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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
COMMISSION FILE NUMBER: 0-17493
OMNI U.S.A., INC.
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(Name of Registrant)
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NEVADA 88-0237223
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(State of Incorporation) (IRS Employer Identification No.)
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7502 MESA ROAD, HOUSTON, TEXAS 77028
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(Address of principal executive offices)
Issuer's telephone number: (713) 635-6331
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK $.004995 PAR VALUE
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(g) of the Securities Exchange Act of 1934 during the past 12
months, and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulations S-B contained in this form, and no disclosure will 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. [ ]
Issuer's revenues for its most recent fiscal year were $14,520,252.
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of September 16, 1997 was approximately $3,852,842 based
on quoted sales on NASDAQ on such date.
The number of shares of the Registrant's common stock outstanding as
of September 16, 1997 was 3,525,092.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Overview
History of the Company. The Company, through its wholly-owned
subsidiary Omni U.S.A., Inc., a Washington corporation ("Omni-Washington") and
Omni-Washington's wholly-owned subsidiary, Omni Resources, Ltd., a Hong Kong
company ("Omni Resources"), designs, develops, manufactures and distributes
power transmissions (also known as "gearboxes" or "enclosed geardrives") for
use in agricultural, industrial, "off-highway" and construction equipment. In
addition, the Company, through another wholly-owned subsidiary, Butler Products
Corporation, designs, develops, manufactures and distributes towing and trailer
products, which include light and heavy-duty jacks and couplers used in a
variety of trailers. The Company's products are distributed to original
equipment manufacturers and distributors in North America and in several
foreign countries including Australia, Canada, France, Mexico, New Zealand,
South Africa, Thailand and Venezuela. The Company began procuring the
manufacture of its products by Chinese manufacturers in China in 1980, and
since 1986 substantially all of its geardrives have been manufactured in China;
30% of its towing and trailer products are manufactured in China and
approximately 70% of its towing and trailer products are manufactured in the
United States.
Omni-Washington, the Company's primary operating subsidiary, was
incorporated in 1961 and in 1974, began distributing power transmissions in the
U.S., and later established Omni Resources to distribute its products in
certain foreign markets. In 1988, Omni-Washington acquired the outstanding
minority ownership interest in Omni Resources and thereafter operated it as a
wholly owned subsidiary.
Effective July 1, 1988, Ed Daniel, the sole shareholder, exchanged all
of the outstanding stock of Omni- Washington for 6,650,000 shares of voting
Common Stock of Triste Corporation, a Nevada corporation incorporated in 1988
("Triste"), giving him a 42.5 % interest in Triste. Triste thereafter changed
its name to Omni U.S.A., Inc. ("Omni" or the "Company") and continued and
expanded the business historically conducted by Omni-Washington. Omni's Common
Stock began trading on the over-the-counter market on November 1, 1988, and
since August 13, 1991, Omni's Common Stock has been listed on the NASDAQ
SmallCap Market.
In December 1994, Omni Resources formed a "Cooperative Joint Venture
Limited Liability Company" to be known as "Shanghai Omni Gear Co., Ltd."
("Shanghai Omni Gear" or the "Joint Venture") with a Chinese manufacturing
company that owns a multi-building manufacturing complex in Shanghai for the
purpose of the manufacture and sale of planetary and industrial geardrives.
Shanghai Omni Gear was formed in accordance with the Law of the
People's Republic of China on Co-operative Joint Ventures, and its activities
are governed by all laws, decrees, rules and regulations of the People's
Republic of China, including, but not limited to, labor and employment, tax,
foreign exchange and insurance laws and regulations. Shanghai Omni Gear is
obligated to contribute five percent of its after-tax profits per year, up to a
maximum of 50% of the registered capital of the Company (or $1,312,500) to a
reserve, enterprise development and welfare fund for staff and workers.
Shanghai Omni Gear is entitled to certain preferential tax treatments and is
eligible for exemption, as determined by the Chinese Government, from custom
duties, value-added tax and other levies.
The Chinese manufacturer contributed to the Joint Venture the use of
land and factory space in its manufacturing complex under a 30-year facilities
lease; Omni Resources agreed to contribute an aggregate of $2,625,000 in
working capital, leasehold improvements, machinery and other assets required to
establish a fully operational manufacturing facility, and, as of the date
hereof, has contributed approximately $2,825,000 to the Joint Venture. Omni
Resources controls Shanghai Omni Gear, as it appoints a majority of Shanghai
Omni Gear's Board of Directors and also appoints the General Manager of the
Joint Venture. The Chinese manufacturer has a single representative on
Shanghai Omni Gear's Board of Directors and does not participate in the profits
of Shanghai Omni Gear; its only return from Shanghai Omni Gear being a rental
fee from the facilities lease, which is approximately $20,000 per month
commencing January 1996. The Joint Venture is conducted as a "limited
liability company," the Articles of Association of which provide that each
joint venturer's liability for the obligations of the Joint Venture is limited
to such joint venturer's investment.
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The Joint Venture has a thirty-year term, which can be extended for an
additional ten years by consent of the joint venturers. The Joint Venture may
be liquidated in the event of either party's failure to perform its obligations
under the Joint Venture or organizational documents.
Since formation, Shanghai Omni Gear has begun production of the
Company's planetary drive product line. The facility is being used for
assembly of three planetary drives and inspection of drives produced in other
Chinese manufacturing facilities. There are approximately one hundred persons
employed by the Joint Venture. Additional employees will be added as the
manufacturing facility is further developed. Highly skilled labor is abundant
in Shanghai, and a core staff, including American and Chinese engineers,
provides additional planning and development of the facility. Shanghai Omni
Gear will continue to emphasize production of planetary drive products and is
on track to meet the Company's targeted initial production capacity.
The Company has been funding the Joint Venture with internally
generated funds, financing of equipment, and is considering other alternatives
to finance further investment in the Joint Venture and development of the
facility.
On October 1, 1996, the Company acquired 100% of the common stock of
Butler Products Corporation ("BPC"). Consideration paid to the shareholders of
BPC included $225,000 in cash, $500,000 in junior subordinated notes due in
2003, and 150,000 shares of Omni Common Stock. Located in Butler, Kentucky, BPC
is a long-standing manufacturer of jack and trailer products typically sold to
manufacturers and distributors of heavy duty trailers. Senior management of BPC
remains with the Company. The addition of BPC provides the Company with a
wider range of products, will broaden Omni's customer base and increase sales
of both product lines, and will provide Omni with an opportunity to participate
in additional markets.
After July 1, 1997, all towing products designed, developed,
manufactured and sold by the Company are marketed under the "Butler" name and
associated trademarks; all power transmission products designed, developed,
manufactured and sold by the Company are marketed under the "Omni Gear" name
and associated trademarks.
The Company's strategy is to develop its power transmission and towing
product lines. The Company's objectives are to: (i) expansion of the Company's
planetary drive product line; (ii) acquire or develop new product lines or new
markets consistent with the Company's focus and (iii) expand the Company's
wholly owned manufacturing facility in Shanghai, China.
Products
OMNI GEAR
Power Transmissions. Power transmissions (also known as "enclosed
geardrives" or "gearboxes") are configurations of gears enclosed in a housing
or casing that transfer or transmit power from one point to another. Omni
currently distributes a standard product line of over 1500 gearbox
configurations. As a percentage of revenues, Omni's power transmissions are
its most significant product, representing 76% and 92% of Omni's revenues in
fiscal years 1997 and 1996, respectively.
Although Omni distributes power transmissions for numerous
applications and purposes, the majority of its sales revenues are derived from
sales of power transmissions manufactured for three distinct applications:
Agricultural equipment. Omni Gear distributes power transmissions for
tractor powered implements with capacities ranging from 3 to 300
horsepower for use in agricultural equipment, including post hole
diggers, which are accessories attached to tractors used to dig post
holes; rotary cutters, which are large, heavy duty "mowers" for use in
agriculture and highway right-of-way and recreational
area maintenance; and grain augers, which deliver grain to the top of
grain silos. These applications require transmissions that
effectively transmit horsepower, as opposed to torque. Transmissions
manufactured for such applications typically employ only a few gears
and the Company therefore typically refers to power transmissions for
the applications as "simple" gearboxes.
Irrigation systems. Omni Gear is a major supplier of "simple"
gearboxes for "center pivot" irrigation systems, which dispense water
through a system of pipes and sprinklers mounted in wheel-driven
towers revolving around a central well and irrigating fields of up to
one mile in diameter.
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Construction, off-highway, industrial and utility equipment. In
1992, Omni Gear began distributing "planetary drive" power
transmissions for use in construction, "off-highway" (which includes a
wide variety of equipment designed for use in rugged terrain,
construction sites, or undeveloped areas), industrial, and utility
equipment, such as four-wheel drive forklifts, skid steer loaders,
telephone and power cable installation and replacement equipment, road
rollers and dirt compactors. Planetary geardrives utilize more complex
configurations of gears and are used in applications where transmission
of high torque at low speeds is needed. Sales of planetary geardrives
accounted for approximately 7% of the Company's sales in 1997. The
Company believes that it can significantly expand its share of the
market of planetary drives, and the Company's goal of increased
production of these products is a primary factor in the Company's
decision to establish a manufacturing facility in China. The Company
has also entered into a distribution agreement for its planetary
drives. See "Distribution, Sales and Marketing."
BUTLER
Towing Equipment. Butler manufactures a wide variety of jacks with
capacities ranging from 1,000 lbs. to 220,000 lbs. These jacks are used to
level and lift various trailers and equipment for recreational, utility,
construction, agricultural and trucking industries as well as for military
applications. Butler's products include heavy duty stabilizing jacks and wheel
chocks for semi-trailers, a series of high density polyethylene lubricating
plates for the trucking industry and a complete line of couplers for trailers
with gross weights up to 12,500 lbs. As a percentage of revenues, towing
equipment represented 19% and 10%, respectively, of Omni's net sales in fiscal
years 1997 and 1996. The Company expects sales from both product lines to
equate as the Company continues its strategy is to develop its power
transmission and towing product lines.
New Products. The Company continues to modify and improve its
products and expand product application. Currently, the Company is designing
gearboxes for expanded agricultural geardrive product lines including
geardrives for fertilizer spreader and roto-tiller applications. Additionally,
the Company is expanding Butler's product line to include a complete line of
couplers and a new series of heavy-duty implement and spring return jacks.
Product Manufacturing
Current Manufacturing Arrangements. Pending development of the
Shanghai Omni Gear facility into a full-service manufacturing and assembly
facility, a majority of the Company's geardrives are assembled incorporating
raw materials and components manufactured or produced in China by four
manufacturers located in metropolitan Shanghai and in Yantai, some of whom the
Company has been doing business with for over seventeen years. The Company
believes that these manufacturers can be relied upon to provide a reliable
source of quality manufactured goods for the foreseeable future. The Company
and certain manufacturers have from time to time memorialized their working
relationships in written memoranda. In the Company's experience, business
relationships in China are not established and are not governed by written
agreements of contract, and the Chinese legal system is not sufficiently
developed to provide for the enforcement of contracts or remedies to an
aggrieved party in the event of a breach of contract. Rather, business in
China is conducted primarily upon the basis of personal relationships among the
parties, and commercial disputes are resolved almost entirely through
negotiation. The Company believes that it has established solid working
relationships with each of these factories, which relationships are and will
continue to be critical to the Company's ability to
obtain quality manufactured products on acceptable terms.
The Company owns a 35,000 square foot facility in Butler, Kentucky
where all jacks from 10,000 lbs. to 220,000 lbs. capacities are manufactured.
With its convenient location near Cincinnati, Ohio, Butler purchases raw
materials and component parts from a variety of quality suppliers. The smaller
jacks are manufactured to Butler's quality specifications in China as are
certain components of its coupler line which are assembled at the Company's
Houston, Texas facility. With over forty years of providing a wide variety of
jacks, Butler has developed and will continue to focus on its reputation for
high quality products.
Availability of Raw Materials and Components. Product components and
raw materials are currently purchased from numerous suppliers in China,
selected by the Company on the basis of available production capacity,
reputation for quality, and relative costs. The Company believes that there
are sufficient supplies of raw materials and components in China to meet its
needs for the foreseeable future, and the Company's suppliers have generally
been able to meet the Company's specifications and schedules. However, in the
few instances in which resources of sufficient quality have not been available
in China, the Company has generally encountered little difficulty in locating
substitutes outside China and importing them for production. Based on the
number of potential suppliers in China, the Company does not believe that the
loss of any supplier would have a material adverse effect on the Company.
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Manufacturing Capacity. The Company believes that the manufacturers
that it currently employs possess sufficient excess production capacity to meet
the Company's production requirements for the foreseeable future. Based on the
number of potential manufacturers in China and excess capacity of manufacturers
currently in use, the Company does not believe that the loss of services of any
single manufacturer would have a material adverse effect on the Company.
Distribution, Sales and Marketing
Distribution. The Company distributes its products primarily to
distributors and original equipment manufacturers. Customers with limited
requirements, and most of the Company's North American customers, typically
purchase products from inventories; sales to these customers are made by
Omni-Washington. Omni Resources, on the other hand, ships products directly
from the factory to customers located primarily in Australia and Japan; or to
other customers that purchase entire containers or production runs of Company
products. Butler distributes its products to after-market distributors, trailer
OEMs, export brokers and government agencies. Butler-employed sales personnel
make virtually all sales. All products are shipped either from Butler's
manufacturing facility in Butler, Kentucky or from Omni's facility in Houston,
Texas. Sales are divided between Omni-Washington, Omni Resources, and Butler
based on product line, location of the customer and size of the orders, with
the majority of the sales made in the United States. Omni-Washington's sales
increased by 30% from 1996 to 1997, a total increase of about $2,734,521. Net
sales by Omni Resources decreased by about $644,822, 48% over fiscal 1996
sales. Net sales of Omni-Washington represents approximately 80% of
consolidated net sales with Omni Resources and Butler representing
approximately 5% and 15% of the Company's net sales, respectively.
On October 3, 1994, the Company and its subsidiaries signed an
exclusive ten-year distribution agreement with the Braden Winch division of
PACCAR Inc. ("PACCAR"), an international manufacturer, marketer and
distribution of winches and planetary geardrives located in Broken Arrow,
Oklahoma. Under the terms of the Agreement, PACCAR will market and distribute
throughout the world (except Japan and China) planetary drives, parts and
accessories designed and manufactured by the Company. The drives and parts
will be marketed by PACCAR under the "Braden" trademark and trade name owned by
PACCAR. Omni retained the rights to sell its products in Japan and China, and
also retained the right to market its planetary drives under its own name to
certain original equipment manufacturers that it now services and to all
current and potential pivot irrigation makers or after-market resellers for
products designed exclusively for the irrigation market. While the agreement
restricts the Company's ability to develop its own markets for its products in
the territory assigned to PACCAR, it gives the Company immediate access to an
established distribution network.
Sales. Omni considers its overall customer base to be relatively
stable, with little significant variation from year to year. In 1997, the
Company's top ten customers represented 51% of the Company's net sales volume,
and its two largest customers, who are in different segments of the market,
represented 28% of net sales.
The Company's sales are influenced by a variety of seasonal, economic
and climatic factors affecting its customers, many of which are difficult to
predict. Since a large proportion of the Company's products are utilized in
the agriculture industry, the Company's sales are lower during the fall and
winter months while farming and ranching activity is slower. Drought, flooding,
commodity prices, government subsidies and U.S. Agricultural Department
policies that affect farmers also impact demand for the Company's products.
The Company believes that the seasonality in its sales will become less
pronounced as it increases its market share for products that are incorporated
into construction, off-highway and utility equipment.
The Company does not currently hold any government contracts, nor does
it sell more than an insignificant portion of its products to any governmental
agency. Accordingly, none of its contracts and subcontracts or purchase orders
are subject to governmental re-negotiation or cancellation.
Marketing. Power transmissions are usually manufactured according to
a customer's specific applications and specification. Because incorporating
a power transmission manufactured by a different supplier may require changes
in product design or expensive retooling, customers often do not replace a
current supplier's product with a standard product of another manufacturer and
therefore do not frequently change suppliers of power transmissions.
Accordingly, while Omni regularly solicits additional sales from existing
customers, a large portion of its sales are made to existing customers with
minimal marketing effort.
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With respect to new business, Omni distributes product catalogs to
prospects, as well as soliciting sales directly from new customers. From time
to time, Omni has also acquired customer lists which it uses as a basis for
solicitation of new customers, as well as solicited sales by direct marketing
and trade shows. Sales to new customers are rarely an effort by a salesperson
alone and Omni engineers are often required to consult with prospective
customers, assist in identifying, designing and developing products that
fulfill a new customer's particular requirements. After a sale is made, Omni
engineers continue to consult with the customer on product improvements and
modifications.
Inventories, Firm Orders and Backlogs. The Company maintains
approximately $1,300,000 in inventory in its Houston, Texas facility,
approximately $400,000 at the Company's facility in Butler, Kentucky, and
approximately $500,000 at its facility in Shanghai, China. Additionally, the
Company has access to inventory located in bonded warehouses and vendor
facilities that approximate $1,100,000. The Company forecasts sales 12 months
in advance, and maintains a three month "rolling" production schedule, which
permits the Company to maintain sufficient inventories to meet projected
requirements of its customers yet avoids excessive investments in inventory.
As of June 30, 1997, the amount of the Company's backlog believed to
represent firm orders was approximately $4,000,000. The Company determines the
amount of backlog by estimating purchases to be made by established customers
with "blanket" purchase orders with the Company. Average delivery time for the
Company's power transmission equipment varies depending upon the product. The
Company can often fill and ship an order for products maintained in inventory
in twenty-four hours; orders for products that require minimal modification to
an existing product can often by shipped in a few days; and custom products
requiring extensive design and retooling for production can require a
production schedule of up to six months.
Competition. The power transmission market is supplied by numerous
American and foreign manufacturers, ranging from conglomerates that distribute
broad product lines to customers around the world, to small manufacturers that
produce a limited number of products for specific applications to limited
markets. Accordingly, the "market" for power transmissions is difficult to
define. Omni therefore identifies its competition according to specific
products, rather than power transmissions in general.
In sales of power transmissions for rotary cutter, tractor-powered
implement and universal geardrive product lines, Omni Gear competes with a
number of U.S. and foreign companies, including Comer Sp.A. and Bondioli &
Pavesi, each of which are Italian companies, and Curtis Machine, Inc., Superior
Gearbox Mfg., Inc., Hub City (a division of Regal- Beloit Corporation) Durst,
UMC and ITG, all of which are American companies. While published statistics
of the size of the market are not readily available, Omni Gear estimates, based
upon publicly available information regarding its competitors, that it has a
60% share of the North American market for rotary cutter geardrives, and a 60%
market share in tractor-powered implement geardrives in North America.
Omni Gear believes that it holds approximately 27% of the irrigation
geardrive market. Omni Gear's most significant competitors in the marketplace
are Durst (a division of Regal-Beloit Corporation) and Universal Motion
Components.
Omni estimates that the market for planetary gearboxes with torque
capacities up to 120,000 lbs. that Omni Gear can currently supply is
approximately $50,000,000 in sales per year, and that this market is currently
dominated by Auburn Gear, Fairfield Manufacturing and Eskridge Manufacturing,
all American companies. The Company's sales of planetary geardrives exceeded
$1,000,000 in fiscal year 1997, and Omni Gear believes that it can increase its
share of this market in the future since demand for construction and
off-highway equipment continues to be strong, and the Company, as a low-priced
competitor, can usually capture a portion of any new market that it enters.
In sales of Butler light duty product lines, Butler competes with a
number of U.S. and foreign companies, including Atwood, Fulton and Hammerblow.
Butler's heavy-duty product lines compete with a number
of U.S. and foreign companies, including Cysor Austin Westran, Eagle, Jost,
Holland/Binkley, and Sudisa.
Omni's most important competitive advantage is its competitive pricing
afforded by inexpensive Chinese labor and manufacturing costs. Omni believes
that it is competitive in its industry with respect to warranty and return
matters, payment terms, and product quality.
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Other
Employment. The Company currently employs one hundred fifty-five
persons worldwide; (i) one hundred by Shanghai Omni Gear, (ii) twenty-seven at
the Company's Houston, Texas facility, and (iii) twenty-eight at the Company's
facilities in Butler, Kentucky. Twenty-two of Butler's twenty-eight employees
are unionized. No other Company employees are unionized or attempting to
unionize. Management believes its relations with its employees, union and
non-union, are good.
Research and Development. The Company currently employs five
full-time engineers who redesign products to meet new customer specification or
applications and to make refinements in product manufacturing processes and
product quality. The Company has not traditionally capitalized expenses
related to these activities, but has identified them as "research and
development expenses." Most significantly, the Company has expensed all
research and development costs related to the development of products for
Paccar, and, with the exception of cost related to capital equipment, the
Company has expensed all cost related to developing the Shanghai, China
manufacturing facility. Research and development expenses, unless otherwise
specified, are reflected in the Company's financial statements as part of
operating expenses.
Intangible Properties. The Company manufactures, advertises and sells
its products under numerous trademarks. Omni(R), Omni USA(R), Omni Gear(R),
and Butler(TM) trademarks are the primary marks under which the Company's
products are sold. The Company also owns other trademarks under which gearbox
products are sold such as RC-20(R), RC-30(R), RC- 51(R), RC-61(R), RC-61T(R),
RC-65T(R), RC-71(R), RC-81(R), RC-91(R), RC-110(R), RCD-101(R), PHD-26HD(R),
PHD-50A(R), PHD-75(R), IR-15(R), IR-50(R), OFD-50(R), RC-130(TM), RC-25(TM)
Voyager(R), Galaxy(TM), Enforcer(TM), Enforcer II(TM), Slick Disc(TM), and
Slider(R). Management believes that the Company's trademarks are well known in
its markets, are valuable and that their value is increasing with the
development of its business. The Company is not dependent on any one such
trademark. The Company vigorously protects its trademarks against
infringement. The Company has registered its trademarks in the appropriate
jurisdictions.
Environmental Matters. The Company is not a party to any legal or
regulatory proceedings seeking to impose liability or responsibility for any
environmental damages or violations of any environmental laws or regulations,
nor is it aware of any circumstances in which its activities in China or in the
United States have created any basis for any environmental liability or
responsibility for damages.
Government Regulation. The Company is not subject to governmental
regulations other than those that typically apply to businesses importing
foreign manufactured goods into the United States and other countries, such as
customs laws and regulations. The Joint Venture is subject to certain Chinese
laws and regulations governing labor and employment, taxation, insurance,
foreign exchange, and other business matters, but the Company does not regard
these laws and regulations as significantly different in form or effect as
those that apply to the Company generally.
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently leases facilities located in Houston, Texas,
Japan and China, and owns a 35,000 square foot manufacturing facility in
Butler, Kentucky.
The Houston facility is a combination office/warehouse facility of
approximately 40,000 square feet, which the Company uses as its headquarters
and as an assembly center, inventory warehouse, and warranty repair, quality
control, testing and inspection, and distribution center for products imported
and distributed for its own account. The Houston facility is leased from
Daniel Development Corporation, a limited partnership controlled by Mr. Ed
Daniel on a long-term lease expiring in 2002 at a rate of $8,000 per month.
See, "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS," below.
Pursuant to the Articles of Association and Joint Venture Agreement
establishing the Joint Venture, the Joint Venture leases buildings in a
manufacturing complex containing approximately 130,000 square feet pursuant to
a 30-year lease, with lease payments of approximately $20,000 per month. The
existing space is sufficient for the activities currently conducted there, and
the Company may acquire additional space in the complex as it expands its
operations.
The Company believes that its facilities are adequate for its needs in
the foreseeable future. In the event that any of the facilities became
unavailable for use by the Company for any reason, the Company believes that
alternative facilities are available on terms and conditions acceptable to the
Company.
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ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various claims, including product liability
claims, arising in the ordinary course of business and, from time to time, is a
party to various legal proceedings which constitute ordinary routine litigation
incidental to the Company's business. In the opinion of management, all such
matters are either adequately covered by insurance or are not expected to
have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the
Company during the quarter ended June 30, 1997.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on the NASDAQ Small-Cap Market tier
of the NASDAQ Stock Market under the symbol "OUSA".
The following table sets forth in the periods indicated the range of
high and low sales prices per share of the Company's Common Stock traded as
reported by the NASDAQ Stock Market:
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Quarter Ending High Ask Low Ask
09/30/95 3.81 2.13
12/31/95 3.25 1.25
03/31/96 2.00 1.31
06/30/96 3.38 1.06
09/30/96 3.13 1.63
12/31/96 2.15 1.00
03/31/97 1.44 0.88
06/30/97 1.44 0.75
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As of September 16, 1997, the last reported sale of the Company's
Common Stock was $1.75 per share. As of September 16, 1997, there were
approximately 665 holders of record of the Company's Common Stock.
The Company has never paid cash dividends on its Common Stock. As a
result of net losses in prior fiscal years and in 1997, the Company has a
cumulative deficit of $3,372,288 as of June 30, 1997; accordingly, the Company
may be prohibited by legal restrictions on capital from paying cash dividends
for the foreseeable future. While any determination as to the payment of cash
dividends will depend upon the Company's earnings, general financial condition,
capital needs, and other factors, the Company presently intends to retain any
earnings to finance working capital needs and expand its business, and
therefore does not expect to pay cash dividends in the foreseeable future.
Although the Company has never declared dividends on Common Stock,
interest paid in respect of the Company's Equity Contract Notes is classified
as dividends on the Company's financial statements. The Company recorded such
dividends in the amount of $73,464 in both 1997 and 1996.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Liquidity and Capital Resources. Omni's liquidity and capital position
as of June 30, 1997 remained relatively consistent with the prior fiscal year
ended June 30, 1996, as a result of management's desire to improve or at a
minimum maintain liquidity ratios.
Current assets increased $480,477 from the prior year and current
liabilities increased $488,328 as a result of stronger sales for fiscal 1997
and the purchase of BPC. Accounts receivable increased $359,683 to a balance of
$2,060,436 and inventory increased $483,108 or 27% to a balance of $2,243,751
from the year ended June 30, 1996. The increase in current liabilities was due
to an increase in accrued expenses to $941,947 at June 30,1997 from a balance
of $452,724 at June 30, 1996.
The Company utilizes a $2,000,000 working capital facility with an
outstanding balance of $1,677,969 at June 30, 1997. The Company's cash balance
of $279,756 at the end of June 30, 1997, was $214,925 lower than the end of
June 30, 1996, reflecting tighter monetary control and management's goal to
keep the Company's working capital facility balance and related interest costs
to a minimum. Given its current working capital requirements, known
obligations, and assuming current levels of operations, the Company believes
that it has sufficient capital resources to meet its working capital
requirements for the foreseeable future.
Results of Operations
Fiscal year ended June 30, 1997, compared to fiscal year ended June
30, 1996. Omni's revenues increased 39% to approximately $14.5 million,
compared to $10.4 million for fiscal year 1996. Sales increases of $2.1 million
are the result of internal growth and new product development and $2.0 million
resulted from the BPC acquisition. For the year ended June 30 1997, Omni had
operating income of $199,167 compared to a loss of $105,272 for the fiscal year
ended June 30, 1996. Operating income improved as a result of the increase in
sales and the decrease in selling, general and administrative expenses as a
percentage of sales. The Company recorded $332,367 in one-time charges against
current year results, related substantially to: (1) write-off of prepaid
royalties ($86,050); and (2) a services termination agreement between the
Company and its former chairman Edward L. Daniel and his affiliates effective
June 30, 1997 ($246,317). As a result, the Company recorded a consolidated net
loss of $322,339 or $0.21 loss per share for the fiscal year ended June 30,
1997 after $73,464 provision for interest (dividends) on equity contract notes
and $33,434 dividends on preferred stock. For detailed information on the
one-time charges related to Edward L. Daniel. (See, "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS," below).
Net sales increases for the year was driven by stronger demand for the
Company's rotary cutter, tractor powered implement and irrigation geardrives.
Sales of the Company's geardrives represented 80% of total sales while the
towing products made up 20% of total sales. Gross margin decreased 3% when
compared with fiscal 1996, primarily caused by the addition of lower margin
items to the product mix and sales of slow moving inventory at reduced margins.
Management is focusing on improving margins through more aggressive buying and
pricing policies.
Selling, general and administrative expenses increased by $418,811 or
14%, from 1996 to 1997. Selling, general, and administrative expenses
represented 23% of net sales in 1997 compared to 28% of net sales in 1996.
Butler added 50% of the increase in S,G,&A. The Company incurred selling,
general and administrative expenses of $654,590 related to the Shanghai Omni
Gear manufacturing facility.
Interest expense increased to $256,425 in 1997 from $95,382 in 1996,
attributable to additional debt issued for the purchase of BPC and increased
borrowing under the Company's working capital facility.
Fiscal year ended June 30, 1996, compared to fiscal year ended June
30, 1995. The Company recorded a consolidated net loss of $115,113 ($.12 loss
per share after $73,464 provision for interest (dividends) on equity contract
notes and $25,125 in preferred stock dividends) for the fiscal year ended June
30, 1996. The Company incurred selling general and administrative expenses of
$653,242 related to the Shanghai Omni Gear manufacturing facility.
Net sales for the year decreased by $463,925 or 4%. Sales for 1996 and
1995 were $10,386,524 and $10,850,449 respectively, primarily from power
transmissions and towing products. In fiscal 1996, power transmission business
represented 90% of total sales. Differing product mix saw a 2% increase in
gross margin, when compared with fiscal 1995.
8
<PAGE> 10
Selling, general and administrative expenses increased by $232,715 or
9%, from 1995 to 1996. Selling, general, and administrative expenses
represented 28% of net sales in 1996 compared to 25% of net sales in 1995.
Interest expense increased by $76,697 in 1996 compared to 1995,
primarily because of interest paid on the Company's working capital credit
line.
9
<PAGE> 11
ITEM 7. FINANCIAL STATEMENTS
OMNI U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
10
<PAGE> 12
Harper & Pearson Company
One Riverway, Suite 1000
Houston, Texas 77056
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and
Board of Directors of
Omni U.S.A., Inc.
and Subsidiaries
We have audited the accompanying consolidated balance sheets of Omni U.S.A.,
Inc. and Subsidiaries as of June 30, 1997 and 1996, and the related
consolidated statements of operations, changes in stockholders' equity and
cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Omni U.S.A., Inc.
and Subsidiaries at June 30, 1997 and 1996, and the results of their operations
and their cash flows for the years then ended, in conformity with generally
accepted accounting principles.
HARPER & PEARSON COMPANY
Houston, Texas
September 11, 1997
11
<PAGE> 13
OMNI U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS JUNE 30, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
<S> <C>
CURRENT ASSETS
Cash $ 279,756 $ 494,681
Accounts receivable, trade, net 2,060,436 1,700,753
Accounts receivable, related parties 60,654 86,808
Inventories 2,243,751 1,760,643
Tooling advance -0- 120,000
Prepaid expenses 130,457 198,360
Note receivable 66,668 -0-
----------------- -----------------
TOTAL CURRENT ASSETS 4,841,722 4,361,245
----------------- -----------------
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 1,846,332 762,541
----------------- -----------------
OTHER ASSETS
Organizational cost, net 39,615 51,195
Intangible assets, net 318,345 132,600
Note receivable, affiliate -0- 853,397
Prepaid royalties -0- 199,376
Long term deposits 60,599 60,599
----------------- -----------------
TOTAL OTHER ASSETS 418,519 1,297,127
----------------- -----------------
TOTAL ASSETS $ 7,106,573 $ 6,420,913
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 1,562,493 $ 1,746,005
Line of credit 1,677,969 1,505,635
Accrued expenses 941,947 452,724
Current portion of long-term debt 226,151 215,868
----------------- -----------------
TOTAL CURRENT LIABILITIES 4,408,560 3,920,232
----------------- -----------------
LONG-TERM DEBT 753,854 26,230
----------------- -----------------
STOCKHOLDERS' EQUITY
Preferred stock -0- 101
Common stock 17,885 9,020
Equity contract notes -0- 918,304
Additional paid-in capital 5,248,560 4,391,171
Treasury stock (48,641) -0-
Retained deficit (3,371,676) (2,942,176)
Foreign currency translation adjustment 98,031 98,031
----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 1,944,159 2,474,451
----------------- -----------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 7,106,573 $ 6,420,913
================= =================
</TABLE>
12
<PAGE> 14
OMNI U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
NET SALES $ 14,520,252 $ 10,386,524
COST OF SALES 10,955,654 7,545,176
------------ ------------
Gross Profit 3,564,598 2,841,348
------------ ------------
OPERATING EXPENSES
Selling, general and
administrative 3,365,431 2,946,620
------------ ------------
Operating income/(loss) 199,167 (105,272)
------------ ------------
OTHER INCOME (EXPENSE)
Commission income 7,570 15,740
Interest expense (256,425) (95,382)
Other, net (272,651) 69,801
------------ ------------
(521,506) (9,841)
------------ ------------
NET LOSS $ (322,339) $ (115,113)
============ ============
NET LOSS PER COMMON SHARE (0.21) (0.12)
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,061,180 1,759,289
============ ============
</TABLE>
13
<PAGE> 15
OMNI U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
Series A Series B
Preferred Stock Preferred Stock Common Stock
----------------------- ------------------------ -------------------------
Number Number Number
Of Shares Of Shares Of Shares
Outstanding Amount Outstanding Amount Outstanding Amount
----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance -
June 30, 1995 188,600 $ 1,886 10,000 $ 100 1,557,715 $ 7,781
Preferred Share
Conversion (188,600) (1,886) 235,397 1,176
Issuance of Common
Shares 12,638 63
Issuance of Preferred
Shares for Services 120 1
Interest on ECN
Preferred Dividends
Net Loss
-------- ------- ------- ----- --------- -------
Balance -
June 30, 1996 -- $ -- 10,120 $ 101 1,805,750 $ 9,020
-------- ------- ------- ----- --------- -------
Issuance of Common
Shares 195,000 974
Issuance of Preferred
Shares for Services 60
Issuance of Convertible
Debentures
Conversion of Subordinated
Debentures 829,842 4,145
Purchase of Shares (51,000)
Interest on ECN
Preferred Dividends
Net Loss
ECN Conversion (10,180) (101) 750,000
-------- ------- ------- ----- --------- -------
Balance -
June 30, 1997 -- -- -- -- 3,529,592 $17,885
-------- ------- ------- ----- --------- -------
Equity Subordinated Additional Retained Foreign
Contract Convertible Paid-In Treasury Earnings Currency
Notes Debentures Capital Stock (Deficit) Translation Total
----------- ---------- ----------- ------ ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -
June 30, 1995 918,304 $4,327,608 $(2,739,474) $98,031 $98,031
Preferred Share
Conversion 710
Issuance of Common
Shares 37,849 37,912
Issuance of Preferred
Shares for Services 25,004 25,005
Interest on ECN (73,464) (73,464)
Preferred Dividends (25,125) (25,125)
Net Loss (115,113) (115,113)
-------- ------- ---------- -------- ----------- ------- ----------
Balance -
June 30, 1996 918,304 -- $4,391,171 -- $(2,942,176) $98,031 $2,474,451
-------- ------- ---------- -------- ----------- ------- ----------
Issuance of Common
Shares 304,025 304,998
Issuance of Preferred
Shares for Services 50,010 50,010
Issuance of Convertible
Debentures 477,150 477,150
Conversion of Subordinated
Debentures (477,150) 503,355 (263) 30,087
Purchase of Shares (48,641) (48,641)
Interest on ECN (73,464) (73,464)
Preferred Dividends (33,434) (33,434)
Net Loss (322,339) (322,339)
ECN Conversion (918,304) (14,659)
-------- ------- ---------- -------- ----------- ------- ----------
Balance -
June 30, 1997 -- -- $5,248,560 $(48,641) $(3,371,676) $98,031 $1,944,160
-------- ------- ---------- -------- ----------- ------- ----------
14
</TABLE>
See accompanying Notes.
<PAGE> 16
OMNI U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (income) $ (322,339) $ (115,113)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 293,321 219,460
Non cash expenses 115,906 -0-
Changes in operating assets and liabilities:
Accounts receivable (127,692) (1,013,689)
Inventories (98,994) (948,488)
Prepaid expenses and other current assets 80,775 (116,728)
Note receivable 13,332 -0-
Long term deposits -0- (60,559)
Accounts payable and accrued expenses (113,054) 1,384,215
-------------- -------------
Total adjustments 163,594 (535,789)
-------------- -------------
Net cash used by operating activities (158,745) (650,902)
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of subsidiary net of cash acquired (187,120) -0-
Purchase of property and equipment (279,493) (424,591)
Purchase of intangible assets and organizational cost (6,245) (14,410)
-------------- -------------
Net cash used by investing activities (472,858) (439,001)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings On line of credit 14,214,993 6,492,264
Repayments on line of credit (14,042,659) (4,986,629)
Payments on long term debt (184,165) (74,197)
Purchase of treasury stock (48,641) -0-
Proceeds from issuance of convertible debentures 477,150 -0-
-------------- -------------
Net cash provided by financing activities 416,678 1,431,438
-------------- -------------
NET CHANGE IN CASH (214,925) 341,535
CASH AT BEGINNING OF YEAR 494,681 153,146
-------------- -------------
CASH AT END OF YEAR $ 279,756 $ 494,681
============== =============
</TABLE>
15
<PAGE> 17
NOTE 1 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Principles of Consolidation - Omni USA, Inc. (the Company) is
incorporated in the state of Nevada. The Company's consolidated
financial statements include the accounts of the Company and its
wholly-owned subsidiaries Omni USA, Inc. (a Washington Company),
Omni Resources, Ltd. (a Hong Kong Corporation) and Butler Products
Corporation (a Kentucky Corporation). The financial statements of
Omni Resources, Ltd. include the activity of Shanghai Omni Gear
Co., Ltd. located in Shanghai, China. All material inter-company
transactions and balances have been eliminated in consolidation.
Organization and Business - The Company designs, develops,
manufactures and distributes gear boxes and towing and used
primarilyaforragricultural and industrial purposes, to original
equipment manufacturers and distributors worldwide. The Company's
manufacturing and distribution system involves locating qualified
manufacturers of custom products in a foreign country, contracting
with such manufacturer for the manufacture of custom products,
quality control of the products (in the case of manufacturing
subcontractors), and delivery to an ultimate third party customer.
Since 1986, the Company's power transmission products have been
manufactured primarily in China and approximately 70% of the
Company's towing products are manufactured in the United States.
In fiscal 1995, Shanghai Omni Gear was established to begin
manufacturing certain products currently purchased from third
parties. Shanghai Omni Gear began production during the year
ended June 30, 1997.
Effective October 1, 1996, the Company acquired 100% of the common
stock of Butler Products Corp. ("Butler"), located in Butler,
Kentucky for $937,400. Butler is a manufacturer of stabilizer and
landing gear jacks and trailer products sold to manufacturers and
distributors of heavy-duty trailers. The stock was purchased from
the sole shareholders of Butler, who were unaffiliated with the
Company at the time of acquisition. Terms of the transaction
included payments to the shareholders of Butler of $225,000 in
cash, $500,000 in junior subordinated notes due in 2003, and
150,000 shares of common stock of the Company valued at $212,400.
Butler has been engaged in the business of manufacturing jack and
trailer products for over 40 years. The Company intends to
utilize the assets of Butler to continue in that business.
In connection with the Butler acquisition, the Company acquired
trade receivables, inventories and other current assets of about
$730,000, property valued at about $810,000 for financial
statement purposes, and assumed trade payables, accrued expenses
and debt of about $850,000. In connection with the acquisition,
the Company recognized about $250,000 of goodwill, which it is
amortizing over 15 years. The accompanying financial statements
include the operations of Butler for the period October 1, 1996 to
June 30, 1997.
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
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue Recognition - The Company generally recognizes revenue
when goods are shipped from any of its locations to a customer.
16
<PAGE> 18
NOTE 1 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Concentration of Credit Risk - Financial instruments which
potentially subject the Company to concentrations of credit risk
consist principally of trade receivables and cash. The Company
places its cash with high credit quality financial institutions.
Cash in financial institutions located abroad totaled $82,856 and
$76,102 in 1997 and 1996, respectively.
Trade accounts receivable consist of receivables from both
domestic and foreign customers in various industries and
geographic regions worldwide, with more than one half of
consolidated sales being to customers in the Southern and Central
United States. Generally, no collateral or other security is
required to support customer receivables. An allowance for
doubtful accounts is established as needed based upon factors
surrounding the credit risk of specific customers, historical
trends and other information.
Inventories - Inventories are stated at the lower of cost or
market using the weighted average method for inventories on hand
and the specific identification method for inventory in-transit.
The Company records inventory and related obligation at the time
title to the goods passes to the Company based on the specific
terms of the transaction.
Property, Equipment, Depreciation and Amortization - Property and
equipment are stated at cost. Depreciation and amortization are
computed over the estimated useful lives of the assets using the
straight-line method for financial reporting purposes as follows:
<TABLE>
<CAPTION>
Estimated useful
lives (years)
--------------
<S> <C>
Warehouse, manufacturing and office equipment 3 to 10
Leasehold improvements 5 to 10
Tooling costs 5 to 10
</TABLE>
The costs of repairs and maintenance are charged to operations when
incurred. Major renewals or improvements are capitalized. When
properties are sold or retired, the cost and related accumulated
depreciation and amortization are removed from the accounts and any
resulting gain or loss is included in the results of operations.
Intangible Assets - Intangible assets, consisting of purchased
goodwill from Butler Products, historical customer relationships of
Omni Resources, Ltd. and engineering plans and designs, are valued
at cost less accumulated amortization of $399,751 and $328,076 in
1997 and 1996 respectively. Amortization is provided on a
straight-line basis over five to fifteen-year periods.
Organizational Costs - Organizational costs are attributed to
Shanghai Omni Gear capitalized expenditures and are net of
accumulated amortization of $19,300 and $7,720 at June 30, 1997
and 1996, respectively.
17
<PAGE> 19
NOTE 1 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES(CONTINUED)
Foreign Currency Translation - The financial position and results
of operations of the Company's foreign subsidiary are measured
using the subsidiary's functional currency. Receivables and
payables of the subsidiary, denominated in currency other than
their functional currency, are translated at exchange rates in
effect at the balance sheet dates, and related transaction gains or
losses are included in the determination of net income(loss).
Income and expense amounts of the subsidiary are translated at the
average rates of exchange for the periods. Translation adjustments
result from the process of translating foreign currency financial
statements of the subsidiary into U.S. dollars. These translation
adjustments, which are not included in the determination of net
loss, are reported separately as a component of stockholders'
equity.
Loss Per Share - Loss per share is computed using the
weighted-average number of shares of common stock outstanding
during the period. Common stock equivalents were anti-dilutive and
therefore were not included in the computation of primary and fully
diluted loss per share. Loss per share is calculated after a
provision for interest (dividends) on equity contract notes of
$73,464 for both 1997 and 1996, and preferred stock dividends of
$33,434 and $25,125 in 1997 and 1996, respectively.
Fair Value of Financial Instruments - The fair values of financial
instruments approximate their reported carrying amounts at June 30,
1997.
NOTE 2 ACCOUNTS RECEIVABLE
Accounts receivable at June 30 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Accounts receivable - trade $ 2,064,049 $ 1,704,434
Allowance for doubtful accounts (3,613) (3,681)
------------ -----------
$ 2,060,436 $ 1,700,753
============ ===========
</TABLE>
NOTE 3 INVENTORIES
Inventories at June 30 consisted of the following:
<TABLE>
1997 1996
---------- ----------
<S> <C> <C>
Raw Materials $ 239,415 -0-
Work in Process 145,966 -0-
Finished Goods 1,858,370 $ 1,760,643
----------- -----------
$ 2,243,751 $ 1,760,643
</TABLE>
18
<PAGE> 20
Note 4 PROPERTY AND EQUIPMENT
Property and equipment at June 30 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------------ ----------
<S> <C> <C>
Warehouse, manufacturing and
office equipment $ 1,936,485 $ 1,088,317
Land, Buildings & Leasehold improvements 557,060 245,042
Tooling costs 548,527 373,474
------------ -----------
3,042,072 1,706,833
Accumulated depreciation and amortization (1,195,740) (944,292)
------------ -----------
$ 1,846,332 $ 762,541
============ ===========
</TABLE>
NOTE 5 LINE OF CREDIT
The Company has a revolving line of credit with a bank which
includes a term loan of $100,000 and provides December 14, 1998,
bears interest at prime plus 2%, requires the maintenance of
certain levels of income and tangible net worth and is secured by
essentially all of the assets of the Company and the personal
guarantees of certain stockholders and officers of the Company.
NOTE 6 LONG-TERM DEBT
<TABLE>
<S> <C> <C>
Long-term debt at June 30 consisted of the following:
1997 1996
--------- ---------
Note payable to stockholder, due in monthly
installments of $6,453 including interest
at 10% due November 1996 $ 31,146 $ 62,621
Five notes payable to banks/financing companies,
due in monthly installments of $3,778 including
interest ranging from 4.88% to 12%, maturing at
various dates through April 2000 secured by
vehicles 52,746 43,159
Note Payable to equipment manufacturer,
due in monthly installments of $10,018 including
interest at 10% through December 1998 168,930 -0-
</TABLE>
19
<PAGE> 21
NOTE 6 LONG-TERM DEBT (Continued)
<TABLE>
<S> <C> <C>
Butler Products Corporation Industrial Bonds due in
monthly installments of $2,730 including interest
at 5.5% through March 2003 159,203 -0-
Butler Products Corporation Small Business Administration
Loan due in monthly installments of $2,168 including
interest at 9.259% through June 2000 66,367 -0-
Junior Subordinated Notes to Butler Products Corporation
former owners at 8% annual interest with annual principal
payments of $166,667 beginning September 30, 2001
through 2003 500,000 -0-
Note Payable to vendor bearing interest,
at 11% , due on demand -0- 114,030
Capital lease payable to an equipment leasing
company, due in monthly installments of $2,111
including interest at 19% through August 1997,
secured by computer equipment 1,613 22,288
---------- ---------
980,005 242,098
Less current portion 226,151 215,868
---------- ---------
$ 753,854 $ 26,230
========== =========
</TABLE>
Future maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1998 $ 226,151
1999 117,667
2000 54,739
2002 28,896
Thereafter 190,685
361,867
---------
$ 980,005
=========
</TABLE>
20
<PAGE> 22
NOTE 7 CONVERTIBLE DEBENTURES
Omni sold Subordinated Convertible Debentures ("Debentures") in
the amount of $500,000 to an individual ("Holder") in July 1996.
The Debentures had an interest rate of 8% per year, payable
semi-annually in common stock of Omni, at the Company's option and
were due June 30, 1999. The Company recorded the Debentures as
equity in the amount of $477,150, after deducting $22,850 of
costs related to the issuance. The obligations under these
Debentures were subordinate to all senior indebtedness. From July
1996 to June 30, 1997, all Debentures were converted into 829,842
shares of common stock of Omni by the Holder. The number of shares
issued on the conversion of the Debentures, including any
issuances for payment of interest, was calculated based on 75% of
the average closing bid price of the common stock for the five
consecutive trading days preceding the conversion date.
NOTE 8 PREFERRED STOCK
Effective June 30, 1997, the Company and Edward L. Daniel ("Edward
Daniel"), Joan J. Daniel ("Joan Daniel") and certain affiliates
("Affiliates")(collectively, Edward Daniel, Joan Daniel and
Affiliates referred to as "Daniel"), entered into a Mutual Release
and Settlement Agreement (the "Agreement"). (See, Note 15,
"Related Party Transactions," below).
On September 6, 1997, the Company cancelled the Series A Preferred
Stock, the Series B Convertible Preferred Stock and the Series C
Convertible Preferred Stock.
NOTE 9 COMMON STOCK
The Company has authorized 150,000,000 shares of common stock with
a par value of $.004995 per share. At June 30, 1997, the Company
had issued 3,580,592 shares with 3,529,592 shares outstanding and
51,000 treasury shares. At June 30, 1996 1,805,750 shares were
issued and outstanding.
During fiscal 1997, the Company issued 150,000 shares of
restricted common stock related to the purchase of Butler Products
Corporation, 45,000 shares of restricted common stock in lieu of
legal fees, 829,842 shares on the conversion of subordinated
debentures and 375,000 shares each to Edward L. Daniel and Joan
J. Daniel pursuant to the Agreement. (See, Note 15, "Related
Party Transactions" below).
The Company purchased 51,000 of its common shares on the open
market for $48,641 (average of $.95 per share) from November, 1996
through June 30, 1997 pursuant to a repurchase program announced
in November 1996 which authorized the repurchase of up to 100,000
common shares.
NOTE 10 EQUITY CONTRACT NOTES
Under the Agreement, the Company offset its obligation under the
Equity Contract Notes against all receivables due from Daniel,
including the DDC Receivable and LaPlante Receivable. Pursuant to
the terms of the ECN, the Company accrued interest in the
aggregate amount of $73,464 in both fiscal 1997 and fiscal 1996,
and treated all ECN interest as dividends. (See, Note 15, "Related
Party Transactions," below).
21
<PAGE> 23
NOTE 11 WARRANTS TO PURCHASE COMMON STOCK
Under the Agreement, Edward L. Daniel and Joan J. Daniel
transferred to the Company 656,101 Class A Warrants and 656,101
Class B Warrants. (See, Note 15, "Related Party Transactions,"
below).
Subsequent to the transfer, the Company has Class A and Class B
Warrants which entitle the holder to purchase shares of common
stock as follows: Number of
<TABLE>
<CAPTION>
Per Share Warrants
Expiration Date Price Issued
--------------- ----- ------
<S> <C> <C> <C>
Class A March 15, 1999 $ 4.00 946,565
Class B March 15, 2001 $ 6.00 706,372
</TABLE>
NOTE 12 STOCK OPTION PLANS
The Company maintains a Non-Qualified Stock Option Plan (the
"NQSOP") and a 1996 Incentive Stock Option Plan (the "1996 ISOP").
The NQSOP covers 600,000 shares of Common Stock and the 1996 ISOP
covers 900,000 shares of Common Stock. The purpose of the NQSOP
and 1996 ISOP is to offer eligible employees of the Company and
its subsidiaries an opportunity to acquire or increase their
proprietary interests in the Company and provide additional
incentive to contribute to its performance and growth.
On June 6, 1997, the Board, upon recommendation from the
Compensation Committee, repriced all options previously granted
and existing to current Company employees under the 1996 ISOP and
NQSOP from $4.00 per share to $1.00 per share. The repriced
options vest 50% on June 6, 1997 and 50% on June 6, 1998.
The repricing reflected in the table below was implemented in 1997
on the recommendation of the Compensation Committee in place at
that time to conform the options to prevailing market prices and
provide an incentive for which the options were designed.
The Board of Directors has reserved 1,500,000 shares under the
Plans.
<TABLE>
<CAPTION>
Total $4.00 $1.00
Stock Option Summary: Number Priced Priced
Of Shares Options Options
---------- ---------- -------
<S> <C> <C> <C>
Options outstanding at July 1, 1996 740,000 740,000 -0-
Options granted 450,000 450,000 -0-
Options canceled (90,000) (90,000) -0-
Options Repriced -0- (1,030,000) 1,030,000
--------- ----------- ---------
Options outstanding at June 30, 1997 1,100,000 70,000 1,030,000
Exercisable at June 30, 1997 130,000 70,000 60,000
Exercisable at June 30, 1996 505,000 505,000 -0-
Available for future grant at June 30, 1997 400,000 -0- 400,000
Available for future grant at June 30, 1996 760,000 760,000 -0-
</TABLE>
22
<PAGE> 24
NOTE 13 INCOME TAXES
For the years ended June 30, 1997 and 1996, the Company utilized
net operating loss carry-forwards amounting to approximately
$554,000 and 589,000 to decrease income tax expense by $188,000 and
$200,000 respectively.
At June 30, 1997, the Company has net operating loss carry-forwards
amounting to $1,332,000 tax basis. Tax basis net operating losses
may be offset against future taxable income through 2008 as
follows:
<TABLE>
<S> <C>
2007 $ 472,000
2008 860,000
----------
$1,332,000
==========
</TABLE>
No tax benefit has been reported in the accompanying financial
statements, however, because the Company believes there is at
least a 50% chance that the carry-forwards will expire unused.
Accordingly, the tax benefit of the loss carry-forwards has been
offset by a valuation allowance of the same amount.
Deferred income taxes result from timing differences in reporting
income and expenses for financial statement and income tax
purposes. The primary sources of deferred income taxes result
from: (1) the use of different methods of depreciation for income
tax and financial statement purposes, (2) the uniform
capitalization of inventory for income tax purposes, and (3)
direct write-off of bad debts for income tax purposes.
The components of the Company's deferred tax assets and
liabilities at June 30 are as follows:
<TABLE>
<CAPTION>
1997 1996
------ -------
<S> <C> <C>
Current deferred tax assets:
Accounts receivable $ 1,228 $ 1,252
Inventory 3,359 3,419
Related party payables 81,600 -0-
Net operating loss carry-forwards 452,449 631,380
-------- --------
Deferred tax assets 538,636 636,051
-------- --------
Non-current deferred tax, asset:
Depreciation (19,064) (3450)
Net deferred income tax assets 519,572 632,601
Valuation allowance (519,572) (632,601)
-------- --------
Net deferred income taxes $ -0- $ -0-
======== ========
</TABLE>
The valuation allowance has decreased $113,029 and $194,550 in
1997 and 1996, respectively due to utilization of net operating
loss carry forwards to offset current taxable income.
23
<PAGE> 25
NOTE 13 INCOME TAXES (Continued)
The Company has not provided for income taxes on the undistributed
earnings of its foreign subsidiaries because it intends to
reinvest these earnings in the continuing operations of these
subsidiaries. The cumulative amount of undistributed losses of
its foreign subsidiaries is approximately $858,404 at June 30,
1997.
The difference between the effective rate of income tax expense at
June 30, 1996 and 1995 and the amounts which would be determined
by applying the statutory U.S. income tax rate of 34% to income
before income tax expense are explained below according to the tax
implications of various items of income or expense.
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Provision for income tax/(benefit) expense at
U.S. statutory rates $(109,595) $(39,138)
Increase (decrease) in tax provision
resulting from:
Non-deductible losses on foreign
subsidiaries 242,366 257,004
Non-deductible entertainment expense 3,247 1,663
Non-deductible officers' life insurance
expense 1,989 -0-
Equity contract note interest (24,978) (24,978)
Change in valuation reserve (113,029) (194,551)
---------- ---------
Income tax expense $ -0- $ -0-
========== =========
</TABLE>
NOTE 14 COMMITMENTS AND CONTINGENCIES
Operating Leases - The Company leases equipment and office,
warehouse and manufacturing space in Houston, Shanghai and Japan.
The Houston warehouse and office lease is with DDC. The Houston
lease is $8,000 per month through 2002. The Shanghai lease began
in 1996 and has a thirty-year term at approximately $20,000 per
month. At June 30, 1997, the future minimum rental payments
required under the leases were approximately:
<TABLE>
<S> <C>
1998 $ 353,762
1999 363,992
2000 363,992
2001 357,451
2002 350,910
Thereafter 8,652,165
-----------
Total $10,442,272
===========
</TABLE>
Rent expense was approximately $293,000 and $286,000 during the
years ended June 30, 1997 and 1996, respectively.
24
<PAGE> 26
NOTE 14 COMMITMENTS AND CONTINGENCIES (Continued)
Insurance Coverage - The Company has been self-insured against
product liability and completed operations since January 1, 1993.
This development, while not unique to the Company or its industry,
may subject the Company to some future liability. The Company
maintained in face and effect, product liability and completed
operations insurance held by BPC at the time of acquisition. The
Company maintains directors' and officers' insurance coverage.
Shanghai Omni Gear Co., Ltd. (Shanghai Omni Gear) - During fiscal
year 1995, Omni Resources entered into an agreement with a
Chinese company for the operation of a manufacturing facility
in Shanghai, China. The agreement calls for an aggregate
investment by Omni Resources of $2,625,000 in cash, equipment and
inventory. Substantially all profits or losses will be allocated to
Omni Resources. The land and facilities are leased from the
Chinese company for thirty years and are included in the operating
lease commitments elsewhere in this footnote. Omni Gear has the
option to purchase the assets subject to this lease for
approximately $1.8 million.
As of June 30, 1997, Omni Resources and Omni USA have advanced
Shanghai Omni Gear approximately $2,825,000. These advances are
reflected in the accompanying financial statements as follows:
<TABLE>
<S> <C>
Cash $ 60,000
Accounts receivable 89,000
Inventory 558,000
Prepaid expenses 47, 000
Property and equipment 892,000
Intangible assets and organizational costs 63,000
Long term deposit 61,000
Accounts payable/Accrued expense (411,000)
Selling, general and administrative expense 655,000
Beginning retained deficit 811,000
----------
Total $2,825,000
==========
</TABLE>
Tooling Advance - At June 30, 1996, Omni Resources had paid
$120,000 for tooling costs under an agreement with a vendor.
During 1997 this amount was offset against accounts payable and
will be recovered from the vendor through discounts on future
purchases of inventory.
Employment - Fifteen percent of the Company's employees,
(specifically, twenty-two of twenty-eight Butler employees) are
unionized and are covered by a collective bargaining agreement.
Employee Benefits - The Company maintains a 401(k) plan, which
covers substantially all employees. Contributions by the Company
are discretionary. No contributions were made by the Company
during the years ended June 30, 1997 and 1996.
25
<PAGE> 27
NOTE 15 RELATED PARTY TRANSACTIONS
The Company and Edward L. Daniel, former Chairman of the Board and
principal shareholder of the Company, have the following
arrangements: (i) lease of the Houston facility from Daniel
Development Corporation ("DDC"), a Washington partnership
controlled by Edward L. and Joan J. Daniel in the amount $8,000
monthly; and (ii) the Company pays Edward L. Daniel and Joan J.
Daniel $20,000 per month, through July 31, 1998, in consideration
of terminating all previous agreements to provide services to the
Company.
Under the terms of the Agreement, (1) the Company was released from
any obligation under the Equity Contract Notes ("ECN") in the
principle amount of $918,304, together with accrued interest in the
amount of $222,516; (2) Edward Daniel and Joan Daniel transferred
to the Company all 10,180 Series B Convertible Preferred shares
held by them; (3) Edward Daniel and Joan Daniel released the
Company from any accrued dividends under the Series B Convertible
Preferred shares; (4) Edward Daniel and Joan Daniel transferred all
warrant holdings consisting of 656,101 Class A Warrants and 656,101
Class B Warrants held by them; and (5) the Company was released
from its obligation under previous consulting agreements which
provided for the payment of consulting fees through December 1999
in the amount of $20,000 per month.
Upon execution of the Agreement, the Company (a) paid Edward Daniel
and Joan Daniel $35,000; (b) released a note receivable from an
affiliate of Edward Daniel, Daniel Development Corporation (the
"DDC Receivable") in the principle amount of $853,397, together
with accrued interest thereon in the amount of $208,310; (c)
cancelled an account receivable in the amount of $63,199 from
LaPlante Compressor Company ("LaPlante"), an affiliate of Edward
Daniel; and (d) in exchange for the release of the ECN and the
transfer of all Preferred Stock, all of which had rights to convert
into Common Stock, the Company issued each Edward Daniel and Joan
Daniel 375,000 shares of Common Stock, which shares cannot be voted
by them or their affiliates until August 1999. The Company granted
Edward Daniel and Joan Daniel demand registration and piggyback
rights through 2001 subject to certain conditions and limitations
set forth in the Registration Rights Agreement executed in
connection with the Agreement.
Pursuant to the terms of the ECN, the Company accrued interest in
the aggregate amount of $73,464 in both fiscal 1997 and fiscal
1996, and treated all ECN interest as dividends. The Company paid
Edward Daniel consulting fees equal to $132,274 in fiscal 1997 and
$81,598 in fiscal 1996.
The Company offset its obligation under the ECN against all
receivables due from Daniel, including the DDC Receivable and
LaPlante Receivable. In addition, the Company accrued in the fiscal
year ended June 30, 1997, all amounts due under the Agreement,
including payments due Edward Daniel through August 1998. As a
result of the offset and accrual, the Company expensed $246,317 for
the fiscal year ended June 30, 1997. No amount or charges related
to the Agreement or Daniel will be recorded after June 30, 1997.
As a result of the Agreement, Edward Daniel and Joan Daniel own
1,054,136 shares of Company Common Stock (including 750,000 shares
of Common Stock delivered under the Agreement).
Lease of Real Property. The Company leases its Houston
facility from Daniel Development Corporation ("DDC"), a Washington
partnership controlled by Edward L. Daniel and Joan J. Daniel. The
lease was amended pursuant to the Agreement to provide for a
five-year term at $8,000 per month; provided, however, that the
lease may be terminated by DDC upon six months notice. The Company
made aggregate lease payments to DDC of $90,000 in 1997 and
$120,000 in 1996.
26
<PAGE> 28
NOTE 16 SEGMENT INFORMATION
The Company and its subsidiaries are engaged in the business of
designing, developing and distributing power transmissions and
towing and trailer products used for agricultural, industrial and
other purposes. Selected financial information by business segment
with respect to these activities for the years ended are as
follows:
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Net Sales
Omni USA, Inc. (Domestic) $ 11,773,528 $ 9,039,007
Butler Products, Inc. 2,044,028 -0-
Omni USA, Inc. (Foreign) 702,696 1,347,517
------------ ------------
Total Net Sales $ 14,520,252 $ 10,386,524
============ ============
Operating Income (Loss)
Omni USA, Inc. (Domestic) $ 583,789 $ 670,303
Butler Products, Inc. 335,317 -0-
Omni USA, Inc.(Foreign) (719,939) (775,575)
------------ ------------
Total Operating Income (Loss) $ 199,167 $ (105,272)
============ ============
Net Income/(Loss)
Omni USA, Inc. (Domestic)
$ 67,828 $ 640,780
Butler Products, Inc. 322,063 -0-
Omni USA, Inc.(Foreign) (712,230) (755,893)
------------ ------------
Total Loss $ (322,339) $ (115,113)
============ ============
Assets
Omni USA, Inc. (Domestic) $ 3,611,961 $ 4,956,691
Butler Products, Inc. 1,584,459 -0-
Omni USA, Inc.(Foreign) 1,910,153 1,464,222
------------ ------------
Total Assets $ 7,106,573 $ 6,420,913
============ ============
</TABLE>
NOTE 17 MAJOR CUSTOMERS AND SUPPLIERS
During fiscal year 1997 and 1996, the Company and its subsidiaries
had consolidated sales of $4,080,000 and $3,445,000 to two domestic
customers for a total of 28% and 33% of consolidated sales,
respectively.
Approximately 71% and 89% of the Company's products were purchased
from two companies in China in 1997 and 1996, respectively.
27
<PAGE> 29
27
NOTE 18 SUPPLEMENTAL CASH FLOW INFORMATION
During 1997 the Company recorded the following non-cash investing
and financing activities:
Plant and equipment acquired for $244,720 in exchange for
notes payable
$120,000 tooling advance offset against trade accounts payable
$85,346 net write-off of prepaid royalties of $199,376 and
related note payable of $114,030 to other expense
$50,010 of series A preferred stock issued in lieu of
consulting services
$92,373 of common stock issued in lieu of trade payables
$80,000 issued in exchange for trade receivable
Eliminated various related party receivables and payables in
exchange for preferred stock and warrants (See Note 15.)
Cash paid for interest during 1997 and 1996 amounted to
approximately $256,000 and $95,000, respectively.
During 1996, the Company acquired equipment amounting to $101,489
in exchange for notes payable and retired $71,505 of assets which
were fully depreciated.
NOTE 19 PROFORMA FINANCIALS (Unaudited)
The following pro-forma information projects financial results as
if Butler Products Corporation had been acquired at July 1, 1995.
<TABLE>
<CAPTION>
PROFORMA PROFORMA
1997 1996
<S> <C> <C>
Sales $ 15,164,273.00 $13,076,708.00
Cost of Sales (11,538,582.00) (9,800,859.00)
SG&A (3,487,192.00) (3,271,719.00)
Other (537,910.00) (65,360.00)
--------------- --------------
Net $ (399,411.00) $ (61,230.00)
=============== ==============
Weighted Average
Shares 2,061,180.00 1,759,289.00
Loss Per Share $ (0.24) $ (0.08)
</TABLE>
28
<PAGE> 30
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF EXCHANGE ACT
The directors, executive officers, promoters and control persons of
the Company are set forth below. All directors hold office for a term of one
year or until their successors are duly elected and qualified. Each executive
officer of the Company is appointed by the Board of Directors at each annual
meeting and serves until a successor is duly elected and qualified.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Jeffrey K. Daniel 36 President, Chief Executive Officer and Director
Craig L. Daniel 37 Vice President-Manufacturing and Director
Michael A. Zahorik 34 Executive Vice President, General Counsel and
Secretary
James L. Davis 49 Director
John F. Lillicrop 62 Director
- -------------------
</TABLE>
Jeffrey K. Daniel has been an employee of Omni since 1985 and is currently the
Chief Executive Officer and President of the Company. He has a Bachelors
degree in business administration from the University of Colorado. He was Vice
President from 1987 until May 1994, when he was elected Chief Executive Officer
and President. Jeffrey K. Daniel is the brother of Craig L. Daniel. Jeffrey K.
Daniel has served as a director of the Company since January 1988.
Craig L. Daniel has been a full time employee of Omni since April, 1989, and is
currently Vice President-Manufacturing. Craig L. Daniel is the brother of
Jeffrey K. Daniel. Craig L. Daniel has served as a director of the Company
since December 1993.
Michael A. Zahorik joined the Company as its General Counsel in November 1994.
In June 1995, Mr. Zahorik became Vice President of the Company, and in July
1996, became Executive Vice President and Secretary of the Company. Mr.
Zahorik has a Bachelors Degree from the University of Colorado and a Juris
Doctorate from the University of Denver. Prior to his employment with the
Company, Mr. Zahorik was senior litigation and corporate counsel for McGeady
Sisneros & Wollins, P.C., in Denver, Colorado. Mr. Zahorik is admitted to
practice law in Colorado, Texas, and other Federal districts and circuits.
James L. Davis provides financial advice to mid-sized companies through
Waterford Capital, Inc., a financial services firm he has owned since 1988.
Before founding Waterford Capital, Inc., Mr. Davis was a partner at the
accounting firm of Deloitte & Touche. From September 1991 through December
1995, Mr. Davis was a director of Entourage International, Inc., a skin care
products company. Mr. Davis has a Bachelor of Business Administration degree
from Texas Tech University and is a Certified Public Accountant. Mr. Davis has
served as a director of the Company since December 1996.
John F. Lillicrop is President and Chief Executive Officer of OECO Corporation
("OECO"), a defense and aerospace electronics manufacturer in Portland, Oregon.
From April 1994 through March 1996, Mr. Lillicrop was Senior Vice President of
investment banking at Black and Company, Inc. in Portland, Oregon. From
December 1990 through April 1994, Mr. Lillicrop was Chairman of Springtime,
Inc. I, a wholesale grower of nursery products in Hillsboro, Oregon. Mr.
Lillicrop is a director of OECO, its subsidiary, Hibbing Electronics
Corporation, Black and Company, Inc., Tycom Corporation, and Springtime, Inc.
I. Mr. Lillicrop is a graduate of the University of Colorado and received his
EMBA from the Peter Drucker Graduate Management Center of the Claremont
Graduate School. Mr. Lillicrop has served as a director of the Company since
December 1996.
29
<PAGE> 31
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding
compensation paid to the Company's executive officers in each of the three most
recent fiscal years:
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
--------------------------------- ----------------------------------
Awards Payouts
------------------------ -------
Restricted Securities
Name and Other Annual Stock Underlying LTIP All Other
Position Year Salary Bonus Compensation Awards Options/ SARs Payouts Compensation
- -------- ---- ------ ----- ------------ ------ ------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jeffrey K. Daniel
President & CEO 1995 63,665 --- --- --- --- --- ---
1996 76,500 --- --- --- 160,000* --- ---
1997 76,500 --- --- --- 136,000** --- ---
Craig L. Daniel
Vice President- 1995 76,500 --- --- --- --- --- ---
Manufacturing 1996 76,500 --- --- --- 160,000* --- ---
1997 76,500 --- --- --- 136,000** --- ---
Michael A. Zahorik
Executive Vice
President & 1995 --- --- --- --- --- --- ---
Gen. Counsel 1996 --- --- --- --- 70,000* --- ---
1997 68,500 --- --- --- 68,000** --- ---
</TABLE>
No other current executive officer's annual salary or bonus exceeded $100,000
for any of the three most recent fiscal years ended June 30, 1997.
- ------------------
* On January 31, 1996, under the 1996 ISOP, Jeffrey K. Daniel and Craig L.
Daniel were granted options to purchase 160,000 shares of Common Stock and
Michael A. Zahorik was granted options to purchase 70,000 shares of Common
Stock. These grants were at an exercise price of $4.00 and were immediately
vested. On June 6, 1997, under the 1996 ISOP, the option price on these grants
was reduced to $1.00 and the vesting schedule for these grants was changed to
vest 50% in twelve (12) months and 50% in twenty-four (24) months. See "STOCK
OPTION PLANS" below.
** On June 6, 1997, under the 1996 ISOP, Jeffrey K. Daniel and Craig L. Daniel
were granted additional options to purchase 136,000 shares of Common Stock and
Michael A. Zahorik was granted additional options to purchase 68,000 shares of
Common Stock. These grants are at an exercise price of $1.00 and vest 100% three
(3) years from date of grant. See "STOCK OPTION PLANS" below.
None of the executive officers are employed by the Company pursuant to
any employment contract or other agreement, and there are no arrangements or
understandings for the payment of bonuses or other payments upon a change of
contract, termination of employment, or otherwise.
30
<PAGE> 32
STOCK OPTION PLANS AND STOCK OPTIONS
The Company maintains a Non-Qualified Stock Option Plan (the "NQSOP")
and a 1996 Incentive Stock Option Plan (the "1996 ISOP"). The NQSOP covers
600,000 shares of Common Stock and the 1996 ISOP covers 900,000 shares of
Common Stock. The purpose of the NQSOP and 1996 ISOP is to offer eligible
employees of the Company and its subsidiaries an opportunity to acquire or
increase their proprietary interests in the Company and provide additional
incentive to contribute to its performance and growth.
On June 6, 1997, the Board, upon recommendation from the Compensation
Committee, repriced all options granted and existing to current Company
employees under the 1996 ISOP and NQSOP from $4.00 per share to $1.00 per
share. The repriced options vest 50% twelve (12) months from date of grant and
50% twenty-four (24) months from date of grant.
In addition, the Board, upon recommendation of the Compensation
Committee, granted options to purchase 136,000 shares of Common Stock at $1.00
per share to each Jeffrey K. Daniel and Craig L Daniel, and granted options to
purchase 68,000 shares of Common Stock at $1.00 per share to Michael A.
Zahorik, all such options to vest three years from date of grant. On June 6,
1997, the Board granted options to purchase 30,000 shares of Common Stock at
$1.00 per share to each outside director James L. Davis and John F. Lillicrop.
Messrs. Davis and Lillicrop's options were immediately vested.
The following table provides repricing information for options held by
any of the Company's five most highly compensated executive officers. The
repricing reflected in the table was implemented in 1997 on the recommendation
of the Compensation Committee in place at that time to conform the options to
prevailing market prices and provide an incentive for which the options were
designed.
TEN-YEAR OPTIONS/SAR REPRICINGS
<TABLE>
<CAPTION>
Number of Length
Securities Market Exercise of Original
Underlying Price of Stock Price of Stock Option Term
Options/SARs at Time of at Time of New Remaining at
Repriced or Repricing or Repricing or Exercise Date of
Name Date Amended Amendment Amendment Price Repricing
- ---- ---- ----------- -------------- -------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey K. Daniel 6/6/97 160,000 $0.75 $4.00 $1.00 9 years
Craig L. Daniel 6/6/97 160,000 $0.75 $4.00 $1.00 9 years
Michael A. Zahorik 6/6/97 70,000 $0.75 $4.00 $1.00 9 years
</TABLE>
31
<PAGE> 33
Under the 1996 ISOP, options for 900,000 shares had been granted as of
June 6, 1997. As of that date, the market value of Common Stock subject to the
1996 ISOP was below the option exercise price of $1.00 per share. The following
table shows how the 1996 ISOP options are distributed to groups within the
Company:
<TABLE>
<CAPTION>
1996 Incentive Stock Option Plan
--------------------------------------------------
Name and Position Dollar Value (a) Number of Shares
----------------- ---------------- ----------------
<S> <C> <C>
Jeffrey K. Daniel $ -0- 296,000
President and Chief Executive
Officer
Craig L. Daniel $ -0- 296,000
Vice President-Manufacturing
Michael A. Zahorik $ -0- 138,000
Executive Vice President, General
Counsel and Secretary
Executive Officer Group $ -0- 730,000
Non-Executive Officer Employee Group $ -0- 170,000
-------
Total 900,000
</TABLE>
(a) States dollar value of options in effect during fiscal year 1997; such
options would have had no value since the price of Omni's Common Stock did not
exceed the option price of $1.00 per share as of the date of grant. There were
no exercises on options during the last fiscal year.
32
<PAGE> 34
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR
VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised in-the-money Options/
Shares Acquired Value Options/SARs at FY-End (1) SARs at FY-End (2)
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ----------- -------- -------------------------- -------------------------
<S> <C> <C> <C> <C>
Jeffrey K. Daniel
President & CEO NA NA 296,000 3,700
------- -----
0/296,000 -0-/3,700
Craig L. Daniel
Vice President-
Manufacturing NA NA 296,000 3,700
------- -----
0/296,000 -0-/3,700
Michael A. Zahorik
Exec. Vice President &
General Counsel NA NA 138,000 1,725
------- -----
0/138,000 -0-/1,725
</TABLE>
- ---------------------
NA Not applicable; No options were exercised during the fiscal year ended June
30, 1997.
(1) Indicates number of options exercisable and unexercisable during the
fiscal year.
(2) Based upon closing price of Common stock at June 30, 1997 of $1.125.
OTHER COMPENSATION
The Company has paid no bonuses to its executive officers. The
Company has a group medical plan which provides medical and hospital benefits
and term life insurance to its employees, including its officers, at no cost to
the employee. Jeffrey K. Daniel and Craig L. Daniel are not compensated as
directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
CAPITALIZATION
The Company's currently authorized equity securities are as follows:
(i) 150,000,000 shares of Common Stock, par value $.004995 per share, (ii)
2,312,773 Class A Common Stock Purchase Warrants ("Class A Warrants"); and
(iii) 1,362,773 Class B Common Stock Purchase Warrants ("Class B Warrants"). As
of September 16, 1997, the Company had outstanding 3,525,092 shares of Common
Stock, and has issued Class A Warrants to purchase 946,565 shares of Common
Stock and Class B Warrants to purchase 706,372 shares of Common Stock.
On or about September 6, 1997, the Company cancelled the Series A
Preferred Stock, the Series B Convertible Preferred Stock and the Series C
Convertible Preferred Stock.
Class A and B Warrants. There are 946,565 Class A Warrants and
706,372 Class B Warrants to purchase Common Stock. The Class A Warrants may be
exercised by the holder thereof at any time between 90 days after issuance and
March 15, 1999, at $4.00 per share, and the Class B Warrants may be exercised
at any time between 90 days after issuance and March 15, 2001, at $6.00 per
share.
Equity Contract Notes. Effective June 30, 1997, pursuant to the
Agreement, the Company was released from any future obligation under the Equity
Contract Notes. (For a complete description of the treatment of the Equity
Contract Notes, see, "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS," below).
33
<PAGE> 35
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of the close of business on September
16, 1997, by each person who is known to the Company to be a beneficial owner
of 5% or more of the Common Stock, by each current and Nominee director, and by
all directors and executive officers as a group.
<TABLE>
<CAPTION>
Amount and Nature
Of Beneficial
Name and Address of Beneficial Owner Ownership Percent of Class(1)
- ------------------------------------ --------- -------------------
<S> <C> <C>
Edward L. and Joan J. Daniel (3)(5) . . . . . . . . . . . . . . . . . . 1,054,136 29.9%
Jeffrey K. Daniel (2)(7) . . . . . . . . . . . . . . . . . . . . . . . . 37,866 1.1%
Craig L. Daniel (2)(8) . . . . . . . . . . . . . . . . . . . . . . . . . 48,666 1.4%
Michael A. Zahorik (2)(9) . . . . . . . . . . . . . . . . . . . . . . . . 27,800 *
Websters Publishing, Ltd. (4) . . . . . . . . . . . . . . . . . . . . . . 735,018 18.3%
James L. Davis (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000 2.2%
John F. Lillicrop (10) . . . . . . . . . . . . . . . . . . . . . . . . . 35,000 1.0%
Executive Officers and Directors as a Group . . . . . . . . . . . . . . . 229,332 6.3%
* less than 1% of the total number of shares outstanding
- ----------------------------------
</TABLE>
(1) Based upon 3,525,092 shares of Common Stock outstanding as of
September 16, 1997.
(2) The address for all officers is 7502 Mesa Road, Houston, Texas 77028.
(3) Includes 375,000 shares of Common Stock issued to Edward Daniel and
375,000 shares of Common Stock issued to Joan Daniel under the
Agreement which shares cannot be voted by them until August 1999.
(4) Includes 245,006 shares purchasable under A Warrants exercisable
within 60 days at $4.00 per share and 245,006 shares purchasable under
B Warrants exercisable within 60 days at $6.00 per share. The address
of such beneficial owner is Caroline Center, 10th Floor, 28 Yun Ping
Road, Causeway Bay, Hong Kong.
(5) The address for such beneficial owner is 2476 Bolsover, #626, Houston,
Texas 77005.
(6) Includes 50,000 shares purchasable under A Warrants exercisable
within 60 days at $4.00 per share and 30,000 shares purchasable under
options exercisable within 60 days at $1.00 per share. The address of
such beneficial owner is One Park Ten Place, Suite 340, Houston, Texas
77084.
(7) Includes 3,763 shares held in street name and 770 shares held of
record by the Jeffrey K. Daniel Individual Retirement Account, a
self-directed IRA.
(8) Includes 6,800 shares held of record by the Craig L. Daniel Individual
Retirement Account, a self-directed IRA.
(9) Includes 18,300 shares held of record by the Michael A. Zahorik
Individual Retirement Account, a self-directed IRA.
(10) Includes 30,000 shares purchasable under options exercisable within 60
days at $1.00 per share. Owned jointly with Stella J. Lillicrop. The
address of such beneficial owners is 1220 Skyland Drive, Lake Oswego,
Oregon 97034.
34
<PAGE> 36
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
EDWARD L DANIEL AND AFFILIATES
The Company and Edward L. Daniel, former Chairman of the Board and
principal shareholder of the Company, have the following arrangements: (i)
lease of the Houston facility from Daniel Development Corporation ("DDC"), a
Washington partnership controlled by Edward L. and Joan J. Daniel in the amount
$8,000 monthly; and (ii) the Company pays Edward L. and Joan J. Daniel $20,000
per month, through August, 1998, in consideration of terminating all previous
agreements to provide services to the Company.
From time to time, the Company has been a party to various
transactions with Edward L. Daniel ("Edward Daniel"), Joan J. Daniel ("Joan
Daniel") and certain affiliates ("Affiliates")(collectively, Edward Daniel,
Joan Daniel and Affiliates will be referred to as "Daniel"). The Company and
Daniel have had a series of disputes regarding the validity of certain
agreements between the parties. As a result of such disputes, the Company and
Daniel have entered into a Mutual Release and Settlement Agreement, effective
June 30, 1997 (the "Agreement") which supersedes and replaces all prior
negotiations, statements and agreements of the parties.
The Agreement has the effect of simplifying the Company's capital
structure, resolving outstanding contractual disputes and reducing Company
costs in the future. Under the terms of the Agreement, (1) the Company was
released from any obligation under the Equity Contract Notes ("ECN") in the
principle amount of $918,304, together with accrued interest in the amount of
$222,516; (2) Daniel transferred to the Company all 10,180 Preferred B shares;
(3) Daniel released the Company from any accrued dividends under the Preferred
B shares; (4) Daniel transferred all warrant holdings consisting of 656,101 A
Warrants and 656,101 B Warrants; and (5) released the Company from any
obligation to pay $20,000 per month in consulting fees through December 1999.
Upon execution of the Agreement, the Company (a) paid Edward Daniel
and Joan Daniel $35,000; (b) released a note receivable from an affiliate of
Edward Daniel, Daniel Development Corporation (the "DDC Receivable") in the
principle amount of $853,397, together with accrued interest thereon in the
amount of $208,310; (c) cancelled an account receivable in the amount of
$63,199 from LaPlante Compressor Company ("LaPlante"), an affiliate of Edward
Daniel; and (d) issued Edward Daniel and Joan Daniel 750,000 shares of Common
Stock, which shares cannot be voted by Daniel until August 1999. The Company
granted Edward Daniel and Joan Daniel demand registration and piggyback rights
through 2001 subject to certain conditions and limitations set forth in the
Registration Rights Agreement executed in connection with the Agreement. Under
the Agreement, the Company will pay Daniel $20,000 per month for twelve months
through August 1998.
Pursuant to the terms of the ECN, the Company paid interest in the
aggregate amount of $73,464 in fiscal 1996 and $73,464 in fiscal 1997. The
Company also paid Edward Daniel consulting fees equal to $81,598 in fiscal 1996
and $132,274 in fiscal 1997.
The Company recorded as an expense for the fiscal year ended June 30,
1997, all amounts due under the Agreement and offset the DDC Receivable against
the forgiveness of the ECN. No amounts or charges related to the Agreement or
Edward Daniel will be recorded after June 30, 1997.
As a result of the Agreement, Edward Daniel and Joan Daniel own
1,054,136 shares of Company Common Stock (including 750,000 shares of Common
Stock delivered under the Agreement). Subsequent to the execution of the
Agreement, on or about September 6, 1997, the Company cancelled the Series A
Preferred Stock, the Series B Convertible Preferred Stock and the Series C
Convertible Preferred Stock.
Lease of Real Property. The Company leases its Houston facility from
Daniel Development Corporation ("DDC"), a Washington partnership controlled by
Edward L. Daniel and Joan J. Daniel. The lease was amended pursuant to the
Agreement to provide for a five-year term at $8,000 per month; provided,
however, that the lease may be terminated by DDC upon six months notice. The
Company made aggregate lease payments to DDC of $90,000 in 1997 and $120,000 in
1996.
35
<PAGE> 37
ESTATE OF MRS. JANE DANIEL
In November 1993, The Company borrowed $200,000 from Mrs. Jane Daniel
(now deceased), Edward Daniel's mother and a shareholder. The loan is an
unsecured note that was due November 1996. A balance of $31,145 remains on the
note as of June 30, 1997.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
On October 18, 1996, the Company filed Form 8-K, announcing the
acquisition of Butler Products Corporation. On December 11, 1996, the Company
filed an Amended Form 8-K, filing the required historical and pro forma
financial information related to the acquisition of Butler Products
Corporation.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934, THE COMPANY HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
OMNI U.S.A., INC.
BY:
-------------------------
/s/ JEffrey K. Daniel
Chief Executive Officer
and President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS REPORT HAS
BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE COMPANY AND IN THE
CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE DATE
--------- ----- ----
/S/ JEFFREY K. DANIEL Chief Executive Officer & President September 26, 1997
- ------------------------------------------- (Principal Executive And Accounting
Jeffrey K. Daniel Officer)
/S/ MICHAEL A. ZAHORIK Executive Vice President & General September 26, 1997
- ------------------------------------------- Counsel
Michael A. Zahorik
</TABLE>
36
<PAGE> 38
INDEX OF EXHIBITS
Exhibit No. Name of Exhibit
----------- ---------------
3.1 Amended and Restated Articles of the Company, as amended
November 30, 1994. Incorporated by reference from the
Company's Amendment No. 1 to Registration Statement on Form
SB-2 filed with the Commission on December 22, 1994.
3.2 Certificate of Designation of Series A Redeemable Convertible
Preferred Stock. Incorporated by reference from the Company's
Registration Statement on Form SB-2 filed with the Commission
on October 12, 1994.
3.3 Certificate of Designation of Series B Convertible and Series
C Convertible Preferred Stock. Incorporated by reference from
the Company's Registration Statement on Form SB-2 filed with
the Commission on October 12, 1994.
3.4 By-laws of the Company. Incorporated by reference from the
Company's Registration Statement on Form SB-2 filed with the
Commission on October 12, 1994.
4.1 Certificate of Designation of Series A Redeemable Convertible
Preferred Stock. Incorporated by reference from the Company's
Registration Statement on Form SB-2 filed with the Commission
on October 12, 1994.
4.2 Certificate of Designation of Series B Convertible and Series
C Convertible Preferred Stock. Incorporated by reference from
the Company's Registration Statement on Form SB-2 filed with
the Commission on October 12, 1994.
4.3 Form of Class A Common Stock Purchase Warrant. Incorporated
by reference from the Company's Registration Statement on Form
SB-2 filed with the Commission on October 12, 1994.
4.4 Form of Class B Common Stock Purchase Warrant. Incorporated
by reference from the Company's Registration Statement on Form
SB-2 filed with the Commission on October 12, 1994.
4.5 Equity Contract Note dated as of June 30, 1994 issued to
Edward L. Daniel in the original principal amount of $918,304.
Incorporated by reference from the Company's Amendment No. 1
to Registration Statement on Form SB-2 filed with the
Commission on December 22, 1994.
4.6 Equity Contract Note dated as of November 29, 1991 issued to
Edward L. Daniel in the principal amount of $1,000,000.
Incorporated by reference from the Company's Amendment No. 2
to Registration Statement on Form SB-2 filed with the
Commission on January 30, 1995.
4.7 Corrected Registered Equity Contract Note dated as of June 30,
1993 issued to Edward L. Daniel in the original principal
amount of $1,968,304.02. Incorporated by reference from the
Company's Amendment No. 2 to Registration Statement on Form
SB-2 filed with the Commission on January 30, 1995.
10.1 Settlement Agreement dated as of June 30, 1994 by and among
the Company, Edward L. Daniel, Joan J. Daniel, and Daniel
Development Corporation. Incorporated by reference from the
Company's Registration Statement on Form SB-2 filed with the
Commission on October 12, 1994.
10.2 1994 Qualified Stock Option Plan. Incorporated by reference
from the Company's Registration Statement on Form SB-2 filed
with the Commission on October 12, 1994.
10.3 1994 Non-Qualified Stock Option Plan. Incorporated by
reference from the Company's Registration Statement on Form
SB-2 filed with the Commission on October 12, 1994.
37
<PAGE> 39
10.4 Stock Option Grant to Jeffrey Daniel. Incorporated by
reference from the Company's Registration Statement on Form SB-2
filed with the Commission on October 12, 1994.
10.5 Stock Option Grant to Craig Daniel. Incorporated by reference
from the Company's Registration Statement on Form SB-2 filed
with the Commission on October 12, 1994.
10.6 Letter Agreement dated November 1, 1994 between the Company,
Edward L. Daniel, and LaPlante Compressor Limited.
Incorporated by reference from the Company's Amendment No. 1
to Registration Statement on Form SB-2 filed with the
Commission on December 22, 1994.
10.7 Articles of Association for Omni Gear Shanghai Ltd. dated
December 21, 1994 between the Company and Shanghai Shengang
Metallurgical Industry Company. Incorporated by reference
from the Company's Amendment No. 6 to Registration Statement
on Form SB-2 filed with the Commission on April 17, 1995.
10.8 Cooperative Joint Venture Contract for the Formation and
Operation of Shanghai Omni Gear Co., Ltd. dated December 12,
1994 between Omni Resources (H.G.) Limited and Shanghai
Shengang Metallurgical Industry Company. Incorporated by
reference from the Company's Amendment No. 6 to Registration
Statement on Form SB-2 filed with the Commission on April 17,
1995.
10.9 Butler Products Corporation Share Purchase Agreement dated
October 1, 1996, together with exhibits. Incorporated by
reference from the Company's Form 8-K filed on October 18,
1996.
10.10 Mutual Release and Settlement Agreement between Edward L.
Daniel, Joan J. Daniel and their affiliates effective June 30,
1997. Incorporated by reference from the Company's Form 8-K
filed on September 10, 1997.
10.11 Registration Rights Agreement between Edward L. Daniel, Joan
J. Daniel and their affiliates effective June 30, 1997.
Incorporated by reference from the Company's Form 8-K filed on
September 10, 1997.
10.12 Amendment to Lease Agreement dated August 1, 1997.
Incorporated by reference from the Company's Form 8- K filed
on September 10, 1997.
10.13 Assignment Agreement between Edward L. Daniel, Joan J. Daniel
and their affiliates dated August 15, 1997. Incorporated by
reference from the Company's Form 8-K filed on September 10,
1997.
21.1 Subsidiaries of the Registrant. Incorporated by reference
from the Company's Registration Statement on Form SB-2 filed
with the Commission on October 12, 1994.
23.1 Consent of Harper & Pearson Company
99.1 Press Release dated September 10, 1997. Incorporated by
reference from the Company's Form 8-K filed on September 10,
1997.
38
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
We consent to the inclusion to this Annual Report on Form 10-KSB of our
report dated September 11, 1997 on our audits of the consolidated financial
statements of Omni U.S.A., Inc.
HARPER & PEARSON COMPANY
Houston, Texas
September 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
BALANCE SHEET/INCOME STATEMENT
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 279,756
<SECURITIES> 0
<RECEIVABLES> 2,187,758
<ALLOWANCES> 0
<INVENTORY> 2,243,751
<CURRENT-ASSETS> 4,841,722
<PP&E> 1,846,332
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,106,573
<CURRENT-LIABILITIES> 4,408,560
<BONDS> 0
0
0
<COMMON> 17,885
<OTHER-SE> 1,926,274
<TOTAL-LIABILITY-AND-EQUITY> 7,106,573
<SALES> 14,520,252
<TOTAL-REVENUES> 14,520,252
<CGS> 10,955,654
<TOTAL-COSTS> 10,955,654
<OTHER-EXPENSES> 3,630,512
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 256,425
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (322,339)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> 0
</TABLE>
