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 December 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 December 31 1997, the registrant had outstanding 3,001,108 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
12/31/97 12/31/96
Net sales........................... $14,874,200 $11,297,775
Costs and expenses:
Cost of goods sold................ 10,245,524 8,116,967
Selling, general & admin.
expenses........................ 3,215,906 2,721,195
Interest expense.................. 338,797 263,948
Unrealized foreign
exchange gain................... - (33,623)
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Total costs and expenses....... 13,800,227 11,068,487
Income before income taxes.......... 1,073,973 229,288
Provision for income taxes.......... 65,000 14,000
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Net income.......................... $ 1,008,973 $ 215,288
=========== ===========
Net income per share:
Basic $ .34 $ .08
=== ===
Diluted $ .31 $ .08
--- ---
Weighted average number of shares used in computing net income per share:
Basic 3,001,000 2,777,000
Diluted 3,293,000 2,870,000
See Notes to (Condensed) Consolidated Financial Statements.
2
VICON INDUSTRIES, INC. AND SUBSIDIARIES
(CONDENSED) CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS 12/31/97 9/30/97
CURRENT ASSETS
Cash............................................ $ 225,276 $ 287,580
Accounts receivable (less allowance
of $603,000 at December 31, 1997 and
$493,000 at September 30, 1997)............... 10,152,090 9,578,297
Inventories:
Parts, components, and materials.............. 3,356,001 3,399,133
Work-in-process............................... 1,904,228 2,046,174
Finished products............................. 10,919,277 11,188,217
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16,179,506 16,633,524
Prepaid expenses................................ 392,154 307,580
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TOTAL CURRENT ASSETS............................ 26,949,026 26,806,981
- --------------------
Property, plant and equipment................... 8,508,226 8,362,930
Less: accumulated depreciation................. (5,048,244) (4,870,717)
----------- -----------
3,459,982 3,492,213
Other assets.................................... 870,481 900,417
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TOTAL ASSETS.................................... $31,279,489 $31,199,611
- ------------ =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Borrowings under revolving credit agreement..... $ 471,490 $ 169,006
Current maturities of long-term debt............ 501,169 515,092
Accounts payable:
Related party................................. 6,902,119 7,146,985
Other......................................... 1,785,825 1,407,917
Accrued wages and expenses...................... 1,852,334 2,111,670
Income taxes payable............................ 152,343 105,188
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TOTAL CURRENT LIABILITIES 11,665,280 11,455,858
- -------------------------
Long-term debt:
Related party................................. 1,440,000 1,440,000
Other......................................... 5,776,092 6,904,368
Other long-term liabilities..................... 466,746 485,402
SHAREHOLDERS' EQUITY
Common stock, par value $.01.................... 30,470 30,470
Capital in excess of par value.................. 9,868,063 9,868,063
Retained earnings............................... 2,289,880 1,280,907
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12,188,413 11,179,440
Less treasury stock 45,952 shares, at cost...... (298,686) (298,686)
Foreign currency translation adjustment......... 41,644 33,229
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TOTAL SHAREHOLDERS' EQUITY 11,931,371 10,913,983
- -------------------------- ------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...... $ 31,279,489 $31,199,611
- ------------------------------------------ ============ ===========
See Notes to (Condensed) Consolidated Financial Statements.
3
VICON INDUSTRIES, INC. AND SUBSIDIARIES
(CONDENSED) CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
12/31/97 12/31/96
Cash flows from operating activities:
Net income................................... $1,008,973 $ 215,288
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 166,752 183,127
Amortization of sale and leaseback......... - (343,210)
Unrealized foreign exchange gain........... - (33,623)
Change in assets and liabilities:
Accounts receivable........................ (548,035) (27,179)
Inventories................................ 487,928 (819,790)
Prepaid expenses........................... (83,995) (57,163)
Other assets............................... 29,936 (13,728)
Accounts payable........................... 129,235 (107,485)
Accrued wages and expenses................. (262,876) 217,849
Income taxes payable....................... 46,419 13,844
Other liabilities.......................... (18,656) (15,136)
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Net cash provided by (used in)
operating activities................... 955,681 (787,206)
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Cash flows from investing activities:
Capital expenditures, net of
minor disposals............................ (107,865) (102,286)
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Net cash used in investing activities.... (107,865) (102,286)
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Cash flows from financing activities:
Net (repayments) borrowings under U.S.
credit and security agreement.............. (1,107,861) 767,426
Net borrowings under U.K.
revolving credit agreement................. 301,169 302,509
Repayments of other debt..................... (48,839) (158,425)
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Net cash (used in) provided by
financing activities.................... (855,531) 911,510
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Effect of exchange rate changes on cash.......... (54,589) (102,900)
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Net decrease in cash............................. (62,304) (80,882)
Cash at beginning of quarter..................... 287,580 205,876
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Cash at end of period............................ $ 225,276 $ 124,994
============ ===========
See Notes to (Condensed) Consolidated Financial Statements.
4
VICON INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO (CONDENSED) CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 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 three months ended December 31, 1997
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
earnings per share are computed based on the weighted average number of shares
outstanding. Diluted earnings per share 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 adopted by the Company in the quarter ended December 31,
1997. All EPS figures for prior periods reported have been restated.
Note 3: Subsequent Event
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 January 29, 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 7.7%. The interest rate swap
agreements mature in the same amount and over the same period as the related
mortgage and term loans.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Three Months Ended December 31, 1997 Compared with December 31, 1996
Net sales for the quarter ended December 31, 1997 increased $3.6 million or 32%
to $14.9 million compared with $11.3 million in the similar year ago period. The
sales growth was experienced worldwide as U.S. sales increased 24% to $9.0
million and international sales rose 45% to $5.9 million. The U.S. sales
increase was principally the result of video systems 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. The increase in international sales
was due to more systems sales and increased sales to a private label customer
for distribution primarily in Europe. The backlog of unfilled orders was $8.7
million at December 31, 1997 compared with $4.4 million at December 31, 1996.
Gross profit margins for the quarter increased to 31.1% compared with 28.2% in
the year ago period. The margin improvement was primarily the result of the
greater mix of more profitable products, lower procurement costs for certain
video products and greater fixed cost absorption associated with the sales
growth.
Operating expenses for the quarter were $3.2 million or 21.6% of net sales
compared with $2.7 million or 24.1% of net sales in the year ago period. The
increase of $0.5 million or 18% was principally the result of higher selling
expenses associated with the revenue growth and profit related bonus accruals.
As a percentage of sales, operating expenses were lower due to greater
absorption of fixed operating costs.
Operating income rose to $1,413,000 in the quarter compared with $460,000 in the
prior year quarter as a result of increased sales and higher gross margins and
greater absorption of fixed operating expenses.
Interest expense increased $75,000 to $339,000 principally as a result of higher
borrowing levels during the quarter.
Income taxes were $65,000 for the quarter compared with $14,000 in the prior
year quarter, an effective tax rate of approximately 6% for both periods. In
both periods, the Company has utilized a net operating loss ("NOL") carryfoward
to offset Federal and State taxable income and, as of December 31, 1997, the
remaining balance of the NOL was approximately $4.0 million. The nominal tax
provision related primarily to foreign subsidiary income.
As a result of the foregoing, net income increased to $1,009,000 for the quarter
compared with net income of $215,000 for the similar year ago period.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND FINANCIAL CONDITION
December 31, 1997 Compared with September 30, 1997
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.
Net cash provided by operating activities was $956,000 for the three months
ended December 31, 1997 due primarily to the $1.0 million net profit reported
for the period. The increase in accounts receivable due to higher sales activity
was substantially offset by a reduction in inventories. Net cash used in
investing activities was $108,000 in the first quarter of 1998 as a result of
capital expenditures for office equipment. Net cash used in financing activities
was $856,000, which included a $1.1 million reduction of borrowings under the
Company's U.S. credit facility offset by increased Vicon U.K. borrowings. As a
result of the foregoing, the net decrease in cash was $62,000 for the first
quarter of 1998 after the nominal effects of exchange rate changes on the cash
position of the Company.
The Company requires liquidity and working capital primarily to finance
increases in inventories and accounts receivable associated with sales growth
and to a lesser extent for capital expenditures. The Company anticipates that in
1998 capital expenditures will be approximately $4.0 million, of which $3.3
million will represent the January 1998 acquisition of its operating facility
and $700,000 for product tooling and office equipment. The purchase of the
facility was funded by mortgage loans aggregating $2.9 million (the "Mortgage")
and from internal cash flow.
The Company maintains a bank overdraft facility of 600,000 pounds sterling
(approximately $990,000) in the U.K. to support local working capital
requirements of Vicon U.K.. At December 31, 1997, borrowings under this facility
were approximately $471,000.
The Company's domestic bank credit agreement (the "Credit Agreement") permits
borrowings 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. Borrowings under the Credit Agreement
amounted to approximately $4.9 million at December 31, 1997.
The Company purchases certain products from Chugai Boyeki Co., Ltd (CBC) whose
interest bearing trade payables amounted to $6.4 million at December 31, 1997
and are due on demand. The Company historically has made trade payable payments
to CBC as cash availability permits.
The Company believes that cash flow from operations, the Mortgage, and
additional funds available under the Credit Agreement will be sufficient to meet
its currently anticipated operating, capital expenditures and debt service
requirements for at least the next twelve months.
7
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
No Form 8-K was required to be filed during the current quarter.
Exhibit Exhibit
Number Description Number
10 Material Contracts
(.1) Agreement of Purchase and Sale 10.1
between the Registrant and RREEF
Midamerica/East-V Nine, Inc.
dated January 29, 1998
(.2) Loan Agreement between the 10.2
Registrant and KeyBank National
Association dated January 29, 1998
(.3) Mortgage Note between the 10.3
Registrant and KeyBank National
Association dated January 29, 1998
(.4) Term Loan Note between the Registrant 10.4
and KeyBank National Association
dated January 29, 1998
(.5) Mortgage and Security Agreement in 10.5
the amount of $2,512,000 between
the Registrant and KeyBank National
Association dated January 29, 1998
(.6) Mortgage and Security Agreement in 10.6
the amount of $388,000 between the
Registrant and KeyBank National
Association dated January 29, 1998
8
(.7) Interest rate master swap agreement 10.7
between the Registrant and KeyBank
National Association dated December
11, 1997
(.8) Schedule to the master agreement 10.8
between the Registrant and KeyBank
National Association dated December
11, 1997
(.9) Swap Transaction Confirmation with a 10.9
notional amount of $2,512,000 between
the Registrant and KeyBank National
Association dated December 30,1997
(.10) Swap Transaction Confirmation with a 10.10
notional amount of $388,000 between
the Registrant and KeyBank National
Association dated December 30, 1997
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.
February 12, 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
9