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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1O-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2001
------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ___________to___________
Commission file number 000-17510
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MEGA GROUP, INC.
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(Exact name of small business issuer as specified in its charter)
NEW YORK 14-1653446
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1730 Rhode Island Ave., N.W. Suite 415, Washington, DC 20036
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(Address of principal executive offices)
(202) 296-9594
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(Issuer's telephone number)
N/A
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(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 such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requires for the past 90 days.
Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 8,833,605 shares of
common stock, as of August 14, 2001.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MEGA GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
================================================================================================
June 30, 2001 December 31,
2000
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ASSETS
CURRENT ASSETS
Cash $ 5,705 $ 26,383
Restricted cash - 9,345
Marketable securities 32,887 80,000
Accrued interest 1,303 819
Note receivable 16,113 16,113
Loans receivable - affiliates 49,103 44,668
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TOTAL CURRENT ASSETS 105,111 177,328
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PROPERTY AND EQUIPMENT
Computer equipment 10,683 10,683
Office furniture and equipment 13,695 13,695
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TOTAL 24,378 24,378
Less: Accumulated depreciation and amortization (12,372) (10,372)
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NET PROPERTY AND EQUIPMENT 12,006 14,006
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TOTAL ASSETS $ 117,117 $ 191,334
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The accompanying Notes to Financial Statements are an integral part of
these financial statements.
2
MEGA GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
================================================================================================
June 30, 2001 December 31,
2000
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LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 678,238 $ 677,371
Accounts payable and accrued expenses 839,452 711,223
Accrued interest 96,515 48,013
Loans payable - stockholder 34,126 -
Loans payable - affiliates 3,683 3,403
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TOTAL CURRENT LIABILITIES 1,652,014 1,440,010
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LONG-TERM DEBT, NET OF CURRENT PORTION 75,298 87,594
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TOTAL LIABILITIES 1,727,312 1,527,604
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COMMITMENTS AND CONTINGENCIES
DEFICIENCY IN STOCKHOLDERS' EQUITY
Preferred stock, cumulative 8%, $1 par value per share,
400,000 shares authorized, 10,000 shares issued and
outstanding 10,000 10,000
Common stock, $0.016 par value per share, 25,000,000
shares authorized, 8,056,912 shares issued and
outstanding 128,911 128,911
Additional paid-in capital 3,463,013 3,463,013
Accumulated deficit (5,207,369) (4,877,444)
Accumulated other comprehensive income (loss) (4,750) (60,750)
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TOTAL DEFICIENCY IN STOCKHOLDERS' EQUITY (1,610,195) (1,336,270)
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TOTAL LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY $ 117,117 $ 191,334
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The accompanying Notes to Financial Statements are an integral part of
these financial statements.
3
MEGA GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
================================================================================================
SIX MONTHS THREE MONTHS
ENDED JUNE ENDED JUNE
30, 2001 30, 2001
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REVENUE $ 2,858 $ 400
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OPERATING EXPENSES
Compensation and benefits 77,483 41,416
Other selling, general and administrative expenses 142,737 97,926
Depreciation and amortization 2,000 1,000
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TOTAL OPERATING EXPENSES 222,220 140,342
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LOSS FROM OPERATIONS (219,362) (139,942)
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OTHER INCOME (EXPENSE)
Interest income 884 642
Interest expense (51,421) (25,733)
Realized loss on sale of marketable securities (79,026) (79,026)
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TOTAL (129,563) (104,117)
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LOSS BEFORE BENEFIT FOR INCOME TAXES (348,925) (244,059)
BENEFIT FOR INCOME TAXES 19,400 13,600
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NET LOSS $ (329,525) $ (230,459)
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NET (LOSS) PER COMMON SHARE - BASIC AND DILUTED:
Net (loss) per common share - basic and diluted $ (.04) $ (.03)
Weighted average common shares - basic and diluted 8,056,912 8,056,912
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The accompanying Notes to Financial Statements are an integral part of
these financial statements.
4
MEGA GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
================================================================================================
SIX MONTHS THREE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2001 2001
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NET LOSS $ (329,525) $ (230,459)
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UNREALIZED LOSS ON MARKETABLE SECURITIES (3,026) (18,026)
REALIZED LOSS ON MARKETABLE SECURITIES 79,026 79,026
TAX PROVISION (20,000) (14,000)
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OTHER COMPREHENSIVE INCOME 56,000 47,000
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COMPREHENSIVE (LOSS) $ (273,525) $ (183,459)
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The accompanying Notes to Financial Statements are an integral part of
these financial statements.
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MEGA GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
================================================================================================
SIX MONTHS ENDED JUNE 30, 2001
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (329,525)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED BY OPERATING ACTIVITIES
Loss on sale of marketable securities 79,026
Depreciation and amortization 2,000
Benefit for income taxes (19,400)
Court judgment increasing long-term debt 5,817
Seizure of cash in litigation 9,345
(INCREASE) DECREASE IN
Accrued interest (484)
INCREASE (DECREASE) IN
Accounts payable and accrued expenses 128,229
Accrued interest 48,502
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NET CASH USED BY OPERATING ACTIVITIES (76,490)
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CASH FLOWS FROM INVESTING ACTIVITIES
Sale of Investments 34,559
Loans made to affiliates, net (1,044)
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NET CASH USED BY INVESTING ACTIVITIES 33,515
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CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments of debt (11,429)
Loans to affiliates 34,126
Preferred dividends (400)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 22,297
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NET DECREASE IN CASH (20,678)
CASH - BEGINNING OF PERIOD 26,383
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CASH - END OF PERIOD $ 5,705
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SUPPLEMENTAL CASH FLOW INFORMATION
Actual cash payments for:
Income taxes $ 200
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Interest $ 10,800
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The accompanying Notes to Financial Statements are an integral part of
these financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1. INTERIM The financial statements have been prepared by the
FINANCIAL Company without audit and are subject to year-end
PRESENTATION adjustment. Certain information and footnote
disclosures normally included in financial statements
prepared in accordance with generally accepted
accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities
and Exchange Commission. These interim statements
should be read in conjunction with the most recent
audited financial statements filed by the Company on
Form 10-K with the Securities and Exchange Commission.
The financial statements reflect all adjustments (which
include only normal recurring adjustments) which, in
the opinion of management are necessary to present
fairly the Company's financial position, results of
operations and cash flows.
Results of operations for the six months ended June 30,
2001 and three months ended March 31, 2001 are not
necessarily indicative of results to be achieved for
the full fiscal year.
2. CONSULTING On February 7, 2001, the Company entered into a
AGREEMENT consulting agreement with the Emmanuel Temple Church
and Emmanuel Community Services Corporation (Emmanuel)
whereby, among other things, the Company will assist
Emmanuel in restructuring its debt. Compensation under
the agreement is contingent on the completion of the
debt restructuring. The total compensation under the
agreement is $96,000, none of which has been recognized
as of June 30, 2001.
3. LONG-TERM The Company is obligated to a bank under a term note
DEBT for $14,620 as of December 31, 2000 and June 30, 2001,
which is included in the current portion of long-term
debt on the accompanying balance sheets. Due to the
Company's failure to make all scheduled payments under
the note and financial covenant violations, the
obligation is callable by the bank on demand. On March
29, 2001, the bank demanded immediate and full payment
of the indebtedness and notified the guarantors of its
intent to enforce the guaranties. As of August 13,
2001, the bank has successfully enforced guaranties
against certain of the guarantors.
4. STOCK During the second quarter of 2001, the Company granted
PURCHASE OPTIONS two of its directors options, exercisable until June
30, 2006, to purchase a total of 200,000 shares of the
Company's common stock for $.50 per share. Because the
exercise price under these stock purchase options is
higher than the grant date fair market value of a share
of the Company's common stock, the options are non-
compensatory.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
SOME OF THE STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE IN THIS
REPORT ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A
OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE
ACT OF 1934. STATEMENTS ABOUT OUR EXPECTATIONS, BELIEFS, PLANS,
OBJECTIVES, ASSUMPTIONS, OR FUTURE EVENTS OR PERFORMANCE ARE NOT HISTORICAL
FACTS AND MAY BE FORWARD-LOOKING. FORWARD-LOOKING STATEMENTS ARE OFTEN,
BUT NOT ALWAYS, MADE THROUGH THE USE OF WORDS OR PHRASES LIKE "ANTICIPATE,"
"ESTIMATE," "PLANS," "PROJECTS," "CONTINUING," "ONGOING," "EXPECTS,"
"MANAGEMENT BELIEVES," "WE BELIEVE," "WE INTEND," AND SIMILAR WORDS OR
PHRASES. ACCORDINGLY, THESE STATEMENTS INVOLVE ESTIMATES, ASSUMPTIONS, AND
UNCERTAINTIES. ANY FORWARD-LOOKING STATEMENTS ARE QUALIFIED IN THEIR
ENTIRETY BY REFERENCE TO THE FACTORS, INCLUDING RISK FACTORS, DISCUSSED IN
THIS REPORT OR INCORPORATED BY REFERENCE. BECAUSE THE FACTORS DISCUSSED IN
THIS REPORT OR INCORPORATED BY REFERENCE COULD CAUSE ACTUAL RESULTS OR
OUTCOMES TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN FORWARD-LOOKING
STATEMENTS, YOU SHOULD NOT OVER-RELY ON FORWARD-LOOKING STATEMENTS.
FURTHER, EACH FORWARD-LOOKING STATEMENT SPEAKS ONLY AS OF THE DATE ON WHICH
IT IS MADE, AND WE UNDERTAKE NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING
STATEMENT TO REFLECT LATER EVENTS OR CIRCUMSTANCES AS THEY OCCUR.
We believe that our financial condition and results of operations
included in this report are not indicative of our future prospects. During
the six months ended June 30, 2001 and the year ended December 31, 2000, we
have been in transition. During these periods, we discontinued our
insurance agency business, acquired the Small Business Investment Company
of America, Inc. and commenced the implementation of a new business plan
and operation.
During the six months ended June 30, 2001, our cash position decreased
from $26,383 at December 31, 2000 to $5,705 at June 30, 2001. During the
same six months, we realized a net loss of $329,525 after revenues of
$2,858, ongoing expenses in the total amount of $253,357, and a realized
loss fm the sale of marketable securities in the amount of $79,026.
During the three months ended June 30, 2001, we realized a net loss of
$230,459 after revenues of $400, ongoing expenses in the total amount of
$151,833 and the realized loss on the sale of marketable securities in the
amount of $79,026.
Our business plan referred to above calls for a capitalization of at
least $30,000,000. Accordingly, we are now undercapitalized. We intend to
satisfy any liquidity needs during the foreseeable future by engaging in
one or more public or non-public equity financings. The nature of our
business and proposed business does not require any significant product
research and development, purchase or sale of plant and equipment, or
changes in the number of employees. In the event that we are unable to
raise significant funds, we may be unable to make required payments as they
become due and may be unable to fully execute our business plan.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There were no material developments in any litigation to which we were a
party. Please refer to our 10-KSB filed March 27, 2001 for current
litigation matters.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
None.
(b) REPORTS ON FORM 8-K.
We did not file any reports on Form 8-K during the period covered
by this report.
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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.
MEGA GROUP, INC.
Date: August 14, 2001 /s/ John H. Brown
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John H. Brown, Chief Executive Officer
Date: August 14, 2001 /s/ Nelson H. Beebe
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Nelson H. Beebe, Chief Financial
Officer and Treasurer
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