<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, 1998
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
BIO-MEDICAL 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. / /
Revenues for fiscal year ended December 31, 1998, were $1,773,788.
The aggregate market value of the Registrant's voting stock held as of March 2,
1999, by nonaffiliates of the Registrant was $390,918.
As of March 2, 1999, Registrant had 643,160 shares of its $0.10 par value common
stock outstanding.
Total Pages 44
Exhibit Index at Page 24
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PART I
ITEM 1. BUSINESS.
(a) BUSINESS DEVELOPMENT. Bio-Medical Automation, Inc. ("BMA" or the
"Company") was incorporated as a Colorado Corporation on October 13, 1983
under the name `OZO Diversified Automation, Inc.' The Company changed its
name to BMA in March 1999, following shareholder approval of the name change
in connection with the sale of substantially all of the Company's assets to
JOT Automation, Inc. (referred to herein as the "JOT Transaction" and "JOT",
respectively).
Since its formation, and until the completion of the JOT Transaction,
the Company had been engaged in the design and manufacture of robotic
workstations for the electronics industry. The initial products offered by
OZO included small-scale CNC (Computer Numerically Controlled) drilling
machines that were, and are, commonly used in the fabrication of prototype
printed circuit boards. As of the late 1980s, the Company diversified its
product line to include routing and depaneling workstations. Until the
completion of the JOT Transaction, the core business of the Company was the
development, manufacturing, and sale of routing and depaneling robotic
workstations for use in the electronics industry (referred to herein as the
"routing and depaneling business"). The JOT Transaction resulted in the sale
of the routing and depaneling business to JOT as described below.
The Company has also developed a prototype micro-robotic device (the
"prototype device") to manipulate organic tissues on an extremely small
scale. The Company has not been able to complete the development of this
prototype device because it needed to conserve its resources for use in the
routing and depaneling business. The sale of the routing and depaneling
business to JOT is expected to allow the Company to focus its efforts on the
completion of the development of this prototype device. If completed (of
which there can be no assurance), the Company intends to offer the technology
and equipment to bio-medical and bio-technical research organizations and/or
commercial entities.
RISK FACTORS
AS NOTED ELSEWHERE HEREIN, THE FUTURE CONDUCT OF THE BUSINESS OF THE
COMPANY AND ITS RESPONSE TO ISSUES RAISED BY THIRD PARTIES ARE DEPENDENT UPON
A NUMBER OF FACTORS, AND THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL BE
ABLE TO CONDUCT ITS OPERATIONS OR COMPLETE THE PROTOTYPE MICRO-ROBOTIC DEVICE
AS CONTEMPLATED. CERTAIN STATEMENTS CONTAINED IN THIS REPORT USING THE TERMS
"MAY," "EXPECTS TO," AND OTHER TERMS DENOTING FUTURE POSSIBILITIES, ARE
FORWARD-LOOKING STATEMENTS. THE ACCURACY OF THESE STATEMENTS CANNOT BE
GUARANTEED AS THEY ARE SUBJECT TO A VARIETY OF RISKS WHICH ARE BEYOND THE
COMPANY'S ABILITY TO PREDICT OR CONTROL, AND WHICH MAY CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THE PROJECTIONS OR ESTIMATES CONTAINED HEREIN.
THESE RISKS INCLUDE, BUT ARE NOT LIMITED TO THE FOLLOWING RISKS:
- - Risks associated with start-up operations in companies dependent on the
development of new, unproven technology. If the new technology is
successfully developed, there can be no assurance that even patenting or
otherwise protecting the Company's technology and the prototype device
will adequately protect the technology from exploitation by others.
- - Risks associated with the investment in a company with no historical
profitability.
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- - Risks associated with a company, which has disposed its historical
operations and has no experience in its proposed new line of business.
- - Risks that competitors may develop a device similar to the Company's
prototype device sooner than the Company can do so, thereby possibly
eliminating the Company's market advantage. Most, if not all, of the
Company's competitors have significantly greater capitalization and
research and development staffs than the Company has available.
- - Risks associated with a company that is dependent on the efforts of a
single person, David Orthman, for the continuing development of the
prototype device. Under his contract with JOT, Mr. Orthman may only work
part-time for the Company. Additionally, the Company does not have keyman
insurance on Mr. Orthman's life, and there can be no assurance that Mr.
Orthman's services can be replaced should he choose not to, or be unable
to, offer his continuing services to the Company.
- - Risks associated with the possible inability of the Company to raise
needed capital in the future. The market for the Company's common stock
on the OTC Bulletin Board is volatile and can be significantly affected
by a limited amount of activity. The Company has no assets, other than
cash, against which outside parties are likely to provide debt or equity
financing. Therefore, unless, the Company is successful in further
developing the prototype to accurately manipulate organic tissues on an
extremely small scale with its existing funds (which cannot be assured),
the Company is not likely to be able to secure any additional financing.
IT IS IMPORTANT THAT EACH PERSON REVIEWING THIS ANNUAL REPORT
UNDERSTANDS THE SIGNIFICANT RISKS ATTENDANT TO THE OPERATIONS OF THE COMPANY.
THE COMPANY DISCLAIMS ANY OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENT
MADE HEREIN EXCEPT TO THE EXTENT REQUIRED TO DO SO IN FURTHER REPORTS TO BE
FILED PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
(b) BUSINESS OF ISSUER. As noted above, as a result of the
completion of the JOT Transaction, the Company is no longer participating in
its historical business activities. Those historical activities are now
considered to be "discontinued operations" for financial statement purposes.
As a result, this section describes BMA's business "prior to the completion
of the JOT Transaction" and its "plan of operations."
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PRIOR TO THE COMPLETION OF THE JOT TRANSACTION. BMA, up to the date of
the completion of the JOT Transaction, manufactured and marketed robotic
workstations, which are used by the electronics industry, in surface mount
assembly lines, for the depaneling, routing, and drilling of printed circuit
boards. In addition to furnishing the base workstations, the Company also
provided sophisticated motion control software that is used to operate the
machines for specific applications.
Prior to the completion of the JOT Transaction, the Company's products
were defined by a two-tier offering of equipment and accessories.
- - The upper tier (or premium line) which represented BMA's core business,
was comprised of the Company's high-end servomotor systems, including the
Model 18HS standalone router, and the Model 16SI fully-automated, inline
system, which were marketed under the trade names PanelMASTER 18HS and
PanelROUTER 16SI, respectively.
- - The lower tier offering was comprised of the Company's stepper-motor
systems, which included the Model 18 and Model 24 multipurpose machines,
which were distributed under the PanelMASTER, FixtureMASTER, EtchMASTER,
and LabMASTER product designations.
- - On a limited basis, the Company also supplied a dual-spindle drilling
platform (Model 2-24), as well as a large format multi-use machine (Model
32), both of which are dedicated to a very narrow market segment. The
Model 2-24 and Model 32 machines were available only on a special order
basis.
The majority of the Company's 1998 revenue derived from the sale of
its premium line of depaneling equipment. As a result of the completion of
the JOT Transaction, however, all of these products are now offered by JOT.
Prior to the completion of the JOT Transaction, the Company had
competed in four distinct segments of the capital equipment market:
- - depaneling equipment,
- - low-to-medium volume bare board drilling and routing equipment,
- - test fixture drilling and routing equipment, and
- - prototyping equipment.
Nationally and internationally, there were numerous competitors who
manufacture depaneling, routing and drilling equipment. In many cases, the
competitors identified offer fully integrated product lines (i.e., total
manufacturing solutions), compared to the Company's much narrower product
offering as described above. Prior to the completion of the JOT Transaction,
the Company believed that under historical market conditions it could compete
favorably in the depaneling equipment market. However, the Company had not
been successful in the market conditions which evolved during the second half
of 1997, and persisted throughout 1998, and this was a primary reason for the
proposal (approved by the shareholders) to sell the depaneling and routing
business to JOT. The Company believed that its ability to continue to compete
was significantly hampered by being a standalone depaneling equipment
manufacture in a market that no longer recognized best-of-breed,
single-equipment manufacturers. JOT has an integrated line of products, which
can utilize the Company's former products in providing integrated solutions
to customers.
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Prior to the completion of the JOT Transaction, the Company procured
parts and raw materials from a broad base of suppliers, and did not rely on
one, or a few, major vendors for critical components. Most materials
purchased by the Company were off-the-shelf items.
Prior to the completion of the JOT Transaction, the Company was not
dependent on one, or a few, major customers.
Prior to the completion of the JOT Transaction, the Company had not
sought patent protection for the hardware it developed, but considered
certain aspects to be proprietary to the Company and were protected as trade
secrets. The Company had 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 infringed 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 1997 and 1998 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.
The Company had acquired copyright protection for the Company's
proprietary software, which was a key component of the operation of the
Company's workstation systems. Specifically, copyright protection for the
Company's proprietary stepper motor software was acquired on May 26, 1988.
The Company acquired copyright protection for the Company's servomotor
software on October 27, 1994. Subsequently, as the software has been
improved, additional copyright protection has been obtained.
As a result of the completion of the JOT Transaction, the Company
assigned its technology, copyrights, and trade secrets to JOT, however BMA
licensed the right to use a portion of the technology to integrate into, and
to complete the development of, its prototype device.
Prior to the completion of the JOT Transaction, the Company had
expended approximately $167,807, and $159,570 for research and development on
all Company activities in the fiscal years ending December 31, 1998, and
December 31, 1997, respectively.
The Company does not receive funding from other parties to conduct
research and development, except in specific cases where U.S. government NSF
or ARPA grants may be awarded. The Company received no grants in 1998 or 1997.
SUMMARY OF JOT TRANSACTION
The Company completed the JOT Transaction pursuant to an Asset
Purchase Agreement (the "Agreement"), dated November 4, 1998 (and amended
December 15, 1998), with JOT Automation, Inc. ("JOT"), a wholly-owned Texas
subsidiary of JOT Automation Group Oyj, a Finnish corporation which has its
common stock registered on the Helsinki Stock Exchange. JOT is engaged in the
business of production automation and robotics for use within the electronics
industry. The Company sold to JOT all of its assets relating to its
depaneling and routing business in exchange for $920,000 and the assumption
of the operating liabilities related to the Company's business assets (the
"JOT Transaction"). BMA used a portion of the gross proceeds to reimburse JOT
for expenses incurred by BMA in maintaining the assets not transferred to
JOT, to pay certain expenses of the JOT Transaction, and to repay
indebtedness to related parties and to third parties, as follows:
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<TABLE>
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Purchase Price $ 920,000
Indebtedness payable 179,830
Sales and use taxes (estimate) 20,000
Finder's fee (Capitalink) 40,366
Recoupment expenses paid to JOT 80,000
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Net proceeds remaining (estimated) $ 599,804
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</TABLE>
As a result of the JOT Transaction, JOT acquired approximately 99% of
the Company's total assets, which had generated 100% of the Company's
revenues and were responsible for approximately 99% of the Company's expenses.
JOT also acquired the rights to the OZO name and trademark,
copyrighted software, and the Company's customer lists. Virtually all of the
Company's employees became JOT employees, and the Company's former production
facility in Denver will continue to operate for JOT in much the same manner
as it has before the JOT Transaction.
BMA retained certain assets, which included the net cash proceeds of
the JOT Transaction and a new technology currently under development. Because
the new technology represents a significant departure from the current
product line, it is unlikely any of the Company's former customers in the
depaneling and routing business will continue as customers after (if ever)
the new technology is commercially available.
As a part of the JOT Transaction, JOT licensed certain technologies
back to BMA. This will allow the Company to continue to use copyrighted
motion control and automation software in certain fields of use which are not
competitive with JOT. These fields of use include, among other things, the
manipulation of biological systems in order to accomplish a wide range of
research, medical and commercial objectives. This is a fully paid,
non-revocable, transferable, royalty-free license in perpetuity offered by
JOT to the Company.
PLAN OF OPERATIONS
The Company believes that the net proceeds from the JOT Transaction
will enable the Company to continue its research and development activities
for the technology necessary to complete the development of the prototype
device, and to pursue the patent application for the prototype device.
Generally the Company anticipates that the net proceeds made available by the
completion of the JOT Transaction will be expended through June 2000 as
follows. In all cases, the amounts are estimated and are subject to change
based on the needs of the Company, as these needs develop and change over
time.
<TABLE>
<S> <C>
Salaries (1) $ 300,000
Rent and Leasehold Improvements (2) 90,000
Consulting fees (3) 40,000
Materials and Supplies 100,000
Miscellaneous (4) 69,804
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Total $ 599,804
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</TABLE>
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(1) Including officers' salaries and fringe benefits. This also includes
salaries for software, and mechanical and electrical engineers necessary
to complete the development, design, and construction, and testing of the
Company's prototype device.
(2) The Company will move to new facilities in the Denver, Colorado area.
(3) Including consulting fee to be payable to David Orthman for his work in
completing the development of the prototype device.
(4) Including legal and accounting expenses, and working capital.
The net proceeds are expected to be sufficient to allow the Company to
complete the development of a functional prototype device (although there can
be no assurance that these efforts will be successful). If successful, the
Company will also identify estimated manufacturing and production costs for
the prototype device. At that time, the Company will not have sufficient
capital to produce or market the prototype device, and will either begin an
effort to raise additional capital and build and distribute the technology
internally, or seek out a business partner with that expertise. There can be
no assurance, however, that the Company will be able to achieve any of these
goals.
The Company believes that it has an opportunity to complete the
research and development necessary for the creation of a prototype device for
micro-manipulation in the bio-medical and bio-technical fields which is
expected to work in conjunction with extremely powerful vision systems at
extremely small tolerances. This is a new line of business for the Company,
but the Company will be using its existing technology (which it sold to JOT
as a part of the JOT Transaction and is subject to the license back from
JOT). That technology provides for the manipulation of cutting devices within
extremely small tolerances for the purpose of depaneling circuit boards. The
existing technology is capable of repeating these cuts an unlimited number of
times through robotics, simply by programming the Company's cutting devices
properly with its motion control software.
The Company has used this technology to develop a prototype device
that works in conjunction with an extremely powerful vision system (that
could include a microscope or monitor) with the ability to manipulate a
micro-tool at tolerances which are substantially less (by approximately a
factor of ten) than the Company's current equipment. The existing prototype
device is developed only on a single axis, by which the tool can touch the
organic tissue sample being examined in a single spot, retract, and then
return to the same spot, demonstrating the repeatability and accuracy of
motions at extremely small tolerance levels. Following the Transaction, with
the funds made available thereby, the Company expects to hire employees to
continue the research and development to add the additional axes and to
reduce tolerances.
The Company expects to use the licensed technology and the technology
included in the patent application the Company is retaining to develop this
prototype over the next twelve to fifteen months. The Company was unable to
continue the development of this device prior to the completion of the JOT
Transaction because of its need for funds to maintain the depaneling and
routing business.
At this time, the Company is not aware of any competitors with similar
technology. A patent application has been filed for the purpose of protecting
certain aspects of the Company's technology relating to the prototype device,
which patent application was among the assets BMA retained. The License
Agreement with JOT also gives the Company certain exclusive rights with
respect to the technology in this field.
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Because of limited resources available to the Company, it has not been
able to complete a more detailed analysis of the market and potential
competition and competitors. Based on industry literature and other
information widely available, however, management believes that the potential
market for the prototype device, when and if completed, is quite large if the
prototype device performs in the manner expected (of which there can be no
assurance). Even if the Company is successful in completing the prototype
device, the Company will not have the capital necessary to commence
production of the device in any significant quantities. The Company had not
made any arrangements for additional capital if the prototype device is
successful, and there can be no assurance that additional capital will be
available when needed.
Furthermore, there can be no assurance that the Company will succeed
in developing a micro-manipulation device with the necessary degree of
accuracy within the budget provided by the completion of the Transaction. If
the Company is not able to do so, then it probably will not have sufficient
capital available to complete the prototype device or to pursue any other
line of business, and there can be no assurance that the Company would be
able to obtain any additional funding. In such a case, it is likely that the
Company would have to cease business operations, and shareholders may not
receive any return on their investment.
GENERAL INFORMATION
RAW MATERIALS. Prior to the completion of the JOT Transaction, the
Company procured parts and raw materials from a broad base of suppliers, and
does not rely on one, or a few, major vendors for critical components. Most
materials purchased by the Company are off-the-shelf items. The Company
believes that this situation will continue in the future.
CUSTOMER DEPENDENCE. The Company has not in the past been dependent on
one, or a few, major customers. Until the Company completes the development
of the prototype device and related technology, the Company will have no
product(s) to sell.
GOVERNMENT APPROVAL. The Company has not been, and does not expect to
be, subject to any government approval for its product(s).
GOVERNMENT REGULATION. The Company has no knowledge of impending
government regulation on its business.
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. The Company believes that it is in full
compliance with all federal, state, and local environmental regulations.
EMPLOYEES. As of December 31, 1998, the Company had 15 full-time
employees and one part-time employee. As of March 10, 1999, the Company had
two contract employees.
ITEM 2. PROPERTIES
Prior to the completion of the JOT Transaction, the Company's
combined office and production space totaled approximately 9,040 square feet
as to which the Company had a monthly rental obligation of approximately
$4,300 through the expiration of the lease on February 29, 2000.
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As a result of the completion of the JOT Transaction, JOT assumed all
liabilities under that lease. Currently the Company subleases one office from
JOT for $200 per month. The Company maintains its records in that office. BMA
has agreed to find other office space in the near future, and has commenced
looking for that space.
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 years ended
December 31, 1998, or December 31, 1997, or subsequently.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
1998 to a vote of the Company's security holders. However, two proposals were
submitted to shareholders for their approval in March 1999:
A proposal to approve the sale of substantially all of the assets of the
Company and change the name of the Company to become effective at the
time of the completion of the sale of assets; and
A proposal to adopt a new Article IX to the Company's Restated Articles
of Incorporation, as amended, to provide for the limitation of certain
liabilities of the Company's directors to the Company and its
shareholders as permitted under Section 7-108-402(1) of the Colorado
Business Corporation Act.
The shareholders approved both proposals. The shareholders' meeting
was adjourned until April 22, 1999, at which time a third proposal may be
considered. That proposal is:
A proposal to amend Article VI of the Company's Restated Articles of
Incorporation, as amended, to reduce the vote required by shareholders to
approve asset dispositions, mergers, consolidations or exchanges, and any
other matter which would require an amendment to the Company's Restated
Articles of Incorporation, as amended, from two-thirds to a majority.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION.
The Company's common stock is quoted on the OTC (Over-The-Counter)
Bulletin Board. The following table shows the range of high and low closing
bid quotations of the common stock as traded in the OTC market during the
last two fiscal years.
<TABLE>
<CAPTION>
COMMON STOCK
- -------------------------------------------------------------------------------------
FISCAL PERIOD HIGH BID ($) LOW BID ($)
- ------------- ------------ -----------
<S> <C> <C>
1998
First Quarter 1.625 0.75
Second Quarter 1.625 1.375
Third Quarter 1.375 0.5625
Fourth Quarter 0.625 0.5625
1997
First Quarter 0.50 0.50
Second Quarter 0.75 0.50
Third Quarter 0.75 0.75
Fourth Quarter 0.75 0.75
</TABLE>
The above quotations were reported by market makers in the stock and
by the National Quotation Bureau, LLC. The quotations represent prices
between dealers and do not include retail markups, markdowns, or commissions,
and do not necessarily represent prices at which actual transactions were or
could have been effected.
(b) HOLDERS.
As of December 31, 1998, the Company had approximately 700 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. There are no contractual restrictions on the
Company's ability to pay dividends.
(d) RULE 701 DISCLOSURE.
In December 1998 the Compensation Committee of the Board of
Directors authorized the issuance of an aggregate 65,000 shares of common
stock to be used as bonuses for its current board members (a total of five
individuals as of December 31, 1998). In addition, as part of the Compensation
Committee's actions, 7,500 shares were issued to an unrelated party. These
securities were offered in consideration for services performed in the past,
and no cash was paid by any individual in exchange for the shares. The
Company believes these shares are exempt from registration pursuant to
Sections 4(2) and 4(6) of the Securities and Exchange Act of 1934. The
issuance of the stock was coordinated exclusively by Company management, and
no underwriters were used to facilitate this transaction.
In November 1998, the Board of Directors authorized the issuance of
7,500 shares to the Company's Chief Financial Officer, also in consideration
for services performed in the past. The Company believes these shares are
exempt from registration, also pursuant to Sections 4(2) and 4(6) of the 1934
Act. Again, no underwriters participated in the transaction.
In November and December of 1998, certain holders of the Company's
convertible promissory notes exercised their right to convert to common
stock. As a result of these actions, $70,000 of convertible debt (held by six
of the Company's debt holders), converted to a total of 79,996 new shares.
For those debt holders that participated, this exchange of debt for equity
was effected at a rate of $0.875 per share. The Company believes these shares
are exempt from registration pursuant to Section 3(a)(10) of the Securities
and Exchange Act of 1934. Again, the Company acted alone in coordinating
these conversion activities, and no underwriters were used to effect the
transactions.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
As a result of the completion of the JOT Transaction, the Company's
historical business, the depaneling and routing business, is considered to be
a "discontinued operation" and, consequently, provides no benefit to persons
seeking to understand the Company's financial condition or results of
operations. Consequently, this management's discussion and analysis is
divided into two parts: DISCUSSION OF CONTINUING OPERATIONS and DISCUSSION OF
DISCONTINUED OPERATIONS. Management believes that the discussion of
continuing operations is more meaningful for an understanding of the Company.
DISCUSSION OF CONTINUING OPERATIONS
RESULTS OF OPERATIONS
Substantially all of the Company's operations prior to the completion
of the JOT Transaction were devoted to the Company's historical business.
Only a small portion of the Company's general and administrative expense
($60,697 during 1998 or approximately 8%) and of the Company's research and
development expense ($20,596 during 1998, or approximately 12%) were devoted
to the assets the Company retained, relating to the technology for and the
development of the prototype device. In addition, the Company's continuing
operations accounted for approximately $8,130 of interest expense
(approximately 15% of total 1998 interest expense).
The Company's continuing operations accounted for no revenues during
the year ended December 31, 1998.
As a result of the small amount of operations devoted to the Company's
continuing business, the Company recognized a net loss of $89,423 from its
continuing operations.
The Company believes that this loss from continuing operations will
increase significantly during 1999, and thereafter, until (if ever) the
prototype device has been developed and can be commercialized. The Company
expects to spend $600,000 for research and development and for general and
administrative expenses through approximately June 2000.
According to the Company's plan of operations discussed above,
research and development will be devoted to developing the technology and
building the prototype device as described. General and administrative
expenditures will be directed to maintaining the Company's status as a public
company, including (without limitation) filing reports with the Securities
and Exchange Commission.
Although the Company believes that Mr. Orthman, and others under his
direction, will be able to complete the development of the technology
necessary for the completion of the prototype device with the funds
available, there can be no assurance that they will be able to do so. Even if
they are able to complete the prototype device, there can be no assurance
that it will be able to generate revenues for the Company. Unless the Company
is able to generate revenues from (or after) the development of the prototype
device and related technology, the Company's ability to continue as a going
concern will be significantly impaired.
<PAGE>
LIQUIDITY AND FINANCIAL CONDITION.
As a result of the completion of the JOT Transaction, the Company has
a significant amount of liquidity approximately $600,000 as of March 9, 1999.
The Company expects to spend this working capital to pursue the plan of
operations described above, although the plan of operations may change
significantly as future circumstances dictate. Unless the Company is able to
generate revenues from (or after) the development of the prototype device and
related technology, the Company's liquidity will erode until no amounts
remain.
Consequently, the Company's financial condition is entirely dependent
on the successful development of the prototype device and related technology,
of which there can be no assurance.
DISCUSSION OF DISCONTINUED OPERATIONS
RESULTS OF OPERATIONS
For the fiscal year ended December 31, 1998, sales of the Company's
products decreased to $1,773,788 a 34.7% decrease from sales of $2,715,991,
recorded in the year ended December 31, 1997. The decrease in revenues was
primarily a result of decreased demand for the Company's premium depaneling
equipment, specifically the PanelROUTER 16SI workstation, as well as very
little demand for the Company's lower tier multipurpose workstations, the
Model 18 and Model 24. Introduced in 1995 and 1994 respectively, the
PanelMASTER 18HS and PanelROUTER 16SI had begun to gain broad acceptance in
the electronics industry through 1997. The decrease in sales is attributable
to the Asian financial crises and a significant maturation and consolidation
in the electronics assembly industry. For the year ended December 31, 1998,
the Company experienced decreased sales of its PanelMASTER HS standalone
units and in-line PanelROUTER SI systems. Prior to 1998, the Company has
noted a favorable shift in its product mix toward the larger, faster
servomotor-based depaneling systems.
While sales for fiscal year 1998 decreased 34.7% over the prior
period, the cost of goods sold decreased 40.5%, to $886,741 from $1,490,352,
in 1997. Management attributes the slightly favorable trend in cost of goods
sold to a change in the product mix in 1998 versus 1997. As a result of this
change in product mix, gross profit margin increased marginally to 50.0% in
1998, from 45.1% of total revenues in 1997.
In terms of the foreign and domestic breakdown of sales, the Company
experienced a widespread decrease in sales within North America during 1998,
as well as reduction in revenues abroad. Domestic (i.e., North American)
sales as of December 31, 1998, were approximately $995,490, a decrease of
approximately 48% from $1,901,000, for the same period in 1997. International
revenues decreased by 24% in 1998, accounting for sales of only $305,793
versus $402,000 in 1997. Parts and service revenue accounted for the
remaining sales of approximately $472,505 or approximately 24% of total
revenues in 1998, as compared to $413,000, or 15% of total revenues in 1997.
<PAGE>
Although international sales are an integral part of the Company's
strategic sales objective, the Company has become more selective on the type
and amount of foreign business it accepts. Management deems this change in
policy appropriate, especially in light of the dramatic downturn in the Asian
and Pacific Rim markets, which occurred in the second half of 1997 and
continued throughout 1998. For the year ended December 31, 1998, the Company
recorded a decrease in its allowance for bad debt in the amount of $ 26,059
to $35,546, to reserve for the recovery of delinquent accounts. However,
Management is actively pursuing the collection of these accounts.
International sales on new equipment accounted for approximately 16% of
revenues in 1998, compared to 15% of revenues in 1997.
As in past years, there are many factors that impair the Company's
ability to reasonably predict the future sales potential of foreign markets.
Exchange rate variations, 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 sustain revenues
internationally. Similarly, these same uncertainties limit the predictability
of sales projections in foreign markets. Nevertheless, the Company remains
dependent upon both the Domestic and International sectors for maintaining
its revenue base from year-to-year.
Results of operations decreased dramatically with the Company
recording a net loss of $140,022 for the year ended December 31, 1998,
compared to net income of $193,334 for the fiscal year ended December 31,
1997. The dramatic decrease in earnings may be attributed primarily to an
industry-wide slow down in capital equipment purchases, and the economic
situation in Asia, which spread to markets worldwide.
In the area of operating expenses, general and administrative expenses
increased dramatically to $367,208 as compared to $205,378 in 1997. As a
percentage of sales, the general and administrative costs increased to 21%
from 8% in 1997. While the Company continued to focus on expense control,
dramatically decreased sales resulted in much lower allocation factors.
Additionally, general and administrative, as well as legal expenses incurred
in 1998 related to the JOT Transaction in 1999, were in excess of $50,000.
Marketing and sales costs decreased to $454,353 during the reporting
period, down 19% from $562,020 in 1997. On a percentage basis, marketing and
sales costs increased to 26% in 1998, as compared to 21% of total sales in
1997. The significant change is attributed to the lower amount of commission
payments associated with new machine sales and cost reduction efforts
throughout the year. The Company believes it will always be subject to higher
Selling, General &Administrative costs (as a percentage of revenue) because
of its practice of going to market through distributors and manufacturer's
representatives, and its relatively small size.
Research and Development costs increased slightly to $160,716 in 1998,
or 14%, from $140,930, in 1997. The research and development activities in
1998 focused primarily on minor design improvements on each product.
In summary, the improvements in operating income as a result of
expense control in 1997 were not carried forward in 1998, because of the
significant decrease in sales throughout the year, and the company's focus on
maintaining operations. Table 1 below illustrates the breakdown of the major
expense categories as a percentage of net sales.
<PAGE>
TABLE 1
<TABLE>
<CAPTION>
1998 % 1997 %
---- --- ---- ---
<S> <C> <C> <C> <C>
Net Sales $1,773,788 100.0 $2,715,991 100.0
Cost of Sales 886,741 50.0 1,490,352 54.9
---------- ----- ---------- -----
Gross Profit $887,047 50.0 $1,225,639 45.1
G&A Expense $367,208 20.7 $205,378 7.6
Marketing 454,353 25.6 562,020 20.7
R&D Expense 160,716 9.1 140,930 5.2
---------- ----- ---------- -----
Total $982,277 55.4 $908,328 33.4
Provision for Bad Debt $-- 0.0 $79,109 2.9
Other income 990 0.1
-----
Loss on Disposition of Assets -- -- 6,336 0.2
---------- ----- ---------- -----
Earnings before Interest ($94,240) (5.3) $231,866 8.5
Interest Expense $45,782 2.6 $38,532 1.4
---------- ----- ---------- -----
Net Income (Loss) ($140,022) (7.9) $193,334 7.1
---------- ----- ---------- -----
---------- ----- ---------- -----
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
For short-term cash and credit requirements in 1998, the Company
continued to use the credit revolver established in July 1995 through its
local bank. The revolving line of credit has a maximum available limit of
$30,000, and matures on July 13, 2000. The Company terminated this line of
credit following the completion of the JOT Transaction in March 1999.
Also, as disclosed in Item 12 of Form 10-KSB, throughout 1998, the
President and Chief Executive Officer made a series of loans to the Company
to provide short term working capital for projects and to stabilize cash
flow. The outstanding loan balance at the end of 1998 was $14,830.
Additionally, the Company borrowed $75,000 from a director. Please refer to
Note 7 of the Financial Statements (Related Party Transactions), and Item 12
herein, for additional details on these two loans.
Prior to 1997, the Company had completed the retirement of three
significant debt obligations (all in the fourth quarter of 1996). In addition
to retiring a $100,000 loan from an investment group, the Company also
retired a $50,000 short-term loan from its local bank, as well as a $45,000
loan from a customer. As of December 31, 1997, the Company's primary debt
obligation was a $240,000 note due December 30, 1998 (see Note 4 of the
Financial Statements). The Company continued its efforts to remediate,
consolidate, and retire its debt obligations throughout 1998 and into the
next fiscal year. Remediation efforts included the conversion of $70,000 to
common stock of the Company in November 1998, the repayment of $40,000 on
December 31, 1998, and the extension of the remainder of $130,000 until
January 31, 1999. On January 31, 1999, $40,000 more was repaid, and the
balance of $90,000 was extended until March 31, 1999. The $90,000 balance and
all accrued interest were paid in full on March 20, 1999.
<PAGE>
Total Current Assets increased by 14.3% in 1998. The net accounts
receivable balance decreased 13.2% to $221,804 as of December 31, 1998,
compared to $255,413 as of December 31, 1997. This decrease is primarily
attributable to more aggressive collection efforts by Management and the
dramatic decrease in sales revenue. The improved collection efforts are
manifested by the decrease in the allowance for doubtful accounts to $35,546
as of December 31, 1998, from $61,605 as of December 31, 1997. However,
Management continues to pursue payment on these and other delinquent accounts.
Inventories increased by $100,516 to $459,014 from $358,498 as of
December 31, 1997, an increase of 28.0% from December 31, 1997. The change in
inventory is primarily a result of the year-end shop floor production
schedule and the timing of sales orders. Management does not believe the
inventory comparison necessarily reflects any material change in the
operating performance of the Company. Additionally, several sales order from
JOT customers were placed during the fourth quarter of 1998. In anticipation
of these sales inventory levels were increased.
Total Current Liabilities decreased $53,277 or 7.5% in 1998 to
$655,861 from $709,138 in 1997. The decrease in current liabilities is driven
by a significant decrease in accounts payable and additional decreases in
accrued liabilities including commissions payable and accrued expenses. These
decreases were offset by an increase in customer deposits primarily
attributable to machine orders placed by JOT customers.
While the Company made significant progress in 1997 with the expanded
sales and marketing of its premium products, the PanelMASTER 18HS and the
PanelROUTER 16SI, the significant reduction in 1998 sales was a principal
factor in Management's decision to sell its depaneling business to JOT
Automation, Inc.
YEAR 2000 COMPLIANCE
Although there can be no assurance, the company does not anticipate that it
will suffer any adverse impact as a result of Year 2000 (Y2K) computer
software issues either as a result of third party non-compliance or as a
result of internal matters. None of the information technology or other
software and hardware systems utilized by the Company incorporates technology
that is incapable of recognizing dates beyond December 31, 1999.
Internally developed computer software sold with the Company's equipment is
not date dependent. There are no date fields contained within this software.
The software is designed to operate on IBM-compatible personal computers. The
current version of the operating system sold with the Company's equipment, MS
DOS 6.22, the Company has been informed, is Year 2000 compatible by means of
an upgrade to a more recent release.
Third-party software sold with the Company's equipment is limited to one
product. The vendor of this product is GraphiCode, Inc. GraphiCode, Inc. has
assured the Company that its software product, Etchmaster, is also Year 2000
compatible.
<PAGE>
All software products used internally, primarily Office Automation and
Engineering, are the most recent releases of the products, and the Company
has been informed that these releases are also Year 2000 compatible.
In making the foregoing determination, the Company has assessed embedded
systems contained in its facility and manufacturing equipment. As a result,
the Company has not established a contingency plan to come into effect in the
event of a Y2K catastrophe and management does not believe that such a plan
is necessary. Of course, the Company is dependent on facilities outside of
their control, such as electrical power supplies, banking facilities,
transportation facilities (such as airlines) and communications facilities.
While the Company believes, based on public reports and some notifications it
has received, that these outside facilities are or will be Y2K compliant, the
Company does not have any other basis for determining their compliance. The
operations of the Company would be significantly and adversely affected if
any of these facilities are adversely affected by the millennium and other
issues related to Y2K.
BACKLOG
As of January 27, 1999, the Company's backlog of orders was
approximately $1,417,000, compared to $307,000 as of March 27, 1998. This
backlog is attributable to new sales generated by JOT Automation, Inc., on
behalf of the Company, as well as an increase in demand for the Company's
standalone and inline products from existing accounts.
Following the completion of the JOT Transaction, the Company has no
backlog. JOT has assumed the backlog and the obligation to fill the backlog.
ITEM 7. FINANCIAL STATEMENTS
See Financial Statements on pages F-1 through F-18.
<PAGE>
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AND POSITION IN THE COMPANY AGE DIRECTOR SINCE
- -------------------------------- --- ---------------
<S> <C> <C>
Alvin L. Katz 69 October 1996
(Chairman of the Board since October
1996, Director)
David J. Wolenski 37 September 1996
(President since September 1996, Director)
David W. Orthman 48 February 1992
(Director)
Scott E. Salpeter 40 Director through March 5, 1999
Brantley J. Halstead 41 Officer since February 1998
(Chief Financial Officer) Director through March 5, 1999
</TABLE>
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.
Because of changes in personal circumstances, Scott E. Salpeter and
Brantley J. Halstead, who were directors during 1998, resigned from the Board
of Directors of the Company effective March 5, 1999. Mr. Halstead has agreed
to continue to assist the Company as its Chief Financial Officer until the
Company finds a suitable replacement.
In accordance with his obligations to JOT as described in the proxy
statement, David Orthman has resigned as an officer of the Company, but will
continue as a member of the Board of Directors. He will continue to work as a
consultant to the Company and will assist the Company in completing the
research and development necessary to complete the prototype device and the
related technology.
David J. Wolenski will continue to serve as president of the Company
and as a member of the Company's Board of Directors as described in the proxy
statement. It is anticipated that Mr. Wolenski will resign as president of
BMA on or before June 1, 1999, although his successor has not yet been
selected. After June 1, 1999, Mr. Wolenski will continue to serve as a
director of BMA.
<PAGE>
BUSINESS EXPERIENCE. The following is a brief account of the
business experience during the past five years of each director and executive
officer:
NAME OF DIRECTOR PRINCIPAL OCCUPATION DURING THE LAST FIVE YEARS
- ---------------- ----------------------------------------------
Alvin L. Katz Chairman of the Board since October 1996; Currently
serving on the Board of Directors of Amtech Systems,
Inc., a public company engaged in the manufacture of
capital equipment in the computer chip manufacturing
business; Blimpie International, a publicly held fast
food franchise; Nastech Pharmaceutical Company, Inc.,
a public company engaged in the development of
pharmaceuticals; and BCT, a public company engaged in
the franchising of printing plants. Also, from 1991
until the company sold in September 1992, Chief
Executive Officer of Odessa Engineering Corp., a
company engaged in the manufacture of pollution
monitoring equipment; and, since 1981, an adjunct
professor of business management at Florida Atlantic
University.
David J. Wolenski President and Chief Executive Officer since September
1996; Previously with Johns Manville Corporation, a
public company engaged in the manufacture of
fiberglass insulations and related building
materials, from July 1983 through July 1996;
Manufacturing manager at Johns Manville's Corona,
California facility, September 1994 through July
1996; Manager of Quality Assurance for Johns
Manville's Performance Materials Division, March 1991
through September 1994.
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; Mr. Orthman developed the Model 18 and
related products and technology, as well as the
Models 24, 2-20 and 2-24; also developed the
PanelMASTER 18HS and PanelROUTER 16SI high speed
depaneling systems and related products and
technology.
Scott E. Salpeter Managing Director of Capitalink, L.C., a Miami
Florida based investment banking firm. From September
1996 to September 1998, he was a Vice President of
Catalyst Financial, an investment banking firm and
affiliate of Barber and Bronson Incorporated; From
1993 until August 1996, Chief Financial Officer,
Treasurer, Vice President, and a Director of ECOS
Group, Inc. (formerly Evans Environmental Corp.), a
public company engaged in environmental consulting
and laboratory services; From 1988 through 1992,
Chief Financial Officer of Alco International Group,
Inc., a public company engaged in marine
transportation. Mr. Salpeter was an officer of Nova
Distributing Co., Inc., a private company within two
years of Nova's June 1992 petition filing for relief
under federal bankruptcy laws. Such proceeding was
converted to a liquidation proceeding under Chapter 7
of the Bankruptcy Code in March 1993.
<PAGE>
Brantley J. Halstead Chief Financial Officer since February 1998;
Corporate Controller from September 1997 through
January 1998; independent Management Consultant from
May 1993 to May 1995, and April 1996 through August
19897; Senior Manager with Price Bednar Consulting
LLC from June 1995 through March 1996; Management
Consultant with Deloitte & Touche from May 1988
through May 1993. The focus of Mr. Halstead's
management consulting efforts included the use of
information technology to facilitate business process
re-engineering. Currently Mr. Halstead is employed as
Chief Financial Officer for Isonics Corporation, a
public company engaged in the development,
commercialization, and marketing of stable and
radioisotope based products.
DIRECTORSHIPS
Except as described above, 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
N/A
(c) FAMILY RELATIONSHIPS
As of December 31, 1998 and subsequently, there were no 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>
(e) COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Based solely on its review of the copies of the reports it received
from persons required to file, the Company believes that during the 1998
fiscal year and subsequently, all filing requirements applicable to its
officers, directors, and greater than ten-percent shareholders were in
compliance, with one exception involving late filings of Form 3's.
Specifically the Form 3's for directors David J. Wolenski and Alvin L. Katz,
who joined the Board in September 1996 and October 1996, respectively, were
filed in March 1998.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE.
The following table shows information regarding
compensation paid to the chief executive officers of BMA for the three years
ending December 31, 1998.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
NAME AND OTHER ANNUAL RESTRICTED
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION STOCK AWARDS OTHER
- ------------------ ---- ------ ----- ------------ ------------ -------
<S> <C> <C> <C> <C> <C> <C>
David J. Wolenski
CEO 1998 $48,000 $4,050 $10,969 None
CEO 1997 $48,000 0 0 $18,750 None
CEO (1) 1996 $13,000 0 0 $5,000 None
</TABLE>
Note 1: David J. Wolenski became CEO on September 23, 1996; the salary shown
is for the balance of the year.
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.
<PAGE>
COMPENSATION OF DIRECTORS.
As of December 31, 1998, and for the year then ended, cash
compensation was not being paid to members of the Board of Directors for
their services as directors, except for their salaries as reported above
under executive officer compensation, and in conjunction with the stock
awards as described below. On June 24, 1997, the Board granted stock options
to its directors in lieu of cash compensation, as described in Note 6 of the
Financial Statements. In summary, the Board granted 25,000 options each to
Alvin L. Katz and Scott E. Salpeter (a former director), and 35,000 options
each to David W. Orthman and David J. Wolenski. All of the aforementioned
options were immediately vested as of the date of grant, and will expire in
five years on June 24, 2002. The exercise price is $1.125 per share for the
duration of the five-year option term.
On November 13, 1998, the Company awarded Brantley J. Halstead 7,500
shares of the Company's common stock valued at $6,750.
On December 30, 1998, the Compensation Committee of the Board of
Directors made common stock and cash bonus awards to David J. Wolenski
(15,000 shares valued at $10,969 and $4,050 in cash), David W. Orthman
(15,000 shares valued at $10,969 and $4,050 in cash), Brantley J. Halstead
(15,000 shares valued at $10,969 and $4,050 in cash), Alvin L. Katz (15,000
shares valued at $10,969 and $4,050 in cash), and Scott E. Salpeter (5,000
shares valued at $3,656 and $1,350 in cash),
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS.
As of December 31, 1998, the Company had no formalized 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 following a change in control. The Company does have an
agreement with the President and CEO whereby 20,000 shares of common stock
were awarded in December 1997, as non-cash compensation. The stock award was
based on performance, and approved by the compensation committee of the Board
of Directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF MANAGEMENT.
The following table sets forth, as of December 31, 1998, 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.
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME OF BENEFICIAL OWNER POSITION WITH COMPANY BENEFICIAL OWNERSHIP OF CLASS
- ------------------------ --------------------- -------------------- --------
<S> <C> <C> <C>
Alvin L. Katz Director, Chairman 101,606 (1) 14.6%
7450 E. Jewell Ave., #A
Denver, Colorado 80231
David J. Wolenski Director, President, Chief 81,000 (2) 11.9%
7450 E. Jewell Ave., #A Executive Officer
Denver, Colorado 80231
David W. Orthman Director, Director of 144,710 (3) 21.3%
7450 E. Jewell Ave., #A Research & Development
Denver, Colorado 80231
Scott E. Salpeter Director 30,000 (4) 4.5%
800 Douglas Road, #245 (through March 5, 1999)
Coral Gables, FL 33134
Brantley J. Halstead Chief Financial Officer 47,500 (5) 7.1%
357 South Vine Street
Denver, Colorado 80209
All Officers and Directors 404,816 49.6%
as a Group (5 Persons)
Steven N. Bronson None 111,650 (6) 17.0%
16 E. 52nd St., #501
New York, NY 10022
</TABLE>
Note (1): Of the 101,606 shares beneficially owned by Alvin L. Katz,
16,428 shares are in the name of his wife, Lenore Katz; 16,428
shares are held in general partnership (the partnership
consists of 32,856 shares of common stock, with Alvin L. Katz
maintaining a 1% ownership interest and Lenore Katz
maintaining a 49% ownership interest in said partnership);
15,000 shares are in the form of common stock obtained as part
of director compensation; 25,000 shares are in the form of
warrants, in the name of Lenore Katz, exercisable at $1.00 per
share through April 1, 2001; 3,750 shares are in the form of
warrants, also in the name of Lenore Katz, exercisable at
$0.75 per share through October 10, 2001; and 25,000 shares
are in the form of options, in the name of Alvin L. Katz,
exercisable at $1.125 per share through June 24, 2002.
Note (2): Of the 81,000 shares beneficially owned by David J.
Wolenski, 40,000 shares are in the form of common stock
obtained as part of executive compensation, 6,000 shares are
in the form of common stock obtained in a private party
transaction, and 35,000 shares are in the form of options,
exercisable at $1.125 per share through June 24, 2002.
<PAGE>
Note (3): Of the 144,710 shares beneficially owned by David W.
Orthman, 79,090 shares are jointly held with his wife Marjorie
A. Zimdars-Orthman, another 10,000 shares are held by Marjorie
A. Zimdars-Orthman, and 20,620 shares are held by David W.
Orthman; also, 35,000 shares are in the form of options, in
the name of David W. Orthman, exercisable at $1.125 per share
through June 24, 2002.
Note (4): Of the 30,000 shares beneficially owned by Scott E.
Salpeter, 5,000 shares are in the form of common stock
obtained as part of director compensation; and 25,000 shares
are in the form of options, exercisable at $1.125 per share
through June 24, 2002.
Note (5): Includes 22,500 shares and options to acquire 25,000 shares
exercisable at $1.25 per share through February 16, 2003.
Note (6): Of the 111,650 shares beneficially owned by Steven N.
Bronson, 82,900 are in the form of common stock obtained
through various transactions and previous exercise of
warrants; 25,000 shares are in the form of warrants,
exercisable at $1.00 per share through April 1, 2001, and
3,750 shares are in the form of warrants, exercisable at $0.75
per share through October 10, 2001.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS AND CERTAIN
BUSINESS RELATIONSHIPS.
Throughout the course of 1997 and 1998, the President and Chief
Executive Officer made a series of loans to the Company in an effort to
provide short-term working capital for projects and to stabilize cash flow.
The secured loans were made to the Company at a financing rate that was
comparable to that which could have been obtained through outside sources.
This action was undertaken with the approval and concurrence of the Board of
Directors. As a result of these transactions, a total of $304,000 was loaned
to the Company during the fiscal year 1997, and $213,200 was loaned to the
Company during the fiscal year 1998. As of December 31, 1997, the outstanding
loan balance was paid down to zero. As of December 31, 1998, the balance owed
was $14,830.
Also during 1998, a Director loaned the Company a total of $75,000 to
finance operating deficits. This loan is secured by the assets of the Company
and pays 10% interest. Both this note and the note from President and Chief
Executive Officer were repaid with all accrued interest with the proceeds
from the JOT Transaction in March 1999.
The Company entered into an investment banking agreement in June 1998,
with Catalyst Financial Corp. of Miami, Florida ("Catalyst"). The primary
goal of this investment banking relationship was to obtain financial
consulting services related to merger and acquisition activities. It was the
Company's intention to use Catalyst as its primary financial advisor in its
efforts to facilitate a restructuring. The contract did not require that any
monthly fee be paid to Catalyst, but it did require that a fee be paid in
connection with the completion of the transaction with JOT.
As stated in the contract between the Company and Catalyst, the amount
of the fee was based on five percent of the total transaction consideration.
For the purposes of calculating the fee, the transaction consideration
equaled not only the cash to be paid by JOT but also the liabilities assumed.
<PAGE>
At the time the Company entered into the agreement with Catalyst,
Scott Salpeter, a director of the Company, was an employee and officer of
Catalyst. Steve Bronson, (identified in the shareholder table above), and
James Cassel, were also affiliated with Catalyst. Subsequently, Mr. Cassel
and Mr. Bronson separated and Mr. Cassel, with Mr. Salpeter, formed a new
corporation known as Capitalink. Capitalink assumed the contract effective
October 1, 1998. Mr. Salpeter abstained from the Board's vote with respect to
the Capitalink agreement and the fee.
In December 1998, the parties mutually agreed to reduce the fee from
five percent to 3.75 percent, which resulted in a fee of approximately
$40,000, which was paid to Capitalink upon completion of the Transaction.
Following the completion of the Transaction, the agreement expired.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS:
Independent Auditors' Report
Balance Sheet--As of December 31, 1998
Statements of Operations--Years Ended December 31, 1998, and 1997
Statements of Stockholders' Equity--Years Ended December 31, 1997, and
1998 Statements of Cash Flows for the Years Ended December 31, 1998,
and 1997 Notes to Financial Statements
(b) 8-K REPORTS:
Several form 8-K reports were filed in the fourth quarter of 1998
and subsequently. This includes:
Current report on Form 8-K reporting an event of November 4, 1998 under
Item 5 - the execution by the Company and JOT of the Purchase Agreement
Current report on Form 8-K reporting an event of December 15, 1998 under
Item 5 - the extension of the JOT Transaction and the conversion and
extension of certain indebtedness
Current report on Form 8-K reporting an event of March 9, 1999 under
Items 2 and 5 - the completion of the JOT Transaction, the Company's name
change, and an amendment to the Company's articles of incorporation
(c) EXHIBITS:
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.
<PAGE>
3.5 Articles of Amendment to Restated Articles of Incorporation
dated March 17, 1999, incorporated by reference to Form 8-K reporting an
event of March 9, 1999.
10.1 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.
10.11 Asset Purchase Agreement with JOT incorporated by reference
to Form 8-K reporting an event of November 4, 1998, and amendment thereto
incorporated by reference to Form 8-K reporting an event of December 15, 1998.
27 Financial Data Schedule.
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditor's Report F - 2
Balance Sheet
December 31, 1998 F - 3
Statements of Operations
Years Ended December 31, 1997 and 1998 F - 4
Statements of Stockholders' (Deficiency)
Years Ended December 31, 1997 and 1998 F - 5
Statements of Cash Flows
Years Ended December 31, 1997 and 1998 F - 6 -- F - 7
Notes to Financial Statements F - 8 -- F - 18
Approved on Behalf of OZO Diversified Automation, Inc.
By: David J. Wolenski
-------------------------
Title: PRESIDENT AND CEO
----------------------
Date: April 14, 1999
----------------------
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, 1998 and the related statements of operations,
stockholders' equity (deficiency), and cash flows for each of the two years
in the period ended December 31, 1998. 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, 1998 and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1998 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, the Company
has entered into an agreement to sell substantively all of the assets and
related operations of its operating segment. These factors, among others,
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are 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
February 12, 1999, except for Note 3,
as to which the date is March 10, 1999
F - 2
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash $ 8,150
Net assets of discontinued operations 116,901
-----------
Total Current Assets 125,051
PATENT COSTS 12,534
-----------
$ 137,585
-----------
-----------
LIABILITIES AND STOCKHOLDER' (DEFICIENCY)
CURRENT LIABILITIES
Notes payable - related (Note 7) $ 89,830
Accrued interest payable (Note 7) 3,436
Deposit 8,150
Current portion of long term debt 130,000
-----------
Total Current Liabilities 231,416
-----------
STOCKHOLDERS' (DEFICIENCY)
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 - 643,160 shares 64,316
Capital in excess of par value 1,312,110
Accumulated deficit (1,470,257)
-----------
(93,831)
-----------
$ 137,585
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the
financial statements.
F - 3
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
REVENUE $ - $ -
------------ -------------
OPERATING EXPENSES
General and administrative 50,586 60,697
Research and development 13,484 20,596
Interest 6,410 8,130
------------ -------------
(LOSS) FROM CONTINUING OPERATIONS (70,480) (89,423)
------------ -------------
DISCONTINUED OPERATIONS
Income (loss) from discontinued operations 193,334 (140,022)
------------ -------------
INCOME (LOSS) BEFORE INCOME TAX 122,854 (229,445)
INCOME TAX EXPENSE (70,000) -
TAX BENEFIT OF NET OPERATING
LOSS CARRY FORWARD 70,000 -
------------ -------------
NET INCOME (LOSS) $ 122,854 $(229,445)
------------ -------------
------------ -------------
INCOME (LOSS) PER COMMON SHARE -
BASIC AND DILUTED
Continuing operations $ (.15) $ (.18)
Discontinued operations .42 (.29)
------------ -------------
NET INCOME (LOSS) PER COMMON SHARE $ .27 $ (.47)
------------ -------------
------------ -------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - BASIC AND DILUTED 458,218 490,976
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of the
financial statements.
F - 4
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
STATEMENTS OF STOCKHOLDERS' (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN TOTAL
--------------------------- EXCESS OF ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT PAR VALUE DEFICIT (DEFICIENCY)
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 458,164 $ 45,816 $1,176,254 $ (1,363,666) $(141,596)
Issuance of common stock to officer 20,000 2,000 16,750 - 18,750
Net Income - - - 122,854 122,854
----------- ----------- ----------- ------------ ----------
BALANCE, DECEMBER 31, 1997 478,164 47,816 1,193,004 (1,240,812) 8
Exercise of common stock warrants 5,000 500 4,500 - 5,000
Issuance of common stock
pursuant to note conversions 79,996 8,000 61,997 - 69,997
Issuance of common stock for legal services 7,500 750 4,734 5,484
Issuance of common stock to officers and
directors 72,500 7,250 47,875 - 55,125
Net (Loss) - - - (229,445) (229,445)
----------- ----------- ----------- ------------ ----------
BALANCE, DECEMBER 31, 1998 643,160 $ 64,316 $1,312,110 $ (1,470,257) $ (93,831)
----------- ----------- ----------- ------------ ----------
----------- ----------- ----------- ------------ ----------
</TABLE>
The accompanying notes are an integral part of the
financial statements.
F - 5
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 122,854 $ (229,445)
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating activities
Stock issuance for services (Note 6) 18,750 60,609
Changes in assets and liabilities
Increase in accrued expense & deposit - 11,586
Discontinued Operations
Operating cash (used) provided (116,495) 134,710
Depreciation & amortization 54,734 60,047
Provision for bad debts 61,605 -
Loss on disposition of assets 6,336 -
--------- ----------
Net cash provided (used) by operating activities 147,784 37,507
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for patent costs (2,859) (9,675)
Cash used by discontinued operations (20,425) (7,061)
--------- ----------
Net cash by investing activities (23,284) (16,736)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from officer loans 304,000 288,200
Payment of officer loans (388,500) (198,370)
Proceeds from exercise of stock warrants - 5,000
Cash borrowed by discontinued operation 210,000 -
Cash repayments by discontinued operations (250,000) (107,451)
--------- ----------
Net cash (used) provided by financing activities (124,500) (12,621)
--------- ----------
NET INCREASE IN CASH - 8,150
CASH, BEGINNING OF YEAR - -
--------- ----------
CASH, END OF YEAR $ - $ 8,150
--------- ----------
--------- ----------
</TABLE>
The accompanying notes are an integral part of the
financial statements.
F - 6
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1998
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The Company paid cash for interest on short and long-term debt of $51,178 and
$50,143 during the years ended December 31, 1997 and 1998, respectively.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
In 1997, the Company acquired equipment by entering into lease obligations of
$24,188 and $180,626, respectively.
In 1997 the Company issued 20,000 shares of common stock, valued at $18,750,
to an officer. In 1998 the Company issued an aggregate 80,000 shares of
common stock, valued at $60,609 to officers and directors and to legal
counsel for services rendered; and issued 79,996 shares of common stock for
conversion of notes payable.
The accompanying notes are an integral part of the
financial statements.
F - 7
<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 had
been engaged in the design, manufacture and marketing of robotic
workstations for the electronics industry, including routing and
depaneling workstations predominately to entities in North America and
the Pacific Rim. In November 1998 the Company entered into an Asset
Purchase Agreement (the "JOT Agreement") with JOT Automation, Inc.
(JOT) a wholly owned Texas subsidiary of JOT Automation Group OYJ, a
Finnish corporation. Pursuant to the agreement, the Company agreed to
sell to JOT all of its assets relating to its depaneling and routing
business in exchange for $920,000 and the assumption of the operating
liabilities related to the Company's business assets. Accordingly, the
Company's historical operations related to the assets sold to JOT are
considered to be "discontinued operations" for financial statement
purposes. (See Note 3).
The Company has also developed a prototype micro-robotic device to
manipulate organic tissues on an extremely small scale and has filed a
patent application for the device. Completion of the development of
this prototype device is the Company's sole continuing operations.
REASERCH AND DEVELOPMENT
Expenditures for the research and development of new products are
charged to operations as they are incurred.
INCOME TAXES
The Company has adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes".
SFAS No. 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.
INCOME (LOSS) PER SHARE
In February 1997 SFAS No. 128, "Earnings Per Share", was issued for
periods ending after December 15, 1997. The Company has adopted the
provisions of SFAS No. 128 effective for the year ending December 31,
1997.
F - 8
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income (loss) per common share is computed based on the weighted
average number of common shares outstanding during each period.
Convertible equity instruments, consisting of warrants and options, are
not considered in the calculation of net loss per share, as their
inclusion would be antidilutive. At December 31, 1997, 245,000
exercisable stock options and warrants were excluded from the
computation of diluted EPS because their exercise prices were greater
than the average market price of common shares.
CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers as cash
equivalents all highly liquid investments with a maturity of three
months or less at the time of purchase. At December 31, 1998 there were
no cash equivalents.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires 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.
SHARE BASED COMPENSATION
In October 1995 SFAS No. 123, "Accounting for Stock-Based Compensation"
was issued. This new standard defines a fair value based method of
accounting for an employee stock option or similar equity instrument.
This statement gives entities a choice of recognizing related
compensation expense by adopting the new fair value method or to
continue to measure compensation using the intrinsic value approach
under Accounting Principles Board (APB) Opinion No. 25. The Company has
elected to utilize APB No. 25 for measurement; and will, pursuant to
SFAS No. 123, disclose supplementally the pro forma effects on net
income and earnings per share of using the new measurement criteria.
During the years ended December 31, 1997 and 1998 the Company issued
options to purchase shares of its common stock.
PATENT COSTS
The Company has applied for a patent from the U.S. Patent Office for a
micro-robotic device under development. The costs associated with
obtaining this patent have been capitalized and will be initially
amortized over the life of the patent of seventeen years.
F - 9
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company has adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets to be Disposed of", which requires that long-lived
assets to be held and used be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The adoption of SFAS No. 121 has not had
an impact on the Company's financial statements, as the Company has
determined that no impairment loss for 1998 need to be recognized for
applicable assets of continuing operations. The recoverability of the
carrying value of patent costs will be evaluated on a recurring basis.
FAIR VALUE
The carrying amount reported in the balance sheet for cash, accounts
payable and accrued liabilities approximates fair value because of the
immediate or short-term maturity of these financial instruments.
NEW TECHNICAL PRONOUNCEMENTS
In February 1998 SFAS No. 132, "Employers' Disclosure about Pensions
and Other Postretirement Benefits", was issued effective for fiscal
years beginning after December 15, 1997, with earlier application
encouraged. The Company has adopted SFAS No. 132 effective with the
fiscal year ending December 31, 1998. Adoption of SFAS No. 132 has not
had any impact on the Company's financial statements.
In June 1998 SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", was issued for fiscal years beginning after June
15, 1999. Adoption of SFAS No. 133 is not expected to have a material
impact on the Company's financial statements.
In October 1998 SFAS No. 134, "Accounting for Mortgage Broker
Securities", was issued. SFAS No. 134 is not expected to have an impact
on the Company's financial statements.
The following significant accounting policies are attributable to
"discontinued operations":
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.
F - 10
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation and amortization
of assets under capital lease is provided by use of the straight-line
method over the estimated useful lives of the related assets of three
to five years.
Expenditures for replacements, renewals and betterments are
capitalized. Maintenance and repairs are charged to operations as
incurred.
Depreciation expense and amortization of assets under capital lease was
$46,606 and $51,921 for the years ended December 31, 1997 and 1998,
respectively.
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 accumulated a
deficit of $1,470,257 through December 31, 1998 and at December 31,
1998 current liabilities exceeded current assets by $106,365. As
discussed in Notes 1 and 3 the Company sold all of its assets relating
to its historical line of business and is concentrating its efforts in
the research and development of a micro-robotic device. There can be no
assurance that the Company will be able to conduct its operations to
complete the prototype micro-robotic device as contemplated. These
factors 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 and cash requirements, to complete and successfully
market its prototype micro-robotic device, and ultimately to achieve
profitable operations.
Management intends to utilize the net proceeds from the sale to JOT to
fund completion of the research and development of the prototype
micro-robotic device. If completed, the Company intends to market the
technology and equipment to bio-medical and bio-technical research
organizations.
NOTE 3 - DISCONTINUED OPERATIONS
As discussed in Note 1, in November 1998 the Company entered into the
JOT Agreement for the sale of all of its assets relating to its
depaneling and routing business. As part of the sale to JOT, JOT
licensed certain technology back to the Company, in addition to the
Company retaining the rights to a micro-robotic device. The
shareholders of the Company, on March 1, 1999, approved the sale to JOT
and approved the change of the Company's name to Bio-Medical
Automation, Inc. (BMA). The Company subsequently received the balance
of the proceeds from the sale to JOT of $911,850 ($8,150 had previously
been paid by JOT as a deposit).
F - 11
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - DISCONTINUED OPERATIONS (CONTINUED)
The Company has accounted for the sale to JOT of this reportable
segment as discontinued operations. Net assets of discontinued
operations have been segmented on the December 31, 1998 balance sheet
and consists of the following:
<TABLE>
<S> <C>
Current Assets
Cash $ 38,707
Accounts receivable 211,804
Inventory 459,014
Prepaids 12,111
--------
Total Current Assets 721,636
Property and equipment, net of
accumulated depreciation of $211,634 132,962
--------
Total assets 854,598
--------
Current liabilities
Accounts payable 93,770
Deposits 392,297
Deferred income 72,420
Accrued expenses 21,479
Accrued warranty 31,000
Current portion of capitalized
lease obligations 44,895
--------
Total current liabilities 655,861
Capitalized lease obligations 81,836
--------
Total liabilities 737,697
--------
Net assets of discontinued operations $116,901
--------
--------
</TABLE>
F - 12
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - DISCONTINUED OPERATIONS (CONTINUED)
The operating results of the segment being sold has been reported
separately as discontinued operations in the accompanying statement of
operations and consists of the following:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Net sales $2,715,991 $1,773,788
Cost of sales 1,490,352 886,741
---------- ----------
Gross profit 1,225,639 887,047
---------- ----------
Operating expenses
General and administrative 205,378 367,208
Marketing and sales 562,020 454,353
Research and development 140,930 160,716
Provision for bad debts 79,109 -
---------- ----------
987,437 982,277
---------- ----------
Other (expense) income
Interest expense (38,532) (45,782)
Other (6,336) 990
---------- ----------
(44,868) (44,792)
---------- ----------
Income (loss) from discontinued operations $ 193,334 $(140,022)
---------- ----------
---------- ----------
</TABLE>
At December 31, 1998 the Company has not recorded any estimate for loss
on disposition of assets or any costs associated with the sale, as it
is expected that the sale to JOT will result in a gain to the Company
which will be realized in 1999.
In 1997 and 1998 the reporting segment sold to JOT comprised all
revenues generated by the Company. Revenues earned from customers
comprising more than 10% of total revenues for 1998 were $288,412 and
$297,821 representing 16% and 17%, respectively. No customers comprised
more than 10% of total revenues for 1997.
F - 13
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - DISCONTINUED OPERATIONS (CONTINUED)
Revenues from sales of systems for 1997 and 1998 by geographic
region are as follows:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
United States $1,601,706 $880,903
North America 267,220 114,587
Pacific Rim 240,271 48,000
Asia 161,417 49,000
South America - 138,013
Other - 70,780
</TABLE>
NOTE 4 - LONG TERM DEBT
Long term debt consists of the following at December 31, 1998:
<TABLE>
<S> <C>
9% unsecured convertible notes, due December 30, 1998,
interest payable quarterly $ 30,000
9% unsecured non-convertible notes, due December 30, 1998,
interest payable quarterly 100,000
--------
130,000
Less current portion 130,000
--------
Long-term portion $ -
--------
--------
</TABLE>
The notes represent the gross proceeds from a private placement of
$240,000 of units completed in December 1993. In December 1998, $20,000
each of the original convertible and non convertible notes were paid
and noteholders of $70,000 convertible notes exercised their option to
convert the notes to an aggregate 79,996 shares of common stock at a
reduced exercise price of $.875 per share. In January 1999, $40,000 was
paid to one noteholder and the remaining noteholders, representing
$90,000 of indebtedness, agreed to extend the due date of the notes to
March 31, 1999.
NOTE 5 - STOCKHOLDERS' EQUITY
COMMON STOCK
In December 1997 the Board of Directors authorized the issuance of
20,000 shares of common stock to an officer, valued at $18,750 ($.9375
per share).
In 1998 the Company issued common stock as follows:
- 5,000 shares for exercise of a common stock warrant (issued in
1993) at a reduced exercise price of $1.00 per share.
- 79,996 shares for conversion of $70,000 face value of
convertible notes issued in 1993 at an exercise price reduced
to $.875 per share from $1.14 per share.
F - 14
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - STOCKHOLDERS' EQUITY (CONTINUED)
- 7,500 shares to an officer as additional compensation, valued at
$1.0125 per share.
- 65,000 shares to officers and directors (5 individuals),
valued at $.73125 per share.
WARRANTS
At December 31, 1998 the Company had warrants outstanding to purchase
shares of the Company's common stock as follows:
- 100,000 shares at $1.00 per share, expiring April 1, 2001;
issued in 1996 in conjunction with short-term borrowings.
- 15,000 shares at $.75 per share, expiring October 1, 2001;
issued in conjunction with granting an extension on the due
date of short-term borrowings.
The weighted average exercise price of warrants outstanding at December
31, 1998 was $.97 per share.
OPTIONS
The status of outstanding options granted by the Company is as follows:
<TABLE>
<CAPTION>
NUMBER WEIGHTED
OF WEIGHTED AVERAGE AVERAGE FAIR
SHARES EXERCISE PRICE VALUE
<S> <C> <C> <C>
Options Outstanding - January 1, 1997 - - -
Granted in 1997 120,000 $1.13 $.51
------- ------ -----
------ -----
Options Outstanding - December 31, 1997 120,000 $1.13
(120,000 exercisable) ------
------
Granted in 1998 25,000 $1.25 $.36
------- ------ -----
------ -----
Options Outstanding - December 31, 1998 145,000 $1.15
(132,500 exercisable) ------- ------
------- ------
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Had compensation cost for stock options issued been determined based on
the fair value at the grant date consistent with the provisions of SFAS
No. 123, the Company's net income (loss) and income (loss) per share
for 1997 and 1998 would have been as follows on a pro forma basis:
F - 15
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Net income (loss) applicable to common stockholders -
as reported $122,854 $(229,445)
-------- ----------
Net income (loss) applicable to common stockholders -
pro forma $ 61,285 $(233,977)
-------- ----------
Income (loss) per share - as reported $ .27 $ (.47)
-------- ----------
Income (loss) per share - pro forma $ .13 $ (.48)
-------- ----------
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants: dividend yield of 0%;
expected volatility of 15.83% to 43%; discount rate of 5.50% to 6.0%;
and expected lives of 5 years. No options were exercised or forfeited
during 1998.
At December 31, 1998 the number of options exercisable was 132,500, the
weighted average exercise price of these options was $1.15, the
weighted average contractual life of the options was 5 years and the
exercise price was $1.13 to $1.25 per share.
NOTE 6 - INCOME TAXES
At December 31, 1998, the Company has net operating loss carryforwards
totaling approximately $977,000 that may be offset against future
taxable income through 2018 and research and development credits of
approximately $68,000 through 2013.
The Company has fully reserved the tax benefits of these operating
losses and credits because the likelihood of realization of the tax
benefits cannot be determined. These carryforwards and credits are
subject to review by the Internal Revenue Service. The $256,000 tax
benefit of the loss carryforward and tax credits has been offset by a
valuation allowance of the same amount. The tax benefit of the loss
carry forward was reduced by $70,000 in 1997. Of the total tax benefit,
approximately $10,000 is attributable to1998.
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.
There is no current or deferred tax expense for the years ended
December 31, 1997 and 1998. The Company, in 1997, utilized net
operating loss carryforwards to offset taxable income, and, in 1998 had
no taxable income. The benefits of timing differences have not
previously been recorded.
A reconciliation between the statutory federal income tax rate (34%)
and the effective rate of income tax expense for 1997 is as follows:
F - 16
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - INCOME TAXES (CONTINUED)
<TABLE>
<S> <C>
Statutory federal income tax rate 31%
Increase (decrease) in taxes resulting from:
State tax, net of federal benefit 3
Utilization of net operating loss carryforwards (34)
----
Effective Rate -%
----
----
</TABLE>
NOTE 7 - RELATED PARTY TRANSACTIONS
In 1997 the President of the Company made advances to the Company of an
aggregate $304,000 and was repaid $388,500 and interest of $4,611 at
the rate of prime plus 2%.
In 1998 the President and a director loaned the Company an aggregate
$288,200, of which $198,370 and interest of $8,764 was repaid during
the year. At December 31, 1998, $89,830 and accrued interest of $3,436
was due to the officer and to the director.
In November 1998, the Company issued to an officer 7,500 shares of
common stock, valued at $1.0125 per share as additional compensation.
In December 1998 the Board of Directors authorized the issuance of an
aggregate 65,000 shares of common stock and payment of $17,550 to
officers and directors as year end bonus.
In conjunction with the sale to JOT, the Company, upon completion of
the transaction, will pay a "finders fee" of 3.75% of the total
consideration received to an entity controlled by a former director of
the Company. The payment is pursuant to an agreement entered into in
June 1998.
NOTE 8 - SEGMENT REPORTING
In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information" was issued, which amends the requirements for
a public enterprise to report financial and descriptive information
about its reportable operating segments. Operating segments, as defined
in the pronouncement, are components of an enterprise about which
separate financial information is available that is evaluated regularly
by the Company in deciding how to allocate resources and in assessing
performance. The financial information is required to be reported on
the basis that is used internally for evaluating segment performance
and deciding how to allocate resources to segments. The Company has
adopted SFAS No. 131 for the year ended December 31, 1998.
The Company has one reportable segment from continuing operations,
research and development of a micro-robotic device.
The Company has not earned any revenue from its research and
development activities. At December 31, 1998 assets of $12,534 are
attributable to this segment.
F - 17
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - COMPREHENSIVE INCOME
There are no adjustments necessary to net income (loss) as presented in
the accompanying statements of operations to derive comprehensive
income in accordance with SFAS No. 130, "Reporting Comprehensive
Income".
NOTE 10 - RECLASSIFICATIONS
Certain amounts in the 1997 financial statements have been reclassified
to conform to 1998 classifications.
F - 18
<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, 1999
BIO-MEDICAL AUTOMATION, INC.,
a Colorado corporation
By:/s/ David J. Wolenski
--------------------------
David J. Wolenski
President and CEO
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, 1999 David J. Wolenski /s/ David J. Wolenski
Principal Executive Officer --------------------------
Principal Financial Officer
Director
April 12, 1999 David W. Orthman /s/ David W. Orthman
Director --------------------------
April 12, 1999 Alvin L. Katz /s/ Alvin L. Katz
Chairman of the Board --------------------------
Director
April 12, 1999 Brantley J. Halstead /s/ Brantley J. Halstead
Principal Accounting Officer --------------------------
Chief Financial Officer
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 8,150
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 125,051
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 137,585
<CURRENT-LIABILITIES> 231,416
<BONDS> 0
0
0
<COMMON> 64,316
<OTHER-SE> (158,147)
<TOTAL-LIABILITY-AND-EQUITY> 137,585
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,130
<INCOME-PRETAX> (229,445)
<INCOME-TAX> 0
<INCOME-CONTINUING> (89,423)
<DISCONTINUED> (140,022)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (229,445)
<EPS-PRIMARY> (0.47)
<EPS-DILUTED> (0.47)
</TABLE>
