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FORM 10-QSB/A1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from _________ to ________
Commission File No. 0-16335
OZO DIVERSIFIED AUTOMATION, INC.
7450 East Jewell Avenue, Suite A
Denver, Colorado 80231
Telephone (303)-368-0401
Colorado 84-0922701
- ------------------------ ------------------------------------
(State of Incorporation) (IRS Employer Identification Number)
Indicate by check mark whether the Issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the past 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-----
As of September 30, 1998, Registrant had 483,164 shares of its $0.10 par
value common stock outstanding.
1
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PART I - FINANCIAL INFORMATION
OZO Diversified Automation, Inc.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $607 $7,526
Accounts and notes receivable, net 131,296 255,414
Inventories (See Note 3) 366,866 358,498
Prepaid expenses 11,215 25,631
-------- --------
Total Current Assets 509,984 647,069
-------- --------
PROPERTY AND EQUIPMENT
Manufacturing 40,391 149,703
Furniture & Fixtures 83,581 169,747
Capitalized Leases 204,814 204,814
Leasehold Improvements 5,010 5,010
Vehicle 10,820 10,820
-------- --------
344,616 504,094
Less accumulated depreciation 199,302 362,271
-------- --------
Total Property and Equipment 145,314 177,823
-------- --------
OTHER ASSETS
Deferred Financing Costs 2,255 8,126
Other 2,859 2,859
-------- --------
5,114 10,985
-------- --------
TOTAL ASSETS $660,412 $835,877
-------- --------
-------- --------
</TABLE>
2
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OZO Diversified Automation, Inc.
BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
(Unaudited)
CURRENT LIABILITIES
Current portion of notes payable and
Capitalized lease obligation $281,835 $280,036
Accounts payable and accrued expenses 149,902 401,687
Note payable - Bank 27,415 27,415
Note payable - Officer 78,609 0
Note payable - Director 75,000 -
---------- ----------
Total Current Liabilities $612,761 709,138
---------- ----------
LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATION 82,429 126,731
---------- ----------
Total Liabilities 695,190 835,869
---------- ----------
SHAREHOLDERS' EQUITY
Preferred stock $0.10 par value,
Authorized 1,000,000 shares,
Issued - none
Common stock, $0.10 par value,
Authorized 5,000,000 shares,
Issued and outstanding - 483,164 (1998)
Issued and outstanding - 478,164 (1997) 48,316 47,816
Capital in excess of par value 1,198,004 1,193,004
Accumulated deficit (1,281,098) (1,240,812)
---------- ----------
Total Shareholders' (Deficiency) Equity (34,778) 8
---------- ----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $660,412 $835,877
---------- ----------
---------- ----------
</TABLE>
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OZO Diversified Automation, Inc.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1998 1997
---- ----
<S> <C> <C>
Net Sales $1,352,919 $2,032,998
Cost of Sales 802,615 1,181,231
---------- ----------
Gross Profit 550,304 851,767
---------- ----------
Operating Expenses:
Marketing & Sales 119,660 290,491
Research & Development 105,421 116,845
General & Administrative 365,508 365,988
---------- ----------
590,589 773,324
---------- ----------
Income before Taxes (40,285) 78,443
Provision for Income Taxes ---- 15,689
Tax Benefit of Operating Loss Carryforwards ---- (15,689)
---------- ----------
NET INCOME (LOSS) (40,285) $78,443
---------- ----------
---------- ----------
NET INCOME (LOSS) PER COMMON SHARE ($0.08) $0.17
---------- ----------
---------- ----------
NET INCOME (LOSS) PER COMMON SHARE
ASSUMING DILUTION ($0.08) $0.17
---------- ----------
---------- ----------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 480,942 458,164
---------- ----------
---------- ----------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ASSUMING DILUTION 480,942 458,164
---------- ----------
---------- ----------
</TABLE>
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OZO Diversified Automation, Inc.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1998 1997
---- ----
<C> <C> <C>
Cash flows for operating activities:
Net Income ($40,285) $78,443
Adjustments to reconcile net income to net cash
Used in operating activities:
Depreciation 38,929 34,583
Amortization of deferred financing costs 5,871 5,871
Other (2,082)
Decrease (increase) in assets:
Accounts receivable 124,118 (197,979)
Inventories (8,369) 133,221
Prepaid expenses 14,416 1,910
Increase (decrease) in Accounts payable and
Accrued expenses (249,986) (39,604)
-------- -------
Net cash provided (used) by operating activities (115,306) 14,363
-------- -------
Cash flows from investing activities:
Capital expenditures (6,421) (9,213)
-------- -------
Net cash provided (used) by investing activities (6,421) (9,213)
-------- -------
Cash flows from financing activities:
Payments of long-term debt and capitalized lease
Obligations (44,302) (7,736)
Proceeds from officer loan 213,200 ----
Payments on officer loan (134,590) ----
Proceeds from director loan 75,000
Payments on director loan 0
Proceeds from issuance of common stock 5,500 ----
-------- -------
Net cash provided (used) by financing activities 114,808 (7,736)
-------- -------
Net increase (decrease) in cash (6,919) (2,586)
Cash at beginning of period 7,526 3,111
Cash at end of period $607 $525
-------- -------
-------- -------
</TABLE>
5
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OZO Diversified Automation, Inc.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1998 1997
---- ----
<S> <C> <C>
Net Sales $359,798 $604,809
Cost of Sales 182,970 354,083
-------- --------
Gross Profit 176,828 250,726
-------- --------
Operating Expenses:
Marketing & Sales 15,346 78,407
Research & Development 24,979 39,523
General & Administrative 132,846 115,971
-------- --------
173,171 233,901
-------- --------
Income before Taxes 3,657 16,825
Provision for Income Taxes 731 3,365
Tax Benefit of Operating Loss Carryforwards (731) (3,365)
-------- --------
NET INCOME (LOSS) $3,657 $16,825
-------- --------
-------- --------
NET INCOME (LOSS) PER COMMON SHARE $0.01 $0.04
-------- --------
-------- --------
NET INCOME (LOSS) PER COMMON SHARE
ASSUMING DILUTION $0.01 $0.04
-------- --------
-------- --------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 483,164 458,164
-------- --------
-------- --------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ASSUMING DILUTION 483,164 458,164
-------- --------
-------- --------
</TABLE>
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OZO Diversified Automation, Inc.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
The unaudited financial statements included herein were prepared from the
records of the Company in accordance with Generally Accepted Accounting
Principles and reflect all adjustments which are, in the opinion of
Management, necessary to provide a fair statement of the results of operation
and financial position for the interim periods. Such financial statements
generally conform to the presentation reflected in the Company's Form 10-KSB
filed with the Securities and Exchange Commission for the year ended December
31, 1997. The current interim period reported herein should be read in
conjunction with the Company's Form 10-KSB subject to independent audit at
the end of the year.
The results of operations for the nine months ended September 30, 1998, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1998.
Note 1 - A summary of significant accounting policies is currently on file
with the Securities and Exchange Commission on Form10-KSB
Note 2 - Income Taxes. At December 31, 1997, the Company had net operating
loss carryforwards totaling approximately $962,000, that may be offset
against future taxable income through 2011 and research and development
credits of approximately $60,000 expiring through 2012.
The Company has fully reserved the tax benefits of these operating losses
because the likelihood of realization of the tax benefits cannot be
determined. These carryforwards are subject to review by the Internal Revenue
Service.
Temporary differences between the time of reporting certain items for
financial and tax reporting purposes, primarily from using different methods
of reporting depreciation cost and warranty and vacation accruals, are not
considered significant by Management of the Company.
Note 3 - Inventories
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
<S> <C> <C>
Raw Materials $324,867 $358,498
Work in Progress 8,000 ----
Finished Goods 34,000 ----
-------- --------
Total $366,867 $358,498
-------- --------
-------- --------
</TABLE>
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the nine months ended September 30, 1998, the Company had revenues of
$1,352,919, a 33.5% decrease from revenues of $2,032,998, recorded for the
first nine months of 1997. For the quarter ended September 30, 1998, the
Company had revenues of $359,798, a 40.5% decrease from revenues of $604,809,
recorded for the third quarter of 1997. The decrease in revenues is
primarily a result of weak economic conditions in Asia, as well as, capital
spending curtailments by large Original Equipment Manufacturers (OEMs) in
North America. These spending curtailments are also directly attributable to
the uncertain business conditions in Asia. While Management cannot predict a
timetable for a recovery in the Asian markets, it is believed that the weak
business conditions in Asia will extend well into the second half of the year
and possibly into the first half of 1999. Management is in the process of
refocusing its sales efforts in markets that remain less affected by the
Asian financial situation.
Because of the decrease in total revenues reported during the first nine
months of 1998, the Company posted a loss of $40,285, a 151.3% decrease from
net income of $78,443, reported for the same period in 1997. Despite a
decrease in total revenues reported during the third quarter of 1998, the
Company posted a gain of $3,657, a 78.3% decrease from net income of $16,825,
reported for the same period in 1997.
In anticipation of an extended downturn in sales, Management has continued to
undertake internal measures to reduce fixed costs and to match expense
spending against projected revenues. The Company will voluntarily enforce
its cost containment program for as long as conditions warrant.
The Company continues to focus on the depaneling application market with its
premium routing equipment, the 18HS PanelMASTER and the 16SI PanelROUTER.
Both of these strategic product groups are continuously analyzed for
improvements and incorporating requirements defined by our customers. In
August, the Company attended the SMTrends Trade Show in Huntsville, Alabama,
and the SMI Trade Show in San Jose, California. In addition, marketing
efforts have been increased in the European Union, and in Central and South
America. Management has also reemphasized customer service, and is
continuing production process improvements in an effort to preserve operating
margins.
The Company's Current Liabilities as of September 30, 1998, are $612,761,
approximately $102,777, higher than Current Assets of $509,984. Included in
the Current Liabilities as of September 30, 1998, are $240,000, in notes
which are due December 30, 1998. As disclosed in the 1997 10-KSB report,
Management is in the process of addressing the Company's debt obligations,
and expects to have this issue resolved well in advance of the due date.
Please see Part II, Note 5, for more information. Additionally, a $75,000
loan was made from a director of the Company to partially fund the operating
loss incurred to date.
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Cash flow from operating activities was a negative $115,306, for the nine
months ended September 30, 1998, as compared to a positive $14,363, for the
same period in 1997. This is directly attributable to reduced sales and a
decrease in Accounts Payable. The negative operating cash flow had been
primarily funded by the aforementioned loan from a director of the Company in
addition to a loan from an officer which is payable upon demand with interest
at 2.0 percentage points above the prime rate. As of September 30, 1998, the
balance on these loans was approximately $75,000 and $78,609 respectively.
During the third quarter the Company wrote-off assets which were fully
depreciated and no longer in service. These write-offs included $109,311 in
manufacturing equipment, and $92,587 in furniture and fixtures.
As of October 26, 1998, the Company had an open order backlog of
approximately $304,700, compared to a backlog of $368,000, on October 28,
1997. The open order backlog reflects an upturn in business conditions both
domestically and internationally. However, as mentioned above, business
conditions have continued to adversely impact the Company's open order
backlog and remain unpredictable.
The foregoing discussion does not give any effect to the completion of a sale
of the Company's depaneling and routing business as described in Part II,
Item 5 of this report. If the proposed transaction is completed, of which
there can be no assurance, the Company's historical business will be
discontinued.
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.
9
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The Company is currently upgrading its ERP software to Macola Progression
Series (Version 7.0/7.5) which is completely Year 2000 compliant. This
upgrade will be completed by December 1999. All our other software products
used internally, primarily Office Automation and Engineering, are the most
recent releases of the products, and the Company has been led to believe
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.
Except for historical information contained herein, the statements in this
report are forward-looking statements that are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks and uncertainties,
which may cause the Company's actual results in future periods to differ
materially, from forecasted results. These risks and uncertainties include,
among other things, product demand and acceptance, market competition, and
risks inherent in the Company's international operations. These and other
risks are described elsewhere herein and in the Company's other filings with
the Securities and Exchange Commission.
10
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PART II - OTHER INFORMATION
OZO Diversified Automation, Inc.
Items 1-4 Not Applicable.
Item 5. On October 6, 1998, the Company announced that it had reached a
nonbinding agreement in principle to sell its automation and
depaneling business to JOT Automation, Inc., the U.S. subsidiary
of JOT Automation Group Oyj, of Finland. The nature of the
proposed transaction will be an asset sale between OZO and JOT,
as opposed to a common stock purchase by JOT from OZO's current
shareholders.
The proposed transaction was originally scheduled to close before
the end of the year. However, it was and is subject to
satisfactory completion of due diligence, preparation of
definitive agreements, and OZO shareholder approval among other
standard closing conditions.
In its report on Form 8-K reporting an event of November 4, 1998,
the Company reported that it had entered into an Asset Purchase
Agreement with JOT Automation, Inc., of Dallas Texas. Following
execution by both parties of that Agreement, the Company
continued negotiating certain of the documents with respect
thereto, and prepared and filed with the Securities and Exchange
Commission a preliminary proxy statement in accordance with SEC
Regulation 14A. The staff members of the Commission's Division of
Corporation Finance elected to review the Company's preliminary
proxy statement. The decision to review the proxy statement has
three consequences to OZO:
The shareholder vote on the proposed transaction between OZO
and JOT Automation described in the preliminary proxy
statement cannot occur prior to the end of 1998, which means
that the completion of the transaction (if approved by the
shareholders, of which there can be no assurance) cannot
occur on January 2, 1999, as scheduled in the Asset Purchase
Agreement;
The shareholders of OZO will not be able to elect directors
at the shareholder meeting when the meeting is held; and
The Company has been asked to file amended versions of it
1997 Form 10KSB and 1998 third quarter Form 10QSB.
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As a result of those consequences the Company and JOT Automation,
Inc., have entered into an amendment to the Asset Purchase
Agreement which provides that the completion of the transaction
will take place on the first business day not earlier than three
days after approval of the transaction by the shareholders of OZO.
In addition, JOT Automation has made certain accommodations for
OZO to make expenditures necessary or appropriate to maintain and
improve the Excluded Assets and to repay certain outstanding debt,
which will become due before the transaction with JOT Automation
can be completed. OZO will have to repay these extraordinary
expenditures to JOT automation at the completion of the
transaction (if completed, of which there can be no assurance).
Also as a result of the delay in finalizing the proxy statement,
OZO has elected to extend the record date for determining
shareholders entitled to notice of and to vote at, the meeting.
The record date for the forthcoming meeting will be December 31,
1998.
OZO's Board of Directors and Officers have identified certain
assets that are not for sale. They will determine if a new
business is to be established in the public shell, or if the
proceeds from the proposed transaction will be returned, in whole
or in part, to the shareholders. Per the Company's corporate
bylaws, the current common stock shareholders must approve the
proposed transaction before it may be completed. If the proposed
transaction is approved, OZO's Board of Directors and Officers
will determine the next course of action regarding the disposition
of the remaining operations.
As part of the proposed transaction, JOT Automation, Inc., will
acquire the OZO name and trademark. The OZO public shell, after
the completion of the agreement with JOT, will likely change its
name. This will be a decision to be considered by the Board of
Directors (and likely to be a condition of the final agreement
with JOT).
Item 6 Exhibits and Reports on Form 8-K
a) Exhibits - none
b) No Reports on Form 8-K were filed during the quarter ending
September 30, 1998, however, subsequent to September 30,
1998, the Company filed reports on Form 8-K on November 4,
1998, and December 15, 1998
Item 7 Not Applicable
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
OZO DIVERSIFIED AUTOMATION, INC.
By: /s/ /s/
---------------------------- ----------------------------
David J. Wolenski Brantley J. Halstead
Principal Executive Officer Principal Accounting Officer
Principal Financial Officer Chief Financial Officer
Dated: January 5, 1999
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