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, 1997 Commission File No. 1-7939
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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, 1997, the registrant had outstanding 2,802,728 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
3/31/97 3/31/96
Net sales........................... $12,327,871 $10,855,627
Costs and expenses:
Cost of goods sold................ 8,935,576 8,107,322
Selling, general & admin.
expenses........................ 2,699,230 2,417,914
Relocation expense................ 225,129 -
Interest expense.................. 260,985 184,967
Unrealized foreign
exchange gain................... - (5,012)
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Total costs and expenses....... 12,120,920 10,705,191
Income before income taxes.......... 206,951 150,436
Provision for
income taxes.................... 41,000 25,000
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Net income.......................... $ 165,951 $ 125,436
=========== ===========
Net income per share $ .06 $ .05
=== ===
Weighted average number of
shares outstanding and
equivalent shares 2,939,024 2,762,828
See Notes to (Condensed) Consolidated Financial Statements.
2
PART I - FINANCIAL INFORMATION
VICON INDUSTRIES, INC. AND SUBSIDIARIES
(CONDENSED) CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended
3/31/97 3/31/96
Net sales........................... $23,625,645 $21,368,095
Costs and expenses:
Cost of goods sold................ 17,052,542 15,914,178
Selling, general & admin.
expenses........................ 5,420,425 4,775,855
Relocation expense................ 225,129 -
Interest expense.................. 524,933 420,338
Unrealized foreign
exchange gain................... (33,623) (19,384)
----------- -----------
Total costs and expenses....... 23,189,406 21,090,987
Income before income taxes.......... 436,239 277,108
Provision for
income taxes.................... 55,000 50,000
----------- -----------
Net income.......................... $ 381,239 $ 227,108
=========== ===========
Net income per share $ .13 $ .08
=== ===
Weighted average number of
shares outstanding and
equivalent shares 2,893,674 2,762,828
See Notes to (Condensed) Consolidated Financial Statements.
3
VICON INDUSTRIES, INC. AND SUBSIDIARIES
(CONDENSED) CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS 3/31/97 9/30/96
CURRENT ASSETS
Cash............................................ $ 271,378 $ 205,876
Accounts receivable (less allowance
of $526,000 at March 31, 1997 and
$396,000 at September 30, 1996)............... 9,283,139 8,635,020
Other receivables............................... 100,024 71,819
Inventories:
Parts, components, and materials.............. 2,889,182 2,175,408
Work-in-process............................... 2,665,058 1,391,552
Finished products............................. 10,807,387 11,135,798
----------- -----------
16,361,627 14,702,758
Prepaid expenses................................ 547,376 529,631
----------- -----------
TOTAL CURRENT ASSETS............................ 26,563,544 24,145,104
- --------------------
Property, plant and equipment................... 14,192,502 13,640,198
Less: accumulated depreciation................. (10,867,251) (10,606,013)
----------- -----------
3,325,251 3,034,185
Other assets.................................... 1,117,283 905,327
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TOTAL ASSETS.................................... $31,006,078 $28,084,616
- ------------ =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Borrowings under revolving credit agreement..... $ 1,292,767 $ 959,583
Current maturities of long-term debt............ 175,602 203,719
Accounts payable:
Related party................................. 7,498,933 7,457,482
Other......................................... 2,692,821 1,811,730
Accrued wages and expenses...................... 1,749,246 1,229,087
Income taxes payable............................ 145,913 87,205
Deferred gain on sale and leaseback............. - 332,100
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TOTAL CURRENT LIABILITIES 13,555,282 12,080,906
- -------------------------
Long-term debt:
Related party................................. 1,918,080 2,262,005
Other......................................... 5,531,653 4,166,881
Deferred gain on sale and leaseback............. - 101,893
Other long-term liabilities..................... 473,866 504,776
SHAREHOLDERS' EQUITY
Common stock, par value $.01.................... 28,027 28,027
Capital in excess of par value.................. 9,394,163 9,423,089
Retained earnings (deficit)..................... 97,628 (283,611)
------------ -----------
9,519,818 9,167,505
Less Treasury stock 25,400 shares, at cost...... - (82,901)
Foreign currency translation adjustment......... 7,379 (116,449)
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TOTAL SHAREHOLDERS' EQUITY 9,527,197 8,968,155
- -------------------------- ------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...... $ 31,006,078 $28,084,616
- ------------------------------------------ ============ ===========
See Notes to (Condensed) Consolidated Financial Statements.
4
VICON INDUSTRIES, INC. AND SUBSIDIARIES
(CONDENSED) CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
3/31/97 3/31/96
Cash flows from operating activities:
Net income..................................... $ 381,239 $ 227,108
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization................ 398,315 335,947
Amortization of sale and leaseback........... (433,993) (166,050)
Unrealized foreign exchange gain............. (33,623) (19,384)
Change in assets and liabilities:
Accounts receivable.......................... (578,417) (585,249)
Other receivables............................ (28,206) 13,086
Inventories.................................. (1,586,331) (1,538,560)
Prepaid expenses............................ (8,813) (33,460)
Other assets................................. (211,956) (93,895)
Accounts payable............................ 906,467 1,304,196
Accrued wages and expenses................... 510,530 (346,606)
Income taxes payable......................... 54,844 50,711
Other liabilities........................... (30,909) (16,517)
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Net cash used in operating activities..... (660,853) (868,673)
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Cash flows from investing activities:
Capital expenditures, net of
minor disposals........................... (631,447) (249,979)
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Net cash used in investing activities.... (631,447) (249,979)
--------- ----------
Cash flows from financing activities:
Net borrowings under new credit and
security agreement......................... 1,388,755 3,011,904
Repayments of U.S. revolving credit
agreement.................................. - (2,800,000)
Repayment of promissory note to related party (200,000) -
Increase (decrease) in borrowings under U.K.
revolving credit agreement................. 290,400 (102,516)
Repayments of other debt..................... (178,259) (203,965)
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Net cash provided by (used in)
financing activities...................... 1,300,896 (94,577)
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Effect of exchange rate changes on cash.......... 56,906 85,048
---------- ----------
Net increase (decrease) in cash.................. 65,502 (1,128,181)
Cash at beginning of year........................ 205,876 1,151,850
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Cash at end of period............................ $ 271,378 $ 23,669
=========== ==========
See Notes to (Condensed) Consolidated Financial Statements.
5
VICON INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO (CONDENSED) CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1997
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 six months ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the fiscal year
ended September 30, 1997. 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, 1996.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Three Months Ended March 31, 1997 Compared with March 31, 1996
Net sales for the quarter ended March 31, 1997 were $12.3 million compared with
$10.9 million in the corresponding quarter last year. The increase was due
principally to incremental sales of several newly introduced engineered systems
products. The backlog of orders increased $.4 million during the quarter to $4.8
million at March 31, 1997.
Gross profit margins for the quarter increased to 27.5% compared with 25.3% in
the corresponding quarter one year ago. The margin increase was due principally
to increased sales of higher margin products, particularly new proprietary
digital video products.
Operating expenses for the current quarter increased to $2.9 million compared
with $2.4 million in the corresponding quarter last year. The increase was due
to higher sales and promotion related expenses. Also during the quarter,
$225,000 of moving expenses were incurred to relocate all U.S. operations to a
new facility. Interest expense increased by approximately $76,000 to $261,000
during the current year quarter principally as a result of increased bank
borrowings to support working capital growth.
The increase in pretax income of approximately $57,000 was principally due to
higher sales and gross margins, offset in part by increased operating expenses.
Results of Operations
Six Months Ended March 31, 1997 Compared with March 31, 1996
Net sales for the six months ended March 31, 1997 were $23.6 million compared
with $21.4 million in the corresponding period last fiscal year. The increase
was due principally to incremental sales of new digital video products and
related intelligent peripheral devices.
Gross profit margins for the six months ended March 31, 1997 were 27.8% compared
with 25.5% in the corresponding period last year. The margin improvement was due
to increased sales of higher margin products, particularly new proprietary
digital video products.
Operating expenses for the six months ended March 31, 1997 increased to $5.6
million compared with $4.8 million in the corresponding period last year. The
increase was due to higher sales and promotion related expenses. The Company
also incurred $225,000 of relocation expenses as noted above. Interest expense
increased by $105,000 to $525,000 as the level of bank borrowings increased to
support working capital growth.
During the current period, the Company recorded an unrealized foreign exchange
gain of $34,000 compared with a $19,000 gain in the corresponding period last
year. These gains result from the revaluation of a yen denominated mortgage
obligation into U.S. dollars.
The increase in pretax income of $159,000 was due to higher sales and gross
margins, offset in part by increased operating expenses.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND FINANCIAL CONDITION
March 31, 1997 Compared with September 30, 1996
Working capital increased $.9 million to $13.0 million at March 31, 1997. The
increase was principally a result of increased long term bank borrowings used to
finance higher inventory levels.
Accounts receivable increased $.6 million to $9.3 million at March 31, 1997, due
to higher sales levels. Inventories increased $1.7 million to $16.4 million at
March 31, 1997 as a result of increased levels of parts and work-in-process
related to production of a new dome camera product line. Total accounts payable
increased $.9 million to approximately $10.2 million at March 31, 1997 in order
to finance the higher inventory levels.
The Company maintains an overdraft facility and term mortgage loan of 1.1
million pounds sterling (approx. $1.8 million) in the U.K. to support working
capital requirements. At March 31, 1997, approximately $1,293,000 was borrowed
against these facilities.
In February 1997, the Company's bank loan agreement was amended to increase
maximum borrowings from $5.5 million to $6.5 million, subject to an availability
formula based on accounts receivable and inventories. Further, the term of the
agreement was extended to January 31, 1999. Borrowings under such agreement
amounted to approximately $5.5 million at March 31, 1997 compared with $4.1
million at September 30, 1996. The increase was used principally to finance
higher inventory levels and capital additions. Concurrent with the foregoing
amendment, a $2,000,000 secured promissory note with Chugai Boyeki Co., Ltd., a
related party, was modified to require installments of $200,000 upon execution,
$360,000 in July 1998 and the balance of $1,440,000 upon maturity in July 1999.
The Company believes that its bank loan agreements and other sources of credit
provide adequate funding to meet its near term cash requirements.
8
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 24, 1997.
The following directors were elected at the meeting:
Kenneth M. Darby
Peter F. Neumann
Kazuyoshi Sudo
The terms of the following directors continued after the meeting:
Peter F. Barry
Milton F. Gidge
Donald N. Horn
Michael D. Katz
W. Gregory Robertson
Arthur D. Roche
Arthur V. Wallace
The matters voted upon at the meeting and the results of each vote are as
follows:
Nominees Withhold
For Directors: For Authority
Mr. Darby 2,656,137 15,714
Mr. Neumann 2,352,730 319,121
Mr. Sudo 2,656,012 15,839
Approval of the 1996
Incentive Stock Option
Plan, covering 200,000
shares of Common Stock 1,852,848 819,003
Approval of the 1996
Non-Qualified Stock
Option Plan for Outside
Directors, covering
50,000 shares of
Common Stock 1,538,197 1,133,654
Ratification of
Auditors 2,650,321 21,530
9
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.
Exhibit
Numbers Description
10 Material Contracts
(.1) Credit and Security Agreement between the
Registrant and IBJ Schroder Bank and Trust
Company, Second Amendment dated February 5, 1997.
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.
May 13, 1997
VICON INDUSTRIES, INC.
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.
May 13, 1997
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