<PAGE>
FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
For the transition period from _______________ to ______________
Commission File No. 0-16335
OZO DIVERSIFIED AUTOMATION, INC.
7450 East Jewell Avenue, Suite A
Denver, Colorado 80231
Telephone: (303) 368-0401
Colorado 84-0922701
(State of Incorporation) (IRS Employer Identification No.)
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 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.
Yes X No
As of September 30, 1998, Registrant had 483,164 shares of its $.10 par
value common stock outstanding.
1
<PAGE>
PART I - FINANCIAL INFORMATION
OZO Diversified Automation, Inc.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 607 $ 7,526
Accounts and notes receivable, net 131,296 255,414
Inventories (Note 3) 366,866 358,498
Prepaid expenses 11,215 25,631
------------ -------------
Total Current Assets 509,984 647,069
------------ -------------
PROPERTY AND EQUIPMENT
Manufacturing 40,391 149,703
Furniture and Fixtures 83,581 169,747
Capitalized Lease 204,814 204,814
Leasehold Improvements 5,010 5,010
Vehicle 10,820 10,820
------------ -------------
344,616 540,094
Less accumulated depreciation 199,302 362,271
------------ -------------
Total Property and Equipment 145,314 177,823
------------ -------------
------------ -------------
OTHER ASSETS
Deferred Financing Costs 2,255 8,126
Other 2,859 2,859
------------ -------------
5,114 10,985
------------ -------------
------------ -------------
Total Assets $ 660,412 $ 835,877
------------ -------------
------------ -------------
</TABLE>
See notes to financial statements
2
<PAGE>
PART I - FINANCIAL INFORMATION (CONTINUED)
OZO DIVERSIFIED AUTOMATION, INC.
BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Current portion of notes payable $ 281,835 $ 280,036
and Capitalized Lease Obligation
Accounts payable and accrued expenses 149,902 401,687
Note payable Bank 27,415 27,415
Note payable - Officer 78,609 0
Note payable - Director 75,000 -
------------ -----------
Total Current Liabilities 612,761 709,138
------------ -----------
OTHER LIABILITIES
Long Term Debt and Capitalized
Lease Obligation 82,429 126,731
------------ -----------
Total Liabilities 695,190 835,869
------------ -----------
SHAREHOLDERS' EQUITY
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
483,164 shares (1998)
478,164 shares (1997) 48,316 47,816
Capital in excess of par value 1,198,004 1,193,004
Accumulated deficit (1,281,098) (1,240,812)
------------- -----------
Total Shareholders'
(Deficiency) Equity (34,778) 8
Total Liabilities &
Stockholders' Equity $ 660,412 $ 835,877
------------- -----------
------------- -----------
</TABLE>
See notes to financial statements
3
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
<S> <C> <C>
Net Sales $ 1,352,919 $ 2,032,998
Cost of Sales 802,615 1,181,231
------------ ------------
Gross Profit 550,304 851,767
------------ ------------
Operating Expenses:
Marketing & Sales 119,660 290,491
Research & Development 105,421 116,845
General and Administrative 365,508 365,988
------------ ------------
590,589 773,324
------------ ------------
Income before taxes (40,285) 78,443
Provision for Income Taxes 15,689
Tax Benefit of Operating
Loss Carry Forward (15,689)
------------ ------------
NET INCOME (LOSS) $ (40,285) $ 78,443
------------ ------------
------------ ------------
NET INCOME (LOSS) PER COMMON SHARE $ (0.08) $ 0.17
------------ ------------
------------ ------------
NET INCOME (LOSS) PER COMMON SHARE
ASSUMING DILUTION $ (0.08) $ 0.17
------------ ------------
------------ ------------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 480,942 458,164
------------ ------------
------------ ------------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ASSUMING DILUTION 480,942 458,164
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements
4
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net Income $ (40,285) $ 78,443
Adjustments to reconcile net income
to net cash used in
operating activities:
Depreciation 38,929 34,583
Amortization of deferred
financing costs 5,871 5,871
Other 0 (2,082)
Decrease (increase) in assets:
Accounts receivable 124,118 (197,979)
Inventories (8,369) 133,221
Prepaid expenses 14,416 1,910
Increase (decrease) in accounts
payable and accrued expenses (249,986) (39,604)
----------- -----------
Net cash (used) provided by
operating activities (115,306) 14,363
----------- -----------
Cash flows from investing activities:
Capital Expenditures (6,421) (9,213)
----------- -----------
Net cash (used) by investing
activities (6,421) (9,213)
----------- -----------
Cash flows from financing activities:
Payments of long term debt and
capitalized lease obligations (44,302) (7,736)
Proceeds from officer loan 213,200 0
Payments on officer loan (134,590) 0
Proceeds from director loan 75,000
Payments on director loan 0
Proceeds from issuance of
common stock 5,500 0
----------- -----------
Net cash provided (used) by
financing activities 114,808 (7,736)
----------- -----------
Net increase (decrease) in cash (6,919) (2,586)
Cash at beginning of period 7,526 3,111
----------- -----------
Cash at end of period $ 607 $ 525
----------- -----------
----------- -----------
</TABLE>
See notes to financial statements
5
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
<S> <C> <C>
Net Sales $ 359,798 $ 604,809
Cost of Sales 182,970 354,083
------------ ------------
Gross Profit 176,828 250,726
------------ ------------
Operating Expenses:
Marketing & Sales 15,346 78,407
Research & Development 24,979 39,523
General and Administrative 132,846 115,971
------------ ------------
173,171 233,901
------------ ------------
------------ ------------
Income before taxes 3,657 16,825
Provision for Income Taxes 731 3,365
Tax Benefit of Operating
Loss Carry Forward (731) (3,365)
------------ ------------
NET INCOME (LOSS) $ 3,657 $ 16,825
------------ ------------
------------ ------------
NET INCOME (LOSS) PER COMMON SHARE $ (0.01) $ 0.04
------------ ------------
------------ ------------
NET INCOME (LOSS) PER COMMON SHARE
ASSUMING DILUTION $ (0.01) $ 0.04
------------ ------------
------------ ------------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 483,164 458,164
------------ ------------
------------ ------------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ASSUMING DILUTION 483,164 458,164
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements
6
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
The unaudited financial statements included herein were prepared from
the records of the Company in accordance with Generally Accepted
Accounting Principles and reflect all adjustments which are, in the
opinion of Management, necessary to provide a fair statement of
the results of operations and financial position for the interim
periods. Such financial statements generally conform to the
presentation reflected in the Company's Form 10-KSB filed with the
Securities and Exchange Commission for the year ended December 31,
1997. The current interim period reported herein should be read in
conjunction with the Company's Form 10-KSB subject to independent
audit at the end of the year.
The results of operations for the nine months ended September 30, 1998 are
not necessarily indicative of the results that may be expected for the
year ending December 31, 1998.
Note 1 - A summary of significant accounting policies is currently on file
with the Securities and Exchange Commission on Form 10-KSB.
Note 2 - Income Taxes. At December 31, 1997, the Company had net operating
loss carryforwards totaling approximately $962,000, that may be
offset against future taxable income through 2011 and research and
development credits of approximately $60,000 expiring through 2012.
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 carryforwards are subject to review by
the Internal Revenue Service.
Temporary differences between the time of reporting certain items for
financial and tax reporting purposes, primarily from using different
methods of reporting depreciation cost and warranty and vacation
accruals, are not considered significant by Management of the Company.
Note 3 - Inventories
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
<S> <C> <C>
Raw Materials $ 324,867 $ 358,498
Work in Progress 8,000 -
Finished Goods 34,000 -
------------- -------------
$ 366,867 $ 358,498
------------- -------------
------------- -------------
</TABLE>
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
For the nine months ended September 30, 1998, the Company had revenues of
$1,352,919 a 33.5% decrease from revenues of $2,032,998 recorded for the first
nine months of 1997. For the quarter ended September 30, 1998, the Company
had revenues of $359,798, a 40.5% decrease from revenues of $604,809, recorded
for the third quarter of 1997. The decrease in revenues is primarily a
result of weak economic conditions in Asia, as well as, capital spending
curtailments by large Original Equipment Manufacturers (OEMs) in North
America. These spending curtailments are also directly attributable to the
uncertain business conditions in Asia. While Management cannot predict a
timetable for a recovery in the Asian markets, it is believed that the weak
business conditions in Asia will extend well into the second half of the year
and possibly into the first half of 1999. Management is in the process of
refocusing its sales efforts in markets that remain less affected by the
Asian financial situation.
Because of the decrease in total revenues reported during the first nine
months of 1998, the Company posted a loss of $40,285, a 151.3% decrease
from net income of $78,443, reported for the same period in 1997.
Despite a decrease in total revenues reported during the third
quarter of 1998, the Company posted a gain of $3,657, a 78.3% decrease
from net income of $16,825 reported for the same period in 1997.
In anticipation of an extended downturn in sales, Management has continued
to undertake internal measures to reduce fixed costs and to match expense
spending against projected revenues. The Company will voluntarily enforce
its cost containment program for as long as conditions warrant.
The Company continues to focus on the depaneling application market with
its premium routing equipment, the 18HS PanelMASTER and the 16SI PanelROUTER.
Both of these strategic product groups are continuously analyzed for
improvements and incorporating requirements defined by our customers.
In August, the Company attended the SMTrends Trade Show in Huntsville,
Alabama, and the SMI Trade Show in San Jose, California. In addition,
marketing efforts have been increased in the European Union and
in Central and South America. Management has also reemphasized
customer service, and is continuing production process improvements
in an effort to preserve operating margins.
The Company's Current Liabilities as of September 30, 1998, are $612,761,
approximately $102,777 higher than Current Assets of $509,984. Included
in the Current Liabilities as of September 30, 1998, are $240,000 in notes
which are due December 30, 1998. As disclosed in the 1997 10-KSB report,
Management is in the process of addressing the Company's debt obligations,
and expects to have this issue resolved well in advance of the due date.
Please see Part II, Note 5, for more information. Additionally, a $75,000
loan was made from a director of the Company to partially fund the
operating loss incurred to date.
8
<PAGE>
Cash flow from operating activities was a negative $115,306 for the nine months
ended September 30, 1998, as compared to a positive $14,363 for the same period
in 1997. This is directly attributable to reduced sales and a decrease in
Accounts Payable. The negative operating cash flow had been primarily
funded by the aforementioned loan from a director of the Company, in addition
to a loan from an officer which is payable upon demand with interest
at 2.0 percentage points above the prime rate. As of September, 30, 1998, the
balance on these loans was approximately $75,000 and $78,609 respectively.
During the third quarter the Company wrote-off assets which were fully
depreciated and no longer in service. These write-offs included
$109,311 in manufacturing equipment, and $92,587 in furniture and fixtures.
As of October 26, 1998, the Company had an open order backlog of approximately
$304,700, compared to a backlog of $368,000 on October 28, 1997. The open
order backlog reflects an upturn in business conditions both domestically
and internationally. However, as mentioned above, business conditions have
continued to adversely impact the Company's open order backlog and remain
unpredictable.
The foregoing discussion does not give any effect to the completion of a sale
of the Company's depaneling and routing business as described in Part II,
Item 5 of this report. If the proposed transaction is completed, of which
there can be no assurance, the Company's historical business will be
discontinued.
Except for historical information contained herein, the statements in this
report are forward-looking statements that are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks and uncertainties,
which may cause the Company's actual results in future periods to differ
materially, from forecasted results. These risks and uncertainties include,
among other things, product demand and acceptance, market competition, and
risks inherent in the Company's international operations. These and other
risks are described elsewhere herein and in the Company's other filings with
the Securities and Exchange Commission.
9
<PAGE>
PART II - OTHER INFORMATION
OZO Diversified Automation, Inc.
Items 1- 4 Not Applicable.
Item 5 On October 6, 1998 the Company announced that it had reached
a nonbinding agreement in principle to sell its automation
and depaneling business to JOT Automation, Inc., the U.S.
subsidiary of JOT Automation Group Oyj, of Finland. The
nature of the proposed transaction will be an asset sale
between OZO and JOT, as opposed to a common stock purchase
by JOT from OZO's current shareholders.
The proposed transaction is currently scheduled to close
before the end of the year. It is subject to satisfactory
completion of due diligence, preparation of definitive
agreements, and OZO shareholder approval among other
standard closing conditions. It is anticiapated that the
definitive purchase agreement will be signed by November 9,
1998. OZO will then seek shareholder approval of the
agreement. Assuming shareholder approval is obtained the
transaction will be finalized on or before December 31, 1998.
OZO's Board of Directors and Officers have identified certain
assets that are not for sale. They will determine if a new
business is to be established in the public shell, or if the
proceeds from the proposed transaction will be returned, in
whole or in part, to the shareholders. Per the Company's
corporate bylaws, the current common stock shareholders must
approve the proposed transaction before it may be completed.
If the proposed transaction is approved, OZO's Board of
Directors and Officers will determine the next course of
action regarding the disposition of the remaining operations.
As part of the proposed transaction, JOT Automation, Inc. will
acquire the OZO name and trademark. The OZO public shell,
after the completion of the agreement with JOT, will likely
change its name. This will be a decision to be considered
by the Board of Directors (and likely to be a condition of
the final agreement with JOT).
Item 6 Exhibits and Reports on Form 8-K
a) Exhibits-none.
b) No Reports on Form 8-K were filed during the quarter
ending September 30, 1998.
Item 7 Not Applicable
10
<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.
OZO DIVERSIFIED AUTOMATION, INC.
By: David J. Wolenski Brantley J. Halstead
David J. Wolenski Brantley J. Halstead
Principal Executive Officer Principal Accounting Officer
Principal Financial Officer Chief Financial Officer
Dated: October 30, 1998
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 607
<SECURITIES> 0
<RECEIVABLES> 131,296
<ALLOWANCES> 0
<INVENTORY> 366,866
<CURRENT-ASSETS> 509,984
<PP&E> 344,616
<DEPRECIATION> 199,302
<TOTAL-ASSETS> 660,412
<CURRENT-LIABILITIES> 612,761
<BONDS> 0
0
0
<COMMON> 48,316
<OTHER-SE> (83,094)
<TOTAL-LIABILITY-AND-EQUITY> 660,412
<SALES> 359,798
<TOTAL-REVENUES> 359,798
<CGS> 182,970
<TOTAL-COSTS> 182,970
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,657
<INCOME-TAX> 0<F1>
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,657
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
<FN>
<F1>Although the Company's tax liability in third quarter 1998 was $731, this
amount was offset in its entirety by loss carryforwards from previous years.
The net tax liability for the quarter ending September 30, 1998 is zero.
</FN>
</TABLE>
