UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[[root]] Quarterly Report Pursuant to Section 13 or 15(d)of the Securities
Exchange Act of 1934
For the quarterly period ended June 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)
Data Display Corporation
(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 June 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 June 30, 1996 and December 31, 1995 ........................ 3
Statements of Operations - Three Months Ended June 30,
1996 and 1995 .................................................... 5
Statements of Operations - Six Months Ended
June 30, 1996 and 1995
Statements of Cash Flows - Six Months Ended
June 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
2
<PAGE>
ZEON CORPORATION
BALANCE SHEETS
June 30, December 31,
1996 1995
--------- --------
(unaudited)
CURRENT ASSETS
Cash ............................................. $129,524 $126,229
Trade Receivables, Net of Allowance
for Doubtful Accounts ....................... 243,216 178,263
Inventories ...................................... 175,870 179,482
Prepaid Expenses and Other ....................... 47,460 64,949
-------- --------
TOTAL CURRENT ASSETS .................... 596,070 548,923
Property and Equipment (net of
accumulated depreciation and
amortization) ........................... 91,754 110,185
Other ............................................ 59,996 54,391
-------- --------
TOTAL NON-CURRENT ASSETS ................ 151,750 164,576
TOTAL ASSETS ............................ $747,820 $713,499
======== ========
3
<PAGE>
ZEON CORPORATION
BALANCE SHEETS (Continued)
June 30, December 31,
1996 1995
--------- ---------
(unaudited)
CURRENT LIABILITIES
Accounts Payable ................................... $ 170,989 $ 90,564
Accrued Expenses ................................... 58,585 81,132
--------- ---------
TOTAL CURRENT LIABILITIES ................. 229,574 171,696
Shareholders' Equity:
Common stock, no par, $.10 stated
value; authorized 1,000,000;
issued 350,250 June 30, 1996
and December 31, 1995 .............................. 35,020 35,020
Capital in Excess of Stated Value .................. 939,338 939,338
Deficit ............................................ (456,112) (432,555)
--------- ---------
518,246 541,803
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY ...................... $ 747,820 $ 713,499
========= =========
4
<PAGE>
ZEON CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Three Months
Ended Ended
June 30, June 30,
--------- ---------
Net Sales ...................... $ 577,925 $ 596,544
Cost of Sales .................. 348,008 371,733
--------- ---------
Gross Profit ................... 229,917 224,811
Operating Expenses:
Selling ............... 79,568 67,525
General ............... 95,939 92,543
Research & Development .... 29,117 25,911
--------- ---------
204,624 185,979
--------- ---------
Income (Loss) From Operations .. 25,293 38,832
Other Charges (Credits):
Interest Expense ...... 2 2,281
Interest Income ....... (357) (883)
Gain on Sale of Data
Display Div. assets -0- (45,000)
Other (Income) Expenses (5,839) (14,080)
(6,194) (57,682)
--------- ---------
Net Income (Loss) .............. $ 31,487 $ 96,514
========= =========
Earning per share:
Net Income (Loss) ............ $ .09 $ .27
========= =========
Weighted Average Common
Shares Outstanding ........... 350,205 353,119
5
<PAGE>
ZEON CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995
----------- -----------
Net Sales ...................... $ 1,075,898 $ 1,247,088
Cost of Sales .................. 689,997 775,176
----------- -----------
Gross Profit ................... 385,901 471,912
Operating Expenses:
Selling ............... 182,602 148,890
General ................... 177,758 177,801
Research & Development 62,062 46,691
----------- -----------
422,422 373,382
----------- -----------
Income (Loss) From Operations .. (36,521) 98,530
Other Charges (Credits):
Interest Expense ...... 105 4,114
Interest Income ....... (1,330) (1,408)
Gain on sale of Data
Display Div. assets . 0 (45,000)
Other (Income) Expenses (11,738) (26,967)
----------- -----------
(12,963) (69,261)
Net Income (Loss) .............. $ (23,558) $ 167,791
=========== ===========
Earning per share:
Net Income (Loss) ............ $ (.07) $ .47
=========== ===========
Weighted Average Common
Shares Outstanding ........... 350,205 353,119
6
<PAGE>
ZEON CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995
----------- -----------
Cash Flows From Operating Activities:
Net Income (Loss) ..................... $ (23,558) $ 167,791
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided By (Used
In) Operating Activities:
Depreciation & Amortization ........... 24,906 29,319
Provisions for Losses on
Accounts Receivable ................ 1,500 2,275
Change in Operating Assets & Liabilities:
Decrease (Increase) in Accts Recvble .. (66,453) (115,126)
Decrease (Increase) in Inventory ...... 3,612 35,914
Decrease (Increase) in Prepaid Assets . 11,885 (35,132)
Increase (Decrease) in Accts Payable .. 80,425 (83,846)
Increase (Decrease) in Accrued Expenses (22,547) 30,568
--------- ---------
Total Adjustments: ..................... 33,328 (136,028)
Net Cash Provided By (Used In) Operating
Activities: .............................. 9,770 31,763
Cash Flows From Investing Activities:
Purchase of Capital Assets ............ (6,475) (6,488)
Proceeds from sale of Fixed Assets .... 0 0
--------- ---------
Net Cash Provided By (Used In) Investing
Activities: .............................. (6,475) (6,488)
--------- ---------
Cash Flows From Financing Activities:
Net (Payments) Borrowings under
Short-term Note Payable ......... -0- -0-
Net Increase (Decrease) of
Long-term Debt .................. -0- (36,247)
Net Cash Provided By (Used In) Financing
Activities: .............................. -0- (36,247)
Net Increase (Decrease) In Cash: .......... 3,295 (10,972)
Cash At Beginning Of Period: .............. 126,229 143,745
--------- ---------
Cash At End Of Period: .................... $ 129,524 $ 132,773
========= =========
7
<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:
Effective June 30, 1995 the shareholders of the Company approved a
reverse split of one share for every 100 shares of common stock
outstanding. As a result, earnings (loss) per share amounts have been
restated for all periods presented to reflect the reverse stock split.
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 respective periods ended June 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)
June 30, December 31,
1996 1995
-------- -------
Finished Goods $ 30,173 $ 47,154
Work-in-process 21,158 9,800
Raw Materials 124,539 122,528
-------- -------
$175,870 $179,482
======== ========
8
<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 which
include, among other things, restrictions on borrowings and dividend
payments. At June 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 in 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. The Company is also responsible for maintenance and operating
costs.
The Company has an operating lease agreement with an unrelated party
which requires monthly payments of approximately $5,400 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 June 30, 1996, no shares had been issued under this
plan.
9
<PAGE>
ZEON CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
Effective June 21,1995 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 June 30, 1996, no stock options had been granted.
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. Supplemental:
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.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
Financial Condition:
The liquidity of ZEON Corporation declined slightly with a current ratio of 2.6
to 1 at June 30, 1996 from 3.4 to 1 at December 31, 1995. The decline in
liquidity was due mainly to loss from operations and increased receivables from
late quarter strong sales. 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, Inc., a Colorado corporation. The
Division and its assets were sold 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 June 30, 1996 and 1995
THREE MONTHS ENDED JUNE 30,
1996 1995
-------- --------
Sales: ................................ $577,925 $596,544
Gross Profit: ......................... 229,917 224,811
Income (Loss): ........................ 31,487 96,514
Second quarter sales for 1995 included $27,723 in Data Display Division sales.
This Division was sold in May 1995. Neon sales of $577,925 increased by $9,104
over 1995 Neon sales of $568,821. Second quarter sales for 1996 improved
significantly (16%) over prior 1996 first quarter. This was partially achieved
by increased production capacity through replacement of neon glass tubebenders
who had left the Company. As a percentage of Neon sales, the Company's gross
profit improved over 1995's second quarter by approximately 3 points. Most of
this improvement was from stronger price performance and favorable product mix.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED):
Quarterly selling expenses increased $12,000 or 18% over 1995. Approximately
half of the rise was attributed to increased commissions and half related to
promotional and convention expenses.
General expenses increased by 4 percent over last year's second quarter due to
increased salaries. The overall increase was partially offset by reducing the
other general and administrative expenses.
Research and Development costs increased by approximately $3,000 mainly with
purchase of prototype materials. Additional costs were incurred associated with
the ZEON RT lightbox product introduction earlier this year.
Other income was approximately $7,000 lower than 1995 second quarter as income
from Display customer repair business was absent. In addition, the Company had
also realized during 1995's second quarter a $45,000 gain from the sale of Data
Display Division assets to Colorado Time Systems, Inc.
Results of operations for the six months ending June 30, 1996 and 1995
SIX MONTHS ENDED JUNE 30,
1995 1995
----------- -----------
Sales ................................ $ 1,075,898 $ 1,247,088
Gross Profit ......................... 385,901 471,912
Income (Loss) ........................ (23,558) 167,791
The Company's year-to-date Neon sales showed 8% decrease over prior 1995's first
half. In first half of 1995, Neon showed $1,167,000 in Neon sales with remainder
in Display sales. Although 1996 second quarter sales showed an improvement over
prior year, first quarter shipments 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.
Gross profit percent for Neon sales fell from 1995 first half's 36.8% to 1996's
35.9%. This .9 point decline was primarily unfavorable product mix and key
customer transition to slightly less profitable product line.
Selling expense increased 22% over last year. For the 1996's first half, overall
promotional and convention expenses and commission expenses increased from
1995's level.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED):
General and administrative expenses remained flat from 1995's first half.
Increased salaries were offset by a reduction in the other general and
administrative expenses.
Research and Development expenses were up by $16,000 over the first six 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 RT lightbox product
line, personnel costs were reduced.
Other income decreased from $12,963 to prior year's $24,261. The drop was
primarily the absence of Display repair income. The Company also realized a
$45,000 gain from the sale of Data Display Division assets to Colorado Time
Systems, Inc. in the second quarter of 1995.
13
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of matters to a vote of Security-Holders
The Company will have its annual shareholders' meeting on August 23,
1996.
Item 5. Other information
None
Item 6. Exhibits and Reports on Form 8-K
Part A. None
Part B. No reports on Form 8-K have been filed for the quarter ended
June 30, 1996
14
<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: August 21, 1996 /s/ T. Bryan Alu
------------------------- -------------------
T. Bryan Alu
President
/s/ R. G. Routt
------------------
R. G. Routt
Corporate Controller
15
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000796513
<NAME> Zeon Corporation
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1.000
<CASH> 129,524
<SECURITIES> 0
<RECEIVABLES> 246,830
<ALLOWANCES> (3614)
<INVENTORY> 175,870
<CURRENT-ASSETS> 596,070
<PP&E> 380,182
<DEPRECIATION> (288,428)
<TOTAL-ASSETS> 747,820
<CURRENT-LIABILITIES> 170,989
<BONDS> 0
0
0
<COMMON> 35,017
<OTHER-SE> 668,796
<TOTAL-LIABILITY-AND-EQUITY> 747,820
<SALES> 1,075,898
<TOTAL-REVENUES> 1,075,898
<CGS> 689,997
<TOTAL-COSTS> 689,997
<OTHER-EXPENSES> 409,459
<LOSS-PROVISION> 1,500
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (23,558)
<INCOME-TAX> 0
<INCOME-CONTINUING> (23,558)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,558)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
