Page 16 of 16
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, 2000
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 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 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
------- -------
======================================================================
There were 2,511,600 shares of common stock with a par value
of $0.01 per share outstanding at June 14, 2000.
<PAGE>
INDEX
Megadata Corporation and Subsidiaries
Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - April 30, 2000
and October 31, 1999. 3
Consolidated Statements of Operations - Six
months ended April 30, 2000 and 1999. 4
Consolidated Statements of Operations - Three
months ended April 30, 2000 and 1999. 5
Consolidated Statements of Cash Flows - Three months
ended April 30, 2000 and 1999. 6
Notes to Condensed Consolidated Financial
Statements - April 30, 2000 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 12
Part II. Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Page 2 of 16
<PAGE>
<TABLE>
<CAPTION>
Part I. Financial Information
Megadata Corporation and Subsidiaries
Consolidated Balance Sheets
APRIL 30, OCTOBER 31,
2000 1999
-------------- --------------
(UNAUDITED)
ASSETS
Current assets:
<S> <C> <C>
Cash $ 114,256 $ 299,276
Accounts receivable 117,534 85,237
Inventories 626,956 448,630
Prepaid expenses and other current assets 23,481 62,002
----------- -----------
Total current assets 882,227 895,145
Property, plant and equipment, net 90,243 72,785
PASSUR network, net 960,501 581,525
Other assets 22,502 23,410
----------- -----------
$ 1,955,473 $ 1,572,865
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 335,415 $ 36,923
Accrued expenses and taxes 267,216 226,538
Accrued expenses--related parties 38,468 19,303
Notes payable--related party 1,050,000 825,000
Deferred income 126,489 106,670
Installment note payable 23,384 35,340
----------- -----------
Total current liabilities 1,840,972 1,249,774
Notes payable--related party, less current portion 275,000 325,000
Installment note payable, less current portion 8,276 12,945
----------- -----------
2,124,248 1,587,719
Stockholders' deficit:
Common shares--authorized 10,000,000 shares, par value
$.01 per share; issued 3,203,100 shares in 2000 and 1999 32,031 32,031
Additional paid-in capital 2,460,653 2,460,653
Accumulated deficit (1,044,234) (890,313)
----------- -----------
1,448,450 1,602,371
Less cost of 691,500 common shares held in treasury 1,617,225 1,617,225
----------- -----------
Total stockholders' deficit (168,775) (14,854)
----------- -----------
$ 1,955,473 $ 1,572,865
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 3 of 16
<PAGE>
<TABLE>
<CAPTION>
Megadata Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
SIX MONTHS ENDED APRIL 30,
2000 1999
----------- -----------
Revenues:
<S> <C> <C>
Net sales $ 752,215 $ 392,839
----------- -----------
Cost and expenses:
Cost of sales 263,137 254,444
Research and development 61,304 61,107
Selling, general and administrative expenses 538,818 509,975
----------- -----------
863,259 825,526
----------- -----------
Loss from operations (111,044) (432,687)
Other income (expense):
Interest income 3,864 1,060
Interest expense (2,257) (29,972)
Interest expense--related party (52,594) (26,562)
Other income 8,110 --
----------- -----------
Net loss $ (153,921) $ (488,161)
=========== ===========
Net loss per common share--basic
and diluted $ (.06) $ (.19)
=========== ===========
Weighted average number of common shares
outstanding--basic and diluted 2,511,600 2,511,600
=========== ===========
</TABLE>
Page 4 of 16
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
Megadata Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
THREE MONTHS ENDED APRIL 30,
2000 1999
----------- -----------
Revenues:
<S> <C> <C>
Net sales $ 284,456 $ 255,531
----------- -----------
Cost and expenses:
Cost of sales 90,349 127,246
Research and development 30,369 30,162
Selling, general and administrative expenses 306,435 285,444
----------- -----------
427,153 442,852
----------- -----------
Loss from operations (142,697) (187,321)
Other income (expense):
Interest income 1,100 569
Interest expense (1,138) (14,822)
Interest expense--related party (26,338) (18,231)
----------- -----------
Net loss $ (169,073) $ (219,805)
=========== ===========
Net loss per common share--basic
and diluted $ (.07) $ (.09)
=========== ===========
Weighted average number of common shares
outstanding--basic and diluted 2,511,600 2,511,600
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 5 of 16
<PAGE>
<TABLE>
<CAPTION>
Megadata Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
SIX MONTHS ENDED APRIL 30,
2000 1999
--------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $(153,921) $(488,161)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation 51,995 34,159
Changes in operating assets and liabilities:
Accounts receivable (32,297) (6,357)
Inventories (178,326) (169,876)
Prepaid expenses and other current assets 38,521 15,730
Other assets 908 1,333
Accounts payable 298,492 76,898
Accrued expenses and other current liabilities 79,662 (50,106)
--------- ---------
Total adjustments 258,955 (98,219)
--------- ---------
Net cash provided by (used in) operating activities 105,034 (586,380)
CASH FLOWS FROM INVESTING ACTIVITIES
PASSUR network (419,286) --
Capital expenditures (29,143) (45,540)
--------- ---------
Net cash used in investing activities (448,429) (45,540)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of notes
payable--related party (25,000) (75,000)
Proceeds from notes
payable--related party 200,000 825,000
Payments of installment note (16,625) (19,023)
Repayments of long-term debt -- (28,519)
--------- ---------
Net cash provided by financing activities 158,375 702,458
--------- ---------
(Decrease) increase in cash (185,020) 70,538
Cash--beginning of fiscal year 299,276 17,731
--------- ---------
Cash--at January 31, $ 114,256 $ 88,269
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 6 of 16
<PAGE>
Megadata Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
April 30, 2000
1. BUSINESS
Megadata Corporation (the "Company") is a supplier of information, data
services, software, and communication products for the aviation industry,
primarily airlines and their affiliates, and airports. The Company's principal
business is the design, manufacture, sale and service of its Passive Secondary
Surveillance Radar ("PASSUR") product line consisting of a real time aircraft
monitoring system which incorporates the Company's proprietary PASTRACK flight
tracking software. The Company also offers products which deliver data from such
existing systems. The Company has also begun installing Company-owned PASSUR
systems in strategic locations throughout the United States. This network of
PASSURs, referred to as the PASSUR Network, provides the Company's customers
access to PASSUR data by subscription. In addition, the Company provides
customized software to its aviation customers. The Company also sells SA9600
Wireless Radio Modems, MURS, ALCX and RESNET airline reservation access systems.
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, 1999 on Form 10-K
filed with the Securities and Exchange Commission ("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, 2000 and the consolidated
results of operations for the three and six month periods ended April 30, 2000
and 1999 and the consolidated statements of cash flows for the six months ended
April 30, 2000 and 1999.
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, 2000.
3. INVENTORIES
Inventories have been computed using the lower of cost (first-in, first-out
method) or market for the current quarter.
Page 7 of 16
<PAGE>
Megadata Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
April 30, 2000
4. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the period between September 18, 1996 and June 6, 1997 the Company signed
agreements with G.S. Beckwith Gilbert (the "Investor"), who has since been named
Chairman and Chief Executive Officer of the Company (the "Agreements") that
provided for three loans of $100,000 each, of which $200,000 was received by the
Company in 1996 and $100,000 was received by the Company in 1997. The three
notes bore interest at a rate of 9% per annum, and were payable by July 30,
1997. In addition, as part of the above financing, 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 the 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 affiliates purchased 700,000 shares for
$0.71 per share, for a total investment 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, Mr. Whitman and Mr.
Graziani, 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.
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 ("CEO"). In January 2000, Kenneth J.
McNamara was elected President of the Company. The Investor remains Chairman and
CEO.
In fiscal 1999, the Investor loaned the Company an additional $1,125,000 in the
aggregate under promissory notes bearing interest at 9% annum and maturing at
various dates from June 30, 2000 to June 30, 2001. The Company made payments of
principal during the fiscal year totaling $175,000 due to the Investor. During
the six months ended April 30, 2000, the Company made payments of principal
totaling $25,000 due to the Investor. During the six months ended April 30,
2000, the Investor loaned the Company an additional $200,000 in the aggregate
under promissory notes bearing interest at 9% annum and maturing at various
dates from June 30, 2000 to December 31, 2001. As of April 30, 2000, the notes
due to the Investor totaled $1,325,000 and are secured by the Company's assets.
As of June 14, 2000, the notes due to the Investor totaled $1,725,000 and are
secured by the Company's assets.
Page 8 of 16
<PAGE>
Megadata Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
April 30, 2000
4. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)
Effective October 1998, the Company began leasing space from Field Point Capital
Management Company ("FPCM"), a company 100% owned by the Company's Chairman, at
$1,000 per month rent.
For the year ended October 31, 1999, the Company reimbursed FPCM for services
rendered in the amount of $54,000. For the six months ended April 30, 2000, the
services rendered by FPCM to the Company were $25,240.
5. EARNINGS PER SHARE
The Company adopted the provisions of SFAS No. 128, "Earnings Per Share", which
was effective for both interim and annual financial statements for periods
ending after December 31, 1997. SFAS 128 replaced the previously reported
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options and warrants. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented, and where
necessary, restated to conform to SFAS 128 requirements. For all periods
presented, the effect of outstanding stock options and warrants were excluded
from the diluted loss per share computation, as their effect would have been
antidilutive.
Page 9 of 16
<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, 2000 increased by approximately
$359,000, or 91%, as compared to the corresponding period ended April 30, 1999.
This increase was primarily attributable to the sale of a PASSUR System and the
completion of several PASSUR upgrades during the first six months of fiscal
2000. Increases in revenue occurred in the following sales categories: PASSUR
systems, PASSUR maintenance, PASSUR upgrades, and PASSUR data subscription
incorporating the Company's proprietary PASTRACK software. An aggregate decrease
of 69% occurred in revenue from Radio Modems, Protocol Converters and UNIX
Systems for the six months ending April 30, 2000 when compared to the similar
period of 1999.
Revenue during the three months ended April 30, 2000, increased by approximately
$29,000, or 11%, as compared to the corresponding period ended April 30, 1999.
Increases in revenue occurred in the following sales categories: PASSUR data
subscription, PASSUR maintenance, PASSUR upgrades, and Protocol Converters.
Decreases occurred in PASSUR systems, Misc Sales, and Service Revenue.
The Company sold a PASSUR System and completed several PASSUR upgrades during
the first six months of fiscal 2000. The Company is building additional PASSURs,
which it plans to continue installing at major airports as Company owned units,
and from which it will sell the data they generate directly 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
-------------
During the six months ended April 30, 2000, cost of sales increased by
approximately $9,000, or 3%, over the same quarter of 1999. The slight increase
was primarily due to the higher levels of production offset by lower fixed costs
resulting from the sale of the Company's building as well as from the
capitalization of the cost of production for the Company owned PASSUR network.
The network includes PASSURs and workstations incorporating PASTRACK software,
which is being installed at major airports.
Page 10 of 16
<PAGE>
During the quarter ended April 30, 2000, cost of sales decreased by
approximately $37,000, or 29%, over the same quarter of 1999. The decrease was
primarily due to lower fixed costs resulting from the sale of the Company's
building as well as from the capitalization of the cost of production for the
Company owned PASSUR network. The network includes PASSURs and workstations
incorporating PASTRACK software which is being installed at major airports.
RESEARCH AND DEVELOPMENT
------------------------
The Company's research and development expenses remained approximately the same
in the first six months of fiscal 2000 as compared to the same period in fiscal
1999. The Company anticipates continuing to incur research and development
expenditures approximately at current levels. Research and development efforts
include activities associated with the enhancement, and improvement of the
Company's existing hardware and software. There was no customer sponsored
research and development during the first quarter of fiscal 2000.
SELLING, GENERAL AND ADMINISTRATIVE
-----------------------------------
Selling, general and administrative expenses increased by approximately $29,000,
or 6%, during the first six months of fiscal 2000 as compared to the same period
in fiscal 1999. Selling, general and administrative expenses increased by
approximately $21,000, or 7%, during the three months ending April 30, 2000 as
compared to the same period in fiscal 1999 due to an increased sales and
marketing effort.
The Company is continuing its intensive sales and marketing efforts. In January
2000, the Company hired a president, who is serving as chief operating officer,
with extensive experience in the aviation industry. Increases in salaries,
professional fees, travel, and advertising expenses were largely offset by lower
consulting fees.
NET LOSS
--------
The Company reported a net loss of $153,921, or $.06 per common share, during
the six month period ended April 30, 2000. In the same period of fiscal 1999,
the Company generated a net loss of $488,161, or $.19 per common share. The
decrease in the Company's loss was a result of higher revenues generated from
the PASSUR product line.
During the quarter ended April 30, 2000, the Company reported a net loss of
$169,073, or $.07 per common share. In the same period of fiscal 1999, the
Company reported a net loss of $219,805, or $.09 per common share.
Revenue increased 91% while costs and expenses increased by only 5% resulting in
a smaller net loss for the first six months of fiscal 2000 compared to the first
six months of fiscal 1999. The revenue from the increase in sales comes largely
from the PASSUR product line but was not sufficient to offset the higher
operating costs resulting from increased production levels and selling, general
and administrative expenses.
Page 11 of 16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At April 30, 2000, the Company's current liabilities exceeded current assets by
$958,745. Management is addressing this working capital deficiency by
aggressively marketing its PASSUR systems and by the recent introduction of data
subscription services. In addition, the Company will attempt to obtain external
financing, and if such external financing is not consummated, one of the
Company's stockholders has committed to provide financial support.
The Company was unprofitable for the second quarter of fiscal 2000. The Company
was however, profitable for the first quarter of fiscal 2000 and the last two
quarters of fiscal 1999. Since the increased sales effort began in August 1998,
the Company has seen many positive signs that its PASSUR product line could
provide additional revenue. With the Company's decision to establish a network
of Company-owned PASSUR sites, additional revenue could be earned through its
subscription services. However, increased competition, and continued budget
constraints among its clients, could impact this potential revenue.
Interest by potential customers in the Company's PASSUR systems remains strong
and the Company anticipates an increase in future revenue. However, the Company
cannot predict if such revenue will materialize. If sales do not continue to
increase, losses may recur. The extent of such profits or losses will be
dependent on the sales volume achieved.
THE YEAR 2000 ISSUE
-------------------
The Company's internal systems and PASSUR hardware and software have been
reviewed and found to be Year 2000 compliant. Since January 1, 2000, no Year
2000 problems have been reported by users of any of these systems.
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.
Page 12 of 16
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
-----------------------------------------------------------
NONE
Page 13 of 16
<PAGE>
Part II. Other Information
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.
Shareholders at the Company's Annual Meeting on April 11, 2000 voted to:
(1) Elect the following to the Board of Directors:
FOR WITHHOLD
--- --------
G.S. Beckwith Gilbert 2,143,921 1,750
Richard R. Schilling 2,143,921 1,750
Yitzhak N. Bachana 2,142,421 3,250
Bruce N. Whitman 2,143,921 1,750
Paul L. Graziani 2,143,921 1,750
John R. Keller 2,143,721 1,950
(2) Approve the Amendment to the Company's 1999 Stock Incentive Plan which
increases the number of shares available for distribution, and which is
described in more detail in the Company's Proxy.
FOR AGAINST ABSTAIN
--- ------- -------
1,663,254 33,060 6,150
(3) Ratify the appointment of Ernst & Young, LLP, as the Company's
independent public accountants for the fiscal year ended October 31,
2000.
FOR AGAINST ABSTAIN
--- ------- -------
2,142,321 1,400 1,950
ITEM 5. OTHER INFORMATION.
NONE
Page 14 of 16
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 27.1 - Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the three months
ended April 30, 2000
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, 2000. /s/ G. S. Beckwith Gilbert
--------------------------
G. S. Beckwith Gilbert, Chairman,
and Chief Executive Officer
DATED: JUNE 14, 2000. /s/ Peggy A. Arnold
-------------------
Peggy A. Arnold, Vice President
of Finance,
Chief Financial Officer
Page 15 of 16
<PAGE>
