UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 14934 for the quarterly period ended July 28, 2002
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 proceeding 12 months (or for such shorter period that the registrants was
required to file such reports); and (2) has been subject to such filing
requirements for the past 30 days. [X] Yes [ ] 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 10,049,756 shares as of October 4, 2002
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Index to Form 10-QSB
Page No.
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Part I - Financial Information
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheet as of July 28, 2002 3
Consolidated Statements of Operations for the Three Months
Ended July 28, 2002 and July 29, 2001 4
Condensed Consolidated Statement of Cash Flows for the
Nine Months Ended July 28, 2002 and July 29, 2001 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Part II - Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in securities and uses of funds 15
Item 3. Defaults upon senior securities 15
Item 4. Submission of matters to a vote of security holders 15
Item 5. Other information 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 16
DataMetrics Corporation and Subsidiary
Consolidated Balance Sheet
(Unaudited)
(in thousands, except per share data)
July 28
2002
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ASSETS
Current assets:
Cash and equivalents $ 310
Account receivable, net of allowance for doubtful accounts of $100 530
Employee receivables 130
Inventories, net 1,803
Prepaid expenses and other current assets 42
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Total current assets 2,815
Property and equipment, at cost:
Land 420
Building and improvements 1,112
Machinery and equipment 874
Furniture, fixtures and computer equipment 1,137
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3,543
Less: Accumulated depreciation and amortization (1,995)
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Net property and equipment 1,548
Other assets 1,216
Total assets $ 5,579
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt 3,953
Accounts payable 742
Accrued expenses 732
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Total current liabilities 5,427
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Note payable 848
Loan payable 141
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Total liabilities $ 6,416
Stockholder's equity
Preferred stock, $.01 par value, 40,000,00
Shares authorized, none issued --
Common stock, $.01 par value, 800,000,000 shares
Authorized 10,049,756 shares issued and outstanding 101
Additional paid-in capital 53,558
Additional paid-in capital options 265
Additional paid-in capital warrants 1,204
Accumulated deficit (54,034)
Net Income (loss) (1,931)
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Total stockholder's deficit (837)
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Total Liabilities and Stockholder's Deficit $ 5,579
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See accompanying notes to consolidated financial statements.
DATAMETRICS CORPORATION AND SUBSIDARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
Three Months Ended Nine Months Ended
July 28, July 29, July 28, July 29,
2002 2001 2002 2001
Sales $ 829 $ 1,180 $ 3,864 $ 2,810
Cost of sales
Purchases, manufacturing & overhead $ (591) $ (1,070) $ (1,727) $ (3,176)
------- -------- -------- --------
Gross profit (loss) $ 238 $ 110 $ 2,137 $ (366)
Selling, general & administrative expenses $(1,073) $ (147) $ (2,680) $ (1,573)
Write down of inventory $ (603) $ (2,265) $ (603) $ (3,215)
Provision for lease abandonment -- -- -- $ (250)
Provision for loss on website development costs -- -- -- $ (194)
Provision for contract adjustment -- $ (50) -- $ (50)
------- -------- -------- --------
Profit (loss) from operations $(1,438) $ (2,352) $ (1,146) $ (5,648)
Other income (expense)
Life insurance proceeds -- -- -- $ 1,046
Interest expense, net $ (117) $ (316) $ (785) $ (904)
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Net profit (loss) $(1,555) $ (2,668) $ (1,931) $ (5,506)
======= ======== ======== =========
Loss per share of common stock:
Basic and diluted $ (0.16) $ (2.61) $ (0.42) $ (5.39)
Weighted avg. no. of shares outstanding:
Basic and diluted 9,939 1,023 4,641 1,022
See accompanying notes to consolidated financial statements.
DATAMETRICS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
July 28 July 29
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (1,931) $ (5,506)
Adjustments to reconcile net loss to net cash
Provided (used in) by operating activities:
Depreciation 218 225
Writedown of inventory 603 3,215
Other adjustments (51) 576
Changes in assets and liabilities:
Accounts receivable 1,281 (792)
Accounts payable (1,030) 113
Other adjustments 994 509
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Net cash provided by (used in) operating activities 84 (1,660)
CASH FLOWS FROM INVESTING ACTIVITIES -- (21)
CASH FLOWS FROM FINANCING ACTIVITIES (20) 2,004
Net increase (decrease) in cash and cash equivalents 64 323
Cash at the beginning of the period 246 28
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Cash at the end of the period $ 310 $ 351
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Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Debt refinancing $ -- $ 2,601
Interest paid 219 445
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$ 219 $ 3,046
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Non-cash transactions:
Conversion of 96% of the 10% subordinated notes and all $ 7,180
of the 12% senior convertible note and all related accrued
interest into common stock.
Subsidiary Peripheral Equipment Corp acquired by issuing warrants $ 1,204
for Datametrics common stock.
See accompanying notes to consolidated financial statements.
DATAMETRICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, expect for per share data)
July 28, 2002
(unaudited)
1. The accompanying condensed financial statements are unaudited and have
been prepared 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 28,
2001, 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 interim 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 part 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 and net realizable
value on a periodic basis and records estimates accordingly.
Inventories as of July 28, 2002 consist of the following:
(in thousands)
Inventories $ 1,803
Obsolete Inventories 6,012
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Inventories, gross 7,815
Reserve for obsolescence 6,012
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Total Inventories $ 1,803
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During the prior fiscal year it was deemed prudent to increase the
reserve for obsolescent inventory or to dispose of inventory. During
the third quarter of fiscal year 2002, the value of certain inventory
obtained during the acquisition of Peripheral Equipment Corporation
was adjusted downward approximately $603 on a consolidated basis along
with a corresponding increase in cost of goods sold.
3. DEBT STRUCTURE
Detail of the Company's debt structure appears in the 10-KSB for the
Fiscal year ended 10/28/2001.
4. SEGMENT DATA
The Company has no reportable segments. There is no segment data to be
reported.
5. COMMITMENTS AND CONTINGENCIES
In connection with a Mutual Release and Settlement Agreement between
the Company and the owner of premises formerly leased by the Company
in California, the Company is required to issue approximately 135
shares of common stock.
6. BUSINESS ACQUISITION AND WARRANTS
As part of its overall strategic plan, the Company is reestablishing
its position in the military hardware market and is also developing a
global presence. In order to accomplish these objectives, the Company
entered into an agreement with Peripheral Equipment Corporation (PEC),
a California business selling computer hardware with military
applications, on November 19, 2001 to acquire all of the outstanding
shares of PEC stock.
In accordance with the agreement, each share, option, and warrant
outstanding of PEC, at the date of the agreement, was converted into
DataMetrics Corporation warrants. These warrants allow the holders to
purchase 1,500 shares of DataMetrics common stock (at a price of $1.40
per share for a period of 10 years. The value recorded for these
warrants and the accompanying acquisition was $ 1,204 (goodwill). This
value was determined using the Black-Scholes model for options and
warrants with the following assumptions: dividend yield of 0%,
expected volatility of 107%, risk-free interest rate of 4.8%, expected
life of 10 years, and a discount due to marketability and dilution of
0.53.
As a result of this agreement, the financial statements include the
assets and liabilities of PEC and the effects from PEC's operations
since the acquisition on December 6, 2001. Since this acquisition
occurred near the beginning of DataMetrics Corporation's fiscal year,
any differences between reported results of operations as shown in the
Consolidated Statements of Operations and the results of operations if
the acquisition had occurred at the beginning of the period being
reported on are immaterial. Consequently, no pro forma information
that discloses these differences has been included in these financial
statements.
7. STOCK-BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting For Stock Issued To Employees", and selected
interpretations in accounting for its stock-based compensation plan.
Accordingly, the Company has recognized $ 265,377 and $ 0 in the
financial statements for the nine months ended July 28, 2002 and July
29, 2001, respectively, as compensation expense in connection with its
stock-based compensation plan.
FASB Statement 123, "Accounting for Stock-Based Compensation",
requires that the Company provide pro forma information regarding net
loss and loss per share as if the compensation cost for the Company's
stock option plan had been determined in accordance with the fair
value method prescribed in such statement. The Company estimates the
fair value of each stock option at the grant date by using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 2001: dividend yield of 0%, expected
volatility of 160.2%, average risk-free interest rate of 4.81%,
expected life of 5 years, and a discount due to marketability and
dilution of .869. For 2002, the weighted average assumptions used for
grants were: dividend yield of 0%, expected volatility of 121%,
average risk-free interest rate of 4.34%, expected life of 5 years,
and a discount due to marketability and dilution of .548.
Under the provisions of FASB Statement 123, the Company's net loss and
loss per share would have been adjusted to the pro forma amounts
indicated below:
July 29, 2001
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Three Months Nine Months
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Net Loss:
As Reported ($2,668) ($5,506)
Pro Forma ($2,788) ($5,626)
Earnings per share (Primary and fully diluted)
As Reported ($2.61) ($5.39)
Pro Forma ($2.72) ($5.50)
July 28, 2002
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Three Months Nine Months
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Net Loss:
As Reported ($1,555) ($1,931)
Pro Forma ($2,033) ($2,409)
Earnings per share (Primary and fully diluted)
As Reported ($0.16) ($0.42)
Pro Forma ($0.20) ($0.52)
8. STOCK OPTIONS
The Company has several stock option plans which provide for the
granting of options to employees or directors at prices and terms as
determined by the Board of Directors. Options vest over periods of up
to six years.
A summary of the status of the Company's stock options as of July 28,
2002 and July 29, 2001 are as follows:
2001 2002
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Shares Weighted-Average Shares Weighted-Average
(000's) Exercise Price (000's) Exercise Price
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Outstanding at beginning of year
(2002 includes the effect of a
reverse stock split of 20 to 1) 786 $ 0.51 189 $ 2.80
Granted 3,000 0.05 5,103 0.258
Expired (5) 1.50 -- --
Outstanding at end of year 3,781 0.14 5,292 0.35
Options Exercisable at year end 3,781 5,292
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Weighted Average Fair Value of Options
(Options granted during the years
shown have exercise prices that
were less than the market value
of the stock on the grant date) $ 0.04 $ 0.146
NOTE 8. STOCK OPTIONS (continued)
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
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Number Weighted-Average Weighted-Average Number Weighted-Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices at 7/28/02 Contractual Life Price at 7/28/02 Price
- --------------- ------------ ---------------- ---------------- -------------- -----------------
Less than $1 5,103 5 Years $ 0.258 5,103 $ 0.258
$ 1 to 2 163 3.85 $ 1.07 163 $ 1.07
$ 12 25 3.25 $ 12.00 25 $ 12.00
$ 36 2 0.76 $ 36.30 2 $ 36.30
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5,293 5,293
============ ==============
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 projects growth throughout 2002, but remains cautious as military
program priorities continue to be somewhat fluid as a result of September 11,
2001, and the uncertainty surrounding future military engagements in the war on
terrorism. The Company sees new opportunities as a result of new homeland
security initiatives, but recognizes that a typical sales cycle for a new
military program is 18-24 months.
The Company has seen an increase of 400% in requests for proposals from current
and prospective customers on programs with high probability of contract award
and has increased its marketing efforts to compete on new homeland security
initiatives.
RESULTS OF OPERATIONS
Three Month Period Ended July 28, 2002, compared
to Three Month Period Ended July 29, 2001
(in thousands)
Sales for the quarter ended July 28, 2002, were $829, a decrease of $351 or
29.8% compared with sales of $1,180 in the third quarter in the prior fiscal
year. The decrease in sales is attributable mainly to competitive pressures,
delays in award of anticipated contracts and continuing uncertainties related to
September 11, 2001. An entry of ($111) was made during the quarter to adjust
Peripheral Equipment Corporation ("PEC") sales from a prior period.
Cost of sales for the quarter ended July 28, 2002 were favorable due to
efficiencies in purchasing and manufacturing. The prior year also included
substantial writeoffs of inventory charged to cost of goods sold. Actual cost of
sales were $591 compared to $1,070 for the same period in the prior year, a
reduction of 44.8% or $479.
Selling, general and administrative expenses for the quarter ended July 28,
2002, were $1,073 (129% of sales), an increase of $926 or 117% of sales,
compared with $147 (12% of sales) for the same period in the prior fiscal year.
The increase was due to the addition of staff related to merging Peripheral
Equipment Corporation ("PEC") into Datametrics following the acquisition of PEC
in December 2001 and charges of $290 related to issuing stock and warrants and
write-off of miscellaneous balances totaling $88.
Net interest and other expenses was $117 for the quarter ended July 28, 2002,
compared with net interest expense of $316 for the third quarter of the prior
fiscal year. This decrease is due to the conversion of debt to equity including
accrued interest of $961 and principal of %6,219.
The loss for the quarter ended July 28, 2002, amounted to $1,555, a decrease of
41.7% compared with a loss of $2,668 for the third quarter in the prior fiscal
year. The decrease in loss for the current period is attributable to
significantly smaller inventory adjustments compared to the same quarter of the
prior fiscal year.
Management has determined that, based on the Company's historical losses from
recurring operations, the Company will most likely not recognize its net
deferred tax assets at July 28, 2002. Ultimate recognition of these tax assets
is dependent, to some extent, on the future revenue levels and margins of the
Company. It is the intention of management to assess the appropriate level for
the valuation allowance each quarter.
Nine Month Period Ended July 28, 2002, Compared
To Nine Month Period Ended July 29, 2001
(in thousands)
Sales for the nine month period ended July 28, 2002, were $3,864, an increase of
$1,054 or 37.5%, compared with sales of $2,810 in the same period of the prior
fiscal year. The increase in sales was due mostly to the 3M hardware and
intellectual property sale in the first and second quarter of the current year
in the amount of $1,896. The decrease in the other sales is attributable to
competitive pressure, delays in award of anticipated contracts, continuing
uncertainties related to September 11, 2001, and an adjustment of ($111) related
to Peripheral Equipment Corporation ("PEC") sales from a prior period.
Cost of sales for the first nine months of fiscal 2002 was $1,727 (45% of
sales), a decrease of $1,449 or 45.6%, compared with $3,176 (113% of sales) for
the same period in the prior fiscal year primarily due to the favorable cost of
sale on the 3M sales and a smaller inventory adjustment in cost of sales during
the current period.
Selling, General and Administrative expenses for the nine month period ended
July 28, 2002, were $2,680 (69% of sales), an increase of $1,107 or 70.4%
compared with $1,573 (56% of sales) for the same period during the prior fiscal
year. The SG&A costs increased primarily due to the assimilation of PEC and
expenses associated with issuing stock and warrants (see note 8 to the financial
statements).
The other income difference is due primarily to $1,046 of life insurance
proceeds in the first quarter of the same period in the prior fiscal year.
The net loss for the nine month period ended July 28, 2002, amounted to $1,931,
a decrease of $3,575 compared with a net loss of $5,506 for the same period in
the prior fiscal year. The reduced loss for the current fiscal year is due to
significantly smaller write-downs of PEC inventory and favorable costs of sales
on the 3M transaction.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements have been to fund working capital
needs, capital expenditures and the payment of long term debt. The Company has
formerly relied upon internally generated funds, private placement proceeds,
subordinated debt and other bank debt to finance its operation. The Company's
liquidity and cash resources are significantly impaired by ongoing losses. As a
result, additional equity or other capital is required to satisfy operating
expenses in the short and long term. The Company also has a secured promissory
note in the outstanding principal amount of $2,900 due in January 2003. The
Company will need to either restructure this obligation or secure alternate
financing in order to avoid a default. There are doubts about the Company's
ability to continue as a going concern if such additional capital is not raised.
Net cash provided (used) in operations was $84 and $(1,660), in the first nine
months of 2002 and 2001 respectively. The change from 2001 to 2002 was due to a
renewed focus on the military market and significantly reduced use of cash in
the current year reflected in lower cost of sales associated with the 3M
transaction. As of July 28, 2002, the Company had cash and cash equivalents of
$310 compared to $351 at the end of the third quarter in the prior fiscal year.
Net cash provided by (used) in investing activities was $0 and $(21) in the
first nine months of fiscal 2002 and 2001 respectively. Capital expenditures for
property, plant and equipment occurred in fiscal 2001.
Net cash provided (used) in financing activities was $(20) and $2,004 in the
first nine months of fiscal 2002 and 2001 respectively. The change from fiscal
2001 to 2002 was primarily related to the debt conversion in the second quarter.
In January 2002, the Company granted 3M an exclusive license for the "vehicle
registration and identification" market and sold certain related equipment for
$1,896. The Company used the proceeds for operating expenses, marketing
expenses, to satisfy current obligations and for its restructuring.
Effective April 26, 2002, the Company amended its Certificate of Incorporation
to increase the number of authorized shares of the Company's Common Stock, $0.01
par value, from 40,000 to 800,000 and to increase the number of
authorized shares of the Company's Preferred Stock, $0.01 par value, from
5,000 to 40,000. The Company's Certificate of Incorporation was also
amended effective April 26, 2002, to effect a stock combination through a
reverse split pursuant to which every twenty (20) shares of outstanding Common
Stock were reclassified into one (1) share of Common Stock. The post-split par
value was previously reported at $0.20 and $0.08 respectively.
In connection with its efforts to convert certain outstanding indebtedness to
equity, the Company converted its 12% Senior Subordinated Secured Notes in the
aggregate principal amount of $2,836 and the holders of 96% of its 10%
Subordinated Notes in the aggregate principal amount of $3,524 for Common
Stock of the Company. Upon the effectiveness of the amendments to the Company's
Certificate of Incorporation, including the one for 20 reverse stock split; the
$2,836 principal amount of the 12% Senior Subordinated Secured Notes were
converted into an aggregate of 3,119 shares of Common Stock and the $3,383 (96%
of $3,524) principal amount of the 10% Subordinated Notes were converted into
4,819 shares of Common Stock.
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 appropriated
points in this report and the Company's other SEC filings. Additionally, the
Company has been engaged in supplying equipment and services to U.S. government
defense programs which are subject to special risks, including contract
renegotiations and the intense competition for available defense business.
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.
PART II OTHER INFORMATION (in thousands)
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 therein.
Item 2. CHANGES IN SECURITIES AND USES OF PROCEEDS
Pursuant to an agreement with holders of Made My Way (a former subsidiary of the
Company) the Company issued 120 shares of its common stock upon surrender of 600
shares of the Made My Way stock in June 2002. The transaction was exempt from
registration under Section 4(2) of the Securities Act of 1933 (the "Act").
In November 2001, the company authorized the award of stock options following
the effectiveness of the Company's reverse stock split to board members Messrs.
Bertram, Galloway, Herman and Friedenberg in consideration for their efforts in
restructuring the Company's capital structure and as management incentives. The
award of those options for a total of 5,103 shares of common stock at an
exercise price of $0.28 and the recognition of associated expenses did not
actually occur until June 2002. The issuance of the options was exempt from
registration under Section 4(2) of the Act.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS
None.
Item 5. OTHER INFORMATION
During the third quarter of fiscal 2002, the Chief Accounting Officer, Mr.
Phillip Lambert, resigned and was replaced by Mr. Greg S. Lipsit. Mr. Lipsit has
almost 20 years of experience in aerospace, defense and commercial sectors
including financial and operational responsibilities.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits: Sarbanes-Oxley Certification.
Reports on Form 8-K: None.
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: 10/07/02 /s/ DANIEL BERTRAM
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Daniel Bertram
Chief Executive Officer
Dated: 10/07/02 /s/ GREG S. LIPSIT
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Greg S. Lipsit
Chief Accounting Officer