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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: September 30, 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 O-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
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(State or other jurisdiction
of incorporation or organization) (I.R.S. Employer Identification No.)
370 North Street Teterboro, New Jersey 07608
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(Address of principal executive offices)
(201) - 641-8077
(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 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:
September 30 and March 31, 1999 3-4
Statements of Operations
For Three Months Ended September 30, 1999 and 1998 5
For Six Months Ended September 30, 1999 and 1998 6
Statements of Cash Flows
For Six Months Ended September 30, 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>
September 30,1999 March 31,1999
CURRENT ASSETS:
<S> <C> <C>
Cash $ 134,748 $ 30,219
Accounts receivable (less allowance for
doubtful accounts of $10,000) 112,063 211,931
Inventories (Note 2) 94,861 114,417
Prepaid expenses and other current assets 17,205 16,468
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TOTAL CURRENT ASSETS 358,877 373,035
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EQUIPMENT AND FIXTURES - AT COST:
Machinery and equipment 400,085 376,996
Furniture and fixtures 67,437 67,437
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Less, accumulated depreciation and 467,522 444,433
amortization (442,297) (441,991)
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EQUIPMENT AND FIXTURES - NET 25,225 2,442
--------- ---------
OTHER ASSETS 1,200 1,200
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$ 385,302 $ 376,677
========= =========
</TABLE>
3
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See notes to financial statements.
VIKONICS, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, 1999 March 31, 1999
------------------ --------------
<S> <C> <C>
CURRENT LIABILITIES:
Notes and loans payable (Note 3) $ 717,728 $ 717,728
Accounts payable 278,489 253,859
Accrued expenses and other current 1,316,460 1,328,517
liabilities (Note 4)
Deferred service income 32,953 52,226
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TOTAL CURRENT LIABILITIES 2,345,630 2,352,330
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SHAREHOLDERS' (DEFICIT):
Preferred stock - $1 par value:
Authorized - 2,000,000 shares
Issued and outstanding - none
Common stock - $.02 par value:
Authorized - 10,000,000 shares
Issued and outstanding - 2,933,431 58,669 58,669
Paid-in capital 5,641,094 5,641,094
Retained (deficit) (7,660,091) (7,675,416)
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TOTAL SHAREHOLDERS' (DEFICIT) (1,960,328) (1,975,653)
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$ 385,302 $ 376,677
=========== ===========
</TABLE>
See notes to financial statements.
4
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VIKONICS, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
1999 1998
---- ----
SALES - NET $ 439,712 $ 564,030
COST OF GOODS SOLD 277,980 327,853
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GROSS PROFIT 161,732 236,177
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COSTS AND EXPENSES:
Engineering, research and development 56,817 65,034
Marketing and sales 37,517 34,907
General and administrative 78,184 104,851
Depreciation and amortization 153 --
Interest expense 13,822 10,440
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TOTAL COSTS AND EXPENSES 186,493 215,232
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NET (LOSS) INCOME $ (24,761) $ 20,945
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(LOSS) INCOME PER SHARE (Note 6) -
Basic and Diluted $ (.01) $ .01
========= =========
See notes to financial statements.
5
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VIKONICS, INC.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
1999 1998
---- ----
SALES - NET $ 916,697 $ 863,517
COST OF GOODS SOLD 526,993 523,472
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GROSS PROFIT 389,704 340,045
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COSTS AND EXPENSES:
Engineering, research and development 116,347 126,638
Marketing and sales 71,902 69,073
General and administrative 161,478 198,176
Depreciation and amortization 306 --
Interest expense 24,346 22,434
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TOTAL COSTS AND EXPENSES 374,379 416,321
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NET INCOME (LOSS) 15,325 $ (76,276)
========= =========
INCOME (LOSS) PER SHARE (Note 6) -
Basic and Diluted $ .01 $ (.03)
========= =========
See notes to financial statements.
6
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VIKONICS, INC.
STATEMENTS OF CASH FLOWS
FOR SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 15,325 $ (76,276)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 306 --
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable 99,868 (151,841)
Inventories 19,556 (1,447)
Prepaid expenses and other current assets (737) 29,893
Increase (decrease) in:
Accounts payable 24,630 102,311
Accrued expenses and other liabilities (12,057) 117,035
Deferred service income (19,273) (10,148)
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Net cash provided by operating activities 127,618 9,527
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and fixtures - net (23,089) --
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CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of short term notes -- 5,587
Repayment of debt -- (21,160)
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Net cash used for financing activities -- (15,573)
INCREASE (DECREASE) IN CASH
104,529 (6,046)
CASH - MARCH 31 30,219 10,328
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CASH - SEPTEMBER 30 $ 134,748 $ 4,282
========= =========
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 September 30, 1999, the
results of operations for the three and six months ended September 30, 1999 and
1998, and changes of cash flows for the six months ended September 30, 1999 and
1998.
The results of operations for the three and six months ended September 30, 1999
are not necessarily indicative of the results to be expected for the full year.
Note 2. - Inventories
Inventories consisted of the following: September 30,1999 March 31, 1999
----------------- --------------
Raw materials $ 30,094 $ 42,360
Work-in-process 2,366 5,633
Finished goods 62,401 66,424
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TOTAL $ 94,861 $ 114,417
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Note 3. - Notes and Loans Payable; Legal Proceeding
Notes and loans payable consists of:
September 30, 1999 March 31, 1999
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Amounts due to private investors, directors,
and legal counsel. $ 717,728 $ 717,728
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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.
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.
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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 September 30, 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:
September 30, 1999 March 31, 1999
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Accrued warranty expense $ 38,000 $ 38,000
Accrued salaries, wages, and taxes 460,892 517,005
Accrued professional fees 25,000 30,000
Accrued officers' salaries 171,228 171,228
Accrued interest 579,830 546,678
Other 41,510 25,606
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$ 1,316,460 $1,328,517
=========== ==========
Note 5. - Income Taxes
At September 30, 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. Federal income taxes normally provided for the six months
ended September 30, 1999 and the three months ended September 30, 1998 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.
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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 September 30, 1999 decreased
$124,000 (22%) compared to the same period a year ago. This decrease is due to
sales in the fiscal 1999 2nd quarter to a commercial company for a local school
system project without corresponding revenues earned from this customer during
the current fiscal 2nd quarter. For the six months ended September 30, 1999 net
sales increased $53,000 (6%), compared to the corresponding period last year due
to sales of approximately $283,000 to the U.S. General Services Administration
for a domestic United States Air Force security system upgrade during the first
six months of fiscal 2000.
Gross profits as a percentage of net sales for the three months ended September
30, 1999 was 37% compared to 42% during the same period a year ago. For the six
months ended September 30, 1999, the gross profit percentage was 43% compared to
39% during the same period a year ago. The decrease in gross margin for the
three months ended September 30, 1999 is due to the underabsorption of
manufacturing overhead costs caused by the lower sales volume. The increase in
gross margin for the six months ended September 30,1999 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 six month period.
Engineering, research and development expenses for three and six months ended
September 30,1999 were $57,000 and $116,000, respectively, a decrease of 13%
($8,000) and 8% ($8,000) versus the expenses incurred during the same periods a
year ago. These decreases are the result of a reduction in engineering
consulting expenditures during the current fiscal year.
Marketing and sales expenses for three and six months ended September 30, 1999
were $38,000 and $72,000, respectively, an increase of 8% ($3,000) and 4%
($3,000) versus the expenses incurred during the same periods a year ago, due to
an increase in General Service Administration Federal Supply Contract fees.
General and administrative expenses for the three and six months ended September
30, 1999 were $ 78,000 and $161,000, respectively, a decrease of 25% ($27,000)
and 19% ($37,000) 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 September 30, 1999 was ($25,000)
compared to net income of $21,000 a year ago. The net income for the six months
ended September 30, 1999 was $15,000 compared to a net (loss) of ($76,000) 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
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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 September 30, 1999 was ($1,987,000) compared to
($1,979,000) on March 31, 1999. The increase in the working capital deficit is
primarily due to the purchase of capital equipment during the six months ended
September 30,1999. At September 30, 1999 the Company had $ 135,000 in cash,
compared to $30,000 in cash at March 31, 1999.
Accounts receivable decreased by $100,000 during the six months ended September
30, 1999 due to the reduced sales level and accelerated cash receipt collections
achieved during the current 2000 fiscal quarter.
Notes and loans payable of $718,000 at September 30, 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 $278,000 at September 30, 1999 are $24,000 higher than the
balance of $254,000 at March 31, 1999 due to the timing of certain vendor
payments. Accrued expenses and other current liabilities at September 30, 1999
of $1,316,000 are $13,000 lower than the $1,329,000 at March 31, 1999. The
decrease is primarily due to payments made against accrued payroll taxes for the
six months ended September 30, 1999.
In total, the net cash provided by operating activities was $128,000 for the six
months ended September 30, 1999, as compared to $10,000 for the six months ended
September 30, 1998.
The Company purchased approximately $3,000 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
