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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, 2000
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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 (I.R.S. Employer
of incorporation or organization) Identification No.)
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
December 13, 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
<TABLE>
<CAPTION>
PART I Financial Statements Page No.
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<S> <C>
Item 1 - Financial Statements (Unaudited)
Balance Sheets:
September 30 and March 31, 2000 3-4
Statements of Operations
For Three Months Ended September 30, 2000 and 1999 5
For Six Months Ended September 30, 2000 and 1999 6
Statements of Cash Flows
For Six Months Ended September 30, 2000 and 1999 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
</TABLE>
2
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VIKONICS, INC.
BALANCE SHEETS
ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, 2000 March 31, 2000
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CURRENT ASSETS:
<S> <C> <C>
Cash $ 11,773 $ 2 0,680
Accounts receivable (less allowance for doubtful
accounts of $10,000) 102,226 170,498
Inventories (Note 2) 75,425 87,657
Prepaid expenses and other current assets 11,978 18,497
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TOTAL CURRENT ASSETS 201,402 297,332
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EQUIPMENT AND FIXTURES - AT COST:
Machinery and equipment 402,735 402,735
Furniture and fixtures 67,437 67,437
----------------- -----------------
470,172 470,172
Less, accumulated depreciation and amortization (451,176) (448,116)
----------------- ------------------
EQUIPMENT AND FIXTURES - NET 18,996 22,056
----------------- -----------------
OTHER ASSETS 1,200 1,200
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$ 221,598 $ 320,588
================= =================
</TABLE>
See notes to financial statements.
3
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VIKONICS, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, 2000 March 31, 2000
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CURRENT LIABILITIES:
<S> <C> <C> <C>
Notes and loans payable (Note 3) $ 717,728 $ 717,728
Accounts payable 235,707 253,869
Accrued expenses and other current liabilities (Note 4) 1,508,987 1,359,203
Deferred service income 21,973 46,423
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TOTAL CURRENT LIABILITIES 2,484,395 2,377,223
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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) (7,962,560) (7,756,398)
----------------- ----------------
TOTAL SHAREHOLDERS' (DEFICIT) (2,262,797) (2,056,635)
----------------- ----------------
$ 221,598 $ 320,588
================= ================
</TABLE>
See notes to financial statements.
4
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VIKONICS, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
2000 1999
---- ----
SALES - NET $ 215,922 $ 439,712
COST OF GOODS SOLD 158,777 277,980
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GROSS PROFIT 57,145 161,732
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COSTS AND EXPENSES:
Engineering, research and development 53,100 56,817
Marketing and sales 35,340 37,517
General and administrative 82,659 78,184
Depreciation and amortization 1,530 153
Interest expense 10,524 13,822
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TOTAL COSTS AND EXPENSES 183,153 186,493
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NET (LOSS) $(126,008) $ (24,761)
========= =========
(LOSS) PER SHARE (Note 6) -
Basic and Diluted $ (.04) $ (.01)
========= =========
See notes to financial statements.
5
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VIKONICS, INC.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
2000 1999
---- ----
SALES - NET $ 463,952 $ 916,697
COST OF GOODS SOLD 301,189 526,993
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GROSS PROFIT 162,763 389,704
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COSTS AND EXPENSES:
Engineering, research and development 107,770 116,347
Marketing and sales 74,217 71,902
General and administrative 162,830 161,478
Depreciation and amortization 3,060 306
Interest expense 21,048 24,346
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TOTAL COSTS AND EXPENSES 368,925 374,379
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NET (LOSS) INCOME $(206,162) 15,325
========= =========
(LOSS) INCOME PER SHARE (Note 6) -
Basic and Diluted $ (.07) $ .01
========= =========
See notes to financial statements.
6
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VIKONICS, INC.
STATEMENTS OF CASH FLOWS
FOR SIX MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(206,162) $ 15,325
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization 3,060 306
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable 68,272 99,868
Inventories 12,232 19,556
Prepaid expenses and other current assets 6,519 (737)
Increase (decrease) in:
Accounts payable (18,162) 24,630
Accrued expenses and other liabilities 149,784 (12,057)
Deferred service income (24,450) (19,273)
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Net cash provided by operating activities (8,907) 127,618
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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 -- --
Repayment of debt -- --
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Net cash used for financing activities -- --
INCREASE (DECREASE) IN CASH (8,907) 104,529
CASH - MARCH 31 20,680 30,219
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CASH - SEPTEMBER 30 $ 11,773 $ 134,748
========= =========
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, 2000, the
results of operations for the three and six months ended September 30, 2000 and
1999, and changes of cash flows for the six months ended September 30, 2000 and
1999.
The results of operations for the three and six months ended September 30, 2000
are not necessarily indicative of the results to be expected for the full year.
Note 2. - Inventories
Inventories consisted of the following: September 30, 2000 March 31, 2000
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Raw materials $ 37,162 $ 44,962
Work-in-process 8,857 12,275
Finished goods 29,406 30,420
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TOTAL $ 75,425 $ 87,657
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Note 3. - Notes and Loans Payable; Legal Proceeding
Notes and loans payable consists of:
September 30, 2000 March 31, 2000
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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.
8
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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, 2000, 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, 2000 March 31, 2000
------------------ --------------
Accrued warranty expense $ 38,000 $ 38,000
Accrued salaries, wages, and taxes 555,541 457,328
Accrued professional fees 55,000 40,000
Accrued officers' salaries 171,228 171,228
Accrued interest 632,926 593,878
Other 56,292 58,769
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$ 1,508,987 $ 1,359,203
================ ===============
Note 5. - Income Taxes
At September 30, 2000 the Company had net operating loss carryforwards available
amounting to approximately $7.4 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, 2000 and the three months ended September 30, 2000 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.
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 September 30, 2000 decreased
$224,000 (51%) compared to the same period a year ago. For the six months ended
September 30, 2000 net sales decreased $453,000 (49%), compared to the
corresponding period. The decrease is primarily due to sales of approximately
$335,000 during the first six months of fiscal 2000 for a security system
upgrade at a domestic United States Air Force Base without corresponding
revenues earned from this customer during the first six months of the current
2001 fiscal year.
Gross profits as a percentage of net sales for the three months ended September
30, 2000 was 26% compared to 37% during the same period a year ago. For the six
months ended September 30, 2000, the gross profit percentage was 35% compared to
43% during the same period a year ago. The decrease in gross margin for the
three and six months ended September 30, 2000 is due to the underabsorption of
manufacturing overhead costs caused by the lower sales volume.
Engineering, research and development expenses for three and six months ended
September 30,2000 were $53,000 and $108,000, respectively, a decrease of 7%
($4,000) and 7% ($9,000) versus the expenses incurred during the same periods a
year ago. These decreases are the result of a reduction in engineering part time
staff and travel expenditures during the current fiscal year.
Marketing and sales expenses for three and six months ended September 30, 2000
were $35,000 and $74,000, respectively, a decrease of 6% ($2,000) and an
increase of 3% ($2,000) versus the expenses incurred during the same periods a
year ago. The slight variations are due to travel schedule modifications from
period to period with essentially no difference in total travel expenditures.
General and administrative expenses for the three and six months ended September
30, 2000 were $ 83,000 and $163,000, respectively. These expenditures are
substantially the same as the expenditures of $78,000 and $161,000 incurred
during the same periods a year ago.
The net (loss) for the three months ended September 30, 2000 was ($126,000)
compared to a net loss of ($25,000) a year ago. The net loss for the six months
ended September 30, 2000 was ($206,000) compared to net income of $15,000 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
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The working capital deficit on September 30, 2000 was ($2,283,000) compared to
($2,080,000) on March 31, 2000. The increase in the working capital deficit is
primarily due to the loss incurred for the six months ended September 30, 2000.
At September 30, 2000 the Company had $12,000 in cash, compared to $21,000 in
cash at March 31, 2000.
Accounts receivable decreased by $68,000 during the six months ended September
30, 2000 due to the reduced sales level during the first six months of the
current 2001 fiscal year.
Notes and loans payable of $718,000 at September 30, 2000 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 $236,000 at September 30, 2000 are $18,000 lower than the
balance of $254,000 at March 31, 2000 due to reduced material purchase
requirements necessary for the lower sales level. Accrued expenses and other
current liabilities at September 30, 2000 of $1,509,000 are $150,000 higher than
the $1,359,000 at March 31, 2000. The variance is due to an increase in accrued
payroll taxes, payroll tax penalties and interest for the six months ended
September 30, 2000.
In total, the net cash (used for) operating activities was ($9,000) for the six
months ended September 30, 2000, as compared to $128,000 provided by operating
activities for the six months ended September 30, 1999.
The Company has no significant capital expenditures plans 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.
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(Registrant)
December 13, 2000 /s/ John J. Strong
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John J. Strong
President
(duly authorized officer
and principal financial officer)
13
