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, 2006
                                       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, 2006 was $654,000

             The number of shares of common stock, $0.01 par value,
                outstanding as of January 25, 2007 was 4,091,448

                       DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement for the 2006 Annual
Meeting of Stockholders, to be filed with the Securities and Exchange Commission
within 120 days of October 31, 2006, are incorporated by reference into Part III
of this Form 10-K.


                                  Page 1 of 65

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                                     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 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
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 and airports services that the Company believes are
usually otherwise unavailable. The Company now provides services to over 45
airports and dozens of airlines and continues to expand services to each
customer in this traditional, "industrial", market. Concurrently, the Company is
taking its specialized content and software, the credibility of which has been
established by its large customer base of airports and airlines, and marketing
it to the "non-industrial" market - corporate aviation and its ancillary
industries, as well as to the online travel services market. This market
includes thousands of organizations with a need for more accurate flight
information and software tools. 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) 2006 increased by approximately 13%, or
$505,000, to $4,314,000 from $3,809,000 in FY 2005, while total costs and
expenses in FY 2006 decreased by about 13% or $578,000 to $3,736,000 from
$4,315,000 in FY 2005.

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,
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


                                  Page 2 of 65
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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 is being
adversely affected by a lack of accurate flight information. 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 airlines and airports, while simultaneously
investing in growing the radar network and continuously integrating additional
information sets into the database. Because of its investments in this database
and web-dashboard technologies, and the "vetting" of both by its traditional
"industrial" airline and airport markets, Megadata is now taking new versions of
the information and software products to the "non-industrial" segment of the
aviation markets: corporate aviation and its ancillary industries and online
travel services. 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 37 of the top 40 airports in the United States,
          including all of the top 10. In addition, nine of the top domestic and
          international airlines utilize the information and software products
          derived from the PASSUR(R) network. For example, leading 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. The Company has 70 PASSUR(R) systems installed
          worldwide and is continually working to add new products to the
          existing customer base.


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     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 three of the
          country's top airports, John F. Kennedy International, LaGuardia, and
          Dulles International Airports, the airlines, the Federal Aviation
          Administration (the "FAA"), airport operations, and FBOs use
          Megadata's award-winning 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 45 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 its non-industrial
                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.

         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.


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     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 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(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.

     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 Pulse Audit(TM) 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.


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          c.   PASSUR(R) Pulse Proactive Billing(TM) module, patent pending, and
               a new product, 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), patent pending, 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.

     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. This
               system can be accompanied by our PASSUR(R) Kiosks(TM) and LCDs,
               which we believe are state-of-the-art kiOsks and flat panel
               display screens powered by our software applications, such as
               PASSUR(R) FlightLink.

          c.   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 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.

HOW MEGADATA GENERATES REVENUE

The Company generates revenues by selling; (1) subscription-based information
and software products or (2) equipment - a PASSUR(R) radar system (included in a
sale is an annual maintenance contract and an additional charge for
installation) or PASSUR(R) Kiosks or LCDs, and (3) consulting services. Under
the subscription model, thE customer signs a minimum 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. When PASSUR(R) radar systems are
sold, we retain both proprietary and distribution rights tO the data generated
from such systems and, subject to certain exceptions, we can distribute such
data at the Company's sole discretion, with few exceptions. Consulting services
generally accompany the sale of our collaborative decision tools.


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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

                  Not applicable.

                          (c)  NARRATIVE DESCRIPTION OF BUSINESS

                  The Company's principal business is the delivery of flight
         information, web-delivered software, and web-delivered collaborative
         decision tools to the aviation industry and organizations which 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.

                  Under the exclusive license agreement dated as of March 27,
         1997, as amended on October 28, 1999 and February 27, 2001, between a
         third party and the Company, the Company is granted the exclusive right
         and license worldwide to manufacture and sell PASSUR(R) systems for use
         with airline dispatcH arrangements 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. This license
         agreement is effective until the date of expiration of the last
         PASSUR(R) patent to expire, which occurs in 2013.

                       (ii) CUSTOM HARDWARE AND SOFTWARE ACTIVITIES

                  The Company is not involved in specialized research and
         development projects sponsored and paid for by customers.


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                  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 and
         airports. 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.

                      (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. OpsNet(TM) is an example of a decisiOn
         support service.

                      (iii) MAINTENANCE SERVICES

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

                  3.  SOURCES OF RAW MATERIALS

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

                  4.  DEPENDENCE ON CERTAIN CUSTOMERS

                  During the fiscal years ended October 31, 2006, 2005 and 2004,
         one customer (Continental Airlines) accounted for approximately 16%,
         18% and 23% 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, 2006 amounted to approximately
         $3,978,000. Of this amount, $3,559,000 is scheduled for delivery or
         performance before October 31, 2007 and the balance of $419,000 is
         scheduled for delivery or performance in subsequent years. The backlog
         at October 31, 2005 and 2004 amounted to approximately $2,927,000 and
         $3,768,000 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 is an increase in
         availability of other forms of flight tracking products. Depending on
         the end use of the Company's products, the Company's primary
         competitors include Dimensions International, Lochard Pty, Ltd, Rannoch
         Corporation and Sabre, Inc. The Company also sells certain data
         solutions through systems integrators, including BAE, Inc., and Bruel &
         Kjaer Inc., some of these integrators may also sell products that are
         competitive with those offered by the Company. Most of these companies
         are significantly larger than the Company, and have larger sales forces
         and greater financial resources than the Company.



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                  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.

                  During the fiscal year ended October 31, 2006, the Company
         incurred approximately $419,000 in expenditures for R&D, none of which
         were customer sponsored. In the fiscal years ended October 31, 2005 and
         2004, approximately $393,000 each year was expended for R&D, none of
         which was customer sponsored.

                  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, 2006, the Company employed 17 full time
         employees, including 6 officers.



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<PAGE>


                  (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:

NET REVENUES          2006                      2005                  2004

Domestic      $4,088,000     95%      $3,635,000      95%     $3,047,000     98%
--------      ----------    ----      ----------     ----     ----------    ----

Exports          226,000      5%         174,000       5%         64,000      2%
--------      ----------    ----      ----------     ----     ----------    ----

Total
Revenues:     $4,314,000  100.0%      $3,809,000   100.0%     $3,111,000  100.0%
--------      ----------  ------      ----------   ------     ----------  ------


         ADDITIONAL 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

         THE COMPANY HAS A HISTORY OF OPERATING LOSSES AND NEGATIVE CASH FLOWS
         FROM OPERATIONS AND EXPECTS ITS LOSSES AND NEGATIVE CASH FLOWS TO
         CONTINUE FOR THE NEXT SEVERAL REPORTING PERIODS.

                  While the Company had income during fiscal year 2006, it
         incurred significant losses during the previous six fiscal years. The
         Company had income of approximately $103,000 for the fiscal year ended
         October 31, 2006, and incurred net losses of $924,000 for the fiscal
         year ended October 31, 2005 and $1,390,000 for the fiscal year ended
         October 31, 2004. As of October 31, 2006, the Company's accumulated
         deficit was approximately $9,909,000. 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.


                                 Page 10 of 65
<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 fiscal year 2006, the Company's operations were cash
         flow positive as of October 31, 2006, the Company had an accumulated
         deficit of approximately $9,909,000. 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 December 8, 2007. 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.


                                 Page 11 of 65
<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: terminating or eliminating certain operating activities;
         terminating personnel; eliminating marketing activities; and/or
         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 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.



                                 Page 12 of 65
<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 EXISTING AND NEWLY ISSUED 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
         fifteen 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 one allowed
         application that is scheduled to issue within three months. In
         addition, sixteen 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
         2023. 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.



                                 Page 13 of 65
<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 development 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 $88,550.

                  The Company's executive offices are located in a three-story
         office building at 47 Arch Street, Greenwich, Connecticut. Effective
         October 1998, the Company began subleasing space from Field Point
         Capital Management Company (FPCM), a company 100% owned by the
         Company's Chairman of the Board, for $1,000 per month. Effective
         November 1, 2003, the Company's monthly rent for space subleased from
         FPCM was reduced to $500 per month and its obligation for such lease
         was on a month-to-month basis. Effective July 1, 2004, the Company
         terminated its month to month sublease with FPCM and signed a direct
         lease for additional space directly 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
         ($45,000 per year to June 2009). The Company believes these rates are
         competitive and are at or below market rates.

                  The Company's development facility and 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 2006.



                                 Page 14 of 65
<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, 2006
                  FIRST QUARTER                       $    .65      $   .30
                  SECOND QUARTER                           .62          .45
                  THIRD QUARTER                            .60          .45
                  FOURTH QUARTER                          3.50          .53

         Fiscal Year Ended October 31, 2005
                  First Quarter                       $    .40      $   .21
                  Second Quarter                           .69          .21
                  Third Quarter                            .28          .23
                  Fourth Quarter                           .40          .24
         -----------------------------------------------------------------------

        * 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 25, 2007 was 299, 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.



<PAGE>


         (d) SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

         The following table provides information as of October 31, 2006 with
         respect to the securities authorized for issuance under the Company's
         equity compensation plans.

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------
                                                                                               NUMBER OF SECURITIES
PLAN CATEGORY                                                                                  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
                                              OF OUTSTANDING OPTIONS     OUTSTANDING OPTIONS            (a)
---------------------------------------------------------------------------------------------------------------------
                                                        (a)                     (b)                   (c)
---------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------
<S>                                                <C>                      <C>                   <C>
EQUITY COMPENSATION PLAN APPROVED BY
  SECURITY HOLDERS                                   1,675,500                  $.46                 546,167
---------------------------------------------------------------------------------------------------------------------
EQUITY COMPENSATION PLANS NOT APPROVED
 BY SECURITY HOLDERS                                     -                        -                      -
---------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------
TOTAL                                                1,675,500                  $.46                 546,167
---------------------------------------------------------------------------------------------------------------------
</TABLE>

         ITEM 6.  SELECTED FINANCIAL DATA

                  The selected consolidated statements of operations data for
         the fiscal years ended October 31, 2006, 2005 and 2004, and the
         consolidated balance sheet data as of October 31, 2006 and 2005, 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, 2003 and
         2002, and the selected consolidated balance sheet data as of October
         31, 2004, 2003 and 2002, 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,
--------------------------------------------------------------------------------------------------------------
                                  2006             2005             2004            2003              2002
                                  ----             ----             ----            ----              ----
Net
<S>                          <C>             <C>              <C>              <C>              <C>
Revenues                     $   4,314,222   $   3,808,773    $   3,110,608    $   2,282,279    $   1,696,595

Net
Income (loss)                $     102,915   $    (923,872)   $  (1,389,536)   $  (2,486,122)   $  (2,110,212)

Net income (loss) (1)
per common share - basic     $      .03      $      (.23)     $      (.35)     $       (.71)    $      (.61)

Net income (loss) (1)
per common share - diluted   $      .02      $      (.23)     $      (.35)     $       (.71)    $      (.61)

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




                                 Page 15 of 65
<PAGE>
<TABLE>
<CAPTION>


SELECTED BALANCE SHEET DATA:
                                               YEARS ENDED OCTOBER 31,
---------------------------------------------------------------------------------------------------

                            2006             2005           2004             2003          2002

<S>                    <C>             <C>             <C>             <C>            <C>
Total Assets           $  6,028,816    $  4,287,242    $  4,084,581    $  4,533,279   $  4,449,999

Long-Term
Debt (2)(3)(4)(5)(6)   $ 11,214,880    $  9,989,880    $  8,866,465    $  8,466,465   $  5,705,000

Total Stockholders'
Deficit                $ (7,293,786)   $ (7,493,816)   $ (6,569,944)   $ (5,540,408)  $ (3,077,786)
---------------------------------------------------------------------------------------------------
<FN>

(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, 2003 and 2002, 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 2002 consists of notes payable - related party which was
     due after October 31, 2002.
(3)  Long-term debt for 2003 consists of notes payable - related party which was
     due after October 31, 2003.
(4)  Long-term debt for 2004 consists of notes payable - related party which was
     due after October 31, 2004.
(5)  Long-term debt for 2005 consists of notes payable - related party which was
     due after October 31, 2005.
(6)  Long-term debt for 2006 consists of notes payable - related party which was
     due after October 31, 2006.
</FN>
</TABLE>


                                 Page 16 of 65
<PAGE>


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

         RESULTS OF OPERATIONS

         REVENUES

         The Company is a provider of flight information, web-delivered
         software, and web-delivered collaborative decision tools to the
         aviation industry and organizations which serve, or are served by, the
         aviation industry.

         Revenues consist primarily of subscription-based revenues, maintenance
         revenues from customer owned PASSUR(R) systems, and other revenues from
         services and/or products provided which are not parts of the
         subscription or maintenance business line.

         Revenues during fiscal 2006 increased by approximately $505,000, or
         13%, to $4,314,000 from $3,809,000 in fiscal 2005. This increase was
         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,
         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 our suite of
         software applications and the increased subscriptions from our suite of
         applications to existing customers. Revenues during fiscal 2005
         increased by approximately $698,000, or 22%, to $3,809,000 from
         $3,111,000 in fiscal 2004. 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 $3,842,000 in 2006, compared to
         $3,270,000 in 2005 increased approximately $572,000, or 17%, for fiscal
         2006, when compared to fiscal 2005. The Company's subscription-based
         sales for fiscal 2005 and 2004 were $3,270,000 and $2,556,000,
         respectively.

         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 thirteen and installed nine Company-owned PASSUR(R)
         systems during fiscal 2006 (installations include systems shipped in
         current and previous fiscal years). The balance of the units should be
         installed during fiscal year 2007. These PASSUR(R)s were capitalized as
         part of the "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 2007. The Company
         manufactured ten PASSUR(R) units during fiscal 2006 and had ten units
         in work in process at the end of fiscal 2006. Management anticipates
         that these future PASSUR(R) sites will provide increased coverage of
         the PASSUR(R) Information Network and will increase the Company's
         potential for new customers at such locations as well as 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 two
         Company-owned PASSUR(R) systems from the field in fiscal year 2006.
         There were 53 Company owned PASSUR(R)s located at various airports
         throughout the continental United States at the end of fiscal 2006.


                                 Page 17 of 65
<PAGE>


         COST OF SALES

         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 sales 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 sales in each reporting period are impacted by:
         (1) the number of PASSUR(R) units produced, shipped, and installed
         during the year which are added to the PASSUR(R) network; and (2)
         capitalized costs associated with software development programs,
         collectively referred to as "Capitalized Assets" which are depreciated
         and/or amortized over their respective useful lives and charged to cost
         of sales.

         During fiscal 2006, cost of sales 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)s 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, depreciation and amortization of capitalized
         software assets.

         During fiscal 2006, costs associated with subscription and maintenance
         revenues including labor, communication costs, and allocated overhead
         costs totaled approximately $1,959,000, or about 69% of gross costs of
         sales an increase of approximately 4% from fiscal 2005. The balance of
         the costs included depreciation and amortization of the PASSUR(R)
         Network assets, as well as other assets, and software development costs
         which total approximately $878,000. The total value of additions to the
         PASSUR(R) Network including capitalized software in 2006 was
         approximately $1,571,000. The company did not dispose of any PASSUR(R)
         Network and software development assets in either fiscal 2006 or 20005.

         During fiscal 2005, cost of sales decreased by approximately $31,000,
         or 2%, as compared to fiscal 2004. This decrease was primarily due to
         higher levels of capitalized software and increased additions to the
         PASSUR(R) network, partially offset by increases in cost of goods
         produced, including increases in outside consulting, communications,
         amortization of capitalized software assets and headcount related
         costs. In addition, the Company did not dispose of any PASSUR(R)
         Network and software development assets in fiscal 2005 as compared to
         $111,000 of such disposals in fiscal 2004.

         RESEARCH AND DEVELOPMENT

         During fiscal 2006, research and development expenses increased
         approximately $27,000 or 7% as compared to fiscal 2005. The increase is
         primarily due the amortization of stock options. 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
         2006, 2005 or 2004. Research and development expenses are funded
         through current operations.

         SELLING, GENERAL AND ADMINISTRATIVE

         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. The increase in sales and marketing
         costs was partially offset by a decrease in professional fees.


                                 Page 18 of 65
<PAGE>


         During fiscal 2005, selling, general and administrative expenses
         increased by approximately $225,000, or 13%, as compared to fiscal
         2004. The increase was primarily due to additional sales and marketing
         personnel and related expenses. The increase in sales and marketing
         costs was partially offset by a decrease in professional fees.

         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 2007 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 2006, 2005 and 2004.

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

         Interest expense-related party increased by approximately $39,000, or
         10%, in fiscal 2005, as compared to fiscal 2004. The increase is due to
         approximately $1,123,000 in higher debt and an effective interest rate
         slightly higher than that charged for the same period in fiscal 2004.

         INCOME TAXES

         The provisions for income taxes for each year relate to state and local
         minimum taxes. The Company has available approximately $13,765,000 in
         Federal tax loss carry forwards to offset possible future income. These
         carry forwards expire in various tax years through 2024. The Company
         has provided a full valuation allowance on the net deferred tax asset
         of approximately $5,589,000, which primarily consists of the net
         operating loss carry-forwards and available tax credits.

         NET INCOME/LOSS

         The Company earned a 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 costs and expenses of $3,736,000 were lower
         than total revenues and resulted in income from operations of $578,000.
         Total costs and expenses decreased by $579,000, or 13%, as compared to
         such costs in fiscal 2005.

         Revenues increased approximately 13% in fiscal 2006; total costs and
         expenses decreased approximately 15% as compared to such costs in
         fiscal 2005.

         The Company incurred a net loss of $924,000, or $.23 per diluted share,
         during fiscal 2005, as compared to a net loss of $1,390,000, or $.35
         per diluted share, in fiscal 2004.

         During fiscal 2005, total costs and expenses of $4,315,000 were higher
         than total revenues and resulted in a loss from operations of $506,000.
         Total costs and expenses increased by $194,000, or 5%, as compared to
         such costs in fiscal 2004.

         Although revenues increased approximately 22% in fiscal 2005, total
         costs and expenses increased approximately 5% as compared to such costs
         in fiscal 2004.


                                 Page 19 of 65
<PAGE>

<TABLE>
<CAPTION>

         QUARTERLY RESULTS OF OPERATIONS

                                                                      THREE MONTHS ENDED
                -------------------------------------------------------------------------------------------------------------------
                   OCT. 31,       JULY 31,     APRIL 30,     JANUARY 31,     OCT. 31,       JULY 31,      APRIL 30,    JANUARY 31,
                     2006          2006          2006           2006           2005           2005           2005          2005
                -------------------------------------------------------------------------------------------------------------------
<S>             <C>           <C>          <C>           <C>             <C>            <C>              <C>           <C>
TOTAL NET
REVENUES        $ 1,206,214   $ 1,074,277   $ 1,015,967    $ 1,017,764    $ 1,012,012    $   985,844    $   978,772    $   832,145

INCOME (LOSS)
FROM
OPERATIONS          459,237       141,780       (12,604)       (10,037)      (132,384)       (82,256)       (94,599)      (196,827)

NET INCOME
(LOSS)              334,278        22,390      (126,740)      (127,013)      (238,101)      (186,730)      (194,651)      (304,390)

NET INCOME
(LOSS) PER
COMMON SHARE
- BASIC         $       .08   $       .01   $      (.03)   $      (.03)   $      (.06)   $      (.05)   $      (.05)   $      (.07)
NET INCOME
(LOSS) PER
COMMON SHARE
- DILUTED       $       .06   $       .01   $      (.03)   $      (.03)   $      (.06)   $      (.05)   $      (.05)   $      (.07)
----------------------------------------------------------------------------------------------------------------------------------
</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, 2006, the Company's current liabilities exceeded current
         assets by $278,000. The notes payable to a related party of $11,214,880
         are due November 1, 2007, thus are included in long-term liabilities at
         October 31, 2006. At October 31, 2006, the Company's stockholders'
         deficit was $7,294,000. For fiscal 2006, the Company earned net income
         of $103,000.

         Management is addressing the working capital and stockholders'
         deficiencies and operating losses 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 December 8, 2007. 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.


                                 Page 20 of 65
<PAGE>

         Net cash provided by operating activities for fiscal 2006 was
         approximately $624,000. Cash flows used in investing activities for
         fiscal 2006 was approximately $1,719,000 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 2006 were approximately $1,221,000 from notes payables -
         related party. No principal payments on notes payable - related party
         were made during fiscal 2006.

         The Company was profitable in fiscal year 2006. 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, 2006, 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>               <C>
         Operating Leases                   $    411,351     $    138,014     $    273,337          --
         Promissory Notes                   $ 11,214,880              --      $ 11,214,880          --
         Other Long-Term Obligations        $    600,000     $    150,000     $    225,000      $ 225,000
                                           ---------------- --------------- ---------------- --------------
         Total contractual cash
            obligations                     $ 12,226,231     $    288,014     $ 11,713,217      $ 225,000
                                            ================ =============== ================ ==============
</TABLE>


         o     Obligations under "Operating Leases" relate to the manufacturing
               and research facility located in Bohemia, New York ($88,550 -
               fiscal 2006) and the Company's headquarters located in Greenwich,
               CT ($45,000 - fiscal 2006). All other operating leases are under
               a month-to-month arrangement, therefore, such obligations have
               been excluded from the above calculation (total monthly
               obligations total $500 per month).

         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, 2006 the Company has $75,000 accrued as a component of
         accrued expenses and other accrued liabilities for fiscal 2006 royalty
         payments


                                 Page 21 of 65
<PAGE>


              OFF-BALANCE SHEET ARRANGEMENTS

                  None

         CERTAIN RELATED PARTY TRANSACTIONS

         During fiscal 2004, the Chairman of the Company, Mr. Gilbert loaned the
         Company an additional $400,000 in the aggregate under certain
         promissory notes bearing interest of 4.5% per annum and maturing on
         November 1, 2004, bringing principal of $8,866,465 and accrued interest
         of $73,415 to a total loan of $8,939,880.

         On January 28, 2005, the Company and Mr. Gilbert entered into a
         subsequent extended debt agreement effective November 1, 2004, with a
         maturity date of November 1, 2005 bearing an interest rate of 4.5%. The
         notes payable are classified as long-term as of October 31, 2004.

         During fiscal 2005 Mr. Gilbert lent the Company an additional
         $1,123,415, bringing the principle to a total loan of $9,989,880 on
         October 31, 2005. On January 27, 2006, the Company and Mr. Gilbert
         entered into a subsequent extended debt agreement effective November 1,
         2005, with a maturity date of November 1, 2006 bearing an interest rate
         of 4.5%.

         On January 27, 2006, the Company and Mr. Gilbert entered into a
         subsequent extended debt agreement effective November 1, 2005, with a
         maturity date of November 1, 2006 bearing an interest rate of 4.5%. The
         notes payable are classified as long-term as of October 31, 2005.

         During fiscal 2006 Mr. Gilbert lent the Company an additional
         $1,225,000, bringing principal of $11,214,880 and accrued interest of
         $247,867 to a total loan of $11,462,747 on October 31, 2006. On
         December 8, 2006, the Company and Mr. Gilbert entered into a subsequent
         extended debt agreement effective November 1, 2006, with a maturity
         date of November 1, 2007 bearing an interest rate of 4.5%. The notes
         are secured by the Company's assets.

         During fiscal 2006, the Company paid approximately $98,000 to Surf-Tech
         Manufacturing, Inc. (a non-public corporation) for materials and labor
         in connection with the production of various replacement, new and
         upgrade equipment of PASSUR(R) systems. A Company Executive Vice
         President and Director is a 50% shareholder of the aforementioned
         company, and the Company believes that these rates are competitive and
         are at or below market rates.

         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. Actual results may differ from these judgments under different
         assumptions or conditions. The Company's accounting policies that
         require management to apply significant judgment and estimates include:



                                 Page 22 of 65
<PAGE>




         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; (2) Kiosks, system sales,
         including system upgrade sales; and (3) 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 entered into a legally binding agreement with a customer;
         (2) we deliver the products / services; (3) license / maintenance
         agreement terms are deemed fixed or determinable and free of
         contingencies or uncertainties that may alter the agreement such that
         it may not be complete and final; and (4) collection is probable.

         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 they commit 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.



                                 Page 23 of 65
<PAGE>



         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 whereby
         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 criteria to capitalize 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 costs
         incurred on products which were completed and released to the general
         public in the form of continued maintenance of such products, 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, 2006
         totaled approximately $1,198,000. The carrying value of the capitalized
         software costs is dependent on the forecasted and actual performance of
         future cash flows generated from such assets as determined and
         evaluated by management.

         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 or at each reporting period. 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,
         2006 approximated $2,839,000 and $1,198,000, respectively, which
         accounted for 68% of the Company's total assets. The carrying value of
         the long-term assets is dependent on the forecasted and actual
         financial performance and 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 represents 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, 2006, 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,
         2006, based upon management's evaluation of the above asset groups, no
         impairments exist of these asset groups.


                                 Page 24 of 65
<PAGE>



         DEPRECIATION AND AMORTIZATION

         As of October 31, 2006, the total net property, plant and equipment
         approximated $145,000, the total net PASSUR(R) Network approximated
         $2,839,000 and the total net software development costs approximated
         $1,198,000. The total depreciation and amortization expense related to
         capitalized assets at October 31, 2006 approximated $888,000.
         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 are 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 reflected 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, related workstations with
         software and/or PASSUR(R) Systems built but not yet installed into the
         company network. PASSUR(R) Network assets which are not installed into
         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 the
         period of 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. 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.

         The total depreciation and/or amortization for the year ended October
         31, 2006 for property, plant and equipment approximated $57,000, the
         PASSUR(R) Network approximated $614,000 and software development costs
         approximated $217,000.

         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.



                                 Page 25 of 65
<PAGE>



         RECENT ACCOUNTING PRONOUNCEMENTS

         In July 2006, the Financial Accounting Standards Board (FASB) issued
         FASB Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in
         Income Taxes -- an interpretation of FASB Statement No.109". 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 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. FIN 48 also provides guidance on derecognition,
         classification, interest and penalties, accounting in interim periods,
         disclosures, and transition. FIN 48 is effective for fiscal years
         beginning after December 15, 2006. The Company does not expect that the
         adoption of FIN 48 will have a material impact on its consolidated
         financial position, results of operations or cash flows.

         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 is effective 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 consolidated
         financial position, results of operations or cash flows.

         In September 2006, the U.S. Securities and Exchange Commission issued
         Staff Accounting Bulletin No.108, "Considering the Effects of Prior
         Year Misstatements when Quantifying Misstatements in Current Year
         Financial Statements" ("SAB108"). SAB 108 provides interpretive
         guidance on how the effects of the carryover or reversal of prior year
         misstatements should be considered in quantifying a current year
         misstatement. The SEC staff believes that registrants should quantify
         errors using both a balance sheet and an income statement approach and
         evaluate whether either approach results in quantifying a misstatement
         that, when all relevant quantitative and qualitative factors are
         considered, is material. SAB 108 is effective for fiscal years
         beginning after November 15, 2006. The Company does not expect that the
         adoption of SAB 108 will have a material impact on its consolidated
         financial position, results of operations or cash flows

         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


                                 Page 26 of 65
<PAGE>



         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 were
         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,
         2006 that have materially affected, or are reasonably likely to
         materially affect, our 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


                                 Page 27 of 65
<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.


        Offices                            Director   Director Position and
        Name                       Age      Since     With Company
        ----------------------     ---      ----      --------------------------

        G.S. Beckwith Gilbert      64       1997      Chairman of the Board
                                                      and a Director

        Richard R. Schilling, Jr.  81       1974      Director

        John R. Keller             66       1997      Executive Vice President,
                                                      and a Director

        Bruce N. Whitman           73       1997      Director

        Paul L. Graziani           49       1997      Director

        James T. Barry             45       2000      President, Chief Executive
                                                      Officer and a Director

        James J. Morgan            64       2005      Director

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



                                 Page 28 of 65
<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     Offices With Company
         ----------------------    ---      ----      --------------------------

         James T. Barry            45       1998      President, Chief Executive
                                                      Officer and a Director

         Jeffrey P. Devaney        47       2004      Chief Financial Officer,
                                                      Treasurer, and Secretary

         John R. Keller            66       1970      Executive Vice President
                                                      and a Director

         Dr. James A. Cole         66       1988      Senior Vice President of
                                                      Research & Development

         Matthew H. Marcella       49       2003      Vice President of Software
                                                               Development

         Ron A. Dunsky             44       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


                                 Page 29 of 65
<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, Treasurer and a director of the
                                   Albert and Mary Lasker Foundation, 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
                                   and a Director of the General Aviation
                                   Manufacturers Association, 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 the Audit Committee, a
                                   trustee of the Falcon Foundation, 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 "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 was
                                   recently named a regional winner in Ernst &
                                   Young's "Entrepreneur of the Year" contest,
                                   and "CEO of the Year" by the Chester County
                                   Chamber of Business and Industry.



                                 Page 30 of 65
<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. He is also a Senior Vice
                                   President of Field Point Capital Management
                                   Company. From 1989 to 1998, he was with
                                   Dianon Systems, Inc., most recently as Vice
                                   President of Marketing. 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. Since Mr. Dunsky
                                   joined the Company in 2001, he 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.



                                 Page 31 of 65
<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) COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE
         ACT OF 1934

                  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, 2006,
         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, 2006 by the Company
         with the Securities and Exchange Commission in connection with the
         Company's 2006 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, 2006
         (the "2007 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 2007 Proxy Statement.


                                 Page 32 of 65
<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 2007 Proxy Statement.

                  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 MANAGEMENT AND OTHERS

         On January 28, 2005, the Company and Mr. Gilbert entered into a
         subsequent extended debt agreement with respect to his loan to the
         Company which consisted of $8,866,465 of principal and $73,415 of
         accrued interest for a total of $8,939,880, effective November 1, 2004,
         with a maturity date of November 1, 2005 bearing an interest rate of
         4.5%. The notes payable are classified as long-term as of October 31,
         2004.

         During fiscal 2005 Mr. Gilbert lent the Company an additional
         $1,123,415, bringing the loan to a total of $9,989,880 on October 31,
         2005. On January 27, 2006, the Company and Mr. Gilbert entered into a
         subsequent extended debt agreement effective November 1, 2005, with a
         maturity date of November 1, 2006 bearing an interest rate of 4.5%.

         During fiscal 2006 Mr. Gilbert lent the Company an additional
         $1,225,000, bringing the principal of $11,214,880 and accrued interest
         of $247,867 to a total loan of $11,462,747 on October 31, 2006. On
         December 10, 2006, the Company and Mr. Gilbert entered into a
         subsequent extended debt agreement effective November 1, 2006, with a
         maturity date of November 1, 2007 bearing an interest rate of 4.5%. The
         notes are secured by the Company's assets.


                  (b) CERTAIN BUSINESS RELATIONSHIPS

                  None

                  (c) INDEBTEDNESS OF MANAGEMENT

                  None

                  (d) TRANSACTIONS WITH PROMOTERS

                  Not applicable

         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 2007
Proxy Statement.


                                 Page 33 of 65
<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, 2006 and 2005                               F-2

                     Consolidated statements of
                     operations for the years ended
                     October 31, 2006, 2005 and 2004                         F-3

                     Consolidated statements of
                     stockholders' deficit for the years ended
                     October 31, 2006, 2005 and 2004                         F-4

                     Consolidated statements of cash
                     flows for the years ended
                     October 31, 2006, 2005 and 2004                         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.



                                 Page 34 of 65
<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
                          Current 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
                          incorporated by reference to 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,
                          incorporated by reference to 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,
                          incorporated by reference to Exhibit 10.2 of our
                          Current Report on Form 8-K filed on January 5, 2007.

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

                  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.


                                 Page 35 of 65
<PAGE>




                  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.
















                                 Page 36 of 65
<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, 2007                    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, 2007                         /S/ JAMES T. BARRY
                                                 -------------------------------

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


DATED:  JANUARY 29, 2007                         /S/ JEFFREY P. DEVANEY
                                                 -------------------------------

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




                                 Page 37 of 65
<PAGE>


                             SIGNATURES (CONTINUED)



DATED:  JANUARY 29, 2007                         /S/ G.S. BECKWITH GILBERT
                                                 -------------------------------

                                                 G.S. Beckwith Gilbert
                                                 Chairman and Director


DATED:  JANUARY 29, 2007                         /S/ JOHN R. KELLER
                                                 -------------------------------

                                                 John R. Keller
                                                 Executive Vice President and
                                                 Director


DATED:  JANUARY 29, 2007                         /S/ RICHARD R. SCHILLING, JR.
                                                 -------------------------------

                                                 Richard R. Schilling, Jr.
                                                 Director


DATED:  JANUARY 29, 2007                         /S/ BRUCE N. WHITMAN
                                                 -------------------------------

                                                 Bruce N. Whitman
                                                 Director


DATED:  JANUARY 29, 2007                         /S/ PAUL L. GRAZIANI
                                                 -------------------------------

                                                 Paul L. Graziani
                                                 Director


DATED:  JANUARY 29, 2007                         /S/ JAMES J. MORGAN
                                                 -------------------------------

                                                 James J. Morgan
                                                 Director




                                 Page 38 of 65
<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, 2006 and 2005
           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, 2006. These financial statements and
           schedule 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, 2006
           and 2005, and the results of its operations and its cash flows for
           the three years then ended October 31, 2006, 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
           December 22, 2006













                                      F - 1


                                 Page 39 of 65
<PAGE>
<TABLE>
<CAPTION>


                       Megadata Corporation and Subsidiary

                           Consolidated Balance Sheets


                                                            OCTOBER 31,
                                                        2006            2005
                                                    ------------    ------------
ASSETS
Current assets:
<S>                                                 <C>             <C>
   Cash                                             $    215,366    $     89,029
   Accounts receivable, net                              669,108         483,617
   Inventories, net                                      735,847         166,118
   Prepaid expenses and other current assets             167,905         170,191
                                                    ------------    ------------
Total current assets                                   1,788,226         908,955

Property, plant and equipment, net                       145,326         128,352
PASSUR(R) network, net                                 2,839,519       2,275,884
Software development costs, net                        1,198,520         947,626
Other assets                                              57,225          26,425
                                                    ------------    ------------
Total Assets                                        $  6,028,816    $  4,287,242
                                                    ============    ============

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
   Accounts payable                                 $    311,213    $    321,238
   Accrued expenses and other current liabilities        614,805         559,908
   Accrued expenses--related parties                     330,160          81,564
   Note payable, current portion                           4,815           4,815
   Deferred income, current portion                      805,389         712,333
                                                    ------------    ------------
Total current liabilities                              2,066,382       1,679,858

Note payable, less current portion                          --             4,815
Deferred income, less current portion                     41,340         106,505
Notes payable--related party                          11,214,880       9,989,880
                                                    ------------    ------------
                                                      13,322,602      11,781,058
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
     and 4,784,615 in 2006 and 2005                       47,879          47,846
   Additional paid-in capital                          4,191,264       4,094,182
   Accumulated deficit                                (9,909,454)    (10,012,369)
                                                    ------------    ------------
                                                      (5,670,311)     (5,870,341)
Treasury Stock, at cost, 696,500 shares in 2006
    and 2005                                          (1,623,475)     (1,623,475)
                                                    ------------    ------------
Total stockholders' deficit                           (7,293,786)     (7,493,816)
                                                    ------------    ------------
Total liabilities and stockholders' deficit         $  6,028,816    $  4,287,242
                                                    ============    ============


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

                                      F - 2


                                 Page 40 of 65
<PAGE>
<TABLE>
<CAPTION>


                       Megadata Corporation and Subsidiary

                      Consolidated Statements of Operations


                                                                  YEARS ENDED OCTOBER 31,
                                                            2006            2005          2004
                                                         -----------    -----------    -----------
Revenues:
<S>                                                      <C>            <C>            <C>
    Subscription                                         $ 3,842,156    $ 3,270,098    $ 2,556,078
    Maintenance                                              419,774        434,175        429,650
    Other                                                     52,292        104,500        124,880
                                                         -----------    -----------    -----------
   Total revenues                                          4,314,222      3,808,773      3,110,608
                                                         -----------    -----------    -----------

Cost and expenses:
   Cost of sales                                           1,265,428      2,002,335      2,033,182
   Research and development                                  419,078        392,496        392,766
   Selling, general and administrative expenses            2,051,341      1,920,008      1,694,567
                                                         -----------    -----------    -----------
                                                           3,735,847      4,314,839      4,120,515
                                                         -----------    -----------    -----------

Income (loss) from operations                                578,375       (506,066)    (1,009,907)

Other income (expense):
   Interest income                                             6,492          1,928            473
   Interest expense--related party                          (475,263)      (414,576)      (375,675)
                                                         -----------    -----------    -----------
Income (loss) before income taxes                            109,604       (918,714)    (1,385,109)
Provision for income taxes                                     6,689          5,158          4,427
                                                         -----------    -----------    -----------
Net income (loss)                                        $   102,915    $  (923,872)   $(1,389,536)
                                                         ===========    ===========    ===========

Net income (loss) per common share - basic               $       .03    $      (.23)   $      (.35)
                                                         ===========    ===========    ===========
Net income (loss) per common share - diluted             $       .02    $      (.23)   $      (.35)
                                                         ===========    ===========    ===========
Weighted-average number of common shares outstanding -
   basic                                                   4,091,448      4,088,115      3,961,885
Weighted-average number of common shares outstanding -
   diluted                                                 5,327,052      4,088,115      3,961,885
                                                         ===========    ===========    ===========



          SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

</TABLE>










                                      F - 3


                                 Page 41 of 65
<PAGE>

<TABLE>
<CAPTION>

                       Megadata Corporation and Subsidiary

                Consolidated Statements of Stockholders' Deficit

                  Years Ended October 31, 2006, 2005, and 2004






                                  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, 2003      3,488,115         41,846      3,740,182     (7,698,961)     (1,623,475)     (5,540,408)

Issued as interest on
  notes payable                    600,000          6,000        354,000           --              --           360,000

      Net loss                        --             --             --       (1,389,536)           --        (1,389,536)
                              ------------   ------------   ------------   ------------    ------------    ------------
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)
                              ------------   ------------   ------------   ------------    ------------    ------------

                              ============   ============   ============   ============    ============    ============



SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

</TABLE>





                                      F - 4


                                 Page 42 of 65
<PAGE>

<TABLE>
<CAPTION>


                       Megadata Corporation and Subsidiary

                      Consolidated Statements of Cash Flows


                                                        YEARS ENDED OCTOBER 31,
                                                  2006          2005            2004
                                              -----------    -----------    -----------
      CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                           <C>            <C>            <C>
Net income (loss)                             $   102,915    $  (923,872)   $(1,389,536)
Adjustments to reconcile net loss to
  net cash used in
   (provided by) operating activities:
     Depreciation and amortization                887,572        774,945        709,787
     Provision for bad debts                       32,851         12,000           --
     Loss on disposal of network assets              --             --          110,980
     Common stock issued for interest                --             --          360,000
     Stock based compensation                      96,316           --             --
     Changes in operating assets
       and liabilities:
       Accounts receivable                       (218,343)       (72,976)        63,052
       Inventories                               (569,729)       (27,470)        56,606
       Prepaid expenses and other
         current assets                             2,286       (135,736)        49,469
       Other assets                               (30,800)       (13,850)         4,740
       Accounts payable                           (10,024)        28,264         83,681
       Deferred income                             27,891       (171,538)       147,688
          Accrued expenses and other
            current liabilities                   303,493        136,762        (50,533)
                                              -----------    -----------    -----------
Total adjustments                                 521,513        530,401      1,535,470
                                              -----------    -----------    -----------
Net cash provided by (used in)
  operating activities                            624,428       (393,471)       145,934
                                              -----------    -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to PASSUR(R) network                 (1,176,990)      (332,382)      (198,897)
Capital expenditures                              (73,971)       (73,382)       (27,484)
Additions to Software development costs          (468,115)      (358,000)      (245,684)
                                              -----------    -----------    -----------
Net cash used in investing activities          (1,719,076)      (763,764)      (472,065)
                                              -----------    -----------    -----------

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

Increase (Decrease) in cash                       126,337        (33,820)        73,869
Cash--beginning of year                            89,029        122,849         48,980
                                              -----------    -----------    -----------
Cash--end of year                             $   215,366    $    89,029    $   122,849
                                              ===========    ===========    ===========

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
   Interest                                   $   227,396    $   414,576    $     6,475
   Income taxes                               $     6,689    $     5,159    $     4,426

   Capital expenditures financed                     --      $    14,000           --

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







                                      F - 5


                                 Page 43 of 65
<PAGE>


                       Megadata Corporation and Subsidiary

                   Notes to Consolidated Financial Statements

                                October 31, 2006

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

Megadata Corporations, (the "Company") principal business is the delivery of
unique flight information, application software, and web-delivered collaborative
decision tools to the aviation industry and organizations that serve, or are
served by, the aviation industry.

BASIS OF PRESENTATION

At October 31, 2006, the Company's current liabilities exceeded current assets
by $278,000, it had a stockholder's deficit of $7,294,000, and it earned net
income of $103,000 for the year ended October 31, 2006.

Management is addressing the 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 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 a
significant shareholder through December 8, 2007. 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.













                                      F - 6


                                 Page 44 of 65
<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. Installation charges, if any, are not material and
are recognized when installation services are completed.

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 either
the term of the license agreement or the expected useful life of such license
arrangement, whichever is longer, which typically does not exceed 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.

INVENTORIES

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









                                      F - 7


                                 Page 45 of 65
<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 standard
business practice. The Company has a history of successfully collecting
primarily 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 amortized into
revenue over either the respective license agreement term or the estimated
useful life of such revenue, whichever is longer.

For the period ended October 31, 2006, the provision for doubtful accounts is
approximately $9,000 compared to approximately $6,000 recorded as of the fiscal
year ended October 31, 2005. The Company monitors its outstanding accounts
receivable balance and believes the $9,000 provision is reasonable.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are 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 $2,496,000 and $1,929,000 as of October 31, 2006 and
2005, respectively. Depreciation is charged to cost of sales 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,
2006 total of 5 units) are not depreciated until they are placed in service.
During fiscal 2006, 2005 and 2004, the Company capitalized $1,263,000, $475,000
and $353,000 of costs related to the PASSUR(R) Network, respectively. The
Company incurred depreciation expense related to PASSUR(R) Network installations
during fiscal 2006, 2005 and 2004 of $614,000, $538,000 and $531,000,
respectively. During fiscal 2006, the amount capitalized to the PASSUR(R)
Network includes transfers from inventory of approximately $623,000.








                                      F - 8


                                 Page 46 of 65
<PAGE>


                       Megadata Corporation and Subsidiary

             Notes to Consolidated Financial Statements (continued)

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

PASSUR(R) NETWORK (CONTINUED)

In fiscal 2006 and 2005 the Company did not dispose of any PASSUR(R) Network
assets.

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 enhancements to software features of the existing products
to be sold or otherwise marketed are capitalized, after technological
feasibility is established and ending when the product is available for release
to customers. Once the software products become available for general release to
the public, the Company will begin 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, 2006 are recoverable through anticipated future sales of such
applicable products. During fiscal 2006 and 2005 the Company capitalized
approximately $468,000 and $358,000, respectively. During fiscal year 2006, 2005
and 2004, the Company recorded approximately $217,000, $190,000 and $145,000 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 each year end.

In fiscal 2006 and 2005 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. An 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.





                                      F - 9


                                 Page 47 of 65
<PAGE>


                       Megadata Corporation and Subsidiary

             Notes to Consolidated Financial Statements (continued)

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

COST OF SALES

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

Costs associated with subscription and maintenance revenues consists 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 sales 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 network systems.
Additionally, cost of sales in each reporting period are impacted by: (1) the
number of PASSUR(R) Network units added which include the costs of 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 amortized in cost of sales.

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.















                                     F - 10


                                 Page 48 of 65
<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. Conversion of the common
equivalent shares relating to outstanding stock options and warrants is not
assumed since the results would have been antidilutive.

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 and 2004, 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:

                                               ---------------------------------
                                                  2006        2005        2004
                                               ---------   ---------   ---------
Basic weighted average shares                  4,091,448   4,088,115   3,961,885
   outstanding
Effect of dilutive stock options               1,235,604       --          --
                                               ---------   ---------   ---------
Diluted weighted average shares
   outstanding                                 5,327,052   4,088,115   3,961,885
                                               =========   =========   =========

Weighted average shares which are not
   included in the calculation of
   diluted net income (loss) per share           676,771   1,561,000   1,210,000
   because their impact is anti-dilutive



DEFERRED INCOME

Deferred income includes advances received on maintenance agreements and/or
subscription services 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 maintenance and subscription services are recognized as income
ratably over the maintenance and/or subscription period that coincides with the
respective agreement. Revenues from license fees are recognized as income on a
straight-line basis over either the term of the license agreement or expected
useful life of such license arrangement, whichever is longer, which typically
does not exceed five years.

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.


                                     F - 11


                                 Page 49 of 65
<PAGE>


                       Megadata Corporation and Subsidiary

             Notes to Consolidated Financial Statements (continued)

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

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 years ended October 31, 2005 and 2004:


                                                 OCTOBER 31,     OCTOBER 31,
                                                    2005           2004
                                                ------------    -----------

       Reported net  (loss)                    $   (924,000)   $(1,390,000)
       Pro-forma stock compensation
          expense                                   (72,000)       (83,000)
                                               ------------    -----------
       Pro-forma net  (loss)                   $   (996,000)   $(1,473,000)
                                               ============    ===========
       Reported basic and diluted net
          loss per common share                $       (.24)   $      (.37)
                                               ============    ===========
       Pro-forma basic and diluted net
          loss per common share                $       (.24)   $      (.37)
                                               ============    ===========

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.









                                     F - 12


                                 Page 50 of 65
<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, 2006 was $.46. These options vest over a period of three 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 year ended October 31, 2006, 2005 and 2004: risk-free
interest rates of 4.47%, 3.92% and 3.92%, respectively, volatility factor of the
expected market price of the Company's Common Stock of 135% in fiscal year 2006,
and 111% in fiscal years 2005 and 2004, respectively, assumed dividend yield of
0% in fiscal year 2006, 2005 and 2004, respectively, and a weighted-average
expected life of the option of 6.3 years in fiscal 2006, and 8 years in fiscal
2005 and 2004.

COMPREHENSIVE INCOME (LOSS)

For the fiscal year ended October 31, 2006, the Company's Comprehensive income
is equivalent to that of the Company's total net income. For the fiscal years
ended October 31, 2006, 2005 and 2004, the Company's comprehensive loss is
equivalent to that of the Company's total net loss for those respective periods.

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

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes --
an interpretation of FASB Statement No.109". 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
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. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosures, and transition. FIN 48 is effective for fiscal years beginning
after December 15, 2006. The Company does not expect that the adoption of FIN 48
will have a material impact on its consolidated financial position, results of
operations or cash flows.

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 is effective 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 consolidated
financial position, results of operations or cash flows.







                                     F - 13


                                 Page 51 of 65
<PAGE>

                       Megadata Corporation and Subsidiary

             Notes to Consolidated Financial Statements (continued)

RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In September 2006, the U.S. Securities and Exchange Commission issued Staff
Accounting Bulletin No.108, "Considering the Effects of Prior Year Misstatements
when Quantifying Misstatements in Current Year Financial Statements" ("SAB108").
SAB 108 provides interpretive guidance on how the effects of the carryover or
reversal of prior year misstatements should be considered in quantifying a
current year misstatement. The SEC staff believes that registrants should
quantify errors using both a balance sheet and an income statement approach and
evaluate whether either approach results in quantifying a misstatement that,
when all relevant quantitative and qualitative factors are considered, is
material. SAB 108 is effective for fiscal years beginning after November 15,
2006. The Company does not expect that the adoption of SAB 108 will have a
material impact on its consolidated financial position, results of operations or
cash flows.

2. INVENTORIES

Inventories are summarized as follows:

                                                  OCTOBER 31,
                                             2006             2005
                                       ----------------- ----------------

Parts and raw materials                $     525,000     $     102,000
Finished goods                               211,000            64,000
                                       ----------------- ----------------
                                       $     736,000     $     166,000
                                       ================= ================

3. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

                               ESTIMATED
                                 USEFUL                  OCTOBER 31,
                                  LIVES             2006             2005
                               -------------- ----------------- ----------------

Leasehold improvements           3-5 years       $   109,000       $   109,000
Equipment                       5-10 years         2,460,000         2,386,000
Furniture and  fixtures         5-10 years           415,000           415,000
                                              ----------------- ----------------
                                                   2,984,000         2,910,000
Less accumulated depreciation
  and amortization                                 2,839,000         2,782,000
                                              ----------------- ----------------
                                                 $   145,000       $   128,000
                                              ================= ================

The Company recorded depreciation and amortization expense on the assets
included in property, plant and equipment of $57,000, $47,000, and $34,000 for
the years ended October 31, 2006, 2005, and 2004, respectively.





                                     F - 14


                                 Page 52 of 65
<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 ending when the product is available for release to customers.
As of October 31, 2006 and 2005, the Company had approximately $1,831,000, and
$1,363,000 of such costs capitalized, and $633,000 and $416,000 of accumulated
amortization, respectively. The weighted average amortization period of the
Company's software development costs as of October 31, 2006 is approximately 2.5
years.

Amortization expense on these assets for the fiscal years ended October 31,
2006, 2005 and 2004 was approximately $217,000, $190,000, and $145,000,
respectively. Amortization expense for the years ended October 31, 2007, 2008,
2009, 2010 and 2011 will approximate $229,000, $184,000, $99,000, $51,000 and
$24,000, respectively.

5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:

                                                          OCTOBER 31,
                                                     2006             2005
                                               ----------------- ---------------
Accrued payroll, payroll taxes and benefits    $     324,000     $     245,000
Accrued professional fees                            132,000           151,000
Accrued license fees                                  75,000           100,000
Accrued advertising and marketing                     27,000            28,000
Other accrued liabilities                             57,000            36,000
                                               ----------------- ---------------
                                               $     615,000     $     560,000
                                               ================= ===============

6. NOTES PAYABLE--RELATED PARTY

During fiscal 2004, the Chairman of the Company, Mr. Gilbert loaned the Company
an additional $400,000 in the aggregate under certain promissory notes bearing
interest of 4.5% per annum and maturing on November 1, 2004, bringing the loan
to a total of $8,939,880.

On January 28, 2005, the Company and Mr. Gilbert entered into a subsequent
extended debt agreement with respect to his loan to the Company which consisted
of $8,866,465 of principal and $74,415 of accrued interest for a total of
$8,939,880, effective November 1, 2004, with a maturity date of November 1, 2005
bearing an interest rate of 4.5%. The notes payable are classified as long-term
as of October 31, 2004.

During fiscal 2005 Mr. Gilbert lent the Company an additional $1,123,415,
bringing the loan to a total of $9,989,880 on October 31, 2005. On January 27,
2006, the Company and Mr. Gilbert entered into a subsequent extended debt
agreement effective November 1, 2005, with a maturity date of November 1, 2006
bearing an interest rate of 4.5%.







                                     F - 15


                                 Page 53 of 65
<PAGE>

                       Megadata Corporation and Subsidiary

             Notes to Consolidated Financial Statements (continued)

6. NOTES PAYABLE--RELATED PARTY (CONTINUED)

On January 27, 2006, the Company and Mr. Gilbert entered into a subsequent
extended debt agreement effective November 1, 2005, with a maturity date of
November 1, 2006 bearing an interest rate of 4.5%. The notes payable are
classified as long-term as of October 31, 2005.

During fiscal 2006 Mr. Gilbert lent the Company an additional $1,225,000,
bringing the principal of $11,214,880 and accrued interest of $247,867 to a
total loan of $11,462,747 on October 31, 2006. On December 8, 2006, the Company
and Mr. Gilbert entered into a subsequent extended debt agreement effective
November 1, 2006, with a maturity date of November 1, 2007 bearing an interest
rate of 4.5%. The notes are secured by the Company's assets.

7. LEASES AND NOTE PAYABLE

The Company's software development 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, 2006 approximates $89,000 per year. 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 are rented for a five year period ending June 30, 2009 at an
amount of $45,000 per year. All other operating leases are under a
month-to-month arrangement. See also Note 11. Related Parties.

            FISCAL YEAR ENDED OCTOBER 31:                OPERATING LEASES
            ----------------------------                 ----------------

                     2007                                  $ 138,000
                     2008                                    143,000
                     2009                                    131,000

            Total minimum lease payments                   $ 412,000

In November of 2005, the Company entered into a three year financing agreement
with a third party for accounting software. The total amount financed at zero
percent interest amounted to approximately $14,000. The minimum payments due on
the note will approximate $5,000 for fiscal year ended October 2007. The note
will be paid in full during fiscal year 2007.

8. INCOME TAXES

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

At October 31, 2006, the Company has available a federal net operating loss
carry-forward of approximately $13,765,000 for income tax purposes which will
expire in various tax years from 2007 through 2026. The Company has provided a
full valuation allowance on the net deferred tax asset of approximately
$5,589,000 which primarily consists of the net operating loss carry-forwards.




                                     F - 16


                                 Page 54 of 65
<PAGE>


                       Megadata Corporation and Subsidiary

             Notes to Consolidated Financial Statements (continued)

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.

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123R, "Share-Based Payments" to require that compensation cost relating to
share-based payment arrangements be recognized in the financial statements.
Effective November 1, 2005, the Company adopted SFAS No. 123R 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.

Prior to November 1, 2005 the Company accounted for employee stock option plans
under APB No. 25, and disclosed in a note to the consolidated financial
statements pro forma net loss and per share amounts as if the Company had
applied SFAS No. 123 and SFAS No. 148.

In accordance with SFAS No. 123, pro forma information regarding net loss and
net loss per common share has been determined as if the Company had accounted
for its employee stock options under the fair value method of that statement.
The fair value for these stock options was estimated at the date of grant, using
a Black-Scholes option pricing model with the following weighted average
assumptions for 2006, 2005, and 2004, respectively: risk-free interest rates of
4.47%, 3.92% and 3.92% for fiscal 2006, 2005 and 2004; no dividend yield;
volatility factors of the expected market price of the Company's common stock of
135% in fiscal 2006, and 111% in fiscal years 2005 and 2004, respectively; and
an 6.3 years in fiscal 2006 and 8 years in fiscal years 2005 and 2004 for the
weighted-average expected life of the options.















                                     F - 17


                                 Page 55 of 65
<PAGE>


                       Megadata Corporation and Subsidiary

             Notes to Consolidated Financial Statements (continued)

9. STOCK OPTIONS (CONTINUED)

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.

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, 2006,
2005 and 2004 are as follows:
<TABLE>
<CAPTION>

                                       2006                        2005                     2004
                               ------------------------    -----------------------  -----------------------
                                              WEIGHTED                    WEIGHTED                 WEIGHTED
                                              AVERAGE                     AVERAGE                  AVERAGE
                                              EXERCISE                    EXERCISE                 EXERCISE
                               OPTIONS          PRICE      OPTIONS         PRICE    OPTIONS         PRICE
                              -----------------------------------------------------------------------------
<S>                        <C>                <C>                     <C>            <C>           <C>
 Options
    outstanding--beginning    1,561,000       $    .49    1,210,000      $   .56    1,043,000       $   .58
    of year
 Options granted                172,000            .47      351,000          .25      342,000           .42
 Options forfeited and          (54,167)          1.42         --         --         (175,000)          .40
    expired
 Options exercised               (3,333)           .24         --         --             --          --
                             ------------------------------------------------------------------------------
 Options outstanding--
    end of year               1,675,500       $    .46    1,561,000      $   .49    1,210,000       $   .56
                             ==============================================================================
 Options exercisable at
    end of year               1,248,130       $    .49      909,900      $   .62      680,710       $   .69
                             ==============================================================================
Weighted average fair
    value per share of
    options granted during       $.47                          $.25                   $.42
            the year         =========                     ===========             ========

</TABLE>
















                                     F - 18


                                 Page 56 of 65
<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, 2006:
<TABLE>
<CAPTION>

-------------------- ---------------------- ---------------------- ---------------------- ---------------------- -------------
                     OPTIONS OUTSTANDING                                                         OPTIONS 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               5.6 years                 $.20             263,660             $.19
-------------------- ---------------------- ---------------------- ---------------------- ------------- ----------------------
-------------------- ---------------------- ---------------------- ---------------------- ------------- ----------------------
  $  .25 - $  .38            569,000               7.0 years                  .29             417,650              .29
-------------------- ---------------------- ---------------------- ---------------------- ------------- ----------------------
-------------------- ---------------------- ---------------------- ---------------------- ------------- ----------------------
  $  .40 - $  .55            480,500               7.5 years                  .49             264,320              .50
-------------------- ---------------------- ---------------------- ---------------------- ------------- ----------------------
-------------------- ---------------------- ---------------------- ---------------------- ------------- ----------------------
  $  .63 - $  .84            265,000               3.9 years                  .79             265,000              .79
-------------------- ---------------------- ---------------------- ---------------------- ------------- ----------------------
-------------------- ---------------------- ---------------------- ---------------------- ------------- ----------------------
  $1.63 - $ 2.75              37,500               3.4 years                 2.53              37,500             2.53
-------------------- ====================== ---------------------- ---------------------- ============= ----------------------
-------------------- ====================== ---------------------- ---------------------- ============= ----------------------
                           1,675,500                                                        1,248,130
-------------------- ====================== ---------------------- ---------------------- ============= ----------------------
</TABLE>

As of October 31, 2006, 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, 2006, stock compensation expense of approximately $96,000 was
primarily charged to Selling, General and Administrative expense, consisting of
$9,000 for options granted during fiscal year 2006 and $85,000 for non vested
options granted prior to October 31, 2005. As of October 31, 2006, there was
$116,000 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 1.4 years.

Stock option activity during the year ended October 31, 2006, was as follows:

<TABLE>
<CAPTION>

------------------------------------------- ---------------- ------------- ----------------- ----------------
                                            Number of        Weighted      Weighted          Aggregate
                                            options          average       average           intrinsic value
                                                             exercise      remaining
                                                             price         contracted term
                                                                           (years)
------------------------------------------- ---------------- ------------- ----------------- ----------------
------------------------------------------- ---------------- ------------- ----------------- ----------------
<S>                                           <C>                  <C>         <C>             <C>
Outstanding at November 1, 2005              1,561,000            $0.49
------------------------------------------- ---------------- ------------- ----------------- ----------------
------------------------------------------- ---------------- ------------- ----------------- ----------------
Options granted                                172,000             0.47
------------------------------------------- ---------------- ------------- ----------------- ----------------
------------------------------------------- ---------------- ------------- ----------------- ----------------
Options exercised                               (3,333)            0.24
------------------------------------------- ---------------- ------------- ----------------- ----------------
------------------------------------------- ---------------- ------------- ----------------- ----------------
Options forfeited                              (54,167)            1.42
------------------------------------------- ---------------- ------------- ----------------- ----------------
------------------------------------------- ---------------- ------------- ----------------- ----------------
Options outstanding at October 31, 2006      1,675,500                            6.3          $767,000
                                                                    .46
------------------------------------------- ---------------- ------------- ----------------- ----------------
------------------------------------------- ---------------- ------------- ----------------- ----------------
Options exercisable at October  31, 2006     1,248,130              .49           5.5          $608,000
------------------------------------------- ---------------- ------------- ----------------- ----------------
</TABLE>

The weighted average grant-date fair value of options granted during fiscal year
2006 was $0.47 and the aggregate intrinsic value of the options exercised was
$800.





                                     F - 19


                                 Page 57 of 65
<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, 2006 and changes during the
fiscal year are presented below:



---------------------------------- --------------------- ----------------------
                                                           Weighted
                                                            average
                                                           grant date
                                      Shares              fair value
---------------------------------- --------------------- ----------------------
---------------------------------- --------------------- ----------------------
Nonvested at November 1 , 2005        611,100                    $0.31
---------------------------------- --------------------- ----------------------
---------------------------------- --------------------- ----------------------
Granted                               172,000                     0.47
---------------------------------- --------------------- ----------------------
---------------------------------- --------------------- ----------------------
Vested                               (293,971)                    0.32
---------------------------------- --------------------- ----------------------
---------------------------------- --------------------- ----------------------
Forfeited                             (61,759)                    1.42
---------------------------------- --------------------- ----------------------
---------------------------------- --------------------- ----------------------
Nonvested at October 31, 2006         427,370                      .37
---------------------------------- --------------------- ----------------------


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, 2006, 2005 and 2004 one customer accounted for
approximately 16%, 18% and 23% of total revenues, respectively. The Company had
export sales of approximately $226,000, $174,000 and $64,000 in fiscal 2006,
2005, and 2004, respectively. All sales, including export sales, are denominated
in U.S. dollars.

11. RELATED PARTY TRANSACTIONS

Effective October 1998, the Company began subleasing space from Field Point
Capital Management Company (FPCM), a company 100% owned by the Company's
Chairman of the Board, for $1,000 per month. Effective November 1, 2003, the
Company's monthly rent for space subleased from FPCM was reduced to $500 per
month and its obligation for such lease was on a month-to-month basis. Effective
July 1, 2004, the Company terminated its month to month sublease with FPCM and
signed a direct lease for additional space directly 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 ($45,000 per
year to June 2009). The Company believes these rates are competitive and are at
or below market rates.





                                     F - 20


                                 Page 58 of 65
<PAGE>



                       Megadata Corporation and Subsidiary

             Notes to Consolidated Financial Statements (continued)

11. RELATED PARTY TRANSACTIONS (CONTINUED)

For the years ended October 31, 2006, 2005, and 2004 the Company paid
approximately $98,000, $24,000, and $23,000 respectively, to Surf-Tech
Manufacturing, Inc. (a non-public corporation) for materials and labor in
connection with either the production of various replacement components, systems
production or upgrade equipment of PASSUR(R) systems. A Company Executive Vice
President and Director is a 50% shareholder of the aforementioned company, and
the Company believes that these rates are competitive and are at or below market
rates.

Accrued expenses - related parties consist of the following:

                                                         OCTOBER 31,
                                                  2006               2005
                                           ------------------- ---------------
Interest on notes payable (note 6)         $     247,000       $        --
Accrued travel expenses                           39,000              47,000
Accrued commission                                43,000              22,000
                                           ------------------- ---------------
                                           $     330,000       $      69,000
                                           =================== ===============

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
arrangements 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, 2006
and 2005, the Company has $75,000 and $100,000 accrued 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 PASSUR(R) 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.













                                     F - 21


                                 Page 59 of 65
<PAGE>

                       Megadata Corporation and Subsidiary

             Notes to Consolidated Financial Statements (continued)


13. QUARTERLY RESULTS OF OPERATIONS

The following table provides unaudited quarterly consolidated results of
operations for each quarter of fiscal years 2006 and 2005. 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, JANUARY 31,  OCT. 31,    JULY 31,   APRIL 30,  JANUARY 31,
                                 2006         2006       2006       2006        2005        2005       2005       2005
                              ---------------------------------------------------------------------------------------------

<S>                           <C>         <C>         <C>         <C>        <C>          <C>        <C>        <C>
TOTAL NET REVENUES            $1,206,214  $1,074,277  $1,015,967  $1,017,764  $1,012,012   $985,844   $978,772   $832,145

INCOME (LOSS) FROM OPERATIONS    459,237     141,780     (12,604)    (10,037)   (132,384)   (82,256)   (94,599)  (196,827)

NET INCOME (LOSS)                334,278      22,390    (126,740)   (127,013)   (238,101)  (186,730)  (194,651)  (304,390)

NET INCOME (LOSS) PER COMMON
SHARE - BASIC                   $.08         $.01       $(.03)      $(.03)      $(.06)     $(.05)     $(.05)     $(.07)
NET INCOME (LOSS) PER COMMON
SHARE - DILUTED                 $.06         $.01       $(.03)      $(.03)      $(.06)     $(.05)     $(.05)     $(.07)
---------------------------------------------------------------------------------------------------------------------------
</TABLE>



















                                     F - 22


                                 Page 60 of 65
<PAGE>

                       Megadata Corporation and Subsidiary

                 Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>


                                                 ADDITIONS         CHARGED
                              BALANCE AT         CHARGED TO        TO OTHER
                              BEGINNING          COSTS AND        ACCOUNTS -     DEDUCTIONS      BALANCE AT END
DESCRIPTION                   OF PERIOD          EXPENSES          DESCRIBE      - DESCRIBE        OF PERIOD
----------------------------------------------------------------------------------------------------------------
<S>                      <C>                    <C>              <C>                <C>              <C>
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
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
Year Ended October 31, 2004;
Reserves and allowances
deducted from asset
accounts:
Reserve for estimated
doubtful accounts -
accounts receivable             $     6,838          --                        ($    6,838)          --
Valuation allowance on
deferred tax asset              $ 5,362,500                     $   626,000(a)                       $ 5,988,500
                                --------------------------------------------------------------------------------
                                --------------------------------------------------------------------------------
                                $ 5,369,338          --         $   626,000    ($    6,838)          $ 5,988,500
                                ================================================================================

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


                                       S-1


                                 Page 61 of 65