UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d)of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1997
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, 1997.
Common Stock, No Par Value 349,205
(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, 1997 and December 31, 1996 3
Statements of Operations - Three Months Ended September 30,
1997 and 1996 5
Statements of Operations - Nine Months Ended
September 30, 1997 and 1996 6
Statements of Cash Flows - Nine Months Ended
September 30, 1997 and 1996 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>
<TABLE>
ZEON CORPORATION
BALANCE SHEETS
September 30, 1997 December 31, 1996
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 144,399 $ 133,778
Trade Receivables, Net of Allowance
for Doubtful Accounts 342,132 234,113
Inventories 273,817 200,285
Prepaid Expenses and Other 21,360 38,505
TOTAL CURRENT ASSETS 781,708 606,681
Property and Equipment (net of
accumulated depreciation and
amortization) 69,503 75,640
Other 35,780 41,766
TOTAL NON-CURRENT ASSETS 105,583 117,406
TOTAL ASSETS $ 886,991 $ 724,087
</TABLE>
<PAGE>
<TABLE>
ZEON CORPORATION
BALANCE SHEETS (Continued)
September 30, 1997 December 31, 1996
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts Payable $ 168,638 $ 116,450
Accrued Expenses 66,286 71,346
TOTAL LIABILITIES 234,924 187,796
Shareholders' Equity:
Common stock, no par, $.10 stated
value; authorized 1,000,000;
issued 349,205 September 30, 1997
and 350,205 December 31, 1996 34,920 35,020
Capital in Excess of Stated Value 938,423 939,338
Deficit (321,278) (438,067)
652,065 538,291
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 886,991 $ 724,087
</TABLE>
<PAGE>
<TABLE>
ZEON CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Three Months Ended
September 30, 1997 September 30, 1996
<S> <C> <C>
Net Sales $ 667,695 $ 552,618
Cost of Sales 427,099 353,620
Gross Profit 240,596 198,998
Operating Expenses:
Selling 70,331 80,974
General 92,952 86,182
Research & Development 31,011 25,937
194,294 193,093
Income (Loss) From Operations 46,302 5,905
Other Charges (Credits):
Interest Expense
Interest Income (373) (3,885)
Other (Income) Expenses (7,106) (4,227)
(7,479) (8,112)
Net Income (Loss) $ 53,781 $ 14,017
Earning per share:
Net Income (Loss) $ .15 $ .04
Weighted Average Common
Shares Outstanding 349,427 350,205
</TABLE>
<PAGE>
<TABLE>
ZEON CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended Nine Months Ended
September 30, 1997 September 30, 1996
<S> <C> <C>
Net Sales $1,921,341 $1,628,516
Cost of Sales 1,237,018 1,043,617
Gross Profit 684,323 584,899
Operating Expenses:
Selling 219,707 263,576
General 278,379 263,940
Research & Development 92,371 87,999
590,457 615,515
Income (Loss) From Operations 93,866 (30,616)
Other Charges (Credits):
Interest Expense 4 105
Interest Income (1,725) (5,215)
Other (Income) Expenses (21,201) (15,965)
(22,922) (21,075)
Net Income (Loss) $ 116,788 $ (9,541)
Earning per share:
Net Income (Loss) $ .33 $ (.03)
Weighted Average Common
Shares Outstanding 349,427 350,205
</TABLE>
<PAGE>
<TABLE>
ZEON CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended Nine Months Ended
September 30,1997 September 30,1996
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss) $ 116,788 $ (9,541)
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided By (Used
In) Operating Activities:
Depreciation & Amortization 41,184 37,359
Provisions for Losses on
Accounts Receivable 4,500 2,750
Change in Operating Assets & Liabilities:
Decrease (Increase) in Accts Recvble (112,519) (32,177)
Decrease (Increase) in Inventory (73,720) 692
Decrease (Increase) in Prepaid Assets 23,319 31,451
Increase (Decrease) in Accts Payable 52,188 32,312
Increase (Decrease) in Accrued Expenses (5,060) (22,672)
Total Adjustments: (70,108) 49,715
Net Cash Provided By (Used In) Operating
Activities: 46,680 40,174
Cash Flows From Investing Activities:
Purchase of Capital Assets (35,047) (10,500)
Net Cash Provided By (Used In) Investing
Activities: (35,047) (10,500)
Cash Flows From Financing Activities:
Purchase of Common Stock (1,012) 0
Net Cash Provided By (Used In) Financing
Activities: (1,012) 0
Net Increase (Decrease) In Cash: 10,621 29,674
Cash At Beginning Of Period: 133,778 126,229
Cash At End Of Period: $ 144,399 $ 155,903
</TABLE>
<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 349,427 and 350,205 during each
of the periods ended September 30, 1997 and December 31, 1996.
Reclassifications:
Certain reclassifications have been made to the accompanying financial
statements for comparative purposes.
<TABLE>
2. Inventories:
Inventories consist of the following:
(Unaudited)
September 30 December 31,
1997 1996
<S> <C> <C>
Finished Goods $ 72,881 $ 50,723
Work-in-process 11,512 14,318
Raw Materials 289,424 135,244
$273,817 $200,285
</TABLE>
<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, 1997 and December 31, 1996, 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 $8,400 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 $9,200.
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, 1997, no shares had been issued under this
plan.
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 September 30, 1997, no stock options had been granted.
<PAGE>
ZEON CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
5. Taxes on income and available carryforwards:
At December 31, 1996, the Company had net operating loss carryforwards
for income tax purposes of approximately $345,000 and investment credit
and research and development credits 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.
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:
Factors That May Affect Operating Results
The statements contained in this Form 10-QSB that are not purely historical
are forward looking statements within the meaning of federal securities
laws, including statements regarding the Company's expectations, hopes,
intentions or strategies regarding the future. All forward looking
statements included in this document are based on information available to
the Company on the date hereof, and the Company assumes no obligation to
update any such forward looking statements. It is important to note that
the Company's actual results could differ materially from those in such
forward looking statements.
Financial Condition:
The liquidity of Zeon Corporation remained stable with a current ratio of
3.3 to 1 at September 30, 1997 and 3.2 to 1 at December 31, 1997. The
current assets and liabilities increased over last year as sales volume
rose 18%. Cash position improved at September 30 with consistent
collection efforts and debt free status realized in 1996 was held
throughout 1997. Trade receivables did increase with the third quarter
sales increase, but their collection is proceeding in normal fashion.
Current capital equipment expenditures are $35,047 versus $10,500 as of
September 30 ,1996. The additional cash outlays are for additional capacity
equipment. Funds generated from operations are deemed sufficient.
Results of Operations:
Results of operations for the three months ending September 30, 1997 and
1996
<TABLE>
THREE MONTHS ENDED SEPTEMBER 30,
<S> <C> <C>
1997 1996
Sales: $667,695 $552,618
Gross Profit: 240,596 198,998
Income (Loss): 53,781 14,017
</TABLE>
Third quarter sales increased by 21% over 1996. The 1997 third quarter
showed a significant increase in franchise sales. Gross profit for 1997 and
1996's third quarter was 36%. The Company had an income of $53,781 or
$39,764 over 1996's third quarter. The increase was primarily due to the
increased volume with total expenses remaining relatively constant.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED):
Overall expenses increased a slight $1,834. Quarterly selling expenses
decreased $10,643 or 13% over 1996. The majority of the decrease resulted
from commissions paid to third parties in 1996 third quarter.
General expenses increased by 7.8 percent over last year's third quarter.
Additional staff expenses accounted for the increase.
Research and Development costs increased by approximately $5,074 as
payroll and prototype supplies slightly increased.
Other income was approximately $633 lower than 1996 third quarter with the
absence of interest income from a paid-off note related to the sale of
Data Display Division in 1995.
Results of operations for the nine months ending September 30, 1997 and
1996
<TABLE>
NINE MONTHS ENDED SEPTEMBER 30,
<S> <C> <C>
1997 1996
Sales $1,921,341 $1,628,516
Gross Profit 684,323 584,899
Income (Loss) 116,788 (9,541)
</TABLE>
The Company's year-to-date sales showed 18% increase over prior 1996's first
three quarters. With solid performance in 1997 franchise orders, third (and
second) quarters have experienced record shipment sales. Gross profit
percent fell slightly from 1996's 35.9% to 1997's 35.6%. The gross profit
change is primarily product mix. Income changed $126,329 from 1996's loss.
Margin from additional volume ($99,424) and less total expenses ($26,905)
contributed to this change.
Selling expense decreased by $43,869 over last year. The decrease resulted
from absence of 1996 dealer marketing/selling department expenses and sales
representative commissions. Dealer sales were folded into overall Company
selling effort.
For the first nine months of 1997, general and administrative expenses
increased by $14,439. Payroll adjustments and additional staff accounted for
the increase.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED):
Research and Development expenses were up by $4,372 over the first nine
months of the year. Increased payroll and supplies expenses were
experienced as marketing brochure design was brought inhouse and
prototype/custom sign efforts grew.
Other income for 1997's first nine months was $1,847 better than 1996.
While interest income dropped from payoff of Data Display Division sale
related note, income from subleased space increased to the point of net
overall increase.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of matters to a vote of Security-Holders
None
Item 5. Other information
None
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 18, 1997 /s/ T. Bryan Alu
T. Bryan Alu
President
/s/ R.G. Routt
R. G. Routt
Corporate Controller
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS FINANCIAL SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM ZEON CORPORATION'S FINANCIAL STATEMENTS FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000796513
<NAME> ZEON CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1.0
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 0
<CASH> 144,399
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 886,991
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 34,005
<OTHER-SE> 652,065
<TOTAL-LIABILITY-AND-EQUITY> 886,991
0
<INVESTMENT-INCOME> 0
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<INCOME-PRETAX> 53,781
<INCOME-TAX> 53,781
<INCOME-CONTINUING> 53,781
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,781
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
<RESERVE-OPEN> 0
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<PAYMENTS-CURRENT> 0
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</TABLE>
