SECURITIES AND EXCHANGE COMMISSION
Washington,D.C. 20549
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended March 31, 1998
-----------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-4245
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CompuDyne Corporation
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(Exact name of registrant as specified in its charter)
Nevada 23-1408659
------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
120 Union Street, Willimantic, Connecticut 06226
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(Address of principal executive offices)
(860) 456-4187
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X NO
----- -----
As of May 14 1998, a total of 4,124,542 shares of Common Stock, $.75 par
value, were outstanding.
COMPUDYNE CORPORATION AND SUBSIDIARIES
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1998 (unaudited)
and December 31, 1997 3
Consolidated Statements of Operations - Three Months
Ended March 31, 1998 and 1997 (unaudited) 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997 (unaudited) 5
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 9-10
Part II. Other Information 11
Signature 12
Index to Exhibits 13
Computation of Net Income Per Share 14
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
March 31, December 31,
<CAPTION> 1998 1997
-------- --------
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash $ - $ -
Accounts receivable, net 4,135 4,757
Inventories:
Finished Goods 102 72
Work in process 831 888
Raw materials and supplies 660 612
------- -------
Total inventories 1,593 1,572
------- -------
Prepaid expenses and other current assets 37 95
------- -------
Total Current Assets 5,765 6,424
------- -------
Non-current receivables, related parties 72 60
Property, plant and equipment, at cost 1,746 1,702
Less: accumulated depreciation and
amortization 1,010 990
------- -------
Net property, plant and equipment 736 712
------- -------
Deferred tax asset 129 124
Intangible assets, net of accumulated
amortization 65 66
Other assets, net 31 43
------- -------
Total Assets $ 6,798 $ 7,429
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,730 $ 2,104
Bank line payable 1,319 1,339
Income taxes payable 40 35
Other accrued expenses 805 1,015
Current portion of deferred compensation 18 26
Current portion of notes payable,
related parties 20 20
------- -------
Total Current Liabilities $ 3,932 $ 4,539
-------- -------
Notes payable, related parties $ 30 $ 30
Long term pension liability 489 489
Deferred taxes and other liabilities 204 209
------- -------
Total Liabilities $ 4,655 $ 5,267
------- -------
SHAREHOLDERS' EQUITY:
Common stock, par value $.75 per share 3,093 3,093
10,000,000 shares authorized; 4,124,542
shares issued and outstanding as of
March 31, 1998 and December 31, 1997
Paid in capital 8,203 8,203
Receivable from management (90) (90)
Treasury shares, at cost; 78,636 shares
as of March 31, 1998; 16,666 shares as
of December 31, 1997 (120) -
Deficit (8,943) (9,044)
------- -------
Total Shareholders' Equity 2,143 2,162
------- -------
Total Liabilities and Shareholders' Equity $ 6,798 $ 7,429
======= =======
</TABLE>
See Notes to Consolidated Financial Statements (unaudited).
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
Three Months Ended
<CAPTION> March, 31,
1998 1997
-------- ---------
<S> <C> <C>
Net sales $ 5,083 $ 4,753
Cost of sales 4,128 3,918
-------- --------
Gross margin 955 835
Selling, general and administrative
expenses 803 632
Research and Development 8 53
-------- --------
Operating income 144 150
-------- --------
Other (income) expense
Interest expense 28 10
Other (income) 5 (5)
-------- --------
Total other (income) expense, net 33 5
-------- --------
Income from continuing operations
before income tax provision or benefit 111 145
Income tax provision (benefit) 10 25
-------- --------
Net income $ 101 $ 120
======== ========
Basic EPS:
Net income (loss) $ .02 $ .03
======== ========
Weighted average number of common
shares outstanding 4,046 4,108
======== ========
Diluted EPS:
Net income (loss) $ .02 $ .03
======== ========
Weighted average number of common
shares and equivalents 4,450 4,458
======== ========
</TABLE>
See Notes to Consolidated Financial Statements (unaudited).
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
Three Months Ended
March 31,
-------------------
<CAPTION> 1998 1997
--------- ---------
Cash flows from operating activities:
<S> <C> <C>
Income from continuing operations $ 101 $ 120
Adjustments to reconcile net income
to net cash provided by (used in)
continuing operations:
Depreciation and amortization 33 37
Deferred income taxes (16) (4)
Decrease in accounts receivable 622 1,188
(Increase) in accounts receivable,
related parties - (12)
Decrease in prepaid expenses 48 22
(Increase) decrease in inventories (21) 190
(Decrease) in accounts payable (366) (1,594)
(Decrease) in accrued liabilities (243) (306)
(Decrease) in accrued income taxes (14) (46)
Increase in other, net 40 7
------- --------
Cash flows provided by (used in)
continuing operations 184 (398)
------- --------
Net cash flows provided by (used in)
operations 184 (398)
------- --------
Cash flows from investing activities:
Additions to property, plant and
equipment (44) (12)
------- --------
Net cash flows used in investing
activities (44) (12)
------- --------
Cash flows from financing activities:
(Decrease) increase in short term debt (20) 431
Payments on long term debt, related
parties - (5)
Repurchase of common stock (120) -
------- --------
Net cash provided by financing activities (140) 426
Net increase (decrease) in cash - 16
Cash and cash equivalents at beginning
of period - 186
------- --------
Cash and cash equivalents at end of
period $ - $ 202
======= ========
Supplemental Schedule of Cash Flow
Information:
Cash paid during the period for:
Interest $ 28 $ 7
Income taxes $ 14 $ 91
</TABLE>
See Notes to Consolidated Financial Statements (unaudited).
- - ------------------------------------------------------------------------
COMPUDYNE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
- - -----------------------
The accompanying unaudited consolidated financial statements of CompuDyne
Corporation and subsidiaries (the "Company"), have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in the annual
financial statements, prepared in accordance with generally accepted
accounting principles, have been condensed or omitted pursuant to those
rules and regulations, although the Company believes that the disclosures
made are adequate to make the information presented not misleading.
In the opinion of management, the accompanying unaudited consolidated
financial statements reflect all necessary adjustments and
reclassifications (all of which are of a normal, recurring nature) that
are necessary for fair presentation for the periods presented. It is
suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and the notes
thereto included in the Company's latest annual report to the Securities
and Exchange Commission on Form 10-K for the year ended December 31,
1997.
2. ACCOUNTS RECEIVABLE
- - -----------------------
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
($ in thousands) March 31, December 31,
1998 1997
<S> ---------- ------------
U.S. Government Contracts: <C> <C>
Billed $ 920 $ 1,712
Unbilled 1,372 1,054
--------- ----------
2,292 2,766
Commercial
Billed 1,988 2,084
Unbilled 132 207
--------- ----------
2,120 2,291
Total Accounts Receivable 4,412 5,057
Less Allowance for Doubtful Accounts (277) (300)
--------- ----------
Net Accounts Receivable $ 4,135 $ 4,757
========= ==========
</TABLE>
- - ------------------------------------------------------------------------
3. RECENTLY ISSUED 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. The Company had no
comprehensive income for the quarters ended March 31, 1998 or 1997.
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.
4. STOCK BUYBACK
- - ----------------
On January 21, 1998 the Company bought 61,970 shares of common stock for
$1.9375 per share for a total cost of $120 thousand. The common stock
was transferred to treasury stock and the cost was reflected in retained
earnings in the month of January 1998.
5. SONOMA SETTLEMENT COSTS
- - --------------------------
On February 20, 1998, SecurSystems settled its claim against and from the
County of Sonoma, California. The Company accrued $270 thousand of
settlement costs and legal fees related to this claim at December 31,
1997.
6. NET INCOME (LOSS) PER SHARE
- - ------------------------------
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share."
This statement requires dual presentation of basic and diluted earnings
per share on the face of the income statement. Basic earnings per share
excludes dilution and is computed by dividing income available to common
shareholders by the weighted-average number of shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. SFAS No. 128 is effective for
fiscal years ending after December 15, 1997, and accordingly, has been
adopted by the Company as of December 31, 1997.
The following is a reconciliation of the amounts used in calculating
basic and diluted net income per common share:
<TABLE> Per Share
Income Shares Amount
-------------- -------- ---------
<S> ($ in thousands)
Basic net income per common share
for the year ended March 31, 1998: <C> <C> <C>
Income available to common
stockholders $ 101 4,045,906 $ .02
------
Effect of dilutive stock options - 404,150
---------- ---------
Diluted net income per common share
for the year ended March 31, 1998 $ 101 4,450,056 $ .02
----------- --------- ------
Basic net income per common share
for the year ended March 31, 1997:
Income available to common
stockholders $ 120 2,847,416 $ .03
------
Effect of dilutive preferred stock 1,260,460
Effect of dilutive stock options - 350,050
----------- ---------
Diluted net income per common share
for the year ended March 31, 1997 $ 120 4,457,926 $ .03
----------- --------- ------
</TABLE>
COMPUDYNE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- - ---------------------
Net sales for CompuDyne Corporation, ("CompuDyne" or the "Company") for
the first quarter of 1998 increased $330 thousand, or 7%, to $5.1 million
from $4.8 million for the first quarter of 1997. Net sales for Quanta
Systems Corporation, ("Quanta Systems") decreased $271 thousand to $2.6
million in the first quarter of 1998. Net sales for Data Control
Systems, Inc., ("DCS") increased $205 thousand in the first quarter of
1998 to $402 thousand compared to $197 thousand in 1997. Sales for
Quanta SecurSystems, Inc., ("SecurSystems") increased $337 thousand to
$1.6 million in the first quarter of 1998 compared to $ 1.3 million in
the first quarter of 1997. Sales for MicroAssembly Systems, Inc.,
("MicroAssembly") were up $49 thousand to $454 thousand in the first
quarter of 1998. SYSCO Security Systems, Inc., ("SYSCO") had virtually
no sales during the first quarter of 1998.
CompuDyne's gross margin for the first quarter of 1998 increased $122
thousand to $955 thousand from $833 thousand in the first quarter of
1997. Quanta Systems' margin increased $79 thousand to $461 thousand
from $382 thousand in the first quarter of 1997. A large part of this
increase was due to a $53 thousand award fee determination booked in the
first quarter of 1998. DCS' margin increased $94 thousand to $123
thousand in the first quarter of 1998 due to increased sales for the
quarter. Margins for SecurSystems decreased $87 thousand in the first
quarter of 1998 to $244 thousand from $331 thousand in the first quarter
of 1997. MicroAssembly's margin was up $36 thousand from $90 thousand in
the first quarter of 1997 due to increased sales.
Selling, general, and administration expenses were up $172 thousand to
$803 thousand, in the first quarter of 1998, from $631 thousand in the
first quarter of 1997. Quanta Systems' selling, general, and
administrative expenses increased $83 thousand to $292 thousand. This
increase included $21 thousand for the settlement of old claims for
Suntec (a discontinued subsidiary) and $23 thousand for legal fees
related to Fort Bragg. DCS's selling, general, and administrative
expenses were $35 thousand in the first quarter of 1998, down by $12
thousand from $47 thousand in 1997. This was due to the reduction of an
employee at DCS. SecurSystems' selling, general, and administrative
expenses were $237 thousand for the first quarter of 1998, down from $273
thousand in 1997. MicroAssembly's first quarter selling, general, and
administrative expenses increased $50 thousand to $97 thousand in the
first quarter of 1998 from $47 thousand in the first quarter of 1997.
SYSCO's selling, general and administrative expenses were $57 thousand
for the first quarter of 1998, up $34 thousand from $23 thousand in the
first quarter of 1997.
First quarter 1998 research and development expenditures of $8 thousand,
down $46 thousand from the first quarter of 1997, were spent entirely at
DCS and were related to new telecommunications products.
CompuDyne generated net income of $101 thousand for the first quarter of
1998 compared with a net income of $120 thousand in the first quarter of
1997. Quanta Systems had a profit of $120 thousand. DCS had a profit of
$58 thousand after $8 thousand in research and development costs.
SecurSystems had a loss of $19 thousand, MicroAssembly had a profit of
$12 thousand and SYSCO had a loss of $62 thousand.
The Company's backlog at the end of the first quarter of 1998 was $18.6
million. This included $3.5 million at Quanta Systems, $448 thousand at
DCS, $14.6 million at SecurSystems (including multi-year maintenance
contracts) and $513 thousand at MicroAssembly.
CompuDyne's interest expense for the first quarter of 1998 increased $20
thousand to $28 thousand from the first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
The Company's principal source of cash is from operating activities and
bank borrowings. The Company's primary requirement for working capital
is to carry billed and unbilled receivables. The majority of Quanta
Systems' receivables are due under prime contracts with the U.S.
Government, or subcontracts thereunder. The majority of SecurSystems'
receivables are due under subcontracts or maintenance agreements with
state and local governments.
The Company has 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. The
credit agreement requires the Company to maintain a working capital ratio
of 1.1 to 1, and a debt to service ration of at least 1.0 to 1 with which
the Company was in compliance. At March 31, 1998 the Company had
outstanding borrowings of $1.3 million. The current line is due to
expire on July 1, 1998.
Net cash provided by operations was $184 thousand for the quarter ended
March 31, 1998 compared to $398 thousand used in operations for the
quarter ended March 31, 1997. Cash from net income decreased slightly
from $120 thousand in the first quarter of 1997 to $101 thousand in the
first quarter of 1998 due to slower than projected profits in the first
quarter of 1998.
PART II - OTHER INFORMATION
- - ---------------------------
Item 1 - Legal Proceedings
- - --------------------------
The Company is party to certain legal actions and inquiries for
environmental and other matters resulting from the normal course of
business. Although the total amount of liability with respect to these
matters cannot be ascertained, management of the Company believes that
any resulting liability should not have a material effect on its
financial position or results of future operations.
On June 18, 1997 after being denied equitable adjustment consideration
for a series of change order costs, Quanta Systems filed a claim for $853
thousand with the contracts office at Aberdeen Proving Grounds for work
being performed at Fort Bragg. After failing to receive a response from
the Government within the allotted time frame Quanta filed a deemed
denied appeal on November 10, 1997 with the Armed Services Board of
Contract Appeals, ("ASBCA"). Subsequent to Quanta's appeal filing, the
Government unilaterally established a September 22, 1997 completion date
for the contract. Quanta forwarded two written responses to this
unilateral action, apprising the Government that overall contract
completion was contingent upon the Vicon Corporation's completion of a
Protech software package (specified in the contract), which was still
being debugged by Vicon. On September 22, 1997, without further
discussion, the Government terminated the contract for default. During
the week preceding the termination, Quanta's representatives had walked
the Contracting Officer's Representative, ("COR") through the job to
demonstrate that the job was effectively 99% complete. Quanta Systems
filed an official Notice of Appeal from the termination with the ASBCA on
September 23, 1997. Quanta Systems and U.S. Army counsel are currently
engaged in discovery in both appeals, (Claim and Termination). Legal
costs recorded for the first quarter ended March 31, 1998 were $23
thousand and were absorbed in reserves.
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
None
- - -------------------------------------------------------------------------
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMPUDYNE CORPORATION
---------------------
Date: May 15, 1998 /s/ William C. Rock
-----------------------
William C. Rock
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF OPERATIONS AND THE CONSOLIDATED BALANCE SHEETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 4,172
<ALLOWANCES> 37
<INVENTORY> 1,593
<CURRENT-ASSETS> 5,791
<PP&E> 1,747
<DEPRECIATION> 1,010
<TOTAL-ASSETS> 6,798
<CURRENT-LIABILITIES> 3,912
<BONDS> 0
0
0
<COMMON> 3,093
<OTHER-SE> (950)
<TOTAL-LIABILITY-AND-EQUITY> 6,798
<SALES> 857
<TOTAL-REVENUES> 5,084
<CGS> 608
<TOTAL-COSTS> 4,128
<OTHER-EXPENSES> 811
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28
<INCOME-PRETAX> 111
<INCOME-TAX> 10
<INCOME-CONTINUING> 101
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 101
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
