Unassociated Document
UNITED
STATES
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 March 31, 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
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: 6,020,699 shares of common stock, $.01 par value
per share, as of May 1, 2009.
INDEX
|
|
Page
|
Part
I
|
Financial
Information
|
|
|
|
|
Item
1.
|
Condensed
Financial Statements
|
3
|
|
|
|
|
Condensed
Consolidated Balance Sheets as of March 31, 2009 (Unaudited)
and
|
|
|
December
31, 2008 (Audited)
|
3
|
|
|
|
|
Condensed
Consolidated Statements of Operations for the three months
ended
|
|
|
March
31, 2009 (Unaudited) and March 31, 2008 (Unaudited)
|
4
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows for the three months
ended
|
|
|
March
31, 2009 (Unaudited) and March 31, 2008 (Unaudited)
|
5
|
|
|
|
|
Condensed
Consolidated Statement of Changes in Stockholders’ Equity for the
three
|
|
|
months
ended March 31, 2009 (Unaudited)
|
6
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
7-15
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and
|
|
|
Results
of Operations
|
16-20
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
20
|
|
|
|
Item
4.
|
Controls
and Procedures
|
20
|
|
|
|
Part
II
|
Other
Information.
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
21
|
|
|
|
Item
6.
|
Exhibits
|
21
|
|
|
|
SIGNATURES
|
22
|
|
|
CERTIFICATIONS
|
|
Part
I Financial Information
Item 1. Condensed
Financial Statements
HENRY
BROS. ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
3,104,406 |
|
|
$ |
27,704 |
|
Accounts
receivable-net of allowance for doubtful accounts of
|
|
|
|
|
|
|
|
|
$716,685
at March 31, 2009 and $801,306 at December 31, 2008
|
|
|
18,193,051
|
|
|
|
18,164,066 |
|
Inventory
|
|
|
1,222,979 |
|
|
|
1,201,477 |
|
Costs
in excess of billings and estimated profits
|
|
|
4,152,393 |
|
|
|
5,512,101 |
|
Deferred
tax asset
|
|
|
1,117,975 |
|
|
|
1,363,309 |
|
Retainage
receivable
|
|
|
1,358,316 |
|
|
|
1,756,481 |
|
Prepaid
expenses and income tax receivable
|
|
|
1,451,855 |
|
|
|
878,003 |
|
Other
assets
|
|
|
501,058 |
|
|
|
330,052 |
|
Total
current assets
|
|
|
31,102,033 |
|
|
|
29,233,193 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment - net of accumulated depreciation of
|
|
|
|
|
|
|
|
|
$3,174,092
at March 31, 2009 and $2,993,961 at December 31, 2008
|
|
|
2,770,936 |
|
|
|
2,620,790 |
|
Goodwill
|
|
|
3,666,330 |
|
|
|
3,592,080 |
|
Intangible
assets - net of accumulated amortization
|
|
|
974,945 |
|
|
|
1,016,665 |
|
Other
assets
|
|
|
176,435 |
|
|
|
147,380 |
|
TOTAL
ASSETS
|
|
$ |
38,690,679 |
|
|
$ |
36,610,108 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
& STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
6,228,247 |
|
|
$ |
6,927,365 |
|
Accrued
expenses
|
|
|
4,759,487 |
|
|
|
4,833,618 |
|
Accrued
taxes
|
|
|
- |
|
|
|
200,774 |
|
Billings
in excess of costs and estimated profits
|
|
|
2,960,408 |
|
|
|
2,006,751 |
|
Deferred
income
|
|
|
284,664 |
|
|
|
157,890 |
|
Current
portion of long-term debt
|
|
|
534,389 |
|
|
|
629,742 |
|
Other
current liabilities
|
|
|
543,743 |
|
|
|
532,932 |
|
Total
current liabilities
|
|
|
15,310,938 |
|
|
|
15,289,072 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt, less current portion
|
|
|
6,452,467 |
|
|
|
4,855,662 |
|
Deferred
tax liability
|
|
|
393,259 |
|
|
|
406,417 |
|
TOTAL
LIABILITIES
|
|
|
22,156,664 |
|
|
|
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;
|
|
|
|
|
|
|
|
|
6,013,032
shares issued and outstanding in 2009 and 5,966,583 shares in
2008
|
|
|
60,130 |
|
|
|
59,666 |
|
Additional
paid in capital
|
|
|
18,041,068 |
|
|
|
17,732,596 |
|
Accumulated
deficit
|
|
|
(1,567,183 |
) |
|
|
(1,733,305 |
) |
TOTAL
EQUITY
|
|
|
16,534,015 |
|
|
|
16,058,957 |
|
TOTAL
LIABILITIES & STOCKHOLDERS' EQUITY
|
|
$ |
38,690,679 |
|
|
$ |
36,610,108 |
|
See
accompanying notes to the condensed consolidated financial
statements.
HENRY
BROS. ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
(Unaudited)
|
|
|
|
Three months ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Revenue
|
|
$ |
15,308,212 |
|
|
$ |
15,906,046 |
|
Cost
of revenue
|
|
|
11,086,198 |
|
|
|
12,216,938 |
|
Gross
profit
|
|
|
4,222,014 |
|
|
|
3,689,108 |
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
3,870,860 |
|
|
|
3,129,181 |
|
Operating
profit
|
|
|
351,154 |
|
|
|
559,927 |
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
6,970 |
|
|
|
30,044 |
|
Other
income
|
|
|
13,186 |
|
|
|
4,214 |
|
Interest
expense
|
|
|
(65,701 |
) |
|
|
(76,733 |
) |
Income
before tax expense
|
|
|
305,609 |
|
|
|
517,452 |
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
139,487 |
|
|
|
233,495 |
|
Net
income
|
|
$ |
166,122 |
|
|
$ |
283,957 |
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER COMMON
SHARE:
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$ |
0.03 |
|
|
$ |
0.05 |
|
Weighted
average common shares
|
|
|
5,829,581 |
|
|
|
5,776,064 |
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER COMMON
SHARE:
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share
|
|
$ |
0.03 |
|
|
$ |
0.05 |
|
Weighted
average diluted common shares
|
|
|
6,143,851 |
|
|
|
5,880,721 |
|
See
accompanying notes to the condensed consolidated financial
statements.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
166,122 |
|
|
$ |
283,957 |
|
Adjustments
to reconcile net income from operations
|
|
|
|
|
|
|
|
|
to
net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
222,691 |
|
|
|
182,397 |
|
Bad
debt expense
|
|
|
67,658 |
|
|
|
88,810 |
|
Provision
for obsolete inventory
|
|
|
- |
|
|
|
30,000 |
|
Stock
option expense
|
|
|
60,000 |
|
|
|
54,000 |
|
Deferred
income taxes
|
|
|
232,177 |
|
|
|
63,125 |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(96,643 |
) |
|
|
144,417 |
|
Inventory
|
|
|
(21,502 |
) |
|
|
(22,222 |
) |
Costs
in excess of billings and estimated profits
|
|
|
1,359,708 |
|
|
|
(1,041,232 |
) |
Retainage
receivable
|
|
|
398,165 |
|
|
|
443,711 |
|
Other
assets
|
|
|
(171,006 |
) |
|
|
(9,023 |
) |
Prepaid
expenses and income tax receivable
|
|
|
(573,852 |
) |
|
|
(804 |
) |
Accounts
payable
|
|
|
(699,118 |
) |
|
|
(208,595 |
) |
Accrued
expenses
|
|
|
(274,905 |
) |
|
|
114,223 |
|
Billings
in excess of costs and estimated profits
|
|
|
953,657 |
|
|
|
151,285 |
|
Deferred
income
|
|
|
126,773 |
|
|
|
25,237 |
|
Other
liabilities
|
|
|
10,808 |
|
|
|
78,490 |
|
Net
cash provided by operating activities
|
|
|
1,760,733 |
|
|
|
377,776 |
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase
of businesses, net of cash acquired
|
|
|
(25,000 |
) |
|
|
(25,000 |
) |
Purchase
of property and equipment
|
|
|
(112,813 |
) |
|
|
(70,378 |
) |
Net
cash used in investing activities
|
|
|
(137,813 |
) |
|
|
(95,378 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Recovery
from shareholder, net
|
|
|
- |
|
|
|
59,443 |
|
Proceeds
from exercising of stock options - net of fees
|
|
|
169,686 |
|
|
|
- |
|
Borrowings
from revolving bank lines
|
|
|
1,500,000 |
|
|
|
- |
|
Payments
of bank loans
|
|
|
(57,757 |
) |
|
|
(53,714 |
) |
Net
repayments of other debt
|
|
|
(90,253 |
) |
|
|
(63,498 |
) |
Payments
of equipment financed
|
|
|
(67,894 |
) |
|
|
(34,280 |
) |
Net
cash provided by (used in) financing activities
|
|
|
1,453,782 |
|
|
|
(92,049 |
) |
Increase
in cash and cash equivalents
|
|
|
3,076,702 |
|
|
|
190,349 |
|
Cash
and cash equivalents - beginning of period
|
|
|
27,704 |
|
|
|
3,277,450 |
|
Cash
and cash equivalents - end of period
|
|
$ |
3,104,406 |
|
|
$ |
3,467,799 |
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Amount
paid for the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
64,701 |
|
|
$ |
71,828 |
|
Taxes
|
|
|
710,152 |
|
|
|
175,500 |
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Equipment
financed
|
|
|
217,464 |
|
|
|
42,425 |
|
Issuance
of stock to acquire businesses
|
|
|
79,250 |
|
|
|
49,400 |
|
See
accompanying notes to the condensed consolidated financial
statements.
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
|
|
|
36,449 |
|
|
|
364 |
|
|
|
169,322 |
|
|
|
|
|
|
|
169,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued in connection with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the
acquisition of CIS Security Systems
|
|
|
10,000 |
|
|
|
100 |
|
|
|
79,150 |
|
|
|
|
|
|
|
79,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of value assigned to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
option grants
|
|
|
|
|
|
|
|
|
|
|
60,000 |
|
|
|
|
|
|
|
60,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166,122 |
|
|
|
166,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2009
|
|
|
6,013,032 |
|
|
$ |
60,130 |
|
|
$ |
18,041,068 |
|
|
$ |
(1,567,183 |
) |
|
$ |
16,534,015 |
|
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 March 31, 2009 and for the three month periods ended
March 31, 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 March 31, 2009, the results of its
operations and cash flows for the three month periods ended March 31, 2009 and
2008, and changes in stockholders’ equity for the three month period ended March
31, 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
March 31, 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:
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
New
Jersey/New York
|
|
|
48 |
% |
|
|
47 |
% |
California
|
|
|
16 |
% |
|
|
20 |
% |
Texas
|
|
|
4 |
% |
|
|
4 |
% |
Arizona
|
|
|
8 |
% |
|
|
11 |
% |
Colorado
|
|
|
12 |
% |
|
|
9 |
% |
Virginia
/ Maryland
|
|
|
10 |
% |
|
|
9 |
% |
Integration
segment
|
|
|
98 |
% |
|
|
100 |
% |
Specialty
segment
|
|
|
2 |
% |
|
|
1 |
% |
Inter-segment
|
|
|
0 |
% |
|
|
-1 |
% |
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 $146,123 for the
three months ended March 31, 2008. These reclassifications 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:
The
Company does not anticipate the adoption of recently issued accounting
pronouncements to have a significant impact on the Company’s results of
operations, financial position or cash flows.
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 March 31, 2009 and 2008, the Company charged $60,000 and
$54,000, respectively, to operations for stock based compensation
expense.
A summary
of stock option activity for the three months ended March 31, 2009 under the
Company’s various Stock Option Plans’ follows:
|
|
Number of Shares
|
|
|
Weighted Average Exercise Price
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Outstanding
|
|
|
Exercisable
|
|
December
31, 2008
|
|
|
984,515 |
|
|
|
496,856 |
|
|
$ |
4.97 |
|
|
$ |
5.44 |
|
Granted
at market
|
|
|
35,000 |
|
|
|
|
|
|
|
6.28 |
|
|
|
|
|
Exercised
|
|
|
(38,649 |
) |
|
|
|
|
|
|
4.66 |
|
|
|
|
|
Forfeited
or expired
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2009
|
|
|
980,866 |
|
|
|
511,866 |
|
|
|
5.02 |
|
|
|
5.46 |
|
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 three months ended
March 31, 2009 was estimated assuming no expected dividends and the following
weighted-average assumptions:
Expected
Life (years)
|
|
|
5.7 |
|
Expected
volatility
|
|
|
51.76 |
% |
Risk-free
interest rates
|
|
|
1.78 |
% |
Dividend
yield
|
|
|
- |
|
Weighted-average
grant-date fair value
|
|
$ |
2.82 |
|
There
were no stock options granted during the three months ended March 31,
2008.
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:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Cost
incurred on uncompleted contracts
|
|
$ |
71,181,944 |
|
|
$ |
68,235,896 |
|
Billings
on uncompleted contracts
|
|
|
69,989,959 |
|
|
|
64,730,546 |
|
|
|
$ |
1,191,985 |
|
|
$ |
3,505,350 |
|
Included
in accompanying Balance Sheets under the following captions:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Costs
in excess of billings and estimated profits
|
|
$ |
4,152,393 |
|
|
$ |
5,512,101 |
|
Billing
in excess of costs and estimated profits
|
|
|
2,960,408 |
|
|
|
2,006,751 |
|
|
|
$ |
1,191,985 |
|
|
$ |
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 March 31, 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 continuing
through June 30, 2010. Interest under the Term Loan is 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:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Term
loan at 6.75% interest payable in monthly installments
|
|
|
|
|
|
|
of
$19,730 thru June 30, 2010
|
|
$ |
45,653 |
|
|
$ |
103,410 |
|
|
|
|
|
|
|
|
|
|
Revolving
line at the prime rate of interest, payable in monthly
|
|
|
|
|
|
|
|
|
installments
thru June 30, 2010
|
|
|
5,835,898 |
|
|
|
4,335,898 |
|
|
|
|
|
|
|
|
|
|
Corporate
insurance financed at 7.85% payable in monthly
|
|
|
|
|
|
|
|
|
installments
thru October 1, 2009
|
|
|
178,739 |
|
|
|
268,992 |
|
|
|
|
|
|
|
|
|
|
Capitalized
lease obligations due in monthly installments,
|
|
|
|
|
|
|
|
|
with
interest ranging from 6.4% to 12.7%
|
|
|
926,566 |
|
|
|
777,104 |
|
|
|
|
6,986,856 |
|
|
|
5,485,404 |
|
Less:
Current Portion
|
|
|
(534,389 |
) |
|
|
(629,742 |
) |
|
|
$ |
6,452,467 |
|
|
$ |
4,855,662 |
|
The
weighted average prime interest rate was 3.25% and 4.8% for the three months
ended March 31, 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 three months ended March 31, 2009 is estimated to be
approximately 45.6%, as compared to an estimated overall effective tax rate of
45.1% for the three months ended March 31, 2008.
HENRY
BROS. ELECTRONICS, INC AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED) – (continued)
The
estimated overall effective income tax rate for fiscal 2008 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. The Company adopted the provisions of FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an
interpretation of FASB Statement No. 109” as of January 1, 2007. As a
result of the implementation of FIN 48, the Company recognized an approximate
$38,561 increase in the liability for unrecognized tax benefits and a decrease
to the January 1, 2007 balance of retained earnings. There were no
additional tax liabilities identified in 2008, except for the potential
additional interest on those liabilities recognized at December 31,
2007. 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 March 31, 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 10,000 shares during the first
quarter 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 40,000 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:
|
|
Three months ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Revenue
|
|
|
|
|
|
|
Integration
|
|
$ |
14,989,646 |
|
|
$ |
15,798,688 |
|
Specialty
|
|
|
318,566 |
|
|
|
153,237 |
|
Inter-segment
|
|
|
- |
|
|
|
(45,879 |
) |
Total
Revenue
|
|
$ |
15,308,212 |
|
|
$ |
15,906,046 |
|
|
|
|
|
|
|
|
|
|
Operating Profit (Loss)
|
|
|
|
|
|
|
|
|
Integration
|
|
$ |
1,191,876 |
|
|
$ |
2,015,169 |
|
Specialty
|
|
|
63,896 |
|
|
|
(605,325 |
) |
Corporate
|
|
|
(904,618 |
) |
|
|
(849,917 |
) |
Total
Operating Profit (Loss)
|
|
$ |
351,154 |
|
|
$ |
559,927 |
|
Selected
balance sheet information by business segment is presented in the following
table as of:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Total Assets:
|
|
|
|
|
|
|
Integration
|
|
$ |
34,477,792 |
|
|
$ |
33,304,890 |
|
Specialty
|
|
|
1,095,226 |
|
|
|
1,756,730 |
|
Corporate
|
|
|
3,117,661 |
|
|
|
1,548,488 |
|
Total
Assets
|
|
$ |
38,690,679 |
|
|
$ |
36,610,108 |
|
HENRY
BROS. ELECTRONICS, INC AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED) – (continued)
10. Contingent
Liabilities
In July
2007, an accident occurred in Corona, California involving one of the Company’s
vehicles. The operator of a motorcycle was killed in the accident. In December
2007, his family commenced litigation against the former Company employee who
was driving the vehicle, as well as the Company. In the fourth
quarter 2008, the case was settled by our insurance carrier. In January
2009, a motion was filed by our insurance carrier requesting that the
court deem that the settlement was entered into in good faith. A
court hearing on that motion was held on April 16, 2009 and the case was
dismissed.
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.
Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations
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 $5,835,898, at March 31, 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
We
anticipate our overall average operating margins for our business to be 6.0% for
the year ended December 31, 2009, as compared to an operating margin of 5.0% in
2008 and essentially breakeven operating margin in 2007. Our revenue
forecast for 2009 remains at $80 million.
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 quarter of 2009, the revenue recognized under
this contract represented $1.5 million and there were outstanding task orders
included in our backlog of approximately $4.0 million at March 31,
2009. There was no revenue recognized under this contract for the
first quarter of 2008.
Three
Months Ended March 31, 2009 compared to March 31, 2008
|
|
(Unaudited)
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
Revenue
|
|
$ |
15,308,212 |
|
|
$ |
15,906,046 |
|
|
|
-3.8 |
% |
Cost
of revenue
|
|
|
11,086,198 |
|
|
|
12,216,938 |
|
|
|
-9.3 |
% |
Gross
profit
|
|
|
4,222,014 |
|
|
|
3,689,108 |
|
|
|
14.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
3,870,860 |
|
|
|
3,129,181 |
|
|
|
23.7 |
% |
Operating
profit
|
|
|
351,154 |
|
|
|
559,927 |
|
|
|
-37.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
6,970 |
|
|
|
30,044 |
|
|
|
-76.8 |
% |
Other
income
|
|
|
13,186 |
|
|
|
4,214 |
|
|
|
212.9 |
% |
Interest
expense
|
|
|
(65,701 |
) |
|
|
(76,733 |
) |
|
|
-14.4 |
% |
Income
before tax expense
|
|
|
305,609 |
|
|
|
517,452 |
|
|
|
-40.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
139,487 |
|
|
|
233,495 |
|
|
|
-40.3 |
% |
Net
income
|
|
$ |
166,122 |
|
|
$ |
283,957 |
|
|
|
-41.5 |
% |
Revenue - Revenue for the
three months ended March 31, 2009 was $15,308,212, representing a decrease of
$597,834 or 3.8%, as compared to revenue of $15,906,046 for the three months
ended March 31, 2008. New Jersey’s revenues decreased significantly
as a result of the winding down of work completed on contracts for several large
public agencies in the New York Metropolitan area, as well as a decline in
revenue from our Arizona and California operations. Partially
offsetting these declines was an increase in revenue from our Colorado and
Virginia operations and revenue recorded under the L-3 Contract.
Cost of Revenue - Cost of
revenue for the three months ended March 31, 2009 was $11,086,198 as compared to
$12,216,938 for the three months ended March 31, 2008. The gross profit margin
for the three months ended March 31, 2009 was 27.6% as compared to 23.2% for the
three months ended March 31, 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 California Banking operation had a decline in gross profit
dollars and margins during the first quarter of 2009 on lower revenues and less
profitable jobs as this sector has been directly impacted by the turmoil in the
U.S. Banking sector. Our Arizona operation had lower quarter over quarter gross
profit margins due to a decline in revenue resulting from increased
competition. Also, while the gross profit margin was slightly better
quarter over quarter, the lower revenue from our New Jersey / New York operation
was the main cause of the decline in gross profit dollars from the integration
segment during the quarter.
Selling, General and Administrative
Expenses - Selling, general and administrative expense was $3,870,860 for
the three months ended March 31, 2009 as compared to $3,129,181 for the three
months ended March 31, 2008. This increase of 23.7% or $741,679 was mainly
attributable to higher personnel related costs. As part of our strategic growth
initiative, we have increased our sales force by 62% starting in the last
quarter of 2008 and continuning throughout the first 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 three months ended March 31, 2009 was $6,970 as compared to
$30,044 for the three months ended March 31, 2008. This decrease was
attributable to lower average cash balances during the three month period ended
March 31, 2009 versus the same period in the prior year.
Interest Expense - Interest
expense for the three months ended March 31, 2009 was $65,701 as compared to
$76,733 for the three months ended March 31, 2008. While the average
outstanding debt balance was $1,680,000 higher in the three month period ended
March 31, 2009 versus that in the three months ended March 31, 2008, the average
prime rate of interest paid was 317 basis points lower in the 2009 period than
it was in 2008 resulting in a lower net interest expense.
Tax Expense – The effective
tax rate for the three months ended March 31, 2009 was 45.6%, based upon income
before tax expense of $305,609. The effective tax rate for the three
months ended March 31, 2008 was 45.1%, based upon income before tax expense of
$517,452. 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 $166,122 for the three months ended
March 31, 2009 compared to net income of $283,957 for the three months ended
March 31, 2008. This resulted in diluted earnings per share of $0.03 on
weighted average diluted common shares outstanding of 6,143,851 for the three
months ended March 31, 2009, as compared to diluted earnings per share of $0.05
on weighted average diluted common shares outstanding of 5,880,721 for the three
month period ended March 31, 2008.
Liquidity and Capital
Resources
As of
March 31, 2009, we had cash and cash equivalents of $3,104,406. Our
net current assets were $15,791,095 at March 31, 2009 versus $13,944,121 at
December 31, 2008. Total debt at March 31, 2009 was $6,986,856
compared to the December 31, 2008 balance of $5,485,404.
Cash
provided by operating activities was $1,760,733 during the three months ended
March 31, 2009. The most significant source of cash resulted from a
net decrease in costs in excess of billings and estimated profits of $1,359,708,
which includes the deferral of costs related to the L-3 Contract, and an
increase in billings in excess of costs and profits of $953,657. Also
contributing to cash provided from operations was a decrease in retainage
receivables of $398,165. This was partially offset by a decrease in
accounts payable and accrued expenses of $699,118 and $274,905,
respectively.
Cash used
in investing activities was $137,813, comprised of $112,813 for the purchase of
property and equipment and $25,000 of earn-out payments associated with the CIS
acquisition.
Cash used
provided by financing activities was $1,453,782, of which $1,500,000 represents
borrowings from our revolving bank line and $169,686 of proceeds from stock
option exercises, partially offset by $215,904 represents the repayments of bank
loans and other debt.
Borrowings
under the revolving credit facility were $5,835,898 at March 31, 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 of $11,740,763 in the first quarter of 2009 was essentially flat with the
same quarter of 2008. The Company’s backlog as of March 31, 2009 was $20,133,794
and was $22,404,437 at March 31, 2008. The work completed on several
large public agency jobs in New Jersey / New York during the year ended December
31, 2008 is the primary factor in the decline in the backlog, partially offset
by the 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 March 31, 2009, there was $5,835,898 outstanding under
this credit facility.
Current
economic conditions may cause a decline in business spending which could
adversely affect our business and financial performance and our operating
results are impacted by the health of the U.S economy. Accordingly,
our business and financial performance may be adversely affected by current and
future economic conditions, such as a reduction in the availability of credit to
our customers and recession.
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 March
31, 2009. Based on such evaluation, such officers have concluded that, as
of March 31, 2009, the Company’s disclosure controls and procedures are
effective.
(b) Changes in Internal
Control Over Financial Reporting
During
the three months ended March 31, 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.
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Legal
Proceedings
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In July
2007, an accident occurred in Corona, California involving one of the Company’s
vehicles. The operator of a motorcycle was killed in the accident. In December
2007, his family commenced litigation against the former Company employee who
was driving the vehicle, as well as the Company. In the fourth
quarter 2008, the case was settled by our insurance carrier. In January
2009, a motion was filed by our insurance carrier requesting that the
court deem that the settlement was entered into in good faith. A
court hearing on that motion was held on April 16, 2009 and the case was
dismissed.
We know
of no other material litigation or proceeding, pending or threatened, to which
we are or may become a party.
Number
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Description
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31.1
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Rule
13a-14(a) 15d-14(a) Certification of Chief Executive
Officer
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31.2
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Rule
13a-14(a) 15d-14(a) Certification of Chief Operating
Officer
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31.3
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Rule
13a-14(a) 15d-14(a) Certification of Chief Financial
Officer
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32
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Section
1350
Certification
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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.
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Henry
Bros. Electronics, Inc.
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(Registrant)
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Date:
May 14, 2009
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By: /s/ JAMES E.
HENRY
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James
E. Henry
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Chairman,
Chief Executive Officer, Treasurer and Director
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Date:
May 14, 2009
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By: /s/ BRIAN
REACH
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Brian
Reach
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President,
Chief Operating Officer, Secretary and Director
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Date:
May 14, 2009
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By: /s/ JOHN P.
HOPKINS
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John
P. Hopkins
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Chief
Financial
Officer
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