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, 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 December 31, 1999, the registrant had outstanding 4,586,512 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
12/31/99 12/31/98
Net sales............................. $19,524,470 $17,127,727
Cost of sales......................... 14,134,206 11,263,335
----------- -----------
Gross profit........................ 5,390,264 5,864,392
Operating expenses:
Selling expense................... 3,181,520 2,588,879
General & administrative expense.. 1,066,863 829,206
Engineering & development expense. 862,536 645,392
---------- ----------
5,110,919 4,063,477
---------- ----------
Operating income.................... 279,345 1,800,915
Interest expense...................... 166,088 153,026
Interest income....................... (17,389) (47,509)
----------- -----------
Income before income taxes........ 130,646 1,695,398
Income tax expense.................... 46,000 635,000
----------- ------------
Net income........................ $ 84,646 $ 1,060,398
=========== ============
Earnings per share:
Basic $ .02 $ .24
=== ===
Diluted $ .02 $ .23
=== ===
Shares used in computing earnings per share:
Basic 4,584,934 4,476,111
Diluted 4,699,703 4,691,819
See Notes to (Condensed) Consolidated Financial Statements.
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<PAGE>
VICON INDUSTRIES, INC. AND SUBSIDIARIES
(CONDENSED) CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS 12/31/99 9/30/99
CURRENT ASSETS
Cash............................................ $ 804,349 $ 1,998,767
Accounts receivable (less allowance
of $884,000 at December 31, 1999 and
$818,000 at September 30, 1999)............. 15,173,542 13,771,411
Inventories:
Parts, components, and materials.............. 3,181,438 2,647,781
Work-in-process............................... 5,607,449 5,298,862
Finished products............................. 13,682,063 13,381,900
----------- -----------
22,470,950 21,328,543
Deferred income taxes........................... 1,874,791 1,303,791
Prepaid expenses................................ 546,650 630,716
----------- -----------
TOTAL CURRENT ASSETS............................ 40,870,282 39,033,228
- --------------------
Property, plant and equipment................... 14,968,514 14,540,426
Less accumulated depreciation and amortization. (6,683,913) (6,486,937)
----------- -----------
8,284,601 8,053,489
Goodwill, net of accumulated amortization....... 1,788,373 1,768,056
Deferred income taxes........................... 233,154 264,218
Other assets.................................... 720,657 780,028
----------- -----------
TOTAL ASSETS.................................... $51,897,067 $49,899,019
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Borrowings under revolving credit agreement..... $ 559,160 $ 374,806
Current maturities of long-term debt........... 1,308,772 1,212,316
Accounts payable................................ 4,188,293 4,022,892
Accrued compensation and employee benefits..... 1,296,436 2,233,441
Accrued expenses................................ 2,260,275 1,749,395
Unearned service revenue........................ 225,433 224,711
Income taxes payable............................ 442,051 167,013
---------- -----------
TOTAL CURRENT LIABILITIES 10,280,420 9,984,574
Long-term debt.................................. 7,588,895 5,798,641
Unearned service revenue........................ 585,099 639,169
Other long-term liabilities..................... 698,712 728,284
SHAREHOLDERS' EQUITY
Common stock, par value $.01.................... 46,627 46,547
Capital in excess of par value.................. 21,358,534 21,343,676
Retained earnings............................... 11,935,735 11,851,089
------------ -----------
33,340,896 33,241,312
Less treasury stock, at cost.................... (517,845) (508,745)
Accumulated other comprehensive income (loss)... (79,110) 15,784
------------ -----------
TOTAL SHAREHOLDERS' EQUITY 32,743,941 32,748,351
- -------------------------- ------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...... $51,897,067 $49,899,019
============ ===========
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
12/31/99 12/31/98
Cash flows from operating activities:
Net income..................................... $ 84,646 $ 1,060,398
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization................ 263,316 213,964
Deferred income taxes....................... (539,936) (167,000)
Change in assets and liabilities:
Accounts receivable........................ (1,446,286) (333,597)
Inventories................................ (1,170,423) (1,060,543)
Prepaid expenses........................... 81,401 (98,863)
Other assets............................... (12,909) (177,533)
Accounts payable........................... 168,188 (594,255)
Accrued compensation and employee benefits. (936,041) (841,192)
Accrued expenses........................... 509,876 138,545
Unearned service revenue................... (53,348) -
Income taxes payable....................... 276,744 271,768
Other liabilities.......................... (29,572) (8,654)
------------ ------------
Net cash used in operating activities..... (2,804,344) (1,596,962)
------------ ------------
Cash flows from investing activities:
Capital expenditures, net of
minor disposals............................ (470,165) (217,865)
----------- ---------
Net cash used in investing activities..... (470,165) (217,865)
----------- ---------
Cash flows from financing activities:
Borrowings under U.S. bank credit agreement. 1,000,000 -
Increase (decrease) in borrowings under U.K.
revolving credit agreement................ 192,348 (134,689)
Proceeds from mortgage loan.................. 1,200,000 -
Proceeds from exercise of stock options...... 5,838 50,126
Repayments of U.S. term loan................. (225,000) (225,000)
Repayments of other debt..................... (77,039) (70,453)
------------ ------------
Net cash provided by (used in)
financing activities................... 2,096,147 (380,016)
------------ ------------
Effect of exchange rate changes on cash.......... (16,056) (53,535)
------------ ------------
Net decrease in cash............................. (1,194,418) (2,248,378)
Cash at beginning of year........................ 1,998,767 4,854,557
------------ ------------
Cash at end of period............................ $ 804,349 $ 2,606,179
============ =============
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, 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 three months ended December 31, 1999
are not necessarily indicative of the results that may be expected for the
fiscal year ended September 30, 2000. 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,
1999. Certain prior year amounts have been reclassified to conform to current
year presentation.
Note 2: Earnings per Share
The Financial Accounting Standards Board Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share" requires companies to present
basic and diluted earnings per share (EPS). Basic EPS is computed based on the
weighted average number of shares outstanding for the period. Diluted EPS
reflects 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 months ended December 31,
1999 and 1998:
1999 1998
---------- ---------
(Unaudited) (Unaudited)
Basic EPS Computation
Net income.............................. $ 84,646 $1,060,398
Weighted average shares outstanding..... 4,584,934 4,476,111
Basic earnings per share................ $ .02 $ .24
========== ==========
Diluted EPS Computation
Net income.............................. $ 84,646 $1,060,398
Weighted average shares outstanding... 4,584,934 4,476,111
Stock options......................... 108,730 208,129
Stock compensation arrangement........ 6,039 7,579
---------- ----------
Diluted shares outstanding.............. 4,699,703 4,691,819
Diluted earnings per share.............. $ .02 $ .23
========== ==========
-5-
<PAGE>
Note 3: Comprehensive Income
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income", 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, 1999 and 1998 was as follows:
1999 1998
----------- -----------
(Unaudited) (Unaudited)
Net income............................. $ 84,646 $ 1,060,398
Other comprehensive income (loss),
net of tax:
Change in equity due to foreign
currency translation adjustments.. (94,894) (131,693)
----------- -----------
Comprehensive income (loss)............ $ (10,248) $ 928,705
=========== ===========
Note 4: Segment and Related Information
The Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information" in fiscal 1999, which changes the way the Company
reports information about its operating segments. The Company operates in one
industry which encompasses the design, manufacture, assembly and marketing of
closed-circuit video systems and system components for the electronic protection
segment of the security industry. The Company manages its business segments
primarily on a geographic basis. The Company's principal reportable segments are
comprised of its United States (U.S.) and United Kingdom (U.K.) based
operations. Its U.S. based operations consists of Vicon Industries, Inc., the
Company's corporate headquarters and principal operating entity. Its U.K. based
operations consist of Vicon Industries Limited, a wholly owned subsidiary which
markets and distributes the Company's products principally within Europe. Other
segments include the operations of Vicon Industries (H.K.) Ltd., a Hong Kong
based majority owned subsidiary which markets and distributes the Company's
products principally within Hong Kong and mainland China, and Telesite U.S.A.,
Inc. and subsidiary, a U.S. and Israeli based manufacturer and distributor of
remote video surveillance systems.
The Company evaluates performance and allocates resources based on, among other
things, the net profit for each segment, which excludes intersegment sales and
profits. Segment information for the three months ended December 31, 1999 and
1998 was as follows:
1999 U.S. U.K. Other Consolid. Totals
- ---- ---------- --------- --------- ---------- -------
Net sales to
external customers $16,244,000 $2,392,000 $ 888,000 $ - $19,524,000
Intersegment
net sales 1,594,000 - 84,000 - 1,678,000
Net income (loss) 160,000 26,000 (47,000) (54,000) 85,000
Interest expense 143,000 40,000 5,000 (22,000) 166,000
Interest income 52,000 - - (35,000) 17,000
Depreciation and
amortization 176,000 26,000 9,000 52,000 263,000
Total assets 47,074,000 5,525,000 2,735,000 (3,437,000) 51,897,000
Capital expenditures 452,000 - 18,000 - 470,000
-6-
<PAGE>
1998 U.S. U.K. Other Consolid. Totals
- ---- ---------- ---------- --------- ---------- -------
Net sales to
external customers $14,749,000 $1,908,000 $ 471,000 $ - $17,128,000
Intersegment
net sales 1,050,000 - - - 1,050,000
Net income (loss) 1,042,000 30,000 (14,000) 2,000 1,060,000
Interest expense 136,000 40,000 - (23,000) 153,000
Interest income 71,000 - - (23,000) 48,000
Depreciation and
amortization 163,000 39,000 12,000 - 214,000
Total assets 39,812,000 5,205,000 1,448,000 (2,608,000) 43,857,000
Capital expenditures 106,000 42,000 70,000 - 218,000
The consolidating segment above includes the elimination and consolidation of
intersegment transactions.
-7-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Three Months Ended December 31, 1999 Compared with December 31, 1998
Net sales for the quarter ended December 31, 1999 increased $2.4 million or 14%
to $19.5 million compared with $17.1 million in the year ago period. Domestic
sales increased $1.6 million or 12% to $14.9 million, principally as a result of
increased system sales supplied under a contract with the U.S. Postal Service.
International sales increased $.8 million or 20% to $4.6 million. The backlog of
unfilled orders was $9.2 million at December 31, 1999 compared with $13.8
million at December 31, 1998.
Gross profit margins for the first quarter of 2000 decreased to 27.6% compared
with 34.2% in the year ago period. The margin decline was attributable to a $1.3
million charge for warranty costs incurred and estimated costs as a result of
technical problems associated with the roll out of a new product line.
Operating expenses for the first quarter of 2000 were $5.1 million or 26.2% of
net sales compared with $4.1 million or 23.7% of net sales in the year ago
period. The increase in operating expenses was principally the result of
additional sales, sales support and product development personnel.
Operating income decreased to $.3 million for the first quarter of 2000 compared
with $1.8 million in the year ago period principally as a result of a decrease
in gross profit resulting from the $1.3 million warranty charge and increased
operating expenses.
Interest expense was $166,000 for the first quarter of 2000 compared with
$153,000 in the year ago period.
Income tax expense was $46,000 for the first quarter of 2000 compared with
$635,000 in the year ago period.
As a result of the foregoing, net income decreased to $85,000 for the first
quarter of 2000 compared with $1.1 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 $2.8 million for the first quarter of
2000 due primarily to an increase in accounts receivable of $1.4 million as a
result of increased sales and an increase in inventory of $1.2 million related
to new product line production. Net cash used in investing activities was $.5
million for the first quarter of 2000 due principally to capital expenditures
related to the expansion of the Company's principal operating facility. Net cash
provided by financing activities was $2.1 million, which included $1.2 million
of proceeds from a mortgage loan used to finance the facility expansion and $1.0
million of borrowings under the Company's U.S. revolving credit agreement. As a
result of the foregoing, cash decreased by $1.2 million for the first quarter of
2000 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 (6.50% and 6.72%, respectively, at December 31, 1999). At December 31,
1999, outstanding borrowings under this facility were $1.0 million. 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.
The Company also maintains a bank overdraft facility of 600,000 Pounds Sterling
(approximately $1.0 million) in the U.K. to support local working capital
requirements of Vicon Industries Limited. At December 31, 1999, outstanding
borrowings under this facility were approximately $559,000.
In October 1999, the Company entered into a $1.2 million mortgage loan agreement
with its bank to finance the expansion of its principal operating facility. The
loan is payable in equal monthly principal installments through January 2008,
with a $460,000 payment due at the end of the term. The loan bears interest at
the bank's prime rate minus 160 basis points or, at the Company's option, LIBOR
plus 100 basis points (6.90% and 6.82%, respectively, at December 31, 1999) and
contains the same covenants as included in the existing mortgage loans.
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 upgraded 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. 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. 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.
-9-
<PAGE>
To date, the Company has not encountered any significant effects of the Year
2000 problem either internally or with third parties. This does not guarantee
that problems will not occur in the future or have not yet been detected.
"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 "Results of
Operations", "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.
-10-
<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 14, 2000
VICON INDUSTRIES, INC.
Kenneth M. Darby John M. Badke
Chairman and Vice President, Finance
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 14, 2000
VICON INDUSTRIES, INC.
VICON INDUSTRIES, INC.
Kenneth M. Darby John M. Badke
Kenneth M. Darby John M. Badke
Chairman and Vice President, Finance
Chief Executive Officer Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 804,349
<SECURITIES> 0
<RECEIVABLES> 18,479,385
<ALLOWANCES> (884,402)
<INVENTORY> 22,470,950
<CURRENT-ASSETS> 40,870,282
<PP&E> 17,710,698
<DEPRECIATION> (6,683,913)
<TOTAL-ASSETS> 51,897,067
<CURRENT-LIABILITIES> 10,280,420
<BONDS> 8,872,706
0
0
<COMMON> 46,627
<OTHER-SE> 32,697,314
<TOTAL-LIABILITY-AND-EQUITY> 51,897,067
<SALES> 19,524,470
<TOTAL-REVENUES> 0
<CGS> 14,134,206
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,050,919
<LOSS-PROVISION> 60,000
<INTEREST-EXPENSE> 148,699
<INCOME-PRETAX> 130,646
<INCOME-TAX> 46,000
<INCOME-CONTINUING> 84,646
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,646
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
