UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 28, 1996 Commission File Number 0-8936
DATAMARINE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2454559
(State of Incorporation) (I.R.S. Employer Identification Number)
7030 220th SW, Mountlake Terrace, Washington 98043
(Address of principal executive offices)
(206)771-2182
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to 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.
Class Outstanding at December 28, 1996
Common Stock, .01 Par Value 1,309,786
DATAMARINE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
December 28, December 30,
1996 1995
------------ ------------
<S> <C> <C>
Net sales $2,823,077 $3,997,201
Cost of products sold 1,704,963 2,139,916
-------------------------
Gross profit 1,118,114 1,857,285
Operating expenses 1,286,855 1,366,914
-------------------------
Operating income (loss) (168,741) 490,371
Other expense 119,999 12,278
-------------------------
Income (loss) before income taxes (288,740) 478,093
Provision (benefit) for income taxes (96,362) 165,883
-------------------------
Net income (loss) $ (192,378) $ 312,210
=========================
Income (loss) per share $ (0.15) $ 0.22
=========================
Average shares outstanding 1,309,691 1,396,488
</TABLE>
DATAMARINE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 28, September 28, December 30,
ASSETS 1996 1996 1995
------------ ------------- ------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 46,087 $ 330,076 $ 1,252,160
Accounts receivable 3,174,550 3,335,052 2,200,882
Inventories 5,327,031 5,230,705 3,179,918
Prepaid expenses and other current assets 166,126 202,067 238,496
Deferred income taxes, current 332,825 332,825 174,117
------------------------------------------
Total current assets 9,046,619 9,430,725 7,045,573
Property, plant and equipment 5,227,596 5,169,121 4,688,239
Less accumulated depreciation 2,984,758 2,889,267 2,548,632
------------------------------------------
Property, plant and equipment, net 2,242,838 2,279,854 2,139,607
Deferred income taxes, noncurrent 501,446 405,084 785,992
Other assets, net 521,294 534,183 382,783
------------------------------------------
Total assets $12,312,197 $12,649,846 $10,353,955
==========================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Notes payable to banks $ 1,750,000 $ 1,750,000 $ 134,146
Accounts payable 726,778 718,240 895,336
Accrued expenses 1,484,217 1,621,694 1,333,341
Current maturities of long-term debt 147,758 173,293 210,920
------------------------------------------
Total current liabilities 4,108,753 4,263,227 2,573,743
Long-term debt, less current maturities 1,854,471 1,849,685 1,535,864
------------------------------------------
Total liabilities 5,963,224 6,112,912 4,109,607
------------------------------------------
Redeemable preferred stock, $1 par value,
issued, none - - -
Stockholders' equity:
Convertible preferred stock, $1 par value,
Authorized 1,000,000 shares;
including redeemable preferred
shares, issued, none - - -
Common stock, $.01 par value,
Authorized 3,000,000 shares;
1,309,786 shares issued and outstanding 13,098 13,094 12,971
Capital in excess of par value 3,647,856 3,644,662 3,801,046
Unearned compensation (11,202) (12,421) (22,497)
Retained earnings 2,699,221 2,891,599 2,452,828
------------------------------------------
Total stockholders' equity 6,348,973 6,536,934 6,244,348
------------------------------------------
Total liabilities and stockholders' equity $12,312,197 $12,649,846 $10,353,955
==========================================
</TABLE>
DATAMARINE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
December 28, December 30,
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(192,378) $ 312,210
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 104,588 77,088
Amortization of debenture discount and issue costs 33,875 -
Provision for losses on accounts receivable 15,463 23,385
Amortization of unearned compensation 1,219 10,879
Provision for (benefit of) deferred income taxes (96,362) 165,883
Changes in operating assets and liabilities:
Accounts receivable 145,039 113,340
Inventories, prepaid expenses and other current assets (60,385) 195,710
Accounts payable and accrued expenses (128,939) 101,640
--------------------------
Net cash provided by (used in) operating activities (177,880) 1,000,135
INVESTING ACTIVITIES
Purchases of property, plant and equipment, including self-
constructed equipment (58,475) (478,154)
Other (6,083) (128,309)
--------------------------
Net cash used in investing activities (64,558) (606,463)
FINANCING ACTIVITIES
Proceeds from sale of common stock 3,198 2,868
Proceeds from other borrowings - 2,000,000
Principal payments on other borrowings - (30,000)
Principal payments on revolving line
of credit and long-term debt (44,749) (1,367,223)
--------------------------
Net cash provided by (used in) financing activities (41,551) 605,645
Increase (decrease) in cash and equivalents during period (283,989) 999,317
Cash and equivalents at beginning of period 330,076 252,843
--------------------------
Cash and equivalents at end of period $ 46,087 $ 1,252,160
==========================
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Basis of Presentation
- ------------------------------
The accompanying unaudited, consolidated, condensed quarterly financial
statements have been prepared in accordance with instructions to FORM 10-Q and,
therefore, do not include all information and footnotes normally included in
financial statements prepared in conformity with Generally Accepted Accounting
Principles. In the opinion of management, they fairly represent the operating
results of the Company for the periods presented. All accruals necessary for
a fair presentation of the operating results of the period have been included.
Accounting policies used in FY97 are consistent with those used in FY96. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on FORM 10-K for the
year ended September 28, 1996. The results shown are not necessarily
indicative of the results that may be expected in succeeding quarters.
Note B - Inventory Components
- -----------------------------
Inventories consisted of the following at:
<TABLE>
<CAPTION>
December 28, 1996 September 28, 1996 December 30, 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Finished Goods $2,030,606 $1,700,558 $ 991,205
Raw Material 3,296,425 3,530,147 2,188,713
- ---------------------------------------------------------------------
5,327,031 $5,230,705 $3,179,918
- ---------------------------------------------------------------------
</TABLE>
Note C - Income Taxes
- ---------------------
Management believes that it is more likely than not that all of the
deferred tax asset will be realized. The amount of the deferred tax asset
considered realizable, however, could be reduced in the near term if estimates
of future taxable income during the carryforward period are reduced.
Note D - Legal Proceedings
- --------------------------
On December 12, 1996 the Company filed a collection action against one
if its customers for accounts totaling approximately $132,000 at September 28,
1996. On December 23, 1996 the same customer filed suit against the Company
alleging breach of certain express and implied warranty and contractual
obligations, and negligent representation with respect to sales of the
Company's narrowband products. The suit seeks $6,000,000 - $9,000,000 in
damages and unspecified amounts for interest and other costs. The ultimate
outcome of the litigation cannot presently be determined. The Company is not
aware of any other legal proceedings or claims.
MANAGEMENT'S DISCUSSION AND ANALYSIS
QUARTER ENDED DECEMBER 28, 1996
The following table sets forth the components of sales and gross profit by
product line for the Quarter Ended December 28, 1996 and the comparable
quarter in the prior fiscal year.
<TABLE>
<CAPTION>
Sales Gross Profit
- --------------------------- ---------------------------
December 28, December 30, December 28, December 30,
1996 1995 1996 1995
- --------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
$1,192,317 $2,506,836 Land Mobile Communications $ 356,856 $1,221,374
1,301,465 1,162,170 Marine Communications 594,664 505,922
329,295 328,195 Marine Instrumentation 166,594 129,989
- ------------------------------------------------------------------------------------
$2,823,077 $3,997,201 Total $1,118,114 $1,857,285
- ------------------------------------------------------------------------------------
</TABLE>
Sales order backlogs were as follows: Land Mobile Communications $811,000,
Marine Communications $79,000 and Marine Instrumentation $28,000. Land
Mobile Communications backlogs are volatile, based upon the customers'
ability to obtain Federal Communications Commission (FCC) approval for site
locations.
<TABLE>
<CAPTION>
Income and expense items as a Percentage
percentage of net sales increase (decrease)
- ----------------------------- -------------------
1996 1995
December 28, December 30, to to
1996 1995 1997 1996
- -----------------------------------------------------------------------------
<C> <C> <S> <C> <C>
100% 100% Net sales (29) 10
60 54 Cost of products sold (20) 1
40 46 Gross profit (40) 21
46 34 Operating expenses (6) (8)
(6) 12 Operating income (loss) (135) 1025
4 0 Other expense 877 (61)
(10) 12 Income (loss) before taxes (160) 3681
(3) 4 Provision (benefit) for taxes (158) n.m.
(7%) 8% Net income (loss) (162) 2405
</TABLE>
Net sales decreased by $1,174,124 or 29% compared to the same quarter in the
prior fiscal year. Net sales of the Company's land mobile products
decreased by $1,314,519 or 52% compared to the same quarter in the prior
fiscal year. Net sales of the Company's marine communications systems
increased by $139,295 or 12%. Net sales of the Company's marine
instrumentation systems increased by $1,100, approximating the prior year.
Sales of marine communications and marine instrumentation products continued
to contribute to the Company's overall performance and were consistent with
management's expectations. The decline in land mobile product sales is
directly attributable to the FCC's failure to act with respect to the
auction of 220 MHz radio service licenses. Until such licenses are issued,
the Company's sales of base station equipment will be greatly restricted.
Gross profit was $1,118,114 (40% of net sales), as compared to $1,857,285
(46% of net sales) in the prior year, a decrease of $739,171 or 40%. The
gross profit on land mobile products was $356,856 (30% of such sales), as
compared to $1,221,374 (49% of such sales) in the prior year, a decrease of
$864,518 or 71%. The gross profit on marine communications systems was
$594,664 (46% of such sales), as compared to $505,922 (44% of such sales) in
the prior year, an increase of $88,742 or 18%. The gross profit on marine
instrumentation systems was $166,594 (51% of such sales), as compared to
$129,989 (40% of such sales) in the prior year, an increase of $36,605 or
28%. The decrease in overall gross profit margin was due to a greater
portion of the Company's land mobile sales coming from mobile radio
products. Land mobile margins vary depending upon the sales mix across the
product line, and mobile radio products typically have substantially lower
gross margins than base station equipment. Profit margins on marine
communication and marine instrumentation products improved over the previous
year, due to lower manufacturing costs and higher margins on new products.
Operating expenses were $1,286,855 (46% of net sales), as compared to
$1,366,914 (34% of net sales) last year, a decrease of $80,059 or 6%.
Operating costs declined as a result of lower selling expenses, but
comprised a greater percentage of sales due to the larger decline in total
revenues.
Other expenses increased to $119,999 as compared to $12,278 last year. The
increase is due primarily to additional interest expense, and the
amortization of discount and direct costs related to the convertible
debentures issued December 19, 1995.
On December 28, 1996, the Company's principal sources of liquidity consisted
of $46,087 in cash and equivalents and $750,000 in the unused portion of
bank working capital credit lines.
Statements included in this report which are not historical in nature are
forward-looking statements made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. This Annual Report on
Form 10-K and Quarterly Reports on Form 10-Q contain certain detailed
factors that could cause the Company's actual results to materially differ
from forward-looking statements made by the Company.
DATAMARINE INTERNATIONAL, INC. AND SUBSIDIARIES
QUARTER ENDED DECEMBER 28, 1996
PART II - OTHER INFORMATION
Items 1,2,3,4, and 5
There were no reportable events or matters under these captions during the
quarter ended December 28, 1996.
Item 6
(b) There were no reports on FORM 8-K filed during the quarter ended
December 28, 1996.
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Datamarine International, Inc.
(Registrant)
Date: February 10, 1997 /s/ DAVID C. THOMPSON
----------------- ------------------
Principal Financial and
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-END> DEC-28-1996
<CASH> 46,087
<SECURITIES> 0
<RECEIVABLES> 3,361,349
<ALLOWANCES> 186,799
<INVENTORY> 5,327,031
<CURRENT-ASSETS> 9,046,619
<PP&E> 5,227,596
<DEPRECIATION> 2,984,758
<TOTAL-ASSETS> 12,312,197
<CURRENT-LIABILITIES> 4,108,753
<BONDS> 1,854,471
0
0
<COMMON> 13,098
<OTHER-SE> 6,335,875
<TOTAL-LIABILITY-AND-EQUITY> 12,312,197
<SALES> 2,823,077
<TOTAL-REVENUES> 2,823,077
<CGS> 1,704,963
<TOTAL-COSTS> 1,704,963
<OTHER-EXPENSES> 21,123
<LOSS-PROVISION> 15,463
<INTEREST-EXPENSE> 98,876
<INCOME-PRETAX> (288,740)
<INCOME-TAX> (96,362)
<INCOME-CONTINUING> (192,378)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (192,378)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
