UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
{X} Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended July 31, 2005
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 |_| No |X|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes |_| No |X|
Common Stock. $.01 Par Value -- 10,177,146 shares as of May 1, 2006.
Index to Form 10-QSB
Page No.
Part I - Financial Information --------
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheet as of July 31, 2005 3
Consolidated Statements of Operations for the three Months
Ended July 31, 2005 and July 31, 2004 4
Consolidated Statements of Operations for the nine Months
Ended July 31, 2005 and July 31, 2004
Consolidated Statements of Cash Flows for the nine Months
Ended July 31, 2005 and July 31, 2004 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Results of Operations 8-9
Liquidity and Capital Resources 10
Item 3. Controls and Procedures 11
Part II - Other Information
Item 1. Legal Proceedings 12
Item 2. Unregistered Sales of Equity Securities and uses of funds. 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of matters to a vote of security holders. 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Certifications 14-18
page 2 of 18
DATAMETRICS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except share data)
July 31,
2005
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ASSETS
Current Assets
Cash $ 114
Accounts receivable, net of allowance for doubtful accounts of $0 209
Inventory, net of allowance for obsolete inventory of $6,006 953
Other Current Assets 90
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Total current assets 1,366
Property and Equipment
Building and improvements 1,117
Furniture, Fixtures and computer equipment 1,201
Land 420
Machinery and equipment 548
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Total Property and Equipment 3,286
Less Accumulated Depreciation (2,000)
--------
Net Property and Equipment 1,286
Total Assets $ 2,652
========
LIABILITIES AND STOCKHOLDERS DEFICIT
Current Liabilities
Notes Payable $ 879
Accounts Payable 852
Accrued Expenses 834
Deferred Revenue 8
Warranty Reserve 40
Current maturities of LT Debt 3,103
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Total Current Liabilities 5,716
Long-Term Liabilities
Long-Term Debt 688
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Total Liabilities 6,404
Stockholders deficit:
4% Cumulative Preferred Stock, $.01 par value ($940,485 aggregate liquidation
preference); 40,000,000 Authorized; 892,656 issued and outstanding 9
Common Stock, $.01 par value; 800,000,000 shares
Authorized; 32,113,000 issued and outstanding 321
Additional Paid In Capital 58,142
Accumulated Deficit (62,224)
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Total Stockholders Deficit (3,752)
Total Liabilities and Stockholders Deficit $ 2,652
========
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The accompanying "Notes to Consolidated Financial Statements"form an integral
part of these statements.
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page 3 of 18
DATAMETRICS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
Three Months Ended Nine Months Ended
July 31, July 31, July 31, July 31,
2005 2004 2005 2004
--------- ------------------------------ -----------
Sales $ 725 $ 1,252 $ 1,718 $ 3,287
Cost of Sales 498 780 1,303 2,537
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Gross Profit $ 227 $ 472 $ 415 $ 750
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Selling, General and Administrative
Personnel and Related Costs $ 236 $ 292 $ 820 $ 844
Other 138 63 305 238
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Total Selling, General and Administrative $ 374 $ 355 $ 1,125 $ 1,082
---------------------------------------------------------------------
Income (Loss) from Operations $ (147) $ 117 $ (710) $ (332)
Other income and expense (117) (107) (343) (316)
--------- ------------------------------ -----------
Net Income (Loss) $ (264) $ 10 $ (1,053) $ (648)
========= ============================== ===========
Loss per share of common stock;
basic and diluted $(0.008) $ 0.000 $ (0.033) $ (0.020)
========= ============================== ===========
Weighted avg. no. of shares outstanding
basic and diluted 32,113 32,113 32,113 32,113
========= ============================== ===========
The accompanying "Notes to Consolidated Financial Statements" form an integral
part of these statements.
page 4 of 18
DATAMETRICS CORPORATION AND SUBSIDIARY
CONSOLIDATED CASH FLOWS STATEMENTS
(unaudited)
(in thousands, except per share data)
For the Nine Months Ended
July 31 July 31
2005 2004
---------------------------------
Cash Flows from Operating Activities:
Net Loss (1,053) (648)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation Expense 40 42
Amortization of Refinancing Costs 155 154
Expenses Paid from Preferred Stock Proceeds -- 50
Allowance for Bad debts -- (25)
Changes in assets and liabilities:
Accounts receivable 458 (186)
Inventories (456) 105
Prepaid expenses and other current assets (50) (37)
Accounts Payable 58 (151)
Accrued Expenses 167 20
Other Current Liabilities -- 18
Deferred Revenue (137) (228)
---------------------------------
Net cash provided by (used in) operating activities (818) (886)
Cash Flows from Investing Activities:
Capital expenditures for property and equipment (8) --
---------------------------------
Net cash provided by (used in ) investing activities (8) --
Cash Flows from Financing Activities:
Proceeds from issuance of preferred stock -- 844
Proceeds from loan payable 879 --
Payments on loan payable (30) (34)
---------------------------------
Net cash provided by (used in) financing activities 849 810
Net increase (decrease) in cash 23 (76)
Cash at the beginning of the period 91 110
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Cash at the end of the period 114 34
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for Interest, net: 80 123
The accompanying "Notes to Consolidated Financial Statements" form an integral
part of these statements.
page 5 of 18
DATAMETRICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2005
(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, 2004 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 July 31, 2005 consist of the following:
(in thousands)
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Inventories Parts and sub-assemblies 521
Work in Process 432
Obsolete Inventory 6,006
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Total Inventory 6,959
Reserve for Obsolete Inventory (6,006)
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Net Inventory 953
3. NOTES PAYABLE Bridge Loans with interest payable at 12%, principal and
interest due in July 2005, and collateralized by all assets of the Company. The
note holders' rights to collateral are subordinate to the rights of the other
holders of long term debt.
4. DEBT STRUCTURE / SUBSEQUENT EVENTS
In anticipation of the reorganization described in the definitive
information statement on Schedule 14C filed with the Securities and Exchange
Commission on March 2, 2006, the Company borrowed $879,342 during the fiscal
year ended October 31, 2005 to sustain operations. These borrowings accrue
interest at rates of 10% and 12%. Many of these loans had maturity dates in 2005
and the Company was unable to repay these loans by the stated maturity date.
However, as described in Schedule 14C, the loans were repaid or converted into
equity in December 2005.
page 6 of 18
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 and equipment 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, plotters and monitors.
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 this sensitive ruggedized 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 Army system
diagnostics. DataMetrics' equipment is designed and qualified for use as part of
commercial airlines cockpit systems.
For the nine months ended July 31, 2005, the Company experienced slower
than expected receipt of orders. 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 currently supply for the AWACS, P3 Orions aircraft and the armed forces.
page 7 of 18
RESULTS OF OPERATIONS
Three Month Period Ended July 31, 2005 Compared
To Three Month Period Ended July 31, 2004
Sales for the quarter ended July 31, 2005 were $725,000 a decrease of
$527,000 or 42%, compared with sales of $1,252,000 in the same period in the
prior fiscal year. The decrease in sales for the three months ended July 31,
2005 is attributable mainly to slower than anticipated receipt of orders.
Cost of sales for the quarter ended July 31, 2005 was $498,000 (69% of
sales), a decrease of $282,000 or 36%, compared with $780,000 (62% of sales) for
the same period in the prior fiscal year. Cost of sales as a percentage of Sales
increased due to increase in material and labor costs that were not passed on to
customers.
Selling, general and administrative ("SG&A") expenses for the quarter
ended July 31, 2005 were $374,000 (52% of sales) an increase of $19,000, or 5%,
compared with $355,000 (28% of sales) for the same period in the prior fiscal
year. While SG&A increased modestly, SG&A as a percentage of sales increased due
largely to the relatively fixed nature of the components of selling, general,
and administrative expenses coupled with the substantial reduction of sales for
the period.
Interest expense amounted to $127,809 for the quarter ended July 31, 2005
compared with net interest expense of $107,000 for the same period in the prior
year. The increase in interest expense reflects the additional borrowing
required in 2005.
The net loss for the quarter ended July 31, 2005 amounted to $264,000,
compared with a net income of $10,000 for the same period in the prior year. The
loss for the current period is attributable to significant decrease in sales and
the fixed nature of selling, general & administrative expenses.
Nine Month Period Ended July 31, 2005 Compared
To Nine Month Period Ended July 31, 2004
Sales for the nine months ended July 31, 2005 were $1,718,000 a decrease
of $1,569,000 or 48%, compared with sales of $3,287,000 in the same period in
the prior fiscal year. The decrease in sales is attributable mainly to slower
than anticipated receipt of orders from the U.S. Government and major Defense
Contractors.
Cost of sales for the nine months ended July 31, 2005 was $1,303,000 (76%
of sales), a decrease of $1,234,000 or 37%, compared with $2,537,000 (77% 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 of the decrease in
sales.
Selling, general and administrative ("SG&A") expenses for the nine months
ended July 31, 2005 were $1,125,000 (65% of sales) an increase of $43,000, or
4%, compared with $1,082,000 (33% of sales) for the same period in the prior
fiscal year.
Interest expense amounted to $371,218 for the nine months ended July 31,
2005 compared with net interest expense of $333,000 for the same period in the
prior year reflecting the additional borrowing required in 2005.
page 8 of 18
The net loss for the nine months ended July 31, 2005 amounted to $1,053,000 an
increase in losses of $405,000 compared with a net loss of $648,000 for the same
period in the prior year. The increased loss for the current period is
attributable to significantly lower sales in the period and relatively fixed
obligations for selling, general and administrative expenses.
Management has determined that, based on the Company's historical losses
from recurring operations, the Company will not recognize its net deferred tax
assets at July 31, 2005. 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.
page 9 of 18
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to have substantial debt that was due in 2005 and
2004. Although the Company has generated much of the cash flow through equity
transactions to sustain current operations, the debt obligations of previous
periods have not been met. As a result, additional capital and a significant
restructuring were required to meet its prior period debt obligations.
The details of the restructuring are described with the filing of the
definitive information statement on Schedule 14C as filed with the Securities
and Exchange Commission on March 2, 2006. This includes a description of the
reverse stock split that occurred on April 11, 2006.
On April 11, 2006, the Company elected to effect a Stock combination
through a reverse stock split. Details of the split are described in the above
referenced Schedule 14C.
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.
page 10 of 18
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 working now and our current period reports
will be filed on time once we have finished filing the backlog of delinquent
reports. 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.
page 11 of 18
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.
Item 2. Unregistered Sales of Equity Securities and Uses of Proceeds.
None
Item 3. Defaults upon Senior Securities
Effective July 31, 2005, the Company was in default on certain secured
indebtedness owed to various parties in the amount of approximately $3,400,000.
However, all Company obligations were paid or converted to common stock as part
of the restructuring of the Company's capital structure on December 31, 2005 as
more fully described in the definitive information statement on Schedule 14C
filed with the Securities and Exchange Commission on March 2, 2006.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits
(a) Exhibits:
31.1 Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
31.2 Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
32 Certification of CEO and CFO Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
page 12 of 18
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 May 1, 2006
- -------------------
Daniel Bertram
/s/ Rafik Moursalien Controller May 1, 2006
- -------------------
Rafik Moursalien
page 13 of 18