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, 2002
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 0-29798
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.)
7249 National Drive, Hanover, Maryland 21076
(Address of principal executive offices)
Registrant's telephone number, including area code:
(410) 712-0275
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 13, 2002, a total of 7,806,881 shares of Common
Stock, $.75 par value, were outstanding.
COMPUDYNE CORPORATION AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements - Unaudited
Consolidated Balance Sheets September 30, 2002
and December 31, 2001 3
Consolidated Statements of Operations -
Three Months and Nine Months
Ended September 30, 2002 and 2001 4
Consolidated Statement of Changes in
Shareholders' Equity Nine Months Ended
September 30, 2002 5
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2002 and 2001 6
Notes to Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-18
Item 3. Quantitative and Qualitative Disclosures 19
About Market Risk
Item 4. Controls and Procedures 20
Part II. Other Information 21
Signature and Certifications 22-28
ITEM 1. FINANCIAL STATEMENTS
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, December 31,
ASSETS 2002 2001
------ ------
(in thousands, except share data)
Current Assets
Cash and cash equivalents $ 3,939 $ 296
Accounts receivable, net 44,813 34,188
Contract costs in excess
of billings 20,909 14,564
Inventories 6,422 6,243
Deferred taxes 843 843
Prepaid expenses and other 1,702 2,093
------- -------
Total Current Assets 78,628 58,227
Property, plant and equipment, net 13,460 7,322
Goodwill and other
intangible assets, net 24,737 3,753
Investment in affiliated company - 6,076
Deferred taxes 1,152 570
Other 624 483
------- -------
Total Assets $ 118,601 $ 76,431
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and
accrued liabilities $ 24,330 $ 21,929
Billings in excess of
contract costs incurred 14,532 6,504
Deferred revenue 6,858 -
Deferred tax liability 1,552 -
Current portion of notes payable 2,524 2,394
------- -------
Total Current Liabilities 49,796 30,827
Notes payable 22,820 11,593
Subordinated notes payable 417 1,175
Other 371 199
------- -------
Total Liabilities 73,404 43,794
------- -------
Commitments and contingencies
Shareholders' Equity
Preferred stock, 2,000,000 shares
authorized and unissued - -
Common stock, par value $.75 per share:
15,000,000 shares authorized;
8,380,411 and 7,133,334 shares
issued at September 30, 2002 and
December 31, 2001,
respectively 6,285 5,350
Additional paid-in-capital 38,083 27,976
Retained earnings 4,393 2,704
Accumulated other comprehensive
loss (221) (114)
Treasury stock, at cost;
481,530 and 477,869 shares at
September 30, 2002 and
December 31, 2001,
respectively (3,343) (3,279)
------- -------
Total Shareholders' Equity 45,197 32,637
------- -------
Total Liabilities and
Shareholders' Equity $ 118,601 $ 76,431
======= =======
The accompanying notes are an integral part
of these financial statements.
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
(in thousands, except share and per share data)
Net sales $ 41,380 $ 31,354 $ 111,286 $ 92,547
Cost of goods sold 31,907 25,524 86,380 74,181
------- ------- ------- -------
Gross profit 9,473 5,830 24,906 18,366
Operating expenses 8,776 4,007 21,283 12,858
------- ------- ------- -------
Operating income 697 1,823 3,623 5,508
------- ------- ------- -------
Other expense (income)
Interest expense 402 697 1,061 1,766
Other income (30) (207) (169) (303)
------- ------- ------- -------
Total other expense 372 490 892 1,463
------- ------- ------- -------
Income before income taxes 325 1,333 2,731 4,045
Income taxes 130 423 1,042 1,381
------- ------- ------- -------
Net income $ 195 $ 910 $ 1,689 $ 2,664
======= ======= ======= =======
Earnings per share:
- ------------------
Basic earnings
per share $ .03 $ .18 $ .23 $ .52
======= ======= ======= =======
Weighted average number of common
shares outstanding 7,898 5,077 7,333 5,175
======= ======= ======= =======
Diluted earnings
per share $ .02 $ .16 $ .21 $ .46
======= ======= ======= =======
Weighted average number
of common shares and
equivalents 8,322 5,797 7,878 5,849
======= ======= ======= =======
The accompanying notes are an integral part of these
financial statements.
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
Common Stock Additional
------------ Paid-in Retained
Shares Amount Capital Earnings
------ ------ ---------- --------
December 31, 2001 7,133 $ 5,350 $ 27,976 $ 2,704
Common stock issued in
connection with acquisition
of Tiburon, Inc. 1,124 843 9,407
Warrants issued in
connection with acquisition
of Tiburon, Inc. 130
Warrants exercised in
cashless exercise 8 6 58
Stock Options exercised 115 86 512
Net income 1,689
Other comprehensive income,
net of tax:
Loss on interest rate
swap agreement
Translation adjustment
__________________________________________
Balance at
September 30, 2002 8,380 $ 6,285 $ 38,083 $ 4,393
====== ====== ======= ======
Accumulated
Other Treasury Stock
Comprehensive --------------
Loss Shares Amount Total
------------- ------ ------ -------
December 31, 2001 $ (114) 478 $ (3,279) $32,637
Common stock issued in
connection with acquisition
of Tiburon, Inc. 10,250
Warrants issued in
connection with acquisition
of Tiburon, Inc. 130
Warrants exercised in
cashless exercise 4 (64) -
Stock Options exercised 598
Net income 1,689
Other comprehensive income,
net of tax:
Loss on interest rate
swap agreement (89) (89)
Translation adjustment (18) (18)
__________________________________________
Balance at
September 30, 2002 $ (221) 482 $(3,343) $ 45,197
====== ===== ======= ========
The accompanying notes are an integral part of these
consolidated financial statements.
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
September 30,
2002 2001
---- ----
(in thousands)
Cash flows from operating activities:
Net income $ 1,689 $ 2,664
Adjustments to reconcile net income to
net cash used in operations:
Depreciation and amortization 1,670 1,418
Equity earnings in affiliated company (23) (16)
Gain from disposition of property,
plant and equipment (10) (67)
Changes in assets and liabilities:
Accounts receivable (3,783) 2,941
Contract costs in excess of billings 5,734 (4,633)
Inventories (179) (230)
Prepaid expenses and other current assets 754 (674)
Other assets (6) (400)
Accounts payable and accrued liabilities (2,742) (50)
Billings in excess of contract
costs incurred 470 (1,421)
Deferred revenue 2,240 -
Other liabilities (8) (263)
------- -------
Net cash flows provided by (used in)
operating activities 5,806 (731)
------- -------
Cash flows from investing activities:
Additions to intangibles - (124)
Additions to property, plant
and equipment (3,050) (353)
Proceeds from sale of property,
plant and equipment 32 399
Net payment for acquisition (10,343) (6,086)
-------- -------
Net cash flows used in
investing activities (13,361) (6,164)
-------- -------
Cash flows from financing activities:
Issuance of common stock 599 1,006
Warrants exercised 64 -
Purchase of treasury stock (64) (2,489)
Repayment of subordinated notes payable (928) (171)
Borrowings of bank notes 12,500 13,850
Repayment of bank notes (973) (5,615)
-------- --------
Net cash provided by financing activities 11,198 6,581
-------- --------
Net change in cash and cash equivalents 3,643 (314)
Cash and cash equivalents at beginning
of period 296 1,077
-------- --------
Cash and cash equivalents at end
of period $ 3,939 $ 763
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 929 $ 1,342
Income taxes $ 1,246 $ 1,065
The accompanying notes are an integral part of these
financial statements.
COMPUDYNE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
CompuDyne Corporation and its subsidiaries (the "Company"), have
been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. The consolidated balance
sheet as of December 31, 2001 has been derived from the Company's
December 31, 2001 audited financial statements. Certain
information and note disclosures included in the annual financial
statements, prepared in accordance with accounting principles
generally accepted in the United States of America, 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
unaudited financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included
in the Company's annual report filed with the Securities and
Exchange Commission on Form 10-K for the year ended December 31,
2001. Operating results for the nine months ended September 30,
2002 are not necessarily indicative of operating results for the
entire fiscal year.
New Accounting Pronouncements:
In July 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No.
142, "Goodwill and Other Intangible Assets", which is effective
January 1, 2002. SFAS No. 142 requires, among other things, the
discontinuance of goodwill amortization. In addition, the
standard includes provisions for the reclassification of certain
existing recognized intangibles as goodwill, reassessment of the
useful lives of existing recognized intangibles, reclassification
of certain intangibles out of previously reported goodwill
and the identification of reporting units for purposes of
assessing potential future impairments of goodwill. SFAS No. 142
also required the Company to complete a transitional goodwill
impairment test six months from the date of adoption. During the
second quarter of 2002, the Company completed the first step of
the required initial test for potential impairment of goodwill
recorded at January 1, 2002. The results indicate no potential
impairment exists. Amortization of this goodwill for the three
and nine months ended September 30, 2001 was $16 thousand and $49
thousand, respectively.
In August 2001, the FASB issued SFAS No. 143, "Accounting for
Asset Retirement Obligations". SFAS No. 143 addresses financial
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset
retirement costs. SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002. The Company has not yet
determined the impact that adopting SFAS No. 143 will have on its
financial position or on the results of its operations when such
statement is adopted.
In October 2001, the FASB issued SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets". SFAS No. 144
addresses financial accounting and reporting for the impairment
or disposal of long-lived assets. It supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of", and the accounting and reporting
provisions of APB 30, "Reporting the Results of Operations
Reporting the Effects of Disposal of a Segment of a Business",
and "Extraordinary, Unusual and Infrequently Occurring Events and
Transactions". The Company adopted SFAS No. 144 on January 1,
2002. Adoption of SFAS No. 144 did not have a significant impact
on its results of operations or its financial position.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections." This statement is effective for
fiscal years beginning after May 15, 2002. SFAS 145 requires,
among other things, eliminating reporting debt extinguishments as
an extraordinary item in the income statement. The Company does
not believe the adoption of this standard will have a material
impact on the Company's financial position or results of
operations.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". The statement is
effective for fiscal years beginning after December 31, 2002.
SFAS No. 146 requires companies to recognize costs associated
with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. The
Company does not believe the adoption of this standard will have
a material impact on the Company's financial position or results
of operations.
Reclassifications:
Certain prior period amounts have been reclassified to conform
with the current period's presentation.
2. OPERATING SEGMENT INFORMATION
Pre-tax
Revenues Gross Profit Income/(Loss)
-------- ------------ -------------
(Three Months ended September 30)
(in thousands)
2002 2001 2002 2001 2002 2001
---- ---- ---- ---- ---- ----
Corrections $ 20,823 $ 19,729 $ 2,448 $ 3,386 $ 152 $ 1,063
Attack Protection 6,939 5,587 889 1,537 (155) 414
Fed. Sec. Systems 3,386 5,027 606 587 208 272
Public Safety 10,232 1,011 5,530 320 (38) (301)
CompuDyne Corp. - - - - 158 (115)
------- ------ ------ ------ ------ ------
$ 41,380 $ 31,354 $ 9,473 $ 5,830 $ 325 $ 1,333
======= ====== ====== ====== ====== ======
Pre-tax
Revenues Gross Profit Income/(Loss)
-------- ------------ -------------
(Nine Months ended September 30)
(in thousands)
2002 2001 2002 2001 2002 2001
---- ---- ---- ---- ---- ----
Corrections $63,024 $57,809 $ 9,678 $10,317 $ 2,330 $2,479
Attack Protection 18,711 17,266 3,011 4,980 (844) 1,655
Fed. Sec. Systems 10,247 14,011 1,746 1,747 509 760
Public Safety 19,304 3,461 10,471 1,322 455 (663)
CompuDyne Corp. - - - - 281 (186)
-------- ------ ------ ------ ------ ------
$111,286 $ 92,547 $24,906 $18,366 $ 2,731 $4,045
======== ====== ====== ====== ====== ======
3. INVENTORIES
Inventories consist of the following:
September 30, December 31,
2002 2001
------------ -----------
(in thousands)
Raw materials $ 4,301 $ 4,114
Work in progress 1,662 1,844
Finished goods 459 285
------ ------
$ 6,422 $ 6,243
====== ======
4. EARNINGS PER SHARE
Earnings per share are presented in accordance with SFAS No. 128,
"Earnings Per Share." This Statement requires dual presentation
of basic and diluted earnings per share on the face of the
statement of operations. Basic earnings per share excludes
dilution and is computed by dividing net income by the
weighted-average number of common shares outstanding during the
period. Diluted earnings per share also reflects the potential
dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock.
Stock options and warrants to purchase 366,000 shares and 187,310
shares for the nine month period ended September 30, 2002 and
2001 respectively, were not dilutive and, therefore, were not
included in the computation of diluted earnings per common share.
Stock options and warrants to purchase 594,500 shares and 2,000
shares for the three month period ended September 30, 2002 and
2001 respectively, were not dilutive and therefore were not
included in the computation of diluted earnings per common share.
The computations of the Company's basic and diluted earnings per
share amounts for the Company's operations were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
(in thousands, except share and per share data)
Net income $ 195 $ 910 $1,689 $2,664
===== ===== ====== ======
Weighted average common
shares outstanding 7,898 5,077 7,333 5,175
Effect of dilutive stock
options and warrants 424 720 545 674
----- ----- ----- -----
Diluted weighted average
common shares outstanding 8,322 5,797 7,878 5,849
===== ===== ===== =====
Net income per common share
Basic $ .03 $ .18 $ .23 $ .52
Diluted $ .02 $ .16 $ .21 $ .46
5. GOODWILL
The FASB recently issued SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 142 requires that goodwill no longer be amortized
against earnings, but instead analyzed periodically for impairment.
The Company has adopted SFAS No. 142 effective January 1, 2002, and
as a result, amortization of goodwill was discontinued. Goodwill
amortization for the three months and nine months ended September 30,
2001 was $16 thousand and $49 thousand, respectively. Net income and
fully diluted earnings per share for the three months ended September
30, 2001, assuming goodwill was not amortized during this period,
would not vary significantly from the amount recorded. Net income
and fully diluted earnings per share for the nine months ended
September 30, 2001, assuming goodwill was not amortized during this
period, would have been $2.6 million and $.45 per share, respectively.
6. ACQUISITION OF TIBURON, INC.
On January 25, 2002, the Company and Tiburon, Inc. ("Tiburon") entered
into a First Amendment Agreement whereby upon the satisfaction of
certain conditions, the Company agreed to purchase all of the issued
and outstanding common shares and other common stock equivalents it
did not already own for a combination of cash and stock. All requisite
conditions were met and the Company completed the purchase of Tiburon
on May 2, 2002. Total consideration paid for the purchase of the portion
of Tiburon that the Company did not previously own amounted to
approximately $12 million in cash and approximately 1.1 million shares
of CompuDyne common stock valued at $10.3 million. To fund the cash
portion of the Tiburon acquisition, the Company negotiated a $10 million
increase in its borrowing facility from its banks. The remainder of the
cash consideration paid was funded from the Company's working capital.
Tiburon provides command and control and records management software
systems for law enforcement, fire and rescue, corrections and justice
environments. Tiburon is a worldwide market leader in the development,
implementation and support of public safety and justice automation
systems.
The September 30, 2002 unaudited consolidated financial statements
include preliminary estimates of the fair market value of the assets
acquired and liabilities assumed and the related allocations of the
purchase price related to the acquisition of Tiburon. Final valuations
and allocations may differ from the amounts included herein. Currently
goodwill is estimated to be approximately $20.0 million.
In conjunction with preliminary estimates, the purchase price was
recorded as follows (in thousands):
Fair value of assets acquired $ 28,550
Goodwill 20,006
Fair value of stock issued (10,380)
Cash (19,229)
--------
Liabilities assumed $ 18,947
========
The following are the Company's unaudited pro forma results assuming
the acquisition had occurred on January 1, 2001:
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
(in thousands, except share and per share data)
Revenue $41,380 $42,029 $125,034 $124,183
Net income $ 195 $ 1,046 $ 1,952 $ 3,523
Earnings per share:
Basic $ .03 $ .17 $ .27 $ .56
Diluted $ .02 $ .15 $ .25 $ .51
These unaudited pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of
operations which would have actually resulted had the combination been
effective on January 1, 2001, or of future results of operations.
These pro forma numbers may change based on the ultimate determination
of the final values and allocations of the fair market value of the
assets acquired and liabilities assumed of Tiburon, Inc.
7. SUBSEQUENT EVENT
During October 2002, the Company's Board of Directors authorized
a stock repurchase program. This program authorized the Company to
repurchase on the open market, up to $3 million of the Company's common
stock. As of November 12, 2002, the Company had repurchased 92,400
shares of its common stock for total consideration of approximately
$575,000 under this program.
ITEM 2
COMPUDYNE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
CompuDyne Corporation is a leading provider of products and services to
the Public Security market. The Company operates in four (4) distinct
segments in this marketplace: Corrections, Attack Protection, Federal
Security Systems and Public Safety.
The Corrections segment is headquartered in Montgomery, Alabama and is
known to the trade as Norment Security Group ("Norment"). This segment
provides physical and electronic security products and services to the
corrections industry (prisons and jails) and to the courthouse,
municipal and commercial markets. Norment serves as a contractor,
responsible for most installation work on larger projects.
Installations involve hard-line (steel security doors, frames, locking
devices, etc.) and sophisticated electronic security systems, including
software, electronics, touch-screens, closed circuit TV, perimeter
alarm devices and other security monitoring controls. Norment recently
developed and introduced its MaxWall product. MaxWall is a modular
steel, concrete filled prefabricated jail cell. It allows for
construction projects to use considerably less space and can
save the project owner significant amounts of money. Norment,
through a network of regional offices provides field level design,
installation and maintenance of both physical and electronic security
products.
Included in the Corrections segment is the Trentech line which designs,
manufactures and integrates electronic security systems. Trentech
integrates generally available products and software as well as
designing its own proprietary systems. Trentech has developed a
sophisticated proprietary video badging system which has become the
virtual standard for the United States Air Force and has been installed
at over 200 US Air Force facilities throughout the world.
The Corrections segment also manufactures a complete line of locks and
locking devices under the brand name Airteq. Airteq is an industry
leader in pneumatic and electro-mechanical sliding devices used in the
corrections industry.
The Attack Protection segment is the country's largest Original
Equipment Manufacturer (OEM) of bullet, blast and attack resistant
windows and doors designed for high security applications such as
embassies, courthouses, Federal buildings, banks, corporate headquarters
and other facilities that insist on having the highest level of
protection currently available. CompuDyne is a premiere provider
of Level 8 security products, the highest rating level of commercial
security products. The product manufactured is an integrated and
structurally secure product where the rated protection comes not only
from the glass but also from the frame and encasement, which are
specifically designed to become integral parts of the structure into
which they are to be installed. Existing product installations number
in the thousands and range from the Middle East to the White House.
Working under contracts from the United States Department of State,
the segment's largest customer, Attack Protection is the largest
supplier of bullet and blast resistant windows and doors to United
States embassies throughout the world. Products are also sold to
drug stores, convenience stores, and banks to secure drive through
facilities. Other commercial applications include guard booths,
toll-booths, cash drawers and other similar items. Additionally, this
division is finalizing plans to manufacture both fixed and pop-up
bollards and barrier security systems.
The Attack Protection segment also manufactures a highly sophisticated
fiber optic sensor system, known as Fiber SenSys, used to detect
physical intrusion. This application is designed to protect large
perimeters including such applications as Federal facilities, oil
fields, airport tarmacs, public utilities, nuclear reactors and
water systems. In addition, it has been installed to guard the
perimeters of numerous private estates and other similar properties.
A related product is SecurLan, which protects data lines from physical
intrusion using a fiber optic technology similar to the Fiber SenSys
technology.
The Federal Security Systems segment is known as Quanta Systems
Corporation. This segment has been serving the federal government's
security needs since 1952. Its customer base includes military,
governmental agencies, and state and local governmental units. Federal
Security Systems provides turnkey systems integration of public security
and safety systems. This group is a classic security integrator and
specializes in a wide range of customized access control and badging,
intrusion detection, surveillance and assessment, communications,
command and control, fire and life safety, and asset tracking systems.
Federal Security Systems provides central station oversight and control
of multiple and separate facilities as well as security and public life
safety systems and equipment.
The Public Safety segment consists of two subsidiaries known to the
industry as CorrLogic, Inc. and Tiburon, Inc. CorrLogic is a leading
developer of inmate management and institutional medical software
systems. CorrLogic specializes in the development, implementation
and support of complex, integrated inmate management software systems,
including inmate medical management that improves the efficiency and
accuracy of correctional facility operations. CorrLogic's focus is
entirely on information solutions for the corrections industry.
CompuDyne expanded its offerings in the Public Safety sector through
the completion of its acquisition of Tiburon, on May 2, 2002. The
Company elected to complete the purchase for 50% cash consideration
and 50% stock consideration. Total consideration paid for the purchase
of the portion of Tiburon that the Company did not previously own
amounted to approximately $12 million in cash and approximately 1.1
million shares of CompuDyne common stock valued at $10.3 million.
Tiburon provides command and control and record management software
systems for law enforcement, fire and rescue, corrections and justice
environments. Tiburon is a worldwide market leader in the development,
implementation and support of public safety and justice automation
systems. In business since 1980, with more than 350 systems supporting
over 1,000 agencies, Tiburon is a leader in public safety and justice
solutions.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2002 Compared to Three Months Ended
September 30, 2001
Revenues. The Company had revenues of $41.4 million and $31.4 million
for the 3-month periods ended September 30, 2002 and September 30, 2001,
respectively. This was an increase of $10.0 million or 32.0%, which,
as described below, was a result of the acquisition by the Company of
Tiburon, Inc. on May 2, 2002. Revenues from the Corrections segment
increased from $19.7 million in 2001 to $20.8 million in 2002. This
was an increase of 5.6%. This increase was a result of this segment's
ability to perform additional contracting work from its backlog over
that which it was able to perform in the previous year. Revenues from
the Attack Protection segment increased from $5.6 million in 2001 to
$6.9 million in 2002. This was an increase of 23.2%. This increase
was a result of its government customers approving project submittal
drawings at a rate faster than in the previous year. This allowed the
segment to accelerate its manufacturing process and thus increase its
revenues. Revenues from the Federal Security Systems segment declined
from $5.0 million in 2001 to $3.4 million in 2002. This was a decline
of 32.0%. The Federal Security Systems segment entered the year with a
very small order backlog and as a result its revenue for the first nine
months of 2002 suffered. Their backlog has, however been steadily
growing through 2002. The Public Safety segment's revenues increased
from $1.0 million in 2001 to $10.2 million in 2002 as a result of the
acquisition by the Company of Tiburon, Inc., which occurred on May 2,
2002. The results of operations of Tiburon have been included in the
Financial Statements of the Company as of that date.
Expenses. Cost of goods sold increased from $25.5 million in 2001 to
$31.9 million in 2002. This was an increase of $6.4 million or 25.0%.
This smaller percentage increase in cost of goods sold compared to the
percentage increase in revenue resulted in a gross profit percentage of
23.0% in 2002 as compared to 18.8% in 2001. The principal reason for
the increase in cost of goods sold was the acquisition of Tiburon, which
occurred on May 2, 2002.
Gross Profit. The increase in the gross profit percentage is a result
of the Tiburon acquisition. Tiburon, a component of the Company's
Public Safety Segment, has higher gross profit percentages than do the
Company's other business segments. The increase in the gross profit
percentage was partially offset by operating inefficiencies in the
Company's Attack Protection segment. During the first quarter of 2002,
the Attack Protection segment purchased an existing 75,000 square foot
building on 20 acres of land in Montgomery, Alabama near its present
facility and set up this facility as a new manufacturing facility to
enable it to handle additional capacity. In the process of overseeing
this new factory coming on line, the segment did not adequately manage
the existing work in its existing facility which resulted in many of
the in-process jobs being run inefficiently, resulting in cost overruns.
The Company is in the process of correcting the identified
inefficiencies. In addition, this new manufacturing capacity was
largely underutilized as the expected volume of business was not yet
available to be manufactured in the Company's new factory. As a
result, the Attack Protection segment recorded a pre-tax loss whereas
in the prior year it had attained significant pre-tax income.
Operating Expenses. Operating expenses increased from $4.0 million in
2001 to $8.8 million in 2002. This was an increase of $4.8 million or
120.0%. This increase was primarily a result of the May 2, 2002
acquisition of Tiburon. Tiburon is primarily a software company and
as such its business model differs from that of the Company's other
segments. Tiburon tends to have significantly higher gross profits
and higher operating expenses as a percentage of revenue. Much of
these operating expenses relate to the continual updating and
enhancement of its software products.
Interest expense decreased from $697 thousand in 2001 to $402 thousand
in 2002. This decrease is largely a result of the Company repaying its
13.15% subordinated note borrowing with a portion of the proceeds from
the Private Investment, Public Equity, ("PIPE") transaction which
occurred in October 2001.
Taxes on income. During the third quarter of 2001 the Company provided
for income taxes at a 31.6% effective tax rate, while in 2002 the
Company provided for taxes at a rate of 40.0%. The effective tax rate
for the 3 months ended September 30, 2002 is higher than the comparable
period in 2001 due to the partial release of a valuation allowance in
the prior year, which was recorded against various deferred tax assets.
Net income. The Company reported net income of $195 thousand in 2002
and $910 thousand in 2001. Fully diluted earnings per share decreased
from $.16 per share in 2001 to $.02 per share in 2002. The fully
diluted weighted average number of common shares and equivalents
increased from 5.8 million in 2001 to 8.3 million in 2002. This
increase was primarily the result of the new shares issued by the
Company in its PIPE transaction which occurred in late October 2001
and the shares issued on May 2, 2002 in connection with the acquisition
of Tiburon, Inc.
Nine Months Ended September 30, 2002 Compared to Nine Months Ended
September 30, 2001
Revenues. The Company had revenues of $111.3 million and $92.5 million
for the 9-month periods ended September 30, 2002 and September 30, 2001,
respectively. This was an increase of $18.8 million or 20.3%, which
was a result of the Company's acquisition of Tiburon, Inc. on May 2,
2002. Revenues from the Corrections segment increased from $57.8
million in 2001 to $63.0 million in 2002. This was an increase of 9.0%.
This increase was a result of this segment's ability to perform
additional contracting work from its backlog over that which it was
able to perform in the previous year. Revenues from the Attack
Protection segment increased from $17.3 million in 2001 to $18.7
million in 2002. This was an increase of 8.0%. Revenues from the
Federal Security Systems segment declined from $14.0 million in 2001
to $10.2 million in 2002. This was a decline of 27.1%. The Federal
Security Systems segment entered the year with a very small order
backlog and as a result its revenue for the first nine months of 2002
suffered. Their backlog, however has been steadily growing through
2002. The Public Safety segment's revenues increased from $3.5 million
in 2001 to $19.3 million in 2002. This was an increase of $15.8 million
and is due mainly to the acquisition of Tiburon on May 2, 2002.
Expenses. Cost of goods sold increased from $74.0 million in 2001 to
$86.4 million in 2002. This was an increase of $12.3 million or 16.6%.
The smaller percentage increase in cost of goods sold as compared to
the percentage increase in revenues resulted in a gross profit
percentage of 22.4% in 2002 as compared to 19.9% in 2001. The
principal reason for this increase in cost of goods sold and the
related decrease in gross profit percentage was a result of operating
inefficiencies in the Company's Attack Protection segment. During the
first quarter of 2002 the Attack Protection segment, which had largely
been capacity constrained, purchased an existing 75,000 square foot
building on 20 acres of land and set up this facility as a new
manufacturing facility to enable it to handle additional capacity. In
the process of overseeing this new factory coming on line, the
segment did not adequately manage the existing work in its existing
facility which resulted in many of the in-process jobs being run
inefficiently, resulting in cost overruns. The Company is in the
process of correcting the identified inefficiencies. In addition, this
new manufacturing capacity was largely underutilized as the expected
volume of business was not yet available to be manufactured in the
Company's new factory. As a result, this segment recorded a pre-tax
loss whereas in the prior year this segment had attained significant
pre-tax income.
Operating Expenses. Operating expenses increased from $12.8 million
in 2001 to $21.3 million in 2002. This was an increase of $8.5 million
or 66.4%. This increase was largely a result of the May 2, 2002
acquisition of Tiburon. Tiburon is primarily a software company and
as such its business model differs from that of the Company's other
segments. Tiburon tends to have significantly higher gross profits
and higher operating expenses as a percentage of revenue. Much of
these operating expenses relate to the continual updating and
enhancement of its software products.
Interest expense decreased from $1.8 million in 2001 to $1.1 million
in 2002. This decrease is largely a result of the Company repaying
its 13.15% subordinated note borrowing with a portion of the proceeds
from the PIPE transaction, which occurred in October 2001.
Taxes on income. During 2001 the Company provided for income taxes
at a 34.1% effective tax rate, while in 2002 the Company provided for
taxes at a rate of 38.2%. The effective tax rate for the first 9
months of 2002 is higher than the first 9 months of 2001 due to the
partial release of a valuation allowance in the prior year, which
was recorded against various tax assets.
Net income. The Company reported net income of $1.7 million in 2002
and $2.7 million in 2001. Fully diluted earnings per share decreased
from $.46 per share in 2001 to $.21 per share in 2002. The fully
diluted weighted average number of common shares and equivalents
increased from 5.8 million in 2001 to 7.9 million in 2002. This
increase was primarily the result of the new shares issued by the
Company in its PIPE transaction, which occurred in late October 2001
and the shares issued on May 2, 2002 in connection with the acquisition
of Tiburon, Inc.
Liquidity and Capital Resources
The Company funds its operations through cash flows generated from its
operations, bank financing, and the sale of its common stock. The
Company's liquidity requirements arise from cash to carry its
inventories, billed and unbilled receivables, to repurchase shares of
its common stock under its share repurchase program, and for payments
of principal and interest on outstanding indebtedness and for
acquisitions. The ultimate customers of the Company are primarily
Federal, State and local governmental units. In the event the funding
of these governmental units is reduced for any reason, including
budgetary reductions due to economic conditions, there is a risk that
the demand for the Company's goods and services would decrease which
would reduce the availability of funds to the Company.
As of September 30, 2002, the Company had working capital of $28.8
million compared with $27.4 million as of December 31, 2001. The most
significant changes in working capital were increases in accounts
receivable, decrease in contract costs in excess of billings, accounts
payable and other accrued expenses.
Net cash provided by operating activities was $5.8 million in 2002
versus $0.7 million used in operating activities in 2001.
Net cash used in investing activities was $13.4 million in 2002
compared to $6.2 million in 2001. Capital expenditures of $3.0 million
were made in 2002 primarily for the acquisition and provisioning of the
Attack Protection segment's new 75,000 square foot manufacturing
facility in Montgomery, Alabama to increase capacity of the Attack
Protection segment. Additionally, $10.3 million, net, was the cash
portion used by the Company to acquire the shares of Tiburon, Inc. not
previously owned by the Company.
Net cash provided by financing activities amounted to $11.2 million in
2002 compared with $6.6 million in 2001. The increase in cash provided
by financing activities is primarily a result of additional borrowings
under the Company's bank credit facilities.
Much of the Company's change in cash flows from its operating,
investing, and financing activities resulted from the Company's May 2,
2002 acquisition of Tiburon.
The following table summarizes the contractual obligations of the
Company as of September 30, 2002 and the payments due by period.
Payments Due by Period
----------------------
(in thousands)
Long-Term Debt Operating Leases
-------------- ----------------
December 31:
2002 $ 417 $ 803
2003 2,524 2,644
2004 18,520 1,857
2005 440 1,048
2006 440 232
Thereafter 3,420 574
-------- --------
Totals $ 25,761 $ 7,158
======== ========
The Company's total outstanding borrowings at September 30, 2002
amounted to $25.8 million. All of these borrowings were at variable
rates. One of these borrowings is a subordinated borrowing in the
amount of $833 thousand which bears interest at the prime rate.
The Company also had two (2) borrowings from Banks, both made under a
Credit Agreement that provides for both term borrowings and a line of
credit. The first borrowing is a 3 year term loan due in quarterly
installments through November 2004. This borrowing of $5 million was
entered into on November 16, 2001. The amount outstanding as of
September 30, 2002 was $3.7 million. The interest rate is variable
and can range from LIBOR +1.75% to prime + 1.5%. The rate charged the
Company is based on the Company's leverage ratio at the end of each
quarter. The leverage ratio is defined as the ratio of consolidated
indebtedness for borrowed money, capital leases, guaranties of borrowed
money and reimbursement obligations in respect of letters of credit
divided by the Company's earnings before interest, taxes, depreciation,
and amortization (EBITDA).
The second borrowing from Banks under the Credit Agreement is a
$30 million line of credit, due November 16, 2004. The amount
outstanding under this line of credit at September 30, 2002 was $16
million. Its interest rate is variable and can range from LIBOR
+ 1.50% to prime +1.25%. The rate charged the Company is based on
the Company's leverage ratio at the end of each quarter as defined
above.
The Company also had (2) two industrial revenue bonds outstanding
at September 30, 2002 in the amounts of $1.7 million and $3.5 million.
These borrowings bear interest at variable rates based on weekly market
conditions. These bonds are fully collateralized by Bank letters of
credit issued under the Bank Credit Agreement. The Company's bank
considers letters of credit as outstanding borrowings when considering
the amount of availability the Company has remaining under its line
of credit.
Other than the Company's $5.8 million of letters of credit, $4.0
million of which was entered into in April, 2002, primarily to secure
an Industrial Revenue Bond Borrowing on the Company's new Attack
Protection facility, the Company has no other material off balance sheet
liabilities.
The Company had $8.2 million of unused availability under its line of
credit at September 30, 2002.
As a result of the variable nature of the interest rate on the
Company's Bank borrowings, any increase in the amount of outstanding
borrowings and/or decreases in the company's EBITDA (an increase in the
"leverage ratio") will result in the Company's interest rate increasing
and thus the amount of interest expense incurred also increasing.
The Company anticipates that cash generated from operations and
borrowings under the working capital line of credit will enable the
Company to meet its liquidity, working capital and capital expenditure
requirements during the next 12 months. The Company, however, may
require additional financing to pursue its strategy of growth through
acquisitions. If such financing is required, there are no assurances
that it will be available, or if available, that it can be obtained on
terms favorable to the Company. The Company presently has no binding
commitment or binding agreement with respect to any material
acquisition or strategic investment. However, from time to time, the
Company may be party to one or more non-binding letters of intent
regarding material acquisitions, which, if consummated, may be paid for
with cash or through the issuance of a significant number of shares of
the Company's common stock. On May 2, 2002, the Company completed the
acquisition of Tiburon, Inc. Total consideration paid for the purchase
of the portion of Tiburon that the Company did not previously own
amounted to approximately $12 million in cash and approximately 1.1
million shares of CompuDyne common stock valued at $10.3 million. To
fund the cash portion of the Tiburon acquisition, the Company negotiated
an increase in its bank line of credit to $30 million effective May 2,
2002. Borrowings made by the Company under this increased facility may
result in increased interest rates charged to the Company, to the extent
its leverage ratio changes resulting in increased interest charges. As
a result of the approval of this borrowing, the Company had adequate
cash available to complete this transaction.
Backlog
The Company's backlog of orders was $207 million at September 30, 2002
and $110 million at December 31, 2001. Approximately $70 million of the
$207 million backlog related to business obtained as a result of
Tiburon's operations. Tiburon's backlog has grown by $14 million
since it was acquired by the Company in May of 2002. Effective with the
March 31, 2002 Form 10-Q, the Company has started reporting its backlog
on a revenue backlog basis. Prior thereto the Company reported its
backlog on a billing basis. The backlog reported on a billing basis at
December 31, 2001 was $118 million.
Impact of Inflation
Inflation has not had a significant effect on CompuDyne's operations
during the quarter ended September 30, 2002.
Market Risk
The Company is exposed to market risk related to changes in interest
rates and, to an immaterial extent, to foreign currency exchange rates.
At September 30, 2002, the Company had a total of $25.8 million of notes
payable outstanding. These borrowings were all at variable rates. The
Company entered into an interest rate swap agreement on June 26, 2001
in the initial amount of $11.5 million. The amount of this swap
agreement declines by $676 thousand on a quarterly basis until it
becomes $0 on October 1, 2005. At September 30, 2002 the amount of the
swap agreement had declined to $8.1 million at a fixed rate of 4.90%.
As such, approximately $17.7 million of the Company's variable rate
borrowings were not hedged with an interest rate swap agreement. In
the event interest rates increase dramatically, the increase in interest
rate expense to the Company could be material to the results of
operations of the Company.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill
and Other Intangible Assets", which is effective January 1, 2002. SFAS
No. 142 requires, among other things, the discontinuance of goodwill
amortization. In addition, the standard includes provisions for the
reclassification of certain existing recognized intangibles as goodwill,
reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported
goodwill and the identification of reporting units for purposes of
assessing potential future impairments of goodwill. SFAS No. 142 also
required the Company to complete a transitional goodwill impairment
test six months from the date of adoption. During the second quarter of
2002, the Company completed the first step of the required initial test
for potential impairment of goodwill recorded at January 1, 2002.
The results indicate no potential impairment exists. Amortization of
this goodwill for the three and nine months ended September 30, 2001
was $16 thousand and $49 thousand, respectively.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143 addresses financial accounting
and reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. SFAS No.
143 is effective for fiscal years beginning after June 15, 2002. The
Company has not yet determined the impact that adopting SFAS No. 143
will have on its financial position or on the results of its operations
when such statement is adopted.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. It supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of", and the accounting and reporting provisions of APB 30, "Reporting
the Results of Operations Reporting the Effects of Disposal of a
Segment of a Business", and "Extraordinary, Unusual and Infrequently
Occurring Events and Transactions". The Company adopted SFAS No. 144 on
January 1, 2002. Adoption of SFAS No. 144 did not have a significant
impact on its results of operations or its financial position.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." This statement is effective for fiscal years
beginning after May 15, 2002. SFAS 145 requires, among other things,
eliminating reporting debt extinguishments as an extraordinary item in
the income statement. The Company does not believe the adoption of this
standard will have a material impact on the Company's financial position
or results of operations.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". The statement is effective
for fiscal years beginning after December 31, 2002. SFAS No. 146
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. The Company does not believe the
adoption of this standard will have a material impact on the Company's
financial position or results of operations.
Safe Harbor Statement Under the Private Securities Litigation Reform Act
of 1995
Certain statements made in this Form 10-Q with regard to our
expectations as to future revenues, expenses, financial position and
industry conditions, our ability to secure new contracts, our goals for
future operations, implementation of our business strategy and other
future events constitute "forward-looking statements" within the meaning
of the federal securities law. When used in this Form 10-Q, words such
as "anticipate," "believe," "estimate," "expect," "intend" and similar
expressions, as they relate to us or our management, identify forward-
looking statements. Although we make such statements based on current
information and assumptions we believe to be reasonable, there can be
no assurance that actual results will not differ materially from those
expressed or implied by such forward-looking statements. Actual results
could differ materially from those contemplated by the forward-looking
statements as a result of certain important factors, including but not
limited to, demand for our products, competitive factors and pricing
pressures, changes in legal and regulatory requirements, technological
change or difficulties, product development risks, commercialization
difficulties, adverse results in litigation and general economic
conditions. Risks inherent in our business and with respect to future
uncertainties are further described in our other filings with the
Securities and Exchange Commission.
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
CompuDyne has variable rate notes payable. These on-balance sheet
financial instruments expose the Company to interest rate risk, with the
primary interest rate exposure resulting from changes in the LIBOR rate
used to determine the interest rate applicable to the borrowings under
the Company's loans from its banks.
The information below summarizes CompuDyne's sensitivity to market risks
associated with fluctuations in interest rates as of September 30, 2002.
To the extent that the Company's financial instruments expose the
Company to interest rate risk, they are presented in the table below.
The table presents principal cash flows and related interest rates by
year of maturity of the Company's notes payable with variable rates of
interest in effect at September 30, 2002.
Financial Instruments by Expected Maturity Date
Period Ending September 30 2003 2004 2005 2006
---- ---- ---- ----
Notes Payable
Variable rate ($) $2,523,335 $2,523,336 $16,854,330 $440,000
Average interest rate 4.5% 5.0% 6.0% 6.5%
Fixed rate ($) $ - $ - $ - $ -
Average interest rate - - - -
Period Ending September 30 Thereafter Total Fair Value
---------- ----- ----------
Notes Payable:
Variable rate ($) $3,420,000 $25,761,001 $25,761,001
Average Interest Rate 7.0% 5.5% 5.5%
Fixed rate ($) $ - $ - $ -
Average Interest Rate - - -
Period Ending September 30 2003 2004 2005 2006
---- ---- ---- ----
Interest Rate Swaps:
Variable to Fixed ($) $2,705,880 $2,705,880 $2,705,890 $ -
Average pay rate 4.9% 4.9% 4.9% -
Average receive rate 2.0% 2.5% 3.5% -
Period Ending September 30 Thereafter Total Fair Value
---------- ----- ----------
Interest Rate Swaps:
Variable to Fixed $ - $ 8,117,650 ($362,771)
Average pay rate - - -
Average receive rate - - -
ITEM 4
CONTROLS AND PROCEDURES
As of November 4, 2002, CompuDyne's management conducted an evaluation,
under the supervision and with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of
the design and operation of the Company's disclosure controls and
procedures. Based on this evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls
and procedures are effective in alerting them in a timely manner to
material information required to be included in the Company's SEC
reports. In addition, CompuDyne's management, including the Chief
Executive Officer and Chief Financial Officer, reviewed the internal
controls, and there have been no significant changes in the Company's
internal controls or in other factors that could significantly affect
those controls subsequent to November 4, 2002.
PART II - OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certification Pursuant To 18 U.S.C. Section 1350
As Adopted Pursuant To Section 906 Of The
Sarbanes-Oxley Act Of 2002, for Mr. Martin Roenigk
99.2 Certification Pursuant To 18 U.S.C. Section 1350
As Adopted Pursuant To Section 906 Of The
Sarbanes-Oxley Act Of 2002, for Mr. Geoffrey F.
Feidelberg
(b) 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: November 13, 2002 /s/ Geoffrey F. Feidelberg
--------------------------
Geoffrey F. Feidelberg
Chief Financial Officer
CERTIFICATION
I, Martin Roenigk, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CompuDyne
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: November 13, 2002 /s/ Martin Roenigk
------------------
Martin Roenigk,
Chief Executive Officer
CERTIFICATION
I, Geoffrey F. Feidelberg, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CompuDyne
Corporation;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: November 13, 2002 /s/ Geoffrey F. Feidelberg
_______________________
Geoffrey F. Feidelberg,
Chief Financial Officer