36
19
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission file number 0-11057
VICON FIBER OPTICS CORP
(Name of Small Business Issuer in Its Charter)
Delaware 13-2615925 _
(State of Incorporation) (IRS Employer Identification No.)
90 Secor Lane, Pelham Manor, New York 10803
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number (914) 738-5006
Securities registered pursuant to Section 12(b) of the Act:None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Check whether the Issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months, and (2) has been subject to such filing requirements
for the past 90 days. YES X NO______
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B which is not contained in this
form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. ____
Issuer's revenues for the year ended December 31, 1996:
$2,784,423.
Aggregate market value of the voting stock held by non-affiliates
of the Registrant as of December 31, 1996: $7,451,182.
Number of common shares outstanding on December 31, 1996:
8,515,636
Page 1 of 36 Pages
Exhibit Index appears at page 34
PART I
Item 1. Description of Business
General
Vicon Fiber Optics Corp. (the "Company") was incorporated in
1969 and currently derives the majority of its revenue from the
manufacture and sale of fiber optic illuminating systems and
components for use in conjunction with dental equipment and
instruments utilizing fiber optic elements.
Fiber optics are glass fibers through which light is
transmitted. Each fiber is composed of an inner glass core with
one index of refraction, covered by an outer glass cladding or
coating with a higher index of refraction. The difference in the
index of refraction between the core glass and the outside coat
ing glass that forms the optical fiber substantially reduces the
dissipation of the light energy from the filament. Optical
fibers may be bundled or employed singly, depending on their
intended use.
There are two basic types of fiber optic bundles: unoriented
fiber bundles and oriented or coherent fiber bundles. Unoriented
fiber bundles are used for the transmission of light for
illumination; oriented bundles are used for the transmission of
images ("Image Bundles").
Unoriented fiber optic illuminating systems and components
have been and currently are the type manufactured and utilized by
the Company in its dental products. Unoriented fiber optic
components consist of a bundle or cable of thousands of
unoriented glass fibers to conduct, optically, light from a
source (the "illuminator") to the place where needed, overcoming
obstacles between the light source and the specific area to be
illuminated regardless of the curvature or other normal distor
tion of the fiber cable needed to avoid such obstacles. The use
of the fiber optic cable permits the transmission of light to its
illuminating end without any corresponding transmission of elec
tricity and without any significant transmission of heat. Ac
cordingly, fiber optic illuminating systems are suitable for
providing illumination under circumstances where the absence of
heat and electricity is desirable and where the area to be illumi
nated is relatively inaccessible to conventional means of
illumination, such as in dentistry.
An Image Bundle is a bundle in which each individual
filament in the bundle has the same spatial relationship to all
the other fibers in the bundle at one end of the bundle as it has
at the other end. This allows the transmission of an image from
one end of the Image Bundle to the other without substantial
distortion. Image Bundles are used to transmit images in
industrial and medical inspection scopes.
Company's History in the Dental Field
The fiber optics first applied to dental instrumentation
were external attachments to standard instruments used by
dentists, such as the mirror, handpiece (commonly known to the
dental patient as the "drill") and evacuator. This type of
system was introduced into the dental market simultaneously by
four manufacturers, among them the Company. All the systems
provide much needed light, however, the external attachments and
the multiplicity of cables made them awkward and difficult to
use.
To remedy this problem, the Company developed two products:
(i) handpiece tubing incorporating a fiber optic bundle, thereby
eliminating the need for a separate fiber optic cable for the
handpiece, and (ii) coiled fiber optic tubing, which reduced
substantially the excess play found in conventional fiber optic
tubing previously used with diagnostic instruments. Design
patents have been granted to the Company on both developments.
After many years of work with original equipment manu
facturers of dental instruments, the Company also developed a
suitable design incorporating the Company's fiber optic elements
directly into the handpiece, with an ability to be coupled to the
remaining components of the Company's system.
Prior to 1981 the Company marketed, under its own name and
label, its illumination system consisting of an illuminator,
fiber optic handpiece tubing and various illuminating instruments
such as the mirror, cheek retractor and transilluminator
nationally through distributors of dental products. From 1981 to
the present, the Company has marketed its illumination systems
and fiber optic elements to manufacturers and distributors of
dental equipment on a private label, joint venture and original
equipment (OEM) basis.
Company's Current Fiber Optic Dental Products
Currently, the Company manufactures two dental illuminators,
one that is mounted away from the dental work area. The second
consists of two modules with a small light module mounted under a
utility tray in the dental work area and a power module mounted
away from the work area. The light in both illuminators is air
activated when the handpiece or instrument is removed from its
console hanger.
Both illuminators are composed of a cooling fan, a rheostat
and a high intensity halogen projection lamp that focuses the
light onto three fiber optic cables. The light is transmitted
through the fiber optic cables in the handpiece tubing that
interfaces with the fiber optic element in the handpiece.
Instruments and attachments are illuminated with one fiber
optic cable (primary probe) which is interchangeable with a tran
silluminator (used for the back illumination of teeth), an il
luminating mirror, a cheek retractor providing general illumina
tion, and an evacuator clip for illuminating a suction tip.
Decorative Fiber Optics Products
The Company manufactures a line of decorative fiber optic
lamps under the tradename "Fantasia Products." The Company
commenced production and national sales of the lamps in 1995 and
now has expanded its capacity with the engagement of two
excellent manufacturing facilities in southern China..
Joint Venture Agreement
In 1992, the Company entered into a Joint Venture Agreement
with a Corporation from Anshan, China. The Joint Venture
Company, Anshan Vicon Fiber Optic Products Ltd., a Chinese
corporation, will manufacture certain of the Company's products.
The manufacturing of these products in China will significantly
reduce the cost of these products to Vicon. During 1993, Vicon
effected a technology transfer to the joint venture company in
China. The manufacturing facility in China is presently in the
development stage.
Raw Materials.
All components of the Company's fiber optic illuminating
systems other than the fiber optic cables, which the Company
manufactures with its own equipment, are manufactured for the
Company by others and assembled by the Company at its plant.
Many of these components (such as the light source and control
module) are items inventoried by their manufacturers, and such
items or their equivalent are available from several sources.
Other components, such as the housing and certain of the
instrumentation for these systems, are made to the Company's
plans and specifications by their respective manufacturers. In
most cases, essential tooling for these components is owned by
the Company. The Company uses only one source for each of these
components, but believes that alternative or supplementary
sources can readily be obtained. None of the Company's suppliers
is affiliated with the Company and the Company has no contractual
relationship with any of them except for purchase orders issued
from time to time. The Company believes that an adequate and
reliable supply of raw materials is and will continue to be
available for the manufacture its products.
Patents.
The Company owns ten patents in the United States and
corresponding rights abroad related to the dental products aspect
of its business. The Company believes that patent protection is
useful, but is not a crucial factor in its business. The
Company's patents have not yet been tested judicially and,
accordingly, there can be no assurance as to either the validity
or scope of its patent protection. Furthermore, new technological
discoveries by others may reduce the utility of the Company's
patents.
Distribution and Sales.
During 1996 one customer purchased approximately 17% of the
Company's products, another customer purchased 14% and two
customers purchased 12%. The loss of any one or more of these
three largest customers by the Company would have a material
adverse effect on the Company's business. In 1996, less than 5%
of the Company's sales were to foreign customers.
As of December 31, 1996, the Company had a sales backlog of
approximately $501,000. The Company believes that the backlog
represents firm orders as of that date. As of December 31, 1995
the Company had a backlog of approximately $841,000. The Company
believes that the decreased backlog is due primarily to the
timing of orders from customers.
Competition
The Company believes it is one of the leading domestic
manufacturers of fiber optic components and illuminating systems
for use in the dental industry and of decorative fiber optic
lamps.. While the Company has little direct competition for its
products, there are a few other domestic manufacturers that
produce similar products for the same markets as the Company.
The Company depends on its propietary manufacturing techniques
and abilities to design and manufacture products for the specific
needs of its customers at competitive prices with a high degree
of quality and service to enable the Company to maintain market
share.
Employees
The Company has 25 full-time employees, of whom two are
executives, two are engineers, two are administrative, with the
balance consisting of production employees. A pool of workers
adequate to accommodate projected sales volume is available
locally. The Company considers its relations with its employees
good.
Item 2. Description of Property
The Company's offices and plant are located at 90 Secor
Lane, Pelham Manor, New York, where the Company leases
approximately 10,500 square fee, but has made modifications to
the facility that provide a total of approximately 17,500 square
feet of working area. The Company has approximately one and one-
half years remaining on a five year renewable lease of the space,
which it intends to renew. The building is a two story, modern,
fireproof concrete block structure. The aggregate annual rental
paid by the Company in 1996 was approximately $67,000.
The Company believes that the facilities currently in use
are suitable and adequate for its business.
Item 3. Legal Proceedings
The Company or its property is not a party or subject to any
pending legal proceeding.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its annual meeting on May 30, 1996.
(b) The board of directors as previously reported was re-
elected in its entirety.
(c) (1) A proposal to ratify the selection of Sheft Kahn &
Company LLP as the
Company's independent accountants for the fiscal year
ending December 31,
1996, was approved.
(2) A proposal to adopt the 1996 Incentive Stock Option Plan
for Key
Employees was approved.
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters
(a) Price Range of Common Stock
Set forth below in tabular form for the quarterly periods
indicated are the high and low bid prices of Vicon Common Stock
in the over-the-counter market as quoted by the National
Quotation Bureau, Inc., or by market makers.
Bid Prices
Low High
1995 First Quarter 1/8 5/16
Second Quarter 1/4 1/2
Third Quarter 5/16 1 1/2
Fourth Quarter 3/8 1 3/8
1996 First Quarter 13/16 1 1/4
Second Quarter 7/8 2 5/8
Third Quarter 7/8 1 3/16
Fourth Quarter 11/16 1 1/16
Such over-the-counter market quotations reflect inter-dealer
prices without retail mark up, mark down or commission and may
not necessarily represent actual transactions.
(b) Approximate Number of Equity Security Holders
Approximate Number Of Record
Title of Class Holders as of
December 31, 1996
Common Stock, $.01 par value 1600
(c) Dividend Policy
Holders of Common Stock of the Company are entitled to a pro
rata share of any dividends when, as and if declared by the Board
of Directors and to share pro rata in any such distributions
available for holders of Common Stock upon liquidation of the
Company. There have been no cash dividends paid since the
inception of the Company and the Company's anticipated capital
requirements are such that it intends to follow a policy of
retaining earnings in order to finance growth of the business.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition of Vicon
Vicon gauges its liquidity and financial stability by the
measurements as shown in the following table:
,
At December 31
1996 1995
Working Capital $2,055,219 $1,911,935
Current Ratio 5.71 to 1 8.43 to 1
Shareholders' $2,535,321 $2,155,068
Equity
Net Income $ 343,503 $ 564,643
The increase in working capital during 1996 was due to net
income for the year less expenditures for capital equipment and
long-term debt becoming due within one year..
The increase in shareholders' equity during 1995 was due to
net income for the year plus the issuance of common stock and
sale of stock options..
Results of Operations
Year ended December 31, 1996 Compared to Year Ended December 31,
1995
Net sales for the year ended December 31, 1996 as compared
to 1995 increased slightly. Management attributes this to even
demand in the marketplace for the Company's products.
Cost of sales increased to 57.9% for 1996 compared to cost
of sales of 57.5% in 1995. Management attributes this to nominal
increases in the cost of materials and labor.
Selling, general and administrative expenses increased to
$561,156 in 1996 as compared to $484,244 in 1995, an increase of
$76,912. Management attributes this to increased marketing
expenses and increased general and administrative payroll costs
and consulting fees.
Item 7. Financial Statements
VICON FIBER OPTICS CORP.
FINANCIAL STATEMENTS
FORM 10-KSB ITEM 7
YEAR ENDED DECEMBER 31, 1996
VICON FIBER OPTICS CORP.
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report F-3
Financial Statements:
Balance Sheet - December 31, 1996 F-4 - F-5
Financial Statements for each of the two years in the
period ended December 31, 1996:
Statements of Operations F-6
Statements of Shareholders' Equity F-7
Statements of Cash Flows F-8
Notes to Financial Statements F-9 - F-22
F-2
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Vicon Fiber Optics Corp.
Pelham Manor, New York
We have audited the Balance Sheet of Vicon Fiber Optics Corp.
as of December 31, 1996 and the related Statements of Operations,
Shareholders' Equity and Cash Flows for each of the two years in
the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Vicon Fiber Optics Corp. as of December 31, 1996 and the
results of its operations and its cash flows for each of the two
years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
Sheft Kahn & Company LLP
CERTIFIED PUBLIC ACCOUNTANTS
February 18, 1997
Jericho, New York
F-3
VICON FIBER OPTICS CORP.
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $1,049,186
Accounts receivable - Net of allowance for
uncollectible accounts of $1,549 411,627
Inventories (Note 3) 983,094
Prepaid expenses and other current assets 14,459
Deferred income taxes (Note 6) 33,040
Total Current Assets 2,491,406
PROPERTY, PLANT AND EQUIPMENT - Net of
accumulated depreciation and
amortization (Note 4) 399,001
OTHER ASSETS:
Excess of cost over net assets of
businesses acquired 296,847
Deposits
4,487
Investment in joint venture (Note 9) 26,515
Cash surrender value of life insurance contract
46,286
Total Other Assets 374,135
TOTAL ASSETS $3,264,542
See accompanying Notes to Financial Statements.
F-4
VICON FIBER OPTICS CORP.
BALANCE SHEET
DECEMBER 31, 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 118,852
Income taxes payable (Note 6) 151,133
Current portion of long-term debt (Note 5)
166,202
Total Current Liabilities 436,187
LONG-TERM DEBT (Note 5) 258,023
Deferred income tax payable (Note 6) 35,011
Total Liabilities 729,221
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY:
Common stock - authorized 20,000,000 shares,
$.01 par value, issued and outstanding
8,515,636 shares 85,156
Additional paid-in capital 5,960,921
Deficit
( 3,510,756)
Total Shareholders' Equity 2,535,321
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$3,264,542
See accompanying Notes to Financial Statements.
F-5
VICON FIBER OPTICS CORP.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
1996 1995
SALES $2,784,423
$2,776,022
COST OF GOODS SOLD 1,612,425 1,597,536
GROSS MARGIN 1,171,998 1,178,486
OTHER COSTS (INCOME) AND EXPENSES:
Selling, general and administrative expenses 561,156
484,244
Research and development 52,702 24,998
Interest expense 59,180 44,358
Interest income ( 49,21
0) ( 49,908)
TOTAL OTHER COSTS (INCOME) AND
EXPENSES 623,828 503,
692
INCOME BEFORE PROVISION FOR INCOME
TAXES AND EXTRAORDINARY ITEM 548,170 674,794
PROVISION FOR INCOME TAXES (Note 6) 208,750 236,857
INCOME BEFORE EXTRAORDINARY ITEM 339,420 437,937
EXTRAORDINARY ITEM (NET OF INCOME
TAXES OF $3,417 AND $72,841,
RESPECTIVELY) (NOTE 11) 4,083 126,
706
NET INCOME $ 343,503 $ 564,643
INCOME PER COMMON SHARE:
INCOME BEFORE EXTRAORDINARY ITEM $ .04 $
.05
EXTRAORDINARY ITEM
- - $ .01
NET INCOME $ .04$
.06
AVERAGE NUMBER OF SHARES USED
IN COMPUTATION 8,632,194
8,340,636
See accompanying Notes to Financial Statements.
F-6
VICON FIBER OPTICS CORP.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE TWO YEARS ENDED DECEMBER 31, 1996
TOTAL
ADDITIONAL SHARE-
COMMON PAID-IN
HOLDERS'
STOCK CAPITAL DEFICIT EQUITY
Balance - January 1, 1995 83,406$5,925,921($4,418,902)$1,
590,425
Net Income - -
564,643 564,643
Balance - December 31, 1995 83,4065,925,921( 3,854,259)2,155,
068
Net Income- - 343,503 343,503
Issuance of Common Stock 1,750 35,000 - 36,750
Balance - December 31, 1996 $85,156$5,960,921($3,510,756)$2,535,
321
See accompanying Notes to Financial Statements.
F-7
VICON FIBER OPTICS CORP.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 343,503 $ 564,643
Adjustments to reconcile net
income to net cash provided by
operating activities
Depreciation and amortization 47,318 37,959
Gain on extinguishment of debt - (148,006)
Decrease (increase) in accounts 209,872 ( 298,449)
receivable
(Increase) in inventory ( 313,264) 208,844)
Decrease (increase) in prepaid
expenses and other current assets 4,837 ( 5,153)
Decrease in security deposits 105,072 -
Decrease in deferred income taxes 94,619 309,698
(Decrease) increase in accounts
payable and accrued expenses ( 75,720) 34,602
Increase (decrease) in income
taxes payable 117,547 ( 12,312)
Total Adjustments 190,281 ( 290,505)
Net Cash Provided by Operating
Activities 533,784 274,138
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and ( (
equipment 338,358) 123,577)
(Increase) in cash surrender value of
life insurance contract ( (
12,459) 11,386)
Net Cash (Used in) Investing
Activities ( 350,817) ( 134,963)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt ( 29,212) ( 301,404)
Investment in common stock
36,750 -
Net Cash Provided by (Used in)
Financing Activities
7,538 ( 301,404)
NET INCREASE (DECREASE) IN CASHAND CASH
EQUIVALENTS 190,505 ( 162,229)
CASH AND CASH EQUIVALENTS - Beginning 1,020,910
858,681
CASH AND CASH EQUIVALENTS - End $1,049,186 $ 858,681
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the years for:
Interest $ $
59,448 44,358
Income taxes $ $
- 9,584
See accompanying Notes to Financial Statements.
F-8
VICON FIBER OPTICS CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies
followed by the Company in the preparation of the
accompanying financial statements is set forth below:
a) Cash and Cash Equivalents:
For the purpose of the statement of cash flows, the
Company considers cash and cash equivalents to
include cash on hand, amounts due from banks, and
any other highly liquid debt instruments purchased
with a maturity of three months or less.
b)
Inventories:
Inventories are valued at the lower of cost (on a
first-in, first-out basis) or market.
c) Property, Plant and Equipment:
Property, plant and equipment is stated at cost.
Depreciation of property, plant and equipment is
computed on the straight-line basis for financial
reporting purposes and on an accelerated basis for
income tax purposes over the estimated useful lives
of the related assets. Cost and the related
accumulated depreciation are deducted from the
accounts on retirement or disposal and any resulting
gain or loss is reflected in income. Betterments
and major renewals or replacements are capitalized.
d) Excess
of Cost Over Net Assets of Businesses Acquired:
Represents the excess of cost over net assets of
acquired companies. These amounts are being
amortized over forty years.
F-9
VICON FIBER OPTICS CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (Continued)
e) Revenue
Recognition:
Revenue is
recognized on sales of products, generally at the
time of shipment.
f) Use of Estimates:
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial
statements and the reported amounts of revenues and
expenses during the reporting period. Actual
results could differ from those estimates.
g) Financial Instruments:
The carrying values of all assets and liabilities
deemed to be financial instruments in accordance
with SFAS No. 107 approximate their respective fair
values. Current market rates were used, together
with credit worthiness and collateral, where
applicable.
h) Primary
and Fully Diluted Earnings Per Share:
Net income per share is computed by dividing the net
income for the year by the weighted average number
of shares of common stock outstanding during the
period. Common stock equivalents for fully diluted
earnings per share resulted in less than a 3%
dilution and have been excluded.
F-10
VICON FIBER OPTICS CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - MATTERS OF ECONOMIC INFLUENCE
Major customers of the Company, expressed as a
percentage of sales, are summarized as follows:
Year Ended December 31,
Customer 1996 1995
A 14.22% 17.80%
B 12.42 17.80
C 12.07 *
D 17.08 28.
55.79 64.57%
* - Less than 10 percent of sales.
Export sales, expressed as a percentage of sales are
summarized as follows:
Year Ended December
31,
Geographic 1996 1995
Area
Europe 2.3% 1.20%
Japan 0.1 -
2.4% 1.20%
Suppliers
The Company uses only one source for some of its
components, but believes that alternative or
supplementary sources can readily be obtained. None of
the Company's suppliers are affiliated with the Company
and the Company has no contractual relationship with
any of them except for purchase orders issued from time
to time. The Company believes that an adequate and
reliable supply of raw materials is and will continue
to be available for the manufacture of its products.
F-11
VICON FIBER OPTICS CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - INVENTORIES
The composition of inventories at December 31, 1996 is
as follows:
Raw materials $649,331
Work-in-process 39,480
Finished goods 294,283
$983,094
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1996 is
summarized as follows:
Estimated
Useful
Life
Machinery and
equipment
$ 815,357
3-10 years
Furniture, fixtures and
office
equipment
181,304 2-10
years
Leasehold improvements 347,674
Useful Life or Lease
1,344,335 term, whichever is
shorter
Accumulated depreciation
and amortization 945,334
$ 399,001
Depreciation and amortization expense for the years
ended December 31, 1996 and 1995 amounted to $35,206
and $25,835, respectively.
F-12
VICON FIBER OPTICS CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - LONG-TERM DEBT
Long-term debt
at December 31, 1996 consists of the following:
Amounts due to the former Chairman
of the Board and President
of Saxton (a) $283,225
10% convertible subordinated notes (b)
141,000
424,225
Less: Current portion 166,202
$258,023
(a)
In December 1989, pursuant to a stipulation of
compromise and settlement, Vicon agreed to pay a
total of $950,000 as follows:
i)$100,000 to the former President of Saxton on
January 1,
1990
ii)
Commencing January 1, 1990 and monthly
thereafter until December 1, 1997, $5,500 per
month to the former Chairman of the Board of
Saxton
iii)Commencing January 1, 1998 and monthly
thereafter until December 1, 2000, $8,944 per
month to the former Chairman of the Board of
Saxton
In December 1989, the Company recorded a liability
of $489,590 representing the present value of such
payments discounted for interest imputed at 15
percent per annum.
(b) In 1992, the Company issued $91,000 of convertible
notes which are due in 1997 and issued $50,000
during 1993 which are due in 1998. The notes bear
interest at 10% per annum and are convertible into
shares of the Company's stock at a purchase price
of $.75 per share.
F-13
VICON FIBER OPTICS CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - LONGTERM DEBT(Continued)
In December 1994 the Company established a credit
facility with Marine Midland Bank, whereby the Company
may borrow up to $500,000 for working capital purposes
and an additional $250,000 for support of trade service
products. The credit facility requires monthly
payments of interest, computed at the bank's prime
rate. The credit lines are secured by an investment
account maintained with the bank. As at December 31,
1996 the Company was not utilizing any of its available
line.
Aggregate annual
maturities applicable to long-term debt
are as follows:
Year Ending
December 31, Amount
1997 $166,202
1998 73,551
1999 85,374
2000 99,098
2001
_-___
$424,225
NOTE 6 - INCOME TAXES
Under the provisions of SFAS 109 the Company recognizes
deferred tax assets and liabilities for future tax
consequences of events that have been previously
recognized in the financial statements or income tax
returns. The measurement of deferred tax assets and
liabilities is based on provisions of the enacted tax
laws, and the effects of future changes in tax laws or
rates are not anticipated. The net difference between
the provision for income taxes and income taxes
currently payable is reflected in the balance sheet as
deferred income taxes. Deferred tax assets and
liabilities are classified as current and non-current
based on the classification of the related asset or
liability for financial reporting purposes or based on
the expected reversal date for deferred income taxes
not related to an asset or liability.
Deferred income taxes consist of the following at
December 31, 1996:
F-14
VICON FIBER OPTICS CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - INCOME TAXES(Continued)
Temporary differences arising from the following
Classified As
Short - Long -
Deferred Term Term
Type Amount
Tax Assets (Liability)
Depreciation ($94,653)($38,901) $ - ($38,901)
Reserve for bad debts1,549 637 637 -
Reserve for obsolete
inventory 50,692 20,834 20,834 -
Section 263A costs 37,083 15,240 15,240
- -
Valuation allowance - 219 (
3,671) 3,890
($ 5,329) ($ 1,971) $33,040 ($35,011)
The valuation allowance increased $219 during the year
ended December 31, 1996.
The provision for income taxes for the years ended
December 31, 1996 and 1995 consisted of the following:
1996 1995
Current - Federal $ 97,671 $ -
Current - State 19,876 5,186
Total Current 117,547 5,186
Deferred:
Federal 78,278 263,020
State 16,342 41,492
Total Deferred 94,620 304,512
Total $212,167 $309,698
F-15
VICON FIBER OPTICS CORP.
NOTES TO FINANCIAL STATEMENT
NOTE 6 - INCOME TAXES(Continued)
A reconciliation of income tax expense computed at
statutory rates to above amounts at effective rates is
as follows:
1996 1995
Income tax expense at
statutory rates $188,927
$223,991
State and local, net of
federal benefit 25,896 68,225
Non-deductible expenses 14,559 17,482
Realized benefit of deferred tax
asset in excess of valuation ( 17,215)
-
Income tax expense at
effective rates $212,167 $309,698
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Leases
On August
1, 1993, the Company renegotiated its lease and is now
obligated under the terms of a new lease, expiring on
July 31, 1998, which calls for a base annual rent of
$66,780 plus real estate tax escalations. The total
rent expense under operating leases charged to
operations for the years ended December 31, 1996 and
1995 was $66,780 in each year.
The Company also has three auto leases totaling $1,246
per month through February 1998.
As at December 31, 1996, the future lease expenditures
are as follows:
1997 $ 73,996
1998 39,887
1999 -
2000 -
2001 -
$113,883
As at December 31, 1996, the Company had a letter of
credit for $15,518 outstanding.
F-16
VICON FIBER OPTICS CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - STOCK OPTION PLAN
Effective May 11, 1984, the 1984 Stock Option Plan for
Incentive Stock Options and Non Qualified Options (the
"Plan") was adopted.
The Plan provided for granting to key employees, and
others who were not employees but had made or were
expected to make contributions to the success of the
Company, the option to purchase Company common stock.
Options for an aggregate of up to 400,000 shares of
common stock may have been granted under the plan.
At a Special Board of Directors meeting held on March
20, 1996, the Board of Directors adopted the 1996
Incentive Stock Option Plan for Key Employees (the
"1996 Plan"), which was ratified by the stockholders on
May 30, 1996. Subject to adjustment as provided below,
1,000,000 shares of Common Stock (the "Shares") will be
available for issuance under the 1996 Plan. No awards
under the Plan ("Awards") may be granted after March
20, 2006. Awards may be (1) incentive stock options
("ISOs") within the meaning of Section 422 of the
Internal Revenue Service of 1986, as amended (the
"Code"), (2) non-qualified stock options, or (3) shares
subject to certain restrictions ("restricted stock").
The purchase price of Shares covered by an Award
("Options") will be 100% of the fair market value of
the Common Stock on the date of the grant. The fair
market value of a share of Common Stock will be the
simple average of the high and low sales prices on the
date of grant. The term of each Option will be
determined by the Committee, but cannot be more than 10
years from the date of the grant. If the original term
is less than ten years from the date of grant, the term
may be extended prior to expiration, with the approval
of the employee, but not beyond 10 years from the date
of original grant. The vesting period and all other
terms and conditions of each Option will be determined
by the Committee; provided that, except as described
below, no Option may be exercised prior to the
completion of at least six (6) months of continuous
employment from the date of grant. The Committee may
impose restrictions, including a holding period, on
Shares received upon the exercise of Options.
F-17
VICON FIBER OPTICS CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - STOCK OPTION PLAN(Continued)
Restricted Stock - Awards of restricted stock are subject to
such restrictions as the Committee determines, including,
but not limited to a vesting schedule based upon the
recipient's continuous employment and conditions based on
performance requirements. Except as described below, no
restricted stock Award may vest in whole or in part prior to
the completion of the number of years of continuous
employment after the date of grant established by the
Committee, and restricted stock Awards shall be forfeited to
the extent any restriction is not met. Until all conditions
associated with restricted stock are met, restricted stock
may not be sold, pledged, or otherwise disposed of. Except
for these limitations, recipients of restricted stock are
entitled to all rights of a Stockholder, including the right
to vote and receive dividends or other distributions on such
restricted stock.
If the employment of a recipient of a restricted stock Award
terminates by reason of death, total and permanent
disability, retirement, or discharge other than for cause
before all applicable restrictions have been met, the
Committee may remove the restrictions.
The 1996 Plan terminates on March 20, 2006. The Board of
Directors may at any time terminate, amend or modify the
1996 Plan. However, stockholder approval is required for
amendments which materially increase the benefits to Award
recipients, increase the aggregate number of Shares which
may be issued under the 1996 Plan, or materially modify
eligibility requirements.
The Committee may at any time amend the terms of any Award,
including accelerating the date of exercise of any Option,
terminating stock restrictions, or converting the Option
into a non-qualified Option; but no such amendment may
materially adversely affect a recipient's rights without his
consent.
Awards may provide for the adjustment of the number and
class of Shares covered by the Award, Options prices, and
the number of Shares as to which Options are exercisable in
the event of stock dividends, stock splits,
recapitalization, reorganizations, or other changes in the
capitalization of the Corporation. The number and class of
Shares available under the 1996 Plan may also be adjusted in
the event of any such change in capitalization.
F-18
VICON FIBER OPTICS CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - STOCK OPTION PLAN(Continued)
Certain Federal Income Tax Consequences
An employee to whom an ISO is granted will not recognize
income at the time of grant or exercise of the ISO
(except that the alternative minimum tax may apply), and
no federal income tax deduction will be allowable to the
Corporation upon the grant or exercise of the ISO. When
the employee sells shares received upon the exercise of
an ISO more than one year after the date of exercise and
more than two years after the date of grant of the ISO,
the employee will normally recognize a long-term capital
gain or loss equal to the difference, if any, between
the sale price of such Shares and the option exercise
price. If the employee does not hold such Shares for
these periods, when the employee sells such Shares the
employee will recognize ordinary compensation income and
possibly capital gain or loss in such amounts as are
prescribed by the Code and the regulations thereunder.
Subject to applicable provisions of the Code and the
regulations thereunder, in the event of a disposition
prior to the end of the statutory holding periods noted
above, the Corporation will generally be entitled to a
federal income tax deduction in the amount of such
ordinary compensation income.
An employee to whom a non-qualified stock option (which
is treated as an option for federal income tax
purposes) is granted will not recognize income at the
time of grant of such option. When the employee
exercises such option, the employee will recognize
ordinary compensation income equal to the difference,
if any, between the option price paid an the fair
market value, as of the date of exercise, of the Shares
received by the employee. The tax basis of such Shares
to such employee will be equal to the fair market value
on the date of exercise, and the employee's holding
period for such Shares will commence on the date on
which the employee recognized taxable income in respect
of such shares. Subject to applicable provisions of
the Code and the regulations thereunder, the
Corporation will generally be entitled to a federal
income tax deduction in respect of non-qualified stock
options in an amount equal to the ordinary compensation
income
F-19
VICON FIBER OPTICS CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - STOCK OPTION PLAN(Continued)
recognized by the employee. Any compensation
includable in the gross income of an employee in
respect of a non-qualified option will be subject to
appropriate federal income and employment taxes.
At the Special Board of Directors meeting held on March
20, 1996, the Board granted 50,000 stock options with
an exercise price $.96 to Leonard Scrivo and 165,000
stock options with an exercise price of $.87 to various
other employees. At the March 20, 1996 meeting, the
Board of Directors, as part of a consulting agreement,
also granted non-qualified options to Stanley A.
Youdelman to purchase 20,000 Shares at $.87 per share.
On June 28, 1996 the Company granted options to
purchase 125,000 shares at $.875 and on July 5, 1996
the Company sold options to purchase 175,000 shares
for $1,750.
Option Price
SharesPer Share Aggregate
Outstanding December 31,
1995 55,000 $.875 to
$2.25 $ 55,000
Canceled ( 55,000) .875
to $2.25 ( 55,000)
Granted 535,000 .87
to .$96 471,450
Outstanding December 31,
1996 535,000 $
.87 to $.96 $471,450
NOTE 9 - JOINT VENTURE AGREEMENT
On March 17, 1992, the Company entered into a joint
venture agreement with China Anshan Television
Broadcasting Equipment Group Company, in accordance
with the Foreign Joint Venture Enterprise Ordinance of
the People's Republic of China and other related
statutes. The Company has a 25% interest in the joint
venture. The joint venture company, Anshan Vicon Fiber
Optic Products, Ltd., a Chinese corporation located at
Anshan, Liao Ning Province, People's Republic of China,
will manufacture certain of the Company's products.
The manufacturing of these products in China should
significantly reduce the cost of these products to
Vicon. During 1993, Vicon effected a technology
transfer to the joint venture company in China.
F-20
VICON FIBER OPTICS CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - JOINT VENTURE AGREEMENT(Continued)
The manufacturing facility in China is presently in
the development stage.
The Company has accounted for its investment using the
equity method of accounting. During 1993 the Company
sold certain manufacturing equipment to the joint
venture. The Company reduced the resultant gain from
such sale by 25%, with a corresponding reduction in
their investment, based on their ownership percentage.
NOTE 10 -FAIR VALUES OF FINANCIAL INSTRUMENTS
Disclosure of fair value information about certain
financial instruments, whether or not recognized in the
balance sheet for which it is practicable to estimate
that value, is required by Statement of Financial
Accounting Standards (SFAS) 107, Disclosure About Fair
Value of Financial Instruments. The following methods
and assumptions were used in estimating fair values:
Cash and cash equivalents: The carrying amount reported
in the balance sheet approximates fair value.
Short and long-term debt: The carrying amounts of the
Company's borrowings under its revolving credit
agreements, as well as all short-term borrowings,
approximate their fair values. The fair values of the
Company's long-term debt were estimated using
discounted cash flow analysis, based on the Company's
current incremental borrowing rates for similar
arrangements.
The carrying amounts and fair values of the Company's
financial instruments at December 31, 1996 are as
follows:
Carrying
Amounts Fair Value
Cash and cash equivalents
$1,049,186 $1,049,186
Short and long-term debt
424,225 424,225
F-21
VICON FIBER OPTICS CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 11 -CONCENTRATION OF CREDIT RISK
The Company invests its excess cash in deposits with
Marine Midland Bank. The investment generally matures
within six months and therefore is subject to little
risk. The Company has not incurred losses related to
this investment. As at December 31, 1996 $909,264 was
invested at an interest rate which varies daily.
Deposits with Marine Midland Bank are insured under the
FDIC for up to $500,000.
NOTE 12 -EXTRAORDINARY ITEM
During the year ended December 31, 1996 the Company
voided a note payable which was redeemable or
convertible through an expiration date which had
passed. The Company has recorded this as a forgiveness
of debt and reflected a $7,500 gain in income.
F-22
Item 8. Disagreements with Accountants on Accounting and
Financial
Disclosure
None.
PART III
Item 9. Directors and Executive Officers
LEONARD SCRIVO
Director, President, Chief Executive Officer and Treasurer
of the Company. Director and Officer since 1969. Age 59.
LES WASSER
Director, Secretary and Controller of the Company.
Certified Public Accountant. Director since June 1990. Age 53.
STANLEY A. YOUDELMAN
Age 57: Has been an oral and maxillofacial surgeon for more than
25 years. He is chief of Oral Surgery at St. Johns Episcopal
Hospital in Smithtown, New York. He is also past President of
the Suffolk Academy of Medicine as well as the Suffolk County
Dental Society and is presently on the Board of Directors of the
Suffolk County Dental Society. Dr. Youdelman is not an employee
of the Corporation
Item 10. Executive Compensation
A. The following table sets forth cash or other compensation
received by the Chief Executive Officer and other highly paid
executive officers and directors of the Company for the last
three fiscal years.
Annual Long-Term
Compensation Compensation
Restricted
Stock
Name and Principal Year Total $ (1) Awards Options (#)
Position ($)
Leonard Scrivo 1996 $92,944 $13,000 50,000
President, C. E. O. 1995 84,651 0 0
Chairmen of the Board 1994 80,254 0 0
All Officers and 1996 150,958 21,000 130,000
Directors
as a Group 1995 133,161 0 0
(3 persons) 1994 126,031 0 0
B. Option grants in last fiscal year:
Percent of
Total Options
Granted
to Employees Exercise
Options in
Fiscal Price
Name Granted (#) Year
($/Sh) Expiration Date
Leonard Scrivo 50,000 28% $.96
12/20/01
All Officers and Directors
as a Group (3 persons) 130,000 72%
.87 12/20/06
C. Options exercised during the last fiscal year: None.
D. Fiscal year end option values:
Value of
Unexercised
Unexercised in-
the-money
Name Options (#)
Options ($)
Leonard Scrivo 50,000
None
All Officers and Directors
as a Group (3 persons) 130,000
None
Directors' Compensation
No director receives any compensation for attending
Board meetings.
Item 11. Security Ownership and Certain Beneficial Owners and
Management
The following table sets forth as of December 31, 1996 the
shares of Common Stock of the Company owned by each director of
the Company, the officers and directors of the Company as a group
and each person known to the Company to own 5% or more of the
outstanding shares of Common Stock of the Company:
Number of
Approximate % of
Name Shares Owned
Outstanding Shares
Leonard Scrivo(1)(2) 1,052,978
12.4%
Les Wasser(1)(2) 165,000
1.9%
Stanley A. Youdelman(2)(3) 61,600
0.7%
All officers and directors
as a group
(three persons) 1,279,578
15.0%
Donald J. Unger(4) 980,000
11.5%
Joseph Cooper 582,478
6.8%
(1) Officer of the Company.
(2) Director of the Company.
(3) Includes 6,750 shares owned by members of his family in
which Dr. Youdelman disclaims any beneficial interest.
(4) Includes 200,000 shares owned by members of his family
in which Mr. Unger disclaims any beneficial interest.
Item 12. Certain Relationships and Related Transactions
None.
PART IV
Item 13. Exhibits and Reports on Form 8-K
(a)(1) Financial Statements
The following statements of Vicon Fiber Optics Corp. are
included in Part II, Item 7:
Page
Audit Report of Sheft Kahn & Company
10
Financial Statements
Balance Sheet - December 31, 1995
12-13
Statements of Operations -
Years ended December 31, 1995 and 1994
14
Statements of Shareholders Equity --
Years ended December 31, 1995 and
1994 15
Statements of Cash Flows --
Years ended December 31, 1995 and
1994 16
Notes to Financial Statements
17-30
(b) No Reports on Form 8-K were filed during 1996.
(c) Exhibits
3.1 Articles of Incorporation, as
amended
(filed as Exhibit 3.1 to Form 10,
Registration No. 0-11057, filed on June 13,
1983, and incorporated herein by reference.)
3.2 By-laws (filed as Exhibit 3.2 to
Form 10,
Registration No. 0-11057, incor
porated herein by reference).
4.1 Certificate for Common Stock,
$.10 par value (filed as Exhibit 4.1 to Form
10, Registration No. 0-11057, incorporated
herein by reference).
4.2 Certificate for Convertible
Subordinated Notes, due December 31, 1986,
and Agreement (filed as Exhibit 4.2 to Form
10, Registration No. 0-11057, incorporated
herein by reference).
4.3 Warrant to Purchase Common Stock,
$.10 par value (expiring December 31, 1986)
(filed as Exhibit 4.3 to Form 10, Registra
tion No. 0-11057, incorporated herein by
reference).
4.4 Form of 12% Convertible Subor
dinated Note (filed as Exhibit 4.4 to
Company's Annual Report on Form 10-K for the
year ended December 31, 1986 (the "1986
10-K"), incorporated herein by reference).
4.6 Certificate of Amendment of Certificate of
Incorporation to increase the authorized
capital stock
of the Company to twenty million shares
and to change
the par value to $.01 per share. (filed
as Exhibit 4.6
to the 1992 Form 10-KSB).
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
VICON FIBER OPTICS CORP.
By _/s/Leonard
Scrivo_____________ Leonard Scrivo,
President
Date March 31, 1997
In accordance with Exchange Act, this report has been signed
below by the following persons on behalf of registrant and in the
capacities and on the dates indicated.
Signature Title
Date
/s/Leonard Scrivo President (Chief March
31, 1997
LEONARD SCRIVO Executive Officer),
Treasurer and Director
/s/Les Wasser Director
March 31, 1997
LES WASSER Secretary
Controller
/s/Stanley A. Youdelman Director March
31, 1997
STANLEY A. YOUDELMAN
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,049,186
<SECURITIES> 0
<RECEIVABLES> 411,627
<ALLOWANCES> 0
<INVENTORY> 983,094
<CURRENT-ASSETS> 2,491,406
<PP&E> 1,344,335
<DEPRECIATION> 945,334
<TOTAL-ASSETS> 3,264,542
<CURRENT-LIABILITIES> 436,187
<BONDS> 0
<COMMON> 85,156
0
0
<OTHER-SE> 2,450,165
<TOTAL-LIABILITY-AND-EQUITY> 3,264,542
<SALES> 2,784,423
<TOTAL-REVENUES> 2,833,633
<CGS> 1,612,425
<TOTAL-COSTS> 1,612,425
<OTHER-EXPENSES> 613,858
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,180
<INCOME-PRETAX> 548,170
<INCOME-TAX> 208,750
<INCOME-CONTINUING> 339,420
<DISCONTINUED> 0
<EXTRAORDINARY> 4,083
<CHANGES> 0
<NET-INCOME> 343,503
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