FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington,D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For the Quarterly period ended June 30, 1995
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 Number 1-4245
CompuDyne Corporation (Exact name
of registrant as specified in its charter)
Pennsylvania 23-1408659
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
90 State House Square, Hartford, Connecticut 06103-3720
(Address of principal executive offices)
(203) 247-7611
(Registrant's telephone number, including area code)
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
As of August 8, 1995, a total of 1,709,622 shares of Common Stock, $.75 par
value,
were outstanding.
COMPUDYNE CORPORATION AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 1995 and December 31, 1994 3
Consolidated Statements of
Operations - Three Months and Six Months Ended
June 30, 1995 and 1994 4
Consolidated Statements of
Cash Flows
Six Months Ended June 30, 1995 and 1994 5
Notes to Consolidated
Financial Statements 6-9
Item 2. Management's Discussion and Analysis of
Results of Operations
and Financial
Condition 10-11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
Index to Exhibits 14
Computation of Net Income Per
Share
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
June 30, December 31,
1995 1994
ASSETS
Current Assets:
Cash $
- $ 202
Accounts receivable, net
2,244 1,827
Inventories:
Work in process
377 260
Raw materials and supplies
270 254
Total inventories
647 514
Prepaid expenses and other current assets
96 37
Total Current Assets
2.987 2,580
Non-current receivables, related parties
13 5
Property, plant and equipment, at cost
706 699
Less: accumulated depreciation and amortization
(677) (672) Net
property, plant and equipment
29 27
Other assets, net
10 10
Total Assets
$ 3,039 $ 2,622
LIABILITIES AND SHAREHOLDERS'(DEFICIT) EQUITY
Current Liabilities:
Accounts payable
$ 1,831 1,137
Bank Line Payable
48 -
Customer deposits
21 92
Accrued pension costs
25 25
Accrued expenses
801 865
Current portion of deferred compensation
96 71
Total Current Liabilities
2,822 2,190
Long term pension liability
298 304
Deferred compensation, net of current portion
61 128
Total Liabilities
3,181 2,622
SHAREHOLDERS' (DEFICIT) EQUITY:
Common stock, par value $.75 per share 10,000,000 shares
authorized; 1,603,372 shares issued and outstanding
1,202 1,202
Other capital
7,988 7,988
Receivable from management
(92) (92)
Deficit (9,240)
(9,098)
Total Shareholders Equity (Deficit)
(142) -
Total Liabilities and Shareholders' Equity (Deficit)
$ 3,039 $ 2,622
See Notes to Consolidated Financial Statements.
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended
Six Months Ended
June 30, June 30,
1995 1994 1995 1994
Net sales $ 2,892 3,287 $ 5,223 $ 5,688
Cost of sales 2,427 2,342 4,330 4,186
Gross margin 465
945 893 1,502
Selling, general and administrative
expenses 445
700 3 974 1,181
Research and Development 34
2 39 18
Operating income (loss) (14)
243 (120) 303
Other (income) expense
Interest expense 3
12 10 15
Interest income 4
(9) - (13)
Other (income) expense 15
(166) 12 (1,563)
Total other (income) expense, net (36)
163 22 (1,561)
Income (loss) from continuing operations
before income tax provision (36)
406 (142) 1,864
Income tax provision (benefit) -
30 - 31
Net income (loss) $ (36)
$ 376 $ (142) $ 1,833
Weighted average common shares 1,603
1,671 1,603 1,717
Net income (loss) per common share:
Continuing operations $ (.02)
$ .23 $ (.09) $ 1.07
Net income (loss) $ (.02)
$ .23 $ (.09) $ 1.07
See Notes to Consolidated Financial Statements
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
June 30,
1995 1994
Cash flows provided by (used for) operating activities:
Income (loss) from continuing operations
$ (142) $ 1,833
Depreciation and amortization
5 1
Changes in assets and liabilities:
Increase in accounts receivable
(417) (475)
Increase in accounts receivable, related parties
(8) (28)
Increase in prepaid expenses
(59)
(Increase) decrease in inventories
(133) (82)
Increase (decrease) accounts payable
694 (120)
Increase (decrease) in accrued liabilities
(64) (427)
Increase (decrease) in customer deposits
(71) -
Increase (decrease) in other, net
(48) (26)
Cash flows provided by (used for) operating activities
(243) 676
Cash flows used for investing activities:
Additions to property, plant and equipment
(7) -
Net cash flows used for investing activities
(7) -
Cash flows (used for) financing activities:
Collection of receivable from management
- 8
Increase (decrease) in short term debt
48 (1)
Decrease in long term debt
- (900)
Net cash (used for) provided by financing activities
48 (893)
Net increase (decrease) in cash
(202) (217)
Cash and cash equivalents at beginning of period
202 298
Cash and cash equivalents at end of period
$ - $ 81
Supplemental Schedule of Cash Flow Information:
Cash paid during the period for:
Interest
$ 10 $ 28
Income Taxes
- -
See Notes to Consolidated Financial Statements.
COMPUDYNE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES
All financial information for all interim periods presented is
unaudited. The financial statements have been prepared in
conformity with the accounting principles described in CompuDyne
Corporation's ("CompuDyne" or the "Company") most recent Form 10-
K filing. The management of CompuDyne believes that all
adjustments necessary to present a fair statement of the results
for the periods have been included. The adjustments consisted
only of normal reoccurring accruals.
Net Income (Loss) per common share. Net income (loss) per common
share was determined by dividing net income (loss) by the
weighted average number of common shares outstanding during the
period including the effect of common stock equivalents and stock
awards where such effect would be dilutive.
CONTRACTS IN PROGRESS
Contracts in progress consist of the following:
($ in thousands) June 30, December 31,
1995 1994
U.S. Government Contracts:
Billed $ 1,353$ 390
Unbilled 412 644(1)
Total $ 1,765$ 1,044
(1): The reserve for disallowances of $168 thousand at
December 31, 1994 and June 30, 1995 the reserve is included in
other accrued expenses.
Almost all of the U.S. Government billed and unbilled receivables
are derived from cost plus fixed fee and time and material
contracts. The conversion of the majority of the dollars from
unbilled to billed receivables is merely a timing consideration,
i.e., they will be billed within six days after the month-end
closing date. The remainder will be billed following final audit
of direct and indirect costs by the Defense Contract Audit
Agency.
NOTES PAYABLE
On November 18, 1994 CompuDyne obtained a $350 thousand working
capital line of credit agreement with the Asian American Bank and
Trust Company of Boston Massachusetts. The Company used the line
of credit during the quarter and had a loan of $48 thousand at
June 30, 1995. The credit agreement requires the Company to
maintain a working capital ratio of 1.1 to 1.0. As of June 30,
1995 the Company had a working capital ratio of 1.1 to 1.0.
During July 1995 the line of credit was increased to $500
thousand and the advance rate was increased from 50% to 75% of
eligible accounts receivable.
COMMITMENTS AND CONTINGENT LIABILITIES
The Company and certain of its subsidiaries are obligated as
lessees under various operating leases for office, distribution
and manufacturing facilities. Noncancelable operating lease
commitments are approximately $198 thousand in 1995, $437
thousand in 1996, $450 thousand in 1997, $464 thousand in 1998,
$477 thousand in 1999 and $80 thousand in 2000.
On December 31, 1993, CompuDyne Inc. ("CDI") a wholly-owned
subsidiary of the Company filed a petition in bankruptcy under
Chapter 7 of the United States Bankruptcy Code with the U. S.
Bankruptcy Court in Hartford Connecticut. At the time CDI filed
for bankruptcy it was indebted to the Company in an amount of
approximately $2.6 million. It is improbable that the Company
will recover any portion of this indebtedness. CDI is the subject
of several federal and state administrative proceedings and
lawsuits with respect to environmental and other matters. As a
result of the bankruptcy petition, such proceedings and lawsuits
have been stayed. Management is unable to assess whether the
Company will be held responsible for environmental clean-up costs
with respect to any of the properties now or formerly owned by
CDI. The only claim which has been made against the Company was
settled in December 1992 for $10 thousand.
On December 20, 1993, the Company received a summons naming it as
a third party defendant in four asbestosis cases pending against
a former subsidiary of CDI. The Company's insurance carriers are
currently defending the claims. Management believes that any
ultimate obligation relative to this claim, if any, will not have
a material impact on the Company's financial position and results
of operations. During the second quarter of 1995 the Company
received another claim which was defended by its insurance
carrier.
During the third quarter of 1994, the Company and CDI received
notice from Everbrite Electric Signs, Inc. (Everbrite) notifying
the Company that it may be a potential responsible party under
the North Carolina General Statutes in connection with the
closure and abatement of the Seaboard Chemical Corporation site
located in Jamestown, North Carolina. Preliminary information
supplied by the North Carolina Department of Environment, Health
and Natural Resources indicates that General Indicator Corp. a
former subsidiary of CDI sent 1,540 gallons of paint related
matter in 1986 to the site. According to the purchase and sale
agreement with Everbrite, the Company has an obligation to defend
them on actions of this nature prior to 1988. Accordingly, the
Company recommended that Everbrite join a Seaboard Defense Group
which it did. The total anticipated costs of remediating the site
will be approximately $4-6 thousand to the Company.
In October 1994, the Company received notice from three former
employees of QDi alleging incidences of sexual harassment from
supervisors and employees during their period of employment. The
employees have offered to settle the claim for $100 thousand each
or have threatened to initiate litigation. The Company has
thoroughly investigated the incident upon its allegation and
determined that the claims are without merit and will vigorously
defend any litigation against it. In June 1995 the claimants
filed a complaint with the Montgomery County Human Rights
Commission ( Commission ). The Commission asked the Company to
participated in a voluntary mediation proceeding. The Company
provided information to the Commission s investigator indicating
that the Company had researched the allegation and denied its
validity. The Company is waiting to hear from the Commission.
The Company is party to certain legal actions and inquiries for
environmental and other matters resulting from the normal course
of business. Although the total amount of liability with respect
to these matters cannot be ascertained, management of the Company
believes that any resulting liability should not have a material
effect on its financial position or results of future operations.
RELATED PARTIES
CompuDyne provides corporate services to Corcap for which it
charged $8 thousand for the second quarter of 1995 compared with
$4 thousand a month during 1994.
Corcap's residual outstanding debt to CompuDyne was $13 thousand
as of June 30, 1995 compared with $22 thousand as of March 31,
1994.
During April 1995 Corcap sold 13,500 shares of CompuDyne Common
Stock under Rule 144 of the Securities Act of 1933.
As a result of the sale of the 27,000 shares by Corcap, Corcap's
ownership of CompuDyne Common Stock decreased from 35.0% of the
issued and outstanding shares of CompuDyne Common Stock as of
December 31, 1994 to 33.2% as of June 30, 1995, and, after
assuming the exercise of Warrants for 150,000 shares of CompuDyne
Common Stock (which are presently exercisable until November 18,
1996) Corcap's ownership would be increased to 39%. Pursuant to
Stock Purchase Agreements, dated August 1, 1993, between
CompuDyne and five members of management, such persons may
purchase up to an additional 106,250 shares of CompuDyne Common
Stock on each of August 1, 1995 and 1996, assuming certain
conditions are met. During 1994, the stock ownership of all
members of CompuDyne management (four persons), increased to
13.3% of the issued and outstanding shares of CompuDyne Common
Stock, and, after assuming the exercise of the Corcap Warrants,
management's ownership would decrease to 12.1%. If such persons
purchase all of such shares, Corcap's ownership, on a fully
diluted basis, would be decreased to 33.1% and management's
ownership, on a fully diluted basis, would be increased to 20.6%.
COMPUDYNE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
At the end of the 1995 second quarter CompuDyne had working
capital of $165 thousand which compares with $390 thousand at
year end. The $225 thousand decrease was primarily due to the
loss for the first two quarters of 1995 of $142 thousand and a
reduction of deferred compensation of $67 thousand and an
increase in receivables from related parties of $8 thousand.
RESULTS OF OPERATIONS
CompuDyne had a loss of $36 thousand for the 1995 second quarter
compared with a net income of $376 thousand for the 1994 second
quarter. The loss for the 1995 second quarter was primarily
attributable to Suntec division which lost $100 thousand and Data
Control which lost $24 thousand. Quanta earned $152 thousand for
the quarter while Corporate activities cost $64 thousand. Net
income during the 1994 second quarter was primarily attributable
to debt forgiveness of $162 thousand resulting from the
modification to the Clipper Loan Agreement on May 9, 1994 and
income from operations of $214 thousand. At the end of the
second quarter the Company's backlog remained at $7 million.
Net sales from continuing operations in the second quarter of
1995 decreased 12% to $2.9 million from $3.3 million in the
second quarter of 1994. The decrease was primarily due to the
Suntec division which had sales of $324 thousand compared with
$1,043 million for the 1994 second quarter. This was offset by
increases in sales at Quanta Systems division where revenues
increased by $368 thousand to $2.4 million for the 1995 second
quarter. Data Control division had a small sales decline of $15
thousand when compared with the 1994 second quarter.
Gross margin for the second quarter of 1995 decreased $480
thousand (51%) to $465 thousand from $945 thousand for the second
quarter of 1994. Suntec's Gross Margin decreased by $431
thousand as a result of lower sales volume. DCS had a decrease
of $22 thousand and Quanta Systems Division had a decrease of $36
thousand.
Selling, general and administrative expense decreased $255
thousand, or 36%, to $445 thousand from $700 thousand for the
1994 second quarter. The decrease was primarily due to Suntec's
reduction of cost of $238 thousand.
Research and development costs which were totally attributable
to DCS increased $32 thousand to $34 thousand compared with the
second quarter of 1994.
CompuDyne's interest expense for the 1995 second quarter
decreased $9 thousand to $3 thousand compared with the 1994
second quarter of $12 thousand. The decrease was attributable to
the amount of interest paid on the Clipper obligation in 1994.
Other expense of $15 thousand for the 1995 second quarter
compares with other income of $166 thousand for the 1994 second
quarter. During the second quarter of 1994, the Company
negotiated a debt forgiveness of $162 thousand from Clipper.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit (11) - Consolidated Computation of Net Income
(Loss) Per Share
(b) Reports on Form 8-K
July 28, 1995 Report on forthcoming merger with
MicroAssembly Systems, Inc.; the issuance of convertible
debentures of $400 thousand; and proposed sale of the Suntec
Division of Quanta Systems.
SIGNATURE
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.
COMPUDYNE CORPORATION
Date: August 9, 1995
/s/ I. Elaine Chen
I. Elaine Chen
Corporate Controller
(Chief Accounting Officer)
INDEX TO EXHIBITS
Computation of Net Income Per Common Share
Exhibit 11
COMPUDYNE CORPORATION
COMPUTATION OF NET INCOME PER COMMON SHARE
(In Thousands, Except for Per Share Data)
(Unaudited)
Three Months Ended
June 30
Average Shares Outstanding 1995 1994
1. Average number of common shares outstanding 1,603 1,478
2. Adjusted weighted average stock options - 63
3. Adjusted weighted average number of Marc
common stock warrants outstanding -
130
standing 1,603
1,671
4. Income (loss) from continuing operations $ (36) $ 376
Net Income (Loss) Per Share
5. Income (loss) per common share from continuing
operations $ (.02) $ .23
Net income per share $ (.02) $ .23