Back to GetFilings.com
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-Q
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
FOR THE PERIOD ENDING MARCH 31, 2004
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0 - 1325
---------
VICOM, INCORPORATED
(Exact name of registrant as specified in its charter)
MINNESOTA
(State or other jurisdiction of incorporation or organization)
41 - 1255001
(IRS Employer Identification No.)
9449 SCIENCE CENTER DRIVE, NEW HOPE, MINNESOTA 55428
(Address of principal executive offices)
TELEPHONE (763) 504-3000 FAX (763) 504-3060
www.vicominc.net Internet
(Registrant's telephone number, facsimile number, and Internet address)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Exchange Act).
Yes |_| No |X|
On May 10, 2004 there were 22,847,212 shares outstanding of the
registrant's common stock, par value $.01 per share, and 161,931 outstanding
shares of the registrant's convertible preferred stock.
- --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
VICOM, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
----------------------------
March 31, March 31,
2004 2003
------------ ------------
(unaudited) (unaudited)
REVENUES ................................................... $ 5,747,474 $ 5,871,762
COSTS AND EXPENSES
Cost of products and services ......................... 4,348,949 4,310,702
Selling, general and administrative ................... 2,596,953 2,235,996
------------ ------------
Total Costs and Expenses .............................. 6,945,802 6,546,698
LOSS FROM OPERATIONS ....................................... (1,198,328) (674,936)
OTHER EXPENSE
Interest expense ...................................... (321,377) (225,687)
Other Income (expense) ................................ 2,841 (65,496)
------------ ------------
Total Other Expense ................................... (318,536) (291,183)
LOSS BEFORE INCOME TAXES ................................... (1,516,864) (966,119)
PROVISION FOR INCOME TAXES ................................. 0 0
------------ ------------
NET LOSS ................................................... (1,516,864) (966,119)
Preferred Stock Dividends .................................. (62,653) (56,471)
------------ ------------
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS ................... $ (1,579,517) $ (1,022,590)
============ ============
LOSS PER SHARE - BASIC AND DILUTED ......................... $ (.08) $ (.08)
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED .... 19,280,632 13,418,333
See notes to condensed consolidated financial statements
2
VICOM, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2004 AND DECEMBER 31, 2003
March 31, 2004 December 31, 2003
---------------- ----------------
(unaudited) (audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents ............................................ $ 1,602,593 $ 2,945,960
Certificate of deposit ............................................... 250,000 250,000
Accounts receivable, net ............................................. 2,039,841 1,658,114
Inventories, net ..................................................... 1,951,218 1,973,817
Other Current Assets ................................................. 103,152 96,550
---------------- ----------------
TOTAL CURRENT ASSETS .............................................. 5,946,804 6,924,441
---------------- ----------------
PROPERTY AND EQUIPMENT, NET ............................................. 3,369,071 3,589,704
---------------- ----------------
OTHER ASSETS
Goodwill ............................................................. 2,761,245 2,748,879
Other ................................................................ 1,039,508 639,861
---------------- ----------------
TOTAL OTHER ASSETS ............................................... 3,800,753 3,388,740
---------------- ----------------
TOTAL ASSETS ............................................................ $ 13,116,625 $ 13,902,885
---------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Checks issued in excess of cash in bank .............................. $ 142,775 $ 147,398
Wholesale line of credit ............................................. 1,453,725 976,314
Current portion of long term debt .................................... 919,032 998,813
Current portion of note payable, stockholder ......................... 88,080 81,554
Current portion of capital lease obligations ......................... 56,143 54,939
Accounts payable ..................................................... 1,663,419 1,771,699
Accrued liabilities .................................................. 1,101,155 1,459,705
Deferred service obligations and revenue ............................. 332,255 315,227
---------------- ----------------
TOTAL CURRENT LIABILITIES ......................................... 5,756,584 5,805,649
LONG TERM DEBT, NET ..................................................... 2,127,691 2,087,156
OTHER LONG TERM DEBT .................................................... 222,700 0
NOTE PAYABLE, STOCKHOLDER, NET OF CURRENT PORTION ....................... 16,576 32,837
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION ....................... 128,329 142,898
---------------- ----------------
TOTAL LIABILITIES ....................................................... 8,251,880 8,068,540
---------------- ----------------
MINORITY INTEREST IN SUBSIDIARY ......................................... 0 26,634
STOCKHOLDERS' EQUITY
Cumulative convertible preferred stock, no par value:
8% Class A (27,931 shares issued and outstanding,
$293,276 liquidation preference) .................................. 419,752 419,752
10% Class B (8,700 shares issued and outstanding,
$91,350 liquidation preference) ................................... 62,000 62,000
10% Class C (125,400 shares issued and outstanding,
$1,254,000 liquidation preference) ................................ 1,611,105 1,611,105
15% Class E (77,650 shares issued and outstanding,
$776,500 liquidation preference) .................................. 438,964 438,964
Common stock, no par value (19,450,294 and 19,036,805 shares issued;
19,440,150 and 19,019,786 shares outstanding) ......................... 8,230,982 7,726,505
Stock subscriptions receivable ........................................ (415,085) (418,085)
Options and warrants ................................................. 30,514,872 30,514,872
Unamortized compensation ............................................. (88,136) (217,210)
Accumulated deficit .................................................. (35,909,709) (34,330,192)
---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY .............................................. 4,864,745 5,807,711
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .............................. $ 13,116,625 $ 13,902,885
================ ================
See notes to condensed consolidated financial statements.
3
VICOM, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THREE MONTHS ENDED MARCH 31, 2004 AND MARCH 31, 2003 (Unaudited)
THREE MONTHS ENDED
MARCH 31,
----------- -----------
2004 2003
----------- -----------
OPERATING ACTIVITIES
Net loss .................................................................................. $(1,516,864) $ (966,119)
Adjustments to reconcile net loss to net cash flows from operating activities
Depreciation and amortization .......................................................... 363,327 214,132
Amortization of deferred compensation .................................................. 112,641 120,190
Amortization of original issue discount ................................................ 188,979 114,616
Common stock issued for services ....................................................... 19,887 321,920
Loss on sales of property and equipment ................................................ 0 74,137
Interest receivable on stock subscription receivable ................................... 0 (10,826)
Changes in operating assets and liabilities:
Accounts receivable, net ............................................................. (385,460) (65,526)
Inventories, net ..................................................................... 22,599 (29,704)
Other current assets ................................................................. (10,028) (225,568)
Other assets ......................................................................... (37,171) 600
Wholesale line of credit ............................................................. 477,411 187,910
Accounts payable and accrued liabilities ............................................. (459,736) (234,476)
Deferred service obligations and revenue ............................................. 17,028 26,029
----------- -----------
Net cash flows from operating activities .......................................... (1,207,387) (472,685)
----------- -----------
INVESTING ACTIVITIES
Purchases of property and equipment ....................................................... (39,659) (92,285)
Proceeds from sale of property and equipment .............................................. 151 0
Collections on notes receivable ........................................................... 3,000 5,000
----------- -----------
Net cash flows from investing activities .......................................... (36,508) (87,285)
----------- -----------
FINANCING ACTIVITIES
Checks issued in excess of cash in bank ................................................... (4,623) 0
Payments on long term debt ................................................................ (31,867) (53,260)
Payments on capital lease obligations ..................................................... (19,723) (20,474)
Payments on note payable to stockholder ................................................... (9,735) 0
Proceeds from issuance of stock and warrants .............................................. 0 481,391
Exercise of warrants ...................................................................... 0 78,130
Redemption of preferred stock ............................................................. 0 (2,100)
Preferred stock dividends ................................................................. (33,524) (50,521)
----------- -----------
Net cash flows from financing activities .......................................... (99,472) 433,166
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................................. (1,343,367) (126,804)
CASH AND CASH EQUIVALENTS
Beginning of period ....................................................................... 2,945,960 540,375
----------- -----------
End of period ............................................................................. $ 1,602,593 $ 413,571
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest, net of amortization of original issue discount .................... 128,405 $ 119,489
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Issuance of preferred stock for acquisition of assets ..................................... 0 76,500
Issuance of common stock for acquisition of assets ........................................ 274,800 0
Warrants issued with debt ................................................................. 0 208,447
Conversion of preferred stock into common stock ........................................... 0 40,000
Current liabilities converted to stock .................................................... 36,223 92,514
Conversion of notes payable into common stock ............................................. 190,000 130,500
Conversion of dividend into common stock .................................................. 0 5,950
Reduction of stock subscription receivable ................................................ 0 8,782
Stock subscription receivable for issuance of common stock ................................ 0 40,000
See notes to condensed consolidated financial statements
4
VICOM, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2004 and 2003
NOTE 1 - UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The information furnished in this report is unaudited and reflects all
adjustments which are normal recurring adjustments and, which in the opinion of
management, are necessary to fairly present the operating results for the
interim periods. The operating results for the interim periods presented are not
necessarily indicative of the operating results to be expected for the full
fiscal year.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenues and Cost Recognition
Vicom, Inc. and subsidiaries (the Company) earns revenues from five 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, 4) MultiBand user charges to multiple dwelling
units, and 5) MB USA user charges to timeshares.
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. Product returns and customer discounts
are netted against revenues.
Customer contracts 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 are recognized when the products are
delivered and installed, and the customer has accepted the terms and has the
ability to fulfill the terms.
Service revenues related to technology products including consulting, training
and support are recognized when the services are provided. Service revenues are
expected to account for less than 10% of total revenues for the year ending
December 31, 2004. Service revenues were less than 10% of total revenues for the
year ended December 31, 2003. 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 and MBUSA 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.
Intangible Assets
The Company amortizes a domain name acquired during the year ended December 31,
2001 over its estimated useful life of five years using the straight-line
method. The Company amortizes access contracts over the estimate useful of three
years using the straight-line method. The Company began amortizing the customer
cable lists over two to five years effective January 1, 2004.
Amortization of intangible assets was $91,454 and $8,732 for the three months
ended March 31, 2004 and 2003, respectively. Estimated amortization expense of
intangible assets for the years ending December 31, 2004, 2005, 2006, 2007, and
2008 is $302,473, $359,216, $91,314, $57,000 and $57,000, respectively.
Goodwill
Goodwill represents the excess of acquisition costs over the fair value of
identifiable net assets acquired and was originally amortized using the
straight-line method over ten years. Due to changes in accounting standards, the
5
carrying value of goodwill is now reviewed annually to see if the facts and
circumstances suggest that it may be impaired. If the review indicates that
goodwill will not be recoverable, as determined based on the undiscounted cash
flows of the assets acquired over the remaining amortization period, the
Company's carrying value of goodwill is reduced by the estimated shortfall of
cash flows. The Company did not record any impairment charges related to
goodwill during the three months ended March 31, 2004 and 2003.
Stock-Based Compensation
In accordance with Accounting Principles Board (APB) Opinion No. 25 and related
interpretations, the Company uses the intrinsic value-based method for measuring
stock-based compensation cost which measures compensation cost as the excess, if
any, of the quoted market price of the Company's common stock at the grant date
over the amount the employee must pay for the stock. The Company's general
policy is to grant stock options at fair value at the date of grant.
Pursuant to APB No. 25 and related interpretations, $112,641 and $120,190 of
compensation cost has been recognized in the accompanying consolidated
statements of operations for the three months ended March 31, 2004 and 2003,
respectively. Had compensation cost been recognized based on the fair values of
options at the grant dates consistent with the provisions of Statements of
Financial Accounting Standards (SFAS) No. 123 "Accounting for Stock-Based
Compensation", the Company's net loss and loss attributable to common
stockholders and basic and diluted loss per common share would have been
increased to the pro forma amounts:
Three Months Ended
March 31
---------------------------
2004 2003
------------ ------------
Loss attributable to common stockholders $(1,579,517) $(1,022,590)
Pro forma loss attributable to common shares $(1,708,825) $(1,433,587)
Basic and diluted net loss per share:
As reported $ (0.08) $ (0.08)
Pro forma loss attributable to common shares $ (0.09) $ (0.11)
Stock-based compensation:
As reported $ 112,641 $ 120,190
Proforma $ 129,308 $ 410,997
In determining the compensation cost of the options granted during the three
months ended March 31, 2004 and 2003, as specified by SFAS No. 123, the fair
value of each option grant has been estimated on the date of grant using the
Black-Scholes option pricing model and the weighted average assumptions used in
these calculations are summarized as follows for March 31:
2004 2003
-------- --------
Risk-free interest rate 3.50% 3.00%
Expected life of options granted 10 years 10 years
Expected volatility range 184% 170%
Expected dividend yield 0% 0%
Net Loss per Share
Basic net loss per common share is computed by dividing the loss attributable to
common stockholders by the weighted average number of common shares outstanding
6
for the reporting period. Diluted net loss per common share is computed by
dividing loss attributable to common stockholders by the sum of the weighted
average number of common shares outstanding plus all additional common stock
that would have been outstanding if potentially dilutive common shares related
to common share equivalents (stock options, stock warrants, convertible
preferred shares, and issued but not outstanding restricted stock) had been
issued. All options, warrants, convertible preferred shares, and issued but not
outstanding restricted stock during the three months ended March 31, 2004 and
2003 were anti-dilutive.
NOTE 3 - LIQUIDITY
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern that contemplates the realization
of assets and satisfaction of liabilities in the normal course of business. For
the three months ended March 31, 2004 and 2003, the Company incurred net losses
of $1,516,864 and $966,119, respectively. At March 31, 2004, the Company had an
accumulated deficit of $35,909,709. The Company's ability to continue as a going
concern is dependent on it ultimately achieving profitability and/or raising
additional capital. Management intends to obtain additional debt or equity
capital to meet all of its existing cash obligations and fund commitments on
planned MultiBand projects however, there can be no assurance that the sources
will be available or available on terms favorable to the Company. Management
anticipates that the impact of the actions listed below, will generate
sufficient cash flows to pay current liabilities, long-term debt and capital
lease obligations and fund the Company's future operations:
1. Continued reduction of operating expenses by controlling payroll,
professional fees and other general and administrative expenses.
2. Solicit additional equity investment in the Company by either issuing
preferred or common stock.
3. Continue to market MultiBand services and acquire additional multi-dwelling
unit customers.
4. Control capital expenditures by contracting MultiBand services and equipment
through a landlord-owned equipment program.
5. Establish market for wireless internet services.
NOTE 4 - STOCK WARRANTS
Stock warrants activity is as follows for the three months ended March 31, 2004:
WEIGHTED
NUMBER OF AVERAGE
WARRANTS EXERCISE PRICE
--------------- ---------------
WARRANTS OUTSTANDING - DECEMBER 31, 2003 7,421,874 1.87
GRANTED 0 0
CANCELED OR EXPIRED 0 0
EXERCISED 0 0
--------------- ---------------
WARRANTS OUTSTANDING - MARCH 31, 2004 7,421,874 1.87
=============== ===============
There were no warrants granted during the three months ended March 31, 2004.
NOTE 5 - BUSINESS SEGMENTS
Following is Company business segment information for the three months ended
March 31, 2004 and 2003
7
Multiband Multiband
Business Consumer
Vicom Services Services Total
------------ ------------ ------------ ------------
Quarter ended March 31, 2004
Revenues $ 0 $ 5,066,929 $ 680,545 $ 5,747,474
Loss from operations (459,823) (374,530) (363,975) (1,198,328)
Identifiable assets 4,383,876 5,546,203 3,186,546 13,116,625
Depreciation and amortization 17,979 114,090 231,258 363,327
Capital expenditures 6,690 26,834 6,135 39,659
Quarter ended March 31, 2003
Revenues $ 0 $ 5,636,642 $ 235,120 $ 5,871,762
Loss from operations (406,421) (54,894) (213,621) (674,936)
Identifiable assets 3,318,261 5,182,571 1,911,580 10,412,412
Depreciation and amortization 11,725 106,944 95,463 214,132
Capital expenditures 0 36,645 55,640 92,285
NOTE 6 - RELATED PARTIES
The Company had revenues from companies that are associated with a
director, who was elected to the board of directors during 2003, of
approximately $0 and $17,000 for the months ended March 31, 2004 and 2003,
respectively. In addition, the Company had accounts receivable outstanding from
these companies of approximately $ 139,000 and $142,000 at March 31, 2004 and
2003, respectively.
NOTE 7- ACQUISITIONS
In January 2004, the Company purchased the remaining 50% ownership in its
Multiband USA, Inc, subsidiary, previously owned by Pace Telecommunications
(Pace) for 30,000 shares of Vicom, Inc. common stock valued at $39,000.
On January 1, 2004, the Company entered into a stock purchase agreement
with URON, Inc. (URON) to purchase all of the outstanding capital stock of URON
for a total purchase price of 350,000 shares of the Company's common stock to be
issued in installments as follows: a) 180,000 shares issued at closing, b)
170,000 shares held in escrow. The common shares were valued at fair market
value on the date of agreement which was $1.31 per share for a purchase price of
$458,500. The terms of the escrow are as follows: 50, 000 shares to be released
upon URON providing the Company with documentation satisfactory to the Company
of a release from a certain vendor or any related entity of all liabilities
incurred to a certain vendor by URON; 120 shares to be released in 40,000 share
increments upon the Company's receipt of distributable gross profits, generated
by certain customers, in increments of $75,000 cash. The escrow shall be
terminated 24 months after the date of the agreement and any shares not released
will be rescinded to the Company. The Company must register all shares issued
within one year from the date of issuance. The reason for the purchase of URON
is to continue to expand the Company's services related to voice, data, and
video services. The Company is acquiring the customer lists of URON and is
amortizing them over their estimated useful lives of two years.
The following unaudited pro forma condensed results of operations for the
three months ended March 31, 2004 and 2003 give effect to the acquisition of
URON as if such transactions had occurred on January 31, 2003.
8
The unaudited pro forma information does not purport to represent what the
Company's results of operations would actually have been if such transactions in
fact had occurred at such date or to project the Company's results of future
operations.
PROFORMA
Proforma
For the three months For the three months
ended 3/31/04 ended 3/31/2003
-------------------- --------------------
Revenues $ 5,747,474 $ 5,919,723
Loss from Operations $ (1,198,328) $ (666,515)
Net Loss $ (1,516,864) $ (957,698)
Loss Per Share - Basic and diluted $ (.08) $ (.07)
Weighted Average Shares Outstanding - Basic
and diluted 19,280,632 13,768,333
NOTE 8 - SUBSEQUENT EVENTS
In April 2004, the Company purchased certain assets consisting of data and
video subscribers and systems from Satellite Broadcasting Corporation and
affiliates. The total purchase price for said assets was approximately $645,000.
In April 2004, the Company purchased Minnesota Digital Universe, Inc (MDU)
for approximately $7.7 million, half of which was paid in 2,000,000 Vicom, Inc.,
common stock, valued at $3,500,000, $1 million in cash and the balance in notes
payable due quarterly in three quarterly payments starting in July 2004 with the
total liability due by January 2005. With this acquisition, the Company
purchased an agency agreement which the Company intends to amortize over a
period of 73 months. MDU is a nationwide agent for DirecTV. MDU services nearly
40,000 video subscribers through a network of private cable operators spread
across the United States. The Company believes this purchase will strengthen its
overall position in the multi-dwelling unit marketplace by forming a direct
relationship with DirecTV and by allowing the Company to develop new alliances
and potential sales and marketing relationships with the aforementioned network
of operators. The purchase also permits the Company to receive ongoing residual
payments from DirecTV during the term of the master system operator agreement
with DirecTV, which initially had approximately twenty five months remaining at
the time of purchase. Proforma information with regards to this transaction was
not available as of March 31, 2004.
FORWARD-LOOKING STATEMENTS
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, product pricing, management for growth, integration of acquisitions,
technological developments, new products, and similar matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements including those made in this statement. In order to
comply with the terms of the Private Securities Litigation Reform Act, the
Company notes that a variety of factors could cause the Company's actual results
and experience to differ materially from the anticipated results or Company's
forward-looking statements.
9
The risks and uncertainties that may affect the operations, performance,
developments and results of the Company's business include the following:
national and regional economic conditions; pending and future legislation
affecting IT and telecommunications industries; market acceptance of the
Company's products and services; the Company's products and services; the
Company's continued ability to provide integrated communication solutions for
customers in a dynamic industry; and other competitive factors.
Because these and other factors could affect the Company's operating
results, past financial performance should not necessarily be considered as a
reliable indicator of future performance and anticipated future period results.
10
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
GENERAL
Vicom, Incorporated (Vicom) is a Minnesota corporation formed in September
1975. Vicom has two operating divisions: 1) Multiband Business Services (MBS,
legally known as Corporate Technologies, USA, Inc dba Multiband), And Multiband
Consumer Services (MCS), which encompasses the wholly owned subsidiary
corporations, Multiband USA, Inc., URON, Inc. and Minnesota Digital Universe,
Inc.
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. In December, 2000,
Vicom stock began trading on the NASDAQ stock exchange under the symbol VICM.
Vicom's website is located at: www.vicominc.net .
As of March 31, 2004, MBS was providing telephone equipment and service to
approximately 800 customers, with approximately 17,000 telephones in service. In
addition, MBS provided computer products and services to approximately 1,800
customers. Telecommunications systems distributed by MBS 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.
MBS provides a full range of voice, data and video communications systems
and service, system integrations, training and related communication sales and
support activities for commercial, professional and institutional customers,
most of which are located in Minnesota and North Dakota. MBS purchases products
and equipment from NEC America, Inc. (NEC), Cisco Systems, Inc. (Cisco), Nortel
Networks Corp (Nortel), Tadiran Telecommunicaitons, Inc. (Tadiran), and other
manufacturers of communications and electronic products and equipment. MBS uses
these products to design telecommunications and computer systems to fit its
customers' specific needs and demands.
Numbers of Units/Customers
At March 31, 2004, MCS had 10,384 subscribers using its services (1,144
using voice services, 5,735 using video services and 3,505 using internet
services).
11
SELECTED CONSOLIDATED FINANCIAL DATA
DOLLAR AMOUNTS AS A PERCENTAGE OF REVENUES
THREE MONTHS ENDED
--------------------------------
March 31, 2004 March 31, 2003
(unaudited) (unaudited)
-------------- --------------
REVENUES 100% 100%
COST OF PRODUCTS & SERVICES 75.7% 73.4%
GROSS MARGIN 24.3% 26.6%
SELLING, GENERAL & ADMINISTRATIVE 45.2% 38.1%
OPERATING LOSS -20.9% -11.5%
INTEREST EXPENSE & OTHER, NET -5.6% -5.0%
LOSS BEFORE TAXES -26.5% -16.5%
INCOME TAX 0 0
NET LOSS -26.5% -16.5%
The following table sets forth, for the period indicated, the gross margin
percentages for Corporate Technologies USA, Inc. and MultiBand, Inc.
THREE MONTHS ENDED
MARCH 31, 2004 MARCH 31, 2003
GROSS MARGIN PERCENTAGES:
MBS 19.0% 25.2%
MCS 5.3% 1.4%
RESULTS OF OPERATIONS
Revenues
Revenues decreased 2.1% to $5,747,474 in the quarter ended March 31, 2004,
as compared to $5,871,762 for the quarter ended March 31, 2003.
Revenues for (MBS) decreased 10.1% in the first quarter of fiscal 2004 to
$5,066,929 as compared to $5,636,642 in the first quarter of fiscal 2003
primarily as a result of reduced spending by a few larger MBS customers. The
Company is diversifying its customer base to add medium and small businesses and
as a result the Company expects revenues will stabilize in future quarters.
Revenues for MCS increased 189.4% to $680,545 as compared to $235,120 in
the first quarter of fiscal 2003. This increase is due to expansion of MCS
services to eight additional properties and the acquisition of URON cable
services. Future expansion of MCS will be primarily through acquisitions
financed with cash and equity which are expected to significantly increase
quarterly revenues beginning in the second quarter.
Gross Margin
The Company's gross margin decreased 6% or $162,435 to $1,398,625 for the
quarter ended March 31, 2004 as compared to $1,561,060 for the similar quarter
last year. For the quarter ended March 31, 2003, as a percent of total revenues,
gross margin was 24.3% as compared to 26.6% for the similar period last year.
12
Gross margin for MBS decreased by 26.2% to $1,092,476 for the quarter
ended March 31, 2004, as compared to $1,479,587 in the first quarter of fiscal
2003 due to lower MBS sales and lower profits on those sales.
Gross margin for MCS for the quarter ended March 31, 2004 increased 275.8%
to $306,149 as compared to $81,473 in the first quarter of fiscal 2003
reflecting on the increase of revenue being billed. The Company expects a slight
increase in its gross margin on a consolidated basis going forward due to an
increased amount of subscriber revenues contained in the Company's overall
revenue mix.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 16.1% to $2,596,953
in the quarter ended March 31, 2004, compared to $2,235,996 in the prior year
quarter. This increase is primarily a result of increased expenses related to
the addition of multiple properties in the MCS division. Selling, general and
administrative expenses were, as a percentage of revenues, 45.2% for the quarter
ended March 31, 2004 and 38.1% for the similar period a year ago.
Interest Expense
Interest expense was $321,377 for the quarter ended March 31, 2004, versus
$225,687 for the similar period a year ago, reflecting an increase in the
Company's long term debt. Amortization of original issue discount was $188,979
and $114,616 for the three months ended March 31, 2004 and 2003.
Net Loss
In the first quarter of fiscal 2004, the Company incurred a net loss of
$1,516,864 compared to a net loss of $966,119 for the first fiscal quarter of
2003.
Liquidity and Capital Resources
Available working capital, for the three months ended March 31, 2004
decreased significantly over the similar period last year. Accounts receivable
and current portion of long term debt increased, while cash, inventories,
accounts payable and accrued liabilities all decreased.
The Company continues to face a very competitive environment in its MBS
division which in the first quarter of 2004 produced both declining revenues and
margins. The Company's MCS division continues to experience significant growth,
primarily due to increased subscriber related recurring revenues acquired via
various transactions previously mentioned herein. The Company expects its second
quarter operating results to be favorably impacted by acquisitions completed in
the first four months of 2004.
The Company, between April 1, 2004 and January 1, 2005, is obligated to
pay an additional $2.85 million to retire the notes payable related to its MDU
Inc. acquisition. The Company as of March 31, 2004 did not have available cash
on hand sufficient to retire said notes payable. The Company also continued to
experience operating losses in the first quarter. Nonetheless, management of
Vicom believes that, for the near future, cash generated by sales of stock, and
existing credit facilities, in aggregate, are adequate to meet the anticipated
liquidity and capital resource requirements of its business. The Company
believes the acquisitions completed in the first four months of 2004 will reduce
Company operating losses due to anticipated operating income related to said
acquisitions. The Company also believes, although it cannot guarantee, that it
will, as it has done in prior periods, be able to continue to raise money for
the purposes of financing acquisitions. However, significant continuation of the
Company's subscriber build-out and subscriber acquisition
13
programs are highly dependent on securing additional financing for future
projects.
Capital Expenditures
The Company used $39,659 for capital expenditures during the three months
ended March 31, 2004, as compared to $92,285 in the similar period last year.
Capital expenditures consisted of equipment acquired for internal use. The
Company anticipates that for the current fiscal year capital purchases will
remain somewhat consistent with first quarter capital expenditures.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Impairment of Long-Lived Assets
The Company's long-lived assets include property, equipment and leasehold
improvements. The estimated fair value of these assets is dependent on the
Company's future performance. In assessing for potential impairment for these
assets, the Company considers future performance. If these forecasts are not
met, the Company may have to record an impairment charge not previously
recognized, which may be material. During the three months ended March 31, 2004
and 2003, the Company did not record any impairment losses related to long-lived
assets.
Impairment of Goodwill
We periodically evaluate acquired businesses for potential impairment
indicators. Our judgements regarding the existence of impairment indicators are
based on legal factors, market conditions and operational performance of our
acquired businesses. Future events could cause us to conclude that impairment
indicators exist and that goodwill associated with our acquired businesses is
impaired. Any resulting impairment loss could have a material adverse impact on
our financial condition and results of operations. During the three months ended
March 31, 2004 and 2003, the Company did not record any impairment losses
related to goodwill.
Inventories
We value our inventory at the lower of the actual cost or the current estimated
market value of the inventory. We regularly review inventory quantities on hand
and record a provision for excess and obsolete inventory. Rapid technological
change, frequent new product development, and rapid product obsolescence that
could result in an increase in the amount of obsolete inventory quantities on
hand characterize our industry.
ITEM 3. QUANTITIVE AND QUALITIVE DISCLOSURE ABOUT MARKET RISK
Vicom is not subject to any material interest rate risk as any current
lending agreements are at a fixed rate of interest.
ITEM 4. CONTROLS AND PROCEDURES
The Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer, and its President and Chief Financial Officer, of the
effectiveness of the Company's "disclosure controls and procedures" as of the
end of the period covered by this report, pursuant to Rules 13a-15(b) and
15d-15(b) under the Exchange Act. Based upon that evaluation, the Company's
Chief Executive Officer and its President and Chief Financial Officer have
concluded that, as of the end of the period covered by this report, the
Company's disclosure controls and procedures were effective in timely alerting
them to material information relating to the Company required to be included in
the Company's periodic SEC filings. However, due to the limited number of
Company employees engaged in the authorization, recording, processing and
14
reporting of transactions, there is inherently a lack of segregation of duties.
The Company periodically assesses the cost versus benefit of adding the
resources that would remedy or mitigate this situation and currently, does not
consider the benefits to outweigh the costs of adding additional staff in light
of the limited number of transactions related to the Company's operations.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in legal actions in the ordinary course of
business. However, as of March 31, 2004, Vicom was not engaged in any pending
legal proceedings where, in the opinion of the Company, the outcome is likely to
have a material adverse effect upon the business, operating results and
financial condition of the Company.
ITEM 2. ISSUANCE OF COMMON STOCK
In the first quarter of 2004, Vicom Inc. issued common stock in connection
with the acquisition of URON and Multiband USA, Inc. as itemized in Note 7 in
the condensed footnotes herein.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Rule 13a-14(s) Certification of Chief Executive Officer -
James Mandel
31.2 Rule 13a-14(s) Certification of Chief Financial Officer -
Steven Bell
32.1 Section 1350 of Sarbanes-Oxley Act of 2002 - James Mandel and
Steven Bell
(b) Reports on Form 8-K.
Filed March 17, 2004
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VICOM, INC.
Registrant
Date: May 17, 2004 By:
/s/ James L. Mandel
-----------------------
James L. Mandel
Chief Executive Officer
Date: May 17, 2004 By:
/s/ Steven M. Bell
-----------------------
Steven M. Bell
Chief Executive Officer
(Principal Financial and
Accounting Officer)