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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
(FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
(NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
Commission File No. 0-9646
MEGATECH CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2461059
- ------------------------------- ----------------------------------
(State or other jurisdiction of (IRS. Employer identification No.)
incorporation of organization)
555 Woburn Street, Tewksbury, Massachusetts 01876
---------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (978) 937-9600
Securities registered pursuant to section 12(b) of the Act: NONE
Securities registered pursuant to section 12(g) of the Act: NONE
Common Stock, Par Value .0143
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes __XX__ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the registrant's Common Stock held by non-
affiliates of the registrant based upon the closing sale price of the
Common Stock on March 14, 2000 was approximately $253,167 based on the
average of the closing bid and asked quotations of the Common Stock in the
over the counter market. The number of shares held by nonaffiliates was
1,157,600. Shares of Common Stock held by each officer and director and
by each person who owns 5% or more of the outstanding Common Stock have
been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive
determination for other purposes.
The number of shares of par value $ .0143 common stock outstanding as of
March 14, 2000 was 3,813,708
Portions of the registrant's definitive Proxy Statement for its Annual
Meeting of the stockholders to be held on May 8, 2000 (the "Proxy
Statement") are incorporated by reference into Part III.
PART I
Item 1- Description of Business
- -------------------------------
(a) General Development of Business
-------------------------------
Megatech Corporation (Megatech or the Company) was established in
1970 and is engaged in the production and sale of educational training
programs and equipment in the energy power and transportation areas sold
domestically and internationally to educational institutions and government
agencies.
Megatech manufactures educational training equipment which consist of
modular technology workstations which are designed to provide students with
hands-on experience working with various technologies such as: automotive,
environmental, fiber-optic, microwave, laser, alternate energies,
electronic, personal computer kits and multi-media. In conjunction with the
educational equipment, Megatech produces over 200 video training programs
and student manuals which enable students to follow a self-paced self-
guided program to learn the technologies described above.
The Company competes with a number of major suppliers of school
training equipment and several small single product line companies through
the uniqueness of its products, and the quality of its training programs.
Most of the sales to states, cities, towns and school districts are the
results of having submitted sealed bids and having been awarded the sale
based on being the lowest bidder, directly or through independent sales rep
organizations.
There was one customer which accounted for 36%, 28% and 20% of total
sales for the years ended December 31, 1999, 1998 and 1997. No other
customers accounted for more than 10% of sales in each of the years ended
December 31, 1999, 1998 and 1997.
Approximately 39%, 46% and 33% of sales during the years ended
December 31, 1999, 1998 and 1997, respectively, were from international
sales.
The Company's backlog as of December 31, 1999 and 1998 was $803,524
and $459,929, respectively.
As of December 31, 1999, the Company had 13 full-time and 2 part-time
employees, in addition to it's independent domestic and international sales
rep organizations.
(b) Financial Information About Industry Segments
---------------------------------------------
N/A
(c) Narrative Description of Business
---------------------------------
See (a) above.
(d) Financial Information About Foreign and Domestic Operations and
---------------------------------------------------------------
Exports Sales
-------------
The Company presently has no operations in foreign countries.
Export sales of the Company were as follows:
--------------------------------------------
Percent of
Year Amount Total Sales
---- ------ -----------
1999 $699,214 39%
1998 $847,077 46%
1997 $693,481 33%
Most of these sales are made upon receipt of Irrevocable Letters of
Credit or prepayments.
Item 2 - Properties
- -------------------
The Company's administrative, sales and marketing, research and
development, and manufacturing facility is located in Tewksbury,
Massachusetts and consists of approximately 20,000 square feet under a
lease with a related party which expired in November, 1999. The company
now leases the facility on a tenant at will basis. The current facility
will accommodate twice the current production levels. There is ample
expansion capability beyond the current capacity for additional square
footage for manufacturing.
Item 3 - Legal Proceedings
- --------------------------
None
Item 4 - Submission of Matters to a Vote of Security Holders:
- -------------------------------------------------------------
During the fourth quarter of 1999, no matters were submitted to a
vote of the security holders through the solicitation of proxies or
otherwise.
PART II
Item 5 - Market for the Registrant's Common Equity and Related Stockholders
- ---------------------------------------------------------------------------
Matters
-------
The Company's Common Stock is traded in the over-the-counter market,
National Association of Security Dealers through the NASD electronic
bulletin board under the symbol MGTC. The following table sets forth the
periods indicated, the closing high and low Bid Quotations of the Common
Stock in the over-the-counter market. These Quotations represent prices
between dealers, do not include retail markup, markdowns or commissions and
do not necessarily represent actual transactions.
High Low
---- ---
1999 1st Quarter .31 .06
2nd Quarter .50 .13
3rd Quarter .44 .13
4th Quarter .38 .13
1998 1st Quarter .25 .05
2nd Quarter .25 .05
3rd Quarter .25 .03
4th Quarter .25 .04
1997 1st Quarter .25 .02
2nd Quarter .25 .02
3rd Quarter .25 .02
4th Quarter .25 .02
As of March 14, 2000, there were approximately 837 Shareholders based
upon the number of record holders as of that date. The Company has paid no
cash dividends since it's inception in 1970. At the present time, the
Company intends to retain all potential earnings for future growth of the
business.
Item 6 - Selected Financial Data
- --------------------------------
The following table summarizes certain financial data which are
qualified by more detailed financial statements included herein.
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Sales 1,794,553 1,844,782 2,097,454 2,216,978 2,824,912
Income (Loss) from operations 1,992 (99,081) (130,842) (94,578) (48,310)
Net Income (Loss) 1,593 (99,535) (129,606) (95,633) (57,504)
Net Income (Loss)
per Common share 0.001 (0.026) (0.034) (0.025) (0.015)
Weighted average shares
outstanding 3,805,239 3,792,308 3,790,122 3,784,566 3,731,425
Total Assets 795,247 788,374 936,784 1,052,450 1,049,046
Long Term Obligations 37,500 -0- -0- - 0 - 1,230
Stockholders' equity 412,880 410,287 545,733 660,255 731,517
Cash Dividends Per Share 0 -0- -0- - 0 - - 0 -
Item 7 - Management's Discussion and Analysis of Financial Condition
- --------------------------------------------------------------------
and Results of Operation
------------------------
1999 Compared with 1998
Sales for 1999 decreased from the corresponding period of 1998 by $
0.05 million or 3%, to $1.8 million. This decrease was primarily due to a
decrease in international sales. Domestic sales in 1999 were $ 1.1 million
or 61% of total sales, compared to $ 1 million or 54% of total sales in
1998. International sales in 1999 were $0.7 million or 39% of total sales,
compared to $ 0.8 million or 46% of total sales in 1998.
Gross profit for 1999 increased from the corresponding period of 1998
by $0.04 million, or 5%, to $0.8 million. As a percentage of total sales,
gross profit increased to 42% in 1999 compared to 39% in 1998. Currently,
there are no known future increases in costs of materials, labor or other
price increases which could have an effect on sales other than normal
inflation increases.
Selling and marketing expenses for 1999 decreased from the
corresponding period of 1998 by approximately $ 0.06 million or 9% to $ 0.6
million. As a percentage of total sales, selling and marketing expenses
decreased to 32% for 1999 compared to 34% for 1998. The decrease is
primarily due to a decrease in commissions paid to sales reps.
General and administrative expenses for 1999 remained steady at $.16
million and 9% of sales in 1999 and 1998.
Research and development expenses for 1999 remained steady at $.02
million and 1% of sales in 1999 and 1998.
Income from operations for 1999 as compared to the same period of
1998 increased by $ .10 million. As a percentage of total sales, operating
income increased to .11% for 1999 compared to operating losses of 5.4% in
1998. The operating income in 1999 are a result of the factors indicated
above.
1998 Compared with 1997
-----------------------
Sales for 1998 decreased from the corresponding period of 1997 by $
0.25 million or 12%, to $1.8 million. This decrease was primarily due to a
decrease in overall sales volume. Domestic sales in 1998 were $ 1 million
or 54% of total sales, compared to $ 1.4 million or 67% of total sales in
1997. International sales in 1998 were $0.8 million or 46% of total sales,
compared to $ 0.7 million or 33% of total sales in 1997. The Company
believes that the decrease in overall sales is due to declining domestic
sales.
Gross profit for 1998 decreased from the corresponding period of 1997
by $0.15 million, or 17%, to $0.7 million. As a percentage of total sales,
gross profit was 39% and 41% for 1998 and 1997, respectively. Currently,
there are no known future increases in costs of materials, labor or other
price increases which could have an effect on sales other than normal
inflation increases.
Selling and marketing expenses for 1998 decreased from the
corresponding period of 1997 by approximately $ 0.2 million or 22% to $ 0.6
million. As a percentage of total sales, selling and marketing expenses
decreased to 34% for 1998 compared to 38% for 1997. The decrease is
primarily due to changes in marketing staff.
General and administrative expenses for 1998 decreased from the
corresponding period of 1997 by $.01 million, or 7% to $0.17 million. The
decrease in G & A expenses is the result of changes in office staff. As a
percentage of total sales, G & A expenses increased to 9.1% in 1998
compared to 8.7% in 1997.
Research and development expenses for 1998 remained relatively steady
in comparison to 1997 at $ .02 million. As a percentage of total sales, R
& D expenses also remained steady at 1.0% of sales in 1998 and 1997.
Loss from operations for 1998 as compared to the same period of 1997
decreased by $ .03 million. As a percentage of total sales, operating
losses decreased to 5.4% for 1998 compared to 6.2% for 1997. The operating
losses are a result of the factors indicated above.
Liquidity and capital resources
-------------------------------
Working capital at December 31, 1999 was $376,983 as compared to
$330,476 in working capital at December 31, 1998. The increase was
attributable to the net income for the year ended December 31, 1999 as well
borrowings from long term debt.
The Company maintains a $ 100,000 line-of-credit agreement with a
bank. The line is collateralized by a security interest in substantially
all assets of the Company. Interest is payable monthly at the bank's prime
rate plus 1.5%. There were no borrowings outstanding on this line at
December 31, 1999.
Long term debt of $37,500 at December 31, 1999 consists of 8%
convertible notes payable. There are no other notes payable outstanding at
December 31, 1999.
Capital expenditures totaled approximately $16,000 in 1999 and $7,000
in 1998. No material purchase or capital commitments exist at December 31,
1999.
The Company believes that cash generated from operations, together
with the existing sources of debt financing, will be sufficient to meet
foreseeable cash requirements through 2000.
Item 7a - Quantitative and Qualitative Disclosures about Market Risk
- --------------------------------------------------------------------
Not appicable.
Item 8 - Financial Statements and Supplementary Data
- ----------------------------------------------------
Financial statements and schedules together with the auditors'
reports thereon are referred to Part IV and are attached hereto.
Item 9 - Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosures
---------------------
1. Disagreements with Accountants on Accounting and Financial
Disclosure:
None
2. Changes in Registrant's Certifying Accountants
None
PART III
Item 10 - Directors, Executive Officers of the Registrant
- ---------------------------------------------------------
The information required with respect to the Directors and the
Executive Officers of the Company is incorporated herein by reference to
"Executive Officers" in the Proxy Statement and is incorporated herein by
reference.
Item 11 - Executive Compensation
- --------------------------------
The information required with respect to executive compensation of
the Company is incorporated herein by reference to "Executive Officer
Compensation" in the Proxy Statement and is incorporated herein by
reference.
Item 12 - Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The information required by this item with respect to security
ownership and management and certain beneficial owners of the Company is
incorporated by reference to the caption "Stock Ownership of Directors,
Executive Officers and Principal Stockholders" contained in the Proxy
Statement and is incorporated herein by reference.
The Company knows of no arrangements, including any pledge by any
person of securities of the Company, the operation of which may at a
subsequent date result in a change in control of the Company. The Company
also knows of no agreements among its shareholders which relate to voting
or investment power of its shares of Common Stock.
Item 13 - Certain Relationships and Related Transactions
- --------------------------------------------------------
The Company has signed an agreement with Cramer Production Company,
Inc. (Cramer) of Norwood, Massachusetts, to produce a series of
instructional video tapes supporting modular technology programs offered by
the Company. An officer/shareholder of Cramer is director of the Company.
Cramer is responsible under the agreement for all video production and
video cassette reproduction. The videotapes are exclusively marketed by
Company. The Company provides scripts for the modules, technical
representatives, program materials and is also responsible for packaging,
design and promotion. Purchases from Cramer under this agreement were
approximately $4,500 , $ 21,300 and $30,200 for the years ended December
31, 1999, 1998 and 1997, respectively.
Commissions paid to a related entity for the years ended December
31, 1999, 1998 and 1997 were approximately $12,000, $27,000 and $26,000,
respectively.
The Company has entered into a lease agreement for its Tewksbury,
Massachusetts facility with Lorig Corporation, which is owned by members of
the family of an officer and majority stockholder of the Company. The
Company believes the lease agreement is either favorable or comparable to
others based on a market value of the facility. The lease expired in
November, 1999 and the Company now leases the facility on a tenant at will
basis.
PART IV
Item 14 - Exhibits, Financial Statements, Schedules and Reports on Form 8-K Page
- --------------------------------------------------------------------------- ----
a) The following documents are filed as a part of this Report:
1. Financial Statement:
Report of Independent Certified Public Accountants 10
Balance sheet at December 31, 1999 and 1998 11
Statement of operations for the years
ended December 31, 1999, 1998 and 1997 12
Statement of Stockholders' equity for the years
ended December 31, 1999, 1998 and 1997 13
Statement of cash flows for the years
ended December 31, 1999, 1998 and 1997 14
Notes to Financial Statements 15
2. Schedules for the years ended December 31, 1999, 1998
and 1997
Schedule II - Valuation and Qualifying Accounts 20
All other schedules called for under Regulation S-X are
not submitted because they are not applicable or not
required, or because the required information is included
in the Consolidated financial statements and notes
thereto.
3. Exhibits:
The following exhibits are filed herewith:
27.1 Financial data schedule 22
b) Reports on Form 8-K:
The Company filed no Reports on Form 8-K with the Securities
and Exchange Commissions during the quarter ended December 31,
1999.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Board of Directors and Stockholders of
Megatech Corporation
We have audited the accompanying balance sheet of Megatech
Corporation as of December 31, 1999 and 1998, and the related statements of
operations, stockholders' equity and cash flows for the years ended
December 31, 1999, 1998 and 1997. These financial statements are the
responsibility of the Company'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 our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Megatech
Corporation as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for the years ended December 31, 1999, 1998
and 1997 in conformity with generally accepted accounting principles.
Our audits, referred to above, also include the financial schedules
listed in the Index at Item 14(a)(2). In our opinion, based on our audit,
such financial schedules present fairly the information required to be set
forth therein.
SULLIVAN BILLE, P.C.
Tewksbury, Massachusetts
February 22, 2000
MEGATECH CORPORATION
====================
BALANCE SHEET, DECEMBER 31, 1999 AND 1998
1999 1998
- ---------------------------------------------------------------------------
A S S E T S
===========
CURRENT ASSETS:
Cash and cash equivalents $ 75,857 $ 187,580
Accounts receivable:
Trade (less allowance for doubtful
accounts: 1999, $9,934; 1998, $10,166) 280,389 101,502
Other 3,581 14,149
Inventories 357,662 399,868
Prepaid expenses 4,361 5,464
--------------------------
Total current assets 721,850 708,563
PROPERTY AND EQUIPMENT - Net 65,731 72,145
OTHER ASSETS 7,666 7,666
--------------------------
TOTAL $ 795,247 $ 788,374
==========================
L I A B I L I T I E S A N D
S T O C K H O L D E R S' E Q U I T Y
CURRENT LIABILITIES:
Accounts payable - trade $ 77,192 $ 163,729
Accrued liabilities:
Customer advanced payments 172,953 142,609
Accrued commissions 24,055 7,334
Other 70,667 64,415
--------------------------
Total current liabilities 344,867 378,087
--------------------------
LONG-TERM DEBT 37,500
--------------------------
STOCKHOLDERS' EQUITY:
Common stock, authorized, 5,000,000 shares
of $.0143 par value; issued and
outstanding: 1999, 3,812,308 shares;
1998, 3,792,308 shares 54,516 54,230
Additional paid-in capital 4,014,661 4,013,947
Deficit (3,656,297) (3,657,890)
--------------------------
Stockholders' equity - net 412,880 410,287
--------------------------
TOTAL $ 795,247 $ 788,374
==========================
See notes to financial statements.
MEGATECH CORPORATION
====================
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
- ---------------------------------------------------------------------------------
SALES $1,794,553 $1,844,782 $2,097,454
COST OF SALES 1,034,245 1,123,575 1,227,910
--------------------------------------
GROSS PROFIT 760,308 721,207 869,544
--------------------------------------
OPERATING EXPENSES:
Selling and marketing 569,882 626,836 798,965
General and administrative 166,726 168,048 181,428
Research and development 21,708 25,404 19,993
--------------------------------------
Total operating expenses 758,316 820,288 1,000,386
--------------------------------------
INCOME (LOSS) FROM OPERATIONS 1,992 (99,081) (130,842)
OTHER INCOME (EXPENSE) - Net (399) (454) 1,236
--------------------------------------
NET INCOME (LOSS) $ 1,593 $ (99,535) $ (129,606)
======================================
NET INCOME (LOSS) PER SHARE - Basic and
diluted $ .001 $ (.026) $ (.034)
======================================
See notes to financial statements.
MEGATECH CORPORATION
====================
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
COMMON STOCK ADDITIONAL
-------------------- PAID-IN STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY - NET
- ---------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 3,789,308 $54,187 $4,034,817 $(3,428,749) $660,255
ISSUANCE OF COMMON STOCK 3,000 43 406 449
COMPENSATION 14,875 14,875
STOCK OPTIONS TERMINATED (240) (240)
NET LOSS FOR THE YEAR (129,606) (129,606)
----------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 3,792,308 54,230 4,049,858 (3,558,355) 545,733
COMPENSATION 8,714 8,714
STOCK OPTIONS TERMINATED (44,625) (44,625)
NET LOSS FOR THE YEAR (99,535) (99,535)
----------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 3,792,308 54,230 4,013,947 (3,657,890) 410,287
ISSUANCE OF COMMON STOCK 20,000 286 714 1,000
NET INCOME FOR THE YEAR 1,593 1,593
----------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 3,812,308 $54,516 $4,014,661 $(3,656,297) $412,880
================================================================
See notes to financial statements.
MEGATECH CORPORATION
====================
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
- -------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,593 $ (99,535) $(129,606)
Adjustments to reconcile net income (loss) to net
Cash provided by (used in) operating activities:
Non-cash charges (credit) to net income (loss):
Depreciation and amortization 19,092 20,509 23,851
Compensation funded by stock options - net (35,911) 14,635
Common stock awarded as compensation 1,000 449
Loss on sale of property and equipment 3,225
Decrease (increase) in current assets:
Accounts receivable (168,319) 241,030 103,457
Inventories 42,206 9,683 (29,172)
Prepaid expenses 1,103 16,693 (5,030)
Increase (decrease) in current liabilities:
Accounts payable (86,537) (109,654) (44,880)
Accrued liabilities 53,317 121,690 19,988
------------------------------------
Net cash provided by (used in)
operating activities (133,320) 164,505 (46,308)
------------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES -
Additions to property and equipment (15,903) (6,951) (13,184)
------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments on) line of credit - net (25,000) 25,000
Payments on capital lease obligation (1,252)
Proceeds from issuance of long-term debt 37,500
------------------------------------
Net cash provided by (used in)
financing activities 37,500 (25,000) 23,748
------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (111,723) 132,554 (35,744)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 187,580 55,026 90,770
------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 75,857 $ 187,580 $ 55,026
====================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 839 $ 892 $ 756
Taxes paid 351 715 1,393
See notes to financial statements.
MEGATECH CORPORATION
====================
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
--------------------
1. OPERATIONS
Megatech Corporation is engaged in the production and sale of
educational training programs in the energy, power and
transportation areas which are sold domestically and internationally
to educational institutions and government agencies. Inherent in the
line of business in which the Company is engaged, is the risk of
product line obsolescence due to technological advances. There also
exists the risk that certain customers, such as governmental
agencies, which are funded by tax revenues, may be subject to budget
reductions. The Company grants credit to its customers.
Approximately 39%, 46% and 33% of sales during the years ended
December 31, 1999, 1998 and 1997, respectively, were from
international sales.
There was one customer that accounted for 36%, 28% and 20% of sales
for the years ended December 31, 1999, 1998 and 1997, respectively.
No other customers accounted for more than 10% of sales in each of
the years ended December 31, 1999, 1998 and 1997.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Revenue Recognition
-------------------
Revenue from product sales are recognized upon shipment. Revenue for
maintenance and service and other revenues are recognized as the
services are performed.
Cash and Cash Equivalents
-------------------------
For purposes of reporting cash flows, cash and cash equivalents
include cash and all highly liquid investments with original
maturities of three months or less.
Inventories
-----------
Inventories are valued at the lower of cost (first-in-first-out
method) or market.
Property and Equipment
----------------------
Property and equipment are recorded at cost. Depreciation and
amortization are computed principally on the straight-line method
for financial accounting purposes, and accelerated methods for tax
purposes, over the estimated useful lives of the assets.
Leasehold improvements are amortized on the straight-line method over
their respective lives or the lease terms, whichever is shorter.
Costs of maintenance and repairs are charged to expense while costs of
significant renewals and betterments are capitalized.
Income Taxes
------------
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is
used to reduce deferred tax assets when it is "more likely than not"
that some portion or all of the deferred tax assets will not be
realized.
3. INVENTORIES
Inventories consisted of the following:
December 31,
--------------------
1999 1998
---- ----
Raw material $182,614 $186,176
Work in Process 29,903 37,477
Finished goods 145,145 176,215
--------------------
Total $357,662 $399,868
====================
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
December 31,
--------------------
1999 1998
---- ----
Machinery and equipment $242,571 $237,081
Office equipment 134,684 124,270
Leasehold improvements 69,776 69,776
Automobile 26,944 32,632
--------------------
Total 473,975 463,759
Less accumulated depreciation and
Amortization 408,244 391,614
--------------------
Property and equipment - net $ 65,731 $ 72,145
====================
The useful lives employed for computing depreciation and amortization
on principal classes of property and equipment are as follows:
Class Description Years
----------------- -----
Machinery and equipment 5 - 7
Office equipment 5 - 7
Leasehold improvements 10
Automobile 5
5. LINE OF CREDIT
The Company has a $100,000 line-of-credit agreement with a bank. The
line is collateralized by a security interest in substantially all
assets of the Company. Interest is payable monthly at the bank's
prime rate plus 1.5% (1999, 10%; 1998, 9.25%). There were no
borrowings outstanding on this line at December 31, 1999 and 1998.
6. LONG-TERM DEBT
Long-term debt of $37,500 at December 31, 1999, consisted of 8%
convertible notes payable. Interest is payable quarterly and the
outstanding principle balance is due June 2001. The notes are
convertible at the option of the holder into shares of the Company's
common stock at a conversion rate of $1 per share. If at anytime
prior to the notes maturity date or conversion by the holder, the
Company's common stock has market price of at least $2 for five
consecutive trading days, the notes are convertible at the option of
the Company into shares of the Company's common stock at a
conversion rate of $1 per share.
7. LEASE AGREEMENTS
The Company leased its office, research and production facility in
Tewksbury, Massachusetts from a related party, under a five- year
operating lease which expired in November 1999. The Company now
leases the facility on a tenant-at-will basis. The Company is
responsible for all operating expenses and maintenance costs. Rent
expense was approximately $85,000, $86,000 and $85,000 for the years
ended December 31, 1999, 1998 and 1997, respectively.
8. INCOME TAXES
The Company has available federal net operating loss carryforwards of
approximately $1,821,400 expiring through December 2018 and state
operating loss carryforwards of approximately $300,200 expiring
through December 2003.
Significant components of the Company's deferred tax assets and
liabilities are as follows:
December 31,
------------------------
1999 1998
---- ----
Deferred income tax assets:
Federal and state net operating
loss carryforwards $ 647,800 $ 977,900
Allowance for doubtful accounts,
reserves and accruals 42,100 42,400
-------------------------
Total deferred income tax
Assets 689,900 1,020,300
Deferred income tax liabilities - tax
over book depreciation (9,000) (7,600)
Valuation allowance for deferred tax
Assets (680,900) (1,012,700)
------------------------
Net recognized deferred income tax
Benefit $ -0- $ -0-
========================
9. RELATED PARTY TRANSACTIONS
The Company has an agreement with Cramer Production Company, Inc.
(Cramer) of Norwood, Massachusetts to produce a series of
instructional video tapes supporting modular technology programs
offered by the Company. An officer/shareholder of Cramer is a
director of the Company. Cramer is responsible under the agreement
for all video production and video cassette reproduction. The
videotapes are exclusively marketed by the Company. The Company
provides scripts for the modules, technical representatives, program
materials and is also responsible for packaging, design and
promotion. Purchases from Cramer under this agreement, included in
cost of sales, were approximately $4,500, $21,300 and $30,200 for
the years ended December 31, 1999, 1998 and 1997, respectively.
Commissions paid to a related entity were approximately $12,000,
$27,000 and $26,000 during 1999, 1998 and 1997, respectively.
10. EMPLOYEE BENEFIT PLAN
The Company has a SIMPLE IRA Plan (the Plan), which covers all
employees who meet certain requirements. Under the terms of the
Plan, the Board of Directors determines annually the amount of the
matching contribution. The matching contribution for the years ended
December 31, 1999, 1998 and 1997 were approximately $4,400, $6,300
and $2,400, respectively.
11. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share has been computed using the weighted
average number of common shares outstanding.
Diluted net income (loss) per share gives effect to all dilutive
potential common shares that were outstanding during the period.
None of the convertible debt or options outstanding at period end
were included in the diluted net income (loss) per share calculation
for the years ended December 31, 1999, 1998 and 1997, since they
were anti-dilutive.
The weighted average number of shares outstanding is as follows:
Year Ended Number of
December 31, Shares
------------ ---------
1999 3,805,239
1998 3,792,308
1997 3,790,122
12. STOCK OPTIONS PLANS
The Company had issued stock options to various directors, officers,
employees and others under various stock option plans. Under the
terms of the plans, one third of the options become exercisable one
year from the date of grant, two thirds two years from the date of
grant and all options expire three years from the date of grant.
The following table summarizes stock option activity:
Stock Price
Options Per Share
------- ---------
Outstanding at December 31, 1996 76,000 .15 - $2.75
Expired or cancelled (34,000) .15 - 1.00
Outstanding at December 31, 1997 42,000 1.00 - 2.75
Expired (42,000) 1.00 - 2.75
Outstanding at December 31, 1998 and 1999 -0- $ -0-
SCHEDULE II
MEGATECH CORPORATION
====================
VALUATION AND QUALIFYING ACCOUNTS
- ----------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------------------------------------------------------------------------
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
- ----------------------------------------------------------------------------------------------------
Year Ended December 31, 1997:
- ------------------------------
Reserve for obsolescence $10,000 $-0- $-0- $-0- $10,000
Allowance for doubtful accounts $11,580 $-0- $-0- $510 $11,070
Year Ended December 31, 1998:
- -----------------------------
Reserve for obsolescence $10,000 $-0- $-0- $-0- $10,000
Allowance for doubtful accounts $11,070 $-0- $-0- $904 $10,166
Year Ended December 31, 1999:
- -----------------------------
Reserve for obsolescence $10,000 $-0- $-0- $-0- $10,000
Allowance for doubtful accounts $10,166 $-0- $-0- $232 $ 9,934
- ----------------------------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
MEGATECH CORPORATION
(Registrant)
By: /s/ Vahan V. Basmajian
----------------------
Vahan V. Basmajian, President, Treasurer and Director
Date: March 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
By: /s/ Vahan V. Basmajian
-----------------------
Vahan V. Basmajian, President, Treasurer and Director
By: /s/ Ralph E. Hawes
-------------------
Ralph E. Hawes, Director
By: /s/ Dennis A. Humphrey
-----------------------
Dennis A. Humphrey, Director & Clerk
By: /s/ Thomas J. Martin
---------------------
Thomas J. Martin, Director
By: /s/ Henry P. Ingwersen
-----------------------
Henry P. Ingwersen, Director
Date: March 28, 2000