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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, 1997 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:
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 24, 1998 was approximately $394,921 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 1,159,500.
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 24, 1998 was 3,792,308.
Portions of the registrant's definitive Proxy Statement for its Annual
Meeting of the stockholders to be held on May 11, 1998 (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 were two customers which accounted for 26% of total sales for
the year ended December 31, 1996. One customer accounted for 20% and 15% of
sales for the years ended December 31, 1997 and 1995, respectively. No
other customers accounted for more than 10% of sales in each of the years
ended December 31, 1997, 1996 and 1995.
Approximately 33%, 22% and 25% of sales during the years ended
December 31, 1997, 1996 and 1995, respectively, were from international
sales.
The Company's backlog as of December 31, 1997 and December 31, 1996
was $588,247 and $ 246,416, respectively.
As of December 31, 1997, the Company had 13 full-time and 6 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
---- ------ -----------
1997 $693,481 33%
1996 $493,491 22%
1995 $696,933 25%
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, that will expire in November 1999, and renewable for
an additional five years. 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 1997, 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
---- ---
1997 1st Quarter .25 .02
2nd Quarter .25 .02
3rd Quarter .25 .02
4th Quarter .25 .02
1996 1st Quarter 3.25 2.25
2nd Quarter 2.75 1.00
3rd Quarter 1.00 .25
4th Quarter .25 .02
1995 1st Quarter 2.50 1.75
2nd Quarter 2.00 1.75
3rd Quarter 3.25 2.00
4th Quarter 3.25 3.25
As of March 24, 1998, there were approximately 820 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.
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Sales $2,097,454 $2,216,978 $2,824,912 $4,050,844 $2,648,143
Income (Loss) from operations (130,842) (94,578) (48,310) 241,076 141,365
Net Income (Loss) (129,606) (95,633) (57,504) 203,009 109,379
Net Income (Loss)
per Common share (0.034) (0.025) (0.015) 0.053 0.029
Weighted average shares
outstanding 3,790,122 3,784,566 3,731,425 3,830,875 3,793,058
Total Assets 936,784 1,052,450 1,049,046 1,222,490 970,286
Long Term Obligations -0- -0- 1,230 8,728 75,324
Stockholders' equity 545,733 660,255 731,517 777,826 494,266
Cash Dividends Per Share -0- -0- -0- -0- -0-
Item 7 - Management's Discussion and Analysis of Financial Condition
- --------------------------------------------------------------------
and Results of Operation
------------------------
1997 Compared with 1996
-----------------------
Sales for 1997 decreased from the corresponding period of 1996 by $
0.1 million or 5%, to $2.1 million. This decrease was primarily due to a
decrease in overall sales volume. Domestic sales in 1997 were $ 1.4 million
or 67% of total sales, compared to $ 1.7 million or 78% of total sales in
1996. International sales in 1997 were $0.7 million or 33% of total sales,
compared to $ 0.5 million or 22% of total sales in 1996. The Company
believes that the decrease in overall sales is due to declining domestic
sales.
Gross profit for 1997 decreased from the corresponding period of 1996
by $0.05 million, or 5%, to $0.9 million. As a percentage of total sales,
gross profit remained steady at 41% for 1997 and 1996. 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 1997 increased from the
corresponding period of 1996 by approximately $ 0.01 million or 1% to $ 0.8
million. As a percentage of total sales, selling and marketing expenses
increased to 38% for 1997 compared to 36% for 1996. The increase is
primarily due to changes in marketing staff.
General and administrative expenses for 1997 decreased from the
corresponding period of 1996 by $.01 million, or 6% to $0.18 million. As a
percentage of total sales, G & A expenses remained steady at 8.7% for 1997
and 1996. The decrease of G & A expenses are a result of changes in office
staff.
Research and development expenses for 1997 decreased from the
corresponding period of 1996 by $.011 million, or 36% to $.02 million. As a
percentage of total sales, R & D expenses decreased to 0.95% for 1997
compared to 1.4% for 1996. The decrease of R & D expenses are a result of a
decrease in product development costs.
Loss from operations for 1997 as compared to the same period of 1996
increased by $ .03 million. As a percentage of total sales, operating
losses increased to 6.2% for 1997 compared to 4.3% for 1996. The operating
losses are a result of the factors indicated above.
1996 Compared with 1995
-----------------------
Sales for 1996 decreased from the corresponding period of 1995 by $
0.6 million or 22%, to $2.2 million. This decrease was primarily due to a
decrease in overall sales volume. Domestic sales in 1996 were $ 1.7 million
or 78% of total sales, compared to $ 2.1 million or 75% of total sales in
1995. International sales in 1996 were $0.5 million or 22% of total sales,
compared to $ 0.7 million or 25% of total sales in 1995. The Company
believes that the decrease in overall sales is due to declining sales in
Technology Education and International sales.
Gross profit for 1996 decreased from the corresponding period of 1995
by $0.3 million, or 25%, to $0.9 million. As a percentage of total sales,
gross profit was 41% for 1996 as compared to 43% in 1995. The decrease in
gross margins is due to lower overall sales, and higher sales in resale type
items, which typically have lower margins to be competitive. 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 1996 decreased from the
corresponding period of 1995 by approximately $ 0.2 million or 18% to $ 0.8
million. As a percentage of total sales, selling and marketing expenses
increased to 36% for 1996 compared to 34% for 1995. The increase is
primarily due to lower overall sales.
General and administrative expenses for 1996 decreased from the
corresponding period of 1995 by $.05 million, or 23% to $0.19 million. As a
percentage of total sales, G & A expenses decreased to 8.7% for 1996
compared to 8.8% for 1995. The decrease of G & A expenses are a result of
reduction in office staff.
Research and development expenses for 1996 decreased from the
corresponding period of 1995 by $.025 million, or 44% to $.03 million. As a
percentage of total sales, R & D expenses decreased to 1.4% for 1996
compared to 2% for 1995. The decrease of R & D expenses are a result of a
reduction in staff.
Loss from operations for 1996 as compared to the same period of 1995
increased by $ .04 million. As a percentage of total sales, operating
losses increased to 4.2% for 1996 compared to 1.6% for 1995. The operating
losses are a result of the factors indicated above.
Liquidity and capital resources
-------------------------------
Working capital at December 31, 1997 was $452,364 as compared to
$556,219 in working capital at December 31, 1996. The decrease was
attributable to the net loss for the year ended December 31, 1997.
The Company maintains a $ 200,000 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%. Borrowings outstanding on this line were $25,000 at
December 31, 1997. There were no borrowings outstanding at December 31,
1996.
There is no long term debt or other notes payable outstanding at
December 31, 1997.
Capital expenditures totaled approximately $13,000 in 1997 and $5,000
in 1996. No material purchase or capital commitments exist at December 31,
1997.
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 1998.
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
(As noted on Form 8-K filed January 10, 1997):
(a) On January 2, 1997, the Registrant appointed the accounting firm
of Sullivan Bille, P.C. as independent accountants for the year ended
December 31, 1996 to replace Gordon, Harrington & Osborn, P.C.,
effective with such appointment. Gordon, Harrington & Osborn, P.C.
declined to stand for reelection due to the amount of the audit fees
for the year ended December 31, 1996. The Registrant's Board of
Directors approved the selection of Sullivan Bille, P.C. as new
independent accountants upon the recommendation of the Registrant's
management. Management has not consulted with Sullivan Bille, P.C. on
any accounting, auditing or reporting matter.
(b) During the two most recent fiscal years and interim period
subsequent to December 31, 1995, through January 2, 1997, there have
been no disagreements with Gordon, Harrington & Osborn, P.C. on any
matter of accounting principles or practices, financial statement or
auditing scope or procedure or any reporting events.
(c) Gordon, Harrington & Osborn, P.C.'s report on the financial
statements for the past two years contained no adverse opinion or
disclaimer of opinion and was not qualified or modified as to
uncertainty audit scope or accounting principles.
(d) The registrant has provided Gordon, Harrington & Osborn, P.C.
with a copy of this disclosure and has requested that Gordon,
Harrington & Osborn, P.C. furnish it with a letter addressed to the
SEC stating whether it agreed with the above statements. (A copy of
Gordon, Harrington & Osborn, P.C.'s letter to the SEC is filed as
Exhibit 16 to the Amended Form 8-K).
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 $
30,200, $ 28,900 and $51,900 for the years ended December 31, 1997, 1996 and
1995, respectively.
During the years ended December 31, 1997 and 1996, sales to a related
entity were approximately $500 and $63,200. Commissions paid to the same
entity were approximately $26,000 and $15,900, respectively. There were no
such transactions for the year ended December 31, 1995.
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.
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:
Reports of Independent Certified Public Accountants 10
Balance sheet at December 31, 1997 and 1996 12
Statement of operations for the years
ended December 31, 1997, 1996 and 1995 13
Statement of Stockholders' equity for the years
ended December 31, 1997, 1996 and 1995 14
Statement of cash flows for the years
ended December 31, 1997, 1996 and 1995 15
Notes to Financial Statements 16
2. Schedules for the years ended December 31, 1997, 1996 and 1995
Schedule II - Valuation and Qualifying Accounts 22
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 24
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, 1997.
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, 1997 and 1996, and the statements of operations,
stockholders' equity and cash flows for the years then ended. 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, 1997 and 1996, and the results of its
operations and its cash flows for the years ended December 31, 1997 and 1996
in conformity with generally accepted accounting principles.
Our audit, referred to above, also includes the 1997 and 1996
financial schedules listed in the Index at Item 14(a)(2). In our opinion,
based on our audit, such 1997 and 1996 financial schedules present fairly
the information required to be set forth therein.
/s/ SULLIVAN BILLE, P.C.
Tewksbury, Massachusetts
February 12, 1998
[Gordan, Harrington & Osborn, P.C. Letterhead]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Board of Directors and Stockholders of
Megatech Corporation
We have audited the accompanying statements of operations,
stockholders' equity and cash flows of Megatech Corporation for the year
ended December 31, 1995. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of operations,
stockholders' equity and cash flows are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the statements of operations, stockholders' equity and
cash flows. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall presentation of the statements of operations, stockholders' equity
and cash flows. We believe that our audit of the statements of operations,
stockholders' equity and cash flows provide a reasonable basis for our opinion.
In our opinion, the statements of operations, stockholders' equity and
cash flows referred to above present fairly, in all material respects, the
results of operations and cash flows of Megatech Corporation for the year
ended December 31, 1995 in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedules listed in the
Index at Item 14(a)(2) are presented for the purpose of additional analysis
and are not a required part of the basic financial statements. Such
information has been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial
statements taken as a whole.
/s/ Gordan, Harrington & Osborn
North Andover, MA
February 23, 1996
MEGATECH CORPORATION
====================
BALANCE SHEET, DECEMBER 31, 1997 AND 1996
- -------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------
A S S E T S
===========
CURRENT ASSETS:
Cash and cash equivalents $ 55,026 $ 90,770
Accounts receivable:
Trade (less allowance for doubtful
accounts: 1997, $11,070; 1996,
$11,580) 335,891 407,169
Affiliate 355 50,945
Other 20,435 2,024
Inventories 409,551 380,379
Prepaid expenses 22,157 17,127
--------------------------
Total current assets 843,415 948,414
PROPERTY AND EQUIPMENT - Net 85,703 96,370
OTHER ASSETS 7,666 7,666
--------------------------
TOTAL $ 936,784 $ 1,052,450
==========================
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:
Note payable - bank $ 25,000
Accounts payable:
Trade 258,179 $ 309,562
Affiliate 15,204 8,701
Accrued commissions 46,558 32,622
Other accrued liabilities 46,110 40,058
Current obligation under capital lease 1,252
--------------------------
Total current liabilities 391,051 392,195
--------------------------
STOCKHOLDERS' EQUITY:
Common stock, authorized, 5,000,000 shares
of $.0143 par value; issued and
outstanding, 1997, 3,792,308 shares;
1996, 3,789,308, shares 54,230 54,187
Additional paid-in capital 4,049,858 4,034,817
Deficit (3,558,355) (3,428,749)
--------------------------
Stockholders' equity - net 545,733 660,255
--------------------------
TOTAL $ 936,784 $ 1,052,450
==========================
See notes to financial statements.
- -------------------------------------------------------------------------------
MEGATECH CORPORATION
====================
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------
SALES $2,097,454 $2,216,978 $2,824,912
COST OF SALES 1,227,910 1,299,326 1,608,867
--------------------------------------
GROSS PROFIT 869,544 917,652 1,216,045
--------------------------------------
OPERATING EXPENSES:
Selling and marketing 798,965 788,010 957,730
General and administrative 181,428 192,746 250,021
Research and development 19,993 31,474 56,604
--------------------------------------
Total operating
expenses 1,000,386 1,012,230 1,264,355
--------------------------------------
LOSS FROM OPERATIONS (130,842) (94,578) (48,310)
--------------------------------------
OTHER INCOME (EXPENSE):
Interest income 1,754 6 40
Interest expense (738) (1,189) (4,036)
Other 220 128 (5,198)
--------------------------------------
Other income (expense) -
net 1,236 (1,055) (9,194)
--------------------------------------
NET LOSS $ (129,606) $ (95,633) $ (57,504)
======================================
NET LOSS PER SHARE - Basic and
diluted $ (.034) $ (.025) $ (.015)
======================================
See notes to financial statements.
- -------------------------------------------------------------------------------
MEGATECH CORPORATION
====================
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
COMMON STOCK ADDITIONAL
-------------------- PAID-IN STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY - NET
- --------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 3,669,058 $52,467 $4,000,971 $(3,275,612) $ 777,826
STOCK OPTIONS EXERCISED 93,000 1,330 8,070 9,400
COMPENSATION 7,096 7,096
STOCK OPTIONS TERMINATED (5,301) (5,301)
NET LOSS FOR THE YEAR (57,504) (57,504)
----------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 3,762,058 53,797 4,010,836 (3,333,116) 731,517
ISSUANCE OF COMMON STOCK 5,250 75 5,990 6,065
STOCK OPTIONS EXERCISED 22,000 315 2,985 3,300
COMPENSATION 15,363 15,363
STOCK OPTIONS TERMINATED (357) (357)
NET LOSS FOR THE YEAR (95,633) (95,633)
----------------------------------------------------------------
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
================================================================
See notes to financial statements.
- -------------------------------------------------------------------------------
MEGATECH CORPORATION
====================
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(129,606) $(95,633) $ (57,504)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Non-cash charges to net loss:
Depreciation and amortization 23,851 27,586 25,392
Compensation funded by stock options 14,635 15,006 1,795
Common stock awarded as compensation 449 6,065
Increase in other assets (2,033)
Decrease (increase) in current assets:
Accounts receivable 103,457 74,258 (85,954)
Inventories (29,172) (53,043) 180,757
Prepaid expenses (5,030) (11,588) 12,238
Increase (decrease) in current
liabilities:
Accounts payable (44,880) 78,674 (65,336)
Accrued liabilities 19,988 35,946 (36,022)
----------------------------------
Net cash provided by (used in)
operating activities (46,308) 77,271 (26,667)
----------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES -
Additions to property and equipment (13,184) (5,425) (90,429)
----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit - net 25,000
Payments on capital lease obligation (1,252) (2,954) (2,142)
Principal payments on notes payable (37,000) (23,635)
Proceeds from issuance of common stock 3,300 9,400
----------------------------------
Net cash provided by (used in)
financing activities 23,748 (36,654) (16,377)
----------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (35,744) 35,192 (133,473)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR 90,770 55,578 189,051
----------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 55,026 $ 90,770 $ 55,578
==================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 756 $ 1,189 $ 4,036
Taxes paid 1,393 187 20,038
See notes to financial statements.
- -------------------------------------------------------------------------------
MEGATECH CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
--------------------
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 33%, 22% and
25% of sales during the years ended December 31, 1997, 1996 and 1995,
respectively, were from international sales.
There were two customers which accounted for 26% of sales for
the year ended December 31, 1996. One customer accounted for 20% and
15% of sales for the years ended December 31, 1997 and 1995,
respectively. No other customers accounted for more than 10% of sales
in each of the years ended December 31, 1997, 1996 and 1995.
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
------------
Amounts in the financial statements related to income taxes are
calculated using the principles of Financial Accounting Standards
Board Statement No. 109, "Accounting for Income Taxes" (SFAS 109).
Under SFAS 109, prepaid and deferred taxes reflect the impact of
temporary differences between the amounts of assets and liabilities
recognized for financial reporting purposes and the amounts recognized
for tax purposes as well as tax credit carryforwards and loss
carryforwards. These deferred taxes are measured by applying
currently enacted tax rates. 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,
--------------------
1997 1996
---- ----
Raw Material $199,841 $232,421
Finished Goods 209,710 147,958
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Total $409,551 $380,379
====================
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
December 31,
--------------------
1997 1996
---- ----
Machinery and equipment $237,081 $245,052
Office equipment 117,319 110,520
Leasehold improvements 69,776 69,776
Automobile 32,632 26,944
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Total 456,808 452,292
Less accumulated depreciation and
amortization 371,105 355,922
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Property and equipment - net $ 85,703 $ 96,370
====================
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. NOTE PAYABLE - BANK
The Company has a $200,000 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%, 10% at December 31, 1997. Borrowings
outstanding on this line were $25,000 at December 31, 1997. There
were no borrowings outstanding at December 31, 1996.
6. LEASE AGREEMENTS
The Company leases its office, research and production facility
in Tewksbury, Massachusetts from a related party, under a five- year
operating lease which expires in November 1999. Under the terms of
the lease, the Company is responsible for all operating expenses and
maintenance costs. Rent expense under this lease was approximately
$85,000, $95,700 and $92,300 for the years ended December 31, 1997,
1996 and 1995, respectively. The future minimum lease payments due
under the lease, as amended, are as follows:
Year Ended
December 31, Amount
------------ ------
1998 $ 89,605
1999 85,709
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Total $175,314
========
7. INCOME TAXES
The Company has available federal net operating loss
carryforwards of approximately $3,108,400 expiring through December
2012 and state operating loss carryforwards of approximately $175,600
expiring through December 2002.
Significant components of the Company's deferred tax assets and
liabilities are as follows:
December 31,
------------------------
1997 1996
---- ----
Deferred income tax assets:
Federal and state net operating
loss carryforwards $ 1,073,500 $ 1,029,200
Allowance for doubtful accounts,
reserves and accruals 57,100 47,140
--------------------------
Total deferred income tax
assets 1,130,600 1,076,340
Deferred income tax liabilities - tax
over book depreciation (6,500) (3,560)
Valuation allowance for deferred tax
assets (1,124,100) (1,072,780)
--------------------------
Net recognized deferred income tax
benefit $ -0- $ -0-
==========================
8. 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 $30,200, $28,900 and $51,900 for the years ended
December 31, 1997, 1996 and 1995, respectively.
During the years ended December 31, 1997 and 1996, sales to a
related entity were approximately $500 and $63,200. Commissions paid
to the same entity were approximately $26,000 and $15,900,
respectively. There were no such transactions during the year ended
December 31, 1995.
9. EMPLOYEE BENEFIT PLAN
During the year ended December 31, 1997, the Company adopted 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 year ended December 31, 1997 was
$2,365.
10. NET LOSS PER SHARE
Basic net loss per share has been computed in accordance with
SFAS 128 using the weighted average number of common shares
outstanding. The provisions and disclosure requirements for SFAS 128
were required to be adopted for interim and annual periods ending
after December 15, 1997, with restatement of earnings per share for
prior periods.
Diluted net loss per share gives effect to all dilutive
potential common shares that were outstanding during the period. The
Company had a net loss for the years ended December 31, 1997, 1996 and
1995; therefore, none of the options outstanding at period end were
included in the diluted net loss per share calculation for the years
ended December 31,1997, 1996 and 1995, since they were anti-dilutive.
The weighted average number of shares outstanding is as follows:
Year Ended Number of
December 31, Shares
------------ ---------
1997 3,790,122
1996 3,784,566
1995 3,731,875
11. STOCK OPTIONS PLANS
The Company has 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, 1994 148,000 $ .15 - $2.25
Granted 42,000 1.00 - 2.75
Expired or cancelled (16,000) .15 - 2.25
Exercised (93,000) .15 - .75
------------------------
Outstanding at December 31, 1995 81,000 .15 - 2.75
Granted 27,000 1.00
Expired or cancelled (10,000) .15
Exercised (22,000) .15
------------------------
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
========================
Options exercisable at December 31, 1996 28,000 $1.00 - $2.75
========================
12. RECLASSIFICATION OF AMOUNTS
Certain amounts in the financial statements for the years ended
December 31, 1996 and 1995 have been reclassified to conform to
current year presentation.
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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, 1995:
- -----------------------------
Reserve for obsolescence $10,000 $-0- $-0- $-0- $10,000
Allowance for doubtful
accounts $11,600 $-0- $-0- $ 20 $11,580
Year Ended December 31, 1996:
- -----------------------------
Reserve for obsolescence $10,000 $-0- $-0- $-0- $10,000
Allowance for doubtful
accounts $11,580 $-0- $-0- $-0- $11,580
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
- ------------------------------------------------------------------------------------------------
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: _______________________________
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
Date: _____________________________