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, 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 September 30, 1998.
Common Stock, No Par Value 349,137
(Class) (Number of Shares)
Transitional Small Business Disclosure Format (check one):
[ ]Yes [X] No
<PAGE>
<TABLE>
ZEON CORPORATION
INDEX
<CAPTION>
<S> <C>
Page
Part I - Financial Information
Balance Sheets September 30, 1998 and December 31, 1997 3
Statements of Operations - Three Months Ended September 30,
1998 and 1997 5
Statements of Operations - Nine Months Ended
September 30, 1998 and 1997 6
Statements of Cash Flows - Nine Months Ended
September 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
</TABLE>
<PAGE>
<TABLE>
ZEON CORPORATION
BALANCE SHEETS
<CAPTION>
<S> <C> <C>
Sept.30, 1998 Dec.31, 1997
(unaudited)
CURRENT ASSETS
Cash $ 235,621 $ 181,533
Trade Receivables, Net of Allowance
for Doubtful Accounts 347,484 320,900
Inventories 261,388 288,613
Prepaid Expenses and Other 40,717 36,664
TOTAL CURRENT ASSETS 885,210 827,710
Property and Equipment (net of
accumulated depreciation and
amortization) 117,740 82,169
Other 43,353 33,785
TOTAL NON-CURRENT ASSETS 161,093 115,954
TOTAL ASSETS $ 1,046,303 $ 943,664
</TABLE>
<PAGE>
<TABLE>
ZEON CORPORATION
BALANCE SHEETS (Continued)
<CAPTION>
<S> <C> <C>
Sept.30, 1998 Dec.31,1997
(unaudited)
CURRENT LIABILITIES
Accounts Payable $ 137,658 $ 161,040
Accrued Expenses 49,746 67,305
Current Portion of LT Debt 6,395 -0-
TOTAL CURRENT LIABILITIES 193,799 228,345
Long-Term Debt 26,279 -0-
TOTAL LIABILITIES 220,078 228,345
Shareholders' Equity:
Common stock, no par, $.10 stated
value; authorized 1,000,000;
issued 349,137 September 30, 1998
and 349,205 December 31, 1997 34,852 34,920
Capital in Excess of Stated Value 938,357 938,426
Deficit (146,984) (258,027)
826,225 715,319
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 1,046,303 $ 943,664
</TABLE>
<PAGE>
<TABLE>
ZEON CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
<S> <C> <C>
Three Months Ended Three Months Ended
Sept.30, 1998 Sept. 30, 1997
Net Sales $ 645,813 $ 667,695
Cost of Sales 436,250 427,099
Gross Profit 209,563 240,596
Operating Expenses:
Selling 83,207 70,331
General 124,385 92,952
Research & Development 36,414 31,011
244,006 194,294
Income (Loss) From Operations (34,443) 46,302
Other Charges (Credits):
Interest Expense 1,689 0
Interest Income (924) (373)
Other (Income) Expenses (7,684) ( 7,106)
(6,919) (7,479)
Net Income (Loss) $ (27,524) $ 53,781
Earning per share:
Net Income (Loss) $ (.08) $ .15
Weighted Average Common
Shares Outstanding 349,182 349,427
</TABLE>
<PAGE>
<TABLE>
ZEON CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
<S> <C> <C>
Nine Months Ended Nine Months Ended
Sept.30, 1998 Sept. 30, 1997
Net Sales $2,210,736 $1,921,341
Cost of Sales 1,465,506 1,237,018
Gross Profit 745,230 684,323
Operating Expenses:
Selling 229,990 219,707
General 330,725 278,379
Research & Development 104,392 92,371
665,107 590,457
Income (Loss) From Operations 80,123 93,866
Other Charges (Credits):
Interest Expense 1,731 4
Interest Income (2,585) (1,725)
Other (Income) Expenses (30,066) (21,201)
(30,920) (22,922)
Net Income (Loss) $ 111,043 $ 116,788
Earning per share:
Net Income (Loss) $ .32 $ .33
Weighted Average Common
Shares Outstanding 349,182 349,427
</TABLE>
<PAGE>
<TABLE>
ZEON CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
<S> <C> <C>
Nine Months Ended Nine Months Ended
Sept.30, 1998 Sept. 30, 1997
Cash Flows From Operating Activities:
Net Income (Loss) $ 111,043 $ 116,788
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided By (Used
In) Operating Activities:
Depreciation & Amortization 30,295 41,184
Provisions for Losses on
Accounts Receivable 8,000 4,500
Gain from the Sale of Assets (6,000) -0-
Change in Operating Assets & Liabilities:
Decrease (Increase) in Accts Recvble (34,584) (112,519)
Decrease (Increase) in Inventory 27,225 (73,720)
Decrease (Increase) in Prepaid Assets (13,621) 23,319
Increase (Decrease) in Accts Payable (28,438) 52,188
Increase (Decrease) in Accrued Expenses (12,503) (5,060)
Total Adjustments: (29,626) (70,108)
Net Cash Provided By (Used In) Operating
Activities: 81,417 46,680
Cash Flows From Investing Activities:
Purchase of Capital Assets (65,866) (35,047)
Proceeds from sale of Fixed Assets 6,000 -0-
Net Cash Provided By (Used In) Investing
Activities: (59,866) (35,047)
Cash Flows From Financing Activities:
Debt for Capital Purchases 36,169 -0-
Payment of Debt (3,495) -0-
Purchase of Common Stock (137) (1,012)
Net Cash Provided By (Used In) Financing
Activities: 32,537 (1,012)
Net Increase (Decrease) In Cash: 54,088 10,621
Cash At Beginning Of Period: 181,533 133,778
Cash At End Of Period: $ 235,621 $ 144,399
</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:
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 349,182 and 349,372 during each
of the respective periods ended September 30, 1998 and December 31,
1997.
Reclassifications:
Certain Reclassifications have been made to the accompanying financial
statements for comparative purposes.
<PAGE>
ZEON CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
2. Inventories:
Inventories consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
(Unaudited)
September 30, December 31,
1998 1997
Finished Goods $ 72,504 $ 106,422
Work-in-process 22,085 9,876
Raw Materials 166,799 172,315
$261,388 $288,613
</TABLE>
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 September
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 $6,100 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.
<PAGE>
ZEON CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
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, 1998, no shares had been issued under this
plan.
At the annual shareholders' meeting held on June 21, 1995, the
Company's shareholders approved a stock option plan proposed by 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 September 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.
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.
<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 4.6 to 1 at September 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 experiences are at the same level as 1997. Capital
expenditures for the year were $65,900 for manufacturing equipment and a
Company vehicle. The vehicle was financed with debt. Liquidity from on-
going operations is considered adequate to meet the Company's immediate
cash requirements.
Results of Operations:
Results of operations for the three months ending September 30, 1998 and
1997
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
<S> <C> <C>
1998 1997
Sales: $645,813 $667,695
Gross Profit: 209,563 240,596
Income (Loss): (27,524) 53,781
</TABLE>
Third quarter sales for 1998 was $22,000 or 3% lower than 1997's third
quarter due to a decline in orders. Orders for the 1998 third quarter were
10% below 1997 s third quarter and 11% below 1998 s second quarter. The point
of purchase market segment showed a softening in orders. The gross profit
was 32% as compared to 1997 third quarter's 36%. The drop in gross profit
percentage is attributed to product mix (1%), factory unfavorable variances
and added production management (3%). A loss of $27,500 incurred for the
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED):
1998 third quarter. The lower volume gross profit ($17,000), additional
fixed factory costs ($14,000) and increased operating expenses ($50,000)
accounted for the decline from prior quarter.
Quarterly selling expenses increased $13,000 or 18% over 1997. Personnel
costs and third party sales commission contributed to the increase.
General expenses increased by $32,000 over last year's third quarter.
Increased salaries, business insurance expenses and relocation expenses of
manufacturing management were majority of overall increase.
Research and Development rose $5,500 with additional payroll costs.
Prototype activity increased with increased proposal efforts.
Other income was relatively unchanged from 1997 third quarter.
Results of operations for the Nine months ending September 30, 1998 and
1997
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
<S> <C> <C>
1998 1997
Sales: $2,210,736 $1,921,341
Gross Profit: 745,230 684,323
Income: 111,043 116,788
</TABLE>
The Company's year-to-date Neon sales showed 15% increase over prior 1997's
first nine months. Despite a sales decrease in the third quarter, overall
sales increased $280,000 over 1997. Though 1998 third quarter orders were 10%
below 1997 s third quarter, orders for 1998 year-to-date were 3.6% ahead of
1997 s first nine months. While franchise orders were ahead of last year,
point of purchase orders were 3% below 1997 year-to-date level. Management
does not expect a strengthening in either market segment in the near term.
However, increased plant capacity scheduled for the first half of 1999 and
recent introduction of expanded product offerings are expected to contribute
toward improved orders and shipments. Overall gross profit percentage of
sales dropped 2% reflecting less favorable product mix and factory variances.
Net income decreased $5,000 with increased operating expenses offsetting the
increased gross profit.
Selling expense increased 18% over last year. 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 $32,000 from 1997's first
half. Increased salaries, insurance, manufacturing management relocation and
other general expenses contributed.
Research and Development rose $5,000 with additional payroll costs and
prototype supplies.
Other income increased by $8,000 due to gain on Company vehicle sale ($6,000)
and cost index increase in the sublease rent income ($2,000).
<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 9, 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
SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000796513
<NAME> ZEON CORPORATION
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1.000
<CASH> 235,621
<SECURITIES> 0
<RECEIVABLES> 354,960
<ALLOWANCES> (7,476)
<INVENTORY> 261,388
<CURRENT-ASSETS> 885,210
<PP&E> 364,120
<DEPRECIATION> (246,380)
<TOTAL-ASSETS> 1,046,303
<CURRENT-LIABILITIES> 193,799
<BONDS> 26,279
0
0
<COMMON> 34,852
<OTHER-SE> 826,225
<TOTAL-LIABILITY-AND-EQUITY> 1,046,303
<SALES> 645,813
<TOTAL-REVENUES> 645,813
<CGS> 436,250
<TOTAL-COSTS> 244,006
<OTHER-EXPENSES> (8,608)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,689
<INCOME-PRETAX> (27,524)
<INCOME-TAX> 0
<INCOME-CONTINUING> (27,524)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,524)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
