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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended January 31, 1998 Commission file number 0-7642
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MEGADATA CORPORATION
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(Exact name of Registrant as specified in its charter)
New York 11-2208938
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(State or other jurisdiction of (I.R.S. !8 Identification No.)
incorporation or organization)
35 Orville Drive, Bohemia, New York 11716
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 589-6800
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has
been subject to the filing requirements for the past 90 days.
YES [X] NO [ ]
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Registrant's shares outstanding: 2,511,600.
<PAGE>
MEGADATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
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January 31, October 31,
1998 1997
Unaudited Audited
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CURRENT ASSETS:
Cash and cash equivalents $ 220,235 $ 318,595
Accounts receivable 313,965 299,586
Inventories (Note 1) 438,354 448,775
Prepaid expenses and other
current assets 65,206 87,561
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TOTAL CURRENT ASSETS 1,037,760 1,154,517
PROPERTY, PLANT AND EQUIPMENT, net 1,405,775 1,418,891
OTHER ASSETS 23,928 21,888
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$2,467,463 $2,595,296
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES:
Accounts payable $ 71,083 $ 155,989
Accrued expenses and taxes 73,454 120,475
Accrued expenses - related parties 54,105 89,215
Note payable - related party
current portion 100,000 100,000
Deferred income 195,184 150,122
Installment note payable 5,979 11,592
Current portion of long-term 54,483 53,242
debt (Note 2)
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TOTAL CURRENT LIABILITIES 554,288 680,635
Notes Payable - related party
(less current portion) 75,000 100,000
Long-term debt (Note 2) 606,941 621,036
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1,236,229 1,401,671
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STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share:
Authorized 5,000,000 shares
Issued 3,203,100 shares 32,031 32,031
Additional paid-in capital 2,460,653 2,465,571
Retained earnings 355,775 313,248
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2,848,459 2,810,850
Less cost of 691,500 common shares
held in treasury (1,617,225) (1,617,225)
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1,231,234 1,193,625
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$ 2,467,463 $2,595,296
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See notes to consolidated financial statements.
<PAGE>
MEGADATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED JANUARY 31,
(UNAUDITED)
1998 1997
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REVENUES:
Sales $ 401,008 $ 192,259
Service 9,330 17,994
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TOTAL REVENUES 410,338 210,253
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COST AND EXPENSES:
Cost of operations 236,835 217,327
Cost of service 19,411 19,372
Research and development 30,373 42,046
General and administrative expenses 64,580 63,978
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351,199 342,723
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INCOME/(LOSS) FROM OPERATIONS 59,139 (132,470)
OTHER INCOME/(EXPENSE):
Interest income 3,402 390
Interest expense (15,688) (16,976)
Interest expense - related party ( 4,406) -
Other income 80 -
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Income/(Loss) before income taxes 42,527 (149,056)
Income tax expense - -
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NET INCOME/(LOSS) 42,527 (149,056)
RETAINED EARNINGS, at beginning of year 313,248 367,748
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RETAINED EARNINGS, at end of period $ 355,775 $218,692
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NET (LOSS) PER SHARE .02 ($.09)
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WEIGHTED AVERAGE SHARES OUTSTANDING 2,511,600 1,611,600
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See notes to consolidated financial statements.
<PAGE>
MEGADATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31,
(UNAUDITED)
1998 1997
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CASH FLOWS USED IN OPERATING ACTIVITIES:
Net Income/(Loss) $ 42,527 $ (149,056)
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Adjustments to reconcile net Income/(Loss) to net cash
(used in) provided by operating activities:
Changes in operating assets and liabilities:
Depreciation and amortization 20,142 15,727
Change in operating assets and liabilities:
(Increase) in accounts receivable (14,379) ( 9,303)
Decrease/(Increase) in 10,421 ( 41)
inventories
Decrease/(Increase) in prepaid
expenses and other current 22,355 ( 6,862)
assets
(Increase) in other assets ( 3,510) ( 2)
(Decrease)/Increase in accounts (84,906) 18,506
payable
(Decrease)/Increase in accrued
expenses
and other current liabilities ( 6,876) 42,628
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Total Adjustments (56,753) 60,653
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Net cash (used in)
operating activities (14,226) (88,403)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 7,027) -
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Net cash used in investing ( 7,027) -
activities
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CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease/(Increase) in other assets -
deferred mortgage cost 1,470 1,470
(Payment of)/Proceeds from notes
and loan payable (60,110) 27,336
(Payment of)/Proceeds from
installment note ( 5,613) ( 5,791)
Repayments of mortgage loan (12,854) (11,723)
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Net cash (used in)/provided by
financing activities (77,107) 11,292
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(DECREASE) IN CASH AND CASH EQUIVALENTS (98,360) (77,111)
CASH AT BEGINNING OF PERIOD 318,595 119,458
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CASH AT END OF PERIOD $ 220,235 $ 42,347
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See notes to consolidated financial statements.
<PAGE>
MEGADATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INVENTORIES:
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Inventory as of January 31, 1998 $438,354 has been computed using a standard
cost method for the current quarter.
Inventory is classified as follows for October 31, 1997:
Parts and Raw Material $ 103,251
Work-In-Process 282,352
Finished Goods 63,172
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$ 448,775
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NOTE 2 - LONG TERM DEBT:
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On May 31, 1996, the Company refinanced the existing mortgage with Roosevelt
Savings Bank on its building in Bohemia, New York. The loan matures on June
1, 2001 and requires annual payments based upon a 10 year amortization
schedule. Interest is at a fixed rate of 9.25%. The loan agreement calls for
a balloon payment of $498,637 due on June 1, 2001.
NOTE 3 - EARNINGS PER COMMON SHARE:
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Net (loss)/income per share is computed based on the weighted average number
of common shares outstanding.
NOTE 4 - STATEMENT OF MANAGEMENT:
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The financial information contained in this Form 10-Q represents condensed
financial data and, therefore, does not include all footnote disclosures
required to be included in financial statements prepared in conformity with
generally accepted accounting principles. Such footnote information was
included in the Company's 10K report to the SEC for the year ended October
31, 1997; the condensed financial data included herein should be read in
conjunction with that report.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
consolidated balance sheet of MEGADATA CORPORATION at January 31, 1998 and
the consolidated results of operations for the three months ended January
31, 1998 and 1997 and the consolidated statement of cash flow for the three
months ended January 31, 1998 and 1997.
The results of operations for the interim periods stated above are not
necessarily indicative of the results to be expected for a full year.
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
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Revenue during the quarter ending January 31, 1998 increased by 95% or
$200,085 as compared to the corresponding quarter of 1997. The larger sales
volume was due to an increase in sales in all product categories offered by
the company including the sale of a long range PASSUR system.
As a result of the increase in revenue the Company is reporting a net profit
of $42,527 or $.02 per share in the first quarter of Fiscal Year 1998. In the
comparable period of Fiscal Year 1997 the Company reported a net loss of
($149,056) or ($.09) per share.
Overall Costs and Expenses during the first quarter of fiscal year 1998
increased by only 2% or $8,476 when compared to the first quarter of Fiscal
Year 1997.
Cost of operations for the quarter ending January 31, 1998 increased by 9% or
$19,508 as compared to the corresponding quarter of fiscal year 1997. The
increase in operating costs is due to increases in labor costs combined with
an increase in cost of material used in conjuction with the higher volume of
sales.
Costs of Research and Development (R&D) activities sponsored by the Company in
the first quarter were lower by $11,673 or 28% as compared to the
corresponding costs during the first quarter ending January 31, 1997. Most of
these R&D activities concentrated on enhancements to the PASSUR and the ATMS
products. The balance of the R&D activities were directed to the maintenance,
enhancement, and improvement of the Company's existing products.
General and administrative costs during the first quarter of fiscal year 1998
were approximately the same as such costs during the first quarter of fiscal
year 1997.
As of October 31, 1997 the Company had available approximately $4,600,000 in
Federal tax loss carryforward to offset possible future income. The Company
also has available $25,000 in general business tax credit carryforwards. 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 smaller quantities of components purchased
because of the scale down in its operations.
Liquidity and Capital Resources
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During January 1998 the Company delivered a long range PASSUR system. As a
result of this shipment, the Company had a large increase in sales volume
which resulted in a first quarter profit of $42,527. If revenues remain at
current levels, the Company should continue to report profits, thereby
improving its liquidity.
Interest by potential customers in the Company's PASSUR systems remains strong
and the Company anticipates receiving additional orders for PASSUR systems in
the near future. However, the Company cannot predict if such sales will
materialize. If sales do not increase, losses may recur. The extent of such
profits or losses will be dependent on sales volume achieved.
Risk Factors; Forward Looking Statements
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The Management's Discussion and Analysis and the information provided
elsewhere in this Form 10Q should be read in conjuction with other information
provided in the Company's Form 10K for the Fiscal Year Ended October 31, 1997.
Such information contains forward looking statements regarding the Company's
future plans, objectives, and expected performance. These statements are based
on assumptions that the Company believes are reasonable, but are subject to a
wide range of risks and uncertainties, and a number of factors could cause the
Company's actual results to differ materially from those expressed in the
forward-looking statements referred to above. These factors include, among
others, the uncertainties related to the ability of the Company 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 Company 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 Company's ability to find and
maintain the personnel necessary to sell, manufacture, and service its
products.
<PAGE>
Private Investor
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During the period between September 18, 1996 and June 6, 1997 the Company
signed various agreements with Mr. G.S. Beckwith Gilbert, a private investor.
Under these agreements, Mr. Gilbert provided the Company with three $100,000
loans bearing a 9% interest rate, payable by July 30, 1997, and secured by the
Company's assets, excluding the building. In consideration, the Company
granted Mr. Gilbert three warrants to purchase up to 1,400,000 of the
Company's common shares. On June 6, 1997, Mr. Gilbert and affiliated entities
completed the purchase of 700,000 shares of the Company's common stock for an
aggregate purchase price of $500,000. Of such purchase price, $400,000 was
paid in cash and $100,000 was paid by the cancellation of a $100,000 loan
previously made by Mr. Gilbert to the Company. On October 31, 1997, Mr.
Gilbert and two other directors exercised a warrant to purchase an additional
200,000 shares of the Company's common stock for an aggregate purchase price
of $150,000. The exercise of this warrant has validated a third warrant issued
to Mr. Gilbert under which he has the right to purchase up to 500,000
additional shares at a share price of $1.25. The 500,000 share warrant expires
October 31, 2001 and is exercisable during the year preceding expiration. The
Company has also agreed to provide Mr. Gilbert with incidental registration
rights for all the shares purchased under the warrants. The Company has no
assurance that Mr. Gilbert will exercise his rights under the third warrant.
On July 30, 1997, Mr. Gilbert and the Company signed an amended and restated
loan agreement under which the outstanding loan balance of $200,000 will
continue to accrue interest at an annual rate of 9%, but will have a maturity
of July 30,1999. All accrued interest on such loan will be paid on a quarterly
basis and the principal balance of such loan will be repaid at the rate of
$25,000 per quarter, beginning December 31, 1997. The loan balance as of
January 31, 1998 was $175,000.
Mr. Gilbert has been elected a director and Chairman of the Board and
has designated two additional board members to the Company's six
person Board of Directors. Mr. Gilbert is President and Chief
Executive Officer of Field Point Capital Management Corp., a merchant
banking firm located in Greenwich, Connecticut.
<PAGE>
M. Sales of Unregistered Securities:
NONE
<PAGE>
SIGNATURE
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Pursuant to the requirements of the Securities and Exchange Act of 1933 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: March 14, 1998
MEGADATA CORPORATION
/s/ Yitzhak N. Bachana
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Yitzhak N. Bachana
President and Chief
Financial Officer
