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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, 1999
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/ / TRANSITION REPORT UNDER SECTION TO 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from _________ to _________
Commission File Number 0-16034
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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 (I.R.S. Employer Identification No.)
of incorporation or organization)
370 North Street Teterboro, New Jersey 07608
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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 past 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 ___
---
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 April
17, 2000: 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:
December 31 and March 31, 1999 3-4
Statements of Operations
For Three Months Ended December 31, 1999 and 1998 5
For Nine Months Ended December 31, 1999 and 1998 6
Statements of Cash Flows
For Nine Months Ended December 31, 1999 and 1998 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
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VIKONICS, INC.
BALANCE SHEETS
ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, 1999 March 31,1999
----------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 43,447 $ 30,219
Accounts receivable (less allowance for doubtful
accounts of $10,000) 174,696 211,931
Inventories (Note 2) 84,694 114,417
Prepaid expenses and other current assets 14,224 16,468
--------- ---------
TOTAL CURRENT ASSETS 317,061 373,035
--------- ---------
EQUIPMENT AND FIXTURES - AT COST:
Machinery and equipment 400,085 376,996
Furniture and fixtures 67,437 67,437
--------- ---------
467,522 444,433
Less, accumulated depreciation and amortization (442,450) (441,991)
-------- ---------
EQUIPMENT AND FIXTURES - NET 25,072 2,442
--------- ---------
OTHER ASSETS
1,200 1,200
--------- ---------
$ 343,333 $ 376,677
========= =========
</TABLE>
See notes to financial statements.
3
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VIKONICS, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, 1999 March 31, 1999
----------------- --------------
<S> <C> <C>
CURRENT LIABILITIES:
Notes and loans payable (Note 3) $ 717,728 $ 717,728
Accounts payable 233,505 253,859
Accrued expenses and other current liabilities (Note 4) 1,362,788 1,328,517
Deferred service income 65,353 52,226
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TOTAL CURRENT LIABILITIES 2,379,374 2,352,330
----------- -----------
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) (7,735,804) (7,675,416)
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TOTAL SHAREHOLDERS' (DEFICIT) (2,036,041) (1,975,653)
----------- -----------
$ 343,333 $ 376,677
=========== ===========
</TABLE>
See notes to financial statements.
4
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VIKONICS, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
(UNAUDITED)
1999 1998
---- ----
SALES - NET $ 310,943 $ 395,544
COST OF GOODS SOLD 188,718 257,096
--------- ---------
GROSS PROFIT 122,225 138,448
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COSTS AND EXPENSES:
Engineering, research and development 58,334 51,630
Marketing and sales 33,299 33,753
General and administrative 95,628 130,228
Depreciation and amortization 153 ---
Interest expense 10,524 19,159
--------- ---------
TOTAL COSTS AND EXPENSES 197,938 234,770
--------- ---------
NET (LOSS) $ (75,713) $ (96,322)
========= =========
(LOSS) PER SHARE (Note 6) -
Basic and Diluted $ (.03) $ (.03)
========= =========
See notes to financial statements.
5
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VIKONICS, INC.
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1999 AND 1998
(UNAUDITED)
1999 1998
---- ----
SALES - NET $ 1,227,640 $ 1,259,061
COST OF GOODS SOLD 715,711 780,568
----------- -----------
GROSS PROFIT 511,929 478,493
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COSTS AND EXPENSES:
Engineering, research and development 174,681 178,268
Marketing and sales 105,201 102,826
General and administrative 257,106 328,404
Depreciation and amortization 459 ---
Interest expense 34,870 41,593
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TOTAL COSTS AND EXPENSES 572,317 651,091
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NET (LOSS) $ (60,388) $ (172,598)
=========== ===========
(LOSS) PER SHARE (Note 6) -
Basic and Diluted $ (.02) $ (.06)
=========== ===========
See notes to financial statements.
6
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VIKONICS, INC.
STATEMENTS OF CASH FLOWS
FOR NINE MONTHS ENDED DECEMBER 31, 1999 AND 1998
(UNAUDITED)
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (60,388) $(172,598)
Adjustments to reconcile net (loss) to net
cash provided by operating activities:
Depreciation and amortization 459 ---
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable 37,235 100,847
Inventories 29,723 960
Prepaid expenses and other current assets 2,244 46,376
Increase (decrease) in:
Accounts payable (20,354) (17,443)
Accrued expenses and other liabilities 34,271 98,561
Deferred service income 13,127 (24,559)
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Net cash provided by operating activities 36,317 32,144
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and fixtures - net (23,089) ---
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of short term notes --- 5,587
Repayment of debt --- (27,286)
--------- ---------
Net cash used for financing activities --- (21,699)
INCREASE IN CASH 13,228 10,445
CASH - MARCH 31 30,219 10,328
--------- ---------
CASH - DECEMBER 31 $ 43,447 $ 20,773
========= =========
See notes to financial statements.
7
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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 December 31, 1999, the
results of operations for the three and nine months ended December 31, 1999 and
1998, and changes of cash flows for the nine months ended December 31, 1999 and
1998.
The results of operations for the three and nine months ended December 31, 1999
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, 1999 March 31, 1999
----------------- --------------
<S> <C> <C>
Raw materials $ 25,883 $ 42,360
Work-in-process 2,038
5,633
Finished goods 56,773 66,424
----------------- ------------------
TOTAL $ 84,694 $ 114,417
================= ==================
Note 3. - Notes and Loans Payable; Legal Proceeding
Notes and loans payable consists of:
December 31, 1999 March 31, 1999
----------------- --------------
<S> <C> <C>
Amounts due to private investors, directors, and legal
counsel. $ 717,728 $ 717,728
------------------ -----------------
</TABLE>
On June 30, 1993, the Company entered into an amended agreement with private
investors that 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.
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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 has attempted to renegotiate the terms of payment of these
obligations.
On September 17, 1998 the private investors filed a lawsuit in the Superior
Court of New Jersey for the total principal amount of $200,000 together with
accrued interest of $103,000. On June 15, 1999 a Judgment by Default against the
Company was entered in the Superior Court of New Jersey, Bergen County.
The Company will seek a satisfactory resolution of this judgment. There can be
no assurance, however, that the Company will be able to resolve the judgment.
The failure to do so will cause the Company to cease as a going concern.
Additionally, at December 31, 1999, the Company had a remaining balance of
$147,728 that 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, 1999 March 31, 1999
----------------- --------------
<S> <C> <C>
Accrued warranty expense $ 38,000 $ 38,000
Accrued salaries, wages, and taxes 460,697 517,005
Accrued professional fees 32,500 30,000
Accrued officers' salaries 171,228 171,228
Accrued interest 599,354 546,678
Other 61,009 25,606
---------------- ---------------
$ 1,362,788 $ 1,328,517
================ ===============
</TABLE>
Note 5. - Income Taxes
At December 31, 1999 the Company had net operating loss carryforwards available
amounting to approximately $7.2 million which will expire between 2001 and 2013.
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
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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, 1999 decreased
$85,000 (21%) compared to the same period a year ago. For the nine months ended
December 31, 1999 net sales decreased $31,000 (3%), compared to the
corresponding period last year. These reductions are due to sales to the City of
New York and a commercial company for a local school system project during the
2nd and 3rd quarters of fiscal 1999 without corresponding revenues earned from
these customers during the first nine months of the current fiscal year.
Gross profit as a percentage of net sales for the three months ended December
31, 1999 was 39% compared to 35% during the same period a year ago. For the nine
months ended December 31, 1999, the gross profit percentage was 42% compared to
38% during the same period a year ago. The increase in gross margin for the
three and nine months ended December 31, 1999 is due primarily to the favorable
effect of a high volume of Vikonics manufactured equipment and services sold
versus the lower margin of resold purchased equipment and services sold during
the previous fiscal 1999 nine month period.
Engineering, research and development expenses for three months ended December
31,1999 were $ 58,000, an increase of 12% ($6,000) due to outside programming
costs. Engineering, research and development expenses for the nine months ended
December 31, 1999 were $ 175,000, a decrease of 2% ($3,000) due primarily to a
net reduction in engineering consulting expenditures.
Marketing and sales expenses for the three and six months ended December 31,
1999 were $ 33,000 and $105,000, respectively. These amounts are essentially the
same as the expense levels of the same periods in the preceding year.
General and administrative expenses for the three and nine months ended December
31, 1999 were $ 96,000 and $ 257,000, respectively, a decrease of 26% ($ 34,000)
and 22% ($ 71,000) versus the expenses incurred during the same periods a year
ago. The variation is due to reductions in insurance and administrative payroll
costs and payroll tax penalty and interest charges.
The net (loss) for the three months ended December 31, 1999 was ($76,000)
compared to net (loss) of ($96,000) a year ago. The net (loss) for the nine
months ended December 31, 1999 was ($60,000) compared to net (loss) of
($173,000) 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
10
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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 December 31, 1999 was ($2,062,000) compared to
($1,979,000) on March 31, 1999. The increase in the working capital deficit is
primarily due to the loss incurred for the nine months ended December 31, 1999.
At December 31, 1999 the Company had $43,000 in cash, compared to $30,000 in
cash at March 31, 1999.
Accounts receivable decreased by $37,000 during the nine months ended December
31, 1999 due the lower sales level.
Notes and loans payable of $718,000 at December 31, 1999 consists of amounts 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 $(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 has attempted to renegotiate the terms of payment of these
obligations.
On September 17, 1998 the private investors filed a lawsuit in the Superior
Court of New Jersey for the total principal amount of $200,000 together with
accrued interest of $103,000. On June 15, 1999 a Judgment by Default against the
Company was entered in the Superior Court of New Jersey, Bergen County.
The Company will seek a satisfactory resolution of this judgment. There can be
no assurance, however, that the Company will be able to resolve the judgment.
The failure to do so will cause the Company to cease as a going concern.
Accounts payable of $234,000 at December 31, 1999 are $ 20,000 less than the
balance of $254,000 at March 31, 1999 due simply to the timing of certain vendor
payments. Accrued expenses and other current liabilities at December 31, 1999 of
$1,363,000 are $34,000 greater than the $1,329,000 at March 31, 1999. The
increase is primarily due to an increase in accrued payroll tax non- payment
penalties and interest for the nine months ended December 31, 1999.
In total, the net cash provided by operating activities was $ 36,000 for the
nine months ended December 31, 1999, as compared to $32,000 for the nine months
ended December 31, 1998.
The Company purchased approximately $2,600 of engineering computer equipment and
expended $20,000 during the 2nd fiscal 2000 quarter upgrading its operational
computer system. No other significant capital expenditures are planned at this
time.
11
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Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
None
12
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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 there unto duly
authorized.
Vikonics, Inc.
--------------
(Registrant)
April 24, 2000 /s/ John J. Strong
--------------------------------
John J. Strong
President
(duly authorized officer
and principal financial officer)
13
