[COVER]
SECURING THE FUTURE
[LOGO] COMPUDYNE CORPORATION
1 9 9 7 A N N U A L R E P O R T
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[INSIDE FRONT COVER]
THREE YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
[Thousand of dollars, except
per share amounts] 1995 1996 1997
--------- --------- -------
- ----------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA
<S> <C> <C> <C>
Total Revenue $10,308 $22,143 $20,016
Net income [loss] [211] 331 696
Net income [loss] per share [0.13] 0.08 0.16
Return on equity -14.3% 14.0% 21.5%
Weighted average shares
outstanding 1,657,000 3,554,000 3,005,000
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BALANCE SHEET DATA
Working capital 705 1,778 1,920
Total assets 5,033 7,575 7,429
</TABLE>
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Dear Shareholder:
"SECURING THE FUTURE" represents the theme for this Annual Report and an
enduring philosophy for CompuDyne. Throughout this report you will see
how we are working to secure the future for our company, our customers,
and our shareholders. We have taken this opportunity to communicate what
our business operations have been working so hard to accomplish -
providing outstanding services and products to a broad array of customers
worldwide. At the corporate level we are working to secure the future...
BY BUILDING SHAREHOLDER VALUE. 1997 was a year of base building, strong
core earnings growth, and investing in the future. While sales were down
9.8% to $20 million, the reduction was largely due to the elimination of
low margin work at Quanta Systems. Pre-tax income was up 17% to $538
thousand despite absorbing additional losses on the Ft. Bragg contract.
When adjusted for the Sonoma claim costs of $270 thousand, pre-tax
increased by 75%. Diluted earnings per share were $0.16, up from $0.08 in
1996. Earnings per share before the Sonoma claim costs amounted to $0.20.
Net income benefited from the utilization of tax NOL's and the
establishment of a deferred tax asset. We have also made great strides
in customer diversification, reducing our Federal Government business to
47% from 86% in 1995. During the fourth quarter the company was able to
get its large Preference Stock issue converted to common, putting all
shareholders on an equal footing and eliminating onerous future dividend
requirements,by paying a negotiated Early Conversion Adjustment payment
of $310 thousand.
BY STRENGTHENING OUR BALANCE SHEET. The conversion of $1.8 million of
Preference Stock to Common was probably the single most important event
of the year for our common shareholders. However, the resolution of five
years of government audits with a favorable settlement at Quanta Systems
while increasing contract reserves, the elimination of the Sonoma
uncertainty and management diversion, the solid core earnings progress,
and the expansion of our bank line to $1.75 million all contributed to a
strengthened and more flexible financial position. Our interest
coverage increased to 9.7x from 9.4x despite the Sonoma settlement cost,
our working capital ratio increased from 1.35:1 to 1.42:1, and our
shareholder equity increased by $420 thousand to $2.2 million despite the
Preference Stock call premium. We repurchased 62,000 shares of common
stock shortly after the end of the year.
BY INVESTING IN THE FUTURE. During 1997 we undertook a major product
distribution effort by establishing our new SYSCO Security Systems
subsidiary which will not produce revenues until 1998. We have
established marketing arrangements and alliances which should greatly
benefit Quanta Systems and Data Control Systems in 1998 and beyond, and
we have done the groundwork to establish Quanta International in the
United Kingdom in 1998 to support worldwide systems integration services
for our government and corporate customers. We continue to review
possible acquisitions, and are discussing the potential of an
underwriting to provide capital for a significant acquisition. We remain
optimistic, focused, and dedicated to building shareholder value and
liquidity.
Martin Roenigk, Chairman & CEO
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[SECURING THE FUTURE BANNER]
BY SUPPORTING OUR COUNTRY'S DEFENSES
[LOGO] QUANTA SYSTEMS CORPORATION, founded in 1950 as Washington
Technological Associates, has a long and proud history of supporting our
country's defenses by providing sophisticated and usually classified
engineering services and support capabilities. Quanta Systems has grown
to a team of 102 highly qualified,often technically specialized
associates posted throughout the world with headquarters outside
Washington, D.C. The U.S. Military and Intelligence Agencies have long
relied on Quanta Systems for quick, quiet, and complex support
services as well as sophisticated electronic product design and
manufacture. During CompuDyne's difficult years in the early 90's, Quanta
Systems remained the keystone company which delivered services, products,
and profits consistently to pull CompuDyne through. Now that its
corporate environment has become healthier and stable, we expect Quanta
Systems' deep strengths will lead to continued success in broadening its
customer base and expanding its revenues and margins over the coming
years. This effort will be supplemented by marketing consulting
agreements executed with two senior industry representatives, and the
addition in 1997 of an experienced Business Development Manager.
In 1997 Quanta Systems' revenues declined by $5.0 million to $10.7
million. This decline is primarily due to the absence of some large,
low-margin, non-recurring contracts and still represents an increase of
20% over 1995 revenues, which is more reflective of the long term growth
rate anticipated from this business. Pre-tax income increased by $269
thousand, or 95%, to $552 thousand. The sharp increase in pre-tax income
was due to several factors: reduced losses from the Ft. Bragg contract
(which remains in dispute); favorable DCAA prior-year audit resolutions;
and better average margins with the elimination of the low-margin
contracts. Margins going forward are expected to remain under continual
pressure as the defense contracting business becomes increasingly
competitive and the available work shrinks; however, we are strategically
well positioned in the government intelligence sector to pursue one of
the proclaimed focal points for defense spending. Quanta Systems took a
major step towards increased competitiveness by moving to consolidate its
manufacturing and assembly operations with those of Data Control Systems.
This move is expected to result in significant savings through the more
efficient utilization of personnel, equipment, and space.
1997 was a year of enormous progress towards Quanta Systems' objective of
diversifying its customer base. Coming off of the successful teaming with
GTE in late 1996, Quanta Systems was on two additional winning teams,
with very illustrious partners, in 1997. We teamed with Booz-Allen &
Hamilton (prime), Boeing, GTE, Raytheon, Allied Signal, AT&T, Hughes and
others to win a multi-year omnibus technical services Strategic Alliance
Contract from the Maryland Procurement Office under which Quanta will
provide classified build-to-print and systems integration support for a
variety of Department of Defense programs. Later in the year we teamed
with Computer Sciences (prime), Raytheon, GTE, and Booz-Allen & Hamilton
to win a similar contract, which was awarded in January of 1998. In
December we were awarded a GSA Federal Supply Schedule Contract to
provide Automated Data Processing support services to local, state, and
Federal Government agencies as well as Federal Government contractors
authorized to use GSA schedule contracts. We also joined a Titan
Corporation led team to win an Indefinite Delivery Indefinite Quantity
omnibus technical services contract from the National Reconnaissance
Office whereby Quanta will provide engineering services and products
focused primarily (but not exclusively) on telemetry/telecommunications
and physical security. A marketing alliance with DCX Corporation which
has resulted in a very innovative solution to the military's desire to
centralize the monitoring of diverse physical security systems is
expected to generate both government and commercial installations. While
working to gain new customers, we also apparently pleased our traditional
customers, as evidenced by a significant expansion in our Teton Contract
volume, a bridge contract with SPAWAR, and significant progress towards a
renewal of that contract.
In an increasingly turbulent and dangerous world, Quanta System's long
history of service, flexible capabilities, enhanced manufacturing
resources, and highly qualified personnel should permit us to continue to
gain a modestly increasing share of the defense market as the government
is expected to accelerate its' historical trend towards outsourcing.
---------------------------------------------------------------
QUANTA SYSTEMS IS AN ENGINEERING SERVICES FIRM PROVIDING TURN-
KEY DESIGN, FABRICATION, INSTALLATION, TRAINING, MAINTENANCE,
DOCUMENTATION, AND SYSTEMS INTEGRATIONS SERVICES TO GOVERNMENT
AND INDUSTRY. QUANTA SYSTEMS SPECIALIZES IN PROVIDING PHYSICAL
SECURITY APPLICATIONS AND QUICK REACTION, TURN-KEY SOLUTIONS TO THE
URGENT AND UNIQUE REQUIREMENTS OF FEDERAL CUSTOMERS WITH CRITICAL
INTELLIGENCE MISSIONS.
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[Securing The Future Banner]
BY PROTECTING OUR COMMUNITIES
[LOGO] QUANTA SECURSYSTEMS is poised to have an outstanding year.
Established in the United States in 1976 by Dr. Stanley Shorrock,
Shorrock Electronic Systems quickly built a strong reputation in the
corrections, utility, and other industries for outstanding products,
service and maintenance in their physical security sector. Shorrock
became a leader in correctional facilities, a position which it
maintained for a number of years. After a change in ownership, and
several years of restrictive policies towards growth and investment,
Shorrock Electronic Systems was acquired by CompuDyne from its British
owner in 1996. With a new commitment to growth and investment, the newly
named Quanta SecurSystems has quickly reestablished itself as a
prominent and respected participant in the corrections industry. After a
period of consolidation and planning following their acquisition,
SecurSystems had reestablished its reputation and industry presence by
mid-1997. Thereafter SecurSystems quickly picked up momentum and
wrote over $18 million in contracts during 1997, including the five year
renewal of the Arizona State prisons maintenance contract.
Due to the need to rebuild its position in the industry, the Sonoma
settlement, and the cost of establishing the product sales effort at
SYSCO Security Systems, SecurSystems incurred an operating loss of $148
thousand in 1997. This was more than accounted for by the $270 thousand
cost of the Sonoma settlement. The $147 thousand investment in the
physical security product sales effort, which generated nominal sales in
1997, further depressed reported results. Revenues rose 76% to $6.2
million, however this was due to the mid-year 1996 acquisition timing,
with only 6 months of SecurSystems results included in our 1996 report.
The Sonoma settlement, which eliminates a major uncertainty which
predated our acquisition of SecurSystems, allows us to avoid further
management diversion on this old contract claim. While we felt we would
have prevailed in our claim had we pursued it, risk management demanded
that we avoid the further legal costs and management time that would have
been involved in pursuing an uncertain outcome.
SecurSystems enters 1998 a very different company than it was just a year
ago. We entered 1997 with a new construction backlog of $685 thousand, we
enter 1998 with a new construction backlog of $8.1 million. In addition
to renewing the Arizona State maintenance contract in 1997, we won
several major physical security contracts including: a $1.7 million
contract for a large new prison in downtown Philadelphia for the Federal
Bureau of Prisons; a $1.4 million contract for a prison in York County,
Pennsylvania; over $900 thousand of work for Wake County, North Carolina
on public service buildings in Raleigh; $475 thousand for the
International Airport in Greensboro, NC; $1.3 million for a Criminal
Justice facility in Phoenix; $600 thousand for a county jail in Yuma,
Arizona; $830 thousand for a Criminal Justice facility on the Gila River
Indian Reservation in Arizona; and $725 thousand for work on the new
Buckeye State Prison in Arizona. The impact of this activity is twofold -
it is profitable new construction work, and it gives us the opportunity
to seek long term maintenance contracts on the completed facilities.
These awards also reflect some diversification from SecurSystems' typical
straight prison work. Maintenance is a key strategic objective due to
its better margins and recurring nature, and we are working to gain
additional state and county multi-year contracts. We are very well
positioned for maintenance work due to the breadth of experience of our
technicians and managers, and our regional office network, which we are
planning to expand. We have also laid the groundwork for establishing a
branch in the United Kingdom to support the world wide systems
integration requirements of our customers.
1997 has been an important transitional year of rebuilding and investing
in the future. 1998 will begin to realize on the opportunity we saw at
SecurSystems at the time of the acquisition. Fundamentally, although
crime rates are dropping, this is the result of stricter sentencing
requirements, which have driven up the demand for prison capacity.
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QUANTA SECURSYSTEMS SELLS, INSTALLS AND MAINTAINS PHYSICAL SECURITY
SYSTEMS PRIMARILY FOR CORRECTIONAL INSTITUTIONS THROUGHOUT THE
U.S. SECURSYSTEMS INSTALLS PHYSICAL SECURITY SYSTEMS OF ALL SIZES
UP TO MULTI MILLION DOLLAR NEW INSTALLATIONS. SECURSYSTEMS HAS FOUR
REGIONAL OFFICES AND AN IMPORTANT PART OF ITS BUSINESS IS THE
MAINTENANCE OF PHYSICAL SECURITY SYSTEMS.
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[Securing The Future Banner]
WITH ADVANCED TELECOMMUNICATIONS PRODUCTS
[LOGO] DATA CONTROL SYSTEMS, established in 1958, has been a long time
pioneer in the fields of telemetry systems, satellite command and
control, and telecommunications products. 1997 marks a turning point for
DCS - several important products with long and costly development
gestation periods are now being introduced to a receptive market.
During 1997 we successfully completed the R&D and prototyping of two new
products: models 2200 and 2250. These "companion" units, which operate in
different frequency ranges, provide modulation, demodulation, and bit
synchronization; the 2200 also provides bit error testing. The 2200 is a
baseband product operating from 1KHz to 25 MHz, while the higher
frequency IF 2250 operates between 21.4 MHz and 400 MHz. During the third
quarter of 1997 we delivered the first model 2250 to Kennedy Space Center
and the first production run of the model 2200 to Hughes and Intellsat.
There is the potential for considerable follow-on orders. We also
completed the R&D, prototyping, and first run production of a new
iteration of the proprietary APC 2000, an Automatic Power Control device
used to regulate satellite uplink power - most particularly during bad
weather. The new APC 2000 incorporates a closed loop algorithm to
complement the existing open-link algorithm found in the previous APC
2000; the closed loop algorithm is used by smaller and less
sophisticated, but far more numerous, satellite ground stations.
Deliveries have begun on this new model. Inquiries on the model 7500
Satellite Test Modem have picked up significantly - not surprising in an
increasingly turbulent world. We expect to complete a major redesign of
the 7500 during the second quarter of 1998. This will improve its' market
potential and reduce its cost. Our consolidation of DCS' and Quanta
Systems' manufacturing operations will further improve the cost
competitiveness of DCS' products.
DCS has suffered in recent years from limited marketing effort. We have
begun to rebuild the distribution channel, and we have engaged a senior
industry representative to help us with this process. We also plan to add
a marketing professional to staff, dedicated to Data Control Systems'
products. With competitive products, enhanced marketing, and
manufacturing efficiencies, the outlook for DCS is better than it has
been in years.
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DATA CONTROL SYSTEMS MANUFACTURES TELEMETRY, SATELLITE COMMAND
AND CONTROL, AND TELECOMMUNICATIONS PRODUCTS. THESE PRODUCTS
AND SYSTEMS ARE USED FOR DATA ACQUISITION, CONTROL, TEST PROGRAMS,
AND LABORATORY ENVIRONMENTS HAVING A VARIETY OF MILITARY,
INTELLIGENCE, AND COMMERCIAL APPLICATIONS. KEY PRODUCTS INCLUDE
MODULATORS, DEMODULATORS, BIT SYNCHRONIZERS, AUTOMATIC POWER
CONTROLLERS, AND SATELLITE TEST MODEMS.
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[Securing The Future Banner]
THROUGH STEADY GROWTH IN RECURRING REVENUES
[ISO 9002 CERTIFICATION LOGO][LOGO] MICROASSEMBLY SYSTEMS future is based
on a technology that was invented by Eastman Kodak more than 40 years
ago. However, MicroAssembly has succeeded in advancing the marketing and
technological development of the Stick-Screw [TM] system where previous
owners failed. MicroAssembly has built a strong marketing effort and
invested in technological development to bring this revolutionary and
still largely undiscovered product to a point where it is now growing at
a rate of 15-20% per year and is meeting increasing acceptance in high
technology applications where its reliability, performance, and labor
efficiency make it highly competitive.
The last two years have probably seen more advances in Stick-Screw [TM]
technology than the first forty years. We have introduced significant
reconfigurations - including drill press and pistol grip based drivers.
We have introduced a hand held electrically driven model which uses fewer
parts, is more reliable, and is quieter than the traditional
pneumatically driven modeL. In early 1998 we introduced the proprietary
MicroLoc surface coating for securing the inserted screw. We are working
in concert with two technologically advanced customers to develop
automated processes for manipulating the driver, further increasing its
labor efficiency and speed.
In manufacturing we are proud to have received our ISO9002 certification
in 1997, and we are well on our way to gaining the coveted auto industry
QS9000 certification. We have expanded our manufacturing capacity and
efficiency by moving our administrative offices to an owned facility and
adding production machines.
Our investment in marketing is clearly paying off. Our sales growth rate
is very strong, and our customer prospects in 1998 very promising. We
have added to our marketing staff, refined our sales representative
force, and we attended, in early 1998, a trade show in England where we
have begun discussions with European sales representatives to expand our
overseas sales.
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MICROASSEMBLY SYSTEMS IS A MANUFACTURER OF A PROPRIETARY AUTOMATED
PROCESS CALLED THE "STICK-SCREW[TM] SYSTEM" WHICH USES CUSTOM
DESIGNED SCREWS IN A STICK FORMAT FOR THE INSERTION OF FASTENERS
IN FACTORY ASSEMBLY ENVIRONMENTS. THE STICK-SCREW[TM] SYSTEM
PROVIDES INSERTION OF FASTENERS AT A FASTER SPEED THAN CAN BE
ACCOMPLISHED BY COMPARABLY PRICED COMPETING SYSTEMS OR PROCESSES.
-----------------------------------------------------------------
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[Securing The Future Banner]
BY INVESTING IN THE FUTURE
COMPUDYNE has a corporate commitment to invest in our future success and
growth, rather than to attempt to necessarily maximize current reported
results. Our objective is to develop CompuDyne into a world-class,
world-scale provider of integrated security solutions - products,
installation and maintenance. To further this objective, we have made,
and continue to make substantial investments in the future:
[LOGO] SYSCO Security Systems, Inc. is the outgrowth of the exclusive
distribution rights we negotiated with Shorrock Integrated Systems for
their physical security products - the "ADACS" central Alarm Detection
and Access Control System, microwave fences, and infrared sensors. The
ADACS system, Windows based, is a state of the art fully integrated
software and hardware sytem which will control all aspects of security as
well as environmental and other facility functions. ADACS is an open
architecture system which will accommodate virtually any currently
installed alarm or access control products, resulting in enormous
conversion efficiencies. SYSCO Security Systems, Inc. is in the final
stages of negotiating exclusive North American distribution rights for
the products of SYSCO companies in the United Kingdom and Germany. SYSCO
United Kingdom's products are state of the art perimeter detection
systems which have significant advantages over similar products currently
sold in the U.S. SYSCO (in the United States) has also developed a
proprietary product called SecurLAN which is expected to have broad
applications for security conscious Local Area Network installations. The
first contract for a SecurLAN installation was received in March
of 1998 for a U.S. air force base. Developing a product distribution
channel from scratch is a difficult and expensive process, and is
expected to result in operating losses at least through 1998.
[LOGO] QUANTA INTERNATIONAL is in the process of being formed. We have
engaged the services of a senior international manager with extensive
physical security product and systems integration experience in the
United Kingdom. Our intent is to open a branch in the UK, either as a
start-up or through acquisition, to support world-wide systems
integration capabilities. We also plan to take a more active role in the
physical security products area through investments and/or acquisitions
in Europe, where product development is, in many instances, significantly
advanced over the technology found in the U.S.
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INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders of CompuDyne Corporation:
We have audited the accompanying consolidated balance sheets of CompuDyne
Corporation and subsidiaries as of December 31, 1997, 1996, and the
related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31,
1997. Our audit also included the financial statement schedule listed in
the accompanying index at Item 14(a)(2). These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management Our responsibility is to express an opinion on these
consolidated financial statements and statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 the 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 consolidated financial statements present fairly, in
all material respects, the financial position of CompuDyne Corporation
and subsidiaries at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule as
of and for the years ended December 31, 1997, 1996 and 1995, when
considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/Deloitte & Touche LLP
Washington D.C.
March 23, 1998
<TABLE>
<CAPTION>
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
1997 1996
------- -------
(In Thousands)
<S>
Current Assets <C> <C>
Cash and cash equivalents $ - $ 186
Accounts receivable 4,757 5,273
Inventories
Finished goods 72 93
Work in progress 888 778
Raw materials and supplies 612 471
------ ------
Total Inventories 1,572 1,342
------ ------
Prepaid expenses and other
current assets 95 57
------ ------
Total Current Assets 6,424 6,858
Non-current receivable
related parties 60 60
Property, plant and equipment, at cost
Land and improvements 26 26
Buildings and leasehold improvements 250 190
Machinery and equipment 1,055 948
Furniture and fixtures 287 210
Automobiles 84 78
------ ------
1,702 1,452
Less accumulated depreciation and
amortization 990 863
------ ------
Net property, plant and equipment 712 589
------ ------
Deferred tax asset 124 -
Intangible assets, net of accumulated
amortization 66 53
Other assets 43 15
------ ------
Total other assets 233 68
------ ------
Total Assets $7,429 $7,575
====== ======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 2,104 $3,017
Bank notes payable 1,339 162
Accrued pension costs - 32
Other accrued expenses 1,015 1,249
Billings in excess of contract
costs incurred - 562
Accrued income taxes 35 -
Current portion of deferred
compensation 26 38
Current portion of notes payable-
related parties 20 20
------ ------
Total Current Liabilities 4,539 5,080
Notes payable-related parties 30 50
Long term pension liability 489 393
Deferred compensation, net of
current portion - 25
Other liabilities 209 185
Deferred income taxes - 66
------ ------
Total Liabilities 5,267 5,799
====== ======
Shareholders' Equity
Convertible preference stock,
Series D, Redemption value
of $1.50 per share, 1,260,460 Shares
authorized, issued and outstanding
at December 31, 1996 - 945
Common stock, par value $.75 per share:
10,000,000 shares authorized; 4,124,542
and 2,864,082 shares issued at
December 31, 1997 and 1996,
respectively 3,093 2,148
Other capital 8,203 8,203
Treasury Shares at cost 16,666 - -
Receivable from management (90) (90)
Accumulated Deficit (9,044) (9,430)
------ ------
Total Shareholders' Equity 2,162 1,776
------ ------
Total Liabilities and Shareholders' Equity $7,429 $7,575
====== ======
</TABLE>
See notes to consolidated financial statements
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COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
----- ----- -----
(In thousands, except per share amounts)
<S> <C> <C> <C>
Net sales $ 20,016 $ 22,142 $10,308
Cost of goods sold 16,538 19,339 8,792
Gross margin 3,478 2,803 1,516
Sonoma settlement costs 270 - -
Selling, general and administrative
expenses 2,456 2,102 1,214
Research and development 172 234 359
------- ------- -------
Operating income (loss) 580 467 (57)
------- ------- -------
Other (income) expense
Interest expense 62 55 31
Interest income - (16) (9)
Other (income)expenses (20) (33) 186
------- ------- -------
Total other (income) expense 42 6 208
------- ------- -------
Income (loss) from continuing operations
before income taxes 538 461 (265)
Income tax provision (benefit) (158) 70 (55)
------- ------- -------
Income (loss) from continuing
operations 696 391 (210)
Discontinued Operations:
Loss from discontinued operations - (60) (352)
Loss on disposal of discontinued
operations - - (101)
------- ------- -------
Loss from discontinued operations - (60) (453)
------- ------- -------
Net income (loss) $ 696 $ 331 $ (663)
======= ======= =======
Basic EPS:
Continuing operations $ .23 $ .17 $ (.13)
Discontinued operations - (.03) (.27)
Extraordinary items - - -
------- ------- -------
Net income (loss) $ .23 $ .14 $ (.40)
======= ======= =======
Weighted average number of common
shares outstanding 3,005 2,294 1,657
======= ======= =======
Diluted EPS:
Continuing operations $ .16 $ .10 $ (.13)
Discontinued operations - (.02) (.27)
Extraordinary items - - -
------- ------- -------
Net income (loss) $ .16 $ .08 $ (.40)
======= ======= =======
Weighted average number of common
shares and equivalents 4,364 3,762 1,657
======= ======= =======
</TABLE>
See notes to consolidated financial statements
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------
1997 1996 1995
------- ------- -------
(In Thousands)
(S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) from continuing
operations $ 696 $ 391 $ (210)
Adjustments to reconcile net income
to net cash from operations:
Depreciation and amortization 114 104 45
Deferred income tax (benefit) (189) (25) (20)
Changes in assets and liabilities:
Accounts receivable 516 (2,123) (393)
Accounts receivable-related party - - 5
Inventory (285) (423) (138)
Prepaid expenses (38) 52 15
Other assets (28) - -
Accounts payable (913) 1,240 338
Accrued expenses (104) 553 (131)
Accrued income taxes (35) - -
Billings in excess of costs incurred (562) 562 -
Other liabilities (10) 27 11
------ ------ -------
Net cash flows (used in) provided by
continuing operations (838) 358 (478)
------ ------ -------
Loss on discontinued operations - (60) (453)
(Increase) decrease in net assets of
discontinued operations - 3 132
------ ------ -------
Cash flows used in discontinued
operations - (57) (321)
------ ------ -------
Net cash flows (used in) provided by
operations (838) 301 (799)
------ ------ -------
Cash flows from investing activities:
Net cash (used for) received from
acquisitions - (566) 52
Additions to property, plant
and equipment (195) (33) (78)
------ ------ -------
Net cash flows used in investing
activities (195) (599) (26)
------ ------ -------
Cash flows from financing activities:
Conversion of series D preference stock (310) - -
Issuance of common stock - 600 -
Payment of receivable from management - 1 1
Increase/(decrease) in short term debt 1,177 (97) 258
Repayment of long term debt - - -
Proceeds from note payable, related parties - - 400
Repayment of note payable related parties (20) (20) (10)
------ ------ -------
Net cash flows provided by
financing activities 847 484 649
------ ------ -------
Net increase (decrease) in cash and
cash equivalents (186) 186 (176)
Cash and cash equivalents at the
beginning of the year 186 - 176
------ ------ --------
Cash and cash equivalents at the end
of the year $ - $ 186 $ -
====== ====== =======
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest $ 62 $ 55 $ 15
Income taxes, net of refunds $ 70 $ - $ (30)
</TABLE>
See notes to consolidated financial statements.
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COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Receivable
($ In Thousands) Preference Common Other From
Stock Stock Capital Management
---------- ------- ------- ----------
<S> <C> <C> <C> <C>
Bal. at January 1, 1995 $ - $ 1,202 $ 7,988 $ (92)
Net loss - - - -
Shares issued-common stock - 153 (15) 1
Shares issued-preference stock 945 - - -
------ ------ ------ ------
Balance at December 31, 1995,
as restated $ 945 $ 1,355 $ 7,973 $ (91)
Net Income - - - -
Shares issued- Common shares - 793 230 -
Purchase of treasury stock - - - -
Payments from management - - - 1
------ ------ ------ ------
Balance at December 31, 1996 $ 945 $ 2,148 $ 8,203 $ (90)
Net Income - - - -
Preferred shares converted
to Common shares (945) 945 - -
------ ------ ------ ------
Balance at December 31, 1997 $ - $ 3,093 $ 8,203 $ (90)
====== ====== ====== ======
<CAPTION>
Accumulated
($ In Thousands) Profit Treasury
(Deficit) Shares Total
---------- ------- --------
<S> <C> <C> <C>
Bal. at January 1, 1995 $ (9,098) $ - $ -
Net loss (663) - (663)
Shares issued-common stock - - 139
Shares issued-preference stock - - 945
-------- ------ -------
Balance at December 31, 1995,
as restated $ (9,761) $ - $ 421
Net Income 331 - 331
Shares issued- Common shares - - 1,023
Purchase of treasury stock - - -
Payments from management - - 1
------- ------ -------
Balance at December 31, 1996 $ (9,430) $ - $ 1,776
Net Income 696 - 696
Preferred shares converted
to Common shares (310) - (310)
------- ------ -------
Balance at December 31, 1997 $ (9,044) $ - $ 2,162
======== ====== =======
</TABLE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(In thousands except per share data):
For the years ended December 31,
1997 1996 1995 1994 1993
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Net sales $ 20,016 $22,142 $ 10,308 $ 9,699 $ 9,571
Gross profit $ 3,478 $ 2,803 $ 1,516 $ 1,586 $ 1,884
Selling, general and
administrative $ 2,456 $ 2,102 $ 1,214 $ 1,095 $ 1,492
Research and development $ 172 $ 234 $ 359 $ 66 $ 113
Interest expense net of
interest income $ 62 $ 39 $ 22 $ (7) $ 111
Income (loss) from
continuing operations
before extraordinary items $ 696 $ 391 $ (210) $ 2,065 $ 253
Loss from discontinued
operations - (60) (453) (860) (211)
Extraordinary items (Note a) - - - 523 161
------- ------ ------- ------- ------
Net income (loss) $ 696 $ 331 $ (663) $ 1,728 $ 203
======= ====== ======= ======= ======
Basic EPS:
Continuing operations $ .23 $ .17 $ (.13) $ 1.18 $ .15
Discontinued operations - (.03) (.27) (.49) (.13)
Extraordinary items - - - .30 .10
------- ------ ------- ------
Net income (loss) $ .23 $ .14 $ (.40) $ .99 $ .12
======= ====== ======= ====== ======
Weighted average number
of common shares
outstanding 3,005 2,294 1,657 1,748 1,686
======= ====== ====== ====== ======
Diluted EPS:
Continuing operations $ .16 $ .10 $ (.13) $ 1.18 $ .15
Discontinued operations - (.02) (.27) (.49) (.13)
Extraordinary items - - - .30 .10
------- ------ ------ ------ ------
Net income (loss) $ .16 $ .08 $ (.40) $ .99 $ .12
======= ====== ====== ====== ======
Weighted average number of
common shares and
equivalents 4,364 3,762 1,657 1,748 1,686
======= ======= ====== ====== ======
Total assets $ 7,255 $ 7,575 $ 3,947 $ 2,114 $ 1,993
======= ====== ====== ======= ======
Long-term debt, net $ 30 $ 30 $ 470 $ - $ 1,050
======= ====== ====== ======= ======
Total shareholders equity/
(deficit) $ 2,162 $ 1,776 $ 421 $ - $(1,736)
======= ====== ====== ======= ======
</TABLE>
See notes to consolidated financial statements.
- ------------------------------------------------------------------------
COMPUDYNE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
- --------------------------
DESCRIPTION OF BUSINESS - CompuDyne Corporation ( CompuDyne or the
Company ) a Nevada corporation, was incorporated in Pennsylvania on
December 8, 1952. On May 8, 1996, CompuDyne changed its state of
incorporation to Nevada after receiving shareholder approval at the 1996
Annual Meeting of Shareholders. CompuDyne operates in five business
segments through its wholly owned subsidiaries Quanta Systems Corporation
( Quanta Systems ), Quanta SecurSystems, Inc., ( SecurSystems ),
MicroAssembly Systems, Inc. ( MicroAssembly ) and SYSCO Security Systems,
Inc. ( SYSCO ).
Quanta Systems is an engineering services firm providing turn-key design,
fabrication, installation, training, maintenance, documentation, and
systems integration of closed circuit television, access control and
intrusion detection. Quanta Systems also provides original equipment
manufacturing and worldwide quick reaction capability to respond to the
urgent and unique requirements of customers with critical missions.
Quanta Systems is currently providing these services primarily to the
Federal Government.
Data Control Systems ( DCS ) a division of Quanta Systems, manufactures a
proprietary line of telemetry, satellite command and control systems,
radio frequency and telecommunications products. These products and
systems are used for data acquisition, control, test programs and
laboratory environments having a variety of telecommunications, military,
intelligence and commercial applications. The market for DCS' current
products is mainly with U.S. and foreign governments as well as aerospace
and telecommunications companies.
SecurSystems primarily focuses on the installation, maintenance and
system integration of highly technical security systems. Although the
majority of SecurSystems work is related to detention facilities,
SecurSystems has also performed work in areas such as colleges, court
houses and in the transportation market.
MicroAssembly, located in Willimantic, Connecticut, is a manufacturer of
a proprietary automated process called the Stick-Screw System . The
Stick-Screw System uses custom designed screws in a stick format for the
insertion of fasteners in electronic and other assembly environments. The
Stick-Screw System provides insertion of the fasteners at a faster speed
than can be accomplished by comparably priced competing systems or
processes. Sales are primarily in the United States via a network of
independent sales representatives, with modest sales in Europe and South
America. In 1996 MicroAssembly acquired the power screwdriver product
line from Blackstone Industries for $50,000. This is a complimentary
line of automatic screwdrivers with vacuum pick-up.
SYSCO, located in Hanover, Maryland is a distributor based product sales
company. It was formed by CompuDyne to set up a national network of
sales representatives and dealers. These products include Shorrock
Integrated Systems' physical security product line and will include SYSCO
Companies of the United Kingdom and Germany's physical security product
line if negotiations are completed.
2. SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of CompuDyne Corporation and its subsidiaries, all
of which are wholly-owned. All material intercompany transactions have
been eliminated.
INVENTORIES - Raw material inventories are valued at the lower of cost
(first-in, first-out) or market. Work-in-process represents direct
labor, materials and overhead incurred on products not yet delivered.
Finished goods are valued at the lower of cost or market.
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 disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Certain estimates used by
management are susceptible to significant changes in the economic
environment. These include estimates of percentage-completion on long
term contracts and valuation allowances for contracts accounts
receivable. Actual results could differ from those estimates.
REVENUE RECOGNITION - Revenue under cost reimbursement contracts is
recognized to the extent of costs incurred to date plus a proportionate
amount of the fee earned. Revenue under time and materials contracts are
recognized to the extent of billable rates times hours delivered plus
materials expenses incurred. Revenue from fixed price contracts is
recognized under the percentage of completion method. Revenue from the
sale of manufactured products is recognized based on shipment date.
Provisions for estimated losses on uncompleted contracts are recognized
in the period such losses are determined.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
recorded at cost less accumulated depreciation and amortization.
Depreciation is computed using principally the straight-line method based
on the estimated useful lives of the related assets. The estimated
useful lives are as follows:
Buildings and improvements 7-39 years
Machinery and equipment 3-10 years
Furniture and fixtures 3-10 years
Leasehold improvements are amortized over their estimated useful lives or
the term of the underlying lease, whichever is shorter. Maintenance and
repair costs are charged to operations as incurred; major renewals and
betterments are capitalized.
OTHER INTANGIBLE ASSETS - Intangible assets consist of a trademark
amortized on a straight-line basis over 15 years and a deferred credit
for negative goodwill recorded due to the acquisition of SecurSystems
amortized on a straight-line basis over 5 years. Accumulated
amortization was $12 thousand and ($29) thousand respectively at December
31, 1997.
CASH AND CASH EQUIVALENTS - For purposes of the statements of cash flows,
the company considers temporary investments with original maturities of
three months or less to be cash equivalents.
INCOME TAXES - The Company follows Statement of Financial Accounting
Standards No. 109 (SFAS 109), Accounting for Income Taxes . Under SFAS
109, deferred income taxes are recognized for the future tax consequences
of differences between tax bases of assets and liabilities and financial
reporting amounts, based upon enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to amounts expected to be realized. Income tax
expense is the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
STOCK BASED COMPENSATION - In 1996, the Company adopted SFAS No. 123,
Accounting for Stock-Based Compensation. As permitted under this
Statement, the Company continues to follow the Accounting Principles
Board ( APB ) Opinion No. 25 for the recognition and measurement of
employees stock-based compensation and therefore provides only the
disclosures required under SFAS No. 123.
NEW ACCOUNTING PRONOUNCEMENTS - In February 1997, the FASB issued SFAS
No. 129, Disclosure of Information about Capital Structure. The
Company is required to adopt the provisions of this statement for the
year ending December 31, 1998. This statement extends the previous
requirements to disclose certain information about an entity's capital
structure found in APB Opinion No. 10, Omnibus Opinion-1996, No. 15,
Earnings per Share, and FASB Statement No. 47, Disclosure of Long-Term
Obligations, for entities that were subject to the requirements of those
standards. As the Company has been subject to the requirements of each
of those standards, adoption of SFAS No. 129 will have no impact on the
Company's financial statements.
In June, 1997 the FASB issued SFAS No. 130, Reporting Comprehensive
Income, which establishes standards for the reporting and display of
comprehensive income and its components in the financial statements. The
Company is required to adopt the provisions of the statement for fiscal
periods beginning after December 15, 1997. This statement may require
the company to make additional disclosures.
In June 1997, the FASB issued No. 131, Disclosures about Segments of an
Enterprise and Related Information, which requires the Company to
present certain information about operating segments and in condensed
financial statements for interim periods. The Company is required to
adopt the provisions of the statement for the year ending December 31,
1998. The statement may require the Company to make additional
disclosures.
3. NET INCOME (LOSS) PER SHARE
- -------------------------------
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share.
This statement requires dual presentation of basic and diluted earnings
per share on the face of the income statement. Basic earnings per share
excludes dilution and is computed by dividing income available to common
shareholders by the weighted-average number of shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. SFAS No. 128 is effective for
fiscal years ending after December 15, 1997, and accordingly, has been
adopted by the Company as of December 31, 1997. The Company has restated
earnings per share for fiscal years 1995 and 1996. Options to purchase
53,050 shares of common stock at $2.81 were outstanding during 1997 but
were not included in the computation of diluted net income per common
share because the options' exercise price was greater than the average
market price of the common shares. The options were still outstanding at
December 31, 1997. Options to purchase 200,000, 56,290 and 25,000 shares
of common stock at $1.50, $1.81 and $2.00, respectively were outstanding
during 1996 but were not included in the computation of diluted net
income per common share because the options' exercise prices were greater
than the average market price of the common shares. Preferred stock
convertible to 1,260,460 shares of common stock was not included in the
computation of diluted net income per share in 1995 because such shares
would have been anti-dilutive.
The following is a reconciliation of the amounts used in calculating
basic and diluted net income per common share:
<TABLE>
<CAPTION>
Per Share
---------
Income Shares Amount
------- -------- -------
($ in thousands)
<S>
Basic net income per common share <C> <C> <C>
for the year ended December 31, 1997:
Income available to common stockholders $ 696 3,004,974 $ .23
Effect of dilutive preferred stock - 1,102,902
Effect of dilutive stock options - 256,325
------- ---------
Diluted net income per common share
for the year ended December 31, 1997 $ 696 4,364,201 $ .16
------- --------- -----
Basic net income per common share
for the year ended December 31, 1996:
Income available to common
stockholders $ 331 2,293,602 $ .14
Effect of dilutive preferred stock 1,260,460
Effect of dilutive stock options - 207,980
------- ---------
iluted net income per common share
for the year ended December 31, 1996 $ 331 3,762,042 $ .08
------- --------- -----
Basic net income per common share for
the year ended December 31, 1995:
Income available to common
stockholders $ 663 1,657,000 $ (.40)
Effect of dilutive stock options - -
------- ---------
Diluted net income per common share
for the year ended December 31, 1995 $ 663 1,657,000 $ (.40)
------- --------- -----
</TABLE>
4. ACQUISITIONS AND DISPOSAL OF BUSINESSES
- -------------------------------------------
ACQUISITION OF SHORROCK ELECTRONIC SYSTEMS, INC. - On July 11, 1996,
CompuDyne Corporation entered into and consummated a Stock Purchase
Agreement by and between SES Corporation USA ( the seller ) and CompuDyne
to purchase all of the capital stock of Shorrock Electronic Systems,
Incorporated ( SES ) from the seller. The seller is an indirect
subsidiary of BET Public Limited Company. SES, located in Hanover,
Maryland, is engaged in the sale, installation and maintenance of
physical security systems for correctional and other facilities. The
consideration paid to the seller for the stock of SES was approximately
$613 thousand. CompuDyne has accounted for the acquisition of SES using
the purchase method of accounting. The purchase price was allocated to
the net assets acquired based upon their estimated fair value at the date
of acquisition which resulted in an excess of net assets acquired over
cost (negative goodwill) of approximately $336 thousand. As a result,
the assigned values of the non-current assets of $231 thousand were
written down to zero and negative goodwill of $105 thousand was recorded.
The resulting purchase price allocation was based on the fair values as
follows:
Cash $ 47
Accounts receivable 1,028
Inventory 109
Prepaid expenses 12
Contract billings in excess of costs (150)
Accounts payable and accrued expenses (328)
Negative goodwill (105)
-------
$ 613
=======
The accompanying financial statements include the operations for SES for
the period from July 11, 1996, the date of acquisition.
ACQUISITION OF MICROASSEMBLY SYSTEMS, INC. - On August 21, 1995,
CompuDyne entered into and consummated a Stock Purchase Agreement by and
among the Company, Martin A. Roenigk and Alan Markowitz (Messrs. Roenigk
and Markowitz are, collectively, the Sellers ) and MicroAssembly,
pursuant to which CompuDyne issued to the Sellers 1,260,460 shares of its
Convertible Preference Stock, Series D ( Series D Preference Stock ) in
exchange for all of the outstanding shares of capital stock of
MicroAssembly. This transaction represented a non-cash investing
activity and, therefore, has not been included in the Statement of Cash
Flows. The issuance by CompuDyne of the Series D Preference Stock,
together with the issuance of certain Notes, as defined below, and
certain options to purchase Common Stock, all as described below and in
accordance with the terms of the Stock Purchase Agreement, are referred
to as the Transaction in which MicroAssembly became a wholly-owned
subsidiary of CompuDyne. Of the 1,260,460 Shares of Series D Preference
Stock issued to the Sellers, 945,345 shares were issued to Mr. Roenigk,
and 315,115 shares were issued to Mr. Markowitz. In November 1997 the
Series D Preference Stock was converted on a share for share basis to
Common Stock with full voting rights. No dividends had been paid on the
Series D Preference Stock. When converted a $0.246 per share Early
Conversion Adjustment was paid to Mr. Roenigk and Mr. Markowitz. The
adjustment totalled approximately $310 thousand and was recorded as a
reduction to accumulated deficit.
The Series D Preference Stock had rights to vote on a share for share
basis with the Company's Common Stock. Each share of Series D Preference
Stock carried an annual aggregate dividend equal to the lower of: (a)
sixty percent (60%) of MicroAssembly's after-tax net income in the
previous calendar year, divided by 1,260,460, or (b) eight percent (8%)
of the Redemption Value of $1.50 per share of the Series D Preference
Stock. Dividends could have been paid on the Series D Preference Stock,
at the Company's option, in cash, CompuDyne Common Stock, or a
combination thereof, based upon the average closing price of CompuDyne's
Common Stock for the prior thirty (30) trading days. There were no
dividends accrued or paid in 1997, 1996 or 1995. Beginning on August 21
in the year 2000, the Company could have, at its option, redeemed all or
any part of the Series D Preference Stock for a price of $1.80 per share,
that being one hundred twenty percent (120%) of the redemption value,
plus accrued and unpaid dividends.
CompuDyne has accounted for the acquisition of MicroAssembly using the
purchase method of accounting. The purchase price, as restated was
allocated to the net assets acquired based on their estimated fair values
at the date of acquisition. The fair values of these assets and
liabilities are summarized as follows (in thousands):
Cash, net $ 52
Accounts Receivable 261
Inventories 436
Other Assets 76
Property, Plant and Equipment 531
Intangible Assets 58
Accounts Payable and Accrued Expenses ( 358)
Deferred Tax Liabilities ( 111)
------
Total - value assigned to Series D preferred stock $ 945
======
The accompanying financial statements include the operations of
MicroAssembly for the period from August 21, 1995, the date of
acquisition.
As part of the Transaction, in return for $400 thousand paid to CompuDyne
at the closing, CompuDyne issued to the Sellers' Senior Convertible
Promissory Notes (the Notes ) in the aggregate principal amount of $400
thousand, which Notes were convertible, prior to redemption by CompuDyne,
into CompuDyne Common Stock at a conversion rate of $1.50 per share of
common stock, or 266,667 shares of common stock if the entire principal
amount of the Notes was converted. Of the $400 thousand principal amount
of Notes issued, $300 thousand principal amount of the Notes were issued
to Mr. Roenigk, and $100 thousand principal amount of the Notes were
issued to Mr. Markowitz. As described in a report filed by the Sellers
with the Securities and Exchange Commission and with the Company pursuant
to Section 13(d) of the Securities Exchange Act of 1934, the source of
the Sellers' $400 thousand investment in the Company was personal funds.
All of the notes were converted into common stock the third quarter of
1996.
As a further part of the Transaction, Norman Silberdick, the Company's
then Chairman, President, Chief Executive Officer and Director, resigned
as such. The Company's Board of Directors elected Mr. Roenigk to fill
Mr. Silberdick's seat on the Board of Directors, and to become its
Chairman, President and Chief Executive Officer. Mr. Markowitz was also
elected to the Company's six member Board of Directors. In recognition
of Mr. Roenigk's position as Chairman, President and CEO, the Company has
issued to him options to purchase up to 200,000 shares of the Company's
Common Stock for $1.50 per share. The options were to expire in ten (10)
years. Mr. Silberdick, as part of a related transaction described below,
turned in to the Company 60,000 shares of the Company's Common Stock
issued pursuant to a Stock Purchase Agreement, dated August 1, 1993,
between the Company and Mr. Silberdick, and he relinquished his rights to
purchase an additional 50,000 shares pursuant to such Agreement.
DIVESTITURE OF SUNTEC DIVISION - On August 21, 1995, Quanta Systems
transferred all of the assets and liabilities of Quanta Systems's Suntec
division to Suntec Service Corporation, a newly-formed corporation
( Suntec ), in return for (i) all of Suntec's issued and outstanding
common stock and (ii) Suntec's agreement to pay to Quanta Systems a
royalty of 2% of Suntec's net sales and other revenues for thirty (30)
years from the date of the closing. Quanta Systems then sold all of
Suntec's Common Stock to Norman Silberdick, who resigned on that date as
CompuDyne's Chairman, President, CEO and Director.
As a condition precedent to the sale of the Suntec shares to Mr.
Silberdick, he relinquished to CompuDyne 60,000 shares of CompuDyne
Common Stock and purchase rights held by him to acquire an additional
50,000 shares of CompuDyne Common Stock.
As consideration for the shares of Suntec, Mr. Silberdick executed a
nonrecourse promissory note in the initial principal amount of $79
thousand (the Silberdick Note ), payment of which was secured by a
pledge of all Suntec shares held by Mr. Silberdick, which shares must at
all times equal or exceed 33% of all outstanding shares of Suntec capital
stock. The Silberdick Note bears interest at an annual rate equal to the
Wall Street Journal prime rate, plus 2%. Through August 31, 2000, the
principal payments on the Silberdick Note are payable annually in
amounts equal to 25% of Suntec's net, after-tax income for the year in
question. Thereafter, the unpaid principal balance, as of that date,
shall be paid in five equal annual installments. Suntec has now ceased
all operations.
As part of the transaction, Quanta Systems loaned $50 thousand to Suntec
payable at the end of three years at prime plus 2% with interest due at
the anniversary date of the loan. The loan is a senior obligation of
Suntec with rights to security. As of December 31, 1996, the Company has
written off the full amount of this loan because Suntec ceased
operations. The effective interest rate was 10.5% at December 31, 1995.
Loss from Discontinued Operations includes a provision of $85 thousand in
1995 for the loss on disposal. Revenues included in loss from
discontinued operations were $656 thousand in 1995.
PRO-FORMA FINANCIAL INFORMATION - The following unaudited pro-forma
financial information of CompuDyne Corporation reflects the acquisition
of MicroAssembly and the disposition of Suntec Service Corporation as if
these transactions had occurred on January 1, 1995, and the acquisition
of Shorrock (now SecurSystems, Inc.) as if this transaction had occurred
on January 1, 1996 and January 1, 1995:
(In Thousands) 1996 1995
-------- ----------
Revenues $ 23,818 $ 15,833
Income (loss) before Extraordinary Items (1,226) (7,151)
Net Income (Loss) (145) (3,667)
Earnings (Loss) Per Share (.04) (2.21)
5. ACCOUNTS RECEIVABLE
- -----------------------
Accounts Receivable consist of the following:
(In thousands)December 31,December 31,
1997 1996
------ -------
U.S. Government Contracts:
Billed $ 1,712 $ 2,420
Unbilled 1,054 1,031
------- -------
2,766 3,451
Commercial
Billed 2,084 2,360
Unbilled 207 -
------- -------
2,291 2,360
Total Accounts Receivable 5,057 5,811
Less Allowance for Doubtful Accounts (300) (538)
------- -------
Net Accounts Receivable $ 4,757 $ 5,273
======= =======
Substantially all of the U.S. Government billed and unbilled receivables
are derived from cost reimbursable or time-and-material contracts.
Unbilled receivables include retainages of approximately $185 thousand
and $301 thousand at December 31, 1997 and 1996, respectively.
Direct sales to the U.S. Government for the years ended December 31,
1997, 1996 and 1995 were approximately $9.3 million, $15.5 million and
$8.9 million, respectively, or 47%, 70% and 86% of the Company's total
net sales for the same years. No other single customer accounted for
greater than 10% of the Company's net sales.
Contract costs for services provided to the U.S. Government, including
indirect expenses, are subject to audit by the Defense Contract Audit
Agency, ( DCAA ). All contract revenues are recorded in amounts expected
to be realized upon final settlement. In the opinion of management,
adequate provisions have been made for adjustments, if any, that may
result from the government audits. Quanta Systems received final
approval on their indirect rates for 1989 through 1994 from DCAA which
resulted in billings and collections of $350 thousand in 1997.
Included in unbilled receivables at December 31, 1997 is approximately
$457 thousand of costs relating to a certified claim on the Fort Bragg
contract performed by Quanta Systems. The contract was terminated by the
U. S. Government in September, 1997 after Quanta Systems submitted a
claim in May 1997. Quanta Systems was unable to bill approximately $181
thousand of costs from the available funding of the contract. Of the
remaining $276 thousand of costs included in the unbilled receivables,
management believes that there are sufficient reserves established for
any amounts not recovered, and the outcome of the claim will not have a
material effect on the financial statements.
6. NOTES PAYABLE RELATED PARTIES
- ---------------------------------
In July, 1996, the holders of CompuDyne's $400 thousand Senior
Convertible Notes (which includes the Chairman and a Director) 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, which was completed on July 12, 1996, added $1.0 million
to the Company's equity, reduced interest charges, and provided the cash
required to acquire SES and also provided working capital for SES
operations.
At the time the Senior Convertible Notes were issued in August 1995, they
had a conversion price of $1.50 per share. On May 23, 1996, the
CompuDyne Board approved an amendment to the Senior Convertible Notes
that reduced the conversion price to $1.00 per share based upon the price
of CompuDyne common stock at the time, the restricted nature of the stock
issued upon conversion, the limited liquidity for CompuDyne common stock
existing at the time, an evaluation of CompuDyne's balance sheet and the
need to strengthen CompuDyne's balance sheet in view of the proposed
acquisition of SES. The notes were converted into common shares in July,
1996.
CompuDyne entered into a subordinated note agreement on April 29, 1995
with Alan Markowitz, a Director, for $100 thousand. The agreement calls
for CompuDyne to pay $5,000 quarterly plus accrued interest for the
quarter at a rate of Prime plus 1%. Amounts outstanding at December 31,
1997 and December 31, 1996 were $50 and $70 thousand, respectively.
Interest expense pertaining to the notes for 1997 and 1996 were $6 and $8
thousand, respectively.
7.BANK NOTES PAYABLE
- --------------------
The Company has a secured working capital line of credit agreement with
the Asian American Bank and Trust Company of Boston, Massachusetts which
allows borrowings of up to 75% of eligible accounts receivable. At
December 31, 1996, the maximum available under the line was $850 thousand
which has been increased to $1.75 million at December 31, 1997. The
credit agreement requires the Company to maintain a working capital ratio
of 1.1 to 1, and a debt service ratio of at least 1.0 to 1 with which
the Company was in compliance. During 1996, the interest rate was 2%
above the prime; the rate was reduced to .5% above prime in June, 1997
(10% at December 31, 1997). At December 31, 1997 and 1996, the Company
had outstanding borrowings of $1.3 million and $121 thousand
respectively. The current line is due to expire on July 1, 1998.
MicroAssembly has an unsecured line of credit with Fleet Bank for $100
thousand with no expiration date. The line of credit is guaranteed by Mr.
Roenigk. The rate is prime plus 2% (11.5% at December 31, 1997) and there
was $27 and $41 thousand outstanding as of December 31, 1997 and 1996,
respectively.
8.FAIR VALUE OF FINANCIAL INSTRUMENTS
- -------------------------------------
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and Cash Equivalents - The carrying amounts reported in the
balance sheets for cash and cash equivalents approximates fair
value.
Notes Payable - The carrying amounts reported in the balance sheet
approximate fair value as the bank lines of credit are renewed
annually at current interest rates.
9. INCOME TAXES
- ----------------
The components of the income tax provision (benefit) from continuing
operations for the years ended December 31, 1997, 1996, and 1995 are as
follows:
$ thousands
1997 1996 1995
------- ------- -------
Current $ 31 $ 84 $ (29)
Deferred (189) (14) (26)
------ ----- -----
$ (158) $ 70 $ (55)
===== ===== =====
The tax effects of the primary temporary differences giving rise to the
Company's net deferred tax assets and liabilities at December 31, 1997
and 1996 are summarized as follows:
December 31,
1997 1996
------- -------
Assets:
Accrued expenses and deferred
compensation $ 142 $ 25
Tax operating loss carryforward 10,341 9,416
Tax credit carryforward 459 408
Book reserves in excess of tax 315 122
Book depreciation in excess of tax - 28
Accrued pension liability 184 164
-------- -------
Total deferred assets 11,441 10,163
Valuation allowance (11,254) (10,163)
-------- -------
Net deferred assets 187 -
Liabilities:
Tax depreciation in excess of
book depreciation (64) -
Investment in subsidiary - (66)
-------- -------
Total deferred liabilities (64) (66)
-------- -------
Net deferred liabilities $ (64) $ (66)
========= =======
A valuation allowance is provided to offset fully the recorded current
deferred tax assets as management cannot conclude that such deferred tax
assets are more likely of realization than not. The non-current deferred
tax assets are more likely of realization than not and accordingly, no
valuation allowance is provided.
The difference between the statutory tax rate and CompuDyne's effective
tax rate from continuing operations are summarized as follows:
1997 1996 1995
------- ----- -----
Statutory federal income tax rates 35.0% 34.0% 34.0%
State income taxes, net of
Federal benefit 2.9 4.6 -
Change in valuation allowance (51.2) - (34.0)
Tax effect of NOL utilization (18.6) (27.0) -
Reversal of prior year taxes - - (10.9)
Tax effect of non-deductible items 2.5 3.6 (9.9)
---- ---- ----
Tax (29.4)% (15.2)% (20.8)%
==== ==== ====
At December 31, 1997, the Company and its subsidiaries have net operating
loss carryforwards available to offset future taxable income of
approximately $29 million, subject to certain severe limitations. These
carryforwards expire between 2000 and 2009. The utilization of
substantially all of these tax loss carryforwards is limited to
approximately $200 thousand each year as a result of the ownership change
which occurred in 1995. The Company also has carryforwards available for
alternative minimum tax purposes which do not differ significantly from
regular net operating loss carryforwards. The Company also has research
and development tax credits of approximately $459 thousand expiring
between 1999 and 2003.
10. COMMON STOCK AND COMMON STOCK OPTIONS
- ------------------------------------------
On November 12, 1992, the CompuDyne Board authorized the issuance of
300,000 shares of Common Stock to key employees of CompuDyne and Quanta
Systems at a price of $.40 per share, the fair market value at such time.
In January 1993, the Board subsequently authorized the issuance of an
additional 200,000 shares of Common Stock to a key employee at the same
price and on the same terms as those authorized on November 12, 1992.
These authorizations were formalized in Stock Purchase Agreements, dated
August 1, 1993, under which the employees may purchase an aggregate of
125,000 shares on August 1, of each of the years 1993 through 1996
provided certain conditions are met including continued employment by
CompuDyne, by paying cash for such shares or by giving the Company a
five-year non-recourse promissory note, collateralized by the stock and
bearing interest at 2% per annum over the rate designated by the First
National Bank of Maryland as its prime commercial rate. As of December
31, 1996, 302,500 shares of CompuDyne Common Stock had been issued to
five members of senior management, (the Management Shares ) in exchange
for promissory notes pursuant to the Stock Purchase Agreements. Due to
the resignation of two of the employees who were parties to the Stock
Purchase Agreements, 225,000 shares of CompuDyne Common Stock have been
issued under the Stock Purchase Agreements with no further shares
remaining.
In August 1995, the Company issued Martin A. Roenigk options, vested
immediately, to purchase up to 200,000 shares of the Company's Common
Stock for $1.50 per share, 100% of the fair market value of such shares
at the date of grant. The options expire in ten (10) years.
On February 2, 1996 the Compensation and Stock Option Committee granted
options to purchase 16,290 shares of CompuDyne Common Stock to key
employees of CompuDyne's subsidiary, MicroAssembly, at a price of $1.81
per share (100% of the fair market value of such shares at the date of
grant) and in accordance with the terms and conditions of the 1986 Stock
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 Compensation and Stock Option Committee granted
options to purchase 21,710 shares of CompuDyne Common Stock to key
employees of CompuDyne's subsidiary, MicroAssembly, at a price of $1.81
per share (100% of the fair market value of such shares at the date of
grant) and in accordance with the terms and conditions of the 1996 Stock
Incentive Plan for Employees (the Plan ). These options vest over a five
(5) year term. The Plan was subsequently approved by the 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, which vest over five years,
to purchase 121,000 shares, of CompuDyne Common Stock to key employees of
the newly acquired company, SecurSystems, and a key employee of Data
Control Systems, in accordance with the terms and conditions of the 1996
Stock Incentive Compensation Plan for Employees at a price of $1.625 per
share (the fair market value of such shares at the date of grant).
On September 18, 1996 the Company issued options to purchase 1,050 shares
of common stock for $1.625 per share to directors of the Company. On May
21, 1997 the Company issued options to purchase 1,050 shares of common
stock for $2.81 per share to directors of the Company. On November 17,
1997 the Company issued options to purchase 1,050 shares of common stock
for $1.69 per share to directors of the Company. Of the above shares to
the directors, 50% become vested after the second year and the remaining
50% after the third year.
On November 17, 1997 the Company also issued options, which vest over
five years, to purchase 52,000 shares of common stock at $2.81 per share
to selected employees of Quanta Systems and SecurSystems.
The transactions for shares under options were:
<TABLE>
<CAPTION>
Year Weighted Year Year
ended Average ended ended
December 31, Exercise December 31, December 31
1997 Price 1996 1995
---------- ------ ------------ -----------
<S> <C> <C> <C> <C>
Outstanding, Beginning
of Period
Shares 375,050 $1.60 225,500 92,167
Prices $1.50-2.00 $1.50-14.125 $.75-14.125
Granted
Shares 54,100 $2.79 160,050 283,210
Prices $1.69-2.81 $1.81 $1.375-2.00
Exercised
Shares - - - 58,210
Prices - - - $1.375
Expired or Canceled 25,000 $2.00 10,500 91,667
Outstanding, End of
Period
Shares 404,150 $1.73 375,050 225,500
Prices $1.50-$2.81 $1.50-2.00 $1.50-14.125
Options Exercisable 253,775 375,050 225,500
Information with respect to stock options outstanding and stock options
exercisable at December 31, 1997 is as follows:
OPTIONS OUTSTANDING
-------------------
Range of Number Weighted Weighted
Exercise Outstanding Average Average Remaining
Price at December 31,1997 Exercise Price Contractual Life
---------- ----------------- -------------- -------------------
$1.50 - $2.00 351,100 $1.57 1.21
$2.81 53,050 $2.81 4.88
-------
404,150
=======
OPTIONS EXERCISABLE
-------------------
Range of Number Weighted Weighted
Exercise Outstanding Average Average Remaining
Price at December 31,1997 Exercise Price Contractual Life
---------- ----------------- -------------- -------------------
$1.50 - $2.00 253,512 $1.94 1.24
$2.81 253 $2.81 4.92
-------
253,775
=======
As permitted under SFAS No. 123, the Company continues to account for its
employee stock-based compensation plans and options granted under APB No.
25. No compensation expense has been recognized in connection with
options, as all options have been granted with an exercise price equal to
fair value of the Company s common stock on the date of grant.
Accordingly, the Company has provided below the additional disclosures
specified in SFAS No. 123 for 1996 and 1995. For SFAS No. 123 purposes,
the fair value of each option grant has been estimated as of the date of
grant using the Black-Scholes option pricing model with the following
weighted average assumptions: risk-free interest rate of 6.00%, expected
life of 7 years, dividend rate of zero percent and expected volatility of
60%. Using these assumptions, the fair value of the stock options
granted in 1997, 1996 and 1995 is $0, $165,000 and $231,000,
respectively, which would be amortized as compensation expense over the
vesting period of the options. Had compensation expense been determined
consistent with SFAS No. 123, utilizing the assumptions detailed above,
the Company s net income (loss) and earnings (loss) per share for the
years ended December 31, 1997, 1996 and 1995 would have been reduced to
the following pro forma amounts:
(In thousands) 1997 1996 1995
Net Income (loss):
As Reported $ 696 $ 331 $ (663)
Pro Forma $ 696 $ 294 $ (836)
Net Income (Loss) per share:
As Reported $ 0.23 $ 0.09 $ (.40)
Pro Forma $ 0.23 $ 0.08 $ (.50)
The resulting pro forma compensation cost may not be representative of
that expected in future years.
11. EMPLOYEE BENEFIT PLANS
- ---------------------------
The Company has a 401(k) retirement savings plan covering substantially
all employees. All employees are eligible to participate in the plan
after completing one year of service. Participants may make before tax
contributions of up to 15% of their annual compensation subject to
Internal Revenue Service limitations. CompuDyne currently matches
employee contributions up to the first 2.5% contributed. Expense for
matching contributions to the Plan was $114 thousand, $76 thousand and
$46 thousand for 1997, 1996, and 1995, respectively.
12. COMMITMENTS AND CONTINGENT LIABILITIES
- -------------------------------------------
The Company and certain of its subsidiaries are obligated as lessees
under various operating leases for office, distribution, manufacturing
and storage facilities.
The minimum rent payments include space which is sub-leased to Orion
Corporation. As of December 31, 1997, future minimum rental payments
required under operating leases that have initial or remaining
noncancellable terms in excess of one year are as follows (in thousands):
Year Ended December 31,
Sub-Lease Net
--------- ------
1998 $ 462 $ (85) $ 377
1999 476 (87) 389
2000 164 (15) 149
2001 45 - 45
2002 5 - 5
----- ------ ------
$1,152 $ (187) $ 965
===== ====== ======
Rental expense was $452 thousand, $468 thousand and $399 thousand in
1997, 1996, and 1995, respectively.
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 will not have a material effect on its financial
position or results of future operations.
13. RELATED PARTIES
- --------------------
Corcap, Inc. ("Corcap"), entered into a Settlement Agreement, dated March
25, 1996 (the Settlement Agreement ), with Lydall, Inc. ( Lydall )
pursuant to which Corcap transferred 120,000 shares (the Transferred
Shares ) of CompuDyne Common Stock to Lydall in settlement of certain
claims.
As part of the Settlement Agreement, Lydall required as a condition to
signing, that CompuDyne enter into a registration rights agreement with
Lydall obligating CompuDyne to register the Transferred Shares upon
demand of Lydall two years following the date of the Agreement or in a
piggyback registration at any time upon the proposed registration by
CompuDyne of its stock. In order to induce CompuDyne to enter into such
agreement, Corcap agreed to issue an option (the Corcap Option ) to
CompuDyne to purchase 16,666 shares of CompuDyne Common Stock at a price
of $.01 per share exercisable immediately for a period of five years
under a Stock Option Agreement, dated March 25, 1996, between Corcap and
CompuDyne. In addition, Corcap agreed to limit CompuDyne's support of
its legal services to $1 thousand per month for 24 months. On December
31, 1996 CompuDyne exercised its option to purchase 16,666 shares of
CompuDyne Stock pursuant to the Option Agreement, which has been recorded
as treasury stock.
14. KOLUX PENSION PLAN
- ----------------------
In March 1987, the Company ceased its Kolux plant operations resulting in
a curtailment of the defined benefit pension plan covering certain plant
employees. As of December 31, 1997, the actuarial present value of
accumulated plan benefits was estimated to be $801 thousand, based upon a
7.0% interest rate assumption; the 1984 Unisex Mortality table with a
five year age setback for females; and the March 1, 1997 (latest
actuarial valuation) employee database projected forward to December 31,
1997. All benefits under the plan are fully vested. The market value of
plan assets as of December 31, 1997 was $314 thousand. Accordingly, the
plan's unfunded accrued liability as of December 31, 1997 of $489
thousand has been reflected in the balance sheet as accrued pension
costs.
15. INDUSTRY SEGMENT INFORMATION
- ---------------------------------
The Company currently operates in five business segments: government
engineering services, physical security services, the manufacture of
telemetry and telecommunications equipment, the manufacturing and
marketing of the Stick-Screw System and distribution of physical
security products. During the years ended December 31, 1997, 1996, and
1995 sales to the United States Federal Government amounted to 47%, 70%
and 86%, respectively, of the Company's total net sales. No other single
customer accounted for greater than 10% of the Company's net sales.
The following segment information includes revenues and related costs for
Quanta Systems, government engineering services, DCS's telemetry and
telecommunications products and Corporate activities for the three years
ended December 31, 1997, 1996 and 1995. Also included are revenues and
related costs from SecurSystems physical security services for the year
ended December 31, 1997 and from its July 11, 1996 acquisition through
December 31, 1996, SYSCO's product sales operations from it's inception,
October 11, 1997 through December 31, 1997 and MicroAssembly's Stick-
Screw product sales during the year ended December 31, 1997, December,
1996 and from its August 21, 1995 acquisition through December 31, 1995.
</TABLE>
<TABLE>
<CAPTION>
Revenues Gross Profit
-------- -------------
1997 1996 1995 1997 1996 1995
------ ------ ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Quanta Systems $ 10,714 $ 15,644 $ 8,878 $ 1,694 $ 1,453 $ 1,169
Data Control
Systems 1,317 1,480 863 364 462 269
SecurSystems 6,217 3,530 - 1,084 677 -
SYSCO - - - - - -
MicroAssembly 1,768 1,488 567 336 211 78
CompuDyne Corporate - - - - - -
------- ------- ------ ------ ------ ------
$ 20,016 $ 22,142 $10,308 $ 3,478 $ 2,803 $ 1,516
<CAPTION>
Total Assets, at Year End Operating Income/(Loss)
--------------------------- ----------------------
1997 1996 1995 1997 1996 1995
------- ------- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Quanta Systems $ 2,234 $ 3,157 $ 1,251 $ 764 $ 538 $ 546
Data Control
Systems 1,375 812 758 18 13 (311)
SecurSystems 2,060 1,961 - 82 245 -
SYSCO - - - (147) - -
MicroAssembly 1,286 2,300 2,392 208 3 (46)
CompuDyne Corporate 474 (655) (454) (385) 332) (246)
------- ------- ------ ------ ------ ------
$ 7,429 $ 7,575 $ 3,947 $ 540 $ 467 $ (57)
======= ======= ====== ====== ===== =====
<CAPTION>
Capital Expenditures Depreciation
-------------------- -------------
1997 1996 1995 1997 1996 1995
------- ------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Quanta Systems $ 78 $ 9 $ 4 $ 13 $ 3 $ -
Data Control
Systems 55 4 - 26 13 -
SecurSystems 55 8 - 11 30 -
SYSCO - - - - - -
MicroAssembly 63 12 74 80 79 28
CompuDyne Corporate - - - - - -
------ ------ ------ ------ ------ -----
$ 251 $ 33 $ 78 $ 130 $ 125 $ 28
</TABLE>
16. SONOMA SETTLEMENT COSTS
- ----------------------------
On February 20, 1998, SecurSystems settled its claim against and from the
County of Sonoma, California. The Company has accrued $270 thousand of
settlement costs and legal fees related to this claim at December 31,
1997. With the settlement management believes there will be no
additional liabilities to the Company from this matter.
QUARTERLY STOCK DATA OTC BULLETIN BOARD BID PRICE
-------------------------------------------------
Quarter Ended High Low
- -------------------------------------------------------------------------
March 31, 1996 $ 1 3/8 $ 1 1/4
June 30, 1996 1 3/8 7/8
September 30, 1996 1 1/4 1 1/4
December 31, 1996 1 1/4 3/4
Quarter Ended High Low
- -------------------------------------------------------------------------
March 31, 1997 $ 1 3/4 $ 7/8
June 30, 1997 3 1/2 1
September 30, 1997 3 1 3/4
December 31, 1997 3 1
- -------------------------------------------------------------------------
[INSIDE BACK COVER]
C O R P O R A T E P R O F I L E
CompuDyne Corporation, listed Over-the-Counter under the symbol "CDCY",
is composed of five businesses: Quanta Systems, provides sophisticated
engineering and security related services worldwide, primarily to
branches of the U.S. Government, generally of a classified nature; Quanta
SecurSystems sells, installs and maintains physical security products and
systems primarily for the corrections market throught the U.S.; SYSCO
Security Systems, Inc. sells advanced physical security products
throughout North America under exclusive arrangements with Shorrock
Integrated Systems and SYSCO companies in the United Kingdom and Germany;
Data Control Systems designs and manufactures advanced telemetry and
telecommunications products primarily for military, aeronautic, and
satellite applications world-wide; and MicroAssembly Systems manufactures
proprietary automated fastening systems and fasteners, designated the
Stick-Screw [TM] System, which are sold to commercial manufacturers
worldwide.
OFFICERS
- --------
Martin A. Roenigk
President
Chief Executive Officer
Philip M. Blackmon
Executive Vice President
William C. Rock
Chief Financial Officer
Diane W. Burns
Secretary
DIRECTORS
- ---------
Martin A. Roenigk
Chairman of the Board
Philip M. Blackmon
Executive Vice President
David W. Clark, Jr.
Managing Director
Pryor & Clark Company
Miles P. Jennings, Jr.
Vice President - Investments
Advest, Inc.
Alan Markowitz
President
Paragon Financial Corp.
Millard H. Pryor, Jr.
Managing Director
Pryor & Clark Company
C O R P O R A T E D I R E C T O R Y
CORPORATE HEADQUARTERS
CompuDyne Corporation
120 Union Street
Willimantic, CT 06226
TRANSFER AGENT
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
BANK
Asian American Bank & Trust Company
17 Kneeland Street
Boston, MA 02111
GENERAL COUNSEL
Tyler Cooper & Alcorn
CityPlace - 35th Floor
185 Asylum Street
Hartford, CT 06103
AUDITOR
Deloitte & Touche LLP
8201 Greensboro Drive
McLean, VA 22102
Shareholders may request a free copy of the Company's detailed annual
report filed with the Securities and Exchange Commission on Form 10-K by
writing to:
Diane W. Burns, Secretary
CompuDyne Corporation
120 Union Street
Willimantic, CT 06226.
Any Statements in this Annual Report that are not statements of
historical fact are forward-looking statements that are subject to a
number of important risks and uncertainties that could cause actual
results to differ materially. Specifically, any forward-looking
statements in this Annual Report related to the Company's objectives of
future growth, acquisitions, profitability and financial returns are
subject to a number of risks and uncertainties including, but not limited
to, risks related to a growing market demand for the Comapny's existing
and new products, continued growth in sales and market share of the
Company's products and services, general economic conditions, competitive
products and services, and product and technology development. There can
be no assurance that such objectives will be achieved.
- -------------------------------------------------------------------------
[BACK COVER]
[LOGO] COMPUDYNE CORPORATION
CORPORATE HEADQUARTERS
120 Union Street
Willimantic, CT 06226
Tel 860-456-4187
Fax 860-456-1187
Quanta Systems Corporation
213 Perry Parkway
Gaithersburg, Maryland 20877-2145
Tel 301-590-3300
Fax 301-590-3325
Data Control Systems
211 Perry Parkway
Gaithersburg, Maryland 20877-2145
Tel 301-590-3333
Fax 301-590-3325
Quanta SecurSystems, Inc.
7255 Standard Drive
Hanover, Maryland 21076
Tel 410-712-6020
Fax 410-712-0329
MicroAssembly Systems, Inc.
120 Union Street
Willimantic, CT 06226
Tel 860-456-0200
Fax 860-456-1187
SYSCO Security Systems, Inc.
7255 Standard Drive
Hanover, MD 21076
Tel 410-712-0333
Fax 410-712-6045
http//www.compudyne.com
- -------------------------------------------------------------------------
APPENDIX
On the inside front cover of the printed version 14 bar graphs appear
reflecting operating results for 1995, 1996 and 1997, respectively, as
follows (in $000's, except for per share amounts): Revenue ($10,308;
$22,143; $20,016); Net Income (-$211; $331; $696);Earnings Per Diluted
Share ($-0.13; $0.08; $0.16; $0.20 adjusted for Sonoma); Backlog ($6,312;
$5,650; $20,504); Shareholder Equity ($421, $1,776, $2,162); Return on
Equity (-14.3%; 14.0%; 21.5%; 26.4% adjusted for Sonoma)
A picture of Quanta Systems' Command and Control Center is provided on
page 2 of the printed version.
A picture of Quanta System's Direction Finding Antenna System and Radome
is provided on page 3 of the printed version.
On page 3 of the printed document two bar graphs appear. The first graph
reflects Quanta Systems' Revenues/Backlog (in $000's) of $8,878/$4,808,
$15,644/$3,052, and $10,714/$4,827 for the years 1995, 1996 and 1997,
respectively. The second graph reflects Quanta Systems' Operating Income
(in $000's) of $328, $283, and $552 for the years 1995, 1996 and 1997,
respectively.
A picture of Quanta SecurSystems' Secure Perimeter Installations appears
on page 4 of the printed version.
A picture of Quanta SecurSystems' Intelligent Optical Barrier appears on
page 5 of the printed version.
On page 5 of the printed document two bar graphs appear. The first graph
reflects Quanta SecurSystems' Revenues/Backlog (in $000's) of
$3,530/$1,736 and $6,217/$14,491 for the years 1996 and 1997,
respectively. The second graph reflects Quanta SecurSystems' Operating
Income (in $000's) of $192 and -$148 ($122 adjusted for Sonoma) for the
years 1996 and 1997, respectively.
A picture of Data Control Systems' satellite appears on page 6 of the
printed version.
On page 6 of the printed document two bar graphs appear. The first graph
reflects Data Control Systems' Revenues/Backlog (in $000's) of $863/$986,
$1,480/$344, and $1,317/$636 for the years 1995, 1996 and 1997,
respectively. The second graph reflects Quanta Systems' Operating Income
(in $000's) of -$434, $4, and -$1 for the years 1995, 1996 and 1997,
respectively.
A picture of MicroAssembly Systems' Stick-Screw product appears on page 7
of the printed version
On page 7 of the printed document two bar graphs appear. The first graph
reflects MicroAssembly Systems' Revenues/Backlog (in $000's) of
$567/$518, $1,488/$518, and $1,768/551 for the years 1995, 1996 and 1997,
respectively. The second graph reflects MicroAssembly Systems' Operating
Income (in $000's) of -$61, -$4, and $178 for the years 1995, 1996 and
1997, respectively.
A picture of Quanta International's ADACS Alarm Detection and Access
Control System appears on page 8 of the printed version.
