U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB /x/ QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarterly Period Ended: December 31, 1999 ----------------- / / TRANSITION REPORT UNDER SECTION TO 13 OR 15 (d) OF THE EXCHANGE ACT For the transition period from _________ to _________ Commission File Number 0-16034 ------- VIKONICS, INC. --------------------------------------------------------- (Exact name of small business issuer as specified in its charter) New York 13-2759466 - --------------------------------- ------------------------------------ (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 370 North Street Teterboro, New Jersey 07608 -------------------------------------------- (Address of principal executive offices) (201) - 641-8077 --------------------------- (Issuer's telephone number) NONE ---------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ --- State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practical date: Number of shares outstanding at April 17, 2000: 2,933,431 shares of common stock, par value $ .02 per share. Transitional Small Business Disclosure Format (Check one): Yes ____ No X ----- VIKONICS, INC. INDEX PART I Financial Statements Page No. -------- Item 1 - Financial Statements (Unaudited) Balance Sheets: December 31 and March 31, 1999 3-4 Statements of Operations For Three Months Ended December 31, 1999 and 1998 5 For Nine Months Ended December 31, 1999 and 1998 6 Statements of Cash Flows For Nine Months Ended December 31, 1999 and 1998 7 Notes to Financial Statements 8-9 Item 2 - Management's Discussion and Analysis or Plan of Operation 10-11 PART II: Other Information 12 Signatures 13 2 VIKONICS, INC. BALANCE SHEETS ASSETS (UNAUDITED) December 31, 1999 March 31,1999 ----------------- ------------- CURRENT ASSETS: Cash $ 43,447 $ 30,219 Accounts receivable (less allowance for doubtful accounts of $10,000) 174,696 211,931 Inventories (Note 2) 84,694 114,417 Prepaid expenses and other current assets 14,224 16,468 --------- --------- TOTAL CURRENT ASSETS 317,061 373,035 --------- --------- EQUIPMENT AND FIXTURES - AT COST: Machinery and equipment 400,085 376,996 Furniture and fixtures 67,437 67,437 --------- --------- 467,522 444,433 Less, accumulated depreciation and amortization (442,450) (441,991) -------- --------- EQUIPMENT AND FIXTURES - NET 25,072 2,442 --------- --------- OTHER ASSETS 1,200 1,200 --------- --------- $ 343,333 $ 376,677 ========= ========= See notes to financial statements. 3 VIKONICS, INC. BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' (DEFICIT) (UNAUDITED) December 31, 1999 March 31, 1999 ----------------- -------------- CURRENT LIABILITIES: Notes and loans payable (Note 3) $ 717,728 $ 717,728 Accounts payable 233,505 253,859 Accrued expenses and other current liabilities (Note 4) 1,362,788 1,328,517 Deferred service income 65,353 52,226 ----------- ----------- TOTAL CURRENT LIABILITIES 2,379,374 2,352,330 ----------- ----------- SHAREHOLDERS' (DEFICIT): Preferred stock - $1 par value: Authorized - 2,000,000 shares Issued and outstanding - none Common stock - $.02 par value: Authorized - 10,000,000 shares Issued and outstanding - 2,933,431 58,669 58,669 Paid-in capital 5,641,094 5,641,094 Retained (deficit) (7,735,804) (7,675,416) ----------- ----------- TOTAL SHAREHOLDERS' (DEFICIT) (2,036,041) (1,975,653) ----------- ----------- $ 343,333 $ 376,677 =========== =========== See notes to financial statements. 4 VIKONICS, INC. STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998 (UNAUDITED) 1999 1998 ---- ---- SALES - NET $ 310,943 $ 395,544 COST OF GOODS SOLD 188,718 257,096 --------- --------- GROSS PROFIT 122,225 138,448 --------- --------- COSTS AND EXPENSES: Engineering, research and development 58,334 51,630 Marketing and sales 33,299 33,753 General and administrative 95,628 130,228 Depreciation and amortization 153 --- Interest expense 10,524 19,159 --------- --------- TOTAL COSTS AND EXPENSES 197,938 234,770 --------- --------- NET (LOSS) $ (75,713) $ (96,322) ========= ========= (LOSS) PER SHARE (Note 6) - Basic and Diluted $ (.03) $ (.03) ========= ========= See notes to financial statements. 5 VIKONICS, INC. STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 1999 AND 1998 (UNAUDITED) 1999 1998 ---- ---- SALES - NET $ 1,227,640 $ 1,259,061 COST OF GOODS SOLD 715,711 780,568 ----------- ----------- GROSS PROFIT 511,929 478,493 ----------- ----------- COSTS AND EXPENSES: Engineering, research and development 174,681 178,268 Marketing and sales 105,201 102,826 General and administrative 257,106 328,404 Depreciation and amortization 459 --- Interest expense 34,870 41,593 ----------- ----------- TOTAL COSTS AND EXPENSES 572,317 651,091 ----------- ----------- NET (LOSS) $ (60,388) $ (172,598) =========== =========== (LOSS) PER SHARE (Note 6) - Basic and Diluted $ (.02) $ (.06) =========== =========== See notes to financial statements. 6 VIKONICS, INC. STATEMENTS OF CASH FLOWS FOR NINE MONTHS ENDED DECEMBER 31, 1999 AND 1998 (UNAUDITED) 1999 1998 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) $ (60,388) $(172,598) Adjustments to reconcile net (loss) to net cash provided by operating activities: Depreciation and amortization 459 --- Changes in assets and liabilities: Decrease (increase) in: Accounts receivable 37,235 100,847 Inventories 29,723 960 Prepaid expenses and other current assets 2,244 46,376 Increase (decrease) in: Accounts payable (20,354) (17,443) Accrued expenses and other liabilities 34,271 98,561 Deferred service income 13,127 (24,559) --------- --------- Net cash provided by operating activities 36,317 32,144 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of equipment and fixtures - net (23,089) --- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of short term notes --- 5,587 Repayment of debt --- (27,286) --------- --------- Net cash used for financing activities --- (21,699) INCREASE IN CASH 13,228 10,445 CASH - MARCH 31 30,219 10,328 --------- --------- CASH - DECEMBER 31 $ 43,447 $ 20,773 ========= ========= See notes to financial statements. 7 VIKONICS, INC. NOTES TO FINANCIAL STATEMENTS Note 1. - Financial Statements The financial statements include the accounts of the Company and Vikonics Canada Inc., its wholly-owned subsidiary, an entity without any activity during the periods presented. In the opinion of the Company, the accompanying unaudited financial statements contain all necessary adjustments which are all of a normal recurring nature for the fair presentation of its financial position as of December 31, 1999, the results of operations for the three and nine months ended December 31, 1999 and 1998, and changes of cash flows for the nine months ended December 31, 1999 and 1998. The results of operations for the three and nine months ended December 31, 1999 are not necessarily indicative of the results to be expected for the full year. Note 2. - Inventories Inventories consisted of the following: December 31, 1999 March 31, 1999 ----------------- -------------- Raw materials $ 25,883 $ 42,360 Work-in-process 2,038 5,633 Finished goods 56,773 66,424 ----------------- ------------------ TOTAL $ 84,694 $ 114,417 ================= ================== Note 3. - Notes and Loans Payable; Legal Proceeding Notes and loans payable consists of: December 31, 1999 March 31, 1999 ----------------- -------------- Amounts due to private investors, directors, and legal counsel. $ 717,728 $ 717,728 ------------------ ----------------- 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. 8 Additionally, two of the former directors provided the Company with loans aggregating $120,000 during the months of August and September 1993 payable on demand with an interest rate of 9% per annum. On June 24, 1994, the Company entered into an agreement with the above private investors, former directors, and the Company's retained legal counsel. Pursuant to the agreement the due date for the investors and former directors loans and fees payable $(250,000) to legal counsel were extended until the first to occur of (i) June 30, 1996, (ii) a public financing by the Company, or (iii) a private financing of the Company of not less than $2,500,000. As June 30, 1996 date has been reached, such amounts are now due. While the Company does not have the ability to pay the amounts due to private investors, former directors and legal counsel, it has attempted to renegotiate the terms of payment of these obligations. On September 17, 1998 the private investors filed a lawsuit in the Superior Court of New Jersey for the total principal amount of $200,000 together with accrued interest of $103,000. On June 15, 1999 a Judgment by Default against the Company was entered in the Superior Court of New Jersey, Bergen County. The Company will seek a satisfactory resolution of this judgment. There can be no assurance, however, that the Company will be able to resolve the judgment. The failure to do so will cause the Company to cease as a going concern. Additionally, at December 31, 1999, the Company had a remaining balance of $147,728 that was lent to the Company by two then directors during the Company's second fiscal quarter of 1995. Both loans are payable on demand with interest at 9% per annum. Note 4. - Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following: December 31, 1999 March 31, 1999 ----------------- -------------- Accrued warranty expense $ 38,000 $ 38,000 Accrued salaries, wages, and taxes 460,697 517,005 Accrued professional fees 32,500 30,000 Accrued officers' salaries 171,228 171,228 Accrued interest 599,354 546,678 Other 61,009 25,606 ---------------- --------------- $ 1,362,788 $ 1,328,517 ================ =============== Note 5. - Income Taxes At December 31, 1999 the Company had net operating loss carryforwards available amounting to approximately $7.2 million which will expire between 2001 and 2013. There is a remote possibility that net operating loss carryforwards of approximately $500,000 may not be available. There are no significant differences in the recognition of income and expenses for tax and financial reporting purposes. Note 6. - (Loss) Per Share Basic and diluted per share data is based on the weighted average number of common shares outstanding. Common stock equivalents would be anti-dilutive and, therefore, were not included in the diluted per share computations. 9 Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Results of Operations The Company's net sales for the three months ended December 31, 1999 decreased $85,000 (21%) compared to the same period a year ago. For the nine months ended December 31, 1999 net sales decreased $31,000 (3%), compared to the corresponding period last year. These reductions are due to sales to the City of New York and a commercial company for a local school system project during the 2nd and 3rd quarters of fiscal 1999 without corresponding revenues earned from these customers during the first nine months of the current fiscal year. Gross profit as a percentage of net sales for the three months ended December 31, 1999 was 39% compared to 35% during the same period a year ago. For the nine months ended December 31, 1999, the gross profit percentage was 42% compared to 38% during the same period a year ago. The increase in gross margin for the three and nine months ended December 31, 1999 is due primarily to the favorable effect of a high volume of Vikonics manufactured equipment and services sold versus the lower margin of resold purchased equipment and services sold during the previous fiscal 1999 nine month period. Engineering, research and development expenses for three months ended December 31,1999 were $ 58,000, an increase of 12% ($6,000) due to outside programming costs. Engineering, research and development expenses for the nine months ended December 31, 1999 were $ 175,000, a decrease of 2% ($3,000) due primarily to a net reduction in engineering consulting expenditures. Marketing and sales expenses for the three and six months ended December 31, 1999 were $ 33,000 and $105,000, respectively. These amounts are essentially the same as the expense levels of the same periods in the preceding year. General and administrative expenses for the three and nine months ended December 31, 1999 were $ 96,000 and $ 257,000, respectively, a decrease of 26% ($ 34,000) and 22% ($ 71,000) versus the expenses incurred during the same periods a year ago. The variation is due to reductions in insurance and administrative payroll costs and payroll tax penalty and interest charges. The net (loss) for the three months ended December 31, 1999 was ($76,000) compared to net (loss) of ($96,000) a year ago. The net (loss) for the nine months ended December 31, 1999 was ($60,000) compared to net (loss) of ($173,000) a year ago, due to the factors regarding revenue and expenses described above. The future viability of the Company will depend upon the Company's success in raising revenue levels, maintaining low cost levels and, if necessary, raising additional financing. In addition, the future viability of the Company depends on the outcome of the legal proceeding described under Liquidity and Capital Resources. Liquidity and Capital Resources The Company's continued existence is dependent upon its ability to obtain contract awards which, in the aggregate, will provide significant revenues in the immediate future. While there can be no assurance of favorable results, the Company remains optimistic about obtaining these potential contract awards. To date, there has been no adverse effect on the Company's ability to perform on any of its contracts due to its limited working capital. The Company has also been able to maintain a satisfactory relationship with the majority of its suppliers and has been able to substitute for dissatisfied vendors, when necessary. For any large contract that the Company might be awarded in the future where working capital might hamper its ability to perform, the 10 Company would attempt to negotiate adequate terms and delivery with the customer and/or, if necessary, obtain required financing. There can be no assurance, however, that the Company would be successful in these efforts. The working capital deficit on December 31, 1999 was ($2,062,000) compared to ($1,979,000) on March 31, 1999. The increase in the working capital deficit is primarily due to the loss incurred for the nine months ended December 31, 1999. At December 31, 1999 the Company had $43,000 in cash, compared to $30,000 in cash at March 31, 1999. Accounts receivable decreased by $37,000 during the nine months ended December 31, 1999 due the lower sales level. Notes and loans payable of $718,000 at December 31, 1999 consists of amounts due to private investors, former directors, and legal counsel. Pursuant to the agreement the due date for the investors and former directors loans and fees payable $(250,000) to legal counsel were extended until the first to occur of (i) June 30, 1996, (ii) a public financing by the Company, or (iii) a private financing of the Company of not less than $2,500,000. As June 30, 1996 date has been reached, such amounts are now due. While the Company does not have the ability to pay the amounts due to private investors, former directors and legal counsel, it has attempted to renegotiate the terms of payment of these obligations. On September 17, 1998 the private investors filed a lawsuit in the Superior Court of New Jersey for the total principal amount of $200,000 together with accrued interest of $103,000. On June 15, 1999 a Judgment by Default against the Company was entered in the Superior Court of New Jersey, Bergen County. The Company will seek a satisfactory resolution of this judgment. There can be no assurance, however, that the Company will be able to resolve the judgment. The failure to do so will cause the Company to cease as a going concern. Accounts payable of $234,000 at December 31, 1999 are $ 20,000 less than the balance of $254,000 at March 31, 1999 due simply to the timing of certain vendor payments. Accrued expenses and other current liabilities at December 31, 1999 of $1,363,000 are $34,000 greater than the $1,329,000 at March 31, 1999. The increase is primarily due to an increase in accrued payroll tax non- payment penalties and interest for the nine months ended December 31, 1999. In total, the net cash provided by operating activities was $ 36,000 for the nine months ended December 31, 1999, as compared to $32,000 for the nine months ended December 31, 1998. The Company purchased approximately $2,600 of engineering computer equipment and expended $20,000 during the 2nd fiscal 2000 quarter upgrading its operational computer system. No other significant capital expenditures are planned at this time. 11 Part II - Other Information Item 6 - Exhibits and Reports on Form 8-K None 12 Signatures In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned there unto duly authorized. Vikonics, Inc. -------------- (Registrant) April 24, 2000 /s/ John J. Strong -------------------------------- John J. Strong President (duly authorized officer and principal financial officer) 13