture as defined in
Clause 10;

to give assistance to Party B to apply to the customs and supply
and to provide transportation for the imported machinery and
equipment that Party B will purchase and deliver on behalf the
Joint Venture; to help the Joint Venture to buy raw materials, \
office apparatus, traffic means, communication equipment and so
on;

to help the Joint Venture to make contacts and fix basic
installations such as water supply, traffic and so on;

to help the Joint Venture to conduct the recruitment of
management personnel, technical personnel, workers and other
personnel's needed, in the locality, who are Chinese citizens;

to hire employees to work for the Joint Venture pursuant to the
operating plans, approved by the Board of Directors;

to help the staff of American citizen to conduct visas and working
permits;

JV Contract - Page 4 of 17

<PAGE>
to contribute Party A's marketing network to the Joint
Venture and;

to handle other matters entrusted by the Joint Venture.

Responsibility for Party B:
to supply cash and so on to the Joint Venture as defined in
Clause 10;

to ship the said machinery and equipment delivered on behalf of
the joint venture from foreign countries to China sea port;

to handle such matters as selecting, buying the machinery and
equipment in foreign countries as entrusted by the Joint Venture;

to grant the right to use patented technology for a period of no
less than 20 years;

to supply the necessary machine installation and adjustment, as
well as send technical personnel's and inspector for the
test-running for hydraulic elevators; living expenses for the said
technical personnel will be paid by Joint Venture;

to give technical training to the technicians and workers of the
joint venture;

to provide a floor supervisor to monitor the hydraulic elevator
manufacturing process and the quality of out going hydraulic
elevators from the Joint Venture; living expenses for the said
technical personnel will be paid by Joint Venture;

Party A agrees for Party B to control and monitor quality,
production process and designed production capacity of joint
venture products;

to handle other matter entrusted by the Joint Venture;
to contribute Party B's marketing network to the Joint Venture,
and;

to cooperate with Party A in providing information and documents
required for the approval for the Joint Venture.

Clause 13.1. Party A and Party B agree that the Joint Venture shall employ
number of employees at any time, as required by the operating plan
approved by the Board of Directors excluding the technical

JV Contract - Page 5 of 17

<PAGE>

personnel and floor supervisor provided by Party B. All Joint
Venture employees shall be compensated by the Joint Venture.

Clause 13.2. Party A and Party B agree that the Joint Venture will purchase
all necessary equipment needed for operation and administration
of the Joint Venture and the manufacturing of Joint Venture
products. Party A agrees to sell to the Joint Venture the
equipment currently used by Party A to manufacture electrically
controlled elevators and autostairs for a total price not to
exceed USD $365,000.

Clause 13.3. Party A agrees that the Joint Venture shall have the right to
rent 15,000 square meters of workshops and office buildings
(workshops 13,000 square meters and office 2,000 square meters
including the right to use land) for the following amount:

First Year: USD $ 80,000 per year
Second Year: USD $ 100,000 per year
Third thru Fifth Year: USD $ 120,000 per year

All rents shall be paid in equal monthly installments. During
this period and because of increased production, the Joint Venture
may require additional space which shall be made available by
Party A at a mutually negotiated rate per square meter. In the
event that the Parties do not agree to the per square meter rent
demanded by Party A, the Joint Venture shall have the right to
move additional production in a different province of China to
achieve better per square meter rent.

Party A agrees that within the first three years of rental terms,
the joint Venture shall have the option to purchase and Party A
shall sell to the Joint Venture the space being rented for a total
purchase price of 8,400,000. RMB.

Chapter Seven Technology Transfer

Clause 14. Both parties agree that the Joint Venture shall sign a right to
use technology agreements respectively with Party A and Party B,
so that the advanced production technology, including production
design, process technology, testing methods, controlling
standards for raw materials and components, and the personnel
training, etc., could be obtained to reach the target and
production scale as defined in Chapter Four of this contract.

JV Contract - Page 6 of 17

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Clause 15. Party A and Party B shall offer the following warranty to the
right to use technology agreement:

Clause 15.1. Party A shall guaranty that the electrically controlled VVVF
traction type passenger elevator, ACVV Passenger elevator,
cargo elevator, patient-bed elevator, and auto stairs will be
supplied to the Joint Venture with complete technology relating
to the design, process, technology, procedures, testing and
inspection, etc., and the said technology shall be complete,
precise and reliable, which conforms to the target of the Joint
Venture, and be sure to reach the product quality and production
scale as defined in this contract.

Clause 15.2. Party B shall guaranty that the hydraulic elevator (7 patents)
should be supplied to the Joint Venture with complete
technology relating to the design, process technology,
procedures, testing and inspection, etc., and the technology
should be complete, precise and reliable, which conforms to
the target of the Joint Venture, and be sure to reach the
product quality and production scale as defined in this
contract.

Clause 15.3. Both Parties shall guaranty that the technology as defined in
this contract and the right to use technology agreements may
be used by the Joint Venture and the technology supplied must
be the most advanced technology among Party A and Party B's
similar technology, the selected facilities should have good
quality and performance which can satisfy the demands of
technological process and practical operations.

Clause 15.4. Both Parties shall make a list of technology and technical
service for each stage as defined in the right to use
technology agreements, this list shall be an annex of the
agreements mentioned above, and shall guarantee to put into
effect.

Clause 15.5. The drawing, technical conditions and other detailed
information shall be a component part of the said right to use
technology and shall be delivered as scheduled.

Clause 15.6. Within the valid period of the right to use technology
agreements, if any improvements has been done to the
technology, Party A or Party B shall supply the intelligence
and technical information to the Joint Venture promptly
relating to the improvements without extra charges.

Clause 15.7. Both Parties guarantee that they shall make the technical
personnel and workers of the Joint Venture be proficient on
the technology

JV Contract - Page 7 of 17

<PAGE>
within the period as regulated in the right to
use technology agreements.

Clause 16. If either of the Parties fail to deliver the facilities and
technology as defined in this contract and the right to use
technology agreements, or deceit/concealment to be found, the
side of responsibility shall be held responsible to compensate
for the direct loss of the Joint Venture.

Clause 17. The right to use technology agreement signed between the Joint
Venture and Party A and Party B respectively shall be
effective for a period of twenty (20) years from the Joint
Venture approval date.

Chapter Eight Marketing of the Products

Clause 18. The products produced in the Joint Venture shall be sold
worldwide. The Joint Venture will appoint Party B as its
exclusive distributor for its products in North, Central and
South America.

The selling price from the Joint Venture to Party B shall be
Joint Venture's domestic selling price less 5% discount.
Party B shall open a letter of credit through an
internationally recognized bank with the purchase order
totaling ninety (90%) percent of the invoice amount. Said
Letter of Credit shall be settled within sixty (60) days of
receipt of bill of lading. The remaining ten (10%) percent
of the payment shall be reserved for six months as a quality
warranty. The said ten (10%) per cent payment shall be
remitted via wire transfer to the Joint Venture at the end
of the six month period. During this period, Party B shall
send Party B's personnel to the Joint Venture's facilities
for training in products, installation and technical
specifications. The salaries and expenses for such personnel
shall be paid by Party B.

Clause 19. The products of the Joint Venture to be sold in the domestic
market could be sold through the goods & materials departments
and commercial departments (distributing agent for the Joint
Venture) of China on the exclusive agent or commission basis,
or directly by the Joint Venture to the end user.

Clause 20. In order to open the markets and carry out after-sale service
in and outside China, the Joint Venture could set up sale and
service branches in and outside China with the approval by the
concerned authoritative office.

JV Contract - Page 8 of 17

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Clause 21. The products of the Joint Venture shall use ESCO as its
trademark, and the identification pattern shall be:

[LOGO]

Chapter Nine Board of Directors

Clause 22. The Board of Directors shall be founded on the day when the Joint
Venture gets registered.

Clause 23. The Board of Directors shall consist of 5 directors, 2
designated by Party A and 3 designated by Party B. The
Chairman shall be designated by Party B, Vice Presidents shall
be designated by Party A. The term of office for the Chairman,
Vice Presidents and directors shall be 4 years. They could
renew their term of office when re-appointed by the designators.

Clause 24. The Board of Directors shall be the highest authoritative
organization of the Joint Venture, which shall decide all
important matters of the Joint Venture: a) amendment of the
rules of the Joint Venture; b) termination and dissolution of
the Joint Venture; c) increase and transfer of the registered
capital of the Joint Venture; d) the Joint Venture merge into
another economic organization. The decision to the above
mentioned matters could only be made by unanimous adoption.
The decisions to other matters could be made by adoption of
simple majority.

Clause 25. The Chairman of the Board is the legal representative of the
Joint Venture. When he is not able to carry out the duty for
certain reasons, he could authorize a vice president or other
director to be his representative.

Clause 26. The board meeting shall be held at least once a year. The
said meeting shall be called and presided over by the
Chairman. The Chairman can call for a special board meeting
with the approval of one-third of the directors. All board
meeting minutes of such meeting shall be kept in file.

Chapter Ten Management Organization

Clause 27. The Joint Venture shall set up organizations for management to
be in charge of routine management work, such management
organization shall have one personnel as general manager

JV Contract - Page 9 of 17

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recommended by Party A, four persons as vice general managers;
two recommended by Party A and two persons recommended by
Party B. The term of office of such managers shall be four
years.

Clause 28. The responsibility of the general manager is to execute all
the decision made by the meeting of the Board of Directors,
organize and lead the routine management of the Joint Venture.
The vice general manager shall assist the said general
manager to conduct the management.

The management organization could appoint a certain number of
department managers, such managers shall be respectively in
charge of management of each department, handle the matter
assigned by the general and vice general managers, and hold
responsible to the general and vice general managers.

Clause 29. If the said general and vice general managers are found to
engage in malpractice for selfish ends or serious dereliction
of their duties, they should be dismissed and replaced with
the decision made by the board meeting.

Chapter Eleven Facilities Purchase

Clause 30. The raw materials, fuels, accessories, means of transport and
office products, etc., shall be, in case the conditions are
the same as in other countries, purchased in China.

Clause 31. When Party B is entrusted to buy facilities in the market abroad,
Party A's representative shall be invited to take part in the
inquiries and the execution of the transactions by the
international market prices.

Chapter Twelve Preparations and Constructions

Clause 32. During the preparation and construction period of the Joint
Venture, a preparation and construction office shall be set up
under the Board of Directors. Such office consists of five
(5) persons, four from Party A and one from Party B. The
office director shall be recommended by Party A, vice director
shall be recommended by Party B. Such director and vice
director of the said preparation and construction office shall
be appointed by the Board of Directors.

Clause 33. The said preparation and construction office shall be responsible
to check the design of engineering projects, to sign project

JV Contract - Page 10 of 17

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construction contracts, to have necessary facilities, goods
materials purchased and accepted, to work out general
schedules for project construction, to work out plans for
expenditures, to control the financial expenditure and final
accounts for engineering projects, to make out management
methods that are concerned, and to best keep and arrange the
documents, drawings, files and information occurred during the
project constructions.

Clause 34. Party A and Party B shall respectively designate a certain
number of technical personnel to set up a technical group,
such group shall work under the leadership of the said
preparation and construction office to check, control,
inspect, accept and test the design, project quality,
materials of facilities and the introduced technology.

Clause 35. The number payments and expenses of the staff members in the
preparation and construction office shall be, when agreed by
both Parties, listed in the engineering project budget.

Clause 36. With the approval of the Board of Directors, the said preparation
and construction office shall be dissolved after the factory
construction are completed and turned over.

Chapter Thirteen Labor Management

Clause 37. The recruitment, invitation, dismissal, salaries, labor
insurance, welfare and rewards and punishments of the staff
and workers of the Joint Venture shall be carried our
according to "the Labour Management Rules for China-Foreign
Country Joint Venture Enterprises of the People's Republic of
China" and its implementing methods, a plan shall be worked
out through discussion by the Board of Directors, and the said
items shall be written as regulations into the labor contracts
signed between the Joint Venture and the Worker's Union of the
Joint Venture collectively orpersonally. The labor contract,
when signed, shall be submitted to the local labor management
department for record.

Clause 38. The invitation, salaries, social insurance, welfare and standards
for business traveling costs, etc., for the high ranking
managerial personnel recommended respectively by Party A and
Party B shall be decided through the discussion of the board
meeting.

Chapter Fourteen Taxes, Financial Affairs and Audit

Clause 39. The Joint Venture shall pay all taxes in accordance with the
regulations of the related laws and rules of China.

JV Contract - Page 11 of 17

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Clause 40. The staff and members of the Joint Venture shall pay the personal
income tax according to "the Personal Income Tax Law of the
People's Republic of China".

Clause 41. The Joint Venture shall draw reserve fund, enterprise development
fund and staff and member welfare and reward fund in
accordance with the regulation of "the China-Foreign Country
Joint Venture Enterprise Laws of the People's Republic of
China". The percentage drawn for the said funds shall be
decided by the board meeting based on the running situation of
the Joint Venture.

Clause 42. The financial year of the Joint Venture shall start from January
1st and end December 31st. All vouchers, invoices, report forms
and account books shall be written in Chinese and an English
translation shall be made available to Party B. The accounting
systems used by the Joint Venture will meet Generally Accepted
Accounting Practice.

Clause 43. The financial audit of the Joint Venture shall be conducted by
an independent accountant chartered in China, and a audit
report shall be submitted to the Board of Directors and
General Manager after checking and examination is finished.
All costs shall be borne by the Joint Venture.

Clause 43.1. Party B may install a financial manager to monitor the financial
activities of the Joint Venture. This financial manager will
be granted full access to all financial records of the Joint
Venture and will report directly to the management of Party B.
This financial manager may add all staff as deemed necessary.
All the cost of the financial manager shall be borne by Party B.

Clause 44. During the first three months of each business year, the general
manager shall have personnel to work out the statement of asset
and liabilities, profit and loss statement and profit
distribution schedule, which are to be submitted to the board
meeting for check and adoption.

Chapter Fifteen Disbursement of Annual Profits

Clause 45. Net profits earned by the Joint Venture shall be distributed
semi-annually according to the percentage of outstanding
shares owned by all ownership parties.

JV Contract - Page 12 of 17

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Clause 45.1. A distribution shall be made on the 180th day of each fiscal
year of the net profits from the 4th quarter of the previous
fiscal year and the net profits from the first quarter of the
current fiscal year. A distribution shall be made on the
360th day of each fiscal year of the net profits from the 2nd
and 3rd quarter of the current fiscal year.

Clause 45.2. The Joint Venture shall retain no more than 20% of net annual
profits earned, or more if determined by the Board of
Directors or the applicable minimum percentage as governed by
the rules and regulations of the People's Republic of China.

Chapter Sixteen The Limit for the Joint Venture

Clause 46. The time limit for the Joint Venture shall be twenty (20)
years. The Joint Venture shall be founded on the day when the
business license for the Joint Venture is issued. On the
motion of either Parties and the unanimous adoption of the
board meeting, a written application shall be submitted to
"the China Foreign Economic & Trade Commission" (or its
entrusted office for examination and approval) six months
before the expiration of the Joint Venture time limit for
extension of such Joint Venture time limit.

Chapter Seventeen The Treatment of Property at Expiration of
the Joint Venture Term

Clause 47. At expiration of the Joint Venture term or early termination
of the Joint Venture, the accounts of the Joint Venture should
be cleared, the property after clearing shall be distributed
in accordance with the percentage of outstanding shares owned
by all ownership parties.

Chapter Eighteen Insurance

Clause 48. All insurance of the Joint Venture shall be effected to the
People's Insurance Company of China, the risks, insurance
value and period, etc., shall be decided through discussions
of the board meeting in accordance with the regulations of the
People's Insurance Company of China.

Chapter Nineteen Amendment, Change and
Termination of This Contract

JV Contract - Page 13 of 17

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Clause 49. Any amendment to this contract and its annexes could only become
effective after a written agreement signed by both Parties
hereto.

Clause 50. If this contract could not be performed because of force majeure,
or the business is not able to go on because of continuos loss
for years, the joint venture term could be ended and this
contract be terminated before the due time with the approval
for the original authoritative organization and the unanimous
adoption of the Board of Directors.

Clause 51. If the Joint Venture could not run or could not reach the
business target as defined in this contract because either of
the Parties failed to perform his obligations in this contract
unilaterally. The other Party shall have the right to claim
against the Party out of contract, also have right to submit a
report to the original authoritative organization for approval
to terminate this contract. If both parties hereto agree to
continue the business, the Party out of contract shall
be obliged to compensate the economic loss of the Joint Venture.

Chapter Twenty Obligations for Violation
of This Contract

Clause 52. If either of the Parties failed to completely hand over total
amount of capital as defined in Chapter Five of this contract
at due time, such Party of contract shall pay to the other
Party who comply with contract a penalty amounting to 10% of
the total amount of investment with each month passed. In
case such Party fails to hand over the said capital 3 months
beyond the due time, he should pay to the other Party a
penalty cumulatively amounting to 30% of the total amount of
investment Capital. The said other Party shall have right to
terminate this contract in accordance with the regulations in
Clause 51 of this contract.

Clause 53. If this contract and its annexes could not be performed or
performed in whole because either of the Parties broke this
contract, the responsibilities shall be laid on such Party out
of contract. If both Parties broke this contract, each Party
shall bear his own responsibilities according to the actual
situation.

Chapter Twenty One Force Majeure

Clause 54. If either of the Parties hereto is unable to perform this
contract in the defined conditions by an event of force
majeure, such as

JV Contract - Page 14 of 17

<PAGE>

earthquake, typhoon, flood, fire or war, or
any other unforseeable event beyond such Party's control, the
prevented Party shall notify the other Party of the occurrence
or such event of force majeure and within fifteen(15) days
thereafter shall send to the other Party a valid certificate
giving detailed information and the causes that prevent
performing this contract in whole or in part or in extension
of term. Such certificate should be issued by the notary
office of the district where the said force majeure occurred.
The termination of this contract or partly performance of this
contract or delay of performance of this contract shall be
decided through discussions of both Parties in accordance with
the extent to which the performance of this contract is
affected thereby.

Chapter Twenty Two Applicable Law

Clause 55. This contract is governed in accordance with the laws of the
People's Republic of China, relating to the conclusion,
authentication, construction and arbitration.

Chapter Twenty Three Arbitration

Clause 56. If any dispute arise in implementation of this contract or in
connection with this contract, the Parties hereto shall
resolve such dispute through friendly consultation. If within
two (2) months of the date on which one party sends to the
other a letter describing the dispute no resolution of the
dispute has been reached, either Party may request that such
dispute be resolved in accordance with the Arbitration Rules
then in effect of the International Chamber of Commerce. Such
arbitration shall take place in China or the nearest country
in China and shall be conducted by three arbitrators, one of
which will be selected by each Party and the third one will be
selected by the other two arbitrators within the time limits
established in accordance with the then existing Rules of the
International Chamber of Commerce. The decision rendered by
arbitrators shall be final and binding and may be enforced in
any Court having jurisdiction over the Parties assets. The
arbitrators shall decide all disputes in accordance with the
equity and good commercial practice and shall not be bound by
the laws of any jurisdiction of process.

Clause 57. During the said arbitration, the performance of this contract
shall go on with the exception of the portion in dispute and
being arbitrated.

JV Contract - Page 15 of 17

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Chapter Twenty Four Languages

Clause 58. This contract is written in both Chinese and English
languages, both texts are equally authenticated and shall be
made constant.

Chapter Twenty Five The Effectiveness and the
Other Terms of This Contract

Clause 59. The following annexes shall be made in accordance with the
principles as defined in this contract: Agreement for
Engineering Projects, Right to Use Technology Agreement, Sale
Agreement, Agreement for Facilities Purchasement, the said
agreements shall be the composite parts of this parts of this
contract.

Clause 60. This contract and its annexes shall be submitted for approval
to the "Foreign Economic & Trade Commission of the People's
Republic of China" (or its entrusted officers), and become
effective on the day when approved.

Clause 61. When either Party sends notice to the other Party by such means
as cable and fax, in case the content of such notice is in
connection with the right and obligations of both Parties, a
written letter of such notice shall be sent thereafter. The
legal addresses of both Parties as defined in this contract
shall be the addresses to which mails should be sent.

Clause 62. During the preparation & construction period of the Joint
Venture, Party A shall advertise in multiple ways for Party B's
products. All advertising activities undertaken by Party A on
behalf of Party B shall be approved by Party B before they are
undertaken by Party A. Party A shall work out a plan and
budget, when approved by Party B, Party B shall furnish the
related information for advertisements. Party B shall bear the
costs occurred from the said advertising.

Clause 63. During the preparation & construction period of the Joint
Venture, Party A shall sell, assemble and repair the Party B's
products in China market as exclusive agent of Party B in
order to open the China market as soon as possible, Party B
shall sell Party A 250-400 semi-knockdown hydraulic elevators
at Party B's domestic selling price less 5% discount. The
products shall be assembled by Party A. During this period,
Party A shall send Party A's personnel to Party B's facilities
for training in products, installation and technical
specifications. The salaries and expenses for such personnel
shall be paid by Party A.

JV Contract - Page 16 of 17

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Clause 64. During the preparation & construction period of the Joint
Venture, when approved by Party B, certain parts produced by
Party A shall be directly assembled to Party B's products in
place of imported ones to lower the selling price and increase
the market share. The price shall be fixed through further
discussions of the two Parties hereto.

Clause 65. During the preparation & construction period of the Joint
Venture when Party A works as agent of Party B, the payment
for the products sold to Party A shall be settled as follows:
Party A shall open a letter of credit through an
internationally recognized bank with the purchase order
totaling ninety (90%) percent of the invoice amount. Said
Letter of Credit shall be settled within sixty (60) days of
receipt of bill of lading. The remaining ten (10%) percent
of the payment shall be reserved for six months as a quality
warranty. The said ten (10%) per cent payment shall be
remitted via wire transfer to Party B at the end of the six
month period.

Clause 66. During the preparation & construction period of the Joint
Venture, any receipts and disbursement occurred within China
from conduction of selling, assembling and maintenance of
Party B's products, shall be received and paid by Party A,
those occurred in America shall be received and paid by Party B.

Clause 67. This contract is signed on 16th day of January 1997 by
authorized representatives of both Parties at Shaanxi Province
of China.

China Shaanxi Elevator Corporation ESCO Elevator Corporation

By: /s/ Ma Zhonggi By: /s/ Syed Zaidi
________________________________ _____________________________
Ma Zhonggi Syed Zaidi
President Chairman/CEO

JV Contract - Page 17 of 17

<PAGE>
<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 504,099
<ALLOWANCES> 63,118
<INVENTORY> 616,126
<CURRENT-ASSETS> 1,639,775
<PP&E> 9,102,366
<DEPRECIATION> 651,577
<TOTAL-ASSETS> 10,828,978
<CURRENT-LIABILITIES> 4,459,280
<BONDS> 0
0
55,740
<COMMON> 84,192
<OTHER-SE> 3,324,044
<TOTAL-LIABILITY-AND-EQUITY> 10,828,978
<SALES> 1,216,003
<TOTAL-REVENUES> 1,216,003
<CGS> 951,760
<TOTAL-COSTS> 951,760
<OTHER-EXPENSES> 464,576
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91,421
<INCOME-PRETAX> (291,754)
<INCOME-TAX> 0
<INCOME-CONTINUING> (291,754)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (291,754)
<EPS-PRIMARY> (.02)
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</TABLE>