<PAGE>
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, 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 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, 1997 were $2,674,300.
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 February 4, 1998) was approximately $523,800.
As of March 20, 1998, the number of shares outstanding of the
registrant's common stock, no par value, $.10 stated value was
349,205.
Transitional Small Business Disclosure Format:
[] Yes [X] No
Documents Incorporated By Reference
None.
<PAGE>
PART I
Item 1. Business
Introduction: The statements contained in this Form 10-KSB 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.
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.
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, 1997, the Company had 27 full-time employees.
The following sets forth sales revenue, by division, from
unaffiliated customers:
<TABLE>
1997 1996 1995
<S> <C> <C> <C>
Neon Signs $2,674,300 $2,152,700 $2,156,400
Display Communication Systems -0- -0- 80,000
TOTAL SALES 2,674,300 2,152,700 2,236,400
</TABLE>
<PAGE>
Manufacturing. The Company manufactures all of its neon window
signs at its facilities in Louisville, Colorado.
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
$109,000 or 4% of total 1997 revenue.
Development continued in 1997 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 $120,000 and $122,200 for 1997 and 1996, 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 this
office/manufacturing space 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 $5,800 from an unrelated party. The
original term of this lease expired in February 1996, with the
option for five one year renewals. To date, all of the renewal
options have been exercised. The Company vacated this facility in
December 1992, 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. This
note was 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,
1997.
<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 1997, 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>
High Low
<S> <C> <C>
Fourth quarter ended December 31, 1997 $3.00 $ .50
Third quarter ended September 30, 1997 3.50 .50
Second quarter ended June 30, 1997 4.00 1.00
First quarter ended March 31, 1997 4.00 1.00
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
</TABLE>
On February 4, 1998, the closing price of common stock of the
Company was a low of $.50 and high of $2.50.
At February 4, 1998, there are approximately 500 recordholders of
the Company stock.
Item 6. Managements Discussion and Analysis of Financial Condition
and Results of Operations.
Factors That May Affect Operating Results
The statements contained in this Form 10-KSB 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.
<PAGE>
Financial Condition
The liquidity of ZEON Corporation continues to remain adequate to
meet the Company's obligations with a current ratio of 3.6 to 1 at
December 31, 1997, compared to a 3.3 to 1 at December 31, 1996.
The cash increase for 1997 was $47,800. Operations provided $79,700
with cash required by operating assets offset by cash generated by
normal business operations adjusted for non-cash depreciation
expense. Capital expenditures for 1997 were $ 40,300 for factory
equipment. Capital expenditures for 1998 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 capital
and operating needs.
Results of Operations:
Results of Operations 1997 Compared to 1996
<TABLE>
1997 1996
<S> <C> <C>
Sales $2,674,300 $2,152,700
Gross Profit Margin 36% 35%
Net Income (Loss) 180,000 (5,500)
</TABLE>
Neon's 1997 sales rose 24% over 1996, due mainly to an increase in
1997 franchise orders, Neon set record shipments. Gross profit
rose slightly due to product mix.
Operating Expenses increased from 1996's $797,000 to 1997's
$803,000, or 1%. General & Administrative (G&A) expenses rose by
$43,700 from 1996's $348,300 to 1997's $392,000. The 1997 general
and administrative expenses included additional staff and year end
bonuses.
Selling Expenses decreased by $34,800. The decrease resulted from
the absence of 1996 dealer marketing/selling department expenses
and sales representative commissions. Dealer sales were folded
into overall Company selling efforts.
Research and Development Expense decreased by $2,300. Despite
increased payroll costs resulting from bringing marketing brochure
design inhouse, decreased supplies and depreciation offset the
department payroll increase.
<PAGE>
Recent Accounting Pronouncements
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive
Income" which establishes standards for reporting and display of
comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity
except for those resulting from investments by owners and
distributions to owners. Among other disclosures, SFAS No. 130
requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income
be reported in a financial statement that is displayed with the
same prominence as other financial statements.
Also, in June 1997, FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" which supersedes
SFAS No.14, "Financial Reporting for Segments of a Business
Enterprise." SFAS No. 131 establishes standards for the way that
public companies report information about operating segments in
annual financial statements and requires reporting of selected
information about operating segments in interim financial
statements issued to the public. It also establishes standards for
disclosure regarding products and services, geographic areas and
major customers. SFAS No. 131 defines operating segments as
components of a company about which separate information is
available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in
assessing performance.
Both SFAS No. 130 and 131 are effective for financial statements
for periods beginning after December 15, 1997 and require
comparative information for earlier years to be restated. Because
of the recent issuance of these standards, management has been
unable to fully evaluate the impact, if any, they may have on
future financial statement disclosures. Results of operations and
financial position of ZEON, however, will not be materially
affected by implementation of these standards.
Income taxes and Net Operating Loss Carryforwards
As of December 31, 1997, the Company has net operating loss
carryforwards of $118,000 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>
Year 2000 Compliance
The Company, like most owners of computer software, will be
required to modify significant portions of its software so that it
will function properly in the year 2000. Preliminary estimates of
the total costs to be incurred by the Company to resolve this
problem range from $10,000 to $20,000. Since the Company mainly
uses third party "off-the-shelf" software, it does not anticipate
a problem in resolving the 2000 problem in a timely manner.
Maintenance or modification costs will be expensed as incurred,
while the costs of new software will be capitalized and amortized
over the software's useful life.
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.
Name Age Position (Director Since)
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)
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.
<PAGE>
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
Name and Principal Position Year Salary Bonus
<S> <C> <C> <C>
T. Bryan Alu, 1997 $99,500 $18,000
President, C.E.O. 1996 93,800 -0-
1995 82,600 -0-
</TABLE>
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-qualified 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,
a total of 27,000 non-qualified options have been granted under the
plan for officers and employees of the Company. These options were
granted on February 27, 1998, at an exercise price of $2.00 per
share.
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, 1997, 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,
1998, 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>
No. of Shares
Beneficially Percentage
Name and Address Owned Of Class
<S> <C> <C>
T. Bryan Alu 175,669 (1) 50.3%
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 56.5%
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, 1997.
(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, 1998
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, 1998
BY: /s/ Alan M. Bloom
Alan M. Bloom
Treasurer and Director
DATE: March 31, 1998
BY: /s/ Ruel G. Routt
Ruel G. Routt
Corporate Controller
DATE: March 31, 1998
<PAGE>
Report of Independent Certified Public Accountants F-2
Balance Sheet as of December 31, 1997 F-3 - F-4
Statements of Operations for the years
ended December 31, 1997 and 1996 F-5
Statements of Shareholders' Equity for the years ended
December 31, 1997 and 1996 F-6
Statements of Cash Flows for the years ended
December 31, 1997 and 1996 F-7
Summary of Accounting Policies F-8 - F-10
Notes to Financial Statements F-11 - F-14
F-1
<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, 1997, 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, 1997, 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
March 13, 1998
F-2
<PAGE>
<TABLE>
December 31, 1997
<S> <C>
Assets
Current:
Cash and cash equivalents $181,533
Trade receivables, less allowance of $2,000
for possible losses 320,900
Inventories (Note 1) 288,613
Prepaid expenses and other 36,664
Total current assets 827,710
Property and equipment:
Machinery and equipment 212,851
Leasehold improvements 59,280
Vehicles 18,300
Furniture and fixtures 8,408
298,839
Less accumulated depreciation and amortization 216,670
Net property and equipment 82,169
Other assets 33,785
$ 943,664
<FN>
See accompanying summary of accounting policies and notes
to financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
December 31, 1997
<S> <C>
Liabilities and Shareholders' Equity
Current:
Accounts payable $161,040
Accrued expenses:
Payroll and payroll taxes 42,657
Other 19,592
Customer deposits 5,056
Total current liabilities 228,345
Commitments (Note 2)
Shareholders' equity (Note 3):
Common stock, no par ($.10 stated value);
shares authorized, 100,000,000;
outstanding, 349,205 34,920
Additional paid-in capital 938,426
Accumulated deficit (258,027)
Total shareholders' equity 715,319
$ 943,664
<FN>
See accompanying summary of accounting policies and notes
to financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
Years Ended December 31, 1997 1996
<S> <C> <C>
Net sales $2,674,310 $2,152,713
Cost of sales 1,720,760 1,390,410
Gross profit on sales 953,550 762,303
Operating expenses:
General and administrative 391,953 348,296
Selling 291,220 326,019
Research and development 119,869 122,238
Total operating expenses 803,042 796,553
Income (loss) from operations 150,508 (34,250)
Other income:
Interest, net 2,920 6,628
Miscellaneous 26,612 22,110
Total other income 29,532 28,738
Net income (loss) $ 180,040 $ (5,512)
Net income (loss) per share of
common stock:
Basic $ .51 $ (.02)
Diluted $ .51 $ (.02)
<FN>
See accompanying summary of accounting policies and notes
to financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
Common Stock Additional Total
Years Ended ---------------- Paid-In Accumulated Shareholders'
December 31, 1997 and 1996 Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 350,205 $ 35,020 $ 939,338 $ (432,555) $ 541,803
Net loss - - - (5,512) (5,512)
Balance, December 31,1996 350,205 35,020 939,338 (438,067) 536,291
Acquisition and retirement
of common stock (1,000) (100) (912) - (1,012)
Net income - - - 180,040 180,040
Balance, December 31,1997 349,205 $ 34,920 $ 938,426 $ (258,027) $ 715,319
<FN>
See accompanying summary of accounting policies and notes
to financial statements.
</TABLE>
F-6
<PAGE>
<TABLE>
Increase (Decrease) in Cash and Cash Equivalents
Years Ended December 31, 1997 1996
<S> <C> <C>
Operating activities:
Net income (loss) $ 180,040 $ (5,512)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 33,756 48,429
Provisions for losses on trade receivables 6,000 3,500
Change in operating assets and liabilities:
Trade receivables (92,787) (59,350)
Inventories (88,328) (20,804)
Prepaid expenses and other 475 24,584
Accounts payable 44,590 25,886
Accrued expenses 2,456 4,593
Customer deposits (6,497) (291)
Net cash provided by operating activities 79,705 21,035
Investing activities:
Proceeds from note receivable 9,347 14,486
Purchase of property and equipment (40,285) (13,884)
Net cash provided by (used in)
investing activities (30,938) 602
Financing activities:
Principal payments on short-term debt - (14,088)
Acquisition and retirement of common stock (1,012) -
Net cash used in financing activities (1,012) (14,088)
Net increase in cash and cash equivalent 47,755 7,549
Cash and cash equivalents, beginning of year 133,778 126,229
Cash and cash equivalents, end of year $ 181,533 $ 133,778
<FN>
See accompanying summary of accounting policies and notes
to financial statements.
</TABLE>
F-7
<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, 1997, the
Company's foreign sales comprised less than 10% of total
Company net sales.
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 Financial instruments which potentially subject the Company
Instruments and to concentrations of credit risk consist primarily of cash,
Credit Risk temporary cash investments and trade receivables. The
Concentration 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 Property and equipment are stated at cost. For financial
Equipment and reporting purposes, depreciation is calculated using the
Depreciation 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 Sales are recorded in the periods that products are shipped.<PAGE>
Recognition
F-8
<PAGE>
Taxes on Income The Company follows the provisions of Statement of Financial
Accounting Standards ("SFAS") 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 The Company considers cash and all highly liquid
Equivalents investments purchased with an original maturity of three
months or less to be cash equivalents. For the years ended
December 31, 1997 and 1996, cash paid for interest
approximated interest expense.
Long-Lived The Company applies SFAS No. 121, "Accounting for the
Assets Impairment of Long-Lived Assets". Under SFAS No. 121,
long-lived assets and certain identifiable intangibles are
reported at the lower of the carrying amount or their
estimated recoverable amounts.
Income (loss) Through December 31, 1996, the Company followed the
Per Share provisions of Accounting Principles Board Opinion ("APB")
No. 15, "Earnings Per Share". Effective for the year ended
December 31, 1997, the Company implemented SFAS No. 128,
"Earnings Per Share". SFAS No. 128 provides for the
calculation of "Basic" and "Diluted" earnings per share.
Basic earnings per share includes no dilution and is
computed by dividing income available to common
shareholders by the weighted average number of common
shares outstanding for the period. The weighted average
number of shares outstanding was 349,372 and 350,205
during the years ended December 31, 1997 and 1996. Diluted
earnings per share reflects the potential dilution of
securities that could share in the earnings of an entity,
similar to fully diluted earnings per share. There were
no potentially dilutive securities outstanding at
December 31, 1997 or 1996.
Accounting In June 1997, FASB issued SFAS No. 130, "Reporting
Pronouncements Comprehensive Income" which established standards for
reporting and display of comprehensive income, its
components and accumulated balances. Comprehensive
income is defined to include all changes in equity except
those resulting from investments by owners and distributions
to owners. Among other disclosures, SFAS No. 130 requires
F-9
<PAGE>
that all items that are required to be recognized under
current accounting standards as components of
comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial
statements.
Also, in June 1997, FASB issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information"
which supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise." SFAS No. 131
establishes standards for the way that public companies
report information about operating segments in annual
financial statements and requires reporting of selected
information about operating segments in interim financial
statements issued to the public. It also establishes
standards for disclosure regarding products and services,
geographic areas and major customers. SFAS No. 131 defines
operating segments as components of a company about which
separate financial information is available that is evaluated
regularly by the chief operating decision make in deciding
how to allocate resources and in assessing performance.
Both SFAS No. 130 and 131 are effective for financial
statements for periods beginning after December 15, 1997 and
require comparative information for earlier years to be
restated. Because of the recent issuance of these standards,
management has been unable to fully evaluate the impact, if
any, they may have on future financial statements
disclosures. Results of operations and financial position,
however, will be unaffected by implementation of these
standards.
F-10
<PAGE>
<TABLE>
1. Inventories Inventories are summarized as follows:
December 31, 1997
<S> <C>
Finished goods $106,422
Work in process 9,876
Raw materials 172,315
$288,613
</TABLE>
2. Commitments The Company has a line-of-credit loan commitment from its
and Related bank for borrowings of up to $100,000, with interest on any
Party Trans- borrowing at 1% above the bank's reference rate, to be paid
actions 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, 1997.
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 $5,800 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.
F-11
<PAGE>
<TABLE>
Rent expense for operating leases, less related sublease
income, was as follows:
Years Ended December 31, 1997 1996
<S> <C> <C>
Related party lease $ 101,084 $ 85,900
Unrelated party lease 70,116 68,100
Less sublease rentals (110,863) (105,100)
$ 60,337 $ 48,900
</TABLE>
3. Stock Option Stock Option Plan
and Awards
Plans 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, of 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, 1997, 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,
1997, no shares have been issued under this plan.
F-12
<PAGE>
<TABLE>
4. Taxes on For the years ended December 31, the provision (benefit) for
Income and deferred income taxes consisted of the following:
Available
Carryforwards 1997 1996
<S> <C> <C>
Federal $ 49,000 $ (1,000)
State 5,000 -
54,000 (1,000)
Increase (decrease) in
valuation allowance (54,000) 1,000
$ - $ -
</TABLE>
At December 31, 1997, the Company had net operating loss
carryforwards for income tax purposes of approximately
$118,000 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 1998 through 2000.
A reconciliation of income taxes at the federal statutory
rate to the effective tax rate is as follows:
<TABLE>
1997 1996
<S> <C> <C>
Income taxes (benefit)
computed at the federal
statutory rate $ 61,000 $ (2,000)
Change in valuation allowance (54,000) 1,000
Other (7,000) 1,000
Taxes on income $ - $ -
</TABLE>
F-13
<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>
1997 1996
<S> <C> <C>
Tax operating loss
carryforwards $ 44,000 $ 129,000
Tax credit carryforwards 45,000 45,000
Other 43,000 12,000
132,000 186,000
Valuation allowance (132,000) (186,000)
$ - $ -
</TABLE>
As of December 31, 1997, 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.
F-14
<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, 1997, 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-31-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.00
<CASH> 181,533
<SECURITIES> 0
<RECEIVABLES> 322,900
<ALLOWANCES> (2,000)
<INVENTORY> 288,613
<CURRENT-ASSETS> 827,710
<PP&E> 298,839
<DEPRECIATION> (216,670)
<TOTAL-ASSETS> 943,664
<CURRENT-LIABILITIES> 228,345
<BONDS> 0
0
0
<COMMON> 34,920
<OTHER-SE> 680,399
<TOTAL-LIABILITY-AND-EQUITY> 943,664
<SALES> 2,674,310
<TOTAL-REVENUES> 2,674,310
<CGS> 1,720,760
<TOTAL-COSTS> 1,720,760
<OTHER-EXPENSES> 773,510
<LOSS-PROVISION> 6,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 180,040
<INCOME-TAX> 0
<INCOME-CONTINUING> 180,040
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 180,040
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
</TABLE>
