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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: June 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
VIKONICS, INC.
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(Exact name of small business issuer as specified in its charter)
New York 13-2759466
- ---------------------------------- ---------------------------------
(State or other jurisdiction
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
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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 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
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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.
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Item 1 - Financial Statements (Unaudited)
Balance Sheets:
June 30 and March 31, 1999 3-4
Statements of Operations
For Three Months Ended June 30, 1999 and 1998 5
Statements of Cash Flows
For Three Months Ended June 30, 1999 and 1998 6
Notes to Financial Statements 7-8
Item 2 - Management's Discussion and Analysis or Plan of
Operation 9-10
PART II: Other Information 11
Signatures 12
2
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VIKONICS, INC.
BALANCE SHEETS
ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1999 March 31, 1999
------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 40,455 $ 30,219
Accounts receivable (less allowance for doubtful
accounts of $10,000) 305,374 211,931
Inventories (Note 2) 105,326 114,417
Prepaid expenses and other current assets 22,941 16,468
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TOTAL CURRENT ASSETS 474,096 373,035
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EQUIPMENT AND FIXTURES - AT COST:
Machinery and equipment 379,551 376,996
Furniture and fixtures 67,437 67,437
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446,988 444,433
Less, accumulated depreciation and amortization (442,144) (441,991)
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EQUIPMENT AND FIXTURES - NET 4,844 2,442
---------- ----------
OTHER ASSETS 1,200 1,200
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$ 480,140 $ 376,677
========== ==========
</TABLE>
See notes to financial statements.
3
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VIKONICS, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1999 March 31, 1999
------------- --------------
<S> <C> <C>
CURRENT LIABILITIES:
Notes and loans payable (Note 3) $ 717,728 $ 717,728
Accounts payable 286,905 253,859
Accrued expenses and other current liabilities (Note 4) 1,367,611 1,328,517
Deferred service income 43,463 52,226
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TOTAL CURRENT LIABILITIES 2,415,707 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
Accumulated (deficit) (7,635,330) (7,675,416)
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TOTAL SHAREHOLDERS' (DEFICIT) (1,935,567) (1,975,653)
----------- -----------
$ 480,140 $ 376,677
=========== ===========
</TABLE>
See notes to financial statements.
4
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VIKONICS, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
SALES - NET $ 476,985 $ 299,487
COST OF GOODS SOLD 249,013 195,619
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GROSS PROFIT 227,972 103,868
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COSTS AND EXPENSES:
Engineering, research and development 59,530 61,604
Marketing and sales 34,385 34,166
General and administrative 83,294 93,325
Depreciation and amortization 153 --
Interest expense 10,524 11,994
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TOTAL COSTS AND EXPENSES 187,886 201,089
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NET INCOME (LOSS) $ 40,086 $ (97,221)
========= =========
INCOME (LOSS) PER SHARE (Note 6) -
Basic and Diluted $ .01 $ (.03)
========= =========
</TABLE>
See notes to financial statements.
5
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VIKONICS, INC.
STATEMENTS OF CASH FLOWS
FOR THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 40,086 $ (97,221)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 153 --
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable (93,443) 107,896
Inventories 9,091 (17,329)
Prepaid expenses and other current assets (6,473) 12,727
Increase (decrease) in:
Accounts payable 33,046 (3,852)
Accrued expenses and other liabilities 39,094 50,671
Deferred service income (8,763) (2,373)
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Net cash provided by operating activities 12,791 50,519
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and fixtures - net (2,555) --
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CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of short term notes -- 5,587
Repayment of debt -- (9,322)
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Net cash used for financing activities -- (3,735)
INCREASE IN CASH 10,236 46,784
CASH - MARCH 31 30,219 10,328
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CASH - JUNE 30 $ 40,455 $ 57,112
========= =========
</TABLE>
See notes to financial statements.
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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 June 30, 1999, the results
of operations for the three months ended June 30, 1999 and 1998, and changes of
cash flows for the three months ended June 30, 1999 and 1998.
The results of operations for the three months ended June 30, 1999 are not
necessarily indicative of the results to be expected for the full year.
Note 2. - Inventories
<TABLE>
<CAPTION>
Inventories consisted of the following: June 30, 1999 March 31, 1999
------------- --------------
<S> <C> <C>
Raw materials $ 35,489 $ 42,360
Work-in-process 4,468 5,633
Finished goods 65,369 66,424
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TOTAL $105,326 $114,417
======== ========
</TABLE>
Note 3. - Notes and Loans Payable
Notes and loans payable consists of:
<TABLE>
<CAPTION>
June 30, 1999 March 31, 1999
------------- --------------
<S> <C> <C>
Amounts due to private investors, directors, and legal
counsel. $717,728 $717,728
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</TABLE>
On June 30, 1993, the Company entered into an amended agreement with private
investors which provided the Company with a loan in the amount of $200,000
repayable in one year together with an interest rate of 9% annum. In addition,
the amended agreement granted the investors two-year options to purchase an
aggregate of 400,000 shares of common stock at an exercise price of $4.75 per
share. In July 1993, one of the private investors assigned $20,000 of the loan
along with options to purchase 40,000 shares of common stock to one of the
Company's directors, who has since resigned from the board.
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Additionally, two of the former directors provided the Company with loans
aggregating $120,000 during the months of August and September 1993 payable on
demand with an interest rate of 9% per annum.
On June 24, 1994, the Company entered into an agreement with the above private
investors, former directors, and the Company's retained legal counsel. Pursuant
to the agreement the due date for the investors and former directors loans and
fees payable $(250,000) to legal counsel were extended until the first to occur
of (i) June 30, 1996, (ii) a public financing by the Company, or (iii) a private
financing of the Company of not less than $2,500,000. As June 30, 1996 date has
been reached, such amounts are now due. While the Company does not have the
ability to pay the amounts due to private investors, former directors and legal
counsel, it has attempted to renegotiate the terms of payment of these
obligations.
On September 17, 1998 the private investors filed a lawsuit in the Superior
Court of New Jersey for the total principal amount of $200,000 together with
accrued interest of $103,000. On June 15, 1999 a Judgment by Default against the
Company was entered in the Superior Court of New Jersey, Bergen County.
The Company will seek a satisfactory resolution of this judgment. There can be
no assurance, however, that the Company will be able to resolve the judgment.
The failure to do so will cause the Company to cease as a going concern.
Additionally, at June 30, 1999, the Company had a remaining balance of $147,728,
which was lent to the Company by two then directors during the Company's second
fiscal quarter of 1995. Both loans are payable on demand with interest at 9% per
annum.
Note 4. - Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
June 30, 1999 March 31, 1999
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Accrued warranty expense $ 38,000 $ 38,000
Accrued salaries, wages, and taxes 537,089 517,005
Accrued professional fees 17,500 30,000
Accrued officers' salaries 171,228 171,228
Accrued interest 560,306 546,678
Other 43,488 25,606
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$ 1,367,611 $ 1,328,517
=============== ===============
Note 5. - Income Taxes
At June 30, 1998 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 three months
ended June 30, 1999 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 June 30, 1999 were $ 477,000
an increase of $178,000 or 59.5% from the $299,000 of net sales reported for the
same period a year ago. The increase is due to sales of approximately $185,000
during the current fiscal quarter to the U.S. General Services Administration
for a security system upgrade at a domestic United States Air Force Base.
Gross profits as a percentage of net sales for the three months ended June 30,
1999 was 47.8% compared to 34.7% during the same period a year ago. The increase
is primarily due to the greater absorption of overhead expenses in the current
year period due to the higher sales level.
Engineering, research and development expenses were $60,000 and marketing and
sales expenses were $34,000, which are essentially the same as the year ago
corresponding quarter expense levels.
General and administrative expenses of $83,000 in the current quarter are 10.8%
less than the $93,000 incurred during the same period last year. This reduction
is due to lower insurance, administrative payroll costs and payroll tax penalty
and interest charges.
Net income for the three months ended June 30, 1999 was $ 40,000 compared to a
net loss of $97,000 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.
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.
The working capital deficit on June 30, 1999 was ($1,942,000) compared to
($1,979,000) on March 31, 1999. The decrease in the working capital deficit is
primarily due to the income earned for the three months ended June 30, 1999. At
June 30, 1999 the Company had $40,000 in cash, compared to $ 30,000 at March 31,
1999.
Accounts receivable increased by $ 93,000 in the three months ended June 30,
1999 due to the higher sales level in the first fiscal 2000 quarter.
Notes and loans payable of $718,000 at June 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
9
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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 $ 287,000 at June 30, 1999 are comparable to the $254,000
at March 31,1999. Accrued expenses and other current liabilities at June 30,
1999 of $ 1,368,000 are 2.9% greater than the $1,329,000 at March 31, 1999. The
increase is due to an increase in accrued payroll tax penalties and interest for
the three months ended June 30, 1999.
In total, the net cash provided by operating activities was $ 13,000 for the
three months ended June 30, 1999, as compared to $51,000 for the three months
ended June 30, 1998.
The Company purchased approximately $2,600 of engineering computer equipment
during the quarter ended June 30, 1999. The Company plans to expend
approximately $20,000 during the 2nd fiscal 2000 quarter upgrading its
operational computer system. No other significant capital expenditures are
planned at this time.
10
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Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
None
11
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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 thereunto duly
authorized.
Vikonics, Inc.
(Registrant)
April 24, 2000 /s/ John J. Strong
-----------------------
John J. Strong
President
(duly authorized officer
and principal financial officer)
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