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, 2000
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/ / TRANSITION REPORT UNDER SECTION TO 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________ to _________
Commission File Number O-16034
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VIKONICS, INC.
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(Exact name of small business issuer as specified in its charter)
New York 13-2759466
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(State or other jurisdiction
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
--- ---
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 March
13, 2001: 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:
December 31 and March 31, 2000 3-4
Statements of Operations
For Three Months Ended December 31, 2000 and 1999 5
For Nine Months Ended December 31, 2000 and 1999 6
Statements of Cash Flows
For Nine Months Ended December 31, 2000 and 1999 7
Notes to Financial Statements 8-9
Item 2 - Management's Discussion and Analysis or Plan of
Operation 10-11
PART II: Other Information 12
Signatures 13
2
VIKONICS, INC.
BALANCE SHEETS
ASSETS
(UNAUDITED)
December 31, 2000 March 31, 2000
----------------- --------------
CURRENT ASSETS:
Cash $ 3,092 $ 20,680
Accounts receivable (less allowance for doubtful
accounts of $10,000) 183,138 170,498
Inventories (Note 2) 71,060 87,657
Prepaid expenses and other current assets 5,643 18,497
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TOTAL CURRENT ASSETS 262,933 297,332
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EQUIPMENT AND FIXTURES - AT COST:
Machinery and equipment 402,735 402,735
Furniture and fixtures 67,437 67,437
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470,172 470,172
Less, accumulated depreciation and amortization (452,706) (448,116)
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EQUIPMENT AND FIXTURES - NET
17,466 22,056
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OTHER ASSETS
1,200 1,200
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$ 281,599 $ 320,588
========== ==========
See notes to financial statements.
3
VIKONICS, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
(UNAUDITED)
December 31, 2000 March 31, 2000
----------------- --------------
CURRENT LIABILITIES:
Notes and loans payable (Note 3) $ 717,728 $ 717,728
Accounts payable 294,311 253,869
Accrued expenses and other current liabilities (Note 4) 1,536,055 1,359,203
Deferred service income 78,625 46,423
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TOTAL CURRENT LIABILITIES 2,626,719 2,377,223
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SHAREHOLDERS' (DEFICIT):
Preferred stock - $1 par value:
Authorized - 2,000,000 shares
Issued and outstanding - none
Common stock - $.02 par value:
Authorized - 10,000,000 shares
Issued and outstanding - 2,933,431 58,669 58,669
Paid-in capital 5,641,094 5,641,094
Accumulated (deficit) (8,044,883) (7,756,398)
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TOTAL SHAREHOLDERS' (DEFICIT) (2,345,120) (2,056,635)
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$ 281,599 $ 320,588
========== ==========
See notes to financial statements.
4
VIKONICS, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999
(UNAUDITED)
2000 1999
---- ----
SALES - NET $ 214,431 $ 310,943
COST OF GOODS SOLD 136,584 188,718
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GROSS PROFIT 77,847 122,225
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COSTS AND EXPENSES:
Engineering, research and development 50,001 58,334
Marketing and sales 32,814 33,299
General and administrative 65,301 95,628
Depreciation and amortization 1,530 153
Interest expense 10,524 10,524
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TOTAL COSTS AND EXPENSES 160,170 197,938
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NET (LOSS) $ (82,323) $ (75,713)
============ ============
(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, 2000 AND 1999
(UNAUDITED)
2000 1999
---- ----
SALES - NET $ 678,383 $1,227,640
COST OF GOODS SOLD 437,773 715,711
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GROSS PROFIT 240,610 511,929
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COSTS AND EXPENSES:
Engineering, research and development 157,771 174,681
Marketing and sales 107,031 105,201
General and administrative 228,131 257,106
Depreciation and amortization 4,590 459
Interest expense 31,572 34,870
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TOTAL COSTS AND EXPENSES 529,095 572,317
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NET (LOSS) $ (288,485) $ (60,388)
=========== ==========
(LOSS) PER SHARE (Note 6) -
Basic and Diluted $ (.10) $ (.02)
=========== ==========
See notes to financial statements.
6
VIKONICS, INC.
STATEMENTS OF CASH FLOWS
FOR NINE MONTHS ENDED DECEMBER 31, 2000 AND 1999
(UNAUDITED)
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (288,485) $ (60,388)
Adjustments to reconcile net (loss) to net
cash (used for) provided by operating activities:
Depreciation and amortization
4,590 459
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable (12,640) 37,235
Inventories 16,597 29,723
Prepaid expenses and other current assets 12,854 2,244
Increase (decrease) in:
Accounts payable 40,442 (20,354)
Accrued expenses and other liabilities 176,852 34,271
Deferred service income 32,202 13,127
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Net cash (used for) provided by operating activities (17,588) 36,317
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and fixtures - net --- (23,089)
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(DECREASE) INCREASE IN CASH (17,588) 13,228
CASH - MARCH 31 20,680 30,219
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CASH - DECEMBER 31 $ 3,092 $ 43,447
============ ============
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, 2000, the
results of operations for the three and nine months ended December 31, 2000 and
1999, and changes of cash flows for the nine months ended December 31, 2000 and
1999.
The results of operations for the three and nine months ended December 31, 2000
are not necessarily indicative of the results to be expected for the full year.
Note 2. - Inventories
Inventories consisted of the following:
December 31, 2000 March 31, 2000
----------------- --------------
Raw materials $ 33,190 $ 44,962
Work-in-process 8,726 12,275
Finished goods 29,144 30,420
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TOTAL $ 71,060 $ 87,657
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Note 3. - Notes and Loans Payable; Legal Proceeding
Notes and loans payable consists of:
December 31, 2000 March 31, 2000
----------------- --------------
Amounts due to private investors, directors,
and legal counsel. $ 717,728 $ 717,728
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On June 30, 1993, the Company entered into an amended agreement with private
investors that provided the Company with a loan in the amount of $200,000
repayable in one year together with an interest rate of 9% 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, who has since resigned from the board.
Additionally, two of the former directors provided the Company with loans
aggregating $120,000 during the months of August and September 1993 payable on
demand with an interest rate of 9% per annum.
8
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, 2000, the Company had a remaining balance of
$147,728 that was lent to the Company by two then directors during the Company's
second fiscal quarter of 1995. Both loans are payable on demand with interest at
9% per annum.
Note 4. - Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
December 31, 2000 March 31, 2000
----------------- --------------
Accrued warranty expense $ 38,000 $ 38,000
Accrued salaries, wages, and taxes 562,380 457,328
Accrued professional fees 32,500 40,000
Accrued officers' salaries 171,228 171,228
Accrued interest 652,450 593,878
Other 79,497 58,769
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$ 1,536,055 $ 1,359,203
============ ============
Note 5. - Income Taxes
At December 31, 2000 the Company had net operating loss carryforwards available
amounting to approximately $7.5 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.
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, 2000 decreased $
97,000 (31%) compared to the same period a year ago. For the nine months ended
December 31, 2000 net sales decreased $549,000 (45%), compared to the
corresponding period last year. The decrease is primarily due to sales of
approximately $335,000 for a security system upgrade at a domestic United States
Air Force Base and $144,000 for security hardware purchased by the Architect of
the Capitol 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, 2000 was 36% compared to 39% during the same period a year ago. For the nine
months ended December 31, 2000, the gross profit percentage was 35% compared to
42% during the same period a year ago. The decrease in gross margin for the
three and nine months ended December 31, 2000 is due to the underabsorption of
manufacturing overhead costs caused by the lower sales volume.
Engineering, research and development expenses for three months ended December
31, 2000 were $ 50,000, a decrease of 14% ($8,000). Engineering, research and
development expenses for the nine months ended December 31, 2000 were $ 158,000,
a decrease of 10% ($17,000). These reductions were due to outside programming
costs incurred in the prior year periods with no corresponding costs incurred
during the current year.
Marketing and sales expenses for the three and nine months ended December 31,
2000 were $ 33,000 and $107,000, 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, 2000 were $ 65,000 and $ 228,000, respectively, a decrease of 32% ($ 30,000)
and 11% ($ 29,000) versus the expenses incurred during the same periods a year
ago. The variation is due to reductions in insurance, administrative payroll
costs and travel costs.
The net (loss) for the three months ended December 31, 2000 was ($82,000)
compared to net (loss) of ($76,000) a year ago. The net (loss) for the nine
months ended December 31, 2000 was ($288,000) compared to net (loss) of
($60,000) a year ago, due to the factors regarding revenue and expenses
described above.
The future viability of the Company will depend upon the Company's success in
raising revenue levels, maintaining low cost levels and, if necessary, raising
additional financing. In addition, the future viability of the Company depends
on the outcome of the legal proceeding described under Liquidity and Capital
Resources.
Liquidity and Capital Resources
- -------------------------------
The Company's continued existence is dependent upon its ability to obtain
contract awards which, in the aggregate, will provide significant revenues in
the immediate future. While there can be no assurance of favorable results, the
Company remains optimistic about obtaining these potential contract awards.
To date, there has been no adverse effect on the Company's ability to perform on
any of its contracts due to its limited working capital. The Company has also
been able to maintain a satisfactory relationship with the majority of its
suppliers and has been able to substitute for dissatisfied vendors, when
necessary. For any large contract that the Company might be awarded in the
future where working capital might hamper its ability to perform, the Company
would attempt to negotiate adequate terms and delivery with the customer and/or,
if necessary, obtain required financing. There can be no assurance, however,
that the Company would be successful in these efforts.
10
The working capital deficit on December 31, 2000 was ($2,364,000) compared to
($2,080,000) on March 31, 2000. The increase in the working capital deficit is
primarily due to the loss incurred for the nine months ended December 31, 2000.
At December 31, 2000 the Company had $3,000 in cash, compared to $21,000 in cash
at March 31, 2000.
Accounts receivable increased by $13,000 during the nine months ended December
31, 2000 from the March 31, 2000 level due to a large majority of the fiscal
2001 third quarter shipments occurring during the month of December, 2000.
Notes and loans payable of $718,000 at December 31, 2000 consists of amounts due
to private investors, former directors, and legal counsel.
Pursuant to the agreement the due date for the investors and former directors
loans and fees payable $(250,000) to legal counsel were extended until the first
to occur of (i) June 30, 1996, (ii) a public financing by the Company, or (iii)
a private financing of the Company of not less than $2,500,000. As June 30, 1996
date has been reached, such amounts are now due. While the Company does not have
the ability to pay the amounts due to private investors, former directors and
legal counsel, it has attempted to renegotiate the terms of payment of these
obligations.
On September 17, 1998 the private investors filed a lawsuit in the Superior
Court of New Jersey for the total principal amount of $200,000 together with
accrued interest of $103,000. On June 15, 1999 a Judgment by Default against the
Company was entered in the Superior Court of New Jersey, Bergen County.
The Company will seek a satisfactory resolution of this judgment. There can be
no assurance, however, that the Company will be able to resolve the judgment.
The failure to do so will cause the Company to cease as a going concern.
Accounts payable of $294,000 at December 31, 2000 are $40,000 greater than the
balance of $254,000 at March 31, 2000 due simply to the timing of certain vendor
payments. Accrued expenses and other current liabilities at December 31, 2000 of
$1,536,000 are $177,000 higher than the $1,359,000 at March 31, 2000. The
variance is primarily due to an increase in accrued payroll tax non- payment
penalties and interest for the nine months ended December 31, 2000.
In total, the net cash (used for) operating activities was $ (18,000) for the
nine months ended December 31, 2000, as compared to $36,000 provided by
operating activities for the nine months ended December 31, 1999.
The Company has no significant capital expenditures plans at this time.
11
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
None
12
Signatures
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In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned there unto duly
authorized.
Vikonics, Inc.
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(Registrant)
March 13, 2001 /s/ John J. Strong
--------------------------------
John J. Strong
President
(duly authorized officer
and principal financial officer)
13