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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X} ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended MARCH 31, 2000
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-16034
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VIKONICS, INC.
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(Name of small business issuer in its charter)
NEW YORK 13-2759466
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(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
370 North Street, Teterboro, New Jersey 07608
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(Address of principal executive offices) (Zip code)
Issuer's telephone number: 201-641-8077
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.02 per share
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(Title of class)
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 preceding 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
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Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment
to this Form 10-KSB [X]
Issuer's revenues for the year ended March 31, 2000 were $1,540,000.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant on June 27, 2000 was $496,458.
As of June 27, 2000 the Registrant had 2,933,431 shares of Common Stock
outstanding.
Documents Incorporated by Reference
-----------------------------------
None
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PART I
Item 1. Description of Business
General
Vikonics, Inc. (the "Company") designs, manufacturers, markets, installs
and supports a line of sophisticated computer-based security systems. The
Company's modular systems combine hardware components and proprietary software,
which can be custom-designed in various configurations and tailored to satisfy
individual customer specifications as well as evolving security requirements.
The Company's advanced systems feature integrated access control, intrusion
detection, alarm monitoring, closed circuit television surveillance and logging
functions, providing customers with a distributed intelligent security network.
The Company's product line includes the VISIDS(R) and TAC(R) series of
microprocessor-based systems. These systems consist of central processing units,
intelligent card readers that utilize a variety of card technologies for access
control and microprocessor based peripherals for alarm control and management.
The Company has developed and supports software, which is menu-driven and
user-friendly.
The Company markets it systems to defense contractors and government
agencies, commercial customers and a dealer network. The Company's systems are
designed to allow defense contractors and government agencies to meet
regulations for facilities handling classified programs. For the fiscal years
ended March 31, 2000, 1999 and 1998, defense contractors and government agencies
(including the United States Armed Forces) accounted for approximately 87%, 63%
and 80% of total revenues, respectively.
Since the early 1970's, the security industry has undergone substantial
transformation, evolving from the use of security guards and mechanical hardware
devices to the use of advanced computer-based security systems. This has
resulted from the increasing sophistication, reliability and cost-effectiveness
of available systems technology and the acceptance by the United States
government defense establishment of computer-based security systems. In
addition, the United States government has placed emphasis on the need to
adequately secure sensitive facilities, including military and other
defense-related facilities. The Company has significant experience in designing
advanced hardware and system software, which satisfy stringent government
standards and, as a result, has the capability to install systems in foreign
government and commercial markets requiring sophisticated security technology.
The dealer market takes the Company's component pieces, along with other
manufacturers' devices, and provides systems to this customer base. The Company
believes that the cost of designing advanced systems, which must continually
conform to government security requirements, has limited the number of companies
capable or interested in competing in this field.
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The Company was incorporated in New York on September 21, 1973, under the
name Vikonics, Inc. In 1979, a majority interest of the Company was acquired by
Racal Electronics, PLC ("Racal"), a large electronics company based in the
United Kingdom. In 1983, John L. Kaufman, the founder and president of the
Company, until his resignation in March, 1996, re-acquired control of the
Company. The Company's name was changed to Racal-Vikonics, Inc. on September 24,
1981 and changed back to Vikonics, Inc. on February 7, 1983. Unless the context
otherwise requires, references to the Company shall include Vikonics Canada
Inc., a wholly-owned subsidiary of the Company incorporated in Canada. This
subsidiary has been inactive for the past several years.
The Company's principal office is located at 370 North Street, Teterboro,
New Jersey 07608 and its telephone number is (201) 641-8077.
Product and System Features
The Company designs security systems for its customers by integrating the
hardware and software components of its product lines, including the VISIDS and
TAC systems and peripheral devices. These components have been developed in
modular fashion to facilitate integration and to allow customers to upgrade or
expand their security systems. The Company's security systems incorporate the
following features:
o Fully Integrated - entry and access control, alarm monitoring, closed
circuit television (CCTV) interface and response device control can be
handled through one system, thus eliminating the need to purchase and learn
multiple systems.
o Entry and Access Control - monitors and controls entry and access to single
or multiple facilities, or to a designed area within a facility. The
Company's systems can selectively allow or disallow access based upon card
identification, the time or the day of the week. At each entry point (e.g.
doors, turnstiles, elevators), a card reader or personal identity verifier
(e.g. hand geometry) is installed. The Company's card readers employ various
technologies, including magnetic stripe, Wiegand(TM), barium ferrite and
proximity.
o Alarm Monitoring - monitors for intrusions and emergencies (smoke, fire,
flood and equipment failures). Sensors and other devices at alarm points
automatically send alarms or transmit a change of condition message through
a multiplexed communication network. The change of condition is displayed at
operator terminals and included in detailed reports, and includes a
description and the location of the alarm.
o Response Device Control - turn on and off lights, heating units, air
conditioning and other devices and equipment remotely based on operator
command or a time schedule.
o CCTV Interface - with interfaces to Vikonics' systems, closed circuit
television (CCTV) cameras can be automatically computer controlled upon an
alarm condition,
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thereby giving security personnel the opportunity to immediately assess the
alarm area(s).
o Central or Local Control - activities can be monitored either locally or
from a remote, central site. A local security officer might monitor the area
during business hours and transfer control to a central site during
off-hours. Either site can add or delete individuals or groups of personnel
change time zone and access level parameters, and lock/unlock doors upon
command or based on a time schedule.
o Management Reports - the system automatically records all access, alarm and
operator activities, and provides printed reports. Valid entries show the
card number, cardholder name, entry location, time and date. Denial entry
attempts are highlighted and give the reason for denial in addition to the
information listed above. Alarm records are highlighted and provide a
description of the alarm, its location, and the time and date of the
occurrence.
o Multiplexed Network - multiple peripheral devices in the system can
communicate over a single communications line. This allows for
cost-effective system installation. The communication line can be copper
wire, fiber optic cable, telephone lines, microwave links and other line
types. All communication lines within a system can be provided with
encryption to meet the Data Encryption Standard (DES) as specified in the
Federal Information Processing Publication 140.
o Government Approval - the Company's systems have received certification from
or conform to the requirements of various government agencies.
o Software Flexibility - the Company's software is menu-driven and written in
a modular manner to allow the user to use combinations of system features
through simple operator commands. The user can query the system for network
status and can generate reports from system logs. Complete logs are stored
on disks or on off-line historical files.
Products
The Company's products include the following:
VISIDS. The VISIDS intrusion detection system is a high performance
distributed processing network incorporating advanced user-friently features
utilizing the UNIX operating system on a Pentium based CPU platform. The VISIDS
menu-driven operator interface, comprehensive alarm management functions, and
extensive color graphics capabilities make the system simple to operate. A
"touch " screen option is available to further simplify the operator interface.
Multi-lingual capabilities permit the system to be used throughout the world.
The system offers advanced features and provides a cost competitive solution in
medium to large system designs. VISIDS links up to sixteen TAC/NCM processors
for large scale system integration (larger systems are available). With the
VISIDS operating as the central monitor and each TAC controlling its own
subsystem, the VISIDS allows for security control in a distributed processing
network. The capacity of a VISIDS is 1,024 access/entry points, 64,000
cardholders and
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8,192 individually monitored alarm zones. The system's mapping feature provides
the user with a graphical depiction of a facility's floor plan, showing the
exact location of an alarm, which greatly improves security response time.
TAC/NCM. The TAC/NCM is intended only for use with a VISIDS network or
when included with a printer and CRT can perform as an independently operating
computer. In its independent configuration, it is designed for the small to
medium facility or building complex. Maximum capabilities are 128 access/entry
points, 64,000 cardholders, and 1024 individually monitored alarm zones. The TAC
central processing unit utilizes multiple microprocessors in a shared
environment. Each processor is given a dedicated function to increase throughput
of the TAC processor.
TAC-200. Designed for small sized installations, the TAC-200 is an
integrated security system for up to 32 access/entry points, 5,000 cardholders
and 256 individually monitored alarm zones.
Entry and Access Control Devices. The Company manufacturers a variety of
card readers and access/entry control interface panels which can be used with
either card readers or with other personal identity verifiers (PIV's) to control
door contacts, locks and egress devices. Card readers operate by either allowing
or not allowing entry after the insertion or passing of a card. A keypad used in
conjunction with a card reader adds an additional level of security by requiring
an individual to enter a valid personal identification number (PIN) after card
validation. A PIV measures certain physical characteristics of an individual
(i.e., fingerprint) which are then compared to stored data for identity
verification. Several card readers or PIV's can be attached to a single entry
control interface panel, thus increasing efficiency and providing a local
back-up by processing without the need to communicate with the central
processor.
Alarm Sensor Interfaces. The Company manufacturers and markets three
types of alarm interfaces. An alarm control panel (ACP) can individually monitor
up to 16 alarm zones, and allows local control over the alarm zones. An alarm
monitor panel (AMP) can individually monitor up to 32 alarm zones, but does not
allow local control. An alarm control subsystem (ACS) can individually monitor
16 alarm zones with power supply with backup, data encryption and an enclosure
with an optional secure/access device having local intelligence and management
capability. All interfaces can accommodate virtually any type of alarm sensor
(e.g. motion detectors, heat detectors, smoke alarms) and come in a variety of
configurations.
Other Products. The Company manufactures and markets numerous other
products, which round out the integrated security system approach. These
products include, among others, power supplies, multiplexers, modems,
communication devices, and both DES and custom algorithm data encryption devices
for high line security. The Company also markets alarm sensors and access cards
of various technologies.
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Installations of the Company's Systems
The Company has installed security systems for many corporations and
governmental agencies. In a typical installation project, the Company undertakes
to provide and install the necessary hardware and software. Installation
projects normally take from one month for less extensive projects to in excess
of a year for complex installations. Prices for these systems range from several
thousand dollars to millions of dollars. The Company also offers to service and
maintain the system after installation. Payment to the Company is normally made
at specified intervals. Installation contracts with defense contractors and
government agencies generally allow for the termination of such contracts,
without cause and at any time, by such contractor or agency. In such event,
payments under the contracts will be pro-rated for products and services
provided by the Company to date of termination. The Company's systems have been
installed at facilities for the following customers, among others:
<TABLE>
<CAPTION>
Defense Contractors and
Government Agencies Commercial Customers
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<S> <C>
Architect of the U.S. Capitol American Express Publishing Co.
City of New York Engineering and Professional Services, Inc.
GTE Corporation Ernst & Young
Harris Corporation NYNEX Information Resources
Lockheed Martin Corporation Tropworld Resort & Casino Hotel
Northrop Corporation Warnaco Inc
Raytheon Company
The Boeing Company International Customers
U.S. Air Force -----------------------
U.S. Army Kingdom of Kuwait
U.S. Department of Treasury Quendon Limited London
U.S. General Services Administration Royal Saudi Air Force
U.S. Marines
</TABLE>
During the fiscal year ended March 31, 2000, the U.S. Capitol accounted
for $465,000 or 30.2 % of sales, General Services Administration accounted for
$313,000 or 20.3% of sales, and the U.S. Department of Treasury accounted for
$293,000 or 19.0% of sales.
During the fiscal year ended March 31, 1999, the U.S. Capitol accounted for
$396,000 or 25.2% of sales, Engineering and Professional Services, Inc.
accounted for $381,000 or 24.3% of sales, the U.S. Department of Treasury
accounted for $175,000 or 11.1% of sales, and the City of New York accounted for
$167,000 or 10.6%.
At March 31, 2000, the Company had a backlog of orders of approximately
$213,000 as compared to a backlog of $577,000 at March 31, 1999. The backlog of
$213,000 at March 31, 2000 is expected to be shipped in its entirety during the
fiscal year ending March 31, 2001.
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Marketing
At March 31, 2000, the Company employed two (2) sales and marketing
personnel. These personnel make presentations, investigate the site projects for
which the Company is asked to bid, write proposals and take orders in person and
by telephone. The Company also delivers catalogs and brochures to prospective
purchasers.
The Company focuses its marketing efforts on the defense contractor and
governmental agency market and on the commercial and industrial market. For the
fiscal year ended March 31, 2000, defense contractors and government agencies
accounted for approximately 87% of total revenues. In fiscal years 1999 and
1998, defense contractors and government agencies accounted for approximately
63% and 80% of Company revenues, respectively. Defense contractors have the
legal requirement to protect data, ideas, hardware or systems being conceived or
manufactured for the government in a classified program. The Company's products
are designed to allow customers to meet existing governmental security
regulations.
Engineering and Product Development
At March 31, 2000, the Company employed two (2) individuals in engineering.
The department is responsible for new product development and the design and
integration of the Company's products into security systems. Engineering
personnel are engaged in a continuous effort to integrate new features into
existing products and systems.
The Company's current development activities are primarily directed toward
improvement and enhancement of its VISIDS(R) product line. Research and
development expenses for the years ended March 31, 2000, 1999 and 1998 were
$64,000, $68,000, and $76,000, respectively. The decreases in year-to-year
activities were the result of cost control measures instituted by the Company.
To date, the Company does not believe that these reductions have had any adverse
effect on its technical competitiveness or any technical advantage, which it may
hold.
Manufacturing
Product assembly, testing and quality assurance is performed at the
Company's facility in Teterboro, New Jersey. Components for the Company's
products are purchased from third parties. The Company is not dependent on any
one supplier for any of the components of its products and believes should it
become necessary, that it could find substitute suppliers for any of its
components. Inventory records, including purchasing, receiving, shipping and job
costing, are maintained on a computerized system. At March 31, 2000, the Company
had three (3) manufacturing employees.
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Customer Support Services
The Company provides a full range of customer support services, including
system design, hook-up and testing, project management, maintenance and operator
training, depot repairs and on-site maintenance and service contracts. A total
of three (3) employees are involved in customer support services.
Equipment mounting and installation of electrical wiring is normally
performed by sub-contractors under the supervision of the Company's personnel.
The scope of this installation work varies from project to project.
System hook-up and testing are performed by the Company's trained
technicians. This effort involves making final connections of security devices
to system integration devices, front-end processors and the central processing
unit. Devices are tested to ensure that they are performing the functions for
which they are intended and properly reporting their status.
Project management services include supervision, scheduling, coordination
and administrative activities associated with project implementation. Drawing
upon its experience, the Company is able to provide its customers with virtually
a turnkey system with little need for significant day-to-day involvement by the
customer during installation and final checkout.
Maintenance and operator training service is provided either at the customer
site or the Company's facilities. Customers electing to perform their own
maintenance are taught how to diagnose and repair system components to the
circuit board level.
Depot repair service is provided at the Company's facilities in Teterboro,
New Jersey by factory-trained technicians. The Company generally warrants its
equipment against defects for a one-year period. Equipment under warranty is
either repaired on site or repaired at the Company's facilities and returned at
no charge.
Equipment out of warranty is either repaired on a time and materials basis
or pursuant to a maintenance and service contract. On-site maintenance and
service contracts provide for the Company to dispatch a field service technician
in response to a customer request for a fixed annual contractual fee. A variety
of different service coverage options are offered based upon coverage and
response time desired.
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Proprietary Technology and Trademarks
The Company has not applied, and does not presently intend to apply, for any
patents or copyrights with respect to its products, or the software incorporated
therein. The Company intends to rely to a large extent upon whatever protection
the law affords to trade secrets and copyrights, including unpatented know-how
and not copyrighted textual material. The Company believes that patent and
copyright protection is of lessor significance than technological and
engineering capabilities, marketing skills and the development of proprietary
information.
The Company has obtained the registration of certain trademarks, including
VISIDS(R), VIKONICS(R) and TAC(R).
There can be no assurance that others will not independently develop
technology or know-how similar to that of the Company or obtain access to the
Company's technology or know-how. In addition, although the Company believes
that its technology has been independently developed and does not infringe the
patents of others, certain components of the Company's products could infringe
patents, either existing or which may be issued in the future, in which event
the Company may be requested to modify its design or obtain a patent license. No
assurance can be given that the Company will be able to do so in a timely manner
or upon acceptable terms and conditions; and the failure to do either of the
foregoing could have a material adverse effect on the Company. In addition,
although the Company has independently developed the software incorporated in
its products, there can be no assurance that claims will not be asserted against
the Company that its software codes, concepts, ideas, and documentation infringe
on the proprietary rights of others in software developed by them. No claims of
infringement have been asserted or threatened against the Company.
The Company has entered into confidentiality agreements with each of its
employees to protect its trade secrets. However, there can be no assurance that
other companies will not acquire information, which the Company considers to be
proprietary.
Competition
The Company faces significant competition from other providers of integrated
security systems. Competitive factors in the industry include system features,
design, performance, reliability and price. The Company's size and low overhead
base enables fast reaction capability to custom design requirements and allows
for a competitive price structure. In addition, the Company's installed system
base provides a continuous non-competitive source of new business. However,
despite the aforementioned advantages, many of the Company's competitors are
well established and have substantially greater management, technical,
financial, marketing and product development resources than the Company.
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Employees
As of March 31, 2000, the Company had 11 full-time employees, three of whom
were in executive capacities. None of the Company's employees is represented by
a labor organization. The Company considers its relationship with its employees
to be satisfactory.
Item 2. Description of Property
The Company's administrative, marketing and manufacturing operations occupy
approximately 8,000 square feet of a 27,000 square foot facility located in
Teterboro, New Jersey. The Company currently occupies the premises on a
month-to-month use and occupancy basis at a monthly rental payment of $7,885.
Item 3. Legal Proceedings
As hereafter disclosed, $200,000 of loans due private investors and an
ex-director became due and payable on June 30, 1996. The Company does not have
the ability to pay such loans, which are secured by the Company's accounts
receivable. On September 17,1998 the private investors filed a lawsuit 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. If the Company does not negotiate a
satisfactory resolution of this Judgment and the creditors foreclose on the
collateral, the Company will cease as a going concern. (See Note 3 to notes to
financial statements.) There are no other material pending legal proceedings, or
to management's knowledge, any such threatened proceedings against the Company
or its properties.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by the report.
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PART ll
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock, par value $.02 per share ("Common Stock"), is
traded on the over-the-counter market. The Common Stock is quoted on the NASD
Electronic Bulletin Board under the symbol "VKSI." The following table sets
forth the high and low closing bid prices as quoted on the Electronic Bulletin
Board. The quotations represent prices between dealers without adjustments for
retail mark-ups, markdowns, or commissions and may not represent actual
transactions.
Fiscal Year Ended March 31, 2000 High Low
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1st Quarter $ .38 $ .09
2nd Quarter .09 .05
3rd Quarter .44 .05
4th Quarter 1.19 .20
Fiscal Year Ended March 31, 1999 High Low
-------------------------------- ---- ---
1st Quarter $ .10 $ .10
2nd Quarter .10 .06
3rd Quarter .06 .06
4th Quarter .10 .06
On March 31, 2000, there were approximately 500 holders of the Common Stock.
The Company has never paid cash dividends on its Common Stock and
anticipates that, for the foreseeable future, it will continue to follow a
policy of retaining earnings, if any, to finance the expansion and development
of its business.
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Item 6. Management's Discussion and Analysis or Plan of Operation
Results of Operations
2000 Fiscal Year Compared to 1999 Fiscal Year
The Company's net sales for the fiscal year ended March 31, 2000 were
$1,540,000 compared to the $1,570,000 net sales in the previous year. There were
increases in U.S. Federal Agency revenues of $486,000 and Warnaco Inc of $64,000
during fiscal 2000. However, these were more than offset by reductions in
Engineering and Professional Services, Inc. revenues of $317,000, the City of
New York revenues of $155,000 and reductions in other smaller accounts. These
reductions were the result of contracts being completed in fiscal 1999, without
new contracts being awarded in fiscal 2000.
Over the past five (5) years there have been major staff reductions and cost
containment measures initiated within the Company. These reductions have
reduced, among others, sales and marketing resources. The reduction in these
resources has contributed to the deterioration and stagnation of the Company's
sales levels.
In fiscal 2000, the Company's largest customers were: the U.S. Capitol
accounting for $465,000 or 30.2% of sales, General Services Administration,
$313,000 or 20.3% of sales, and the U.S. Department of Treasury, $293,000 or
19.0% of sales.
In fiscal 1999, the Company's largest customers were: the U.S. Capitol
accounting for $396,000 or 25.2% of sales, Engineering and Professional
Services, Inc., $381,000 or 24.3% of sales, the U.S. Department of Treasury,
$175,000 or 11.1% of sales, and the City of New York, $167,000 or 10.6% of
sales.
Gross profit as a percentage of net sales for the year ended March 31, 2000
was 42.7% compared to 36.3% in fiscal 1999. The increase in the gross profit was
primarily due to a reduction in personnel and related costs of approximately
$55,000.
Marketing and sales expenses for the year ended March 31, 2000 were $141,000
compared to the $136,000 incurred in the previous year.
Engineering, research and development expenses for the year ended March 31,
2000 were $223,000, which are comparable to the $229,000 expended a year ago.
General and administrative expenses were $323,000 in fiscal 2000, which is a
decrease of $108,000 from $431,000 in fiscal 1999. The decrease in the current
fiscal year was the result of staff reductions, lower insurance costs and a
reduction payroll tax non-payment penalties.
The net (loss) for the year ended March 31, 2000 was $(81,000) compared to a
net (loss) of $(282,000) for the previous year due to the factors regarding
sales 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. There can be no
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assurance that the Company's actions will result in sustained profitability or
sufficient cash flow to maintain operations.
1999 Fiscal Year Compared to 1998 Fiscal Year
The Company's net sales for the fiscal year ended March 31, 1999 were
$1,570,000 compared to the $1,561,000 net sales in the previous year. There were
increases in U.S. Federal agency revenues of $169,000 and the City of New York
of $157,000 during fiscal 1999. However, these were offset by reductions in
international revenues of $153,000 and Engineering and Professional Services,
Inc. revenues of $128,000.These reductions were the result of both contracts
being completed in fiscal 1998, without new contracts being awarded in fiscal
1999.
In fiscal 1999, the Company's largest customers were: the U.S. Capitol
accounting for $396,000 or 25.2% of sales, Engineering and Professional
Services, Inc., $381,000 or 24.3% of sales, the U.S. Department of Treasury,
$175,000 or 11.1% of sales, and the City of New York, $167,000 or 10.6% of
sales.
In fiscal 1998, the Company's largest customers were: Fort Meade,
Maryland through Engineering and Professional Services, Inc. accounting for
$509,000 or 32.6% of sales, the U.S. Capitol, $315,000 or 20.2% of sales, and
the U.S. Department of Treasury, $114,000 or 7.3% of sales. International sales
accounted for $153,000 or 9.8% of sales.
Gross profit as a percentage of net sales for the year ended March 31, 1999
was 36.3% compared to 41.3% in fiscal 1998. The decrease in the gross profit was
due to an unfavorable mix of lower margin Vikonics equipment sales in fiscal
1999 versus higher margin custom software sales in fiscal 1998.
Marketing and sales expenses for the year ended March 31, 1999 were
$136,000, a 20.5% decrease from the $171,000 incurred in the previous year. This
is primarily due to a reduction in consulting fees.
Engineering, research and development expenses for the year ended March 31,
1999 were $229,000, which are comparable to the $231,000 expended a year ago.
General and administrative expenses were $431,000 in fiscal 1999, which is
also comparable to $424,000 in fiscal 1998.
The net (loss) for the year ended March 31, 1999 was $(282,000) compared to
a net (loss) of $(242,000) for the previous year due to the factors regarding
sales and expenses described above.
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.
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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.
There was a working capital deficit on March 31, 2000 of $(2,080,000)
compared to a working capital deficit of $(1,979,000) on March 31, 1999. At
March 31, 2000 the Company had $21,000 in cash, a decrease of $9,000 from a year
ago. Operating activities during the 2000 fiscal year provided $16,000 of cash.
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 interest at a rate of 9% per 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.
Additionally, two other directors provided the Company with loans
aggregating $120,000 during the months of August and September, 1993 payable on
demand with interest at a rate of 9% per annum.
On June 24, 1994, the Company entered into an agreement with the above
private investors, the directors and the Company's retained legal counsel.
Pursuant to the agreement, the due date for the investors ($180,000) and
directors ($140,000) 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 by the Company of not less than
$2,500,000. In addition, the exercise period of the investor's options to
purchase 400,000 shares of common stock were extended three years and the
exercise price was reduced to $1.50.
At this time, the Company does not have the ability to pay these loans. On
September 17,1998 the private investors filed a lawsuit 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. If the Company does not negotiate a satisfactory
resolution of this Judgment and the creditors foreclose on the collateral, the
Company will cease as a going concern. (See Note 3 to notes to financial
statements.)
Included in the 1994 Agreement were the grant of five year warrants to one
of the 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 made
($150,000) by that director and unpaid legal fees ($250,000) at an exercise
price of $1.00 per share. There was no value attached to these warrants, all of
which have since expired.
The Company currently occupies approximately 8,000 square feet of a 27,000
square foot facility on a month-to-month use and occupancy basis at a monthly
rental payment of $7,885.
15
<PAGE>
Accounts receivable decreased by $ 41,000 in fiscal 2000 from the previous
year. This was due to the lower sales level during the last six months of the
current fiscal year ($623,000) compared to sales achieved during the last six
months of fiscal 1999 ($706,000).
Inventory levels decreased $27,000 from the previous year to $88,000 at
March 31, 2000. This is due to increased purchases during the final month of
fiscal 1999 in anticipation of shipping the relatively high fiscal year end
backlog ($577,000) in fiscal 2000. The backlog at March 31, 2000 is $213,000.
Accounts payable of $254,000 at March 31, 2000 are the same as the balance
at March 31, 1999.
Accrued expenses and other current liabilities at March 31, 2000 of
$1,359,000 are $30,000 more than the $1,329,000 at the end of the previous
fiscal year. This is primarily due to an increase in accrued interest of
approximately $47,000.
The Company's potential sources of liquidity include its current assets and
potentially external financing.
The Company has no significant capital plans at this time.
Inflation
The Company has, in the past, been able to increase the price of its
products and services sufficiently to offset the effects of inflation on wages
and other expenses, and anticipates that it will be able to do so in the future.
Item 7. Financial Statements
The financial statements and schedules are included in this report beginning
on Page F-1.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
16
<PAGE>
Item 9. Directors, Executive Officers, Promoters and Control Persons,
Compliance with Section 16(a) of the Exchange Act
The current directors and executive officers of the Company are as follows:
Name Age Title
---- --- -----
John J. Strong 52 Chairman of the Board, President and Director
Michael J. Pisano 54 Vice President - General Manager
William R. Hoskinson 51 Vice President - Engineering
Howard S. Breslow 60 Secretary and Director
Mr. Strong has been Chairman of the Board and President of the Company
since March, 1996. Mr. Strong was Vice President-Finance and Administration of
the Company from 1985 to March 1996 and a director of the Company since 1989.
Mr. Pisano has been Vice President- General Manager of the Company since
1988. From 1984 to 1988, Mr. Pisano was Vice-President-Manufacturing of the
Company.
Mr. Hoskinson has been Vice President-Engineering of the Company since
1989. From 1988 to 1989, Mr. Hoskinson was Vice President of Engineering,
Breakaway Technologies, Inc., a consumer electronics company.
Mr. Breslow has been a director of the Company since 1983 and Secretary of
the Company since 1984. He has been a practicing attorney in New York for more
than 35 years and is a member of the law firm of Breslow & Walker, LLP, New
York, New York. Mr. Breslow currently serves a director of Cryomedical Sciences,
Inc., a company engaged in the development and marketing of products for use in
low-temperature medicine, FIND/SVP, Inc., a company engaged in the development
and marketing of information services and products, Excel Technology, Inc., a
company engaged in the development and sales of laser products, and Lucille
Farms, Inc., a company engaged in the manufacture and sale of cheese.
All of the Company's directors will continue to serve as directors until
their successors are elected and qualified. The By-Laws of the Company provide
that the annual meeting of shareholders be held each year during the month of
September at a time and place to be designated by the Board of Directors.
Officers of the Company serve at the discretion of the Board of Directors or
until the next annual meeting of directors and executive officers.
17
<PAGE>
Limitation on Liability of Directors
As permitted by New York law, the Company's Certificate of Incorporation
contains an article providing for the elimination of the personal liability of
the directors of the Company to the fullest extent permitted by the provisions
of paragraph (b) of Section 402 of the New York Business Corporation Law.
Accordingly, a director's personal liability would be eliminated for any breach
of a director's duty, unless, among other things, the director's actions or
omissions were in bad faith, involved intentional misconduct or a knowing
violation of the law, or personal gain in fact of a financial profit to which
the director was not lawfully entitled. This article is intended to afford
directors additional protection, and limit their potential liability, from suits
alleging a breach of the duty of care by a director. The Company believes this
article will enhance the Company's ability to attract and retain qualified
persons to serve as directors. As a result of the inclusion of such a provision,
shareholders may be unable to recover monetary damages against directors for
actions taken by them which constitute negligence or gross negligence or which
are in violation of their fiduciary duties, although it may be possible to
obtain injunctive or other equitable relief with respect to such actions. If
equitable remedies are found not to be available to shareholders for any
particular case, shareholders may not have any effective remedy against the
challenged conduct.
Section 16 (a) Beneficial Ownership Reporting Compliance
Under U.S. securities laws, the Company's directors, its officers, and any
persons holding more than ten percent of the Common Stock are required to report
their initial ownership of the Common Stock and any subsequent changes in that
ownership to the Securities and Exchange Commission. Specific filing deadlines
of these reports have been established and the Company is required to disclose
any failure to meet such deadlines during the fiscal year ended March 31, 2000.
Based solely on a review of such reports furnished to the Company, the Company
believes that all of these filing requirements have been satisfied.
18
<PAGE>
Item 10. Executive Compensation
The following table sets forth certain information regarding compensation
paid by the Company during each of the last three fiscal years to the Company's
Chief Executive Officer and to each of the Company's executive officers who
received salary and bonus payments in excess of $100,000 during fiscal 2000.
Summary Compensation Table
--------------------------
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Name and Principal Fiscal Salary Bonus Other Restricted Options/ LTIP
Position Year $ $ $ Stock $ SAR(#) Payouts $
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
John J. Strong 2000 $125,000 -- -- -- -- --
---------------
Chairman of the Board & 1999 $125,000 -- -- -- -- --
President (Principal 1998 $110,000 -- -- -- -- --
Executive Officer)
</TABLE>
Option Grants in Last Fiscal Year
There were no options granted to the named executive officer during the
fiscal year ended March 31, 2000.
Option Exercise during Fiscal Year 2000 and Fiscal Year-End Option Values
The following table provides information related to options exercised by the
named executive officer during the 2000 fiscal year and the number and value of
options held at fiscal year end.
<TABLE>
<CAPTION>
Number of Value of
unexercised unexercised in
options at the money options
year-end at year-end ($) (1)
-------- -------------------
Shares
Acquired on Value Exer- Not Exer- Not
Name Exercise (#) Realized cisable Exercisable cisable Exercisable
---- ------------ -------- ------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
($)
John J. Strong ------ ------ ------ ----- ----- -----
</TABLE>
(1) The last trading price for the Company's common stock as reported on the
NASD Electronic Bulletin Board on March 31, 2000 was $.375. Value is calculated
on the basis of the difference between the option exercise price and $.375
multiplied by the number of shares of common stock underlying the option.
Compensation of Directors
The Company currently accrues a fee of $750 per meeting for outside
directors for serving in that capacity. The Company's 1992 Stock Option Plan
contains a formula provision for the annual grant of five-year options to
purchase 7,500 shares of common stock at fair market value, immediately
exercisable, to each director of the Company.
19
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information at June 27, 2000 with respect to
the beneficial ownership of shares of Common Stock (i) all persons known by the
Company to be owners of more than five percent of the outstanding shares of
Common Stock, (ii) each director, (iii) each named executive officer and (iv)
all officers and directors as a group.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percentage of Outstanding
Beneficial Owner Beneficial Ownership (1) Shares Owned
---------------- ------------------------ ------------
<S> <C> <C>
Howard S. Breslow (2) 158,400 5.4 %
767 Third Avenue
New York, NY 10017
John J. Strong ----- -----
370 North Street
Teterboro, NJ 07608
All officers and directors as 175,331 6.0 %
a group (4 persons)
</TABLE>
(1) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them.
(2) Included are all shares owned of record by B & W Investment Associates, an
entity of which Mr. Breslow is a partner.
20
<PAGE>
Item 12, Certain Relationships and Related Transactions
Howard S. Breslow, the Secretary and a director of the Company, is a member
of Breslow & Walker, LLP counsel to the Company. An affiliate of Breslow &
Walker, LLP has ownership of 158,400 shares of Common Stock. During the year
ended March 31, 2000, Breslow & Walker billed the Company $4,428 for legal
services provided. At March 31, 2000, the Company owed Breslow & Walker
approximately $291,000 for legal services.
John L. Kaufman and Leonard J. Fassler, directors of the Company until their
resignation in March, 1996, provided the Company with loans of $70,000 and
$50,000, respectively, during the months of August and September 1993, payable
on demand with interest at a rate of 9% per annum.
On June 24, 1994, the Company entered into an agreement with two private
investors who had loaned the Company $ 200,000 ($20,000 of which was later
assigned to Gen. Sweeney, a former director) and Mssrs. Sweeney, Kaufman,
Fassler and the legal firm of Breslow & Walker, LLP. Pursuant to the agreement,
the due date for the investors' ($180,000) and directors' loans ($140,000) and
fees payable to Breslow and Walker ($250,000) 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 Gen. Sweeney's options to purchase 40,000 shares of Common
Stock, as well as the private investors options to purchase 360,000 shares of
Common Stock, were extended three years and the exercise price was reduced to
$1.50. Included in this agreement was the grant of five year warrants to Mr.
Fassler and Breslow & Walker, LLP to purchase such number of shares of Common
Stock of the Company as is equal to the aggregate dollar amount of loans made
($150,000, which includes the loan described in the next sentence) by Mr.
Fassler and unpaid legal feel ($250,000) at an exercise price of $1.00 per
share. The agreement also included a provision whereby Mssrs. Kaufman and
Fassler also agreed to lend the Company $100,000 each, payable on demand with
interest at a rate of 9% per annum. Such funds were received during the
Company's second fiscal 1995 quarter.
21
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
(a) (1) Financial Statements
The following financial statements are filed as part of this Form 10-KSB:
Independent Auditors' Report.
Balance Sheet as of March 31, 2000.
Statements of Operations for the years ended March 31, 2000 and 1999.
Statements of Cash Flows for the years ended March 31, 2000 and 1999.
Statements of Changes in Shareholders' (Deficit) for the years ended
March 31, 2000 and 1999.
Notes to Financial Statements.
All other schedules are not furnished as the information is presented
elsewhere in this document or is not applicable.
(2) Exhibits
---------
<TABLE>
<CAPTION>
Exhibit Number Document
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the
Company (1), September, 1988 amendment (2) and
March, 1992 amendment (4) thereto.
3.2 Bylaws of the Company and amendments thereto. (1)
10.1 Lease, dated April 2, 1992, between North
Teterboro Associates and the Company, relating to
the Company's premises in Teterboro, New Jersey
(4), amendment thereto dated May 1, 1994 (6),
amendment thereto dated April 25, 1995 (7) and
amendment thereto dated April 14, 1997(8).
10.3 1984 Stock Option Plan. (1)
10.7 Reynolds/Weiss Agreement dated May 6, 1992 relating to 60,000
shares Vikonics common stock purchase by Randolph N. Reynolds,
Manny Weiss and Lillian Weiss (3) and amendments thereto dated
April 28, 1993 and June 30, 1993. (5)
10.8 Form of Company Confidentiality Agreement. (4)
10.9 1992 Stock Option Plan. (5)
10.10 Reynolds/Weiss/Sweeney/Kaufman/Fassler and Breslow &
Walker Agreement dated June 30, 1994 extending due date
of Vikonics indebtedness and amounts due. (6)
24 Consent of Accountants.
</TABLE>
22
<PAGE>
(1) Incorporated by reference to the Company's Registration Statement on Form
S-18 (Reg. No. 33-14725-NY) which became effective with the Securities and
Exchange Commission on July 14, 1987.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1990.
(3) Incorporated by reference to the Company's Current Report on Form 8-K the
date of the report for which is March 30, 1992.
(4) Incorporated by reference to the Company's Annual Report on form 10-K for
the fiscal year ended March 31, 1992.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1993.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1994.
(7) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1995.
(8) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1997.
(b) Reports on Form 8-K
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the final Quarter of the fiscal year ended March 31,
2000.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VIKONICS, INC.
Date: July 9, 2000 By: /s/ John J. Strong
--------------------------------------
John J. Strong, Chairman and President (Principal
Executive Officer, Principal Financial and
Accounting Officer)
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Date: July 9, 2000 /s/ John J. Strong
---------------------------------------
John J. Strong, Director
Date: July 9, 2000 /s/ Howard S. Breslow
---------------------------------------
Howard S. Breslow, Director
24
<PAGE>
To the Board of Directors
Vikonics, Inc.
Independent Auditors' Report
We have audited the accompanying balance sheet of Vikonics, Inc. as at
March 31, 2000 and the related statements of operations, cash flows and changes
in shareholders' (deficit) for the years ended March 31, 2000 and 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the aforementioned financial statements present fairly,
in all material respects, the financial position of Vikonics, Inc. as at March
31, 2000 and the results of its operations and its cash flows for the years
ended March 31, 2000 and 1999 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 12 to the
financial statements, the Company has suffered significant losses from
operations, has working capital limitations that have severely impacted the
Company's day-to-day operations and does not have the ability to pay amounts due
private investors, ex-directors and legal counsel. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 12. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
CITRIN COOPERMAN & COMPANY, LLP
June 7, 2000
New York, New York
F1
<PAGE>
VIKONICS, INC.
BALANCE SHEET
ASSETS
MARCH 31, 2000
--------------
CURRENT ASSETS:
Cash (Note 1(b)) $ 20,680
Accounts receivable (less allowance for doubtful
accounts of $10,000) 170,498
Inventories (Notes 1(c) and 2) 87,657
Prepaid expenses and other current assets 18,497
---------
TOTAL CURRENT ASSETS 297,332
---------
EQUIPMENT and FIXTURES (Note 1(d)):
Machinery and equipment 402,735
Furniture and fixtures 67,437
---------
470,172
Less, accumulated depreciation (448,116)
---------
EQUIPMENT AND FIXTURES - NET 22,056
---------
OTHER ASSETS 1,200
---------
$ 320,588
See notes to financial statements.
F2
<PAGE>
VIKONICS, INC.
BALANCE SHEET
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
MARCH 31, 2000
--------------
CURRENT LIABILITIES:
Notes and loans payable (Note 3) $ 717,728
Accounts payable 253,869
Accrued expenses and other current liabilities (Note 4) 1,359,203
Deferred service income (Note 1(h)) 46,423
-----------
TOTAL CURRENT LIABILITIES 2,377,223
-----------
COMMITMENTS AND CONTINGENCIES
(Notes 5 and 12)
SHAREHOLDERS' (DEFICIT) (Notes 3, 7 and 11):
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
Paid-in capital 5,641,094
Accumulated deficit (7,756,398)
-----------
TOTAL SHAREHOLDERS' (DEFICIT) (2,056,635)
-----------
$ 320,588
===========
See notes to financial statements.
F3
<PAGE>
VIKONICS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
2000 1999
----------- -----------
SALES - NET (Notes 1(h) and 10) $ 1,539,864 $ 1,570,238
COST OF GOODS SOLD 881,996 1,000,181
----------- -----------
GROSS PROFIT 657,868 570,057
----------- -----------
COST AND EXPENSES:
Engineering, research and
development (Notes 1(f) and 8) 223,415 228,915
Marketing and sales 140,570 136,490
General and administrative 323,346 431,207
Depreciation and amortization 6,125 611
Interest expense - net 45,394 55,273
----------- -----------
TOTAL COSTS AND EXPENSES 738,850 852,496
----------- -----------
NET (LOSS) $ (80,982) $ (282,439)
=========== ===========
NET (LOSS) PER SHARE (Note 9) -
Basic and Diluted (.03) (.10)
=========== ===========
See notes to financial statements.
F4
<PAGE>
VIKONICS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (80,982) $(282,439)
Adjustments to reconcile net (loss) to net
cash (used for) provided by
operating activities:
Depreciation and amortization 6,125 611
Provision for allowance for
doubtful accounts -- (20,000)
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable 41,433 71,548
Inventories 26,760 (20,677)
Prepaid expenses and other current assets (2,029) 60,083
Increase (decrease) in:
Accounts payable 10 48,012
Accrued expenses and other current
liabilities 30,686 241,577
Deferred service income (5,803) (3,485)
--------- ---------
Net cash provided by (used for) operating activities 16,200 95,230
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase) of equipment and fixtures-net (25,739) (3,053)
--------- ---------
SUBTOTALS (carried forward) $ (9,539) $ 92,177
--------- ---------
</TABLE>
See notes to financial statements.
F5
<PAGE>
VIKONICS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
2000 1999
-------- --------
SUBTOTALS (brought forward) $ (9,539) $ 92,177
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes and loans payable -- (72,286)
-------- --------
CASH (USED FOR) FINANCING ACTIVITIES -- (72,286)
-------- --------
(DECREASE) INCREASE IN CASH (9,539) 19,891
CASH BEGINNING OF YEAR 30,219 10,328
-------- --------
CASH END OF YEAR $ 20,680 $ 30,219
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ -- $ 13,177
======== ========
See notes to financial statements.
F6
<PAGE>
VIKONICS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT)
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
COMMON STOCK
------------
Paid-in Accumulated
Shares Amount Capital Deficit Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at
March 31, 1998 $ 2,933,431 $ 58,669 $ 5,641,094 $(7,392,977) $(1,693,214)
Net (loss) -- -- -- (282,439) (282,439)
----------- ----------- ----------- ----------- -----------
Balance at
March 31, 1999 2,933,431 58,669 5,641,094 (7,675,416) (1,975,653)
Net (loss) -- -- -- (80,982) (80,982)
----------- ----------- ----------- ----------- -----------
Balance at
March 31, 2000 2,933,431 $ 58,669 $ 5,641,094 $(7,756,398) $(2,056,635)
=========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F7
<PAGE>
NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Presentation
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.
(b) Statements of Cash Flows
Short-term investments which have an original maturity date of ninety
days or less are considered cash equivalents.
(c) Inventories
Inventories are valued at the lower of cost (first-in, first-out) or
market.
(d) Equipment and Fixtures
Equipment and fixtures are recorded at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the
applicable assets. Expenditures for maintenance and repairs are charged
to expense as incurred whereas expenditures for renewals and betterments
are capitalized.
The estimated useful lives used to compute depreciation and amortization
are as follows:
Description Years
Machinery and equipment 5
Furniture and fixtures 5-8
Autos 3-4
Leasehold improvements Term of lease or estimated useful life,
whichever is less
(e) Income Taxes
Income tax benefits from operating loss carry forwards are recognized to
the extent available less a valuation allowance if it is more likely
than not that some portion of the deferred tax asset will not be
realized.
(f) Research and Development Costs
All research and development costs are charged to operations as
incurred.
(g) Industry
The Company designs, manufactures, markets, installs and services
integrated computer-based security systems primarily to government
agencies, branches of the U.S. Armed Forces, defense contractors, and
international and industrial customers.
(h) Recognition of Income
Sales and earnings on long-term installation and systems projects are
stated on the percentage-of-completion method, based upon costs incurred
in relation to total estimated costs. Revenue received for service and
maintenance contracts is deferred and recognized over the terms of the
agreements and amounted to $261,000 and $291,000 for the fiscal years
ended March 31, 2000 and 1999, respectively.
F8
<PAGE>
(i) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(j) Financial Instruments
The Company considers the fair market value of all financial instruments
to be not materially different from their carrying value at year end.
NOTE 2 - INVENTORIES
Inventories at March 31, 2000 consisted of the following:
Raw materials $44,962
Work-in-process 12,275
Finished goods 30,420
-------
$87,657
=======
NOTE 3 - NOTES AND LOANS PAYABLE
Notes and loans payable at March 31, 2000, consisted of:
Amounts due private investors, ex-directors and
legal counsel. $717,728
=======
F9
<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%
per 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 other directors provided the Company with loans
aggregating $120,000 during the months of August and September, 1993
payable on demand with interest at a rate of 9% per annum.
On June 24, 1994, the Company entered into an agreement with the above
private investors, the directors and the Company's retained legal
counsel. Pursuant to the agreement, the due date for the investors and
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 the 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, 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 March 31, 2000, the Company had a remaining balance of
$147,728, which was lent to the Company by two directors during the
Company's 1995 fiscal year. Both loans are payable on demand with
interest at 9% per annum.
Interest expense of $45,394 and $55,273 were charged to operations for
the years ended March 31, 2000 and 1999, respectively.
F10
<PAGE>
NOTE 4 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities at March 31, 2000
consisted of the following:
Accrued warranty expense $ 38,000
Accrued salaries, wages and taxes 457,328
Accrued professional fees 40,000
Accrued officers' salaries 171,228
Accrued interest 593,878
Other 58,769
----------
$1,359,203
==========
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company occupies approximately 8,000 square feet of a 27,000 square
foot facility on a month-to-month use and occupancy basis at a monthly
rental payment of $7,885.
Rental expense for each of the years ended March 31, 2000 and 1999 was
$94,620.
NOTE 6 - INCOME TAXES
(a) At March 31, 2000, the Company had net operating loss carryforwards
available amounting to approximately $7.3 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.
(b) At March 31, 2000, approximately $2,300,000 of available tax benefits of
the loss carryforwards are offset by a corresponding amount of valuation
allowance.
F11
<PAGE>
NOTE 7 - STOCK OPTION PLAN
At March 31, 1999, the Company had options outstanding or available for
grant under the 1992 Stock Option Plan. The 1992 Plan, approved by
shareholders on October 2, 1992, authorized that up to 500,000 shares of
common stock could be issued to key employees, officers and directors at
a purchase price of not less than the fair market value of the shares on
the date of grant. The 1984 Plan, for which Options may no longer be
granted, authorized options on up to 660,000 shares of common stock. The
Company has elected to treat those options that meet specific
requirements within the meaning of Section 422 of the Internal Revenue
Code as incentive stock options.
A summary of changes in the stock option plans is as follows:
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Shares under option - beginning of year 75,000 75,000
Options granted -- --
Options expired (75,000) --
------- -------
Shares under option - end of year 0 75,000
======= =======
Shares exercisable - end of year
(at prices of $1.00 in 1999) 0 75,000
======= =======
</TABLE>
Options generally expire after a five-year period. At March 31, 2000, an
aggregate of 500,000 shares remained available for grant under the 1992
Stock Option plan.
NOTE 8 - RESEARCH AND DEVELOPMENT EXPENSES
During the fiscal years ended March 31, 2000 and 1999 the Company spent
approximately $64,000 and $68,000, respectively, on research and
development.
NOTE 9 - (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.
The number of shares used in the computation of basic and diluted (loss)
per share was as follows:
2000 1999
---- ----
2,933,431 2,933,431
F12
<PAGE>
NOTE 10 - MAJOR CUSTOMERS
Sales to major individual customers were as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C> <C> <C> <C>
U.S. Government Agencies $1,123,000 (72.9%) $ 637,000 (40.6%)
Warnaco Inc 99,000 (6.4%) 35,000 (2.2%)
City of New York 12,000 (<1%) 167,000 (10.6%)
Engineering & Professional 64,000 (4.2%) 381,000 (24.3%)
Services, Inc.
</TABLE>
NOTE 11 - RELATED TRANSACTIONS
The Secretary, who is also a director of the Company, is a member of the
firm retained by the Company as legal counsel. An affiliate of the firm
owns 158,400 shares of common stock. Legal fees to this firm were $4,428
and $3,309, in 2000 and 1999, respectively. The Company owed this firm
approximately $291,000 at March 31, 2000 and such amounts are included
in the accompanying balance sheet at March 31, 2000.
NOTE 12 - GOING CONCERN
As shown in the accompanying financial statements, the Company has
incurred significant losses over the past two (2) fiscal years. As of
March 31, 2000, working capital limitations were severely impacting the
Company's day-to-day operations, impairing the Company's ability to
obtain trade credit for purchases and meet the cash requirements for
basic operating expenses. These factors raise substantial doubt about
the Company's ability to continue as a going concern.
Additionally, the Company does not have the ability to pay amounts due
private investors, ex-directors and legal counsel. The Company is
attempting to re-negotiate the terms of payment of these obligations but
there can be no assurance that the Company will be successful in these
efforts.
Management's plans include continuing to actively pursue new contract
awards, which would generate revenue as well as cash flow. The Company's
ability to continue as a going concern is dependent upon its ability to
obtain a large volume of contract awards in the immediate future. The
financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
F13
