U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 2000
Commission File Number 33-6859-D
ZEON Corporation
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(Exact name of registrant as specified in its charter)
Colorado 84-0827610
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1500 Cherry Street Louisville, CO 80027
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(Address of principal executive offices) (Zip Code)
(303) 666-9400
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(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 September 30, 2000
Common Stock, No Par Value 344,523
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(Class) (Number of Shares)
Transitional Small Business Disclosure Format (check one):
[ ]Yes [X] No
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ZEON Corporation
INDEX
Page
Part I - Financial Information
Balance Sheet September 30, 2000 and December 31, 1999 3
Statement of Operations - Three Months Ended
September 30, 2000 and 1999 5
Statement of Operations - Six Months Ended
September 30, 2000 and 1999 6
Statements of Cash Flows - Six Months Ended
September 30, 2000 and 1999 7
Notes to Financial Statements 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II - Other Information 13
Signature Page 14
2
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ZEON Corporation
BALANCE SHEETS
(UNAUDITED)
Sept. 30,2000 Dec.31,1999
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CURRENT ASSETS
Cash $ 229,540 $ 145,521
Trade Receivables, Net of Allowance
for Doubtful Accounts 1,144,105 467,320
Inventories 804,652 429,848
Prepaid Inventory -0- 110,590
Prepaid Expenses and Other 70,393 59,666
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TOTAL CURRENT ASSETS 2,248,690 1,212,945
Property and Equipment (net of
accumulated depreciation and
amortization) 163,648 156,194
Other 51,082 28,360
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TOTAL NON-CURRENT ASSETS 214,730 184,554
TOTAL ASSETS $2,463,420 $1,397,499
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ZEON Corporation
BALANCE SHEETS (Continued)
(UNAUDITED)
Sept.30,2000 Dec.31,1999
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CURRENT LIABILITIES
Accounts Payable $ 874,643 $ 160,708
Accrued Expenses 93,081 69,683
Customer Deposits 321,933 20,694
Line of Credit 45,768 220,811
Current Portion of Long-Term Debt 7,695 6,528
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TOTAL CURRENT LIABILITIES 1,343,120 478,424
Long-Term Debt (net of current
portion) 82,545 18,069
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TOTAL LIABILITIES 1,425,665 496,493
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Shareholders Equity:
Common stock, no par, $.10 stated
value; authorized 100,000,000;
issued 344,523 and 344,717
Sept.30, 2000 and December 31, 1999 34,448 34,471
Capital in Excess of Stated Value 925,751 926,310
Retained Earnings (Deficit) 77,556 (59,775)
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TOTAL SHAREHOLDERS EQUITY 1,037,755 901,006
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TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $ 2,463,420 $ 1,397,499
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<PAGE>
ZEON Corporation
STATEMENT OF OPERATIONS
(UNAUDITED)
Three Months Ended Three Months Ended
September 30, 2000 September 30, 1999
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Net Sales $ 1,898,631 $ 791,243
Cost of Sales 1,336,644 570,516
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Gross Profit 561,987 220,727
Operating Expenses:
Selling 171,768 91,631
General 147,616 115,702
Research & Development 64,931 37,477
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384,315 244,810
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Income (Loss) From Operations 177,672 (24,083)
Other Income (Expenses):
Interest Expense (17,564) (1,673)
Interest Income 646 724
Other Income (Expenses) 10,223 8,672
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(6,695) 7,723
Income Taxes 75,306 92
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Net Income (Loss) $ 95,671 $ (16,452)
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Earning per share:
Net Income (Loss) $ .28 $ (.05)
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Weighted Average Common
Shares Outstanding 344,969 348,901
5
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ZEON Corporation
STATEMENT OF OPERATIONS
(UNAUDITED)
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
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Net Sales $ 4,422,869 $ 2,200,843
Cost of Sales 3,184,517 1,549,416
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Gross Profit 1,238,352 651,427
Operating Expenses:
Selling 410,380 245,056
General 442,943 336,515
Research & Development 171,116 109,794
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1,024,439 691,365
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Income (Loss) From Operations 213,913 (39,938)
Other Income (Expenses):
Interest Expense (33,369) (3,207)
Interest Income 1,589 3,031
Other Income (Expenses) 30,504 27,313
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(1,276) 27,137
Income Taxes 75,306 712
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Net Income $ 137,331 $ (13,513)
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Earning per share:
Net Income $ .40 $ (.04)
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Weighted Average Common
Shares Outstanding 344,969 348,901
6
<PAGE>
ZEON Corporation
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
Sept.30,2000 Sept.30,1999
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<S> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss) $ 137,331 $ (13,513
Adjustments to Reconcile Net Income
to Net Cash Provided By (Used In) Operating Activities:
Depreciation & Amortization 21,495 27,136
Provisions for Losses on
Accounts Receivable 11,000 6,750
Change in Operating Assets & Liabilities:
Decrease (Increase) in Accts Receivable (687,785) (56,667)
Decrease (Increase) in Inventory (374,804) (37,101)
Decrease (Increase) in Prepaid Assets 99,863 35,748
Increase (Decrease) in Accts Payable 713,935 (3,994)
Increase (Decrease) in Customer Deposits301,239 -0-
Increase (Decrease) in Accrued Expenses 23,398 17,169
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TOTAL ADJUSTMENTS: 108,341 (10,959)
Net Cash Provided By (Used In) Operating
Activity: 245,672 (24,472)
Cash Flows From Investing Activities:
Proceeds from sale of Fixed Assets -0- 1,300
Purchase of Capital Assets
(51,671) (27,122)
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Net Cash Provided by (Used In) Investing
Activities: (51,671) (25,822)
Cash Flows From Financing Activities:
Purchase of Common Stock (582) (1,572)
Proceeds from Equipment Loan 76,790 -0-
Loan Payments (11,147) (4,291)
Proceeds from Line of Credit 1,335,300 72,000
Line of Credit Payments (1,510,343) (50,300)
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Net Cash Provided By (Used In) Financing
Activities: (109,982) 15,837
Net Increase (Decrease) In Cash: 84,019 (34,457)
Cash At Beginning of Period: 145,521 169,891
Cash At End of Period: $ 229,540 $ 135,434
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</TABLE>
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ZEON Corporation
NOTES TO FINANCIAL STATEMENTS
1. Summary of significant accounting policies:
The financial statements included herein are presented in accordance
with the requirements of Form 10-QSB and consequently do not include
all of the disclosures normally made in the registrant's annual Form
10-KSB filing. These financial statements should be read in conjunction
with the financial statements and notes thereto included in ZEON
Corporation's Annual Report and Form 10-KSB filed on March 28, 2000 for
the fiscal year 1999.
In the opinion of management, the unaudited financial statements
reflect all adjustments of a normal recurring nature necessary to
present a fair statement of the results of operations for the
respective interim periods. The year-end balance sheet data was derived
from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles.
2. Inventories:
Inventories consist of the following:
September 30, December 31,
2000 1999
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Finished Goods $ 634,783 $ 204,411
Work-in-process 10,521 40,925
Raw Materials 159,348 184,512
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$ 804,652 $ 429,848
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3. Notes payable and long-term debt:
The Company has a line-of-credit commitment from its bank for
borrowings of up to $1,000,000, 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, 2000 and December 31, 1999, $45,768 and
$220,811 were outstanding under the line of credit agreements,
respectively.
8
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ZEON Corporation
NOTES TO FINANCIAL STATEMENTS
The Company has a letter-of-credit commitment from its bank for
borrowings of up to $1,000,000, with interest on any borrowing at 1%
above the bank's reference rate to be paid monthly. This borrowing
instrument is used to secure payments to our international suppliers
for supply shipments. Any exercised borrowings are collateralized by
Company assets. As of September 30, 2000, no amounts were outstanding.
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.
Newly acquired equipment was financed in March 2000 with a $76,790
loan. Terms of the debt are five years and an interest rate at the
bank's reference rate plus 1%.
4. Commitments and related party transactions:
The Company leases its primary manufacturing and office facilities
through January 2003 from an entity in which the Company's president is
a 50% partner. The lease requires monthly payments of approximately
$8,200. The Company is responsible for maintenance and operating costs.
In April 2000, the Company expanded into an additional facility
adjacent to the existing manufacturing and office facilities. These
facilities are also leased from an entity in which the Company's
president is a 50% partner. The existing lease has been superceded by a
new lease for current and additional space, which requires monthly
payments of approximately $21,000 and expires March 2010 with an option
for one five-year extension period. The Company is 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 $6,200 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 $10,700 and increasing at 5% per year.
9
<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 1.7
to 1 as of September 30, 2000, and 2.5 to 1 as of December 31, 1999. With a
sales increase of 100% over last year's first nine months, trade receivables and
inventory have increased by $688,000 and $375,000 respectively. Additional
building space was rented to accommodate the growing business and its related
inventory. Capital expenditures of $51,700 were incurred to address inventory
storage and upgrade assembly production. 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 September 30, 2000 and 1999
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THREE MONTHS ENDED SEPTEMBER 30,
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2000 1999
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Sales: $ 1,898,631 $ 791,243
Income (Loss): 95,671 (16,452)
Sales increased 140% over 1999's third quarter with the additional beverage and
non-beverage shipments. The margin on these additional shipments increased gross
profit percentage by 1.7 points to 29.6%. Operating expenses increased by
$139,000 over last year's third quarter.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
Selling Expense increased from $91,600 to $171,800 from 1999's third quarter to
2000's third quarter. All of this increase resulted from sales commissions on
the additional business.
Current third quarter General and Administrative Expenses rose by $32,000 to
$147,000 over same period last year. Salary increases and consulting expenses
accounted for the increase. Consulting was incurred to address special
information and coordination requirements of the additional beverage business
segment.
Research and Development Expense rose from $37,500 last year's third quarter to
$64,900 for third quarter 2000. Additional space costs and hiring of graphic
designer were primary contributors.
Results of operations for the Nine months ending September 30, 2000 and 1999
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------
2000 1999
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Sales: $4,422,869 $2,200,843
Income: 137,331 (13,513)
Sales for 2000 first nine months rose 100% from 1999's first nine months. New
beverage business throughout the year and a significant non-beverage order
shipped in the third quarter contributed to this sales increase.
Gross profit margin, as a percentage of sales in the first nine months of 2000,
was 28.0% or down 1.6 points from 1999's first nine months. This point drop was
due to product mix favoring lowered margined beverage business and additional
production occupancy costs. Third quarter 2000 shipments contributed to the
majority of the year-to-date income.
Selling expenses increased by 67% percent over first nine months of 1999. The
$165,300 increase resulted from commissions on additional beverage business and
customer service costs.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
General and Administrative expenses increased by $106,400 over same period last
year. The additional expenses were salary changes, outside consulting and loan
origination fees for the Company's increased line of credit. The Company hired
professional consultant to assist in setting up systems and procedures to
accommodate the increased volume of beverage and other point of sale business.
The Company also experienced increased audit and accounting expenses due to the
change of our auditors from BDO Seidman, LLP to Hein+ Associates.
Research and development increased by $61,000 with the hiring of a graphic
designer and additional space occupancy costs associated with the expansion of
the department.
12
<PAGE>
PART II-OTHER INFORMATION
Item 4. Submission of matters to a vote of Security-Holders
The Company had its annual shareholders' meeting on September 18, 2000.
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 279,466 172
Alan M. Bloom 279,466 172
Jay R. Beyer 279,466 172
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
September 30, 2000.
13
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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 8, 2000 /s/ T. Bryan Alu
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T. Bryan Alu
President
/s/ R.G. Routt
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R. G. Routt
Corporate Controller
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