-----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, Istd+fptdl+jBokzykYpGfozxdAm6l2IiqpA0cqJJJrN0V4aZTYaUsM/nYFEDw38 G5s/j/DnS1riYjKvTSADyQ== 0000310056-98-000006.txt : 19980430 0000310056-98-000006.hdr.sgml : 19980430 ACCESSION NUMBER: 0000310056-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980429 SROS: AMEX 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: SEC FILE NUMBER: 001-07939 FILM NUMBER: 98603948 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 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 March 31, 1998 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: (516) 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 March 31, 1998, the registrant had outstanding 3,061,058 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 3/31/98 3/31/97 Net sales............................. $14,730,905 $12,327,871 Cost of sales......................... 9,904,902 8,935,576 ----------- ----------- Gross profit........................ 4,826,003 3,392,295 Operating expenses: General and administrative expense 1,023,929 847,321 Selling expense................... 2,208,008 1,851,909 Relocation expense................ - 225,129 ---------- ---------- 3,231,937 2,924,359 ---------- ---------- Operating income.................... 1,594,066 467,936 Interest expense...................... 355,034 260,985 ----------- ----------- Income before income taxes........ 1,239,032 206,951 Income tax expense.................... 85,000 41,000 ----------- ------------ Net income........................ $ 1,154,032 $ 165,951 ----------- ============ Earnings per share: Basic $ .38 $ .06 === === Diluted $ .35 $ .06 --- --- Shares used in computing earnings per share: Basic 3,045,210 2,802,728 Diluted 3,335,835 2,939,024 See Notes to (Condensed) Consolidated Financial Statements. -2- VICON INDUSTRIES, INC. AND SUBSIDIARIES (CONDENSED) CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Six Months Ended 3/31/98 3/31/97 Net sales............................. $29,605,105 $23,625,645 Cost of sales......................... 20,150,426 17,052,542 ----------- ----------- Gross profit........................ 9,454,679 6,573,103 Operating expenses: General and administrative expense 2,046,882 1,664,367 Selling expense................... 4,400,962 3,756,058 Relocation expense................ - 225,129 ---------- ---------- 6,447,844 5,645,554 ---------- ---------- Operating income.................... 3,006,835 927,549 Interest expense...................... 693,830 524,933 Other income.......................... - (33,623) ----------- ------------ Income before income taxes........ 2,313,005 436,239 Income tax expense.................... 150,000 55,000 ----------- ------------ Net income........................ $ 2,163,005 $ 381,239 ----------- ============ Earnings per share: Basic $ .72 $ .14 === === Diluted $ .65 $ .13 --- --- Shares used in computing earnings per share: Basic 3,022,917 2,790,028 Diluted 3,314,038 2,893,674 See Notes to (Condensed) Consolidated Financial Statements. -3- VICON INDUSTRIES, INC. AND SUBSIDIARIES (CONDENSED) CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS 3/31/98 9/30/97 CURRENT ASSETS Cash............................................ $ 99,403 $ 287,580 Accounts receivable (less allowance of $670,000 at March 31, 1998 and $493,000 at September 30, 1997)............... 11,168,388 9,578,297 Inventories: Parts, components, and materials.............. 2,450,843 3,399,133 Work-in-process............................... 2,490,010 2,046,174 Finished products............................. 11,519,002 11,188,217 ----------- ----------- 16,459,855 16,633,524 Prepaid expenses................................ 376,340 307,580 ----------- ----------- TOTAL CURRENT ASSETS............................ 28,103,986 26,806,981 - -------------------- Property, plant and equipment................... 12,237,312 8,362,930 Less accumulated depreciation................... (5,210,439) (4,870,717) ----------- ----------- 7,026,873 3,492,213 Other assets.................................... 934,505 900,417 ----------- ----------- TOTAL ASSETS.................................... $36,065,364 $31,199,611 - ------------ =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Borrowings under U.S. bank credit agreement..... $ 4,938,548 $ - Borrowings under revolving credit agreement..... 49,247 169,006 Current maturities of long-term debt............ 630,101 515,092 Accounts payable: Related party................................. 7,069,467 7,146,985 Other......................................... 2,324,549 1,407,917 Accrued wages and expenses...................... 2,138,798 2,111,670 Income taxes payable............................ 234,280 105,188 ---------- ---------- TOTAL CURRENT LIABILITIES 17,384,990 11,455,858 - ------------------------- Long-term debt: Related party................................. 1,440,000 1,440,000 Other......................................... 3,607,233 6,904,368 Other long-term liabilities..................... 460,575 485,402 SHAREHOLDERS' EQUITY Common stock, par value $.01.................... 31,212 30,470 Capital in excess of par value.................. 10,006,071 9,868,063 Retained earnings............................... 3,443,912 1,280,907 ------------ ----------- 13,481,195 11,179,440 Less treasury stock 60,202 shares and 45,952 shares at cost......................... (391,312) (298,686) Foreign currency translation adjustment......... 82,683 33,229 ------------ ----------- TOTAL SHAREHOLDERS' EQUITY 13,172,566 10,913,983 - -------------------------- ------------ ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...... $ 36,065,364 $31,199,611 - ------------------------------------------ ============ =========== See Notes to (Condensed) Consolidated Financial Statements. -4- VICON INDUSTRIES, INC. AND SUBSIDIARIES (CONDENSED) CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended 3/31/98 3/31/97 Cash flows from operating activities: Net income..................................... $2,163,005 $ 381,239 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization................ 357,395 398,315 Amortization of gain on sale and leaseback... - (433,993) Unrealized foreign exchange gain............. - (33,623) Change in assets and liabilities: Accounts receivable........................ (1,540,049) (606,623) Inventories................................ 228,621 (1,586,331) Prepaid expenses........................... (65,726) (8,813) Other assets............................... (34,088) (211,956) Accounts payable........................... 832,860 906,467 Accrued wages and expenses................. 18,249 510,530 Income taxes payable....................... 126,417 54,844 Other liabilities.......................... (24,827) (30,909) ------------ ------------ Net cash provided by (used in) operating activities................... 2,061,857 (660,853) ------------ ------------ Cash flows from investing activities: Capital expenditures, net of minor disposals............................ (3,847,399) (631,447) ------------ ------------ Net cash used in investing activities.... (3,847,399) (631,447) ------------ ------------ Cashflows from financing activities: (Decrease) increase in borrowings under U.S. bank credit agreement...................... (1,064,868) 1,388,755 (Decrease) increase in borrowings under U.K. revolving credit agreement................. (123,478) 290,400 Borrowings under mortgage and term loans..... 2,900,000 - Repayment of promissory note to related party - (200,000) Proceeds from exercise of stock options...... 46,124 - Repayment of U.K. mortgage................... - (139,080) Repayments of other debt..................... (102,169) (39,179) ------------ ------------ Net cash provided by financing activities.. 1,655,609 1,300,896 ------------ ----------- Effect of exchange rate changes on cash.......... (58,244) 56,906 ------------ ----------- Net (decrease) increase in cash.................. (188,177) 65,502 Cash at beginning of year........................ 287,580 205,876 ------------ ----------- Cash at end of period............................ $ 99,403 $ 271,378 ============ ----------- See Notes to (Condensed) Consolidated Financial Statements. -5- VICON INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO (CONDENSED) CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) March 31, 1998 Note 1: Basis of Presentation The accompanying unaudited (condensed) consolidated financial statements have been prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles 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 three and six months ended March 31, 1998 are not necessarily indicative of the results that may be expected for the fiscal year ended September 30, 1998. 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, 1997. Note 2: Earnings per Share In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share" which requires companies to present basic and diluted earnings per share (EPS) instead of primary and fully diluted EPS that was previously required. Basic EPS are computed based on the weighted average number of shares outstanding for the period. Diluted EPS reflect the maximum dilution that would have resulted from the exercise of stock options and incremental shares issuable under a deferred compensation agreement. The new standard was initially adopted by the Company in the quarter ended December 31, 1997. All EPS figures for prior periods reported have been restated. Note 3: Purchase of Principal Operating Facility In January 1998, the Company purchased its principal operating facility for approximately $3.3 million. The purchase was financed with the proceeds of an aggregate $2.9 million mortgage and term loan agreement with a bank. Such agreement includes a $2,512,000 ten year mortgage loan payable in monthly installments through January 2008, with a $1,188,000 payment due at the end of the term. The agreement also provides a $388,000 five year term loan payable in monthly installments through January 2003. Both loans bear interest at the bank's prime rate minus 1.35% (7.15% at March 31, 1998). The loans are secured by a first mortgage on the property and fixtures and contain restrictive covenants which, among other things, require the Company to maintain certain levels of earnings and ratios of debt service and interest coverage and debt to net worth. At the same time, the Company entered into interest rate swap agreements with the same bank to effectively convert the foregoing floating rate long-term loans to fixed rate loans. These agreements change the Company's interest rate exposure on its $2,512,000 floating rate mortgage loan to a fixed 7.79% and its $388,000 floating rate term loan to a fixed 7.70%. The interest rate swap agreements mature in the same amounts and over the same periods as the related mortgage and term loans. -6- MANAGEMENT'S DISCUSSION AND ANALYSIS Results of Operations Three Months Ended March 31, 1998 Compared with March 31, 1997 Net sales for the quarter ended March 31, 1998 increased $2.4 million or 19% to $14.7 million compared with $12.3 million in the year ago period. The sales growth was experienced in the U.S. as domestic sales increased $3.3 million or 47% to $10.4 million principally as a result of system sales supplied under a contract with the U.S. Postal Service entered into in July 1997. International sales declined $926,000 or 18% to $4.3 million due to lower sales in Asia as a result of the current economic crisis in the region. Gross profit margins for the second quarter of 1998 increased to 32.8% compared with 27.5% in the year ago period. The margin improvement was primarily the result of a greater mix of higher margin products, lower procurement costs for certain video products and greater fixed cost absorption associated with the sales growth. Operating expenses for the second quarter of 1998 were $3.2 million or 21.9% of net sales compared with $2.7 million or 21.9% of net sales in the year ago period, exclusive of relocation expense. The increase was principally the result of higher selling expenses associated with the sales growth and profit related bonus accruals. Operating income rose to $1.6 million for the second quarter of 1998 compared with $468,000 in the year ago period as a result of increased sales, higher gross margins and greater absorption of fixed operating expenses. Interest expense increased $94,000 to $355,000 principally as a result of higher borrowing levels during the quarter. Income tax expense was $85,000 for the second quarter of 1998 compared with $41,000 in the year ago period. In both periods, the Company utilized net operating loss ("NOL") carryforwards to substantially offset federal and state taxable income. The nominal tax provision related primarily to foreign subsidiary income. As a result of the foregoing, net income increased to $1.2 million for the second quarter of 1998 compared with net income of $166,000 for the year ago period. -7- MANAGEMENT'S DISCUSSION AND ANALYSIS Results of Operations Six Months Ended March 31, 1998 Compared with March 31, 1997 Net sales for the six months ended March 31, 1998 increased $6.0 million or 25% to $29.6 million compared with $23.6 million in the year ago period. The sales growth was experienced principally in the U.S. as domestic sales increased $5.1 million or 36% to $19.5 million principally as a result of system sales supplied under a contract with the U.S. Postal Service entered into in July 1997 and sales from a new line of dome cameras introduced in February 1997. International sales increased $832,000 or 9% to $10.1 million. This increase was due to greater system sales and sales to a private label customer for distribution, primarily in Europe. International growth was limited as a result of lower sales in Asia due to the current economic crisis in this region. The backlog of unfilled orders was $9.9 million at March 31, 1998 compared with $4.8 million at March 31, 1997. Gross profit margins for the first six months of 1998 increased to 31.9% compared with 27.8% in the year ago period. The margin improvement was primarily the result of a greater mix of higher margin products, lower procurement costs for certain video products and greater fixed cost absorption associated with the sales growth. Operating expenses for the first six months of 1998 were $6.4 million or 21.8% of net sales compared with $5.4 million or 22.9% of net sales in the year ago period, exclusive of relocation expense. The increase was principally the result of higher selling expenses associated with the sales growth and profit related bonus accruals. Operating income rose to $3.0 million for the first six months of 1998 compared with $928,000 in the year ago period as a result of increased sales, higher gross margins and greater absorption of fixed operating expenses. Interest expense increased $169,000 to $694,000 principally as a result of higher borrowing levels during the first six months of 1998. Income tax expense was $150,000 for the first six months of 1998 compared with $55,000 in the year ago period. In both periods, the Company utilized NOL carryforwards to substantially offset federal and state taxable income. As of March 31, 1998, the remaining balance of the NOL was approximately $2.5 million for federal income tax purposes. The nominal tax provision relates primarily to foreign subsidiary income. As a result of the foregoing, net income increased to $2.2 million for the first six months of 1998 compared with net income of $381,000 for the year ago period. -8- MANAGEMENT'S DISCUSSION AND ANALYSIS LIQUIDITY AND FINANCIAL CONDITION The Company's primary sources of funds for conducting its business activities have been borrowings under its bank facilities, vendor financing and cash flow from operations. The Company requires liquidity and working capital primarily to fund increases in inventories and accounts receivable associated with sales growth and, to a lesser extent, for capital expenditures. Net cash provided by operating activities was $2.1 million for the first six months of 1998 due primarily to the $2.2 million net income reported for the period. The increase in accounts receivable due to higher sales activity was substantially offset by an increase in accounts payable, a reduction in inventories and non-cash depreciation and amortization charges for the period. Net cash used in investing activities was $3.8 million for the first six months of 1998 as a result of the Company's purchase of its principal operating facility for $3.3 million and capital expenditures for tooling and office equipment. Net cash provided by financing activities was $1.7 million, which includes $2.9 million of proceeds from mortgage loans (the "Mortgage") used to finance the facility purchase, offset by a $1.1 million reduction of borrowings under the U.S. Bank Credit Agreement (the "Credit Agreement"). As a result of the foregoing, the net decrease in cash was $188,000 for the first six months of 1998 after the nominal effect of exchange rate changes on the cash position of the Company. The Company maintains a bank overdraft facility of 600,000 Pounds Sterling (approximately $1,002,000) in the U.K. to support local working capital requirements of Vicon U.K. (the "Overdraft Facility"). At March 31, 1998, borrowings under this facility were approximately $49,000. The Credit Agreement permits the Company to borrow up to a maximum of $6.5 million, subject to availability under a borrowing base formula consisting of accounts receivable and inventories. The agreement expires on January 31, 1999 and has therefore been classified as a current liability in the accompanying balance sheet at March 31, 1998. Borrowings under the Credit Agreement amounted to approximately $4.9 million at March 31, 1998. The Company is presently evaluating proposals from banks for a new credit agreement. The Company purchases certain products from Chugai Boyeki Co., Ltd. ("CBC"), whose interest-bearing accounts payable amounted to $6.4 million at March 31, 1998 and are due on demand. The Company historically has made accounts payable payments to CBC as cash availability permits. The Company believes that cash flow from operations, the Mortgage and additional funds available under the existing or a new U.S. Credit Agreement and the U.K. Overdraft Facility will be sufficient to meet its currently anticipated operating, capital expenditures and debt service requirements for at least the next twelve months. -9- 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 The Company's annual meeting was held on April 23, 1998. The following directors were elected at the meeting: Chu S. Chun Milton F. Gidge W. Gregory Robertson The terms of the following directors continued after the meeting: Peter F. Barry Kenneth M. Darby Donald N. Horn Peter F. Neumann Arthur D. Roche Kazuyoshi Sudo The matters voted upon at the meeting and the results of each vote are as follows: Nominees for Withhold Directors: For Authority Against Mr. Chun 2,709,459 17,222 - Mr. Gidge 2,706,609 20,072 - Mr. Robertson 2,706,609 20,072 - Ratification of Auditors 2,707,274 13,186 6,221 ITEM 5 - OTHER INFORMATION None ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K No Form 8-K was required to be filed during the current quarter. -10- 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. April 29, 1998 VICON INDUSTRIES, INC. VICON INDUSTRIES, INC. Kenneth M. Darby Arthur D. Roche Kenneth M. Darby Arthur D. Roche President Executive Vice President Chief Executive Officer Chief Financial Officer -11- 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. April 29, 1998 VICON INDUSTRIES, INC. VICON INDUSTRIES, INC. Kenneth M. Darby Arthur D. Roche Kenneth M. Darby Arthur D. Roche President Executive Vice President Chief Executive Officer Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS 6-MOS SEP-30-1998 SEP-30-1998 MAR-31-1998 MAR-31-1998 99,403 99,403 0 0 12,214,718 12,214,718 (669,990) (669,990) 16,459,855 16,459,855 28,103,986 28,103,986 13,171,817 13,171,817 (5,210,439) (5,210,439) 36,065,364 36,065,364 17,384,990 17,384,990 5,507,808 5,507,808 0 0 0 0 31,212 31,212 13,141,354 13,141,354 36,065,364 36,065,364 14,730,905 29,605,105 0 0 9,904,902 20,150,426 0 0 3,186,937 6,289,844 45,000 158,000 355,034 693,830 1,239,032 2,313,005 85,000 150,000 1,154,032 2,163,005 0 0 0 0 0 0 1,154,032 2,163,005 .38 .72 .35 .65
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