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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended April 30, 1998 Commission file number 0-7642
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MEGADATA CORPORATION
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(Exact name of Registrant as specified in its charter)
New York 11-2208938
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
35 Orville Drive, Bohemia, New York 11716
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 589-6800
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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 the filing
requirements for the past 90 days.
YES X NO
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Registrant's shares outstanding: 2,511,600.
<PAGE>
MEGADATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
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April 30, October 31,
1998 1997
Unaudited Audited
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CURRENT ASSETS:
Cash and cash equivalents $ 116,783 $ 318,595
Accounts receivable 136,069 299,586
Inventories (Note 1) 425,695 448,775
Prepaid expenses and other current assets 56,835 87,561
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TOTAL CURRENT ASSETS 735,382 1,154,517
PROPERTY, PLANT AND EQUIPMENT, net 1,397,121 1,418,891
OTHER ASSETS 23,421 21,888
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$ 2,155,924 $ 2,595,296
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES:
Accounts payable $ 34,151 $ 155,989
Accrued expenses and taxes 87,952 120,475
Accrued expenses - related party -- 89,215
Note payable - related party (&5) 100,000 100,000
Deferred income 108,250 150,122
Installment note payable -- 11,592
Current portion of long-term debt (Note 2) 55,753 53,242
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TOTAL CURRENT LIABILITIES 386,106 680,635
Notes Payable - related party (less &5) 50,000 100,000
LONG-TERM DEBT (Note 2) 592,517 621,036
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1,028,623 1,401,671
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STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share:
Authorized 5,000,000 shares
Issued 3,203,100 shares 32,031 32,031
Additional paid-in capital 2,460,653 2,465,571
Retained earnings 251,842 313,248
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2,744,526 2,810,850
Less treasury shares, at cost
(691,500 shares) (1,617,225) (1,617,225)
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1,127,301 1,193,625
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$ 2,155,924 $ 2,595,296
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See notes to consolidated financial statements.
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<PAGE>
MEGADATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE SIX MONTHS ENDED APRIL 30,
(UNAUDITED)
1998 1997
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REVENUES:
Sales $ 633,373 $ 597,455
Service 37,799 42,799
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TOTAL REVENUES 671,172 640,254
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COST AND EXPENSES:
Cost of operations 448,224 475,433
Cost of service 37,938 37,256
Research and development 60,215 85,889
General and administrative expenses 149,906 134,698
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696,283 733,276
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INCOME/(LOSS) FROM OPERATIONS (25,111) (93,022)
OTHER INCOME/(EXPENSE):
Interest income 5,584 547
Interest expense (31,078) (45,956)
Interest expense - related party (10,881) --
Other income 80 --
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INCOME/(LOSS) BEFORE INCOME TAXES (61,406) (138,431)
PROVISION FOR INCOME TAXES -- --
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NET INCOME/(LOSS) (61,406) (138,431)
RETAINED EARNINGS, at beginning of year 313,248 367,748
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RETAINED EARNINGS, at end of period $ 251,842 $ 229,317
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NET INCOME/(LOSS) PER SHARE ($ .02) ($ .09)
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WEIGHTED AVERAGE SHARES OUTSTANDING 2,511,600 1,611,600
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See notes to consolidated financial statements.
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MEGADATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 30,
(UNAUDITED)
1998 1997
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REVENUES:
Sales $ 232,365 $ 405,196
Service 28,469 24,805
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TOTAL REVENUES 260,834 430,001
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COST AND EXPENSES:
Cost of operations 211,389 258,106
Cost of service 18,527 17,884
Research and development 29,842 43,843
General and administrative expenses 85,326 70,720
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345,084 390,553
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INCOME/(LOSS) FROM OPERATIONS (84,250) 39,448
OTHER INCOME/(EXPENSE):
Interest income 2,182 157
Interest expense (15,390) (28,980)
Interest expense - related party (6,475) --
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INCOME/(LOSS) BEFORE INCOME TAXES (103,933) 10,625
PROVISION FOR INCOME TAXES -- --
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NET INCOME/(LOSS) BEFORE (103,933) 10,625
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NET INCOME/(LOSS) PER SHARE ($ .04) $ .01
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WEIGHTED AVERAGE SHARES OUTSTANDING 2,511,600 1,611,600
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See notes to consolidated financial statements.
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<PAGE>
MEGADATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30,
1998 1997
Unaudited Unaudited
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CASH FLOWS USED IN OPERATING ACTIVITIES:
Net (Loss) $ (61,406) $(138,431)
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Adjustments to reconcile Net (Loss) to
net cash used in operating activities:
Depreciation and amortization 38,494 31,407
Change in operating assets and
liabilities:
Decrease/(Increase) in accounts 163,517 (72,233)
receivable
Decrease in inventories 23,080 25,696
(Increase)/Decrease in other (1,533) 2,939
assets
Decrease/(Increase) in prepaid
expenses and other current assets 30,726 (44,915)
(Decrease) in accounts payable (121,838) (21,959)
(Decrease)/Increase in accrued
expenses and other current (82,253) 74,610
liabilities
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Total Adjustments 50,193 (4,455)
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Net cash (used in) operating (11,213) (142,886)
activities
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (16,724) --
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Net cash (used in) investing (16,724) --
activities
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CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in other assets - deferred
mortgage cost 2,940 2,940
(Payment of)/Proceeds from notes (139,215) 100,000
and loan payable
(Payment of) installment note (11,592) (11,404)
(Payment of) mortgage loan (26,008) (23,719)
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Net cash (used in)/provided (173,875) 67,817
by financing activities
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(DECREASE) IN CASH AND
CASH EQUIVALENTS (201,812) (75,069)
CASH AND CASH EQUIVALENTS,
AT BEGINNING OF PERIOD 318,595 119,458
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CASH AND CASH EQUIVALENTS,
AT END OF PERIOD $ 116,783 $ 44,389
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See notes to consolidated financial statements.
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<PAGE>
MEGADATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INVENTORIES:
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As of April 30, 1998 the inventory value is $425,695. It has been computed using
a standard cost method for the current quarter.
Inventory is classified as follows for October 31, 1997:
Parts and Raw Material $ 103,251
Work-In-Process 282,352
Finished Goods 63,172
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$ 448,775
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NOTE 2 - LONG-TERM DEBT:
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On May 31, 1996, the Company refinanced the existing mortgage with Roosevelt
Savings Bank on its building in Bohemia, New York. The loan matures on June 1,
2001 and requires annual payments based upon a 10 year amortization schedule.
Interest is at a fixed rate of 9.25%. The loan agreement calls for a balloon
payment of $498,637 due on June 1, 2001.
NOTE 3 - EARNINGS PER COMMON SHARE:
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Net (loss)/income per share is computed based on the weighted average number of
common shares outstanding. Common share equivalents in the form of stock options
have not been included in the calculation since their effect would be
anti-dilutive.
NOTE 4 - STATEMENT OF MANAGEMENT:
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The financial information contained in this Form 10-Q represents condensed
financial data and, therefore, does not include all footnote disclosures
required to be included in financial statements prepared in conformity with
generally accepted accounting principles. Such footnote information was included
in the Company's 10K report to the SEC for the year ended October 31, 1997; the
condensed financial data included herein should be read in conjunction with that
report.
In the opinion of the Company, the accompanying unaudited consolidated financial
statements contain all adjustments necessary to present fairly the consolidated
balance sheet of MEGADATA CORPORATION at April 30, 1998 and the consolidated
results of operations for the three and six month periods ended April 30, 1998
and 1997 and the consolidated statement of cash flow for the six months ended
April 30, 1998 and 1997.
The results of operations for the interim periods stated above are not
necessarily indicative of the results of operations for the fiscal year ending
October 31, 1998.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDING APRIL 30, 1998
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Revenue during the six month period ending April 30, 1998 increased by 4.8%, or
$30,918, as compared to the corresponding period of 1997. This increase in
revenue is attributable to results that occurred mostly in the first quarter of
fiscal year 1998, which reflected increases in sales of all product categories
offered by the Company. A reduction of revenue during the second quarter ending
April 30, 1998 resulted in a net loss for the six month period, despite higher
six month revenues.
The Company is reporting a net loss of ($ 61,406), or ($.02), per share from
operations during the first six months of fiscal year 1998 as compared to a net
loss of ($138,431), or ($.09) per share, during the comparable six month period
of 1997.
Cost of Operations during the six month period ending April 30, 1998 were lower
by $27,209, or 5.7%, as compared to the corresponding period of fiscal year
1997. The Company plans to continue to retain its key employees to maintain a
certain level of manufacturing, engineering, and software capacity. However, all
costs are being constantly monitored and scrutinized, and when new ways are
found to eliminate, reduce or replace such costs by lower cost alternatives they
are promptly being implemented.
Costs of Research and Development activities sponsored by the Company were lower
by approximately $26,000 during the six month period ending April 30, 1998 when
compared to the same period in fiscal year 1997. The bulk of the R&D activities
concentrated on enhancements to the Passive Secondary Surveillance Radar
(PASSUR) system and on documentation of the PASSUR system.
General and Administrative costs during the six month period ending April 1998
increased by $15,208, or 11.3%, over the comparable period in 1997. The increase
is associated with additional commission expenses due to the increase in sales
volume and costs associated with the installation of an ASD (Aircraft Situation
Display) data line feed supplied to the Company, which was required to enhance
PASSUR system sales and services.
Overall, Cost and Expenses were lower during the six month period ending April
30, 1998 by $36,993, or 5.1%, compared to similar costs during the comparable
period of 1997.
During the first six month period ending April 30, 1998 interest expense
decreased by $9,034, or 19.9%, when compared to the similar period of 1997. This
decrease is mainly attributed to a decrease in interest expense associated with
notes payable.
As of October 31, 1997 the Company had available approximately $4,600,000 in
Federal tax loss carryforwards to offset possible future income tax. The Company
also has available $25,000 in general business tax credit carryforwords. These
carryforwards expire in various amounts through 2012 and 2008 respectively.
Alhough inflation has not had a material effect on its operations, the Company
is paying higher prices for components purchased in small quantities.
RESULTS OF OPERATIONS FOR THE QUARTER ENDING APRIL 30, 1998
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Revenue during the quarter ended April 30, 1998 decreased by 39.3%, or $169,167,
when compared to the similar period of 1997. The decrease in revenue is
attributed mainly to the lack of PASSUR sales during the second quarter. Some
customers who had expressed interest in purchasing PASSUR systems, which were
anticipated to occur in the second quarter, have deferred their purchases to
later in the fiscal year.
During the second quarter of fiscal year 1998 the Company had a net loss of
($103,933) or ($.04) per share as compared to a net profit of $10,625 or $.01
per share during the corresponding period in fiscal year 1997.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
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On March 27, 1997 the Company entered into an exclusive licensing agreement with
the owner of the PASSUR patents. Under the agreement the Company has the
exclusive rights to the marketing, sale, installation, and maintenance of PASSUR
systems in the United States. Bruel & Kjear maintains its exclusive rights in
all other countries. In a separate agreement between the Company and Bruel &
Kjear, Bruel & Kjear agreed to promote and sell the PASSUR systems world-wide.
The Company agreed to compensate Bruel & Kjear for its efforts through the
payment of commission for any successful installation of PASSUR systems outside
of the United States. Commissions will only be paid after the Company receives
payment from the customer.
On May 31, 1996 Roosevelt Savings Bank and the Company signed a mortgage
agreement refinancing the mortgage held by Roosevelt Bank for five additional
years. As of April 30, 1998 the mortgage balance is $648,270. (See Note 2 - Long
Term Debt.)
During the second quarter of fiscal year 1998 the Company reported a net loss
resulting from lower revenues. Interest by potential customers in the Company's
products remains strong and the Company anticipates an increase in future sales.
However, the Company cannot predict if such sales will materialize. If sales do
not increase, losses may continue. The extent of such profits or losses will be
dependent on sales volume achieved and the accomplishment of additional cost
cutting programs.
These statements are based on assumptions that the Company believes are
reasonable but are subject to a wide range of risks and uncertainties and a
number of factors could cause the Company's actual results to differ materially
from those expressed in the forward looking statements above.
PRIVATE INVESTOR
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During the period between September 18, 1996 and June 6, 1997 the Company signed
various agreements with Mr. G.S. Beckwith Gilbert, a private investor. Under
these agreements, Mr. Gilbert provided the Company with three $100,000 loans
bearing a 9% interest rate, payable by July 30, 1997, and secured by the
Company's assets, excluding the building. In consideration, the Company granted
Mr. Gilbert three warrants to purchase up to 1,400,000 of the Company's common
shares. On June 6, 1997, Mr. Gilbert and affiliated entities completed the
purchase of 700,000 shares of the Company's common stock for an aggregate
purchase price of $500,000. Of such purchase price, $400,000 was paid in cash
and $100,000 was paid by the cancellation of a $100,000 loan previously made by
Mr. Gilbert to the Company. On October 31, 1997, Mr. Gilbert and two other
directors exercised a warrant to purchase an additional 200,000 shares of the
Company's common stock for an aggregate purchase price of $150,000. The exercise
of this warrant has validated a third warrant issued to Mr. Gilbert under which
he has the right to purchase up to 500,000 additional shares at a share price of
$1.25. The 500,000 share warrant expires October 31, 2001 and is exercisable
during the year preceding expiration. The Company has also agreed to provide Mr.
Gilbert with incidental registration rights for all the shares purchased under
the warrants. The Company has no assurance that Mr. Gilbert will exercise his
rights under the third warrant. On July 30, 1997, Mr. Gilbert and the Company
signed an amended and restated loan agreement under which the outstanding loan
balance of $200,000 will continue to accrue interest at an annual rate of 9%,
but will have a maturity of July 30,1999. All accrued interest on such loan will
be paid on a quarterly basis and the principal balance of such loan will be
repaid at the rate of $25,000 per quarter, beginning December 31, 1997. The loan
balance as of April 30, 1998 was $150,000.
Mr. Gilbert has been elected a director and Chairman of the Board and has
designated two additional board members to the Company's six person Board of
Directors. Mr. Gilbert is President and Chief Executive Officer of Field Point
Capital Management Corp., a merchant banking firm located in Greenwich,
Connecticut.
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<PAGE>
M. Sales of Unregistered Securities:
NONE
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<PAGE>
SIGNATURE
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Pursuant to the requirements of the Securities and Exchange Act of 1933 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: June 15, 1998
MEGADATA CORPORATION
\S\ YITZHAK N. BACHANA
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Yitzhak N. Bachana
President
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<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000225628
<NAME> MEGADATA CORPORATION
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<CASH> 116,783
<SECURITIES> 0
<RECEIVABLES> 139,069
<ALLOWANCES> 0
<INVENTORY> 425,695
<CURRENT-ASSETS> 735,382
<PP&E> 1,397,121
<DEPRECIATION> 38,494
<TOTAL-ASSETS> 2,155,924
<CURRENT-LIABILITIES> 386,106
<BONDS> 0
32,031
0
<COMMON> 0
<OTHER-SE> 1,095,270
<TOTAL-LIABILITY-AND-EQUITY> 2,155,924
<SALES> 671,172
<TOTAL-REVENUES> 676,836
<CGS> 448,224
<TOTAL-COSTS> 696,283
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,959
<INCOME-PRETAX> (61,406)
<INCOME-TAX> 0
<INCOME-CONTINUING> (61,406)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (61,406)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
