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 JULY 31, 2000
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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
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(Exact name of registrant as specified in its charter)
NEW YORK 11-2208938
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(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
47 ARCH STREET, GREENWICH, CONNECTICUT 06830
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 629-8757
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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There were 2,973,115 shares of common stock with a par
value of $0.01 per share outstanding at September 14, 2000.
<PAGE>
INDEX
Megadata Corporation and Subsidiaries
Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - July 31, 2000
and October 31, 1999. 3
Consolidated Statements of Operations - Nine
months ended July 31, 2000 and 1999. 4
Consolidated Statements of Operations - Three
months ended July 31, 2000 and 1999. 5
Consolidated Statements of Cash Flows - Nine months
ended July 31, 2000 and 1999. 6
Notes to Condensed Consolidated Financial
Statements - July 31, 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 13
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Part I. Financial Information
<TABLE>
<CAPTION>
Megadata Corporation and Subsidiaries
Consolidated Balance Sheets
JULY 31, OCTOBER 31,
2000 1999
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(UNAUDITED)
ASSETS
Current assets:
<S> <C> <C>
Cash $ 51,311 $ 299,276
Accounts receivable 561,673 85,237
Inventories 739,876 448,630
Prepaid expenses and other current assets 19,296 62,002
----------- -----------
Total current assets 1,372,156 895,145
Property, plant and equipment, net 92,293 72,785
PASSUR network, net 1,007,040 581,525
Other assets 18,793 23,410
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$ 2,490,282 $ 1,572,865
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 400,714 $ 36,923
Accrued expenses and taxes 195,335 226,538
Accrued expenses--related parties 26,949 19,303
Notes payable--related party 1,075,000 825,000
Deferred income 109,944 106,670
Installment note payable 17,407 35,340
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----------- -----------
Total current liabilities 1,825,349 1,249,774
Notes payable--related party, less current portion 300,000 325,000
Installment note payable, less current portion 5,319 12,945
----------- -----------
----------- -----------
2,130,668 1,587,719
Stockholders' equity:
Common shares--authorized 10,000,000 shares, par value
$.01 per share; issued 3,669,615 shares in 2000 and
3,203,100 in 1999 36,696 32,031
Additional paid-in capital 3,039,132 2,460,653
Accumulated deficit (1,098,989) (890,313)
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1,976,839 1,602,371
Less cost of 691,500 common shares held in treasury 1,617,225 1,617,225
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Total stockholders' equity (deficit) 359,614 (14,854)
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$ 2,490,282 $ 1,572,865
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</TABLE>
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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<TABLE>
<CAPTION>
Megadata Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
NINE MONTHS ENDED JULY 31,
2000 1999
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Revenues:
<S> <C> <C>
Net sales $ 1,382,241 $ 924,605
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Cost and expenses:
Cost of sales 485,704 401,131
Research and development 99,040 91,337
Selling, general and administrative expenses 930,050 766,253
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1,514,794 1,258,721
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Loss from operations (132,553) (334,116)
Other income (expense):
Interest income 5,080 1,480
Interest expense (3,356) (44,458)
Interest expense--related party (85,956) (51,100)
Other income 8,110 --
----------- -----------
Net loss $ (208,675) $ (428,194)
=========== ===========
Net loss per common share--basic
and diluted $ (.08) $ (.17)
=========== ===========
Weighted average number of common shares outstanding--
basic and diluted 2,563,435 2,511,600
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</TABLE>
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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<TABLE>
<CAPTION>
Megadata Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
THREE MONTHS ENDED JULY 31,
2000 1999
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Revenues:
<S> <C> <C>
Net sales $ 630,026 $ 531,766
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Cost and expenses:
Cost of sales 222,567 146,687
Research and development 37,736 30,230
Selling, general and administrative expenses 391,232 256,278
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651,535 433,195
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(Loss) income from operations (21,509) 98,571
Other income (expense):
Interest income 1,216 420
Interest expense (1,099) (14,486)
Interest expense--related party (33,362) (24,538)
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Net (loss) income $ (54,754) $ 59,967
=========== ===========
Net (loss) income per common share--basic
and diluted $ (.02) $ .02
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Weighted average number of common shares outstanding--
basic and diluted 2,667,105 2,511,600
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</TABLE>
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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<TABLE>
<CAPTION>
Megadata Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
NINE MONTHS ENDED JULY 31,
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (208,675) $ (428,194)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 82,048 51,238
Changes in operating assets and liabilities:
Accounts receivable (476,436) (390,680)
Inventories (291,246) (119,850)
Prepaid expenses and other current assets 42,706 12,679
Other assets 4,617 (12,273)
Accounts payable 363,791 135,571
Accrued expenses and other current liabilities 12,860 (13,743)
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Total adjustments (261,660) (337,058)
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Net cash used in operating activities (470,335) (765,252)
CASH FLOWS FROM INVESTING ACTIVITIES
PASSUR network (490,035) --
Capital expenditures (37,036) (169,329)
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Net cash used in investing activities (527,071) (169,329)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of notes
payable--related party (25,000) (75,000)
Proceeds from notes
payable--related party 800,000 1,075,000
Payments of installment note (25,559) (25,386)
Repayments of long-term debt -- (43,278)
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Net cash provided by financing activities 749,441 931,336
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Decrease in cash (247,965) (3,245)
Cash--beginning of period 299,276 17,731
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Cash--end of period $ 51,311 $ 14,486
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$ 583,144 $ --
NON-CASH FINANCING ACTIVITY
Conversion of notes payable - related
party plus accrued interest for
common stock
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Page 6
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
Megadata Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
July 31, 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 July 31, 2000 and the consolidated
results of operations for the three and nine month periods ended July 31, 2000
and 1999 and the consolidated statements of cash flows for the nine months ended
July 31, 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.
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Megadata Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
July 31, 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 and Chief Operating Officer of the Company. Mr.
McNamara has since left the Company. During the third quarter of fiscal 2000,
Peggy Arnold was elected Vice President of Finance and Chief Financial Officer
and Daniel Puzon was named Director of Government and Airport Sales. 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% 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 to the Investor. During
the nine months ended July 31, 2000,
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Megadata Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
July 31, 2000
4. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)
the Company made payments of principal totaling $25,000 to the Investor. During
the nine months ended July 31, 2000, the Investor loaned the Company an
additional $800,000 in the aggregate under promissory notes bearing interest at
9% per annum and maturing at various dates from June 30, 2000 to December 31,
2001.
At June 30, 2000, the Investor converted principal payments on $550,000 in
promissory notes of the Company plus accrued interest into shares of the
Company's common stock. These promissory notes were originally issued by the
Company during the 1999 fiscal year in exchange for financing provided by the
Investor. The principal payments of $550,000 together with accrued interest in
the amount of $33,144 were converted into 466,515 shares of common stock in the
Company at $1.25 per share. This conversion increased the number of shares
outstanding to 2,978,115 shares.
As of July 31, 2000, the notes due to the Investor totaled $1,375,000 and are
secured by the Company's assets. As of September 14, 2000, the notes due to the
Investor totaled $1,575,000 and are secured by the Company's assets.
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 nine months ended July 31, 2000, the
services rendered by FPCM to the Company were $37,814.
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
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Megadata Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUE
Revenue during the nine months ended July 31, 2000 increased by approximately
$458,000, or 49%, as compared to the corresponding period ended July 31, 1999.
This increase was primarily attributable to the sale of three PASSUR Systems and
the completion of several PASSUR upgrades during the first nine 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. The Company's other
product lines, Radio Modems, Protocol Converters and UNIX Systems, accounted for
3% of total sales during the nine months ending July 31, 2000 when compared to
13% for the similar period of 1999.
Revenue during the three months ended July 31, 2000, increased by approximately
$98,000, or 18%, as compared to the corresponding period ended July 31, 1999.
Increases in revenue occurred in the following sales categories: PASSUR systems,
PASSUR data subscription, PASSUR maintenance, and Protocol Converters. Decreases
occurred in PASSUR upgrades, Miscellaneous Sales, and Service Revenue.
The Company sold three PASSUR Systems and completed several PASSUR upgrades
during the first nine 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 continuously reviewing product offerings and the
performance of product lines in which revenue has decreased.
COST OF SALES
During the nine months ended July 31, 2000, cost of sales increased by
approximately $85,000, or 21%, over the same quarter of 1999. The increase was
primarily due to the sale of the three PASSUR systems offset by lower fixed
costs resulting from the sale of the Company's building as well as from the
lower cost per unit due to the larger number of PASSUR units produced related to
the Company owned PASSUR network. The network includes PASSURs and workstations
incorporating PASTRACK software which are being installed at major airports.
During the quarter ended July 31, 2000, cost of sales increased by approximately
$76,000, or 52%, over the same quarter of 1999. The increase was primarily due
to the sale of the two PASSUR systems offset by lower fixed costs
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resulting from the sale of the Company's building as well as from the lower cost
per unit due to the larger number of PASSUR units produced related to 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 increased by approximately
$8,000, or 8% in the first nine months of fiscal 2000 as compared to the same
period in fiscal 1999. Salary increases accounted for a majority of the
increase. Two additional employees have been hired since the end of the third
quarter of fiscal 2000 to enable the Company to develop significant enhancements
to the PASSUR product line requested by its customers. As a result, research and
development expenses are expected to increase in the fourth quarter the current
fiscal year and in fiscal 2001. 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 activities during the first nine months of fiscal 2000.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased by approximately
$164,000, or 21%, during the first nine months of fiscal 2000 as compared to the
same period in fiscal 1999. Selling, general and administrative expenses
increased by approximately $135,000, or 53%, during the three months ending July
31, 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 April
2000, the Company hired a vice president of finance and a director of government
sales, both with extensive experience in the aviation industry. Increases
occurred in salaries, professional fees, travel, promotion and advertising
expenses for the nine month period ending July 31, 2000 when compared with the
same period of 1999.
NET LOSS
The Company incurred a net loss of $208,675, or $.08 per common share, during
the nine month period ended July 31, 2000. In the same period of fiscal 1999,
the Company incurred a net loss of $428,194, or $.17 per common share. The
decrease in the Company's loss was primarily a result of higher revenues
generated from the PASSUR product line offset by an increase in selling, general
and administrative expenses.
During the quarter ended July 31, 2000, the Company reported a net loss of
$54,754, or $.02 per common share. In the same period of fiscal 1999, the
Company reported a net profit of $59,967, or $.02 per common share.
Revenue increased 49% while costs and expenses increased by only 20% resulting
in a smaller net loss for the first nine months of fiscal 2000 compared to the
first nine 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.
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LIQUIDITY AND CAPITAL RESOURCES
At July 31, 2000, the Company's current liabilities exceeded current assets by
$453,193. 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 continue to obtain
financial support from one of the Company's stockholders or seek external
financing as required.
The Company was unprofitable for the second and third quarter of fiscal 2000 as
a result of higher marketing expenses to handle anticipated sales income. 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 continue. 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.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company does not have any significant financial instruments that are
sensitive to market risks.
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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.
NONE
ITEM 5. OTHER INFORMATION.
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 27.1 - Financial Data Schedule
(b) Form 8-K filed July 20, 2000 as dated June 30, 2000 reporting the
conversion of certain promissory notes of the Company into shares of
common stock of the Company.
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: SEPTEMBER 14, 2000. /s/ G. S. BECKWITH GILBERT
--------------------------
G. S. Beckwith Gilbert, Chairman,
and Chief Executive Officer
DATED: SEPTEMBER 14, 2000. /s/ PEGGY A. ARNOLD
--------------------
Peggy A. Arnold, Vice President of
Finance, Chief Financial Officer
