<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarterly Period Ended: September 30, 1998
---------------------------
/ / TRANSITION REPORT UNDER SECTION TO 13 OR 15 (d) OF THE EXCHANGE
ACT
For the transition period from _________ to _________
Commission File Number O-16034
VIKONICS, INC
-----------------------------------------------------
(Exact name of small business issuer as specified in its charter)
New York 13-2759466
- -------------------------------- -----------------------------------
(State or other jurisdiction
of incorporation or organization) (I.R.S. Employer Identification No.)
370 North Street Teterboro, New Jersey 07608
--------------------------------------------
(Address of principal executive offices)
(201) - 641-8077
----------------
(Issuer's telephone number)
NONE
----------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past12 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
----- -----
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date: Number of shares outstanding
at November 12, 1998: 2,933,431 shares of common stock, par value $ .02 per
share.
Transitional Small Business Disclosure Format (Check one): Yes No X
--- ---
<PAGE>
VIKONICS, INC.
INDEX
PART I Financial Statements Page No.
Item 1 - Financial Statements (Unaudited)
Balance Sheets:
September 30 and March 31, 1998 3-4
Statements of Operations
For Three Months Ended September 30, 1998 and 1997 5
For Six Months Ended September 30, 1998 and 1997 6
Statements of Cash Flows
For Six Months Ended September 30, 1998 and 1997 7
Notes to Financial Statements 8-9
Item 2 - Management's Discussion and Analysis or Plan of
Operation 10-11
PART II: Other Information 12
Signatures 13
2
<PAGE>
VIKONICS, INC.
BALANCE SHEETS
ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
<S> <C> <C>
CURRENT ASSETS:
Cash $ 4,282 $ 10,328
Accounts receivable (less allowance for doubtful
accounts of $30,000) 415,320 263,479
Inventories (Note 2) 95,187 93,740
Prepaid expenses and other current assets 46,658 76,551
-------- --------
TOTAL CURRENT ASSETS 561,447 444,098
-------- --------
EQUIPMENT AND FIXTURES - AT COST:
Machinery and equipment 373,943 373,943
Furniture and fixtures 67,437 67,437
Autos -- 19,838
-------- --------
441,380 461,218
Less, accumulated depreciation and amortization 441,380 461,218
-------- --------
EQUIPMENT AND FIXTURES - NET -- --
-------- --------
OTHER ASSETS 1,200 1,200
-------- --------
$562,647 $445,298
======== ========
</TABLE>
See notes to financial statements.
3
<PAGE>
VIKONICS, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Notes and loans payable (Note 3) $ 774,441 $ 790,014
Accounts payable 308,158 205,847
Accrued expenses and other current liabilities (Note 4) 1,203,975 1,086,940
Deferred service income 45,563 55,711
----------- -----------
TOTAL CURRENT LIABILITIES 2,332,137 2,138,512
----------- -----------
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 58,669 58,669
Paid-in capital 5,641,094 5,641,094
Retained (deficit) (7,469,253) (7,392,977)
----------- -----------
TOTAL SHAREHOLDERS' (DEFICIT) (1,769,490) (1,693,214)
----------- -----------
$ 562,647 $ 445,298
=========== ===========
</TABLE>
See notes to financial statements.
4
<PAGE>
VIKONICS, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
1998 1997
---- ----
SALES - NET $564,030 $493,965
COST OF GOODS SOLD 327,853 252,496
-------- --------
GROSS PROFIT 236,177 241,469
-------- --------
COSTS AND EXPENSES:
Engineering, research and development 65,034 56,483
Marketing and sales 34,907 54,526
General and administrative 104,851 93,231
Depreciation and amortization -- 214
Interest expense 10,440 14,963
-------- --------
TOTAL COSTS AND EXPENSES 215,232 219,417
-------- --------
NET INCOME $ 20,945 $ 22,052
======== ========
INCOME PER SHARE (Note 6) -
Basic and Diluted $ .01 $ .01
======== ========
See notes to financial statements.
5
<PAGE>
VIKONICS, INC.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
1998 1997
---- ----
SALES - NET $ 863,517 $1,001,283
COST OF GOODS SOLD 523,472 512,883
---------- ----------
GROSS PROFIT 340,045 488,400
---------- ----------
COSTS AND EXPENSES:
Engineering, research and development 126,638 118,603
Marketing and sales 69,073 107,091
General and administrative 198,176 187,232
Depreciation and amortization -- 427
Interest expense 22,434 30,822
---------- ----------
TOTAL COSTS AND EXPENSES 416,321 444,175
---------- ----------
NET (LOSS) INCOME $ (76,276) $ 44,225
========== ==========
(LOSS) INCOME PER SHARE (Note 6) -
Basic and Diluted $ (.03) $ .02
========== ==========
See notes to financial statements.
6
<PAGE>
VIKONICS, INC.
STATEMENTS OF CASH FLOWS
FOR SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (76,276) $ 44,225
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization -- 427
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable (151,841) (157,570)
Inventories (1,447) 9,794
Prepaid expenses and other current assets 29,893 32,555
Other assets -- 20
Increase (decrease) in:
Accounts payable 102,311 9,933
Accrued expenses and other liabilities 117,035 85,367
Deferred service income (10,148) (2,625)
--------- ---------
Net cash provided by operating activities 9,527 22,126
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and fixtures - net -- --
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of short term notes 5,587 --
Repayment of debt (21,160) (67,058)
--------- ---------
Net cash used for financing activities (15,573) (67,058)
(DECREASE) IN CASH (6,046) (44,932)
CASH - MARCH 31 10,328 52,149
--------- ---------
CASH - SEPTEMBER 30 $ 4,282 $ 7,217
========= =========
</TABLE>
See notes to financial statements.
<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
September 30, 1998, the results of operations for the three and six months
ended September 30, 1998 and 1997, and changes of cash flows for the six
months ended September 30, 1998 and 1997.
The results of operations for the three and six months ended September 30,
1998 are not necessarily indicative of the results to be expected for the
full year.
Note 2. - Inventories
Inventories consisted of the following: September 30, March 31,
1998 1998
------------- ----------
Raw materials $29,423 $29,200
Work-in-process 9,388 8,826
Finished goods 56,376 55,714
------- -------
TOTAL $95,187 $93,740
======= =======
Note 3. - Notes and Loans Payable; Legal Proceeding
Notes and loans payable consists of:
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
<S> <C> <C>
Notes payable bearing interest a 9.72% per annum,
with the last installment due in 1998. This note is
secured by equipment with a net book value of
approximately $0 $ -- $ 10,000
Amounts due to private investors, directors, and legal
counsel 717,728 717,728
Unsecured installment notes payable 56,713 62,286
-------- --------
$774,441 $790,014
======== ========
</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 of the 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. 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. Furthermore, 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.
As the aforementioned June 30, 1996 date has been reached, the amounts owing
to the investors, former directors and counsel are past due. On September
17, 1998 the private investors filed a lawsuit in the Superior Court of New
Jersey for the principal amount of $ 200,000, plus unpaid interest ($93,000
at September 1, 1998). While the Company does not have the ability to pay
the amounts due to these private investors, or the former directors and
legal counsel, it will seek to renegotiate the terms of payment of these
obligations. There can be no assurance, however, that the Company will be
successful in these efforts. The failure to do so would have a material
adverse affect on the business of the Company and its ability to continue as
a going concern.
Additionally, at September 30, 1998, the Company had 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:
September 30, 1998 March 31, 1998
------------------ --------------
Accrued warranty expense $ 33,000 $ 33,000
Accrued salaries, wages, and taxes 522,119 445,059
Accrued professional fees 27,500 32,500
Accrued officers' salaries 171,228 171,228
Accrued interest 384,367 353,319
Other 65,761 51,834
---------- ----------
$1,203,975 $1,086,940
========== ==========
Note 5. - Income Taxes
At September 30, 1998 the Company had net operating loss carryforwards
available amounting to approximately $7.0 million which will expire between
2001 and 2012. 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 September 30, 1998 and the three and six months ended
September 30, 1997 have been offset by the effects of the reduction of the
valuation allowance.
Note 6. - Income (Loss) Per Share
Basic and diluted per share data is based on the weighted average number of
common shares outstanding. Common stock equivalents would be anti-dilutive
and, therefore, were not included in the diluted per share computations.
9
<PAGE>
Item 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
Results of Operations
The Company's net sales for the three months ended September 30, 1998
increased $ 70,000 (14%) compared to the same period a year ago due to an
increase in the current fiscal second quarter sales to the U.S. Architect of
the Capitol and to a commercial company for a local school system project.
For the six months ended September 30, 1998 net sales decreased $138,000
(14%), compared to the corresponding period last year due to a relatively
high revenue level achieved during last year's second fiscal quarter from a
government contract at Fort Meade, Maryland without corresponding revenues
earned from this customer during the first six months of fiscal 1999.
Gross profits as a percentage of net sales for the three months ended
September 30, 1998 was 42% compared to 49% during the same period a year
ago. For the six months ended September 30, 1998, the gross profit
percentage was 39% compared to 49% during the same period a year ago. The
decrease in gross margin for the three and six months ended September 30,
1998 is due to the adverse effect of a high volume of resold purchased
equipment versus higher margin Vikonics manufactured equipment and services
sold during the previous fiscal 1998 six month period.
Engineering, research and development expenses for three and six months
ended September 30,1998 were $ 65,000 and $127,000, respectively, an
increase of 15% ($8,000) and 7% ($8,000) versus the expenses incurred during
the same periods a year ago. These increases are due to additional product
development efforts begun last year.
Marketing and sales expenses for three and six months ended September 30,
1998 were $35,000 and $69,000, respectively, a decrease of 36% ($20,000) and
36% ($38,000) versus the expenses incurred during the same periods a year
ago, due primarily to a decrease in consulting fees and commissions.
General and administrative expenses for the three and six months ended
September 30, 1998 were $ 105,000 and $198,000, respectively, an increase of
12% ($12,000) and 6% ($11,000) versus the expenses incurred during the same
periods a year ago. The variation is due to increases in payroll tax
non-payment penalties, interest and service charges.
The net income for the three months ended September 30, 1998 was $21,000
compared to net income of $22,000 a year ago. The net (loss) for the six
months ended September 30, 1998 was ($76,000) compared to net income of $
44,000 a year ago, due to the factors regarding revenue and expenses
described above.
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. In addition, the future viability of the
Company depends on the outcome of the legal proceeding described under
Liquidity and Capital Resources.
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. 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 September 30, 1998 was ($1,771,000) compared
to ($1,694,000) on March 31, 1998. The increase in the working capital
deficit is primarily due to the loss incurred for the six months ended
September 30,1998. At September 30, 1998 the Company had $ 4,000 in cash,
compared to $10,000 in cash at March 31, 1998.
Accounts receivable increased by $152,000 during the six months ended
September 30, 1998 due to a disproportionate amount of billings occurring in
the later half of the fiscal quarter ended September 30, 1998.
Notes and loans payable of $774,000 at September 30, 1998 consist of $56,000
unsecured installment, notes payable used to finance the Company's insurance
premiums, 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
the June 30, 1996 date has been reached, the amounts owing to the investors,
former directors and counsel are past due. On September 17, 1998 the private
investors filed a lawsuit in the Superior Court of New Jersey for the
principal amount of $ 200,000, plus unpaid interest ($93,000 at September 1,
1998). While the Company does not have the ability to pay the amounts due to
these private investors, or the former directors and legal counsel, it will
seek to renegotiate the terms of payment of these obligations. There can be
no assurance, however, that the Company will be successful in these efforts.
The failure to do so would have a material adverse affect on the business of
the Company and its ability to continue as a going concern.
Accounts payable of $308,000 at September 30, 1998 are $102,000 higher than
the balance of $206,000 at March 31, 1998 due to an increase in material
purchases necessary for the higher revenue achieved during the second fiscal
1999 quarter. Accrued expenses and other current liabilities at September
30, 1998 of $1,204,000 are $117,000 greater than the $1,087,000 at March 31,
1998. The increase is primarily due to an increase in accrued payroll taxes
for the six months ended September 30, 1998.
In total, the net cash provided by operating activities was $ 10,000 for the
six months ended September 30, 1998, as compared to $ 22,000 for the six
months ended September 30, 1997.
The Company has no significant capital expenditure plans at this time.
11
<PAGE>
Part II - Other Information
Item 1.- Legal Proceedings
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 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 of the 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 and others wherein the due date for the loans 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 the June 30, 1996 date has been reached, the
amounts owing to the investors, former directors and counsel are past due.
On September 17, 1998 the private investors filed a lawsuit in the Superior
Court of New Jersey ( Randolph N. Reynolds, Arthur H. Sweeney Jr., Manny
Weiss and Lilian Weiss vs. Vikonics Inc. ) for the principal amount of $
200,000, plus unpaid interest ($93,000 at September 1, 1998). While the
Company does not have the ability to pay the amounts due to these private
investors, or the former directors and legal counsel, it will seek to
renegotiate the terms of payment of these obligations. There can be no
assurance, however, that the Company will be successful in these efforts.
The failure to do so would have a material adverse affect on the business of
the Company and its ability to continue as a going concern. (See Note 3 to
financial statements)
Item 6 - Exhibits and Reports on Form 8-K
None
12
<PAGE>
Signatures
In accordance with the requirements of the Exchange Act , the registrant
caused this report to be signed on its behalf by the undersigned there unto
duly authorized.
Vikonics,Inc.
-------------
(Registrant)
November 18, 1998 /s/ John J. Strong
---------------------------------------
John J. Strong
President
(duly authorized officer
and principal financial officer)
13
