MEGADATA CORP, 10-K, 2000-01-31

MEGADATA CORP
10-K, 2000-01-31
COMPUTER COMMUNICATIONS EQUIPMENT

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

| X | Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999

| _ | Transition Report Pursuant to
Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required)
for the transition period from ___ to ___

Commission file number 0-7642

MEGADATA CORPORATION
(Exact name of Company as specified in its charter)

NEW YORK 11-2208938
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)

47 ARCH STREET, GREENWICH, CT 06830
(Address of principal executive office) (Zip Code)

Company's telephone number, including area code: 203-629-8757

Securities of the Company registered pursuant to
Section 12(b) of the Act: NONE

Securities of the Company registered
pursuant to Section 12(g)
of the Act:
COMMON SHARES, PAR VALUE $0.01 PER SHARE

Indicate by check mark whether the Company (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 Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of the Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2000 Annual Meeting of
Stockholders (the "Proxy Statement") are incorporated by reference into Part III
of this Form 10K.

The aggregate market value of the voting shares of the Company held by
non-affiliates as at January 20, 2000 was $1,249,713.

The number of common shares, $0.01 par value,
outstanding as at January 20, 2000 was 2,511,600

<PAGE>

PART I

ITEM 1. BUSINESS.

(A) GENERAL DEVELOPMENT OF BUSINESS.

The Company, a New York corporation founded in 1967, sells,
manufactures, and develops hardware and software for its aircraft flight
tracking systems.

The Company's primary product is the PASSUR (Passive Secondary
Surveillance Radar) System. PASSUR is an integrated operations control and
management system used by airlines at their dispatch and station control
centers. In addition, major airports worldwide use the PASSUR as part of an
integrated noise management and monitoring system. The PASSUR system receives
aircraft identification and altitude information from aircraft transponder
transmissions, which are interrogated by existing secondary surveillance radars
without emitting any active signals. Received signals are processed in a
standard workstation and displayed on a high resolution color graphics data
display to provide real-time identification and tracking of aircraft in flight.
The display presentation is similar to that provided to Air Traffic Controllers.
The presentation of flight tracks can be in real time or can be switched to a
mode that permits observance of historical data for selected time periods. A
PASSUR system may be integrated to work with noise monitoring and measuring
equipment in a configuration that will supply a correlation between aircraft
location and noise levels generated by the aircraft. With this real-time
information, an airport noise abatement officer can enforce the law regarding
noise levels emitted by an aircraft. When used as part of an airport noise
monitoring system, airport managers and noise control officers can correlate
noise events in the local community with specific airline flight tracks.

The integrated system is used by major airlines as a unique
anticipatory operations decision making tool. The airlines application was
developed to address a request by a major U.S. airline for use in its flight and
airport operations management. The system tracks all airborne aircraft within a
150 mile radius of the airport. The Company's software, called PASTRACK,
performs ETA (Estimated Time of Arrival) calculations that predict accurately
when arriving aircraft are expected to land. It also detects any holding
patterns, assessing the impact of Air Traffic Control on an airport operation
complex. By using the PASSUR information, an airline's Air Traffic Dispatcher
and Station Manager can more accurately predict arrival times, enhancing
customer service and gate management.

The Company also sells radio modems. The SA-9600 is part of the AGILE
DATA product line for wireless communication of voice and data. The SA-9600
operates synchronously or asynchronously, half or full duplex, with any host
computer with an RS-232C serial port. An optional data compression feature
supports host system baud rates of 38,400 bps when in the asynchronous mode. As
a reliable means of both voice and data transfer, AGILE DATA is marketed
primarily in third-world countries, where existing telephone data services are
either poor or non-existent. The DC-powered SA-9600 enhances its suitability for
mobile applications where 12/24/48vdc power is commonly available. The SA-9600/E
is a modem-only version of the SA-9600 which provides radio data transmission
capability using commonly available, off-the-shelf, external radios of the
customer's choice.

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<PAGE>

The Company's experience with airline communication protocols such as
SABRE, APOLLO, PARS, SITA, SYSTEM ONE, IPARS, DATAS II, PEGASUS, WORLDSPAN,
GEMINI, and other airline network protocols led the Company to develop various
reservation network access products for the airline industry. These include
communication controllers and multiplexers which support multiple Interchange
and Terminal Addresses (IAs & TAs) on a single host communication line, reducing
CRS (Computerized Reservation System) host polling overhead and providing
significant savings on telephone line charges and installation. Other
communication products allow the use of public or private X.25 networks to
transport reservation data to a computer reservation system. The Company has
received certification for airline communication protocol products from the
major airline reservation networks.

In October 1998, the Company announced a Restructuring Plan which
focused the future activities of the Company primarily on its PASSUR line of
passive radar systems.

The Company also began 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.

(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.

Not applicable.

The Company is a supplier of information, data services, software, and
communication products intended to satisfy the needs of the aviation industry,
primarily airlines and their affiliates, and airports. Its principal business is
the design, manufacture, sale and service of its product line consisting of a
real time aircraft monitoring system, as well as the delivery of data from such
existing systems. In addition, the Company provides customized software to its
aviation customers.

1. PRODUCTS.

The Company's software and hardware are utilized in the following
applications:

(i) PASSUR

The Company, under an exclusive license for patented technology owned
by a third party, has used its proprietary hardware and software to develop an
enhanced line of air traffic monitoring systems. This license agreement, which
extends for the life of various patent expirations through the year 2010, is
important in protecting the unique nature of the Company's PASSUR product line.
These PASSUR (Passive Secondary Surveillance Radar) systems receive and process

3
<PAGE>

aircraft identification from aircraft transponder transmissions interrogated by
existing secondary surveillance radars. With this information available in real
time, airline and airport officials can more accurately predict arrival times,
enhancing operational efficiencies, customer service and gate management. Added
benefits include more efficient scheduling of ground support operations, such as
food, baggage, cleaning, and refueling services. When used as part of airport
noise monitoring systems, airport managers and noise abatement officers can
correlate noise events in the local community with specific airline flight
tracks for appropriate action.

(ii) Wireless Modem Communications

The SA-9600 is part of the AGILE DATA product line of wireless radio
modems, which communicate voice and data at speeds up to 28.8K bps. The SA-9600
operates synchronously or asynchronously, half or full duplex, with any host
computer with an RS-232C serial port. Compatibility with the "AT" command set is
built in. No software modification of the host system is necessary for any of
the operating modes. Encryption of transmitted data is available for security
purposes. A data compression feature increases throughput up to four times
(38,400 bps) depending on the type of data transmitted. The new DC-powered
SA-9600 enhances its suitability for mobile applications where 12/24/48vdc power
is commonly available. A modem-only version is also available, allowing the
SA-9600 to be used with off-the-shelf radio equipment that meet existing local
regulatory or customer requirements.

(iii) Airline Reservation Access Systems

The Company's experience with ALC protocols, such as SABRE, SYSTEM ONE,
PARS, IPARS, GEMINI, APOLLO and other airline network protocols has led to the
development of various reservation access products for the airline reservation
industry. Offering multi-user workstations with dual-screen displays and pop-up
windows, MURS and RESNET controllers provide the lowest per-user-station cost in
the industry. They allow up to 32 workstations and 8 printers to be interfaced
to a single reservation system host communication line. MIAC (Multiple
Interchange Address Concentrator) supports many separate interchange addresses
on a single communication line. This increases an airline's CRS (Computerized
Reservation System) efficiency by reducing both host polling overhead and the
number of separate communication lines needed. ALCX.25 allows the use of public
or private X.25 networks to transport reservation data to a computer reservation
system. Configurable for either premise or host site operation, ALCX.25 converts
installed user sites to X.25 without modification to existing user equipment.

(iv) Custom Hardware and Software Activities

The Company is occasionally involved in specialized research and
development projects sponsored and paid for by customers. These projects involve
the customization of the Company's standard products to suit specific customer
requirements.

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<PAGE>

2. SERVICES.

The Company offers maintenance services pursuant to contractual
arrangements or an "on-call" basis. "On-call" services are provided on a time
and material basis.

3. SOURCES OF RAW MATERIALS.

The Company obtains its raw materials from component distributors and
manufacturers throughout the United States. The Company has multiple sources of
supply for a majority of its components.

4. DEPENDENCE ON CERTAIN CUSTOMERS.

During the fiscal year ended October 31, 1999, three (3) customers (a
major continental U.S airport, United Airlines, and Harris, Miller, Miller, and
Hanson) accounted for 66% of revenue. Those three customers accounted for 40%,
13%, and 13%. The loss of any of these customers would have an adverse effect on
the Company's business. During the fiscal year ended October 31, 1998, three (3)
customers accounted for 52% of revenue. Those three PASSUR customers accounted
for 28%, 14%, and 10%. During the fiscal year ended October 31, 1997, three
customers accounted for 63% of the Company's revenue. Those three customers
accounted for 27%, 22%, and 14%.

5. BACKLOG.

The Company's backlog for products and services at October 31, 1999
amounted to approximately $418,000, all of which is scheduled for delivery or
performance before October 31, 2000. The backlog at October 31, 1998 and 1997
amounted to approximately $211,000 and $286,000, respectively. Backlog consists
of written purchase orders or contracts.

6. COMPETITION.

The Company is offering the PASSUR system for passive detection of
aircraft in flight. These products are, to the best of its knowledge, relatively
unique with little competition. Other products, such as the enhanced version of
the wireless radio modems and some airline communication products offered by the
Company fall into the category of highly competitive business. For modems and
communication products, although price is a factor, the Company believes that
design, technical and software capabilities in tailoring its products to
customers' individualized needs are more important competitive factors in the
market to which the Company directs its efforts. Depending on the end use of the
products, the Company's primary competitors include Data Radio, Cylink,
Dimensions International, Motorola, Memorex, and Videcom. The Company also sells
to systems integrators, including Marconi Aerospace Defense Systems, Inc., Sabre
Technologies, and Harris, Miller, Miller & Hanson, who also sell products which
are competitive with those offered by the Company. Most of these companies are
significantly larger than the Company, and have larger sales forces and greater
financial resources.

5
<PAGE>

7. RESEARCH AND DEVELOPMENT.

The Company's Research and Development ("R&D") effort is focused on
enhancing the Company's products primarily for software and hardware
enhancements to PASSUR.

During the fiscal year ended October 31, 1999 the Company incurred
approximately $121,000 in expenditures for R&D, none of which was customer
sponsored. In fiscal year ended October 31, 1998 approximately $122,000 was
expended on R&D and in fiscal year 1997 approximately $147,000 was expended on
R&D.

8. ENVIRONMENTAL COSTS.

The Company is not aware of any environmental issues which would have a
material adverse affect on future capital expenditures or business operations.

9. EMPLOYEES.

As of October 31, 1999, the Company employs 14 full time employees
including 5 officers. As of January 2000, the Company employs 15 full time
employees including 6 officers.

(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES

The following table sets forth the dollar amount and the percentages
attributable to the sale by the Company of its products during the past three
fiscal years in the United States and abroad:

Net
Revenues 1999 1998 1997
- --------- ------------------- ------------------ -------------------

Domestic $1,054,711 95.8% $ 960,408 91.2% $1,306,345 88.3%

Exports 45,930 4.2% 92,835 8.8% 172,607 11.7%

Total
Revenues: $1,100,641 100.0% $1,053,243 100.0% $1,478,952 100.0%
========== ===== ========== ===== ========== =====

6
<PAGE>

ITEM 2. PROPERTIES.

The Company's manufacturing and research facility is located in a
one-story 36,000 square foot building at 35 Orville Drive, Bohemia, New York.
The building was owned by the Company and was sold in October 1999 to an
unaffiliated buyer, and the Company leased back 12,000 square feet at an annual
rental cost of $72,000.

The Company's executive offices are located in a three-story office
building at 47 Arch Street, Greenwich, Connecticut. Effective October 1998, the
Company began leasing space from Field Point Capital Management Company, a
company 100% owned by the Company's Chairman at $1,000 per month rent. The
Company believes these rates are competitive and are at or below market rates.

ITEM 3. LEGAL PROCEEDINGS.

The Company is not aware of any pending legal proceedings to which the
Company or any of its subsidiaries is a party or to which any of their
properties are subject.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

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<PAGE>

PART II

ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

(A) MARKET INFORMATION.

The Company's common shares are traded in the over-the-counter bulletin
board.

The following table sets forth the range of high and low bid and asked
quotations of the Company's common shares for each quarterly period during the
Company's last two fiscal years, as reported by the National Quotation Bureau,
Inc.:

P e r i o d Bid Prices* Asked Prices*
----------- ----------- -------------

High Low High Low
---- --- ---- ---

Fiscal Year Ended October 31, 1999
First Quarter .37 .28 .56 .50
Second Quarter .34 .15 .50 .50
Third Quarter .15 .15 .56 .4375
Fourth Quarter .25 .15 .56 .4375

Fiscal Year Ended October 31, 1998
First Quarter .56 .18 .68 .51
Second Quarter .56 .38 .62 .51
Third Quarter .62 .56 .87 .625
Fourth Quarter .62 .37 .87 .50

- --------------------------------------------------------------------------------
* The quotations represent prices in the over-the counter bulletin board between
dealers in securities, do not include retail markup, markdown, or commission,
and do not necessarily represent actual transactions.

(B) HOLDERS.

The number of equity security holders of record at January 20, 2000 was
309.

The Company has never paid cash dividends on its shares. The Company
does not anticipate paying cash dividends in the foreseeable future.

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<PAGE>

ITEM 6. SELECTED FINANCIAL DATA.

Selected income statement data:
<TABLE>
<CAPTION>

YEAR ENDED OCTOBER 31

1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
Net
<S> <C> <C> <C> <C> <C>
Revenues $ 1,100,641 $ 1,053,243 $ 1,478,952 $ 1,111,961 $ 1,684,525

Net
(Loss) (322,812) (880,749) (54,500) (584,750) (576,553)

Net (Loss) Per
Common Share --
Basic and diluted (1) ($ .13) ($ .35) ($ .03) ($ .36) ($ .36)

Dividend Declared -- -- -- -- --
- ---------------------------------------------------------------------------------------------------

Selected balance sheet data:
OCTOBER 31,
- ---------------------------------------------------------------------------------------------------

1999 1998 1997 1996 1995

Total Assets $ 1,572,865 $ 1,794,990 $ 2,595,296 $ 2,183,896 $ 2,303,722

Long-Term
Debt (2)(3)(4)(5) $ 337,945 $ 625,548 $ 721,036 $ 674,278 $ 770,663

Total Share-
holders' Equity (Deficit) $ (14,854) $ 307,958 $ 1,193,625 $ 657,285 $ 1,242,035
- ---------------------------------------------------------------------------------------------------
<FN>

(1) Net loss per common share was computed using the weighted average number of
common shares outstanding during the period. Conversion of the common
equivalent shares was not assumed since the result would have been
antidilutive.
(2) Company's mortgage loan from Roslyn Savings Bank was due to expire on
February 1, 1996 requiring a balloon payment of $756,000 and was classified
as a current liability at October 31, 1995. The Company was granted an
extension to negotiate a refinancing of the balance due. On May 31, 1996,
Roslyn Savings Bank, the holder of the mortgage, and the Company, signed a
mortgage agreement refinancing the mortgage for five additional years at an
interest rate of 9.250%. The mortgage loan to Roslyn Savings Bank was paid
in full upon the sale of the Company's mortgaged property on October 22,
1999.
(3) Long Term Debt for 1997 included a $100,000 note payable, which was due
after October 31, 1998.
(4) Long Term Debt for 1998 included a $25,000 note payable, and a $37,894
installment note payable, which was due after October 31, 1999.
(5) Long term Debt for 1999 included $325,000 of notes payable, and $12,945 of
installment notes payable, which are due after October 31, 2000.

</FN>
</TABLE>

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<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.

RESULTS OF OPERATIONS

REVENUES

Revenue during fiscal year ended October 31, 1999 ("fiscal 1999") of
$1,100,641 increased by $47,398, or 5%, as compared to the fiscal year ended
October 31, 1998 ("fiscal 1998"). The increase was due to additional revenue
from most PASSUR related sales categories, which were offset by decreases in
non-PASSUR related sales categories. Increases occurred in the following sales
categories: PASSUR Systems, PASSUR Maintenance, PASSUR Upgrades, and
Miscellaneous Sales. Decreases occurred in Service Sales, Radio Modems, Unix
Systems, and Protocol Converters.

The Company's PASSUR sales increased $245,310 during fiscal 1999. The
Company also established a new program, PASSUR subscriptions, to sell monthly
subscriptions for access to a PASSUR data feed. The Company shipped nine and
installed six Company-owned PASSUR systems during the year, which are shown on
the balance sheet as the "PASSUR network", and intends to sell the data to
multiple users. With a record number of PASSUR installations made during fiscal
1999, a majority of them Company owned, management believes the revenue stream
from PASSUR Subscriptions will increase steadily.

Revenue during fiscal 1998 of $1,053,243 decreased by $425,709, or 29%,
as compared to the fiscal year ended October 31, 1997 ("fiscal 1997"). The
decrease was due to a reduction in revenue in most of the sales categories of
the Company. Decreases in revenues occurred in the following sales categories,
PASSUR Systems, Radio Modems, and Protocol Converters. Minor increases in
revenue resulted from PASSUR System maintenance contracts and repairs, as well
as UNIX Systems. During fiscal 1998, Management increased sales and marketing
efforts for the PASSUR product line and de-emphasized non-PASSUR related
products.

COST OF SALES

Cost of sales in fiscal 1999 of $239,145 was lower than in fiscal 1998
by $690,874 despite higher production of PASSUR units, since nine of the units
produced were transferred to fixed assets and therefore did not result as a
charge to cost of sales.

During fiscal 1998, cost of sales of $930,019 increased by $89,994, or
11%, over fiscal 1997. The major component of that increase was an inventory
write-down of approximately $196,000 to reflect management's decision to focus
on the PASSUR Systems product line and write down inventory on hand from several
other slower moving product lines. Cost of sales decreased by approximately
$90,000, before giving affect to the inventory write-down, as a result of lower
revenues during fiscal 1998.

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<PAGE>

RESEARCH AND DEVELOPMENT

The Company's research and development expenses remained at
approximately the same levels, $120,536 in fiscal 1999 and $121,789 in fiscal
1998. Research and development costs were $147,383 in fiscal 1997. The Company
anticipates continuing to incur research and development expenditures at current
levels. Research and development efforts include activities associated with
enhancement and improvement of the Company's existing hardware and software
coupled with customer sponsored research and development expenditures for new
product development. No customer sponsored research and development was
conducted during fiscal 1999 and fiscal 1998. Research and development expenses
are funded through current operations.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenditures of $1,015,448
increased by $381,206, or 60%, during fiscal 1999 as compared to fiscal 1998.
Salaries, professional fees, consulting, travel, and advertising expenses
accounted for most of the increase.

Selling, general and administrative expenditures of $634,242 increased
by $172,301, or 37%, during fiscal 1998 as compared to fiscal 1997, as the
Company significantly increased sales and marketing for its major PASSUR System
product line. Salaries, professional fees, consulting, travel, and advertising
expenses accounted for most of the increase.

RESTRUCTURING CHARGE

In October 1998, the Company announced a Restructuring Plan in which it
focused future efforts primarily on the PASSUR line of passive radar systems. As
part of this restructuring, the Company moved its corporate headquarters and
national sales office to Greenwich, Connecticut. The Company offered for sale
its building in Bohemia, New York. The building was sold in October 1999 to an
unaffiliated buyer, and the Company leased back 12,000 square feet at an annual
rental cost of $72,000.

The Restructuring Charges include idle plant costs of $93,000 related
to the building, severance costs of $53,000, asset write-downs of $24,000
relating to assets to be sold or abandoned, and inventory write-downs of
$196,000 associated with the write down of certain non-strategic inventory and
product lines (which costs are included in costs of sales for fiscal 1998).

INCOME TAXES

The provisions for income taxes for each year relate to state and local
minimum taxes. The Company has available approximately $6,000,000 in tax loss
carryforwards to offset possible future income. The Company also has available
$25,000 in general business tax credit carryforwards. These carryforwards expire
in various amounts from 2006 through 2019.

IMPACT OF INFLATION

In the opinion of management, inflation has not had a material effect
on the operations of the Company including selling prices, capital expenditures,
and operating expenses.

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<PAGE>

NET LOSS

The Company incurred a net loss of $322,812, or $.13 per common share,
during fiscal 1999, or $557,937 and $.22 per share less than the $880,749, or
$.35 per common share loss incurred in fiscal 1998.

During the fiscal year ended October 31, 1999, costs and expenses of
$1,375,129 were higher than total revenue and resulted in a loss from operations
of $274,488. Total costs and expenses decreased by $481,061, or 26%, as compared
to such costs in fiscal 1998 in large part due to the capitalization of the
PASSUR network.

During the fiscal year ended October 31, 1998, costs and expenses of
$1,856,190 were higher than total revenue and resulted in a loss from operations
of $802,947 after a restructuring charge of approximately $170,000 and an
inventory write-down of approximately $196,000.

LIQUIDITY AND CAPITAL RESOURCES

At October 31, 1999, the Company's current liabilities exceeded current
assets by $354,629 and the Company incurred a stockholders' deficit of $14,854.
For the year ended October 31, 1999, the Company incurred a net loss of $322,812
and has used $756,000 of cash in operating activities. Management is addressing
this working capital deficiency, stockholders' deficiency and operating losses
by aggressively marketing its PASSUR systems and by the recent introduction of
the data subscription services. In addition, the Company will attempt to obtain
external financing, and if such external financing is not consummated, the
Company will receive the financial support of one of its stockholders.

The Company was profitable for the last two quarters of fiscal 1999 and
a continuation of this trend could lead to profitability in fiscal 2000 although
no assurances can be provided in this regard. 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
increase, additional losses may occur and could continue. The extent of such
profits or losses will be dependent on sales volume achieved.

CERTAIN TRANSACTIONS

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<PAGE>

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 purchase price 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.

On July 30, 1997, the remaining notes totaling $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 and was paid when due.

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.

In fiscal 1999, the Investor loaned the Company an additional
$1,125,000 in the aggregate under promissory notes bearing interest at 9% per
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. As of October 31, 1999, the total notes payable due to the
Investor totaled $1,150,000 and are secured by the Company's assets.

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.

RISK FACTORS; FORWARD LOOKING STATEMENTS

The Management's Discussion and Analysis and the information provided
elsewhere in this Annual Report on Form 10-K (including, without limitation, in
"Item 1. Business" as well as "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

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<PAGE>

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.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.

See Item 14(a)(1) and (2).

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

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<PAGE>

Form 10-K--Item 14(a)(1) and (2)

Megadata Corporation and Subsidiaries

Index to Consolidated Financial Statements

Reports of Independent Auditors....................................... F - 2

Consolidated Financial Statements:
Balance Sheets..................................................... F - 4
Statements of Operations........................................... F - 5
Statements of Stockholders' Equity (Deficit)....................... F - 6
Statements of Cash Flows........................................... F - 7
Notes to Consolidated Financial Statements......................... F - 8

Schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have
been omitted.

F - 1

<PAGE>

Report of Independent Auditors

Board of Directors and Stockholders
Megadata Corporation and Subsidiaries

We have audited the accompanying consolidated balance sheets of Megadata
Corporation and Subsidiaries as of October 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Megadata Corporation and Subsidiaries at
October 31, 1999 and 1998, and the consolidated results of their
operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the
United States.

/s/ Ernst & Young LLP
---------------------

Melville, New York
January 12, 2000

F - 2

<PAGE>

Independent Auditors' Report

Board of Directors and Stockholders
Megadata Corporation:

We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Megadata Corporation and subsidiaries for
the year ended October 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of their operations
and cash flows of Megadata Corporation and subsidiaries for the year ended
October 31, 1997, in conformity with generally accepted accounting principles.

/s/ Ghassemi, Phoel & Co.
-------------------------
Certified Public Accountants

Lynbrook, New York
January 21, 1998

F - 3

<PAGE>

Megadata Corporation and Subsidiaries

Consolidated Balance Sheets

OCTOBER 31
1999 1998
------------ -----------
ASSETS
Current assets:
<S> <C> <C>
Cash $ 299,276 $ 17,731
Accounts receivable 85,237 35,341
Inventories 448,630 266,916
Prepaid expenses and other current assets 62,002 58,931
----------- -----------
Total current assets 895,145 378,919

Property, plant and equipment, net 72,785 1,382,745
PASSUR network, net 581,525 --
Other assets 23,410 33,326
----------- -----------
$ 1,572,865 $ 1,794,990
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 36,923 $ 136,016
Accrued expenses and taxes 226,538 354,439
Accrued expenses--related parties 19,303 13,898
Notes payable--related party 825,000 175,000
Deferred income 106,670 90,519
Installment notes payable 35,340 33,230
Current portion of long-term debt -- 58,382
----------- -----------
Total current liabilities 1,249,774 861,484

Notes payable--related party, less current portion 325,000 25,000
Installment notes payable, less current portion 12,945 37,894
Long-term debt -- 562,654
----------- -----------
1,587,719 1,487,032
Stockholders' equity (deficit):
Common shares--authorized 10,000,000 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
(Deficit) retained earnings (890,313) (567,501)
----------- -----------
1,602,371 1,925,183
Less cost of 691,500 common shares held in treasury 1,617,225 1,617,225
----------- -----------
Total stockholders' equity (deficit) (14,854) 307,958
----------- -----------
$ 1,572,865 $ 1,794,990
=========== ===========

</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F - 4

<PAGE>

Megadata Corporation and Subsidiaries

Consolidated Statements of Operations

YEAR ENDED OCTOBER 31
1999 1998 1997
----------- ----------- -----------
Revenues:
<S> <C> <C> <C>
Net sales $ 1,100,641 $ 1,053,243 $ 1,478,952
----------- ----------- -----------

Cost and expenses:
Cost of sales 239,145 930,019 840,025
Research and development 120,536 121,789 147,383
Selling, general and administrative expenses 1,015,448 634,242 461,941
Restructuring charge -- 170,140 --
----------- ----------- -----------
1,375,129 1,856,190 1,449,349
----------- ----------- -----------

(Loss) income from operations (274,488) (802,947) 29,603

Other income (expense):
Interest income 2,738 7,301 5,932
Interest expense (58,600) (61,714) (67,537)
Interest expense--related party (80,037) (15,000) (21,475)
Other income 13,820 -- --
Gain on sale of building 77,036 -- --
----------- ----------- -----------
Loss before income taxes (319,531) (872,360) (53,477)
Provision for income taxes 3,281 8,389 1,023
----------- ----------- -----------
Net loss $ (322,812) $ (880,749) $ (54,500)
=========== =========== ===========

Net loss per common share--basic and diluted $ (.13) $ (.35) $ (.03)
=========== =========== ===========

Weighted average number of common shares outstanding--basic and
diluted 2,511,600 2,511,600 1,903,267
=========== =========== ===========

</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F - 5

<PAGE>

Megadata Corporation and Subsidiaries

Consolidated Statement of Stockholders' Equity (Deficit)

Years Ended October 31, 1997, 1998, 1999

COMMON
SHARES AFTER
DEDUCTING
TREASURY STOCK COMMON ADDITIONAL RETAINED LESS SHARES TOTAL
SHARES PAID-IN EARNINGS HELD IN TREASURY STOCKHOLDERS'
AMOUNT CAPITAL (DEFICIT) EQUITY
----------------- ----------- ---------------- --------------- ----------------- --------------

<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1996 1,611,600 $23,031 $1,883,731 $367,748 $1,617,225 $657,285
Proceeds from issuance
of common stock 900,000 9,000 581,840 - - 590,840
Net loss - - - (54,500) - (54,500)
----------------- ----------- ---------------- --------------- ----------------- --------------
Balance at October 31, 1997 2,511,600 32,031 2,465,571 313,248 1,617,225 1,193,625
Fees in connection with
issuance of common stock - - (4,918) - - (4,918)
Net loss
- - - (880,749) - (880,749)
----------------- ----------- ---------------- --------------- ----------------- --------------
Balance at October 31, 1998 2,511,600 32,031 2,460,653 (567,501) 1,617,225 307,958
Net loss - - - (322,812) - (322,812)
----------------- ----------- ---------------- --------------- ----------------- --------------
Balance at October 31, 1999 2,511,600 $ 32,031 $2,460,653 $ (890,313) $ 1,617,225 $ (14,854)
================= =========== ================ =============== ================= ==============

</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F - 6

<PAGE>

Megadata Corporation and Subsidiaries

Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>

YEAR ENDED OCTOBER 31
1999 1998 1997
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss $ (322,812) $ (880,749) $ (54,500)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation / amortization 74,416 68,103 63,335
Gain on sale of building (77,036) -- --
Loss on disposal of fixed assets -- 11,594 --
Changes in operating assets and liabilities:
Accounts receivable (49,896) 264,245 (207,731)
Inventories (181,714) 181,859 (49,133)
Prepaid expenses and other current assets (3,071) 28,630 (18,979)
Other assets 9,916 (11,438) --
Accounts payable (99,093) (19,973) 18,622
Accrued expenses and other current liabilities (106,345) 99,044 (54,271)
----------- ----------- -----------
Total adjustments (432,823) 622,064 (248,157)
----------- ----------- -----------
Net cash used in operating activities (755,635) (258,685) (302,657)
----------- ----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES
PASSUR network (584,214) -- --
Capital expenditures (33,464) (21,141) (5,633)
Proceeds from sale of building, net 1,360,608 -- --
----------- ----------- -----------
Net cash provided by (used in) investing activities 742,930 (21,141) (5,633)
----------- ----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in other assets--deferred mortgage cost
-- -- 5,878
Proceeds from (payments of) notes
payable--related party 950,000 -- (36,883)
(Payments of) proceeds from installment note (34,714) 37,122 (3,852)
Repayments of long-term debt (621,036) (53,242) (48,556)
Proceeds from sale of shares, net -- -- 590,840
Payment of fees in connection with stock sale -- (4,918) --
----------- ----------- -----------
----------- ----------- -----------
Net cash provided by (used in) financing activities 294,250 (21,038) 507,427
----------- ----------- -----------

Increase (decrease) in cash 281,545 (300,864) 199,137
Cash--beginning of year 17,731 318,595 119,458
----------- ----------- -----------
Cash--end of year $ 299,276 $ 17,731 $ 318,595
=========== =========== ===========

SUPPLEMENTAL CASH FLOW INFORMATION
Acquisition of equipment financed
with notes payable $ 11,875 $ 22,410 $ --

Cash paid during the year for:
Interest $ 123,147 $ 79,103 $ 84,412
Income taxes 438 1,456 2,360

</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F - 7

<PAGE>

Megadata Corporation and Subsidiaries

Notes to Consolidated Financial Statements

October 31, 1999

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

Megadata Corporation (the "Company") is a supplier of information, data
services, software, and communication products intended to satisfy the needs of
the aviation industry, primarily airlines and their affiliates, and airports.
Its product line includes: PASSUR (Passive Secondary Surveillance Radar) systems
which monitor air traffic in real time: SA9600 Wireless Radio Modems: 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.

BASIS OF PRESENTATION

At October 31, 1999, the Company's current liabilities exceeded current assets
by approximately $355,000 and the Company incurred a stockholders' deficit of
approximately $15,000. For the year ended October 31, 1999, the Company incurred
a net loss of approximately $323,000 and has used $756,000 of cash in operating
activities. Management is addressing this working capital deficiency,
stockholders' deficiency and operating losses by aggressively marketing its
PASSUR systems and by the recent introduction of the data subscription services.
In addition, the Company will attempt to obtain external financing, and if such
external financing is not consummated, the Company will receive the financial
support of one of its stockholders.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Megadata
Corporation and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.

F - 8

<PAGE>

Megadata Corporation and Subsidiaries

Notes to Consolidated Financial Statements

October 31, 1999

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.

INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out method) or
market.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are recorded at cost and are depreciated on a
straight-line basis over the estimated useful life. Leasehold improvements are
amortized on a straight-line basis over the useful life of the improvement or
the term of the lease, whichever is shorter.

PASSUR NETWORK

PASSUR network installations are recorded at cost, net of depreciation of $2,689
in fiscal 1999. Depreciation is computed on the straight-line method over the
estimated useful life of the asset, which is estimated at 7 years.

F - 9

<PAGE>

Megadata Corporation and Subsidiaries

Notes to Consolidated Financial Statements

October 31, 1999

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

IMPAIRMENT OF LONG-LIVED ASSETS

The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." This standard establishes the
accounting for the impairment of long-lived assets, certain identifiable
intangibles and the excess of cost over net assets acquired, related to those
assets to be held and used in operations, whereby impairment losses are required
to be recorded when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS No. 121 also addresses the accounting for long-lived
assets and certain identifiable intangibles that are expected to be disposed of.

REVENUE RECOGNITION POLICY

The Company recognizes revenue when products are shipped. Service and
maintenance revenues are recognized on a straight-line basis over the service
contract period. Revenue for data subscription services are recognized pursuant
to the specific arrangements with the customer and upon their receipt of the
data.

INCOME TAXES

The Company and its subsidiaries file a consolidated Federal income tax return.
The Company uses the liability method in accounting for income taxes in
accordance with SFAS No. 109, "Accounting for Income Taxes." Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities, and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.

F - 10

<PAGE>

Megadata Corporation and Subsidiaries

Notes to Consolidated Financial Statements

October 31, 1999

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RESEARCH AND DEVELOPMENT COSTS

Research and development costs are charged to operations as incurred.

NET LOSS/INCOME PER COMMON SHARE INFORMATION

The Company reports basic and diluted net loss/income per common share in
accordance with the Financial Accounting Standards Board Statement No. 128,
"Earnings Per Share." Net loss per common share was computed using the weighted
average number of common shares outstanding during the period. Conversion of the
common equivalent shares was not assumed since the result would have been
antidilutive.

DEFERRED INCOME

Deferred income includes advances received on maintenance agreements and
deposits from customers for equipment that will be shipped in the next fiscal
year.

RECLASSIFICATIONS

Certain fiscal 1998 and 1997 amounts in the consolidated financial statements
have been reclassified to conform to the current year's presentation.

F - 11

<PAGE>

Megadata Corporation and Subsidiaries

Notes to Consolidated Financial Statements

October 31, 1999

2. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following:

OCTOBER 31
1999 1998
------------------- -----------------

Prepaid real estate taxes $ -- $ 32,206
Real estate tax escrow receivable 33,382 --
Prepaid insurance 23,546 22,215
Other current assets 5,074 4,510
------------------- -----------------
$ 62,002 $ 58,931
=================== =================

3. INVENTORIES

Inventories are summarized as follows:

OCTOBER 31
1999 1998
------------------- -----------------

Parts and raw materials $ 160,141 $ 69,071
Work-in-process 54,308 74,632
Finished goods 234,181 123,213
------------------- -----------------
$ 448,630 $ 266,916
=================== =================

F - 12

<PAGE>

Megadata Corporation and Subsidiaries

Notes to Consolidated Financial Statements

October 31, 1999

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>

ESTIMATED
USEFUL OCTOBER 31
LIVES 1999 1998
------------------ -------------- --------------

<S> <C> <C> <C>
Land $ - $ 200,000
Building 31.5 years - 1,780,000
Building/leasehold improvements 3-5 years 76,818 66,670
Factory equipment 5-10 years 2,292,337 2,279,846
Furniture, fixtures and improvements 5-10 years 198,443 113,158
-------------- --------------
-------------- --------------
2,567,598 4,439,674
Less accumulated depreciation
and amortization
2,494,813 3,056,929
-------------- --------------
$ 72,785 $ 1,382,745
============== ==============

</TABLE>

The Company recorded depreciation and amortization expense on the assets
included in property, plant and equipment of $71,727, $68,103, and $63,335 for
the years ended October 31, 1999, 1998 and 1997, respectively.

5. ACCRUED EXPENSES AND TAXES

Accrued expenses and other current liabilities consist of the following:

OCTOBER 31
1999 1998
---------------- -----------------

Accrued payroll, payroll taxes
and benefits $ 75,794 $ 50,904
Accrued professional fees 50,200 34,000
Accrued restructuring charge - 167,485
Other accrued liabilities 100,544 102,050
---------------- -----------------
$ 226,538 $ 354,439
================ =================

F - 13

<PAGE>

Megadata Corporation and Subsidiaries

Notes to Consolidated Financial Statements

October 31, 1999

6. NOTES PAYABLE--RELATED PARTY

During the period between September 18, 1996 and June 6, 1997 the Company signed
agreements with Mr. Gilbert (the "Investor"), now the Company's Chairman and
Chief Executive Officer, 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 purchase price 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.

On July 30, 1997, the remaining notes totaling $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 and
was paid when due.

F - 14

<PAGE>

Megadata Corporation and Subsidiaries

Notes to Consolidated Financial Statements

October 31, 1999

6. NOTES PAYABLE--RELATED PARTY (CONTINUED)

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.

In fiscal 1999, the Investor loaned the Company an additional $1,125,000 in the
aggregate under promissory notes bearing interest at 9% per 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. As of
October 31, 1999, the total notes payable due to the Investor totaled $1,150,000
and are secured by the Company's assets.

7. LEASES

Beginning in October 1999, the Company's manufacturing and research and
development facility is located in leased space in Bohemia, New York, under a
lease which expires in October 2002. Minimum rent under this agreement
approximates $72,000 per year. This lease provides for additional payments of
real estate taxes and other operating expenses over the minimum rental amount
and has a renewal option for an additional three years at annual amounts in
excess of the minimum annual rental per the original agreement.

8. RESTRUCTURING RELATED CHARGES

In October 1998, the Company announced a Restructuring Plan which focused the
future activity of the Company primarily on its PASSUR line of passive radar
systems. As part of this restructuring, the Company moved its corporate
headquarters and national sales office to Greenwich, Connecticut. The Company
had offered for sale its building in Bohemia, New York and such sale was
consummated in October 1999.

F - 15

<PAGE>

Megadata Corporation and Subsidiaries

Notes to Consolidated Financial Statements

October 31, 1999

8. RESTRUCTURING RELATED CHARGES (CONTINUED)

The Restructuring Charges include exit costs of $93,000 related to the building,
severance costs of $53,000, asset write-downs of $24,000 relating to assets to
be sold or abandoned, and inventory write-downs of $196,000 associated with the
elimination of certain nonstrategic inventory and product lines (which costs are
included in cost of sales for the year ended October 31, 1998).

9. INSTALLMENT NOTES PAYABLE

Installment notes payable represent notes due on financing of insurance premiums
and equipment purchases bearing interest at 8.25%, 12.5%, and 13.6% per annum,
with the final payments due November 2000, August 2001, and October 2002,
respectively.

10. INCOME TAXES

The Company's provision for income taxes in each year consists of current state
and local taxes.

At October 31, 1999, the Company has available a federal net operating loss
carryforward of approximately $6,000,000 for income tax purposes which will
expire in various years from 2006 through 2019. The Company has $25,000 of
general business tax credit carryforwards available which expire in various
years through 2008. The Company has provided a full valuation allowance on the
net deferred tax asset which primarily consists of the net operating loss
carryforwards and tax credit available.

F - 16

<PAGE>

Megadata Corporation and Subsidiaries

Notes to Consolidated Financial Statements

October 31, 1999

11. STOCK OPTIONS

The Company's stock option plans provide for the granting of stock options for
up to 302,500 shares of the Company's Common Stock. The option price per share
is the fair market value at date of grant, except on the issuance of
non-qualified options in which the option price is not less than 85% of the fair
market value of the shares. Options granted may be exercised up to a maximum of
ten years from the date of grant; however, individuals who own more than 10% of
the Company's Common Stock must exercise their options within five years of the
date of the grant and these options are exercisable at 110% of the fair market
value of the shares.

SFAS No. 123 "Accounting for Stock-Based Compensation", defines a fair value
method of accounting for the issuance of stock options and other equity
instruments. Under the fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
service period, which is usually the vesting period. Pursuant to SFAS No. 123,
companies are encouraged, but are not required, to adopt the fair value method
of accounting for employee stock-based transactions. Companies are also
permitted to continue to account for such transactions under Accounting
Principals Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB Opinion No. 25") but are required to disclose in a note to the
consolidated financial statements proforma net income and per share amounts as
if the Company had applied the new method of accounting. SFAS No. 123 also
requires increased disclosures for stock based compensation arrangements.

The Company has elected to comply with APB Opinion No. 25 and related
interpretations in accounting for its stock options because the alternate fair
value accounting provided for under SFAS No. 123 requires use of option
valuation models which were not developed for use in valuing employee stock
options. Under APB Opinion No. 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.

F - 17

<PAGE>

Megadata Corporation and Subsidiaries

Notes to Consolidated Financial Statements

October 31, 1999

11. STOCK OPTIONS (CONTINUED)

In accordance with SFAS No. 123, pro forma information regarding net (loss) and
net (loss) per common share has been determined as if the Company had accounted
for its employee stock options under the fair value method of that Statement.
The fair value for these stock options was estimated at the date of grant, using
a Black Scholes option pricing model with the following weighted average
assumptions for 1999, 1998, and 1997, respectively: risk-free interest rates of
5.0%, no dividend yields on the Common Stock, volatility factors of the expected
market price of the Company's Common Stock of 1.217 in fiscal 1999 and 1.029 in
fiscal 1998 and 1997, and a 9 year weighted average expected life of the
options.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. In
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options due to changes in
subjective input assumptions which may materially affect the fair value
estimate, and because the Company's employee stock options have characteristics
significantly different from those of traded options.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information is as follows:

Year Ended October 31,
1999 1998
----------- ----------

Pro forma net (loss) ($324,000) ($902,000)
=========== ==========
Pro forma net (loss)
per common share--basic and diluted
$ (.13) $ (.36)
=========== ==========

F - 18

<PAGE>

Megadata Corporation and Subsidiaries

Notes to Consolidated Financial Statements

October 31, 1999

11. STOCK OPTIONS (CONTINUED)

Information with respect to options during the years ended December 31, 1999,
1998 and 1997 under SFAS No. 123 is as follows:
<TABLE>
<CAPTION>

1999 1998 1997
---------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C>
Options outstanding--beginning of year
52,500 $ .38 25,000 $1.35 25,000 $1.35
Incentive options granted 167,500 $ .15 60,000 .38 - -
Options canceled and expired - - (32,500) (1.13) - -
--------- ---------- -------- ------- -------- ------
Options outstanding--
end of year 220,000 $ .20 52,500 $ .38 25,000 $1.35
========= ========== ========= ====== ======== ======
Options exercisable at
end of year 52,500 $ .38 52,500 $ .38 25,000 $1.35
========== ====== ======
========= ========= ========
Weighted average fair value per share
of options granted during the year
$.14 $.35
========= =========
</TABLE>

Exercise prices for stock options outstanding and for options exercisable as of
October 31, 1999 were as follows:

NUMBER NUMBER RANGE OF
OF OPTIONS OUTSTANDING OF OPTIONS EXERCISE
EXERCISABLE PRICES
- ------------------------ ------------------------- -------------------------
52,500 52,500 $.38
167,500 -- $.15
- ------------------------ ------------------------- -------------------------
220,000 52,500 $ .15-.38
======================== ========================= =========================

The weighted average remaining contractual life of the above-described stock
options is 9 years.

F - 19

<PAGE>

Megadata Corporation and Subsidiaries

Notes to Consolidated Financial Statements

October 31, 1999

11. STOCK OPTIONS (CONTINUED)

Shares of common stock reserved for future issuance as of October 31, 1999 are
as follows:

NUMBER
OF SHARES
---------------------

Stock options 302,500
Warrants issued 500,000
---------------------
802,500
=====================

12. MAJOR CUSTOMERS

During the year ended October 31, 1999, three customers accounted for
approximately 40%, 13%, and 13% of revenues. During the year ended October 31,
1998, three customers accounted for approximately 28%, 14%, and 10% of revenues.
During the year ended October 31, 1997, three customers accounted for 27%, 22%,
and 14% of revenues. The Company had export sales of approximately $46,000,
$93,000 and $173,000 in fiscal 1999, 1998, and 1997, respectively.

13. RELATED PARTY TRANSACTIONS

For the years ended October 31, 1998 and 1997, the Company reimbursed Datatab,
Inc., a subsidiary of Data Probe, Inc., which is majority owned by the Company's
former president, $47,683 and $65,763, respectively, for services rendered to
the Company by an employee of Datatab, Inc.

For the year ended October 31, 1999, the Company reimbursed Field Point Capital
Management Company, a company 100% owned by the Company's Chairman, for
services rendered in the amount of $54,000.

Effective October 1998, the Company began leasing space from Field Point Capital
Management Company at $1,000 per month rent.

F - 20

<PAGE>

Megadata Corporation and Subsidiaries

Notes to Consolidated Financial Statements

October 31, 1999

14. ROYALTY AGREEMENT

During March 1997, the Company entered into a license agreement whereby the
Company was granted the exclusive right and license worldwide to manufacture and
sell PASSUR systems for use with airline dispatch arrangements and in other
aircraft flight tracking. The Company was also granted an exclusive license to
sell PASSUR systems for noise applications in the United States. The company
pays a royalty based on the number of PASSUR systems installed subject to a
minimum annual royalty of $50,000. This license agreement is in effect until the
date of expiration of the last PASSUR patent to expire.

During October 1999, that license agreement was amended primarily with respect
to when additional royalties would be earned and payable by the Company for new
installations of Company owned systems assuming the minimum annual royalty
payment required has been earned by other installations. Under the Agreement,
these additional royalties are earned and payable based only upon a percentage
of the revenue received from each Company owned installation.

15. YEAR 2000 (UNAUDITED)

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.

16. SUBSEQUENT EVENT

Subsequent to fiscal year end, the Company hired a President who is serving as
the Company's Chief Operating Officer. The newly named President was granted
75,000 qualified options and 225,000 nonqualified options to purchase shares of
the Company's Common Stock. The qualified options vest over a three year period
while the nonqualified options vest over a two year period.

F - 21

<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.

(a) Identification of Directors.

DIRECTOR POSITION AND OFFICES
NAME AGE SINCE WITH COMPANY
- ---- --- ----- -----------------------------

G.S. Beckwith Gilbert 57 1997 Chairman of the Board,
President*, Chief
Executive
Officer, and a Director

Richard R. Schilling, Jr. 74 1974 Director

Yitzhak N. Bachana 66 1976 Director

John R. Keller 59 1997 Executive Vice President,
and a Director

Bruce N. Whitman 66 1997 Director

Paul L. Graziani 42 1997 Director
- --------------------------------------------------------------------------------

Each director is elected to serve until the succeeding annual meeting of
shareholders and until his successor is duly elected and qualifies.

Pursuant to an agreement between Data Probe, Inc. and the Company, dated May 7,
1976, the President of Data Probe, Inc.,Yitzhak N. Bachana,is to be nominated as
a management nominee for director.

* Effective January 3, 2000, the Company hired Kenneth J. McNamara as President
and Chief Operating Officer. Mr. Gilbert will remain Chairman and Chief
Executive Officer of the Company.

39
<PAGE>

(b) Identification of Executive Officers.

Officer Position and Offices
Name Age Since With Company

G. S. Beckwith Gilbert 57 1998 Chairman of the Board, President*,
Chief Executive Officer,
and a Director

John R. Keller 59 1970 Executive Vice President, Secretary,
Treasurer, and a Director

Dr. James A. Cole 59 1988 Senior Vice President of Research &
Development

James T. Barry 38 1998 Vice President, Marketing

Herbert E. Shaver 45 1993 Controller and Assistant Secretary
- --------------------------------------------------------------------------------

Each officer is elected to serve at the discretion of the Board of Directors.

* Effective January 3, 2000, the Company hired Kenneth J. McNamara as President
and Chief Operating Officer. Mr. Gilbert will remain Chairman and Chief
Executive Officer of the Company.

None.

(d) Family Relationship.

None.

(e) Business Experience.

The following sets forth the business experience during the past five years of
each director and executive officer;

G.S. Beckwith Gilbert Mr. Gilbert was elected Chairman of the Board in 1997
and was elected to the additional posts of President
and Chief Executive Officer in October of 1998. In
addition, Mr. Gilbert has been President and Chief
Executive Officer of Field Point Capital Management
Company, a merchant banking firm, since 1988. He is
a partner of Wolsey & Co., a merchant banking firm.
Mr. Gilbert is also a Director and Chairman of the
Executive Committee of DIANON Systems, Inc., as well
as a Director of Davidson Hubeny Brands.

40
<PAGE>

Kenneth J. McNamara Mr. McNamara joined Megadata as President and Chief
Operating Officer on January 3, 2000. From 1994 to
1999 he was with Rockwell Collins Passenger Systems
(formerly Hughes Avicom International - acquired by
Rockwell in December 1997). He served as its Vice
President and General Manager at Rockwell and as its
President and CEO at Hughes before the sale to
Rockwell. Mr. McNamara is also a Senior Vice President
of Field Point Capital Management Company.

Richard R. Schilling, Jr. Mr. Schilling is a member of the law firm of Burns,
Kennedy, Schilling & O'Shea, New York, New York .

Yitzhak N. Bachana Mr. Bachana was President and Chief Executive Officer
of the Company from 1980 to October 2, 1998. Mr.
Bachana is the President, Chief Executive Officer and
majority shareholder of Data Probe, Inc., a New York
based computer service bureau. Mr. Bachana is also
President and a director of Datatab, Inc. since
1983. Data Probe, Inc. and Datatab, Inc. are
publicly-held corporations.

Bruce N. Whitman Mr.Whitman has been Executive Vice President and a
Director of FlightSafety International since 1962.
He is also a Director of FlightSafety Boeing Training
International, Petroleum Helicopters, Inc., and
Aviall, Inc.

Paul L. Graziani Mr. Graziani is the President and Chief Executive
Officer of Analytical Graphics, Inc., a leading
producer of commercial analysis software for the
space industry.

Dr. James A. Cole Dr. Cole is a Senior Vice President and the
Director of Research and Development of the
Company. Dr. Cole earned a Ph.D. in physics from
Johns Hopkins University in 1966.

John R. Keller Mr. Keller has been with the Company since its
inception in 1967 and currently serves as Executive
Vice President of the Company.

James T. Barry Mr. Barry has been a Vice President since 1998. He
is also a Vice President of Field Point Capital
Management Company. From 1989 to 1998, he was with
DIANON Systems, Inc., most recently as Vice
President of Marketing.

41
<PAGE>

Herbert E. Shaver Mr. Shaver was a consultant to the Company serving
as Controller from September 1993 until September
1998 at which time he became an employee. From
1973 until 1998, Mr. Shaver was a Vice President
and Controller of Datatab, Inc. He has been a
Director of Datatab, Inc. since 1985, and from 1983
until 1998, was the Controller of Data Probe, Inc.

(f) Involvement in Certain Legal Proceedings.

The Company knows of no event which occurred during the past five years and
which is described in Item 401(f) of Regulation S-K relating to any director or
executive officer of the Company.

ITEM 11. EXECUTIVE COMPENSATION.

The Company hereby incorporates by reference into this Item the information
contained under the heading "Executive Compensation" in the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The Company hereby incorporates by reference into this Item the information
contained under the heading "Security Ownership of Certain beneficial Owners and
Management" in the Proxy Statement

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

(a) Transactions with management and others.

During the period between September 18, 1996 and June 6, 1997 the
Company signed agreements with the Investor 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.

42
<PAGE>

On June 6, 1997, the Investor and his affiliates purchased 700,000
shares for $0.71 per share, for a total profit 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.

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. As of January 20, 2000, the total notes payable due to the Investor
totaled $1,150,000 and is secured by the Company's assets.

In fiscal 1996, the Company contracted with Data Probe, Inc., which is
majority owned by the Company's former president, to provide certain research
and development and sales support services through July, 1996. The Company
incurred approximately $60,442 for the year ended October 31, 1996 in
consideration for the aforementioned services.

For the years ended October 31, 1998 and 1997, the Company reimbursed
Datatab, Inc., a subsidiary of Data Probe, Inc., $47,683 and $65,763,
respectively, for services rendered to the Company by an employee of Datatab,
Inc.

On January 16, 1996, the Company signed a promissory note to John R.
Keller, a Vice President of the Company for a $30,000 loan, which was secured by
certain test equipment. The note bore interest at 10% per annum, and was paid in
full on July 16, 1997. Total interest payments for the year ended October 31,
1996 were $2,265. In addition, net loans of $6,883 were made by Yitzhak N.
Bachana, then President, which had no provision for interest and were paid on
demand.

For the year ended October 31, 1999, the Company reimbursed Field Point
Capital Management Company, a company 100% owned by the Company's Chairman, for
services rendered in the amount of $54,000.

Effective October 1998, the Company began leasing space from Field
Point Capital Management Company, a company 100% owned by the Company's
Chairman at $1,000 per month rent.

43
<PAGE>

(b) Certain business relationships.

None.

(d) Transactions with promoters.

Not applicable.

44
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) 1.Financial Statements Page
-------------------------- ----

Included in Part II of this report:

Independent Auditors' Reports F-1

Consolidated balance sheets as at
October 31, 1999 and 1998 F-4

Consolidated statements of
operations for the years ended
October 31, 1999, 1998 and 1997 F-5

Consolidated statements of
stockholders' equity (deficit) F-6

Consolidated statements of cash
flows for the years ended
October 31, 1999, 1998 and 1997 F-7

Notes to consolidated financial
Statements F-8

Schedules for which provision is made in the applicable accounting regulation of
the Securities and Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been omitted.

(b) Reports Filed On Form 8-K

Form 8-K, Dated October 6, 1998

Form 8-K/A, Dated October 28, 1998

45
<PAGE>

EXHIBITS

3.1 Our composite Certificate of Incorporation, dated as of January 24,
1990, is incorporated by reference from our 10-K report for the fiscal
year ended October 31, 1989.

3.2 Certificate of Amendment to our Certificate of Incorporation by
reference to Annex B to our Schedule 14A dated June 23, 1999.

3.3 Our By-laws, dated as of May 16, 1988, are incorporated by reference
from our 10-K report for the fiscal year ended October 31, 1998.

10.1 1988 Bonus Pool Plan, is incorporated by reference from our 10-K report
for the fiscal year ended October 31, 1998.

10.2 The Company's 1988 Stock Option Plan, is incorporated by reference from
our 10-K report for the fiscal year ended October 31, 1998.

10.3 The Company's 1999 Stock Option Plan is incorporated by reference from
our Schedule 14A dated June 23, 1999.

10.4 Severance Agreement with Yitzhak N. Bachana effective October 2, 1998
(incorporated by reference from a Form 8-K, dated October 6, 1998).

10.5 Letter Agreement for employment services, dated December 28, 1999,
between the Company and Ken J. McNamara is filed herewith.

14(a).1 Form 8-K, dated October 6, 1998, is incorporated herein by reference.

16 Change in Certifying Accountant (incorporated by reference from a Form
8-K/A, dated October 28, 1998).

21 List of Subsidiaries (incorporated by reference from our 10-K report
for the fiscal year ended October 31, 1981).

46
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

MEGADATA CORPORATION

DATED: JANUARY 27, 2000. By: /s/ G. S. Beckwith Gilbert
- ------ ----------------- ------------------------------

G. S. Beckwith Gilbert, Chairman
and Chief Executive Officer

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 Company and in
the capacities and on the date indicated:

DATED: JANUARY 27, 2000. /s/ G. S. Beckwith Gilbert
--------------------------

G. S. Beckwith Gilbert, Chairman
and Chief Executive Officer

DATED: JANUARY 27, 2000. /s/ Herbert E. Shaver
---------------------

Herbert E. Shaver, Controller
(Principal Financial and
Accounting Officer)

DATED: JANUARY 27, 2000. /s/ John R. Keller
------------------

John R. Keller,
Executive Vice President
and Director

DATED: JANUARY 27, 2000. /s/ Richard R. Schilling, Jr.
-----------------------------

Richard R. Schilling, Jr.,
Director

DATED: JANUARY 27, 2000. /s/ Yitzhak N. Bachana
----------------------
Yitzhak N. Bachana, Director

DATED: JANUARY 27, 2000. /s/ Bruce A. Whitman
--------------------
Bruce A. Whitman, Director

DATED: JANUARY 27, 2000. /s/ Paul L. Graziani
--------------------
Paul L. Graziani, Director

47
<PAGE>

Exhibit 10.5

December 28, 1999

Mr. Ken McNamara
23 Silver Crescent
Irvine, CA 92612

Dear Ken:

This letter confirms Megadata's proposal of employment to you.

Your position would be President and Chief Operating Officer effective
January 3, 2000 at an annual salary of $140,000, payable every two
weeks. It is understood that from January through October 2000, you
will be providing services as described in Exhibit A attached to this
letter.

Commencing November 1, 2000, you would be working full time out of Greenwich, CT
office or such other place as we mutually agree.

On November 1, 2000, assuming your performance has been satisfactory, your
salary would be increased to $200,000 per annum.

You would receive the normal Megadata fringe benefits offered to employees
located in Connecticut plus a car allowance of $1,500 per month.

You would be elected to serve on Megadata's Board of Directors in July
2000, on a year to year basis, for as long as you are an Executive
Officer of the Company. You will be invited to attend all Board
meetings prior to your election.

It is our expectation that you will be designated CEO of Megadata as soon
as the Board deems appropriate. At that time a compensation package
would be prepared for that position.

Options on Megadata common stock would be granted to you as follows:

a) Qualified ISO pursuant to the plan: 75,000 shares with a three year
vesting of 25,000 shares each year. The first 25,000 shares would
vest on November 30, 2000.

b) Nonqualified: 225,000 shares with a two year vesting of 112,500
shares each year. The first 112,500 shares would vest on November
30, 2000. The second 112,500 shares would vest on November 30, 2001.

c) The options would be priced at market as of the closing
price on the day of the grant which shall be January 3, 2000. If the
stock does not trade on the day of the grant, the price would be the
closing price on the last day on which it was traded prior to the
grant. The options can only vest if you are serving as an Executive
Officer of the Company at the time of vesting.

If you relocate to a mutually acceptable geographic location, Megadata would
grant you a non interest-bearing loan of $150,000 with a term of three years to
facilitate your purchase of a new home, structured pursuant to Section 7872 of

48
<PAGE>

the Internal Revenue Code. The principal shall be due and payable upon the first
to occur of one hundred and eighty (180) days following the termination of your
employment or three (3) years from the date of the loan.

Your moving expenses would also be paid by the company including, without
limitation, the costs of transportation of furniture, household items, other
personal property and automobiles, two (2) round trips by employee, his spouse
and dependents from California to the intended new residence locale of a
duration not to exceed a total of eight (8) days including airfare, overnight
accommodations, meals and local transportation. If you leave the employ of
Megadata prior to twelve months after the relocation, you would repay Megadata
for these reimbursed moving costs.

We look forward to a long and mutually beneficial relationship.

Best personal regards.

Sincerely,

/s/G.S. Bechwith Gilbert
- ------------------------
G.S. Beckwith Gilbert
Chairman and Chief Executive Officer

Accepted:

/s/ K.J. McNamara
- ------------------

Exhibit A
SERVICES AND EXCLUSIVITY OF SERVICES

Except as set forth to the contrary in this Agreement and so long as this
Agreement shall continue in effect, Employee shall (i) devote his full time
business time, energy and ability exclusively to the business, affairs and
interests of Employer and its subsidiaries and matters related thereto, (ii) use
Employee's best efforts and abilities faithfully and diligently to promote the
business, affairs and interests of Employer and its subsidiaries, if any, and
(iii) shall perform the services contemplated by this Agreement in accordance
with the policies established by, and under the direction of, the Board of
Directors of Employer (the "Board"). The forgoing shall not preclude Employee
from: serving as a Senior Vice President of, or in any other capacity with,
Field Point Capital Management Company or any affiliate of such company, or any
shareholder or owner of such company; engaging in civic, charitable or religious
activities; or from serving on boards of directors of companies or organizations
or from managing his private investments, which will not present any conflict of
interest with Employer or affect the performance of Employee's duties pursuant
to this Agreement. The other provisions of this Agreement to the contrary
notwithstanding, Employer acknowledges that for the period commencing on January
3, 2000 and terminating on November 1, 2000, Employer shall only be obligated to
devote three (3) weeks per calender month to the business, affairs and interests
of Employer, and one (1) week of such three (3) weeks' services shall be
performed from and at the Employee's residence in California.

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTEDOPTIONAL
FROM THE FINANCIAL STATEMENTS CONTAINED IN THE BODY OF THE
ACCOMPANYING FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 299,276
<SECURITIES> 0
<RECEIVABLES> 85,237
<ALLOWANCES> 0
<INVENTORY> 448,630
<CURRENT-ASSETS> 895,145
<PP&E> 3,151,812
<DEPRECIATION> 2,497,502
<TOTAL-ASSETS> 1,572,865
<CURRENT-LIABILITIES> 1,249,774
<BONDS> 0
0
0
<COMMON> 32,031
<OTHER-SE> (46,885)
<TOTAL-LIABILITY-AND-EQUITY> 1,572,865
<SALES> 1,100,641
<TOTAL-REVENUES> 1,194,235
<CGS> 239,145
<TOTAL-COSTS> 1,375,129
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 138,637
<INCOME-PRETAX> (319,531)
<INCOME-TAX> 3,281
<INCOME-CONTINUING> (322,812)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (322,812)
<EPS-BASIC> (.13)
<EPS-DILUTED> (.13)

</TABLE>