UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1996
Commission File Number 33-6859-D
ZEON CORPORATION
(Exact name of registrant as specified in its charter)
Colorado 84-0827610
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1500 Cherry Street, Louisville, CO 80027
(Address of principal executive offices) (Zip Code)
(303) 666-9400
(Registrant's telephone number including area code)
(Former name, former address and former fiscal year if changed
since last reported)
Check whether the issuer (1) has filed all reports required to be filed by
Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 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.
[X] Yes [ ] No
Number of shares of Common Stock Outstanding at September 30, 1996.
Common Stock, No Par Value 350,205
(Class) (Number of Shares)
Transitional Small Business Disclosure Format (check one):
[ ]Yes [X] No
<PAGE>
ZEON CORPORATION
INDEX
Page
Part I - Financial Information
Balance Sheets September 30, 1996 and December 31, 1995 3
Statements of Operations - Three Months Ended September 30,
1996 and 1995 5
Statements of Operations - Nine Months Ended
September 30, 1996 and 1995 6
Statements of Cash Flows - Nine Months Ended
September 30, 1996 and 1995 7
Notes to Financial Statements 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II - Other Information 14
Signature Page 15
<PAGE>
ZEON CORPORATION
BALANCE SHEETS
September 30, 1996 December 31, 1995
(unaudited)
CURRENT ASSETS
Cash $ 155,903 $ 126,229
Trade Receivables, Net of Allowance
for Doubtful Accounts 207,690 178,263
Inventories 178,790 179,482
Prepaid Expenses and Other 30,261 64,949
TOTAL CURRENT ASSETS 572,644 548,923
Property and Equipment (net of
accumulated depreciation and
amortization) 83,327 110,185
Other 57,626 54,391
TOTAL NON-CURRENT ASSETS 140,953 164,576
TOTAL ASSETS $ 713,597 $ 713,499
<PAGE>
ZEON CORPORATION
BALANCE SHEETS (Continued)
September 30, 1996 December 31, 1995
(unaudited)
CURRENT LIABILITIES
Accounts Payable $ 148,636 $ 90,564
Accrued Expenses 32,699 81,132
TOTAL LIABILITIES 181,335 171,696
Shareholders' Equity:
Common stock, no par, $.10 stated
value; authorized 1,000,000;
issued 350,205 September 30, 1996
and December 31, 1995 35,020 35,020
Capital in Excess of Stated Value 939,338 939,338
Deficit (442,096) (432,555)
532,262 541,803
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 713,597 $ 713,499
<PAGE>
ZEON CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Three Months Ended
September 30, 1996 September 30, 1995
Net Sales $ 552,618 $ 517,326
Cost of Sales 353,620 349,141
Gross Profit 198,998 168,185
Operating Expenses:
Selling 80,974 68,000
General 86,182 89,400
Research & Development 25,937 24,829
193,093 182,229
Income (Loss) From Operations 5,905 (14,044)
Other Charges (Credits):
Interest Expense 2,797
Interest Income (3,885) (1,391)
Other (Income) Expenses (4,227) (5,635)
(8,112) (4,229)
Net Income (Loss) $ 14,017 $ (9,815)
Earning per share:
Net Income (Loss) $ .04 $ (.03)
Weighted Average Common
Shares Outstanding 350,205 353,119
<PAGE>
ZEON CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995
Net Sales $1,628,516 $1,764,414
Cost of Sales 1,043,617 1,124,317
Gross Profit 584,899 640,097
Operating Expenses:
Selling 263,576 216,890
General 263,940 267,201
Research & Development 87,999 71,520
615,515 555,611
Income (Loss) From Operations (30,616) 84,486
Other Charges (Credits):
Interest Expense 105 6,911
Interest Income (5,215) (2,799)
Gain on sale of Data
Display Div. assets 0 (45,000)
Other (Income) Expenses (15,965) (32,602)
(21,075) (73,490)
Net Income (Loss) $ (9,541) $157,976
Earning per share:
Net Income (Loss) $ (.03) $ .45
Weighted Average Common
Shares Outstanding 350,205 353,119
<PAGE>
ZEON CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended Nine Months Ended
September 30,1996 September 30,1995
Cash Flows From Operating Activities:
Net Income (Loss) $ (9,541) $ 157,976
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided By (Used
In) Operating Activities:
Depreciation & Amortization 37,359 43,846
Provisions for Losses on
Accounts Receivable 2,750 3,025
Change in Operating Assets & Liabilities:
Decrease (Increase) in Accts Recvble (32,177) (16,229)
Decrease (Increase) in Inventory 692 (556)
Decrease (Increase) in Prepaid Assets 31,451 (31,079)
Increase (Decrease) in Accts Payable 32,312 (66,091)
Increase (Decrease) in Accrued Expenses (22,672) 24,306
Total Adjustments: 49,715 (42,778)
Net Cash Provided By (Used In) Operating
Activities: 40,174 115,198
Cash Flows From Investing Activities:
Purchase of Capital Assets (10,500) (13,228)
Net Cash Provided By (Used In) Investing
Activities: (10,500) (13,228)
Cash Flows From Financing Activities:
Net Increase (Decrease) of
Long-term Debt 0 (114,080)
Net Cash Provided By (Used In) Financing
Activities: 0 (114,080)
Net Increase (Decrease) In Cash: 29,674 (12,110)
Cash At Beginning Of Period: 126,229 143,745
Cash At End Of Period: $ 155,903 $ 131,635
<PAGE>
ZEON CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Summary of significant accounting policies:
Inventories:
Inventories are valued at the lower of cost or market. Cost is
determined at standard, which approximates first-in, first-out.
Property, Equipment and Depreciation:
Property and equipment are stated at cost. For financial reporting
purposes, depreciation is calculated using the straight-line method over
the related assets estimated useful lives, which approximate five years.
For income tax reporting purposes, depreciation is calculated using
accelerated methods.
Revenue Recognition:
Sales are recorded in the periods that product is shipped.
Taxes on Income:
The Company follows the provisions of Statement of Financial Accounting
Standards No. 109 - Accounting for Income Taxes (SFAS No. 109). Under
SFAS No. 109, the Company's policy is to provide deferred income taxes
on differences between the financial reporting and tax basis of assets
and liabilities.
Earnings (Loss) Per Share:
Income (loss) per common share is computed on the basis of the weighted
average number of common shares outstanding during each period. The
average number of shares outstanding was 350,205 and 353,119 during each
of the periods ended September 30, 1996 and December 31, 1995.
Reclassifications:
Certain reclassifications have been made to the accompanying financial
statements for comparative purposes.
2. Inventories:
Inventories consist of the following:
(Unaudited)
September 30 December 31,
1996 1995
Finished Goods $ 36,078 $ 47,154
Work-in-process 12,508 9,800
Raw Materials 130,204 122,528
$178,790 $179,482
<PAGE>
ZEON CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
3. Notes payable and long-term debt:
The Company has a line-of-credit commitment from its bank for
borrowings of up to $100,000, with interest on any borrowing at 1% above
the bank's reference rate to be paid monthly. The loan commitment, if
exercised, is collateralized by trade receivables, inventories, property
and equipment and intangibles. Under the terms of the agreement, the
Company is subject to certain restrictions on borrowings and dividend
payments. At September 30, 1996 and December 31, 1995, no amount was
outstanding under the line-of-credit agreement.
4. Commitments and related party transactions:
In December 1992, the Company entered into an operating lease to
consolidate its primary manufacturing and office facilities. The
property is leased through January 2003 from an entity of which T. Bryan
Alu, President and Chief Executive Officer of the Company, is a partner.
The lease contains an option to renew for two additional five-year
periods and requires monthly payments of approximately $6,700 with the
Company also responsible for maintenance and operating costs.
The Company has an operating lease agreement with an unrelated party
which requires monthly payments of approximately $5,700 through
December 31, 2000 including renewal options. The Company has entered
into a sublease agreement for this space with an unrelated party
through December 31, 2000 at an initial monthly rent rate of
approximately $8,400.
Effective July, 1991 the Company adopted a directors' compensation plan
whereby directors will be compensated with restricted common stock of
the Company in exchange for services provided. Shares issued will be
valued based upon the market value of the stock as determined by the
Company. As of September 30, 1996, no shares had been issued under this
plan.
Effective June 21,1994 at the annual shareholders' meeting, the
Company's shareholders approved a stock option incentive plan proposed
by the Board of Directors. Stock options may be granted to any employee
or director of the Company at the discretion of the Board of Directors.
As of September 30, 1996, no stock options had been granted.
<PAGE>
ZEON CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
5. Taxes on income and available carryforwards:
At December 31, 1995, the Company had net operating loss carryforwards
for income tax purposes of approximately $308,000 and investment credit
and research and development credits of approximately $45,000. The net
operating losses expire in varying amounts from 2003 through 2005, and
the investment credit and research and development credits expire in
varying amounts from 1996 through 2000.
6. Supplement:
During 1995, the Company sold certain assets (formerly referred to as
the "Display Division") of the Company having a net book value of
approximately $28,000 in exchange for cash proceeds of $37,000 and a
note receivable of $35,000.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
Financial Condition:
The liquidity of Zeon Corporation remained stable with a current ratio of
3.2 to 1 at September 30, 1996 and December 31, 1995. The current assets
and liabilities remained approximately the same as last year. Cash
position improved at September 30 with solid collection efforts and debt
free status realized in 1995 was held throughout 1996. Trade receivables
did increase with the third quarter sales increase, but their collection is
proceeding in normal fashion. Current capital equipment requirements are
deemed insignificant and internal funding and available bank resources are
considered adequate to meet those needs.
During the 1995 second quarter, the Company sold all of the assets of the
Data Display Division to Colorado Time Systems, a Colorado corporation.
The Division and its assets were purchased for a total purchase price equal
to $45,000 plus the cost of inventory (approximately $10,000) existing at
the closing on May 15, 1995. Cash of $20,000 and a promissory note
payable to the Company for $35,000 were received. The promissory note
bears interest at an annual rate of nine percent (9%) and will be payable
in equal monthly installments over twenty-four (24) months.
Results of Operations:
Results of operations for the three months ending September 30, 1996 and
1995
THREE MONTHS ENDED SEPTEMBER 30,
1996 1995
Sales: $552,618 $517,326
Gross Profit: 198,998 168,185
Income (Loss): 14,017 (9,815)
Third quarter sales increased by $35,000 over 1995. The 1995 third quarter
was the first quarter without Data Display division sales due to Data Display
Division having been sold in the second quarter of 1995. Gross profit for
1996's third quarter improved by 4 points over 1995's 32%. Third quarter 1995
gross profit was slightly depressed from price concessions given on a few
large orders whereas this current quarter showed more evenly distributed
sales among a broader customer base.
The Company had an operating income of $14,000 due to the increased volume
and margin and the absence of interest costs resulting from payoff of debt in
1995.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED):
Quarterly selling expenses increased $13,000 or 19% over 1995. The
majority of the increase resulted from commissions paid to third parties.
General expenses decreased by 3.7 percent over last year's third quarter.
Lower depreciation expense and reduction in other general and
administrative expenses accounted for the decrease.
Research and Development costs increased by approximately $1,000 as
product and prototype supplies slightly increased.
Other income was approximately $4,000 higher than 1995 third quarter with
the absence of interest costs (Debt was paid off in 1995.) and additional
interest income from excess funds invested.
Results of operations for the nine months ending September 30, 1996 and
1995
NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
Sales $1,628,516 $1,764,414
Gross Profit 584,899 640,097
Income (Loss) (9,541) 157,976
The Company's year-to-date sales showed 8% decrease over prior 1995's first
three quarters. With Data Display being sold in the 1995 second quarter,
Neon's performance decreased slightly by 3% from 1995's year-to-date neon
sales of $1,684,000 to 1996's $1,629,000. Although third and second quarters
of 1996 showed improvement over 1995, first quarter shipment performance fell
short of 1995's first quarter. First quarter of 1996 experienced production
capacity limitations with the departure of three neon glass tubebenders.
This labor shortage was corrected in early second quarter by filling the
vacant neon glass tubebender positions. Neon sales gross profit percent rose
slightly from 1995's 35.5% to 1996's 35.9%.
Selling expense increased 22% over last year. For the 1996's first nine
months, overall advertising and convention expenses and commission expenses
increased from 1995's level. Third party commissions also were incurred on
significant 1996 sales.
For the first nine months of 1996, general and administrative expenses fell
by $3,000. Lower depreciation expense and reduction in other general and
administrative expenses in the third quarter accounted for the decrease.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED):
Research and Development expenses were up by $16,000 over the first nine
months of the year. Increased programs, introduction of ZEON reflective
product and more prototype requests (from potential customers) resulted in
increased staffing and prototype materials. After introduction of ZEON
reflective product line, personnel costs were reduced. Third quarter R&D
expenses were merely $1,000 over 1995 third quarter expenses.
Other income for 1995's first nine months was $11,000 excluding the $45,000
gain from the sale of Data Display Division's assets and $17,000 of Data
Display Division repair income. Other income for 1996 increased to $21,000
with increased interest income and absence of 1995 interest expense.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of matters to a vote of Security-Holders
The Company had its annual shareholders' meeting on August 23, 1996.
The following sets forth the matters acted upon at such meeting and the
voting results with respect to each matter:
For Against Abstain
1.) Election of Directors
T. Bryan Alu 246,426 175
Alan M. Bloom 246,446 175
Jay R. Beyer 246,446 175
Item 5. Other information
T. Bryan Alu, President and principal shareholder of the registrant,
acquired 6,139 of Company common stock in October 1996 in a private
transaction with a related party. Following such acquisition, Mr. Alu's
beneficial ownership percentage of the registrant has increased from
48.4% to 50.2% of the registrant's total outstanding stock.
Item 6. Exhibits and 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 on its behalf by the
undersigned thereunto duly authorized.
Date: November 14, 1996 /s/ T. Bryan Alu
T. Bryan Alu
President
/s/ R.G. Routt
R. G. Routt
Corporate Controller
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<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1.000
<CASH> 155,903
<SECURITIES> 0
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<ALLOWANCES> (5093)
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<PP&E> 384,207
<DEPRECIATION> (300,880)
<TOTAL-ASSETS> 713,597
<CURRENT-LIABILITIES> 181,335
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0
0
<COMMON> 35,017
<OTHER-SE> 497,242
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<SALES> 552,618
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