<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 April 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
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(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--12,197,197 shares as of May 20, 1996
<PAGE>
CONSOLIDATED
BALANCE SHEETS Datametrics Corporation
(unaudited)
<TABLE>
<CAPTION>
April 28, October 29,
(In thousands, except for share data) 1996 1995
========================================================== ========= ===========
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 807 $ 9,601
Accounts receivable 6,180 6,578
Inventory 10,099 6,647
Income taxes receivable 145 145
Prepaid expenses 220 442
Deferred tax assets 223 223
-------- --------
Total current assets 17,674 23,636
Property and Equipment, At Cost:
Machinery and equipment 4,775 4,160
Furniture, fixtures & computer equipment 2,679 2,549
Leasehold improvements 475 449
-------- --------
7,929 7,158
Accumulated depreciation and amortization (4,665) (4,205)
-------- --------
Net property and equipment 3,264 2,953
Deferred Tax Assets 59 59
Other Assets 1,258 823
-------- --------
$ 22,255 $ 27,471
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,369 $ 2,111
Note Payable 1,000 --
Accrued commissions and payroll 718 817
Accrued warranty 125 125
Other accrued liabilities 340 349
Progress billing and advance payment liability 57 --
Redeemed Series B Preferred Stock Payable 470 470
Current portion of capital lease and loan obligations 389 512
-------- --------
Total current liabilities 4,468 4,384
CAPITAL LEASE OBLIGATIONS 56 79
LONG TERM DEBT DUE AFTER ONE YEAR 494 609
OTHER LONG-TERM LIABILITIES 276 231
EXCESS OF ACQUIRED NET ASSETS OVER COST 76 229
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value--15,000,000 shares
authorized; 12,195,197 shares issued and
outstanding in 1996 (11,998,451 in 1995) 122 120
Additional paid-in capital 32,415 32,120
Accumulated deficit (15,652) (10,301)
-------- --------
Total stockholders' equity 16,885 21,939
-------- --------
$ 22,255 $ 27,471
======== ========
</TABLE>
See accompanying notes
<PAGE>
CONSOLIDATED
STATEMENTS OF OPERATIONS Datametrics Corporation
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months For The Six Months
Ended Ended
---------------------------- -----------------------------
April 28, April 30, April 28, April 30,
(In thousands, except share and per share data) 1996 1995 1996 1995
===================================================== ========== ========== =========== ===========
<S> <C> <C> <C> <C>
SALES $ 4,697 $ 3,897 $ 8,348 $ 7,348
Cost of sales 3,975 3,354 6,760 6,057
-------- -------- -------- --------
Gross profit 722 543 1,588 1,291
OPERATING EXPENSES:
Engineering, research & development 1,949 1,611 3,378 2,646
Selling, general & administrative 1,949 1,450 3,769 2,806
-------- -------- -------- --------
3,898 3,061 7,147 5,452
-------- -------- -------- --------
Loss from operations (3,176) (2,518) (5,559) (4,161)
INTEREST (INCOME) EXPENSE (16) 31 (63) 39
AMORTIZATION OF EXCESS OF ACQUIRED NET ASSETS OVER COST (76) (76) (152) (152)
-------- -------- -------- --------
Loss before provision for income taxes (3,084) (2,473) (5,344) (4,048)
PROVISION (BENEFIT) FOR INCOME TAXES 2 2 7 2
-------- -------- -------- --------
NET LOSS (3,086) (2,475) (5,351) (4,050)
Preferred stock dividends or accretion -- (16) -- (32)
-------- -------- -------- --------
NET LOSS applicable to common stockholders ($3,086) ($2,491) ($5,351) ($4,082)
======== ======== ======== ========
EARNINGS (loss) per share of common stock:
Primary:
NET LOSS ($0.24) ($0.24) ($0.42) ($0.40)
======== ======== ======== ========
Fully diluted:
NET LOSS ($0.24) ($0.24) ($0.42) ($0.40)
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Primary 12,755 10,223 12,749 10,186
Fully diluted 12,755 10,223 12,749 10,186
</TABLE>
See accompanying notes.
<PAGE>
Consolidated
Cash Flows Statement Datametrics Corporation
(Unaudited)
<TABLE>
<CAPTION>
For The Six Month Period
Ended
------------------ ------------------
April 28, April 30,
(In thousands)(Brackets denote cash outflows) 1996 1995
- ------------------------------------------------------- ------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITES:
Net loss ($5,351) ($4,050)
Adjustments:
Amortization of excess of acquired net assets (153) (152)
Depreciation and amortization 639 397
Changes in balance sheet items:
Accounts receivable 398 4,670
Inventory (3,452) 40
Prepaid expenses 222 (11)
Accounts payable (742) (745)
Accrued commissions and payroll (99) (267)
Advance and progress payments from customers 57 (252)
Other accrued liabilities (9) 92
Other (390) (218)
------- -------
Net cash used in operating activities (8,880) (496)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment (950) (1,084)
------- -------
Net cash used in investing activities (950) (1,084)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable to bank 1,000 750
Payments on notes payable to bank -- (1,350)
Proceeds from the issuance of common stock 297 206
Borrowings of long-term debt -- 1,841
Payments on long-term debt (203) (95)
Payments on capital lease obligations (58) (84)
------- -------
Net cash provided by financing activities 1,036 1,268
Net increase(decrease) in cash and cash equivalents (8,794) (312)
Cash and cash equivalents at the beginning of the period 9,601 988
------- -------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 807 $ 676
======= =======
Cash paid during the period for:
Interest $ 83 $ 61
Income Taxes 7 --
Noncash investing and financing activities:
Accretion on preferred stock -- 32
Issuance of capital lease obligations -- 199
</TABLE>
See accompanying notes.
<PAGE>
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 include purchased materials, direct labor and
manufacturing overhead. General and administrative costs are expenses in the
period incurred. Inventories as of April 28, 1996 are as follows:
<PAGE>
Raw Material $ 6,790,000
Work-in Process 2,363,000
Finished Goods 946,000
-----------
$10,099,000
2. On March 4, 1996 the Company renewed its bank line of credit agreement
whereby it was extended to March 4,1997 on substantially the same terms.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Six Month Period Ended April 28, 1996 Compared
- ----------------------------------------------
To The Six Month Period Ended April 30, 1995
- --------------------------------------------
Sales for the six month period ended April 28, 1996 were $8,348,000, an increase
of $1,000,000 or 14% compared to $7,348,000 for the same period the prior year.
Sales from defense related printers declined $542,000, sales from defense
related workstations increased $1,169,000 and sales from commercial products
increased $373,000.
Gross profits for defense products during the six month period ended April 28,
1996 were $2,658,000 (34% of sales), an increase of $1,538,000 or 137% compared
to $1,120,000 (16% 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 $1,070,000.
Research and development expenses were $3,378,000 for the six month period ended
April 28, 1996, an increase of $732,000 or 28%, compared with $2,646,000 for the
same period the prior year. Approximately 83% of the first half fiscal 1996 R &
D expenditures related to the development of the Company's high-speed color
digital printer products, compared with 84% for the first half of fiscal 1995.
<PAGE>
Selling, general, and administrative expenses for the six month period ended
April 28, 1996 were $3,769,000 (45% of sales), an increase of $963,000 or 34%
compared with $2,806,000 (38% of sales) for the same period the prior year. This
increase is attributable to higher marketing expenses for the Company's high-
speed digital color printer.
Interest income amounted to $63,000 ($136,000 of interest income offset by
$73,000 interest expense) for the six month period ended April 28, 1996, a net
increase of $102,000 compared with $39,000 of net interest expense for the same
period the prior year. This increase is due to higher interest income.
Amortization of excess of acquired net assets over cost was $152,000 for the six
month period ended April 28, 1996 which is consistent with the $152,000 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 six months ended April 28, 1996 amounted to $5,351,000,
compared with a net loss of $4,082,000 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
$732,000 compared to the period the prior year, an increase in selling, general,
and administrative expenses of $963,000 and an increase in taxes of $5,000,
partially offset by an increase in gross profit of $297,000 and a net increase
in interest income of $102,000.
Three Month Period Ended April 28, 1996 Compared
- ------------------------------------------------
To The Three Month Period Ended April 30, 1995
- ----------------------------------------------
Sales for the three month period ended April 28, 1996 were $4,697,000, an
increase of $800,000 or 21% compared to $3,897,000 for the same period the prior
year. Sales from defense related printers declined $288,000, sales from defense
related workstations increased $773,000 and sales from commercial products
increased $355,000.
Gross profits for defense products during the three month period ended April 28,
1996 were $1,484,000 (32% of sales), an increase of $1,150,000 or 344% compared
to $334,000 (8% 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 $762,000.
Research and development expenses were $1,949,000 for the three month period
ended April 28, 1996, an increase of $338,000 or 21%, compared with $1,611,000
for the same period the prior year. Approximately 83%
<PAGE>
of the second quarter fiscal 1996 R & D expenditures related to the development
of the Company's high-speed color digital printer products, compared with 84%
for the second quarter of fiscal 1995.
Selling, general, and administrative expenses for the three month period ended
April 28, 1996 were $1,949,000 (42% of sales), an increase of $499,000 or 34%
compared with $1,450,000 (37% of sales) for the same period the prior year. This
increase is attributable to higher marketing expenses for the Company's high-
speed digital color printer.
Interest income amounted to $16,000 ($52,000 of interest income offset by
$36,000 interest expense) for the three month period ended April 28, 1996, a net
increase of $47,000 compared with $31,000 of net interest expense for the same
period the prior year. This increase is due to higher interest income.
amortization of excess of acquired net assets over cost of was $76,000 for the
three month period ended April 28, 1996 which is consistent with $76,000 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 April 28, 1996 amounted to $3,086,000,
compared with a net loss of $2,475,000 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
$338,000 compared to the period the prior year and an increase in selling,
general, and administrative expenses of $499,000, partially offset by an
increase in gross profit of $179,000 and a decrease in net interest expense of
$47,000.
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 $1,000,000 outstanding balance at April 28, 1996. Total
availability on the bank line of credit was $3,783,110 at April 28, 1996.
<PAGE>
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 April 28, 1996,
the Company had advance payments of $57,000 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 April 28, 1996 were $8,708,000,
$12,361,000, $19,252,000 and $13,206,000 and 2.6, 3.7, 5.4 and 4.0,
respectively. Due to the Company's high level of research and development costs,
marketing costs and inventory investment, the Company has experienced negative
cash flow from operations of $8,883,000 for the first six months of fiscal year
1996. This situation is expected to continue for the full fiscal year 1996. The
Company expects to fund its continued investment in the color printer and its
military business from its working capital and the bank line of credit.
The Company expects to purchase approximately $1,400,000 of capital equipment
(including capitalized leases) during all of fiscal 1996, of which $950,000 of
such equipment had been purchased as of April 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 untendered but redeemed series b preferred stock and interest
due on bank borrowings.
While management is currently evaluating seeking additional financing,
management expects to be able to finance the capital expenditure requirements
and other commitments from working capital, borrowings from a bank line of
credit, capital loans and capital leases for the remainder of the fiscal year.
<PAGE>
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's exclusive distribution agreement with the A.B. Dick Company has been
terminated, and the Company is pursuing oem relationships to penetrate the
markets previously restricted under the exclusive agreement with A.B. Dick. 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 4. Submission of Matters to a vote of security holders.
Registrant held its Annual Meeting of Stockholders on March 19, 1996.
The following matters were voted upon at the meeting:
<TABLE>
<CAPTION>
ELECTION OF DIRECTORS VOTES FOR AGAINST
<S> <C> <C>
DANN V. ANGELOFF 10,750,636 108,185
RICHARD A. FOSTER 10,750,576 108,245
BURTON L. KAPLAN 10,750,411 108,410
RICHARD W. MUCHMORE 10,750,586 108,235
GARLAND S. WHITE 10,750,776 108,045
SIDNEY E. WING 10,749,301 109,520
KENNETH ZEIGER 10,750,601 108,220
</TABLE>
Increase the number of authorized shares of Common Stock from
15,000,000 to 20,000,000 shares Votes for: 10,402,483
Votes against: 400,306
Abstentions/Broker Non-Votes: 56,032
Approval of the Company's 1995 Stock Option Plan
Votes for: 4,449,509
Votes against: 493,449
Abstentions/Broker Non-Votes: 5,865,863
Approval of the Company's Employee Qualified Stock Purchase Plan
Votes for: 4,995,085
Votes against: 398,231
Abstentions/Broker Non-Votes: 5,465,505
Item 6. Exhibits and Reports on Form 8-k
<TABLE>
<CAPTION>
(a) List of Exhibits:
----------------
Exhibit
Numbers Description of Exhibits
------- -----------------------
<S> <C>
10.72 Addendum to Security and Loan Agreement
March 4,1996
27.1 Financial Data Schedule.
(b) Reports on Form 8-k.
--------------------
None.
</TABLE>
<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: May 28, 1996 /s/ SIDNEY E. WING
---------------------- ------------------------------------
Sidney E. Wing
President and Chief
Executive Officer
DATED: May 28, 1996 /s/ JOHN J. VAN BUREN
---------------------- ------------------------------------
John J. Van Buren
Sr. Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT 10.72
ADDENDUM TO SECURITY AND LOAN AGREEMENT
("SECURITY AND LOAN AGREEMENT")
BETWEEN DATAMETRICS CORPORATION AND IMPERIAL BANK
DATED: MARCH 4, 1996
This Addendum is made and entered into as of MARCH 4, 1996, between DATAMETRICS
CORPORATION ("Borrower") and IMPERIAL BANK ("Bank"). This Addendum amends and
supplements the Security and Loan Agreement. In the event of any inconsistency
between the terms herein and the terms of the Security and Loan Agreement, the
terms herein shall in all cases govern and control. All capitalized terms
herein, unless otherwise defined herein, shall have the meaning set forth in the
Security and Loan Agreement.
1. Any commitment of Bank, pursuant to the terms of the Security and Loan
Agreement, to make advances against Eligible Accounts shall expire on MARCH 4,
1997, subject to Bank's right to renew said commitment in its sole discretion.
Any such renewal of the commitment shall not be binding upon Bank unless it is
in writing and signed by an officer of the Bank.
2. Borrower represents and warrants that:
a. Litigation. There is no litigation or other proceeding pending or
threatened against or affecting Borrower, except as previously disclosed in
writing by Borrower to Bank, and Borrower is not in default with respect to any
order, writ, injunction, decree or demand of any court or other governmental or
regulatory authority.
b. Financial Condition. The consolidated balance sheet of Borrower and
subsidiaries of JANUARY 28, 1996, and the related consolidated profit and loss
statement on that date, a copy of which has heretofore been delivered to Bank by
Borrower, and all other statements and data submitted in writing by Borrower to
Bank in connection with this request for credit are true and correct, and said
balance sheet and profit and loss statement truly present the consolidated
financial condition of Borrower and subsidiaries as of the date thereof and the
results of the consolidated operations of Borrower and subsidiaries for the
period covered thereby, and have been prepared in accordance with generally
accepted accounting principles on a basis consistently maintained. Since such
date, there have been no materially adverse changes. Borrower has no knowledge
of any liabilities, contingent or otherwise, at such date not reflected in said
balance sheet, and Borrower has not entered into any special commitments or
substantial contracts which are not reflected in said balance sheet, other than
in the ordinary and normal course of its business, which may have a materially
adverse effect upon its financial condition, operations or business as now
conducted.
<PAGE>
ADDENDUM TO SECURITY AND LOAN AGREEMENT
Page 2
c. Trademarks, Patents. Borrower, as of the date hereof, possesses all
necessary trademarks, trade names, copyrights, patents, patent rights, and
licenses to conduct its business as now operated, without any known conflict
with valid trademarks, trade names, copyrights, patents and license rights of
others.
2.d. Tax Status. Borrower has no liability for any delinquent state, local
or federal taxes, and, if Borrower has contracted with any government agency,
Borrower has no liability for renegotiation of profits.
3. Borrower agrees that so long as it is indebted to Bank, it will not,
without Bank written consent, which will not be unreasonably withheld:
a. Type of Business. Management: Executives' Compensation. Make any
substantial change in the character of its business; or make any change in its
executive management, defined as consisting of Borrower's Chief Executive
Officer, Chief Financial Officer, Senior Vice President of Defense Business
Unit, and Vice President of Commercial Business Unit.
b. Outside Indebtedness. Create, incur, assume or permit to exist any
indebtedness for borrowed moneys other than loans from Bank except obligations
now existing as shown in financial statement dated JANUARY 28, 1996, except as
previously disclosed in writing by Borrower to Bank, excluding those being
refinanced by Bank; or sell or transfer, either with or without recourse, any
accounts or notes receivable or any moneys due to become due. Notwithstanding
the foregoing, Borrower may incur indebtedness for up to $565,000 collateralized
by cash surrender value of life insurance.
c. Liens and Encumbrances. Except as agreed in 3.b., create, incur,
assume any mortgage, pledge, encumbrance, lien or charge of any kind (including
the charge upon property at any time purchased or acquired under conditional
sale or other title retention agreement) upon any asset now owned or hereafter
acquired by it, other than liens for taxes not delinquent and liens in Bank's
favor.
d. Loans, Investments, Secondary Liabilities. Make any loans or advances
to any person or other entity other than in the ordinary and normal course of
its business as now conducted or make any investment in the securities of any
person or other entity having less than an A1P1 rating by Moody's Investors
Service; or guarantee or otherwise become liable upon the obligation of any
person or other entity, except by endorsement of negotiable instruments for
deposit or collection in the ordinary and normal course of its business.
e. Acquisition or Sale of Business; Merger or Consolidation. Purchase or
otherwise acquire the assets or business of any person or other entity; or
liquidate, dissolve, merge or consolidate, or commence any proceedings
therefore; or sell any
<PAGE>
ADDENDUM TO SECURITY AND LOAN AGREEMENT
Page 3
assets except in the ordinary and normal course of its business or fixed assets,
or any property or other assets necessary for the continuance of its business as
now conducted, including without limitation the selling of any property or other
asset accompanied by the leasing back of the same.
f. Dividends, Stock Payments. Declare or pay any dividend (other than
dividends payable in common stock of Borrower) or make any other distribution on
any of its capital stock now outstanding (except for dividends required to be
paid on Series B Redeemable Preferred Stock) or hereafter issued or purchase,
redeem or retire any of such stock (except for Series B Redeemable Preferred
Stock).
g. Capital Expenditures. Make or incur consolidated obligations for
capital expenditures in excess of $1,900,000 in the period from the date hereof
to OCTOBER 31, 1996 or in excess of $1,900,000 in any one fiscal year
thereafter.
h. Lease Liability. Make or incur consolidated liability for payments of
rent under leases of real property in excess of $850,000 and personal property
in excess of $700,000 in any one fiscal year.
4. Should there be a default under the Security and Loan Agreement, the
General Security Agreement or under the Note, all obligations, loans and
liabilities of Borrower to Bank, due or to become due, whether now existing or
hereafter arising, shall, at the option of Bank, become immediately due and
payable without notice or demand, and Bank shall thereupon have the right to
exercise all of its default rights and remedies. Default shall include any
material adverse change in the financial condition or business of Borrower.
5. In addition to the provisions in the Security and Loan Agreement, Eligible
Accounts and Eligible Progress Billing Accounts shall only include such accounts
as Bank in its sole discretion shall determine are eligible from time to time.
"Eligible Accounts" and "Eligible Progress Billing Accounts" shall also not
include any of the following:
a. Accounts with respect to which the account debtor is an officer,
director, shareholder, employee, subsidiary or affiliate of Borrower.
b. Accounts with respect to which 25% or more of the account debtor's
total accounts or obligations outstanding to Borrower are more than 90 days from
invoice date are not eligible.
c. Accounts representing billings for service or maintenance contracts or
for inventory or equipment on rent to the account debtor.
<PAGE>
ADDENDUM TO SECURITY AND LOAN AGREEMENT
Page 4
d. For accounts representing more than 25% of total accounts receivable,
the balance in excess of the 25% is not eligible. However, the Bank may deem, at
its sole discretion, the entire amount eligible.
e. Accounts with respect to international transactions unless insured, or
covered by letters of credit.
f. Accounts receivable from creditors (contra accounts) to the extent of
the offsetting accounts payable.
g. Credit balances greater than 90 days.
6. All financial covenants and financial information referenced herein shall
be interpreted and prepared in accordance with generally accepted accounting
principles applied on a basis consistent with previous years. Compliance with
financial covenants shall be calculated and monitored on a quarterly basis.
7. Borrower affirmatively covenants that so long as any loans, obligations or
liabilities remain outstanding or unpaid to Bank, it will:
a. Maintain a minimum of consolidated tangible net worth (meaning the
excess of all consolidated assets, excluding any value for goodwill, trademarks,
patents, copyrights, organization expense, and other similar intangible items,
over its consolidated liabilities) of not less than $18,000,000 presently and
thereafter.
b. At all times maintain consolidated working capital (Borrower's
consolidated current assets minus consolidated current liabilities) of not less
than $12,000,000 presently and thereafter.
c. At all times maintain a consolidated current ratio of at least 4.00 to
1.0. "Current ratio" is the ratio of consolidated current assets to consolidated
current liabilities.
d. Maintain a maximum ratio of consolidated total debt to consolidated
tangible net worth not to exceed 1.00 TO 1.0.
e. Except for payroll and income tax depository accounts, maintain all
significant bank accounts and banking relationship with Bank.
f. As of and within 15 working days from each month-end, deliver to Bank,
a borrowing certificate certified by an officer or the company, an accounts
receivable aging reconciled to the general ledger of Borrower, a detailed
accounts payable aging reconciled to the Borrower's general ledger and setting
forth the amount of any book overdraft or the amount of checks issued but not
sent. All the
<PAGE>
ADDENDUM TO SECURITY AND LOAN AGREEMENT
Page 5
foregoing will be in a form and with such detail as Bank may request from time
to time.
g. Within 45 days after the end of each quarter, deliver to Bank
Borrower's Form 10-Q, including a profit and loss statement and a balance sheet
in form satisfactory to Bank all certified by an officer of Borrower.
h. Within 90 days after the end of Borrower's fiscal year, deliver to
Bank Borrower's Form 10-K, including the same financial statements as otherwise
provided quarterly together with Changes in Financial Position Statement,
certified with a unqualified opinion by an independent certified public
accountant selected by Borrower but acceptable to Bank.
i. Within 5 days of filing, deliver to Bank copies of the income tax
returns of Borrower.
j. Rights and Facilities. Maintain and preserve all rights, franchises
and other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; conduct its
business or partnership, maintain and preserve its existence.
k. Insurance. Maintain public liability, property damage and workers
compensation insurance and insurance on all its insurable property against fire
and other hazards with responsible insurance carriers to the extent usually
maintained by similar businesses. Borrower shall provide evidence of property
insurance in amounts and types acceptable to the Bank. Bank to be named as Loss
Payee.
l. Taxes and Other Liabilities. Pay and discharge, before the same
become delinquent and before penalties accrue thereon, all taxes, assessments
and governmental charges upon or against it or any of its properties, and any of
its other liabilities at any time existing, except to the extent and so long as:
(a) The same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any materially adverse
affect upon its financial condition or the loss of any right of
redemption from any sale thereunder; and
(b) It shall have set aside on its books reserves (segregated to the
extent required by generally accepted accounting practice) deemed by
it adequate with respect thereto.
<PAGE>
ADDENDUM TO SECURITY AND LOAN AGREEMENT
Page 6
m. Records and Reports. Maintain a standard and modern system of
accounting in accordance with generally accepted accounting principles or a
basis consistently maintained; permit Bank's representatives to have access to,
and to examine its properties, books and records at all reasonable times.
8. The rate of interest applicable to the Loan Account shall be 0.25% per year
in excess of the rate of interest which Bank has announced as its prime lending
rate ("Prime Rate") which shall vary concurrently with any change in such Prime
Rate. Interest shall be computed at the above rate on the basis of the actual
number of days during which the principal balance of the loan account is
outstanding divided by 360, which shall for interest computation purposes be
considered one year.
9. Miscellaneous Provisions. Failure or Indulgence Not Waiver. No failure or
delay on the part of your Bank or any holder or Notes Issued hereunder, in the
exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof or of any other right,
power or privilege. All rights and remedies existing under this agreement or any
not issued in connection with a loan that your Bank may make hereunder, are
cumulative to, and not exclusive of, any rights or remedies otherwise available.
10. This addendum is executed by and on behalf of the parties as of the date
first above written.
DATAMETRICS CORPORATION "BORROWER" IMPERIAL BANK "BANK"
BY: /s/ John J. Van Buren BY: /s/ Roger R. Kratz
--------------------- -------------------------
John J. Van Buren Roger R. Kratz
SVP, Chief Financial Officer VP, Commercial Loan Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF DATAMETRICS
CORPORATION AS OF AND FOR THE SIX MONTH PERIOD ENDING APRIL 28, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-27-1996
<PERIOD-END> APR-28-1996
<CASH> 807
<SECURITIES> 0
<RECEIVABLES> 6,180
<ALLOWANCES> 46
<INVENTORY> 10,099
<CURRENT-ASSETS> 17,674
<PP&E> 7,929
<DEPRECIATION> 4,665
<TOTAL-ASSETS> 22,255
<CURRENT-LIABILITIES> 4,468
<BONDS> 0
0
0
<COMMON> 122
<OTHER-SE> 32,415
<TOTAL-LIABILITY-AND-EQUITY> 22,255
<SALES> 8,348
<TOTAL-REVENUES> 8,348
<CGS> 6,760
<TOTAL-COSTS> 6,760
<OTHER-EXPENSES> 6,995
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63
<INCOME-PRETAX> (5,344)
<INCOME-TAX> 7
<INCOME-CONTINUING> (5,351)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,351)
<EPS-PRIMARY> ($0.42)
<EPS-DILUTED> ($0.42)
</TABLE>
