U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d)of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 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)
(Former name, former address and former fiscal year if changed
since last reported)
Check whether the issuer (1) 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 May 1, 1998
Common Stock, No Par Value 349,205
(Class) (Number of Shares)
Transitional Small Business Disclosure Format (check one):
[ ]Yes [x] No
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ZEON Corporation
<TABLE>
<CAPTION>
INDEX
<S> <C>
Page
Part I - Financial Information
Balance Sheet March 31, 1998 and December 31, 1997 3
Statement of Operations - Three Months Ended
March 31, 1998 and 1997 5
Statements of Cash Flows - Three Months Ended
March 31, 1998 and 1997 6
Notes to Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II - Other Information 12
Signature Page 13
</TABLE>
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<TABLE>
ZEON Corporation
BALANCE SHEETS
<CAPTION>
March 31, 1998 December 31, 1997
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 224,460 $ 181,533
Trade Receivables, Net of Allowance
for Doubtful Accounts 337,933 320,900
Inventories 275,932 288,613
Prepaid Expenses and Other 32,145 36,664
TOTAL CURRENT ASSETS 870,470 827,710
Property and Equipment (net of
accumulated depreciation and
amortization) 122,032 82,169
Other 48,185 33,785
TOTAL NON-CURRENT ASSETS 170,217 115,954
TOTAL ASSETS $ 1,040,687 $ 943,664
</TABLE>
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<TABLE>
ZEON Corporation
BALANCE SHEETS (Continued)
<CAPTION>
March 31, 1998 December 31, 1997
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts Payable $ 173,815 $161,040
Accrued Expenses 45,549 67,305
Current Portion of Long-Term Debt 6,138 -0-
TOTAL CURRENT LIABILITIES 225,502 228,345
Long-Term Debt (net of current
portion) 29,290 -0-
TOTAL LIABILITIES 254,792 228,345
Shareholders Equity:
Common stock, no par, $.10 stated
value; authorized 100,000,000;
issued 349,205 March 31, 1998
and December 31, 1997 34,920 34,920
Capital in Excess of Stated Value 938,426 938,426
Deficit (187,451) (258,027)
TOTAL SHAREHOLDERS EQUITY 785,895 715,319
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $ 1,040,687 $ 943,664
</TABLE>
<PAGE>
<TABLE>
ZEON Corporation
STATEMENT OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
<S> <C> <C>
Net Sales $ 783,957 $ 572,565
Cost of Sales 513,746 369,635
Gross Profit 270,211 202,930
Operating Expenses:
Selling 76,671 83,259
General 99,917 91,436
Research & Development 31,469 31,297
208,057 205,992
Income (Loss) From Operations 62,154 ( 3,062)
Other Income (Expenses):
Interest Expense -0- -0-
Interest Income 362 573
Other Income (Expenses) 8,060 7,465
8,422 8,038
Net Income (Loss) $ 70,576 $ 4,976
Earning per share:
Net Income (Loss) $ .202 $ .014
Weighted Average Common
Shares Outstanding 349,205 349,205
</TABLE>
<PAGE>
<TABLE>
ZEON Corporation
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss) $ 70,576 $ 4,976
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided By (Used
In) Operating Activities:
Depreciation & Amortization 9,691 12,114
Provisions for Losses on
Accounts Receivable 2,000 1,500
Gain on Sale of Fixed Assets -0- -0-
Change in Operating Assets & Liabilities:
Decrease (Increase) in Accts Receivable (19,033) (51,476)
Decrease (Increase) in Inventory 12,681 (16,921)
Decrease (Increase) in Prepaid Assets (9,881) 4,970
Increase (Decrease) in Accts Payable 12,775 83,945
Increase (Decrease) in Accrued Expenses (21,756) (50,563)
TOTAL ADJUSTMENTS: (13,523) (16,431)
Net Cash Provided By (Used In) Operating
Activity: 57,053 (11,455)
Cash Flows From Investing Activities:
Proceeds from Sale of Fixed Assets -0- -0-
Purchase of Capital Assets ( 49,554) (9,619)
Net Cash Provided by (Used In) Investing
Activities: (49,554) (9,619)
Cash Flows From Financing Activities:
Purchase of Common Stock -0- (1,012)
Net Increase (Decrease) of
Long-term Debt 35,428 -0-
Net Cash Provided By (Used In) Financing
Activities: 35,428 (1,012)
Net Increase (Decrease) In Cash: 42,927 (22,086)
Cash At Beginning of Period: 181,533 133,778
Cash At End of Period: $224,460 $111,692
</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 approximates 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 related
primarily to depreciation and other items that result in 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 349,205 during each of the
periods ended March 31, 1998 and December 31, 1997, respectively.
Reclassifications:
Certain reclassifications have been made to the accompanying financial
statements for comparative purposes.
2. Inventories:
Inventories consist of the following:
March 31, December 31,
1998 1997
Finished Goods $ 84,087 $ 106,422
Work-in-process 8,447 9,876
Raw Materials 183,398 172,315
$ 275,932 $ 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 March 31, 1998 and December 31,
1997, no amount was outstanding under line of credit agreements.
A Company vehicle was purchased and financed with a $36,000 loan. Terms
of the debt are five years and a 8 1/4% interest rate.
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 a partnership from 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 for
additional manufacturing facilities which requires monthly payments of
approximately $5,800 through December 31, 2000 including renewal options.
The Company entered into a sublease agreement for this space with an
unrelated party through December 31, 2000 for an initial monthly rent of
$9,200 and increasing at 5% per year.
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 shareholders' 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. 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.
<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 March 31, 1998, no shares had been issued under this plan.
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 remains adequate, with a current ratio of
3.9 to 1 as of March 31, 1998, and 3.6 to 1 as of December 31, 1997. With
the solid order and shipment flow, trade accounts receivable levels have
increased. However, both receivables and inventory are current and their
turnover experience are at same level as 1997. Capital expenditures were
$49,600 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 March 31, 1998 and 1997
<TABLE>
THREE MONTHS ENDED MARCH 31,
<CAPTION>
<S> <C> <C>
1998 1997
Sales: $783,957 $572,565
Income: 70,576 4,976
</TABLE>
Net income for the first quarter of 1998 was $70,576. The Company had a solid
year end backlog and franchise orders continue to grow. This resulted in a 37%
increase in 1998's first quarter shipments over 1997's first quarter. With the
additional sales volume and relatively constant operating expenses, the
increased operating profit resulted.
Gross profit margin, as a percentage of sales in the first quarter of 1998, was
35% or down .9% from 1997's first quarter. This .9% decrease was due to the
product mix.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
Selling expenses decreased by 8% percent over first quarter 1997. The $6,588
decrease resulted from reduced convention and travel expenses. Those 1997
expenses had increased as sales effort in the franchise markets increased.
General and Administrative expenses increased by $8,500 over same period last
year. The additional expenses were salaries, insurance and other general
expenses.
Research and development remained relatively flat at $31,000. An increase in
salaries was offset by reduction in supplies and other expenses.
<PAGE>
PART II-OTHER INFORMATION
Item 5. Other information
June 1, 1998 has been set as the record date for Company's annual shareholders'
meeting to be held on July 10, 1998.
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
March 31, 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: May 15, 1998 /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 MARCH 31, 1998, 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<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> 224,460
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 1,040,687
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 35,428
0
0
<COMMON> 34,920
<OTHER-SE> 750,975
<TOTAL-LIABILITY-AND-EQUITY> 1,040,687
0
<INVESTMENT-INCOME> 0
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 8,422
<BENEFITS> 0
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 70,576
<INCOME-TAX> 70,576
<INCOME-CONTINUING> 70,576
<DISCONTINUED> 0
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<NET-INCOME> 70,576
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
<RESERVE-OPEN> 0
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<PROVISION-PRIOR> 0
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<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
