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 September 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 November 1, 2003, 29,971,652 shares of Common Stock of the issuer
were outstanding.
Egan Systems, Inc.
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
Unaudited Consolidated Balance Sheet - September 30, 2003 3
Unaudited Consolidated Statements of Operations - For the
three months and nine months ended September 30, 2003 and 2002 4
Unaudited Consolidated Statements of Cash Flows-
For the nine months ended September 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
EGAN SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2003
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 3,540
Accounts receivable, net of allowance of $3,291 62,371
Inventory 2,915
------
Total Current Assets 68,826
-------
PROPERTY AND EQUIPMENT, net 15,371
OTHER ASSETS
Security deposit 966
----
TOTAL ASSETS $ 85,163
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 175,917
Accrued liabilities 29,527
-------
TOTAL LIABILITIES 205,444
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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 (5,569,890)
-----------
TOTAL STOCKHOLDERS' DEFICIT (120,281)
---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 85,163
=========
3
EGAN SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
NET SALES $ 130,562 $ 124,059 $ 332,916 $ 350,816
---------- ---------- ---------- ----------
COST AND EXPENSES
Cost of goods sold 2,135 6,289 7,195 17,128
Research and development - 19,533 - 51,360
Selling, shipping, general and
administrative 112,874 44,191 341,568 119,077
Royalty expense 2,505 8,094 6,645 18,899
Depreciation and amortization 8,556 82,212 130,967 243,923
------ ------- -------- --------
Total Expenses 126,070 160,319 486,375 450,387
-------- -------- -------- --------
NET LOSS $ 4,492 $ (36,260) $ (153,459) $ (99,577)
======== ========== =========== ==========
BASIC AND DILUTED LOSS PER
COMMON SHARE $ 0.00 $ (0.00) $ (0.01) $ (0.01)
======= ======== ======== ========
BASIC WEIGHTED AVERAGE SHARES 18,971,652 19,421,652 18,971,652 19,421,652
=========== =========== =========== ===========
4
EGAN SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
2003 2002
----- -----
CASH FLOWS FROM OPERATIONS
Net loss $ (153,459) $ (99,577)
Adjustments to reconcile net (loss) to net cash
used by operating activities:
Depreciation and amortization 130,967 243,923
Changes in operating assets and liabilities:
Accounts receivable (36,449) (10,889)
Inventory 1,635 (500)
Security deposit - (966)
Accounts payable and accrued liabilities 19,937 (49,819)
------- --------
Net cash provided (used) by operating activities (37,369) 82,172
-------- --------
CASH FLOW FROM INVESTING
Computer software development costs - (68,694)
-------- --------
Net cash used in investing activities - (68,694)
-------- --------
CASH FLOW FROM FINANCING
Net cash provided by financing activities - -
-------- --------
Increase (decrease) in cash and cash equivalents (37,369) 13,478
Balance at beginning of period 40,909 10,643
-------- --------
Balance at end of period $ 3,540 $ 24,121
======== ========
5
EGAN SYSTEMS, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(UNAUDITED)
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.
2. GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. However, the Company
has sustained substantial operating losses in recent years and periods.
In addition, the Company has used substantial amounts of working
capital in its operations so that as of September 30, 2003, current
liabilities exceed current assets by $136,618.
3. SUBSEQUENT EVENTS
On October 3, 2003, the Company issued 11,000,000 shares of common
stock for the acquistion of the Tofino Group-Alberni Mining Division,
a group of 35 mining claims, from Goldtech Mining Corporation, a
Washington corporation. On November 5, 2003, the Shareholders approved
a reverse split of the Company's shares on a one for one-hundred
basis and changed the par value from $.05 per share to $.001 to
increase the authorized number of shares from 30,000,000 to 95,000,000
common shares and 5,000,000 preferred shares; the acquisition of the
remaining mining claims of Goldtech Mining Corporation in exchange for
an additional 11,000,000 shares of the company's post reverse split
common stock; the change of the company's name to Goldtech Mining
Corporation; and the change of the State of Incorporation from
Delaware to Nevada.
6
Item 2. Management Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Three Months Ended September 30, 2003 compared to the Three Months Ended
September 30,2002
Revenues for the three months ended September 30, 2003, increased by $6,503 or
5.3% to $130,562 from $124,059 for the corresponding period of the prior year.
The increase in revenue resulted from increased sale of services which was
partially offset by a decrease in the sale of tools.
Cost of goods sold for the three months ended September 30, 2003 decreased
by $4,154 or 66.1% to $2,135 from $6,289 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 September 30, 2003.
There were no research and development activities conducted by the Company
for the three months ended September 30, 2003. For the corresponding period of
the prior year, the company incurred research and development expenditures of
$19,533. Although the Company continues to conduct research and development, the
cost of such has been included as part of the Company's general and
administrative expenses.
Selling, shipping, general and administrative expenses increased by
$68,683 or 155.5% to $112,874 for the three months ended September 30, 2003 from
$44,191 for the corresponding period of the prior year. The increase in selling,
shipping, general and administrative expenses is principally attributable to
increases in payroll expense.
Royalty expense declined by $5,589 or 69.1% to $2,505 for the three months
ended September 30, 2003 from $8,094 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 $73,656 or 89.6% to
$8,556 for the three months ended September 30, 2003 from $82,212 for the
corresponding period of the prior year. The decrease in depreciation and
amortization reflects the reduction in amortization from less computer software
development costs being capitalized.
As a result of the foregoing, the Company had net income of $4,492 for the
three months ended September 30, 2003 compared to a loss of $36,260 for the
period ended September 30, 2002.
Nine Months Ended September 30, 2003 compared to the Nine Months Ended September
30, 2002
Revenues for the nine months ended September 30, 2003, decreased by $17,900
or 5.1% to $332,916 from $350,816 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 although demand for services did increase during
the third quarter.
Cost of goods sold for the nine months ended September 30, 2003 decreased
by $9,933 or 58.0% to $7,195 from $17,128 for the corresponding period of the
prior year. The decrease in cost of goods sold represents the decrease in sales
of tools during the nine month period ended September 30, 2003.
There were no research and development activities conducted by the Company
during the nine months ended September 30, 2003. For the corresponding period of
the prior year, the company incurred research and development expenditures of
$51,360. Although the Company continues to conduct research and development, the
cost of such has been included as part of the Company's general and
administrative expenses.
Selling, shipping, general and administrative expenses increased by
$222,491 or 186.9% to $341,568 for the nine months ended September 30, 2003 from
$119,077 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 $12,254 or 64.9% to $6,645 for the nine
months ended September 30, 2003 from $18,899 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 $112,956 or 46.3% to
$130,967 for the nine months ended September 30, 2003 from $243,923 for the
corresponding period of the prior year. The decrease in depreciation and
amortization reflects the reduction in amortization from less computer software
development costs being capitalized.
As a result of the foregoing, the Company's net operating loss increased by
$53,882 or 54.2% to $153,459 for the nine months ended September 30, 2003 from
$99,577 for the nine month period ended September 30, 2003.
Liquidity and Capital Resources
As of September 30, 2003 the Company had cash of $3,540 and a deficit in
working capital of $136,618. 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 $37,369 for the nine months ended
September 30, 2003. This compares with cash provided by operating activities of
$82,172 for the corresponding period of the prior year. The net change is the
result of a substantial increase of the net operating loss and reduced
depreciation and amortization which was partially offset by changes in the
current accounts.
There were no cash flows from investing activities during the nine months
ended September 30, 2003. For the nine months ended September 30, 2002, the
Company had computer software development costs of $68,694.
The Company had no cash flows from any financing activities for either
the nine months ended September 30, 2002 or September 30, 2003.
Historically, the Company has funded its operations through the sale of its
shares or borrowings from its principal shareholders. 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 more 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 September
30, 2003, the Company had a deficit in working capital of $136,618. 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
On November 5, 2003 the shareholders of the Company approved a one for
one-hundred reverse stock split and changed the par value of the shares from
$.05 to $.001. This change is effective as of November 17, 2003.
Item. 3. Senior Securities
None
Item 4. Submissions of Matters to a Vote of Security Holders
On November 5, 2003 the shareholders approved a change in the Company's
name from Egan Systems, Inc. to Goldtech Mining Corporation; approved a one for
one-hundred reverse stock split and changed the par value from $.05 per share to
$.001; approved a change in the state of incorporation of the Company from
Delaware to Nevada; and ratified the aquisition of the assets of Goldtech Mining
Corporation, a Washington corporation. With the exception of the acquisition,
all matters approved will be effective as of November 17, 2003. The acquisition
will be completed when the documentation and information is approved by the
Company's Board of Directors.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
2.1 Agreement for the Purchase of Assets of Goldtech Mining Corporation, a
Washington corporation
2.2 Articles and Plan of Merger as filed with the Secretary of State of Nevada
2.3 Articles and Plan of Merger as filed with the Secretary of State of
Delaware
3.1 Articles of Incorporation of Goldtech Mining Corporation, a Nevada
corporation
3.2 Bylaws of Goldtech Mining Corporation
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
-------------------------------------
November 13, 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: November 13_, 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: November 13, 2003
By: /s/ Ralph Jordan
------------------------
Ralph Jordan
Chief Financial Officer