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 30, 2003
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 -- 29,640,262 shares as of April 11, 2005
Index to Form 10-QSB
Page No.
Part I - Financial Information --------
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheet as of April 30, 2003 3
Consolidated Statements of Operations for the three Months
Ended April 30, 2003 and April 28, 2002 4
Consolidated Statements of Operations for the six Months
Ended April 30, 2003 and April 28, 2002 4
Consolidated Statements of Cash Flows for the six Months
Ended April 30, 2003 and April 28, 2002 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
Results of Operations 9-10
Liquidity and Capital Resources 11-12
Item 3. Controls and Procedures 12
Part II - Other Information
Item 1. Legal Proceedings 12
Item 2. Unregistered Sales of Equity Securities and uses of funds. 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of matters to a vote of security holders. 13
Item 5. Other Information 13
Item 6. Exhibits 13
Certifications 14-18
Signatures 19
DATAMETRICS CORPORATION AND
SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(unaudited)
(in thousands, except share data)
April 30
2003
-------------
ASSETS
Current Assets
Cash $ 184
Accounts receivable, net of allowance for doubtful accounts of $116 314
Inventory, net of allowance for obsolete inventory of $4,919 1,764
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Total current assets 2,262
Property and Equipment
Building and improvements 1,112
Furniture, Fixtures and computer equipment 1,195
Land 420
Machinery and equipment 547
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Total Property and Equipment 3,274
Less Accumulated Depreciation (1,874)
-------------
Net Property and Equipment 1,400
Total Assets $ 3,662
=============
LIABILITIES AND STOCKHOLDERS DEFICIT
Current Liabilities
Accounts Payable $ 836
Accrued Expenses 1,051
Deferred Revenue 520
Warranty Reserve 61
Current maturities of long-term debt 3,071
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Total Current Liabilities 5,539
Long-Term Liabilities
Long-Term Debt 323
-------------
Total Liabilities 5,862
Stockholders deficit:
Common Stock, $.01 par value; 800,000,000 shares
authorized; 19,292,383 shares issued and 18,348,536 outstanding 193
Treasury Stock (943,847 shares at cost)
(119)
Additional Paid In Capital 56,963
Accumulated Deficit (59,237)
-------------
Total Stockholders Deficit (2,200)
Total Liabilities and Stockholders Deficit $ 3,662
=============
The accompanying "Notes to Consolidated Financial Statements" form an integral
part of these statements.
3
DATAMETRICS CORPORATION AND
SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATION
(unaudited)
(in thousands, except share data)
Three months ended Six months ended
April 30, April 28, April 30, April 28,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Sales 1,137 1,541 1,734 3,035
Cost of Sales 786 410 1,159 1,136
------------ ------------ ------------ ------------
Gross Profit 351 1,131 575 1,899
Selling, general and administrative expenses 551 875 1,125 1,607
------------ ------------ ------------ ------------
Income (Loss) from Operations (200) 256 (550) 292
Other income and expense (127)
(476) (144) (668)
------------ ------------ ------------ ------------
Net Income (Loss) $ (327) $ (220) $ (694) $ (376)
============ ============ ============ ============
Loss per share of common stock;
basic and diluted $ (0.017) $ (0.103) $ (0.040) $ (0.189)
============ ============ ============ ============
Weighted avg. no. of shares outstanding
basic and diluted 19,087 2,140 17,509 1,992
============ ============ ============ ============
The accompanying "Notes to Consolidated Financial Statements" form an integral
part of these statements.
4
DATAMETRICS CORPORATION
AND SUBSIDIARY
CONSOLIDATED CASH FLOWS STATEMENTS
(unaudited)
(in thousands)
six months ended
April 30 April 28
2003 2002
------------ ------------
Net cash provided by (used in) operating activities (20) 113
Net cash provided by (used in ) investing activities -- (56)
Net cash provided by (used in) financing activities 107 (13)
------------ ------------
Net increase in cash 87 44
Cash at the beginning of the period 97 246
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Cash at the end of the period 184 290
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period
for:
Interest paid, net 46 149
Treasury stock obtained when associates surrendered stock certificates in
exchange for forgiveness of advances owed to the
Company 119 --
Cost of Refinancing paid by exercise of Warrants 513 0
Expenses paid by exercise of Warrants 133 0
Issuance of Warrants to acquire Peripheral Equipment Corporation 0 1,128
The accompanying "Notes to Consolidated Financial Statements" form an integral
part of these statements.
5
DATAMETRICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2003
(Unaudited)
1. The consolidated financial statements include the accounts of DataMetrics
Corporation and its wholly owned subsidiary (collectively, the "Company").
The accompanying condensed consolidated financial statements are unaudited and
have been prepared by the Company in accordance with the rules and regulations
of the Securities and Exchange Commission relating to interim financial
statements. These condensed financial statements do not include all disclosures
provided in the company's annual financial statements. The condensed financial
statements should be read in conjunction with the financial statements and notes
thereto for the year ended October 31, 2002 contained in the company's Form
10-KSB filed with the Securities and Exchange Commission. All adjustments of a
normal recurring nature, which, in the opinion of management, are necessary to
present a fair statement of results for the periods have been made. Results of
operations are not necessarily indicative of the results to be expected for the
full year.
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 and fully reserved. The Company evaluates all inventories
for obsolescence on a periodic basis and records estimated reserves accordingly.
Inventories as of April 30, 2003 consist of the following:
(in thousands)
Inventories Parts and sub-assemblies 2,613
Work in Process 8
Obsolete Inventory 4,062
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Total Inventory 6,683
Reserve for Obsolete Inventory (4,919)
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Net Inventory 1,764
The Company has replaced its outdated and very maintenance intensive MRP system
with a more economical and user-friendly Made-2-Manage system that is scaled
appropriately for our business. It was fully implemented in May 2003. The
Company anticipates the new system to be instrumental in the inventory valuation
process, specifically in identifying obsolete materials on a more timely basis.
The Company has recorded significant losses in the past two years for obsolete
inventory.
3. DEBT STRUCTURE / SUBSEQUENT EVENTS
On January 31, 2003, long-term debt of $2,900,000 plus accrued interest
matured. The Company was unable to pay this obligation and is in default on this
debt. As of February 25, 2005, various members of DMTR, LLC, former senior
priority note-holders, and several others exercised approximately 11,782,455
warrants. Proceeds from those exercised prior to April 30, 2003 were used to pay
overdue interest expense and other obligations of the Company of approximately
$650,000 and provided cash inflow of $122,000 to the Company. A Standstill
Agreement with DMTR, LLC was agreed upon, which provides for the creditor to
forego any of its default rights as long as the parties continue to negotiate in
good faith to restructure this obligation. Pursuant to a standstill agreement,
as amended, the creditor may terminate the negotiations and the Standstill
Agreement at any time after January 31, 2005 at its sole discretion if it
determines that the Company is no longer negotiating in good faith to
restructure the Company's obligations to the creditor. Negotiations for the
restructure are ongoing at this time. At April 30, 2003, this debt is reported
net of unamortized refinancing costs of $500,511. These costs arose from
Warrants issued as part of the negotiations to restructure the debt. Additional
details of the Company's debt structure appears in the 10-KSB for fiscal year
ended 10/31/2002.
4. Segment Data
The Company has no reportable segments. There is no segment data to be
reported.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This report contains certain statements of a forward-looking nature
relating to future events or the future performance of the Company. Prospective
investors are cautioned that such statements are only predictions and those
actual events or results may differ materially.
MANAGEMENT FOCUS
The Company designs, develops, and manufactures computers and computer
peripheral equipment for military, industrial and commercial applications where
reliable operation of the equipment in challenging environments is imperative.
The systems provided are qualified for use in airborne, shipboard, and ground
based applications. The Company's product lines include a broad range of
computers, computer workstations, servers, printers, and plotters.
The Company offers military specified and ruggedized versions of flat
panel monitors and other peripheral equipment (including computers, printers,
keyboards and trackballs) encased in shock, vibration and temperature resistant
chassis. The chassis produced by the Company are used in conjunction with its
product by the military to house sensitive equipment. The Navy P3 Orion, Air
Force AWACS and Army Fire-Finder programs all require rugged rack enclosures to
protect the equipment from shock, vibration and other damage which may be
experienced in a harsh operating environment. DataMetrics continues to increase
its presence in the military arena including United States Air Force avionics
and ground-based systems as well as United States Navy for various shipboard
applications. DataMetrics' equipment is designed and qualified for use as part
of commercial airlines cockpit systems.
For the six months ended April 30, 2003, the Company experienced slower
than expected receipt of orders despite an increase in military / defense
spending by the United States government. Many of the military programs from
which the Company anticipates generating its revenue have been rescheduled and
military priorities have been reconsidered to account for short, medium, and
long-term needs. The Company expects to see an increase in order activity in the
following quarters and attributes the delay in orders due to a focus on budget
spending for troops and munitions in the war effort in Afghanistan and Iraq. The
following phases in this war and projected increase in overall military /
defense spending will likely entail more sophisticated surveillance techniques
and equipment, which will require data processing and peripheral equipment much
like we supply for the AWACS, P3 Orions Aircraft and the Armed Forces.
7
RESULTS OF OPERATIONS
Three Month Period Ended April 30, 2003 Compared
To Three Month Period Ended April 28, 2002
Sales for the quarter ended April 30, 2003 were $1,137,000 a decrease of
$404,000 or 26%, compared with sales of $1,541,000 in the same period in the
prior fiscal year. The decrease in sales for the three months ended April 30,
2003 is primarily attributable to the 3M hardware and intellectual property sale
recognized in the second quarter of 2002 that was in excess of one million
dollars.
Cost of sales for the quarter ended April 30, 2003 was $786,000 (69% of
sales), an increase of $376,000 or 91%, compared with $410,000 (27% of sales)
for the same period in the prior fiscal year. Cost of sales increased compared
to the same period in the prior fiscal year because of the increase in Sales
(when disregarding the 3M sale, which was virtually cost-free) and an increase
in operating costs associated with the acquisition of Peripheral Equipment
Corporation (PEC), the Company's subsidiary.
Selling, general and administrative ("SG&A") expenses for the quarter ended
April 30, 2003 were $551,000 (48% of sales) a decrease of $324,000, or 37%,
compared with $875,000 (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 $127,000 for the quarter ended April 30,
2003 compared with net interest expense of $476,000 for the same period in the
prior year. This decrease is due to lower outstanding borrowings, restructuring
of long-term debt and conversion of debt to equity.
The net loss for the quarter ended April 30, 2003 amounted to $327,000, an
increase in loss of $107,000 compared with a net loss of $220,000 for the same
period in the prior year. This increase in losses for the quarter ended April
30, 2003 is attributable to an increase in Cost of Sales.
8
Six Month Period Ended April 30, 2003 Compared
To Six Month Period Ended April 28, 2002
Sales for the six months ended April 30, 2003 were $1,734,000 a decrease of
$1,301,000 or 43%, compared with sales of $3,035,000 in the same period in the
prior fiscal year. The decrease in sales for the six months ended April 30, 2003
is primarily attributable to the 3M hardware and intellectual property sale
recognized in the first six months of 2002 that was in excess of one million
dollars.
Cost of sales for the six months ended April 30, 2003 was $1,159,000 (67%
of sales), an increase of $23,000 or 2%, compared with $1,136,000 (37% of sales)
for the same period in the prior fiscal year. Cost of Sales was significantly
lower in the first two quarters of 2003 when compared to the first two quarters
of 2002 when considering the 2002 revenue that was generated from the 3M
hardware and intellectual property sale that had relatively no costs associated
with the revenue.
Selling, general and administrative ("SG&A") expenses for the six months
ended April 30, 2003 were $1,125,000 (65% of sales) a decrease of $482,000, or
30%, compared with $1,607,000 (53% 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 $144,000 for the six months ended April
30, 2003 compared with net interest expense of $668,000 for the same period in
the prior year. This decrease is due to lower outstanding borrowings and
restructuring of long term debt.
The net loss for the six months ended April 30, 2003 amounted to $694,000
an increase in losses of $318,000 compared with a net loss of $376,000 for the
same period in the prior year. The loss for the current six months is
attributable to low sales in the first two quarters of the fiscal year 2003.
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 30, 2003. 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.
9
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements have been to fund working
capital, capital expenditures and the payment of long term debt. The Company has
relied primarily on internally generated funds, private placement proceeds,
subordinated debt and other bank debt to finance its operations. The Company's
liquidity and cash resources are significantly impaired by ongoing losses. The
opinion of the Company's auditors at the prior year end contains an explanatory
paragraph regarding the Company's ability to continue as a going concern.
The Company continues to have substantial debt that was due in 2002 and
2003. Although the Company has generated cash flow to sustain current
operations, the debt obligations of previous periods have not been met. As a
result, additional capital is required to meet its prior period debt
obligations. The Company's lack of liquidity has also adversely affected its
ability to expand its operations.
Effective January 31, 2001, DMTR LLC ("DMTR")(an entity whose managing
member is Bruce Galloway, the Company's Chairman) provided the Company with a
line of credit in the maximum amount $798,860 (the "Line of Credit").
Accordingly, the Company was initially obligated to DMTR in the aggregate amount
of $3,600,000 (comprised of $1,496,140 on the senior bank loan assigned from
Branch Banking and Trust Company (the "Senior Bank Loan"), $1,305,000 on certain
bridge financing assigned to DMTR and $798,860 on the Line of Credit). These
obligations are secured by all of the assets of the Company. In April 2001, DMTR
agreed to forgive $700,000 of principal obligations in exchange for the issuance
of 14,000,000 shares of common stock or 700,000 shares on a post reverse stock
split. On January 31, 2003, the obligations in the principal amount of $2.9
million plus accrued interest matured. As additional consideration for the
financing provided by DMTR, the Company issued a Warrant to DMTR to acquire up
to 7,000,000 shares of the common stock on a fully diluted basis with an
exercise price of $1.00 per share, to be exercised through January 31, 2007. The
exercise price was subsequently lowered to $.075 per share and subsequent to
that it was lowered even further to $.055 per share.
The Company was unable to repay its obligations due on January 31, 2003
and is in default on its obligations to DMTR. The Company and DMTR entered into
a Standstill Agreement, which provides for DMTR not to exercise any of its
default rights, so long as the parties negotiate in good faith to restructure
this obligation. There can be no assurance that DMTR will not seek to enforce
its remedies with respect to the obligations owed by the Company. The agreement
further provides that DMTR, in its sole discretion and at any time after
September 30, 2003, may terminate the Standstill Agreement if it determines that
the Company is no longer negotiating in good faith. The Company is also in
negotiations to receive additional financing from the members of DMTR and their
respective affiliates. There is no assurance such restructuring or additional
financing will be consummated or that it will be sufficient to ensure that the
Company can satisfy its operating expenses. Through April 30, 2003, the Company
has received proceeds of $293,855 from the exercising of warrants. These
proceeds provided cash to the Company and paid overdue expenses of the Company.
In addition, subsequent to this various warrant holders exercised their warrants
for an additional gross proceeds of $443,870.
In December 2003 through February 2004 various members of DMTR
subscribed to a total of $862,653 of the Company's Preferred Series A Stock.
This stock is convertible into shares of the Company's common stock at $.06 per
share.
DataMetrics has signed a letter of intent to sell the building located
at 1717 Diplomacy Row, Orlando, FL. 32809 to DMTR, LLC, and will lease back the
property for its continued operations.
10
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 are discussed at appropriate points
in this report and the Company's other SEC filings. Others are included in the
fact that the Company has been engaged in supplying equipment and services to
the U.S. government defense programs which are subject to special risks,
including dependence on government appropriations, contract termination without
cause, contract re-negotiations and the intense competition for available
defense business.
Item 3. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. Under the supervision and with
the participation of our management, including our principal executive and
financial officer, we have evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as such term is defined in
Rule 13a-15(e) or Rule 15d-15(e) under the U.S. Securities Exchange Act of 1934,
as amended) within 90 days of the filing date of this quarterly report and,
based on their evaluation, our principal executive and financial officer have
concluded that these controls and procedures are not effective and do not meet
the requirements thereof. This is as a result of frequent turnovers experienced
in Accounting and Finance Personnel and difficulties encountered with the
implementation of the Company's new accounting software. We are, however,
working diligently on having these requirements met.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by us in
the reports that we file under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms, and that such information is accumulated
and communicated to our management, including our principal executive and
financial officer, as appropriate to allow timely decisions regarding required
disclosure.
(b) Changes in Internal Control Over Financial Reporting. There were no
significant changes in our internal control over financial reporting identified
in connection with the evaluation required by Exchange Act Rule 13a-15(d) or
Rule 15d-15(d) that occurred during the period covered by this quarterly report,
or to our knowledge in other factors, that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
11
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 that are material have
been properly accrued for.
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 then existing lease agreement plus damages. In March 1999, the Company
entered into a Mutual Release and Settlement Agreement wherein the Company paid
a total of $850,000 in cash and issued 150,000 shares of Common Stock,
concurrent with the release, 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
the Common Stock falls below certain levels. The Common Stock has been valued at
$2.50 per share. The minimum amount in guaranteed common stock of $375,000
exceeded the Market Value of the Common Stock issued by the Company under the
terms of the Agreement, so approximately 2.7 million of additional shares are
required to be issued, or 135,000 shares on a post reverse stock split basis. As
of February 17, 2005, the shares have not been issued.
Item 2. Unregistered Sales of Equity Securities and Uses of Proceeds.
None.
Item 3. Defaults upon Senior Securities
The Company is in default on its obligations to DMTR and has entered
into a Standstill Agreement, which provides for DMTR not to exercise any of its
default rights, unless DMTR determines, in its sole discretion, that the parties
are no longer negotiating in good faith to restructure this obligation. The
Company is also in negotiations to receive additional financing from the members
of DMTR and their respective affiliates. There is no such assurance the
restructuring or additional financing will be consummated.
The Company is in default on one of its 10% Note that matured at the
end of 2001. The parties have had various negotiations in the past to settle.
There is no assurance that this can be settled.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits
(a) Exhibits: None.
12
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
------------------------
/s/ Daniel Bertram
Chief Executive Officer
Pursuant to the requirements of the Securities and 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/ Daniel Bertram Chief Executive Officer April 11, 2005
- -------------------
Daniel Bertram
/s/ Rafik Moursalien Controller April 11, 2005
- -------------------
Rafik Moursalien