SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
(FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
(NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
Commission File No. 0-9646
MEGATECH CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2461059
------------------------------- ----------------------------------
(State or other jurisdiction of (IRS. Employer identification No.)
incorporation of organization)
555 Woburn Street, Tewksbury, Massachusetts 01876
------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (978) 937-9600
Securities registered pursuant to section 12(b) of the Act: NONE
Securities registered pursuant to section 12(g) of the Act: NONE
Common Stock, Par Value .0143
-----------------------------
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 XX No
------ ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the registrant's Common Stock held by non-
affiliates of the registrant based upon the closing sale price of the
Common Stock on March 12, 1999 was approximately $208,440 based on the
average of the closing bid and asked quotations of the Common Stock in the
over the counter market. The number of shares held by nonaffiliates was
1,158,000. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive
determination for other purposes.
The number of shares of par value $ .0143 common stock outstanding as of
March 12, 1999 was 3,792,308.
Portions of the registrant's definitive Proxy Statement for its Annual
Meeting of the stockholders to be held on May 10, 1999 (the "Proxy
Statement") are incorporated by reference into Part III.
PART I
Item 1 - Description of Business
- --------------------------------
(a) General Development of Business
-------------------------------
Megatech Corporation (Megatech or the Company) was established in
1970 and is engaged in the production and sale of educational training
programs and equipment in the energy power and transportation areas sold
domestically and internationally to educational institutions and government
agencies.
Megatech manufactures educational training equipment which consist of
modular technology workstations which are designed to provide students with
hands-on experience working with various technologies such as: automotive,
environmental, fiber-optic, microwave, laser, alternate energies,
electronic, personal computer kits and multi-media. In conjunction with the
educational equipment, Megatech produces over 200 video training programs
and student manuals which enable students to follow a self-paced self-
guided program to learn the technologies described above.
The Company competes with a number of major suppliers of school
training equipment and several small single product line companies through
the uniqueness of its products, and the quality of its training programs.
Most of the sales to states, cities, towns and school districts are the
results of having submitted sealed bids and having been awarded the sale
based on being the lowest bidder, directly or through independent sales rep
organizations.
There was one customer which accounted for 28% and 20% of total sales
for the year ended December 31, 1998 and 1997. Two customers accounted for
26% of sales for the year ended December 31, 1996. No other customers
accounted for more than 10% of sales in each of the years ended December
31, 1998, 1997 and 1996.
Approximately 46%, 33% and 22% of sales during the years ended
December 31, 1998, 1997 and 1996, respectively, were from international
sales.
The Company's backlog as of December 31, 1998 and 1997 was $459,929
and $588,247, respectively.
As of December 31, 1998, the Company had 12 full-time and 8 part-time
employees, in addition to it's independent domestic and international sales
rep organizations.
(b) Financial Information About Industry Segments
---------------------------------------------
N/A
(c) Narrative Description of Business
---------------------------------
See (a) above.
(d) Financial Information About Foreign and Domestic Operations and
---------------------------------------------------------------
Exports Sales
-------------
The Company presently has no operations in foreign countries.
Export sales of the Company were as follows:
--------------------------------------------
<TABLE>
<CAPTION>
Percent of
Year Amount Total Sales
---- ------ -----------
<S> <C> <C>
1998 $847,077 46%
1997 $693,481 33%
1996 $493,491 22%
</TABLE>
Most of these sales are made upon receipt of Irrevocable Letters of
Credit or prepayments.
Item 2 - Properties
- -------------------
The Company's administrative, sales and marketing, research and
development, and manufacturing facility is located in Tewksbury,
Massachusetts and consists of approximately 20,000 square feet under a
lease with a related party, that will expire in November 1999, and
renewable for an additional five years. The current facility will
accommodate twice the current production levels. There is ample expansion
capability beyond the current capacity for additional square footage for
manufacturing.
Item 3 - Legal Proceedings
- --------------------------
None
Item 4 - Submission of Matters to a Vote of Security Holders:
- -------------------------------------------------------------
During the fourth quarter of 1998, no matters were submitted to a
vote of the security holders through the solicitation of proxies or
otherwise.
PART II
Item 5 - Market for the Registrant's Common Equity and Related Stockholders
- ---------------------------------------------------------------------------
Matters
-------
The Company's Common Stock is traded in the over-the-counter market,
National Association of Security Dealers through the NASD electronic
bulletin board under the symbol MGTC. The following table sets forth the
periods indicated, the closing high and low Bid Quotations of the Common
Stock in the over-the-counter market. These Quotations represent prices
between dealers, do not include retail markup, markdowns or commissions and
do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C> <C>
1998 1st Quarter .25 .05
2nd Quarter .25 .05
3rd Quarter .25 .03
4th Quarter .25 .04
1997 1st Quarter .25 .02
2nd Quarter .25 .02
3rd Quarter .25 .02
4th Quarter .25 .02
1996 1st Quarter 3.25 2.25
2nd Quarter 2.75 1.00
3rd Quarter 1.00 .25
4th Quarter .25 .02
</TABLE>
As of March 12, 1999, there were approximately 821 Shareholders based
upon the number of record holders as of that date. The Company has paid no
cash dividends since it's inception in 1970. At the present time, the
Company intends to retain all potential earnings for future growth of the
business.
Item 6 - Selected Financial Data
- --------------------------------
The following table summarizes certain financial data which are
qualified by more detailed financial statements included herein.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales $1,844,782 $2,097,454 $2,216,978 $2,824,912 $4,050,844
Income (Loss) from operations (99,081) (130,842) (94,578) (48,310) 241,076
Net Income (Loss) (99,535) (129,606) (95,633) (57,504) 203,009
Net Income (Loss)
per Common share (0.026) (0.034) (0.025) (0.015) 0.053
Weighted average shares
outstanding 3,792,308 3,790,122 3,784,566 3,731,425 3,830,875
Total Assets 788,374 936,784 1,052,450 1,049,046 1,222,490
Long Term Obligations -0- -0- -0- 1,230 8,728
Stockholders' equity 410,287 545,733 660,255 731,517 777,826
Cash Dividends Per Share -0- -0- -0- -0- -0-
</TABLE>
Item 7 - Management's Discussion and Analysis of Financial Condition
- --------------------------------------------------------------------
and Results of Operation
------------------------
1998 Compared with 1997
-----------------------
Sales for 1998 decreased from the corresponding period of 1997 by $
0.25 million or 12%, to $1.8 million. This decrease was primarily due to a
decrease in overall sales volume. Domestic sales in 1998 were $ 1 million
or 54% of total sales, compared to $ 1.4 million or 67% of total sales in
1997. International sales in 1998 were $0.8 million or 46% of total sales,
compared to $ 0.7 million or 33% of total sales in 1997. The Company
believes that the decrease in overall sales is due to declining domestic
sales.
Gross profit for 1998 decreased from the corresponding period of 1997
by $0.15 million, or 17%, to $0.7 million. As a percentage of total sales,
gross profit was 39% and 41% for 1998 and 1997, respectively. Currently,
there are no known future increases in costs of materials, labor or other
price increases which could have an effect on sales other than normal
inflation increases.
Selling and marketing expenses for 1998 decreased from the
corresponding period of 1997 by approximately $ 0.2 million or 22% to $ 0.6
million. As a percentage of total sales, selling and marketing expenses
decreased to 34% for 1998 compared to 38% for 1997. The decrease is
primarily due to changes in marketing staff.
General and administrative expenses for 1998 decreased from the
corresponding period of 1997 by $.01 million, or 7% to $0.17 million. The
decrease in G & A expenses is the result of changes in office staff. As a
percentage of total sales, G & A expenses increased to 9.1% in 1998
compared to 8.7% in 1997.
Research and development expenses for 1998 remained relatively steady
in comparison to 1997 at $ .02 million. As a percentage of total sales, R
& D expenses also remained steady at 1.0% of sales in 1998 and 1997.
Loss from operations for 1998 as compared to the same period of 1997
decreased by $ .03 million. As a percentage of total sales, operating
losses decreased to 5.4% for 1998 compared to 6.2% for 1997. The operating
losses are a result of the factors indicated above.
1997 Compared with 1996
-----------------------
Sales for 1997 decreased from the corresponding period of 1996 by $
0.1 million or 5%, to $2.1 million. This decrease was primarily due to a
decrease in overall sales volume. Domestic sales in 1997 were $ 1.4
million or 67% of total sales, compared to $ 1.7 million or 78% of total
sales in 1996. International sales in 1997 were $0.7 million or 33% of
total sales, compared to $ 0.5 million or 22% of total sales in 1996. The
Company believes that the decrease in overall sales is due to declining
domestic sales.
Gross profit for 1997 decreased from the corresponding period of 1996
by $0.05 million, or 5%, to $0.9 million. As a percentage of total sales,
gross profit remained steady at 41% for 1997 and 1996. Currently, there
are no known future increases in costs of materials, labor or other price
increases which could have an effect on sales other than normal inflation
increases.
Selling and marketing expenses for 1997 increased from the
corresponding period of 1996 by approximately $ 0.01 million or 1% to $ 0.8
million. As a percentage of total sales, selling and marketing expenses
increased to 38% for 1997 compared to 36% for 1996. The increase is
primarily due to changes in marketing staff.
General and administrative expenses for 1997 decreased from the
corresponding period of 1996 by $.01 million, or 6% to $0.18 million. As a
percentage of total sales, G & A expenses remained steady at 8.7% for 1997
and 1996. The decrease of G & A expenses are a result of changes in office
staff.
Research and development expenses for 1997 decreased from the
corresponding period of 1996 by $.011 million, or 36% to $.02 million. As
a percentage of total sales, R & D expenses decreased to .95% for 1997
compared to 1.4% for 1996. The decrease of R & D expenses are a result of
a decrease in product development costs.
Loss from operations for 1997 as compared to the same period of 1996
increased by $ .03 million. As a percentage of total sales, operating
losses increased to 6.2% for 1997 compared to 4.3% for 1996. The operating
losses are a result of the factors indicated above.
Liquidity and capital resources
-------------------------------
Working capital at December 31, 1998 was $330,476 as compared to
$452,364 in working capital at December 31, 1997. The decrease was
attributable to the net loss for the year ended December 31, 1998.
The Company maintains a $ 100,000 line-of-credit agreement with a
bank. The line is collateralized by a security interest in substantially
all assets of the Company. Interest is payable monthly at the bank's prime
rate plus 1.5%. There were no borrowings outstanding on this line at
December 31, 1998.
There is no long term debt or other notes payable outstanding at
December 31, 1998.
Capital expenditures totaled approximately $7,000 in 1998 and $13,000
in 1997. No material purchase or capital commitments exist at December 31,
1998.
The Company believes that cash generated from operations, together
with the existing sources of debt financing, will be sufficient to meet
foreseeable cash requirements through 1999.
The Company is taking steps in 1999 to address Year 2000 readiness
regarding manufacturing operations and internal systems. Outside computer
consultants will be utilized to upgrade hardware and software required to
become Year 2000 compliant. The estimated cost of such upgrades is
approximately $15,000. In addition to internal systems upgrades, key
suppliers of raw materials for manufacturing operations will be contacted
to determine their readiness for Year 2000. In the event that a key
supplier experiences Year 2000 problems, the Company believes that it has
sufficient alternative suppliers to satisfy raw material needs.
Item 7a - Quantitative and Qualitative Disclosures about Market Risk
- --------------------------------------------------------------------
Not appicable.
Item 8 - Financial Statements and Supplementary Data
- ----------------------------------------------------
Financial statements and schedules together with the auditors'
reports thereon are referred to Part IV and are attached hereto.
Item 9 - Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosures
---------------------
1. Disagreements with Accountants on Accounting and Financial
Disclosure:
None
2. Changes in Registrant's Certifying Accountants
None
PART III
Item 10 - Directors, Executive Officers of the Registrant
- ---------------------------------------------------------
The information required with respect to the Directors and the
Executive Officers of the Company is incorporated herein by reference to
"Executive Officers" in the Proxy Statement and is incorporated herein by
reference.
Item 11 - Executive Compensation
- --------------------------------
The information required with respect to executive compensation of
the Company is incorporated herein by reference to "Executive Officer
Compensation" in the Proxy Statement and is incorporated herein by
reference.
Item 12 - Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The information required by this item with respect to security
ownership and management and certain beneficial owners of the Company is
incorporated by reference to the caption "Stock Ownership of Directors,
Executive Officers and Principal Stockholders" contained in the Proxy
Statement and is incorporated herein by reference.
The Company knows of no arrangements, including any pledge by any
person of securities of the Company, the operation of which may at a
subsequent date result in a change in control of the Company. The Company
also knows of no agreements among its shareholders which relate to voting
or investment power of its shares of Common Stock.
Item 13 - Certain Relationships and Related Transactions
- --------------------------------------------------------
The Company has signed an agreement with Cramer Production Company,
Inc. (Cramer) of Norwood, Massachusetts, to produce a series of
instructional video tapes supporting modular technology programs offered by
the Company. An officer/shareholder of Cramer is director of the Company.
Cramer is responsible under the agreement for all video production and
video cassette reproduction. The videotapes are exclusively marketed by
Company. The Company provides scripts for the modules, technical
representatives, program materials and is also responsible for packaging,
design and promotion. Purchases from Cramer under this agreement were
approximately $21,300 , $ 30,200 and $28,900 for the years ended December
31, 1998, 1997 and 1996, respectively.
During the year ended December 31, 1997 and 1996, sales to a related
entity were approximately $500 and $63,200. There were no such
transactions for the year ended December 31, 1998. Commissions paid to the
same entity for the years ended December 31, 1998, 1997, and 1996 were
approximately $27,000, $26,000 and $15,900, respectively.
The Company has entered into a lease agreement for its Tewksbury,
Massachusetts facility with Lorig Corporation, which is owned by members of
the family of an officer and majority stockholder of the Company. The
Company believes the lease agreement is either favorable or comparable to
others based on a market value of the facility.
PART IV
<TABLE>
<CAPTION>
Item 14 - Exhibits, Financial Statements, Schedules and Reports on Form 8-K Page
- --------------------------------------------------------------------------- ----
<S> <C>
a) The following documents are filed as a part of this Report:
1. Financial Statement:
Report of Independent Certified Public Accountants 10
Balance sheet at December 31, 1998 and 1997 11
Statement of operations for the years
ended December 31, 1998, 1997 and 1996 12
Statement of Stockholders' equity for the years
ended December 31, 1998, 1997 and 1996 13
Statement of cash flows for the years
ended December 31, 1998, 1997 and 1996 14
Notes to Financial Statements 15
2. Schedules for the years ended December 31, 1998, 1997
and 1996
Schedule II - Valuation and Qualifying Accounts 20
All other schedules called for under Regulation S-X
are not submitted because they are not applicable or
not required, or because the required information is
included in the Consolidated financial statements and
notes thereto.
3. Exhibits:
The following exhibits are filed herewith:
27.1 Financial data schedule 22
b) Reports on Form 8-K:
The Company filed no Reports on Form 8-K with the
Securities and Exchange Commissions during the quarter
ended December 31, 1998.
</TABLE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Board of Directors and Stockholders of
Megatech Corporation
We have audited the accompanying balance sheet of Megatech
Corporation as of December 31, 1998 and 1997, and the related statements of
operations, stockholders' equity and cash flows for the years ended
December 31, 1998, 1997 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Megatech
Corporation as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years ended December 31, 1998, 1997
and 1996 in conformity with generally accepted accounting principles.
Our audits, referred to above, also include the financial schedules
listed in the Index at Item 14(a)(2). In our opinion, based on our audit,
such financial schedules present fairly the information required to be set
forth therein.
SULLIVAN BILLE, P.C.
Tewksbury, Massachusetts
February 12, 1999
MEGATECH CORPORATION
====================
BALANCE SHEET, DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
A S S E T S
===========
CURRENT ASSETS:
Cash and cash equivalents $ 187,580 $ 55,026
Accounts receivable:
Trade (less allowance for doubtful
accounts: 1998, $10,166; 1997,
$11,070) 101,502 335,891
Other 14,149 20,790
Inventories 399,868 409,551
Prepaid expenses 5,464 22,157
---------------------------
Total current assets 708,563 843,415
PROPERTY AND EQUIPMENT - Net 72,145 85,703
OTHER ASSETS 7,666 7,666
---------------------------
TOTAL $ 788,374 $ 936,784
===========================
L I A B I L I T I E S A N D
S T O C K H O L D E R S' E Q U I T Y
CURRENT LIABILITIES:
Note payable - bank $ 25,000
Accounts payable:
Trade $ 163,729 258,179
Affiliate 15,204
Accrued liabilities:
Customer advanced payments 142,609 13,081
Accrued commissions 7,334 46,558
Other 64,415 33,029
---------------------------
Total current liabilities 378,087 391,051
---------------------------
STOCKHOLDERS' EQUITY:
Common stock, authorized, 5,000,000 shares
of $.0143 par value; issued and
outstanding, 3,792,308 shares 54,230 54,230
Additional paid-in capital 4,013,947 4,049,858
Deficit (3,657,890) (3,558,355)
---------------------------
Stockholders' equity - net 410,287 545,733
---------------------------
TOTAL $ 788,374 $ 936,784
===========================
</TABLE>
See notes to financial statements.
MEGATECH CORPORATION
====================
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
SALES $1,844,782 $2,097,454 $2,216,978
COST OF SALES 1,123,575 1,227,910 1,299,326
----------------------------------------
GROSS PROFIT 721,207 869,544 917,652
----------------------------------------
OPERATING EXPENSES:
Selling and marketing 626,836 798,965 788,010
General and administrative 168,048 181,428 192,746
Research and development 25,404 19,993 31,474
----------------------------------------
Total operating
Expenses 820,288 1,000,386 1,012,230
----------------------------------------
LOSS FROM OPERATIONS (99,081) (130,842) (94,578)
OTHER INCOME (EXPENSE) - Net (454) 1,236 (1,055)
----------------------------------------
NET LOSS $ (99,535) $ (129,606) $ (95,633)
========================================
NET LOSS PER SHARE - Basic and
diluted $ (.026) $ (.034) $ (.025)
========================================
</TABLE>
See notes to financial statements.
MEGATECH CORPORATION
====================
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY - NET
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 3,762,058 $53,797 $4,010,836 $(3,333,116) $731,517
ISSUANCE OF COMMON STOCK 5,250 75 5,990 6,065
STOCK OPTIONS EXERCISED 22,000 315 2,985 3,300
COMPENSATION 15,363 15,363
STOCK OPTIONS TERMINATED (357) (357)
NET LOSS FOR THE YEAR (95,633) (95,633)
-----------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 3,789,308 54,187 4,034,817 (3,428,749) 660,255
ISSUANCE OF COMMON STOCK 3,000 43 406 449
COMPENSATION 14,875 14,875
STOCK OPTIONS TERMINATED (240) (240)
NET LOSS FOR THE YEAR (129,606) (129,606)
-----------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 3,792,308 54,230 4,049,858 (3,558,355) 545,733
COMPENSATION 8,714 8,714
STOCK OPTIONS TERMINATED (44,625) (44,625)
NET LOSS FOR THE YEAR (99,535) (99,535)
-----------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 3,792,308 $54,230 $4,013,947 $(3,657,890) $410,287
=================================================================
</TABLE>
See notes to financial statements.
MEGATECH CORPORATION
====================
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(99,535) $(129,606) $(95,633)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Non-cash charges (credit) to net loss:
Depreciation and amortization 20,509 23,851 27,586
Compensation funded by stock options - net (35,911) 14,635 15,006
Common stock awarded as compensation 449 6,065
Decrease (increase) in current assets:
Accounts receivable 241,030 103,457 74,258
Inventories 9,683 (29,172) (53,043)
Prepaid expenses 16,693 (5,030) (11,588)
Increase (decrease) in current
liabilities:
Accounts payable (109,654) (44,880) 78,674
Accrued liabilities 121,690 19,988 35,946
-----------------------------------
Net cash provided by (used in)
operating activities 164,505 (46,308) 77,271
-----------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES -
Additions to property and equipment (6,951) (13,184) (5,425)
-----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments on) line of credit - net (25,000) 25,000
Payments on capital lease obligation (1,252) (2,954)
Principal payments on notes payable (37,000)
Proceeds from issuance of common stock 3,300
-----------------------------------
Net cash provided by (used in)
financing activities (25,000) 23,748 (36,654)
-----------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 132,554 (35,744) 35,192
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 55,026 90,770 55,578
-----------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $187,580 $ 55,026 $ 90,770
===================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 892 $ 756 $ 1,189
Taxes paid 715 1,393 187
</TABLE>
See notes to financial statements.
MEGATECH CORPORATION
====================
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
--------------------
1. OPERATIONS
Megatech Corporation is engaged in the production and sale of
educational training programs in the energy, power and
transportation areas which are sold domestically and internationally
to educational institutions and government agencies. Inherent in
the line of business in which the Company is engaged, is the risk
of product line obsolescence due to technological advances. There
also exists the risk that certain customers, such as governmental
agencies, which are funded by tax revenues, may be subject to
budget reductions. The Company grants credit to its customers.
Approximately 46%, 33% and 22% of sales during the years ended
December 31, 1998, 1997 and 1996, respectively, were from
international sales.
There were two customers which accounted for 26% of sales for the
year ended December 31, 1996. One customer accounted for 28% and
20% of sales for the years ended December 31, 1998 and 1997,
respectively. No other customers accounted for more than 10% of
sales in each of the years ended December 31, 1998, 1997 and 1996.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue Recognition
-------------------
Revenue from product sales are recognized upon shipment. Revenue for
maintenance and service and other revenues are recognized as the
services are performed.
Cash and Cash Equivalents
-------------------------
For purposes of reporting cash flows, cash and cash equivalents
include cash and all highly liquid investments with original
maturities of three months or less.
Inventories
-----------
Inventories are valued at the lower of cost (first-in-first-out
method) or market.
Property and Equipment
----------------------
Property and equipment are recorded at cost. Depreciation and
amortization are computed principally on the straight-line method
for financial accounting purposes, and accelerated methods for tax
purposes, over the estimated useful lives of the assets.
Leasehold improvements are amortized on the straight-line method over
their respective lives or the lease terms, whichever is shorter.
Costs of maintenance and repairs are charged to expense while costs
of significant renewals and betterments are capitalized.
Income Taxes
------------
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is
used to reduce deferred tax assets when it is "more likely than
not" that some portion or all of the deferred tax assets will not
be realized.
3. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
---- ----
<S> <C> <C>
Raw material $186,176 $199,841
Work in Process 37,477
Finished goods 176,215 209,710
---------------------
Total $399,868 $409,551
=====================
</TABLE>
4. NOTE PAYABLE - BANK
The Company has a $100,000 ($200,000 at 1997) line-of-credit
agreement with a bank. The line is collateralized by a security
interest in substantially all assets of the Company. Interest is
payable monthly at the bank's prime rate plus 1.5%, 9.25% at
December 31, 1998. There were no borrowings outstanding on this
line at December 31, 1998. Borrowings outstanding on this line
were $25,000 at December 31, 1997.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
---- ----
<S> <C> <C>
Machinery and equipment $237,081 $237,081
Office equipment 124,270 117,319
Leasehold improvements 69,776 69,776
Automobile 32,632 32,632
---------------------
Total 463,759 456,808
Less accumulated depreciation and
amortization 391,614 371,105
---------------------
Property and equipment - net $ 72,145 $ 85,703
=====================
</TABLE>
The useful lives employed for computing depreciation and amortization
on principal classes of property and equipment are as follows:
<TABLE>
<CAPTION>
Class Description Years
----------------- -----
<S> <C>
Machinery and equipment 5 - 7
Office equipment 5 - 7
Leasehold improvements 10
Automobile 5
</TABLE>
6. LEASE AGREEMENTS
The Company leases its office, research and production facility in
Tewksbury, Massachusetts from a related party, under a five- year
operating lease which expires in November 1999. Under the terms of
the lease, as amended, the Company is responsible for all operating
expenses and maintenance costs. Rent expense under this lease was
approximately $86,000, $85,000 and $95,700 for the years ended
December 31, 1998, 1997 and 1996, respectively. The future minimum
lease payments due under the lease, as amended, are $78,000 for the
year ending December 31, 1999.
7. INCOME TAXES
The Company has available federal net operating loss carryforwards of
approximately $2,790,600 expiring through December 2018 and state
operating loss carryforwards of approximately $306,800 expiring
through December 2003.
Significant components of the Company's deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
---- ----
<S> <C> <C>
Deferred income tax assets:
Federal and state net operating
loss carryforwards $ 977,900 $1,073,500
Allowance for doubtful accounts,
reserves and accruals 42,400 57,100
-------------------------
Total deferred income tax
assets 1,020,300 1,130,600
Deferred income tax liabilities - tax
over book depreciation (7,600) (6,500)
Valuation allowance for deferred tax
assets (1,012,700) (1,124,100)
-------------------------
Net recognized deferred income tax
benefit $ -0- $ -0-
=========================
</TABLE>
8. RELATED PARTY TRANSACTIONS
The Company has an agreement with Cramer Production Company, Inc.
(Cramer) of Norwood, Massachusetts to produce a series of
instructional video tapes supporting modular technology programs
offered by the Company. An officer/shareholder of Cramer is a
director of the Company. Cramer is responsible under the agreement
for all video production and video cassette reproduction. The
videotapes are exclusively marketed by the Company. The Company
provides scripts for the modules, technical representatives,
program materials and is also responsible for packaging, design and
promotion. Purchases from Cramer under this agreement, included in
cost of sales, were approximately $21,300, $30,200 and $28,900 for
the years ended December 31, 1998, 1997 and 1996, respectively.
During the years ended December 31, 1997 and 1996, sales to a related
entity were approximately $500 and $63,200. There were no such
transactions during the year ended December 31, 1998. Commissions
paid to the same entity were approximately $27,000, $26,000 and
$15,900 during 1998, 1997 and 1996, respectively.
9. EMPLOYEE BENEFIT PLAN
During the year ended December 31, 1997, the Company adopted a SIMPLE
IRA Plan (the Plan), which covers all employees who meet certain
requirements. Under the terms of the Plan, the Board of Directors
determines annually the amount of the matching contribution. The
matching contribution for the years ended December 31, 1998 and
1997 were approximately $6,300 and $2,400, respectively.
10. NET LOSS PER SHARE
Basic net loss per share has been computed using the weighted average
number of common shares outstanding.
Diluted net loss per share gives effect to all dilutive potential
common shares that were outstanding during the period. The Company
had a net loss for the years ended December 31, 1998, 1997 and
1996; therefore, none of the options outstanding at period end were
included in the diluted net loss per share calculation for the
years ended December 31, 1998, 1997 and 1996, since they were anti-
dilutive.
The weighted average number of shares outstanding is as follows:
<TABLE>
<CAPTION>
Year Ended Number of
December 31, Shares
------------ ---------
<S> <C>
1998 3,792,308
1997 3,790,122
1996 3,784,566
</TABLE>
11. STOCK OPTIONS PLANS
The Company has issued stock options to various directors, officers,
employees and others under various stock option plans. Under the
terms of the plans, one third of the options become exercisable one
year from the date of grant, two thirds two years from the date of
grant and all options expire three years from the date of grant.
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
Stock Price
Options Per Share
------- ---------
<S> <C> <C>
Outstanding at December 31, 1995 81,000 $ .15 - $2.75
Granted 27,000 1.00
Expired or cancelled (10,000) .15
Exercised (22,000) .15
Outstanding at December 31, 1996 76,000 .15 - $2.75
Expired or cancelled (34,000) .15 - 1.00
Outstanding at December 31, 1997 42,000 1.00 - 2.75
Expired (42,000) 1.00 - 2.75
Outstanding at December 31, 1998 -0- $ -0-
</TABLE>
12. RECLASSIFICATION OF AMOUNTS
Certain amounts in the financial statements for the years ended
December 31, 1997 and 1996 have been reclassified to conform to
current year presentation.
--------------------
SCHEDULE II
MEGATECH CORPORATION
====================
<TABLE>
<CAPTION>
VALUATION AND QUALIFYING ACCOUNTS
- -----------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -----------------------------------------------------------------------------------------------
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996:
- -----------------------------
Reserve for obsolescence $10,000 $-0- $-0- $-0- $10,000
Allowance for doubtful
Accounts $11,580 $-0- $-0- $-0- $11,580
Year Ended December 31, 1997:
- -----------------------------
Reserve for obsolescence $10,000 $-0- $-0- $-0- $10,000
Allowance for doubtful
Accounts $11,580 $-0- $-0- $510 $11,070
Year Ended December 31, 1998:
- -----------------------------
Reserve for obsolescence $10,000 $-0- $-0- $-0- $10,000
Allowance for doubtful
Accounts $11,070 $-0- $-0- $904 $10,166
- -----------------------------------------------------------------------------------------------
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
MEGATECH CORPORATION
(Registrant)
By: /s/ Vahan V. Basmajian
----------------------
Vahan V. Basmajian, President, Treasurer and Director
Date:_______________________________
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
By: /s/ Vahan V. Basmajian
----------------------
Vahan V. Basmajian, President, Treasurer and Director
By: /s/ Ralph E. Hawes
------------------
Ralph E. Hawes, Director
By: /s/ Dennis A. Humphrey
----------------------
Dennis A. Humphrey, Director & Clerk
By: /s/ Thomas J. Martin
--------------------
Thomas J. Martin, Director
Date:_____________________________
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 187,580
<SECURITIES> 0
<RECEIVABLES> 101,502
<ALLOWANCES> 10,166
<INVENTORY> 399,868
<CURRENT-ASSETS> 708,563
<PP&E> 463,759
<DEPRECIATION> 391,614
<TOTAL-ASSETS> 788,374
<CURRENT-LIABILITIES> 378,087
<BONDS> 0
0
0
<COMMON> 54,230
<OTHER-SE> 356,057
<TOTAL-LIABILITY-AND-EQUITY> 788,374
<SALES> 1,844,782
<TOTAL-REVENUES> 1,844,782
<CGS> 1,123,575
<TOTAL-COSTS> 820,288
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 892
<INCOME-PRETAX> (99,535)
<INCOME-TAX> 0
<INCOME-CONTINUING> (99,535)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (99,535)
<EPS-PRIMARY> (0.026)
<EPS-DILUTED> (0.026)
</TABLE>
