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, 1998
_____________________________________
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 6, 1998 a total of 4,124,542 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, 1998
(unaudited) and December 31, 1997 3
Consolidated Statements of Operations - Three Months
and Six Months Ended June 30, 1998 and 1997 (unaudited) 4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997 (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 12
Signature 13
- - - ------------------------------------------------------------------------
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30, December 31,
1998 1997
-------- --------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ - $ -
Accounts receivable 4,601 4,757
Inventories:
Finished Goods 116 72
Work in process 774 888
Raw materials and supplies 705 612
------- --------
Total inventories 1,595 1,572
------- --------
Prepaid expenses and other current assets 68 95
------- --------
Total Current Assets 6,264 6,424
------- --------
Non-current receivables, related parties 60 60
Property, plant and equipment, at cost
Land and improvements 26 26
Buildings and leasehold improvements 256 250
Machinery and equipment 812 1,055
Furniture and fixtures 356 287
Automobiles 69 84
------- -------
Total property, plant and equipment 1,519 1,702
------- -------
Less: accumulated depreciation and amortization 738 990
------- -------
Net property, plant and equipment 781 712
------- -------
Deferred tax asset 128 124
Intangible assets, net of accumulated amortization 63 66
Other assets 44 43
------- -------
Total other assets 235 233
------- -------
Total Assets $ 7,340 $ 7,429
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,084 $ 2,104
Bank notes payable 1,106 1,339
Other accrued expenses 924 1,015
Accrued income taxes 161 35
Current portion of deferred compensation - 26
Current portion of notes payable related parties - 20
-------- -------
Total Current Liabilities $ 4,275 $ 4,539
-------- -------
Notes payable, related parties $ 45 $ 30
Long term pension liability 479 489
Other liabilities 197 209
-------- -------
Total Liabilities $ 4,996 $ 5,267
-------- -------
SHAREHOLDERS' EQUITY:
Common stock, par value $.75 per share:
10,000,000 shares authorized; 4,124,542 shares
issued at June 30, 1998 and December 31, 1997, 3,093 3,093
Other capital 8,203 8,203
Treasury shares, at cost; 78,636 shares
as of June 30, 1998;
16,666 shares as of December 31, 1997 (120) -
Receivable from management (90) (90)
Accumulated Deficit (8,742) (9,044)
------- -------
Total Shareholders' Equity 2,344 2,162
------- -------
Total Liabilities and Shareholders' Equity $ 7,340 $ 7,429
======== =======
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,
1998 1997 1998 1997
-------- -------- -------- --------
Net sales $ 6,184 $ 5,301 $ 11,267 $ 10,054
Cost of sales 4,978 4,333 9,090 8,219
------- ------- ------- -------
Gross margin 1,206 968 2,177 1,835
Selling, general and administra-
tive expenses 811 756 1,631 1,422
Research and Development 61 37 68 90
------- ------- ------- -------
Operating income 334 175 478 323
------- ------- ------- -------
Other (income) expense
Interest expense 16 17 44 25
Other income (8) (27) (3) (32)
------- ------- ------- ------
Total other (income) expense,
net 8 (10) 41 (7)
------- ------- ------- ------
Income from continuing operations
before income tax provision
or benefit 326 185 437 330
Income tax provision (benefit) 125 25 135 50
------- ------- ------- ------
Income from continuing operations $ 201 $ 160 $ 302 $ 280
======= ======= ======= =======
Basic EPS:
Net income (loss) $ .05 $ .06 $ .07 $ .10
======= ====== ====== ======
Weighted average number of
common shares outstanding 4,125 2,847 4,125 2,847
======= ====== ====== ======
Diluted EPS:
Net income (loss) $ .04 $ .04 $ .07 $ .07
======= ====== ====== ======
Weighted average number of
common shares and equivalents 4,525 4,108 4,525 4,108
======= ====== ====== ======
See Notes to Consolidated Financial Statements (unaudited).
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
June 30,
-----------------
1998 1997
Cash flows provided by operating activities:
Net Income $ 302 $ 280
Adjustments to reconcile net income to net
cash provided by (used in) continuing operations:
Depreciation 90 55
Amortization - (8)
Decrease in accounts receivable 156 1,005
Decrease in accounts receivable, related parties - (12)
Decrease in prepaid expenses 27 7
(Increase) in inventories (23) (9)
Increase in accounts payable (20) (511)
(Decrease) in accrued liabilities (137) (373)
Increase in accrued income taxes 126 (49)
(Decrease) in billings in excess of costs - (503)
(Increase) in other, net (24) -
------ ------
Net cash flows provided by (used in) operations 497 (118)
------ ------
Cash flows used for investing activities:
Additions to property, plant and equipment (159) (88)
------ ------
Net cash flows used for investing activities (159) (88)
------ ------
Cash flows (used for) provided by financing
activities:
Purchase of treasury stock (120) -
Purchase of goodwill & tangible assets - (8)
Increase (decrease) in short term debt (233) 171
Proceeds from long term debt, related parties 15 (10)
------ ------
Net cash (used for) provided by financing activities (338) 153
------ ------
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 $ 44 $ 25
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 ( CompuDyne or 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 representation 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,
1997.
2.ACCOUNTS RECEIVABLE
- - - ---------------------
Accounts receivable consist of the following:
($ in thousands) June 30, December 31,
1998 1997
-------- -----------
U.S. Government Contracts:
Billed $ 1,068 $ 1,712
Unbilled 1,122 1,054
-------- ---------
2,190 2,766
Commercial
Billed 2,301 2,084
Unbilled 233 207
-------- ---------
2,534 2,291
Total Accounts Receivable $ 4,724 $ 5,057
Less Allowance for Doubtful
Accounts (123) (300)
--------- ---------
Net Accounts Receivable $ 4,601 $ 4,757
========= =========
3.COMMON STOCK AND COMMON STOCK OPTIONS
- - - ---------------------------------------
On April 1, 1998, the Compensation and Stock Options Committee
("Committee") granted options to purchase up to 75,000 shares of
CompuDyne stock to a key employee of SecurSystems at a price of $2.56 per
share (the fair market value of such shares at the date of grant). This
grant is dependent upon the achievement of specific goals in European
markets over a three year period.
On April 1, 1998, the Committee granted options to purchase up to 25,000
shares of CompuDyne stock to a key consultant of Quanta Systems at a
price of $2.56 per share (the fair market value of such shares at the
date of grant). This grant is dependent upon the achievement of specific
sales and distribution channel goals over a two year period.
On April 1, 1998, in a unanimous consent of the Board of Directors it was
resolved to amend the Stock Purchase Agreement, dated August 1, 1993
between the Corporation and each of Phillip M. Blackmon, Diane W. Burns
and George Manz. The maturity date was changed from five years from the
date of the note to seven years from the date of the note and allows for
the obligor to make payment in cash or an equivalent amount of stock.
On July 7, 1998 Phillip Blackmon elected this option to use stock to
repay the principle and interest on his four notes dated August 1 1993,
1994, 1995, and 1996.
On May 1, 1998, the Committee granted options to purchase 46,000 shares
of CompuDyne stock to key employees of Quanta Systems and Quanta
SecurSystems at a price of $2.56 per share (the fair market value of such
shares at the date of grant).
4.LEGAL PROCEEDINGS
- - - -------------------
Quanta Systems settled its claim against the Army for change orders at
the Fort Bragg installation. While the claim was ready to go to
arbitration on July 7th, the decision was made to settle for a lesser
amount than was due in order to avoid the uncertainty, legal cost and
distraction of a lengthy arbitration hearing. Quanta Systems will
receive $400,000 which is about $55,000 less than remained on the books
as an unbilled receivable. This shortfall, plus legal fees recorded to
date, have been be charged to existing contract reserves. Any additional
legal fees incurred will be charged to existing contract reserves.
5. REVOLVING CREDIT AGREEMENT
- - - -----------------------------
The Company signed a secured working capital line of credit agreement
with Chevy Chase Bank, Chevy Chase, Maryland which allows borrowings of
an average of 80% of eligible accounts receivable. The new agreement
was signed on June 25, 1998 and allows for a maximum available loan of
$2.5 million which is a $750 thousand increase over the line of credit
previously with Asian American Bank and Trust Company of Boston,
Massachusetts. The interest rate for the new line of credit is at LIBOR
plus 2.75%, compared with the old Asian American line of credit which was
at a rate of prime plus 0.5%. The new line has a two year term which
expires June 25, 2000.
COMPUDYNE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- - - ---------------------
Second Quarter 1998 and 1997 Comparison
- - - ---------------------------------------
CompuDyne s net sales increased $882 thousand from $5.3 million in the
second quarter of 1997 to $6.2 million in the second quarter of 1998.
Quanta SecurSystems, Inc. ( SecurSystems ) net sales were $2.7 million in
the second quarter of 1998 compared with $1.4 million in the second
quarter of 1997, an increase of $1.3 million. This increase is
attributed to the low volumes in the second quarter of 1997 compared with
increased sales in the second quarter of 1998. CompuDyne s backlog is
currently $20.7 million as of June 30, 1998. This is an increase of $1.0
million over December 31, 1997. Quanta Systems Corporation ( Quanta
Systems ) net sales decreased $520 thousand to $2.6 million in the second
quarter of 1998 compared with $3.1 million in the same period for 1997.
This decrease was due to low volumes experienced in the second quarter of
1998. MicroAssembly Systems, Inc. ( MicroAssembly ) had a slight
increase of $30 thousand in net sales for the second quarter of 1998 to
$470 thousand compared with $440 thousand in the second quarter of 1997.
Data Control Systems ( DCS ) had net sales of $378 thousand in the second
quarter of 1998, up $51 thousand from $327 thousand in the first quarter
of 1997. Sysco Security Systems ( Sysco ) had $55 thousand in net sales
for the second quarter of 1998. This was totally incremental since Sysco
was in a start-up status in the second quarter of 1997.
Gross margin for CompuDyne increased $237 thousand from $968 thousand in
the second quarter of 1997 to $1.2 million in the second quarter of 1998.
SecurSystems showed an increase of $277 thousand from $221 thousand in
the second quarter of 1997 to $498 thousand in the second quarter of
1998. This was due mainly to the increase in net sales. Quanta Systems
had a slight decrease in gross margin of $26 thousand, down from $507
thousand in the second quarter of 1997 to $481 thousand in the second
quarter of 1998. DCS had a slight increase of $11 thousand in gross
margin to $87 thousand in the second quarter of 1998, up from $76
thousand in the same period of 1997. MicroAssembly s gross margin
decreased $33 thousand from $164 thousand in the second quarter of 1997
to $130 thousand in the second quarter of 1998. This primarily was due
to start-up costs associated with a new customer. Sysco had an
incremental margin addition of $9 thousand in the second quarter of 1998.
Selling, general and administrative expenses increased $54 thousand for
CompuDyne in the second quarter of 1998, increasing from $757 thousand in
1997 to $811 thousand in 1998. SecurSystems had a slight decrease in
selling, general and administrative costs of $11 thousand, decreasing
from $236 thousand in the second quarter of 1997 to $225 thousand in
1998. Quanta Systems selling, general and administrative costs
decreased slightly from $290 thousand in the second quarter of 1997 to
$285 thousand in 1998, a $5 thousand increase. Selling, general and
administrative expenses for DCS decreased $45 thousand to $(11) thousand
in the second quarter of 1998 from $34 thousand in 1997. This reflects a
year-to-date adjustment to the G & A allocation between Quanta Systems
and DCS. Year-to-date variances are discussed in the half year
comparisons. MicroAssembly s selling, general and administrative
expenses increased $3 thousand to $90 thousand in the second quarter of
1998 up from $87 thousand in the same period for 1997. Sysco s selling,
general and administrative expenses increased to $81 thousand in the
second quarter of 1998, up $58 thousand from $23 thousand in the second
quarter of 1997. This is due to increased payrolls and staffing in the
current quarter for this start-up operation. CompuDyne s corporate
selling, general and administrative expenses increased $55 thousand in
the second quarter of 1998 to $141 thousand, up from $86 thousand in
1997. This increase is due to increased payrolls, payroll allocations
and insurance costs.
Research and development costs, which are related only to Quanta Systems
DCS product division increased $24 thousand to $61 thousand in the second
quarter of 1998 from $37 thousand in 1997. The costs in 1998 were spent
primarily on the redesign of the model 7500 satellite test modem.
CompuDyne s second quarter 1998 profit before taxes was $326 thousand,
increasing $141 thousand from the second quarter of 1997 which was $185
thousand. This was a 76% increase. SecurSystems increased $265 thousand
from a loss of $27 thousand in the second quarter of 1997 to a profit of
$238 thousand in 1998. Quanta Systems net profit was $121 thousand in
the second quarter of 1998, down $42 thousand from a profit of $163
thousand in the second quarter of 1997. This is a result of lower sales
for the quarter than expected. DCS had a net profit of $29 thousand for
the second quarter of 1998, an increase of $28 thousand over the $1
thousand profit for the second quarter of 1997. This is attributed to
increased sales at DCS. MicroAssembly had a profit of $29 thousand for
the second quarter of 1998 down $42 thousand from $71 thousand in the
second quarter of 1997. Sysco had a loss of $79 thousand in the second
quarter of 1998 as its start-up phase was accelerated with additional
management resources. This compared with a loss of $24 thousand during
the same period in 1997.
Interest expense for the second quarter of 1998 was $16 thousand compared
to $17 thousand in 1997.
Year-to-Date Comparison
- - - -----------------------
CompuDyne s net sales increased $1.2 million or 12% in the first half of
1998. Net sales were $11.3 million in the first half of 1998 compared
with $10.1 million in the first half of 1997. SecurSystems had $4.3
million in net sales in the first half of 1998 compared with $2.7 million
for the same period in 1997, an increase of $1.6 million. Quanta Systems
net sales for the first half of 1998 totalled $5.2 million. This was a
decrease of $791 thousand from the first half of 1997 net sales of $6.0
million. This was due to lower volumes from the NSA and Fort Bragg
contracts, partially offset by an increase in the TETON contract sales.
DCS had $780 thousand in net sales for the first half of 1998, up $255
thousand from $524 thousand in the first half of 1997. This increase was
primarily due to the unexpected purchase of a replacement base band unit
by an existing customer. MicroAssembly s net sales increased $91
thousand from $834 thousand in the first half of 1997 to $924 thousand in
the first half of 1998. Sysco had $55 thousand in net sales for the
first half of 1998. This was totally incremental since Sysco had no
sales in the first half of 1997.
CompuDyne s gross margins increased $342 thousand in the first half of
1998 to $2.2 million, up from $1.8 million during the same period in
1997. SecurSystem s gross margins increased $190 thousand to $742
thousand in the first half of 1998. Gross margins were $552 thousand in
1997. This increase is attributed to higher sales. Quanta Systems gross
margins were $943 thousand in the first half of 1998, up $53 thousand
from 1997 first half gross margins of $890 thousand. Although sales were
reduced for the period, the reduction in sales relates to low margin
sales. Therefore gross margins were up due to higher margin sales during
the period. Gross margins at DCS increased $105 thousand to $210
thousand in the first half of 1998. This compares with $105 thousand in
the same period for 1997. This is due to higher sales. MicroAssembly
gross margins decreased $14 thousand from $287 thousand in the first half
of 1997 to $273 thousand during the same period for 1998 due to start-up
costs for a new customer incurred in the first and second quarter of
1998. Sysco had a modest $10 thousand gross margin for the first half of
1998.
CompuDyne s selling, general and administrative costs increased $210
thousand to $1.6 million in the first half of 1998 up from $1.4 million
in the same period in 1997. SecurSystems had a slight decrease of $25
thousand in the first half of 1998, with $462 thousand in 1998 compared
with $487 thousand for 1997. Quanta Systems selling, general and
administrative expenses increased by $78 thousand to $577 in the first
half of 1998, up from $499 thousand in the same period for 1997. This
increase was due to the treatment of legal costs for the Fort Bragg claim
and increased marketing costs. This is partially offset by a $57
decrease in DCS s costs due to a reduction in staff and consolidation of
some facilities. DCS s costs were $24 thousand in the first half of 1998
compared with $81 thousand for the same period in 1997. MicroAssembly s
selling, general and administrative costs were $205 thousand in the first
half of 1998 increasing $36 thousand from $168 thousand in the first half
of 1997. This is due to increased marketing efforts including a staff
addition and additional advertising and promotional expenses. Selling,
general and administrative costs for Sysco increased $92 thousand in the
first half of 1998, up from $46 thousand for the same period in 1997.
This is due to increased payrolls.
Research and development costs, which are related only to Quanta Systems
DCS product division were $68 thousand in the first half of 1998 down $22
thousand from $90 thousand for the same period in 1997. The costs in
1998 were spent primarily on the redesign of the model 7500 satellite
test modem.
Net profit for CompuDyne increased $107 thousand to $437 thousand in the
first half of 1998 from $330 thousand in the same period for 1997.
SecurSystems net profit increased $182 thousand to $219 thousand in the
first half of 1998 from $37 thousand in the first half of 1997. This
increase was due to increased net sales for the period. Quanta Systems
net profit was $222 thousand in the first half of 1998. This was a
decrease of $87 thousand from $309 thousand in the first half of 1997.
This was due to the decrease in sales for the first half of 1998 compared
with the same period in 1997. DCS had a net loss of $73 thousand in the
first half of 1997. The first half of 1998 had an increase of $160
thousand to $87 thousand. Increased sales, a reduction in staff and
facility consolidations account for this increase. MicroAssembly s net
profit for the first half of 1998 was $49 thousand, decreasing $56
thousand from $105 thousand in the same period of 1997. Sysco had a net
loss of $141 thousand in the first half of 1998 compared with a $46
thousand loss in the first half of 1997, an increased loss of $95
thousand. This is due to additional resources required for this start-up
operation.
LIQUIDITY AND CAPITAL RESOURCES
- - - -------------------------------
The Company s principle 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 United States
Government, or subcontracts thereunder. The majority of SecurSystems
receivables are due under contracts, subcontracts, or maintenance
agreements with state and local governments.
The Company has a secured working capital line of credit agreement with
Chevy Chase Bank, Chevy Chase, Maryland which allows borrowings of an
average of 80% of eligible accounts receivable. The new agreement was
signed on June 25, 1998 and allows for a maximum available loan of $2.5
million which is a $750 thousand increase over the line of credit
previously with Asian American Bank and Trust Company of Boston,
Massachusetts. The interest rate for the new line of credit is at LIBOR
plus 2.75%, compared with the old Asian American line of credit which was
at a rate of prime plus 0.5%. The new line has a two year term and
expires June 25, 2000.
MicroAssembly has an unsecured line of credit with Fleet Bank for $100
thousand with no expiration date. The line of credit is guaranteed by
Mr. Roenigk. The rate is prime plus 2% and there was $58 thousand
outstanding as of June 30, 1998.
Net cash flows provided by operations was $497 thousand in 1998, an
increase of $615 thousand from the 1997 cash flow used in operations of
$118 thousand. Net income increased from $280 thousand in the first half
of 1997 to $302 thousand during the same period in 1998. There was a
$233 thousand reduction in short term debt. During the first half of
1998 CompuDyne purchased 62 thousand shares of treasury stock at a cost
of $120 thousand. Capital additions totalled $159 thousand in the first
half of 1998. This was $71 thousand more than in the same period of
1997.
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 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
None
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 5, 1998 /s/ William C. Rock
--------------------
William C. Rock
Chief Financial
Officer