[TYPE] 10-QSB
[TEXT]
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 June 30, 1999
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 June 30, 1999
Common Stock, No Par Value 348,597
(Class) (Number of Shares)
Transitional Small Business Disclosure Format (check one):
[ ]Yes [X] No
<PAGE>
ZEON Corporation
INDEX
Page
Part I - Financial Information
Balance Sheet June 30, 1999 and December 31, 1998 3
Statement of Operations - Three Months Ended
June 30, 1999 and 1998 5
Statement of Operations - Six Months Ended
June 30, 1999 and 1998 6
Statements of Cash Flows - Six Months Ended
June 30, 1999 and 1998 7
Notes to Financial Statements 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II - Other Information 13
Signature Page 14
<PAGE>
<TABLE>
ZEON Corporation
BALANCE SHEETS
<CAPTION>
June 30, 1999 Dec. 31,1998
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 148,863 $ 169,891
Trade Receivables, Net of Allowance
for Doubtful Accounts 402,477 363,608
Inventories 315,367 224,326
Prepaid Expenses and Other 42,919 62,480
TOTAL CURRENT ASSETS 909,626 820,305
Property and Equipment (net of
accumulated depreciation and
amortization) 170,798 173,390
Other 33,506 25,806
TOTAL NON-CURRENT ASSETS 204,304 199,196
TOTAL ASSETS $ 1,113,930 $ 1,019,501
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</TABLE>
<PAGE>
<TABLE>
ZEON Corporation
BALANCE SHEETS (Continued)
<CAPTION>
June 30, 1999 Dec31,1998
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts Payable $ 139,399 $ 95,910
Accrued Expenses 46,706 65,835
Line of Credit 72,000 -0-
Current Portion of Long-Term Debt 6,528 6,528
TOTAL CURRENT LIABILITIES 264,633 168,273
Long-Term Debt (net of current
portion) 21,201 24,596
TOTAL LIABILITIES 285,834 192,869
Shareholders Equity:
Common stock, no par, $.10 stated
value; authorized 100,000,000;
issued 348,825 and 349,205
June 30, 1999 and December 31, 1998 34,866 34,913
Capital in Excess of Stated Value 936,868 938,297
Deficit (143,638) (146,578
TOTAL SHAREHOLDERS EQUITY 828,096 826,632
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $ 1,113,930 $1,019,501
----------- -----------
</TABLE>
<PAGE>
<TABLE>
ZEON Corporation
STATEMENT OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1999 June 30, 1998
<S> <C> <C>
Net Sales $ 798,276 $ 780,966
Cost of Sales 568,737 516,928
Gross Profit 229,539 264,038
Operating Expenses:
Selling 85,888 70,112
General 108,476 106,423
Research & Development 35,735 36,510
230,099 213,045
Income (Loss) From Operations ( 560) 50,993
Other Income (Expenses):
Interest Expense (1,104) 0
Interest Income 1,085 1,257
Other Income (Expenses) 8,199 14,323
8,180 15,580
Income Taxes 620 -0-
Net Income $ 7,000 $ 66,573
--------- ---------
Earning per share:
Net Income $ .02 $ .19
--------- ---------
Weighted Average Common
Shares Outstanding 348,841 349,205
</TABLE>
<PAGE>
<TABLE>
ZEON Corporation
STATEMENT OF OPERATIONS
(UNAUDITED)
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1999 June 30, 1998
<S> <C> <C>
Net Sales $ 1,409,600 $ 1,564,923
Cost of Sales 978,900 1,029,256
Gross Profit 430,700 535,667
Operating Expenses:
Selling 153,425 146,783
General 220,813 206,340
Research & Development 72,317 67,978
446,555 421,101
Income (Loss) From Operations (15,855) 114,566
Other Income (Expenses):
Interest Expense (1,534) ( 42)
Interest Income 2,307 1,661
Other Income (Expenses) 18,642 22,382
19,415 24,001
Income Taxes 620 -0-
Net Income $ 2,940 $ 138,567
--------- ---------
Earning per share:
Net Income $ .01 $ .40
--------- ---------
Weighted Average Common
Shares Outstanding 348,841 349,205
</TABLE>
<PAGE>
<TABLE>
ZEON Corporation
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
SixMonthsEnded SixMonthsEnded
June 30, 1999 June 30, 1998
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 2,940 $ 138,567
Adjustments to Reconcile Net Income
to Net Cash Provided By (Used
In) Operating Activities:
Depreciation & Amortization 19,845 19,755
Provisions for Losses on
Accounts Receivable 4,500 5,000
Change in Operating Assets & Liabilities:
Decrease (Increase) in Accts Receivable (43,369) (107,215)
Decrease (Increase) in Inventory (91,041) 15,745
Decrease (Increase) in Prepaid Assets 19,561 (23,900
Increase (Decrease) in Accts Payable 43,489 3,487
Increase (Decrease) in Accrued Exps (19,129 ( 128)
TOTAL ADJUSTMENTS: (66,144) (87,256)
Net Cash Provided By (Used In) Operating
Activity: (63,204) 51,311
Cash Flows From Investing Activities:
Proceeds from sale of Fixed Assets 1,300 6,000
Purchase of Capital Assets ( 26,253) (61,263)
Net Cash Provided by (Used In) Investing
Activities: (24,953) (55,263)
Cash Flows From Financing Activities:
Purchase of Common Stock (1,476) -0-
Debt for Capital Purchases -0- 33,207
Proceeds from Line of Credit 72,000 -0-
Net Increase (Decrease) of
Long-term Debt (3,395) -0-
Net Cash Provided By (Used In) Financing
Activities: 67,129 33,207
Net Increase (Decrease) In Cash: (21,028) 29,255
Cash At Beginning of Period: 169,891 181,533
Cash At End of Period: $ 148,863 $ 210,788
--------- ---------
</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 348,841 and 349,137 during each of the
periods ended June 30, 1999 and December 31, 1998,
respectively.
Reclassifications:
Certain reclassifications have been made to the accompanying
financial statements for comparative purposes.
2. Inventories:
Inventories consist of the following:
June 30, Dec. 31,
1999 1998
Finished Goods $ 80,743 $ 60,891
Work-in-process 21,328 19,017
Raw Materials 213,296 144,418
$ 315,367 $ 224,326
--------- ---------
<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, 1999 and
December 31, 1998, $72,000 and $ -0- amounts were
outstanding under the line of credit agreements,
respectively.
A Company vehicle was purchased and financed with a $36,000
loan. Terms of the debt are five years and an 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 $8,000
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 $6,100
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 $9,700 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 wil 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, which vest ratably
over Six years based on the Company achieving certain
predetermined financial targets each fiscal year end. These
options were granted on February 27, 1998,at an exercise
price of $2.00 per share. In February 1999, 9,000 of
these options had expired because certain predetermined
financial targets were not met.
<PAGE>
ZEON Corporation
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SFAS No. 123, "Accounting for Stock-Based Compensation",
requires the Company to provide pro forma information
regarding net income (loss) and net earnings (loss) per share
as if compensation costs for the Company's stock option
plans and other stock awards had been determined in accordance
with fair value based method prescribed in SFAS No. 123. The
Company estimates the fair value of each stock award by using
the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1998: no
expected dividend yields for all years; expected volatility of
1.0%; risk-free interest rates of 5.0%; and expected lives of
three years. The fair value of the options granted during
the year ended December 31, 1998 was approximately $.28 per
option.
Effective July 1991 the Company adopted a directors'
compensation plan to allow for the compensation of directors with
restricted common stock of the Company in exchange for services
provided. Under the plan, shares issued are valued based upon
the market value of the stock as determined by the Company.
As of June 30, 1999, no shares had been issued under this plan.
5. Income Taxes:
Final payment of income taxes for 1998 was $10,200 versus
the $6,200 provided in the December 31, 1998 financials. The
difference of $4,000 was recorded in 1999 as a prior year
adjustment.
<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 3.4 to 1 as of June 30, 1999, and 5.0 to 1 as of
December 31, 1998. Despite 1999's first half sales being 10%
below last year's first half, collection experiences remained
constant and inventory turnover improved slightly. Inventory
levels have increased by $91,000 to address the Company's growing
backlog. Capital expenditures were $23,000 for manufacturing
equipment. Liquidity from on-going operations and the Company's
line of credit is considered adequate to meet the Company's
immediate cash requirements.
Results of Operations:
Results of operations for the Three months ending June 30, 1999
and 1998
THREE MONTHS ENDED JUNE 30,
1999 1998
Sales: $ 798,276 $ 780,966
Income: 7,000 66,573
Orders received for the quarter were $750,000 or $50,000 greater
than second quarter 1998. Although sales increased 2% over
1998's second quarter, gross profit percentage fell 5 points to
28.8%. The hiring of senior manufacturing management (1.2),
extraordinary airfreight costs (1.8) and unfavorable product mix
(2.0) accounted for the gross profit decrease. Operating
expenses increased by $17,000 over last year's second quarter
primarily in Selling Expense.
Selling Expense increased from $70,000 to $86,000 from 1998's
second quarter to 1999's second quarter. All of this increase
resulted from additional convention and related travel expenses.
Current second quarter General and Administrative Expenses rose
by $2,000 to $108,000 over same period last year. The increase
was due to reinstatement of full time Controller and the hiring of
manufacturing manager. Such increase was partially offset by reduced
payroll for office staff. (In second quarter 1998, the Controller's
salary was partially allocated to production costs.)
Research and Development Expense remained constant at a $36,000
level.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
Results of operations for the Six months ending June 30, 1999 and
1998
SIX MONTHS ENDED JUNE 30,
1999 1998
Sales: $1,409,600 $1,564,923
Income: 2,940 138,567
Sales for 1999 first half fell 10% from 1998's first half.
Modest profit made in the second quarter offset first quarter's
loss, resulting in a net income of $2,940. Despite the Company having a
soft year-end backlog, orders for the first half of 1999 were
$1,618,000 or 11% over 1998's first half. However, personnel
turnover in production assembly and other capacity issues hampered
shipments in the 1999's first half. This has resulted in an above
average backlog as of June 30, 1999.
Gross profit margin, as a percentage of sales in the first half
of 1999, was 31% or down 3.6 points from 1998's first half. This
point drop was due to lower volume/product mix (2.2 points),
additional manufacturing manager payroll (.6), and extraordinary
freight (.8).
Selling expenses increased by 4% percent over first half 1998.
The $6,000 increase resulted from convention and related travel
expenses.
General and Administrative expenses increased by $15,000 over
same period last year. The additional expenses were salaries related to
reinstatement of full time Controller and the hiring of a manufacturing
manager mid-1998. (In the first half of 1998, the Controller's salary
was partially allocated to production costs.)
Research and development increased by $4,000 primarily in
salaries and prototype supplies.
<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 30,
1999. The following sets forth the matters acted upon at
such meeting and the voting results with respect to each
matter:
For Withheld
1.) Election of Directors
T. Bryan Alu 284,285 77
Alan M. Bloom 284,285 77
Jay R. Beyer 284,285 77
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, 1999.
<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 6, 1999 /s/ T. Bryan Alu
T. Bryan Alu
President
/s/ R.G. Routt
R. G. Routt
Corporate Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM ZEON CORPORATION'S FIANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
JUNE 301, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 148,863
<SECURITIES> 0
<RECEIVABLES> 423,708
<ALLOWANCES> (21,231)
<INVENTORY> 315,367
<CURRENT-ASSETS> 909,626
<PP&E> 396,387
<DEPRECIATION> 225,589
<TOTAL-ASSETS> 1,113,930
<CURRENT-LIABILITIES> 264,633
<BONDS> 21,201
0
0
<COMMON> 34,866
<OTHER-SE> 793,230
<TOTAL-LIABILITY-AND-EQUITY> 1,113,930
<SALES> 798,276
<TOTAL-REVENUES> 798,276
<CGS> 568,737
<TOTAL-COSTS> 230,099
<OTHER-EXPENSES> (8,180)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,104
<INCOME-PRETAX> 7,620
<INCOME-TAX> 620
<INCOME-CONTINUING> 7,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,000
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
