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, 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 December 31, 1998, the registrant had outstanding 4,496,693 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
12/31/98 12/31/97
Net sales............................. $17,127,727 $14,874,200
Cost of sales......................... 11,518,969 10,245,524
----------- -----------
Gross profit........................ 5,608,758 4,628,676
Operating expenses:
Selling expense................... 2,802,178 2,192,954
General & administrative expense.. 1,005,665 1,022,952
---------- ----------
3,807,843 3,215,906
---------- ----------
Operating income.................... 1,800,915 1,412,770
Interest expense...................... 153,026 338,797
Interest income....................... (47,509) -
----------- ---------
Income before income taxes........ 1,695,398 1,073,973
Income tax expense.................... 635,000 65,000
----------- ------------
Net income........................ $ 1,060,398 $ 1,008,973
=========== ============
Earnings per share:
Basic $ .24 $ .34
=== ===
Diluted $ .23 $ .31
=== ===
Shares used in computing earnings per share:
Basic 4,476,111 3,001,108
Diluted 4,691,819 3,292,725
See Notes to (Condensed) Consolidated Financial Statements.
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<PAGE>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
(CONDENSED) CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS 12/31/98 9/30/98
CURRENT ASSETS
Cash............................................ $ 2,606,179 $ 4,854,557
Accounts receivable (less allowance
of $767,000 at December 31, 1998 and
$694,000 at September 30, 1998)............... 13,044,772 12,758,080
Inventories:
Parts, components, and materials.............. 5,139,543 2,944,303
Work-in-process............................... 2,079,562 2,374,769
Finished products............................. 11,204,205 12,079,335
----------- -----------
18,423,310 17,398,407
Deferred income taxes........................... 1,246,736 1,079,736
Prepaid expenses................................ 428,177 332,241
----------- -----------
TOTAL CURRENT ASSETS............................ 35,749,174 36,423,021
- --------------------
Property, plant and equipment................... 12,868,210 12,702,390
Less accumulated depreciation and amortization.. (5,764,137) (5,565,352)
----------- -----------
7,104,073 7,137,038
Deferred income taxes........................... 116,973 116,973
Other assets.................................... 886,902 709,369
----------- -----------
TOTAL ASSETS.................................... $43,857,122 $44,386,401
- ------------ =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Borrowings under U.K. revolving credit agreement $ 485,579 $ 634,388
Current maturities of long-term debt............ 1,182,982 1,179,367
Accounts payable................................ 2,535,276 3,133,505
Accrued compensation and employee benefits...... 1,112,479 1,955,462
Accrued expenses................................ 1,451,412 1,316,855
Income taxes payable............................ 829,676 561,173
---------- ----------
TOTAL CURRENT LIABILITIES 7,597,404 8,780,750
- -------------------------
Long-term debt.................................. 6,685,709 7,001,819
Other long-term liabilities..................... 758,874 767,528
SHAREHOLDERS' EQUITY
Common stock, par value $.01.................... 45,592 45,347
Capital in excess of par value.................. 20,997,396 20,947,515
Retained earnings............................... 8,151,286 7,090,888
------------ -----------
29,194,274 28,083,750
Less treasury stock at cost, 62,517 shares...... (409,687) (409,687)
Foreign currency translation adjustment......... 30,548 162,241
------------ -----------
TOTAL SHAREHOLDERS' EQUITY 28,815,135 27,836,304
- -------------------------- ------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...... $43,857,122 $44,386,401
- ------------------------------------------ ============ ===========
See Notes to (Condensed) Consolidated Financial Statements.
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<PAGE>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
(CONDENSED) CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
12/31/98 12/31/97
Cash flows from operating activities:
Net income..................................... $ 1,060,398 $ 1,008,973
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization................ 213,964 166,752
Deferred income taxes........................ (167,000) -
Change in assets and liabilities:
Accounts receivable........................ (333,597) (548,035)
Inventories................................ (1,060,543) 487,928
Prepaid expenses........................... (98,863) (83,995)
Other assets............................... (177,533) 29,936
Accounts payable........................... (594,255) 39,982
Accrued compensation and employee benefits. (841,192) (217,837)
Accrued wages and expenses................. 138,545 (45,039)
Income taxes payable....................... 271,768 46,419
Other liabilities.......................... (8,654) (18,656)
------------ ------------
Net cash (used in) provided by
operating activities................... (1,596,962) 866,428
------------ -----------
Cash flows from investing activities:
Capital expenditures, net of
minor disposals............................ (217,865) (107,865)
------------ ------------
Net cash used in investing activities..... (217,865) (107,865)
------------ ------------
Cash flows from financing activities:
Decrease in borrowings under U.S. bank
credit agreement........................... - (1,107,861)
(Decrease) increase in borrowings under U.K.
revolving credit agreement................. (134,689) 301,169
Increase in interest-bearing accounts
payable to related party................... - 89,253
Proceeds from exercise of stock options...... 50,126 -
Repayments of U.S. term loan................. (225,000) -
Repayments of other debt..................... (70,453) (48,839)
------------ ------------
Net cash used in financing activities..... (380,016) (766,278)
------------ ------------
Effect of exchange rate changes on cash.......... (53,535) (54,589)
------------ ------------
Net decrease in cash............................. (2,248,378) (62,304)
Cash at beginning of year........................ 4,854,557 287,580
------------ -----------
Cash at end of period............................ $ 2,606,179 $ 225,276
============ ===========
See Notes to (Condensed) Consolidated Financial Statements.
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<PAGE>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO (CONDENSED) CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 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 months ended December 31, 1998
are not necessarily indicative of the results that may be expected for the
fiscal year ended September 30, 1999. 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,
1998.
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. The following table provides the components
of the basic and diluted earnings per share (EPS) computations for the three
months ended December 31, 1998 and 1997:
1998 1997
---------- ------
(Unaudited) (Unaudited)
Basic EPS Computation
Net income.............................. $1,060,398 $1,008,973
Weighted average shares outstanding..... 4,476,111 3,001,108
Basic earnings per share................ $ .24 $ .34
========== ==========
Diluted EPS Computation
Net income.............................. $1,060,398 $1,008,973
Weighted average shares outstanding... 4,476,111 3,001,108
Stock options......................... 208,129 291,264
Stock compensation arrangement........ 7,579 353
---------- ----------
Diluted shares outstanding.............. 4,691,819 3,292,725
Diluted earnings per share.............. $ .23 $ .31
========== ==========
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<PAGE>
Note 3: Comprehensive Income
Effective October 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income", which requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in the financial statements. The
Company's total comprehensive income for the three months ended December 31,
1998 and 1997 was as follows:
1998 1997
----------- --------
(Unaudited) (Unaudited)
Net income............................. $ 1,060,398 $ 1,008,973
Other comprehensive income (loss), net of tax:
Change in equity due to foreign
currency translation adjustments.. (131,693) 8,415
----------- -----------
Comprehensive income................... $ 928,705 $ 1,017,388
=========== ===========
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Three Months Ended December 31, 1998 Compared with December 31, 1997
Net sales for the quarter ended December 31, 1998 increased $2.2 million or 15%
to $17.1 million compared with $14.9 million in the year ago period. The sales
growth was experienced in the U.S. as domestic sales increased $4.2 million or
46% to $13.2 million principally as a result of system sales supplied under a
contract with the U.S. Postal Service. International sales declined $1.9 million
or 33% to $3.9 million due principally to the economic problems in Asia. The
backlog of unfilled orders was $13.8 million at December 31, 1998 compared with
$8.7 million at December 31, 1997.
Gross profit margins for the first quarter of 1999 increased to 32.7% compared
with 31.1% in the year ago period. The margin improvement was primarily the
result of a favorable sales 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 quarter of 1999 were $3.8 million or 22.2% of
net sales compared with $3.2 million or 21.6% of net sales in the year ago
period. The increase was principally the result of higher selling expenses
associated with the sales growth.
Operating income increased to $1.8 million for the first quarter of 1999
compared with $1.4 million in the year ago period principally as a result of
increased sales and higher gross margins.
Interest expense decreased $186,000 to $153,000 for the first quarter of 1999 as
$9.0 million of interest-bearing debt was repaid in May 1998 with the net
proceeds from a public stock offering.
Income tax expense was $635,000 for the first quarter of 1999 compared with
$65,000 in the year ago period. The current period reflects a normal income tax
provision whereas U.S. taxable income in the year ago period was substantially
reduced by the utilization of available federal and state net operating loss
carryforwards.
As a result of the foregoing, net income increased to $1.1 million for the first
quarter of 1999 compared with $1.0 million for the year ago period.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity and Financial Condition
Net cash used in operating activities was $1.6 million for the first quarter of
1999. Net income for the quarter of $1.1 million was offset by an increase in
inventory of $1.1 million to support new product production, a decrease in
accrued compensation and employee benefits of $.8 million due to the payment of
prior year profit related bonuses, and a decrease in accounts payable of $.6
million. Net cash used in investing activities was $.2 million for the first
quarter of 1999 due principally to capital expenditures for office equipment.
Net cash used in financing activities was $.4 million for the first quarter of
1999 due primarily to the scheduled repayment of mortgage debt and the reduction
in outstanding borrowings under the Company's U.K. bank overdraft facility. As a
result of the foregoing, cash decreased by $2.2 million for the first quarter of
1999 after the nominal effect of exchange rate changes on the cash position of
the Company.
The Company has a $7.5 million revolving credit facility with a bank which
expires in July 2002, with an option to increase the facility to $9.5 million at
any time through July 2000. Borrowings under the facility bear interest at the
bank's prime rate minus 2% or, at the Company's option, LIBOR plus 90 basis
points (5.75% and 5.96%, respectively, at December 31, 1998). At December 31,
1998, there were no borrowings outstanding under this agreement. The agreement
contains restrictive covenants which, among other things, require the Company to
maintain certain levels of earnings and ratios of debt service coverage and debt
to tangible net worth.
In addition, the Company maintains a bank overdraft facility of 600,000 Pounds
Sterling (approximately $996,000) in the U.K. to support local working capital
requirements of Vicon U.K. At December 31, 1998, outstanding borrowings under
this facility were approximately $486,000.
The Company believes that cash flow from operations and funds available under
its credit agreements will be sufficient to meet its anticipated operating,
capital expenditures and debt service requirements for at least the next twelve
months.
Year 2000
The Company's software-based products have been tested for year 2000 compliance
and the Company believes that such products are year 2000 compatible. With
respect to its own computer operating systems, the Company is in the process of
upgrading its principal operating computer software to the most recent available
revisions sold by its software suppliers, which the suppliers have represented
to be year 2000 compliant. The Company believes that such upgrades will identify
and solve those year 2000 problems that could affect its operating software and
can be accomplished before the year 2000. The costs for such upgrades are not
expected to be material. It is possible that certain computer systems or
software products of the Company's customers or suppliers may experience year
2000 problems and that such problems could adversely affect the Company. The
Company is in the process of assessing the status of its principal suppliers'
year 2000 readiness and their plans to address problems that their computer
systems may face in correctly processing date information as the year 2000
approaches. However, since the ultimate success of the Company's customers and
suppliers to become compliant is largely outside of the Company's control, no
assurances can be made that the Company will be unaffected by the year 2000.
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<PAGE>
Should the Company's suppliers fail to achieve year 2000 compliance, the supply
of product to the Company may be interrupted resulting in possible lost revenue
to the Company due to its inability to supply finished product to its customers.
If such interruptions were prolonged, it could have a material adverse effect on
the Company. The Company intends to consider contingency plans to address the
risk its principal suppliers will not be year 2000 compliant during fiscal 1999.
"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 "Liquidity and
Financial Condition" and "Year 2000" 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.
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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
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.
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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.
February 11, 1999
VICON INDUSTRIES, INC.
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.
February 11, 1999
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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 2,606,179
<SECURITIES> 0
<RECEIVABLES> 15,487,154
<ALLOWANCES> (767,469)
<INVENTORY> 18,423,310
<CURRENT-ASSETS> 35,749,174
<PP&E> 13,872,085
<DEPRECIATION> (5,764,137)
<TOTAL-ASSETS> 43,857,122
<CURRENT-LIABILITIES> 7,597,404
<BONDS> 7,444,583
0
0
<COMMON> 45,592
<OTHER-SE> 28,769,543
<TOTAL-LIABILITY-AND-EQUITY> 43,857,122
<SALES> 17,127,727
<TOTAL-REVENUES> 0
<CGS> 11,518,969
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,747,843
<LOSS-PROVISION> 60,000
<INTEREST-EXPENSE> 105,517
<INCOME-PRETAX> 1,695,398
<INCOME-TAX> 635,000
<INCOME-CONTINUING> 1,060,398
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,060,398
<EPS-PRIMARY> .24
<EPS-DILUTED> .23
</TABLE>
