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, 1999 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, 1999, the registrant had outstanding 4,515,118 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
3/31/99 3/31/98
Net sales............................. $17,500,615 $14,730,905
Cost of sales......................... 11,605,142 9,904,902
----------- -----------
Gross profit........................ 5,895,473 4,826,003
Operating expenses:
Selling expense................... 2,860,819 2,208,008
General & administrative expense.. 1,117,023 1,023,929
---------- ----------
3,977,842 3,231,937
---------- ----------
Operating income.................... 1,917,631 1,594,066
Interest expense...................... 149,360 355,034
Interest income....................... (42,807) -
----------- -----------
Income before income taxes........ 1,811,078 1,239,032
Income tax expense.................... 650,000 85,000
----------- ------------
Net income........................ $ 1,161,078 $ 1,154,032
=========== ============
Earnings per share:
Basic $ .26 $ .38
=== ===
Diluted $ .25 $ .35
=== ===
Shares used in computing earnings per share:
Basic 4,506,931 3,045,210
Diluted 4,713,487 3,335,835
See Notes to Condensed Consolidated Financial Statements.
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended
3/31/99 3/31/98
Net sales............................. $34,628,342 $29,605,105
Cost of sales......................... 23,124,111 20,150,426
----------- -----------
Gross profit........................ 11,504,231 9,454,679
Operating expenses:
Selling expense................... 5,662,995 4,400,962
General & administrative expense.. 2,122,689 2,046,882
---------- ----------
7,785,684 6,447,844
---------- ----------
Operating income.................... 3,718,547 3,006,835
Interest expense...................... 302,386 693,830
Interest income....................... (90,316) -
----------- -----------
Income before income taxes........ 3,506,477 2,313,005
Income tax expense.................... 1,285,000 150,000
----------- ------------
Net income........................ $ 2,221,477 $ 2,163,005
=========== ============
Earnings per share:
Basic $ .49 $ .72
=== ===
Diluted $ .47 $ .65
=== ===
Shares used in computing earnings per share:
Basic 4,491,352 3,022,917
Diluted 4,702,484 3,314,038
See Notes to Condensed Consolidated Financial Statements.
-3-
<PAGE>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS 3/31/99 9/30/98
CURRENT ASSETS
Cash............................................ $ 3,063,424 $ 4,854,557
Accounts receivable, net........................ 12,824,089 12,758,080
Inventories:
Parts, components, and materials.............. 3,697,039 2,944,303
Work-in-process............................... 4,335,696 2,374,769
Finished products............................. 11,878,043 12,079,335
----------- -----------
19,910,778 17,398,407
Deferred income taxes........................... 1,292,736 1,079,736
Prepaid expenses................................ 423,015 332,241
----------- -----------
TOTAL CURRENT ASSETS............................ 37,514,042 36,423,021
- --------------------
Property, plant and equipment................... 12,945,041 12,702,390
Less accumulated depreciation and amortization.. (5,958,532) (5,565,352)
----------- -----------
6,986,509 7,137,038
Deferred income taxes........................... 116,973 116,973
Other assets.................................... 929,667 709,369
----------- -----------
TOTAL ASSETS.................................... $45,547,191 $44,386,401
- ------------ =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving credit borrowings..................... $ 598,917 $ 634,388
Current maturities of long-term debt............ 1,184,120 1,179,367
Accounts payable................................ 3,594,671 3,133,505
Accrued compensation and employee benefits...... 1,345,075 1,955,462
Accrued expenses................................ 1,523,441 1,316,855
Income taxes payable............................ 307,064 561,173
---------- ----------
TOTAL CURRENT LIABILITIES 8,553,288 8,780,750
- -------------------------
Long-term debt.................................. 6,375,137 7,001,819
Other long-term liabilities..................... 749,771 767,528
SHAREHOLDERS' EQUITY
Common stock, par value $.01.................... 45,776 45,347
Capital in excess of par value.................. 21,042,031 20,947,515
Retained earnings............................... 9,312,365 7,090,888
------------ -----------
30,400,172 28,083,750
Less treasury stock at cost, 62,517 shares...... (409,687) (409,687)
Foreign currency translation adjustment......... (121,490) 162,241
------------ -----------
TOTAL SHAREHOLDERS' EQUITY 29,868,995 27,836,304
- -------------------------- ------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...... $45,547,191 $44,386,401
- ------------------------------------------ ============ ===========
See Notes to Condensed Consolidated Financial Statements.
-4-
<PAGE>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
3/31/99 3/31/98
Cash flows from operating activities:
Net income..................................... $ 2,221,477 $ 2,163,005
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization................ 428,747 357,395
Deferred income taxes........................ (213,000) -
Change in assets and liabilities:
Accounts receivable........................ (163,869) (1,540,049)
Inventories................................ (2,590,922) 228,621
Prepaid expenses........................... (99,226) (65,726)
Other assets............................... (220,298) (34,088)
Accounts payable........................... 472,704 733,348
Accrued compensation and employee benefits. (606,570) (12,178)
Accrued expenses........................... 216,329 30,427
Income taxes payable....................... (246,941) 126,417
Other liabilities.......................... (17,757) (24,827)
------------ ------------
Net cash (used in) provided by
operating activities................... (819,326) 1,962,345
------------ -----------
Cash flows from investing activities:
Capital expenditures......................... (360,743) (3,847,399)
------------ ------------
Net cash used in investing activities..... (360,743) (3,847,399)
------------ ------------
Cash flows from financing activities:
Decrease in revolving credit borrowings...... (1,932) (1,188,346)
Borrowings under mortgage and term loans..... - 2,900,000
Increase in interest-bearing accounts
payable to related party................... - 99,512
Proceeds from exercise of stock options...... 94,945 46,124
Repayments of U.S. term loan................. (450,000) -
Repayments of other debt..................... (134,304) (102,169)
------------ ------------
Net cash (used in) provided by
financing activities................... (491,291) 1,755,121
------------ -----------
Effect of exchange rate changes on cash.......... (119,773) (58,244)
------------ ------------
Net decrease in cash............................. (1,791,133) (188,177)
Cash at beginning of year........................ 4,854,557 287,580
------------ -----------
Cash at end of period............................ $ 3,063,424 $ 99,403
============ ===========
See Notes to Condensed Consolidated Financial Statements.
-5-
<PAGE>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1999
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, 1999 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 accordance with Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share" the Company is required to present basic and diluted
earnings per share (EPS). 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
following table provides the components of the basic and diluted earnings per
share (EPS) computations for the three month and six month periods ended March
31, 1999 and 1998:
Three Months Six Months
Ended March 31, Ended March 31,
1999 1998 1999 1998
(Unaudited) (Unaudited)
Basic EPS Computation
Net income.................. $1,161,078 $1,154,032 $2,221,477 $2,163,005
Weighted average
shares outstanding......... 4,506,931 3,045,210 4,491,352 3,022,917
Basic earnings per share.... $ .26 $ .38 $ .49 $ .72
========== ========== ========== ==========
Diluted EPS Computation
Net income.................. $1,161,078 $1,154,032 $2,221,477 $2,163,005
Weighted average
shares outstanding....... 4,506,931 3,045,210 4,491,352 3,022,917
Stock options............. 193,877 278,124 201,003 284,694
Stock compensation
arrangement.............. 12,679 12,501 10,129 6,427
---------- ---------- ---------- ----------
Diluted shares outstanding.. 4,713,487 3,335,835 4,702,484 3,314,038
Diluted earnings per share. $ .25 $ .35 $ .47 $ .65
========== ========== ========== ==========
-6-
<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 month and six month periods
ended March 31, 1999 and 1998 was as follows:
Three Months Six Months
Ended March 31, Ended March 31,
1999 1998 1999 1998
(Unaudited) (Unaudited)
Net income.................. $1,161,078 $1,154,032 $2,221,477 $2,163,005
Other comprehensive income
(loss), net of tax:
Change in equity due to
foreign currency
translation adjustments (152,038) 41,039 (283,731) 49,454
---------- ---------- ---------- ----------
Comprehensive income........ $1,009,040 $1,195,071 $1,937,746 $2,212,459
========== ========== ========== ==========
-7-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Three Months Ended March 31, 1999 Compared with March 31, 1998
Net sales for the quarter ended March 31, 1999 increased $2.8 million or 19% to
$17.5 million compared with $14.7 million in the year ago period. The sales
growth was experienced in the U.S. as sales increased $3.4 million or 33% to
$13.8 million principally as a result of system sales supplied under a contract
with the U.S. Postal Service. International sales declined $.6 million or 14% to
$3.7 million due principally to lower sales in Asia.
Gross profit margins for the second quarter of 1999 increased to 33.7% compared
with 32.8% in the year ago period. The margin improvement was primarily the
result of a favorable sales mix, lower procurement costs and greater fixed cost
absorption associated with the sales growth.
Operating expenses for the second quarter of 1999 were $4.0 million or 22.7% of
net sales compared with $3.2 million or 21.9% 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 $1.9 million for the second quarter of 1999
compared with $1.6 million in the year ago period principally as a result of
increased sales and higher gross margins.
Interest expense decreased $206,000 to $149,000 for the second quarter of 1999
as $9.0 million of interest-bearing debt was repaid in May 1998 with the net
proceeds from a secondary stock offering.
Income tax expense was $650,000 for the second quarter of 1999 compared with
$85,000 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 was $1.2 million for the second quarter
of 1999, unchanged from the year ago period. However, periods in 1998 benefitted
from the utilization of net operating tax loss carryforwards which affect the
comparability of operating results. Assuming the year ago period had incurred
taxes at the same effective tax rate as the current year period, net income for
the second quarter of 1998 would have been $794,000 ($.24 per share diluted)
compared with $1.2 million ($.25 per share diluted) reported for the second
quarter of 1999.
-8-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Six Months Ended March 31, 1999 Compared with March 31, 1998
Net sales for the six months ended March 31, 1999 increased $5.0 million or 17%
to $34.6 million compared with $29.6 million in the year ago period. The sales
growth was experienced in the U.S. as sales increased $7.5 million or 39% to
$27.0 million principally as a result of system sales supplied under a contract
with the U.S. Postal Service. International sales declined $2.5 million or 25%
to $7.6 million due principally to lower sales in Asia. The backlog of unfilled
orders was $14.0 million at March 31, 1999 compared with $9.9 million at March
31, 1998.
Gross profit margins for the first six months of 1999 increased to 33.2%
compared with 31.9% in the year ago period. The margin improvement was primarily
the result of a favorable sales mix, lower procurement costs and greater fixed
cost absorption associated with the sales growth.
Operating expenses for the first six months of 1999 were $7.8 million or 22.5%
of net sales compared with $6.4 million or 21.8% 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 $3.7 million for the first six months of 1999
compared with $3.0 million in the year ago period principally as a result of
increased sales and higher gross margins.
Interest expense decreased $391,000 to $302,000 for the first six months of 1999
as $9.0 million of interest-bearing debt was repaid in May 1998 with the net
proceeds from a secondary stock offering.
Income tax expense was $1.3 million for the first six months of 1999 compared
with $150,000 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 was $2.2 million for the first six
months of 1999, unchanged from the year ago period. However, periods in 1998
benefitted from the utilization of net operating tax loss carryforwards which
affect the comparability of operating results. Assuming the year ago period had
incurred taxes at the same effective tax rate as the current year period, net
income for the first six months of 1998 would have been $1.5 million ($.44 per
share diluted) compared with $2.2 million ($.47 per share diluted) reported for
the first six months of 1999.
-9-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity and Financial Condition
Net cash used in operating activities was $.8 million for the first six months
of 1999. Net income for the period of $2.2 million was offset by an increase in
inventory of $2.6 million to support new product production. Net cash used in
investing activities was $.4 million for the first six months of 1999 due
principally to capital expenditures for office equipment. Net cash used in
financing activities was $.5 million for the first six months of 1999 due
primarily to the scheduled repayments of bank term and mortgage loans. As a
result of the foregoing, cash decreased by $1.8 million for the first six months
of 1999 after the effect of exchange rate changes on cash.
The Company maintains a $7.5 million revolving credit facility with its 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 5.84%, respectively, at March 31, 1999). At
March 31, 1999, 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 $966,000) in the U.K. to support local working capital
requirements of Vicon U.K. At March 31, 1999, outstanding borrowings under this
facility were $599,000.
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 has completed the
upgrade of 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 solve those year 2000 problems that could affect its operating software.
The costs for such upgrades were not 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.
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.
-10-
<PAGE>
"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.
-11-
<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 22, 1999.
The following directors were elected at the meeting:
Kenneth M. Darby
Arthur D. Roche
The terms of the following directors continued after the meeting:
Chu S. Chun
Milton F. Gidge
Peter F. Neumann
W. Gregory Robertson
Kazuyoshi Sudo
The matters voted upon at the meeting and the results of each vote are
as follows:
Nominees for
Directors: For Against
Mr. Darby 4,066,379 33,015
Mr. Roche 4,013,079 86,315
Approval of the 1999
Incentive Stock Option
Plan, covering 100,000
shares of Common Stock 3,735,573 363,821
Approval of the 1999
Non-Qualified Stock Option
Plan, covering 100,000
shares of Common Stock 3,711,013 388,388
Ratification of Auditors 4,058,599 40,796
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.
-12-
<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.
May 13, 1999
VICON INDUSTRIES, INC.
Kenneth M. Darby Arthur D. Roche
Chairman and Executive Vice President
Chief Executive Officer Chief Financial Officer
-13-
<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.
May 13, 1999
VICON INDUSTRIES, INC.
--------------------------
VICON INDUSTRIES, INC.
Kenneth M. Darby Arthur D. Roche
- -------------------------- --------------------------
Kenneth M. Darby Arthur D. Roche
Chairman and 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-30-1999 SEP-30-1999
<PERIOD-END> MAR-31-1999 MAR-31-1999
<CASH> 3,063,424 3,063,424
<SECURITIES> 0 0
<RECEIVABLES> 15,364,613 15,364,613
<ALLOWANCES> (824,773) (824,773)
<INVENTORY> 19,910,778 19,910,778
<CURRENT-ASSETS> 37,514,042 37,514,042
<PP&E> 13,991,681 13,991,681
<DEPRECIATION> (5,958,532) (5,958,532)
<TOTAL-ASSETS> 45,547,191 45,547,191
<CURRENT-LIABILITIES> 8,553,288 8,553,288
<BONDS> 7,124,908 7,124,908
0 0
0 0
<COMMON> 45,776 45,776
<OTHER-SE> 29,823,219 29,823,219
<TOTAL-LIABILITY-AND-EQUITY> 45,547,191 45,547,191
<SALES> 17,500,615 34,628,342
<TOTAL-REVENUES> 0 0
<CGS> 11,605,142 23,124,111
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 3,875,035 7,575,368
<LOSS-PROVISION> 60,000 120,000
<INTEREST-EXPENSE> 149,360 302,386
<INCOME-PRETAX> 1,811,078 3,506,477
<INCOME-TAX> 650,000 1,285,000
<INCOME-CONTINUING> 1,161,078 2,221,477
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,161,078 2,221,477
<EPS-PRIMARY> .26 .49
<EPS-DILUTED> .25 .47
</TABLE>
