<PAGE>
FORM 10-KSB/A1
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, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from____________ to____________.
Commission File Number 0-16335
OZO DIVERSIFIED AUTOMATION, INC.
(Name of Small Business Issuer as Specified in its Charter)
Colorado 84-0922701
(State or other juris- (IRS Employer
diction of incorpora- Identification No.)
tion or organization)
7450 East Jewell Avenue
Suite A
Denver, Colorado 80231
(Address of Principal Executive Offices)
Issuer's telephone number, including area code: (303) 368-0401
Securities registered under Section 12(g) of the Exchange Act:
$0.10 Par Value Common Stock
(Title of Class)
Indicate by check mark whether the Issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months and, (2) has been subject to such filing
requirements for the past 90 days. YES /X/ NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. / /
Revenues for fiscal year ended December 31, 1997 were $2,715,991.
The aggregate market value of the Registrant's voting stock held as of March 2,
1998 by nonaffiliates of the Registrant was $402,081.
<PAGE>
As of March 2, 1998, Registrant had 478,164 shares of its $0.10 par value
common stock outstanding.
Total Pages 36
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Exhibit Index at Page 17
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PART I
ITEM 1. BUSINESS.
(a) BUSINESS DEVELOPMENT. OZO Diversified Automation, Inc. ("OZO" or the
"Company") was incorporated as a Colorado Corporation on October 13, 1983.
Since its formation, the Company has 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 used in the fabrication of
prototype printed circuit boards. As of the late 1980's, the Company
diversified its product line to include routing and depaneling workstations,
which continues to be the primary focus of the Company today. OZO
workstations are found in various segments of the electronics industry,
including electronics assembly companies (i.e., medium and large OEMs),
printed circuit board fabricators (i.e., Contract Manufacturers), product
design and prototype shops, and test fixture fabricators. For the fiscal
year ended December 31, 1997, the Company had net sales of $2,715,991,
compared to $2,166,763 for the fiscal year ended December 31, 1996.
This Form 10-KSB/A1 is an amendment to the Form 10-KSB for the year ended
December 31, 1997, originally filed by OZO in March 1998. There have been
material changes in OZO's business and financial condition since the date of
filing the original Form 10-KSB which are not described herein, but which
have been described in other filings made by OZO under the Securities Exchange
Act of 1934, as amended which were filed subsequently to the original Form
10-KSB. These include updated information to all of the information set forth
herein including (without limitation) financial statements (Item 7), the
management's discussion and analysis (Item 6), and the description of the
Company's business (Item 1). These subsequently-filed documents include the
Company's quarterly reports on Form 10-QSB for the quarters ended March 31,
1998, June 30, 1998, and September 30, 1998, as well as the Company's current
reports on Form 8-K reporting events of December 15, 1998, and November 4,
1998, all of which are incorporated by reference herein as necessary to
update the information contained herein.
As noted throughout this report, the future performance of the Company and
its business is dependent upon numerous factors, and there can be no
assurance that the Company will be able to conduct its operations as
contemplated herein. Except for historical information contained in the
report, the statements made herein 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, limited access to working capital, and numerous risks
inherent in the Company's international operations. Many of these risks are
described herein, and it is important that each person reviewing this report
understand the significant risks attendant to the operations of the Company
and its related industry.
(b) BUSINESS OF ISSUER. OZO manufactures and markets robotic workstations
that are used by the electronics industry for the depaneling, routing, and
drilling of printed circuit boards. In addition to furnishing the base
workstations, the Company also provides sophisticated motion control software
that is used to operate the machines for specific applications. In terms of
its primary business, OZO's hardware and software products enable electronics
assembly companies to rout or depanel printed
<PAGE>
circuit boards from panels that are produced on surface mount assembly lines.
Although the depaneling market niche accounted for most of the Company's
revenues in 1997, OZO continues to experience demand for its small scale
drilling machines. The demand for small scale drilling equipment is based on
OZO's strong reputation among product designers and circuit board
prototypers, as well as among the bare board shops and test fixture houses
that are prevalent in the industry today.
(1) PRODUCTS The Company's products are defined by a two-tier offering
of equipment and accessories. The upper tier (or premium line) which,
represents OZO's core business, is comprised of the Company's high-end
servomotor systems. These include the Model 18HS standalone router, and the
Model 16SI fully automated inline system. The lower tier offering is
comprised of the Company's stepper motor systems, which include the Model 18
and Model 24 multipurpose machines. On a limited basis, the Company also
supplies a dual-spindle drilling platform (Model 2-24), as well as a large
format multiuse machine (Model 32), both of which are dedicated to a very
narrow market segment. The Model 2-24 and Model 32 machines are available
only on a special order basis.
For marketing purposes, the Company's lower tier products, namely the Model
18 and Model 24 workstations, are distributed under the PanelMASTER,
FixtureMASTER, EtchMASTER, and LabMASTER product designations. The premium
depaneling systems, specifically the Model 18HS and Model 16SI, are marketed
under the trade names PanelMASTER 18HS and PanelROUTER 16SI, respectively.
The Company's products are packaged with various accessories which customize
the equipment for specific market applications. In all cases, OZO's
workstations include (as a minimum) the base machine, a custom fixture
assembly, the associated spindles, a computer controller, and the system
software. Other accessories, such as machine vision, electrostatic discharge
control systems, bar code readers, and spare parts, are sold separately
(either with the machine or on an after-market basis).
Currently the majority of the Company's revenue comes from the sale of its
premium line of depaneling equipment. The PanelMASTER 18HS represents a
self-contained standalone depaneling router that has gained acceptance in the
OEM market, as well as within the Contract Manufacturing sector. The
PanelROUTER 16SI represents a customized solution to automated inline
depaneling, and is used extensively by large OEMs for the post assembly
routing of printed circuit boards. The Company's lower tier machines, the
Models 18 and 24, are also sold for depaneling applications. These systems
are typically sold to price sensitive customers, where precision is required
but speed and throughput are not important factors.
One of the Company's core competencies is its ability to design, build, and
service its own high precision spindle assemblies. OZO produces router
spindles for its own line of depaneling systems, as well as drilling spindles
and mechanical etch heads. The Company also offers spindles for sale on a
relabel basis. Demand for the Company's spindle products has increased
dramatically over the past twenty-four (24) months.
MANUFACTURING AND ASSEMBLY OF PRODUCTS
The Company continues to fabricate most of its custom components at
its in-house machine shop. In addition, the Company contracts with sheet
metal suppliers, paint and anodize specialists, independent machine shops,
and electronic manufacturers for various parts and services. In terms of
mainstream materials, off-the-shelf components are purchased from various
industrial suppliers. Final
<PAGE>
assembly, testing and inspection of the finished systems are done by the
Company's employees at its production facility in Denver, Colorado. During
the course of 1997, the Company initiated an aggressive plan aimed at
enhancing the overall functionality of its Manufacturing Group, which is
comprised of its Purchasing, Engineering, and Production Departments. The
effort resulted in substantial improvements being made in several key areas.
Those improvements include: more efficient order handling, reduced lead
times on purchased materials, dramatically reduced lead times on saleable
products (new systems, as well as parts), more favorable terms with suppliers
and service providers, and a dramatic increase in spare parts inventory (to
support the growing worldwide demand for spare parts). The improvements
within the manufacturing group made a significant contribution to the
Company's ability to produce and ship quality products on time in 1997.
Additionally, the Company has successfully managed its supplier base to
ensure that it is not dependent on one or a few major suppliers for any
critical components.
(2) DISTRIBUTION. The Company utilizes in-house sales engineers for
direct sales in the United States, Canada, and Mexico, as well as numerous
manufacturer representatives throughout North America. Internationally, the
Company continues to expand its market presence, and currently has strong
distributor relationships in Australia, Brazil, Egypt, Hong Kong and the
Peoples Republic of China, India, Israel, Malaysia, New Zealand, Pakistan,
the Philippines, Singapore, South Korea, Taiwan, Turkey, the United Arab
Emirates, and the United Kingdom. The Company has a policy of supporting its
international distributor base, providing regular service, training visits,
individualized sales literature, and support for trade shows held within
their respective territories.
(3) STATUS OF PRODUCT. In 1997 the Company continued the expansion of
its premium line of routing equipment, namely the PanelROUTER 16SI and the
PanelMASTER 18HS. During the year, both machines continued to gain acceptance
in the marketplace, with sales of thirteen (13) PanelMASTER 18HS units and
six (6) PanelROUTER 16SI systems being completed by year end. Additionally,
three more Model 18HS's and one Model 16SI were sold and shipped in the first
quarter of 1998. While sales of the premium routing equipment were slightly
below plan for 1997, the Company anticipates that the projected growth of the
electronics industry will sustain a strong demand for these products through
1998 and beyond. Management is confident that the depaneling technology
represented by these machines will remain an important aspect of the
manufacture of printed circuit boards and related electronic subsystems. The
depaneling market niche continued to be the Company's most important United
States business segment in 1997, and in 1998 it will remain a significant
part of the Company's overall sales strategy.
While the Company remains focused on sales of its premium
depaneling equipment to facilitate its strategic growth initiatives, the
demand for its traditional drilling and routing machines also remains strong.
The Company continues to sell its lower tier systems to test fixture
fabricators and small printed circuit board facilities in the United States.
Internationally, test fixture fabricators, small printed circuit board
facilities, and prototype operations are a consistent market for the
Company's Model 18, Model 24, and Model 2-24 products. In terms of the Model
18 and Model 24 machines in particular, the Company has also enjoyed a
healthy retrofit and rebuild market for pre-owned systems. Many of the
Company's earlier generation machines have returned to the factory for
electronics upgrades and other miscellaneous refurbishment projects.
The Company's proprietary software is in full compliance with the
Year 2000 transition requirements. Management believes that all of the
Company's proprietary software currently in release will be unaffected by the
millennium date change.
<PAGE>
(4) COMPETITION. Within the electronics industry the Company
competes in four distinct segments of the capital equipment market. The four
areas are: depaneling equipment, low-to-medium volume bare board drilling and
routing equipment, test fixture drilling and routing equipment, and
prototyping equipment. The Company has identified two primary U.S.
competitors, and numerous second tier competitors, who manufacture depaneling
equipment. Internationally, there are at least three foreign competitors
whose primary business is the manufacture of depaneling routers. In many
cases, the competitors identified are operating divisions of companies larger
than OZO and produce revenues from various products. The Company believes
that it competes favorably in the depaneling equipment market. The Company
believes that its ability to continue to compete will depend upon how well it
can produce competitively priced full-featured equipment for the standalone
depaneling equipment market and upon its ability to produce customized
solutions for the in-line depaneling equipment market. The Company estimates
that there are at least twenty competitors worldwide who manufacture drilling
equipment for the electronics industry. The Company believes that it
competes favorably only in the low-to-medium volume drilling equipment
market, and in the test fixture drilling application market. The Company's
drilling equipment customers are predominantly small businesses, who prefer
the Company's products to more expensive alternatives. The Company has
identified one U.S. competitor and two foreign competitors that manufacture
printed circuit board prototyping equipment. The Company believes that it
competes favorably in this market for customers seeking full function
equipment, but cannot compete with single-function, lower-cost, prototyping
equipment.
While other competitors supplying products necessary for the
development, production, and depaneling of printed circuit boards exist or
may enter the market, the Company anticipates that its broad range of
products will continue to find acceptance. Presently, however, the Company's
relatively small size may give competitors with established reputations, and
greater marketing capability and financial resources, an advantage in the
marketplace.
(5) RAW MATERIALS. The Company procures 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.
(6) CUSTOMER DEPENDENCE. The Company is not dependent on one or a
few major customers.
(7) PATENTS, TRADEMARKS AND LICENSES. The Company has not sought
patent protection for the hardware it has developed and presently considers
certain aspects thereof to be proprietary to the Company protected by its
trade secrets. The Company has made only a limited search of existing
patents to determine the extent to which such proprietary protection may have
been available or whether the Company's products infringe on patents held by
others. A claim against the Company for possible infringement of a patent was
made in 1994, and the Company has executed a License Agreement with the
unaffiliated claimant. Royalties were paid in 1997 under this License
Agreement. The Company is unaware of any other claims or proprietary rights
of others on which the Company's products may be deemed to infringe. As
additional developments of the Company's products and proprietary information
occur, the Company intends to pursue the appropriate protection. Should
products of the Company be deemed to infringe on patents held by others, the
Company would be subject to the risk of litigation, expense of licensing
rights to use such proprietary technology, or other adverse results.
<PAGE>
Copyright protection for the Company's proprietary software,
which is a key component of the operation of the Company's workstation
systems, has been acquired by the Company. Specifically, copyright
protection for the Company's proprietary stepper motor software was acquired
on May 26, 1988. Copyright protection for the Company's servomotor software
was acquired by the Company on October 27, 1994.
(8) GOVERNMENT APPROVAL. The Company is not subject to any
government approval for its products.
(9) GOVERNMENT REGULATION. The Company has no knowledge of
impending government regulation on its business.
(10) RESEARCH AND DEVELOPMENT. Research and development expenses
for the fiscal years ending December 31, 1997, and December 31, 1996, were
approximately $154,414 and $159,570 respectively. Ongoing projects in 1998
include automation enhancements for the PanelMASTER 18HS and PanelROUTER
16SI, aesthetic and ergonomic improvements to the PanelROUTER 16SI, software
upgrades for all products, continued spindle optimization and redesign
programs, and miscellaneous development of new products, accessories, and
services. 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 1996 or
1997.
(11) ENVIRONMENTAL REGULATION. Since its inception, the Company
has not made any material capital expenditures for environmental control
facilities and the Company does not expect to make any such expenditures
during the current or forthcoming fiscal year. The Company believes that it
is in full compliance with all federal, state, and local environmental
regulations.
(12) EMPLOYEES. As of December 31, 1997, the Company had 18
full-time employees and one part-time employee.
ITEM 2. PROPERTIES
Effective March 1, 1997, the Company expanded its corporate
headquarters in Denver, Colorado by acquiring 3,400 square feet of additional
manufacturing space. The expansion was made as part of the Company's overall
re-engineering effort, which included a redesign of the production area to
improve efficiencies and allow for multiple machines to be assembled
concurrently. At the same time, the Company exited approximately 400 square
feet of non-contiguous storage space. As of March 1, 1997, the Company's
combined office and production space totaled approximately 9,040 square feet.
The monthly lease obligation increased from $3,050 per month prior to the
expansion, to $4,168 per month as of March 1, 1997. As of this date, the
Company's lease obligation on all space was extended for three years, through
February 28, 2000.
ITEM 3. LEGAL PROCEEDINGS
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There are no pending legal proceedings to which the Company is a
party or of which any of its property is the subject as of the date of this
report and there were no such proceedings during the fiscal year ended
December 31, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
1997 to a vote of the Company's security holders.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION.
The Company's common stock is quoted on the OTC (Over-The-Counter)
Bulletin Board. The following table shows the range of high and low closing
bid quotations of the common stock as traded in the OTC market during the
last two fiscal years.
Common Stock
<TABLE>
<CAPTION>
- ------------------------------------------------------------
FISCAL PERIOD HIGH BID ($) LOW BID ($)
- ------------------------------------------------------------
1996
- ------------------------------------------------------------
<S> <C> <C>
First Quarter 1.00 1.00
- ------------------------------------------------------------
Second Quarter 1.50 1.00
- ------------------------------------------------------------
Third Quarter 1.25 0.75
- ------------------------------------------------------------
Fourth Quarter 0.75 0.50
- ------------------------------------------------------------
- ------------------------------------------------------------
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, 1997, 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.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
RESULTS OF OPERATIONS
For the fiscal year ended December 31, 1997, sales of the Company's products
increased to $2,715,991, a 25.3% gain over sales of $2,166,763 recorded in
1996. The increase in revenues was primarily a result of growing demand for
the Company's premium depaneling equipment, the PanelMASTER 18HS and
PanelROUTER 16SI workstations, as well as continued demand for the Company's
lower tier multipurpose workstations. Introduced in 1995 and 1994
respectively, the PanelMASTER 18HS and PanelROUTER 16SI have gained broad
acceptance in the electronics industry, where the demand for custom
depaneling equipment continues to grow. For the fiscal year ended December
31, 1997, the Company had sold thirteen (13) PanelMASTER HS standalone units
and six (6) in-line PanelROUTER SI systems. Over the past eighteen months
the Company has noted a favorable shift in its product mix toward the larger,
faster servomotor-based depaneling systems.
While sales for fiscal year 1997 increased 25.3% over the prior period, the
cost of goods sold increased only 13.4% to $1,490,352, from $1,314,209 in
1996. Management attributes the favorable trend in cost of goods sold to
numerous cost containment and scrap reduction initiatives that were
introduced early in 1997. As a result, the gross profit margin increased
substantially to 45.1% of total revenues in 1997, compared to 39.3% of total
revenues in 1996.
In terms of the foreign and domestic breakdown of sales, the Company
experienced growth within North America during 1997, but a reduction in
revenues abroad. Domestic sales as of December 31, 1997, were approximately
$1,901,000, a 108% increase compared to $914,725 for the same period in 1996.
International revenues decreased by 57.5% in 1997, accounting for only
$401,688 in sales versus $945,000 in 1996. Parts and service revenue
accounted for the remaining sales of approximately $413,000, or 15.2% of
total revenues in 1997. Parts and service recorded sales of $305,167 in
1996, or 14.1% of total revenues. 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. For the year ended December 31, 1997, the Company
recorded an increase in its allowance for bad debt in the amount of $61,605,
to reserve for the recovery of delinquent accounts primarily in South Korea
and Taiwan. Management is actively pursuing the collection of these
accounts. International sales on new equipment accounted for only 14.8% of
revenues in 1997, compared to 49.2% in 1996.
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
<PAGE>
Company remains dependent upon both the Domestic and International sectors
for maintaining its revenue base from year-to-year.
Results of operations improved dramatically with the Company recording net
income of $122,854 for the fiscal year ended December 31, 1997, compared to a
net loss of $80,832 in fiscal 1996. The improvement in earnings may be
attributed to a number of factors including: an industry-wide acceptance of
routing as a viable and cost effective means for depaneling printed circuit
boards, an increased market recognition of OZO resulting from an aggressive
marketing campaign which promoted the Company and its products, effective
cost controls and productivity enhancements initiated by the Company in
fourth quarter of 1996 (and continuing throughout 1997), and the realization
of numerous re-engineering benefits within OZO's administrative groups.
In the area of operating expenses, general and administrative costs increased
modestly to $255,964 in 1997, compared to $231,127 for the same period in
1996. As a percentage of sales, however, the general and administrative costs
decreased from 10.7% of total revenues in 1996, to 9.4% in 1997. The Company
continues to focus on expense control as a requisite to sustaining
profitability in 1998..
Marketing and sales costs also increased during the reporting period, up
13.0% to $562,020 in 1997 versus $497,575 as recorded in 1996. On a
percentage basis, marketing and sales costs declined to 20.7% of total sales
in 1997, compared to 23.0% of total sales in 1996. The slight improvement
can be attributed to the mix of commission payments associated with products
being sold by geographical region (i.e., commission rates for international
distributors are different than those for manufacturer's representatives who
sell, but do not service, equipment in the United States). The Company
believes it will always be subject to higher SG&A costs (as a percentage of
revenue) because of its practice of going to market through distributors and
manufacturer's representatives.
Research and Development costs decreased slightly in 1997 to $154,414, down
3.2% from $159,570 in 1996. The research and development activities in 1997
focused primarily on redesigning the PanelMASTER 18HS, as well as various
performance enhancements on inline fixturing and automation related to the
PanelROUTER 16SI. Other R&D projects included software improvements to the
Company's premium line of depaneling routers, electronics upgrades on all
machines, and design enhancements to OZO's proprietary line of router
spindles.
In summary, the improvement in expense control in 1997 occurred in all three
major operating expense categories: general and administrative expense,
marketing expense, and research and development expense. Table 1 below
illustrates the breakdown of the major expense categories as a percentage of
net sales.
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TABLE 1
<TABLE>
<CAPTION>
1997 % 1996 %
---- - ---- -
<S> <C> <C> <C> <C>
Net Sales $2,715,991 100.0 $2,166,763 100.0
Cost of Sales 1,490,352 54.9 1,314,209 60.7
---------- ----- ---------- -----
Gross Profit $1,225,639 45.1 $852,554 39.3
G&A Expense $255,964 9.4 $231,127 10.7
Marketing 562,020 20.7 497,575 23.0
R&D Expense 154,414 5.7 159,570 7.4
---------- ----- ---------- -----
Total $972,398 35.8 888,272 41.0
Provision for Bad Debt $79,109 2.9 -- --
Loss on Disposition of Assets 6,336 0.2 -- --
---------- ----- ---------- -----
Earnings before Interest $167,796 6.2 ($35,718) (1.6)
Interest Expense $44,942 1.7 $45,114 2.1
---------- ----- ---------- -----
Net Income (Loss) $122,854 4.5 ($80,832) (3.7)
---------- ----- ---------- -----
---------- ----- ---------- -----
</TABLE>
In 1998 the Company will continue to expand sales of its premium line of
depaneling routers, while still supporting its original line of small-scale
multipurpose machines. The Company will focus on growth opportunities in the
U.S. and North America, as well as in selected markets overseas. In first
quarter 1998, the Company secured CE Compliance for its PanelMASTER 18HS
standalone router, allowing the product to be reintroduced into the European
market. The first CE compliant machine shipped to a customer in Dublin, Ireland
in late February 1998. Responding to specific needs in the marketplace, as well
as the requests of many of its customers, the Company will introduce new
products and accessories aimed at addressing a multitude of new applications.
In the opinion of Management, the strength of the electronics market, combined
with the internal improvements OZO has made during 1997, will enable the Company
to meet its objectives for sales and profitability in 1998.
LIQUIDITY AND CAPITAL RESOURCES
For short-term cash and credit requirements, the Company continues 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. As of January 1998, the Company had reached a tentative agreement with
its local bank to expand the credit revolver to approximately $50,000. The
agreement was contingent on a review by the bank of the Company's 10-KSB report
for 1997, and the Company's continued profitability through the first quarter of
1998.
Also, as disclosed in Item 12 of Form 10-KSB, throughout 1997 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 1997 was zero, and the loans had been repaid in full.
Refer to Note 12 of the Financial Statements (Related Party Transactions), and
Item 12 herein, for additional details of this loan.
<PAGE>
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 5 of the Financial
Statements). The Company will continue its efforts to remediate,
consolidate, and retire its debt obligations throughout 1998 and into the
next fiscal year.
Total Current Assets decreased slightly by 2.1%, or $13,627 in 1997. The
accounts receivable balance remained almost unchanged at $255,414 as of
December 31, 1997, compared to $257,775 as of December 31, 1996. This is
despite the Company's decision to increase its allowance for doubtful
accounts by $61,605 to reflect the uncertainty of overdue payments from
customers, primarily in South Korea and Taiwan. As stated above, Management
continues to pursue payment on these and other delinquent accounts.
Inventories decreased by $29,927 to $358,498 as of December 31, 1997, a
decrease of 7.7% from December 31, 1996. 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.
Total Current Liabilities increased $91,826 or 14.9% in 1997 to $709,138.
The increase in current liabilities is driven primarily by the maturity
schedule of the Company's $240,000 in long-term debt which became current as
of December 31, 1997. Repayment of the entire $240,000 is due on December
30, 1998. Total current debt as of December 31, 1997 (including the
aforementioned current portion of long-term debt and the current portion of
capitalized lease obligations), was $280,036, and increase of $245,429 from
$34,607 as of December 31, 1996. Management is in the process of securing a
refinancing package for the Company's debt, and expects to have the issue
resolved well in advance of the December 30, 1998 due date. As an
alternative, Management is also contemplating repaying a portion of the
$240,000 debt from cash from operations it expects to generate in 1998.
Excluding the current portion of long-term debt, $240,000, Total Current
Liabilities would have decreased $148,174 during 1997. This reduction was
due in part because Management took a proactive stance to reduce current
liabilities, specifically the elimination of the note payable to an officer
($84,500 as of December 31, 1996), and Customer Deposits, ($45,000 as of
December 31, 1996). Other current liabilities, including Accounts Payable
were virtually unchanged between December 31, 1996, and December 31, 1997,
despite an increase in sales of 25.3%.
The Company made significant progress in 1997 with the expanded sales and
marketing of its premium products, the PanelMASTER 18HS and the PanelROUTER
16SI. During the course of the 1997, the Company sold thirteen (13) PanelMASTER
18HS's and six (6) PanelROUTER 16SI's. Three more Model 18HS's and one more
Model 16SI will be shipped in the first quarter of 1998. Management believes
that the market acceptance phase for these products has progressed
satisfactorily, and the prospects for receiving additional orders for the
premium depaneling equipment is favorable at this time. In addition to this
positive forecast, Management also believes that various re-engineering
activities undertaken by the Company throughout 1997 have resulted in dramatic
improvements in the Company's competitiveness. These re-engineering activities
include: reductions in cycle times for
<PAGE>
equipment fabrication, substantial equipment upgrades within the
Manufacturing Group; new rapid response procurement and inventory procedures;
enhanced quality defect reduction programs; improved performance enhancement
projects for mechanical assemblies, electronics, and software; and cost
containment and waste reduction projects throughout all levels of production.
In addition, significant re-engineering projects have also been implemented
within the administrative functions. As a result of these tactical and
strategic initiatives, the favorable forecast for 1998, and a strong backlog
through the second quarter of 1998, Management believes that the Company can
continue as a going concern.
Looking forward, the Company intends to fund its current operations from a
combination of cash generated from operations, existing lines of credit,
potential new lines of credit, equity financing, or refinancing of existing
debt. These sources of capital are expected to fund the Company's current
operations through December 31, 1998 and beyond. Unless the Company
continues to be profitable, or develops additional equity or debt sources of
financing, there would be a materially adverse effect on the financial
condition, operations and business prospects of the Company. The Company has
no arrangements in place for such equity or debt financing and no assurance
can be given that such financing will be available at all or on terms
acceptable to the Company. Any additional equity or debt financing may
involve substantial dilution to the interests of the Company's shareholders
as well as warrantholders. If the Company is unable to obtain sufficient
funds to satisfy its cash requirements, it will be forced to curtail
operations, dispose of assets or seek extended payment terms from its
vendors. There can be no assurances that the Company would be able to
continue to reduce expenses or successfully complete other steps necessary to
continue as a going concern. Such events would materially and adversely
affect the value of the Company's equity securities.
BACKLOG
As of March 27, 1998, the Company's backlog of orders was approximately
$307,000, compared to $693,000 as of March 28, 1997. Throughout the second half
of 1997, the Company's backlog at any given time was typically lower than in
previous reporting periods, primarily due to the reduction in cycle times for
producing and shipping finished materials.
ITEM 7. FINANCIAL STATEMENTS
See Financial Statements on pages F-1 through F-18.
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
(a) IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AND POSITION
IN THE COMPANY AGE DIRECTOR SINCE
- ------------------------------ --- --------------
<S> <C> <C>
Alvin L. Katz 68 October 1996
(Chairman of the Board
since October 1996, Director)
David J. Wolenski 36 September 1996
(President since
September 1996, Director)
David W. Orthman 47 February 1992
(Secretary-Treasurer,
Director)
Scott E. Salpeter 39 October 1996
(Director)
Brantley J. Halstead 40 Officer since February 1998
(Chief Financial Officer)
</TABLE>
<PAGE>
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.
See Item 12 for a description of understandings pursuant to which
individuals were selected as a director of the Company.
BUSINESS EXPERIENCE. The following is a brief account of the
business experience during the past five years of each director and executive
officer:
<TABLE>
<CAPTION>
NAME OF DIRECTOR PRINCIPAL OCCUPATION DURING THE LAST FIVE YEARS
- ---------------- -----------------------------------------------
<C> <S>
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; BCT, a public company engaged in the
franchising of printing plants; and Mikron Instruments,
Inc., a public company engaged in the manufacture of
infrared parts and equipment. 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.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
Scott E. Salpeter Senior Associate of Catalyst Financial, an affiliate of
Barber and Bronson Incorporated, since September 1996;
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.
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.
</TABLE>
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, 1997, 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
(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
1997 fiscal year and subsequently, all filing requirements applicable to its
officers, directors, and greater than ten-percent shareholders were in
compliance, with
<PAGE>
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 the Registrant for the three years ending
December 31, 1997.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------------- -----------------------
NAME AND OTHER ANNUAL RESTRICTED STOCK
PRIN. POSITION YEAR SALARY($) BONUS COMPENSATION AWARDS($) OTHER
- -------------- ---- --------- ----- ------------ -----------------------
<S> <C> <C> <C> <C> <C> <C>
David J. Wolenski
CEO 1997 48,000 0 0 18,750 None
CEO(1) 1996 26,300 0 0 None None
CEO(2) 1996 13,000 0 0 5000 None
Marjorie Zimdars-Orthman
CEO 1995 39,500 0 0 None None
</TABLE>
Note 1: Marjorie Zimdars-Orthman was CEO through September 22, 1996; the salary
is prorated accordingly.
Note 2: 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.
COMPENSATION OF DIRECTORS.
As of December 31, 1997, 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. 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, and 35,000 options each to David W. Orthman and David J.
Wolenski. All of the aforementioned options are
<PAGE>
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.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS.
As of December 31, 1997, 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, 1997, the number of
shares of the Company's Common Stock beneficially owned by owner's of more than
five percent of the Company's outstanding Common Stock who are known to the
Company and the Directors of the Company, individually, and the Officers and
Directors of the Company as a group, and the percentage of ownership of the
outstanding Common Stock represented by such shares.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER POSITION WITH COMPANY OWNERSHIP OF CLASS
- ------------------------ --------------------- --------- --------
<S> <C> <C> <C>
David W. Orthman Director, Director of 129,710 (1) 25.3%
7450 E. Jewell Ave., #A Research & Development
Denver, Colorado 80231
David J. Wolenski Director, President, 60,000 (2) 11.7%
7450 E. Jewell Ave., #A Chief Executive Officer
Denver, Colorado 80231
Scott E. Salpeter Director 25,000 (3) 5.0%
201 S. Biscayne Blvd. #2950
Miami, Florida 33131
Alvin L. Katz Director, Chairman 61,250 (4) 7.4%
201 S. Biscayne Blvd. #2950
Miami, Florida 33131
<PAGE>
All Officers and Directors
as a Group (4 Persons) 275,960 44.0%
Steven N. Bronson None 111,650 (5) 22.0%
201 S. Biscayne Blvd. #2950
Miami, Florida 33131
James S. Cassel None 28,750 (6) 5.7%
201 S. Biscayne Blvd. #2950
Miami, Florida 33131
</TABLE>
Note (1): Of the 129,710 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 5,620 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 (2): Of the 60,000 shares beneficially owned by David J. Wolenski, 25,000
shares are in the form of common stock obtained as part of executive
compensation, and 35,000 shares are in the form of options, exercisable at
$1.125 per share through June 24, 2002.
Note (3): Of the 25,000 shares beneficially owned by Scott E. Salpeter, all are
in the form of options exercisable at $1.125 per share through June 24, 2002.
Note (4): Of the 61,250 shares beneficially owned by Alvin L. Katz, 5,000 shares
are in the name of his wife, Lenore Katz; 2,500 shares are held in general
partnership (the partnership consists of 5,000 shares of common stock, with
Alvin L. Katz maintaining a 1% ownership interest and Lenore Katz maintaining a
49% ownership interest in said partnership); 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. Not included in this calculation are
8,772 shares due upon conversion of debentures, December 30, 1998.
Note (5): 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.
Not included in this calculation are 8,772 shares due upon conversion of
debentures, December 30, 1998.
Note (6): All of the 28,750 shares beneficially owned by James S. Cassel are in
the form of warrants, 25,000 of which are exercisable at $1.00 per share through
April 1, 2001, and 3,750 of which are exercisable at $0.75 per share through
October 10, 2001.
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS AND CERTAIN BUSINESS
RELATIONSHIPS.
Throughout the course of 1997, 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. As of December 31, 1997, the outstanding loan balance was paid down
to zero.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS:
Independent Auditors' Report
Balance Sheet--As of December 31, 1997
Statements of Operations--Years Ended December 31, 1997, and 1996
Statements of Stockholders' Equity--Years Ended December 31, 1996, and
1997
Statements of Cash Flows for the Years Ended December 31, 1997, and
1996
Notes to Financial Statements
(b) 8-K REPORTS:
No 8-K reports were filed in the fourth quarter of 1997.
(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.
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.
<PAGE>
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.
10.5 Form of Promissory Note, 4/1/96, filed with initial filing.
10.6 Form of Security Agreement, 4/1/96, filed with initial filing.
10.7 Form of Common Stock Purchase Warrant, 4/1/96, filed with
initial filing.
10.8 Form of Promissory Note, 7/1/96, filed with initial filing.
10.9 Form of 4/1/96 Promissory Note Extension, 10/17/96, filed
with initial filing.
10.10 Form of Common Stock Purchase Warrant, 10/10/96, filed with
initial filing.
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditor's Report F - 2
Balance Sheet
December 31, 1997 F - 3 -- F - 4
Statements of Operations
Years Ended December 31, 1997 and 1996 F - 5
Statements of Stockholders' Equity
Years Ended December 31, 1996 and 1997 F - 6
Statements of Cash Flows
Years Ended December 31, 1997 and 1996 F - 7 -- F - 8
Notes to Financial Statements F - 9 -- F - 18
</TABLE>
F-1
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
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, 1997 and the related statements of operations,
stockholders' equity, and cash flows for each of the two years in the period
ended December 31, 1997. 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, 1997 and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1997 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
is experiencing difficulty in generating sufficient cash flow to meet its debt
obligations and sustain its operations. These factors 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
March 18, 1998
F-2
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash $ 7,526
Accounts receivable, (net of allowance for doubtful
accounts of $68,105) 255,414
Inventories (Note 3) 358,498
Prepaid expenses 25,631
-----------
Total Current Assets 647,069
-----------
PROPERTY AND EQUIPMENT, at cost (Note 5)
Manufacturing 149,703
Furniture and fixtures 169,747
Assets under capitalized leases 204,814
Vehicle 10,820
Leasehold improvements 5,010
-----------
540,094
Less accumulated depreciation and amortization 362,271
-----------
177,823
-----------
OTHER ASSETS
Deferred financing costs, net 8,126
Other 2,859
-----------
10,985
-----------
$ 835,877
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
BALANCE SHEET (CONTINUED)
DECEMBER 31, 1997
LIABILITIES AND STOCKHOLDER' EQUITY
<TABLE>
<S> <C>
CURRENT LIABILITIES
Note payable - bank $ 27,415
Accounts payable (Note 1) 244,139
Commissions payable 60,345
Due to shareholder 20,750
Accrued expenses 76,453
Current portion of long term debt and
capitalized lease obligations (Note 5) 280,036
-----------
Total Current Liabilities 709,138
-----------
LONG TERM DEBT AND CAPITALIZED LEASE
OBLIGATIONS (Note 5) 126,731
-----------
COMMITMENTS (Note 7)
STOCKHOLDERS' EQUITY (Note 6)
Preferred stock - $.10 par value
Authorized - 1,000,000 shares
Issued - none --
Common stock - $.10 par value
Authorized - 5,000,000 shares
Issued and outstanding - 478,164 shares 47,816
Capital in excess of par value 1,193,004
Accumulated deficit (1,240,812)
-----------
8
-----------
$ 835,877
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
NET SALES $2,715,991 $2,166,763
COST OF SALES 1,490,352 1,314,209
---------- ----------
GROSS PROFIT 1,225,639 852,554
---------- ----------
OPERATING EXPENSES
General and administrative 255,964 231,127
Marketing and sales 562,020 497,575
Research and development 154,414 159,570
Provision for bad debts 79,109 --
---------- ----------
1,051,507 888,272
---------- ----------
OTHER (EXPENSE) ITEMS
Interest expense (44,942) (45,114)
Loss on disposition of assets (6,336) --
---------- ----------
(51,278) (45,114)
---------- ----------
INCOME (LOSS) BEFORE INCOME TAX 122,854 (80,832)
INCOME TAX EXPENSE (70,000) --
TAX BENEFIT OF NET OPERATING
LOSS CARRY FORWARD 70,000 --
---------- ----------
NET INCOME (LOSS) $ 122,854 $ (80,832)
---------- ----------
---------- ----------
INCOME (LOSS) PER COMMON SHARE -
BASIC AND DILUTED $ .27 $ (.18)
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN TOTAL
------------ EXCESS OF ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT PAR VALUE DEFICIT EQUITY
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 452,664 $45,266 $1,169,804 $(1,282,834) $ (67,764)
Issuance of common stock to officer and
employee 5,500 550 6,450 -- 7,000
Net (Loss) -- -- -- (80,832) (80,832)
------- ------- ---------- ----------- ---------
BALANCE, DECEMBER 31, 1996 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
------- ------- ---------- ----------- ---------
------- ------- ---------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
OZO DIVERISIFIED AUTOMATION, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 122,854 $ (80,832)
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating activities
Depreciation and amortization 54,734 38,863
Stock issuance for services (Note 6) 18,750 7,000
Provision for bad debts 61,605 -
Loss on disposition of assets 6,336 -
Other (2,859) (4,522)
Changes in assets and liabilities
(Increase) in accounts receivable (59,244) (72,293)
Decrease in inventories 29,927 117,972
(Increase) decrease in prepaids (14,246) 3,759
(Decrease) increase in accounts payable and
accrued expenses (23,517) 60,542
(Decrease) in deferred income and customer deposits (45,000) (113,118)
--------- ---------
Net cash provided (used) by operating activities 149,340 (42,629)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (20,425) (12,485)
--------- ---------
Net cash (used) by investing activities (20,425) (12,485)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term debt and capital lease obligations (39,415) (29,937)
Proceeds from short-term borrowings 210,000 375,500
Payment of short-term borrowings (210,585) (375,000)
Proceeds from officer loan 304,000 168,800
Payment of officer loan (388,500) (84,300)
--------- ---------
Net cash (used) provided by financing activities (124,500) 55,063
--------- ---------
NET INCREASE (DECREASE) IN CASH 4,415 (51)
CASH, BEGINNING OF YEAR 3,111 3,162
--------- ---------
CASH, END OF YEAR $ 7,526 $ 3,111
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
OZO DIVERISIFIED AUTOMATION, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The Company paid cash for interest on long-term debt of $44,382 and $41,568
during the years ended December 31, 1997 and 1996, respectively.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
In 1997 and 1996, 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 and in 1996 issued 5,500 shares of common stock, valued at $7,000, to
an officer and employee of the Company. See Note 6 for additional details.
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
OZO Diversified Automation, Inc. (the Company) was incorporated under
the laws of the State of Colorado on October 13, 1983. The Company is
engaged in the design, manufacture, and marketing of computer
controlled manufacturing and machining equipment predominately to
entities in North America and the Pacific Rim.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost
determined on a first-in, first-out basis.
REVENUE RECOGNITION
Revenue is recognized from sales of machines when they are shipped to
customers or title transfers, and from services when performed.
Unearned income on service contracts, if any, is amortized by the
straight-line method over the term of the contract.
WARRANTY COSTS
The Company provides a warranty on products sold for a period of one
year from the date of sale. Estimated warranty costs are charged to
cost of sales at the time of sale.
PROPERTY AND EQUIPMENT
Property and equipment 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 $30,737 for the years ended December 31, 1997 and
1996, respectively.
RESEARCH AND DEVELOPMENT
Expenditures for the research and development of new products are
charged to operations as they are incurred.
F-9
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED FINANCING COSTS
Deferred financing costs include fees and costs incurred in
conjunction with the Company's sale of 9% convertible notes (Note 5).
These fees and costs are being amortized over the term of the
respective loans on a basis which approximates the interest method.
Accumulated amortization of deferred financing costs was $32,508 at
December 31, 1997. Unamortized deferred financing fees are
written-off when debt is retired before the maturity date.
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
For 1996, loss per common share is computed based on the weighted
average number of common shares outstanding of 454,497 shares.
Convertible equity instruments, such as stock options, warrants and
convertible debt, are not considered in the calculation of net loss
per share for 1996 as their inclusion would be antidilutive.
In February 1997 SFAS No. 128, "Earnings Per Share", was issued
effective for periods ending after December 15, 1997. There is no
impact on the Company's 1996 financial statements from adoption of
SFAS No. 128. The Company has adopted the provisions of SFAS No. 128
effective for the year ending December 31, 1997. The weighted average
number of common shares outstanding at December 31, 1997 was 458,218
shares. 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, 1997 there
were no cash equivalents.
F-10
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
ACCOUNTS PAYABLE
Accounts payable at December 31, 1997 include a bank overdraft of
$71,193.
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.
NEW TECHNICAL PRONOUNCEMENTS
In February 1997 SFAS No. 129, "Disclosure of Information about
Capital Structure" was issued effective for periods ending after
December 15, 1997. The Company has adopted the disclosure provisions
of SFAS No. 129 effective with the fiscal year ended December 31,
1997.
In June 1997 SFAS No. 130, "Reporting Comprehensive Income" was issued
effective for fiscal years beginning after December 31, 1997, with
earlier application permitted. The Company has elected to adopt SFAS
No. 130 effective with the fiscal year ended December 31, 1998.
Adoption of SFAS No. 130 is not expected to have a material impact on
the Company's financial statements.
In June 1997 SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information" was issued effective for fiscal years
beginning after December 31, 1997, with earlier application permitted.
The Company has elected to adopt SFAS No. 131 effective with the
fiscal year ended December 31, 1998. Adoption of SFAS No. 131 is not
expected to have a material impact on the Company's financial
statements.
F-11
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
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 $1,240,812 through December 31, 1997, as compared to
$1,363,666 through December 31, 1996, and at December 31, 1997 current
liabilities exceeded current assets by $62,069. Included in current
liabilities at December 31, 1997 are $240,000 of notes the Company is
obligated to retire by December 30, 1998 (See Note 5). 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 retire debt and to continue achieving profitable
operations.
Management is continuing its programs of cost control and containment;
installing new production and budgetary controls in all aspects of
operations; expanding its marketing efforts, especially on new
products, and pursuing additional financing from outside sources to
retire existing debt and sustain operations. In addition, management
is attempting to continue to generate cash from operations.
Management believes that these actions presently being taken to revise
the Company's operating and financial requirements provide the
opportunity to continue as a going concern.
Management believes that various re-engineering activities undertaken
by the Company throughout 1997 have enhanced the Company's
competitiveness. These re-engineering activities include: reductions
in cycle times for equipment fabrication, substantial manufacturing
equipment upgrades; new rapid response procurement and inventory
procedures; enhanced quality control programs; improved performance
enhancement projects for mechanical assemblies, electronics, and
software; and cost containment and waste reduction projects throughout
all levels of production. Significant re-engineering projects have
also been implemented within the administrative functions.
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
its customers.
In 1998, the Company intends to attend the major electronic assembly
industry trade shows. In addition, marketing efforts will be
increased in the European Union, and Central and South America.
Management has also reemphasized customer service, and is continuing
production process improvements in an effort to preserve operating
margins.
F-12
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - BASIS OF ACCOUNTING (CONTINUED)
The Company intends to fund its current and future operations from a
combination of cash generated from operations, existing lines of
credit, potential new lines of credit, equity financing, or
refinancing of existing debt. Unless the Company continues to be
profitable, or develops additional equity or debt sources of
financing, there would be a materially adverse effect on the financial
condition, operations and business prospects of the Company. The
Company has no arrangements in place for such equity or debt financing
and no assurance can be given that such financing will be available at
all or on terms acceptable to the Company. Any additional equity or
debt financing may involve substantial dilution to the interests of
the Company's shareholders as well as warrant holders. If the Company
is unable to obtain sufficient funds to satisfy its cash requirements,
it will be forced to curtail operations, dispose of assets or seek
extended payment terms from its vendors. There can be no assurances
that the Company would be able to continue to reduce expenses or
successfully complete other steps necessary to continue as a going
concern. Such events would materially and adversely affect the value
of the Company's equity securities.
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 of 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.
NOTE 3 - INVENTORIES
Inventories at December 31, 1997 consist of the following:
<TABLE>
<S> <C>
Raw materials $358,498
Work in process and components -
Finished goods -
--------
$358,498
--------
--------
</TABLE>
NOTE 4 - NOTE PAYABLE - BANK
Note payable - bank consists of the balance due on a revolving line of
credit from a commercial bank. The note matures in July 2000, and is
repayable monthly at the rate of a 2% principal reduction and interest
thereon. Interest on the note is 2% above the prime interest rate.
The note is secured by substantially all assets of the Company
including receivables, inventory and equipment and is personally
guaranteed by certain present and/or former officers/directors of the
Company. At December 31, 1997, the Company has $2,585 available to be
drawn upon under the line of credit.
F-13
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - LONG TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS
Long term debt and capitalized lease obligations consist of the
following at December 31, 1997:
<TABLE>
<S> <C>
9% unsecured convertible notes, due December 30, 1998,
interest payable quarterly $120,000
9% unsecured non-convertible notes, due December 30, 1998,
interest payable quarterly 120,000
Capitalized lease obligations with interest at 10.1% to 18.29%,
repayable in monthly installments of an aggregate $4,723;
collateralized by the underlying equipment 166,767
--------
406,767
Less current portion 280,036
--------
$126,731
--------
--------
</TABLE>
As of December 31, 1997, the scheduled maturities of notes payable and
capitalized lease obligations are as follows:
<TABLE>
<S> <C>
1998 $280,036
1999 44,895
2000 48,627
2001 33,209
--------
$406,767
--------
--------
</TABLE>
Future minimum payments on capitalized leases are as follows:
<TABLE>
<S> <C>
Year ending December 31,
1998 $ 56,669
1999 56,669
2000 54,919
2001 34,623
---------
202,880
Less amount representing interest 36,113
---------
Present value of net minimum lease
payments including current maturity $ 166,767
---------
---------
</TABLE>
The 9% notes represent gross proceeds from a private placement of
$240,000 of units completed in December 1993. In conjunction with the
offering, warrants to purchase
F-14
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - LONG TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS (CONTINUED)
110,000 shares of common stock at $2.00 per share were issued. In
1994, warrants were exercised at a reduced price of $1.00 per share
for 100,000 shares. At December 31, 1997 10,000 warrants, exercisable
at $2.00 per share through December 30, 1998, are outstanding. The
convertible notes are convertible into shares of the Company's common
stock at $1.14 per share through December 30, 1998.
NOTE 6 - 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 1996 the Company issued 5,000 shares of its common
stock to its President, valued at $6,250 ($1.25 per share); and 500
shares to an employee, valued at $750 ($1.50 per share).
WARRANTS
At December 31, 1997 the Company had warrants outstanding to purchase
shares of the Company's common stock as follows:
- 10,000 shares at $2.00 per share expiring December 30, 1998;
issued in conjunction with 9% notes.
- 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, 1997 was $1.05 per share.
OPTIONS
The status of outstanding options granted by the Company is as
follows:
<TABLE>
<CAPTION>
NUMBER WEIGHTED WEIGHTED
OF AVERAGE AVERAGE
SHARES EXERCISE PRICE FAIR 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
------- -----
------- -----
</TABLE>
F-15
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)
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 and income per share for 1997 would have been
decreased to the pro forma amounts indicated below:
<TABLE>
<S> <C>
Net income applicable to common stockholders - as reported $122,854
--------
Net income applicable to common stockholders - pro forma $ 61,285
--------
Income per share - as reported $ .27
--------
Income per share - pro forma $ .13
--------
</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
43%; discount rate of 5.50%; and expected lives of 5 years. No options
were exercised or forfeited during 1997.
At December 31, 1997 the number of options exercisable was 120,000, the
weighted average exercise price of these options was $1.13, the weighted
average contractual life of the options was 5 years and the exercise price
was $1.13 per share.
In February 1998 the Board of Directors granted to an officer options to
purchase 25,000 shares of the Company's common stock at an exercise price
of $1.25 per share for a period of 5 years.
NOTE 7 - COMMITMENTS
The Company has entered into a non-cancelable lease for office and
production facilities. Minimum payments due under this lease are as
follows:
<TABLE>
<S> <C>
Year ending December 31,
1998 $50,618
1999 51,457
2000 8,600
</TABLE>
Rent expense was $46,234 and $38,340 for the years ended December 31, 1997
and 1996, respectively.
NOTE 8 - SEGMENT INFORMATION
Foreign sales represent export sales, and were approximately 18% and 47% of
net sales revenue for the years ended December 31, 1997 and 1996,
respectively.
F-16
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - SEGMENT INFORMATION (CONTINUED)
Export sales of systems, by geographic region, are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Pacific Rim $240,271 $535,000
Asia 161,417 140,000
South America - 155,000
Europe - 115,000
-------- --------
$401,688 $945,000
-------- --------
-------- --------
</TABLE>
Sales by two distributors in the Pacific Rim represented 13% and 8% of
total Company sales for 1996.
NOTE 9 - INCOME TAXES
At December 31, 1997, the Company has 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 through 2012.
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 $245,000 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.
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 1996. The Company, in 1997, utilized net operating loss
carryforwards to offset taxable income, and, in 1996 had no taxable income.
The benefits of timing differences have not previously been recorded.
F-17
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES (CONTINUED)
A reconciliation between the statutory federal income tax rate (34%) and
the effective rate of income tax expense for 1997 is as follows:
<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 10 - CONCENTRATIONS AND OTHER RISKS
FAIR VALUE
The carrying amount reported in the balance sheets for cash, accounts
receivable, accounts payable and accrued liabilities approximates fair
value because of the immediate or short-term maturity of these financial
instruments.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade accounts
receivable. Credit risk with respect to these receivables is generally
diversified due to the number of entities comprising the Company's customer
base and their dispersion across many different industries and geographical
locations.
NATURE OF BUSINESS
The Company's business has been comprised of domestic and foreign export
sales. In 1997 foreign export sales accounted for 18% of the Company's
total sales, as compared to 47% for 1996. This decrease in foreign export
sales has largely been due to the changing economic conditions in the
Pacific Rim and Asia. At December 31, 1997 the Company has accounts
receivable due from its distributors in Taiwan and Korea of an aggregate
$63,475, which has been 100% reserved for collectibility as of that date.
NOTE 11 - RELATED PARTY TRANSACTIONS
During 1996 the President of the Company loaned the Company an aggregate
$168,800 under a line of credit note, secured by inventory and trade
accounts receivable, due November 16, 1996 with interest at prime plus
2.5%. At December 31, 1996, $84,500 was outstanding under the loan
agreement. In 1997 the President made additional advances to the Company
of an aggregate $304,000 and was repaid $388,500 and interest of $4,611.
At December 31, 1997 and 1996 the former President of the Company had
accrued wages and advances due of $20,750 and $54,545, respectively.
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: January 6, 1999
OZO DIVERSIFIED 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>
January 6, 1999 David J. Wolenski /s/ David J. Wolenski
Principal Executive Officer ------------------------
Principal Financial Officer
Director
January 6, 1999 David W. Orthman /s/ David W. Orthman
Secretary-Treasurer ------------------------
Director
January 6, 1999 Alvin L. Katz /s/ Alvin L. Katz
Chairman of the Board ------------------------
Director
January 6, 1999 Scott E. Salpeter /s/ Scott E. Salpeter
Director ------------------------
January 6, 1999 Brantley J. Halstead /s/ Brantley J. Halstead
Principal Accounting Officer ------------------------
Chief Financial Officer
</TABLE>
