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, 2001 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 [X] No [ ] There were 3,840,558 shares of common stock outstanding at October 29, 2001. MEGATECH CORPORATION -------------------- QUARTERLY REPORT FORM 10-Q September 30, 2001 PART 1. FINANCIAL INFORMATION - ------------------------------- ITEM 1. Financial Statements (Unaudited) Page ---- Balance Sheet - September 30, 2001 and December 31, 2000 3 Statement of Operations- for the quarter and nine months ended September 30, 2001 and September 30, 2000 4 Statement of Cash Flows- for the nine months ended September 30, 2001 and September 30, 2000 5 Notes to Financial Statements- September 30, 2001 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 8 PART II. OTHER INFORMATION - --------------------------- ITEM 1. Legal Proceedings 8 ITEM 2. Changes in Securities and Use of Proceeds 8 ITEM 3. Defaults Upon Senior Securities 8 ITEM 4. Submission of Matters to a Vote of Security Holders 8 ITEM 5. Other Information 8 ITEM 6. Exhibits and Reports on Form 8-K 8 Signature Page 9 -2- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MEGATECH CORPORATION BALANCE SHEET Sept. 30, 2001 Dec. 31, 2000 (UNAUDITED) (AUDITED) -------------- ------------- <s> <c> <c> ASSETS Current assets: Cash and cash equivalents $ 93,568 $ 27,585 Accounts receivable: Trade 262,288 332,577 Other 4,498 7,763 Inventories 184,530 243,827 Prepaid expenses 10,204 5,859 ----------------------------- Total current assets 555,088 617,611 Property, plant and equipment, net 77,132 75,544 Other assets 7,666 7,666 ----------------------------- Total Assets $ 639,886 $ 700,821 ============================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 27,901 $ 95,381 Accrued Liabilities 63,988 86,921 Current portion of long-term debt 37,500 37,500 ----------------------------- Total current liabilities 129,389 219,802 ----------------------------- Stockholders' equity: Common Stock, par value $.0143 per share, 5,000,000 shares authorized; 3,840,558 (3,815,408 at 2000) shares issued and outstanding 54,920 54,560 Additional paid-in capital 4,016,947 4,015,044 Deficit (3,561,370) (3,588,585) ----------------------------- Total stockholders' equity 510,497 481,019 ----------------------------- Total liabilities and stockholders' equity $ 639,886 $ 700,821 ============================= See notes to financial statements. -3- MEGATECH CORPORATION STATEMENT OF OPERATIONS (UNAUDITED) NINE MONTHS ENDED QUARTER ENDED -------------------------------- -------------------------------- Sept. 30, 2001 Sept. 30, 2000 Sept. 30, 2001 Sept. 30, 2000 -------------- -------------- -------------- -------------- <s> <c> <c> <c> <c> Sales $1,342,768 $1,780,976 $ 497,207 $ 512,044 Cost of sales 574,309 867,656 211,164 181,689 ---------------------------------------------------------------- Gross profit 768,459 913,320 286,043 330,355 ---------------------------------------------------------------- Operating expenses: Selling 591,641 619,026 201,802 214,950 General and administrative 133,959 127,325 37,423 43,524 Research and development 12,925 26,002 3,528 7,951 ---------------------------------------------------------------- Total operating expenses 738,525 772,353 242,753 266,425 ---------------------------------------------------------------- Income from operations 29,934 140,967 43,290 63,930 ---------------------------------------------------------------- Other income (expense): Interest income 138 0 0 0 Interest expense (2,667) (1,107) (750) (820) Other (190) (4,210) 0 (4,210) ---------------------------------------------------------------- Other income (expense), net (2,719) (5,317) (750) (5,030) ---------------------------------------------------------------- Net income $ 27,215 $ 135,650 $ 42,540 $ 58,900 ================================================================ Net income per share - basic and diluted $ 0.007 $ 0.036 $ 0.011 $ 0.015 ================================================================ Weighted average number of common 3,827,983 3,813,708 3,832,083 3,813,708 ================================================================ -4- MEGATECH CORPORATION STATEMENT OF CASH FLOWS (Unaudited) NINE MONTHS ENDED -------------------------------- Sept. 30, 2001 Sept. 30, 2000 -------------- -------------- <s> <c> <c> Cash flows from operating activities: Net income $ 27,215 $ 135,650 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,934 14,694 Common stock issued as compensation 2,263 308 Changes in operating assets and liabilities: Accounts receivable 73,554 (34,105) Prepaid expenses (4,345) (4,094) Inventories 59,297 104,662 Accounts payable (67,480) (27,383) Accrued liabilities (22,933) (182,297) -------------------------- Net cash provided (used) by operating activities 82,505 7,435 -------------------------- Cash flows from investing activities: Purchases of property and equipment (16,522) (6,207) -------------------------- Net cash provided (used) by investing activities (16,522) (6,207) -------------------------- Cash flows from financing activities: Principal payments on notes payable (70,000) 0 Advances on notes payable 70,000 0 -------------------------- Net cash used by financing activities 0 0 -------------------------- Net increase (decrease) in cash and cash equivalents 65,983 1,228 Cash & cash equivalents, beginning of period 27,585 75,857 -------------------------- Cash & cash equivalents, end of period $ 93,568 $ 77,085 ========================== See notes to financial statements. -5- MEGATECH CORPORATION NOTES TO FINANCIAL STATEMENTS September 30, 2001 1. 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. 2. INVENTORIES: ------------ Inventories consisted of the following: Sept. 30, 2001 Dec. 31, 2000 -------------- ------------- <s> <c> <c> Raw materials $141,063 $146,722 Work in process 4,037 8,993 Finished goods 39,430 88,112 -------------------------- $184,530 $243,827 ========================== 3. MAJOR CUSTOMER INFORMATION: --------------------------- For the period ended September 30, 2001 and 2000, sales to three and two unrelated sales representatives comprised 82% and 61% of total sales, respectively. -6- ITEM 2. MEGATECH CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 RESULTS OF OPERATIONS: - ---------------------- Quarter Ended September 30, 2001 compared to quarter ended September 30, 2000 Sales for the quarter ended September 30, 2001 were $497,207, compared to $512,044 for the same quarter last year. The decrease was primarily due to a decrease in domestic sales. Gross profit for the quarter ended September 30, 2001 was $286,043 or 58% of sales, compared to $330,355 or 65% of sales, for the same quarter last year. The decrease is the result of adjustments to inventory in the prior year. Operating expenses for the quarter ended September 30, 2001 were $242,753 or 49% of sales, compared to $266,425 or 52% of sales, for the same quarter last year. The decrease is due to a decrease in selling and marketing costs, specifically commission expense and travel expense. The net income for the quarter ended September 30, 2001 was $42,540 compared to net income of $58,900 for the same quarter last year. The decrease is the result of the items discussed above. Nine months Ended September 30, 2001 compared to nine months ended September 30, 2000 Sales for the nine months ended September 30, 2001 were $1,342,768, compared to $1,780,976 for the same period last year. The decrease was due to a decrease in international sales. Gross profit for the nine months ended September 30, 2001 was $768,459 or 57% of sales, compared to $913,320 or 51% of sales, for the same period last year. The increase as a percentage of sales is the result of a decrease in direct labor and materials costs. Operating expenses for the nine months ended September 30, 2001 were $738,525 or 55% of sales, compared to $772,353 or 43% of sales, for the same period last year. The increase as a percentage of sales is attributable to an increase in commission expense as a percentage of sales. The net income for the nine months ended September 30, 2001 was $27,215 compared to net income of $135,650 for the same period last year. The decrease is the result of the items discussed above. -7- LIQUIDITY AND CAPITAL RESOURCES: - -------------------------------- Working capital as of September 30, 2001 was $425,699 compared to $397,809 in working capital at December 31, 2000. The increase is attributable to the net income for the year. The company maintains a secured line of credit in the amount of $200,000. At September 30, 2001, 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. The firm's backlog as of September 30, 2001 was approximately $206,254 compared to $94,130 for same period ended in 2000. ITEM 3. QUANITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Not applicable. 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: None. - ------------------------------------------- -8- 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, 2001 /s/ Vahan V. Basmajian - ---------------- ------------------------------ Date Vahan V. Basmajian President, Treasurer -9-