FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1995 Commission File Number 0-12283
ZONIC CORPORATION
(Exact name of Registrant as specified in its charter)
Ohio 31-0791199
(State of Incorporation) (I.R.S. Employer Identification Number)
50 West TechneCenter Drive, Milford, Ohio 45150
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (513) 248-1911
Not Applicable
(Former name, address or fiscal year if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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 ______
The total number of shares outstanding of the issuer's common shares, without
par value, as of the date of this report, follow:
3,094,136
<PAGE>
- 2 -
Part I - Financial Information
Item 1- Financial Statements
<TABLE>
<CAPTION>
Statement of Operations
(unaudited)
Three Months ending Six Months ending
9/30/95 9/30/94 9/30/95 9/30/94
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Product and service revenues $1,000,906 1,690,525 2,253,368 2,732,070
Cost of products and services
sold 501,536 827,673 1,173,714 1,295,512
Selling and administrative
expenses 431,859 621,669 867,733 1,188,649
Research and development
expenses and software
construction and product
enhancement amortization 163,435 192,625 394,213 417,469
--------- --------- --------- ---------
1,096,830 1,641,967 2,435,660 2,901,630
Operating profit (loss) (95,924) 48,558 (182,292) (169,560)
Interest expense, net (126,710) (200,077) (281,123) (362,945)
Foreign currency gain/loss 142,300 3,410 110,935 (21,730)
Gain on sale of asset - - 1,417,027 -
Income (loss) before taxes --------- --------- --------- ---------
and extraordinary item (80,334) (148,109) 1,064,547 (554,235)
Provision for income taxes - - - -
--------- --------- --------- ---------
Income (loss) before
extraordinary item (80,334) (148,109) 1,064,547 (554,235)
Extraordinary item-
gain from debt
restructuring, net of taxes - - 397,275 -
--------- --------- --------- ---------
Net profit (loss) $ (80,334) (148,109) 1,461,822 (554,235)
========= ========= ========= =========
Income (loss) before
extraordinary item (0.03) 0.05) (0.34) (0.18)
Extraordinary item-gain
from debt restructuring,
net of taxes - - 0.13 -
---------- --------- -------- --------
Income (loss) per share (0.03) (0.05) $ 0.47 $ (0.18)
========== ========= ======== ========
Weighted average shares
outstanding 3,094,136 3,094,136 3,094,136 3,094,136
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
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Item 1- Financial Statements
(continued)
<TABLE>
<CAPTION> Balance Sheets
As of September 30, 1995 and March 31, 1995
(unaudited)
Sept-30 March-31
ASSETS 1995 1995
-------- --------
<S> <C> <C>
Current Assets
Cash $169,481 $ 27,222
Receivables
Trade 301,235 494,229
Related parties 398,890 412,302
Unbilled contracts 122,802 73,881
-------- --------
Total receivables 822,927 980,412
Inventories
Finished products 279,285 359,844
Work in process 405,668 118,719
Raw material 234,555 316,894
--------- ---------
Total inventories 919,508 795,457
Prepaid expenses 23,093 4,004
--------- ---------
Total Current Assets 1,935,009 1,807,095
Property and Equipment-at Cost
Furniture and office equipment 484,053 484,053
Machinery and plant equipment 1,273,631 1,273,631
Software construction and product
enhancement 7,108,273 8,974,113
--------- ----------
8,865,957 10,731,797
Less accumulated accumulated depreciation
and amortization 7,203,412 8,151,171
--------- ---------
1,662,545 2,580,626
---------- ----------
$ 3,597,554 $ 4,387,721
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
- 4 -
Item 1- Financial Statements
(continued)
<CAPTION> Balance Sheets
As of September 30, 1995 and March 31, 1995
(unaudited)
Sept-30 March-31
LIABILITIES 1995 1995
--------- ---------
<S> <C> <C>
Current Liabilities
Short term notes payable and current $ 709,612 $ 622,874
maturities of long-term debt
Accounts payable - trade 847,722 778,994
Accounts payable - related parties 776,645 806,466
Deferred income 222,491 172,969
Accrued liabilities
Salaries and wages 148,725 158,853
Property and payroll taxes 85,585 100,900
Interest, commissions and other 317,309 623,044
--------- ---------
Total Accrued Liabilities 551,619 882,797
--------- ---------
Total Current Liabilities 3,018,089 3,264,100
Long-Term obligations, less current
maturities 3,953,675 6,018,761
Deferred Rent 323,248 354,140
SHAREHOLDERS' EQUITY (DEFICIT)
Common shares 62,674 62,674
Additional paid-in capital 5,726,881 5,726,881
--------- ---------
5,789,555 5,789,555
Accumulated deficit (9,577,013) (11,038,835)
----------- ------------
Total Shareholders' Deficit (3,787,458) (5,249,280)
----------- ------------
$ 3,597,554 $ 4,387,721
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
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Item 1- Financial Statements
(continued)
<TABLE>
<CAPTION>
Statement of Shareholders' Equity (Deficit)
For the six months ended September 30, 1995
(unaudited)
Additional
Common Contributed Accumulated
Shares Capital Deficit Total
-------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Balance,March 31, 1995 $ 62,674 $ 5,726,881 $ (11,038,835) $(5,249,280)
Net income for period 1,461,822 1,461,822
-------- ----------- ------------- ------------
Balance, Sept 30, 1995 $ 62,674 $ 5,726,881 $ (9,577,013) $(3,787,458)
======== =========== ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- 6 -
Item 1- Financial Statements
(continued)
<TABLE>
<CAPTION>
Statement of Cash Flows
For the six months ended June 30,
(unaudited)
1995 1994
------------ -----------
<S> <C> <C>
Cash provided by operations
Net profit (loss) for period $ 1,461,822 $ (554,235)
Adjustments to reconcile net income to cash from
operations:
Gain from sale of rights to software (1,417,027) -
Gain from debt restructuring (397,275) -
Depreciation and amortization 32,069 78,366
Amortization of software construction
and product enhancements 383,058 417,469
Amortization of stock options 31,572 31,572
Provision for bad debt - 6,000
Provision for obsolete inventory 18,000 30,000
Amortization of deferred income (128,645) (129,608)
Foreign currency (gain) loss and other (110,935) 21,732
Increase (decrease) in cash due to changes in:
Accounts receivable 158,187 (509,235)
Inventories (142,051) 404,843
Prepaid expenses (19,089) (28,264)
Accounts payable 149,842 (59,150)
Accrued liabilities 66,097 162,045
Accrued rent (30,892) (19,891)
Deferred income 178,167 243,037
-------- --------
Net cash provided by operations 232,900 94,681
Cash used in investment activities- Increase in
software construction and product enhancements (80,721) (62,480)
Cash used in financing activities- payments on
debt obligations (9,920) (39,911)
0
------- --------
Increase (decrease) in cash 142,259 (7,710)
Cash - beginning of period 27,222 22,686
------- ---------
Cash - end of period $ 169,481 $14,976
======= ========
Interest paid during period, net of capitalization $ 169,315 162,461
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
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Item 1- Financial Statements
(continued)
Notes to Financial Statements
1. Presentation of Information
In the opinion of management, the accompanying unaudited financial statements
reflect all adjustments necessary to present fairly Zonic's financial
position at September 30, 1995 and the results of operations and cash flows
for the three and six month periods ended September 30, 1995 and 1994. The
results of operations for the interim periods are not necessarily indicative
of results to be expected for a full year.
The financial statements are summarized and should be read in conjunction
with the annual report to shareholders and Form 10-K for the year ended March
31, 1995. Certain reclassifications have been made to amounts shown for the
prior year to conform to current year classifications.
2. Affiliated Company
The Company along with A&D Company Ltd. has formed Zonic A&D Company with
each owning 50% to market its products. Revenue from sales to Zonic A&D
Company by the Company for the three month periods ended September 30, 1995
and 1994 were $525,601 and $1,111,658 respectively. Similar sales for the six
month periods then ended were $1,056,392 and $1,893,786. Zonic A&D Company
realized a profit of $27,561 and $32,774 respectively for the three months
ended September 30, 1995 and 1994 and a profit of $36,694 and $67,829
respectively for the six month periods then ended.
The Company accounts for its portion of the earnings of Zonic A&D Company
using the equity method. The Company's recognition of its 50% interest in
the net profits and losses of this affiliate is limited to the investment in
the company, including the amounts the Company has committed to fund the
operations. The current and prior year period profits are not recorded as
these amounts offset unrecorded losses. Zonic A&D Company incurred
substantial losses prior to 1994 which were recorded in those years to the
extent the Company was at risk to fund these losses.
<PAGE>
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Item 2: Management's Discussion and Analysis
Results of Operations
Product and Services Revenue decreased by $689,619, or 41% for the three
months ended September 30, 1995 and $478,702, or 18% for the six months ended
September 30, 1995 when compared to the same periods of the prior year.
Decreases in sales of the Company's WS 7000, Excite, and Lazon products were
partially offset by an increase in sales of WCA products.
Order backlog amounted to $743,000 at September 30, 1995 compared with
$1,056,000 at September 30, 1994.
Costs of products and services sold were 50% and 52% respectively of products
and services revenues for the three and six months ended September 30, 1995,
versus 49% and 47% respectively for the prior year. This increase in costs
is the result of lower profit margins on two large WS 7000 sales this year
and unusually high profit margins on WCA sales during the second quarter of
last year. Profit margins on all other sales for the current three and six
month periods were consistent with those of the prior year.
Selling and administrative expenses decreased by 31% and 27% respectively for
the three and six month periods ended September 30, 1995 versus the same
periods in the prior year. Approximately $48,000 of this decrease was due to
the collection of an account written off in prior periods with the remainder
of the decrease due to lower operation costs of the new facilities and less
commissions to sales representatives. Despite these decreases, expenses were
43% of products and services revenues for the current three month period
versus 37% the prior year as the result of the decline in revenues during the
current three month period. For the six months ended September 30, 1995,
selling and administrative expenses were 39% of products and services revenues
compared with 44% in the prior year.
Research and development expenses and software construction amortization
decreased by 15% and 6% during the three and six months ended September 30,
1995 compared to the same periods of the prior year. These declines are due
to less amortization expense as a result of the sale of the Company's interest
in the WCA Product in June of this year. Current year product development
activity has remained at a level consistent with that of the prior year. See
"Gain on Sale of Asset" below and "Software Construction and Product
Development" under Liquidity and Capital Resources.
Interest expense for the three months ended September 30, 1995 decreased to
$126,710 versus $200,077 for the same period in the prior year due to reduced
borrowing levels as the result of Company's restructuring of its bank loans
during the fourth quarter of last year and the Company using proceeds from the
sale of its interest in the WCA Product to repay loans to A&D Company during
the current year. The effect of this decrease in borrowings was partially
offset by fees related to the sale of trade accounts receivable and higher
interest rates. (See Liquidity and Capital Resources). There was no
capitalized interest related to borrowings used to fund product development
expenditures during the current or prior year three month period.
For the six months ended September 30, 1995 and 1994, interest expense
amounted to $281,123 and $362,945 net of capitalized interest of $5,000 and
$8,000, respectively.
<PAGE>
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Foreign Currency gains were $142,300 and $110,935, respectively for the three
and six months ended September 30, 1995 compared to $3,410 and a loss of
$21,370, respectively for the same periods of the prior year. The current
year gains are due to the significant increase in value of the dollar against
the Japanese yen during the three month period ending September 30, 1995.
Gain on Sale of Asset- In June, 1995, the Company sold its 40% ownership
rights in the WCA Product to A&D Company Ltd. The gain on sale of this asset
is shown net of the unamortized portion of Capitalized Development for the WCA
product. The terms of the sales agreement included a purchase price of
$2,000,000, elimination of the Control Right in the Credit Agreement with A&D
Company, Ltd. dated December 7, 1992, exclusive marketing rights to the WCA
Product in the Western Hemisphere, and forgiveness of unpaid interest totaling
$397,275 on loans payable to A&D Company Ltd. (See Liquidity and Capital
Resources).
Income taxes - Income taxes of $497,019 for the six months ended September 30,
1995 have been offset by net operating loss carry forwards. At March 31,
1995, the Company has $5,970,000 in loss carry forwards which may be used to
offset future income taxes. Also, the Company had tax credits of $674,000 as
of March 31, 1995 which are currently available to offset future income
taxes. No benefit from the Company's deferred tax assets has been provided
since it is not likely that such assets would be realized at this time.
Extraordinary item- gain from debt restructuring, net of taxes consists of
accrued interest on loans to the Company made by A&D under the Credit
Agreement between the Company and A&D dated December 7, 1992. Forgiveness of
this interest, amounting to $397,275 at June 30, 1995, by A&D was a term
included in the Sale of the Company's 40% interest in its WCA Product to A&D.
Liquidity & Capital Resources
Software Construction and Product Development
The Company's total unamortized software construction and product enhancement
costs at September 30, 1995 and March 31, 1995 were $1,558,819 and $2,444,130,
respectively. This decrease included $582,973 related to the sale of the WCA
Product. Cash outlays for software construction and product enhancement
projects were $80,720 for the six months ended September 30, 1995 compared to
$62,480 for the prior year period. These costs will be amortized over the
estimated useful life of each product capitalized.
Working Capital and Cash Flow
The Company's working capital increased from a negative $1,457,005 at March
31, 1995 to a negative $1,173,080 at September 30, 1995 and its current ratio
increased from .55 to .62. This improvement was due to the forgiveness of
accrued interest totaling $397,275 associated with the sale of the WCA Product
during the period.
The Company's cash flows from operations amounted to $232,899 for the six
months ended September 30, 1995. Proceeds of $2,000,000 from the sale of the
WCA Product were used to retire long-term debt payable to A&D Company LTD.
<PAGE>
- 10 -
In conjuction with this payment, the remaining principal amount of loans
payable to A&D Company, Ltd. includes $480,000 which is due June 30, 1997 and
$90,000 which is due April 1, 1996.
Sale of Trade Accounts Receivable
The Company sells certain trade receivables and pays a fee based on the period
of time the account remains unpaid by the customer. The Company retains
substantially the same credit risk as if the receivables had not been sold.
Cash proceeds from the sale of trade receivables for the three and six month
periods ended September 30, 1995 were $74,703 and $437,941, respectively. At
September 30, 1995, the amount of receivables uncollected from customers which
reduced the amount of receivables carried on the balance sheet was $112,840
and such amount has reduced the amount of receivables reported on the balance
sheet.
General
The Company continues to experience serious cash flow problems and has been
unable to improve on the aging of its accounts payable and certain accrued
liabilities. The Company has no available sources for additional borrowings
at this time. The Company must raise and is actively seeking additional
working capital through additional debt or equity financing from public or
private sources to reduce the delinquency of its accounts payable and accrued
liabilities, make interest and principle payments on its debt obligations,
and to sustain its operations. There can be no assurance that the Company
will be able to obtain additional financing on favorable terms, if at all,
from any source.
Part II-Other Information
Item 6: Exhibits and Reports on Form 8-K
Exhibit 11- Computation of earnings per common share - see Statements of
Operations.
Exhibit 27 Financial Data Schedule
Reports on Form 8-K - None
<PAGE>
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
ZONIC CORPORATION
By: GERALD J. ZOBRIST
Gerald J. Zobrist
President and Chief Executive Officer
By: JAMES B. WEBB
James B. Webb
Senior Vice President and Treasurer
Dated: November 13, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<CASH> 169,481
<SECURITIES> 0
<RECEIVABLES> 886,945
<ALLOWANCES> 64,018
<INVENTORY> 919,508
<CURRENT-ASSETS> 1,935,009
<PP&E> 8,865,957
<DEPRECIATION> 7,203,412
<TOTAL-ASSETS> 3,597,554
<CURRENT-LIABILITIES> 3,108,089
<BONDS> 0
<COMMON> 62,674
0
0
<OTHER-SE> (3,850,132)
<TOTAL-LIABILITY-AND-EQUITY> 3,597,554
<SALES> 2,253,368
<TOTAL-REVENUES> 2,253,368
<CGS> 1,173,714
<TOTAL-COSTS> 1,261,946
<OTHER-EXPENSES> (1,527,962)<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 281,123
<INCOME-PRETAX> 1,064,547
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,064,567
<DISCONTINUED> 0
<EXTRAORDINARY> 397,275
<CHANGES> 0
<NET-INCOME> 1,461,822
<EPS-PRIMARY> .47
<EPS-DILUTED> .47
<FN>
<F1>INCLUDES GAIN FROM SALE OF ASSET OF $1,417,027 AND FOREIGN CURRENCY GAIN
OF $110,935.
</FN>
