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 June 30, 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 August 5, 2004.
1
MEGATECH CORPORATION
--------------------
QUARTERLY REPORT FORM 10-Q
JUNE 30, 2004
PART 1. FINANCIAL INFORMATION
-------------------------------
ITEM 1. Financial Statements (Unaudited) Page
----
Balance Sheet - June 30, 2004 and December 31, 2003 3
Statement of Operations- for the quarter and six months 4
ended June 30, 2004 and June 30, 2003
Statement of Cash Flows- for the six months ended 5
June 30, 2004 and June 30, 2003
Notes to Financial Statements- June 30, 2004 6
ITEM 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 9
ITEM 4. Controls and Procedures 9
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
Exhibits 12
2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MEGATECH CORPORATION
BALANCE SHEET
JUNE 30, 2004 DEC. 31, 2003
(UNAUDITED) (AUDITED)
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 37,581 $ 202,158
Accounts receivable:
Trade 216,661 113,037
Other 1,805 20,630
Inventories 554,405 418,713
Prepaid expenses 3,393 5,026
---------- ----------
Total current assets 813,845 759,564
Property and equipment, net 49,116 62,100
Other assets 7,666 7,666
---------- ----------
Total assets $ 870,627 $ 829,330
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable - line of credit $ 125,000 $ 0
Accounts payable - trade 129,791 38,062
Accrued liabilities 72,813 116,337
Customer advance payments 40,326 12,487
---------- ----------
Total current liabilities 367,930 166,886
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 (3,581,994) (3,422,247)
---------- ----------
Total stockholders' equity 502,697 662,444
---------- ----------
Total liabilities and stockholders' equity $ 870,627 $ 829,330
========== ==========
See notes to financial statements
3
MEGATECH CORPORATION
STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED QUARTER ENDED
JUNE 30, 2004 JUNE 30, 2003 JUNE 30, 2004 JUNE 30, 2003
------------- ------------- ------------- -------------
Sales $ 619,559 $2,252,064 $ 281,177 $ 683,670
Cost of sales 351,217 970,832 152,551 292,088
---------- ---------- ---------- ----------
Gross profit 268,342 1,281,232 128,626 391,582
---------- ---------- ---------- ----------
Operating expenses:
Selling 312,749 964,500 152,339 312,718
General and administrative 102,620 112,478 56,659 51,608
Research and development 11,205 18,942 7,102 6,703
---------- ---------- ---------- ----------
Total operating expenses 426,574 1,095,920 216,100 371,029
---------- ---------- ---------- ----------
Income (loss) from operations (158,232) 185,312 (87,474) 20,553
---------- ---------- ---------- ----------
Other income (expense):
Interest income 466 1,486 170 666
Interest expense (1,091) (1,133) (829) (58)
Other income (expense) (890) 57 (890) 0
---------- ---------- ---------- ----------
Other income (expense), net (1,515) 410 (1,549) 608
---------- ---------- ---------- ----------
Net income (loss) $ (159,747) $ 185,722 $ (89,023) $ 21,161
========== ========== ========== ==========
Net income (loss) per share
- basic and diluted $ (0.041) $ 0.047 $ (0.023) $ 0.005
========== ========== ========== ==========
Weighted average number of common
shares outstanding 3,906,958 3,886,875 3,906,958 3,886,958
========== ========== ========== ==========
See notes to financial statements.
4
MEGATECH CORPORATION
STATEMENT OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED
JUNE 30, 2004 JUNE 30, 2003
------------- -------------
Cash flows from operating activities:
Net income (loss) $(159,747) $ 185,722
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 12,984 11,400
Loss on sale of property and equipment 0 1,170
Common stock issued as compensation 0 160
Changes in operating assets and liabilities:
Accounts receivable (84,799) (247,351)
Prepaid expenses 1,633 (12,534)
Inventories (135,692) 365,848
Accounts payable- trade 91,729 (78,804)
Accrued liabilities (43,524) (20,047)
Customer advance payments 27,839 1,762
--------- ---------
Net cash provided by (used in) operating activities (289,577) 207,326
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment 0 (5,646)
--------- ---------
Net cash provided by (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 125,000 70,000
Payments on notes payable 0 (9,375)
--------- ---------
Net cash used in financing activities 125,000 (109,375)
--------- ---------
Net increase (decrease) in cash and cash equivalents (164,577) 92,305
Cash & cash equivalents, beginning of period 202,158 30,327
--------- ---------
Cash & cash equivalents, end of period $ 37,581 $ 122,632
========= =========
See notes to financial statements.
4
MEGATECH CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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.
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.
6
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.
4 INVENTORIES
-----------
Inventories consisted of the following:
JUNE 30, 2004 DEC. 31, 2003
------------- -------------
Raw materials $274,229 $247,703
Work in process 19,996 23,175
Finished goods 260,180 147,835
-------- --------
$554,405 $418,713
======== ========
7
5 PROPERTY AND EQUIPMENT
----------------------
Property and equipment consisted of the following:
JUNE 30, 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 152,592 139,608
-------- --------
Property and equipment - net $ 49,116 $ 62,100
======== ========
6 MAJOR CUSTOMER INFORMATION
--------------------------
For the period ended June 30, 2004 and 2003, sales to three unrelated sales
representatives comprised 49% and 84% of total sales, respectively.
ITEM 2.
MEGATECH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE QUARTER
AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003
RESULTS OF OPERATIONS
---------------------
Quarter Ended June 30, 2004 compared to quarter ended June 30, 2003
Sales for the quarter ended June 30, 2004 were $281,177, compared to
$683,670 same quarter last year. The decrease was primarily due to a
decrease in overall sales. Domestic sales in the quarter ended June 30,
2004 were $257,582 or 92% of total sales, compared to $570,169 or 83% of
total sales for the same period last year. International sales in the
quarter ended June 30, 2004 were $23,595 or 8% of total sales, compared to
$113,501 or 17% of total sales for the same period last year.
Gross profit for the quarter ended June 30, 2004 was $128,626 or 46% of
sales, compared to $391,582 or 57% of sales, for the same quarter last
year. The decrease is the result of higher materials and labor costs in
the current quarter. 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 June 30, 2004 were
$152,339 or 54% of sales, compared to $312,718 or 46% of sales for the same
period last year. Major changes compared to the prior year include a
decrease in commission expense from 32% to 21%. 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 June 30, 2004
were $56,659 or 20% of sales, compared to $51,608 or 8% of sales for the
same period last year. a percentage of sales is due to fixed G&A expenses
increase as accompanied by a decrease in sales
Research and development expenses for the quarter ended June 30, 2004 were
$7,102 or 3% of sales, compared to $6,703 or 1% of sales, for the same
quarter last year. The increase is due to outside engineering services.
The net loss for the quarter ended June 30, 2004 was $89,023 compared to
net income of $21,161 for the same quarter last year. The decrease is the
result of the items discussed above.
8
Six Months Ended June 30, 2004 compared to six months ended June 30, 2003
Sales for the six months ended June 30, 2004 were $619,559, compared to
$2,252,064 for the same period last year. The decrease was due primarily to
a decrease in international sales. Domestic sales in the six months ended
June 30, 2004 were $560,414 or 90% of total sales, compared to $976,236 or
43% of total sales for the same period last year. International sales in
the six months ended June 30, 2004 were $59,145 or 10% of total sales,
compared to $1,275,828 or 57% 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 six months ended June 30, 2004 was $268,342 or 43% of
sales, compared to $1,281,232 or 57% of sales, for the same period last
year. The decrease is the result of higher materials and labor costs in
the current year, combined with a decreased amount of sales. 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 six months ended June 30, 2004 were
$312,749 or 50% of sales, compared to $964,500 or 43% of sales for the same
period last year. The increase as a percentage of sales is due to fixed
selling expenses accompanied by a decrease in sales.
General and administrative expenses for the six months ended June 30, 2004
were $102,620 or 17% of sales, compared to $112,478 or 5% of sales for the
same period last year. The increase as a percent of sales is due to fixed
G&A expenses accompanied by a decrease in sales.
Research and development expenses for the six months ended June 30, 2004
were $11,205 or 1.8% of sales, compared to $18,942 or .8% of sales, for the
same period last year. The increase as a percent of sales is due to a
lower sales base.
The net loss for the six months ended June 30, 2004 was $159,747 compared
to net income of $185,722 for the same period last year. The decrease is
the result of the items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Working capital as of June 30, 2004 was $445,915 compared to $592,678 in
working capital at December 31, 2003. The decrease was attributable to the
net loss for the six months.
The Company maintains a secured line of credit in the amount of $500,000.
At June 30, 2004, $125,000 was 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 six months ended June 30, 2004,
compared to $5,600 for the same period in 2003. No material purchase or
capital commitments exist at June 30, 2004.
The Company's backlog as of June 30, 2004 was $530,610 compared to $503,321
for the same period ended in 2003.
The Company's backlog as of August 4, 2004 was $2,236,718 which will ship
in Q3 and Q4 of 2004. Significant portions of the backlog are as follows:
Snap On International shipments to Columbia $1,290,080, 4 Other
International customers $612,003, and 12 Domestic customers $334,635.
9
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.
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 Certifications
32 Certification of Chief Executive Officer
(b) 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)
August 11, 2004 /s/ Vahan V. Basmajian
---------------------- -------------------------------------------------
Date Vahan V. Basmajian
President, Treasurer
11