SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY OR TRANSITIONAL REPORT
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 31, 2002
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission file number 2-95836-NY
Egan Systems, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3250816
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.
4904 Waters Edge Drive, Suite 160 Raleigh, NC 27606
(Address of principal executive offices)
(919) 851 - 2239
Registrant's telephone number
(Former name, former address and former fiscal year if
changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|.
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date is as follows:
Date Class Shares Outstanding
05/10/02 Common Stock 19,646,652
EGAN SYSTEMS, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial statements
Condensed consolidated balance sheets as of
March 31, 2002 (unaudited) and December 31, 2001 1
Condensed consolidated statements of operations (unaudited)
for the three months ended March 31, 2002 and 2001 2
Condensed consolidated statements of cash flows (unaudited)
for the three months ended March 31, 2002 and 2001 3
Notes to condensed consolidated financial statements (unaudited) 4 - 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6 - 7
PART II - OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K 8
SIGNATURES 9
EXHIBITS 10
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EGAN SYSTEMS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2002 2001
----------- ------------
(Unaudited)
ASSETS
Current Assets
Cash $ 10,232 $ 10,643
Accounts receivable 45,754 41,486
Inventory 4,250 3,500
----------- -----------
Total Current Assets 60,236 55,629
----------- -----------
Property and Equipment - net 70,308 83,808
----------- -----------
Other Assets
Computer software development costs - net 207,197 247,515
Security deposits 966 --
----------- -----------
Total Other Assets 208,163 247,515
----------- -----------
Total Assets $ 338,707 $ 386,952
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Account payable $ 175,917 $ 175,917
Accrued expenses and other current liabilities 36,458 62,341
----------- -----------
Total Current Liabilities 212,375 238,258
----------- -----------
Stockholders' Equity
Common stock - $.05 par value, shares authorized -
30,000,000 shares, issued and outstanding, 19,646,652
in 2000 and 2001 982,333 982,333
Additional paid-in capital 4,827,201 4,827,201
Deficit (5,320,702) (5,298,340)
----------- -----------
488,832 511,194
Notes receivable - stock purchase (362,500) (362,500)
----------- -----------
Total Stockholders' Equity 126,332 148,694
----------- -----------
Total Liabilities and Stockholders' Equity $ 338,707 $ 386,952
=========== ===========
The condensed consolidated balance sheet at December 31, 2001 has been derived
from the audited financial statements at that date.
See notes to condensed consolidated financial statements.
1
EGAN SYSTEMS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
------------------
2002 2001
---- ----
Net sales $ 113,609 $ 151,957
--------- ---------
Cost and expenses:
Cost of goods sold 4,442 4,638
Research and development costs 16,336 32,609
Selling, shipping,
general and administrative 34,253 83,419
Royalties 2,816 5,000
Depreciation and amortization 78,125 106,355
--------- ---------
135,971 232,021
--------- ---------
Net loss $ (22,362) $ (80,064)
========= =========
Net loss per common share:
Basic and fully diluted $ (0.001) $ (0.004)
========= =========
Cash dividends per common share None None
========= =========
See notes to condensed consolidated financial statements.
2
EGAN SYSTEMS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
------------------
2002 2001
---- ----
Net cash provided by operating activities $ 23,896 $ 50,944
-------- --------
Cash flows from investing activities:
Computer software development costs (24,307) (53,709)
-------- --------
Net cash used in investing activities (24,307) (53,709)
-------- --------
Net decrease in cash (411) (2,765)
Cash - beginning of period 10,643 12,688
-------- --------
Cash - end of period $ 10,232 $ 9,923
======== ========
Supplemental cash flows information:
Taxes paid $ 1,468 $ 629
======== ========
See notes to condensed consolidated financial statements.
3
EGAN SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. STATEMENT PRESENTATION:
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position of
Egan Systems, Inc. and Subsidiary as of March 31, 2002 and the results of their
operations and cash flows for the three months ended March 31, 2002 and 2001.
Primary net income per common share is computed based on the weighted average
number of outstanding common shares. The number of shares used in the
computation were 19,646,652 in 2002 and 2001. Fully diluted net income per
common share is computed based on the weighted average number of outstanding
common shares plus the shares that would be outstanding assuming conversion of
the outstanding options and warrants. For purposes of the fully diluted
computations, the number of shares that would be issued from the exercise of
stock options and warrants has been reduced by the number of shares that could
have been purchased from the proceeds at the average market price of the
Company's stock. The number of shares used in the computation of fully diluted
earnings per share were 19,646,652 in 2002 and 2001. Fully diluted earnings per
share amounts do not include the effects of dilutive securities for 2002 and
2001 because they are anti-dilutive.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
for interim reporting under Form 10-QSB have been condensed or omitted. It is
suggested that these condensed consolidated financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's annual report on Form 10-KSB for the year ended December 31, 2001.
The results of operations for the three months ended March 31, 2002 are not
necessarily indicative of the operating results for the full year.
NOTE 2. COMPUTER SOFTWARE DEVELOPMENT COSTS:
Computer software development costs for products are capitalized subsequent to
the establishment of technological feasibility. Capitalization ceases when the
products are available for general release to customers at which time
amortization of the capitalized costs begins on a straight-line basis over the
estimated life of the product, which is estimated at two years. As of and for
the three months ended March 31, 2002 and 2001, accumulated amortization
amounted to approximately $2,305,000 and $1,890,000, and amortization of
computer software development costs charged to operations was approximately
$65,000 and $91,000, respectively.
NOTE 3. INVENTORY:
Inventory, which consists primarily of miscellaneous computer peripherals, is
stated at the lower of cost or market. Cost is determined by the first-in,
first-out method.
4
Item 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2002 AND 2001:
RECENT EVENTS:
In September 2001, the Company's chairman Mr. Edward Egan passed away. At this
time, the Company's current management does not plan to change the strategic
direction of the Company.
NET SALES:
For the three months ended March 31, 2002 and 2001, total revenue approximated
$114,000 and $152,000, respectively. Revenue has declined for the three months
ended March 31, 2002 versus the same period in the prior year due to the current
poor climate in the economy for technology spending by customers. The Company
expects increases in technology spending by customers in future periods to
benefit the Company.
The Company is continually evaluating new opportunities that management hopes
will substantially contribute to revenue. However, the Company is quite small
and remains subject to technological obsolescence and competitive market
conditions.
COST AND EXPENSES:
Cost of goods sold for the three months ended March 31, 2002 and 2001 were
approximately $4,000 and $5,000 and gross profit percents were approximately 97%
and 96%, respectively.
Research and development costs were approximately $16,000 and $33,000 for the
three months ended March 31, 2002 and 2001, respectively. The decrease is due to
the reduction of employees and expenditures related to research and development
in 2002 in conjunction with the reduction in revenues. The Company continues to
expend funds developing new software and to remain competitive in its specific
field of expertise. The Company has engaged outside consultants in 2002 and 2001
to supplement the Company's research and development projects.
Selling, shipping and general and administrative expenses (SG&A) for the three
months ended March 31, 2002 and 2001 were approximately $34,000 and $83,000
respectively. The capitalization of computer software development costs for the
three months ended March 31, 2002 and 2001 reduced SG&A expenses by
approximately $24,000 and $54,000 respectively. The decrease in SG&A expenses
was attributed primarily to the reduction in employees and expenditures in the
Company's software development facility in conjunction with the reduction in
revenues.
DEPRECIATION AND AMORTIZATION:
Depreciation and amortization expense for the three months ended March 31, 2002
and 2001 was approximately $78,000 and $106,000, respectively. The decline in
depreciation and amortization expense in the current period is due to the
decline in amortization expense as it relates to the decline in capitalized
computer software development costs.
5
Item 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2002 AND 2001 (Cont'd):
LIQUIDITY:
As of March 31, 2002, the Company's net cash provided by operations was
approximately $24,000 and is substantially comprised of a net loss of $(22,000),
a decrease in accrued expenses of $(26,000) and depreciation and amortization of
$78,000. This compares to the three months ended March 31, 2001 where net cash
provided by operations was approximately $51,000 and was substantially comprised
of a net loss of $(80,000), a reduction in accounts receivable of $46,000 and
depreciation and amortization of $91,000.
Net cash used in investing activities during the three months ended March 31,
2002 and 2001 was approximately ($24,000) and ($54,000), respectively. This was
attributed to the capitalization of computer software development costs of
$(24,000) and $(54,000) for the three months ended March 31, 2002 and 2001,
respectively.
Management believes that the Company has sufficient cash resources to meet its
expected cash needs in the present fiscal year. Management does not anticipate
additional large capital expenditures in the current year except as discussed
above. At present the Company does not maintain a line of credit facility with a
lending institution.
INFLATION AND SEASONALITY:
The Company does not anticipate inflation will be significantly impact its
business. The Company does not believe its business is subject to fluctuations
due to seasonality.
6
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Required by Item 601 of Regulation S-B.
(11) Statement regarding computation of per share earnings.
(27) Financial data schedule
(b) Reports on Form 8-K - The Company filed no reports on Form 8-K during the
quarter ended March 31, 2002.
7
S I G N A T U R E S
In accordance with the requirements of the Exchange Act of 1934, the registrant
caused this report to be signed on its behalf of the undersigned, thereunto duly
authorized.
EGAN SYSTEMS, INC.
------------------
(Registrant)
/s/Ralph Jordan
------------------------
Ralph Jordan (President)
Date: 05/10/02
---------
8