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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: June 30, 1998
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/ / TRANSITION REPORT UNDER SECTION TO 13 OR 15 (d) OF THE EXCHANGE
ACT
For the transition period from to
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Commission File Number O-16034
VIKONICS, INC
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(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 17608
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(Address of principal executive offices)
(201) - 641-8077
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(Issuer's telephone number)
NONE
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(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 August 3, 1998: 2,933,431 shares of common stock, par value $.02 per
share.
Transitional Small Business Disclosure Format (Check one): Yes No X
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VIKONICS, INC.
INDEX
PART I Financial Statements PAGE NO.
Item 1 - Financial Statements (Unaudited)
Balance Sheets:
June 30 and March 31, 1998 3-4
Statements of Operations
For Three Months Ended June 30, 1998 and 1997 5
Statements of Cash Flows
For Three Months Ended June 30, 1998 and 1997 6
Notes to Financial Statements 7-8
Item 2 - Management's Discussion and Analysis or Plan of
Operation 9-10
PART II: Other Information 11
Signatures 12
2
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VIKONICS, INC.
BALANCE SHEETS
ASSETS
(UNAUDITED)
JUNE 30, MARCH 31,
1998 1998
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CURRENT ASSETS:
Cash $ 57,112 $ 10,328
Accounts receivable (less allowance for doubtful
accounts of $30,000) 155,583 263,479
Inventories (Note 2) 111,069 93,740
Prepaid expenses and other current assets 63,824 76,551
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TOTAL CURRENT ASSETS 387,588 444,098
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EQUIPMENT AND FIXTURES - AT COST:
Machinery and equipment 373,943 373,943
Furniture and fixtures 67,437 67,437
Autos 19,838 19,838
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461,218 461,218
Less, accumulated depreciation and amortization 461,218 461,218
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EQUIPMENT AND FIXTURES - NET -- --
-------- --------
OTHER ASSETS 1,200 1,200
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$388,788 $445,298
======== ========
See notes to financial statements.
3
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VIKONICS, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1998 1998
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<S> <C> <C>
CURRENT LIABILITIES:
Notes and loans payable (Note 3) $ 786,279 $ 790,014
Accounts payable 201,995 205,847
Accrued expenses and other current liabilities (Note 4) 1,137,611 1,086,940
Deferred service income 53,338 55,711
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TOTAL CURRENT LIABILITIES 2,179,223 2,138,512
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SHAREHOLDERS' (DEFICIT):
Preferred stock - $1 par value:
Authorized - 2,000,000 shares
Issued and outstanding - none
Common stock - $.02 par value:
Authorized - 10,000,000 shares
Issued and outstanding - 2,933,431 58,669 58,669
Paid-in capital 5,641,094 5,641,094
Retained (deficit) (7,490,198) (7,392,977)
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TOTAL SHAREHOLDERS' (DEFICIT) (1,790,435) (1,693,214)
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$ 388,788 $ 445,298
=========== ===========
</TABLE>
See notes to financial statements.
4
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VIKONICS, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
1998 1997
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SALES - NET $ 299,487 $ 507,318
COST OF GOODS SOLD 195,619 260,387
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GROSS PROFIT 103,868 246,931
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COSTS AND EXPENSES:
Engineering, research and development 61,604 62,120
Marketing and sales 34,166 52,565
General and administrative 93,325 94,000
Depreciation and amortization -- 214
Interest expense 1,994 15,859
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TOTAL COSTS AND EXPENSES 201,089 224,758
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NET (LOSS) INCOME $ (97,221) $ 22,173
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(LOSS) INCOME PER SHARE (Note 6) -
BASIC AND DILUTED $ (.03) $ .01
========= =========
See notes to financial statements.
5
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VIKONICS, INC.
STATEMENTS OF CASH FLOWS
FOR THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (97,221) $ 22,173
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization -- 214
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable 107,896 66,548
Inventories (17,329) 8,432
Prepaid expenses and other current assets 12,727 18,655
Other assets -- 20
Increase (decrease) in:
Accounts payable (3,852) 33,623
Accrued expenses and other liabilities 50,671 50,814
Deferred service income (2,373) (10,105)
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Net cash provided by operating activities 50,519 190,374
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and fixtures - net -- --
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CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of short term notes 5,587 --
Repayment of debt (9,322) (42,374)
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Net cash used for financing activities (3,735) (42,374)
INCREASE (DECREASE) IN CASH 46,784 148,000
CASH - MARCH 31 10,328 52,149
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CASH - JUNE 30 $ 57,112 $ 200,149
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See notes to financial statements.
6
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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 June 30, 1998, the
results of operations for the three months ended June 30, 1998 and 1997, and
changes of cash flows for the three months ended June 30, 1998 and 1997.
The results of operations for the three months ended June 30, 1998 are not
necessarily indicative of the results to be expected for the full year.
NOTE 2. - INVENTORIES
Inventories consisted of the following: JUNE 30, 1998 MARCH 31, 1998
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Raw materials $ 30,406 $ 29,200
Work-in-process 10,082 8,826
Finished goods 70,581 55,714
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TOTAL $ 111,069 $ 93,740
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NOTE 3. - NOTES AND LOANS PAYABLE
Notes and loans payable consists of:
JUNE 30, 1998 MARCH 31, 1998
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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 $ 5,000 $ 10,000
Amounts due to private investors,
directors, and legal counsel. 717,728 717,728
Unsecured installment notes payable. 63,551 62,286
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$ 786,279 $ 790,014
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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. 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 renogotiate 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 June 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:
June 30, 1998 March 31, 1998
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Accrued warranty expense $ 33,000 $ 33,000
Accrued salaries, wages, and taxes 488,030 445,059
Accrued professional fees 20,000 32,500
Accrued officers' salaries 171,228 171,228
Accrued interest 360,710 353,319
Other 64,643 51,834
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$ 1,137,611 $ 1,086,940
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NOTE 5. - INCOME TAXES
At June 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 June 30, 1997 have been offset by the effects of the reduction of
the valuation allowance.
NOTE 6. - (LOSS) INCOME 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.
8
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ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
RESULTS OF OPERATIONS
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The Company's net sales for the three months ended June 30, 1998 were $ 299,000
a decrease of $ 208,000 or 41.0% from the $507,000 of net sales reported for the
same period a year ago. The decrease is primarily due to revenues of $355,000
during the 1997 first quarter earned from a government contract at Fort Meade,
Maryland,without corresponding revenues earned from this customer during the
1998 first quarter.
Gross profits as a percentage of net sales for the three months ended June 30,
1998 was 34.7% compared to 48.7% during the same period a year ago. The
decrease is primarily due to the under absorption of overhead expenses in the
current year period due to the low sales level.
Engineering, research and development expenses were $62,000, which is the same
as the year ago corresponding quarter.
Marketing and sales expenses were $ 34,000 for the three months ended June 30,
1998, or a 35.0% decrease from the $53,000 incurred in the same period last
year, due to a decrease in consulting fees and commissions.
General and administrative expenses of $93,000 in the current quarter are
relatively the same as the $94,000 in the corresponding quarter a year ago.
The net loss for the three months ended June 30, 1998 was $ 97,000 compared to
net income of $22,000 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.
LIQUIDITY AND CAPITAL RESOURCES
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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.
The working capital deficit on June 30, 1998 was ($1,792,000) compared to
($1,694,000) on March 31, 1998. The decrease in the working capital deficit is
primarily due to the loss incurred for the three months ended June 30, 1998. At
June 30, 1998 the Company had $57,000 in cash, compared to $ 10,000 at March 31,
1998.
Accounts receivable decreased by $ 108,000 in the three months ended June 30,
1998 due to the low sales level in the first fiscal 1999 quarter .
9
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Notes and loans payable of $786,000 at June 30, 1998 consist of $63,000
unsecured installment, notes payable used to finance the Company's insurance
premiums, $ 5,000 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 renogotiate the terms of payment of
these obligations. There can be no assurance, however, that the Company will
be successful in these efforts.
Accounts payable of $ 202,000 at June 30, 1998 are comparable to the $206,000
at March 31, 1998. Accrued expenses and other current liabilities at June 30,
1998 of $ 1,138,000 are 4.7% greater than the $1,087,000 at March 31, 1998.
The increase is primarily due to an increase in accrued payroll taxes for the
three months ended June 30, 1998.
In total, the net cash provided by operating activities was $ 51,000 for the
three months ended June 30, 1998, as compared to $190,000 for the three months
ended June 30, 1997.
The Company has no significant capital expenditure plans at this time.
10
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PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
None
11
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SIGNATURES
In accordance with the requirements of the Exchange Act , the registrant
caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Vikonics,Inc.
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(Registrant)
August 13, 1998 /s/ John J. Strong
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John J. Strong
President
(duly authorized officer
and principal financial officer)
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