-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ElYqYtdlxJ+4I/Y3917TVRcUn8GoU6IttMqMJxnvGn3MSL6YaGGrL3HWRGE4uvPa /syviAnRZjyDdPs/RwBp8A== 0000310056-02-000005.txt : 20020814 0000310056-02-000005.hdr.sgml : 20020814 20020814152847 ACCESSION NUMBER: 0000310056-02-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VICON INDUSTRIES INC /NY/ CENTRAL INDEX KEY: 0000310056 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 112160665 STATE OF INCORPORATION: NY FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07939 FILM NUMBER: 02735811 BUSINESS ADDRESS: STREET 1: 89 ARKAY DR CITY: HAUPPAUGE STATE: NY ZIP: 11788 BUSINESS PHONE: 5169522288 MAIL ADDRESS: STREET 1: 89 ARKAY DR CITY: HAUPPAUGE STATE: NY ZIP: 11788 10-Q 1 f10q_0602.txt VICON QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended June 30, 2002 Commission File No. 1-7939 ---------------------------- -------- VICON INDUSTRIES, INC. - ----------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) NEW YORK STATE 11-2160665 - ----------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification No.) 89 Arkay Drive, Hauppauge, New York 11788 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (631) 952-2288 ------------------------- (Former name, address, and fiscal year, if changed since last report) 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 -------- ------ At June 30, 2002, the registrant had outstanding 4,670,762 shares of Common Stock, $.01 par value. PART I - FINANCIAL INFORMATION ------------------------------ VICON INDUSTRIES, INC. AND SUBSIDIARIES --------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ----------------------------------------------- (UNAUDITED) Three Months Ended ------------------- 6/30/02 6/30/01 -------- -------- Net sales............................. $14,274,490 $16,081,123 Cost of sales......................... 9,212,820 10,615,933 ----------- ----------- Gross profit........................ 5,061,670 5,465,190 Operating expenses: Selling expense................... 2,929,144 3,560,480 General & administrative expense.. 939,951 1,451,378 Engineering & development expense. 1,095,889 976,067 ----------- ----------- 4,964,984 5,987,925 ----------- ----------- Operating income (loss)............. 96,686 (522,735) Interest expense...................... 81,757 111,516 Interest income....................... (31,007) (46,079) ----------- ----------- Income (loss) before income taxes. 45,936 (588,172) Income tax expense (benefit).......... 18,000 (214,000) ----------- ----------- Net income (loss)................. $ 27,936 $ (374,172) =========== =========== Earnings (loss) per share: Basic $ .01 $ (.08) === === Diluted $ .01 $ (.08) === === Shares used in computing earnings (loss) per share: Basic 4,669,526 4,648,983 Diluted 4,733,552 4,648,983 See Accompanying Notes to Condensed Consolidated Financial Statements. -2- VICON INDUSTRIES, INC. AND SUBSIDIARIES --------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ----------------------------------------------- (UNAUDITED) Nine Months Ended ----------------- 6/30/02 6/30/01 -------- -------- Net sales............................. $40,671,462 $50,617,285 Cost of sales......................... 26,902,063 33,545,305 ----------- ----------- Gross profit........................ 13,769,399 17,071,980 Operating expenses: Selling expense................... 8,765,022 10,109,821 General & administrative expense.. 2,934,704 4,075,726 Engineering & development expense. 3,117,226 2,873,751 ----------- ----------- 14,816,952 17,059,298 ----------- ----------- Operating (loss) income............. (1,047,553) 12,682 Gain on sale of securities............ - (3,022,579) Interest expense...................... 257,808 388,784 Interest income....................... (138,971) (129,830) ----------- ----------- (Loss) income before income taxes. (1,166,390) 2,776,307 Income tax (benefit) expense.......... (380,000) 1,010,000 ----------- ----------- Net (loss) income................. $ (786,390) $ 1,766,307 =========== =========== (Loss) earnings per share: Basic $ (.17) $ .38 === === Diluted $ (.17) $ .38 === === Shares used in computing (loss) earnings per share: Basic 4,657,752 4,644,869 Diluted 4,657,752 4,648,924 See Accompanying Notes to Condensed Consolidated Financial Statements. -3- VICON INDUSTRIES, INC. AND SUBSIDIARIES --------------------------------------- CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- ASSETS 6/30/02 9/30/01 - ------ --------- ------- (Unaudited) CURRENT ASSETS Cash and cash equivalents....................... $ 5,937,536 $ 9,795,148 Accounts receivable (less allowance of $842,000 at June 30, 2002 and $1,115,000 at September 30, 2001)............. 12,502,851 11,438,334 Inventories: Parts, components, and materials.............. 2,795,467 2,518,782 Work-in-process............................... 1,427,228 2,777,211 Finished products............................. 12,122,816 11,800,197 ----------- ----------- 16,345,511 17,096,190 Deferred income taxes........................... 2,076,724 1,420,372 Prepaid expenses................................ 573,578 566,861 ----------- ----------- TOTAL CURRENT ASSETS............................ 37,436,200 40,316,905 - -------------------- Property, plant and equipment................... 16,905,720 16,371,853 Less accumulated depreciation and amortization.. (9,101,708) (8,232,536) ----------- ----------- 7,804,012 8,139,317 Goodwill, net of accumulated amortization....... 1,422,219 1,571,058 Deferred income taxes........................... 1,228,073 1,366,625 Other assets.................................... 447,159 531,660 ----------- ----------- TOTAL ASSETS.................................... $48,337,663 $51,925,565 - ------------ =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term debt............ $ 1,379,653 $ 2,144,727 Accounts payable................................ 2,307,581 2,375,825 Accrued compensation and employee benefits...... 1,409,952 1,789,401 Accrued expenses................................ 1,550,488 2,227,825 Unearned service revenue........................ 1,502,454 1,294,576 Income taxes payable............................ 152,130 479,361 ---------- ---------- TOTAL CURRENT LIABILITIES 8,302,258 10,311,715 - ------------------------- Long-term debt.................................. 3,275,703 3,498,099 Unearned service revenue........................ 1,582,597 2,334,348 Other long-term liabilities..................... 843,732 883,356 SHAREHOLDERS' EQUITY Common stock, par value $.01.................... 48,239 47,565 Capital in excess of par value.................. 21,759,456 21,542,541 Retained earnings............................... 13,523,052 14,309,442 ------------ ----------- 35,330,747 35,899,548 Less treasury stock, at cost.................... (784,832) (633,422) Accumulated other comprehensive loss............ (212,542) (368,079) ------------ ----------- TOTAL SHAREHOLDERS' EQUITY 34,333,373 34,898,047 - -------------------------- ------------ ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...... $48,337,663 $51,925,565 - ------------------------------------------ ============ =========== See Accompanying Notes to Condensed Consolidated Financial Statements. -4- VICON INDUSTRIES, INC. AND SUBSIDIARIES --------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- (UNAUDITED) Nine Months Ended ----------------- 6/30/02 6/30/01 ------- ------- Cash flows from operating activities: Net (loss) income.............................. $ (786,390) $ 1,766,307 Adjustments to reconcile net (loss) income to cash (used in) provided by operating activities: Gain on sale of securities................... - (3,022,579) Depreciation and amortization................ 835,848 846,031 Goodwill amortization........................ 148,839 142,744 Stock compensation expense................... 23,287 - Deferred income taxes........................ (534,788) 413,956 Change in assets and liabilities: Accounts receivable........................ (956,297) 4,831,133 Inventories................................ 828,414 (380,628) Prepaid expenses........................... (4,506) 189,684 Other assets............................... 84,501 46,210 Accounts payable........................... (74,671) (1,226,348) Accrued compensation and employee benefits. (380,205) (311,508) Accrued expenses........................... (683,700) 129,274 Unearned service revenue................... (543,873) 716,109 Income taxes payable....................... (326,188) 115,639 Other liabilities.......................... 10,339 1,624 ------------ ------------ Net cash (used in) provided by operating activities................... (2,359,390) 4,257,648 ------------ ------------ Cash flows from investing activities: Proceeds from sale of securities............. - 3,289,813 Additional acquisition costs................. - (162,500) Capital expenditures, net of disposals....... (455,991) (530,743) ------------ ------------ Net cash (used in) provided by investing activities................... (455,991) 2,596,570 ------------ ------------ Cash flows from financing activities: Repayments of borrowings under U.S. bank credit agreement........................... - (1,500,000) Decrease in borrowings under U.K. revolving credit agreement................. - (127,655) Proceeds from exercise of stock options...... 42,890 28,677 Repayments of U.S. term loan................. (675,000) (675,000) Repayments of other debt..................... (323,428) (270,899) ------------ ------------ Net cash used in financing activities..... (955,538) (2,544,877) ------------ ------------ Effect of exchange rate changes on cash.......... (86,693) 118,196 ------------ ------------ Net (decrease) increase in cash.................. (3,857,612) 4,427,537 Cash at beginning of year........................ 9,795,148 2,115,118 ------------ ------------ Cash at end of period............................ $ 5,937,536 $ 6,542,655 ============ ============ See Accompanying Notes to Condensed Consolidated Financial Statements. -5- VICON INDUSTRIES, INC. AND SUBSIDIARIES --------------------------------------- NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ---------------------------------------------------------------- June 30, 2002 ------------- Note 1: Basis of Presentation - ------------------------------ The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended June 30, 2002 are not necessarily indicative of the results that may be expected for the fiscal year ended September 30, 2002. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the fiscal year ended September 30, 2001. Certain prior year amounts have been reclassified to conform to current year presentation. Note 2: Earnings per Share - --------------------------- Basic earnings (loss) per share (EPS) is computed based on the weighted average number of common shares outstanding for the period. Diluted EPS reflects the maximum dilution that would have resulted from the exercise of stock options and incremental common shares issuable under a deferred compensation agreement. The following table provides the components of the basic and diluted EPS computations for the three month and nine month periods ended June 30, 2002 and 2001: Three Months Nine Months Ended June 30, Ended June 30, ----------------------- --------------------- 2002 2001 2002 2001 ---------- ---------- ---------- -------- Basic EPS Computation - --------------------- Net income (loss)........... $ 27,936 $ (374,172) $ (786,390) $1,766,307 Weighted average shares outstanding......... 4,669,526 4,648,983 4,657,752 4,644,869 Basic earnings (loss) per share.................. $ .01 $ (.08) $ (.17) $ .38 ========== ========== ========== ========== Diluted EPS Computation - ----------------------- Net income (loss)........... $ 27,936 $ (374,172) $ (786,390) $1,766,307 Weighted average shares outstanding....... 4,669,526 4,648,983 4,657,752 4,644,869 Stock compensation arrangement.............. 10,989 - - - Stock options............. 53,037 - - 4,055 ---------- ---------- ---------- ---------- Diluted shares outstanding.. 4,733,552 4,648,983 4,657,752 4,648,924 Diluted earnings (loss) per share.................. $ .01 $ (.08) $ (.17) $ .38 ========== ========== ========== ========== For the nine month period ended June 30, 2002 and the three month period ended June 30, 2001, 60,330 and 2,585 shares, respectively, have been omitted from the calculation of diluted EPS as their effect would have been antidilutive. -6- Note 3: Comprehensive Income - ------------------------------ The Company's total comprehensive income for the three month and nine month periods ended June 30, 2002 and 2001 was as follows: Three Months Nine Months Ended June 30, Ended June 30, ----------------------- ----------------------- 2002 2001 2002 2001 ---------- ---------- ----------- ---------- Net income (loss).......... $ 27,936 $ (374,172) $ (786,390) $ 1,766,307 Other comprehensive income (loss), net of tax: Unrealized gain on securities.............. - - - (1,554,962) Unrealized (loss) gain on derivatives.......... (52,811) - 32,975 - Foreign currency translation adjustment... 258,075 (78,843) 122,562 (78,817) ---------- ---------- ---------- ----------- Comprehensive income (loss). $ 233,200 $ (453,015) $ (630,853) $ 132,528 ========== ========== ========== =========== Note 4: Segment and Related Information - ----------------------------------------- The Company operates in one industry which encompasses the design, manufacture, assembly and marketing of video surveillance systems and system components for the electronic protection segment of the security industry. The Company manages its business segments primarily on a geographic basis. The Company's principal reportable segments are comprised of its United States (U.S.) and United Kingdom (Europe) based operations. Its U.S. based operations consists of Vicon Industries, Inc., the Company's corporate headquarters and principal operating entity. Its Europe based operations consist of Vicon Industries Limited, a wholly owned subsidiary which markets and distributes the Company's products principally within Europe and the Middle East. Other segments include the operations of Vicon Industries (H.K.) Ltd., a Hong Kong based majority owned subsidiary which markets and distributes the Company's products principally within Hong Kong and mainland China, and TeleSite U.S.A., Inc. and subsidiary, a U.S. and Israeli based designer and producer of digital video products. The Company evaluates performance and allocates resources based on, among other things, the net profit or loss for each segment, excluding intersegment sales and profits. Segment information for the three month and nine month periods ended June 30, 2002 and 2001 was as follows: Three Months Ended June 30, 2002 U.S. Europe Other Consolid. Totals - ------------------ ---------- ---------- --------- ---------- ------- Net sales to external customers $10,897,000 $2,853,000 $ 524,000 $ - $14,274,000 Intersegment net sales 1,184,000 - 10,000 (1,194,000) - Net income (loss) 340,000 116,000 (387,000) (41,000) 28,000 Total assets 41,726,000 7,795,000 3,518,000 (4,701,000) 48,338,000 -7- Three Months Ended June 30, 2001 U.S. Europe Other Consolid. Totals - ------------------- ---------- ---------- --------- ---------- ------- Net sales to external customers $11,387,000 $3,783,000 $ 911,000 $ - $16,081,000 Intersegment net sales 2,391,000 - 204,000 (2,595,000) - Net (loss) income (255,000) (206,000) 134,000 (47,000) (374,000) Total assets 45,096,000 7,888,000 3,756,000 (5,855,000) 50,885,000 Nine Months Ended June 30, 2002 U.S. Europe Other Consolid. Totals - ------------------- ---------- ---------- --------- ---------- ------- Net sales to external customers $28,650,000 $9,950,000 $2,071,000 $ - $40,671,000 Intersegment net sales 5,530,000 - 76,000 (5,606,000) - Net (loss) income (384,000) 535,000 (652,000) (285,000) (786,000) Total assets 41,726,000 7,795,000 3,518,000 (4,701,000) 48,338,000 Nine Months Ended June 30, 2001 U.S. Europe Other Consolid. Totals - ------------------- ---------- ---------- --------- ---------- ------- Net sales to external customers $36,677,000 $11,157,000 $2,783,000 $ - $50,617,000 Intersegment net sales 6,141,000 - 753,000 (6,894,000) - Net income (loss) 2,197,000 324,000 (624,000) (131,000) 1,766,000 Total assets 45,096,000 7,888,000 3,756,000 (5,855,000) 50,885,000 The consolidating segment above includes the elimination and consolidation of intersegment transactions. Note 5: Gain on Sale of Securities - ------------------------------------ During the nine months ended June 30, 2001, the Company realized a $3.0 million gain ($2.0 million net of tax effect) on the sale of its remaining equity interest in Chun Shin Electronics, Inc. (CSE), a South Korean company which manufactures certain of the Company's proprietary products. Note 6: Derivative Instruments - --------------------------------- At June 30, 2002, the Company had interest rate swaps and forward exchange contracts outstanding with notional amounts aggregating $3.3 million and $1.6 million, respectively, whose aggregate fair value was a liability of approximately $217,000. The change in the amount of the liability for these instruments is shown as a component of accumulated other comprehensive loss, net of tax. Note 7: Impact of Recently Issued Accounting Standards - -------------------------------------------------------- In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized but, instead, tested for impairment at least annually in accordance with the provisions of the Statement. SFAS No. 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". -8- Upon adoption on October 1, 2002, the Company will be required to assign its goodwill ($1.4 million at June 30, 2002, which relates to its acquisition of TeleSite U.S.A., Inc. in 1999) to "reporting units" as defined under SFAS No. 142. Goodwill assigned to each of the reporting units will be tested for impairment as of October 1, 2002 by comparing the carrying amount of the reporting units' net assets (including goodwill) to its fair value. The Company has six months from October 1, 2002 to complete this "first step" of this transitional goodwill impairment test. If the carrying amount of the net assets of a reporting unit (including goodwill) exceeds the fair value of that reporting unit, a "second step" of the transitional goodwill impairment test must be completed as soon as possible, but not later than September 30, 2003. Due to the complexities involved with the transitional provisions of SFAS No. 142, the Company has not yet completed its evaluation of the possible effects of its adoption of SFAS No. 142 on the Company's financial condition or results of operations. Until the Company's adoption of SFAS No. 142, the Company is continuing to amortize goodwill over its original 10-year period, and continuing to evaluate impairment. The Company believes that its ability to recover the carrying amount of its goodwill is dependent upon, among other things, its ability to successfully complete the development and marketing of certain new products. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets," which supersedes SFAS No. 121. SFAS No. 144 retains the fundamental provisions in SFAS No. 121 for recognizing and measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while also resolving significant implementation issues associated with SFAS No. 121. Unlike SFAS No. 121, an impairment assessment under SFAS No. 144 will never result in a write-down of goodwill. Rather, goodwill will be evaluated for impairment under SFAS No. 142, as discussed above. The Company is required to adopt SFAS No. 144 on October 1, 2002. Management does not expect the adoption of SFAS No. 144 for long-lived assets held for use to have a material impact on the Company's consolidated financial statements because the impairment assessment under SFAS No. 144 is largely unchanged from SFAS No. 121. On July 30, 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit and Disposal Activities". SFAS No. 146 requires that a liability be recognized for costs associated with an exit or disposal activity only when the liability is incurred. SFAS No. 146 also establishes fair value as the objective for initial measurement of liabilities related to exit or disposal activities. SFAS No. 146 is effective for exit and disposal activities initiated after December 31, 2002. The Company has not determined the effect, if any, that the adoption of SFAS No. 146 will have on the Company's consolidated financial statements. Note 8: Amendment to U.S. Bank Revolving Credit and Term Loan Agreement - -------------------------------------------------------------------------- On February 12, 2002, the Company executed an amendment agreement that modified its unsecured revolving credit and term loan agreement with its bank to provide for a $5 million secured revolving credit facility through July 2004. Borrowings under such facility bear interest at the bank's prime rate or, at the Company's option, LIBOR plus 190 basis points. The amendment agreement grants the bank a security interest in all the assets of the Company and, among other things, effectively modified the financial covenants contained in all the existing loan and mortgage agreements with this bank. -9- As of June 30, 2002, the Company was in compliance with the financial covenants of its debt agreements. Should violations occur in the future, the Company could, among other things, seek a waiver of such violations, renegotiate the credit agreement or seek an alternative credit arrangement with a new lender. There can be no assurance that the Company would be successful with these efforts. -10- MANAGEMENT'S DISCUSSION AND ANALYSIS ------------------------------------ Results of Operations - --------------------- Three Months Ended June 30, 2002 Compared with June 30, 2001 - ------------------------------------------------------------ Net sales for the quarter ended June 30, 2002 decreased $1.8 million or 11% to $14.3 million compared with $16.1 million in the year ago period. Domestic sales decreased $.6 million or 5% to $10.2 million compared with $10.8 million in the year ago period. Indirect sales to the United States Postal Service (USPS) for the quarter ended June 30, 2002 decreased $2.9 million to $.6 million compared with $3.5 million in the year ago period. Other domestic sales for the current quarter increased by $2.4 million to $9.7 million compared with $7.3 million in the year ago period. Current quarter sales included $1.6 million of shipments in connection with a $2.3 million system order received in February 2002 for New York's JFK International Airport. International sales for the quarter ended June 30, 2002 decreased $1.2 million or 24% to $4.1 million compared with $5.3 million in the year ago period principally as a result of weak sales in Europe and the Middle East. Gross profit margins for the third quarter of fiscal 2002 increased to 35.5% compared with 34.0% in the year ago period. The margin increase was principally the result of ongoing product cost reduction efforts. Operating expenses for the third quarter of fiscal 2002 were $5.0 million or 34.8% of net sales compared with $6.0 million or 37.2% of net sales in the year ago period. The $1.0 million decrease in operating expenses was due principally to a reduction in sales payroll and related costs and the write- down of certain foreign assets included in the year ago period expense. The Company continued to invest in new product development, incurring $1.1 million of engineering and development expenses in the current quarter. The Company generated operating income of $97,000 for the third fiscal quarter of 2002 compared with an operating loss of $523,000 in the year ago period principally as a result of the reduction in operating expenses. Interest expense decreased to $82,000 for the third quarter of fiscal 2002 compared with $112,000 in the year ago period principally as a result of the paydown of bank borrowings. Income tax expense was $18,000 for the third quarter of fiscal 2002 compared with an income tax benefit of $214,000 in the year ago period. As a result of the foregoing, the Company generated net income of $28,000 for the third quarter of fiscal 2002 compared with a net loss of $374,000 in the year ago period. -11- MANAGEMENT'S DISCUSSION AND ANALYSIS ------------------------------------ Results of Operations - --------------------- Nine Months Ended June 30, 2002 Compared with June 30, 2001 - ----------------------------------------------------------- Net sales for the nine months ended June 30, 2002 decreased $9.9 million or 20% to $40.7 million compared with $50.6 million in the year ago period. Domestic sales decreased $8.0 million or 23% to $26.8 million compared with $34.8 million in the year ago period principally as a result of a $10.0 million decline in indirect sales to the United States Postal Service (USPS) under an exclusive supply contract that expired on June 30, 2001. Indirect sales to the USPS for the nine months ended June 30, 2002 decreased 79% to $2.8 million compared with $12.8 million in the year ago period. Other domestic sales for the current year period increased by $2 million to $24 million compared with $22 million in the year ago period. Current year period sales included $1.6 million of shipments in connection with a $2.3 million system order received in February 2002 for New York's JFK International Airport. International sales for the nine months ended June 30, 2002 decreased $1.9 million or 12% to $13.9 million compared with $15.8 million in the year ago period principally as a result of weak sales in Europe and the Middle East. The backlog of unfilled orders was $4.7 million at June 30, 2002 compared with $8.3 million at June 30, 2001. Gross profit margins for the first nine months of fiscal 2002 increased to 33.9% compared with 33.7% in the year ago period. The margin increase was principally the result of ongoing product cost reduction efforts offset by the effect of fixed production costs relative to the current period's lower sales. Operating expenses for the first nine months of fiscal 2002 were $14.8 million or 36.4% of net sales compared with $17.1 million or 33.7% of net sales in the year ago period. The $2.3 million decrease in operating expenses was due principally to a reduction in sales payroll and related costs and the write- down of certain assets included in the year ago period expense. The Company continued to invest in new product development, incurring $3.1 million of engineering and development expenses in the first nine months of fiscal 2002. The Company incurred an operating loss of $1.0 million for the first nine months of 2002 compared with operating income of $13,000 in the year ago period principally as a result of lower sales. In the prior year period, the Company realized a $3.0 million gain ($2.0 million net of tax effect) on the sale of its remaining equity interest in Chun Shin Electronics, Inc., a South Korean company which, among other things, manufactures certain of the Company's proprietary products. Interest expense decreased to $258,000 for the first nine months of fiscal 2002 compared with $389,000 in the year ago period principally as a result of the paydown of bank borrowings. The Company recorded an income tax benefit of $380,000 for the first nine months of fiscal 2002 compared with income tax expense of $1.0 million in the year ago period. As a result of the foregoing, the Company incurred a net loss of $786,000 for the first nine months of fiscal 2002 compared with net income of $1.8 million in the year ago period. -12- MANAGEMENT'S DISCUSSION AND ANALYSIS ------------------------------------ Liquidity and Financial Condition - --------------------------------- Net cash used in operating activities was $2.4 million for the first nine months of fiscal 2002 due in part to the $786,000 net loss for the period. Net cash used in investing activities was $456,000 for the first nine months of fiscal 2002 relating to general capital expenditures. Net cash used in financing activities was $956,000, which represented scheduled repayments under bank mortgage and term loans. As a result of the foregoing, cash decreased by $3.9 million for the first nine months of fiscal 2002 after the nominal effect of exchange rate changes on the cash position of the Company. On February 12, 2002, the Company executed an amendment agreement with its bank that modified its unsecured revolving credit and term loan agreement to provide for a $5 million secured revolving credit facility through July 2004. Borrowings under such facility bear interest at the bank's prime rate or, at the Company's option, LIBOR plus 190 basis points (4.75% and 3.76%, respectively, at June 30, 2002). The amendment agreement grants the bank a security interest in all the assets of the Company and, among other things, effectively modified the financial covenants contained in all the existing loan and mortgage agreements with the bank. These covenants require the Company to, among other things, maintain certain levels of earnings and ratios of debt service coverage and debt to tangible net worth. At June 30, 2002, there were no outstanding borrowings under this facility. The Company also maintains a bank overdraft facility of 1 million Pounds Sterling (approximately $1,520,000) in the U.K. to support local working capital requirements of Vicon Industries Limited. At June 30, 2002, there were no outstanding borrowings under this facility. Current and long-term debt maturing in the three months ended September 30, 2002 and in each of the subsequent fiscal years approximates $332,000 for the three months ended September 30, 2002, $1,300,000 in 2003, $316,000 in 2004, $324,000 in 2005, $330,000 in 2006 and $2,053,000 thereafter. The Company believes that it has sufficient cash and funds available under its credit agreements to meet its anticipated operating, capital expenditures and debt service requirements for at least the next twelve months. However, the Company has experienced reduced sales levels and operating losses in past periods which, if continued, could limit the Company's ability to draw upon its bank credit facilities. Critical Accounting Policies - ---------------------------- The Company's significant accounting policies are fully described in Note 1 to the Company's consolidated financial statements included in its September 30, 2001 Annual Report on Form 10-K. Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. -13- The Company provides for the estimated cost of product warranties at the time revenue is recognized. While the Company engages in product quality programs and processes, including monitoring and evaluating the quality of its component suppliers, its warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from its estimates, revisions to the estimated warranty liability may be required. The Company writes down its inventory for estimated obsolescence and slow moving inventory equal to the difference between the cost of inventory and the estimated net realizable market value based upon assumptions about future demand and market conditions. Technology changes and market conditions may render some of the Company's products obsolete and additional inventory write- downs may be required. If actual future demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required. The Company's ability to recover the reported amounts of deferred income tax assets is dependent upon its ability to generate sufficient taxable income in future and available carryback years during the periods over which net temporary tax differences become deductible. Should the Company determine in the future that it is not likely it will be able to realize the benefits of recorded deferred tax assets, a valuation allowance will need to be established that would result in the charge-off of previously reported tax benefits. As further described in Note 7, the Company has not yet adopted the provisions of SFAS No. 142 and determined its possible effects on the Company's financial condition or results of operations. The Company continues to amortize its recorded goodwill over its original 10-year period and continues to evaluate impairment. The Company believes that its ability to recover the carrying amount of its goodwill is dependent upon, among other things, its ability to successfully complete the development and marketing of certain new product lines. Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 - -------------------------------------------------------------------------------- Statements in this Report on Form 10-Q and other statements made by the Company or its representatives that are not strictly historical facts including, without limitation, statements included herein under the captions "Results of Operations" and "Liquidity and Financial Condition" are "forward- looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 that should be considered as subject to the many risks and uncertainties that exist in the Company's operations and business environment. The forward-looking statements are based on current expectations and involve a number of known and unknown risks and uncertainties that could cause the actual results, performance and/or achievements of the Company to differ materially from any future results, performance or achievements, express or implied, by the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, and that in light of the significant uncertainties inherent in forward-looking statements, the inclusion of such statements should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved. The Company also assumes no obligation to update its forward- looking statements or to advise of changes in the assumptions and factors on which they are based. -14- PART II ITEM 1 - LEGAL PROCEEDINGS - ------ ----------------- The Company has no material outstanding litigation. ITEM 2 - CHANGES IN SECURITIES - ------ --------------------- None ITEM 3 - DEFAULTS UPON SENIOR SECURITIES - ------ ------------------------------- None ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------ --------------------------------------------------- None ITEM 5 - OTHER INFORMATION - ------ ----------------- None ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K - ------ -------------------------------- Exhibit Number Description ------- ------------ 99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. No Form 8-K was required to be filed during the current quarter. -15- Signatures ---------- Pursuant to 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 duly authorized. VICON INDUSTRIES, INC. August 14, 2002 By:/s/ Kenneth M. Darby By:/s/ John M. Badke - ----------------------- ----------------------- Kenneth M. Darby John M. Badke Chairman and Vice President, Finance Chief Executive Officer Chief Financial Officer -16- EX-99.P 3 f10q_0602-ex991.txt VICON CEO 10Q CERTIFICATION EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Vicon Industries, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kenneth M. Darby, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the report. /s/ Kenneth M. Darby - -------------------------- Kenneth M. Darby Chief Executive Officer August 14, 2002 EX-99.P 4 f10q_0602-ex992.txt VICON CFO 10Q CERTIFICATION EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Vicon Industries, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John M. Badke, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the report. /s/ John M. Badke - ----------------------- John M. Badke Chief Financial Officer August 14, 2002 -----END PRIVACY-ENHANCED MESSAGE-----