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, 1996
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
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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 August 14, 1996 a total of 2,864,082 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 - June 30, 1996
(unaudited)and December 31, 1995 3
Consolidated Statements of Operations -
Three Months and Six Months Ended
June 30, 1996 and 1995 (unaudited) 4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1996 and 1995 (unaudited) 5
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition 9-11
Part II. Other Information 12
Item 6. Exhibits and Reports on Form 8-K
Signature 13
Index to Exhibits 14
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COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
June 30, December 31,
1996 1995
--------- -----------
ASSETS
Current Assets:
Cash $ - $ -
Accounts receivable, net 3,908 2,122
Inventories:
Finished Goods 71 144
Work in process 495 473
Raw materials and supplies 383 405
------- -------
Total inventories 949 1,022
------- -------
Prepaid expenses and other current assets 87 97
------- -------
Total Current Assets 4,944 3,241
Non-current receivables, related parties 60 60
Property, plant and equipment, at cost 1,355 1,279
Less: accumulated depreciation and
amortization 732 691
------- -------
Net property, plant and equipment 623 588
------- -------
Goodwill & other intangibles, net of
accumulated amortization 1,104 1,127
Other assets, net 39 17
------- -------
Total Assets $ 6,770 $ 5,033
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,954 $ 1,515
Bank line payable 161 259
Accrued pension costs 40 40
Other accrued expenses 937 641
Current portion of deferred compensation 63 61
Current portion of notes payable
related parties 19 20
------- -------
Total Current Liabilities $ 4,174 $ 2,536
------- -------
Notes payable, related parties $ 460 $ 470
Long term pension liability 370 370
Deferred compensation, net of
current portion 40 59
Deferred taxes and other liabilities 214 231
------- -------
Total Liabilities $ 5,258 $ 3,666
------- -------
SHAREHOLDERS' EQUITY:
Convertible Preference stock, Series D, 1,891 1,891
1,260,460 shares issued and outstanding
as of June 30, 1996
Common stock, par value $.75 per share 1,355 1,355
10,000,000 shares authorized; 1,807,832
shares issued and outstanding as of
June 30, 1996
Other capital 7,973 7,973
Receivable from management (67) (91)
Deficit (9,640) (9,761)
------- -------
Total Shareholders' Equity 1,512 1,367
------- -------
Total Liabilities and Shareholders' Equity $ 6,770 $ 5,033
======= =======
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,
1996 1995 1996 1995
Net sales $ 5,343 $ 2,569 $ 8,381 $ 4,615
Cost of sales 4,810 2,221 7,382 3,993
-------- ------- ------- ------
Gross margin 533 348 999 622
Selling, general and adminis-
trative expenses 350 217 701 457
Research and Development 72 34 140 39
-------- ------- ------- -------
Operating income 111 97 158 126
------- ------- ------- -------
Other (income) expense
Interest expense 16 7 34 10
Other (income) expense (2) 15 (5) 12
------- ------- ------- -------
Total other (income)
expense, net 14 22 29 22
------- ------- ------- -------
Income (loss) from continuing
operations before income tax
provision or benefit 97 75 129 104
Income tax provision (benefit) (9) - (17) -
------- ------- ------- -------
Income (loss) from continuing
operations 106 75 146 104
(Loss)from discontinued operations (25) (112) (25) (246)
------- ------- ------- -------
Net income (loss) $ 81 $ (37) $ 121 $ (142)
======= ======= ======= =======
Weighted average common
equivalent shares:
Primary 3,070 1,603 3,084 1,603
======= ======= ======= =======
Fully Diluted 3,470 1,603 3,484 1,603
======= ======= ======= =======
Income per common and dilutive
common equivalent share:
Continuing operations .04 .04 .05 .06
Discontinued operations (.01) (.06) (.01) (.15)
------- ------- ------- -------
Net income (loss) per share $ .03 $ (.02) $ .04 $ (.09)
======= ======= ======= =======
Income per common share assuming full dilution:
Continuing operations $ .03 $ .04 $ .0 $ .06
Discontinued operations (.01) (.06) (.01) (.15)
------- ------- ------- -------
$ .02 $ (.02) $ .04 $ (.09)
======= ======= ======= =======
See Notes to Consolidated Financial Statements (unaudited).
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COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
June 30,
1996 1995
------- -------
Cash flows provided by (used for)
operating activities:
Income (loss) from continuing operations $ 146 $ 104
Adjustments to reconcile net income to
net cash provided by (used in)
continuing operations:
Depreciation 41 -
Amortization 23 -
Increase in accounts receivable (1,786) (611)
Increase in accounts receivable,
related parties - (8)
Decrease (increase) in prepaid expenses 10 (52)
Decrease (increase) in inventories 73 (156)
Increase in accounts payable 1,439 748
Increase (decrease in accrued
liabilities 261 (62)
Increase (decrease) in other, net (22) -
------- -------
Cash flows provided by (used in)
continuing operations 185 (37)
------- -------
Loss from discontinued operations (25) (246)
(Increase) decrease in net current assets - 110
------- -------
Cash flows used in discontinued operations (25) (136)
------- -------
Net cash flows provided by (used in) operations 160 (173)
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (76) (4)
------- -------
Net cash flows used for investing activities (76) (4)
------- -------
Cash flows provided by (used for)
financing activities:
Decrease of receivable from management 24 -
Increase (decrease) in short term debt (98) 48
Proceeds from long term debt, related parties (10) -
------- -------
Net cash (used for) provided by financing
activities (84) 48
Net increase (decrease) in cash - (129)
Cash and cash equivalents at beginning
of period - 176
------- -------
Cash and cash equivalents at end of period $ - $ 47
======= =======
Supplemental Schedule of Cash Flow Information:
Cash paid during the period for:
Interest $ 10 $ 10
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,
1995.
2. ACCOUNTS RECEIVABLE
- -----------------------
Accounts receivable consist of the following:
($ in thousands) June 30, December 31,
1996 1995
-------- --------
U.S. Government Contracts:
Billed $ 2,550 $ 974
Unbilled 520 701
------- -------
3,070 1,675
Commercial 874 483
------- -------
Total Accounts Receivable $ 3,944 $ 2,158
------- -------
Less Allowance for Doubtful Accounts (36) (36)
------- -------
Net Accounts Receivable $ 3,908 $ 2,122
======= =======
3. COMMON STOCK AND COMMON STOCK OPTIONS
- -----------------------------------------
On February 2, 1996 the Compensation and Stock Option Committee (the
"Committee") granted options to purchase 16,290 shares of CompuDyne
Common Stock to key employees of CompuDyne's subsidiary, MicroAssembly
Systems, Inc. ("MicroAssembly"), at a price of $1.81 per share (the fair
market value of such shares at the date of grant) and in accordance with
the terms and conditions of the 1986 Incentive Compensation Plan. In May
1996 the number of shares granted was reduced to 12,040 shares when an
optionee resigned and did not exercise his options within 30 days
following the date on which he ceased to be an employee, as defined under
the terms of the plan.
In addition, on February 2, 1996 the Committee granted options to
purchase 21,710 shares of CompuDyne Common Stock to key employees of
MicroAssembly at a price of $1.81 per share and in accordance with the
terms and conditions of the 1996 Incentive Compensation Plan, upon
approval of the Plan by CompuDyne's shareholders at its annual meeting on
June 5, 1996. In May 1996 the number of shares granted was reduced to
15,960 shares when an optionee resigned and did not exercise his options
within 30 days following the date on which he ceased to be an employee,
as defined under the terms of the plan.
On July 11, 1996 the Committee granted options to purchase 121,000 shares
of CompuDyne Common Stock to key employees of the newly acquired company,
Shorrock Electronic Systems ("SES"), (now Quanta SecurSystems, Inc.) and
to a key employee of Data Control Systems, in accordance with the terms
and conditions of the 1996 Incentive Compensation Plan at a price of
$1.625 per share (the fair market value of such shares at the date of
grant).
In July 1996 the holders of CompuDyne's $400 thousand Senior Convertible
Notes (which includes the Chairman) agreed to convert the notes into
400,000 common shares. The same investors also agreed to purchase
600,000 additional common shares for $600 thousand. This financing will
add $1 million to the company's equity, reduce future interest charges,
and provided the cash required to make an acquisition and provided
working capital for that operation.
4. DISCONTINUED OPERATIONS
- ---------------------------
On August 21, 1995, Quanta Systems, a wholly owned subsidiary of the
Company, transferred all of the assets and liabilities of Quanta's
Suntec division to Suntec Service Corporation ("Suntec"), a newly-formed
corporation, in return for (i) all of Suntec's issued and outstanding
common stock and (ii) Suntec's agreement to pay to Quanta a royalty of 2%
of Suntec's net sales and other revenues for thirty (30) years from the
date of the closing. Quanta then sold all of Suntec's Common Stock to
Norman Silberdick, who resigned on that date as CompuDyne's Chairman,
President, Chief Executive Officer and Director.
As a result of the disposal of Suntec in August of 1995, the consolidated
statements of operations for the second quarter and six months ended June
30, 1995 have been restated to reflect Suntec as a discontinued
operation.
5. SUBSEQUENT EVENTS
On July 11, 1996 CompuDyne acquired all of the stock of Shorrock
Electronic Systems from BET Public Company Limited. Prior to the
acquisition, SES was affiliated with Shorrock Integrated Systems, a large
British based supplier of physical security and surveillance equipment
and installation services owned by BET. SES had sales of approximately
$4.9 million in the fiscal year ended March 31, 1996, almost entirely
related to the sale, installation and maintenance of physical security
systems for the U.S. correctional facility market. Effective with the
acquisition, SES's name has been changed to Quanta SecurSystems, Inc.
CompuDyne also signed a long term exclusive distribution agreement
covering all of North America with Shorrock Integrated Systems. This
agreement will give CompuDyne exclusive access to a world-class group of
physical security and surveillance products., comprised of the ADACS
Security Management System, Microwave Fence, and T-Line fence security
system. This product line, which is continually updated and expanded by
Shorrock's research and development staff, will provide a significant
advantage to Quanta SecurSystems in marketing to correctional facilities
and other markets. CompuDyne plans to significantly expand the product
marketing effort. Continuation of the distribution agreement is
dependent upon reaching minimum volume levels.
CompuDyne completed a $1 million equity financing package on July 11,
1996. The holders of the company's $400 thousand Senior Convertible
Notes (which includes the Chairman) converted the notes into 400,000
common shares. The same investors also purchased 600,000 common shares
for $600 thousand. This financing added $1 million to the company's
equity, reduces future interest charges, and provided the cash required
to make an acquisition and provided working capital for that operation.
COMPUDYNE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
CompuDyne had an income from continuing operations of $106 thousand for
the 1996 second quarter compared with an income of $75 thousand from
continuing operations for the 1995 second quarter. The profit in the
1996 second quarter was primarily due to the Quanta Systems operations
which had net income of $136 thousand. Data Control had a profit of $5
thousand after $72 thousand of research and development expenditures
while MicroAssembly had a loss of $24 thousand after $25 thousand of non-
cash charges related to purchase accounting. Unallocated corporate
charges were $11 thousand. In the second quarter of 1995 profits at
Quanta Systems of $93 thousand plus overallocated corporate charges of
$20 thousand were offset by a $38 thousand loss at Data Control. At the
end of the 1996 second quarter the Company had a backlog of $7.18 million
of which $.47 million was at MicroAssembly.
Net Sales from continuing operations in the second quarter of 1996
increased 108% to $5.3 million from $2.6 million for the 1995 second
quarter. All operations contributed to the increase. Quanta Systems was
up 91%, to $4.5 million due to revenue from two large procurements on the
NISE East contract in the second quarter of 1996. Data Control was up
131% to $497 thousand due to increased volume of equipment deliveries on
existing orders including three Satellite Test Modems. MicroAssembly, at
$345 thousand, was fully incremental since it was acquired in August of
1995.
Gross margin from continuing operations for the second quarter of 1996
increased $185 thousand to $533 thousand from $348 thousand for the
second quarter of 1995. Quanta Systems' gross margin of $351 thousand
was up $65 thousand while Data Control's gross margin of $125 thousand
compared to $61 thousand, and MicroAssembly was fully incremental at $58
thousand. Quanta Systems continues to see a narrowing of margins from
its traditional Defense related business.
Selling, general and administrative expense from continuing operations
increased $133 thousand to $350 thousand, due primarily to MicroAssembly
being included in the second quarter of 1996 at $80 thousand with the
balance due to increased volume and reversals of accruals totaling $22
thousand in 1995.
R&D expenditures were $72 thousand, up from $34 thousand in the second
quarter of 1995. Expenditures in the second quarter of 1996 were
entirely at Data Control and were largely due to the Company's strategy
of continuing the upgrade of certain core products and the continuing
development and testing of our two major R&D products - the Satellite
Test Modem and the Automatic Power Controller. The R&D costs should
decrease as R&D on these two major products winds down.
CompuDyne's interest expense for the 1996 second quarter increased by $9
thousand to $16 thousand compared with $7 thousand in the second quarter
of 1995. The increase was attributable to increased notes payable and
bank borrowings. With the Notes being converted into common stock in
July 1996, there should be a consequent reduction in future interest
expense.
Quanta Systems has a strong backlog which will assure good revenues over
the next quarter. While margins continue to narrow in Quanta Systems'
business, increased volume is expected to overcome this effect.
Effecting the gross margin is one large fixed price contract that is
experiencing significant cost overruns. In addition, the sharp increase
in demand at Quanta Systems has strained working capital and an increase
to $850 thousand in the Company's bank line was approved. A further
expansion of bank line capacity is being sought. Data Control continues
to work off its strong year-end backlog. It is now important that DCS
receive follow-on orders from key customers who have purchased their
evaluation units of the Satellite Test Modem and APC. MicroAssembly is
seeing some upturn in both its existing customer base and its list of
prospective customers who have already seen demonstrations of the unique
Stick-Screw system. The electric screwdriver line of Foredom Electric
was acquired by MicroAssembly for $53 thousand in July 1996. This
product line should help increase MicroAssembly's gross margin. The
current manpower, administrative staff and facility are sufficient to
take care of the additional requirements of this new product line.
CompuDyne is currently undergoing an audit by the Defense Contract Audit
Agency ("DCAA") covering the years 1988 through 1994. The DCAA has
questioned costs related to previous billings. CompuDyne is currently
challenging the basis for questioning these costs. Management believes
that the company has provided sufficient reserves for potential loss
resulting from this audit, and the outcome of the audit will not have
material impact upon the financial statements.
On July 11, 1996 CompuDyne acquired all of the stock of Shorrock
Electronic Systems from BET Public Company Limited. Prior to the
acquisition, SES was affiliated with Shorrock Integrated Systems, a large
British based supplier of physical security and surveillance equipment
and installation services owned by BET. SES had sales of approximately
$4.9 million in the fiscal year ended March 31, 1996, almost entirely
related to the sale, installation and maintenance of physical security
systems for the U.S. correctional facility market. Effective with the
acquisition, SES's name has been changed to Quanta SecurSystems, Inc.
CompuDyne also signed a long term exclusive distribution agreement
covering all of North America with Shorrock Integrated Systems. This
agreement will give CompuDyne exclusive access to a world-class group of
physical security and surveillance products., comprised of the ADACS
Security Management System, Microwave Fence, and T-Line fence security
system. This product line, which is continually updated and expanded by
Shorrock's research and development staff, will provide a significant
advantage to Quanta SecurSystems in marketing to correctional facilities
and other markets. CompuDyne plans to significantly expand the product
marketing effort. Continuation of the distribution agreement is
dependent upon reaching minimum volume levels.
CompuDyne completed a $1 million equity financing package on July 11,
1996. The holders of the company's $400 thousand Senior Convertible
Notes (which includes the Chairman) converted the notes into 400,000
common shares. The same investors also purchased 600,000 common shares
for $600 thousand. This financing added $1 million to the company's
equity, reduces future interest charges, and provided the cash required
to make an acquisition and provided working capital for that operation.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
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, a majority of which are due
under prime contracts with the U.S. Government, or subcontracts
thereunder.
In February 1996, the company increased its secured line of credit with
the Asian American Bank and Trust Company of Boston, Massachusetts from
$500 thousand to $750 thousand, and a further increase to $850 thousand
was approved in June, 1996. The company continues to explore further
increases in its bank borrowing capacity.
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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.
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
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, 1996 /s/ I. Elaine Chen
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I. Elaine Chen
Chief Financial Officer
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INDEX TO EXHIBITS
Computation of Net Income Per Common Share