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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, 1999
COMMISSION FILE NUMBER: 0-17493
OMNI U.S.A., INC.
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(Name of Registrant)
NEVADA 88-0237223
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(State of Incorporation) (IRS Employer Identification No.)
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 $17,820,179.
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of September 1, 1999 was approximately $3,623,092 based on
quoted sales on NASDAQ on such date.
The number of shares of the Registrant's common stock outstanding as of
September 1, 1999 was 3,623,092.
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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"), through its wholly-owned manufacturing facility,
"Shanghai Omni Gear," designs, develops, manufactures and distributes power
transmissions (also known as "gearboxes" or "enclosed geardrives") for use in
agricultural, industrial, "off-highway" and construction equipment. The Company,
through another wholly-owned subsidiary, Butler Products Corporation, designs,
develops, manufactures and distributes trailer and implement jacks and couplers,
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 Argentina, Australia, Brazil, 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 trailer and implement products are manufactured in China and approximately
70% of its trailer and implement 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 manufacturing planetary and industrial geardrives.
Shanghai Omni Gear was formed in accordance with the Law of the
People's Republic of China on Cooperative 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 $3,999,000 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 was approximately $20,000 per month from
January 1996 through January 1999, at which time the rental fee was reduced to
$10,000 per month.
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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. 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.
Shanghai Omni Gear manufactures the Company's planetary and helical
geardrive product lines. The facility is being used for assembly of planetary
drives, helical geardrives and inspection of drives produced in other Chinese
manufacturing facilities. There are approximately one hundred-thirty 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 and helical drive products.
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.
Commencing 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.
On July 16, 1999 BPC acquired the assets of Piecemaker, Inc., a Madill,
Oklahoma manufacturer of horse, agricultural and utility trailer components.
Subsequent to the Piecemaker acquisition, Butler consolidated its small jack and
coupler manufacturing facilities with that of Piecemaker in Madill, OK.
Since the Company began selling power transmission products in 1974 it
has achieved a number of competitive advantages including:
(i) the establishment of very strong customer relationships and a
reputation for quality products at a good value;
(ii) recognition as the low cost producer in the industry resulting
from the Company's extensive Chinese manufacturing capability
with Chinese contract manufacturers and with Shanghai Omni
Gear;
(iii) substantial market penetration in the agricultural implement
market with right-angle gear boxes;
(iv) a reputation for responsive service;
(v) recognition for design innovation in response to customers
needs; and
(vi) the accumulation of a substantial body of technical and
industry specific knowledge.
The Company intends to build on this base of strategic advantages and
achieve compounded annual growth in both sales and profits. To achieve this
objective the Company has developed a growth strategy encompassing the
following:
(i) compound annual sales and income growth of 20%-30% per year;
(ii) acquisition of companies, in a consolidation strategy, which
produce products for markets which the Company has targeted,
or which produce products which are complimentary to, or
extensions of, existing products;
(iii) expand market share in right-angle gearbox products in foreign
markets via acquisition synergy and all markets by continuing
emphasis on low cost, quality products manufactured in China;
(iv) expand market share in planetary and industrial geardrives
through the marketing arrangement with the Braden Winch
division of PACCAR Inc.;
(v) expand new and/or related trailer and implement components for
sale into existing markets as well as an increased emphasis on
penetration of new markets;
(vi) continued improvement in operating efficiencies in Shanghai
Omni Gear; and
(vii) new product innovation and development.
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PRODUCTS
OMNI GEAR
POWER TRANSMISSION COMPONENTS. 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 300,000 gearbox
configurations. As a percentage of revenues, Omni's power transmission
components are its most significant product, representing 76% of Omni's revenues
in fiscal years 1999 and 1998.
Although Omni distributes power transmissions for numerous applications
and purposes, the majority of its sales revenues are derived from sales of power
transmission components 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;
grain augers, which deliver grain to the top of grain silos; and
geardrives for fertilizer spreader and roto-tiller applications.
IRRIGATION SYSTEMS. Omni Gear is a major supplier of "right-angle"
gearboxes and helical geared center drive 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. Omni Gear has
recently introduced into the North American market irrigation gearheads
which are large gearboxes (up to 400 horse power) used to drive
underground turbine pumps.
CONSTRUCTION, MOBILE OFF-HIGHWAY, INDUSTRIAL AND UTILITY EQUIPMENT. In
1992, Omni Gear began distributing "planetary drive" power
transmissions for use in construction, "mobile 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.
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 was 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
TRAILER AND IMPLEMENT COMPONENTS. 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, agricultural implements and equipment
for recreational, utility, construction, agricultural and trucking industries as
well as for military applications. Butler's products include heavy duty
implement jacks, spring return jacks, 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 bumper-pull and gooseneck couplers for
trailers with gross weights up to 30,000 lbs. As a percentage of revenues,
towing equipment represented 24% of Omni's net sales in fiscal years 1999 and
1998. The Company expects sales from both product lines to equate as the Company
continues its strategy is to develop its power transmission and trailer and
implement product lines.
NEW PRODUCTS. The Company continues to improve its products and expand
product application. Currently, the Company is designing gearboxes to expand its
agricultural, universal, irrigation, planetary, commercial turf and mobile
utility geardrive product lines.
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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 since 1980. 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 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 and bumper pull and gooseneck couplers are manufactured to Butler's
quality specifications in China as are certain components of its coupler line
which are assembled at Butler's 20,000 sq. ft. leased facility in Madill, OK.
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.
MANUFACTURING CAPACITY. The Company believes that Shanghai Omni Gear
and the other manufacturers 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 geardrive products from inventories; sales to these customers are made
by Omni-Washington through Omni Gear. Omni Resources, including Shanghai Omni
Gear, on the other hand, ships planetary geardrive products marketed under Omni
Gear directly from the factory to U.S. customers and foreign 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 Butler's facility in Madill, Oklahoma. Sales are divided
between Omni Gear, 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.
On October 3, 1994, the Company and its subsidiaries signed an
exclusive ten-year distribution agreement (the "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. The Distribution Agreement was modified and
amended on September 9, 1999. The amendment extended the Distribution Agreement
to 2014. Under the terms of the Distribution Agreement, PACCAR will market and
distribute throughout the world (except Japan and
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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 Distribution 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. 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 in the construction,
off-highway and utility equipment markets.
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
the Company regularly solicits additional sales from existing customers, a large
portion of its sales are made to existing customers with minimal marketing
effort.
With respect to new business, the Company 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, Company
engineers continue to consult with the customer on product improvements and
modifications.
INVENTORIES, FIRM ORDERS AND BACKLOGS. The Company maintains
approximately $1,840,000 in inventory in its Houston, Texas facility,
approximately $610,000 at the Butler, Kentucky facility, approximately $300,000
at the Madill, Oklahoma facility and approximately $450,000 at its facility in
Shanghai, China. Additionally, the Company has access to inventory located in
bonded warehouses and vendor facilities that approximate $1,500,000. 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, 1999, the amount of the Company's backlog believed to
represent firm orders was approximately $6,200,000. 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 from inventory in twenty-four hours;
orders for products that require minimal modification to an existing product can
often be shipped in a few days; and custom products requiring extensive design
and retooling for production can require a six month production schedule.
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 identifies its competition according to specific products, rather
than power transmissions in general.
In sales of power transmissions for 1) rotary cutter, 2)
tractor-powered implement and 3) universal geardrive product lines, Omni Gear
competes with a number of U.S. and foreign companies, including Comer S.p.A. and
Bondioli & Pavesi, each
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of which are Italian companies, and Curtis Machine, Inc., Superior Gearbox
Mfg., Inc., Hub City and Durst (both divisions of Regal-Beloit Corporation),
and ITG, all of which are American companies, together with geardrives which
are self-produced by certain OEM's. Published statistics of the size of the
market are not readily available.
In sales of the irrigation geardrive market, Omni Gear's most
significant competitors in the marketplace are Durst and Ohio Gear (both
divisions of Regal-Beloit Corporation), U.S. Motors (a division of Emerson
Electric), and Universal Motion Components, together with irrigation geardrives
which are self-produced by certain OEM's.
Omni estimates that the North American market for planetary gearboxes
with torque capacities up to 120,000 lbs. that Omni Gear can currently supply is
approximately $100,000,000 in sales per year, and that this market is currently
dominated by Auburn Gear, Fairfield Manufacturing and Eskridge Manufacturing,
all American companies. Other companies which supply planetary geardrives in
these rated torque capacities as a part of their overall planetary products
include Gear Products (a division of Blount), DP Manufacturing, Tulsa Winch (a
division of Dover), and Von Ruden, all American companies, and Brevini, Lohmann
& Stolterfoht, Orisson & Koepfel, Regiana & Riddutori, SOM (a division of
Comer), Teijin Seiki, and Trasmital Bonfiglioli, all foreign companies. Omni
Gear believes that it can increase its share in 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 Kaiser 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.
OTHER
EMPLOYMENT. The Company currently employs approximately one
hundred-eighty persons worldwide; (i) one hundred-thirty by Shanghai Omni Gear,
(ii) twenty-two at the Company's Houston, Texas facility, (iii) twenty-nine at
the Company's facilities in Butler, Kentucky, and (iv) six at the Company's
facility in Madill, OK. Twenty-four of Butler's thirty-five 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
costs 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-Registered Trademark-,
Omni USA-Registered Trademark-, Omni Gear-Registered Trademark-, 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-Registered Trademark-, RC-30-Registered
Trademark-, RC-51-Registered Trademark-, RC-61-Registered Trademark-,
RC-61T-Registered Trademark-, RC-65T-Registered Trademark-, RC-71-Registered
Trademark-, RC-81-Registered Trademark-, RC-91-Registered Trademark-,
RC-110-Registered Trademark-, RCD-101-Registered Trademark-,
PHD-26HD-Registered Trademark-, PHD-50A-Registered Trademark-,
PHD-75-Registered Trademark-, IR-15-Registered Trademark-, IR-50-Registered
Trademark-, OFD-50-Registered Trademark-, RC-130-TM-, RC-25-TM-,
Irri-Torq-TM-, Voyager-Registered Trademark-, Galaxy-TM-, Enforcer-TM-,
Enforcer II-TM-, Slick Disc-TM-, and Slider-Registered Trademark-. 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
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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;
Madill, Oklahoma; 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 Phenix
Investment Company, a real estate investment company located in Houston, Texas
under a long-term lease expiring June 2002, at a rate of $8,000 per month.
Butler Products owns a 35,000 sq. ft. manufacturing facility in Butler,
Kentucky and leases a combination office/warehouse of approximately 20,000 sq.
ft. in Madill, Oklahoma for $4,200 per month.
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. In January 1999, the lease payment was reduced to approximately
$10,000 per month.
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.
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, 1999.
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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
low and high sales prices per share of the Company's Common Stock traded as
reported by the NASDAQ Stock Market:
<TABLE>
<CAPTION>
Quarter Ending Low High
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<S> <C> <C>
06/30/97 0.75 1.44
09/30/97 1.25 2.00
12/31/97 0.75 1.81
03/31/98 0.75 1.37
06/30/98 1.88 3.50
09/30/98 1.94 3.37
12/31/98 1.37 2.25
03/31/99 0.94 1.81
06/30/99 1.12 1.75
</TABLE>
As of September 1, 1999, the closing price of the Company's Common
Stock was $1.00 per share. As of June 30, 1999, 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, the Company has a cumulative deficit
of $2,505,270 as of June 30, 1999; 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.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Working capital increased by $293,417 during the fiscal year ended June
30, 1999 to $1,025,024 as of June 30, 1999, and current assets increased
$569,271 from the prior year and current liabilities increased $275,854 as a
result of increased sales and profits in fiscal 1999. For the year ended June
30, 1999, accounts receivable increased $335,423 to a balance of $2,920,896 and
inventory increased $282,794 to a balance of $3,207,542 compared to the year
ended June 30, 1998.
The Company utilizes a $4,000,000 working capital facility that had an
outstanding balance of $2,088,917 at June 30, 1999. The Company's cash balance
of $292,903 at the year ended June 30, 1999, was $14,606 higher compared to the
same period last year. 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.
9
<PAGE>
RESULTS OF OPERATIONS
FISCAL YEAR ENDED JUNE 30, 1999, COMPARED TO FISCAL YEAR ENDED JUNE 30,
1998. Omni's net sales increased 6% to approximately $17.8 million, compared to
$16.8 million for fiscal year 1998. Sales increases of $1.0 million are the
result of internal growth and new product development. For the year ended June
30 1999, Omni had operating income of $697,321 compared to $482,657 for the
fiscal year ended June 30, 1998. 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 earned net income of $494,444 or
$0.14 per share for the fiscal year ended June 30, 1999, an increase of 119%
compared to net income of $225,492 or $0.06 per share for the fiscal year ended
June 30, 1998.
Net sales increases for the year were driven by stronger demand for the
Company's rotary cutter, tractor-powered implement, universal geardrives and new
product introduction. Sales of the Company's power transmission components
represented 76% of total sales while the trailer and implement components made
up 24% of total sales. Gross margin increased to 27% in fiscal year 1999 from
25% when compared with fiscal 1998, caused primarily by the addition of higher
margin items to the product mix. Management continues to focus on improving
margins through more aggressive manufacturing policies.
Selling, general and administrative expenses increased by $337,977 or
8%, from 1998 to 1999. Selling, general and administrative expenses represented
23% of net sales in 1998 compared to 22% of net sales in 1998.
Interest expense decreased to $287,983 in 1999 from $316,443 in 1998,
attributable to more favorable interest rate on the Company's line of credit
borrowings.
FISCAL YEAR ENDED JUNE 30, 1998, COMPARED TO FISCAL YEAR ENDED JUNE 30,
1997. Omni's net sales increased 14% to approximately $16.8 million, compared to
$14.5 million for fiscal year 1997. Sales increases of $1.6 million are the
result of internal growth and new product development. For the year ended June
30 1998, Omni had operating income of $482,657 compared to $345,638 for the
fiscal year ended June 30, 1997. 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 earned net income of $225,492 or
$0.06 per share for the fiscal year ended June 30, 1998, compared to a loss of
$175,868 or $0.14 loss per share for the fiscal year ended June 30, 1997 after
one-time charges and a $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 were driven by stronger demand for the
Company's rotary cutter, tractor powered implement, irrigation geardrives and
new product introduction. Sales of the Company's geardrives represented 76% of
total sales while the towing products made up 24% of total sales. Gross margin
increased to 25% in fiscal year 1998 from 24% when compared with fiscal 1997,
caused primarily by the addition of higher margin items to the product mix.
Management continues to focus on improving margins through more aggressive
manufacturing policies.
Selling, general and administrative expenses increased by $560,441 or
17%, from 1997 to 1998. Selling, general, and administrative expenses
represented 22% of net sales in 1998 and 1997.
Interest expense increased to $316,443 in 1998 from $256,425 in 1997,
attributable to additional debt carried to meet increased sales.
YEAR 2000. The Company is in the process of identifying internal
software and imbedded technology Year 2000 risks. The Company has performed
internal test operations using dates subsequent to Year 2000 (specifically, the
Company's financial and inventory systems) and is in the process of testing and
evaluating its computer operated machinery and facilities equipment and has not
encountered problems which are material to the Company's operations. The Company
anticipates the completion of the identification, evaluation and verification
process to be completed by October 31, 1999.
10
<PAGE>
The Company has tested and has requested, and in some instances,
received written assurances from its software and hardware vendors and key
suppliers in its efforts to achieve Year 2000 compliance. Where such vendors or
key suppliers are unable to verify their readiness to the Company's
satisfaction, the Company plans to consider alternative or contingent vendors or
suppliers.
The Company has spent approximately $15,000 to date to assure Year 2000
compliance and expects to spend approximately $10,000 in upgrades over the
second and third quarter of the calendar year.
As a result of the Company's year 2000 assessment, the Company has not
encountered problems which have not already been addressed or that would have a
material effect on the Company's business, results of operations, or financial
condition. However, to the extent the Company, or third parties upon which it
relies, does not achieve Year 2000 readiness in a timely manner, the Company's
financial position, cash flow or results of operations may be adversely
affected.
CAUTIONARY STATEMENT. Forward-looking statements in this release are
made pursuant to the "safe harbor" provisions of the Private Securities
Litigation Act of 1995. Investors are cautioned that actual results may differ
substantially from such forward-looking statements. Forward-looking statements
involve risks and uncertainties, including, but not limited to, continued
acceptance of the Company's products in the marketplace, competitive factors,
new products and technological changes, the Company's dependence upon
third-party suppliers, political and economic circumstances in China, and other
risks detailed from time to time in the Company's periodic report filings with
the Securities and Exchange Commission. Investors are directed to the Company's
periodic reports filed with the Securities and Exchange Commission.
11
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
OMNI U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
12
<PAGE>
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, 1999 and 1998, 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 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, 1999 and 1998, 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 16, 1999 (except for Note 19, the date of which is September 24, 1999)
13
<PAGE>
OMNI U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS
------
1999 1998
-------------------- -------------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 292,903 $ 278,297
Accounts receivable, trade, net 2,920,896 2,585,473
Accounts receivable, related parties 12,069 92,396
Inventories 3,207,542 2,924,748
Prepaid expenses 69,693 52,918
-------------------- -------------------
TOTAL CURRENT ASSETS 6,503,103 5,933,832
-------------------- -------------------
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 2,158,715 2,110,538
-------------------- -------------------
OTHER ASSETS - primarily intangible assets, net 265,103 280,607
-------------------- -------------------
TOTAL ASSETS $ 8,926,921 $ 8,324,977
==================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 2,672,455 $ 2,466,175
Line of credit 2,088,917 1,965,186
Accrued expenses 486,205 605,077
Current portion of long-term debt 230,502 165,787
-------------------- -------------------
TOTAL CURRENT LIABILITIES 5,478,079 5,202,225
-------------------- -------------------
LONG-TERM DEBT 646,776 815,130
-------------------- -------------------
STOCKHOLDERS' EQUITY
Common stock 17,885 17,885
Additional paid-in capital 5,248,560 5,248,560
Treasury stock (57,141) (57,141)
Retained deficit (2,505,269) (2,999,713)
Foreign currency translation adjustment 98,031 98,031
-------------------- -------------------
TOTAL STOCKHOLDERS' EQUITY 2,802,066 2,307,622
-------------------- -------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 8,926,921 $ 8,324,977
==================== ===================
See accompanying notes.
</TABLE>
14
<PAGE>
OMNI U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
NET SALES $ 17,820,179 $ 16,807,349
---------------- ----------------
Cost of Sales 13,005,480 12,800,209
Write-off of Vendor Obligation - (254,918)
---------------- ----------------
COST OF SALES 13,005,480 12,545,291
---------------- ----------------
Gross Profit 4,814,699 4,262,058
---------------- ----------------
OPERATING EXPENSES
Selling, general and administrative 4,117,378 3,779,401
---------------- ----------------
Operating income 697,321 482,657
---------------- ----------------
OTHER INCOME (EXPENSE)
Commission income 61,026 45,307
Interest expense (287,983) (316,443)
Other, net 24,080 13,971
---------------- ----------------
(202,877) (257,165)
---------------- ----------------
NET AND COMPREHENSIVE INCOME $ 494,444 $ 225,492
================ ================
BASIC AND COMPREHENSIVE EARNINGS PER SHARE $ 0.14 $ 0.06
================ ================
DILUTED EARNINGS PER SHARE $ 0.12 $ 0.06
================ ================
</TABLE>
See accompanying notes.
15
<PAGE>
OMNI U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
Common Stock
--------------------------
Number Additional Retained Foreign
Of Shares Paid-in Treasury Earnings Currency
Outstanding Amount Capital Stock (Deficit) Translation Total
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1997 3,529,592 $ 17,885 $ 5,248,560 $ (48,641) $ (3,225,205) $ 98,031 $ 2,090,630
Purchase of shares (6,500) (8,500) (8,500)
Net income 225,492 225,492
---------------------------------------------------------------------------------------------------
Balance, June 30, 1998 3,523,092 17,885 5,248,560 (57,141) (2,999,713) 98,031 2,307,622
Net Income 494,444 494,444
---------------------------------------------------------------------------------------------------
Balance, June 30, 1999 3,523,092 $ 17,885 $ 5,248,560 $ (57,141) $ (2,505,269) $ 98,031 $ 2,802,066
===================================================================================================
</TABLE>
See accompanying notes.
16
<PAGE>
OMNI U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 494,444 $ 225,492
---------------- ----------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 283,667 235,633
Amortization 32,260 77,353
Changes in operating assets and liabilities:
Accounts receivable (301,112) (556,779)
Inventories (282,794) (680,997)
Prepaid expenses (16,775) 77,539
Long term deposits - 60,559
Notes receivable - 66,668
Accounts payable and accrued expenses 87,408 566,812
---------------- ----------------
Total adjustments (197,346) (153,212)
---------------- ----------------
Net cash provided by operating
activities 297,098 72,280
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of other assets (16,756) -
Purchase of property and equipment (285,828) (131,381)
---------------- ----------------
Net cash used by investing activities (302,584) (131,381)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit 15,894,537 15,921,284
Payments on line of credit (15,770,806) (15,634,067)
Borrowings on long-term debt 54,777 -
Payments on long-term debt (158,416) (221,075)
Purchase of treasury stock - (8,500)
---------------- ----------------
Net cash provided by financing
activities 20,092 57,642
---------------- ----------------
NET INCREASE (DECREASE) IN CASH 14,606 (1,459)
CASH AT BEGINNING OF PERIOD 278,297 279,756
---------------- ----------------
CASH AT END OF PERIOD $ 292,903 $ 278,297
================ ================
</TABLE>
See accompanying notes.
17
<PAGE>
NOTE 1 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - Omni U.S.A., 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 U.S.A., 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 power transmission components and trailer and implement
components, used primarily for agricultural, material handling, mobile
off-highway 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.
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.
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 $125,184 and $170,469 in 1999 and
1998, 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 any related obligation at the time title to the
goods passes to the Company based on the specific terms of the
transaction.
18
<PAGE>
NOTE 1 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
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 AND ORGANIZATIONAL COSTS - Intangible assets consist
of purchased goodwill from Butler Products, historical customer
relationships of Omni Resources, Ltd. and engineering plans and
designs. Organizational costs are attributed to Shanghai Omni Gear
capitalized expenditures. Intangible assets and organizational costs
are valued at cost less accumulated amortization of $528,664 and
$496,404 in 1999 and 1998 respectively. Amortization is provided on a
straight-line basis over five to fifteen-year periods.
The Company has elected to implement Financial Accounting Standards
Board SOP 98-5, "Reporting on the Costs of Start-Up Activities,"
effective July 1, 1999 and will expense $38,502 of unamortized
organizational costs upon implementation.
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.
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 are reported separately as a component of stockholders'
equity. Current year changes are included in comprehensive income.
EARNINGS PER SHARE - Basic earnings per share (EPS) is computed by
dividing consolidated net income available to common shareholders by
the weighted-average number of common shares outstanding for the year.
Diluted EPS reflects the potential dilution that could occur if
dilutive securities and other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the consolidated net income of the
Company.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair values of financial
instruments approximate their reported carrying amounts at June 30,
1999.
19
<PAGE>
NOTE 2 ACCOUNTS RECEIVABLE
Accounts receivable at June 30 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Accounts receivable - trade $3,034,621 $2,629,092
Allowance for doubtful accounts (113,725) (43,619)
---------- ----------
$2,920,896 $2,585,473
========== ==========
</TABLE>
NOTE 3 INVENTORIES
Inventories at June 30 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Raw Materials $ 374,364 $ 501,318
Work in Process 169,417 230,110
Finished Goods 2,663,761 2,193,320
---------- ----------
$3,207,542 $2,924,748
========== ==========
</TABLE>
NOTE 4 PROPERTY AND EQUIPMENT
Property and equipment at June 30 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Warehouse, manufacturing and
office equipment $ 2,698,444 $ 2,371,128
Land, Buildings & Leasehold improvements 561,588 557,060
Tooling costs 613,722 613,722
------------ ------------
3,873,754 3,541,910
Accumulated depreciation and amortization (1,715,039) (1,431,372)
------------ ------------
$ 2,158,715 $ 2,110,538
============ ============
</TABLE>
NOTE 5 LINE OF CREDIT
The Company has a revolving line of credit with a financing company
which provides for maximum borrowings of $4,000,000 as determined by a
formula based on trade accounts receivable and inventory. The line of
credit matures April 2001, bears interest at prime plus 1%-2%,
depending upon certain financial ratios, requires the maintenance of
certain levels of income and tangible net worth and is secured by
essentially all of the U.S. assets of the Company.
20
<PAGE>
NOTE 6 LONG-TERM DEBT
Long-term debt at June 30 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Notes payable to banks/financing companies, due in monthly
installments of $1,482 including interest ranging from 1.9% to 7.7%,
maturing at various dates through 2002 secured by
vehicles 27,785 45,582
Note payable to equipment manufacturer, non interest
bearing, due in monthly installments of $1,360 through 2000 16,320 -
Note payable to bank, due in monthly installments
of $1,375 including interest at 8.25% through 2001
secured by equipment 27,942 -
Note payable to equipment manufacturer,
due in monthly installments of $10,244 including
interest at 10% through 2001 170,238 254,387
Butler Products Corporation Industrial Bonds due in
monthly installments of $2,730 including interest
at 5.5% through March 2003 110,793 134,693
Butler Products Corporation Small Business Administration
loan due in monthly installments of $2,168 including
interest at 9.259% through June 2000 24,200 46,255
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 500,000 500,000
-------- --------
877,278 980,917
Less current portion 230,502 165,787
-------- --------
Total Long-Term Debt $646,776 $815,130
======== ========
</TABLE>
21
<PAGE>
NOTE 6 LONG-TERM DEBT (Continued)
Future maturities of long-term debt by fiscal year are as follows:
<TABLE>
<S> <C>
2000 $230,502
2001 89,246
2002 193,672
2003 197,192
2004 166,666
--------
$877,278
</TABLE>
NOTE 7 COMMON STOCK
The Company has authorized 150,000,000 shares of common stock with a
par value of $.004995 per share. At June 30, 1999 and 1998, the Company
had issued 3,580,592 shares with 3,523,092 shares outstanding and
57,500 treasury shares.
The Company purchased 57,500 of its common shares on the open market
for $57,141 (average of $0.99 per share) from November, 1996 through
June 30, 1998 pursuant to a repurchase program announced in November
1996 which authorized the repurchase of up to 100,000 common shares.
NOTE 8 WARRANTS TO PURCHASE COMMON STOCK
The Company has Class B Warrants which entitle the holder to purchase
shares of common stock as follows:
<TABLE>
<CAPTION>
Number of
Per Share Warrants
Expiration Date Price Issued
--------------- --------- ---------
<S> <C> <C> <C>
Class B March 15, 2001 $ 6.00 706,372
</TABLE>
On March 15, 1999, all Class A Warrants expired by operation of the
Class A Warrant Agreement. No Class A Warrants were exercised.
22
<PAGE>
NOTE 9 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.
The Board of Directors has reserved 1,500,000 shares under the Plans.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Total $4.00 $1.00 $1.625 $2.25 $1.188
Number Priced Priced Priced Priced Priced Weighted-
Average
Exercise
Stock Option Summary of Shares Options Options Options Options Options Price
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Options Outstanding at June 1,100,000 70,000 1,030,000 $1.19
30, 1997
Options Granted 65,000 0 65,000 1.00
Options Cancelled -60,000 0 -60,000 1.00
Options Outstanding at June 1,105,000 70,000 1,035,000 0 0 0 1.19
30, 1998
Options Granted 75,000 0 0 30,000 15,000 30,000 1.57
Options Cancelled -5,000 0 -5,000 0 0 0 1.00
Options Outstanding at June 1,175,000 70,000 1,030,000 30,000 15,000 30,000 1.21
30, 1999
Exercisable at June 30, 1999 790,000 70,000 690,000 30,000 0 0 1.29
Exercisable at June 30, 1998 465,000 70,000 395,000 0 0 0 1.45
Available for future grant at
June 30, 1999 325,000
-----------------------------------------------------------------------------------------------------------------
Weighted-average remaining
contractual life in years 6.9 5 7.5 10 10 10
-----------------------------------------------------------------------------------------------------------------
</TABLE>
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require, companies
to record compensation costs for stock-based employee compensation
plans at fair value. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion no. 25, "Accounting for Stock
Issued to Employees," and related Interpretations. Accordingly,
compensation costs for stock options is measured as the excess, if any,
of the quoted market price of the Company's stock at the date of the
grant over the amount an employee must pay to acquire the stock. The
value of options granted during fiscal 1999 and 1998, as computed under
SFAS 123, is deemed insignificant.
23
<PAGE>
NOTE 10 EARNINGS PER SHARE
The following sets forth the computation of basic and diluted earnings
per share at June 30, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Numerator
Net Income $ 494,444 $ 225,492
========== ==========
Denominator
Demoninator for basic earnings per share -
weighted average common shares outstanding 3,523,092 3,523,903
Effect of dilutive securities:
Conversion of dilutive stock options 530,848 367,258
---------- ----------
Denominator for dilutive earnings per share -
adjusted weighted average shares and assumed conversion 4,053,940 3,891,161
========== ==========
Basic and Comprehensive Net Earnings Per Share $ 0.14 $ 0.06
========== ==========
Diluted Net Earnings Per Share $ 0.12 $ 0.06
========== ==========
</TABLE>
The stock options with exercise prices greater than $1.625 could
potentially dilute basic net earnings per share in the future. These
are not included in the diluted computation currently because they
would be antidilutive at June 30, 1999 and 1998.
NOTE 11 INCOME TAXES
For the years ended June 30, 1999 and 1998, the Company utilized net
operating loss carry-forwards amounting to approximately $597,000 and
$1,150,000 to decrease income tax expense by $203,000 and $390,000,
respectively.
Income tax expense (benefit) is comprised of the following:
<TABLE>
<CAPTION>
1999 1998
------------- ------------
<S> <C> <C>
Current $ - $ 12,500
Deferred - Current (26,000) (12,500)
Deferred - Long-term 26,000 -
------------- ------------
$ -0- $ -0-
============= ============
</TABLE>
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.
24
<PAGE>
NOTE 11 INCOME TAXES (Continued)
The components of the Company's deferred tax assets and liabilities at
June 30 are as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Current deferred tax assets:
Accounts receivable $ 39,000 $ 14,000
Inventory 7,000 7,000
Net operating loss carry-forwards - 203,500
---------- ----------
Deferred tax assets 46,000 224,500
Non-current deferred tax liabilities:
Depreciation (46,000) (20,000)
---------- ----------
Net deferred income tax assets - 204,500
Valuation allowance - (204,500)
---------- ----------
Net deferred income taxes $ -0- $ -0-
========== ==========
</TABLE>
The valuation allowance has decreased $204,500 and $338,500 in 1999 and
1998, respectively due to utilization of net operating loss
carry-forwards to offset current taxable income. 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
$1,900,000 at June 30, 1999.
The difference between the effective rate of income tax expense at June
30, 1999 and 1998 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>
1999 1998
---------- ----------
<S> <C> <C>
Provision for income tax expense at
U.S. statutory rates $ 168,000 $ 75,000
Increase (decrease) in tax provision
resulting from:
Non-deductible losses on foreign
subsidiaries 8,000 255,000
Non-deductible expense, other 28,500 8,500
Change in valuation reserve (204,500) (338,500)
---------- ----------
Income tax expense $ -0- $ -0-
========== ==========
</TABLE>
NOTE 12 VENDOR OBLIGATION
In the fiscal year ended June 30, 1998, the Company wrote off
approximately $255,000 of amounts owed to a China state-owned factory
for purchases of inventory in years prior to 1995. Company management
believes that the vendor will not pursue payments of these amounts
since there have been no demands for payment for three years and
because the Company has unrecorded claims against the factory for
defective products. In the Company's experience, business relationships
in China are not governed by written agreements or contracts, 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.
25
<PAGE>
NOTE 13 COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - The Company leases equipment and office, warehouse
and manufacturing space in Houston, Shanghai and Japan. The Houston
lease is $8,000 per month through 2002. The Shanghai lease began in
1996 and has a thirty-year term at approximately $10,000 per month. At
June 30, 1999, the future minimum rental payments required under
operating leases were approximately:
<TABLE>
<S> <C>
2000 $243,000
2001 240,000
2002 237,000
2003 140,000
2004 128,000
Thereafter 2,657,000
----------
Total $3,645,000
==========
</TABLE>
Rent expense was approximately $298,000 and $360,000 during the years
ended June 30, 1999 and 1998, respectively.
INSURANCE COVERAGE - The Company is self-insured against product
liability and completed operations. This development, while not unique
to the Company or its industry, may subject the Company to some future
liability. The Company maintains in force 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, 1999, Omni Resources and Omni USA have advanced Shanghai
Omni Gear approximately $3,920,000. These advances are reflected in the
accompanying financial statements as follows:
<TABLE>
<S> <C>
Current assets $ 885,000
Property and equipment 1,440,000
Intangible assets and organizational costs 53,000
Current liabilities (1,053,000)
Retained deficit from operations 2,674,000
-----------
Total $ 3,999,000
===========
</TABLE>
26
<PAGE>
NOTE 13 COMMITMENTS AND CONTINGENCIES (Continued)
EMPLOYMENT - Thirteen percent of the Company's employees,
(specifically, twenty-four of thirty-five 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. During the years ended June 30, 1999 and 1998, no
contributions were made by the Company.
NOTE 14 RELATED PARTY TRANSACTIONS
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"). Under the Agreement, (i) the Company
leased 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 through March 31, 1998; (ii) the
Company paid Edward L. Daniel and Joan J. Daniel $20,000 per month,
through July 31, 1998; and (iii) 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 in consideration of
terminating all previous agreements to provide services to the Company.
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).
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.
LEASE OF REAL PROPERTY - The Company leased its Houston facility from
Daniel Development Corporation ("DDC"), a Washington partnership
controlled by Edward L. Daniel and Joan J. Daniel at $8,000 per month
through March 1998. The Company made aggregate lease payments to DDC of
$72,000 in 1998. On March 6, 1998, effective April 1, 1998, the
building was sold to Phenix Investment Company, a real estate
investment company located in Houston Texas. Phenix Investment Company
is not affiliated with Daniel Development Corporation, Edward L. Daniel
or Joan J. Daniel. The terms of the lease were not changed as a result
of the sale.
27
<PAGE>
NOTE 15 SEGMENT INFORMATION
The Company and its subsidiaries are engaged in the business of
designing, developing and distributing power transmissions and trailer
and implement components used for agricultural, construction and
industrial equipment. Selected financial information by business
segment with respect to these activities for the years ended June 30
are as follows:
<TABLE>
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
NET SALES
Power Transmission Components $13,593,483 $12,795,939
Trailer and Implement Components 4,226,695 4,011,410
Corporate and Eliminations - -
------------ -------------
Total Omni USA, Inc. $17,820,179 $16,807,349
============ =============
INCOME FROM OPERATIONS
Power Transmission Components $ 601,885 $ 514,778
Trailer and Implement Components 295,804 59,989
Corporate and Eliminations (200,368) (92,110)
------------ -------------
Total Omni USA, Inc. $ 697,321 $ 482,657
============ =============
NET INCOME
Power Transmission Components $ 378,403 $ 265,252
Trailer and Implement Components 323,076 52,350
Corporate and Eliminations (207,035) (92,110)
------------ -------------
Total Omni USA, Inc. $ 494,444 $ 225,492
============ =============
IDENTIFIABLE ASSETS
Power Transmission Components $ 6,712,782 $ 6,186,753
Trailer and Implement Components 2,214,139 2,138,224
------------ -------------
Total Omni USA, Inc. $ 8,926,921 $ 8,324,977
============ =============
REVENUES
Domestic Customers $17,052,369 $16,177,899
Foreign Customers 767,810 629,450
------------ -------------
Total Revenues $17,820,179 $16,807,349
============ =============
PROPERTY AND EQUIPMENT (NET)
Domestic $ 717,868 $ 853,225
Foreign 1,440,847 1,257,313
------------ -------------
Total Property and Equipment $ 2,158,715 $ 2,110,538
============ =============
</TABLE>
28
<PAGE>
NOTE 16 MAJOR CUSTOMERS AND SUPPLIERS
During fiscal year 1999, the Company and its subsidiaries had
consolidated sales of $2,400,000 to one domestic customer which
represents 13% of consolidated sales. During fiscal year 1998, the
Company and its subsidiaries had consolidated sales of $3,300,000 to a
different domestic customer for a total 20% of consolidated sales.
Approximately 67% and 72% of the Company's products were purchased from
two companies in China in 1999 and 1998, respectively.
NOTE 17 SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities are as follows:
During 1999 the Company acquired equipment in lieu of payment on
accounts receivable amounting to $46,016.
During 1998 the Company acquired plant and equipment for $220,000
in exchange for notes payable.
NOTE 18 PENDING ACQUISITION
On May 27, 1998, the Company executed a Purchase Agreement to acquire
Agritrans BV and its subsidiaries, Agdrive BV and Agritrans KFT
(collectively, "Agritrans"). Agritrans is a Netherlands-based
manufacturer and worldwide distributor of drivelines, clutches, CV
joints, shields and spare parts for agricultural equipment. The
acquisition is contingent on obtaining acceptable outside financing and
completion of due-diligence. As of June 30, 1999, the Company has not
closed on the Agritrans acquisition and the Company continues to seek
favorable financing to complete the acquisition. Pending closing, the
Company entered into a Strategic Cross-Marketing Agreement with
Agritrans.
NOTE 19 SUBSEQUENT EVENT
On July 16, 1999, the Company purchased the fixed assets and inventory
of Piecemaker, Inc., an Oklahoma corporation, in exchange for $350,994
in cash and 100,000 shares of restricted common stock. Pursuant to the
terms of the acquisition, Butler Products relocated its manufacturing
into the facility formerly occupied by Piecemaker, Inc. and entered
into a five-year lease agreement with monthly payments of $4,200.
In support of the acquisition, Butler Products signed a note with a
financing company in the amount of $200,000 with a term of 19 months at
interest of approximately 8.25%.
On September 23, 1999, the Company entered into an agreement with
PACCAR Inc. for a loan of $1,000,000 in support of Shanghai Omni Gear's
manufacturing of planetary geardrives under the distribution agreement
with PACCAR, Inc. The note term is 5 years with quarterly payments of
principle plus accrued interest of 8% commencing December 2000.
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
29
<PAGE>
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 38 President, Chief Executive Officer and Director
Craig L. Daniel 39 Vice President-Manufacturing and Director
Michael A. Zahorik 36 Executive Vice President, Chief Operating Officer,
General Counsel and Secretary
David M. Sallean 33 Chief Financial Officer
James L. Davis 51 Director
John F. Lillicrop 64 Director
W. Wayne Patterson 56 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 for the Company, Managing Director of
Omni Resources, Ltd and General Manager of Shanghai Omni Gear Co., Ltd. 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. In January
1998, Mr. Zahorik became Chief Operating Officer. 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.
DAVID M. SALLEAN joined the Company as its Chief Financial Officer in March
1999. Mr. Sallean has a Bachelors degree from Southwest Texas State University
and is a Certified Public Accountant. Prior to his employment with the Company,
Mr. Sallean was employed by Stewart Title Guaranty Company from June 1988
through March 1999, most recently as Controller of National Title Services.
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.
30
<PAGE>
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, 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.
W. WAYNE PATTERSON is President of HWG Capital, L.L.C. and a principal
shareholder of Harris Webb & Garrison, Inc. Mr. Patterson also serves as
Chairman of the Board of Integrated Service and Industrial Supply, a
consolidator of industrial distribution companies and of U.S Graphics
Industries. Mr. Patterson was formerly the Chairman, CEO and founder of Texas
Micro Systems, a manufacturer of computers primarily for the telecommunications
industry. Mr. Patterson also served as Chairman and CEO of BriskHeat
Corporation, a manufacturer of thermal management products to the laboratory,
aerospace and semiconductor industries. Prior to founding Texas Micro and
BriskHeat in 1989, Mr. Patterson served as Executive Vice President of Keystone
International, Inc., a NYSE listed manufacturer of flow control products. In
this position, he led Keystone's merger and acquisition activities in addition
to his operational responsibilities. Mr. Patterson continued to serve as
Director and Chairman of the Audit Committee of Keystone until its merger with
TYCO in August of 1997. Mr. Patterson holds BBA and LLD degrees from the
University of Texas, is a CPA and a member of the Texas State Bar.
31
<PAGE>
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 1997 76,500 --- --- --- 136,000* --- ---
1998 76,500 --- --- --- --- --- ---
1999 76,500 --- --- --- --- --- ---
Craig L. Daniel
Vice President- 1997 76,500 --- --- --- 136,000* --- ---
Manufacturing 1998 76,500 --- --- --- --- --- ---
1999 76,500 --- --- --- --- --- ---
Michael A. Zahorik
Executive Vice
President, COO & 1997 68,500 --- --- --- 68,000* --- ---
Gen. Counsel 1998 68,500 --- --- --- --- --- ---
1999 73,250 --- --- --- --- --- ---
David M. Sallean
CFO 1997 --- --- --- --- --- --- ---
1998 --- --- --- --- --- --- ---
1999 70,000 --- --- --- 30,000** --- ---
</TABLE>
No other executive officer's salary or bonus exceeded $100,000 for the three
most recent fiscal years ended June 30, 1999.
- ---------------------------
* On June 6, 1997, under the 1996 ISOP, Jeffrey K. Daniel and Craig L.
Daniel were granted options to purchase 136,000 shares of Common Stock and
Michael A. Zahorik was granted 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.
** On March 8, 1999, under the 1996 ISOP, David M. Sallean was granted
options to purchase 30,000 shares of Common Stock. These grants are at an
exercise price of $1.188 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.
32
<PAGE>
STOCK OPTION PLANS AND STOCK OPTIONS
The Company maintains a 1994 Non-Qualified Stock Option Plan (the "1994
NQSOP") and a 1996 Incentive Stock Option Plan (the "1996 ISOP"). The 1994 NQSOP
covers 600,000 shares of Common Stock and the 1996 ISOP covers 900,000 shares of
Common Stock. The purpose of the 1994 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 1994 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.
On June 6, 1997, 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 January 25, 1999, under the 1994 NQSOP, the Board granted 10,000
options to purchase Company Common Stock at $1.625 per share to James L.
Davis, John F. Lillicrop, and W. Wayne Patterson. All director options were
immediately vested.
On March 8, 1999, under the 1996 ISOP, David M. Sallean was granted
options to purchase 30,000 shares of Common Stock. These grants are at an
exercise price of $1.188 and vest 100% three (3) years from date of grant.
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.
<TABLE>
<CAPTION>
Ten-Year Options/SAR Repricings
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>
33
<PAGE>
Under the 1996 ISOP, options for 895,000 shares had been granted as
of June 30, 1999. Under the 1994 NQSOP, options for 280,000 shares had been
granted as of June 30, 1999. The following table shows how the 1994 NQSOP and
the 1996 ISOP options are distributed to groups within the Company based on
the dollar value of exercisable options in effect during fiscal year 1999
based on the closing price of Common Stock at June 30, 1999 of $1.375:
<TABLE>
<CAPTION>
1994 NQSOP and 1996 ISOP
----------------------------------------------------------------
Total Number of Shares
Name and Position Dollar Value / Shares Exercisable Represented by Options
----------------- --------------------------------- ----------------------
<S> <C> <C>
Jeffrey K. Daniel $60,000/160,000 296,000
President and CEO
Craig L. Daniel $60,000/160,000 296,000
Vice President-Manufacturing
Michael A. Zahorik $26,250/70,000 138,000
Executive Vice President, COO
& General Counsel
David M. Sallean $0/0 30,000
Chief Financial Officer
Executive Officer Group $146,250/390,000 760,000
Non-Executive Officer Employee Group $75,000/200,000 215,000
Total $221,250/590,000 975,000
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
Value of Unexercised
Number of Unexercised in-the-money Options/
Shares Acquired Value Options/SARs at FY-End SARs at FY-End (2)
Name on Exercise Realized (1) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ----------- -------- ----------------------------- -------------------------
<S> <C> <C> <C> <C>
Jeffrey K. Daniel
President & CEO N/A N/A 296,000 $111,000
------- --------
160,000/136,000 $60,000/$51,000
Craig L. Daniel
Vice President-
Manufacturing N/A N/A 296,000 $111,000
------- --------
160,000/136,000 $60,000/$51,000
Michael A. Zahorik
Exec. Vice President, COO
& General Counsel N/A N/A 138,000 $51,750
------- -------
70,000/68,000 $26,250/$25,500
David M. Sallean
Chief Financial Officer N/A N/A 30,000 $7,710
------ ------
-0-/30,000 0/$7,710
- ------------------------
</TABLE>
N/A Not applicable. No options were exercised during the fiscal year ended
June 30, 1999.
(1) Indicates number of options exercisable and unexercisable as of
June 30, 1999.
(2) Based upon closing price of Common stock at June 30, 1999 of $1.375.
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 1, 1999, the Company had outstanding 3,623,092 shares of Common Stock,
and Class B Warrants to purchase 706,372 shares of Common Stock.
CLASS A AND B WARRANTS. There are 706,372 Class B Warrants to purchase
Common Stock. The Class B Warrants may be exercised at any time between 90 days
after issuance and March 15, 2001, at $6.00 per share. The Class A Warrants,
which were exercisable by the holder thereof at any time between 90 days after
issuance and March 15, 1999, at $4.00 per share, expired on March 15, 1999.
35
<PAGE>
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 June 30,
1999, 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. Daniel (4) 527,068 15.0%
Joan J. Daniel (4) 527,068 15.0%
Jeffrey K. Daniel (2)(6) 210,550 4.5%
Craig L. Daniel (2)(7) 238,411 5.0%
Michael A. Zahorik (2)(8) 121,715 2.6%
David M. Sallean (2)(11) 5,000 *
Websters Publishing, Ltd. (3) 351,321 8.3%
James L. Davis (5) 50,000 1.0%
John F. Lillicrop (9) 60,000 1.3%
W. Wayne Patterson (10) 30,000 *
Executive Officers and
Directors as a Group 715,676 15.2%
* less than 1% of the total number of shares outstanding
</TABLE>
- -----------------------------
(1) Based upon 3,523,092 shares of Common Stock outstanding as of June 30,
1999.
(2) The address for all officers is 7502 Mesa Road, Houston, Texas 77028.
(3) Includes 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.
(4) The address for such beneficial owner is 2476 Bolsover, #626, Houston,
Texas 77005.
(5) Includes 40,000 shares purchasable under options exercisable within 60
days at $1.00 per share and 10,000 shares purchasable under options
exercisable within 60 days at $1.625 per share. The address of such
beneficial owner is One Park Ten Place, Suite 340, Houston, Texas
77084.
(6) Includes 160,000 shares purchasable under options exercisable within 60
days at $1.00 per share and 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 and 9,254 shares purchased through the
Company's 401(k) plan.
(7) Includes 160,000 shares purchasable under options exercisable within 60
days at $1.00 per share and 6,800 shares held of record by the Craig L.
Daniel Individual Retirement Account, a self-directed IRA.
(8) Includes 70,000 shares purchasable under options exercisable within 60
days at $1.00 per share and 21,900 shares held of record by the Michael
A. Zahorik Individual Retirement Account, a self-directed IRA and 7,315
shares purchased through the Company's 401(k) plan.
(9) Includes 40,000 shares purchasable under options exercisable within 60
days at $1.00 per share and 10,000 shares purchasable under options
exercisable within 60 days at $1.625 per share. Owned jointly with
Stella J. Lillicrop. The address of such beneficial owners is 1220
Skyland Drive, Lake Oswego, Oregon 97034.
(10) Includes 20,000 shares purchasable under options exercisable within 60
days at $1.00 per share and 10,000 shares purchasable under options
exercisable within 60 days at $1.625 per share. The address of such
beneficial owner is 5599 San Felipe, Suite 301, Houston, Texas 77056.
(11) Includes 5,000 shares held of record by the David M. Sallean Individual
Retirement Account, a self-directed IRA.
36
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
EDWARD L DANIEL AND AFFILIATES
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 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.
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 could not 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 paid Daniel $20,000 per month
for twelve months through July 1998.
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 leased its Houston facility from
Daniel Development Corporation ("DDC"), a Washington partnership controlled by
Edward L. Daniel and Joan J. Daniel at $8,000 per month through March 1998. The
Company made aggregate lease payments to DDC of $72,000 in 1998. On March 6,
1998, effective April 1, 1998, the building was sold to Phenix Investment
Company, a real estate investment company located in Houston Texas. Phenix
Investment Company is not affiliated with Daniel Development Corporation, Edward
L. Daniel or Joan J. Daniel. The terms of the lease were not changed as a result
of the sale.
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 was an
unsecured note that was fully paid during the year ended June 30, 1998.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
None.
37
<PAGE>
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
--------------------------------
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.
SIGNATURE TITLE DATE
/s/ Jeffrey K. Daniel CHIEF EXECUTIVE OFFICER SEPTEMBER 27, 1999
- ------------------------------ & PRESIDENT
JEFFREY K. DANIEL
/s/ David M. Sallean CHIEF FINANCIAL OFFICER SEPTEMBER 27, 1999
- ------------------------------
DAVID M. SALLEAN
38
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. NAME OF EXHIBIT
----------- ---------------
<S> <C>
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.
39
<PAGE>
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 and from the Company's Amended Form 8-K filed on December
11, 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.
27.1 Financial Data Schedule
99.1 Press Release dated September 10, 1997. Incorporated by
reference from the Company's Form 8-K filed on September 10,
1997.
</TABLE>
40
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<PAGE>
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<PERIOD-START> JUL-01-1998
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