SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal period ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-09964
Corcap, Inc.
(Exact name of registrant as specified in its charter)
Nevada 06-1237135
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
120 Union Street, Willimantic, Connecticut 06226
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (860) 456-4187
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock $.01 par value Over-the-Counter
Securities registered pursuant to section 12(g) of the Act:
None
(Title of class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not
contained herein, and will not be contained to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-
K. [X]
The aggregate market value of the voting stock held by nonaffiliates of
the Registrant was $29 thousand as of March 27, 1996 (based upon the
average of the bid and asked prices on the over-the-counter market for
Corcap Common Stock on March 27, 1996, which was $.01 per share as quoted
by NASDAQ Bulletin Board (See Item 5).
As of March 27, 1996, a total of 2,925,726 shares of Common Stock, $.01
par value, were outstanding.
Documents Incorporated by Reference: (Portions of the Proxy Statement
relating to the 1996 Annual Meeting of Shareholders are incorporated in
Part III.)
PART I
Item 1. Business
General
On July 1, 1988, Lydall, Inc., a Delaware corporation ("Lydall"),
distributed to all its stockholders of record at the close of business on
June 10, 1988, all of the issued and outstanding Common Stock of Corcap,
Inc. ("Corcap" or the "Company"), a newly formed holding company
incorporated in Nevada in June 1988, on the basis of one share of Corcap
Common Stock for each share of Lydall Common Stock held on the record
date (the "Distribution"). Upon its effectiveness, the Distribution
separated Lydall and Corcap into two independent companies.
Corcap succeeded to the elastomer products business previously operated
by Lydall. The business was operated by Corcap through its wholly-owned
subsidiary, Acadia Polymers, Inc. ("Acadia"), which Corcap sold on July
1, 1991. Corcap also succeeded to an equity interest in CompuDyne
Corporation, a Pennsylvania corporation ("CompuDyne"), previously owned
by Lydall.
As a result of the dispositions of assets by Corcap in 1990 and 1991,
Corcap is no longer engaged in the rubber and elastomer products
business.
Pursuant to a Post Distribution Agreement, dated as of July 1, 1988,
which Corcap and Lydall entered into as part of the spin-off of Corcap's
predecessor, Acadia Polymers, from Lydall in 1988, certain obligations
and liabilities between Lydall and Corcap were allocated. Lydall and
Corcap had been in dispute over certain of their obligations and
liabilities under the Post-Distribution Agreement. Lydall claimed that
Corcap owed it $881 thousand under the Post-Distribution Agreement as a
result of settlements Lydall had reached with the Internal Revenue
Service for each of the tax years from 1983-1989. Separately, Lydall
acknowledged owing Corcap $60 thousand under the Post-Distribution
Agreement as a result of certain retrospective insurance adjustments made
through 1995.
On March 25, 1996 Lydall and Corcap entered into a Settlement Agreement
(the "Settlement Agreement") dated as of March 25, 1996 pursuant to which
Corcap transferred 120,000 shares of CompuDyne Common Stock, par value
$.75 per share ("CompuDyne Common Stock") to Lydall in settlement of
certain claims.
Under the Settlement Agreement, each of Lydall and Corcap released all
obligations arising out of such claims by the transfer from Corcap to
Lydall of 120,000 shares of CompuDyne Common Stock. In addition, Corcap
agreed to indemnify Lydall for all liabilities Lydall may incur in
connection with its former ownership of property in Dayville, Connecticut
which Corcap sold in July 1995 and which had previously been used in
connection with Acadia's operations. The Post-Distribution Agreement had
obligated Corcap to indemnify Lydall for certain environmental claims.
In all other respects, the Post-Distribution Agreement continues in
effect.
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 "Option") to CompuDyne
to purchase 16,666 shares of CompuDyne Common Stock at an exercise price
of $.01 per share exercisable immediately for a period of two years under
a Stock Transfer Agreement, dated as of March 25, 1996 between Corcap and
CompuDyne (the "Option Agreement").
Concurrent with the execution of the Settlement Agreement, Corcap and
certain directors and former officers of Corcap, Messrs. Millard H.
Pryor, Jr. and David W. Clark, Jr. entered into an agreement whereby
Messrs. Pryor and Clark forgave an accrued obligation for compensation in
the amount of $314 thousand.
On September 15, 1995 Corcap contributed 224,000 shares of CompuDyne
Common Stock to satisfy Corcap's minimum funding obligations for the
1992, 1993 and 1994 Plan Years of its employee pension plans: Plan 1A and
Plan 6B under Section 412 of the Internal Revenue Code of 1986, as
amended (the "Code"). The Constituent Plans comprise, and are
administered through a single trust: the Corcap, Inc. Pooled Pension
Investment Trust (the "Trust"). Corcap contributed 143,600 shares of
CompuDyne Common Stock to Plan 1A and 80,400 shares of CompuDyne Common
Stock to Plan 6B. The making of such contributions in property may
constitute a "prohibited transaction" within the meaning of Section 4975
of the Code and Section 406 of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"). Corcap filed an application with the
Department of Labor ("DoL") seeking Prohibited Transaction Exemptions
with respect to the transfer of the Shares of Common Stock to each of the
respective Plans conditional upon the DoL granting the relief sought
under the Prohibited Transaction Exemption application. On January 25,
1996 the DoL informed the Company that the application was denied. A
further conversation with the DoL reopened the application and with the
submission of additional supporting information, it is now expected to be
approved. In the event that DoL does not grant relief sought under the
application for the Prohibited Transaction Exemption, the Trustee of the
Constituent Plans will promptly return the shares to Corcap. The
agreement of the PBGC to settle the pension plans' underfunding liability
will include the additional 224,000 CompuDyne shares if the DoL does not
approve the application.
In March, 1996, in anticipation of termination of the Corcap Pension Plan
1A and the Corcap Pension Plan 6B (collectively the "Plans"), the PBGC
and Corcap reached a preliminary agreement whereby the PBGC agreed to
accept an additional 188,660 shares of CompuDyne Common Stock in
satisfaction of the Plans' underfunding liabilities to the PBGC. The
agreement is subject to final documentation and signature, which is
expected to be completed during April 1996.
In January 1996 the Internal Revenue Service ("IRS") sent the Company a
penalty for its failure to make timely payments to the Constituent Plans
in the amount of $52 thousand. The Company is attempting to negotiate a
waiver of the penalty with the IRS as part of the assumption of the
Constituent Plans by the PBGC.
On August 21, 1995 CompuDyne, an affiliate of Corcap, entered into and
consummated a Stock Purchase Agreement by and among CompuDyne, Martin A.
Roenigk and Alan Markowitz (Messrs. Roenigk and Markowitz are,
collectively, the "Sellers") and MicroAssembly Systems, Inc.
("MicroAssembly"), pursuant to which CompuDyne issued to the Sellers
1,260,460 shares of its Convertible Preference Stock, Series D
("Preference Stock") in exchange for all of the Sellers' shares of
capital stock of MicroAssembly, which shares represented all of
MicroAssembly's issued and outstanding capital stock. The issuance by
CompuDyne of the 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". Of the
1,260,460 Shares of Preference Stock issued to the Sellers, 945,345
shares were issued to Mr. Roenigk, and 315,115 shares were issued to Mr.
Markowitz. The Preference Stock has rights to vote on a share for share
basis with the Company's common stock on all corporate issues other than
the election of directors; it is also convertible to common stock on a
share for share basis at any time prior to redemption by CompuDyne. On
March 29, 1996, the holders of the Preference Stock waived their rights
to mandatory redemption by CompuDyne. For the election of directors,
each share of Preference Stock is entitled to 1/3.08 of a vote as
compared to the Company's common stock, which is entitled to one vote per
share. Pursuant to the terms of the Preference Stock, each share of
Preference Stock will be entitled to one vote per share with respect to
the election of directors, effective as of August 1, 1996, unless the
Board of Directors of the Company, in its sole and absolute discretion,
approves a resolution prior to such date prohibiting such change in
voting rights, in which case each share of Preference Stock will continue
to have 1/3.08 vote per share. In the event the Board of Directors of
the Company continue to approve such a resolution, on May 1, of each
subsequent year, each share of preference stock will continue to have
1/3.08 vote for directors.
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 are 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 is converted. Of the $400 thousand principal amount
of Notes issued, $300 thousand principal amount of the Notes was issued
to Mr. Roenigk, and $100 thousand principal amount of the Notes was
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.
On August 21, 1995, Quanta Systems Corporation ("Quanta"), a wholly-owned
subsidiary of CompuDyne, transferred all of the assets and liabilities of
Quanta'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 a
royalty of 2% of Suntec's net sales and other revenues for thirty (30)
years from the date of the closing. Quanta then sold all of Suntec's
Common Stock to Norman Silberdick, who resigned on that date as
CompuDyne's Chairman, President, CEO and Director.
As a further part of the Transaction, Norman Silberdick, Corcap's
Chairman, President and Chief Executive Officer, resigned as such and as
a director of the Company on August 21, 1995. Corcap's Board of
Directors elected Mr. Roenigk to fill Mr. Silberdick's seat on the Board
of Directors. In recognition of Mr. Roenigk's agreement to serve on the
Board of Directors and in order to facilitate the consummation of the
Transaction, Corcap issued to him options to purchase up to 450,000
shares of the Company's Common Stock for $.15 per share. The options are
divided into two tranches, one of 300,000 shares and the other of 150,000
shares. The option for the 300,000 shares shall expire on August 20, 1996
("Option I"). Exercise of the options for the entire 300,000 shares
available under and in accordance with the terms of Option I is a
precondition to the availability of the options for the remaining 150,000
shares, which remaining options expire on August 20, 2005. Upon
consummation of the Transaction, Corcap's executive officers are,
respectively, John E. Sundman, Chairman, Diane W. Burns, President, and
Elaine Chen, Treasurer and Chief Financial Officer. On March 25, 1996,
the Board of Directors approved a resolution to reduce the option price
per share to $.01.
Prior to the Transaction, Mr. Roenigk held 70,000 shares of Corcap Common
Stock, which is approximately 2.4% of Corcap's voting shares. Upon the
exercise of his options to purchase the 450,000 additional shares of
Corcap's Common Stock, Mr. Roenigk would hold approximately 15.4% of its
Common Stock.
On August 21, 1995, Corcap purchased 150,000 shares of CompuDyne Common
Stock for $.40 per share in accordance with the terms of a Warrant issued
by CompuDyne to Corcap on March 10, 1993 and amended as of April 1, 1993
and August 15, 1995.
In payment of the purchase price for the Warrant Shares, Corcap executed
a promissory note for $60 thousand payable to CompuDyne (the "Corcap
Promissory Note"). The Corcap Promissory Note bears interest on the
unpaid principal at the annual rate of eight percent (8%). Payment of the
unpaid principal of the Corcap Promissory Note and on all accrued and
unpaid interest thereon is due on August 21, 2000. The Note is secured
by the 150,000 shares of CompuDyne Common Stock.
Corcap exercised the right to acquire the Warrant Shares in connection
with and as a result of CompuDyne's issuance of (i) 1,260,460 shares of
Series D Preference Stock to Messrs. Roenigk and Markowitz which shares
are convertible by the holders into 1,260,460 of CompuDyne Common Stock,
(ii) $400 thousand principal amount of Senior Convertible Promissory
Notes to Messrs. Roenigk and Markowitz, which promissory notes are
convertible by the holders into 266,667 shares of CompuDyne Common Stock,
and (iii) option to purchase 200,000 shares of CompuDyne Common Stock to
Mr. Roenigk at an exercise price of $1.50 per share, all pursuant to a
certain Stock purchase agreement by and among Messrs. Roenigk and
Markowitz and MicroAssembly Systems, Inc. (the "Stock Purchase
Agreement").
On June 3, 1993, the Corcap Board of Directors authorized the sale over
time of shares of its holdings of CompuDyne Common Stock under Rule 144.
In 1993 Corcap sold 27,000 shares of CompuDyne Common Stock, 40,500
shares in 1994 and 40,500 shares in 1995.
On July 14, 1995, Corcap entered into a purchase and sale agreement with
Fabrilock Inc., a newly formed corporation, whereby Fabrilock purchased
the Dayville Property in exchange for 20% of Fabrilock's issued and
outstanding shares and the assumption by Fabrilock of the cost of the
environmental remediation of the property estimated to be between $58
thousand and $248 thousand. Fabrilock manufactures specialty non-woven
textiles. Corcap recorded an environmental reserve for $248 thousand in
the third quarter of 1994. According to the purchase and sale agreement,
five years after the sale of the Dayville Property, Fabrilock would have
the right to repurchase 50% of Corcap's holding of Fabrilock shares for
$675 thousand and Corcap would then have the right to require Fabrilock
to purchase the remaining 50% of the Fabrilock shares for $675 thousand.
The purchase price for the shares would be reduced by the amount of
environmental remediation costs incurred by Fabrilock in excess of $100
thousand. In the third quarter of 1995 Corcap reduced its reserve for
environmental remediation.
In connection with the sale of the Dayville property, Corcap entered into
an agreement entitled 300 Lake Road Environmental Remediation Escrow Fund
Agreement ("Remediation Agreement") whereby Corcap deposited 27,000
shares of CompuDyne Common Stock to be used in part with contributions
from Fabrilock to fund the environmental remediation and clean-up of the
Dayville Property. Corcap retains all attendant rights of ownership of
such shares other than the right to transfer them during the pendency of
the clean-up process. Beginning with the calendar quarter ending
September 30, 1995 the Escrow Agent will, ten days prior to the end of
each calendar quarter, return to Corcap 4,000 shares of CompuDyne Common
Stock for the purpose of Corcap selling such shares pursuant to the
provisions of Rule 144, and Corcap is required to deposit into the escrow
fund the proceeds of such sale. Corcap is obligated to contribute
additional shares of CompuDyne Common Stock to the escrow fund, if
necessary, so that the fair market of the CompuDyne Common Stock in the
fund, based upon the average bid and asked price of such stock for the
six months prior to the determination, is not less than 75% of:(i) $70
thousand, less (ii) the cash proceeds deposited into the escrow fund by
Corcap in return for shares released by the Escrow Agent for sale by
Corcap as described above (the result of such calculation referred to as
the "Stock Adjustment Value"). If the aggregate fair market value of the
CompuDyne Common Stock in the escrow fund, determined as set forth,
should, at any six month valuation exceed 125% of the Stock Adjustment
Value, the Escrow Agent shall return sufficient shares to Corcap such
that the fair market value of the CompuDyne Common Stock in the escrow
fund shall equal the Stock Adjustment Value. Upon certification that the
environmental remediation and clean-up have been completed, the Escrow
Agent shall return to Corcap, among other things, the shares of CompuDyne
Common Stock in the escrow fund at that time.
Certain retirees of the Dayville plant had received voluntary medical and
life insurance payments from Corcap which ceased in 1991 when Corcap was
unable to continue to make these payments. The retirees retained counsel
and made a claim against the Company asserting that the Company was
liable for the medical insurance payments as well as certain life
insurance claims. The Company denied the claim that it was liable since
it made voluntary payments. In February 1996, the Company reached an
agreement with counsel and the Union for certain retirees of the Dayville
plant to transfer 22,500 shares of CompuDyne Common Stock to the retirees
upon the signing of the settlement agreement.
A certain commercial real estate broker who was contracted by the Company
to assist in the sale of the Dayville property agreed to a negotiated fee
as a result of the Fabrilock transaction. Thereafter the Company and the
broker have agreed to payment of the fee by accepting 6% of the shares
(120) of Fabrilock held by Corcap.
Corcap's remaining assets are CompuDyne Common Stock and Fabrilock Common
Stock. In the third quarter of 1988, Corcap began to include the accounts
of CompuDyne in its consolidated financial statements as a result of the
significant control which Corcap exercised over the operations of
CompuDyne. As a result of the above described transactions Corcap's
ownership of CompuDyne decreased from 35% of the issued and outstanding
shares of CompuDyne Common Stock at December 31, 1994 to 24.7% as of
December 31, 1995. After assuming (i) the conversion of 1,260,460 shares
of Series D Preference Stock to Messrs. Martin A. Roenigk and Alan
Markowitz, which shares are convertible by the holders into 1,260,460
shares of CompuDyne Common Stock, (ii) the conversion of $400 thousand
principal amount of Senior Convertible Promissory Notes to Messrs.
Roenigk and Markowitz which promissory notes are convertible by the
holders into 266,667 shares of CompuDyne common stock and, (iii) the
exercise of an option to purchase 200,000 shares of CompuDyne Common
Stock issued by the Company to Mr. Roenigk at an exercise price of $1.50
per share, as part of the Transaction and (iv) the purchase of an
additional 56,250 shares of CompuDyne Common Stock on August 1, 1996 by
certain members of CompuDyne management pursuant to a Stock Purchase
Agreement, dated August 1, 1993, between CompuDyne and such members of
management, assuming certain conditions are met and (v) the exercise of
stock options for 25,000 shares of CompuDyne Common Stock issued to an
officer of CompuDyne and (vi) the issuance of an option to CompuDyne to
purchase 16,666 shares of CompuDyne Common Stock, Corcap's ownership will
be decreased to 12% on a fully diluted basis.
Therefore, as a result, Corcap is deemed to no longer "control" CompuDyne
and no longer consolidates its financial statements with CompuDyne. The
investment will be carried at its book value and will be accounted for by
the equity method of accounting. Also as a result, Corcap is deemed to be
a "transient investment company" as provided in Rule 3a-2 under the
Investment Company Act of 1940, as amended (the "1940 Act"). Since
Corcap's only holdings are investment securities of entities it does not
control, it would be deemed to be an investment company subject to the
reporting, filing and operating requirements of the 1940 Act but for Rule
3a-2. Such rule provides that a company is deemed not to be an investment
company during a period of time not to exceed one year provided that the
company has a bona fide intent to be engaged primarily, as soon as is
reasonably possibly (in any event by the termination of such period of
time), in a business other than that of an investment company. The Board
of Directors is exploring the following in order to comply with Rule 3a-2
by the one-year deadline, or August 21, 1996:
1. Liquidation of the Fabrilock and/or CompuDyne investments, with the
proceeds to be reinvested in new operations.
2. The merger of Corcap with another company in a stock exchange.
3. Liquidation of Corcap, either voluntarily or through a bankruptcy
filing. If this option is adopted, it is unlikely that Corcap could
afford the cost of a voluntary liquidation, including a special
shareholder vote.
CompuDyne is currently not paying dividends. Consequently, Corcap does
not have any source of revenue or cash flow (see "Management's Discussion
and Analysis-Liquidity"). Despite the efforts of Corcap to resolve its
unfunded pension liabilities with the PBGC, the successful settlement of
its liability with Lydall with the former officers of the Company, and
the pending settlement of the Dayville retirees suit, Corcap's Board of
Directors continues to consider various options that may enable the
Company to meet its obligations and to serve the best interests of its
shareholders. However, the status of being a transient investment company
as described above may force liquidation of the Company.
On July 27, 1994 Clipper, Corcap Eastern, Inc. ("CE") a wholly owned
subsidiary of Corcap, and Quanta entered into an agreement. Under this
agreement, CE as lessor under a lease to Clipper for the Dayville
Property, terminated the lease in consideration for which Clipper
cancelled a promissory note from CE to Clipper in the amount of $1.774
million and released a mortgage securing such note. As further
consideration for the termination of the lease, Clipper forgave a further
$250 thousand of debt owing from Quanta to Clipper under the Clipper
Loan.
As part of the foregoing transaction and as consideration for Corcap
causing CE to terminate the lease, CompuDyne entered into an agreement
with Corcap to provide to Corcap certain management services and use
of office facilities and to absorb the cost of certain legal services for
a period of four years without charge to Corcap. As part of the
settlement with Lydall, Corcap agreed to limit this support to $1
thousand per month for 24 months.
As a result of the sale of MicroAssembly Systems, Inc to CompuDyne on
December 15, 1995 the corporate offices of CompuDyne and Corcap were
moved to MicroAssembly Systems, Inc., 120 Union Street, Willimantic CT.
Corcap currently has no employees, however, there are three employees of
CompuDyne who are from time to time engaged in handling the various
administrative responsibilities for Corcap but are compensated by
CompuDyne.
Corcap formerly operated an elastomer products business which was sold in
1991. The results of Corcap are accounted for as discontinued operations
in the Balance Sheet and the consolidated Statements of Operation in the
financial statements due to the divestment of the Acadia segment on July
1, 1991. Financial results for periods prior to that date have been
restated.
CompuDyne Investment
....................
In the third quarter of 1988, Corcap began including the accounts of
CompuDyne in its consolidated financial statements as a result of the
significant control which Corcap exercised over the operations of
CompuDyne. Beginning with the September 30, 1995 quarter Corcap's
investment in CompuDyne is no longer being consolidated in the financial
statements of Corcap. The investment will be carried at its book value
and will be accounted for by the equity method of accounting.
Information related to CompuDyne's business, products, customer and
distribution systems, competition, backlog, research and development and
employees is set forth under the caption "Business" in CompuDyne's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
Historical information on CompuDyne has been consolidated in Corcap's
financial statements for the years 1993, 1994 and for the six months
ended June 30, 1995.
Item 2. Properties
The principal property of Corcap and its subsidiaries, excluding
CompuDyne, are situated at the following locations and have the following
characteristics:
Approximate
Primary Owned or Square Feet
Location Purpose Leased of Space
........................ .............. ......... ..........
Willimantic, Connecticut Administrative Leased (1) 200
(1) In December 1995 Corcap moved to offices of MicroAssembly Systems.
The Willimantic office is used for administrative functions.
Item 3. Legal Proceedings
On March 10, 1986, the United States Environmental Protection Agency
("EPA") notified a subsidiary of Corcap (then a subsidiary of Lydall) and
34 other entities that they may be potentially responsible for response
costs under the Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA") in connection with the release of hazardous
substances at a landfill located in Michigan City, Indiana ("Landfill").
On November 10, 1987, the EPA notified the subsidiary of Corcap that it
and other entities identified in the above atter also may be potentially
responsible for the EPA's response costs in connection with a property
located adjacent to the Landfill, known as the Lin-See Property. The EPA
has indicated that it intends to expand the Landfill matter to encompass
the Lin-See Property. No specific money claim has been made to the
subsidiary of Corcap by the EPA with regard to the Landfill matter or the
Lin-See Property, and the total cost of the remediation is not yet known.
The preliminary indications are that the subsidiary's contribution to the
waste volume at the Landfill, if any, was approximately 0.286% of the
total volume. Under the terms of the Post-Distribution Agreement, Corcap
and Lydall will share any loss which may be sustained in these matters
based on the ratio of the total market value of the outstanding capital
stock of each company at the time the actual liability is determined.
As of December 31, 1995, Corcap's proportionate share of any liability
would have been less than 1%.
A wholly-owned subsidiary of Corcap received a preliminary report in May,
1989 from an environmental consulting firm that certain substances are
present in the soil at the Dayville Property as a consequence of past
operations. Corcap's tenant had been exploring the nature and
distribution of those substances to determine what remediation action was
to be required. On July 1, 1991, Corcap's subsidiary leased the property
to Clipper and, in connection therewith, Clipper agreed to assume
responsibility for up to $500 thousand of remediation costs. Continued
site work and remediation analysis had been conducted by environmental
engineers contracted by Corcap, on behalf of Clipper. On July 27, 1994
Clipper's responsibility for environmental costs ended upon the
termination of the lease in consideration of their cancellation of a
mortgage to Corcap. A final study plan was prepared for review by the
Connecticut Department of Environmental Protection to ascertain the costs
of remediation which concluded with a range of $58 thousand to $250
thousand. Thereafter Corcap established a reserve of $248 thousand in
the third quarter of 1994. On July 14, 1995, Corcap entered into a
purchase and sale agreement with Fabrilock Inc., a newly formed
corporation, whereby Fabrilock purchased the Dayville property in
exchange for 20% of Fabrilock's issued and outstanding shares and the
assumption by Fabrilock of the cost of the environmental remediation of
the property estimated to be between $58 thousand and $248 thousand.
Under the terms of the purchase and sale agreement any environmental
costs in excess of $100 thousand would reduce the repurchase price of the
shares which are $1.35 million. Corcap reduced its reserve for the
environmental liability in the third quarter ended September 30, 1995.
Also in connection with the property Corcap deposited 27,000 shares of
CompuDyne Common Stock in an Environmental Escrow Fund to be used to fund
the projected clean-up costs.
During the third quarter of 1991, a wholly-owned subsidiary of Corcap,
Corcap Virginia Inc. (formerly Acadia Virginia, Inc.), received
notification that it may be a potential responsible party under the North
Carolina General Statutes in connection with the closure and abatement of
the Seaboard Chemical Corporation site located in Jamestown, North
Carolina. Preliminary information supplied by the North Carolina
Department of Environment, Health and Natural Resources indicates that,
during the fall of 1986 and early 1987, a subsidiary of Lydall, which was
part of its Elastomer Products Group, may have shipped approximately
.0001016% of the aggregate waste material located at the site. In
connection with the spinoff of Corcap from Lydall on July 1, 1988, Corcap
succeeded to the businesses and operations that were formerly conducted
by the Elastomer Products Group of Lydall, and Corcap agreed to indemnify
Lydall with respect to liabilities arising out of the conduct of the
elastomer products business prior to the spinoff. During the third
quarter of 1994 Corcap received a pro-rata invoice from the consulting
engineer for the site for approximately $500. In March 1996, Corcap
received a final settlement proposal from the engineers for $5 thousand.
On July 1, 1988, as noted previously, Corcap was spun off from Lydall as
a separate public company and succeeded to the ownership and operations
of the elastomer products businesses previously carried on by Lydall. As
part of the spin-off transaction, Corcap and Lydall entered into a five-
year Post-Distribution Agreement (the "Post-Distribution Agreement")
which subsequently has been amended from time to time. As amended, the
Post-Distribution Agreement obligates Corcap to indemnify Lydall with
respect to liabilities (if any) incurred by Lydall after the spin-off
which arise out of the conduct of the elastomer products businesses by
Lydall prior to the spin-off or by Corcap after the spin-off or out of
the prior ownership or operation by Lydall of any asset transferred to
Corcap in the spin-off as well as for certain insurance claims and other
liabilities, and requires Lydall to indemnify Corcap with respect to
liabilities (if any) sustained by Corcap after the spin-off as a result
of the conduct of Lydall of any asset which was a component of its fiber
materials businesses as well as for certain other liabilities. Liability
for claims from previously discontinued operations not related to the
continuing operations of either company which may arise in the future are
shared by the companies on a formula basis. During 1991, Corcap
management was advised that the IRS was auditing Lydall's tax returns for
certain years in which Corcap's former Acadia subsidiaries were part of
Lydall. On March 25, 1996 Lydall and Corcap entered into a Settlement
Agreement (the "Settlement Agreement") dated as of March 25, 1996
pursuant to which Corcap transferred 120,000 shares of CompuDyne Common
Stock, par value $.75 per share ("CompuDyne Common Stock") to Lydall in
settlement of certain claims.
Pursuant to the Post Distribution Agreement the claim that Corcap owed it
$881 thousand under the Post-Distribution Agreement as a result of
settlements Lydall had reached with the Internal Revenue Service for each
of the tax years from 1983-1989 was settled. Separately, Lydall
acknowledged owing Corcap $60 thousand under the Post-Distribution
Agreement as a result of certain retrospective insurance adjustments made
through 1995. Under the Settlement Agreement, each of Lydall and Corcap
released all obligations arising out of such claims by the transfer from
Corcap to Lydall of 120,000 shares of CompuDyne Common Stock. In
addition, Corcap agreed to indemnify Lydall for all liabilities Lydall
may incur in connection with its former ownership of property in
Dayville, Connecticut which Corcap sold in July 1995 and which had
previously been used in connection with Acadia's operations. The Post-
Distribution Agreement had obligated Corcap to indemnify Lydall for
certain environmental claims. In all other respects, the Post-
Distribution Agreement continues in effect.
Certain retirees of the Dayville plant had received voluntary medical and
life insurance payments from Corcap which ceased in 1991 when Corcap was
unable to continue to make these payments. The retirees retained counsel
and made a claim against the Company asserting that the Company was
liable for the medical insurance payments as well as certain life
insurance claims. The Company denied the claim that it was liable since
it made voluntary payments. In February 1996, the Company reached an
agreement with the Union and counsel for certain retirees of the Dayville
plant to transfer 22,500 shares of CompuDyne Common Stock to the
Retirees upon the signing of the settlement agreement.
Item 4. Submission of Matters to a
Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common
Equity And Related Stockholder Matters
Corcap Common Stock is traded in the over-the-counter market and is
quoted on the OTC Bulletin Board, an inter-dealer quotation medium
maintained by the National Association of Securities Dealers, Inc., under
the symbol "CCPN". There were 2,946 common shareholders of record as of
January 30, 1996.
The following table sets forth the high and low sales prices of Corcap
Common Stock from March 31, 1994 to the present on the over-the counter
market. Over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commissions and may not necessarily
reflect actual transactions. Corcap management is aware of only two
companies making a market in Corcap Common Stock, Bishop Rosen and
Company and Carr Securities. On March 12, 1996 the high and low bids per
share for Corcap Common Stock as quoted on the OTC Bulletin Board were
$.01 and $.01.
Quarter Ended High Low
March 31, 1995 $ .14 $ .14
June 30, 1995 .14 .0625
September 30, 1995 .125 .125
December 31, 1995 .125 .01
March 31, 1994 $ .1875 $ .0625
June 30, 1994 .0625 .0625
September 30, 1994 .0625 .03125
December 31, 1994 .14 .03125
Corcap has never paid cash dividends to its shareholders and its Board of
Directors does not anticipate doing
so in the foreseeable future.
Item 6. Selected Financial Data
The following is a consolidated summary of operations of Corcap, its
subsidiaries and CompuDyne for the years ended December 31, 1995, 1994,
1993, 1992 and 1991. The information in the table below is based upon
the audited consolidated financial statements of Corcap and its
subsidiaries for the years indicated appearing elsewhere in this annual
report and in prior annual reports on Form 10-K filed by Corcap with the
SEC, and should be read in conjunction therewith and the notes thereto.
For the years ended December 31, 1991-1994 CompuDyne Corporation was
consolidated in the financial results of Corcap. In 1995 CompuDyne
Corporation was consolidated through June 30, 1995, thereafter the
results are for the activities of Corcap only.
(In thousands except per share data):
<TABLE>
<CAPTION> For the years ended December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net sales from continuing
operations $ 4,615 $ 9,699 $ 9,571 $ 9,330 $10,762
Gross margin from
continuing operations $ 622 $ 1,586 $ 1,884 $ 1,746 $ 2,255
Income (loss) from
continuing operations
before extraordinary
items $ 104 $ 2,034 $ 253 $ 122 $ 862
Income (loss) from
discontinued operations,
net (924) 712 (114) (655) (771)
Loss on divestitures, net - - - - (6,081)
Extraordinary item - 523 298 79 -
Net income (loss) $ (820)$ 3,269 $ 437 $ (454) $(5,990)
Weighted average common stock
and equivalents outstanding 2,926 2,926 2,926 2,926 2,963
Income (loss) per common share:
Continuing operations $ .04 $ .70 $ .09 $ .04 $ .29
Discontinued operations (.31) .24 (.04) (.22) (.26)
Divestitures - - - - (2.05)
Extraordinary items - .18 .10 .03 -
Net income (loss) $ (.27)$ 1.12 $ .15 $ (.15) $ (2.02)
Cash dividends declared
per common share $ - $ - $ - $ - $ -
Total assets $ - $ 2,369 $ 2,364 $ 2,652 $ 3,518
Long-term debt, net $ 60 $ - $ 1,050$ 1,201 $ 1,306
</TABLE>
The information required by this item for CompuDyne is set forth under
the caption "Selected Financial Information" in CompuDyne's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995 filed as Exhibit
28.1 hereto. Such information is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
In the third quarter of 1988, Corcap began including the accounts of
CompuDyne in its consolidated financial statements as a result of the
significant control which Corcap exercised over the operations of
CompuDyne. Beginning with the September 30, 1995 quarter Corcap's
investment in CompuDyne is no longer being consolidated in the financial
statements of Corcap. The investment will be carried at its book value
and will be accounted for by the equity method of accounting.
Financial Condition at December 31, 1995
........................................
On July 1, 1991, pursuant to an Asset Purchase Agreement dated that date,
Acadia and other related companies that were all subsidiaries of Corcap,
sold certain of their assets and their elastomer and rubber products
business to Clipper. As a result of a series of transactions in July and
August 1995 Corcap's ownership of CompuDyne has been reduced to 12% on a
fully diluted basis and further its ownership of the Dayville plant was
sold for a 20% interest in Fabrilock, Inc. Therefore all of Corcap's
transactions are accounted for as discontinued operations. See Note 10 to
the consolidated financial statements.
Corcap's consolidated working capital deficiency, which includes $ 1.681
million and $881 thousand of net current liabilities of discontinued
operations at December 31, 1995 and 1994, respectively, was increased to
$1.681 million at December 31, 1995 from $491 thousand at December 31,
1994. The increase in the working capital deficiency of $1.2 million was
primarily due to the effect of not consolidating CompuDyne $410 thousand,
the recording of the additional tax liability from Corcap of $382
thousand and losses from the sale of the Dayville property of $937
thousand offset by gains of $448 thousand on the transfer of CompuDyne
Common Stock to the Constituent Pension Plans.
Corcap's continued existence is dependent upon the value of its share
ownership in CompuDyne Common Stock and Fabrilock and the decisions that
the Board of Directors make with regard to Corcap's being a transient
investment company and certain decisions to be made by the Board of
Directors as described below.
At December 31, 1994, debt levels were increased by $60 thousand to $60
thousand representing a Note to CompuDyne for the exercise of a warrant
to purchase 150,000 shares of CompuDyne Common Stock. See Note 4 to the
Consolidated Financial Statements.
As discussed under "Results of Operations", Corcap had income from
continuing operations entirely from CompuDyne's operations through June
30, 1995 of $104 thousand. CompuDyne's discontinued operations had a
loss of $246 thousand through June 30, 1995 and Corcap's discontinued
operations produced a loss of $727 thousand which was attributable to the
effect of selling the Dayville Property for a 20% interest in the shares
of Fabrilock, Inc. of $937 thousand which was offset by a reversal of a
reserve for environmental remediation costs of $232 thousand and gains on
the sale of CompuDyne shares which were transferred to the Constituent
Pension Plans of $448 thousand. Corcap also recorded an additional tax
liability from Lydall of $382 thousand for additional assessments in
connection with an Internal Revenue Service audit.
Corcap's Continued Existence
Due to the disposition of assets in 1990, 1991 and 1995, Corcap's
remaining assets are CompuDyne Common Stock and Fabrilock, Inc Common
Stock. As a result, Corcap is deemed to be a "transient investment
company" as provided in Rule 3a-2 under the Investment Company Act of
1940, as amended (the "1940 Act"). Since Corcap's only holdings are
investment securities of entities it does not control, it would be deemed
to be an investment company subject to the reporting, filing and
operating requirements of the 1940 Act but for Rule 3a-2. Such rule
provides that a company is deemed not to be an investment company during
a period of time not to exceed one year provided that the company has a
bona fide intent to be engaged primarily, as soon as is reasonably
possible (in any event by the termination of such period of time), in a
business other than that of an investment company. The Board of
Directors is exploring the following in order to comply with Rule 3a-2 by
the one-year deadline, or August 21, 1996:
1. Liquidation of the Fabrilock and/or CompuDyne investments, with the
proceeds to be reinvested in new operations.
2. The merger of Corcap with another company in a stock exchange.
3. Liquidation of Corcap, either voluntarily or through a bankruptcy
filing. If this option is adopted, it is unlikely that Corcap could
afford the cost of a voluntary liquidation, including a special
shareholder vote.
CompuDyne is currently not paying dividends. Consequently, Corcap does
not have any source of revenue or cash flow other than the sale of assets
(see "Management's Discussion and Analysis-Liquidity"). Despite the
efforts of Corcap to resolve its unfunded pension liabilities with the
PBGC, the successful settlement of its liability with Lydall and with the
former officers of the Company, pending settlement of the Dayville
retirees suit, the Board of Directors of Corcap continues to consider
various options that may enable Corcap to meet its obligations and to
serve the best interests of its shareholders. However, the status of
being a transient investment company as described above may force
liquidation of the Company.
Results of Operations - 1995 compared with 1994
...............................................
Due to the change in the consolidation of CompuDyne into Corcap's results
for the third and fourth quarters of 1995 the only operations that are
comparable are discontinued operations. For the year the effect of
CompuDyne was to reflect earnings from continuing operations of $104
thousand through June 30, 1995 compared with $2.065 million for the year
ended December 31, 1994. Discontinued operations produced income of $712
thousand for the year ended December 31, 1994 compared with a loss from
discontinued operations of $924 thousand in 1995. The principal reasons
for the change of $1.7 million was the effect of the restatement of the
Suntec division of CompuDyne as a discontinued operation $613 thousand,
the forgiveness of debt by Clipper for the Dayville property of $1.8
million, an increase in the environmental reserve of $250 thousand and
other operating costs of the Dayville property and administrative
expenses of $350 thousand.
Results of Operations - 1994 compared with 1993
...............................................
Income from continuing operations before extraordinary items of $2.065
million in 1994 compares with income from continuing operations before
extraordinary items of $253 thousand in 1993. The increase in income from
continuing operations of $1.812 million was due to the net insurance
proceeds of $1.389 million from the death of Frank Kelley, a larger
profit than normal at Quanta Systems $176 thousand and adjustments of
certain accruals $263 thousand.
CompuDyne's net sales, which increased from $9.6 million in 1993 to $9.7
million in 1994, a 1% increase, were comprised of service revenue,
telemetry and data acquisition product sales at Quanta. Quanta's service
revenue in 1994 was $8.7 million, $600 thousand more than 1993. The
increase in service revenue was attributable to increases in task
spending on other government contracts. Service revenue represented 90%
of 1994 revenues compared to 84% of 1993 revenues. DCS sales decreased
$400 thousand between 1994 and 1993.
Quanta's product sales at its Data Control Systems division of $1.0
million was $400 thousand lower than 1993 as a result of a decline in
bookings resulting from defense spending reductions and delays DCS
incurred bringing new products into the market. The Company reduced the
costs of its product operations in reaction to the decline in business
and has spent considerable time and effort in developing new commercial
products. During 1994 DCS continued the development of its automatic
power controller ("APC") and sold several units. DCS also continued the
development of its high speed satellite test modem QPSK Model 7500 and
sold two units. DCS finished the year with a strong backlog of $600
thousand.
Gross margins decreased $298 thousand from $1.9 million, 20% of sales, in
1993 to $1.6 million, 16% of sales, in 1994. The primary reason was DCS
which had a margin decline of $376 thousand due to lower volume and
higher costs which was offset by higher gross profit at Quanta of $77
thousand. The increase at Quanta was due to higher volume but at lower
margins.
Total 1994 selling, general and administrative expenses decreased $397
thousand from 1993 levels. The Company decreased its expenses at Quanta
Systems, DCS and Corporate.
The Company undertook research and development activities to develop new
products for the telecommunications industry. Research and development
expenditures were $66 thousand during the fiscal year ended December 31,
1994 compared with $113 thousand in 1993.
Total interest expense for 1994 was $21 thousand or $104 thousand lower
than 1993 levels of $125 thousand. The decline was due to the repayment
of all outstanding debt.
Interest income for 1994 was $28 thousand, or an increase of $14 thousand
from 1993's interest income of $14 thousand. The increase was due to a
larger amount of invested funds.
Other income increased $1.560 million from $102 thousand in 1993 to
$1.662 million in 1994. The Kelley life insurance proceeds amounted to
$1.389 million. CompuDyne also reduced certain accruals totaling $115
thousand and reversed its workmen's compensation accrual after receiving
a final refund from the insurance carrier, $148 thousand.
Extraordinary income of $523 thousand resulted from debt forgiveness from
Clipper of $413 thousand and from deferred compensation beneficiaries
$110 thousand compared with debt forgiveness in 1993 of $161 thousand
primarily due to a settlement of its lease obligation at 90 State House
Square in Hartford.
Liquidity
.........
Due to depressed economic conditions within the automotive industry, poor
operating results and tight liquidity, Corcap sold the operating assets
of its wholly-owned subsidiaries, the Acadia Companies, on July 1, 1991.
As a result of this transaction, Corcap is no longer engaged in the
rubber and elastomer products business which was its only significant
line of business prior to the sale. Corcap's remaining assets are its
ownership of CompuDyne Common Stock and Fabrilock, Inc. common stock.
Corcap's Liquidity
..................
Corcap's continued existence is totally dependent on its investment in
CompuDyne. On June 3, 1993, the Corcap Board of Directors authorized the
sale of shares of its holdings of CompuDyne Common Stock under Rule 144.
In 1993 Corcap sold 27,000 shares of CompuDyne Common Stock, 40,500
shares in 1994 and 40,500 shares in 1995. This has been the only means by
which Corcap is able to generate any cash to meet its obligations.
Corcap's investment in Fabrilock is illiquid.
Recently Issued Accounting Standard
...................................
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation." The new standard defines a fair value method
of accounting for stock-based employee compensation plans. Under this
method, compensation costs is measured based on the fair value of the
stock award when granted and is recognized as an expense over the service
period, which is usually the vesting period. This standard will be
effective for the Company beginning in 1996 and requires measurement of
awards made beginning in 1995.
The new standard permits companies to continue to account for equity
transactions with employees under existing accounting rules, but requires
disclosure in a note to the financial statements of the pro forma net
income and earnings per share as if the company had applied the new
method of accounting. The Company intends to implement these disclosure
requirements beginning 1996. Adoption of the new standard will not
impact reported net income or cash flows.
Item 8. Financial Statements and Supplementary Data
....................................................
The consolidated financial statements of Corcap, Inc. and its
subsidiaries are listed in Item 14(a).
Additional information for CompuDyne is set forth under the caption
"Financial Statements and Supplementary Data", in CompuDyne's Annual
Report on Form 10-K for its fiscal year ended December 31, 1995 filed as
Exhibit 28.1 hereto and such information is incorporated herein by
reference.
Item 9. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure
See report on Form 8-K - Notice of change of Auditors filed on January 3,
1996.
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors
.........
Pursuant to the Bylaws of the Company, the Board of Directors has fixed
the number of directorships at four. The following sets forth certain
information concerning each Director.
David W. Clark, Jr. 57. Mr. Clark is Chairman of the Audit Committee.
He is a Managing Director of Pryor & Clark Company, an investment holding
company. Until his resignation in June 1992, he served as President,
Chief Operating Officer and Treasurer of Corcap. He has served as a
Director of Corcap since June 1988. From October 1985 until his
resignation in June 1992, he was the President and Chief executive
Officer of CompuDyne. He has served as a Director of CompuDyne since
1985. Prior to becoming President of Corcap, Mr. Clark had been employed
by Lydall, Inc. for more than five years, most recently as President. He
also serves as a Director of Acme United Corporation (manufacturing), and
Checkpoint Systems, Inc. (manufacturing).
Millard H. Pryor, Jr. 62. Mr. Pryor is a member of the Executive and
Pension Committees. He is a Managing Director of Pryor & Clark Company,
an investment holding company. He presently serves as a member of the
Pension Committee of the Corcap Board. From June 1988 until his
resignation in June 1993, Mr. Pryor held the position of Chairman of the
Board of Corcap. He also held the position of Chief Executive Officer of
Corcap from June 1988 until his resignation in June 1992. He has served
as a Director of Corcap since June 1988. From October 1985 until his
resignation in June 1993, he served as Vice-Chairman of the board of
Directors of CompuDyne, and from June 1991 until his resignation in June
1992, Treasurer of CompuDyne. He has served as a Director of CompuDyne
since October 1985. Until October 1991, Mr. Pryor was the Chairman and,
until July 1988, the Chief Executive Officer of Lydall, Inc.
(manufacturing) for more than five years. He is a director of The
Hartford Funds (financial services), Pacific Scientific Company
(manufacturing), and Infodata Systems, Inc. (computer software).
Martin A. Roenigk, 53. Mr. Roenigk is a member of the Executive and
Pension Committees. He was elected to the Board of Directors in August
1995 to fill the vacancy created by the resignation of Director, Norman
Silberdick. He has served as the Chairman, Chief Executive Officer and
President of CompuDyne since August 1995. Since March, 1991, he has
served as President of MicroAssembly Systems, Inc., ("MicroAssembly"),
(manufacturing). He has also served as Vice President of Travelers
Corporation (insurance) until December, 1993.
John E. Sundman, 69. Mr. Sundman is a member of the Executive and Audit
Committees. He was appointed Chairman by the Board of Directors in
August 1995 filling the vacancy caused by the resignation of Norman
Silberdick. He has served as a Director of Corcap since June 1988.
Prior to his retirement, which became effective May 1, 1991, Mr. Sundman
served as a Vice President of Corcap, a position which he assumed as of
November 30, 1989. Prior to that time Mr. Sundman served as Vice
President-Finance, Treasurer and Chief Financial Officer of Corcap from
June 1988 until November 30, 1989. Mr. Sundman served as Vice President-
Finance, Treasurer and Chief Financial Officer of Lydall, Inc. from 1978
to 1988 and also served as a Lydall director from 1979 to 1989. He also
served as Senior Vice President of CompuDyne from June 1988 to November
1989. He is a Director of Allis-Chalmers Corporation (manufacturing).
Executive Officers.
..................
Diane W. Burns, 54. Ms. Burns was appointed President by the Board of
Directors in August 1995,filling the vacancy caused by the resignation of
Norman Silberdick. From June 1988 to her resignation in August 1995, Ms.
Burns served as Secretary of the Company. She has also served as
Secretary of CompuDyne, since 1991. Prior to June 1988 Ms. Burns served
as Assistant Treasurer of Lydall, Inc., (manufacturing) since 1985.
<PAGE>
I. Elaine Chen, 43 Ms. Chen was appointed Chief Financial Officer in
August 1995, filing the vacancy caused by the resignation of Norman
Silberdick. Since March 1995 she has served as Chief Financial Officer
of CompuDyne. Prior to that time she was the Controller of CompuDyne
since February 1995.
Item 11. Executive Compensation
................................
Corcap currently has no employees. However, there are three employees
of CompuDyne who are engaged in handling the various administrative
responsibilities for Corcap, but are compensated by CompuDyne.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table lists, to the Company's knowledge, the ownership of
Common Stock of the Company, if any, on March 27, 1996, and the nature of
such ownership, for each of the Company's current Directors and for all
officers and Directors of Corcap as a group and for each person who owns
in excess of 5 percent of Corcap's common stock. Unless otherwise noted,
each holder has sole voting and dispositive power with respect to the
shares listed.
<TABLE>
<CAPTION> Amount and
Nature of
Beneficial Percentage
Name Ownership of Class
<S> <C> <C>
David W. Clark, Jr. 4,533
8,752 (IRA)
......
13,285
10,546 (1) *
Millard H. Pryor, Jr. 22,200 (2)
51,030 (IRA)
......
83,230
10,546 (1) 2.8%
Martin A. Roenigk 70,000
450,000 (3)
.......
520,000 15.4%
John E. Sundman 5,444 (IRA)
51,834
......
57,278 2%
Diane W. Burns 13,199
571 (IRA)
2,500 (4)
......
16,270 *
I. Elaine Chen None
All directors and officers
as a group (6 persons) 700,609 20.7%
* Less than one percent
(1)Mr. Pryor has neither voting nor dispositive power with respect to
these 10,546 shares. These shares are held under an Irrevocable Trust
Agreement of which Mr. Clark is a Co-Trustee and under which Mr. Clark
has voting and dispositive power respecting these shares.
(2)Includes 9,700 shares held by Mr. Pryor's wife, as to which Mr. Pryor
disclaims any beneficial interest.
(3)On August 21, 1995 Corcap issued Mr. Roenigk options to purchase up
to 450,000 shares of the Company's Common Stock for $.15 per share. The
options are divided into two tranches, one of 300,000 shares and the
other of 150,000 shares. The option for the 300,000 shares shall expire
on August 20, 1996 ("Option I"). Exercise of the options for the entire
300,000 shares available under and in accordance with the terms of Option
I is a precondition to the availability of the options for the remaining
150,000 shares, which remaining options expire on August 20, 2005. On
March 25, 1996, the Board of Directors approved a resolution to reduce
the option price per share to $.01.
(4)Corcap's Compensation and Employee Stock Option Committee
("Committee") issued Ms. Burns options to purchase an aggregate of 2,500
of the Company's Common Stock on February 10, 1988, August 17, 1988 and
September 12, 1989 at a price of $4.93, $4.75 and $2.75 per share,
respectively, under Corcap's 1988 Stock Incentive Compensation Plan ( the
"Plan"). On May 16, 1990, the Committee reduced the exercise price on
all options to $1.875 per share. Such Plan was terminated by the Board
of Directors on June 3, 1993. Under the terms of the termination, any
awards or grants of options under the Plan shall continue in force in
accordanc with their terms. On March 25, 1996 the Board of Directors
approved a resolution to reduce the option price per share to $.01
Item 13. RELATED PARTY TRANSACTION
Investment in CompuDyne Corporation and Related Matters. As of March 31,
1996, Corcap owned 308,881 shares of CompuDyne Common Stock, or 17.1%
of the outstanding shares of CompuDyne Common Stock. In addition, a
majority of the members of the Corcap and CompuDyne Board of Directors
are the same. David W. Clark, Jr., Millard H. Pryor, Jr. and Martin A.
Roenigk are each directors of Corcap and CompuDyne. Mr. Pryor was
Chairman of Corcap and Vice Chairman of CompuDyne and Mr. Clark was
Chairman of CompuDyne until their respective resignations on June 3,
1993. Mr. Roenigk became Chairman, Chief Executive Officer and President
of CompuDyne in August 1995, succeeding Norman Silberdick. Corcap, its
wholly-owned subsidiaries, and its investment in CompuDyne reported
consolidated financial statements for the years 1993, 1994 and through
June 30, 1995 when it was deemed that Corcap no longer had significant
control of CompuDyne.
PART IV
Item 14(a). Exhibits, Financial Statements, and Reports on Form 8-K
a)1)The following consolidated financial statements of Corcap, Inc. and
its subsidiaries are filed as part of this Form 10-K.
10-K Page
Report of Independent Accountants 20-21
Consolidated Balance Sheets--
December 31, 1995 and 1994 22
Consolidated Statements of Operations--
Years ended December 31, 1995, 1994 and 1993 23
Consolidated Statements of Cash Flows--
Years ended December 31, 1995, 1994 and 1993 24
Consolidated Statements of Changes in Stockholders'
Deficit--Years ended December 31, 1995, 1994 and 1993 25
Notes to Consolidated Financial Statements 26-37
Financial statement schedules have been omitted as they are not
applicable or are contained in the notes to the consolidated financial
statements.
a)2)List of Exhibits
Exhibit
Number Description of Document
3.1 Certificate of Incorporation, as amended, of the registrant
(filed as Annex A to the Lydall, Inc. Information Statement dated June
17, 1988, filed as Exhibit 28.1 to the registrant's Registration
Statement on Form 10 dated June 21, 1988, and incorporated herein by this
reference).
3.2 Bylaws of the registrant (filed as Annex B to the Lydall, Inc.
Information Statement dated June 17, 1988, filed as Exhibit 28.1 to the
registrant's Registration Statement on Form 10 dated June 21, 1988, and
incorporated herein by this reference).
4.1 Certain long-term debt instruments, each representing indebtedness
in an amount equal to less than 10% of the registrant's total
consolidated assets, have not been filed as exhibits to this Annual
Report on Form 10-K. The registrant hereby undertakes to file these
instruments with the Commission upon request.
10.1 Post-Distribution Agreement dated as of July 1, 1988, between the
registrant and Lydall, Inc. (filed as Exhibit 10.1 to the registrant's
Form 8 Amendment to Application or Report dated July 12, 1988, and
incorporated herein by this reference).
10.2 Amendment No. 1 dated August 15, 1988 to Post-Distribution Agreement
(filed as Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for
calendar year 1988, dated March 30, 1989, and incorporated herein by this
reference).
10.3 Amendment No. 2 dated February 23, 1989 to Post-Distribution
Agreement (filed as Exhibit 10.3 to the Registrant's Annual Report on
Form 10-K for calendar year 1989, and incorporated herein by this
reference).
10.4 Amendment No.3 dated as of July 12, 1990 to the Post-Distribution
Agreement (filed as Exhibit 10.24 to the Registrant's Form 10-Q for the
quarter ended September 30, 1990, incorporated herein by this
reference).
10.5 Warrant, dated March 10, 1993, issued to Corcap (the "Corcap
Warrant"), is incorporated herein by reference to Exhibit 10.26 to
Registrant's Form 10-K filed December 31, 1992.
10.6 Amendment No. One, dated April 1, 1993, to the Corcap Warrant is
incorporated herein by this reference.
10.7 Promissory Note between Corcap and CompuDyne dated August 21, 1995,
for the purchase of 150,000 shares under the Corcap Warrant, is
incorporated herein by reference to Exhibit 2 to Registrant's Form 13D
filed August 21, 1995.
10.8 300 Lake Road Environmental Remediation Agreement between Fabrilock,
Inc. and Corcap Eastern, Inc. is incorporated by reference to Exhibit 3
of Registrant's Form 13D filed August 21, 1995.
10.9 Agreement dated September 6, 1995 between Corcap and Corcap Pension
Plan 1A and Corcap Pension Plan 6B for the transfer of 224,000 shares of
CompuDyne Common Stock is incorporated by reference to Exhibit 1 of
Registrant's Form 13D filed September 25, 1995.
10.10 CompuDyne Corporation Certificate of Designations of the
Convertible Preference Stock, Series D, is incorporated by reference to
Exhibit (4.1) of Registrant's Form 8-K filed September 5, 1995.
10.11 CompuDyne Senior Convertible Promissory Note is incorporated by
reference to (Exhibit 4.2) of Registrant's Form 8-K filed September 5,
1995.
10.12 Stock Purchase Agreement dated August 21, 1995 by and among
CompuDyne Corporation, MicroAssembly Systems, Inc. Martin Roenigk and
Alan Markowitz is incorporated by reference to Exhibit 99.1 of the
Registrant's Form 8-K filed September 5, 1995.
10.13 Asset Purchase and Sale Agreement dated August 21, 1995 by and
among Quanta Systems Corporation, Suntec Service Corporation and Norman
Silberdick is incorporated by reference to Exhibit 99.3 of Registrant's
Form 8-K filed September 5, 1995.
10.14 Stock Option Agreement dated August 21, 1995 by and between Martin
A. Roenigk and Corcap, Inc. is incorporated by reference to Exhibit 99.3
of Registrant's Form 8-k filed September 5, 1995.
22.1 List of subsidiaries of the registrant and states of incorporation
is filed herewith.
28.1 Annual Report on Form 10-K of CompuDyne Corporation for the fiscal
year ended December 31, 1995 is filed herewith.
b) Report on Form 8-K - Notice of Change of Auditors filed on January 3,
1996.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board
of Directors of Corcap, Inc.
We have audited the accompanying consolidated balance sheet of Corcap,
Inc. and subsidiaries, as of December 31, 1995, and the related
consolidated statements of operations, shareholders' equity, and cash
flows for the year then ended. These financial statements as of and for
the year ended December 31, 1995 are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit. The consolidated financial
statements as of December 31, 1994 and for the two years in the period
then ended, before the adjustments described in Note 2 to the
consolidated financial statements, were audited by other auditors whose
report, dated March 29, 1995, on those statements included an explanatory
paragraph regarding the Company's ability to continue as a going concern.
We conducted our audit 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 management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Corcap, Inc. and
subsidiaries at December 31, 1995, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As described
in Note 1, the Company's only remaining assets are investments in
CompuDyne Corporation common stock and Fabrilock, Inc. common stock. As
a result, the Company is deemed to be a "transient investment company" as
provided in Rule 3a-2 under The Investment Company Act of 1940. In
addition, the Company is currently negotiating to resolve certain
outstanding liabilities and contingencies. These factors raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note
1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
We also audited the adjustments described in Note 2 that were applied to
restate the 1994 and 1993 consolidated financial statements for the
discontinued operations of the Suntec Division of CompuDyne Corporation.
In our opinion, such adjustments are appropriate and have been properly
applied.
\s\Deloitte & Touche LLP
Washington, D.C.
April 11, 1996
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board
of Directors of Corcap, Inc.
We have audited the consolidated financial statements of Corcap, Inc. and
Subsidiaries ("the Company") as of December 31, 1994 and for the years
ended December 31, 1994 and 1993, prior to the restatement for the
divestiture of the Suntec Division of CompuDyne Corporation, as listed in
Item 14(a) of this Form 10-K. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 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, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Corcap, Inc. and Subsidiaries as of December 31, 1994 and the
consolidated results of their operations and their cash flows for the
years ended December 31, 1994 and 1993, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company
has negative working capital and is insolvent, which raises substantial
doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
The company was unable to make certain required quarterly payments to its
qualified retirement plans causing the plans to have an unwaived funding
deficiency and subjecting the Company to possible excise tax liability.
In addition, the Pension Benefit Guaranty Corporation could determine
that the plans should be terminated, accelerating the Company's
obligation to fully fund the plans, which amount approximated $1.2
million at December 31, 1994. No provision has been made in the
consolidated financial statements for this uncertainty, the ultimate
outcome of which cannot be reasonably determined at this time.
COOPERS & LYBRAND L.L.P.
Washington, D.C.
March 25, 1995
Corcap, Inc. and Subsidiaries
Consolidated Balance Sheets
($ Thousands)
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 1994
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ - $ 176
Accounts receivable (less allowance for
doubtful accounts of $39 and $52) - 1,468
Inventories:
Work in process - 194
Raw materials and supplies - 254
Total inventories - 448
Net current assets of discontinued operations - 132
Other - 36
Total current assets - 2,260
...................................................................
Property, plant and equipment, at cost:
Buildings and leasehold improvements - 27
Machinery and equipment - 480
Furniture and fixtures - 163
- 670
Less accumulated depreciation
and amortization - (663)
- 7
Other assets - 102
Total assets $ - $ 2,369
................................................................
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable and current portion
of long-term debt $ - $ -
Accounts payable - 991
Accrued pension costs - 25
Other accrued liabilities - 763
Net current liabilities of discontinued
operations 1,681 881
Current portion of deferred compensation - 71
Total current liabilities 1,681 2,731
Net non-current liabilities of
discontinued operations 265 -
Long term pension liability - 304
Deferred compensation, net of
current portion - 128
Total liabilities 1,946 3,163
Commitments and Contingencies
Stockholders' deficit:
Common stock, $.01 par value per
share--authorized 15,000,000,issued
and outstanding 2,925,849 and 2,925,849 29 29
Capital in excess of par 269 269
Minimum pension liability (888) (555)
Accumulated deficit (26,389) (25,570)
(26,979) (25,827)
Contributed capital 25,033 25,033
Total stockholders' deficit (1,946) (794)
Total liabilities and stockholders' deficit $ - $ 2,369
</TABLE>
See Notes to Consolidated Financial Statements.
Corcap, Inc. and Subsidiaries
Consolidated Statements of Operations
(In Thousands, except per share data)
<TABLE>
<CAPTION>
For the years ended December 31, 1995 1994 1993
<S> <C> <C> <C>
Net sales $ 4,615 $ 9,699 $ 9,571
Cost of sales 3,993 8,113 7,687
Gross margin 622 1,586 1,884
Selling, general and administrative
expenses 457 1,126 1,492
Research and development 39 66 113
Operating income (loss) 126 394 279
Interest (expense) income, net (10) 7 111
Other income, related parties - - (57)
Other income (expense) (12) 1,662 (45)
(22) 1,669 9
Income from continuing operations before
income taxes and extraordinary item 104 2,063 270
Income tax provision benefit - (29) (17)
Income from continuing operations before
extraordinary item 104 2,034 253
Discontinued operations:
Income (loss) from discontinued operations (924) 712 (114)
Gain (loss) before extraordinary item (820) 2,746 139
Extraordinary item, debt forgiveness - 523 298
Net income (loss) $ (820) $ 3,269 $ 437
Income (loss) per common share
Continuing operations $ .04 $ .01 $ .04
Discontinued operations (.31) .04 (.22)
Extraordinary item - .10 .03
Net income (loss) per common share$ (.27) $ .15 $ (.15)
Weighted average common shares outstanding 2,926 2,926 2,926
..................................................................
</TABLE>
See Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION> Corcap, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
($ Thousands)
For the years ended December 31, 1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Income from continuing operations $ 104 $ 2,034 $ 253
Adjustments to reconcile income to net cash
from continuing operations:
Depreciation - 10 26
Reduction in allowance for doubtful
accounts - (13) -
Reduction in reserve for contract
disallowance - (214) -
Reduction in litigation reserve - (115) -
Debt forgiveness - 523 298
Minimum pension liability (332) 71 (117)
Increase (decrease) in cash
resulting fromchanges in assets
and liabilities:
Accounts receivable 1,468 (422) 735
Inventories 448 (16) 44
Other current assets 36 (12) 39
Accrued liabilities, related parties - - (107)
Accounts payable and
accrued liabilities (1,850) 85 (227)
Other long-term liabilities (432) (156) (123)
Other assets 152 (47) (48)
Total adjustments (510) (306) 520
Net cash provided by (used in)
continuing operations (406) 1,728 773
Income (loss) from discontinued operations (924) 712 (114)
Adjustments to reconcile loss to
net cash from discontinued operations:
Increase (decrease) in net non-current
liabilities 265 (846) (283)
Increase (decrease) in net current assets 132 147 (279)
Increase (decrease) in net
current liabilities 750 (705) 885
Increase (decrease) in net current
liabilities, related parties - - (816)
Net cash flows provided by (used in)
discontinued operations 223 (692) (607)
Net cash flows provided by (used in)
operating activities (183) 1,036 166
Cash flows from investing activities:
Additions (deletions)to property,
plant and equipment 7 (1) -
Net cash provided by (used in)
investing activities 7 (1) -
Cash flows from financing activities:
Repayment of long-term debt - (1,203) (105)
Net cash used in financing activities $ - $(1,203) $ (105)
Net increase (decrease) in cash and
cash equivalents (176) (168) 61
Cash and cash equivalents beginning of period 176 344 283
Cash and cash equivalents end of period $ - $ 176 $ 344
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest $ - $ 127 $ 342
Taxes $ - $ 5 $ 17
</TABLE>
See Notes to Consolidated Financial Statements.
Corcap, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Deficit
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION> ($ Thousands)
Total
Contri- Capital Minimum Accumu- Stock-
Common buted in excess Pension lated holders'
stock capital of par Liability deficit deficit)
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1992 29 25,033 269 (509) (29,275)(4,453)
Net income - - - - 437 437
Minimum pension
liability - - - (117) - (117)
Balance at
December 31, 1993 29 25,033 269 (626) (28,838)(4,133)
Net income - - - - 3,269 3,269
Minimum pension
liability - - - 70 - 70
Balance at
December 31, 1994 29 25,033 269 (556) (25,569) (794)
Net income - - - - (820) (820)
Minimum pension
liability - - - (332) - (332)
Balance at
December 31, 1995 $ 29 $25,033 $ 269 $ (888) $(26,389)$(1,946)
</TABLE>
See Notes to Consolidated Financial Statements.
Corcap, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Organization
Effective July 1, 1988, all of the issued and outstanding common shares
of Corcap, Inc. ("Corcap" or the "Company") were distributed to the
stockholders of Lydall, Inc. ("Lydall"), a publicly-owned corporation
(the "Distribution"), pursuant to a special dividend previously declared
by Lydall's Board of Directors. Approximately $24 million of net assets
were transferred from Lydall to Corcap. Prior to that, Corcap's
operations and investments were managed through Lydall. As part of the
spin-off transaction, Corcap and Lydall entered into a five-year Post-
Distribution Agreement (the "Post-Distribution Agreement") which
subsequently has been amended from time to time. As amended, the Post-
Distribution Agreement obligates Corcap to indemnify Lydall with respect
to liabilities (if any) incurred by Lydall after the spin-off which arise
out of the conduct of the elastomer products businesses by Lydall prior
to the spin-off or by Corcap after the spin-off or out of the prior
ownership or operation by Lydall of any asset transferred to Corcap in
the spin-off as well as for certain insurance claims and other
liabilities, and requires Lydall to indemnify Corcap with respect to
liabilities (if any) sustained by Corcap after the spin-off as a result
of the conduct of Lydall of any asset which was a component of its fiber
materials businesses as well as for certain other liabilities. Liability
for claims from previously discontinued operations not related to the
continuing operations of either company which may arise in the future are
shared by the companies on a formula basis.
Corcap was incorporated on June 6, 1988. Contributed capital represents
the net assets and the net results of operations through June 6, 1988
from the businesses transferred from Lydall to Corcap as well as capital
transactions since that date. The accumulated deficit represents losses
attributable to operations since the date of incorporation.
Nature of Business
Through June 30, 1995, the Company operated in two business segments:
engineering and security services and the manufacture of telemetry and
telecommunications equipment. During the six months ended June 30, 1995
and the years ended December 31, 1994, and 1993, sales to the U.S.
Federal Government amounted to 86%, 90% and 84%, respectively, of the
Company's total net sales. No other single customer accounted for
greater than 10% of the Company's net sales.
Corcap's Continued Existence Due to the disposition of assets in 1990,
1991 and 1995, Corcap's remaining assets are CompuDyne Common Stock and
Fabrilock, Inc Common Stock. As a result, Corcap is deemed to be a
"transient investment company" as provided in Rule 3a-2 under the
Investment Company Act of 1940, as amended (the "1940 Act"). Since
Corcap's only holdings are investment securities of entities it does not
control, it would be deemed to be an investment company subject to the
reporting, filing and operating requirements of the 1940 Act but for Rule
3a-2. Such rule provides that a company is deemed not to be an investment
company during a period of time not to exceed one year provided that the
company has a bona fide intent to be engaged primarily, as soon as is
reasonably possibly (in any event by the termination of such period of
time), in a business other than that of an investment company. The Board
of Directors is exploring the following in order to comply with Rule 3a-2
by the one-year deadline, or August 21, 1996:
1. Liquidation of the Fabrilock and/or CompuDyne investments, with the
proceeds to be reinvested in new operations.
2. The merger with Corcap with another company in a stock exchange.
3. Liquidation of Corcap, either voluntarily or through a bankruptcy
filing. If this option is adopted, it is unlikely that Corcap could
afford the cost of a voluntary liquidation, including a special
shareholder vote.
CompuDyne is currently prohibited under state law from paying any
dividends because its assets do not exceed its liabilities. Consequently,
Corcap does not have any source of revenue or cash flow
2. Significant Accounting Policies
Principles of consolidation.
...........................
The accompanying consolidated financial statements include the accounts
of Corcap, its wholly-owned subsidiaries, and its investment in CompuDyne
Corporation ("CompuDyne") for the years 1993, 1994 and from January 1,
1995 through June 30, 1995 at which time it was deemed that Corcap no
longer had significant control of CompuDyne. As of July 1, 1995, Corcap
accounts for its investment in CompuDyne by the equity method of
accounting. Significant intercompany transactions have been eliminated
in the consolidated financial statements for the aforementioned periods.
Consolidation of CompuDyne Corporation.
......................................
Three directors of Corcap are also directors of CompuDyne. Corcap has
included the accounts of CompuDyne in Corcap's consolidated financial
statements in light of the control exerted by interlocking managements
for the six months ended June 30, 1995, and the years ended December 31,
1994 and 1993 . As a result, through June 30, 1995 Corcap has recognized
100% of CompuDyne's losses since the second quarter of 1989. At December
31, 1995, 1994 and 1993 Corcap held 24.7%, 35% and 40.7%, respectively,
of CompuDyne's Common Stock outstanding. Effective July 1, 1995 Corcap's
investment in CompuDyne is no longer being consolidated in the financial
statements of Corcap. The investment is carried at carried at zero due to
its past losses and is accounted for by the equity method of accounting.
On August 21 1995, Quanta Systems Corporation ("Quanta"), a wholly-owned
subsidiary of CompuDyne, transferred all of the assets and liabilities of
Quanta'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 a
royalty of 2% of Suntec's net sales and other revenues for thirty (30)
years from the date of the closing. Quanta then sold all of Suntec's
Common Stock to Norman Silberdick, who resigned on that date as
CompuDyne's Chairman, President, CEO and Director. Suntec is engaged in
the business of telemarketing home improvements in the middle Atlantic
states. As a result of the sale of Suntec, the balance sheet and
statement of operations for Corcap have been restated to reflect the
treatment of Suntec as a discontinued operation for the years ended
December 31, 1993 and 1994 and for the six months ended June 30, 1995.
Use of Estimates.
................
Certain estimates used by management are susceptible to significant
changes in the economic environment. These include estimates of
percentage-of-completion on long term contracts and valuation allowances
for contracts accounts receivable. Each of these estimates, as well as
the related amounts reported in the financial statements, are sensitive
to near-term changes in the factors used to determine them. A
significant change in any one of those factors could result in the
determination of amounts different than those reported in the financial
statements. Management believes that as of December 31, 1995, the
estimates used in the financial statements are adequate based on the
information currently available.
Inventories.
...........
Inventories are valued at the lower of cost (first-in, first-out) or
market.
Depreciation and amortization.
.............................
Plant, property and equipment are depreciated over their estimated useful
lives on the straight-line method for financial statement purposes.
Leasehold improvements are amortized on a straight-line basis over the
term of the lease or the life of the asset, whichever is shorter.
Maintenance and repair costs are charged to operations as incurred; major
renewals and betterments are capitalized.
Income taxes.
............
Effective January 1, 1993 the Company adopted 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. The adoption of SFAS 109 had no impact on operations for any
of the periods presented.
Corcap and its wholly-owned subsidiaries file a consolidated federal
income tax return. CompuDyne and its domestic subsidiaries file a
consolidated federal income tax return.
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 expense incurred.
Revenues from fixed price contracts are recognized under the percentage
of completion method. Revenues from the sale of manufactured products
are recognized based on shipment date. Provisions for estimated losses
on uncompleted contracts are recognized in the period such losses are
determined.
Net income (loss) per common share.
..................................
Net income (loss) per common share is based on the weighted average
number of common shares outstanding during the period, including the
effect of common stock equivalents and stock awards where such effect
would be dilutive.
Cash and cash equivalents.
.........................
Cash and cash equivalents include amounts invested in accounts which are
readily convertible to known amounts of cash with a maturity of three
months or less at the time of purchase. The Company invests any available
cash balance in overnight funds which are concentrated in one commercial
bank. The Company has not experienced any losses on its cash and cash
equivalents.
Reclassifications.
.................
Certain reclassifications have been made in the 1994 and 1993 financial
statements to conform to the 1995 presentation.
3. Long-term Debt
In May 1994, CompuDyne negotiated a modification to the Loan Agreement
("Clipper Agreement") Quanta had with JM Clipper Polymers Corporation
("Clipper") whereby the Company agreed to pay $1 million in full
satisfaction of its debt of $1.163 million. On May 17, 1994 CompuDyne
made a payment of $700 thousand, established six quarterly payments of
$50 thousand for the balance due and terminated its working capital line
of credit of $150 thousand with Clipper. Clipper further agreed to
surrender its warrant to purchase 100,000 shares of CompuDyne Corporation
Common Stock upon final payment of the outstanding debt which occurred in
November 1994.
In July 1994 Clipper, Corcap Eastern, Inc. ("CE") a wholly owned
subsidiary of Corcap, and Quanta entered into an agreement. Under this
agreement, CE as lessor under a lease to Clipper for property located in
Dayville, Connecticut (the "Dayville Property"), terminated the lease in
consideration for which Clipper cancelled a promissory note from CE to
Clipper in the amount of $1.774 million and released a mortgage securing
such note. The $1.774 million of debt forgiveness is included in income
from discontinued operations for 1994. As further consideration for the
termination of the lease, Clipper forgave an additional $250 thousand of
debt owing from Quanta to Clipper under the Clipper Agreement. Quanta's
indebtedness to Clipper under the Clipper Agreement had thereby been
reduced to $50 thousand, payable in five quarterly installments of $10
thousand commencing on September 30, 1994 and ending on September 30,
1995. In July 1991, the Dayville real estate and buildings were leased
to Clipper under a "triple net" lease at an annual rental of $250
thousand, with an option to renew for one additional ten-year term and an
additional option to purchase the facility for an amount equal to the
principal amount of the mortgage plus $100 thousand.
As part of the foregoing transaction and as consideration for Corcap
causing CE to terminate the lease, CompuDyne entered into an agreement
with Corcap to provide to Corcap management services and use of office
facilities and to absorb the cost of certain legal services for a period
of four years without charge to Corcap. In connection with the Lydall
settlement, Corcap agreed to limit this obligation to $1 thousand per
month for 24 months.
On October 4, 1994, Clipper, CompuDyne and Corcap entered into a letter
agreement that provided for $20 thousand of obligations by Clipper for
environmental costs associated with the Dayville property be offset
against indebtedness due Clipper from Quanta. CompuDyne in turn reduced
the amount of moneys due it from Corcap for $20 thousand and Corcap then
established a liability for the environmental costs.
On November 18, 1994, CompuDyne obtained a $350 thousand secured working
capital line of credit agreement with the Asian American Bank and Trust
Company of Boston, Massachusetts. As part of the agreement the Company paid
off the Clipper loan in full and the Clipper Warrant was
surrendered. At December 31, 1994 CompuDyne had no outstanding debt.
Corcap required, as a condition to its conversion of the Preferred Stock
to CompuDyne Common Stock and the relinquishment and waiver of accrued
dividends on the Preferred Stock, that CompuDyne issue a warrant (the
"Corcap Warrant") for 150,000 shares of CompuDyne Common Stock to Corcap.
The Exercise price of the Corcap Warrant is $.40 per share. On August
21, 1995, Corcap purchased the 150,000 shares of CompuDyne common stock
for $.40 per share in accordance with the terms of a Warrant issued by
CompuDyne to Corcap on March 10, 1993 and amended as of April 1, 1993 and
August 15, 1995. In payment of the purchase price of the Warrant Shares,
Corcap executed a promissory note for $60 thousand payable to CompuDyne
(the "Corcap Promissory Note") which is included in net non-current
liabilities of discontinued operations at December 31, 1995 in the
consolidated balance sheet. The Corcap Promissory Note bears interest on
the unpaid principal at the annual rate of eight percent (8%). Payment
of the unpaid principal of the Corcap promissory note and on all accrued
and unpaid interest thereon is due on August 21, 2000.
4. Lydall Settlement
On December 12, 1992, Lydall presented an invoice to Corcap, under the
Post-Distribution Agreement (described in Note 1), for $499 thousand
representing final taxes and interest due to the IRS as a result of an
audit of Corcap entities for the years 1983 through 1988. The $499
thousand was recorded as a liability and was included in net current
liabilities of discontinued operations in the balance sheet at December
31, 1994. In July 1994, Lydall informed Corcap that as a result of an
audit of Corcap entities for the years 1987-1989 Lydall had calculated
that Corcap's share of the current assessment was an additional $382
thousand. Lydall presented Corcap with an invoice for that amount in July
1995. As a result, Corcap recorded an additional $382 thousand liability
in 1995.
On March 25, 1996 Lydall and Corcap entered into a Settlement Agreement
(the "Settlement Agreement") pursuant to which Corcap transferred 120,000
shares of CompuDyne Common Stock, par value $.75 per share ("CompuDyne
Common Stock") to Lydall in settlement of certain claims.
Under the Settlement Agreement, each of Lydall and Corcap released all
obligations arising out of such claims by the transfer from Corcap to
Lydall of 120,000 shares of CompuDyne Common Stock. In addition, Corcap
agreed to indemnify Lydall for all liabilities Lydall may incur in
connection with its former ownership of property in Dayville, Connecticut
which Corcap sold in July 1995 and which had previously been used in
connection with Acadia's (a former subsidiary of Corcap) operations. The
Post-Distribution Agreement had obligated Corcap to indemnify Lydall for
certain environmental claims. In all other respects, the Post-
Distribution Agreement continues in effect.
As a result of this settlement, in which Corcap's carrying value of its
CompuDyne Common Stock was zero, Corcap will recognize a gain on this
settlement of debt of $881 thousand in 1996.
5. Accounts Receivable
December 31,
$ Thousands 1994
U.S. Government Contracts:
Billed $ 390
Unbilled 644
.......
Total Contracts $ 1,034
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 $125 thousand at
December 31, 1994.
Direct sales to the U.S. Federal Government for the years ended December
31, 1994 and 1993 were $9.0 million and $8.3 million, respectively, or
90% and 84% of the Company's total net sales from continuing operations
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. 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.
Substantially all of CompuDyne's government related business is with the
U.S. Department of Defense, primarily one major contract, the NISE East
contract that was awarded to Quanta in March 1992 as a one-year contract
with four one-year renewal options. The contract has been renewed
through September 30, 1996. Net sales under the NISE East contract
totaled $6.9 million in 1994. Although most of Quanta's contracts are
subject to audit, it does not believe such audits will result in any
material adjustments to the financial statements. There are no balances
for 1995 as CompuDyne is no longer consolidated in the results of Corcap.
6. CompuDyne Investment
On November 12, 1992 the CompuDyne Board authorized the issuance of
300,000 shares of Common Stock to key employees of CompuDyne and Quanta
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, 1993, 1994, 1995 and 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. The Stock Purchase Agreements further
provide that within 90 days of any Change of Control of CompuDyne, as
defined, the employees will be entitled to purchase all of the shares of
CompuDyne Common Stock not yet purchased under such Agreements by
delivering a written notice to CompuDyne. On August 1, 1993, August 1,
1994 and August 1, 1995 an aggregate of 306,250 shares of CompuDyne
Common Stock were issued to management, (the "Management Shares") in
exchange for promissory notes pursuant to the Stock Purchase Agreements.
In August 1995 as part of the agreement to acquire Suntec, Norman
Silberdick, former Chairman and President of CompuDyne, returned 60,000
shares to CompuDyne in exchange for the cancellation of the promissory
notes securing those shares thereby reducing the amount of shares issued
to 246,250. Mr. Silberdick also cancelled his right to receive 50,000
shares on August 1, 1995. The number of shares to be issued to
management was also reduced by 37,500 shares representing the amount of
shares allocable to one officer who resigned during 1994.
The remaining 56,250 shares issuable to management will be offered to
such employees over the next year in equal amounts at $.40 per share so
long as such persons are employed by the Company.
During 1993 and 1994 and 1995, Corcap sold 27,000, 40,500 and 40,500
shares respectively, of its holdings of CompuDyne Common Stock under Rule
144 of the Securities Act of 1933.
On August 31, 1993, the officers of Corcap and certain members of the
Corcap Board agreed to sell an aggregate of 66,666 shares of CompuDyne
Common Stock to Messrs. Antoine Dominic, who was then Executive Vice-
President, Chief Financial Officer and a director of Corcap and
CompuDyne, Millard Pryor, a director of Corcap and CompuDyne, and David
Clark, a director of Corcap and CompuDyne. Mr. Dominic made an informal
loan of $25 thousand to Corcap and Messrs. Pryor and Clark each made
informal loans of $12.5 thousand to Corcap with the understanding that,
subject to the approval by the Board of Directors of Corcap, such loans
would be repaid in full by the transfer by Corcap of 33,333 shares of
CompuDyne Common Stock to Mr. Dominic, 16,667 shares to Mr. Pryor and
16,666 shares to Mr. Clark. The Corcap Board subsequently approved these
actions on October 6, 1993. The shares were transferred in October 1993.
The primary reason for the sale of the shares was the necessity of
obtaining $50 thousand cash on August 31, 1993 to settle a $348 thousand
obligation owing to one of Corcap's creditors. Corcap owed $348 thousand
of accrued rent under an office lease for space it occupied at 90 State
House Square, Hartford, Connecticut when its lease ended September 30,
1993. Management of Corcap was able to negotiate a settlement of its
$348 thousand past due rent to the landlord, for $50 thousand. The terms
of the settlement required full payment of the $50 thousand by August 31,
1993. As of September 30, 1993, the expiration date of the lease,
CompuDyne's share of the unpaid rent liability on its records was $186
thousand. CompuDyne agreed to pay half of the settlement ($25 thousand)
by reducing the receivable that Corcap owes CompuDyne for expenses
unrelated to rent by $25 thousand. Since August 1992, CompuDyne had been
occupying all the space at 90 State House Square, Hartford Connecticut
and had been absorbing all the rent. Prior to August 1992, it occupied
and paid for half the space. Corcap currently leases the office space on
a month-to-month tenancy and sublets such space to CompuDyne which is
obligated to pay the entire monthly rental of $2.250 thousand.
On September 1, 1993 the Compensation and Stock Option Committee of the
Board of Directors of CompuDyne granted Antoine Dominic options (the
"Dominic Options") to purchase 91,667 shares of CompuDyne Common Stock at
a price of $.75 per share under its 1986 Stock Incentive Compensation
Plan. On December 14, 1994 Mr. Dominic resigned and subsequently did not
exercise his options which expired January 31, 1995 in accordance with
the provisions of the plan.
On August 21, 1995 CompuDyne entered into and consummated a Stock
Purchase Agreement by and among CompuDyne, Martin A. Roenigk and Alan
Markowitz (Messrs. Roenigk and Markowitz are, collectively, the
"Sellers") and MicroAssembly Systems, Inc. ("MicroAssembly"), pursuant to
which CompuDyne issued to the Sellers 1,260,460 shares of its Convertible
Preference Stock, Series D ("Preference Stock") in exchange for all of
the Sellers' shares of capital stock of MicroAssembly, which shares
represented all of MicroAssembly's issued and outstanding capital stock.
The issuance by CompuDyne of the 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". Of the 1,260,460 Shares of Preference Stock issued to the
Sellers, 945,345 shares were issued to Mr. Roenigk, and 315,115 shares
were issued to Mr. Markowitz. The Preference Stock has rights to vote on
a share for share basis with the Company's Common Stock on all corporate
issues other than the election of directors; it is also convertible to
common stock on a share for share basis at any time prior to redemption
by CompuDyne. On March 29, 1996, the holders of the Preference Stock
waived their rights to mandatory redemption by CompuDyne. For the
election of directors, each share of Preference Stock is entitled to
1/3.08 of a vote as compared to the Company's Common Stock, which is
entitled to one vote per share.
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 are 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 is converted. Of the $400 thousand principal amount
of Notes issued, $300 thousand principal amount of the Notes was issued
to Mr. Roenigk, and $100 thousand principal amount of the Notes was
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.
As a result of the above described transactions Corcap's ownership of
CompuDyne decreased from 35% of the issued and outstanding shares of
CompuDyne Common Stock at December 31, 1994 to 24.7% as of December 31,
1995. After assuming (i) the conversion of 1,260,460 shares of Series D
Preference Stock to Messrs. Martin A. Roenigk and Alan Markowitz, which
shares are convertible by the holders into 1,260,460 shares of CompuDyne
Common Stock, (ii) the conversion of $400 thousand principal amount of
Senior Convertible Promissory Notes to Messrs. Roenigk and Markowitz
which promissory notes are convertible by the holders into 266,667 shares
of CompuDyne Common Stock and, (iii) the exercise of an option to
purchase 200,000 shares of CompuDyne Common Stock issued by the Company
to Mr. Roenigk at an exercise price of $1.50 per share, all pursuant to
certain Stock Purchase Agreements by and among CompuDyne, Messrs. Roenigk
and Markowitz and MicroAssembly Systems, Inc. (the "Stock Purchase
Agreement") and (iv) a Stock Purchase Agreement, dated August 1, 1993,
between CompuDyne and three members of management whereby such persons
may purchase up to an additional 56,250 shares of CompuDyne Common Stock
on August 1, 1996 assuming certain conditions are met and (v) the
exercise of stock options for 25,000 shares of CompuDyne Common Stock
issued to an officer of CompuDyne, and (vi) the issuance of an option to
CompuDyne to purchase 16,666 shares of CompuDyne Common Stock, Corcap's
ownership will be decreased to 12% on a fully diluted basis.
The following represents summarized financial information for CompuDyne
as of and for the year ended December 31, 1995. The financial activity
of CompuDyne for the six months ended June 30, 1995 has been consolidated
in Corcap's Financial Statements as of December 31, 1995.
($ thousands)
As of December 31, 1995
.......................
Current assets $ 3,241
Long-term assets 1,792
Total Assets $ 5,033
Current liabilities $ 2,536
Long-term liabilities 1,130
Total liabilities $ 3,666
Shareholders equity $ 1,367
Year Ended December 31, 1995
............................
Net sales $ 10,308
Expenses (10,573)
Income tax benefit 55
Loss on discontinued operations ( 453)
Net Loss $( 663)
7. Investment in Fabrilock, Inc.
On July 14, 1995, Corcap entered into a purchase and sale agreement with
Fabrilock Inc., a newly formed corporation, whereby Fabrilock purchased
the Dayville Property in exchange for 20% of Fabrilock's issued and
outstanding shares and the assumption by Fabrilock the costs of the
environmental remediation of the property not to exceed $100 thousand.
Fabrilock manufactures specialty non-woven textiles. Corcap had recorded
an environmental reserve for $248 thousand in the third quarter of 1994.
According to the purchase and sale agreement, five years after the sale
of the Dayville Property, Fabrilock would have the right to repurchase
50% of Corcap's holding of Fabrilock shares for $675 thousand and Corcap
would then have the right to require Fabrilock to purchase the remaining
50% of the Fabrilock shares for $675 thousand. The purchase price for the
shares would be reduced by the amount of environmental remediation costs
incurred by Fabrilock in excess of $100 thousand. In the third quarter
of 1995 Corcap reduced its reserve for environmental remediation as the
estimated liability was expected to be below $100 thousand based upon the
environmental consultant's results.
In connection with the sale of the Dayville property, Corcap entered into
an agreement entitled 300 Lake Road Environmental Remediation Escrow Fund
Agreement ("Remediation Agreement") whereby Corcap deposited 27,000
shares of CompuDyne Common Stock to be used in part with contributions
from Fabrilock to fund the environmental remediation and clean-up of the
Dayville Property. Corcap retains all attendant rights of ownership of
such shares other than the right to transfer them during the pendency of
the clean-up process. Beginning with the calendar quarter ending
September 30, 1995 the Escrow Agent will, ten days prior to the end of
each calendar quarter, return to Corcap 4,000 shares of CompuDyne Common
Stock for the purpose of Corcap selling such shares pursuant to the
provisions of Rule 144, and Corcap is required to deposit into the escrow
fund the proceeds of such sale. Corcap is obligated to contribute
additional shares of CompuDyne Common Stock to the escrow fund, if
necessary, so that the fair market of the CompuDyne Common Stock in the
fund, based upon the average bid and asked price of such stock for the
six months prior to the determination, is not less than 75% of:(i) $70
thousand, less (ii) the cash proceeds deposited into the escrow fund by
Corcap in return for shares released by the Escrow Agent for sale by
Corcap as described above (the result of such calculation referred to as
the "Stock Adjustment Value"). If the aggregate fair market value of the
CompuDyne Common Stock in the escrow fund, determined as set forth,
should, at any six month valuation exceed 125% of the Stock Adjustment
Value, the Escrow Agent shall return sufficient shares to Corcap such
that the fair market value of the CompuDyne Common Stock in the escrow
fund shall equal the Stock Adjustment Value. Upon certification that the
environmental remediation and clean-up have been completed, the Escrow
Agent shall return to Corcap, among other things, the shares of CompuDyne
Common Stock in the escrow fund at that time.
Certain retirees of the Dayville plant had received voluntary medical and
life insurance payments from Corcap which ceased in 1991 when Corcap was
unable to continue to make these payments. The retirees retained counsel
and made a claim against the Company asserting that the Company was
liable for the medical insurance payments as well as certain life
insurance claims. The Company denied the claim that it was liable since
it made voluntary payments. In February 1996, the Company reached an
agreement with counsel and the Union for certain retirees of the Dayville
plant to transfer 22,500 shares of CompuDyne Common Stock to the Retirees
upon the signing of the settlement agreement.
A certain commercial real estate broker who was contracted by the Company
to assist in the sale of the Dayville property agreed to a negotiated fee
as a result of the Fabrilock transaction. The Company and the broker have
agreed to payment of the fee by accepting 6% of the shares (120) of
Fabrilock held by Corcap.
8. Other Contingencies
Corcap has no long term operating leases. Rent expense under operating
leases for CompuDyne for the six months ended June 30, 1995 and the years
ended December 31, 1994 and 1993 were $200 thousand, $466 thousand and
$409 thousand, respectively.
On March 10, 1986, the United States Environmental Protection Agency
("EPA") notified a subsidiary of Corcap, (then a subsidiary of Lydall)
and 34 other entities that they may be potentially responsible for
response costs under the Comprehensive Environmental Response
Compensation and Liability Act ("CERCLA") in connection with the release
of hazardous substances at a landfill located in Michigan City, Indiana
("Landfill"). On November 10, 1987, the EPA notified the subsidiary of
Corcap that it and other entities identified in the above matter also may
be potentially responsible for the EPA's response costs in connection
with a property located adjacent to the Landfill, known as the Lin-See
Property. The EPA has indicated that it intends to expand the Landfill
matter to encompass the Lin-See Property. No specific money claim has
been made to the subsidiary of Corcap by the EPA with regard to the
Landfill matter or the Lin-See Property, and the total cost of the
remediation is not yet known. The preliminary indications are that the
subsidiary's contribution to the waste volume at the Landfill, if any,
was approximately 0.286% of the total volume. Under the terms of the
Post-Distribution Agreement, Corcap and Lydall will share any loss which
may be sustained in these matters based on the ratio of the total market
value of the outstanding capital stock of each company at the time the
actual liability is determined. As of December 31, 1994, Corcap's
proportionate share of any liability would have been less than 1%.
During the third quarter of 1991, a wholly-owned subsidiary of Corcap,
Corcap Virginia Inc. (formerly Acadia Virginia, Inc.), received
notification that it may be a potential responsible party under the North
Carolina General Statutes in connection with the closure and abatement of
the Seaboard Chemical Corporation site located in Jamestown, North
Carolina. Preliminary information supplied by the North Carolina
Department of Environment, Health and Natural Resources indicates that,
during the fall of 1986 and early 1987, a subsidiary of Lydall, which was
part of its Elastomer Products Group, may have shipped approximately
.0001016% of the aggregate waste material located at the site. In
connection with the spinoff of Corcap from Lydall on July 1, 1988, Corcap
succeeded to the businesses and operations that were formerly conducted
by the Elastomer Products Group of Lydall, and Corcap agreed to indemnify
Lydall with respect to liabilities arising out of the conduct of the
elastomer products business prior to the spinoff. During the third
quarter of 1994 Corcap received a pro-rata invoice from the consulting
engineer for the site for approximately $500. In March 1996, Corcap
received a final settlement from the engineers for $5 thousand.
Corcap and its subsidiaries are 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.
9. Net Liabilities of Discontinued Operations
Remaining assets and liabilities of discontinued operations consisted of
the following items at December 31, 1995 and 1994:
$ Thousands 1995 1994
Fixed Assets, primarily land $ - $ 1,044
Investments 139 -
Net current liabilities (1,681) (1,823)
Notes payable due after one year (60) -
Deferred pension liability (344) (102)
(1,946) (881)
Less current portion (1,681 (881)
Net non-current liabilities of
discontinued operations $ 265 $ -
10. Pension Plans
Corcap contributed to two defined benefit pension plans for certain
Corcap employees. Prior to June 30, 1991, benefits for salaried
employees were based on eligible compensation and for hourly employees
were based on hours of service. Plan benefits were frozen under both
defined benefit plans effective July 1, 1991. The pension cost shown for
the year ended December 31, 1992 reflects the elimination of additional
benefit accruals after this date. As a result of the benefit freeze, the
plans experienced a "curtailment gain" as defined under Financial
Accounting Standards Statement No. 88 which resulted in a direct
reduction in pension cost for 1991.
The following items are the components of net pension cost:
For the years ended December 31,
$ Thousands 1995 1994 1993
Service cost--benefits earned
during the year $ - $ - $ -
Interest cost on projected
benefit obligation 315 308 309
Actual return on plan assets (400) (71) (411)
Net amortization and deferral 88 (245) 82
Net pension cost $ 3 $ (8) $ (20)
Plan assets include investments in bank accounts, bonds and guaranteed
insurance contracts. The actuarial computations, which use the
"projected unit credit" method and the "unit credit" method assumed a
discount rate on benefit obligations of 7.3% and an expected long-term
rate of return on plan assets of 9.0% for 1995 and a discount rate on
benefit obligations of 8.3% and an expected long-term rate of return on
plan assets of 9% for 1994. No annual compensation increase is used in
1995 as the plan is frozen.
During 1992, Corcap was unable to make the last required quarterly
payment to the Plans nor any quarterly payments during 1993 and 1994. The
required payment was not made within 8 1/2 months after the close of the
Plan year, or September 15, 1993, which caused the Plans to have an
unwaived funding deficiency with respect to the unpaid quarterly amounts,
subjecting Corcap to excise tax liability under the Internal Revenue Code
of 1986, as amended, of at least 10% of the funding deficiency. On March
21, 1995 Corcap filed an application with the Internal Revenue Service
requesting a waiver of the minimum funding standard.
On September 15, 1995 Corcap contributed 224,000 shares of CompuDyne
Common Stock to satisfy Corcap's minimum funding obligations for the
1992, 1993 and 1994 Plan Years of its employee pension plans: Plan 1A
and Plan 6B under Section 412 of the Internal Revenue Code of 1996, as
amended (the "Code"). The Constituent Plans comprise, and are
administered through, a single trust: the Corcap, Inc. Pooled Pension
Investment Trust (the "Trust"). Corcap contributed 143,600 shares of
CompuDyne Common Stock to Plan 1A and 80,400 shares of CompuDyne Common
Stock to Plan 6B. The making of such contributions in property may
constitute a "prohibited transaction" within the meaning of section 4975
of the Code and Section 406 of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"). Corcap filed an application with the
Department of Labor ("DoL") seeking Prohibited Transaction Exemptions
with respect to the transfer of the Shares of Common Stock to each of the
respective Constituent Plans. The contribution of the shares was made
contingent upon said exemption being granted. On January 25, 1996 the
DoL informed the Company that the application was denied. A further
conversation with the DoL reopened the application and with the
submission of additional supporting information, it is now expected to be
approved. In the event that DoL does not grant relief sought under the
application for the Prohibited Transaction Exemption, the Trustee of the
Constituent Plans will promptly return the shares to Corcap. The
agreement of the PBGC to settle the pension plans' underfunding liability
will include the additional 224,000 CompuDyne shares if the DoL does not
approve the application.
In March 1996, in anticipation of termination of the Corcap Pension Plan
1A and the Corcap Pension Plan 6B (collectively the "Plans"), the PBGC
and Corcap reached a preliminary agreement whereby the PBGC agreed to
accept an additional 188,660 shares of CompuDyne Common Stock in
satisfaction of the Plans' underfunding liabilities to the PBGC. The
agreement is subject to final documentation and signature, which is
expected to be completed during April, 1996.
In January 1996 the Internal Revenue Service ("IRS") sent the Company a
penalty for its failure to make timely payments to the Constituent Plans
in the amount of $52 thousand. The Company is attempting to negotiate a
waiver of the penalty with the IRS as part of the assumption of the
Constituent Plans by the PBGC.
The following table presents a reconciliation of the funded status of the
plans:
December 31,
$ Thousands 1995 1994
Actuarial present value of benefit obligations:
Vested $4,368 $3,954
Non-vested - -
Accumulated benefit obligation 4,368 3,954
Additional benefits related to assumed
future compensation levels - -
Projected benefit obligations 4,368 3,954
Plan assets at fair market value 3,836 3,311
Projected benefit obligations in
excess of plan assets (532) (643)
Unrecognized net assets (312) (365)
Unrecognized net losses 1,200 919
Additional minimum liability (888) (554)
Accrued pension cost included in net
discontinued operations liability $ (532) $ (643)
Kolux Pension Plan
..................
In March 1987, CompuDyne ceased its Kolux plant operations resulting in a
curtailment of the defined benefit pension plan covering certain plant
employees. As of December 31, 1994, the actuarial present value of
accumulated plan benefits was estimated to be $761 thousand, based upon a
8% interest rate assumption; the 1984 Unisex Mortality table with a five
year age setback for females; and the February 28, 1994 (latest actuarial
valuation) employee database projected forward to December 31, 1994. All
benefits under the plan are fully vested. The projected market value of
plan assets as of December 31, 1994 was $432 thousand. Accordingly, the
plan's unfunded accrued liability as of December 31, 1994 of $329
thousand has been reflected in the balance sheet as accrued pension costs
in net current liabilities of discontinued operations.
11. Restricted Stock Awards and Stock Options
Awards under Corcap's Stock Incentive Compensation Plan may be made in
the form of restricted stock awards, stock options, or stock bonus
awards. Restricted stock awards are grants of a specific number of shares
of Corcap Common Stock to key employees if they continue to work for the
Company for a certain number of years. Stock options enable key
employees to purchase a specified number of shares of Common Stock at
some future date at the market value on the date of grant. Stock bonus
awards are grants of a specific number of shares of Corcap Common Stock
having no restrictions. These awards are made to employees in
recognition of extraordinary accomplishments. In June 1993, the Board of
Directors terminated the 1988 Stock Incentive Compensation Plan. The
termination of the Plan did not affect any awards or grants of options
under the Plan all of which shall continue in force in accordance with
their terms.
At December 31, 1995, all of the outstanding options for 2,500 shares of
Corcap stock were exercisable under the terms of the Plan.
On August 21, 1995 in connection with Mr. Roenigk's sale of MicroAssembly
to CompuDyne, Corcap issued to him options to purchase up to 450,000
shares of the Company's Common Stock for $.15 per share. The options are
divided into two tranches, one of 300,000 shares and the other of 150,000
shares. The option for the 300,000 shares shall expire on August 20, 1996
("Option I"). Exercise of the options for the entire 300,000 shares
available under and in accordance with the terms of Option I is a
precondition to the availability of the options for the remaining 150,000
shares, which remaining options expire on August 20, 2005. On March 25,
1996, the Board of Directors approved a resolution to reduce the option
price per share to $.01.
12. Deferred Compensation
In connection with various acquisitions, Corcap assumed obligations to
pay deferred compensation to certain former employees. Estimates of the
net present value of such future benefits are recorded as current
liabilities of discontinued operations in the amount of $314 thousand.
Concurrent with the execution of the Settlement Agreement with Lydall
dated March 25, 1996 (See Note 4), Corcap and certain directors and
former officers of Corcap, Messrs. Millard H. Pryor, Jr. and David W.
Clark, Jr. entered into an agreement whereby Messrs. Pryor and Clark
agreed to forgive an accrued obligation for compensation in the amount of
$314 thousand. The forgiveness of this obligation will be reflected as
additional capital contributions in the first quarter of 1996.
CompuDyne maintains a 401(k) Retirement Savings Plan in which all
employees are eligible to participate 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 matches employee contributions up to the first 2%
contributed. CompuDyne's contribution amounted to $45 thousand and $49
thousand for the years ended December 31, 1994, and 1993, respectively.
13. Income Taxes
Due to significant pretax and tax losses since the formation of Corcap,
Corcap is not subject to federal taxation. State taxes of approximately
$0 thousand, $5 thousand and $5 thousand were incurred during 1995, 1994
and 1993, respectively.
The tax effects of the primary temporary differences giving rise to the
Company's deferred tax asset at December 31, 1995 and December 31, 1994
are summarized as follows:
December 31, December 31
1995 1994
Tax depreciation in excess of book $ 0 $ (242)
Accrued expenses and deferred
compensation 0 260
Tax operating loss carryforward 3,113 2,818
3,113 2,836
Valuation allowance (3,113) (2,836)
$ - $ -
Corcap's net operating loss carryforwards as of December 31, 1995 are
$9.7 million. If not utilized, these losses will expire between during
the years 2004 to 2009. Due to the significant change in the ownership
of the Company, the utilization of the aforementioned loss carryforwards
could be substantially limited. The Company also has carryforwards
available for alternative minimum tax purposes which do not differ
significantly from regular net operating loss carryforwards.
14. Industry Segment Information
Through June 30, 1995, the Company operated in two business segments:
engineering and security services and the manufacture of telemetry and
telecommunications equipment. During the six months ended June 30, 1995
and the years ended December 31, 1994, and 1993, sales to the U.S.
Federal Government amounted to 86%, 90% and 84%, respectively, of the
Company's total net sales. No other single customer accounted for
greater than 10% of the Company's net sales.
Revenues and related costs from government services during the three
years ended December 31, 1994 and 1993 and the six months ended June 30,
1995 are detailed below:
($ Thousands) December 31, 1995 December 31, 1994 December 31, 1993
Revenues $ 4,293 $ 8,691 $ 8,128
Cost of Services 3,729 7,326 6,840
Gross Profit 564 1,365 1,288
Operating Profit 268 794 617
Total Assets 1,458 702 596
Depreciation - 10 26
Capital Expenditures - - -
Revenues and related costs from telemetry and telecommunications products
during the three years ended December 31, 1995, 1994 and 1993 are
detailed below:
($ Thousands) December 31, 1995 December 31, 1994 December 31, 1993
Revenues $ 322 $ 1,008 $ 1,443
Cost of Services 264 787 847
Gross Profit 58 221 596
Operating Profit (73) (15) 75
Total Assets 789 688 534
Depreciation - 887 10
Capital Expenditures - - -
There were no revenues from Corporate activities. Costs related to
corporate activities for the three years ended December 31, 1995, 1994
and 1993 are detailed below:
($ Thousands) December 31, 1995 December 31, 1994 December 31, 1993
Operating loss $ (69) $ (385) $ (413)
Total Assets - 392 584
Depreciation - - -
Capital Expenditures - - -
15. Recently Issued Accounting Standard
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation." The new standard defines a fair value method
of accounting for stock-based employee compensation plans. Under this
method, compensation costs is measured based on the fair value of the
stock award when granted and is recognized as an expense over the service
period, which is usually the vesting period. This standard will be
effective for the Company beginning in 1996 and requires measurement of
awards made beginning in 1995.
The new standard permits companies to continue to account for equity
transactions with employees under existing accounting rules, but requires
disclosure in a note to the financial statements of the pro forma net
income and earnings per share as if the company had applied the new
method of accounting. The Company intends to implement these disclosure
requirements beginning 1996. Adoption of the new standard will not
impact reported net income or cash flows.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Corcap, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Corcap, Inc.
By /s/ I. Elaine Chen, April 15, 1996
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
Corcap, Inc. and in the capacities and on the dates indicated.
/s/David W. Clark, Jr. April 15, 1996 s/sJohn E. Sundman April 15, 1996
David W. Clark, Jr. Date John E. Sundman Date
Director Director
/s/ Martin A. Roenigk April 15, 1996 s/sMillard H. Pryor, Jr. April 15,1996
Martin A. Roenigk Date Millard H. Pryor, Jr. Date
Director Director
<PAGE>
CORCAP, INC.
INDEX TO EXHIBITS
22.1 List of subsidiaries of the registrant and states of incorporation
is filed herewith.
28.1 Annual Report on Form 10-K of CompuDyne Corporation for the fiscal
year ended December 31, 1995.
28.2 Settlement Agreement with Lydall, Inc. and Corcap, Inc.
28.3 Settlement Agreement with the Pension Benefit Guaranty Corporation.
28.4 Option Agreement between Corcap and CompuDyne dated March 25, 1996
EXHIBIT 22
SUBSIDIARIES OF THE REGISTRANT
Percentage
of voting
securities
Incorporated owned by
under the immediate
Name laws of Parent parent
Corcap, Inc. Nevada Registrant
Corcap Polymers, Inc. Nevada Corcap, Inc. 100% Corcap
Corcap Eastern, Inc. Nevada Corcap, Inc. 100% Corcap Polymers
Corcap Central, Inc. Indiana Corcap, Inc. 100% Corcap Polymers
Corcap Virginia, Inc. Delaware Corcap, Inc. 100% Corcap Polymers
Corcap Irongate, Inc. Delaware Corcap, Inc. 100% Corcap Virginia
Nacol, Inc. Connecticut Corcap, Inc. 100% Corcap
Corcap Midwest, Inc. Indiana Nacol, Inc. 100% Nacol
Note: All subsidiaries of the Registrant as of December 31, 1992, are
included in the consolidated financial statements of the Registrant.
Effective July 31, 1991 the names of the subsidiaries of the Registrant
were changed to comply with the purchase agreement dated July 1, 1991
between JM Clipper and the Registrant.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 1681
<BONDS> 0
<COMMON> 3
0
0
<OTHER-SE> 25302
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 4615
<TOTAL-REVENUES> 4615
<CGS> 3993
<TOTAL-COSTS> 4489
<OTHER-EXPENSES> 12
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 104
<INCOME-TAX> 0
<INCOME-CONTINUING> 104
<DISCONTINUED> (924)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (820)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
................................................
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
.........................................
Commission File Number 1-4245
CompuDyne Corporation
.............................................
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1408659
................................. ............
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
120 Union Street, Willimantic, Connecticut 06226
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (860)456-4187
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock $.75 par value Over-The-Counter
............................ ....................
Securities registered pursuant to section 12(g) of the Act:
None
.........................................
(Title of class)
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.......
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not
contained herein, and will not be contained to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-
K. [X].
The aggregate market value of the voting stock held by nonaffiliates of
the Registrant was $3.1 million as of March 25, 1996 (based upon the
average of the bid and asked prices on the over-the-counter market for
CompuDyne common stock on March 25, 1996 which was $1.69 per share, as
quoted on the OTC Bulletin Board (see ITEM 5.).
As of March 25, 1996, a total of 1,807,832 shares of Common Stock, $.75
par value, were outstanding.
Documents incorporated by reference: Portions of the Proxy Statement
relating to the 1995 Annual Meeting of Shareholders are incorporated in
Part III.
PART I
ITEM 1. BUSINESS
Current Developments
....................
On August 21, 1995, CompuDyne Corporation ("CompuDyne" or "the Company")
entered into and consummated a Stock Purchase Agreement by and among it,
Martin A. Roenigk and Alan Markowitz (Messrs. Roenigk and Markowitz are,
collectively,the "Sellers") and MicroAssembly Systems, Inc.
("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 Sellers' shares of capital
stock of MicroAssembly, which shares represented all of MicroAssembly's
issued and outstanding capital stock. 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". 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.
The Series D Preference Stock has rights to vote on a share for share
basis with the Company's Common Stock on all corporate issues other than
the election of directors; it is also convertible to Common Stock on a
share for share basis at any time prior to redemption by the Company.
For the election of directors, each share of Series D Preference Stock is
entitled to 1/3.08 of a vote as compared to the Company's Common Stock,
which is entitled to one vote per share. Pursuant to the terms of the
Series D Preference Stock, each share of Preference Stock will be
entitled to one vote per share with respect to the election of directors,
effective as of August 1, 1996, unless the Board of Directors of the
Company, in its sole and absolute discretion, approves a resolution prior
to such date prohibiting such change in voting rights, in which case each
share of Preference Stock will continue to have 1/3.08 vote per share.
In the event the Board of Directors of the Company approves such a
resolution, on May 1 of each subsequent year, each share of Preference
Stock will have one vote.
As a result of the Transaction, MicroAssembly is a wholly-owned
subsidiary of CompuDyne. For a description of the business of
MicroAssembly, see "Description of Business" below.
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 are 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 is converted. Of the $400 thousand principal amount
of Notes issued, $300 thousand principal amount of the Notes was issued
to Mr. Roenigk, and $100 thousand principal amount of the Notes was
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.
As a further part of the Transaction, Norman Silberdick, the Company's
Chairman, President and Chief Executive Officer, resigned as such and as
a director of the Company effective as of August 21, 1995. 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 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.
Immediately prior to the Transaction, but after the exercise by Corcap,
Inc. ("Corcap") of a warrant to acquire 150,000 shares of CompuDyne
Common Stock, Corcap held 670,881 shares of CompuDyne's voting shares, or
approximately 37.1% of CompuDyne's 1,807,832 issued and outstanding
shares of Common Stock.
On September 15, 1995, Corcap contributed to the Corcap, Inc. Pooled
Pension Investment Trust, Plans 1A and 6B, 224,000 shares of CompuDyne
Common Stock to satisfy its unpaid pension contributions for the years
1992, 1993, and 1994.
On June 3, 1993, the Corcap Board of Directors authorized the sale of
shares of its holdings of CompuDyne Common Stock under Rule 144. In 1993
pursuant to such rule, Corcap sold 27,000 shares of CompuDyne Common
Stock, 40,500 shares in 1994 and 40,500 shares in 1995.
After the transactions described above, Corcap's ownership of CompuDyne
Common Stock decreased from 35% of the issued and outstanding shares of
CompuDyne Common Stock as of December 31, 1994 to 24.7% as of December
31, 1995. After assuming (i) the conversion of 1,260,460 shares of Series
D Preference Stock to Messrs. Martin A. Roenigk and Alan Markowitz, which
shares are convertible by the holders into 1,260,460 shares of CompuDyne
Common Stock, (ii) the conversion of $400 thousand principal amount of
Senior Convertible Promissory Notes to Messrs. Roenigk and Markowitz
which promissory notes are convertible by the holders into 266,667 shares
of CompuDyne Common Stock and, (iii) the exercise of an option to
purchase 200,000 shares of CompuDyne Common Stock issued by the Company
to Mr. Roenigk at an exercise price of $1.50 per share as part of the
transaction, and (iv) the purchase of an additional 56,250 shares of
CompuDyne Common Stock on August 1, 1996 by certain members of CompuDyne
management pursuant to a Stock Purchase Agreement dated August 1, 1993,
between CompuDyne and such members of management, assuming certain
conditions are met and (v) the exercise of stock options for 25,000
shares of CompuDyne Common Stock issued to an officer of the Company,
Corcap's ownership will be decreased to 12.4% on a fully diluted basis.
Prior to the Transaction, the Sellers held no voting shares of CompuDyne,
although Mr. Roenigk held 70,000 shares of Corcap Common Stock, which is
approximately 2.4% of Corcap's voting shares. At December 31, 1995, the
Sellers held 1,260,460 shares of CompuDyne's voting stock (including the
Series D Preference Stock), or approximately 41.1% of the voting power of
issued and outstanding shares for all issues other than the election of
directors and 18.5% of the voting power of issued and outstanding shares
for the election of directors. Assuming conversion by the Sellers of all
of the shares of Series D Preference Stock, the conversion of the full
principal amount of the Notes and the exercise by Mr. Roenigk of his
options to purchase 200,000 shares of the Company's Common Stock, the
Sellers would hold 1,727,127 shares of the Company's voting stock, or
approximately 47.8% of the Company's voting stock on a fully diluted
basis. In addition, in connection with the Transaction, Mr. Roenigk
became a director of Corcap and was issued options to purchase 450,000
additional shares of Corcap Common Stock which, if exercised, would,
together with Mr. Roenigk's prior holdings, result in his holding
approximately 15.4% of Corcap's Common Stock.
The Sellers have, in their filing with the Securities and Exchange
Commission pursuant to Section 13(d) of the Securities and Exchange Act
of 1934, disclaimed any arrangements or understandings among themselves
or their associates with respect to the future election of the Company's
directors or other matters in connection with the operation and
management of the Company. Upon consummation of the transaction, in
addition to Mr. Roenigk, CompuDyne's executive officers are,
respectively, Philip M. Blackmon, Vice President, and Elaine Chen,
Treasurer and Chief Financial Officer.
Each of the 1,260,460 shares of Series D Preference Stock issued to the
Sellers as consideration for MicroAssembly carries 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 may be
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, or closing bid prices, of CompuDyne's Common Stock for the
prior thirty (30) trading days.
Beginning on August 21 in the year 2000, the Company may, at its option,
redeem 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.
On August 21, 1995, Quanta Systems Corporation ("Quanta" or "Quanta
Systems"), a wholly-owned subsidiary of CompuDyne, transferred all of the
assets and liabilities of Quanta'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 a royalty of 2% of Suntec's net sales and
other revenues for thirty (30) years from the date of the closing.
Quanta then sold all of Suntec's Common Stock to Norman Silberdick, who
resigned on that date as CompuDyne's Chairman, President, CEO and
Director. Suntec is engaged in the business of telemarketing home
improvements in the middle Atlantic states.
As consideration for the shares of Suntec, Mr. Silberdick executed a
nonrecourse promissory note in the initial principal amount of $79,000
(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 of the Silberdick Note is 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.
As a condition precedent to the sale of the Suntec shares to Mr.
Silberdick, he turned in to CompuDyne 60,000 shares of CompuDyne Common
Stock and relinquished purchase rights held by him to acquire an
additional 50,000 shares of CompuDyne Common Stock.
The amount of consideration determined by Quanta to be appropriate for
the sale of the Suntec Common Stock to Mr. Silberdick resulted from a
number of factors. While a division of Quanta, Suntec's business had
never produced a profit. As a result, and in light of Quanta's retention
of the 2% royalty on Suntec's net sales and other revenues for 30 years,
Quanta decided that the business should be valued at its net book value
at the closing date. The amount of the Silberdick Note was, at the
closing date, based upon Suntec's net book value at June 30, 1995 and was
subject to adjustment to its net book value based upon a closing date
balance sheet to be completed on or before September 20, 1995. A
subsequent review of the financial statements as of August 21, 1995
indicated that there was no equity in the assets transferred to Suntec
and Mr. Silberdick thereafter purchased the shares of Suntec for $100.
As part of the transaction, Quanta 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 a result of the sale of Suntec, the balance sheet and statement of
operations for CompuDyne have been restated to reflect the treatment of
Suntec as a discontinued operation for the years 1993-1995.
As a result of the acquisition of MicroAssembly, the corporate offices of
CompuDyne were moved to MicroAssembly at 120 Union Street, Willimantic,
Connecticut in December 1995. All corporate office and overhead costs are
allocated in 1995.
In December 1995, CompuDyne Corporation ("CompuDyne" or the "Company")
issued 58,210 shares of CompuDyne Common Stock, par value $.75 per share
(the "Common Stock"), under the 1986 Stock Incentive Compensation Plan to
certain employees as partial payment of accrued bonuses for 1994, the
balance of which was paid in cash.
During 1995, CompuDyne incurred a net loss of $663 thousand. An
important part of CompuDyne revenues and future results are dependent
upon the Navy renewing the NISE East and Teton Contracts under similar
terms and conditions as it had previously (See "General Information"),
and Quanta's ability to improve the present level of sales and profits of
its Data Control Systems division (See "Results of Operations-1995
compared with 1994"), generate positive cash flows, realize the projected
sales and profits of its MicroAssembly subsidiary, reduce the level of
existing payables and other obligations, and collect receivables in a
timely manner.
Description of Business
.......................
CompuDyne, a Pennsylvania corporation, incorporated on December 8, 1952,
operates in three industry segments through its wholly owned subsidiaries
Quanta Systems Corporation and MicroAssembly.
Quanta Systems is an engineering services firm providing turn-key design,
fabrication, installation, training, maintenance, documentation, and
systems integration services to government and industry. Quanta
specializes in physical security applications, i.e., systems integration
of CCTV, access control and intrusion detection. The Company also
provides Original Equipment Manufacturing (OEM)and worldwide Quick
Reaction Capability (QRC) to respond to the urgent/emergent and unique
requirements of customers' with critical missions. Quanta is currently
providing these services to the Naval In-Service Engineering Center (NISE
East), the Naval Facilities Engineering Services Center, the National
Security Agency (NSA), the Federal Bureau of Investigation (FBI), the
Naval Criminal Investigative Services, the Defense Mapping Agency, the
Space and Naval Warfare Systems Command, the Aberdeen Proving Grounds,
the Defense Courier Service, the Social Security Administration, the
Montgomery County Government (Maryland), and Mitel Corporation.
Data Control Systems ("DCS"), a division of Quanta, manufactures
telemetry, satellite command and control systems, RF 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. In 1994
DCS began marketing its Automatic Power Controller ("APC") which
automatically compensates for signal fade during periods of inclement
weather for satellite uplink stations using Ku band transmissions.
Refinement of the APC continued in 1995 and a full marketing rollout is
underway in early 1996. DCS is also completing its QPSK model 7500
satellite test modem. To date DCS has received orders for ten 7500's and
shipped five. Most of the research and development spending in 1995
related to the 7500, which is an extremely sophisticated satellite
transmissions test modem. The 7500 incorporates advanced technology
which is expected to result in related product derivatives in the
telecommunications and telemetry market. Orders to date for the 7500 are
believed to be primarily for review and testing purposes. The market for
the 7500 itself is mainly with U.S. and foreign governments.
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. MicroAssembly operates out of owned facilities, utilizing
automatic screw machines to manufacture the Stick-Screws. MicroAssembly
also assembles the specially designed pneumatic drivers for inserting the
screws. Micro Assembly has recently developed drill press and drill stand
based models of the driver, one of which is electric and will permit
sales in "clean room" environments. MicroAssembly is in the process of
developing a hand operated Stick-Screw driver which will facilitate
customer rework and maintenance. Sales are primarily in the United States
via a network of independent sale representatives, with modest sales in
Europe and South America. The largest customer accounted for 14.5% of
MicroAssembly volume in 1995 during the period that was owned by
CompuDyne
See Note 11. "Industry Segment Information" to the Consolidated Financial
Statements of CompuDyne for more information about the results of
operations from the three industry segments.
General Information
...................
Quanta Systems and DCS purchase most of the parts and raw materials used
in their products from various suppliers. The primary raw materials used
in the manufacturing of Quanta's products are electronic components.
MicroAssembly's products are purchased from either distributors or
manufacturers of metal products. While the bulk of such raw material is
purchased from relatively few sources of supply, the Company believes
that alternative sources are readily available.
There is no significant seasonality in CompuDyne's business.
The backlog of orders as of December 31, 1995 of $6.0 million, which
excludes MicroAssembly, was lower than 1994 levels of $6.5 million. The
decrease in the backlog is primarily due to the completion of the final
option year for the NISE East contract in September 1996. Quanta had a
$5.023 million backlog and DCS had a backlog of $986 thousand.
MicroAssembly had a backlog of $500 thousand. It is expected that all
orders included in the current backlog will be filled by the end of 1996.
During the year ended December 31, 1995, direct sales to the U.S. Federal
Government amounted to $8.9 million or 86% of the Company's total net
sales from continuing operations, compared with $9.0 million and $8.3
million in fiscal years 1994 and 1993, respectively, or 90% and 84% of
the Company's total net sales from continuing operations for the same
years. No other single customer accounted for greater than 10% of the
Company's net sales.
Substantially all of the Company's government related business is with
the U.S. Department of Defense. Within the Department of Defense there
are various agencies which are customers of the Company, with the largest
being the U.S. Navy. At December 31, 1995, the Company had two major
multi-year contracts, the NISE East Contract and Teton, with the U.S.
Government which accounted for revenue of $7.0 million in 1995. On March
31, 1992, Quanta was awarded the NISE East Contract which is a one year
contract with four one year renewal options. NISE East has renewed the
contract for the fiscal year ended September 30, 1996. The Teton Contract
was awarded in September 1995 and is valued up to $9.4 million over five
years. The contract is a one year contract with four renewal options. If
NISE East and Teton do not continue to renew their contracts, or if the
terms and conditions of such contract are substantially modified, Quanta
will be required to modify its operations accordingly. Although most of
Quanta's contracts are subject to government audit, management of the
Company does not believe such audits will result in any material
adjustments to the financial statements.
The Company is subject to intense competition from numerous companies
which sell both on a national and regional level, as well as in
international markets. Many of these competitors are substantially larger
than the Company. Also, there have been significant international
political changes which could have a major impact on the market for
Quanta's products. During the last several years dramatic changes have
taken place throughout the world which have had, and will continue to
have, an impact on future U.S. Defense spending. In addition, current
budget constraints have affected the overall U.S. economy which have
impacted Quanta's operations. The Company has significant sales to
various organizations involved in the country's security and intelligence
efforts. The Company has intensified its efforts to market to other
agencies of the government to counteract the projected decline in defense
spending. The company believes that overall U.S. expenditures for
physical security installations will continue to out pace the general
economy.
The Company is currently undertaking research and development activities
to expand and improve its product lines. Research and development
expenditures were $359 thousand during the fiscal year ended December 31,
1995 compared with $66 thousand and $113 thousand during 1994 and 1993,
respectively. Current year expenditures were made solely by DCS to
complete the design and efficacy of its APC and QPSK product lines. The
Company also engages in reimbursed research and development.
At December 31, 1995, the Company had 118 full-time employees. None of
the employees is subject to collective bargaining agreements.
Financial Information About Foreign and Domestic Operations
...........................................................
Export sales for the Company were $125 thousand, $30 thousand and $2
thousand, for the years ended December 31, 1995, 1994 and 1993,
respectively.
ITEM 2. PROPERTIES
The following table sets forth the main facilities of the Company's
operations:
<TABLE>
<CAPTION>
Approximate
Primary Owned or Square Feet
Location Purpose Leased(1) of Space
<S> <C> <C> <C>
CORPORATE OFFICE
Willimantic, Connecticut Administrative Owned 2,900
DEFENSE & ELECTRONICS
Gaithersburg, Maryland Engineering Leased 14,690
Gaithersburg, Maryland Manufacturing Leased 8,000
Gaithersburg, Maryland Warehouse Leased 1,500
MICROASSEMBLY
Willimantic, Connecticut Manufacturing Owned 7,000
</TABLE>
(1) See Note 8 to the Consolidated Financial Statements for additional
information relating to lease expense and commitments.
Quanta leases three buildings in Gaithersburg, Maryland. One building is
used by Data Control Systems products group which manufactures telemetry,
satellite and telecommunications equipment. The second building is used
by its services group, which provides engineering services and
administrative staff. Quanta leases a third building in Gaithersburg
which it subleases to Suntec Service Corporation and also uses for
storage. The Company leases only those properties necessary to conduct
its business and does not invest in real estate or interests in real
estate on a speculative basis. The Company believes its properties are
suitable and adequate for its current operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is party to certain legal actions and inquiries for
environmental and other matters resulting from the normal course of
business. Although the total amount of liability with respect to these
matters cannot be ascertained, management of the Company believes that
any resulting liability should not have a material effect on its
financial position or results of future operations.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR COMPUDYNE COMMON STOCK
AND RELATED SHAREHOLDER MATTERS
CompuDyne Common Stock is traded in the over-the-counter market, and in
January 1993 began being quoted on the OTC Bulletin Board, an inter-
dealer quotation medium maintained by the National Association of
Securities Dealers, Inc., under the symbol "CDCY". There were 2011
common shareholders of record as of February 21, 1996.
The following table sets forth the high and low bids for CompuDyne Common
Stock from March 31, 1994 to December 31, 1995 on the over-the-counter
market, as quoted on the OTC Bulletin Board. Over-the-counter market
quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commissions and may not necessarily reflect actual transactions.
Quarter Ended High Low
.........................................................................
March 31, 1995 $ 1 3/8 $ 1 1/4
June 30, 1995 2 1/4 1 1/2
September 30, 1995 2 1/4 1 1/2
December 31, 1995 1 3/4 1
High Low
March 31, 1994 $ 2 3/4 $ 1
June 30, 1994 2 1/4 1 1/2
September 30, 1994 3 1 1/2
December 31, 1994 3 2 1/2
The Company has not paid any dividends on its Common Stock during the
past three fiscal years, and its Board of Directors has no intention of
declaring a dividend in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following is a consolidated summary of operations of CompuDyne and
its subsidiaries for the years ended December 31, 1995, 1994, 1993, 1992
and 1991. The information in the table below is based upon the audited
consolidated financial statements of CompuDyne and its subsidiaries for
the years indicated appearing elsewhere in this annual report and in
prior annual reports on Form 10-K filed by the Company with the SEC, and
should be read in conjunction therewith and the notes thereto.
(In thousands except per share data):
<TABLE>
For the years ended December 31,
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net sales $10,308 $ 9,699 $ 9,571 $ 9,330 $10,762
Gross margin $ 1,516 $ 1,586 $ 1,884 $ 1,746 $ 2,255
Interest expense, net of interest
income $ 22 $ (7) $ 111 $ 112 $ 58
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA (continued)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Income (loss) from
continuing operations
before extraordinary
items $ (210) $ 2,065 $ 253 $ 122 $ 862
Loss from discontinued
operations (453) (860) (211) - (174)
Extraordinary items
(Note a) - 523 161 79 2,418
Net income (loss) $ (663) $ 1,728 $ 203 $ 201 $ 3,106
Total shareholders equity
(deficit) $ 1,367 - $(1,736) $(1,939) $(2,140)
Average common shares and
equivalents outstanding
assuming full
dilution 1,657 1,748 1,686 1,353 1,366
Income (loss) per common
share assuming full dilution (Note b):
Continuing operations
before extraordinary
items$ (.13) $ 1.18 $ .15 $ .09 $.63
Discontinued operations (.27) (.49) (.13) - (.13)
Extraordinary items - .30 .10 .06 1.77
Net income (loss) $ (.40) $ .99 $ .12 $ .15 $ 2.27
Dividends on preferred
stocks $ - $ - $ - $ - $ 635
Total assets 5,033 $ 2,114 $ 1,993 $ 2,652 $ 3,165
Long-term debt, net $ 470 $ - $ 1,050 $ 1,201 $ 1,306
</TABLE>
Notes:
(a) The extraordinary items are a debt forgiveness in 1991, utilization of
net operating loss carryforwards in 1992, a rent settlement in 1993 and debt
forgiveness in 1994.
(b) For the year ended December 31, 1995, the conversions of Common Stock
equivalents into common shares would result in net (loss) per share amounts
which are anti-dilutive and are therefore not included as common equivalent
shares. Income per common share was determined by dividing net income (loss),
after deduction of dividend requirements on the CompuDyne Preference Stock,
by the weighted average number of common shares. For the year ended December
31, 1991, net income per common share assumes the conversion of Preferred
Stock into Common Stock. Accordingly, net income is not reduced for the
related preferred dividend requirement. In November 1992, the Preferred Stock
was converted to Common Stock. In August 1995, CompuDyne issued a new series
of Preference Stock. There was no dividend requirement on the preference
shares for 1995 due to the effect of purchase accounting on MicroAssembly's
results.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition
...................
During 1995, CompuDyne's net worth increased $1.367 million from a $-0- net
worth at December 31, 1994. Debt outstanding was $749 thousand as of
December 31, 1995, compared to $-0- at December 31, 1994. Working capital was
$705 thousand at December 31, 1995 compared to $410 thousand at December 31,
1994. The $295 thousand working capital improvement is mainly attributable to
the effect of the purchase of MicroAssembly, whereby working capital was
decreased by the increase in fixed assets $531 thousand, and intangible
assets and goodwill $1.144 million offset by the issuance of notes to related
parties $490 thousand, the issuance of preferred stock $1.891 million and the
assumption of a deferred tax liability of $252 thousand resulting in an
overall effect of an increase in working capital by $968 thousand. Other
items affecting working capital was the writeoff of the loan to Suntec for
$50 thousand and the loss for the year of $663 thousand.
During 1995, CompuDyne incurred a net loss of $663 thousand. An important
part of CompuDyne revenues are dependent upon the Navy renewing the NISE East
and Teton Contracts under similar terms and conditions as it had previously
(See "General Information"), and Quanta's ability to improve the present
level of sales and profits of its Data Control Systems division (See "Results
of Operations-1995 compared with 1994"), generate positive cash flows,
realize the projected sales and profits of its MicroAssembly subsidiary,
reduce the level of existing payables and other obligations, and collect
receivables in a timely manner.
Results of Operations - 1995 compared with 1994
...............................................
The loss from continuing operations of $210 thousand in 1995 compares with
income from continuing operations before extraordinary items of $2.065
million in 1994. The decrease in income from continuing operations of $2.275
million was primarily due to the receipt in 1994 of net insurance proceeds of
$1.389 million from the death of Frank Kelley after payment of deferred
compensation payments to nine former executives of the Company, the non-
recurring effect of accrual reversals of $263 thousand in 1994, a comparative
higher loss at DCS of $434 thousand in 1995 due to $359 thousand of research
and development costs, a loss at MicroAssembly in 1995 of $34 thousand due to
$91 thousand of purchase accounting adjustment changes and lower profits in
1995 at Quanta by $216 thousand offset by lower corporate costs.
CompuDyne's net sales, which increased from $9.7 million in 1994 to $10.3
million in 1995, a 6% increase, were comprised of service revenue, telemetry
and data acquisition product sales at Quanta and Stick-Screw products at
MicroAssembly. Quanta's service revenue in 1995 was $8.9 million, $100
thousand more than 1994. The increase in service revenue was attributable to
increases in task spending on government contracts. Service revenue
represented 86% of 1995 revenues compared to 90% of 1994 revenues.
Quanta's product sales at its Data Control Systems division of $863 thousand
was $144 thousand lower than 1994 as a result of a delay in delivering its
new QPSK high-speed satellite test modem and APC. The Company has received
several orders for its new QPSK but experienced development delays for this
highly sophisticated instrument resulting in increased research and
development spending and delivery delays. DCS finished the year with a
backlog of $986 thousand.
MicroAssembly's results were only for the period of August 21 (date of
acquisition) to December 1995. Earnings were decreased by $91 thousand in
purchase accounting effects. During the five month period MicroAssembly had
sales of $567 thousand.
Gross margins decreased $70 thousand from $1.6 million, 16% of sales, in 1994
to $1.5 million, 15% of sales, in 1995. The gross margin at Quanta decreased
$193 thousand from 16% of sales to 13% of sales. The decline at Quanta was
due to increased material content in service contracts and start-up costs for
several new contracts. DCS margins increased by $45 thousand from 22% of
sales to 31% of sales, however the margin was offset by lower volume and a
larger allocation to research and development costs. MicroAssembly's gross
margin was $78 thousand and incremental since it was the first year of
inclusion in CompuDyne's financial statements.
Total 1995 selling, general and administrative expenses increased $119
thousand from 1994 levels. The Company increased its expenses as a result of
the operations of MicroAssembly by $123 thousand which was offset by lower
expenses at Quanta Systems, DCS and Corporate of $21 thousand. Corporate
expenses have been reduced at an annual rate of $125 thousand since August.
The Company undertook intensified research and development activities to
complete the development of the QPSK. Research and development expenditures
were $359 thousand during the fiscal year ended December 31, 1995 compared
with $66 thousand in 1994.
Total interest expense for 1995 was $31 thousand compared with $21 thousand
for 1994. The increase was due to the expanded use of credit during the year
and the new $400 thousand notes related to the MicroAssembly transaction in
August.
Interest income for 1995 was $9 thousand compared with $28 thousand for 1994.
The decline in interest income was due to lower cash balances as a result of
funding the losses at Suntec during the period that the division was part of
Quanta.
Other income decreased $1.848 million from $1.662 million in 1994 to expense
of $186 thousand in 1995. In 1994, the Company benefitted from the Kelley
life insurance proceeds in the amount of $1.389 million after paying deferred
compensation payments to former executives of the Company. The Company also
reduced certain accruals totaling $115 thousand and reversed its workmen's
compensation accrual after receiving a final refund from the insurance
carrier of $148 thousand in 1994.
In 1994 CompuDyne had extraordinary income of $523 thousand resulting from
debt forgiveness from Clipper of $413 thousand and from deferred compensation
beneficiaries of $110 thousand.
Loss from discontinued operations in 1995 was $453 thousand including
disposal reserves, compared with 1994's loss of $860 thousand. The loss from
discontinued operations reflects the sale of the Suntec division in August
1995.
Results of Operations - 1994 compared with 1993
...............................................
Income from continuing operations before extraordinary items of $2.065
million in 1994 compares with income from continuing operations before
extraordinary items of $253 thousand in 1993. The increase in income from
continuing operations of $1.812 million was due to the net insurance proceeds
of $1.389 million from the death of Frank Kelley after payment of deferred
compensation payments to nine former executives of the Company, a larger
profit than normal at Quanta Systems $176 thousand and adjustments of certain
accruals $263 thousand.
CompuDyne's net sales, which increased from $9.6 million in 1993 to $9.7
million in 1994, a 1% increase, were comprised of service revenue, telemetry
and data acquisition product sales at Quanta. Quanta's service revenue in
1994 was $8.7 million, $600 thousand more than 1993. The increase in service
revenue was attributable to increases in task spending on other government
contracts. Service revenue represented 90% of 1994 revenues compared to 84%
of 1993 revenues. DCS sales decreased $400 thousand between 1994 and 1993.
Quanta's product sales at its Data Control Systems division of $1.0 million
was $400 thousand lower than 1993 as a result of a decline in bookings
resulting from defense spending reductions and delays DCS incurred bringing
new products into the market. The Company reduced the costs of its product
operations in reaction to the decline in business and has spent considerable
time and effort in developing new commercial products. During 1994 DCS
continued the development of its automatic power controller ("APC") and sold
several units. DCS also continued the development of its high speed satellite
test modem QPSK Model 7500 and sold two units. DCS finished the year with a
strong backlog of $600 thousand.
Gross margins decreased $298 thousand from $1.9 million, 20% of sales, in
1993 to $1.6 million, 16% of sales, in 1994. The primary reason was DCS which
had a margin decline of $376 thousand due to lower volume and higher costs
which was offset by higher margins at Quanta of $77 thousand. The increase at
Quanta was due to higher volume but at lower margins.
Total 1994 selling, general and administrative expenses decreased $397
thousand from 1993 levels. The Company decreased its expenses at Quanta
Systems, DCS and Corporate.
The Company undertook research and development activities to develop new
products for the telecommunications industry. Research and development
expenditures were $66 thousand during the fiscal year ended December 31, 1994
compared with $113 thousand in 1993.
Total interest expense for 1994 was $21 thousand or $104 thousand lower than
1993 levels of $125 thousand. The decline was due to the repayment of all
outstanding debt.
Interest income for 1994 was $28 thousand, or an increase of $14 thousand
from 1993's interest income of $14 thousand. The increase was due to a larger
amount of invested funds.
Other income increased $1.560 million from $102 thousand in 1993 to $1.662
million in 1994. The Kelley life insurance proceeds after paying deferred
compensation payments to former executives of the Company amounted to $1.389
million. CompuDyne also reduced certain accruals totaling $115 thousand and
closed out its workmen's compensation accrual with its insurer, AIG, Inc.,
after receiving a final refund from the insurance carrier, $148 thousand.
Extraordinary income of $523 thousand resulted from debt forgiveness from
Clipper of $413 thousand and from deferred compensation beneficiaries $110
thousand compared with debt forgiveness in 1993 of $161 thousand primarily
due to a settlement of its lease obligation at 90 State House Square in
Hartford.
Liquidity
.........
On November 18, 1994, CompuDyne obtained a $350 thousand secured working
capital line of credit agreement with the Asian American Bank and Trust
Company of Boston, Massachusetts. The credit agreement requires the Company
to maintain a working capital ratio of 1.1 to 1, with which the Company was
in compliance. In July 1995 the line was increased to $500 thousand and the
advance rate increased from 50% of eligible accounts receivable to 75% of
eligible accounts receivable. In January 1996, the interest rate on the loan
was reduced to 2% above prime. In February 1996, the line was increased to
$750 thousand. At December 31, 1995 the Company had outstanding borrowings of
$259 thousand.
MicroAssembly has an unsecured line of credit with Fleet Bank for $100
thousand. The line of credit is guaranteed by Mr. Roenigk. The rate is prime
plus 1.5% and as of December 31, 1995 the line had not been used.
MicroAssembly has a subordinated unsecured serial term loan of $100 thousand
that was made by Mr. Markowitz to MicroAssembly. The loan is at prime plus
1.5% and requires quarterly payments of $5 thousand beginning in December
1995 and ending in 2001.
During 1995, CompuDyne incurred a net loss of $663 thousand. An important
part of CompuDyne revenues and future results are dependent upon the Navy
renewing the NISE East and Teton Contracts under similar terms and conditions
as currently exists (See "General Information"), and Quanta's ability to
improve the present level of sales and profits of its Data Control Systems
division (See "Results of Operations-1995 compared with 1994"), generate
positive cash flows, realize the projected sales and profits of its
MicroAssembly subsidiary, reduce the level of existing payables and other
obligations, and collect receivables in a timely manner. The Company made
considerable progress in reducing its reliance upon one contract through the
award of Teton and several other contracts.
Accounts receivable net of allowance for doubtful accounts were $2.1 million
at December 31, 1995 compared with $1.3 million at December 31, 1994. The
increase in accounts receivable of $800 thousand is due to the inclusion of
MicroAssembly $238 thousand, the timing of billings at Quanta $820 thousand,
offset by lower receivables at DCS $258 thousand.
Capital Resources
.................
There were capital expenditures of $78 thousand in 1995 compared with $3
thousand in 1994. The Company does not expect to incur more than $200
thousand of capital expenditures in 1996, which represents a normal level of
expenditures to maintain its technology and manufacturing base.
RECENTLY ISSUED ACCOUNTING STANDARDS
....................................
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The new standard defines a fair value method of accounting
for stock-based employee compensation plans. Under this method, compensation
cost is measured based on the fair value of the stock award when granted and
is recognized as an expense over the service period, which is usually the
vesting period. This standard will be effective for the Company beginning in
1996 and requires measurement of awards made beginning in 1995.
The new standard permits companies to continue to account for equity
transactions with employees under existing accounting rules, but requires
disclosure in a note to the financial statements of the pro forma net income
and earnings per share as if the company had applied the new method of
accounting. The Company intends to implement these disclosure requirements
beginning 1996. Adoption of the new standard will not impact reported net
income or cash flows.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." This
standard will be effective for the Company beginning in 1996 and is not
expected to have a significant impact on the Company's financial statement.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 below.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
Information required by Items 10, 11, 12 and 13 about CompuDyne is
incorporated herein by reference from the definitive proxy statement of
CompuDyne to be filed with the SEC within 120 days following the end of its
fiscal year ended December 31, 1995, or April 30, 1996, relating to its 1995
Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS
AND REPORTS ON FORM 8-K
(a) Financial Statements
The financial statements listed in the accompanying index to financial
statements are filed as part of this Annual Report on Form 10-K.
(b)Reports on Form 8-K
(c)Exhibits
The Exhibits listed on the index below are filed as a part of this
Annual Report.
COMPUDYNE CORPORATION
INDEX TO EXHIBITS
(Item 14(c))
3(A).Articles of Amendment and Restatement of Articles of Incorporation of
Registrant effective March 13, 1969, incorporated herein by reference to
Registrant's Form 10-K Report filed for the fiscal year ended September 30,
1975, Item 10(b)(1)(A).
3(B).Articles of Amendment to Articles of Incorporation effective April 9,
1973, incorporated herein by reference to Registrant's Form 10-K Report filed
for the fiscal year ended September 30, 1975, Item 10(b)(1)(C).
3(C).Articles of Amendment to Articles of Incorporation effective June 23,
1978, incorporated herein by reference to Registrant's Form 10-K Report filed
for the fiscal year ended September 30, 1978, Item 12(a)(1)(E).
3(D).Statement of Shares Issued in Series - Statement as to Preference Stock,
Series A, incorporated herein by reference to Registrant's Form 10-K Report
filed for the fiscal year ended September 30, 1978, Item 12(a)(2)(1)(F).
3(E).Statement of Shares Issued in Series - Statement as to Preference Stock
Series C, incorporated herein by reference to Registrant's Proxy Statement
dated April 22, 1987 for its 1987 Annual Meeting of Shareholders.
3(F).By-Laws, as amended through May 27, 1987 and as presently in effect,
incorporated herein by reference to Registrant's Form 10-K Report filed for
the fiscal year ended December 31, 1987, Item 3(F).
10 (A).1986 Stock Incentive Compensation Plan incorporated herein by
reference to Registrant's Proxy Statement dated January 24, 1986 for its 1986
Annual Meeting of Shareholders.
10 (B).Amendment to Loan and Security Agreement dated March 10, 1993 between
Clipper and Quanta incorporated herein by reference to Exhibit (K) to
Registrants's Form 10-K filed for the fiscal year December 31, 1992.
10 (C).Voluntary Petition in Bankruptcy dated December 31, 1991 filed by
CompuDyne Inc., in the Hartford District of Connecticut, incorporated by
reference to Exhibit (I) to Registrant's Form-8-K filed January 14, 1992.
10 (D). Warrant dated, March 10, 1993 issued to Clipper (the "Clipper
Warrant"), is incorporated herein by reference to Exhibit (L) to Registrant's
Form 10-K filed December 31, 1992.
10 (E). Amendment No. One, dated April 1, 1993, to the Clipper Warrant is
filed herewith.
10 (F) Warrant, dated March 10, 1993, issued to Corcap (the "Corcap
Warrant"), is incorporated herein by reference to Exhibit (M) to Registrant's
Form 10-K filed December 31, 1992.
10 (G) Amendment No. One, dated April 1, 1993, to the Corcap Warrant is filed
herewith.
10 (H) Credit Agreement dated November 18, 1994 between Asian American Bank
and Trust and CompuDyne and Quanta is filed herewith.
10 (I) Form of Management Stock Purchase Agreement.
10 (J) CompuDyne Corporation Certificate of Designations of the Convertible
Preference Stock, Series D is incorporated herein by reference to Exhibit
(4.1) to Registrant's Form 8-K filed September 5, 1995.
10 (K) CompuDyne Corporation Senior Convertible Promissory Notes is
incorporated by reference to Exhibit (4.2) to Registrant's Form 8-K filed
September 5, 1995.
10 (L) Stock Purchase Agreement dated August 21, 1995 between CompuDyne
Corporation, MicroAssembly Systems, Inc., Martin A. Roenigk and Alan
Markowitz is incorporated by reference to Exhibit (4.3) to Registrant's Form
8-K filed September 5, 1995.
10 (M) Asset Purchase and Sale Agreement dated as of August 21, 1995 by and
among Quanta Systems Corporation, Suntec Service Corporation and Norman
Silberdick is incorporated by reference to Exhibit (4.4) to Registrant's Form
8-K filed September 5, 1995.
10 (N) Stock Option Agreement dated August 21, 1995 by and between Martin A.
Roenigk and CompuDyne Corporation is incorporated by reference to Exhibit
(4.5) to Registrant's Form 8-K filed September 5, 1995.
11 Computation of Earnings per Common and Common Equivalent Share (refer to
Exhibit XI, Page 36).
22. Subsidiaries of the Registrant is filed herewith.
COMPUDYNE CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
(Item 14(a)(1))
Page(s)
Independent Auditors' Report 17-18
Consolidated Balance Sheets at December 31, 1995
and 1994 19
Consolidated Statements of Operations for the
years ended December 31, 1995, 1994 and 1993 20
Consolidated Statements of Cash Flows for the
years ended December 31, 1995, 1994 and 1993 21
Consolidated Statements of Changes in Shareholders'
Equity (Deficit) for the years ended
December 31, 1995, 1994 and 1993 22
Notes to Consolidated Financial Statements 23-34
(Item 14(a)(2))
Financial Statement Schedule
Schedule II - Valuation and Qualifying
Accounts for the Years Ended December
31, 1995, 1994 and 1993 34
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
of CompuDyne Corporation:
We have audited the accompanying consolidated balance sheet of CompuDyne
Corporation and subsidiaries, as of December 31, 1995, and the related
consolidated statements of operations, shareholders' equity, and cash flows
for the year then ended. Our audit also included the financial statement
schedule listed in the accompanying index. These financial statements and
schedule as of and for the year ended December 31, 1995 are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audit.
The consolidated financial statements and schedule as of December 31, 1994
and for the two years in the period then ended, before the adjustments
described in Note 1 to the consolidated financial statements, were audited by
other auditors whose report, dated March 29, 1995, expressed an unqualified
opinion on those statements.
We conducted our audit 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
and schedule. 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 audit
provides 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, 1995, and the results of their operations and
their cash flows for the year then ended in conformity with generally
accepted accounting principles. Also, in our opinion, such financial
statement schedule as of and for the year ended December 31, 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.
We also audited the adjustments described in Note 1 that were applied to
restate the 1994 and 1993 financial statements and schedule for the
discontinued operations. In our opinion, such adjustments are appropriate
and have been properly applied.
/s/Delloitte & Touche LLP
Washington D.C.
March 29, 1996
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board
of Directors of CompuDyne Corporation
We have audited the consolidated financial statements of CompuDyne
Corporation and Subsidiaries ("the Company") as of December 31, 1994 and for
the years ended December 31, 1994 and 1993 prior to the restatement for the
divestiture of the Suntec division, as listed in Item 14(a) of this Form 10-
K. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement are
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to the above present
fairly, in all material respects, the consolidated financial position of
CompuDyne Corporation and Subsidiaries as of December 31, 1994 and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1994 and 1993, in conformity with generally accepted
accounting principles.
/s/COOPERS & LYBRAND L.L.P.
Washington, D.C.
March 29, 1995
COMPUDYNE CORPORATION AND SUBSIDIARIES
<TABLE> CONSOLIDATED BALANCE SHEETS
<CAPTION> ASSETS
December 31,
1995 1994
(In Thousands)
<S> <C> <C>
Current Assets
Cash and cash equivalents $ - $ 176
Accounts receivable 2,122 1,300
Inventories
Finished goods 144 -
Work in progress 473 194
Raw materials and supplies 405 254
...... .....
Total Inventories 1,022 448
Net current assets of discontinued operat - 132
Prepaid expenses and other current assets 97 36
...... .....
Total Current Assets 3,241 2,092
Non-current receivable,related parties 60 5
Property, Plant and Equipment, at cost
Land and improvements 26 -
Buildings and leasehold improvements 190 27
Machinery and equipment 871 480
Furniture and fixtures 192 163
...... .....
1,279 670
Less accumulated depreciation and amortization 691 663
Net Property, Plant and Equipment 588 7
Goodwill and other intangible assets,
net of accumulated amortization 1,127 -
Other assets 17 10
Total Assets $ 5,033 $ 2,114
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable 1,515 $ 992
Bank line payable 259 -
Accrued pension costs 40 25
Other accrued expenses 641 594
Current portion of deferred compensation 61 71
Current portion of notes payable related parties 20 -
Total Current Liabilities 2,536 1,682
Notes payable related parties 470 -
Long term pension liability 370 304
Deferred compensation, net of current portion 59 128
Deferred taxes 231 -
Total Liabilities 3,666 2,114
Shareholders' Equity
Convertible preference stock, Series D,
1,260,460 issued and outstanding as of
December 31, 1995 1,891 -
Common stock, par value $.75 per share:
10,000,000 shares authorized; 1,749,622
and 1,603,372 shares issued and outstanding at
December 31,1995 and 1994, respectively 1,355 1,202
Other capital 7,973 7,988
Receivable from management (91) (92)
Accumulated Deficit (9,761) (9,098)
Total Shareholders' Equity 1,367 -
Total Liabilities and Shareholders' Equity $ 5,033 $ 2,114
See notes to consolidated financial statements.
</TABLE>
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
(In thousands except per share amounts)
<S> <C> <C> <C>
Net sales $10,308 $ 9,699 $ 9,571
Cost of goods sold 8,792 8,113 7,687
Gross margin 1,516 1,586 1,884
Selling, general and
administrative expenses 1,214 1,095 1,492
Research and development 359 66 113
Operating income (loss) (57) 425 279
Other (income) expense
Interest expense 31 21 125
Interest income (9) (28) (14)
Other income related parties - - (57)
Other income 186 (1,662) (45)
Total other (income) expense 208 (1,669) 9
Income (loss) from continuing operations
before income taxes and extraordinary
items (265) 2,094 270
Income tax provision (benefit) (55) 29 17
Income (loss) from continuing operations
before extraordinary item (210) 2,065 253
Loss from discontinued operations (453) (860) (211)
Income (loss) before extraordinary
item $ (663) $ 1,205 $ 42
Extraordinary item, debt forgiveness - 523 161
Net income (loss) (663) $ 1,728 $ 203
Weighted average common equivalent shares:
Primary 1,657 1,748 1,686
Fully diluted 1,657 1,748 1,686
Income per common and dilutive
common equivalent share:
Continuing operations before
extraordinary items $ (.13) $ 1.18 $ .15
Discontinued operations (.27) (.49) (.13)
Extraordinary items - .30 .10
Net Income (loss) per share $ (.40) $ .99 $ .12
Income per common share assuming
full dilution:
Continuing operations before
extraordinary items$ (.13) $ 1.18 $ .15
Discontinued operations (.27) (.49) (.13)
Extraordinary item - (.30) .10
Net income (loss) per share $ (.40) $ .99 $ .12
</TABLE>
See notes to consolidated financial statements.
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
December 31, December 31, December31,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss) from
continuing operations $ (210) $ 2,588 $ 414
Adjustments to reconcile
net income to net cash
from operations:
Depreciation and amortization. 45 10 26
Reduction in allowance for
doubtful accounts - (13) -
Reduction in reserve for contract
disallowances - (214) -
Reduction in litigation reserve - (115) -
Debt forgiveness - (523) (161)
(Increase) decrease in accounts
receivable (393) (241) 735
Decrease in accounts
receivable-related party 5 - -
(Increase) decrease in inventory (138) (16) 44
Decrease (increase) in
prepaid expenses 15 (12) 39
(Increase) decrease in accounts
payable 338 159 (275)
Decrease in accrued expenses,
related parties - - (107)
Increase (decrease) in accrued
expenses (131) (208) 149
Other (9) (207) (61)
Net cash flows provided by (used in)
continuing operations (478) 1,208 803
Loss on discontinued operations (453) (860) (211)
(Increase) decrease in net assets
of discontinued operations 132 147 (279)
Cash flows used in discontinued
operations (321) (713) (490)
Net cash flows provided by
(used in) operations (797) 495 313
Cash flows from investing activities:
Net cash received from acquisition
of MicroAssembly 52 - -
Additions to property, plant
and equipment (78) (1) -
Receivable from related parties - 10 (15)
Net cash flows provided by (used in)
investing activities (26) 9 (15)
Cash flows from financing activities:
Payment of receivable from
management 1 8 -
Increase in short term debt 258 - -
Repayment of long term debt - (680) (105)
Proceeds from note payable,
related parties 400 - -
Repayment of note payable
related parties (10) - (132)
Net cash flows provided by (used in)
financing activities 649 (672) (237)
Net increase (decrease) in cash
and cash equivalents (176) (168) 61
Cash and cash equivalents at
the beginning of the year 176 344 283
Cash and cash equivalents at the
end of the year $ - $ 176 $ 344
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest $ 15 $ 21 $ 130
Income taxes, net of refunds $ (30 $ 4 $ 17
</TABLE>
See notes to consolidated financial statements.
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Receivable
($Thousands) Preference Common Other From
Stock Stock Capital Management Deficit Total
<S> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1993 $ - $ 1,015 $ 8,075 $ - $(11,029) $(1,939)
Net income - - - - 203 203
Shares issued - 94 (44) - - 50
Receivable from
management - - - (50) - (50)
Balance at
December 31, 1993 - 1,109 8,031 (50) (10,826) (1,736)
Net income - - - - 1,728 1,728
Shares issued - 93 (43) - - 50
Receivable from
management - - - (50) - (50)
Payments from
management - - - 8 - 8
Balance at
December 31, 1994 - 1,202 7,988 (92) (9,098) -
Net loss - - - - (663) (663)
Shares issued
-common shares - 153 (15) 1 - 139
Shares issued-
preference shares 1,891 - - - - 1,891
Balance at
December 31, 1995$ 1,891 $ 1,355 $ 7,973 $ (91) $ (9,761) $ 1,367
See notes to consolidated financial statements.
</TABLE>
COMPUDYNE CORPORATION AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
1. DESCRIPTION OF BUSINESS
Description of Business
.......................
CompuDyne Corporation ("CompuDyne" or "the Company"), a Pennsylvania
corporation, incorporated on December 8, 1952, operates in three industry
segments through its wholly owned subsidiaries Quanta Systems Corporation
("Quanta") which provides engineering and field services primarily to the
U.S. government, Data Control systems ("DCS") a division of Quanta, which
manufacturers telemetry and telecommunications products, and
MicroAssembly Systems, Inc. ("MicroAssembly") which manufactures 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.
MicroAssembly operates out of owned facilities, utilizing automatic screw
machines to manufacture the Stick-Screws. MicroAssembly also assembles
the specially designed pneumatic drivers for inserting the screws.
Quanta's products are provided at one location in Gaithersburg, Maryland.
Quanta provides engineering and field services ranging from small, single
function projects to comprehensive turnkey programs involving design,
fabrication, installation, training, maintenance, documentation and
system integration services for the U.S. Military and U.S. Government
worldwide. Through its Data Control Systems division, Quanta manufactures
telemetry equipment, satellite command and control subsystems 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.
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 Sellers' shares of capital
stock of MicroAssembly, which shares represented all of MicroAssembly's
issued and outstanding capital stock. This transaction represents 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. The Series
D Preference Stock has rights to vote on a share for share basis with the
Company's Common Stock on all corporate issues other than the election of
directors; it is also convertible to common stock on a share for share
basis at any time prior to redemption by the Company. On March 29, 1996,
the holders of the preference stock waived their rights to the mandatory
redemption by the Company. For the election of directors, each share of
Series D Preference Stock is entitled to 1/3.08 of a vote as compared to
the Company's Common Stock, which is entitled to one vote per share.
Pursuant to the terms of the Series D Preference Stock, each share of
Preference Stock will be entitled to one vote per share with respect to
the election of directors, effective as of August 1, 1996, unless the
Board of Directors of the Company, in its sole and absolute discretion,
approves a resolution prior to such date prohibiting such change in
voting rights, in which case each share of Preference Stock will continue
to have 1/3.08 vote per share. In the event the Board of Directors of
the Company approves such a resolution, on May 1 of each subsequent year
each share of Preference Stock will have one vote. Each share of Series
D Preference Stock carries 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 may be 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 for 1995.
CompuDyne has accounted for the acquisition of MicroAssembly using the
purchase method of accounting. The purchase price was allocated to the
net assets acquired based on preliminary estimates of their fair values
at the date of acquisition. The fair values of these assets and
liabilities are summarized as follows (in thousands):
Cash $ 118
Accounts Receivable 261
Inventories 436
Other Assets 76
Property, Plant and Equipment 531
Intangible Assets 430
Goodwill 714
Accounts Payable and
Accrued Expenses ( 358)
Deferred Tax Liabilities (251)
Total $1,957
The preliminary purchase price allocation is subject to change during the
next year as additional information concerning asset and liability
valuation is obtained. Therefore, the final allocation may differ from
the preliminary allocation.
The accompanying financial statements include the operations of
MicroAssembly for the period from August 21, 1995 through December 31,
1995.
The excess of the purchase price over the net tangible assets and
liabilities acquired of $1.144 million has been allocated to intangible
assets and goodwill and is being amortized on a straight line basis over
25 years.
Beginning on August 21 in the year 2000, the Company may, at its option,
redeem 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.
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 are 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 is 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.
As a further part of the Transaction, Norman Silberdick, the Company's
Chairman, President and Chief Executive Officer, resigned as such and as
a director of the Company. 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 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.
Prior to the Transaction, the Sellers held no voting shares of CompuDyne,
although Mr. Roenigk held 70,000 shares of Corcap, Inc. ("Corcap") Common
Stock, which is approximately 2.4% of Corcap's voting shares.
Corcap is a holder of shares in CompuDyne. Immediately after the
Transaction, the Sellers held 1,260,460 shares of CompuDyne's voting
stock (the Series D Preference Stock), or approximately 41.9% of the
voting power of issued and outstanding shares for all issues other than
the election of directors and 19% of the voting power of issued and
outstanding shares for the election of directors. Assuming conversion by
the Sellers of all of the shares of Series D Preference Stock, the
conversion of the full principal amount of the Notes and the exercise by
Mr. Roenigk of his options to purchase 200,000 shares of the Company's
Common Stock, the Sellers would hold 1,727,127 shares of the Company's
voting stock, or approximately 48.5% of the Company's voting stock on a
fully diluted basis. In addition, in connection with the Transaction,
Mr. Roenigk became a director of Corcap and was issued options to
purchase 450,000 additional shares of Corcap Common Stock which, if
exercised, would, together with Mr. Roenigk's prior holdings, result in
his holding approximately 15.4% of Corcap's Common Stock.
The Sellers have, in their filing with the Securities and Exchange
Commission pursuant to Section 13(d) of the Securities and Exchange Act
of 1934, disclaimed any arrangements or understandings among themselves
or their associates with respect to the future election of the Company's
directors or other matters in connection with the operation and
management of the Company.
Divestiture of Suntec Division
..............................
On August 21, 1995, Quanta Systems transferred all of the assets and
liabilities of Quanta'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 a royalty of 2% of Suntec's net sales and other revenues for
thirty (30) years from the date of the closing. Quanta then sold all of
Suntec's Common Stock to Norman Silberdick, who resigned on that date as
CompuDyne's Chairman, President, CEO and Director.
As a condition precedent to the sale of the Suntec shares to Mr.
Silberdick, he turned in to CompuDyne 60,000 shares of CompuDyne Common
Stock and relinquished 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 $79,000
(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 of the Silberdick Note is 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.
The amount of consideration determined by Quanta to be appropriate for
the sale of the Suntec Common Stock to Mr. Silberdick resulted from a
number of factors. While a division of Quanta, Suntec's business had
never produced a profit. As a result, and in light of Quanta's retention
of the 2% royalty on Suntec's net sales and other revenues for 30 years,
Quanta decided that the business should be valued at its net book value
at the closing date. The amount of the Silberdick Note was, at the
closing date, based upon Suntec's net book value at June 30, 1995 and was
subject to adjustment to its net book value based upon a closing date
balance sheet to be completed on or before September 20, 1995. A
subsequent review of the financial statements as of August 21, 1995
indicated that there was no equity in the assets transferred to Suntec
and Mr. Silberdick thereafter purchased the shares of Suntec for $100.
As part of the transaction, Quanta 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, 1995, the Company provided a
reserve for the full amount of this loan.
As a result of the disposal of Suntec in 1995, the consolidated
statements of operations for the years ended December 31, 1994 and 1993
have been restated to reflect Suntec as a discontinued operation. Loss
from Discontinued Operations were $453 thousand, $860 thousand and $211
thousand for the years ended December 31, 1995, 1994, and 1993,
respectively. In addition, the net assets and liabilities of the Suntec
division of $132 thousand have been reclassified to Net Current Assets of
Discontinued Operations at December 31, 1994 in the consolidated balance
sheet.
Loss from Discontinued Operations includes a provision of approximately
$85 thousand in 1995 for the loss on disposal of the Suntec Division.
Revenues included in loss on discontinued operations were $656 thousand,
$2.588 million, and $2.269 million in 1995, 1994 and 1993, respectively.
Pro-Forma Financial Information
...............................
The following 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 January 1, 1994:
(In Thousands) 1995 1994
Revenues $11,335 $11,104
Income (loss) before Extraordinary Items (276) 2,085
Net Income (Loss) (276) 2,608
Earnings (Loss) Per Share (.17) .88
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. On August 21,
1995, CompuDyne sold the assets of its Suntec Division and acquired
MicroAssembly. For comparison purposes, the December 31, 1994 balance
sheet has been restated to reflect the net assets and liabilities of the
Suntec Division as Net Current Assets of Discontinued Operations and the
year ended December 31, 1994 and 1993 Statements of Operations and of
Cash Flows as a Discontinued Operation.
Use of Estimates
................
Certain estimates used by management are susceptible to significant
changes in the economic environment. These include estimates of
percentage-of-completion on long term contracts and valuation allowances
for contracts accounts receivable. Each of these estimates, as well as
the related amounts reported in the financial statements, are sensitive
to near-term changes in the factors used to determine them. A
significant change in any one of those factors could result in the
determination of amounts different than those reported in the financial
statements. Management believes that as of December 31, 1995, the
estimates used in the financial statements are adequate based on the
information currently available.
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.
Revenues from fixed price contracts are recognized under the percentage
of completion method. Revenues from the sale of manufactured products
are recognized based on shipment date. Provisions for estimated losses
on uncompleted contracts are recognized in the period such losses are
determined.
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.
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.
Goodwill and Other Intangibles
..............................
Goodwill and other intangibles are being amortized on a straight-line
basis over 25 years. Accumulated amortization was $17 thousand and $0 at
December 31, 1995 and 1994, respectively.
Income Taxes
............
CompuDyne and its subsidiaries file a consolidated federal income tax
return. Effective January 1, 1993, the Company adopted 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. The adoption of SFAS 109 had no impact on operations.
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.
Net Income (Loss) Per Share
........................
Net income (loss) per share has been computed using the weighted average
number of common shares outstanding during the periods including the
effect of common stock equivalents where such effect would be dilutive.
Reclassifications
...............
Certain reclassifications have been made in the 1993 and 1994 financial
statements to conform to the 1995 presentation.
3. ACCOUNTS RECEIVABLE
Accounts Receivable consist of the following:
(In thousands)
December 31, December 31,
1995 1994
U.S. Government Contracts:
Billed $ 974 $ 390
Unbilled 701 476
1,675 866
Commercial 483 468
Total Accounts
Receivable $ 2,158 $ 1,334
Less Allowance for Doubtful
Accounts (36) (34)
Net Accounts
Receivable$ $ 2,122 $ 1,300
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 $175 thousand
and $125 thousand at December 31, 1995 and 1994, respectively.
Direct sales to the U.S. Federal Government for the years ended December
31, 1995, 1994 and 1993 were approximately $8.9 million, $9.0 million and
$8.3 million, respectively, or 86%, 90% and 84% 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. 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.
Substantially all of the Company's government related business is with
the U.S. Department of Defense, specifically under one major contract,
the NISE East contract that was awarded to Quanta in March 1992 as a one-
year contract with four one-year renewal options. The contract has been
renewed through September 30, 1996. Sales under the NISE East contract
totaled approximately $7.0 million in 1995. The Teton Contract was
awarded in September 1995 and is valued at up to $9.5 million over five
years. This contract is a one year contract with four renewal options. If
NISE East and Teton do not continue to renew the contracts, or if the
terms and conditions of such contracts are substantially modified, Quanta
will be required to modify its operations accordingly. Management
believes that the NISE East and Teton contracts will be renewed under
similar terms and conditions.
NOTES PAYABLE RELATED PARTIES
On August 21, 1995 CompuDyne issued to Martin A. Roenigk and Alan
Markowitz Senior Convertible Promissory Notes (the "Notes") in the
aggregate principal amount of $400 thousand, which Notes are 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 is converted.
Of the $400 thousand principal amount of Notes issued, $300 thousand
principal amount of the Notes was issued to Mr. Roenigk, and $100
thousand principal amount of the Notes was issued to Mr. Markowitz. Under
the terms of the Notes, interest is due quarterly in arrears at prime
plus 2% with the principal due August 21, 2005. The Notes are Senior
Obligations of CompuDyne.
In addition, on April 29, 1995, MicroAssembly converted a Subordinated
Revolving Promissory Note with an outstanding balance of $100 thousand
into a Subordinated Term Loan with Alan Markowitz. It is a 5 year loan
with interest at Prime plus 1% payable quarterly. Principle payments are
$5 thousand per quarter. At December 31, 1995, $90 thousand was
outstanding on this note.
In May 1994, CompuDyne negotiated a modification to the Loan agreement
("Clipper Agreement") Quanta had with JM Clipper Polymers Corporation
("Clipper") whereby the Company agreed to pay $1 million in full
satisfaction of its debt of $1.163 million. On May 17, 1994 CompuDyne
made a payment of $700 thousand, established six quarterly payments of
$50 thousand for the balance due and terminated its working capital line
of credit of $150 thousand with Clipper. Clipper further agreed to
surrender its warrant to purchase 100,000 shares of CompuDyne Corporation
Common Stock upon final payment of the outstanding debt which occurred in
November 1994.
On July 27, 1994, Clipper, Corcap Eastern, Inc. ("CE"), a wholly owned
subsidiary of Corcap, and Quanta entered into an agreement whereby CE, as
lessor under a lease to Clipper for property located in Dayville,
Connecticut (the "Dayville Property"), terminated the lease in
consideration for which Clipper cancelled a promissory note from CE to
Clipper in the amount of $1.744 million and released a mortgage securing
such note. As further consideration for the termination of the lease,
Clipper forgave an additional $250 thousand of debt owed from Quanta to
Clipper under the Clipper Agreement. Quanta's indebtedness to Clipper
under the Clipper Agreement had thereby been reduced to $50 thousand,
payable in five quarterly installments of $10 thousand commencing on
September 30, 1994 and ending on September 30, 1995. In July 1991, the
Dayville real estate and buildings were leased to Clipper under a "triple
net" lease at an annual rental of $250 thousand, with an option to renew
for one additional ten-year term and an additional option to purchase the
facility for an amount equal to the principal amount of the mortgage plus
$100 thousand.
As part of the foregoing transaction and as consideration for Corcap
causing CE to terminate the lease, CompuDyne entered into an agreement
with Corcap to provide to Corcap management services and use of office
facilities and to absorb the cost of certain legal services for a period
of four years without charge to Corcap.
On October 4, 1994 Clipper, CompuDyne and Corcap entered into a letter
agreement that provided for $20 thousand of obligations by Clipper for
environmental costs associated with the Dayville Property be offset
against indebtedness due Clipper from Quanta. CompuDyne in turn reduced
the amount of moneys due it from Corcap for $20 thousand and Corcap then
established a liability for the environmental costs.
Corcap required, as a condition to its conversion of the Preferred Stock
to CompuDyne Common Stock and the relinquishment and waiver of accrued
dividends on the Preferred Stock, that CompuDyne issue a warrant (the
"Corcap Warrant") for 150,000 shares of CompuDyne Common Stock to Corcap.
The exercise price of the Corcap Warrant is $.40 per share. On August
21, 1995 Corcap exercised the warrant by issuing a promissory note to
CompuDyne in the amount of $60 thousand secured by the stock. This
transaction represents a non-cash investing activity and, therefore, has
not been reflected in the Statement of Cash Flows.
5. BANK NOTE PAYABLE
On November 18, 1994, CompuDyne obtained a $350 thousand secured working
capital line of credit agreement with the Asian American Bank and Trust
Company of Boston, Massachusetts. The credit agreement requires the
Company to maintain a working capital ratio of 1.1 to 1, with which the
Company was in compliance. In July 1995 the line was increased to $500
thousand and the advance rate increased from 50% of eligible accounts
receivable to 75% of eligible accounts receivable. At December 31, 1995
the Company had outstanding borrowings on this line of credit of $259
thousand. In February 1996, the line was increased to $750 thousand and
the interest rate on the loan was reduced to prime plus 2%. The line of
credit expires on June 30, 1996.
MicroAssembly has an unsecured line of credit with Fleet Bank for $100
thousand. The line of credit is guaranteed by Mr. Roenigk. The rate is
prime plus 1.5% and at December 31, 1995, the line had not been used.
6.INCOME TAXES
The components of the income tax provision (benefit) from continuing
operations for the years ended December 31, 1995, 1994, and 1993 are as
follows:
$ thousands
1995 1994 1993
Current $ (29) $ 29 $ 101
Deferred (26) - (84)
....... ..... ......
$ (55) $ 29 $ 17
The tax effects of the primary temporary differences giving rise to the
Company's net deferred tax assets and liabilities at December 31, 1995
and 1994 are summarized as follows:
December 31,
1995 1994
Assets:
Accrued expenses and deferred compensation $ 273 $ 297
Tax operating loss carryforward 9,510 8,702
Tax credit carryforward 459 459
Book reserves in excess of tax 93 93
Total deferred assets 10,335 9,551
Valuation allowance (10,335) (9,551)
Net deferred assets 0 0
Liabilities:
Book depreciation in excess of tax (3) -
Investment in subsidiary (228) -
Total deferred liabilities (231) -
Net deferred liabilities $ (231) $ -
A valuation allowance is provided to reduce the deferred tax assets to a
level more likely than not, under the rules in SFAS 109, will be
realized.
The difference between the statutory tax rate and CompuDyne's effective
tax rate from continuing operations are summarized as follows:
1995 1994 1993
Statutory federal income tax rates 34.0% 34.0% 34.0%
State income taxes, net of Federal benefit - 2.4 0.5
Change in valuation allowance 34.0 - -
Tax effect of NOL utilization - - (34.0)
Non-taxable life insurance proceeds - (36.0) -
Reversal of prior year taxes (10.9) - -
Tax effect of non-deductible items (9.9) 1.0 5.8
..... .... ....
Tax (20.8)% 1.4% 6.3%
At December 31, 1995, the Company and its subsidiaries have net operating
loss carryforwards available to offset future taxable income of
approximately $28 million, subject to certain limitations. These
carryforwards expire between 2000 and 2010. 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.
7. 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
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. The Stock
Purchase Agreements further provide that within 90 days of any Change of
Control of CompuDyne, as defined, the employees will be entitled to
purchase all of the shares of CompuDyne Common Stock not yet purchased
under such Agreements by delivering a written notice to CompuDyne. On
August 1, 1993, August 1, 1994 and August 1, 1995 an aggregate of 306,250
shares of CompuDyne Common Stock were issued to management, (the
"Management Shares") in exchange for promissory notes pursuant to the
Stock Purchase Agreements. In August 1995 as part of the agreement to
acquire Suntec, Norman Silberdick former Chairman and President of
CompuDyne returned 60,000 shares to CompuDyne in exchange for the
cancellation of the promissory notes securing those shares thereby
reducing the amount of shares issued to 246,250. Mr. Silberdick also
cancelled his right to receive 50,000 shares on August 1, 1995. The
remaining 56,250 shares issuable to management will be offered to such
employees over the next year at $.40 per share so long as such persons
are employed by the Company.
In August 1995, the Company issued Martin A. Roenigk options to purchase
up to 200,000 shares of the Company's Common Stock for $1.50 per share.
The options expire in ten (10) years.
The Company's stock option plans established in fiscal 1986 provide for
the granting of options to purchase shares of Common Stock to eligible
employees, of which 7,833 shares remained available for grant at December
31, 1994. Stock options have been and may be granted at not less than
the market price on the dates of grant. At December 31, 1994, 91,667
shares were exercisable. In accordance with the provisions of the plan,
subsequent to his resignation, Mr. Dominic had until January 31, 1995 to
exercise his options. Mr. Dominic did not exercise his options thus
causing his 91,667 options to lapse during 1995.
During 1995 the Company issued options to purchase 25,000 shares of
common stock for $2 per share to an officer of the Company. In addition,
in December 1995, CompuDyne issued 58,210 shares under the 1986 Stock
Incentive Compensation Plan to certain employees as partial payment of
accrued bonuses for 1994, the balance of which was paid in cash. This
transaction represents a non-cash investing activity and, therefore, has
not been included in the Statement of Cash Flows.
The transactions for shares under options were:
Year Year Year
ended ended ended
December 31, December 31, December 31,
1995 1994 1993
Outstanding, Beginning
of Period
Shares 92,167 92,167 500
Prices $.75-14.125 $.75-14.125 $14.125
Granted
Shares 283,210 - 91,667
Prices $1.375-2.00 - .75
Exercised
Shares 58,210 - -
Prices $1.375 - -
Expired or Cancelled 91,667 - -
Outstanding, End
of Period
Shares 225,500 92,167 92,167
Prices $2-14.125 $.75-14.125 $.75-14.125
Options Exercisable 225,500 92,167 92,167
8. 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% contributed. Expense for
matching contributions to the Plan were $46 thousand, $45 thousand and
$49 thousand for 1995, 1994, and 1993, respectively.
9.COMMITMENTS AND CONTINGENT LIABILITIES
The Company and certain of its subsidiaries are obligated as lessees
under various operating leases for office, distribution and manufacturing
facilities.
As of December 31, 1995, 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,
1996 $ 330
1997 340
1998 350
1999 361
2000 61
......
$1,442
Rental expense was $399 thousand, $466 thousand and $409 thousand in
1995, 1994, and 1993, 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 should not have a material effect on its
financial position or results of future operations.
10. RELATED PARTIES
CompuDyne charged management advisory service fees to Corcap for the
years ended December 31, 1995, 1994 and 1993 of $-0-, $36 thousand and
$60 thousand, respectively.
Corcap sublet to CompuDyne all of the Corcap corporate office space until
Corcap and CompuDyne moved to Willimantic, Connecticut at the offices of
MicroAssembly in November 1995. As of December 31, 1995, Corcap owed
CompuDyne $60 thousand for a promissory note for the exercise of its
warrant to purchase 150,000 shares of CompuDyne Common Stock.
In August 1995, Corcap exercised its warrant to purchase 150,000 shares
of CompuDyne Common Stock by issuing CompuDyne a promissory note secured
by the shares. Prior to the exercise of the warrant, Corcap held 670,881
shares of CompuDyne's voting shares, or approximately 38.3% of
CompuDyne's 1,749,622 issued and outstanding shares of Common Stock.
On September 14, 1995, Corcap contributed to the Corcap, Inc. Pooled
Pension Investment Trust, Plans 1A and 6B, 224,000 shares of CompuDyne
Common Stock to satisfy its unpaid pension contributions for the years
1992, 1993, and 1994.
On June 3, 1993, the Corcap Board of Directors authorized the sale of
shares of its holdings of CompuDyne Common Stock under Rule 144. In 1993
Corcap sold 27,000 shares of CompuDyne Common Stock, 40,500 shares in
1994 and 40,500 shares in 1995.
After the MicroAssembly transaction and the sale of 54,000 shares by
Corcap of CompuDyne Common Stock under Rule 144 of the Securities Act of
1933, Corcap's ownership of CompuDyne Common Stock decreased from 35% of
the issued and outstanding shares of CompuDyne Common Stock as of
December 31, 1994 to 24.7% as of December 31, 1995. After assuming (i)
the conversion of 1,260,460 shares of Series D Preference Stock to
Messrs. Martin A. Roenigk and Alan Markowitz, which shares are
convertible by the holders into 1,260,460 shares of CompuDyne Common
Stock, (ii) the conversion of $400 thousand principal amount of Senior
Convertible Promissory Notes to Messrs. Roenigk and Markowitz which
promissory notes are convertible by the holders into 266,667 shares of
CompuDyne Common Stock and, (iii) the exercise of an option to purchase
200,000 shares of CompuDyne Common Stock issued by the Company to Mr.
Roenigk at an exercise price of $1.50 per share as part of the
Transaction, and (iv) the purchase of an additional 56,250 shares of
CompuDyne Common Stock on August 1, 1996 by certain members of CompuDyne
management pursuant to a Stock Purchase Agreement, dated August 1, 1993,
between CompuDyne and such members of management, assuming certain
conditions are met and (v) the exercise of stock options for 25,000
shares of CompuDyne Common Stock issued to an officer of the company,
Corcap's ownership will be decreased to 12.4% on a fully diluted basis.
11. 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, 1995, the actuarial present value of
accumulated plan benefits was estimated to be $793 thousand, based upon
an 7.2% interest rate assumption; the 1984 Unisex Mortality table with a
five year age setback for females; and the March 1, 1995 (latest
actuarial valuation) employee database projected forward to December 31,
1995. All benefits under the plan are fully vested. The market value of
plan assets as of December 31, 1995 was $383 thousand. Accordingly, the
plan's unfunded accrued liability as of December 31, 1995 of $410
thousand ($329 thousand at December 31, 1994) has been reflected in the
balance sheet as accrued pension costs.
12. INDUSTRY SEGMENT INFORMATION
The Company currently operates in three business segments: engineering
and security services, the manufacture of telemetry and
telecommunications equipment and the manufacturing and marketing of the
Stick-Screw System. During the years ended December 31, 1995, 1994, and
1993 sales to the U.S. Federal Government amounted to 86%, 90% and 84%,
respectively, of the Company's total net sales. No other single customer
accounted for greater than 10% of the Company's net sales.
Revenues and related costs from engineering and security services during
the three years ended December 31, 1995, 1994 and 1993 are detailed
below:
($ Thousands)
1995 1994 1993
Revenues $ 8,878 $ 8,691 $8,128
Cost of Services 7,709 7,326 6,840
Gross Profit 1,169 1,365 1,288
Operating income (loss) 546 794 617
Total Assets, at year end 1,621 703 596
Depreciation - 10 16
Capital Expenditures 4 - -
Revenues and related costs from Data Control Division telemetry and
telecommunications products during the three years ended 1995, 1994 and
1993 are detailed below:
($ Thousands)
` 1995 1994 1993
Revenues` $ 863 $ 1,008 $1,443
Cost of Services 594 787 847
Gross Profit 269 221 596
Operating income (loss) (311) (15) 75
Total Assets, at year end 758 887 534
Depreciation - - 10
Capital Expenditures - - -
Revenues and related costs from the sale of Stick-Screw products from its
August 21 acquisition through December 31, 1995 are detailed below:
($ Thousands) 1995
Revenues $ 567
Cost of Service 489
Gross Profit 78
Operating income (loss) (46)
Total Assets, at year end 2,392
Depreciation 28
Capital Expenditures 74
There were no revenues from Corporate activities. Costs related to
corporate activities for the three years ended December 31, 1995, 1994
and 1993 are detailed below:
($ Thousands) 1995 1994 1993
Operating loss $(246) $(354) $(413)
Total Assets, at year end 262 392 584
Depreciation - - -
Capital Expenditures - - -
13. RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation." The new standard defines a fair value method
of accounting for stock-based employee compensation plans. Under this
method, compensation cost is measured based on the fair value of the
stock award when granted and is recognized as an expense over the service
period, which is usually the vesting period. This standard will be
effective for the Company beginning in 1996 and requires measurement of
awards made beginning in 1995.
The new standard permits companies to continue to account for equity
transactions with employees under existing accounting rules, but requires
disclosure in a note to the financial statements of the pro forma net
income and earnings per share as if the company had applied the new
method of accounting. The Company intends to implement these disclosure
requirements beginning 1996. Adoption of the new standard will not
impact reported net income or cash flows.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of." This
standard will be effective for the Company beginning in 1996 and is not
expected to have a significant impact on the Company's financial
statement.
SCHEDULE II
<TABLE> COMPUDYNE CORPORATION AND SUBSIDIARIES
<CAPTION> SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1994, and 1993
($ Thousands)
Balance at Charged to Balance
Beginning Costs and Decuct- at End
Description of Period Expenses tion of Period
<S> <C> <C> <C> <C>
Year Ended December 31, 1995
Reserve and allowances deducted
from asset accounts:
Obsolescence reserve for inventory $ 201 $ 15 $ 0 $ 216
Reserve for accounts receivable 207 3 (5) 205
Year Ended December 31, 1994
Reserve and allowances deducted
from asset accounts:
Obsolescence reserve for inventory $ 197 $ 4 $ 0 $ 201
Reserve for accounts receivable 220 0 (13) 207
Year Ended December 31, 1993
Reserve and allowances deducted
from asset accounts:
Obsolescence reserve for inventory $ 207 $ 0 $ ( 9) $ 198
Reserve for accounts receivable 217 3 0 220
</TABLE>
EXHIBIT XI
COMPUDYNE CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON AND COMMON
<TABLE> EQUIVALENT SHARE
<CAPTION>
(In thousands, except per share amounts)
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Primary (loss) earnings per share:
(Loss) earnings from continuing
operations before extraordinary item $ (210) $2,065 $ 253
Discontinued operations (453) (860) (211)
Extraordinary item - 523 161
Net (loss) earnings $ (663) $1,728 $ 203
Weighted average common and
common equivalent share 1,657 1,748 1,686
Adjustment to options - - -
Primary shares 1,657 1,748 1,686
(Loss) earnings per share:
Continuing operations before
extraordinary item $ (.13) $ 1.18 $ .15
Discontinued operations (.27) (.49) (.13)
Extraordinary item - .30 .10
Net (loss) earnings $ (.40) $ .99 $ .12
Fully diluted (loss) earnings per share:
(Loss) earnings from continuing operations
before extraordinary item $ (210) $2,069 $ 293
Adjustment for interest on promissory notes 13 - -
Discontinued operations (453) (860) (211)
Extraordinary item - 523 161
Net (loss) earnings $ (650) $1,728 $ 203
Weighted average common and
common equivalent share 1,657 1,748 1,686
Conversion of preferred shares
and promissory notes 509 - -
Fully diluted shares 2,166 1,748 1,686
(Loss) earnings per share:
Continuing operations before
extraordinary item $ (.09) $ 1.18 $ .15
Discontinued operations (.21) (.49) (.13)
Extraordinary item - .30 .10
Net (loss) earnings $ (.30) $ .99 $ .12
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
(Registrant)
By:/s/ I. Elaine Chen
I. Elaine Chen
Dated: March 29, 1996 Corporate Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 29 , 1996.
/s/ Martin A. Roenigk Director, Chairman, President
Martin A. Roenigk and Chief Executive Officer
/s/ Marjorie E. Morrissey Director /s/ Millard H. Pryor, Jr. Director
Marjorie E. Morrissey Millard H. Pryor, Jr.
/s/ David W. Clark, Jr. Director /s/ Philip M. Blackmon Director &
David W. Clark, Jr. Philip M. Blackmon Executive VP
/s/ I. Elaine Chen Corporate Controller /s/ Alan Markowitz Director
I. Elaine Chen Alan Markowitz
(2)
EXHIBIT 22
SUBSIDIARIES OF THE REGISTRANT
Percentage
of voting
securities
Incorporated owned by
under the immediate
Name laws of Parent parent
............................ ............ ............ ........
CompuDyne Corporation * Pennsylvania Registrant
CompuDyne Corp. of Maryland * Maryland CompuDyne Corp. 100%
Quanta Systems Corporation * Colorado CompuDyne Corp. 100%
CompuDyne, Inc.** Delaware CompuDyne Corp. 100%
MicroAssembly Systems, Inc. Connecticut CompuDyne Corp. 100%
......................
Note:* All subsidiaries of the Registrant as of December 31, 1995, are
included in the consolidated financial statements of the Registrant.
** CompuDyne, Inc. filed for petition in bankruptcy on December 31, 1991.
April 22, 1996
Dear Shareholders:
Welcome to a restructured and revitalized CompuDyne!
Your company has gone through a series of difficult times and less than
successful transformations over the past ten years. There have been a
series of downsizings, divestitures, debilitating operating losses and
write-offs. Throughout this period, one operation at CompuDyne has been
consistently profitable - Quanta Systems Corporation. Through a somewhat
complicated transaction last August, CompuDyne has hopefully finally
gotten it "right". We have divested a loss operation, improved our
balance sheet, diversified our operations, and brought in new investor
based management.
In August 1995 CompuDyne acquired MicroAssembly Systems Inc, a small
company with a very exciting proprietary assembly automation product.
Along with MicroAssembly, we received financing of $400 thousand, a
vastly improved balance sheet, and a new Chairman. We also disposed of a
home remodeling unit which had caused us grievous losses during the prior
two years. While this transaction alone did not solve all of our
problems, it went a long ways towards giving us the tools and the time to
rebuild CompuDyne.
Since the acquisition, we have begun the following:
.Reduced corporate overhead by over $150 thousand per year through the
elimination of positions, combining headquarters with MicroAssembly,
reducing expenditures related to Corcap, and a general tightening of
spending.
. Made a series of personnel changes designed to strengthen our
organization and reduce operating overheads.
. Begun a process leading to the consolidation of manufacturing and
assembly operations at DCS and Quanta.
. Changed auditors, and in connection therewith did a comprehensive
review of the adequacy of all accruals and reserves. We are also
instituting a series of additional controls and budgeting processes to
assure that unexpected "surprises" become a thing of the past.
. Initiated discussions with three companies, all of which are in the
physical security business, about potentially acquiring one or more of
them.
. Embarked on a "crash" program to complete the development of our two
key new products at DCS, the Automatic Power Controller and the
Satellite Test Modem.
These efforts had their impact on 1995, with increased accruals and an
extraordinarily high level of R&D spending. Results were further
penalized by the usual "front ending" of purchase accounting for
MicroAssembly due to inventory valuation write-ups being fully amortized
in 1995. We also needed to acknowledge that the now independent Suntec
operation was not going as well as planned, with the potential for
further very contained write-offs related to the sublease of space and
our note to Suntec. All of this left us with higher levels of payables,
and less free capital going into 1996 than we had planned for, thus
pushing out the turnaround a bit.
Nevertheless, actions taken in 1995 permit us to enter 1996 with great
optimism. We are very enthusiastic about our three businesses:
. Quanta Systems has a long record of solid profitability and is by
far our biggest business. Management at Quanta has exceeded our
objectives for diversifying beyond the historically dominant NISE East
contract. While much of Quanta's activities are classified, suffice it
to say we are proud to have won a $9.4 million five year contract
(code-named "Teton") as well as several other contracts, all of which
contributed mightily to our customer diversification effort. Our bookings
in the first quarter of 1996 were very strong. We have reiterated our
desire to select one or two commercial industries to offer custom
designed physical security programs to, and hope to launch at least one
offering later in 1996. We signed an agreement with IriScan, a very
impressive new biometric identification process, which we have high hopes
for. While margins will be lower in 1996, volume should be higher, and it
should on balance be a good year for Quanta. We have positioned Quanta as
a preeminent supplier of physical security integration in its market,
where not only what you do, but who does it is important -our high
security customer base has learned that the quality and character of
installation personnel are what assure a secure installation. Many of our
personnel have very high security clearances. We expect to move down
market to non-military customers with this same very high quality
approach.
. Data-Control Systems has been in a difficult development period for
several years now. DCS took on two major R&D projects several years ago
which proved to overwhelm their limited resources. Because these two
products, the Automatic Power Controller for signal rain fade and the
Model 7500 Satellite Test Modem were reconfirmed as representing the
future for DCS, the decision was made to do whatever was necessary to
complete development quickly - thus the extraordinary level of R&D
spending in 1995 and continuing into early 1996. Our efforts have met
with success in the laboratory and in the marketplace. We have basically
completed pre-production level models of both products, and have sold
four Satellite Test Modems in recent months. In February 1996 we
re-introduced the Automatic Power Controller at the Via Satellite show
and elicited considerable interest. These are truly "make or break"
products for DCS. We expect that 1996 will be a transition year, with
significantly improved results. We plan to build on our developing
position in the burgeoning telecommunications industry.
. MicroAssembly Systems brings commercial diversification and a stable
customer base to CompuDyne. While MicroAssembly traces its roots back 40
years, it has only been in the last few years that new management has
infused life into a very interesting technology. The proprietary
Stick-Screw System significantly eases the handling and insertion of
small screws in factory assembly environments. It has met with strong
interest wherever it has been shown, and MicroAssembly has added a series
of important customers in recent years. While it is a slow process to
convince customers to change to a radically new system, they usually stay
with us for a long time once they do convert. While volume flattened out
in 1995 due to a change in marketing managers and the significant decline
of a single very important customer in Mexico where labor costs are less
relevant, the outlook is bright.
There are a number of good prospects in the pipeline. As products get
smaller, assembly costs rise, and factories move to more flexible cell
based production, our system with its low capital cost and great labor
savings really shines.
"Information Through Technology Creates Security." We have thought a lot
about strategy for CompuDyne during these initial months under new
management. We have concluded that our core future growth should have the
unifying focus of high end physical security based activities. We have
great skills in this area, we are well positioned in the most
sophisticated and most secure end of the business where margins should be
better, and the market is growing very rapidly due to the increased
threats to security in the U.S. and around the world. We believe that,
ultimately, security depends on information - if you know what is
happening in your environment, you can defend against it. And
increasingly, information is being gathered or protected via technology -
whether it is an infra-red sensor on the ground, or a satellite in the
sky. To strengthen and expand our position in the physical security
industry, we are:
. Seeking selected acquisitions to benefit from normal consolidation
in the industry, both for installation and products. This consolidation
effort should also bring us the customer diversification we are seeking.
. Committed to developing or acquiring a high end, fully integrated
access control and alarm monitoring product line. We believe such an
offering will help us retain and expand our existing customer base, and
is a better way to attract new customers. We further believe that having
a high quality system to offer through independent systems integrators
will give us greater marketing leverage and better margins.
. We will focus on the high end of the security market, where
sophisticated technology, strong technical skills, and cleared personnel
provide a competitive advantage.
. We will enter non-military physical security markets, either through
acquisition or internal product development, on a very selected basis
with a clearly differentiated "product" offering, meaning a custom
designed fully integrated system. Industries which we are considering for
custom security product offerings include corrections, biotech,
universities and hospitals.
. Continue to develop strategic and tactical alliances with important,
product suppliers to the security industry, such as our recently
announced arrangement with IriScan.
The challenges for CompuDyne are many, however we are building strong
management, have excellent people, and we are well positioned to take
advantage of strong industry trends in security, telecommunications and
automation. We believe our plans and strategies are sound, but execution
and external factors will play critical roles in our success.
In closing, I want to say that we are all optimistic about the future. We
understand our challenges, and our opportunities. I also want to stress a
fundamental philosophical change which took place at Quanta last August.
You now have directing your company a Chairman who is also the largest
single shareholder by a very wide margin. This aligns my interests
squarely with yours. I will do everything I can to increase shareholder
value overthe coming years.
Martin A. Roenigk, Chairman & CEO
<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> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 2,329
<ALLOWANCES> 207
<INVENTORY> 1,022
<CURRENT-ASSETS> 3,241
<PP&E> 1,279
<DEPRECIATION> 692
<TOTAL-ASSETS> 5,033
<CURRENT-LIABILITIES> 2,536
<BONDS> 470
<COMMON> 1,355
0
1,891
<OTHER-SE> (1,879)
<TOTAL-LIABILITY-AND-EQUITY> 5,033
<SALES> 1,430
<TOTAL-REVENUES> 10,308
<CGS> 1,083
<TOTAL-COSTS> 8,792
<OTHER-EXPENSES> 1,573
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31
<INCOME-PRETAX> (265)
<INCOME-TAX> (55)
<INCOME-CONTINUING> (210)
<DISCONTINUED> (453)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (663)
<EPS-PRIMARY> (.40)
<EPS-DILUTED> (.40)
</TABLE>
