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 September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the transition period from July 1, 1995 to September 30, 1995
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) (Zip Code)
Registrant's telephone number, including area code (860 247-7611)
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 November 13, 1995 a total of 1,749,622 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 - September 30, 1995
and December 31, 1994 3
Consolidated Statements of Operations - Three
Months and Nine Months Ended September 30, 1995 and 1994 4
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1995 and 1994 5
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 10
Signature 11
Index to Exhibits 12
Computation of Net Income Per Share
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
September 30
December 31,
1995
1994
ASSETS
Current Assets:
Cash
$ - $ 176
Accounts receivable, net
2,263 1,468
Inventories:
Finished Goods
56 -
Work in process
711 194
Raw materials and supplies
379 254
Total inventories
1,146 448
Prepaid expenses and other current assets
80 36
Net current assets of discontinued operations
- 132
Total Current Assets
3,489 2,260
Non-current receivables, related parties
72 5
Property, plant and equipment, at cost
1,338 670
Less: accumulated depreciation and amortization
762 663
Net property, plant and equipment
576 7
Goodwill and other intangible assets net of accumulated amortization
1,129 -
Other assets, net
92 10
Total Assets
$ 5,358 $ 2,282
LIABILITIES AND SHAREHOLDERS'(DEFICIT) EQUITY
Current Liabilities:
Accounts payable
$ 1,444 $ 991
Bank line payable
- -
Customer deposits
- 1
Accrued pension costs
25 25
Accrued expenses
976 762
Current portion of deferred compensation
80 71
Total Current Liabilities
2,525 1,850
Notes payable, related parties
499 -
Long term pension liability
269 304
Deferred compensation, net of current portion
61 128
Deferred taxes and other liabilities
233 -
Total Liabilities
$ 3,587 $ 2.282
SHAREHOLDERS' (DEFICIT) EQUITY:
Convertible Preference Stock Series D, 1,260,460 shares issued and
outstanding as of September 30, 1995
1,891 -
Common stock, par value $.75 per share 10,000,000 shares
authorized; 1,749,622 and 1,603,372 shares issued and outstanding
1,312 1,202
Other capital
7,937 7,988
Receivable from management
(91) (92)
Deficit (9,277)
(9,098)
Total Shareholders Equity
1,771 -
Total Liabilities and Shareholders' Equity
$ 5,358 $ 2,282
See Notes to Consolidated Financial Statements
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
Net sales $ 2,758
$ 2,870 $ 7,373 $ 6,866
Cost of sales 2,357 2,615
6,350 5,986
Gross margin 401
255 1,023 880
Selling, general and administrative
expenses 288
239 745 506
Research and Development 43
- 82 18
Operating income (loss) 70
16 196 356
Other (income) expense
Interest (income)expense 6
(2) 16 -
Other (income) expense 0
(256) 12 (1,819)
Total other (income) expense, net 6
(258) 28 (1,819)
Income (loss) from continuing operations
before income tax provision 64
274 168 2,175
Income tax provision (benefit) ( 4)
(2) (4) 29
Net income (loss) from continuing operations $ 68
$ 276 $ 172 $ 2,146
Net (loss) income from discontinued operations $ (106)
$ (138) $ (352) $ (175)
Net income (loss) $ (38)
$ 138 $ (180) $ 1,971
Weighted average common shares 1,750
1,755 1,750 1,729
Net income (loss) per common share:
Continuing operations $ .04
$ .16 $ .10 $ 1.24
Discontinued operations (.06)
(.08) (.20) (.10)
Net income (loss) $ (.02)
$ .08 $ (.10) $ 1.14
See Notes to Consolidated Financial Statements
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine Months Ended
September 30,
1995 1994
Cash flows provided by (used for) operating activities:
Income (loss) from continuing operations
$ 172 $ 2,186
Depreciation and Amortization
91 6
Changes in assets and liabilities:
(Increase) decrease in accounts receivable
(795) 555
(Increase) decrease in accounts receivable, related parties (67)
-
(Increase) decrease in prepaid expenses
(44) (6)
(Increase) decrease in inventories
(698) (208)
Increase (decrease) in accounts payable
453 237
Increase (decrease) in accrued liabilities
214 (333)
Dcrease in customer deposits
(1) 1
Increase (decrease) in other, net
48 (1,511)
Cash flows provided by (used for) operating activities
(627) 927
Income (loss) from discontinued operations
(352) (217)
Depreciation and amortization
13 3
Increase (decrease) in net current assets
132 (419)
Cash flows provided by (used in) discontinued operations
(207) (633)
Net Cash flows provided by (used in) operations
(834) 294
Cash flows from investing activities:
Additions to property, plant and equipment
(668) -
Net cash flows used for investing activities
(668) -
Cash flows (used for) financing activities:
Increase in issuance of securities - Preference Stock
1,891 -
Less: purchase of goodwill and intangible assets
(1,124) -
Add: purchase of common stock
110 94
Decrease of other capital
(51) (43)
(Increase) decrease of receivable from management
1 (42)
Increase in short term debt
- 236
Proceeds from long term debt, related parties
499 -
Net cash (used for) provided by financing activities
1,326 245
Net increase (decrease) in cash
(176) 539
Cash and cash equivalents at beginning of period
176 298
Cash and cash equivalents at end of period
$ - $ 837
Supplemental Schedule of Cash Flow Information:
Cash paid during the period for:
Interest
$ 11 $ 21
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 recurring accruals.
On August 21, 1995, CompuDyne sold the assets of its Suntec Division and
acquired MicroAssembly
Systems, Inc. For comparison purposes the December 31, 1994 balance sheet has
been restated to reflect
the Suntec Division as Net Current Assets of Discontinued Operations and the
Consolidated Statements of
Operations for the three months and nine months ended September 30, 1995 and
1994 have been restated
to reflect the Suntec Division as a Discontinued Operation. The MicroAssembly
acquisition has been
recorded as a purchase, and its operating results have been included from
August 21, 1995. The goodwill
and other intangible assets acquired from MicroAssembly Systems, Inc. are being
amortized over 25 years.
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
Receivables on Contracts in progress consist of the following:
($ in thousands) September 30, December
31,
1995 1994
U.S. Government Contracts:
Billed $ 1,132 $ 390
Unbilled 582
644(1)
Total $ 1,714 $
1,034
(1): The reserves for disallowances of $168 thousand at September 30,
1995 and December 31, 1994
are included 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 $0 thousand at September 30, 1995.
The credit agreement
requires the Company to maintain a working capital ratio of 1.1 to 1.0. As of
September 30, 1995 the
Company had a working capital ratio of 1.4 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. On
November 7, the line of credit was further increased to $750 thousand. The
interest rate was reduced at
the same time.
In return for $400 thousand advanced to CompuDyne on August 21, 1995 as part of
the MicroAssembly
acquisition agreement, CompuDyne issued to Messrs. Martin A. Roenigk (the new
chairman) and Alan
Markowitz (a new director), Senior Convertible Promissory Notes in the
aggregate principal amount of $400
thousand.
MicroAssembly has a subordinated term loan from Alan Markowitz in the amount of
$100 thousand. The
loan is payable in quarterly installments of $5 thousand beginning December
1995 and ending in 2001.
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 $99 thousand in 1995, $437 thousand in 1996, $450 thousand in
1997, $464 thousand in 1998,
$477 thousand in 1999 and $80 thousand in 2000. A major portion of one of the
leased office buildings is
subleased to Suntec for the full term of the five-year lease.
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.
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 ave a
material effect on its financial position or results of future operations.
RELATED PARTIES
CompuDyne provides corporate services to Corcap for which it charged $0
thousand for the third quarter
of 1995 compared with $4 thousand a month during 1994.
Corcap's residual outstanding debt to CompuDyne was $72 thousand as of
September 30, 1995 compared
with $15 thousand as of September 30, 1994.
During July 1995 Corcap sold 13,500 shares of CompuDyne Common Stock under Rule
144 of the Securities
Act of 1933.
On August 21, 1995, Corcap purchased 150,000 shares of CompuDyne common stock
for $.40 per share
in accordance with the terms of a Warrant issued by CompuDyne to Corcap on
March 10, 1993 and
amended as of April 1, 1993 and August 15, 1995, and issued a note for $60
thousand to CompuDyne
secured by the stock.
On August 15, 1995, Corcap contributed to the Corcap, Inc. Pooled Pension
Investment Trust, Plans 1A and
6B, 224,000 shares of CompuDyne common stock to satisfy its unpaid pension
contributions for the years
1992, 1993 and 1994.
As a result of the sale of the 40,500 shares by Corcap in 1995, the transfer of
224,000 shares to the pension
plans, and the exercise of the warrant for 150,000 shares, 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 24.7% as of September 30, 1995. After assuming (i) the
conversion of 1,260,460
shares of Series D Preference Stock to Messrs. Martin A. Roenigk and Alan
Markowitz, which shares are
convertible by the holders into 1,260,460 shares of CompuDyne common stock,
(ii) the conversion of $400
thousand principal amount of Senior Convertible Promissory Notes to Messrs.
Roenigk and Markowitz, which
promissory notes are convertible by the holders into 266,667 shares of
CompuDyne common stock, and
(iii) the exercise of an option to purchase 200,000 shares of CompuDyne common
stock issued to Mr.
Roenigk at an exercise price of $1.50 per share, all pursuant to certain Stock
Purchase Agreements by and
among CompuDyne, Messrs. Roenigk and Markowitz and MicroAssembly Systems, Inc.
(the "Stock
Purchase Agreement"), and (iv) a Stock Purchase Agreement, dated August 1,
1993, between CompuDyne
and three members of management whereby such persons may purchase up to an
additional 56,250 shares
of CompuDyne Common Stock on August 1, 1996, assuming certain conditions are
met and (v) the
exercise of stock options for 25,000 shares of CompuDyne common stock issued to
Elaine Chen, Corcap's
ownership will be decreased to 12.4% on a fully diluted basis.
The company has debt obligations to Messrs. Roenigk and Markowitz in the amount
of $500 thousand. (See
Notes Payable footnote.) COMPUDYNE CORPORATION AND
SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
At the end of the third quarter 1995, CompuDyne had working capital of $964
thousand compared with $410
thousand (restated for the effect of the Suntec disposition for comparison
purposes) at year end,1994. The
$554 thousand increase was primarily due to the net effect of the acquisition
of MicroAssembly of $525
thousand, the increase in long term debt of $400 thousand offset by the loss
for the first nine months of
1995 of $180 thousand, a reduction of deferred compensation and pension
liability of $102 thousand and
an increase in non current assets of $82 thousand.
RESULTS OF OPERATIONS
CompuDyne had a loss of $38 thousand for the third quarter 1995, compared with
a net income of $138
thousand for the third quarter 1994. The loss for the third quarter 1995 was
primarily attributable to the
discontinued Suntec division which lost $106 thousand. Data Control earned $22
thousand Quanta earned
$133 thousand. MicroAssembly lost $9 thousand for the quarter due to the
effect of amortization of the
write-up in inventory, fixed assets, intangible assets and goodwill associated
with the sale to CompuDyne.
Corporate activities cost $78 thousand. Net income during the third quarter
1994 was primarily attributable
to debt forgiveness of $25 thousand and Quanta's earnings of $143 thousand,
which was offset by an $85
thousand loss at Data Control Systems.
At the end of the third quarter the Company's backlog was $5 million. The
reduction in backlog is
attributable to the normal depletion of backlog at the end of the Government's
fiscal year (September 30,
1995) and to a procedural change of recognizing as bookings only those orders
actually received against
time-and-material work order contracts instead of the ceiling amounts of those
contracts.
Net sales from continuing operations in the third quarter of 1995 decreased 7%
to $2.7 million from $2.9
million for the third quarter of 1994. Quanta Systems' revenue decreased by
$280 thousand to $2.3 million
for the third quarter 1995. Data Control System had an increase in sales of
$168 thousand compared with
the third quarter 1994. MicroAssembly had sales of $199 thousand since the
date of acquisition.
Gross margin for the third quarter of 1995 increased $146 thousand, or 57%, to
$401 thousand from $255
thousand for the third quarter 1994. DCS had an increase of $138 thousand and
Quanta Systems Division
had a decrease of $34 thousand while MicroAssembly contributed $42 thousand in
gross margin.
Selling, general and administrative expenses increased $49 thousand, or 21%, to
$288 thousand from $239
thousand for the third quarter 1994. The increase was primarily due to the
addition of MicroAssembly, $53
thousand, and corporate cost, $31 thousand, which was offset by a $24 thousand
decrease at Quanta and
an $11 thousand decrease at Data Control Systems.
Research and development costs, which were totally attributable to DCS,
increased $43 thousand compared
with the third quarter 1994.
CompuDyne's interest expense for the third quarter 1995 increased $8 thousand,
compared with the third
quarter 1994.
Extraordinary income of $256 thousand for debt forgiveness from Clipper was
recorded in the third quarter
1994.
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
September 5, 1995 - Report on the change in control of CompuDyne
Corporation, the merger with
MicroAssembly Systems, Inc. and the disposition of the Suntec Division
of
Quanta Systems..
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: November 13, 1995
/s/ I. Elaine Chen
I. Elaine Chen
Corporate Controller
(Chief Accounting Officer)
INDEX TO EXHIBITS
Computation of Net Income Per Common Share