PAGE 1 OF 14
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 APRIL 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECCURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission file no. 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 Identification No.)
incorporation or organization)
47 ARCH STREET, GREENWICH, CONNECTICUT 06830
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 629-8757
--------------
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 - The number of common shares
outstanding as at June 11, 1999 was 2,511,600
(Exclusive of 691,500 shares in treasury)
<PAGE>
Megadata Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
(UNAUDITED)
1999 1998
------------ -------------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 88,269 $ 17,731
Accounts receivable 41,698 35,341
Inventories 436,792 266,916
Prepaid expenses and other current assets 43,201 58,931
----------- -----------
Total current assets 609,960 378,919
Property, plant and equipment, net 1,394,126 1,382,745
Other assets 31,993 33,326
=========== ===========
$ 2,036,079 $ 1,794,990
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 212,914 $ 136,016
Accrued expenses and taxes 268,936 354,439
Accrued expenses--related parties 6,975 13,898
Notes payable--related party 350,000 175,000
Deferred income 132,839 90,519
Installment note payable 19,426 33,230
Current portion of long-term debt 61,134 58,382
----------- -----------
Total current liabilities 1,052,224 861,484
Notes payable--related party, less current portion 600,000 25,000
Installment note payable, less current portion 32,675 37,894
Long-term debt 531,383 562,654
----------- -----------
2,216,282 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 (1,055,662) (567,501)
----------- -----------
1,437,022 1,925,183
Less cost of 691,500 common shares held in treasury 1,617,225 1,617,225
----------- -----------
Total stockholders' equity (180,203) 307,958
=========== ===========
$ 2,036,079 $ 1,794,990
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 2 of 14
<PAGE>
Megadata Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30,
1999 1998
----------- -----------
Revenues:
<S> <C> <C>
Net sales $ 378,311 $ 633,373
Service 14,528 37,799
----------- -----------
Total revenues 392,839 671,172
Cost and expenses:
Cost of sales 215,220 359,734
Cost of service 39,224 37,938
Research and development 61,107 60,215
General and administrative expenses 509,975 238,396
----------- -----------
825,526 696,283
----------- -----------
Loss from operations (432,687) (25,111)
Other income (expense):
Interest income 1,060 5,584
Interest expense (29,972) (31,078)
Interest expense--related party (26,562) (10,881)
Other income -- 80
=========== ===========
Loss income $ (488,161) $ (61,406)
=========== ===========
Net loss per common share--basic
and diluted $ (.19) $ (.02)
=========== ===========
Weighted average number of common shares
outstanding--basic and diluted 2,511,600 2,511,600
=========== ===========
</TABLE>
Page 3 of 14
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
Megadata Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 30,
1999 1998
----------- -----------
Revenues:
<S> <C> <C>
Net sales $ 246,371 $ 232,365
Service 9,160 28,469
----------- -----------
Total revenues 255,531 260,834
Cost and expenses:
Cost of sales 106,194 161,393
Cost of service 21,052 18,527
Research and development 30,162 29,842
General and administrative expenses 285,444 135,322
----------- -----------
442,852 345,084
----------- -----------
Loss from operations (187,321) (84,250)
Other income (expense):
Interest income 569 2,182
Interest expense (14,822) (15,390)
Interest expense--related party (18,231) (6,475)
Other income -- --
=========== ===========
Net loss $ (219,805) $ (103,933)
=========== ===========
Net loss per common share--basic
and diluted $ (.08) $ (.04)
=========== ===========
Weighted average number of common shares
outstanding--basic and diluted 2,511,600 2,511,600
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 4 of 14
<PAGE>
Megadata Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30,
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $(488,161) $ (61,406)
Adjustment to reconcile net (loss) income to net cash
used in operating activities:
Depreciation 34,159 38,494
Changes in operating assets and liabilities:
Accounts receivable (6,357) 163,517
Inventories (169,876) 23,080
Prepaid expenses and other current assets 15,730 30,726
Other assets 1,333 (1,533)
Accounts payable 76,898 (121,838)
Accrued expenses and other current liabilities (50,106) (82,253)
--------- ---------
Total adjustments (98,219) 50,193
--------- ---------
Net cash used in operating activities (586,380) (11,213)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (45,540) (16,724)
--------- ---------
Net cash used in investing activities (45,540) (16,724)
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in other assets--deferred mortgage cost -- 2,940
Proceeds from notes payable--related party 825,000 --
Payments of notes payable - related party (75,000) (139,215)
Payments of installment note (19,023) (11,592)
Payments of long-term debt (28,519) (26,008)
--------- ---------
Net cash provided by (used in) financing activities 702,458 (173,875)
--------- ---------
Increase (decrease) in cash 70,538 (201,812)
Cash--at November 1, 1998 17,731 318,595
========= =========
Cash--at April 30, 1999 $ 88,269 $ 116,783
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 5 of 14
<PAGE>
Megadata Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
April 30, 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 April 30, 1999 and the consolidated results of operations for the
three and six month periods ended April 30, 1999 and 1998 and the
consolidated statements of cash flows for the six months ended April
30, 1999 and 1998.
The results of operations for the interim periods stated above are not
necessarily indicative of the results of operations for the full fiscal
year.
3. INVENTORIES
Inventories have been computed using the lower of cost (first-in,
irst-out method) or market.
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,
Page 6 of 14
<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 six months of fiscal 1999, the Investor
made additional loans to the Company aggregating $825,000. The loans
are evidenced by promissory notes issued by the Company which are
payable quarterly, maturing at various dates from March 31, 2000
through March 31, 2001. The Investor advanced the Company $100,000
subsequent to April 30, 1999. As of June 12, 1999, the total notes
payable due to the Investor is $1,050,000.
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 six
months of fiscal 1999, the rent to be paid by the Company to FPCM
aggregated $6,000. Effective February 1, 1999, the Company will pay
FPCM rent of $1,000 per month on a month to month basis.
On May 28, 1999, an affiliate of Yitzhak N. Bachana, a
director of the Company, sold 20,000 shares of the Company's stock to
Bruce N. Whitman, another director of the Company.
Page 7 of 14
<PAGE>
Megadata Corporation and Subsidiaries
Management's Discussion and Analysis of Financial
Condition and Results of Operations
-------------------------------------------------
RESULTS OF OPERATIONS
---------------------
REVENUE
-------
Revenue during the six months ended April 30, 1999 decreased
by approximately $278,000, or 41%, as compared to the corresponding
period ended April 30, 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 miscellaneous
repairs.
Revenue during the three months ended April 30, 1999 decreased
by approximately $5,000, or 2%, as compared to the corresponding period
ended April 30, 1998. Decreases in revenues occurred in the following
sales categories: PASSUR Systems and, Radio Modems, Protocol Converters
and UNIX Systems. An increase in revenue resulted from PASSUR System
maintenance, PASSUR Upgrades, and miscellaneous contracts and repairs.
The Company did not sell any PASSUR Systems during the first
six months 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. During the second
quarter of Fiscal 1999, the Company installed a PASSUR System, on a
trial basis, for a major airline. 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 six month period ending April 30, 1999, cost of
sales decreased by approximately $145,000, or 40%, over the same period
of fiscal 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.
During the quarter ended April 30, 1999, cost of sales
decreased by approximately $55,000, or 34%, 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.
Page 8 of 14
<PAGE>
Cost of service was slightly higher for both the six and three
month periods ending Apirl 30, 1999 as compared to the same periods 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 into smaller,
less expensive space, fixed costs should be reduced after the building
is sold.
RESEARCH AND DEVELOPMENT
------------------------
The Company's research and development expenses remained
approximately the same in the first two quarters 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
$272,000, or 114%, during the first six 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. The consultants were engaged primarily to help
optimize the benefits of the initial phase of the increased marketing
efforts under the direction of the Vice President of Marketing. The two
consultants' agreements terminated during the second quarter of fiscal
1999 and the Company did not renew them. Salaries, consulting, travel,
as well as advertising and promotion expenses accounted for most of the
general and administrative expense increase.
General and administrative expenses increased by approximately
$150,000, or 111%, during the second quarter 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. 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 into smaller space
in the same area. (See Footnote 8 to the Company's Consolidated
Financial Statements for the fiscal year ended October 31, 1998.)
Page 9 of 14
<PAGE>
NET LOSS
--------
The Company incurred a net loss of $488,161, or $.19 per
common share, during the six month period ended April 30, 1999. In the
same period of fiscal 1998, the Company incurred a net loss of $61,406,
or $.02 per common share.
The Company incurred a net loss of $219,805, or $.08 per
common share, during the three month period ended April 30, 1999. In
the same period of fiscal 1998, the Company incurred a net loss of
$103,933, or $.04 per common share.
As anticipated by the management of the Company, during the
quarter and six month periods ended April 30, 1999, costs and expenses
were higher than total revenue. The lack of PASSUR related sales
contributed to the lower revenue.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At April 30, 1999, the Company's current liabilities exceeded
current assets by $442,264. Management will address this working
capital deficiency by reducing operating expenses as outlined in its
restructuring plan and, if required, by obtaining external financing.
The Company has entered into a contract to sell the building
which houses its manufacturing facility in Bohemia, NY. The Company is
presently negotiating to lease back from the buyer the portion of the
building it presently occupies. The rental agreement, if concluded,
will be entered into at the closing. Both the sale and lease are
anticipated to happen before the end of fiscal 1999. If the sale is
completed, the Company will utilize the cash proceeds for working
capital purposes.
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. However, 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.
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<PAGE>
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 third quarter of fiscal 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 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.
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
Page 11 of 14
<PAGE>
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.
On June 8, 1999, the Registrant began mailing to its
security holders proxy solicitation material for the Company's 1999
annual meeting to be held on July 14, 1999. The matters to be voted
upon at such meeting are specified in such materials.
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
NONE
Page 12 of 14
<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: JUNE 14, 1999. /s/ G. S. Beckwith Gilbert
-------------------------------------
G. S. Beckwith Gilbert, Chairman,
President, and Chief
Executive Officer
DATED: JUNE 14, 1999. /s/ Herbert E. Shaver
-------------------------------------
Herbert E. Shaver, Controller
(Principal Financial and
Accounting Officer)
Page 13 of 14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> APR-30-1999
<CASH> 88,269
<SECURITIES> 0
<RECEIVABLES> 41,698
<ALLOWANCES> 0
<INVENTORY> 436,792
<CURRENT-ASSETS> 609,755
<PP&E> 4,658,479
<DEPRECIATION> 3,264,353
<TOTAL-ASSETS> 2,036,079
<CURRENT-LIABILITIES> 1,052,224
<BONDS> 0
<COMMON> 32,031
0
0
<OTHER-SE> (212,234)
<TOTAL-LIABILITY-AND-EQUITY> 2,036,079
<SALES> 392,839
<TOTAL-REVENUES> 393,899
<CGS> 215,220
<TOTAL-COSTS> 825,526
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56,534
<INCOME-PRETAX> (488,161)
<INCOME-TAX> 0
<INCOME-CONTINUING> (488,161)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (488,161)
<EPS-BASIC> (.20)
<EPS-DILUTED> (.20)
</TABLE>
