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
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
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.
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.
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.
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.
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.
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.
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.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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.
PART II
Item 5.
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.
Item 6. Selected Financial Data.
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
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.
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.
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.
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.
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.
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.
Item 8.
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.
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.
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 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 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.
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:
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Form 10-K
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.
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.
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
DATAMETRICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
See accompanying notes.
DATAMETRICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
See accompanying notes.
DATAMETRICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
See accompanying notes.
DATAMETRICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
See accompanying notes.
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.
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.
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.
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.
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 ======= ======= =======
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:
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.
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 ---- ====
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.
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.
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:
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
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:
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
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.
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.
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
DATAMETRICS CORPORATION AND SUBSIDIARIES
SCHEDULE II--Valuation And Qualifying Accounts
For Each Of The Three Fiscal Years In The Period Ended October 25, 1998
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
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.