UNITED STATES
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 September 30, 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
---- ----
As of November 12, 1997 a total of 2,864,082 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, 1997
(unaudited) and December 31, 1996 3
Consolidated Statements of Operations - Three
Months and Nine Months Ended September 30, 1997
and 1996 (unaudited) 4
Consolidated Statements of Cash Flows
Nine Months Ended September 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 8-11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
Index to Exhibits 14
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COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30, December 31,
1997 1996
------------ ------------
(Unaudited)
ASSETS
- ------
Current Assets:
Cash $ - $ 186
Accounts receivable, net 3,555 5,273
Inventories:
Finished Goods 115 93
Work in process 649 778
Raw materials and supplies 601 471
------- -------
Total inventories 1,365 1,342
------- -------
Prepaid expenses and other current assets 105 57
------- -------
Total Current Assets 5,025 6,858
Non-current receivables, related parties 72 60
Property, plant and equipment, at cost 1,551 1,452
Less: accumulated depreciation and
amortization 948 863
------- -------
Net property, plant and equipment 603 589
------- -------
Goodwill & other intangibles, net
of accumulated amortization 68 53
Other assets, net 29 15
------- -------
Total Assets $ 5,797 $ 7,575
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 1,237 $ 3,017
Bank line payable 465 162
Accrued pension costs 55 32
Accrued income taxes 98 -
Other accrued expenses 938 1,249
Billings in excess of contract costs incurred - 562
Current portion of deferred compensation 36 38
Current portion of notes payable related parties 5 20
------- -------
Total Current Liabilities $ 2,834 $ 5,080
------- -------
Notes payable, related parties $ 50 $ 50
Long term pension liability 382 393
Deferred compensation, net of current portion 10 25
Deferred taxes 66 96
Other liabilities 207 155
------- -------
Total Liabilities $ 3,549 $ 5,799
------- -------
SHAREHOLDERS' EQUITY:
- --------------------
Convertible Preference stock, Series D, no par
value, 1,260,460 shares issued and outstanding 945 945
Common stock, par value $.75 per share 10,000,000
shares authorized; 2,864,082 2,148 2,148
Other capital 8,203 8,203
Receivable from management (90) (90)
Deficit (8,958) (9,430)
------- -------
Total Shareholders' Equity 2,248 1,776
------- -------
Total Liabilities and Shareholders' Equity $ 5,797 $ 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 Nine Months Ended
September, 30, September 30
1997 1996 1997 1996
------- ------- ------- -------
Net sales $ 4,690 $ 6,954 $ 14,585 $ 15,335
Cost of sales 3,660 6,144 11,827 13,526
------- ------- ------- -------
Gross margin 1,030 810 2,758 1,809
Selling, general and admini-
strative expenses 781 643 2,096 1,344
Research and Development 10 44 100 184
------- ------- ------- -------
Operating income 239 123 562 281
------- ------- ------- -------
Other (income) expense
Interest (income) expense 16 3 41 37
Other (income) expense (16) (5) (48) (10)
------- ------- ------- -------
Total other (income)
expense, net - (2) (7) 27
------- ------- ------- -------
Income (loss) from continuing
operations before income tax
provision or benefit 239 125 569 254
Income tax provision 48 30 97 13
------- ------- ------- -------
Income from continuing
operations 191 95 472 241
(Loss) from discontinued
operations - - - (25)
------- ------- ------- -------
Net income $ 191 $ 95 $ 472 $ 216
======= ======= ======= =======
Weighted average common and
common equivalent shares:
Primary 4,227 3,997 4,213 3,651
======= ======= ======= =======
Fully Diluted 4,227 3,997 4,213 3,651
======= ======= ======= =======
Income (loss) per common and
dilutive common equivalent share:
Continuing operations .05 .02 .11 .07
Discontinued operations - - - (.01)
------- ------- ------- -------
Net income per share $ .05 $ .02 $ .11 $ .06
======= ======= ======= =======
Income (loss) per common share
assuming full dilution:
Continuing operations $ .05 $ .02 $ .11 $ .07
Discontinued operations - - - (.01)
------- ------- ------- -------
Net income per share $ .05 $ .02 $ .11 $ .06
======= ======= ======= =======
See Notes to Consolidated Financial Statements (unaudited).
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COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine Months Ended
September 30,
------------------
1997 1996
-------- --------
Cash flows provided by (used for)
operating activities:
Income (loss) from continuing operations $ 472 $ 241
Adjustments to reconcile net income to
net cash provided by (used in) continuing
operations:
Depreciation and amortization 70 111
Deferred income taxes (119) -
Decrease (increase) in accounts receivable 1,718 (1,708)
(Increase) in accounts receivable,
related parties (12) -
(Increase) decrease in prepaid expenses (48) 4
(Increase) in inventories (23) -
(Decrease) increase in accounts payable (1,780) 1,279
(Decrease) increase in accrued liabilities (175) 228
Increase in accrued income taxes 98 38
(Decrease) in billings in excess of costs (562) -
(Decrease) increase in other, net (14) 2
------- -------
Cash flows provided by (used in) continuing
operations (375) 195
------- -------
Loss from discontinued operations - (25)
Depreciation and amortization - -
(Increase) decrease in net current assets - -
------- -------
Cash flows provided by (used in) discontinued
operations - (25)
------- -------
Net cash flows (used in) provided by operations (375) 170
------- -------
Cash flows from investing activities:
Acquisitions of subsidiaries - (562)
Additions to property, plant and equipment (99) (11)
------- -------
Net cash flows used for investing activities (99) (573)
------- -------
Cash flows from financing activities:
Proceeds from former management on stock
related notes - 25
Cash from sale of common stock - 1,000
Net borrowings (payments) on short term debt 303 (207)
Proceeds from long term debt, related parties 5 -
Repayment on long term debt, related parties (20) (415)
------- -------
Net cash provided by financing activities 288 403
Net (decrease) in cash (186) -
Cash and cash equivalents at beginning of period 186 -
------- -------
Cash and cash equivalents at end of period $ - $ -
======= =======
Supplemental Schedule of Cash Flow Information:
Cash paid during the period for:
Interest $ 17 $ 54
Income taxes $ 92 $ -
See Notes to Consolidated Financial Statements (unaudited).
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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) September 30, December 31,
1997 1996
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U.S. Government Contracts:
Billed $ 804 $ 2,420
Unbilled 1,010 1,031
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1,814 3,451
Commercial Contracts:
Billed 2,310 2,360
Unbilled 56 -
----------- ------------
2,366 2,360
Total Accounts Receivable $ 4,180 $ 5,811
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Less Allowance for Doubtful Accounts (625) (538)
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Net Accounts Receivable $ 3,555 $ 5,273
=========== ============
4. SERIES D, PREFERRED STOCK
- -----------------------------
On October 29, 1997 the Board of Directors voted to approve an "Early
Conversion Adjustment" offer to the holders of the Convertible Preference
Stock. The Directors, meeting without the two director/holders of the
Convertible Preference Stock, concluded that the existence of the
Preference Stock was a hinderance to financing and acquisitions. The
Directors further concluded that the elimination of future Preference
Stock dividends would be advantageous to the company. The Directors
concluded that a $0.246 per share early conversion adjustment would be
appropriate compensation for the disadvantages to the holders of early
conversion, including the loss of preference status and the elimination
of future dividends. The holders, which include directors Martin Roenigk
and Alan Markowitz, were given 30 days to agree to the early conversion
arrangement. Both holders have subsequently agreed to the early
conversion and the effects thereof will be reflected in the company's
fourth quarter 1997 results.
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 nine months ended September 30, 1997 and 1996, the
earnings per share would have been presented as follows:
Three Months Ended Nine Months Ended
September 30 September 30
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1997 1996 1997 1996
------- ------- ------- -------
Earnings per common share $.07 $.03 $.16 $.09
==== ==== ==== ====
Earnings Per common share -
assuming dilutions $.05 $.02 $.11 $.06
==== ==== ==== ====
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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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Third Quarter 1997 and 1996 comparison
Net income for the third quarter of 1997 was $191 thousand, an increase
of $96 thousand over the third quarter of 1996. Quanta Systems
Corporation, ("Quanta Systems") contributed $81 thousand of this increase
with a profit of $74 thousand for the third quarter of 1997 compared to a
loss of $8 thousand for the same quarter in 1996. This is primarily due
to higher margins on contracts which included a more favorable labor mix
and reduced losses on the Fort Bragg contract. Data Control Systems,
("DCS") contributed $17 thousand to the increase in net income with a
profit of $35 thousand for the third quarter of 1997 compared to a profit
of $18 thousand in the same quarter of 1996. MicroAssembly Systems,
("MicroAssembly") contributed $28 thousand to the increase with a profit
of $35 thousand for the third quarter of 1997 compared to $7 thousand for
the same quarter of 1996. Quanta SecurSystems, Inc., ("SecurSystems")
contributed a decrease of $21 thousand for the third quarter of 1997 with
a profit of $31 thousand compared to a profit of $51 thousand in 1996.
This is primarily due to an additional $32 thousand in costs associated
with product marketing development spent in the third quarter of 1997.
Net sales from continuing operations for the third quarter of 1997
decreased $2.3 million from $7.0 million in the third quarter of 1996 to
$4.7 million. Quanta Systems decreased $2.4 million, due to the
completion of a large low margin contract during 1996. DCS increased $20
thousand, MicroAssembly increased $80 thousand and SecurSystems increased
$53 thousand.
Despite the decrease in net sales for the third quarter of 1997, gross
margins increased by $220 thousand to $1.030 million compared to $810
thousand in the third quarter of 1996. This was largely due to the
Quanta Systems increase of $197 thousand to $515 thousand up from $318
thousand for the same quarter in 1996. Quanta Systems, for the third
quarter of 1997 reflected reduced losses on the Fort Bragg contract and
higher margins on contracts which included a more favorable labor mix.
DCS decreased $23 thousand to $92 thousand down from $115 thousand in the
third quarter of 1996. MicroAssembly increased $48 thousand to $103
thousand from $55 thousand in 1996. SecurSystems was flat at $321 even
though net sales were up by $53 thousand reflecting overall lower margins
on major construction projects.
Selling, general and administrative expense from continuing operations
increased $140 thousand for the third quarter of 1997 to $781 thousand,
up from $642 thousand in the third quarter of 1996. Quanta Systems
increased $90 thousand to $328 thousand in 1997 from $238 thousand in
1996. This increase relates to the implementation of a new Management
Information System as well as some additional legal costs involving the
resolution of issues concerning Suntec. DCS was relatively flat at $124
thousand with a decrease of $1 thousand. MicroAssembly showed a minimal
decrease of $1 thousand, down to $43 thousand in 1997 from $44 thousand
in 1996. SecurSystems increased $62 thousand to $273 thousand in 1997
from $211 thousand in 1996 reflecting $32 thousand in additional product
marketing development costs and additional overhead costs associated with
start-up costs on large new construction contracts won during the current
quarter. In addition, the third quarter of 1996 did not include $24
thousand in Corporate allocation charges. Corporate spending decreased
$11 thousand. Corporate general and administrative costs decreased $36
thousand to $70 thousand for the third quarter of 1997 compared to $106
thousand in the third quarter of 1996.
Research and development costs totalled $10 thousand for the third
quarter of 1997 compared to spending of $44 thousand in the third quarter
of 1996. All of the research and development costs were spent at DCS
which decreases by $34 thousand over the third quarter of 1996.
Interest expense increased $14 thousand to $16 thousand for the third
quarter of 1997. This was compared to $3 thousand for the third quarter
of 1996 and is a result of increased bank borrowings.
RESULTS OF OPERATIONS - year-to-date comparison
- -----------------------------------------------
CompuDyne's net income before taxes for the nine months ended September
30, 1997 was $569 thousand, an increase of $315 thousand from the nine
months ended September 30, 1996 of $254 thousand. Quanta Systems
contributed $204 thousand of the increase with a pre-tax profit of $400
thousand in 1997 compared to $196 thousand in 1996. As in the quarterly
comparison, this is primarily due to higher margins on contracts which
included a more favorable labor mix, the reduced losses on the Fort Bragg
contract and $117 thousand additional profit from contract closeouts.
DCS was down $68 thousand with a 1997 pre-tax loss of $40 thousand
compared to a 1996 pre-tax profit of $28 thousand. MicroAssembly
contributed $228 thousand to the increase with a $158 thousand pre-tax
profit for the nine months ended September 30, 1997 compared to a loss of
$70 thousand in the same period of 1996. This was due to higher margins
in 1997 than in 1996 and decreased general and administrative costs due
to a management reorganization. SecurSystems was down $79 thousand,
showing a pre-tax profit of $8 thousand for the nine months ended
September 30, 1997 compared to $87 thousand in 1996. SecurSystems had
$60 thousand in Corporate allocated charges in the current year and $85
thousand in additional product marketing development costs coupled with
low output in the first two quarters of 1997. The 1996 pre-tax profits
for SecurSystems only reflected 3 months of operations since SecurSystems
was acquired in July, 1996.
Net sales decreased $750 thousand in the nine months ended September 30,
1997 to $14.6 million compared to $15.3 million in the same period of
1996. Quanta Systems' sales for the nine months ended September 30, 1997
decreased to $8.1 million, down $3.2 million from $11.3 million for the
same period in 1996. The largest part of this decrease was the $2.5
million, low margin, material pass through contract completed during the
first nine months of 1996. The balance is due to slower than normal
bookings in the first two quarters of 1997 resulting in lower output for
the mine months ended September 30, 1997. DCS decreased $330 thousand
for the 1997 period to $953 thousand from $1.3 million in 1996.
MicroAssembly's net sales increased $224 thousand for the nine months
ended September 30, 1997 to $1.3 million compared to $1.1 million in
1996. This is due primarily to increased sales by current customers and
new customers gained through enhanced marketing efforts. SecurSystems'
net sales increased $2.6 million in 1997 to $4.2 million compared to $1.6
million in 1996. The 1996 sales for SecurSystems only reflects 3 months
of sales since SecurSystems was purchased in July, 1996. SecurSystems'
1997 sales also reflects a slower running rate due to low order intake in
the 4th quarter of 1996 and the first half of 1997.
Although sales were down for the nine months ended September 30, 1997,
gross margins increased to $2.8 million, an increase of $1.0 million over
the $1.8 million in 1996. Quanta Systems contributed $455 thousand to
the increase with a gross margin of $1.4 million compared to $950
thousand in 1996. This is again the result of reduced losses on the Fort
Bragg contract, higher margins on contracts with a higher, more favorable
labor mix and includes $117 thousand additional profit from contract
closeouts. DCS was down $177 thousand to $197 thousand in 1997 compared
to $375 thousand for the same period in 1996. MicroAssembly increased
$121 thousand to $283 thousand compared to $162 thousand for the same
period of 1996. SecurSystems' gross margin increased $551 thousand to
$873 thousand for the nine months ended September 30, 1997, compared to
$322 thousand for the same period of 1996. The 1996 gross margin only
included three months of SecurSystems' since that company was acquired in
July, 1996.
Selling, general and administration costs for the nine months ended
September 30, 1997 were $2.1 million, an increase of $0.8 million over
the 1996 total of $1.3 million. Quanta Systems totalled $843 thousand, a
$268 thousand increase over 1996. This increase relates to legal costs
incurred on the Fort Bragg claim and resolution of issues concerning
Suntec, as well as the implementation of a new Management Information
System. DCS decreased $11 thousand to $126 thousand in 1997, compared to
$137 thousand in 1996. MicroAssembly decreased $99 thousand to $105
thousand in 1997 from $204 thousand in 1996 due largely to the
elimination of goodwill and a management restructuring. SecurSystems
1997 total of $812 thousand shows an increase of $601 thousand over 1996.
The 1996 selling, general and administrative costs only include three
months for SecurSystems since the acquisition of SecurSystems occurred in
July, 1996. Corporate general and administrative costs decreased $6
thousand to $210 thousand in the nine months ended September 30, 1997
compared to $217 thousand in 1996.
Research and development costs for the nine months ended September 30,
1997 totalled $100 thousand, a decrease of $84 thousand from 1996. All
research and development costs were spent at DCS.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's principal source of cash is from bank borrowings. The
majority of Quanta System's 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 had a $1.25
million secured line of credit with Asian American Bank and Trust Company
of Boston, Massachusetts as of September 30, 1997 and had been approved
to increase this line of credit to $1.75 million. The line of credit was
formally increased to $1.75 million on November 8, 1997.
Income from operations increased $231 thousand to $472 thousand for the
nine months ended September 30, 1997. Cash flows from continuing
operations decreased $590 thousand from $195 thousand provided by
operations to $395 thousand used in operations. The majority of this
cash including cash received from accounts receivable was used to pay
down accounts payables and to reduce accrued accounts payable. Payables
and accruals were reduced by $2.0 million in the nine months ended
September 30, 1997. CompuDyne increased short-term borrowings from the
Asian American Bank line of credit to provide additional cash used in
operations this quarter.
PART II - OTHER INFORMATION
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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 it's
financial position or results of future operations.
Quanta Systems filed a substantial claim for recovery of change order
costs on the Fort Bragg contract. The claim was formally filed with the
Aberdeen Proving Ground on June 18, 1997. The Government requested an
audit of Quanta's costs by the Defense Contract Audit Agency (DCAA) and
declined to discuss the claim until audit completion. During the audit,
Quanta continued in its efforts to complete the contract, however it was
constrained by factors that were beyond Quanta's control. The Government
unilaterally established a completion date for the contract which Quanta
could not possibly meet and on September 22, 1997, terminated the
contract for default. Quanta and its' counsel filed an official Notice
of Appeal with the Armed Services Board of Contract Appeals (ASBCA) on
September 23, 1997. The Complaint, first set of interrogatories and
request for documents were filed with ASBCA on October 22, 1997. There
have been no further discussions with the Government on either the
termination or on the claim for equitable adjustment. While a settlement
is possible, the ASBCA and related actions and legal proceedings will
likely set the pace for resolution. Legal cost for the third quarter
ended September 30, 1997 were $1 thousand and $51 thousand for the nine
months ended the same period.
SecurSystems has filed a claim against the County of Sonoma, California,
through its general contractor, Mark Diversified, Inc., for costs
associated with the 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. The arbitration is expected to begin in December, 1997 with
SecurSystems involvement starting in January or February, 1998. Legal
costs were $46 thousand for the three months ended September 30, 1997 and
$77 thousand for the nine months ended the same period.
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 (Loss) Per
Share
(b) Exhibit (27) - Financial Data Schedule
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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, 1997 /s/ William C. Rock
----------------------
William C. Rock
Chief Financial Officer
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INDEX TO EXHIBITS
Computation of Net Income Per Common Share
Financial Data Schedule