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 December 31, 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 Part I Financial Information Item 1. Financial Statements STATEMENT OF OPERATIONS (unaudited) Three Months Ended Nine Months Ended

~~Three Months Ended Six Months Ended 9~~12/3031/00 912/3031/99 912/3031/00 912/3031/99 ~~----------- ------------ ------------ ------------~~ Products and service revenues $ ~~527~~602,~~198~~527 $ ~~518~~517,~~659~~926 $ ~~892~~1,~~559~~495,086 $ ~~992~~1,~~305~~510,231 Cost of products and services sold ~~186~~243,~~160~~480 ~~214~~209,~~044~~897 ~~309~~552,~~397~~877 ~~409~~619,~~980~~877 Selling and administrative expenses ~~229~~239,~~833~~765 ~~227~~248,~~217~~243 ~~475~~715,~~421~~186 ~~448~~696,~~147~~391 Research and development expenses and software construction and product enhancement amortization 5281,~~785~~583 3538,~~414~~564 ~~107~~189,~~519~~102 61100,~~859~~423 564,828 496,704 1,457,165 1,416,691 ------- ------- --------- --------- Operating profits 37,699 21,222 37,921 93,540 ------- ------- --------- --------- ~~468,778~~Interest ~~476~~expense,~~675~~ ~~892,337~~net ~~919~~(7,~~986~~780) ~~Operating income 58~~(2,~~420~~996) 41(20,~~984~~275) ~~222 72~~(5,~~319~~899) ~~Interest~~Foreign ~~expense,~~currency ~~net~~gain (~~6,830~~loss) ~~(1,185)~~242 (12~~,495~~) 242 (~~2,902~~12) ------- ------- --------- --------- Income before taxes 5130,~~590~~161 4018,~~799~~214 ~~(12~~17,~~273)~~888 6987,~~417~~629 Provision for income taxes - - - - -------~~----~~ -------~~-----~~ ---------~~---~~ ---------~~---~~ Net income ~~(loss) 51~~30,~~590~~161 4018,~~799~~214 ~~(12~~17,~~273)~~888 6987,~~417~~629 Less: Dividend payable on preferred shares 0(3,578) (83,~~160~~644) 0(3,578) (1317,~~883~~527) -------~~----~~ -------~~-----~~ ---------~~---~~ ---------~~---~~ Net income ~~(loss)~~ available to common shareholders $ 5126,~~590~~583 $ 3214,~~639~~570 $ ~~(12~~14,~~273)~~310 $ 5570,~~534~~102 =========== =========~~===~~ =========~~===~~ =========~~===~~ Weighted average of common shares ~~outstanding~~ 3,044,136 3,044,136 3,044,136 3,044,136 outstanding Dilutive potential common shares: Class A convertible preferred ~~Stock~~stock 1,200,000 1,200,000 -1,200,000 1,200,000 Stock options ~~60,625~~667 31- 58,~~077~~476 - - --------~~---~~ ---------~~---~~ ---------~~---~~ ------------ Adjusted weighted average of common shares outstanding 4,~~304~~244,~~761~~803 4,~~275~~244,~~213~~136 34,~~044~~302,~~136~~612 4,244,136 =========== =========~~===~~ =========~~===~~ =========~~===~~ Basic earnings per share $0.0201 $0.0100 $0.00 $0.02 =========== =========~~===~~ =========~~===~~ =========~~===~~ Diluted earnings per share $0.01 $0.0100 $0.00 $0.0102 =========== =========~~===~~ =========~~===~~ =========~~===~~

The accompanying notes are an integral part of these financial statements. Item 1 - Financial Statements (continued) BALANCE SHEETS As of December 31, 2000 & March 31, 2000 (Unaudited) Dec. 31 March-31 ASSETS 2000 2000 ------------ --------- Current Assets Cash $ 8,022 $ 34,578 Receivables Trade 211,285 101,662 Related parties 6,500 27,751 --------- --------- Total receivables 217,785 129,413 Inventories Finished products 63,941 137,628 Work in process 28,210 18,561 Raw material 105,648 81,229 --------- --------- Total inventories 197,799 237,418 Prepaid expenses 38,325 1,896 --------- --------- Total Current Assets 461,931 403,305 Property and Equipment-at Cost Furniture and office equipment 104,504 102,217 Machinery and plant equipment 229,985 219,381 Software construction and product enhancement 2,360,457 2,270,008 --------- --------- 2,694,946 2,591,606 Less accumulated depreciation and amortization 2,532,198 2,494,387 --------- --------- 162,748 97,219 --------- --------- Total Assets $ 624,679 $ 500,524 ========= ========= LIABILITIES Current Liabilities Note payable $ 110,000 $135,000 Current maturities of long term obligations 5,405 5,133 Accounts payable - trade 666,883 567,958 Accounts payable - related parties 7,441 - Dividend payable 12,153 8,575 Deferred income 263,212 244,098 Accrued liabilities Salaries and wages 85,136 88,693 Property and payroll taxes 44,907 33,777 Commissions 83,775 72,043 Other 47,175 56,874 --------- --------- Total Accrued Liabilities 260,993 251,387 --------- --------- Total Current Liabilities 1,326,087 1,212,151 Long-term obligations, less current maturities 938 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 (8,891,901) (8,906,211) --------- --------- Total Shareholders' Deficit (702,346) (716,656) --------- --------- Total Liabilities and Shareholders' Deficit $ 624,679 $ 500,524 ========= =========

The accompanying notes are an integral part of these financial statements. Item 1 - Financial Statements (continued) STATEMENT OF SHAREHOLDERS' DEFICIT For the nine months ended December 31, 2000 (unaudited)

~~(Unaudited)~~Additional ~~Sept.~~Common 30Preferred ~~March-31~~Paid ~~2000 2000~~ -~~---------~~ ~~----------~~In ~~ASSETS~~Accumulated ~~Current~~Shares ~~Assets~~Shares ~~Cash~~Capital $Deficit ~~8,200~~Total ~~$ 34~~Balance,~~578~~ ~~Receivables~~March ~~Trade 212~~31,~~649~~ ~~101,662~~2000 ~~Related~~$ ~~parties 500 27~~61,~~751~~674 ~~-------------~~$ ~~------------- Total receivables 213~~2,~~149 129~~400,~~413~~000 ~~Inventories~~$ ~~Finished products 25~~5,~~237 137~~727,~~628~~881 ~~Work~~$ ~~in process 99~~(8,~~013 18~~906,~~561~~211) ~~Raw~~$ ~~material 95~~(716,~~853~~656) ~~81,229~~Net ~~-------------~~income ~~-------------~~for ~~Total~~the ~~inventories~~period ~~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~~17,~~504~~888 ~~102~~17,~~217~~888 ~~Machinery~~Dividends ~~and~~payable ~~plant~~on ~~equipment~~preferred ~~229,084~~shares ~~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~~(3,~~630~~578) 97(3,~~219~~578) --------~~-----~~ ---------~~----~~ ~~Total Assets $ 632,595 $ 500,524 ============= ============= LIABILITIES Current Liabilities Note Payable $150,000 $135,000 Current maturities of long term obligations 5,313 5,133 Accounts payable~~ - trade 679,365 567,958 Dividend payable 8,575 8,575 Deferred income 247,818 244,098 Accrued liabilities Salaries and wages 95,887 88,693 Property and payroll taxes 31,468 33,777 Commissions 100,202 72,043 Other 40,570 56,874 ----------~~---~~ ------------- ~~Total Accrued Liabilities 268,127 251,387~~ --------~~-----~~ ~~------------- Total Current Liabilities 1~~Balance,~~359,198~~ ~~1,212,151~~December ~~Long-Term Obligations~~31, ~~Less~~2000 ~~Current~~$ ~~Maturities 2~~61,~~326~~674 ~~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~~891,~~484~~901) ~~(8,906,211)~~$ ~~------------- ------------- Total Shareholders' Deficit~~ (~~728~~702,~~929~~346) ~~(716,656)~~======== ~~------------- ------------- Total Liabilities and Shareholders' Deficit $ 632,595 $ 500,524~~ ========= =========== =========== ========

The accompanying notes are an integral part of these financial statements. Item 1 - Financial Statements (continued) STATEMENTS OF CASH FLOWS For the nine months ended December 31, (unaudited)

~~Additional~~2000 ~~Common~~1999 ~~Preferred~~Cash ~~Paid~~provided -(used) Inby ~~Accumulated~~operations ~~Shares~~Net ~~Shares~~income ~~Capital~~for ~~Deficit~~period ~~Total~~$ ~~Balance~~17,888 ~~March~~$ 3187,629 ~~2000~~Adjustments $to 61reconcile net income to cash from operations Depreciation and amortization 11,~~674~~495 $8,342 Amortization of software construction and product enhancements 26,316 2,~~400~~862 Provision for obsolete inventory 18,000 ~~$ 5~~18,~~727,881~~000 $Amortization of deferred income and deferred rent (870,~~906,211~~881) $ (~~716~~113,~~656~~272) ~~Net~~Foreign currency (gain) loss ~~for~~and ~~the~~other ~~period~~(242) -12 -Increase -(decrease) in cash due to changes in Accounts receivable (12101,~~273~~064) (1238,~~273~~221) ~~Dividends~~Inventories 21,619 14,432 Prepaid expenses (36,429) (1,387) Accounts payable on119,300 ~~preferred~~(28,704) ~~shares~~Accrued -liabilities -9,606 -(2,718) -Deferred -income 89,995 44,697 ---------- ---------~~----~~ Net cash provided (used) by operations 105,603 (8,328) Cash used in investment activities Purchase of equipment (12,891) (5,667) Increase in software construction and product enhancements (90,449) (64,764) --------- ---- ----- Net cash used in investment activities (103,340) (70,431) Cash provided (used) by financing activities Addition (repayment) of note payable (25,000) 85,000 Payments on debt obligations (3,819) (19,557) --------- ----------- ~~Balance,~~Net ~~September~~cash ~~30,~~provided ~~2000~~(used) $by 61financing activities (28,~~674~~819) $65,443 2Decrease in cash (26,~~400~~556) (13,~~000~~316) $Cash 5- beginning of period 34,~~727~~578 32,~~881~~848 --------- --------- Cash - end of period $ (8,~~918,484)~~022 $ ~~(728~~19,~~929)~~532 ========== =========~~====~~ ~~=============~~Interest paid during period $ 20,275 $ 5,899 =========~~====~~ ===========

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 December 31, 2000 and the results of operations for the three and nine month periods ended December 31, 2000 and 1999 and its cash flows for the nine month periods ended December 31, 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 December 31, 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. 3. Earnings Per Share Certain stock options were not included in the diluted earnings per share calculations for the three months ended December 31, 2000 as 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 $84,601, or 16% for the three months ended December 31, 2000, when compared to the prior year period. Sales continued to increase in the targeted new markets for special systems and test applications during the period resulting in significantly higher Medallion product revenue for the current three month period when compared to the prior year. For the nine months ended December 31, 2000, revenue decreased by $15,145 or 1% when compared to the same period of the prior year. This slight decrease was due to a significant decline in revenue from custom designed systems which the Company no longer actively markets but was mostly offset by increased Medallion product revenue. Order backlog amounted to $148,000 at December 31, 2000 compared with $105,000 at December 31, 1999. The increase occurred primarily in Medallion products. Costs of products and services sold were 40% and 37% of products and services revenues for the three and nine months ended December 31, 2000, respectively, versus 41% for the same periods of the prior year. Costs increased during the current three month period versus costs earlier during the current year due to lower margins on certain sales in the targeted new markets. The year-to-date decrease resulted from increased sales of Medallion software products which had significantly lower costs during the current year versus higher costs related 7000 Series and custom designed system sales in the prior year. Selling and administrative expenses decreased $8,478 or 3% during the current three month period versus the same prior year period. Fewer sales from outside sales representatives resulted in decreased commission expense during the period but was partially offset by higher commissions paid to employees. For the nine months ended December 31, 2000, expenses increased $18,795 or 3% versus the prior year 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 by a significant decrease in professional services expense. Selling and administrative expenses were 40% and 48% respectively of products and service revenues for the current three and nine month periods versus 48% and 46% respectively for the same periods of the prior year. The decrease for the current three month period was due mainly to the increase in revenue which occurred during the same period. Research and development expenses and software construction amortization was $81,583 and $189,102, respectively, for the three and nine month periods ended December 31, 2000 versus $38,564 and $100,423, 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 product research and development costs versus the prior year. See Software Construction and Product Development under Liquidity and Capital Resources. Interest expense was $7,780 and $20,275, respectively, for the three and nine month periods ended December 31, 2000 versus $2,996 and $5,899, respectively, for the same periods ended December 31, 1999. This increase was due to higher borrowings and discounts given to customers for payment of accounts before stated terms during the current year. Foreign currency gain was $242 for the three and nine months ended December 31, 2000 versus a loss of $12 for the three and nine months of the prior year. This gain and loss are due to an increase and decrease, respectively, in the value of the dollar against the Japanese yen. Income tax expense of $10,254 and $6,082, respectively, for the three and nine months ended December 31, 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 December 31, 2000 and March 31, 2000 were $127,252 and $63,119, respectively. The cash outlay for capitalized software construction and product enhancement costs during the current and prior year nine month periods were $90,449 and $64,764, respectively. Working Capital and Cash Flow The Company's working capital decreased from a negative $808,846 at March 31, 2000 to a negative $863,620 at December 31, 2000. The current ratio was .33 and .35 at March 31, 2000 and December 31, 2000, respectively. The change in working capital was due primarily to increases in accounts payable and accrued commissions which were partially offset by lower short-term borrowings and an increase in accounts receivable. The Company's cash flows from operations amounted to $105,603 for the nine months ended December 31, 2000. Investment in software construction and product enhancement activities and purchased equipment amounted to $90,449 and $12,891, respectively. The Company repaid $25,000 of its short-term borrowings from the bank and made payments on other long-term debt totaling $3,819 during the nine months ended December 31, 2000. The Company continues to experience cash flow problems as current liabilities exceed current assets. Many of these excess liabilities relate to unsettled accounts payable from prior years. The Company's operations generated sufficient cash flow to meet its current obligations during the current three month period, but outstanding obligations have increased over the current nine month period. As such, the Company is unable to reduce the amount of the old unsettled obligations. The Company periodically seeks additional working capital through debt or equity financing from public or private sources when opportunities become available, but to date has been unable to obtain additional financing 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: February 9, 2001

2000 1999 ---------- ------------ 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 ========== ============

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