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.
<PAGE>
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.
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<PAGE>
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.
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<PAGE>
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.
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<PAGE>
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.
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<PAGE>
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.
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<PAGE>
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-
<PAGE>
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-
<PAGE>
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.
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<PAGE>
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.
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<PAGE>
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
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<PAGE>
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
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> SEP-30-1998 SEP-30-1998
<PERIOD-END> MAR-31-1998 MAR-31-1998
<CASH> 99,403 99,403
<SECURITIES> 0 0
<RECEIVABLES> 12,214,718 12,214,718
<ALLOWANCES> (669,990) (669,990)
<INVENTORY> 16,459,855 16,459,855
<CURRENT-ASSETS> 28,103,986 28,103,986
<PP&E> 13,171,817 13,171,817
<DEPRECIATION> (5,210,439) (5,210,439)
<TOTAL-ASSETS> 36,065,364 36,065,364
<CURRENT-LIABILITIES> 17,384,990 17,384,990
<BONDS> 5,507,808 5,507,808
0 0
0 0
<COMMON> 31,212 31,212
<OTHER-SE> 13,141,354 13,141,354
<TOTAL-LIABILITY-AND-EQUITY> 36,065,364 36,065,364
<SALES> 14,730,905 29,605,105
<TOTAL-REVENUES> 0 0
<CGS> 9,904,902 20,150,426
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 3,186,937 6,289,844
<LOSS-PROVISION> 45,000 158,000
<INTEREST-EXPENSE> 355,034 693,830
<INCOME-PRETAX> 1,239,032 2,313,005
<INCOME-TAX> 85,000 150,000
<INCOME-CONTINUING> 1,154,032 2,163,005
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,154,032 2,163,005
<EPS-PRIMARY> .38 .72
<EPS-DILUTED> .35 .65
</TABLE>
