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 September 30, 2000 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
(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>
Part I Financial Information
Item 1. Financial Statements
STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
9/30/00 9/30/99 9/30/00 9/30/99
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Products and service revenues $ 527,198 $ 518,659 $ 892,559 $ 992,305
Cost of products and services sold 186,160 214,044 309,397 409,980
Selling and administrative expenses 229,833 227,217 475,421 448,147
Research and development expenses
and software construction and
product enhancement amortization 52,785 35,414 107,519 61,859
----------- ------------ ------------ ------------
468,778 476,675 892,337 919,986
Operating income 58,420 41,984 222 72,319
Interest expense, net (6,830) (1,185) (12,495) (2,902)
Income before taxes 51,590 40,799 (12,273) 69,417
Provision for income taxes - - - -
----------- ------------ ------------ ------------
Net income (loss) 51,590 40,799 (12,273) 69,417
Less: Dividend payable on preferred shares 0 (8,160) 0 (13,883)
----------- ------------ ------------ ------------
Net income (loss) available to
common shareholders $ 51,590 $ 32,639 $ (12,273) $ 55,534
=========== ============ ============ ============
Weighted average of common shares outstanding 3,044,136 3,044,136 3,044,136 3,044,136
Dilutive potential common shares:
Class A convertible preferred Stock 1,200,000 1,200,000 - 1,200,000
Stock options 60,625 31,077 - -
----------- ------------ ------------ ------------
Adjusted weighted average of common shares
outstanding 4,304,761 4,275,213 3,044,136 4,244,136
=========== ============ ============ ============
Basic earnings per share $0.02 $0.01 $0.00 $0.02
=========== ============ ============ ============
Diluted earnings per share $0.01 $0.01 $0.00 $0.01
=========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Item 1 - Financial Statements (continued)
BALANCE SHEETS
As of September 30, 2000 & March 31, 2000
<TABLE>
<CAPTION>
(Unaudited)
Sept. 30 March-31
2000 2000
---------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 8,200 $ 34,578
Receivables
Trade 212,649 101,662
Related parties 500 27,751
------------- -------------
Total receivables 213,149 129,413
Inventories
Finished products 25,237 137,628
Work in process 99,013 18,561
Raw material 95,853 81,229
------------- -------------
Total inventories 220,103 237,418
Prepaid expenses 25,513 1,896
------------- -------------
Total Current Assets 466,965 403,305
Property and Equipment-at Cost
Furniture and office equipment 104,504 102,217
Machinery and plant equipment 229,084 219,381
Software construction and product enhancement 2,350,283 2,270,008
------------- -------------
2,683,871 2,591,606
Less accumulated depreciation and amortization 2,518,241 2,494,387
------------- -------------
165,630 97,219
------------- -------------
Total Assets $ 632,595 $ 500,524
============= =============
LIABILITIES
Current Liabilities
Note Payable $150,000 $135,000
Current maturities of long term obligations 5,313 5,133
Accounts payable - trade 679,365 567,958
Dividend payable 8,575 8,575
Deferred income 247,818 244,098
Accrued liabilities
Salaries and wages 95,887 88,693
Property and payroll taxes 31,468 33,777
Commissions 100,202 72,043
Other 40,570 56,874
------------- -------------
Total Accrued Liabilities 268,127 251,387
------------- -------------
Total Current Liabilities 1,359,198 1,212,151
Long-Term Obligations, Less Current Maturities 2,326 5,029
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 (8,918,484) (8,906,211)
------------- -------------
Total Shareholders' Deficit (728,929) (716,656)
------------- -------------
Total Liabilities and Shareholders' Deficit $ 632,595 $ 500,524
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Item 1 - Financial Statements (continued)
STATEMENT OF SHAREHOLDERS' DEFICIT
For the six months ended September 30, 2000
(unaudited)
<TABLE>
<CAPTION>
Additional
Common Preferred Paid - In Accumulated
Shares Shares Capital Deficit Total
<S> <C> <C> <C> <C> <C>
Balance, March 31, 2000 $ 61,674 $ 2,400,000 $ 5,727,881 $ (8,906,211) $ (716,656)
Net loss for the period - - - (12,273) (12,273)
Dividends payable on preferred shares - - - - -
---------- ------------- ------------- ------------- -----------
Balance, September 30, 2000 $ 61,674 $ 2,400,000 $ 5,727,881 $ (8,918,484) $ (728,929)
========== ============= ============= ============= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Item 1 - Financial Statements (continued)
STATEMENTS OF CASH FLOWS
For the six months ended September 30,
(unaudited)
<TABLE>
<CAPTION>
2000 1999
---------- ------------
<S> <C> <C>
Cash provided by operations
Net income (loss) for period $ (12,273) $ 69,417
Adjustments to reconcile net loss to cash from operations
Depreciation and amortization 7,318 5,676
Amortization of software construction
and product enhancements 16,536 883
Provision for obsolete inventory 12,000 12,000
Amortization of deferred income and deferred rent (49,419) (84,945)
Increase (decrease) in cash due to changes in
Accounts receivable (83,736) (55,055)
Inventories 5,315 2,485
Prepaid expenses (23,617) (4,933)
Accounts payable 111,407 33,434
Accrued liabilities 16,740 3,845
Deferred income 53,139 19,597
---------- ------------
Net cash provided by operations 53,410 2,404
Cash used in investment activities
Purchase of equipment (11,990) -
Increase in software construction and product enhancements (80,275) (44,817)
---------- ------------
Net cash used in investment activities (92,265) (44,817)
Cash provided by financing activities
Additions to debt obligations 15,000 35,000
Payments on debt obligations (2,523) (18,351)
---------- ------------
Net cash provided by financing activities 12,477 16,649
Decrease in cash (26,378) (25,764)
Cash - beginning of period 34,578 32,848
---------- ------------
Cash - end of period $ 8,200 $ 7,084
========== ============
Interest paid during period $12,495 $ 3,074
========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<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 September 30, 2000 and the results of operations for the three and six month
periods ended September 30, 2000 and 1999 and its cash flows for the six month
periods ended September 30, 2000 and 1999. 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,
2000. Certain reclassifications have been made to amounts shown for the prior
year to conform to current year classifications.
2. New Standards
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation - an interpretation of APB Option No. 25." This Interpretation
clarifies the application of Opinion 25 for only certain issues, including the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award. This Interpretation was effective July 1, 2000, but
covers specific events that occurred after December 15, 1998. This
Interpretation affects the Company as a result of the repricing of options which
occurred in February 1999. Commencing July 1, 2000, the repriced options are
accounted for as variable until the date the awards are exercised, are
forfeited, or expire unexercised. Compensation cost is recognized immediately
after July 1, 2000 to the extent that the stock price exceeds the stock price on
July 1, 2000. As of September 30, 2000, the market value of the Company's common
stock did not increase in value from July 1, 2000 and as such, no compensation
expense related to the repricing of options which occurred in February 1999 has
been recorded.
2. Short Term Note Payable
The Company extended its revolving line of credit agreement with its bank. The
agreement now expires on August 1, 2001. All other terms of the agreement
remained the same.
3. Earnings Per Share
For the six months ending September 30, 2000, there were 1,286,633 potential
dilutive common shares outstanding. These shares were not included in the
diluted earnings per share calculation for the six months ended September 30,
2000 as the Company had a net loss, and their effect was anti-dilutive
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 $8,539, or 2% for the three months
ended September 30, 2000, when compared to the prior year period. Sales
increased in the targeted new markets for special systems and test applications
using Medallion products during the period. Medallion product revenue was about
the same for the current three month period when compared to the prior year
while revenue from 7000 Series sales increased but was offset by declines in
custom designed systems and services revenues. For the six months ended
September 30, 2000, revenue decreased by $99,746 or 10% when compared to the
same period of the prior year. The decrease was due to a significant decline in
revenue from custom designed systems which the Company no longer actively
markets but was partially offset by increases in revenue from 7000 Series and
Medallion products.
Order backlog amounted to $151,000 at September 30, 2000 compared with $257,000
at September 30, 1999. The decrease occurred in Medallion and other analysis
products and extended service contracts.
Costs of products and services sold were 35% of products and services revenues
for the three and six months ended September 30, 2000 versus 41% for the same
periods of the prior year. The decrease resulted from increased sales of
Medallion software products which had significantly lower costs during the
current year and higher costs related 7000 Series and custom designed system
sales in the prior year.
Selling and administrative expenses increased $2,616 or 1% and $27,274 or 6%
during the current three and six month periods versus the same prior year
periods. There was a significant decrease in professional services expenses
during the current three month period versus the prior year which was mostly
offset by higher costs for promotional mailings for the Company" targeted new
markets and higher communication expenses. The increase during the current six
month period versus the prior year was due to higher commissions expense from
increased sales by outside sales representatives and higher advertising, product
collateral and sales promotional expenses. These were partially offset a
significant decrease in professional services expense. Selling and
administrative expenses were 44% and 53% respectively of products and service
revenues for the current three and six month periods versus 44% and 45%
respectively for the same periods of the prior year. The increase for the
current six month period was due to the decline in revenue which occurred during
the first three month period of the current fiscal year.
Research and development expenses and software construction amortization was
$52,875 and $107,519, respectively, for the three and six month periods ended
September 30, 2000 versus $35,414 and $61,859, respectively, for the same
periods of the prior year. These increases were due to higher amortization
expense as a result of an increase in capitalized software construction and
product enhancement costs during the current and prior years and an increase in
Medallion research and development costs versus the prior year. See Software
Construction and Product Development under Liquidity and Capital Resources.
Interest expense was $6,830 and $12,495, respectively, for the three and six
month periods ended September 30, 2000 versus $1,185 and $2,902, respectively,
for the same periods ended September 30, 1999. This increase was due to higher
borrowings during the current year.
Income tax expense of $17,541 for the three months ended September 30, 2000 was
offset by net operating loss carryforwards. At March 31, 2000, loss
carryforwards totaling $6.8 million and tax credits of $663,000 were available
to offset future income taxes. No benefit from the Company's deferred tax assets
has been provided at this time.
Dividend payable on class B preferred shares is equal to 20% of the Company's
current year-to-date net income.
Liquidity & Capital Resources
Software Construction and Product Development
The Company's total unamortized software construction and product enhancement
costs at September 30, 2000 and March 31, 2000 were $126,858 and $63,119,
respectively . The cash outlay for software construction and product enhancement
costs during the current and prior year six month periods were $80,275 and
$44,817, respectively.
Working Capital and Cash Flow
The Company's working capital decreased from a negative $808,846 at March 31,
2000 to a negative $892,223 at September 30, 2000. The current ratio was .33 and
.34 at March 31, 2000 and September 30, 2000, respectively. The change in
working capital was due primarily to increases in accounts payable, accrued
commissions and short-term borrowings and was partially offset by an increase in
accounts receivable.
The Company's cash flows from operations amounted to $53,410 for the six months
ended September 30, 2000. Investment in software construction and product
enhancement activities and purchased equipment amounted to $80,275 and $11,990,
respectively. The Company borrowed $15,000 and made payments on other long-term
debt totaling $2,523 for the six months ended September 30, 2000.
The Company continues to experience cash flow problems as current liabilities
exceed current assets. The Company continues to seek 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
<PAGE>
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: November 3, 2000
<PAGE>
