SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
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 March 31, 2004 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 XX No __
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes __ No XX
There were 3,906,958 shares of common stock outstanding at May 5, 2004.
MEGATECH CORPORATION
--------------------
QUARTERLY REPORT FORM 10-Q
MARCH 31, 2004
Page
----
PART 1. FINANCIAL INFORMATION
-------------------------------
ITEM 1. Financial Statements (Unaudited)
Balance Sheet - March 31, 2004 and December 31, 2003 3
Statement of Operations- for the three months ended 4
March 31, 2004 and March 31, 2003
Statement of Cash Flows- for the three months ended 5
March 31, 2004 and March 31, 2003
Notes to Financial Statements- March 31, 2004 6
ITEM 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 10
ITEM 4. Controls and Procedures 10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 11
ITEM 2. Changes in Securities and Use of Proceeds 11
ITEM 3. Defaults Upon Senior Securities 11
ITEM 4. Submission of Matters to a Vote of Security Holders 11
ITEM 5. Other Information 11
ITEM 6. Exhibits and Reports on Form 8-K 11
Signature Page 12
Certification 13
-2-
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MEGATECH CORPORATION
BALANCE SHEET
MAR 31, 2004 DEC. 31, 2003
(UNAUDITED) (AUDITED)
------------ -------------
ASSETS
Current assets:
Cash and cash equivalents $ 49,437 $ 202,158
Accounts receivable:
Trade 189,658 113,037
Other 1,805 20,630
Inventories 463,747 418,713
Prepaid expenses 2,996 5,026
----------- -----------
Total current assets 707,643 759,564
Property and equipment, net 55,172 62,100
Other assets 7,666 7,666
----------- -----------
Total Assets $ 770,481 $ 829,330
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade 85,700 38,062
Accrued liabilities 71,917 116,337
Customer advance payments 21,144 12,487
----------- -----------
Total current liabilities 178,761 166,886
----------- -----------
Stockholders' equity:
Common Stock, par value $.0143 per share,
5,000,000 shares authorized; 3,906,958
shares issued and outstanding 55,869 55,869
Additional paid-in capital 4,028,822 4,028,822
Deficit (3,492,971) (3,422,247)
----------- -----------
Total stockholders' equity 591,720 662,444
----------- -----------
Total liabilities and stockholders' equity $ 770,481 $ 829,330
=========== ===========
-3-
MEGATECH CORPORATION
STATEMENT OF OPERATIONS (UNAUDITED)
QUARTER ENDED
MARCH 31, 2004 MARCH 31, 2003
-------------- --------------
Sales $ 338,382 $1,568,394
Cost of sales 198,666 678,744
---------- ----------
Gross profit 139,716 889,650
---------- ----------
Operating expenses:
Selling & Marketing 160,410 651,782
General and administrative 45,961 60,870
Research and development 4,103 12,239
---------- ----------
Total operating expenses 210,474 724,891
---------- ----------
Income (loss) from operations (70,758) 164,759
---------- ----------
Other income (expense):
Interest income 296 820
Interest expense (262) (1,075)
Other income (expense) 0 57
---------- ----------
Other income (expense), net 34 (198)
---------- ----------
Net income (loss) $ (70,724) $ 164,561
========== ==========
Net income (loss) per share - basic
and diluted $ (0.018) $ 0.042
========== ==========
Weighted average number of common
shares outstanding 3,906,958 3,886,802
========== ==========
See notes to financial statements.
-4-
MEGATECH CORPORATION
STATEMENT OF CASH FLOWS (UNAUDITED)
QUARTER ENDED
MARCH 31, 2004 MARCH 31, 2003
-------------- --------------
Cash flows from operating activities:
Net income (loss) $ (70,724) $ 164,561
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 6,928 5,700
Loss on sale of property and equipment 0 1,170
Changes in operating assets and liabilities:
Accounts receivable (57,796) (225,445)
Prepaid expenses 2,030 (15,948)
Inventories (45,034) 404,194
Accounts payable- trade 47,638 (69,745)
Accrued liabilities (44,420) (13,412)
Customer advance payments 8,657 (90,109)
--------- ---------
Net cash provided by (used in)
operating activities (152,721) 160,966
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment 0 (5,646)
--------- ---------
Net cash used in investing activities 0 (5,646)
--------- ---------
Cash flows from financing activities:
Payments on line of credit 0 (170,000)
Advances on line of credit 0 70,000
--------- ---------
Net cash provided by (used in) financing
activities 0 (100,000)
--------- ---------
Net increase (decrease) in cash and cash
equivalents (152,721) 55,320
Cash & cash equivalents, beginning of
period 202,158 30,327
--------- ---------
Cash & cash equivalents, end of period $ 49,437 $ 85,647
========= =========
See notes to financial statements.
-5-
MEGATECH CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2004
1 NATURE OF THE BUSINESS
----------------------
Megatech Corporation began its operations in 1970 and went public in 1972.
It was originally organized to develop and sell its proprietary and
patented oil-less, multi-fueled, transparent engine. The inventors are
M.I.T. graduates, well known for their technological expertise.
Megatech developed the nation's first modular technology program focusing
on energy conversion devices and alternative energies, such as: solar
thermal, solar photovoltaic, wind, hydro and geothermal systems. Following
these modules, Megatech added to its product line 40 more modules covering
communications technology in fiber optics, laser, ultrasonic, microwave,
and satellite systems. Due to limited resources, however, the Company
elected to withhold these modules since they require highly skilled staff
to train instructors and initiate production.
The transportation industry has undergone tremendous changes in the past
decade. New innovation in braking systems, steering and suspension,
computer-controlled engines, and safety features have fueled the demand for
high-tech trainers. Megatech's automotive division has come to the aid of
schools and industry alike to meet these needs and capitalize on this
tremendous business potential.
Megatech Corporation provides instructional programs, along with training
equipment, as a turnkey system for the transportation industry. Automotive
programs based on gas/diesel engines have been delivered with either GM,
VW, Ford or Cummins engines to schools; truck diesel trainers have been
delivered to nationally prominent training centers, the U.S. Military and
to the Middle East. In addition, Megatech provides programs for marine
diesel, auto gasoline, and various hydraulic trainers for transportation
technology programs.
Since the transportation industry brought vast changes in electronics and
computerized vehicle management systems, it created a large demand for
training students and technicians in both schools and industry. Because
Megatech pioneered in Technology Education Modules, the Company applied its
knowledge towards creating new designs for automotive training of students
and dealership technicians.
During the past 15 years, Megatech has been developing and marketing a
comprehensive line of Automotive Trainers for schools, U.S. military,
government and industry. Approximately 4000 schools in the United States
and well over 20 nations around the world have bought Megatech
automotive/technology modules.
-6-
Megatech recently entered new markets with several custom designed trainers
for both the U.S. military and the automotive industry. The Company
successfully completed new Basic Knowledge and Skills modules at Aberdeen
Proving Grounds. This was the first large scale military project the
Company has secured in the electronics area. In addition, the Company
developed Ford Motor Company's first complete electricity and electronics
training program which will be used worldwide in the Ford Factory Training
Centers, Maintenance and Light Repair Programs, and Ford Asset Programs.
Snap On Corporation, one of the largest manufacturer in the U.S. of
automotive tools and diagnostic equipment, has an agreement with Megatech
to market Megatech trainers to the transportation industry, government, and
public education. Snap On considers Megatech automotive trainers
complimentary to their line of tools and diagnostic equipment and believes
the trainers will enhance the sale of Snap On products to public education.
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.
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. Costs of maintenance and repairs are charged to
expense while costs of significant renewals and betterments are
capitalized.
-7-
4 INVENTORIES
-----------
Inventories consisted of the following:
MARCH 31, 2004 DEC. 31, 2003
-------------- -------------
Raw materials $236,305 $247,703
Work in process 20,571 23,175
Finished goods 206,871 147,835
-------- --------
$463,747 $418,713
======== ========
5 PROPERTY AND EQUIPMENT
----------------------
Property and equipment consisted of the following:
MARCH 31, 2004 DEC. 31, 2003
-------------- -------------
Machinery and equipment $ 21,207 $ 21,207
Office equipment 49,073 49,073
Leasehold improvements 71,054 71,054
Automobiles 60,374 60,374
-------- --------
Total 201,708 201,708
Less accumulated depreciation 146,536 139,608
-------- --------
Property and equipment - net $ 55,172 $ 62,100
======== ========
6 MAJOR CUSTOMER INFORMATION
--------------------------
For the period ended March 31, 2004 and 2003, sales to five and one
unrelated sales representative comprised 82% and 94% of total sales,
respectively.
-8-
ITEM 2.
MEGATECH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR QUARTERS ENDED MARCH 31, 2004 AND 2003
RESULTS OF OPERATIONS
---------------------
Quarter Ended March 31, 2004 compared to quarter ended March 31, 2003
Sales for the quarter ended March 31, 2004 were $338,382, compared to
$1,568,394 for the same quarter last year. The decrease was primarily due
to a decrease in international sales. Domestic sales in the quarter ended
March 31, 2004 were $302,832 or 89% of total sales, compared to $406,067or
26% of total sales for the same period last year. International sales in
the quarter ended March 31, 2004 were $35,550 or 11% of total sales,
compared to $1,162,327 or 74% of total sales for the same period last year.
The decrease in international sales is attributable to sales through Snap
On International of training equipment and programs to the national
colleges of Venezuela in the first quarter of 2003.
Gross profit for the quarter ended March 31, 2004 was $139,716 or 41% of
sales, compared to $889,650 or 57% of sales, for the same quarter last
year. The decrease as a percentage of sales is the result of increased
material costs. 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 the quarter ended March 31, 2004 were
$160,410 or 47% of sales, compared to $651,782 or 42% of sales for the same
period last year. Major changes compared to the prior year include a
decrease in commission expense as a percentage of sales to 22% from 36% in
the prior year. The overall increase as a percentage of sales is due to
fixed selling expenses accompanied by a decrease in sales.
General and administrative expenses for the quarter ended March 31, 2004
were $45,961 or 14% of sales, compared to $60,870 or 4% of sales for the
same period last year. Major changes compared to prior year include a
decrease in legal fees, accounting fees, and salaries. The overall
increase as a percentage of sales is due to fixed G & A expenses
accompanied by a decrease in sales.
Research and development expenses for the quarter ended March 31, 2004 were
$4,103 or 1% of sales, compared to $12,239 or 1% of sales, for the same
quarter last year. The decrease is due to the reduction of engineering
staff.
The net loss for the quarter ended March 31, 2004 was $70,724 compared to a
net income of $164,561 for the same quarter last year. The decrease is the
result of the items discussed above.
-9-
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Working capital as of March 31, 2004 was $528,882 compared to $592,678 in
working capital at December 31, 2003. The decrease was primarily the
result of the net loss for the quarter.
The Company maintains a secured line of credit in the amount of $500,000.
At March 31, 2004, no borrowings were outstanding under 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.
There were no capital expenditures for the three months ended March 31,
2004, compared to $5,600 for the same period in 2003. No material purchase
or capital commitments exist at March 31, 2004.
The Company's backlog as of March 31, 2004 was $132,000 compared to
$694,000 for the same period ended in 2003.
ITEM 3. QUANTITATIVE 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.
-10-
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:
(a) The following exhibits are filed herewith:
31 Certification
32 Certification of Chief Executive Officer
(b) Report on Form 8-K None.
-11-
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)
May 5, 2004 /s/ Vahan V. Basmajian
----------- ------------------------------------
Date Vahan V. Basmajian
President, Treasurer
-11-