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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended October 31, 1997
|_| 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 number 0-7642
MEGADATA CORPORATION
(Exact name of registrant as specified in its charter)
New York 11-2208938
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 Orville Drive, Bohemia, New York 11716
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: 516-589-6800
Securities of the Registrant registered pursuant to
Section 12(b) of the Act: None
Securities of the Registrant registered pursuant to
Section 12(g) of the Act:
Common shares, par value $0.01 per share
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 [X] 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. |X|
The aggregate market value of the voting shares of the Registrant held
by non-affiliates as at January 20, 1998 was $455,388
The number of common shares, $0.01 par value, outstanding as at
January 20, 1998 was 2,511,600
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<PAGE>
PART I
Item 1. Business.
-------------------
(a) General Development of Business.
----------------------------------------
The Registrant sells, manufactures, and is
continuing to develop hardware and software enhancements for its
aircraft flight tracking systems.
The Registrant's product line includes the PASSUR
(Passive Secondary Surveillance Radar) systems. These systems
receive aircraft identification and altitude information from
aircraft transponder transmissions which are interrogated by
existing secondary surveillance radars without emitting any
active signals. Received signals are processed in a standard
work station and displayed on a high resolution color graphics
data display to provide real-time identification and tracking of
aircraft in flight. The display presentation is similar to that
provided to Air Traffic Controllers. The presentation of flight
tracks can be in real time or can be switched to a mode that
permits observance of historical data for selected time periods.
A PASSUR system may be integrated to work with noise monitoring
and measuring equipment in a configuration that will supply a
correlation between aircraft location and noise levels generated
by it. With this real-time information, an airport noise
abatement officer can enforce the law regarding noise levels
emitted by an aircraft. When used as part of an airport noise
monitoring system, airport managers and noise control officers
can correlate noise events in the local community with specific
airline flight tracks.
Another variation of the PASSUR system is called
ATMS (Air Traffic Monitoring System). The ATMS was developed to
address a request by a major U.S. airline for use in its flight
and airport operations management. The ATMS provides tracks of
all airborn aircraft within a 150 mile radius around the
airport. It performs ETA (Estimated Time of Arrival)
calculations that predict accurately when arriving aircraft are
expected to land. It also detects any holding patterns,
assessing the impact of Air Traffic Control on an airport
operation complex. By using the information provided by the
ATMS, an airline's Air Traffic Dispatcher can more accurately
predict arrival times, enhancing customer service and gate
management. Added benefits include more efficient scheduling of
ground support operations, such as food, baggage, cleaning and
refueling services.
Continued R&D efforts conducted during the year
led to the enhancement of the software that correlates real-time
ASD (Aircraft Situation Display) data supplied by the Department
of Transportation with flight tracks identified by the PASSUR.
This correlation allows the PASSUR to identify the carrier and
the flight number of each aircraft displayed.
To enhance the SA-9600 radio modem, the
Registrant has implemented a new design for a faster modem
increasing the speed of data communication to 28.8Kbps. Both the
SA-9600 and the previously developed PC-9600 are part of the
AGILE DATA product line for wireless communication of voice and
data. The SA-9600 operates synchronously or asynchronously,
half or full duplex, with any host computer with an RS-232C
serial port. An optional data compression feature supports host
system baud rates of 38,400 bps when in the asynchronous mode.
(A data compression feature installed on an SA-9600 with the new
28.8 Kbps modem can support higher baud rates then 38,400 bps.)
No software modification of the host system is necessary. As a
reliable means of both voice and data transfer, AGILE DATA is
mainly being marketed in third-world countries, where existing
telephone data services are either poor or non-existent. The
new DC-powered SA-9600 enhances its suitability for mobile
applications where 12/24/48vdc power is commonly available. The
Registrant has received FCC approval for the marketing and sale
of these products in the 450-470Mhz business band. In order to
appeal to a wider group of potential users who, due to
government restrictions or unavailable frequencies, wish to
utilize other radios transmitting on frequencies outside the
standard SA-9600's range, the Registrant has developed the
SA-9600/E. The SA-9600/E is a modem-only version of the SA-9600
which provides radio data transmission capability using commonly
available, off-the-shelf, external radios of the customer's
choice.
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The Registrant's experience with airline
communication protocols such as SABRE, APOLLO, PARS, SITA,
SYSTEM ONE, IPARS, DATAS II, PEGASUS, WORLDSPAN, GEMINI, and
other airline network protocols led to the development of
various reservation network access products for the airline
industry. These include communication controllers and
multiplexers which support multiple Interchange and Terminal
Addresses (IAs & TAs) on a single host communication line,
reducing CRS (Computerized Reservation System) host polling
overhead and providing significant savings on telephone line
charges and installation. Other communication products allow
the use of public or private X.25 networks to transport
reservation data to a computer reservation system. The
Registrant has received certification for these products from
the major airline reservation networks.
(b) Financial Information About Industry Segments.
---------------------------------------------------
Not applicable.
(c) Narrative Description of Business.
------------------------------------------
The Registrant is a supplier of communication
products intended to satisfy the needs of airports, airlines,
and travel agents. Its principal business is the design,
manufacture, sale and service of its product line consisting of
wireless modems, access equipment to airline reservation
systems, communications controllers, multiplexers, and
multi-user, UNIX-based microcomputers.
In addition to the standard line of equipment,
the Registrant provides its customers with customized software
and hardware. These applications include passive detection of
aircraft in flight, file server configuration for networking
personal computers, and connectivity solutions integrating the
Registrant's data processing systems with communications
capabilities.
1. Products.
-------------
The Registrant's software and hardware are
utilized in the following applications:
(i) Air Traffic Monitoring Systems
----------------------------------
The Registrant, under a sublicense for patented
technology owned by a third party, has implemented its
proprietary software to develop an enhanced line of air traffic
monitoring systems. These PASSUR (Passive Secondary Surveillance
Radar) systems receive and process aircraft identification from
aircraft transponder transmissions interogated by existing
secondary surveillance radars. With this information available
in real time, the airport manager or an individual airline's Air
Traffic Dispatcher can more accurately predict arrival times,
enhancing customer service and gate management. Added benefits
include more efficient scheduling of ground support operations,
such as food, baggage, cleaning, and refueling services. When
used as part of airport noise monitoring systems, airport
managers and noise abatement officers can correlate noise events
in the local community with specific airline flight tracks for
appropriate action.
(ii) Wireless Modem Communications
----------------------------------
The SA-9600 and the PC-9600 are part of the AGILE
DATA product line of wireless radio modems, which communicate
voice and data at speeds up to 28.8K bps. The SA-9600 operates
synchronously or asynchronously, half or full duplex, with any
host computer with an RS-232C serial port. Compatibility with
the "AT" command set is built in. No software modification of
the host system is necessary for any of the operating modes.
Encryption of transmitted data is available for security
purposes. A data compression feature increases throughput up to
four times (38,400 bps) depending on the type of data
transmitted. The new DC-powered SA-9600 enhances its suitability
for mobile applications where 12/24/48vdc power is commonly
available. A modem-only version is also available, allowing the
SA-9600 to be used with off-the-shelf radio equipment that meet
existing local regulatory or customer requirements.
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<PAGE>
The PC-9600 is a PC compatible plug-in circuit
board. Like the SA-9600, the PC-9600 is frequency "agile" and
is able to communicate on any frequency channel in the
400-500Mhz band. An optional microphone attachment permits
station-to-station voice communications in addition to data
transfer. Both wireless modems were designed to link two or
more computers together without cables or any form of wiring.
Adjustable output power up to 2 watts will provide an effective
range of 15 miles; hundreds of miles when used with repeaters
and amplifiers. AGILE DATA products are aimed toward large
manufacturing and distribution centers, banks, oil exploration
companies, government agencies, defense contractors and others,
where physical environments make standard cabling schemes
impossible or impractical to implement.
The Registrant has received FCC approval for the
marketing and sale of both products in the 450-470Mhz business
band.
(iii) Airline Reservation Access Systems
----------------------------------------
The Registrant's experience with ALC protocols,
such as SABRE, SYSTEM ONE, PARS, IPARS, GEMINI, APOLLO and other
airline network protocols has led to the development of various
reservation access products for the airline reservation
industry. Offering multi-user workstations with dual-screen
displays and pop-up windows, MURS and RESNET controllers provide
the lowest per-user-station cost in the industry. They allow up
to 32 workstations and 8 printers to be interfaced to a single
reservation system host communication line. MIAC (Multiple
Interchange Address Concentrator) supports many separate
interchange addresses on a single communication line. This
increases an airline's CRS (Computerized Reservation System)
efficiency by reducing both host polling overhead and the number
of separate communication lines needed. ALCX.25 allows the use
of public or private X.25 networks to transport reservation data
to a computer reservation system. Configurable for either
premise or host site operation, ALCX.25 converts installed user
sites to X.25 without modification to existing user equipment.
(iv) Custom Hardware and Software Activities
--------------------------------------------
The Registrant is, occasionally, involved in
specialized R & D projects sponsored and paid for by customers.
These projects involve the customization of the Registrant's
standard products to suit specific customer requirements.
2. Services.
-------------
The Registrant offers maintenance services
pursuant to contractual arrangements or an "on-call" basis.
"On-call" services are provided on a time and material basis.
3. Sources of Raw Materials.
--------------------------------
The Registrant obtains its raw materials from
component distributors and manufacturers throughout the United
States. The Registrant has multiple sources of supply for a
majority of its components.
4. Dependence on Certain Customers.
---------------------------------------
During the fiscal year ended October 31, 1997,
three customers accounted for 63.4% of revenue. Harris, Miller,
Miller & Hanson accounted for 27.2%, Bruel & Kjear accounted for
21.7%, and San Francisco International Airport accounted for
14.5%. The loss of any of these customers would have an adverse
effect on the Registrant's business. During fiscal year 1996
only one customer accounted for more than 10% of the
Registrant's revenue. ITS Leasing accounted for 24.8% of fiscal
year 1996 revenues. During fiscal year 1995 three customers
accounted for 61.9% of revenues. United Airlines accounted for
25.6%, Bruel & Kjear accounted for 20.4%, and ITS Leasing
accounted for 15.8%.
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5. Backlog.
------------
The Registrant's backlog for products and
services at October 31, 1997 amounted to approximately $286,000
all of which is scheduled for delivery before October 31, 1998.
The backlog at October 31, 1996 and 1995 amounted to
approximately $278,000 and $212,000, respectively. Backlog
consists of written purchase orders or contracts. Registrant's
low level backlog can be explained by the current prevailing
approach of "Just In Time" in purchasing. The Registrant has
demonstrated that it can satisfy customer requirements in a
relatively short time due to availability of parts in its
inventory.
6. Competition.
----------------
The Registrant is offering the PASSUR and ATMS
systems for passive detection of aircraft in flight. These
products are, to the best of its knowledge, relatively unique
with low competition. Other products, such as the enhanced
version of the wireless radio modems and some airline
communication products offered by the Registrant fall into the
category of highly competitive business. For these products,
although price is a factor, the Registrant believes that design,
technical and software capabilities in tailoring it's products
to customers' individualized needs are more important
competitive factors in the market to which the Registrant
directs its efforts. Depending on the end use of the systems
and peripherals, the Registrant's primary competitors are Data
Radio, Cylink, Dimensions International, Motorola, Memorex, and
Videcom, all of which are significantly larger than the
Registrant, and have larger sales forces and greater financial
resources.
7. Research and Development.
-------------------------------
The Registrant's Research and Development ("R&D")
group continued to enhance the Registrant's products in the
following areas:
(i) software enhancements to PASSUR and ATMS
products.
(ii) wireless connectivity:
(a)Software enhancements to incorporate new
customers' needs.
(b)development of a 28.8K bps modem.
During the fiscal year ended October 31, 1997 the
Registrant incurred approximately $147,000 in expenditures for
R&D. In fiscal year ended October 31, 1996 approximately
$180,000 was expended on R&D and in fiscal year 1995
approximately $174,000 was expended on R&D.
8. Employees.
--------------
The Registrant employs 11 employees on a full
time basis consisting of: 3 officers; 2 engineers and
programmers; 1 technician; 1 employee in sales and marketing; 2
employees involved in manufacturing; 1 clerical and
administrative personnel; and a service department with 1
employee.
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<PAGE>
(d)Financial Information About Foreign and
Domestic Operations and Export Sales
------------------------------------------
The following table sets forth the dollar amount
and the percentages attributable to the sale by the Registrant
of its products during the past three fiscal years in the United
States and abroad:
Net
Revenues 1997 1996 1995
-------- ---- ---- ----
Domestic $1,306,345 88.3% $ 878,364 79.0% $1,319,429 78.3%
--------
Exports 172,607 11.7% 233,597 21.0% 365,096 21.7%
------- ---------- ----- ---------- ----- ---------- -----
Total
Revenues: $1,478,952 100.0% $1,111,961 100.0% $1,684,525 100.0%
--------- ========== ====== ========== ====== ========== ======
Item 2. Properties.
---------------------
The Registrant's executive offices,
manufacturing, and research facility are located in a modern,
one-story building at 35 Orville Drive, Bohemia, New York. The
Registrant owns the entire building which contains 36,000 square
feet. The Registrant is currently utilizing approximately 50%
of this building for its manufacturing activities.
Item 3. Legal Proceedings.
-----------------------------
There are no material pending legal proceedings,
other than routine litigation incidental to the business to
which the Registrant or any of its subsidiaries is a party or of
which any of their properties are subject.
Item 4. Submission of Matters to a Vote of Security Holders.
--------------------------------------------------------------
None.
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<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
----------------------------------------------------------
(a) Market Information.
------------------------
The Registrant's common shares are traded in the
over-the-counter market.
The following table sets forth the range of high
and low bid and asked quotations of the Registrant's common
shares for each quarterly period during the Registrant's last
two fiscal years, as reported by the National Quotation Bureau,
Inc.:
P e r i o d Bid Prices* Asked Prices*
----------- ----------- -------------
High Low High Low
---- --- ---- ---
Fiscal Year Ended October 31, 1997
First Quarter .75 .375 1.0625 .75
Second Quarter .4375 .375 .75 .625
Third Quarter .53125 .3125 .625 .5625
Fourth Quarter .3125 .1875 .625 .50
Fiscal Year Ended October 31, 1996
First Quarter .25 .1875 .4375 .3125
Second Quarter .1875 .0625 .3125 .15625
Third Quarter .625 .0625 .875 .24
Fourth Quarter 1.125 .75 1.50 1.0
-----------------------
* The quotations represent prices in the over-the counter
market between dealers in securities, do not include retail
markup, markdown, or commission, and do not necessarily
represent actual transactions.
(b) Holders.
------------
The approximate number of equity security holders
of record at January 20, 1998 was 361.
(c) Dividends.
--------------
The Registrant has never paid cash dividends on
its shares. The Registrant does not anticipate paying cash
dividends in the foreseeable future.
II-1
<PAGE>
Item 6. Selected Financial Data.
------------------------------------
Selected income statement data:
Year Ended October 31
---------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Net
Revenues $1,478,952 $1,111,961 $1,684,525 $1,732,558 $1,828,090
Net
(Loss) (54,500) (584,750) (576,553) ($267,507) ($309,465)
Primary
(Loss)
Per Share (1) ($.03) ($.36) ($ .36) ($ .17) ($ .19)
Dividend
Declared -- -- -- -- --
Selected balance sheet data:
October 31
---------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Total Assets $2,595,296 $2,183,896 $2,303,722 $2,930,151 $3,172,484
Long-Term
Debt (2)(3) $721,036 $674,278 $770,663 $823,009 $874,710
Total Share-
holders'
Equity $1,193,625 $ 657,285 $1,242,035 $1,818,588 $2,086,095
------------------------------------------------------------------------
(1) Primary earnings per share are based on the average number of
common shares outstanding.
(2) Registrant's mortgage loan from the Roosevelt Savings Bank was
due to expire on February 1, 1996 requiring a balloon payment of
$756,000. As such, it was classified as a current liability. The
Registrant was granted an extension to negotiate a refinancing of
the balance due. On May 31, 1996, Roosevelt Savings Bank, the
holder of the mortgage, and the Registrant, signed a mortgage
agreement refinancing the mortgage for five additional years at an
interest rate of 9.250%.
(3) Long Term Debt for 1997 includes $100,000 of a note payable
which is due after October 31, 1998.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
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Results of Operations
-----------------------
Revenue during the fiscal year ended October 31,
1997 increased by approximately $367,000 or 33% as compared to the
revenue during fiscal year 1996. The increase was mainly due to an
increase in sales of PASSUR related products and services.
Revenue during the fiscal year ended October 31,
1996 decreased by approximately $573,000 or 34% as compared to the
revenue during fiscal year 1995. The large decrease was due to a
reduction in revenue in two categories: a) Some of the Registrant's
maintenance services were not needed due to the replacement of the
equipment maintained. This resulted in a reduction of $105,825 in
revenue from hardware maintenance services. b) During fiscal year
1996 no new sales of PASSUR equipment occured while during the
previous fiscal year the Registrant had revenue of approximately
$570,000 from the sale of three long range PASSUR systems.
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<PAGE>
Cost of Sales and Service
-------------------------
During the fiscal year ended October 31, 1997
cost and expenses, not including interest related items, were
lower than total revenue, thus, yielding an income of $29,603.
However, after including finance related expenses the
Registrant had a net loss of ($53,477) or ($.03) per share as
compared to a net loss of ($584,750) or ($.36) per share in
fiscal year 1996. Total cost and expenses during fiscal year
1997 decreased by $186,522 or 11.4% as compared to such costs
during fiscal year 1996. Cost reductions were due to cutbacks
in payroll expenses and reductions in some overhead expenses.
Cost of sales and service during fiscal year
1996 exceeded total revenue by 6.7%, whereas, in fiscal year
1995 such costs were at a level of 79.9% of sales. During fiscal
year 1996 no inventory adjustments were made. During fiscal
1995, the Registrant, after evaluating changes in technology and
market requirements and conditions, determined that adjustments
should be made to reflect the realizable value of certain
assets. Accordingly, approximately $369,000 was charged to cost
of sales and service in fiscal year 1995. Overall cost and
expenses during fiscal year 1996 decreased by $556,167 or 25.4%
as compared to such costs during fiscal year 1995. Cost
reductions were due to cutbacks in payroll, savings in real
estate taxes, lower costs of goods sold, and reduction in other
overhead costs. The reduction in costs was not at a level
sufficient to eliminate the losses.
Research and Development
------------------------
Research and development activities were
continued to meet potential customers' needs. The Registrant's
expenditures for R&D during fiscal year 1997 were approximately
$147,000 as compared to $180,000 in 1996 and $174,000 in 1995.
The Registrant anticipates continuing to incur R&D expenditures
at current levels. R&D efforts include activities associated
with maintenance, enhancement, and improvement of the
Registrant's existing hardware and software coupled with
customer sponsored R&D expenditures for new product development.
No customer sponsored R&D was conducted during fiscal year 1997.
During fiscal year 1996 $40,000 of R&D expenditures were
sponsored by a customer. No customer sponsored R&D was
conducted during fiscal year 1995.
General and Administrative
--------------------------
General and administrative expenditures
increased by $8,683 or 3.2% during fiscal year 1997 compared to
a decrease of 11.4% or $34,516 during fiscal year 1996. The
reductions or increases in these costs are primarily
attributable to changes in the level of expenditures for
salaries and overhead costs.
Income Taxes
------------
The Registrant has available approximately
$4,600,000 in tax loss carryforwards to offset possible future
income. The Registrant also has available $25,000 in general
business tax credit carryforwards. These carryforwards expire
in various amounts through 2012.
Impact of Inflation
-------------------
In the opinion of management, inflation has not
had a material effect on the operations of the Registrant.
The Year 2000 Issue
-------------------
In the opinion of management, the year 2000
will not have a material adverse effect on the operations or
liquidity of the Registrant.
Net Loss
--------
The Registrant incurred a net loss of ($54,500)
or ($.03) per share during the fiscal year ended October 31,
1997. In the previous fiscal year the Registrant incurred a net
operating loss of ($584,750) or ($.36) per share. The large
losses during fiscal year 1996 were mostly due to the fact that
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<PAGE>
the Registrant did not sell any PASSUR systems during that
fiscal year. The lack of sales of PASSUR systems is attributed
to two factors. First, some major airlines, who, during the
fiscal year, have expressed interest in the Registrant's PASSUR
and ATMS, did not get approval for funds to purchase them.
Second, under an existing agreement between the PASSUR patent
holder and Bruel & Kjaer, Bruel & Kjaer had exclusive rights to
market and sell the PASSUR equipment for noise detection
applications. During Fiscal year 1996 the Registrant did not
receive any orders for PASSUR from Bruel & Kjaer. These
circumstances created conditions under which sales of PASSUR
systems to airports were suspended. At the Registrant's
request, Bruel & Kjaer and the patent holder have agreed to
transfer to the Registrant their exclusive noise abatement
rights for the sale of PASSUR in the United States. On the 27th
of March, 1997, the Registrant has signed a license agreement
with the patent holder under which it has the exclusive rights
to manufacture, use, lease, and sell PASSUR and ATMS systems.
During fiscal year 1995, after taking into
effect the inventory write-off, the Registrant incurred a net
operating loss of ($576,553) or ($.36) per share. The operating
loss, excluding the $368,789 of inventory write-off, was
($207,764) or ($.13) per share.
Liquidity and Capital Resources
----------------------------------
During fiscal year 1997 the Registrant incurred
a net operating loss of ($54,500). Financing to cover these
losses came from depreciation, some cost reductions, and from a
private investor. (See Private Investor).
A turnaround in the Registrant's prospects
could lead to profitability due to the following: (a) On March
27, 1997, the Registrant entered into an exclusive licensing
agreement with the owner of the PASSUR patents. Under the
agreement, the Registrant has world-wide exclusive rights to the
manufacturing, marketing, sale, installation, and maintenance of
PASSUR systems. (b) Bruel & Kjaer's exclusive rights to the sale
of PASSUR for United States noise abatement programs were
transferred to the Registrant, and (c) The Registant was able to
attract additional financing which is enabling it to
aggressively market and sell the products it offers.
During January 1998 the Registrant received one
contract valued at $185,000 for a long range PASSUR system.
This is in addition to the backlog reported previously in this
report.
Interest by potential customers in the
Registrant's PASSUR systems remains strong and the Registrant
anticipates an increase in future sales. However, the
Registrant cannot predict if such sales will materialize. If
sales do not increase, losses my recur. The extent of such
profits or losses will be dependent on sales volume achieved.
Risk Factors; Forward Looking Statements
----------------------------------------
The Management's Discussion and Analysis and
the information provided elsewhere in this 10K (including,
without limitation, in "Item 1. Business" as well as "Liquidity
and Capital Resources" above) contain forward looking statements
regarding the Registrant's future plans, objectives, and
expected performance. These statements are based on assumptions
that the Registrant believes are reasonable, but are subject to
a wide range of risks and uncertainties, and a number of factors
could cause the Registrant's actual results to differ materially
from those expressed in the forward-looking statements referred
to above. These factors include, among others, the
uncertainties related to the ability of the Registrant to get
new sales of its PASSUR and other product lines due to potential
competitive pressure from other companies or other products.
Other uncertainties which could impact the Registrant are
uncertainties with respect to future changes in governmental
regulation affecting the product and its use in flight dispatch.
Additional uncertainties are related to the Registrant's ability
to find and maintain the personnel necessary to sell,
manufacture, and service its products.
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<PAGE>
Private Investor
----------------
During the period between September 18, 1996
and June 6, 1997 the Registrant signed various agreements with
Mr. G.S. Beckwith Gilbert, a private investor. Under these
agreements, Mr. Gilbert provided the Registrant with three
$100,000 loans bearing a 9% interest rate, payable by July 30,
1997, and secured by the Registrant's assets, excluding the
building. In consideration, the Registrant granted Mr. Gilbert
three warrants to purchase up to 1,400,000 of the Registrant's
common shares. On June 6, 1997, Mr. Gilbert and affiliated
entities completed the purchase of 700,000 shares of the
Registrant'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 Registrant. On October
31, 1997, Mr. Gilbert and two other directors exercised a
warrant to purchase an additional 200,000 shares of the
Registrant'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
Registrant has also agreed to provide Mr. Gilbert with
incidental registration rights for all the shares purchased
under the warrants. The Registrant has no assurance that Mr.
Gilbert will exercise his rights under the third warrant. On
July 30, 1997, Mr. Gilbert and the Registrant signed an amended
and restated loan agreement under which the outstanding loan
balance of $200,000 will continue to accrue an annual interest
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.
Mr. Gilbert has been elected a director and
Chairman of the Board and has designated two additional board
members to the Registrant'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>
Item 8. Financial Statements and Supplemental Data.
---------------------------------------------------------
MEGADATA CORPORATION AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
COMPRISING ITEM 8 OF ANNUAL REPORT ON FORM 10-K
TO SECURITIES AND EXCHANGE COMMISSION
YEARS ENDED OCTOBER 31, 1997
II-6
<PAGE>
MEGADATA CORPORATION
FINANCIAL STATEMENTS
OCTOBER 31, 1997
GHASSEMI, PHOEL & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
MEGADATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
FOR THE THREE YEARS ENDED OCTOBER 31, 1997
AND INDEPENDENT AUDITORS' REPORT
INDEX
Page
Independent auditors' report S-1
Consolidated financial statements:
Balance sheets S-2
Statements of operations and retained earnings S-3
Statements of cash flows S-4
Notes to financial statements S-5-11
Additional financial information pursuant to the requirements
of Form 10-K:
Schedules:
V - Property, plant and equipment S-12
VI - Accumulated depreciation and amortization
of property, plant and equipment S-13
Schedules not listed above have been omitted because they are either not
applicable or the required information has been given elsewhere in the
consolidated financial statements or notes thereto.
<PAGE>
GHASSEMI, PHOEL & COMPANY 23 LANGDON PLACE, LYNBROOK, NY 11563
CERTIFIED PUBLIC ACCOUNTANTS TEL: 516-887-4444
FAX: 519-887-4450
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors and Shareholders
Megadata Corporation:
We have audited the accompanying consolidated balance sheets of Megadata
Corporation and subsidiaries as of October 31, 1997 and 1996 and the related
consolidated statements of operations and retained earnings and cash flows for
each of the three years in the period ended October 31, 1997. Our audits also
included the financial statement schedules listed in the Index at Item 14(a)2.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. 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 that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Megadata Corporation
and subsidiaries at October 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
October 31, 1997, in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Ghassemi, Phoel & Co.
----------------------------
Certified Public Accountants
Lynbrook, New York
January 21, 1998
<PAGE>
S-2
MEGADATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
October 31,
-----------
1997 1996
---- ----
<S> <C> <C>
Current Assets:
Cash ............................................... $ 318,595 $ 119,458
Accounts receivable................................... 299,586 91,855
Inventories........................................... 448,775 399,642
Prepaid expenses and other current assets............. 87,561 68,582
------------ ------------
Total current assets........................... 1,154,517 679,537
Property, plant and equipment, net........................ 1,418,891 1,476,593
Other assets.............................................. 21,888 27,766
------------ ------------
$ 2,595,296 $2,183,896
============ ==========
LIABILITIES
Current Liabilities:
Accounts payable...................................... $ 155,989 $ 137,367
Accrued expenses and taxes............................ 120,475 98,827
Accrued expenses - related parties.................... 89,215 179,036
Notes payable - related party
(current portion)................................. 100,000 200,000
Loans payable - officers.............................. - 36,883
Deferred income....................................... 150,122 136,220
Installment note payable.............................. 11,592 15,444
Current portion of long-term debt..................... 53,242 48,556
------------ ------------
Total current liabilities...................... 680,635 852,333
Notes payable - related party
(less current portion)................................ 100,000 -
Long-term debt............................................ 621,036 674,278
------------ ------------
1,401,671 1,526,611
STOCKHOLDERS' EQUITY
Common shares - authorized 5,000,000 shares,
par value $.01 a share; issued 3,203,100
and 2,303,100 shares in 1997 and 1996................. 32,031 23,031
Additional paid-in capital................................ 2,465,571 1,883,731
Retained earnings......................................... 313,248 367,748
------------ ------------
2,810,850 2,274,510
Less cost of 691,500 common shares held
in treasury........................................... 1,617,225 1,617,225
------------ ------------
1,193,625 657,285
------------ ------------
$ 2,595,296 $2,183,896
============ ==========
</TABLE>
The notes to financial statements are made a part hereof.
<PAGE>
S-3
MEGADATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Year Ended October 31,
----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues:
Net sales............................... $1,406,231 $1,068,814 $1,535,553
Service................................. 72,721 43,147 148,972
------------ ------------ ------------
Total revenues...................... 1,478,952 1,111,961 1,684,525
------------ ------------ ------------
Cost and expenses:
Cost of sales........................... 951,654 1,090,719 1,237,156
Cost of service......................... 73,045 96,166 109,000
Inventory adjustment.................... - - 368,789
Research and development................ 147,383 119,960 76,313
Research and development -
related party....................... - 60,442 97,680
General and administrative
expenses............................ 277,267 268,584 303,100
------------ ------------ ------------
1,449,349 1,635,871 2,192,038
------------ ------------ ------------
Income (Loss) from operations............... 29,603 (523,910) (507,513)
Other income/(expense):
Interest income......................... 5,932 902 5,533
Interest expense........................ (67,537) (67,933) (68,914)
Interest expense -
related party....................... (21,475) - -
Other income............................ - 8,567 -
------------ ------------ ------------
Loss before income taxes.................... (53,477) (582,374) (570,894)
Income tax expense.......................... 1,023 2,376 5,659
------------ ------------ ------------
Net loss.................................... (54,500) (584,750) (576,553)
Retained earnings - beginning............... 367,748 952,498 1,529,051
------------ ------------ ------------
Retained earnings - ending.................. $ 313,248 $ 367,748 $ 952,498
============ ============ ============
Net loss per share.......................... $(.03) $(.36) $(.36)
===== ===== =====
Weighted average number of
shares outstanding...................... 1,903,267 1,611,600 1,611,600
============ ============ ============
</TABLE>
The notes to financial statements are made a part hereof.
<PAGE>
S-4
MEGADATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended October 31,
----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................. $ (54,500) $ (584,750) $ (576,553)
----------- ---------- ----------
Adjustment to reconcile net
loss to net cash provided by
(used in) operating activities:
Depreciation............................ 63,335 63,268 62,962
Changes in operating assets
and liabilities:
(Increase) Decrease in
accounts receivable................ (207,731) (54,050) 51,887
(Increase) Decrease in
Inventories........................ (49,133) 150,247 492,252
(Increase) Decrease in prepaid
expenses and other current
assets............................. (18,979) 11,216 19,826
Decrease in other assets............. - 2,164 4,961
Increase in accounts payable......... 18,622 38,431 27,315
(Decrease) Increase in accrued
expenses and other current
liabilities........................ (54,271) 234,714 (25,654)
----------- ---------- ----------
Total adjustments................ (248,157) 445,990 633,549
----------- ---------- ----------
Net cash (used in) provided
by operating activities............. (302,657) (138,760) 56,996
----------- ---------- ----------
Cash flows from investing activities:
Capital expenditures...................... (5,633) (3,583) -
----------- ---------- ----------
Net cash used in investing
activities.............................. (5,633) (3,583) -
----------- ---------- ----------
Cash flows from financing activities:
Decrease (Increase) in other
assets - deferred mortgage cost......... 5,878 (25,539) 5,592
(Payments of) Proceeds from notes
and loan payable........................ (36,883) 236,883 -
(Payments of) Proceeds from
installment note........................ (3,852) 2,725 809
Repayments of mortgage loan............... (48,556) (47,829) (52,346)
Proceeds from sale of shares - net........ 590,840 - -
----------- ----------- ----------
Net cash provided by (used
in) financing activities................ 507,427 166,240 (45,945)
----------- ----------- ----------
Increase in cash and cash
equivalents............................... 199,137 23,897 11,051
Cash and cash equivalents, beginning......... 119,458 95,561 84,510
----------- ----------- ----------
Cash and cash equivalents, ending $ 318,595 $ 119,458 $ 95,561
=========== =========== ==========
</TABLE>
The notes to financial statements are made a part hereof.
<PAGE>
S-5
MEGADATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- -------------------------------------------
a. Nature of Operations
--------------------------
The Company operates primarily in one segment, the design,
manufacture, sale and service of multi-user, UNIX-based
microcomputers, wireless modems, access equipment to airline
reservation systems and communication controllers, multiplexers, and
programmable intelligent video display computer terminals. Accounts
receivable at October 31, 1997 primarily is due from customers in
the airline industry.
b. Consolidation
-------------------
Principles of Consolidation - The consolidated financial statements
include the accounts of Megadata Corporation (the Company) and its
subsidiaries (all of which are wholly-owned). All intercompany
investments, advances and transactions have been eliminated.
c. Inventories
-----------------
Inventories are stated at the lower of cost (first-in, first-out
method) or market.
d. Property, Plant and Equipment
-----------------------------------
Property, plant and equipment are recorded at cost. At the time
assets are sold or otherwise disposed of, the cost and accumulated
depreciation are eliminated from the asset and depreciation
accounts; profits and losses on such dispositions are reflected in
current operations. Expenditures for maintenance and repairs are
charged to operations; replacements, renewals and betterments are
capitalized. Depreciation for financial accounting purposes is
computed on the straight-line method to amortize the cost of various
classes of assets over their estimated useful lives.
e. Income taxes
------------------
Deferred taxes provide for the tax effect of temporary differences
between financial and tax reporting, primarily arising from the
provisions for obsolete inventories not currently deductible for tax
purposes and the availability of net operating loss carryforward.
Tax credits are accounted for by the flow-through method.
<PAGE>
S-6
MEGADATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997
f. Research and development costs
------------------------------------
Research and development costs are charged to operations as
incurred.
g. Cash and cash equivalents
-------------------------------
All highly liquid investments with a maturity of three months or
less at date of purchase are carried at fair value and considered to
be cash equivalents.
h. Use of Estimates
----------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain report amounts and disclosures.
Accordingly, actual results could differ from those estimates.
i. Reclassification
----------------------
Certain items within the 1995 financial statements have been
reclassified to conform to the 1996 presentation.
j. Fair Value of Financial Instruments
-----------------------------------------
The carrying value of financial instruments approximate their fair
value.
PREPAID EXPENSES AND OTHER CURRENT ASSETS:
- ------------------------------------------
October 31,
1997 1996
Prepaid real estate taxes................. $ 28,073 $ 22,776
Prepaid insurance......................... 18,478 21,809
Other current assets...................... 41,010 23,997
---------- ---------
$ 87,561 $ 68,582
========== =========
<PAGE>
S-7
MEGADATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997
INVENTORIES:
- ------------
Inventories are summarized as follows:
October 31,
-----------
1997 1996
---- ----
Parts and raw materials.................. $ 103,251 $ 107,860
Work-in-process.......................... 282,352 142,224
Finished goods........................... 63,172 149,558
---------- ---------
$ 448,775 $ 399,642
========== =========
PROPERTY, PLANT AND EQUIPMENT:
- ------------------------------
Property, plant and equipment consists of the following:
Estimated Cost and Book Value
Useful October 31,
Lives 1997 1996
------- ------ -----
Land.......................... - years $ 200,000 $ 200,000
Building...................... 32 years 1,793,805 1,793,805
Building improvements 3-5 years 65,420 65,420
Factory equipment. ........... 5-10 years 2,241,645 2,236,012
Furniture, fixtures and
improvements................ 5-10 years 113,158 113,158
Automobile.................... 3-5 years 31,395 31,395
------------ ------------
4,445,423 4,439,790
Less accumulated depreciation................. 3,026,532 2,963,197
------------ ------------
Net..................................... $ 1,418,891 $ 1,476,593
============ ============
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
- -----------------------------------------------
October 31,
-----------
1997 1996
---- ----
Accrued payroll, payroll taxes
and benefits.............................. $ 51,673 $ 45,480
Accrued professional fees................... 18,000 19,000
Other accrued liabilities................... 50,802 34,347
---------- ---------
$ 120,475 $ 98,827
========== =========
<PAGE>
S-8
MEGADATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997
NOTES PAYABLE - RELATED PARTY:
- ------------------------------
During the period between September 18, 1996 and June 6, 1997 the Company signed
agreements with a private investor that provided for three loans of $100,000
each, of which $200,000 was received in 1996 and $100,000 was received in 1997.
The three notes bore interest at a rate of 9% per annum, and were payable by
July 30, 1997. In consideration for these loans, three stock warrants were
awarded for the purchase of up to 1,400,000 common shares. On June 6, 1997, the
investor and his affiliate exercised the first warrant, purchasing 700,000
shares for the amount of $500,000, paid by $400,000 in cash and cancellation of
the first $100,000 note.
The second warrant was exercised on October 31, 1997, by the investor and two
other directors with the purchase of 200,000 shares for the amount of $150,000.
The exercising of the second warrant has validated the third warrant, that gives
the investor and his affiliates the right to purchase 500,000 shares at $1.25
per share. The third warrant expires October 31, 2001, and is exercisable during
the year preceding expiration. On July 30, 1997, the remaining notes totalling
$200,000 were amended and restated by a new note bearing interest at 9% per
annum, with quarterly payments of $25,000 plus accrued interest due on the last
business day of each calendar quarter, commencing December, 1997, with any
remaining balance being due July 30, 1999. The note is secured by the Company's
assets excluding its building.
During 1997 the investor was elected a director of the Company and Chairman of
the Board.
DEFERRED INCOME:
- ----------------
Deferred income represents advances received on maintenance agreements and
deposits from customers for equipment that will be shipped in the next fiscal
year.
INSTALLMENT NOTE PAYABLE:
- -------------------------
Notes due on financing of insurance premiums bearing interest at 10.75% and
10.91% per annum, with the final payments due May, 1998 and June, 1997
respectively.
<PAGE>
S-9
MEGADATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997
LONG-TERM DEBT:
- ---------------
On May 31, 1996, the Company refinanced the existing mortgage with the 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%. Minimum annual principal repayments of
long-term debt is as follows:
October 31, 1998.......................... $ 53,242
October 31, 1999.......................... 58,382
October 31, 2000.......................... 64,017
June 1, 2001.............................. 498,637
----------
Total..................................... $ 674,278
==========
INCOME TAXES:
- -------------
Components of the income tax expense are as follows:
Year Ended October 31,
----------------------
1997 1996 1995
---- ---- ----
Current:
Federal.................. $ - $ - $ -
States and Local......... 1,023 2,378 5,659
---------- ---------- ---------
Total.................... 1,023 2,378 5,659
========== ========== =========
At October 31, 1997, the Company has available a federal net operating loss
carryforward of approximately $4,600,000 for tax reporting purposes to offset
future taxable income and which will expire in various amounts through 2012. The
Company has $25,000 general business tax credit carryforwards available which
expire in various amounts through 2008. The Company has provided a valuation
allowance in its entirety to offset potential benefit derived with the
utilization of the net operating loss carryforwards and tax credit available.
CASH FLOWS:
- -----------
Supplemental cash flow information:
Year Ended October 31,
----------------------
1997 1996 1995
---- ---- ----
Interest paid................... $ 84,412 $ 68,914 $ 71,753
Income taxes past and present... 2,360 1,196 2,705
<PAGE>
S-10
MEGADATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997
CONCENTRATIONS OF CREDIT RISK:
- ------------------------------
The Company maintains cash balances at several financial institutions which are
insured by the Federal Deposit Insurance Corporation up to $100,000. The
Company's uninsured cash balance at October 31, 1997 and 1996 totals
approximately $214,000 and $116,000.
STOCK OPTIONS:
- --------------
The Company's 1982 and 1988 stock option plans provide for the granting of stock
options for 100,000 shares of the Company's common stock for each plan. The 1982
plan provides that only 40,000 options can be granted during any one fiscal
year. The 1988 plan provides that no individual can receive in excess of
$100,000, as determined by the fair market value of options during any calendar
year. Under both plans, the option price per share is the fair market value at
date of grant, except on the issuance of non-qualified options pursuant to the
1988 plan in which the option price is not less than 85% of the fair market
value of the shares. Options granted may be exercised up to a maximum of ten
years from the date of grant; however, individuals who own more than 10% of the
Company's common stock must exercise their options within five years of the date
of the grant and these options are exercisable at 110% of the fair market value
of the shares. The following is a summary of stock option transactions relating
to such plans:
<TABLE>
<CAPTION>
Shares Number Exercise
Available of Shares Price
for Grant Outstanding Per Share
--------- ----------- ---------
1982 Plan
---------
<S> <C> <C> <C>
Balance, October 31, 1992.................... 52,500 47,500 $2.25-$5.75
Options cancelled November 1992.............. 12,500 (12,500) $2.25-$5.75
---------- ----------
Balance, October 31, 1997.................... 65,000 35,000
========== ==========
1988 Plan
---------
Balance, October 31, 1992.................... 80,000 20,000 $ .38-$ .41
Options cancelled............................ - - $ .38-$ .41
---------- ----------
Balance October 31, 1997..................... 80,000 20,000 $ .38-$ .41
========== ==========
</TABLE>
NET LOSS PER SHARE:
- -------------------
Loss per Share - Loss per share is based on the average number of shares of
common stock outstanding each year after deducting treasury shares. Stock
options have not been considered in the calculations as their effect would be
anti-dilutive.
<PAGE>
S-11
MEGADATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997
MAJOR CUSTOMERS:
- ----------------
During the fiscal year ended October 31, 1997 three customers accounted for
approximately 27%, 22% and 14% of revenues. During the fiscal year ended October
31, 1996 one customer accounted for approximately 25% of revenues. During the
fiscal year ended October 31, 1995 three customers accounted for approximately
26%, 20% and 16% of revenues. The Company had export sales of approximately
$172,607, $233,597 and $365,096 in fiscal 1997, 1996 and 1995, respectively.
RELATED PARTY TRANSACTIONS:
- ---------------------------
The Company had contracted with Data Probe, Inc., which is majority owned by the
Company's President, and is the owner of approximately 23% of the Company's
outstanding shares, to provide certain research and development and sales
support services through July, 1996. The Company has incurred approximately
$60,442 and $97,680 for the years ended October 31, 1996 and 1995, respectively,
in consideration for the aforementioned services.
On January 16, 1996, the Company signed a promissory note to an officer for a
$30,000 loan, which was secured by certain test equipment. The note bore
interest at 10% per annum, and was paid in full on July 16, 1997. Total
interest payments for the year ended October 31, 1996 were $2,265. In addition,
net loans of $6,883 were made by another officer which had no provision for
interest and was paid on demand.
FOURTH QUARTER INVENTORY ADJUSTMENT:
- ------------------------------------
Market conditions and technological changes have rendered certain items in the
inventory to be obsolete. The Company had determined and adjusted its inventory
during the fiscal year ended October 31, 1995 in the amount of $368,789 to
reflect the realizable value of the inventory.
<PAGE>
S-12
MEGADATA CORPORATION AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Sales
disposals
Balance at and Balance
beginning Additions abandonment at end
Classification of year at cost of assets of year
- -------------- ------- ------- --------- -------
<S> <C> <C> <C> <C>
Year ended October 31, 1997:
Factory Equipment.............. $ 2,236,012 $ 5,633 $ - $ 2,241,645
Furniture and Fixtures......... 113,158 - - 113,158
Automobiles.................... 31,395 - - 31,395
Building Improvements.......... 65,420 - - 65,420
Land........................... 200,000 - - 200,000
Building....................... 1,793,805 - - 1,793,805
------------ ---------- ----------- ------------
$ 4,439,790 $ 5,633 $ - $ 4,445,423
============ ========== =========== ============
Year ended October 31, 1996:
Factory Equipment.............. $ 2,459,007 $ 3,583 $ (226,578) $ 2,236,012
Furniture and Fixtures......... 345,919 - (232,761) 113,158
Automobiles.................... 31,395 - - 31,395
Building Improvements.......... 65,420 - - 65,420
Land........................... 200,000 - - 200,000
Building....................... 1,793,805 - - 1,793,805
------------ ---------- ----------- ------------
$ 4,895,546 $ 3,583 $ (459,339) $4,439,790
============ ========== =========== ==========
Year ended October 31, 1995:
Factory Equipment.............. $ 2,459,007 $ - $ - $ 2,459,007
Furniture and Fixtures......... 345,919 - - 345,919
Automobiles.................... 31,395 - - 31,395
Building Improvements.......... 65,420 - - 65,420
Land........................... 200,000 - - 200,000
Building....................... 1,793,805 - - 1,793,805
------------ ---------- ----------- ------------
$4,895,546 $ - $ - $ 4,895,546
============ ========== =========== ============
</TABLE>
<PAGE>
S-13
MEGADATA CORPORATION AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Sales
disposals
Balance at and Balance
beginning Additions abandonment at end
Classification of year at cost of assets of year
- -------------- ------- ------- --------- -------
<S> <C> <C> <C> <C>
Year ended October 31, 1997:
Factory Equipment.............. $ 2,226,542 $ 3,725 $ - $ 2,230,267
Furniture and Fixtures......... 113,158 - - 113,158
Automobiles.................... 27,061 2,660 - 29,721
Building Improvements.......... 65,420 - - 65,420
Building....................... 531,016 56,950 - 587,966
------------ ---------- ----------- ------------
$ 2,963,197 $ 63,335 $ - $ 3,026,532
============ ========== =========== ============
Year ended October 31, 1996:
Factory Equipment.............. $ 2,449,558 $ 3,562 $ (226,578) $ 2,226,542
Furniture and Fixtures......... 345,823 96 (232,761) 113,158
Automobiles.................... 24,401 2,660 - 27,061
Building Improvements.......... 65,420 - - 65,420
Building....................... 474,066 56,950 - 531,016
------------ ---------- ----------- ------------
$ 3,359,268 $ 63,268 $ (459,339) $2,963,197
============ ========== =========== ==========
Year ended October 31, 1995:
Factory Equipment.............. $ 2,447,110 $ 2,448 $ - $ 2,449,558
Furniture and Fixtures......... 345,051 772 - 345,823
Automobiles.................... 21,741 2,660 - 24,401
Building Improvements.......... 65,420 - - 65,420
Building....................... 416,984 57,082 - 474,066
------------ ---------- ----------- ------------
$ 3,296,306 $ 62,962 $ - $ 3,359,268
============ ========== =========== ============
</TABLE>
<PAGE>
Item 9. Disagreements on Accounting and Financial Disclosure.
--------------------------------------------------------------
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
-------------------------------------------------------------
(a) Identification of Directors.
------------------------------
Director Position and Offices
Name Age Since With Registrant
---- --- ----- ---------------
Yitzhak N. Bachana 64 1976 President, Chief Executive
Officer, Director
G.S. Beckwith Gilbert 55 1997 Chairman of the Board,
Director, and Member of the
Audit Committee
Richard R. Schilling, Jr. 72 1974 Director, Member of the Audit
Committee
John R. Keller 58 1997 Director
Bruce N. Whitman 64 1997 Director
Paul L. Graziani 40 1997 Director
Each director is elected to serve until the succeeding annual
meeting of shareholders and until his successor is duly elected
and qualifies.
(b) Identification of Executive Officers.
----------------------------------------
Officer Position and Offices
Name Age Since With Registrant
------ --- ----- ------------------------
Yitzhak N. Bachana 64 1976 President, Chief Executive
Officer, Director
Dr. James A. Cole 57 1988 Vice President of Research &
Development
John R. Keller 58 1970 Vice President
Each officer is elected to serve at the pleasure of the Board of
Directors.
(c) Identification of Certain Significant Employees.
------------------------------------------------
None.
(d) Family Relationship.
---------------------
None.
III-1
<PAGE>
(e) Business Experience.
---------------------
The following sets forth the business experience
during the past five years of each director and executive
officer;
Yitzhak N. Bachana Mr. Bachana has been President and
Chief Executive Officer of the
Registrant since 1980. Mr. Bachana
has also been President, Chief
Executive Officer and majority
shareholder of Data Probe, Inc., a New
York based computer service bureau.
Mr. Bachana has also been an officer
and a director of Datatab, Inc. since
1983. Data Probe, Inc. and Datatab,
Inc. are publicly-held corporations.
Pursuant to an agreement between Data
Probe, Inc. and the Registrant, dated
May 7, 1976, the President of Data
Probe, Inc. is to be nominated as a
management nominee for director.
G.S. Beckwith Gilbert Mr. Gilbert has been President and
Chief Executive Officer of Field Point
Capital Management Company, a merchant
banking firm, since 1988. He is also
a partner of Wolsey & Co., a merchant
banking firm. In addition, Mr.
Gilbert is a Director and Chairman of
the Executive Committee of DIANON
Systems, Inc., as well as a Director
of Davidson Hubeny Brands, Kionix,
Inc., and Transgenomic, Inc.
Richard R. Schilling, Jr. Mr. Schilling has been a member of
the law firm of Burns, Kennedy,
Schilling & O'Shea, New York, New
York.
Bruce N. Whitman Mr. Whitman has been Executive Vice
President and a Director of
FlightSafety International since 1962.
He is also a Director of FlightSafety
Boeing Training International,
Petroleum Helicopters, Inc., and
Aviall, Inc.
Paul L. Graziani Mr. Graziani has been the President
and Chief Executive Officer of
Analytical Graphics, Inc., a leading
producer of commercial analysis
software for the space industry.
Dr. James A. Cole Dr. Cole has been Director of
Research and Development of the
Registrant. Dr. Cole earned a Ph.D.
in physics from Johns Hopkins
University in 1966.
John R. Keller Mr. Keller has been a Vice President
of the Registrant.
(f) Involvement in Certain Legal Proceedings.
-----------------------------------------
The Registrant knows of no event which occurred
during the past five years and which is described in Item 401(f)
of Regulation S-K relating to any director or executive officer
of the Registrant.
Item 11. Executive Compensation.
-----------------------------------
(a) Cash and Deferred Compensation.
-------------------------------
The following table sets forth all cash
compensation paid to each of the Registrant's most highly
compensated executive officers to whom cash compensation during
the fiscal year ended October 31, 1997, exceeded $60,000 and to
all executive officers of the Registrant as a group for such
fiscal year:
III-2
<PAGE>
CASH AND DEFERRED COMPENSATION TABLE
------------------------------------------------------------------
(A) (B) (C) (D) (E)
------------------------------------------------------------------
Name and Principal Other
Position Year Salary Bonus Compensation
------------------------------------------------------------------
Yitzhak N. Bachana - 1997 $ 100,000 (1) - $ 26,923 (2)
President
1996 11,538 (3) - -
1995 91,923 - -
John R. Keller - Vice 1997 $ 90,000 - -
President
1996 93,462 - -
1995 105,000 - -
Dr. James Cole - Vice 1997 $ 96,346 - -
Pres. - R&D 1996 93,462 - -
1995 105,000 - -
------------------------------------------------------------------
(1) Does not include earned but unpaid compensation of
$ 84,615 as of October 31, 1997.
(2) Represents partial repayment of earned and previously
accrued compensation.
(3) Does not include earned but unpaid compensation of $111,538
as of October 31, 1996.
(b) (1) Compensation pursuant to plans.
----------------------------------
The current base salary of Messrs. Bachana,
Cole, and Keller is $100,000, $120,000 and $90,000,
respectively. All of the officers are employed on an at-will
basis.
(2) Pension Table.
---------------
Not applicable.
(3) Alternative pension plan disclosure.
------------------------------------
Not applicable.
(4) Stock and stock appreciation right plans.
-----------------------------------------
The Registrant's 1982 and 1988 incentive stock
option plans provide for the granting of stock options for
100,000 shares of the Registrant's common stock for each plan.
(i) 1982 Stock Option Plan.
-----------------------
The Registrant's 1982 Stock Option Plan
authorizes the granting of "incentive stock options" ("ISOs" -
as defined under Section 422A of the Internal Revenue Code of
1986, as amended) in respect of a maximum of 100,000 shares to
executives and key employees of the Registrant. Pursuant to the
terms of the 1982 Stock Option Plan, ISOs in respect of a
maximum of 40,000 shares can be granted during any one fiscal
year. The 1982 Stock Option Plan is administered by the Stock
Option Committee of the Board of Directors (the "Committee")
which may grant non-assignable options to executive officers and
key employees in such manner, and at such times, and in amounts,
subject to a $100,000 limit, as the Committee may, in its
absolute discretion, determine. The members of the Committee
are Paul P. Alessandrini, Richard R. Schilling, Jr., and Ronald
S. Goldstein. The option price per share is the fair market
value of the shares on the date the option is granted and such
option must be exercised by the optionee within ten years of the
date of grant. However, options granted to individuals who own
more than 10% of the shares of the Registrant must be exercised
within five years of the date of the grant and are exercisable
at 100% of the fair market value of the shares.
III-3
<PAGE>
No options were granted or exercised pursuant to
the 1982 Stock Option Plan during the Registrant's fiscal year
ended October 31, 1997. No options can be granted after 1992
under this plan.
(ii) 1988 Stock Option Plan.
-----------------------
The 1988 Stock Option Plan provides for the
grant to employees of the Registrant and its subsidiaries of
either (x) ISOs or (y) non-qualified options. A total of
100,000 common shares have been reserved for issuance under the
1988 Stock Option Plan. The 1988 Stock Option Plan terminates
in 1998.
The 1988 Stock Option Plan is administered by
the Committee which determines the grantees and the exercise
price, designates the exercise periods, not to exceed 10 years
(5 years in the event that the grantee holds more than 10% of
the Registrant's equity), the time, manner, and form of payment
upon exercise of an option, designates whether the options are
intended to be ISOs, and determines other terms and conditions.
The 1988 Stock Option Plan provides that, in determining the
participants to whom options shall be granted and the number of
shares to be covered by each option, the Committee may take into
account the nature of the services rendered by the participant,
his or her own present and potential contributions to the
Registrant's success, and such other factors as the Committee
may deem relevant.
The aggregate fair market value of shares for
which ISOs are granted to any employee and exercisable for the
first time by such employee during any calendar year (under all
stock option plans of the Registrant and its subsidiaries) may
not exceed $100,000. ISOs granted under the 1988 Stock Option
Plan may not be granted at a price less than the fair market
value of the common shares on the date of grant (or 110% of fair
market value in the case of employees holding 10% or more of the
shares of the Registrant). Non-qualified options will not be
granted at exercise prices less than 85% of the fair market
value of the common shares on the date of grant.
An option granted under the 1988 Stock Option
Plan is exercisable, during the optionholder's lifetime, only by
the optionholder and is not transferable by the optionholder
except by will or the laws of descent and distribution. If an
ISO optionholder retires, the optionholder's ISOs may be
exercised to the extent they were exercisable upon retirement,
until the earlier of the ISOs specified expiration date or three
months from the date of the optionholder's retirement. In the
case of an ISO optionholder's cessation of employment by reason
of disability or death, the applicable carryover periods are one
year and two years, respectively.
Upon the occurrence of a Change in Control (as
defined below), outstanding options become immediately
exercisable. During the six months after a Change in Control,
in lieu of exercising an option, a holder may surrender such
options to the Registrant in whole or in part and, upon such
surrender, the Registrant must pay to the holder in exchange
therefor an amount of cash per share equal to the aggregate of
the excess of (i) the greater of (x) the average price per share
paid or to be paid for shares actually acquired in connection
with such Change in Control, (y) the price per share paid or
payable in connection with any tender offer for the Registrant's
common shares leading to the Change in Control, or (z) the mean
between the high and low selling prices of such shares on the
date of the Change of Control, over (ii) the exercise prices of
the shares subject to such surrendered options. Officers of the
Company may receive such a cash payment only during a restricted
period immediately following the public release of information
concerning the Registrant's earnings (but not within six months
of the grant of such option). During all other periods they may
only receive shares. A Change in Control means (i) consummation
by any Person (as defined in the Securities Exchange Act of
1934, as amended [the "1934 Act"]) other than the Registrant of
(or the first purchase by any Person [other than the Registrant]
of any common shares under) a tender offer or exchange offer;
(ii) the acquisition by any Person (other than the Registrant)
which theretofore legally or beneficially (as defined in SEC
Rule 13d-3) owned less than 20% of the then outstanding common
shares of the Registrant in a transaction or series of
transactions that results in such Person directly or indirectly
owning legally or beneficially 20% or more of the then
III-4
<PAGE>
outstanding common shares of the Registrant; (iii) the
consummation of any merger or consolidation with, or the sale of
substantially all the assets of the Registrant to, any Person;
or (iv) any other transaction pursuant to which any Person
shall have the right to elect a majority of the directors of the
Registrant or which would be required to be reported pursuant to
Item 6(e) of Schedule 14A of Regulation 14A promulgated under
the 1934 Act.
No options were granted or exercised pursuant to
the 1988 Stock Option Plan during the Registrant's fiscal year
ended October 31, 1997.
(c) Other Compensation.
--------------------
None.
(d) Compensation of Directors.
----------------------------
1. Standard Arrangements.
-----------------------
Non-officer directors are compensated by the
Registrant for services rendered to the Registrant in connection
with their directorial duties by the payment of $1,000 for each
Board of Directors' meeting or Committee meeting actually
attended.
2. Other Arrangements.
--------------------
None.
(e) Termination of employment and change of
control arrangement.
-------------------------------------------
None.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
-------------------------------------------------------------
(a) Security Ownership of Certain Beneficial
Owners.
-----------------------------------------
The following chart set forth the name and
addresses of the persons known to the Registrant to be the
beneficial owners of more than 5% of the Registrant's $0.01 par
value common shares as at January 20, 1998:
Name and Address Amount and Nature Percent of
of Beneficial Owner of Ownership (1)(2)(3) Class
-------------------------------------------------------
G.S. Beckwith Gilbert 846,000 33.68
104 Field Point Road
Greenwich, CT 06830
Data Probe, Inc. 579,400 23.07
49 East 21 Street
New York, NY 10010
John R. Keller 129,500 5.09
9 Lynbrook Court
Huntington, NY 11743
-----------------------------------
(1) All shares are owned of record and beneficially.
(2) Yitzhak N. Bachana, President of Registrant, owns 57.22% of
the outstanding shares of Data Probe, Inc. and by virtue
thereof may be deemed to be the beneficial owner of more than 5%
of the Registrant's outstanding shares.
(3) Includes Mr. Keller's options to purchase an aggregate of
32,500 shares, all of which options are immediately exercisable.
III-5
<PAGE>
(b) Security Ownership of Management.
------------------------------------
The following chart sets forth the number of the
Registrant's common shares, $0.01 par value, beneficially owned
by all of the directors of the Registrant and by the directors
and officers of the Registrant as a group as at January 20,
1998:
Name of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership (1) Class
------------------------------------------------------------------
G.S. Beckwith Gilbert 846,000 33.68
Yitzhak N. Bachana 10,000 (2) .40
John R. Keller 129,500 (3) 5.09
Richard R. Schilling, Jr. 3,000 0.12
James A. Cole 29,000 (4) 1.15
Bruce N. Whitman 93,000 3.70
Paul L. Graziani 7,000 .28
Officers and Directors
as a Group (7 persons) 1,117,500 44.49
------------------------------------------------------------------
(1) All shares are owned of record and beneficially.
(2) Mr. Bachana is President, Chairman of the Board, and
majority shareholder of Data Probe, Inc. which owns 579,400
common shares of the Registrant, (or 23.07% of all outstanding
shares) which are excluded from the foregoing table.
(3) Includes Mr. Keller's options to purchase an aggregate of
32,500 shares, all of which options are immediately
exercisable.
(4) Includes Dr. Cole's options to purchase an aggregate of
10,000 shares, all of which options are immediately
exercisable.
Item 13. Certain Relationships and Related Transactions.
----------------------------------------------------------
(a) Transactions with management and others.
----------------------------------------
None.
(b) Certain business relationships.
---------------------------------
None.
(c) Indebtedness of management.
-----------------------------
None.
(d) Transactions with promoters.
------------------------------
Not applicable.
III-6
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
-----------------------------------------------------------------
(a) 1. Financial Statements Page
--------------------- -----
Included in Part II of this report:
Independent Auditors' Reports S-1
Consolidated balance sheets as at
October 31, 1997 and 1996 S-2
Consolidated statements of
operations and retained earnings for
the years ended October 31, 1997,
1996 and 1995 S-3
Consolidated statements of cash
flows for the years
ended October 31, 1997, 1996 and S-4
1995
Notes to consolidated financial
statements S-5
2. Financial Statement Schedules
-------------------------------
Schedule V - Property, plant
and equipment S-12
Schedule VI - Accumulated
depreciation and amortization S-13
Schedules not listed above have been omitted because they are
either not applicable or the required information has been
given elsewhere in the financial statements or notes thereto.
(b) Reports Filed On Form 8-K
-------------------------
None
(c) Exhibits
--------
Exhibits No. Page
----------------------------------------------------------
3 - 1 Certificates of Incorporation filed *
January 3, 1967
3 - 2 Certificate of Amendment filed August *
4, 1969
3 - 3 Certificate of Amendment filed *
September 30, 1969
3 - 4 Certificate of Amendment filed July 17, *
1970
3 - 5 Certificate of Amendment filed *
September 27, 1972
IV-1
<PAGE>
(c) Exhibits (Contd)
---------------------------------------------------
Exhibits No. Page
--------------------------------------------------------------
3 - 6 Certificate of Amendment filed *
September 27, 1972
3 - 7 Certificate of Amendment filed April *
22, 1974
3 - 8 Certificate of Amendment filed November *
23, 1976
3 - 9 Certificate of Amendment filed April *
18, 1977
3 - 10 Certificate of Amendment filed July 11, *
1979
3 - 11 Certificate of Amendment filed on **
November 12, 1981
3 - 12 Composite of Certificate of
Incorporation of the Registrant **
3 - 13 Certificate of Amendment filed ****
September 14, 1988
3 - 14 By-Laws ****
3 - 15 Certificate of Amendment filed *****
August 16, 1983
3 - 16 Certificate of Change filed *****
January 24, 1990
3 - 17 Composite Certificate of Incorporation *****
through January 24, 1990
10 - 1 1988 Bonus Pool Plan ****
10 - 2 The Registrant's 1982 Stock Option Plan ***
10 - 3 The Registrant's 1988 Stock Option Plan ****
10 - 4 Employment Agreement with David T. ****
Zeiter dated August 29, 1988
22(a) List of Subsidiaries **
27 Financial Data Schedule
(*) Document filed with the Registrant's Form S-1 filed with
the Securities and Exchange Commission on January 30, 1981 and
incorporated herein by reference.
(**) Document filed with the Registrant's Form 10-K for the
fiscal year ended October 31, 1981 and incorporated herein by
reference.
(***) Document filed as Exhibit A to the Registrant's Notice
of Annual Meeting of Shareholders and Proxy Statement dated
November 2, 1982, and incorporated herein by reference.
(****) Document filed with the Registrant's Form 10-K for the
fiscal year ended October 31, 1988 and incorporated herein by
reference.
(*****) Document filed with the Registrant's Form 10-K for the
fiscal year ended October 31, 1989 and incorporated herein by
reference.
IV-2
<PAGE>
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.
MEGADATA CORPORATION
Dated: January 29, 1998. By: /s/ Yitzhak N. Bachana
---------------------------
Yitzhak N. Bachana,
President
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and
on the date indicated:
Dated: January 29, 1998. /s/ Yitzhak N. Bachana
-------------------------------
Yitzhak N. Bachana, President,
Treasurer, Chief Executive Officer,
Principal Financial Officer, Director,
Principal Executive Officer
Dated: January 29, 1998. /s/ G.S. Beckwith Gilbert
-------------------------------
G.S. Beckwith Gilbert,
Chairman of the Board, Director
Dated: January 29, 1998. /s/ Richard R. Schilling, Jr.
-------------------------------
Richard R. Schilling, Jr., Director
Dated: January 29, 1998. /s/ John R. Keller
-------------------------------
John R. Keller, Vice President
and Director
Dated: January 29, 1998. /s/ Bruce N. Whitman
-------------------------------
Bruce N. Whitman, Director
Dated: January 29, 1998. /s/ Paul L. Graziani
-------------------------------
Paul L. Graziani, Director
Dated: January 29, 1998. /s/ Herbert E. Shaver
-------------------------------
Herbert E. Shaver, Controller
IV-3
<PAGE>
EXHIBIT INDEX
Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
-----------------------------------------------------------------
(a) 1. Financial Statements Page
--------------------- -----
Included in Part II of this report:
Independent Auditors' Reports S-1
Consolidated balance sheets as at
October 31, 1997 and 1996 S-2
Consolidated statements of
operations and retained earnings for
the years ended October 31, 1997,
1996 and 1995 S-3
Consolidated statements of cash
flows for the years
ended October 31, 1997, 1996 and S-4
1995
Notes to consolidated financial
statements S-5
2. Financial Statement Schedules
-------------------------------
Schedule V - Property, plant
and equipment S-12
Schedule VI - Accumulated
depreciation and amortization S-13
Schedules not listed above have been omitted because they are
either not applicable or the required information has been
given elsewhere in the financial statements or notes thereto.
(b) Reports Filed On Form 8-K
-------------------------
None
(c) Exhibits
--------
Exhibits No. Page
----------------------------------------------------------
3 - 1 Certificates of Incorporation filed *
January 3, 1967
3 - 2 Certificate of Amendment filed August *
4, 1969
3 - 3 Certificate of Amendment filed *
September 30, 1969
3 - 4 Certificate of Amendment filed July 17, *
1970
3 - 5 Certificate of Amendment filed *
September 27, 1972
<PAGE>
(c) Exhibits (Contd)
---------------------------------------------------
Exhibits No. Page
--------------------------------------------------------------
3 - 6 Certificate of Amendment filed *
September 27, 1972
3 - 7 Certificate of Amendment filed April *
22, 1974
3 - 8 Certificate of Amendment filed November *
23, 1976
3 - 9 Certificate of Amendment filed April *
18, 1977
3 - 10 Certificate of Amendment filed July 11, *
1979
3 - 11 Certificate of Amendment filed on **
November 12, 1981
3 - 12 Composite of Certificate of
Incorporation of the Registrant **
3 - 13 Certificate of Amendment filed ****
September 14, 1988
3 - 14 By-Laws ****
3 - 15 Certificate of Amendment filed *****
August 16, 1983
3 - 16 Certificate of Change filed *****
January 24, 1990
3 - 17 Composite Certificate of Incorporation *****
through January 24, 1990
10 - 1 1988 Bonus Pool Plan ****
10 - 2 The Registrant's 1982 Stock Option Plan ***
10 - 3 The Registrant's 1988 Stock Option Plan ****
10 - 4 Employment Agreement with David T. ****
Zeiter dated August 29, 1988
22(a) List of Subsidiaries **
27 Financial Data Schedule
(*) Document filed with the Registrant's Form S-1 filed with
the Securities and Exchange Commission on January 30, 1981 and
incorporated herein by reference.
(**) Document filed with the Registrant's Form 10-K for the
fiscal year ended October 31, 1981 and incorporated herein by
reference.
(***) Document filed as Exhibit A to the Registrant's Notice
of Annual Meeting of Shareholders and Proxy Statement dated
November 2, 1982, and incorporated herein by reference.
(****) Document filed with the Registrant's Form 10-K for the
fiscal year ended October 31, 1988 and incorporated herein by
reference.
(*****) Document filed with the Registrant's Form 10-K for the
fiscal year ended October 31, 1989 and incorporated herein by
reference.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE BODY OF THE ACCOMPANYING FORM 10-K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<CASH> 318,595
<SECURITIES> 0
<RECEIVABLES> 299,586
<ALLOWANCES> 0
<INVENTORY> 448,775
<CURRENT-ASSETS> 1,154,517
<PP&E> 4,445,423
<DEPRECIATION> 3,026,532
<TOTAL-ASSETS> 2,595,296
<CURRENT-LIABILITIES> 680,635
<BONDS> 885,870
0
0
<COMMON> 32,031
<OTHER-SE> 1,161,594
<TOTAL-LIABILITY-AND-EQUITY> 2,595,296
<SALES> 1,478,952
<TOTAL-REVENUES> 1,484,884
<CGS> 951,654
<TOTAL-COSTS> 1,449,349
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89,012
<INCOME-PRETAX> (53,477)
<INCOME-TAX> 1,023
<INCOME-CONTINUING> (54,500)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (54,500)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
