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 June 30, 1997
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)
Nevada 23-1408659
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
120 Union Street, Willimantic, Connecticut 06226
------------------------------------------------
(Address of principal executive offices)
(860) 456-4187
--------------------------------------------------
(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 13, 1997 a total of 2,847,416 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, 1997 (unaudited)
and December 31, 1996 3
Consolidated Statements of Operations - Three Months
and Six Months Ended June 30, 1997 and 1996 (unaudited) 4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 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 8-10
Part II. Other Information 11
Item 6. Exhibits and Reports on Form 8-K
Signature 12
Index to Exhibits 13
Computation of Net Income Per Share 14
- -------------------------------------------------------------------------
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30, December 31,
1997 1996
--------- ------------
(Unaudited)
ASSETS
- ------
Current Assets:
Cash $ 133 $ 186
Accounts receivable, net 4,268 5,273
Inventories:
Finished Goods 117 93
Work in process 622 778
Raw materials and supplies 612 471
------ ------
Total inventories 1,351 1,342
------ ------
Prepaid expenses and other current assets 50 57
------ ------
Total Current Assets 5,802 6,858
Non-current receivables, related parties 71 60
Property, plant and equipment, at cost 1,540 1,452
Less: accumulated depreciation and amortization 918 863
------ ------
Net property, plant and equipment 622 589
------ ------
Goodwill & other intangibles, net of
accumulated amortization 60 53
Other assets, net 15 15
------ ------
Total Assets $ 6,570 $ 7,575
====== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,506 $ 3,017
Bank line payable 333 162
Accrued pension costs 32 32
Other accrued expenses 829 1,249
Billings in excess of contract costs incurred 59 562
Current portion of deferred compensation 41 38
Current portion of long term loan 5 -
Current portion of notes payable related parties 20 20
------ -------
Total Current Liabilities $ 3,825 $ 5,080
------ -------
Notes payable, related parties $ 40 $ 50
Long term pension liability 390 393
Deferred compensation, net of current portion 5 25
Deferred income taxes 194 185
Other liabilities 60 66
------ -------
Total Liabilities $ 4,514 $ 5,799
------ -------
SHAREHOLDERS' EQUITY:
Convertible Preference stock, Series D, 945 945
1,260,460 shares authorized, issued and
outstanding
Common stock, par value $.75 per share 2,148 2,148
10,000,000 shares authorized; 2,864,082 shares
issued and outstanding
Other capital 8,203 8,203
Receivable from management (90) (90)
Deficit (9,150) (9,430)
------ ------
Total Shareholders' Equity $ 2,056 $ 1,776
------ -------
Total Liabilities and Shareholders' Equity $ 6,570 $ 7,575
====== =======
See Notes to Consolidated Financial Statements (unaudited).
- -------------------------------------------------------------------------
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,
1997 1996 1997 1996
------------------- -----------------
Net sales $ 5,301 $ 5,343 $ 10,054 $ 8,381
Cost of sales 4,408 4,810 8,326 7,382
------- ------- -------- ------
Gross margin 893 533 1,728 999
Selling, general and
administrative expenses 683 350 1,315 701
Research and Development 37 72 90 140
------- ------- ------- ------
Operating income 173 111 323 158
------- ------- ------- ------
Other (income) expense
Interest expense 15 16 25 34
Other (income) expense (27) (2) (32) (5)
------- ------- ------- ------
Total other (income)
expense, net (12) 14 ( 7) 29
------- ------- ------- ------
Income from continuing opera-
tions before income tax pro-
vision or benefit 185 97 330 129
Income tax provision (benefit) 25 (9) 50 (17)
------- ------- ------- ------
Income from continuing
operations 160 106 280 146
(Loss) from discontinued
operations - (25) - (25)
------- ------- ------- ------
Net income $ 160 $ 81 $ 280 $ 121
======= ======= ======= ======
Weighted average common equivalent
shares:
Primary 4,239 3,070 4,165 3,084
======= ======= ======= ======
Fully Diluted 4,239 3,470 4,165 3,484
======= ======= ======= ======
Income per common and dilutive
common equivalent share:
Continuing operations .04 .04 .07 .05
Discontinued operations - (.01) - (.01)
------- ------- ------- ------
Net income per share $ .04 $ .03 $ .07 $ .04
======= ======= ======= ======
Income per common share
assuming full dilution:
Continuing operations $ .04 $ .03 $ .07 $ .05
Discontinued operations - (.01) - (.01)
------- ------- ------- ------
Net income per share $ .04 $ .02 $ .07 $ .04
======= ======= ======= ======
See Notes to Consolidated Financial Statements (unaudited).
- -------------------------------------------------------------------------
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
June 30,
-----------------
1997 1996
------- -------
Cash flows provided by (used for)
operating activities:
Income from continuing operations $ 280 $ 146
Adjustments to reconcile net income to
net cash provided by (used in) continuing
operations:
Depreciation 55 41
Amortization (8) 23
Decrease/(increase) in accounts receivable 1,005 (1,786)
(Increase) in accounts receivable, related parties (12) -
Decrease (increase) in prepaid expenses 7 10
(Increase)/decrease in inventories (9) 73
(Decrease)/Increase in accounts payable (511) 1,439
(Decrease)/Increase in accrued liabilities (373) 261
(Decrease) in accrued income taxes (49) -
(Decrease) in billings in excess of costs (503) -
(Increase) in other, net - (22)
------- ------
Cash flows provided by (used in)
continuing operations (118) 185
------- ------
Loss from discontinued operations - (25)
(Increase) decrease in net current assets - -
------- ------
Cash flows used in discontinued operations - (25)
------- ------
Net cash flows provided by (used in) operations (118) 160
------- ------
Cash flows from investing activities:
Additions to property, plant and equipment (88) (76)
------- ------
Net cash flows used for investing activities (88) (76)
------- ------
Cash flows provided by (used for)
financing activities:
Decrease of receivable from management - 24
Purchase of goodwill & tangible assets (8) -
Increase (decrease) in short term debt 171 (98)
Proceeds from long term debt, related parties (10) (10)
------- ------
Net cash (used for) provided by
financing activities 153 (84)
------- ------
Net increase (decrease) in cash (53) -
Cash and cash equivalents at beginning of period 186 -
------- ------
Cash and cash equivalents at end of period $ 133 $ -
======= ======
Supplemental Schedule of Cash Flow Information:
Cash paid during the period for:
Interest $ 15 $ 10
See Notes to Consolidated Financial Statements (unaudited).
COMPUDYNE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
- -----------------------
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
- ----------------------
Accounts receivable consist of the following:
($ in thousands) June 30, December 31,
1997 1996
---------- -----------
U.S. Government Contracts:
Billed $ 1,144 $ 2,420
Unbilled 1,758 1,031
---------- ----------
2,902 3,451
Commercial 1,819 2,360
---------- ----------
Total Accounts Receivable $ 4,721 $ 5,811
---------- ----------
Less Allowance for Doubtful Accounts (453) (538)
---------- ----------
Net Accounts Receivable $ 4,268 $ 5,273
3. COMMON STOCK AND COMMON STOCK OPTIONS
- ---------------------------------------
On May 21, 1997 the Compensation and Stock Options Committee, "Committee"
granted options to purchase 52,000 shares of CompuDyne stock to key
employees of Quanta Systems and SecurSystems at a price of $2.81 per
share (the fair market value of such shares at the date of grant).
4. SERIES D, PREFERRED STOCK
- ----------------------------
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 (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 or
second quarters of 1997, or in fiscal 1996 or 1995. MicroAssembly
generated $38 thousand in after-tax net income in the second quarter of
1997 and $22 thousand in the first quarter of 1997. CompuDyne shall
accrue for dividends payable to the Preferred Stockholders at sixty
percent 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 June 30,
1997.
5. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
- --------------------------------------------
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 six months ended June 30, 1997 and 1996, the earnings
per share would have been presented as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------------------ ----------------
Earnings per common shares $ .06 $ .04 $ .10 $ .07
===== ===== ===== =====
Earnings per common share -
assuming dilution $ .04 $ .02 $ .07 $ .04
===== ===== ===== =====
- -------------------------------------------------------------------------
COMPUDYNE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Second Quarter 1997 and 1996 Comparison
- ---------------------------------------
CompuDyne generated income from continuing operations of $160 thousand
for the second quarter of 1997 compared to $81 thousand in the second
quarter of 1996. Quanta Systems Corporation, ("Quanta Systems")
contributed $151 thousand in profit for the second quarter of 1997, after
absorbing an additional $75 thousand loss on the Ft. Bragg contract,
offset by a partial recognition of anticipated recoveries under prior
year contracts. A substantial claim has been filed for the recovery of
change order costs on the Ft. Bragg contract. Quanta SecurSystems,
("SecurSystems"), as anticipated, recorded a net loss of $57 thousand for
the second quarter of 1997 primarily due to a low order intake in the
fourth quarter of 1996. This is an incremental loss since SecurSystems
was purchased in the third quarter of 1996. Data Control Systems,
("DCS") broke even for the second quarter of 1997 compared to earning a
profit of $5 thousand in the second quarter of 1996. MicroAssembly
Systems, ("MicroAssembly") recorded a profit of $38 thousand in the
second quarter of 1997 compared to a loss of $24 thousand in the second
quarter of 1996. Unallocated Corporate charges amounted to $29 thousand.
Net sales from continuing operations for the second quarter of 1997 were
level with the second quarter of 1996, at $5.3 million. This includes
$1.4 million at SecurSystems, which is an incremental addition resulting
from that acquisition. Due to less, lower margin procurement business,
Quanta Systems was down $1.3 million in net sales to $3.1 million. DCS
recorded net sales of $327 thousand, down $170 thousand from the second
quarter of 1996. MicroAssembly showed a $95 thousand increase, or 27%
over last year, due to the increased customer base, posting net sales of
$440 thousand for the second quarter of 1997.
Despite the flat net sales compared to the second quarter of 1996, gross
margins from continuing operations for the second quarter of 1997
increased $362 thousand to $895 thousand. This is primarily attributable
to the decrease in Quanta System's low margin procurement contracts and
the increase in margins in other areas. SecurSystems added an incremental
gross margin of $221 thousand. Quanta Systems gross margin increased
$157 thousand to $507 thousand. DCS showed a decrease in gross margin of
$49 thousand for a total of $75 thousand for the second quarter of 1997.
MicroAssembly showed an increase in gross margin of $33 thousand, due to
increased sales and a reorganization made last year.
Selling, general and administrative expense from continuing operations
increased $367 thousand in the second quarter of 1997 to $596 thousand.
This increase is due primarily to SecurSystems' expense of $260 thousand
being incrementally included this year. Such costs for Quanta Systems
increased by $179 thousand. Included in this increase were legal and
administrative expenses involved in preparing the claim for recovery of
change order costs on the Ft. Bragg contract. DCS's corporate and
administrative costs decreased by $5 thousand. MicroAssembly's corporate
and administrative costs decreased by $66 thousand due to the
restructuring and related changes in sales and marketing personnel.
CompuDyne Corporate selling, general and administrative costs increased
$67 thousand to $86 thousand in the second quarter of 1997.
Research and development costs totalled $37 thousand for the second
quarter of 1997. This was down $35 thousand from $72 thousand in the
second quarter of 1996. These costs were all spent at DCS. An extensive
development effort in 1996 has now tailed off and research and
development costs are expected to continue to diminish.
Interest expense for the second quarter of 1997 increased to $18
thousand, up $2 thousand from the second quarter of 1996. This is a
result of the increase in bank borrowings.
Year-to-Date Comparison
- -----------------------
CompuDyne's net income from continuing operations of $330 thousand for
the six months ended June 30, 1997 compares with $129 thousand for the
same period in 1996. MicroAssembly, through restructuring, the related
change in sales and marketing personnel and the resulting increase in
sales, converted a $71 thousand loss before taxes in the six months ended
June 30, 1996 to a profit of $103 thousand for the same period this year.
Quanta Systems' reduction of low-margin material procurement business
together with partial recognition of prior year contract cost recovery
caused an increase of $93 thousand in income before taxes. DCS, with
$350 thousand less in sales volume and additional warranty costs for
repairs of the Satellite Test Modems, decreased from a $10 thousand
income before taxes in 1996 to a $75 thousand loss in 1997 for the six
month period. SecurSystems, being acquired in July 1996 included $2.7
million in net sales and $17 thousand before tax loss due to lower
progress billings in the six months of 1997.
Currently CompuDyne has a backlog of $16.0 million. This includes a $6.0
million five year maintenance contract rebid and won by SecurSystems in
April, 1997, and a $2 million contract awarded to Quanta Systems on the
West Coast in June, 1997. Quanta Systems currently has a backlog
totalling $5.2 million, DCS's backlog totals $567 thousand, SecurSystems'
backlog has increased to $9.7 million (including the $6.0 million multi
year maintenance contract) and MicroAssembly has a backlog of $539
thousand.
Although profitability in the second quarter of 1997 exceeded the second
quarter of 1996 as we expected, we still feel it was a slow quarter.
Quanta Systems was still suffering from the Ft. Bragg contract and
SecurSystems was still recovering from the low order intake from the
fourth quarter of 1996 and the slow start-up of bookings made in the
first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's principal source of cash is from bank borrowings. 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 a $1.25
million secured line of credit with Asian American Bank and Trust Company
of Boston, Massachusetts and has been approved to increase this line of
credit to $1.75 million.
Although income from continuing operations for the six months in 1997
increased by $134 thousand from the same period in 1996, cash flows from
continuing operations decreased by $303 thousand, from providing $185
thousand in cash to using $118 thousand of cash from other sources.
Paying vendors on a more timely basis and not yet receiving cash in this
quarter for over $100 thousand in profit recognized for prior year
contract cost recovery are the primary reasons for the decrease of cash
provided by (used in) continuing operations. CompuDyne increased its
short-term borrowings from the Asian American Bank line of credit to
provide the cash used in operations this quarter.
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. 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. Quanta Systems has
filed a substantial claim for the recovery of change order costs on the
Ft. Bragg contract. SecurSystems has filed a claim against the County of
Sonoma, California, through its general contractor, Mark Diversified,
Inc., for costs associated with additional work and time delays on the
Sonoma MADF contract. The County of Sonoma has filed a counter claim
against SecurSystems for costs associated with completion of work
following the termination of the general contractors right to proceed on
the same contract.
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
CompuDyne increased the number of directors to six during the annual
meeting held on May 21, 1997. The following two directors were elected
with the respective number of votes:
Miles P. Jennings, Jr. (newly elected) 2,321,111 For (Common)
1,260,460 For (Preference)
1,460 Withheld (Common)
Millard H. Pryor, Jr. (re-elected) 2,321,294 For (Common)
1,260,460 For (Preference)
1,277 Withheld (Common)
The two elected directors will serve for a three-year term until the 2000
Annual Meeting of Shareholders.
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit (11) - Consolidated Computation of Net Income (Loss)
Per Share
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 15, 1997 /s/ I. Elaine Chen
------------------
I. Elaine Chen
Controller
/s/ William C. Rock
-------------------
William C. Rock
Chief Financial Officer
- ------------------------------------------------------------------------
INDEX TO EXHIBITS
Computation of Net Income Per Common Share
- -------------------------------------------------------------------------
Exhibit 11
COMPUDYNE CORPORATION
COMPUTATION OF EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE
(In Thousands, Except for Per Share Data)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------------------ ----------------
Primary earnings (loss) per share:
- ---------------------------------
Earnings from continuing
operations $ 160 $ 106 $ 280 $ 146
Discontinued operations (loss) - (25) - (25)
------- ------- ------ ------
Net earnings $ 160 $ 81 $ 280 $ 121
======= ======= ====== ======
Weighted average common and common
equivalent shares 2,847 1,808 2,847 1,808
Adjustment for options 132 2 58 16
Assumed conversion of preferred
shares 1,260 1,260 1,260 1,260
------- ------- ------ ------
Primary Shares 4,239 3,070 4,165 3,084
======= ======= ====== ======
Earnings (loss) per share:
Continuing operations before
extraordinary item $ .04 $ .04 $ .07 $ .05
Discontinued operations (loss) - (.01) - (.01)
------- ------- ------ ------
Net earnings (loss) $ .04 $ (.03) $ .07 $ .04
======= ======= ====== ======
Fully diluted earnings (loss) per share:
- ---------------------------------------
Earnings from continuing
operations $ 160 $ 106 $ 280 $ 146
Adjustment for interest on
promissory notes - 11 - 22
Discontinued operations (loss) - (25) - (25)
------- ------- ------ ------
Net earnings $ 160 $ 92 $ 280 $ 143
======= ======= ====== ======
Weighted average common and
common equivalent shares 4,239 3,070 4,165 3,084
Conversion of promissory notes - 400 - 400
------- ------- ------ ------
Fully diluted shares 4,239 3,470 4,165 3,484
======= ======= ====== ======
Earnings (loss) per share:
Continuing operations before
extraordinary item $ .04 $ .03 $ .07 $ .05
Discontinued operations (loss) - (.01) - (.01)
------- ------- ------ ------
Net earnings $ .04 $ .02 $ .07 $ .04
======= ======= ====== ======