SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period JANUARY 31, 2000
----------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission file number 0-7642
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MEGADATA CORPORATION
--------------------
(Exact name of registrant as specified in its charter)
NEW YORK 11-2208938
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
47 ARCH STREET, GREENWICH, CONNECTICUT 06830
- -------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 629-8757
----------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------
======================================================================
There were 2,511,600 shares of common stock with a par
value of $0.01 per share outstanding at March 14, 2000.
<PAGE>
INDEX
MEGADATA CORPORATION AND SUBSIDIARIES
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - January 31, 2000
and October 31, 1999. 3
Consolidated statements of income - Three
months ended January 31, 2000 and 1999. 4
Consolidated statements of cash flows - Three months
ended January 31, 2000 and 1999. 5
Notes to condensed consolidated financial
statements - January 31, 2000 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 12
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
MEGADATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, OCTOBER 31,
(UNAUDITED)
2000 1999
-------------- ----------------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 233,662 $ 299,276
Accounts receivable 228,855 85,237
Inventories 522,776 448,630
Prepaid expenses and other current assets 35,468 62,002
----------- -----------
Total current assets 1,020,761 895,145
Property, plant and equipment, net 69,579 72,785
PASSUR network, net 693,896 581,525
Other assets 26,701 23,410
----------- -----------
$ 1,810,937 $ 1,572,865
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 202,386 $ 36,923
Accrued expenses and taxes 220,170 226,538
Accrued expenses--related parties 45,301 19,303
Notes payable--related party 1,050,000 825,000
Deferred income 177,185 106,670
Installment note payable 20,458 35,340
----------- -----------
Total current liabilities 1,715,500 1,249,774
Notes payable--related party, less current portion 75,000 325,000
Installment note payable, less current portion 20,138 12,945
----------- -----------
1,810,638 1,587,719
Stockholders' equity (deficit):
Common shares--authorized 10,000,000 shares, par value
$.01 per share; issued 3,203,100 shares in 2000 and 1999 32,031 32,031
Additional paid-in capital 2,460,653 2,460,653
Accumulated deficit (875,160) (890,313)
----------- -----------
1,617,524 1,602,371
Less cost of 691,500 common shares held in treasury 1,617,225 1,617,225
----------- -----------
Total stockholders' equity (deficit) 299 (14,854)
----------- -----------
$ 1,810,937 $ 1,572,865
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
MEGADATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED JANUARY 31,
2000 1999
------------------------------
Revenues:
<S> <C> <C>
Net sales $ 467,759 $ 137,308
----------- -----------
Cost and expenses:
Cost of sales 172,788 127,198
Research and development 30,934 30,945
Selling, general and administrative expenses 232,383 224,531
----------- -----------
436,105 382,674
----------- -----------
Income (loss) from operations 31,654 (245,366)
Other income (expense):
Interest income 2,764 491
Interest expense (1,119) (15,150)
Interest expense--related party (26,256) (8,331)
Other income 8,110 --
----------- -----------
Net income (loss) $ 15,153 $ (268,856)
=========== ===========
Net income (loss) per common share--basic
and diluted $ .01 $ (.11)
=========== ===========
Weighted average number of common shares
outstanding--basic 2,511,600 2,511,600
=========== ===========
Weighted average number of common shares
outstanding--diluted 2,688,707 2,511,600
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
MEGADATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED JANUARY 31,
2000 1999
-----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ 15,153 $(268,856)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation 22,716 17,079
Changes in operating assets and liabilities:
Accounts receivable (143,618) (7,422)
Inventories (74,146) (106,460)
Prepaid expenses and other current assets 26,534 1,814
Other assets (3,291) (4,083)
Accounts payable 165,463 68,086
Accrued expenses and other current liabilities 90,145 24,534
--------- ---------
Total adjustments 83,803 (6,452)
--------- ---------
Net cash provided by (used in) operating activities 98,956 (275,308)
CASH FLOWS FROM INVESTING ACTIVITIES
PASSUR network (129,245) --
Capital expenditures (2,636) (3,650)
--------- ---------
Net cash used in investing activities (131,881) (3,650)
CASH FLOWS FROM FINANCING ACTIVITIES
(Payments of) proceeds from notes
payable--related party (25,000) 375,000
Payments of installment note (7,689) (11,179)
Repayments of long-term debt -- (14,095)
--------- ---------
Net cash (used in) provided by financing activities (32,689) 349,726
--------- ---------
Decrease (increase) in cash (65,614) 70,768
Cash--beginning of fiscal year 299,276 17,731
--------- ---------
Cash--at January 31, $ 233,662 $ 88,499
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
MEGADATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JANUARY 31, 2000
1. BUSINESS
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 principal business is the design, manufacture, sale and service of its
PASSUR (Passive Secondary Surveillance Radar) product line consisting of a real
time aircraft monitoring system which incorporates its proprietary PASTRACK
flight tracking software, as well as the delivery of data from such existing
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. 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 SEC; the condensed financial data included herein should be read
in conjunction with that report. In the opinion of the Company, the accompanying
unaudited consolidated financial statements contain all adjustments necessary to
present fairly the consolidated balance sheet of Megadata Corporation at January
31, 2000 and the consolidated results of operations for the three month periods
ended January 31, 2000 and 1999 and the consolidated statements of cash flows
for the three months ended January 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.
<PAGE>
MEGADATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JANUARY 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. In January 2000, Kenneth J. McNamara was
elected President of the Company. The Investor remains Chairman and CEO.
In fiscal 1999, the Investor loaned the Company an additional $1,125,000 in the
aggregate under promissory notes bearing interest at 9% annum and maturing at
various dates from June 30, 2000 to June 30, 2001. The Company made payments of
principal during the fiscal year totaling $175,000 due to the Investor. During
the quarter ended January 31, 2000, the Company made payments of principal
totaling $25,000 due to the Investor. As of January 31, 2000, the notes due to
the Investor totaled $1,125,000 and are secured by the Company's assets.
<PAGE>
MEGADATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JANUARY 31, 2000
4. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)
Effective October 1998, the Company began leasing space from Field Point Capital
Management Company (FPCM), a company 100% owned by the Company's Chairman, at
$1,000 per month rent.
For the year ended October 31, 1999, the Company reimbursed FPCM for services
rendered in the amount of $54,000. For the quarter ended January 31, 2000, the
services rendered by FPCM to the Company were $12,710.
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.
The following table sets forth the computation of basic and diluted earnings per
share pursuant to SFAS 128.
<TABLE>
<CAPTION>
Three Months Ended January 31,
2000 1999
------------------------------
Numerator:
<S> <C> <C>
Net income (loss) for basic and
diluted earnings per common share $ 15,153 $ (268,856)
=========== ===========
Denominator:
Denominator for basic net
income (loss) per common share 2,511,600 2,511,600
Effect of dilutive securities:
Employee and director stock
options and warrants (calculated
under the Treasury Stock Method) 177,107 --
----------- -----------
Denominator for diluted net
income (loss) per common share 2,688,707 2,511,600
=========== ===========
Basic and diluted net income (loss)
per common share $ .01 $ (.11)
=========== ===========
</TABLE>
<PAGE>
MEGADATA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
REVENUE
- -------
Revenue during the three months ended January 31, 2000 increased by
approximately $330,000, or 241%, as compared to the corresponding period ended
January 31, 1999. 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.
Decreases occurred in Radio Modems, Protocol Converters and UNIX Systems.
The Company sold a PASSUR System and completed a PASSUR upgrade during the first
quarter of fiscal 2000. The Company is building additional PASSURs which it
plans to continue installing at major airports as Company owned units, and from
which it will sell the data they generate directly to airline customers.
Management believes that, with the increased sales and marketing effort for the
PASSUR product line, additional revenues from the sale of products and data
services can be realized in the coming fiscal year.
Management is reviewing product offerings and the performance of product lines
in which revenue has decreased over the last two fiscal years.
COST OF SALES
- -------------
During the quarter ended January 31, 2000, cost of sales increased by
approximately $46,000, or 36%, over the same quarter of 1999. The increase was
primarily due to the higher levels of production offset by lower fixed costs
resulting from the sale of the Company's building as well as from the
capitalization of the cost of production for the Company owned PASSUR network.
The network includes PASSURs and workstations incorporating PASTRACK software
which is being installed at major airports.
RESEARCH AND DEVELOPMENT
- ------------------------
The Company's research and development expenses remained approximately the same
in the first quarter of fiscal 2000 as compared to the same period in fiscal
1999. The Company anticipates continuing to incur research and development
expenditures approximately at current levels. Research and development efforts
include activities associated with the enhancement, and improvement of the
Company's existing hardware and software. There was no customer sponsored
research and development during the first quarter of fiscal 2000.
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE
- -----------------------------------
Selling, general and administrative expenses increased by approximately $8,000,
or 3%, during the first three months of fiscal 2000 as compared to the same
period in fiscal 1999. The Company has continued its intensive sales and
marketing effort. In January 2000, the Company hired a president, who is serving
as chief operating officer, with extensive experience in the aviation industry.
Increases in salaries, professional fees, travel, and advertising expenses were
largely offset by lower consulting fees.
NET INCOME (LOSS)
- -----------------
The Company earned net income of $15,153, or $.01 per common share, during the
three month period ended January 31, 2000. In the same period of fiscal 1999,
the Company generated a net loss of $268,856, or $.11 per common share.
During the quarter ended January 31, 2000, revenue increased 241% while costs
and expenses increased by only 36% resulting in a net income of $15,153. The
revenue from the increase in sales comes largely from the PASSUR product line
and more than offsets the higher operating costs resulting from increased
production levels.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At January 31, 2000, the Company's current liabilities exceeded current assets
by $694,739. Management is addressing this working capital deficiency 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 first quarter of fiscal 2000 and the last two
quarters of fiscal 1999 and a continuation of this trend could lead to sustained
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 continue to
increase, losses may recur. The extent of such profits or losses will be
dependent on the sales volume achieved.
THE YEAR 2000 ISSUE
- -------------------
The Company's internal systems and PASSUR hardware and software have been
reviewed and found to be Year 2000 compliant. Since January 1, 2000, no Year
2000 problems have been reported by users of any of these systems.
MARKET RISKS
- ------------
The Company does not have any significant financial instruments that are
sensitive to market risks.
RISK FACTORS; FORWARD LOOKING STATEMENTS
- ----------------------------------------
The Management's Discussion and Analysis and the information provided elsewhere
in this Quarterly Report on Form 10-Q (including, without limitation, "Liquidity
and Capital Resources" above) contain forward-looking statements regarding the
Company's future plans, objectives, and expected performance. These statements
are based on assumptions that the Company believes are reasonable, but are
subject to a wide range of risks and uncertainties, and a number of factors
could cause the Company's actual results to differ materially from those
expressed in the forward-looking statements referred to above. These factors
include, among others, the uncertainties related to the ability of the Company
to make new sales of its PASSUR and other product lines due to potential
competitive pressure from other companies or other products. Other uncertainties
which could impact the Company are uncertainties with respect to future changes
in governmental regulation affecting the product and its use in flight dispatch.
Additional uncertainties are related to the Company's ability to find and
maintain the personnel necessary to sell, manufacture, and service its products.
<PAGE>
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) The Company did not file any reports on Form 8-K during the three
months ended January 31, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
DATED: MARCH 14, 2000. /s/ G. S. Beckwith Gilbert
--------------------------
G. S. Beckwith Gilbert, Chairman,
and Chief Executive Officer
DATED: MARCH 14, 2000. /s/ Herbert E. Shaver
---------------------
Herbert E. Shaver,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000225628
<NAME> MEGADATA CORP
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-2000
<PERIOD-START> NOV-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 233,662
<SECURITIES> 0
<RECEIVABLES> 228,855
<ALLOWANCES> 0
<INVENTORY> 522,776
<CURRENT-ASSETS> 1,020,761
<PP&E> 3,283,694
<DEPRECIATION> 2,520,219
<TOTAL-ASSETS> 1,810,937
<CURRENT-LIABILITIES> 1,715,500
<BONDS> 0
0
0
<COMMON> 32,031
<OTHER-SE> (31,732)
<TOTAL-LIABILITY-AND-EQUITY> 1,810,937
<SALES> 467,759
<TOTAL-REVENUES> 478,633
<CGS> 172,778
<TOTAL-COSTS> 436,105
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,375
<INCOME-PRETAX> 15,153
<INCOME-TAX> 0
<INCOME-CONTINUING> 15,153
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,153
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
