<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------------------------------------------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE PERIOD ENDING JUNE 30, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO ______
COMMISSION FILE NUMBER 0 - 1325
-------------------------------------------------------------------------------
VICOM, INCORPORATED
(Exact name of registrant as specified in its charter)
MINNESOTA
(State or other jurisdiction of incorporation or organization)
41 - 1255001
(IRS Employer Identification No.)
9449 Science Center Drive, New Hope, Minnesota 55428
(Address of principal executive offices)
Telephone (763) 504-3000 Fax (763) 504-3060
www.vicomtel.com Internet
(Registrant's telephone number, facsimile number, and Internet address)
1
<PAGE>
-------------------------------------------------------------------------------
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 and
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.
/X/ YES / / NO
On August 7, 2000, there were 7,652,169 shares outstanding of the registrant's
common stock, par value $.01 per share, and 103,336 outstanding shares of the
registrant's convertible preferred stock.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VICOM, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------------------- -------------------------------------
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
(unaudited) (unaudited) (unaudited) (unaudited)
------------------ ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
REVENUES $ 8,687,581 $ 4,562,655 $ 18,405,878 $ 9,208,797
-----------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of products and services 6,506,435 3,697,132 14,312,943 7,084,460
Selling, general and administrative 2,853,634 1,094,907 5,652,315 2,286,908
-----------------------------------------------------------------------------------
9,360,069 4,792,039 19,965,258 9,371,368
-----------------------------------------------------------------------------------
LOSS FROM OPERATIONS (672,488) (229,384) (1,559,380) (162,571)
-----------------------------------------------------------------------------------
OTHER EXPENSE
Interest expense (146,504) (37,728) (313,151) (84,783)
Miscellaneous (36,146) (27,221) (169,834) (40,700)
-----------------------------------------------------------------------------------
(182,650) (64,949) (482,985) (125,483)
-----------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES (855,138) (294,333) (2,042,365) (288,054)
INCOME TAX PROVISION 0 0 0 0
-----------------------------------------------------------------------------------
NET LOSS $ (855,138) $ (294,333) $ (2,042,365) $ (288,054)
===================================================================================
EARNINGS (LOSS) PER SHARE -
BASIC AND DILUTED $ (0.12) $ (0.09) $ (0.33) $ (0.08)
===================================================================================
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC AND DILUTED 7,335,895 3,426,887 6,241,532 3,426,887
===================================================================================
</TABLE>
See notes to condensed consolidated financial statements
2
<PAGE>
VICOM, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASSETS JUNE 30, 2000 DECEMBER 31, 1999
----------------- -----------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 431,844 $ 204,365
Accounts receivable, net of allowance of $54,500 and $140,000 4,755,004 5,369,221
Inventories, net of allowance of $330,000 2,491,376 1,801,596
Costs and estimated earnings in excess of billings 455,490 232,725
Other 274,364 154,766
---------------- -------------
TOTAL CURRENT ASSETS 8,408,078 7,762,673
---------------- -------------
PROPERTY AND EQUIPMENT, Net of accumulated depreciated of $1,566,130
and $1,262,593 $ 1,265,910 $ 1,324,080
---------------- -------------
NONCURRENT ASSETS
Goodwill, net of accumulated amortization 3,081,576 3,249,111
of $269,139 and $101,604 - -
Other 195,380 262,881
--------------- -------------
3,276,956 3,511,992
--------------- -------------
$ 12,950,944 $ 12,598,745
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Checks issued in excess of deposits $ 78,037 $ 126,297
Notes and installment obligations payable - current maturities 3,560,770 4,246,433
Accounts payable 2,807,117 4,503,451
Other liabilities 1,012,068 977,513
Due to ENStar, Inc. 67,494 207,170
Deferred service obligations and revenue 584,109 584,716
---------------- -------------
TOTAL CURRENT LIABILITIES 8,109,595 10,645,580
---------------- -------------
NOTES AND INSTALLMENT OBLIGATIONS PAYABLE 156,144 926,821
---------------- -------------
COMMITMENTS AND CONTINGENCIES - -
---------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock, liquidation preference of $10.50 per share :
8% Class A cumulative convertible - no par value,
(issued and outstanding - 0 and - 2,550 shares) - 23,638
10% Class B cumulative convertible - no par value
(issued and outstanding - 22,836 and - 32,550 shares) 218,869 359,893
10% Class C Cumulative Convertible - no par value
(issued and outstanding - 80,500 and - 0 shares) 805,000 -
Common stock - no par value (issued 7,822,208 and
4,984,845 shares; outstanding 7,622,269 and 4,784,906 shares) 347,609 4,551,745
Subscription receivable (465,984) -
Options and warrants 13,472,897 217,028
Unamortized compensation (209,323) (258,659)
Accumulated deficit (9,483,863) (3,867,301)
---------------- -------------
4,685,205 1,026,344
---------------- -------------
$ 12,950,944 $ 12,598,745
================ =============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
VICOM, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ($2,042,365) ($ 288,054)
Adjustments to reconcile net loss to net cash
used by operating activities
Depreciation 287,137 153,667
Amortization 280,512 27,455
Changes in operating assets and liabilities:
Accounts receivable 614,217 (560,673)
Inventories (689,780) 478,038
Costs, estimated earnings, and billings (222,765) (116)
Other assets (74,021) (63,493)
Accounts payable (1,696,333) 337,742
Other liabilities 34,553 261,241
Due to ENStar, Inc. (139,676) (551,881)
Deferred service obligations and revenue (607) (190,010)
--------------- -------------------
Net cash used by operating activities (3,649,128) (396,084)
--------------- -------------------
INVESTING ACTIVITIES
Collections on notes receivable 21,925 18,394
Purchases of property and equipment (259,588) (172,811)
Proceeds from sales of property and equipment 30,621 -
--------------- ------------------
Net cash used by investing activities (207,042) (154,417)
--------------- ------------------
FINANCING ACTIVITIES
Increase (decrease) in checks issued in excess of deposits (48,260) 673,699
Net borrowings (payments) under credit arrangements 942,600 (13,932)
Proceeds from notes and installment obligations payable 82,494 -
Principal payments on notes and
installment obligations payable (640,074) (137,288)
Proceeds from sales of stock and warrants 4,149,601 50,500
Stock issuance costs (385,306) -
Preferred stock dividends (17,406) (22,478)
--------------- -----------------
Net cash provided by financing activities 4,083,649 550,501
--------------- -----------------
NET INCREASE IN CASH 227,479 -
CASH
Beginning of period 204,365 -
-------------- ------------------
End of period $ 431,844 $ -
============== ==================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid 68,430 54,141
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES
Note payable converted to common stock $ 1,100,000 $ -
Notes payable converted to preferred stock $ 805,000 $ -
Subscriptions receivable on common stock $ 458,250 $ -
Warrant Dividends $ 13,255,870 $ -
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
VICOM, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The information furnished in this report is unaudited and reflects
all adjustments which are normal recurring adjustments and, which in the opinion
of management, are necessary to fairly present the operating results for the
interim periods. The operating results for the interim periods presented are not
necessarily indicative of the operating results to be expected for the full
fiscal year.
CERTAIN FINANCING ACTIVITIES
In March 2000, Vicom's subsidiary, Corporate Technologies, USA, Inc.
(CTU), entered into a $2,250,000 debenture/loan agreement with Convergent
Capital, requiring interest at prime + 4% (plus 6% if in default) and due on
December 31, 2000. The loan proceeds were used to pay off a previous CTU line of
credit due March 31, 2000. Convergent, as additional consideration in the
transaction, was given a warrant with a term of seven years to purchase 40,000
shares of Vicom's Common Stock at a price of $5.20 per share.
On July 11, 2000 the Convergent agreement was amended to extend the
due date to June 1, 2005. The terms of the amended agreement requires interest
only payments for 36 months from July 11, 2000 and thereafter 22 equal monthly
payments of principal and interest until the loan is paid in full. The amended
agreement also requires interest at 14% annually (16% annually if Vicom is in
default). Convergent, as additional consideration for extending the loan, was
issued a warrant with a term of seven years to purchase 110,000 shares of Vicom
common stock at a price of $4.18 per share.
In order to enhance liquidity in the second quarter ended June 30,
2000, Vicom authorized and issued 80,500 shares of 10% Class C Convertible
Preferred Stock in the amount of $805,000 to three accredited investors. The
Company also, in the quarter, issued a warrant to all Vicom shareholders of
record as of April 11, 2000, in which a warrant to purchase one share was
issued for each share outstanding. The Company intends to register those
warrants in the third quarter to facilitate their exercise and raise
additional capital.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share-basic is determined by dividing net income
(loss) less the preferred stock dividends by the weighted average common shares
outstanding. Net income (loss) per common share-diluted is computed by dividing
net income (loss) less the preferred stock dividends by the weighted average
common shares outstanding and the common share equivalents (stock options, stock
warrants, convertible preferred shares, and issued but not outstanding
restricted stock). Common share equivalents are not included in the computations
as their effects were anti-dilutive.
FORWARD-LOOKING STATEMENTS
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, product pricing, management for growth, integration of acquisitions,
technological developments, new products, Year 2000 compliance and similar
matters. The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements including those made in this statement. In
order to comply with the terms of the Private Securities Litigation Reform Act,
the Company notes that a variety of factors could cause the Company's actual
results and experience to differ materially from the anticipated results or
Company's forward-looking statements.
The risks and uncertainties that may affect the operations,
performance, developments and results of the Company's business include the
following: national and regional economic conditions; pending and future
legislation affecting IT and telecommunications industries; market acceptance of
the Company's products and services; the Company's products and services; the
company's continued ability to provide integrated communication solutions for
customers in a dynamic industry; and other competitive factors.
Because these and other factors could affect the Company's operating
results, past financial performance should not necessarily be considered as a
reliable indicator of future performance and anticipated future period results.
5
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
GENERAL
Vicom is the parent corporation of three wholly-owned subsidiaries,
Corporate Technologies, USA, Inc. (CTU), MultiBand, Inc., and Vicom Midwest
Telecommunications Systems, Inc. (VMTS). VMTS was not active as of June 30,
2000. In late 1999, to expand its range of computer product and service
offerings, Vicom formed CTU to acquire the stock of Ekman, Inc. Vicom
incorporated MultiBand in February 1999 to provide voice, data and video
services to residential multi-dwelling units (MDUs). MultiBand is in the
start-up phase.
Vicom has provided clients with telecommunications products and
services since its inception in 1975. As of June 30, 2000, we were providing
telephone equipment and service to more than 1,000 customers, with approximately
10,000 telephones in service. In addition, CTU provides computer products and
services to approximately 3,500 customers. The telecommunications systems we
distribute are intended to provide customers with flexible, cost-effective
alternatives as compared to systems available from major telephone companies,
including those formerly comprising the Bell System, and from other
interconnected telephone companies. Vicom and CTU provide a full range of voice,
data and video communications systems and service, system integration, training
and related communication sales and support activities for commercial,
professional and institutional customers, most of which are located in
Minnesota, North Dakota, South Dakota and Nebraska. Vicom purchases products and
equipment from NEC America, Inc. ("NEC"), Cisco Systems, Inc., Nortel Networks
Corp., ECI Telecommunications, Inc. ("ECI"), and other manufacturers of
communications and electronic products and equipment. We use these products to
design telecommunications systems to fit our customers' specific needs and
demands.
RESULTS OF OPERATIONS
Revenues
Revenues increased 90% to $8,687,581 in the quarter ended June 30,
2000, as compared to $4,562,655 for the quarter ended June 30, 1999. This
increase in revenues is directly attributed to the Company's acquisition of
Ekman, Inc. in late 1999. For the six month period ended June 30, 2000,
revenues increased 100% to $18,405,878 as compared to $9,208,797 for the similar
period last year again. This increase in revenues is directly attributed to the
Company's acquisition of Ekman, Inc. in late 1999.
Gross Margin
The Company's gross margin increased 152% or $1,315,623 to
$2,181,146 for the quarter ended June 30, 2000, as compared to $865,523 for
the similar quarter last year. The gross margin increase is due to the
aforementioned acquisition of Ekman, Inc. For the quarter ended June 30,
2000, as a percent of total revenues, gross margin was 25.1% as compared to
19.0% for the similar period last year. The increase in gross margin
percentage is due to a sales mix for the quarter that included an increase in
services and software sales, categories of revenue that contain higher gross
margins.
For the six month period ended June 30, 2000, the Company's gross
margin increased 93% or $1,968,598 to $4,092,935 as compared to $2,124,337 for
the similar period last year. The gross margin increase is due to the
aforementioned acquisition of Ekman, Inc. For the six month period ended June
30, 2000, as a percent of total revenues, gross margin was 22.2% as compared to
23.1% for the similar period last year. The decrease in gross margin percentages
is primarily due to increased sales year to date of personal computer products,
which sales have lesser gross margins than the Company's traditionally based
telephone equipment sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 160% to
$2,853,634 in the quarter ended June 30, 2000, as compared to $1,094,907 in the
prior year quarter. Selling, general and administrative expenses were, as a
percentage of revenues, 32.8% for the quarter ended June 30, 2000 and 24.0% for
the similar period a year ago. This increase in expenses is primarily related to
increased payroll due to acquisitions and start-up expenses for the Company's
MultiBand, Inc. subsidiary.
For the six month period, these expenses increased 147% to $5,652,315
as compared to $2,286,908 in the prior year period. For the six month period
ended June 30, 2000, selling, general and administrative expenses were, as a
percentage of revenues, 30.7% and 24.8% for the similar period a year ago. The
increase in expenses is primarily related to increased payroll due to
acquisitions and start-up expenses for the Company's MultiBand, Inc. subsidiary.
6
<PAGE>
Interest Expense
Interest expense was $146,504 for the quarter ended June 30, 2000,
versus $37,728 for the similar period a year ago, reflecting an increased
Company debt load due to acquisition related debt and increased bank borrowings.
It was $313,151 for the six month ended June 30, 2000, and $84,783 for the
similar period a year ago.
Income Tax Provision
No provision for income taxes are recorded due to net operating
loss carryforwards available.
Net Loss
In the second quarter of fiscal 2000, the Company incurred a net loss
of $855,138 compared to net loss of $294,333 for the second fiscal quarter of
1999. The six month period ended June 30, 2000, resulted in a net loss of
$2,042,365 compared to a net loss of $288,054 for the similar period last year.
Liquidity and Capital Resources
Available working capital for the six months ended June 30, 2000,
increased over the similar period last year due to proceeds from issuance of
stock and exercise of outstanding warrants, which helped offset Vicom's net
operating loss. Vicom experienced a significant decrease in accounts payable for
the period ended June 30, 2000 versus last year's period, primarily due to the
aforementioned proceeds, which were used to reduce payables. Accounts
receivables increased materially for the period ended June 30, 2000 compared to
the prior year period due to a doubling of revenues resulting from the
acquisition of Ekman, Inc. in late 1999.
Inventories year to date increased over last year's prior period
inventories due to the aforementioned revenue increases. Net borrowings under
credit agreements increased for the six months ended June 30, 2000 compared
to the prior year's period due to debenture financing with a lender, the
proceeds of which were used to pay off a bank line of credit and for
operations.
In March 2000, Vicom's subsidiary, Corporate Technologies, USA, Inc.
(CTU), entered into a $2,250,000 debenture/loan agreement with Convergent
Capital, calling for interest at prime + 4% (plus 6% if in default) and due on
December 31, 2000. The loan proceeds were used to pay off a previous CTU line of
credit due March 31, 2000. Convergent, as additional consideration in the
transaction, was given a warrant with a term of seven years to purchase 40,000
shares of Vicom's Common Stock at a price of $5.20 per share.
On July 11, 2000 the Convergent agreement was amended to extend the
due date to June 1, 2005. The terms of the amended agreement call for interest
only payments for 36 months from July 11, 2000 and thereafter 22 equal monthly
payments of principal and interest until the loan is paid in full. The amended
agreement also requires interest at 14% annually (16% annually if Vicom is in
default). Convergent, as additional consideration for extending the loan, was
issued a warrant with a term of seven years to purchase 110,000 shares of Vicom
Common Stock at a price of $4.18 per share.
In order to enhance liquidity in the second quarter ended June 30,
2000, Vicom issued 80,500 shares of 10% Class C Convertible Preferred Stock in
the amount of $805,000 to three accredited investors. The Company also, in the
quarter, issued a warrant to all Vicom shareholders of record as of April 11,
2000, in which a warrant to purchase one share was issued for each share
outstanding. The Company intends to register those warrants in the third quarter
to facilitate their exercise and raise additional capital.
Management of Vicom believes that, for the near future, cash
generated by sales of stock, exercise of warrants, and existing credit
facilities, in aggregate, are adequate to meet the anticipated liquidity and
capital resource requirements of its business.
Capital Expenditures
The Company used $259,588 for capital expenditures during the six
months ended June 30, 2000, as compared to $172,811 in the similar period last
year. These expenditures were primarily for equipment acquired for internal uses
such as vehicles, office furniture, computer systems and demonstration systems.
IMPACT OF YEAR 2000
The Company has experienced no significant system problems since
January 1, 2000. In addition, the Company is not aware of any material problems
being experienced by its suppliers and business partners. The Company believes
it has adequately addressed the Year 2000 issue related to its internal systems
and that it did not and will not have a material impact on its business,
financial condition or its results of operations.
ITEM 3. QUANTITIVE AND QUALITIVE DISCLOSURE ABOUT MARKET RISK
Vicom is not subject to any material interest rate risk as any
current lending agreements are at a fixed rate of interest.
7
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. LEGAL PROCEEDINGS
As of June 30, 2000, Vicom was not engaged in any material pending
legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Vicom, Inc.
Registrant
Date: August 14, 2000 By /s/ James L. Mandel
James L. Mandel
Chief Executive Officer
Date: August 14, 2000 By /s/ Steven M. Bell
Steven M. Bell
Chief Financial Officer
(Principal Financial and
Accounting Officer)
8
