<PAGE>
FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/ X / ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________to _______________.
Commission File Number 0-16335
OZO DIVERSIFIED AUTOMATION, INC.
(Name of Small Business Issuer as Specified in its Charter)
Colorado 84-0922701
(State or other juris- (IRS Employer
diction of incorpora- Identification No.)
tion or organization)
7450 East Jewell Avenue
Suite A
Denver, Colorado 80231
(Address of Principal Executive Offices)
Issuer's telephone number, including area code: (303) 368-0401
Securities registered under Section 12(g) of the Exchange Act:
$0.10 Par Value Common Stock
(Title of Class)
Indicate by check mark whether the Issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months and, (2) has been subject to such filing
requirements for the past 90 days. YES /X / NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. / X /
Revenues for fiscal year ended Dec. 31, 1995 were $1,736,938.
The aggregate market value of the Registrant's voting stock held as of
March 25, 1996 by nonaffiliates of the Registrant was $339,498.
As of March 25, 1996, Registrant had 452,664 shares of its $0.10 par value
common stock outstanding.
Total Pages _________
Exhibit Index at Page ________
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PART I
ITEM 1. BUSINESS.
(a) Business Development. OZO Diversified Automation, Inc. ("OZO" or the
"Company") was incorporated as a Colorado corporation on October 13, 1983.
Since its formation, the Company has designed, manufactured and marketed
computer controlled equipment for electronics industry applications. The
initial products of the company were Computer Numeric Controlled ("CNC")
workstations for the fabrication of prototype printed circuit boards
("PCBs"). The Company's workstations are utilized in four application areas
of the electronics industry: electronics assembly companies, product
designers, printed circuit board fabricators and test fixture fabricators.
During the fiscal year ended December 31, 1995, the Company had net sales of
$1,736,938, and $1,446,137 for the fiscal year ended December 31, 1994.
(b) Business of Issuer. OZO manufactures and markets computer aided
manufacturing workstations that are used by electronics industry
manufacturers. The workstations are CNC equipment, that is, equipment
controlled by computer software. The software developed by the Company
controls the operation and function of the machinery hardware developed
by the Company. OZO's products enable electronics assembly companies to
rout or depanel PCBs from panels that are produced on a surface mount
assembly line, product designers to produce prototype PCBs, printed circuit
board fabricators to drill and rout PCBs, and test fixture fabricators to
drill and rout test fixtures.
(1) Products. The Company's products are packaged to address
specific market niches of the electronics equipment market. Each workstation
includes an OZO machine, associated spindles for the machine, a computer
controller and software.
The Company's products include the spindles for each of its
workstation products. Drilling, routing, and mechanical etch spindles are
produced by the Company. The drill spindle is an automatic tool change
spindle. The router head enables the product to depanel PCBs from a panel
or to cut printed circuit boards to final size and shape. The mechanical
etch head mills the outline of the circuitry of a PCB board into standard
copper-clad material enabling customers to quickly fabricate prototypes
without the need for chemistry.
The Company's Model 18, Model 24, Model 16, Model 18 HS, and Large
Format machines are marketed under the PanelMASTER, PanelMASTER HS,
PanelROUTER SI, FixtureMASTER, Large Format FixtureMASTER, EtchMASTER, and
LabMASTER product designations. The Company's other product is the Model 2-24,
which is a two spindle drilling machine for medium volume producers of PCBs.
The Company's Model 2-24, Large Format, Model 16, and Model 18 HS
products utilize a servo motor drive system designed by the Company. The
Company's Model 18 and Model 24 products utilize a stepper motor drive system
designed by the Company.
The Company manufactures depaneling equipment for automated assembly
lines that produce assembled printed circuit boards. This is called in-line
equipment, equipment that is incorporated into an automated assembly line.
The Company offers customized solutions to in-line depaneling equipment
customers by producing customized fixturing for machines and integrating
machines into assembly lines. The Company also manufactures stand alone
depaneling equipment, that is, the equipment is off-line and not incorporated
into an automated assembly line. The Company's Model 16 PanelROUTER SI can
be utilized as an in-line or off-line system. The Company's PanelMASTER and
PanelMASTER HS are off-line systems.
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Manufacturing and Assembly of Products
The Company fabricates some machined parts at its in-house machine
shop and contracts with independent machine shops, sheet metal suppliers,
paint and anodize shops, and electronic manufacturers for various parts and
services. Off-the-shelf components are purchased from various industrial
suppliers. Final assembly, testing and inspection of the finished systems
are done by the Company's employees at its facility. A modified drive motor
is a long-lead time item purchased from a single source of supply, and the
Company carries an inventory of this component. Management has the option,
if necessary, to purchase a complete off-the-shelf replacement component for
this item or the Company could modify the drive motor and related electronics
in-house. Accordingly, the Company is not dependent on one or a few major
suppliers.
(2) Distribution. The Company utilizes in-house sales engineers for
direct sales in the United States, Canada, and Mexico, a limited number of
manufacturer representative organizations in the United States, and
international distributors covering Western and Eastern Europe, South Korea,
Japan, Taiwan, Singapore, Malaysia, Hong Kong and the Peoples Republic
of China, Australia, India and Brazil. The Company has a policy of
supporting its international distributor base, providing regular service,
training visits, individualized sales literature and support for trade shows
held within their respective territories.
(3) Status of Product. During 1994, the Company introduced an
in-line high speed depaneling machine, the Model 16 PanelROUTER SI.
Marketplace interest in this product was slower to develop than the Company
anticipated. Orders for five Model 16 PanelMASTER SI units were received in
1995. In February, 1995 the Company introduced the Model 18 PanelMASTER HS,
an off-line high speed depaneling system. Orders for eight of these units
were received in 1995.
The depaneling market niche for the PanelMASTER HS and the
PanelROUTER SI products was the Company's most important United States market
in 1995. Based on the needs of this market the Company introduced the
off-line high speed depaneling system in February, 1995 and continued to
aggressively market the in-line high speed depaneling system developed in
1994. The first two international sales of depaneling systems were made in
1995. The Company continues to sell systems to test fixture fabricators and
small printed circuit board facilities in the United States.
Internationally, test fixture fabricators, small printed circuit board
facilities and prototype operations are a consistent market for the Company's
Model 18, Model 24, and Model 2-24 products. International marketing of the
PanelMASTER HS and the PanelROUTER SI was initiated in 1995.
Longer-term development projects include equipment related to
multichip module prototyping. The Company is continuing to investigate the
sale of individual motion control components, which were developed for and
incorporated into the Company's products.
(4) Competition. The Company competes in four areas of the
equipment market for the electronics industry. The four areas are:
depaneling equipment, low to medium volume bare board drilling and routing
equipment, test fixture drilling and routing equipment, and prototyping
equipment. The Company has identified two U.S. competitors, who are
manufacturers of depaneling equipment, and two foreign competitors. All of
the competitors are divisions of companies larger than OZO and produce
revenues from various products. The Company believes that it competes
favorably in the depaneling equipment market. The Company believes that its
ability to continue to compete will depend upon its ability to produce
competitively priced full featured equipment for the off-line depaneling
equipment market and upon its ability to produce customized solutions for the
in-line depaneling equipment market. The Company estimates that there are
twenty competitors worldwide who manufacture drilling and routing equipment.
The Company believes that it competes favorably only in the low to medium
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volume drilling equipment market and in the test fixture drilling application
market. The Company's drilling equipment customers are predominantly small
businesses, who prefer the Company's products over more expensive products.
The Company has identified one U.S. competitor and one foreign competitor who
manufacture printed circuit board prototyping equipment. The Company
believes that it competes favorably in this market for customers seeking full
function equipment, but cannot compete with single function lower cost
prototyping equipment.
While other competitors supplying products necessary for the
development, production, and depaneling of printed electronic circuit boards
exist or may enter the market, the Company anticipates that its specialized
products will continue to find acceptance. Presently, however, the Company's
relatively small size may give competitors with established reputations and
greater marketing capability and financial resources an advantage in the
marketplace.
(5) Raw Materials. The availability of raw materials is not
applicable to the Company's business. (6) Customer Dependence. The
Company is not dependent on one or a few major customers.
(7) Patents, Trademarks and Licenses. The Company has not sought
patent protection for the hardware it has developed and presently considers
certain aspects thereof to be proprietary to the Company protected by its
trade secrets. The Company has made only a limited search of existing
patents to determine the extent to which such proprietary protection may have
been available or whether the Company's products infringe on patents held by
others. A claim against the Company for possible infringement of a patent
was made in 1994 and the Company has executed a License Agreement with the
unaffiliated claimant. Royalties were paid in 1995 under this License
Agreement. The Company is unaware of any other claims or proprietary rights
of others on which the Company's products may be deemed to infringe. As
additional developments of the Company's products and proprietary information
occur, the Company intends to pursue the appropriate protection. Should
products of the Company be deemed to infringe on patents held by others, the
Company would be subject to the risk of litigation, expense of licensing
rights to use such proprietary technology, or other adverse results.
Copyright protection for the Company's proprietary software, which
is a key component of the operation of the Company's workstation systems, has
been acquired by the Company. Copyright protection for the Company's
proprietary stepper motor software was acquired on May 26, 1988. Copyright
protection for the Company's servo motor software was acquired by the Company
on October 27, 1994.
(8) Government Approval. The Company is not subject to any
government approval for its products.
(9) Government Regulation. The Company has no knowledge of
impending government regulation on its business.
(10) Research and Development. Research and development expenses
for the fiscal years ending December 31, 1995 and December 31, 1994 were
approximately $164,757 and $146,240 respectively. Continuing projects for
1996 include inline automation fixturing, inline automation software,
improvement of spindle driver electronics, servo driver and amplifier
reliability improvements, and software enhancements. The Company does not
receive funding from other parties to conduct research and development,
except in the case of U.S. government NSF or ARPA grants. The Company
received no grants in 1994 or 1995. The Company was a participant in
proposals submitted in 1995, but no funding was awarded.
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(11) Environmental Regulation. Since its inception, the Company
has not made any material capital expenditures for environmental control
facilities and the Company does not expect to make any such expenditures
during the current or forthcoming fiscal year.
(12) Employees. As of December 31, 1995, the Company had 19
full-time employees and one part-time employee.
ITEM 2. PROPERTIES
The Company leases approximately 6,440 square feet of office
and production space in Denver, Colorado. The monthly rental committment is
$3050 per month. The Company's lease expires April 14, 1996 and the Company
is currently in the process of renegotiating the lease.
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company is
a party or of which any of its property is the subject as of the date of this
report and there were no such proceedings during the fiscal year ended
December 31, 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal
year covered by this report to a vote of the Company's security holders.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information.
On August 11, 1987, the Company completed its initial public offering of
75,000,000 Units, each Unit consisting of one share of the Company's
$0.0001 par value common stock and one Class A Common Stock Purchase Warrant
to purchase one share of common stock and one-half of a Class B Common Stock
Purchase Warrant. A total of 15,102,350 Class A Warrants were exercised
prior to expiration of the Class A Warrants in October 1989. The Company's
securities are not listed on NASDAQ, but they are quoted on NASDAQ's OTC
Bulletin Board.
A 1-for-1000 reverse stock split was approved by the Company's
shareholders at a Special Meeting of Shareholders on March 7, 1991,
following which each share of $0.0001 par value common stock became one
thousandth (.001) of a share of $0.10 par value common stock. As a result
of the Company's 1-for-1,000 reverse stock split there were 7,580 Class B
Warrants outstanding. The Class B Warrants expired October 25, 1991.
No Class B Warrants were exercised prior to the expiration date.
In September 1994 the Company reduced the exercise price to $1.00 per
share, for a sixty-day period, of warrants issued in conjunction with a 1993
private offering. A total of 100,000 warrants were exercised. As of
December 31, 1995 note holders held unexercised warrants to purchase 10,000
shares of the Company's common stock at an exercise price of $2.00.
The following table shows the range of high and low bid quotations of
the Common Stock as traded in the over-the-counter market during the last two
fiscal years.
Common Stock
High Low
Fiscal Period Bid Bid
1994
First Quarter 1 1/2
Second Quarter 1 1/2 3/4
Third Quarter 1 1/2 3/4
Fourth Quarter 1 1/2
1995
First Quarter 1 1/2
Second Quarter 1 1/2
Third Quarter 1 1/2 3/4
Fourth Quarter 1 1/2 3/4
The above quotations were reported by market makers in the stock and by
the National Quotation Bureau, Inc. The quotations represent prices between
dealers, do not include retail markups, markdowns or commissions and do not
necessarily represent prices at which actual transactions were or could have
been effected.
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(b) Holders.
As of December 31, 1995, the Company had approximately 750 holders of
record of its $0.10 par value common stock.
(c) Dividends.
The Company has not declared cash dividends on its common stock since
its inception, and the Company does not anticipate paying any dividends in
the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Results of Operations
Sales of the the Company's products increased to $1,736,938 during the
fiscal year ended December 31, 1995, an increase of approximately $290,801
(20%) from the fiscal year ended December 31, 1994. The increase in revenues
was due to the sales of the Company's two new products: The PanelMASTER HS
first introduced in February 1995, and the PanelROUTER SI introduced in 1994.
During 1995 the Company sold eight PanelMASTER HS units and one PanelROUTER
SI systems.
Domestic sales at December 31, 1995 were $706,441, a 16% increase
compared to $607,070 for the same period in 1994. International sales were
$806,000 and $665,000 respectively, a 21% increase from the prior period in
1994. Parts and service revenue accounted for the remaining sales of
$224,497, or 13% of total revenues. Foreign export sales are an integral part
of the Company's strategic sales forecasting and the Company is reliant upon
its foreign distributors to produce revenues in these areas. Approximately
80% of foreign revenues are generated by Pacific Rim (Asian) countries.
Domestic and International regions comprised approximately 54% and 46%
respectively, for both 1995 and 1994. Parts and service revenue in 1994 was
$174,064, or 12% of total revenues.
Varying exchange rates, policies of local governments regarding import
duties or trade restrictions on U.S. produced equipment and fluctuations of
local economies may affect the Company's ability to generate revenues
internationally. These same rates and fluctuations also hinder the
predictability of sales projections in this region. The Company is equally
dependent upon Domestic and International sectors for sustaining its revenue
flow from year to year.
Results of operations further declined from a loss of $171,323 for the
fiscal year ended December 31, 1994, to a loss of $219,848 for the same
period in 1995. The loss for 1995 was due to initial production runs for the
PanelMASTER HS and the PanelROUTER SI, development costs of the new
depaneling products, including greater than anticipated developmental costs
involving costly on-site customer service to get these new systems on-line.
The Company had anticipated losses resulting from these costs of development.
The Company believes that the new product development programs, though
costly, were crucial to remain viable in the marketplace in an increasingly
competitive environment. The losses can also be attributed to higher
warranty expenses, rising prices of vendor parts, higher inventories, rising
prices of air travel for scheduled equipment installation and sales
activities and added staff for quality control and customer service. Price
increases to adjust for these costs were reviewed in December 1995 and
effected during January of 1996.
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Gross profit margin increased from 39% in 1994 to 40% in 1995. Gross
margins are expected to eventually increase in 1996 as sales of the Company's
new products gain a larger percentage of total product revenues and the
Company becomes more efficient in manufacturing its new products.
General and administrative costs increased to $232,536, only up 2% in
1995 from $228,933 in 1994. The slight increase in administrative costs was
attributable to higher rent expense due to additional building space lease
agreements entered into during 1994 and an equipment lease buyout.
Marketing and sales costs increased to $482,849, up 47% from $327,806
in 1994. Seventy five percent (75%) of the increase relates to higher
commissions paid in 1995 to international distributors, domestic sales
representatives, and in-house sales engineers. Although commissions
increase with increased reveunes, the commission expense also fluctuates
based on foreign distributor pricing and the territory location of domestic
sales. The remainder of the increased marketing and sales costs was due to
the rising prices of air travel for scheduled equipment installation and
marketing and sales activities and increased expenditures for marketing
promotional materials.
Research and development costs increased to $164,757, an increase of
13% in 1995 from $146,240 in 1994. Research and development increases,
associated with the introduction of the Company's new products, were
attributed to additional costs for materials expense. There was also an
increase in salaries due to having an additional employee in the department
for the full year during 1995 instead of just part of the year in 1994. The
Company expects research and development to continue at this level, primarily
to support continuing product development.
Liquidity and Capital Resources
In July, 1995 the Company received revolving line of credit financing
from its local bank in the amount of $30,000 to help augment short-term cash
shortages. The credit line continues in force at the time of this filing.
This funding helped provide the necessary cash flow for the Company during
the last half of 1995.
The Company's working capital and cash position decreased at
December 31, 1995 compared to December 31, 1994. The Company's cash position
decreased over the previous year due to inventory purchases for the new
products. At December 31, 1995 inventories increased by $252,305 over the
same period in 1994. The increased mix of products manufactured by
the Company contributed to the increase in inventory, with many components
for the new products being more costly.
Accounts payable increased by $156,719 at December 31, 1995 compared
to the same period in 1994. The increase was attributed to additional
inventories necessary to sustain sales of new products. Accounts receivable
and notes receivable had no appreciable change from the previous year.
The Company's introduction of the PanelMASTER HS and PanelROUTER SI
has been well received. Multiple system orders from customers have been
received for both products. The Company shipped eight PanelMASTER HS systems
during 1995. Two more shipped in early 1996. One PanelROUTER was shipped
during 1995 and three were shipped in early 1996. Based upon the Company's
sales and marketing projections, future sales of these two new systems, in
the opinion of management, will provide a strong product base of the latest
technology in the electronics equipment industry. Management believes,
based upon current order projections and customer approval, that improved
revenues and gross profit margins will enable the Company to begin to recoup
previous losses experienced in the developmental years of 1994-1995.
The current backlog of $630,000, plus forecasted orders, the continuation of
cost control programs, continuing improvements in manufacturing efficiencies,
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and the expanding of marketing efforts on these new products, in management's
opinion provide the opportunity for the Company to continue as a going
concern.
Backlog
As of March 29, 1996 the Company's backlog of orders was $630,000,
compared to $380,000 as of March 21, 1995.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Results of Operations
Sales of the the Company's products decreased to $1,446,137 during the
fiscal year ended December 31, 1994, a decrease of approximately $363,180
(20%) from the fiscal year ended December 31, 1993. The decrease in revenues
was due to decreased sales of the Company's Model 18, 24, and 2-24 products.
The decrease in revenues was also attributed to competitive factors that
resulted in price discounting. Limited customer financing and their
internal administrative or purchasing department delays resulted in
continuous shipment delays of domestic shipments, adversely affecting
Company orders and sales. International customers were experiencing
slow-downs in local economies or the inability to obtain financing for
purchases.
Domestic sales at December 31, 1994 were $607,070, a less than 1%
increase compared to $605,981 for the same period in 1993. International
sales were $665,000 and $1,028,112 respectively, a 35% decrease from the
prior period in 1993. Parts and service revenue accounted for the remaining
sales of $174,064, or 12% of total revenues. Foreign sales are an integral
part of the Company's strategic sales forecasting and the Company is reliant
upon its foreign distributors to produce revenues in these areas.
Approximately 80% of foreign revenues are generated by Pacific Rim (Asian)
countries. Domestic and International regions comprised about 50% each of
total revenues during 1994. In 1993, Domestic and International regions
comprised approximately 42% and 58% respectively. Parts and service revenue
in 1993 was $175,221, or 10% of total revenues.
Varying exchange rates, policies of local governments regarding import
duties or trade restrictions on U.S. produced equipment and fluctuations of
local economies greatly affect the Company's ability to generate revenues
internationally. These same rates and fluctuations also hinder the
predictability of sales projections in this region. The Company is equally
dependent upon Domestic and International sectors for sustaining its revenue
flow from year to year.
Results of operations declined from a profit of $97,289 for the fiscal
year ended December 31, 1993, to a loss of $171,323 for the same period in
1994. The loss for 1994 was due to a decline in sales of the Model 18, 24
and 2-24 products, no sales made in 1994 of the Model 16 SI product
introduced in February 1994, non-recurring charges for consulting, contract
labor, design, marketing costs, and initial production run costs. Declining
revenues, competitors offering significant pricing discounts, and increased
interest expense relating to payments made to private placement investors
beginning in 1994, all contributed to the loss for the year. The Company had
anticipated a loss resulting from the costs of development and marketing
of a new product. The Company believes that the new product development
programs, though costly, were crucial to remain viable in an increasingly
competitive environment.
Gross profit margin decreased from 48% in 1993 to 39% in 1994.
The reduction in margins for 1994 was due to decreased production of Model
18, 24 and 2-24 products, price discounting, and higher production costs
related to a new product and initial production runs. Gross margins are
expected to stabilize in 1995 as new production runs gain efficiency.
<PAGE>
General and administrative costs increased to $228,933, up 26% in 1994
from $181,063 in 1993. To accommodate future growth in production runs and
provide improved demonstration and training facilities, the Company entered
into agreement with its landlord to obtain additional building space plus
leasehold improvements. The Company also experienced an increase in
interest expense relating to the debt service of the private placement
concluded on December 30, 1993. In an effort to control administrative
costs, wages and salaries were frozen in 1994. However, a fourth quarter
stock distribution to employees generated an increase in salary expense.
Marketing and sales costs decreased to $327,806, down 30% from $466,494
in 1993. Marketing costs increased 58% in 1994, relating to expenses
incurred with new product introduction programs. The overall reduction of
costs was effected by the Company's revamping of its United States sales
representative force resulting in a $116,205 reduction in sales commission
and other expenses in 1994 over the same period in 1993. Manufacturer
representative firms considered non-productive were terminated or replaced
and the Company shifted to direct sales methods, which reduced sales
commission costs.
Research and development costs increased to $146,240, an increase of
35% in 1994 from $108,304 in 1993. Research and development increases,
associated with the introduction of the Company's new product, were
attributed to additional costs for salaries, consulting fees, contract labor,
and materials expense. The Company expects research and development to
continue at this level, primarily to support continuing product development.
Liquidity and Capital Resources
In September 1994, the Company reduced the exercise price for a sixty
day period, of warrants issued in conjunction with a private offering to
$1.00 per share. At this reduced exercise price, 100,000 shares were sold.
The net proceeeds to the Company were $100,000. This funding provided the
necessary cash flow for the Company to meet financial obligations during
the reduced cash flow period of the third and fourth quarters.
The Company's working capital and cash position decreased at December
31, 1994 compared to December 31, 1993. The Company's cash position
decreased over the previous year due to cash proceeds of $199,366 received
during December, 1993 from the private placement offering, which greatly
augmented the cash position during that period in comparison to the
present period ending December 31, 1994. Additional inventory purchases for
the new product also affected the decrease in cash position. At December 31,
1994 inventories increased by $33,201 over the same period in 1993. The
increased mix of products manufactured by the Company contributed to the
increase in inventory.
Accounts payable decreased by $64,120 at December 31, 1994 compared to
the same period in 1993. Reduction of payables was a result of influx of
capital resulting from the warrant exercise in September and October of 1994.
Accounts receivable and notes receivable increased by $51,611 during this
period compared to the same period in 1993. This was a result of extended
payment terms given to specific customers to secure sales of equipment in
1994.
The Company introduced a new product, the PanelMASTER HS in February,
1995 at an industry trade show and has received an order for that product.
An order for the PanelROUTER SI product, which was introduced in 1994, has
been received and will be installed at a customer site in April, 1995. The
current backlog of the Company, $380,000, forecasted orders, the continuation
of cost control programs, continuing improvements in manufacturing
efficiencies, and the expanding of marketing efforts on new products, in
management's opinion provide the opportunity for the Company to continue as
a going concern.
Backlog
As of March 21, 1995 the Company's backlog of orders was $380,000,
compared to $242,800 as of March 15, 1994.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
See Financial Statements.
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
(a) Identification of Directors and Executive Officers
Name and Position
in the Company Age Director Since
Marjorie Zimdars-Orthman 47 1983
(President since February
1992, Director)
Ron C. Carpenter 49 February 1992
(Secretary-Treasurer,
Director)
David W. Orthman 46 February 1992
(Director)
The present term of office of each director will expire at the next
annual meeting of shareholders. The executive officers of the Company are
elected annually at the first meeting of the Company's Board of Directors
held after each Annual Meeting of Shareholders. Each executive officer
holds office until his successor is duly elected and qualified or until his
resignation or until he shall be removed in the manner provided by the
Company's Bylaws.
There was no arrangement or understanding between any director or any
executive officer and any other person pursuant to which any person was
selected as a director or an executive officer.
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Business Experience. The following is a brief account of the
business experience during the past five years of each director and
executive officer:
<TABLE>
<CAPTION>
Name of Director Principal Occupation During the Last Five Years
<S> <C>
Marjorie Zimdars-Orthman President and Chief Executive Officer since February 1992; Director of Technical
Services for ScanCAD International, Inc. from February 1991 to February 1992;
Technical Documentation Writer and Quality Control Inspector for the Company from
January 1988 to February 1991; Vice President of the Company from 1983 to
February 1991; Secretary/Treasurer of the Company from January 1989 to February
1992.
Ron C. Carpenter Secretary/Treasurer of the Company since February 1992; Corporate Controller of the
Company since June 1, 1991; Accountant for the Alert Centre, Inc., a
Telecommunications company from February 1990 to March 1991; Corporate
Controller of Aero Systems, Inc., an Aerospace research company from April 1986
to December 1990.
David W. Orthman Director of Research and Development since April 1, 1992; Director of Special
Projects from June 6, 1990 to March 31, 1992; Vice President of the Company from
January 1989 to June 1990; Chairman of the Board of Directors of the Company from
March 1988 to December 1988; President of the Company from October 1983 to
March 1988.
</TABLE>
Directorships
No director of the Company is a director of any other Company with a
class of securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended, or subject to the requirements of Section
15(d) of such Act, or any company registered as an investment company under
the Investment Company Act of 1940, as amended.
(b) Identification of Certain Significant Employees
David W. Orthman became Director of Research and Development on
April 1, 1992. He was Director of Special Projects from June 6, 1990 to
March 31, 1992. He was President of the Company from October 1983 to
March 1988, Chairman of the Board of Directors of the Company from
March 1988 to December 1988, and Vice President of the Company from January
1989 to June 1990. Mr. Orthman was a Director of the Company from
October 1983 to December 1988. Mr. Orthman developed the Model 18 and
related products and technology and the Model 2-20, 2-24, and the PanelMASTER
HS and PanelMASTER SI high speed depaneling motion system and related
products and technology.
(c) Family Relationships
David W. Orthman and Marjorie Zimdars-Orthman are husband and wife.
There are no other family relationships between any director, executive
officer or person nominated or chosen by the Company to become a director or
executive officer.
(d) Involvement in Legal Proceedings
N/A
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table.
The following table shows information regarding compensation paid to
the officers of the Registrant for the three years ending December 31, 1995:
<TABLE>
<CAPTION>
Annual COMPENSATION Long Term Compensation
Name and Principal Other Annual Restricted Stock
Position Year Salary($) Bonus Compensation Awards($) Other
<S> <C> <C> <C> <C> <C> <C>
M. Zimdars-Orthman
CEO 1995 39,500 0 0 None None
CEO 1994 32,760 0 0 7500 None
CEO 1993 30,500 0 0 None None
Ron C. Carpenter
Corporate Controller, 1995 40,000 0 0 None None
Secretary Treasurer
1994 41,962 0 0 3750 None
1993 39,000 0 0 1875 None
David W. Orthman
R&D Director, 1995 48,000 0 0 None None
Director
1994 48,297 0 0 750 None
1993 48,000 0 0 None None
</TABLE>
Except for the Incentive Stock Option Plan described below, the Company
has no other option, pension, benefit plans or similar types of compensation
arrangement.
Incentive Stock Option Plan.
On October 21, 1985 the Company's shareholders approved an Incentive
Stock Option Plan ("Plan") and reserved an aggregate of 28,000 shares of the
Company's $0.10 par value common stock for issuance pursuant to the Plan. As
of December 31, 1995 no options were outstanding.
Other Plans.
There are no other bonus, profit sharing, pension, retirement, stock
option, stock purchase, or other remuneration or incentive plans in effect.
Long Term Incentive Plan.
The Company has no long term incentive plans.
Compensation of Directors.
No compensation is currently being paid to members of the Board of
Directors for their services as directors, execept for their salaries as
reported above under executive officer compensation.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements.
The Company has no employment contracts with any executive officer.
The Company has no compensation plan or arrangement with respect to any
executive officer which plan or arrangement results or will result from the
resignation, retirement or any other termination of such individual's
employment with the Company. The Company has no plan or arrangement with
respect to any such persons which will result from a change in control of the
Company or a change in the individual's responsibilities folllowing a change
in control.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Management.
The following table sets forth, as of March 25, 1996, the number of
shares of the Company's Common Stock beneficially owned by owner's of more
than five percent of the Company's outstanding Common Stock who are known to
the Company and the Directors of the Company, individually, and the Officers
and Directors of the Company as a group, and the percentage of ownership of
the outstanding Common Stock represented by such shares.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent
Name of Beneficial Owner Position With Company Ownership of Class
<S> <C> <C> <C>
Marjorie A. Zimdars-Orthman Director, President, 89,090(1) 19.7%
7450 E. Jewell Ave., #A Chief Executive Officer
Denver, Colorado 80231
David W. Orthman Director, Director of 84,710(1) 18.7%
7450 E. Jewell Ave., #A Research & Development
Denver, Colorado 80231
Ron C. Carpenter Director, Secretary- 8,750 1.9%
7450 E. Jewell Ave., #A Treasurer, Corporate
Denver, Colorado 80231 Controller
All Officers and Directors
as a Group (3 Persons) 103,460 22.9%
_________________
Steven N. Bronson
2101 W. Commercial Blvd. None 82,900 18.3%
#1500
Ft. Lauderdale, Florida 33309
</TABLE>
(1) 79,090 shares held by Marjorie A. Zimdars-Orthman are owned
jointly by her and her husband, David W. Orthman. Ms. Zimdars-Orthman may be
deemed to have shared voting and investment power over these shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions With Management and Others and Certain Business
Relationships.
None.
<PAGE>
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements:
Independent Auditors' Report
Balance Sheet--As of December 31, 1995
Statements of Operations--Years Ended December 31, 1995, and 1994
Statements of Stockholders' Deficiency--Years Ended December 31, 1994,
and 1995
Statements of Cash Flows for the Years Ended December 31, 1995, and 1994
Notes to Financial Statements
(b) 8-K Reports:
No 8-K reports were filed in the fourth quarter of 1995.
(c) Exhibits:
2 Plan of Recapitalization incorporated by reference to Current Report
on Form 8-K dated March 7, 1991, as Exhibit 2.
3.1 Articles of Incorporation incorporated by reference to Registration
Statement No. 33-13074-D as Exhibit 3.1.
3.2 Amended Bylaws adopted June 1, 1987, incorporated by reference to
Annual Report on Form 10-K for the fiscal year ended
December 31, 1987 as Exhibit 3.2.
3.4 Articles of Amendment to Restated Articles of Incorporation dated
March 7, 1991. Incorporated by reference to Annual Report on
Form 10-K for fiscal year ended December 31, 1990 as exhibit 3.4.
4.0 Warrant Agreement dated July 29, 1987, incorporated by reference
to Registration Statement No. 33-13074-D as Exhibit 3.3.
4.1 Amendment No. 1 to Warrant Agreement dated July 13, 1988,
incorporated by reference to Current Report on Form 8-K dated
July 13, 1988 as Exhibit 4.1.
4.2 Amendment No. 2 to Warrant Agreement dated November 9, 1988,
incorporated by reference to Current Report on Form 8-K dated
November 9, 1988 as Exhibit 4.1.
4.3 Amendment No. 3 to Warrant Agreement dated May 26, 1989,
incorporated by reference to Current Report on Form 8-K dated
June 8, 1989 as Exhibit 4.1.
4.4 Amendment No. 4 to Warrant Agreement dated July 21, 1989,
incorporated by reference to Post-Effective Amendment No. 5 on
Form S-18 dated July 24, 1989 as Exhibit 4.4.
4.5 Amendment No. 5 to Warrant Agreement dated April 24, 1990,
incorporated by reference to Current Report on Form 8-K dated
April 24, 1990 as Exhibit 4.5.
4.6 Amendment No. 6 to Warrant Agreement dated October 26, 1990,
incorporated by reference to Current Report on From 8-K dated
October 26, 1990 as Exhibit 4.6.
<PAGE>
10.1 Incentive Stock Option Plan dated October 21, 1985, incorporated by
reference to Registration Statement No. 33-13074-D as Exhibit 10.1.
10.13 Supplement to Employment Agreement dated October 10, 1989 between
the Company and Peter C. Harrity incorporated by reference to Annual
Report on Form 10-K for the fiscal year ended December 31, 1989 as
Exhibit 10.13.
10.14 Supplement to Employment Agreement dated May 16, 1989 between the
Company and William F. Loving, incorporated by reference to
Post-Effective Amendment No. 3 on Form S-18 dated May 30, 1989 as
Exhibit 10.14.
10.15 Employment Agreement dated December 26, 1989, but effective as of
September 27, 1989, between the Company and Norman A. Newton
incorporated by reference to Annual Report on Form 10-K for the
fiscal year ended December 31, 1989 as Exhibit 10.15.
10.16 OEM Purchase Agreement dated January 15, 1990, between the Company
and Ariel Electronics, Inc.incorporated by reference to Annual
Report on Form 10-K for the fiscal year ended December 31, 1989 as
Exhibit 10.16.
10.2 Form of Convertible Promissory Note, 12/30/93 Private Placement
incorporated by reference to Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1993 as Exhibit 10.2.
10.3 Form of Non-Convertible Promissory Note, 12/30/93 Private Placement
incorporated by reference to Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1993 as Exhibit 10.3.
10.4 Form of Note Purchaser Warrant Agreement and Warrant, 12/30/93
Private Placement incorporated by reference to Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1993 as
Exhibit 10.4.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: April 12, 1996.
OZO DIVERSIFIED AUTOMATION, INC.,
a Colorado corporation
By: Marjorie Zimdars-Orthman
Marjorie Zimdars-Orthman
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Date Name and Title Signature
<S> <C> <C>
April 12, 1996 Marjorie Zimdars-Orthman Marjorie Zimdars-Orthman
Principal Executive Officer
Principal Financial Officer
Director
April 12, 1996 Ron C. Carpenter Ron C. Carpenter
Director
April 12, 1996 David W. Orthman David W. Orthman
Director
</TABLE>
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
INDEPENDENT AUDITOR'S REPORT F-2
BALANCE SHEET
DECEMBER 31, 1995 F-3 - F-4
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994 F-5
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
YEARS ENDED DECEMBER 31, 1994 AND 1995 F-6
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994 F-7 - F-8
NOTES TO FINANCIAL STATEMENTS F-9 - F-18
F - 1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors and Stockholders
OZO DIVERSIFIED AUTOMATION, INC.
We have audited the accompanying balance sheet of Ozo Diversified
Automation, Inc. as of December 31, 1995 and the related statements of
operations, stockholders' deficiency, and cash flows for each of the two
years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Ozo
Diversified Automation, Inc. as of December 31, 1995 and the results of
its operations and its cash flows for each of the two years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to
the financial statements, the Company has suffered recurring losses from
operations. This factor, and others discussed in Note 2, raises
substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also
described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
WHEELER WASOFF, P.C.
Denver, Colorado
March 27, 1996
F - 2
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
<S>
CURRENT ASSETS <C>
Cash $ 3,162
Accounts receivable, (net of allowance
for doubtful accounts of $11,022) 178,745
Note receivable - trade 2,215
Inventories (Note 3) 506,396
Prepaid expenses 15,144
-----------
Total Current Assets 705,662
-----------
PROPERTY AND EQUIPMENT, at cost (Note 5)
Manufacturing 160,186
Furniture and fixtures 154,062
Assets under capitalized lease 14,620
Vehicle 10,820
-----------
339,688
Less accumulated depreciation and
amortization 315,909
-----------
23,779
-----------
OTHER ASSETS
Deferred financing costs (net of
accumulated amortization of
$16,254) 24,380
-----------
$ 753,821
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
F - 3
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
BALANCE SHEET (CONTINUED)
DECEMBER 31, 1995
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
<S> <C>
CURRENT LIABILITIES
Note payable - bank $ 27,500
Accounts payable - trade 218,080
Commissions payable 58,719
Accrued salary (Note 11) 32,795
Accrued expenses 55,068
Customer deposits 109,623
Deferred income 48,495
Current portion of long term debt and
capitalized lease obligation (Note 5) 22,899
-----------
Total Current Liabilities 573,179
-----------
LONG TERM DEBT AND CAPITALIZED LEASE
OBLIGATION (Note 5) 248,406
-----------
COMMITMENTS (Note 7)
STOCKHOLDERS' DEFICIENCY, (Note 6)
Preferred stock - $.10 par value
authorized - 1,000,000 shares
issued - none -
Common stock - $.10 par value
authorized - 5,000,000 shares
issued and outstanding - 452,664 shares 45,261
Capital in excess of par value 1,169,809
Accumulated deficit (1,282,834)
-----------
(67,764)
-----------
$ 753,821
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
F - 4
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
NET SALES $1,736,938 $1,446,137
COST OF SALES 1,050,768 884,367
---------- ----------
Gross profit 686,170 561,770
OPERATING EXPENSES
General and administrative 232,536 228,933
Marketing and sales 482,849 327,806
Research and development 164,757 146,240
---------- ----------
880,142 702,979
---------- ----------
OTHER (EXPENSE) ITEMS
Interest expense (25,876) (30,114)
---------- ----------
NET (LOSS) $ (219,848) $ (171,323)
---------- ----------
---------- ----------
NET (LOSS) PER COMMON SHARE $ (.49) $ (.47)
---------- ----------
---------- ----------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 452,664 360,727
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F - 5
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK
CAPITAL IN
EXCESS OF ACCUMULATED
SHARES AMOUNT PAR VALUE DEFICIT
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 352,664 $35,261 $1,076,696 $ (891,663)
Cancellation of shares previously
issued, valued at $.60 per share (20,750) (2,075) (10,375) -
Exercise of common stock warrants,
at $1.00 per share 100,000 10,000 90,000 -
Issuance of common stock to employees,
valued at $.75 per share 20,750 2,075 13,488 -
Net Loss - - - (171,323)
------- ------ --------- -----------
BALANCE, DECEMBER 31, 1994 452,664 45,261 1,169,809 (1,062,986)
Net Loss - - - (219,848)
------- ------ --------- -----------
BALANCE, DECEMBER 31, 1995 452,664 $45,261 $1,169,809 $(1,282,834)
------- ------- ---------- -----------
------- ------- ---------- -----------
</TABLE>
See accompanying notes to financial statements.
F - 6
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(219,848) $(171,323)
Adjustments to reconcile net (loss)
to net cash (used) by operating
activities
Depreciation and amortization 24,593 26,757
Stock issuance to employees - 15,563
Other 6,022 (12,450)
Changes in assets and liabilities
Decrease (increase) in accounts and
notes receivable 13,142 (51,611)
(Increase) in inventories (252,305) (33,201)
Decrease in prepaids 2,241 686
Increase (decrease) in accounts
payable and accrued expenses 214,049 (64,120)
Increase in deferred income and
customer deposits 158,118 -
--------- ---------
Net cash (used) by operating activities (53,988) (289,699)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (642) (18,858)
--------- ---------
Net cash (used) by investing activities (642) (18,858)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long term debt and capital
lease (16,819) (21,593)
Proceeds from bank loan 199,500 -
Payment of bank loan (172,000) -
Proceeds from sale of stock - 100,000
--------- ---------
Net cash provided by financing
activities 10,681 78,407
--------- ---------
NET (DECREASE) IN CASH (43,949) (230,150)
CASH, BEGINNING OF YEAR 47,111 277,261
--------- ---------
CASH, END OF YEAR $ 3,162 $ 47,111
--------- ---------
</TABLE>
See accompanying notes to financial statements.
F - 7
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The Company paid cash for interest of $19,501 and $25,969 during
the years ended December 31, 1995 and 1994, respectively.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
In 1995, the Company acquired equipment by entering into a lease
obligation of $14,620.
During 1994 the Company issued 20,750 shares of its common stock to
employees, valued at $15,563, as additional compensation.
See accompanying notes to financial statements.
F - 8
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Ozo Diversified Automation, Inc. (the Company) was
incorporated under the laws of the State of Colorado on
October 13, 1983. The Company is engaged in the design,
manufacture, and marketing of computer controlled
manufacturing and machining equipment predominately to
entities in North America and the Pacific Rim.
INVENTORIES
Inventories are stated at the lower of cost or market,
with cost determined on a first-in, first-out basis.
WARRANTY COSTS
The Company provides a warranty on products sold for a
period of one year from the date of sale. Estimated
warranty costs are charged to cost of sales at the time
of sale.
PROPERTY AND EQUIPMENT
Property and equipment acquired from Company founders in
exchange for stock was recorded at its depreciated cost
at the time of transfer. Other property and equipment is
recorded at cost. Depreciation is provided by use of
the straight-line method over the estimated useful lives
of the related assets.
Expenditures for replacements, renewals and betterments
are capitalized. Maintenance and repairs are charged to
operations as incurred.
Depreciation expense and amortization of capitalized
lease was $16,466 and $18,630 for the years ended
December 31, 1995 and 1994, respectively.
RESEARCH AND DEVELOPMENT
Expenditures for the research and development of new
products are charged to operations as they are incurred.
F - 9
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED FINANCING COSTS
Deferred financing costs consist of costs incurred in
conjunction with the Company's sale of 9% convertible
notes (Note 5). These costs are being amortized over the
term of the related notes.
INCOME TAXES
The Company has adopted the provisions of Statement of
Financial Accounting Standards 109, "Accounting for
Income Taxes" ("SFAS 109"). SFAS 109 requires
recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have
been included in the financial statements or tax returns.
Under this method, the deferred tax liabilities and
assets are determined based on the difference between the
financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse.
LOSS PER SHARE
Loss per common share is computed based on the weighted
average number of common shares outstanding during each
period. Common stock equivalents, consisting of warrants
and convertible debt, are not considered in the calcula-
tion of net loss per share as their inclusion would be
antidilutive.
STATEMENT OF CASH FLOWS
For purposes of the Statement of Cash Flows, the Company
considers as cash equivalents all highly liquid
investments with a maturity of three months or less at
the purchase date.
USE OF ESTIMATES
The preparation of financial statements in conformity
with generally accepted accounting principles requires
F -10
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of
revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2 - BASIS OF ACCOUNTING
The accompanying financial statements have been prepared
on the basis of accounting principles applicable to a
going concern which contemplates the realization of
assets and extinguishment of liabilities in the normal
course of business. As shown in the accompanying
financial statements, the Company has incurred a net loss
of $219,848 for 1995 and has accumulated a deficit of
$1,282,834 through December 31, 1995. These factors,
among others, may indicate that the Company may be unable
to continue in existence. The Company's financial
statements do not include any adjustments related to the
carrying value of assets or the amount and classification
of liabilities that might be necessary should the Company
be unable to continue in existence. The Company's
ability to establish itself as a going concern is
dependent on its ability to meet its financing require-
ments and ultimately to achieve profitable operations.
Management is continuing its programs of cost control and
containment; installing new production and budgetary
controls in all aspects of operations; expanding its
marketing efforts, especially on new products, and
pursuing additional financing from outside sources.
Management believes that these actions presently being
taken to revise the Company's operating and financial
requirements provide the opportunity to continue as a
going concern.
F - 11
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - INVENTORIES
Inventories at December 31, 1995 consist of the
following:
<TABLE>
<CAPTION>
<S> <C>
Raw materials $293,230
Work in process and components 81,521
Finished goods 131,645
--------
$506,396
--------
--------
</TABLE>
NOTE 4 - NOTE PAYABLE - BANK
Note payable - bank consists of the balance due on a
revolving line of credit from a commercial bank. The
note matures in July 2000, and is repayable monthly at
the rate of a 2% principal reduction and interest
thereon. Interest on the note is 2% above the prime
rate. The note is secured by substantially all assets of
the Company including receivables, inventory and
equipment.
At December 31, 1995, the Company had $2,500 available to
be drawn upon under the line of credit.
F - 12
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - LONG TERM DEBT AND CAPITALIZED LEASE OBLIGATION
Long term debt and capitalized lease obligation consist
of the following at December 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
Capitalized lease
obligation, repayable
in monthly installments
of $431 secured by equip-
ment, interest at 8.76% $ 12,638
9% note, due November 2,
1996, secured by assets
of the Company
(Note 5) 18,667
9% unsecured convertible notes,
due December 30, 1998,
interest payable quarterly 120,000
9% unsecured non-convertible
notes, due December 30, 1998,
interest payable quarterly 120,000
--------
271,305
Less current maturities 22,899
--------
$248,406
--------
--------
</TABLE>
F - 13
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - LONG TERM DEBT AND CAPITALIZED LEASE OBLIGATION
(CONTINUED)
Aggregate maturities of long term debt, including
capitalized lease obligation, over the next five years
are as follows: 1996 - $22,899; 1997 - $4,619; and 1998
- $243,787.
Future minimum payments on a non-cancelable capitalized
lease is as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 5,173
1997 5,173
1998 3,917
--------
14,263
Less amount representing interest 1,625
--------
Present value of net minimum lease
payments including current
maturity $ 12,638
--------
--------
</TABLE>
In December 1993, the Company completed a private
offering of $240,000 of units. Each unit consists of two
9% promissory notes of $10,000 each, due December 30,
1998, and a warrant to acquire up to 5,000 shares of the
Company's common stock. One of the notes is convertible
into shares of the Company's common stock at $1.14 per
share, while the other note is non-convertible. The
warrants are exercisable for a period of five years at
$2.00 per share, through December 30, 1998. Net proceeds
to the Company were $199,366. In conjunction with the
offering, the Company issued to the placement agent
warrants to purchase 50,000 shares of the Company's
common stock, at a price of $1.14 per share, through
December, 30, 1998 (Note 6). The effective interest rate
of these promissory notes, reflecting the related
financing costs, is 12%.
F - 14
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - STOCKHOLDERS' EQUITY
COMMON STOCK
In 1994 the Company issued 20,750 shares of its common
stock to employees, valued at $15,563 ($.75 per share).
These shares were issued from 20,750 shares returned to
the Company in 1994 which were originally issued in 1992
to an unrelated entity for consulting services. The
shares were returned to the Company pursuant to an
agreement between the unrelated entity and the Company.
In September 1994 the Board of Directors reduced the
exercise price, for a sixty-day period, of warrants
issued in conjunction with a private offering (Note 5) to
$1.00 per share; 50,000 shares were sold to note holders
and 50,000 shares were sold to the placement agent at
this reduced exercise price. At December 31, 1995 note
holders held unexercised warrants to purchase 10,000
shares of the Company's common stock at an exercise price
of $2.00 per share.
INCENTIVE STOCK OPTION PLAN
The Company has adopted an incentive stock option plan
for key employees and has reserved 28,000 shares of
authorized but unissued common stock for issuance under
the plan. As of December 31, 1995, no options were
outstanding.
NOTE 7 - COMMITMENTS
The Company leases office and production space under non-
cancelable lease agreements through 1996. Minimum
payments under these leases are $7,581 for 1996. Rent
expense was $43,408 and $38,976 for 1995 and 1994,
respectively.
In January 1990, the Company entered into an agreement
with a nonaffiliated customer to supply certain equipment
in minimum quantities over the next two years. As a
condition of the agreement, the customer made three loans
F -15
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES DTO FINANCIAL STATEMENTS
NOTE 7 - COMMITMENTS (CONTINUED)
to the Company aggregating $110,000 for the purpose of
offsetting the costs the Company will incur to modify
certain of its production processes for this customer.
The loans accrued interest at 6%, compounded semi-
annually, and were to be repaid no later than June 30,
1992. Additionally, the agreement contained an option for
the customer to purchase certain manufacturing rights for
a one-time fee of $150,000. In 1992 the Company entered
into a settlement agreement with the non-affiliated
customer. Under the terms of the agreement, the Company
paid the customer $10,000 cash and issued a new
promissory note in the face value of $45,000, payable
with interest at 9% per annum in monthly installments of
$1,500 only when the Company's revenues from its business
operations are at least $125,000. The unpaid principal
balance and accrued interest is due no later than
November 2, 1996. The note is secured by substantially
all assets of the Company, including receivables,
inventory and equipment.
NOTE 8 - SEGMENT INFORMATION
Foreign sales represent export sales, and were
approximately 46% of net sales revenue for each of the
years ended December 31, 1995 and 1994. Export sales,
by geographic region, are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Pacific Rim $ 666,000 $ 554,000
South America 95,000 74,000
Asia 45,000 -
Europe - 37,000
--------- ---------
$ 806,000 $ 665,000
--------- ---------
--------- ---------
</TABLE>
In 1995, sales by two distributors in the Pacific Rim
represented 21% and 15% of total net sales revenue. In
1994, sales by one distributor in the Pacific Rim
represented 21% of total net sales revenue.
F - 16
<PAGE>
OZO DIVERSIFIED AUTOMATION,INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES
At December 31, 1995, the Company has net operating loss
carryforwards totaling approximately $1,119,000 that may
be offset against future taxable income through 2010 and
research and development credits of approximately $63,000
expiring through 2010.
The Company has fully reserved the tax benefits of these
operating losses because the likelihood of realization of
the tax benefits cannot be determined. These carry-
forwards are subject to review by the Internal Revenue
Service.
The $232,000 tax benefit of the loss carryforward has
been offset by a valuation allowance of the same amount.
Of the total tax benefit, $32,000 is attributable to
1995.
Temporary differences between the time of reporting
certain items for financial and tax reporting purposes,
primarily from using different methods of reporting
depreciation costs and warranty and vacation accruals,
are not considered significant by management of the
Company.
NOTE 10 - FINANCIAL INSTRUMENTS
FAIR VALUE
The carrying amount reported in the balance sheets for
cash, accounts receivable, accounts payable and accrued
liabilities approximates fair value because of the
immediate or short-term maturity of these financial
instruments.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the
Company to concentrations of credit risk consist
principally of trade accounts receivable. Credit risk
F - 17
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - FINANCIAL INSTRUMENTS (CONTINUED)
with respect to these receivables is generally diver-
sified due to the number of entities comprising the
Company's customer base and their dispersion across many
different industries and geographies.
NOTE 11 - RELATED PARTY TRANSACTIONS
At December 31, 1995 the President of the Company had
accrued wages due of $32,795.
F - 18
<PAGE>
EXHIBIT INDEX
Exhibit Page
No. Document No.
2 Plan of Recapitalization incorporated by reference to N/A
Current Report on Form 8-K dated March 7, 1991, as
Exhibit 2.
3.1 Articles of Incorporation incorporated by reference to N/A
Registration Statement No. 33-13074-D as Exhibit 3.1.
3.2 Amended Bylaws adopted June 1, 1987, incorporated by N/A
reference to Annual Report on Form 10-K for the fiscal
year eneded December 31, 1987 as Exhibit 3.2.
3.4 Articles of Amendment to Restated Articles of Incorporation N/A
dated March 7, 1991.
4.0 Warrant Agreement dated July 29, 1987, incorporated by N/A
reference to Registration Statement No. 33-13074-D as
Exhibit 3.3.
4.1 Amendment No. 1 to Warrant Agreement dated July 13, 1988, N/A
incorporated by reference to Current Report on Form 8-K
dated July 13, 1988 as Exhibit 4.1.
4.2 Amendment No. 2 to Warrant Agreement dated November 9, 1988, N/A
incorporated by reference to Current Report on Form 8-K
dated November 9, 1988 as Exhibit 4.1.
4.3 Amendment No. 3 to Warrant Agreement dated May 26, 1989, N/A
incorporated by reference to Current Report on Form 8-K
dated June 8, 1989 as Exhibit 4.1.
4.4 Amendment No. 4 to Warrant Agreement dated July 21, 1989, N/A
incorporated by reference to Post-Effective Amendment No. 5
on Form S-18 dated July 24, 1989 as Exhibit 4.4.
4.5 Amendment No. 5 to Warrant Agreement dated April 24, 1990, N/A
incorporated by reference to Current Report on Form 8-K
dated April 24, 1990 as Exhibit 4.5.
4.6 Amendment No. 6 to Warrant Agreement dated October 26, N/A
1990, incorporated by reference to Current Report on Form 8-K dated
October 26, 1990 as Exhibit 4.6.
10.1 Incentive Stock Option Plan dated October 21, 1985, N/A
incorporated by reference to Registration Statement
No. 33-13074-D as Exhibit 10.1.
<PAGE>
EXHIBIT INDEX
Exhibit Page
No. Document No.
10.13 Supplement to Employment Agreement dated October 10, 1989 N/A
between the Company and Peter C. Harrity incorporated by
reference to Annual Report on Form 10-K for the fiscal year
ended December 31, 1989 as Exhibit 10.13.
10.14 Supplement to Employment Agreement dated May 16, 1989 between N/A
the Company and William F. Loving, incorporated by reference
to Post-Effective Amendment No. 3 on Form S-18 dated May 30,
1989 as Exhibit 10.14.
10.15 Employment Agreement dated December 26, 1989, but effective as N/A
of September 27, 1989, between the Company and Norman A. Newton
incorporated by reference to Annual Report on Form 10-K for the
fiscal year ended December 31, 1989 as Exhibit 10.15.
10.16 OEM Purchase Agreement dated January 15, 1990, between the N/A
Company and Ariel Electronics, Inc. incorporated by reference
to Annual Report on Form 10-K for the fiscal year ended
December 31, 1989 as Exhibit 10.16.
10.2 Form of Convertible Promissory Note, 12/30/93 Private N/A
Placement incorporated by reference to Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1993
as Exhibit 10.2.
10.3 Form of Non-Convertible Promissory Note, 12/30/93 Private N/A
Placement incorporated by reference to Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1993
as Exhibit 10.3.
10.4 Form of Note Purchaser Warrant Agreement and Warrant, N/A
12/30/93 Private Placement incorporated by reference to
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1993 as Exhibit 10.4.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,162
<SECURITIES> 0
<RECEIVABLES> 178,745
<ALLOWANCES> 0
<INVENTORY> 506,396
<CURRENT-ASSETS> 705,662
<PP&E> 339,688
<DEPRECIATION> 315,909
<TOTAL-ASSETS> 753,821
<CURRENT-LIABILITIES> 573,179
<BONDS> 240,000
0
0
<COMMON> 45,261
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 753,821
<SALES> 1,736,938
<TOTAL-REVENUES> 1,736,938
<CGS> 1,050,768
<TOTAL-COSTS> 1,050,768
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,876
<INCOME-PRETAX> (219,848)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (219,848)
<EPS-PRIMARY> (.49)
<EPS-DILUTED> 0
</TABLE>
