SECURITIES AND EXCHANGE COMMISSION
Washington,D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended March 31, 1997
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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
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CompuDyne Corporation
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(Exact name of registrant as specified in its charter)
Nevada 23-1408659
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
120 Union Street, Willimantic, Connecticut 06226
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(Address of principal executive offices)
(860) 456-4187
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(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
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As of May 13, 1997 a total of 2,847,416 shares of Common Stock, $.75 par
value, were outstanding.
COMPUDYNE CORPORATION AND SUBSIDIARIES
INDEX
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1997
(unaudited) and December 31, 1996 3
Consolidated Statements of Operations - Three
Months Ended March 31, 1997 and 1996 (unaudited) 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996
(unaudited) 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 8-9
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 13
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 31, December 31,
1997 1996
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(Unaudited)
ASSETS
Current Assets:
Cash $ 202 $ 186
Accounts receivable, net 3,592 5,273
Inventories:
Finished Goods 93 93
Work in process 561 778
Raw materials and supplies 498 471
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Total inventories 1,152 1,342
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Prepaid expenses and other current assets 35 57
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Total Current Assets 4,981 6,858
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Non-current receivables, related parties 72 60
Property, plant and equipment, at cost 1,464 1,452
Less: accumulated depreciation and amortization 904 863
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Net property, plant and equipment 560 589
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Intangible assets, net of accumulated amortization 57 53
Other assets, net 12 15
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Total Assets $ 5,682 $ 7,575
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,423 $ 3,017
Bank line payable 578 162
Accrued pension costs 32 32
Income taxes payable 36 -
Other accrued expenses 875 1,249
Billings in excess of contract costs incurred 69 562
Current portion of deferred compensation 41 38
Current portion of notes payable related parties 20 20
Other current liabilities 5 -
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Total Current Liabilities $ 3,079 $ 5,080
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Notes payable, related parties $ 45 $ 50
Long term pension liability 385 393
Deferred compensation, net of current portion 14 25
Deferred taxes and other liabilities 263 251
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Total Liabilities $ 3,786 $ 5,799
SHAREHOLDERS' EQUITY:
Convertible Preference stock, Series D, no par value,
1,260,460 shares authorized, issued and outstanding
as of March 31, 1997 and December 31, 1996 945 945
Common stock, par value $.75 per share 10,000,000 2,148 2,148
shares authorized; 2,864,082 shares issued and
outstanding as of March 31, 1997 and
December 31, 1996
Paid in capital 8,203 8,203
Receivable from management (90) (90)
Treasury shares, at cost; 16,666 shares - -
Deficit (9,310) (9,430)
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Total Shareholders' Equity 1,896 1,776
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Total Liabilities and Shareholders' Equity $ 5,682 $ 7,575
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See Notes to Consolidated Financial Statements (unaudited).
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COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended
March, 31,
1997 1996
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Net sales $ 4,753 $ 3,038
Cost of sales 3,918 2,572
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Gross margin 835 466
Selling, general and administrative expenses 632 351
Research and Development 53 68
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Operating income 150 47
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Other (income) expense
Interest expense 10 18
Other (income) (5) (3)
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Total other (income) expense, net 5 15
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Income from continuing operations
before income tax provision or benefit 145 32
Income tax provision (benefit) 25 (8)
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Net income $ 120 $ 40
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Weighted average common and common
equivalent shares: 4,108 3,096
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Fully Diluted 4,108 3,096
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Income per common and common equivalent share $ .03 $ .01
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Income per common share assuming full dilution $ .03 $ .01
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See Notes to Consolidated Financial Statements (unaudited).
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COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months Ended
March 31,
1997 1996
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Cash flows from operating activities:
Income from continuing operations $ 120 $ 40
Adjustments to reconcile net income to net
cash provided by (used in) continuing operations:
Depreciation and amortization 37 31
Deferred income taxes (4) (9)
Decrease (increase) in accounts receivable 1,188 (313)
(Increase) in accounts receivable, related parties (12) -
Decrease in prepaid expenses 22 11
Decrease in inventories 190 48
Decrease in accounts payable (1,594) (23)
(Decrease) Increase in accrued liabilities (306) 142
Decrease in accrued income taxes (46) -
Increase in other, net 7 9
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Cash flows used in continuing operations (398) (64)
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Net cash flows used in operations (398) (64)
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Cash flows from investing activities:
Additions to property, plant and equipment (12) (5)
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Net cash flows used in investing activities (12) (5)
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Cash flows from financing activities:
Increase in short term debt 431 69
Payments on long term debt, related parties (5) -
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Net cash provided by financing activities 426 69
Net increase (decrease) in cash 16 -
Cash and cash equivalents at beginning of period 186 -
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Cash and cash equivalents at end of period $ 202 $ -
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Supplemental Schedule of Cash Flow Information:
Cash paid during the period for:
Interest $ 7 $ 6
Income taxes $ 91 $ -
See Notes to Consolidated Financial Statements (unaudited).
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COMPUDYNE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
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The accompanying unaudited consolidated financial statements of CompuDyne
Corporation and subsidiaries (the "Company"), have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in the annual
financial statements, prepared in accordance with generally accepted
accounting principles, have been condensed or omitted pursuant to those
rules and regulations, although the Company believes that the disclosures
made are adequate to make the information presented not misleading.
In the opinion of management, the accompanying unaudited consolidated
financial statements reflect all necessary adjustments and
reclassifications (all of which are of a normal, recurring nature) that
are necessary for fair presentation for the periods presented. It is
suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and the notes
thereto included in the Company's latest annual report to the Securities
and Exchange Commission on Form 10-K for the year ended December 31,
1996.
2. ACCOUNTS RECEIVABLE
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Accounts receivable consist of the following:
($ in thousands) March 31, December 31,
1997 1996
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U.S. Government Contracts:
Billed $ 1,848 $ 2,420
Unbilled 752 1,031
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2,600 3,451
Commercial 1,499 2,360
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Total Accounts Receivable $ 4,099 $ 5,811
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Less Allowance for Doubtful Accounts (507) (538)
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Net Accounts Receivable $ 3,592 $ 5,273
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3. SERIES D, PREFERRED STOCK
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Each share of the Preferred Stock carries an annual aggregate dividend
equal to the lower of: (a) sixty percent (60%) of MicroAssembly's after-
tax net income in the previous calendar year, divided by 1,260,460, or
(b) eight percent (8%) of the Redemption Value of $1.50 per share of the
Preferred Stock. Dividends may be paid on the Preferred Stock at the
Company's option, in cash, CompuDyne Stock, or a combination thereof,
based upon the average closing price of CompuDyne's Common Stock for the
prior thirty (30) trading days. No dividends were accrued or paid in the
first quarter of 1997, or in fiscal 1996 or 1995. MicroAssembly
generated $22 thousand in after-tax net income in the first quarter of
1997. In accordance with the Certificate of the Convertible Preference
Stock, Series D, if MicroAssembly generates profit for calendar year
1997, CompuDyne shall accrue for dividends payable to the Preferred Stock
holders at sixty percent (60%) of MicroAssembly's after-tax net income,
after the delivery of audited financial statements to the Board of
Directors of the Corporation. Therefore, no dividends have been accrued
as of March 31, 1997.
4. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
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In March 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (EPS)
which simplifies the standards for computing EPS previously found in APB
Opinion No. 15 and makes them comparable to international EPS standards.
The Statement is effective for financial statements issued for periods
ending December 15, 1997. Had the following statement been effective for
the quarters and the nine months ended March 31, 1997 and 1996, the
earnings per share would have been presented as follows:
Three Months Ended
March 31,
1997 1996
Earnings per common share $ .04 $ .02
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Earnings per common share - assuming dilution $ .03 $ .01
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COMPUDYNE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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CompuDyne generated net income of $120 thousand for the first quarter of
1997 compared with a net income of $40 thousand in the first quarter of
1996. Quanta Systems Corporation, "Quanta Systems" had a profit of $141
thousand. Data Control Systems, "DCS" had a loss of $74 thousand after
$53 thousand in research and development costs. Quanta SecurSystems,
"SecurSystems" had a profit of $31 thousand and MicroAssembly Systems,
"MicroAssembly" had a profit of $22 thousand.
The Company's backlog at the end of the first quarter of 1997 was $9.0
million. This included $3.8 million at Quanta Systems, $706 thousand at
DCS, $3.9 million at SecurSystems and $532 thousand at MicroAssembly.
Net sales for the first quarter of 1997 increased $1.7 million, 57% to
$4.7 million from $3.0 million for the first quarter of 1996. Sales at
Quanta Systems increased $542 thousand. This increase was the result of
new work being performed on the new K-3 strategic contract. DCS sales
were down $180 thousand due to orders expected for the 7500's being
delayed until the second quarter as well as other product shipments being
delayed. SecurSystems contributed $1.3 million of the increase. This is
totally incremental since SecurSystems was acquired in July of 1996.
Microassembly's sales were up $49 thousand. MicroAssembly has been
successful in gaining back customers to partially offset the loss of
sales with a major customer in 1995.
Gross margin for the first quarter of 1997 increased $369 thousand to
$835 thousand from $466 thousand in the first quarter of 1996. Quanta
Systems' margin increased $101 thousand to $382 thousand from $281
thousand in the first quarter of 1996. The majority of this increase was
related to increased sales at Quanta Systems. SecurSystems' margin of
$332 thousand was fully incremental since it was acquired in July of
1996. DCS' margin was down $107 thousand in the first quarter of 1997
due to reduced sales for the first quarter. This can be attributed to
the reduced sales for the first quarter for DCS. MicroAssembly's margin
was up $40 thousand from $50 thousand in the first quarter of 1996 due to
increased sales and a reorganization.
Selling, general, and administration expenses were up $281 thousand to
$632 thousand, in the first quarter of 1997, from $351 thousand in the
first quarter of 1996. Quanta Systems' selling, general, and
administrative expenses increased $45 thousand to $256 thousand. This
included DCS's selling, general, and administrative expenses of $47
thousand. SecurSystems' selling, general, and administrative expenses
were $271 thousand for the first quarter of 1997, the majority of the
increase for the company. These costs are totally incremental since
SecurSystems was acquired in July, 1996. MicroAssembly's first quarter
selling, general, and administrative expenses were down $34 thousand from
the first quarter of 1996 of $81 thousand due to a reorganization.
First quarter 1997 research and development expenditures of $53 thousand,
down $15 thousand from the first quarter of 1996 were spent entirely at
DCS and were related to new telemetry products.
CompuDyne's interest expense for the first quarter of 1997 increased $1
thousand to $7 thousand from the first quarter of 1996.
Although the first quarter of 1997 exceeded the profitability of the
first quarter of 1996, as we expected it was a slow first quarter for
revenues. This was due to the low order intake in the fourth quarter of
1996. During the first quarter of 1997 we have seen an improved order
intake. Quanta Systems booked $3.6 million in new work. SecurSystems
booked $3.5 million in new work. DCS booked $400 thousand in new work
and MicroAssembly booked $430 thousand in new work. SecurSystems was
successful in rebidding and winning a five year contract providing
maintenance to the state of Arizona which is expected to total over $6.0
million during the five year contract. These increased order levels, if
they continue, should result in higher revenue levels during the balance
of the year.
LIQUIDITY AND CAPITAL RESOURCES
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The Company's principal source of cash is from operating activities and
bank borrowings. The Company's primary requirement for working capital
is to carry billed and unbilled receivables. The majority of Quanta
Systems' receivables are due under prime contracts with the U.S.
Government, or subcontracts thereunder. The majority of SecurSystems'
receivables are due under subcontracts or maintenance agreements with
state and local governments. The Company has an $850 thousand secured
line of credit with the Asian American Bank and Trust Company of Boston,
Massachusetts.
The Company is currently negotiating terms for an increased line of
credit to be secured by accounts receivable. This new line will be used
to finance future growth and potential acquisitions.
Net cash used in operations in the first quarter of 1997 was $398
thousand compared with $64 thousand for the same period in 1996. The
increased payments on accounts payable and accrued liabilities more than
offset the $80 thousand increase in net income and the $1,501 thousand
increase in cash received on receivables. The primary reasons for
operations cash deficiency in the first quarter of 1997 were (1) delay in
Government cost-type contract modifications on work already performed by
Quanta Systems causing slower than ususual payments from the Government,
and (2) the continuation of the fixed-price Fort Bragg job in this
quarter without reimbursement; we expect this situation to continue into
the second quarter before equitable cost adjustments or claims against
the Government are resolved. An increase of $431 thousand in bank-
borrowing was the primary source of cash in the first quater of 1997 to
pay for the cash deficiency in operations.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The Company is party to certain legal actions and inquiries for
environmental and other matters resulting from the normal course of
business. It is also party to certain legal actions and inquiries from
certain Suntec creditors due to claims of existing guaranties before
Suntec was sold. 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.
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit (11) - Consolidated Computation of Net Income Per Share
SIGNATURE
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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: May 13, 1997 /s/ I. Elaine Chen
I. Elaine Chen
Controller
/s/ William C. Rock
William C. Rock
Chief Financial Officer
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INDEX TO EXHIBITS
Computation of Net Income Per Common and Common Equivalent Share