After years of struggling to stay afloat, Chatsworth-based Datametrics Monday announced an agreement with two venture capital firms that will give it $2.75 million in much-needed working capital in exchange for what eventually will be a controlling 39.5% stake in the company.
For Datametrics, one of two principal makers of computer printers for the military, the capital infusion will mean its assets exceed liabilities for the first time in five years. The company also announced that it caught up on its long-term debt payments, on which it defaulted Oct. 31.
The light at the end of the tunnel has been a long time in coming for Datametrics. Despite profits in fiscal 1983 and 1984, the red ink returned in fiscal 1985, when the company lost $1.3 million on sales of $13.3 million for the 12 months ended Oct. 31.
Little Working Capital
For the past five years, Datametrics has had little or no working capital, the funds a business uses in its day-to-day operations. Working capital is a measure of solvency, and companies that don't have any don't always survive.
Datametrics survived by generating cash flow with growing sales and persuading its lender, Security Pacific, to stay with it. But things haven't been easy: "It was hairy enough," chief financial officer Keet Johnson said.
The problems at cash-starved Datametrics were many. Six years ago, it made two ill-fated acquisitions from which it is only now recovering. Last year the company stumbled into production problems when operations were snarled by a recalcitrant computerized inventory system that led to parts shortages. Staff members were added to solve the problem, but that only inflated costs.
Besides, during 1982 the company's stock was delisted from the over-the-counter trading system, and, in 1983, three Datametrics executives were accused by the Securities and Exchange Commission of securities violations that resulted in a consent agreement.
"It was touch and go for a long time," said Thomas Berghage, research director at First Affiliated Securities in San Diego.
Monday's announcement, however, was one of several signs that the company may be recovering. Garland S. White, Datametrics' tenacious president and chief executive, said the company recently landed three major defense contracts. He said government rules bar further disclosures about the contracts.
Berghage said he expects the company to show net income of $300,000 for the quarter ended Jan. 31. Datametrics' earlier failings left it with huge tax losses good for future tax breaks.
But Datametrics' picture is hardly rosy: Money is so tight that it has had trouble completing an updated 1985 audit because it couldn't pay its accounting firm.
Datametrics got into the military printer business in 1967, when investor Richard W. Muchmore brought fresh capital to the company and took over as chairman, a post he continues to hold.
Founded by White in 1962, the company had been designing advanced electronics systems for defense contractors, and computer printers were a natural extension.
White, 57, is a Berkeley-trained electrical engineer who specialized in computers. He designed some early airborne computers for jet planes.
Datametrics started selling its special printers in 1969. After several slow years, business took off. From 1975 through 1979, sales and profits grew an average of 40% a year, White said.
2 Firms Dominate
Now Datametrics and Miltope Corp. of Melville, N. Y., dominate the market for printers durable enough to be used on submarines, warships and airplanes.
Miltope President Richard Pandolfi, who reported that his company is the leader with more than $15 million in military printer sales in 1985, said the two companies have a combined 80% of the market, which is estimated to be about $35 million.
White believes the increasing use of computers by the military can only help Datametrics. He said the quality of the company's work is reflected by Japan Air Lines' purchase of its printers for use in cockpits, even though the Japanese dominate the commercial computer printer market.
Datametrics ran into problems in 1979, when it decided to diversify ever so slightly. It acquired Micro Business Applications, a fledgling microcomputer company, and Malibu Electronics, which made an advanced commercial printer.
Micro Business, however, never really got off the ground, and Malibu's printer was stalled by production problems and a lack of capital. The two companies caused Datametrics to lose $6.2 million in fiscal 1981 and $1.9 million in the next 12 months. Datametrics was forced to close Micro Business and sell Malibu.
In the summer of 1982, White said, Datametrics was left with a negative net worth of $4.5 million.