SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from__________to__________.
Commission File No. 2-95836-NY
EGAN SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3250816
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4904 Waters Edge Drive, Suite 160 Raleigh, NC 27606
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(Address of principal executive offices)
(919) 851 - 2239
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(Issuer's telephone number)
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 NO X
As of May 15, 2003, 18,971,652 shares of Common Stock of the issuer were
outstanding.
Egan Systems, Inc.
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - March 31, 2003 3
Unaudited Consolidated Statements of Operations - For the
three months ended March 31, 2003 and 2002 4
Unaudited Consolidated Statements of Cash Flows-
For the three months ended March 31, 2003 and 2002 5
Notes to Consolidated Financial Statements 6
Item 2. Management Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Controls and Procedures 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 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 8
Signatures 8
Certifications 9
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
EGAN SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2003
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 23,279
Accounts receivable, net of allowance of $3,291 37,537
Inventory 620
Total Current Assets 61,436
PROPERTY AND EQUIPMENT, net 29,083
OTHER ASSETS
Computer software development costs, net 44,961
Security deposit 966
TOTAL ASSETS $ 136,446
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $175,917
Accrued liabilities 23,915
TOTAL LIABILITIES 199,832
STOCKHOLDERS' DEFICIT
Common stock, $0.05 par value, 30,000,000
Shares authorized, 18,971,652 shares issued
and outstanding 948,583
Additional paid-in capital 4,501,026
Accumulated deficit (5,512,995)
TOTAL STOCKHOLDERS DEFICIT (63,386)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 136,446
The accompanying notes are an integral part of these
consolidated financial statements
3
EGAN SYSTEMS, INC. AND SUBSIDIARY
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended March 31,
2003 2002
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NET SALES $ 103,107 $ 113,609
COST AND EXPENSES
Cost of goods sold 3,930 4,442
Research and development - 16,336
Selling, shipping, general and 122,549 34,253
administrative
Royalty expense 453 2,816
Depreciation and 72,294 78,125
amortization
Total Expenses 199,226 135,972
NET LOSS $ (96,119) $ (22,363)
BASIC AND DILUTED LOSS PER $ (0.01) $ (0.00)
COMMON SHARE
BASIC WEIGHTED AVERAGE 18,971,652 19,646,652
SHARES
The accompanying notes are an integral part of these
consolidated financial statements
4
EGAN SYSTEMS, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended March 31,
2003 2002
CASH FLOWS FROM OPERATIONS
Net loss $ (96,119) $ (22,362)
Adjustments to reconcile net (loss) to net
cash used by operating activities:
Depreciation and amortization 72,294 78,125
Changes in operating assets and liabilities:
Accounts receivable (11,615) (4,268)
Inventory 3,930 (750)
Accounts payable and accrued liabilities 13,880 (26,849)
Net cash provided by (used) by operating (17,630) 23,896
activities
CASH FLOW FROM INVESTING
Computer software development costs - (24,307)
Net cash used in investing activities - (24,307)
CASH FLOW FROM FINANCING
- -
Net cash provided by financing activities - -
Decrease in cash and cash equivalents (17,630) (411)
Balance at beginning of year 40,909 10,643
Balance at end of year $ 23,279 $ 10,232
The accompanying notes are an integral part of these
consolidated financial statements
5
EGAN SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Basis of Presentation
The unaudited condensed consolidated financial statements of Egan Systems, Inc.
have been prepared in accordance with generally accepted accounting principles
for interim financial information and pursuant to the requirements for reporting
on Form 10-QSB. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. However, such information reflects all adjustments
(consisting solely of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the interim periods.
Results shown for interim periods are not necessarily indicative of the results
to be obtained for a full fiscal year. These interim financial statements should
be read in conjunction with the audited financial statements and notes thereto
included in the Company Form 10-KSB for the fiscal year ended December 31, 2002.
6
Item 2. Management Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Three Months Ended March 31, 2003 compared to the Three Months Ended March 31,
2002
Revenues for the three months ended March 31, 2003, decreased by $10,502 or
9.2% to $103,107 from $113,609 for the corresponding period of the prior year.
The decrease in revenue is reflective of the slow domestic economy and the
decrease in high tech spending.
Cost of goods sold for the three months ended March 31, 2003 decreased by
$512 or 11.5% to $3,930 from $4,442 for the corresponding period of the prior
year. The decrease in cost of goods sold represents the decrease in sales of
tools during the three month period ended March 31, 2003.
There was no research and development done by the Company for the three
months ended March 31, 2003. For the corresponding period of the prior year, the
company had research and development expenditures of $16,336.
Selling, shipping, general and administrative expenses increased by $88,296
or 257.8% to $122,549 from $34,253 for the corresponding period of the prior
year. The increase in selling, shipping, general and administrative expenses is
principally attributable to increases in audit fees and increases in payroll
expense.
Royalty expense declined by $2,363 or 83.9% to $453 for the quarterly
period ended March 31, 2003 from $2,816 for the corresponding period of the
prior year. The decrease in royalty expenses is attributable to a decline in the
sale of third party software.
Depreciation and amortization expenses declined by $5,831 or 7.5% to
$72,294 for the three months ended March 31, 2003 from $78,125 for the
corresponding period of the prior year. Decrease in depreciation and
amortization reflects the reduction in amortization from less computer software
development cost being capitalized.
As a result of the foregoing, the Company's net operating and loss
increased by $73,756 or 330% to $96,119 for the three months ended March 31,
2003 from $22,363 for the period ended March 31, 2002.
Liquidity and Capital Resources
As of March 31, 2003 the Company had cash of $23,279 and a deficit in
working capital of $138,396. This compares with cash of $10,232 and a deficit in
working capital of $152,139 as of March 31, 2002.
Cash used by operating activities totaled $17,630 for the three months
ended March 31, 2003. This compares with cash provided by operating activities
of $23,896 for the corresponding period of the prior year. The net change is the
result of a substantial increase of the net operating loss which was partially
offset by a reduction in depreciation and amortization and changes in the
current accounts.
There were no cash flows from investing activities during the three months
ended March 31, 2003. For the three months ended March 31, 2002, the Company had
computer software development costs of $24,307.
The Company had no cash flows from any financing activities for either the
three months ended March 31, 2002 or March 31, 2003.
Historically, the Company has funded its operations through the sale of its
shares or borrowings from its principal shareholder. As the Company continues to
incur net operating losses, the need for outside capital sources becomes more
acute. Unless the company is able to become profitable, sell its shares or
obtain loans from third parties, the Company will not have sufficient cash to
maintain its current operations or continue as a going concern. As of March 31,
2003, the Company had a deficit in working capital of $138,396. Therefore,
unless it is able to generate additional business or obtain outside funding, it
will have insufficient capital to continue its business operations for the next
twelve months.
7
Item 3. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Our chief executive
officer and our chief financial officer, after evaluating the effectiveness of
the Company's "disclosure controls and procedures" (as defined in the Securities
Exchange Act of 1934 Rules 13a-14(c) and 15-d-14(c)) as of a date (the
"Evaluation Date") within 90 days before the filing date of this quarterly
report, have concluded that as of the Evaluation Date, our disclosure controls
and procedures were adequate and designed to ensure that material information
relating to us and our consolidated subsidiaries would be made known to them by
others within those entities.
(b) Changes in internal controls. There were no significant changes in our
internal controls or to our knowledge, in other factors that could significantly
affect our disclosure controls and procedures subsequent to the Evaluation Date.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities
None
Item. 3. Senior Securities
None
Item 4. Submissions of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
None
b) Reports on Form 8-K
None
Signature
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 thereunto authorized.
EGAN SYSTEMS, INC.
/s/ Ralph Jordan
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May 20, 2003 Ralph Jordan
Chairman and Chief Executive Officer
Secretary / Treasurer and Chief Financial Officer
8
CERTIFICATIONS
I, Ralph Jordan, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Egan Systems, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: May 20, 2003
By:/s/ Ralph Jordan
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Ralph Jordan
Chief Executive Officer
I, Ralph Jordan, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Egan Systems, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: May 20, 2003
By:/s/ Ralph Jordan
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Ralph Jordan
Chief Financial Officer