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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2002
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER 0-1325
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VICOM, INCORPORATED
(Exact name of registrant as specified in its charter)
MINNESOTA
(State or other jurisdiction of incorporation or organization)
41-1255001
(IRS Employer Identification No.)
9449 SCIENCE CENTER DRIVE, NEW HOPE, MINNESOTA 55428
(Address of principal executive offices)
TELEPHONE (763) 504-3000 FAX (763) 504-3060
www.vicominc.net Internet
(Registrant's telephone number, facsimile number, and Internet address)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
On April 25, 2002 there were 11,036,934 shares outstanding of the
registrant's common stock, par value $.01 per share, and 200,146 outstanding
shares of the registrant's convertible preferred stock.
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
VICOM, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
------------------
March 31, 2002 March 31, 2001
-------------- --------------
(unaudited) (unaudited)
REVENUES .................................................. $ 6,262,188 $ 10,682,819
COSTS AND EXPENSES
Cost of products and services ........................ 4,789,214 8,555,049
Selling, general and administrative .................. 2,236,736 3,008,546
-------------- --------------
Total Costs and Expenses ............................. 7,025,950 11,563,595
LOSS FROM OPERATIONS ...................................... (763,762) (880,776)
OTHER EXPENSE
Interest expense ..................................... (365,835) (292,438)
Income (expense) ..................................... 19,676 45,090
-------------- --------------
Total Other Expense .................................. (346,159) (247,348)
LOSS BEFORE INCOME TAXES .................................. (1,109,921) (1,128,124)
PROVISION FOR INCOME TAXES ................................ 0 0
-------------- --------------
NET LOSS .................................................. (1,109,921) $ (1,128,124)
Preferred Stock Dividends ................................. 51,726 52,461
-------------- --------------
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS .................. (1,161,647) (1,180,585)
============== ==============
LOSS PER SHARE - BASIC AND DILUTED ........................ $ (.10) $ (.14)
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC
AND DILUTED ............................................... 10,639,224 8,024,447
See notes to condensed consolidated financial statements
VICOM, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 AND DECEMBER 31, 2001
March 31, 2002 December 31, 2001
-------------- -----------------
(unaudited) (audited)
ASSETS
CURRENT ASSETS
Cash ..................................................................... $ 976,469 $ 624,845
Accounts receivable, net ................................................. 2,017,332 2,595,368
Inventories, net ......................................................... 1,628,353 1,646,441
Other Current Assets ..................................................... 241,993 295,324
-------------- --------------
TOTAL CURRENT ASSETS .................................................. 4,864,147 5,161,978
-------------- --------------
PROPERTY AND EQUIPMENT, NET ................................................. 3,906,236 4,059,831
-------------- --------------
OTHER ASSETS
Goodwill, net ............................................................ 2,748,879 2,748,879
Other .................................................................... 247,774 260,612
-------------- --------------
TOTAL OTHER ASSETS ................................................... 2,996,653 3,009,491
-------------- --------------
TOTAL ASSETS ................................................................ $ 11,767,036 $ 12,231,300
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Wholesale line of credit ................................................. $ 1,250,552 $ 1,324,807
Current portion of long term debt ........................................ 1,595,394 85,789
Current portion of capital lease obligations ............................. 322,215 309,906
Accounts payable ......................................................... 1,685,727 1,800,285
Accrued liabilities ...................................................... 810,751 776,417
Deferred service obligations and revenue ................................. 368,742 416,606
-------------- --------------
TOTAL CURRENT LIABILITIES ............................................. 6,033,381 4,713,810
LONG TERM DEBT, NET ......................................................... 1,787,680 2,669,510
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION ........................... 555,045 642,360
-------------- --------------
TOTAL LIABILITIES ........................................................... 8,376,106 8,025,680
-------------- --------------
STOCKHOLDERS' EQUITY
Cumulative convertible preferred stock, no par value:
8% Class A (29,731 and 28,872 shares issued and outstanding) .............. 446,752 433,867
10% Class B (8,700 shares issued and outstanding) ......................... 87,000 87,000
10% Class C (139,510 shares issued and outstanding) ....................... 1,800,447 1,800,447
14% Class D (40,000 shares issued and outstanding) ........................ 417,500 417,500
Common stock, no par value (10,835,376 and 10,679,450 shares issued;
10,774,983 and 10,604,113 shares outstanding) ............................. 3,486,224 3,443,104
Stock subscriptions receivable ............................................ (610,000) (610,000)
Options and warrants ...................................................... 25,108,752 24,957,912
Unamortized compensation .................................................. (1,059,735) (1,209,143)
Accumulated deficit ....................................................... (26,286,010) (25,115,067)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY .................................................. 3,390,930 4,205,620
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................................. $ 11,767,036 $ 12,231,300
============== ==============
See notes to condensed consolidated financial statements.
VICOM, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THREE MONTHS ENDED MARCH 31, 2002 AND MARCH 31, 2001 (Unaudited)
THREE MONTHS ENDED
MARCH 31,
---------
2002 2001
------------ ------------
OPERATING ACTIVITIES
Net loss .............................................................................. $ (1,109,921) $ (1,128,124)
Adjustments to reconcile net loss to net cash flows from operating activities
Depreciation ....................................................................... 258,300 241,479
Amortization of deferred compensation .............................................. 130,428 281,421
Amortization of original issue discount ............................................ 210,983 0
Common stock issued for marketing services ......................................... 7,500 0
Loss on sales of property and equipment ............................................ (6,726) 0
Discount on preferred stock related to warrants .................................... (5,001) 0
Changes in operating assets and liabilities:
Accounts receivable, net ......................................................... 578,036 (1,116,956)
Inventories, net ................................................................. 18,088 (38,898)
Other current assets ............................................................. 53,329 6,541
Other assets ..................................................................... 12,838 (11,064)
Wholesale line of credit ......................................................... (74,255) (57,530)
Accounts payable and accrued liabilities ......................................... (80,223) 2,080,546
Deferred service obligations and revenue ......................................... (47,864) (30,456)
------------ ------------
Net cash flows from operating activities ...................................... (54,488) 226,959
------------ ------------
INVESTING ACTIVITIES
Purchases of property and equipment ................................................... (105,533) (1,194,656)
Proceeds from sale of property and equipment .......................................... 7,554 0
Issuance of note receivable ........................................................... 0 (7,089)
Collections on notes receivable ....................................................... 0 18,239
------------ ------------
Net cash flows from investing activities ...................................... (97,979) (1,183,506)
------------ ------------
FINANCING ACTIVITIES
Deferred finance costs ................................................................ 0 (107,604)
Proceeds from long-term debt and warrants issued with long term debt .................. 600,000 1,545,000
Payments on long term debt ............................................................ (1,547) (222,486)
Payments on capital lease obligations ................................................. (87,636) 0
Proceeds from issuance of stock and warrants .......................................... 55,000 1,880
Stock issuance costs .................................................................. 0 (1,079)
Redemption of preferred stock ......................................................... (10,000) (460,000)
Preferred stock dividends ............................................................. (51,726) (52,461)
------------ ------------
Net cash flows from financing activities ...................................... 504,091 703,250
------------ ------------
INCREASE (DECREASE) IN CASH .............................................................. 351,624 (253,297)
CASH
Beginning of period ................................................................... 624,845 1,161,479
------------ ------------
End of period ......................................................................... $ 976,469 $ 908,182
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest, net of amortization of original issue discount ................ $ 171,567 $ 153,320
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Stock options issued below fair market value .......................................... 400 0
Issuance of preferred stock for acquisition of assets ................................. 18,590 0
Warrants issued with debt ............................................................. 8,529 0
See notes to condensed consolidated financial statements
VICOM, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2002 and 2001
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 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.
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 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.
GOODWILL
Goodwill represents the excess of acquisition costs over the fair value of
identifiable net assets acquired and was amortized using the straight-line
method over ten years. The carrying value of goodwill is reviewed 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 and property and equipment during the three months ended March 31, 2002
and 2001. Amortization was $0 and $83,769 for the three months ended March 31,
2002 and 2001.
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
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 restricted
stock outstanding during the three months ended March 31, 2002 and 2001 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, 2002 and 2001, the Company incurred net losses
of $1,109,921 and $1,128,124, respectively. At March 31, 2002, the Company had
an accumulated deficit of $26,286,010. 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.
NOTE 4 - NOTES PAYABLE
During the three months ended March 31, 2002, the Company borrowed $600,000 from
a member of the board of directors. The notes are unsecured, due through March
2005 with interest at 12% payable monthly. In connection with these notes, the
Company issued 120,000 (four to five year) warrants to purchase common stock at
price of $1.50 per share. The proceeds of $600,000 were allocated between the
loans and the warrants based on the relative fair values of the securities at
the time of issuance. The warrants were valued using the Black Scholes
calculation. The resulting original issue discount, the fair value of the
warrant, is being amortized over the life of the debenture using the
straight-line method, which approximates the interest method.
NOTE 5 - STOCK WARRANTS
Stock warrants activity is as follows for the three months ended March 31, 2002:
WEIGHTED
NUMBER OF AVERAGE
WARRANTS EXERCISE PRICE
-------------- --------------
WARRANTS OUTSTANDING - DECEMBER 31, 2001 9,565,450 2.37
GRANTED 122,000 1.51
CANCELED OR EXPIRED 0 0
EXERCISED 0 0
-------------- --------------
WARRANTS OUTSTANDING - MARCH 31, 2002 9,687,450 $ 2.37
============== ==============
The warrants granted during the three months ended March 31, 2002 were awarded
for common stock and in connection with notes payable.
NOTE 6 - BUSINESS SEGMENTS
Following is Company business segment information for the three months ended
March 31, 2002 and 2001:
Vicom CTU MultiBand Total
------------------------------------------------------
Quarter ended March 31, 2002:
Revenues 0 6,161,581 100,607 6,262,188
Loss from operations (424,480) (87,275) (252,007) (763,762)
Identifiable assets 3,231,228 5,374,184 3,161,624 11,767,036
Depreciation and amortization 343,828 119,917 135,966 599,711
Capital expenditures 0 39,820 65,713 105,533
Quarter ended March 31, 2001:
Revenues 0 10,617,741 65,078 10,682,819
Loss from operations (170,053) (147,619) (563,104) (880,776)
Identifiable assets 3,949,643 10,284,074 3,252,168 17,485,885
Depreciation and amortization 293,891 124,100 104,909 522,900
Capital expenditures 51,726 61,205 1,081,725 1,194,656
NOTE 7 - SUBSEQUENT EVENT
During April 2002, the Company expanded its credit facility with Convergent
Capital Partners I, L.P. to $2,500,000. In addition, the principal repayment was
extended to begin in August 2005. The credit facility is secured by Company
assets and the facility agreement requires the Company to maintain collateral
requirements and minimum quarterly earnings before income taxes, depreciation
and amortization requirements, the latter requirement beginning in the Company's
fourth fiscal quarter of 2002. All other terms remain the same.
FORWARD-LOOKING STATEMENTS
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, product pricing, management for growth, integration of acquisitions,
technological developments, new products, and similar matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements including those made in this statement. In order to
comply with the terms of the Private Securities Litigation Reform Act, the
Company notes that a variety of factors could cause the Company's actual results
and experience to differ materially from the anticipated results or Company's
forward-looking statements.
The risks and uncertainties that may affect the operations,
performance, developments and results of the Company's business include the
following: national and regional economic conditions; pending and future
legislation affecting IT and telecommunications industries; market acceptance of
the Company's products and services; the Company's products and services; the
Company's continued ability to provide integrated communication solutions for
customers in a dynamic industry; and other competitive factors.
Because these and other factors could affect the Company's operating
results, past financial performance should not necessarily be considered as a
reliable indicator of future performance and anticipated future period results.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
GENERAL
Vicom, Incorporated (Vicom) is a Minnesota corporation formed in
September 1975. Vicom is the parent corporation of two wholly-owned
subsidiaries, Corporate Technologies, USA, Inc. (CTU), and MultiBand, Inc.
(MultiBand).
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.
----------------
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). CTU provides voice, data
and video systems and services to business and government. MultiBand, Inc. was
incorporated in February 2000. MultiBand, Inc provides voice, data and video
services to multiple dwelling units (MDU's).
As of March 31, 2002, CTU was providing telephone equipment and service
to approximately 1,000 customers, with approximately 10,000 telephones in
service. In addition, CTU provides computer products and services to
approximately 3,000 customers. MultiBand, as of March 31, 2002, had
approximately 700 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, and South Dakota. CTU
purchases products and equipment from NEC America, Inc. (NEC), Siemens
Enterprise Networks (Siemens), Cisco Systems, Inc. (Cisco), Nortel Networks
Corp. (Nortel), Tadiran Telecommunications, Inc. (Tadiran), and other
manufacturers of communications and electronic products and equipment. CTU uses
these products to design telecommunications systems to fit its customers'
specific needs and demands.
SELECTED CONSOLIDATED FINANCIAL DATA
--------------------------------------------------------------------------------
DOLLAR AMOUNTS AS A PERCENTAGE OF REVENUES
THREE MONTHS ENDED
--------------------------------------------------------------------------------
March 31, 2002 MARCH 31, 2001
(unaudited) (unaudited)
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REVENUES 100% 100%
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COST OF PRODUCTS & SERVICES 76.4% 80.1%
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GROSS MARGIN 23.6% 19.9%
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SELLING, GENERAL & ADMINISTRATIVE 35.7% 28.1%
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--------------------------------------------------------------------------------
OPERATING LOSS -12.1% -8.2%
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INTEREST EXPENSE & OTHER, NET -5.5% -2.4%
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LOSS BEFORE TAXES -17.7% -10.6%
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INCOME TAX 0 0.0%
--------------------------------------------------------------------------------
NET LOSS -17.7% -10.6%
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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, 2002 MARCH 31, 2001
GROSS MARGIN PERCENTAGES:
CORPORATE TECHNOLOGIES USA, INC. 22.9% 20.1%
MULTIBAND, INC. .6% -19.4%
RESULTS OF OPERATIONS
REVENUES
Revenues decreased 41.38% to $6,262,188 in the quarter ended March 31,
2002, as compared to $10,682,819 for the quarter ended March 31, 2001.
Vicom Inc. has recorded no revenue since the first quarter of fiscal
2001 as all sales operations were transferred to Corporate Technologies, USA,
Inc. (CTU).
Revenues for (CTU) decreased 41.8% in the first quarter of fiscal 2002
to $6,161,581 as compared to $10,601,335 in the first quarter of fiscal 2001.
This decrease in CTU's revenues resulted primarily from CTU's desire to increase
gross margins versus maintaining top line revenues.
Revenues for MultiBand, Inc. increased 35.3% to $100,607 as compared to
$45,078 in the first quarter of fiscal 2001. This increase is due to expansion
of MultiBand services to two additional properties.
GROSS MARGIN
The Company's gross margin decreased 30.77% or $654,796 to $1,472,974
for the quarter ended March 31, 2002, as compared to $2,127,770 for the similar
quarter last year. This decrease in gross margin is due to the substantial
decrease in revenues. For the quarter ended March 31, 2002, as a percent of
total revenues, gross margin was 23.6% as compared to 19.9% for the similar
period last year. This increase in gross margin percentage is primarily due to
an increase in service sales which have better margins than equipment sales.
Gross margin for Corporate Technologies USA, Inc. decreased by 32.58%
to $1,435,399 for the quarter ended March 31, 2002, as compared to $2,129,163 in
the first quarter of fiscal 2001. This decrease is due to the aforementioned
decrease in revenues.
Gross margin for MultiBand, Inc. for the quarter ended March 31, 2002
increased 39.70% to $37,575 as compared to ($12,651) in the first quarter of
fiscal 2001 reflecting on the increase of revenue being billed.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased 25.65% to
$2,236,736 in the quarter ended March 31, 2002, compared to $3,008,546 in the
prior year quarter. Selling, general and administrative expenses were, as a
percentage of revenues, 35.7% for the quarter ended March 31, 2002 and 28.1% for
the similar period a year ago. This decrease is primarily attributable to
reductions in payroll and overall cost reduction efforts by management.
INTEREST EXPENSE
Interest expense was $365,835 for the quarter ended March 31, 2002,
versus $292,438 for the similar period a year ago, reflecting an increased
Company debt load due to acquisition related debt, warrant valuation and
increased borrowings. Amortization of original issue discount was $210,983 and
$0 for the three months ended March 31, 2002 and 2001.
NET LOSS
In the first quarter of fiscal 2002, the Company incurred a net loss of
$1,109,921 compared to a net loss of $1,128,124 for the first fiscal quarter of
2001. A decline in operating losses for the first quarter of 2002 versus the
similar period a year ago was offset by an increase in interest expense
primarily due to amortization of original issue discount.
LIQUIDITY AND CAPITAL RESOURCES
Available working capital, for the three months ended March 31, 2002,
decreased over the similar period last year due to , in part, certain debt
maturities shifting from long term debt to short term debt during the quarter.
Vicom experienced a decrease in accounts payable for the period ended March 31,
2002 versus last year's period, primarily due to a significant reduction in
revenues which led to a payables decrease. Accounts receivable decreased for the
period ended March 31, 2002, compared to the prior year period, due to a
significant decrease in revenues.
Inventories decreased slightly over last year's prior period
inventories due to the aforementioned revenue decreases. Net borrowings under
notes and installment obligations payable increased materially for the three
months ended March 31, 2002 compared to the prior year's period due to financing
with an investor, the proceeds of which were used in part to finance MultiBand,
Inc.'s project build-out.
Management of Vicom believes that, for the near future, cash generated
by sales of stock, and existing credit facilities, in aggregate, are adequate to
meet the anticipated liquidity and capital resource requirements of its
Corporate Technologies USA, Inc. business for the next twelve months.
Significant continuation of the Company's MultiBand, Inc.'s build-out is highly
dependent on securing additional financing for future projects. Management
believes that while future build-out financing is available, there is no
guarantee that said financing will be obtained.
CAPITAL EXPENDITURES
The Company used $105,533 for capital expenditures during the three
months ended March 31, 2002, as compared to $1,194,656 in the similar period
last year. Capital expenditures consisted of equipment acquired for internal use
and for MultiBand build-out projects as compared to the same period last year
when MultiBand build-out costs for construction totaled $1,081,725. The Company
has started a new business approach with having the building owners buy the
equipment and pay MultiBand a reduced management fee.
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, 2002
and 2001, 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, 2002 and 2001, 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.
PART II. OTHER INFORMATION
ITEM 4. LEGAL PROCEEDINGS
As of March 31, 2002, Vicom was not engaged in any legal
proceedings whose anticipated results would have a material
adverse impact on the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.14 Employment Agreement of Steven M. Bell dated
January 1, 2002
10.15 Employment Agreement of James Mandel dated
January 1, 2002
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VICOM, INC.
Registrant
Date: May 15, 2002 By: /s/ James L. Mandel
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James L. Mandel
CHIEF EXECUTIVE OFFICER
Date: May 15, 2002 By: /s/ Steven M. Bell
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Steven M. Bell
CHIEF EXECUTIVE OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)