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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 28, 2001
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)
1717 Diplomacy Row
Orlando, Florida 32809
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(Address of principal executive offices) (Zip Code)
(407) 251-4577
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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 - 20,512,227 shares as of 3/12/01
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DATAMETRICS CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-QSB
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheet as of January 28, 2001
Consolidated Statements of Operations for the
Three Months Ended January 28, 2001
Consolidated Statements of Cash Flows for the
Three Months Ended January 28, 2001
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in securities and uses of funds.
Item 3. Defaults upon Senior Securities
Item 4. Submission of matters to a vote of security holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
DATAMETRICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands except
for share data)
January 28, 2001
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ASSETS
Current assets:
Cash $ 147
Accounts receivable, net of allowance 529
for doubtful accounts of $50
Inventories, net 2,333
Prepaid expenses and other current assets 253
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Total current assets 3,262
Property and equipment, at cost:
Land 420
Building and improvements 1,042
Machinery and equipment 2,554
Furniture, fixtures and computer equipment 2,733
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6,749
Less: Accumulated depreciation (4,796)
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Net property and equipment 1,953
Inventories, net 2,100
Other assets 18
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$ 7,333
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt $ 6,387
Accounts payable 689
Accrued expenses 1,051
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Total current liabilities 8,127
Long-term debt, less current maturities 891
Note payable 2,890
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Total liabilities 11,908
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Stockholders' deficit:
Preferred stock, $.01 par value; 5,000,000 shares authorized, none
issued Common stock, $.01 par value; 40,000,000 shares authorized;
20,512,227 shares issued and outstanding 205
Additional paid-in capital 44,033
Accumulated deficit (48,813)
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Total stockholders' deficit (4,575)
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$ 7,333
========
See accompanying notes to consolidated financial statements.
DATAMETRICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
January 28, January 30,
2001 2000
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(in thousands, except per share data)
Sales $ 858 $ 1,131
Cost of sales:
Purchases, manufacturing and overhead 1,181 1,391
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Gross loss (323) (260)
Selling, general and administrative expenses 553 641
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Loss from operations (876) (901)
Other income (expense):
Life insurance net proceeds 1,046 --
Interest expense, net (310) (451)
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736 (451)
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Net loss $ (140) $ (1,352)
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Loss per share of common stock:
Basic and diluted $ (.01) $ (.07)
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Weighted average number of common shares outstanding:
Basic and diluted 20,435 18,997
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See accompanying notes to consolidated financial statements.
DATAMETRICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
January 28, January 30,
2001 2000
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(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (140) $(1,352)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 75 90
Non-cash interest and financing costs 85 231
Changes in assets and liabilities:
Accounts receivable (456) 1,631
Inventory 38 (87)
Prepaid expenses and other current assets 74 (259)
Other assets 913 281
Accounts payable 26 (97)
Accrued expenses 52 65
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Net cash provided by operating activities 667 503
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment (18) (56)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on loan payable (877) --
Borrowings on long-term debt 289 --
Payments on long-term debt (8) (5)
Borrowings on revolving line of credit -- 500
Payments on revolving line of credit -- (500)
Proceeds from the issuance of common stock and warrants 66 --
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Net cash used in financing activities (530) (5)
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Net increase in cash 119 442
Cash at the beginning of the period 28 137
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Cash at the end of the period $ 147 $ 579
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Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest paid, net $ 111 $ 150
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Non-cash transaction:
Conversion of accrued interest to 12% Subordinated
Convertible Secured Notes Due 2000 $ 85 $ --
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See accompanying notes to consolidated financial statements.
DATAMETRICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 28, 2001
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
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 28, 2001.
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 29, 2000 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 29, 2000 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 in default of its $2.8 million subordinated convertible
secured notes (the "12% Notes") and $3.5 million subordinated notes (the "10%
Notes"), and is currently negotiating with the holders of the 10% Notes and 12%
Notes to exchange other securities of the Company for such Notes and to waive
such defaults as well as interest and other penalties (see Note 4). The
Company's senior credit facility of $1.5 million has been assigned to a new
lender, and the Company and such lender have modified the terms of such facility
and the Lender has waived pre-existing defaults thereunder (see Note 4).
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. 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 evaluates all inventory for obsolescence on a
periodic basis and records estimated reserves.
Inventories as of January 28, 2001 consist of the following:
(in thousands)
Inventories of parts and sub-assemblies $10,198
Work in process 389
Finished Goods 796
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11,383
Less non current inventories (2,100)
Less reserve for obsolescence (6,950)
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$ 2,333
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3. OTHER EVENTS
In January 2001, the Company recorded approximately $1,046,000 as Other
Income in connection with net proceeds from its key-man life insurance policy on
a former Chief Executive Officer.
4. SUBSEQUENT EVENTS
Note payable
In December 2000, an investment group headed by the Company's chairman, and
including the six associated investors who advanced bridge loans ("Bridge
Financings") to the Company during fiscal 2000, formed DMTR, LLC, a New York
limited liability company ("DMTR"). DMTR has satisfied the $1,496,140 due to the
guarantors of the Company's Senior Bank Facility ("Senior Bank Loan") and has
taken an assignment of the loan documents and the collateral securing that loan.
In addition, DMTR has repaid in December all of the Company's Bridge Financings
in the aggregate amount of $1,305,000 plus interest thereon and taken an
assignment of the loan documents evidencing the Bridge Financings and an
assignment of the collateral securing the Bridge Financings.
Effective January 31, 2001, DMTR and the Company executed loan documents to
provide the Company with a line of credit in the maximum amount of $798,860 (the
"Line of Credit"). Accordingly, the Company (assuming a draw of the entire Line
of Credit) is obligated to DMTR in the aggregate amount of $3,600,000 (comprised
of $1,496,140 on the Senior Bank Loan, $1,305,000 on the Bridge Financings and
$798,860 on the Line of Credit and subject to the agreement, described below, to
exchange a portion of the Bridge Financings for Common Stock of the Company).
The Line of Credit has a term of two years with interest (payable monthly) at
the Base Rate of Citibank, N.A. plus 100 basis points and is secured by all
assets of the Company, a pledge of the Company's stock in MadeMyWay.com, Inc.
("MadeMyWay") and the assets of MadeMyWay. To the extent such assets and stock
are pledged to secure the Senior Bank Loan and the Bridge Financings, the
security for the Line of Credit is subject to such prior security interests. The
Company is also obligated to make mandatory prepayments of the principal of the
Line of Credit on a monthly basis to the extent the Company has available cash
in excess of $200,000. Simultaneously with the closing of the Line of Credit,
DMTR and the Company modified the terms of the Senior Bank Loan and the Bridge
Financings to conform those terms to the terms of the Line of Credit. Therefore,
the Senior Bank Loan and the Bridge Financings mature on January 31, 2003,
accrue interest (payable monthly) at the Base Rate of Citibank N.A. plus 100
basis points and are subject to the mandatory prepayment provision set forth in
the Line of Credit. As additional consideration for the financings provided by
DMTR, the Company issued a Warrant to DMTR to acquire up to 7,000,000 shares of
the Common Stock of the Company on a fully diluted basis with an exercise price
of $.125 per share, exercisable through January 31, 2007. Further, DMTR will
exchange $700,000 in principal amount of the Bridge Financings for the issuance
of 700,000 shares of the Company's Common Stock (with demand registration
rights), such number of shares determined on the basis of and giving effect to a
proposed reverse stock split described below.
Long-term debt
The Company is currently negotiating with the holders of its 10%
Subordinated Notes dated December 24, 1998 in the aggregate principal amount of
$3,524,000 as of December 31, 2000 (the "10% Notes") and its 12% Senior
Subordinated Convertible Secured Notes dated August 2, 1999 in the aggregate
principal amount of $2,835,607 as of December 31, 2000 (the "12% Notes") to
restructure such indebtedness. In each case, the negotiations have assumed that
the Company will amend its Certificate of Incorporation to increase its
authorized capital stock and to effect a 1 for 20 reverse stock split. The
current Chairman and a director of the Company hold certain of the 10% Notes and
12% Notes and have investment discretion over certain accounts of the other
noteholders.
The Company has reached an agreement in principle with a majority of the
holders of the 10% Notes, subject to the execution and delivery of definitive
documents, to exchange each $1.00 face amount of the outstanding 10% Notes for
$1.5050 face amount of a new series of step-up coupon convertible two-year Notes
(the "New Notes"). The following describes the terms of the New Notes if the
exchange is completed. The holders of the 10% Notes will waive accrued interest
owing since March 2000 and all other amounts, whether of principal, interest,
premium or penalty, owing in respect of the 10% Notes or any instruments
delivered in connection with the 10% Notes. The New Notes will not accrue
interest until the second year after issuance. Interest will then be paid
semi-annually, with the first payment at a rate of 12% per annum and the second
payment at a rate of 16% per annum. The holders of the New Notes may convert
amounts owing under the New Notes to the Company's Common Stock at a price of up
to $3.00 per share. The Company may force conversion to Common Stock of up to
twenty percent (20%) of the aggregate principal of the New Notes each quarter if
the trading price of the Company's Common Stock averages $3.25 or more (with an
average daily trading volume of 30,000 shares) for twenty of thirty trading days
during such quarter and the Company may force conversion to Common Stock of up
to fifty percent (50%) of the aggregate principal of the New Notes each quarter
if the trading price of the Company's Common Stock averages $4.50 or more for
twenty of thirty trading days during such quarter.
The Company may redeem the New Notes for cash at 85% of par up to the
six-month anniversary of their issuance, at 90% of par from the six-month
anniversary though the first anniversary of their issuance and thereafter at 95%
of par through the first interest payment date. The Company will be obligated to
redeem 20% of the original principal amount of the New Notes on each of the
first anniversary of their issuance and the first interest payment date. Such
redemption may be effected by payment of cash or forced conversion into Common
Stock if the Company is then permitted so to convert the New Notes.
The Company is also negotiating with the holders of the 12% Notes and the
Company has reached an agreement in principle, subject to the execution and
delivery of definitive documents, with a majority of such holders to exchange
1.1 shares of the Company's Common Stock for each $1.00 in principal of the
outstanding 12% Notes. If the exchange is consummated, the holders of the 12%
Notes will waive accrued interest owing since January 2001 and all other amounts
whether of principal, interest, premium or penalty, owing in respect of the 12%
Notes or any instruments delivered in connection with the 12% Notes.
The Company seeks to effect the exchanges during the first half of calendar
2001 on substantially the terms described above. Although the Company has
received commitments from a majority of the holders of the 10% Notes (94%
received as of March 12, 2001) and a majority of the holders of the 12% Notes
(89% received as of March 12, 2001), the closing of the exchanges is subject to
the execution and delivery of definitive documents and the amendment of the
Company's Certificate of Incorporation to increase the Company's authorized
capital and to effect a 1 for 20 reverse stock split. Further any holder may
accept or reject the proposed exchange as to his 10% Note or 12% note, as the
case may be, and preserve his claims under his Notes regardless of acceptance of
the exchange by any number of other holders. The Company expects to obtain the
consents of the required number of stockholders under Delaware law for the
amendment and reverse stock split described above and such consents shall be
effective twenty (20) days after proper notice of the actions covered by such
consents has been delivered to all nonconsenting stockholders. In the unlikely
event that stockholder approval is not obtained for the amendment and stock
split noted above, the 10% and 12% Noteholders would retain their rights under
the original Notes, whether of principal, interest, premium or significant
penalty. This would have a material adverse effect on the financial position of
the Company.
5. 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, which had no operations in the first quarter of fiscal 2000,
consists of a 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
January 28, 2001
(in thousands)
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PRINTER INTERNET TOTAL
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Sales $ 858 $ -- $ 858
Cost of sales 1,166 15 1,181
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Gross loss (308) (15) (323)
Selling, general and administration 483 70 553
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Loss from operations (791) (85) (876)
Other income (expense):
Life insurance net proceeds 1,046 -- 1,046
Interest expense, net (310) -- (310)
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Net Loss $ (55) $ (85) $ (140)
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The internet segment has no recorded assets at January 28, 2001.
6. COMMITMENTS AND CONTINGENCIES
In connection with a Mutual Release and Settlement Agreement between the
Company and the owner of premises formerly leased in California, the Company is
required to issue an additional approximate 2.7 million shares of Common Stock
in accordance with the terms of the agreement, which shares have not been
issued.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED JANUARY 28, 2001 COMPARED
TO THREE MONTH PERIOD ENDED JANUARY 30, 2000
Sales for the three month period ended January 28, 2001 were $858,000, a
decrease of $273,000 or 24%, compared with sales of $1,131,000 in the same
period in the prior fiscal year. The decrease in sales for the first quarter
ended January 28, 2001 is attributable primarily to lower Military sales due to
re-entry into the Military business during the current quarter offset by an
increase in Industrial sales.
Cost of sales for the first quarter of fiscal 2001 was $1,181,00 (138% of
sales), a decrease of $210,000 or 15%, compared with $1,391,000 (123% of sales)
for the same period in the prior fiscal year. Cost of sales decreased due to
reduced sales offset by the Company functioning at a lower capacity than for the
same period in the prior fiscal year.
Selling, general and administrative ("SG&A") expenses for the three month
period ended January 28, 2001 were $553,000 (64% of sales), a decrease of
$88,000 or 14%, compared with $641,000 (57% 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.
Net interest expense amounted to $310,000 for the three month period ended
January 28, 2001 compared with interest expense of $451,000 for the same period
in the prior year. The decrease of $141,000 is due to reduced original issue
discount related to the Company's issuance of warrants in fiscal 1999.
The net loss for the three month period ended January 28, 2001 amounted to
$140,000, a decrease of $1,212,000, compared with a net loss of $1,352,000 for
the same period in the prior year. The decrease in loss was primarily
attributable to net proceeds of $1,046,000 from its key-man life insurance
policy on a former Chief Executive Officer received in January 2001.
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 28, 2001. 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 28, 2001 was approximately $1,466,000. 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 2001, 2002
and 2003, 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 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 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.
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 and the availability of funding for the Company's on-going operations.
OTHER INFORMATION
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,
except as disclosed herein.
In connection with a Mutual Release and Settlement Agreement between the
Company and the owner of premises formerly leased in California, the Company is
required to issue an additional approximate 2.7 million shares of Common Stock
in accordance with the terms of the agreement, which shares have not been
issued.
2. CHANGES IN SECURITIES AND USES OF PROCEEDS.
3. DEFAULTS UPON SENIOR SECURITIES.
The Company has failed to repay when due amounts owing under its 12%
Subordinated Convertible Secured Notes and 10% Subordinated Notes. The Company
is currently negotiating an exchange of such 12% Notes and 10% Notes for other
securities of the Company and a simultaneous waiver of all amounts owing under
the 12% Notes and the 10% Notes.
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None.
5. OTHER INFORMATION. None.
6. EXHIBITS AND REPORTS ON FORM 8-K. None.
SIGNATURES
Pursuant to the requirements of the Securities 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
/s/ Vincent J. Cahill
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Vincent J. Cahill
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 dates indicated:
Name Title Date
- ------------ ----------- -----------
/s/ Vincent J. Cahill Chief Executive Officer March __, 2001
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Vincent J. Cahill
/s/ Larry B. Silverman Controller March __, 2001
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Larry B. Silverman
/s/ Bruce R. Galloway Chairman of the Board March __, 2001
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Bruce R. Galloway
/s/ Gary L. Herman Secretary, Director March __, 2001
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Gary L. Herman
/s/ Douglas S. Friedenberg Director March __, 2001
- ----------------------
Douglas S. Friedenberg