SECURITIES AND EXCHANGE COMMISSION

                             Washington, D. C. 2054
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                                   FORM 10KSB

     [/]  ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF THE  SECURITIES
EXCHANGE ACT OF 1934. For the fiscal year ended August 31, 1997

                         Commission File Number: 333-16535

                         MEGA HOLDING CORP.
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                 (Name of Small Business Issuer in its charter )

          New York                                       13-2793653
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  (State or other Jurisdiction                   (IRS Employer Identification
of Incorporation or Organization)                         Number)

               278A New Dorp Lane
             Staten Island, New York                         10306
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       (Address of principal executive Offices)           (Zip Code)

     Issuer's telephone number: (718) 667-9117

     Securities registered pursuant to Section 12(b) of the Act: None

     Securities registered pursuant to Section 12(g) of the Act:
Common Shares, $.01 par value per share

     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.
     [x] Yes [ ] No

     Check  if  disclosure  of  delinquent  filers  in  response  to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [x]

     State issuer's revenues for its most recent fiscal year $200,203.

     State the aggregate market value of the voting stock held by non-affiliates
computed by reference  to the price at which the stock was sold,  or the average
bid and asked  prices of such stock,  as of a specified  date within the past 60
days.

     As of August 31, 1997, there were 1,171,431 shares of common stock held by
non-affiliates  ("Shares") outstanding having an aggregate market value of $-0-.


     Documents incorporated by reference:
     None


<PAGE>

                                     PART I

     Item 1. Description of Business

     General
     -------
     The Company has been in the mortgage  brokerage  business  since 1987,  has
been involved in providing business and financial consulting services since 1970
and retains a royalty  interest in a coal mine that it acquired in 1973 and sold
in 1980.

     Mortgage Brokerage
     ------------------
     Since 1987,  the Company  has been  licensed by the New York State  Banking
Department as a mortgage  broker,  dealing in both  residential  and  commercial
mortgages.  The Company also conducts commercial  mortgage brokerage  throughout
the United  States on a  co-brokerage  basis with brokers who are licensed to do
business in such states. The Company's fees for its service as a mortgage broker
vary with each transaction. The fees are computed as a percentage (point) of the
amount  of  the  mortgage.  The  number  of  points  charged  varies  with  each
transaction  depending on a variety of factors such as, the applicant's  credit,
value of the  property  and term and type of mortgage loan; and range from 1% of
the principal mortgage amount to 3% of the principal mortgage amount.

     The Company uses a number of banks and other lending  institutions to place
its mortgages,  including  Greenpoint  Bank, Ford Consumer  Finance and Republic
National Bank. These mortgages  generally carry a fixed rate of interest and are
self-amortizing.  For the  fiscal  years  ended  August 31,  1997 and 1996,  the
Company generated revenues from mortgage brokerage  activities of $-0- and $909,
respectively,  all of which were generated from residential mortgages originated
in the State of New York. The principal amounts of the mortgages brokered during
the  foregoing  periods  were $-0- and  $345,450,  respectively.  The Company is
attempting  to place a  $2,000,000  mortgage  for a client  with a major  credit
company and has received preliminary  approval. If the mortgage closes, of which
there is no assurance, the Company would receive a commission of 2%.

     The Company does not advertise its mortgage brokering services;  rather, it
receives  most of its business  through  referrals  from  professionals  such as
attorneys and accountants.

Business and Financial Consulting Services
------------------------------------------
     The Company  provides  business  and  consulting  services.  Such  services
include advice on how to structure and conduct private  offerings of securities,
mergers and acquisitions and other strategic business advisory services. Most of
the  Company's  clients  use a  combination  of these  services  and the Company
receives  fees for such  services.  The Company may refer  clients to  financial
institutions (banking and other lenders and/or investment  institutions).  Often
the  Company's  fees are taken as stock in the client  company or the fees are a
combination of cash and stock. In addition, the Company may begin a relationship
with  a  client  on an  advisory  basis  and  subsequently  proceed  to  provide
acquisition or financing services to the client.

                                       1
<PAGE>

     In the process of providing financial  consulting  activities,  the Company
typically  performs due diligence and assists the client in preparing a business
plan, which plan would typically  include an analysis of the client's  business,
its history, the market for its products,  the competitive  environment in which
the  client  operates  and a break down of how funds  from a  potential  private
placement of its  securities  will be used. The Company does not raise funds for
clients;  however, the Company may refer clients to financial  institutions such
as banking and other lenders and/or investment institutions.

     Rule 504 Offerings.
     -------------------
     One method of  financing  recommended  by the  Company  to clients  who are
seeking  to raise up to  $1,000,000  is an  offering  of stock  pursuant  to the
exemption  from  registration  under  the  Securities  Act of 1933  (the  "Act")
provided by Rule 504 of  Regulation  D under the Act.  Under Rule 504, a company
that is not an investment  company,  a blank check company (i.e., a company that
has no specific business) or a company subject to the reporting  requirements of
the  Securities  Exchange  Act of 1934  (the  "Exchange  Act"),  can raise up to
$1,000,000  through the sale of its securities in any 12 month period.  Rule 504
does not  require  investors  to  purchase  the stock  with  investment  intent.
Accordingly,   provided   that  a  company  sells  its  stock  in  one  or  more
jurisdictions  that permit the sale without  requiring  investment intent on the
part  of the  investor,  the  shares  can be sold to  investors  without  resale
restrictions.

     Consulting  services  provided  by the  Company  with  regard  to Rule  504
offerings  include  educating  the  client  on the  availability,  benefits  and
restrictions  of  raising  funds  through  the sale of stock  under Rule 504 and
introducing the client to attorneys,  accountants and underwriters.  The Company
also assists the client in finding registered broker dealers to make a market in
the client's stock.  For its services the Company may receive cash and/or shares
of the client's  stock.  The Company  generally plans to spin-off some or all of
the shares transferred from such clients to its shareholders.  Spin-offs require
registration under the Act (see "Spin-offs" below).

     To date, the Company has provided  consulting  services to three  companies
that have  attempted  to raise  funds  through  Rule 504  offerings:  Fleetclean
Systems,  Inc. ("FSI"),  DALUZ,  Inc. ("DI") and Southeast Tire Recycling,  Inc.
("STR").

     FSI is a  manufacturer  and  distributor  of truck  washing  equipment  and
chemicals.  FSI, with the assistance of Castle Securities  Corp.,  offered up to
150,000  shares  of its  Common  Stock at a price of $5.00  per share on a "best
efforts only" basis.  20,000 shares were sold. That offering  expired on May 20,
1997;  however,  FSI is in the  process of  determining  whether to reopen  this
offering. As of April 30, 1996, FSI had total assets of approximately  $608,700,
total liabilities of approximately $483,500 and, for the four months then ended,
total revenues of approximately  $312,000 and a profit of approximately  $3,000.
FSI intends,  upon  completion  of its  financial  statements to have its common
stock trade on the NASD Electronic Bulletin Board.

     DI is a start-up  marketing  company with  approximately  $225,400 in total
assets as of October 31, 1996,  that is marketing a self-help  package of books,
video tapes and audio tapes  based upon the book,  "Psychic  For Life Home Study
Program,"  written by James T. Weiss,  DI's President.  DI offered up to 150,000
shares of its  Common  Stock at a price of $5.00  per  share on a "best  efforts
only"  basis.  The offering  closed on April 30,  1997.  The Company sold 80,000
shares.  The Company and DI have mutually  terminated  the Company's  consulting
agreement.

     STR is  involved  in  collecting  and  processing  used tires  into  useful
byproducts.  STR, in a series of  offerings  under  Rule 504 raised in excess of
$750,000. Application has been made by a market maker to have STR's common stock
trade on the NASD Electronic Bulletin Board.

                                       2
<PAGE>

     Reverse Acquisitions.
     ---------------------
     The Company also has been  involved in  purchasing,  selling and  brokering
"shell"  companies  for reverse  acquisitions.  A shell company is a corporation
that, for one reason or another, no longer has substantive  business operations,
but has many  shareholders  and issued  and  outstanding  shares,  many of which
shares are free  trading or  eligible to be free  trading  under Rule 144 of the
Act. In a reverse acquisition, the shareholders of a private corporation with an
existing or proposed business, exchange all of the shares of the private company
for a significant  number (generally between 85% and 95%) of the shell company's
stock.  In form,  the shell  company  acquires  100% of the stock of the private
company but, in substance, the shareholders of the private company have acquired
control of the shell company.  Reverse  acquisitions are attractive to a private
company that is seeking a trading  market for its  securities  without having to
undergo the time-consuming and costly process of filing a registration statement
with the  Securities  and Exchange  Commission  (the  "Commission")  and without
having to find an  underwriter  willing and capable of selling its shares to the
public.  The trading market  enhances the ability of the private  company (now a
subsidiary  of the shell  company) to raise  funds.  Such funds are often raised
through Rule 504 offerings (see "Rule 504 Offerings" above).

     Where the  Company  acquires  control of a shell  company,  it  purchases a
majority  block of stock of the  shell  company  from  some or all of the  shell
company's  principal  stockholders.  The  Company  then  "cleans  up" the  shell
company;  it reviews and  updates the  company's  corporate  books,  revives the
company's  corporate  charter (if voided) and, where  necessary,  files back tax
returns and pays any back taxes. Once the shell company has been cleaned up, the
Company seeks private companies for potential reverse acquisitions.

     The Company finds shell companies and private  companies  seeking to effect
reverse acquisitions through the business contacts of its executive officers and
from professionals, primarily accountants.

     During the fiscal  years ended  August 31,  1997 and 1996,  the Company was
involved in the following four reverse acquisitions:

1.   In April 1994, the Company was engaged by a foreign business  consultant to
     find,  evaluate and perform due  diligence on shell  companies  for reverse
     acquisitions by the consultant's client companies.  The Company located two
     shell  companies,  Parkway  Capital  Corporation  and  Hiawatha Oil and Gas
     Corporation  (see  paragraph  numbers  2 and 5  below  for  information  on
     Hiawatha Oil and Gas Corporation).  For its services,  the Company received
     fees of approximately  $190,000.  From these fees, the Company was required
     to pay all the expenses, professional and otherwise, related to the reverse
     acquisitions.   The  Company  netted   approximately   $95,000  from  these
     transactions.

2.   In September 1994, for $30,000,  the Company  received  approximately 6% of
     the shares of Parkway  Capital  Corporation,  which changed its name to QCS
     Corporation  ("QCS"),  acquired  by the  foreign  business  consultant.  In
     February  1995,  QCS effected a reverse  acquisition  with QCS  Development
     Company  S.A., a company in the business of  catalogue  computer  software.
     Following the reverse acquisition,  the Company owned approximately 2.0% of
     the outstanding  shares of QCS. As of June 30, 1996, QCS, on a consolidated
     basis, had total assets of approximately  $2,607,000 and total  liabilities
     of  approximately  $1,325,000  and, for the year then ended,  QCS had total
     revenues  of  approximately  $1,039,000  and a net  loss  of  approximately
     $2,712,000.

                                       3
<PAGE>

3.   In January 1995, the Company acquired  approximately 52% of the outstanding
     shares of Sherman Goelz & Associates, Inc., which changed its name to First
     Nordic Equity  Partners  Corp.  ("FNEP"),  for $32,000.  In May 1995,  FNEP
     effected a reverse  acquisition  with First Nordic Equity Partners Corp., a
     company in the  business of  industrial  machinery.  Following  the reverse
     acquisition, the Company owned approximately 8.0% of the outstanding shares
     of FNEP. The Company has no current financial information on FNEP.

4.   In August 1995, the Company acquired  approximately  51% of the outstanding
     shares of Major League  Enterprises  Inc.,  which  changed its name to ARXA
     International  Energy Inc.  ("ARXA"),  for $19,000.  In November 1995, ARXA
     effected a reverse  acquisition  with ARXA  International  Energy  Inc.,  a
     company in the business of oil and gas  exploration.  Following the reverse
     acquisition, the Company owned approximately 5.5% of the outstanding shares
     of ARXA. As of July 31, 1997,  ARXA,  on a  consolidated  basis,  had total
     assets of approximately  $1,800,000 and total  liabilities of approximately
     $400,000  and,  for the six months then ended,  ARXA had total  revenues of
     approximately $25,000 and a net loss of approximately $264,000.

5.   In January 1996, the Company acquired  approximately 52% of the outstanding
     shares of  Hiawatha  Oil and Gas  Corporation,  which  changed  its name to
     Hiawatha Industry Internet  Corporation  ("HIIC"),  for $40,000.  In August
     1996, HIIC effected a reverse  acquisition with Hiawatha  Industry Internet
     Corporation,  a company in the business of merchandising computer software.
     Following the reverse acquisition,  the Company owned approximately 5.0% of
     the  outstanding  shares  of  HIIC.  As  of  June  30,  1996,  HIIC,  on  a
     consolidated  basis,  had total  assets of  approximately  $321,000,  total
     liabilities of approximately  $701,000 and, for the nine months then ended,
     HIIC  had  total  revenues  of  approximately  $104,000  and a net  loss of
     approximately $843,000.

     Spin-Off Transactions.
     ----------------------
     One of the  potential  problems  with dealing  with shell  companies is the
inability to be  completely  certain that there are no  undisclosed  problems or
liabilities  that may be inherited by the new  shareholders of a private company
that acquires control of a shell company in a reverse acquisition.  To alleviate
this potential problem and still provide a trading market for corporate clients,
the Company plans to do spin-off  transactions.  In a spin-off transaction,  one
company ("Company A") acquires stock of another company ("Company B"). Company A
then  distributes  shares of Company B to  Company  A's  shareholders.  Assuming
Company A has a  significant  number of  shareholders,  following  the  spin-off
transaction, Company B will have a significant number of shareholders.

     The  Company's  spin-off  transactions  are  intended to be  structured  as
follows:  For each  transaction,  the  Company  will  create a new  wholly-owned
subsidiary  ("Subsidiary  A").  Pursuant to a reverse  acquisition,  the private
company will become a  wholly-owned  subsidiary  of Subsidiary A. As a result of
the reverse acquisition, the former shareholders of the private company will own
between 91% and 95% of Subsidiary  A's issued and  outstanding  shares of Common
Stock and the Company  will own between 5% and 9% of  Subsidiary  A's issued and
outstanding Common Stock.  Thereafter,  the Company will spin-off  approximately
85% of its  holding  of  Subsidiary  A's  stock to its  stockholders,  retaining
approximately  15% of its  holdings of  Subsidiary  A's stock.  In essence,  the
Company anticipates  retaining between approximately 1/2% and 3/4% of the Common
Stock  of  Subsidiary  A  after  the  Company  makes  its  distribution  to  its
shareholders.

                                       4
<PAGE>

     Spin-off transactions will require registration under the Act. Accordingly,
before  the  Company  can   distribute   the  shares  of  Subsidiary  A  to  its
shareholders, the Company will be required to file a registration statement with
the Commission and have the  registration  statement  declared  effective by the
Commission.

     Before agreeing to conduct a spin-off transaction, the Company will conduct
standard  due  diligence on the private  corporation,  including a review of the
private  company's  corporate  and tax  records,  material  agreements,  audited
financial   statements  and  background  of  the  private  company's   executive
management.   The  Company   anticipates  that  it  will  not  conduct  spin-off
transactions with start-up  companies unless they have substantial gross assets,
experienced management and a well-developed business plan.

     The Company has  completed one spin-off.  Southern  Security Bank Corp.,  a
bank holding company,  was merged into Southern Security Financial Corp., formed
by the  Company.  Of the  256,088  issued  shares of class "A"  common  stock of
Southern  Security  Financial  Corp.,  prior  to  the  merger,   161,516  shares
distributed  to  the  Mega's  shareholders  as  a  dividend  and  51,000  shares
transferred  to the  Company's  management  and  consultants  in  lieu  of  cash
compensation and 43,572 shares were retained by Mega. Shareholders of the target
received 4,970,308 shares.

     The Company has two spin-off candidates at present.  The Company has formed
two Delaware corporations:  Phoenix Energy Corp. and Western American Resources,
Inc. The Company has not spun-off any shares nor have either subsidiary combined
with a target company.

     As a result of the foregoing  activities,  especially the proposed spin-off
transactions, the Company could be deemed to be an "underwriter" as that term is
defined  under the Act.  Under  federal  securities  laws,  other laws and court
decisions  with respect to  underwriters'  liabilities  and  limitations  on the
indemnification  of  underwriters,  an  underwriter  is subject  to  substantial
potential  liability  for  misstatements  or  omissions  of  material  facts  in
prospectuses and other  communications  with respect to offerings in which it is
deemed to have acted as an underwriter.

Korean Project.
---------------
     The   Company,   in   conjunction   with  certain   others   (collectively,
"Consultants"),  entered into an agreement ("YU  Agreement") with YU Corporation
pursuant to which  Consultants  would provide  management  services related to a
proposed  construction  project  in  Korea.  Consultants  were  instrumental  in
introducing YU Corporation to Lehrer McGovern Bovis ("LMB"). YU Corporation,  in
conjunction  with Bovis  International,  Inc.,  an affiliate of LMB, has entered
into an agreement with the Korean Veterans  Association,  a Korean  corporation,
pursuant  to  which  YU  Corporation   will  act  as  project  manager  for  the
"Twenty-First  Century United Freedom Bridge," a planned  multi-use  memorial to
the  Korean-United  States  collaboration in resolving the Korean conflict.  The
memorial,  as currently  proposed,  will include a convention center, a 600 room
hotel, a sky tower and memorial, and a multi-purpose stadium.

     Pursuant to the YU Agreement,  for this  introduction,  the Consultants are
entitled  to receive a  consulting  fee equal to one half of one  percent of the
greater of the gross  cost of the  project  or the gross  amount of the  working
charges  covering all phases of the  project.  The Company is entitled to 25% of
any fee to be paid to Consultants.  There is no assurance that this project will
be completed and that the Company will receive any consulting fee.


                                       5
<PAGE>

Government Program Consulting
-----------------------------
     The Company also assists  clients in obtaining  funding and other  benefits
from federal and state programs.  In this regard,  the Company has been retained
by a power boat  company to assist it in  obtaining a credit line from the Rhode
Island Economic Development Corporation ("RIEDC"). RIEDC provides financing, tax
incentives,  training  grants  and other  benefits.  The  Company's  fee will be
$10,000  and 2% of any  credit  line  established.  The  Company  also  has been
retained by a hotel resort to assist it in obtaining a loan  guarantee  from the
Rural  Economic and  Community  Development  Business and  Cooperative  Services
("RECDBCS"), a Division of the United States Department of Agriculture.  RECDBCS
provides business loan guarantee programs. The Company's fee will be $20,000 and
2% of any loan guarantee obtained for the hotel resort.

Colorado Coal Mine Royalties
----------------------------
     In 1973, the Company  purchased a coal mine located in Palisade,  Colorado.
In  1980,  the  Company  disposed  of its  interest  in the  mine to  Powderhorn
International, Inc. ("Powderhorn"), a professional mine operator, but retained a
royalty interest.  In September 1994, a dispute with Powderhorn  relating to the
royalty was resolved. As a result of such settlement,  Powderhorn is required to
pay the Company  additional  royalties  totaling $624,044 at the rate of $12,750
per  annum,  payable  on January  1st of each year as a  non-production  royalty
through  the year  2043.  As of May 31,  1997,  the  balance  of the  additional
royalties  totaled  $585,794.  In addition,  the Company is to receive a royalty
("Production  Royalties") of four and one-quarter cents ($.0425) per ton of coal
for each ton over  300,000  tons  produced  per year,  which  royalty is due and
payable in January of each year.  During the fiscal  years ended August 31, 1997
and 1996,  respectively,  the Company received  Production Royalties of $-0- and
$2,914, respectively.

Competition
-----------
     The  Company  encounters  significant  competition  in all  aspects  of its
business  and  competes  directly  with many other  mortgage  brokers,  mortgage
companies,  banks and investment banking and financial consulting firms, most of
which have  significantly  greater  financial and personnel  resources  than the
Company and most of which are more  widely  known than the  Company.  Such other
companies may offer their clients a more extensive range of financial  services,
have  substantially  greater financial  resources and may have greater operating
efficiency than the Company.  In addition,  many of the companies with which the
Company  competes are able to dedicate  significant  resources  to  advertising,
active solicitation of potential clients and distribution of investment research
publications.  The Company  also  competes  with a number of small and  regional
mortgage brokers, mortgage companies, banks and investment firms which may offer
a wider range of services than the Company.

Marketing
---------
     Business  consulting and mortgage banking revenues and sales activities are
generated by the Company's  executive  officers through personal  contacts.  The
Company conducts no advertising. All its clients come from referrals from former
clients,  from attorneys and  accountants who have been involved in transactions
with the Company on behalf of clients or other brokers,  and, from time to time,
from various banks with which the Company does business.

                                       6
<PAGE>

Government Regulations
----------------------
     Mortgage  brokers are  regulated on a state by state  basis.  As a mortgage
broker in the State of New York,  the  Company is licensed by the New York State
Banking Department.  The Company is required to provide specific disclosures and
follow specific procedures with regard to all mortgage  applicants.  The Company
is  also  required  to  keep  and  maintain  specific  records  of all  mortgage
transactions.  The  Company is subject to periodic  examination  by the New York
State Banking Department to assure compliance with its requirements.

     On  residential  loans,  where the Company is not  licensed in a particular
state and the loan is effected  through a third party lender,  the Company would
sign a referral  co-broker  agreement with the borrower.  This agreement must be
fully disclosed to all parties. Commercial loans do not require licensing.

     Management  does not believe  that the  Company's  business  and  financial
consulting  activities require the Company to register as a broker-dealer  under
federal or state  securities  laws  because the Company does not believe that it
comes  within the  definition  of either a "broker" or a "dealer" as those terms
are defined in the rules and  regulations  under the Exchange Act. The Company's
most  significant   activities  are  operating  in  an  advisory   capacity  for
acquisitions,  particularly reverse  acquisitions,  and arranging for customers'
financing,  as opposed to  actually  raising the money for such  customers.  The
Company  does not have a base of  investors  to whom it presents a customer as a
possible  investment  vehicle;  rather,  the Company may refer the customer to a
broker-dealer  or other  entity  which  may  decide  to raise the money for that
customer.  For both  services - advising on reverse  acquisitions  and referring
customers to capital-raising  entities - the Company may receive fees consisting
of cash and/or stock. The Company believes that these activities, separately and
together,  do not rise to the level of being  either a broker  or a dealer.  The
Company is not a "broker" because it does not effect securities transactions for
the account of others in any manner.  The Company is not a "dealer"  because the
Company's activities consist of acting only as an advisor, and do not consist of
buying and selling securities in the traditional sense: any securities  received
by the Company are received as a fee for  services  rendered as opposed to being
acquired.

     If the  Company  were deemed to be a broker or a dealer it would be subject
to extensive  regulation under federal and state laws. The principal  purpose of
regulation and discipline of  broker-dealers  is the protection of customers and
the securities  markets rather than protection of creditors and  stockholders of
broker-dealers. The Commission is the federal agency charged with administration
of the  federal  securities  laws.  Much of the  regulation  of  broker-dealers,
however,  has  been  delegated  to  self-regulatory  organizations,  such as the
National  Association  of  Securities  Dealers,  Inc.  (the "NASD") and national
securities  exchanges.  The NASD  most  likely  would be the  Company's  primary
self-regulatory  organization  if the  Company  were  deemed to be a broker or a
dealer.  These  self-regulatory  organizations adopt rules (which are subject to
approval by the  Commission)  which  govern the  industry  and conduct  periodic
examinations  of  member  broker-dealers.  Broker-dealers  are also  subject  to
regulation  by state  securities  commissions  in the  states in which  they are
registered.  The  regulations  to which  broker-dealers  are  subject  cover all
aspects of the securities business,  including net capital  requirements,  sales
methods, trading practices among broker-dealers, capital structure of securities
firms, record keeping and the conduct of directors,  officers and employees. The
Commission and the self-regulatory bodies may conduct administrative proceedings
which can result in censure,  fine,  suspension or expulsion of a broker-dealer,
its officers or  employees.  If the Company were deemed to be a broker or dealer
by the Commission or any state securities  commission,  the Company would not be
in  compliance  with  requisite  federal  or state laws and  regulations  or the
regulations  of  self-regulatory  bodies  and the  Company's  business  would be
materially and adversely affected.

                                       7
<PAGE>

Employees
---------
     As of August 31, 1997, the Company  employed seven  full-time  employees at
its office located in Staten Island,  New York consisting of five executives and
two staff members.

Seasonality
-----------
     The  Company's  business and revenues are  determined  by  consummation  of
contemplated transactions and, thus, are not seasonal.

History of the Company
----------------------
     Mega Holding Corp. was incorporated in the State of New York under the name
"Serina-Denise Associates,  Inc." on March 31, 1970 and changed its name to Mega
Holding Corp. in October 1973.

     In November 1981, Real-Med  Industries,  Inc., a publicly held corporation,
acquired  all of the  Company's  issued and  outstanding  shares in exchange for
Real-Med  shares and  changed its name to Mega Energy  Corp.  In May 1983,  Mega
Energy  Corp.,  changed  its name to Megatron  Holding  Corp.  ("Megatron").  In
February 1987, certain shareholders of Megatron returned 32% of their respective
shares of Megatron to Megatron, agreed to a 1-for-20 reverse stock split and, in
exchange for such shares, received an equivalent number of the Company's shares,
which Company shares represented all of the Company shares held by Megatron.

     In  June  1988,  Interactive  Businesses,   Inc.,  a  Delaware  corporation
("Interactive")  issued a total of  3,615,000  of its  authorized  but  unissued
common  shares  to  acquire  all of the  issued  and  outstanding  shares of the
Company.   Thereafter,   certain   shareholders  of  Interactive  donated  their
Interactive  shares  to  Interactive's   Treasury,   and  received  in  exchange
therefore,  the equivalent  number of shares of the Company held by Interactive,
representing 100% of Interactive's holdings in the Company.

     Item 2. Description of Property

     The Company  maintains  its  principal  executive  offices at 278A New Dorp
Lane,  Staten  Island,  New York in an  approximately  1,300  square foot office
facility  pursuant to a lease  originally  entered  into in January,  1984,  and
thereafter renewed periodically. The current renewal term expires on January 31,
1999.  The annual  rental is $8,400 per annum  ($700 per  month)  plus  tenant's
proportionate  share  of Real  Estate  Taxes  and  escalations  for the  subject
premises  in the  amount  of  $602.29  per month  for a total  annual  rental of
$15,627.48.

     Item 3. Legal Proceedings

     None

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

     None.




                                       8
<PAGE>

                                    PART II

     Item 5. Market For Common Equity and Related Stockholder Matters

     As of August 31,  1997,  there  were  approximately  279  holders of Common
Shares.  The Common Shares have not and do not trade.  On that date,  there were
outstanding approximately 3,615,000 Shares of Common and -0- Preferred Shares.

     The Company has not declared any cash  dividends  and does not expect to do
so in the foreseeable future. The Company has distributed stock dividends of the
stock of certain corporations of which it is a shareholder as follows: 

Southeast Tire Recycling, Inc.          178,960 shares of common stock
Southern Security Financial Corp.       256,088 shares of common stock

     Item 6. Management's Discussion and Analysis or Plan of Operation

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                  for the years ended August 31, 1997 and 1996

     The matters  discussed  in this  Management's  Discussion  and  Analysis of
Financial Condition and Results of Operations contain forward-looking statements
that involve risks and uncertainties.  The Company's actual results could differ
materially from those discussed here.  Factors that could cause or contribute to
such  differences  include,  but are not  limited  to,  those  discussed  in the
sections  entitled  "Business" and " Risk  Factors," as well as those  discussed
elsewhere in this Annual Report on Form 10-KSB. The Company disclaims any intent
or obligation to update these forward-looking statements.

    Fiscal Year Ended August 31, 1997  Compared to the Fiscal Year Ended August
31, 1996
--------------------------------------------------------------------------------
     Revenues  for the fiscal year ended August 31, 1997  decreased  $459,509 or
68.3% when compared to the fiscal year ended August 31, 1996.  During the fiscal
year ended August 31, 1997, the Company generated $200,258 (94.0%) from business
and financial  consulting  services and $12,750  (6.0%) from its mining  royalty
interest.  During the fiscal year ended August 31, 1996,  the Company  generated
$649,944  (96.6%) from business  consulting  services,  $15,664  (2.3%) from its
mining  royalty  interest,   and  $6,909  (1.1%)  from  its  mortgage  brokering
activities.

     Business and  financial  consulting  service  revenues  decreased  $449,686
primarily  because  the  Company  was  concentrating  its  efforts  on  spin-off
companies  rather than  acquiring and reselling  shell  companies.  In the early
stages of this transition,  revenues will decrease before  increasing again. The
mining  royalties  decreased  between these periods by $2,914 (18.6%) due to the
extraction of coal was less than the agreed upon 300,000 tons. As a result,  the
Company  received  no  additional  royalty  revenues.   Mortgage  revenues  also
decreased in the amount of $6,909 (100%) due to the current transitional period.

     Cost of sales for the year ended August 31, 1997 increased by $6,375 (7.1%)
when  compared to the year ended  August 31,  1996.  General and  administrative
expenses however, decreased $84,510 (22.9%) for the fiscal year ended August 31,
1997 when  compared to the fiscal year ended August 31, 1996  primarily due to a
decrease in commissions in the amount of $159,016.  This decrease in commissions
is directly  attributable to the decrease in revenues.  Additionally,  executive
compensation,  office expense, taxes, payroll and related costs and professional
fees  increased  while travel and  entertainment  expenses  decreased by $52,716
(87.1%); $10,858 (161.5%);  $10,089 (577.8%);  $6,658 (100%); $2,216 (58.6%) and
$4,600 (17.4%),  respectively.  While office expenses,  payroll & related costs,
and  professional  fees  increased as a result of continuing  operations,  taxes
increased  due to  penalties  incurred on prior  year's  taxes.  The increase in
executive compensation and the decrease in travel and entertainment expenses for
the same  period  were an indirect  result of the  current  business  transition
taking place.

                                       9
<PAGE>

     As a percentage of sales, cost of sales increased from 13.7% in fiscal 1996
to 48.3% in fiscal 1997,  general and  administrative  expenses  increased  from
54.8% in fiscal 1996 to 141.8% in fiscal 1997,  and  commissions  increased from
33.9% in fiscal 1996 to 34.5%.  These  percentage  increases are attributable to
the  Company  showing  lower  revenues  for the year ended  August  31,  1997 as
compared to the year ended August 31,  1996;  again  resulting  from the current
business transition occurring.

     Marketable  securities  and  restricted  securities at August 31, 1997 both
decreased when compared to August 31, 1996 due to the sale and  depreciation  of
various  securities during the fiscal year.  Accordingly,  the fiscal year ended
August 31, 1997 shows an  unrealized  holding loss whereas the fiscal year ended
August 31, 1996 showed an unrealized holding gain.

     The Company has gained interest in other  companies by acquiring  shares of
such companies' stocks. The Company acquires these securities with the intent to
sell them within the next twelve months. The Company's marketable securities for
the year ended  August 31, 1997  decreased  $186,982  from the prior year.  This
decrease is attributable to two factors: (1) the Company performed  transactions
during the fiscal  year  whereto  the  result was a lower  basis;  and (2) those
securities  remaining at August 31, 1997 depreciated in value to the extent that
the Company showed an unrealized holding loss of $41,127.  Management classifies
these marketable  securities as trading securities because the Company purchases
these  securities  principally for the purpose of selling them in the near term.
The securities are therefore  reported on the balance sheet at fair market value
with any unrealized holding gains and losses included in current earnings.

     As a result of the foregoing,  the Company  realized a net loss of $137,803
for the fiscal year ended August 31, 1997 compared to net income of $243,874 for
the fiscal year ended August 31, 1996.

Liquidity and Capital Resources
-------------------------------
     As of August 31, 1997, the Company's  current  assets  exceeded its current
liabilities by $191,118; however, only $15,060 was cash with the remainder being
comprised of various receivables.

     Historically,  the Company has  financed its  operations  through cash flow
from operations. Due to the current operating cash flow, the Company has no need
to maintain any external funding sources.

     At August 31,  1997,  the Company had no material  commitments  for capital
expenditures.

     For the fiscal years ended August 31, 1997,  1996,  and 1995,  the value of
fees  received by the Company in the form of stock was  $113,216,  $60,500,  and
$29,000,  respectively,  of which $- 0 -, $10,000, and $10,000, respectively are
in stock which contain restrictive legends with regard to transfer. To date, the
amounts  received in stock are  minimal,  thus having no material  effect on the
Company's liquidity and overall financial  position.  In the future, the Company
plans to continue  distributing  to its  shareholders  most of the stock that it
receives  in other  entities.  If the fees  received  are more so in the form of
stock than cash, and continue to be  distributed to the Company's  shareholders,
the  Company's  liquidity  may  be  adversely  affected.   However,   management
anticipates,  but cannot assure,  that the cash portion of fees received and the
proceeds from the sale of stock not  distributed  to the Company's  shareholders
will be sufficient to meet the Company's  anticipated cash flow needs. Where the
Company  receives  shares with  restrictions  on  transfer,  the Company will be
required  to hold such  shares  indefinitely  and will only be able to sell such
shares if and when the shares are registered on an exemption  from  registration
and it becomes available, and if and when a market for such securities develops.
Accordingly, such shares will not be able to be used to meet cash flow needs.

                                       10
<PAGE>

     At August 31,  1997 and  August 31,  1996,  royalties  due from  Powderhorn
represented 37.5% and 27.3% of the Company's total assets,  respectively.  Based
upon Powderhorn's prior history in payment of like kind transactions, management
believes that all royalties will be collected on a timely basis.


     Item 7. Financial Statements

     a.   Balance Sheets at August 31, 1997 and 1996

     b.   Statements  of  Operations  for the three years ended August 31, 1997,
          1996 and 1995

     c.   Statements  of Cash Flows for the three years  ended  August 31, 1997,
          1996 and 1995

     d.   Statement of Stockholders' Equity for the three years ended August 31,
          1997, 1996 and 1995

     e.   Notes to Financial Statements

                                       11
<PAGE>

To the Board of Directors and Stockholders
of Mega Holding Corp.

     We have audited the accompanying balance sheets of Mega Holding Corp. as of
August  31,  1997  and  1996,   and  the  related   statements  of   operations,
stockholders'  equity,  and cash flows for the years ended August 31, 1997, 1996
and 1995.  These  financial  statements are the  responsibility  of Mega Holding
Corp.'s  management.  Our  responsibility  is to  express  an  opinion  on these
financial statements based on our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, based on our audits, the financial  statements  referred to
above present fairly, in all material  respects,  the financial position of Mega
Holding  Corp.  as of  August  31,  1997  and  1996,  and the  results  of their
operations,  stockholders'  equity,  and their  cash  flows for the years  ended
August 31, 1997, 1996 and 1995 in conformity with generally accepted  accounting
principles.




McManus & Co., P.C.
Certified Public Accountants
Morris Plains, New Jersey


November 20, 1997





                                       12
<PAGE>



                               MEGA HOLDING CORP.
                                 BALANCE SHEETS
                            AUGUST 31, 1997 AND 1996



ASSETS
                                                        1997         1996
                                                        ----         ----
   Current Assets:
      Cash                                          $  15,060    $   4,682
      Accounts Receivable                              51,671       43,500
      Royalties Receivable (Note 2)                       375          343
      Notes Receivable (Note 3)                       129,200       35,000
                                                    ----------    ---------
         Total Current Assets                         196,306       83,525

   Property and Equipment:
      Office Equipment at Cost (Note 1)                66,664       51,415
         Less: Accumulated Depreciation               (39,192)     (31,360)
                                                    ----------    ---------
         Total Property and Equipment                  27,472       20,055

   Investments and Other Assets:
      Marketable Securities (Note 4)                   31,765      218,747
      Notes Receivable (Note 3)                           --       100,000
      Restricted Marketable Securities (Note 5)         3,287       30,000
      Royalties Receivable (Note 2)                   154,493      154,868
                                                    ----------    ---------
         Total Investments & Other Assets             189,545      503,615
                                                    ----------   ----------
   Total Assets                                     $ 413,323    $ 607,195
                                                    ==========   ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

   Current Liabilities:
      Accounts Payable                              $     --     $   6,257
      Officer's Loan                                    5,000          --
      Payroll Taxes Payable                               188          --
                                                    ----------   ----------
         Total Current Liabilities                      5,188        6,257

   Long - Term Liabilities:
      Deferred Taxes (Note 8)                           2,233       57,233
                                                    ----------   ----------
         Total Long - Term Liabilities                  2,233       57,233

   Commitments and Contingent Liabilities (Note 7)

   Stockholders' Equity:
      Common Stock - $.01 par value
         Authorized 20,000,000 shares
         Issued 3,615,000 shares                       36,150       36,150
      Paid In Capital                                 488,616      488,616
      Retained Earnings                              (118,864)      18,939
                                                    ----------   ----------
         Total Stockholders' Equity                   405,902      543,705

   Total Liabilities and Stockholders' Equity       $ 413,323    $ 607,195
                                                    ==========   ==========

  See accompanying accountant's report and notes to the financial statements.






                                       13
<PAGE>


                               MEGA HOLDING CORP.
                            STATEMENT OF OPERATIONS
                FOR THE YEARS ENDED AUGUST 31, 1997, 1996 & 1995


                                              1997       1996       1995
                                           ---------- ---------  ----------
    Net Sales                              $ 200,203  $ 659,767  $ 201,573
                                           ---------- ---------  ---------
    Cost Of Sales                             96,794     90,419     39,408
                                           ---------- ---------  ----------
      Gross Profit                           103,409    569,348    162,165
                                           ---------- ---------  ----------
    General and Administrative Expenses:
      Advertising                                 27        500        552
      Commissions                             69,078    228,094    111,266
      Depreciation                             7,832      7,847      9,006
      Dues and Subscriptions                     275        275        275
      Executive Compensation                 113,216     60,500     29,000
      Insurance                                  889        --         --
      Licenses and Application Fees              671      1,153         74
      Miscellaneous                            3,860      7,611      8,793
      Office Expense                          17,580      6,722     10,954
      Payroll and Related Costs                6,658        --         --
      Professional Fees                        6,000      3,784     24,779
      Rent                                    14,348     15,765      5,714
      Taxes                                   11,835      1,746      3,885
      Telephone and Utilities                  9,728      7,910      8,872
      Travel and Entertainment                21,883     26,483     19,824
                                           ---------- ---------  ----------
      Total Operating Expenses               283,880    368,390    232,994
                                           ---------- ---------  ----------
    Earnings/(Loss) Before Gains on
      Marketable Securities,
      Other Income and Income Taxes         (180,471)   200,958    (70,829)

    Unrealized Holding Gain/(Loss)on
      Marketable Securities                  (41,127)   102,334        --
                                           ----------- ---------  ---------
    Other Income:
      Royalties Income                           375        343        --
      Interest Income - Royalties             12,375     12,407        --
      Interest Income - Other                     55        --         --
                                           ---------- ---------  ----------
        Total Other  Income                   12,805     12,750        --
                                           ---------- ---------  ----------
    Earnings/(Loss) Before Income Taxes     (208,793)   316,042    (70,829)

    Provision For Income Taxes               (70,990)    72,168      --
                                           ---------- ---------  ----------
    Net Earnings/(Loss)                    $(137,803) $ 243,874  $ (70,829)
                                           ========== =========  ==========


      Net Earnings/(Loss) Per Share:
      Net Earnings/(Loss)                  $   (0.04) $    0.07  $   (0.02)
      Weighted Average Number of
       Common Shares Outstanding           3,615,000  3,615,000  3,615,000





  See accompanying accountant's report and notes to the financial statements.


                                       14
<PAGE>



                               MEGA HOLDING CORP.
                            STATEMENT OF CASH FLOWS
               FOR THE YEARS ENDED AUGUST 31, 1997, 1996 and 1995



                                                  1997       1996       1995
                                               ---------  ---------  ----------
Cash Flow from Operating Activities:
  Net Income                                   $(137,803) $ 243,874  $ (70,829)

  Adjustments To Reconcile Net Income
   To Net Cash Provided/(Used) In
   Operating Activities:
    Depreciation                                   7,832      7,847      9,006
    Unrealized Holding Gain on
       Marketable Securities                      41,127   (102,334)       --
    (Increase)/Decrease in
       Accounts Receivable                        (8,171)   (43,500)    64,803
    (Increase)/Decrease in
       Royalties Receivable (Current)                (32)       (26)       --
    (Increase)/ Decrease in
       Royalties Receivable (Long-term)              375        343   (155,528)
    Increase/(Decrease)in Payroll Taxes Payable      188         --         --
    Increase/(Decrease)in Accounts Payable        (6,257)    (2,743)     9,000
    Increase/(Decrease)in Deferred Taxes         (55,000)    57,233     (7,853)
                                                ---------  --------- ----------
    Total Adjustments                            (19,938)   (83,180)   (80,572)
                                                ---------  --------- ----------
  Net Cash provided/(used)by
    Operating Activities                        (157,741)   160,694   (151,401)

  Cash Flow from Investing Activities:
    (Purchase)/Disposal of
       Property, Plant & Equipment               (15,249)      (367)    66,933
    (Increase)/Decrease in
       Marketable Securities                     145,855   (116,413)       814
    (Increase)/Decrease in
       Restricted Securities                      26,713    (30,000)       --
                                                ---------  --------- ----------
  Net Cash provided/(used)
     by Investing Activities                     157,319   (146,780)    67,747

  Cash Flow from Financing Activities:
    Increase/(Decrease) in
       Notes & Dividends Receivable                5,800    (35,000)      --
    (Increase)/Decrease in
       Officer's Loan Payable                      5,000        --        --
                                                ---------  --------- ----------
  Net Cash provided/(used) by
    Financing Activities                          10,800    (35,000)      --
                                                ---------  --------- ----------

 Net Increase/(Decrease)in Cash                   10,378   ( 21,086)   (83,654)

 Cash at the Beginning of the Year                 4,682     25,768    109,422

 Cash at the End of the Year                    $(15,060) $   4,682  $  25,768





  See accompanying accountant's report and notes to the financial statements.






                                       15
<PAGE>

                               MEGA HOLDING CORP.
                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
               FOR THE YEARS ENDED AUGUST 31, 1997, 1996 and 1995




                                          Additional                  Total
September 1, 1995               Common     Paid In      Retained   Stockholders'
To August 31, 1997              Stock      Capital      Earnings      Equity
------------------              ------    ----------    --------   -------------

August 31, 1994              $  36,150    $ 488,616  $ (154,106)    $ 370,660

Net Loss 1995                                           (70,829)      (70,829)
                             ---------    ---------- -----------    ----------

Total Stockholders' Equity
As Of August 31, 1995           36,150      488,616    (224,935)      299,831

Net Earnings 1996                                       243,874       243,874
                             ---------    ---------  -----------    ----------

Total Stockholders' Equity
As Of August 31, 1996           36,150      488,616      18,939       543,705

Net Loss 1997                                          (137,803)     (137,803)
                             ---------    ---------  -----------    ----------

Total Stockholders' Equity
As Of August 31, 1997        $  36,150    $ 488,616   $(118,864)    $ 405,902






See accompanying accountant's report and notes to the financial statements.



                                       16
<PAGE>
   
                               MEGA HOLDING CORP.
                       NOTES TO THE FINANCIAL STATEMENTS

Note 1 - Basis of Presentation and Significant Accounting Policies:

     Mega Holding Corp. (the "Company")  incorporated as a New York  corporation
and  commenced  business on March 31, 1970.  The Company  offers its services to
corporations that are seeking banking and investment banking relationships.  The
Company  charges a fee for these services and at times earns an equity  interest
in these  companies.  Fees are also earned from  clients  that wish to go public
and/or raise capital.  The Company is licensed and registered  with the New York
State  Banking  Department  as a  mortgage  broker  wherein  it earns  fees.  In
addition,  the  Company  receives  royalties  from  Powderhorn  Incorporated  (a
subsidiary of Peabody Coal Company) located in Palisade, Colorado.

     A) Property and Equipment

     Property and equipment are carried at cost less  accumulated  depreciation.
Depreciation  is  calculated  by using the modified  accelerated  cost  recovery
system as provided  by the tax reform act of 1986 for  property  acquired  after
December 31, 1986. The recovery classifications are five years for furniture and
fixtures and office equipment.

     Expenditures for maintenance and repairs are charged to expense as incurred
whereas major improvements are capitalized.

     B) Marketable Securities

     In May 1993, the Financial  Accounting  Standards Board issued Statement of
Financial  Accounting  Standards No.115,  "Accounting for Certain Investments in
Debt and Equity Securities," effective for fiscal years beginning after December
15, 1993. This statement considers debt securities that the Company has both the
positive  intent and ability to hold to maturity are carried at amortized  cost.
Debt  securities  that the Company does not have the positive intent and ability
to hold to maturity and all  marketable  equity  securities  are  classified  as
available-for-sale  or trading  securities and are carried at fair market value.
Unrealized   holding   gains   and   losses   on   securities    classified   as
available-for-sale  are carried as a separate component of stockholders' equity.
Unrealized  holding  gains and losses on  securities  classified  as trading are
reported in earnings.  Management  determines the appropriate  classification of
marketable  equity and debt  securities at the time of purchase and  reevaluates
such designation as of each balance sheet date.

     C) Revenue Recognition

     The Company recognizes  revenues at the point in time when the stock in the
newly formed company is sold.

     D) Cost of Sales

     The cost of sales consist  wholly of those  expenditures  accumulated  when
acquiring the stock of the original company.

     E) Income Taxes

     The Company  adopted the  provisions  of Statement of Financial  Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes", which requires a change
from the deferral  method to the assets and liability  method of accounting  for
income taxes.  Timing differences exist between book income and tax income which
relate primarily to the recognition of income.

     F) Net Earnings/(Loss) Per Common Share

     Net   earnings/(loss)   per  common  share  is  computed  by  dividing  net
earnings/(loss)  by the  weighted  average  number of  shares  of  common  stock
outstanding during the period.

                                       17
<PAGE>
Note 2 - Royalties Receivable:

     On  September  29, 1994,  the Company  resolved a royalty  dispute  whereby
Powderhorn  Incorporated will pay the Company additional royalties with a future
value of  $624,044.  This  amount  will be  payable  at  $12,750  per  annum for
non-production royalty and an 8.5% royalty should production resume.

Note 2 -  Royalties Receivable: (continued)

                                                               August 31
                                                            1997        1996
                                                            ----        ----
        Royalties Receivable From Court Settlement:
             Non-interest bearing receivable,
             receivable in annual installments
             of $12,750; due 2043.                       $ 585,794    $ 598,544

             Less unamortized discount based
             on imputed interest rate of 8%.               430,926      443,333
                                                         ---------    ---------
             Royalties receivable less unamortized
             discount.                                     154,868      155,211

             Less:  Current  Portion                           375          343
                                                         ---------    ---------
             Total Long-Term Royalties Receivable        $ 154,493    $ 154,868
                                                         =========    =========

     Due to the large nature of  Powderhorn  and its prior history in payment of
like kind transactions, management believes all royalties will be collected on a
timely basis.

Note 3 - Notes Receivable:

     In 1993, the Company entered into a loan agreement with AWEC for the sum of
$100,000. This loan is non-interest bearing and due in 1998. With this note, the
Company has two (2) options.  Option one maintains the Company carry the note to
maturity  and  receive  face  value.  Option two gives the  Company the right to
convert the  outstanding  note  receivable into AWEC common stock at fair market
value. This right may be exercised at the Company's option during 1997.

     In 1996, the Company  received notes from Bonsangue and Nocito companies in
the  amounts of $30,000  and $5,000  respectively.  Both notes are  non-interest
bearing and are  considered  current.  At August 31, 1997,  Bonsangue has repaid
$13,300.

     During 1997,  the Company  received a note from the Berkshire  Group in the
amount of $20,000.  This note is non-interest bearing and is due within the next
six months. At August 31, 1997, the Berkshire Group has repaid $12,500.

                                       18
<PAGE>

Note 4 - Marketable Securities:

     As discussed in Note 1, the Company  adopted the provisions of Statement of
Financial   Accounting   Standards  (SFAS)  No.  115,  "Accounting  for  Certain
Investments in Debt and Equity  Securities." At August 31, 1997 and 1996, all of
the Company's marketable equity securities are classified as trading securities;
they were purchased with an intent to resell them within the next year.

     The  current  marketable  securities  represents  an equity  investment  in
various  corporations  which the Company  considers as trading  securities.  The
securities  had an original  cost of $76,179 and $116,488 at August 31, 1997 and
1996,  respectively;  determined  by  multiplying  the  number of  shares  being
purchased by the fair market value of those  shares.  At the balance sheet dates
of August 31,  1997 and 1996,  the market  values  were  $35,052  and  $218,747,
respectively;  multiplying the number of shares held by the fair market value of
those shares at the respective  balance sheet date.  The difference  between the
cost and fair market value  represents  an unrealized  holding  gain/loss and is
included in current earnings.

Note 5 - Restricted Securities:

     The Company owns various  securities  that are restricted by the Securities
and Exchange  Commission from sale. These  restricted  securities are carried at
par value totaling  $3,287.  The fair market value of the restricted  securities
held at the  balance  sheet  date is  determined  by the  cost  basis  of  those
securities.  If there were no cost basis, the number of shares multiplied by the
given par value would be used.

Note 6 - Executive Compensation:

     As  president,  Mr.  Abate  intermittently  receives  shares  of  stock  as
compensation.  This non-cash  compensation  approximates  $23,000;  $60,500; and
$29,000;  for the years 1997,  1996, and 1995  respectively.  Although value has
been given to these  securities,  at the August 31, 1997  balance  sheet date, a
portion of these securities were not being traded.

     In addition to Mr. Abate, other  officers/directors of the Company received
shares of common stock as compensation  for the year ended August 31, 1997. This
non-cash compensation  approximates $90,216. No non-cash compensation was issued
to any  officers/directors  aside from Mr.  Abate for the years ended August 31,
1996 and 1995.

Note 7 - Commitments and Contingent Liabilities:

     The  Company is  engaged in a three year lease for its office  space in the
amount of $1,302.29 per month. This  non-cancelable  lease began January 1, 1996
and expires January 31, 1999.

     Future minimum lease payments are summarized as follows:

                         August 31,                       Amount
                         ----------                     ---------

                           1998                         $  15,624
                           1999                             6,510
                                                        ---------
                                Total                   $  22,134
                                                        =========

                                       19
<PAGE>

Note 8 - Income Taxes:

     As discussed in Note 1, the Company  adopted the provisions of Statement of
Financial Standards (SFAS) No. 109 "Accounting for Income Taxes". Implementation
of SFAS 109 did not have a material  cumulative  effect on prior periods nor did
it result in a change to the current year's provision.

     A) The effective tax rate for the Company is  reconcilable to statutory tax
rates as follows:


                                                             August 31,
                                                         1997     1996    1995
                                                           %       %       %
                                                         ----     ----    ----
        U.S. Federal Statutory Tax Rate                   34       34      34
        Valuation allowance for deferred tax
           assets allocated to income tax expense        (34)     (11)    (34)
                                                         ----     ----    ----
        Effective Tax Rate                                 0       23       0
                                                         ====     ====    ====

     B) Deferred  income taxes are provided for  differences  between  financial
statement and income tax  reporting.  The principal  difference is the manner in
which income is recognized for financial and income tax reporting purposes.

Note 9 - Subsequent Events:

     Subsequent  to August 31,  1997,  the  Company is  scheduled  to receive an
additional 100,000 shares of ARXA International Energy, Inc. common stock.



                                       20
<PAGE>


     Item 8. Changes in and Disagreement With Accountants

     Not applicable.


                              PART III

     Item 9.  Directors,  Executive  Officers,  Promoters  and Control  Persons:
Compliance with Section 16(a) of the Exchange Act

Directors and Officers
-----------------------

     The following sets forth the names of the Company's directors and officers.
Directors  of the  Company  are elected  annually  by the  shareholders  and the
officers are appointed  annually by the Board of Directors.

Name                        Age            Position                     Since
----                        ---            --------                     -----
Thomas M. Abate             60        President and a Director          1986

James D. Paulsen            58        Executive Vice President,         1991
                                        Secretary and a Director

John M. Seroor              67        Treasurer and a Director          1994

John Catricola              52        Vice-President                    1992

Silvio Codispoti            54        Senior Vice President             1991

Nancy Montanaro             24        Assistant Secretary               1995

     THOMAS M. ABATE has been  President  and  Director of the Company  from its
inception  and served as Chairman of the Board of Directors of Megatron  Holding
Corp.  (OTC) from 1983 to 1987.  He was the  Manhattan  Area Manager of the U.S.
Treasury Department, SB Division from 1974 to 1984. Mr. Abate received a B.S. in
Finance from Wagner College.

     JAMES D. PAULSEN has been Executive Vice President,  Secretary and Director
of the Company  since 1991,  and has been  associated  with the Company from its
inception.  He was an officer of AIG Risk  Management,  Inc. and  American  Home
Assurance Co. from 1977 to 1991. He is a graduate of The City  University of New
York and The College of Insurance.

     SILVIO  CODISPOTI has been Senior Vice President of the Company since 1991.
From,  1961 to 1991, he was a Vice President,  Commercial  Lending with National
Westminster  Bank, USA. Mr. Codispoti is a graduate of Bernard M. Baruch College
of the City  University of New York where he earned an A.A.S.  in Accounting and
B.B.A. in Finance.

     JOHN  CATRICOLA  has served as a Vice  President of the Company since 1992.
Since  September,  1997, he serves as President of Olde  Monmouth  Capital Corp.
From 1985 to 1992,  he was Vice  President  of Promote  Personnel,  Inc.  He was
President  of JAC  Associates,  Inc.  from 1982 to 1985 and prior to 1982 he was
associated with various  brokerage firms. Mr. Catricola is a graduate of The New
York Institute of Finance.

                                       21
<PAGE>
     NANCY  MONTANARO  has been Assistant  Secretary of the Company since 1995.
From  January,  1994 to  January,  1995,  she was an  associate  for Dean Witter
Reynolds on the trading floor of The New York Commodities Exchange.

     JOHN M. SEROOR has been Treasurer & Director of the Company since 1994 and
has been associated  with the Company since its inception.  From 1963 to 1968 he
was a  chemist  for the Food and Drug  Administration  in  Cincinnati,  Ohio and
Brooklyn,  New York, and from 1968 to 1994 he was a quality  control  supervisor
for Carter-Wallace, Inc. Mr. Seroor graduated from the University of Connecticut
where he earned a B.A. in Chemistry.

     Item 10. Executive Compensation

     The following table shows all the cash  compensation paid by the Company as
well as certain other  compensation  paid during the fiscal years indicated,  to
the  Chief  Executive  Officer  for such  period in all  capacities  in which he
served.  No other  Executive  Officer  received total annual salary and bonus in
excess of $100,000.

SUMMARY COMPENSATION TABLE


--------------------------------------------------------------------------------
                                                     Long Term Compensation

                              Annual Compensation     Awards          Payouts
--------------------------------------------------------------------------------
 (a)         (b)     (c)    (d)    (e)    (f)          (g)       (h)    (i)
                                   Other   Restricted                    All
 Name and                          Annual  Stock       Options   LTIP   Other
 Principal   Fiscal  Salary  Bonus Compen- Awards      SARs     Payouts Compen-
 Position    Year     ($)    ($)   sation   ($)         (#)       ($)   sation
----------   -----   ------  ----  ------  -----       -------  ------  -------
Thomas M.     1997    (1)     N/A   N/A      0           0        0       0
Abate         1996    (2)     N/A   N/A      0           0        0       0
              1995    (3)     N/A   N/A      0           0        0       0


(1)  Consists of 50,000  shares of the common  stock of ARXA at market  value of
     $2.25 per shares or a total of $112,500.

(2)  Consists of 75,000 shares of QCS Corp. at fair market value $.50 per share;
     46,000 shares of ARXA International  Energy, Inc. at fair market value $.50
     per share;  50,000  shares of Hiawatha  Industries,  Inc.  (Restricted)  no
     market value.

(3)  Consists of 20,000  shares of Capital  Communications  Corp. at fair market
     value of $.50 per share;  40,000  shares of First  Nordic  Equity  Partners
     Corp.  at fair  market  value $.10 per  share;  30,000  shares of  Republic
     International Corp. at fair market value $.50 per share.

     The  amount of  securities  distributed  to Mr.  Abate  has been,  and will
continue to be, determined by the Company's Board of Directors.

                                       22
<PAGE>


     Item 11. Security Ownership of Certain Beneficial Owners and Management

     The  following  table  sets  forth as of August  31,  1997,  the number and
percentage  of shares of the common  stock of the  Company,  owned of record and
beneficially,  by each  officer  and  directors  of the Company and by any other
person owning more than 5% of the Company's  outstanding common stock and by all
officers and directors as a group.

                                    Shares of
Name and Address                   Common Stock              Percentage(1)
-----------------                  ------------              ------------
Thomas M. Abate                     1,173,405(1)                32.5%
231 Clarke Avenue
Staten Island, NY 10306

James D. Paulsen                      367,000(2)                10.1%
511 East 80th Street
New York, NY 10021

T.G.J. & Associates                   496,664(3)                13.7%
618 74th Street
Brooklyn, New York 11209

Emco Enterprises                      230,000(4)                 6.4%
1388 Paterson Plane Road
Secaucus, NJ 07094

Silvio Codispoti                      127,000(5)                 3.5%
115 Sylvia Street
Staten Island, NY 10312

John Catricola                        140,000(6)                 3.9%
79 Belfast Avenue
Staten Island, NY 10306

Nancy Montanaro                        42,000(7)                 1.2%
88 Rivington Avenue
Staten Island, NY 10314

John M. Seroor                        102,500                    2.8%
11 Emerson Road
Somerset, NJ 08873

All Officers and Directors
As a Group (6 Persons)               2,678,569(1)                74.1%


                                       23
<PAGE>
    

1.   Includes  100,000 shares as joint tenant with Renee Abate and 50,000 shares
     in the  name  of  Renee  Abate,  15,000  shares  as  custodian  for  Amanda
     Alexander,  15,000  shares as custodian  for Megan Abate,  15,000 shares as
     custodian for  Samantha Alexander  and 15,000 shares as custodian for James
     Abate. Mr. Abate has sole investment power and sole voting power over these
     shares.

2.   Includes 25,000 shares as joint tenant with Judith Paulsen and 2,000 in the
     name of Judith  Paulsen.  Mr.  Paulsen has sole  investment  power and sole
     voting power over these shares.

3.   Of  the  Common  Shares  owned  by  TGJ  Associates,   248,332  shares  are
     beneficially  owned by Thomas  Abate and  248,332  shares are  beneficially
     owned by James Paulsen.  Messrs.  Abate and Paulsen have shared  investment
     power and shared  voting  power of these  shares.  All of the shares of TGJ
     beneficially owned by Messrs.  Abate and Paulsen are included in the shares
     owned by all officers and directors as a group.

4.   Emco Enterprises is owned by Greg Marinelli.

5.   Includes 500 shares as joint tenants with Dina  Codispoti,  4,000 shares in
     the  name of Dina  Codispoti,  500  shares  as  joint  tenant  with  Dennis
     Codispoti,  4,000 shares as  joint tenant with Florence Codispoti and 4,000
     shares in the name of Dennis  Codispoti.  Mr. Codispoti has sole investment
     power and sole voting power over these shares.

6.   Includes  65,000 shares in the name of Mary  Catricola and 10,000 shares as
     joint tenant with Mary Catricola.  Mr.  Catricola has sole investment power
     and sole voting power over these shares.

7.   Includes 5,000 shares as joint tenant with Paul T. Montanaro,  5,000 shares
     in the name of Paul T.  Montanaro and 2,000 shares as custodian for Paul R.
     Montanaro.  Mrs.  Montanaro has sole investment power and sole voting power
     over these shares.

    Item 11. Certain Relationships and Related Transactions
    -------------------------------------------------------

     During the fiscal  years  ended  August  31,  1997 and 1996,  there were no
transactions, and there are no proposed transactions to which the Company was or
is to be a party in which any of its directors,  executive  officers,  principal
shareholders or any member of the immediate  family of any such person has or is
to have direct or indirect material interest.

    

                                       24
<PAGE>

                                   SIGNATURES

Pursuant to the  requirements  of Section 12 of the  Securities  Exchange Act of
1934, the Registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, "hereunto duly authorized.

                                             MEGA HOLDING CORP.

Dated: December 11, 1997                    By: /s/ Thomas M. Abate
                                             ------------------------
                                                 Thomas M. Abate
                                                 President and Principal
                                                 Executive Officer

                                             By: /s/John M. Seroor
                                             -------------------------
                                                 John M. Seroor
                                                 Treasurer and Principal
                                                 Financial Officer