-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HfTxpgnOa8PyeYh9MRs7nSphpQe9jbBU59an9M1RoykI2B1aG3qTIyZNmEn+YHSA 548MNN8pNI0BGqs8dsGuow== 0000892569-99-001395.txt : 19990517 0000892569-99-001395.hdr.sgml : 19990517 ACCESSION NUMBER: 0000892569-99-001395 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATUM INC CENTRAL INDEX KEY: 0000027119 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 952512237 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-06272 FILM NUMBER: 99622309 BUSINESS ADDRESS: STREET 1: 9975 TOLEDO WAY CITY: IRVINE STATE: CA ZIP: 92618 BUSINESS PHONE: 714-598-7500 MAIL ADDRESS: STREET 1: 9975 TOLEDO WAY CITY: IRVINE STATE: CA ZIP: 92618 10-Q 1 FORM 10-Q PERIOD END MARCH 31, 1999 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 . -------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________. Commission file no. 0-6272 DATUM INC. (Exact name of registrant as specified in its charter) DELAWARE 95-2512237 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No. 9975 TOLEDO WAY, IRVINE, CA 92618-1819 (Address of principal executive offices) (Zip code) (949) 598-7500 (Registrant's telephone number, including area code) NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report) Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. YES X . NO . ----- ----- The registrant had 5,549,264 shares of common stock outstanding as of April 30, 1999. -1- 2 INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements................................................3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................9 Item 3. Quantitative and Qualitative Disclosures about Market Risk..........12 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K....................................13 Signatures..........................................................14 Exhibit Index.......................................................15
-2- 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements DATUM INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (In thousands, except share data) (Unaudited)
MARCH 31, December 31, A S S E T S 1999 1998 --------- ------------ Current assets Cash and cash equivalents $ 9,110 $10,307 Accounts receivable 21,245 19,327 Inventories Purchased parts 8,642 7,156 Work-in-process 8,981 10,524 Finished products 5,113 6,875 ------- ------- 22,736 24,555 Prepaid expenses 647 479 Deferred income taxes 3,056 3,056 Income tax refund receivable 1,482 1,190 ------- ------- Total current assets 58,276 58,914 Plant and equipment Land 2,040 2,040 Buildings 5,173 5,060 Equipment 21,157 20,450 Leasehold improvements 1,177 1,149 ------- ------- 29,547 28,699 Less accumulated depreciation and amortization 13,496 12,651 ------- ------- 16,051 16,048 ------- ------- Excess of purchase price over net assets acquired, net 11,008 11,231 Other assets 792 727 ------- ------- $86,127 $86,920 ======= =======
See Notes to Condensed Consolidated Financial Statements -3- 4 DATUM INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (In thousands, except share data) (Unaudited)
MARCH 31, December 31, LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998 --------- ------------ Current liabilities Accounts payable $ 5,394 $ 4,241 Accrued salaries and wages 2,246 2,485 Accrued warranty 1,466 1,498 Other accrued expenses 1,293 1,287 Income taxes payable 258 289 Current portion of long-term debt 3,021 3,025 -------- -------- Total current liabilities 13,678 12,825 -------- -------- Long-term debt 13,066 14,533 -------- -------- Postretirement benefits 872 818 -------- -------- Other long-term liabilities 136 144 -------- -------- Deferred income taxes 1,622 1,622 -------- -------- Stockholders' equity Preferred stock, par value $.25 per share Authorized - 1,000,000 shares Issued - none -- -- Common stock, par value $.25 per share Authorized - 10,000,000 shares Issued - 5,538,406 shares in 1999 5,505,843 shares in 1998 1,385 1,376 Additional paid-in capital 45,157 44,941 Retained earnings Beginning of period 11,328 12,785 Net loss (191) (1,457) -------- -------- End of period 11,137 11,328 Unamortized stock compensation (354) (368) Accumulated other comprehensive income (572) (299) -------- -------- Total stockholders' equity 56,753 56,978 -------- -------- $ 86,127 $ 86,920 ======== ========
See Notes to Condensed Consolidated Financial Statements -4- 5 DATUM INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (In thousands, except per share data) (Unaudited)
Three Months Ended March 31, ------------------------ 1999 1998 -------- -------- Net sales $ 24,552 $ 25,378 -------- -------- Costs and expenses Cost of goods sold 15,313 17,165 Selling 3,478 3,958 Product development 3,410 2,798 General and administrative 2,270 2,370 Interest expense 517 513 Interest income (120) (84) -------- -------- 24,868 26,720 -------- -------- Loss before income taxes (316) (1,342) Income tax benefit (125) (530) -------- -------- Net loss $ (191) $ (812) ======== ======== Net loss per share: Basic $ (.03) $ (.15) ======== ======== Diluted $ (.03) $ (.15) ======== ======== Shares used in per share calculation: Basic 5,518 5,341 ======== ======== Diluted 5,518 5,341 ======== ========
See Notes to Condensed Consolidated Financial Statements -5- 6 DATUM INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands) (Unaudited)
Three Months Ended March 31, ----------------------- 1999 1998 -------- ------- Cash flows from operating activities: Net loss $ (191) $ (812) -------- ------- Adjustments to reconcile loss to net cash provided by operating activities: Depreciation and amortization 954 877 Amortization of goodwill 223 223 Contribution of shares of common stock to the Company's 401(k) plan 162 185 Amortization of stock compensation 15 -- Changes in assets and liabilities: Increase in accounts receivable (1,918) (2,503) (Increase) decrease in income tax refund receivable (292) 45 Decrease in inventories 1,819 1,162 Increase in prepaid expenses (168) (35) Increase in other assets (83) -- Increase in accounts payable 1,153 2,031 Decrease in accrued expenses (265) (590) Decrease in income taxes payable (31) -- Increase in postretirement benefits 54 54 Decrease in other long-term liabilities (8) (10) -------- ------- Total reconciling items 1,615 1,439 -------- ------- Net cash provided by operating activities 1,424 627 -------- ------- Cash flows from investing activities: Capital expenditures (913) (673) Other (264) (65) -------- ------- Net cash used in investing activities (1,177) (738) -------- ------- Cash flows from financing activities: Proceeds from (reductions to) long-term debt (1,506) (5) Proceeds from exercise of stock options -- 35 Proceeds from ESP plan 62 88 -------- ------- Net cash provided by (used for) financing activities (1,444) 118 -------- ------- Net increase (decrease) in cash and cash equivalents (1,197) 7 Cash and cash equivalents at beginning of period 10,307 5,819 -------- ------- Cash and cash equivalents at end of period $ 9,110 $ 5,826 ======== =======
See Notes to Condensed Consolidated Financial Statements -6- 7 DATUM INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 AND 1998 NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q and, therefore, do not include all information and footnotes which would be presented were such financial statements prepared in accordance with generally accepted accounting principles, and should be read in conjunction with the audited financial statements presented in the Company's 1998 Annual Report to Stockholders. In the opinion of management, the accompanying financial statements reflect all adjustments which are necessary for a fair presentation of the results for the interim period presented. The results of operations for such interim period are not necessarily indicative of results to be expected for the full year. NOTE B - EARNINGS PER SHARE For the quarters ended March 31, 1999 and 1998, the Company did not include potential common stock in the calculation of net loss per share - diluted, as such inclusion would have an anti-dilutive effect. NOTE C - COMPREHENSIVE INCOME In 1998, the Company adopted Financial Accounting Standards No. 130 (FAS 130), "Reporting Comprehensive Income." FAS 130 establishes standards for the reporting and displaying of comprehensive income and its components in the Company's consolidated financial statements. Comprehensive income is defined in FAS 130 as a change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Total comprehensive income was $(464,000) and $(879,000) for the three months ended March 31, 1999 and 1998, respectively. The primary difference from net income as reported is the tax affected change in cumulative translation adjustment. NOTE D - SEGMENT AND RELATED INFORMATION In 1998, the Company adopted Financial Accounting Standards No. 131 (FAS 131), "Disclosures about Segments of an Enterprise and Related Information." The statement requires the Company to report about its operating segments. The Company evaluates performance of its segments and allocates resources to them based on segment operating income. Segment operating income does not include corporate expenses, amortization of goodwill and intersegment profit elimination. Identifiable assets include accounts receivable, inventories, and land, building and equipment and does not include cash, income tax refund receivable and deferred income taxes, prepaid expenses goodwill and other long-term corporate assets. The tables below presents information about reported segments for the quarters ended March 31: -7- 8 SEGMENT SALES (in thousands)
Irvine, Austin, San Jose, Beverly, Munich, CA TX CA MA Germany Total -------- ------- -------- -------- ------- -------- 1999 Total sales $ 10,555 $ 7,168 $ 3,685 $ 3,527 $ 1,093 $ 26,028 Intersegment sales (669) (76) (96) (620) (15) (1,476) -------- ------- ------- ------- ------- -------- Net sales $ 9,886 $ 7,092 $ 3,589 $ 2,907 $ 1,078 $ 24,552 ======== ======= ======= ======= ======= ======== 1998 Total sales $ 12,920 $ 5,572 $ 3,842 $ 3,392 $ 1,319 $ 27,045 Intersegment sales (597) (62) (861) (147) (1,667) -------- ------- ------- ------- ------- -------- Net sales $ 12,323 $ 5,572 $ 3,780 $ 2,531 $ 1,172 $ 25,378 ======== ======= ======= ======= ======= ========
SEGMENT OPERATING INCOME (LOSS) (in thousands)
Irvine, Austin, San Jose, Beverly, Munich, CA TX CA MA Germany Total ------- ------- --------- -------- ------- ------ 1999 $ (966) $1,475 $285 $287 $ (2) $1,079 1998 (1,214) 874 1 242 217 120
A reconciliation of segment operating income (loss) to consolidated amounts for the quarters ended ended March 31:
(in thousands) 1999 1998 ------- ----- Segment operating income (loss) $ 1,079 $ 120 Corporate expenses (643) (581) Amortization of goodwill (408) (408) Intercompany profit elimination 53 (44) ------- ----- Consolidated operating income (loss) $ 81 $(913) ======= =====
The table below presents identifiable segments assets as of March 31, 1999 compared to prior prior year end: IDENTIFIABLE SEGMENT ASSETS (in thousands)
Irvine, Austin, San Jose, Beverly, Munich, CA TX CA MA Germany Total ------- ------- -------- -------- -------- ------- March 31, 1999 $22,842 $15,287 $4,945 $10,881 $1,930 $55,885 December 31, 1998 22,722 14,765 6,027 9,867 2,251 55,632
NOTE E - RECENT CHANGES TO ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued Financial Accounting Standards No. 133 (FAS 133) "Accounting for Derivative Instruments and Hedging Activities," which defines derivatives, requires all derivatives be carried at fair value and provides for hedging accounting when certain conditions are met. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Although the Company has not fully assessed the implications of this new statement, the Company does not believe adoption of this statement will have a materiel impact on the Company's financial position and results of operations. -8- 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" presented in the Company's 1998 Annual Report on Form 10-K to Stockholders. INTRODUCTORY NOTE All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable at this time, it can give no assurance that such expectations will prove to have been correct. The Company makes no undertaking to correct or update any such statements in the future. Important factors that could cause actual results to differ materially from the Company's expectations ("Cautionary Statements") are set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as in, or incorporated by reference in, the Company's Annual Report on Form 10-K for the year ended December 31, 1998. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. Overview Datum designs, manufactures and markets a wide variety of high performance time and frequency products used to synchronize the flow of information in telecommunications networks. The Company is also a leading supplier of precise timing products for enterprise computing networks and a wide variety of space, scientific and industrial test and measurement applications. A small number of customers account for a substantial portion of the Company's net sales and the Company expects that a limited number of customers will continue to represent a substantial portion of the Company's net sales for the foreseeable future. There can be no assurance that a major customer will not reduce, delay or eliminate its purchases from the Company. Any such reduction, delay or loss in orders could have a material adverse effect on the Company's business, financial condition and results of operations. Results of Operations Net sales. The Company's net sales decreased 3.3% to $24.6 million for the quarter ended March 31, 1999 from $25.4 million for the corresponding quarter in 1998. Although net sales increased in both the cesium and wireline operations in the first quarter of 1999 compared to the corresponding quarter of 1998, net sales decreased in the wireless operations primarily as the result of decreased product usage by the Company's largest customer. Gross Margin. Gross margin increased to 37.6% for the quarter ended March 31, 1999 from 32.4% for the corresponding quarter in 1998. Gross margin growth appeared in all domestic operations except for wireless, which decreased primarily due to the 1998 contractual price reductions to the Company's largest customer. Gross margin improvements were due to material cost savings, productivity improvements and overhead reductions occurring during the 1998 year. Selling Expense. Selling expense decreased by 12.1% to $3.5 million for the quarter ended March 31, 1999, from $4.0 million for the corresponding quarter in 1998. The decrease was primarily due to reduced outside commissions caused by the replacement of outside sales reps, where appropriate, with a direct sales force as well as a more cost-efficient shipment mix. As a percentage of net sales, selling expense decreased to 14.2% for the quarter ended March 31, 1999 from 15.6% for the corresponding quarter in 1998. Product Development. Product development expense increased by 21.9% to $3.4 million for the quarter ended March 31, 1999 from $2.8 million for the corresponding quarter in 1998, primarily due to increased -9- 10 development efforts to reduce the time to market on high-growth-potential products. These include the new low-cost cesium, the latest generation of wireline synchronization products including the CDMA-based antenna-less synchronization unit and the e-business trusted time hardware. As a percentage of net sales, product development expenses increased to 13.9% for the quarter ended March 31, 1999 from 11.0% for the corresponding quarter of 1998. General and Administrative. General and administrative expense decreased 4.2% to $2.3 million for the quarter ended March 31, 1999, from $2.4 million for the corresponding quarter of 1998. The decrease was primarily due to headcount reductions during the 1998 year. As a percentage of net sales, general and administrative expense decreased to 9.2% for the quarter ended March 31, 1999, from 9.3% for the corresponding quarter of 1998. Interest, Net. Interest expense decreased by $32,000 for the quarter ended March 31, 1999 from the corresponding quarter of 1998. The decrease is the result of increased interest earned on the Company's higher cash balances. Shares Outstanding. Shares outstanding increased during the quarter ended March 31, 1999, primarily due to shares issued under the Company's 401(k) Plan, Employee Stock Purchase Plan, and Incentive Stock Option Plan. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operations was approximately $1.4 million for the quarter ended March 31, 1999 compared to $627,000 for the corresponding quarter of 1998. Cash flows were positively affected in the first quarter of 1999 primarily by reductions in net loss, accounts receivable and inventories offset by lower accounts payable balances. Cash used in investing activities was approximately $1.2 million for the quarter ended March 31, 1999 compared to $738,000 for the corresponding quarter of 1998 primarily reflecting increased expenditures for property and equipment. The Company currently anticipates that capital expenditures for fiscal 1999 will be approximately $3.5 million. Cash used for financing activities was approximately $1.4 million for the quarter ended March 31, 1999 compared to cash provided by financing activities of $118,000 for the corresponding quarter of 1998. The change was primarily the result of the scheduled $1.5 million debt payment in the first quarter of 1999. Accounts receivable increased to $21.2 million at March 31, 1999 from $19.3 million at December 31, 1998 due to increased shipment levels in the last two months of the quarter ended March 31, 1999 compared to the last two months of the quarter ended December 31, 1998. Inventories decreased $1.8 million to $22.7 million at March 31, 1999 from $24.6 million at December 31, 1998 primarily due to the Company's continued efforts to reduce inventories. Accounts payable increased by approximately $1.2 million to $5.4 million at March 31, 1999 from $4.2 million at December 31, 1998. The increase was primarily due to increased inventory purchases in the wireless operation to support increased shipments in the month of March 1999, as compared to December 1998. At March 31, 1999, the Company had working capital of $44.6 million and a current ratio of 4.3:1 compared to working capital of $46.1 million and a current ratio of 4.6:1 at December 31, 1998. The decrease is primarily due to decreased cash and inventory balances offset by increased accounts receivable balances and increased accounts payable balances. The Company's credit facility includes: (i) $6.0 million of Series A Senior Secured Promissory Notes maturing September 27, 2000, bearing interest at the rate of 9.07% on the unpaid principal, payable quarterly, with the principal -10- 11 repaid in equal installments of $1.5 million on March 27 and September 27 of each year, commencing March 27, 1999; and (ii) $12.0 million of Series B Senior Secured Promissory Notes maturing September 27, 2003, bearing interest at the rate of 10.25% on the unpaid principal, payable quarterly, with the principal repaid in equal installments of $2.0 million on March 27 and September 27 of each year, commencing March 27, 2001. In addition, in connection with the issuance of these promissory notes, the Company issued to The Prudential Insurance Company of America ("Prudential") common stock warrants for the purchase of 175,000 shares of common stock at an exercise price per share of $11.50. The maturity date of the revolving component of the Company's line of credit with Wells Fargo Bank has been extended to June 15, 1999 in a principal amount not to exceed $10.0 million and bearing interest at Wells Fargo's prime rate or at LIBOR plus 2.75%. Currently the Company is renegotiating for a two- year line of credit. Under both the Wells Fargo credit facility and the Prudential promissory notes, the Company is required to maintain certain financial ratios, limit other indebtedness and may not pay dividends. Other restrictions include limitations on the amounts of leases and capital expenditures that may be incurred. READINESS FOR YEAR 2000 The Company is aware that some significant portion of existing electronic equipment, including computers, software and embedded technology, was not designed to correctly process dates after December 31, 1999. These systems store dates as having two digit, rather than four digit years, which could potentially cause erroneous data results for program failures in the year 2000. The Company is currently assessing the impact of such Year 2000 (Y2K) issues on the Company's internal computer systems, non-computer systems, and products as well as on the Company's vendors, service providers, and significant customers. Internally, the Company has developed a plan to inventory critical systems at each of its five operating locations and develop solutions, with further contingency plans where possible. The Company has identified two of its five information systems locations as not Y2K compliant. While the Company could upgrade these two locations without incurring material expense, the Company has instead decided to implement a Company-wide enterprise information system, which is scheduled for completion in September 1999. The new system is expected to improve information systems operating performance and will be fully Y2K compliant. The Company has not identified any other significant areas of non-compliance in internal computer systems or non-computer systems, or products. The Company has reviewed its products and does not expect to incur any material expense related to product non-compliance. The Company believes additional, though immaterial, revenue may be realized if customers decide to upgrade their older products. The Company believes the greatest risk of significant adverse effects on the Company relates to third party failure to appropriately address their Y2K non-compliance. Y2K failures in key suppliers' systems, or their respective suppliers' or customers' systems, could effect their ability to supply material or services to the Company, and therefore affect the Company's ability to produce and ship products. Y2K failures at the Company's significant customers, including the United States government, could effect such customers' ability to order, accept and pay for the Company's products. External Y2K failures could therefore have a material adverse effect on the Company's revenues and financial condition. The Company is in the process of securing letters of compliance from those vendors and service providers that are critical to the operations of the Company. The Company plans to secure alternative suppliers for those who cannot assure the Company of their Y2K readiness. The Company also plans to survey its significant customers regarding their plans to identify and address Y2K issues. The Company has already been assured by its two largest customers, Lucent and Motorola, that they expect to be Y2K compliant. External Y2K risks will be addressed as the survey of key customers and suppliers is completed. Although the Company expects cooperation from the suppliers and customers it is surveying, the Company also relies on services such as telephones and utilities, whose Y2K compliance is outside of the Company's control. Therefore, the Company may be unable to accurately assess the Y2K readiness of third parties, and the impact of such third party non-compliance on the Company's operations. The Company plans to continue to identify, assess and to resolve all material Y2K issues by the end of 1999. The Company is developing contingency plans to address significant internal and external Y2K issues as they are identified. These contingency plans are expected to be complete by the end of 1999. The Y2K problem involves pervasive -11- 12 complex interrelationships, both internal and external to the Company. As a result, no assurance can be given that the Company will identify and successfully resolve all Y2K issues. The Company has not incurred any material expense to date in addressing Y2K issues. Although the Company has not completed its assessment of Y2K readiness, the Company believes no material expenses will be incurred in the future. READINESS FOR GPS WEEK ROLLOVER All current Global Positioning system (GPS) satellites, which are operated by the United States government, report time in the form of a GPS week number and a time offset. The week number is accumulated in a 10 bit counter with a range of 0 to 1023. The counter began at 0 on January 6, 1980, and is scheduled to roll from 1023 back to 0 on August 21, 1999. This rollover may cause equipment to erroneously interpret dates causing satellite positions to be miscalculated producing inaccurate data. The Company has identified its products that are non-compliant. The Company's liability is limited to those products considered under warranty. The Company does not expect to incur any material expense in upgrading these products. For products not considered under warranty, the Company expects to realize additional revenue, although not material, in upgrading these older non-compliant products. Information Regarding Potential Fluctuations in Quarterly Operating Results The Company has experienced, and expects to continue to experience, fluctuations in sales and operating results from quarter to quarter. As a result, the Company believes that period-to-period comparisons of its operating results are not necessarily meaningful, and that such comparisons cannot be relied upon as indicators of future performance. A significant component of the fluctuations results from rescheduling of orders by the Company's major customers, in some cases due in part to the customers' attempts to minimize inventories. Other factors that could cause the Company's sales and operating results to vary significantly from period to period include: contractual price reductions on products sold to certain major customers; the timing, availability and sale of new products; changes in the mix of products with differing gross margins; variations in manufacturing capacities, efficiencies and costs; the availability and cost of components; warranty expenses; and variations in product development and other operating expenses. In addition, the sales cycles for many of the Company's products are often lengthy and unpredictable, and can take up to 36 months. Further, there can be no assurance that the Company will be successful in closing large transactions on a timely basis or at all. The timing of these transactions could cause additional variability in the Company's operating results. The Company's quarterly results of operations are also influenced by competitive factors, including pricing and availability of the Company's and competing companies' time and frequency products. A large portion of the Company's expenses are fixed and difficult to reduce in a short period of time. If net sales do not meet the Company's expectations, the Company's fixed expenses would exacerbate the effect of such net sales shortfall. Furthermore, announcements by the Company or its competitors regarding new products and technologies could cause customers to defer purchases of the Company's products. Order deferrals by the Company's customers, purchase policy changes, delays in the Company's introduction of new products and longer than anticipated sales cycles for the Company's products have in the past materially adversely affected the Company's quarterly results of operations. Due to the foregoing factors, as well as other unanticipated factors, it is likely that in some future quarter the Company's operating results will be below the expectations of public market analysts or investors. In such event, the price of the Company's common stock would be materially adversely affected. Item 3. Quantitative and Qualitative Disclosures about Market Risk. There has been no material change from the Company's disclosure regarding market risk contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998. -12- 13 PART II. OTHER INFORMATION Items 1 through 5 have been omitted because the related information is either inapplicable or has been previously reported. Item 6. Exhibits and Reports on Form 8-K (a) Exhibit No. Description 27.1 Financial Data Schedule (b) No current reports on Form 8-K were filed during the quarter covered by this report. -13- 14 Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATUM INC. /s/ Erik H. van der Kaay Date May 14, 1999 - ------------------------------------- --------------------- Erik H. van der Kaay, President and Chief Executive Officer /s/ David A. Young Date May 14, 1999 - ------------------------------------- --------------------- David A. Young, Chief Financial and Chief Accounting Officer -14- 15 EXHIBIT INDEX
Sequentially Numbered Exhibit No. Description Page - ------------ ----------- ---- 27.1 Financial Data Schedule
-15- EX-27.1 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 9,110 0 21,245 153 22,736 58,276 29,547 13,496 86,127 13,678 16,087 0 0 1,385 55,368 86,127 24,552 24,552 15,313 24,471 0 0 397 (316) (125) (191) 0 0 0 (191) (.03) (.03)
-----END PRIVACY-ENHANCED MESSAGE-----