<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 JANUARY 26, 1997
----------------
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)
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--13,016,844 SHARES AS OF FEBRUARY 10, 1997
<PAGE>
DATAMETRICS CORPORATION
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
CONSOLIDATED CONDENSED BALANCE SHEETS AS OF
JANUARY 26,1997 AND OCTOBER 27, 1996 3
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 26, 1997 AND
JANUARY 28, 1996 4
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 26,1997 AND
JANUARY 28,1996 5
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
PART II- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
</TABLE>
2
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DATAMETRICS CORPORATION
CONSOLIDATED CONDENSED
BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
January 26, October 27,
(In thousands, except for share data) 1997 1996
===================================== =========== ==========
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 448 $ 386
Accounts receivable, net 2,818 5,735
Inventory, net 6,829 6,945
Prepaid expenses 42 16
-------- --------
Total current assets 10,137 13,082
Property and Equipment, At Cost:
Machinery and equipment 3,807 4,319
Furniture, fixtures & computer equipment 2,488 2,521
Leasehold improvements 392 475
-------- --------
6,687 7,315
Accumulated depreciation and amortization (4,979) (5,445)
-------- --------
Net property and equipment 1,708 1,870
Other Assets 996 988
-------- --------
$ 12,841 $ 15,940
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,890 $ 3,528
Note Payable 550 2,550
Accrued commissions and payroll 526 995
Accrued warranty 130 180
Other accrued liabilities 482 975
Progress billing and advance payment liability 746 1,037
Redeemed Series B Preferred Stock Payable -- 87
Current portion of capital lease and loan obligatio 550 543
-------- --------
Total current liabilities 4,874 9,895
CAPITAL LEASE OBLIGATIONS -- 7
LONG TERM DEBT DUE AFTER ONE YEAR 2,386 697
OTHER LONG-TERM LIABILITIES 324 328
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value--20,000,000 shares
authorized; 12,344,510 shares issued and
outstanding in 1997 (12,264,408 in 1996) 123 123
Additional paid-in capital 32,787 32,577
Accumulated deficit (27,653) (27,687)
-------- --------
Total stockholders' equity 5,257 5,013
-------- --------
$ 12,841 $ 15,940
======== ========
</TABLE>
See accompanying notes
3
<PAGE>
DATAMETRICS CORPORATION
CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months
Ended
-------------------------------
January 26, January 28,
(In thousands, except per share data) 1997 1996
===================================== =========== ===========
<S> <C> <C>
SALES $ 3,957 $ 3,651
Cost of sales 2,707 2,785
Research & development 181 1,429
Selling, general & administrative 926 1,820
------- -------
Income (loss) from operations 143 (2,383)
Interest (income) expense, net 107 (47)
Amortization of excess of acquired net assets over cost -- (76)
------- -------
Income (loss) before provision for income taxes 36 (2,260)
Provision for income taxes 2 5
------- -------
Net income (loss) $ 34 $(2,265)
======= =======
Earnings (loss) per share of common stock:
Primary and fully diluted net income (loss) -- $ (0.18)
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Primary and fully diluted 12,291 12,743
</TABLE>
See accompanying notes.
4
<PAGE>
DATAMETRICS CORPORATION
CONDENSED CONSOLIDATED
CASH FLOWS STATEMENT
(Unaudited)
<TABLE>
<CAPTION>
For The Three Month Period
Ended
--------------------------
January 26, January 28,
(In thousands) (Brackets denote cash outflows) 1997 1996
- ---------------------------------------------- ----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITES:
Net income ( loss) $ 34 $(2,265)
Adjustments:
Amortization of excess of acquired net assets -- (76)
Depreciation and amortization 188 308
Changes in balance sheet items:
Accounts receivable 2,917 1,170
Inventory 116 (2,229)
Prepaid expenses (26) 216
Accounts payable (1,638) (364)
Accrued commissions and payroll (469) (98)
Advance and progress payments from customers (291) --
Other accrued liabilities (493) 208
Accrued warranty (50) --
Other (12) (320)
------- -------
Net cash provided by (used in) operating activities 276 (3,450)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment (9) (606)
------- -------
Net cash used in investing activities (9) (606)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable to bank 2,141 --
Payments on notes payable to bank (4,141) --
Proceeds from the issuance of common stock 73 209
Issuance of warrants 137 --
Payment on Series B Preferred Stock (87) --
Borrowings of long-term debt 1,792 --
Payments on long-term debt (103) (101)
Payments on capital lease obligations (17) (34)
------- -------
Net cash provided by (used in) financing activities (205) 74
------- -------
Net increase(decrease) in cash and cash equivalents 62 (3,982)
Cash and cash equivalents at the beginning of the period 386 9,601
------- -------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 448 $ 5,619
======= =======
Cash paid during the period for:
Interest $ 89 $ 37
Income Taxes -- 5
</TABLE>
See accompanying notes.
5
<PAGE>
DATAMETRICS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
January 26, 1997
(Unaudited)
1. The financial statements include the accounts of Datametrics Corporation
("the Company").
The consolidated condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission for the requirements of Form 10-Q.
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, including results for the fiscal year
ending October 26, 1997.
From our latest Annual Report on Form 10-K, the following notes have been
omitted in this Form 10-Q: note (1) pertains to summary of significant
accounting policies with respect to line of business, revenue recognition,
change in accounting principles, accounts receivable, inventories, major
customers, cash and cash equivalents, property and equipment, intangible assets,
credit risk, fair value of financial instruments, stock-based compensation and
net income per share; note (2) pertains to a change in control of the Company;
note (3) pertains to non-recurring charges; note (4) pertains to accounts
receivable; note (5) pertains to inventory; note (6) pertains to income taxes;
note (7) pertains to debt; note (8) pertains to leases; note (9) pertains to
preferred stock; note (10) pertains to stock option plans; note (11) pertains to
contingencies; and note (12) pertains to employee benefit plans; note (13)
pertains to quarterly financial data.
6
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2. 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 January 26, 1997 are as follows:
<TABLE>
<S> <C>
Raw Material $5,792,000
Work-in Process 1,037,000
----------
Total $6,829,000
</TABLE>
3. CONTINGENCIES The Company is, from time to time, subject to legal proceedings
in the general course of its business. The Company is not a party to any
pending legal proceedings from its general operations.
A demand by certain former officers was received by the Company on or about
November 6, 1996, claiming benefits under the Supplemental Executive Retirement
Plan (the "SERP"). The Company has notified the former officers that their
respective claims under the Company's SERP were being denied in whole, based on
a determination made by the Board of Directors of the Company in accordance with
the terms of Section 2.4(b) of the SERP. Each of the former officers may file a
written request for a review of the claim denial, but the Company believes that
any review will support the Company's determination to deny such claims under
the broad discretion given to the Company's Board under the terms of the SERP.
An adverse determination could result in an additional liability of
approximately $200,000.
7
<PAGE>
On January 13, 1997, the Company was served with a summons and complaint in an
action brought by three former officers against the Company in the Superior
Court of the State of California for Los Angeles County to enforce payment of
severance benefits as set forth in agreements between each of the individual
officers and the Company, each dated as of October 7, 1996 (the "Severance
Agreements"). The former officers have demanded that the Company pay to each of
the officers an amount equal to one year of such former officers' annual salary
in effect as of the date of termination, payable in a lump sum, followed by
twelve monthly installments payable to the former officers, the total of such
installments would also equal one year's annual salary. Total payments under the
severance agreements would aggregate approximately $800,000. The action seeks
damages from the Company based upon the Severance Agreements and an alleged
implied promise not to terminate the employment of the former officers with the
Company without good cause. The complaint does not state any specific amount of
damages that is being sought by the plaintiffs. The Company intends to
vigorously defend the action, by, among other things, asserting the invalidity
of the Severance Agreements as well as counterclaims arising out of the period
of time that the Company was being managed by the former officers. On February
12, 1997 the Company filed a cross complaint against four former officers
alleging breach of fiduciary duty, constructive fraud, civil conspiracy and
declaratory relief. At present, it is too early in this action to evaluate fully
the Company's exposure. The Company believes that it has strong defenses to the
foregoing actions as well as meritorious counter claims thereto, and intends to
defend these actions and assert its counterclaims fully and vigorously.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Three Month Period Ended January 26, 1997 Compared
- --------------------------------------------------
To The Three Month Period Ended January 28, 1996
- ------------------------------------------------
Sales for the three month period ended January 26, 1997 were $3,957,000, an
increase of $306,000 or 8% compared to $3,651,000 for the same period the prior
year. Sales of defense and defense related products increased by $407,000 while
other sales decreased by $101,000.
Cost of sales for the three month period ended January 26, 1997 was $2,707,000
(68% of sales) a decrease of $78,000 compared to $2,785,000(76% of sales) for
the same period the prior year. Cost of Sales as a percentage of sales were
favorably impacted by lower overhead expenses and product mix.
Research and development expenses for the three month period ended January 26,
1997 were $181,000, a decrease of $1,248,000 or 87%, compared with $1,429,000
for the same period the prior year. The decrease is primarily due to the
substantial reduction of expenses relating to the Company's commercial thermal
printer products, and the related development costs.
Selling, general, and administrative expenses for the three month period ended
January 26, 1997 were $926,000 (23% of sales), a decrease of $894,000 or 49%
compared with $1,820,000 (50% of sales) for the same period the prior year. This
decrease is attributable primarily to the substantial reduction of marketing and
administrative expenses relating to the Company's commercial thermal printer
products.
Interest expense for the three month period ended January 26, 1997 was $107,000,
a net increase of $154,000 compared with $47,000 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, borrowings on the cash surrender value of the Company's key
man life insurance policy and issuance of subordinated debentures during the
first quarter of fiscal 1997. Amortization of excess of acquired net assets
over cost was completed during the third quarter of fiscal 1996. The
amortization is a result of the acquisition of Rugged Digital in August 1993.
There was $76,000 amortization during the three month period ending January 28,
1996.
9
<PAGE>
As a result of the foregoing factors, net income for the three months ended
January 26, 1997 was $34,000, compared with a net loss of $2,265,000 for the
same period in the prior year.
The Company recorded non-recurring charges totaling $5,518,000 in the fourth
quarter of fiscal 1996. The components of the non-recurring charges were
$304,000 in severance payments and accruals relating to employee and senior
executive terminations, $876,000 resulting from the accelerated depreciation
charges on CYMax property and equipment, $3,323,000 related to the write-down to
estimated net realizable value for CYMax inventory purchased during fiscal 1996,
$542,000 for CYMax customer and material claims and $473,000 for a write-down of
other assets and other liabilities related to CYMax. As of January 26,1997,
$466,000 of the non-recurring charges were accrued as liabilities. Depending on
the Company's actual success in utilizing its inventory, additional reserves may
be required beyond those recorded.
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.
The Company's backlog of funded orders not yet recognized as revenue at January
26,1997 was approximately $7,083,000. Virtually all of the backlog is expected
to be delivered during the fiscal year ending October 26,1997. Approximately
75% of the Company's backlog consists of orders which are subject to termination
at the convenience of the customer at any time. In the event of such a
termination, the Company is entitled to receive reimbursement for its costs and
any negotiated profit.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company has a revolving line of credit agreement (the "Credit Agreement")
with a bank, collateralized by substantially all the Company's assets, which
allows the Company to borrow eighty percent (80%) of eligible accounts
receivable, plus eighty percent (80%) of eligible progress billings receivable,
to a maximum progress billing receivables sublimit, which may not exceed the
lesser of ten percent (10%) of eligible receivables or $500,000, up to a maximum
of $3,000,000. Indebtedness under the Credit Agreement bears interest at the
bank's reference rate plus 2% (8.25% reference rate at January 26, 1997). During
February the Company renewed its credit facility. The facility expires on March
3, 1998. There was $550,000 outstanding under this facility at January 26, 1997.
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 outside of the ordinary course of business;
(iii) make capital expenditures; (iv) incur additional indebtedness; (v) redeem
or repurchase any class of its stock; and (vi) pay dividends on its preferred or
common stock. The Company is in compliance with all its covenants.
During November 1996, the Company issued $1,850,000 of Senior Subordinated
Secured Debentures with a maturity date of May 25, 1998 and an annual interest
rate of 10%. The proceeds from the sale of the Senior Subordinated Secured
Debentures were used to reduce outstanding indebtedness under the line of credit
and fund working capital requirements. The Senior Subordinated Secured Debenture
holders received warrants to purchase a total of 616,679 shares of common stock
at a price of $1.50 for each share in connection with the financing. The
warrants are subject to call by the Company if the closing market price of the
Company's common stock is $3.00 or greater for twenty consecutive days. The
warrants expire November 25, 2001.
11
<PAGE>
In addition to the above referenced subordinated debt, the Company has received
a commitment, subject to normal terms and conditions, from certain stockholders
and non-executive members of the Company's Board of Directors, to arrange to
raise approximately $3,000,000 of capital for Datametrics Corporation through a
private placement of equity securities, debt securities or a combination
thereof. In connection with this commitment the Company raised an aggregate of
$1,001,000 through the private placement of 667,334 shares of its common stock
at a price of $1.50 per share. The Company granted warrants in connection with
this $3,000,000 commitment to purchase 200,000 shares of the Company's common
stock at a price of $2.00 per share.
The Company believes that the existing credit line in conjunction with the
$2,851,000 additional capital raised in November 1996 and February 1997, and the
certain stockholder and non-executive members of the Board of Directors'
commitment to arrange to raise up to $1,999,000 in new capital will enable the
Company to satisfy its working capital requirements for the foreseeable future.
The Company's working capital and current ratios at January 26, 1997 and the end
of fiscal years 1996, 1995 and 1994 were $5,263,000 $3,188,000, $19,252,000 and
$12,361,000 and 2.1, 1.3, 5.4 and 3.7, respectively.
Management believes that the Company must purchase approximately $250,000 of
capital equipment (including capitalized leases) during fiscal 1997. The
Company's other principal commitments for fiscal 1997 are lease obligations for
the Company's facility, equipment lease and loan payments, and interest due on
bank borrowings and subordinated debt. Management expects to finance the capital
expenditure requirements and other commitments from the bank line of credit,
subordinated debt, capital leases, capital loans and from other sources of
working capital.
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
12
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discussed at appropriate points in this report, including the fact that the
Company is engaged in supplying equipment and services to U.S. government
defense programs which are subject to special risks, including dependence on
government appropriations, contract termination without cause, contract
renegotiation and the intense competition for available defense business.
13
<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.
--------------------
None.
14
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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: 03/10/97 /s/ DANIEL P. GINNS
------------------------------ ---------------------------
Daniel P. Ginns
Chief Executive Officer
Dated: 03/10/97 /s/ ADRIEN A. MAUGHT JR.
------------------------------ ----------------------------
Adrien A. Maught Jr.
President, Chief Operating
Officer and Interim Chief
Financial Officer
15
<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 THREE MONTH PERIOD ENDING JANUARY 26, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-26-1997
<PERIOD-END> JAN-26-1997
<CASH> 448
<SECURITIES> 0
<RECEIVABLES> 2,818
<ALLOWANCES> 12
<INVENTORY> 6,829
<CURRENT-ASSETS> 10,137
<PP&E> 6,687
<DEPRECIATION> 4,979
<TOTAL-ASSETS> 12,841
<CURRENT-LIABILITIES> 4,874
<BONDS> 0
0
0
<COMMON> 123
<OTHER-SE> 32,787
<TOTAL-LIABILITY-AND-EQUITY> 12,841
<SALES> 3,957
<TOTAL-REVENUES> 3,957
<CGS> 2,707
<TOTAL-COSTS> 2,707
<OTHER-EXPENSES> 1,107
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 107
<INCOME-PRETAX> 36
<INCOME-TAX> 2
<INCOME-CONTINUING> 34
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34
<EPS-PRIMARY> $0.0
<EPS-DILUTED> $0.0
</TABLE>
