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 April 25, 1999
--------------
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
DATAMETRICS CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 95-3545701
- ------------------------------ ----------------------
(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 [ ]
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--19,007,227 shares as of June 7, 1999
Page 1 of 14
DATAMETRICS CORPORATION
Index to Form 10-QSB
Page No.
--------
Part I - Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheet
as of April 25, 1999 3
Consolidated Statements of
Operations for the Six Months
Ended April 25, 1999 and
April 26, 1998 4
Consolidated Statements of
Cash Flows for the Six Months
Ended April 25, 1999 and
April 26, 1998 5
Notes to Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7
Part II - Other Information
Item 1. Legal Proceedings 11
Item 2. Changes in securities and uses of funds. 11
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of matters to a vote
of security holders. 12
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Page 2 of 14
DATAMETRICS CORPORATION
CONSOLIDATED BALANCE SHEET
(unaudited)
(in thousands, except for share date) April 25, 1999
- ------------------------------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $310
Accounts receivable, net 2,375
Inventory, net 4,596
Prepaid expenses and other current assets 61
----------
Total Current Assets 7,342
Property and Equipment, at Cost:
Land 420
Building 1,042
Machinery and equipment 3,312
Furniture, fixtures & computer equipment 2,638
Leasehold improvements 96
----------
7,508
Accumulated depreciation and amortization (5,332)
----------
Net property and equipment 2,176
Inventoried Parts 3,200
Other Assets 775
----------
$13,493
==========
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Revolving line of credit ----
Current maturities of long-term debt 1,350
Accounts Payable 1,008
Accrued commissions and payroll 90
Accrued warranty 30
Other accrued expenses 323
Other accrued liabilities 1,225
Bridge Notes 450
Short term-loans 50
--------
Total Current Liabilities 4,476
--------
Long-Term Debt, less current maturities
Loan Payable 4,396
Other Long-Term Liabilities 746
---------
Total Liabilities 9,618
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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
Additional paid-in capital 39,455
Accumulated deficit (35,752)
-----------
Total Stockholders' Equity 3,875
------------
$13,493
==========
See accompanying notes.
Page 3 of 14
DATAMETRICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATION
(Unaudited) (Unaudited)
Three months ended Six months ended
-----------------------------------------------------------------
April 25, April 26, April 25, April 26,
1999 1998 1999 1998
-------------- ---------------- ----------------- ---------------
(In thousands, except for per share data)
Sales $2,302 $2,004 $3,888 $3,529
Cost of Sales 1,182 1,036 2,266 2,624
Research & development 116 212 178 348
Selling, general & administrative 801 966 1,668 1,992
-------------- ---------------- ----------------- ---------------
Income (loss) from operations 203 (210) (224) (1,435)
Interest expense, net 116 145 240 232
Lease settlement expense 0 0 1,225 0
-------------- ---------------- ----------------- ---------------
Income (loss) before provision 87 (355) (1,689) (1,667)
for income taxes
Provision for income taxes 0 3 0 3
-------------- ---------------- ----------------- ---------------
Net income (loss) 87 ($358) ($1,689) ($1,670)
============== ================ ================= ===============
Earnings (loss) per share of common stock -- ($0.02) ($0.10) ($0.11)
Basic & diluted
============== ================ ================= ===============
Weighted average number of shares outstanding 17,123 15,035 16,851 14,869
Basic & diluted
============== ================ ================= ===============
Page 4 of 14
DATAMETRICS CORPORATION
CONSOLIDATED CASH FLOWS STATEMENTS
For The Six Month Period
(In thousands)(Brackets denotes cash outflows) April 25, 1999 April 26, 1999
- --------------------------------------------------------------- -------------------------- --------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss (1,689) (1,670)
Adjustments:
Depreciation and amortization 232 302
Bad debt expense - 25
Changes in assets and liabilities
Accounts receivable (396) 1,236
Inventory (456) (1,144)
Prepaid expenses and other current assets (6) 83
Other assets 35 298
Accounts payable (26) (593)
Accrued commission and payroll (135) (485)
Other accrued expenses (1,108) (1,193)
Advance and progress payments from customers - (133)
Other long-term liabilities - (276)
-------------------------- --------------------------
Net cash provided by (used in) operating activities (1,333) (3,550)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment (101) (1,357)
-------------------------- --------------------------
Net Cash used in investing activities (101) (1,357)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving line of credit 426 5,756
Payments on revolving line of credit (2,095) (5,008)
Payment on capitalized lease obligations (24) (6)
Borrowings on long-term debt 1,200 899
Payments on long-term debt - (133)
Proceeds from the issuance of common stock and warrants 1,559 3,472
Proceeds from bridge notes 400 -
Proceeds from short term loans 50 -
-------------------------- --------------------------
Net cash provided by financing activities 1,516 4,980
-------------------------- --------------------------
Net increase in cash and cash equivalents 82 73
Cash and cash equivalents at the beginning of the period 228 200
-------------------------- --------------------------
CASH AND CASH EQUIVALENTS AT THE
END OF THE PERIOD $310 $273
========================== ==========================
Cash paid during the period for:
Interest $86 $214
Income Taxes - 3
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 Subordinated Notes Due 2000 (500) -
See accompanying notes.
Page 5 of 14
DATAMETRICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 25, 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,
but the Company evaluates all inventory for obsolescence on a periodic basis and
records estimated reserves. Inventories as of April 25, 1999 consist of the
following:
Inventories of parts and sub-assemblies $ 11,237,000
Contracts in progress 875,000
Finished goods 512,000
--------------
12,624,000
Less non current inventories 3,200,000
Less reserve for obsolescence 4,828,000
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$ 4,596,000
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Page 6 of 14
3. SUBSEQUENT EVENTS In April 1998, the owner of the premises the Company
formerly leased in Woodland Hills, California, sued the Company in the Los
Angeles Superior Court, Los Angeles, California, for the balance of all rent due
through the end of the extant lease agreement plus damages. On March 9, 1999,
the Company entered into a Mutual Release and Settlement Agreement ("Settlement
Agreement") with the owner, in settlement of the Court's March 2, 1999 judgment
in the suit in favor of the owner. On May 5, 1999, pursuant to the Settlement
Agreement, the Company paid a total of $900,000 in cash and issued 150,000
shares of Common Stock to the owner. The Company has agreed to register the
shares of Common Stock, and under certain circumstances, the Company will issue
additional shares of Common Stock to the extent that the market price of its
Common Stock falls below certain levels. The Company also has the right to
repurchase the shares under certain circumstances. Since the minimum amount
guaranteed by the Company is $375,000 in Common Stock, the Common Stock has been
valued at $2.50 per share. Based on the above, the Company has accrued
approximately $1,225,000 related to this matter.
In May 1999, the Company sold an aggregate 1,500,000 shares of its Common Stock
to approximately 3 investors for an aggregate purchase price of $1,500,000. In
connection therewith, the Company also issued Warrants to purchase up to
1,500,000 shares of its Common Stock at a purchase price equal to the lesser of
$1.35 per share or the volume-weighted average price of the Common Stock for the
20 trading days immediately preceding the notice of exercise. Under a related
Registration Rights Agreement, the Company has agreed to register the shares.
See the Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on May 17, 1999.
In May, 1999, the Company defaulted on approximately $250,000 of 10% Bridge
Notes which were required by their terms to be repaid by May 10, 1999, of the
amount in default, $100,000 is due to an officer of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SIX MONTH PERIOD ENDED APRIL 25, 1999 COMPARED
TO SIX MONTH PERIOD ENDED APRIL 26, 1998
Sales for the six month period ended April 25, 1999 were $3,888,000, an increase
of $359,000 or 10%, compared with sales of $3,529,000 in the same period in the
prior fiscal year. The increase in sales for the six months ended April 25, 1999
is attributable to higher production and order levels. During the same period in
the prior fiscal year, the Company was starting up its new manufacturing
facility in Orlando, Florida and during this transition period experienced
material shortages and labor inefficiencies.
Cost of sales for the first six months of fiscal 1999 was $2,266,000 (58% of
sales), a decrease of $358,000 or 14%, compared with $2,624,000 (74% of sales)
for the same period in the prior fiscal year. Cost of sales decreased compared
to the same period in the prior fiscal year because the Company experienced
labor and material efficiencies in its new Florida manufacturing facility.
Page 7 of 14
Research and development expenses were $178,000 for the six-month period ended
April 25, 1999, a decrease of $170,000 or 49%, compared with $348,000 for the
same period in the prior year. The decrease in expenditures is due to less
research and development required for the Company's new family of industrial
color printers.
Selling, general and administrative ("SG&A") expenses for the six month period
ended April 25, 1999 were $1,668,000 (43% of sales) a decrease of $324,000, or
16%, compared with $1,992,000 (56% 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 $240,000 for the six month period ended April
25, 1999 compared with net interest expense of $232,000 for the same period in
the prior year. This increase is due to higher outstanding borrowings.
The net loss for the six-month period ended April 25, 1999 amounted to
$1,689,000 an increased loss of 22,000 compared with a net loss of $1,667,000
for the same period in the prior year. The loss for the current six-month period
is attributable to the non-recurring Mutual Release and Settlement Agreement
with the Company's former California landlord.
THREE MONTH PERIOD ENDED APRIL 25, 1999 COMPARED
TO THREE MONTH PERIOD ENDED APRIL 26, 1998
Sales for the three-month period ended April 25, 1999 were $2,302,000, an
increase of $298,000 or 15%, compared with sales of $2,004,000 in the same
period in the prior fiscal year. The increase in sales for the second quarter
ended April 25, 1999 is attributable to higher than anticipated orders from the
Department of Defense and prime contractors.
Cost of sales for the second quarter of fiscal 1999 was $1,182,000 (51% of
sales), a decrease of $146,000 or 14%, compared with $1,036,000 (53% of sales)
for the same period in the prior fiscal year. Cost of sales improved as the
Company continues to be more efficient in the use of direct labor.
Research and development expenses were $116,000 for the three-month period ended
April 25, 1999, a decrease of $96,000, compared with $212,000 for the same
period in the prior year. All of the expenditures were for the Company's DmC
Model 1200 dot matrix printer and DmC Model 4080 thermal printer as well as the
Company's new family of industrial color printer.
Selling, general and administrative ("SG&A") expenses for the three month period
ended April 25, 1999 were $801,000 (35% of sales) a decrease of $165,000, or
17%, compared with $966,000 (48% 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.
Page 8 of 14
Net interest expense amounted to $116,000 for the three month period ended April
25, 1999 compared with net interest expense of $145,000 for the same period in
the prior year. The decrease is due to lower outstanding borrowings.
The net income for the three-month period ended April 25, 1999 amounted to
$87,000 an increase of $445,000, compared with net loss of $358,000 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 April 25, 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 April
25, 1999 was approximately $3,225,000. At June 7, 1999, the backlog was
approximately $5,325,000. Approximately 75% of the June 7, 1999 backlog is
expected to be delivered during the next twelve months.
LIQUIDITY AND CAPITAL RESOURCES
The Company is currently in default of approximately $1,350,000 in principal
amount of 10% Senior Subordinated Secured Debentures which remain outstanding.
The Debentures were required to be repaid by their terms on May 25, 1998. The
Company is currently negotiating a settlement with the holders, and expect to
either issue new notes or repay the amounts owing with a combination of stock
and cash during fiscal 1999. The holders of the Debentures have so far not
exercised their remedies as creditors, but there is no guarantee that they will
not pursue such remedies in the future.
In March 1999, the Company sold an aggregate $400,000 of 10% Bridge Notes which
are unsecured and mature on May 10, 1999. In connection therewith, the Company
also issued an aggregate 200,000 5-year Warrants to purchase the Common Stock of
the Company at a price of $1.00 per share. The Company is currently in default
of approximately $250,000 in principal amount of these Bridge Notes which remain
outstanding, of which $100,000 is due to an officer of the Company.
The Company currently has no revolving line of credit with a bank or financial
institution. In order to satisfy short-term working capital requirements, the
Company is actively seeking a new revolving line of credit agreement from
several banks. The Company's failure to obtain such credit could have a material
adverse effect on its continued operations, or require that it obtain substitute
financing at a higher cost, or raise additional capital through the sale of
other debt or equity securities.
Page 9 of 14
Certain officers of the Company and their affiliates have made short-term loans
to the Company from time to time, of which approximately $50,000 in principal
amount currently remains outstanding. These short-term loans provided the
Company with temporary working capital until a more permanent source of
financing may be arranged.
The Company's working capital and current ratios at April 25, 1999 and at the
end of fiscal years 1998, 1997 and 1996 were $2,866,000, $3,570,000, $2,239,000
and $3,187,000 and 1.6, 1.6, 1.3 and 1.3, respectively.
Management believes that the Company must make approximately $200,000 of capital
expenditures (including capitalized leases) during the remainder of fiscal 1999.
The Company's other principal commitments for fiscal year 1999 include principal
and interest payments on loans and subordinated debt.
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 new version which is 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 Year 2000 ("Y2K") compliant computer
programming language into its 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 to determine Y2K 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 of Y2K associated 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.
Page 10 of 14
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 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 January 1997, four former officers of the Company sued the Company in the
Superior Court of the State of California, seeking severance benefits under
certain severance agreements. On September 28, 1998, a California trial court
upheld the enforceability of the former officers' severance agreements and
entered a judgment in the approximate amount of $1,200,000 plus interest and
costs. This matter has been appealed. See the Company's Quarterly Report on Form
10-QSB for the period ended January 24, 1999, filed with the Securities and
Exchange Commission on March 11, 1999.
ITEM 2. CHANGES IN SECURITIES AND USES OF PROCEEDS.
During the three-month period ended April 25, 1999, the Company sold the
following securities without registration and pursuant to the exemption set
forth in Section 4(2) under the Securities Act of 1933, as amended:
Page 11 of 14
1. During March 1999, the Company sold an aggregate $400,000 of
10% Bridge Notes Due May 1999 to approximately 5 investors for
an aggregate purchase price of $400,000. In connection with
such sale, the Company also issued 5-year Warrants to purchase
up to an aggregate 200,000 shares of the Company's Common
Stock for an exercise price of $1.00 per share.
2. During April 1999 the Company issued 150,000 shares of Common
Stock to The Manufacturer's Life Insurance Company (U.S.A.)
pursuant to a Mutual Release and Settlement Agreement.
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.
The Company is also currently in default of $250,000 in principal amount of 10%
Bridge Notes which were required by their terms to be repaid by May 10, 1999. Of
the amount in default, $100,000 is due to an officer of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On Monday, March 1, 1999, the Company held its Annual Meeting of Shareholders
(the "Annual Meeting") to vote on the following proposals:
1. To elect two (2) members to Class II of the Company's Board of
Directors, each to serve a three-year term expiring at the
Company's Annual Meeting to be held in 2002. Nominees for
Director were: (a) Douglas S. Friedenberg, Jr.; and (b) John
W.
O'Leary ("Proposal No. 1")
2. To ratify the re-appointment of BDO Seidman LLP, independent
certified public accountants, as the Company's auditors for
fiscal the year ending October 31, 1999 ("Proposal No. 2")
Of the 17,122,879 shares of the Company's Common Stock of record as of January
25, 1999 able to be voted at the Annual Meeting, a total of approximately
12,287,850 shares were voted, or approximately 71.76% of the Company's issued
and outstanding shares of Common Stock entitled to vote on these matters.
Page 12 of 14
Each of the proposals was adopted, with the vote totals as follows:
Proposal Votes For Votes Against Abstentions Broker Non-Vote
-------- --------- ------------- ----------- ---------------
No. 1
(a) Friedenberg 12,254,857 0 32,993 0
(b) O'Leary 12,254,857 0 32,993 0
No. 2 12,261,513 13,775 12,562 0
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.
None.
Page 13 of 14
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: 6/8/99 /s/ DANIEL P. GINNS
---------------------------
Daniel P. Ginns
Chief Executive Officer
Dated: 6/8/99 /s/ WILLIAM B. PANDOS
---------------------------
William B. Pandos
Chief Financial Officer
Page 14 of 14