<PAGE>
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 MARCH 31, 1997
or
[ ] 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 April 29, 1997 is 19,133,890 shares.
<PAGE>
MEGALITH CORPORATION
TABLE OF CONTENTS
Page
----
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements. 3
Consolidated Unaudited Balance Sheets as of March 31, 1997 and
September 30, 1996 3
Consolidated Unaudited Statement of Operations for three months
and six months ended March 31, 1997 and 1996 4
Consolidated Unaudited Statements of Changes in Stockholders
Equity for six months ended March 31, 1997 5
Consolidated Unaudited Statements of Cash Flows for six months
ended March 31, 1997 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 3. Defaults Upon Senior Securities. 16
Item 6. Exhibits and Reports on Form 8-K. 17
Page 2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MEGALITH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<S> <C> <C>
March 31, September 30,
1997 1996
ASSETS ----------- ------------
Current Assets:
Cash $ 11,593 $ 131,438
Trade accounts receivable, net 484,824 195,343
Other receivables 539,493 75,000
Inventory 616,126 616,126
Prepaid expenses 3,000 -
----------- ------------
Total Current Assets 1,655,036 1,017,907
----------- ------------
Plant, Property and Equipment 9,103,214 9,102,366
Less: Accumulated depreciation (777,524) (525,630)
----------- ------------
Net Plant, Property & Equipment 8,325,690 8,576,736
----------- ------------
Investment in foreign joint venture 224,800 -
Goodwill, net of amortization 590,337 655,930
Other Assets, net of amortization 2,180 2,180
----------- ------------
Total Assets 10,798,043 10,252,753
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, trade 910,534 594,767
Customer prepayments 75,194 74,760
Property and payroll taxes payable 587,846 538,963
Accrued interest payable 449,236 292,728
Other accrued expenses 51,000 26,000
Obligations on Dalcom Acquisition 416,000 516,000
Short term notes payables 647,924 400,000
Short term obligations to related parties 522,532 534,262
Current portion of long term debt 1,090,235 876,000
----------- ------------
Total Current Liabilities 4,750,501 3,853,480
----------- ------------
Long term notes payables, net of current portion 2,783,594 3,034,689
Stockholders' Equity:
Convertible preferred stock, Series A, $10 par
value; 5,000,000 shares authorized; 3,399 and
8,807 shares outstanding at Mar. 31, 1997 and
Sep. 30, 1996 35,240 88,070
Common stock, $.005 par value; 50,000,000 shares
authorized; 18,197,844 and 14,597,862 shares
issued and outstanding at March 31, 1996 and
September 30, 1996 90,989 72,989
Additional paid-in capital 6,275,283 5,395,809
Stock subscriptions received - 99,850
Accumulated deficit (3,137,564) (2,292,134)
----------- ------------
Total Stockholders' Equity 3,263,948 3,364,584
----------- ------------
Total Liabilities and Stockholders' Equity $10,798,043 $ 10,252,753
----------- ------------
----------- ------------
</TABLE>
SEE ACCOMPANYING NOTES.
Page 3
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MEGALITH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- ------------------------
1997 1996 1997 1996
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 610,777 $ 792,384 $1,826,780 $1,136,559
Cost of Goods Sold 596,977 671,937 1,548,737 893,144
---------- --------- ---------- ---------
Gross profit 13,800 120,447 278,043 243,415
Expenses:
Property taxes 25,500 18,601 34,000 31,785
Selling, general & administrative expenses 274,516 173,302 560,485 219,927
Depreciation and amortization 158,744 122,513 317,487 163,344
---------- --------- ---------- ---------
458,760 314,416 911,972 415,056
---------- --------- ---------- ---------
Operating loss (444,960) (193,969) (633,929) (171,641)
Other Income (expense):
Interest expense, net (93,170) (83,935) (184,591) (111,012)
Other expenses (15,545) (26,909) -
---------- --------- ---------- ---------
Net loss $ (553,675) $(277,904) $ (845,429) $(282,653)
---------- --------- ---------- ---------
---------- --------- ---------- ---------
Net loss per common and common equivalent shares $ (0.03) $ (0.03) $ (0.05) $ (0.04)
---------- --------- ---------- ---------
---------- --------- ---------- ---------
Weighted average number of common and common
equivalent shares outstanding 17,356,026 8,887,126 16,292,539 6,378,362
---------- --------- ---------- ---------
---------- --------- ---------- ---------
</TABLE>
SEE ACCOMPANYING NOTES.
Page 4
<PAGE>
MEGALITH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
SERIES A
PREFERRED STOCK COMMON STOCK
ISSUED ISSUED
--------------------- ---------------------------
AMOUNT AMOUNT
SHARES (AT $10 PAR) SHARES (AT $.005 PAR)
------ ------------ ------ --------------
<S> <C> <C> <C> <C>
BALANCE SEPTEMBER 30, 1996 8,807 $ 88,070 14,597,862 $72,989
Proceeds from sale of shares pursuant to a
private placement 715 7,150 1,725,318 8,627
Stock issued for services, expenses and interest 101 1,010 985,527 4,928
Preferred stock converted to common stock (6,099) (60,990) 889,137 4,445
Current year earnings (loss) - - - -
---------------------------------------------------
BALANCE MARCH 31, 1997 3,524 $ 35,240 18,197,844 $90,989
---------------------------------------------------
---------------------------------------------------
<CAPTION>
ADDITIONAL COMMON RETAINED TOTAL
PAID IN STOCK EARNINGS STOCKHOLDERS'
CAPITAL SUBSCRIBED (DEFICIT) EQUITY
---------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE SEPTEMBER 30, 1996 $5,395,809 $ 99,850 $(2,292,134) $3,364,584
Proceeds from sale of shares pursuant to a
private placement 514,724 (99,850) - 430,651
Stock issued for services, expenses and interest 308,205 - - 314,143
Preferred stock converted to common stock 56,545 - - -
Current year earnings (loss) - - (845,429) (845,429)
---------------------------------------------------
BALANCE MARCH 31, 1997 $6,275,283 $ - $(3,137,563) $3,263,949
---------------------------------------------------
---------------------------------------------------
</TABLE>
See accompanying notes.
Page 5
<PAGE>
MEGALITH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss): $ (845,429)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 317,487
Common and preferred stock issued for services 89,343
Change in operating assets and liabilities:
Accounts receivables, trade (289,481)
Other receivables (344,493)
Prepaid expenses (3,000)
Accounts payable, trade 315,765
Customer prepayments 434
Accrued interest payable 156,508
Accrued compensation to officers 15,000
Other accrued expenses 4,300
Property and payroll taxes payable 48,883
-----------
Net cash provided (used) by operating activities (534,683)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of assets (848)
-----------
Net cash provided (used) in investing activities (848)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans 250,000
Proceeds from sale of stock 310,651
Principal payments on notes (138,935)
Repayment on notes to related parties, net of loans (6,030)
-----------
Net cash provided by (used in) financing activities 415,686
-----------
Net increase (decrease) in cash (119,845)
Cash, beginning of period 131,438
-----------
Cash, end of period $ 11,593
-----------
-----------
SEE ACCOMPANYING NOTES.
Page 6
<PAGE>
MEGALITH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
NON-CASH INVESTING AND FINANCING ACTIVITIES:
During December, 1996, 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 is recorded as a receivable at March 31, 1997.
During the six months ended March 31, 1997, the Company issued 985,527 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.
SEE ACCOMPANYING NOTES.
Page 7
<PAGE>
MEGALITH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(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 March 31, 1997 and for the interim
periods ended March 31, 1997 and 1996 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:
Mar. 31, Sep. 30,
1997 1996
---------- ----------
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
Page 9
<PAGE>
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 448,197 454,437
Installment note payable to an individual,
assumed on November 27, 1993 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 155,812 186,432
----------- ----------
$ 3,873,829 3,910,689
Less short term portion of long term debt (1,090,235) (876,000)
----------- ----------
Net long term debt $ 2,783,594 $3,034,689
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 March 31, 1997 of $218,385 on all
other accrued and unpaid interest.
NOTE D - SHORT TERM NOTES AND OBLIGATIONS
Short term notes payable consists of the following:
Mar. 31, Sep. 30,
1997 1996
---------- ----------
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 447,924 200,000
-------- --------
Total $647,924 $400,000
The Company is also obligated in the amount of $416,000 to the seller of
Dalcom Elevator Corporation as of March 31, 1997 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>
NOTE E - SHORT TERM NOTES AND OBLIGATIONS TO RELATED PARTIES
Notes and accounts due to related parties consists of the following:
Mar. 31, Sep. 30,
1997 1996
---------- ----------
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 $146,355 $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 180,079 180,109
Accrued compensation due to an
officer/director for amounts unpaid pursuant
to an employment agreement 86,798 56,798
Accrued compensation due to the chief
executive officer for amounts unpaid 109,300 145,000
-------- --------
Total $522,532 $534,262
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 six months ended March 31, 1997 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 special meeting on
December 18, 1996, each of the 11,307 shares issued to that date were designated
as Series A
Page 11
<PAGE>
Preferred Stock. Of the 12,123 shares of Series A Preferred issued
up to March 31, 1997, a total of 8,599 shares have been exchanged for 1,155,804
shares of Common Stock as of March 31, 1997, as provided for such conversion by
the designation of the Series A Preferred Stock. Subsequent to March 31, 1997,
an additional 650 shares of Series A Preferred have been exchanged for 92,856
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 six months ended March 31, 1997, the Company issued 985,527
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,
514,724 common shares, together with 715 shares of Series A Preferred were
issued during the same 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.
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. (collectively,
"Old Esco"), two affiliated companies that had filed for relief under Chapter 11
of the U.S. Bankruptcy Code on December 14, 1994. During the period of 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 November 6, 1995, Epsitek
acquired the right to seek the purchase of the assets of Old Esco from the
bankruptcy estate, which right was assigned to Esco Elevator Corporation, a
subsidiary of Megalith. 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.
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 year, 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 six months ended March 31, 1997, the revenues from the sales of
elevators, components, replacement parts, and service was $1,226,780, with a
gross profit of $278,043 (or 15.2% of sales). The revenues for the same period
of the previous year were $,136,559 with a gross profit of $243,415, although,
as indicated above, the previous year period consisted of only approximately
four months. The operating loss for the current six month period was $845,429,
as compared to an operating loss of $282,653 for the four months in the previous
year. After interest and other non-operating expenses, the Company had a net
loss of $845,429 for the current six months, as compared to a net loss of
$282,653 for the same period in the previous year. The increased losses in the
current year are due in part to the significant decrease in elevator sales in
the current quarter, while expenses remained flat. The impact of decreased
sales is reflected most dramatically in the smaller gross profits in the current
quarter, which indicates that fixed costs are not adequately absorbed during
periods of reduced revenues.
Page 14
<PAGE>
For the quarter ended March 31, 1997, the revenues from the sales of
elevators, components, replacement parts, and service was $610,777, with a gross
profit of $13,800. Revenues were down sharply from the first quarter revenues
of $1,216,000, due primarily to the inability to acquire manufacturing materials
to supply customer orders. The revenues for the same quarter of the previous
year were $792,384 with a gross profit of $120,447. The operating loss for the
current quarter was $444,960, as compared to an operating loss of $193,969 for
same quarter in the previous year. After interest and other non-operating
expenses, the Company had a net loss of $553,675 for the current quarter, as
compared to a net loss of $277,904 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 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 $3,095,465 as of March 31,
1997, 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. In order
to raise working capital, the Company is in the process of completing a private
placement for the sale of $3,500,000 of its shares, of which approximately
$700,000 has already been raised. With this potential infusion of working
capital, the Company intends to pursue manufacture and shipment of elevators
against the orders from China. It is anticipated that shipments of elevators
can commence in approximately 120 days from completion of funding, considering
the purchasing and manufacturing lead time required.
JOINT VENTURE AGREEMENT WITH CHINA PROVINCE
Page 15
<PAGE>
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 Northern and
Central 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 Shaanxi 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. However, as
discussed above, the Company must obtain adequate working capital to manufacture
the elevators, and the Company expects to be capable of shipping the first of
these products in approximately 120 days after funding. 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 Shaanxi Joint Venture Agreement, the Company has
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 the $3.5MM placement
of its capital stock, and management believes that it will be successful in
obtaining the required funds.
Additionally, on March 10, 1997, Esco reached an agreement to establish a
Marketing Joint Venture in the south of China. Esco will be a 62% owner of the
venture with its Chinese counterpart, who is experienced in the elevator
business in Southern China. Funding for this JV will be minimal and will be
provided from the private placement of the Company's capital stock referred to
above. The Company intends to participate in opening three marketing offices in
Hong Kong and the Southern China. The economic development and urban
construction are in high speed development in the region and the market analysis
for total elevator demand of up to 400,000 elevators per year has encouraged the
Company to pursue this market vigorously.
PART II -- OTHER INFORMATION
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
interest due under the note for the months of May, 1996 through March, 1997.
The total amount of arrearage is approximately $620,000 as of the date of this
report.
Page 16
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) FURNISH THE EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-B.
EXHIBIT NO. EXHIBIT DESCRIPTION
----------- -------------------
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the quarter ended March 31, 1997.
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 June 9, 1997
- ------------------------------------------ ------------
Syed G. Zaidi, Chief Executive Officer and Date
Chairman of the Board of Directors
Page 17
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