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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 MARCH 31, 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
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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 April 17, 2001 there were 7,996,193 shares outstanding of the
registrant's common stock, par value $.01 per share, and 200,146 outstanding
shares of the registrant's convertible preferred stock.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VICOM, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
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March 31, 2001 March 31, 2000
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(UNAUDITED) (unaudited)
Revenues .............................................. $ 10,682,819 $ 9,718,297
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COSTS AND EXPENSES
Cost of products and services .................... 8,555,049 7,806,508
Selling, general and administrative .............. 3,008,546 2,798,681
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11,563,595 10,605,0189
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LOSS FROM OPERATIONS .................................. (880,776) (886,892)
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OTHER EXPENSE
Interest expense ................................. (232,068) (166,647)
Miscellaneous income (expense) ................... (45,090) 133,688
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(186,978) (300,335)
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LOSS BEFORE INCOME TAXES .............................. (1,067,754) (1,187,227)
INCOME TAX PROVISION .................................. 0 0
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NET LOSS .............................................. $ (1,067,754) $ (1,187,227)
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LOSS PER SHARE - BASIC AND DILUTED .................... $ (.14) $ (0.29)
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WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED 8,024,447 4,182,776
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See notes to condensed consolidated financial statements
VICOM, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 DECEMBER 31, 2000
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(UNAUDITED) (AUDITED)
ASSETS
CURRENT ASSETS
Cash ............................................................................ $ 908,182 $ 1,161,479
Accounts receivable, net of allowance of $149,000 and $159,000 .................. 6,785,109 5,661,064
Inventories, net of allowance of $215,000 and $200,000 .......................... 2,160,901 2,122,002
Other ........................................................................... 405,333 294,216
Costs and estimated earnings in excess of billings .............................. 951 7,491
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TOTAL CURRENT ASSETS ......................................................... 10,260,476 9,246,252
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PROPERTY AND EQUIPMENT, net of accumulated depreciation of $1,369,173 and
$1,179,422 ................................................................ 4,230,286 3,277,109
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NONCURRENT ASSETS
Goodwill, net of accumulated amortization of $520,447 and $436,678 .............. 2,828,636 2,914,037
Other ........................................................................... 166,487 177,175
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2,995,123 3,091,212
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$ 17,485,885 $ 15,614,573
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Wholesale financing arrangement ................................................. $ 1,975,810 $ 2,033,340
Notes and installment obligations payable-current maturities .................... 463,334 428,334
Accounts payable ................................................................ 4,708,918 2,769,390
Other liabilities ............................................................... 966,953 825,933
Deferred service obligations and revenue ........................................ 288,685 319,141
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TOTAL CURRENT LIABILITIES .................................................... 8,403,700 6,376,138
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NOTES AND INSTALLMENT OBLIGATIONS PAYABLE .......................................... 3,877,560 3,362,083
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COMMITMENTS AND CONTINGENCIES ...................................................... -- --
STOCKHOLDERS' EQUITY
Cumulative preferred stock-no par value
10% Class B
(issued and outstanding-22,836 and 22,836 shares) ............................ 218,869 218,869
10% Class C
(issued and outstanding-147,310 and 150,810 shares) .......................... 1,909,003 1,951,003
14% Class D
(issued and outstanding 30,000 and 72,500 shares) ............................ 317,500 802,813
Common stock-no par value (issued 8,113,108 and 8,137,181 shares;
outstanding 8,068,352 and 8,023,352 shares) .................................. 1,529,795 1,340,074
Options and warrants ............................................................ 15,200,163 14,347,833
Unamortized compensation ........................................................ (410,068) (278,138)
Accumulated deficit ............................................................. (13,560,637) (12,506,102)
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5,204,625 5,876,352
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$ 17,485,885 $ 15,614,573
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See notes to condensed consolidated financial statements.
VICOM, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
2001 2000
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(UNAUDITED) (UNAUDITED)
OPERATING ACTIVITIES
Net loss ............................................................................ $(1,067,754) $(1,187,227)
Adjustments to reconcile net loss to net cash provided (used) by operating activities
Depreciation ..................................................................... 241,479 160,132
Amortization ..................................................................... 221,051 142,043
Changes in operating assets and liabilities:
Accounts receivable ............................................................ (1,116,956) 1,035,785
Inventories .................................................................... (38,898) 153,556
Costs, estimated earnings, and billings ........................................ 6,541 (199,372)
Other assets ................................................................... (11,064) (59,133)
Accounts payable and other liabilities ......................................... 2,080,546 (1,763,678)
Wholesale line of credit ....................................................... (57,530) --
Deferred service obligations and revenue ....................................... (30,456) 28,123
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Net cash provided (used) by operating activities ............................ 226,959 (1,689,771)
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INVESTING ACTIVITIES
Purchases of property and equipment ................................................. (1,194,657) (192,221)
Issuance of note receivable ......................................................... (7,089) --
Collections on notes receivable ..................................................... 18,239 12,449
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Net cash used by investing activities ....................................... (1,183,506) (179,772)
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FINANCING ACTIVITIES
Increase in checks issued in excess of deposits ..................................... -- 65,138
Net borrowings under credit arrangements ............................................ -- 1,207,866
Proceeds from long-term debt and warrants ........................................... 1,545,000 82,700
Payments on notes and installment obligations payable ............................... (222,486) (320,336)
Deferred finance costs .............................................................. (107,604) --
Proceeds from issuance of stock and warrants ........................................ 1,880 1,533,075
Stock issuance costs ................................................................ (1,079) (198,169)
Redemption of preferred stock ....................................................... (460,000) --
Preferred stock dividends ........................................................... (52,461) (9,922)
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Net cash provided by financing activities ................................... 703,250 2,380,352
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INCREASE (DECREASE) IN CASH ............................................................ (253,297) 510,809
CASH
Beginning of period ................................................................. 1,161,479 204,365
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End of period ....................................................................... $ 908,182 $ 715,174
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid ....................................................................... $ 153,320 $ 136,169
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Notes payable converted to stock and warrants issued ................................ -- 500,000
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 January 2001, Vicom received a loan of $1.5 million dollars from
Pyramid Trading Limited Partnership (Pyramid). The loan has a two year term, due
January 2003 with annual interest payable at 8%. At the lender's election, the
loan is convertible into Vicom common stock at $4.75 cents per share. The loan
contained no beneficial conversion features. As further consideration for the
transaction, Pyramid, was granted an attached warrant to purchase 375,000 common
shares at an exercise price of $4.00 per share. Loan proceeds were used to fund
operations and MultiBand construction.
LOSS PER SHARE
Loss per share-basic is determined by dividing net income loss plus the
preferred stock dividends by the weighted average common shares outstanding.
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). VMTS was not active as of March
31, 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 March 31, 2001, we were 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 March 31, 2001, MultiBand
provided services to approximately 320 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
DOLLAR AMOUNTS AS A
PERCENTAGE OF REVENUES
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THREE MONTHS ENDED
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MARCH 31, 2001 MARCH 31, 2000
(unaudited) (unaudited)
REVENUES 100.0% 100.0%
COST OF SALES 80.1% 80.3%
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GROSS MARGIN 19.9% 19.7%
SELLING, GENERAL & ADMINISTRATIVE 28.1% 28.8%
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OPERATING LOSS -8.2% -9.1%
INTEREST EXPENSE & OTHER, NET -1.8% -3.1%
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LOSS BEFORE TAXES -10.0% -12.2%
INCOME TAX 0.0% 0.0%
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NET LOSS -10.0% -12.2%
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The following table sets forth, for the period indicated, the gross margin
percentages for Vicom, Inc. Corporate Technologies USA, Inc. and MultiBand, Inc.
THREE MONTHS ENDED
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MARCH 31, 2001 MARCH 31, 2000
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GROSS MARGIN PERCENTAGES:
VICOM, INC. 0.0% 5.0%
CORPORATE TECHNOLOGIES USA, INC. 20.1% 17.8%
MULTIBAND, INC. -19.4% 0.0%
RESULTS OF OPERATIONS
REVENUES
Revenues increased 9.92% to $10,682,819 in the quarter ended March 31,
2001, as compared to $9,718,297 for the quarter ended March 31, 2000.
Revenues for Vicom, Inc. decreased 99.0% to $16,406 in the first
quarter of fiscal 2001, as compared to $1,715,142 in the first quarter of fiscal
2000. This decrease is due to the fact that most sales operations substantially
were transferred to Corporate Technologies USA, Inc.
Revenues for Corporate Technologies increased 32.5% to $10,601,335 as
compared to $8,003,155 in the first quarter of fiscal 2000. This increase is the
result of the added sales transferred from Vicom, Inc.
MultiBand, Inc. revenues in the quarter ended March 31, 2001 were
$65,078. Revenues for MultiBand, Inc. were non-existent in the first quarter of
fiscal 2000 as MultiBand, Inc. was not yet operational.
GROSS MARGIN
The Company's gross margin increased 11.29% or $215,981 to $2,127,770
for the quarter ended March 31, 2001, as compared to $1,911,789 for the similar
quarter last year. For the quarter ended March 31, 2001, as a percent of total
revenues, gross margin was 19.92% as compared to 19.67% for the similar period
last year. This near identical gross margin is primarily due to an increase in
service sales, which allowed the Company to maintain its margins.
Gross margin for Vicom, Inc. decreased 97.7% or $478,463 to $11,258 for
the quarter ended March 31, 2001, as compared to $489,721 the first quarter of
fiscal 2000. This decrease is a result of sales operations transferred to
Corporate Technologies USA, Inc.
Gross margin for Corporate Technologies USA, Inc. increased by 40.7% to
$2,129,163 for the quarter ended March 31, 2001, as compared to $1,422,068 in
the first 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 Corporate Technologies USA, Inc.
Gross margin for MultiBand, Inc. for the quarter ended March 31, 2001
was $(12,651). MultiBand, Inc. was not operational in the first quarter of
fiscal 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 7.50% to
$3,008,546 in the quarter ended March 31, 2001, compared to $2,798,681 in the
prior year quarter. This increase in selling, general and administrative
expenses were, as a percentage of revenues, 28.16% for the quarter ended March
31, 2001 and 28.79% for the similar period a year ago.
INTEREST EXPENSE
Interest expense was $232,068 for the quarter ended March 31, 2001,
versus $166,647 for the similar period a year ago, reflecting an increased
Company debt load due to acquisition related debt and increased borrowings.
NET LOSS
In the first quarter of fiscal 2001, the Company incurred a net loss of
$1,067,754 compared to a net loss of $1,187,227 for the first fiscal quarter of
2000.
LIQUIDITY AND CAPITAL RESOURCES
Available working capital, for the three months ended March 31, 2001,
decreased over the similar period last year due to, in part, a significant
increase in purchases of property and equipment. Vicom experienced a significant
increase in accounts payable for the period ended March 31, 2001 versus last
year's period, primarily due to increased sales and the net operating loss for
the quarter. Accounts receivable increased materially for the period ended March
31, 2001, compared to the prior year period, due to a significant increase in
revenues.
Inventories year to date increased slightly over last year's prior
period inventories due to the aforementioned revenue increases. Net borrowings
under notes and installment obligations payable increased materially for the
three months ended March 31, 2001 compared to the prior year's period due to
financing with an investor, the proceeds of which were used primarily to finance
MultiBand, Inc.'s project build-out.
Management of Vicom 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
Corporate Technologies USA, Inc. business. Significant continuation of the
Company's MultiBand, Inc.'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.
CAPITAL EXPENDITURES
The Company used $1,194,657 for capital expenditures during the three
months ended March 31, 2001, as compared to $192,221 in the similar period last
year. These year to date 2001 expenditures were primarily for construction costs
of $1,081,725 related to the continued build-out of MultiBand. 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 4. LEGAL PROCEEDINGS
As of March 31, 2001, Vicom was not engaged in any legal
proceedings whose anticipated results would have a material
adverse impact on the Company.
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: May 15, 2001 By:
James L. Mandel
CHIEF EXECUTIVE OFFICER
Date: May 15, 2001 By:
Steven M. Bell
CHIEF EXECUTIVE OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)