SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
---
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period JULY 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission file no. 0-7642
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MEGADATA CORPORATION
----------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 11-2208938
- ------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
35 ORVILLE DRIVE, BOHEMIA, NEW YORK 11716
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 589-6800
--------------
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
--- ---
================================================================================
Common shares $.01 par value - 2,511,600 shares outstanding as of September 14,
1998 (Exclusive of 691,500 shares in treasury)
<PAGE>
MEGADATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
------
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
-------- -----------
1998 1997
-------- -----------
(unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents ....................... $ 81,616 $ 318,595
Accounts receivable ............................. 43,711 299,586
Inventories (Note 1) ........................... 417,394 448,775
Prepaid expenses and other current assets ....... 82,998 87,561
----------- -----------
TOTAL CURRENT ASSETS ......................... 625,719 1,154,517
PROPERTY, PLANT AND EQUIPMENT, net ....................... 1,383,583 1,418,891
OTHER ASSETS ............................................. 62,985 21,888
----------- -----------
TOTAL ASSETS ................................. $ 2,072,287 $ 2,595,296
=========== ===========
LIABILITIES
-----------
CURRENT LIABILITIES:
Accounts payable................................ $ 84,471 $ 155,989
Accrued expenses - related party ............... -- 89,215
Accrued expenses and taxes ..................... 98,270 120,475
Notes payable - related party (Current portion) 100,000 100,000
Deferred income ................................ 82,059 150,122
Installment note payable (Current portion) ..... 26,065 11,592
Current portion of long term debt (Note 2) ..... 57,052 53,242
----------- -----------
TOTAL CURRENT LIABILITIES ................... 447,917 680,635
INSTALLMENT NOTE PAYABLE (less current portion) ........ 34,754 --
NOTES PAYABLE - Related Party (less Current portion) .... 25,000 100,000
LONG TERM DEBT (Note 2) ................................. 577,757 621,036
----------- -----------
TOTAL LIABILITIES ........................... 1,085,428 1,401,671
----------- -----------
STOCKHOLDERS' EQUITY
--------------------
Common shares - authorized 5,000,000 shares, par value
$.01 a share; issued 3,203,100 (including shares
held in treasury)(Note 3) ...................... 32,031 32,031
Capital in excess of par value ........................... 2,460,653 2,465,571
Retained earnings ........................................ 111,400 313,248
----------- -----------
2,604,084 2,810,850
Less cost of 691,500 common shares held in treasury ...... (1,617,225) (1,617,225)
----------- -----------
Total Shareholders' Equity .................. 986,859 1,193,625
----------- -----------
$ 2,072,287 $ 2,595,296
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-1-
<PAGE>
MEGADATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE NINE MONTHS ENDED JULY 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
REVENUES:
<S> <C> <C>
Sales ...................................................... $ 848,269 $ 1,077,927
Service .................................................... 44,413 54,831
----------- -----------
TOTAL REVENUES ...................................................... 892,682 1,132,758
----------- -----------
COSTS AND EXPENSES
Cost of operations ......................................... 657,809 769,986
Cost of service ............................................ 54,618 54,274
Research and development ................................... 91,355 120,396
General and administrative expenses ........................ 239,987 203,357
----------- -----------
1,043,769 1,148,013
----------- -----------
INCOME/LOSS)FROM OPERATIONS ......................................... (151,087) (15,255)
OTHER INCOME/EXPENSE):
Interest income ............................................ 7,008 3,219
Interest expense ........................................... (46,481) (68,214)
Interest expense - related party ........................... (11,368) --
Other income ........................................................ 80 --
----------- -----------
NET (LOSS) .......................................................... (201,848) (80,250)
RETAINED EARNINGS, at beginning of year ............................. 313,248 367,748
----------- -----------
RETAINED EARNINGS, at end of period ................................. 111,400 287,498
=========== ===========
NET (LOSS) PER SHARE ................................................ $ (.08) $ (.05)
=========== ===========
Weighted average number of shares outstanding ....................... 2,511,600 1,767,156
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE>
MEGADATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED JULY 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
REVENUES:
<S> <C> <C>
Sales ........................................... $ 214,896 $ 480,472
Service ......................................... 6,614 12,032
----------- -----------
TOTAL REVENUES............................................ 221,510 492,504
COSTS AND EXPENSES
Cost of operations .............................. 209,585 286,978
Cost of service ................................. 16,680 17,018
Research and development ........................ 31,140 34,507
General and administrative expenses.............. 90,081 76,234
----------- -----------
347,486 414,737
----------- -----------
(LOSS)/INCOME FROM OPERATIONS ............................ (125,976) 77,767
OTHER INCOME/(EXPENSE):
Interest income ................................. 1,424 2,672
Interest expense ................................ (15,403) (22,258)
Interest expense - related party ................ (487) --
----------- -----------
NET (LOSS)/INCOME ........................................ (140,442) 58,181
=========== ===========
NET (LOSS)/INCOME PER SHARE .............................. $ (.06) $ .03
=========== ===========
Weighted average number of shares outstanding ............ 2,511,600 2,078,267
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
MEGADATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31,
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(unaudited) (unaudited)
CASH FLOWS (USED) IN OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) ..................................................... $(201,848) $ (80,250)
Adjustments to reconcile net (loss) to
net cash used in operating activities:
Depreciation and amortization ............................... 55,414 47,111
Change in operating assets and liabilities:
Decrease/(Increase) in accounts receivable ............. 255,875 (221,459)
Decrease in inventories ................................ 31,381 69,760
(Increase)/decrease in other assets .................... (41,097) 899
(Increase) in prepaid expenses and other assets ........ (4,766) (41,639)
(Decrease)/increase in accounts payable ................ (71,518) 1,297
(Decrease)/increase in accrued expenses
and other current liabilities ...................... (90,268) 65,104
--------- ---------
Total adjustments ............................. 135,021 (78,927)
--------- ---------
Net cash used in operating activities ......... (66,827) (159,177)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures: ........................................... (20,106) --
--------- ---------
Net cash (used in) investing activities ....... (20,106) --
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of shares .................................... -- 441,906
Decrease in other assets -deferred mortgage cost ................ 4,409 4,409
(Payment) of notes and loan payable ............................. (164,215) (97,381)
Proceeds of installment note .................................... 49,228 6,784
(Payment of) mortgage loan ...................................... (39,468) (35,994)
--------- ---------
Net cash (used in)/provided by
financing activities ...................... (150,046) 319,724
--------- ---------
(DECREASE) IN CASH AND CASH EQUIVALENTS .............................. (236,979) 160,547
CASH AND CASH EQUIVALENTS,
AT BEGINNING OF PERIOD ............................................ 318,595 119,458
--------- ---------
CASH AND CASH EQUIVALENTS,
AT END OF PERIOD .................................................. $ 81,616 $ 280,005
========= =========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
MEGADATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - INVENTORIES:
- ---------------------
As of July 31, 1998 the inventory value is $417,394. 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
$ 448,775
=========
NOTE 2 - LONG-TERM DEBT:
- ------------------------
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 - SALE OF COMMON SHARES:
- -------------------------------
On June 6, 1997 the Company issued 700,000 shares of common stock pursuant to an
agreement with an investor for which the Company received gross proceeds of
$500,000 less related expenses which resulted in net proceeds of $441,906. On
October 31, 1997 the Company issued additional 200,000 shares to the same
investor and two other investors for which the Company received net proceeds of
$150,000.
NOTE 4 - EARNINGS PER COMMON SHARE:
- -----------------------------------
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 5 - STATEMENT OF MANAGEMENT:
- ---------------------------------
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 July 31, 1998 and the
consolidated results of operations for the three and nine month periods ended
July 31, 1998 and 1997 and the consolidated statement of cash flow for the nine
months ended July 31, 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.
-5-
<PAGE>
MEGADATA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDING JULY 31, 1998
- --------------------------------------------------------------
Revenue during the nine month period ending July 31, 1998 decreased by 21.2%, or
$240,076 as compared to the revenue during the corresponding period of 1997.
Most of the decrease in revenue occurred during the third quarter of the current
fiscal year. This decline in revenue is attributable to the following major
factors: a) several anticipated sales of PASSUR Systems were delayed; b) a major
Asian reseller of the Company's RF Modems suspended purchases of modems due to
the devaluation of its country's currency; c) another major reseller of RF
modems, who purchased the modems for wireless communications purposes in various
countries in Africa, reduced purchases of such modems;
The Company is reporting a net loss of ($ 201,848), or ($.08), per share from
operations during the first nine months of fiscal year 1998 as compared to a net
loss of ($80,250), or ($.05) per share, during the comparable nine month period
of 1997.
Costs of Operations during the nine month period ending July 31, 1998 were lower
by $112,177, or 14.6%, as compared to the corresponding period of fiscal year
1997. The lower costs were directly related to the reduction in revenue. 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 evaluated, and when new ways are found to
eliminate, reduce or replace such costs by lower cost alternatives they are
promptly being implemented.
Cost of Service was maintained at the same level during the corresponding
periods in 1998 and 1997.
Costs of Research and Development activities sponsored by the Company were lower
by approximately $29,000 during the nine month period ending July 31, 1998 when
compared to the same period in fiscal year 1997. All 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 nine month period ending July 1998
increased by $36,630, or 18.0%, over the comparable period in 1997.
Overall, Cost and Expenses were lower during the nine month period ending July
31, 1998 by $104,244, or 9.1%, compared to similar costs during the comparable
period of 1997.
During the first nine month period ending July 31, 1998 net interest expense
decreased by $14,074, or 21.7%, when compared to the similar period of 1997.
This decrease is mainly attributed to a decrease in interest expense associated
with lower notes payable and long term debt.
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.
Although inflation has not had a material effect on its operations, the Company
is paying higher prices for components purchased in small quantities.
-6-
<PAGE>
RESULTS OF OPERATIONS FOR THE QUARTER ENDING JULY 31, 1998
- ----------------------------------------------------------
Revenue during the quarter ended July 31, 1998 decreased by 55.0%, or $270,994,
when compared to the similar period of 1997. The decrease in revenue is
attributed mainly to the lack of PASSUR sales during the third quarter.
Potential sales of PASSUR systems, which were anticipated to occur in the third
quarter, have been deferred.
During the third quarter of fiscal year 1998 the Company had a net loss of
($140,442) or ($.06) per share as compared to a net profit of $58,181 or $.03
per share during the corresponding period in fiscal year 1997.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
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 to
noise related applications for use in all other countries. In a separate
agreement between the Company and Bruel & Kjear, Bruel & Kjear agreed to promote
and sell the PASSUR systems worldwide. 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 July 31, 1998 the mortgage balance is $634,809 (See Note 2 - Long
Term Debt.)
During the period ending July 31, 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 still anticipates an increase in future
sales. However, the Company cannot predict if such sales will materialize in the
near future. If revenues do not increase, losses may continue. The extent of
such 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 statements above.
PRIVATE INVESTOR
- ----------------
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 July 31, 1998 was $125,000.
-7-
<PAGE>
Mr. Gilbert has been elected a director and Chairman of the Board and has
designated two additional board members to the Company's six persons 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.
M. SALES OF UNREGISTERED SECURITIES:
- ------------------------------------
NONE
PART II
ITEM 1. LEGAL PROCEEDINGS.
NONE
-8-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MEGADATA CORPORATION.
Dated: September 14, 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 dates indicated:
Dated: September 14, 1998 /S/ YITZHAK N. BACHANA
----------------------
Yitzhak N. Bachana, President,
Treasurer, Principal Executive
Officer, Principal Financial
Officer, Director
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000225628
<NAME> MEGADATA CORP
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JUL-31-1998
<CASH> 81,616
<SECURITIES> 0
<RECEIVABLES> 43,711
<ALLOWANCES> 0
<INVENTORY> 417,394
<CURRENT-ASSETS> 625,719
<PP&E> 4,638,795
<DEPRECIATION> 3,255,212
<TOTAL-ASSETS> 2,072,287
<CURRENT-LIABILITIES> 447,917
<BONDS> 0
32,031
0
<COMMON> 0
<OTHER-SE> 954,828
<TOTAL-LIABILITY-AND-EQUITY> 2,072,287
<SALES> 892,682
<TOTAL-REVENUES> 899,770
<CGS> 657,809
<TOTAL-COSTS> 1,043,769
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,849
<INCOME-PRETAX> (201,848)
<INCOME-TAX> 0
<INCOME-CONTINUING> (201,848)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (201,848)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
