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, 1996 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 1>
Part I - Financial Information
Item 1 - Financial Statements
Statement of Operations
(unaudited)
Three Months Ended Six Months Ended
9-30-96 9-30-95 9-30-96 9-30-95
__________ __________ __________ __________
Products and service revenues $1,445,262 $1,000,906 $2,190,274 $2,253,368
Cost of products and
services sold 591,964 501,536 938,692 1,173,714
Selling and administrative
expenses 416,697 431,859 725,267 867,733
Research and development
expenses and software
construction and product
enhancement amortization 205,647 163,435 402,291 394,213
_________ _________ _________ _________
$1,214,308 $1,096,830 $2,066,250 $2,435,660
Operating profits (loss) 230,954 (95,924) 124,024 (182,292)
Interest expense, net (129,188) (126,710) (230,933) (281,123)
Foreign currency gain 21,776 142,300 38,461 110,935
Gain on sale of asset - - - 1,417,027
_________ _________ _________ _________
Income (loss) before taxes
and extraordinary item 123,542 (80,334) (68,448) 1,064,547
Extraordinary item-
gain from debt restructuring,
net of taxes - - - 397,275
_________ _________ _________ _________
Net profit (loss) $123,542 $ (80,334) $ (68,448) $1,461,822
======== ========= ========= =========
Income (loss) before
extraordinary item $ 0.04 $ (0.03) $ (0.02) $ 0.34
Extraordinary item -
gain from debt restructuring,
net of taxes - - - 0.13
________ _________ __________ ________
Income (loss) per share $ 0.04 $ (0.03) $ (0.02) $ 0.47
======== ========= ========= =========
Weighted average
shares outstanding 3,044,136 3,094,136 3,044,136 3,094,136
The accompanying notes are an integral part of these financial statements.
<page 2>
Part I - Financial Information (continued)
Item 1 - Financial Statements (continued)
BALANCE SHEETS
As of September 30, 1996 & March 31, 1996
(unaudited)
Sept.-30 March-31
ASSETS 1996 1996
========= =========
Current Assets
Cash $87,453 $28,951
Receivables
Trade 106,322 642,311
Related parties 297,921 334,781
Unbilled contracts 280,178 56,788
_________ _________
Total receivables 684,421 1,033,880
Inventories
Finished products 237,975 296,762
Work in process 259,412 102,418
Raw material 349,531 309,737
_________ _________
Total inventories 846,918 708,917
Prepaid expenses 28,501 3,833
_________ _________
Total Current Assets 1,647,293 1,775,581
Property and Equipment-at Cost
Furniture and office equipment 465,421 465,421
Machinery and plant equipment 1,063,346 1,046,580
Leasehold improvements
Software construction and product enhancement 7,378,949 7,260,451
_________ _________
8,907,716 8,772,452
Less accumulated depreciation and amortization 7,699,598 7,305,267
_________ _________
1,208,118 1,467,185
Total Assets $2,855,411 $3,242,766
========== ==========
<page 3>
Part I - Financial Information (continued)
Item 1 - Financial Statements (continued)
BALANCE SHEETS (continued)
As of December 31, 1995 & March 31, 1995
September-30 March-31
LIABILITIES 1996 1996
============ ========
Current Liabilities
Short-term notes payable and current
maturities of long-term debt $5,220,000 $806,316
Accounts payable - trade 864,131 844,685
Accounts payable - related parties 512,093 611,823
Deferred income 190,200 792,977
Accrued liabilities
Salaries and wages 171,460 142,813
Property and payroll taxes 100,347 86,429
Interest, commissions and other 465,567 457,012
_________ _________
Total Accrued Liabilities 737,374 686,254
_________ _________
Total Current Liabilities 7,523,798 3,742,055
Long-Term Obligations, Less Current Maturities - 4,070,000
Deferred rent 262,035 292,685
SHAREHOLDERS' EQUITY (DEFICIT)
Common shares 61,674 61,674
Additional paid-in capital 5,727,881 5,727,881
__________ __________
5,789,555 5,789,555
Accumulated deficit (10,719,977) (10,651,529)
___________ ___________
Total Shareholders' Equity (4,930,422) (4,861,974)
__________ __________
Total Liabilities and Shareholders' Equity $2,855,411 $3,242,766
========== ==========
The accompanying notes are an integral part of these financial statements.
<page 4>
Part I - Financial Information (continued)
Item 1 - Financial Statements (continued)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
For the six months ended September 30, 1996
(unaudited)
Additional
Common Contributed Accumulated
Shares Capital Deficit Total
====== =========== ============= =====
Balance, March 31, 1996 $61,674 $5,757,881 $(10,651,529) $(4,861,974)
Net loss for period (68,448) (68,448)
_______ __________ ____________ ___________
Balance,
September 30, 1996 $61,674 $5,757,881 $(10,719,977) $(4,930,422)
======= ========== ============ ===========
The accompanying notes are an integral part of these financial statements.
<page 5>
Part 1 - Financial Information (continued)
Item 1 - Financial Statements (continued)
STATEMENTS OF CASH FLOWS
For The Six Months Ended September 30,
(unaudited)
1996 1995
======== =========
Cash provided by operations
Net profit (loss) for period $(68,448) $1,461,822
Adjustments to reconcile net profit (loss)
to cash from operations
Gain from sale of rights to software - (1,417,027)
Gain from debt restructuring - (397,275)
Depreciation and amortization 21,338 32,069
Amortization of software construction
and product enhancements 402,291 383,058
Amortization of stock options - 31,572
Provision for obsolete inventory 18,000 18,000
Amortization of deferred income (148,751) (128,645)
Foreign currency gain and other (38,490) (110,935)
Increase (decrease) in cash due to changes in
Accounts receivable 275,680 158,187
Inventories (156,001) (142,051)
Prepaid expenses (24,668) (19,089)
Accounts payable 32,687 149,842
Accrued liabilities 51,120 66,097
Accrued rent (30,650) (30,892)
Deferred income (454,026) 178,167
________ _______
Net cash provided (used) by operations (119,918) 232,900
Cash provided by (used in) investment activities
Purchase of equipment (16,766) -
Increase in software construction and
product enhancements (148,498) (80,721)
________ _______
Net cash provided by (used in)
investment activities (165,264) (80,721)
Cash provided by (used in) financing activities
Additions to debt obligations 350,000 -
Payments on debt obligations (6,316) (9,920)
_______ _______
Net cash provided by (used in)
financing activities 343,684 (9,920)
Increase in cash 58,502 142,259
Cash - beginning of period 28,951 27,222
_______ ________
Cash - end of period $87,453 $169,481
======= ========
Interest paid during period, net of capitalization $168,618 $169,315
======== ========
The accompanying notes are an integral part of these financial statements.
<page 6>
Part 1 - Financial Information (continued)
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 (consisting of only normal recurring adjustments)
necessary to present fairly Zonic Corporation's (the "Company") financial
position at September 30, 1996 and the results of operations for the three and
six month periods ended September 30, 1996 and 1995 and its cash flows for the
six-month periods ended September 30, 1996 and 1995. 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,
1996.
2. Affiliate 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, 1996 and 1995
were $770,501 and $521,601, respectively. Similar sales for the six month
periods then ended were $1,069,288 and $1,056,392. Zonic A&D Company
experienced a profit of $26,081 and $27,561, respectively, for the three
months ended September 30, 1996 and 1995 and a profit of $8,611 and $36,694,
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
affiliate, including the amount the Company has committed to fund the
operations. The Company's portion of current and prior period profits are not
recorded as these amounts offset previously unrecorded losses. Zonic A&D
Company incurred substantial losses prior to 1994 and were recorded in those
years to the extent the Company was at risk to fund these losses.
Item 2 - Management's Discussion and Analysis
Results of Operations
Product and Services Revenue increased by $444,356 or 44% for the three months
ended September 30, 1996, when compared to the same period of the prior year.
Sales increased in the Company's 7000 and Machinery Monitoring products, while
revenues declined in the WCA and XCITE products. Machinery Monitoring revenue
was primarily from work completed on a large order received last year.
Revenue from this order is recorded on the percentage of completion method in
accordance with the Company's revenue recognition policies and is expected to
be complete in November, 1996. For the six months ended September 30, 1996,
revenue decreased by $63,094 or 3%. Significant decreases in sales occurred
in WCA and Excite products but were substantially offset by the increase in
Machinery Monitoring revenue.
Order backlog amounted to $711,000 at September 30, 1996 compared with
$743,000 at September 30, 1995.
<page 7>
Part 1 - Financial Information (continued)
Item 2 - Management's Discussion and Analysis (continued)
Results of Operations (continued)
Costs of products and services sold were 41% and 43% respectively of products
and services revenues for the three and six months ended September 30, 1996
versus 50% and 52% respectively for the prior year. The decrease in costs is
the result of higher profit margins on 7000 sales this year and low profit
margins on two large 7000 sales during the first quarter of last year. Profit
margins on extended warranty and customer service revenues improved for the
current three and six month periods over those of the prior year. In
addition, the gross margin on current year Machinery Monitoring revenues
improved the current year profit margins.
Selling and administrative expenses decreased by 4% and 16% respectively for
the three and six month periods ended September 30, 1996 versus the same
periods for the prior year. The decline was due mainly to lower
administrative salaries and the continuing reduction of facilities costs.
Expenses were 29% of products and services revenues for the current three
month period versus 43% in the prior year. This decline was due mainly to
higher revenues during the current three month period. For the six months
ended September 30, 1996, selling and administrative expenses were 33% of
products and services revenues versus 39% in the prior year.
Research and development expenses and software construction amortization
increased by $42,212 or 26% for the three months ended September 30, 1996
compared to the same period of the prior year. This increase was due to
higher product development costs during the current year with shorter
estimated useful lives of these new products when compared to products
previously developed. For the six months ended September 30, 1996, expenses
increased by 2% as the prior year included amortization expenses related to
the WCA Product in which the Company sold its interest in June, 1995. See
Software Construction and Product Development under Liquidity and Capital
Resources.
Interest expense for the three months ended September 30, 1996 increased to
$129,188 versus $126,710 for the same period of the prior year due to an
increase in borrowings during the current year. For the six months ended
September 30, 1996, interest expensed decreased to $230,933 from $281,123 for
the same period of the prior year. This decrease was due to the repayment of
loans in June, 1995 with proceeds from the sale of the Company's interest in
the WCA Product to A & D Company Ltd. (See Liquidity and Capital Resources).
There was no capitalized interest related to borrowings used to fund product
development expenditures during the current year or prior year three month
period. Capitalized interest for the six months ended September 30,1995
amounted to $5,000.
Foreign currency gains were $21,776 and $38,461, respectively, for the three
and six months ended September 30, 1996 compared to $142,300 and $110,935,
respectively, for the same periods of the prior year. These gains are due to
the increase in value of the dollar against the Japanese yen during the
current year.
Income taxes - Income taxes of $42,004 for the three months ended September
30, 1996 and $497,019 for the six months ended September 30, 1995 have been
offset by net operating loss carryforwards. At March 31, 1996 and 1995, loss
<page 8>
Part 1 - Financial Information (continued)
Item 2 - Management's Discussion and Analysis (continued)
Results of Operations (continued)
carryforwards totaling $6,500,000 and $5,970,000, respectively, were available
to offset future income taxes. Also, the Company had tax credits of $667,000
and $674,000, respectively, as of March 31, 1996 and 1995 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.
Liquidity & Capital Resources
Software Construction and Product Development
The Company's total unamortized software construction and product enhancement
costs at September 30, 1996 and March 31, 1996 were $1,118,223 and $1,372,016
respectively. Cash outlays for software construction and product enhancement
projects were $148,498 for the six months ended September 30, 1996 compared to
$80,721 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 decreased from a negative $1,966,474 at March
31, 1996 to a negative $5,876,505 at September 30, 1996. The decline in
working capital was due to the maturing of all previous bank and long-term
obligations within the next seven months. Excluding the maturing of this
debt, working capital would have been a negative $1,806,505 at September 30,
1996.
The Company's cash flows from operations amounted to a negative $119,918 for
the six months ended September 30, 1996. Short-term borrowings from A&D
Company Ltd. less repayment of debt obligations provided $343,684 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 six month
period were $794,378 and for the period June 30, 1995 (inception date for the
sale of receivables) through September 30, 1995 were $437,941. At September
30, 1996, the amount of receivables sold which remain uncollected from
customers was $424,459. The Company has received $360,790 from the sale of
these receivables and such amount has reduced the amount of receivables
reported on the balance sheet.
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. During
the current six month period, A&D Company Ltd. made additional loans to the
Company totaling $350,000. The repayment of these loans is past due and no
repayment date has been set at this time.
<page 9>
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 10>
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: November 4, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRITY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-1-1996
<PERIOD-END> SEPT-30-1996
<CASH> 87,453
<SECURITIES> 0
<RECEIVABLES> 749,031
<ALLOWANCES> 64,610
<INVENTORY> 846,918
<CURRENT-ASSETS> 1,647,293
<PP&E> 8,907,716
<DEPRECIATION> 7,699,598
<TOTAL-ASSETS> 2,855,411
<CURRENT-LIABILITIES> 7,523,798
<BONDS> 0
0
0
<COMMON> 61,674
<OTHER-SE> (4,992,096)
<TOTAL-LIABILITY-AND-EQUITY> 2,855,411
<SALES> 2,190,274
<TOTAL-REVENUES> 2,190,274
<CGS> 938,692
<TOTAL-COSTS> 2,066,250
<OTHER-EXPENSES> (38,461)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 230,933
<INCOME-PRETAX> (68,448)
<INCOME-TAX> 0
<INCOME-CONTINUING> (68,448)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (68,448)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
