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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15() OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________
TO _____________
COMMISSION FILE NUMBER 0 - 1325
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VICOM, INCORPORATED
(Exact name of registrant as specified in its charter)
MINNESOTA
(State or other jurisdiction of incorporation or organization)
41 - 1255001
(IRS Employer Identification No.)
9449 Science Center Drive, New Hope, Minnesota 55428
(Address of principal executive offices)
Telephone (763) 504-3000 Fax (763) 504-3060
The Company's Internet Address: www.vicominc.net
(Registrant's telephone number, facsimile number, and Internet address)
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock ($0.01 par value per share)
1
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
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 references in Part III of this Form 10-K or any
amendment to this Form 10-K. | |
As of March 15, 2001, the aggregate market value of the voting stock
held by non-affiliates of the registrant, computed by reference to the average
high and low prices on such date as reported by the Nasdaq Smallcap was
approximately $16,303,810.
As of December 31, 2000, there were 8,023,352 outstanding shares of the
registrant's common stock, par value $0.01 per share.
- --------------------------------------------------------------------------------
2
Documents Incorporated By Reference
Portions of the registrant's definitive proxy statement to be filed
within 120 days after the end of the fiscal year covered by this report are
incorporated by reference into Part III hereof.
Table of Contents
Page
Part I
Item 1. Business 4
Summary
Industry Overview
Products and Services
MultiBand, Inc.
Item 2. Properties 12
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of 12
Security Holders
Part II
Item 5. Market for the Registrant's Common 12
Equity and Related Shareholder
Matters
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis 16
of Financial Condition and Results
of Operations
Item 7A. Quantitative and Qualitative Disclosures 22
About Market Risk
Item 8. Financial Statements and Supplementary 22
Data
Item 9. Changes in and Disagreements with Accountants 24
on Accounting and Financial Disclosure
Part III
Item 10. Directors and Executive Officers of the 24
Registrant
Item 11. Executive Compensation 24
Item 12. Security Ownership of Certain Beneficial 24
Owners and Management
Item 13. Certain Relationships and Related 24
Transactions
Part IV
Item 14. Exhibits, Financial Statement Schedules, 25
and Reports on Form-8k
Signatures
3
ITEM 1
BUSINESS
SUMMARY
Vicom, Incorporated (Vicom) is a Minnesota corporation formed in
September 1975. Vicom is the parent corporation of three wholly-owned
subsidiaries, Corporate Technologies, USA, Inc. (CTU), MultiBand, Inc.
(MultiBand), and Vicom Midwest Telecommunication Systems, Inc. (VMTS). VMTS was
not active as of January 1, 2000.
Vicom completed an initial public offering in June 1984. In November
1992, Vicom became a non-reporting company under the Securities Exchange Act of
1934. In July 2000, Vicom regained its reporting company status.
Vicom's website is located at: www.vicominc.net.
Vicom recently expanded its efforts to establish itself within the
rapidly evolving telecommunications and computer industries. Effective December
31, 1998, Vicom acquired the assets of the Midwest region of Enstar Networking
Corporation (ENC), a data cabling and networking company. In late 1999, in the
context of a forward triangular merger, Vicom, to expand its range of computer
products and related services, purchased the stock of Ekman, Inc. d/b/a
Corporate Technologies, and merged Ekman, Inc. into the newly formed surviving
corporation, Corporate Technologies, USA, Inc. (CTU). MultiBand, Inc. is in the
start-up phase and was incorporated in February 2000.
Vicom and CTU provide voice, data and video systems and services to
business and government. MultiBand, Inc. provides voice, data and video services
to multiple dwelling units (MDU's).
Vicom has provided clients with telephone communications products and
services since its inception in 1975. As of March 15, 2001, Vicom was providing
telephone equipment and service to more than 1,000 customers, with approximately
10,000 telephones in service. In addition, CTU provides computer products and
services to approximately 3,500 customers. Telecommunications systems
distributed by Vicom are intended to provide users with flexible, cost-effective
alternatives as compared to systems available from major telephone companies,
including those formerly comprising the Bell System and from other interconnect
telephone companies.
CTU provides a full range voice, data and video communications systems
and service, system integration, training and related communication sales and
support activities for commercial, professional and institutional customers,
most of which are located in Minnesota, North Dakota, South Dakota and Nebraska.
Vicom purchases products and equipment from NEC America, Inc. (NEC), Cisco
Systems, Inc. (Cisco), Nortel Networks Corp. (Nortel), ECI Telecommunications,
Inc. (ECI), and other manufacturers of communications and electronic products
and equipment. Vicom uses these products to design telecommunications systems to
fit its customers' specific needs and demands.
The products sold by Vicom and CTU include Private Branch Exchange
(PBX), telephone systems, hubs and routers used as interconnection devices in
computer networks, personal computers, desktop video-conferencing units, and the
wire and cable products required to make all the other aforementioned products
integrate and operate as necessary. Vicom and CTU have trained staff that
install, maintain and repair the products we sell. Repair of products is
performed under either a time and materials basis or an extended service
contract basis, at the customer's election, once the manufacturer's original
warranty on a product has expired.
4
Extended service contracts offered by Vicom and CTU generally range in
length from 12 to 36 months. The contracts provide for repair or replacement of
all broken or non-working materials and the labor necessary to make such repairs
or replacements, subject to exceptions for customer abuse or negligence and
problems due to fire, flood or other causes beyond Vicom and CTU's control.
INDUSTRY OVERVIEW
Vicom recently expanded its efforts to establish itself within the
rapidly evolving telecommunications and computer industries.
In the current climate of intense global competition and accelerating
technological change, businesses increasingly depend upon technology-based
solutions to enhance their competitive position, and to improve their
productivity and the quality of their products and services. Today's business
environment mandates the availability of efficient voice and video communication
channels and information in formats suited to a wide variety of users.
Businesses are looking to a variety of new technologies to enhance the
performance of their communication systems and to allow information technology
(IT) systems to collect, analyze and communicate information within the
enterprise and among customers and suppliers. An organization's ability to
integrate and deploy new communication and IT technologies in a unified and
cost-effective manner has become critical to competing successfully in today's
rapidly changing business environment.
While organizations recognize the importance of communication and IT
systems in this business environment, the selection, implementation,
customization and maintenance of these systems are becoming more complex and the
resources required to perform these tasks are becoming increasingly scarce.
Faced with a shortage of qualified technical resources and great demands to
implement the latest technology, customers are increasingly relying on outside
vendors to provide the necessary resources. By outsourcing communication and IT
services, companies are able to focus on their core businesses; access
specialized technical skills; implement solutions more rapidly; benefit from
flexible staffing; and reduce the cost of recruiting, training and retaining
communication and IT professionals.
As a result of these factors, demand for communication and IT services
and products has grown significantly. For calendar year 1999, Philips InfoTech
(InfoTech), a market research firm specializing in telecommunications market
information, estimates that the U.S. market for switching, maintenance and
professional services and application equipment was over $17 billion, and the
U.S. market for telecommunications maintenance and professional services and
application equipment was estimated to be $4 billion. As customers seek the
competitive advantages that advanced communication and computer telephony
integration can deliver, growth of certain segments of call processing are
expected to be particularly strong. According to InfoTech, between 1999 and
2004, the U.S. Market for voice mail, interactive voice response units,
automated call distribution equipment and other telecommunication peripherals
and applications is expected to grow at a compound annual growth rate of
approximately 7.5%. By 2004, the U.S. market for these associated applications
and peripherals is projected to be over $10 billion. The 1999 worldwide market
for IT services was estimated at $605 billion and is projected to grow to $1.3
trillion by 2004, according to DataQuest, Inc., a unit of Gartner Group, the
world's premiere business technology advisor. The market will continue to be
fueled by end-user demand for external service providers for everything from
product support to e-business transformation services to business process
outsourcing. Business management services are projected to achieve the fastest
growth at a compound annual growth rate of 25% through 2004.
5
The markets and technologies for communication equipment and IT
applications and systems continues to converge as communication equipment
migrates from proprietary switches to software-driven systems operating on
standardized computer platforms. As a result, businesses are integrating their
communication and IT systems. In addition, many middle-market and Fortune 500
companies rely on multiple, often specialized providers, where there is no
distinct responsible party, creates vendor relationships that are difficult and
expensive to manage and adversely impacts the quality and compatibility of
communications and IT solutions. As previously separate communication and IT
technologies converge and their interoperability increases, more organizations
will seek a unified technology solution. Vicom believes that these organizations
will attempt to reduce costs and management complexity by establishing
relationships with a small number of providers that offer a broad range of both
communication and IT products and services throughout the full life-cycle of a
project.
PRODUCTS AND SERVICES
VICOM AND CORPORATE TECHNOLOGIES, USA (CTU)
Vicom and CTU provide other technical and customer services as
described hereafter.
PRICING AND AVAILABILITY
We use our volume and purchasing power to achieve competitive pricing
of goods for our clients. We have the ability to provide a web-based client site
that allows clients to see availability and costs of hardware and software in
real time through the Internet by accessing current pricing and availability
from our manufacturers' Internet websites. This Internet-based model allows us
to extend product procurement services beyond the traditional 8 a.m. to 5 p.m.
schedule and into a 7 days a week, 24 hours a day service, providing a high
level of client flexibility.
WARRANTY POLICY
We strongly believe in the philosophy of "Service what you sell." We do
not knowingly sell any hardware product that we do not have authorized service
personnel to facilitate any warranty work that needs to be done. We are
committed to fulfill all warranty service calls in accordance with the
manufacturer's warranty, which range in length from 30 days to one year from the
date of sale.
ON SITE AND DEPOT REPAIR
CTU is authorized for depot and on site warranty repair for many
manufacturers, including Apple Computers, Nortel, Inc., Cisco, Hewlett Packard
Co., International Business Machines Corp. (IBM), Sun Microsystems, Inc., Compaq
Computer Corp., Xerox Corp., and Okidata Corp. With over $500,000 in spare parts
inventory, we have made a conscious effort to have the part clients need, when
they need it.
WIDE AREA NETWORK CONNECTIVITY
Our staff of Cisco and Nortel Wide Area Network (WAN) trained engineers
assist organizations with integrating their multiple sites, allowing the
exchange of information between geographically separated sites. Our association
with local Internet Service Providers (ISPs) gives us the opportunity to offer
organizations with multiple locations a single source provider providing a
cost-effective solution to WAN needs.
6
TECHNICAL SUPPORT FOR NETWORKING
We are committed to obtaining the highest vendor authorizations
available to indicate our knowledge and expertise to today's complex
technological environment. Becoming the only Microsoft Solution Partner, Novell
Platinum Reseller and Sun Microsystems Competency 2000 Certified reseller in
North Dakota is an indication of this commitment. Our staff of Certified Novell
Engineers (CNEs), Microsoft Certified System Engineers (MCSEs), Sun Microsystems
System Engineers, as well as certified personnel in products such as Nortel and
Cisco routers, gives CTU an advantage over other resellers in North Dakota. The
knowledge and skills of our system engineers helps organizations meet today's
challenges and maintain a market advantage. Our close relationships and
certification levels with our vendors gives our staff access to resources that
few other value added resellers can provide.
TRAINING
CTU is both a Novell Authorized Education Center (NAEC) and a Microsoft
Certified Technical Education Center (CTEC). We also provide A+ Certification
training and end-user training on most of today's most popular business
productivity software, either on site or at our Training Center. These
facilities allow CTU and our clients to stay current in today's ever-changing
technology environment. We will be evaluating opportunities to expand our
training center revenues to the other markets we serve.
CONSULTING
As a multi-service, multi-vendor, multi-site integrator, CTU has the
extensive infrastructure to offer solutions to complex technical challenges
through our consulting service. With years of experience in Local Area Networks
(LAN) and WAN technology, our consultants are dedicated to finding the solution
that will solve our customers' needs now and in the future. We specialize in
providing an integrated cost-effective, single source solution.
SALES AND MARKETING
As of March 15, 2001, we had 40 sales and marketing personnel with
expertise in telecommunications, computers and network services. Vicom has a
consultative approach to selling, in which the salesperson analyzes the
customer's operations and then designs an application-oriented technical
solution to make the customer more efficient and profitable. Vicom uses several
techniques to pursue new customer opportunities, including advertising,
participation in trade shows, seminars and telemarketing.
CUSTOMERS
Vicom and CTU provide its products and services to commercial,
professional and government users within the states of Minnesota, North Dakota,
South Dakota and Nebraska. Vicom's customers are diverse and represent various
industries such as financial services, hospitality, legal, manufacturing, and
education. Vicom received approximately 27% of all revenues from two customers
in the year 2000. In 1999, no one customer provided 10% or more of Vicom's total
revenues. In 1998, one customer, Minneapolis Public Schools, provided 15% of
Vicom's revenues. In its year ended June 30, 1999, Ekman, Inc. (the predecessor
company to CTU) received 23% and 10% of its revenues, respectively, from two
major customers, Great Plains Software and Meritcare Health Systems. In its year
ended June 30, 1998, those two customers provided Ekman, Inc. with 7% and 26% of
total revenues, respectively.
7
CUSTOMER SERVICE
CTU has eight full-time customer service personnel who assist in
project management duties, post-sale communications (which include site
surveys), coordinated network services, and end-user training. Each key account
is assigned its own individual customer service representative to ensure
efficient implementation. The customer service representative works closely with
the sales representative and main technician assigned to the project to
facilitate the utmost in customer satisfaction.
BACK OFFICE
Back office refers to the hardware and software systems that support
the primary functions of our operations, including sales support, order entry
and provisioning, and billing.
Order entry involves the initial loading of customer data into our
information system. Currently our sales representatives take orders and our
customer service and purchasing representatives load the initial customer
information into our ILS (Integrated Logistic System) billing and accounting
system. We use the ILS to manage and track the timely completion of each step in
the provisioning and installation process. Our system is designed to enable the
sales or customer service representative to keep an installation on schedule and
notify the customer of any potential delays. Once an order has been completed,
we update our billing system to initiate billing of installed products or
services.
SUPPLIERS
As previously mentioned, Vicom purchases products and equipment from
NEC, ECI, Cisco, Nortel, and other manufacturers of communications and computer
products. The telecommunication products are purchased directly from the
manufacturers. The computer products are purchased both directly from the
manufacturer and also indirectly from major wholesalers such as Pinacor, Ingram
Micro and Tech Data Corporation.
In 2000, Ingram Micro supplied 24% and Tech Data provided 18% of total
products purchased. In 1999, Tech Data supplied 34% and NEC supplied 18% of
Vicom's total products purchased. In 1998, NEC supplied 60% and ECI supplied 19%
of Vicom's total products purchased. In its year ended June 30, 1999, Pinacor
supplied 42% and Ingram Micro supplied 21% of Ekman Inc.'s (the predecessor to
CTU) total products purchased. In its year ended June 30, 1998, Pinacor supplied
34%, Ingram Micro supplied 17%, and Synnex supplied 11% of Ekman, Inc.'s total
products purchased.
The products Vicom and its subsidiary, CTU, purchase are off-the-shelf
products. Vicom and CTU have several alternate suppliers of computer products
and could substitute any one of these suppliers with an alternate supplier
fairly quickly on the same or similar terms.
CTU has a distribution agreement with NEC, its main supplier of
telecommunication products, which expires June 30, 2001. CTU could replace NEC
with an alternate supplier fairly quickly, but with a less competitive product.
However, CTU's replacement of NEC could have a material adverse effect on
Vicom's business, operating results and financial condition.
8
MULTIBAND
We have expanded our strategy to include the vast potential of the
multi dwelling unit (MDU) market. Our experience in this market suggests that
property owners and managers are currently looking for a solution that will
satisfy two pressing concerns. The first problem that they are dealing with is
how to satisfy the residents who desire to bring satellite television service to
the unit without creating an eyesore or a structural/maintenance problem. The
second is how to allow competitive access for local and long distance telephone
cable television and Internet services. Our MultiBand(SM) offering addresses
these problems and provides the consumer several benefits, including:
o Lower Cost Per Service
o Blended Satellite and Cable Television Package
o Multiple Feature Local Phone Services (features such as call
waiting, call forwarding and three-way calling)
o Better than Industry Average Response Times
o One Number for Billing and Service Needs
o One Bill for Local, Long Distance Cable Television and
Internet
o "Instant On" Service Availability
As we develop and market this package, we will keep a marketing focus
on two levels of customer for this product. The primary decision-makers are the
property owners/managers. Their concerns are focused on delivering their
residents reliability, quality of service, short response times, minimized
disruptions on the property, minimized alterations to the property and value
added services. Each of these concerns is addressed in our contracts with the
property owner, which include annual reviews and 10 to 20 year terms as service
providers on the property. The secondary customer is the end-user. We will
provide the property with on-going marketing support for their leasing agents to
deliver clear, concise and timely information on our services. This will include
simple sign up options that should maximize our penetration of the property.
MULTIBAND INDUSTRY ANALYSIS
All statistics in this section were taken from the 1998 statistical
abstract of the United States; communications and information technology
section, authored by the U.S. Census Bureau.
CABLE AND PAY TELEVISION
The U.S. Census Bureau has reported that as of December 31, 1997, the
last official year reported, there were more than 64,210,000 cable and pay TV
subscribers in the United States, with an average bill of $26.48 per month each.
Vicom estimates, based on the aforementioned U.S. Census Bureau data, that this
equates to annual cable and pay television billing revenues of more than $20
billion. The U.S. Census Bureau has also estimated that consumer spending on
cable and pay television for the year ended December 31, 1998 surpassed $31.8
billion. Projections compiled by the U.S. Census Bureau indicate that by 2001,
consumer spending per person for cable and pay television will reach $196.62 or
over $55 billion annually.
9
TELEPHONE
According to the U.S. Census Bureau, as of December 31, 1996, there
were more than 104,000,000 residential access lines with an average monthly bill
of $19.58 or $24 billion. This accounted for 93.8% of American homes. In the
same year, total toll service revenues for interstate long distance reached $82
billion.
INTERNET
According to the U.S. Census Bureau, the average annual spending per
person in the United States in 2001 for Internet services is estimated to be
$49.32. This is based on a projected population of more than 280,000,000 people,
which equates to approximately $13.8 billion.
SUMMARY
When taken as a whole, and based on Vicom's interpretations of U.S.
Census Bureau statistics, these services could generate over $170 billion
annually by the end of 2001. These statistics indicate stable growing markets
with demand that is likely to deliver significant values to businesses that can
obtain a subscriber base of any meaningful size.
STRATEGY
For the near future, the services described below will be offered only
in the state of Minnesota.
LOCAL TELEPHONE SERVICE
Our primary competition will come from the local incumbent providers of
telephone and cable television services. In Minnesota, we expect to compete with
Qwest (Qwest) for local telephone services and with MediaOne Group, Inc. (Media
One) for PAY-TV customers. Although Qwest has become the standard for local
telephone service, we believe we have the ability to underprice their service
while maintaining high levels of customer satisfaction.
CABLE TELEVISION SERVICE
MediaOne is the cable television service provider that has resulted
from the merger and acquisition of three competitive cable providers. This
actually has improved the overall continuity of service. However, we have a
significant consumer benefit in that we are establishing private rather than
public television systems, which allows us to deliver a package that is not
laden with local "public access" stations that clog the basic service package.
In essence, we will be able to deliver a customized service offering to each
property based upon pre-installation market research that we perform.
LONG DISTANCE TELEPHONE SERVICE
AT&T Corp., MCI WorldCom Inc., and Sprint Corp. are our principal
competitors in providing long distance telephone service. They offer new
products almost weekly. Our primary concern in this marketplace is to assure
that we are competitive with the most recent advertised offerings in the "long
distance wars." We will meet this challenge by staying within a penny of the
most current offering, while still maintaining a high gross margin on our
product. We accomplish this through various carrier agency associations. We
expect to generate a high penetration in our long distance services amongst our
local service subscribers because private property owners in the shared tenant
environment (similar to a hotel environment) are not required to offer multiple
long distance carriers to their tenants.
10
INTERNET ACCESS SERVICE
The clear frontrunners in this highly unregulated market are America
Online, Inc. and CompuServe Corp. They compete with local exchange carriers,
long distance carriers, Internet backbone companies and many local ISPs
(Internet Service Providers). Competition has driven this to a flat rate
unlimited access dial-up service market. The general concern among consumers is
the quality of the connection and the speed of the download. Our design provides
the highest connection speeds that are currently available. The approach that we
will market is "blocks of service." Essentially, we deliver the same high bit
rate service in small, medium and large packages, with an appropriate per unit
cost reduction for those customers that will commit to a higher monthly
expenditure.
MARKET DESCRIPTION
We are currently marketing MultiBand(SM)to MDU properties throughout
Minnesota. We are focusing on properties that consist of 50 or more units. We
will target properties that range from 50 to 150 units on a contiguous MDU
property for television and Internet access only. We will survey properties that
exceed 150 units for the feasibility of local and long distance telephone
services.
We are initially concentrating on middle to high-end rental complexes.
We are also pursuing selected college campus apartment buildings and resort area
condominiums. A recent U.S. Census Bureau table indicates that there are more
than 65,000 properties in the United States that fit this profile. Assuming an
average of 100 units per complex, our focus is on a potential subscriber base of
6,500,000.
A recent PROPERTY OWNERS AND MANAGER SURVEY, published by the U.S.
Census Bureau and dated March 28, 2000, shows that the rental properties are
focusing on improving services and amenities that are available to their
tenants. These improvements are being undertaken to reduce tenant turnover,
relieve pricing pressures on rents and attract tenants from competing
properties. We believe that most of these owners or managers are not interested
in being "in the technology business" and will use the services that we are
offering. Various iterations of this package will allow the owners to share in
the residual income stream from the subscriber base.
BACKLOG
At December 31, 2000, MultiBand was committed to approximately
$6,000,000 and $30,000,000 of future equipment installations under contractual
and non-contractual letter of intent arrangements, respectively. The Company's
timetable for completing and its ability to complete these installations is
contingent on its ability to raise additional debt and/or equity financing
necessary to fund the installations.
EMPLOYEES
As of March 15, 2001, Vicom employed four full-time management
employees. As of that same date, CTU had 138 full-time employees, consisting of
40 in sales and marketing, 79 in technical positions, 8 in customer service, 5
in management and 6 in administration and finance. As of March 15, 2001,
MultiBand, Inc. has nine full-time employees, one in sales and the rest in
operations.
11
ITEM 2:
PROPERTIES
Vicom and its subsidiaries lease principal offices located at 1700 42nd
Street SW, Fargo, ND 58013 and 9449 Science Center Drive, New Hope, Minnesota
55428. Vicom also leases a satellite office in Fargo consisting of approximately
3,800 square feet of space under a lease with a term that expires in July 2002.
Vicom also has offices staffed with five or fewer employees in Sioux Falls,
South Dakota, Omaha, Nebraska, and Bismarck, North Dakota We have no foreign
operations. The main Fargo office lease expires in 2001 and covers approximately
20,000 square feet. The Fargo base rent is $18,550 per month. The New Hope
office lease expires in 2006 and covers approximately 47,000 square feet. The
New Hope base rent is $12,750 per month. Both the New Hope and main Fargo leases
have provisions that call for the tenants to pay net operating expenses,
including property taxes, related to the facilities. Both offices have office,
warehouse and training facilities.
Vicom considers its current facilities adequate for its current needs
and believes that suitable additional space would be available as needed.
ITEM 3:
LEGAL PROCEEDINGS
As of December 31, 2000, Vicom was not engaged in any material pending
legal proceedings.
ITEM 4:
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit matters to a vote of security holders during
the last quarter of the fiscal year covered by this report.
ITEM 5:
MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Through May 17, 2000, Vicom's common stock was traded and quoted on the
OTC Bulletin Board(R) ("OTCBB") under the symbol "VICM." From May 18, 2000 until
August 21, 2000, the common stock was quoted under the VICM symbol on the Pink
Sheets(R) operated by Pink Sheets LLC. From August 21, 2000, to March,
2001,Vicom's common stock was traded and quoted on the OTCBB under the VICM
symbol. Presently, the stock has been traded and quoted on the Nasdaq Smallcap
market system. The table below sets forth the high and low bid prices for the
common stock during each quarter in the two years ended December 31, 1999 and
December 31, 2000 and as provided by Nasdaq, the OTCBB or the Pink Sheets.
Market quotations provided herein represent inter-dealer prices without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
Quarter Ended High Bid Low Bid
------------- -------- -------
March 31, 1999.......................................... 2 1/2 1 5/8
June 30, 1999........................................... 2 5/16 1 5/8
September 30, 1999...................................... 2 1/16 1 9/16
December 31, 1999....................................... 4 1/8 1 5/8
March 31, 2000.......................................... 12 5/8 2 1/2
June 30, 2000........................................... 10 1/2 4 3/4
September 30, 2000...................................... 10 1/8 4 3/4
December 31, 2000....................................... 7 1/8 3 3/8
12
As of December 31, 2000, Vicom had 449 shareholders of record of its
common stock and 8,023,352 shares of common stock outstanding. As of March 31,
2001, there were no outstanding shares of Class A Preferred, four shareholders
held a total of 21,889 shares of Class B Preferred, nine shareholders held a
total of 96,800 shares of Class C Preferred, and two shareholders hold a total
of 30,000 shares of Class D Preferred.
COMMON STOCK
Holders of common stock are entitled to one vote per share in all
matters to be voted upon by shareholders. There is no cumulative voting for the
election of directors, which means that the holders of shares entitled to
exercise more than 50% of the voting rights in the election of directors are
able to elect all of the directors. Vicom's Articles of Incorporation provide
that holders of the Company's common stock do not have preemptive rights to
subscribe for and to purchase additional shares of common stock or other
obligations convertible into shares of common stock which may be issued by the
Company.
Holders of common stock are entitled to receive such dividends as are
declared by Vicom's Board of Directors out of funds legally available for the
payment of dividends. Vicom presently intends not to pay any dividends on the
common stock for the foreseeable future. Any future determination as to the
declaration and payment of dividends will be made at the discretion of the Board
of Directors. In the event of any liquidation, dissolution or winding up of
Vicom, and subject to the preferential rights of the holders of the Class A
Preferred, Class B Preferred, Class C Preferred and Class D Preferred, the
holders of common stock will be entitled to receive a pro rata share of the net
assets of Vicom remaining after payment or provision for payment of the debts
and other liabilities of Vicom.
All of the outstanding shares of common stock are fully paid and
non-assessable. Holders of common stock of Vicom are not liable for further
calls or assessments.
PREFERRED STOCK
Through 1999, Vicom issued 2,550 shares of Class A Preferred for
$23,638 and 37,550 shares of Class B Preferred for $359,893. The Class B
Preferred was offered to certain note holders at a conversion rate of $10.00 per
share of Class B Preferred. Each share of Class A Preferred and Class B
Preferred is non-voting (except as otherwise required by law) and convertible
into five shares of common stock, subject to adjustment in certain
circumstances. Each holder of a share of Class A Preferred or Class B Preferred
has a five-year warrant to purchase one share of common stock at $3.00 per
share, subject to adjustment.
In June 2000, Vicom issued 80,500 shares of Class C Preferred for
$805,000. The Class C Preferred was offered to certain note holders at a
conversion rate of $10.00 a share. In September 2000, Vicom issued an additional
72,810 shares of Class C Preferred for $728,100. Each share of Class C Preferred
is non-voting (except as otherwise required by law) and convertible into two
shares of Vicom common stock, subject to adjustment in certain circumstances.
In November 2000, Vicom issued 72,500 shares of Class D Preferred for
$490,332. The Class D Preferred was sold to eight accredited investors at $10.00
per share. Each share of Class D Preferred is non-voting (except as otherwise
required by law) and convertible into two and one-half shares of Vicom Common
Stock, subject to adjustment in certain circumstances.
13
The holders of the Class A Preferred, Class B Preferred, Class C
Preferred and Class D Preferred (collectively, "Preferred Stock") are entitled
to receive, as and when declared by the Board, out of the assets of the Company
legally available for payment thereof, cumulative cash dividends calculated
based on the $10.00 per share stated value of the Preferred Stock. The per annum
dividend rate is eight percent (8%) for the Class A Preferred and ten percent
(10%) for the Class B Preferred and Class C Preferred and fourteen percent (14%)
for the Class D Preferred. Dividends on the Class A Preferred, Class C Preferred
and Class D Preferred are payable quarterly on March 31, June 30, September 30,
and December 31 of each year. Dividends on the Class B Preferred are payable
monthly on the first day of each calendar month. Dividends on the Preferred
Stock accrue cumulatively on a daily basis until the Preferred Stock is redeemed
or converted.
In the event of any liquidation, dissolution or winding up of Vicom,
the holders of the Class A Preferred and Class B Preferred will be entitled to
receive a liquidation preference of $10.50 per share, and the holders of the
Class C Preferred and Class D Preferred will be entitled to receive a
liquidation preference of $10.00 per share, each subject to adjustment. Any
liquidation preference shall be payable out of any net assets of Vicom remaining
after payment or provision for payment of the debts and other liabilities of
Vicom.
Vicom may redeem the Preferred Stock, in whole or in part, at a
redemption price of $10.50 per share for the Class A Preferred and the Class B
Preferred and $10.00 per share for the Class C Preferred and Class D Preferred
(subject to adjustment, plus any earned and unpaid dividends) on not less than
thirty days' notice to the holders of the Preferred Stock, provided that the
closing bid price of the common stock exceeds $4.00 per share (subject to
adjustment) for any ten consecutive trading days prior to such notice. Upon
Vicom's call for redemption, the holders of the Preferred Stock called for
redemption will have the option to convert each share of Preferred Stock into
shares of common stock until the close of business on the date fixed for
redemption, unless extended by Vicom in its sole discretion. Preferred Stock not
so converted will be redeemed. No holder of Preferred Stock can require Vicom to
redeem his or her shares.
14
ITEM 6:
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data should be read in conjunction
with our consolidated financial statements including the accompanying notes and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations". The data for each of the fiscal years in the three year period
ended December 31, 2000, have been derived from our financial statements and
accompanying notes contained in this prospectus. The Statement of Operations
Data for the years ended December 31, 1997 and 1996 and the Balance Sheet data
at December 31, 1998, 1997, and 1996 has been derived from our audited financial
statements which are not contained in this report.
YEARS ENDED DECEMBER 31,
------------------------
STATEMENT OF OPERATIONS DATA 2000 1999 1998 1997 1996
- ---------------------------- ---- ---- ---- ---- ----
Revenues .................. $ 39,781,846 $ 20,388,870 $ 6,458,113 $ 6,639,026 $ 5,514,532
Cost of products and
services ............... $ 31,698,569 $ 16,247,898 $ 4,841,111 $ 4,095,990 $ 3,929,573
Gross profit .............. $ 8,083,277 $ 4,140,972 $ 1,617,002 $ 2,543,036 $ 1,584,959
% of revenues ............. 20.3% 20.3% 25.0% 38.3% 28.7%
Selling, general and
administrative expenses $ 11,852,041 $ 5,823,945 $ 2,839,862 $ 2,317,388 $ 2,617,620
% of revenues ............. 29.8% 28.6% 44.0% 34.9% 47.5%
Income (loss) from
Operations ................ $ (3,768,764) $ (1,682,973) $ (1,222,860) $ 225,648 $ (1,032,661)
Other expense net ......... $ 458,067 $ 139,461 $ 170,888 $ 141,471 $ 108,130
Income (loss) before income
taxes .................. $ (4,226,831) $ (1,822,434) $ (1,393,748) $ 84,177 $ (1,140,791)
Income tax provision ...... $ 9,000 $ 241,200 $ 50,000 $ 28,000 $ --
Net income (loss) ......... $ (4,235,831) $ (2,063,634) $ (1,443,748) $ 56,177 $ (1,140,791)
Earnings (loss) per common
share-basic and diluted $ (0.62) $ (0.55) (0.68) $ 0.03 (0.55)
Weighted average shares
outstanding ............ 7,009,751 3,821,978 2,129,387 2,098,944 2,084,279
DECEMBER 31,
------------
BALANCE SHEET DATA 2000 1999 1998 1997 1996
- ------------------ ---- ---- ---- ---- ----
Working capital
(deficiency) .... $ 2,870,114 $ (2,882,907) $ (43,161) $ 376,568 $ (215,585)
Total assets ....... $ 15,614,573 $ 12,598,745 $ 6,630,917 $ 4,418,239 $ 3,994,584
Long-term debt ..... $ 3,362,083 $ 926,821 $ 826,490 $ 674,436 $ 324,600
Stockholders' equity $ 5,876,352 $ 1,026,344 $ 689,775 $ 973,792 $ 892,615
15
ITEM 7:
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion of the financial condition and results of
operations of Vicom, Incorporated should be read in conjunction with the
Condensed Consolidated Financial Statements and the Notes thereto included
elsewhere in this report.
YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's
consolidated statements of operations expressed as a percentage of total
revenue.
REVENUES
Years Ended December 31,
------------------------
2000 1999
----- -----
Revenues
Vicom and VMTS 8.2% 76.4%
CTU 91.6% 23.6%
MultiBand 0.2% 0.00%
----- ------
Total Revenues 100.0% 100.0%
===== ======
Cost of Sales
Vicom and VMTS 6.2% 61.0%
CTU 73.2% 18.7%
MultiBand 0.3% 0.0%
----- ------
Total Cost of Sales 79.7% 79.7%
===== ======
Gross Margin 20.3% 20.3%
Selling, General and Administrative Expenses 29.8% 28.6%
Operating income (Loss) (9.5%) (8.3%)
Net Income (Loss) (10.6%) (10.1%)
REVENUES
Total revenues increased 95.1% to $39,781,846 in 2000 from $20,388,870
in 1999. Total revenues decreased from the $44,941,776 pro forma consolidated
revenues for 1999, primarily due to intracompany sales to MultiBand, which were
eliminated in consolidation.
Revenues from the CTU segment which traditionally sells computer
technologies products and services increased 656% to $36,460,217 in 2000 from
$4,821,388 in 1999. This significant increase in CTU segment revenues resulted
primarily from the reporting of 12 months revenue in this segment versus two
months the prior year due to the November 1, 1999 acquisition of Ekman, Inc. A
secondary factor in the CTU revenue increase was the gradual merging of the
traditional Vicom and VMTS voice, video and data business segment into the CTU
operational and management structure
Revenues from the Vicom and VMTS segment decreased 79.1% in 2000 to
$3,248,310 from $15,567,282 in 1999. The decrease in revenues resulted from the
aforementioned merging of Vicom and CTU business segments during fiscal year
2000. Vicom, as of May 2000, did not have active operations or material ongoing
revenues.
16
Revenues from MultiBand were $73,219 in 2000. There is no comparative
data for 1999, as MultiBand was not in operation during that year.
GROSS MARGIN
The Company's gross margin was $8,083,277 for 2000, as compared to
$4,140,972 for 1999. The gross margin increase is due to the aforementioned
acquisition of Ekman, Inc. For 2000, as a percent of total revenues, gross
margin was 20.3% as compared to 20.3% for 1999. The same gross margin percentage
is primarily due to an increase in service sales which allowed the Company to
maintain margins.
The Company's gross margin as a percentage of revenues for Vicom was
24.5%. The Company's gross margin as a percentage of revenues for CTU was 20.1%.
The Company's gross loss for MultiBand, Inc. as a percentage of revenues was
44.1%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 103.5% to
$11,852,041 in 2000, compared to $5,823,945 in 1999. This increase in expenses
is primarily related to increased payroll due to acquisitions and start-up
expenses for the Company's MultiBand, Inc. subsidiary. Selling, general and
administrative expenses were, as a percentage of revenues, 29.8% for 2000 and
28.6% for 1999.
INTEREST EXPENSE
Interest expense was $607,418 for 2000, versus $262,228 for 1999
reflecting an increased Company debt load due to acquisition related debt and
increased bank borrowings.
NET LOSS
In 2000, the Company incurred a net loss of $4,235,831 compared to a
net loss of $2,063,634 for 1999.
YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
REVENUES
Vicom revenues increased by $13,930,757 from $6,458,113 in 1998 to
$20,388,870 in 1999 an increase of 215.7%. This increase was caused by the
acquisition of the Midwest assets of Enstar Networking Corporation for twelve
months and the purchase of Ekman, Inc. for two months leading to the creation of
Corporate Technologies, USA, Inc.
From January 1 to November 1, 1999, Vicom's revenues came from one
segment, which included stand-alone and integrated voice, video, and data
networking technology products and services. With the acquisition of Ekman,
Inc., Vicom added the segment, as of November 1, 1999, which sells computer
technologies products and services. Voice, video and data networking revenues
equaled $15,567,482 for 1999. Computer product revenues totaled $4,821,388 for
1999.
GROSS MARGIN
Gross margin represents revenue less the cost of products and services.
Gross margin, as a percent of revenue, was 20.3% in 1999 versus 25.0% in 1998.
Decreased margins in 1999 reflect an increase in computer sales, which have a
lower margin than Vicom's traditional voice sales.
17
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by $2,984,083,
or 105%, from $2,839,862 in 1998 to $5,823,945 in 1999. Again, the increase in
selling, general and administrative expenses is primarily attributable to
increased revenues and staffing due to two acquisitions. Vicom, using the Black
Scholes pricing models, expensed $6,000 in 1999 for the fair value at the date
of grant of 566,050 warrants to purchase Vicom common stock issued to various
investors at prices ranging from $0.75 to $3.00 per share.
INTEREST EXPENSE
Interest expense increased by $81,794 (45%) from $180,434 in fiscal
1998 to $262,228 in 1999. This expense increase is due to increased borrowing
under a note and security agreement with Wells Fargo Business Credit dated June
1999 and due to notes payable to investors that were issued in October 1999.
INCOME TAX
The income tax provision in 1999 and 1998 reflects adjustments to the
valuation allowance of net deferred tax assets resulting from net operating loss
carryforwards.
NET LOSSES
Vicom experienced net losses of $2,063,634 and $1,443,748 for 1999 and
December 31, 1998, respectively.
18
UNAUDITED QUARTERLY RESULTS
The following table sets forth certain unaudited quarterly operating
information for each of the eight quarters in the two-year period ended
December 31, 2000. This data includes, in the opinion of management, all normal
recurring adjustments necessary for the fair presentation of the information for
the periods presented when read in conjunction with the Company's Consolidated
Financial Statements and related Notes thereto. Results for any previous fiscal
quarter are not necessarily indicative of results for the full year or for any
future quarter. The Company has historically experienced a seasonal fluctuation
in its operating results, with a larger proportion of its revenues in the third
quarter of the fiscal year.
For the Quarters Ended
----------------------
Dec 31, Sept 30, June 30, March 31, Dec 31, Sept 30, June 30, March 31,
2000 2000 2000 2000 1999 1999 1999 1999
---- ---- ---- ---- ---- ---- ---- ----
Revenues:
Vicom $ (214,437) $ 119,037 $ 1,626,568 $ 1,715,142 $ 3,169,488 $ 3,189,197 $ 4,562,655 $ 4,646,142
CTU 11,320,377 10,077,672 7,061,013 8,003,155 4,821,388 0 0 0
MultiBand 51,020 22,299 0 0 0 0 0 0
Total
Revenues 11,156,960 10,219,008 8,687,581 9,718,297 7,990,876 3,189,197 4,562,655 4,646,142
Cost of Sales 9,517,517 7,868,109 6,506,435 7,806,508 7,005,546 2,157,892 3,697,132 3,387,328
Gross Margin 1,639,443 2,350,899 2,181,146 1,911,789 985,330 1,031,305 865,523 1,258,814
SG&A Expense 3,697,857 2,501,869 2,853,634 2,798,681 2,071,273 1,465,764 1,094,907 1,192,001
Operating Income
(loss) (2,058,414) (150,970) (672,488) (886,892) (1,085,943) (434,459) (229,384) 66,813
Interest Expense (160,598) (133,669) (146,504) (166,647) (112,685) (64,760) (37,728) (47,055)
Other Income
(Expenses) 149,351 169,834 (36,146) (133,688) 124,695 38,772 (27,221) (13,479)
Income
(Loss) Before
Taxes (2,069,661) (114,805) (855,138) (1,187,227) (1,073,933) (460,447) (294,333) 6,279
Income Tax
Provision (9,000) 0 0 0 (241,200) 0 0 0
Net Income (Loss) (2,078,661) (114,805) (855,138) (1,187,227) (1,315,133) (460,447) (294,333) 6,279
Net Income
(Loss) Per Share
Basic and Diluted (0.27) (0.01) (0.12) (0.29) (0.30) (0.13) (0.09) --
LIQUIDITY AND CAPITAL RESOURCES
YEAR ENDED DECEMBER 31, 2000
Available working capital for 2000 increased $5,753,021 over 1999 to
$2,870,114 due to proceeds from issuance of stock and warrants, which helped
offset Vicom's net operating loss and net cash used in operating activities of
$3,640,226.
In 2000, the Company entered into a $2,250,000 debenture agreement with
a financial institution, interest at 14% payable monthly, due $102,273 per month
from August 1, 2003 through June 1, 2005, and collateralized by substantially
all Company assets.
19
In 2000, the Company entered into a $2,250,000 wholesale line of credit
agreement, with a financial institution for the purchase of resale merchandise
from certain suppliers, interest generally at 0% (if paid within certain terms),
and collateralized by the related inventories and accounts receivable.
Two commercial line of credit agreements expired in 2000.
The Company used $1,316,022 for capital expenditures during 2000, as
compared to $631,166 in 1999. In addition, the Company financed the acquisition
of $1,310,081 of equipment through capital leases in 2000. These 2000
expenditures were primarily for construction related to the start up of
MultiBand. For the similar period last year, substantially all capital
expenditures consisted of equipment acquired for internal use.
Net cash used by operations was approximately $3,640,000 in 2000 versus
cash provided by operations of approximately $1,385,000 in 1999. The cash used
by operation is due to the Company's net loss in 2000. Management of Vicom
believes that, for the near future, cash generated by sales of stock, exercise
of warrants, and existing credit facilities, in aggregate, are adequate to meet
the anticipated liquidity and capital resource requirements of its business.
YEAR ENDED DECEMBER 31, 1999
Working capital needs in 1999 were funded using the following
resources:
In June 1999, Vicom entered into a $2 million revolving credit
agreement with Wells Fargo Business Credit, expiring in June 2000. Borrowings
under this facility are based on eligible accounts receivable and inventory with
interest at prime plus 1.75% (plus 3.0% if in default). The agreement contains
certain restrictive covenants, including the maintenance of minimum net income
levels and limitations on capital expenditures. As of December 31, 1999, Vicom
was not in compliance with its minimum net income level covenant. Vicom used
approximately $554,000 of the proceeds from this facility to repay outstanding
borrowings under its previous term note and line of credit. As of December 31,
1999, Vicom had outstanding borrowings of $1,169,400 under this agreement.
Vicom's subsidiary, CTU, had, as of December 31, 1999, $138,000
borrowings on a $2,000,000 line. This line was paid off in March 2000 by the
$2,250,000 debenture agreement.
Net cash provided by operations was approximately $1,385,000 in 1999
versus cash used by operations of approximately $137,000 in 1998. The cash
provided from operations in 1999 is due primarily to improvements in operating
cash flows related to the Ekman, Inc. acquisition. During 1999, Vicom spent
approximately $631,000 in capital expenditures primarily related to its computer
system upgrade.
In March 2000, Vicom raised net proceeds of $1,326,206 in a Regulation
D offering. These proceeds were used for general working capital purposes.
20
YEAR ENDED DECEMBER 31, 1998
The financial condition of Vicom as of December 31, 1998 was
significantly impacted by the acquisition of the assets of the Midwest region of
Enstar Networking Corporation ("ENC"). See Note 2 to the Consolidated Financial
Statements. The purchase price included approximately $1.5 million of net
tangible assets and $549,000 of goodwill acquired. The consideration consisted
of 1,350,000 shares of Vicom's common stock with an assigned value of $797,000,
a $750,000 subordinated promissory note bearing annual interest at the rate of
9%, a payable of $340,000 for purchase price adjustments and acquisition related
costs of $148,000.
Net cash used by operations was approximately $137,000 in 1998 versus
cash provided by operations of approximately $94,000 in 1997. The cash flow
deficits from operations in 1998, excluding the $1 million of non-cash
adjustments for the write-down of the carrying amounts of certain assets, are
due primarily to the loss from operations in addition to increases in revenues
and inventories associated with various large school projects. These cash flow
deficits resulted in an increase in accounts payable, which reflects higher
average days' payments to vendors.
In May 1998, Vicom amended its bank loan agreement to provide a
$500,000 term note at a prime rate plus 2.5% payable in monthly principal and
interest installments of $10,846 with the balance due May 1, 2003, and a
$100,000 line of credit at prime plus 2.5% due April 30, 1999 (subsequently
extended to May 31, 1999). At December 31, 1998, Vicom was not in compliance
with certain financial covenants under this agreement. This indebtedness was
repaid in June 1999.
In December 1998, Vicom authorized 275,000 shares of 8% Class A
Cumulative Convertible Preferred Stock and 60,000 shares of 10% Class B
Cumulative Convertible Preferred ("Class B Preferred"). The Class B Preferred
was offered to certain notes payable holders at a conversion price of $10.00 per
Class B Share. In December 1998, approximately $350,000 of notes payable were
converted into 35,050 shares of Class B Preferred Stock.
Vicom has historically relied on borrowings from related parties and
individuals to fund its operations. These borrowings are unsecured and bear
interest at rates ranging from 9% to 15% per annum. Activity under these notes
consisted of net cash repayments of approximately $17,000 in 1998 and net
borrowings of approximately $189,000 in 1997. In July 1998, approximately
$25,000 of notes payable were converted into 50,000 shares of common stock.
FORWARD LOOKING STATEMENTS
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, Year 2000 compliance and
similar matters. The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements including those made in this
document. In order to comply with the terms of the Private Securities Litigation
Reform Act, the Company notes that a variety of factors could cause the
Company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, developments and results of the Company's business
include the following: national and regional economic conditions; pending and
future legislation affecting the IT and telecommunications industry; stability
of foreign governments; market acceptance of the Company's products and
services; the Company's continued ability to provide integrated communication
solutions for customers in a dynamic industry; and other competitive factors.
Because these and other factors could affect the Company's operating results,
past financial performance should not necessarily be considered as a reliable
indicator of future performance, and investors should not use historical trends
to anticipate future period results.
21
ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Vicom is not subject to any material interest rate risk as any current
lending agreements are at a fixed rate of interest.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
22
C O N T E N T S
Page
----
INDEPENDENT AUDITOR'S REPORT F1
FINANCIAL STATEMENTS
Consolidated balance sheets F2
Consolidated statements of operations F3
Consolidated statements of stockholders' equity F4 - F5
Consolidated statements of cash flows F6
Notes to consolidated financial statements F7 - F22
23
- F1 -
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Vicom, Incorporated and Subsidiaries
New Hope, Minnesota
We have audited the accompanying consolidated balance sheets of Vicom,
Incorporated and Subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2000. Our audits also
included the financial statement schedule in the index at item 14(a). These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements 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 consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated 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 consolidated financial position of Vicom,
Incorporated and Subsidiaries as of December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, 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 financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
/s/ Lurie Besikof Lapidus & Company, LLP
Minneapolis, Minnesota
February 15, 2001
- F2 -
VICOM, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
------------------------------
ASSETS 2000 1999
------------ ------------
CURRENT ASSETS
Cash $ 1,161,479 $ 204,365
Accounts receivable, net of allowance of $159,000 and $140,000 5,661,064 5,369,221
Inventories, net of allowance of $200,000 and $330,000 2,122,002 1,801,596
Costs and estimated earnings in excess of billings 7,491 232,725
Other 294,216 154,766
------------ ------------
TOTAL CURRENT ASSETS 9,246,252 7,762,673
PROPERTY AND EQUIPMENT 3,277,109 1,324,080
GOODWILL, net of accumulated amortization of $436,678 and $101,604 2,914,037 3,249,111
OTHER 177,175 262,881
------------ ------------
$ 15,614,573 $ 12,598,745
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Checks issued in excess of deposits $ -- $ 126,297
Wholesale financing arrangement 2,033,340 --
Notes and installment obligations payable - current maturities 428,334 4,246,433
Accounts payable 2,769,390 4,503,451
Other liabilities 825,933 977,513
Deferred service obligations and revenue 319,141 584,716
Due to ENStar, Inc. -- 207,170
------------ ------------
TOTAL CURRENT LIABILITIES 6,376,138 10,645,580
------------ ------------
NOTES AND INSTALLMENT OBLIGATIONS PAYABLE 3,362,083 926,821
------------ ------------
STOCKHOLDERS' EQUITY
Cumulative convertible preferred stock, no par value:
8% Class A (issued and outstanding - -0- and 2,550 shares) -- 23,638
10% Class B (issued and outstanding - 22,836 and 37,550 shares) 218,869 359,893
10% Class C (issued and outstanding - 150,810 and -0- shares) 1,508,100 --
14% Class D (issued and outstanding - 72,500 and -0- shares) 490,332 --
Common stock - no par value (issued 8,137,181 and
4,984,845 shares; outstanding 8,023,352 and 4,784,906 shares) 1,340,074 4,551,745
Options and warrants 14,347,833 217,028
Unamortized compensation (278,138) (258,659)
Accumulated deficit (11,750,718) (3,867,301)
------------ ------------
5,876,352 1,026,344
------------ ------------
$ 15,614,573 $ 12,598,745
============ ============
See notes to consolidated financial statements.
- F3 -
VICOM, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
----------------------------------------------
2000 1999 1998
------------ ------------ ------------
REVENUES $ 39,781,846 $ 20,388,870 $ 6,458,113
------------ ------------ ------------
COSTS AND EXPENSES
Cost of products and services 31,698,569 16,247,898 4,841,111
Selling, general and administrative 11,852,041 5,823,945 2,839,862
------------ ------------ ------------
43,550,610 22,071,843 7,680,973
------------ ------------ ------------
LOSS FROM OPERATIONS (3,768,764) (1,682,973) (1,222,860)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (607,418) (262,228) (180,434)
Miscellaneous 149,351 122,767 9,546
------------ ------------ ------------
(458,067) (139,461) (170,888)
------------ ------------ ------------
LOSS BEFORE INCOME TAXES (4,226,831) (1,822,434) (1,393,748)
INCOME TAX PROVISION 9,000 241,200 50,000
------------ ------------ ------------
NET LOSS $ (4,235,831) $ (2,063,634) $ (1,443,748)
============ ============ ============
LOSS PER COMMON SHARE-
BASIC AND DILUTED $ (.62) $ (.55) $ (.68)
============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC AND DILUTED 7,009,751 3,821,978 2,129,387
============ ============ ============
See notes to consolidated financial statements.
- F4 -
VICOM, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Cumulative Convertible Preferred Stock
------------------------------------------------------------------------------------------
8% Class A 10% Class B 10% Class C 14% Class D
------------------ ------------------ ------------------ ------------------
Shares Amount Shares Amount Shares Amount Shares Amount
-------- -------- -------- -------- -------- -------- -------- --------
BALANCE -
DECEMBER 31, 1997 -- $ -- -- $ -- -- $ -- -- $ --
Conversion of notes
payable, net of costs -- -- 35,050 336,718 -- -- -- --
Warrants issued with
preferred stock -- -- -- -- -- -- -- --
Restricted stock issued -- -- -- -- -- -- -- --
Acquisition of ENC -- -- -- -- -- -- -- --
Net loss -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
BALANCE -
DECEMBER 31, 1998 -- -- 35,050 336,718 -- -- -- --
Sale of stock 2,550 23,638 2,500 23,175 -- -- -- --
Warrants issued:
Preferred stock -- -- -- -- -- -- -- --
Notes payable -- -- -- -- -- -- -- --
Restricted stock:
Issued -- -- -- -- -- -- -- --
Forfeited -- -- -- -- -- -- -- --
Amortization expense -- -- -- -- -- -- -- --
Acquisition of Ekman:
Stock -- -- -- -- -- -- -- --
Options and warrants -- -- -- -- -- -- -- --
Preferred dividends -- -- -- -- -- -- -- --
Net loss -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
BALANCE -
DECEMBER 31, 1999 2,550 $ 23,638 37,550 $359,893 -- $ -- -- $ --
(WIDE TABLE CONTINUED)
Common Stock Unamor-
--------------------------- Warrants tized Accumu-
Shares and Compen- lated
Issued Amount Options sation Deficit Total
----------- ----------- ----------- ----------- ----------- -----------
BALANCE -
DECEMBER 31, 1997 2,106,236 $ 1,295,742 $ -- $ -- $ (321,950) $ 973,792
Conversion of notes
payable, net of costs 50,000 25,000 -- -- -- 361,718
Warrants issued with
preferred stock -- -- 701 -- -- 701
Restricted stock issued 106,759 62,988 -- (62,988) -- --
Acquisition of ENC 1,350,000 797,312 -- -- -- 797,312
Net loss -- -- -- -- (1,443,748) (1,443,748)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE -
DECEMBER 31, 1998 3,612,995 2,181,042 701 (62,988) (1,765,698) 689,775
Sale of stock -- -- -- -- -- 46,813
Warrants issued:
Preferred stock -- -- 3,687 -- -- 3,687
Notes payable -- -- 112,640 -- -- 112,640
Restricted stock:
Issued 144,600 248,866 -- (248,866) -- --
Forfeited (22,750) (15,663) -- 15,663 -- --
Amortization expense -- -- -- 37,532 -- 37,532
Acquisition of Ekman:
Stock 1,250,000 2,137,500 -- -- -- 2,137,500
Options and warrants -- -- 100,000 -- -- 100,000
Preferred dividends -- -- -- -- (37,969) (37,969)
Net loss -- -- -- -- (2,063,634) (2,063,634)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE -
DECEMBER 31, 1999 4,984,845 $ 4,551,745 $ 217,028 $ (258,659) $(3,867,301) $ 1,026,344
See notes to consolidated financial statements.
(continued)
- F5 -
VICOM, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
Cumulative Convertible Preferred Stock
----------------------------------------------------------------------------------------------
8% Class A 10% Class B 10% Class C 14% Class D
---------------------- ---------------------- ---------------------- ----------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE -
DECEMBER 31, 1999 2,550 $ 23,638 37,550 $ 359,893 -- $ -- -- $ --
Stock issued:
Options and warrants
exercised -- -- -- -- -- -- -- --
Other cash -- -- -- -- 153,310 1,533,100 72,500 490,332
Conversion of notes
payable -- -- -- -- -- -- -- --
Conversion of preferred
stock (2,550) (23,638) (9,000) (86,259) -- -- -- --
Redemption of preferred
stock -- -- (5,714) (54,765) (2,500) (25,000) -- --
Issuance costs -- -- -- -- -- -- -- --
Warrants issued:
Warrant dividend -- -- -- -- -- -- -- --
Common stock -- -- -- -- -- -- -- --
Preferred stock -- -- -- -- -- -- -- --
Services -- -- -- -- -- -- -- --
Cash -- -- -- -- -- -- -- --
Restricted Stock:
Issued -- -- -- -- -- -- -- --
Forfeited -- -- -- -- -- -- -- --
Amortization expense -- -- -- -- -- -- -- --
Preferred dividends -- -- -- -- -- -- -- --
Net loss -- -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE -
DECEMBER 31, 2000 -- $ -- 22,836 $ 218,869 150,810 $1,508,100 72,500 $ 490,332
========== ========== ========== ========== ========== ========== ========== ==========
[WIDE TABLE CONTINUED]
Common Stock Unamor-
--------------------------- Warrants tized Accumu-
Shares and Compen- lated
Issued Amount Options sation Deficit Total
----------- ----------- ----------- ----------- ----------- -----------
BALANCE -
DECEMBER 31, 1999 4,984,845 $ 4,551,745 $ 217,028 $ (258,659) $(3,867,301) $ 1,026,344
Stock issued:
Options and warrants
exercised 1,427,217 3,953,471 (163,703) -- -- 3,789,768
Other cash 746,999 1,804,921 -- -- -- 3,828,353
Conversion of notes
payable 580,100 1,185,054 -- -- -- 1,185,054
Conversion of preferred
stock 57,500 109,897 -- -- -- --
Redemption of preferred
stock -- -- -- -- -- (79,765)
Issuance costs 249,959 (679,110) -- -- -- (679,110)
Warrants issued:
Warrant dividend -- (9,699,079) 13,255,869 -- (3,556,790) --
Common stock -- -- 495,971 -- -- 495,971
Preferred stock -- -- 234,668 -- -- 234,668
Services -- -- 208,000 -- -- 208,000
Cash -- -- 100,000 -- -- 100,000
Restricted Stock:
Issued 35,000 200,185 -- (200,185) -- --
Forfeited (58,268) (87,010) -- 87,010 -- --
Amortization expense -- -- -- 93,696 -- 93,696
Preferred dividends -- -- -- -- (90,796) (90,796)
Net loss -- -- -- -- (4,235,831) (4,235,831)
----------- ----------- ----------- ---------- ------------ ----------
BALANCE -
DECEMBER 31, 2000 8,023,352 $ 1,340,074 $14,347,833 $ (278,138) $(11,750,718) $5,876,352
=========== =========== =========== ========== ============ ==========
See notes to consolidated financial statements.
- F6 -
VICOM, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
---------------------------------------------
2000 1999 1998
----------- ----------- -----------
OPERATING ACTIVITIES
Net loss $(4,235,831) $(2,063,634) $(1,443,748)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities, net of business
acquisition effect:
Depreciation 673,074 408,796 228,931
Amortization 428,770 145,136 --
Warrants issued for services 208,000 -- --
Deferred income taxes -- 249,200 50,000
Changes in operating assets and liabilities:
Accounts receivable (291,843) 1,547,912 (270,558)
Inventories (320,406) 1,240,723 (152,505)
Costs, estimated earnings, and billings 225,234 (59,360) --
Other assets (2,178) (44,625) 170,627
Wholesale financing arrangement 2,033,340 -- --
Accounts payable and other liabilities (2,092,811) 385,522 962,015
Deferred service obligations and revenue (265,575) (424,149) 318,442
----------- ----------- -----------
Net cash provided (used) by operating activities (3,640,226) 1,385,521 (136,796)
----------- ----------- -----------
INVESTING ACTIVITIES
Purchases of property and equipment (1,316,022) (631,166) (34,824)
Purchase of business, net of $64,072 cash received -- (435,928) --
Collections on notes receivable 45,331 29,383 43,045
Issuance of notes receivable (96,897) (30,000) --
Other -- (30,000) 42,392
----------- ----------- -----------
Net cash provided (used) by investing activities (1,367,588) (1,097,711) 50,613
----------- ----------- -----------
FINANCING ACTIVITIES
Increase (decrease) in checks issued in excess of deposits (126,297) (416,734) 99,115
Net payments under short-term loans (1,307,400) (2,600) (299,839)
Proceeds from notes payable 2,282,160 1,170,600 578,455
Principal payments on notes and installment obligations (2,482,624) (847,242) (278,467)
Proceeds from issuance of stock and warrants 8,448,760 50,500 --
Stock issuance costs (679,110) -- (13,081)
Redemption of preferred stock (79,765) -- --
Dividends (90,796) (37,969) --
----------- ----------- -----------
Net cash provided (used) by financing activities 5,964,928 (83,445) 86,183
----------- ----------- -----------
INCREASE IN CASH 957,114 204,365 --
CASH
Beginning of year 204,365 -- --
----------- ----------- -----------
End of year $ 1,161,479 $ 204,365 $ --
=========== =========== ===========
See notes to consolidated financial statements.
- F7 -
VICOM, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies -
Principles of Consolidation
The consolidated financial statements include the accounts of Vicom,
Incorporated (Vicom) and its wholly-owned subsidiaries, Vicom Midwest
Telecommunication Systems, Inc. (VMTS), Corporate Technologies, USA, Inc.
(CTU), and MultiBand, Inc. (MultiBand) (incorporated in February 2000 and
in the start-up phase) which provides voice, data and video services to
residential multi-dwelling units. All significant intercompany accounts
and transactions are eliminated.
Revenues and Cost Recognition
The Company earns revenues from four sources: 1) Video and computer
technology products which are sold but not installed, 2) Voice, video,
and data communication products which are sold and installed, 3) Service
revenues related to communication products which are sold and both
installed and not installed, and 4) MultiBand user charges to multiple
dwelling units.
Revenues from video and computer technology products, which are sold but
not installed, are recognized when delivered and the customer has
accepted the terms and has the ability to fulfill the terms.
Customers contract for both the purchase and installation of voice and
data networking technology products and certain video technologies
products on one sales agreement, as installation of the product is
essential to the functionality of the product. Revenues and costs on the
sale of products where installation is involved are recognized under the
percentage of completion method. Costs are expensed as incurred. The
amount of revenue recognized is the portion that the cost expended to
date bears to the anticipated total contract cost, based on current
estimates to complete. Contract costs include all labor and materials
unique to or installed in the project, as well as subcontract costs.
Costs and estimated earnings in excess of billings are classified as
current assets; billings in excess of costs and estimated earnings are
classified as current liabilities.
Service revenues related to technology products including consulting,
training, and support are recognized when the services are provided. The
Company, if the customer elects, enters into equipment maintenance
agreements for products sold once the original manufacturer's warranty
has expired. Revenues from all equipment maintenance agreements are
recognized on a straight-line basis over the terms of each contract.
Costs for services are expensed as incurred.
MultiBand user charges are recognized as revenues in the period the
related services are provided.
Warranty costs incurred on new product sales are substantially reimbursed
by the equipment suppliers.
Use of Estimates
The preparation of these financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that may affect the
reported amounts and disclosures in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Significant management estimates relate to the amortization periods for
goodwill, the allowances for doubtful accounts and inventory
obsolescence, and the valuation of deferred income tax assets.
(continued)
- F8 -
VICOM, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies - (continued)
Inventories
Inventories, consisting principally of purchased telecommunication,
networking and computer equipment and parts, are stated at the lower of
cost or market. Cost is determined using an average cost method for
telecommunication and networking equipment and the first-in, first-out
(FIFO) method for computer equipment. Nonmonetary exchanges of inventory
items with third parties are recorded at the net book value of the items
exchanged with no gains or losses recognized.
Property and Equipment
Equipment and leasehold improvements are stated at cost. Equipment is
depreciated principally by the straight-line method over three to eight
years, the estimated useful lives of the related assets. Leasehold
improvements are depreciated over the shorter of the life of the
improvement or the term of the respective lease.
Goodwill
Goodwill represents the excess of acquisition cost over the fair value of
identifiable net assets acquired and is amortized by the straight-line
method over ten years. The Company evaluates goodwill periodically for
impairment by comparing the net carrying values to the undiscounted
future cash flows of the related assets. This evaluation is done whenever
events or changes in circumstances indicate that the carrying amount of
goodwill may not be recoverable, but in no event less than annually.
Fair Value of Financial Instruments
The carrying amounts of financial instruments consisting of cash,
accounts receivables, notes receivable, checks issued in excess of
deposits, notes and installment obligations payable to nonrelated
parties, and accounts payable approximate their fair values. It is not
practical to determine the fair value of the related party notes payable
due to the related party nature of the transactions.
Credit Risk
Financial instruments that potentially subject the Company to credit risk
consist primarily of cash and trade accounts and notes receivable. The
Company restricts cash and investments to financial institutions with
high credit standing. Credit risk on trade receivables, although
concentrated in one geographic region, is minimized as a result of the
large and diverse nature of the Company's customer base.
(continued)
- F9 -
VICOM, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies - (continued)
Accounting for Stock-Based Compensation
The Company accounts for employee stock options under Accounting
Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to
Employees, and provides the pro forma disclosures required by Statement
of Financial Accounting Standards (SFAS) No. 123, Accounting For
Stock-Based Compensation. Options and warrants to nonemployees are
recorded as required by SFAS No. 123.
Loss Per Share
Loss per common share - basic is determined by dividing the net loss plus
the preferred stock dividends by the weighted average common shares
outstanding. Loss per common share - diluted is computed by dividing the
net loss plus the preferred stock dividends by the weighted average
common shares outstanding and the common share equivalents (stock
options, stock warrants, convertible preferred shares, and issued but not
outstanding restricted stock). Common share equivalents are not included
in the computations as their effects were antidilutive.
A reconciliation of net loss to loss for computing loss per common share
is as follows:
Years Ended December 31,
---------------------------------------
2000 1999 1998
---------- ---------- ----------
Net loss $4,235,831 $2,063,634 $1,443,748
Preferred stock dividends 90,796 37,969 --
---------- ---------- ----------
Loss for computing loss per common share $4,326,627 $2,101,603 $1,443,748
========== ========== ==========
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standard Board issued Statement on
Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, effective for years beginning after
June 15, 2000, as amended. The statement establishes accounting and
reporting standards for derivative instruments and hedging activities.
Management believes this pronouncement will not significantly effect its
consolidated financial statements.
In December 1999, the Securities and Exchange Commission (SEC) released
Staff Accounting Bulletin No. 101 - Revenue Recognition (SAB No. 101).
SAB No. 101 provides the SEC views in applying generally accepted
accounting principles to selected revenue recognition issues. In June
2000, the SEC released Staff Accounting Bulletin No. 101B - Second
Amendment (SAB No. 101B) delaying the implementation date of SAB No. 101
to no later than the fourth fiscal quarter of registrants with fiscal
years beginning after December 15, 1999. This pronouncement did not have
a material effect on the Company's consolidated financial statements.
- F10 -
VICOM, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Business Acquisitions -
Effective November 1, 1999, Vicom purchased the common stock of Ekman,
Inc. (Ekman) from its sole stockholder and merged it into a new
subsidiary, CTU. The purchase price was allocated to assets and
liabilities acquired as follows:
Cash $ 64,072
Accounts receivable 4,047,221
Inventories 1,184,311
Property and equipment 442,509
Other assets 93,196
Checks issued in excess of deposits (335,812)
Notes and installment obligations payable (1,326,666)
Accounts payable (2,080,426)
Other liabilities (322,822)
Service obligations (79,697)
-------------
Net assets acquired 1,685,886
Goodwill 2,801,614
-------------
Total purchase price $ 4,487,500
=============
The consideration consisted of $500,000 in cash, $1,750,000 in 10%
promissory notes, 1,250,000 common shares of Vicom with an assigned value
of $2,137,500, and 150,000 stock options valued at $60,000 and 100,000
warrants valued at $40,000. The value of common shares was based on an
independent third party appraisal. Stock options and warrants were valued
in accordance with the Black-Scholes Options-Pricing Model.
Effective December 31, 1998, Vicom purchased the assets of the midwest
region of Enstar Networking Corporation (ENC) from its parent company
ENStar Inc. (ENStar). The purchase price was allocated to assets and
liabilities acquired as follows:
Accounts receivable:
Billed $ 1,191,639
Unbilled 239,130
Inventories 114,932
Property and equipment 103,031
Other assets 91,953
Service obligations (179,289)
Billings in excess of costs (74,997)
-----------
Net assets acquired 1,486,399
Goodwill 549,101
-----------
Total purchase price $ 2,035,500
===========
(continued)
- F11 -
VICOM, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Business Acquisitions - (continued)
The consideration consisted of 1,350,000 common shares of Vicom with an
assigned value of $797,312, a $750,000 subordinated 9% promissory note, a
payable of $340,188 for purchase price adjustments, and acquisition
related costs of $148,000. The value of common shares was based on the
average stock market sales prices immediately prior to the acquisition.
Both acquisitions were accounted for by the purchase method of accounting
for business combinations. Accordingly, the operating results of Ekman
and ENC were included in the consolidated financial statements since the
date of acquisition. The Company's unaudited pro forma results for 1999
and 1998 assuming both acquisitions occurred on January 1, 1998, are as
follows:
Years Ended December 31,
-------------------------
1999 1998
----------- -----------
Revenues $44,941,776 $44,312,204
Net loss (2,259,869) (1,665,769)
Loss per common share - basic and diluted (.48) (.35)
These unaudited pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of
operations which would have actually occurred had the combinations been
in effect on January 1, 1998, or indicative of future results of
operations.
3. Property and Equipment -
Property and equipment are as follows:
December 31,
-------------------------------
2000 1999
-------------- -------------
Cost:
Leasehold improvements $ 100,034 $ 94,197
Equipment - owned 2,350,281 2,237,141
Equipment under capital lease 1,461,234 364,860
In process equipment (MultiBand) 544,982 --
------------ -----------
4,456,531 2,696,198
------------ -----------
Less accumulated depreciation:
Leasehold improvements 57,500 49,943
Equipment - owned 917,948 1,076,345
Equipment under capital lease 203,974 245,830
------------ -----------
1,179,422 1,372,118
------------ -----------
$ 3,277,109 $ 1,324,080
============ ===========
(continued)
- F12 -
VICOM, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Property and Equipment - (continued)
At December 31, 2000, MultiBand was committed to approximately $6,000,000
and $30,000,000 of future equipment installations under contractual and
non-contractual arrangements, respectively. The Company's timetable for
completing and its ability to complete these installations is contingent
on its ability to raise additional debt and/or equity financing necessary
to fund the installations.
4. Other Assets -
Other assets are as follows:
December 31,
----------------------------
2000 1999
------------ -----------
Current assets:
Notes receivable - current maturities $ 161,603 $ 59,254
Prepaid expenses and other 132,613 95,512
------------ -----------
$ 294,216 $ 154,766
============ ===========
Noncurrent assets:
Notes receivable, less current maturities $ 20,270 $ 71,051
Prepaid expenses and other 156,905 191,830
------------ -----------
$ 177,175 $ 262,881
============ ===========
5. Other Liabilities -
Other liabilities are as follows:
December 31,
----------------------------
2000 1999
------------ -----------
Payroll related $ 585,505 $ 641,059
Billings in excess of costs and estimated earnings 88,223 9,231
Other 152,205 327,223
------------ -----------
$ 825,933 $ 977,513
=========== ===========
6. Wholesale Financing Arrangement -
In 2000, the Company entered into a $2,250,000 wholesale financing
arrangement with a financial institution for the purchase of certain
resale merchandise from certain suppliers, interest generally at 0% (if
paid within certain terms, generally 30 days), and collateralized by
the related inventories and accounts receivable.
- F13 -
VICOM, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Notes and Installment Obligations Payable -
Notes and installment obligations payable are as follows:
December 31,
------------------------
2000 1999
---------- ----------
Commercial line of credit borrowings $ -- $1,307,400
Debenture payable 2,250,000 --
Notes payable, interest at 1.3% to 25.4%, due through
August 2003, collateralized by certain assets 142,564 887,545
Subordinated note payable to ENStar, interest at 9.0%, due December
2003 or earlier in the event of certain equity
offerings or transactions, unsecured 128,994 750,000
Capital lease obligations, monthly installments including
interest at 9.5% to 16.5% through 2004 1,268,859 191,209
Notes payable to related parties, retired in 2000 -- 2,037,100
---------- ----------
3,790,417 5,173,254
Less current maturities 428,334 4,246,433
---------- ----------
$3,362,083 $ 926,821
========== ==========
Future maturities are as follows:
Year Amount
---------- ----------
2001 $ 428,334
2002 355,854
2003 1,023,903
2004 1,470,963
2005 511,363
----------
$3,790,417
==========
Two commercial line of credit arrangements expired in 2000.
In 2000, the Company entered into a $2,250,000 debenture agreement with a
financial institution with interest at 14% payable monthly, principal is
due $102,273 each month from August 1, 2003 through June 1, 2005. The
debenture is collateralized by a subordinated position in substantially
all Company assets.
- F14 -
VICOM, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Notes and Installment Obligations Payable - (continued)
Interest expense to related parties for 2000, 1999, and 1998 was
approximately $153,000, $142,000, and $47,000, respectively.
The maximum amounts borrowed under the lines of credit were approximately
$2,405,000, $2,105,000, and $590,000 for 2000, 1999, and 1998,
respectively; average borrowings were approximately $339,000,
$656,000,and $573,000, respectively; and the weighted average interest
rates were 18.53%, 11.97%, and 10.92%, respectively.
The Company also had $1,048,000 of outstanding letters of credit at
December 31, 2000.
8. Stockholders' Equity -
Capital Stock Authorized
The articles of incorporation authorize the Company to issue 50,000,000
shares of no par capital stock. Authorization to individual classes of
stock are by Board of Directors resolution. The Board authorized 275,000
shares of Class A preferred stock, 60,000 shares of Class B preferred
stock, 250,000 shares of Class C preferred stock, and 250,000 shares of
Class D preferred stock, at December 31, 2000.
Preferred Stock
Dividends on Class A, Class C, and Class D preferred stock are cumulative
and payable quarterly at 8%, 10%, and 14% per annum, respectively.
Dividends on Class B preferred are cumulative and payable monthly at 10%
per annum. The dividends are based on $10 per preferred share. The Class
B preferred was offered to certain note payable holders at a conversion
of $10 per Class B preferred share. All preferred stock is nonvoting.
Warrants to purchase shares of common stock were given with the issuance
of Class A, Class B, and Class D preferred stock. The Company can redeem
the preferred stock at $10.50 per share for Class A and Class B and
$10.00 per share for Class C and Class D, whenever the common stock price
exceeds certain defined criteria. Upon the Company's call for redemption,
the holders of the preferred stock called for redemption will have the
option to convert each preferred share into shares of common stock as
follows: Class A and Class B - five shares, Class C - two shares, and
Class D - two and one-half shares. Holders of preferred stock cannot
require the Company to redeem their shares. The liquidation preference is
the same as the redemption price for each class of preferred stock.
Stock Compensation Plans
The Company has a 1999 Stock Compensation Plan, which permits the
issuance of restricted stock and stock options to key employees and
agents. All outstanding incentive stock options granted under the prior
1997 Stock Options Plan continue. There are 2,500,000 shares (as amended)
of common stock reserved for issuance through restricted stock and
incentive stock option awards. The Plans also provide that the term of
each award be determined by the Board of Directors. Under the Plans, the
exercise price of incentive stock options may not be less than the fair
market value of the stock on the award date, and the options are
exercisable for a period not to exceed ten years from award date.
(continued)
- F15 -
VICOM, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Stockholders' Equity - (continued)
Stock Compensation Plans (continued)
The Company also has a 2000 Non-employee Director Stock Compensation
Plan, which permits the issuance of stock options for 300,000 shares of
common stock to non-employee directors. The exercise price of the stock
options is the fair market value of the stock on the award date, and the
options are exercisable for a period not to exceed ten years from award
date.
Employee Stock Purchase Plan
The Company has a 2000 Employee Stock Purchase Plan, which allows for the
sale of 400,000 shares of Company common stock to qualified employees at
a price equal to the lower or 85% of the fair market value of the stock,
at the beginning and end of each quarterly stock purchase period. At
December 31, 2000, no shares were issued under the Plan.
Restricted Stock
The Company awards restricted common shares to selected employees.
Recipients are not required to provide any consideration other than
services. Company share awards are subject to certain restrictions on
transfer, and all or part of the shares awarded may be subject to
forfeiture upon the occurrence of certain events, including employment
termination. The fair market value of shares awarded is generally
amortized over three years, the vesting term of the awards. Compensation
expense recorded in 2000, 1999, and 1998 in connection with the
amortization of the award cost was $93,696, $37,532, and $-0-,
respectively.
Restricted stock activity is as follows:
2000 1999 1998
--------- ----------- ---------
Outstanding, January 1 199,939 106,759 --
Issued 35,000 144,600 106,579
Vested (62,842) (28,670) --
Forfeited (58,268) (22,750) --
--------- ----------- ---------
Outstanding, December 31 113,829 199,939 106,579
========= =========== =========
Stock Options
Stock option activity is as follows:
Weighted-Average
Options Exercise Price
--------------------------------------- ---------------------------------------
2000 1999 1998 2000 1999 1998
--------- --------- --------- --------- --------- ---------
Outstanding, January 1 998,591 690,500 244,500 $ 1.09 $ .66 $ .88
Granted 440,700 341,841 450,000 4.26 1.95 .55
Exercised (221,217) -- -- .75 -- --
Forfeited (72,567) (33,750) (4,000) 2.10 1.01 1.03
--------- --------- ---------
Outstanding, December 31 1,145,507 998,591 690,500 2.31 1.09 .66
========= ========= =========
The weighted-average grant-date fair value of options granted during
2000, 1999, and 1998 was $2.38, $.38, and $.18, respectively. All options
were issued for exercise prices greater than or equal to grant date
market values.
(continued)
- F16 -
VICOM, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Stockholders' Equity - (continued)
Options outstanding and exercisable as of December 31, 2000, are as
follows:
Outstanding Exercisable
--------------------------------- ------------------
Weighted - Average
--------------------- Weighted-
Range of Remaining Average
Exercise Exercise Contractual Exercise
Prices Options Price Life-Years Options Price
-------------- --------- -------- ---------- ------- --------
$.60 to $1.03 480,050 $ .67 7.1 480,050 $ .67
$1.50 to $2.08 266,657 1.97 8.7 47,550 1.93
$2.88 to $4.00 145,000 2.96 9.1 -- --
$4.75 to $5.38 161,000 4.78 9.5 -- --
$6.00 to $6.75 92,800 6.51 9.6 -- --
--------- -------
$.60 to $6.75 1,145,507 2.31 8.3 527,600 .78
========= =======
If the Company recognized stock option compensation expense based on
grant-date fair value, consistent with the method prescribed by SFAS No.
123, net loss would be approximately as follows:
Years Ended December 31,
-------------------------------------------
2000 1999 1998
----------- ----------- -----------
Net loss $(4,569,000) $(2,124,000) $(1,485,000)
Loss per common share -
basic and diluted $ (.66) $ (.56) $ (.70)
The fair value of stock options is the estimated present value at
grant-date using the Black-Scholes Option-Pricing Model with the
following weighted average assumptions:
Years Ended December 31,
--------------------------------------
2000 1999 1998
------- ------- -------
Risk-free interest rate 6.46% 5.45% 5.39%
Expected life 5 years 5 years 5 years
Expected volatility 51% 20% 24%
Expected dividend rate 0% 0% 0%
(continued)
- F17 -
VICOM, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Stockholders' Equity - (continued)
Stock Warrants
Stock warrant activity is as follows:
Weighted-Average
Warrants Exercise Price
---------------------------------------- ----------------------------------------
2000 1999 1998 2000 1999 1998
---------- ---------- ---------- ---------- ---------- ----------
Outstanding, January 1 836,100 270,050 235,000 $ 2.12 $ 1.50 $ 1.28
Granted 8,760,964 566,050 35,050 8.42 2.42 3.00
Exercised (1,206,000) -- -- 3.00 -- --
Cancelled (297,600) -- -- 5.00 -- --
---------- ---------- ---------
Outstanding, December 31 8,093,464 836,100 270,050 8.71 2.12 1.50
========== ========== =========
The weighted-average grant-date fair value of warrants granted during
2000, 1999, and 1998 was $1.63, $.028, and $.02, respectively. All
warrants were issued for exercise prices greater than or equal to the
award date market values.
Warrants outstanding and exercisable as of December 31, 2000, are as
follows:
Range of Remaining
Exercise Contractual
Prices Warrants Life-Years
-------------- --------- ----------
$ 4.44 80,920 6.9
$ 8.75 8,012,544 1.5
---------
$4.44 to $8.75 8,093,464 1.5
=========
Stock warrants were awarded for:
Years Ended December 31,
-------------------------------------
2000 1999 1998
--------- --------- ---------
Warrant dividend 7,531,744 -- --
Common stock 898,300 -- --
Cash 150,000 -- --
Preferred stock 80,920 5,050 35,050
Multiband startup 50,000 -- --
Debt issuance and guarantees 50,000 461,000 --
Ekman acquisition -- 100,000 --
--------- --------- ---------
8,760,964 566,050 35,050
========= ========= =========
All warrants were recorded at fair value.
(continued)
- F18 -
VICOM, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Stockholders' Equity - (continued)
The fair value of stock warrants is the estimated present value at
grant-date using the Black-Scholes Option-Pricing Model with the
following weighted-average assumptions:
Years Ended December 31,
-------------------------------------------
2000 1999 1998
----------- ----------- ----------
Risk-free interest rate 6.49% 5.88% 4.34%
Expected life 2.2 years 5 years 5 years
Expected volatility 28% 20% 24%
Expected dividend rate 0% 0% 0%
9. Income Taxes -
The income tax provision is as follows:
Years Ended December 31,
------------------------------------------
2000 1999 1998
---------- ---------- ----------
Current $ 9,000 $ (8,000) $ --
Deferred -- 249,200 50,000
---------- ---------- ----------
$ 9,000 $ 241,200 $ 50,000
========== ========== ==========
Components of net deferred income tax assets are as follows:
December 31,
-----------------------
2000 1999
----------- ----------
Deferred income tax assets:
Net operating loss carryforwards $5,549,200 $4,329,600
Nondeductible allowances 323,600 326,800
---------- ----------
5,872,800 4,656,400
Less valuation allowance 5,792,800 4,524,900
---------- ----------
80,000 131,500
Deferred income tax liabilities - depreciation 80,000 131,500
---------- ----------
Net deferred income tax assets $ -- $ --
========== ==========
Income tax computed at the U.S. federal statutory rate reconciled to
the effective tax rate is as follows:
Years Ended December 31,
--------------------------
2000 1999 1998
------ ------ ------
Statutory tax rate (benefits) (34.0)% (34.0)% (34.0)%
Change in valuation allowance 41.3 64.3 36.2
Net operating loss not recognized (6.9) (20.0) (2.4)
Other (.2) 2.9 3.8
------ ------ -----
Effective tax rate .2% 13.2% 3.6%
====== ====== =====
(continued)
- F19 -
VICOM, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Income Taxes - (continued)
The valuation allowance increased by $1,267,900, $1,172,400 and $505,700
in 2000, 1999 and 1998, respectively, primarily from the Company's
inability to utilize its net operating loss carryforwards.
The Company has the following net operating loss carryforwards at
December 31, 2000, for federal income tax purposes:
Net
Year of Operating
Expiration Loss
------------- -------------
2001 $ 307,000
2002 3,152,000
2004 1,050,000
2005 599,000
2007 501,000
2008 59,000
2009 22,000
2011 595,000
2012 25,000
2018 1,122,000
2019 1,585,000
2020 4,856,000
--------------
$ 13,873,000
==============
Under Internal Revenue Code Section 382, utilization of losses expiring
prior to 2019 are limited to approximately $375,000 each year.
State income tax effects are not material and therefore not separately
shown.
10. Employee Benefit Plans -
The Company has 401(k) profit sharing plans covering substantially all
full-time employees. Employee contributions are limited to the maximum
amount allowable by the Internal Revenue Code. The Company made no
significant discretionary contributions in all the years presented.
11. Commitments -
Operating Leases
Facilities are leased under related party operating leases, expiring
through 2006. In addition to basic monthly rents of approximately
$40,000, the Company pays building maintenance costs and real estate
taxes and assessments. In addition, the Company leases vehicles under
operating leases from an entity owned by a relative of a
stockholder/officer and various equipment under other leases.
(continued)
- F20 -
VICOM, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Commitments - (continued)
Operating Leases - (continued)
Future minimum rent commitments are approximately as follows:
Year Amount
---------- ----------
2001 $ 577,000
2002 471,000
2003 408,000
2004 392,000
2005 173,000
Thereafter 255,000
----------
$2,276,000
==========
Rent expense for 2000, 1999, and 1998 was approximately $650,000,
$261,000, and $202,000, respectively, of which $619,000 , $190,000, and
$138,000, respectively, was with related parties.
Employment Agreements
The Company has employment agreements with various officers expiring
through 2002. Some of the agreements include renewal options and
incentives.
Approximate future minimum payments are as follows:
Year Amount
--------- ----------
2001 $ 468,000
2002 110,000
----------
$ 578,000
==========
12. Supplemental Disclosures of Cash Flow Information -
Years Ended December 31,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
Cash paid for interest $ 647,742 $ 214,730 $ 180,434
Noncash investing and financing transactions:
Warrant dividend 13,255,869 -- --
Refinancing of debt 1,603,189 -- --
Notes payable converted to stocks and
warrants issued 1,185,054 -- 375,500
Capitalized lease equipment purchases 1,310,081 11,845 --
Conversion of preferred to common stock 109,897 -- --
Acquisition of Ekman and ENC -- 3,987,500 2,035,500
Warrants issued with notes -- 112,640 --
- F21 -
VICOM, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Significant Customers and Suppliers -
Two customers represented approximately 27% (18% and 9%) of revenues in
2000. One different customer represented approximately 15% of revenues in
1998. The Company had no individually significant customers in 1999.
The Company purchased materials from major suppliers approximately as
follows:
Supplier
----------------------------------------------------------
A B C D E
---------- ---------- ---------- --------- --------
2000 24% 18% 4% --% --%
1999 7 34 18 7 1
1998 -- -- 60 19 15
14. Financial Statement Adjustments -
During 1998, the Company recorded approximately $1,000,000 of noncash
adjustments in connection with the write down of the carrying amounts of
certain assets as follows:
Expense Included Within
------------------------------------
Cost of
Products Operating
Sold Expenses Total
---------- ---------- ----------
Inventory obsolescence $ 660,000 $ -- $ 660,000
Accounts and notes receivable -- 240,000 240,000
Prepaid expenses and other -- 100,000 100,000
---------- ---------- ----------
$ 660,000 $ 340,000 $1,000,000
========== ========== ==========
The effect of these adjustments in 1998 was to increase the loss per
common share by $.47.
15. Business Segments -
Prior to November 1, 1999, Vicom and VMTS operated as one segment, for
integrated voice, video, and data networking technologies products and
services. With the acquisition of Ekman on November 1, 1999, the Company
added the CTU segment which sold computer technologies products and
services.
Since integrated voice, video and data networking technologies products
and services are rapidly merging with computer technologies products and
services, the Company in 2000 merged its integrated voice, video and data
networking products and services operations with its computer
technologies products and services operations in its CTU subsidiary. By
the end of 2000, the CTU subsidiary functioned as one segment for
integrated voice, video, data networking and computer technologies
products and services, under one management structure, with one
management financial reporting system, and having one unified marketing
name.
(continued)
- F22 -
VICOM, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Business Segments - (continued)
With the start up of MultiBand in February 2000, the Company added the
segment providing voice, data, and video services to residential
multi-dwelling units.
Segment disclosures are as follows:
Vicom
and VMTS CTU MultiBand Total
------------ ------------ ------------ ------------
Year Ended December 31, 2000:
Revenues $ 3,248,310 $ 36,460,217 $ 73,319 $ 39,781,846
Loss from operations 1,558,914 463,762 1,746,088 3,768,764
Loss from operations without
amortization 1,558,914 34,992 1,746,088 3,339,994
Depreciation and amortization 301,445 727,449 72,950 1,101,844
Interest expense 260,411 254,655 92,352 607,418
Identifiable assets 868,438 12,388,215 2,357,920 15,614,573
Capital expenditures 22,273 344,898 2,258,932 2,626,103
Year Ended December 31, 1999:
Revenues 15,567,482 4,821,388 -- 20,388,870
Loss from operations 1,642,919 40,054 -- 1,682,973
Loss (income) from operations
without amortization 1,544,476 (6,639) -- 1,537,837
Depreciation and amortization 471,990 81,942 -- 553,932
Interest expense 249,223 13,005 -- 262,228
Identifiable assets 5,753,985 6,844,760 -- 12,598,745
Capital expenditures 515,524 127,487 -- 643,011
Segment disclosures are provided by entity to the extent practicable
under the Company's accounting system.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
No changes in or disagreements with accountants, which required
reporting on Form 8-K have occurred within the two-year period ended December
31, 2000.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the directors and executive officers of the
Company set forth under "Information Concerning Directors, Nominees and
Executive Officers" and under "Compliance with Section 16 (a) "in the Company's
definitive proxy statement for the annual meeting of shareholders to be held May
30, 2001, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to Executive Compensation set forth under
"Executive Compensation" in the Company's definitive proxy statement for the
annual meeting of shareholders to be held May 30, 2001, is incorporated (other
than the subsections captioned "Report of the Compensation and Stock Option
Committee" and "Performance Group"), is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial
owners and management, set forth under "Beneficial Ownership of Principal
Shareholders and Management" in the Company's definitive proxy statement for the
annual meeting of shareholders to be held May 30, 2001, is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related
transactions, set forth under "Information Concerning Directors, Nominees and
Executive Officers" in the Company's definitive proxy statement for the annual
meeting of shareholders to be held May 30, 2001, is incorporated herein by
reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)
Financial Statements, Financial Statement Schedules and Exhibits.
1.
Financial Statements
See Index to Consolidated Financial Statements and Financial Statement Schedules
on page 23 of this report.
2.
Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts
24
3.
Exhibits
See Index to Exhibits on page 27 of this report.
--
(b)
Reports on Forms 8-K.
One report on Form 8-K was filed by the Company during the last quarter of the
fiscal year covered by this report. This Form 8-K was filed on November 22,
2000. No financial statements were filed as part of this report. This subject of
the 8-K report was the raising of additional equity through the sale of
preferred stock.
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of
Securities Exchange Act of 1934, the registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
VICOM, INC.
Registrant
Date: March 29, 2001 By:
/s/ James L. Mandel
CHIEF EXECUTIVE OFFICER
Date: March 29, 2001 By:
/s/ Steven M. Bell
CHIEF EXECUTIVE OFFICER
(PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
25
SCHEDULE II
VICOM, INCORPORATED AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2000, 1999 and 1998
Column A Column B Column C Column D Column E
- ------------------------------------------- ---------- ---------- ---------- ----------
Additions
Balance at Charged to Balance
Beginning Costs and at End
Description of Year Expenses Deductions of Year
- ------------------------------------------- --------- --------- ---------- ----------
ALLOWANCE DEDUCTED FROM
ASSET TO WHICH IT APPLIES
Allowance for doubtful accounts receivable:
2000 $ 140,000 $ 176,000 $ 157,000 (A) $ 159,000
1999 115,000 165,000 140,000 (A) 140,000
1998 40,000 125,000 50,000 (A) 115,000
Allowance for inventory obsolescence:
2000 330,000 245,000 375,000 (B) 200,000
1999 910,000 -- 580,000 (B) 330,000
1998 250,000 660,000 -- 910,000
Notes receivable:
2000 105,000 -- 105,000 (A) --
1999 115,000 -- 10,000 (D) 105,000
1998 -- 115,000 -- 115,000
Allowance for doubtful utilization of
prepaid advertising:
2000 392,000 -- 392,000 (C) --
1999 392,000 -- -- 392,000
1998 292,000 100,000 -- 392,000
(A) Write-off uncollectible receivables
(B) Write-off obsolete inventory
(C) Write-off unusable prepaid advertising
(D) Collections
26
EXHIBITS INDEX
EXHIBIT
NO. DESCRIPTION
2.1 Asset Purchase Agreement and related documents with Enstar
Networking Corporation dated December 31, 1998(1)
2.2 Agreement and Plan of Merger with Ekman, Inc. dated December 29,
1999(1)
3.1 Amended and Restated Articles of Incorporation of Vicom, Inc.(1)
3.2 Restated Bylaws of Vicom, Incorporated(1)
3.3 Articles of Incorporation of Corporate Technologies, USA, Inc.(1)
3.4 Bylaws of Corporate Technologies, USA, Inc.(1)
4.1 Certificate of Designation of the Relative Rights, Restrictions
and Preferences of 8% Class A Cumulative Convertible Preferred
Stock and 10% Class B Cumulative Convertible Preferred Stock dated
December 9, 1998(1)
4.2 Form of Warrant Agreement(1)
4.3 Warrant Agreement with James Mandel dated December 29, 1999(1)
4.4 Warrant Agreement with Marvin Frieman dated December 29, 1999(1)
4.5 Warrant Agreement with Pierce McNally dated December 29, 1999(1)
4.6 Warrant Agreement with Enstar, Inc. dated December 29, 1999(1)
4.7 Warrant Agreement with David Ekman dated December 29, 1999(1)
4.8 Certificate of Designation of the Relative Rights, Restrictions
and Preferences of 10% Class C Cumulative Convertible Stock (2)
4.9 Form of Indenture relating to debenture (3)
5.1 Opinion of Winthrop & Weinstine, P.A.(2)
10.1 Vicom Lease with Marbell Realty dated June 20, 1996(1)
10.2 Employment Agreement with Marvin Frieman dated October 1, 1996(1)
10.3 Employment Agreement with Steven Bell dated October 1, 1996(1)
10.4 Employment Agreement with James Mandel dated August 14, 1998(1)
10.5 Vicom Associate Agreement with NEC America, Inc. dated June
1999(1)
10.6 Loan Agreement with Wells Fargo dated June 17, 1999(1)
10.7 Employment Agreement with David Ekman dated December 29, 1999(1)
10.8 Debenture Loan Agreement with Convergent Capital dated March 9,
2000(1)
10.9 Corporate Technologies, USA, Inc. lease with David Ekman dated
January 19, 2000(1)
10.10 Supplement dated July 11, 2000 to debenture loan agreement with
Convergent Capital dated March 9, 2000.(2)
12.1 Computation of ratio of earnings to fixed charges (3)
21.1 List of subsidiaries of the registrant(1)
23.1 Consent of Lurie Besikof Lapidus & Company, LLP
23.2 Consent of Winthrop & Weinstine, P.A.(2)
25.1 Statement of eligibility of FirStar Bank Minnesota, National
Association, to serve as trustee with respect to the debentures
(3)
- ---------------
(1) Previously filed as the same exhibit to the Registrant's Form 10,
as amended.
(2) Previously filed as the same exhibit to the original Registration
Statement on Form S-1 filed on August 11, 2000 and declared
effective on August 18, 2000.
(3) Previously filed as the same exhibit to this Registration
Statement on Form S-1 filed with the SEC on August 29, 2000.
- ---------------
A copy of any of the exhibits listed or referred to above will be furnished at a
reasonable cost to any shareholder of the Company, upon receipt of a written
request from such person for any such exhibit. Such request should be sent to:
Vicom, Inc., 9449 Science Center Drive, New Hope, MN 55428, Attn: Steve Bell.