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 June 30, 1998
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, 1998.
Common Stock, No Par Value 349,205
(Class) (Number of Shares)
Transitional Small Business Disclosure Format (check one):
[ ]Yes [X] No
<PAGE>
ZEON CORPORATION
<TABLE>
INDEX
<CAPTION>
Page
<S> <C>
Part I - Financial Information
Balance Sheets June 30, 1998 and December 31, 1997 3
Statements of Operations - Three Months Ended June 30,
1998 and 1997 5
Statements of Operations - Six Months Ended
June 30, 1998 and 1997 6
Statements of Cash Flows - Six Months Ended
June 30, 1998 and 1997 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
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<PAGE>
ZEON CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 210,788 $ 181,533
Trade Receivables, Net of Allowance
for Doubtful Accounts 423,115 320,900
Inventories 272,868 288,613
Prepaid Expenses and Other 52,700 36,664
TOTAL CURRENT ASSETS 959,471 827,710
Property and Equipment (net of
accumulated depreciation and
amortization) 117,677 82,169
Other 41,649 33,785
TOTAL NON-CURRENT ASSETS 159,326 115,954
TOTAL ASSETS $ 1,118,797 $ 943,664
</TABLE>
<PAGE>
ZEON CORPORATION
BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts Payable $ 169,583 $ 161,040
Accrued Expenses 62,121 67,305
TOTAL CURRENT LIABILITIES 231,704 228,345
Long-Term Debt 33,207 -0-
TOTAL LIABILITIES 264,911 228,345
Shareholders' Equity:
Common stock, no par, $.10 stated
value; authorized 1,000,000;
issued 349,205 June 30, 1998
and 350,205 December 31, 1997 34,920 34,920
Capital in Excess of Stated Value 938,426 938,426
Deficit (119,460) (258,027)
853,886 715,319
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 1,118,797 $ 943,664
</TABLE>
<PAGE>
ZEON CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1998 June 30, 1997
<S> <C> <C>
Net Sales $ 780,966 $ 681,081
Cost of Sales 516,928 438,959
Gross Profit 264,038 242,122
Operating Expenses:
Selling 70,112 66,117
General 106,423 93,991
Research & Development 36,510 30,063
213,045 190,171
Income (Loss) From Operations 50,993 51,951
Other Charges (Credits):
Interest Expense 0 0
Interest Income (1,257) (775)
Other (Income) Expenses (14,323) ( 6,630)
(15,580) (7,405)
Net Income (Loss) $ 66,573 $ 59,356
Earning per share:
Net Income (Loss) $ .19 $ .17
Weighted Average Common
Shares Outstanding 349,205 349,538
</TABLE>
<PAGE>
ZEON CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
<S> <C> <C>
Net Sales $1,564,923 $1,253,646
Cost of Sales 1,029,256 809,919
Gross Profit 535,667 443,727
Operating Expenses:
Selling 146,783 149,376
General 206,340 185,427
Research & Development 67,978 61,360
421,101 396,163
Income (Loss) From Operations 114,566 47,564
Other Charges (Credits):
Interest Expense 42 4
Interest Income (1,661) (1,352)
Other (Income) Expenses (22,382) (14,095)
(24,001) (15,443)
Net Income (Loss) $ 138,567 $ 63,007
Earning per share:
Net Income (Loss) $ .40 $ .18
Weighted Average Common
Shares Outstanding 349,205 349,538
</TABLE>
<PAGE>
ZEON CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss) $ 138,567 $ 63,007
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided By (Used
In) Operating Activities:
Depreciation & Amortization 19,755 25,840
Provisions for Losses on
Accounts Receivable 5,000 3,000
Change in Operating Assets & Liabilities:
Decrease (Increase) in Accts Recvble (107,215) (155,385)
Decrease (Increase) in Inventory 15,745 (35,107)
Decrease (Increase) in Prepaid Assets (23,900) 25,400
Increase (Decrease) in Accts Payable 3,487 109,188
Increase (Decrease) in Accrued Expenses (128) (18,050)
Total Adjustments: (87,256) (45,114)
Net Cash Provided By (Used In) Operating
Activities: 51,311 17,893
Cash Flows From Investing Activities:
Purchase of Capital Assets (61,263) (17,420)
Proceeds from sale of Fixed Assets 6,000 0
Net Cash Provided By (Used In) Investing
Activities: (55,263) (17,420)
Cash Flows From Financing Activities:
Debt for Capital Purchases 33,207 -0-
Purchase of Common Stock -0- (1,012)
Net Cash Provided By (Used In) Financing
Activities: 33,207 (1,012)
Net Increase (Decrease) In Cash: 29,255 (539)
Cash At Beginning Of Period: 181,533 133,778
Cash At End Of Period: $ 210,788 $ 133,239
</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 349,205 and 349,372 during each
of the respective periods ended June 30, 1998 and December 31, 1997.
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,
1998 1997
Finished Goods $ 107,925 $ 106,422
Work-in-process 5,414 9,876
Raw Materials 159,529 172,315
$272,868 $288,613
<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,
1998 and December 31, 1997, 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 $8,400. 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 $5,800 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 June 30, 1998, no shares had been issued under this
plan.
<PAGE>
ZEON CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
At the annual shareholders' meeting held on June 21, 1995, the
Company's shareholders approved a stock option plan proposed by the
Board of Directors and allowing for the issuance of up to 35,000
incentive or non-qualified stock options to employees and directors of
the Company. As of June 30, 1998, 27,000 stock options had been granted
to management personnel. These stock options vest over a three year
period, subject to the Company achieving certain financial targets, and
are then exercisable until February 26, 2003.
5. Taxes on income and available carryforwards:
At December 31, 1997, the Company had net operating loss carryforwards
for income tax purposes of approximately $118,000 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 1998 through 2000.
<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 increased slightly with a current ratio
of 3.9 to 1 at June 30, 1998 from 3.6 to 1 at December 31, 1997. With the
solid order and shipment flow, trade receivables and inventory levels have
increased. However, both receivables and inventory are current and their
turnover experience are at the same level as 1997. Capital expenditures
were $61,300 for manufacturing equipment and a Company vehicle. The
vehicle was financed with debt. Liquidity from on-going operations are
considered adequate to meet the Company's immediate cash requirements.
Results of Operations:
Results of operations for the three months ending June 30, 1998 and 1997
THREE MONTHS ENDED JUNE 30,
1998 1997
Sales: $780,966 $681,081
Gross Profit: 264,038 242,122
Income : 66,573 59,356
Second quarter sales for 1998 was $100,000 or 14% higher than 1997's second
quarter. While gross profit was higher than second quarter 1997, the
percentage of sales was 34% as compared to 1997 second quarter's 36%. The
drop in gross profit percentage is attributed to product mix (1%), factory
unfavorable variances and increased shipping costs (1%). Income percentage
remained at 1997 second quarter level due to the additional sales volume
margins partially offset by $14,000 increase in operating expenses over prior
years' quarter level.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED):
Quarterly selling expenses increased $ 4,000 or 6% over 1997. Convention
and promotion expenses contributed to the increase.
General expenses increased by $12,000 over last year's second quarter.
Increased salaries and business insurance expenses were majority of overall
increase.
Research and Development rose $6,500 with additional payroll costs.
Prototype activity increased with increased sales and proposal efforts.
Other income was approximately $8,000 higher than 1997 second quarter. The
sales of old Company vehicle yielded a $6,000 gain and income from
subleased space reflected a inflation cost index increase.
Results of operations for the six months ending June 30, 1998 and 1997
SIX MONTHS ENDED JUNE 30,
1998 1997
Sales: $1,564,923 $1,253,646
Gross Profit: 535,667 443,727
Income (Loss): 138,567 63,007
The Company's year-to-date Neon sales showed 24% increase over prior 1997's
first half. With sales increase in both second and first quarters, 1998
sales was $311,000 greater than 1997's first half. Gains in new franchise
accounts and solid order performance with existing customers contributed to
this growth. Overall gross profit percentage of sales dropped 1% reflecting
less favorable product mix and factory variances. First half of 1998 showed
an income 119% increase from 1997's first half income. Margin from
additional sales volume was partially offset by expenses increases.
Selling expense decreased 2% over last year. While overall spending remained
level, increases orders were realized from earlier franchise selling efforts.
Franchise promotional and convention expenses and commission expenses
increased from 1997's level resulting in new franchise accounts.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED):
General and administrative expenses increased by $21,000 from 1997's first
half. Increased salaries, insurance and other general expenses contributed.
Research and Development rose $7,000 with additional payroll costs and
prototype supplies.
Other income increased by $9,000 due to gain on Company vehicle sale
($6,000) and cost index increase in the sublease rent income ($3,000).
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of matters to a vote of Security-Holders
The Company had its annual shareholders' meeting on July 10, 1998. 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 282,626 150
Alan M. Bloom 282,626 150
Jay R. Beyer 282,626 150
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, 1998
<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 14, 1998 /s/ T. Bryan Alu
T. Bryan Alu
President
/s/ R. G. Routt
R. G. Routt
Corporate Controller
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM ZEON CORPORATION'S FINANCIAL STATEMENTS FOR THE
THREE MONTHS ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 210,788
<SECURITIES> 0
<RECEIVABLES> 428,752
<ALLOWANCES> 5,637
<INVENTORY> 272,868
<CURRENT-ASSETS> 959,471
<PP&E> 137,432
<DEPRECIATION> 19,755
<TOTAL-ASSETS> 1,118,797
<CURRENT-LIABILITIES> 231,704
<BONDS> 0
0
0
<COMMON> 34,920
<OTHER-SE> 818,966
<TOTAL-LIABILITY-AND-EQUITY> 1,118,797
<SALES> 780,966
<TOTAL-REVENUES> 780,966
<CGS> 516,928
<TOTAL-COSTS> 516,928
<OTHER-EXPENSES> 213,045
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 50,993
<INCOME-TAX> 0
<INCOME-CONTINUING> 50,993
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,573
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
