FORM 10-Q/A
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 December 31, 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:
3,044,136
---------
<PAGE>
-2-
Part I: Financial Information
Item I: Financial Statements
ZONIC CORPORATION
STATEMENTS OF OPERATIONS
For the Three & Nine Month Periods Ended December 31
Three Months Ended Nine Months Ended
12/31/95 12/31/94 12/31/95 12/31/94
__________________ _________________
Products and
service revenues $ 421,623 $ 1,321,710 $ 2,674,991 $ 4,053,777
Cost of products and
services sold 204,456 623,286 1,378,169 1,918,798
Selling and administrative
expenses 381,942 568,182 1,249,677 1,756,826
Research and development
expenses and software
construction and product
enhancement amortization 155,470 208,734 549,682 626,203
Costs related to
management change and
product discontinuance 455,682 - 455,682 -
__________ _________ _________ __________
1,197,550 1,400,202 3,633,210 4,301,827
Operating loss (775,927) (78,492) (958,219) (248,050)
Interest expense, net (106,381) (197,465) (387,504) (560,411)
Foreign currency gain (loss) 23,692 12,856 134,627 (8,874)
Gain on sale of asset - - 1,417,027 -
__________ _________ _________ _________
Income (loss) before taxes
and extraordinary item (858,616) (263,101) 205,931 (817,335)
Provision for income taxes - - - -
__________ _________ _________ _________
Income (loss) before
extraordinary item (858,616) (263,101) 205,931 (817,335)
Extraordinary item-
gain from debt
restructuring, net
of taxes - - 397,275 -
__________ _________ _________ _________
Net profit (loss) $ (858,616) $ (263,101) $ 603,206 $ (817,335)
=========== ========= ========= ==========
Income (loss) before
extraordinary item $ (0.28) $ (0.09) $ 0.06 $ (0.26)
Extraordinary item
gain from debt
restructuring, net
of taxes - - 0.13 -
__________ _________ _________ _________
Income (loss) per share $ (0.28) $ (0.09) $ 0.19 $ (0.26)
Weighted average shares
outstanding 3,093,580 3,094,136 3,093,951 3,094,136
The accompanying notes are an integral part of these financial statements.
<PAGE>
-3-
Part I: Financial Information
Item I: Financial Statements (continued)
ZONIC CORPORATION
BALANCE SHEETS
As of December 31, 1995 & March 31, 1995
December-31 March-31
ASSETS 1995 1995
Current Assets
Cash $ 169,983 $ 27,222
Receivables
Trade 534,063 568,110
Related parties 401,748 412,302
--------- ---------
Total receivables 935,811 980,412
Inventories
Finished products 197,993 359,844
Work in process 324,289 118,719
Raw material 245,300 316,894
Total inventories 767,582 795,457
Prepaid expenses 27,134 4,004
Total Current Assets 1,900,510 1,807,095
=========== ==========
Property and Equipment-at Cost
Furniture and office equipment 480,707 484,053
Machinery and plant equipment 1,285,408 1,273,631
Software construction and
product enhancement 7,094,360 8,974,113
----------- ----------
8,860,475 10,731,797
Less accumulated depreciation
and amortization 7,367,306 8,151,171
----------- ----------
1,493,169 2,580,626
----------- ----------
Total Assets $ 3,393,679 $ 4,387,721
=========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
-4-
Part I: Financial Information
Item I: Financial Statements (Balance Sheets continued)
ZONIC CORPORATION
BALANCE SHEETS
As of December 31, 1995 & March 31, 1995
December-31 March-31
LIABILITIES 1995 1995
Current Liabilities
Short-term notes payable and current
maturities of long-term debt $ 1,004,524 $ 622,874
Accounts payable - trade 857,017 778,994
Accounts payable - related parties 702,872 806,466
Deferred income 471,232 172,969
Accrued liabilities
Salaries and wages 164,326 158,853
Property and payroll taxes 95,385 100,900
Interest, commissions and other 456,313 623,044
----------- ----------
Total Accrued Liabilities 716,024 882,797
----------- ----------
Total Current Liabilities 3,751,669 3,264,100
Long-Term Obligations,
Less Current Maturities 3,979,991 6,018,761
Deferred rent 308,093 354,140
SHAREHOLDERS' EQUITY (DEFICIT)
Common shares 61,674 62,674
Additional paid-in capital 5,727,881 5,726,881
----------- ----------
5,789,555 5,789,555
Accumulated deficit (10,435,629) (11,038,835)
----------- ------------
Total Shareholders' Deficit. (4,646,074) (5,249,280)
----------- ------------
Total Liabilites and
Shareholders' Equity (Deficit) $ 3,393,679 $ 4,387,721
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
-5-
Part I: Financial Information
Item I: Financial Statements (continued)
ZONIC CORPORATION
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
For the nine months ended December 31, 1995
Additional
Common Contributed Accumulated
Shares Capital Deficit Total
---------- ----------- ------------ --------
Balance, March 31, 1995 $ 62,674 $5,726,881 $(11,038,835) $(5,249,280)
Contributed common shares (1,000) 1,000 0
Net income for period 603,206 603,206
-------- ---------- ------------ -----------
Balance, December 31, 1995 $ 61,674 $5,727,881 $(10,435,629) $(4,646,074)
======= ========= ============ ============
The accompanying notes are an integral part of these financial statements.
<PAGE>
-6-
Part I: Financial Information
Item I: Financial Statements (continued)
ZONIC CORPORATION
STATEMENTS OF CASH FLOWS
For The Nine Month Periods Ended December 31,
1995 1994
------- ---------
Cash provided by operations
Net profit (loss) for period $ 603,206 $ (817,335)
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 44,066 93,715
Amortization of software construction
and product enhancements 537,951 626,203
Amortization of stock options 47,358 47,358
Costs related to management change and
product discontinuance 455,682 -
Provision for obsolete inventory 27,000 45,000
Amortization of deferred income (200,876) (216,748)
Foreign currency gain and other (134,627) (6,140)
Increase (decrease) in cash due
to changes in
Accounts receivable 45,654 (125,627)
Inventories (214,118) 442,381
Prepaid expenses (23,130) (13,447)
Accounts payable 109,057 (116,516)
Accrued liabilities 79,390 208,513
Accrued rent (46,047) (39,879)
Deferred income 499,139 272,908
---------- ----------
Net cash provided by operations 15,403 400,386
Cash provided by (used in)
investment activities
Purchase of equipment (11,777) (22,171)
Sale of fixed assets 0 36,169
Increase in software construction and
product enhancements (145,856) (72,874)
---------- ----------
Net cash used in investment activities (157,633) (58,876)
Cash provided by (used in)
financing activities
Additions to debt obligations 300,000 0
Payments on debt obligations (15,009) (62,321)
---------- ----------
Net cash provided by (used in)
financing activities 284,991 (62,321)
Increase in cash 142,761 279,189
Cash - beginning of period 27,222 22,686
---------- ----------
Cash - end of period $ 169,983 $ 301,875
=========== ==========
Interest paid during period,
net of capitalization $ 254,111 $ 286,706
=========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
-7-
Part I: Financial Information
Item I: Financial Statements (continued)
Notes to Financial Statements
1. Presentation of Information
In the opinion of management, the accompanying unaudited financial statements
reflect all adjustments (including all normal recurring adjustments)
necessary to present fairly Zonic's financial position at December 31, 1995
and the results of operations and cash flows for the three and nine months
ended December 31, 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 on 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 and A&D Company Ltd. have formed Zonic A&D Company to market its
products, with each owning 50%. Revenue to the Company from Zonic A&D
Company sales for the three months ended December 31, 1995 and 1994 was
$288,128 and $824,381, respectively. Revenue for the nine months then ended
was $1,344,520 and $2,718,166. Zonic A&D Company experienced a profit of
$186 and $52,534, respectively, for the three months ended December 31, 1995
and 1994 and a profit of $36,880 and $120,364, respectively, for the nine
months then ended.
The Company accounts for its portion of the earnings of this 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 this
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 from prior periods. Zonic A&D Company
incurred substantial losses prior to 1994; the Company's portion of these
losses were recorded in those years to the extent the Company was at risk to
fund these losses.
3. Resignation of President and Product Discontinuance
On December 27, 1995, the Board of Directors of the Company accepted the
resignation of Gerald J. Zobrist as President and Chief Executive Officer
effective December 31, 1995. At the same time, the Board of Directors
elected James B. Webb to succeed Mr. Zobrist as President and Chief Executive
Officer of the Company. Mr. Zobrist retains his ownership in the Company,
less 50,000 shares which he surrendered to the Company without compensation,
remains on the Company's Board of Directors, and no longer personally
guarantees any loans received under the Credit Agreement with A&D Company
Ltd. The Company has recorded $156,640 as costs related to his resignation.
Also, the Company recorded an expense of $299,042 for the write-off of a
development project that will not be completed.
4. Short-Term Notes Payable
In December, 1995, the Company borrowed $300,000 from A&D Company, Ltd.
(A&D). This amount is repayable on or before February 29, 1996. This
additional borrowing exceeds the borrowing limit under the Credit Agreement,
dated December 7, 1992, which was reduced from $6,000,000 to $4,000,000 under
the terms of Sale of the Company's ownership interest in the WCA Product to
A&D in June, 1995. A&D has waived this borrowing as a violation of the
Credit Agreement.
<PAGE>
-8-
Part I: Financial Information
Item 2: Management's Discussion and Analysis
Results of Operations
Product and Services Revenue decreased by $900,087, or 68%, for the three
months ended December 31, 1995, and $1,378,786, or 34%, for the nine months
ended December 31, 1995 when compared to the same periods of the prior year.
Sales decreased in all product lines as the Company experienced delays in
receiving orders, particularly from the international markets. The Company
received an order before the end of the current period for one of its
Machinery Monitoring Systems with a sales value of approximately $1,127,000.
No sales revenue associated with this order has been recorded. Revenue from
this order will be recorded on the percentage of completion method over a
period of approximately nine months in accordance with the Company's revenue
recognition policies.
Order backlog amounted to $1,678,000 at December 31, 1995 compared with
$1,039,000 at December 31, 1994.
Costs of products and services sold were 48% and 52%, respectively, of
products and services revenues for the three and nine months ended December
30, 1995 versus 47% for the same periods of the prior year. The increase in
year-to-date costs is due mainly to lower profit margins on two Workstation
7000 sales recorded earlier this fiscal year. Profit margins on all other
sales for the current three and nine month periods were consistent with those
of the prior year.
Selling and administrative expenses decreased by 33% and 29%, respectively,
for the three and nine months ended December 31, 1995 versus the same periods
for the prior year. The decline was due mainly to lower operating costs of
the new facilities and lower commissions to sales representatives, as a
result of lower sales. Despite these decreases, because of the significant
declines in revenues during the current three and nine month periods,
expenses were 91% and 47%, respectively, of products and service revenues for
the current three and nine months versus 43% for the same periods of the
prior year.
Research and development expenses and software construction amortization
decreased by 26% and 12% during the three and nine months ended December 31,
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 but has been partially
offset by an increase in product development activity this year over that of
the prior year. See Gain on Sale of Asset in this Section below and Software
Construction and Product Development under Liquidity and Capital Resources.
Costs related to management change and product discontinuance consist of
$156,640 related to the resignation of the President (See Resignation of
President under Notes to the Financial Statements), and a write-off of
$299,042 for a development project that will not be completed as the result
of the Company's decision to focus on other opportunities. $79,049 of this
write-off relates to capitalized software construction costs and $219,993 to
work-in-process inventory. See Working Capital and Cash Flow and Software
Construction and Product Development under Liquidity and Capital Resources.
<PAGE>
-9-
Part I: Financial Information
Item 2: Management's Discussion and Analysis (Continued)
Interest expense for the three months ended December 31, 1995 decreased to
$106,381 versus $197,465 for the same period of the prior year due to reduced
borrowing levels as the result of the Company restructuring its bank loans
during the fourth quarter of last year and the use of proceeds from the sale
of its interest in the WCA Product in June of this year. The effect of this
decrease in borrowings was partially offset by the sale of trade accounts
receivable and higher interest rates earlier this year. (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 nine months ended December 31, 1995 and
1994, interest expense amounted to $387,504 and $560,411 net of capitalized
interest of $5,000 and $12,000, respectively.
Foreign currency gains were $23,692 and $134,627, respectively, for the three
and nine months ended December 31 1995 compared to $12,856 and a loss of
$8,874, respectively, for the same periods of the prior year. The current
year gains are due to the continuing increase in value of the dollar against
the Japanese yen.
Gain on the sale of asset- In June, the Company sold its 40% ownership rights
in the WCA Product to A&D Company Ltd. The gain on the sale of this asset is
net of the unamortized portion of Capitalized Development for the WCA
product. The terms of the sales agreement include a purchase price of
$2,000,000, elimination of the Control Rights 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 $205,090 for the nine months ended December
31, 1995 have been offset by net operating loss carryforwards. At March 31,
1995, the Company had $5,970,000 in loss carryforwards 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
the forgiveness of accrued interest on loans to the Company made by A&D
Company Ltd. under the Credit Agreement between the Company and A&D Company
Ltd. dated December 7, 1992.
<PAGE>
-10-
Part I: Financial Information
Item 2: Management's Discussion and Analysis (Continued)
Liquidity & Capital Resources
Software Construction and Product Development
The Company's total unamortized software construction and product enhancement
costs at December 31, 1995 and March 31, 1995 were $1,390,013 and $2,444,130,
respectively. This decrease includes product discontinuance costs of $79,049
and $582,973 related to the sale of the WCA Product earlier this year. Cash
outlays for software construction and product enhancement projects were
$145,856 for the nine months ended December 31, 1995 compared to $72,874 for
the prior year period. These costs will be amortized over the estimated
useful life of each product capitalized.
Working Capital
The Company's working capital decreased from a negative $1,457,005 at March
31, 1995 to a negative $1,851,159 at December 31, 1995 and its current ratio
decreased from .55 to .51. The decline in working capital was attributed
primarily to an increase in short-term loans. An increase in other current
liabilities of approximately $151,000 relating to the President's resignation
was offset by the forgiveness of accrued interest totaling $397,275 included
in the sale of the WCA Product earlier this year. Despite the effect of the
product discontinuance costs mentioned earlier, work-in-process inventory
increased in anticipation of the orders received at the end of the current
period.
Cash Flow and Loans
The Company's cash flow from operations were $15,403 for the nine months
ended December 31, 1995. The Company received loans under its Credit
Agreement with A&D Company Ltd. totaling $300,000 during the current three
months. These amounts are repayable by February 29, 1996. Earlier this
year, the Company used proceeds of $2,000,000 from the sale of the WCA
Product to retire long-term debt payable to A&D Company Ltd. In conjunction
with this payment, the remaining principal amount of loans payable to A&D
Company Ltd., excluding the most recent borrowings of $300,000, includes
$480,000 which is due June 30, 1997 and $90,000 which is due April 1, 1996.
Also, the Company used net cash of $145,856 for software construction and
product enhancements during this period.
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 current nine
months were $482,984. All receivables sold were collected at December 31,
1995.
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 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 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.
On January 31, 1996, the Company repaid $100,000 of the loans from A&D
Company Ltd. which are repayable by February 29, 1996. The Company believes
that these remaining loans will be extended if not repaid by that date.
<PAGE>
-11-
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
Reports on Form 8-K: None
<PAGE>
-12-
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:________________________________________________
James B. Webb
President and Chief Executive Officer
By:________________________________________________
John H. Reifschneider
Controller
Dated: February 12, 1996
<PAGE>
-13-
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: / s / James B. Webb
James B. Webb
President and Chief Executive Officer
By: / s / John H. Reifschneider
John H. Reifschneider
Controller
Dated: February 12, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRITY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> DEC-31-1995
<CASH> 169,983
<SECURITIES> 0
<RECEIVABLES> 1,001,538
<ALLOWANCES> 65,727
<INVENTORY> 767,582
<CURRENT-ASSETS> 1,900,510
<PP&E> 8,860,475
<DEPRECIATION> 7,367,306
<TOTAL-ASSETS> 3,393,679
<CURRENT-LIABILITIES> 3,751,669
<BONDS> 0
0
0
<COMMON> 61,674
<OTHER-SE> (4,707,748)
<TOTAL-LIABILITY-AND-EQUITY> 3,393,679
<SALES> 2,674,991
<TOTAL-REVENUES> 2,674,991
<CGS> 1,378,169
<TOTAL-COSTS> 2,255,041
<OTHER-EXPENSES> (1,551,654)<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 387,504
<INCOME-PRETAX> 205,931
<INCOME-TAX> 0
<INCOME-CONTINUING> 205,931
<DISCONTINUED> 0
<EXTRAORDINARY> 397,275
<CHANGES> 0
<NET-INCOME> 603,206
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
<FN>
<F1>INCLUDES GAIN FROM SALE OF ASSET OF $1,417,027 AND FOREIGN CURRENCY GAIN
OF 134,627.
</FN>
</TABLE>
