DATA MEASUREMENT CORP
10-Q, 1995-11-13
MEASURING & CONTROLLING DEVICES, NEC
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                             UNITED STATES
                  SECURITIES AND EXCHANGE COMMISSION
                                        Washington, D.C.  20549

                                               FORM 10-Q

(Mark One)

[X]        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
           EXCHANGE ACT OF 1934

           For Quarter ended      September 30, 1995       

                                                  OR

[  ]       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
           EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the transition period from                    to              
Commission File Number    0-15011      

                               Data Measurement Corporation                    
                (Exact name of registrant as specified in its charter)

            Delaware                                    06-0774266        
(State or other jurisdiction of                (I.R.S. Employer Identification)
 incorporation or organization.)

   15884 Gaither Drive, Gaithersburg, Maryland                  20877        
 (Address of principal executive offices)                    (Zip code)

Registrant's telephone number, including area code  (301) 948-2450 


        Indicate by 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 such
filing requirements for the past 90 days.  Yes  X    No     

        The number of shares outstanding of the registrant's common stock par
value $.01 per share, as of September 30, 1995 was 1,379,507.

                    PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements     
<TABLE>             
                    DATA MEASUREMENT CORPORATION
                 CONSOLIDATED STATEMENTS OF OPERATIONS
                          (Unaudited)                     
<CAPTION>                          
                          Three Months                Nine Months            
                          Ended September 30,         Ended September 30,
                          1995       1994               1995         1994
<S>                      <C>           <C>            <C>          <C>
Sales.................    $8,976,234   $6,121,236     $23,998,754  $17,548,521 

Costs and expenses: 
 Cost of sales.......      6,633,491    4,759,111      17,368,226   13,521,563 
 Selling, general & admin. 1,340,961    1,128,122       4,209,958    3,193,998 
 Interest expense........    187,568       99,788         461,412      301,383
 Gain on foreign exch.          (106)     (14,644)        (49,272)      (5,931)
 
Costs and expenses......  8,161,914     5,972,377      21,990,324   17,011,013 

Income before provision  
 for income taxes........   814,320       148,859       2,008,430      537,508 
Provision for income taxes:  
 Current..................  204,792             0         414,471       11,426 
 Deferred.................   99,824       (10,121)        213,801       63,425 
 
Net income before   
extraordinary item........  509,704       158,980       1,380,158      462,657 

Extraordinary item........  --          4,012,180       --           4,012,180 

Net income after  
extraordinary item.......  $509,704     $4,171,160      $1,380,158  $4,474,837 


Net Income per Share.....  
  -Primary
      -Before Extraordinary 
       Item                   $0.34          $0.12           $0.95       $0.35 
      -Extraordinary Item        --          $2.95             --        $2.99 
      -After Extraordinary 
       Item                   $0.34          $3.07           $0.95       $3.34 
  -Fully Diluted
      -Before Extraordinary 
       Item                   $0.31          $0.11           $0.82       $0.33 
     -Extraordinary Item         --          $2.60              --       $2.60 
     -After Extraordinary 
       Item                   $0.31          $2.71           $0.82       $2.93 
       
</TABLE>

       See accompanying notes to consolidated financial statements.
       
                                          2 
<TABLE>                                          
                        DATA MEASUREMENT CORPORATION  
                        CONSOLIDATED BALANCE SHEETS
                                September 30,           December 31,
                                     1995                   1994
                                  (Unaudited)
<S>                               <C>                   <C>
ASSETS                          
Current Assets
  Cash and cash equivalents.....   $1,440,322              $685,384 
  Accounts Receivable:    
    Trade, less allowance for
      doubtful accounts of $167,000      
      in 1995 & $180,000 in 1994... 6,795,534              5,238,586     
    Unbilled accounts receivable...   744,906              1,544,737 
    Retainages.....................   884,081              1,521,516 
     
     Total Accounts Receivable..... 8,424,521              8,304,839   
  Inventories:    
    Work-in-process................ 4,046,138              2,514,722  
    Material and parts............. 8,355,532              6,695,087 
     
     Total inventories............ 12,401,670              9,209,809 
     
  Deferred income taxes............   188,266                188,266 
  Other............................   436,922                316,743       
  
        Total current assets...... 22,891,701             18,705,041 
        
Property & equipment, at cost:  
  Land.............................     39,575                39,163   
  Building.........................    499,155               493,952   
  Machinery and equipment..........  1,852,425             1,763,373   
  Demonstration equipment..........  1,297,086             1,048,997   
  Office furniture.................    951,305               803,945   
  Leasehold improvements...........    261,255               204,644       
  
       Total property and equipment. 4,900,801             4,354,074   
  
  Less accumulated depreciation    
    and amortization...............  3,750,633              3,410,849       
    
        Net property & equipment.... 1,150,168                943,225 
        
Patents and licenses at cost, less  
  amortization of $130,181 in 1995  
  and $102,635 in 1994..............    49,628                 53,551 
  
Goodwill............................   380,179                388,954 

TOTAL ASSETS                       $24,471,676             $20,090,771 

</TABLE>

        See accompanying notes to consolidated financial statements.
        
                                    3 
<TABLE>                                    

                      DATA MEASUREMENT CORPORATION  
                      CONSOLIDATED BALANCE SHEETS
                                    
<CAPTION>                          
    
                                    September 30,          December 31,
                                        1995                  1994
                                      (Unaudited)
<S>                                <C>                    <C>
LIABILITIES & STOCKHOLDERS' EQUITY
    
Current liabilities:  
  Notes payable to bank............ $2,549,199               $706,108   
  Accounts payable.................  3,000,141              2,347,210   
  Advance payments on contracts....  1,069,398              1,453,509   
  Accrued compensation.............    873,062                683,753   
  Accrued warranty expense.........    471,464                354,096   
  Accrued commission expense.......    719,884                566,311   
  Accrued interest expense.........     17,927                 37,427   
  Other accrued liabilities........    639,692                497,265   
  Current income taxes.............    203,951                197,498   
  Current portion of long term debt    617,740                569,999     
  
     Total current liabilities..... 10,162,458              7,413,176 
     
  Deferred income taxes............    277,620                 65,824 
  Long term debt...................  3,272,234              3,568,533 
  
  Stockholders' equity:  
    Common stock, $.01 par value...     13,825                 13,313   
    Additional paid in capital.....  5,594,551              5,417,248  
    Retained earnings..............  5,438,518              4,058,060   
    Currency translation adjustments. (270,730)              (428,583)  
    Treasury stock, 3,000 shares,    
      at cost........................  (16,800)               (16,800)    
      
      Total stockholders' equity...  10,759,364             9,043,238 
      
  
TOTAL LIABILITIES & STOCKHOLDERS' 
      EQUITY                         $24,471,676          $20,090,771 
      
</TABLE>      

      See accompanying notes to consolidated financial statements.
      
                                 4 
      
<TABLE>      

                  DATA MEASUREMENT CORPORATION  
                   STATEMENTS OF CASH FLOWS
                         (Unaudited)    
<CAPTION>                         
                                       Nine Months Ended September 30,
                                           1995                  1994
<S>                                     <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:  
  Net Income..........................   $1,380,458           $4,474,837   
  Adjustments to reconcile net earnings    
    to net cash used in operations:     
      Depreciation......................    345,105              397,100       
      Amortization......................     28,241               22,609   
  Changes in assets and liabilities:      
      Accounts receivable............... (1,741,974)          (1,394,190)      
      Inventories....................... (3,162,997)            (164,538)      
      Other current assets..............   (126,031)             (26,584)      
      Patents and licenses..............    (10,114)             (28,591)      
      Accounts payable..................    639,091              321,392       
      Advance payments on contracts.....  1,253,092              708,201      
      Accrued compensation..............    213,466              (12,892)      
      Other accrued liabilities.........    376,273             (200,472)      
      Current income taxes..............     (1,211)              10,028       
      Deferred income taxes.............    212,898               63,436   
      Net cash provided by (or used in)      
          operating activities:            (593,703)           4,170,336 
          
CASH FLOWS FROM INVESTING ACTIVITIES:  
  Acquisition of property and equipment... (542,744)            (127,703)  
  Net cash provided by (or used in)      
      investing activities:                (542,744)            (127,703)
      
    
CASH FLOWS FROM FINANCING ACTIVITIES:  
  Repayment of long term debt...........   (203,746)          (4,262,401)  
  Increase in notes payable.............  1,842,493              707,873   
  Proceeds from sale of common stock....    128,315                    0   
  Net cash provided by (or used in)      
      financing activities:               1,767,062            (3,554,528)
      
EFFECT OF EXCHANGE RATE CHANGES ON CASH  
  AND CASH EQUIVALENTS:                     124,324                37,673 
  
NET INCREASE IN CASH:                       754,939               525,778 

CASH, Beginning of period                   685,384               738,696 

CASH, End of period                      $1,440,323            $1,264,474 
Supplemental cash flow information:  
  Interest paid.........................   $330,912              $291,936   
  Income taxes paid.....................   $408,018                $1,540   
  Capitalized equipment leases.........    $114,769               $73,030   
  Capitalized test equipment..........     $243,984                   --  
  Conversion of Subordinated Debenture..    $49,500               $80,000 

</TABLE>  
 
       See accompanying notes to consolidated financial statements.
                      
                                  5                                 
                                  
                            DATA MEASUREMENT CORPORATION
                    NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS


(1)     BASIS OF PRESENTATION

        The consolidated unaudited financial statements contained herein have
been prepared from the books and records of the Company.  In the opinion of
management, all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the results of operations for the
interim periods presented have been reflected herein.  The results of
operations for interim periods are not necessarily indicative of the results
to be expected for the entire year.

        The Company has 4,000,000 authorized shares of $.01 par value common
stock of which there were 1,382,507 shares issued and 1,379,507 shares
outstanding and 1,330,818 shares issued and 1,327,818 shares outstanding as
of September 30, 1995 and 1994, respectively.


(2)     NET INCOME PER SHARE CALCULATION

        Primary income per share is based on the weighted average number of
common shares outstanding including common stock equivalents from dilutive
stock options and warrants.  Common equivalent shares were computed using
the treasury stock method.  The Company's convertible subordinated
debentures are not common stock equivalents.  However, stock options having
an exercise price below the average market price of common stock during the
period are common stock equivalents and are assumed to have been exercised. 
Additionally, the method assumes that the exercise proceeds are used by the
Company to repurchase common shares at the average market price.  Under this
method, the average shares used in calculating primary earnings per share are
1,514,364 and 1,461,393 for the three and nine month periods ending September
30, 1995.

        Fully diluted earnings per share have also been calculated using the
treasury stock method; in addition, however, the conversion of the
convertible subordinated debentures issued by the Company is also assumed. 
Average shares used in calculating fully diluted earnings per share,
therefore, are 1,684,353 and 1,710,824 for the three and nine month periods
ending September 30, 1995.

(3)     MERGER TRANSACTION

        On September 16, 1995, the Company entered into a definitive agreement
to merge with Measurex Corporation.  Measurex has agreed to pay $18.625, all
cash, for each of the Company's common shares.  The transaction is subject to
the approval of a majority of Data Measurement's common shareholders.  A
final proxy is expected to be mailed to the shareholders in November 1995 and
a vote of the shareholders is expected to occur in mid December 1995.  Closing
of the merger, if approved, is expected in early January 1996.


<PAGE>
                        Item 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF
                          FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Material Changes in Financial Condition:

        During the third quarter of 1995, the Company financed its operations
from internally generated cash flow and by use of its working capital facility. 
During the quarter, the Company negotiated a temporary increase in its
working capital facility in the United States in the amount of $500,000.  At
September 30, 1995, the Company had approximately $450,000 of unused credit
facilities available.  The Company expects that the funds provided by its
operations and by its current working capital facilities will enable it to
finance its future operations.

Material Changes in Results of Operations:

        Sales for the three and nine month periods ending September 30, 1995
were $8,976,234 and $23,998,754 as compared to $6,121,236 and $17,548,521 in
1994, respectively.  These increases of 46.6% and 36.8% reflect an increased
rate of order input which began late in 1994 and has continued since that time. 
Order backlog increased from $14,406,000 at December 31, 1994 to $19,073,000
at March 31, 1995, stood at $19,172,000 on June 30, 1995, and was $20,859,000
on September 30, 1995.  The increases in bookings came from all parts of the
world.

        Gross Margins were $2,342,743 or 26.1% of sales for the third quarter
of 1995 compared with $1,362,125 or 22.3% of sales for the same period in 1994. 
Year to date gross margins were $6,630,528 or 27.6% of sales in 1995 as
compared to $4,026,958 or 22.9% of sales for the same period in 1994. 
Shipments in 1995 reflect better selling prices that the Company has been able
to negotiate during the cyclic upswing in order input.  

        Selling, general and administrative expenses were $1,340,961 or 14.9% of
sales for the third quarter of 1995, as compared to $1,128,122 or 18.4% of sales
in the same period in 1994.  The increase resulted from commission payments
paid in connection with foreign orders.  No costs associated with the pending
merger with measurex Corporation were recognized during this period.  On a
year to date basis, SG&A expenses were 17.5% of sales in 1995 as compared to
18.2% during 1994.

        Interest Expense was $187,568 or 2.1% of sales in the quarter ended
September 30, 1995 as compared to $99,788 or 1.6% of sales for the same period
in 1994.  In the 1995 period, the Company recognized $75,000 of interest
expense as result of an adjustment to the fair value of the convertible
subordinated debenture issued to the Federal Deposit Insurance Corporation
in connection with a debt restructuring which was concluded in October 1994. 
The change in year to date interest expense also resulted from the same
transaction.

        The Company recorded a minor gain on foreign exchange during the third
quarter of 1995 as compared to a gain of $14,644 or 0.2% of sales for the same
period in 1994.  The gains in foreign exchange resulted from the weakening of
the U.S. Dollar versus major European currencies.

        The Company's year to date effective tax rate was 31.3% in 1995 as
compared to 14.0% in 1994.  In both 1995 and 1994, the Company was able to
utilize tax credits from certain foreign operations to reduce its effective
tax rate.


                                   PART II.  OTHER INFORMATION

Item 1.        LEGAL PROCEEDINGS

        On September 19, 1995, a stockholder of DMC filed an action in the
        Delaware Chancery Court against DMC, its officers and directors, and
        Measurex, relating to the proposed merger between DMC and Measurex
        ("Merger").  The plaintiff seeks to have the stockholders of DMC 
        certified as a class and himself as a class representative to act on 
        behalf of all common stockholders of DMC.  The suit alleges among other 
        things that, (i) the Board of Directors of DMC breached its fiduciary 
        duties to the stockholders, and (ii) the consideration to be paid to 
        the stockholders is inadequate and does not give due consideration to 
        the anticipated operating results, net asset value, cash flow and 
        profitability of DMC.

        Plaintiff's counsel commenced discovery on September 22, 1995, and DMC
        began supplying documents pursuant to requests for the production of
        documents.

        Following meetings, discussion and negotiations among the parties and
        their respective counsel, on October 31, 1995, counsel for the parties
        on behalf of their clients entered into a memorandum ("Memorandum of
        Understanding") setting forth the term of an agreement in principle to
        settle and terminate the litigation (the "Proposed Settlement").  Under
        the Proposed Settlement, DMC agreed to (i) include certain additional
        information in the proxy statement relating to the Merger ("Proxy
        Statement") before it was finalized, and (ii) to obtain an update of the
        fairness opinion of Ferris, Baker Watts, Inc., DMC's investment adviser
        ("Ferris Baker"), both prior to the filing of the Proxy Statement and at
        the time of the special meeting of the stockholders to consider the
        Merger ("Special Meeting").  DMC also agreed that in the event there is
        a change in the opinion of Ferris Baker on the date of the meeting, DMC
        will adjourn the meeting for at least fifteen (15) days, informing the
        stockholders of the change in the Ferris Baker opinion and affording the
        stockholders the opportunity to revoke proxies previously submitted. 
        In exchange for DMC's agreement, the plaintiff agreed not to take any
        action to enjoin or take other legal action to prevent the stockholder
        vote on, or consummation of, the proposed Merger; to release any and all
        claims against the defendants, including all state and federal claims
        arising out of the events described in the complaint; and to discuss,
        with prejudice, the complaint to effect termination of this litigation.

        The Proposed Settlement is conditioned on (a) the parties' execution of
        a definitive stipulation of settlement; (b) the plaintiff's completion 
        of certain discovery designed to confirm that the settlement is fair and
        reasonable and in the best interests of DMC's stockholders; (c) the
        court's certification of a class of DMC's stockholders from the date of
        the announcement of the proposed Merger through the effective date of
        the Merger who do not exclude themselves from the class, for purposes
        of settlement only; (d) the court's preliminary and final approval of 
        the Proposed Settlement; and (e) the entry of a final judgement 
        dismissing the litigation.

        DMC, its officers, the members of the Board of Directors, and Measurex
        denied, and continue to deny, that they committed any violations of law
        or breaches of duty as alleged in the compliant, but entered the
        Memorandum of Understanding and contemplate entering into the
        stipulation of settlement solely because the Proposed Settlement would
        eliminate the burden and expense of further litigation and would
        facilitate the consummation of the proposed Merger.  In agreeing to
        disclose additional information, DMC does not admit the materiality of
        that information or that the materials previously filed with the
        Securities and Exchange Commission were in any way deficient.  In
        connection with the Proposed Settlement, it is anticipated that counsel
        for the plaintiff will apply to the court for an aggregate award of
        attorneys' fees and expenses in an amount not to exceed $150,000. As a
        condition of settlement, DMC has agreed to pay plaintiff's counsel the
        amount awarded by the court.  Before the Proposed Settlement is finally
        approved by the court, notice of the proposed terms and conditions of
        the settlement will be mailed to all members of any class certified by
        the court, who will be afforded an opportunity to opt out of and object
        to the settlement.           

Item 2.        CHANGES IN SECURITIES

        Not applicable.

Item 3.        DEFAULTS UPON SENIOR SECURITIES

        Not applicable.

Item 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        Not applicable.

Item 5.        OTHER INFORMATION             

        Not applicable.

Item 6.        EXHIBITS AND REPORTS ON FORM 8-K

        (a)    Reports on Form 8-K

               A Form 8-K was filed on September 22, 1995, which described the
               terms of the pending merger of the Company into Measurex
               Corporation.
<PAGE>
                                           SIGNATURES


        Pursuant to the requirements 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.


                                                 DATA MEASUREMENT CORPORATION 
                                                          (Registrant)

Dated:
November 10, 1995                                   /s/ Frederick S. Rolandi
                                             By:    ------------------------
                                                    Frederick S. Rolandi
                                                    Vice President and Chief
                                                    Financial Officer



                                                    /s/ Dominique Gignoux
                                             By:    ------------------------   
                                                    D. Gignoux
                                                    President and
                                                    Chief Executive Officer


<TABLE> <S> <C>

<ARTICLE>         5
<MULTIPLIER>       1000
       
<S>                                     <C>
<PERIOD-TYPE>                           3-MOS
<FISCAL-YEAR-END>                               DEC-31-1995
<PERIOD-END>                                    SEP-30-1995
<CASH>                                                 1440 
<SECURITIES>                                              0
<RECEIVABLES>                                          8592
<ALLOWANCES>                                            167
<INVENTORY>                                           12402  
<CURRENT-ASSETS>                                      22892 
<PP&E>                                                 4901 
<DEPRECIATION>                                         3751 
<TOTAL-ASSETS>                                        24472  
<CURRENT-LIABILITIES>                                 10162  
<BONDS>                                                1188 
<COMMON>                                               5608 
                                     0
                                               0
<OTHER-SE>                                             5151 
<TOTAL-LIABILITY-AND-EQUITY>                          24472  
<SALES>                                                8976 
<TOTAL-REVENUES>                                       8976
<CGS>                                                  6633 
<TOTAL-COSTS>                                          6633 
<OTHER-EXPENSES>                                       1341 
<LOSS-PROVISION>                                          0
<INTEREST-EXPENSE>                                      188
<INCOME-PRETAX>                                         814
<INCOME-TAX>                                            304
<INCOME-CONTINUING>                                     510
<DISCONTINUED>                                            0
<EXTRAORDINARY>                                           0
<CHANGES>                                                 0
<NET-INCOME>                                            510
<EPS-PRIMARY>                                          0.34
<EPS-DILUTED>                                          0.31 

        



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