<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended: December 31, 1997 Commission File Number
------------------------
O-16034
-------
VIKONICS, INC.
------------------------------------------------------
(Exact Name of Registrant as specified in its Charter)
New York 13-2759466
- --------------------------------------- -----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
370 North Street
Teterboro, New Jersey 07608
- --------------------------------------- -----------------------------------
(Address of Principal Executive Offices) (Zip Code)
(201) 641-8077 None
- --------------------------------------- -----------------------------------
(Registrant's Telephone Number Former name, former address and
including area code) former fiscal year, if changed
since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------------ ------------
Number of shares outstanding at February 3, 1998: 2,933,431 shares of common
stock, par value $.02 per share.
<PAGE>
VIKONICS, INC.
INDEX
PART I Financial Information PAGE NO.
Item 1 - Financial Statements (Unaudited)
Balance Sheets:
December 31 and March 31, 1997 3-4
Statements of Operations
For Three Months Ended December 31, 1997 and 1996 5
For Nine Months Ended December 31, 1997 and 1996 6
Statements of Cash Flows
For Nine Months Ended December 31, 1997 and 1996 7
Notes to Financial Statements 8-9
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-11
PART II: Other Information 12
Signatures 13
2
<PAGE>
VIKONICS, INC.
BALANCE SHEETS
ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 MARCH 31, 1997
------------------ --------------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 29,511 $ 52,149
Accounts receivable (less allowance for doubtful
accounts of $20,000) 363,842 300,607
Inventories (Note 2) 117,941 129,610
Prepaid expenses and other current assets 43,544 96,021
--------------- ---------------
TOTAL CURRENT ASSETS 554,838 578,387
--------------- ---------------
EQUIPMENT AND FIXTURES - AT COST:
Machinery and equipment 373,943 373,943
Furniture and fixtures 67,437 67,437
Autos 19,838 19,838
--------------- ---------------
461,218 461,218
Less accumulated depreciation and amortization 461,005 460,365
--------------- ---------------
EQUIPMENT AND FIXTURES - NET 213 853
--------------- ---------------
OTHER ASSETS 1,200 1,220
--------------- ---------------
$ 556,251 $ 580,460
=============== ===============
</TABLE>
See notes to financial statements.
3
<PAGE>
VIKONICS, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 MARCH 31, 1997
----------------- --------------
CURRENT LIABILITIES:
<S> <C> <C>
Notes and loans payable (Note 3) $ 737,507 $ 825,956
Accounts payable 209,825 253,816
Accrued expenses and other current liabilities (Note 4) 1,054,927 902,276
Deferred service income
32,427 49,204
--------------- ---------------
TOTAL CURRENT LIABILITIES 2,034,686 2,031,252
--------------- ---------------
SHAREHOLDERS' (DEFICIT):
Preferred stock - $1 par value:
Authorized - 2,000,000 shares
Issued and outstanding - none
Common stock - $.02 par value:
Authorized - 10,000,000 shares
Issued and outstanding - 2,933,431 shares 58,669 58,669
Paid-in capital 5,641,094 5,641,094
Retained (deficit) (7,178,198) (7,150,555)
--------------- ---------------
TOTAL SHAREHOLDERS' (DEFICIT) (1,450,792)
(1,478,435)
--------------- ---------------
$ 556,251 $ 580,460
=============== ===============
</TABLE>
See notes to financial statements.
4
<PAGE>
VIKONICS, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
SALES - NET $ 344,492 $ 455,059
COST OF GOODS SOLD 216,113 206,054
------------- ------------
GROSS PROFIT 128,379 249,005
------------- ------------
COSTS AND EXPENSES:
Engineering, research and development 54,426 61,072
Marketing and sales 28,749 61,209
General and administrative 99,470 110,501
Depreciation and amortization 214 268
Interest expense 17,388 14,653
------------- ------------
TOTAL COSTS AND EXPENSES 200,247 247,703
------------- ------------
NET (LOSS) INCOME $ (71,868) $ 1,302
============= ============
(LOSS) INCOME PER SHARE (Note 6) $ (.02) $ ---
============= ============
</TABLE>
See notes to financial statements.
5
<PAGE>
VIKONICS, INC.
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
SALES - NET $ 1,345,775 $ 1,087,327
COST OF GOODS SOLD 728,996 564,551
------------- ------------
GROSS PROFIT 616,779 522,776
------------- ------------
COSTS AND EXPENSES:
Engineering, research and development 173,029 156,804
Marketing and sales 135,840 140,101
General and administrative 286,703 295,466
Depreciation and amortization 640 671
Interest expense 48,210 39,282
------------- ------------
TOTAL COSTS AND EXPENSES 644,422 632,324
------------- ------------
NET (LOSS) $ (27,643) $ (109,548)
============= ============
(LOSS) PER SHARE (Note 6) $ (.01) $ (.04)
============= ============
</TABLE>
See notes to financial statements.
6
<PAGE>
VIKONICS, INC.
STATEMENTS OF CASH FLOWS
FOR NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) $ (27,643) $ (109,548)
Adjustments to reconcile net (loss) to net cash
provided by operating activities:
Depreciation and amortization 640 671
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable (63,235) (94,592)
Inventories 11,669 4,412
Prepaid expenses and other current assets 52,477 45,395
Other assets 20 --
Increase (decrease) in:
Accounts payable (43,991) (44,056)
Accrued expenses and other liabilities 152,651 263,384
Deferred service income (16,777) (13,699)
------------- ------------
Net cash provided by operating activities 65,811 51,967
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (88,449) (54,340)
------------- ------------
(DECREASE) IN CASH (22,638) (2,373)
CASH - MARCH 31 52,149 24,559
------------- ------------
CASH - DECEMBER 31 $ 29,511 $ 22,186
============= ============
</TABLE>
See notes to financial statements.
7
<PAGE>
VIKONICS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. - FINANCIAL STATEMENTS
The financial statements include the accounts of the Company and Vikonics Canada
Inc., its wholly-owned subsidiary, an entity without any activity during the
periods presented.
In the opinion of the Company, the accompanying unaudited financial statements
contain all necessary adjustments which are all of a normal recurring nature for
the fair presentation of its financial position as of December 31, 1997, the
results of operations for the three and nine months ended December 31, 1997 and
1996, and changes of cash flows for the nine months ended December 31, 1997 and
1996.
The results of operations for the three and nine months ended December 31, 1997
are not necessarily indicative of the results to be expected for the full year.
<TABLE>
<CAPTION>
NOTE 2. - INVENTORIES
Inventories consisted of the following: DECEMBER 31, 1997 MARCH 31, 1997
----------------- --------------
<S> <C> <C>
Raw materials $ 44,928 $ 48,818
Work-in-process 32,131 36,021
Finished goods 40,882 44,771
-------------- --------------
TOTAL $ 117,941 $ 129,610
============== ==============
NOTE 3. - NOTES AND LOANS PAYABLE
Notes and loans payable consists of:
<CAPTION>
DECEMBER 31, 1997 MARCH 31, 1997
----------------- --------------
<S> <C> <C>
Notes payable bearing interest at 9.72% per annum,
with the last installment due in 1997. This note
is secured by equipment with a net book value of
approximately $0 $ 17,500 $ 40,000
Amounts due to private investors, directors, and
legal counsel. 717,728 717,728
Unsecured installment notes payable. 2,279 68,228
-------------- --------------
$ 737,507 $ 825,956
============== ==============
</TABLE>
8
<PAGE>
On June 30, 1993, the Company entered into an amended agreement with private
investors which provided the Company with a loan in the amount of $200,000
repayable in one year together with an interest rate of 9% annum. In addition,
the amended agreement granted the investors two year options to purchase an
aggregate of 400,000 shares of common stock at an exercise price of $4.75 per
share. In July 1993, one of the private investors assigned $20,000 of the loan
along with options to purchase 40,000 shares of common stock to one of the
Company's directors, who has since resigned from the Board.
Additionally, two former directors provided the Company with loans aggregating
$120,000 during the months of August and September, 1993 payable on demand with
an interest rate of 9% per annum.
On June 24, 1994, the Company entered into an agreement with the above private
investors, former directors, and the Company's retained legal counsel. Pursuant
to the agreement the due date for the investors and former directors loans and
fees payable $(250,000) to legal counsel were extended until the first to occur
of (i) June 30, 1996, (ii) a public financing by the Company, or (iii) a private
financing of the Company of not less than $2,500,000. As June 30, 1996 date has
been reached, such amounts are now due. While the Company does not have the
ability to pay the amounts due to private investors, former directors and legal
counsel, it is attempting to renegotiate the terms of payment of these
obligations. There can be no assurance, however, that the Company will be
successful in these efforts. In addition, the exercise period of the investors'
options to purchase 400,000 shares of common stock were extended three years and
the exercise price was reduced to $1.50.
Included in this agreement were the grant of five year warrants to one of the
former directors and the legal firm to purchase such number of shares of common
stock of the Company as is equal to the aggregate dollar amount of loans to made
($150,000) by that former director and unpaid legal fees ($250,000) at an
exercise price of $1.00 per share. There was no value attached to these
warrants.
Additionally, at December 31, 1997, the Company has a remaining balance of
$147,728 which was lent to the Company by two then directors during the
Company's second fiscal quarter of 1995. Both loans are payable on demand with
interest at 9% per annum.
NOTE 4. - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:
<TABLE>
<CAPTION>
December 31, 1997 March 31, 1997
----------------- --------------
<S> <C> <C>
Accrued warranty expense $ 33,000 $ 33,000
Accrued salaries, wages, and taxes 428,818 307,303
Accrued professional fees 90,000 128,919
Accrued officers' salaries 171,228 190,878
Accrued interest 160,604 130,058
Other 171,277 112,118
--------------- ------------
$ 1,054,927 $ 902,276
=============== ============
</TABLE>
NOTE 5. - INCOME TAXES
At December 31, 1997 the Company had net operating loss carryforwards available
amounting to approximately $6.7 million which will expire between 2001 and 2011.
There is a remote possibility that net operating loss carryforwards of
approximately $500,000 may not be available. There are no significant
differences in the recognition of income and expenses for tax and financial
reporting purposes. Federal income taxes normally provided for the three months
ended December 31, 1996 have been offset by the effects of the reduction of the
valuation allowance.
NOTE 6. - (LOSS) PER SHARE
In 1997 and 1996, the effect of the shares issuable upon the exercise of the
Company's common stock equivalents would be anti-dilutive, therefore, were not
included in the per share computation.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's net sales for the three months ended December 31, 1997 decreased $
111,000 (24%) compared to the corresponding period last year. The decrease is
primarily due to the lack of new contract awards during the current fiscal
quarter ended December 31, 1997 to replace the revenue earned of approximately $
225,000 during the corresponding year ago quarter on a now completed U.S.
Government Agency contract.
The Company's net sales for the nine months ended December 31, 1997 increased $
258,000 (24%) compared to the nine months ended December 31, 1996. The increase
is primarily due to revenues earned for the nine months ended December 31, 1997
of approximately $500,000 from a U.S. Government contract, and equipment
shipments of $145,000 for a contract in Kuwait.
Gross profit as a percentage of net sales was 37% for the three months ended
December 31, 1997 versus 55% during the same period a year ago. For the nine
months ended December 31, 1997, the gross profit percentage was 46% versus 48%
for the corresponding period last year. The gross margin for the three months
ended December 31, 1997 is lower compared to the corresponding year ago period
due to differences in sales mix and the underabsorption of overhead expenses
resulting from the current three month period low sales volume.
Engineering, research and development expenses for the three months ended
December 31, 1997 were $54,000, a decrease of 11% ($7,000) versus the expenses
incurred for the three month period ended December 31, 1996 due to staff
reduction during the current year.
Engineering, research and development expenses for the nine months ended
December 31, 1997 were $173,000, an increase of 10% ($16,000) from the amount of
expenses incurred during the same period a year ago. This is the result of
increased product development efforts during the first six months of the current
year.
Marketing and sales expenses for three and nine months ended December 31, 1997
were $29,000 and $136,000, respectively, a decrease of 53% ($32,000) and 3%
($4,000) versus the expenses incurred during the same periods a year ago, due
primarily to a decrease in sales commissions and marketing costs.
General and administrative expenses for the three and nine months ended December
31, 1997 were $99,000 and $287,000, respectively, a decrease of 10% ($11,000)
and 3% ($9,000) versus the expenses incurred during the same periods a year ago.
The net loss for the three and nine months ended December 31, 1997 was ($72,000)
and ($28,000) respectively, compared to net income of $1,302 and a net loss of
($110,000) for the corresponding periods a year ago.
The future viability of the Company will depend upon the Company's success in
raising revenue levels, maintaining low cost levels and, if necessary, raising
additional financing.
LIQUIDITY AND CAPITAL RESOURCES
The Company's continued existence is dependent upon its ability to obtain
contract awards which, in the aggregate, will provide significant revenues in
the immediate future, and the continued forebearance of its creditors. While
there can be no assurance of favorable results, the Company remains optimistic
about obtaining these potential contract awards.
To date, there has been no adverse effect on the Company's ability to perform on
any of its contracts due to its limited working capital. The Company has also
been able to maintain a satisfactory relationship with the majority of its
suppliers and has been able to substitute for dissatisfied vendors, when
necessary. For any large contract that the Company might be awarded in the
future where working capital might hamper its ability to perform, the Company
would attempt to negotiate adequate terms and delivery with the customer and/or,
if necessary, obtain required financing. There can be no assurance, however,
that the Company would be successful in these efforts.
10
<PAGE>
The working capital (deficit) on December 31, 1997 was ($1,480,000) compared to
($1,453,000) on March 31, 1997. The increase in the working capital (deficit) is
primarily due to the $28,000 net loss for the nine months ended December 31,
1997. On December 31, 1997, the Company had $29,511 in cash compared to $52,149
at March 31, 1997.
Accounts receivable increased by $63,000 during the nine months ended December
31, 1997, due to a disproportionate amount of billings occurring in the later
half of the fiscal quarter ending December 31, 1997.
Notes and loans payable of $737,000 at December 31, 1997 consist of $2,000
unsecured installment notes payable used to finance the Company's insurance
premiums, $17,000 of equipment installment notes and $718,000 due to private
investors, former directors, and legal counsel.
Pursuant to the agreement the due date for the investors and former directors
loans and fees payable to legal counsel were extended until the first to occur
of (i) June 30, 1996, (ii) a public financing by the Company, or (iii) a private
financing of the Company of not less than $2,500,000. As June 30, 1996 date has
been reached, such amounts are now due. While the Company does not have the
ability to pay the amounts due to private investors, former directors and legal
counsel, it is attempting to renegotiate the terms of payment of these
obligations. There can be no assurance, however, that the Company will be
successful in these efforts. Legal action by one or more of the foregoing
creditors of the Company to collect the amounts owed would likely have a
material adverse affect on the Company.
Accounts payable of $210,000 at December 31, 1997 are comparable to the balance
of $254,000 at March 31, 1997. Accrued expenses and other current liabilities at
December 31, 1997 of $1,055,000 are $153,000 greater than the $902,000 at March
31, 1997. The increase is primarily due to an increase in accrued payroll taxes
for the nine months ended December 31, 1997.
In total, the net cash provided by operating activities was $66,000 for the nine
months ended December 31, 1997, as compared to $52,000 for the nine months ended
December 31, 1996.
The Company has no significant capital expenditure plans at this time.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
None
12
<PAGE>
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.
VIKONICS, INC.
--------------
(Registrant)
February 4,1998 /s/ John J. Strong
--------------------------------
John J. Strong
President
(duly authorized officer
and principal financial officer)
13
