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, 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
<TABLE>
<CAPTION>
Statement of Operations
For The Three Month Periods Ended June 30,
(unaudited)
<S> <C> <C>
2000 1999
----------- -----------
Product and service revenues .............................. $ 365,361 $ 473,645
Cost of products and services sold ........................ 123,237 195,936
Selling and administrative expenses ....................... 245,588 220,930
Research and development expenses and software construction
and product enhancement amortization ................. 54,734 26,445
----------- -----------
Total Operating Expenses .................................. 423,559 443,311
Operating income (loss) ................................... (58,198) 30,334
Interest expense, net ..................................... (5,665) (1,717)
----------- -----------
Income (loss) before taxes ................................ (63,863) 28,617
Provision for income taxes ................................ -- --
----------- -----------
Net income (loss) ......................................... (63,863) 28,617
Less: Dividend payable on Class B preferred shares ........ -- (5,723)
----------- -----------
Net income (loss) available to common shareholders ........ $ (63,863) $ 22,894
=========== ===========
Weighted average of common shares outstanding ............. 3,044,136 3,044,136
Dilutive potential common shares:
Class A convertible preferred stock ................. 1,200,000
Stock Options ....................................... -- --
----------- -----------
Adjusted weighted average of common shares outstanding .... 3,044,136 4,244,136
=========== ===========
Basic earnings (loss) per share ........................... $ (0.02) $ 0.01
Diluted earnings (loss) per share ......................... $ (0.02) $ 0.01
</TABLE>
The accompanying notes are an integral part of these financial statements.
Item 1 - Financial Statements (continued)
<TABLE>
<CAPTION>
Balance Sheets
As of June 30, 2000 & March 31, 2000
(unaudited)
<S> <C> <C>
30-Jun 31-Mar
2000 2000
----------- -----------
ASSETS
Current Assets
Cash ............................................. $ 16,067 $ 34,578
Receivables
Trade ......................................... 154,429 101,662
Related parties ............................... 500 27,751
----------- -----------
Total receivables ............................... 154,929 129,413
Inventories
Finished products ............................ 125,998 137,628
Work in process .............................. 11,065 18,561
Raw material ................................. 81,521 81,229
----------- -----------
Total inventories ............................... 218,584 237,418
Prepaid expenses ................................ 24,649 1,896
----------- -----------
Total Current Assets ......................... 414,229 403,305
Property and Equipment-at Cost
Furniture and office equipment .................. 103,476 102,217
Machinery and plant equipment ................... 229,084 219,381
Software construction and product enhancement ... 2,302,607 2,270,008
----------- -----------
2,635,167 2,591,606
Less accumulated depreciation and amortization .. (2,502,909) (2,494,387)
----------- -----------
132,258 97,219
----------- -----------
Total Assets .............................. $ 546,487 $ 500,524
=========== ===========
LIABILITIES
Current Liabilities
Notes Payable .................................... $ 150,000 $ 135,000
Current maturities of long term obligations ..... 5,133 5,133
Accounts payable - trade ......................... 649,234 567,958
Deferred Income .................................. 245,127 244,098
Dividend payable ................................. 8,575 8,575
Accrued liabilities
Salaries and wages ............................ 104,393 88,693
Property and payroll taxes .................... 39,739 33,777
Other ......................................... 121,027 128,917
----------- -----------
Total Accrued Liabilities ........................ 265,159 251,387
----------- -----------
Total Current Liabilities .................. 1,323,228 1,212,151
Long-Term Obligations, Less Current Maturities ...... 3,778 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 .............................. (8,970,074) (8,906,211)
----------- -----------
Total Shareholders' Deficit ......................... (780,519) (716,656)
-------- --------
Total Liabilities & Shareholders' Deficit .. $ 546,487 $ 500,524
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Part I - Financial Statements (continued)
<TABLE>
<CAPTION>
Statement of Shareholders Deficit
For The Three Months Ended June 30, 2000
(unaudited)
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 income (loss) for period ........... -- -- -- (63,863) (63,863)
Dividend payable on preferred shares ... -- -- -- -- --
---------- ----------- ------------ ----------- -----------
Balance, June 30, 2000 ................. $ 61,674 $ 2,400,000 $ 5,727,881 $(8,970,074) $ (780,519)
========== =========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Part I - Financial Statements (continued)
<TABLE>
<CAPTION>
Statements of Cash Flows
For The Three Month Periods Ended June 30,
(unaudited)
<S> <C> <C>
2000 1999
-------- --------
Cash used in operations:
Net income (loss) for period ............................. $(63,863) $ 28,617
Adjustments to reconcile net income (loss)
to cash from operations:
Depreciation and amortization ......................... 3,234 3,680
Amortization of software construction
and product enhancements .......................... 5,288 400
Provision for obsolete inventory ...................... 6,000 6,000
Amortization of deferred income and deferred rent ..... (22,858) (42,860)
Increase (decrease) in cash due to changes in
Accounts receivable ................................... (25,516) 41,722
Inventories ........................................... 12,834 (3,823)
Prepaid expenses ...................................... (22,753) (4,461)
Accounts payable ...................................... 81,276 29,639
Accrued liabilities ................................... 13,772 (671)
Deferred income ....................................... 23,887 (18,536)
-------- --------
Net cash provided by operations .................... 11,301 39,707
Cash used in investment activities:
Purchase of fixed assets .............................. (10,962) 0
Increase in software construction
and product enhancements ........................... (32,599) (32,503)
-------- --------
Net cash used in investment activities ............. (43,561) (32,503)
Cash used in financing activities:
Proceeds from note payable ............................ 15,000 0
Payments on long-term obligations ..................... (1,251) (10,573)
------- --------
Net cash provided by (used in) investment activities 13,749 (10,573)
Decrease in cash ............................................ (18,511) (3,369)
Cash - beginning of period .................................. 34,578 32,848
-------- --------
Cash - end of period ........................................ $ 16,067 $ 29,479
========= ========
Interest paid during period ................................. $ 5,665 $ 1,717
========= ========
</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 June 30, 2000 and the results of operations and cash flows for the three
month periods ended June 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.
2. New Standard
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 is 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 will be
accounted for as variable until the date the awards are exercised, are
forfeited, or expire unexercised. Compensation cost will be recognized
immediately after July 1, 2000 to the extent that the stock price exceeds the
stock price on July 1, 2000. Future changes in the market value of the Company's
stock will directly affect the amount of compensation expense recorded by the
Company. The magnitude of the impact on the Company's financial statements will
depend on the market value of the common stock as of July 1, 2000 and
thereafter.
3. 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.
4. Earnings Per Share
At June 30, 2000, there were 1,312,642 potential dilutive common shares
outstanding. These shares are not included in the diluted earnings per share
calculation as the Company had a net loss for the current year period, and their
effect is 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 decreased by $108,284, or 23% for the three months
ended June 30, 2000, when compared to the prior year period. The decrease was
due to a 71%, or $92,800 decline in the sale of 7000 Series and other custom
designed systems which the Company no longer actively markets. Revenue from the
sale of Medallion products was about the same and service revenues were slightly
higher for the current three month period when compared to the prior year
period.
Order backlog amounted to $196,000 at June 30, 2000 compared with $133,000 at
June 30, 1999. There was a significant increase in Medallion backlog primarily
for sixteen channel systems which are scheduled for delivery during the second
quarter of this fiscal year. This increase was partially offset by a decrease in
orders for custom designed systems.
Costs of products and services sold were 34% of products and services revenues
for the three months ended June 30, 2000 versus 41% for the prior year. The
decrease was due to an increase in the sale of Medallion software products which
have significantly lower costs and higher costs related to 7000 Series and
custom designed systems sales in the prior year.
Selling and administrative expenses increased $24,658 or 11% during the current
period versus the same prior year period. This increase was due to an increase
in advertising and sales promotion costs, and higher commission expense as sales
from outside sales representatives increased when compared to the prior year
period. These increases were partially offset by a decrease in professional
services. Selling and administrative expenses were 67% versus 47% of total
revenue for the current and prior year periods, respectively. This increase was
due primarily to the decrease in revenue during the current period.
Research and development expenses and software construction amortization was
$54,734 for the current period versus $26,445 for the prior period. This
increase was due to higher amortization expense as a result of capitalized
software construction and product enhancement costs during the past and current
years and an increase 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, 2000 was $5,665 versus
$1,717 for the same period ended June 30, 1999. This increase was due to more
borrowings during the current year.
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 June 30, 2000 and March 31, 2000 were $90,430 and $63,119,
respectively. The cash outlay for software construction and product enhancement
costs during the current and prior year three month periods were $32,599 and
32,503, respectively.
Working Capital and Cash Flow
The Company's working capital decreased from a negative $808,846 at March 31,
2000 to a negative $908,999 at June 30, 2000 resulting in a decrease in the
current ratio from .33 to .31. The decline was due mainly to an increase in
accounts payable, accrued liabilities and the note payable.
The Company's cash flows from operations amounted to $11,301. Investment in
software construction and product enhancement activities and purchased equipment
amounted to $32,599 and $10,962, respectively. The Company borrowed $15,000 and
made payments on long-term debt totaling $1,251 for the three months ended June
30, 2000.
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
<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: August 11, 2000
