<PAGE>
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 Period Ended July 28, 1996
-------------
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 0-8567
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Datametrics Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-3545701
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification Number)
21135 Erwin St.
Woodland Hills, California 91367
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(818)598-6200
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
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 practical date.
Common Stock. $.01 Par Value--12,221,908 shares as of August 20, 1996
<PAGE>
CONSOLIDATED
BALANCE SHEETS Datametrics Corporation
(unaudited)
<TABLE>
<CAPTION>
(In thousands, except for share data) 1996 1995
==================================================== ========= =========
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 335 $ 9,601
Accounts receivable 5,719 6,578
Inventory 10,185 6,647
Income taxes receivable 145 145
Prepaid expenses 191 442
Deferred tax assets 223 223
------- -------
Total current assets 16,798 23,636
Property and Equipment, At Cost:
Machinery and equipment 4,823 4,160
Furniture, fixtures & computer equipment 2,661 2,549
Leasehold improvements 475 449
------- -------
7,959 7,158
Accumulated depreciation and amortization (4,876) (4,205)
------- -------
Net property and equipment 3,083 2,953
Deferred Tax Assets 59 59
Other Assets 1,258 823
------- -------
$21,198 $27,471
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $2,878 $2,111
Note Payable 1,000 --
Accrued commissions and payroll 634 817
Accrued warranty 125 125
Other accrued liabilities 243 349
Progress billing and advance payment liability 90 --
Redeemed Series B Preferred Stock Payable 383 470
Current portion of capital lease and loan obligations 520 512
------- -------
Total current liabilities 5,873 4,384
CAPITAL LEASE OBLIGATIONS 32 79
LONG TERM DEBT DUE AFTER ONE YEAR 828 609
OTHER LONG-TERM LIABILITIES 297 231
EXCESS OF ACQUIRED NET ASSETS OVER COST -- 229
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value--15,000,000 shares
authorized; 12,221,908 shares issued and
outstanding in 1996 (12,031,582 in 1995) 122 120
Additional paid-in capital 32,527 32,120
Accumulated deficit (18,481) (10,301)
------- -------
Total stockholders' equity 14,168 21,939
------- -------
$21,198 $27,471
======= =======
</TABLE>
See accompanying notes
<PAGE>
CONSOLIDATED
STATEMENTS OF OPERATIONS Datametrics Corporation
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months For The Nine Months
Ended Ended
-------------------- --------------------
July 28, July 30, July 28, July 30,
(In thousands, except share and per share data) 1996 1995 1996 1995
======================================================= ========= ======== ======== =========
<S> <C> <C> <C> <C>
SALES $ 5,931 $ 4,790 $14,279 $12,138
Cost of sales 4,956 3,876 11,716 9,933
------- ------- ------- -------
Gross profit 975 914 2,563 2,205
OPERATING EXPENSES:
Engineering, research & development 1,116 1,688 4,494 4,334
Selling, general & administrative 2,684 1,455 6,453 4,261
------- ------- ------- -------
3,800 3,143 10,947 8,595
------- ------- ------- -------
Loss from operations (2,825) (2,229) (8,384) (6,390)
INTEREST (INCOME) EXPENSE 64 (4) 1 35
AMORTIZATION OF EXCESS OF ACQUIRED NET ASSETS OVER COST (77) (77) (229) (229)
------- ------- ------- -------
Loss before provision for income taxes (2,812) (2,148) (8,156) (6,196)
PROVISION (BENEFIT) FOR INCOME TAXES 17 18 24 20
------- ------- ------- -------
NET LOSS (2,829) (2,166) (8,180) (6,216)
Preferred stock dividends or accretion -- (16) -- (48)
------- ------- ------- -------
NET LOSS applicable to common stockholders $(2,829) $(2,182) $(8,180) $(6,264)
======= ======= ======= =======
EARNINGS (loss) per share of common stock:
Primary:
NET LOSS $ (0.23) $ (0.20) $ (0.64) $ (0.60)
======= ======= ======= =======
Fully diluted:
NET LOSS $ (0.23) $ (0.20) $ (0.64) $ (0.60)
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Primary 12,491 11,137 12,709 10,444
Fully diluted 12,491 11,137 12,709 10,444
</TABLE>
See accompanying notes.
<PAGE>
Consolidated
Cash Flows Statement Datametrics Corporation
(Unaudited)
<TABLE>
<CAPTION>
For The Nine Month Period
Ended
-------------------------
July 28, July 30,
(In thousands)(Brackets denote cash outflows) 1996 1995
- --------------------------------------------------- ---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITES:
Net loss $(8,180) $(6,216)
Adjustments:
Amortization of excess of acquired net assets (229) (228)
Depreciation and amortization 986 646
Loss on disposal of assets 12 --
Changes in balance sheet items:
Accounts receivable 859 4,113
Inventory (3,538) (642)
Prepaid expenses 251 (52)
Accounts payable 767 (146)
Accrued commissions and payroll (183) (278)
Advance and progress payments from customers 90 (445)
Other accrued liabilities (106) 64
Income taxes -- 325
Other (369) 11
------ -------
Net cash used in operating activities (9,640) (2,848)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment (1,128) (1,226)
------ -------
Net cash used in investing activities (1,128) (1,226)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable to bank 2,800 1,950
Payments on notes payable to bank (1,800) (2,550)
Proceeds from the issuance of common stock 409 17,439
Payment on Series B Preferred Stock (87) --
Borrowings of long-term debt 565 1,841
Payments on long-term debt (308) (714)
Payments on capital lease obligations (77) (121)
------ -------
Net cash provided by financing activities 1,502 17,845
Net increase(decrease) in cash and cash equivalents (9,266) 13,771
Cash and cash equivalents at the beginning of the period 9,601 988
------ -------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 335 $14,759
====== =======
Cash paid during the period for:
Interest $ 130 $ 136
Income Taxes(refund) 24 (325)
Noncash investing and financing activities:
Accretion on preferred stock -- 48
Issuance of capital lease obligations -- 199
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
July 28, 1996
(Unaudited)
1. The financial statements include the accounts of Datametrics Corporation.
Financial statements included herein have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosure normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the statements and
notes thereto included in the Company's latest Annual Report on Form 10-K filed
with the Securities and Exchange Commission.
The information reflects all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of Management, necessary to present a
fair statement of the results of operations for the interim periods. Much of
the Company's business is longer term and involves varying development,
production, and delivery schedules. Accordingly, results of a particular quarter
or quarter-to-quarter comparisons of recorded sales and profits may not be
indicative of future operating results or results for the fiscal year ending
October 27, 1996.
From our latest Annual Report on Form 10-K for which the following notes have
been omitted; note (1) pertains to summary of significant accounting policies
with respect to line of business, revenue recognition, change in accounting
principle, accounts receivable, inventories, major customers, cash and cash
equivalents, property and equipment and net income per share; note (2) pertains
to an acquisition; note (3) pertains to accounts receivable; note (4) pertains
to inventory; note (5) pertains to income taxes; note (6) pertains to debt; note
(7) pertains to leases; note (8) pertains to preferred stock; note (9) pertains
to stock option plans; note (10) pertains to contingencies; note (11) pertains
to employee benefit plans; and note (12) pertains to quarterly financial data.
INVENTORY Stockroom inventory is stated at the lower of cost (first-in, first-
out) or market. The Company evaluates at least annually its stockroom inventory
for potential obsolescence or excessive levels based upon backlog and forecasted
usage. Contract inventory costs
<PAGE>
include purchased materials, direct labor and manufacturing overhead. General
and administrative costs are expenses in the period incurred. Inventories as of
July 28, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Raw Material $6,981,000
Work-in Process 2,239,000
Finished Goods 965,000
----------
$10,185,000
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Nine Month Period Ended July 28, 1996 Compared
- ----------------------------------------------
To The Nine Month Period Ended July 30, 1995
- --------------------------------------------
Sales for the nine month period ended July 28, 1996 were $14,279,000, an
increase of $2,141,000 or 18% compared to $12,138,000 for the same period the
prior year. Sales from defense related printers declined $38,000, sales from
defense related workstations increased $1,297,000 and sales from commercial
products increased $882,000. The Company has not yet generated any significant
revenues from the sale of its CYMax printers.
Gross profits for defense products during the nine month period ended July 28,
1996 were $4,389,000 (32% of sales), an increase of $2,075,000 or 90% compared
to $2,314,000 (20% of sales) for the same period the prior year. Gross profits
as a percentage of sales were impacted by the Company's product mix, improved
efficiency and lower overhead. Expenses related to start up of commercial
production, including configuration upgrades of units in the field, amounted to
approximately $1,826,000.
Research and development expenses were $4,494,000 for the nine month period
ended July 28, 1996, an increase of $160,000 or 4%, compared with $4,334,000 for
the same period the prior year. Approximately 83% of the first nine months
fiscal 1996 R & D expenditures related to the development of the Company's high-
speed color digital printer products, compared with 81% for the same period of
fiscal 1995.
<PAGE>
Selling, general, and administrative expenses for the nine month period ended
July 28, 1996 were $6,453,000 (45% of sales), an increase of $2,192,000 or 51%
compared with $4,261,000 (35% of sales) for the same period the prior year. This
increase is attributable primarily to higher marketing expenses for the
Company's high-speed digital color printer.
Interest expense amounted to $1,000 ($140,000 of interest income offset by
$141,000 interest expense) for the nine month period ended July 28, 1996, a net
decrease of $34,000 compared with $35,000 of net interest expense for the same
period the prior year. This decrease is due to higher interest income.
Amortization of excess of acquired net assets over cost was $229,000 for the
nine month period ended July 28, 1996 which is consistent with the $229,000 for
the same period last year. The amortization is a result of the acquisition of
Rugged Digital Systems, Inc. in August 1993.
The net loss for the nine months ended July 28, 1996 amounted to $8,180,000,
compared with a net loss of $6,216,000 for the same period in the prior year.
The loss is due primarily to continued heavy spending on research and
development for the Company's high speed digital color printers, which increased
$160,000 compared to the period the prior year, an increase in selling, general,
and administrative expenses of $2,192,000 and an increase in taxes of $4,000,
partially offset by an increase in gross profit of $358,000 and a net decrease
in interest expense of $34,000.
Three Month Period Ended July 28, 1996 Compared
- -----------------------------------------------
To The Three Month Period Ended July 30, 1995
- ---------------------------------------------
Sales for the three month period ended July 28, 1996 were $5,931,000, an
increase of $1,141,000 or 24% compared to $4,790,000 for the same period the
prior year. Sales from defense related printers increased $682,000, sales from
defense related workstations increased $128,000 and sales from commercial
products increased $331,000. The Company has not yet generated significant
revenues from the sale of its CYMax printers.
Gross profits for defense products during the three month period ended July 28,
1996 were $1,731,000 (29% of sales), an increase of $538,000 or 45% compared to
$1,193,000 (25% of sales) for the same period the prior year. Gross profits as
a percentage of sales were impacted by the Company's product mix, improved
efficiency and lower overhead. Expenses related to start up of commercial
production, including configuration upgrades on units in the field, amounted to
approximately $756,000.
<PAGE>
Research and development expenses were $1,116,000 for the three month period
ended July 28, 1996, a decrease of $572,000 or 34%, compared with $1,688,000 for
the same period the prior year. The decrease is due to the level of product
maturity of the CYMax printer, with current expenditures relating to
enhancements of the printer. Approximately 81% of the third quarter fiscal 1996
R & D expenditures related to the development of the Company's high-speed color
digital printer products, compared with 76% for the third quarter of fiscal
1995.
Selling, general, and administrative expenses for the three month period ended
July 28, 1996 were $2,684,000 (45% of sales), an increase of $1,229,000 or 84%
compared with $1,455,000 (30% of sales) for the same period the prior year. This
increase is attributable primarily to higher marketing expenses for the
Company's high-speed digital color printer.
Interest expense amounted to $64,000 ($68,000 of interest expense offset by
$4,000 interest income) for the three month period ended July 28, 1996, a net
increase of $68,000 compared with $4,000 of net interest income for the same
period the prior year. This increase is due to borrowings on the Company's bank
line of credit during the three months ended July 28,1996. Amortization of
excess of acquired net assets over cost was $77,000 for the three month period
ended July 28, 1996 which is consistent with $77,000 for the same period last
year. The amortization is a result of the acquisition of Rugged Digital in
August 1993.
The net loss for the three months ended July 28, 1996 amounted to $2,829,000,
compared with a net loss of $2,166,000 for the same period in the prior year.
The loss is due primarily to continued heavy spending on research and
development and sales and marketing expense for the Company's high speed digital
color printers coupled with as yet insignificant sales of CYMax printers. The
increased loss for the three month period was caused by the increase in selling,
general, and administrative expenses of $1,229,000, and an increase in net
interest expense of $68,000 partially offset by the $572,000 reduction in
research and development expense, an increase in gross profit of $61,000, and a
decrease in taxes of $1,000.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company has a revolving line of credit agreement (the "Credit Agreement")
with a bank. The advance rate is eighty percent(80%) of eligible accounts
receivable, plus eighty percent(80%) of eligible progress billings receivables,
to a maximum of the progress billing receivables sublimit, which will not exceed
the lesser of ten percent(10%) of eligible receivables or $500,000. The lending
facility is capped at $7,000,000 and expires on March 4, 1997. The interest
rate is prime plus .25%. The loan is secured by substantially all the Company's
assets. There was a $1,000,000 outstanding balance at July 28, 1996. Total
availability on the bank line of credit was $3,044,843 at July 28, 1996.
The Credit Agreement requires the Company to maintain certain financial ratios
and restricts or limits the Company's ability to (i) create certain liens, (ii)
convey, transfer, or sell assets, (iii) incur additional indebtedness, (iv)
redeem or repurchase any class of stock, and (v) pay dividends on its preferred
or common stock. The Company is in compliance with all its covenants.
From time to time the Company receives advance payments on certain contracts.
These funds may be used for working capital requirements and other general
corporate purposes until needed to complete the contracts. At July 28, 1996,
the Company had no advance payments in excess of costs.
The Company's working capital and current ratios at the end of fiscal years
1993, 1994, 1995 and the period ending July 28, 1996 were $8,708,000,
$12,361,000, $19,252,000 and $10,925,000 and 2.6, 3.7, 5.4 and 2.9,
respectively. Due to the Company's high level of research and development costs,
marketing costs, inventory investment, and the low level of CYMax revenues, the
Company has experienced negative cash flow from operations of $9,640,000 for the
first nine months of fiscal year 1996. This situation is expected to continue
for the full fiscal year 1996.
The Company expects to purchase approximately $1,250,000 of capital equipment
(including capitalized leases) during all of fiscal 1996, of which $1,128,000 of
such equipment had been purchased as of July 28, 1996. The Company's other
principal commitments for fiscal 1996 are lease obligations for the Company's
facility, operating leases, principal and interest due on equipment borrowings,
payment for the
<PAGE>
untendered but redeemed Series B Preferred Stock and interest due on bank
borrowings.
Management is currently evaluating additional financing alternatives to continue
the development, marketing and manufacture of the Company's CYMax printers.
Management expects to be able to finance the capital expenditure requirements
and other commitments from working capital, borrowings from the bank line of
credit, capital loans and capital leases for the remainder of the fiscal year.
The Company is currently dependent upon increased CYMax sales to finance its
commercial operations in the next fiscal year. There can be no assurance,
however, that it will achieve such sales volumes.
BUSINESS ENVIRONMENT AND OTHER CONSIDERATIONS
As part of its diversification strategy, the Company has continued to invest
substantial resources in developing its commercial business. Results for 1996
are expected to be impacted by continued heavy investment in the Company's CYMax
high-speed color digital printer program. The Company's future success depends
in large part on the timely and successful development and marketing in
commercial markets of the CYMax series of high-speed color digital printers.
Mass commercial implementation of the CYMax printers remains uncertain and is
subject to a number of factors including, without limitation, timely completion
of the Company's product offerings, acceptance of such products by the Company's
targeted potential customers, the timing of the development of the various
markets being targeted by the Company, the timing of development of competing
color printing technologies, the availability of adequate, cost effective
manufacturing capacity and the availability of adequate working capital to
finance the development, manufacture and marketing of the products. The
Company has not yet generated any significant revenues from the sale of its
CYMax printers. If the Company is unable to complete any of these efforts in a
timely manner, such failure could have a material adverse effect on the timely
introduction and sales of the CYMax printers and the Company's business,
financial condition and results of operations.
Competition in commercial color printing markets is intense. Many of the
Company's competitors have far greater name recognition and financial,
technical, marketing and customer service resources than the Company. The
commercial color printing market is characterized by rapid technological
advances and downward price pressure as competing technologies mature. In
addition, the Company's CYMax series of printers is a new product entry into the
commercial color printing market, and there can be no assurance that there will
be broad acceptance of the products in the marketplace.
<PAGE>
The Company relies to a substantial extent on sole suppliers to manufacture
several key components for use in the CYMax printers, including controllers,
print heads and color printer ribbons. Because the manufacture of these
components is specialized and requires long lead times, there can be no
assurance that delays in the timely completion of production orders will not be
caused by component vendors. Any inability to obtain adequate deliveries, or
any other circumstance that would require the Company to seek alternative
sources of component supply, could delay shipment of the Company's products,
increase its cost of goods sold and have a material adverse effect on the
Company's business, financial condition and results of operations.
Companies engaged in supplying equipment and services to U.S. government
defense programs are subject to special risks including dependence on government
appropriations, contract termination without cause, contract renegotiation, and
the intense competition for the available defense business. Over the past
several years, the Company has been significantly impacted by market changes in
the U.S. Department of Defense. Department of Defense budget forecasts indicate
that overall funding will continue to decrease for the foreseeable future, and
accordingly, the Company anticipates that the results of its military business
operations will continue to be adversely affected by such decreases.
Because of the foregoing, as well as other factors affecting the Company's
operating results, past financial performance should not be considered to be a
reliable indicator of future performance.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: The statements contained in this document which are not historical facts
are forward-looking statements that are subject to risks and uncertainties that
could cause actual results to differ materially from those set forth in the
forward-looking statements, including the risks and considerations included in
this report and other risks detailed in the Company's Securities and Exchange
Commission filings.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits:
----------------
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K.
--------------------
The Company filed a Current Report on Form 8-K dated August 9,
1996, under Item 5 relating to the First Amendment to the
Restated By-laws of the Company, dated August 6, 1996
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this Form 10-Q to be signed on its behalf by its duly
authorized representatives.
DATAMETRICS CORPORATION
-----------------------
(Registrant)
Dated: August 27, 1996 /s/ SIDNEY E. WING
------------------------------ ----------------------------
Sidney E. Wing
President and Chief
Executive Officer
Dated: August 27, 1996 /s/ JOHN J. VAN BUREN
------------------------------ -----------------------------
John J. Van Buren
Sr. Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANING CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF DATAMETERICS
CORPORATION AS OF AND FOR THE NINE MONTH PERIOD ENDING JULY 28, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-27-1996
<PERIOD-END> JUL-28-1996
<CASH> 335
<SECURITIES> 0
<RECEIVABLES> 5,719
<ALLOWANCES> 43
<INVENTORY> 10,185
<CURRENT-ASSETS> 16,798
<PP&E> 7,959
<DEPRECIATION> 4,876
<TOTAL-ASSETS> 21,198
<CURRENT-LIABILITIES> 5,873
<BONDS> 0
0
0
<COMMON> 122
<OTHER-SE> 32,527
<TOTAL-LIABILITY-AND-EQUITY> 21,198
<SALES> 14,279
<TOTAL-REVENUES> 14,279
<CGS> 11,716
<TOTAL-COSTS> 11,716
<OTHER-EXPENSES> 10,947
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> (8,156)
<INCOME-TAX> 24
<INCOME-CONTINUING> (8,180)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,180)
<EPS-PRIMARY> ($0.64)
<EPS-DILUTED> ($0.64)
</TABLE>
