UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
{X} Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended July 30, 2000
or
{ } Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Transition Period from ________to_________
Commission File Number 1-8690
Datametrics Corporation
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(Exact name of registrant as specified in its charter)
Delaware 95-3545701
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
25B Hanover Road
Florham Park, New Jersey 07932
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(Address of principal executive offices) (Zip Code)
(973) 377-3900
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(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 Par Value - 19,497,227 shares as of 9/1/00
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DATAMETRICS CORPORATION AND SUBSIDIARIES
Index to Form 10-QSB
Page No.
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Part I - Financial Information 3
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheet as of July 30, 2000 3
Consolidated Statements of Operations for the Three and
Nine Months Ended July 30, 2000 and July 25, 1999 4
Consolidated Statements of Cash Flows for the Nine
Months Ended July 30, 2000 and July 25, 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II - Other Information 11
Item 1. Legal Proceedings 11
Item 2. Changes in securities and uses of funds. 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of matters to a vote of security holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit 27 Financial Data Schedule 14
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DATAMETRICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands)
July 30,
2000
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ASSETS
Current assets:
Cash $ 127
Accounts receivable, net of allowance for doubtful accounts of $50 267
Inventories, net 2,426
Prepaid expenses and other current assets 607
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Total current assets 3,427
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Property and equipment, at cost:
Land 420
Building and improvements 1,042
Machinery and equipment 3,680
Furniture, fixtures and computer equipment 2,629
Leasehold improvements 86
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7,857
Less: Accumulated depreciation and amortization (5,789)
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Net property and equipment 2,068
Inventories, net 2,701
Other assets 932
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$ 9,128
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Revolving line of credit $ 1,496
Current maturities of long-term debt 6,221
Accounts payable 1,088
Accrued expenses 475
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Total current liabilities 9,280
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Long-term debt, less current maturities 905
Loan payable 877
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Total liabilities 11,062
Minority interest -
Stockholders' deficit
Preferred stock, $.01 par value; 5,000,000 shares authorized, none
issued -
Common stock, $.01 par value; 40,000,000 shares authorized
19,497,227 shares issued and outstanding 190
Additional paid-in capital 43,885
Accumulated deficit (46,009)
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Total stockholders' deficit (1,934)
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$ 9,128
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DATAMETRICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended
July 30, July 25, July 30, July 25,
2000 1999 2000 1999
(in thousands, except per share data)
Sales $ 316 $ 2,385 $ 2,635 $ 6,273
Cost of sales 1,095 1,336 3,977 3,827
Write down of inventory 750 - 750 -
Selling, general and administrative 597 893 1,780 2,511
Lease settlement expense - - - 1,225
Income (loss) from operations (2,126) 156 (3,872) (1,290)
Interest expense, net 467 113 1,379 356
Income (loss) before minority interest (2,593) 43 (5,251) (1,646)
Minority interest - - 18 -
Net income (loss) $ (2,593) $ 43 $ (5,233) $ (1,646)
------------ -------- ----------- -----------
Loss per share of common stock:
Basic and diluted $ (0.14) $ 0.00 $ (0.28) $ (0.09)
------------ -------- ----------- -----------
Weighted average number of common shares outstanding:
Basic and diluted 18,997 18,447 18,997 17,386
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DATAMETRICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
July 30, July 25,
2000 1999
(in thousands)
Cash Flows from Operating Activities:
Net loss $ (5,233) $ (1,646)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 270 341
Write down of inventory 750 -
Non-cash interest and financing costs 681 -
Minority interest in net loss of subsidiary (18) -
Changes in assets and liabilities:
Accounts receivable 2,124 (801)
Inventory 65 (439)
Prepaid expenses and other current assets (328) 52
Other assets 289 3
Accounts payable 149 (322)
Accrued expenses 218 6
Net cash used in operating activities (1,033) (2,806)
Cash Flows from Investing Activities:
Capital expenditures for property and equipment (362) (236)
Proceeds from sale of equity in subsidiary 1,200 -
Net cash provided by (used in) investing activities 838 (236)
Cash Flows from Financing Activities:
Net borrowings (payments) on revolving line of credit 45 (1,669)
Net borrowings on long-term debt 63 1,800
Borrowings on loan payable 77 -
Proceeds form bridge notes - 250
Proceeds from the issuance of common stock and warrants - 3,209
Net cash provided by financing activities 185 3,590
Net (decrease) increase in cash and cash equivalents (10) 548
Cash and cash equivalents at the beginning of the period 137 228
Cash and cash equivalents at the end of the period $ 127 $ 776
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Supplemental Disclosures of Cash Flow Information:
Interest paid, net $ 348 $ 172
Non-cash transactions:
Exchange of 7% Convertible Debentures for 10% Senior Subordinates Notes
Due 2000 $ - $ (1,750)
Exchange of Senior Subordinated Debentures for 10% Senior Subordinates
Notes Due 2000 $ - $ (500)
Conversion of accrued interest to 12% Subordinated Convertible Secured Notes
Due 2000 $ 248 $ -
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DATAMETRICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 30, 2000
(Unaudited)
1. The consolidated financial statements include the accounts of Datametrics
Corporation and its wholly-and majority-owned subsidiaries (collectively, the
"Company"). The information reflects all adjustments (consisting of normal
recurring adjustments) which are, in the opinion of management, necessary to
present a fair statement of the results of operations for the interim periods.
Results of a particular quarter or quarter-to-quarter comparisons of recorded
sales and profits may not be indicative of future operating results, including
results for the fiscal year ending October 29, 2000.
The consolidated financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission for the requirements of the Quarterly Report on Form
10-QSB. Certain information and footnote disclosure normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
consolidated financial statements be read in conjunction with the statements and
notes thereto included in the Company's latest Annual Report on Form 10-KSB for
the fiscal year ended October 31, 1999 as filed with the Securities and Exchange
Commission.
The consolidated financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. As discussed in the independent
certified public accountants report on the October 31, 1999 consolidated
financial statements, recurring losses from operations and operating cash
constraints raise doubt about the Company's ability to continue as a going
concern. The Company is also in default of its $1.5 million revolving credit
facility, $2.7 million subordinated convertible secured notes and $3.5 million
subordinated notes.
The consolidated financial statements do not include adjustments relating to the
recoverability and classification of recorded asset amounts, or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's ability to continue as a
going concern is dependent on its ability to generate sufficient cash flow to
meet its obligations on a timely basis and raise additional financing. There can
be no assurances that the Company will be successful in these efforts
2. CONTINUATION OF THE MILITARY BUSINESS. In January 2000, the Company's Board
of Directors approved the sale of the Company's military business. The Company
was seeking to sell the entire inventory, customer lists and manufacturing
drawings and specifications related to this line of business. The Company's
intention was to redirect its efforts exclusively to the manufacturing and
marketing of the Condor TM and Harrier TM high speed thermal transfer printers
and the management and operation of its internet-based MadeMyWay.com TM. In
connection with this pending sale, the Company incurred a write down of its
military inventory of approximately $2 million. Since the sale of the military
business was anticipated to occur within the next year, all military inventories
were classified as a current asset. In January 2000, the Company also terminated
approximately 30 employees. Severance was insignificant and there were no other
exit costs related to the planned disposition of the military business.
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In August 2000, the Company underwent significant management changes including
the resignation of its CEO and the formation of a new Board of Directors. The
new management team, in assessing the Company's business and future prospects,
has decided that it will not sell the military business and will continue to
service those customers. The Company will also continue to focus on the Condor
TM and Harrier TM printers and MadeMyWay.com TM. As a result of this decision,
management assessed the impact of the attempted sale of the military for the
past several months. Management also determined that the previous method used to
account for military inventory (i.e., recognizing inventory to be sold over five
years as a long-term asset) would no longer be appropriate given the events of
the past several months and current state of the military business. Military
inventory to be sold within one year will be recognized as an asset, and all
other military inventory would be reserved for and in many cases disposed of. In
connection with this, the Company incurred a write down of military inventory of
approximately $750,000 during the quarter ended July 30, 2000.
3. INVENTORIES. Stockroom inventories consist primarily of materials used by the
Company for existing and anticipated contracts and materials and finished
assemblies which are held to satisfy spare parts requirements of the Company's
customers. Those parts not expected to be sold within one year are classified as
a non-current asset. The Company does not amortize its non-current inventory,
but the Company evaluates all inventory for obsolescence on a periodic basis and
records estimated reserves.
Inventories as of July 30, 2000 consist of the following:
Inventories of parts and sub-assemblies $ 10,807
Work in process 667
Finished Goods 103
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$ 11,577
Less non current inventories (2,701)
Less reserve for obsolescence (6,450)
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$ 2,426
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4. SALE AND PLEDGE OF COMMON STOCK. In March 2000, the Company sold 600,000
shares of Common Stock in MadeMyWay.com to an outside investor for approximately
$1.2 million. The sale reduced the Company's ownership interest in MadeMyWay.com
from 100% to 88%. Two years after closing the investor has the right to convert
its common shares of MadeMyWay.com into preferred shares of Datametrics
Corporation under certain circumstances as defined in the Stock Purchase
Agreement. The proceeds from the sale will be used for working capital purposes
and marketing of MadeMyWay.com. In July and August 2000, the Company pledged its
remaining shares of Common Stock in MadeMyWay.com to an outside investor group
to secure two loans to the Company in the aggregate amount of $690,000 (see Note
5).
5. Subsequent Events
In August 2000, the CEO of the Company resigned. The Company agreed to pay the
former CEO $100,000 in cash and issued 500,000 shares of common stock to him in
exchange for all of his outstanding warrants.
In August 2000, an investor in the Company together with certain affiliates
provided bridge financing to the Company in the aggregate amount of $690,000.
The initial loan of $480,000 is secured by shares of MadeMyWay.com TM
("MMW.com") common stock. The second loan of $210,000 is secured by the assets
of MMW.com, the pledge of such shares of MMW.com and an assignment of the
Company's life insurance policy on a former CEO. The initial loan matures
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on the earlier of January 20, 2001 or the closing of permanent financing, as
defined and the second loan matures on October 5, 2000.
6. SEGMENT DATA. The Company has two reportable segments: printer and internet.
The printer segment designs, develops and sells both military and industrial
printers. The internet segment consists primarily of a newly incorporated
subsidiary engaged in the fulfillment of customized and personalized products
primarily for the business-to-business e-commerce market. The reportable
segments are strategic business units that offer different products and
services. Results for the two reportable segments are as follows:
For the three months ended PRINTER INTERNET TOTAL
July 30, 2000
Sales $ 316 $ -- $ 316
Cost of Sales 1,069 26 1,095
Write Down of Inventory 750 -- 750
Selling, general and administrative 563 34 597
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Loss from operations (2,066) (60) (2,126)
Interest expense 467 -- 467
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Loss before minority interest ($2,533) ($ 60) ($2,593)
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For the nine months ended PRINTER INTERNET TOTAL
July 30, 2000
Sales $ 2,635 $ -- $ 2,635
Cost of Sales 3,766 211 3,977
Write Down of Inventory 750 -- 750
Selling, general and administrative 1,525 255 1,780
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Loss from operations (3,406) (466) (3,872)
Interests expense, net (1,379) -- (1,379)
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Loss before minority interest ($4,785) ($ 466) ($5,251)
======= ======= =======
MadeMyWay.com has no recorded assets at July 30, 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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RESULTS OF OPERATIONS
NINE MONTH PERIOD ENDED JULY 30, 2000 COMPARED
TO NINE MONTH PERIOD ENDED JULY 25, 1999
Sales for the nine month period ended July 30, 2000 were $2,635,000, a
decrease of $3,638,000 or 58%, compared with sales of $6,273,000 in the same
period in the prior fiscal year. The decrease in sales for the nine months ended
July 30, 2000 is attributable to the Company's decision to withdraw from the
military defense business, although that decision has now been reversed.
Cost of sales for the first nine months of fiscal 2000 was $3,977,000 (151% of
sales), an increase of $150,000 or 4%, compared with $3,827,000 (61% of sales)
for the same period in the prior fiscal year. Cost of sales increased slightly
despite a significant decrease in sales compared to the same period in the prior
fiscal year because of lower gross margin product mix as well as the Company
functioning at a lower capacity than the previous year.
During the nine month period ending July 30, 2000, the Company recorded a write
down of its inventory of $750,000 due to changes in business direction. There
was no such write down in the same period in the prior fiscal year.
Selling, general and administrative ("SG&A") expenses for the nine month period
ended July 30, 2000 were $1,780,000 (68% of sales), a decrease of $731,000, or
29%, compared with $2,511,000 (40% of sales) for the same period in the prior
fiscal year. The decrease is due to lower administrative and support staff
expenses throughout the Company.
In the prior year the Company incurred lease settlement expense of $1,225,000.
There was no such expense in the current period.
Net interest expense amounted to $1,379,000 for the nine month period ended July
30, 2000 compared with net interest expense of $356,000 for the same period in
the prior year. This increase is due to higher outstanding borrowings and higher
amortization of original issue discount from warrants issued in connection with
certain borrowings.
The net loss for the nine-month period ended July 30, 2000 amounted to
$5,233,000 an increased loss of $3,587,000 compared with a net loss of
$1,646,000 for the same period in the prior year. The loss for the current
nine-month period is attributable to the Company's decision to withdraw from the
military/defense business (which decision has been reversed), write down of
inventory and the start-up expenses of its MadeMyWay.com, Inc. subsidiary.
THREE MONTH PERIOD ENDED JULY 30, 2000 COMPARED
TO THREE MONTH PERIOD ENDED JULY 25, 1999
Sales for the three-month period ended July 30, 2000 were $316,000, a decrease
of $2,069,000 or 87%, compared with sales of $2,385,000 in the same period in
the prior fiscal year. The decrease in sales for the third quarter ended July
30, 2000 is attributable to the Company's decision to withdraw from the
military/defense business (which decision has been reversed).
Cost of sales for the third quarter of fiscal 2000 was $1,095,000 (347% of
sales), a decrease of $241,000 or 18%, compared with $1,336,000 (56% of sales)
for the same period in the prior fiscal year. The slight decrease in cost of
sales despite a significant decrease in sales is attributable to lower gross
margin product mix and the Company functioning at lower capacity than the
previous year.
During the three month period ending July 30, 2000, the Company recorded a write
down of its inventory of $750,000 due to changes in business direction. There
was no such write down in the same period in the prior fiscal year.
Selling, general and administrative ("SG&A") expenses for the three month period
ended July 30, 2000 were $597,000 (189% of sales), a decrease of $296,000, or
33%, compared with $893,000 (37% of sales) for the same period
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in the prior fiscal year. The decrease is due to lower administrative and
support staff expenses throughout the Company.
Net interest expense amounted to $467,000 for the three month period ended July
30, 2000 compared with net interest expense of $113,000 for the same period in
the prior year. The increase is due to higher outstanding borrowings and higher
amortization of original issue discount from warrants issued in connection with
certain borrowings.
The net loss for the three-month period ended July 30, 2000 amounted to
$2,593,000 an increase of $2,636,000, compared with net income of $43,000 for
the same period in the prior year. The loss for the current three-month period
is attributable to the Company's decision to withdraw from the military/defense
business (which decision has been reversed), write down of inventory and the
start-up expenses of its MadeMyWay.com, Inc. subsidiary.
Management has determined that, based on the Company's historical losses from
recurring operations, the Company will not recognize its net deferred tax assets
at July 30, 2000. Ultimate recognition of these tax assets is dependent, to some
extent, on future revenue levels and margins. It is the intention of management
to assess the appropriate level for the valuation allowance each quarter.
The contract process in which products are offered for sale is generally set
before costs are incurred, and prices are based on estimates of the costs, which
include the anticipated impact of inflation.
The Company's backlog of funded orders not yet recognized as revenue at July 30,
2000 was approximately $651,000. All of the backlog is expected to be delivered
during the next twelve months.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements have been to fund working capital
needs, capital expenditures and the payment of long term debt. The Company has
recently relied primarily on internally generated funds, private placement
proceeds, subordinated debt and other bank debt to finance its operation.
The Company's liquidity and cash resources are significantly impaired by ongoing
losses and significant reductions in revenues.
The Company has substantial debt due for repayment during fiscal 2000 and 2001,
which debt cannot be repaid from cash or other proceeds from operations. As a
result, significant additional equity or other capital are required to meet its
debt obligations and satisfy operating expenses in the short and long term.
The Company is currently in default under its senior bank facility in the
principal amount of $1,496,140, under certain 10% Subordinated Notes in the
aggregate principal amount of $3,524,000 and under certain 12% Subordinated
Convertible Secured Notes in the aggregate principal amount of $2,672,832. The
Company expects that such debt can be repaid in whole or in part only from the
proceeds of additional financings of its business or that of its subsidiaries,
the sale of some or all of its interests in MadeMyWay or other subsidiaries, or
from the proceeds of sale of its common stock, directly or through the
conversion of outstanding warrants or other rights to purchase common stock. The
Company is having ongoing discussions with investors about equity and/or debt
financing. While the Company has received preliminary indications of interest
from investors, as of the date of this filing, the Company has no agreements for
additional financing. There can be no assurance that the Company will be
successful in obtaining such additional equity financing or debt or, if agreed
to, that the financing will be completed. If
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the financing is completed, the Company would initially use the funds for
working capital purposes. A portion of the existing obligations may also be
extended, refinanced or converted to equity, but no such agreements to do so
exist as of the date hereof.
In March 2000, the Company sold 600,000 shares of Common Stock in MadeMyWay.com
to an outside investor for approximately $1.2 million. The sale reduced the
Company's ownership interest in MadeMyWay.com from 100% to 88%. Two years after
closing the investor has the right to convert its common shares of MadeMyWay.com
into preferred shares of Datametrics Corporation under certain circumstances as
defined in the Stock Purchase Agreement. The proceeds from the sale will be used
for working capital purposes and marketing of MadeMyWay.com.
In July and August 2000 the Company borrowed an aggregate of $690,000 from an
investor group and pledged the remaining shares the Company owns in
MadeMyWay.com to secure that borrowing. A portion of that borrowing ($480,000)
is due on the earlier of January 21, 2000 or the date of any refinancing with
the Company's principal bank lender and the balance ($210,000) is due on October
5, 2000.
FORWARD LOOKING STATEMENTS-CAUTIONARY FACTORS
Except for the historical information and statements contained in this report,
the matters set forth in this report are "forward looking statements" that
involve uncertainties and risks, some of which are discussed at appropriate
points in this report and the Company's other SEC filings, including special
risks, such as the uncertainty of the market for the sale of the military
division, and the availability of funding for the Company's on-going operations.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is, from time to time, the subject of legal litigation, claims
and assessments arising out of matters occurring during the normal operation of
the Company's business. In the opinion of management, the liability, if any,
under such current litigation, claims and assessments would not materially
affect the financial position or the results of operations of the Company.
ITEM 2. CHANGES IN SECURITIES AND USES OF PROCEEDS.
As of June 30, 2000, the Company issued 12% Subordinated
Convertible Secured Notes for total face value of $77,849 to the holders of such
notes previously reported and issued in August 1999 exercising the right of the
Company to do so in lieu of cash interest payments on the existing Notes.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
At August 30, 2000, the Company failed to repay when due
$1,496,140 owing under its bank facility with Branch Banking & Trust Co. Branch
Banking & Trust Co. may seek to accelerate amounts due under such facility. The
Company has also failed to repay when due amounts owing under its 12%
Subordinated Convertible Secured Notes. The Company has also failed to pay
interest of $88,100 under the Company's 10% Subordinated Notes, which interest
was due on June 24, 2000.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None.
ITEM 5. OTHER INFORMATION. None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) List of Exhibits: Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K.
Form 8-K - August 18, 2000
Form 8-K - September 7, 2000
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Form 10-QSB to be signed on its behalf by its
duly authorized representatives.
DATAMETRICS CORPORATION
-----------------------
(Registrant)
Dated: September 13, 2000 /s/ VINCENT J. CAHILL
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Vincent J. Cahill
Chief Executive Officer and
Chief Financial Officer
Dated: September 13, 2000 /s/ LARRY B. SILVERMAN
----------------------------
Larry B. Silverman,
Chief Accounting Officer
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS OF DATAMETRICS
CORPORATION AS OF AND FOR THE NINE MONTH PERIOD ENDED JULY 30, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
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