10-Q 1 mega-q3.txt BODY OF FORM 10-Q 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 September 30, 2003 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 3,886,958 shares of common stock outstanding at October 29, 2003. MEGATECH CORPORATION -------------------- QUARTERLY REPORT FORM 10-Q SEPTEMBER 30, 2003 PART 1. FINANCIAL INFORMATION ------------------------------ ITEM 1. Financial Statements (Unaudited) Page ---- Balance Sheet - September 30, 2003 and December 31, 2002 3 Statement of Operations- for the quarter and nine months 4 ended September 30, 2003 and September 30, 2002 Statement of Cash Flows- for the nine months ended 5 September 30, 2003 and September 30, 2002 Notes to Financial Statements- September 30, 2003 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 10 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 Exhibits 12 -2- PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MEGATECH CORPORATION BALANCE SHEET

See notes to financial statements. -3- MEGATECH CORPORATION STATEMENT OF OPERATIONS (UNAUDITED)

See notes to financial statements. -4- MEGATECH CORPORATION STATEMENT OF CASH FLOWS (UNAUDITED)

See notes to financial statements. -5- MEGATECH CORPORATION NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2003 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. 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. -6- 4 INVENTORIES ----------- Inventories consisted of the following:

5 PROPERTY AND EQUIPMENT ---------------------- Property and equipment consisted of the following:

6 LONG-TERM DEBT -------------- Long-term debt of $34,375 classified as current at December 31, 2002 was paid off during the period ended September 30, 2003. Interest was paid quarterly and the outstanding principal balance originally due June 2001 was extended to September 2003. 7 MAJOR CUSTOMER INFORMATION -------------------------- For the period ended September 30, 2003 and 2002, sales to three and one unrelated sales representative comprised 93% and 92% of total sales, respectively. -7- ITEM 2. MEGATECH CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 RESULTS OF OPERATIONS --------------------- Quarter Ended September 30, 2003 compared to quarter ended September 30, 2002 Sales for the quarter ended September 30, 2003 were $539,586, compared to $803,495 for the same quarter last year. The decrease was primarily due to a decrease in international sales. Domestic sales in the quarter ended September 30, 2003 were $412,015 or 76% of total sales, compared to $474,312 or 59% of total sales for the same period last year. International sales in the quarter ended September 30, 2003 were $127,571 or 24% of total sales, compared to $329,183 or 41% 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 prior year. Gross profit for the quarter ended September 30, 2003 was $291,917 or 54% of sales, compared to $483,179 or 60% of sales, for the same quarter last year. The decrease as a percentage of sales 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 September 30, 2003 were $183,373 or 34% of sales, compared to $413,691 or 51% of sales for the same period last year. Major changes compared to the prior year include a decrease in commission expense from 38% to 21%, and a decrease in salaries due to staffing changes. General and administrative expenses for the quarter ended September 30, 2003 were $48,790 or 9% of sales, compared to $43,808 or 5% of sales for the same period last year. The increase is due to increases in salaries and repairs and maintenance. Research and development expenses for the quarter ended September 30, 2003 were relatively flat at $3,895 or .7% of sales, compared to $4,727 or .6% of sales, for the same quarter last year. The net income for the quarter ended September 30, 2003 was $45,383 compared to net income of $22,500 for the same quarter last year. The increase is the result of the items discussed above. -8- Nine Months Ended September 30, 2003 compared to nine months ended September 30, 2002 Sales for the nine months ended September 30, 2003 were $2,791,650 compared to $2,709,884 for the same period last year. The increase was due to an increase in domestic sales. Domestic sales in the nine months ended September 30, 2003 were $1,388,251 or 50% of total sales, compared to $952,282 or 35% of total sales for the same period last year. International sales in the nine months ended September 30, 2003 were $1,403,399 or 50% of total sales, compared to $1,757,602 or 65% of total sales for the same period last year. Sales to Snap On Corporation for the period represented 71% of total sales compared to 92% in the prior period. Gross profit for the nine months ended September 30, 2003 was $1,573,149 or 56% of sales, compared to $1,650,020 or 61% of sales, for the same period last year. The decrease in gross profit as a percentage of sales is the result of higher materials and labor costs in the current period. 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 nine months ended September 30, 2003 were $1,147,873 or 41% of sales, compared to $1,339,537 or 49% of sales for the same period last year. The decrease is due to fixed selling expenses which did not increase with an increase in sales as well as decreases in salaries and commission expense. General and administrative expenses for the nine months ended September 30, 2003 were $161,268 or 6% of sales, compared to $133,066 or 5% of sales for the same period last year. The increase is due to allocation of salaries, and increases in audit and accounting expense. Research and development expenses for the nine months ended September 30, 2003 were $22,837 or .8% of sales, compared to $12,377 or .5% of sales, for the same period last year. The increase is due to the addition of engineering staff. The net income for the nine months ended September 30, 2003 was $231,105 compared to net income of $158,550 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, 2003 was $746,872 compared to $503,149 in working capital at December 31, 2002. The increase was attributable to the net income for the quarter. The Company maintains a secured line of credit in the amount of $500,000, increased from $275,000 in September, 2003. At September 30, 2003, 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 cash requirements for the next twelve months. Capital expenditures totaled approximately $6,100 for the nine months ended September 30, 2003, compared to $38,300 for the same period in 2002. No material purchase or capital commitments exist at September 30, 2003. The Company's backlog as of September 30, 2003 was $240,723 compared to $1,481,149 for the same period ended in 2002. The decrease in backlog is the result of approximately $1.5 million in orders from Snap On Corporation for automotive trainers that were shipped to the Venezuelan government from September of 2002 to February of 2003. -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: The following exhibits are filed herewith: 31.1 Certification of Chief Executive Officer under Sarbanes-Oxley Section 302(a) 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 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) October 29, 2003 /s/ Vahan V. Basmajian ---------------- ---------------------- Date Vahan V. Basmajian President, Treasurer -11-

MEGATECH CORP 10-Q