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, 2000
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
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 $20,711,891.
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of September 1, 2000 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, 2000 was 3,623,092.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
HISTORY OF THE COMPANY. Omni U.S.A., Inc. (the "Company"), a Nevada
corporation, 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 Co., Ltd.
("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"). 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 Shanghai Omni Gear, a
Cooperative Joint Venture Limited Liability Company (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.
The Articles of Association of the Joint Venture 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.
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.
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 $3,270,000 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.
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On October 1, 1996, the Company acquired 100% of the common stock of
Butler Products Corporation ("Butler"). Consideration paid to the shareholders
of Butler included $225,000 in cash, $500,000 in junior subordinated notes due
in quarterly payments commencing in 2001 and final payment in 2003, and 150,000
shares of Omni Common Stock. Located in Butler, Kentucky, Butler is a
long-standing manufacturer of jack and trailer products typically sold to
manufacturers and distributors of heavy-duty trailers.
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, Butler acquired the assets of Piecemaker, Inc.
("Piecemaker"), a manufacturer of horse, agricultural and utility trailer
components located in Madill, Oklahoma. 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) 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) Reputation for responsive customer 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 by
continuing emphasis on low cost, quality products manufactured
in China;
(iv) Expand market share in the planetary and industrial markets;
(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.
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 Gear currently distributes a standard product line of over 300,000 gearbox
configurations. As a percentage of revenues, Omni Gear's power transmission
components are its most significant product, representing 79% and 76% of the
Company's revenues in fiscal years 2000 and 1999.
Although Omni Gear 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:
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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 for fencing and tree planting; rotary cutters, which are large,
heavy-duty mowers for use in agriculture and highway right-of-way and
recreational area maintenance; grain augers, which convey grain to the
top of grain silos; and geardrives for fertilizer spreader and
roto-tiller applications.
IRRIGATION SYSTEMS. Omni Gear distributes right-angle gearboxes for
vertical turbine pumps and electro-mechanical drivetrain components for
mechanized irrigation. Omni Gear supplies both helical gear and worm
gear primary drive units, some of which are integrated with electric
motors, as well as worm gear and planetary gear final drives.
CONSTRUCTION, MOBILE OFF-HIGHWAY, INDUSTRIAL AND UTILITY EQUIPMENT.
Omni Gear distributes 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. Omni Gear believes that it can significantly
expand its share of the market of planetary drives, and Omni Gear's
goal of increased production of these products was a primary factor in
the Company's decision to establish a manufacturing facility in China.
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. Piecemaker manufactures component
parts for horse, livestock and utility trailers. Piecemaker's products include
greaseable gate and hinge sleeves, back gate handles and extensions, roller pin
assemblies, spring loaded latches, butt bars and plates, hinge assemblies and
roof bows. As a percentage of revenues, trailer and implement component sales
represented 21% and 24% of the Company's net sales in fiscal years 2000 and
1999. The Company expects sales from both product lines to equate as the Company
continues its strategy 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, bevel, irrigation, planetary, commercial turf and
mobile utility geardrive product lines.
PRODUCT MANUFACTURING
CURRENT MANUFACTURING ARRANGEMENTS. 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.
The light-duty 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.
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AVAILABILITY OF RAW MATERIALS AND COMPONENTS. Product components and
raw materials are currently purchased from numerous suppliers in the U.S. and
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 continues to expand its Shanghai
Omni Gear facility parallel with growing customer demand. The contract
manufacturers it currently employs possess sufficient excess 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
original equipment manufacturers and distributors. Customers with limited
requirements, and most of the Company's North American customers, typically
purchase Omni Gear product 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 right-angle and planetary geardrive products,
marketed under Omni Gear, directly from the factory to U.S. customers and
foreign customers located primarily in Australia, Europe and Japan, or to other
customers that purchase entire containers or production runs of Omni Gear
products. Butler distributes its products to after-market distributors, trailer
OEMs, export brokers and government agencies. All products are shipped 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 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. The Company 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. The Company distributes product catalogs to prospects, as
well as soliciting sales directly from new customers. From time to time, the
Company 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
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salesperson alone and Company 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.
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.
INVENTORIES, FIRM ORDERS AND BACKLOGS. The Company maintains
approximately $2,200,000 in inventory at the Houston, Texas facility,
approximately $870,000 at the Butler, Kentucky facility, approximately $350,000
at the Madill, Oklahoma facility and approximately $415,000 at the Shanghai,
China facility. Additionally, the Company has access to inventory located in
bonded warehouses and vendor facilities that approximate $1,000,000. 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, 2000, the Company's backlog was approximately
$11,000,000. The Company determines the amount of backlog by estimating
purchases to be made by established customers with blanket purchase orders with
the Company. Average delivery time for the Company's power transmission
equipment varies depending upon the product. The Company can often fill and ship
an order 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.
The Company identifies its competition according to power transmission and
trailer and implement components.
POWER TRANSMISSION COMPONENTS. 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 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.
The Company 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 $150,000,000 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
Omni Gear, as a low-priced competitor, can usually capture a portion of any new
market that it enters.
TRAILER AND IMPLEMENT COMPONENTS. 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.
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The Company's most important competitive advantage is its competitive
pricing afforded by inexpensive Chinese labor and manufacturing costs. The
Company 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 two hundred
persons worldwide; (i) one hundred-thirty by Shanghai Omni Gear, (ii)
twenty-nine at the Company's Houston, Texas facility, (iii) twenty-nine at the
Company's facilities in Butler, Kentucky, and (iv) twelve at the Company's
facility in Madill, OK. Twenty-three of Butler's forty-one 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 design 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 expensed them in the period incurred. 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 and leasehold improvements, the Company has expensed all costs
related to the development of Shanghai Omni Gear. Research and development
expenses, unless otherwise specified, are reflected in the Company's financial
statements as part of operating expenses.
INTANGIBLE PROPERTIES. The Company manufactures, advertises and sells
its products under numerous trademarks. Omni(R), Omni USA(R), Omni Gear(R), and
Butler(TM) trademarks are the primary marks under which the Company's products
are sold. The Company also owns other trademarks under which gearbox products
are sold such as RC-20(R), RC-30(R), RC-51(R), RC-61(R), RC-61T(R), RC-65T(R),
RC-71(R), RC-81(R), RC-91(R), RC-110(R), RCD-101(R), PHD-26HD(R), PHD-50A(R),
PHD-75(R), IR-15(R), IR-50(R), OFD-50(R), RC-130(TM), RC-25(TM), Irri-Torq(TM),
Voyager(R), Galaxy(TM), Enforcer(TM), Enforcer II(TM), Slick Disc(TM), and
Slider(R). Management believes that the Company's trademarks are well known in
its markets, are valuable and that their value is increasing with the
development of its business. The Company is not dependent on any one such
trademark. The Company vigorously protects its trademarks against infringement.
The Company has registered its trademarks in the appropriate jurisdictions.
ENVIRONMENTAL MATTERS. The Company is not a party to any legal or
regulatory proceedings seeking to impose liability or responsibility for any
environmental damages or violations of any environmental laws or regulations,
nor is it aware of any circumstances in which its activities in China or in the
United States have created any basis for any environmental liability or
responsibility for damages.
GOVERNMENT REGULATION. The Company is not subject to governmental
regulations other than those that typically apply to businesses importing
foreign manufactured goods into the United States and other countries, such as
customs laws and regulations. The Joint Venture is subject to certain Chinese
laws and regulations governing labor and employment, taxation, insurance,
foreign exchange, and other business matters, but the Company does not regard
these laws and regulations as significantly different in form or effect as those
that apply to the Company generally.
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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 Omni Gear assembly center, inventory warehouse, warranty repair, quality
control, testing and inspection, and distribution center. 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 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 under a long-term lease expiring July 2004, at a rate of $6,000
per month.
Shanghai Omni Gear leases buildings in a manufacturing complex
containing approximately 130,000 square feet pursuant to a 30-year lease. The
existing space is sufficient for the activities currently conducted there, and
Shanghai Omni Gear 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 that 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 or fiscal year ended June 30, 2000.
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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:
QUARTER ENDING LOW HIGH
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
09/30/99 .87 1.34
12/31/99 .75 1.37
03/31/00 .81 2.75
06/30/00 1.12 1.50
As of September 1, 2000, the closing price of the Company's Common
Stock was $1.00 per share. As of June 30, 2000, 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
retained deficit of $2,062,692 as of June 30, 2000; 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
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are for working capital and
acquisitions that are generally met through a combination of internally
generated funds, a revolving line of credit facility and credit terms from
suppliers. The Company's $4,000,000 line of credit facility had an outstanding
balance of $2,626,457 at June 30, 2000. The Company had working capital of
$2,499,953 as of June 30, 2000 and working capital of $1,025,024 as of June 30,
1999, an increase of $1,474,929 during the fiscal year ended June 30, 2000. The
change in working capital was due to the funding of the PACCAR loan (see Note 3
of the footnotes to the Financial Statements) and increase in inventory, partly
due to the acquisition of Piecemaker, Inc. inventory (see Note 2 of the notes to
the Financial Statements), in addition to other changes in working capital.
The Company had a positive cash flow of $294,141 which resulted in a
cash balance of $587,044 at the year ended June 30, 2000, compared to the June
30, 1999 cash balance of $292,903. The positive cash flow was generated
primarily as a result of financing activities for the period. Accounts
receivable balance of $3,178,704 increased $245,739 compared to
9
<PAGE>
June 30, 1999 accounts receivable balance of $2,932,965 which contributed to
cash utilized by operating activities in addition to the increase in inventory
and reduction in accounts payable.
The inventory balance as of June 30, 2000 was $4,103,840; an increase
of $896,298 compared to the June 30, 1999 inventory of $3,207,542. Inventory
increased as a result of the acquisition of Piecemaker, Inc. inventory (see Note
2 of the footnotes to the Financial Statements), new product line development
and increased activity within the Shanghai Omni Gear manufacturing facility.
The Company's cash used in investing activities for the year ended June
30, 2000 of $449,647 consisted of the Piecemaker, Inc. acquisition (see Note 2
of the footnotes to the Financial Statements) and capital expenditures of
$88,643 compared to capital expenditures of $285,828 for the year ended June 30,
1999 and purchases of other assets.
Net cash provided from financing activities for the year ended June 30,
2000 of $1,547,867 consisted of borrowings on the revolving line of credit of
$537,540, proceeds of the Piecemaker, Inc. financing (see Note 2 of the
footnotes to the Financial Statements) and the PACCAR loan (see Note 3 of the
footnotes to the Financial Statements) offset by payments on long-term debt of
$189,673.
The Company's current ratio was 1.46 as of June 30, 2000, which is a
22% increase over the June 30, 1999 current ratio of 1.19. The increase is
attributable primarily increases in long-term debt, accounts receivable and
inventories as well as decreases in accounts payable.
The Company believes that between its access to the line of credit
facility and its ability to generate funds internally, it has adequate capital
resources to meet its working capital requirements for the foreseeable future,
given its current working capital requirements, known obligations, and assuming
current levels of operations. In addition, the Company believes that it has the
ability to raise additional financing in the form of debt or equity to fund
additional capital expenditures and operations, if required.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED JUNE 30, 2000, COMPARED TO FISCAL YEAR ENDED JUNE 30,
1999. The Company had net sales of $20,711,891 for the year ended June 30, 2000.
This represents an increase of 16% compared to the year ended June 30, 1999 net
sales of $17,820,179. The following table indicates the Company's net sales
comparison and percentage of change for the years ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
YEAR ENDED % YEAR ENDED % DOLLAR %
NET SALES 6/30/00 OF TOTAL 6/30/99 OF TOTAL CHANGE CHANGE
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------
Power Transmission Components $ 16,292,020 79% $13,593,483 76% $2,698,537 20%
------------------------------------------------------------------------------------------------------------
Trailer and Implement Components 4,419,871 21% 4,226,696 24% 193,175 5%
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Consolidated $ 20,711,891 100% $17,820,179 100% $2,891,712 16%
============================================================================================================
</TABLE>
The net increase in sales was primarily attributable to internally
generated growth through new and existing customer relationships and new product
development. Sales of trailer and implement components were relatively flat and
knife guard sales slowing due to decreased customer requirements for current
fiscal year which the Company believes, based on customer forecasts, will be
recovered in the fiscal year ended June 30, 2001.
Gross profit for the year ended June 30, 2000 increased $327,600 to
$5,142,299, compared to gross profit for the year ended June 30, 1999 of
$4,814,699. This increase was the result of acquisitions and internally
generated growth. Gross profit as a percentage of net sales for the year ended
June 30, 2000 decreased to 25% as compared to 27% for the year ended June 30,
1999. This decrease was primarily due to the product mix of sales and increasing
sales of lower margin product manufactured by Shanghai Omni Gear.
10
<PAGE>
Selling, general and administrative expenses increased $71,593 to
$4,188,971 in the year ended June 30, 2000 from $4,117,378 in the year ended
June 30, 1999. This increase was the result of acquisitions as well as
additional expenses to support the growth in sales. Because of increased sales,
selling, general and administrative expenses as a percentage of sales decreased
to 20% for the year ended June 30, 2000 from 23% for the year ended June 30,
1999.
Income from operations for the Company increased $256,007, or 37%, to
$953,328 for the year ended June 30, 2000, compared $697,321 for the year ended
June 30, 1999. Income from operations as a percentage of sales increased to 5%
in the year ended June 30, 2000 compared to 4% in the year ended June 30, 1999.
This increase in both dollars and percentage of sales is essentially the result
of sales growth, cost control efforts and the addition of acquired companies.
Interest expense increased $127,170, to $415,153 for the year ended
June 30, 2000 from $287,983 for the year ended June 30, 1999. The increase
resulted primarily from and increased level of debt and borrowing rate
associated with the Company's line of credit to meet current inventory and
working capital needs and interest on the PACCAR loan (see Note 3 of the
footnotes to the Financial Statements) and Piecemaker, Inc. financing (see Note
2 of the footnotes to the Financial Statements).
Other income (expense) was an expense of $95,598 for the year ended
June 30, 2000 compared to income of $85,106 for the year ended June 30, 1999.
This change relates to expensing un-amortized organizational costs of $38,502
(see Note 1 of the footnotes to the Financial Statements) in addition to a
reduction in commission income on trailer and implement component sales of
$39,764, increased net commission expenses on power transmission component sales
and other fees.
The Company's net income decreased $51,867 to $442,577, or $0.12 per
share, for the year ended June 30, 2000 compared to $494,444, or $0.14 per
share, for the year ended June 30, 1999.
FISCAL YEAR ENDED JUNE 30, 1999, COMPARED TO FISCAL YEAR ENDED JUNE 30,
1998. The Company'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, the Company 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 in the
rotary cutter, tractor-powered implement, universal geardrive markets and by new
product introduction. Sales of Omni Gear's power transmission components
represented 76% of total sales while sales of Butler's 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 1999 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.
YEAR 2000
As a result of the Company's year 2000 assessment and remediation, the
Company has not experienced any materially adverse effects on its operations as
a result of the Year 2000 issue.
11
<PAGE>
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.
12
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
OMNI U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
13
<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, 2000 and 1999, and the related consolidated
statements of income, 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, 2000 and 1999, 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 1, 2000
14
<PAGE>
OMNI U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND 1999
ASSETS
<TABLE>
<CAPTION>
2000 1999
-------------------- -------------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 587,044 $ 292,903
Accounts receivable, trade, net 3,151,091 2,920,896
Accounts receivable, related parties 27,613 12,069
Inventories 4,103,840 3,207,542
Prepaid expenses 51,964 69,693
-------------------- -------------------
TOTAL CURRENT ASSETS 7,921,552 6,503,103
-------------------- -------------------
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 2,103,603 2,158,715
-------------------- -------------------
OTHER ASSETS - primarily intangible assets, net 215,822 265,103
-------------------- -------------------
TOTAL ASSETS $ 10,240,977 $ 8,926,921
==================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 1,895,015 $ 2,672,455
Revolving line of credit 2,626,457 2,088,917
Accrued expenses 474,758 486,205
Current portion of long-term debt 425,369 230,502
-------------------- -------------------
TOTAL CURRENT LIABILITIES 5,421,599 5,478,079
-------------------- -------------------
LONG-TERM DEBT 1,462,236 646,776
-------------------- -------------------
STOCKHOLDERS' EQUITY
Common stock 18,384 17,885
Additional paid-in capital 5,360,560 5,248,560
Treasury stock (57,141) (57,141)
Retained deficit (2,062,692) (2,505,269)
Foreign currency translation adjustment 98,031 98,031
-------------------- -------------------
TOTAL STOCKHOLDERS' EQUITY 3,357,142 2,802,066
-------------------- -------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 10,240,977 $ 8,926,921
==================== ===================
</TABLE>
See accompanying notes.
15
<PAGE>
OMNI U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
--------------- ----------------
<S> <C> <C>
NET SALES $ 20,711,891 $ 17,820,179
COST OF SALES 15,569,592 13,005,480
--------------- ----------------
Gross Profit 5,142,299 4,814,699
--------------- ----------------
OPERATING EXPENSES
Selling, general and administrative 4,188,971 4,117,378
--------------- ----------------
Operating income 953,328 697,321
--------------- ----------------
OTHER INCOME (EXPENSE)
Commission income, net 21,918 61,026
Interest expense (415,153) (287,983)
Other, net (117,516) 24,080
--------------- ----------------
(510,751) (202,877)
--------------- ----------------
NET AND COMPREHENSIVE INCOME $ 442,577 $ 494,444
=============== ================
BASIC AND COMPREHENSIVE EARNINGS PER SHARE $ 0.12 $ 0.14
=============== ================
DILUTED EARNINGS PER SHARE $ 0.12 $ 0.12
=============== ================
</TABLE>
See accompanying notes.
16
<PAGE>
OMNI U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
Common Stock
----------------------------
Number Additional Foreign
Of Shares Paid-in Treasury Retained Currency
Outstanding Amount Capital Stock Deficit Adjustment Total
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Issuance of common shares 100,000 499 112,000 112,499
Net Income $ 442.577 442.577
----------------------------------------------------------------------------------------------------
Balance, June 30, 2000 3,623,092 $ 18,384 $ 5,360,560 $ (57,141) $ (2,062,692) $ 98,031 $ 3,357,142
====================================================================================================
</TABLE>
See accompanying notes.
17
<PAGE>
OMNI U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
---------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 442,577 $ 494,444
---------------- ------------------
Adjustments to reconcile net income to net cash
(used) provided by operating activities:
Depreciation 356,254 283,667
Amortization 59,295 32,260
Changes in operating assets and liabilities:
Accounts receivable (245,739) (301,112)
Inventories (645,308) (282,794)
Prepaid expenses 17,729 (16,775)
Accounts payable and accrued expenses (788,887) 87,408
--------------- ----------------
Total adjustments (1,246,656) (197,346)
--------------- ----------------
Net cash (used) provided by operating
activities (804,079) 297,098
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of other assets (10,014) (16,756)
Acquisition of Piecemaker, Inc. (350,990) --
Purchase of property and equipment (88,643) (285,828)
--------------- ----------------
Net cash used by investing activities (449,647) (302,584)
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of Piecemaker acquisition financing 200,000 --
Net borrowings on revolving line of credit 537,540 123,731
Borrowings on long-term debt 1,000,000 54,777
Payments on long-term debt (189,673) (158,416)
--------------- ----------------
Net cash provided by financing
activities 1,547,867 20,092
--------------- ----------------
NET INCREASE IN CASH 294,141 14,606
CASH AT BEGINNING OF PERIOD 292,903 278,297
--------------- ----------------
CASH AT END OF PERIOD $ 587,044 $ 292,903
=============== ================
</TABLE>
See accompanying notes.
18
<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 domestic or foreign
manufacturers of products, (in the case of contract manufacturing)
contracting with such manufacturer, and distribution to an ultimate
third party customer. The Company also self-produces products using
both domestic and foreign components. 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 $169,779 and $125,184 in 2000 and
1999, 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 cost 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.
19
<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:
Estimated useful
LIVES (YEARS)
------------
Warehouse, manufacturing and office equipment 3 to 10
Leasehold improvements 5 to 10
Tooling costs 5 to 10
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 goodwill from the Butler Products acquisition and engineering plans
and designs. Organizational costs are attributed to Shanghai Omni Gear
capitalized expenditures. Amortization is provided on a straight-line
basis over five to fifteen-year periods.
The Company implemented Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities," effective July 1, 1999 and expensed
$38,502 of unamortized organizational costs on that date.
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,
2000 due to their relative short lives for current assets and
liabilities and long-term liabilities are at interest rates comparable
to current market rates.
20
<PAGE>
NOTE 2 On July 16, 1999, the Company acquired approximately $212,000 of
machinery and equipment and approximately $250,000 of inventory from
Piecemaker, Inc., a Madill, Oklahoma manufacturer of horse, livestock
and utility trailer component parts, in exchange for 100,000 shares of
Omni U.S.A., Inc. common stock and $350,990 in cash. The Company also
entered into a $200,000 loan agreement to finance a portion of the cash
consideration.
NOTE 3 On September 23, 1999, the Company entered into a $1,000,000 loan
agreement with PACCAR Inc. (PACCAR). Loan proceeds are to be used to
support Shanghai Omni Gear's manufacturing of planetary geardrives,
which will be sold by PACCAR under a distribution agreement entered
into September 9, 1999. Quarterly payments of principle and interest of
8% commence in December 2000 and continue for a five-year period. Under
the terms of the loan, PACCAR received 500,000 warrants to purchase
shares of the Company's common stock. The warrants may be exercised
through July 2009 at $2.00 per share. The warrants to purchase stock
may be reduced to 350,000 upon the occurrence of certain subsequent
events.
NOTE 4 ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
Accounts receivable at June 30 consisted of the following:
2000 1999
---------- ----------
<S> <C> <C>
Accounts receivable, trade $3,231,091 $3,034,621
Allowance for doubtful accounts (80,000) (113,725)
---------- ----------
$3,151,091 $2,920,896
========== ==========
NOTE 5 INVENTORIES
<CAPTION>
Inventories at June 30 consisted of the following:
2000 1999
---------- ----------
<S> <C> <C>
Raw materials $ 402,775 $ 374,364
Work in process 201,138 169,417
Finished goods 3,499,927 2,663,761
---------- ----------
$4,103,840 $3,207,542
========== ==========
NOTE 6 PROPERTY AND EQUIPMENT
<CAPTION>
Property and equipment at June 30 consisted of the following:
2000 1999
---------- ----------
<S> <C> <C>
Warehouse, manufacturing and
office equipment $3,079,565 $2,698,444
Land, buildings & leasehold improvements 574,620 561,588
Tooling costs 520,711 613,722
---------- ----------
4,174,896 3,873,754
Accumulated depreciation and amortization 2,071,293) (1,715,039)
---------- ----------
$2,103,603 $2,158,715
========== ==========
</TABLE>
21
<PAGE>
NOTE 7 OTHER ASSETS
<TABLE>
<CAPTION>
Other assets at June 30 consisted of the following:
2000 1999
----------- -----------
<S> <C> <C>
Intangible assets $ 795,708 $ 793,767
Cash surrender value of life insurance 8,073 --
----------- -----------
$ 803,781 $ 793,767
Accumulated amortization 587,959 528,664
----------- -----------
$ 215,822 $ 265,103
=========== ===========
</TABLE>
NOTE 8 REVOLVING 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. As of June 30, 2000
the Company had approximately $383,000 in unused available credit.
NOTE 9 LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt at June 30 consisted of the following:
2000 1999
-------- -------------
<S> <C> <C>
Notes payable to banks/financing companies, due in monthly $ 15,024 $ 27,785
installments of $1,047 including interest ranging from 1.9% to 7.7%,
maturing at various dates through 2002, secured by vehicles
Note payable to equipment manufacturer, non interest bearing, due in -- 16,320
monthly installments of $1,360 through 2000
Note payable to bank, due in monthly installments of $1,375 11,949 27,942
including interest at 8.25% through 2001, secured by equipment
Note payable to equipment manufacturer, due in monthly installments 40,058 170,238
of $10,244 including interest at 10% through 2001, secured by
equipment
Butler Products Corporation Industrial Bonds due in monthly 83,440 110,793
installments of $2,730 including interest at 5.5% through March 2003,
secured by equipment
Butler Products Corporation Small Business Administration loan due -- 24,200
in monthly installments of $2,168 including interest at 9.259%
through June 2000
Note payable to financing company, due in monthly installments of 174,238 --
$4,250 including interest at 10.36% through April 15, 2001 with
final payment at that date of $150,000 to finance the assets
acquired from Piecemaker Inc.
</TABLE>
22
<PAGE>
NOTE 9 LONG-TERM DEBT (continued)
<TABLE>
<S> <C> <C>
Note payable to PACCAR, Inc. with quarterly payments $79,721 1,062,896 --
including interest of 8% commencing December 2000 for a period of
5 years.
Junior Subordinated Notes to Butler Products Corporation former 500,000 500,000
owners at 8% annual interest with annual principal payments of
$166,667 beginning September 30, 2001 through 2003
---------------- -----------------
1,887,605 877,278
Less current portion 425,369 230,502
---------------- -----------------
Total long-term debt $ 1,462,236 $ 646,776
================ =================
<CAPTION>
Future maturities of long-term debt by fiscal year are as
follows:
<S> <C>
2001 $ 425,369
2002 454,181
2003 465,627
2004 464,271
2005 78,157
----------------
$ 1,887,605
================
</TABLE>
NOTE 10 COMMON STOCK
The Company has authorized 150,000,000 shares of common stock with a
par value of $.004995 per share. At June 30, 2000 the Company had
issued 3,680,592 shares with 3,623,092 shares outstanding and 57,500
treasury shares. At June 30, 1999 the Company had issued 3,580,592
shares with 3,523,092 share outstanding and 57,500 treasury shares.
NOTE 11 WARRANTS TO PURCHASE COMMON STOCK
The Company has Class B Warrants that entitle the holder to purchase
shares of common stock as follows:
Number of
Per Share Warrants
Expiration Date Price Issued
--------------- ----- ------
Class B Series 1 March 15, 2001 $ 6.00 706,372
Class B Series 2 July 1, 2009 2.00 500,000
On March 15, 1999, all Class A Warrants expired by operation of the
Class A Warrant Agreement. No Class A Warrants were exercised.
23
<PAGE>
NOTE 12 STOCK OPTION PLANS
The Company maintains a Non-Qualified Stock Option Plan (the "NQSOP")
and a 1996 Incentive Stock Option Plan (the "1996 ISOP"). The NQSOP
covers 600,000 shares of Common Stock and the 1996 ISOP covers 900,000
shares of Common Stock. The purpose of the NQSOP and 1996 ISOP, under
the discretion of the Company board of directors, 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 $1.0625 Weighted-
Average
of Exercise
Stock Option Summary Shares Options Options Options Options Options Options Price
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Options Outstanding at June 1,105,000 70,000 1,035,000 0 0 0 0 1.19
30, 1998
Options Granted 75,000 0 0 30,000 0 1.57
15,000 30,000
Options Canceled -5,000 0 -5,000 0 0 0 0 1.00
Options Outstanding at June 1,175,000 70,000 1,030,000 30,000 0 1.21
30, 1999 15,000 30,000
Options Granted 60,000 0 0 0 0 1.13
30,000 30,000
Options Canceled 0 0 0 0 0 0 0
Options Outstanding at June 1,235,000 70,000 1,030,000 30,000 1.21
30, 2000 15,000 60,000 30,000
Exercisable at June 30, 2000 1,160,000 70,000 1,030,000 30,000 0 30,000 30,000 1.23
Exercisable at June 30, 1999 790,000 70,000 690,000 30,000 0 0 0 1.29
Available for future grant at
June 30, 2000 265,000
------------------------------------------------------------------------------------------------------------------
Weighted-average remaining 6.7 4 6.5 9 9 9.5 10
contractual life in years
------------------------------------------------------------------------------------------------------------------
</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
pro forma effects had stock options issued to employees been recorded
under SFAS 123 is as follows:
<TABLE>
<CAPTION>
2000 1999
----------------- ------------------
<S> <C> <C>
Additional compensation expense $ 43,000 $ 31,000
Pro forma net income 399,577 463,444
================= ==================
Pro forma basic earnings per share $ .11 $ .13
================= ==================
</TABLE>
The Company utilized the Black Scholes option value pricing model to
estimate the value of the options granted. Assumptions utilized in the
Black Scholes model include a risk free interest rate of 6.5% for 2000
and 6% for 1999, an expected life of 10 years, a volatility of .71 and
.62 for 2000 and 1999, respectively and no expected dividends.
24
<PAGE>
NOTE 13 EARNINGS PER SHARE
The following sets forth the computation of basic and diluted earnings
per share at June 30, 2000 and 1999.
<TABLE>
<CAPTION>
2000 1999
----------------- ----------------
<S> <C> <C>
Numerator
Net income $ 442,577 $ 494,444
================= ================
Denominator
Denominator for basic earnings per share -
Weighted average common shares outstanding 3,618,708 3,523,092
Effect of dilutive securities:
Conversion of dilutive stock options 198,736 530,848
----------------- ----------------
Denominator for dilutive earnings per share -
adjusted weighted average shares and assumed conversion 3,817,444 4,053,940
================= ================
Basic and Comprehensive Net Earnings Per Share $ 0.12 $ 0.14
================= ================
Diluted Net Earnings Per Share $ 0.12 $ 0.12
================= ================
</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, 2000 and 1999.
NOTE 14 INCOME TAXES
Income tax expense (benefit) is comprised of the following:
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Current $ -- $ --
Deferred - Current (27,000) (26,000)
Deferred - Long-term 27,000 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
25
<PAGE>
NOTE 14 INCOME TAXES (continued)
depreciation for income tax and financial statement purposes, (2) the
uniform capitalization of inventory for income tax purposes, (3)
direct write-off of bad debts for income tax purposes, and (4) foreign
losses.
The components of the Company's deferred tax assets and liabilities at
June 30 are as follows:
<TABLE>
<CAPTION>
2000 1999
----------- --------------
<S> <C> <C>
Current deferred tax assets:
Accounts receivable $ 27,200 $ 39,000
Inventory 11,000 7,000
Foreign net operating loss carry-forwards 575,000 646,000
----------- ------------
Deferred tax assets 613,200 692,000
Non-current deferred tax liabilities:
Depreciation (74,000) (46,000)
----------- ------------
Net deferred income tax assets - -
Valuation allowance (539,200) (646,000)
----------- ------------
Net deferred income taxes $ -0- $ -0-
=========== ============
</TABLE>
The valuation allowance has decreased $106,800 and $204,500 in 2000 and
1999, 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
$1,690,000 at June 30, 2000.
The difference between the effective rate of income tax expense at June
30, 2000 and 1999 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>
2000 1999
----------- ------------
<S> <C> <C>
Provision for income tax expense at
U.S. statutory rates $ 150,000 $ 168,000
Increase (decrease) in tax provision
resulting from:
U.S. net operating loss carry-forwards not
previously recognized (30,000) --
Non-deductible expense 3,500 36,500
Utilization of tax credits (15,000) --
Other (1,700) --
Change in valuation reserve (106,800) (204,500)
--------- -------------
Income tax expense $ -0- $ -0-
=========== =============
</TABLE>
For the years ended June 30, 2000 and 1999, the Company utilized tax-
basis net operating loss carry-forwards amounting to approximately
$85,600 and $597,000 to decrease federal income tax expense by $30,000
and $203,000, respectively.
26
<PAGE>
NOTE 15 COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - The Company leases equipment and office, warehouse
and manufacturing space in Houston, TX; Madill, OK; Shanghai, China;
and Osaka, Japan. The Houston lease is $8,000 per month through 2002.
The Madill, Oklahoma leases are $6,000 per month through 2004. The
Shanghai lease began in 1996 and has a thirty-year term at
approximately $10,000 per month. At June 30, 2000, the future minimum
rental payments required under operating leases were approximately:
<TABLE>
<S> <C>
2001 $ 317,993
2002 310,702
2003 213,218
2004 196,311
2005 124,077
Thereafter 2,536,632
----------
Total $3,698,933
==========
</TABLE>
Rent expense was approximately $297,000 and $298,000 during the years
ended June 30, 2000 and 1999, 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 Butler Products Corporation
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 U.S.A., Inc. through 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 this obligation is 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, 2000, Omni Resources and
Omni USA have advanced Shanghai Omni Gear approximately $3,270,000.
27
<PAGE>
NOTE 15 COMMITMENTS AND CONTINGENCIES (continued)
EMPLOYMENT - Eleven percent of the Company's employees, (specifically,
twenty-three of forty-one Butler employees) are unionized and are
covered by a collective bargaining agreement. The collective bargaining
agreement expires June 12, 2001. Management believes that expiration of
the agreement will not impact future operations.
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, 2000 and 1999, the
Company made no contributions.
NOTE 16 MAJOR CUSTOMERS AND SUPPLIERS
The Company and its subsidiaries had consolidated sales in its power
transmission component segment to one domestic customer of $4,187,000
and $2,400,000 representing 20% and 13% of total consolidated sales in
fiscal 2000 and 1999, respectively.
Approximately 63% and 67% of the Company's products were purchased from
two companies in China in 2000 and 1999, respectively.
NOTE 17 SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities are as follows:
During 2000, the Company issued 100,000 shares of stock for the
purchase of Piecemaker assets as discussed in Note 2. The value of
the stock on the date of issuance was $112,499.
During 1999 the Company acquired equipment in lieu of payment on
accounts receivable amounting to $46,016.
The Company paid interest of $354,734 and $287,983 for the fiscal
years ended June 30, 2000 and 1999 respectively.
28
<PAGE>
NOTE 18 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>
2000 1999
------------------- ------------------
<S> <C> <C>
NET SALES
Power Transmission Components $ 16,292,020 $ 13,593,483
Trailer and Implement Components 4,419,871 4,226,696
Corporate and Eliminations -- --
------------------ ------------------
Total Omni U.S.A., Inc. $ 20,711,891 $ 17,820,179
================== ==================
INCOME FROM OPERATIONS
Power Transmission Components $ 1,123,561 $ 601,885
Trailer and Implement Components 281,445 295,804
Corporate and Eliminations (451,678) (200,368)
------------------ ------------------
Total Omni U.S.A., Inc. $ 953,328 $ 697,321
================== ==================
NET INCOME
Power Transmission Components $ 710,739 $ 378,403
Trailer and Implement Components 240,165 323,076
Corporate and Eliminations (508,327) (207,035)
------------------ ------------------
Total Omni U.S.A., Inc. $ 442,577 $ 494,444
================== ==================
IDENTIFIABLE ASSETS
Power Transmission Components $ 7,713,614 $ 6,712,782
Trailer and Implement Components 2,527,363 2,214,139
------------------ ------------------
Total Omni U.S.A., Inc. $ 10,240,977 $ 8,926,921
================== ==================
REVENUES
Domestic Customers $ 19,670,619 $ 17,052,369
Foreign Customers 1,041,272 767,810
------------------ ------------------
Total Revenues $ 20,711,891 $ 17,820,179
================== ==================
PROPERTY AND EQUIPMENT (NET)
Domestic $ 820,578 $ 717,868
Foreign 1,283,025 1,440,847
------------------ ------------------
Total Property and Equipment $ 2,103,603 $ 2,158,715
================== ==================
DEPRECIATION AND AMORTIZATION
Power Transmission Components $ 279,450 $ 160,815
Trailer and Implement Components 136,099 155,112
------------------ ------------------
Total Omni U.S.A. $ 415,549 $ 315,927
================== ==================
</TABLE>
29
<PAGE>
NOTE 19 SUBSEQUENT EVENT
On May 27, 1998, the Company entered into an agreement to acquire (the
"Purchase Agreement") Agritrans BV and its subsidiaries, Agdrive BV and
Agritrans KFT (collectively, "Agritrans"). Pending closing, the Company
had entered into a strategic cross-marketing agreement with Agritrans.
On July 28, 2000, the Purchase Agreement and the strategic
cross-marketing agreement were canceled by mutual consent of the
parties.
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
30
<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 39 President, Chief Executive Officer and Director
Craig L. Daniel 40 Vice President-Manufacturing and Director
Michael A. Zahorik 37 Executive Vice President, Chief Operating Officer,
General Counsel and Secretary
David M. Sallean 34 Chief Financial Officer
James L. Davis * Director (through March 12, 2000)
John F. Lillicrop 65 Director
W. Wayne Patterson 57 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,
Stewart Title Guaranty Company from June 1988 through March 1999 employed Mr.
Sallean, most recently as Controller of National Title Services.
JAMES L. DAVIS(1947-2000) provided financial advice to mid-sized companies
through Waterford Capital, Inc., a financial services firm he 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 had a Bachelor of Business Administration degree from Texas
Tech University and was a Certified Public Accountant. Mr. Davis served as a
director of the Company from December 1996 through March 12, 2000. * - deceased
31
<PAGE>
JOHN F. LILLICROP is currently the Unitholder Representative for the
Unitholder's of OECO, LLC ("OECO"), a defense and aerospace electronics
manufacturer in Portland, Oregon. From April 1996 to August 2000 he was Vice
Chairman, President and CEO of OECO. 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 Tycom Corporation, Benchmade
Knife Company, Inc. and the Association for Corporate Growth,
Columbia/Willamette chapter in Portland, Oregon. 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 currently Chairman and CEO of Vector, esp, Inc., a server
based computing integrator which he co-founded in March 2000. Immediately prior
to this, Mr. Patterson co-founded and served as chairman of Integrated Graphics,
a consolidation of companies in the graphics industry that is now one of the
largest graphics companies in the United States. 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 and has served as a director for the Company since February 1998.
32
<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 1998 $ 76,500 - - - - - -
1999 76,500 - - - - - -
2000 130,000 - - - - - -
Craig L. Daniel
Vice President- 1998 76,500 - - - - - -
Manufacturing 1999 76,500 - - - - - -
2000 85,000 - - - - - -
Michael A. Zahorik
Executive Vice 1998 68,500 - - - - - -
President, COO & 1999 73,250 - - - - - -
Gen. Counsel 2000 85,000 - - - - - -
David M. Sallean
CFO 1998 - - - - - - -
1999 70,000 - - - 30,000 * - -
2000 $ 85,000 - - - 30,000 ** - -
</TABLE>
No other executive officer's salary or bonus exceeded $100,000 for the three
most recent fiscal years ended June 30, 2000.
---------------------------
* 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.
** On February 24, 2000, 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 $1.0625 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.
33
<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 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, under the discretion of
the Company board of directors, is to offer eligible employees of the Company
and its subsidiaries an opportunity to acquire or increase their proprietary
interests in the Company and provide additional incentive to contribute to its
performance and growth.
On June 6, 1997, the Board, upon recommendation from the Compensation
Committee, repriced all options granted and existing to current Company
employees under the 1996 ISOP and NQSOP from $4.00 per share to $1.00 per share.
The repriced options vest 50% twelve (12) months from date of grant and 50%
twenty-four (24) months from date of grant.
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 (3) years from date of grant.
On January 25, 1999, the Board, under the NQSOP, 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 January 3, 2000, the Board, under the NQSOP, granted 10,000 options
to purchase Company Common Stock at $1.188 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 at an exercise price of
$1.188, vesting 100% three (3) years from date of grant.
On February 24, 2000, under the 1996 ISOP, David M. Sallean was granted
options to purchase 30,000 shares of Common Stock at an exercise price of
$1.0625, vesting 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>
34
<PAGE>
Under the 1996 ISOP, options for 955,000 shares had been granted as of
June 30, 2000. Under the 1994 NQSOP, options for 280,000 shares had been granted
as of June 30, 2000. The following table shows how the 1996 ISOP options are
distributed to groups within the Company based on the dollar value of
exercisable options in effect during fiscal year 2000 based on the closing price
of Common Stock at June 30, 2000 of $1.125:
<TABLE>
<CAPTION>
1994 NQSOP and 1996 ISOP
-----------------------------------------------------------------------
Name and Position Dollar Value / Shares Exercisable Total Number of Shares
----------------- ---------------------------------- ----------------------
Represented by Options
----------------------
<S> <C> <C>
Jeffrey K. Daniel $ 37,000/296,000 296,000
President and CEO
Craig L. Daniel $ 37,000/296,000 296,000
Vice President-Manufacturing
Michael A. Zahorik $ 17,250/138,000 138,000
Executive Vice President, COO
& General Counsel
David M. Sallean $ 0/0 60,000
Chief Financial Officer
Executive Officer Group $ 91,250/730,000 790,000
Non-Executive Officer Employee Group $ 25,000/200,000 215,000
Total $116,250/930,000 1,005,000
</TABLE>
35
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised in-the-money Options/
Shares Acquired Value Options/SARs at FY-End 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 $37,000
------- -------
296,000/0 $37,000/$0
Craig L. Daniel
Vice President-
Manufacturing N/A N/A 296,000 $37,000
------- -------
296,000/0 $37,000/$0
Michael A. Zahorik
Exec. Vice President, COO
& General Counsel N/A N/A 138,000 $17,250
------- -------
138,000/0 $17,250/$0
David M. Sallean
Chief Financial Officer N/A N/A 60,000 $ 7,500
------ ------
0/60,000 $ 0/$7,500
</TABLE>
------------------------
N/A Not applicable. No options were exercised during the fiscal year ended June
30, 2000.
(1) Indicates number of options exercisable and unexercisable as of June 30,
2000.
(2) Based upon closing price of Common stock at June 30, 2000 of $1.125.
OTHER COMPENSATION
The Company has paid no bonuses to its executive officers. The Company
has a group medical plan which provides medical and hospital benefits and term
life insurance to its employees, including its officers, at no cost to the
employee. Jeffrey K. Daniel and Craig L. Daniel are not compensated as
directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
CAPITALIZATION
The Company's currently authorized equity securities are as follows:
(i) 150,000,000 shares of Common Stock, par value $.004995 per share, (ii)
1,362,773 Class B Common Stock Purchase Warrants ("Class B Warrants"). As of
September 1, 2000, the Company had outstanding 3,623,092 shares of Common Stock,
and Class B Warrants to purchase 1,206,372 shares of Common Stock.
CLASS A AND B WARRANTS. There are 1,206,372 Class B Warrants to
purchase Common Stock. 706,372 of 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
500,000 Class B Warrants issued to PACCAR, Inc. may be exercised at any time and
expire July 1, 2009 (see Note 3 in the footnotes to the financial statements).
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. No class A Warrants were exercised.
36
<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,
2000, 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 14.6%
Joan J. Daniel (4) 527,068 14.6%
PACCAR, Inc. (12) 500,000 12.1%
Craig L. Daniel (2)(7) 404,511 8.3%
Websters Publishing, Ltd. (3) 351,321 8.1%
Jeffrey K. Daniel (2)(6) 349,683 7.2%
Michael A. Zahorik (2)(8) 195,452 4.0%
David M. Sallean (2)(11) 8,500 *
Estate of James L. Davis (5) 60,000 1.2%
John F. Lillicrop (9) 70,000 1.4%
W. Wayne Patterson (10) 40,000 *
Executive Officers and Directors as a Group 1,128,146 23.2%
* less than 1% of the total number of shares outstanding
</TABLE>
------------------------------
(1) Based upon 3,623,092 shares of Common Stock outstanding as of June 30,
2000.
(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) Includes 375,000 shares each subject to certain conditions and
limitations set forth in the Registration Rights Agreement (see Exhibit
10.11). 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 and 10,000 shares
purchasable under options exercisable within 60 days at $1.188 per
share. The address of such beneficial owner is One Park Ten Place,
Suite 340, Houston, Texas 77084.
(6) Includes 296,000 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 12,387 shares purchased through the
Company's 401(k) plan.
(7) Includes 296,000 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 138,000 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
12,052 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 and 10,000 shares
purchasable under options exercisable within 60 days at $1.188 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 and 10,000 shares
purchasable under options exercisable within 60 days at $1.188 per
share. The address of such beneficial owner is 5847 San Felipe,
Houston, Texas 77057.
(11) Includes 8,500 shares held of record by the David M. Sallean Individual
Retirement Account, a self-directed IRA.
(12) Includes 500,000 shares purchasable under Class B Warrants exercisable
within 60 days at $2.00 per share and expire July 1, 2009. The address
of such beneficial owner is 777 106th Avenue NE, Bellevue, WA 98004.
37
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
None.
38
<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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/S/ JEFFREY K. DANIEL CHIEF EXECUTIVE OFFICER & PRESIDENT SEPTEMBER 27, 2000
------------------------
JEFFREY K. DANIEL
/S/ DAVID M. SALLEAN CHIEF FINANCIAL OFFICER SEPTEMBER 27, 2000
------------------------
DAVID M. SALLEAN
</TABLE>
39
<PAGE>
INDEX OF EXHIBITS
EXHIBIT NO. NAME OF EXHIBIT
3.1 Amended and Restated Articles of the Company, as amended November
30, 1994. Incorporated by reference from the Company's Amendment
No. 1 to Registration Statement on Form SB-2 filed with the
Commission on December 22, 1994.
3.2 Certificate of Designation of Series A Redeemable Convertible
Preferred Stock. Incorporated by reference from the Company's
Registration Statement on Form SB-2 filed with the Commission on
October 12, 1994.
3.3 Certificate of Designation of Series B Convertible and Series C
Convertible Preferred Stock. Incorporated by reference from the
Company's Registration Statement on Form SB-2 filed with the
Commission on October 12, 1994.
3.4 By-laws of the Company. Incorporated by reference from the
Company's Registration Statement on Form SB-2 filed with the
Commission on October 12, 1994.
4.1 Certificate of Designation of Series A Redeemable Convertible
Preferred Stock. Incorporated by reference from the Company's
Registration Statement on Form SB-2 filed with the Commission on
October 12, 1994.
4.2 Certificate of Designation of Series B Convertible and Series C
Convertible Preferred Stock. Incorporated by reference from the
Company's Registration Statement on Form SB-2 filed with the
Commission on October 12, 1994.
4.3 Form of Class A Common Stock Purchase Warrant. Incorporated by
reference from the Company's Registration Statement on Form SB-2
filed with the Commission on October 12, 1994.
4.4 Form of Class B Common Stock Purchase Warrant. Incorporated by
reference from the Company's Registration Statement on Form SB-2
filed with the Commission on October 12, 1994.
4.5 Equity Contract Note dated as of June 30, 1994 issued to Edward
L. Daniel in the original principal amount of $918,304.
Incorporated by reference from the Company's Amendment No. 1 to
Registration Statement on Form SB-2 filed with the Commission on
December 22, 1994.
4.6 Equity Contract Note dated as of November 29, 1991 issued to
Edward L. Daniel in the principal amount of $1,000,000.
Incorporated by reference from the Company's Amendment No. 2 to
Registration Statement on Form SB-2 filed with the Commission on
January 30, 1995.
4.7 Corrected Registered Equity Contract Note dated as of June 30,
1993 issued to Edward L. Daniel in the original principal amount
of $1,968,304.02. Incorporated by reference from the Company's
Amendment No. 2 to Registration Statement on Form SB-2 filed with
the Commission on January 30, 1995.
10.1 Settlement Agreement dated as of June 30, 1994 by and among the
Company, Edward L. Daniel, Joan J. Daniel, and Daniel Development
Corporation. Incorporated by reference from the Company's
Registration Statement on Form SB-2 filed with the Commission on
October 12, 1994.
10.2 1994 Qualified Stock Option Plan. Incorporated by reference from
the Company's Registration Statement on Form SB-2 filed with the
Commission on October 12, 1994.
10.3 1994 Non-Qualified Stock Option Plan. Incorporated by reference
from the Company's Registration Statement on Form SB-2 filed with
the Commission on October 12, 1994.
40
<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.
41
