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 January 24, 1999
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or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Transition Period from ________to_________
Commission File Number 0-8567
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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 (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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock. $.01 Par Value--17,172,879 shares as of February 26, 1999
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DATAMETRICS CORPORATION
Index to Form 10-QSB
Page No.
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Part I - Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets
as of January 24, 1999 and
October 25, 1998 3
Consolidated Statements of
Operations for the Three Months
Ended January 24, 1999 and
January 25, 1998 4
Consolidated Condensed Statements
Of Cash Flows for the Three Months
Ended January 24, 1999 and
January 25, 1998 5
Notes to Consolidated Condensed
Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
Part II - Other Information
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and uses of proceeds 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of matters to a vote of 12
security holders
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
DATAMETRICS CORPORATION
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED DATAMETRICS CORPORATION
BALANCE SHEETS
(In thousands, except for share data) January 24, 1999 October 25, 1998
- ------------------------------------- -------------------------------------------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $275 $228
Accounts receivable, net 2,287 1,979
Inventory, net 4,421 4,140
Prepaid expenses and other current assets 10 55
------------------------ -----------------------
Total current assets 6,993 6,402
Property and Equipment, at Cost:
Land 420 420
Building 1,042 1,042
Machinery and equipment 3,312 3,312
Furniture, fixtures & computer equipment 2,562 2,562
Leasehold improvements 71 71
------------------------ -----------------------
7,407 7,407
Accumulated depreciation and amortization (5,221) (5,100)
------------------------ -----------------------
Net property and equipment 2,186 2,307
Inventoried parts 3,200 3,200
Other Assets 762 810
------------------------ -----------------------
$13,141 $12,719
======================= ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit ---- $1,669
Current maturities of long-term debt 1,852 1,871
Accounts payable 1,024 1,034
Accrued commissions and payroll 182 225
Accrued warranty 30 30
Other accrued expenses 393 440
Other accrued liabilities 1,225 ----
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Total current liabilities 4,706 5,269
Long-Term Debt, Less current maturities 3,896 2,696
Loan Payable 746 746
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Total liabilities 9,348 8,771
Commitments and Contingencies
Stockholders Equity
Common stock, $.01 par value--40,000,000 shares
authorized; 17,172,879 shares issued and
outstanding in 1999 (14,722,629 in 1998) 172 156
Additional paid-in capital 39,455 37,910
Accumulated deficit (35,834) (34,058)
------------------------ -----------------------
Total stockholders' equity 3,793 4,008
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$13,141 $12,719
======================= ======================
See accompanying notes.
3
DATAMETRICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED DATAMETRICS CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
For The Three Months For The Three Months
Ended Ended
January 24, 1999 January 25, 1998
(In thousands, except per share data)
- ------------------------------------- =================================================================================
SALES $1,586 $1,525
Cost of sales 1,084 1,588
Research & development 62 136
Selling, general & administrative 867 1,026
Lease settlement expense 1,225
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Loss (1,652) (1,225)
Interest expense, net 124 87
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Loss before provision for income taxes (1,776) (1,312)
Provision for income taxes ---- ----
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Net loss (1,776) ($1,312)
============================= =======================
Loss per share of common stock:
Basic and diluted net loss (0.11) ($0.08)
============================= =======================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic and diluted 16,578 15,031
See accompanying notes.
4
DATAMETRICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
DATAMETRICS CORPORATION
CASH FLOWS STATEMENT
(Unaudited)
For The Three Month Period
(In thousands)(Brackets denote cash outflows) January 24, 1999 January 25, 1998
- --------------------------------------------- -----------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (1,776) (1,312)
Adjustments:
Depreciation and amortization 121 152
Loss on assets - -
Changes in assets and liabilities
Accounts receivable (308) 1,377
Inventory (281) (792)
Prepaid expenses and other current assets 45 2
Other Assets 48 16
Accounts payable (10) (504)
Accrued commission and payroll (43) (125)
Other accrued expenses (1,178) (43)
Advance and progress payments from customers - (63)
Other long-term liabilities - 12
------------------------- --------------------------
Net cash used in operating activities (1,026) (1,280)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment - (922)
------------------------- --------------------------
Net cash used in investing activities - (922)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving line of credit 426 3,358
Payments on revolving line of credit (2,095) (3,131)
Redemption of Series B Preferred Stock - -
Payment on capitalized lease obligations (17) (6)
Borrowings on long-term debt 3,450 899
Payments on long-term debt - (85)
Exchange of 7% Convertible Debentures (1,750)
Exchange of Senior Subordinated Debentures (500)
Proceeds from the issuance of common stock and warrants 1,559 2,002
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Net cash used in financing activities 1,073 3,037
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Net increase in cash and cash equivalents 47 835
Cash and cash equivalents at the beginning of the period 228 200
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CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $275 $1,035
========================= ==========================
Cash paid during the period for:
Interest $37 $132
Income Taxes - -
See accompanying notes.
5
DATAMETRICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 24,1999
(Unaudited)
1. The consolidated financial statements include the accounts of Datametrics
Corporation and its wholly-owned subsidiaries (collectively, the "Company").
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-K for
the fiscal year ended October 25, 1998 as filed with the Securities and Exchange
Commission.
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. Much of
the Company's business is longer term and involves varying development,
production, and delivery schedules. Accordingly, 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 31, 1999.
2. 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, rather the Company evaluates all inventory for obsolescence on a
periodic basis and records estimated reserves.
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Inventories as of January 24, 1999 consist of the following:
Inventories of parts and sub-assemblies $11,184,000
Contracts in progress 1,065,000
Finished goods 200,000
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12,449,000
Less non current inventories 3,200,000
Less reserve for obsolescence 4,828,000
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$ 4,421,000
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3. SUBSEQUENT EVENTS In April 1998, the Owner of the Woodland Hills, CA,
premises formerly occupied by the Company sued for the balance of all rent due
through the end of the extant lease plus damages of approximately $1,000,000.
The Company relocated from such premises after the Owner had ignored repeated
notifications of unsafe structural conditions as cited by Los Angeles County
building inspectors.
On March 2, 1999, the Court signed a judgment in the suit in favor of the Owner,
which judgment has been settled and will be satisfied pursuant to a Mutual
Release and Settlement Agreement with the Owner. Under the terms of the
Agreement, the Company will pay $850,000 in cash and 150,000 shares of Common
Stock to the Owner. The Company has agreed to register the shares, and under
certain circumstances, the Company will issue additional shares to the extent
that the market price of the Company's Common Stock falls below certain levels.
The Company also has the right to repurchase the shares under certain
circumstances.
On March 10, 1999, the Company sold $250,000 of Bridge Notes to certain
investors, including two directors. The Bridge Notes have a maturity of 60 days
and pay interest at the rate of 10% per annum. In connection with the Bridge
Notes, the Company also issued warrants to purchase a total of 50,000 shares of
the Company's Common Stock with an exercise price equal to $1.375 per share.
The Bridge Notes are intended to provide temporary working capital until a more
permanent source of financing is arranged.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Month Period Ended January 24, 1999 Compared
--------------------------------------------------
To Three Month Period Ended January 25, 1998
--------------------------------------------
Sales for the three month period ended January 24, 1999 were $1,586,000 an
increase of $61,000 or 4%, compared with sales of $1,525,410 in the same period
in the prior fiscal year. Sales of defense and defense related products
decreased $598,000, while other sales increased $659,000. The decrease in
defense and defense related sales for the three months ended January 24, 1999 is
attributable to lower than anticipated orders from the Department of Defense and
prime contractors.
Cost of sales for the first three months of fiscal 1999 was $1,084,000 (68% of
sales), a decrease of $479,720 or 30%, compared with $1,584,000 (104% of sales)
for the same period in the prior fiscal year. Cost of sales is down from the
same period in the prior fiscal year due to lower direct labor costs in the
Company's Florida manufacturing operation compared to the Company's former
manufacturing operation in California.
Research and development expenses were $62,000 for the three month period ended
January 24, 1999, a decrease of $74,000 or 54%, compared with $136,000 for the
same period in the prior year. The decrease is due to lower development costs
associated with the Company's new family of industrial printers.
Selling, general and administrative ("SG&A") expenses for the three month period
ended January 24, 1999 were $867,000 (55% of sales) a
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decrease of $159,000, or 15%, compared with $1,026,000 (67% 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. The
Settlement Agreement with the Owner of the Woodland Hills, CA, property was
$1,225,000.
The agreement to settle the Company's lease obligation to its former California
landlord for cash and stock resulted in a charge of $1,225,000.
Net interest expense amounted to $124,000 for the three month period ended
January 24, 1999 compared with net interest expense of $87,000 for the same
period in the prior year. This increase is due to higher outstanding
borrowings.
The net loss for the three month period ended January 24, 1999 amounted to
$1,776,000 an increase of $464,000, compared with a net loss of $(1,312,000)
for the same period in the prior year.
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 January 24, 1999. 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 January
24, 1999 was approximately $4,604,000. Most of the January 24, 1999 backlog is
expected to be delivered during the next twelve months.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a revolving line of credit agreement (the "Credit Agreement")
with a bank, collateralized by substantially all of the Company's assets. The
Company was in default on December 30, 1998 when the outstanding balance of
approximately $1.7 million was paid in full. The Company no longer has a line
of credit with the bank.
The Company's working capital and current ratios at January 24, 1999 and at the
end of fiscal years 1998, 1997 and 1996 were $2,287,000, $3,570,000, $2,239,000
and $3,187,000 and 1.4, 1.6, 1.3 and 1.3, respectively.
Management believes that the Company must make approximately $400,000 of capital
expenditures (including capitalized leases) during the
8
remainder of fiscal 1999. The Company's other principal commitments for fiscal
year 1999 include principal and interest payments on loans and subordinated debt
and payments in settlement of litigation.
Management is attempting to finance the capital expenditure requirements and
other commitments from the issuance of stock, subordinated debt, capital leases,
commercial loans or other sources of working capital.
The Company utilizes various computer software packages as tools in running its
accounting operations. Management plans to replace the current Western Data
Systems software with a software package better suited to support its current
and future business needs. The approach includes: an assessment of internal
programs and equipment; communication with major customers and vendors with
respect to the state of readiness of their systems; an evaluation of facility
related issues and the development of a contingency plan. This approach is
designed to maintain an uninterrupted supply of goods and services to/from the
Company. The Company is incorporating to the Y2K computer programming language
into its choice of an appropriate software package. The Company does not
believe the investment required for its mainframe and critical hardware
equipment to be Y2K compliant will be significant.
The Company is in a continuous process of communicating with its major customers
and suppliers. This contact is designed to determine systems compatibility and
compliance. The Company has been assured by its major suppliers that there will
be no disruption in the delivery of goods and services. The Company believes
that adequate resources are available for the supply of its raw materials and
facility related equipment will be operational.
The Company continues to assess the risks associated with program failures and
will develop a formal contingency plan with its business partners to address the
specific risks. The failure to correct a material Y2K problem could result in
an interruption in normal business activity. The Company's plan is expected to
significantly reduce the risk associated with the Y2K issue. However, due to
the inherent uncertainty of the Y2K issue and dependence on third-party
compliance, no assurance can be given that potential Y2K failures will not
adversely effect the Company's operations, liquidity and financial position.
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 the fact
that the Company is engaged in supplying equipment and services to U.S.
government defense programs which are subject to special risks, including
dependence on government appropriations, contract termination without cause,
contract renegotiation and the intense competition for available defense
business.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is, from time to time, the subject of 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 the operations of the Company except as
disclosed herein.
Four former officers of the Company (the "Former Officers"), whose employment
relationships with the Company terminated in part as a result of the Company's
restructuring in October 1996, sought severance benefits from the Company. On
January 13, 1997, three of the Former Officers sued the Company in the Superior
Court of the State of California for Los Angeles County, in order to enforce
payment of severance benefits under certain agreements, each dated as of October
7, 1996, between each Former Officer and the Company (collectively, the
"Severance Agreements"). The fourth Former Officer sued the Company in response
to the Company's cross-complaint. The Former Officers sought damages from the
Company based upon the Severance Agreements and an alleged implied promise not
to terminate
9
the employment of the Former Officers with the Company without good cause.
On September 28, 1998, a California trial court upheld the enforcability of the
Former Officer's severance agreements and the Officer's requested entry of a
judgment in the approximate amount of $1,200,000 plus interest and costs. The
Company has appealed the judgment. The Company has obtained a written guarantee
from a holder of a significant amount of the Company's debt securities
guaranteeing payment of the judgment, should the Company lose on appeal. If the
holder pays the guaranty, the Company has agreed to issue such holder 7%
convertible debentures with a two year maturity in an amount equal to the amount
so paid, which debentures will be convertible into shares of common stock of the
Company at the lower of $2.00 per share or 75% of the closing sale price on the
date of payment. The Company is unable to estimate the results of its appeal and
at January 24, 1999 nothing has been accrued for in the consolidated financial
statements related to this litigation.
In April 1998, the Owner of the Woodland Hills, CA, premises formerly occupied
by the Company sued for the balance of all rent due through the end of the
extant lease agreement plus damages of approximately $1,000,000. The Company
relocated from such premises after the Owner had ignored repeated notifications
of unsafe structural conditions as cited by Los Angeles County building
inspectors.
On March 2, 1999, the Court signed a judgment in the suit in favor of the Owner,
which judgment has been settled and will be satisfied pursuant to a Mutual
Release and Settlement Agreement with the Owner. Under the terms of the
Agreement, the Company will pay $850,000 in cash and 150,000 shares of Common
Stock to the Owner. The Company has agreed to register the shares, and under
certain circumstances, the Company will issue additional shares of Common Stock
to the extent that the market price of the Company's Common Stock falls below
certain levels. The Company also has the right to repurchase the shares under
certain circumstances.
Item 2. Changes in securities and uses of proceeds.
None
Item 3 Defaults upon Senior Securities
The Company remains in default of approximately $1.35 million in principal
amount of Senior Secured Subordinated Notes. The Company is currently
attempting to negotiate a settlement on the remaining amounts outstanding by way
of either issuance of new notes or repayment of the amounts owed with a
combination of equity securities and cash during fiscal 1999.
Item 4. Submission of matters to a vote of security holders.
None
Item 5. Other Information
On December 30, 1998, the Company placed approximately $3.45 million of 10%
Subordinated Notes due 2000 (the "Subordinated Notes") and
10
$1.55 million in shares of the Company's Common Stock. The Subordinated Notes,
which are unsecured and callable under certain conditions, provide for the
Company to issue 5-year warrants exercisable into the Company's Common Stock at
a price of $1.50 per share.
As part of the offering, investors holding $1.75 million of the Company's
Convertible Debentures issued in July and September of 1998 exchanged their
holdings for new Subordinated Notes. In addition, holders of $500,000 of the
Company's Senior Subordinated Debentures also exchanged their debentures for the
new Subordinated Notes. The net proceeds of approximately $2.75 million was
used for debt retirement and working capital purposes.
On March 10, 1999, the Company sold $250,000 of Bridge Notes to certain
investors, including two directors. The Bridge Notes have a maturity of 60 days
and pay interest at the rate of 10% per annum. In connection with the Bridge
Notes, the Company also issued warrants to purchase a total of 50,000 shares of
the Company's Common Stock with an exercise price equal to $1.375 per share.
The Bridge Notes are intended to provide temporary working capital until a more
permanent source of financing is arranged.
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits:
Exhibit 27 Financial Data Schedule
Exhibit 10.12 Mutual Release and Settlement Agreement
(b) Reports on Form 8-K
None
11
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: March 10, 1999 /s/ DANIEL P. GINNS
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Daniel P. Ginns
Chief Executive Officer
Dated: March 10, 1999 /s/ WILLIAM B. PANDOS
-------------------------- ---------------------------
William B. Pandos
Principal Financial Officer
12