January 20, 1999
Dear Shareholders:
Fiscal year 1998 was a very challenging time for Datametrics Corporation.
As you know, the current management of Datametrics Corporation inherited a
poorly managed company total lacking in financial, operational or organizational
controls. We also inherited millions of dollars of binding commercial
obligations, legal expenses and unprofitably priced contracts. We were obliged
to honor the terms and conditions of many of these contracts at the same time
realizing that much of our excessive overhead, facilities and personnel costs
could not be immediately relieved. As a result, we sustained operating losses
for both fiscal year 1997 and fiscal year 1998. Our response has been threefold:
(1) restructure operations, (2) expand our marketing focus, and (3) establish
alliances with global commercial partners.
Restructuring of DmC's Operations
In the summer of 1997, senior management, after extensive review and study, made
the decision that nothing less than the total re-invention of Datametrics
Corporation was required if the Company were to survive. We believed and
continue to believe that the costs, however painful, of a total reorganization
of the Company in the short run would be more than outweighed by enhanced
shareholder value in the future. The recent example of the complete demise of
Hayes Modem is a poignant lesson of what can occur when a company is unwilling
to accept short-term pain to achieve long-term gains.
We have undertaken significant steps to restructure and streamline our
operations while instituting financial and administrative controls to support
the growth which we anticipate will occur. First of all, in the beginning of
fiscal year 1998, we relocated a segment of our engineering department to a much
smaller and more suitable facility in Calabasas, California. Secondly, we
purchased a 43 thousand square foot building in Orlando, Florida which houses
all of our manufacturing and operations. The building in Orlando, Florida
expanded our manufacturing capability by more than threefold with a significant
reduction in personnel and overhead expenses. Thirdly, in April 1998, we
relocated our executive, finance and contracts offices to New Jersey. These
measures both reduced expenses and, more importantly, placed us closer to
important customers and the financial and investor community.
We have dramatically upgraded the caliber of our personnel while reducing
employee count by more than 44 percent during the past 24 months. More than 90
percent of the current employees of Datametrics have been hired during the past
12 months. These employees bring to Datametrics a new spirit of enthusiasm and
pride in our Company.
The net result of these efforts is a better top to bottom organization and a
more than 70 percent reduction in the level of revenues required to achieve
profitability.
<PAGE>
Expanding DmC's Marketing Efforts
The primary marketing focus of Datametrics Corporation has expanded from the
limited defense market to include government, defense, and commercial and
industrial application for our concurrent thermal transfer printers. We are
actively pursuing new opportunities in these areas and believe that our strategy
of emphasizing those products in which we have a distinctive advantage and
technological expertise will succeed.
We continue to make significant strides toward capitalizing upon our experience
in the area of concurrent thermal transfer printing technology. As you all know,
DmC is the leader in concurrent thermal transfer technology. In April 1997 we
successfully completed a prototype development program with 3M Company for the
Harrier(TM) industrial print engine. In July 1997, we announced a new family of
five industrial and government/defense high-speed, full color concurrent thermal
transfer printers. Our new family of medium and wide format printers includes
the Harrier(TM), the Condor(TM) I and the Condor(TM) II for industrial
customers, and the Cobra(TM) I and Cobra(TM) II for government/defense
customers.
The Harrier(TM), Condor(TM) series and Cobra(TM) series of print engines are
robust, rugged, high-performance printers which incorporate a wide range of
Datametrics' newly-developed technological capabilities in the area of thermal
transfer printing and once again establish Datametrics Corporation as the leader
in full color thermal transfer printing.
Strategics Partnerships
I believe that it would be helpful for our shareholders to have some historical
perspective of our business strategy. In our first business plan in November
1996, we recognized the need to create long-term strategic relationships with
companies that enjoyed leadership positions in our many target markets.
In June 1998, we announced a global alliance agreement with 3M Company. We
believe that this alliance with 3M represents a true milestone in the history of
Datametrics Corporation and are proud to be associated with a company of 3M's
preeminent reputation and stature. This relationship represents the cornerstone
of our marketing strategy for our Harrier(TM) and the Condor(TM) I thermal
transfer printers to the license plate manufacturing and transportation safety
industries. The 3M global alliance agreement represent a major step in our
business plans. We continue to work closely with 3M to ensure the success of the
alliance.
In January 1999, the Company achieved a second major step in our business plans
with the announcement of a North American strategic alliance with the
International Imaging Materials, Inc., a subsidiary of Paxar Corporation. IIMAK
is North America's leading manufacture of thermal transfer ribbons. Datametrics
and IIMAK will work together to structure and utilize a North American
distribution network to serve active customers in the sign making and silk
screening industries under a DmC-designed bailment program. We believe that the
superior performance characteristics of our thermal transfer printers and
IIMAK's product leadership in color thermal transfer ribbons will prove to be a
powerful force in the market place.
I am confident that future letters to our shareholders will discuss additional
strategic alliances.
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Financings and the Future
To finance our business operations and plans, during fiscal year 1998 and the
beginning of fiscal year 1999 we successfully raised nearly $6 million through
private placement offerings of subordinated notes and common stock.
We look forward to fiscal year 1999 as a time when the enormous burdens of the
financial, legal and contractual obligations of the past give way to the
exciting opportunities which exist for Datametics Corporation. I would like to
thank our shareholders and employees for their continuing support and confidence
in our Company.
Sales for the year ended October 26, 1998 were $7.742 million versus $16.797
million for fiscal 1997. Net loss was ($3.270 million), or ($0.22) per fully
diluted share, for fiscal 1998, compared with a loss of ($3.102 million), or
($0.24) per fully diluted share, for fiscal 1997.
Our primary goal is and will continue to be the enhancement of shareholder
value.
Sincerely yours,
/s/ Daniel P. Ginns
Daniel P. Ginns
Chairman of the Board
Chief Executive Officer
<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended October 25, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From-_________to-_________
Commission File Number 0-8567
DATAMETRICS CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 95-3545701
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
25B Hanover Road, Suite 3305 Florham Park, New Jersey 07932
(Address of principal executive offices)
Registrant's telephone number, including area code: (973) 377-3900
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, .01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant (based on the closing price of such stock as reported by the
American Stock Exchange) on January 5, 1999 was approximately $ 34,185,758
The number of shares outstanding of the Registrant's Common Stock, as of
the latest practicable date:
17,122,879 shares of Common Stock as of January 5, 1999.
================================================================================
<PAGE>
PART I
Item 1. Business.
This report contains certain statements of a forward-looking nature
relating to future events or the future performance of the Company. Prospective
investors are cautioned that such statements are only predictions and that
actual events or results may differ materially. In evaluating such statements,
prospective investors should specifically consider various factors identified in
this report, including that Department of Defense contracts are subject to
termination without cause, competitive factors and pricing pressures.
General
Datametrics Corporation ("Datametrics" or the "Company") designs, develops
and sells high-speed color printers, high-resolution non-impact printer/plotters
and ruggedized computers, printers and workstations for government/defense and
industrial markets. The Company is focused on the manufacture and sale of its
core product line of ruggedized printers and the continuing development and
manufacture of high-performance, high-reliability concurrent thermal transfer
printers.
On June 3, 1998, the Company announced a global alliance agreement with the
Traffic Control Materials Division of 3M Company. This long-term alliance
encompasses all markets worldwide served by 3M in the transportation safety
industry. The agreement provides for the Company to manufacture, service and
support its Condor(TM) and Harrier(TM) industrial print engines for 3M.
Initially, the Condor(TM) and Harrier(TM) industrial print engines will become
part of 3M's digital imaging system that 3M customers use to produce license
plates. 3M Company is the world's leading supplier of reflective materials for
the transportation safety industry. The global alliance agreement covers
applications in the vehicle license plate market and other potential traffic
safety applications. The Company believes that this agreement will result in
significant revenues to the Company over the next several years.
On January 20, 1999 Datametrics Corporation announced a North American
Strategic Alliance with International Imaging Materials, Inc., a subsidiary of
Paxar Corporation.
The Company was incorporated in California in October 1962 and was
reincorporated in Delaware in April 1987. The Company's corporate offices are
located at 25B Hanover Road, Suite 3305, Florham Park, New Jersey 07932.
Company Background
The Company's current product line includes printers, printer/plotters and
ruggedized computers and workstations with diverse capabilities ranging from
stringent military specifications to varying commercial standards. The Company
pioneered the development of high-speed, non-impact printers for tactical
military applications. At present, ruggedized printers remain the Company's core
product line, and the U.S. government (or the prime contractors to the U.S.
government) remains its largest source of revenue. Building from this base, the
Company has developed and manufactured other high-performance, high-reliability
electronics communications equipment for aerospace, defense, industrial and
commercial markets.
Over the past several fiscal years, the Company has been significantly
impacted by market changes in the U.S. Department of Defense ("DoD"). DoD budget
forecasts indicate that overall funding will continue to decrease for the
foreseeable future. The Company's primary response to these adverse defense
market conditions has been to develop and aggressively pursue industrial
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and international opportunities for its ruggedized printers and electronic
communications equipment, expand its core ruggedized product line and to explore
opportunities and strategic alliances for its high-speed digital color printer
products.
Defense Products
The Company designs, develops, manufactures and sells military
specification ("mil-spec") and ruggedized computers, workstations and printers
for use in DoD applications. Products sold by the Company into the DoD markets
can be categorized into three basic groups: mil-spec printers, ruggedized
computers, and ruggedized printers. For the fiscal year ended October 25, 1998,
approximately 71% of the Company's revenues were derived from DoD business,
which includes contractors with U.S. government contracts as well as the DoD
itself.
Mil-spec products are designed specifically to meet military requirements
and must meet the stringent requirements for operation in adverse environments,
including shock, vibration, extreme temperatures and, in some cases, nuclear
radiation. Being so designed, these products are more reliable and significantly
more expensive than ruggedized or industrial products (products designed for
benign environments as are experienced in commercial applications). Industrial
products can be used in selected military environments and are significantly
less expensive than the mil-spec products. The broader intermediary category
includes the ruggedized products which are generally configured to operate in
some adverse environments but do not meet full mil-spec requirements.
Military Printers. The Company manufactures a wide range of printers which
are categorized as either mil-spec or ruggedized. These printers utilize thermal
printing, impact printing and laser printing technologies. These printers are
purchased and utilized by the DoD as well as by companies and organizations
which manufacture, sell or use data processing or data communications systems
that require "hard copy" printouts. The Company's products are incorporated into
these systems. The military printers are more reliable than conventional
commercial printers and are designed to work in severe environmental
applications. The design and component selection allow the Company's printers to
withstand certain adverse effects of dirt and grime, corrosion, droppage,
bullets, moisture, extremes in hot and cold temperature, and in some cases,
nuclear radiation. In connection with the U.S. government military peripheral
standardization programs, the DoD has approved and assigned nomenclature
(military identification) to standard computer peripherals for its defense
systems. Several of the Company's printers have been included in this
standardization program, enabling the armed services to select the Company's
printers for new systems without incurring the expense of developing new printer
documentation for each system. The Company believes that the inclusion of the
Company's printers in this standardization program influenced the purchase of
its printers on several defense programs.
The Company's high-resolution thermal printers utilize a thermal direct
imaging method of printing. In the past, printers utilizing the thermal printing
process generally could not meet the specifications required in certain rigorous
environments. Due to technological improvements, thermal printers can now be
built to operate in adverse environments while providing quiet and reliable
printing operations. The Company has developed a low cost impact printer as well
as a ruggedized laser printer which are targeted at the low end of the severe
environment market. These ruggedized products utilize commercial components,
some industrial (high-reliability, military rated) components, and are encased
in a rugged case to withstand moderately severe environments.
The Company has experienced the highest sales volume of full mil-spec
printers with its DmC 1600 printer/plotter. These printers are used for the U.S.
Navy's Tactical Flag Command Center ("TFCC"). The TFCC system provides the hard
copy data utilized by the Fleet Commander when tactical decisions are required
during crisis situations. The TFCC system is proposed for most of the Navy's
nuclear super aircraft carriers and cruisers. In addition, the DmC 1600's are
used for the U.S. Navy standard display consoles that are utilized on virtually
every fighting ship in the fleet. This printer is qualified for the Navy's
rigorous environmental standards. A special version of the DmC 1600 printer is
being used for the U.S. Army REGENCY NET secure communications systems, the U.S.
Navy's on-board anti-submarine warfare training program, and the MILSTAR
Communications Satellite Program, the DoD's global communications system.
The Company's DmC 1900 Model, a high resolution color printer/plotter, also
is used by the U.S. Navy. This product line utilizes the thermal transfer
process to produce high-resolution, full color images on plain paper. The
thermal transfer technology used in the DmC Series 1900 differs from the direct
imaging thermal process in that it uses plain paper and a multi-colored ribbon
instead of direct imaging paper. These products provide between 40,000 and
90,000 pixels (picture elements) per square inch and up to 16,000,000 colors,
shades or tones. This printer is used by the U.S. Navy for utilization within a
number of Aegis subsystems. The military color printer market has been slow to
develop due to cost considerations; however, the Company has developed a new
lower cost ruggedized printer which it believes should enjoy higher sales.
Ruggedized Computers. The Company's ruggedized products combine
environmental and mechanical engineering technology with computer technology to
produce products that perform identically to commercial counterparts, but are
able to operate in adverse environments. The Company offers ruggedized versions
of computer devices and peripherals encased in
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shock, vibration and temperature resistant housing for products of equipment
manufacturers such as Digital Equipment Corporation ("DEC"), Hewlett-Packard
Company, Silicon Graphics Inc., and Sun Microsystems Inc. This process often
requires the Company to design and manufacture cases, controls, backplanes and
power supplies. These products require much shorter development and testing
periods than mil-spec products. As such, these products allow the military to
deploy state-of-the-art computer technology rapidly, at a price greatly reduced
from full mil-spec systems. These timing and price factors are responsive to
current U.S. government trends.
A substantial portion of the Company's ruggedized products revenue is
derived from the sale of workstations into the international marketplace.
Workstations have been sold into the Japanese P-3 maritime patrol aircraft
program. Other sales have been to France, Italy and Israel. This marketplace
continues to be active for these products.
International Military. The Company believes that international markets
offer promising growth opportunities for the Company's high-end monochrome and
color printers and ruggedized printer, computers and workstations. As the U.S.
government funding continues to decrease, other countries are increasing their
military budgets, specifically in the Pacific Rim. These countries are assuming
more of the burden of their defense roles as the U.S. military reduces its
presence. The Company continues to be aggressive in the international
marketplace, although there is greater inherent risk.
Significant Customers and Matters Concerning DoD Business
Most of the customers for the Company's products are the DoD and prime
contractors under programs funded by the DoD. For the fiscal years ended October
25, 1998, October 26, 1997, and October 27, 1996, direct and indirect DoD
business represented approximately 71%, 67%, and 61%, respectively, of the
Company's revenues. Because the Company's products are intended to function as
subsystems, they are sold to customers which manufacture, sell or use data
processing or data communication systems which involve a processing, printing,
recording or data entry function for which the Company's products are suited.
While the Company may be a subcontractor on a government program with an
aggregate budget of billions of dollars extending over as much as a ten-year
period, the Company's share of the budget for any major program is relatively
small.
In the fiscal year ended October 25, 1998, the Company's three largest
customers in sales, U.S. government 23.7%, Raytheon 22.3% and Lockheed Martin
18.9% accounted for an aggregate of 64.9% of toal Company sales. The loss of any
one of these customers could have a material adverse impact on the results of
operations and financial condition of the Company.
In the fiscal year ended October 26, 1997, the Company's five largest
customers in sales, Lockheed Martin (15.7%), U.S. government (13.7%), GTE
(12.5%), Computing Devices Canada (10.9%) and Digital Equipment Corporation
(10.8%), accounted for an aggregate of 64% of total Company sales.
Companies which are engaged primarily in supplying equipment and services,
directly or indirectly, to the U.S. government are subject to special risks
including dependence on government appropriations, termination without cause,
contract renegotiation and competition for the available DoD business. Over the
past several years, the Company has been significantly impacted by market
changes in the DoD. DoD budget forecasts indicate that overall funding will
continue to decrease for the foreseeable future.
The Company's DoD related contracts provide for the right to audit the
Company's cost records and are subject to defective pricing regulation.
Management does not believe that it has any material exposure of this sort on
any such contracts. Accordingly, no provisions have been made in the Company's
accounts in connection with defective pricing regulation.
High-Speed Color Digital Printer
In fiscal 1994, the Company began an intensive program to develop a
high-speed color digital printer for the short-run production printer market.
After significant development and marketing costs, coupled with limited market
success, the Company in October 1996 idled and subsequently ceased all
manufacture and marketing of its CYMax product line to permit a comprehensive
strategic and operational feasibility study of its overall concurrent transfer
imaging ("CTI") technology and its potential applications. Following the
completion of the strategic and operational feasibility study, the Company
introduced a new family of five industrial and government/defense high-speed
concurrent thermal transfer printers on July 21, 1997. The Company's new family
of medium and wide format printers includes the Harrier (TM), the Condor (TM) I
and the Condor (TM) II for industrial customers, and the Cobra (TM) I and Cobra
(TM) II for government/defense customers.
The Harrier (TM), Condor (TM) series and Cobra (TM) series of print engines
are robust, rugged, high-performance printers which incorporate a wide range of
Datametrics' newly-developed technological capabilities in the area of thermal
transfer printing.
4
<PAGE>
On November 19, 1997, Datametrics announced a North American automobile
license plate partnership agreement with Avery Dennison Corporation to provide
Datametrics' state-of-the-art digital imaging system solution for the
manufacture of vehicular license plates. Under the terms of the agreement, Avery
Dennison, which manufactures reflective license plate sheeting, will market the
Company's new Harrier (TM) single station industrial print engine and Condor
(TM) I four station industrial print engine as part of a total system approach
to the manufacture of vehicular license plates. On June 1, 1998, the Company
notified Avery Dennison of the termination of this contract effective May 31,
1999.
On June 3, 1998, the Company announced a global alliance agreement with the
Traffic Control Materials Division of 3M Company. This long-term alliance
encompasses all markets worldwide served by 3M in the transportation safety
industry. The agreement provides for the Company to manufacture, service and
support its Condor(TM) and Harrier(TM) industrial print engines for 3M.
Initially, the Condor(TM) and Harrier(TM) industrial print engines will become
part of 3M's digital imaging system that 3M customers use to produce license
plates. 3M Company is the world's leading supplier of reflective materials for
the transportation safety industry. The global alliance agreement covers
applications in the vehicle license plate market and other potential traffic
safety applications. The Company believes that this agreement will result in
significant revenues to the Company over the next several years.
Certain Market Considerations
The markets served by the Company are characterized by rapid technological
advances, downward price pressure in the marketplace as technologies mature,
changes in customer requirements and frequent new product introductions and
enhancements. The Company's business requires ongoing research and development
efforts and expenditures, and its future success will depend on its ability to
enhance its current products, reduce product costs and develop and introduce new
products that keep pace with technological developments in response to evolving
customer requirements. The Company's failure to anticipate or respond adequately
to technological developments could result in a loss of anticipated future
revenues and impair the Company's competitiveness.
Service
Pursuant to maintenance agreements, repair orders or warranty provisions,
the Company generally services its printers with its own employees at its
facility. In-house, non-warranty repairs and maintenance service provided 3.3%
and 4.9% of the Company's sales in fiscal 1998 and 1997, respectively. For both
military and commercial products, the Company's standard warranty period is
ninety days, although longer warranty periods are available at customer request
for an additional charge.
Sales of spare parts for the Company's products amounted to 18.1% and 17.8%
of fiscal 1998 and 1997 revenue, respectively. The Company also sells
documentation, such as handbooks, operational manuals, schematics and other
technical data to assist its customers in maintaining their own equipment.
Backlog
The Company's backlog of funded orders not yet recognized as revenue at
October 25, 1998, October 26, 1997, and October 27, 1996 was approximately
$5,083,000, $2,794,000, and $7,675,000, respectively. More than 90% of the
October 25, 1998 backlog is expected to be delivered during the fiscal year
ending October 31, 1999.
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Sources of Supply
The Company is generally not dependent upon any one supplier for any raw
material or component which it purchases, and there are available alternative
sources for such raw materials and components. The Company is currently
dependent, however, on certain OEM suppliers for components used in its
ruggedized computer devices and peripherals. The Company has year-to-year
renewable supply agreements with suppliers which have been renewed in prior
years. In the event any of these contracts are not renewed, however, the
Company's business would be materially and adversely impacted because the
Company would have to purchase similar components upon substantially less
favorable terms and conditions.
Competition
The Company competes in each of its target markets against other companies,
many of which have substantially greater financial, technical, marketing,
distribution and other resources than the Company. The principal competitive
factors in the markets in which the Company participates are image quality,
product performance and price.
In domestic and international defense markets, the Company's principal
competitors are DRS Technologies Inc., and Miltope Group Inc. In addition, many
airborne electronic data processing and communications prime contractors have
the capability of manufacturing military and airborne products, and several such
companies do presently manufacture products performing functions similar to the
Company's products. In almost all cases, these companies have substantially
greater financial and technological resources than the Company. In certain
applications, the Company's printers are higher in price than those of its
competitors, and many of its competitors have more experience in the markets for
lower-cost military printers than the Company. Management believes, however,
that the Company's printers usually perform at higher speed and with greater
reliability in extreme environments.
Intellectual Property Rights
It is the Company's policy to obtain appropriate proprietary rights
protection for any potentially significant new technology acquired or developed
by the Company. The Company has a trademark registration covering its "DmC" (R)
logo and for the Harrier (TM) and the Condor (TM) products. The Company has been
granted two U.S. patents relating to its high-speed color digital printer
technology. The Company also has several U.S. patent applications pending
relating to its high-speed color digital printer. There can be no assurance,
however, that any patents will be granted pursuant to these various applications
in the U.S. and abroad.
In addition, the Company relies on copyright and trade secret laws to
protect its proprietary rights. The Company attempts to protect its trade
secrets and other proprietary information through agreements with customers and
suppliers, proprietary information agreements with the Company's employees and
consultants and other similar measures. There can be no assurance, however, that
the Company will be successful in protecting its trade secrets and other
proprietary information.
While management believes that the Company's trademarks, patents, patent
applications, and other proprietary know-how have significant value, changing
technology makes the Company's future success dependent principally upon its
employees' technical competence and creative skills for continuing innovation.
Research and Development Activities
The Company is involved in both Company-sponsored and customer-sponsored
research and development. In the latter case, customers contract directly for
such activities. The customer-sponsored research and development primarily
consist of non-recurring engineering costs relating to production contracts. In
addition to design technology, this non-recurring engineering includes
development of maintenance and operator manuals, drawings, reliability and
maintainability analysis, technical design audits and data required to support
field repairs. Such costs do not qualify as research and development costs as
defined by Financial Accounting Standards Board Statement No. 2, and
accordingly, have not been disclosed as such in the Company's financial
statements.
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The Company expended approximately $544,000, $343,000, and $5,557,000 on
research and development during the fiscal years ended October 25, 1998, October
26, 1997 and October 27, 1996, respectively. The research and development
expenses incurred in fiscal 1996 related to product development of a high-speed
color digital printer and a low-cost ruggedized black and white printer, as well
as enhancements to existing products.
Employees
As of October 25, 1998, the Company employed 87 persons on a full-time
basis, compared to 95 persons on a full-time basis as of October 26, 1997. None
of the Company's employees are represented by a union or are subject to a
collective bargaining agreement. The Company believes that its relations with
its employees are good.
Other Matters
The business of the Company is not seasonal.
The Company's manufacturing operations are subject to various federal,
state and local laws, including those restricting or regulating the discharge of
materials into the environment, or otherwise relating to the protection of the
environment. The Company is not involved in any pending or threatened
proceedings which would require curtailment of, or otherwise restrict, its
operations because of such regulations, and compliance with applicable
environmental laws has not had a material adverse effect on the business,
financial condition or results of operations of the Company.
In December 1997, the Company purchased a 43,000 square foot facility in
Orlando, Florida for $899,000. In connection with the acquisition of this
property, the Company obtained a mortgage loan in the amount of $975,000, which
included approximately $76,000 to be used for building improvements. The Company
completed its move to Florida during February 1998.
Item 2. Properties.
The Company's operations are conducted from a 43,000 square foot
manufacturing facility in Orlando Florida, which the company purchased in
December 1997 (see Item 1. Other Matters). A 6,600 square foot facility located
in Calabasas, California was opened in November 1997. This facility houses the
Company's technology center. The lease is for a three year term through October
2000. In April 1998, the Company leased a 5,400 square foot office in Florham
Park, New Jersey in which the Company's Corporate offices are located. The lease
provides for a five year term through March 2003. Management believes that its
facilities are suitable and adequate for the Company's current needs.
Item 3. Legal Proceedings.
The Company is, from time to time, the subject of litigation, claims and
assessments arising out of matters occurring during the normal operation of the
Company's business. In the opinion of management, the liability, if any, under
such current litigation, claims and assessments would not materially affect the
financial position or the results of the operations of the Company except as
disclosed herein.
Four former officers of the Company (the "Former Officers"), whose
employment relationships with the Company terminated in part as a result of the
Company's restructuring in October 1996, sought severance benefits from the
Company. On January 13, 1997, three of the Former Officers sued the Company in
the Superior Court of the State of California for Los Angeles County, in order
to enforce payment of severance benefits under certain agreements, each dated as
of October 7, 1996, between each Former Officer and the Company (collectively,
the "Severance Agreements"). The fourth Former Officer sued the Company in
response to the Company's cross-complaint. The Former Officers sought 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.
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On September 28, 1998, a California trial court upheld the enforcability of
the former officer's severence agreements and the officer's requested entry of a
judgment in the approximate amount of $1,200,000 plus interest and costs. The
Company has appealed the judgment. The Company has obtained a written guarantee
from a significant stockholder guaranteeing payment of the judgment, should the
Company lose on appeal. The Company is unable to estimate the results of its
appeal and at October 25, 1998 nothing has been accrued for in the consolidated
financial statements related to this litigation.
In a separate matter regarding benefits under the Company's Supplemental
Executive Retirement Plan (the "SERP"), the Company entered into a settlement
agreement (the "Agreement") on February 10, 1998 with the Former Officers in the
total amount of $643,681. The SERP was terminated when a cash settlement was
distributed on October 2, 1998.
In April 1998, the owner of the Woodland Hills, CA, premises formerly
occupied by the Company sued for the balance of all rent due through the end of
the extant lease agreement plus damages of approximately $1,000,000. The Company
relocated from such premises after the owner had ignored repeated notifications
of unsafe structural conditions as cited by Los Angeles County building
inspectors. Although it is presently too early to determine the outcome of this
litigation, the Company believes it has valid defenses in this case and has made
no accrual relating to this litigation.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
8
<PAGE>
Executive Officers of the Company
The following table sets forth certain information concerning the executive
officers of the Company as of October 25, 1998.
Name Age Positions
---- --- ----------
Daniel P. Ginns............ 48 Chairman of the Board of Directors since
October 9, 1996; Chief Executive Officer
since October 24, 1996; and Secretary
since February 19, 1997. Mr. Ginns is
also the President of Belmont Capital,
Inc.
Adrien A. Maught, Jr....... 49 Chief Operating Officer since February
11, 1998. President since January 3,
1997 and Director since October 9, 1996.
Ronald A. Lefkon........... 58 Chief Financial Officer and Treasurer
since May 18, 1998. Mr. Lefkon resigned
from the Company in December 1998.
James D. Sturgeon, Jr...... 65 Vice President, Marketing since February
11, 1998; Chief Operating Officer from
April 14, 1997 to February 11, 1997;
Vice President, Manufacturing Operations
from April 1, 1992 to April 14, 1997 and
Vice President Operations from February
27, 1989 to April 1, 1992.
No family relationship exists between any of the individuals named above.
There were no arrangements or understandings between any officer and any other
person pursuant to which he was selected an officer.
9
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.
Datametrics Corporation's common stock has been listed on the American
Stock Exchange (Symbol DC) since July 26, 1988. The high and low sales prices
for the common stock as reported by the American Stock Exchange are set forth in
the following table.
Fiscal 1998 Quarter Ended High Low
------------------------- ---- ---
January 25........................ $2 3/16 $2 1/16
April 26.......................... $1 7/8 $1 7/8
July 26........................... $1 11/16 $1 5/8
October 25........................ $1 15/16 $ 3/4
Fiscal 1997 Quarter Ended High Low
------------------------- ---- ---
January 26........................ $1 9/16 $ 7/8
April 27.......................... $2 7/16 $1 1/4
July 27........................... $1 11/16 $1 1/8
October 26........................ $2 1/4 $1 3/16
There were approximately 789 stockholders of record as of October 25, 1998.
No cash dividends have been paid to common stockholders since the Company
was founded, and the Company does not intend to do so in the foreseeable future.
Item 6. Selected Financial Data.
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Years Ended
--------------------------------------------------------------------
October 25, October 26, October 27, October 29, October 30,
1998 1997 1996 1995 1994
--------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Sales ................................................. $ 7,742 $ 16,797 $ 19,246 $ 18,956 $ 25,211
Net income (loss) ..................................... $ (3,270) $ (3,101) $(17,386) $ (9,213)
$ 31
Net (loss) per share:
Basic .............................................. $ (0.22) $ (0.24) $ (1.39) $ (0.84) $ --
Diluted ............................................ $ (0.22) $ (0.24) $ (1.39) $ (0.84) $ --
Weighted average number of shares outstanding:
Basic ............................................... 15,202 12,995 12,515 11,020 9,067
Diluted ............................................. 15,202 12,995 12,515 11,020 9,067
Other data:
Total assets .......................................... $ 12,719 $ 11,546 $ 15,940 $ 27,471 $ 19,886
Long-term debt ........................................ $ 3,463 $ 1,019 $ 1,032 $ 919 $ 1,134
Stockholders' equity .................................. $ 4,008 $ 3,522 $ 5,013 $ 21,939 $ 13,661
</TABLE>
During March and April 1994, the Company sold 2,300,000 shares of common
stock in a public offering. The net proceeds were approximately $5,138,000.
During June 1995, the Company sold 2,300,000 shares of common stock in a public
offering. The net proceeds were approximately $16,555,000.
Net loss for fiscal 1996 include certain non-recurring charges of
$5,518,000.
10
<PAGE>
During February 1997, the Company sold 667,334 shares of common stock in a
private placement. The net proceeds were approximately $1,001,000.
On October 27, 1997, the Company had a private placement of 1,394,094
shares at $1.75 per share for proceeds of approximately $2,440,000.
Several additional private placements through June 19, 1998 totalling
630,000 shares at $1.25 to $1.75 per share resulted in proceeds to the Company
of approximately $879,000.
On July 24, 1998 and September 4, 1998, the Company received $982,500 and
$746,500 in net proceeds from the private sale of $1,000,000 and $750,000,
respectively, in aggregate principal amount of 7% Convertible Debentures due
July 24, 2001.
On December 30, 1998, the Company placed approximately $3.45 million of 10%
Subordinated Notes due 2000 (the "Subordinated Notes") and $1.55 million in
shares of the Company's common stock. The Subordinated Notes, which are
unsecured and callable under certain conditions, provide for the Company to
issue 5-year warrants exercisable into the Company's common stock at a price fo
$1.50 per share.
As part of the offering, investors holding $1.75 million of the Company's
Convertible Debentures issued earlier in the year exchanged their holdings for
the new Subordinated Notes. In addition, holders of $500,000 of the Company's
Senior Subordinated Debentures also exchanged their debentures for the new
Subordinated Notes. The net proceeds of approximately $2.75 million wll be used
for debt retirement and working capital purposes.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This report contains certain statements of a forward-looking nature
relating to future events or the future performance of the Company. Prospective
investors are cautioned that such statements are only predictions and that
actual events or results may differ materially.
Results of Operations
Fiscal Year 1998 Compared With Fiscal Year 1997
Sales for the year ended October 25, 1998 were $7,742,000, a decrease of
$9,055,000 or 54%, compared with sales of $16,797,000 in the prior fiscal year.
Sales of defense and defense related products decreased $8,594,000, while other
sales decreased by $461,000. Sales for fiscal 1998 were adversely impacted by
lower than anticipated orders from the Department of Defense and prime
contractors, the Company's decision not to accept orders for single or low
quantity orders with substantial development costs, the Company's decision to
relocate its manufacturing operations to Florida, and the time required for new
manufacturing and supervisory personnel to learn to produce efficiently the
Company's products.
Cost of sales for fiscal 1998 was $5,570,000 (72% of sales), a decrease of
$7,831,000 or 58%, compared with $13,401,000 (80% of sales) for the prior fiscal
year. In the current year, cost of sales was favorablly impacted by lower direct
labor costs in the Company's Florida manufacturing operation compared to the
Company's former manufacturing operation in California. In the prior year, cost
of sales as a percentage of sales was unfavorably impacted by four contracts
that were begun prior to October 1996 that lost $1,060,000, the $524,000 reserve
taken for excess and obsolete inventory, and $275,000 in severance benefits in
connection with the Company's relocation of its manufacturing operations to
Florida.
Research and development ("R&D") expenses were $544,000 for fiscal 1998, an
increase of $201,000 or 59%, compared with $343,000 for fiscal 1997. The
increase is primarily due to the continuing development costs of the Company's
new family of industrial printers.
Selling, general and administrative ("SG&A") expenses for fiscal 1998 were
$4,373,000 (56% of sales) a decrease of $1,297,000, or 23%, compared with
$5,670,000 (34% of sales) for the prior fiscal year. The reduction in SG&A was
the result of lower defense-related marketing expenses, lower plant and facility
expenses and lower administrative and support staff expenses throughout the
Company. This reduction was partially offset by an increase in audit and legal
fees for 1998.
Net interest expense amounted to $518,000 for the year ended October 25,
1998 compared with net interest expense of $474,000 for fiscal 1997. This
increase is due to higher outstanding borrowings.
The net loss for the year ended October 25, 1998 amounted to $3,270,000 an
increase of $169,000 or 5%, compared with net loss of $3,101,000 for the prior
fiscal year.
11
<PAGE>
Management has determined that, based on the Company's historical losses
from recurring operations, the Company will most likely not recognize its net
deferred tax assets at October 25, 1998. Ultimate recognition of these tax
assets is dependent, to some extent, on future revenue levels and margins. It is
the intention of management to assess the appropriate level for the valuation
allowance each quarter.
The Company utilizes various computer software packages as tools in running
its accounting operations. Management plans to replace the current Western Data
Systems software with a software package better suited to support its current
and future business needs. Management believes it will select and implement the
appropriate software package by June 1, 1999. The Company believes that it has a
prudent approach in place to address these issues. The approach includes: an
assessment of internal programs and equipment; communication with major
customers and vendors with respect to the state of readiness of their systems;
an evaluation of facility related issues and the development of a contingency
plan. This approach is designed to maintain an uninterrupted supply of goods and
services to/from the Company. The Company is incorporating the Y2K computer
programming language into its choice of an appropriate software package. The
Company does not believe the investment required for its mainframe and critical
hardware equipment to be Y2K compliant will be significant.
The Company is in a continuous process of communicating with its major
customers and suppliers. This contact is designed to determine systems
compatibility and compliance. The Company has been assured by its major
suppliers that there will be no disruption in the delivery of goods and
services. The Company believes that adequate resources are available for the
supply of its raw materials and facility related equipment will be operational.
The Company continues to assess the risks associated with program failures
and will develop a formal contingency plan with its business partners to address
specific risks. The failure to correct a material Y2K problem could result in an
interruption in normal business activity. The Company's plan is expected to
significantly reduce the risk associated with the Y2K issue. However, due to the
inherent uncertainty of the Y2K issue and dependence on third-party compliance,
no assurance can be given that potential Y2K failures will not adversely effect
the Company's operations, liquidity and financial position.
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.
Fiscal Year 1997 Compared With Fiscal Year 1996
Sales for the year ended October 26, 1997 were $16,797,000 a decrease of
$2,449,000 or 12.7% compared with sales of $19,246,000 in the prior fiscal year.
Sales from military and ruggedized products decreased $2,608,000 and sales of
commercial color products increased $159,000.
Cost of sales for fiscal 1997 was $13,401,000 (80% of sales) a decrease of
$7,767,000 from cost of sales of $21,168,000 (110% of sales) for the prior
fiscal year. Cost of sales as a percent of sales was primarily impacted by
$5,102,000 of non-recurring charges for inventory reserves and tooling costs
relative to the Company's high-speed color digital printer product.
R&D expenses were $343,000 in fiscal 1997, a decrease of $5,214,000 or 94%
compared with $5,557,000 for fiscal 1996. Approximately 83% of the fiscal 1996
R&D expenses related to the development of the Company's high-speed color
digital printer product.
SG&A expenses for fiscal 1997 were $ 5,670,000 (34% of sales) a decrease of
$4,084,000 from $9,754,000 (51% of sales) from the prior fiscal year. The
increase was due to heavy spending on marketing for the Company's high-speed
color digital printer product and certain non-recurring charges of $416,000
primarily for severance and accelerated depreciation.
Net interest expense amounted to $474,000 for the year ended October 26,
1997 compared to $80,000 for fiscal 1996. The change was due to decreased
investment income on the remaining proceeds of the Company's common stock
offering and payment of interest on increased borrowings. Amortization of excess
of acquired net assets over cost was $229,000 for the year ended October 27,
1996.
The net loss for the year ended October 26, 1997 amounted to $3,101,000
compared with a net loss of $17,386,000 for the same period in the prior fiscal
year. The loss was primarily due to continued spending on the Company's
high-speed digital color printer. Cost of sales increased by $4,840,000, SG&A
expenses increased by $3,686,000, net interest expense increased by $176,000,
amortization decreased by $75,000, and taxes increased by $280,000. This loss
was partially offset by an increase in sales of $290,000 and by a decrease in
R&D expenses of $594,000.
12
<PAGE>
In October 1996, the Company idled the manufacture and marketing of its
CYMax series of high-speed color digital printers. This decision was made as a
result of the burdensome development and selling expenses of the CYMax printers
which experienced an indifferent market reception.
On October 8, 1996, a new Board of Directors was elected, effecting a
change in control of the Company. This change in control was brought about by a
group of stockholders who were dissatisfied with the strategic direction and
financial performance of the Company. On October 24, 1996, the Company announced
that it had accepted the resignations of four senior executives, three members
of the Board of Directors and had reduced its work force by laying off 35 out of
a total of 151 employees. These measures were undertaken based upon the new
Board of Directors' assessment of the Company's business performance during the
past several years, the then financial and operational position of the Company
and the perceived immediate need to implement new cost control policies and
procedures.
Primarily as a result of these changes, the Company recorded the following
non-recurring charges which totaled $5,518,000 in the fourth quarter of fiscal
1996: $876,000 of accelerated depreciation on property and equipment relative to
the idled production facilities for the former CYMax printer line; $304,000 in
severance payments and accruals relating to employee and senior executive
terminations; $3,323,000 related to the writedown to estimated net realizable
value for CYMax inventory purchased during fiscal 1996; $542,000 for CYMax
material vendor claims; and $473,000 for a write-down of other assets and other
liabilities. As of October 27, 1996, $865,000 of the non-recurring charges were
accrued as liabilities.
Liquidity and Capital Resources
The Comany's principal capital requirements have been to fund working
capital needs, capital expenditures and the payment of long term debt. The
Company has recently relied primarily on internally generated funds, private
placement proceeds, subordinated debt and other bank debt to finance it's
operation.
Net cash used in operations was $5 million, $1.6 million, and $10.5 million
in 1998, 1997 and 1996, respectively. The change from 1996 to 1997 was primarily
due to the larger net loss in 1996. The change from 1997 to 1998 was primarily
due to an increase in inventory in 1998 versus a decrease in inventory in 1997
and a greater reduction in accounts receivable in 1997 versus 1998.
Net cash used in investing activities was $1.6 million, $0.3 million and
$1.4 million in 1998, 1997 and 1996 respectively. The change from 1996 to 1997
was primarily due to a higher level of equipment, furniture and fixture
expenditures in 1996 versus 1997. The change from 1997 to 1998 was primarily the
result of the move of the Company's manufacturing and distribution facility from
California to Florida and the Company's finance and administrative offices from
California to New Jersey.
Net cash provided by financing activities was $6.6 million, $1.8 million
and $2.7 million in 1998, 1997 and 1996, respectively. The change from 1996 to
1997 was primaily due to greater net payments made on debt in 1997 versus 1996.
The change from 1997 to 1998 was primarily due to the issuance of common stock
and warrants and an increase in long-term borrowings in 1998.
On December 30, 1998, the Company placed approximately $3.45 million of 10%
Subordinated Notes due 2000 (the "Subordinated Notes") and $1.55 million in
shares of the Company's common stock. The Subordinated Notes, which are
unsecured and callable under certain conditions, provide for the Company to
issue 5-year warrants exercisable into the Company's common stock at a price fo
$1.50 per share.
As part of the offering, investors holding $1.75 million of the Company's
Convertible Debentures issued earlier in the year exchanged their holdings for
the new Subordinated Notes. In addition, holders of $500,000 of the Company's
Senior Subordinated Debentures also exchanged their debentures for the new
Subordinated Notes. The net proceeds of approximately $2.75 million wll be used
for debt retirement and working capital purposes.
The Company remains in default of approximately $1.35 million of Senior
Subordinated Notes. The Company is currently negotiating a settlement on the
remaining amounts outstanding and expects to either issue new notes or repay the
amounts owed with a combination of stock and cash during fiscal 1999.
The Company had, with a bank, a revolving line of credit agreement, which
at October 25, 1998, the Company was in default of. The balance outstanding of
approximately $1.7 million at October 25, 1998 was paid in full on December 30.
1998. The Company no longer has a line of credit with the bank. The Company is
negotiating a new revolving line of credit agreement with several banks.
Though the Company has repaid its senior indebtedness, as of the date of
this filing it has not yet replaced such indebtedness with a new credit line or
senior lending relationship. In order to satisfy its short-term working capital
requirements, the Company is actively seeking such replacement credit, and
failure to do so could have a material adverse effect on the Company's continued
operations, or require that it obtain substitute financing at higher cost, or
raise additional capital through the sale of other debt or equity securities.
13
<PAGE>
From October 1997 through August 1998, through several private placements,
the Company raised approximately $3.3 million.
On September 28, 1998, a California trial court upheld the enforceability
of former officers' severance agreements, and the officers requested entry of a
judgement in the approximate amount of $1.2 million plus interest and costs. The
Company has appealed the judgement. The Company has obtained a written guarantee
from a significant stockholder guaranteeing payment of the judgement, should the
Company lose on appeal.
The Company expects to finance it's capital expenditure requirements and
other commitments with the proceeds from the various private placements,
subordinated notes and other sources of working capital.
Recent Accounting Standards
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards. Results of operations and financial position will be
unaffected by implementation of these new standards.
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions to owners.
Among other disclosures, SFAS No. 130 requires that all items that are required
to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," which supersedes SFAS No. 14, "Financial Reporting for Segments of
a Business Enterprise," establishes standards for the way that public
enterprises report information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It also
establishes standards for disclosure regarding products and services, geographic
areas and major customers. SFAS No. 131 defines operating segments as components
of and enterprises about which separate financial information is available that
is evaluated regularly by management in deciding how to allocate resources and
in assessing performance.
Both SFAS Nos. 130 and 131 are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Both SFAS Nos 130 and 131 should not have a
material impact on the Company's financial statements and disclosures.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires companies to recognize all derivative contracts at their fair values,
as either assets or liabilities on the balance sheet. If certain coniditions are
met, a derivative may be specifically designated as a hedge, the objective of
which is to match the timing of gain or loss recognintion on the hedging
derivative with the recognition of (1) the changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk, or (2) the
earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change, SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999.
Historically, the Company has not entered into derivative contracts either
to hedge existing risks or for speculative purposes. Accordingly, the Company
does not expect adoption of the new standard to effect its financial statements.
Forward Looking Statements--Cautionary Factors
Except for the historical information and statements contained in this
report, the matters set forth in this report are "forward looking statements"
that involve uncertainties and risks, some of which are discussed at appropriate
points in this report and the Company's other SEC filings, 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.
14
<PAGE>
Item 8. Financial Statements and Supplementary Data.
The response to this Item 8 is submitted as a separate section of this
report (see Item 14).
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
On November 3, 1997, the Company changed its certifying accountants from
Ernst & Young LLP to Deloitte & Touche LLP as filed on Form 8-K on November 7,
1997.
On February 18, 1998, the Company's certifying accountants, Deloitte &
Touche LLP, resigned as reported in the Company's Current Report on Form 8-K
filed with the Securities and Exchange Commission on February 25, 1998. The
Company had disagreements with its certifying accountants concerning the
classification of certain inventoried parts as long-term and the Company's
ability to continue as a going concern.
Effective April 23, 1998, the Company engaged BDO Seidman, LLP as its
certifying accountants, as reported in its Current Report on Form 8-K filed with
the Securities Exchange Commission on April 29, 1998.
PART III
The information required to be set forth herein, Item 10, "Directors and
Executive Officers of the Registrant," Item 11, "Executive Compensation," Item
12, "Security Ownership of Certain Beneficial Owners and Management," and Item
13, "Certain Relationships and Related Transactions," except for a list of the
Executive Officers which is provided in Part I of this Report, will be included
in a proxy filing on February 1, 1999.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Consolidated Financial Statements
The Consolidated Financial Statements listed in the accompanying Index to
Consolidated Financial Statements and Financial Statement Schedule on page F-1
hereof are filed as part of this report.
2. Consolidated Financial Statement Schedules
The Financial Statement Schedule listed in the accompanying Index to
Consolidated Financial Statements and Financial Statement Schedule on page F-1
hereof are filed as part of this report.
3. Exhibits
The exhibits listed in the accompanying Exhibit Index on pages E-1 and E-2
hereof are filed as part of this report.
(b) Reports on Form 8-K:
Please refer to Item 9.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 in the City of Florham
Park, State of New Jersey, on the 25th day of January, 1999.
DATAMETRICS CORPORATION
(Registrant)
/S/ DANIEL P. GINNS
------------------------
Daniel P. Ginns,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ DANIEL P. GINNS Chairman of the Board, Chief
- ---------------------------- Executive Officer and Director
Daniel P. Ginns (Principal Executive Officer and January 25, 1999
Principal Financial and Accounting
Officer)
/s/ ADRIEN A. MAUGHT, JR. President and Director January 25, 1999
- ----------------------------
Adrien A. Maught,Jr.
/s/ DOUGLAS S. FRIEDENBERG Director January 25, 1999
- -----------------------------
Douglas S. Friedenberg
</TABLE>
16
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
Form 10-K
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Financial Statements
Statement of Management Responsibility to the Stockholders of Datametrics Corporation..................... F-2
Report of BDO Seidman, LLP, Independent Auditors.......................................................... F-3
Consolidated Balance Sheets as of October 25, 1998 and October 26, 1997................................... F-4
Consolidated Statements of Operations for the fiscal years ended October 25, 1998,
October 26, 1997 and October 27, 1996............................................................... F-5
Consolidated Statements of Stockholders' Equity for the fiscal years ended October 25, 1998,
October 26, 1997 and October 27, 1996................................................................ F-6
Consolidated Statements of Cash Flows for the fiscal years ended October 25, 1998,
October 26, 1997 and October 27, 1996................................................................ F-7
Notes to Consolidated Financial Statements................................................................ F-8
Financial Statement Schedule
Report of BDO Seidman, LLP, Independent Auditors.......................................................... F-20
II-Valuation and Qualifying Accounts...................................................................... F-21
</TABLE>
All other schedules have been omitted since the required information is not
presented in amounts sufficient to require submission of the schedule, or
because the information required is included in the Consolidated Financial
Statements and related notes.
F-1
<PAGE>
STATEMENT OF MANAGEMENT RESPONSIBILITY TO THE STOCKHOLDERS OF DATAMETRICS
CORPORATION:
To the Board of Directors and Stockholders
Datametrics Corporation
The management of Datametrics Corporation is responsible for the
preparation, integrity and objectivity of the consolidated financial statements
and other financial information presented in this report. The accompanying
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and properly reflect the effects of
certain estimates and judgements made by management.
The Company's management maintains an effective system of internal control
that is designed to provide reasonable assurance that assets are safeguarded and
transactions are properly recorded and executed in accordance with management's
authorization. The system is continuously monitored by direct management review,
the independent accountants and by internal auditors who conduct an extensive
program of audits throughout the Company.
The Company's consolidated financial statements as of and for the years
ended October 25, 1998 and October 26, 1997 have been audited by BDO Seidman,
LLP, independent accountants. The Company's consolidated financial statements
for the year ended October 27, 1996 have been audited by Ernst & Young LLP,
independent accountants. Their audits were conducted in accordance with
generally accepted auditing standards, and included a review of financial
controls and tests of accounting records and procedures as they considered
necessary in the circumstances.
The Audit Committee of the Board of Directors, which consists of outside
directors, meets regularly with management, the internal auditors and the
independent accountants to review accounting, reporting, auditing and internal
control matters. The Committee has direct and private access to both internal
and external auditors.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ DANIEL P. GINNS Chairman of the Board, Chief
- ----------------------------- Executive Officer and Director January 25, 1999
Daniel P. Ginns
Signature Title Date
--------- ----- ----
/s/ WILLIAM PANDOS Chief Financial Officer January 25, 1999
- -----------------------------
William Pandos
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Datametrics Corporation
We have audited the accompanying consolidated balance sheets of Datametrics
Corporation and Subsidiaries as of October 25, 1998 and October 26, 1997, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the fiscal years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In the report of a previous auditor on the 1997 financial statements, dated
January 30, 1998, that previous auditor expressed a qualified opinion stating
that certain parts inventory that would not be used within one year should have
been classified as a non-current asset. As described in Note 4, parts inventory
not expected to be sold within one year have been classified as a non-current
asset for all periods presented in the accompanying consolidated balance sheets.
In our opinion, the consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Datametrics
Corporation and Subsidiaries at October 25, 1998 and October 26, 1997, and the
results of their operations and their cash flows for the fiscal years then ended
in conformity with generally accepted accounting principles.
/s/ BDO SEIDMAN, LLP
New York, New York
January 7, 1999
F-3
<PAGE>
DATAMETRICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 25, October 26,
1998 1997
------------ ------------
(In thousands, except for share data)
<S> <C> <C>
ASSETS (Note 6)
Current assets:
Cash and cash equivalents ............................................... $ 228 $ 200
Accounts receivable, net (Notes 1 and 3) ................................ 1,979 2,875
Inventories, net (Note 4) ............................................... 4,140 3,377
Prepaid expenses and other current assets ............................... 55 173
-------- --------
Total current assets ............................................. 6,402 6,625
-------- --------
Property and equipment, at cost:
Land (Note 7) ........................................................... 420 --
Building and improvements(Note 7) ....................................... 1,042 --
Machinery and equipment ................................................. 3,312 3,717
Furniture, fixtures and computer equipment .............................. 2,562 2,132
Leasehold improvements .................................................. 71 --
-------- --------
7,407 5,849
Less: Accumulated depreciation and amortization ......................... (5,100) (4,618)
-------- --------
Net property and equipment ...................................... 2,307 1,231
Inventoried parts (Note 4) .............................................. 3,200 2,619
Other assets (Note 8) ................................................... 810 1,071
-------- --------
$ 12,719 $ 11,546
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Revolving line of credit (Note 6) ....................................... $ 1,669 $ 992
Current maturities of capitalized lease obligations ..................... -- 6
Current maturities of long-term debt (Note 7) ........................... 1,871 1,974
Accounts payable ........................................................ 1,034 1,643
Accrued commissions and payroll ......................................... 225 639
Accrued warranty ........................................................ 30 100
Other accrued expenses .................................................. 440 1,018
Other current liabilities ............................................... -- 500
Advance payments and progress payments on contracts ..................... -- 133
-------- --------
Total current liabilities .......................................... 5,269 7,005
Long-term debt, less current maturities (Note 7) ........................ 2,696 --
Loan payable (Note 8) ................................................... 746 696
Other long-term liabilities .............................................. -- 323
-------- --------
Total liabilities ........................................................ 8,711 8,024
-------- --------
Commitments and contingencies (Notes 9 and 11)
Stockholders' equity (Note 10):
Preferred stock, $.01 par value; 5,000,000 shares authorized, none issued -- --
Common stock, $.01 par value; 40,000,000 shares authorized;
15,563,505 and 13,283,168 shares issued and outstanding in 1998 and
1997, respectively ...................................................... 156 133
Additional paid-in capital .............................................. 37,910 34,177
Accumulated deficit ..................................................... (34,058) (30,788)
-------- --------
Total stockholders' equity ............................................ 4,008 3,522
-------- --------
$ 12,719 $ 11,546
======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
DATAMETRICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Years Ended
-------------------------------------
October 25, October 26, October 27,
1998 1997 1996
----------- ----------- -----------
(In thousands, except per share data)
<S> <C> <C> <C>
Sales (Note 1) ........................................ $ 7,742 $ 16,797 $ 19,246
Cost of sales (Note 2) ............................. 5,570 13,401 21,168
Research and development ........................... 544 343 5,557
Selling, general and administrative (Note 2) ....... 4,373 5,670 9,754
-------- -------- --------
Loss from operations ............................... (2,745) (2,617) (17,233)
Interest expense, net ................................. (518) (474) (80)
Amortization of excess of acquired net assets over cost -- -- 229
-------- -------- --------
Loss before provision for income taxes ............. (3,263) (3,091) (17,084)
Provision for income taxes (Note 5) ................... 7 10 302
-------- -------- --------
Net loss .............................................. $ (3,270) $ (3,101) $(17,386)
======== ======== ========
Loss per share of common stock:
Basic and diluted .................................. $ (0.22) $ (0.24) $ (1.39)
======== ======== ========
Weighted Average Number of Shares Outstanding
Basic and diluted .................................. 15,202 12,995 12,515
======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
DATAMETRICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
-------------------------- Additional Total
Number of Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
---------- ---------- ---------- ---------- ----------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Balances at October 29, 1995 ..................... 12,031,582 $ 120 $ 32,120 $ (10,301) $ 21,939
Issuance of common stock ......................... 232,826 3 457 -- 460
Net loss ......................................... -- -- -- (17,386) (17,386)
---------- ---------- ---------- ---------- ----------
Balances at October 27, 1996 ..................... 12,264,408 123 32,577 (27,687) 5,013
Issuance of common stock and warrants ............ 1,018,760 10 1,600 -- 1,610
Net loss ......................................... -- -- -- (3,101) (3,101)
---------- ---------- ---------- ---------- ----------
Balances at October 26, 1997 ..................... 13,283,168 133 34,177 (30,788) 3,522
Issuance of common stock and warrants ............ 2,280,337 23 3,733 -- 3,756
Net loss ......................................... -- -- -- (3,270) (3,270)
---------- ---------- ---------- ---------- ----------
Balances at October 25, 1998 ..................... 15,563,505 $ 156 $ 37,910 $ (34,058) $ 4,008
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-6
<PAGE>
DATAMETRICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended
----------------------------------------
October 25, October 26, October 27,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss ........................................................................... $ (3,270) $ (3,101) $(17,386)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of excess of acquired net assets over cost .......................... -- -- (229)
Depreciation and amortization .................................................... 490 1,192 2,132
(Gain) loss on disposal of assets ................................................ (3) 284 328
Changes in assets and liabilities:
Accounts receivable ................................................................ 896 2,860 843
Inventories and parts .............................................................. (1,344) 949 2,321
Prepaid expenses and other current assets .......................................... 118 (20) 426
Other assets ....................................................................... 261 (607) (2,687)
Accounts payable ................................................................... (609) (1,885) 1,417
Accrued commissions and payroll .................................................... (414) (356) 178
Accrued warranty ................................................................... (70) (80) 55
Other accrued expenses ............................................................. (578) 43 640
Advance and progress payments from customers ....................................... (133) (904) 1,023
Other long-term liabilities ........................................................ (323) (5) --
Income taxes ....................................................................... -- -- 427
-------- -------- --------
Net cash used in operating activities ........................................ (4,979) (1,630) (10,512)
-------- -------- --------
Cash Flows from Investing Activities:
Capital expenditures for property and equipment .................................... (1,574) (356) (1,377)
Proceeds from sale of fixed assets ................................................. 11 43 --
-------- -------- --------
Net cash used in investing activities ........................................ (1,563) (313) (1,377)
-------- -------- --------
Cash Flows from Financing Activities:
Borrowings on revolving line of credit ............................................. 8,310 11,258 6,100
Payments on revolving line of credit ............................................... (7,633) (12,816) (3,550)
Increase (decrease) in other current liabilities ................................... (500) 500 --
Redemption of Series B Preferred Stock ............................................. -- (87) (383)
Payments on capitalized lease obligations .......................................... (6) (72) (98)
Borrowings on long-term debt ....................................................... 2,717 1,713 565
Payments on long-term debt ......................................................... (124) (480) (420)
Borrowings on loan payable ......................................................... 50 131 --
Proceeds from the issuance of common stock and warrants ............................ 3,756 1,610 460
-------- -------- --------
Net cash provided by financing activities ..................................... 6,570 1,757 2,674
-------- -------- --------
Net increase (decrease) in cash and cash equivalents .................................. 28 (186) (9,215)
Cash and cash equivalents at beginning of the year .................................... 200 386 9,601
-------- -------- --------
Cash and cash equivalents at end of the year .......................................... $ 228 $ 200 $ 386
======== ======== ========
Supplemental Disclosures of Cash Flow Information:
Interest, net ...................................................................... $ 512 $ 282 $ 50
Income taxes (refund) .............................................................. 7 10 (125)
</TABLE>
See accompanying notes.
F-7
<PAGE>
DATAMETRICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Business
Datametrics Corporation, a Delaware corporation, is engaged primarily in
the design, development, manufacture and sale of high-speed, non-impact
printers; high-resolution, non-impact printer/plotters; and ruggedized computers
and computer workstations.
Basis of Presentation and Consolidation
The accompanying consolidated financial statements include the accounts of
Datametrics Corporation and subsidiaries (collectively, the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation. The Company's fiscal year end is the last Sunday of each October.
Revenue Recognition
Revenues include both product sales and revenues applicable to long-term
design and production contracts. The majority of the Company's revenues from
product sales and long-term contracts are measured using the "units-of-delivery"
method. Revenues applicable to certain fixed-price, long-term contracts
(principally design and development contracts) are measured using the
"cost-to-cost" method, whereby revenue is measured by relating costs incurred to
total estimated costs. Sales under cost-reimbursement-type contracts are
recorded as costs are incurred. Applicable estimated profits under cost
reimbursement type contracts are included in sales in the proportion that
incurred costs bear to total estimated costs. Any anticipated losses on
contracts are charged to income when identified.
The Company provides an accrual for future warranty costs at the time of
revenue recognition based upon the relationship of prior year sales to actual
warranty costs. The warranty for the Company's products generally covers defects
in material and workmanship. The current accrual represents the average
outstanding warranty of approximately ninety days.
Concentrations of Credit Risk and Major Customers
As is customary in the industry, the Company grants uncollateralized credit
to its clients, which include the U.S. government and large multi-national
corporations operating in a broad range of industries. In order to mitigate its
credit risk, the Company continually evaluates the credit worthiness of its
major commercial clients, and maintains allowances for potential losses within
management expectations.
Approximately 71%, 67% and 61% of the Company's sales during fiscal years
1998, 1997 and 1996, respectively, were to various U.S. government agencies
under prime contracts or to prime contractors having sales to such agencies.
Export sales to foreign customers amounted to $ 4,533,000 ($1,922,000 to Canada,
$2,354,000 to Europe and the Middle East, and $257,000 to the Pacific Rim) or
27.0% of total sales in fiscal year 1997. Export sales in 1998 and 1996 were
immaterial. The Company's three largest customers accounted for 23.7%, 22.3%,
and 18.9% of the Company's sales for the fiscal year ended October 25, 1998. Its
five largest customers accounted for 15.7%, 13.7%, 12.5%, 10.9% and 10.8% of the
Company's sales for the fiscal year ended October 26, 1997. Its three largest
customers accounted for 15.5%, 15.4% and 11.3% of the Company's sales for fiscal
year ended October 27, 1996. Accounts receivable from these customers totalled
$422,000 and $1,810,000 at October 25, 1998 and October 26, 1997, respectively.
No other customer accounted for more than 10 percent of total revenues for
fiscal 1998, 1997 and 1996.
Cash and Cash Equivalents
The Company considers securities purchased within three months of their
date of maturity to be cash equivalents.
F-8
<PAGE>
DATAMETRICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Inventories
Inventories, which primarily include purchased parts and subassemblies, are
stated at the lower of cost (first-in, first-out) or market. Contract inventory
costs include purchased materials, direct labor and manufacturing overhead.
General and administrative costs are expensed in the period incurred. The
portion of inventoried parts not expected to be sold within one year is
classified as noncurrent assets.
Property and Equipment
Depreciation and amortization of property and equipment are provided using
the straight-line method over the following estimated useful lives:
Building and improvements...................... 39 years
Machinery and equipment........................ 2 to 5 years
Furniture, fixtures and computer equipment..... 2 to 8 years
Leasehold improvements......................... Shorter of the remaining term
of the lease or the life of
the asset
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The more significant estimates affecting amounts reported in
the financial statements relate to revenues and costs under long-term contracts
and inventory reserve accruals. Actual results could differ from those
estimates.
Earnings per Share
During 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share," which provides for the calculation of "basic" and "diluted" earnings per
share. This Statement, effective for financial statements issued for periods
ending after December 15, 1997, requires restatement of all prior-period EPS
data presented. Basic earnings per share includes no dilution and is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted earnings per share reflect,
in periods in which they have a dilutive effect, the effect of common shares
issuable upon exercise of stock options. All periods presented have been
restated to comply with the provisions of SFAS No. 128. The effect of common
stock equivalents has been excluded from the diluted calculation since the
effect would be antidilutive. The adoption of SFAS No. 128 did not effect the
financial statements.
Fair Value of Financial Instruments
The carrying values of financial instruments including cash and cash
equivalents, accounts receivable and accounts payable approximate fair value due
to the relatively short maturities of these instruments. The carrying value of
long-term debt approximates the fair value for similar debt issues based on
quoted market prices or current rates offered to the Company for debt of the
same maturities.
Impairment of Long-Lived Assets
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the Company
evaluates long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable. If the estimated future cash flows (undiscounted and without
interest charges) from the use of an asset are less than the carrying value, a
write-down would be recorded to reduce the related asset to its estimated fair
value.
F-9
<PAGE>
DATAMETRICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income Taxes
Income taxes are calculated using the liability method specified by SFAS
No. 109, "Accounting for Income Taxes". SFAS No.109 requires a company to
recognize deferred tax liabilities and assets for the expected future tax
consequences of events that have been recognized in a company's financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
carrying amounts and tax basis of assets and liabilities using enacted tax rates
in effect in the years in which the differences are expected to reverse.
Deferred tax assets are reduced by a valuation allowance to the extent
realization is uncertain.
Reclassifications
Certain reclassifications were made to 1997 balances to conform with 1998
presentation.
Recent Accounting Standards
In June 1997, the FASB issued two new disclosure standards. Results of
operations and financial position will be unaffected by implementation of these
new standards.
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions to owners.
Among other disclosures, SFAS No. 130 requires that all items that are required
to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," which supersedes SFAS No. 14, "Financial Reporting for Segments of
a Business Enterprise," establishes standards for the way that public
enterprises report information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It also
establishes standards for disclosure regarding products and services, geographic
areas and major customers. SFAS No. 131 defines operating segments as components
of and enterprises about which separate financial information is available that
is evaluated regularly by management in deciding how to allocate resources and
in assessing performance.
Both SFAS Nos. 130 and 131 are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Both SFAS Nos. 130 and 131 should not have a
material impact on the Company's financial statements and disclosures.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires companies to
recognize all derivative contracts at their fair values, as either assets or
liabilities on the balance sheet. If certain conditions are met, a derivative
may be specifically designated as a hedge, the objective of which is to match
the timing of gain or loss recognition on the hedged derivative with the
recognition of (1) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk, or (2) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in income in the period of
change. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999.
Historically, the Company has not entered into derivative contracts either to
hedge existing risks or for speculative purposes. Accordingly, the Company does
not expect adoption of the new standard to affect its financial statements.
Note 2. Non-recurring Charges
In connection with its relocation to Florida, the Company incurred certain
non-recurring charges totaling approximately $745,000 during the quarter ended
October 26, 1997. The components of the non-recurring charges were $275,000 in
severance payments and accruals related to employee terminations, $320,000 from
the abandonment of leasehold improvements at the Woodland Hills, California
facility and $150,000 for moving expenses.
F-10
<PAGE>
DATAMETRICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On October 8, 1996, a new Board of Directors was elected, effecting a
change in control of the Company. This change was brought about by a group of
stockholders who were dissatisfied with the strategic direction and financial
performance of the Company. On October 24, 1996, the Company announced that it
had accepted the resignations of four senior executives, three members of the
Board of Directors, had reduced its work force at all levels by laying off 35
out of a total of 151 employees, and discontinued the CYMAX operation. These
measures were undertaken based upon the new Board of Directors' assessment of
the Company's business performance during the past several years, the then
financial and operational position of the Company and the perceived immediate
need to implement new cost control policies and procedures. As a result of these
changes, the Company recorded non-recurring charges of $5,518,000 in the fourth
quarter of 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 materials vendor claims and $473,000 for a write-down of
other assets and other liabilities related to CYMax.
Note 3. Accounts Receivable
Accounts receivable consist of the following:
1998 1997
------- -------
(In thousands)
U.S. government or its prime contractors amounts billed $ 1,009 $ 2,373
Foreign, commercial and other ......................... 1,165 550
------- -------
2,174 2,923
Less allowance for possible losses .................... (195) (48)
------- -------
$ 1,979 $ 2,875
======= =======
Note 4. Inventories
Inventories consist of the following:
1998 1997
-------- --------
(In thousands)
Stockroom inventories .......................... $ 10,630 $ 9,465
Contracts in process ........................... 1,117 529
Finished goods ................................. 421 224
-------- --------
12,168 10,218
Less inventories classified as non-current asset (3,200) (2,619)
Less reserve for obsolescence .................. (4,828) (4,222)
-------- --------
$ 4,140 $ 3,377
======== ========
Inventories consist primarily of materials used by the Company for existing
and anticipated contracts and materials and finished assemblies which are held
to satisfy spare parts requirements of the Company's customers. Those parts not
expected to be sold within one year are classified as a non-current asset. The
Company does not amortize its non-current inventory, rather the Company
evaluates all inventory for obsolescence on a periodic basis and records
estimated reserves.
F-11
<PAGE>
DATAMETRICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 5. Income Taxes
The primary components of the Company's net deferred income tax assets are
as follows:
1998 1997
-------- --------
(In thousands)
Net operating loss carryforwards ................. $ 12,336 $ 10,880
General business credit carryforwards ............ 372 372
Inventory accounting methods ..................... 1,991 1,729
Deferred compensation accounting methods ......... -- 269
Book over tax depreciation ....................... 40 79
Other non-deductible accruals and allowances .... 127 244
-------- --------
Total deferred income tax assets ............ 14,866 13,573
Valuation allowance for deferred income tax assets (14,866) (13,573)
-------- --------
Net deferred income tax assets ................... $ -- $ --
======== ========
Net operating loss and tax credit carryforwards of $30,840,000 and $372,000
respectively, for federal income tax purposes will expire at various times
between 1999 and 2013.
The provision for income taxes is composed of the following:
1998 1997 1996
------- ------- -------
(In thousands)
Current:
Federal ........................ $ -- $ -- --
State .......................... 7 10 29
Deferred:
Federal ........................ (1,105) (1,186) (4,436)
State .......................... (188) (199) (1,395)
Increase in valuation allowance ..... 1,293 1,385 6,104
------- ------- -------
$ 7 $ 10 $ 302
======= ======= =======
F-12
<PAGE>
DATAMETRICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Based upon management's judgment and the continued losses incurred by the
Company, the valuation allowance represents 100% of the Company's net deferred
income tax assets. The following is a reconciliation of the difference between
the actual provision for income taxes and the provision computed by applying the
federal statutory tax rate on loss before income taxes:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Federal income tax benefit computed at statutory rate ..... $(1,109) $(1,051) $(5,809)
State income tax expense (benefit), net of federal benefits (195) (185) 19
Goodwill amortization ..................................... -- -- (78)
Change in valuation allowance ............................. 1,293 1,385 6,104
Other, net ................................................ 18 (139) 66
------- ------- -------
7 10 302
======= ======= =======
</TABLE>
Note 6. Revolving Line of Credit
The Company had, with a bank, a revolving line of credit agreement, which
at October 25, 1998 the Company was in default of. The balance outstanding of
approximately $ 1.7 million at October 25, 1998. This amount was paid in full on
December 30, 1998 (see Note 13). The Company no longer has a line of credit
agreement with the bank.
Note 7. Long-Term Debt
Long-term debt consists of the following:
1998 1997
------ ------
(In thousands)
Loans payable(a) ............................... $ -- $ 124
Senior Subordinated Secured Debentures(b) ...... 1,850 1,850
Convertible Debentures(c) ...................... 1,750 --
Mortgage - South Trust Bank(d) ................ 967 --
------ ------
Subtotal ...................................... 4,567 1,974
Less current maturities of long-term debt ..... 1,871 1,974
------ ------
$2,696 $ --
====== ======
(a) The Company had borrowed approximately $1,311,000 at interest rates ranging
from 10.03% to 10.80%, payable in monthly installments of approximately
$42,000, including interest, over a three-year period. The final payment on
these loans was made in April 1998.
F-13
<PAGE>
DATAMETRICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(b) 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% (effective interest is 10.8% based upon original issue
discount). The proceeds from the sale of the Senior Subordinated Secured
Debentures were used to reduce 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. As of October 25, 1998, the Company was in
default of its principal and interest obligations on the Senior
Subordinated Secured Debentures.
In December 1998, the Company placed approximately $5.0 million of common
stock and debt (see Note 13), $ 500,000 of which was used to reduce the
amount owed under the Senior Subordinated Secured Debentures. The Company
is currently negotiating a settlement on the remaining amount outstanding
and expects to either issue new notes or repay the amounts owed with a
combination of stock and cash during fiscal 1999.
(c) On July 24, 1998, the Company received $982,500 in net proceeds from the
private sale of $1,000,000 in the aggregate principal amount of 7%
Convertible Debentures due July 24, 2001. Additionally, on September 4,
1998, the Company received $746,500 in net proceeds from the private sale
of $750,000 in the aggregate principal amount of 7% Convertible Debentures
due July 24, 2001. The debentures are convertible to common shares in an
amount equal to the face value of the debenture. The conversion price shall
be equal to the lesser of $ 2.125 (2 1/8) per share or 80% of the average
closing bid prices of the common stock for the ten day trading period
immediately preceding the conversion date.
In December 1998, the 7% Convertible Debentures were exchanged for new debt
(see Note 13).
(d) In December 1997, the Company purchased a 43,000 square foot facility in
Orlando, Florida for $899,000. In connection with the acquisition of this
property, the Company obtained a mortgage loan in the amount of $975,000
from South Trust Bank. The loan matures on March 9, 2008. Interest is based
on 8.02% per annum through March 9, 2003 and is then adjusted to equal
2.25% in excess of the weekly average yield on United States Treasury Notes
adjusted to a constant maturity of five years as made available by the
Federal Reserve Board.
Maturities of the mortgage loan debt at October 25, 1998 are as follows:
(In thousands)
1999 ....................... $ 21
2000 ....................... 23
2001 ....................... 24
2002 ....................... 26
2003 ....................... 29
Thereafter ................. 844
----
Total Maturities ........... 967
Less: Current maturities of 21
long-term debt ----
946
====
Note 8. Loan Payable
During 1998, the Company borrowed $50,000 against the cash surrender value
of its key-man life insurance policy. At October 25, 1998, the balance owed,
which approximates the cash surrender value included in other assets, was
$746,000 at 7.8% per annum.
F-14
<PAGE>
DATAMETRICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 9. Leases
The Company currently leases its facilities and various equipment under
operating leases. The building leases expire through 2004 and the equipment
leases expire through 2002. Minimum future rental commitments under
noncancelable operating leases are as follows:
(In thousands)
1999 ..................... $ 917
2000 ..................... 943
2001 ..................... 830
2002 ..................... 794
2003 ..................... 688
Thereafter ............... 478
------
$4,650
======
Property and equipment under capital leases have a cost of $251,000 and an
accumulated depreciation of $74,000 and $71,000 at October 25, 1998 and October
26, 1997, respectively. Rental expenses charged to operations were $321,000,
$652,000 and $780,000 for the fiscal years 1998, 1997 and 1996, respectively.
F-15
<PAGE>
DATAMETRICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 10. Stock Option Plans and Warrants
Stock Options
The Company has several stock option plans which provide for the granting
of options to employees or directors at prices and terms as determined by the
Board of Directors. Such options vest over a period of one to four years. All
options issued by the Company to date have exercise prices which were equal to
the market value of the Company's common stock at the date of grant.
The following table sets forth summarized information concerning the
Company's stock options:
<TABLE>
<CAPTION>
Number of Exercise
Shares Price Range
------ -----------
(In thousands)
<S> <C> <C>
Options outstanding for shares of common stock at
October 29, 1995 ............................................................ 1,072 $0.7500-8.2500
Granted ................................................................... 657 $1.2500-8.3750
Canceled or expired ....................................................... (886) $1.2500-8.3750
Exercised ................................................................. (208) $0.7500-5.7500
------ --------------
Options outstanding for shares of common stock at
October 27, 1996 ............................................................ 635 $1.2500-7.8750
Granted ................................................................... 173 $1.4375-1.6250
Canceled or expired ....................................................... (614) $1.2500-7.8750
Exercised ................................................................. -- --
------ --------------
Options outstanding for shares of common stock at
October 26, 1997 ............................................................ 194 $1.2500-7.8750
Granted .................................................................. 85 $ 1.8150
Canceled or expired ...................................................... (38) $1.2500-7.8750
Exercised ................................................................ -- --
------ --------------
Options outstanding for shares of common stock at
October 25, 1998 ............................................................ 241 $1.2500-7.8750
====== ==============
Shares reserved for issuance at October 25, 1998 ...................... 1,534
=====
</TABLE>
Weighted average option exercise price information was as follows:
1998 1997 1996
---- ---- ----
Outstanding at beginning of year ....... $2.47 $3.53 $2.82
Granted during the year ................ $1.82 $1.50 $6.42
Exercised during the year .............. -- -- $1.70
Canceled, terminated and expired ....... $2.23 $3.78 $5.23
Exercisable at year end ................ $2.02 $2.47 $3.09
F-16
<PAGE>
DATAMETRICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Significant option groups outstanding at October 25, 1998 and related
weighted average price and life information were as follows:
<TABLE>
<CAPTION>
Weighted Average Weighted
Number Remaining Weighted Average Number Average
Exercise Price Range Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- -------------------- ----------- ---------------- -------------- ----------- --------------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C>
$1.2500 ................................ 40 0.36 $1.2500 40 $1.2500
$1.5000-5.7500 ......................... 46 2.82 $2.1758 25 $2.6327
$7.8750 ................................ 10 2.13 $7.8750 7 $7.8750
$1.2500 ................................ 60 2.95 $1.2500 30 $1.2500
$1.8150 ................................ 85 3.52 $1.8150 11 $1.8150
- ------- --- ---
241 2.66 $1.9003 113 $2.0028
=== ===
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
For Stock Issued To Employees," and selected interpretations in accounting for
its stock-based compensation plans. Accordingly, as all options and warrants
have been granted at exercise prices equal to fair market value on the date of
grant, no compensation expense has been recognized by the Company in connection
with its stock-based compensation plans. Had compensation cost for the stock
options and warrants been determined based upon the fair value at the grant date
for awards under these plans consistent with the methodology prescribed under
SFAS No. 123, "Accounting For Stock-Based Compensation," the Company's net loss
and loss per share would have been increased by approximately $199,000, $387,000
and $913,000 or $.01, $.12, and $.07 per share in 1998, 1997 and 1996,
respectively. The weighted average fair value of the options and warrants
granted during 1998 , 1997 and 1996 is estimated at $.65, $.87 and $4.00 on the
date of grant (using Black-Scholes option pricing model) with the following
weighted average assumptions for both 1998, 1997 and 1996: volatility of 46.5%,
46.5% and 103%, risk-free interest rate of 6.20%, 6.20% and 5.12%, and an
expected life of two to five years in 1998 , 1997 and 1996.
Warrants
There are 200,000 shares of common stock reserved for issuance upon
exercise of warrants sold for $0.001 per warrant to the underwriters of the
Company's June 21, 1995 offering of common stock. The warrants are exercisable
for a period of five years beginning June 21, 1996 and have a per-share exercise
price equal to $9.60 (120% of the initial public offering price of $8.00). There
were 616,679 shares of common stock reserved for issuance upon exercise of
warrants issued in conjunction with the Company's November 25, 1996 Senior
Subordinated Debt Offering. The warrants are exercisable for a period of five
years beginning November 25, 1996 and have a per-share exercise price of $1.50.
There were 337,000 warrants outstanding at October 25, 1998. There are 200,000
shares of common stock reserved for issuance upon exercise of warrants issued in
conjunction with a commitment to raise up to $3,000,000 in capital for the
Company. The warrants are exercisable for a period of five years beginning
February 5, 1997 and have a per-share exercise price of $2.00. There are
1,200,000 shares of common stock reserved for issuance upon exercise of warrants
issued to two executive officers issued in conjunction wth their employment
agreements (see Note 11). The warrants are exercisable for a period of five
years beginning November 13, 1996 and have a per-share exercise price of $ 2.00.
Note 11. Commitments and Contingencies
Employment Agreements
The Company has employment agreements with two of its executive
officers/directors which expire December 31, 2002. The agreements automatically
renew on an annual basis unless notified by July 1. Such agreements provide for
minimum salary levels, adjusted annually for cost-of-living changes, as well as
for incentive bonuses which are payable if specified management
F-17
<PAGE>
DATAMETRICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
goals are attained. The aggregate commitment for future salaries at October 25,
1998, excluding bonuses, was approximately $2,641,000. These agreements also
provide severance pay benefits upon termination of the executive's employment
with the Company as follows:
(a) Company-Initiated Termination Without Cause--the executive shall be
entitled to one payment of the Base Salary for a period equal to the
greater of (i) one year from the date of termination, or the remainder
of the employment term; and (ii) the Company shall continue to provide
the executive and the members of the executive's immediate family all
benefits provided by the employment agreement. If any of these
benefits terminate by operation of law, the Company will reimburse the
executive for the costs of replacing those benefits for the remainder
of such period. As security for all of the Company's obligations to
make any payments to the executives, the Company granted to the
executives a subordinated security interest in all assets of the
Company now owned or hereafter acquired.
(b) Company-Initiated Termination in Connection with a Change in
Control--the executives shall be entitled to a cash payment equal to
the lesser of three years' base salary or the maximum amount which
would not result in any portion of the payment being subject to the
excise tax under Section 4999 of the Internal Revenue Code. "Change in
Control" shall mean: (i) a merger or consolidation in which the
Company is not the surviving corporation; (ii) a reverse merger; or
(iii) the acquisition by any person, entity or group within the
meaning of Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended, of the beneficial ownership of securities of the
Company representing at least fifty percent of the combined voting
power entitled to vote in the election of directors.
Legal Proceedings
The Company is, from time to time, the subject of litigation, claims and
assessments arising out of matters occurring during the normal operation of the
Company's business. In the opinion of management, the liability, if any, under
such current litigation, claims and assessments would not materially affect the
financial position or the results of the operations of the Company except as
disclosed herein.
Four former officers of the Company (the "Former Officers"), whose
employment relationships with the Company terminated in part as a result of the
Company's restructuring in October 1996, sought severance benefits from the
Company. On January 13, 1997, three of the Former Officers sued the Company in
the Superior Court of the State of California for Los Angeles County, in order
to enforce payment of severance benefits under certain agreements, each dated as
of October 7, 1996, between each Former Officer and the Company (collectively,
the "Severance Agreements"). The fourth Former Officer sued the Company in
response to the Company's cross-complaint described below. The Former Officers
sought 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.
On September 28, 1998, a California trial court upheld the enforceability
of the Former Officers' severance agreements and the Former Officers' requested
entry of a judgment in the approximate amount of $1,200,000 plus interest and
costs.. The Company has appealed the judgement. The Company has obtained a
written guarantee from a significant stockholder guaranteeing payment of the
judgement should the Company lose on appeal. The Company is unable to estimate
the results of the appeal and at October 25,1998, nothing has been accrued in
the financial statements related to this litigation.
In a separate matter regarding benefits under the Company's Supplemental
Executive Retirement Plan (the "SERP"), the Company entered into a settlement
agreement (the "Agreement") on February 10, 1998 with the Former Officers in the
total amount of $643,681. The amount was accrued for in fiscal year ended
October 26, 1997. The SERP was terminated when a cash settlement was distributed
on October 2, 1998.
In April 1998, the owner of the Woodland Hills, CA premises formerly
occupied by the Company sued for the balance of all rent due through the end of
the extant lease agreement plus damages of approximately $1,000,000. The Company
relocated from such premises after the owner had ignored repeated notifications
of unsafe structural conditions as cited by Los Angeles County building
inspectors. Although it is presently too early to determine the outcome of this
litigation, the Company believes it has valid defenses in this case and has made
no accrual relating to this litigation.
F-18
<PAGE>
DATAMETRICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 12. Employee Benefit Plans
The Company sponsors a defined contribution 401(k) plan, as amended,
covering a majority of its employees. The plan allows eligible employees to
contribute up to 14% of their gross salary. Company contributions are voluntary
and at the discretion of the Board of Directors. There were no Company
contributions in fiscal years 1998, 1997 and 1996. Employees vest in Company
contributions based upon their years of vesting service, as defined.
During November 1994, the Company established a SERP, a defined benefit
pension plan covering certain officers to whom the plan is offered. Normal
retirement age is 65, but provision is made for earlier retirement. Benefits
under the plan are generally payable for up to fifteen years after a
participant's retirement. However, the participant may elect a lump-sum payment
equal to 90% of the net present value of the benefit amount at the participant's
retirement date. As discussed in Note 11, the SERP was terminated in October
1998.
Note 13. Subsequent Events
On December 29, 1998, the Company closed a private placement of
approximately $3.45 million of 10% Subordinated Notes due in 2000 (the
"Subordinated Notes") and $1.55 million in shares of the Company's common stock.
The Subordinated Notes, which are unsecured and callable under certain
conditions, provide for the Company to issue 5-year warrants exercisable into
the Company's common stock at a price of $1.50 per share. As part of the
offering, investors holding $1.75 million of the Company's Convertible
Debentures issued earlier in the year exchanged their holdings for new 10%
Subordinated Notes. In addition, holders of $500,000 of the Company's Senior
Subordinated Debentures also exchanged their Debentures for the new 10%
Subordinated Notes. The net proceeds of approximately $2.75 million from the
sale of Subordinated Notes and common stock will be used for debt retirement and
working capital purposes.
F-19
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Datametrics Corporation
The audits referred to in our report data January 7, 1999 relating to the
consolidated financial statements of Datametrics Corporation and subsidiaries,
which is contained in Item 8 of Form 10-K, included the audits of the financial
statement schedule listed in the accompanying index for the years ended October
25, 1998 and October 26, 1997. The financial statement schedule is the
responsibility of management. Our responsibility is to express an opinion on the
financial statement schedule based upon our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO Seidman, LLP
New York, New York
January 7, 1999
F-20
<PAGE>
DATAMETRICS CORPORATION AND SUBSIDIARIES
SCHEDULE II--Valuation And Qualifying Accounts
For Each Of The Three Fiscal Years In The
Period Ended October 25, 1998
<TABLE>
<CAPTION>
Classification 1998 1997 1996
-------------- ------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Reserve for possible losses:
Balance at beginning of period ............................................ $ 48 $ 68 $ 47
Add-provision charged to operations ....................................... 147 2 21
Less-recovery of bad debt ................................................. -- 3 --
Less-reserve applied during the year ...................................... -- 19 --
------- ------- -------
Balance at end of period .................................................. $ 195 $ 48 $ 68
======= ======= =======
Reserve for warranty:
Balance at beginning of period ............................................ $ 100 $ 180 $ 125
Add-provision charged to operations ....................................... -- 142 221
Less-reserve applied during the year ...................................... 70 222 166
------- ------- -------
Balance at end of period .................................................. $ 30 $ 100 $ 180
======= ======= =======
Reserve for inventory obsolescence:
Balance at beginning of period ............................................ $ 4,222 $ 5,575 $ 1,773
Add-provision charged to operations ....................................... 985 554 3,802
Less-reserve applied during the year ...................................... 379 1,907 --
------- ------- -------
Balance at end of period .................................................. $ 4,828 $ 4,222 $ 5,575
======= ======= =======
Reserve for prepaid royalties:
Balance at beginning of period ............................................ $ 70 $ 820 $ 750
Add-provision charged to operations ....................................... -- -- 70
Less-reserve applied during the year ...................................... -- 750 --
------- ------- -------
Balance at end of period .................................................. $ 70 $ 70 $ 820
======= ======= =======
Valuation allowances for deferred income tax assets:
Balance at beginning of period ............................................ $13,573 $12,088 $ 5,984
Add-provision charged to operations ....................................... 1,293 1,485 6,104
------- ------- -------
Balance at end of period .................................................. $14,866 $13,573 $12,088
======= ======= =======
</TABLE>
F-21
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this Form 10-K Statement or are
incorporated herein by reference.
DESCRIPTION OF EXHIBITS
Exhibit
No.
- -------
3.1 Restated Certificate of Incorporation of Registrant, as currently in
effect.*
3.2 Certificate of Designations, Preferences and Relative, Participating,
Optional and Other Special Rights of Series B Preferred Stock and
Qualifications, Limitations and Restrictions Thereof dated August 10,
1993 (incorporated by reference to Exhibit 4.1 to Registrant's Form 8-K
dated August 10, 1993).
3.3 Bylaws of Registrant, as currently in effect (incorporated by reference
to Exhibit 3.2 to Registrant's Form 10-K for the year ended October 28,
1990).
3.4 First Amendment to the Restated By-Laws of the Registrant, dated August
6, 1996 (incorporated by reference to Exhibit 3.0 to the Registrant's
Form 8-K dated August 6, 1996).
10.1 Line of Credit Agreement, Security Agreement, Addendum to Line of Credit
Agreement, and Loan Disbursement Instructions dated September 8, 1993
(incorporated by reference to Exhibit 10.1 to Registrant's Form 10-K for
the year ended October 31, 1993).
10.3 Lease for Woodland Hills facility between the Company and Manufacturers
Life Insurance Company dated as of December 19, 1993, as amended on
August 31, 1994 (incorporated by reference to Exhibit 10.2 to
Registrant's Form 10-K for the year ended October 30, 1994).
10.4 Agreement between the Company and Sidney E. Wing dated March 17, 1989
(incorporated by reference to Exhibit 10.4 to Registrant's Form 10-K for
the year ended October 29, 1989).
10.5 Deferred Compensation Agreement between the Company and Garland S. White
dated October 18, 1989 (incorporated by reference to Exhibit 10.5 to
Registrant's Form 10-K for the year ended October 29, 1989).
10.6 Amended and Restated Agreement and Plan of Merger dated as of May 12,
1993 between Registrant and Rugged Digital Systems, Inc. ("Rugged
Digital") (incorporated by reference to Exhibit 2 to Registrant's Form
8-K dated May 12, 1993).
10.7 Escrow Agreement dated August 10, 1993 among the Registrant and others
relating to the acquisition of Rugged Digital (incorporated by reference
to Exhibit 4.3 to Registrant's Form 8-K dated August 10, 1993).
10.8 Debt Exchange Agreement dated August 10, 1993 among Registrant and debt
holders of Rugged Digital (incorporated by reference to Exhibit 4.2 to
Registrant's Form 8-K dated August 10, 1993).
10.9 Security and Loan Agreement between Registrant and Imperial Bank
executed March 21, 1995, as amended May 15, 1995 (incorporated by
reference to Exhibit 10.1 to Registrant's Form 10-Q for the period ended
April 30, 1995), and as amended March 4, 1996 (incorporated by reference
to period ended April 30, 1995), and as amended March 4, 1996
(incorporated by reference to Exhibit 10.1 to Registrant's Form 10-Q for
the period ended April 28, 1996).
10.10 Agreement between the Company and The Angeloff Company dated February
15, 1995 (incorporated by reference to Exhibit 10.2 to Registrant's Form
10-Q for the period ended April 30, 1995).
21 List of Subsidiaries
<PAGE>
Exhibit
No.
- -------
24.1 Consent of Ernst & Young LLP, Independent Auditors.*
24.2 Consent of BDO Seidman, LLP, Independent Auditors.*
27 Financial Data Schedule *
99.1 The Datametrics Employee Savings Plan And The Trust Agreement Pursuant
To The Datametrics Employee Savings Plan (incorporated by reference to
Exhibit 28 to Registrant's Registration Statement on Form S-8 filed on
November 12, 1985 SEC File No. 33-01469).
99.2 The Amended and Restated 1993 Stock Option Plan of Datametrics
Corporation (incorporated by reference to Exhibit 28.2 to Registrant's
Form 10-K for the year ended October 31, 1993).
99.3 The 1986 Stock Option Plan of Datametrics Corporation, as amended
(incorporated by reference to Exhibit 28.1 to Registrant's Registration
Statement on Form S-8 filed on June 10, 1987, SEC File No. 33-14969 and
Exhibit 28.5 to Registrant's Form 10-K for the year ended October 29,
1988).
99.4 The 1982 Stock Option Plan of Datametrics Corporation, as amended
(incorporated by reference to Exhibit 28.2 to Registrant's Registration
Statement on Form S-8 filed on June 10, 1987, SEC File No. 33-14969).
99.5 The 1993 Directors' Option Plan of Datametrics Corporation (incorporated
by reference to Exhibit 28.5 to Registrant's Form 10-K for the year
ended October 31, 1993).
99.6 Datametrics Corporation Supplemental Executive Retirement Plan and
Master Trust Agreement (incorporated by reference to Exhibit 28.6 to
Registrant's Form 10-K for the year ended October 30, 1994).
99.7 The 1995 Stock Option Plan of Datametrics Corporation (incorporated by
reference to Exhibit 28.7 to Registrant's Form S-8 filed on May 30,
1996, S.E.C. File No. 333-04815).
99.8 The Datametrics Corporation Employee Qualified Stock Purchase plan
(incorporated by reference to Exhibit 28.8 to Registrant's Form S-8
filed on May 30, 1996, S.E.C. File No. 333-04815).
- ------
* Filed herewith.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS OF DATATMETRICS CORPORATION AS OF
AND FOR THE TWELVE MONTH PERIOD ENDED OCTOBER 25, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-25-1998
<PERIOD-END> OCT-25-1998
<CASH> 228
<SECURITIES> 0
<RECEIVABLES> 1,979
<ALLOWANCES> 0
<INVENTORY> 4,140
<CURRENT-ASSETS> 6,402
<PP&E> 7,407
<DEPRECIATION> 5,100
<TOTAL-ASSETS> 12,719
<CURRENT-LIABILITIES> 5,269
<BONDS> 0
0
0
<COMMON> 156
<OTHER-SE> 37,910
<TOTAL-LIABILITY-AND-EQUITY> 12,719
<SALES> 7,742
<TOTAL-REVENUES> 7,742
<CGS> 5,570
<TOTAL-COSTS> 5,570
<OTHER-EXPENSES> 4,917
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 518
<INCOME-PRETAX> (3,263)
<INCOME-TAX> 7
<INCOME-CONTINUING> (3,270)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,270)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> (.22)
</TABLE>