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, 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 May 1, 1999
Common Stock, No Par Value 348,825
(Class) (Number of Shares)
Transitional Small Business Disclosure Format (check one):
[ ]Yes [X] No
<PAGE>
ZEON Corporation
INDEX
<TABLE>
Page
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Part I - Financial Information
Balance Sheet March 31, 1999 and December 31, 1998 3
Statement of Operations - Three Months Ended
March 31, 1999 and 1998 5
Statements of Cash Flows - Three Months Ended
March 31, 1999 and 1998 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
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ZEON Corporation
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 275,253 $ 169,891
Trade Receivables, Net of Allowance
for Doubtful Accounts 254,503 363,608
Inventories 268,247 224,326
Prepaid Expenses and Other 50,615 62,480
TOTAL CURRENT ASSETS 848,618 820,305
Property and Equipment (net of
accumulated depreciation and
amortization) 182,872 173,390
Other 42,074 25,806
TOTAL NON-CURRENT ASSETS 224,946 199,196
TOTAL ASSETS $ 1,073,564 $ 1,019,501
</TABLE>
</page>
ZEON Corporation
BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts Payable $ 156,325 $ 95,910
Accrued Expenses 66,427 61,808
Current Portion of Long-Term Debt 6,528 6,528
TOTAL CURRENT LIABILITIES 229,280 164,246
Long-Term Debt (net of current
portion) 22,804 24,596
TOTAL LIABILITIES 252,084 188,842
Shareholders Equity:
Common stock, no par, $.10 stated
value; authorized 100,000,000;
issued 348,825 and 349,205
March 31, 1999 and December 31, 1998 34,879 34,913
Capital in Excess of Stated Value 937,239 938,297
Deficit (150,638) (142,551)
TOTAL SHAREHOLDERS EQUITY 821,480 830,659
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $ 1,073,564 $ 1,019,501
</TABLE>
<PAGE>
ZEON Corporation
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
<S> <C> <C>
Net Sales $ 611,324 $ 783,957
Cost of Sales 410,163 513,746
Gross Profit 201,161 270,211
Operating Expenses:
Selling 67,537 76,671
General 112,337 99,917
Research & Development 36,582 31,469
216,456 208,057
Income (Loss) From Operations (15,295) 62,154
Other Income (Expenses):
Interest Expense (430) -0-
Interest Income 1,222 362
Other Income (Expenses) 10,442 8,060
11,234 8,422
Net Income (Loss) $ (4,061) $ 70,576
Earning per share:
Net Income (Loss) $ (.012) $ .202
Weighted Average Common
Shares Outstanding 348,825 349,205
</TABLE>
<PAGE>
ZEON Corporation
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
Cash Flows From Operating Activities:
Net Income (Loss) $ (4,061) $ 70,576
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided By (Used
In) Operating Activities:
Depreciation & Amortization 13,652 9,691
Provisions for Losses on
Accounts Receivable 2,250 2,000
Gain on Sale of Fixed Assets -0- -0-
Change in Operating Assets & Liabilities:
Decrease (Increase) in Accts Receivable 106,855 (19,033)
Decrease (Increase) in Inventory (43,921) 12,681
Decrease (Increase) in Prepaid Assets 11,865 (9,881)
Increase (Decrease) in Accts Payable 59,860 12,775
Increase (Decrease) in Accrued Expenses ( 5,673) (21,756)
TOTAL ADJUSTMENTS: 131,380 (13,523)
Net Cash Provided By (Used In) Operating
Activity: 127,319 57,053
Cash Flows From Investing Activities:
Purchase of Capital Assets ( 23,134) (49,554)
Net Cash Provided by (Used In) Investing
Activities: (23,134) (49,554)
Cash Flows From Financing Activities:
Purchase of Common Stock (1,092) -0-
Net Increase (Decrease) of
Long-term Debt (1,792) 35,428
Net Cash Provided By (Used In) Financing
Activities: (2,884) 35,428
Net Increase (Decrease) In Cash: 105,362 49,927
Cash At Beginning of Period: 169,891 181,533
Cash At End of Period: $ 275,253 $ 224,460
</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 348,825 and 349,137 during each of the
periods ended March 31, 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:
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, December 31,
1999 1998
Finished Goods $ 75,605 $ 60,891
Work-in-process 27,292 19,017
Raw Materials 165,350 144,418
$ 268,247 $ 224,326
</TABLE>
<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, 1999 and December 31
ng 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 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 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 of 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 three
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
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, 1999, no shares had been issued under this plan.
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
3.7 to 1 as of March 31, 1999, and 5.0 to 1 as of December 31, 1998. With
first quarter sales being 7% below last year's fourth quarter and improved
collection experience, trade accounts receivable levels have decreased.
Inventory levels have increased by $44,000 to address the Company's growing
backlog. Capital expenditures were $23,000 for manufacturing equipment.
Liquidity from on-going operations is considered adequate to meet
requirements.
Results of Operations:
Results of operations for the three months ending March 31, 1999 and 1998
<TABLE>
THREE MONTHS ENDED MARCH 31,
1999 1998
<S> <C> <C>
Sales: $611,324 $783,957
Income (Loss): (4,061) 70,576
</TABLE>
Sales for 1999 first quarter fell 22% from 1998's first quarter. Net loss
for the first quarter of 1999 was $4,061. Despite the Company having a soft
year-end backlog, orders for the first quarter of 1999 was $863,000 or 12%
over 1998's first quarter. However, turnover in production assembly and
skewed orders being in February and March hampered sales in the 1999's first
quarter. This has resulted in a above average backlog as of March 31, 1999.
Gross profit margin, as a percentage of sales in the first quarter of 1999,
was 33% or down 1.5% from 1998's first quarter. This .9% decrease was due to
the product mix and increased production costs.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
Selling expenses decreased by 12% percent over first quarter 1998. The $9,000
decrease resulted from reduced convention and promotion expenses. While
convention expenditures have remained relatively constant, the timing of
convention attendance is later in the 1999 year.
General and Administrative expenses increased by $12,000 over same period
last year. The additional expenses were salaries and the hiring of a
manufacturing Vice President.
Research and development increased by $6,000 primarily in salaries.
<PAGE>
PART II-OTHER INFORMATION
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
March 31, 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: May 15, 1999 /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 FIANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 31, 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> MAR-31-1999
<CASH> 275,253
<SECURITIES> 0
<RECEIVABLES> 273,377
<ALLOWANCES> (18,874)
<INVENTORY> 268,247
<CURRENT-ASSETS> 848,618
<PP&E> 196,524
<DEPRECIATION> (13,652)
<TOTAL-ASSETS> 1,073,564
<CURRENT-LIABILITIES> 229,280
<BONDS> 0
0
0
<COMMON> 34,879
<OTHER-SE> 786,601
<TOTAL-LIABILITY-AND-EQUITY> 1,073,564
<SALES> 611,324
<TOTAL-REVENUES> 611,324
<CGS> 410,163
<TOTAL-COSTS> 216,456
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 430
<INCOME-PRETAX> (4,061)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,061)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,061)
<EPS-PRIMARY> (.012)
<EPS-DILUTED> (.012)
</TABLE>
