U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark One)
- --- ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [Fee Required]
For the fiscal year ended
X TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 [No Fee Required]
For the transition period from May 1, 1996 to April 30, 1997
-----------------------------
Commission file number 33-75276
--------
Creative Medical Development, Inc.
--------------------------------------------
(Name of Small Business Issuer in its Charter)
Delaware 68-0281098
------------------------------ -----------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
975 SE Sandy Blvd. Portland, Oregon 97214
- --------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(Issuer's Telephone Number (503) 230-8034
-------------
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
- -------------------------------- -------------------------------------------
- -------------------------------- -------------------------------------------
- -------------------------------- -------------------------------------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock $.01 Par Value
- --------------------------------------------------------------------------------
(Title of class)
Warrants to purchase Common Stock $.01 Par Value
- --------------------------------------------------------------------------------
(Title of class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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<PAGE>
CREATIVE MEDICAL DEVELOPMENT, INC.
FORM 10-KSB
ANNUAL REPORT FOR THE FISCAL YEAR ENDED April 30, 1997
PART I Item 1. Description of Business ........................... 1
Item 2. Description of Property ........................... 5
Item 3. Legal Proceedings ................................. 5
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II Item 5. Market for Common Equity
and Related Stockholder Matters..................... 6
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 7
Item 7. Financial Statements
Independent Auditor's Report........................ F-1
Consolidated Balance Sheets......................... F-2
Consolidated Statements of Operations............... F-3
Consolidated Statements of Stockholders'
Equity.............................................. F-4
Consolidated Statements of Cash Flows............... F-5
Notes to Consolidated Financial Statements.......... F-7
Item 8. Changes In And Disagreements With Accountants On
Accounting And Financial Disclosure................. 11
PART III Item 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with Section
16(a) in the Exchange Act.......................... 11
Item 10. Executive Compensation ............................ 14
Item 11. Security Ownership of Certain Beneficial Owners
and Management..................................... 14
Item 12. Certain Relationships and Related Transactions .... 16
Item 13. Exhibits and Reports on Form 8-K .................. 17
Index of Exhibits ................................................... 17
Signatures .......................................................... 20
<PAGE>
PART I
------
Item 1. Description of Business:
-----------------------
Introduction
------------
Creative Medical Development, Inc. (the "Company") was incorporated in
the state of California on July 20, 1992 and reincorporated in the
state of Delaware on June 1, 1993. The Company designed, developed,
manufactured and marketed ambulatory infusion therapy products under
the "EZ Flow" trade name.
On September 13, 1995, the Company entered into an Asset Purchase
Agreement with Gish Biomedical, Inc. ("Gish") for sale of the EZ Flow
Pump technology and product line. Under its terms, substantially all
of the Company's manufacturing related assets (with a net book value
of $680,957) were sold for $600,000 cash and $2,000,000 of Gish Stock
(240,240 shares). Pursuant to the terms of the agreement, operation of
the EZ Flow business was transferred to Gish as of September 13, 1995
and the sale closed April 17, 1996.
On April 17, 1997, the Company entered into an agreement for merger
and reorganization with OMNI International Rail Products, Inc.,
("OMNI") a privately held company in the business of manufacturing and
distributing premium rail crossing surface products in the United
States and internationally. The agreement provided for the merger of
OMNI with a wholly owned subsidiary of the Company formed for the
purposes of the transaction. Subject to certain adjustments, the
Company was valued at $2,000,000 and OMNI was valued at $4,000,000.
OMNI was an Oregon corporation formed in 1994 to acquire the OMNI
premium crossing business from Reidel Environmental Technologies, Inc.
That business was operated by OMNI until the merger with the Company
and its operations continue under the Company's wholly owned
subsidiary corporation OMNI Products, Inc. At the time of the merger,
the OMNI executive officers became the executive officers of the
Company and the subsidiary and all but one of the OMNI directors
became the directors of the Company and the subsidiary.
The Company's transaction with OMNI closed April 30, 1997.
Subsequently, the Company changed its fiscal year to April 30, 1997
consistent with OMNI's fiscal year to facilitate accounting and
reporting financial results.
Products
--------
OMNI designs, engineers, manufactures, markets and installs premium
rail crossing surface products for the U.S. and international markets.
OMNI's products cover the full spectrum of premium crossings which
1
<PAGE>
includes crossings manufactured from recycled rubber, virgin rubber,
reinforced concrete and a combination of rubber and concrete.
OMNI's products are approved by all major North American Class 1
railroads, such as Burlington Northern-Santa Fe and Union Pacific and
many foreign railroads.
Rail Crossing Market
--------------------
Grade crossings are an important part of the transportation
infrastructure wherever rail and road traffic intersect. Premium
crossings made from recycled rubber, virgin rubber or reinforced
concrete provide a smooth, safe and quiet means for vehicles to
quickly pass over railroad tracks. The choice of rubber or concrete
depends on the application and is primarily a matter of customer
preference. The longer life of rubber or concrete premium crossing
surfaces significantly reduce maintenance costs compared to the
traditional surfaces of timber or asphalt.
Many major U.S. railroads have recently moved from solid rubber
crossings to concrete crossings with rubber next to the rail. This
trend has accelerated over the past several years as a result of
industry consolidation. It is now estimated that the installation of
concrete crossings constitute the majority of the premium crossing
surface market.
The Company estimates that the total premium crossing surface market
in the U.S. is approximately $45 million and is growing at a rate
exceeding 20% per year with concrete crossings the fastest growing
segment. The Company believes its revenues currently represent
approximately 28% of the total domestic market for all premium
crossing surfaces and is nearly twice the size of the next largest
competitor in North America.
The vast majority of grade crossings are maintained or retro-fitted
with asphalt, timber planks, concrete pavement or consolidated
materials. This market segment is estimated at over $400 million in
the U.S. and Canada. Because of their benefits, this market segment is
rapidly converting to premium crossings. OMNI believes that, at the
current rate of growth and acceptance by customers, within five years
approximately 20% of this market segment will convert to premium
crossings.
Crossing safety is increasingly scrutinized at the federal level and
legislative action is likely to mandate certain safety standards for
crossings. Such legislation may increase the market for premium
crossing surfaces.
Where customers formerly relied on government funding to pay for most
premium crossing surfaces, there is a growing recognition that premium
crossing surfaces significantly reduce installation and ongoing
maintenance costs over the life of the crossing. They have discovered
significant long term cost savings by installing premium crossing
surfaces using their own operating funds. Major railroads such as
2
<PAGE>
Burlington Northern/Santa Fe and Union Pacific are expected to
significantly increase their premium crossing installations in the
next year.
The international market for premium crossings is estimated to be
approximately $20-$25 million per year. OMNI's full depth rubber
products are approved by rail systems in over 20 countries. The
Company's share of this market has been between 5-6%.
The international market is not growing as fast as the domestic
market, but it is expected to double within five years. Currently the
majority of international premium crossing surfaces outside the U.S.
are rubber, but concrete is expected to take an increasing share as
foreign railroads follow the U.S. lead.
Sales and Marketing
-------------------
U.S. sales and marketing is implemented through a system of six sales
regions designed to provide comprehensive coverage of key railroad
customers. Three regions are managed by sales manager employees and
three are managed by independent sales representatives. In addition,
OMNI has an independent account representative working solely in Omaha
to service Union Pacific, one of the largest users of grade crossing
materials. All report to the Vice President of Sales and Marketing.
OMNI sales employees are compensated on a base salary plus commission.
Independent sales representatives are compensated solely on
commission. Commissions are not paid until OMNI collects from the
customer.
Another component of the Company's sales and marketing effort is its
unique customer oriented program of 20 part-time field technical
representatives who serve as an extension of the regional sales force
for technical needs such as installations and problem solving. These
individuals have strong backgrounds in track construction and
maintenance and are primarily retired railroad employees. Their prior
relationships, loyalty to OMNI and customer service has significantly
enhanced OMNI's sales efforts.
OMNI markets its products internationally using a network of 20
foreign distributors. Exclusive distribution agreements have been
executed with each of these organizations in individual or multiple
countries. The Company sells product to each distributor from an
established price list and the distributor sells the product at their
price to the customer. These sales are generally bank guaranteed with
a letter of credit.
Although the Company has approximately 300 customers, approximately
15% of its sales for the fiscal year ended April 30, 1996 were to CSX
Transportation. Approximately 17% and 11% of OMNI's sales for the
fiscal year ended April 30, 1997 were to Burlington Northern-Santa Fe
and CSX Transportation, respectively. Sales to the Company's five
largest customers as a group for the fiscal years ended April 30, 1996
and 1997 were 42% and 43% respectively.
3
<PAGE>
Material Supplies
-----------------
Basic raw materials required for manufacturing the Company's products
include tire buffings obtained from retreaders, off-spec virgin rubber
from rubber brokers, polyurethane binder, concrete, steel rebar and
steel angle.
Concrete and steel materials are available from many sources in
multiple locations. However, availability of off-spec virgin rubber
and tire buffings is subject to market variations. The Company has
contracts for the supply of tire buffings that it believes are
adequate for its needs. Because of fluctuation in the demand for its
products, the Company believes that there is an adequate supply of
off-spec virgin rubber to meet its needs.
The Company anticipates increasing manufacturing capacity for its
concrete products. Since there are a number of sources available for
the Company's production equipment, no problems in obtaining
production equipment at competitive prices and in a timely manner are
anticipated.
Patents and Licenses
--------------------
OMNI has been issued or has patents pending on several of its
products, such as its Improved-Concrete and Standard Concrete-Rubber
products incorporating rubber next to the rail with reinforced
concrete panels. There can be no assurance that any patents issued
would afford protection against competition from similar inventions or
products, or would not be infringed upon or designed around by others.
However, the Company intends to enforce all patents it has been
issued.
Pursuant to a royalty agreement with Red Hawk Rubber Co. ("Red Hawk")
which was transferred to OMNI in the acquisition from Reidel described
above, OMNI is obligated to pay a royalty equal to 5% of net sales of
certain products acquired from Red Hawk. The agreement expires in
June, 1999.
Research and Development
------------------------
OMNI is engaged in a continuing program of research and development to
improve existing products and develop more cost effective and
efficient rail crossing products. The Company's expenditures on
research and development for the fiscal years ended April 30, 1997 and
1996 were $61,646 and $70,852 respectively.
Employees
---------
As of April 30, 1997, OMNI had 97 full time employees and 2 part time
employees. Approximately 79 full time employees and 2 part time
employees were engaged in manufacturing and the remainder in
marketing, sales, research and development, administrative and
executive positions.
4
<PAGE>
Item 2 Description of Property
-----------------------
The Company owns or leases the following properties:
Approximate Own or
Location Square Footage Lease Purpose
-------------- -------------- ------- -----------------
Portland, OR (1) 3,000 Lease Executive Offices
Portland, OR (2) 15,800 Lease Manufacturing
McHenry, IL (3) 21,271 Own Manufacturing
Lancaster, PA (3) 19,348 Own Manufacturing
Ennis, TX (3) 15,300 Own Manufacturing
Buena Park, CA (4) 635 Lease Sales Office
Nevada City, CA (5) 30,000 Own Held for Resale
(1) Leased on month-to-month basis.
(2) Leased through April, 2002 with an option to renew for an additional five
years.
(3) Properties are subject to a blanket mortgage loan of $912,264 payable in
monthly installments of $13,631, including interest at 10% payable in full
in December 31, 1998. Properties are also pledged as collateral for a
revolving line of credit and term and capital expenditure loans.
(4) Leased through May, 2000.
(5) Property is subject to a mortgage loan of $1,230,000 payable in monthly
installments of $12,750 including interest at 11.375% payable in full in
December, 1998. One hundred percent of the property is leased to others.
One percent of the property is owned by Ron Gangemi, a shareholder of the
Company. Property is also pledged as collateral for a revolving line of
credit and term and capital expenditure loans.
Item 3 Legal Proceedings
-----------------
Approximately August 7, 1995, OMNI signed a letter agreement with
Transcontinental Capital Partners ("TCP") to provide various financial
services. Pursuant to the agreement, certain services were provided
and paid for. In addition, TCP identified a potential equity investor
with whom OMNI signed a non-binding statement of intent for a proposed
transaction. On or about June 7, 1996, OMNI terminated negotiations
with the potential equity investor and the agreement with TCP.
5
<PAGE>
In September, 1996, TCP filed an action against OMNI in the Superior
Court of California for Santa Clara County alleging that OMNI breached
the financial services agreement and is obligated to pay additional
fees to TCP for services purportedly rendered to OMNI. In response,
OMNI removed the case to the United States District Court for the
Northern District of California (Transcontinental Capital Partners v.
OMNI Products, Inc., Case No. C-96 21040 WAI (PVT)), answered the
Complaint and filed a Cross-Complaint for damages for TCP's breach of
the financial services agreement and other common law claims. The case
has been referred to the District Court's Early Neutral Evaluation
program and discovery has commenced. The Company believes that the TCP
claim is unfounded and intends to contest the case vigorously.
Item 4 Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
PART II
Item 5 Market for Common Equity and Related Stockholder Matters
--------------------------------------------------------
The Company's Common stock commenced trading on the NASDAQ Smallcap
Market on May 13, 1994. Since May, 1995, it has traded on the OTC
Bulletin Board.
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Quarterly Common Stock Bid Price Ranges
- --------------------------------------------------------------------------------
1996 1997
- --------------------------------------------------------------------------------
Quarter High Low High Low
- --------------------------------------------------------------------------------
1st .375 .375 .31 .25
- --------------------------------------------------------------------------------
2nd .375 .375 .31 .25
- --------------------------------------------------------------------------------
3rd .375 .25 .31 .25
- --------------------------------------------------------------------------------
4th .375 .25 .50 .25
- -------------------------------------------------------------------------------
At July 31, 1997, the Company had approximately 350 record and
beneficial stockholders.
No dividends have been declared or paid on the Common Stock and none
are anticipated.
6
<PAGE>
Item 6 Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
The following Selected Financial Data for the years ended April 30,
1997 and 1996 have been derived from the financial statements of the
Company as audited by KPMG Peat Marwick LLP, the Company's
independent public accountants. This Selected Financial Data should be
read in conjunction with, and is qualified in its entirety by
reference to, the financial statements and related notes thereto
included elsewhere in this Report.
Except for the historical information contained herein, the matters
set forth in this Report include forward-looking statements within the
meaning of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are
subject to risks and uncertainties that may cause actual results to
differ materially. These risks and uncertainties are detailed
throughout this Report and are discussed from time to time in the
Company's periodic reports filed with the Securities and Exchange
Commission. The forward-looking statements included in this Report
speak only as of the date hereof.
As mentioned in item 1 (The Business) the Company, on April 30, 1997,
completed an agreement and plan of merger with OMNI International Rail
Products, Inc. (OMNI). For financial reporting purposes, the
transaction is considered a reverse acquisition and has been accounted
for under the purchase method of accounting. Thus, the operating
results presented and discussed herein reflect only the activity of
OMNI.
As of and for the Periods Ended
April 30,
------------------------------------
(In thousands except per share data)
1997 1996
-------- --------
Revenue.............................................. $ 12,902 $ 13,565
Gross Profit......................................... 2,345 3,967
(Loss) earnings from operations...................... (297) 935
Net (loss) earnings.................................. (1,295) 118
Net (loss) earnings per share........................ ( .41) .04
7
<PAGE>
REVENUE
The Company derives its revenues from the sale of premium-grade rail crossings
to railroads, general contractors and municipalities. Revenues for 1997 were
$12,902,491 as compared to $13,565,411 in 1996, representing a decline of 4.9%.
This decline is due primarily to a shift in customer preference from the
Company's rubber crossings to its recently introduced concrete products. Sales
of rubber crossings declined from $9,477,590 in 1996 to $7,781,159 in 1997.
Sales of concrete products increased from $4,087,821 in 1996 to $5,121,332 in
1997. The Company anticipates that this trend will continue and expects concrete
to continue to grow and become its dominant product in 1998 and beyond.
COST OF GOODS SOLD AND EXPENSES
The following table sets forth the direct costs of revenue as a percentage of
revenue and general and administrative expenses, marketing and selling expenses
as a percentage of revenue for the years ended April 30:
1997 1996
---- ----
Cost of goods sold...................................... 82 71
General and administrative expenses..................... 10 11
Marketing and selling expenses.......................... 10 11
COST OF GOODS SOLD
Cost of goods sold for the year ended April 30, 1997 were $10,557,688 as
compared to $9,598,110 in 1996. The increase in both absolute dollars and
percent of sales is due mainly to extraordinary costs incurred for warranty
expense and the write off of obsolete inventory.
WARRANTY EXPENSE AND INVENTORY WRITE OFF
FYE April 30, 1997 FYE April 30, 1996
Dollars Percent of Dollars Percent of
Sales Sales
Warranty Expense $483,528 3.7% $101,946 0.8%
Inventory Written Off $571,200 4.4% $ 80,700 0.6%
8
<PAGE>
Approximately $150,000 of the extraordinary warranty expense related to a single
order shipped more than two years ago. The special order met customer
specifications, but was replaced in order to maintain the relationship with a
significant customer. Since that order, the Company has not manufactured and
will not manufacture that particular product. The balance of the extraordinary
warranty expense related to introduction of a new manufacturing process. The
Company believes that the manufacturing process issues have been resolved and
will not recur.
The Company's policy is to write off inventory that is more than two years old.
The majority of the extraordinary inventory write off in the year ended April
30, 1997 occurred in March and April and includes a $150,000 reserve related to
overstocked inventory. Management believes that further extraordinary write off
of inventory will not be required.
GENERAL AND ADMINISTRATIVE EXPENSES
General and Administrative Expense were $1,257,227 and $1,461,650 for the years
ended April 30, 1997 and 1996, respectively. The decrease is due to a reduction
in the cost of legal services and insurance.
SELLING EXPENSE
Selling Expenses for the year ended April 30, 1997 were $1,323,070 as compared
to $1,499,061 in 1996. The decrease was due to a lowering of sales commission
percentages paid to its sales force.
INTEREST EXPENSE
Interest Expense was $687,095 and $713,825 for the years ended April 30, 1997
and 1996 respectively. The decline is due to lower levels of term debt as the
Company makes monthly principal payments.
LEGAL SETTLEMENT
On July 24, 1997, the Company entered into a settlement agreement arising from
disputed royalty payments. The terms of the settlement agreement require the
Company to pay $50,000 within sixty days of the agreement date and $20,000 per
quarter for five years thereafter. Among other benefits, the settlement relieves
the Company of contractual liability for royalty payments which would have
accrued through December, 1999. Management has calculated the discounted present
value of the settlement at $334,500 and has reserved this amount at April 30,
1997. This one-time charge accounts for approximately twenty-six percent of the
net loss for the year ending April 30, 1997.
9
<PAGE>
NET LOSS
The Company lost $1,295,065 in the year ending April 30, 1997 compared to a
profit of $117,655 in the year ending April 30, 1996. The loss was caused by a
significant increase in Cost of Goods Sold occasioned by the increased warranty
expense and inventory write off described above and the legal settlement also
described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and investment balances at April 30, 1997 amounted to
$894,758. Cash generated from operations in 1997 was $331,424. The Company also
received $100,000 of net proceeds from the sale of stock.
Net working capital at April 30, 1997 amounted to ($1,694,116) because current
debt maturities and other short-term commitments exceeded the Company's liquid
assets available to pay such obligations. This situation resulted from the
Company's principal lender's acceleration of term debt obligations totaling
$1,768,142 to August 31, 1997 which required the obligations to be classified as
current liabilities. The reclassification also resulted in the auditors
including a "going concern" qualification in their opinion. The Company is
negotiating with new lenders to establish appropriate long term debt financing.
Although management anticipates favorable conclusion of those negotiations,
there can be no assurance that such financing will be available on a favorable
basis, or at all. In the event the Company is unable to obtain additional
financing its operations may be significantly reduced.
Management believes that it will also need to raise additional equity capital
during the next fiscal year in order to fund its working capital and capital
expenditure needs. Depending upon the Company's results of operations, its
future capital needs and available marketing opportunities, the Company may use
various financing sources to raise equity capital. Such sources could include
mergers or private equity placements. There can be no assurance that such funds
will be available on a favorable basis, if at all.
The Company's capital expenditures were $375,316 in 1997 and $680,492 in 1996.
Expenditures in 1997 were incurred primarily for equipment to expand production
capacity. Capital expenditures for 1998 are estimated at $1,263,000 and are
expected to be funded with a mix of additional equity and term debt.
10
<PAGE>
CREATIVE MEDICAL DEVELOPMENT, INC.
AND SUBSIDIARY
Consolidated Financial Statements
April 30, 1997
(With Independent Auditors' Report Thereon)
<PAGE>
KPMG Peat Marwick LLP
Suite 2000
1211 South West Fifth Avenue
Portland, OR 97204
Independent Auditors' Report
The Board of Directors
Creative Medical Development, Inc.:
We have audited the accompanying consolidated balance sheet of Creative Medical
Development, Inc. and subsidiary as of April 30, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended April 30, 1997 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Creative Medical
Development, Inc. and subsidiary as of April 30, 1997, and the results of their
operations and their cash flows for the years ended April 30, 1997 and 1996 in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 11 to
the consolidated financial statements, the Company suffers liquidity
constraints, due to the unexpected acceleration of certain debt maturities, that
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also disclosed in note 11. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
KPMG PEAT MARWICK LLP
Portland, Oregon
June 27, 1997, except as to
note 12(c) to the consolidated
financial statements as to
which the date is July 24, 1997
F-1
<PAGE>
CREATIVE MEDICAL DEVELOPMENT, INC.
AND SUBSIDIARY
Consolidated Balance Sheet
April 30, 1997
Assets
------
Current assets:
Cash $ 139,635
Investment securities 755,123
Accounts receivable, less allowance for doubtful
accounts of $37,863 1,818,109
Inventories, net 2,494,743
Prepaid expenses and deposits 20,680
------------
Total current assets 5,228,290
Real estate held for sale 1,500,000
Property, plant and equipment, net 4,286,656
Organization costs, net of $328,040 accumulated amortization 237,955
------------
$ 11,252,901
------------
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable 1,364,079
Accrued liabilities 1,150,604
Notes payable 4,376,723
Current portion of long-term debt 31,000
------------
Total current liabilities 6,922,406
------------
Long-term debt, less current portion 2,845,276
Non-current accrued liabilities 265,950
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, $.01 par value,
5,000,000 shares authorized:
Series B, 1,000,000 shares authorized,
622,066 shares issued and outstanding 6,221
Common stock, 10,000,000 shares authorized, $.01 par
value, 5,554,337 shares issued and outstanding 55,543
Additional paid-in capital 2,444,606
Retained deficit (1,287,101)
------------
Total stockholders' equity 1,219,269
------------
$ 11,252,901
============
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
CREATIVE MEDICAL DEVELOPMENT, INC.
AND SUBSIDIARY
Consolidated Statements of Operations
Years ended April 30, 1997 and 1996
1997 1996
------------ ------------
<S> <C> <C>
Net sales $ 12,902,491 13,565,411
Cost of sales 10,557,688 9,598,110
------------ ------------
Gross profit 2,344,803 3,967,301
------------ ------------
Selling expenses 1,323,070 1,499,061
Administrative expenses 1,257,227 1,461,650
Research and development 61,646 70,852
------------ ------------
2,641,943 3,031,563
(Loss) earnings from operations (297,140) 935,738
------------ ------------
Other income (expense):
Interest expense (687,095) (713,825)
Legal settlement (334,500) --
Miscellaneous expense (6,781) (40,051)
Loss on sale of assets (25,156) (27,690)
------------ ------------
Total other expense (1,053,532) (781,566)
------------ ------------
(Loss) earnings before income taxes (1,350,672) 154,172
(Benefit) provision for income taxes (55,607) 36,517
------------ ------------
Net (loss) earnings $ (1,295,065) 117,655
============ ============
Net (loss) earnings per share $ (.41) .04
============ ============
Weighted average common shares outstanding 3,126,294 2,808,516
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
CREATIVE MEDICAL DEVELOPMENT, INC.
AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended April 30, 1997 and 1996
Preferred stock
Series B Common stock Additional Retained Total
-------------------------- -------------------------- paid-in earnings stockholders'
Shares Amount Shares Amount capital (deficit) equity
------ ------ ------ ------ ------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, April 30, 1995 - $ - 2,688,926 $ 26,889 933,111 20,409 980,409
Issuance of common stock - - 412,095 4,121 395,879 - 400,000
Dividends - - - - - (65,100) (65,100)
Net earnings - - - - - 117,655 117,655
---------- ------- ------------ -------- ----------- ------------ ------------
Balance, April 30, 1996 - - 3,101,021 31,010 1,328,990 72,964 1,432,964
Issuance of common stock - - 111,743 1,117 116,383 - 117,500
Dividends - - - - - (65,000) (65,000)
Payment of stock dividend - - 233,428 2,334 186,478 - 188,812
Preferred and common
shares issued in
merger 622,066 6,221 2,108,145 21,082 812,755 - 840,058
Net loss - - - - - (1,295,065) (1,295,065)
---------- ------- ------------ -------- ----------- --------- ---------
Balance, April 30, 1997 622,066 $ 6,221 5,554,337 $ 55,543 2,444,606 (1,287,101) 1,219,269
========== ======= ============ ======== =========== ========= ============
See accompanying notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
CREATIVE MEDICAL DEVELOPMENT, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended April 30, 1997 and 1996
1997 1996
----------- -----------
Cash flows from operating activities:
<S> <C> <C>
Net (loss) earnings $(1,295,065) 117,655
Adjustments to reconcile net (loss) earnings to net cash
provided by operating activities:
Depreciation and amortization 491,642 444,785
Legal settlement 334,500 --
Loss on sale of assets 25,156 27,690
Deferred income taxes (55,607) 36,517
Change in assets and liabilities:
Accounts receivable (199,814) 747,872
Inventories 296,361 (1,126,312)
Prepaid expenses and deposits 1,876 3,734
Accounts payable 425,992 (108,902)
Accrued liabilities 306,383 68,897
----------- -----------
Net cash provided by operations 331,424 211,936
----------- -----------
Cash flows from investing activities:
Proceeds from sale of assets 17,166 2,500
Purchase of property, plant and equipment (375,316) (680,492)
Organization costs -- 3,293
----------- -----------
Net cash used by investing activities (358,150) (674,699)
----------- -----------
Cash flows from financing activities:
Net (payment) borrowings on notes payable (116,326) 420,352
Payments on long-term debt (14,281) (481,882)
Borrowing on long-term notes -- 384,030
Proceeds from sale of stock 100,000 400,000
Acquisition costs (185,065) --
----------- -----------
Net cash (used) provided by financing activities (215,672) 722,500
----------- -----------
(Decrease) increase in cash (242,398) 259,737
Cash at beginning of year 382,033 122,296
----------- -----------
Cash at end of year $ 139,635 382,033
=========== ===========
(Continued)
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CREATIVE MEDICAL DEVELOPMENT, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
1997 1996
---------- --------
Supplemental disclosure of cash flow information: Cash paid for:
<S> <C> <C>
Interest $ 677,847 726,321
Income taxes -- --
Supplemental schedule of non-cash investing and financing activities:
Stock dividend 65,000 65,100
Issuance of common stock on conversion of debt 17,500 --
Effect of acquisition:
Fair value of assets acquired 2,255,123 --
Liabilities assumed 1,230,000 --
See accompanying notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
CREATIVE MEDICAL DEVELOPMENT, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
April 30, 1997
(1) Summary of Significant Accounting Policies
(a) Description of the Company, Basis of Presentation and Change in
Reporting Entity
----------------------------------------------------------------------
Creative Medical Development, Inc. (CMD), incorporated in California
on July 20, 1992, designed, developed, manufactured and marketed
propriety ambulatory infusion therapy products for alternate site
patient care. On September 13, 1995, CMD sold substantially all of its
operating assets and technology and since that time has not had
significant operating results.
Effective April 30, 1997, CMD and OMNI International Rail Products,
Inc. (OMNI), completed an agreement and plan of merger which provided
for the merger of OMNI with and into a wholly-owned subsidiary of CMD
(collectively, the Company). Upon consummation of the merger, OMNI's
name changed to OMNI Products, Inc. Just prior to the closing of the
merger, OMNI completed a recapitalization in which the Board of
Directors authorized the conversion of:
Series B preferred stock into Series A preferred stock (new
Series A preferred stock);
650,000 shares of new Series A preferred stock into 260,000
shares of common stock;
$188,812 in accrued dividends into 75,525 shares of common stock.
Also, at the closing of the merger, CMD completed a recapitalization
in which the Board of Directors authorized the conversion of 810,000
shares of Series A preferred stock into 270,000 shares of Series B
preferred stock.
Under the terms of the merger agreement, the shareholders and stock
option holders of OMNI exchanged all of their common stock and common
stock options for common stock and Series B preferred stock and common
and preferred stock options of the Company. OMNI's common stock and
common stock options were converted into CMD common stock and common
stock options at a ratio of 3.091 to 1.0. In addition, OMNI
shareholders and stock option holders received 352,066 shares of
Series B preferred stock and 187,934 options to purchase Series B
preferred stock, respectively.
(Continued)
F-7
<PAGE>
CREATIVE MEDICAL DEVELOPMENT, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
Upon the completion of the transaction, former OMNI security holders
owned approximately 67% of the total outstanding shares of the Company
on a fully diluted basis. The initial ownership ratio is subject to
adjustment one year after the closing of the transaction. The final
ownership ratio will reflect any adjustments resulting from
differences between the assumed value of CMD's net assets at the time
of the merger and a final determination to be made as of April 30,
1998. If the final ownership ratio differs from the initial ownership
ratio in favor of OMNI, OMNI's shareholders will receive additional
shares of CMD common and Series B preferred stock as necessary to
reflect the final ownership ratio thus increasing the OMNI
shareholders' relative ownership. If the final ownership ratio differs
from the initial ownership ratio in favor of CMD, an amount up to 10%
of the CMD common stock and Series B preferred stock issued to an
escrow for OMNI's shareholders will be canceled as necessary to
reflect the final ownership ratio, thus decreasing the relative
percentage ownership of OMNI's shareholders. In no case will this
adjustment result in OMNI's shareholders owning less than 64.3% of the
total outstanding shares.
The transaction between CMD and OMNI is considered a reverse
acquisition for financial reporting purposes and has been accounted
for under the purchase method of accounting. As a result, for
financial statement purposes, i) the historical values of OMNI's net
assets have been retained; ii) the net assets of CMD immediately prior
to the merger have been recorded at their fair value on the date of
the transaction, iii) the results of the operations of CMD are
included in the results of the Company beginning on the effective date
of the transaction, iv) the dollar balance of OMNI's accumulated
deficit has been retained, and the balance of OMNI's common stock and
additional paid-in capital have been reallocated to be consistent with
the ratio of CMD's preferred and common stock. Assets acquired
consisted of investment securities and a building, while liabilities
assumed consisted of the mortgage associated with the building
acquired. The fair value of assets acquired exceeded the fair value of
liabilities assumed by approximately $1,025,000; such excess was
attributed to the shares issued in the merger. OMNI's costs associated
with the transaction, totaling approximately $185,000, were also
attributed to the shares issued in the merger.
The consolidated statements of operations and cash flows reflect only
the activity of OMNI.
Unaudited pro forma combined results of operations of the Company for
fiscal years 1997 and 1996 are presented below. Such pro forma
presentation has been prepared assuming that the acquisition had been
made as of the beginning of fiscal year 1996.
1997 1996
---- ----
Revenues $ 12,902,491 13,565,411
Net (loss) earnings (338,012) 220,874
(Continued)
F-8
<PAGE>
CREATIVE MEDICAL DEVELOPMENT, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(b) Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of CMD and
its wholly-owned subsidiary, OMNI Products, Inc., originally
incorporated in Oregon in 1993. OMNI Products, Inc. manufactures and
distributes, on a world-wide basis, a variety of rubber,
rubber/concrete and concrete railroad grade crossing systems. All
material intercompany transactions and balances have been eliminated
in the consolidated financial statements.
(c) Investments
-----------
The Company has adopted Statement of Financial Accounting Standards
No. 115 Accounting for Certain Investments in Debt and Equity
Securities (SFAS No. 115). Accordingly, the Company has classified its
short-term investments in corporate equity securities as
available-for-sale securities. The securities' carrying value is equal
to market value.
(d) Inventories
-----------
The Company values inventories at the lower of average production cost
or market (net realizable value). The Company determines cost on the
first-in, first-out (FIFO) basis.
(e) Accounts Receivable
-------------------
Accounts receivable are from distributors of the Company's products
and customers. The Company performs periodic credit evaluations of its
customers and maintains allowances for potential credit losses. Also,
to reduce the risk of credit loss, the Company requires letters of
credit from foreign customers for which no credit history has been
established.
(f) Property, Plant and Equipment
-----------------------------
Property, plant and equipment are stated at cost. Depreciation is
provided over the estimated useful lives of the assets using the
straight-line method. The estimated useful lives for furniture,
vehicles and equipment are ten years; buildings are forty years.
Expenditures for additions and major improvements are capitalized.
Expenditures for repairs and maintenance are charged to income as
incurred.
(g) Organization Cost
------------------
Organization costs are amortized over a five-year period.
(Continued)
F-9
<PAGE>
CREATIVE MEDICAL DEVELOPMENT, INC.
Notes to Consolidated Financial Statements
(h) Warranty
--------
The Company provides a six-year warranty for its products and
establishes an allowance at the time of sale, based on historical
warranty experience, to provide estimated warranty costs.
(i) Income Taxes
------------
The Company accounts for income taxes under the asset and liability
method. Under the asset and liability method, deferred income taxes
reflect the future tax consequences of differences between the tax
bases of assets and liabilities and their financial reporting amounts
at each year-end. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(j) Research and Development Costs
------------------------------
The Company charges all research and development costs associated with
the development of products to expense when incurred.
(k) Advertising Expenses
--------------------
Advertising expenses are charged to expense as incurred and were
$102,310 and $126,956 for 1997 and 1996, respectively.
(l) Revenue Recognition
-------------------
Revenues are recognized when products are shipped.
(m) Stock Option Plan
-----------------
Prior to May 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be recorded on
the date of grant only if the current market price of the underlying
stock exceeded the exercise price. On May 1, 1996, the Company adopted
SFAS No. 123, Accounting for Stock-Based Compensation, which permits
entities to recognize as expense over the vesting period the fair
value of all stock-based awards on the date of grant. Alternatively,
SFAS No. 123 also allows entities to continue to apply the provisions
of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made
in 1996 and future years as if the fair-value-based method defined in
SFAS No. 123 had been applied. The Company has elected to continue to
apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.
(Continued)
F-10
<PAGE>
CREATIVE MEDICAL DEVELOPMENT, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(n) Fair Value of Financial Instruments
-----------------------------------
At April 30, 1997, the carrying value of cash, trade receivables,
accounts payable and notes payable approximate fair value due to the
short-term nature of these instruments. At April 30, 1997, the fair
value of the Company's long-term debt approximates carrying value as
such instruments' stated interest rates do not differ significantly
from current market rates.
(o) Net (Loss) Earnings Per Common and Common Equivalent Share
----------------------------------------------------------
Net (loss) earnings per share is computed using the weighted average
number of common and dilutive common equivalent shares assumed to be
outstanding during the period (using the treasury stock method for
dilutive common equivalent shares). Common equivalent shares consist
of convertible preferred stock, options and warrants to purchase
common stock, which have been excluded from the computation of primary
net (loss) earnings per share due to their anti-dilutive effect.
The transaction between CMD and OMNI is considered a reverse
acquisition for financial statement purposes and has been accounted
for under the purchase method of accounting. CMD's shares outstanding
and dilutive equity instruments, and convertible preferred stock, are
included in the computation of common equivalent shares from the date
of acquisition. As the acquisition was consummated on April 30, 1997,
such share and dilutive equity instruments are not included in the
computation of common equivalent shares for the fiscal years ended
April 30, 1997 and 1996.
(p) Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(Continued)
F-11
<PAGE>
CREATIVE MEDICAL DEVELOPMENT, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(q) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
-----------------------------------------------------------------------
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of, on May 1, 1996. This statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired the impairment to
be recognized is measured by the amount by which the carrying amount
of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair
value less costs to sell. Adoption of this statement did not have a
material impact on the Company's financial position, results of
operations, or liquidity.
(r) Prior Period Adjustments
------------------------
The accompanying consolidated financial statements were prepared in
connection with the merger agreement discussed in note 1(a) and
present for the first time the combined results of OMNI and CMD.
Certain adjustments were made to record certain prior period
adjustments to the individual entities. Prior period adjustments were
made to inventory, cost of sales, accrued income taxes and provision
for income taxes.
(s) Reclassifications
-----------------
Certain reclassifications have been made to the 1996 amounts to
conform with 1997 presentation.
(2) Inventories
-----------
Inventories consist of the following at April 30, 1997:
Raw materials $ 461,430
Finished goods 2,183,313
------------
2,644,743
Less allowance for excess or obsolete
inventory 150,000
------------
Inventories, net $ 2,494,743
============
(Continued)
F-12
<PAGE>
CREATIVE MEDICAL DEVELOPMENT, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) Property, Plant and Equipment
-----------------------------
Property, plant and equipment consist of the following at April 30, 1997:
Land $ 374,201
Buildings 1,381,593
Vehicles 90,211
Office furniture and equipment 121,092
Manufacturing equipment 3,256,327
------------
5,223,424
Less accumulated depreciation 936,768
------------
$ 4,286,656
============
Certain property, plant and equipment serves as collateral for short and
long-term debt obligations.
(4) Accrued Liabilities
-------------------
Accrued liabilities consist of the following at April 30, 1997:
Warranties $ 344,950
Accrued compensation 249,391
Accrued merger costs 151,343
Other 404,920
------------
$ 1,150,604
=============
(5) Notes Payable
-------------
The Company has a revolving line of credit totaling $2,608,581 with Finova
Capital Corporation (Finova) that generally provides borrowing up to
$2,750,000 against 85% of eligible accounts receivable and 50% of eligible
inventory. Interest on the line is prime rate plus 2.25% (10.75% at April
30, 1997), with a minimum interest charge of $9,000 per month. The line's
original maturity date was April 26, 1999. However, on April 29, 1997, the
Company was notified that the revolving line of credit expires on July 31,
1997.
In addition, the Company has a term loan payable and a capital loan payable
with Finova totaling $1,153,702 and $614,440, respectively, at April 30,
1997, and are payable in monthly installments of $40,000 and $8,500,
respectively, plus interest at 11.5% per annum per loan. The loans payable
are secured by equipment and inventory. The original maturity date was
April 26, 1999. However, on April 29, 1997, the Company was notified that
the loans expire on July 31, 1997.
(Continued)
F-13
<PAGE>
CREATIVE MEDICAL DEVELOPMENT, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
The Company can extend the debt maturities to August 31, 1997 provided that
the Company i) provides Finova with a commitment letter by July 31, 1997,
issued by a new funding source which specifically states that the Finova
loans will be paid by August 31, 1997, and ii) pays an extension fee equal
to one-quarter percent (1/4%) of the total Finova loans as of July 31,
1997.
(6) Long-term Debt
--------------
Long-term debt is comprised of the following at April 30, 1997:
Notes payable to Capital Consultants in
monthly installments of $13,631,
including interest at 10%, payable in
full in December 1998, secured by real
estate $ 1,338,776
Mortgage payable to financial institution
in monthly installments of $12,750,
including interest at 11.375%, payable
in full in December 1998, secured by
real estate 1,230,000
Note payable to an individual in monthly
installments of interest only at 10%,
plus additional "premium" interest at 7%
due each May 15th, payable in full in
April 1999 200,000
Note payable to individuals in monthly
installments of interest only at 10%,
payable in full in April 1999 107,500
------------
2,876,276
Less current portion 31,000
------------
Long-term debt, due in 1999 $ 2,845,276
===========
(7) Income Taxes
------------
The income tax (benefit) expense consists of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Current:
Federal $ -- --
State -- --
-------- --------
-------- --------
-------- --------
Deferred:
Federal (46,039) 30,234
State (9,568) 6,283
-------- --------
(55,607) 36,517
Total income tax (benefit) expense $(55,607) 36,517
======== ========
(Continued)
</TABLE>
F-14
<PAGE>
CREATIVE MEDICAL DEVELOPMENT, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
The tax effects of temporary differences and net operating loss
carryforwards which give rise to significant portions of deferred tax
assets and deferred tax liabilities at April 30, 1997 are as follows:
Deferred tax assets:
Investment in securities $ 232,418
Warranty reserve 132,309
Legal settlement reserve 128,318
Inventory reserve 57,534
Bad debt reserve 14,523
Self-insurance reserve 6,223
Other 1,994
Net operating loss carryforwards:
Federal 629,394
State 130,810
---------
1,333,523
Less valuation allowance 490,416
---------
Net deferred tax asset 843,107
---------
Deferred tax liability:
Property, plant and equipment, due to
differences in depreciation 651,327
Real estate held for sale 191,780
---------
Net deferred tax liability 843,107
---------
Net deferred tax assets and liabilities $ --
=========
(Continued)
F-15
<PAGE>
CREATIVE MEDICAL DEVELOPMENT, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
The (benefit) provision for income taxes differs from the amount of income
tax determined by applying the applicable Federal statutory income tax rate
to (loss) earnings before income taxes as a result of the following
differences:
1997 1996
---- ----
Statutory federal income tax rate (34.0)% 34.0%
State income taxes, net of federal
income tax benefit (4.4) 4.4
Change in valuation allowance 36.2 -
Other (2.1) (14.7)
----- ----
Effective tax rates (4.3)% 23.7%
===== =====
The Company has a valuation allowance of $490,416 and $-0-, respectively,
as of April 30, 1997 and 1996 an increase of $490,416 and $-0- in the
valuation allowance for the same respective periods ended.
At April 30, 1997 and 1996, the Company had approximately $1,982,000 and
$899,000, respectively, of net operating loss carryforwards to offset
future income for federal and state income tax purposes which will expire
2010 through 2012.
A provision of the Tax Reform Act of 1986, as amended, requires that
utilization of net operating loss and credit carryforward be limited to
when there is a more than 50% change in ownership of the Company. Such
change in ownership may have occurred during the current fiscal year ended;
however, the amount subject to the limitation has not yet been determined.
Accordingly, the utilization of the net operating loss and credit
carryforwards to remaining future years may be limited. Any future change
in the equity structure of the Company may further limit the utilization of
the net operating loss and credit carryforwards.
(Continued)
F-16
<PAGE>
CREATIVE MEDICAL DEVELOPMENT, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(8) Commitments and Contingencies
-----------------------------
(a) Employment Contract Commitments
-------------------------------
The Company has entered into employment contracts with its chief
executive officer/chairman and president, and vice president of
operations through 1999 and 1998, respectively, with automatic
extensions of one-year increments. These contracts provide for a
minimum salary with annual adjustments based on cost of living
changes, corporate and individual performance and general business
conditions. At April 30, 1997, the aggregate future commitment was
$383,500.
(b) Operating Lease Commitments
---------------------------
The Company leases office space, vehicles and office equipment under
various operating lease agreements expiring over several years. Lease
expense was approximately $108,000 and $105,000 for the years ended
April 30, 1997 and 1996, respectively. Future minimum lease payments
under non-cancelable lease agreements are as follows:
Year ended April 30:
1998 $ 88,582
1999 65,800
2000 66,100
2001 66,300
2002 66,650
--------
$ 353,432
==========
(c) Purchase Commitment
-------------------
The Company has a commitment to purchase all retreading buffings at
$108 per ton produced by a retread manufacturer through December 31,
1998. Purchases under a similar purchase agreement with the same
manufacturer totaled approximately $225,000 and $298,000 for the years
ended April 30, 1997 and 1996, respectively.
(Continued)
F-17
<PAGE>
CREATIVE MEDICAL DEVELOPMENT, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(d) Royalty Agreements
------------------
The Company acquired a royalty agreement with Red Hawk Rubber Co. (Red
Hawk), from Riedel OMNI Rubber Products, Inc. The Red Hawk agreement
provides that the Company pay a 5% royalty on all net sales of
products that were being manufactured at the time the agreement was
signed until June 1999. Any new products developed and manufactured by
OMNI are not subject to the Red Hawk royalty agreement.
(e) Medical Claims
--------------
The Company is self-insured for the cost of medical coverage up to a
maximum of $15,000 per individual per year. The Company has an excess
coverage insurance providing for claims over $15,000 per individual
per year.
(f) Litigation
----------
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the Company's consolidated financial position, results of
operations or liquidity.
(9) Stockholders' Equity
--------------------
(a) Convertible Preferred Stock Series B
------------------------------------
The Company has authorized 1,000,000 shares of Series B convertible
preferred stock, of which 622,066 are issued and outstanding. The
terms of these shares are as follows:
Voting
------
Each share of Series B convertible preferred stock, until converted or
canceled, has the right to one vote equivalent to one share of common
stock into which such preferred series could be then converted.
Conversion
----------
Each share of Series B convertible preferred stock shall be
convertible to a like number of common shares if the Company reports
gross annual revenues of $20,000,000 or annual pre-tax earnings of
$1,500,000 during either of the fiscal years ending April 30, 1998 or
1999. If conversion standards have not been met, the Series B
preferred stock shall be canceled by the Company upon the issuance of
its fiscal year ended April 30, 1999 consolidated financial
statements.
(Continued)
F-18
<PAGE>
CREATIVE MEDICAL DEVELOPMENT, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(b) Stock Options
-------------
OMNI's 1995 Stock Incentive Plan (the 1995 plan) provides for granting
to employees and consultants of either incentive stock options or
non-qualified stock options. Incentive stock options must be granted
at an exercise price not less than 100% of the fair market value per
share at the grant date. Non-qualified stock options generally must be
granted at an exercise price of not less than 100% of the fair market
value per share at the grant date, although in certain cases may be
granted at 85%. The term of options granted under the 1995 plan is
generally ten years, but in certain cases may be five years. The right
to exercise options granted is generally fully vested on the grant
date.
The per share weighted average fair value of stock options granted
during 1996 was $.10 on the date of grant using the Minimum Value
option-pricing model with the following weighted average assumptions:
expected divided yield 0%, risk-free interest rate of 7%, and expected
life of ten years. No options were granted during 1995.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock
options in the financial statements. The pro forma effects on net
(loss) earnings of applying SFAS No. 123 were not material for the
years ended December 31, 1996 and 1995.
In January 1994, CMD adopted an employee stock option plan which
provided for the issuance of incentive and non-qualified stock
options. In April 1997, in connection with the merger, the Company
adopted an Amended and Restated 1994 Stock Option Plan (1994 plan).
The merger agreement calls for the exchange of options in the 1995
plan for options in the 1994 plan. For each stock option exchanged,
option holders under the 1995 plan received substitute options in the
1994 plan to purchase such number of CMD common and preferred shares
as the holder of the OMNI options would have received had the options
been exercised in full immediately prior to the merger's closing. The
terms and conditions of the 1994 plan are essentially the same as the
1995 plan. The substitute options are subject to the final ownership
adjustment discussed in note 1(a).
(Continued)
F-19
<PAGE>
CREATIVE MEDICAL DEVELOPMENT, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
The following table presents historic stock option activity under the
1995 plan, converted into substitute options, and the combining effect
with CMD options outstanding under the 1994 plan:
<TABLE>
<CAPTION>
Weighted
average
Number exercise
of shares price
------------ ---------
<S> <C> <C>
Options outstanding at April 30, 1995 651,370 $ 0.69
Granted - -
Exercised - -
Forfeited - -
Expired - -
------------ --------
Options outstanding at April 30, 1996 651,370 0.69
Granted 1,236,289 0.83
Exercised - -
Forfeited (48,061) (0.69)
Expired - -
CMD options outstanding at time of merger 255,000 1.68
------------ --------
Options outstanding at April 30, 1997 2,094,598 $ 0.89
============ ========
</TABLE>
The Company reserved 3,000,000 shares of common stock and 500,000
shares of preferred stock for issuance under the 1994 plan. At April
30, 1997, there were 905,402 shares available for grant under the 1994
plan.
At April 30, 1997, the range of exercise prices and weighted average
remaining contractual life of outstanding options under the 1994 plan
was $0.25-$5.00 and 8.03 years, respectively.
At April 30, 1997 and 1996, the number of options exercisable under
the 1994 plan was 2,094,598 and 651,370, respectively, and the
weighted average exercise price of those options was $0.89 and $0.69,
respectively.
(Continued)
F-20
<PAGE>
CREATIVE MEDICAL DEVELOPMENT, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(c) Warrants Outstanding
--------------------
The following table presents warrants outstanding at April 30, 1997,
all of which were issued by CMD in consideration for service rendered,
debt and debt restructuring, and stock purchases and placements:
Number of
common
shares Exercise Expiration
issuable price date
-------- ---------- --------------
20,000 $ 2.50 May 31, 1997
76,000 0.75 May 31, 1997
100,000 0.35 March 1, 1998
52,500 6.05 May 13, 1998
46,250 0.35 May 31, 1998
10,000 0.75 May 31, 1998
10,000 1.50 May 31, 1998
603,750 6.50 May 13, 1999
50,000 10.00 April 14, 2000
(10) Major Customers and Credit Concentration
----------------------------------------
The Company does business with and extends credit to a variety of
commercial customers, including all of the major railroads in the United
States, major cities and municipalities throughout the United States and
Canada, and state-owned railroads throughout Europe and Asia.
The Company sells products to customers primarily in the United States. On
April 30, 1997, $1,077,000 (59%) of the trade receivables were concentrated
within the domestic railroad industry, and $255,000 (14%) of trade
receivables were with companies and distributors located in foreign
countries. Although the Company does not currently foresee a credit risk
associated with the foreign receivables, repayment is somewhat dependent
upon the financial stability of those countries' national economics.
Sales to domestic railroads were approximately $7,822,000 and $8,690,000,
or 61% and 64% of total sales, for the years ended April 30, 1997 and 1996,
respectively. Sales to the Company's largest customer were approximately
$2,220,000 and $1,986,000, or 17% and 15% of total sales, for the years
ended April 30, 1997 and 1996, respectively. Sales to the Company's five
largest customers were approximately $5,560,000 and $5,665,000, or 43% and
42% of total sales, for the years ended April 30, 1997 and 1996,
respectively.
(Continued)
F-21
<PAGE>
CREATIVE MEDICAL DEVELOPMENT, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(11) Going Concern
-------------
As reflected in the accompanying financial statements, current debt
maturities and other short-term commitments exceeded the Company's liquid
assets available to repay such commitments. This is due primarily to the
unexpected acceleration of certain debt maturities. To finance debt
maturities, management has and will continue to seek both debt and equity
investors to provide additional capital.
(12) Subsequent Event
----------------
(a) Sale-leaseback
--------------
On May 21, 1997, under a sale and leaseback agreement, the Company
sold its manufacturing facility in Portland, Oregon for $560,000 and
leased it back under a five-year lease agreement. The transaction
produced a gain of approximately $83,000 which will be deferred and
amortized ratably over the life of the lease. A portion of the
proceeds from the sale were used to retire $423,773 in debt and
accrued interest.
The lease is an operating lease with future minimum lease payments as
follows:
Year ended April 30:
1998 $ 86,496
1999 86,496
2000 86,496
2001 86,496
2002 86,496
-----------
Total minimum lease payments $ 432,480
===========
(b) Put Agreement
-------------
The Company has a stock put agreement with four individuals, three of
whom are board members. Under the agreement, holders of the put could
require the Company to purchase 111,741 shares valued at $134,285 in
June 1997. In June 1997, the Company repurchased 23,774 shares at a
value of $28,571, while the holders of the remaining 87,967 shares
required the Company to repurchase such shares at a value of $120,962
on October 3, 1997.
(c) Legal Settlement
----------------
On July 24, 1997, the Company entered into a settlement agreement
arising from disputed royalty payments. The terms of the settlement
agreement require the Company pay $50,000 within sixty days of the
agreement date and $20,000 per quarter for five years thereafter.
Management has reserved the discounted present value of the settlement
at April 30, 1997.
F-22
<PAGE>
Item 8 Changes In And Disagreements With Accountants On Accounting And
Financial Disclosure
-----------------------------------------------------------------------
(a) (i) On July 22, 1997, the Registrant's board of directors adopted a
resolution to change independent accountants from Perry-Smith & Co. to KPMG
Peat Marwick LLP ("KPMG") because the Company's previously announced merger
transaction with OMNI International Rail Products, Inc. ("OMNI") which
closed April 30, 1997 resulted in Registrant's principal office and
operations being outside the regional area served by Perry-Smith & Co.
(ii) The principal accountant's report for the last two years did not
contain an adverse opinion or a disclaimer of opinion and was not qualified
or modified as to uncertainty, audit scope, or accounting principles.
(iii) The decision to change accountants was approved by the board of
directors.
(iv) There were no disagreements with the former accountant on any
matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreement(s), if not
resolved to the satisfaction of the former accountant, would have caused it
to make reference to the subject matter of the disagreement(s) in
connection with its report.
(v) None of the events listed in paragraphs (a)(1)(iv) of Item 304 of
Regulation S-K has occurred.
(b) On July 22, 1997, the Registrant's board of directors adopted a
resolution to change independent accountants from Perry-Smith & Co. to KPMG
for the reasons described above. Prior to the closing of the merger
transaction, KPMG provided OMNI limited accounting services.
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16 (a) in the Exchange Act.
------------------------------------------------------------------------
The executive officers and directors of the Company are as follows:
NAME AGE POSITION
Michael L. DeBonny 57 Chairman of the Board,
CEO, President and Treasurer
11
<PAGE>
NAME AGE POSITION
Edward S. Smith 78 Director
Joseph J. Barclay 64 Director
Richard A. Kreitzberg 63 Director
John E. Hart 58 Director
Ronald G. Nutting 67 Vice President and Secretary
Bryan L. Holland 39 Vice President - Manufacturing
Robert E. Tuzik 46 Vice President - Sales &
Marketing
Jeffrey A. Edwards 50 Chief Financial Officer
Each director is elected for a period of one year and serves until his or her
successor is duly elected by the stockholders. The Board of Directors has no
committees.
The principal occupations of each director and executive officer of the Company,
for at least the past five years, are as follows:
Michael L. DeBonny has been chairman of the Board of Directors and CEO of the
Company since closing of the merger with OMNI on April 30, 1997. He had been
Chairman of the Board of Directors and CEO of OMNI from April, 1994 to the
closing. Prior to the acquisition of OMNI in April 1994, Mr. DeBonny was
president of BHP Rail Products, Inc. and BHP Rail Products (Canada), Ltd., both
divisions of Broken Hill Proprietary Co., Ltd. Mr. DeBonny is a Certified Public
Accountant and holds B.B.A.
and MBA degrees from the University of Portland.
Edward S. Smith has been a director of the Company since closing of the merger
with OMNI on April 30, 1997. He had been a director of OMNI from 1994 to the
closing of the merger. Mr. Smith is President/Owner of Ted Smith & Company. He
is the former chairman and CEO of Omark Industries, Inc., an international
manufacturer of cutting chain for chain saws, hydraulic log loaders and sporting
ammunition. His business activity during the last five years has been
concentrated on private investing and board memberships. Currently he serves on
the Board of Directors of Georgia Gulf Corporation and Expert Systems Publishing
Company.
12
<PAGE>
Joseph J. Barclay has been a director of the Company since closing of the merger
with OMNI on April 30, 1997. He had been a director of OMNI from 1996 to the
closing of the merger. Mr. Barclay has been with Cascade Corporation, a leading
international manufacturer of materials handling equipment headquartered in
Portland, Oregon since 1968. He has served as a director of Cascade since 1972,
president and CEO from 1973 and as chairman since 1993. Mr. Barclay currently
serves on the Board of Directors of Granite Construction Company, Inc., and
Columbia Machine Corporation. Mr. Barclay holds a BS degree in industrial
engineering from Illinois Institute of Technology.
Richard A. Kreitzberg has been a director of the Company since closing of the
merger with OMNI on April 30, 1997. He had been a director of OMNI from 1994 to
the closing of the merger. From 1980 to 1995 Mr. Kreitzberg served as President
of Microflect, Inc. He is currently serving as chairman of the Salem Hospital
Board of Trustees.
Ronald G. Nutting has been Executive Vice President and Secretary of the Company
since closing of the merger with OMNI on April 30, 1997. He had been Executive
Vice President and Secretary of OMNI from 1994 to the closing of the merger.
From 1983- 1994 Mr. Nutting served as President of OMNI. Mr. Nutting holds a BS
degree in Engineering Geology from Oregon State University.
John E. Hart has been a director of the Company since closing of the merger with
OMNI on April 30, 1997. Prior to the merger, he had been general counsel to CMD
since October 1993 and its Secretary and Treasurer since June, 1994. From 1985
to 1994 he was engaged in the private practice of law. He resumed his law
practice in May, 1997. Mr. Hart holds a J.D. degree from the University of
Southern California and a BA degree from the University of Redlands.
Bryan Holland has been Vice President of Operations of the Company since closing
of the merger with OMNI on April 30, 1997. He had been Vice President of
Operations of OMNI from 1989 to the closing of the merger. He holds a BA in
Business Administration from Linfield College.
Robert E. Tuzik has been Vice President - Sales and Marketing of the Company
since closing of the merger with OMNI on April 30, 1997. He had been Vice
President - Sales and Marketing from 1996 to the closing of the merger. From
1995 to 1996 he owned and operated Talus Associates, specializing in railway
marketing and media relations. Prior to that he spent six years as engineering
editor of Railway Track and Structures, a railroad engineering journal. Mr.
Tuzik holds a BA in English and MS in Journalism from the University of Illinois
at Chicago and Northwestern University.
Jeffrey A. Edwards has been Chief Financial Officer of the Company since closing
of the merger with OMNI on April 30, 1997. He had been Chief Financial Officer
of OMNI from January 1997 to closing of the merger. From 1992 to 1997 he
13
<PAGE>
operated Profit Technology Systems doing financial and management consulting.
Prior to that he spent four years as Division Finance Director with Wendy's
International . He is a Certified Public Accountant and holds a BS degree in
Finance from the University of Oregon and an MBA from Portland State University.
Item 10 Executive Compensation
The following table sets forth remuneration paid to certain executive officers
for the fiscal years ended April 30, 1996 and April 30, 1997, respectively:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
------------------------------------------ ---------------------------------
Other
Year Annual
Ended Compen- Options LTIP All other
Name and Principal Position April 30 Salary Bonus sation SARs Payments Comp.
- --------------------------- -------- ------ ------ --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael L. DeBonny 1997 151,814 0 0 618,144 0 0
CEO, President 1996 120,918 8,026 0 0 0 0
and Treasurer 1995 120,457 0 0 324,525 0 0
Ronald G. Nutting 1997 106,544 0 0 0 0 0
Executive Vice President 1996 88,179 5,538 0 0 0 0
and Secretary 1995 87,803 0 0 0 0 0
</TABLE>
The Company's nonsalaried directors receive $1,000 for each Board
meeting attended together with reimbursement for out-of-pocket
expenses in attending Board meetings.
Item 11 Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of the date
hereof, by (i) each person who is known by the Company to own of
record or beneficially more than 5% of the Company's Common Stock,
(ii) each of the Company's directors and (iii) all directors and
officers of the Company as a group. The stockholders listed in the
table have sole voting and investment powers with respect to the
shares indicated.
14
<PAGE>
Name and Address of Number of
Beneficial Owner(1)(2) Shares Owned Percent of
---------------------- ------------ ----------
Class
-----
Joseph Barclay (2) (3) 30,907 *
c/o Cascade Corporation
2020 SW 4th Avenue
Portland, OR 97201
Michael L. DeBonny (4) 1,625,627 24%
16101 Parelius Circle
Lake Oswego, OR 97034
John E. Hart (5) 103,039 1.5%
Box 2495
Grass Valley, CA 95945
Richard A. Kreitzberg (6) 834,643 12.3%
3332 El Dorado Loop South
Salem, OR 97032
Edward S. Smith (7) 572,087 8.4%
921 SW Washington St., Ste. 762
Portland, OR 97205
Ronald J. Gangemi (8) 447,788 6.6%
11950 Willow Valley Road
Nevada City, CA 95959
All officers and directors 3,603,859 53.2%
as a group (8 persons)
*Less than 1%
- ----------
(1) Assumes no exercise or conversion of (i) common stock purchase warrants and
underwriter's warrants issued in conjunction with the Company's 1994 public
offering, outstanding warrants, options or other commitments of the Company
that are convertible into or exercisable for shares of Common Stock, except
that Common Stock obtainable by persons named in the above table upon
exercise of options is deemed outstanding and beneficially owned by such
persons in calculating their percentage ownership; or (ii) the Series B
Preferred Stock.
(2) Does not include shares of Series B Preferred Stock held by the person
listed.
15
<PAGE>
(3) Includes options held by Mr. Barclay to purchase 30,907 shares under the
Company's Incentive Stock Option Plan.
(4) Includes options held by Mr. DeBonny to purchase 942,670 shares under the
Company's Incentive Stock Option Plan.
(5) Includes options held by Mr. Hart to purchase 50,000 shares under the
Company's Incentive Stock Option Plan.
(6) Includes shares owned by Mr. Kreitzberg's spouse. Also includes options
held by Mr. Kreitzberg to purchase 30,907 shares under the Company's
Incentive Stock Option Plan
(7) Includes options held by Mr. Smith to purchase 92,722 shares under the
Company's Incentive Stock Option Plan.
(8) Includes shares owned by Mr. Gangemi's spouse and children.
Item 12 Certain Relationships and Related Transactions
----------------------------------------------
Between February 28 and May 2, 1995, the Company borrowed, on short
term notes, a total of $200,000 from four investors, including $25,000
from Mr. Gangemi. The interest on the Gangemi loan was at the rate
that he was required to pay the bank from which he borrowed the funds
to make the loan. The interest on the other $175,000 was at 10% per
annum. As additional consideration for the loans, the lenders
received, pro rata, warrants to purchase a total of 100,000 shares of
the Company's common stock, exercisable until March 1, 1998, at $.35
per share.
In February, 1997, three OMNI directors (Messrs. DeBonny, Kreitzberg
and Smith) purchased shares in OMNI for a total of $99,617 at $3.50
per share. Simultaneously, put agreements were executed requiring the
Company to purchase those shares at a price equivalent to $4.00 per
share 120 days following the investment. Mr. Kreitzberg exercised his
put and his shares were repurchased in June, 1997. The put agreements
with Messrs. DeBonny and Smith were extended 120 days and the put
price increased to the equivalent of $4.25 per OMNI share, or a total
of $88,272.
In March, 1997, OMNI entered into a short term equipment rental
agreement with one of its directors, Edward S. Smith.
As a condition of the merger transaction with OMNI, the Company
entered into agreements with Messrs. Hart and Gangemi to exchange all
of their Series A preferred stock (60,000 and 750,000 shares
respectively) for 20,000 and 250,000 shares, respectively, of Series B
preferred stock.
16
<PAGE>
Management is of the opinion that all transactions described above
between the Company and its officers, directors or stockholders were
on terms at least as fair to the Company as had the transactions been
concluded with an unaffiliated party. All material transactions
effected in the future between the Company and its officers, directors
and principal stockholders will be subject to approval by a majority
of the Company's outside directors not having an interest in the
transaction.
Item 13 Exhibits and Reports on Form 8-K
a. The Exhibits listed on the accompanying Index of Exhibits are filed as
part of this annual report.
b. No reports on Form 8-K were filed during the quarter ended April 30, 1997.
Index of Exhibits
-----------------
Exhibit # Description
- --------- -----------
1.01 Form of Underwriting Agreement with Oak Ridge Investments, Inc.
(1)
1.02 Form of Selected Dealers Agreement (1)
1.03 Form of Representative's Warrant (1)
1.04 Consulting Contract (1)
2.01 Certificate of Incorporation of the Registrant (1)
2.02 Bylaws of the Registrant (1)
2.03 Migratory Merger Agreement (1)
2.04 Bylaws of the Registrant as amended December 10, 1994 (1)
2.05 Certificate of Designation of Preferences of Series B Preferred
Shares
4.01 Form of Warrant Agreement (1)
5.01 Opinion of John Hart, Esq., regarding legality of the Common Stock
and Warrants (includes Consent) (1)
10.01 Incentive Stock Option Plan (1)
10.02 Employment Agreement (Mr. Gangemi) (1)
10.03 Agreement with LBI general partnership (1)
17
<PAGE>
10.04 Employment Agreement (Mr. Hart) (2)
10.05 Gish Biomedical, Inc. Asset Purchase Agreement, dated September
13, 1995 (4)
10.06 Merger Agreement and Plan of Reorganization (5)
10.07 Letter from Perry-Smith & Co. (former accountant dated July 24,
1997) pursuant to Item 304 (a) (3) of Regulation S-K (6)
10.08 Employment Agreement (Mr. DeBonny)
11.01 Statement of Computation of Per Share Loss (1)
11.02 Statement of Computation of Per Share Loss (1)
11.03 Statement of Computation of Per Share Loss (1)
11.04 Statement of Computation of Per Share Loss (2)
24.01 Consent of Perry-Smith & Co. (1)
24.02 Consent of John Hart, Esq. (See 5.01, above.) (1)
24.03 Consent of Gary A. Agron (1)
24.04 Consent of Perry-Smith & Co. (1)
24.05 Consent of Perry-Smith & Co. (1)
24.06 Consent of Perry-Smith & Co. (1)
24.07 Consent of Perry-Smith & Co. (3)
27.01 Financial Data Schedule--September 30, 1996 (7)
27.02 Financial Data Schedule--December 31, 1996 (7)
27.03 Financial Data Schedule--March 31, 1997 (7)
27.04 Financial Data Schedule--April 30, 1997
(1) Previously filed as part of the Company's SB-2 Registration Statement filed
on February 11, 1994, as amended and effective on May 13, 1994.
(2) Previously filed as Exhibits to the Company's Annual Report on Form 10-KSB
for the fiscal year ended September 30, 1994.
18
<PAGE>
(3) Previously filed as an Exhibit to the Company's Post Effective Amendment
No. 1 to Form SB-2 Registration Statement filed on March 10, 1995 and
effective on March 28, 1995.
(4) Previously filed as an Exhibit to the Company's Preliminary Proxy Statement
filed October 24, 1995.
(5) Previously filed as an Exhibit to the Company's Form 8-K filed May 2, 1997.
(6) Previously filed as an Exhibit to the Company's Form 8-K filed July 30,
1997.
(7) Previously filed as an Exhibit to the Company's annual or quarterly report
for the period ending the indicated date.
19
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Creative Medical Development, Inc.
(Registrant)
By /s/ MICHAEL L. DEBONNY
---------------------------------------
(Signature and Title)
Michael L. DeBonny
Chief Executive Officer and Director
Date August 12, 1997
----------------------------------
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By /S/ JEFF EDWARDS By /S/ JOSEPH J. BARCLAY
------------------------------- --------------------------------
(Signature and Title) (Signature and Title)
Jeff Edwards Joseph J. Barclay, Director
Chief Financial Officer
Date August 12, 1997 Date August 12, 1997
------------------------------ -----------------------------
By /S/ JOHN E. HART
--------------------------------
(Signature and Title)
John E. Hart, Director
Date August 12, 1997
20
CERTIFICATE OF DESIGNATION OF PREFERENCES
OF SERIES B PREFERRED SHARES OF
CREATIVE MEDICAL DEVELOPMENT, INC.
A Delaware Corporation
John E. Hart, pursuant to the provisions of the General Corporation Law of
Delaware hereby certifies that:
1. He is the duly elected and acting Secretary of Creative Medical
Development, Inc., a Delaware corporation.
2. Pursuant to authority given by the corporation's Certificate of
Incorporation, the Board of Directors has duly adopted the following preamble
and resolution:
Pursuant to the Agreement of Merger and Plan of Reorganization between
and among this corporation, its subsidiary OMNI Acquisition, Inc., an
Oregon corporation (OAI), and OMNI International Rail Products, Inc., an
Oregon corporation (OMNI), providing for the merger of OMNI with and into
OAI (Merger Agreement) approved at the March 25, 1997 board of directors
meeting and executed April 17, 1997:
RESOLVED that, pursuant to Section 2.1.5 of the Merger Agreement, of
the five million (5,000,000) shares of $.01 par value preferred stock that
the corporation is authorized to issue, one million (1,000,000) shares are
designated Series B Preferred Stock with the following powers, preferences
and rights:
1. The Series B Preferred Stock will be automatically converted into
common stock of the corporation if the corporation reports gross
annual revenues of $20,000,000 or annual pre-tax earnings of
$1,500,000 during either the fiscal year ending in 1998 or the fiscal
year ending in 1999. If, after the reporting of annual revenues and
earnings for the fiscal year ending in 1999, the conversion has not
occurred, the Class B Preferred Stock will be deemed canceled and of
no further force or effect.
2. Each share of Series B Preferred Stock, until converted or canceled,
has voting rights equivalent to one share of common stock of the
corporation.
3. The Series B Preferred Stock has no liquidation preferences or
dividend rights.
IN WITNESS WHEREOF, the undersigned has executed this certificate on April
29, 1997.
/s/ JOHN E. HART
------------------------------------
John E. Hart, Secretary
The undersigned declares under penalty of perjury that the statements in
the above certificate are true of his own knowledge and that this declaration
was executed on April 29, 1997 at Portland, Oregon.
/S/ JOHN E. HART
------------------------------------
John E. Hart
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into this 29th
day of April, 1994, by and between OMNI INTERNATIONAL RAIL PRODUCTS, INC., an
Oregon corporation and OMNI PRODUCTS, INC., its wholly owned subsidiary
(hereinafter collectively referred to as "Corporation"), and MICHAEL L. DeBONNY
("Employee").
RECITALS:
---------
A. Corporation is a corporation duly organized and existing under the laws
of the State of Oregon;
B. Employee is an employee of Corporation; and
C. Corporation desires to employ Employee, upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, it is agreed as follows:
1. Employment. Corporation hereby employs Employee as Chief Executive
Officer and Chairman of Corporation and Employee accepts employment upon the
terms and conditions herein set forth in this Agreement.
2. Duties of Employee. Employee shall perform such duties and
responsibilities as those necessarily and customarily performed by a chief
executive officer and chairman of a like business and those as may be assigned
to him from time to time by Corporation and its Board of Directors. Employee
shall perform his responsibilities and duties faithfully, intelligently, to the
best of his ability, and in the best interests of Corporation during the term of
this Agreement. Employee agrees to devote all of his productive time, attention,
and energies to the business of the Corporation.
3. Term. The term of Employee's employment under this Agreement shall
commence on the effective date of this Agreement and shall continue for a period
of sixty (60) months and thereafter shall be automatically extended for
additional one (1) year terms, (a) unless either party gives written notice to
the other party at least thirty (30) days before the expiration of the initial
term or of each one year term thereafter, as the case may be, of termination,
(b) unless terminated under Paragraph 5 hereof, or (c) unless sooner terminated
by mutual agreement of Employee and the Board of Directors of Corporation.
Page 1 - EMPLOYMENT AGREEMENT
<PAGE>
4. Compensation and Other Benefits.
4.1 Base Compensation. As compensation for his or her services hereunder,
the Company shall pay Employee during the term of this Agreement a yearly salary
of One Hundred Twenty Thousand Dollars ($120,000) before all customary payroll
deductions. Such salary shall be paid in substantially equal installments at the
same intervals as other officers of the Company are paid. The salary shall be
reviewed annually on or about the anniversary date of this Agreement with such
increases as shall be awarded in the discretion of the Board of Directors taking
into account such factors as corporate and individual performance, general
business conditions and changes in the cost of living index.
4.2 Benefits. During the term of this Agreement, Employee will be entitled
to health insurance coverage and such other fringe benefit programs as shall be
provided from time to time by the Company to other officer employees.
4.3 Bonus Compensation. The Board of Directors of Corporation may elect at
any time, in its sole discretion, and without any obligation to do so, to pay
Employee such additional bonus compensation as it shall determine.
4.4 Compensation Plans. In the event the Company established any bonus,
incentive or deferred compensation plan or program applicable to other senior
executive employees of Company, Employee will participate in such plan or
program on terms which are commensurate with his position and as are otherwise
determined on the same basis as such other senior executive employees.
4.5 Expenses. The Company will pay or reimburse Employee for all reasonable
and necessary travel and out-or-pocket expenses incurred by him in the
performance of his duties under this Agreement, subject to presenting
appropriate vouchers in accordance with the Company's policies.
5. Termination.
5.1 Permitted Termination. Employee's employment pursuant to this Agreement
and the Company's obligation to pay compensation hereunder may be terminated as
follows:
(a) The Board of Directors in officei at the time of the termination
may terminate Employee's employment for cause. For purposes of this Agreement,
"cause" shall mean a good faith determination by a majority vote of the Board of
Directors in office at the time of the termination (other than Employee), that
Employee violated a state or federal law involving the commission of a crime
against the Company, a felony or moral turpitude.
Page 2 - EMPLOYMENT AGREEMENT
<PAGE>
(b) The present Board of Directors, or their successors nominated by
the present Board of Directors, or their successors so nominated, may terminate
Employee's employment if a majority of those directors who have no interest in
the transaction in good faith determine that Employee (i) demonstrated willful
and continued failure or inability to substantially perform reasonably assigned
duties, policies, standards and regulations that are consistent with the duties
assigned to Employee at the time of this Agreement (other than any such failure
resulting from Employee's incapacity due to physical or mental illness) after a
written demand for substantial performance is delivered to Employee by the
Chairman of the Board or President of the Company which specifically identifies
the manner in which such executive believes that Employee has not substantially
performed such duties; (ii) breached the terms of this Agreement; (iii) engaged
in conduct which was materially injurious to the Company, including, but not
limited to, misuse of alcohol or controlled substances; misrepresentation,
deception, fraud or dishonesty; actions compromising Employee's reputation or
ability to represent the Company with the public; actions substantially
impairing the Company's business, good will or reputation or any other act of
misconduct.
(c) Employee's employment shall terminate automatically upon
Employee's death or total disability. The term "total disability" as used herein
shall mean an inability to perform the duties set forth in this Agreement
because of illness or physical or mental disability for a period or periods
aggregating 90 calendar days in any 12-month period, unless Employee is granted
a leave of absence by the Board of Directors of the Company. The parties
acknowledge that Employee's ability to perform the duties specified in this
Agreement is of the essence to this Agreement.
(d) By 30 days written notice of termination given by Employee.
5.2 Constructive Termination. If Employee voluntarily terminates employment
within 60 days of a "change in duties," the Company shall be deemed to have
terminated Employee's employment in breach of this Agreement. Change in duties
shall mean any one or more of the following:
(a) A significant change in the nature or scope of Employee's title,
responsibilities, authority or duties from those applicable as of the date of
this Agreement;
(b) A significant diminution in employee benefits, including but not
limited to medical, dental, life insurance and long-term disability plans, and
perquisites available to Employee, from the employee benefits and perquisites to
which he or she is entitled as of the date of this Agreement, provided that such
diminution is not the result of a change in the Company's employee benefit
program generally available to similarly situated employees; or
Page 3 - EMPLOYMENT AGREEMENT
<PAGE>
(c) A change in the location of Employee's principal place of
employment by the Company by more than 50 miles from Portland, Oregon.
5.3 Payment.
(a) In the event of permitted termination of Employee's employment
pursuant to Section 5.1 of this Agreement, Employee shall be entitled to receive
unpaid salary through the effective date of termination; provided, however, that
if the employment of Employee is automatically terminated due to death or
disability pursuant to Section 5.1(c), Employee or Employee's personal
representative shall receive termination payments in the form of Employee's
annual salary through the conclusion of the calendar month of the termination of
employment because of such death or disability. Any amounts owed by the Company
to Employee pursuant to this section may be reduced by any amount owned by
Employee to the Company.
(b) In the event the Company terminates Employee's employment under
this Agreement other than as provided in Section 5.1, it is agreed by the
parties that the actual damages which might be sustained by the Employee by
reason of such breach and termination are uncertain and would be difficult of
ascertainment, and therefore the Company shall continue to pay the Employee's
salary and benefits substantially equivalent to those described in Section 4 for
the remainder of the term of this Agreement or for three months whichever period
is longer, as and when such compensation is payable hereunder. In the event that
Employee is employed full time in another position, then the amount of
compensation to be paid to Employee hereunder from and after the date of such
employment shall be reduced by the amount of compensation paid to Employee in
respect to such employment. Nothing herein shall be construed to require
Employee to seek other employment and it is explicitly agreed that Employee is
not required to seek other employment.
6. Noncompete. Employee covenants that during the period of his or her
employment hereunder and for a period of three years after the date of this
Agreement or one year after the date of termination of Employee's employment
whichever period is longer, Employee shall not, directly or indirectly, either
as a principal, agent, employee, employer, consultant, stockholder, partner or
in any other personal or representative capacity whatsoever, be connected with
in any manner, any business whose products or services are in competition with,
or may in the future be in competition with, products then being produced or
marketed or services then being provided or marketed by the Company, or products
or services that feasibility of which the Company is actually studying, and
Page 4 - EMPLOYMENT AGREEMENT
<PAGE>
shall not, directly or indirectly, divert any customer of the Company or induce
any employee or consultant of the Company to terminate his or her employment or
relationship with the Company. The covenant contained in this section is
intended to be a series of separate covenants, one set for the State of Oregon
and one set for each county, state or foreign country in which the Company shall
be engaged in any definable business in which Employee shall have been involved
on any date during the period of Employee's employment. Employee agrees that the
restraints imposed in this section are necessary for the reasonable and proper
protection of the Company and that each and every one of the restraints is
reasonable in terms of duration and geographic scope.
7. Confidential and Proprietary Information.
7.1 Confidential Relationship. Employee understand that Employee's
employment creates a relationship of confidence and trust between Employee and
the Company with respect to any information: (a) applicable to the business of
the Company; (b) applicable to the business of any supplier, consultant,
independent contractor, licensor, licensee, client, customer or affiliate of the
Company, which information may be made known to Employee by the Company or by
any supplier, consultant, independent contractor, licensor, licensee, client,
customer or affiliate of the Company, or information learned by Employee during
the period of Employee's employment.
7.2 Proprietary Information. Employee acknowledges that, during the course
of rendering the employment services to the Company he or she may acquire
Proprietary Information of the Company (as hereinafter defined). For purposes of
this Agreement "Proprietary Information" shall mean all material and information
created, discovered, owned, controlled or otherwise known by the company
(including, without limitation, information created by or discovered by Employee
during the period of or arising out of Employee's employment with the Company)
and/or in which property rights have been assigned or otherwise conveyed to the
Company, which information has commercial value in the business in which the
Company is engaged. "Proprietary Information" includes, without limitation,
trade secrets, confidential information, data processes, designs, software
programs, formulas, test procedures and results, improvement, inventions or
techniques, customer lists, business plans, marketing plans and strategies and
pricing strategies or other subject matter pertaining to any business of the
Company or of any of its suppliers, consultants, independent contractors,
licensors, licensees, clients, customers or affiliates.
7.3 Limitation. Subject to the provisions of the Rights in Products Section
of this Agreement, the term "Proprietary Information" shall not include any
information which:
Page 5 - EMPLOYMENT AGREEMENT
<PAGE>
(a) is or becomes generally known or available through no act or
failure on the part of Employee;
(b) is known by Employee at the time of receipt of such information,
as demonstrated by written documentation bearing a date prior to the date of
receipt of such information, where the source of such information legally
obtained such information and the right to disclose it to Employee;
(c) is furnished to Employee by a third party without restriction on
disclosure, where such third party legally obtained such information and the
right to disclose it to Employee; or
(d) is developed by Employee independently of any obligation to the
Company and without violation of any rights which the Company may have in such
information.
7.4 Ownership. Employee agrees that all Proprietary Information of which
Employee may acquire knowledge is the sole and exclusive property of the
Company, and that the Company shall retain all right, title and interest to the
Proprietary Information. Employee further agrees that Employee is not entitled
to use Proprietary Information for Employee's own benefit or for the benefit of
others during or after the period of Employee's employment, without the prior
written consent of the Company.
7.5 Nondisclosure. Employee agrees to keep confidential, and not disclose
or make any use of, except for the benefit of the Company, at any time either
during or subsequent to Employee's employment, any Proprietary Information of
which Employee may acquire knowledge. Employee also agrees to employ all
reasonable measures to prevent the unauthorized use of the Proprietary
Information. Employee agrees that, in the event Employee is served with a
subpoena or other compulsory judicial or administrative process calling for
production of Proprietary Information, Employee will immediately notify the
Company in order that the Company may take such action as it deems necessary to
protect its interests.
7.6 Return. Within ten (10) days following the termination of Employee's
employment with the Company for any reason whatsoever, Employee shall return and
certify in writing to the return of, any and all notes, diagrams, documents,
papers and other materials consisting of or relating to the Proprietary
Information, and all copies thereof which are then in Employee's (or Employee's
agent's) possession or control.
Page 6 - EMPLOYMENT AGREEMENT
<PAGE>
8. Rights in Products.
8.1 Ownership. Employee agrees that any inventions, designs, drawings,
specifications, computer software, ideas, documentation or other copyrightable
works or patentable inventions, formulas, processes or techniques which Employee
makes, conceives, reduces to practice or learns during Employee's employment
("Works"), and al intermediate and partial versions thereof, as well as all
program materials, flow charts, notes, outlines, designs, drawings,
specifications, and the like created in connection therewith (collectively "Work
Product"), and any formulas, processes, algorithms, ideas and other information
not generally known to the public (whether or not protected by copyright or
patent) and developed or generated by Employee in the course of developing the
Works ("Related Information"), shall, upon their fixation in a tangible medium
of expression (in the case of copyrightable works) or creation (in the case of
noncopyrightable works), be assigned to and constitute Proprietary Information
of the Company and shall be the sole property of the Company and the Company
shall be the sole owner of all patents, copyrights and other rights in
connection therewith.
8.2 Disclosure. Employee shall promptly disclose to the Company any
Works, Work Product or Related Information created, discovered, reduced to
practice or learned by Employee, either alone or jointly with others, during the
term of Employee's employment.
8.3 Assignment. Employee hereby assigns to the Company the sole and
exclusive right, title and interest in and to all such Works, and all copies of
any of them, without further consideration, and agrees to assist the Company to
register, and from time to time to enforce, all patents, register, and from time
to time to enforce, all patents, copyrights and other rights and protections
relating to the Works, Work Product and Related Information in any and all
countries. To that end, Employee agrees to execute and deliver all documents
requested by the Company in connection therewith, and irrevocably designates and
appoints the Company Employee's agent and attorney-in-fact to act for and in
Employee's behalf and stead to execute, register and file any such applications,
and to do other lawfully permitted acts to further the registration, prosecution
and issuance of patents, copyrights or similar protections with the same legal
force and effect as if executed by Employee.
8.4 Nonexclusive License. In the event (and to the extent) that the
Works, Work Products or Related Information contain any items or elements which
may be subject to preexisting proprietary rights of Employee, Employee hereby
grants to the Company an irrevocable, perpetual, nonexclusive royalty-free,
worldwide license to (a) use, execute, reproduce, display, perform, distribute
copies of, modify and prepare derivative works based on such preexisting rights
Page 7 - EMPLOYMENT AGREEMENT
<PAGE>
and (b) authorize others to do any of the foregoing. Employee represents and
warrants that (i) Employee is the sole and absolute owner of any such items or
elements contained in the Works, Work Product or Related Information that are
licensed hereunder to the Company (collectively, "Licensed Items"), (ii) the
Licensed Items do not infringe on any third party's proprietary rights
(including, without limitation, rights of patent and copyright) and (iii) the
Company's exercise of its rights under the license granted hereunder to not
infringe upon any third party's proprietary rights (including, without
limitation, rights of patent and copyright).
9. General Provisions.
9.1 Injunctive Relief. Employee acknowledges that the Company will not
have an adequate remedy at law in the event of any breach or threatened breach
by Employee of any provision of Sections 6, 7 or 8, and that the Company will
suffer irreparable damage and injury as a result. Accordingly, in the event of
any such breach or threatened breach, employee hereby consents to the granting
of injunctive relief against him or her by any court of competent jurisdiction
without the posting by the Company of any bond or other security therefor, and
Employee further agrees not to raise as a defense the availability of monetary
damages as a remedy.
9.2 Arbitration. If any disputes or differences shall arise between
the Company and Employee, no suit shall be commenced by either one against the
other. These disputes and differences shall, however, be submitted to
arbitration in accordance with the laws of the State of Oregon, and all
arbitration proceedings shall be in the City of Portland. Judgment upon the
award rendered by the arbitrator(s) may be entered in any court having
jurisdiction. The Company and Employee will try to agree on one arbitrator
selected from a list submitted by the American Arbitration Association. If this
is not possible, there will be three arbitrators, one named in writing by each
party to this Agreement within 10 days after notice of arbitration is served by
either party upon the other, and a third arbitrator selected by these two
arbitrators. Costs of the arbitration shall be shared equally by Employee and
the Company. Each party will bear its own attorneys' fees and costs.
9.3 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement binding
on all the parties, notwithstanding that all parties are not signatories to the
same counter part.
9.4 Survival. All rights and obligations shall cease upon termination
of Employee's employment with the Company, except as otherwise explicitly set
forth herein and except for the rights and obligations set forth in or arising
out of Section 6, 7, 8, and 9 which shall survive the termination of this
Agreement forever.
Page 8 - EMPLOYMENT AGREEMENT
<PAGE>
9.5 Headings. Headings in this Agreement are for convenience only and
shall not be used to interpret or construe its provisions.
9.6 Officer and Board Member. So long as Employee is an employee of
Corporation and not in default hereunder, Employee shall be appointed and become
Chief Executive Officer and Chairman of Corporation and a member of the Board of
Directors on or after the effective date hereof.
9.7 Vacations. Subject to the approval of time by the Board of
Directors, Employee shall be entitled to the number of days as determined by
Corporation's policy. Initially, Employee shall be entitled to three (3) weeks
of vacation during each year of this Agreement. Any unused vacation time shall
not be carried over to future years.
9.8 Illness of Incapacity. Employee shall be entitled to sick leave
because of actual sickness, accident, or other incapacity, without any
adjustment in compensation in accordance with Corporation's policy. The Board of
Directors of Corporation in its sole discretion shall determine which adjustment
in compensation shall be made for any absences from work in excess of Employee's
normal sick leave time.
9.9 Waiver. The waiver by either Corporation or Employee of a breach
of any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach by either party and shall in no way affect the
enforcement of all of the other provisions of this Agreement.
9.10 Severability. If any term or provision of this Agreement or the
application thereof to any person or circumstance shall to any extent be invalid
or unenforceable, the remainder of this Agreement and the application of such
term or provision to persons or circumstances other than those to which it is
held invalid or unenforceable shall not be affected thereby and each term or
provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law.
9.11 Modification. This Agreement may not be changed or modified
except by the written agreement of the parties hereto. Not change, termination,
or attempted waiver of any of the provisions hereof shall be binding unless in
writing and signed by both parties. This Agreement may not be modified or
terminated orally.
9.12 Executive. Each of the parties hereto shall execute such
documents and shall take such other action as may be reasonably requested by the
other party to carry out the provisions and purposes of this Agreement in
accordance with the terms hereof.
Page 9 - EMPLOYMENT AGREEMENT
<PAGE>
9.13 Applicable Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Oregon.
9.14 Integration. This Agreement contains the entire agreement between the
parties hereto pertaining to the subject matter hereof, and supersedes all prior
and contemporaneous agreements, oral and written, except those contemplated
hereunder or note inconsistent herewith.
9.15 Representation. This Agreement has been prepared by Nicholas I.
Goyak, P.C. as legal counsel to Employer. Employee has been advised, and by his
execution hereof acknowledges, that he has the right to, and should, have this
Agreement reviewed by his own separate legal counsel. This Agreement has been
negotiated at arm's length with the benefit or opportunity to seek the
assistance of legal counsel and accordingly shall not be construed against any
party.
9.16 Successors; Assignment. Employee may not assign, transfer,
convey, mortgage, hypothecate, pledge, or in any way encumber the compensation
or other benefits payable to him or any rights which he may have under the
provisions of this Agreement, without the prior written consent of Corporation.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
effective date first above written.
OMNI INTERNATIONAL RAIL OMNI PRODUCTS, INC.
PRODUCTS, INC.
By: /s/ Michael L. DeBonny By: /s/ Michael L. DeBonny
----------------------- -----------------------
Title: Chairman & CEO Title: Chairman & CEO
-------------------- --------------------
Address: 975 SE Sandy Blvd. Address: 975 S.E. Sandy Blvd.
------------------ --------------------
Portland, OR. 97214 Portland, OR. 97214
------------------- --------------------
EMPLOYEE
/s/ Michael L. DeBonny
-------------------------------------
Name: Michael L. DeBonny
------------------------------
Address: 16161
---------------------------
Lake George, OR 97034
---------------------------
Page 10 - EMPLOYMENT AGREEMENT
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED APRIL 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
<CASH> 139,635
<SECURITIES> 755,123
<RECEIVABLES> 1,818,109
<ALLOWANCES> 37,863
<INVENTORY> 2,494,743<F1>
<CURRENT-ASSETS> 5,228,290
<PP&E> 5,223,424<F2>
<DEPRECIATION> 936,768
<TOTAL-ASSETS> 11,252,901
<CURRENT-LIABILITIES> 6,922,406
<BONDS> 2,845,276
0
6,221
<COMMON> 55,543
<OTHER-SE> 1,157,505
<TOTAL-LIABILITY-AND-EQUITY> 11,252,901
<SALES> 12,902,491
<TOTAL-REVENUES> 12,902,491
<CGS> 10,557,688
<TOTAL-COSTS> 2,641,943
<OTHER-EXPENSES> 366,437
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 687,095
<INCOME-PRETAX> (1,350,672)
<INCOME-TAX> (55,607)<F3>
<INCOME-CONTINUING> (1,295,065)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,295,065)
<EPS-PRIMARY> (.41)
<EPS-DILUTED> (.41)
<FN>
<F1>See Footnote 2 to Financial Statements.
<F2>See Footnote 3 to Financial Statements.
<F3>See Footnote 7 to Financial Statements.
</FN>
</TABLE>
