<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: December 31, 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
February 12, 1999: 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:
December 31 and March 31, 1998 3-4
Statements of Operations
For Three Months Ended December 31, 1998 and 1997 5
For Nine Months Ended December 31, 1998 and 1997 6
Statements of Cash Flows
For Nine Months Ended December 31, 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>
December 31,1998 March 31,1998
---------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 20,773 $ 10,328
Accounts receivable (less allowance for doubtful
accounts of $30,000) 162,632 263,479
Inventories (Note 2) 92,780 93,740
Prepaid expenses and other current assets 30,175 76,551
------------------ -----------------
TOTAL CURRENT ASSETS 306,360 444,098
------------------ -----------------
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
------------------ -----------------
$ 307,560 $ 445,298
================== =================
</TABLE>
See notes to financial statements.
3
<PAGE>
VIKONICS, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1998
----------------- --------------
<S> <C> <C>
CURRENT LIABILITIES:
Notes and loans payable (Note 3) $ 768,315 $ 790,014
Accounts payable 188,404 205,847
Accrued expenses and other current liabilities (Note 4) 1,185,501 1,086,940
Deferred service income 31,152 55,711
------------------ -----------------
TOTAL CURRENT LIABILITIES 2,173,372 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) (7,565,575) (7,392,977)
------------------ -----------------
TOTAL SHAREHOLDERS' (DEFICIT) (1,865,812) (1,693,214)
------------------ -----------------
$ 307,560 $ 445,298
================== =================
</TABLE>
See notes to financial statements.
4
<PAGE>
VIKONICS, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
SALES - NET $ 395,544 $ 344,492
COST OF GOODS SOLD 257,096 216,113
--------------- ----------------
GROSS PROFIT 138,448 128,379
--------------- ----------------
COSTS AND EXPENSES:
Engineering, research and development 51,630 54,426
Marketing and sales 33,753 28,749
General and administrative 130,228 99,470
Depreciation and amortization --- 214
Interest expense 19,159 17,388
--------------- ----------------
TOTAL COSTS AND EXPENSES 234,770 200,247
--------------- ----------------
NET (LOSS) $ (96,322) $ (71,868)
=============== ================
(LOSS) PER SHARE (Note 6) -
Basic and Diluted $ (.03) $ (.02)
=============== ================
</TABLE>
See notes to financial statements.
5
<PAGE>
VIKONICS, INC.
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
SALES - NET $ 1,259,061 $ 1,345,775
COST OF GOODS SOLD 780,568 728,996
--------------- ----------------
GROSS PROFIT 478,493 616,779
--------------- ----------------
COSTS AND EXPENSES:
Engineering, research and development 178,268 173,029
Marketing and sales 102,826 135,840
General and administrative 328,404 286,703
Depreciation and amortization --- 640
Interest expense 41,593 48,210
--------------- ----------------
TOTAL COSTS AND EXPENSES 651,091 644,422
--------------- ----------------
NET (LOSS) $ (172,598) $ (27,643)
=============== ================
(LOSS) PER SHARE (Note 6) -
Basic and Diluted $ (.06) $ (.01)
=============== ================
</TABLE>
See notes to financial statements.
6
<PAGE>
VIKONICS, INC.
STATEMENTS OF CASH FLOWS
FOR NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (172,598) $ (27,643)
Adjustments to reconcile net (loss) to net
cash provided by operating activities:
Depreciation and amortization --- 640
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable 100,847 (63,235)
Inventories 960 11,669
Prepaid expenses and other current assets 46,376 52,477
Other assets --- 20
Increase (decrease) in:
Accounts payable (17,443) (43,991)
Accrued expenses and other liabilities 98,561 152,651
Deferred service income (24,559) (16,777)
---------------- ----------------
Net cash provided by operating activities 32,144 65,811
---------------- ----------------
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 (27,286) (88,449)
---------------- ----------------
Net cash used for financing activities (21,699) (88,449)
INCREASE (DECREASE) IN CASH 10,445 (22,638)
CASH - MARCH 31 10,328 52,149
---------------- ----------------
CASH - DECEMBER 31 $ 20,773 $ 29,511
================ ================
</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, 1998,
the results of operations for the three and nine months ended December 31, 1998
and 1997, and changes of cash flows for the nine months ended December 31, 1998
and 1997.
The results of operations for the three and nine months ended December 31, 1998
are not necessarily indicative of the results to be expected for the full year.
Note 2. - Inventories
<TABLE>
<CAPTION>
Inventories consisted of the following: December 31, 1998 March 31, 1998
------------------ -----------------
<S> <C> <C>
Raw materials $ 28,620 $ 29,200
Work-in-process 8,586 8,826
Finished goods 55,574 55,714
----------------- ------------------
TOTAL $ 92,780 $ 93,740
================= ==================
</TABLE>
Note 3. - Notes and Loans Payable; Legal Proceeding
Notes and loans payable consists of:
<TABLE>
<CAPTION>
December 31, 1998 March 31, 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. 50,587 62,286
------------------ -----------------
$ 768,315 $ 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 December 31, 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:
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1998
----------------- --------------
<S> <C> <C>
Accrued warranty expense $ 33,000 $ 33,000
Accrued salaries, wages, and taxes 447,605 445,059
Accrued professional fees 35,000 32,500
Accrued officers' salaries 171,228 171,228
Accrued interest 431,498 353,319
Other 67,170 51,834
---------------- ---------------
$ 1,185,501 $ 1,086,940
================ ===============
</TABLE>
Note 5. - Income Taxes
At December 31, 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.
Note 6. - (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 December 31, 1998 increased
$ 51,000 (15%) compared to the same period a year ago due to an increase in the
current fiscal third quarter sales to the City of New York and U.S. Department
of the Treasury. For the nine months ended December 31, 1998 net sales
decreased $ 87,000 (6%), compared to the corresponding period last year due to
a relatively high revenue level achieved last year from a government contract
at Fort Meade, Maryland without corresponding revenues earned from this
customer during the first nine months of fiscal 1999.
Gross profit as a percentage of net sales for the three months ended December
31, 1998 was 35% compared to 37% during the same period a year ago. For the
nine months ended December 31, 1998, the gross profit percentage was 38%
compared to 46% during the same period a year ago. The decrease in gross margin
for the three and nine months ended December 31, 1998 is due to the adverse
effect of a larger volume of resold purchased equipment versus higher margin
Vikonics manufactured equipment and services sold during the previous fiscal
1998 nine month period.
Engineering, research and development expenses for three months ended
December 31,1998 were $ 52,000, a decrease of 5% ($ 2,800) due to reduced
outside programming costs . Engineering, research and development expenses for
the nine months ended December 31, 1998 were $ 178,000, an increase of 3% ($
5,200) due to product development efforts during the first six months of the
current 1999 fiscal year.
Marketing and sales expenses for the three and nine months ended December 31,
1998 were $ 34,000 an increase of 17% ($ 5,000) versus the expenses incurred
during the same period a year ago, due primarily to increased salary and
commission expense. Marketing and sales expenses for the nine months ended
December 31, 1998 were $ 103,000, a decrease of 24% ($33,000) compared to those
costs incurred during the nine month period ended December 31, 1997, due
primarily to a decrease in consulting fees.
General and administrative expenses for the three and nine months ended
December 31, 1998 were $ 130,000 and $ 328,000, respectively, an increase of
31% ($ 31,000) and 15% ($ 42,000) 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 loss for the three months ended December 31, 1998 was $ (96,000)
compared to net loss of $ (72,000) a year ago. The net (loss) for the nine
months ended December 31, 1998 was $ (173,000) compared to net loss of $
(28,000) 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 December 31, 1998 was ($1,867,000) 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 nine months ended December 31,1998.
At December 31, 1998 the Company had $ 21,000 in cash, compared to $10,000 in
cash at March 31, 1998.
Accounts receivable decreased by $ 101,000 during the nine months ended
December 31, 1998 due to accelerated cash receipt collections achieved during
the current 1999 fiscal quarter without a corresponding increase in revenue.
Notes and loans payable of $768,000 at December 31, 1998 consist of $50,000
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 $189,000 at December 31, 1998 are $ 17,000 less than the
balance of $206,000 at March 31, 1998 due simply to the timing of certain
vendor payments. Accrued expenses and other current liabilities at December 30,
1998 of $1,186,000 are $ 99,000 greater than the $1,087,000 at March 31, 1998.
The increase is primarily due to an increase in accrued payroll tax non-
payment penalties and interest for the nine months ended December 31, 1998.
In total, the net cash provided by operating activities was $ 32,000 for the
nine months ended December 31, 1998, as compared to $ 66,000 for the nine
months ended December 31, 1997.
The Company has no significant capital expenditure plans at this time.
The Company has assessed the state of its year 2000 preparedness and has
determined that the potential consequences of year 2000 issues will not
materially affect the Company's business, results of operations or financial
condition.
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)
February 18, 1999 /s/ John J. Strong
--------------------------------
John J. Strong
President
(duly authorized officer
and principal financial officer)
13
