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, 2000
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, 2000
Common Stock, No Par Value 344,583
-------------------------- ------------------
(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, 2000 and December 31, 1999 3
Statement of Operations - Three Months Ended
June 30, 2000 and 1999 5
Statement of Operations - Six Months Ended
June 30, 2000 and 1999 6
Statements of Cash Flows - Six Months Ended
June 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
<PAGE>
ZEON Corporation
BALANCE SHEETS
(UNAUDITED)
June 30, 2000 Dec.31,1999
------------- -----------
CURRENT ASSETS
Cash $ 616,721 $ 145,521
Trade Receivables, Net of Allowance
for Doubtful Accounts 856,449 467,320
Inventories 793,015 429,848
Prepaid Inventory -0- 110,590
Prepaid Expenses and Other 68,407 59,666
--------- ---------
TOTAL CURRENT ASSETS 2,334,592 1,212,945
Property and Equipment (net of
accumulated depreciation and
amortization) 164,502 156,194
Other 43,840 28,360
--------- ---------
TOTAL NON-CURRENT ASSETS 208,342 184,554
TOTAL ASSETS $2,542,934 $1,397,499
========= =========
3
<PAGE>
ZEON Corporation
BALANCE SHEETS (Continued)
(UNAUDITED)
June 30, 2000 Dec.31,1999
------------- -----------
CURRENT LIABILITIES
Accounts Payable $ 116,608 $ 160,708
Accrued Expenses 24,227 69,683
Customer Deposits 545,769 20,694
Line of Credit 818,965 220,811
Current Portion of Long-Term Debt 6,528 6,528
--------- ---------
TOTAL CURRENT LIABILITIES 1,512,097 478,424
Long-Term Debt (net of current
portion) 88,573 18,069
--------- ---------
TOTAL LIABILITIES 1,600,670 496,493
--------- ---------
Shareholders Equity:
Common stock, no par, $.10 stated
value; authorized 100,000,000;
issued 344,583 and 344,717
June 30, 2000 and December 31, 1999 34,454 34,471
Capital in Excess of Stated Value 925,925 926,310
Deficit (18,115) (59,775)
--------- ---------
TOTAL SHAREHOLDERS EQUITY 942,264 901,006
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $2,542,934 $1,397,499
========= =========
4
<PAGE>
ZEON Corporation
STATEMENT OF OPERATIONS
(UNAUDITED)
Three Months Ended Three Months Ended
June 30, 2000 June 30, 1999
------------------ ------------------
Net Sales $ 1,468,174 $ 798,276
Cost of Sales 1,137,126 568,737
--------- -------
Gross Profit 331,048 229,539
Operating Expenses:
Selling 145,856 85,888
General 169,088 108,476
Research & Development 57,755 35,735
--------- -------
372,699 230,099
--------- -------
Income (Loss) From Operations (41,651) (560)
Other Income (Expenses):
Interest Expense (10,541) (1,104)
Interest Income 905 1,085
Other Income (Expenses) 10,081 8,199
--------- -------
445 8,180
Income Taxes -0- 620
--------- -------
Net Income (Loss) $ (41,206) $ 7,000
========= =======
Earning per share:
Net Income (Loss) $ (.12) $ .02
========= =======
Weighted Average Common
Shares Outstanding 346,000 348,841
5
<PAGE>
ZEON Corporation
STATEMENT OF OPERATIONS
(UNAUDITED)
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
---------------- ----------------
Net Sales $ 2,524,238 $ 1,409,600
Cost of Sales 1,847,873 978,900
---------- ----------
Gross Profit 676,365 430,700
Operating Expenses:
Selling 238,612 153,425
General 295,327 220,813
Research & Development 106,185 72,317
---------- ----------
640,124 446,555
---------- ----------
Income (Loss) From Operations 36,241 (15,855)
Other Income (Expenses):
Interest Expense (15,805) (1,534)
Interest Income 943 2,307
Other Income (Expenses) 20,281 18,642
---------- ----------
5,419 19,415
Income Taxes -0- 620
---------- ----------
Net Income $ 41,660 $ 2,940
========== ==========
Earning per share:
Net Income $ .12 $ .01
========== ==========
Weighted Average Common
Shares Outstanding 346,000 348,841
6
<PAGE>
ZEON Corporation
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
---------------- ----------------
Cash Flows From Operating Activities:
Net Income (Loss) $ 41,660 $ 2,940
Adjustments to Reconcile Net Income
to Net Cash Provided By (Used
In) Operating Activities:
Depreciation & Amortization 12,630 19,845
Provisions for Losses on
Accounts Receivable 6,500 4,500
Change in Operating Assets & Liabilities:
Decrease (Increase) in Accts Receivable (395,629) (43,369)
Decrease (Increase) in Inventory (363,167) (91,041)
Decrease (Increase) in Prepaid Assets 101,849 19,561
Increase (Decrease) in Accts Payable (44,100) 43,489
Increase (Decrease) in Customer Deposits 525,075 -0-
Increase (Decrease) in Accrued Expenses (45,455) (19,129)
--------- ---------
TOTAL ADJUSTMENTS: (202,297) (66,144)
Net Cash Provided By (Used In) Operating
Activity: (160,637) (63,204)
Cash Flows From Investing Activities:
Proceeds from sale of Fixed Assets -0- 1,300
Purchase of Capital Assets (36,418) (26,253)
--------- ---------
Net Cash Provided by (Used In) Investing
Activities: (36,418) (24,953)
Cash Flows From Financing Activities:
Purchase of Common Stock (402) (1,476)
Proceeds from Equipment Loan 76,790 -0-
Loan Payments (6,286) (3,395)
Proceeds from Line of Credit 1,202,039 72,000
Line of Credit Payments (603,886) -0-
--------- ---------
Net Cash Provided By (Used In) Financing
Activities: 668,255 67,129
Net Increase (Decrease) In Cash: 471,200 (21,028)
Cash At Beginning of Period: 145,521 169,891
Cash At End of Period: $ 616,721 $ 148,863
========= =========
7
<PAGE>
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:
June 30, December 31,
2000 1999
--------- -------
Finished Goods $ 608,286 $ 204,411
Work-in-process 20,425 40,925
Raw Materials 164,304 184,512
--------- ---------
$ 793,015 $ 429,848
========= =========
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 June 30, 2000 and December 31, 1999, $818,965 and $220,811
were outstanding under the line of credit agreements, respectively.
8
<PAGE>
ZEON Corporation
NOTES TO FINANCIAL STATEMENTS
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 1.5
to 1 as of June 30, 2000, and 2.5 to 1 as of December 31, 1999. With a sales
increase of 79% over last year's first six months, trade receivables and
inventory have increased by $389,000 and $363,000 respectively. Additional
building space was rented to accommodate the growing business and its related
inventory. Capital expenditures of $36,418 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 June 30, 2000 and 1999
------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30,
2000 1999
-------- -------
Sales: $ 1,468,174 $ 798,276
Income (Loss): (41,206) 7,000
Although sales increased 84% over 1999's second quarter, gross profit percentage
fell 6.3 points to 22.5%. Lower non-beverage business volume, additional lower
margin beverage business and additional building costs accounted for the gross
profit percentage decrease. Operating expenses increased by $143,000 over last
year's second quarter.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
Selling Expense increased from $86,000 to $146,000 from 1999's second quarter to
2000's second quarter. All of this increase resulted from customer service costs
(17%) and commissions (83%) on the additional business.
Current second quarter General and Administrative Expenses rose by $61,000 to
$169,000 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 $35,700 last year's second quarter to
$57,800 for second quarter 2000. Additional space costs and hiring of graphic
designer were primary contributors.
Results of operations for the Six months ending June 30, 2000 and 1999
----------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
2000 1999
-------- -------
Sales: $2,524,238 $1,409,600
Income: 41,660 2,940
Sales for 2000 first half rose 79% from 1999's first half. Profit made in the
first quarter was offset by second quarter's loss, resulting in a year-to-date
net income of $41,660. Margin lost from a drop in non-beverage business volume
of approximately $100,000 and additional building costs depressed second quarter
financial results. The Company has a June 30, 2000 backlog of $1,750,000.
Gross profit margin, as a percentage of sales in the first half of 2000, was
26.8% or down 3.8 points from 1999's first half. This point drop was due to
lower non-beverage volume, lowered margin on the additional beverage business
and additional production occupancy costs.
Selling expenses increased by 56% percent over first half 1999. The $85,000
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 $74,000 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 consultants 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 extraordinary audit and accounting expenses due to
the change of our auditors from BDO Seidman, LLP to Hein+ Associates.
Research and development increased by $34,000 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
None.
Item 5. Other information
The Company will have its annual shareholders' meeting on September 18,
2000.
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, 2000.
13
<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 14, 2000 /s/ T. Bryan Alu
--------------- ------------------
T. Bryan Alu
President
/s/ R.G. Routt
------------------
R. G. Routt
Corporate Controller
14
