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 June 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
<PAGE>
Part I - Financial Information
Item 1 - Financial Statements
Statement of Operations
For The Three Month Period Ended June 30,
(unaudited)
1996 1995
==== ====
Product and service revenues $ 745,012 $1,252,462
Cost of products and services sold 346,728 672,178
Selling and administrative expenses 308,804 438,593
Research and development expenses and software
construction and product enhancement amortization 196,644 228,059
__________ __________
852,176 1,338,830
Operating loss (107,164) (86,368)
Interest expense (101,745) (154,413)
Foreign currency gains (losses) 16,685 (31,365)
Gain on sale of asset 1,417,027
__________ __________
Income (loss) before taxes and extraordinary item (192,224) 1,144,881
Provision for income taxes - -
__________ __________
Income (loss) before extraordinary item $(192,224) $1,144,881
Extraordinary item:
Gain from debt restructuring, net of taxes - 397,275
__________ __________
Net income (loss) $ (192,224) $1,542,156
========== ==========
Income (loss) before extraordinary item $ (0.06) $ 0.37
Extraordinary item - gain from debt restructuring,
net of taxes - 0.13
__________ __________
Income (loss) per share $ (0.06) $ 0.50
========== ==========
Weighted average shares outstanding 3,044,136 3,094,136
The accompanying notes are an integral part of these financial statements.
Page 2
<PAGE>
Item 1 - Financial Statements
(continued)
Balance Sheets
As of June 30, 1996 and March 31, 1996
(unaudited)
June-30 March-31
ASSETS 1996 1996
========= =========
Current Assets
Cash $ 12,892 $ 28,951
Receivables
Trade 78,818 642,311
Related parties 368,865 334,781
Unbilled contracts 63,796 56,788
__________ __________
Total receivables 511,479 1,033,880
Inventories
Finished products 124,135 296,762
Work in process 377,851 102,418
Raw material 384,648 309,737
__________ __________
Total inventories 886,634 708,917
Prepaid expenses 44,890 3,833
__________ __________
Total Current Assets 1,455,895 1,775,581
Property and Equipment-at Cost
Furniture and office equipment 465,421 465,421
Machinery and plant equipment 1,046,580 1,046,580
Software construction and product enhancement 7,347,872 7,260,451
__________ __________
8,859,873 8,772,452
Less accumulated depreciation and amortization 7,497,786 7,305,267
__________ __________
1,362,087 1,467,185
__________ __________
Total Assets $ 2,817,982 $ 3,242,766
========== ==========
The accompanying notes are an integral part of these financial statements.
Page 3
<PAGE>
Item 1 - Financial Statements
(continued)
Balance Sheets
As of June 30, 1996 and March 31, 1996
(unaudited)
June-30 March-31
LIABILITIES 1996 1996
__________ __________
Current Liabilities
Short term notes payable and current maturities
of long-term debt $ 5,072,581 $ 806,316
Accounts payable - trade 848,030 844,685
Accounts payable - related parties 584,515 611,823
Deferred Income 413,505 792,977
Accrued liabilities
Salaries and wages 128,596 142,813
Property and payroll taxes 97,549 86,429
Interest, commissions and other 450,127 457,012
__________ __________
Total Accrued Liabilities 676,272 686,254
__________ __________
Total Current Liabilities 7,594,903 3,742,055
Long-Term Obligations, Less Current Maturities - 4,070,000
__________ __________
Deferred Rent 277,277 292,685
SHAREHOLDERS' EQUITY
Common shares 61,674 61,674
Additional paid-in capital 5,727,881 5,727,881
__________ __________
5,789,555 5,789,555
Accumulated deficit (10,843,753) (10,651,529)
__________ __________
Total Shareholders' Deficit (5,054,198) (4,861,974)
Total Liabilities & Shareholders' Equity $ 2,817,982 $ 3,242,766
========== ===========
The accompanying notes are an integral part of these financial statements.
Page 4
<PAGE>
Item 1 - Financial Statements
(continued)
Statement of Shareholders' Equity (Deficit)
For The Three Months Ended June 30, 1996
(unaudited)
Additional Cumulative
Common Contributed Translation Accumulated
Shares Capital Adjustments Deficit Total
Balance,
March 31, 1996 $61,674 $5,727,881 $ 0 $(10,651,529) $(4,861,974)
Net loss
for period (192,224) (192,224)
_______ __________ __________ ____________ ____________
Balance,
June 30, 1996 $61,674 $5,727,881 $ 0 $(10,843,753) $(5,054,198)
======= ========== =========== ============= ============
The accompanying notes are an integral part of these financial statements.
Page 5
<PAGE>
Item 1 - Financial Statements
(continued)
Statement of Cash Flow
For The Three Month Periods Ended June 30,
(unaudited)
1996 1995
____ ____
Cash provided by operations
Net income (loss) for period $ (192,224) $1,542,156
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 10,525 16,216
Amortization of software construction
and product enhancements 196,643 228,059
Amortization of stock options - 15,785
Provision for bad debt - -
Provision for obsolete inventory 9,000 9,000
Amortization of deferred income (74,909) (83,914)
Foreign currency loss and other (16,685) 31,350
Increase (decrease) in cash due to changes in:
Accounts receivable 522,752 (141,996)
Inventories (186,717) (51,478)
Prepaid expenses (41,057) (25,955)
Accounts payable (7,278) 210,508
Accrued liabilities (9,982) 74,043
Accrued rent (15,408) (15,238)
Deferred income (304,563) 97,769
__________ __________
Net cash provided by (used in) operations (109,903) 92,003
Cash used in investment activities - Increase in
software construction and product enhancements (102,421) (68,626)
Cash provided by (used in) financing activities
Additions to long-term obligations 200,000 -
Payments on long-term obligations (3,735) (4,317)
__________ __________
Net cash provided by (used in)
financing activities 196,265 (4,317)
Increase (decrease) in cash (16,059) 19,060
Cash - beginning of period 28,951 27,222
__________ __________
Cash - end of period $ 12,892 $ 46,282
========== ==========
Interest paid during period, net of capitalization $ 78,171 $ 75,242
========== ==========
The accompanying notes are an integral part of these financial statements.
Page 6
<PAGE>
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 June 30, 1996 and the results of operations and cash
flow for the three months ended June 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 months ended June 30, 1996 and 1995
were $298,787 and $530,791 respectively. Zonic A&D Company experienced a
loss of $17,000 for the three months ended June 30, 1996 versus a profit of
$9,000 for the same period of the prior year.
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
this company, including the amounts the Company has committed to fund the
operations. The current period loss and prior year profit are not recorded
as these amounts offset unrecorded profits and losses incurred in prior
periods. 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 7
<PAGE>
Item 2 - Management's Discussion and Analysis
Results of Operations
Product and Services Revenue decreased by $507,450, or 41% for the three
months ended June 30, 1996, when compared to the same period of the prior
year. Sales decreased across all product lines except for Machinery
Monitoring Systems which accounted for 52% of the total current period
revenues. Machinery Monitoring System 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
September, 1996.
Order backlog amounted to $1,315,000 at June 30, 1996 compared with
$1,168,000 at June 30, 1995.
Costs of products and services sold were 47% of products and services
revenues for the three months ended June 30, 1996 versus 54% for the same
prior year period. The decrease in costs was due mainly to improved profit
margins for most products, particularly System 7000 sales, and lower warranty
and repair costs. Also, the prior year included a large sale with a lower
than normal profit margin.
Selling and administrative expenses decreased $129,789 during the current
period versus the same period of the prior year. This decrease is mainly
attributable to decreased salary and wage expense due to fewer employees in
the current period and, to a lesser extent, lower commission expense as a
result of lower sales. As a percentage of total revenue, selling and
administrative expenses were 41% and 35% for the periods ending June 30, 1996
and 1995, respectively.
Research and development expenses and software construction amortization was
$196,644 for the current year versus $228,059 for the prior year. This
decrease was due to less amortization expense this year as a result of the
sale of the Company's interest in the WCA Product in June of last year.
However, this decrease has been partially offset by amortization expense
related to the Medallion Product during the current year. See Software
Construction and Product Development under Liquidity and Capital Resources.
Interest expense for the three months ended June 30, 1996 was $101,475 versus
$154,413 for the same period ended June 30, 1995. This decrease is due to
reduced borrowing levels during the current year, versus the levels of
borrowing during the same period of the prior year. There was no capitalized
interest related to borrowings used to fund product development during the
current year. There was $5,000 of capitalized interest in the prior year.
Foreign currency gains and losses were $16,685 for the three months ended
June 30, 1996 compared to losses of $31,365 for the same period of the prior
year. The current year gains are due to the increase in value of the U. S.
dollar against the Japanese yen.
Page 8
<PAGE>
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 June 30, 1996 and March 31, 1996 were $1,277,793 and
$1,372,016, respectively. Cash outlays for software construction and
product enhancement projects were $102,421 for the three months ended June
30, 1996 compared to $68,626 for the same period of the prior year. 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 $6,139,008 at June 30, 1996. The decline in working
capital was due to the maturing of all previous bank and other long-term
obligations within the next twelve months.
The Company's cash flow from operations amounted to a negative $109,903 for
the three months ended June 30, 1996, while short-term borrowings from A&D
Company Ltd. less repayment of debt obligations provided $196,265 during
this same period. Investments in software construction and product
enhancement activities used cash of $102,421.
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 sale of trade receivables for the current
and prior year periods were $219,000 and $74,000, respectively. At June
30, 1996, the amount of receivables sold which remain uncollected from
customers was $193,303. The Company has received $164,307 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 during the current period. 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 current
delinquency of its accounts payable and accrued liabilities, make payments
on its current 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 year period, A&D Company Ltd. made additional loans to the Company
totaling $200,000 which are repayable in August, 1996. The Company
believes that the due dates of these loans will be extended if not repaid
by the due date.
Page 9
<PAGE>
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
<PAGE>
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: August 14, 1996
Page 11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-QFOR THE QUARTER ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRITY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-1-1996
<PERIOD-END> JUN-30-1996
<CASH> 12,892
<SECURITIES> 0
<RECEIVABLES> 582,380
<ALLOWANCES> 70,901
<INVENTORY> 886,634
<CURRENT-ASSETS> 1,455,895
<PP&E> 8,859,873
<DEPRECIATION> 7,497,786
<TOTAL-ASSETS> 2,817,982
<CURRENT-LIABILITIES> 7,594,903
<BONDS> 0
0
0
<COMMON> 61,674
<OTHER-SE> (5,115,872)
<TOTAL-LIABILITY-AND-EQUITY> 2,817,982
<SALES> 745,012
<TOTAL-REVENUES> 745,012
<CGS> 346,728
<TOTAL-COSTS> 505,448
<OTHER-EXPENSES> (16,685) <F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101,745
<INCOME-PRETAX> (192,224)
<INCOME-TAX> 0
<INCOME-CONTINUING> (192,224)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (192,224)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
<FN>
<F1> FOREIGN CURRENCY GAIN
</FN>
</TABLE>
