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 JANUARY 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission file no. 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
- --------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
66 FIELD POINT ROAD, GREENWICH, CONNECTICUT 11716
- ------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 629-8757
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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 such filing
requirements for the past 90 days.
Yes X No
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Common shares $.01 par value - The number of common shares outstanding
as at March 12, 1999 was 2,511,600 (Exclusive of 691,500 shares in treasury)
<PAGE>
Megadata Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
(UNAUDITED)
1999 1998
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ASSETS
Current assets:
<S> <C> <C>
Cash $ 88,499 $ 17,731
Accounts receivable 42,763 35,341
Inventories 373,376 266,916
Prepaid expenses and other current assets 57,117 58,931
----------- -----------
Total current assets 561,755 378,919
Property, plant and equipment, net 1,369,316 1,382,745
Other assets 37,409 33,326
=========== ===========
$ 1,968,480 $ 1,794,990
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 204,102 $ 136,016
Accrued expenses and taxes 273,937 354,439
Accrued expenses--related parties 49,554 13,898
Notes payable--related party 175,000 175,000
Deferred income 159,899 90,519
Installment note payable 25,403 33,230
Current portion of long-term debt 59,742 58,382
----------- -----------
Total current liabilities 947,637 861,484
Notes payable--related party, less current portion 400,000 25,000
Installment note payable, less current portion 34,542 37,894
Long-term debt 547,199 562,654
----------- -----------
1,929,378 1,487,032
Stockholders' equity:
Common shares--authorized 5,000,000 shares, par value
$.01 per share; issued 3,203,100 shares in 1999 and 1998 32,031 32,031
Additional paid-in capital 2,460,653 2,460,653
Accumulated deficit (836,357) (567,501)
----------- -----------
1,656,327 1,925,183
Less cost of 691,500 common shares held in treasury 1,617,225 1,617,225
----------- -----------
Total stockholders' equity 39,102 307,958
=========== ===========
$ 1,968,480 $ 1,794,990
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE>
Megadata Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JANUARY 31,
1999 1998
-----------------------------
Revenues:
<S> <C> <C>
Net sales $ 131,940 $ 401,008
Service 5,368 9,330
----------- -----------
Total revenues 137,308 410,338
Cost and expenses:
Cost of sales 109,026 198,341
Cost of service 18,172 19,411
Research and development 30,945 30,373
General and administrative expenses 224,531 103,074
----------- -----------
382,674 351,199
----------- -----------
(Loss) income from operations (245,366) 59,139
Other income (expense):
Interest income 491 3,402
Interest expense (15,150) (15,688)
Interest expense--related party (8,331) (4,406)
Other income -- 80
=========== ===========
Net (loss) income $ (268,856) $ 42,527
=========== ===========
Net (loss) income per common share--basic
and diluted $ (.11) $ .02
=========== ===========
Weighted average number of common shares
outstanding--basic and diluted 2,511,600 2,511,600
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE>
Megadata Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JANUARY 31,
1999 1998
------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net (loss) income $(268,856) $ 42,527
Adjustment to reconcile net (loss) income to net cash
used in operating activities:
Depreciation 17,079 20,142
Changes in operating assets and liabilities:
Accounts receivable (7,422) (14,379)
Inventories (106,460) 10,421
Prepaid expenses and other current assets 1,814 22,355
Other assets (4,083) (3,510)
Accounts payable 68,086 (84,906)
Accrued expenses and other current liabilities 24,534 (6,876)
--------- ---------
Total adjustments (6,452) (56,753)
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Net cash used in operating activities (275,308) (14,226)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (3,650) (7,027)
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Net cash used in investing activities (3,650) (7,027)
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in other assets--deferred mortgage cost -- 1,470
Proceeds from notes payable--related party 400,000 --
Payments of notes payable - related party (25,000) (60,110)
Payments of installment note (11,179) (5,613)
Payments of long-term debt (14,095) (12,854)
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Net cash provided by (used in) financing activities 349,726 (77,107)
--------- ---------
Increase (decrease) in cash 70,768 (98,360)
Cash--beginning of fiscal year 17,731 318,595
========= =========
Cash--at January 31, 1999 $ 88,499 $ 220,235
========= =========
</TABLE>
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
Megadata Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
January 31, 1999
1. BUSINESS
Megadata Corporation (the "Company") designs and manufactures specialized
computer equipment with applications in the aviation and communication
industries. Its product line includes: PASSUR (Passive Secondary Surveillance
Radar) systems which monitor air traffic in real time: SA9600 Wireless Radio
Moderns: MURS, ALCX and RESNET airline reservation access systems; as well as
customized hardware and software which enable the Company's products to fit its
customers' specific requirements.
2. BASIS OF PRESENTATION
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 annual report for the year ended October 31, 1998 on Form 10-K
filed with the SEC; 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, 1999 and the consolidated results of operations for the three month periods
ended January 31, 1999 and 1998 and the consolidated statements of cash flows
for the three months ended January 31, 1999 and 1998.
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, 1999.
3. INVENTORIES
Inventories have been computed using the lower of cost (first-in, first-out
method) or market for the current quarter.
4. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the period between September 18, 1996 and June 6, 1997 the Company signed
agreements with a private investor (the "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 addition,
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<PAGE>
as part of the above financings, stock warrants were awarded for the purchase of
up to 1,400,000 common shares at prices between $0.71 and $1.25 per share. The
warrants for 200,000 of such shares (at $0.75 per share) would only be
exercisable after the purchase by the Investor of the first 700,000 shares. The
warrant for an additional 500,000 of such shares (at $1.25 per share) becomes
exercisable from November 1, 2000 through October 31, 2001, assuming the prior
exercise of the 200,000 share warrant.
On June 6, 1997, the Investor and his affiliate purchased 700,000 shares for
$0.71 per share, for a total of $500,000 ($400,000 in cash and $100,000 by
cancellation of the first $100,000 note).
On October 31, 1997, the Investor and two other directors purchased 200,000
shares for $150,000. The purchase of these shares made effective the stock
purchase warrant, that gives the Investor and his affiliates the right to
purchase 500,000 shares at $1.25 per share. This 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 31, 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. On October 2, 1998, the Investor was named to the additional post of
President and Chief Executive Officer.
During the first quarter of fiscal 1999, the Investor made additional loans to
the Company aggregating $400,000 The loans are evidenced by promissory notes
issued by the Company which are payable quarterly, maturing at various dates
from March 31, 2000 through December 31, 2000. The Investor advanced the Company
$200,000 subsequent to January 31, 1999. As of March 12, 1999, the total notes
payable due to the Investor is $775,000.
During the quarter ended January 31, 1999, the Company reimbursed Field Point
Capital Management Company ("FPCM"), an entity controlled by the Investor, for
sales and marketing services approximating $27,000.
The Company is also leasing space from FPCM. During the first quarter of fiscal
1999 the rent to be paid by the Company to FPCM aggregated $3,000. Effective
February 1, 1999, the Company will pay FPCM rent of $2,000 per month on a month
to month basis.
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<PAGE>
Megadata Corporation and Subsidiaries
Management's Discussion and Analysis of Financial
Condition and Results of Operations
-------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
REVENUE
- -------
Revenue during the three months ended January 31, 1999 decreased by
approximately $273,000, or 67%, as compared to the corresponding period ended
January 31, 1998. Decreases in revenues occurred in the following sales
categories: PASSUR Systems and PASSUR Upgrades, Radio Modems, Protocol
Converters and UNIX Systems. An increase in revenue resulted from PASSUR System
maintenance contracts and repairs.
The Company did not sell any PASSUR Systems during the first quarter of fiscal
1999. The Company is building additional PASSURs which it plans to install at
major airports and will offer to sell the data which they generate to airline
customers. Management believes that, with the increased sales and marketing
effort for the PASSUR product line, additional revenues from the sale of
products and data services can be realized in the coming fiscal year.
Management is reviewing product offerings and the performance of product lines
in which revenue has decreased over the last two fiscal years.
COST OF SALES AND SERVICE
- -------------------------
During the quarter ended January 31, 1999, cost of sales and service decreased
by approximately $91,000, or 42%, over the same quarter of 1998. The decrease
was due to the lack of PASSUR and other product sales, as well as the building
for inventory of additional PASSURs to be installed at major airports and to be
operated by the Company or offered for sale to third parties. In addition,
during the quarter ended January 31, 1999, a significant portion of the
manufacturing and service production staff's time was redirected in an effort to
prepare the Company's building in Bohemia, New York, for sale.
Cost of service was slightly lower for the period ending January 31, 1999, as
compared to the same period of 1998.
As a result of the restructuring underway by the Company (See Footnote 8 to the
Company's Consolidated Financial Statements for the fiscal year ended October
31, 1998), and the planned move to a smaller, less expensive facility, fixed
costs should be reduced after the building is sold.
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<PAGE>
RESEARCH AND DEVELOPMENT
- ------------------------
The Company's research and development expenses remained approximately the same
in the first quarter of fiscal 1999 as compared to the same period in fiscal
1998. The Company anticipates continuing to incur research and development
expenditures approximately at current levels. Research and development efforts
include activities associated with maintenance, enhancement, and improvement of
the Company's existing hardware and software.
GENERAL AND ADMINISTRATIVE
- --------------------------
General and administrative expenses increased by approximately $121,000, or
118%, during the first three months of fiscal 1999 as compared to the same
period in fiscal 1998, primarily due to the Company significantly increasing the
sales and marketing budget for its major PASSUR System product line. As part of
the increased sales and marketing effort, the Company hired a Vice President of
Sales and Marketing and a full time Controller, and also retained the services
of two sales consultants. Salaries, consulting, travel, as well as advertising
and promotion expenses accounted for most of the general and administrative
expense increase.
RESTRUCTURING CHARGE
- --------------------
In October 1998, the Company announced a Restructuring Plan in which it will
focus its attention primarily on its PASSUR line of passive radar systems. As
part of this restructuring, the Company will move its corporate headquarters and
national sales office to Greenwich, Connecticut. The Company has offered for
sale its building in Bohemia, New York. After the building is sold, the Company
will move its manufacturing and research and development facility to a smaller,
more modern, and less expensive facility in the same area. (See Footnote 8 to
the Company's Consolidated Financial Statements for the fiscal year ended
October 31, 1998.)
NET LOSS
- --------
The Company incurred a net loss of $268,856, or $.11 per common share, during
the three month period ended January 31, 1999. In the same period of fiscal
1998, the Company generated net income of $42,527, or $.02 per common share.
As anticipated by the management of the Company, during the quarter ended
January 31, 1999, costs and expenses were higher than total revenue which
resulted in a loss from operations of $245,366. The lack of PASSUR related sales
contributed to the lower revenue.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At January 31, 1999, the Company's current liabilities exceeded current assets
by $385,882. Management will address this working capital deficiency by reducing
operating expenses as outlined in its restructuring plan, utilizing cash
proceeds from the proposed sale of the building for working capital purposes
and, if required, by obtaining external financing.
Since the increased sales effort began in August 1998, the Company has seen
positive signs that its PASSUR product line could provide additional revenue in
fiscal 1999.
The Company cannot predict if increased sales will materialize. Increased
competition, and continued budget constraints at its clients, could impact this
potential growth in revenue. If sales do not increase, additional losses may
occur and could continue. The extent of such profits or losses will be dependent
on the sales volume achieved.
THE YEAR 2000 ISSUE
- -------------------
The Company has diligently studied the impact of the Year 2000 on the hardware
and software it sells, as well as its own internal systems.
The Company's technical and development personnel have carefully reviewed the
Company's PASSUR hardware product line and related software and have determined
that they are Year 2000 compliant.
A review of Year 2000 compliance for the other products sold by the Company,
radio modems and protocol converters, is continuing and should be completed by
the middle of 1999.
A thorough review of the Company's internal systems is continuing and will be
completed by July 31, 1999. Remediation will be performed internally by existing
employees and completed by year end. No outside consulting services are expected
to be required. The Company is working with vendors and service providers with
whom it does business to determine their Year 2000 compliance to ensure that
there is no adverse effect on the Company. These studies are also scheduled for
completion by the July 31, 1999.
To date, the Company has not found any area where a Year 2000 compliance problem
with either its internal systems or outside providers could have a material
adverse impact on any part of the Company's business operations.
MARKET RISKS
- ------------
The Company does not have any significant financial instruments that are
sensitive to market risks.
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<PAGE>
RISK FACTORS; FORWARD LOOKING STATEMENTS
The Management's Discussion and Analysis and the information provided elsewhere
in this Quarterly Report on Form 10-Q (including, without limitation, "Liquidity
and Capital Resources" above) contain 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 make 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.
M. SALES OF UNREGISTERED SECURITIES:
NONE
PART II
ITEM 1. LEGAL PROCEEDINGS.
NONE
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE
ITEM 5. OTHER INFORMATION.
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K/A filed November 13, 1998 as dated
October 28, 1998 Form 8-K filed November 6,
1998 as dated October 28, 1998.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
DATED: MARCH 12, 1999. /s/ G. S. BECKWITH GILBERT
------------------------------------
G. S. Beckwith Gilbert, Chairman,
President, and Chief Executive Officer
DATED: MARCH 12, 1999. /s/ HERBERT E. SHAVER
-------------------------------------
Herbert E. Shaver, Controller
(Principal Financial and Accounting
Officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000225628
<NAME> MEGADATA CORP
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 88,499
<SECURITIES> 0
<RECEIVABLES> 42,763
<ALLOWANCES> 0
<INVENTORY> 373,376
<CURRENT-ASSETS> 561,755
<PP&E> 4,616,590
<DEPRECIATION> 3,247,274
<TOTAL-ASSETS> 1,968,480
<CURRENT-LIABILITIES> 947,637
<BONDS> 0
0
0
<COMMON> 32,031
<OTHER-SE> 7,071
<TOTAL-LIABILITY-AND-EQUITY> 1,968,480
<SALES> 137,308
<TOTAL-REVENUES> 137,799
<CGS> 127,198
<TOTAL-COSTS> 382,674
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,481
<INCOME-PRETAX> (268,856)
<INCOME-TAX> 0
<INCOME-CONTINUING> (268,856)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (268,856)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
