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 June 30, 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
- ---------------------------------- ---------------------------------
(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 Sheet - June 30, 2003 3
Unaudited Consolidated Statements of Operations - For the
three months and six months ended June 30, 2003 and 2002 4
Unaudited Consolidated Statements of Cash Flows-
For the six months ended June 30, 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 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits 9
Signatures 9
Certifications
2
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
EGAN SYSTEMS, INC. AND SUBSIDIARIES
EGAN SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 2003
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 7,043
Accounts receivable, net of allowance of $3,291 29,719
Inventory 2,850
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Total Current Assets 39,612
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PROPERTY AND EQUIPMENT, net 21,985
OTHER ASSETS
Security deposit 966
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TOTAL ASSETS $ 62,563
==================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 175,917
Accrued liabilities 10,886
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TOTAL LIABILITIES 186,803
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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 (5,573,849)
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TOTAL STOCKHOLDERS DEFICIT (124,240)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 62,563
==================
3
EGAN SYSTEMS, INC. AND SUBSIDIARY
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------- --------------------------------
2003 2002 2003 2002
------------------------------------- --------------------------------
NET SALES $101,949 $ 113,142 $ 204,316 $ 226,751
COST AND EXPENSES
Cost of goods sold
1,130 6,398 5,060 10,839
Research and development
- 15,493 - 31,829
Selling, shipping, general and administrative
109,323 40,631 229,677 74,884
Royalty expense
2,187 7,989 4,140 10,805
Depreciation and amortization
50,162 83,586 122,411 161,711
------- ------- -------- -------
Total Expenses 162,802 154,097 361,288 290,068
------- -------- -------- -------
NET LOSS $(60,853) $(40,955) 156,972) $(63,317)
======== ========= ========= =========
BASIC AND DILUTED LOSS PER COMMON SHARE (0.00) (0.00) (0.01) (0.00)
====== ====== ========= =========
BASIC WEIGHTED AVERAGE SHARES 18,971,652 19,496,652 18,971,652 19,496,652
=========== =========== ========== ==========
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 Six Months Ended June 30,
2003 2002
------ -------
CASH FLOWS FROM OPERATIONS
Net loss $ (156,972) $ (63,317)
Adjustments to reconcile net (loss) to net cash
used by operating activities:
Depreciation and amortization 122,411 161,711
Changes in operating assets and liabilities:
Accounts receivable (3,797) 3,197
Inventory 1,700 (250)
Security deposit (966)
-
Accounts payable and accrued liabilities 2,792 (52,395)
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Net cash provided (used) by operating activities (33,866) 47,980
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CASH FLOW FROM INVESTING
Computer software development costs - (43,693)
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-
Net cash used in investing activities (43,693)
---------- ----------
-
CASH FLOW FROM FINANCING
- -
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Net cash provided by financing activities
Increase (decrease) in cash and cash equivalents (33,866) 4,287
Balance at beginning of year 40,909 10,643
----------- ----------
Balance at end of year $ 7,043 $ 14,930
=========== ==========
The accompanying notes are an integral part of these consolidated
financial statements
5
EGAN SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 June 30, 2003 compared to the Three Months Ended June 30,2002
Revenues for the three months ended June 30, 2003, decreased by $11,193 or 9.9%
to $101,949 from $113,142 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 June 30, 2003 decreased
by $5,268 or 82.3% to $1,130 from $6,398 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 June 30, 2003.
There was no research and development activities conducted by the
Company for the three months ended June 30, 2003. For the corresponding period
of the prior year, the company incurred research and development expenditures of
$15,493.
Selling, shipping, general and administrative expenses increased by
$68,722 or 169.1% to $109,353 for the three months ended June 30, 2003 from
$40,631 for the corresponding period of the prior year. The increase in selling,
shipping, general and administrative expenses is principally attributable to
increases in professional fees and increases in payroll expense.
Royalty expense declined by $5,802 or 72.6% to $2,187 for the three
months ended June 30, 2003 from $7,989 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 $33,424 or 40.0% to
$50,162 for the three months ended June 30, 2003 from $83,586 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 $19,898 or 48.6% to $(60,853) for the three months ended June 30,
2003 from $(40,955) for the period ended March 31, 2002.
Six Months Ended June 30, 2003 compared to the Six Months Ended June 30, 2002
Revenues for the six months ended June 30, 2003, decreased by $22,436 or 9.9% to
$204,316 from $226,751 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 six months ended June 30, 2003 decreased by
$5,779 or 53.3% to $5,060 from $10,839 for the corresponding period of the prior
year. The decrease in cost of goods sold represents the decrease in sales of
tools during the six month period ended June 30, 2003.
There was no research and development activities conducted by the
Company for the six months ended June 30, 2003. For the corresponding period of
the prior year, the company incurred research and development expenditures of
$31,829.
Selling, shipping, general and administrative expenses increased by
$154,793 or 206.7% to $229,677 for the six months ended June 30, 2003 from
$74,884 for the corresponding period of the prior year. The increase in selling,
shipping, general and administrative expenses is principally attributable to
increases in professional fees and increases in payroll expense.
Royalty expense declined by $6,665 or 61.7% to $4,140 for the six
months ended June 30, 2003 from $10,805 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.
7
Depreciation and amortization expenses declined by $39,300 or 24.3% to
$122,411 for the six months ended June 30, 2003 from $161,711 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 $93,655 or 147.9% to $(156,972) for the six months ended June 30,
2003 from $(63,317) for the six month period ended June 30, 2003.
Liquidity and Capital Resources
As of June 30, 2003 the Company had cash of $7,043 and a deficit in
working capital of $124,240. This compares with cash of $40,909 and a deficit in
working capital of $112,626 as of December 31, 2002.
Cash used by operating activities totaled $33,866 for the six months
endef June 30, 2003. This compares with cash provided by operating activities of
$47,980 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 six
months ended June 30, 2003. For the six months ended June 30, 2003, the Company
had computer software development costs of $43,693.
The Company had no cash flows from any financing activities for either
the six months ended June 30, 2002 or June 30, 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
June 30, 2003, the Company had a deficit in working capital of $124,240.
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.
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
8
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
b) Reports on Form 8-K
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
-------------------------------------
July 17, 2003 Ralph Jordan
Chairman and Chief Executive Officer
Secretary / Treasurer and Chief Financial
Officer
9
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: July 17, 2003
By: /s/ Ralph Jordan
------------------------
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: July 17, 2003
By: /s/ Ralph Jordan
------------------------
Ralph Jordan
Chief Financial Officer