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SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 2054
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002 or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission file number 0-9643
MEGATECH CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2461059
(State or other jurisdiction of (IRS. Employer
incorporation of organization) Identification No.)
555 WOBURN Street, TEWKSBURY, MA 01876
(Address of principal executive offices) (Zip Code)
(978) 937-9600
(Registrant's telephone number, including area code)
_____________________________________________________________
(Former name, former address and former fiscal
year, if changed since last report)
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 [X] No [ ]
There were 3,860,558 shares of common stock outstanding at October 31,
2002.
MEGATECH CORPORATION
QUARTERLY REPORT FORM 10-Q
September 30, 2002
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited) Page
Balance Sheet - September 30, 2002 and December 31, 2001 3
Statement of Operations- for the quarter and nine 4
months ended September 30, 2002 and September 30, 2001
Statement of Cash Flows- for the nine months ended 5
September 30, 2002 and September 30, 2001
Notes to Financial Statements- September 30, 2002 6
ITEM 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures About Market 10
Risk
ITEM 4. Controls and Procedures 10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 10
ITEM 2. Changes in Securities and Use of Proceeds 10
ITEM 3. Defaults Upon Senior Securities 10
ITEM 4. Submission of Matters to a Vote of Security Holders 10
ITEM 5. Other Information 10
ITEM 6. Exhibits and Reports on Form 8-K 10
Signature Page 11
Certification 12
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MEGATECH CORPORATION
BALANCE SHEET
Sept. 30, 2002 Dec. 31, 2001
-------------- -------------
(UNAUDITED) (AUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 187,529 $ 64,138
Accounts receivable:
Trade 133,461 254,061
Other 8,288 3,697
Inventories 448,925 216,506
Prepaid expenses 9,011 7,710
----------- -----------
Total current assets 787,214 546,112
Property, plant and equipment, net 92,438 71,233
Other assets 7,666 7,666
----------- -----------
Total Assets $ 887,318 $ 625,011
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 139,282 $ 50,160
Accrued Liabilities 66,124 51,964
Current portion of long-term debt 34,375 0
----------- -----------
Total current liabilities 239,781 102,124
----------- -----------
Long-term debt 0 37,500
Stockholders' equity:
Common Stock, par value $.0143 per share,
5,000,000 shares authorized; 3,860,558
(3,840,558 at 2001) shares issued and
outstanding 55,206 54,920
Additional paid-in capital 4,020,262 4,016,948
Deficit (3,427,931) (3,586,481)
----------- -----------
Total stockholders' equity 647,537 485,387
----------- -----------
Total liabilities and
stockholders' equity $ 887,318 $ 625,011
=========== ===========
See notes to financial statements.
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MEGATECH CORPORATION
STATEMENT OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED QUARTER ENDED
-------------------------------- --------------------------------
Sept. 30, 2002 Sept. 30, 2001 Sept. 30, 2002 Sept. 30, 2001
-------------- -------------- -------------- --------------
Sales $2,709,884 $1,342,768 $ 803,495 $ 497,207
Cost of sales 1,059,864 574,309 320,316 211,164
---------- ---------- ---------- ----------
Gross profit 1,650,020 768,459 483,179 286,043
---------- ---------- ---------- ----------
Operating expenses:
Selling 1,339,537 591,641 413,691 201,802
General and administrative 133,066 133,959 43,808 37,423
Research and development 12,377 12,925 4,727 3,528
---------- ---------- ---------- ----------
Total operating expenses 1,484,980 738,525 462,226 242,753
---------- ---------- ---------- ----------
Income from operations 165,040 29,934 20,953 43,290
---------- ---------- ---------- ----------
Other income (expense):
Interest income 2,134 138 2,134 0
Interest expense (8,584) (2,667) (713) (750)
Other (40) (190) 126 0
---------- ---------- ---------- ----------
Other income (expense), net (6,490) (2,719) 1,547 (750)
---------- ---------- ---------- ----------
Net income $ 158,550 $ 27,215 $ 22,500 $ 42,540
========== ========== ========== ==========
Net income per share - basic
and diluted $ 0.041 $ 0.007 $ 0.006 $ 0.011
========== ========== ========== ==========
Weighted average number of common 3,853,452 3,827,983 3,860,558 3,832,083
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MEGATECH CORPORATION
STATEMENT OF CASH FLOWS (Unaudited)
NINE MONTHS ENDED
--------------------------------
Sept. 30, 2002 Sept. 30, 2001
-------------- --------------
Cash flows from operating activities:
Net income $ 158,550 $ 27,215
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 17,101 14,934
Common stock issued as compensation 3,600 2,263
Changes in operating assets and liabilities:
Accounts receivable 116,009 73,554
Prepaid expenses (1,301) (4,345)
Inventories (232,419) 59,297
Accounts payable 89,122 (67,480)
Accrued liabilities 14,160 (22,933)
--------- ---------
Net cash provided by operating activities 164,822 82,505
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (38,306) (16,522)
--------- ---------
Net cash used by investing activities (38,306) (16,522)
--------- ---------
Cash flows from financing activities:
Principal payments on notes payable (103,125) (70,000)
Advances on notes payable 100,000 70,000
--------- ---------
Net cash used by financing activities (3,125) 0
--------- ---------
Net increase in cash and cash equivalents 123,391 65,983
Cash & cash equivalents, beginning of period 64,138 27,585
--------- ---------
Cash & cash equivalents, end of period $ 187,529 $ 93,568
========= =========
See notes to financial statements.
-5-
MEGATECH CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2002
1 NATURE OF THE BUSINESS
---------------------------------------------------------------------
Megatech Corporation, established in 1970, provides instructional
programs, along with training equipment, as a turnkey system for the
transportation industry. The company has developed and marketed a
comprehensive line of automotive trainers for schools, the military,
government and industry. Megatech has sold automotive/ technology
modules to over 4000 schools in the United States thereby
establishing excellent brand recognition throughout the country. In
addition, Megatech has exported to well over 20 nations around the
world.
Megatech Corporation has entered new markets in 2002 with several
market building projects either completed or in process. The Company
is providing the first component of a new Basic Knowledge and Skills
training program at Aberdeen Proving Grounds. In addition, the
Company has developed Ford Motor Company's first complete electricity
and electronics training program which will be used at the Ford
Factory ASSET Training Centers.
Recently, Megatech and Snap-On Tools entered into an agreement to
market Megatech trainers to the transportation industry, government,
and public education. Through Snap On Tools International, Megatech
is in the process of providing five state of the art training
programs to the national colleges of Venezuela.
2 BASIS OF PRESENTATION
---------------------------------------------------------------------
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary
for a fair presentation of the financial position, results of
operations and cash flows have been included. Operating results for
interim periods are not necessarily indicative of the operating
results that may be expected for the full year. For further
information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K.
-6-
3 SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
Revenue recognition
-------------------
Revenue from product sales are recognized upon shipment.
Inventories
-----------
Inventories are valued at lower of cost (first-in-first-out) or
market.
Property and Equipment
----------------------
Property and equipment are recorded at cost. Depreciation and
amortization is calculated using the straight-line method over the
estimated useful lives of the assets.
3 INVENTORIES
---------------------------------------------------------------------
Inventories consisted of the following:
Sept. 30, 2002 Dec. 31, 2001
-------------- -------------
Raw materials $178,529 $119,082
Work in process 89,676 37,096
Finished goods 180,720 60,328
-------- --------
$448,925 $216,506
======== ========
3 PROPERTY AND EQUIPMENT
---------------------------------------------------------------------
Property and equipment consisted of the following:
Sept. 30, 2002 Dec. 31, 2001
-------------- -------------
Machinery and equipment $246,296 $245,855
Office equipment 149,522 143,827
Leasehold improvements 70,226 69,776
Automobiles 90,119 58,399
-------- --------
Total $556,163 $517,857
Less accumulated depreciation $463,725 $446,624
-------- --------
Property and equipment - net $ 92,438 $ 71,233
======== ========
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4 LONG-TERM DEBT
---------------------------------------------------------------------
Long-term debt of $34,375 classified as current at September 30,
2002, consisted of 8% convertible notes payable. Interest is payable
quarterly and the outstanding principal balance was originally due
June 2001 and has been extended to June 2003. 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 a market price of at least $2 per share
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.
5 MAJOR CUSTOMER INFORMATION
---------------------------------------------------------------------
For the period ended September 30, 2002 and 2001, sales to one and
three unrelated sales representatives comprised 92% and 82% of total
sales, respectively.
ITEM 2.
MEGATECH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
RESULTS OF OPERATIONS
- ---------------------------------------------------------------------------
Quarter Ended September 30, 2002 compared to quarter ended September 30,
2001
Sales for the quarter ended September 30, 2002 were $803,495, compared to
$497,207 for the same quarter last year. The increase was primarily due to
an increase in international sales.
Gross profit for the quarter ended September 30, 2002 was $483,179 or 60%
of sales, compared to $286,043 or 58% of sales, for the same quarter last
year. The increase as a percentage of sales is the result of a decrease in
direct labor and material costs.
Selling and marketing expenses for the quarter ended September 30, 2002
were $413,691 or 51% of sales, compared to $201,802 or 41% of sales, for
the same quarter last year. The increase is due to higher sales
commissions, salaries and rent expense.
General and administrative expenses for the quarter ended September 30,
2002 were $43,808 or 5% of sales, compared to $37,423 or 8% of sales, for
the same quarter last year. The decrease as a percentage of sales is due to
a larger sales base, however, the total increase is due to an increase in
insurance, rent, and audit expense.
-8-
Research and development expenses for the quarter ended September 30, 2002
were $4,727 or 1% of sales, compared to $3,528 or 1% of sales, for the same
quarter last year. The increase is due to an increase in curriculum
development.
The net income for the quarter ended September 30, 2002 was $22,500
compared to net income of $42,540 for the same quarter last year. The
decrease is the result of the items discussed above.
Nine months Ended September 30, 2002 compared to nine months ended
September 30, 2001
Sales for the nine months ended September 30, 2002 were $2,709,884,
compared to $1,342,768 for the same period last year. The increase was due
to a increase in international sales.
Gross profit for the nine months ended September 30, 2002 was $1,650,020 or
61% of sales, compared to $768,459 or 57% of sales, for the same period
last year. The increase as a percentage of sales is the result of a
decrease in direct labor and materials costs.
Selling and marketing expenses for the nine months ended September 30, 2002
were $1,339,537 or 49% of sales, compared to $591,641 or 44% of sales, for
the same period last year. The increase is attributable to an increase in
commissions, rent, and salaries.
General and administrative expenses for the nine months ended September 30,
2002 were $133,066 or 5% of sales, compared to $133,959 or 10% of sales,
for the same period last year. The decrease as a percentage of sales is
attributable to relatively stable general and administrative expenses
despite increased sales.
Research and development expenses were relatively stable at $12,377 or .5%
of sales for the nine months ended September 30, 2002, and $12,925 or 1% of
sales for the nine months ended September 30, 2001.
The net income for the nine months ended September 30, 2002 was $158,550
compared to net income of $27,215 for the same period last year. The
increase is the result of the items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
- ---------------------------------------------------------------------------
Working capital as of September 30, 2002 was $547,433 compared to $443,988
in working capital at December 31, 2001. The increase is attributable to
the net income for the period net of the reclassification of notes payable
from long-term to current.
-9-
The company maintains a secured line of credit in the amount of $200,000.
The line is collaterized by a security interest in substantially all assets
of the Company. Interest is payable monthly at the bank's prime rate plus
1.5%. At September 30, 2002, no borrowings were outstanding on this line.
The company believes that cash generated from operations, together with
existing sources of debt financing, will be sufficient to meet foreseeable
cash requirements for the next twelve months.
Capital expenditures totaled approximately $38,000 for the nine months
ended September 30, 2002, compared to $17,000 for the same period in 2001.
No material purchase or capital commitments exist at September 30, 2002.
The firm's backlog as of September 30, 2002 was approximately $1,481,149
compared to $206,254 for same period ended in 2001.
ITEM 3. QUANITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
The company's disclosure controls and procedures have been evaluated. Based
on the evaluation, it was determined the Company's disclosure controls and
procedures are effective in ensuring information required to be disclosed
by the Company in its Exchange Act reports is accumulated and communicated
to the Company's management as appropriate to allow timely decisions
regarding required disclosures.
The Company's internal control structure has been evaluated . Based on the
evaluation, it was determined that there were no significant changes in the
Company's internal controls or in other factors that could affect these
controls subsequent to the date of the evaluation, including any corrective
action with regard to significant deficiencies and material weaknesses.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings: None.
- ----------------------------
Item 2. Changes in Securities: None.
- --------------------------------
Item 3. Defaults Upon Senior Securities: None.
- --------------------------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders: None.
- --------------------------------------------------------------
Item 5. Other Information: None.
- ----------------------------
Item 6. Exhibits and Reports on Form 8-K: None.
- -------------------------------------------
-10-
SIGNATURES
----------
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MEGATECH CORPORATION
(Registrant)
November 4, 2002 /s/ Vahan V. Basmajian
- ---------------- ------------------------------
Date Vahan V. Basmajian
President, Treasurer
CERTIFICATION
-------------
I, Vahan V. Basmajian, President, Treasurer, and Chairman of the Board of
Megatech Corporation certify that:
1) I have reviewed this quarterly report on Form 10-Q of Megatech
Corporation;
2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4) I, the registrant's certifying officer, am responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and I have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant is made known
to me by others within the registrant particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
-11-
5) I, the registrant's certifying officer, have disclosed, based on my
most recent evaluation, to the registrant's auditors and the
registrant's board of directors:
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6) I, the registrant's certifying officer, have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 4, 2002 /s/ Vahan V. Basmajian
- ---------------------- -------------------------------
Vahan V. Basmajian
President, Treasurer & Chairman
of the Board
-12-