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 March 31, 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
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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)
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(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 15, 2000
Common Stock, No Par Value 344,622
--------------------------- ------------------
(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 March 31, 2000 and December 31, 1999 3
Statement of Operations - Three Months Ended
March 31, 2000 and 1999 5
Statements of Cash Flows - Three Months Ended
March 31, 2000 and 1999 6
Notes to Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II - Other Information 13
Signature Page 14
2
<PAGE>
ZEON Corporation
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,2000 December 31,1999
------------- ----------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 317,392 $ 145,521
Trade Receivables, Net of Allowance
for Doubtful Accounts 658,605 467,320
Inventories 377,473 429,848
Prepaid Inventory -0- 110,590
Prepaid Expenses and Other 64,573 59,666
--------- ---------
TOTAL CURRENT ASSETS 1,418,043 1,212,945
Property and Equipment (net of
accumulated depreciation and
amortization) 156,565 156,194
Other 33,458 28,360
--------- ----------
TOTAL NON-CURRENT ASSETS 190,023 184,554
TOTAL ASSETS $1,608,066 $1,397,499
========= ==========
</TABLE>
3
<PAGE>
ZEON Corporation
BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
March 31,2000 December 31,1999
------------- ----------------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts Payable $ 142,734 $ 160,708
Accrued Expenses 59,679 69,683
Customer Deposits 20,041 20,694
Revolving Line-of-Credit 302,356 220,811
Current Portion of Long-Term Debt 18,849 6,528
--------- ---------
TOTAL CURRENT LIABILITIES 543,659 478,424
Long-Term Debt (net of current
portion) 80,820 18,069
--------- ---------
TOTAL LIABILITIES 624,479 496,493
--------- ---------
Shareholders Equity:
Common stock, no par, $.10 stated
value; authorized 100,000,000;
issued 344,622 and 344,717
March 31, 2000 and December 31, 1999 34,458 34,471
Capital in Excess of Stated Value 926,038 926,310
Retained Earnings 23,091 (59,775)
--------- ---------
TOTAL SHAREHOLDERS EQUITY 983,587 901,006
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $1,608,066 $1,397,499
========= =========
</TABLE>
4
<PAGE>
ZEON Corporation
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
------------------- ------------------
<S> <C> <C>
Net Sales $ 1,056,064 $ 611,324
Cost of Sales 710,747 410,163
----------- ---------
Gross Profit 345,317 201,161
Operating Expenses:
Selling 92,756 67,537
General 126,239 112,337
Research & Development 48,430 36,582
----------- ----------
267,425 216,456
----------- ----------
Income (Loss) From Operations 77,892 (15,295)
Other Income (Expenses):
Interest Expense (5,264) (430)
Interest Income 38 1,222
Other Income (Expenses) 10,200 10,442
----------- ----------
4,974 11,234
Net Income (Loss) $ 82,866 $ (4,061)
=========== ==========
Earning per share:
Net Income (Loss) $ .239 $ (.012)
=========== ==========
Weighted Average Common
Shares Outstanding 347,038 348,825
</TABLE>
5
<PAGE>
ZEON Corporation
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss) $ 82,866 $ (4,061)
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided By (Used
In) Operating Activities:
Depreciation & Amortization 8,306 (2,616)
Provisions for Losses on
Accounts Receivable 3,000 2,250
Change in Operating Assets & Liabilities:
Decrease(Increase)in Accts Receivable (194,285) 106,855
Decrease (Increase) in Inventory 52,375 (43,921)
Decrease (Increase)in Prepaid Assets 105,683 11,865
Increase (Decrease) in Accts Payable (17,974) 56,756
Increase (Decrease)in Accrued Expenses (10,657) 4,252
--------- ---------
TOTAL ADJUSTMENTS: (53,552) 135,441
Net Cash Provided By (Used In) Operating
Activity: 29,314 131,380
Cash Flows From Investing Activities:
Purchase of Capital Assets (13,775) (23,134)
--------- ---------
Net Cash Provided by (Used In) Investing
Activities: (13,775) (23,134)
Cash Flows From Financing Activities:
Purchase of Common Stock (285) (1,092)
Proceeds from Equipment loan 76,790 -0-
Line of Credit Advances 180,330 -0-
Loan Payments (100,503) (1,792)
--------- ---------
Net Cash Provided By (Used In) Financing
Activities: 156,332 (2,884)
Net Increase (Decrease) In Cash: 171,871 105,362
Cash At Beginning of Period: 145,521 169,891
Cash At End of Period: $ 317,392 $ 275,253
========= =========
</TABLE>
6
<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 347,038 and 348,125 during
each of the periods ended March 31, 2000 and December 31, 1999,
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,
2000 1999
--------- ---------
Finished Goods $ 61,032 $ 204,411
Work-in-process 30,573 40,925
Raw Materials 285,868 184,512
--------- ---------
$ 377,473 $ 429,848
========= =========
7
<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 $750,000, 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, 2000 and December 31, 1999, $302,356 and
$220,811 were respectively 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 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 $16,000 and expires February 2010 with an
option for one five-year period. The Company is responsible for
maintenance and operating costs.
8
<PAGE>
ZEON Corporation
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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, 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 2000, 18,000 of these options had expired because
certain predetermined financial targets were not met.
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.
9
<PAGE>
ZEON Corporation
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Effective July 1991 the Company adopted a directors' compensation plan
whereby directors can 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, 2000, no shares had been issued under this
plan.
5. Income Taxes:
The Company recognized a total income tax benefit in 1999 of $27,900.
Management believes that consistent income performance and projected
future income has warranted recognition of a deferred tax asset with no
valuation allowance as of December 31, 1999. Accordingly, the Company
recognized a tax benefit asset of $31,000 in 1999.
10
<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 2.6
to 1 as of March 31, 2000, and 2.5 to 1 as of December 31, 1999. With first
quarter sales increasing 72% over first quarter 1999, growth in both trade
receivables and inventory have been financed by both operations and outside
financing. The Company increased its line of credit (LOC) to $750,000 and drew
advances of $180,000. Newly acquired equipment was financed for $76,790. The LOC
is used primarily for funding advance payments to the Company's oversea supplier
who is instrumental in supplying for the additional business. Capital
expenditures were $13,775 for manufacturing equipment. Liquidity from on-going
operations and 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 March 31, 2000 and 1999
THREE MONTHS ENDED MARCH 31,
------------------------------
2000 1999
-------- -------
Sales: $1,056,064 $611,324
Income (Loss): 82,866 (4,061)
Sales for 2000 first quarter increased 73% from 1999's first quarter. The
Heineken contract, awarded in fourth quarter of 1999, contributed $256,693 in
current quarter sales. Excluding the Heineken business, sales had increased 31%
over 1999's first quarter. The 1999's first quarter sales were hampered by
turnover in production assembly. First quarter 2000 showed an income of $82,866.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
Gross profit margin, as a percentage of sales in the first quarter of 2000, was
33%, the same as 1999's first quarter. The same margin level was achieved with
higher volumes spread over fixed factory costs despite Heineken being at a low
margin.
Selling expenses increased by $25,200 over first quarter 1999. The increase came
primarily from commissions paid to independent representative responsible for
Heineken and other business. Selling expense dropped from 11% of first quarter
1999 sales to 8.8% of first quarter 2000 sales.
General and Administrative expenses increased by $13,900 over same period last
year. The additional expenses were loan origination fees, contract labor for
Heineken administration and additional auditing fees resulting from a change in
auditors. As a percentage of first quarter sales, general expenses fell from
1999's 18.4% to 2000's 12%.
Research and development increased by $11,800 primarily in prototype expenses.
12
<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, 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: May 15, 2000 /s/ T. Bryan Alu
------------ ------------------
T. Bryan Alu
President
/s/ R.G. Routt
-------------------
R. G. Routt
Corporate Controller
14
<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,
2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 145,521
<SECURITIES> 0
<RECEIVABLES> 492,965
<ALLOWANCES> 25,645
<INVENTORY> 429,848
<CURRENT-ASSETS> 1,212,943
<PP&E> 407,665
<DEPRECIATION> 251,471
<TOTAL-ASSETS> 1,397,499
<CURRENT-LIABILITIES> 478,424
<BONDS> 0
0
0
<COMMON> 34,471
<OTHER-SE> 866,535
<TOTAL-LIABILITY-AND-EQUITY> 1,397,499
<SALES> 3,014,879
<TOTAL-REVENUES> 3,014,879
<CGS> 2,065,531
<TOTAL-COSTS> 927,580
<OTHER-EXPENSES> (35,632)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,524
<INCOME-PRETAX> 54,876
<INCOME-TAX> (27,900)
<INCOME-CONTINUING> 82,776
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 82,776
<EPS-BASIC> .24
<EPS-DILUTED> .24
</TABLE>
