Unassociated Document
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
(Mark
One)
x QUARTERLY REPORT UNDER
SECTION 13 OR 15 (D) OF THE SECURITIES AND
EXCHANGE
ACT OF 1934
For the
quarterly period ended June 30, 2009
OR
¨ TRANSITION REPORT UNDER
SECTION 13 OR 15 (D) OF THE SECURITIES AND
EXCHANGE
ACT OF 1934
For the
transition period from __________to__________
Commission
File No. 1-16779
Henry
Bros. Electronics, Inc.
(Exact
name of Registrant as specified in its charter)
Delaware
|
22-3690168
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
No.)
|
17-01
Pollitt Drive
Fair
Lawn, New Jersey 07410
(address
of principal executive offices) (Zip Code)
Registrant’s
Telephone number, including area
code:
(201)
794-6500
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 o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes o
No ¨
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer o
(Do
not check if a smaller reporting company)
|
Smaller
reporting company x
|
Indicate
by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes o No x
Indicate
the number of shares outstanding of each of the Registrant’s Common Stock, as of
the latest practicable date: 6,025,366 shares of common stock, $.01 par value
per share, as of August 7, 2009.
INDEX
|
|
Page
|
Part
I
|
Financial
Information
|
3
|
|
|
|
Item
1.
|
Condensed
Consolidated Financial Statements
|
3
|
|
|
|
|
Condensed
Consolidated Balance Sheets as of June 30, 2009 (Unaudited)
and
|
|
|
December
31, 2008 (Audited)
|
3
|
|
|
|
|
Condensed
Consolidated Statements of Operations for the three and six months
ended
|
|
|
June
30, 2009 (Unaudited) and June 30, 2008 (Unaudited)
|
4
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows for the six months
ended
|
|
|
June
30, 2009 (Unaudited) and June 30, 2008 (Unaudited)
|
5
|
|
|
|
|
Condensed
Consolidated Statement of Changes in Stockholders’ Equity for the
six
|
|
|
months
ended June 30, 2009 (Unaudited)
|
6
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
7-16
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and
|
|
|
Results
of Operations
|
17-22
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
22
|
|
|
|
Item
4.
|
Controls
and Procedures
|
22
|
|
|
|
Part
II
|
Other
Information .
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
23
|
|
|
|
Item
6.
|
Exhibits
|
23
|
|
|
|
SIGNATURES
|
24
|
|
|
CERTIFICATIONS
|
|
Part
I Financial Information
Item
1. Condensed Consolidated Financial Statements
HENRY
BROS. ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
1,265,070 |
|
|
$ |
27,704 |
|
Accounts
receivable-net of allowance for doubtful accounts of
|
|
|
16,733,346 |
|
|
|
18,164,066 |
|
$779,696
at June 30, 2009 and $801,306 at December 31, 2008
|
|
|
|
|
|
|
|
|
Inventory
|
|
|
1,241,691 |
|
|
|
1,201,477 |
|
Costs
in excess of billings and estimated profits
|
|
|
3,446,549 |
|
|
|
5,512,101 |
|
Deferred
tax asset
|
|
|
1,117,975 |
|
|
|
1,363,309 |
|
Retainage
receivable
|
|
|
1,284,492 |
|
|
|
1,756,481 |
|
Prepaid
expenses and income tax receivable
|
|
|
1,344,060 |
|
|
|
878,003 |
|
Other
assets
|
|
|
362,809 |
|
|
|
330,052 |
|
Total
current assets
|
|
|
26,795,992 |
|
|
|
29,233,193 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment - net of accumulated depreciation of
|
|
|
2,430,483 |
|
|
|
2,620,790 |
|
$3,357,336
at June 30, 2009 and $2,993,961 at December 31, 2008
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
3,708,830 |
|
|
|
3,592,080 |
|
Intangible
assets - net of accumulated amortization
|
|
|
933,225 |
|
|
|
1,016,665 |
|
Other
assets
|
|
|
519,988 |
|
|
|
147,380 |
|
TOTAL
ASSETS
|
|
$ |
34,388,518 |
|
|
$ |
36,610,108 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
& STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
3,874,810 |
|
|
$ |
6,927,365 |
|
Accrued
expenses
|
|
|
3,846,453 |
|
|
|
4,833,618 |
|
Accrued
taxes
|
|
|
4,422 |
|
|
|
200,774 |
|
Billings
in excess of costs and estimated profits
|
|
|
1,434,357 |
|
|
|
2,006,751 |
|
Deferred
income
|
|
|
92,660 |
|
|
|
157,890 |
|
Current
portion of long-term debt
|
|
|
411,228 |
|
|
|
629,742 |
|
Revolving
credit line maturing within one year
|
|
|
6,235,898 |
|
|
|
- |
|
Other
current liabilities
|
|
|
772,434 |
|
|
|
532,932 |
|
Total
current liabilities
|
|
|
16,672,262 |
|
|
|
15,289,072 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt, less current portion
|
|
|
585,345 |
|
|
|
4,855,662 |
|
Deferred
tax liability
|
|
|
393,260 |
|
|
|
406,417 |
|
TOTAL
LIABILITIES
|
|
|
17,650,867 |
|
|
|
20,551,151 |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
Preferred
stock, $.01 par value; 2,000,000 shares authorized; no shares
issued
|
|
|
- |
|
|
|
- |
|
Common
stock, $.01 par value; 10,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
6,021,366
shares issued and outstanding in 2009 and 5,966,583 shares in
2008
|
|
|
60,214 |
|
|
|
59,666 |
|
Additional
paid in capital
|
|
|
18,189,367 |
|
|
|
17,732,596 |
|
Accumulated
deficit
|
|
|
(1,511,930 |
) |
|
|
(1,733,305 |
) |
TOTAL
EQUITY
|
|
|
16,737,651 |
|
|
|
16,058,957 |
|
TOTAL
LIABILITIES & STOCKHOLDERS' EQUITY
|
|
$ |
34,388,518 |
|
|
$ |
36,610,108 |
|
See
accompanying notes to the condensed consolidated financial
statements.
HENRY
BROS. ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
Six
months ended June 30,
|
|
|
Three
months ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Revenue
|
|
$ |
29,280,192 |
|
|
$ |
31,029,997 |
|
|
$ |
13,971,980 |
|
|
$ |
15,123,951 |
|
Cost
of revenue
|
|
|
21,168,069 |
|
|
|
23,498,938 |
|
|
|
10,081,871 |
|
|
|
11,282,000 |
|
Gross
profit
|
|
|
8,112,123 |
|
|
|
7,531,059 |
|
|
|
3,890,109 |
|
|
|
3,841,951 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general & administrative expenses
|
|
|
7,562,645 |
|
|
|
6,256,168 |
|
|
|
3,691,785 |
|
|
|
3,126,987 |
|
Operating
profit
|
|
|
549,478 |
|
|
|
1,274,891 |
|
|
|
198,324 |
|
|
|
714,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
9,037 |
|
|
|
52,981 |
|
|
|
2,067 |
|
|
|
22,937 |
|
Other
income
|
|
|
15,794 |
|
|
|
8,248 |
|
|
|
2,608 |
|
|
|
4,034 |
|
Interest
expense
|
|
|
(165,407 |
) |
|
|
(142,728 |
) |
|
|
(99,706 |
) |
|
|
(65,995 |
) |
Income
before tax expense
|
|
|
408,902 |
|
|
|
1,193,392 |
|
|
|
103,293 |
|
|
|
675,940 |
|
Tax
expense
|
|
|
187,527 |
|
|
|
572,174 |
|
|
|
48,040 |
|
|
|
338,679 |
|
Net
income
|
|
$ |
221,375 |
|
|
$ |
621,218 |
|
|
$ |
55,253 |
|
|
$ |
337,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER
COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$ |
0.04 |
|
|
$ |
0.11 |
|
|
$ |
0.01 |
|
|
$ |
0.06 |
|
Weighted
average common shares
|
|
|
5,850,048 |
|
|
|
5,772,864 |
|
|
|
5,870,291 |
|
|
|
5,772,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER
COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share:
|
|
$ |
0.04 |
|
|
$ |
0.10 |
|
|
$ |
0.01 |
|
|
$ |
0.06 |
|
Weighted
average diluted common shares
|
|
|
6,044,499 |
|
|
|
5,976,008 |
|
|
|
6,064,742 |
|
|
|
5,976,008 |
|
See
accompanying notes to the condensed consolidated financial
statements.
HENRY
BROS. ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Six
months ended
|
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
221,375 |
|
|
$ |
621,218 |
|
Adjustments
to reconcile net income from operations
|
|
|
|
|
|
|
|
|
to
net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
459,098 |
|
|
|
386,822 |
|
Bad
debt expense
|
|
|
159,979 |
|
|
|
109,099 |
|
Provision
for obsolete inventory
|
|
|
- |
|
|
|
30,000 |
|
Stock
option expense
|
|
|
193,000 |
|
|
|
112,000 |
|
Deferred
income taxes
|
|
|
232,177 |
|
|
|
95,149 |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
1,270,740 |
|
|
|
98,516 |
|
Inventory
|
|
|
(40,214 |
) |
|
|
135,610 |
|
Costs
in excess of billings and estimated profits
|
|
|
2,065,552 |
|
|
|
(1,015,915 |
) |
Retainage
receivable
|
|
|
471,990 |
|
|
|
(207,453 |
) |
Other
assets
|
|
|
(32,757 |
) |
|
|
(8,748 |
) |
Prepaid
expenses and income tax receivable
|
|
|
(466,057 |
) |
|
|
304,059 |
|
Accounts
payable
|
|
|
(3,052,553 |
) |
|
|
(718,533 |
) |
Accrued
expenses
|
|
|
(1,183,517 |
) |
|
|
596,407 |
|
Billings
in excess of costs and estimated profits
|
|
|
(572,394 |
) |
|
|
423,853 |
|
Deferred
income
|
|
|
(65,231 |
) |
|
|
(4,229 |
) |
Other
liabilities
|
|
|
239,502 |
|
|
|
37,926 |
|
Net
cash (used in) provided by operating activities
|
|
|
(99,310 |
) |
|
|
995,781 |
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase
of businesses, net of cash acquired
|
|
|
(37,500 |
) |
|
|
(37,500 |
) |
Purchase
of property and equipment
|
|
|
(196,576 |
) |
|
|
(173,815 |
) |
Net
cash used in investing activities
|
|
|
(234,076 |
) |
|
|
(211,315 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Recovery
from shareholder, net
|
|
|
- |
|
|
|
59,443 |
|
Exercise
of employee stock options
|
|
|
185,069 |
|
|
|
- |
|
Net
proceeds from revolving bank lines
|
|
|
1,900,000 |
|
|
|
- |
|
Payments
of bank loans
|
|
|
(103,410 |
) |
|
|
(108,546 |
) |
Net
repayments of other debt
|
|
|
(271,869 |
) |
|
|
(158,697 |
) |
Payments of
equipment financing
|
|
|
(139,038 |
) |
|
|
(82,761 |
) |
Net
cash provided by (used in) financing activities
|
|
|
1,570,752 |
|
|
|
(290,561 |
) |
|
|
|
|
|
|
|
|
|
Increase
in cash and cash equivalents
|
|
|
1,237,366 |
|
|
|
493,905 |
|
Cash
and cash equivalents - beginning of period
|
|
|
27,704 |
|
|
|
3,277,450 |
|
Cash
and cash equivalents - end of period
|
|
$ |
1,265,070 |
|
|
$ |
3,771,355 |
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Amount
paid for the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
144,508 |
|
|
$ |
142,728 |
|
Taxes
|
|
$ |
698,083 |
|
|
$ |
225,000 |
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Equipment
financed
|
|
$ |
268,844 |
|
|
$ |
168,519 |
|
Issuance
of stock to acquire businesses
|
|
$ |
79,250 |
|
|
$ |
- |
|
Surrender
shares to purchase fixed assets
|
|
$ |
- |
|
|
$ |
14,080 |
|
See
accompanying notes to the condensed consolidated financial
statements.
HENRY
BROS. ELECTRONCS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
par
value $.01
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
10,000,000
Authorized
|
|
|
Paid-in
|
|
|
Retained
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Total
|
|
Balance
at December 31, 2008
|
|
|
5,966,583 |
|
|
$ |
59,666 |
|
|
$ |
17,732,596 |
|
|
$ |
(1,733,305 |
) |
|
$ |
16,058,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
stock options exercised
|
|
|
39,783 |
|
|
|
398 |
|
|
|
184,671 |
|
|
|
|
|
|
|
185,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued in connection with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the
acquisition of CIS Security Systems
|
|
|
15,000 |
|
|
|
150 |
|
|
|
79,100 |
|
|
|
|
|
|
|
79,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of value assigned to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
option grants
|
|
|
|
|
|
|
|
|
|
|
193,000 |
|
|
|
|
|
|
|
193,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221,375 |
|
|
|
221,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2009
|
|
|
6,021,366 |
|
|
$ |
60,214 |
|
|
$ |
18,189,367 |
|
|
$ |
(1,511,930 |
) |
|
$ |
16,737,651 |
|
See
accompanying notes to the condensed consolidated financial
statements.
HENRY
BROS. ELECTRONICS, INC AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
1.
Description of Business and Basis of Presentation
Interim
Financial Statements:
The
information presented as of June 30, 2009 and for the three and six month
periods ended June 30, 2009 and 2008 are unaudited, and reflect all adjustments
(consisting only of normal recurring adjustments) which Henry Bros. Electronics,
Inc. and its subsidiaries, (the “Company”) considers necessary for the fair
presentation of the Company’s financial position as of June 30, 2009, the
results of its operations and cash flows for the six month periods ended June
30, 2009 and 2008, and changes in stockholders’ equity for the six month period
ended June 30, 2009. The Company’s December 31, 2008 balance sheet information
was derived from the audited consolidated financial statements for the year
ended December 31, 2008, which are included as part of the Company’s Annual
Report on Form 10-K.
The
condensed consolidated financial statements included herein have been prepared
in accordance with U.S. generally accepted accounting principles and the
instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with U.S. generally accepted accounting principles have
been condensed or omitted. It is suggested that these condensed financial
statements be read in conjunction with the Company’s financial statements and
notes thereto included in the Company’s latest shareholders’ annual
report.
As of
June 30, 2009, there have been no material changes to any of the significant
accounting policies described in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2008.
Description
of Business:
The
Company’s operations are divided into two business segments – Security System
Integration (“Integration”) and Specialty Products and Services (“Specialty”).
The Integration segment provides a cradle to grave services for a wide variety
of security, communications and control systems. The Company
specializes in turn-key systems that integrate many different
technologies. Systems are customized to meet the specific needs of
its customers. Through the Specialty segment we provide emergency preparedness
programs, and specialized radio frequency communication equipment and
integration. Each of the Company’s segments markets its products and
services nationwide with an emphasis in Arizona, California, Colorado, Maryland,
New Jersey, New York, Texas and Virginia. Customers are primarily medium and
large businesses and governmental agencies. The Company derives a majority of
its revenues from project installations and to a smaller extent, maintenance
service revenue.
HENRY
BROS. ELECTRONICS, INC AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED) – (continued)
The table
below shows the sales percentages by geographic location for the following
periods:
|
|
Six
months ended
|
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
New
Jersey/New York
|
|
|
47 |
% |
|
|
47 |
% |
California
|
|
|
20 |
% |
|
|
19 |
% |
Texas
|
|
|
4 |
% |
|
|
4 |
% |
Arizona
|
|
|
8 |
% |
|
|
11 |
% |
Colorado
|
|
|
12 |
% |
|
|
8 |
% |
Virginia
/ Maryland
|
|
|
8 |
% |
|
|
9 |
% |
Integration
segment
|
|
|
99 |
% |
|
|
98 |
% |
Specialty
segment
|
|
|
2 |
% |
|
|
2 |
% |
Inter-segment
|
|
|
-1 |
% |
|
|
0 |
% |
Total
revenue
|
|
|
100 |
% |
|
|
100 |
% |
2. Summary
of Significant Accounting Policies:
Principles
of Consolidation:
The
condensed consolidated financial statements include the accounts of the
Company. Acquisitions are recorded as of the purchase date, and are
included in the consolidated financial statements from the date of
acquisition. All material intercompany transactions have been
eliminated in consolidation.
Reclassifications:
The
presentation of certain prior year information has been reclassified to conform
to the current year presentation. The Company has reclassified
certain costs from cost of revenue into selling, general and administrative
expenses. The amount of this reclassification was $221,335 and
$367,458 for the three and six months ended June 30, 2008. This
reclassification had no impact on operating profit.
Use
of Estimates:
The
preparation of financial statements, in conformity with generally accepted
accounting principles in the United States, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities, at the date
of the financial statements and the reported amount of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
HENRY
BROS. ELECTRONICS, INC AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED) – (continued)
Revenue
and costs relating to security integration systems projects and service
agreements are particularly affected by management’s estimates. The contract
sale price and estimated costs are based upon the facts and circumstances known
at the time of the proposal. Estimates for the costs to complete the contract
are periodically updated during the performance of the contract. Unpredictable
events can occur during the performance of the contract that can increase the
costs and reduce the estimated gross profit. Change orders to record additional
costs may not be approved or can become subject to long negotiations with the
customer and can result in concessions by the Company. Considerable judgments
are made during the performance of the contract that affects the Company’s
revenue recognition and cost accruals that may have a significant impact on the
results of operations reported by the Company.
Recently
Issued Accounting Pronouncements:
In April
2008, the FASB issued FASB Staff Position (FSP) No. 142-3, “Determination
of the Useful Life of Intangible Assets” (FSP 142-3), which amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS
No. 142, “Goodwill and Other Intangible Assets.” FSP 142-3 is
effective for financial statements issued for fiscal years and interim periods
beginning after December 15, 2008. Early adoption is prohibited. The
guidance in FSP 142-3 for determining the useful life of a recognized intangible
asset shall be applied prospectively to intangible assets acquired after
adoption, and the disclosure requirements shall be applied prospectively to all
intangible assets recognized as of, and subsequent to, adoption. We have
evaluated the new statement and have determined that it does not have a
significant impact on the determination or reporting of our financial
results.
In April
2009 the FASB issued FSP No. FAS 157-4, Determining Fair Value When
the Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly (FSP
FAS 157-4), which clarifies the application of SFAS 157 when there is
no active market or where the price inputs being used represent distressed
sales. Additional guidance is provided regarding estimating the fair value of an
asset or liability (financial and nonfinancial) when the volume and level of
activity for the asset or liability have significantly decreased and identifying
transactions that are not orderly. FSP FAS 157-4 is effective for interim and
annual periods ending after June 15, 2009. We have evaluated the
new statement and have determined that it does not have a significant impact on
the determination or reporting of our financial results.
In June
2009, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 168, The FASB Accounting Standards Codification TM and
the Hierarchy of Generally Accepted Accounting Principles – a replacement of
FASB Statement No. 162 (SFAS 168). SFAS 168 identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States. SFAS 168 is effective for interim and annual periods ending after
September 15, 2009.
In April
2009, the FASB issued FASB Staff Position No. FAS 107-1 and APB 28-1, “Interim
Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and APB
28-1”). FSP FAS 107-1 and APB 28-1 extends the disclosure requirements of SFAS
No. 107, “Disclosures About Fair Value of Financial Instruments” (“SFAS 107”),
to interim period financial statements, in addition to the existing requirements
for annual periods and reiterates SFAS 107’s requirement to disclose the methods
and significant assumptions used to estimate fair value. This FSP is effective
for interim reporting periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009.
Fair Value of Financial
Instruments
The
carrying amounts of the Company’s financial instruments, which include cash
equivalents, accounts receivable, accounts payable, accrued expenses, short and
long-term debt, approximate their fair values as of June 30, 2009.
HENRY
BROS. ELECTRONICS, INC AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED) – (continued)
3. Net
Income Per Share
The
computation of basic earnings per share is based upon the weighted average
number of shares of common stock outstanding during the period. The computation
of diluted earnings per share includes the dilutive effects of common stock
equivalents, less the shares that may be repurchased with the funds received
from their exercise and the effect of adding back unrecognized future stock
compensation expense. Contingent shares are excluded from basic earnings per
share.
4. Stock
Based Compensation
For the
three months ended June 30, 2009 and 2008, the Company charged $133,000 and
$58,000, respectively, to operations for stock based compensation
expense. For the six months ended June 30, 2009 and 2008, the Company
charged $193,000 and $112,000, respectively, to operations for stock based
compensation expense. A modification to a stock option, previously
issued to an executive officer, extending the term for one year, resulted in an
expense in the second quarter, equal to the net increase in the fair value of
the modified stock option of $49,000.
A summary
of stock option activity for the six months ended June 30, 2009 under the
Company’s various Stock Option Plans’ follows:
|
|
Number
of Shares
|
|
|
Weighted
Average Exercise Price
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Outstanding
|
|
|
Exercisable
|
|
January
1, 2009
|
|
|
984,515 |
|
|
|
496,856 |
|
|
$ |
4.97 |
|
|
$ |
5.44 |
|
Granted
at market
|
|
|
45,000 |
|
|
|
|
|
|
|
6.31 |
|
|
|
|
|
Exercised
|
|
|
(39,783 |
) |
|
|
|
|
|
|
4.62 |
|
|
|
|
|
Forfeited
or expired
|
|
|
(17,000 |
) |
|
|
|
|
|
|
7.86 |
|
|
|
|
|
June
30, 2009
|
|
|
972,732 |
|
|
|
335,933 |
|
|
$ |
4.98 |
|
|
$ |
4.44 |
|
HENRY
BROS. ELECTRONICS, INC AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED) – (continued)
The fair
value of the Company’s stock option awards granted during the six months ended
June 30, 2009 was estimated assuming no expected dividends and the following
weighted-average assumptions:
Expected
Life (years)
|
|
|
4.4 |
|
Expected
volatility
|
|
|
51.4 |
% |
Risk-free
interest rates
|
|
|
1.85 |
% |
Dividend
yield
|
|
|
- |
|
Weighted-average
grant-date fair value
|
|
$ |
2.83 |
|
The
assumptions above are based on multiple factors, including historical exercise
patterns of employees with respect to exercise and post-vesting employment
termination behaviors, expected future exercise patterns for these employees and
the historical volatility of our stock price. The expected term of
options granted is derived using company-specific, historical exercise
information and represents the period of time that the options granted are
expected to be outstanding. The risk-free interest rate for periods
within the contractual life of the option is based on the U.S. Treasury yield
curve in effect at the time of the grant.
HENRY
BROS. ELECTRONICS, INC AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED) – (continued)
5. Costs
and Billings on Uncompleted Contracts
Costs and
billing on uncompleted contracts consisted of the following:
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
Cost
incurred on uncompleted contracts
|
|
$ |
73,276,321 |
|
|
$ |
68,235,896 |
|
Billings
on uncompleted contracts
|
|
|
71,264,129 |
|
|
|
64,730,546 |
|
|
|
$ |
2,012,192 |
|
|
$ |
3,505,350 |
|
|
|
|
|
|
|
|
|
|
Included
in accompanying Balance Sheets under the following
captions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
Costs
in excess of billings and estimated profits
|
|
$ |
3,446,549 |
|
|
$ |
5,512,101 |
|
Billing
in excess of costs and estimated profits
|
|
|
1,434,357 |
|
|
|
2,006,751 |
|
|
|
$ |
2,012,192 |
|
|
$ |
3,505,350 |
|
6. Long-Term
Debt
On June
30, 2005, the Company entered into a loan agreement (the “Loan Agreement”) with
TD Bank, N.A. (“TD Bank”, formerly known as TD Banknorth, N.A., and
Hudson United Bank) pursuant to which TD Bank extended a $4 million two-year
credit facility (the “Revolving Loan”), to the Company and refinanced $1 million
of existing indebtedness to TD Bank into a five year term loan (the “Term
Loan”).
On
October 6, 2008, the Company executed its fourth amendment to the Revolving Loan
with TD Bank, increasing its line of credit from $4 million to $8 million. The
term of the agreement has been extended to June 30, 2010. Advances
under the Revolving Loan may be used to finance working capital and
acquisitions. Interest is paid monthly in arrears at TD Bank’s prime rate (3.25%
at June 30, 2009 and December 31, 2008). TD Bank has a first priority
security interest on the Company’s accounts receivable and
inventory.
The Term
Loan provides for the payment of sixty equal monthly installments of principal
and interest in the amount of $19,730 commencing July 30, 2005 and continued
through June 30, 2010. Interest under the Term Loan was 6.75%.
HENRY
BROS. ELECTRONICS, INC AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED) – (continued)
The
Company is required to maintain certain financial and reporting covenants and is
restricted from paying dividends under the terms of the Loan
Agreement.
Long-term
debt included the following balances:
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
Term
loan at 6.75% interest payable in monthly installments
|
|
|
|
|
|
|
of
$19,730 thru June 30, 2010
|
|
$ |
- |
|
|
$ |
103,410 |
|
|
|
|
|
|
|
|
|
|
Revolving
line at the prime rate of interest, payable in monthly
|
|
|
|
|
|
|
|
|
installments
of interest only thru June 30, 2010
|
|
|
6,235,898 |
|
|
|
4,335,898 |
|
|
|
|
|
|
|
|
|
|
Corporate
insurance financed at 7.85% payable in monthly
|
|
|
|
|
|
|
|
|
installments
thru October 1, 2009
|
|
|
89,664 |
|
|
|
268,992 |
|
|
|
|
|
|
|
|
|
|
Capitalized
lease obligations due in monthly installments,
|
|
|
|
|
|
|
|
|
with
interest ranging from 6.4% to 12.7%
|
|
|
906,909 |
|
|
|
777,104 |
|
|
|
|
7,232,471 |
|
|
|
5,485,404 |
|
Less:
Current Portion
|
|
|
(411,228 |
) |
|
|
(629,742 |
) |
Revolving
loan
|
|
|
(6,235,898 |
) |
|
|
- |
|
|
|
$ |
585,345 |
|
|
$ |
4,855,662 |
|
The
weighted average prime interest rate was 3.25% and 4.8% for the six months ended
June 30, 2009 and the year ended December 31, 2008, respectively.
7. Income
Taxes
Income
tax expense for interim reporting is based on an estimated overall effective tax
rate for the year ending December 31, 2009. The Company’s overall effective tax
rate during the six months ended June 30, 2009 is estimated to be approximately
45.9%, as compared to an estimated overall effective tax rate of 47.9% for the
six months ended June 30, 2008.
HENRY
BROS. ELECTRONICS, INC AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED) – (continued)
The
estimated overall effective income tax rate for fiscal 2009 has not been
impacted by any material discrete items. The overall estimated effective tax
rate is based on expectations and other estimates which are monitored closely,
but are subject to change. As of December 31, 2008 and 2007, the
Company had $54,866 and $47,100, respectively, of unrecognized income tax
benefits, all of which would affect the Company’s effective tax rate if
recognized. There have been no significant changes in the quarter
ended June 30, 2009.
8. STOCKHOLDERS’
EQUITY
In
connection with the acquisition of all the capital stock of CIS Security Systems
Corp. (“CIS”) on October 2, 2006, the Company issued an aggregate of 20,000
shares of its common stock, valued at $67,200. The Company issued an
additional 30,000 shares during 2007 and 2008 and 15,000 shares during the first
six months of 2009 of its restricted common stock to CIS’s selling shareholder
after CIS met certain performance targets. The issuance of the shares of
restricted stock in connection with the aforementioned acquisition was made in
reliance upon the exemption provided in section 4(2) of the Securities Act of
1933, as amended. In addition, the selling shareholder may earn an
additional 35,000 shares of the Company’s common stock if CIS achieves certain
performance targets through December 2011.
HENRY
BROS. ELECTRONICS, INC AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED) – (continued)
9. Segment
Data
Selected
information by business segment is presented in the following
tables:
|
|
Six
months ended June 30,
|
|
|
Three
months ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Integration
|
|
$ |
28,886,728 |
|
|
$ |
30,533,724 |
|
|
$ |
13,897,082 |
|
|
$ |
14,735,036 |
|
Specialty
|
|
|
661,464 |
|
|
|
603,398 |
|
|
|
342,898 |
|
|
|
450,161 |
|
Inter-segment
|
|
|
(268,000 |
) |
|
|
(107,125 |
) |
|
|
(268,000 |
) |
|
|
(61,246 |
) |
Total
revenue
|
|
$ |
29,280,192 |
|
|
$ |
31,029,997 |
|
|
$ |
13,971,980 |
|
|
$ |
15,123,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Integration
|
|
$ |
2,328,801 |
|
|
$ |
3,520,033 |
|
|
$ |
1,136,925 |
|
|
$ |
1,504,864 |
|
Specialty
|
|
|
66,743 |
|
|
|
(581,436 |
) |
|
|
2,847 |
|
|
|
23,889 |
|
Corporate
|
|
|
(1,846,066 |
) |
|
|
(1,663,706 |
) |
|
|
(941,448 |
) |
|
|
(813,789 |
) |
Total
operating profit
|
|
$ |
549,478 |
|
|
$ |
1,274,891 |
|
|
$ |
198,324 |
|
|
$ |
714,964 |
|
Selected
balance sheet information by business segment is presented in the following
table as of:
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
Total
Assets:
|
|
|
|
|
|
|
Integration
|
|
$ |
31,248,709 |
|
|
$ |
33,304,890 |
|
Specialty
|
|
|
1,078,779 |
|
|
|
1,756,730 |
|
Corporate
|
|
|
2,061,030 |
|
|
|
1,548,488 |
|
Total
assets
|
|
$ |
34,388,518 |
|
|
$ |
36,610,108 |
|
HENRY
BROS. ELECTRONICS, INC AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED) – (continued)
10. Contingent
Liabilities
From time
to time, the Company is subject to various claims with respect to matters
arising out of the normal course of business. In management’s opinion, none of
these claims is likely to have a material affect on the Company’s consolidated
financial statements.
OVERVIEW
We are an
established leader in the electronic physical security industry, specializing in
integrated security systems and emergency preparedness. Our
operations are divided into two business segments – Security System Integration
(“Integration”) and Specialty Products and Services (“Specialty”). The
Integration segment provides “cradle to grave” services for a wide variety of
security, communications and control systems. The Company specializes
in turn-key systems that integrate many different
technologies. Systems are customized to meet the specific needs of
its customers. Through the Specialty segment we provide emergency preparedness
programs, and specialized radio frequency communication equipment and
integration. Each of the Company’s segments markets nationwide with
an emphasis in Arizona, California, Colorado, Maryland, New Jersey, New York,
Texas and Virginia. Customers are primarily medium and large businesses and
governmental agencies. The Company derives a majority of its revenues from
project installations and, to a smaller extent, maintenance service
revenue.
OUR
VISION AND STRATEGY
Our
vision is to maintain our leadership position in security technology. We
intend to do this in part by:
|
·
|
Providing
advice on product selection and system design;
|
|
·
|
Examining
and thoroughly testing each security product as it would be set up for use
in our customers’ facilities; and,
|
|
·
|
Using
only systems and components that are reliable and efficient to
use.
|
In
addition to growing the business organically, we have been actively pursuing the
strategic acquisition of synergistic integrators and specialty products and
service companies to further fuel steady growth. Consistent with our
expansion strategy, we acquired seven companies since August of
2002.
To
finance our acquisitions, we have used a combination of internally generated
cash, the sale of Company common stock and bank debt. We currently have an $8
million revolving credit facility with TD Bank. Borrowings under the
revolving credit facility were $6,235,898, at June 30, 2009. It is our
expectation and intent to use cash and to incur additional debt as appropriate
to finance future working capital and acquisitions. Additionally, to
fund future acquisitions we would consider the issuance of subordinated debt,
the sale of equity securities, or the sale of existing Company
assets.
TRENDS
As a
result of the protracted credit freeze and severe recession which are having a
significant negative impact on construction markets and capital spend patterns
of commercial businesses, we are revising our revenue forecast for 2009 to fall
within a range of $65 million to $70 million, from the previous estimate of $80
million. We anticipate our overall average operating margins for our
business to now be 3.0% to 5.0% for the year ended December 31, 2009, from a
previous estimate of 6.0%, as compared to an operating margin of 5.0% in 2008
and essentially breakeven operating margin in 2007.
There are
several factors impacting operating margins, including levels of competition for
a particular project and the size of the project. As a significant
amount of our costs are relatively fixed, such as labor costs,
increases or decreases in revenues can have a significant impact on operating
margins. The Company continually monitors costs and pursues various
cost control measures and sales initiatives to improve operating
margins.
In
February 2008, the Company entered into a subcontractor agreement with Global
Security & Engineering Solutions, a division of L-3 Services, Inc. (the “L-3
Contract”) pursuant to which L-3 would issue task orders under its Indefinite
Quantity Firm Fixed Price Contract with the U.S. Marine Corp Systems Command to
deliver a Tactical Video Capture System (“TVCS”). TVCS is used for
real-time visualization and situational awareness while Marine units are
conducting military operations in urban terrain training
exercises. The performance period of the contract is three
years. In the first two quarters of 2009, the revenue recognized
under this contract represented $4.0 million and there were outstanding task
orders included in our backlog of approximately $2.5 million at June 30,
2009. There was no revenue recognized under this contract for the
first two quarters of 2008.
Three
Months Ended June 30, 2009 compared to June 30, 2008
|
|
(Unaudited)
|
|
|
|
|
|
|
Three
months ended June 30,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
%
change
|
|
Revenue
|
|
$ |
13,971,980 |
|
|
$ |
15,123,951 |
|
|
|
-7.6 |
% |
Cost
of revenue
|
|
|
10,081,871 |
|
|
|
11,282,000 |
|
|
|
-10.6 |
% |
Gross
profit
|
|
|
3,890,109 |
|
|
|
3,841,951 |
|
|
|
1.3 |
% |
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general & administrative expenses
|
|
|
3,691,785 |
|
|
|
3,126,987 |
|
|
|
18.1 |
% |
Operating
profit
|
|
|
198,324 |
|
|
|
714,964 |
|
|
|
-72.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
2,067 |
|
|
|
22,937 |
|
|
|
-91.0 |
% |
Other
income
|
|
|
2,608 |
|
|
|
4,034 |
|
|
|
-35.4 |
% |
Interest
expense
|
|
|
(99,706 |
) |
|
|
(65,995 |
) |
|
|
51.1 |
% |
Income
before tax expense
|
|
|
103,293 |
|
|
|
675,940 |
|
|
|
-84.7 |
% |
Tax
expense
|
|
|
48,040 |
|
|
|
338,679 |
|
|
|
-85.8 |
% |
Net
income
|
|
$ |
55,253 |
|
|
$ |
337,261 |
|
|
|
-83.6 |
% |
Revenue - Revenue for the
three months ended June 30, 2009 was $13,971,980, representing a decrease of
$1,151,971 or 7.6%, as compared to revenue of $15,123,951 for the three months
ended June 30, 2008. Revenue was down in all of the Company’s integration regions in the second quarter of 2009
versus the same quarter in the prior year, with the exception of Colorado, which was up 57.7%. The New Jersey region had the greatest
decrease, as a result of the winding down of large projects
that were not replaced by similar projects
due to competitive margin pressure. These declines are due principally to
the protracted credit freeze and economic downturn which is having a significant negative impact on
construction markets and
capital spending patterns of commercial businesses.
Partially offsetting these declines was an increase in revenue resulting from
the L-3
Contract.
Cost of Revenue
- Cost of revenue for the
three months ended June 30, 2009 was $10,081,872 as compared to $11,282,000 for
the three months ended June 30, 2008. The gross profit margin for the three
months ended June 30, 2009 was 27.8% as compared to 25.4% for the three months
ended June 30, 2008. Our Arizona and Mid-Atlantic operations had
lower quarter over quarter gross profit margin dollars due to their respective
decline in revenues. While revenues and gross profit dollars were
down in our New Jersey / New York operation, margins improved as we closed out
several of the jobs with large public agencies in the New York Metropolitan area
referenced above in “Revenue”. Also contributing to the
increase in gross profit was the profit recognized under the L-3
Contract.
Selling, General and Administrative
Expenses - Selling, general and administrative expense was $3,691,785 for
the three months ended June 30, 2009 as compared to $3,126,987 for the three
months ended June 30, 2008. This increase of 18.1% or $564,798 was mainly
attributable to higher personnel related costs. As part of our strategic growth
initiative, we have increased our sales force by over 60% starting in the last
quarter of 2008 and continuing throughout the second quarter of
2009. This initiative was implemented in order to take
advantage of an anticipated increase in security spending related to public
projects and the expansion of the Company’s national footprint into Houston,
Texas and Grand Junction, Colorado.
Interest Income – Interest
income for the three months ended June 30, 2009 was $2,067 as compared to
$22,937 for the three months ended June 30, 2008. This decrease was
attributable to lower average cash balances during the three month period ended
June 30, 2009 versus the same period in the prior year.
Interest Expense - Interest
expense for the three months ended June 30, 2009 was $99,706 as compared to
$65,995 for the three months ended June 30, 2008. The increase is due
to the average outstanding revolving debt balance being $1,816,484
higher
in the three month period ended June 30, 2009 versus that in the three months
ended June 30, 2008, offset in part by a 175 basis point lower average prime
rate of interest in 2009 compared to the same period in 2008.
Tax Expense – The effective
tax rate for the three months ended June 30, 2009 was 46.5%, based upon income
before tax expense of $103,293. The effective tax rate for the three
months ended June 30, 2008 was 50.1%, based upon income before tax expense of
$675,940. These tax rates are a result of the Company operating in
multiple states and jurisdictions with higher tax rates than the average of all
states combined.
Net Income - As a result of
the above noted factors our net income was $55,253 for the three months ended
June 30, 2009 compared to net income of $337,261 for the three months ended June
30, 2008. This resulted in diluted earnings per share of $0.01 on weighted
average diluted common shares outstanding of 6,064,742 for the three months
ended June 30, 2009, as compared to diluted earnings per share of $0.06 on
weighted average diluted common shares outstanding of 5,976,008 for the three
month period ended June 30, 2008.
Six
Months Ended June 30, 2009 compared to June 30, 2008
|
|
(Unaudited)
|
|
|
|
|
|
|
Six
months ended June 30,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
%
change
|
|
Revenue
|
|
$ |
29,280,192 |
|
|
$ |
31,029,997 |
|
|
|
-5.6 |
% |
Cost
of revenue
|
|
|
21,168,069 |
|
|
|
23,498,938 |
|
|
|
-9.9 |
% |
Gross
profit
|
|
|
8,112,123 |
|
|
|
7,531,059 |
|
|
|
7.7 |
% |
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general & administrative expenses
|
|
|
7,562,645 |
|
|
|
6,256,168 |
|
|
|
20.9 |
% |
Operating
profit
|
|
|
549,478 |
|
|
|
1,274,891 |
|
|
|
56.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
9,037 |
|
|
|
52,981 |
|
|
|
-82.9 |
% |
Other
income
|
|
|
15,794 |
|
|
|
8,248 |
|
|
|
91.5 |
% |
Interest
expense
|
|
|
(165,407 |
) |
|
|
(142,728 |
) |
|
|
15.9 |
% |
Income
before tax expense
|
|
|
408,902 |
|
|
|
1,193,392 |
|
|
|
-65.7 |
% |
Tax
expense
|
|
|
187,527 |
|
|
|
572,174 |
|
|
|
-67.2 |
% |
Net
income
|
|
$ |
221,375 |
|
|
$ |
621,218 |
|
|
|
-64.4 |
% |
Revenue - Revenue for the six
months ended June 30, 2009 was $29,280,192, representing a decrease of
$1,749,805 or 5.6%, as compared to revenue of $31,029,997 for the six months
ended June 30, 2008. Revenue was down in all of the Company’s integration regions in the second half of 2009 versus the same period in the prior year 2009, with the exception of Colorado, which was up 38.7%. The New Jersey region had the greatest
decrease, as a result of the winding down of large projects
that were not replaced by similar projects
due to competitive margin pressure. These declines are due principally to
the protracted credit freeze and economic downturn which is having a significant negative impact on
construction markets and
capital spending patterns of commercial businesses.
Partially offsetting these declines was an increase in revenue resulting from the L-3
Contract.
Cost of Revenue
- Cost of revenue for the
six months ended June 30, 2009 was $21,168,069 as compared to $23,498,938 for
the six months ended June 30, 2008. The gross profit margin for the six months
ended June 30, 2009 was 27.7% as compared to 24.3% for the six months ended June
30, 2008. In the first quarter of 2008, our Airorlite subsidiary
incurred significant losses in order to complete work on certain open contracts
which depresses gross profit for that period in 2008. Our Arizona and
Mid-Atlantic operations had lower period over period gross profit margin dollars
due to their respective decline in revenues. While revenues and gross
profit dollars were down in our New Jersey / New York operation, margins
improved as we closed out several of the jobs with large public agencies in the
New York Metropolitan area referenced above in “Revenue”. Also contributing to the
increase in gross profit was the profit recognized under the L-3
Contract.
Selling, General and Administrative
Expenses - Selling, general and administrative expense was $7,562,645 for
the six months ended June 30, 2009 as compared to $6,256,168 for the six months
ended June 30, 2008. This increase of 20.9% or $1,306,476 was mainly
attributable to higher personnel related costs. As part of our strategic growth
initiative, we have increased our sales force by over 60% starting in the last
quarter of 2008 and continuing throughout the second quarter of
2009. This initiative was implemented in order to take
advantage of an anticipated increase in security spending related to public
projects and the expansion of the Company’s national footprint into Houston,
Texas and Grand Junction, Colorado. Higher training costs for our
sales and technical staff were also incurred during the current quarter, which
contributed to the overall increase.
Interest Income – Interest
income for the six months ended June 30, 2009 was $9,037 as compared to $52,981
for the six months ended June 30, 2008. This decrease was
attributable to lower average cash balances during the six month period ended
June 30, 2009 versus the same period in the prior year.
Interest Expense - Interest
expense for the six months ended June 30, 2009 was $165,407 as compared to
$142,728 for the six months ended June 30, 2008. While the average
outstanding revolving debt balance was $1,400,552 higher in the six month period
ended June 30, 2009 versus that in the six months ended June 30, 2008, the
average prime rate of interest paid was 241 basis points lower in the 2009
period than it was in 2008 resulting in interest expense that is lower than
expected.
Tax Expense – The effective
tax rate for the six months ended June 30, 2009 was 45.9%, based upon income
before tax expense of $408,902. The effective tax rate for the six
months ended June 30, 2008 was 47.9%, based upon income before tax expense of
$1,193,192. These tax rates are a result of the Company operating in
multiple states and jurisdictions with higher tax rates than the average of all
states combined.
Net Income - As a result of
the above noted factors our net income was $221,375 for the six months ended
June 30, 2009 compared to net income of $621,218 for the six months ended June
30, 2008. This resulted in diluted earnings per share of $0.01 on weighted
average diluted common shares outstanding of 6,044,499 for the six months ended
June 30, 2009, as compared to diluted earnings per share of $0.06 on weighted
average diluted common shares outstanding of 5,976,008 for the six month period
ended June 30, 2008.
Liquidity
and Capital Resources
As of
June 30, 2009, we had cash and cash equivalents of $1,265,070. Our
net current assets were $10,123,730 at June 30, 2009 versus $13,944,121 at
December 31, 2008. Total debt at June 30, 2009 was $7,232,471
compared to the December 31, 2008 balance of $5,485,404.
Cash used
in operating activities was $99,310 during the six months ended June 30,
2009. The most significant use of cash resulted from a net decrease
in accounts payable and accrued expenses of $3,052,553 and $1,183,517,
respectively. Partially offsetting this use of cash was an increase
in costs in excess of billings and estimated profits of $2,065,552, which
includes the deferral of costs related to the L-3 Contract, a decrease in
accounts receivable of $1,270,740 and an increase in billings in excess of costs
and profits of $572,394.
Cash used
in investing activities was $234,076, comprised of $196,576 for the purchase of
property and equipment and $37,500 of earn-out payments associated with the CIS
acquisition.
Cash
provided by financing activities was $1,570,752, of which $1,900,000 represents
borrowings from our revolving bank line and $185,069 of proceeds from stock
option exercises, partially offset by $271,869 representing the repayments of
bank loans and other debt.
Borrowings
under the revolving credit facility were $6,235,898 at June 30, 2009 and were
$4,335,898 at December 31, 2008. On October 6, 2008, the Company
executed an amendment to its revolving credit agreement with TD Bank, increasing
its line of credit from $4 million to $8 million. The term of the agreement has
been extended to June 30, 2010 and interest continues to be paid monthly in
arrears at TD Bank’s prime rate. The Company is required to maintain certain
financial and reporting covenants and restrictions on dividend payments under
the terms of the Loan Agreement with TB Bank, N.A. (See Note 6 to the Condensed
Consolidated Financial Statements included in this Quarterly Report on Form
10-Q).
Backlog
and Bookings
Booked
orders increased 58.3% to $16,350,960 in the second quarter of 2009, as compared
to $10,328,622 same quarter of 2008. Booked orders increased 27.3% to
$28,091,723 in the first half of 2009, as compared to $22,071,938 first half of
2008.
The
Company’s backlog as of June 30, 2009 was $22,662,774 and was $17,609,108 at
June 30, 2008. The increase in backlog is due to new public sector
service agreements, several integration contracts with new public agencies and
L-3 Contract bookings.
Critical
Accounting Policies and Estimates
Disclosure
of the Company’s significant accounting policies is included in Note 1 to the
consolidated financial statements of the Company’s Annual Report on Form 10-K
for year ended December 31, 2008. Some of these policies require
management to make estimates and assumptions that may affect the reported
amounts in the Company’s financial statements.
Forward
Looking Statements
When used
in this discussion, the words "believes", "anticipates", "contemplated",
"expects", or similar expressions are intended to identify forward looking
statements. Such statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected. Those
risks and uncertainties include changes in interest rates, the ability to
control costs and expenses, significant variations in recognized revenue due to
customer caused delays in installations, cancellations of contracts by our
customers, and general economic conditions which could cause actual results to
differ materially from historical earnings and those presently anticipated or
projected. The Company undertakes no obligation to publicly release the results
of any revisions to those forward looking statements that may be made to reflect
events or circumstances after this date or to reflect the occurrence of
unanticipated events.
Item
3. Quantitative and Qualitative Disclosures about Market
Risk
We have
one revolving credit facility for which the interest rate on outstanding
borrowings is variable and is based upon the prime rate of
interest. At June 30, 2009, there was $6,235,898 outstanding under
this credit facility.
Our
business is impacted by the health of the U.S economy. Current
economic conditions have caused a decline in business spending which has
adversely affected our business and financial performance and our operating
results. Accordingly, our business and financial performance has been
adversely affected by current economic conditions, and any future d of economic
conditions, could cause a further reduction in the availability of credit to our
customers.
Item
4. Controls and Procedures
(a) Evaluation of Disclosure
Controls and Procedures
The
Company’s Chief Executive Officer, Chief Operating Officer and Chief Financial
Officer have evaluated the effectiveness of our disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30,
2009. Based on such evaluation, such officers have concluded that, as of
June 30, 2009, the Company’s disclosure controls and procedures are
effective.
(b) Changes in Internal
Control Over Financial Reporting
During
the three months ended June 30, 2009, management did not identify any changes in
the Company’s internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
Part
II - Other Information
Item
1.
|
Legal
Proceedings
|
We know
of no material litigation or proceeding, pending or threatened, to which we are
or may become a party.
Number
|
|
Description
|
|
|
|
31.1
|
|
Rule
13a-14(a) 15d-14(a) Certification of Chief Executive
Officer
|
31.2
|
|
Rule
13a-14(a) 15d-14(a) Certification of Chief Operating
Officer
|
31.3
|
|
Rule
13a-14(a) 15d-14(a) Certification of Chief Financial
Officer
|
32
|
|
Section
1350 Certification
|
In
accordance with the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto authorized.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
Henry
Bros. Electronics, Inc.
|
|
(Registrant)
|
Date:
August 13, 2009
|
|
By: /s/
JAMES E. HENRY
|
|
|
|
|
|
James
E. Henry
|
|
|
|
|
|
Chairman,
Chief Executive Officer,
Treasurer
and Director
|
|
|
|
Date:
August 13, 2009
|
|
By: /s/
BRIAN REACH
|
|
|
|
|
|
Brian
Reach
|
|
|
|
|
|
President,
Chief Operating Officer,
Secretary
and Director
|
|
|
|
Date:
August 13, 2009
|
|
By: /s/
JOHN P. HOPKINS
|
|
|
|
|
|
John
P. Hopkins
|
|
|
|
|
|
Chief
Financial Officer
|