10QSB 1 main.txt 10QSB FOR ZEON CORP. 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, 2001 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 15, 2001 Common Stock, No Par Value 344,523 ------------------------- ------- (Class) (Number of Shares) Transitional Small Business Disclosure Format (check one): [ ]Yes [x] No ZEON Corporation INDEX Page Part I - Financial Information Balance Sheets March 31, 2001 and December 31, 2000 3 Statements of Operations - Three Months Ended March 31, 2001 and 2000 5 Statements of Cash Flows - Three Months Ended March 31, 2001 and 2000 6 Notes to Financial Statements 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II - Other Information 11 Signature Page 12 2 Part I - Financial Information Item 1. Financial Statements ZEON Corporation BALANCE SHEETS (UNAUDITED) March 31,2001 December 31,2000 CURRENT ASSETS Cash $ 192,887 $ 134,478 Trade Receivables, Net of Allowance for Doubtful Accounts 1,468,547 717,161 Inventories 754,201 1,022,963 Prepaid Inventory 64,490 106,648 Prepaid Expenses and Other 124,835 147,373 -------- ------- TOTAL CURRENT ASSETS 2,604,960 2,128,623 Property and Equipment (net of accumulated depreciation and amortization) 135,987 149,257 Other 29,136 26,649 ------- ------- TOTAL NON-CURRENT ASSETS 165,123 175,906 TOTAL ASSETS $ 2,770,083 $ 2,304,529 ------------ ----------- ---------- 3 ZEON Corporation BALANCE SHEETS (Continued) (UNAUDITED) March 31,2001 December 31,2000 CURRENT LIABILITIES Accounts Payable $ 467,926 $ 648,181 Accrued Expenses 127,045 188,514 Customer Deposits 97,051 15,450 Revolving Line-of-Credit 875,944 344,211 Current Portion of Long-Term Debt 20,967 20,967 ------ ------- TOTAL CURRENT LIABILITIES 1,588,933 1,217,323 Long-Term Debt (net of current portion) 59,309 64,406 ------- ------- TOTAL LIABILITIES 1,648,242 1,281,729 --------- --------- Shareholders Equity: Common stock, no par, $.10 stated value; authorized 100,000,000; issued 344,523 and 344,523 March 31, 2001 and December 31, 2000 34,452 34,452 Capital in Excess of Stated Value 925,747 925,747 Retained Earnings 161,642 62,601 ------- ------ TOTAL SHAREHOLDERS EQUITY 1,121,841 1,022,800 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $ 2,770,083 $ 2,304,529 ----------- ----------- 4 ZEON Corporation STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Three Months Ended March 31, 2001 March 31, 2000 ------------- --------------- Net Sales ...................... $ 2,152,035 $ 1,056,064 Cost of Sales .................. 1,608,852 710,747 -------------- ----------- Gross Profit ................... 543,183 345,317 Operating Expenses: Selling ............... 191,443 92,756 General 135,564 126,239 Research & Development 52,941 48,430 --------- ------- 379,948 267,425 ------- ------- Income (Loss) From Operations .. 163,235 77,892 Other Income (Expenses): Interest Expense ...... (16,791) (5,264) Interest Income ........... 503 38 Other Income (Expenses) -0- 10,200 ------- ------ (16,288) 4,974 Income Taxes ................... 47,906 -0- ------- ------- Net Income (Loss) .............. $ 99,041 $ 82,866 --------- ------------ Earning per share: Net Income (Loss) ............ $ .287 $ .239 --------- ---------- Weighted Average Common Shares Outstanding ........... 344,551 347,038 5 ZEON Corporation STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended Three Months Ended March 31, 2001 March 31, 2000 ------------- --------------- Cash Flows From Operating Activities: Net Income .......................................... $ 99,041 $ 82,866 Adjustments to Reconcile Net Income to Net Cash Provided By (Used In) Operating Activities: Depreciation & Amortization ................... 13,329 8,306 Provisions for Losses on Accounts Receivable ......................... 4,500 3,000 Change in Operating Assets & Liabilities: Decrease(Increase)in Accts Receivable (755,886) (194,285) Decrease (Increase) in Inventory .............. 268,762 52,375 Decrease (Increase)in Prepaid Assets .......... 64,696 105,683 Increase (Decrease) in Accts Payable .............. (180,255) (17,974) Increase (Decrease)in Accrued Expenses ............ 20,131 (10,657) --------- -------- TOTAL ADJUSTMENTS: ..................................... (564,723) (53,552) Net Cash Provided By (Used In) Operating Activity: ............................................ (465,682) 29,314 Cash Flows From Investing Activities: Purchase of Capital Assets .......................... (2,545) (13,775) ---------- -------- Net Cash Provided by (Used In) Investing Activities: .......................................... (2,545) (13,775) Cash Flows From Financing Activities: Purchase of Common Stock ............................ -0- (285) Proceeds from Equipment loan ........................ -0- 76,790 Line of Credit Advances ............................. 1,047,243 180,330 Line of Credit payments ............................. (515,510) (98,785) Loan Payments ....................................... (5,097) (1,718) --------- -------- Net Cash Provided By (Used In) Financing Activities: .......................................... 526,636 156,332 Net Increase (Decrease) In Cash: ....................... 58,409 171,871 Cash At Beginning of Period: ........................... 134,478 145,521 Cash At End of Period: ................................. $ 192,887 $ 317,392
6 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 26, 2001 for the fiscal year 2000. 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: March 31, December 31, 2001 2000 ---------- ------------- Finished Goods ................ $ 589,255 $ 855,879 Work-in-process ............... 42,769 13,007 Raw Materials 122,177 154,077 754,201 $ 1,022,963 ---------- ------------- 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 March 31, 2001 and December 31, 2000, $875,944 and $344,211 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. 7 ZEON Corporation NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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 from an entity in which the Company's president is a 50% partner. The lease requires monthly payments of approximately $17,520 and expires February 2010 with an option for one five-year period. The Company is responsible for maintenance and operating costs. 8 Item 2. 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 1.6 to 1 as of March 31, 2001, and 1.8 to 1 as of December 31, 2000. With first quarter sales increasing 103% over first quarter 2000, growth in both trade receivables and inventory have been financed by both operations and outside financing. During the first quarter 2001, the Company borrowed $1,047,243 and repaid $515,510 from its line of credit (LOC), which provided most of the cash from financing activities. 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 $2,545 for manufacturing equipment. Cash used in operating activities totaled $465,682. Liquidity from on-going operations and line of credit is considered adequate to meet the Company's immediate and short-term cash requirements. Results of Operations: Results of operations for the three months ending March 31, 2001 and 2000 ------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31, 2001 2000 -------- -------- Sales: $2,152,035 $ 1,056,064 Income (Loss): 99,041 82,866 Sales for 2001 first quarter increased 103% from 2000's first quarter. Increased sales in the beverage business started in latter 2000 and continued into the current quarter. The first quarter of 2000 had no such sales. The Company continues to market to beverage and point of purchase segments and expects sales to continue from those markets. 9 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 2001, was 25% as compared to 2000's first quarter's 33%. The drop in overall margin percentages is a result of product mix skewed toward the lower margined beverage sales. Non-beverage sales' gross profit margin approximated 33%. Selling expenses increased by $98,700 over first quarter 2000. The increase came primarily from commissions ($67,000) paid to independent representative responsible for beverage sales and convention expense increase ($30,000). Selling expense remained stable from 8.8% of first quarter 2000 sales to 8.9% of first quarter 2001 sales. General and Administrative expenses increased by $9,300 over same period last year. The additional expenses were related to building occupancy expenses. As a percentage of first quarter sales, general expenses fell from 2000's 12% to 2001's 6%. Research and development increased by $4,500 primarily in personnel and building occupancy costs. 10 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, 2001. 11 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, 2001 /s/ T. Bryan Alu ------------ ------------------------ T. Bryan Alu President /s/ R.G. Routt ------------------------ R. G. Routt Corporate Controller