U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended December 31, 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 No.)
1500 Cherry Street, Louisville, Colorado 80027
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 666-9400
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: None.
Check whether the issuer: (1) has filed all reports required to be
filed by Section 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
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this
form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year ended
December 31, 1996 were $2,152,700.
The aggregate market value of the voting stock held by non-
affiliates of the registrant (based on the average of bid and ask
price on March 20, 1997) was approximately $875,500.
As of March 20, 1997, the number of shares outstanding of the
registrant's common stock, no par value, $.10 stated value was
350,205.
Transitional Small Business Disclosure Format:
[] Yes [X] No
Documents Incorporated By Reference
None.
<PAGE>
PART I
Item 1. Business
Introduction: ZEON Corporation (formerly Data Display
Corporation) was incorporated under the laws of the State of
Colorado on September 19, 1980.
The Company operates in a single industry segment: sign
manufacturing.
The Company is engaged entirely in the manufacture and sale of
neon and fluorescent backlit illuminated signs and related
products. In May 1995, the Company sold its Electronic Display
Division to Colorado Time System, Inc., a Colorado Company in the
electronic display business. The Company recognized an one time
gain on the sale of this Division's assets of approximately
$44,000 in 1995.
The Company entered into the neon glass tubebending business in
July 1988 by acquiring the assets of a local neon business. The
Company converted this business from a wholesale operation
(primarily forming neon tubes for local sign companies) to a
volume production shop, manufacturing finished neon window and
interior signs for national accounts. The Company operates its
neon business as Neon Glassworks Division.
In May 1995, the Electronic Display Division was sold to Colorado
Time System, Inc., a Colorado Company in the display business.
The Electronic Display Division was the Company's original
business. This division designs, manufactures, and markets
software-based, micro-processor controlled programmable
electronic signs and communication display systems. Approximately
4 percent of the Company's sales in 1995 were generated by this
division.
At the June 1994 stockholders' meeting, a 1-for-100 reverse stock
split was approved. The reverse stock split changed the
outstanding stock shares from 35,334,711 to 353,384.
As of December 31, 1996, the Company had 24 full-time employees.
The following sets forth sales revenue, by division, from
unaffiliated customers:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Neon Signs $2,152,700 $2,156,400 $1,604,300
Display Communication
Systems -0- 80,000 188,300
TOTAL SALES 2,152,700 2,236,400 1,792,600
</TABLE>
Manufacturing. The Company manufactures all of its neon window
signs at its facilities in Louisville, Colorado.
<PAGE>
The neon signs are composed of phosphor-coated hollow glass tubes
that are heated to a molten state and formed into letters or
designs. The formed tubes are then filled with neon or argon gas
to achieve the desired colors. The glass is then mounted onto a
thermal-formed plastic backpanel and illuminated by a high-voltage
transformer that is attached to the back of the sign. The
materials and components are all readily available from multiple
sources.
Markets. The Neon Glassworks Division markets primarily to the
national chain/franchise market for point-of-purchase products and
logo signs.
The custom signs are used by our customers as product/service
promotion
and customer name/brand recognition. Neon Glassworks also markets
"generic" signs, such as OPEN signs, in various markets.
Distribution. The neon products are marketed by the Company's in-
house staff through direct contact and presence at selected trade
shows. Dealers are being used as a distribution channel for the
Zeon Neo-grid product line, described below under "Developments".
Competition. The industry in which the Company competes is highly
fragmented, very competitive and primarily characterized in all
market segments with small, privately-held companies, of a
comparable size and financial strength as ZEON Corporation. The
competition is primarily based on product quality, service and
price.
Developments.
The Company has been broadening its product line of illuminated
signs to address new markets. The Zeon Neo-grid introduced in
1994 is a changeable neon sign that is marketed through a national
network of instant sign shop dealers. The Zeon Neo-grid lets the
user use different message faces to be placed in front of and
backlit by the grid. A compliment to the Zeon Neo-grid was
developed in 1995, using fluorescent tubes instead of neon tubes.
A unique process of combining the fluorescent tubes with specular
reflectors enables this new illuminated sign to successfully
emulate the brightness of neon while offering the cost advantages
and visual flexibility of a traditional lightbox. A patent on this
new illuminated sign has been applied for. The commercial
introduction of this new product began in the first quarter of
1996. The fluorescent illuminated signs contributed $95,000 or 4%
of total 1996 revenue.
Development continued in 1996 on the redesign of the Company's neon
signs to meet or exceed UL requirements. While the overall
industry uses "UL listed" components, ZEON Corporation offers
complete UL signs in 95% of its product offerings. The Company
spent $122,200 and $103,600 for 1996 and 1995 respectively for
research and product design development.
Product Warranty. The components of the Company's products are
warranted by the Company as to material and workmanship for a
period of up to two years. This warranty is similar in duration to
the warranty provided by the Company's competitors. To date, the
Company has had no material costs associated with warranty claims.
<PAGE>
Item 2. Properties.
Effective December 1992, the Company leased 17,100 square feet,
located at 1500 Cherry Street in Louisville, Colorado for its
combined manufacturing and office operations at a monthly rental of
approximately $8,400. The lease runs through January 1, 2003. The
facility is leased from a partnership in which T.Bryan Alu,
President, Chief Executive Officer and a principal shareholder of
the Company, is a 50% partner. The Company feels that
office/manufacturing space in Louisville, Colorado is adequate for
its current operations.
Effective March 1992, the Company leased approximately 17,000
square feet as a production facility in Boulder, Colorado at a
monthly rate of approximately $5,700 from an unrelated party. The
original term of this lease expired in February 1996, with the
option for five one year renewals. Lease options have been
exercised. The Company vacated this facility in December 1992,
moved to its present Louisville facility and subleased the entire
space for a monthly rate of $9,200. The sublease expires on
December 31, 2000. A real estate commission for the long-term
sublease amounted to $52,000 that was partially financed by a note
held by the real estate company and paid off in 1996.
Item 3. Legal Proceedings.
There are no legal proceedings pending against the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no items submitted to a vote of security holders during
the last quarter of the Company's fiscal year ended December 31,
1996.
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The common stock of the Company is traded in the over-the-counter
market. SEC regulations regulate the solicitation procedures for
"penny stocks" and have severely curtailed the trading and
liquidity of ZEON Corporation shares. In addition, the National
Association of Security Dealers increased the requirements for a
NASDAQ listing which would require ZEON Corporation to roughly
quadruple in size before qualifying. During 1996, the Company had
as many as five market makers, each quoting different bid and ask
prices. The following over-the-counter bid quotations reflect
inter-dealer prices, without retail mark-up, mark-down, or
commission, and may not necessarily represent actual
transactions. Due to the lack of trading activity in ZEON
Corporation stock, the quotes listed below may not reflect
accurate market values. The following table sets forth the high
and low bid prices for the periods indicated based on a sampling
of quotes from various market makers:
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Fourth quarter ended December 31, 1996 $3.50 $1.00
Third quarter ended September 30, 1996 3.00 1.00
Second quarter ended June 30, 1996 3.00 1.00
First quarter ended March 31, 1996 3.00 1.00
Fourth quarter ended December 31, 1995 .NA .NA
Third quarter ended September 30, 1995 .88 .25
Second quarter ended June 30, 1995 .69 .22
First quarter ended March 31, 1995 .68 .19
NA= not available
</TABLE>
On March 20, 1997, the closing price of common stock of the Company
was a low of $1.00 and high of $4.00. (The above quotes prior to
reverse stock split were restated to reflect 1-for-100 reverse
stock split effected on June 21, 1994.)
At March 20, 1997, there are approximately 500 recordholders of the
Company stock.
Item 6. Managements Discussion and Analysis of Financial Condition
and Results of Operations.
Financial Condition.
The liquidity of ZEON Corporation continues to remain adequate to
meet the Company's obligations with a current ratio of 3.3 to 1 at
December 31, 1996, compared to a 3.2 to 1 at December 31, 1995.
Net cash surplus for 1996 was $ 7,500. Operations provided $21,000
with cash required by operating assets offset by cash generated by
normal business operations adjusted for non-cash depreciation
expense. Capital expenditures for 1996 were $ 13,900. Capital
expenditures for 1997 are anticipated to be approximately $25,000
for facility improvements, production equipment and tooling. The
Company believes that during the next twelve months, cash generated
by operating activities, cash and cash equivalents currently on
deposit and the Company's $100,000 bank line of credit commitment
will be sufficient for its short-term capital and operating needs.
<PAGE>
Results of Operations:
Results of Operations 1996 Compared to 1995.
<TABLE>
<CAPTION>
Divisional Summary 1996
Neon Display TOTAL
<S> <C> <C> <C>
Sales $2,152,700 $ NA $2,152,700
Gross Profit Margin 35% NA 35%
Net (Loss) (5,500) NA (5,500)
</TABLE>
<TABLE>
<CAPTION>
Divisional Summary 1995
Neon Display TOTAL
<S> <C> <C> <C>
Sales $2,156,400 $ 80,000 $2,236,400
Gross Profit Margin 35% 53% 36%
Net Income 37,800 79,600 117,400
</TABLE>
Neon Division's 1996 sales remained flat as compared to 1995. The
Data Display Division was sold in May 1995, thus the Data Display
Division shows only a partial 1995 year. Neon's 1996 sales
performance exceeded 1995 for each quarter with the exception of
the 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's gross profit margin remained at 35%.
Operating Expenses increased from 1995's $739,000 to 1996's
$797,000 or 8%. General & Administrative (G&A) expenses rose by
$23,500 from 1995's $324,800 to 1996's $348,300. The 1995 general
and administrative expenses included $17,000 of Data Display
Division customer service repair income, therefore restating 1995
G&A without this income would be $341,800 or $6,500 increase. The
$6,500 increase came primarily from increased rent and bad debt
expenses.
Selling Expenses increased by $15,500. This resulted from increased
third party commissions which were partially offset by decreased
convention and advertising expenses.
Research and Development Expense increased by $18,600 due to
increased staffing requirements, additional design equipment
depreciation and supplies.
Recent Accounting Pronouncements
None.
Income taxes and Net Operating Loss Carryforwards
As of December 31, 1996, the Company has net operating loss
carryforwards of $345,000 and tax credit carryforwards of
approximately $45,000 expiring in varying amounts from 2003 through
2011. A valuation allowance equal to the net deferred tax asset
recognized was recorded as Management is unable to determine if it
is more likely than not that the deferred tax asset will be
realized. See Note 4 to the financial statements.
<PAGE>
ITEM 7. Financial Statements.
See the Financial Statements of ZEON Corporation included herein
and referenced on the Index to Financial Statements set forth in
Item 13 of this form 10-KSB.
ITEM 8. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosures.
None.
<PAGE>
PART III
Item 9. Directors and Executive Officers; Compliance With Section
16(a) of the Exchange Act.
<TABLE>
<CAPTION>
Name Age Position (Director Since)
<S> <C> <C>
T. Bryan Alu 46 President, CEO and Chairman of the Board
(1980)
Alan M. Bloom 46 Executive VP, VP of Marketing,
Secretary/Treasurer and Director (1980)
Ruel G. Routt 47 Corporate Controller
Jay R. Beyer 35 Director (1996)
</TABLE>
T. Bryan Alu has been President, Chief Executive Officer and
Chairman of the Board of Directors of the Company since its
organization in 1980. He is responsible for the general management
of the Company, as well as devoting time to handling sales and
marketing, as related to specific key accounts.
In 1980, prior to co-founding ZEON Corporation (formerly Data
Display Corporation), Mr. Alu was employed by Lewis Lektronix,
Inc., a manufacturer of electronic signage, as Executive Vice
President. He was responsible for sales and marketing of the
Company's products nationally. In 1979, Mr. Alu was founder and
President of Diode Technology, Inc., a printed circuit board
assembly operation and electronic sign dealer, which was sold to
Lewis Lektronix, Inc. From 1977 to 1979, Mr. Alu was employed at
Leggett & Platt, Inc., a Fortune 500 diversified manufacturing
corporation. While employed at Leggett & Platt, Inc., Mr. Alu was
promoted three times. His first position was as Marketing
Coordinator for two company divisions, with collective sales
exceeding 20 million dollars. He was promoted to the corporate
headquarters as Manager of Marketing Development and Planning,
where he handled special assignments directed by the company's
president and chief officer. Mr. Alu was finally promoted to the
company's group level, as Diversified Group Coordinator.
Alan M. Bloom has been Vice President of Marketing, Executive Vice
President and a Director on the Board since the Company's
organization in 1980. Mr. Bloom has been Secretary of the Company
since February 28, 1985 and Treasurer since April 22, 1986. Prior
to co-founding the Company, Mr. Bloom was employed by Lewis
Lektronix, Inc., a manufacturer of electronic signage, as Director
of Marketing. Prior to this position in 1979, he was Sales Manager
for Diode Technology, Inc., and Manager of their electronic sign
sales division.
<PAGE>
Ruel G.(Jerry) Routt joined ZEON Corporation in December 1992.
Prior to joining the Company, Mr. Routt held various financial
management positions with Honeywell, Inc., Square D Company and
Fibrotek, Inc. He served as the divisional controller with Square
D Company and the corporate controller with Fibrotek, Inc. Mr.
Routt is also a certified public accountant having worked with
Coopers and Lybrand. Mr. Routt is responsible for the financial
and administrative controls and providing financial counsel to the
Company and its management.
Mr. Jay R. Beyer is an independent patent agent in Boulder,
Colorado practicing in the areas of patent preparation and
prosecution in the mechanical, electrical and software fields of
technology. From 1992 to 1994, he operated a company he founded
which introduced and marketed a patented portable trade show
showcase of his own invention. From 1988 to 1992 he established
and operated a distributorship in southern California which
designed, sold and installed primarily jewelry store showcases
manufactured by Berg Showcase Manufacturing, Inc. of Longmont,
Colorado. From 1984 to 1988, he held a variety of positions with
ZEON Corporation (formerly Data Display) ranging from Purchasing
Manager to VP of Operations where he supervised the engineering,
purchasing and manufacturing of electronic signs. While at ZEON
Corporation, his duties also included special assignments such as
facilities planning, supervision of construction of new facilities
and investigating potential business acquisitions.
Since the Company Stock is not registered under section 12 of the
Exchange Act, the Company is not subject to section 16a. of such
Exchange Act.
ITEM 10. Executive Compensation
The following table sets forth a summary of all compensation for
each of the last three calendar years with respect to the Company's
Chief Executive Officer. All such compensation was in the form of
cash. No other officer of the Company has earned an annual
compensation greater than $100,000 annually for any of the periods
depicted. The Company has no long term compensation plans.
<TABLE>
Summary Compensation Table
<CAPTION>
Name and Principal Position Year Salary Bonus
<S> <C> <C> <C>
T. Bryan Alu, 1996 $93,800 $ -0-
President, C.E.O. 1995 82,600 -0-
1994 80,100 -0-
</TABLE>
<PAGE>
On April 29, 1995, the board of directors of the Company adopted
the ZEON Corporation Stock Option Plan (the "Plan"). The Plan was
approved by the stockholders at the Company's annual shareholder's
meeting held on June 21, 1995. The Plan allows the board of
directors of the Company to grant both incentive stock options and
options which do not qualify as incentive stock options to
employees and directors of the Company. Thirty-five thousand
(35,000) shares of the Company's common stock are available for the
grant of options pursuant to the Plan. The exercise price for each
incentive stock option granted shall be no less than 100% of the
fair market value (110% of the fair market value for employees
owning more than 10% of the Company's common stock) of the common
stock on the day the option is granted. The exercise price for
each non-statutory stock option granted under the Plan will be the
price established by the board of directors which normally is
expected to be no less than 100% of the fair market value on the
date the option is granted. As of the date of filing this 10-KSB,
no options have yet been granted under the Plan.
Effective July, 1991 the Company adopted a directors' compensation
plan whereby directors can be compensated with restricted common
stock of the Company in exchange for services provided. Shares
issued are valued based upon the market value of the stock as
determined by the Company. As of December 31, 1996, no shares have
been issued under this plan.
<PAGE>
ITEM 11. Security Ownership of Certain Beneficial Owners and
Management.
The following tables set forth certain information as of March 20,
1997, with respect to the beneficial ownership of the Company's
common stock by each person known by the Company to be the
beneficial owner of more than 5 percent of its outstanding common
stock, by each director and executive officer and by the directors
and executive officers of the Company as a group. Unless otherwise
indicated, all shareholders have sole voting and investment power
with respect to the shares beneficially owned.
<TABLE>
<CAPTION>
No. of Shares
Beneficially Percentage
Name and Address Owned Of Class
<S> <C> <C>
T. Bryan Alu 175,669 (1) 50.2%
737 8th Street
Boulder, CO 80302
Alan M. Bloom 21,808 (2) 6.2%
6028 Flagstaff Road
Boulder, CO 80302
All Directors and 197,477 56.4%
Executive Officers
as a Group (2)
</TABLE>
(1) The amounts and percentages of shares held by T. Bryan Alu
excludes 500 shares held by Dana and Tom Kennedy, his sister and
brother-in-law, as separate property over which T. Bryan Alu
exercises no control and has no beneficial ownership.
(2) The amounts and percentages of shares held by Alan M. Bloom
excludes 399 shares held by Hildred Bloom, his mother, and 80
shares held by Andrew Bloom, his brother, as separate property over
which Alan M. Bloom exercises no control and has no beneficial
ownership.
<PAGE>
Item 12. Certain Relationships and Related Transactions.
Effective December 1992, the Company signed a 10 year lease with
renewal options for approximately 17,100 square feet located at
1500 Cherry Street, Louisville, Colorado. The lease commenced on
December 15, 1992 and ends January 1, 2003. The annual rent is
$101,000 plus maintenance and operating costs. This building is
owned by a partnership in which T.Bryan Alu, the President, Chief
Executive Officer and a principal shareholder of the Company, is a
50% partner. The annual rent was confirmed as reasonable by an
independent appraisal.
Item 13. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
(a) (1) or (2) Index to Financial Statements
The financial statements included in this Item are indexed
on page F-1, "Index to Financial Statements".
(a) (3) [Numbered in accordance with Item 601 of Regulation S-B]
(3) Articles of incorporation and by-laws (Incorporated by
reference to Exhibit 3.1 and 3.2 to Form S-18 Registration which
became effective September 10, 1986: file #33-6859-D).
- Amendments to articles of incorporation (Incorporated by
reference to Exhibit A to June 30, 1988 form 10-Q).
- Amendments to articles of incorporation (Incorporated by
reference to Exhibit A to December 31, 1994 form 10-KSB).
(99) Stock Option Plan (Incorporated by reference to Exhibit B to
December 31, 1994 form 10-KSB).
(b) Reports on form 8-K.
There were no reports on Form 8-K filed for the quarter ended
December 31, 1996.
(c) Financial data schedule 27.
<PAGE>
Signatures
In accordance with Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ZEON CORPORATION
BY: /s/ T. Bryan Alu
T. Bryan Alu
Chairman of the Board, Director, Chief Executive Officer and
President
DATE: March 31, 1997
In accordance with the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates
indicated.
BY: /s/ T. Bryan Alu
T. Bryan Alu
Chairman of the Board, Director, Chief Executive Officer and
President
DATE: March 31, 1997
BY: /s/ Alan M. Bloom
Alan M. Bloom
Treasurer and Director
DATE: March 31, 1997
BY: /s/ Ruel G. Routt
Ruel G. Routt
Corporate Controller
DATE: March 31, 1997
<PAGE>
Report of Independent Certified Public Accountants F-2
Balance Sheet as of December 31, 1996 F-3 - F-4
Statements of Operations for the years
ended December 31, 1996 and 1995 F-5
Statements of Shareholders' Equity for the years ended
December 31, 1996 and 1995 F-6
Statements of Cash Flows for the years ended
December 31, 1996 and 1995 F-7
Summary of Accounting Policies F-8 - F-9
Notes to Financial Statements F-10 - F-13
<PAGE>
Report of Independent Certified Public Accountants
To the Shareholders and Board of Directors
ZEON Corporation
Louisville, Colorado
We have audited the accompanying balance sheet of ZEON Corporation as of
December 31, 1996, and the related statements of operations, shareholders'
equity, and cash flows for each of the two years in the period then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of ZEON Corporation
at December 31, 1996, and the results of its operations and its cash flows
for each of the two years in the period then ended, in conformity with
generally accepted accounting principles.
BDO SEIDMAN, LLP
Denver, Colorado
February 20, 1997
<PAGE>
December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Assets
Current:
Cash and cash equivalents $133,778
Trade receivables, less allowance of $5,700
for possible losses 234,113
Inventories (Note 1) 200,285
Prepaid expenses and other 38,505
Total current assets 606,681
Property and equipment:
Machinery and equipment 299,753
Leasehold improvements 59,279
Vehicles 18,300
Furniture and fixtures 10,258
387,590
Less accumulated depreciation and amortization 311,950
Net property and equipment 75,640
Other assets 41,766
$ 724,087
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
<PAGE>
December 31, 1996
<TABLE>
<CAPTION>
Liabilities and Shareholders' Equity
<S> <C>
Current:
Accounts payable $116,450
Accrued expenses:
Payroll and payroll taxes 28,700
Other 31,093
Customer deposits 11,553
Total current liabilities 187,796
Commitments (Note 2)
Shareholders' equity:
Common stock, no par ($.10 stated value);
shares authorized, 100,000,000;
outstanding, 350,205 (Note 3) 35,020
Additional paid-in capital 939,338
Accumulated deficit (438,067)
Total shareholders' equity 536,291
$ 724,087
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995
<S> <C> <C>
Net sales $2,152,713 $2,236,414
Cost of sales 1,390,410 1,439,882
Gross profit on sales 762,303 796,532
Operating expenses:
General and administrative 348,296 324,792
Selling 326,019 310,501
Research and development 122,238 103,600
Total operating expenses 796,553 738,893
Income (loss) from operations (34,250) 57,639
Other income (expenses):
Interest, net 6,628 (6,170)
Gain on sale of assets - 44,076
Miscellaneous 22,110 21,886
Total other income (expenses) 28,738 59,792
Net income (loss) $ (5,512) $117,431
Net income (loss) per share of
common stock $ (.02) $ .33
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
<PAGE>
<TABLE>
<CAPTION>
Common Stock
---------------------------------
Years Ended December 31, 1996 and 1995 Shares Amount
<S> <C> <C>
Balance, January 1, 1995 $353,384 $ 35,338
Acquisition of stock (3,179) (318)
Net income - -
Balance, December 31, 1995 350,205 35,020
Net loss - -
Balance, December 31, 1996 350,205 $ 35,020
</TABLE>
<TABLE>
<CAPTION>
Additional Total
Paid-In Accumulated Shareholders'
Capital Deficit Equity
------------ ------------ -------------
<S> <C> <C> <C>
Balance, January 1, 1995 $941,722 $ (549,986) $427,074
Acquisition of stock (2,384) - (2,702)
Net income - 117,431 117,431
Balance, December 31, 1995 939,338 (432,555) 541,803
Net loss - (5,512) (5,512)
Balance, December 31, 1996 $939,338 $ (438,067) $536,291
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
<PAGE>
<TABLE>
Increase (Decrease) in Cash and Cash Equivalents
<CAPTION>
Years Ended December 31, 1996 1995
<S> <C> <C>
Operating activities:
Net income (loss) $(5,512) $117,431
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 48,429 52,124
Provisions for losses on trade receivables 3,500 (16,923)
Gain on sale of assets - (44,076)
Change in operating assets and liabilities:
Trade receivables (59,350) 56,667
Inventories (20,804) (11,162)
Prepaid expenses and other 24,584 2,570
Accounts payable 25,886 (39,299)
Accrued expenses 4,593 (17,278)
Customer deposits (291) (26,515)
Net cash provided by operating activities 21,035 73,539
Investing activities:
Proceeds from note receivable 14,486 11,167
Purchase of property and equipment (13,884) (16,664)
Proceeds from sale of assets - 36,885
Net cash provided by investing activities 602 31,388
Financing activities:
Principal payments on short-term debt (14,088) (119,741)
Purchase of common stock - (2,702)
Net cash used in financing activities (14,088) (122,443)
Net increase (decrease) in cash and cash equivalents 7,549 (17,516)
Cash and cash equivalents, beginning of year 126,229 143,745
Cash and cash equivalents, end of year $ 133,778 $ 126,229
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
<PAGE>
Organization. ZEON Corporation (the "Company") is engaged in the
business of developing, manufacturing and marketing neon
signs to customers located throughout the United States and
Europe. For the year ended December 31, 1996, the
Company's foreign sales comprised less than 10% of total
Company net sales. Effective July 5, 1995, the Company's
Articles of Incorporation were amended changing the name of
the corporation to ZEON Corporation from Data Display
Corporation.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
Financial Instruments and Credit Risk Concentration. Financial instruments
which potentially subject the Company to concentrations of credit risk
consist primarily of cash, temporary cash investments and trade receivables.
The Company invests temporary cash in demand deposits and
interest bearing money market accounts with quality financial
institutions. Such deposit accounts, at times, may exceed
federal insured limits. The Company has not experienced
any losses in such accounts. Concentrations of credit risk
with respect to trade receivables are limited due to the large
number of customers, generally short payment terms, and
their dispersion across geographic areas.
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.
<PAGE>
Revenue Recognition. Sales are recorded in the periods that products
are shipped.
Taxes on Income. The Company follows the provisions of Statement of
Financial Accounting Standards No. 109 - Accounting For Income
Taxes. 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.
Cash and Cash Equivalents. The Company considers cash and all highly liquid
investments purchased with an original maturity of three
months or less to be cash equivalents. For the years ended
December 31, 1996 and 1995, cash paid for interest
approximated interest expense.
Income (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 the years ended December 31, 1996 and 1995.
All references in the financial statements with regards to
share and per share amounts, have been calculated giving
effect in all periods presented to the 1-for-100 reverse stock
split which was effected in June 1995. In connection with the
1-for-100 reverse stock split, the stated value of the common
stock was changed to $.10 from $.001 per share.
<PAGE>
1. Inventories. Inventories are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1996
<S> <C>
Finished goods $ 50,723
Work in process 14,318
Raw materials 135,244
$200,285
</TABLE>
2. Commitments and Related Party Transactions.
The Company has a line-of-credit loan 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, would be
collateralized by trade receivables, inventories, property
and equipment and intangibles and the Company would be
subject to certain restrictions which include, among other
things, restrictions on borrowings and dividend payments.
No amounts were borrowed under this loan commitment during
the year ended December 31, 1996.
The Company leases its primary manufacturing and office
facilities through January 2003 from an entity in which T.
Bryan Alu, President and Chief Executive Officer of the
Company, is a partner. The lease requires monthly
payments of approximately $8,400 and contains an option to
renew for two additional five year periods. The Company is
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 2000 including
renewal options. The Company has entered into a sublease
agreement for this space with an unrelated party through
December 2000 at an initial monthly rate of approximately
$9,200, increasing at 5% per year.
<PAGE>
Rent expense for operating leases, less related sublease
income, was as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995
<S> <C> <C>
Related party lease $ 85,900 $ 80,700
Unrelated party lease 68,100 65,400
Less sublease rentals (105,100) (100,600)
$ 48,900 $ 45,500
</TABLE>
3. Stock Option and Award Plans
Stock Option Plan
The Company has a Stock Option Plan (the "Plan"), expiring
June 21, 2004, reserving for issuance 35,000 shares of the
Company's common stock. The Plan provides for grants to
either employees or non-employee directors, at the discretion
of a committee of the Board of Directors, incentive or
nonstatutory stock options to purchase common stock of the
Company at a price not less than fair market value on the
date of grant. Any options granted under the Plan must be
exercised within ten years of the date they were granted. As
of December 31, 1996, there were no options outstanding
under the Plan.
Directors' Compensation Plan
The Company has a directors' compensation plan whereby
directors can 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 December 31,
1996 no shares have been issued under this plan.
<PAGE>
4. Taxes on Income and Available Carryforwards.
For the years ended December 31, the provision (benefit) for
deferred income taxes consisted of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Federal $ (1,000) $41,000
State - 5,000
(1,000) 46,000
Increase (decrease) in
valuation allowance 1,000 (46,000)
$ - $ -
</TABLE>
At December 31, 1996, the Company had net operating loss
carryforwards for income tax purposes of approximately
$345,000 and tax credit carryforwards of approximately
$45,000. The net operating losses expire in varying
amounts from 2003 through 2011, and the investment credit
and research and development credits expire in varying
amounts from 1996 through 2000.
A reconciliation of income taxes at the federal statutory
rate to the effective tax rate is as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Income taxes (benefit)
computed at the federal
statutory rate $(2,000) $40,000
Change in valuation allowance 1,000 (46,000)
Other 1,000 6,000
Taxes on income $ - $ -
</TABLE>
<PAGE>
The types of temporary differences between the tax basis of
assets and liabilities that give rise to a significant portion of
the deferred tax asset and their approximate tax effects are
as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Tax operating loss
carryforwards $ 129,000 $115,000
Tax credit carryforwards 45,000 45,000
Other 12,000 25,000
186,000 185,000
Valuation allowance (186,000) (185,000)
$ - $ -
</TABLE>
As of December 31, 1996 and 1995, a valuation allowance
equal to the net deferred tax asset has been recorded, as
management is unable to determine that it is not more likely
than not that the deferred tax asset will be realized.
5. Supplemental Disclosure of Cash Flow Information
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>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM ZEON CORPORATION'S FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER
31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000796513
<NAME> ZEON CORP
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.00
<CASH> 133,778
<SECURITIES> 0
<RECEIVABLES> 239,813
<ALLOWANCES> (5,700)
<INVENTORY> 200,285
<CURRENT-ASSETS> 606,681
<PP&E> 387,590
<DEPRECIATION> (311,950)
<TOTAL-ASSETS> 724,087
<CURRENT-LIABILITIES> 187,796
<BONDS> 0
0
0
<COMMON> 35,017
<OTHER-SE> 501,274
<TOTAL-LIABILITY-AND-EQUITY> 724,087
<SALES> 2,152,713
<TOTAL-REVENUES> 2,152,713
<CGS> 1,390,410
<TOTAL-COSTS> 1,390,410
<OTHER-EXPENSES> 767,815
<LOSS-PROVISION> 3,500
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,512)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,512)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,512)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
