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 31, 2006
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
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-3545701
- -------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1717 Diplomacy Row
Orlando, Florida 32809
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(407) 251-4577
----------------------------------------------------
(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 July 20, 2006.
Index to Form 10-QSB
Page No.
Part I - Financial Information --------
Item 1. Financial Statements (unaudited):
Balance Sheet as of January 31, 2006 3
Statement of Changes in Stockholders' Deficit
for the Three months Ended January 31, 2006 4
Statement of Changes in Stockholders' Deficit
for the Three months Ended January 31, 2005 5
Statements of Operations for the Three Months
Ended January 31, 2006 and January 31, 2005 6
Statements of Cash Flows for the Three Months
Ended January 31, 2006 and January 31, 2005 7-8
Notes to Financial Statements 9-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Results of Operations 13
Liquidity and Capital Resources 14
Item 3. Controls and Procedures 15
Part II - Other Information
Item 1. Legal Proceedings 16
Item 2. Unregistered Sales of Equity Securities and uses of funds. 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of matters to a vote of security holders. 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Certifications 17-21
Signatures 22
2
DATAMETRICS CORPORATION
BALANCE SHEET
(Unaudited)
(in thousands, except share data)
January 31,
2006
----
ASSETS
Current Assets
Cash $ 383
Accounts receivable, net of allowance for doubtful accounts of $0 301
Inventory, net of allowance for obsolete inventory of $6,070 891
Other Current Assets 134
--------
Total current assets 1,709
Property and Equipment
Furniture, Fixtures and computer equipment 1,195
Machinery and equipment 547
--------
Total Property and Equipment 1,742
Less Accumulated Depreciation (1,742)
--------
Net Property and Equipment -
Total Assets $ 1,709
========
LIABILITIES AND STOCKHOLDERS DEFICIT
Current Liabilities
Accounts Payable $ 221
Accrued Expenses 394
Warranty Reserve 40
Notes Payable 641
--------
Total Current Liabilities 1,296
Stockholders deficit:
4% Cumulative Preferred Stock, $.01 par value ($750 aggregate liquidation
preference); 40,000,000 Authorized; 500,000 issued and outstanding 5
Common Stock, $.01 par value; 800,000,000 shares
Authorized; 325,795,477 issued and outstanding 3,258
Additional Paid In Capital 64,662
Accumulated Deficit (67,512)
--------
Total Stockholders Deficit 413
Total Liabilities and Stockholders Deficit $ 1,709
========
- --------------------------------------------------------------------------------
The accompanying "Notes to Financial Statements"form an integral part
of these statements.
- --------------------------------------------------------------------------------
3
DATAMETRICS CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS DEFICIT
For the three months ended January 31, 2006
(in thousands, except share data)
Common Stock Ser. A Preferred Ser. B Preferred
------ ----- ------------------ ----------------
Number Dollar Number Dollar Number Dollar
of Shares Amount of Shares Amount of Shares Amount
----------------- ----------- ------------- --------- ----------- ---------
Balances at Oct. 31, 2005 32,112,103 $ 321 892,652 $ 9 -- --
Conversion of DMTR loan
of $2.9 million plus
accrued interest 244,736,145 2,447
Conversion of Series A
Preferred into
Common Stock 48,947,229 490 (892,652) (9)
Conversion of 12% Bridge
loan into Series B
Preferred Stock 500,000 $ 5
Warrants for the purchase
of 386,314,860 shares
of Common Stock
Net Loss
----------------- ----------- ------------- --------- ----------- ---------
Balances at Jan. 31, 2006 325,795,477 $3,258 -- -- 500,000 $ 5
Total
Add'l Stock
Paid-In Accum holders
Capital Deficit Deficit
------------ -------------- ------------
Balances at Oct. 31, 2005 $58,142 $(61,754) $(3,282)
Conversion of DMTR loan
of $2.9 million plus
accrued interest 633 3,080
Conversion of Series A
Preferred into
Common Stock (481) --
Conversion of 12% Bridge
loan into Series B
Preferred Stock 495 500
Warrants for the purchase
of 386,314,860 shares
of Common Stock 5,873 5,873
--
Net Loss (5,758) (5,758)
------------ -------------- ------------
Balances at Jan. 31, 2006 $64,662 $(67,512) $ 413
The accompanying "Notes to Financial Statements"
form an integral part of these statements.
4
DATAMETRICS CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS DEFICIT
For the three months ended January 31, 2005
(in thousands, except share data)
Common Stock Ser. A Preferred Total
------ ----- ------------------ Add'l Stock
Number Dollar Number Dollar Paid-In Accum. holders
of Shares Amount of Shares Amount Capital Deficit Deficit
--------------- --------- ------------- --------- ------------ ------------- ------------
Balances at October 31, 2004 32,112,103 $321 892,652 $ 9 $58,142 $(61,171) $(2,699)
Net Loss (325) (325)
Balances at January 31, 2005 32,112,103 $321 892,652 $ 9 $58,142 $(61,496) $(3,024)
The accompanying "Notes to Financial Statements"
form an integral part of these statements.
5
DATAMETRICS CORPORATION
STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
Three
Months
ended
January 31 January 31
2006 2005
--------- ---------
Sales $ 1,155 $ 597
Cost of Sales 771 432
--------- ---------
Gross Profit $ 384 $ 165
--------- ---------
Selling, General and Administrative
Personnel and Related Costs $ 196 $ 292
Other 299 77
--------- ---------
Total Selling, General and Administrative $ 495 $ 369
--------- ---------
Loss from Operations (111) (204)
Other income and expense (5,647) (121)
--------- ---------
Net Income (Loss) $ (5,758) $ (325)
========= =========
Loss per share of common stock;
basic and diluted $ (0.042) $ (0.010)
========= =========
Weighted average number of common shares outstanding
basic and diluted 137,246 32,113
========= =========
The accompanying "Notes to Financial Statements"
form an integral part of these statements.
6
DATAMETRICS CORPORATION
CASH FLOWS STATEMENTS
(unaudited)
(in thousands, except per share data)
For the three months ended
January 31 January 31
------- -------
2006 2005
Cash Flows from Operating Activities:
Net Loss (5,758) (325)
Adjustments to reconcile net loss to net cash used
in operating activities:
Gain on Sale of Building (216) -
Depreciation expense 4 16
Expenses Paid from Debt Financing 249 -
Amortization of Refinancing Costs - 52
Options Issued to Investors during restructuring 5,873 -
Changes in assets and liabilities:
Accounts receivable (31) 314
Inventories 16 (103)
Prepaid expenses and other current assets (40) (31)
Accounts payable (271) 27
Other Current Liabilities - 9
Accrued expenses (102) 15
Deferred Revenue - (21)
------- -------
Net cash used in operating activities (276) (47)
Cash Flows from Investing Activities:
Proceeds from Sale of Building 1,445 -
Capital expenditures for property and equipment - (4)
------- -------
Net cash provided by (used in) investing activities 1,445 (4)
Cash Flows from Financing Activities:
Proceeds from loan payable 248 -
Payments on Long Term Debt (1,180) (15)
------- -------
Net cash used in financing activities (932) (15)
Net (decrease) increase in cash 237 (66)
Cash at the beginning of the period 146 91
------- -------
Cash at the end of the period 383 25
------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period
for:
Interest, net $ 72 $ 69
NONCASH INVESTING / FINANCING ACTIVITIES
Restructuring incentive expenses paid by issuing
stock options $ 5,873 -
Conversion of long term debt and related accrued
interest into common stock $ 3,081 -
Conversion of long term debt and related accrued
interest into Series B preferred stock $ 500 -
Conversion of Series A preferred stock into
common stock $ 489 -
Expenses paid with the issuance of notes payable $ 249 -
Payment of short term bridge loan by issuing
new note payable $ 200 -
Forgiveness of debt as part of the sale of building $ 30 -
The accompanying "Notes to Financial Statements"
form an integral part of these statements.
7
DATAMETRICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
January 31, 2006
(Unaudited)
1. The financial statements include the accounts of DataMetrics Corporation.
The accompanying condensed 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, 2005 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 January 31, 2006 consist of the following:
Inventories Parts and sub-assemblies 572
Work in Process 383
Obsolete Inventory 6,006
--------
Total Inventory 6,961
Reserve for Obsolete Inventory (6,070)
--------
Net Inventory 891
3. NOTES PAYABLE
Notes Payable at January 31, 2006 consist of the following:
Notes Payable to investors; interest expense at 10% is paid quarterly; principal
and unpaid interest is due in full in December 2006. The note is secured by a
first priority lien on all Company assets. 500
Subordinated notes, originally due in December 2000, accruing interest at 10%. The notes
are unsecured. Negotiations for repayment have begun with the holders of these notes and
are ongoing at this time 141
-----
Total 641
8
All notes are current.
4. STOCK BASED COMPENSATION
The fair value of the option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
Risk free interest rate of 3 percent; dividend yield of 0%, expected
life of 10 years and volatility of 50%.
A summary of the status of the Company's stock options as of January
31, 2006, and changes during the quarter are presented below:
------------------------------
Shares Weighted Average
(000s) Exercise Price
------ --------------
Outstanding at Beginning of Year 1,725 $1.31
Granted 386,315 $0.01
Exercised 0
Expired / Canceled 0
------- -----
Outstanding and Fully Exercisable at
the End of the Year 388,040 $0.01
------- -----
Weighted Average Fair Value of Options Granted During the
Year $0.01
------- -----
For all options issued, the exercise price was less than the market price of the
stock and $5,873,000 of stock based cost was recorded.
Significant option groups outstanding at January 31, 2006 and related weighted
average price and life information is as follows:
Number
Outstanding and Weighted Average
Fully Remaining
Exercise Exercisable Contractual
Price Price (000s) Life (YEARS)
----- ------------ ------------
$1.40 1,500 5.80
1.00 150 1.36
0.055 75 1.75
0.01 386,315 10.00
-------
Total 388,040
=======
Weighted average exercise price is $0.016 per option.
9
5. SUBSEQUENT EVENTS
The Company effected a major restructuring on December 30, 2005. 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.
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 quarter ended January 31, 2006, 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.
10
RESULTS OF OPERATIONS
Three Month Period Ended January 31, 2006 Compared
To Three Month Period Ended January 31, 2005
Sales for the quarter ended January 31, 2006 were $1,155,000 an increase of
$558,000 or 93%, compared with sales of $597,000 in the same period in the prior
fiscal year. The increase in sales for the three months ended January 31, 2006
is attributable mainly to execution of substantially large orders booked and
shipped in the current period.
Cost of sales for the quarter ended January 31, 2006 was $771,000 (67% of
sales), an increase of $339,000 or 78%, compared with $432,000 (72% 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 corresponding
increase in sales and manufacturing costs related to the increased sales. Gross
profit percentage improved due to the large orders booked during the quarter.
Selling, general and administrative ("SG&A") expenses for the quarter ended
January 31, 2006 were $495,000 (43% of sales) an increase of $126,000 or 34%,
compared with $369,000 (62% of sales) for the same period in the prior fiscal
year. The increase occurred because of large expenses from the restructuring.
Net interest expense amounted to $59,000 for the quarter ended January 31,
2006 compared with net interest expense of $121,000 for the same period in the
prior year. The interest expense decreased significantly for the quarter ended
January 31, 2006 compared to the same period of the prior year as a result of
the conversion of the major portion of long term loans into equity.
The net loss for the quarter ended January 31, 2006 amounted to $5,758,000
compared with a net loss of $325,000 for the same period in the prior year. The
large increase in net loss is due primarily to options totaling 386,315,000
which were issued during the quarter. The exercise price for the options was
less than the market price of the stock resulting in stock based cost in the
amount of $5,873,000 recorded.
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 31, 2006. 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.
11
LIQUIDITY AND CAPITAL RESOURCES
Although the Company has generated much of the cash flow to sustain
current operations through a combination of revenues from sales and from equity
transactions, the debt obligations of previous periods were still outstanding at
the end of fiscal year 2005. 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.
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.
12
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 January 31, 2006, the Company was in default on
certain unsecured indebtedness of approximately $141,000 in principal and
$82,000 in unpaid interest. All of the Company's obligations to DMTR LLC were
converted to common stock of the Company 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
13
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 July 20, 2006
- -------------------
Daniel Bertram
/s/ Rafik Moursalien Chief Financial Officer July 20, 2006
- -------------------
Rafik Moursalien
14