UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1998 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 45150-9777
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(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (513) 248-1911
--------------
Not Applicable
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(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
---------
Part I Financial Information
Item 1. Financial Statements
Statement of Operations
For The Three Month Periods Ended June 30,
(unaudited)
1998 1997
---- ----
Product and service revenues $442,583 $341,761
Cost of products and services sold 172,647 142,154
Selling and administrative expenses 251,388 273,701
Research and development expenses
and software construction
and product enhancement amortization 53,989 102,546
-------- -------
Total Operating Expenses 478,024 518,401
------- -------
Operating loss (35,441) (176,640)
Interest expense, net (2,384) (42,797)
Foreign currency loss - (583)
-------- --------
Loss before taxes (37,825) (220,020)
Provision for income taxes - -
---------- --------
Net loss $ (37,825) $(220,020)
============ ==========
Basic and diluted loss per share $ (0.01) $ (0.07)
============ ========
Weighted average shares outstanding 3,044,136 3,044,136
The accompanying notes are an integral part of these financial statements.
Item 1 - Financial Statements (continued)
Balance Sheets
As of June 30, 1998 & March 31, 1998
(unaudited)
Jun-30 Mar-31
ASSETS 1998 1998
---- ----
Current Assets
Cash $18,104 $79,408
Receivables
Trade 92,779 248,519
Related parties 2,599 1,708
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Total receivables 95,378 250,227
Inventories
Finished products 51,071 144,718
Work in process 208,743 49,111
Raw material 103,288 71,766
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Total inventories 363,102 265,595
Prepaid expenses 9,592 3,734
-------- -------
Total Current Assets 486,176 598,964
Property and Equipment-at Cost
Furniture and office equipment 447,692 452,417
Machinery and plant equipment 598,925 597,022
Software construction and
product enhancement 2,203,070 2,203,070
--------- ---------
3,249,687 3,252,509
Less accumulated depreciation and
amortization 3,162,591 3,151,876
--------- ---------
87,096 100,633
--------- ---------
Total Assets $573,272 $699,597
======== ========
The accompanying notes are an integral part of these financial statements.
Balance Sheets (Continued)
As of June 30, 1998 & March 31, 1998
(unaudited)
Jun-30 Mar-31
LIABILITIES 1998 1998
---- ----
Current Liabilities
Short term notes payable and current
maturities of long-term debt $42,051 $42,365
Accounts payable - trade 653,524 728,062
Accounts payable - related parties 41,705 4,223
Deferred Income 362,745 365,258
Accrued liabilities
Salaries and wages 115,208 108,947
Property and payroll taxes 44,072 54,684
Other 113,812 127,052
------- -------
Total Accrued Liabilities 273,092 290,683
------- -------
Total Current Liabilities 1,373,117 1,430,591
Long-Term Obligations, Less Current Maturities 20,034 30,186
Deferred Rent 97,411 118,285
SHAREHOLDERS' DEFICIT
Preferred shares 2,400,000 2,400,000
Common shares 61,674 61,674
Additional paid-in capital 5,727,881 5,727,881
--------- ---------
8,189,555 8,189,555
Accumulated deficit (9,106,845) (9,069,020)
---------- ----------
Total Shareholders' Deficit (917,290) (879,465)
--------- ---------
Total Liabilities & Shareholders' Deficit $573,272 $699,597
======== ========
The accompanying notes are an integral part of these financial statements.
Statement of Shareholders Deficit
For The Three Months Ended June 30, 1998
(unaudited)
Additional
Common Preferred Paid-in Accumulated
Shares Shares Capital Deficit Total
Balance,
March 31, 1998 $61,674 $2,400,000 $5,727,881 $(9,069,020) $(879,465)
Net loss for period - - - (37,825) (37,825)
------- ---------- ---------- ------------ ----------
Balance,
June 30, 1998 $61,674 $2,400,000 $5,727,881 $(9,106,845) $(917,290)
======= ========== ========== ============ ==========
The accompanying notes are an integral part of these financial statements.
Statements of Cash Flows
For The Three Month Periods Ended June 30,
(unaudited)
1998 1997
---- ----
Cash used in operations:
Net loss for period $(37,825) $(220,020)
Adjustments to reconcile net loss
to cash from operations:
Depreciation and amortization 6,416 5,820
Amortization of software construction
and product enhancements 9,828 33,000
Amortization of note receivable
from shareholder - (30,000)
Provision for obsolete inventory 6,000 9,000
Amortization of deferred income and
deferred rent (50,391) (51,447)
Foreign currency loss and other - 583
Increase (decrease) in cash due to changes in
Accounts receivable 154,849 144,096
Inventories (103,507) (50,416)
Prepaid expenses (5,858) (45,851)
Accounts payable (37,056) 52,486
Accrued liabilities (17,591) (47,698)
Accrued rent - (15,159)
Deferred income 27,004 (7,303)
--------- ---------
Net cash used in operations (48,131) (222,909)
Cash used in investment activities:
Purchase of fixed assets (2,707) (2,174)
Increase in software construction
and product enhancements - (25,582)
------ -------
Net cash used in investment activities (2,707) (27,756)
Cash used in financing activities:
Payments on long-term obligations (10,466) (665)
-------- ---------
Decrease in cash (61,304) (251,330)
Cash - beginning of period 79,408 259,494
------- --------
Cash - end of period $ 18,104 $ 8,164
======== ========
Interest paid during period $ 2,781 $ 84,211
======== ========
The accompanying notes are an integral part of these financial statements.
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, 1998 and the results of operations and cash
flows for the three month periods ended June 30, 1998 and 1997. 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, 1998. Certain reclassifications have been made to amounts shown
for the prior year to conform to current year classifications.
2. New Standards
The Company implemented Statement of Financial Accounting Standards (SFAS)
No. 130, "Reporting Comprehensive Income" in the current period. Under the
provisions of this Statement, all changes in equity that result from
recognized transactions and other economic events of the period other than
transactions with owners in their capacity as owners are reported as
comprehensive income. As required by the statement, comprehensive income
should be reported as net income and other comprehensive income with a total
amount displayed in the financial statements. Since the Company has no
items of other comprehensive income during the current period, comprehensive
income is not reported.
The Company will implement Statement of Financial Accounting Standards
(SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related
Information" in the annual financial statements of the current year. This
statement requires disclosure of certain information for each operating
segment of a business enterprise. Specific criteria is included in this
statement to determine reportable segments of the business. The Company has
a single reportable segment. Revenues and the loss for this segment are
reported in the accompanying Statement of Operations. Adoption of the
statement will not impact the reported results of operations of the Company
and will not require additional disclosure.
3. Year 2000 Issues
The Company is currently engaged in a comprehensive project to review its
computer systems, applications and products sold to its customers to
determine which, if any, are affected by the Year 2000 issue. Any
corrective action required for Year 2000 compliance is expected to be
completed by December 31, 1998.
The Company is also communicating with its significant suppliers and others
with whom it does significant business to determine their Year 2000
compliance readiness and the extent to which the Company is vulnerable to
any third party Year 2000 issues.
Management does not expect the costs to correct any problems associated with
Year 2000 compliance to have a material effect on the Company's business,
its results of operations or its financial positions. All costs related to
Year 2000 compliance are expensed as incurred.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Special Cautionary Notice Regarding Forward-Looking Statements
- --------------------------------------------------------------
Certain of the matters discussed under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operation" may
constitute forward-looking statements for purposes of the Securities Act of
1933 and the Securities Exchange Act of 1934, as amended, and as such may
involve known and unknown risks, uncertainties and other factors which may
cause the actual results, performance or achievements of the Company to be
materially different from future results, performance or achievements
expressed or implied by such forward-looking statements. Important factors
that could cause the actual results, performance or achievement of the
Company to differ materially from the Company's expectations include,
without limitation, the following: 1) the Company is unable to improve
existing products or develop new products which satisfy needs in the
Company's markets; 2) the Company is unable to penetrate new markets; 3) the
Company is unable to retain existing personnel or hire additional personnel;
4) the industries the Company serves experience less rapid growth than
anticipated; 5) the Company is unable to obtain supplies on a timely basis
from its limited number of suppliers; 6) new competitors enter the markets
the Company serves or existing competitors increase their marketing efforts;
7) the Company is unable to obtain additional debt or equity financing on
favorable terms, if at all, to satisfy its cash requirements. All written
or oral forward-looking statements attributable to the Company are expressly
qualified in their entirety by such factors.
Results of Operations
- ---------------------
Product and Services Revenue increased by $100,822, or 30% for the three
months ended June 30, 1998, when compared to the prior year period. Sales
increased in the Medallion and WCA product lines by $50,437 and $83,430,
respectively. These increases were partially offset by decreases in the
7000 Series product line and extended warranty service revenue which were
attributable to the continuing slow down in orders resulting from the
Company's sale of its Zeta technology and software to A&D Company, Ltd (A&D)
in fiscal 1997.
Order backlog amounted to $597,000 at June 30, 1998 compared with $226,000
at June 30, 1997. Much of this increase was due to a 7000 series order for 8
systems received during the fourth quarter of fiscal 1998. Only one unit
was shipped in fiscal 1998, with the other 7 units to be shipped throughout
the remainder of fiscal 1999. There was also a significant increase in the
order backlog for Medallion products. These increases were partially offset
by declines in orders for WCA products and extended warranty service
contracts.
Costs of products and services sold were 39% of products and services
revenues for the three months ended June 30, 1998 versus 42% for the prior
year. The decrease in costs was due mainly to higher profit margins on the
sale of Medallion products.
Selling and administrative expenses decreased $22,313 or 8% during the
current period versus the same prior year period. This decrease was due to
lower administrative salaries, less advertising and sales promotion costs,
lower rent and other facility related costs and lower expense for
professional services. These decreases were partially offset by higher
sales commission and travel expenses. Selling and administrative expenses
were 57% versus 80% of total revenue for the current and prior year periods,
respectively.
Research and development expenses and software construction amortization was
$53,989 for the current period versus $102,546 for the prior period. This
decrease was due to less amortization expense as a result of a decrease in
capitalized software construction and product enhancement costs during the
past year and a decline in Medallion research and development expenses. See
Software Construction and Product Development under Liquidity and Capital
Resources.
Interest expense for the three months ended June 30, 1998 was $2,384 versus
$42,797 for the same period ended June 30, 1997. This decrease was due to
significantly less borrowings during the current year resulting from the
retirement of outstanding current and long-term debt using proceeds from the
sale of preferred stock to A&D in fiscal 1998.
Liquidity & Capital Resources
- -------------------------------------------
Software Construction and Product Development
The Company's total unamortized software construction and product
enhancement costs at June 30, 1998 and March 31, 1998 were $34,555 and
$44,383, respectively. There was no cash outlay for software construction
and product enhancement projects during the current three month period
compared to $25,582 for the prior year period.
Working Capital and Cash Flow
The Company's working capital decreased from a negative $831,627 at March
31, 1998 to a negative $886,941 at June 30, 1998 resulting in a decrease in
the current ratio from .42 to .35. The decline was due to significant
reductions in cash and accounts receivable partially offset by an increase
in inventory required for the current backlog of orders.
The Company's cash flows from operations amounted to a negative $48,131 and
payments on long-term debt totaled $10,466 for the three months ended June
30, 1998. There was no investment in software construction and product
enhancement activities during the current period.
The Company continues to experience cash flow problems as the result of its
operating loss. The Company is seeking additional working capital through
debt or equity financing from public or private sources to reduce current
liabilities 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
None
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
SIGNATURES
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 11, 1998
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-Q FOR THE QUAARTER ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRITY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1998
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<ALLOWANCES> 26,109
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<CURRENT-ASSETS> 486,176
<PP&E> 3,249,687
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2,400,000
<COMMON> 61,674
<OTHER-SE> 3,378,964
<TOTAL-LIABILITY-AND-EQUITY> 573,272
<SALES> 442,583
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<CGS> 172,647
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<INCOME-PRETAX> (37,825)
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