<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 June 30, 2000 .
------------------------
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 5,956,222 shares of common stock outstanding as of August 7,
2000.
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INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements........................................... 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................11
Item 3. Quantitative and Qualitative Disclosures about Market Risk.....13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders............14
Item 6. Exhibits and Reports on Form 8-K...............................14
Signatures.....................................................15
Exhibit Index..................................................16
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DATUM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, December 31,
A S S E T S 2000 1999
-------- ------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 2,808 $ 8,271
Accounts receivable, net 30,158 22,927
Inventories
Purchased parts 11,443 8,720
Work-in-process 10,358 8,082
Finished products 3,653 5,009
------- -------
25,454 21,811
Prepaid expenses 798 495
Deferred income taxes 3,359 3,359
Income tax refund receivable 463 463
------- -------
Total current assets 63,040 57,326
Plant and equipment
Land 2,040 2,040
Buildings 5,278 5,210
Equipment 24,106 21,974
Leasehold improvements 1,349 1,185
------- -------
32,773 30,409
Less accumulated depreciation and amortization 17,609 15,650
------- -------
15,164 14,759
------- -------
Excess of purchase price over net assets acquired, net 13,659 14,722
Other assets 552 975
------- -------
$92,415 $87,782
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
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<PAGE> 4
DATUM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
-------- --------
<S> <C> <C>
Current liabilities
Accounts payable $ 8,403 $ 6,706
Accrued salaries and wages 2,859 2,269
Accrued warranty 2,028 1,635
Other accrued expenses 1,784 1,144
Income taxes payable 771 553
Current portion of long-term debt 3,501 3,002
-------- --------
Total current liabilities 19,346 15,309
-------- --------
Long-term debt 10,001 11,671
-------- --------
Postretirement benefits 1,107 1,034
-------- --------
Other long-term liabilities 604 418
-------- --------
Deferred income taxes 1,030 1,030
-------- --------
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 - 5,900,103 shares in 2000
5,854,997 shares in 1999 1,475 1,464
Additional paid-in capital 48,353 47,709
Retained earnings 11,568 10,178
Unamortized stock compensation (239) (309)
Accumulated other comprehensive loss (830) (722)
-------- --------
Total stockholders' equity 60,327 58,320
-------- --------
$ 92,415 $ 87,782
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
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<PAGE> 5
DATUM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $ 33,567 $ 24,765 $ 62,511 $ 49,317
-------- -------- -------- --------
Operating expenses:
Cost of sales 17,687 14,135 34,408 29,448
Selling 4,319 3,504 8,462 6,982
Product development 4,041 3,983 7,789 7,393
General and administrative 4,853 2,490 8,250 4,760
-------- -------- -------- --------
Operating income 2,667 653 3,602 734
Interest expense 902 485 1,344 1,002
Interest income (66) (199) (139) (319)
-------- -------- -------- --------
Income before income taxes 1,831 367 2,397 51
Income tax provision 769 145 1,007 20
-------- -------- -------- --------
Net income $ 1,062 $ 222 $ 1,390 $ 31
======== ======== ======== ========
Net income per common share:
Basic $ .18 $ .04 $ .24 $ .01
======== ======== ======== ========
Diluted $ .17 $ .04 $ .22 $ .01
======== ======== ======== ========
Shares used in per share calculation:
Basic 5,888 5,557 5,881 5,538
======== ======== ======== ========
Diluted 6,180 5,631 6,180 5,606
======== ======== ======== ========
</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>
Six Months Ended
June 30,
----------------------
2000 1999
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,390 $ 31
------- --------
Adjustments to reconcile loss to net cash provided by
operating activities:
Depreciation and amortization 2,547 1,905
Amortization of goodwill 1,063 447
Contribution of shares of common stock to
the Company's 401(k) plan 362 342
Stock based compensation 173 29
Changes in assets and liabilities:
Increase in accounts receivable (7,230) (1,854)
Decrease in income tax refund receivable 0 472
(Increase) decrease in inventories (3,643) 1,420
Increase in prepaid expenses (303) (425)
Increase in other assets 0 (251)
Increase in accounts payable 1,697 1,599
Increase (decrease) in accrued expenses 1,622 (475)
Increase (decrease) in income taxes payable 218 (43)
Increase in postretirement benefits 73 108
Increase (decrease) in other long-term liabilities 186 (11)
------- --------
Total reconciling items (3,235) 3,263
------- --------
Net cash provided (used) by operating activities (1,845) 3,294
------- --------
Cash flows from investing activities:
Proceeds from equipment disposals 51 1
Capital expenditures (2,502) (1,332)
Other (108) (387)
------- --------
Net cash used by investing activities (2,559) (1,718)
------- --------
Cash flows from financing activities:
Payments of long-term debt (1,501) (1,512)
Proceeds from exercise of stock options 301 86
Proceeds from ESP plan 141 104
------- --------
Net cash used for financing activities (1,059) (1,322)
------- --------
Net increase (decrease) in cash and cash equivalents (5,463) 254
Cash and cash equivalents at beginning of period 8,271 10,307
------- --------
Cash and cash equivalents at end of period $ 2,808 $ 10,561
======= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
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<PAGE> 7
DATUM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
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. The condensed consolidated balance sheet at December 31, 1999 was
derived from the audited consolidated balance sheet at that date which is not
presented herein.
In the opinion of management, the accompanying financial statements reflect all
adjustments, which are normal and recurring, necessary to provide a fair
presentation of the results for the interim period presented. These condensed
consolidated financial statements should be read in conjunction with the audited
financial statements presented in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999. Operating results for interim periods are not
necessarily indicative of operating results for an entire year.
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 disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of sales and expenses during the reporting period. Actual
results could differ from those estimates.
NOTE B - EARNINGS PER SHARE
Net income per share-Basic excludes dilution and is computed by dividing net
income by the weighted average number of common shares outstanding during the
reporting period. Net income per share-Diluted reflects the potential dilutive
effect, calculated using the treasury stock method, of additional common shares
that are issuable upon exercise of outstanding stock options and stock warrants
as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------ ----------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
----- ----- ----- -----
Basic shares outstanding (weighted average) 5,888 5,557 5,881 5,538
Effect of dilutive securities 292 74 299 68
----- ----- ----- -----
Diluted shares outstanding 6,180 5,631 6,180 5,606
===== ===== ===== =====
</TABLE>
Options outstanding during the three months ended June 30, 2000 and 1999 to
purchase approximately 160,000 and 794,000 shares of common stock, respectively,
and options outstanding during the six months ended June 30, 2000 and 1999 to
purchase approximately 160,000 and 796,000 shares of common stock, respectively,
were not included in the computation of dilutive securities because the options'
exercise price was greater than the average market price of the common stock
during the period and, therefore, the effect would be anti-dilutive.
NOTE C - COMPREHENSIVE INCOME
Total comprehensive income (loss) was $1,063,000 and ($95,000) for the three
months ended June 30, 2000 and 1999, respectively. For the six months ended June
30, 2000 and 1999, total comprehensive income (loss) was $1,282,000 and
($369,000), respectively. The difference from net income as reported is the
change in cumulative translation adjustment.
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<PAGE> 8
NOTE D - SEGMENT AND RELATED INFORMATION
The Company has six reportable segments: Irvine, CA, Austin, TX, Beverly, MA,
San Jose, CA, Lexington, MA, and Hofolding, Germany. The Irvine, CA segment
produces products primarily for the wireless telecommunications market. At the
Austin, TX segment, products are primarily produced for the wireline
telecommunications market. At the Beverly, MA segment, Cesium standards are
produced for the test and measurement, telecommunications and satellite markets.
The San Jose, CA segment produces products for both the enterprise computing and
test and measurement markets. The Lexington, MA segment produces products for
the e-business market. The Hofolding, Germany segment produces products for the
wireless and wireline telecommunications and test and measurement markets.
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 do not include cash, income tax refund
receivable and deferred income taxes, prepaid expenses, goodwill and other
long-term corporate assets.
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The tables below present information about reported segments for the quarters
ended June 30:
<TABLE>
<CAPTION>
SEGMENT SALES
(in thousands)
Irvine, Austin, San Jose, Beverly, Lexington, Hofolding,
CA TX CA MA MA Germany Total
-------- -------- --------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
2000
Total sales $ 15,535 $ 12,530 $ 2,879 $ 4,294 $ 55 $ 1,474 $ 36,767
Intersegment sales (1,540) (395) (44) (1,021) -- (200) $ (3,200)
-------- -------- ------- ------- ----- ------- --------
Outside sales $ 13,995 $ 12,135 $ 2,835 $ 3,273 $ 55 $ 1,274 $ 33,567
======== ======== ======= ======= ===== ======= ========
1999
Total sales $ 10,264 $ 8,014 $ 4,090 $ 3,577 $ -- $ 1,383 $ 27,328
Intersegment sales (843) (305) (131) (1,164) -- (120) $ (2,563)
-------- -------- ------- ------- ----- ------- --------
Outside sales $ 9,421 $ 7,709 $ 3,959 $ 2,413 $ -- $ 1,263 $ 24,765
======== ======== ======= ======= ===== ======= ========
<CAPTION>
SEGMENT OPERATING INCOME (LOSS)
(in thousands)
Irvine, Austin, San Jose, Beverly, Lexington, Hofolding,
CA TX CA MA MA Germany Total
-------- -------- --------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
2000 $ 2,982 $ 2,560 $ (847) $ 645 $(584) $ 95 $ 4,851
1999 $ (615) $ 1,551 $ 547 $ 315 $ -- $ 264 $ 2,062
</TABLE>
A reconciliation of segment operating income loss to consolidated amounts for
the quarters ended June 30:
<TABLE>
<CAPTION>
(in thousands) 2000 1999
------- -------
<S> <C> <C>
Segment operating income $ 4,851 $ 2,062
Corporate expenses (1,725) (882)
Amortization of goodwill (717) (409)
Intercompany profit (loss) elimination 258 (118)
------- -------
Consolidated operating income $ 2,667 $ 653
======= =======
</TABLE>
The table below presents identifiable segments assets as of June 30, 2000
compared to prior year end:
<TABLE>
<CAPTION>
IDENTIFIABLE SEGMENT ASSETS
(in thousands)
Irvine, Austin, San Jose, Beverly, Lexington, Hofolding,
CA TX CA MA MA Germany Total
-------- -------- --------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
June 30, 2000 $ 20,426 $ 25,664 $ 4,618 $14,137 $ 259 $ 2,553 $ 67,657
December 31, 1999 $ 17,126 $ 19,436 $ 4,977 $12,260 $ 206 $ 1,920 $ 55,925
</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, 2000. 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 material impact on its financial position
and results of operations.
In December 1999, the Securities and Exchange Commission (the "SEC") released
Staff Accounting Bulletin ("SAB") No. 101, which provides guidance on the
recognition, presentation and disclosure of revenue in financial
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<PAGE> 10
statements filed with the SEC. The Company is required to be in conformity with
the provisions of SAB 101 no later than fourth quarter 2000. The Company is
continuing to assess the impact of SAB 101.
NOTE F - SUBSEQUENT EVENTS
On July 6, 2000, the Company refinanced its debt. The balance of the Series A
and Series B notes were paid off in full and replaced with a $6 million term
loan payable in monthly principal installments of $250,000 plus interest
beginning August 1, 2000. The interest rate on the $6 million term loan is fixed
at 9.15%. Unamortized debt expense and warrant discounts related to the Series A
and Series B notes were written off in full in the quarter ended June 30, 2000.
On August 7, 2000, the Company announced a consolidation of its San Jose and
Beverly divisions. The move will streamline business processes, improve the
Company's competitive position and create a new strategic business unit focused
on the test and measurement market. The new Datum Test and Measurement Division
will eliminate a number of current duplications including similar products,
distribution channels, sales personnel and shared customers. Sales, marketing
and administrative responsibilities will be consolidated at Beverly, while other
administrative functions along with manufacturing operations will be transferred
to the Company's Irvine, California facility. The Company expects to take a
charge in the quarter ended September 30, 2000 of approximately $500,000 before
income taxes for severance and termination costs.
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<PAGE> 11
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 Annual Report to Stockholders on Form 10-K for the year ended December
31, 1999.
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 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 Annual Report on Form 10-K for the
year ended December 31, 1999. 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 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. Net sales increased $8.8 million, or 35.5%, to $33.6 million for the
quarter ended June 30, 2000 from $24.8 million for the corresponding quarter in
1999. Net sales in the wireline synchronization business increased $4.4 million
or 57.4%, sales in the wireless business increased $4.6 million or 48.6% and
sales in the Cesium standard business increased $0.9 million or 35.6% for the
quarter ended June 30, 2000 compared to the corresponding quarter of 1999. This
was offset by net sales decreases of $1.1 million or 28.4% in the enterprise
timing products business for the quarter ended June 30, 2000 compared to the
corresponding quarter of 1999. For the six months ended June 30, 2000, sales
increased $13.2 million or 26.8% compared to the first six months of 1999.
Growth in the telecommunications network infrastructure, the Company's emphasis
on lower cost solutions and new products all contributed to the growth in sales.
Gross margin. Gross margin increased to 47.3% for the quarter ended June 30,
2000 from 42.9% for the corresponding quarter in 1999. For the six months ended
June 30, 2000, gross margin increased to 45.0% from 40.3% in the first six
months of 1999. The increases are primarily a result of enhanced manufacturing
and development efficiencies, improved supply chain management and efficiencies
gained from increases in sales.
Selling expense. Selling expense increased by 23.3% to $4.3 million for the
quarter ended June 30, 2000, from $3.5 million for the corresponding quarter in
1999. As a percentage of net sales, selling expense decreased to 12.9% for the
quarter ended June 30, 2000 from 14.1% for the corresponding quarter in 1999.
For the six months ended June 30, 2000, selling expense increased by 21.2% to
$8.5 million, from $7.0 million for the corresponding period in 1999. As a
percentage of net sales, selling expense decreased to 13.5% for the six months
ended June 30, 2000 from 14.2% for the corresponding period in 1999. The
decrease was primarily due to the increase in
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<PAGE> 12
sales and the continued reduction in outside commissions caused by the
replacement of outside sales reps, where appropriate, with a direct sales force.
Product development. Product development expense remained relatively constant at
$4.0 million for the quarters ended June 30, 2000 and 1999. As a percentage of
net sales, product development expense decreased to 12.0% for the quarter ended
June 30, 2000 from 16.1% for the corresponding quarter of 1999. For the six
months ended June 30, 2000, product development expense increased 5.4% to $7.8
million from $7.4 million in the corresponding period in 1999. As a percentage
of net sales, product development expense decreased to 12.5% for the six months
ended June 30, 2000 from 15.0% for the corresponding period of 1999. The
spending reflects the continual emphasis on new product design and enhancement
of current products.
General and administrative. General and administrative expense increased 94.9%
to $4.9 million for the quarter ended June 30, 2000, from $2.5 million for the
corresponding quarter of 1999. Goodwill amortization from the July 1999 Digital
Delivery acquisition and other Digital Delivery general and administrative
expense is responsible for $460,000 of the increase. The balance of the change
was caused primarily by incentive accruals, charges related to management
changes and the remaining cost related to the termination of an unsolicited
offer for the Company in December 1999. As a percentage of net sales, general
and administrative expense increased to 14.5% for the quarter ended June 30,
2000, from 10.1% for the corresponding quarter of 1999. For the six months ended
June 30, 2000, general and administrative expense increased 73.3% to $8.3
million, or 13.2% of net sales, from $4.8 million, or 9.7% of net sales for the
corresponding period in 1999.
Interest, net. Net interest expense increased by $550,000 to $836,000 for the
quarter ended June 30, 2000 from $286,000 for the corresponding quarter of 1999.
For the six months ended June 30, 2000, net interest expense increased $522,000
to $1.2 million from $683,000 for the corresponding period in 1999. The increase
in net interest expense is a result of lower interest income and the write-off
of unamortized debt expense in the quarter ended June 30, 2000 in relation to
the Company's refinancing of its debt.
Shares outstanding. Shares outstanding increased for the quarter ended June 30,
2000 as a result of shares issued through the Company's 401k, Employee Stock
Purchase Plan and incentive stock option plans.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that its cash and credit facilities are adequate to fund
the Company's operations for the foreseeable future. The Company has a secured
credit facility at an amount not to exceed $10 million, under which no amounts
were outstanding as of June 30, 2000. The facility expires in June 2001. The
Company refinanced its Series A and Series B notes on July 6, 2000. See "Note F
- Subsequent Events".
Cash used by operations was approximately $1.8 million for the six months ended
June 30, 2000 compared to cash provided by operations of $3.3 million for the
corresponding period of 1999. Cash flows were negatively affected in the second
quarter of 2000 by increased inventory levels and accounts receivable balances.
Cash used in investing activities was approximately $2.6 million for the six
months ended June 30, 2000 compared to $1.7 million for the corresponding period
of 1999.
Cash used in financing activities was approximately $1.1 million for the six
months ended June 30, 2000 compared to $1.3 million for the corresponding six
months of 1999. This was the result of scheduled $1.5 million debt payments in
both periods.
Accounts receivable increased $7.2 million to $30.2 million at June 30, 2000
from $22.9 million at December 31, 1999 due to increased shipments in the
wireline and wireless businesses during the latter half of the second quarter of
2000 compared to the latter half of the fourth quarter of 1999.
Inventories increased $3.6 million to $25.5 million at June 30, 2000 from $21.8
million at December 31, 1999, as a result of the continued increase in bookings
during the second quarter of 2000.
Accounts payable increased $1.7 million to $8.4 million at June 30, 2000 from
$6.7 million at December 31,
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<PAGE> 13
1999. This was a result of increased inventory purchases to support increased
sales volume during the quarter ended June 30, 2000 in the wireless and wireline
businesses compared to the quarter ended December 31, 1999.
At June 30, 2000, the Company had working capital of $43.7 million and a current
ratio of 3.3:1 compared to working capital of $42.0 million and a current ratio
of 3.7:1 at December 31, 1999. The decrease is primarily due to increased
accounts payable balances and accrued expense versus a decrease in cash.
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
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. Large portions 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 disclosure regarding market risk
contained in the Annual Report on Form 10-K for the fiscal year ended December
31, 1999.
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<PAGE> 14
PART II. OTHER INFORMATION
Items 1 through 3 and item 5 have been omitted because the related information
is either inapplicable or has been previously reported.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders was held on June 8, 2000
(b) (i) Set forth below is the name of each Class III director elected
at the meeting to serve until the 2003 Annual Meeting of
Stockholders and the number of votes cast for their election
and the number of votes withheld;
Number of Number of
Name Votes "For" Votes "Withheld"
---- ----------- ----------------
R. David Hoover 5,152,426 409,278
Elizabeth A. Fetter 5,144,810 416,894
(ii) The terms of the following directors of the company continued
after the meeting: G.Tilton Gardner, Louis B. Horwitz, Michael
M. Mann, Dan L. McGurk and Erik H. van der Kaay.
(c) Set forth below are the results of the voting at the meeting with
respect to the proposal to adopt an amendment to the Company's 1994
Stock Incentive Plan to increase the number of shares issuable
thereunder by 200,000 shares;
Number of Number of Number of
Votes "For" Votes "Against" "Abstentions"
----------- --------------- -------------
4,182,102 1,362,346 17,256
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Exhibit 27 Financial Data Schedule
(b) No reports on Form 8-K were filed with the Securities and Exchange
Commission during the quarter ended June 30, 2000
-14-
<PAGE> 15
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 August 11, 2000
----------------------------------- ---------------
Erik H. van der Kaay, President and
Chief Executive Officer
/s/ Christopher N. Felfe Date August 11, 2000
------------------------------------------------- --------------
Christopher N. Felfe, Interim Chief Financial and
Chief Accounting Officer
-15-
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------- ----------- ------------
<C> <S> <C>
27.1 Financial Data Schedule
</TABLE>
