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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:
Primary Owned or
Approximate
Location Purpose Leased (1) of Space Square
Feet
Corporate Office
Willimantic, Connecticut Administrative Owned
2,900
Primary Owned or Approximate
Location Purpose Leased (1) of Space Square
Feet
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
(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):
For the years ended December 31,
1995 1994 1993 1992 1991
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)
1995 1994 1993 1992 1991
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
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.
/TABLE
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 at 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
Consolidated Balance Sheets at December 31, 1995
and 1994 18
Consolidated Statements of Operations for the
years ended December 31, 1995, 1994 and 1993 19
Consolidated Statements of Cash Flows for the
years ended December 31, 1995, 1994 and 1993 20
Consolidated Statements of Changes in Shareholders'
Equity (Deficit) for the years ended
December 31, 1995, 1994 and 1993 21
Notes to Consolidated Financial Statements 22-33
(Item 14(a)(2))
Financial Statement Schedule
Schedule II - Valuation and Qualifying
Accounts for the Years Ended December
31, 1995, 1994 and 1993 34
/TABLE
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/DELOITTE & TOUCHE LLP
Washington D.C.
March 29, 1996
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
1995 1994
(In Thousands)
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
operations - 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.
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
1995 1994 1993
In thousands except per share amounts)
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 items - (.30) .10
Net income (loss) per share $ (.40) $ .99 $ .12
See notes to consolidated financial statements.
/TABLE
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
December 31, December 31, December 31
1995 1994 1993
(In Thousands)
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
See notes to consolidated financial statements.
/TABLE
COMPUDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
Prefer- Receivable
($Thousands) ence Common Other From
Stock Stock Capital Management Deficit Total
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.
4. 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 Services 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) $(413)
Total Assets,
at year end 262 392 584
Depreciation - - -
Capital Expenditures - - -
13. RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation." The new standard defines a
fair value method of
accounting for stock-based employee compensation plans. Under this method,
compensation cost is measured
based on the fair value of the stock award when granted and is recognized as an
expense over the service period,
which is usually the vesting period. This standard will be effective for the
Company beginning in 1996 and
requires measurement of awards made beginning in 1995.
The new standard permits companies to continue to account for equity
transactions with employees under
existing accounting rules, but requires disclosure in a note to the financial
statements of the pro forma net
income and earnings per share as if the company had applied the new method of
accounting. The Company
intends to implement these disclosure requirements beginning 1996. Adoption of
the new standard will not
impact reported net income or cash flows.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of."
This standard will be effective for the Company beginning in 1996 and is not
expected to have a significant
impact on the Company's financial statement.
SCHEDULE II
COMPUDYNE CORPORATION AND SUBSIDIARIES
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1994, and 1993
($ Thousands)
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deduction Period
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
EXHIBIT XI
COMPUDYNE CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE
(In thousands, except per share amounts)
Year Ended December 31,
1995 1994 1993
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 and
David W. Clark, Jr. Philip M. Blackmon Executive
Vice-President
/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. ConnecticutCompuDyne 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.