Legally there is a difference between "imitation" and "replica", and different states have use the different meanings for their weapons legislations.

Imitation means that it can look like a weapon but doesn't work, and may not look exactly like a particular weapon, especially to regular people who wouldn't know for sure that it is a fake gun being waved in their faces.
Replica in some states means that it is designed to look and work like a real gun (as a working replica), so it is actually like a knock-off... but other states use the term to refer to "fake replica", which is the same as Imitation.

This version of Megatron may have non-realistic colouring, and even if it wasn't an accurate Walther-P38, it would still look like a handgun to people who don't know the different types of handguns... and it would only need some black paint to make it more realistic.
As an example, the gold version of MP-5 Megatron was still confiscated by Customs because it turned into something that resembled a gun, regardless of its colour or exact size. (it is only 50% bigger than the real gun, which is still within range of a real handgun if an offender is waving one in your face)