<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999 .
--------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to ____________.
Commission file no. 0-6272
DATUM INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-2512237
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.
9975 TOLEDO WAY, IRVINE, CA 92618-1819
(Address of principal executive offices) (Zip code)
(949) 598-7500
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by a 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 the
filing requirements for the past 90 days.
YES X . NO .
----- -----
The registrant had 5,549,264 shares of common stock outstanding as of April 30,
1999.
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INDEX
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements................................................3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................9
Item 3. Quantitative and Qualitative Disclosures about Market Risk..........12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................................13
Signatures..........................................................14
Exhibit Index.......................................................15
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DATUM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, December 31,
A S S E T S 1999 1998
--------- ------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 9,110 $10,307
Accounts receivable 21,245 19,327
Inventories
Purchased parts 8,642 7,156
Work-in-process 8,981 10,524
Finished products 5,113 6,875
------- -------
22,736 24,555
Prepaid expenses 647 479
Deferred income taxes 3,056 3,056
Income tax refund receivable 1,482 1,190
------- -------
Total current assets 58,276 58,914
Plant and equipment
Land 2,040 2,040
Buildings 5,173 5,060
Equipment 21,157 20,450
Leasehold improvements 1,177 1,149
------- -------
29,547 28,699
Less accumulated depreciation and amortization 13,496 12,651
------- -------
16,051 16,048
------- -------
Excess of purchase price over net assets acquired, net 11,008 11,231
Other assets 792 727
------- -------
$86,127 $86,920
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
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DATUM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
--------- ------------
<S> <C> <C>
Current liabilities
Accounts payable $ 5,394 $ 4,241
Accrued salaries and wages 2,246 2,485
Accrued warranty 1,466 1,498
Other accrued expenses 1,293 1,287
Income taxes payable 258 289
Current portion of long-term debt 3,021 3,025
-------- --------
Total current liabilities 13,678 12,825
-------- --------
Long-term debt 13,066 14,533
-------- --------
Postretirement benefits 872 818
-------- --------
Other long-term liabilities 136 144
-------- --------
Deferred income taxes 1,622 1,622
-------- --------
Stockholders' equity
Preferred stock, par value $.25 per share
Authorized - 1,000,000 shares
Issued - none -- --
Common stock, par value $.25 per share
Authorized - 10,000,000 shares
Issued - 5,538,406 shares in 1999
5,505,843 shares in 1998 1,385 1,376
Additional paid-in capital 45,157 44,941
Retained earnings
Beginning of period 11,328 12,785
Net loss (191) (1,457)
-------- --------
End of period 11,137 11,328
Unamortized stock compensation (354) (368)
Accumulated other comprehensive income (572) (299)
-------- --------
Total stockholders' equity 56,753 56,978
-------- --------
$ 86,127 $ 86,920
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
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DATUM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1999 1998
-------- --------
<S> <C> <C>
Net sales $ 24,552 $ 25,378
-------- --------
Costs and expenses
Cost of goods sold 15,313 17,165
Selling 3,478 3,958
Product development 3,410 2,798
General and administrative 2,270 2,370
Interest expense 517 513
Interest income (120) (84)
-------- --------
24,868 26,720
-------- --------
Loss before income taxes (316) (1,342)
Income tax benefit (125) (530)
-------- --------
Net loss $ (191) $ (812)
======== ========
Net loss per share:
Basic $ (.03) $ (.15)
======== ========
Diluted $ (.03) $ (.15)
======== ========
Shares used in per share calculation:
Basic 5,518 5,341
======== ========
Diluted 5,518 5,341
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
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DATUM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1999 1998
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (191) $ (812)
-------- -------
Adjustments to reconcile loss to net cash
provided by operating activities:
Depreciation and amortization 954 877
Amortization of goodwill 223 223
Contribution of shares of common stock to
the Company's 401(k) plan 162 185
Amortization of stock compensation 15 --
Changes in assets and liabilities:
Increase in accounts receivable (1,918) (2,503)
(Increase) decrease in income tax refund receivable (292) 45
Decrease in inventories 1,819 1,162
Increase in prepaid expenses (168) (35)
Increase in other assets (83) --
Increase in accounts payable 1,153 2,031
Decrease in accrued expenses (265) (590)
Decrease in income taxes payable (31) --
Increase in postretirement benefits 54 54
Decrease in other long-term liabilities (8) (10)
-------- -------
Total reconciling items 1,615 1,439
-------- -------
Net cash provided by operating activities 1,424 627
-------- -------
Cash flows from investing activities:
Capital expenditures (913) (673)
Other (264) (65)
-------- -------
Net cash used in investing activities (1,177) (738)
-------- -------
Cash flows from financing activities:
Proceeds from (reductions to) long-term debt (1,506) (5)
Proceeds from exercise of stock options -- 35
Proceeds from ESP plan 62 88
-------- -------
Net cash provided by (used for) financing activities (1,444) 118
-------- -------
Net increase (decrease) in cash and cash equivalents (1,197) 7
Cash and cash equivalents at beginning of period 10,307 5,819
-------- -------
Cash and cash equivalents at end of period $ 9,110 $ 5,826
======== =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
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DATUM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the requirements of Form 10-Q and, therefore, do not
include all information and footnotes which would be presented were such
financial statements prepared in accordance with generally accepted accounting
principles, and should be read in conjunction with the audited financial
statements presented in the Company's 1998 Annual Report to Stockholders. In the
opinion of management, the accompanying financial statements reflect all
adjustments which are necessary for a fair presentation of the results for the
interim period presented. The results of operations for such interim period are
not necessarily indicative of results to be expected for the full year.
NOTE B - EARNINGS PER SHARE
For the quarters ended March 31, 1999 and 1998, the Company did not include
potential common stock in the calculation of net loss per share - diluted, as
such inclusion would have an anti-dilutive effect.
NOTE C - COMPREHENSIVE INCOME
In 1998, the Company adopted Financial Accounting Standards No. 130 (FAS 130),
"Reporting Comprehensive Income." FAS 130 establishes standards for the
reporting and displaying of comprehensive income and its components in the
Company's consolidated financial statements. Comprehensive income is defined in
FAS 130 as a change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources. Total
comprehensive income was $(464,000) and $(879,000) for the three months ended
March 31, 1999 and 1998, respectively. The primary difference from net income as
reported is the tax affected change in cumulative translation adjustment.
NOTE D - SEGMENT AND RELATED INFORMATION
In 1998, the Company adopted Financial Accounting Standards No. 131 (FAS 131),
"Disclosures about Segments of an Enterprise and Related Information." The
statement requires the Company to report about its operating segments.
The Company evaluates performance of its segments and allocates resources to
them based on segment operating income. Segment operating income does not
include corporate expenses, amortization of goodwill and intersegment profit
elimination. Identifiable assets include accounts receivable, inventories, and
land, building and equipment and does not include cash, income tax refund
receivable and deferred income taxes, prepaid expenses goodwill and other
long-term corporate assets.
The tables below presents information about reported segments for the quarters
ended March 31:
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SEGMENT SALES
(in thousands)
<TABLE>
<CAPTION>
Irvine, Austin, San Jose, Beverly, Munich,
CA TX CA MA Germany Total
-------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
1999
Total sales $ 10,555 $ 7,168 $ 3,685 $ 3,527 $ 1,093 $ 26,028
Intersegment sales (669) (76) (96) (620) (15) (1,476)
-------- ------- ------- ------- ------- --------
Net sales $ 9,886 $ 7,092 $ 3,589 $ 2,907 $ 1,078 $ 24,552
======== ======= ======= ======= ======= ========
1998
Total sales $ 12,920 $ 5,572 $ 3,842 $ 3,392 $ 1,319 $ 27,045
Intersegment sales (597) (62) (861) (147) (1,667)
-------- ------- ------- ------- ------- --------
Net sales $ 12,323 $ 5,572 $ 3,780 $ 2,531 $ 1,172 $ 25,378
======== ======= ======= ======= ======= ========
</TABLE>
SEGMENT OPERATING INCOME (LOSS)
(in thousands)
<TABLE>
<CAPTION>
Irvine, Austin, San Jose, Beverly, Munich,
CA TX CA MA Germany Total
------- ------- --------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
1999 $ (966) $1,475 $285 $287 $ (2) $1,079
1998 (1,214) 874 1 242 217 120
</TABLE>
A reconciliation of segment operating income (loss) to consolidated amounts for
the quarters ended ended March 31:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
------- -----
<S> <C> <C>
Segment operating income (loss) $ 1,079 $ 120
Corporate expenses (643) (581)
Amortization of goodwill (408) (408)
Intercompany profit elimination 53 (44)
------- -----
Consolidated operating income (loss) $ 81 $(913)
======= =====
</TABLE>
The table below presents identifiable segments assets as of March 31, 1999
compared to prior prior year end:
IDENTIFIABLE SEGMENT ASSETS
(in thousands)
<TABLE>
<CAPTION>
Irvine, Austin, San Jose, Beverly, Munich,
CA TX CA MA Germany Total
------- ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
March 31, 1999 $22,842 $15,287 $4,945 $10,881 $1,930 $55,885
December 31, 1998 22,722 14,765 6,027 9,867 2,251 55,632
</TABLE>
NOTE E - RECENT CHANGES TO ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 133 (FAS 133) "Accounting for Derivative Instruments
and Hedging Activities," which defines derivatives, requires all derivatives be
carried at fair value and provides for hedging accounting when certain
conditions are met. This statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. Although the Company has not fully
assessed the implications of this new statement, the Company does not believe
adoption of this statement will have a materiel impact on the Company's
financial position and results of operations.
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<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" presented in the
Company's 1998 Annual Report on Form 10-K to Stockholders.
INTRODUCTORY NOTE
All statements other than statements of historical fact included in this
Quarterly Report on Form 10-Q are forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Company intends that such forward-looking statements be subject to the safe
harbors created thereby. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable at this time, it can
give no assurance that such expectations will prove to have been correct. The
Company makes no undertaking to correct or update any such statements in the
future. Important factors that could cause actual results to differ materially
from the Company's expectations ("Cautionary Statements") are set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" as well as in, or incorporated by reference in, the Company's Annual
Report on Form 10-K for the year ended December 31, 1998. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by the Cautionary
Statements.
Overview
Datum designs, manufactures and markets a wide variety of high performance time
and frequency products used to synchronize the flow of information in
telecommunications networks. The Company is also a leading supplier of precise
timing products for enterprise computing networks and a wide variety of space,
scientific and industrial test and measurement applications.
A small number of customers account for a substantial portion of the Company's
net sales and the Company expects that a limited number of customers will
continue to represent a substantial portion of the Company's net sales for the
foreseeable future. There can be no assurance that a major customer will not
reduce, delay or eliminate its purchases from the Company. Any such reduction,
delay or loss in orders could have a material adverse effect on the Company's
business, financial condition and results of operations.
Results of Operations
Net sales. The Company's net sales decreased 3.3% to $24.6 million for the
quarter ended March 31, 1999 from $25.4 million for the corresponding quarter in
1998. Although net sales increased in both the cesium and wireline operations in
the first quarter of 1999 compared to the corresponding quarter of 1998, net
sales decreased in the wireless operations primarily as the result of decreased
product usage by the Company's largest customer.
Gross Margin. Gross margin increased to 37.6% for the quarter ended March 31,
1999 from 32.4% for the corresponding quarter in 1998. Gross margin growth
appeared in all domestic operations except for wireless, which decreased
primarily due to the 1998 contractual price reductions to the Company's largest
customer. Gross margin improvements were due to material cost savings,
productivity improvements and overhead reductions occurring during the 1998
year.
Selling Expense. Selling expense decreased by 12.1% to $3.5 million for the
quarter ended March 31, 1999, from $4.0 million for the corresponding quarter in
1998. The decrease was primarily due to reduced outside commissions caused by
the replacement of outside sales reps, where appropriate, with a direct sales
force as well as a more cost-efficient shipment mix. As a percentage of net
sales, selling expense decreased to 14.2% for the quarter ended March 31, 1999
from 15.6% for the corresponding quarter in 1998.
Product Development. Product development expense increased by 21.9% to $3.4
million for the quarter ended March 31, 1999 from $2.8 million for the
corresponding quarter in 1998, primarily due to increased
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development efforts to reduce the time to market on high-growth-potential
products. These include the new low-cost cesium, the latest generation of
wireline synchronization products including the CDMA-based antenna-less
synchronization unit and the e-business trusted time hardware. As a percentage
of net sales, product development expenses increased to 13.9% for the quarter
ended March 31, 1999 from 11.0% for the corresponding quarter of 1998.
General and Administrative. General and administrative expense decreased 4.2% to
$2.3 million for the quarter ended March 31, 1999, from $2.4 million for the
corresponding quarter of 1998. The decrease was primarily due to headcount
reductions during the 1998 year. As a percentage of net sales, general and
administrative expense decreased to 9.2% for the quarter ended March 31, 1999,
from 9.3% for the corresponding quarter of 1998.
Interest, Net. Interest expense decreased by $32,000 for the quarter ended March
31, 1999 from the corresponding quarter of 1998. The decrease is the result of
increased interest earned on the Company's higher cash balances.
Shares Outstanding. Shares outstanding increased during the quarter ended March
31, 1999, primarily due to shares issued under the Company's 401(k) Plan,
Employee Stock Purchase Plan, and Incentive Stock Option Plan.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations was approximately $1.4 million for the quarter ended
March 31, 1999 compared to $627,000 for the corresponding quarter of 1998. Cash
flows were positively affected in the first quarter of 1999 primarily by
reductions in net loss, accounts receivable and inventories offset by lower
accounts payable balances.
Cash used in investing activities was approximately $1.2 million for the quarter
ended March 31, 1999 compared to $738,000 for the corresponding quarter of 1998
primarily reflecting increased expenditures for property and equipment. The
Company currently anticipates that capital expenditures for fiscal 1999 will be
approximately $3.5 million.
Cash used for financing activities was approximately $1.4 million for the
quarter ended March 31, 1999 compared to cash provided by financing activities
of $118,000 for the corresponding quarter of 1998. The change was primarily the
result of the scheduled $1.5 million debt payment in the first quarter of 1999.
Accounts receivable increased to $21.2 million at March 31, 1999 from $19.3
million at December 31, 1998 due to increased shipment levels in the last two
months of the quarter ended March 31, 1999 compared to the last two months of
the quarter ended December 31, 1998.
Inventories decreased $1.8 million to $22.7 million at March 31, 1999 from $24.6
million at December 31, 1998 primarily due to the Company's continued efforts to
reduce inventories.
Accounts payable increased by approximately $1.2 million to $5.4 million at
March 31, 1999 from $4.2 million at December 31, 1998. The increase was
primarily due to increased inventory purchases in the wireless operation to
support increased shipments in the month of March 1999, as compared to December
1998.
At March 31, 1999, the Company had working capital of $44.6 million and a
current ratio of 4.3:1 compared to working capital of $46.1 million and a
current ratio of 4.6:1 at December 31, 1998. The decrease is primarily due to
decreased cash and inventory balances offset by increased accounts receivable
balances and increased accounts payable balances.
The Company's credit facility includes: (i) $6.0 million of Series A Senior
Secured Promissory Notes maturing September 27, 2000, bearing interest at the
rate of 9.07% on the unpaid principal, payable quarterly, with the principal
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repaid in equal installments of $1.5 million on March 27 and September 27 of
each year, commencing March 27, 1999; and (ii) $12.0 million of Series B Senior
Secured Promissory Notes maturing September 27, 2003, bearing interest at the
rate of 10.25% on the unpaid principal, payable quarterly, with the principal
repaid in equal installments of $2.0 million on March 27 and September 27 of
each year, commencing March 27, 2001. In addition, in connection with the
issuance of these promissory notes, the Company issued to The Prudential
Insurance Company of America ("Prudential") common stock warrants for the
purchase of 175,000 shares of common stock at an exercise price per share of
$11.50.
The maturity date of the revolving component of the Company's line of
credit with Wells Fargo Bank has been extended to June 15, 1999 in a principal
amount not to exceed $10.0 million and bearing interest at Wells Fargo's prime
rate or at LIBOR plus 2.75%. Currently the Company is renegotiating for a two-
year line of credit. Under both the Wells Fargo credit facility and the
Prudential promissory notes, the Company is required to maintain certain
financial ratios, limit other indebtedness and may not pay dividends. Other
restrictions include limitations on the amounts of leases and capital
expenditures that may be incurred.
READINESS FOR YEAR 2000
The Company is aware that some significant portion of existing electronic
equipment, including computers, software and embedded technology, was not
designed to correctly process dates after December 31, 1999. These systems store
dates as having two digit, rather than four digit years, which could potentially
cause erroneous data results for program failures in the year 2000. The Company
is currently assessing the impact of such Year 2000 (Y2K) issues on the
Company's internal computer systems, non-computer systems, and products as well
as on the Company's vendors, service providers, and significant customers.
Internally, the Company has developed a plan to inventory critical systems at
each of its five operating locations and develop solutions, with further
contingency plans where possible. The Company has identified two of its five
information systems locations as not Y2K compliant. While the Company could
upgrade these two locations without incurring material expense, the Company has
instead decided to implement a Company-wide enterprise information system, which
is scheduled for completion in September 1999. The new system is expected to
improve information systems operating performance and will be fully Y2K
compliant. The Company has not identified any other significant areas of
non-compliance in internal computer systems or non-computer systems, or
products. The Company has reviewed its products and does not expect to incur any
material expense related to product non-compliance. The Company believes
additional, though immaterial, revenue may be realized if customers decide to
upgrade their older products.
The Company believes the greatest risk of significant adverse effects on the
Company relates to third party failure to appropriately address their Y2K
non-compliance. Y2K failures in key suppliers' systems, or their respective
suppliers' or customers' systems, could effect their ability to supply material
or services to the Company, and therefore affect the Company's ability to
produce and ship products. Y2K failures at the Company's significant customers,
including the United States government, could effect such customers' ability to
order, accept and pay for the Company's products. External Y2K failures could
therefore have a material adverse effect on the Company's revenues and financial
condition. The Company is in the process of securing letters of compliance from
those vendors and service providers that are critical to the operations of the
Company. The Company plans to secure alternative suppliers for those who cannot
assure the Company of their Y2K readiness. The Company also plans to survey its
significant customers regarding their plans to identify and address Y2K issues.
The Company has already been assured by its two largest customers, Lucent and
Motorola, that they expect to be Y2K compliant. External Y2K risks will be
addressed as the survey of key customers and suppliers is completed. Although
the Company expects cooperation from the suppliers and customers it is
surveying, the Company also relies on services such as telephones and utilities,
whose Y2K compliance is outside of the Company's control. Therefore, the Company
may be unable to accurately assess the Y2K readiness of third parties, and the
impact of such third party non-compliance on the Company's operations.
The Company plans to continue to identify, assess and to resolve all material
Y2K issues by the end of 1999. The Company is developing contingency plans to
address significant internal and external Y2K issues as they are identified.
These contingency plans are expected to be complete by the end of 1999. The Y2K
problem involves pervasive
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<PAGE> 12
complex interrelationships, both internal and external to the Company. As a
result, no assurance can be given that the Company will identify and
successfully resolve all Y2K issues.
The Company has not incurred any material expense to date in addressing Y2K
issues. Although the Company has not completed its assessment of Y2K readiness,
the Company believes no material expenses will be incurred in the future.
READINESS FOR GPS WEEK ROLLOVER
All current Global Positioning system (GPS) satellites, which are operated by
the United States government, report time in the form of a GPS week number and a
time offset. The week number is accumulated in a 10 bit counter with a range of
0 to 1023. The counter began at 0 on January 6, 1980, and is scheduled to roll
from 1023 back to 0 on August 21, 1999. This rollover may cause equipment to
erroneously interpret dates causing satellite positions to be miscalculated
producing inaccurate data. The Company has identified its products that are
non-compliant. The Company's liability is limited to those products considered
under warranty. The Company does not expect to incur any material expense in
upgrading these products. For products not considered under warranty, the
Company expects to realize additional revenue, although not material, in
upgrading these older non-compliant products.
Information Regarding Potential Fluctuations in Quarterly Operating Results
The Company has experienced, and expects to continue to experience, fluctuations
in sales and operating results from quarter to quarter. As a result, the Company
believes that period-to-period comparisons of its operating results are not
necessarily meaningful, and that such comparisons cannot be relied upon as
indicators of future performance. A significant component of the fluctuations
results from rescheduling of orders by the Company's major customers, in some
cases due in part to the customers' attempts to minimize inventories. Other
factors that could cause the Company's sales and operating results to vary
significantly from period to period include: contractual price reductions on
products sold to certain major customers; the timing, availability and sale of
new products; changes in the mix of products with differing gross margins;
variations in manufacturing capacities, efficiencies and costs; the availability
and cost of components; warranty expenses; and variations in product development
and other operating expenses. In addition, the sales cycles for many of the
Company's products are often lengthy and unpredictable, and can take up to 36
months. Further, there can be no assurance that the Company will be successful
in closing large transactions on a timely basis or at all. The timing of these
transactions could cause additional variability in the Company's operating
results. The Company's quarterly results of operations are also influenced by
competitive factors, including pricing and availability of the Company's and
competing companies' time and frequency products. A large portion of the
Company's expenses are fixed and difficult to reduce in a short period of time.
If net sales do not meet the Company's expectations, the Company's fixed
expenses would exacerbate the effect of such net sales shortfall. Furthermore,
announcements by the Company or its competitors regarding new products and
technologies could cause customers to defer purchases of the Company's products.
Order deferrals by the Company's customers, purchase policy changes, delays in
the Company's introduction of new products and longer than anticipated sales
cycles for the Company's products have in the past materially adversely affected
the Company's quarterly results of operations. Due to the foregoing factors, as
well as other unanticipated factors, it is likely that in some future quarter
the Company's operating results will be below the expectations of public market
analysts or investors. In such event, the price of the Company's common stock
would be materially adversely affected.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
There has been no material change from the Company's disclosure regarding market
risk contained in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998.
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PART II. OTHER INFORMATION
Items 1 through 5 have been omitted because the related information is either
inapplicable or has been previously reported.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. Description
27.1 Financial Data Schedule
(b) No current reports on Form 8-K were filed during the quarter covered by
this report.
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Pursuant to the requirements of the Exchange Act, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
DATUM INC.
/s/ Erik H. van der Kaay Date May 14, 1999
- ------------------------------------- ---------------------
Erik H. van der Kaay, President
and Chief Executive Officer
/s/ David A. Young Date May 14, 1999
- ------------------------------------- ---------------------
David A. Young, Chief Financial and
Chief Accounting Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Description Page
- ------------ ----------- ----
<S> <C> <C>
27.1 Financial Data Schedule
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
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0
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