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, 2007
                                       OR
         | _ | Transition Report Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934
                    for the transition period from ___ to ___

                          Commission file number 0-7642

                              MEGADATA CORPORATION
             (Exact Name of Registrant as Specified in Its Charter)

                 NEW YORK                                  11-2208938
      (State or Other Jurisdiction of                  (I.R.S. Employer
      Incorporation or Organization)                   Identification No.)

   47 ARCH STREET, GREENWICH, CT                               06830
   -----------------------------                               -----
(Address of Principal Executive Office)                     (Zip Code)

        Registrant's telephone number, including area code: 203-622-4086

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

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

Indicate by check mark if the registrant is a well-known seasonded issuer, as
defined in Rule 405 of the Securities Act. YES [ ] NO [X]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Exchange Act. YES [ ] NO [X]

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 [ ]

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 Registrant'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. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of " accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one): Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer
[X]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). YES [ ]   NO [X]

    The aggregate market value of the voting shares of the Registrant held by
               non-affiliates as of April 28, 2007 was $2,890,000

       The number of shares of common stock, $0.01 par value, outstanding
                      as of January 25, 2008 was 4,091,448

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Definitive Proxy Statement for the 2008 Annual
Meeting of Stockholders, to be filed with the Securities and Exchange Commission
within 120 days of October 31, 2007, are incorporated by reference into Part III
of this Form 10-K.

                                      -1-
<PAGE>


                                                      PART I

ITEM 1.  BUSINESS

                       (A) GENERAL DEVELOPMENT OF BUSINESS

COMPANY BACKGROUND

Megadata Corporation (the "Company", "Megadata", "we", "our") is a New York
corporation founded in 1967. The Company, also known by many of its customers as
the PASSUR(R) Company, conducts its business in the United States, Canada,
Europe, and Japan. The Company's offices are located at 47 Arch Street,
Greenwich, CT, 06830 and 35 Orville Drive, Bohemia, New York, 11716.

The Company's principal business is the delivery from its proprietary PASSUR(R)
network of live, unique flight information, decision support software,
analytics, and web-delivered collaborative decision solutions to the aviation
industry and organizations that serve, or are served by, the aviation industry.
The Company owns and operates a unique database of flight information with
proprietary decision-making software, primarily powered by a growing
international network of passive radars (PASSUR(R)s) located at more than 85
airports world-wide, including 33 of the top 35 U.S. airports - from which it
provides PASSUR(R) information, analytics, and decision support tools to improve
the financial condition and operational efficiency of aviation organizations.
The Company offers unique user friendly information as well as decision
algorithms which provide innovative commercial air traffic solutions to more
than 50 airports, including 8 of the top 10 U.S. airports; to dozens of
airlines, including 7 of the top 10 U.S. airlines; and to more than 150
corporate aviation customers, as well to the U.S. Government. In addition, the
company has created and implemented collaborative web-based software that allows
the company's customers to instantly share information to improve individual and
joint decision making, creating additional value for those customers.

The Company has what it believes is a unique database of flight information,
powered by a network of Company-owned passive radars known as PASSUR(R)s which
also incorporate several other data sources. This network, when combined with
our suite of data products, web-based software, and web-based collaborative
decision tools, provides airlines, airports, Corporate Aviation, and the
Government, services that the Company believes are usually otherwise
unavailable. In addition, the Company has created and implemented collaborative
web-based software which allows all of its customers, both industrial and
non-industrial, to instantly share information to improve individual and joint
decision making. The Company continues to market with an expanding internal
sales and marketing organization as well as through premier distributors.

Revenues during Fiscal Year (FY) 2007 increased by approximately 32%, or
$1,384,000 to $5,698,000 from $4,314,000 in FY 2006, while total costs and
expenses in FY 2007 increased by about 26% or $958,000 to $4,694,000 from
$3,736,000 in FY 2006.

FORWARD LOOKING STATEMENTS

The information provided in this Annual Report on Form 10-K (including, without
limitation, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" "Liquidity and Capital Resources" and "Risk Factors"
below) contains "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 regarding the Company's future plans,
objectives, and expected performance. The words "believe," "may," "will,"
"could," "should," "would," "anticipate," "estimate," "expect," "project,"
"intend," "objective," "seek," "strive," "might," "likely result," "build,"
"grow," "plan," "goal," "expand," "position," or similar words, or the negatives
of these words, or similar terminology, identify forward-looking statements.
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 sell data subscriptions from its PASSUR(R) network and to make new
sales of its PASSUR(R) and other product lines (due to potential competitive
pressure from other companies or other products), as well as the current
uncertainty in the aviation industry due to terrorist events, the war on terror,

                                      -2-
<PAGE>

and airline bankruptcies. Other uncertainties which could impact the Company are
uncertainties with respect to future changes in governmental regulation and the
impact that such changes in regulation will have on the Company's business.
Additional uncertainties are related to a) the Company's ability to find and
maintain the personnel necessary to sell, manufacture, and service its products,
b) its ability to adequately protect its intellectual property, c) its ability
to secure future financing and d) its ability to maintain the continued support
of its significant shareholder. Readers are cautioned not to place undue
reliance on these forward-looking statements, which relate only to events as of
the date on which the statements are made and which reflect management's
analysis, judgments, belief, or expectation only as of such date. The Company
undertakes no obligation to publicly update any forward-looking statements for
any reason, even if new information becomes available or other events occur in
the future.

GENERAL

The Company believes financial performance in the aviation industry can be
enhanced by more accurate and timely flight information, analytics, and
collaboration. The Company believes its business opportunities come from
addressing the following specific problem areas in the aviation industry:

1.                  A lack of standardized, timely, accessible, and accurate
                    information in the aviation industry. The business community
                    has come to expect a sophisticated delivery of rich
                    information in other pace-setting industries such as
                    banking, news, and health care.

                    In aviation, valuable information exists, but is
                    compartmentalized among its various constituencies,
                    including government air traffic regulators, airlines,
                    airports, fixed based operators, corporate aviation
                    departments, and passengers. As such, any aviation-related
                    organization must contend with multiple conflicting sources
                    of information (often within the same organization), or a
                    lack of access to the information at all.

                    The Company's business opportunities arise from its ability
                    to market the PASSUR(R) Information Network, a unique
                    integrated database of otherwise hard-to-access or
                    compartmentalized information. The Company believes the
                    information provided by this network is unique, and makes
                    available a standardized comprehensive data set, accessible
                    to all aviation constituencies. The PASSUR(R) passive radar
                    network is integral to this database.

2.                  The aviation industry's lack of a standardized information
                    technology platform for accessing information. Megadata's
                    Web "dashboard" technology creates a single, "one-source"
                    platform for accessing valuable information from the
                    PASSUR(R) Information Network. The Company provides
                    standardized access to the PASSUR(R) database through data
                    feeds, web application software, and collaborative decision
                    making tools.

BUSINESS STRATEGY

Over the past several years, Megadata has been developing and selling
information and software from its unique flight database (powered by the
PASSUR(R) passive radar network) to aviation organizations, and those who serve
aviation. The Company has created and continues to create collaborative
web-based software that allows all of its customers, both industrial and
non-industrial, to instantly share information to improve individual and joint
decision making, creating additional value for both its traditional and new
markets. The main objectives of Megadata's business strategy are to:

         1.    LEAD AND CONTINUE TO DEVELOP THE INDUSTRY STANDARD FOR ACCURATE,
               TIMELY FLIGHT INFORMATION WITH, WHAT WE CONSIDER TO BE, A
               ONE-OF-A-KIND PREMIUM DATABASE - THE PASSUR(R) INFORMATION
               NETWORK(TM). Megadata's flight information is a combination of
               multiple data sets to include information derived from the
               network of passive radars (PASSUR(R)), located throughout the
               country and in different parts of the world. Currently, PASSUR(R)
               coverage is available for 33 of the top 35 airports in the United

                                      -3-
<PAGE>

               States. The Company has 71 Company owned PASSUR(R) systems
               installed worldwide and is continually working to add new
               products to the existing customer base. Leading airlines utilize
               the information and software products derived from the
               Company-owned PASSUR(R) network. For example, airlines use
               Megadata's estimated times of arrival (ETAs) to power their
               internal flight, gate, and reservations systems to improve the
               overall operational efficiency of the airline and to provide more
               reliable customer service.

         2.    LEAD THE DEVELOPMENT OF WEB-BASED APPLICATIONS, POWERED BY THE
               PASSUR(R) INFORMATION NETWORK, TO OUR TRADITIONAL INDUSTRIAL
               AVIATION CUSTOMERS - AIRLINES, AIRPORTS, AND THE GOVERNMENT.
               These organizations set the standard for how flight information
               should be used throughout both the industrial and non-industrial
               markets. These organizations, for whom Megadata has developed
               Web-delivered software services, utilize the PASSUR(R) database
               as their source of information, both live and archived, and as a
               communications and collaborative decision-making platform within
               the industrial sector. For example, numerous airports now use the
               Company's web tools to manage landing fee revenue.

         3.    LEAD THE DEVELOPMENT OF WEB-BASED APPLICATIONS TO THE LARGER,
               NON-INDUSTRIAL AVIATION MARKETPLACE. These organizations include
               corporate security and corporate travel departments, corporate
               flight aviation departments, fixed-based operators (FBOs), travel
               management companies, limousine operators, and other ancillary or
               support organization that require accurate information, whether
               real-time or through historic analysis, to improve their decision
               making. For example, fixed-based operators are using Megadata's
               web reports to refine their marketing efforts related to fuel
               sales to corporate aircraft.

         4.    LEAD THE AVIATION MARKET IN THE DEVELOPMENT AND DELIVERY OF
               COLLABORATIVE WEB SERVICES THAT ORGANIZE WHAT IS CURRENTLY
               FRAGMENTED INFORMATION WITHIN THE INDUSTRIAL AND NON-INDUSTRIAL
               MARKETS. Megadata is creating PASSUR(R) Customer Networks that
               provide a bridge for industrial and non-industrial aviation
               companies, allowing airports, airlines, air traffic
               organizations, and other airport tenants to access live, relevant
               information that helps to improve the overall efficiency of the
               aviation sector. For example, at four of the country's top
               airports, John F. Kennedy International, LaGuardia, Dulles
               International Airports, and Denver International Airport, the
               airlines, the Federal Aviation Administration (the "FAA"),
               airport operations, and FBOs use Megadata's award-winning
               PASSUR(R) OPSnet(TM) Internet Communicator to consolidate,
               organize, and disseminate information, and manage collaborative
               tasks such as aircraft deicing during regular, and particularly
               during irregular, operations.

         5.    DISTRIBUTE THE COMPANY'S SERVICES THROUGH THE PASSUR(R)
               DISTRIBUTION NETWORK OF LEADING AVIATION ORGANIZATIONS AND SYSTEM
               INTEGRATORS. As Megadata expands into new markets, it sells
               through its internal sales and marketing organization as well as
               through premium distributors.

CUSTOMERS AND HOW THEY USE MEGADATA SERVICES

The Company provides its traditional customer base of more than 50 airports,
including some of the largest in the world, as well as dozens of airlines, plus
its non-industrial customer base with the following capabilities which are:

         DESIGNED TO IMPROVE AND MANAGE REVENUE:

         o Web-based landing fee tools that enable airports, airlines, and FBOs
         to manage fees with fewer resources, greater accuracy, greater
         transparency and accountability, and generate additional landing fee
         revenue for airports.

         o Enhanced collaborative decision-making tools that enable airlines to
         maximize schedule completion during irregular operations, thereby
         protecting otherwise lost revenue, and enable airports to realize a
         higher rate of revenue-generating activity, such as landing and related
         handling fees, through higher rates of airport utilization during
         irregular operations.

         o Web-based marketing tools that allow customers to instantly identify
         new marketing opportunities and determine the most appropriate customer
         pricing by accessing the PASSUR(R) Information Network of unique flight
         information.

                                      -4-
<PAGE>



DESIGNED TO REDUCE COSTS THROUGH MORE EFFICIENT USE OF RESOURCES (FOR
OPERATIONAL APPLICATIONS):

         o Accurate arrival data and ETAs for more effective management of
         flight operations. With better arrival information, our customers more
         effectively manage flights during "push," or busy periods. This Company
         product, Right ETA, enhances productivity of ground personnel and
         support functions by complementing gate management and staff scheduling
         programs, and has generated significant documented financial returns.

         o Accurate arrival information for airlines and airports at the local
         or "station" level to help manage diversions and connections, and
         reduce the incidence of aircraft arriving at a gate without the
         handling resources in place (so called "gate unmets"). A more accurate
         picture of the terminal airspace, more accurate ETAs, and views of
         current holding patterns also enable airlines to make better decisions
         at the "system" level (airline command centers).

         o Accurate arrival information for non-industrial customers to help
         more effectively manage their resources, e.g. security details,
         limousines, line and customer service, etc.

         o Analytic reporting tools to improve operational performance by
         providing affordable and easily distributed access to the PASSUR(R)
         Information Network of operational information. For example, airports
         use PASSUR(R) web reports to maximize efficient airfield utilization;
         airlines use them to assess on-time performance and measure other
         metrics of operational efficiency.

DESIGNED TO IMPROVE CUSTOMER SERVICE:

         o The most accurate arrival and ETA information available, particularly
         during irregular operations, to provide the most updated flight status
         to passengers. The ETA information can be utilized to provide
         compliance with the aviation community's stated goal of providing
         timely and accurate flight information to customers.

         o Web-based flight-tracking tools to improve public relations by
         providing the surrounding airport communities with live flight traffic
         and information as part of airport noise mitigation and community
         outreach programs.

         o Flight information to help enforce the laws and regulations 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.

DESIGNED TO IMPROVE SAFETY, SECURITY, OR EMERGENCY RESPONSE:

         o Replay flight events for analysis. The playback of flight tracks and
         safety incidents allows airlines to more thoroughly analyze those
         events, enhancing their programs for improving the efficiency and
         safety of operations.

         o Real-time situational awareness and an immediate replay capability
         enable airlines and government agencies to be fully informed and
         proactive in responding to emergency events.

PRODUCTS AND SERVICES

         1.    Flight data products which feed directly to customers'
               information systems and to PASSUR(R) distributors. These data
               feeds, which segment different portions of the PASSUR(R)
               Information Network depending on customer needs, link directly to
               customer systems or to customers through third-party data
               integration systems. These feeds are segmented into:

               a. RightETA(TM), patent pending, which provides ETA and flight
               status feeds for real-time schedule management, landing fee
               feeds, and activity reports for operational analysis.

               b. FlightSure(TM), patent pending, provides information and
               software for integrated aircraft Noise Operations Monitoring
               systems (NOMS).

               c. Pulse Revenue(TM) Data Feed, patent pending, which provides
               the data source for calculating landing fee reports and invoices
               in airport statistical and/or revenue management systems.

                                      -5-
<PAGE>


         2.    Application software services (most of which are web-delivered
               and web-hosted):

               a. PASSUR(R) Pulse(TM) Revenue, patent pending, provides a
               web-based live and archived detailed, accurate landing report for
               airlines, airports, and FBOs, creating maximum revenue
               efficiency, as well as transparency and equity in the
               distribution of landing fees among airport users.

               b. PASSUR(R) Pulse Audit(TM), patent pending, module gives
               airports access to the most complete, accurate and timely
               activity reports of arrivals and departures, based on the
               PASSUR(R) radar record and integrated database of flight
               information, including detailed owner/operator information,
               maximum certificated weights by tail number, seat configurations,
               runway utilization, dwell times, and other details in aggregate
               and by individual flight.

               c. PASSUR(R) Pulse Proactive Billing(TM) module, patent pending,
               allows airlines to log onto a secure website to view and download
               their landing fee reports, automatically generated by the
               PASSUR(R) database of flight information. The program is hosted
               by Megadata and managed through online tools by the airport,
               including detailed reporting and invoicing tools, automatic
               aircraft weight calculations, and detailed owner/operator and
               aircraft information by flight.

               d. PASSUR(R) Pulse(TM) Operations, patent pending, provides
               web-based access to the PASSUR(R) database of operational
               information for activity reporting and analysis.

               e. PASSUR(R) inSight(TM), patent pending, is a
               takeoff-to-landing, web-based tool that provides PASSUR(R)
               terminal area information on a national flight tracking platform.
               PASSUR(R) inSight is packaged with other PASSUR(R) web-based
               applications to provide a premium flight tracking "visual"
               capability.

               f. AirportMonitor(TM), patented in 2006, is a web-based
               application that provides the communities surrounding an airport
               with live flight tracking and information as part of the
               airport's public relations, community outreach and noise
               mitigation programs.

               g. FlightPerform(TM) is a live airspace analysis and awareness
               system using more traditional air traffic-style displays and
               tools, used by airports and airlines for real-time dispatch,
               arrivals and facilities management. FlightPerform is the industry
               "gold standard" for those customers that need the most
               dependable, reliable capability to guide their operations in real
               time.

               h. RapidResponse(TM), patent pending, provides the ability to
               immediately replay flight events with a high level of precision,
               specificity, and detail, thereby enabling airlines and airports
               to improve the efficiency and safety of operations. Real-time
               situational awareness and immediate replay enable customers to be
               fully informed and proactive in responding to emergencies. The
               Company believes this product has Homeland Security, Defense, and
               other government applications, and it is being marketed primarily
               through premier government system integrators.

               i. ATC Portal(TM), patent pending and a new product, provides a
               delay management solution that is designed to reduce the incident
               of and cost of delays.

               j. Fuel Portal(TM), patent pending and a new product, provides
               improved methods to price and sell more fuel through data and
               analytics of aircraft fuel requirements.


         3.    Collaborative Web "portal" tools that provide instant access to
               critical information within organizations, and the ability to
               share and receive information between organizations. These
               organizations form the foundation of our PASSUR(R) Customer
               Network.

               a. PASSUR(R) Portal(TM), patent pending, provides a dashboard of
               real-time vital information on the status of the airport
               operation, instant two-way communications, and direct access to
               all other PASSUR(R) web-based software tools.

               b. PASSUR(R) FlightLink(TM), patent pending, is a web-based,
               wireless, flight information display system linking the airport,
               airline, and the traveler, in the terminal and on the Web.

               c. PASSUR(R) OPSnet(TM), patent pending, is an internet-based
               application designed to improve airport/airline/FAA coordination
               through instant communications, information sharing, and
               collaborative decision making among all parties during all
               weather conditions and particularly during costly disruptions
               caused by weather, security and emergencies.

               d. FlightNewsLive(TM), patented in 2004, is the first passenger
               information display system (FIDS) with live graphics of terminal
               and en-route airspace traffic, national weather, and automated
               explanations for delays.

                                      -6-
<PAGE>


HOW MEGADATA GENERATES REVENUE

The Company generates revenues by selling: (1) subscription-based information
and software products (2) annual maintenance contracts for PASSUR(R) radar
systems and (3) consulting and professional services. Under the subscription
model, the customer signs at least a one-year contract for access to the
information services. The agreement also provides that the information from the
PASSUR(R) Information Network cannot be resold, used by others, or used for
unauthorized purposes. Consulting services generally accompany the sale of our
collaborative decision tools.

EMPHASIS ON INFORMATION SECURITY

The Company has incorporated the strictest levels of security with respect to
both the information generated by the PASSUR(R) Information Network and the
resulting end users.

                           (B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

                           The Company operates as one business segment which
         provides information and software services to the aviation industry and
         organizations that serve, or are served by, the aviation industry.

                           (C) NARRATIVE DESCRIPTION OF BUSINESS

                  The Company's principal business is the delivery from its
        proprietary PASSUR(R) network of live, unique flight information,
        decision support software, analytics, and web-delivered collaborative
        decision solutions to the aviation industry and organizations that
        serve, or are served by, the aviation industry.

                  1.  PRODUCTS

                  The Company has transitioned from being a supplier of passive
         surveillance systems (a capital equipment business) to a provider of
         subscription-based information and decision support software products.
         These products leverage the extensive passive surveillance data
         available through the PASSUR(R) Network to provide application-specific
         efficiency tools to airlines, airports and related commercial
         businesses.

                      (I) THE PASSUR(R) SYSTEM

                  The PASSUR(R) system, together with associated data and
         software products, is a reliable and cost effective source of
         time-critical and valuable information about the position and flight
         path of aircraft. PASSUR(R) is an important ingredient in the database
         that drives all present and future data information and Company
         solution products. The Company, under an exclusive license for patented
         technology owned by a third party together with its own patents and
         patents pending, has used its proprietary hardware, data, and software
         to develop an enhanced line of products. These PASSUR(R) systems
         receive and process aircraft identification from aircraft transponder
         transmissions interrogated by existing secondary surveillance radars.

                     2.  SERVICES

                      (I) INFORMATION SERVICES FROM THE PASSUR(R) NETWORK

                  Information services include timely, accurate, user-friendly
         information important to the efficient operation of airlines, airports
         and other customers. The information services leverage the PASSUR(R)
         Network, and are designed to address specific customer requirements,
         many of which can only be satisfied by information generated from the
         PASSUR(R) Network. The services provide airline and airport customers
         with specific and timely information needed to efficiently manage their
         airport, airside, and ground operations. The ETAs generated from the
         PASSUR(R) system are an example of information services currently being
         used throughout the customer network.

                                      -7-
<PAGE>


                      (II) DECISION SUPPORT SOFTWARE FROM THE PASSUR(R) NETWORK

                  Decision support tools and software solutions have been
         developed to improve quality and operating efficiency of specific
         airline and airport operations. PASSUR(R) OpsNet(TM) is an example of a
         decision support service.

                      (III) MAINTENANCE SERVICES

                  The Company offers maintenance services pursuant to
         contractual arrangements or on 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 years ended October 31, 2007, 2006 and 2005,
         one customer (Continental Airlines) accounted for approximately 13%,
         16%, and 18% of the Company's revenues, respectively.

                  5.  BACKLOG FOR SUBSCRIPTION REVENUE AGREEMENTS

                  The Company's committed backlog for subscription and
         maintenance services at October 31, 2007 amounted to approximately
         $4,754,000. Of this amount, $3,956,000 is scheduled for delivery or
         performance before October 31, 2008 and the balance of $798,000 is
         scheduled for delivery or performance in subsequent years. The backlog
         at October 31, 2006 and 2005 amounted to approximately $3,978,000 and
         $2,927,000 respectively. Backlog consists of written purchase orders or
         contracts.

                  6.  COMPETITION

                  The PASSUR(R) applications are, to the best of the Company's
         knowledge, relatively unique; however there are other forms of flight
         tracking products. Depending on the end use of the Company's products,
         the Company's primary competitors include Sabre, Inc., Siemens, and
         SITA. The Company also sells certain data solutions through systems
         integrators, including Lochard Pty, LTD, and Era Corporation, some of
         whom may also sell products that are competitive with those offered by
         the Company. Most of these companies are larger than the Company, and
         have larger sales forces and greater financial resources than the
         Company.

                  7.  RESEARCH AND DEVELOPMENT

                  The Company's Research and Development ("R&D") efforts are
         primarily focused on continued software and hardware enhancements, as
         well as maintenance to the existing PASSUR(R) systems and related suite
         of software applications. R&D is also focused on developing and
         maintaining the new software applications and decision support products
         designed to expand the Company's software suite of products. None of
         the Company's research and development was customer sponsored.

                  During fiscal 2007, research and development expenses, net of
         capitalized software, decreased approximately $112,000 or 27% as
         compared to fiscal 2006. This decrease is primarily due to an increase
         in the capitalization of costs associated with software development
         programs. Gross research and development expenditures were
         approximately $495,000 in fiscal 2007, of which $188,000 was
         capitalized, resulting in a net cost of $307,000. During fiscal 2007,
         the $397,000 balance of capitalized software was deducted in computing
         cost of revenues. Total capitalized software in fiscal year 2007 was
         $585,000. Gross R&D expenses were $500,000 and $473,000 in fiscal years
         2006 and 2005, respectively. The Company's research and development
         efforts include activities associated with the enhancement, maintenance
         and improvement of the Company's existing hardware, software and
         information products.

                                      -8-
<PAGE>


                  8.  ENVIRONMENTAL COSTS

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

                  9.  EMPLOYEES

                  As of October 31, 2007, the Company employed 20 full time
employees, including 6 officers.

                  (D)  FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS

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

<TABLE>
<CAPTION>
NET REVENUES    2007                      2006                       2005
            -------------------------------------------------------------------------------
<S>         <C>                  <C>   <C>                  <C>   <C>                  <C>
Domestic    $5,457,000           96%   $4,088,000           95%   $3,635,000           95%

Exports        241,000            4%      226,000            5%      174,000            5%
            ----------   ----------    ----------   ----------    ----------   ----------

Total
Revenues:   $5,698,000          100%   $4,314,000          100%   $3,809,000          100%
            ==========   ==========    ==========   ==========    ==========   ==========
</TABLE>


                   (E) AVAILABLE INFORMATION

                  The Company's internet address is www.passur.com. The Company
         makes available on its website under "SEC Filings," via a link to the
         United States Securities and Exchange Commission's website, access to
         its annual report on Form 10-K, quarterly reports on Form 10-Q, current
         reports on Form 8-K and any amendments to those reports filed or
         furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
         Act of 1934 as soon as reasonably practical, after electronically
         filing with and/or furnishing such information to the Securities and
         Exchange Commission. All such filings on the website are available free
         of charge. Unless required to do so by law, the Company assumes no
         obligation to update or revise any forward-looking statements in this
         annual report on Form 10K, whether as a result of new information,
         future events, or otherwise. A copy of this annual report on Form 10-K
         is available without charge upon written request to: Investor
         Relations, Megadata Corporation, 47 Arch Street, Greenwich, CT 06830.

         ITEM 1A. RISK FACTORS

         While the Company had net income during fiscal years 2007 and 2006, it
         incurred significant net losses during the previous five fiscal years.
         The Company had net income of approximately $455,000 and $103,000 for
         the fiscal years ended October 31, 2007 and 2006, respectively, and
         incurred a net loss of $924,000 for the fiscal year ended October 31,
         2005. As of October 31, 2007, the Company's accumulated deficit was
         approximately $9,455,000. The Company's ability to maintain
         profitability will depend upon its ability to generate significant
         increased revenues through new and existing customer agreements,
         additional services, and/or products offered to existing customers and
         to control the costs associated with the business operations. There is
         no guarantee that the Company will be able to execute on these
         requirements. If the Company becomes profitable for a specific
         reporting period, it still may not be able to sustain or increase its
         profits on a quarterly or annual basis in the future.

                                      -9-
<PAGE>


         THE COMPANY'S SUCCESS IS DEPENDENT ON THE AVIATION INDUSTRY. IF THE
         COMPANY DOES NOT EXECUTE ITS BUSINESS PLAN OR IF THE MARKET FOR ITS
         SERVICES FAILS TO DEVELOP DUE TO THE DEPRESSED AVIATION INDUSTRY, ITS
         RESULTS OF OPERATIONS AND FINANCIAL RESULTS COULD CONTINUE TO BE
         ADVERSELY AFFECTED.

                  The Company's revenues are solely derived from the aviation
         industry. The Company's future revenues and results of operations are
         dependent on its continued execution of its subscription-based revenue
         strategy and development of new software solutions and applications for
         the aviation industry. Due to the depressed aviation industry, it is
         not assured that the Company will be able to continue to report growth
         in its subscription-based business or sustain its current subscription
         business. If the Company is unable to sustain and/or increase its
         levels of revenues, and it is not successful in reducing costs, its
         cash requirements may increase and the results of operations will
         continue to be adversely affected.

                  Additionally, the aviation industry has been impacted by
         budgetary constraints and airline bankruptcies due to the downturn in
         the current economy, the terrorist events of September 11, 2001, and
         the war on terrorism. The aviation industry is extensively regulated by
         government agencies, particularly the FAA and The National
         Transportation Safety Board. New air travel regulations have been, and
         management anticipates will continue to be, implemented that could have
         a negative impact on airline and airport revenues. Since substantially
         all of the Company's current revenues are derived from either airports
         or airlines, continued increased regulations of the aviation industry
         or continued downturn in the economic situation of the aviation
         industry could have a material adverse effect on the Company.

RELIANCE ON THE COMPANY'S QUARTERLY OPERATING RESULTS AS AN INDICATION OF FUTURE
RESULTS IS INAPPROPRIATE DUE TO POTENTIAL SIGNIFICANT FLUCTUATIONS.

         The Company's future revenues and results of operations may fluctuate
significantly due to a combination of factors, including:
     o   Delays and/or decreases in the signing and invoicing of new contracts;
     o   The length of time needed to initiate and complete customer contracts;
     o   Revenues recognized from one-time sales events (selling or upgrading
         systems) versus subscription based sales;
     o   The introduction and market acceptance of new and enhanced products and
         services;
     o   The costs associated with providing existing and new products and
         services;
     o   Economic conditions in the United States and the impact on the aviation
         industry of the terrorist events of September 11, 2001 and continued
         war or terrorism; and
     o   The potential of future terrorist acts against the aviation industry.

         Accordingly, quarter-to-quarter comparisons of its results of
operations should not be relied on as an indication of performance. It is
possible that in future periods results of operations may be below those
expected based upon previous performance.

THE COMPANY MAY BE UNABLE TO RAISE ADDITIONAL FUNDS TO MEET OPERATING
CAPITAL REQUIREMENTS IN THE FUTURE.

         While the Company's operations were cash flow positive as of October
31, 2007 and 2006, the Company's debt in fiscal year 2007 increased by
$1,400,000 to fund its investment during the year in capitalized software as
well as additions to the PASSUR(R) network. The Company had an accumulated
deficit of approximately $9,455,000 as of October 31, 2007. The Company has
incurred significant negative cash flows from operations over previous fiscal
years. It has obtained a commitment from its significant shareholder and
Chairman to provide the resources necessary to meet working capital and
liquidity requirements through Jaunuary 10, 2009. However, future liquidity and
capital requirements are difficult to predict, as they depend on numerous
factors, including the maintenance and growth of existing product lines and
service offerings, as well as the ability to develop, provide, and sell new
products in an industry for which liquidity and resources are already adversely
affected.

                                      -10-
<PAGE>


         The Company has significant cash requirements, which are expected to
continue in the future. The Company may need to raise additional funds in order
to support discretionary capital expenditures and execute its business plan.
These funds in some cases may be beyond the scope and normal operating
requirements for which the Company has a commitment from its significant
shareholder and Chairman and therefore, may not be approved and/or funded. In
such case, the Company may be required to seek alternate sources of financing
(which may not be available on favorable terms or at all) or abandon such
activities by either: (i) terminating or eliminating certain operating
activities; (ii) terminating personnel; (iii) eliminating marketing activities;
and/or (iv) eliminating research and development programs. If any of the
aforementioned occurs, the Company's ability to expand could become adversely
affected.

A LIMITED NUMBER OF CUSTOMER CONTRACTS ACCOUNTS FOR A HIGH PERCENTAGE OF THE
COMPANY'S REVENUES, AND THE INABILITY TO REPLACE A KEY CUSTOMER CONTRACT COULD
ADVERSELY AFFECT OUR RESULTS OF OPERATIONS, BUSINESS, AND FINANCIAL CONDITION.

         The Company relies on a small number of customer contracts for a large
percentage of its revenues and expects that a significant percentage of its
revenues will continue to be derived from a limited number of customer
contracts. The Company's business plan is to obtain additional customers, but
anticipates that near term revenues and operating results will continue to
depend on large contracts from a small number of customers. Additionally, the
aviation industry, particularly the airline sector, has experienced several
Chapter 11 bankruptcy filings recently. Any Chapter 11 filings by our existing
customers may adversely affect our ability to continue such services and collect
payments due to the Company by such customers. As a result of this concentration
of our customer base, an inability to replace one or more of these large
customer contracts could materially adversely affect our business, financial
condition, operating results and cash flow.

THE SOFTWARE BUSINESS FOR THE AVIATION INDUSTRY IS HIGHLY COMPETITIVE, AND
FAILURE TO ADAPT TO THE CHANGING INDUSTRY NEEDS COULD ADVERSELY AFFECT OUR
RESULTS OF OPERATIONS, BUSINESS, AND FINANCIAL CONDITION.

         The industry in which we compete is marked by rapid and substantial
technology change, the steady emergence of new companies and products, as well
as evolving industry standards and changing customer needs. We compete with many
established companies in the industry we serve, and some of these companies may
have substantially greater financial, marketing, and technology resources,
larger distribution capabilities, earlier access to potential customers, and
greater opportunities to address customers' various information technology
requirements. As the aviation industry seeks to be more cost effective due to
the continued economic downturn, product pricing becomes increasingly important
for our customers. As a result, we may experience increased competition from
certain low-priced competitors. To remain competitive, we continue to develop
new products and continue to enhance existing products. We may be unsuccessful
in our ability to sell new products and/or product releases that meet the needs
of our industry in light of low-cost, less functional alternatives available in
the market. In addition, the pricing of new products or releases of existing
products may be above that required by the market place. Our inability to bring
such new products or enhancements to existing products to the market in a timely
manner or the failure of for these products to achieve industry acceptance could
adversely affect our business, financial condition, operating results, and cash
flow.

THE COMPANY DEPENDS UPON CERTAIN KEY PERSONNEL AND MAY NOT BE ABLE TO RETAIN
THESE EMPLOYEES.

         The Company's future performance depends on the continued services of
its key technical and engineering personnel. Significant improvements have been
made in the past year to address such issues, in particular, technical
redundancy, but the Company continues to depend on the efforts of a limited
number of key personnel. The employment of any of the Company's key personnel
could cease at any time, which could have an adverse affect on our business.

                                      -11-
<PAGE>


THE PASSUR(R) NETWORK COULD EXPERIENCE DISRUPTIONS, WHICH COULD AFFECT THE
DELIVERY OF DATA.

         The Company's network infrastructure is maintained and hosted by AT&T
through an existing frame-relay network. If AT&T experiences system failures or
fails to adequately maintain the frame-relay network, the Company may experience
interruption of delivery of data / software services and customers may terminate
or elect not continue to subscribe to these services in the future. The
Company's network infrastructure may be vulnerable to computer viruses,
break-ins, denial of service, attacks, and similar disruptive problems. Computer
viruses, break-ins, denial of service attacks or other problems caused by third
parties could lead to interruptions, delays, or cessation in service to
customers. There is currently no existing technology that provides absolute
security. Such incidents could deter potential customers and adversely affect
existing customer relationships.

THE COMPANY MAY BE SUBJECT TO NEW GOVERNMENT REGULATIONS RELATING TO THE
DISTRIBUTION OF FLIGHT-TRACKING DATA.

         The Company currently maintains strict safety regulations for its data
in order to comply with current government regulations. Due to the continued
growing safety needs and concerns of the aviation industry, new government
regulations may be implemented. Such new regulations may, in some cases, hinder
the Company's ability to provide current and/or additional services.

UNAUTHORIZED USE OF THE COMPANY'S INTELLECTUAL PROPERTIES BY THIRD PARTIES MAY
DAMAGE AND/OR ADVERSELY AFFECT OUR BUSINESS.

         We regard our trademarks, trade secrets, and all other intellectual
property as critical to our future success. Unauthorized use of our intellectual
property by third parties may damage and/or impair our business. Our
intellectual property includes exclusive licenses to use patents held by third
parties, as well as Company-owned patents. We rely on trademarks, trade secrets,
patent protection, and contracts, including confidentiality and non-exclusive
license agreements with our customers, employees, consultants, strategic
partners, and others, to protect our intellectual property rights. Despite our
precautions, it may be possible for third parties to obtain and use our
intellectual property without our prior knowledge and/or authorization.
Prosecuting infringers could be time consuming and costly, and, irrespective of
whether or not the Company is successful, could disrupt our business.

         The Company currently has the exclusive license rights to use thirteen
patents in the United States and various foreign countries, relating to the
Company's PASSUR(R) System and related technologies. The licensed patents expire
in various years through 2013.

         We currently own three issued patents, and twenty additional patents
are pending with the United States Patent Office, some of which relate to newly
developed internet-based software applications, derived in large part from the
data generated from the Company's PASSUR(R) systems. The issued and allowed
patents expire in various years through 2024. We also intend to seek additional
patents on our products and technological advances and/or software applications,
when appropriate. There can be no assurance that patents will be issued for any
of our pending or future patent applications, or that any claims allowed from
such applications will be of sufficient scope, or provide adequate protection,
or any commercial advantage to the Company. Additionally, our competitors may be
able to design around our patents and possibly affect our commercial interests.

                                      -12-
<PAGE>


         The Company also owns a federal trademark registration in the mark
PASSUR(R) for use with both the PASSUR(R) hardware system installation and the
software products which use the data derived from PASSUR(R) and other sources.
The PASSUR(R) federal registration will allow the Company to enforce its rights
in the mark in the federal court system. The registration does not assure that
others will be prevented from using similar trademarks in connection with
related products and/or services.

DEFENDING AGAINST INTELLECTUAL PROPERTY CLAIMS COULD POSE SIGNIFICANT LEGAL AND
PROFESSIONAL COSTS, AND IF UNSUCCESSFUL, COULD ADVERSELY AFFECT THE COMPANY.

         We cannot guarantee that our future products, technologies, and
software applications will not inadvertently infringe valid patents or other
intellectual property rights held by third parties. We may be subject to legal
proceedings and claims from time to time relating to the intellectual property
of others. Investigation of any claims from third parties alleging infringement
of their intellectual property, whether with or without merit, can be expensive
and could affect development, marketing, selling, or delivery of our products.
Defending against intellectual property infringement claims could be time
consuming and costly, and, irrespective of whether or not the Company is
successful, could disrupt our business. We may incur substantial expenses in
defending against these third party claims, regardless of their merit.
Successful infringement claims against the Company may result in significant
monetary liability and could adversely affect our business, financial condition,
operating results and cash flow.

ITEM 1B. UNRESOLVED STAFF COMMENTS

         None.

ITEM 2. PROPERTIES

         The Company's research and manufacturing facility is located in part of
a one-story, 36,000 square foot building at 35 Orville Drive, Bohemia, New York.
The building previously was owned by the Company and was sold in October 1999 to
an unaffiliated buyer. The Company leases 12,000 square feet at an annual rental
cost of $93,014.

         The Company's executive offices are located in a three-story office
building at 47 Arch Street, Greenwich, Connecticut. Effective July 1, 2004, the
Company signed a lease with the building owner for $2,500 per month. Beginning
August 1, 2005 the rent for the Company's headquarters located in Greenwich
increased to $3,750 per month. Effective November 1, 2007, the Company signed a
new lease for two floors in the building for $7,500 per month ($90,000 per year)
through June 30, 2009. The Company believes these rates are competitive and are
at or below market rates.

         The Company's research and manufacturing facility and its executive
offices are suitable for its requirements.

ITEM 3. LEGAL PROCEEDINGS

         The Company is not aware of any material 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

         The Company did not submit any matter to a vote of its security holders
during the fourth quarter of fiscal 2007.

                                      -13-
<PAGE>


                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS

                           (A)  MARKET INFORMATION

         The Company's Common Stock, par value $0.01 per share (the "Common
         Stock"), is traded on the over-the-counter bulletin board.

         The following table sets forth the reported high and low sales prices
         for the Company's common stock for each quarterly period during the
         Company's last two fiscal years, as reported by the National Quotation
         Bureau, Inc.:

    Period                                                    Prices*


                                                       High            Low

FISCAL YEAR ENDED OCTOBER 31, 2007
         FIRST QUARTER                               $   3.50      $   2.20
         SECOND QUARTER                                  3.60          2.50
         THIRD QUARTER                                   3.60          2.20
         FOURTH QUARTER                                  3.90          2.25

Fiscal Year Ended October 31, 2006
         First Quarter                               $    .65      $    .30
         Second Quarter                                   .62           .45
         Third Quarter                                    .60           .45
         Fourth Quarter                                  3.50           .53

--------------------------------------------------------------------------------

* The quotations represent prices on 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 registered equity security holders of record at January
22, 2008 was 296, as shown in the records of our transfer agent.

         (C) DIVIDENDS

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

                                      -14-
<PAGE>


         (D) SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

         The following table provides information as of October 31, 2007 with
respect to the securities authorized for issuance under the Company's equity
compensation plans.

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------
                                                                                               NUMBER OF SECURITIES
                                                                                               REMAINING AVAILABLE
                                                                                                FOR FUTURE ISSUANCE
                                                                                                     UNDER EQUITY
                                                                                                  COMPENSATION PLANS
                                              NUMBER OF SECURITIES TO       WEIGHTED-AVERAGE     EXCLUDING SECURITIES
                                              BE ISSUED UPON EXERCISE      EXERCISE PRICE OF     REFLECTED IN COLUMN
PLAN CATEGORY                                 OF OUTSTANDING OPTIONS      OUTSTANDING OPTIONS            (A)
---------------------------------------------------------------------------------------------------------------------
                                                        (A)                     (B)                    (C)
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                    <C>                    <C>
EQUITY COMPENSATION PLAN APPROVED BY
  SECURITY HOLDERS                                   1,715,500                  $.51                     506,167
---------------------------------------------------------------------------------------------------------------------
EQUITY COMPENSATION PLANS NOT APPROVED
 BY SECURITY HOLDERS                                   --                       --                          --
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
TOTAL                                                1,715,500                  $.51                     506,167
---------------------------------------------------------------------------------------------------------------------
</TABLE>

ITEM 6. SELECTED FINANCIAL DATA

         The selected consolidated statements of operations data for the fiscal
years ended October 31, 2007, 2006 and 2005, and the consolidated balance sheet
data as of October 31, 2007 and 2006, have been derived from the Company's
audited financial statements included elsewhere in this Annual Report on Form
10-K. The selected consolidated statement of operations data for the years ended
October 31, 2004 and 2003, and the selected consolidated balance sheet data as
of October 31, 2005, 2004 and 2003, are derived from the Company's audited
consolidated financial statements which are not included in this Annual Report
on Form 10-K.

<TABLE>
<CAPTION>

         Selected Statement of Operations Data:
                                                                YEARS ENDED OCTOBER 31,

============================================================================================================
                                 2007              2006             2005           2004              2003
                                 ----              ----             ----           ----              ----
<S>                         <C>               <C>            <C>             <C>               <C>
Net
Revenues                     $   5,698,236   $   4,314,222   $   3,808,773    $   3,110,608    $   2,282,279

Net
Income (loss)                $     454,582   $     102,915   $    (923,872)   $  (1,389,536)   $  (2,486,122)

Net income (loss) (1)
per common share - basic     $         .11   $         .03   $        (.23)   $        (.35)   $        (.71)

Net income (loss) (1)
per common share - diluted   $         .08   $         .02   $        (.23)   $        (.35)   $        (.71)

Dividend Declared                     --              --              --               --               --
============================================================================================================
</TABLE>


                                      -15-
<PAGE>

<TABLE>
<CAPTION>

         SELECTED BALANCE SHEET DATA:
                                                    YEARS ENDED OCTOBER 31,
============================================================================================================
                            2007             2006            2005           2004          2003
                            ----             ----            ----           ----          ----

<S>                    <C>             <C>             <C>             <C>            <C>
Total Assets           $  7,929,304    $  6,028,816    $  4,287,242    $  4,084,581   $  4,533,279

Long-Term
Debt (2)(3)(4)(5)(6)   $ 12,614,880    $ 11,214,880    $  9,989,880    $  8,866,465   $  8,466,465

Total Stockholders'
Deficit                $ (6,767,256)   $ (7,293,786)   $ (7,493,816)   $ (6,569,944)  $ (5,540,408)
============================================================================================================

(1)  Basic net income (loss) per share of common stock was computed using the
     weighted average number of shares of common stock outstanding during the
     period. Diluted net income (loss) per share is based on the sum of the
     weighted average number of common shares outstanding and common stock
     equivalents. For 2005, 2004 and 2003 basic net loss per share equaled
     diluted net loss per share because the effect of common stock equivalents
     was anti-dilutive, and therefore excluded from the calculation of diluted
     net loss per share.

(2)  Long-term debt for 2003 consists of notes payable - related party which was
     due after October 31, 2003.

(3)  Long-term debt for 2004 consists of notes payable - related party which was
     due after October 31, 2004.

(4)  Long-term debt for 2005 consists of notes payable - related party which was
     due after October 31, 2005.

(5)  Long-term debt for 2006 consists of notes payable - related party which was
     due after October 31, 2006.

(6)  Long-term debt for 2007 consists of notes payable - related party which was
     due after October 31, 2007.
</TABLE>


                                      -16-
<PAGE>


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

RESULTS OF OPERATIONS

REVENUES

The Company's principal business is the delivery from its proprietary PASSUR(R)
network of live, unique flight information, decision support software,
analytics, and web-delivered collaborative decision solutions to the aviation
industry and organizations that serve, or are served by, the aviation industry.

Revenues consist primarily of subscription-based revenues and maintenance
revenues from customer owned PASSUR(R) systems.

Revenues during fiscal 2007 increased by approximately $1,384,000, or 32%, to
$5,698,000 from $4,314,000 in fiscal 2006. Revenues during fiscal 2006 increased
by approximately $505,000 or 13%, to $4,314,000 from $3,809,000 in fiscal 2005.
These increases were primarily due to the continued development and deployment
of new software applications, increased effectiveness of the Company's marketing
efforts, industry acceptance of the Company's applications, as well as the wide
selection of products which address the customers' needs and ease of delivery
through web-based applications. These efforts resulted in an increased number of
new customers subscribing to the Company's suite of software applications and
the increased subscriptions from its suite of applications by existing
customers. This increase was primarily due to the increased focus on the
subscription based revenue business model.

Management continues to concentrate its efforts on the sale of information and
decision support product applications utilizing data primarily derived from
PASSUR(R) Information Network. Such efforts include the continued development of
new product applications as well as enhancements and maintenance of existing
applications. As a result, subscription-based revenues of $5,246,000 in fiscal
2007 increased approximately $1,404,000, or 37%, compared to $3,842,000 in
fiscal 2006. The Company's subscription-based sales for fiscal 2005 were
$3,270,000.

The Company's business plan is to continue to focus on increasing
subscription-based revenues from the suite of software applications and
development of new applications designed to address the needs of the aviation
industry.

The Company shipped nineteen and installed seventeen Company-owned PASSUR(R)
systems during fiscal 2007 (these installations include systems shipped in
current and previous fiscal years). The balance of the units shipped should be
installed during fiscal year 2008. The shipped and installed PASSUR(R)s were
capitalized as part of the Company owned "PASSUR(R) Information Network." The
Company will continue to expand the PASSUR(R) Information Network by shipping
and installing additional PASSUR(R) systems throughout fiscal 2008. The Company
manufactured thirty PASSUR(R) units during fiscal 2007 and completed ten units
that were in work-in-process at the end of fiscal 2006. The Company is
continuing its manufacturing program in fiscal 2008 and there were a number of
subassemblies in work-in-process inventory at the end of fiscal 2007. Management
anticipates that future PASSUR(R) sites will provide increased coverage for the
PASSUR(R) Information Network and will increase the Company's ability to
contract with new customers at such locations and will provide existing
customers with additional data solutions. The Company will continue to market
the data generated from the PASSUR(R) Information Network directly to the
aviation industry. The Company returned one Company-owned PASSUR(R) system from
the field in fiscal year 2007 and it will be shipped to another location. There
were seventy-one Company owned PASSUR(R) systems located at various airports
world-wide at the end of fiscal 2007.

                                      -17-
<PAGE>


COST OF REVENUES

Costs associated with subscription and maintenance revenues consist primarily of
direct labor, depreciation of PASSUR(R) Network assets, amortization of software
development costs, communication costs, and allocated overhead costs. Also
included in cost of revenues are costs associated with the upgrades of PASSUR(R)
systems necessary to make older systems compatible with new software
applications, as well as the ordinary repair and maintenance of existing network
systems. Additionally, cost of revenues in each reporting period are impacted
by: (1) the number of PASSUR(R) units produced, upgraded, shipped, and installed
during the year which are added to the PASSUR(R) network and (2) capitalized
costs associated with software development projects, collectively referred to as
"Capitalized Assets" which are depreciated and/or amortized over their
respective useful lives and charged to cost of revenues.

During fiscal 2007, cost of revenues increased by approximately $610,000 or 48%,
as compared to fiscal 2006. This increase was primarily due to an increase in
headcount related costs, data feeds, as well as depreciation and amortization of
capitalized software assets, and a decrease in the capitalization of
manufacturing related costs. This increase was partially offset by an increase
in the number of PASSUR(R) systems added to the PASSUR(R) network, as well as an
increase in the value of software development projects which were capitalized.

During fiscal 2006, cost of revenues decreased by approximately $736,000 or 37%,
as compared to fiscal 2005. This decrease was primarily due to a reduction in
the cost of outside consultants and an increase in the number of PASSUR(R)
systems added to the PASSUR(R) network, as well as an increase in the value of
software development projects which were capitalized. This decrease was
partially offset by increases in headcount related costs, as well as
depreciation and amortization of capitalized software assets.

RESEARCH AND DEVELOPMENT

During fiscal 2007, research and development expenses, net of capitalized
software, decreased approximately $112,000 or 27% as compared to fiscal 2006.
This decrease is primarily due to an increase in the capitalization of costs
associated with software development programs. Gross research and development
expenditures were approximately $495,000 in fiscal 2007, of which $188,000 was
capitalized, resulting in a net cost of $307,000. During fiscal 2007, the
$397,000 balance of capitalized software was deducted from cost of revenues.
Total capitalized software in fiscal year 2007 was $585,000. Gross R&D expenses
were $500,000 and $473,000 in fiscal years 2006 and 2005, respectively. The
Company's research and development efforts include activities associated with
the enhancement, maintenance and improvement of the Company's existing hardware,
software and information products.

The Company anticipates that it will continue to invest in research and
development to develop, maintain and support the existing and newly developed
applications for its PASSUR(R) customers. There were no customer sponsored
research and development activities during fiscal 2007, 2006, or 2005. Research
and development expenses are funded by current operations.

SELLING, GENERAL AND ADMINISTRATIVE

During fiscal 2007, selling, general and administrative expenses increased by
approximately $460,000, or 22%, as compared to fiscal 2006. The increase was
primarily due to additional sales and marketing personnel and related expenses,
professional fees and marketing expenses.

During fiscal 2006, selling, general and administrative expenses increased by
approximately $131,000, or 7%, as compared to fiscal 2005. The increase was
primarily due to additional sales and marketing personnel and related expenses,
as well as higher marketing costs and legal fees.

                                      -18-
<PAGE>

The Company anticipates increases in its sales and marketing efforts in order to
market new and existing products from the PASSUR(R) suite of software
applications. The Company anticipates that its sales and marketing expenses may
increase in fiscal 2008 resulting from these efforts, while efforts to maintain
and expand cost reduction initiatives are identified and implemented.

OTHER INCOME (EXPENSE)

Interest income and interest expense to unrelated parties were not significant
in fiscal 2007, 2006, and 2005.

Interest expense-related party increased by approximately $68,000, or 14%, in
fiscal 2007, as compared to fiscal 2006. The increase is due to $1,400,000 in
higher debt.

Interest expense-related party increased by approximately $61,000 or 15%, in
fiscal 2006, as compared to fiscal 2005. The increase is due to $1,225,000 in
higher debt.

INCOME TAXES

The provisions for income taxes for each year relate to state and local minimum
taxes. The Company has available approximately $12,989,000 in Federal tax loss
carry-forwards to offset possible future income. These carry forwards expire in
various tax years through 2025. The Company has provided a full valuation
allowance on the net deferred tax asset of approximately $4,855,000, which
primarily consists of the net operating loss carry-forwards and available tax
credits.

NET INCOME

The Company earned net income of $455,000, or $.08 per diluted share, during
fiscal 2007, as compared to net income of $103,000, or $.02 per diluted share,
in fiscal 2006.

During fiscal 2007, revenues of $5,698,000 exceeded costs and expenses of
$4,694,000 and resulted in income from operations of $1,004,000. Revenues
increased by 32% in fiscal 2007 and total costs and expenses increased by
$958,000, or 26%, as compared to fiscal 2006.

The Company incurred net income of $103,000, or $.02 per diluted share, during
fiscal 2006, as compared to a net loss of $924,000, or $.23 per diluted share,
in fiscal 2005.

During fiscal 2006, total revenues of $4,314,000 exceeded costs and expenses of
$3,736,000 and resulted in income from operations of $578,000. Revenues
increased 13% in fiscal 2006 and total costs and expenses decreased by $579,000,
or 13% as compared to fiscal 2005.


                                      -19-
<PAGE>


<TABLE>
<CAPTION>

QUARTERLY RESULTS OF OPERATIONS

                                                                  THREE MONTHS ENDED
                    --------------------------------------------------------------------------------------------------------------
                     OCT. 31,        JULY 31,     APRIL 30,      JAN  31,     OCT. 31,      JULY 31,     APRIL 30,      JAN 31,
                        2007           2007         2007          2007          2006          2006          2006          2006
                    --------------------------------------------------------------------------------------------------------------
<S>                 <C>           <C>           <C>           <C>           <C>           <C>           <C>            <C>
TOTAL REVENUES      $ 1,537,588   $ 1,466,793   $ 1,392,175   $ 1,301,680   $ 1,206,214   $ 1,074,277   $ 1,015,967    $ 1,017,764

INCOME (LOSS)
FROM  OPERATIONS        280,280       291,418       245,983       186,240       459,237       141,779       (12,604)       (10,037)

NET INCOME (LOSS)       143,464       142,264       114,973        53,881       334,278        22,390      (126,740)      (127,013)

NET INCOME (LOSS)
PER COMMON SHARE
- BASIC             $       .04   $       .03   $       .03   $       .01   $       .08   $       .01   $      (.03)   $      (.03)
NET INCOME (LOSS)
PER COMMON SHARE
- DILUTED           $       .03   $       .03   $       .02   $       .01   $       .06   $       .01   $      (.03)   $      (.03)
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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.

LIQUIDITY AND CAPITAL RESOURCES

At October 31, 2007, the Company's current liabilities exceeded current assets
by $418,000. The notes payable to a related party of $12,614,880 are due
November 1, 2008, thus are included in long-term liabilities at October 31,
2007. At October 31, 2007, the Company's stockholders' deficit was $6,767,000.
For fiscal 2007, the Company had net income of $455,000.

Management is addressing the working capital and stockholders' deficiencies by
aggressively marketing its PASSUR(R) information capabilities in its existing
product lines, as well as in new products, which are continually being developed
and deployed. The Company intends to increase the size and related airspace
coverage of its owned "PASSUR(R) Network," by continuing to install PASSUR(R)
Systems throughout the United States and certain foreign countries. In addition,
management believes that expanding its existing software suite of products,
which address the wide array of needs of the aviation industry, through the
continued development of new product offerings, will continue to lead to
increased growth in the Company's customer base and subscription-based revenues.
Additionally, if the Company's business plan does not generate sufficient
cash-flows from operations to meet the Company's operating cash requirements,
the Company will attempt to obtain external financing, and if such external
financing is not consummated, the Company has a commitment to receive additional
financial support from its significant shareholder and Chairman through January
10, 2009. Such commitment for financial support may be in the form of additional
advances or loans to the Company in addition to the deferral of principal and
interest payments due on the existing loans, if deemed necessary.

Net cash provided by operating activities for fiscal 2007 was approximately
$1,900,000. Cash flows used in investing activities for fiscal 2007 was
approximately $3,213,000 and consisted primarily of investments in the Company's
PASSUR(R) network as well as capitalized software development costs. Cash flows
provided by financing activities for fiscal 2007 were primarily from $1,400,000
of notes payables - related party. No principal payments on notes payable -
related party were made during fiscal 2007.

                                      -20-
<PAGE>



The Company was profitable in fiscal year 2007. To date, the Company has
experienced increased revenues as a result of its subscription-based revenue
model. The Company is actively addressing the increasing costs associated with
supporting the business, and plans to identify and reduce any unnecessary costs
as part of its cost reduction initiatives. Additionally, the aviation market has
been impacted by budgetary constraints and airline bankruptcies due to the
downturn in the current economy, the terrorist events of September 11, 2001, and
the continued war on terrorism. The aviation market is extensively regulated by
government agencies, particularly the FAA and The National Transportation Safety
Board, and management anticipates that new regulations relating to air travel
may continue to be issued. Substantially all of the Company's revenues are
derived from either airports or airlines. It is premature to evaluate the
impact, if any, that any new regulations or changes in the economic situation of
the aviation industry could have on the future operations of the Company, either
positively or negatively.

Interest by potential customers in the information and decision support software
products obtained from the PASSUR(R) Network remains strong and the Company
anticipates an increase in future revenues. However, the Company cannot predict
if such revenues will materialize. If sales do not increase, additional losses
may occur. The extent of such profits or losses will be dependent on sales
volume achieved and Company cost reduction initiatives.

CONTRACTUAL OBLIGATIONS

As of October 31, 2007, the Company had contractual obligations as follows:

<TABLE>
<CAPTION>

         CONTRACTUAL OBLIGATIONS                       PAYMENTS DUE BY PERIOD
                                     LESS THAN 1                    MORE THAN
                          TOTAL          YEAR       1 - 3 YEARS      3 YEARS
                        ------------------------------------------------------
<S>                              <C>           <C>           <C>
Operating Leases         $   348,000   $   187,000   $   161,000          --

Promissory Notes          12,614,880          --      12,614,880          --

Other Long-Term
  Obligations                536,000       161,000       225,000       150,000
                         -----------   -----------   -----------   -----------
Total Contractual Cash
   Obligations           $13,498,880   $   348,000   $13,000,880   $   150,000
                         ===========   ===========   ===========   ===========
</TABLE>


Obligations under "Operating Leases" relate to the research and manufacturing
facility located in Bohemia, New York ($93,014 - fiscal 2007) and the Company's
headquarters located in Greenwich, CT ($45,000 - fiscal 2007). All other
operating leases are under a month-to-month arrangement, therefore, such
obligations have been excluded from the above calculation.

Obligations under "Other Long-Term Obligations" relate to the minimum royalty
payments due to a third party for exclusive licensing rights of certain patents
relating to the PASSUR(R) System. The annual minimum royalty payments total
$75,000 and are effective until the last licensed patent expires in 2013. The
Company's annual royalty payment may exceed the minimum royalty amount of
$75,000 based upon certain sales thresholds exceeded in any given year; however,
the minimum annual royalty obligation will never be less than $75,000. As of
October 31, 2007 the Company has $86,000 accrued in accrued expenses and other
accrued liabilities for fiscal 2007 royalty payments.

         o OFF-BALANCE SHEET ARRANGEMENTS

         None.

                                      -21-
<PAGE>


CERTAIN RELATED PARTY TRANSACTIONS

During fiscal 2007, G.S. Beckwith Gilbert, the Company's significant shareholder
and Chairman, loaned the Company an additional $1,400,000 in exchange for
promissory notes bearing interest payable in cash at 4.5% per annum and maturing
on November 1, 2008, bringing the principal amount of notes due to Mr. Gilbert
to $12,614,880 on October 31, 2007. During fiscal 2006, Mr. Gilbert lent the
Company an additional $1,225,000, bringing the total loan to $11,214,880, before
accrued interest of $247,867 was added to the principal, resulting in a total of
$11,462,747 owed to Mr. Gilbert on October 31, 2006. During fiscal 2005, Mr.
Gilbert lent the Company an additional $1,123,415, resulting in a total of
$9,989,880 owed to Mr. Gilbert on October 31, 2005. The notes are secured by the
Company's assets. The notes payable are classified as long-term as of October
31, 2007, 2006 and 2005.

During fiscal 2007, the Company paid approximately $246,000 to Surf-Tech
Manufacturing, Inc. (a non-public corporation) for materials and labor in
connection with the production of various replacement, new and upgraded
equipment for PASSUR(R) systems. The Company believes that these rates are
competitive and are at or below market rates. A Company Executive Vice President
and Director was a 50% shareholder of the aforementioned company through July
31, 2007, at which time such shares were sold.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

GENERAL

The Company's discussion and analysis of its financial condition and results of
operations are based upon its consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities based upon accounting policies management has
implemented. The Company has identified the policies and estimates below as
critical to its business operations and the understanding of its results of
operations. The impact and any associated risks related to these policies on the
Company's business operations is discussed throughout Management's Discussion
and Analysis of Financial Condition and Results of Operations where such
policies affect its reported financial results. The actual impact of these
factors may differ under different assumptions or conditions. The Company's
accounting policies that require management to apply significant judgment and
estimates include:

REVENUE RECOGNITION

The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin
No. 104, "REVENUE RECOGNITION IN FINANCIAL STATEMENTS" ("SAB 104"), as codified.
SAB 104 requires that four basic criteria must be met before revenues can be
recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has
occurred or services have been rendered; (3) the fee is fixed and determinable;
and (4) collectibility is reasonably assured. The Company also recognizes
revenue in accordance with Statement of Position 97-2, "SOFTWARE REVENUE
RECOGNITION" ("SOP 97-2"), as amended, when applicable.

The Company's revenues are generated from the following: (1) subscription and
maintenance agreements and (2) one-time license fees. The Company recognizes
revenues from system sales when the system is shipped in accordance with SAB 104
and SOP 97-2.

Revenues generated from subscription and maintenance agreements are recognized
over the term of such executed agreements and/or customer's receipt of such data
or services. In accordance with SOP 97-2, we recognize revenue from the
licensing of our software products or performance of maintenance when all of the
following criteria are met: (1) we have evidence of an agreement with a
customer; (2) we deliver the products/services; (3) license or maintenance
agreement terms are deemed fixed or determinable and free of contingencies or
uncertainties that may alter the agreement such that the sale may not be
complete and/or final and (4) collection is probable.

                                      -22-
<PAGE>


The Company records revenues pursuant to individual contracts on a
month-by-month basis, as outlined by the applicable agreement(s). In many cases,
the Company may invoice respective customers in advance of specified period(s),
either quarterly or annually, which coincides with the terms of the agreement.
In such cases, the Company will defer at the close of each month and/or
reporting period any subscription or maintenance revenues invoiced for which
services have yet to be rendered, in accordance with SOP 97-2.

Our software licenses generally do not include acceptance provisions. An
acceptance provision generally allows a customer to test the software for a
defined period of time before commiting to a binding agreement to license the
software. If a subscription agreement includes an acceptance provision, the
Company will not recognize revenue until the earlier of the receipt of a written
customer acceptance or, if not notified by the customer to cancel the
subscription agreement, the expiration of the acceptance period.

From time to time, the Company will receive one-time payments from customers for
rights, including but not limited to the rights to use certain data at an agreed
upon location(s) for a specific use and/or for an unlimited number of users.
Such one-time payments are in the form of license fees. These fees are
recognized as revenue ratably over the term of the license agreement or expected
useful life of such license arrangement, whichever is longer, but typically five
years.

Any deferred revenue is classified on the Company's balance sheet as a liability
in the deferred income account until such time as revenue from services is
properly recognized as revenue in accordance with SAB 104 and/or SOP 97-2 and
the corresponding agreement.

CAPITALIZED SOFTWARE COSTS

The Company follows the provisions of Statement of Financial Accounting
Standards No. 86, "ACCOUNTING FOR THE COSTS OF SOFTWARE TO BE SOLD, LEASED, OR
OTHERWISE MARKETED" ("SFAS 86"). Costs incurred to develop computer hardware and
software products as well as enhancements to software features of the existing
products to be sold or otherwise marketed are capitalized after technological
feasibility is established. Once the software products become available for
general release to the public, the Company will begin to amortize such costs to
cost of sales.

The Company's policy on capitalized software costs determines whether the costs
incurred are classified as capitalized costs (in accordance with SFAS 86) or as
research and development expenses. In cases where the Company capitalizes costs
incurred with development of new hardware/software products, a product
specification is designed and/or a working model of the respective project is
developed as the guideline for the capitalization of costs associated with such
project in accordance with SFAS 86.

Once a product has been made available for sale and/or released for sale to the
general public, the development costs of that product are no longer capitalized
and amortization commences over a five year period and any additional costs
incurred to maintain or support such product are expensed as incurred. In some
cases, the Company may capitalize costs incurred in the development of enhanced
versions of already existing products, but will immediately expense any
additional costs incurred to maintain products which were completed and released
to the general public, in accordance with SFAS 86. Management uses judgment in
determining and evaluating whether development costs meet the criteria for
immediate expense or capitalization.

The Company's net capitalized software costs at October 31, 2007 totaled
approximately $1,500,000. The carrying value of the capitalized software costs
is dependent on the forecasted and actual future cash flows generated from such
assets as determined and evaluated by management.

                                      -23-
<PAGE>




IMPAIRMENT OF LONG-LIVED ASSETS

The Company follows the provisions of Statement of Financial Accounting
Standards No. 144, "ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED
ASSETS" ("SFAS 144"). The Company reviews long-lived assets for impairment when
circumstances indicate the carrying amount of an asset may not be recoverable.
An impairment is recognized when the sum of the undiscounted estimated future
cash flows expected to result from the use of the asset is less than the
carrying value. The Company evaluates the periods of amortization continually in
determining whether any events or circumstances warrant revised estimates of
useful lives.

The Company's long-lived assets include long-term fixed assets of the PASSUR(R)
Network and software development costs that at October 31, 2007 approximated
$4,518,000 and $1,500,000, respectively, which accounted for 76% of the
Company's total assets. The carrying value of the long-term assets is dependent
on the forecasted and actual financial performance as well as future cash flows
of such assets as determined by management.

At each reporting period, management evaluates the carrying values of the
Company's assets. The evaluation considers the undiscounted cash flows generated
from current contractual revenue sources and the anticipated forecast revenue
derived from each asset. It then evaluates these revenues on an overall basis to
determine if any impairment issues exist. As of October 31, 2007, based upon
management's evaluation of the above asset groups, no impairments exist of these
asset groups. If these forecasts are not met, the Company may have to record
impairment charges not previously recorded. As of October 31, 2007, based upon
management's evaluation of the above asset groups, no impairments of these asset
groups exist.

DEPRECIATION AND AMORTIZATION

As of October 31, 2007, the total net property, plant, and equipment
approximated $328,000, the total net PASSUR(R) Network approximated $4,518,000,
and the total net software development costs approximated $1,500,000. The total
depreciation and amortization expense related to capitalized assets at October
31, 2007 approximated $1,051,000. Management's judgment is required in the
determination of the estimated depreciable lives that are used to calculate the
annual depreciation and amortization expense.

Depreciation and amortization is provided on the straight-line basis over the
estimated useful lives of the assets, as follows:

Property, plant and equipment                        3 to 10 Years
PASSUR(R) Network                                    5 to 7 Years
Software development costs                           5 Years

The PASSUR(R) Network costs carried on the Company's Consolidated Balance Sheets
represents PASSUR(R) Systems and the related software workstations used for the
data derived from the PASSUR(R) Systems. The PASSUR(R) Network is comprised of
PASSUR(R) Systems installed and supplying data to the company network, as well
as related workstations with software and/or PASSUR(R) Systems built but not yet
installed in the company network. PASSUR(R) Network assets which are not
installed in the network are carried at cost and no depreciation is recorded.
Once installed, the PASSUR(R) Systems are depreciated over seven years and the
related workstations are depreciated over five years.

All of the Company's capitalized assets are recorded at cost (which may also
include salaries and related overhead costs incurred during production and/or
development) and depreciated and/or amortized over the asset's estimated useful
life for financial statement purposes. The estimated useful life represents the
projected period of time that the asset will be productively employed by the
Company and is determined by management based on many factors, including
historical experience with similar assets, technological life cycles and
industry standards for similar assets (but does not exceed seven years).
Circumstances and events relating to these assets are monitored to ensure that
changes in asset lives or impairments (see "Impairment of Long-Lived Assets"
above) are identified and prospective depreciation expense or impairment expense
is adjusted accordingly.

                                      -24-
<PAGE>


For the year ended October 31, 2007, total depreciation and/or amortization of
$1,051,000 consisted of $108,000 for property, plant and equipment, $659,000
for the PASSUR(R) Network, and $284,000 for Software development costs.

STOCK-BASED COMPENSATION

Effective November 1, 2005, the Company adopted SFAS No. 123R, "Share-Based
Payments," using the modified prospective method, which requires measurement of
compensation cost for all stock-based awards at fair value on date of grant and
recognition of compensation over the service period for awards expected to vest.
Therefore, prior period financial statements have not been restated. The fair
value of stock options were determined using the Black-Scholes valuation model,
which is consistent with our valuation techniques previously utilized for stock
options in footnote disclosures required under SFAS No. 123. Such fair value is
recognized as expense over the service period, net of estimated forfeitures. The
adoption of SFAS No.123R resulted in no cumulative change in accounting as of
the date of adoption.

RECENT ACCOUNTING PRONOUNCEMENTS

In February 2007, the FASB issued Statement of Financial Accounting Standard No.
159, The Fair Value Option for Financial Assets and Financial Liabilities ("FAS
159"). FAS 159 permits entities to choose to measure many financial instruments
and certain other items at fair value that are not currently required to be
measured at fair value and establishes presentation and disclosure requirements
designed to facilitate comparisons between entities that choose different
measurement attributes for similar types of assets and liabilities. Unrealized
gains and losses on items for which the fair value option has been elected are
reported in earnings. FAS 159 does not apply to the Company's fiscal 2007
financial statements since it is effective only for fiscal years beginning after
November 15, 2007. The Company has determined that the adoption of FAS 159 will
not have a material impact on future Financial Statements.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
("SFAS 157"). SFAS 157 clarifies that fair value is the amount that would be
exchanged to sell an asset or transfer a liability in an orderly transaction
between market participants. Further, the standard establishes a framework for
measuring fair value in generally accepted accounting principles and expands
certain disclosures about fair value measurements. SFAS 157 does not apply to
the Company's fiscal 2007 financial statements since it is effective only for
fiscal years beginning after November 15, 2007. The Company does not expect that
the adoption of SFAS 157 will have a material impact on its future consolidated
financial position, results of operations, or cash flows.

On July 13, 2006, FASB Interpretation (FIN) No. 48, Accounting for Uncertainty
in Income Taxes - An Interpretation of FASB Statement No. 109, was issued. FIN
48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with FASB Statement No. 109,
Accounting for Income Taxes. FIN 48 also prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. The new FASB
standard also provides guidance on de-recognition, classification, interest, and
penalties, accounting in interim periods, disclosure, and transition. FASB
Interpretation (FIN) No. 48 takes effect for years beginning after December 15,
2006, which for the Company will be the fiscal year beginning November 1, 2007.
The Company is in the process of evaluating the impact that the adoption of this
accounting pronouncement will have on its future financial statements.

                                      -25-
<PAGE>






ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company is exposed to market risk from potential changes in
interest rates. The Company regularly evaluates these risks. The Company
believes the amount of risk relating to changes in interest rates is not
material to the Company's financial condition or results of operations. The
Company has not and does not anticipate entering into derivative financial
instruments.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         See Part IV, Item 15(a)(1) of this Annual Report on Form 10-K for the
Company's annual financial statements.

         See Part II, Item 7 of this Annual Report on Form 10-K for selected
quarterly financial data.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

         None.

ITEM 9A. CONTROLS AND PROCEDURES

         (A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

         For purposes of Rules 13a-14 and 15d-14 of the Exchange Act 1934
("Exchange Act") the term "disclosure controls and procedures" refers to the
controls and other procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files
under the Exchange Act is recorded, processed, summarized, and reported within
required time periods. The Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of its disclosure controls and procedures as of the end of period covered by
this report. Based on that evaluation, the Company's Chief Executive Officer and
Chief Financial Officer have concluded that the Company's disclosure controls
and procedures are effective at ensuring that required information will be
disclosed on a timely basis in the Company's reports filed under the Exchange
Act.

         (B) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

         The Company's management, including the Company's Chief Executive
Officer and Chief Financial Officer, has evaluated the Company's internal
control over financial reporting (as defined by Rule 13a-15(f) under the
Exchange Act) to determine whether any changes occurred during the fourth
quarter of the fiscal year ended October 31, 2007, that have materially
affected, or are reasonably likely to materially affect, its internal control
over financial reporting. Based on that evaluation, there has been no such
change during the fourth quarter of the period covered by this report.

ITEM 9B. OTHER INFORMATION

         None.

                                      -26-
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         (a) Identification of Directors

The following table sets forth the names and ages of the Company's directors, as
well as the year each individual became a director and the position(s) with the
Company, if any, held by each individual.


                                 Director       Director Position and
 Name                      Age    Since         Officers With Company
--------------------------------------------------------------------------------
G.S. Beckwith Gilbert       65   1997   Chairman of the Board and a
                                        Director

Richard R. Schilling, Jr.   82   1974   Director

John R. Keller              67   1997   Executive Vice President, and a
                                        Director

Bruce N. Whitman            74   1997   Chairman of the Executive Committee and
                                        a Director

Paul L. Graziani            50   1997   Director

James T. Barry              46   2000   President, Chief Executive Officer,
                                        and a Director

James J. Morgan             65   2005   Director

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

                                      -27-
<PAGE>


         (b) Identification of Executive Officers

The following table sets forth the names and ages of the Company's executive
officers, as well as the office(s) held by each individual and the year in which
he or she began to serve in such capacity.

                                   Officer       Officer Position and
 Name                      Age      Since        Officers With Company
--------------------------------------------------------------------------------
 James T. Barry            46       1998        President, Chief Executive
                                                Officer, and a Director

 Jeffrey P. Devaney        48       2004        Chief Financial Officer,
                                                Treasurer, and Secretary

 John R. Keller            67       1970        Executive Vice President and a
                                                Director

 Dr. James A. Cole         67       1988        Senior Vice President of
                                                Research & Development

 Matthew H. Marcella       50       2003        Vice President of Software
                                                Development

 Ron A. Dunsky             45       2003        Vice President of Marketing

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

         (c) Identification of Certain Significant Employees

         None.

         (d) Family Relationship

         None.

                                      -28-
<PAGE>


         (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 has continued to serve as the Company's
                             Chairman of the Board since his election in 1997.
                             Mr. Gilbert was appointed Chief Executive Officer
                             in October of 1998 and served as such until his
                             retirement from that post on February 1, 2003. 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,
                             and a director of Davidson Hubeny Brands. Mr.
                             Gilbert is also a trustee of the Rockefeller
                             University, a member of the Board of Fellows of
                             Harvard Medical School, a Director of the Yale
                             Cancer Center, and a trustee of the Williston
                             Northampton School.

Richard R. Schilling, Jr.    Mr. Schilling has been a Director of the Company
                             since 1974. Mr. Schilling is a member of the law
                             firm of Burns, Kennedy, Schilling & O'Shea, New
                             York, New York.

Bruce N. Whitman             Mr. Whitman has been a Director of the Company
                             since 1997. He is the President, CEO, and a
                             Director of FlightSafety International and has held
                             other positions such as Executive Vice President
                             since 1961. He is currently a Director and Chairman
                             of the Executive Committee of Megadata, a Director
                             and Chairman of the Nominating Committee of the
                             Congressional Medal of Honor Foundation, a Director
                             of the General Aviation Manufacturers Association,
                             and a Director of the Wings Club, and a Director
                             Emeritus of the Smithsonian National Air and Space
                             Museum. He is a member of the Board of Governors of
                             The Aerospace Industries Association, the Civil Air
                             Patrol and a member of its Audit Committee, a
                             trustee of the Falcon Foundation, the Kent School,
                             and the National World War II Museum.

Paul L. Graziani             Mr. Graziani has been a Director of the company
                             since 1997. He is the President and Chief Executive
                             Officer of Analytical Graphics, Inc. (AGI), a
                             leading producer of commercially available analysis
                             and visualization software for the aerospace,
                             defense, and intelligence communities. Mr. Graziani
                             has been recently recognized as "CEO of the Year"
                             by the Philadelphia region's Eastern Technology
                             Council and the Chester County Chamber of Business
                             and Industry; "Entrepreneur of the Year" regional
                             winner by Ernst & Young; and "Businessman of the
                             Year" by the local Great Valley Regional Chamber of
                             Commerce. An associate fellow of the American
                             Institute of Aeronautics and Astronautics (AIAA),
                             he sits on the Boards of Directors of The Space
                             Foundation, Megadata, and the United States
                             Geospatial Intelligence Foundation; serves on the
                             advisory boards for the Galaxy Explorers, the Joint
                             Military Intelligence College Foundation, and Penn
                             State Great Valley; and is a member of the Enduring
                             Value Advisory Council for Zanett Inc. Mr.
                             Graziani, after fulfilling his board tenure, was
                             recently elected to the honorary position of life
                             director of the Space Foundation.

                                      -29-
<PAGE>

James J. Morgan              Mr. Morgan has been a director of the Company
                             since September 12, 2005. Mr. Morgan is a partner
                             in the New York City based private equity firm
                             Jacobson Partners. In his role at Jacobson
                             Partners, Mr. Morgan serves as a board member of
                             Bertucci's Inc. Mr. Morgan retired in 1997 as
                             President and Chief Executive Officer of Philip
                             Morris Incorporated.

Dr. James A. Cole            Dr. Cole currently  serves as 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. He is a current
                             member of the American Association for the
                             Advancement of Science, American Physics Society,
                             Association for Computing Machinery, Institute of
                             Electrical and Electronic Engineers and IEEE
                             Computer Society. Dr. Cole has been with the
                             Company since 1974.

John R. Keller               Mr. Keller has been with the Company since its
                             inception in 1967 as one of the co-founders. Mr.
                             Keller received his bachelor's and master degrees
                             in engineering from New York University in 1960 and
                             1962, respectively. Mr. Keller currently serves as
                             Executive Vice President of the Company.

James T. Barry               Mr. Barry was named President of the Company on
                             April 14, 2003 and Chief Executive Officer on
                             February 1, 2003. Since Mr. Barry joined the
                             Company in 1998, he has held the positions of Chief
                             Operating Officer, Chief Financial Officer,
                             Secretary, and Executive Vice President. From 1989
                             to 1998, he was with Dianon Systems, Inc., most
                             recently as Vice President of Marketing. Prior to
                             Dianon, Mr. Barry was an officer in the United
                             States Marine Corps.

Jeffrey P. Devaney           Mr. Devaney joined the Company as Chief Financial
                             Officer and Secretary on June 14, 2004. Prior to
                             joining the Company, Mr. Devaney was the Chief
                             Financial Officer at Cierant Corporation from 2002
                             to 2004. From 2000 to 2001, he was a Controller at
                             SageMaker, Inc. From 1995 to 2000 he was the
                             Controller at Information Management Associates,
                             Inc.

Matthew H. Marcella          Mr.  Marcella was named Vice President - Software
                             Development on January 15, 2003. Mr. Marcella
                             joined the Company in 2001 from Cityspree Inc.,
                             where he served as lead software architect from
                             2000 to 2001. From 1999 to 2000, he was a Vice
                             President at Deutsche Bank and Nomura Securities.
                             From 1996 to 1999, he was a technical officer at
                             UBS Securities.

Ron A. Dunsky                Mr. Dunsky was named Vice President
                             of Marketing on May 21, 2003. Mr. Dunsky joined the
                             Company in 2001, and initially served as Director
                             of Marketing and New Product Development. Prior to
                             joining the Company, Mr. Dunsky was a senior
                             aviation producer with the New York bureau of
                             ABCNews.com from 2000 to 2001. Prior to
                             ABCNews.com, he was a senior aviation producer with
                             the New York bureau of CNN from 1995 to 2000.

                                      -30-
<PAGE>


         (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.

         (g) Audit Committee Financial Expert

         Our Board of Directors has determined that Paul L. Graziani, Chairman
of the Company's Audit Committee, meets the Securities and Exchange Commission's
criteria of an "audit committee financial expert" as set forth in item 401(h)(2)
of Regulation S-K. Mr. Graziani acquired the attributes necessary to meet such
criteria by holding positions that provided relevant experience. Mr. Graziani is
independent, as defined under applicable NASD rules.

         (h) Identification of Audit Committee

         Our Board of Directors has appointed an Audit Committee, consisting of
three directors. All of the members of the Audit Committee are independent of
our company and management, as independence is defined under applicable NASD
rules. The Audit Committee consists of Mr. Graziani, Mr. Schilling and
Mr. Whitman.

         (i) Section 16(a) Beneficial Ownership Reporting Compliance

         Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers,and 10%
stockholders to file reports of ownership and reports of change in ownership of
the Company's Common Stock and other equity securities with the Securities and
Exchange Commission. Directors, executive officers, and 10% stockholders are
required to furnish the Company with copies of all Section 16(a) forms they
file. Based on a review of the copies of such reports furnished to it, the
Company believes that during the fiscal year ended October 31, 2007, the
Company's directors, executive officers, and 10% stockholders complied with all
Section 16(a) filing requirements applicable to them.

         (j) Board Nominations by Shareholders

         There have not been any material changes to the procedures by which the
Company's shareholders may recommend nominees to the Company's board of
directors as disclosed in the definitive proxy statement on Schedule 14A filed
on February 28, 2007 by the Company with the Securities and Exchange Commission
in connection with the Company's 2007 annual shareholder meeting.

         (k) Code of Ethics

         The Company hereby incorporates by reference into this Item the
information contained under the heading "Code of Ethics" in the Company's
definitive proxy statement that will be filed with the Securities and Exchange
Commission within 120 days of October 31, 2007 (the "2008 Proxy Statement").

ITEM 11. EXECUTIVE COMPENSATION

         The Company hereby incorporates by reference into this Item the
information contained under the heading "Executive Compensation" in the 2008
Proxy Statement.

                                      -31-
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

         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 2008 Proxy Statement. Portions of the
Registrant's Definitive Proxy Statement for the 2008 Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission within 120
days of October 31, 2007, are incorporated by reference into Part III of this
Form 10-K.

         For information regarding securities authorized for issuance under the
Company's equity compensation plans, see Item 5(d) above.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         (a) Transactions with related persons.

         During fiscal 2007, G.S. Beckwith Gilbert, the Company's significant
shareholder and Chairman, loaned the Company an additional $1,400,000 in
exchange for promissory notes bearing interest payable in cash at 4.5% per annum
and maturing on November 1, 2008, bringing the principal amount of notes due to
Mr. Gilbert to $12,614,880 on October 31, 2007. During fiscal 2006, Mr. Gilbert
lent the Company an additional $1,225,000, bringing the total loan to
$11,214,880, before accrued interest of $247,867 was added to the principal,
resulting in a total of $11,462,747 owed to Mr. Gilbert on October 31, 2006.
During fiscal 2005, Mr. Gilbert lent the Company an additional $1,123,415,
resulting in a total of $9,989,880 owed to Mr. Gilbert on October 31, 2005. The
notes are secured by the Company's assets. The notes payable are classified as
long-term as of October 31, 2007, 2006 and 2005.

         (b) Review, approval or ratification of transactions with related
             persons.

         The Company considers any transaction that would require disclosure
under Item 404(a) of Regulation S-K to be a related-party transaction. To date,
the Company has not adopted a formal written policy with respect to
related-party transactions. However, an informal, unwritten policy has been in
place whereby all such related-party transactions are reported to, and approved
by, the full Board of Directors (other than any interested director).

         (c) Director independence.

         The Board of Directors had determined, after considering all the
relevant facts and circumstances, that all named directors, except for Mr.
Gilbert, Mr. Barry and Mr. Keller, are independent directors, as "independence"
is defined in accordance with the National Association of Security Dealers
("NASD") standards.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

         The Company hereby incorporates by reference into this Item the
information contained under the heading "Principal Accounting Fees and Services"
in the 2008 Proxy Statement.

                                      -32-
<PAGE>


                                     PART IV


ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

         (a) List of documents filed as a part of this Annual Report on Form
             10-K:                                                          Page

         (1) Index to consolidated financial statements included in Part II of
         this Report:

         Report of Independent Registered Public
         Accounting Firm - BDO Seidman, LLP                                  F-1

         Consolidated balance sheets as of
         October 31, 2007 and 2006                                           F-2

         Consolidated statements of
         operations for the years ended
         October 31, 2007, 2006 and 2005                                     F-3

         Consolidated statements of
         stockholders' deficit for the years ended
         October 31, 2007, 2006 and 2005                                     F-4

         Consolidated statements of cash
         flows for the years ended
         October 31, 2007, 2006 and 2005                                     F-5

         Notes to consolidated financial
         statements                                                          F-6

         (2) Index to Financial Statement Schedule: Schedule II -
         Valuation and Qualifying Accounts                                   S-1

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.

                                      -33-
<PAGE>


         (c) Index to Exhibits

The following exhibits are required to be filed with this Annual Report on Form
10-K by Item 15(a) (3) and (c).
         Exhibits

3.1      The Company's composite Certificate of Incorporation, dated as of
         January 24, 1990, is incorporated by reference from our Annual Report
         on Form 10-K for the fiscal year ended October 31, 1989.

3.2      The Company's By-laws, dated as of May 16, 1988, are incorporated by
         reference from our Annual Report on Form 10-K for the fiscal year ended
         October 31, 1998.

10.1     The Company's 1988 Bonus Pool Plan is incorporated by reference from
         our Annual Report on Form 10-K for the fiscal year ended October 31,
         1998.

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

10.3     The Company's Amended 1999 Stock Incentive Plan is incorporated by
         reference to Exhibit 10.3 of our Report on Form 8-K filed on April 17,
         2006.

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

10.5     Letter of Agreement for employment services, dated December 28, 1999,
         between the Company and Ken J. McNamara is incorporated by reference to
         Exhibit 10.5 to our Annual Report on Form 10-K for the fiscal year
         ended October 31, 1999.

10.6     Letter of Agreement for employment services, dated September 5, 2002,
         between the Company and Delon Dotson is incorporated by reference from
         our Form 8-K, dated September 12, 2002.

10.7     Debt Agreement, dated November 1, 2003, between the Company and G.S.
         Beckwith Gilbert is incorporated by reference from our Form 8-K, dated
         January 23, 2004.

10.8     Debt Extension Agreement, dated as of November 1, 2004, between the
         Company and G.S. Beckwith Gilbert is incorporated by reference from
         Exhibit 10.1 of our Current Report on Form 8-K on February 1, 2005.

10.9     Debt Extension Agreement, made as of November 1, 2005, between the
         Company and G.S. Beckwith Gilbert, is incorporated by reference from
         Exhibit 10.2 of our Current Report on Form 8-K filed on February 6,
         2006.

10.10    Debt Extension Agreement, made as of November 1, 2006, between the
         Company and G.S. Beckwith Gilbert, is incorporated by reference from
         Exhibit 10.2 of our Current Report on Form 8-K filed on January 5,
         2007.

10.11    Debt Extension Agreement, made as of November 1, 2007 between the
         Company and G.S. Beckwith Gilbert is incorporated by reference from
         Exhibit 10.2 of our Current Report on Form 8-K filed on January 17,
         2008.

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

                                      -34-
<PAGE>


21       List of Subsidiaries is incorporated by reference from our Annual
         Report on Form 10-K report for the fiscal year ended October 31, 1981.

31.1     Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or
         15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant
         to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2     Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or
         15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant
         to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1     Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
         1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
         2002.

32.2     Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
         1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
         2002.

                                      -35-
<PAGE>


                                   SIGNATURES

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


MEGADATA CORPORATION

DATED:  JANUARY 29, 2008           By: /s/ James T. Barry
                                       -----------------------------------------
                                       James T. Barry
                                       President 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 Registrant and
in the capacities and on the date indicated:


DATED:  JANUARY 29, 2008           /s/ James T. Barry
                                   --------------------------------------------

                                       James T. Barry
                                       President, Chief Executive Officer and
                                       Director
                                       (Principal Executive Officer)


DATED:  JANUARY 29, 2008           /s/ Jeffrey P. Devaney
                                   --------------------------------------------

                                       Jeffrey P. Devaney
                                       Chief Financial Officer, Treasurer and
                                       Secretary
                                       (Principal Financial and Accounting
                                       Officer)


                                      -36-
<PAGE>


                             SIGNATURES (CONTINUED)



DATED:  JANUARY 29, 2008           /s/ G.S. Beckwith Gilbert
                                   -----------------------------------

                                       G.S. Beckwith Gilbert
                                       Chairman and Director


DATED:  JANUARY 29, 2008           /s/ John R. Keller
                                   --------------------------------------------

                                       John R. Keller
                                       Executive Vice President and
                                       Director


DATED:  JANUARY 29, 2008           /s/ Richard R. Schilling, Jr.
                                   --------------------------------------------

                                       Richard R. Schilling, Jr.
                                       Director


DATED:  JANUARY 29, 2008           /s/ Bruce N. Whitman
                                   --------------------------------------------

                                       Bruce N. Whitman
                                       Chairman of the Executive Committee and
                                       Director


DATED:  JANUARY 29, 2008           /s/ Paul L. Graziani
                                   --------------------------------------------

                                       Paul L. Graziani
                                       Director


DATED:  JANUARY 29, 2008           /s/ James J. Morgan
                                   --------------------------------------------

                                       James J. Morgan
                                       Director

                                      -37-
<PAGE>


             Report of Independent Registered Public Accounting Firm


Board of Directors and Stockholders
Megadata Corporation and Subsidiary

We have audited the accompanying consolidated balance sheet of Megadata
Corporation and Subsidiary as of October 31, 2007 and 2006 and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
the three years then ended. We have also audited the schedule as listed in Part
IV, Item 15(a)(2) for the three years ended October 31, 2007. These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and schedule are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and schedule, assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation and schedule. 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 financial position of Megadata Corporation
and Subsidiary at October 31, 2007 and 2006, and the results of its operations
and its cash flows for each of the three years in the period ended October 31,
2007, in conformity with accounting principles generally accepted in the United
States of America.

Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.


                                                           /s/ BDO Seidman, LLP
                                                           --------------------



Melville, New York
January 16, 2008

                                       F1
<PAGE>

<TABLE>
<CAPTION>

                                        Megadata Corporation and Subsidiary

                                            Consolidated Balance Sheets


                                                                   OCTOBER 31,
                                                                2007            2006
                                                            ------------    ------------
ASSETS
Current assets:
<S>                                                         <C>             <C>
   Cash                                                     $    286,992    $    215,366
   Accounts receivable, net                                      794,487         669,108
   Inventory, net                                                366,751         735,847
   Prepaid expenses and other current assets                      87,123         167,905
                                                            ------------    ------------
Total current assets                                           1,535,353       1,788,226

Property, plant and equipment, net                               327,791         145,326
PASSUR(R) network, net                                         4,517,736       2,839,519
Software development costs, net                                1,499,813       1,198,520
Other assets                                                      48,611          57,225
                                                            ------------    ------------
Total Assets                                                $  7,929,304    $  6,028,816
                                                            ============    ============

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
   Accounts payable                                         $    381,262    $    311,213
   Accrued expenses and other current liabilities                660,495         697,098
   Deferred income, current portion                              911,394         805,389
   Accrued expenses--related parties                                --           247,867
   Note payable, current portion                                    --             4,815
                                                            ------------    ------------
Total current liabilities                                      1,953,151       2,066,382

Deferred income, less current portion                            128,529          41,340
Notes payable--related party                                  12,614,880      11,214,880
                                                            ------------    ------------
                                                              14,696,560      13,322,602
Commitment and contingencies

Stockholders' deficit:
   Preferred shares - authorized 5,000,000 shares,
     par value $.01 per share; none issued or outstanding           --              --
   Common shares--authorized 10,000,000 shares, par value
     $.01 per share; issued 4,787,948 in 2007 and 2006            47,879          47,879
   Additional paid-in capital                                  4,263,212       4,191,264
   Accumulated deficit                                        (9,454,872)     (9,909,454)
                                                            ------------    ------------
                                                              (5,143,781)     (5,670,311)
Treasury Stock, at cost, 696,500 shares in 2007
    and 2006                                                  (1,623,475)     (1,623,475)
                                                            ------------    ------------
Total stockholders' deficit                                   (6,767,256)     (7,293,786)
                                                            ------------    ------------
Total liabilities and stockholders' deficit                 $  7,929,304    $  6,028,816
                                                            ============    ============

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>

                                       F2
<PAGE>

<TABLE>
<CAPTION>


                                        Megadata Corporation and Subsidiary

                                       Consolidated Statements of Operations


                                                                 YEARS ENDED OCTOBER 31,
                                                            2007            2006           2005
                                                         -----------    -----------    -----------
Revenues:
<S>                                                      <C>            <C>            <C>
    Subscriptions                                        $ 5,246,468    $ 3,842,156    $ 3,270,098
    Maintenance                                              408,116        419,774        434,175
    Other                                                     43,652         52,292        104,500
                                                         -----------    -----------    -----------
   Total revenues                                          5,698,236      4,314,222      3,808,773
                                                         -----------    -----------    -----------

Cost and expenses:
   Cost of revenues                                        1,875,320      1,265,428      2,002,335
   Research and development                                  307,323        419,078        392,496
   Selling, general and administrative expenses            2,511,672      2,051,341      1,920,008
                                                         -----------    -----------    -----------
                                                           4,694,315      3,735,847      4,314,839
                                                         -----------    -----------    -----------

Income (loss) from operations                              1,003,921        578,375       (506,066)

Other income (expense):
   Interest income                                            10,500          6,492          1,928
   Interest expense--related party                          (543,179)      (475,263)      (414,576)
                                                         -----------    -----------    -----------
Income (loss) before income taxes                            471,242        109,604       (918,714)
Provision for income taxes                                    16,660          6,689          5,158
                                                         -----------    -----------    -----------
Net income (loss)                                        $   454,582    $   102,915    $  (923,872)
                                                         ===========    ===========    ===========

Net income (loss) per common share - basic               $       .11    $       .03    $      (.23)
                                                         ===========    ===========    ===========
Net income (loss) per common share - diluted             $       .08    $       .02    $      (.23)
                                                         ===========    ===========    ===========
Weighted-average number of common shares outstanding -
   basic                                                   4,091,448      4,091,448      4,088,115
Weighted-average number of common shares outstanding -
   diluted                                                 5,481,031      5,327,052      4,088,115
                                                         ===========    ===========    ===========

          SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>


                                       F3
<PAGE>

<TABLE>
<CAPTION>

                       Megadata Corporation and Subsidiary

                Consolidated Statements of Stockholders' Deficit

                  Years Ended October 31, 2007, 2006, and 2005







                                  COMMON
                               SHARES AFTER
                                DEDUCTING       COMMON       ADDITIONAL                                   TOTAL
                                TREASURY        SHARES         PAID-IN    ACCUMULATED     TREASURY     STOCKHOLDERS'
                                 STOCK          AMOUNT         CAPITAL      DEFICIT        STOCK          DEFICIT
                              -----------    -----------    -----------   -----------    -----------    -----------
<S>                              <C>               <C>         <C>          <C>            <C>            <C>
Balance at October 31, 2004     4,088,115         47,846      4,094,182    (9,088,497)    (1,623,475)    (6,569,944)

          Net loss                                                           (923,872)                     (923,872)
                              -----------    -----------    -----------   -----------    -----------    -----------
Balance at October 31, 2005     4,088,115         47,846      4,094,182   (10,012,369)    (1,623,475)    (7,493,816)
                              -----------    -----------    -----------   -----------    -----------    -----------
  Exercise of common stock
          options                   3,333             33            766                                         799
                              -----------    -----------    -----------   -----------    -----------    -----------
  Stock Based compensation                                       96,316                                      96,316
                              -----------    -----------    -----------   -----------    -----------    -----------
         Net income                                                           102,915                       102,915
                              -----------    -----------    -----------   -----------    -----------    -----------
Balance at October 31, 2006     4,091,448         47,879      4,191,264    (9,909,454)    (1,623,475)    (7,293,786)
                              -----------    -----------    -----------   -----------    -----------    -----------
  Stock Based compensation                                       71,948                                      71,948
                              -----------    -----------    -----------   -----------    -----------    -----------
         Net income                                                           454,582                       454,582
                              -----------    -----------    -----------   -----------    -----------    -----------
Balance at October 31, 2007     4,091,448         47,879      4,263,212    (9,454,872)    (1,623,475)    (6,767,256)
                              -----------    -----------    -----------   -----------    -----------    -----------
                              =====================================================================================


                   SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>

                                       F4
<PAGE>

<TABLE>
<CAPTION>

                       Megadata Corporation and Subsidiary

                      Consolidated Statements of Cash Flows


                                                                                 YEARS ENDED OCTOBER 31,
                                                                       2007           2006            2005
                                                                    -----------    -----------    -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                 <C>            <C>            <C>
Net income (loss)                                                   $   454,582    $   102,915    $  (923,872)
Adjustments to reconcile net income (loss) to net cash
   provided by (used in) operating activities:
     Depreciation and amortization                                    1,051,446        887,572        774,945
     Provision for (recovery of) doubtful accounts
       receivable                                                        (2,068)        32,851         12,000
     Non cash stock compensation expense                                 71,948         96,316           --
     Changes in operating assets and liabilities:
       Accounts receivable                                             (123,311)      (218,343)       (72,976)
       Inventory                                                        369,096       (569,729)       (27,470)
       Prepaid expenses and other current assets                         80,782          2,286       (135,736)
       Other assets                                                       8,614        (30,800)       (13,850)
       Accounts payable                                                  70,049        (10,024)        28,264
       Deferred income                                                  193,194         27,891       (171,538)
          Accrued expenses and other current liabilities               (284,471)       303,493        136,762
                                                                    -----------    -----------    -----------
Total adjustments                                                     1,435,279        521,513        530,401
                                                                    -----------    -----------    -----------
Net cash provided by (used in) operating activities                   1,889,861        624,428       (393,471)
                                                                    -----------    -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES
PASSUR(R) network                                                    (2,337,573)    (1,176,990)      (332,382)
Software development costs                                             (585,433)      (468,115)      (358,000)
Capital expenditures                                                   (290,414)       (73,971)       (73,382)
                                                                    -----------    -----------    -----------
Net cash used in investing activities                                (3,213,420)    (1,719,076)      (763,764)
                                                                    -----------    -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from  notes payable--related party                           1,400,000      1,225,000      1,123,415
Payments on note payable                                                 (4,815)        (4,814)          --
Proceeds from exercise of stock options                                    --              799           --
                                                                    -----------    -----------    -----------
Net cash provided by financing activities                             1,395,185      1,220,985      1,123,415
                                                                    -----------    -----------    -----------

Increase (decrease) in cash                                              71,626        126,337        (33,820)
Cash--beginning of year                                                 215,366         89,029        122,849
                                                                    -----------    -----------    -----------
Cash--end of year                                                   $   286,992    $   215,366    $    89,029
                                                                    ===========    ===========    ===========

SUPPLEMENTAL CASH FLOW INFORMATION
   Cash paid during the year for:
   Interest-related party                                           $   791,034    $   227,396    $   414,576
   Income taxes                                                     $    13,381    $     6,689    $     5,159
   Capital expenditures financed                                           --             --      $    14,000

                      SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>


                                       F5
<PAGE>


                       Megadata Corporation and Subsidiary

                   Notes to Consolidated Financial Statements

                                October 31, 2007

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

Megadata Corporation's, (the "Company") principal business is the delivery from
its proprietary PASSUR(R) network of live, unique flight information, decision
support software, analytics, and web-delivered collaborative decision solutions
to the aviation industry and organizations that serve, or are served by, the
aviation industry.

BASIS OF PRESENTATION

At October 31, 2007, the Company's current liabilities exceeded current assets
by $418,000, it had a stockholder's deficit of $6,767,000, and it earned net
income of $455,000 for the year ended October 31, 2007.

Management is addressing the Company's working capital and stockholders'
deficiencies by aggressively marketing the Company's PASSUR(R) information
capabilities in its existing product lines, enhancements to existing products as
well as in new products, which are currently being developed and in some cases
have been deployed. The Company is continuing to increase the size of the
Company-owned PASSUR(R) network, which management believes will lead to
continued growth in subscription-based revenues. In addition, the Company may
need to obtain external financing, and if such external financing is not
consummated, the Company has a commitment to receive additional financial
support from a significant shareholder through January 10, 2009. Such commitment
for financial support may be in the form of additional advances or loans to the
Company in addition to the deferral of principal and interest payments due on
existing loans, if deemed necessary.

Footnotes have been rounded to the nearest thousand for presentation purposes.

PRINCIPLES OF CONSOLIDATION

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

                                       F6
<PAGE>


                       Megadata Corporation and Subsidiary

             Notes to Consolidated Financial Statements (continued)

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

REVENUE RECOGNITION POLICY

The Company follows the provisions of the American Institute of Certified Public
Accountants Statement of Position 97-2, or SOP 97-2, SOFTWARE REVENUE
RECOGNITION, as amended. SOP 97-2 delineates the accounting practices for
software products, maintenance, and support services and consulting revenue.
Under SOP 97-2, the Company recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred, the fee is determinable and
collection of the resulting receivable is probable. For arrangements involving
multiple elements (e.g. maintenance, support, and other services), the Company
allocates revenue to each element of the arrangement based on vendor-specific
objective evidence of its fair value, or for products not being sold separately,
the objective and verifiable fair value established by management.

The Company recognizes revenue on the sale of products and systems when the
products or systems have been shipped and in accordance with Staff Accounting
Bulletin 104 and SOP 97-2.

The Company recognizes services and maintenance revenues on a straight-line
basis over the service contract period. Revenues for data subscription services
are recognized on a monthly basis upon the execution of an agreement and the
customer's receipt of the data.

The Company recognizes license fee revenues on a straight-line basis over the
term of the license agreement, which typically does not exceed five years.

The Company recognizes initial set up fee revenues and associated costs on a
straight-line basis over the estimated life of the customer relationship period,
typically five years.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.

INVENTORY

Inventory is valued at the lower of cost or market with cost being determined
using the first-in, first-out (FIFO) method. Costs included in inventory consist
of materials, labor, and manufacturing overhead that are related to the purchase
and production of inventory.

                                       F7
<PAGE>


                       Megadata Corporation and Subsidiary

             Notes to Consolidated Financial Statements (continued)

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ACCOUNTS RECEIVABLE

The Company uses installment license and/ or maintenance agreements as part of
its standard business practice. The Company has a history of successfully
collecting all amounts due under the original payment terms, without making
concessions on payments, software products, maintenance, or other services. Net
accounts receivable are composed of either the monthly, quarterly, or annual
committed amounts due from customers pursuant to the terms of each respective
customer's agreement. These account receivable balances include unearned revenue
attributable to deferred subscription revenues, deferred maintenance revenues,
and unamortized license fee revenues. Deferred revenue amounts represent fees
billed prior to actual performance of services, which will be recognized as
revenue over the respective license agreement term, which typically does not
exceed five years.

Accounts receivable balances also include initial set up fees billed when the
service is performed and revenues are recognized on a straight-line basis over
the estimated life of the customer relationship period, typically five years.

For the fiscal year ended October 31, 2007, the provision for doubtful accounts
was approximately $7,000 compared to $9,000 recorded as of the fiscal year ended
October 31, 2006. The Company monitors its outstanding accounts receivable
balance and believes the $7,000 provision is reasonable.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is recorded at cost and are depreciated on a
straight-line basis over the estimated useful lives of the related assets.
Amortization of leasehold improvements is calculated on a straight-line basis
over the estimated useful life of the improvements or the term of the lease,
including renewal options expected to be exercised, whichever is shorter.
Routine repairs and maintenance are expensed when incurred.

PASSUR(R) NETWORK

The PASSUR(R) Network installations, which include the direct and indirect
production and installation costs incurred for each of the Company-owned
PASSUR(R) systems (the "PASSUR(R) Network"), are recorded at cost, net of
accumulated depreciation of $3,156,000 and $2,496,000 as of October 31, 2007 and
2006, respectively. Depreciation is charged to cost of revenues and is
calculated using the straight-line method over the estimated useful life of the
asset, which is estimated at seven years for PASSUR(R) Systems and five years
for related workstations. Units that are not placed into service (at October 31,
2007 total of 27 units) are not depreciated until they are placed in service.
During fiscal 2007, 2006, and 2005, the Company capitalized $1,664,000,
$1,263,000, and $475,000 of costs related to additions to the PASSUR(R) Network,
respectively. The Company incurred depreciation expense related to PASSUR(R)
Network installations during fiscal 2007, 2006, and 2005 of $659,000, $614,000,
and $538,000, respectively. During fiscal 2007, the amount capitalized to the
PASSUR(R) Network includes transfers from inventory of approximately $1,651,000.
In fiscal 2007 and 2006 the Company did not dispose of any PASSUR(R) Network
assets.

                                       F8
<PAGE>


                       Megadata Corporation and Subsidiary

             Notes to Consolidated Financial Statements (continued)

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CAPITALIZED SOFTWARE COSTS

The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 86, "ACCOUNTING FOR THE COSTS OF SOFTWARE TO BE SOLD,
LEASED, OR OTHERWISE MARKETED." Costs incurred to develop computer software
products as well as significant enhancements to software features of the
existing products to be sold or otherwise marketed are capitalized, after
technological feasibility is established until the product is available for
release to customers. Once the software products become available for general
release to the public, the Company begins to amortize such costs to cost of
sales.

Amortization of capitalized software costs is provided on a product-by-product
basis based on the greater of the ratio of current gross revenues to the total
of current and anticipated future gross revenues or the straight-line method
over the estimated economic life of the product beginning at the point the
product becomes available for general release, typically over five years. Costs
incurred to improve and support products after they become available for general
release are charged to expense as incurred. The assessment of recoverability of
capitalized software development costs requires the exercise of judgment by
management. In the opinion of management, all such costs capitalized as of
October 31, 2007 are recoverable through anticipated future sales of such
applicable products. During fiscal 2007 and 2006, the Company capitalized
approximately $585,000 and $468,000, respectively. During fiscal year 2007,
2006, and 2005, the Company recorded approximately $284,000, $217,000, and
$190,000 of amortization related to software development projects, respectively,
of which certain projects were completed and released for sale and certain
projects were still in development as of each year end.

In fiscal 2007 and 2006 the Company did not write off any capitalized software
projects.

LONG-LIVED ASSETS

The Company reviews long-lived assets for impairment when circumstances indicate
the carrying amount of an asset may not be recoverable. Impairment is recognized
to the extent the sum of undiscounted estimated future cash flows expected to
result from the use of the asset is less than the carrying value. Assets to be
disposed of are carried at the lower of their carrying value or fair value, less
costs to sell. The Company evaluates the periods of amortization continually in
determining whether later events and circumstances warrant revised estimates of
useful lives. If estimates are changed, the unamortized costs will be allocated
to the increased or decreased number of remaining periods in the revised life.


                                       F9
<PAGE>


                       Megadata Corporation and Subsidiary

             Notes to Consolidated Financial Statements (continued)

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

COST OF REVENUES

The Company has not segregated its cost of revenues between cost of system
revenues and cost of subscription and maintenance revenues, as it is not
practicable to segregate such costs. Costs associated with system revenues
consist primarily of purchased materials, direct labor, and overhead costs.

Costs associated with subscription and maintenance revenues consist primarily of
direct labor, communication costs, depreciation of PASSUR(R) Network assets,
amortization of software development costs, and overhead costs allocations. Also
included in costs of revenues are costs associated with the upgrades of
PASSUR(R) systems necessary to make such systems compatible with new software
applications as well as the ordinary repair and maintenance of existing
PASSUR(R) network systems. Additionally, cost of revenues in each reporting
period is impacted by: (1) the number of PASSUR(R) Network units added, which
include the production, shipment, and installation of these assets which are
capitalized to the PASSUR(R) Network; and (2) capitalized costs associated with
software development programs which are expensed in cost of revenues.

INCOME TAXES

The Company and its subsidiary 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.

RESEARCH AND DEVELOPMENT COSTS

Research and development costs are expensed as incurred.


                                      F10
<PAGE>


                       Megadata Corporation and Subsidiary

             Notes to Consolidated Financial Statements (continued)

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

NET INCOME (LOSS) PER COMMON SHARE INFORMATION

The Company reports basic and diluted net loss 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.

Basic net income (loss) per share is computed based on the weighted average
number of shares outstanding. Diluted net income (loss) per share is based on
the sum of the weighted average number of common shares outstanding and common
stock equivalents. For all periods in 2005, basic net loss per share equaled
diluted net loss per share because the effect of common stock equivalents was
anti-dilutive, and therefore excluded from the calculation of diluted net loss
per share. Shares used to calculate net income (loss) per share are as follows:

                                              2007          2006        2005
                                           ---------     ---------     ---------
Basic weighted average shares              4,091,448     4,091,448     4,088,115
   outstanding
Effect of dilutive stock options           1,389,583     1,235,604          --
                                           ---------     ---------     ---------
Diluted weighted average shares
   outstanding                             5,481,031     5,327,052     4,088,115
                                           =========     =========     =========

Weighted average shares which
  are not included in the
  calculation of diluted net
  income (loss) per share
  because their impact is
  anti-dilutive

Stock options                                325,917       676,771     1,561,000

DEFERRED INCOME

Deferred income includes advances received on subscription services and/or
maintenance agreements which are derived from the Company's PASSUR(R) Network
and which may be prepaid either annually or quarterly, as well as advanced
one-time payments received for license fees relating to Company software
applications. Revenues from subscription and maintenance services are recognized
as income ratably over the subscription and/or maintenance period that coincides
with the respective agreement.

The Company recognizes license fees revenues on a straight-line basis over the
term of the license agreement, which typically does not exceed five years.

The Company recognizes initial set up fee revenues and associated costs on a
straight-line basis over the estimated life of the customer relationship period,
typically five years.

                                      F11
<PAGE>

                       Megadata Corporation and Subsidiary

             Notes to Consolidated Financial Statements (continued)

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

FAIR VALUE OF FINANCIAL INSTRUMENTS

The recorded amounts of the Company's cash, receivables, accounts payable, and
accrued liabilities approximate their fair values principally because of the
short-term nature of these items. The fair value of related party debt is not
practical to determine.

STOCK-BASED COMPENSATION

The Company grants options for a fixed number of shares to employees, directors,
and consultants with an exercise price equal to the fair value of the shares at
the date of grant. Prior to November 1, 2005, the Company accounted for employee
stock option plans based on the intrinsic value method in accordance with
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," and related Interpretations and had adopted the disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS
No.123). Accordingly, compensation cost for stock options was measured as the
excess, if any, of the quoted market price of the Company's stock at the grant
date over the amount an employee must pay to acquire the stock. The Company
granted stock options with exercise prices equal to the market price of the
underlying stock on the date of grant; therefore, the Company did not record
stock-based compensation expense under APB Opinion No. 25.

The following table illustrates the effect on net loss and loss per share if the
Company had applied the fair value recognition provisions of SFAS No. 123 as
amended by SFAS No. 148 to stock-based compensation (see Note 9. Stock Options)
for the fiscal year ended October 31, 2005:

      Reported net loss                                    $(924,000)
      Pro-forma stock compensation
         expense                                             (72,000)
                                                           ---------
      Pro-forma net loss                                   $(996,000)
                                                           =========
      Reported basic and diluted net
         loss per common share                             $    (.23)
                                                           =========
      Pro-forma basic and diluted net
         loss per common share                             $    (.24)
                                                           =========

Effective November 1, 2005, the Company adopted SFAS No. 123R, "Share-Based
Compensation" using the modified prospective method, which requires measurement
of compensation cost for all stock-based awards at fair value on date of grant
and recognition of compensation over the service period for awards expected to
vest. The fair value of stock options was determined using the Black-Scholes
valuation model, which is consistent with our valuation techniques previously
utilized for stock options in footnote disclosures required under SFAS No. 123.
Such fair value is recognized as expense over the service period, net of
estimated forfeitures. The adoption of SFAS No.123R resulted in no cumulative
change in accounting as of the date of adoption. For the fiscal years ended
October 31, 2007 and 2006, stock compensation expense of $72,000 and $96,000,
respectively, was primarily charged to Selling, General and Administrative
expenses.

                                      F12
<PAGE>


                       Megadata Corporation and Subsidiary

             Notes to Consolidated Financial Statements (continued)

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

STOCK-BASED COMPENSATION (CONTINUED)

The weighted average fair value of options outstanding during the year ended
October 31, 2007 was $.51. These options vest over a period of three and five
years. The fair value for these options was estimated at the date of grant using
a Black-Scholes option pricing model with the following weighted average
assumptions for the fiscal years ended October 31, 2007, 2006, and 2005;
risk-free interest rates of 4.47%, 4.47%, and 3.92%, respectively: volatility
factor of the expected market price of the Company's common stock of 142% in
fiscal year 2007, 135% in fiscal year 2006, and 111% in fiscal year 2005; no
dividend yield: and a weighted-average expected life of the option of 6.5, 6.3,
and 8 years in fiscal 2007, 2006, and 2005, respectively.

COMPREHENSIVE INCOME (LOSS)

For the fiscal years ended October 31, 2007 and 2006, the Company's
comprehensive income is equivalent to that of the Company's total net income.
For the fiscal year ended October 31, 2005, the Company's comprehensive loss is
equivalent to that of the Company's total net loss.

Certain reclassifications have been made to the prior year financial statements
to conform to the current period presentation.

RECENT ACCOUNTING PRONOUNCEMENTS

In February 2007, the FASB issued Statement of Financial Accounting Standard No.
159, The Fair Value Option for Financial Assets and Financial Liabilities ("FAS
159"). FAS 159 permits entities to choose to measure many financial instruments
and certain other items at fair value that are not currently required to be
measured at fair value and establishes presentation and disclosure requirements
designed to facilitate comparisons between entities that choose different
measurement attributes for similar types of assets and liabilities. Unrealized
gains and losses on items for which the fair value option has been elected are
reported in earnings. FAS 159 does not apply to the Company's fiscal 2007
financial statements since it is effective only for fiscal years beginning after
November 15, 2007. The Company has determined that the adoption of FAS 159 will
not have a material impact on future Financial Statements.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
("SFAS 157"). SFAS 157 clarifies that fair value is the amount that would be
exchanged to sell an asset or transfer a liability in an orderly transaction
between market participants. Further, the standard establishes a framework for
measuring fair value in generally accepted accounting principles and expands
certain disclosures about fair value measurements. SFAS 157 does not apply to
the Company's fiscal 2007 financial statements since it is effective only for
fiscal years beginning after November 15, 2007. The Company does not expect that
the adoption of SFAS 157 will have a material impact on its future consolidated
financial position, results of operations, or cash flows.

                                      F13
<PAGE>


                       Megadata Corporation and Subsidiary

             Notes to Consolidated Financial Statements (continued)

RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

On July 13, 2006, FASB Interpretation (FIN) No. 48, Accounting for Uncertainty
in Income Taxes - An Interpretation of FASB Statement No. 109, was issued. FIN
48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with FASB Statement No. 109,
Accounting for Income Taxes. FIN 48 also prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. The new FASB
standard also provides guidance on de-recognition, classification, interest, and
penalties, accounting in interim periods, disclosure, and transition. FASB
Interpretation (FIN) No. 48 takes effect for years beginning after December 15,
2006, which for the Company will be the fiscal year beginning November 1, 2007.
The Company is in the process of evaluating the impact that the adoption of this
accounting pronouncement will have on its future financial statements.

Certain reclassifications have been made to prior year amounts to conform with
the current year presentation.

2. INVENTORY

Inventory is summarized as follows:

                                                     OCTOBER 31,
                                                2007             2006
                                          ----------------- ----------------

Parts and raw materials                   $     137,000     $     141,000
Work-in-process                                 162,000           384,000
Finished goods                                   68,000           211,000
                                          ----------------- ----------------
                                          $     367,000     $     736,000
                                          ================= ================

3. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

                            ESTIMATED
                             USEFUL                 OCTOBER 31,
                              LIVES            2007             2006
                            ------------- ---------------- --------------

Leasehold improvements       3-5 years       $  138,000       $   109,000
Equipment                   5-10 years        2,719,000         2,460,000
Furniture and fixtures      5-10 years          418,000           415,000
                                          ---------------- --------------
                                              3,275,000         2,984,000
Less accumulated
  depreciation
  and amortization                            2,947,000         2,839,000
                                          ---------------- --------------
                                             $  328,000       $   145,000
                                          ================ ==============

The Company recorded depreciation and amortization expense on the assets
included in property, plant and equipment of $108,000, $57,000, and $47,000 for
the years ended October 31, 2007, 2006, and 2005, respectively.

                                      F14
<PAGE>


                       Megadata Corporation and Subsidiary

             Notes to Consolidated Financial Statements (continued)

4. SOFTWARE DEVELOPMENT COSTS

Software development costs are comprised of costs incurred to develop computer
software products as well as enhancements to software features of the existing
products to be sold or otherwise marketed, after technological feasibility is
established and which end when the product is available for release to
customers. As of October 31, 2007 and 2006, the Company had approximately
$2,417,000, and $1,831,000 of such costs capitalized, and $917,000 and $633,000
of accumulated amortization, respectively. The weighted average amortization
period of the Company's software development costs as of October 31, 2007 is
approximately 2.8 years.

Amortization expense on these assets for the fiscal years ended October 31,
2007, 2006, and 2005 was approximately $284,000, $217,000, and $190,000,
respectively. Future amortization expense for software development costs
capitalized as of October 31, 2007 for the years ended October 31, 2008, 2009,
2010, 2011, and 2012 is estimated to approximate $272,000, $193,000, $145,000,
$117,000, and $33,000, respectively.

5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:

                                                        OCTOBER 31,
                                                   2007               2006
                                                   ----               ----
Payroll, payroll taxes and benefits          $     276,000     $     324,000
Professional fees                                  139,000           132,000
License fees                                        86,000            75,000
Commissions                                         49,000            43,000
Travel expenses                                     14,000            40,000
Advertising and marketing                           21,000            27,000
Other liabilities                                   75,000            56,000
                                             ----------------- ----------------
                                             $     660,000     $     697,000
                                             ================= ================


6. NOTES PAYABLE--RELATED PARTY

During fiscal 2007, G.S. Beckwith Gilbert, the Company's significant shareholder
and Chairman, loaned the Company an additional $1,400,000 in exchange for
promissory notes bearing interest payable in cash at 4.5% per annum and maturing
on November 1, 2008, bringing the principal amount of notes due to Mr. Gilbert
to $12,614,880 on October 31, 2007. During fiscal 2006, Mr. Gilbert lent the
Company an additional $1,225,000, bringing the total to $11,214,880 and then
accrued interest of $247,867 was added to the principal, resulting in a total of
$11,462,747 owed to Mr. Gilbert on October 31, 2006. During fiscal 2005, Mr.
Gilbert lent the Company an additional $1,123,415, resulting in a total of
$9,989,880 owed to Mr. Gilbert on October 31, 2005. The notes are secured by the
Company's assets. The notes payable are classified as long-term as of October
31, 2007, 2006 and 2005.

                                      F15
<PAGE>


                       Megadata Corporation and Subsidiary

             Notes to Consolidated Financial Statements (continued)

7. LEASES AND NOTE PAYABLE

The Company's research and manufacturing facility is located in Bohemia, New
York, and is subject to a lease that was extended for an additional three years
commencing November 1, 2006 through October 31, 2009. Minimum rent under this
agreement for the period ended October 31, 2007 approximated $93,000. This lease
provides for additional payments of real estate taxes and other operating
expenses over the minimum rental amount. The Company's headquarters located in
Greenwich, CT is rented for the period ending June 30, 2009 at an amount of
$90,000 per year. All other operating leases are under a month-to-month
arrangement.
                                                            Contractual
                                                          Obligations Under
Fiscal Year Ended October 31:                             Operating Leases
                                                          ----------------
2008                                                         $  187,000
2009                                                            161,000
                                                             ----------
Total Minimum Contractual Obligations                        $  348,000
                                                             ==========

8. INCOME TAXES

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

At October 31, 2007, the Company has available a federal net operating loss
carry-forward of approximately $12,989,000 for income tax purposes which will
expire in various tax years from 2008 through 2025. The Company has provided a
full valuation allowance on the net deferred tax asset of approximately
$4,855,000 which primarily consists of the net operating loss carry-forwards.

9. STOCK OPTIONS

The Company's stock option plans provide for the granting of stock options for
up to 2,240,000 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 common stock. 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 common stock at the date of grant.

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 expected stock price volatility.

                                      F16
<PAGE>


                       Megadata Corporation and Subsidiary

             Notes to Consolidated Financial Statements (continued)

9. STOCK OPTIONS (CONTINUED)

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.

Information with respect to options during the years ended October 31, 2007,
2006 and 2005 is as follows:

<TABLE>
<CAPTION>

                                    2007                       2006                      2005
                            -----------------------    -----------------------    ----------------------

                                           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    1,675,500      $ .46       1,561,000       $ .49       1,210,000      $.56
   of year
Options granted                 40,000       2.63         172,000         .47         351,000       .25
Options forfeited and
   expired                        --         --           (54,167)       1.42            --         --
Options exercised                 --         --            (3,333)        .24            --         --
                            -----------------------------------------------------------------------------
Options outstanding--
   end of year               1,715,500      $ .51       1,675,500       $ .46       1,561,000      $.49
                            =============================================================================
Options exercisable at
   end of year               1,509,185      $ .39       1,248,130       $ .49         909,900      $.62
                            =============================================================================
Weighted average fair
   value per share of
   options granted during
   the year                      $2.48                       $.47                        $.25
                                 =====                       ====                        ====
</TABLE>

                                      F17
<PAGE>


                       Megadata Corporation and Subsidiary

             Notes to Consolidated Financial Statements (continued)

9. STOCK OPTIONS (CONTINUED)

The following table summarizes information about stock options outstanding at
October 31, 2007:

<TABLE>
<CAPTION>

-------------------- ----------------- ----------------------- ---------------------- ------------- ---------------------
                                                                                       OPTIONS
                     OPTIONS OUTSTANDING                                              EXERCISABLE
-------------------- ----------------- ----------------------- ---------------------- ------------- ---------------------
                                           Weighted-Average
                                               Remaining
Range of                                      Contractual          Weighted-Average                 Weighted-Average
Exercise Prices            Shares                Life               Exercise Price        Shares    Exercise Price
-------------------- ----------------- ----------------------- ---------------------- ------------- ---------------------
<S>                       <C>                 <C>                      <C>               <C>                <C>
  $  .15 - $  .24          323,500             4.6 years                $ .20             323,500            $ .20
-------------------- ----------------- ----------------------- ---------------------- ------------- ---------------------
  $  .25 - $  .38          569,000             6.0 years                  .29             512,900              .29
-------------------- ----------------- ----------------------- ---------------------- ------------- ---------------------
  $  .40 - $  .55          480,500             6.5 years                  .49             370,285              .50
-------------------- ----------------- ----------------------- ---------------------- ------------- ---------------------
  $  .63 - $  .84          265,000             2.9 years                  .79             265,000              .79
-------------------- ----------------- ----------------------- ---------------------- ------------- ---------------------
  $ 1.63 - $ 3.19           77,500             6.0 years                 2.58              37,500             2.53
                     -------------                                                     ----------
-------------------- ----------------- ----------------------- ---------------------- ------------- ---------------------
                         1,715,500                                                      1,509,185
                     ==============                                                    ==========
-------------------- ----------------- ----------------------- ---------------------- ------------- ---------------------
</TABLE>


As of October 31, 2007, there were 2,220,000 shares of common stock reserved for
future issuance under the Company's stock option plan. For the year ended
October 31, 2007, stock compensation expense of approximately $72,000 was
primarily charged to Selling, General and Administrative expense, consisting of
$10,000 for options granted during fiscal year 2007 and $62,000 for non vested
options granted prior to October 31, 2006. As of October 31, 2007, there was
$132,000 of total unrecognized compensation cost, net of estimated forfeitures,
related to nonvested share-based compensation arrangements, which is expected to
be recognized over a weighted-average period of 2.8 years.

Stock option activity during the year ended October 31, 2007, was as follows:

<TABLE>
<CAPTION>

------------------------------------------- ---------------- ------------- --------------- ------------------
                                                                              Weighted
                                                               Weighted       average
                                                               average       remaining          Aggregate
                                            Number of          exercise      contracted         intrinsic
                                            options            price         term (years)       value
------------------------------------------- ---------------- ------------- --------------- ------------------
<S>                                        <C>                   <C>          <C>           <C>
Outstanding at November 1, 2006               1,675,500           $ 0.49
------------------------------------------- ---------------- ------------- --------------- ------------------
Options granted                                  40,000             2.63
------------------------------------------- ---------------- ------------- --------------- ------------------
Options exercised                                    -              -
------------------------------------------- ---------------- ------------- --------------- ------------------
Options forfeited                                    -              -
------------------------------------------- ---------------- ------------- --------------- ------------------
Options outstanding at October 31, 2007       1,715,500              .51          5.4          $872,000
                                              =========
------------------------------------------- ---------------- ------------- --------------- ------------------
Options exercisable at October  31, 2007      1,509,185              .39          5.0          $593,000
------------------------------------------- ---------------- ------------- --------------- ------------------
</TABLE>

The weighted average grant-date fair value of options granted during fiscal year
2007 was $2.48.


                                      F18
<PAGE>


                      Megadata Corporation and Subsidiary

             Notes to Consolidated Financial Statements (continued)

9. STOCK OPTIONS (CONTINUED)

A summary of our non-vested shares as of October 31, 2007 and changes during the
fiscal year are presented below:

---------------------------------- ------------------------ --------------------
                                                                     Weighted
                                                                     average
                                                                     grant date
                                            Shares                   fair value
---------------------------------- ------------------------ --------------------
 Nonvested at November 1 , 2006              427,370               $ .37
---------------------------------- ------------------------ --------------------
 Granted                                      40,000                2.63
---------------------------------- ------------------------ --------------------
 Vested                                     (261,055)                .36
---------------------------------- ------------------------ --------------------
 Forfeited                                  (    -- )               --
---------------------------------- ------------------------ --------------------
 Nonvested at October 31, 2007               206,315                 .83
---------------------------------- ------------------------ --------------------


10. MAJOR CUSTOMERS

The Company is a supplier of information and decision support software serving
the needs of the aviation industry, primarily airlines, airports, and other
aviation related companies. The Company performs ongoing credit evaluations of
its customers and generally does not require collateral. Credit losses
historically have been immaterial.

During the year ended October 31, 2007, 2006 and 2005 one customer (Continental
Airlines) accounted for approximately 13%, 16%, and 18% of total revenues,
respectively.

The Company had export sales of approximately $241,000, $226,000, and $174,000
in fiscal 2007, 2006, and 2005, respectively. All sales, including export sales,
are denominated in U.S. dollars.

11. RELATED PARTY TRANSACTIONS

For the years ended October 31, 2007, 2006, and 2005 the Company paid
approximately $246,000, $98,000, and $24,000 respectively, to Surf-Tech
Manufacturing, Inc. (a non-public corporation) for materials and labor in
connection with the production of various replacement, new, and upgraded
equipment for PASSUR(R) systems. The Company believes that these rates are
competitive and are at or below market rates. A Company Executive Vice President
and Director was a 50% shareholder of the aforementioned company through July
31, 2007, at which time such shares were sold.

Accrued expenses - related parties consists of interest on notes payable-related
party (note 6) for the year ended October 31, 2006.


                                      F19
<PAGE>


                       Megadata Corporation and Subsidiary

             Notes to Consolidated Financial Statements (continued)

12. ROYALTY AGREEMENT

The Company is a party to a license agreement, as amended in fiscal 2001,
whereby the Company is granted the exclusive right and license worldwide to
manufacture and sell PASSUR(R) systems for use with airline dispatch systems and
in other aircraft flight tracking systems. The Company is also granted an
exclusive worldwide license to sell PASSUR(R) systems and/or data subscriptions
for noise applications. The Company pays a royalty based on the number of
PASSUR(R) systems sold and/or installed and generating subscription revenues
subject to a minimum annual royalty of $75,000. As of October 31, 2007 and 2006,
the Company had $86,000 and $75,000 accrued respectively, as a component of
accrued expenses and other accrued liabilities, respectively. This license
agreement is in effect until the date of expiration of the last licensed patent
to expire, which occurs in 2013.

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

13. QUARTERLY RESULTS OF OPERATIONS

The following table provides unaudited quarterly consolidated results of
operations for each quarter of fiscal years 2007 and 2006. The Company believes
this unaudited information has been prepared substantially on the same basis as
the annual audited financial statements and all necessary adjustments,
consisting of any normal recurring adjustments, have been included in the
amounts stated below to present fairly the Company's results of operations. The
operating results for any quarter are not necessarily indicative of the
operating results for any future period. Certain balances have been reclassified
to conform to the presentation of balances as stated in this Annual Report on
Form 10-K.

<TABLE>
<CAPTION>

                                                                          THREE MONTHS ENDED
                   ----------------------------------------------------------------------------------------------------------------
                       OCT. 31,        JULY 31,   APRIL 30,     JAN. 31,      OCT. 31,       JULY 31,      APRIL 30,     JAN. 31,
                        2007            2007        2007          2007          2006           2006         2006           2006
                   ----------------------------------------------------------------------------------------------------------------
<S>                 <C>           <C>           <C>           <C>           <C>           <C>           <C>            <C>
TOTAL REVENUES      $ 1,537,588   $ 1,466,793   $ 1,392,175   $ 1,301,680   $ 1,206,214   $ 1,074,277   $ 1,015,967    $  1,017,764

INCOME (LOSS)
  FROM OPERATIONS       280,280       291,418       245,983       186,240       459,237       141,779       (12,604)        (10,037)

NET INCOME (LOSS)       143,464       142,264       114,973        53,881       334,278        22,390      (126,740)       (127,013)

NET INCOME (LOSS)
  PER COMMON
  SHARE - BASIC     $       .04   $       .03   $       .03   $       .01   $       .08   $       .01   $      (.03)   $       (.03)
NET INCOME (LOSS)
  PER COMMON
  SHARE - DILUTED   $       .03   $       .03   $       .02   $       .01   $       .06   $       .01   $      (.03)   $       (.03)
                  ----------------------------------------------------------------------------------------------------------------
</TABLE>

                                      F20
<PAGE>

<TABLE>
<CAPTION>

                       Megadata Corporation and Subsidiary

                 Schedule II - Valuation and Qualifying Accounts

                                           ADDITIONS

                            BALANCE AT     CHARGED TO     CHARGED
                             BEGINNING     COSTS AND      TO OTHER                     BALANCE AT END
DESCRIPTION                  OF PERIOD      EXPENSES      ACCOUNTS       DEDUCTIONS      OF PERIOD
-------------------------------------------------------------------------------------------------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>
Year Ended
October  31, 2007;
-------------------------------------------------------------------------------------------------------
Reserves and
allowances deducted
from asset accounts:
-------------------------------------------------------------------------------------------------------
Reserve for estimated
doubtful accounts -
accounts receivable.             8,612       32,653                        (34,720)         6,545
-------------------------------------------------------------------------------------------------------
Valuation allowance
on deferred tax asset        5,589,000                   (734,000)(a)                   4,855,000
-------------------------------------------------------------------------------------------------------
                             5,597,612       32,653      (734,000)         (34,720)     4,861,545
-------------------------------------------------------------------------------------------------------

Year Ended
October  31, 2006;
-------------------------------------------------------------------------------------------------------
Reserves and allowances
deducted from asset accounts:
-------------------------------------------------------------------------------------------------------
Reserve for estimated
doubtful accounts -
accounts receivable.             6,275       32,851                        (30,514)       8,612
-------------------------------------------------------------------------------------------------------
Valuation  allowance
on deferred tax asset        6,365,000                   (776,000)(a)                 5,589,000
-------------------------------------------------------------------------------------------------------
                             6,371,275       32,851      (776,000)         (30,514)   5,597,612
-------------------------------------------------------------------------------------------------------

Year Ended
October 31, 2005;
-------------------------------------------------------------------------------------------------------
Reserves and allowances
deducted from asset
accounts:
-------------------------------------------------------------------------------------------------------
Reserve for estimated
doubtful accounts -
accounts receivable.                         12,000                         (5,725)       6,275
-------------------------------------------------------------------------------------------------------
Valuation  allowance
on deferred tax asset        5,988,500                    376,500(a)                  6,365,000
-------------------------------------------------------------------------------------------------------
                             5,988,500       12,000       376,500           (5,725)   6,371,275
                           ============================================================================

(a) Valuation allowance for deferred tax assets.
</TABLE>

                                       S1