<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 June 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 June 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>
June 30, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 2,880 $ 7,526
Accounts and notes receivable, net 304,290 255,414
Inventories (Note 3) 364,614 358,498
Prepaid expenses 21,464 25,631
------------ -------------
Total Current Assets 693,248 647,069
------------ -------------
PROPERTY AND EQUIPMENT
Manufacturing 149,703 149,703
Furniture and Fixtures 176,807 169,747
Capitalized Lease 204,814 204,814
Leasehold Improvements 5,010 5,010
Vehicle 10,820 10,820
------------ -------------
547,154 540,094
Less accumulated depreciation 386,041 362,271
------------ -------------
Total Property and Equipment 161,113 177,823
OTHER ASSETS
Deferred Financing Costs 4,212 8,126
Other 2,859 2,859
------------ -------------
7,071 10,985
Total Assets $ 861,432 $ 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>
June 30, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Current portion of notes payable $ 280,935 $ 280,036
and Capitalized Lease Obligation
Accounts payable and accrued expenses 416,347 401,687
Note payable Bank 27,415 27,415
Note payable - Officer 77,888 0
------------ -----------
Total Current Liabilities 802,585 709,138
------------ -----------
OTHER LIABILITIES
Long Term Debt and Capitalized
Lease Obligation 97,282 126,731
------------ -----------
Total Liabilities 899,867 835,869
------------ -----------
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 (1,284,755) (1,240,812)
------------- -----------
Total Shareholders'
(Deficiency) Equity (38,435) 8
Total Liabilities &
Stockholders' Equity $ 861,432 $ 835,877
------------- -----------
------------- -----------
</TABLE>
See notes to financial statements
3
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
<S> <C> <C>
Net Sales $ 993,121 $ 1,428,189
Cost of Sales 619,644 827,148
------------ ------------
Gross Profit 373,477 601,041
------------ ------------
Operating Expenses:
Marketing & Sales 104,315 212,084
Research & Development 80,442 77,322
General and Administrative 232,662 250,017
------------ ------------
417,419 539,423
------------ ------------
Income before taxes (43,942) 61,618
Provision for Income Taxes 12,324
Tax Benefit of Operating
Loss Carry Forward (12,324)
------------ ------------
NET INCOME (LOSS) $ (43,942) $ 61,618
------------ ------------
------------ ------------
NET INCOME (LOSS) PER COMMON SHARE $ (0.09) $ 0.13
------------ ------------
------------ ------------
NET INCOME (LOSS) PER COMMON SHARE
ASSUMING DILUTION $ (0.05) $ 0.11
------------ ------------
------------ ------------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 479,831 458,164
------------ ------------
------------ ------------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ASSUMING DILUTION 820,095 578,164
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements
4
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net Income $ (43,942) $ 61,618
Adjustments to reconcile net income
to net cash used in
operating activities:
Depreciation 23,770 22,814
Amortization of deferred
financing costs 3,914 3,913
Other 0 (2,082)
Decrease (increase) in assets:
Accounts receivable (48,876) (44,112)
Inventories (6,116) 92,536
Prepaid expenses 4,167 10,385
Increase (decrease) in accounts
payable and accrued expenses 14,751 (78,569)
----------- -----------
Net cash (used) provided by
operating activities (52,332) 66,503
----------- -----------
Cash flows from investing activities:
Capital Expenditures (7,061) (5,977)
----------- -----------
Net cash (used) by investing
activities (7,061) (5,977)
----------- -----------
Cash flows from financing activities:
Payments of long term debt and
capitalized lease obligations (28,640) (25,662)
Proceeds from officer loan 165,000 0
Payment of officer loan (87,113) 0
Proceeds from issuance of
common stock 5,500 0
----------- -----------
Net cash provided (used) by
financing activities 54,747 (25,662)
----------- -----------
Net increase (decrease) in cash (4,646) 34,864
Cash at beginning of period 7,526 3,111
----------- -----------
Cash at end of period $ 2,880 $ 37,975
----------- -----------
----------- -----------
</TABLE>
See notes to financial statements
5
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1998 1997
<S> <C> <C>
Net Sales $ 409,975 $ 752,146
Cost of Sales 279,551 440,489
------------ ------------
Gross Profit 130,424 311,657
------------ ------------
Operating Expenses:
Marketing & Sales 467313 109,037
Research & Development 39,621 39,408
General and Administrative 118,341 133,127
------------ ------------
204,693 281,572
------------ ------------
Income before taxes (74,269) 30,085
Provision for Income Taxes 6,017
Tax Benefit of Operating
Loss Carry Forward (6,017)
------------ ------------
NET INCOME (LOSS) $ (74,269) $ 30,085
------------ ------------
------------ ------------
NET INCOME (LOSS) PER COMMON SHARE $ (0.15) $ 0.07
------------ ------------
------------ ------------
NET INCOME (LOSS) PER COMMON SHARE
ASSUMING DILUTION $ (0.09) $ 0.05
------------ ------------
------------ ------------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 481,497 458,164
------------ ------------
------------ ------------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ASSUMING DILUTION 821,761 578,164
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements
6
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 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 six months ended June 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>
June 30, 1998 December 31, 1997
<S> <C> <C>
Raw Materials $ 330,614 $ 358,498
Work in Progress 0 0
Finished Goods 34,000 0
------------- -------------
$ 364,614 $ 358,498
------------- -------------
------------- -------------
</TABLE>
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
For the six months ended June 30, 1998, the Company had revenues of $993,121,
a 43.8% decrease from revenues of $1,428,189 recorded for the first six
months of 1997. For the quarter ended June 30, 1998, the Company had
revenues of $409,975, a 45.5% decrease from revenues of $752,146, recorded
for the second 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 six
months of 1998, the Company posted a loss of $32,480, a 152.7% decrease
from net income of $61,618, reported for the same period in 1997.
Also because of the decrease in total revenues reported during the second
quarter of 1998, the Company posted a loss of $74,270, a 346.9% decrease
from net income of $30,085 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 austerity 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 being constantly analyzed for
improvements and incorporating requirements defined by our customers.
In June, the Company attended the NEPCON East Trade Show in Boston,
Massachusetts. 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 to reduce lead times.
The Company's Current Liabilities as of June 30, 1998, are $761,650,
approximately $68,402 higher than Current Assets of $693,248. Included
in the Current Liabilities as of June 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 securing a refinancing package for the
Company's debt, and expects to have this issue resolved well in advance of
the due date.
8
<PAGE>
Cash flow from operating activities was a negative $52,332 for the six months
ended June 30, 1998, as compared to a positive $66,503 for the same period in
1997. This is directly attributable to reduced sales and an increase in
finished goods inventory. The negative operating cash flow had been primarily
funded by a loan from an officer which is payable upon demand with interest
at 2.0 percentage points above the prime rate. As of June 30, 1998, the
balance on this loan was approximately $77,900.
As of July 7, 1998, the Company had an open order backlog of approximately
$5,600, compared to a backlog of $336,000 on July 28, 1997. The low open
order backlog reflects the Company's ability to complete and ship our
customers' orders almost immediately and the Company's emphasis on quick
fulfillment of parts and service orders. Additionally, as mentioned above,
business conditions have also impacted the Company's open order backlog.
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- 5 Not Applicable.
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 June 31, 1998.
Item 7 Not Applicable
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: August 13, 1998
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,880
<SECURITIES> 0
<RECEIVABLES> 304,290
<ALLOWANCES> 0
<INVENTORY> 364,614
<CURRENT-ASSETS> 693,248
<PP&E> 547,154
<DEPRECIATION> 386,041
<TOTAL-ASSETS> 861,432
<CURRENT-LIABILITIES> 802,585
<BONDS> 0
0
0
<COMMON> 48,316
<OTHER-SE> (86,751)
<TOTAL-LIABILITY-AND-EQUITY> 861,432
<SALES> 409,975
<TOTAL-REVENUES> 409,975
<CGS> 279,551
<TOTAL-COSTS> 279,551
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (74,269)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (74,269)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.09)
</TABLE>
