UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(MARK ONE) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
[X] AND EXCHANGE ACT OF 1934
FOR THE PERIOD ENDING JUNE 30, 2001
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
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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.vicominc.net Internet
(Registrant's telephone number, facsimile number, and Internet address)
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.
Yes [X] No [ ]
On June 30, 2001 there were 8,779,229 shares outstanding of the
registrant's common stock, par value $.01 per share, and 279,061 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
(unaudited)
Three Months Ended Six Months Ended
----------------------------- ------------------------------
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
------------- ------------- ------------- -------------
REVENUES ................................. $ 7,830,229 $ 8,687,581 $ 18,513,048 $ 18,405,878
------------ ------------ ------------ ------------
COSTS AND EXPENSES
Cost of products and services ......... 6,048,399 6,506,435 14,603,448 14,312,943
Selling, general and administrative ... 2,738,537 2,853,634 5,747,083 5,625,315
------------ ------------ ------------ ------------
8,786,936 9,360,069 20,350,531 19,965,258
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS ..................... (956,707) (672,488) (1,837,483) (1,559,380)
------------ ------------ ------------ ------------
OTHER EXPENSE
Interest expense ...................... (292,677) (146,504) (524,745) (313,151)
Miscellaneous income (expenses) ....... 307 (36,146) 45,397 (169,834)
------------ ------------ ------------ ------------
(292,370) (182,650) (479,348) (482,985)
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES ................. (1,249,077) (855,138) (2,316,831) (2,042,365)
INCOME TAX PROVISION ..................... -- -- -- --
------------ ------------ ------------ ------------
NET LOSS ................................. $ (1,249,077) $ (855,138) $ (2,316,831) $ (2,042,365)
============ ============ ============ ============
LOSS ATTRIBUTABLE TO
COMMON STOCK
Net loss ............................ $ (1,249,077) $ (855,138) $ (2,316,831) $ (2,042,365)
Preferred dividends ................. (123,147) (7,484) (175,608) (17,406)
------------ ------------ ------------ ------------
$ (1,372,224) $ (862,622) $ (2,492,439) $ (2,059,771)
============ ============ ============ ============
LOSS PER COMMON SHARE-
BASIC AND DILUTED ........................ $ (.17) $ (.12) $ (.31) $ (.33)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING-BASIC
AND DILUTED .............................. 7,989,569 7,335,895 7,960,727 6,241,532
See notes to condensed consolidated financial statements
VICOM, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 DECEMBER 31, 2000
-------------- -----------------
(unaudited) (audited)
ASSETS
CURRENT ASSETS
Cash .................................................................. $ 761,460 $ 1,161,479
Accounts receivable, net allowance of $132,000 and $159,000 ........... 4,259,925 5,661,064
Inventories, net allowance of $260,000 and $200,000 ................... 2,294,084 2,122,002
Other ................................................................. 361,102 294,216
Costs and estimated earnings in excess of billings .................... -- 7,491
-------------- --------------
TOTAL CURRENT ASSETS ................................................. 7,676,570 9,246,252
-------------- --------------
PROPERTY AND EQUIPMENT ................................................... $ 4,212,109 $ 3,277,109
-------------- --------------
NONCURRENT ASSETS
Goodwill, net of accumulated amortization of $604,216 and $436,678 .... 2,925,310 2,914,037
Other ................................................................. 170,291 177,175
-------------- --------------
3,095,601 3,091,212
-------------- --------------
$ 14,984,281 $ 15,614,573
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Wholesale financing arrangement ....................................... $ 2,073,253 $ 2,033,340
Notes and installment obligations payable-current maturities .......... 443,678 428,334
Accounts payable ...................................................... 2,418,822 2,769,390
Other liabilities ..................................................... 663,400 825,933
Deferred service obligations and revenue .............................. 451,019 319,141
-------------- --------------
TOTAL CURRENT LIABILITIES .......................................... 6,050,172 6,376,138
-------------- --------------
NOTES AND INSTALLMENT OBLIGATIONS PAYABLE ................................ 3,883,272 3,362,083
-------------- --------------
COMMITMENTS AND CONTINGENCIES ............................................ -- --
STOCKHOLDERS' EQUITY
Preferred Stock
10% Class A cumulative convertible-no par value
(issued and outstanding - 69,515 and 0 shares) ..................... 645,876 --
10% Class B cumulative convertible-no par value
(issued and outstanding-22,836 and 22,836 shares) .................. 218,869 218,869
10% Class C cumulative convertible-no par value
(issued and outstanding-147,310 and 150,810 shares) ................ 1,909,003 1,951,003
14% Class D cumulative convertible-no par value
(issued and outstanding 40,000 and 72,500 shares) .................. 417,500 802,813
Common stock-no par value (issued 8,893,058 and 8,137,181 shares;
outstanding 8,779,229 and 8,023,352 shares) ........................ 2,107,340 1,340,074
Subscription receivable ............................................... (300,000) --
Options and warrants .................................................. 16,503,661 14,347,833
Unamortized compensation .............................................. (1,520,185) (278,138)
Accumulated deficit ................................................... (14,931,227) (12,506,102)
-------------- --------------
5,050,837 5,876,352
-------------- --------------
$ 14,984,281 $ 15,614,573
============== ==============
See notes to condensed consolidated financial statements.
VICOM, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
SIX MONTHS ENDED JUNE 30,
-------------------------
2001 2000
---- ----
OPERATING ACTIVITIES
Net loss ......................................................................... $ (2,316,831) $ (2,042,365)
Adjustments to reconcile net loss to net cash used by operating activities
Depreciation .................................................................. 497,176 287,137
Amortization .................................................................. 398,955 280,512
Changes in operating assets and liabilities:
Accounts receivable ......................................................... 1,401,139 614,217
Inventories ................................................................. 29,603 (689,780)
Costs, estimated earnings, and billings ..................................... 35,295 (222,765)
Other assets ................................................................ (98,009) (74,021)
Accounts payable ............................................................ (221,518) (1,696,333)
Other liabilities ........................................................... (164,687) 34,553
Due to ENStar, Inc. ......................................................... -- (139,676)
Wholesale line of credit .................................................... 39,913 --
Deferred service obligations and revenue .................................... 131,878 (607)
-----------------------------
Net cash used by operating activities .................................... (267,086) (3,649,128)
-----------------------------
INVESTING ACTIVITIES
Purchases of property and equipment .............................................. (1,403,953) (228,967)
Purchase acquisition ............................................................. (50,000) --
Collections on notes receivable .................................................. 38,007 21,925
-----------------------------
Net cash used by investing activities ................................. (1,415,946) (207,042)
-----------------------------
FINANCING ACTIVITIES
Decrease in checks issued in excess of deposits .................................. -- (48,260)
Net borrowings under credit arrangements ......................................... -- 942,600
Proceeds from long-term debt with warrants ....................................... 1,545,000 --
Proceeds from notes and installment obligations payable .......................... 169,050 82,494
Payments on notes and installment obligations payable ............................ (256,037) (640,074)
Proceeds from issuance of stock and warrants ..................................... 483,918 4,149,601
Stock issuance costs ............................................................. (23,310) (385,306)
Redemption of preferred stock .................................................... (460,000) --
Preferred stock dividends ........................................................ (175,608) (17,406)
-----------------------------
Net cash provided by financing activities ................................ 1,283,013 4,083,649
-----------------------------
INCREASE (DECREASE) IN CASH ......................................................... (400,019) 227,479
CASH
Beginning of period .............................................................. 1,161,479 204,365
-----------------------------
End of period .................................................................... $ 761,460 $ 431,844
-----------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid .................................................................... 378,237 68,430
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Notes payable converted to preferred stock ....................................... 255,850 805,000
Accounts payable converted to preferred stock .................................... 129,050 --
Notes payable converted to stock and warrants issued ............................. -- 1,100,000
Subscriptions receivable on common stock ......................................... 300,000 458,250
Warrant dividends ................................................................ -- 13,255,870
Purchase acquisition
Assets acquired ................................................................ 438,154 --
Liabilities assumed ............................................................ 2,154 --
Equity securities consideration ................................................ 386,000 --
Employee stock options issued with unamortized compensation ...................... 1,200,000 --
See notes to condensed consolidated financial statements
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 the second quarter of fiscal year 2001, Vicom increased equity by
$745,876 via issuance of 69,515 shares and 10,000 shares of its Class A and
Class D convertible preferred stock, respectively.
LOSS PER SHARE
Loss per share-basic is determined by dividing net loss plus the
preferred stock dividends by the weighted average common shares outstanding. Net
loss per common share-diluted is computed by dividing net loss plus 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, 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.
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. (MultiBand) and Vicom
Midwest Telecommunications Systems, Inc. (VMTS), (collectively, the "Company").
VMTS was not active as of June 30, 2001. Vicom incorporated MultiBand in
February 2000 to provide voice, data and video services to residential
multi-dwelling units (MDUs).
Vicom has provided clients with telecommunications products and
services since its inception in 1975. As of June 30, 2001, CTU was providing
telephone equipment and service to approximately 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. As of June 30, 2001, MultiBand
provided services to approximately 370 customers.
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.
SELECTED CONSOLIDATED FINANCIAL DATA AS A PERCENTAGE OF REVENUES
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------------- ----------------------------------
JUNE 30, 2001 JUNE 30, 2000 JUNE 30, 2001 JUNE 30, 2000
------------- ------------- ------------- -------------
(unaudited) (unaudited) (unaudited) (unaudited)
REVENUES 100.0% 100.0% 100.0% 100.0%
COST OF PRODUCTS AND SERVICES 77.2% 74.9% 78.9% 77.8%
------ ------ ------ ------
GROSS MARGIN 22.8% 25.1% 21.1% 22.2%
SELLING, GENERAL & ADMINISTRATIVE
EXPENSES 35.0% 32.8% 31.0% 30.7%
------ ------ ------ ------
LOSS FROM OPERATIONS -12.2% -7.7% -9.9% -8.5%
OTHER EXPENSES, NET -3.7% -2.1% -2.6% -2.6%
------ ------ ------ ------
LOSS BEFORE INCOME TAXES -15.9% -9.8% -12.5% -11.1%
INCOME TAX PROVISION 0.0% 0.0% 0.0% 0.0%
------ ------ ------ ------
NET LOSS -15.9% -9.8% -12.5% -11.1%
====== ====== ====== ======
The following table sets forth, for the period indicated, the gross margin
percentages for Vicom, Incorporated, CTU, and MultiBand.
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ------------------ ----------------- -------------------
JUNE 30, 2001 JUNE 30, 2000 JUNE 30, 2001 JUNE 30, 2000
(unaudited) (unaudited) (unaudited) (unaudited)
------------------ ------------------ ----------------- -------------------
VICOM, INCORPORATED 0.0% 5.0% 54.7% 5.7%
CTU 23.7% 17.8% 21.4% 17.0%
MULTIBAND -63.6% 0.0% -35.1% -0.2%
RESULTS OF OPERATIONS
REVENUES
Revenues decreased 9.9% to $7,830,229 in the quarter ended June 30,
2001, as compared to $8,687,581 for the quarter ended June 30, 2000.
Revenues for Vicom, Incorporated decreased 100% to $0.00 in the second
quarter of fiscal 2001, as compared to $1,715,142 in the second quarter of
fiscal 2000. This decrease is due to the fact that all sales operations have
been transferred to CTU.
Revenues for Corporate Technologies increased 13.3% to $7,794,443 as
compared to $6,881,229 in the second quarter of fiscal 2000. This increase is
the result of the added sales transferred from Vicom, Incorporated.
MultiBand revenues in the quarter ended June 30, 2001 were $35,786.
Revenues for MultiBand were non-existent in the second quarter of fiscal 2000 as
MultiBand was not yet operational.
Revenues for the six month period ended June 30, 2001 increased 0.6% to
$18,513,048 from $18,405,878 for the second quarter of fiscal 2000.
GROSS MARGIN
The Company's gross margin decreased 18.31% or $399,316 to $1,781,830
for the quarter ended June 30, 2001, as compared to $2,181,146 for the similar
quarter last year. For the quarter ended June 30, 2001, as a percent of total
revenues, gross margin was 22.76% as compared to 25.11% for the similar period
last year. This decrease in gross margin is primarily due to greater sales of
lower margin computer equipment rather than higher margin telephone equipment.
Gross margin for Vicom, Inc. decreased 100.0% or $564,459 to ($2,278)
for the quarter ended June 30, 2001, as compared to $562,181 the second quarter
of fiscal 2000. This decrease is a result of sales operations transferred to
CTU.
Gross margin for CTU increased by 9.47%, or $156,333, to $1,806,855 for
the quarter ended June 30, 2001, as compared to $1,650,522 in the second quarter
of fiscal 2000. This increase is due to the aforementioned transfer of
operations, which includes substantial telephone equipment sales that
traditionally have higher gross margins than computer sales, which were
previously the core of CTU.
Gross margin for MultiBand for the quarter ended June 30, 2001 was
$(22,747). MultiBand was not operational in the second quarter of fiscal 2000.
For the six month period ended June 30, 2001, the Company's gross
margin decreased 4.48% or $183,335 to $3,909,600, as compared to $4,092,935 for
the similar period last year primarily due to greater sales of lower margin
computer equipment rather than higher margin telephone equipment.
For the six month period ended June 30, 2001, as a percent of total
revenues, gross margin was 21.12% for as compared to 22.24% for the similar
period last year due to the aforementioned sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased 4.03% to
$2,738,532 in the quarter ended June 30, 2001, compared to $2,853,634 in the
prior year quarter. This decrease in selling, general and administrative
expenses was, as a percentage of revenues, 1.47% for the quarter ended June 30,
2001 and 1.32% for the similar period a year ago. This decrease is primarily
attributable to reductions in payroll.
For the six month period ended June 30, 2001, these expenses increased
2.16% to $5,747,083, as compared to $5,625,315 for the same period in 2000. As a
percentage of revenues, selling, general and administrative expenses are 31.04%
for the period ended June 30, 2001, as compared to 30.71% for the same period
last year.
INTEREST EXPENSE
Interest expense was $292,677 for the quarter ended June 30, 2001,
versus $146,504 for the similar period a year ago, reflecting an increased
Company debt load due to acquisition related debt and increased borrowings.
Interest expense was $524,745 for the six months ended June 30, 2001,
and $313,151 for the same period last year.
NET LOSS
In the second quarter of fiscal 2001, the Company incurred a net loss
of $1,249,077 compared to a net loss of $855,138 for the second fiscal quarter
of 2000. The six-month period ended June 30, 2001, resulted in a net loss of
$2,316,831 compared to a net loss of $2,042,365 for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
Available working capital at June 30, 2001 increased approximately
1,300,000 over June 30, 2000.
The Company also experienced a significant increase in accounts payable
and other payables related to wholesale financing at June 30, 2001 versus June
30, 2000.
Inventories and accounts receivable at June 30, 2001 decreased slightly
from June 30, 2000.
Current maturities of notes and installment obligations payable at June
30, 2001 decreased materially from June 30, 2000 generally due to replacement
with longer term debt.
Management of the Company believes that, for the near future, cash
generated by sales of stock, and existing credit facilities, in aggregate, are
adequate to meet the anticipated liquidity and capital resource requirements of
its CTU business. Significant continuation of the Company's MultiBand's
build-out is highly dependent on securing additional financing for future
projects. Management believes that while future build-out financing is
available, there is no guarantee that said financing will be obtained. The
Company slowed the rate of its MultiBand build-out in the second quarter of
fiscal year 2001, however, to reflect a reduced raising of funds in that quarter
and to increase its focus on marketing those properties already built.
In May 2001, CTU purchased certain assets of Red River Computers, Inc.,
for total consideration of $438,154, paid primarily with Company stock.
CAPITAL EXPENDITURES
The Company used $1,403,953 for capital expenditures during the six
months ended June 30, 2001, as compared to $259,588 in the similar period last
year. Of the total year-to-date expenditures 1,194,657 were incurred during the
first quarter of 2001. These year-to-date 2001 expenditures were primarily for
construction-in-process items, which totaled $1,160,201 and related to the
continued build-out of MultiBand (see LIQUIDITY AND CAPITAL RESOURCES). For the
similar period last year, substantially all capital expenditures consisted of
equipment acquired for internal use.
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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of June 30, 2001, the Company was not engaged in any legal
proceedings whose anticipated results would have a material adverse
impact.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(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, 2001 By: /s/ James L. Mandel
James L. Mandel
CHIEF EXECUTIVE OFFICER
Date: August 14, 2001 By: /s/ Steven M. Bell
Steven M. Bell
CHIEF EXECUTIVE OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)