SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: September 30, 2002 Commission File No. 1-7939 ---------------------------------------------- ----------- |
NEW YORK 11-2160665
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
89 Arkay Drive, Hauppauge, New York 11788
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (631) 952-2288
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K.
The aggregate market value of Common Stock held by non-affiliates of the registrant as of December 13, 2002 was approximately $17,200,000.
The number of shares outstanding of the registrant's Common Stock as of December 13, 2002 was 4,642,062.
The Company operates within the electronic protection segment of the security industry that includes, among others: fire and burglar alarm systems, access control, video systems and article surveillance. The U.S. security industry consists of thousands of individuals and businesses (exclusive of public sector law enforcement) that provide products and services for the protection and monitoring of life, property and information. The security industry includes fire and burglar alarm systems, access control, video systems, article surveillance, guard services and equipment, locks, safes, armored vehicles, security fencing, private investigations and others. The Company's products are typically used for crime deterrence, visual documentation, observation of inaccessible or hazardous areas, enhancing safety, managing personal liability, obtaining cost savings (such as lower insurance premiums), managing control systems and improving the efficiency and effectiveness of personnel. The Company's products are used in, among others, office buildings, manufacturing plants, apartment complexes, retail stores, government facilities, transportation operations, prisons, casinos, sports arenas, health care facilities and financial institutions.
The Company's products range in price from $10 for a simple camera mounting bracket to several hundred thousand dollars (depending upon configuration) for a large digital control and video matrix switching system.
The Company's products are employed in video system installations by: (1) commercial and industrial users, such as office buildings, manufacturing plants, warehouses, apartment complexes, shopping malls and retail stores; (2) federal, state, and local governments for national security purposes, municipal facilities, prisons, and military installations; (3) financial institutions, such as banks, clearing houses, brokerage firms and depositories, for security purposes; (4) transportation departments for highway traffic control, bridge and tunnel monitoring, and airport, subway, bus and seaport security and surveillance; (5) gaming casinos, where video surveillance is often mandated by regulatory authorities; and (6) health care facilities, such as hospitals, particularly psychiatric wards and intensive care units. In fiscal 2002, 2001 and 2000, indirect sales to the United States Postal Service approximated $3.5 million, $15.2 million and $22.8 million, respectively.
The Company's principal sales offices are located in Hauppauge, New York; Fareham, England; Zaventem, Belgium; and New Territories, Hong Kong.
Direct export sales and sales from the Company's foreign subsidiaries amounted to $18.3 million, $20.5 million and $19.6 million or 34%, 31% and 26% of consolidated net sales in fiscal years 2002, 2001, and 2000, respectively. Export sales are generally made through a wholly owned subsidiary, Vicon Industries Foreign Sales Corporation, a tax advantaged foreign sales corporation. The Company's principal foreign markets are Europe, the Middle East and the Pacific Rim, which together accounted for approximately 88 percent of international sales in fiscal 2002.
The Company's principal engineered video systems competitors include the following companies or their affiliates: Checkpoint Systems, Inc., Matsushita (Panasonic), Pelco Sales Company, Philips Communications and Security Systems, Inc., the Tyco Fire and Security division of Tyco International, GE Interlogix, Inc. and Honeywell's Ultrak, Inc. division. Many additional companies, both domestic and international, produce products that compete against one or more of the Company's system components. In addition, some consumer video electronic companies or their affiliates, including Matsushita (Panasonic), Mitsubishi Electric Corporation, Sanyo Electric Co., Ltd. and Sony Corporation, compete with the Company for the sale of video products and systems. Almost all of the Company's competitors are larger companies whose financial resources and scope of operations are substantially greater than the Company's.
The Company employs a total of 46 engineers in the following areas: software development, mechanical design, manufacturing/testing and electrical and circuit design. Engineering and development expense amounted to approximately 8%, 6% and 5% of net sales in fiscal 2002, 2001 and 2000, respectively.
Raw materials and components purchased by the Company and its suppliers are generally readily available in the market, subject to market lead times at the time of order. The Company is not dependent upon any single source for a significant amount of its raw materials and components.
The Company's stock is traded on the American Stock Exchange (AMEX) under the symbol (VII). The following table sets forth for the periods indicated, the range of high and low prices for the Company's Common Stock on AMEX:
Quarter Ended High Low ------- ---- --- Fiscal 2002 ----------- December 5.0100 2.7500 March 6.0500 3.7000 June 4.1500 3.2600 September 3.8000 2.5200 Fiscal 2001 ----------- December 3.3125 1.6875 March 2.7500 1.8125 June 2.7000 1.7000 September 6.5000 2.0200 |
The last sale price of the Company's Common Stock on December 13, 2002 as reported on AMEX was $3.70 per share. As of December 13, 2002, there were approximately 300 shareholders of record.
The Company has never declared or paid cash dividends on its Common Stock and anticipates that any earnings in the foreseeable future will be retained to finance the growth and development of its business.
FISCAL YEAR 2002 2001 2000 1999 1998
---- ---- ---- ---- ----
(in thousands, except per share data)
Net sales $54,168 $65,365 $74,624 $73,414 $63,310
Gross profit 18,218 21,686 23,054 25,779 21,960
Operating income (loss) (2,180) (418) 1,993 7,893 6,869
Income (loss) before
income taxes (2,349) 2,307 1,589 7,442 5,810
Net income (loss) (1,579) 1,497 961 4,760 5,810
Earnings (loss) per share:
Basic (.34) .32 .21 1.05 1.61
Diluted (.34) .32 .21 1.01 1.50
Total assets 47,426 51,926 53,918 49,899 44,386
Long-term debt 3,040 3,498 7,090 5,799 7,002
Working capital 27,827 30,005 33,365 29,049 27,642
Property, plant and
equipment (net) 7,666 8,139 8,502 8,053 7,137
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Gross profit margins for 2002 increased slightly to 33.6% compared with 33.2% in 2001. The margin increase was principally the result of ongoing product cost reduction efforts offset by the effect of fixed production costs relative to the current year's lower sales.
Operating expenses for 2002 were $20.4 million or 37.7% of net sales compared with $22.1 million or 33.8% of net sales in 2001. Selling, general and administrative expenses decreased by $2.0 million, including $1.2 million of selling costs and $.8 million of administrative expenses. The Company continued to invest in new product development in 2002, incurring $4.4 million of engineering and development expenses compared with $4.1 million in 2001.
The Company incurred an operating loss of $2.2 million in 2002 compared with a loss of $418,000 in 2001 principally as a result of lower sales.
Interest expense decreased $158,000 to $340,000 for 2002 compared with $498,000 in 2001 principally as a result of the paydown of bank borrowings. Interest income decreased by $30,000 in 2002 as a result of decreases in market interest rates.
In the prior year, the Company realized a $3.0 million gain ($2.0 million net of tax effect) on the sale of its remaining equity interest in Chun Shin Electronics, Inc. (CSE), a South Korean company which, among other things, manufactures certain of the Company's proprietary products.
The Company recorded an income tax benefit of $770,000 for 2002 compared with income tax expense of $810,000 in 2001.
As a result of the foregoing, the Company incurred a net loss of $1.6 million for 2002 compared with net income of $1.5 million in 2001.
Gross profit margins for 2001 increased to 33.2% compared with 30.9% in 2000. The margin increase was principally attributable to the effects of a $1.3 million charge for warranty costs incurred in the prior year.
Operating expenses for 2001 were $22.1 million or 33.8% of net sales compared with $21.1 million or 28.2% of net sales in 2000. The increase in operating expenses included the write-down of certain foreign assets, certain severance and payroll related costs and costs incurred in the development of new product lines.
The Company incurred an operating loss of $418,000 for 2001 compared with operating income of $2.0 million for 2000 principally as a result of lower sales and increased operating expenses during 2001.
Interest expense decreased $318,000 to $498,000 for 2001 compared with $816,000 in 2000 principally as a result of the paydown of bank borrowings.
The Company realized a $3.0 million gain ($2.0 million net of tax effect) on the sale of its remaining equity interest in Chun Shin Electronics, Inc. (CSE), a South Korean company which, among other things, manufactures certain of the Company's proprietary products.
Income tax expense for 2001 was $810,000 compared with $628,000 in 2000.
As a result of the foregoing, net income increased to $1.5 million for 2001 compared with $961,000 for 2000.
On February 12, 2002, the Company executed an amendment agreement with its bank that modified its unsecured revolving credit and term loan agreement to provide for a $5 million secured revolving credit facility through July 2004. Borrowings under such facility bear interest at the bank's prime rate or, at the Company's option, LIBOR plus 190 basis points (4.75% and 3.71%, respectively, at September 30, 2002). The amendment agreement grants the bank a security interest in all the assets of the Company and, among other things, effectively modified the financial covenants contained in all the existing loan and mortgage agreements with the bank. These covenants require the Company to, among other things, maintain certain levels of earnings, working capital and ratios of debt service coverage and debt to tangible net worth.
On September 30, 2002, the Company executed a second amendment to its credit agreement which, among other things, waives the Company's obligation to comply with all financial covenants contained in the agreements so long as there are no outstanding borrowings under the revolving credit facility and the Company maintains a compensating balance equal to the sum of the then outstanding term loan principal balance and outstanding banker acceptances. At this time, the Company does not anticipate that it will be obligated to comply with these amended covenants in the near term. The amendment agreement further waived the Company's obligation to comply with all financial covenants contained in mortgage loans with the same bank. At September 30, 2002 and 2001, there were no outstanding borrowings under this facility.
The Company also maintains a bank overdraft facility of 1 million Pounds Sterling (approximately $1,570,000) in the U.K. to support local working capital requirements of Vicon Industries Limited. This facility expires in March 2003. At September 30, 2002, there were no outstanding borrowings under this facility.
Current and long-term debt maturing in each of the fiscal years subsequent to September 30, 2002 approximates $1,304,000 in 2003, $320,000 in 2004, $329,000 in 2005, $335,000 in 2006, $316,000 in 2007 and $1,740,000 thereafter.
The Company occupies certain facilities, or is contingently liable, under operating leases that expire at various dates through 2008. The leases, which cover periods from three to eight years, generally provide for renewal options at specified rental amounts. The aggregate operating lease commitment at September 30, 2002 was $746,000 with minimum rentals for the fiscal years shown as follows: 2003 - $313,000; 2004 - $272,000; 2005 - $97,000; 2006 - $24,000; 2007 - $24,000; 2008 and thereafter - $16,000.
The Company entered into certain consulting and incentive compensation agreements that provide for the payout of up to $810,000 of fees and compensation upon the completion and sale of a specified number of units of a newly developed product line.
The Company believes that it has sufficient cash to meet its anticipated operating, capital expenditures and debt service requirements for at least the next twelve months. The Company has experienced reduced sales levels and incurred operating losses in recent periods which, if continued, could limit the Company's ability to draw upon its bank credit facilities if needed.
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectibility of the resulting receivable is reasonably assured. As it relates to product sales, revenue (including shipping and handling fees) is generally recognized when products are sold and title is passed to the customer. Under arrangements that involve the sale of product combined with the provision of services, revenue is generally recognized for each element of the arrangement upon delivery or performance provided that (i) the undelivered element is not essential to the functionality of the delivered element and (ii) there is objective evidence of the fair value of the undelivered elements. Advance service billings under a national supply contract with one customer are deferred and recognized as revenues on a pro rata basis over the term of the service agreement. Shipping and handling costs are included in cost of sales.
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
The Company provides for the estimated cost of product warranties at the time
revenue is recognized. While the Company engages in product quality programs and
processes, including monitoring and evaluating the quality of its component
suppliers, its warranty obligation is affected by product failure rates,
material usage and service delivery costs incurred in correcting a product
failure. Should actual product failure rates, material usage or service delivery
costs differ from its estimates, revisions to the estimated warranty liability
may be required.
The Company writes down its inventory for estimated obsolescence and slow moving inventory equal to the difference between the cost of inventory and the estimated net realizable market value based upon assumptions about future demand and market conditions. Technology changes and market conditions may render some of the Company's products obsolete and additional inventory write-downs may be required. If actual future demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
The Company assesses the recoverability of the carrying value of its long-lived assets, including identifiable intangible assets with finite useful lives, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company evaluates the recoverability of such assets based upon the expectations of undiscounted cash flows from such assets. If the sum of the expected future undiscounted cash flows were less than the carrying amount of the asset, a loss would be recognized for the difference between the fair value and the carrying amount.
The Company's ability to recover the reported amounts of deferred income tax assets is dependent upon its ability to generate sufficient taxable income during the periods over which net temporary tax differences become deductible. The Company has incurred operating losses in the past two fiscal years. Should such losses continue in the future, the Company may determine that it is not likely it will be able to realize the benefits of recorded deferred tax assets, and a valuation allowance will need to be established that would result in the charge-off of previously reported tax benefits.
As further described in Note 1, the Company has not yet adopted the provisions of SFAS No. 142 as of September 30, 2002 and determined its possible effects on the Company's financial condition or results of operations. The Company continued to amortize its recorded goodwill over its original 10-year period as of September 30, 2002 and also evaluated impairment through that same period using undiscounted cash flows.
The Company adopted SFAS No. 142 on October 1, 2002 and is required to assign its goodwill ($1.4 million at September 30, 2002, which relates to its acquisition of TeleSite U.S.A., Inc. in 1999) to "reporting units" as defined under SFAS No. 142. Goodwill assigned to each of the reporting units will be tested for impairment as of October 1, 2002 by comparing the carrying amount of the reporting units' net assets (including goodwill) to its fair value. The Company has six months from October 1, 2002 to complete this "first step" of this transitional goodwill impairment test. If the carrying amount of the net assets of a reporting unit (including goodwill) exceeds the fair value of that reporting unit, a "second step" of the transitional goodwill impairment test must be completed as soon as possible, but not later than September 30, 2003. Due to the complexities involved with the transitional provisions of SFAS No. 142, the Company has not yet completed its evaluation of the possible effects of its adoption of SFAS No. 142 on the Company's financial condition or results of operations. However, it is reasonably possible that the adoption of SFAS No. 142 will result in an impairment charge to goodwill of up to $1.4 million, which would be reported as a cumulative effect change in accounting principle.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets," which supersedes SFAS No. 121. SFAS No. 144 retains the fundamental provisions in SFAS No. 121 for recognizing and measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while also resolving significant implementation issues associated with SFAS No. 121. Unlike SFAS No. 121, an impairment assessment under SFAS No. 144 will never result in a write-down of goodwill. Rather, goodwill will be evaluated for impairment under SFAS No. 142, as discussed above. The Company adopted SFAS No. 144 on October 1, 2002, which did not have an impact on its consolidated financial statements.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit and Disposal Activities". SFAS No. 146 requires that a liability be recognized for costs associated with an exit or disposal activity only when the liability is incurred. SFAS No. 146 also establishes fair value as the objective for initial measurement of liabilities related to exit or disposal activities. SFAS No. 146 is effective for exit and disposal activities initiated after December 31, 2002. The Company believes that the adoption of SFAS No. 146 will not have a material impact on its consolidated financial statements.
In November 2002, the Emerging Issues Task Force (EITF) finalized its tentative consensus on EITF Issue 00-21, "Revenue Arrangements with Multiple Deliverables", which provides guidance on the timing and method of revenue recognition for sales arrangements that include the delivery of more than one product or service. EITF 00-21 is effective prospectively for arrangements entered into in fiscal periods beginning after June 15, 2003. The Company is currently analyzing the impact of its adoption on the Company's financial statements.
Sales by the Company's U.K. based subsidiary to customers in Europe and the Middle East are made in British Pounds Sterling (Pounds) or Eurodollars (Euros). In fiscal 2002, approximately $5.7 million of products were sold by the Company to its U.K. based subsidiary for resale. In past years, the Pound and the Euro have weakened against the U.S. dollar, thus increasing the cost of U.S. sourced product sold by this subsidiary. The Company attempts to minimize its currency exposure on intercompany sales through the purchase of forward exchange contracts.
The Company's Israeli based subsidiary incurs Shekel based operating expenses which, in recent years, have been funded by the Company in U.S. dollars. In the recent year, the Company purchased forward exchange contracts to minimize its currency exposure on these expenses.
Japanese sourced products denominated in Japanese yen accounted for approximately 2% and 6% of component and finished product purchases in fiscal 2002 and 2001, respectively. The Company attempts to minimize its currency exposure on these purchases through the purchase of forward exchange contracts. The Company also attempts to reduce the impact of an unfavorable exchange rate condition through cost reductions from its suppliers and shifting product sourcing to suppliers transacting in more stable and favorable currencies.
As of September 30, 2002, the Company had interest rate swaps and forward exchange contracts outstanding with notional amounts aggregating $3.0 million and $2.6 million, respectively, whose aggregate fair value was a liability of approximately $304,000.
In general, the Company seeks lower costs from suppliers and enters into forward exchange contracts to mitigate short-term exchange rate exposures. However, there can be no assurance that such steps will be effective in limiting long-term foreign currency exposure.
The Company enters into forward exchange contracts to hedge certain foreign currency exposures and minimize the effect of such fluctuations on reported earnings and cash flow (see "Foreign Currency Activity", Note 1 "Derivative Instruments" and "Fair Value of Financial Instruments" to the accompanying financial statements). At September 30, 2002, the Company's foreign currency exchange risks included a $1.9 million intercompany accounts receivable balance due from the Company's U.K. based subsidiary and a nominal Japanese Yen denominated trade accounts payable liability due to inventory suppliers. Such assets and liabilities are short term and will be settled in fiscal 2003. The following sensitivity analysis assumes an instantaneous 10% change in foreign currency exchange rates from year-end levels, with all other variables held constant.
At September 30, 2002, a 10% strengthening or weakening of the U.S. dollar versus the British Pound would result in a $186,000 decrease or increase, respectively, in the intercompany accounts receivable balance. Such foreign currency exchange risk at September 30, 2002 has been substantially hedged by forward exchange contracts.
At September 30, 2002, the Company had $3.0 million of outstanding floating rate bank debt which was covered by interest rate swap agreements that effectively convert the foregoing floating rate debt to stated fixed rates (see "Note 6. Long-Term Debt" to the accompanying financial statements). Thus, the Company has substantially no net interest rate exposures on these instruments. However, the Company had approximately $979,000 of floating rate bank debt that is subject to interest rate risk as it was not covered by interest rate swap agreements. The Company does not believe that a 10% fluctuation in interest rates would have a material effect on its consolidated financial position and results of operations.
Statements in this Report on Form 10-K and other statements made by the Company or its representatives that are not strictly historical facts including, without limitation, statements included herein under the captions "Results of Operations" and "Liquidity and Financial Condition" are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 that should be considered as subject to the many risks and uncertainties that exist in the Company's operations and business environment. The forward-looking statements are based on current expectations and involve a number of known and unknown risks and uncertainties that could cause the actual results, performance and/or achievements of the Company to differ materially from any future results, performance or achievements, express or implied, by the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, and that in light of the significant uncertainties inherent in forward-looking statements, the inclusion of such statements should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved. The Company also assumes no obligation to publicly update or revise its forward-looking statements or to advise of changes in the assumptions and factors on which they are based.
The Officers and Directors of the Company are as follows:
Name Age Position
Kenneth M. Darby 56 Chairman of the Board, President and
Chief Executive Officer
John M. Badke 43 Vice President, Finance and Chief
Financial Officer
John L. Eckman 53 Vice President, Sales
Peter A. Horn 47 Vice President, Operations
Bret M. McGowan 37 Vice President, Marketing
Yacov A. Pshtissky 51 Vice President, Technology and Development
Milton F. Gidge 73 Director
Peter F. Neumann 68 Director
W. Gregory Robertson 59 Director
Arthur D. Roche 64 Director
Kazuyoshi Sudo 60 Director
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The business experience, principal occupations and employment, as well as period of service, of each of the officers and directors of the Company during at least the last five years are set forth below.
Kenneth M. Darby - Chairman of the Board, President and Chief Executive Officer. Mr. Darby has served as Chairman of the Board since April 1999, as Chief Executive Officer since April 1992 and as President since October 1991. He has served as a director since 1987. Mr. Darby also served as Chief Operating Officer and as Executive Vice President, Vice President, Finance and Treasurer of the Company. He joined the Company in 1978 as Controller after more than nine years at Peat Marwick Mitchell & Co., a public accounting firm. Mr. Darby's current term on the Board ends in May 2005.
John M. Badke - Vice President, Finance and Chief Financial Officer. Mr. Badke has been Chief Financial Officer since December 1999 and Vice President, Finance since October 1998. Previously, he served as Controller since joining the Company in 1992. Prior to joining the Company, Mr. Badke was Controller for NEK Cable, Inc. and an audit manager with the international accounting firms of Arthur Andersen & Co. and Peat Marwick Main & Co.
John L. Eckman - Vice President, U.S. Sales. Mr. Eckman rejoined the Company in April 2001 as Vice President, U.S. Sales after serving as District General Manager with Honeywell from June 2000 to April 2001. From July 1996 to June 2000, he served as Vice President, U.S. Sales of the Company after joining the Company in August 1995 as Eastern Regional Manager. Prior to that time, he was Director of Field Operations for Cardkey Systems, Inc., an access control security products manufacturer with whom he was employed for 12 years.
Peter A. Horn - Vice President, Operations. Mr. Horn has been Vice President, Operations since June 1999. From 1995 to 1999, he was Vice President, Compliance and Quality Assurance. Prior to that time, he served as Vice President in various capacities since his promotion in May 1990.
Bret M. McGowan - Vice President, Marketing. Mr. McGowan was promoted to Vice President, Marketing in October 2001. Previously, he served as Director of Marketing since 1998 and as Marketing Manager since 1994. He joined the Company in 1993 as a Marketing Specialist.
Yacov A. Pshtissky - Vice President, Technology and Development. Mr. Pshtissky has been Vice President, Technology and Development since May 1990. Mr. Pshtissky was Director of electrical product development from March 1988 through April 1990.
Milton F. Gidge - Director. Mr. Gidge has been a director of the Company since 1987. He is a retired director and executive officer of Lincoln Savings Bank for which he served from 1976 to 1994 as Chairman, Credit Policy. He also served as a director of Interboro Mutual Indemnity Insurance Co., a general casualty insurance company, from 1980 to 2001 and as a director of Intervest Bancshares Corporation, a regional bank holding company, from 1988 to 2001. His current term on the Board ends in May 2004.
Peter F. Neumann - Director. Mr. Neumann has been a director of the Company since 1987. He is the retired President of Flynn-Neumann Agency, Inc., an insurance brokerage firm. Mr. Neumann's current term on the Board ends in May 2003.
W. Gregory Robertson - Director. Mr. Robertson has been a director of the Company since 1991. He is President of TM Capital Corporation, a financial services company which he founded in 1989. From 1985 to 1989, he was employed by Thomson McKinnon Securities, Inc. as head of investment banking and public finance. Mr. Robertson's current term on the Board ends in May 2004.
Arthur D. Roche - Director. Mr. Roche has been a director of the Company since 1992. He served as Executive Vice President and co-participant in the Office of the President of the Company from August 1993 until his retirement in November 1999. For the six months prior to that time, Mr. Roche provided consulting services to the Company. In October 1991, Mr. Roche retired as a partner of Arthur Andersen & Co., an international accounting firm which he joined in 1960. His current term on the Board ends in May 2005.
Kazuyoshi Sudo - Director. Mr. Sudo has been a director of the Company since 1987. Mr. Sudo is President and Chief Executive Officer of Toyo Management, Inc., a consulting firm which he founded in 2001. Previously, Mr. Sudo was Chief Executive Officer of CBC (America) Corp., a distributor of electronic, chemical and optical products, from 1996 to 2001 and a director of its parent company, CBC Co., Ltd. Mr. Sudo's current term on the Board ends in May 2003.
There are no family relationships between any director, executive officer, officer or person nominated or chosen by the Company to become a director or officer.
SUMMARY COMPENSATION TABLE
--------------------------
Long-Term Compensation
---------------------------------
Awards Payouts
------------------------ --------
Annual Compensation Restricted Securities
Name and All Other Stock Underlying LTIP
Principal Position Year Salary ($) Bonus ($) Compensation Award Options (#) Payouts
------------------ ---- ---------- ---------- ------------ ---------- ------------ -------
Kenneth M. Darby 2002 $310,000 $ 75,000 (1) $ 3,000 (3) - - -
Chairman and 2001 285,000 75,000 (1) 3,000 (3) - - -
Chief Executive 2000 285,000 42,271 (1) 3,000 (3) 50,813 (4) - -
Officer
Henry B. Murray 2002 $ - $ - $ - - - -
Executive 2001 184,615 - 87,179 (5) - - -
Vice President 2000 100,000 40,000 (2) - - - -
(1) Represents cash bonus which was approved by the Board of Directors upon
the recommendation of its Compensation Committee.
(2) Represents minimum guaranteed bonus for fiscal 2000.
(3) Represents life insurance policy payment.
(4) Represents deferred compensation benefit of 8,130 shares of Common Stock
which is being held by the Company in Treasury and which vest upon the
expiration of Mr. Darby's employment agreement in October 2004, or earlier
upon certain occurrences including his death, involuntary termination or a
change in control of the Company. The value of such stock is based on the
fair market value on the date of grant. At September 30, 2002, the quoted
market value of such shares approximated $25,000. No dividends can be paid
on such shares.
(5) Represents lump-sum severance payout pursuant to Mr. Murray's separation
from the Company effective August 31, 2001.
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At September 30, 2002
----------------------------
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-money
Options Options (2)
Shares ----------- ------------
Acquired Value Exercisable/ Exercisable/
Name On Exercise Realized (1) Unexercisable Unexercisable
----------------- ----------- ------------ ------------- --------------
Kenneth M. Darby -0- -0- 6,462/15,077 -0-/-0-
Henry B. Murray -0- -0- -0-/-0- -0-/-0-
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(1) Calculated based on the difference between the closing quoted market prices per share at the dates of exercise and the exercise prices.
(2) Calculated based on the difference between the closing quoted market price ($3.10) and the exercise price.
Mr. Darby makes recommendations to the Compensation Committee as to the base salary and incentive compensation of all officers other than himself. The Committee reviews these recommendations with Mr. Darby and, after such review, determines compensation. In the case of Mr. Darby, the Compensation Committee makes its determination after direct negotiation with him. For each officer, the committee's determinations are based on its conclusions concerning each officer's performance and comparable compensation levels in the security industry and the Long Island area for similarly situated officers at comparable companies. The overall level of performance of the Company is taken into account but is not specifically related to the base salary of these officers. Also, the Company has established an incentive compensation plan for all of the officers, which provides a specified bonus to each officer upon the Company's achievement of certain annual sales and profitability targets and strategic initiatives.
The Compensation Committee grants options to officers to link compensation to the performance of the Company. Options are exercisable in the future at the fair market value at the time of grant, so that an officer granted an option is rewarded by the increase in the price of the Company's stock. The committee grants options to officers based on significant contributions of such officer to the performance of the Company. In addition, in determining Mr. Darby's salary for service as Chief Executive Officer, the committee considered the responsibility assumed by him in formulating and implementing a management and long-term strategic plan.
This graph compares the return of $100 invested in the Company's stock on October 1, 1997, with the return on the same investment in the AMEX U.S. Market Index and the AMEX Technology Index.
(The following table was represented by a chart in the printed material)
Vicon AMEX U.S. Amex Technology
Date Industries, Inc. Market Index Index
---- ---------------- ------------ ---------------
10/01/97 100 100 100
10/01/98 85 94 121
10/01/99 84 121 206
10/01/00 39 149 241
10/01/01 41 108 195
10/01/02 37 101 121
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Name and Address Number of Shares
of Beneficial Owner Beneficially Owned (1) % of Class
------------------- ---------------------- ----------
CBC Co., Ltd.
and affiliates
2-15-13 Tsukishima
Chuo-ku
Tokyo, Japan 104 543,715 11.5%
Dimensional Fund Advisors
1299 Ocean Avenue
Santa Monica, CA 90401 320,900 (7) 6.8%
Chu S. Chun
C/O I.I.I. Companies, Inc.
915 Hartford Turnpike
Shrewsbury, MA 01545 299,457 (2) 6.3%
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C/O Vicon Industries, Inc.
Kenneth M. Darby 257,059 (3) 5.4%
Arthur D. Roche 146,601 (4) 3.1%
Peter F. Neumann 17,072 (5) *
W. Gregory Robertson 13,847 (5) *
Milton F. Gidge 13,698 (5) *
Kazuyoshi Sudo 9,000 *
Total all Executive Officers and
Directors as a group (6 persons) 457,277 (6) 9.7%
|
* Less than 1%.
(1) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment control over the shares of stock
owned.
(2) Mr. Chun has voting and dispositive control over 299,457 shares but
disclaims beneficial ownership as to all but 48,400 shares. 195,657 shares
are owned by the International Industries, Inc. Profit Sharing Plan and
103,800 shares are owned by Mr. Chun and immediate family members.
(3) Includes currently exercisable options to purchase 6,967 shares.
(4) Includes 50,000 shares held by Mr. Roche's wife, 15,000 shares held by
their children and currently exercisable options to purchase 1,947 shares.
(5) Includes currently exercisable options to purchase 1,947 shares.
(6) Includes currently exercisable options to purchase 14,755 shares.
(7) Dimensional Fund Advisors had voting and investment control over 320,900
shares as investment advisor and manager for various mutual funds and
other clients. These shares are beneficially owned by such mutual funds
or other clients.
EQUITY COMPENSATION PLAN INFORMATION
------------------------------------
At September 30, 2002
Number of securities
Number of securities Weighted average remaining available for
to be issued upon exercise price future issuance under
exercise of of outstanding equity compensation plans
outstanding options, options, warrants (excluding securities
warrants and rights and rights reflected in column (a))
Plan category (a) (b) (c)
------------------ ------------------- ---------------- ------------------------
Equity compensation
plans approved by
security holders 218,172 $3.24 438,141
Equity compensation
plans not approved
by security holders - - -
Total 218,172 $3.24 438,141
|
During fiscal year 2002, the Company entered into a royalty arrangement with CBC whereby CBC will license certain technology from the Company. The total amount of the arrangement is $200,000 and, as of September 30, 2002, the Company had not received any payments under this arrangement.
Mr. Chu S. Chun, who has beneficial voting control over 6.3% of the Common Stock of the Company, also beneficially owns a minority interest in Chun Shin Electronics, Inc., (CSE), a South Korean public company that manufactures certain of the Company's proprietary products. CSE also sells various security products, including the Company's products, principally within the South Korean market. In 2002, CSE sold approximately $2.1 million of products to the Company through International Industries, Inc. (I.I.I.), a U.S. based company controlled by Mr. Chun. I.I.I. arranges the importation of all the Company's product purchases from CSE. In addition, I.I.I. purchased approximately $399,000 of products directly from the Company during 2002 for resale to CSE.
(b) There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.
Independent Auditors' Report
Financial Statements:
Consolidated Statements of Operations, fiscal years ended September 30, 2002, 2001, and 2000
Consolidated Balance Sheets at September 30, 2002 and 2001
Consolidated Statements of Shareholders' Equity, fiscal years ended September 30, 2002, 2001, and 2000
Consolidated Statements of Cash Flows, fiscal years ended September 30, 2002, 2001, and 2000
Notes to Consolidated Financial Statements, fiscal years ended September 30, 2002, 2001, and 2000
Schedule II - Valuation and Qualifying Accounts for the years ended September 30, 2002, 2001, and 2000
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are not applicable and, therefore, have been omitted.
15(a)(3) Exhibits Exhibit Number or
Exhibit Incorporation by
Numbers Description Reference to
------- ----------- -----------------
3 (.1) Articles of Incorporation and Incorporated by reference
By-Laws, as amended to the 1985 Annual Report
on Form 10-K; Form S-2
filed in Registration
Statement No.33-10435
and Exhibit A, B and C of
the 1987 Proxy Statement
(.2) Amendment of the Certificate
of Incorporation dated May 7, 2002 3.2
4 Instruments defining the rights of
security holders
(.1) Rights Agreement dated December Incorporated by reference
4, 2001 between the Registrant to the 2001 Annual Report
and Computershare Investor Services on Form 10-K
10 Material Contracts
(.1) Employment Contract dated Incorporated by reference
October 1, 1999 between the to the 1999 Annual Report
Registrant and Kenneth M. Darby on Form 10-K
(.2) Employment Contract dated April Incorporated by reference
1, 2001 between Registrant to the 2001 Annual Report
and John M. Badke on Form 10-K
(.3) Employment Agreement dated October Incorporated by reference
1, 2001 between Registrant and to the 2001 Annual Report
Peter Horn on Form 10-K
(.4) Employment Agreement dated October
1, 2001 between the Registrant and
Yacov Pshtissky 10.4
(.5) Employment Agreement dated April Incorporated by reference
1, 2001 between Registrant and to the 2001 Annual Report
John L.Eckman on Form 10-K
|
(.6) Employment Agreement dated October Incorporated by reference 1, 2001 between the Registrant and to the 2001 Annual Report Yigal Abiri on Form 10-K
(.7) Deferred Compensation Agreement Incorporated by reference dated November 1, 1986 between the to the 1992 Annual Report
Registrant and Donald N. Horn on Form 10-K
(.8) 1994 Incentive Stock Option Plan Incorporated by reference
to the 1994 Annual Report
on Form 10-K
(.9) 1994 Non-Qualified Stock Option Incorporated by
Plan for Outside Directors reference to the 1994
Annual Report on Form 10-K
- 27 -
|
Exhibit Number or
Exhibit Incorporation by
Numbers Description Reference to
------- ----------- -----------------
(.10) 1996 Incentive Stock Option Plan Incorporated by
reference to the
1997 Annual Report
on Form 10-K
(.11) 1996 Non-Qualified Stock Option Incorporated by
Plan for Outside Directors reference to the
1997 Annual Report
on Form 10-K
(.12) Commercial fixed rate loan Incorporated by
agreement between the Registrant reference to the
and National Westminster Bank PLC June 30, 1997 filing
dated April 8, 1997 on Form 10-Q
(.13) Loan Agreement between the Incorporated by
Registrant and The Dime Savings reference to the
Bank of New York, FSB dated December 31, 1997
January 29, 1998 filing on Form 10-Q
(.14) Mortgage Note between the Incorporated by
Registrant and The Dime Savings reference to the
Bank of New York, FSB dated December 31, 1997
January 29, 1998 filing on Form 10-Q
(.15) Term Loan Note between the Incorporated by
Registrant and The Dime Savings reference to the
Bank of New York, FSB dated December 31, 1997
January 29, 1998 filing on Form 10-Q
(.16) Mortgage and Security Agreement Incorporated by
in the amount of $2,512,000 between reference to the
the Registrant and The Dime Savings December 31, 1997
Bank of New York, FSB dated filing on Form 10-Q
January 29, 1998
(.17) Mortgage and Security Agreement Incorporated by
in the amount of $388,000 between reference to the
|
the Registrant and The Dime Savings December 31, 1997 Bank of New York, FSB dated filing on Form 10-Q January 29, 1998
(.18) Interest rate master swap agreement Incorporated by between the Registrant and KeyBank reference to the
National Association dated December 31, 1997
December 11, 1997 filing on Form 10-Q
(.19) Schedule to the master agreement Incorporated by
|
between the Registrant and KeyBank reference to the National Association dated December 31, 1997 December 11, 1997 filing on Form 10-Q
Exhibit Number or
Exhibit Incorporation by
Numbers Description Reference to
------- ----------- -----------------
|
(.20) Swap transaction confirmation with Incorporated by a notional amount of $2,512,000 reference to the between the Registrant and KeyBank December 31, 1997 National Association dated filing on Form 10-Q December 30, 1997
(.21) Swap transaction confirmation with Incorporated by a notional amount of $388,000 reference to the between the Registrant and KeyBank December 31, 1997
National Association dated filing on Form 10-Q
December 30, 1997
(.22) Advice of borrowing terms Incorporated by
between the Registrant and reference to the
National Westminster Bank PLC March 31, 2002 filing
dated March 25, 2002 on Form 10-Q
(.23) Credit Agreement between the Incorporated by
Registrant and The Dime Savings reference to the
Bank of New York, FSB dated June 30, 1998 filing
July 20, 1998 on Form 10-Q
|
(.24) Swap transaction confirmation with Incorporated by a notional amount of $4,425,000 reference to the between the Registrant and KeyBank 1998 Annual Report
National Association dated on Form 10-K
September 9, 1998
(.25) Stock purchase agreement between Incorporated by reference
the Registrant and Isaac Gershoni to the 1999 Annual Report
dated August 12, 1999 on Form 10-K
(.26) Escrow agreement among the Incorporated by reference
Registrant, Isaac Gershoni and to the 1999 Annual Report
European American Bank dated on Form 10-K
August 12, 1999
(.27) Loan Agreement between the Incorporated by reference
Registrant and The Dime Savings to the 1999 Annual Report
Bank of New York, FSB dated on Form 10-K
October 12, 1999
(.28) Mortgage Note between the Incorporated by reference
Registrant and The Dime Savings to the 1999 Annual Report
Bank of New York, FSB dated on Form 10-K
October 12, 1999
(.29) Mortgage and Security Agreement Incorporated by reference
|
in the amount of $1,200,000 between to the 1999 Annual Report the Registrant and The Dime Savings on Form 10-K Bank of New York, FSB dated October 12, 1999
Exhibit Number or
Exhibit Incorporation by
Numbers Description Reference to
------- ----------- -----------------
(.30) Amendment No. 1 to the Credit Incorporated by reference
Agreement between the Registrant to the December 31, 2001
and Washington Mutual Bank, FA filing on Form 10-Q
dated February 12, 2002
(.31) Security Agreement between the Incorporated by reference
Registrant and Washington Mutual to the December 31, 2001
Bank, FA dated February 12, 2002 filing on Form 10-Q
(.32) Amendment No. 2 to the Credit
Agreement between the Registrant
and Washington Mutual Bank, FA
dated September 30, 2002 10.32
(.33) 1999 Incentive Stock Option Plan Incorporated by reference
to the 1999 Annual Report
on Form 10-K
(.34) 1999 Non-Qualified Stock Option Plan Incorporated by reference
to the 1999 Annual Report
on Form 10-K
(.35) 2002 Incentive Stock Option Plan 10.35
(.36) 2002 Non-Qualified Stock Option Plan 10.36
21 Subsidiaries of the Registrant Incorporated by
reference to the Notes
to the Consolidated
Financial Statements
23 Independent Auditors' Consent 23
99 Additional Exhibits
(.1) Certification pursuant to
18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 99.1
(.2) Certification pursuant to
18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 99.2
|
No other exhibits are required to be filed.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
The Board of Directors and Shareholders
Vicon Industries, Inc.:
We have audited the consolidated financial statements of Vicon Industries, Inc.
and subsidiaries (the "Company") as listed in Part IV, item 15(a)(1). In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in Part IV, item
15(a)(2). These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Vicon Industries, Inc. and subsidiaries at September 30, 2002 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 2002, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Melville, New York
December 10, 2002
|
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Years Ended September 30, 2002, 2001 and 2000
2002 2001 2000
---- ---- ----
Net sales $54,168,110 $65,364,558 $74,624,065
Cost of sales 35,950,038 43,678,775 51,570,001
------------ ------------ ------------
Gross profit 18,218,072 21,685,783 23,054,064
Operating expenses:
Selling expense 11,833,103 13,025,115 13,117,039
General and administrative expense 4,194,358 4,973,816 4,190,856
Engineering and development expense 4,370,230 4,105,282 3,753,653
------------ ------------ ------------
20,397,691 22,104,213 21,061,548
------------ ------------ ------------
Operating income (loss) (2,179,619) (418,430) 1,992,516
Other expense (income):
Interest expense 339,587 497,597 816,017
Gain on sale of securities - (3,022,579) (315,955)
Interest and other income (170,178) (200,596) (96,751)
------------ ------------ ------------
Income (loss) before income taxes (2,349,028) 2,307,148 1,589,205
Income tax expense (benefit) (770,000) 810,000 628,000
------------ ------------ ------------
Net income (loss) $(1,579,028) $ 1,497,148 $ 961,205
============ ============ ============
|
Earnings (loss) per share:
Basic $(.34) $ .32 $ .21
====== ===== =====
Diluted $(.34) $ .32 $ .21
====== ===== =====
|
See accompanying notes to consolidated financial statements.
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2002 and 2001
ASSETS 2002 2001
------ ---- ----
Current Assets:
Cash and cash equivalents $ 9,771,804 $ 9,795,148
Accounts receivable (less allowance of
$1,077,000 in 2002 and $1,115,000 in 2001) 10,400,990 11,438,334
Inventories:
Parts, components, and materials 2,802,779 2,518,782
Work-in-process 1,275,057 2,777,211
Finished products 9,470,823 11,800,197
----------- -----------
13,548,659 17,096,190
Recoverable income taxes 1,712,728 -
Deferred income taxes 673,574 1,420,372
Prepaid expenses 496,399 566,861
----------- -----------
Total current assets 36,604,154 40,316,905
Property, plant and equipment:
Land 1,180,448 1,161,948
Buildings and improvements 5,509,211 5,394,076
Machinery, equipment, and vehicles 10,307,470 9,815,829
----------- -----------
16,997,129 16,371,853
Less accumulated depreciation and amortization 9,331,102 8,232,536
----------- -----------
7,666,027 8,139,317
Goodwill, net of accumulated amortization 1,372,606 1,571,058
Deferred income taxes 1,283,784 1,366,625
Other assets 499,918 531,660
----------- -----------
$47,426,489 $51,925,565
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 1,304,227 $ 2,144,727
Accounts payable 2,384,012 2,375,825
Accrued compensation and employee benefits 1,837,519 1,789,401
Accrued expenses 1,596,288 2,227,825
Unearned service revenue 1,514,121 1,294,576
Income taxes payable 140,741 479,361
----------- -----------
Total current liabilities 8,776,908 10,311,715
Long-term debt 3,040,061 3,498,099
Unearned service revenue 1,267,337 2,334,348
Other long-term liabilities 803,476 883,356
Commitments and contingencies - Note 10
Shareholders' equity:
Common stock, par value $.01 per share
authorized - 25,000,000 and 10,000,000 shares
issued - 4,823,979 and 4,756,532 shares 48,239 47,565
Capital in excess of par value 21,760,002 21,542,541
Retained earnings 12,730,414 14,309,442
----------- -----------
34,538,655 35,899,548
Treasury stock at cost, 172,417 shares
in 2002 and 118,249 shares in 2001 (842,024) (633,422)
Accumulated other comprehensive income (157,924) (368,079)
----------- -----------
Total shareholders' equity 33,538,707 34,898,047
----------- -----------
$47,426,489 $51,925,565
=========== ===========
|
See accompanying notes to consolidated financial statements.
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Fiscal Years Ended September 30, 2002, 2001, and 2000
Accumulated Total
Capital in other share-
Common excess of Retained Treasury comprehensive holders'
Shares Stock par value earnings Stock income equity
------ ------ ---------- -------- -------- ------------- -----------
Balance September 30, 1999 4,654,760 $46,547 $21,343,676 $11,851,089 $(508,745) $ 15,784 $32,748,351
Comprehensive income:
Net income - - - 961,205 - - 961,205
Foreign currency
translation adjustment - - - - - (321,304) (321,304)
Unrealized gain on
securities - - - - - 1,554,962 1,554,962
Total comprehensive income - - - - - - 2,194,863
Exercise of stock options 55,875 559 100,962 - (46,352) - 55,169
--------- ------ ---------- ---------- -------- ---------- -----------
Balance September 30, 2000 4,710,635 47,106 21,444,638 12,812,294 (555,097) 1,249,442 34,998,383
Comprehensive income:
Net income - - - 1,497,148 - - 1,497,148
Foreign currency
translation adjustment - - - - - 113,344 113,344
Reclassification adjustment
for gains on securities
included in net income - - - - - (1,554,962) (1,554,962)
Unrealized loss on
derivatives - - - - - (175,903) (175,903)
Total comprehensive income - - - - - - (120,373)
Repurchases of common stock - - - - (30,966) - (30,966)
Exercise of stock options 45,897 459 83,077 - (47,359) - 36,177
Tax benefit from exercise
of stock options - - 14,826 - - - 14,826
--------- ------ ---------- ---------- -------- ---------- -----------
Balance September 30, 2001 4,756,532 47,565 21,542,541 14,309,442 (633,422) (368,079) 34,898,047
Comprehensive income:
Net loss - - - (1,579,028) - - (1,579,028)
Foreign currency
translation adjustment - - - - - 234,973 234,973
Unrealized loss on
derivatives - - - - - (24,818) (24,818)
Total comprehensive income - - - - - - (1,368,873)
Repurchases of common stock - - - - (57,192) - (57,192)
Exercise of stock options 67,447 674 193,627 - (151,410) - 42,891
Tax benefit from exercise
of stock options - - 23,834 - - - 23,834
--------- ------ ---------- ---------- ----------- ----------- -----------
Balance September 30, 2002 4,823,979 $48,239 $21,760,002 $12,730,414 $ (842,024) $ (157,924) $33,538,707
========= ======= =========== =========== ========== =========== ===========
See accompanying notes to consolidated financial statements.
|
VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years Ended September 30, 2002, 2001 and 2000
2002 2001 2000
---- ---- ----
Cash flows from operating activities:
Net income (loss) $(1,579,028) $ 1,497,148 $961,205
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,039,072 1,062,167 1,019,441
Goodwill amortization 198,452 193,543 200,659
Deferred income taxes 842,423 16,710 (1,145,081)
Gain on sale of securities - (3,022,579) (315,955)
Change in assets and liabilities:
Accounts receivable 1,249,601 5,703,378 (3,667,310)
Inventories 3,677,449 1,594,450 2,495,615
Recoverable income taxes (1,712,728) - -
Prepaid expenses 76,946 331,955 (283,892)
Other assets 31,742 (65,070) (57,594)
Accounts payable (10,842) (566,837) (1,060,362)
Accrued compensation and employee benefits 41,304 (107,988) (324,918)
Accrued expenses (650,517) 509,229 (6,536)
Unearned service revenue (847,466) 782,756 1,982,288
Income taxes payable (322,795) 157,723 147,195
Other liabilities (117,482) (60,939) (50,509)
---------- --------- ---------
Net cash provided by (used in)
operating activities 1,916,131 8,025,646 (105,754)
---------- --------- ---------
Cash flows from investing activities:
Capital expenditures (477,041) (689,427) (1,640,802)
Proceeds from sale of securities - 3,289,813 347,473
Acquisition, net of cash acquired - (124,923) -
---------- --------- ---------
Net cash provided by (used in)
investing activities (477,041) 2,475,463 (1,293,329)
---------- --------- ---------
Cash flows from financing activities:
Repayments of U.S. term loan (900,000) (900,000) (900,000)
Proceeds from exercise of stock options 42,891 51,004 75,518
Decrease in borrowings under short-term
revolving credit agreement - (127,655) (216,072)
Repayments of long-term debt (421,453) (360,605) (342,274)
Borrowings under mortgage loans - - 1,200,000
Increase (decrease) in borrowings under
U.S. bank credit agreement - (1,500,000) 1,500,000
Repurchases of common stock (57,192) (30,966) -
----------- ----------- -----------
Net cash provided by (used in)
financing activities (1,335,754) (2,868,222) 1,317,172
----------- ----------- -----------
Effect of exchange rate changes on cash (126,680) 47,143 198,262
----------- ----------- -----------
Net increase (decrease) in cash (23,344) 7,680,030 116,351
Cash at beginning of year 9,795,148 2,115,118 1,998,767
----------- ----------- -----------
Cash at end of year $ 9,771,804 $ 9,795,148 $ 2,115,118
=========== =========== ===========
Cash paid during the fiscal
year for:
Income taxes $ 676,857 $ 435,566 $ 1,673,100
Interest $ 356,022 $ 512,354 $ 717,355
See accompanying notes to consolidated financial statements.
|
VICON INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years ended September 30, 2002, 2001, and 2000
The Company reviews its long-lived assets for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted and without interest, is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value.
The Company does not use derivative instruments for speculative or trading purposes. Derivative instruments are primarily used to manage exposures related to (i) transactions denominated in Japanese Yen, (ii) transactions with the Company's Europe and Israel based subsidiaries, and (iii) interest rate risk on certain variable rate indebtedness. To accomplish this, the Company uses certain contracts, primarily foreign currency forward contracts ("forwards") and interest rate swaps, which minimize cash flow risks from changes in foreign currency exchange rates and interest rates, respectively. These derivatives have been designated as cash flow hedges for accounting purposes.
As of September 30, 2002, the Company had interest rate swaps and forwards outstanding with notional amounts aggregating $3.0 million and $2.6 million, respectively, whose aggregate fair value was a liability of approximately $304,000. The change in the fair value of these derivatives for the year ended September 30, 2002, is reflected in other comprehensive income in the accompanying statement of shareholders' equity, net of tax. The forwards have maturities of less than one year and require the Company to exchange currencies at specified dates and rates. The interest rate swaps mature in the same amounts and over the same periods as the related debt. The Company considers the credit risk related to the interest rate swaps and the forwards to be low because such instruments are entered into only with financial institutions having high credit ratings and are generally settled on a net basis.
Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
The Company adopted SFAS No. 142 on October 1, 2002 and is required to assign its goodwill ($1.4 million at September 30, 2002, which relates to its acquisition of TeleSite U.S.A., Inc. in 1999) to "reporting units" as defined under SFAS No. 142. Goodwill assigned to each of the reporting units will be tested for impairment as of October 1, 2002 by comparing the carrying amount of the reporting units' net assets (including goodwill) to its fair value. The Company has six months from October 1, 2002 to complete this "first step" of this transitional goodwill impairment test. If the carrying amount of the net assets of a reporting unit (including goodwill) exceeds the fair value of that reporting unit, a "second step" of the transitional goodwill impairment test must be completed as soon as possible, but not later than September 30, 2003. Due to the complexities involved with the transitional provisions of SFAS No. 142, the Company has not yet completed its evaluation of the possible effects of its adoption of SFAS No. 142 on the Company's financial condition or results of operations. However, it is reasonably possible that the adoption of SFAS No. 142 will result in an impairment charge to goodwill of up to $1.4 million, which would be reported as a cumulative effect change in accounting principle.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets," which supersedes SFAS No. 121. SFAS No. 144 retains the fundamental provisions in SFAS No. 121 for recognizing and measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while also resolving significant implementation issues associated with SFAS No. 121. Unlike SFAS No. 121, an impairment assessment under SFAS No. 144 will never result in a write-down of goodwill. Rather, goodwill will be evaluated for impairment under SFAS No. 142, as discussed above. The Company adopted SFAS No. 144 on October 1, 2002, which did not have an impact on its consolidated financial statements.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit and Disposal Activities". SFAS No. 146 requires that a liability be recognized for costs associated with an exit or disposal activity only when the liability is incurred. SFAS No. 146 also establishes fair value as the objective for initial measurement of liabilities related to exit or disposal activities. SFAS No. 146 is effective for exit and disposal activities initiated after December 31, 2002. The Company believes that the adoption of SFAS No. 146 will not have a material impact on the Company's consolidated financial statements.
In November 2002, the Emerging Issues Task Force (EITF) finalized its tentative consensus on EITF Issue 00-21, "Revenue Arrangements with Multiple Deliverables", which provides guidance on the timing and method of revenue recognition for sales arrangements that include the delivery of more than one product or service. EITF 00-21 is effective prospectively for arrangements entered into in fiscal periods beginning after June 15, 2003. The Company is currently analyzing the impact of its adoption on the Company's financial statements.
2002 2001 2000
---- ---- ----
Federal:
Current $ (1,713,000) $ 353,000 $ 1,411,000
Deferred 729,000 43,000 (1,043,000)
------------- ----------- ------------
(984,000) 396,000 368,000
State (179,000) (19,000) 40,000
Foreign 393,000 433,000 220,000
------------- ----------- ------------
Total income tax
expense(benefit) $ (770,000) $ 810,000 $ 628,000
============= =========== ============
|
A reconciliation of the U.S. statutory tax rate to the Company's effective tax rate follows:
2002 2001 2000
---- ---- ----
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
U.S. statutory tax $ (799,000) 34.0% $ 784,000 34.0% $ 540,000 34.0%
State tax, net of
federal benefit (56,000) 2.4 - - 26,000 1.6
Goodwill amortization 67,000 (2.8) 65,000 2.8 68,000 4.3
Other 18,000 (0.8) (39,000) (1.7) (6,000) (0.4)
----------- ------ ---------- ------ ---------- ------
Effective Tax Rate $ (770,000) 32.8% $ 810,000 35.1% $ 628,000 39.5%
=========== ====== ========== ====== ========== ======
|
The tax effects of temporary differences that give rise to deferred tax assets and liabilities at September 30, 2002 and 2001 are presented below:
2002 2001
---- ----
Deferred tax assets:
Inventories $ 247,000 $1,001,000
Deferred compensation accruals 161,000 152,000
Allowance for doubtful
accounts receivable 469,000 462,000
Unearned service revenue 886,000 1,030,000
Unrealized loss on derivatives 113,000 92,000
Other 224,000 184,000
---------- ----------
Total deferred tax assets 2,100,000 2,921,000
Deferred tax liabilities:
Cash surrender value of officers'
life insurance 83,000 81,000
Other 60,000 53,000
---------- -----------
Total deferred tax liabilities 143,000 134,000
---------- -----------
Net deferred tax assets and liabilities $1,957,000 $ 2,787,000
---------- -----------
|
For income tax purposes, the Company had available at September 30, 2002, a tax effected net operating loss carryback of approximately $1.7 million included in recoverable income taxes, which the Company anticipates carrying back to offset taxable income reported in the allowable carryback periods.
The Company's ability to recover the reported amounts of deferred income tax assets is dependent upon its ability to generate sufficient taxable income during the periods over which net temporary tax differences become deductible. The Company has incurred operating losses in the past two fiscal years. Should such losses continue in the future, the Company may determine that it is not likely it will be able to realize the benefits of recorded deferred tax assets, and a valuation allowance will need to be established that would result in the charge-off of previously reported tax benefits. However, at this time, management believes (although there can be no assurance) that it is more likely than not that the Company will realize the benefits of reported deferred tax assets.
Pretax domestic income (loss) amounted to approximately $(2,845,000), 1,383,000 and $1,079,000 in fiscal years 2002, 2001 and 2000, respectively. Pretax foreign income amounted to approximately $496,000, $924,000 and $510,000 in fiscal years 2002, 2001 and 2000, respectively.
2002 2001
---------- ----------
U.S. bank term loan $ 825,000 $1,725,000
U.S. bank mortgage loans 3,123,597 3,393,462
U.K. bank term loan 359,789 410,373
Other 35,902 113,991
---------- -----------
4,344,288 5,642,826
Less current maturities 1,304,227 2,144,727
---------- ----------
$3,040,061 $3,498,099
========== ==========
|
In July 1998, the Company entered into a $14 million unsecured revolving credit and term loan agreement with a bank that included a $9.5 million revolving credit facility that was scheduled to expire in July 2002. On February 12, 2002, the Company executed an amendment agreement with its bank that modified its unsecured revolving credit and term loan agreement to provide for a $5 million secured revolving credit facility through July 2004. Borrowings under such facility bear interest at the bank's prime rate or, at the Company's option, LIBOR plus 190 basis points (4.75% and 3.71%, respectively, at September 30, 2002). The amendment agreement grants the bank a security interest in all the assets of the Company and, among other things, effectively modified the financial covenants contained in all the existing loan and mortgage agreements with the bank. These covenants require the Company to, among other things, maintain certain levels of earnings, working capital and ratios of debt service coverage and debt to tangible net worth.
On September 30, 2002, the Company executed a second amendment to its credit agreement which, among other things, waives the Company's obligation to comply with all financial covenants contained in the agreements so long as there are no outstanding borrowings under the revolving credit facility and the Company maintains a compensating balance equal to the sum of the then outstanding term loan principal balance and outstanding banker acceptances. The amendment agreement further waived the Company's obligation to comply with all financial covenants contained in mortgage loans with the same bank. At September 30, 2002 and 2001, there were no outstanding borrowings under this facility.
The agreement also provided a $4.5 million five-year term loan payable in equal monthly installments through July 2003, with interest at LIBOR plus 100 basis points. In September 1998, the Company entered into an interest rate swap agreement with the same bank at the time to effectively convert the foregoing floating rate long-term loan to a fixed rate loan. Subsequently, such bank sold its local operations, including the Company's loans, to another bank while retaining the Company's interest rate swap agreement. This agreement effectively fixes the Company's interest rate on its $4.5 million term loan at 6.74%. The interest rate swap agreement matures in the same amounts and over the same periods as the related term loan.
In January 1998, the Company entered into an aggregate $2.9 million mortgage and term loan agreement with a bank to finance the purchase of its principal operating facility. Such agreement includes a $2,512,000 ten-year mortgage loan payable in monthly installments through January 2008, with a $1,188,000 payment due at the end of the term. The agreement also provides a $388,000 five-year term loan payable in monthly installments through January 2003, with a $138,500 payment due at the end of the term. Both loans bear interest at the bank's prime rate minus 1.35%. The loans are secured by a first mortgage on the property and fixtures. At the same time, the Company entered into interest rate swap agreements with the same bank at the time to effectively convert the foregoing floating rate long-term loans to fixed rate loans. Subsequently, such bank sold its local operations, including the Company's loans, to another bank while retaining the Company's interest rate swap agreements. These agreements effectively fix the Company's interest rate on its $2,512,000 mortgage loan at 7.79% and its $388,000 term loan at 7.70%. The interest rate swap agreements mature in the same amounts and over the same periods as the related mortgage and term loans.
In October 1999, the Company entered into a $1.2 million mortgage loan agreement with its bank to finance the expansion of its principal operating facility. The loan is payable in equal monthly principal installments through January 2008, with a $460,000 payment due at the end of the term. The loan bears interest at the bank's prime rate minus 160 basis points (3.15% and 4.40% at September 30, 2002 and 2001, respectively) or, at the Company's option, LIBOR plus 100 basis points (2.81% and 3.60% at September 30, 2002 and 2001, respectively).
In April 1997, the Company's Europe based subsidiary entered into a ten-year 500,000 pound sterling (approximately $785,000) bank term loan. The term loan is payable in equal monthly installments with interest at a fixed rate of 9%. The loan is secured by a first mortgage on the subsidiary's property and contains restrictive covenants which, among other things, require the subsidiary to maintain certain levels of net worth, earnings and debt service coverage.
Current and long-term debt maturing in each of the fiscal years subsequent to September 30, 2002 approximates $1,304,000 in 2003, $320,000 in 2004, $329,000 in 2005, $335,000 in 2006, $316,000 in 2007 and $1,740,000 thereafter.
The Company evaluates performance and allocates resources based on, among other things, the net profit for each segment, which excludes intersegment sales and profits. Segment information for the fiscal years ended September 30, 2002, 2001 and 2000 is as follows:
2002 U.S. Europe Other Consolidating Totals ---- ---------- ---------- --------- ------------- ------ Net sales to external customers $38,726,000 $13,078,000 $ 2,364,000 $ - $54,168,000 Intersegment net sales 6,432,000 - 403,000 - 6,835,000 Net income (loss) (1,155,000) 593,000 (649,000) (368,000) (1,579,000) Interest expense 263,000 218,000 24,000 (165,000) 340,000 Interest income 355,000 - - (185,000) 170,000 Depreciation and amortization 760,000 103,000 176,000 199,000 1,238,000 Total assets 40,785,000 7,196,000 3,278,000 (3,833,000) 47,426,000 Capital expenditures $ 293,000 $ 21,000 $ 163,000 - $ 477,000 |
2001 U.S. Europe Other Consolidating Totals ---- ---------- ---------- --------- ------------- ------ Net sales to external customers $47,409,000 $14,572,000 $3,384,000 $ - $65,365,000 Intersegment net sales 8,160,000 - 736,000 - 8,896,000 Net income (loss) 1,749,000 979,000 (1,041,000) (190,000) 1,497,000 Interest expense 440,000 208,000 18,000 (168,000) 498,000 Interest income 348,000 - - (147,000) 201,000 Depreciation and amortization 780,000 158,000 124,000 194,000 1,256,000 Total assets 44,996,000 8,841,000 3,691,000 (5,602,000) 51,926,000 Capital expenditures $ 296,000 $ 227,000 $ 166,000 - $ 689,000 |
2000 U.S. Europe Other Consolidating Totals ---- ---------- ---------- --------- ------------- ------ Net sales to external customers $59,488,000 $10,846,000 $4,290,000 $ - $74,624,000 Intersegment net sales 6,301,000 - 1,248,000 - 7,549,000 Net income (loss) 1,241,000 461,000 (540,000) (201,000) 961,000 Interest expense 672,000 205,000 62,000 (123,000) 816,000 Interest income 243,000 - - (146,000) 97,000 Depreciation and amortization 766,000 168,000 85,000 201,000 1,220,000 Total assets 48,277,000 5,813,000 3,598,000 (3,770,000) 53,918,000 Capital expenditures $ 1,094,000 $ 115,000 $ 432,000 - $ 1,641,000 |
The consolidating segment information presented above includes the elimination and consolidation of intersegment transactions.
Net sales and long-lived assets related to operations in the United States and other foreign countries for the fiscal years ended September 30, 2002, 2001, and 2000 are as follows:
2002 2001 2000
---- ---- ----
Net sales
U.S. $39,255,000 $48,339,000 $61,096,000
Foreign 14,913,000 17,026,000 13,528,000
----------- ----------- -----------
Total $54,168,000 $65,365,000 $74,624,000
Long-lived assets
U.S. $ 5,609,000 $ 6,076,000 $ 6,561,000
Foreign 2,057,000 2,063,000 1,941,000
---------- ----------- -----------
Total $ 7,666,000 $ 8,139,000 $ 8,502,000
|
U.S. sales include $3,413,000, $3,455,000 and $6,039,000 for export in fiscal years 2002, 2001, and 2000, respectively. Indirect sales to the United States Postal Service approximated $3.5 million, $15.2 million and $22.8 million in fiscal 2002, 2001 and 2000, respectively.
Changes in outstanding stock options for the three years ended September 30, 2002 are as follows:
Weighted
Number Average
of Exercise
Shares Price
-------------------------------------------------------------------
Balance - September 30, 1999 370,647 $4.89
Options granted 129,823 $3.50
Options exercised (55,875) $2.18
Options forfeited (168,611) $7.33
-------------------------------------------------------------------
Balance - September 30, 2000 275,984 $3.30
Options granted 86,301 $2.39
Options exercised (45,897) $1.81
Options forfeited (64,517) $3.49
-------------------------------------------------------------------
Balance - September 30, 2001 251,871 $3.15
Options granted 50,000 $3.05
Options exercised (67,447) $2.88
Options forfeited (16,252) $2.83
-------------------------------------------------------------------
Balance - September 30, 2002 218,172 $3.24
Price range $2.20 - $3.05
(weighted-average contractual 123,000 $2.59
life of 4.5 years)
Price range $3.06 - $7.44
(weighted-average contractual 95,172 $4.07
life of 3.2 years)
------------------------------------------------------------
Exercisable options -
September 30, 2000 140,239 $2.66
September 30, 2001 107,643 $3.30
September 30, 2002 60,020 $4.12
-------------------------------------------------------------------
|
On April 20, 2000, the Board of Directors granted holders of stock options the right to surrender their underwater options by May 31, 2000 in exchange for a reduced option grant at an exercise price of $3.18 per share, based on the closing market price of the Company's common stock on such date. On May 31, 2000, the Company granted 67,823 new options and cancelled 156,750 options with exercise prices ranging from $6.75 to $8.19 per share. These new grants were treated as repricings and are subject to variable plan accounting pursuant to FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation." Accordingly, compensation expense (benefit) will be recorded for any changes in the Company's stock price above the price of $3.18. In fiscal 2002, 2001 and 2000, such compensation expense was not material.
Pro forma information regarding net income and earnings per share is required by SFAS 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of this Statement. The fair value for options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 2002, 2001 and 2000:
2002 2001 2000
---- ---- ----
Risk-free interest rate 2.5% 4.0% 5.0%
Dividend yield 0.0% 0.0% 0.0%
Volatility factor 68.8% 66.9% 59.5%
Weighted average expected life 4 years 4 years 4 years
|
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma net income (loss) and earnings (loss) per share are as follows:
2002 2001 2000
---- ---- ----
Net income(loss):
As reported $(1,579,028) $1,497,148 $ 961,205
Pro forma $(1,675,824) $1,424,263 $ 773,082
Earnings (loss) per share:
As reported
Basic $(.34) $ .32 $ .21
Diluted $(.34) $ .32 $ .21
Pro forma
Basic $(.36) $ .31 $ .17
Diluted $(.36) $ .31 $ .17
Weighted average fair value
of options granted $1.62 $1.30 $1.76
|
In connection with the public offering during fiscal 1998, the Company granted the Underwriters warrants to purchase up to 145,000 shares of Common Stock. The warrants are exercisable at any time through May 2003 at a price of $10.50 per share.
The Rights, which are non-voting and exercisable until November 30, 2011, can be redeemed by the Company in whole at a price of $.001 per Right at any time prior to the acquisition by certain persons or group of 50% of the Company's common stock. Separate certificates for the Rights will not be distributed, nor will the Rights be exercisable, until either (i) a person or group acquires beneficial ownership of 20% or more of the Company's common stock or (ii) the tenth day after the commencement of a tender or exchange offer for 20% or more of the Company's common stock. Following an acquisition of 20% or more of the Company's common shares, each Right holder, except for the 20% or more stockholder, can exercise their Right(s), unless the 20% or more stockholder has offered to acquire all of the outstanding shares of the Company under terms that a majority of the independent Directors of the Company have determined to be fair and in the best interest of the Company and its stockholders. On May 7, 2002, the Company's shareholders approved an amendment of the Company's Certificate of Incorporation to increase the total number of shares of common stock authorized to issue from 10,000,000 to 25,000,000 shares.
2002 2001 2000
---- ---- ----
Basic EPS Computation
Net income (loss) $(1,579,028) $1,497,148 $ 961,205
Weighted average shares
outstanding 4,658,612 4,645,154 4,600,447
Basic earnings (loss) per share $ (.34) $ .32 $ .21
=========== ========== ==========
Diluted EPS Computation
-----------------------
Net income (loss) $(1,579,028) $1,497,148 $ 961,205
Weighted average shares
outstanding 4,658,612 4,645,154 4,600,447
Stock options - 6,403 70,808
Stock compensation arrangement - - 1,510
----------- ---------- ----------
Diluted shares outstanding 4,658,612 4,651,557 4,672,765
Diluted earnings (loss) per share $ (.34) $ .32 $ .21
=========== ========== ==========
|
In 2002, 60,330 shares have been omitted from the calculation of diluted EPS as their effect would have been antidilutive.
The Company is a party to employment agreements with seven executives that provide for, among other things, the payment of compensation if there is a change in control without Board of Director approval (as defined in the agreements). The contingent liability under such change in control provisions at September 30, 2002 was approximately $2.7 million. The total compensation payable under these agreements, absent a change in control, aggregated $1.9 million at September 30, 2002. The Company is also a party to an insured deferred compensation agreement with a retired officer. The aggregate remaining compensation payments of approximately $130,000 as of September 30, 2002 are subject to the individual's adherence to certain non-compete covenants, and are payable in monthly installments through December 2003.
The Company entered into certain consulting and incentive compensation agreements that provide for the payout of up to $810,000 of fees and compensation upon the completion and sale of a specified number of units of a newly developed product line.
In October 1997, 1998 and 1999, the Company's Chief Executive Officer was provided a deferred compensation benefit of 45,952, 16,565 and 8,130 shares, respectively, of common stock currently held by the Company in treasury. Such shares vest upon the expiration of the executive's employment agreement in October 2004, or earlier under certain occurrences including his death, involuntary termination or a change in control of the Company. The market value of such shares approximated $507,000 at the dates of grant, which is being amortized on the straight-line method over the term of the employment agreement.
Sales to customers from the Company's Europe based subsidiary are denominated in British Pounds Sterling and Eurodollars. The Company attempts to minimize its currency exposure on these sales through the purchase of forward exchange contracts to cover its billings to this subsidiary. These contracts generally involve the exchange of one currency for another at a future date and specified exchange rate. At September 30, 2002 and 2001, the Company had approximately $2,500,000 and $1,600,000, respectively, of outstanding forward exchange contracts to sell British pounds. Such contracts have maturities of less than one year.
The Company's purchases of Japanese sourced products through CBC Company, Ltd., a related party, are denominated in Japanese yen. At September 30, 2001, the Company had approximately $395,000 of outstanding forward exchange contracts to purchase Japanese yen.
In fiscal 1999, the Company received notice from a competitor asserting that certain of the Company's products infringe upon a patent it allegedly owns and is seeking royalties on the Company's sales of such products. The Company believes that it has good defenses in this matter. Although the Company does not believe that this matter will result in a material exposure at this time, no assurance can be given that this matter will be resolved in the Company's favor.
During fiscal year 2002, the Company entered into a royalty arrangement with CBC whereby CBC will license certain technology from the Company. The total amount of the arrangement is $200,000 and, as of September 30, 2002, the Company had not received any payments under this arrangement.
As of September 30, 2002, Mr. Chu S. Chun had beneficial voting control over approximately 6.4% of the Company's outstanding common stock. Mr. Chun controls and beneficially owns a minority interest in Chun Shin Electronics, Inc. (CSE), a South Korean manufacturer of certain of the Company's proprietary products (see Note 3). Mr. Chun also controls International Industries, Inc. (I.I.I.), a U.S. based company which arranges the importation of all the Company's products purchased directly or indirectly from CSE. During fiscal years 2002, 2001 and 2000, the Company purchased approximately $2.1 million, $4.1 million and $5.0 million, respectively, of products from CSE through I.I.I. under this agreement. In addition, the Company sold approximately $399,000, $276,000 and $663,000 of its products to I.I.I. in 2002, 2001 and 2000, respectively, for resale to CSE. At September 30, 2002, the Company owed I.I.I. $420,000 and at September 30, 2002 and 2001, I.I.I. owed the Company approximately $195,000 and $10,000, respectively.
Earnings (Loss)
Per Share
Net -------------
Quarter Net Gross Income
Ended Sales Profit (Loss) Basic Diluted
------- ----- ------ ------ ----- -------
Fiscal 2002
-----------
December $13,551,000 $4,472,000 $ (347,000) $(.07) $(.07)
March 12,846,000 4,235,000 (467,000) (.10) (.10)
June 14,274,000 5,062,000 28,000 .01 .01
September 13,497,000 4,449,000 (793,000) (.17) (.17)
----------- ----------- ----------- ----- -----
Total $54,168,000 $18,218,000 $(1,579,000) $(.34) $(.34)
=========== =========== =========== ===== =====
Fiscal 2001
-----------
December $17,377,000 $ 5,901,000 $ 1,722,000 $ .37 $ .37
March 17,160,000 5,706,000 418,000 .09 .09
June 16,081,000 5,465,000 (374,000) (.08) (.08)
September 14,747,000 4,614,000 (269,000) (.06) (.06)
----------- ----------- ----------- ----- -----
Total $65,365,000 $21,686,000 $ 1,497,000 $ .32 $ .32
=========== =========== =========== ===== =====
|
The Company has not declared or paid cash dividends on its common stock for any of the foregoing periods.
Because of changes in the number of common shares outstanding and market price fluctuations affecting outstanding stock options, the sum of quarterly earnings per share may not equal the earnings per share for the full year.
VICON INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years ended September 30, 2002, 2001, and 2000
Balance at Charged to Balance
beginning costs and at end
Description of period expenses Deductions of period
----------- --------- --------- ---------- ---------
Allowance for uncollectible
|
accounts:
September 30, 2002 $1,115,000 $353,000 $391,000 $1,077,000
========== ======== ======== ==========
September 30, 2001 $1,063,000 $436,000 $384,000 $1,115,000
========== ======== ======== ==========
September 30, 2000 $ 818,000 $291,000 $ 46,000 $1,063,000
========== ======== ======== ==========
|
Pursuant to the requirements of the Section 13 or 15(d) 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.
VICON INDUSTRIES, INC.
By /s/ Kenneth M. Darby By /s/ John M. Badke ------------------------- ------------------------- Kenneth M.Darby John M. Badke Chairman and Vice President, Finance and Chief Executive Officer Chief Financial Officer |
December 30, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated:
VICON INDUSTRIES, INC.
/s/ Kenneth M. Darby December 30, 2002 --------------------- --------------------- Kenneth M. Darby Chairman and CEO Date /s/ Milton F. Gidge December 30, 2002 --------------------- --------------------- Milton F. Gidge Director Date /s/ Peter F. Neumann December 30, 2002 --------------------- --------------------- Peter F. Neumann Director Date /s/ W. Gregory Robertson December 30, 2002 ------------------------ --------------------- W. Gregory Robertson Director Date /s/ Arthur D. Roche December 30, 2002 --------------------- --------------------- Arthur D. Roche Director Date /s/ Kazuyoshi Sudo December 30, 2002 --------------------- --------------------- Kazuyoshi Sudo Director Date |
Pursuant to the requirements of the Section 13 or 15(d) 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.
VICON INDUSTRIES, INC.
By By ------------------------- ------------------------- Kenneth M.Darby John M. Badke Chairman and Vice President, Finance and Chief Executive Officer Chief Financial Officer |
December 30, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated:
VICON INDUSTRIES, INC.
December 30, 2002
--------------------- -------------------
Kenneth M. Darby Chairman and CEO Date
December 30, 2002
--------------------- ------------------
Milton F.Gidge Director Date
December 30, 2002
--------------------- ------------------
Peter F. Neumann Director Date
December 30, 2002
--------------------- ------------------
W. Gregory Robertson Director Date
_____________________ December 30, 2002
-------------------
Arthur D. Roche Director Date
December 30, 2002
--------------------- -----------------
Kazuyoshi Sudo Director Date
|
1. I have reviewed this annual report on Form 10-K of Vicon Industries, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: December 30, 2002 /s/Kenneth M. Darby ------------------- Kenneth M. Darby Chairman and Chief Executive Officer |
1. I have reviewed this annual report on Form 10-K of Vicon Industries, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: December 30, 2002 /s/John M. Badke ---------------- John M. Badke Vice President, Finance and Chief Financial Officer |
EXHIBIT 3.2
New York State
Department of State
Divisions of Corporation, State Records
And Uniform Commercial Code
41 State Street
Albany, NY 12231
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
VICON INDUSTRIES, INC.
Under Section 805 of the Business Corporation Law
FIRST: The name of the corporation is Vicon Industries, Inc.
If the name of the corporation has been changed, the name under which it was formed is:
SECOND: The date of filing of the certificate of incorporation with the Department of State is: October 4, 1967 and the date of filing of the restated certificate of incorporation was May 10, 1985.
THIRD: (Set forth each amendment in a separate paragraph providing the subject matter and full text of each amended paragraph.) The amendment effected by this certificate of amendment is as follows: Paragraph Fifth of the Certificate of Incorporation relating to the aggregate number of shares which the Corporation shall have the authority to issue is hereby amended to read in its entirety as follows: "Fifth: The aggregate number of shares which the Corporation shall have the authority to issue, which shares shall not have preemptive rights, is 25,000,000 shares, par value $.01 per share."
FOURTH: The Certificate of amendment was authorized by:
X The vote of the board of directors followed by a vote of a majority of all outstanding shares entitled to vote thereon at a meeting of shareholders.
---- The vote of the board of directors followed by the unanimous written consent of the holders of all outstanding shares.
Dated: May 7, 2002
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
VICON INDUSTRIES, INC.
Under Section 805 of the Business Corporation Law
Filer's Name: Kenneth M. Darby
Address: Vicon Industries, Inc.
89 Arkay Drive
Hauppauge, New York 11788
(631) 952-2288
|
EXHIBIT 10.4
AGREEMENT, dated as of October 1, 2001, between YACOV PSHTISSKY (hereinafter called "Pshtissky") and VICON INDUSTRIES, INC., a New York corporation, having its principal place of business at 89 Arkay Drive, Hauppauge, New York 11788 (hereinafter called the "Company").
WHEREAS, Pshtissky has previously been employed by the Company, and
WHEREAS, the Company and Pshtissky mutually desire to assure the continuation of Pshtissky's services to the Company,
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein set forth, the parties covenant and agree as follows:
1. Employment. The Company shall employ Pshtissky as its Vice President of Technology and Development throughout the term of this Agreement, and Pshtissky hereby accepts such employment. Pshtissky shall report to the CEO or his designee. If Pshtissky chooses not to report to someone other than the CEO and as a result resigns from the Company, then he shall be free from the restrictions of Paragraph 4 and the Company shall have no obligation to him for severance under Paragraph 5.
2. Term. The term of this Agreement shall commence as of the date of this Agreement and end on September 30, 2004, unless terminated earlier by the Company for cause.
3. Compensation.
A. The Company shall pay Pshtissky a base salary of $140,000
per annum, subject to periodic adjustment as determined by the CEO of the
Company with Board of Directors approval, but in any event shall not be less
than the base salary so indicated. Beginning October 1, 2002 and to the end of
this agreement, the base salary shall be adjusted upward by an amount at least
equal to the Consumer Price Index - All Urban Consumers factor for the previous
twelve months.
B. Pshtissky's base salary shall be payable monthly or bi-weekly.
C. Pshtissky shall also be entitled to participate in any life
insurance, medical, dental, hospital, disability or other benefit plans as may
from time to time be made available to non-executive officers of the Company,
subject to the general eligibility requirements of such plans.
4. Covenant not to Compete. Pshtissky agrees that during the term of this Agreement and for a period thereafter equal to the length of severance as calculated in paragraph 5A, he shall not directly or indirectly within the United States or Europe, or enter the employment of or render any services to any other entity engaged in, any business of a similar nature to or in competition with the Company's business of designing, manufacturing, and selling security equipment and protection devices in the United States and Europe. Pshtissky further acknowledges that the services to be rendered under this Agreement by him are special, unique, and of extraordinary character and that a material breach by him of this section will cause the Company to suffer irreparable damage; and Pshtissky agrees that in addition to any other remedy, this section shall be enforceable by negative or affirmative preliminary or permanent injunction in any Court of competent jurisdiction. Pshtissky acknowledges that he may only be released from this covenant if the Company materially breech's this agreement or provides a written release of this provision.
5. Severance Payments on Certain Terminations.
A. If either this Agreement expires, or the Company terminates
Pshtissky's employment under this Agreement for reasons other than "Gross
Misconduct", then Pshtissky, at his option, may elect to receive severance
payments, without reduction for any offset or mitigation, in an amount equal to
(a) one twelfth Pshtissky's annual base salary at the time of such termination
multiplied by (b) the number of full years of Pshtissky's employment by the
Company up to a maximum of 24 years.
B. "Gross Misconduct" shall mean (a) a wilful, substantial and
unjustifiable refusal, or inability due to drug or alcohol impairment, to
perform substantially the duties and services required of his position; (b)
fraud, misappropriation or embezzlement involving the Company or its assets; or
(c) conviction of a felony involving moral turpitude.
Pshtissky's option to elect to receive a severance payment may
be exercised only by written notice delivered to the Company within 90 days
following the date on which Pshtissky receives actual notice of termination or
this Agreement expires, as the case may be.
In the event of an election under this section, payment of such severance shall be in lieu of any other obligation of the Company for severance payment or other post-termination compensation under this Agreement if any.
The severance amount shall be paid in equal monthly payments over a 12-month period.
6. Termination Payment on Change of Control.
A. Notwithstanding any other provision of this Agreement, if a
"Change of Control" occurs without the consent of the Board of Directors,
Pshtissky, at his option, may elect to terminate his obligations under this
Agreement and to receive a termination payment, without reduction for any offset
or mitigation, in an amount equal to three times his average annual base salary
for the five years preceding the Change of Control, in either lump sum or
extended payments over three years as Pshtissky shall elect.
B. A "Change of Control" shall be deemed to have occurred if any
entity shall directly or indirectly acquire beneficial ownership of 50% or more
of the outstanding shares of capital stock of the Company.
C. Pshtissky's option to elect to terminate his
obligations and to receive a termination payment and to elect to receive a lump
sum or extended payments may be exercised only by written notice delivered to
the Company within 90 days following the date on which Pshtissky receives actual
notice of Change of Control.
7. Deferred Compensation.
A. 9,809 shares of the Company's common stock now held
by the Company as treasury shares (the "Deferred Compensation Shares") shall be
set aside and held by the Company for future distribution to Pshtissky under
this paragraph.
B. As deferred compensation, and in addition to all
other compensation payable to Pshtissky, the Deferred Compensation Shares shall
become the property of Pshtissky, and the Company shall deliver the certificates
for the Deferred Compensation Shares to Pshtissky (or his executor of
administrator), on the Transfer Date, registered in Pshtissky's name, within 10
days thereafter. The Transfer Date shall be the earliest of (i) the date of
Pshtissky's death; (ii) the date as of which Pshtissky's employment by the
Company involuntarily terminates; (iii) the date Pshtissky reaches age 60; or
(iv) the occurrence of a change of Control as defined in paragraph 6.
C. Notwithstanding any other provision of this paragraph, Pshtissky
shall not be entitled to any Deferred Compensation Shares if the Company
terminates this Agreement for Gross Misconduct as defined in paragraph 5.
D. Prior to the Transfer Date, Pshtissky's rights to the Deferred
Compensation Shares shall not be transferrable and the Treasury Shares shall be
the property of the Company.
E. Pshtissky represents that he will be acquiring the
Deferred Compensation Shares for investment only and without a view to the
distribution thereof and that the Deferred Compensation Shares, when delivered
to him, may constitute restricted stock under the Securities Act of 1933, and
the regulations thereunder, and that the certificates therefor shall bear such
legend relating to this subparagraph as the Company shall reasonably require.
8. Death or Disability. The Company may terminate this Agreement at its sole option and determination if during the term of this Agreement (a) Pshtissky dies or (b) Pshtissky becomes so disabled for a period of six months that he is substantially unable to perform his duties under this Agreement for such period. The Company shall be the sole judge of whether Pshtissky is disabled or not.
9. Arbitration. Any controversy or claim arising out of, or relating to this Agreement, or the breach thereof, shall be settled by arbitration in the City of New York in accordance with the rules of the American Arbitration then in effect, and judgement upon the award rendered be entered and enforced in any court having jurisdiction thereof.
10. Miscellaneous.
A. Except for stock options previously granted, this Agreement
contains the entire agreement between the parties and supersedes all prior
agreements by the parties relating to payments by the Company upon involuntary
employment termination with or without cause, however, it does not restrict or
limit such other benefits as the President may determine to provide or make
available to Pshtissky.
B. This agreement may not be waived, changed, modified or discharged
orally, but only by agreement in writing, signed by the party against whom
enforcement of any waiver, change, modification, or discharge is sought.
C. This Agreement shall be governed by the laws of New York State
applicable to contracts between New York State residents and made and to be
entirely performed in New York State.
D. If any part of this Agreement is held to be unenforceable by any
court of competent jurisdiction, the remaining provisions of this Agreement
shall continue in full force and effect.
E. This Agreement shall inure to the benefit of, and be binding
upon, the Company, its successor, and assigns.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement.
VICON INDUSTRIES, INC.
By: /s/ Yacov Pshtissky By: /s/ Kenneth M. Darby
------------------- ---------------------
Yacov Pshtissky Kenneth M. Darby
Vice President - New Technology CEO
and Development Vicon Industries, Inc.
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EXHIBIT 10.32
AMENDMENT NO. 2 TO
THE CREDIT AGREEMENT
Amendment No. 2 to the Credit Agreement ("Amendment") between Vicon Industries, Inc., 89 Arkay Drive, Hauppauge, New York 11788 ("Borrower") and KeyBank National Association ("KeyBank"). This Amendment is between Borrower and Washington Mutual Bank, FA, 1377 Motor Parkway, Islandia, New York 11749 (the "Bank"), the successor to KeyBank and to The Dime Savings Bank of New York, FSB.
Borrower and KeyBank entered in a Credit Agreement dated July 20, 1998 (the "Credit Agreement") which was previously amended by Amendment No. 1 on February 12, 2002 ("Amendment No. 1"). The parties now desire to further amend the Credit Agreement on the terms set forth in this Amendment No. 2. This Amendment No. 2 also amends the Mortgage Loans (defined below) as provided herein.
Accordingly, the parties agree as follows:
ARTICLE 1
AMENDMENTS TO CREDIT AGREEMENT.
Section 1.1. (a) General. As used herein, the term "Credit Agreement" means the Credit agreement as amended by Amendment No. 1. Capitalized words and phrases used herein which are not defined in this Amendment shall have the meanings given to them in the Credit Agreement. This Amendment constitutes an amendment to the Credit Agreement and shall not be construed in any way as a replacement or substitution therefor. All of the terms and provisions of this Amendment are hereby incorporated by reference into the Credit Agreement as if such terms were set forth in full therein.
(b) Any reference to Key Bank National Association or the Dime Savings Bank or New York, FSB in the Credit Agreement and any amendment thereto is hereby replaced by and deemed to refer to Washington Mutual Bank, FA.
(c) The term "Mortgage Loans" refers to (i) the term loans in the original principal amount of $2,512,000 and $388,000 extended to Borrower by KeyBank on or about January 29, 1998, secured respectively by first and second priority mortgage liens on the Property and (ii) the term loan in the original principal amount of $1,200,000 extended to Borrower by KeyBank on or about October 12, 1999 secured by a third priority mortgage lien on the Property. The "Property" refers to Borrower's real property located at 89 Arkay Drive, Hauppauge, New York.
Section 1.2. Amendment to Financial Covenants. (a) So long as the aggregate outstanding principal balance of all Revolving Credit Loans is zero and Borrower at all times maintains cash balances on deposit with the Bank at least equal to the sum of (A) the then existing outstanding principal balance of the Term Loan and (B) the Aggregate Banker's Acceptance Outstandings, the Bank waives the following obligations of Borrower under the Credit Agreement:
(i) to comply with any of the affirmative covenants set forth in Article 10 of the Credit Agreement; and
(ii) to deliver the computations referred to in clause (ii) of
Section 8.08(c) of the Credit Agreement and any similar requirements in the Loan
Documents reflecting the Mortgage Loans.
(b) The Bank waives Borrower's compliance with the financial
covenants set forth in the Loan Documents reflecting the Mortgage Loans. To
implement the foregoing, subsection 6(b)(2) and Section 6(c) of the Loan
Agreements dated January 29, 1998 between Borrower and KeyBank (as modified by
Modification Agreement dated as of June 1, 1998), and subsection 6(b)(2) and
Section 6(c) of the Loan Agreement dated October 12, 1999 between Borrower and
KeyBank are hereby permanently deleted, and the Mortgage Loans are hereby
amended to that extent.
(c) Section 9.11 of the Credit Agreement is deleted, and the parties agree that it has already been replaced by Section 10.03 of the Credit Agreement which became a part thereof by operation of Amendment No. 1.
Section 1.3. Letter of Credit Sublimit. Section 2.08(b) of the Credit Agreement is deleted and now reads as follows in its entirety:
(b) Subject to the terms and conditions hereof, the Bank agrees to create Bankers Acceptances for Borrower and to issue Letters of Credit on its behalf, provided that, after giving effect to the same, the sum of the Aggregate Bankers Acceptance Outstandings and the Aggregate Letters of Credit Outstandings will not exceed $1,000,000.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to the Bank as follows:
Section 2.1. Confirm Warranties and Representations. Borrower confirms that each of the representations and warranties set forth in Article 7 of the Credit Agreement is true in all material respects as of the date hereof with respect to Borrower and, to the extent applicable, the Guarantors, with the same effect as though made on the date hereof (except when such representation or warranty by its terms relates to a specific date other than the date hereof), except that Schedules I, II, III and V to the Credit Agreement are updated as of the date hereof and annexed hereto. Each such warranty and representation is hereby incorporated herein in full by reference as if fully restated in its entirety. June 30, 2002, there has been no material adverse change in the business, operations, assets or financial or other condition of Borrower or of the Guarantors.
Section 2.2. No Default. No Default or Event of Default now exists under the Credit Agreement, as amended previously and hereby.
Section 2.3. Corporate Power. Borrower has the requisite corporate power and authority to enter into, perform and deliver this Amendment.
Section 2.4. Consents. No consent, waiver or approval of any entity is or will be required in connection with the execution, delivery, performance, validity or enforcement or priority of this Amendment.
Section 2.5. No Omission. No representation, warranty or statement by Borrower contained herein contains any untrue statement of material fact or omits to state a material fact necessary to make such representation, warranty or statement not misleading.
ARTICLE 3
MISCELLANEOUS
Section 3.1. Counterparts. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and either party hereto may execute this Amendment by signing any such counterpart.
Section 3.2. Credit Agreement. Except as specifically amended hereby, the Credit Agreement shall remain in full force and effect in accordance with its terms, unaffected by this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment.
Washington Mutual Bank, FA Vicon Industries, Inc.
By: By:
------------------- ---------------------
Name: Sean M. Umhafer Name: John Badke
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Title: Vice President Title: Vice President, Finance Date signed: September 30, 2002 Date signed: September 30, 2002
EXHIBIT 10.35
2002
INCENTIVE STOCK OPTION PLAN
of
VICON INDUSTRIES, INC.
a) Option Price - The option price per share of Common Stock deliverable upon the exercise of an option shall be 100% of the fair market value of a share of Common Stock on the date the option is granted; however, an optionee who is the record and beneficial owner of more than 10% of the Company's issued and outstanding common stock shall be awarded options at a price equivalent to 110% of the fair market value at the date of grant.
b) Method of Exercise - Stock purchased under the options shall, at the time of purchase, be paid for in full. To the extent that the right to purchase shares has accrued thereunder, options may be exercised from time to time by written notice by the optionee to the Company stating the number of shares with respect to which the option is being exercised, and the time of the delivery thereof, which time shall be at least 15 days after the giving of such notice unless an earlier date shall have been mutually agreed upon. At the time specified in such notice, the Company shall deliver, without transfer or issue tax to the optionee (or other person entitled to exercise the option), at the main office of the Company, or such other places as shall be mutually acceptable, a certificate or certificates for such shares or reacquired shares of its Common Stock, as the Company may elect, against payment of the option price in full for the number of shares to be delivered by (i) certified check or the equivalent thereof acceptable to the Company; or (ii) the delivery to the Company of issued and outstanding Common Stock of Vicon Industries, Inc. which has been owned by the optionee for at least six month, the total fair market value of which on such delivery date is equal to the total exercise price of options being exercised; provided, however, that the time of such delivery may be postponed by the Company for such period as may be required for it with reasonable diligence to comply with any applicable listing requirements of any national securities exchange, if the stock is so listed. If the optionee (or other person entitled
to exercise the option) fails to accept delivery of and pay for all or any part of the number of shares specified in such notice upon termination of delivery thereof, his right to exercise the option with respect to such undelivered shares may be terminated by the Option Committee of the Board of Directors without any formal notice to the optionee. Anything herein to the contrary notwithstanding, if any law or any regulation of the Securities and Exchange Commission or of any other body having jurisdiction shall require the Company or a participant to take any action in connection with the shares specified in a notice of election before such shares can be delivered to such participant, then the date stated therein for the delivery of the shares shall be postponed until the fifth business day next following the completion of such action.
c) Option Term - No option will be exercisable prior to the date of shareholder approval of the plan, or any time after expiration of six years from the date the option is granted (the "Grant Date").
d) Maximum Amount of Incentive Stock Option Grant - The aggregate fair market value (determined on the date the option is granted) of Common Stock subject to an incentive stock option granted to an optionee (pursuant to any plan) by the Committee and exercisable for the first time in any calendar year shall not exceed $100,000.
e) Exercise of Options - As to any option issued under the Plan: it may be exercised up to 30% of the total number of shares covered thereby after two years from the date of grant, it may be exercised up to an additional 30% of the total number of shares covered thereby after three years from date of grant; and the remaining 40% after four years from the date of grant, and thereafter, the option may be exercised at any time from time to time within its terms, in whole or in part, but it shall not be exercisable after the expiration of six years from the Grant Date. Notwithstanding the foregoing, all options granted under this Plan may be exercised in the entirety should a "Change in Control" occur. A "Change in Control" shall be deemed to have occurred if (i) any other entity shall directly or indirectly acquire a beneficial ownership of 20%, or any further amount in excess of 20%, of the outstanding shares of capital stock of the Company or (ii) a majority of the members of the Board of Directors of the Company or any successor or merger or assignment of assets or otherwise, shall be persons other than Directors on the date this Plan became effective (May 7, 2002).
f) Non-Assignability of Option Rights - No option shall be assignable or transferable by the optionee except by will or the by laws or descent and distribution. During the life of an optionee, the option shall be exercisable only the optionee.
g) Effect of Termination of Employment or Death - In the event an optionee ceases to be an employee of the Company for any reason other than retirement or death, any exercisable portion of any option as of the date such optionee ceased to perform services to the Company must be exercised within three months after the date on which the optionee ceases to perform services. In the event of the retirement of an optionee, any option or unexercised portion thereof granted to him shall be exercisable within not more than three months from the date on which the optionee retires. In the event of the death of an optionee while such optionee is an employee of the Company, or any subsidiary of the Company, or within three months from the date of such optionee's retirement, the option or unexercised portion thereof granted to such optionee may be exercised by such optionee's personal representative, or a person who acquired the right to exercise such option by bequest or inheritance at any time prior to the expiration of one year from the date of death of the optionee. The foregoing provisions with respect to retirement or death of any optionee shall, in no event, be deemed to extend the date of expiration of the term provided in any option held by any such optionee.
h) Restriction on Issuance of Shares - On the date stated in the notice of election for the payment and delivery of the shares specified in such notice, the participant shall certify to the Company in such form as it shall require that such participant will receive and hold such shares for investment and not with a view to resale or distribution thereof to the public, unless the issuance of such shares shall have been registered under the Securities Act of 1933, as amended, and the Rules and Regulations promulgated thereunder, or counsel to the Company shall have advised the Company that for any other reason such certification is unnecessary.
i) Rights as a Stockholder - The optionee shall have no rights as a Stockholder with respect to any shares covered by such optionee's option until the date of issuance of a stock certificate to such optionee for such shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued.
j) Successive Options - Options may be exercised in any order.
k) Termination of Options Upon Consent - The Option Committee may terminate any outstanding option with the consent of the holder thereof.
b) The Plan shall terminate on May 7, 2012, provided, however, that the Plan and all awards made under the Plan prior to such date shall remain in effect until such awards have been satisfied or terminated in accordance with the Plan and the terms of such awards.
a) "subsidiary" means any corporation or which, at any applicable time, more than 50% of the shares entitled to vote generally in an election of directors are owned directly or indirectly by Vicon Industries, Inc., or any subsidiary thereof.
b) "fair market value" as of any date and in respect of any share of Common Stock means the closing price on such date or on the next business day, if such date is not a business day, of a share of Common Stock reflected in the consolidated trading tables of The Wall Street Journal (presently the AMEX-Composite Transactions) or any other publication selected by the Committee, provided that, if shares of Common Stock shall not have been traded on the American Stock Exchange for more than 10 days immediately preceding such date or if deemed appropriate by the Committee for any other reason, the fair market value of shares of Common Stock shall be as determined by the Committee in such other manner as it may deem appropriate. In no event shall the fair market value of any share of Common Stock be less than its par value.
EXHIBIT 10.36
2002
NON-QUALIFIED STOCK OPTION PLAN
of
VICON INDUSTRIES, INC.
a) Option Price - The option price shall not be less than 100% of the fair market value on the date the option is granted, which shall be the date on which the Board of Directors approved the award of any Option. An optionee, however, who is the record and beneficial owner of more than 10% of the Company's common stock shall be awarded options at a price equivalent to 110% of the fair market value at the date of grant.
b) Method of Exercise - Stock purchased under the options shall, at the time of purchase, be paid for in full. To the extent that the right to purchase shares has accrued thereunder, options may be exercised from time to time by written notice by the optionee to the Company stating the number of shares with respect to which the option is being exercised, and the time of the delivery thereof, which time shall be at least 15 days after the giving of such notice unless an earlier date shall have been mutually agreed upon. At the time specified in such notice, the Company shall deliver, without transfer or issue tax to the optionee (or other person entitled to exercise the option), at the main office of the Company, or such other places as shall be mutually acceptable, a certificate or certificates for such shares or reacquired shares of its Common Stock, as the Company may elect, against payment of the option price in full for the number of shares to be delivered by (i) certified check or the equivalent thereof acceptable to the Company; or (ii) the delivery to the Company of issued and outstanding Common Stock of Vicon Industries, Inc. which has been owned by the optionee for at least six months, the total fair market value of which on such delivery date is equal to the total exercise price of options being exercised; provided, however, that the time of such delivery may be postponed by the Company for such period as may be required for it with reasonable diligence to comply with any applicable listing requirements of any national securities exchange, if the stock is so listed. If the optionee (or other person entitled to exercise the option) fails to accept delivery of and pay for all or any part of the number of shares specified in such notice upon tender
of delivery thereof, his/her right to exercise the option with respect to such undelivered shares may be terminated by the Committee without any formal notice to the optionee. Anything herein to the contrary notwithstanding, if any law or any regulation of the Securities and Exchange Commission or of any other body having jurisdiction shall require the Company or a participant to take any action in connection with the shares specified in a notice of election before such shares can be delivered to such participant, then the date stated therein for the delivery of the shares shall be postponed until the fifth business day next following the completion of such action.
c) Option Term - No option will be exercisable after expiration of six years from the date the option is granted or the date of shareholder approval of the Plan, whichever date is later (the "Grant Date").
d) Exercise of Options - As to any option issued under the Plan to non- employee directors, at all times after the first anniversary of the Grant Date, the option may be exercised at any time from time to time within its terms, in whole or in part but it shall not be exercisable after the expiration of six years from the Grant Date. As to any option issued under the Plan to officers and other key employees, it may be exercised up to 30% of the total number of shares covered thereby after two years from the date of grant, it may be exercised up to an additional 30% of the total number of shares covered thereby after three years from date of grant; and the remaining 40% after four years from the date of grant, and thereafter, the option may be exercised at any time from time to time within its terms, in whole or in part, but it shall not be exercisable after the expiration of six years from the Grant Date.
Notwithstanding the foregoing, all options granted under this Plan may be exercised in their entirety should a "Change in Control" occur. A "Change in Control" shall be deemed to have occurred if any other entity shall directly or indirectly acquire a beneficial ownership of 20%, or any further amount in excess of 20%, of the outstanding shares of capital stock of the Company.
e) Non-Assignability of Option Rights - No option shall be assignable or transferable by the optionee except by will or by the laws of descent and distribution. During the life of an optionee, the option shall be exercisable only the optionee.
f) Effect of Termination of Employment or Death - In the event an optionee ceases to be a director or an employee of the Company for any reason other than retirement, disability or death, any unexercisable portion of any option granted to such optionee as of the date such optionee ceases to perform services to the Company must be exercised within three months after the date on which the optionee ceases to perform services. In the event of the retirement or disability of an optionee, any option or unexercised portion thereof granted to him shall be exercisable within not more than three months from the date on which the optionee retires or ceases to provide services to the Company. In the event of the death of an optionee while such optionee is a director or employee of the Company or within three months from
the date of such optionee's retirement, the option or unexercised portion thereof granted to such optionee may be exercised by such optionee's personal representative, or a person who acquired the right to exercise such option by bequest or inheritance at any time prior to the expiration of one year from the date of death of the optionee. The foregoing provisions with respect to retirement, disability, or death of any optionee shall, in no event, be deemed to extend the date of expiration of the term provided in any option held by any such optionee.
g) Restriction on Issuance of Shares - On the date stated in the notice of election for the payment and delivery of the shares specified in such notice, the participant shall certify to the Company in such form as it shall require that such participant will receive and hold such shares for investment and not with a view to resale or distribution thereof to the public, unless the issuance of such shares shall have been registered under the Securities Act of 1933, as amended, and the Rules and Regulations promulgated thereunder, or counsel to the Company shall have advised the Company that for any other reason such certification is unnecessary.
h) Rights as a Stockholder - The optionee shall have no rights as a Stockholder with respect to any shares covered by such optionee's option until the date of issuance of a stock certificate to such optionee for such shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued.
i) Successive Options - Options may be exercised in any order.
j) Termination of Options Upon Consent - The Option Committee may terminate any outstanding option with the consent of the holder thereof.
a) "Subsidiary" means any corporation or which, at any applicable time, more than 50% of the shares entitled to vote generally in an election of directors are owned directly or indirectly by Vicon Industries, Inc., or any subsidiary thereof.
b) "Fair Market Value" as of any date and in respect of any share of Common Stock means the closing price on such date or on the next business day, if such date is not a business day, of a share of Common Stock reflected in the consolidated trading tables of The Wall Street Journal (Presently the AMEX-Composite Transactions) or any other publication selected by the Committee, provided that, if shares of Common Stock shall not have been traded on the American Stock Exchange for more than 10 days immediately preceding such date or if deemed appropriate. In no event shall the fair market value of any share of Common Stock be less than its par value.
EXHIBIT 23
The Board of Directors
Vicon Industries, Inc.:
We consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-7892, 33-34349, 33-90038, 333-30097 and 333-71410) and Form S-2 (No. 333-46841) of Vicon Industries, Inc. of our report dated December 10, 2002, relating to the consolidated balance sheets of Vicon Industries, Inc. and subsidiaries as of September 30, 2002 and 2001 and the related consolidated statements of operations, shareholders' equity and cash flows and related schedule for each of the years in the three-year period ended September 30, 2002, which report appears in the September 30, 2002 annual report on Form 10-K of Vicon Industries, Inc.
/s/ KPMG LLP
Melville, New York
December 30, 2002
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EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Vicon Industries, Inc. (the "Company")
on Form 10-K for the period ending September 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Kenneth
M. Darby, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the report.
/s/ Kenneth M. Darby --------------------- Kenneth M. Darby Chairman and Chief Executive Officer December 30, 2002 |
EXHIBIT 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Vicon Industries, Inc. (the "Company")
on Form 10-K for the period ending September 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, John M.
Badke, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the report.
/s/ John M. Badke ------------------ John M. Badke Vice President, Finance and Chief Financial Officer December 30, 2002 |