SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO.1
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(a) of
the Securities Exchange Act of 1934
Date of Report
July 25, 1996
COMPUDYNE CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation)
1-4245 23-1408659
(Commission File Number) (IRS Employer Identification No.)
120 Union Street
Willimantic, Connecticut 06226
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code
(860) 456-4187
This Amendment No. 1 to the Registrant's Current Report
on Form 8-K, dated July 25, 1996, is made in order to file, as
required in Items 7(a) and 7(b), respectively, of Form 8-K, the
audited financial statements of Shorrock Electronic Systems, Inc.
("Shorrock") and pro-forma financial information in connection with
the Registrant's acquisition of all of Shorrock's common stock.
Items 7(a) and 7(b) of the Registrant's Current Report
on Form 8-K, dated July 25, 1996 are amended to read as follows:
Item 7. Financial Statements and Exhibits
(a) Balance sheets of Shorrock as of December 31,
1994 and 1995, the related statements of income (loss) and accumulated
deficit and cash flows for the years then ended, together with the
report thereon by Deloitte & Touche LLP, independent accountants,
are set forth as follows:
INDEPENDENT AUDITORS' REPORT
Shorrock Electronic Systems, Inc.:
We have audited the accompanying balance sheets of Shorrock
Electronic Systems, Inc. (the Company), a wholly owned subsidiary
of BET International Services Holdings, Inc., as of March 31, 1996
and April 1, 1995, and the related statements of operations,
stockholder's deficit, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Company as of
March 31, 1996 and April 1, 1995, and the results of its operations
and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements for the year ended March 31,
1996 and April 1, 1995 have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 10 to the
financial statements, the Company's recurring losses from
operations and net stockholder's capital deficiency raise
substantial doubt about its ability to continue as a going concern.
Management's plans concerning these matters are also described in
Note 10. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Deloitte & Touche LLP
June 28, 1996
Washington, D.C.
SHORROCK ELECTRONIC SYSTEMS, INC.
BALANCE SHEETS
MARCH 31, 1996 AND APRIL 1, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
ASSETS
ASSETS:
Cash $ 96,904 $ 142,824
Accounts receivable - net of allowance
for doubtful accounts of $136,230 and $74,241 1,058,529 926,983
Claims receivable 252,355 252,355
Inventory 96,960 121,943
Property and equipment - net 247,020 272,608
Other 14,445 20,047
$ 1,766,213 $ 1,736,760
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable $ 492,574 $ 344,713
Accrued expenses 163,212 232,878
Note Payable to parent 44,812,840 38,871,157
Total liabilities 45,468,626 39,448,748
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock - par value $1; 1,000
shares authorized;
770 shares issued and outstanding 770 770
Capital surplus 2,405,480 2,405,480
Retained earnings (deficit) (46,108,663) (40,118,238)
Total stockholder's deficit (43,702,413) (37,711,988)
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 1,766,213 $1,736,760
</TABLE>
See notes to financial statements.
SHORROCK ELECTRONIC SYSTEMS, INC.
STATEMENT OF OPERATIONS
YEARS ENDED MARCH 31, 1996 AND APRIL 1, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
REVENUES $4,838,655 $4,211,917
COST OF SALES (3,278,350) (2,243,588)
GENERAL, ADMINISTRATIVE AND
MARKETING EXPENSES (3,750,133) (4,624,628)
Operating loss (2,189,828) (2,656,299)
OTHER EXPENSES (INCOME):
Interest expense 3,804,342 2,864,150
Miscellaneous income (3,745) (38,504)
NET LOSS $(5,990,425) $(5,481,945)
</TABLE>
See notes to financial statements.
SHORROCK ELECTRONIC SYSTEMS, INC.
STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
YEARS ENDED MARCH 31, 1996 AND APRIL 1, 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Common Paid-in Retained
Shares Capital Earnings Total
BALANCE, APRIL 1, 1994 $770 $2,405,480 $(34,636,293) $(32,230,043)
Net loss - - (5,481,945) (5,481,945)
BALANCE, APRIL 1, 1995 770 2,405,480 (40,118,238) (37,711,988)
Net loss - - (5,990,425) (5,990,425)
BALANCE, MARCH 31, 1996 $770 $2,405,480 $(46,108,663) $(43,702,413)
</TABLE>
See notes to financial statements.
SHORROCK ELECTRONIC SYSTEMS, INC.
STATEMENT OF CASH FLOWS
YEARS ENDED MARCH 31, 1996 AND APRIL 1, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
OPERATING ACTIVITIES:
Net loss $(5,990,425) $(5,481,945)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 84,349 85,514
Gain on sale of property (1,500) (21,275)
Change in assets and liabilities:
(Increase) decrease in accounts receivable (131,546) 883,391
Decrease in inventory 24,983 282,094
Decrease in other assets 5,602 52,187
Increase in accounts payable 147,860 111,618
(Decrease) increase in accrued expenses (69,666) 130,848
Net cash used in operating activities (5,930,343) (3,957,568)
INVESTING ACTIVITIES:
Additions to property (58,760) (226,940)
Sale of property 1,500 26,576
Net cash used in investing activities (57,260) (200,364)
FINANCING ACTIVITIES:
Proceeds from note payable to parent 5,941,683 4,116,370
Net cash provided by financing activities 5,941,683 4,116,370
NET DECREASE IN CASH AND CASH EQUIVALENTS (45,920) (41,562)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 142,824 184,386
CASH AND CASH EQUIVALENTS, END OF YEAR $ 96,904 $ 142,824
SUPPLEMENTAL DISCLOSURE:
Cash paid during the year for interest $ 3,804,342 $ 2,864,151
</TABLE>
See notes to financial statements.
SHORROCK ELECTRONIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1996 AND APRIL 1, 1995
1. ORGANIZATION
Shorrock Electronic Systems, Inc. (SES) was incorporated in the State
of Maryland on June 25, 1985, and is a wholly owned subsidiary of BET
International Services Holdings, Inc. (the Parent). SES designs, installs
and maintains physical security systems primarily for U.S. correctional
facilities.
Fiscal Year - The Company utilizes a 52-week fiscal year that
ends on the Saturday of the last week in March.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventory - Inventories are stated at the lower of cost or market on
a first-in first-out (FIFO) basis.
Property and Equipment - Property and equipment is stated at cost.
The estimated useful lives used for depreciation are as follows:
Estimated
Useful Life
Automobiles and equipment 5-7 years
Office furniture/fixtures 10 years
Leasehold improvements are amortized over the lesser of the term of
the lease or estimated remaining useful life.
Maintenance and repairs of depreciable property are charged to expense.
Renewals and betterments, where significant in amount, are capitalized.
Revenue Recognition - Revenue is recognized on the percentage-of-
completion method as work is performed based on the relationship between
actual costs incurred and total estimated costs at completion. Revenue and
gross profit are adjusted prospectively for revisions in estimated total
contract costs and contract values. Estimated losses are recorded when
identified. Revenue from operation and maintenance and rental contracts is
recognized over the period of the contract on a straight-line basis.
Use of Estimates - The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Income Taxes - The Company's operations are included in its Parent's
consolidated Federal and state income tax returns. The Company accounts
for income taxes on a separate company basis in accordance with SFAS
No. 109, Accounting for Income Taxes. Deferred income taxes result primarily
from temporary differences in reporting for financial and income tax
purposes, depreciation, and allowance for doubtful accounts.
3. ACCOUNTS RECEIVABLE
Included in accounts receivable are amounts for fee retention of
$299,000 and $126,000 at March 31, 1996, and April 1, 1995, respectively,
which are expected to be collected at the completion of the contracts.
4. CLAIMS RECEIVABLE
In August 1993, the Company filed a claim against the Department of
Corrections of the State of California (CDC) for recovery of costs incurred
in connection with the development and installation of security systems in
new prisons. The Company originally recorded approximately $1,415,000 in
receivables in connection with this claim. In July 1996, the arbitrator
awarded Shorrock approximately $243,000 plus interest in full settlement of
the claim. As a result, this awarded amount has been reflected in claims
receivable for the years ended March 31, 1996, and April 1, 1995. The amount
recorded in excess of the $243,000 awarded was recorded as bad debt expense
for the year ended April 1, 1995, to reflect the net realizable value.
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at March 31, 1996, and
April 1, 1995:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
Office furniture $381,384 $381,384
Automobiles 439,851 397,571
Furniture and fixtures 54,096 54,096
Equipment 141,938 141,938
Total 1,017,269 974,989
Less: Accumulated depreciation and (770,249) (702,381)
amortization
Property and equipment, net $ 247,020 $ 272,608
</TABLE>
6. INCOME TAXES
The Company has provided for income taxes on a separate
company basis. Due to its operating losses, no provisions for income
taxes have been recorded for the years ended March 31, 1996 and
April 1, 1995, respectively. On a separate company basis, the tax effects
of the temporary differences would have given rise to a deferred tax asset of
approximately $8.9 million and $8.7 million, generated primarily from net
operating loss carryforwards, as of March 31, 1996 and April 1, 1995,
respectively. Since it has been the intention of BET to sell SES for the
past several years, a valuation allowance for the entire amount of the
deferred asset has been recorded for the years ended March 31, 1996 and
April 1, 1995.
7. NOTE PAYABLE TO PARENT
The Company has an informal arrangement with an affiliate
for a revolving line of credit as needed for the general operations of the
Company. Under such financing arrangement, there is no stipulated
credit limit or term, the amounts outstanding accrue interest based on the
prime rate less 1/4%. The interest rate at March 31, 1996, was 8.00%.
The fair value of the note payable is estimated to be equal to the carrying
value based on borrowing rates currently available with similar terms and
maturities.
8. LEASES
The Company has noncancelable operating leases related to
office space.
Future minimum lease commitments under these leases are
summarized as follows:
<TABLE>
<S> <C>
1997 $ 77,152
1998 49,618
1999 47,855
2000 48,333
2001 48,816
Total minimum lease payments $271,774
</TABLE>
Rent expense under operating leases was approximately
$83,300 and $81,942, respectively, for 1996 and 1995.
9. 401(K) PLAN
The Company participates in the Parent's 401(k) plan, BET 401(k) Profit
Sharing Plan, which covers substantially all employees upon completion of
one year of service. The Plan allows qualified employees to make voluntary
contributions of up to 15% of their eligible compensation. The Company
matches 50% of the employees' voluntary contributions up to a maximum of 5% of
the employees' compensation. Additionally, the Company can make additional
contributions at its discretion. The Company matches an employee's
contribution after one year of service, and the Plan requires five years
of service before the employee becomes fully vested in the Company's
matching contributions. The Company's contributions totaled $35,392 and
$33,139 during 1996 and 1995, respectively.
Upon the acquisition of Company as indicated in Note 11, the
members of the 401(k) plan shall be fully vested as of the acquisition date
and the accounts from BET 401(k) plan will be transferred to the trust
maintained in connection with CompuDyne Corporation 401(k) Retirement
Savings Plan.
10. GOING CONCERN
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. However, the Company has
sustained operating losses in recent years which has generated a net
stockholder's capital deficiency. In addition, the Company has a note
payable, as described in Note 7, to its parent company of approximately
$44.8 million as of March 31, 1996, which it is unable to repay based upon
its current net outflow of cash necessary to sustain its operations.
The Company anticipates that the debt will be forgiven in
connection with the contemplated sale of the Company as further discussed in
Note 11.
In view of these matters, realization of a major portion of
the assets in the accompanying balance sheet is dependent upon continued
operations of the Company, which in turn is based upon the Company's
ability to resolve its financing requirements, and the success of its
future operations. Management believes that actions presently being taken
provide for the Company to continue as a going concern.
11. SUBSEQUENT EVENTS
On July 11, 1996, the Company was acquired by CompuDyne
Corporation (CompuDyne). CompuDyne purchased all of the outstanding stock
of SES from the Parent company. Effective with this acquisition,
the Company's name was changed to Quanta SecurSystems, Inc.
* * * * * *
(b) Pro-forma financial statements of CompuDyne
Corporation to reflect the acquisition of Shorrock, including (i) a
consolidated balance sheet as at June 30, 1996; (ii) a consolidated statement of
operations for the six months ended June 30, 1996; and (iii) a
consolidated statement of operations for the year ended December 31, 1995
are as follows:
<TABLE>
<CAPTION>
COMPUDYNE CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
ACQUISITION OF SHORROCK ELECTRONIC SYSTEMS, INC.
(In Thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Balance as of Shorrock Capital Proforma
June 30, 1996 Balance Changes Results
ASSETS
Current Assets
Cash (211) 250 39
Accounts receivable, net 3,908 878 4,786
Inventories:
Finished Goods 71 71
Work in process 495 495
Raw Materials and supplies 383 109 492
Total Inventories 949 109 0 1,058
Prepaid expenses and other
current assets 87 12 99
Total Current Assets 4,944 788 250 5,982
Non-current receivables,
related parties 60 60
Property, plant and equipment,
at cost 1,355 1,017 2,372
Less: accumulated depreciation
and amortization (732) (786) (1,518)
Net property, plant and
equipment 623 231 0 854
Goodwill & other assets, net 1,104 (340) 764
Promissory notes receivables 39 39
Total Assets 6,770 1,019 (90) 7,699
LIABILITIES AND SHAREHOLDER'S (DEFICIT) EQUITY
Current Liabilities
Accounts payable 2,954 262 3,216
Bank line payable 161 161
Customer deposits 40 40
Accrued pension costs 937 937
Accrued expenses 63 67 130
Current portion of deferred
compensation 19 19
Total Current Liabilities 4,174 329 0 4,503
Notes Payable 460 (400) 60
Long term pension liability 370 370
Deferred compensation, net of
current portion 40 40
Deferred taxes and other
liabilities 214 214
Total Liabilities 5,258 329 (400) 5,187
SHAREHOLDER'S (DEFICIT) EQUITY:
Convertible preference stock,
Series D, 1,260,460 shares 1,891 1,891
issued and outstanding as of
June 30, 1996
Common Stock, par value $.75
per share 10,000,000 1,355 1,355
shares authorized, 1,603,372
shares issued as of June 30,
1996
Other Capital 7,973 691 310 8,973
Receivable from management (67) (67)
Deficit (9,640) (9,640)
Total Shareholder's Equity
(Deficit) 1,51 691 310 2,512
Total Liabilities and
Shareholder's Equity
(Deficit) 6,770 1,019 (90) 7,699
</TABLE>
Notes:
1. The purpose of this proforma statement is to report the
effects of additional investment and long term debt conversion by
Martin Roenigk and Alan Markowitz into CompuDyne Corporation's common
stock, and of the acquisition of Shorrock Electronic Systems, Inc. by
CompuDyne Corporation.
2. Martin Roenigk, CompuDyne's chairman and chief executive
officer, and his partner Alan Markowitz jointly invested an additional
$600 thousand in cash into CompuDyne's common stock on July 8, 1996.
3. A senior long-term convertible debt of CompuDyne to
Roenigk and Markowitz in the principal amount of $400 thousand
was converted to equity at the closing of the Shorrock acquisition.
4. The purchase price for Shorrock was negotiated at $290
thousand based on the tangible book value of Shorrock at June
30, 1996 ($690 thousand) reduced by an acquisition discount
of $400 thousand.
5. An amount of $60 thousand in attorney and accountant
fees was included for the acquisition. This amount is reflected in
the Capital Change column by an increase of cash outlay and
a decrease in the negative value of other assets.
COMPUDYNE CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
ACQUISITION OF SHORROCK ELECTRONIC SYSTEMS, INC.
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Six Months Shorrock Proforma
Ended Operations Results
June 30 1996
Net sales 8,381 2,611 10,992
Cost of sales 7,382 1,851 9,233
Gross margin 999 760 1,759
Selling, general and administrative
expenses 701 1,089 1,790
Research and development 140 0 140
Operating income (loss) 158 (329) (171)
Other (income) expense
Interest (income) expense 34 34
Other (income) expense (5) (5)
Total other (income) expense, net 29 0 29
Income (loss) from Continuing
operations 129 (329) (200)
before income tax provision
Income tax provision (benefit) (17) (17)
Income from continuing operations 146 (329) (183)
(Loss) from discontinued operations (25) (25)
Net income 121 (329) (208)
Weighted average common shares:
Primary 3,084 1,000 4,084
Fully diluted 3,484 600 4,084
Net income (loss) per share:
Continuing operations 0.05 (0.04)
Discontinued operations (0.01) (0.01)
Net income (loss) per share 0.04 (0.05)
Net income (loss) per share -
full dilution:
Continuing operations 0.05 (0.04)
Discontinued operations (0.01) (0.01)
Net income (loss) per share 0.04 (0.05)
</TABLE>
Note:
Extraordinary charges included in Shorrock's books such as bad debt
expenses, interest, excess inventory write-offs during this period has been
eliminated for this report.
COMPUDYNE CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
ACQUISITION OF SHORROCK ELECTRONIC SYSTEMS, INC.
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Ended Shorrock Proforma
Dec. 31 1995 Operations Results
Net sales 10,308 4,839 15,147
Cost of sales 8,792 3,278 12,070
Gross margin 1,516 1,561 3,077
Selling, general and
administrative expenses 1,214 3,204 4,418
Research and development 359 0 359
Operating income (loss) (57) (1,643) (1,700)
Other (income) expense
Interest (income) expense 22 0 22
Other (income) expense 186 (3) 183
Total other (income) expense, net 208 (3) 205
Income (loss) from continuing
operations (265) (1,640) (1,905)
before income tax provision
Income tax provision (benefit) (55) (55)
Income (loss) from continuing
operations (210) (1,640) (1,850)
Income from discontinued operations (453) (453)
Net income (loss) (663) (1,640) (2,303)
Weighted average common shares:
Primary 1,657 1,000 2,657
Fully diluted 1,657 1,000 2,657
Net income (loss) per share:
Continuing operations (0.13) 0.70
Discontinued operations (0.27) (0.17)
Net income (loss) (0.04) (0.87)
Net income (loss) per share -
full diluted:
Continuing operations (0.13) 0.70
Discontinued operations (0.27) (0.17)
Net income (loss) (0.40) (0.87)
</TABLE>
Note:
Shorrock's statement of operations reflected in this report is for
its fiscal year ended March 31, 1996. All extraordinary charges
with respect to Shorrock, such as bad debt expenses, interest, excess
inventory write-offs during this period, have been eliminated for
this report.
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed by
the undersigned hereto duly authorized.
COMPUDYNE CORPORATION
Date: September 24, 1996 By:/s/ Martin A. Roenigk
Martin A. Roenigk, Chairman and
Chief Executive Officer
