10-K/A 1 d55361_10-ka.txt AMENDMENT NO. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-KSB/A |X| ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002 |_| TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-11057 VICON FIBER OPTICS CORP. (Name of Small Business Issuer in its Charter) Delaware 13-2615925 (State of Incorporation) (IRS Employer Identification No.) 90 Secor Lane, Pelham Manor, New York 10803 (Address of Principal Executive Offices) (Zip Code) Issuer's telephone number (914) 738-5006 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes |_| No |X| Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B, which is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. |_| Issuer's revenues for the year ended December 31, 2002: $1,664,245. Aggregate market value of the voting stock held by non-affiliates of the Registrant as of December 31, 2002: $2,052,977. Number of common shares outstanding on December 31, 2002: 8,554,069 -1- Item 1. Description of Business General Vicon Fiber Optics Corp. (the "Company") was incorporated in 1969 and currently derives the majority of its revenue from,(1) the manufacture and sale of fiber optic illuminating systems and components for use in conjunction with dental equipment and instruments utilizing fiber optic elements, and,(2) the sale of decorative lamps utilizing fiber optics for their illumination and color display. Fiber optics are glass fibers through which light is transmitted. Each fiber is composed of an inner glass core with one index of refraction, covered by an outer glass cladding or coating with a higher index of refraction. The difference in the index of refraction between the core glass and the outside coating glass that forms the optical fiber substantially reduces the dissipation of the light energy from the filament. Optical fibers may be bundled or employed singly, depending on their intended use. There are two basic types of fiber optic bundles: unoriented fiber bundles and oriented or coherent fiber bundles. Unoriented fiber bundles are used for the transmission of light for illumination; oriented bundles are used for the transmission of images ("Image Bundles"). Unoriented fiber optic illuminating systems and components have been and currently are the type manufactured and utilized by the Company in its dental and lamp products. Unoriented fiber optic components consist of a bundle or cable of thousands of unoriented glass fibers to conduct, optically, light from a source (the "illuminator") specific area to be illuminated regardless of the curvature or other normal distortion of the fiber cable needed to avoid such obstacles. The use of the fiber optic cable permits the transmission of electricity and without any significant transmission of heat. Accordingly, fiber optic illuminating systems are suitable for providing illumination under circumstances where the absence of heat and electricity is desirable and where the area to be illuminated is relatively inaccessible to conventional means of illumination, such as in dentistry. An Image Bundle is a bundle in which each individual filament in the bundle has the same spatial relationship to all the other fibers in the bundle at one end of the bundle as it has at the other end. This allows the transmission of an image from one end of the Image Bundle to the other without substantial distortion. Image Bundles are used to transmit images in industrial and medical inspection scopes. -2- Company's History in the Dental Field Fiber optics were first applied to dental instrumentation as external attachments to standard instruments used by dentists, such as the mirror, handpiece (commonly known to the dental patient as the "drill") and evacuator. This type of system was introduced into the dental market simultaneously by four manufacturers; among them the Company. All the systems provide much needed light, however, the external attachments and the multiplicity of cables made them awkward and difficult to use. To remedy this problem, the Company developed two products: (i) handpiece tubing incorporating a fiber optic bundle, thereby eliminating the need for a separate fiber optic cable for the handpiece, and (ii) coiled fiber optic tubing, which reduced substantially the excess play found in conventional fiber optic tubing previously used with diagnostic instruments. After many years of work with original equipment manufacturers of dental instruments, the Company also developed a suitable design incorporating the Company's fiber optic elements directly into the handpiece, with an ability to be coupled to the remaining components of the Company's system. Prior to 1981 the Company marketed, under its own name and label, its illumination system consisting of an illuminator, fiber optic handpiece tubing and various illuminating instruments such as the mirror, cheek retractor and transilluminator nationally through distributors of dental products. From 1981 to the present, the Company has marketed its illumination systems and fiber optic elements to manufacturers and distributors of dental equipment on a private label, joint venture and original equipment (OEM) basis. The Company's Current Fiber Optic Dental Products Currently, the Company manufactures two styles of dental illuminators. One is mounted away from the dental work area. The second consists of two modules with a small light module under a utility tray in the dental work area and a power module mounted away from the work area. The light in both styles of illuminators is air activated when the handpiece or instrument is removed from its console hanger. Both styles of illuminators are composed of a cooling fan, a rheostat and a high intensity halogen projection lamp that focuses the light onto three fiber optic cables. The light is transmitted through the fiber optic cables in the handpiece tubing that interfaces with the fiber optic element in the handpiece. Instruments and attachments are illuminated with one fiber optic cable (primary probe), which is interchangeable with a transilluminator (used for the back illumination of teeth), an illuminating mirror, a cheek retractor providing general illumination, and an evacuator clip for illuminating a suction tip. Decorative Fiber Optics Products The Company markets a line of decorative fiber optic lamps under the trade name "Fantasia Products". The Company commenced production and national sales of the lamps in 1995. -3- Raw Materials All components of the Company's fiber optic illuminating systems other than the fiber optic cables, which the Company manufactures with its own equipment, are manufactured for the Company by others and assembled by the Company at its plant. Many of these components (such as the light source and control module) are items inventoried by their manufacturers, and such items or their equivalent are available from several sources. Their respective manufacturers make other components, such as the housing and certain of the instrumentation for these systems, to the Company's plans and specifications. In most cases, the essential tooling for these components is owned by the Company. The Company uses only one source for each of these components, but believes that alternative or supplementary sources can readily be obtained. None of the Company's suppliers is affiliated with the Company and the Company has no contractual relationship with any of them except for purchase orders issued from time to time. The Company believes that an adequate and reliable supply of raw materials is and will continue to be available for the manufacture its products. Distribution and Sales During 2002 six customers purchased approximately 20.4%, 17.8%, 15.5%, 11.5%, 9.6%, and 7.3%, respectively of the company's product. The loss of any one or more of these six largest customers by the Company would have a material adverse effect on the Company's business. In 2002, 19.9% of the Company's sales were to foreign customers. As of December 31, 2002 and 2001, the Company had a sales backlog of approximately $245,000 and $675,000 respectively. The Company believes that the backlog represents firm orders as of those dates. The Company believes that the decreased backlog is due primarily to increased efficiency in the production process and the general economic environment. Competition The Company believes it is one of the leading domestic manufacturers and distributors of fiber optic components and illuminating systems for use in the dental industry and of decorative fiber optic lamps. While the Company has little direct competition for its products, there are a few other domestic manufacturers that produce similar products for the same markets as the Company. The Company depends on its proprietary manufacturing techniques and abilities to design and manufacture products for the specific needs of its customers at competitive prices with a high degree of quality and service to enable the Company to maintain market share. Employees The Company has 18 full-time employees, of whom two are executives, one is an engineer, and one is administrative, with the balance consisting of production employees. A pool of workers adequate to accommodate projected sales volume is available locally. The Company considers its relations with its employees good. Item 2. Description of Property The Company's offices and plant are located at 90 Secor Lane, Pelham Manor, New York, where the Company leases approximately 10,500 square feet, but has made modifications to the facility that provide a total of approximately 17,500 square feet of working area. The Company has approximately 2.5 years remaining on a four-year lease of space. The building is a two-story concrete block structure. The aggregate annual rental paid by the Company in 2002 and 2001 was approximately $108,000 and $104,000, respectively. The Company believes that the facilities currently in use are suitable and adequate for its business. -4- Item 3. Legal Proceedings In December 2001, the Company filed a civil legal suit against several of its former officers, as well as against its former independent auditors. This suit was originally with the U.S. District Court, Southern District of New York and was subsequently remanded to the New York State Supreme Court and alleges, among other things, that the former officers misappropriated Company funds, and falsified certain of the Company's books and records. The suit also alleges that the former auditors failed, among other things, to conduct a number of annual Company audits in accordance with generally accepted auditing standards. The former auditors have filed a counter-claim with the court against the Company alleging that the Company has failed to pay them approximately $53,000 for past services. Because these legal actions are in their pre-trial stages, Company counsel cannot express an opinion as to the possible outcome, and therefore no provision for possible gain from the Company's suit has been recorded. Refer to pages 28 and 29, "SEC Inquiry," for further information concerning this matter. Item 4. Submission of Matters to a Vote of Security Holders None. -5- PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters (a) Price Range of Common Stock Set forth below in tabular form for the quarterly periods indicated are the high and low bid prices of Vicon Common Stock in the over-the-counter market as quoted by the National Quotation Bureau, Inc., or by market makers. Bid Prices Low High ----- ----- 2002 First Quarter $0.15 $0.30 Second Quarter 0.10 0.20 Third Quarter 0.05 0.15 Fourth Quarter 0.04 0.10 2001 First Quarter 0.16 0.50 Second Quarter 0.20 0.45 Third Quarter 0.25 0.60 Fourth Quarter 0.20 0.50 Such over-the-counter market quotations reflect inter-dealer prices without retail mark up, mark down or commission and may not necessarily represent actual transactions. (b) Approximate Number of Equity Security Holders Approximate Number of Record Title of Class Holders as of December 31, 2002 Common Stock, $.01 par value 700 (c) Dividend Policy Holders of Common Stock of the Company are entitled to a pro rata share of any dividends when, as and if declared by the Board of Directors and to share pro rata in any such distributions available for holders of Common Stock upon liquidation of the Company. There have been no cash dividends paid since the inception of the Company and the Company's anticipated capital requirements are such that it intends to follow a policy of retaining earnings in order to finance growth of the business. -6- Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition of Vicon Vicon gauges its liquidity and financial stability by the measurements as shown in the following table: 2002 2001 --------- ----------- Working Capital $ 521,209 $ 764,113 Current Ratio 1.96 TO 1 2.5 TO 1 Shareholders' Equity $ 741,391 $ 1,270,907 Net Loss $(529,517) $ (420,620) The decrease in working capital at December 31, 2002 was due to the reduction of inventory and the use of cash reserves for operations. The decrease in shareholders' equity at December 31, 2002 was due to the net loss incurred for the year. Results of Operations Year ended December 31, 2002 Compared to Year Ended December 31, 2001 Net sales for the year ended December 31, 2002 as compared to 2001 decreased by 19.1%. This is due to a decrease in sales of lamps of approximately $392,000. Cost of sales as a percentage of sales decreased to 74.9% for 2002 compared to 83.6% in 2001. The decrease was offset, in part, by a write-off of inventory during the 2001 in the amount of $90,000 and the higher profit margins of dental products as opposed to lamps. Selling, general and administrative expenses decreased to $681,404 in 2002 as compared to $746,762 in 2001, a decrease of $ 65,358. Management attributes this to a general reduction in the costs of marketing and administrative expenses. -7- Item 7. Financial Statements VICON FIBER OPTICS CORP. FINANCIAL STATEMENTS FORM 10-KSB ITEM 7 YEARS ENDED DECEMBER 31, 2002 and 2001 -8- VICON FIBER OPTICS CORP. INDEX TO FINANCIAL STATEMENTS PAGE ---------- Independent Auditors' Report- Martin A Weiselberg and Associates, LLP F-2 Independent Auditors' Report- Todres & Company, LLP F-3 Financial Statements: Balance Sheet - December 31, 2002 and 2001 F-4, F-5 Financial Statements for the years ended December 31, 2002 and 2001: Statements of Operations F-6 Statements of Shareholders' Equity F-7 Statements of Cash Flows F-8 Notes to Financial Statements F-9 - F-22 F-1 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors Vicon Fiber Optics Corp. Pelham Manor, New York We have audited the balance sheets of Vicon Fiber Optics Corp. as of December 31, 2002 and the related statements of operations, shareholders' equity and cash flows for the year ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, financial statements referred to above present fairly, in all material respects, the financial position of Vicon Fiber Optics Corp. as of December 31, 2002 and the results of its operations and its cash flows for the year ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. The Company's financial statements have been prepared assuming the Company will continue as a going concern, as discussed in Note 5. The Company is required to pay $335,000 of debentures due June 30, 2003. Based on the current condition of the Company's balance sheet, the payment of these debentures raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these issues are also described in Note 5. The financial statements do not include any adjustments that might result from the outcome of the required payment of the debentures. Martin A. Weiselberg & Associates LLP CERTIFIED PUBLIC ACCOUNTANTS New York, New York March 28, 2003 F-2 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors Vicon Fiber Optics Corp. Pelham Manor, New York We have audited the balance sheets of Vicon Fiber Optics Corp. as of December 31, 2001 and the related statements of operations, shareholders' equity and cash flows for the year ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, financial statements referred to above present fairly, in all material respects, the financial position of Vicon Fiber Optics Corp. as of December 31, 2001 and the results of its operations and its cash flows for the year ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. The Company's financial statements have been prepared assuming the Company will continue as a going concern, as discussed in Note 5. The Company is required to pay $335,000 of debentures due June 30, 2002. Based on the current condition of the Company's balance sheet, the payment of these debentures raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these issues are also described in Note 5. The financial statements do not include any adjustments that might result from the outcome of the required payment of the debentures. Todres & Company, LLP CERTIFIED PUBLIC ACCOUNTANTS Westbury, New York March 6, 2002 F-3 VICON FIBER OPTICS CORP. BALANCE SHEET DECEMBER 31, 2002 and 2001 ASSETS 2002 2001 ---------- ---------- CURRENT ASSETS: Cash and cash equivalents (Note 2) $ 155,980 $ 213,379 Accounts receivable - Net of allowance for uncollectible accounts of $16,775 244,057 320,119 Inventories (Note 3) 589,549 661,800 Loans Receivable 1,500 -- Prepaid expenses 7,910 4,798 Income tax benefit (Note 6) 65,991 55,358 ---------- ---------- Total current assets 1,064,987 1,255,454 ---------- ---------- PROPERTY AND EQUIPMENT - Net of accumulated depreciation and amortization (Note 4) 215,695 256,421 ---------- ---------- OTHER ASSETS: Excess of cost over net assets of businesses acquired -- 233,647 Deferred income taxes (Note 6) -- 87,910 Deposits 4,487 4,487 ---------- ---------- Total other assets 4,487 326,044 ---------- ---------- Total assets $1,285,169 $1,837,919 ========== ========== -See accompanying notes to financial statements- F-4 VICON FIBER OPTICS CORP. BALANCE SHEET DECEMBER 31, 2002 and 2001 LIABILITIES AND SHAREHOLDERS' EQUITY 2002 2001 ----------- ----------- CURRENT LIABILITIES: Current portion of long-term debt (Note 5) $ 341,578 $ 338,869 Accounts payable and accrued expenses 131,798 152,472 ----------- ----------- Total current liabilities 473,376 491,341 Long-term debt (Note 5) -- 5,269 Deferred income taxes (Note 6) 70,402 70,402 ----------- ----------- Total liabilities 543,778 567,012 ----------- ----------- COMMITMENTS AND CONTINGENCIES (Note 7) SHAREHOLDERS' EQUITY: Common stock - authorized 20,000,000 shares, $.01 par value, issued and outstanding 8,554,069 shares 85,390 85,390 Additional paid-in capital 5,982,905 5,982,905 Deficit (5,323,384) (4,793,868) Deferred stock incentive (Note 8) (3,520) (3,520) ----------- ----------- Total shareholders' equity 741,391 1,270,907 ----------- ----------- Total liabilities and shareholders' equity $ 1,285,169 $ 1,837,919 =========== =========== -See accompanying notes to financial statements- F-5 VICON FIBER OPTICS CORP. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2002 and 2001 2002 2001 ----------- ----------- SALES $ 1,664,245 $ 2,056,561 COST OF GOODS SOLD 1,246,403 1,718,447 ----------- ----------- Gross margin 417,842 338,114 ----------- ----------- OPERATING EXPENSES: Selling, general and administrative expenses 681,404 746,762 Research and development -- 1,600 ----------- ----------- Total operating expenses 681,404 748,362 ----------- ----------- Loss from operations (263,562) (410,248) ----------- ----------- OTHER INCOME (EXPENSES) Income from reversal of stock incentive -- 11,669 Interest expense (41,756) (42,046) Interest income and other 9,449 20,005 ----------- ----------- Total other income (expenses) (32,307) (10,372) ----------- ----------- Loss before cumulative effect of accounting change (295,869) (420,620) ----------- ----------- Cumulative effect of accounting change (233,647) -- ----------- ----------- Net loss $ (529,516) $ (420,620) =========== =========== LOSS PER COMMON SHARE: BASIC AND DILUTED-from operations $ (.03) $ (.05) BASIC AND DILUTED-from cumulative effect (.03) -- ----------- ----------- $ (.06) $ (.05) =========== =========== AVERAGE NUMBER OF SHARES USED IN COMPUTATION: BASIC 8,554,069 8,651,985 =========== =========== DILUTED 8,554,069 8,651,985 =========== =========== -See accompanying notes to financial statements- F-6 VICON FIBER OPTICS CORP. STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2002 and 2001
TOTAL ADDITIONAL DEFERRED SHARE- COMMON PAID-IN STOCK HOLDERS' STOCK CAPITAL DEFICIT INCENTIVE EQUITY -------- ----------- ----------- --------- ----------- Balance - January 2001 $ 85,540 $ 5,999,705 $(4,373,248) $(8,801) $ 1,703,196 Net Loss -- -- (420,620) -- (420,620) Reversal of Stock Incentive (150) (16,800) -- 5,281 (11,669) -------- ----------- ----------- ------- ----------- Balance - December 31, 2001 $ 85,390 $ 5,982,905 $(4,793,868) $(3,520) $ 1,270,907 Net loss -- -- (529,516) -- (529,516) -------- ----------- ----------- ------- ----------- Balance- December 31, 2002 $ 85,390 $ 5,982,905 $(5,323,384) $(3,520) $ 741,391 ======== =========== =========== ======= ===========
-See accompanying notes to financial statements- F-7 VICON FIBER OPTICS CORP. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2002 and 2001 2002 2001 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(529,516) $(420,620) --------- --------- Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of accounting change 233,647 Depreciation and amortization 58,732 69,453 Decrease in accounts receivable 76,062 74,435 (Increase) decrease in inventory 72,251 429,240 (Increase) decrease in prepaid expenses and other assets (3,110) 2,357 (Increase) decrease loans receivable (1,500) Decrease (increase) in income tax benefit (10,633) 197,861 Decrease (increase)in deferred tax asset 87,910 -- Increase (decrease) in accounts payable and accrued expenses (20,674) (188,878) --------- --------- Total adjustments 492,685 584,468 --------- --------- Net cash provided by (used for) operating activities (36,831) 163,848 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment and Net cash used for investing activities (18,008) (2,884) CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long-term debt (2,560) (3,354) Reversal of deferred stock incentive -- (11,669) --------- --------- Net cash used for financing activities (2,560) (15,023) --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (57,399) 145,941 CASH AND CASH EQUIVALENTS - Beginning 213,379 67,438 --------- --------- CASH AND CASH EQUIVALENTS - End $ 155,980 $ 213,379 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the years for: Interest $ 41,756 $ 42,046 ========= ========= -See accompanying notes to financial statements- F-8 VICON FIBER OPTICS CORP. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 and 2001 NOTE 1 - NATURE OF THE BUSINESS Vicon Fiber Optics Corp. (the "Company") was incorporated in 1969 and derives the majority of its revenues from the manufacture and sale of fiber optic illuminating systems and components for use in conjunction with dental equipment and instruments utilizing fiber optic elements. The Company, also manufacturers markets decorative lamps, which utilize fiber optics for illumination. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies followed by the Company in the preparation of the accompanying financial statements is set forth below: Cash and Cash Equivalents For the purpose of the statement of cash flows, the Company considers cash and cash equivalents to include cash on hand, amounts due from banks and any other highly liquid debt instruments purchased with an initial maturity of three months or less. Inventories Inventories are valued at the lower of cost (on a first-in, first-out basis) or market value. Property and Equipment and Depreciation Property and equipment is stated at cost. Expenditures for maintenance and repairs are charged to operations as incurred. Additions and betterments are capitalized. Depreciation for financial reporting is computed on the straight-line method over the estimated useful life of the asset beginning in the year of acquisition. Accelerated methods are used for income tax reporting. When assets are disposed of, the related costs and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the operations for the period. Intangibles Intangibles represent acquisition costs in excess of the fair value of net tangible assets of businesses purchased the value of ongoing client relationships and goodwill. These costs were being amortized over forty years on a straight-line basis through 2001. During 2002 the Company adopted statements of Financial Accounting Standards (SFAS 142). This statement changes the accounting for goodwill. SFAS 142 requires the Company to stop amortizing goodwill and certain intangible assets with an indefinite useful life. Instead, goodwill will be subject to an annual review for impairment. Upon adoption of SFAS 142 for the year ended December 31, 2002 the Company recorded a one-time, non cash charge of approximately $234,000 to reduce the value of its goodwill. Such charge is non operational in nature and is reflected as a cumulative effect of an accounting change in the accompanying statement of operations. In calculating the impairment charge the segment which gave rise to the goodwill has been discontinued and therefore has no value. F-9 VICON FIBER OPTICS CORP. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 and 2001 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Bad Debts The Company uses the allowance method to account for uncollectible accounts receivable. The allowance for doubtful accounts is based on prior years' experience and management's analysis of possible bad debts. Bad debt recoveries are charged against the allowance account as realized. Revenue Recognition Revenue is recognized on sales of products, generally at the time of shipment. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Fair Value of Financial Instruments SFAS No. 107, Disclosure about Fair Value of Financial Instruments, requires disclosure of estimates of the fair value of certain financial instruments. The Company's financial instruments consist of cash equivalents, accounts receivable, accounts payable, promissory notes payable and debentures payable. The estimated fair value of these financial instruments approximates their carrying value at December 31, 2002 and 2001 because of the short-term nature of these instruments. Earnings Per Share The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" in 1998. Basic earnings per share, is calculated using the average number of shares of common stock outstanding during the year. Diluted earnings per share is computed on the basis of the average number of common shares outstanding plus the effect of outstanding stock options using the "treasury stock method" and convertible debentures using the "if-converted" method. Common stock equivalents refer to stock options. At December 31,2002 and 2001 all convertible debentures and warrants were anti-dilutive. F-10 VICON FIBER OPTICS CORP. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 and 2001 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Income Taxes The provision for income taxes is computed on the pretax income (loss) based on the current tax law. Deferred income taxes are recognized for the tax consequences in future years of difference between the tax basis of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates. Commitments and Contingencies The Company is involved in litigation on a number of matters and is subject to certain claims, which arise in the normal course of business, none of which in the opinion of management, is expected to have a materially adverse effect on the Company's financial position Concentration of Credit Risk and Significant Customers SFAS No. 105, Disclosure of Information About Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk, requires disclosure of any significant off-balance-sheet and credit risk concentrations. Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. The Company places its temporary cash investments in financial institutions. To date, the Company has not experienced significant losses related to receivables from individual customers or groups of customers in any specific industry or by geographic area. Major customers of the Company, expressed as a percentage of sales, are summarized as follows: Year Ended December 31, Customer 2002 2001 -------- ----------------------- A 20.4% 19.18% B 17.8 13.36 C 15.5 12.42 D 11.5 10.48 E 9.6 9.48 F 7.3 -- ---- ----- 82.1% 64.92% ==== ===== F-11 VICON FIBER OPTICS CORP. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 and 2001 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Concentration of Credit Risk and Significant Customers (Continued) Export sales (excluding North America), expressed as a percentage of sales are summarized as follows: Year Ended December 31, Geographic Area 2002 2001 --------------- ----------------------- Europe 3.8% 5.3% Brazil - 1.0% Asia 16.1 13.4% ---- ---- 19.9% 19.7% ==== ==== Suppliers The Company uses only one source for some of its components, but believes that alternative or supplementary sources can readily be obtained. None of the Company's suppliers are affiliated with the Company, and the Company has no contractual relationship with any of them except for purchase orders issued from time to time. The Company believes that an adequate and reliable supply of raw materials is and will continue to be available for the manufacture of its products. Impairment of Long-Lived Assets SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of, requires impairment losses to be recognized for long-lived assets used in operations when indicators of impairment are present and when the undiscounted cash flows are not sufficient to recover the assets' carrying amount. The impairment loss is measured by comparing the fair value of the assets to its carrying amount. As of December 31, 2002, the Company does not believe impairment of its long-lived assets exists. NOTE 3 - INVENTORIES The composition of inventories consists of the following: 2002 2001 -------- -------- Raw materials and Work-in-process $305,607 $302,594 Finished goods 283,942 359,206 -------- -------- $589,549 $661,800 ======== ======== F-12 VICON FIBER OPTICS CORP. DECEMBER 31, 2002 and 2001 NOTE 4 - PROPERTY AND EQUIPMENT The estimated useful lives for depreciation purposes are as follows: Machinery and equipment 3-10 years Furniture, fixtures and office equipment 2-10 years Leasehold improvements Lower of lease term or useful life Property and equipment consists of the following: 2002 2001 --------- --------- Machinery and equipment $ 490,217 $ 490,217 Furniture, fixtures and office equipment 62,043 62,043 Leasehold improvements 380,300 362,292 --------- --------- 932,560 914,552 Accumulated depreciation and amortization (716,865) (658,131) --------- --------- $ 215,695 $ 256,421 ========= ========= Depreciation and amortization expense for the years ended December 31, 2002 and 2001 amounted to $58,733 and $54,270, respectively. NOTE 5 - LONG-TERM DEBT Long-term debt consists of the following: 2002 2001 -------- -------- Note payable - Textron (A) $ 6,578 $ 9,138 Debentures payable (B) 335,000 335,000 -------- -------- 341,578 344,138 Less: Current portion 341,578 338,869 -------- -------- $ -- $ 5,269 ======== ======== (A) Note payable - Textron represents a five-year note for the purchase of equipment. The note bears interest at 14.349% and will be paid at the rate of $411 per month. Certain machinery is pledged as collateral pursuant to this note. F-13 VICON FIBER OPTICS CORP. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 and 2001 NOTE 5 - LONG-TERM DEBT (Continued) (B) Debentures - These are 12% convertible notes due which were June 30, 2002. During June of 2002 an agreement was reached with the Debenture holders to extend the due date to June 30, 2003, under substantially the same terms of the Debenture. Interest is paid semi-annually until conversion or maturity. The notes may be converted at the rate of $1 for one common share but in increments of no less than $1,000. The required payment of $335,000 of the debentures due June 30, 2003 raises substantial doubt about the Company's ability to continue as a going concern, particularly in light of significant consecutive operating losses over the past several years. The Company plans to implement significant cost reductions and a liquidation of lamp inventories to raise the cash required to pay the debentures. If the Company is unable to pay the debentures, an alternative payment plan may be pursued with the debenture holders. It is uncertain whether such a plan could be agreed upon. NOTE 6 - INCOME TAXES The Company accounts for income taxes in accordance with SFAS No.109, Accounting for Income Taxes, the objective of which is to recognize the amount of current and deferred income taxes at the date of the financial statements as a result of all differences in the tax basis and financial statement carrying amounts of assets and liabilities, as measured by enacted tax laws. F-14 VICON FIBER OPTICS CORP. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 and 2001 NOTE 6 - INCOME TAXES (Continued) Deferred income taxes consist of the following: The tax effects of temporary differences that give rise to the Company's deferred tax liability are presented below: 2002 2001 ------- ------- Deferred tax assets Tax loss carryforward $87,910 ======= ======= Deferred tax liability Depreciation $70,402 $70,402 ======= ======= No income tax benefit has been recognized for the net operating loss incurred for the year ended December 31, 2002 and 2001. In accordance with FAS-109, the Company has determined that, based on the recent history of loss carry-forwards, which have not yet been utilized and potential losses in early future years, it is not likely that the most current operating loss carry-forwards will be realized in the foreseeable future. As of December 31, 2002, net operating loss carry-forwards total approximately $900,000. NOTE 7 - COMMITMENTS AND CONTINGENCIES Leases The Company leases warehouse and office space. In 2001, the Company renegotiated its lease and is committed under this agreement for payments through July 2005. The lease requires monthly rental payments and is subject to certain operating cost and real estate tax increments. F-15 VICON FIBER OPTICS CORP. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 and 2001 NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued) Future rental payments required under this lease agreement for the years ending December 31, are as follows: Year Amount ---- -------- 2003 $108,538 2004 111,794 2005 66,340 The total rent expense charged to operations for the years ended December 31, 2002 and 2001 was approximately $108,000 and $104,000, respectively. NOTE 8 - STOCK OPTION PLAN Effective May 11, 1984, the 1984 Stock Option Plan for Incentive Stock Options and Non Qualified Options (the "Plan") was adopted. The Plan provided for granting to key employees and others who were not employees but had made or were expected to make contributions to the success of the Company, the option to purchase Company common stock. Options for an aggregate of up to 400,000 shares of common stock may have been granted under the Plan. At a special Board of Directors meeting held on March 20, 1996, the Board of Directors adopted the 1996 Incentive Stock Option Plan for Key Employees (the "1996 Plan"), which was ratified by the stockholders on May 30, 1996. Subject to adjustment as provided below, 1,000,000 shares of Common Stock (the "Shares") will be available for issuance under the 1996 Plan. No awards under the Plan ("Awards") may be granted after March 20, 2006. Awards may be (1) incentive stock options ("ISOs") within the meaning of Section 422 of the Internal Revenue Service of 1986, as amended (the "Code"), (2) non-qualified stock options, or (3) shares subject to certain restrictions ("restricted stock"). The purchase price of Shares covered by an Award ("Options") will be 100% of the fair market value of the Common Stock on the date of the grant. The fair market value of a share of Common Stock will be the simple average of the high and low sales prices on the date of grant. The term of each Option will be determined by the Committee, but cannot be more than 10 years from the date of the grant. If the original term is less than 10 years from the date of grant, the term may be extended prior to expiration, with the approval of the employee, but not beyond 10 years. The vesting period and all other terms and conditions of each Option will be determined by the Committee; provided that, except as described below, no Option may be exercised prior to the completion of at least six (6) months of continuous employment from the date of grant. The Committee may impose restrictions, including a holding period, on Shares received upon the exercise of Options. F-16 VICON FIBER OPTICS CORP. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 and 2001 NOTE 8 - STOCK OPTION PLAN (Continued) Restricted Stock - Awards of restricted stock are subject to such restrictions as the Committee determines, including, but not limited to: a vesting schedule based upon the recipient's continuous employment and conditions based on performance requirements. Except as described below, no restricted stock Award may vest in whole or in part prior to the completion of the number of years of continuous employment after the date of grant established by the Committee, and restricted stock Awards shall be forfeited to the extent any restriction is not met. Until all conditions associated with restricted stock are met, restricted stock may not be sold, pledged or otherwise disposed of. Except for these limitations, recipients of restricted stock are entitled to all rights of a Stockholder, including the right to vote and receive dividends or other distributions on such restricted stock. If the employment of a recipient of a restricted stock Award terminates by reason of death, total and permanent disability, retirement or discharge other than for cause before all applicable restrictions have been met, the Committee may remove the restrictions. During 1998, the Company issued an aggregate of 150,000 shares of common stock to five key employees. The Company accounted for the issuance of restricted stock with an estimated fair value of $168,750 by recording as current compensation of $28,125 and deferred compensation of $140,625 to be recognized over the three-year restriction on the stock. In the third quarter of 2000, certain senior management was suspended from the Company (see Note 11) and certain stock options and restricted stock issues were terminated. As a result, the Company recognized $65,259 of income from the return of 125,000 shares of restricted stock and the reversal of previously expensed deferred compensation. During 2001, the Company recognized $11,669 of income from the return of restricted stock. The 1996 Plan terminates on March 20, 2006. The Board of Directors may at any time terminate, amend or modify the 1996 Plan. However, stockholder approval is required for amendments, which materially increase the benefits to Award recipients, increase the aggregate number of Shares which may be issued under the 1996 Plan, or materially modify eligibility requirements. The Committee may at any time amend the terms of any Award, including accelerating the date of exercise of any Option, terminating stock restrictions, or converting the Option into a non-qualified Option; but no such amendment may materially adversely affect a recipient's rights without his consent. Awards may provide for the adjustment of the number and class of Shares covered by the Award, Option prices and the number of Shares as to which Options are exercisable in the event of stock dividends, stock splits, recapitalization, reorganizations or other changes in the capitalization of the Corporation. The number and class of Shares available under the 1996 Plan may also be adjusted in the event of any such changes in capitalization. F-17 VICON FIBER OPTICS CORP. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 and 2001 NOTE 8 - STOCK OPTION PLAN (Continued) Certain Federal Income Tax Consequences An employee to whom an ISO is granted will not recognize income at the time of grant or exercise of the ISO (except that the alternative minimum tax may apply), and no federal income tax deduction will be allowable to the Corporation upon the grant or exercise of the ISO. When the employee sells shares received upon the exercise of an ISO more than one year after the date of exercise and more than two years after the date of grant of the ISO, the employee will normally recognize a long-term capital gain or loss equal to the difference, if any, between the sale price of such Shares and the Option exercise price. If the employee does not hold such Shares for these periods, when the employee sells such Shares, the employee will recognize ordinary compensation income and possibly capital gain or loss in such amounts as are prescribed by the Code and the regulations there under. Subject to applicable provisions of the Code and the regulations there under, in the event of a disposition prior to the end of the statutory holding periods noted above, the Corporation will generally be entitled to a federal income tax deduction in the amount of such ordinary compensation income. An employee to who a non-qualified stock option (which is treated as an option for federal income tax purposes) is granted will not recognize income at the time of grant of such option. When the employee exercises such option, the employee will recognize ordinary compensation income equal to the difference, if any, between the option price paid and the fair market value, as of the date of exercise, of the Shares received by the employee. The tax basis of such Shares to such employee will be equal to the fair market value on the date of exercise, and the employee's holding period for such Shares will commence on the date on which the employee recognized taxable income in respect of such shares. Subject to applicable provisions of the Code and the regulations there under, the Corporation will generally be entitled to a federal income tax deduction in respect of non-qualified stock options in an amount equal to the ordinary compensation income recognized by the employee. Any compensation includable in the gross income of an employee in respect of a non-qualified option will be subject to appropriate federal income and employment taxes. On July 5, 1996 the Company sold options to purchase 175,000 shares for $1,750. As of April 1, 1998, five year warrants to purchase 200,000 shares each of common stock of the Company at $1.00 per share were issued to Messrs. Allan Borkowski, Robert Figliozzi. Options for 100,000 each were issued to Michael Funke, Thomas Furey, Jr., Kenneth Zimmerman, V. Leonard and S.Yoodelman, upon their election as directors of the Company, 20,000 options where also issued to these employees Warren Vetter and Paul Binner. During 2000 all warrants to certain former officers were rescinded (See Note 11) In July of 2000 5 year warrants to purchase 350,000 shares of common stock at $1.00 per share were issued to seven Directors Allan Borkowski, Robert Figliozzi, Michael Funke, Thomas Furey, Jr., Barry Hawk, Kenneth Zimmerman and Zackery Liebman 50,000 each. F-18 NOTE 8 - STOCK OPTION PLAN (Continued) In April 1998, five year warrants to purchase 100,000 shares each of common stock of the Company at $1.00 per share were issued to Messrs. Allan Borkowski, Robert Figliozzi, James Leonard and Dr. Stanley Youdelman, in consideration for entering into consulting agreements by each of the above individuals. In April 1998, five year warrants to purchase an aggregate of 435,000 common shares of the Company at prices of $1.00 to $1.10 were issued to three officers and two employees. In April 1999, five year warrants to purchase 650,000 shares of common stock at$1.00 per share were issued to the following: Zachary Liebman and Barry Hawk -125,000 each, Allan Borkowski and Robert Figliozzi - 100,000 each, James Leonard, Michael Funke, Thomas Furey, Jr., and Kenneth Zimmerman - 50,000 each. In September of 2000 5 year warrants to purchase 475,000 shares of common stock at $1.00 per share were issued to 5 Directors Allan Borkowski, Robert Figliozzi, Michael Funke, and Arthur Levine- 100,000 shares each Zackery Liebman- 75,000 shares. In April of 2001 5 year warrants to purchase 200,000 shares of common stock at $1.00 per share were issued to four directors Allan Borkowski, Robert Figliozzi, Michael Funke and Zackery Liebman- 50,000 each. In January of 2002 5 year warrants to purchase 450,000 shares at $1.00 to two officers of the company Arthur Levine 300,000 shares Carolyn Malis 150,000. During July of 2002 all warrants previously issued to directors were extended an additional 5 years. F-19 VICON FIBER OPTICS CORP. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 and 2001 The following summarizes the stock options outstanding under these plans as of December 31, 2002: Number Per Share of Option Date Granted Shares Price Expiration ------------ ------ ----- ---------- July 1996 175,000 .875 2005 April 1998 940,000 1.00 2008 April 1998 150,000 1.10 2008 April 1999 650,000 1.00 2009 July 2000 350,000 1.00 2010 September 2000 475,000 1.00 2010 April 2001 200,000 1.00 2011 January 2002 450,000 1.00 2012 --------- 3,390,000 ========= F-20 VICON FIBER OPTICS CORP. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 and 2001 NOTE 8 - STOCK OPTION PLAN (Continued) The following summarizes the activity of shares under option for the two years ended December 31, 2002: Number Per Share Of Option Shares Price ------ ----- Balance - January 1, 2001 2,740,000 $.87 - $1.10 Granted 200,000 1.00 Exercised -- -- Expired -- -- Cancelled -- -- --------- ------------- Balance - December 31, 2001 2,940,000 $.87 - 1.10 Granted 450,000 1.00 Exercised -- -- Expired -- -- Cancelled -- -- --------- ------------- Balance - December 31, 2002 3,390,000 $.87 - $1.10 ========= ============= NOTE 9 - FAIR VALUES OF FINANCIAL INSTRUMENTS Disclosure of fair value information about certain financial instruments, whether or not recognized in the balance sheet for which it is practicable to estimate that value, is required by Statement of Financial Accounting Standards (SFAS) 107, Disclosure About Fair Value of Financial Instruments. The following methods and assumptions were used in estimating fair values: Cash and cash equivalents: The carrying amount reported in the balance sheet approximates fair value. Short and long-term debt: The carrying amounts of the Company's short-term borrowings, approximate their fair values. The fair values of the Company's long-term debt were estimated using discounted cash flow analysis, based on the Company's current incremental borrowing rates for similar arrangements. The carrying amounts and fair values of the Company's financial instruments at December 31, 2002 are as follows: Carrying Amounts Fair Value --------- ---------- Cash and cash equivalents $ 155,491 $ 155,491 Short and long-term debt 341,578 341,578 F-21 VICON FIBER OPTICS CORP. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 and 2001 NOTE 10 - CONCENTRATION OF CREDIT RISK The Company invests its excess cash in deposits with HSBC Bank. The investment generally matures within six months and therefore is subject to little risk. The Company has not incurred losses related to this investment. At December 31, 2002 and 2001, approximately $148,000 and $190,000, respectively was invested at an interest rate, which varies daily. Deposits with HSBC Bank are insured under the FDIC for up to $500,000. NOTE 11 - SEC INQUIRY In October 2000, present management notified the Northeast Regional Office of he Securities and Exchange Commission ("NRO") of suspected discrepancies and/or irregularities in prior financial statements, filed by prior management. By letter dated October 19, 2000, and in response to such notification, the NRO confirmed that it had initiated an informal inquiry into alleged inventory discrepancies and unauthorized payments to certain prior officers of the Company. In connection with the above, the Company concluded that amounts recorded as expense or expense reimbursement, were included in the operations of the Company and reported in the Company's financial statements for the years ended December 31, 1999 and 1998. These amounts approximated $101,000 and $85,000 in 1999 and 1998, respectively, and were made to or for the benefit of certain former officers of the Company. The minutes of the Board of Directors do not reflect any approval by the Board for these payments. Because of the preliminary nature of this matter, counsel is unable to express any opinion as to the probable outcome thereof. A letter, dated June 8, 2001, was received stating that the NRO is conducting a formal investigation in the matter identified above. F-22 VICON FIBER OPTICS CORP. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 and 2001 NOTE 12 - LEGAL PROCEEDINGS In December 2001, the Company filed a civil legal suit against several of its former officers, as well as against its former independent auditors. This suit was filed with the United States District Court, southern District of New York and was subsequently remanded to the New York State Supreme Court the suit alleges, among other things, that the former officers misappropriated Company funds, and falsified certain of the Company's books and records. The suit also alleges that the former auditors failed, among other things to conduct a number of annual Company audits in a accordance with generally accepted auditing standards. The former auditors have filed a counter-claim with the court against the Company alleging that the Company has failed to pay them approximately $53,000 for past services. These legal actions are not complete and are in the pre-trial stage, the Company's counsel cannot express an opinion as to the possible outcome, and therefore no provision for possible gain from the Company's suit has been recorded. Refer to page 28, "SEC Inquiry," for further information concerning this matter. F-23 Item 8. Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 9. Directors, Executive Officers and Board Members Arthur Levine, Age 46: Director, President, and Chief Executive Officer. Employed by the Company on September 1, 2000. Previous positions include: Chief Operating Officer of General Vision, a retail chain of optical stores; Interim Chief Executive Officer of Skyline Bouquet, a supplier of floral products serving the supermarket industry; Vice President of Corporate Utilities, a consulting firm providing services to Fortune 500 clientele. Allan Borkowski, Age 62: Director since April 23, 1998. Business and financial consultant for over the past five years. Principal stockholder and President of ASB Consultants, Inc. a privately held business consulting firm. Since June, 1982 he has been Chairman and Chief Executive Officer of Optivest Technologies Corp., a privately held business development company. Formerly, Chairman of the Board of Selvac Corp. through June 1996 and Director of Mehl/Biophile International Corp. until February 1997. Robert J. Figliozzi, Age 65: Director since April 23, 1998. Executive Vice President of Mehl/ Biophile International Corp. from April 1997 to July 1998. From August 1994 to April 1997, Vice President of World Fuel Corporation, an aviation and fueling services corporation listed on the New York Stock Exchange. Prior thereto, he was Senior Managing Director and Director of Research of Stamford Securities Corporation, a brokerage firm and member of the New York Stock Exchange. Zachary Liebman, Age 43: Director. Elected to the Board at a special meeting of the Board of Directors on December 15, 1998. Mr. Liebman is a Managing Director in Crestwood Capital Group Corp., which is a consulting firm in assisting emerging growth companies in raising capital, management placements and marketing strategies. Mr. Liebman is a partner in Arthur Miller's Talent Management, Inc., an agency dealing with casting for industrial films and movies. During 2001, Kenneth Zimmerman, Barry Hawk and Thomas Furey resigned from the Company's Board of Directors. During 2002, Michael J. Funke resigned from the Company's Board of Directors. Former Directors, Executive Officers and Board Members - Resigned During 2001 Kenneth Zimmerman, Age 51: Director since April 23, 1998. Founder and Chief Executive Officer, President and sole stockholder of Kenar Enterprises, Ltd., a privately held women's apparel manufacturer and retailer for the past twenty-one years, which has declared bankruptcy. Former Director of Chic by H.I.S., Inc. listed on the New York Stock Exchange. Kenneth Zimmerman resigned as a Board Member in September 2001. -30- Item 9. Directors and Executive Officers (continued) Barry Hawk. Elected to the Board at a special meeting of the Board of Directors on December 15, 1998. Mr. Hawk is presently the Vice President of Corporate Development for Ferro Foods, Corp., a large specialty food and restaurant supplier serving the Northeast and Mid-Atlantic region. Mr. Hawk is a Founder and Managing Director of Crestwood Capital Group, Corp. In that capacity, he advises companies on investment banking, strategic planning, corporate finance, mergers and acquisitions. Mr. Hawk has developed an expertise in innovative financing techniques and structures for both public and private companies. Prior to that, Mr. Hawk served as President of Win Capital Corp., an N.A.S.D. member Broker/Dealer with three offices nationwide. Mr. Hawk graduated from Yeshiva University with Honors with a BA. in Political Science and Economics and from the University of Maryland School of Law. Barry Hawk resigned as a Board Member in July 2001. Thomas E. Furey, Jr. Age 62: Director since April 23, 1998. Employed by IBM since 1963. Presently worldwide general manager for technology development, architecture and implementation for the Olympic Games. Prior to this position he was general manager of IBM's Worldwide Network Computing Solutions Unit and has been a leader in the development of IBM's most advanced hardware and software systems. It should be noted that Thomas E. Furey resigned as Board member in April 2001. Resigned During 2002 Michael J. Funke, Age 59: Director since April 23, 1998. Former Editor/Publisher of the MJF/Ruta Financial Newsletter, private investment consultant and financial advisor since 1992. Consultant to the Company since July 1996. Employed 1967-1992 by IBM in numerous management and consulting positions. MBA from The Wharton School. Former Directors, Executive Officers and Board Members Leonard Scrivo, Age 65: Director, President, Chief Executive Officer and Treasurer of the Company. Director and Officer since 1969. It should be noted that Leonard Scrivo resigned as an officer, employee, and Board member in July, 2000. Les Wasser, Age 59: Director, Secretary and Controller of the Company. Certified Public Accountant. Director since June 1990. It should be noted that Mr. Wasser resigned as a Board member in October, 2000, and ceased being an employee of the Company in February, 2001. Michael Scrivo, Age 37: Director, Vice-President Operations. Director since April 23, 1998. Employed by the Company since 1988. Son of Leonard Scrivo. It should be noted that Michael Scrivo resigned as an officer, employee and Board member in October, 2000. -31- Item 10. Executive Compensation A. The following summary compensation table sets forth information concerning the annual and long-term compensation for the years ended December 31, 2001, 2000, 1999 and 1998, of those persons who were, (i) serving as the chief executive officer of the Company or acting in a similar capacity during the year and (ii) the other most highly compensated executive officers of the Company, whose annual base salary and bonus compensation was in excess of $100,000 (the named executive officers): Annual Long-Term Incentive Compensation Plans Restricted Stock Name Name and Principal Position Year Total Shares(#) Options(#) --------------------------- ---- ----- --------- ---------- Arthur Levine 2002 $135,000 300,000 2001 $135,000 0 100,000 2000 $135,000* 0 -- Former President, CEO and Chairman of the Board Leonard Scrivo 1999 $109,000* 0 0 1998 116,192 75,000 150,000 *Executive Compensation Expense for the year ended December 31, 2000: Months Employed Compensation --------------- ------------ Arthur Levine September - December $44,135 Leonard Scrivo January - July $64,981 A. Option grants in last fiscal year for named executive officers: 100,000 B. Options exercised during the last fiscal year: None. C. Fiscal year end option values for named executive officers: Unexercised Value of Unexercised in- Name Options (#) the-money Options ($) ----- ----------- --------------------- Leonard Scrivo 200,000 $ -0- Arthur Levine 400,000 $ -0- Directors' Compensation No director receives any compensation for attending Board meetings. -32- Item 11. Security Ownership and Certain Beneficial Owners and Management The following table sets forth as of December 31, 2002 the shares of Common Stock of the Company owned by each director of the Company, the officers and directors of the Company as a group and each person known to the Company to own 5% or more of the outstanding shares of Common Stock of the Company: Number of Approximate % of Name Shares Owned Outstanding Shares ---- ------------ ------------------ Allan Borkowski (2)(3) 241,000 2.8% Michael J. Funke (4) 70,100 0.8% Thomas E. Furey, Jr. (1) 20,000 0.2% Directors and Executive 311,100 3.6% Officers as a group (1)(2)(3)(4)(5) Former Directors Leonard Scrivo 967,978 11.3% Les Wasser 130,000 1.5% Michael Scrivo (1) 105,000 1.2% Other Owners Over 5% Donald J. Unger 980,000 11.5% Joseph Cooper 557,478 6.5% o less than 1% (1) Does not include warrants currently exercisable to purchase 150,000 shares of common stock. (2) Does not include warrants exercisable to purchase 450,000 shares of common stock at $1.00 per share. (3) Includes 80,000 shares owned by members of his family in which Mr. Borkowski disclaims any beneficial interest. (4) Does not include warrants exercisable to purchase 475,000 shares of common stock. (5) Includes 200,000 shares owned by members of his family in which Mr. Unger disclaims any beneficial interest. (6) Does not include warrants exercisable to purchase 125,000 shares of common stock at $1.00 per share. -33- Item 12. Certain Relationships and Related Transactions None PART IV Item 13. Exhibits and Reports on Form 8-K On July 26, 2000, the Company filed a Form 8K with the Securities Exchange Commission stating that Leonard Scrivo had resigned from the Company, and that Robert J. Figliozzi had been selected by the Board of Directors to be its acting Chairman. Additionally, it stated that Michael Scrivo had been appointed as the company's Chief Operating Officer. On October 11, 2000, the Company filed a Form 8K with the Securities and Exchange Commission stating that Company management had uncovered certain financial reporting irregularities affecting the financial statements of the Company for the fiscal years 1999 and 1998. This 8K filing also disclosed that Leonard Scrivo and Michael Scrivo had been suspended from association with the Company as of October 5, 2000, and that Michael Scrivo had resigned from the Company as an officer, employee, and Director on October 6, 2000. On November 5, 2002 the Company filed on form 8-K with the Securities Exchange Commission stating that the Company determined to replace Todres and Company, LLP, ("Todres") with the firm of Martin A. Weiselberg & Associates CPA's LLP, effective immediately. The reports of Todres on the financial statements for the past two years (2001 and 2000) contained no adverse opinion or disclaimer of opinion. The report for the year ended December 31, 2001 contained a qualification based on the Company's ability to continue as a going concern. Other than this issue the opinions were not qualified or modified as to any other uncertainties, audit scope or accounting principle. Todres has indicated that they have not withdrawn any of their opinions expressed in their auditors' reports for any periods for which they conducted the Company's audits. In connection with its audits for the two most recent years (2001 and 2000) and through, November 5, 2002, there have been no disagreements with Todres on any matter of accounting principles or practice, financial statement disclosure, or auditing scope or procedure, which disagreement if not resolved to the satisfaction of Todres would have caused them to make reference thereto in their report on the financial statements for such years. (a) Financial Statements The following statements of Vicon Fiber Optics Corp. are included in Part II, Item 7: Page ----- Audit Report of Martin A Weiselberg & Associates. LLP 10 Audit Report of Todres & Company, LLP Financial Statements: Balance Sheet - December 31, 2002 and 2001 11-12 Statements of Operations - Years ended December 31, 2002 and 2001 13 Statements of Shareholders' Equity - Years ended December 31, 2002 and 2001 14 Statements of Cash Flows - Years ended December 31, 2002 and 2001 15 Notes to Financial Statements - December 31, 2002 and 2001 16-30 (b) Exhibits 3.1 Articles of Incorporation, as amended (filed as Exhibit 3.1 to Form 10, Registration No. 0-11057, filed on June 13, 1983, and incorporated herein by reference). 3.2 By-laws (filed as Exhibit 3.2 to Form 10, Registration No. 0-11057, incorporated herein by reference). 4.1 Certificate for Common Stock, $.10 par value (filed as Exhibit 4.1 to Form 10, Registration No. 0-11057, incorporated herein by reference). 4.2 Certificate for Convertible Subordinated Notes, due December 31, 1986, and Agreement (filed as Exhibit 4.2 to Form 10, Registration No. 0-11057, incorporated herein by reference). 4.3 Warrant to Purchase Common Stock, $.10 par value (expiring December 31, 1986) (filed as Exhibit 4.3 to Form 10, Registration No. 0-11057, incorporated herein by reference). 4.4 Form of 12% Convertible Subordinated Note (filed as Exhibit 4.4 to Company's Annual Report on Form 10-K for the year ended December 31, 1986 (the "1986 10-K"), incorporated herein by reference). 4.6 Certificate of Amendment of Certificate of Incorporation to increase the authorized capital stock of the Company to twenty million shares and to change the par value to $.01 per share. (Filed as Exhibit 4.6 to the 1992 Form 10-KSB). -34- Certifications I, Arthur W. Levine, certify that: 1. I have reviewed this annual report on Form 10-K of Vicon Fiber Optics Corp; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)for the registrant and have: a) designed such disclosure controls and procedures to ensure that all material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in the annual report out conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed on our recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directions (or persons performing the equivalent functions) a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors and material weakness in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 25, 2003 /s/ Arthur W. Levine -------------------------------- Arthur W. Levine CEO and CFO -35- SIGNATURES In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VICON FIBER OPTICS CORP. By /s/ Arthur W. Levine Arthur W. Levine, President Date In accordance with Exchange Act, this report has been signed below by the following persons on behalf of registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ Arthur W. Levine Director, President, Chief ARTHUR W. LEVINE Executive Officer and Chief Financial Officer /s/ Robert J. Figliozzi Director ROBERT J. FIGLIOZZI /s/ Allan Borkowski Director ALLAN BORKOWSKI /s/ Zachary Liebman Director ZACHARY LIEBMAN -36-