U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996.
SONEX RESEARCH, INC.
Incorporated in the State of Maryland
23 Hudson Street
Annapolis, Maryland 21401
Telephone Number: (410) 266-5556
IRS Employer Identification No. 52-1188993
Commission file number 0-14465
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months, and (2) has been
subject to such filing requirements for the past 90 days.
YES [x] NO [ ]
There were 16,214,020 shares of the Issuer's $.01 par value Common Stock
outstanding at November 14, 1996.
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SONEX RESEARCH, INC. FORM 10-QSB
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
Index to unaudited financial statements presented on pages 3 to 10:
Balance sheets as of September 30, 1996 and December 31, 1995
Statements of operations and accumulated deficit for the three- and
nine-month periods ended September 30, 1996 and 1995, and for the period
from April 9, 1980 (inception) through September 30, 1996
Statements of cash flows for the nine-month periods ended September 30,
1996 and 1995, and for the period from April 9, 1980 (inception) through
September 30, 1996
Notes to financial statements
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SONEX RESEARCH, INC. FORM 10-QSB
SONEX RESEARCH, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEETS
(Unaudited)
September 30, December 31,
ASSETS 1996 1995
------------ -----------
Current assets
Cash and equivalents $ 134,760 $ 256,139
Marketable securities, available-for-sale 49,066
Cash posted as security for judgment 182,687
Accounts receivable 6,241 63,741
Prepaid expenses 38,148 29,861
Loans to officers and employees - current 34,596 43,376
---------- ----------
Total current assets 262,811 575,804
Loans to officers and employees - non-current 15,675 15,000
Patents and technology 289,076 328,822
Property and equipment 29,420 44,904
---------- ----------
Total assets $ 596,982 $ 964,530
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
Current liabilities
Short-term debt $ 7,667
Accrued compensation $ 619,008 580,785
Accounts payable and other accrued liabilities 126,786 110,810
---------- ----------
Total current liabilities 745,794 699,262
---------- ----------
Stockholders' equity/(deficit)
Preferred stock, $.01 par value, 2,000,000
shares issued, 1,550,001 shares outstanding 15,500 18,300
Common stock, $.01 par value, shares issued
and outstanding: 16,214,020 in 1996 and
15,281,535 shares in 1995 162,140 152,815
Additional paid-in capital 19,148,410 19,078,191
Unrealized increase in value of marketable
securities 49,066
Deficit accumulated during development stage (19,523,928) (18,984,038)
---------- -----------
Total stockholders' equity/(deficit) (148,812) 265,268
Commitments (Note 11)
---------- ----------
Total liabilities and stockholders'
equity/(deficit) $ 596,982 $ 964,530
========== ===========
The accompanying notes are an integral part of the financial statements.
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SONEX RESEARCH, INC. FORM 10-QSB
SONEX RESEARCH, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
April 9, 1980
(inception)
Three months ended Nine months ended through
September 30, September 30, Sept. 30,
1996 1995 1996 1995 1996
---------- ---------- ---------- ---------- ----------
Revenue
Development contracts $ 43,741 $ 203,141 $1,595,566
Other revenue 124,425
---------- ---------- ---------- ----------
43,741 203,141 1,719,991
---------- ---------- ---------- ----------
Costs and expenses
Research & develop. $ 118,200 114,803 $ 376,713 396,715 11,644,879
General & administ. 78,279 101,385 204,927 302,923 7,125,487
Interest 136 135 409 894 866,688
Write-off of patents 819,036
---------- ---------- ---------- ---------- ----------
196,615 216,323 582,049 700,532 20,456,090
---------- ---------- ---------- ---------- ----------
Net loss from 196,615 172,582 582,049 497,391 18,736,099
operations
Other (income)/expense
Investment income (3,400) (3,678) (12,046) (9,060) (293,131)
Debt issuance and
conversion expense 1,112,350
Gain on sale of marketable
securities (13,746) (30,113) (31,390)
---------- ---------- ---------- ---------- ----------
Net loss 179,469 168,904 539,890 488,331 19,523,928
Accumulated deficit
Beginning 19,344,459 18,478,274 18,984,038 18,158,847
---------- ---------- ---------- ---------- ----------
End $19,523,928 $18,647,178 $19,523,928 $18,647,178 $19,523,928
========== ========== ========== ========== ==========
Net loss per share $.011 $.011 $.034 $.034
===== ===== ===== =====
Weighted average
number of shares
outstanding 16,202,377 14,854,263 15,889,005 15,168,651
========== ========== ========== ==========
The accompanying notes are an integral part of the financial statements.
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SONEX RESEARCH, INC. FORM 10-QSB
SONEX RESEARCH, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
April 9, 1980
(inception)
Nine months ended through
September 30, Sept. 30,
1996 1995 1996
--------- --------- ------------
Cash flows from operating activities
Net loss $(539,890) $(488,331) $(19,523,928)
Adjustments to reconcile net loss to
netcash used by operating activities
Depreciation 15,484 13,545 659,216
Write-down of patents 819,036
Amortization 47,403 58,500 1,322,041
Compensation - stock options 10,000 860,540
Imputed interest expense 551,247
Interest credited to paid-in capital 44,614
Debt issuance and conversion expense 1,112,350
Accrued liabilities and current
charges paid in stock 1,000 51,250 1,124,380
Gain on sale of marketable securities (30,113) (31,390)
(Increase)decrease in accounts receivable 57,500 37,959 (6,241)
(Increase)decrease in prepaid expenses (8,287) (2,653) (38,148)
Increase (decrease)in accrued liabilities 54,199 113,817 665,797
--------- --------- ------------
Net cash used in operating activities (392,704) (215,913) (12,440,486)
--------- --------- ------------
Cash flows from investing activities
Purchase of marketable securities (2,377,256)
Proceeds from sales of marketable securities 30,113 17,292 2,408,646
(Increase) decrease in cash posted as
security for judgment 182,687 (4,197)
(Increase) decrease in loans to employees 8,105 (1,669) (50,271)
Acquisition of property (539,149)
Additions to patents and technology (7,657) (15,213) (1,305,703)
--------- --------- ------------
Net cash provided by (used in)
investing activities 213,248 (3,787) (1,863,733)
--------- --------- ------------
Cash flows from financing activities
Issuance of stock 65,744 257,500 15,107,655
Issuance of convertible debt 2,287,500
Indemnification by officer 15,000 15,000
Repayment of convertible debt (92,500)
Stock and debt issuance costs (11,734) (2,038,916)
Distribution to stockholders - other (18,772)
Reduction of technology purchase (797,500)
obligations
Proceeds from borrowings 1,592,748
Reduction of borrowings (7,667) (9,232) (1,616,236)
--------- --------- ------------
Net cash provided by (used for)
financing activities 58,077 251,534 14,438,979
--------- --------- ------------
Increase (decrease) in cash (121,379) 31,834 134,760
Cash
Beginning of period 256,139 46,052
--------- --------- ------------
End of period $ 134,760 $ 77,886 $ 134,760
========= ========= ============
The accompanying notes are an integral part of the financial statements.
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SONEX RESEARCH, INC. FORM 10-QSB
SONEX RESEARCH, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - The Company
Sonex Research, Inc. has developed and acquired technology which controls
the combustion of fuel in engines. The Company is in the process of developing
several commercial applications of its technology, referred to as the Sonex
Combustion System (SCS). Sonex expects to license several commercial
applications of its technology and commercially exploit other applications
itself. Related revenue earned to date has been derived principally from
development contracts, but such revenue offsets only a small portion of the
related development expenditures. Accordingly, Sonex Research, Inc. is
classified as a development stage company.
Note 2 - Presentation of Financial Statements
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, these financial statements do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three- and
nine-month periods ended September 30, 1996 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1996. For
further information, reference is made to the financial statements and notes
thereto included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1995.
These financial statements include the accounts of the Company and, until
its disposition in October 1995, the accounts of its former 40%-owned
consolidated subsidiary, SonoChem, Inc. All intercompany balances have been
eliminated in consolidation. SonoChem, Inc. has been an inactive company since
1988, and its recorded expenses since then have not been significant. On October
9, 1995, following a 1:10 reverse split of all of its issued and outstanding
shares of common stock, SonoChem was merged with and into Digital Dictation,
Inc., a privately held Virginia medical transcription services company. Pursuant
to the merger, SonoChem acquired 100% of the issued and outstanding shares of
common stock of Digital Dictation, Inc. in exchange for 5,944,606 post-split
shares of SonoChem's common stock, and SonoChem's name was changed to Digital
Dictation, Inc. Following the merger, the previous holders of the common stock
of SonoChem now hold 5% of the issued and outstanding shares of the surviving
corporation Digital Dictation, Inc.
Note 3 - Cash Posted as Security for Judgment
In connection with a judgment stemming from a lawsuit against the Company
filed by two former officers (the "Plaintiffs") as described in Note 8, on
November 30, 1994, the Company placed $177,088 in cash on deposit with the court
pending the resolution of an appeal. In December 1995 the judgment was reversed
on appeal, and, in April 1996 the Plaintiffs' request for review of the reversal
by a higher appellate court was denied. On May 2, 1996, a total of approximately
$184,000, including interest earned through that date, was returned to the
Company.
Note 4 - Marketable Securities
As described in Note 2, in October 1995 the Company's inactive, public
shell subsidiary, SonoChem, Inc., was merged with and into Digital Dictation,
Inc. ("Digital"), a privately held Virginia medical transcription services
company. In connection with the merger, the Company exchanged all of its shares
in SonoChem for 125,133 shares of the common stock of Digital, representing 2%
of the issued and outstanding shares of Digital. A total of 5% of the issued and
outstanding shares of Digital, including those shares held by Sonex, began
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SONEX RESEARCH, INC. FORM 10-QSB
trading in the over-the-counter market in April 1996. As of September 30, 1996,
the Company had sold a total of 27,000 shares of its Digital stock and
realized aggregate net proceeds of $30,113.
At the time of this exchange in October 1995, the fair value of neither
the SonoChem stock nor the Digital stock was reasonably estimable. As a result,
the Company's carrying basis in the SonoChem stock of zero was considered to be
its cost basis in the Digital stock, and no gain or loss was recorded in the
1995 financial statements with respect to this transaction. Since public trading
began in April 1996 and a readily determinable fair value for the Digital stock
has become available, the investment is now accounted for in accordance with
Statement of Financial Accounting Standards No. 115 and classified as a current
asset as a security that is available-for-sale. Accordingly, the Company's
investment in the 98,133 shares held as of September 30, 1996 is recorded in the
accompanying financial statements at its fair value of $.50 per share, or an
aggregate of $49,066. A corresponding amount, representing the aggregate
unrealized gain in the fair value of this investment in excess of its original
cost basis, is reported as a separate component of shareholders' equity.
Note 5 - Loans to Officers and Employees
Loans totaling $37,180 were made early in 1993 to four of the Company's
officers and one non-officer employee for the payment of income tax liabilities
incurred by these individuals upon their receipt of shares of common stock in
payment of deferred wages. The loans are secured by deferred salaries payable to
each of the borrowers, and bear interest at the rate of six percent per annum.
No payments were made until March 1996, with principal payments totaling $8,750
and interest payments totaling $1,452 having been made since then. As of
September 30, 1996, aggregate loan principal of $28,430 remained outstanding,
while accrued interest on the loans aggregated $6,166.
One of these loans in the principal amount of $14,500 was made to the
Company's vice-president of operations, whose employment was later terminated.
The former officer, however, instituted legal action against the Company in
November 1993, as described in Note 8, to collect additional amounts of deferred
salary, net of the loan balance. While the maturity date for the loan principal
and interest due from current employees has been extended through December 31,
1996, the amounts receivable from the former officer are past due, and the
Company's demands for payment have not been met. The Company has recently
instituted legal action for collection of this amount.
Loans totaling $15,000 were made at the end of December 1995 to one of the
Company's officers and two non-officer employees for the payment of income tax
liabilities incurred by these individuals upon their receipt in 1995 of shares
of common stock in payment of bonus compensation. These loans, which are secured
by deferred salaries payable to each borrower and bear interest at the rate of
six percent per annum, become due in 1998. As of September 30, 1996, accrued
interest on the loans aggregated $675.
Note 6 - Patents and Technology
Following an extensive evaluation in 1994 of the factors affecting the
economic value of all of the Company's proprietary technology, the carrying
values of certain technology developed internally, other technology acquired
from a third party, and related technology purchase obligations, were reduced to
their net realizable values. Such write-offs reflected in the accompanying
financial statements, aggregating $819,036, are summarized as follows:
1995 1994
---------- ----------
Unamortized capitalized cost of the
technology, beginning $ 80,000 $ 912,589
Total recorded balance of technology
purchase obligations - (253,553)
Assumed net realizable value of
technology, ending - 80,000
---------- ----------
Net write-down of patent costs
charged to operations $ 80,000 $ 739,036
========== ==========
The Company has conducted and continues to conduct its own research and
development activities which have resulted in additional proprietary technology
and patents. Development of commercial applications of certain
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SONEX RESEARCH, INC. FORM 10-QSB
elements of the SCS has commenced and management believes the capitalized cost
of patents and technology will be recovered through revenue derived from the
licensing of such technology. Management closely monitors the patent application
process and other factors which may affect the economic value of the Company's
technology, and will further reduce the capitalized cost of patents and
technology should the recovery of such cost no longer be sustainable.
The capitalized cost of patents and technology at September 30, 1996
consists of the following:
Patent application fees and related legal costs $ 244,294
Computer models and simulations 237,164
---------
481,458
Accumulated amortization (192,382)
---------
$ 289,076
=========
Note 7 - Accrued Compensation
In order to help conserve the Company's limited cash resources, all of
the Company's salaried employees for several years have been voluntarily
deferring significant portions of the salaries due them under the terms of
previous employment agreements or as otherwise established by the Board of
Directors. As of September 30, 1996, an aggregate of $594,008 of wages so
deferred, including $163,365 payable to two former officers who sought repayment
through the legal action described in Note 8, is included in accrued
compensation on the Company's balance sheet.
As a condition of the Company's receiving an indispensable capital
infusion in February 1992, the investors required that the voluntary deferral of
salaries be documented formally. Accordingly, all salaried employees executed an
agreement referred to as the "Consent to Deferral" in which they consented to
the past and future deferral of portions of their annual salaries, and agreed to
defer payment of amounts so accumulated until the Company has received licensing
revenue of at least $2 million or at such earlier date as the Board of Directors
determines that the Company's cash flow is sufficient to allow such payment.
In June 1993 the Company eliminated the positions of three full-time
vice-presidents. One of these individuals accepted the Company's separation
offer of six months severance compensation and payment of all deferred salaries
owed, with such payments to be made in the form of equity securities of the
Company, in exchange for his agreement to meet certain conditions such as
limiting sales of the Company's stock for one year and waiving any future claims
against the Company. The other two former officers rejected the Company's
separation offer and chose to seek repayment through the legal action described
in Note 8.
Note 8 - Litigation
Two former officers of the Company whose employment was terminated in
June 1993, Mr. Charles C. Failla and Mr. Theodore P. Naydan, rejected the
separation offer described in Note 7 and demanded immediate full payment of
their unpaid salaries less the amount of a loan payable to the Company by Mr.
Naydan. Following the Company's rejection of this demand, Mr. Failla and Mr.
Naydan (referred to as the "Plaintiffs") instituted legal action in November
1993. Their Complaint alleged that the Company breached contractual obligations
by failing to pay salary due under previous employment agreements and violated
Maryland labor laws by failing to pay wages due upon termination of employment.
The Complaint sought immediate full repayment of deferred salaries and damages
of up to three times the amount owed, plus prejudgment interest, attorney's fees
and costs. The Company denied the allegations and filed a counterclaim against
the Plaintiffs for breach of contract with respect to the Consent to Deferral.
Following a hearing in the trial court in June 1994 on various motions
for dismissal and summary judgment filed by the parties, the hearing judge
denied the Plaintiffs claims for treble damages and recovery of attorneys' fees
and costs, dismissed most of the other motions, and ordered that a trial be held
on the issue of whether the Plaintiffs received consideration in exchange for
executing the Consent to Deferral.
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SONEX RESEARCH, INC. FORM 10-QSB
At a trial held in November 1994 before a different judge, the Plaintiffs
were awarded judgment in the amount of $163,140 that included pre-judgment
interest from the date of termination of employment through the date of the
trial and reflected an offset for the amount of the loan payable to the Company
by Mr. Naydan. Following the trial, the Company filed an appeal, and the
Plaintiffs filed a motion to revise the judgment by seeking to reverse the prior
ruling of the hearing judge denying the claim for treble damages. In order to
stay the Plaintiffs from initiating steps to collect on the judgment prior to a
ruling on the appeal, on November 30, 1994 the Company posted cash security with
the court in the amount of $177,088, which figure included interest over the
estimated period of the appeal process.
In February 1995 the trial judge denied the Plaintiffs' motion to revise
the judgment, following which the Company refiled its appeal and the Plaintiffs
filed an appeal of the decision to deny treble damages. Both parties then filed
extensive briefs, and oral arguments before a panel of three judges of the
Maryland Court of Special Appeals were presented in November 1995. In December
1995 the Court of Special Appeals reversed the judgment awarded to the
Plaintiffs by the trial court. In January 1996 the Plaintiffs filed a Petition
for Writ of Certiorari with the Court of Appeals of Maryland seeking a review of
the reversal of the judgment by the Court of Special Appeals.
On April 15, 1996, the Petition was denied and, on May 2, 1996, a total
of approximately $184,000, including interest earned through that date, was
returned by the court to the Company.
Note 9 - Income Taxes
At December 31, 1995, the Company had net operating loss carryforwards,
expiring at various dates from 1996 through 2010, aggregating approximately
$16.8 million available to offset future taxable income. If certain substantial
changes in the Company's ownership should occur, there would be an annual
limitation on the amount of the carryforwards which can be utilized. The
potential income tax benefit of these carryforwards and temporary differences of
approximately $6.5 million has not been recorded in the financial statements due
to the uncertainty of realization based on the Company's financial performance
to date.
Note 10 - Authorized Capital Stock
The Company is presently authorized to issue 48 million shares of $.01
par value common stock and 2 million shares of $.01 par value convertible
preferred stock. All 2 million shares of the preferred stock, along with
five-year warrants to purchase up to 6,857,142 shares of common stock at prices
of $.35, $1.00, and $1.50, were issued in a private transaction in February 1992
for aggregate consideration of $2 million.
The preferred stock has priority in liquidation over the common stock,
but it carries no stated dividend. The holders of the preferred stock, voting as
a separate class, have the right to elect that number of directors of the
Company which represents a majority of the total number of directors.
The preferred stock is convertible at any time at the option of the
holder into common stock at the rate of $.35 per share of common stock, although
no fractional shares are to be issued. As of September 30, 1996, a total of
449,999 shares of preferred stock had been converted into 1,285,707 shares of
common stock.
The Company maintains a non-qualified stock option plan which has made
available for issuance a total of five million shares of common stock, following
an increase approved in June 1995 of two million shares. All directors,
full-time employees and consultants to the Company are eligible for
participation. Option awards are determined at the discretion of the board of
directors. Upon a change in control of the Company, all outstanding options
become vested with respect to those options which have not already vested.
Options granted to date expire at various dates through August 2006.
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SONEX RESEARCH, INC. FORM 10-QSB
At September 30, 1996, a total of 18,256,346 shares of common stock were
reserved for issuance for the following purposes:
Conversion of preferred stock 4,471,431
Currently exercisable warrants 9,414,249
Currently exercisable options 3,165,734
Granted options becoming exercisable in the future 841,750
Options available under plan for future grants 394,182
----------
Total shares reserved 18,256,346
==========
Note 11 - Commitments
The Company occupies its office and laboratory facilities on a
month-to-month basis under the terms of an operating lease agreement that has
expired. The lease provides for monthly rent of $4,500, and requires the Company
to pay all property related expenses.
The Company has been unsuccessful in its attempts to negotiate a new
long-term lease for its current office and laboratory facility at a lower
monthly rate. Absent the execution of a new lease, the Company will continue to
occupy these premises on a month-to-month basis under the terms of the previous
lease, pursuant to which the property owner is required to provide thirty days
notice if he wants the Company to vacate the premises. Management, however, is
also in the process of searching for an alternative location in the event that
an agreement cannot be reached for the existing premises. Management believes
that the resolution of the uncertainty with respect to the facility will not
result in a significant interruption in the operations of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION
AND RESULTS OF OPERATIONS
Financial position
Since its inception in 1980, the Company has generated net losses in
excess of $19 million. Operating funds have been raised primarily through the
sale of equity securities in both public and private offerings, while revenues
to date have not been significant. Accordingly, Sonex continues to be classified
as a development stage company.
At September 30, 1996, the Company held cash and equivalents of $134,760,
and marketable securities valued at $49,066. The marketable securities represent
holdings in the common stock of the corporation which in October 1995 was merged
with and into the Company's inactive subsidiary, as further described in Note 4
to the accompanying financial statements. The fair value of such securities,
however, may be subject to significant fluctuation due to, among other factors,
limited trading volume and a small public float.
Based upon current spending levels, management believes that the cash on
hand and receipts of revenue expected in the fourth quarter will cover operating
costs until some time into the first quarter of 1997. Management is currently in
negotiations for technology transfer and licensing agreements which would
provide substantial operating funds, but execution of such agreements is not
assured. In the absence of the realization of significant revenues, additional
capital will be necessary to fund operations. The Company is considering a
number of alternatives for securing such funding in the event it becomes
necessary. In order to maximize available funds, the Company will continue to
minimize its operating expenditures through a number of measures, including the
continued deferral by all employees of significant portions of their salaries.
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SONEX RESEARCH, INC. FORM 10-QSB
Results of operations
A net loss from operations of $582,049 was recorded for the first nine
months of 1996, as compared to $497,391 for the corresponding period in 1995, an
increase of $84,658. The increase in the loss resulted from the decrease in
development contract revenue from $203,141 for the first nine months of 1995 to
zero for the comparable period in 1996, while total expenses decreased by
$118,483.
Revenue in 1995 consisted of $150,000 earned in connection with the
development contract begun in August 1994 on a diesel-fueled truck engine for a
major European manufacturer, and $53,141 from the July 1994 contract with the
National Renewable Energy Laboratory Division (NREL) of the Midwest Research
Institute, which is the field manager for the U.S. Department of Energy
Alternative Fuels Utilization Program, for a methanol-fueled diesel engine
demonstration. Work under both contracts was concluded during 1995, while
follow-on work on these and other projects in 1996 to date has not been funded
by the customers.
Research and development (R&D) expenses for the first nine months of the
year decreased by $20,002, or 5%, from $396,715 in 1995 to $376,713 in 1996, as
a decrease in personnel costs from $250,731 in 1995 to $228,391 in 1996, or
$22,340, was only partially offset by a net increase in other expense categories
of $2,338. In 1995 the Company awarded bonuses to three non-officer employees
totaling $31,625, of which amount $17,500 was paid in common stock and warrants,
$7,061 was paid in cash and $7,064 was deferred, while in 1996, the only bonus
awarded was that for $10,000 to the Company's chief executive officer. The
remaining net decrease in personnel costs resulted from the termination of the
employment of a technician, whose position was not filled, early in 1995, offset
by a slight increase in the pay rate of the Company's director of research and
an increase in health insurance premiums.
Charges for the two next largest R&D expense categories remained
relatively the same from 1995 to 1996, as the total charges relating to the
capitalized costs of patents and technology (i.e., amortization expense and
patent maintenance fees) decreased only slightly, from $58,500 in 1995 to
$53,409 in 1996, while occupancy expenses were essentially the same, $42,821 in
1995 and $42,804 in 1996. These decreases were offset on part by slight
increases in several other R&D expense categories, such as depreciation and
travel expenses.
General and administrative (G&A) expenses for the first nine months of
the year decreased by $97,996, or 32.4%, from $302,923 in 1995 to $204,927 in
1996, as significant reductions were realized in personnel costs and legal fees.
Personnel costs decreased from $174,855 in 1995 to $95,119 in 1996, or $79,736.
Part of the decline in personnel costs is due to the fact that in 1995 the
Company awarded a bonus to its chief financial officer of $35,000, of which
amount $25,000 was paid in common stock and warrants, $5,000 was paid in cash
and $5,000 was deferred, while in 1996 he was awarded a cash bonus of $10,000.
An additional decrease of approximately $55,000 was due to the change for 1996
in the compensation and employment commitment of the Company's president from
full-time to part-time, with a corresponding reduction in salary from $100,000
per year, 40% of which amount was deferred, to $2,000 per month with no portion
deferred.
The next largest G&A expense category, legal and auditing fees, decreased
by $16,025, from $41,464 in 1995 to $25,439 in 1996. Although audit fees were
essentially the same, $9,720 in 1995 and $9,815 in 1996, total legal fees
decreased from $31,744 in 1995 to $15,624 in 1996, as the Company incurred fewer
charges related to the lawsuit filed by two former officers of the Company, fees
for corporate legal services, and services by the Company's patent attorney. The
decreases in personnel costs and legal fees were offset in part by an increase
in the premiums for workers compensation insurance and the charges for the
services of a public relations firm hired in January 1996 to undertake a
publicity campaign for the Company.
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SONEX RESEARCH, INC. FORM 10-QSB
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
4 Instruments defining the rights of security holders (contained
in the Articles of Incorporation and By-laws, as amended,
filed with the 1992 Annual Report on Form 10-KSB)
(b) Reports on Form 8-K:
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereto duly
authorized.
SONEX RESEARCH, INC.
(Registrant)
George E. Ponticas
----------------------------
by: George E. Ponticas
Chief Financial Officer
November 14, 1996
- 12 -
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