U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark One)
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- --- OF 1934 [Fee Required]
For the fiscal year ended April 30, 1999
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 [No Fee Required]
For the transition period from _______ to _______
Commission file number 33-75276
OMNI Rail Products, Inc.
------------------------
(Name of Small Business Issuer in its Charter)
Delaware 68-0281098
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(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
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
State issuer's revenues for its most recent fiscal year. $12,438,192.
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked prices of such common equity, as
of July 30, 1999. $851,000.
State the number of shares outstanding of each of the issuers classes of
common equity, as of July 30, 1999. 1,703,098 common shares.
<PAGE>
OMNI RAIL PRODUCTS, INC.
FORM 10-KSB
ANNUAL REPORT FOR THE FISCAL YEAR ENDED April 30, 1999
PART I Item 1. Description of Business 1
Item 2. Description of Property 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II Item 5. Market for Common Equity
and Related Stockholder Matters 8
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
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 (Deficit) F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6
Item 8. Changes In And Disagreements With Accountants On
Accounting And Financial Disclosure 18
PART III Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)
in the Exchange Act 18
Item 10. Executive Compensation 20
Item 11. Security Ownership of Certain Beneficial Owners
and Management 20
Item 12. Certain Relationships and Related Transactions 22
Item 13. Exhibits and Reports on Form 8-K 23
Index of Exhibits 23
Signatures 27
<PAGE>
PART I
------
Item 1. Description of Business:
- --------------------------------
Introduction
------------
This Form 10-KSB contains certain forward-looking statements. For this
purpose, any statements contained in this Form 10-KSB that are not
statements of historical fact may be deemed to be forwarding looking
statements. Without limiting the foregoing, words such as "may," "will,"
"expect," "believe," "anticipate," "estimate" or "continue" or comparable
terminology are intended to identify forward-looking statements. These
statements, by their nature, involve substantial risks and uncertainties,
and actual results may differ materially depending on a variety of factors.
OMNI Rail Products, Inc., formerly 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 highway/rail grade 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, an Oregon corporation, was formed in 1994 to acquire the premium
railroad grade 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 directors of the
Company and its 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. In February 1999, at the Company's annual meeting of shareholders,
the shareholders approved an amendment to the Company's certificate of
incorporation to change the Company's name from Creative Medical
Development, Inc. to OMNI Rail Products, Inc., to better match the Company
name with its continuing business.
1
<PAGE>
Company Restructuring
---------------------
During the fiscal year ended April 30, 1998, the Company began a
restructuring plan to reduce the over-capacity in its recycled rubber
manufacturing operations and to increase its concrete production
capabilities. The refocus of business stemmed from changes in industry
demand away from recycled rubber and more toward concrete and virgin rubber
crossings. The Company ceased production of recycled rubber at its
Portland, Oregon, and Lancaster, Pennsylvania plants and liquidated its
real estate holdings and virtually all its recycled rubber manufacturing
equipment at both locations. It transferred some equipment, primarily
concrete forms, to the Company's remaining facilities. At the same time the
Company extended agreements with a pre-cast concrete company to produce the
Company's proprietary concrete and rubber grade crossings, and with an
extruder of virgin rubber products to make various rail product materials
of virgin rubber.
The Company, in conjunction with its restructuring, wrote down assets to be
liquidated, wrote-off excess and obsolete recycled rubber inventory and
accrued expected shutdown and liquidation costs. The asset write-down and
inventory write-off did not have an impact on the Company's liquidity.
Other charges were recorded as liabilities and were paid out during fiscal
year 1999.
At the end of fiscal 1998, the Company was in material default of certain
financial and non-financial loan covenants under its Security and Loan
Agreement with its senior lender Finova Financial Corporation ("Finova").
In July 1998 the Company entered into a Forbearance Agreement with Finova
under which Finova would forbear in taking any action against the Company
by reason of the existing defaults. In addition, under the terms of the
Forbearance Agreement, the Company was permitted an overadvance of up to
$400,000 (through June 30, 1999) beyond the normal terms of the line of
credit. The Forbearance Agreement also eliminated the monthly principal
payment requirements on Finova's term debt. As part of the Forbearance
Agreement the Company was required to raise an additional $250,000 in
equity capital or subordinated debt. $275,160 of Subordinated financing was
received in three tranches beginning in November 1998 and the final
received the end of January 1999. The Company was also required to dispose
of certain assets with proceeds used to pay down Finova's term loan and the
real estate mortgage with Capital Consultants, Inc. Finova's term debt was
completely paid off as of the end of fiscal year 1999.
As part of the Forbearance Agreement, and as part of the Company's
restructuring plan, the Company entered into Modification Agreements and,
in some cases, Subordination and Standstill Agreements with certain
unsecured creditors. These agreements place each creditor into a
subordinate position with Finova and extend payoff of any obligation over a
five-year period.
2
<PAGE>
Products
--------
The Company through its subsidiary OMNI Products, Inc. designs, engineers,
manufactures and markets premium grade crossing surface products primarily
for the U.S. market. The Company's products cover a range of premium
crossing materials that include crossings manufactured from virgin rubber,
reinforced concrete and a combination of rubber and concrete. The Company
also produces a molded virgin rubber rail-seal product (trade named Rail
Guard) and purchases an outsourced virgin rubber rail seal product used for
semi-premium rail crossings. The product is designed to go against the rail
with the balance of the crossing filled with asphalt.
All major North American Class 1 railroads, such as CSX Transportation and
Union Pacific and many regional railroads and transit systems approve the
Company's products.
Products are distributed by truck or rail. A significant limiting factor of
the business is the freight costs from certain geographic points. Companies
in the industry with nearby shipping points have a delivered price
advantage. As such, in order to have a truly nationwide sales channel, a
company in the industry must have multiple regional locations.
Rail Crossing Market and Competitive Business Conditions
--------------------------------------------------------
Grade crossings are an important part of the transportation infrastructure
wherever rail and road traffic intersect. Premium grade 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. Premium grade crossings
are replacing the more common timber, asphalt or poured-in-place concrete
surfaces, as they provide better safety, convenience and durability, as
well as lower maintenance and life cycle costs. Premium surfaces are
commonly used in areas with high road traffic densities and within
industrial facilities to speed the movement of lift trucks and to reduce
cargo spillage and damage.
Many major U.S. railroads have 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.
Combination concrete/rubber crossing materials now represent the majority
of the premium grade crossing surface market. Many railroads continue to
use asphalt as the major component of their crossings. A premium crossing
is usually not used unless paid for in conjunction with a local
municipality or transit authority.
Based on the Federal Railroad Administration publication the Highway-Rail
Crossing Inventory Data, there are approximately 158,000 public and 100,000
private rail crossings in the U.S. In addition there are an estimated
50,000 other rail crossings on industrial properties, ports, intermodal and
terminal yards, and on rail transit systems. At 308,000 estimated rail
crossings in the U.S. and assuming an average 1.5 tracks per crossing,
suggests that 462,000 total crossing surfaces exist in the U.S. With an
average estimated crossing length of 54 feet for each crossing surface, the
total potential domestic market is approximately 25 million track feet.
3
<PAGE>
Industry estimates of useful life of a non-premium rail-crossing surface
are 10 years. This means that approximately 10%, or 2.5 million track feet,
of all railroad crossings are refurbished each year. Management believes
that 20% or approximately 500,000 track feet of annual refurbishment is
done in premium or semi-premium surfaces. Assuming an average price of $120
per track foot, the current annual domestic market for premium grade
crossing surface materials is approximately $60 million and is estimated to
grow at 2% per year. The Company believes its revenues currently represent
approximately 20% of the total domestic market for all premium grade
crossing surfaces.
The vast majority of grade crossings are maintained or retrofitted 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 grade crossings. The Company believes that, at the current rate of
growth and acceptance by customers, within five years as much as 40% of
this market segment will convert to premium or semi-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.
The federal government and many state governments recognize the importance
of safe and well maintained rail crossings. Through the Federal Highway
Administration and the Intermodal Surface Transportation Efficiency Act,
the federal government provides direct financial support to rehabilitate
public rail crossings, fund mass transit construction and maintain the
country's transportation infrastructure. The Company estimates that as much
as 50% of domestic rail crossing system installations are funded in part by
government programs at the federal, state or municipal level. The remainder
of the installations are made by railroads as part of their ongoing
maintenance programs and by industrial concerns as part of the construction
or maintenance of their facilities.
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 CSX Transportation, Burlington
Northern/Santa Fe and Union Pacific are expected to increase their premium
crossing installations in the future. At the same time, the market for
premium crossing surface material can be volatile. The major railroads are
not consistent about their maintenance policy, which can cause large
fluctuations in a railroad's demand for premium surface materials, or in
the type of premium surface material required.
The Company's competitive advantage is its ability to provide a full range
of premium grade crossing materials. Most manufacturers in the industry
produce either rubber or concrete crossing materials, but not both. The
Company's variety of products allows it to meet a wide range of customers'
needs and allows the Company to shift its sales efforts and manufacturing
efforts from concrete to rubber, or vice-versa, as the market demands.
4
<PAGE>
Sales and Marketing
-------------------
U.S. sales and marketing is implemented through a system of four regions
designed to provide comprehensive coverage of key railroad customers. Sales
manager employees manage two regions and independent sales representatives
manage two. In addition, the Company has an independent account
representative working in Omaha solely to service Union Pacific, one of the
largest users of grade crossing materials. All report to the Company's
President.
The Company's sales employees are compensated on a base salary plus
commission. Independent sales representatives are compensated solely on
commission. Commissions are not paid until funds are collected from the
customer.
Another component of the Company's sales and marketing effort is its unique
customer oriented program using 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 the Company's sales efforts.
Although the Company has over 300 customers, approximately 74% of its
fiscal 1999 sales were concentrated in its five largest customers. Sales to
the Company's five largest customers as a group for the fiscal year ended
April 30, 1998 was 77%. The top three railroad companies, Burlington
Northern-Santa Fe, CSX Transportation and Union Pacific, collectively,
represented approximately 67% and 72%, respectively, of the Company's
fiscal 1999 and 1998 sales.
Material Suppliers
------------------
Basic raw materials required for manufacturing the Company's products
include off-spec virgin rubber obtained from rubber brokers, concrete,
steel rebar and steel angle.
Concrete and steel materials are available from many sources in multiple
locations. However, availability of these materials as well as off-spec
virgin rubber is subject to seasonal demand and market variations. The
Company believes that there is an adequate supply of all basic raw
materials to meet its needs.
The Company anticipates increasing manufacturing capacity for both its
concrete and virgin rubber products. A number of outside sources available
to the Company, as well as the Company's ability to expand internally,
allow the Company to increase production capacity and to meet increased
demand for the Company's products.
Patents and Licenses
--------------------
The Company has been issued or has patents pending on several of its
products, such as its Improved-Concrete and its Embeded Concrete-Rubber
("ECR") 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.
5
<PAGE>
Pursuant to a royalty agreement with Red Hawk Rubber Co. ("Red Hawk") which
was transferred to OMNI in the acquisition from Reidel described above, the
Company is obligated to pay a royalty equal to 5% of net sales of certain
products acquired from Red Hawk. The agreement expired on June 30, 1999.
Research and Development
------------------------
The Company is engaged in a continuing program of research and development
to improve existing products and develop more cost effective and efficient
rail crossing products. During fiscal 1999, the Company redesigned and
improved its existing embedded rubber and concrete product. The new design
will allow the Company to sell to additional markets and to new customers
as it meets design specifications for most all railroad crossings. The
Company's expenditures on research and development for the fiscal years
ended April 30, 1999, 1998 and 1997 were $113,445, $127,624 and $61,646
respectively.
Employees
---------
As of April 30, 1999, the Company had 70 full time employees and 1 part
time employee. Approximately 59 full time employees were engaged in
manufacturing and the remainder in marketing, sales, research and
development, administrative and executive positions.
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
McHenry, IL (2) 21,271 Own Manufacturing
Ennis, TX (2) 15,300 Own Manufacturing
Buena Park, CA (3) 635 Lease Former Sales Office
Nevada City, CA (4) 30,000 Own Held for sale
(1) Leased on month-to-month basis.
(2) Properties are subject to a blanket mortgage loan of $162,825 payable
in monthly installments of $13,631, including interest at 10% payable
in full December 1, 1999. Properties are also pledged as collateral
for a revolving line of credit and capital expenditure loans.
(3) Leased through May, 2000. The Company has entered into a one-year
sublease on the property with a rate greater than the current lease
cost.
6
<PAGE>
(4) Property is subject to a mortgage loan of $1,201,279 payable in
monthly installments of $12,750 including interest at 11.375% payable
in full in December, 1999. One hundred percent of the property is
leased to others. Ron Gangemi, a shareholder of the Company, owns One
percent of the property. Property is also pledged as collateral for a
revolving line of credit and term and capital expenditure loans.
All properties are well maintained and in good condition. The Company
maintains adequate insurance coverage on the property. These properties
meet the Company's needs for the foreseeable future.
Item 3. Legal Proceedings
- -------------------------
On January 9, 1999, Edward George Goebel and Kathy Goebel ("Plaintiffs")
filed suit against the Company, and others, in the Third Judicial District
Court, Salt Lake County, Utah. Plaintiffs allege that Edward George Goebel
suffered injuries when he fell off his bicycle while traveling over a
railroad crossing containing material produced in part by Reidel
Environmental Technologies, Inc., the predecessor in interest to OMNI
International Rail Products, Inc. The Plaintiffs have not yet specified
their damages in the suit. The case is not currently scheduled for trial.
The Company denies the Plaintiffs' allegations and is vigorously defending
the case.
The Company's insurance carrier is defending the claim under a reservation
of its rights to dispute its legal obligation to defend the claim and/or
pay any adverse judgment. The Company could be materially affected if the
plaintiffs receive an award against the Company which exceeds its insurance
coverage or if the insurance carrier successfully asserts that the
Company's insurance policy does not cover such claim and refuses to pay the
award.
The Company is not aware of any other material pending or threatened
litigation to which the Company or any director, officer, or affiliate of
the Company is or would be a party.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
The Annual meeting of the Company's shareholders was held on February 23,
1999. The following three directors were elected at the meeting (all were
directors prior to the meeting):
William E. Cook
Edward S. Smith
John E. Hart
Directors hold office for a period of one year from their election at the
annual meeting of stockholders and until their successors are duly elected
and qualified.
Shareholders were also asked to approve a change of the Company's name to
OMNI Rail Products, Inc. Shares voting for were 3,221,670, against were 0,
and 3,250 abstained. Shareholders also voted to approve a reverse split of
the Company's outstanding securities on a ratio of one share for every
three shares outstanding. Shares voting for were 3,188,754, against were
132,916, and 3,250 abstained.
7
<PAGE>
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. From May 1995 to March 23, 1999, the Company traded on the
OTC Bulletin Board under the symbol "CMDI." In conjunction with its name
change, the Company changed its ticker symbol to "ORXR" on March 23, 1999.
As of April 30, 1999, the Company had approximately 300 record and
beneficial stockholders holding 1,703,098 shares of the Company's common
stock.
The published bid and ask quotations for the previous two fiscal years are
included in the chart below. These quotations represent prices between
dealers and do not include retail markup, markdown or commissions. In
addition, these quotations may not represent actual transactions. Prices
are adjusted to reflect the Company's one for three reverse stock split
completed in March 1999.
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Quarterly Common Stock Bid Price Ranges
-------------------------------------------------------------------
1998 1999
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Quarter High Low High Low
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1st 1.50 .93 .63 .45
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2nd 1.50 .87 .56 .37
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3rd 1.14 .57 .45 .21
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4th .75 .51 .55 .27
-------------------------------------------------------------------
No dividends have been declared or paid on the Common Stock and none are
anticipated. The Company is restricted from paying dividends by covenant
with its senior lender.
Prior to fiscal year ended April 30, 1999, the Company had issued and
outstanding 622,066 shares of Series B Convertible Preferred Stock, par
value $.01 per share with voting rights of one common share to each
preferred share, until converted or canceled. Each share of Series B
convertible preferred stock was convertible to a like number of common
shares if the Company reported gross annual revenues of $20,000,000 or
annual pre-tax earnings of $1,500,000 during either of the fiscal years
ended April 30, 1998 or 1999. The Company did not meet these conversion
standards by the end of either such fiscal year end. Therefore, the Series
B preferred stock will be canceled by the Company upon the issuance of its
fiscal year ended April 30, 1999 consolidated financial statements.
8
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and Plan of
Operation
- --------------------------------------------------------------------------------
The following Selected Financial Data for the years ended April 30, 1999,
1998 and 1997 have been derived from the financial statements of the
Company audited by KPMG Peat Marwick LLP, the Company's independent
auditors. The report of KPMG Peat Marwick LLP on the aforementioned
consolidated financial statements contains an explanatory paragraph that
states that the Company suffers liquidity constraints, has a working
capital deficit, and a shareholder deficit, that raise substantial doubt
about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in note 13 to those financial
statements. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty. 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.
The following table sets forth the Company's operating results in thousands
of dollars and as a percentage of revenue for the years ended April 30:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 12,438 100.0% 16,449 100.0% 12,903 100.0%
Cost of goods sold 9,100 73.2 13,447 81.7 10,558 81.8
Gross Profit 3,338 26.8 3,002 18.3 2,345 18.2
General & Administrative Expenses 1,117 9.0 1,587 9.6 1,138 8.8
Selling Expenses 985 7.9 1,666 10.1 1,323 10.3
Research and Development 114 .9 128 .8 62 .5
Restructuring Charge (130) (1.0) 1,684 10.2 -- --
Earnings (Loss) from operations 1,252 10.0 (2,063) (12.5) (178) (1.4)
Interest Expense (538) (4.3) (773) (5.3) (827) (5.3)
Other Income (Expense) 437 3.5 (44) (3.8) (346) (3.8)
Net earnings (loss) 1,151 9.2 (2,882) (17.5) (1,295) (10.0)
Basic earnings (loss) per share 0.66 (1 .56) (1.24)
</TABLE>
9
<PAGE>
REVENUE
1999 vs. 1998
The Company derives its revenues from the sale of premium highway/rail
grade crossing material to railroads, general contractors and
municipalities. Management operates its crossing business as a single
segment with product lines in concrete, virgin rubber and a combination of
rubber and concrete. Net revenues for fiscal 1999 declined by $4,010,684,
or 24.4% from last fiscal year. A major part of the decline came from lower
sales to fiscal 1998's largest customer. Purchases by this one customer
declined from $6,214,697 in fiscal 1998 to $3,186,333 in fiscal 1999, or a
49% drop. Sales to the Company's top three customers, the Class I
railroads, BNSF, CSX and UP, declined by $3,382,762 or 29%. Declines also
occurred as a result of discontinuance of the Company's recycled rubber
products (approximately $2.2 million) and discontinuance of international
sales (approximately $.5 million). The aforementioned decline in sales was
in part offset by an increase in sales to other customers.
The Company improved its delivery time during the current fiscal year
lowering lead times to one month when previously lead times often exceeded
6 months. Much of this pervious back order consisted of the Company's
standard concrete and rubber product. Improved delivery has helped the
Company to diversify its sales to a wider customer base, although it has
meant a reduction in sales volume. The top three United States railroad
systems (BNSF, CSX and UP) purchase a majority of the premium crossing
materials produced and represent the majority of the Company's revenues.
These railroads are not consistent in their purchase policies from year to
year and can significantly influence the Company as well as the market as a
whole. Management believes the concrete portion of the premium rail
crossing market will experience the greatest growth in coming years.
However, such growth may not be linear and can change radically from year
to year due to the unpredictable buying habits of the largest railroad
systems.
Sales by product type also changed dramatically during fiscal 1999. Sales
of the Company's recycled rubber products dropped $2,165,253 as all
recycled rubber product manufacturing was discontinued in fiscal 1998.
Concrete sales dropped by $1,987,376 mainly due to a drop in demand for the
Company's proprietary standard concrete and rubber product (called "SCR").
Increased sales of the Company's Improved Concrete product occurred despite
an increase in price in fiscal 1999. Sales of all virgin rubber products
increased by only $129,553, or 2%. However, sales of the Company's most
expensive virgin rubber product, Heavy Duty, increased by over $1 million
or 68% while sales of the Company's Rail-Guard, rail-seal semi-premium
product dropped. Part of the trend in virgin rubber sales is as a
replacement for the Company's recycled rubber products, despite virgin
rubber products being twice the cost of recycled rubber.
10
<PAGE>
1998 vs. 1997
Net revenues for fiscal 1998 were $16,448,876 as compared to $12,902,491 in
1997 or a 27% increase. Much of the increase came from greater sales of the
Company's SCR product. This patented product is comprised of a molded
concrete form with rubber rail flangeway filler embedded into the concrete.
SCR sales increased from $690,941 in 1997 to $6,397,770 in 1998 or an
increase of 826%. At the same time, sales of the Company's other concrete
products dropped below prior year's sales. Total concrete revenues were
$8,090,346 for 1998 compared to $5,121,332 in 1997, an increase of 58%.
Rubber sales declined slightly to $7,628,987 in 1998 from $7,781,159 in
1997, a drop of less than 2%. Sales of rubber products shifted from the
Company's standard, heavy duty and steel reinforced products (full crossing
material) to its Rail-Guard flange way filler materials that are used in
conjunction with asphalt. Rail-Guard sales increased to $3,857,219 in 1998
from $558,189, an increase of 591%.
COST OF SALES & GROSS MARGIN
1999 vs. 1998
Cost of sales declined from $13,446,678 in fiscal 1998 to $9,100,437 in
fiscal 1999 or a 32% decline. However, costs as a percent of sales
decreased substantially from 82% in fiscal 1998 to 73% in fiscal 1999. This
improved the Company's overall gross profit margin for fiscal 1999 by
$335,557, or 11%, while the gross profit margin percentage improved from
18% in fiscal 1998 to 27% in fiscal 1999. Much of this difference was due
to an $800,000 write-off of obsolete inventory taken directly to cost of
sales in fiscal 1998. Without this writedown, the fiscal 1998 gross profit
margin percentage would have been 23%. Much of the improved gross margin
and lower cost of sales resulted from discontinuance of the Company's
unprofitable operations in Lancaster, Pennsylvania and Portland, Oregon.
However, the Company's gross margin was adversely affected by these
operations during fiscal 1999 while these plants were shut down. The
Company also negotiated a new outsource manufacturing contract with its
existing supplier for concrete product that provided the Company with
better return on SCR product sales. Additionally, the Company reduced
overhead costs at its remaining plant locations by eliminating excess
management, reducing inventories and improving operating efficiencies. Both
McHenry and Ennis operations had fiscal 1999 gross margin returns
comparable to fiscal 1998.
1998 vs. 1997
Cost of goods sold for the year ended April 30, 1998 were $13,446,678 as
compared to $10,557,688 in 1997. Cost of sales as a percent of revenue was
the same for both years. Included in costs for both years were significant
write-offs of inventory. For 1998, the write-off was $1,085,600 or 6.6% as
a percent of revenue and for 1997 it was $571,200 or 4%. Excess rubber
inventory (primarily recycled rubber) resulted from obsolescence and out of
specification material produced, and due to reduced demand for recycled
rubber railroad crossing material. Warranty costs are also included in cost
of sales.
Warranty costs and related customer claims were a smaller component of cost
of sales in fiscal 1999, but were a major component of cost of sales in
fiscal years 1998 and 1997. As shown in the table below, both warranty
costs and inventory writedowns declined in the current fiscal year.
11
<PAGE>
<TABLE>
<CAPTION>
WARRANTY EXPENSE AND INVENTORY WRITE OFF
Fiscal year ended April 30, 1999 April 30, 1998 April 30, 1997
- ----------------- ---------------------- ------------------------ ----------------------
Percent of Percent of Percent of
Dollars sales Dollars sales Dollars sales
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Warranty Expense $ 165,130 1.3% $ 418,040 2.5% $483,528 3.7%
Inventory Written Off $ 14,555 0.2% $1,085,600 4.9% $571,200 4.4%
</TABLE>
The Company records a percent of each sale towards the warranty expense (as
represented in the above table) and places that amount into an accrued
reserve. The amount accrued reflects management's estimate of possible
future warranty and customer claims exposure. The accrual was lower in
fiscal 1999 due to fewer actual warranty claims. When warranty services are
incurred, the Company credits cost of sales for the product used in the
warranty service and correspondingly reduces the warranty reserve. Actual
warranty services incurred in fiscal 1999 were $83,000. Actual warranty
services incurred in 1998 were $334,000 that included several significant
international warranty obligations that exceeded $100,000 in total. Much of
prior year warranty issues were with the Company's recycled rubber
products, and with international sales. The Company has seen a marked
decline in warranty claims with the discontinuance of recycled rubber
products and elimination of international sales. The current warranty
accrual balance includes an estimated reserve of $175,000 for a customer
claim involving disputed freight costs for goods shipped in fiscal 1997 and
1998. The Company has produced concrete related crossing materials for
three years. The Company provides a standard six year warranty and feels
the present reserve should be adequate to cover future warranty and
customer claims that may arise for the Company's existing recycled and
virgin rubber and concrete crossing materials.
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 years
ended April 30, 1998 and 1997 occurred at the end of each fiscal year and
included a $150,000 reserve in 1997 that related to overstocked inventory.
Almost all of the overstocked or obsolete inventory related to the
Company's recycled rubber products. The Company liquidated all of its
written off inventory in fiscal 1999.
GENERAL AND ADMINISTRATIVE EXPENSES
1999 vs. 1998
General and administrative expenses declined by $469,936 or 30% in fiscal
1999 over the prior fiscal year. Declines occurred in virtually every
expense category. Overall this reflects current management's reduction of
all operating costs as part of cost reduction measures implemented by the
Company during the restructuring. Reductions in personnel, including the
Company's prior top management, created a reduction in the Company's labor
costs by $323,430. Similarly, this reduction in personnel created a
reduction of $70,336 in Travel & Entertainment, and other variable
personnel costs from telephone to payroll services. Other significant cost
reductions occurred in professional fees paid to accountants, attorneys and
consultants ($61,187 lower) as fewer professional services were used by the
Company and fees/licenses & financing expense ($54,651 lower) due to fewer
fees charged by the Company's senior lender. The reduction in general and
administrative expenses was partially offset by an accrued cost of $55,000
for settlement of a lawsuit with a former consultant with the Company.
12
<PAGE>
1998 vs. 1997
General and Administrative Expenses were $1,586,956 and $1,137,978 for the
fiscal years ended April 30, 1998 and 1997, respectively. The increase for
fiscal 1998 is primarily due to a $219,146 increase in consulting charges,
$56,651 increase in fees and licenses, $67,494 increase in accounting fees
and a $38,076 increase in insurance premium costs. Consulting charges were
up due to the Company's employment of various financial consultants that
were hired to assist the Company in obtaining equity or debt financing.
Fees and licenses increased due to additional financing fees charged by the
Company's senior lender, Finova Financial Corporation. These non-recurring
fees resulted from the Company exceeding its borrowing line and deferral of
certain principal payments. Accounting fees were up due to the Company's
change from a private company to one that is publicly traded. Similarly,
insurance costs increased due to added directors and officers liability
insurance.
SELLING EXPENSES:
Selling expenses for the years ended April 30, 1999, 1998 and 1997 were
$985,350, $1,665,506 and $1,323,070, respectively, and represented 7.9%,
10.1% and 10.3% of sales, respectively. Commissions are a primary component
of selling costs and were $598,007 (61% of selling costs), $783,284 (47% of
selling costs) and $669,619 (50% of selling costs) for fiscal years ended
1999, 1998 and 1997, respectively. Commission expense is directly tied to
total sales. The average commission rate to sales remained relatively
constant from year to year.
1999 vs. 1998
Selling expenses declined in fiscal 1999 by $680,156. $185,277 of this
decline came from lower commissions. Fiscal 1999 selling payroll costs were
down $256,781 or 50% compared to fiscal 1998, due to lower sales (lower
employee sales commissions) and elimination of personnel at the Company's
Southwest sales office. All other direct marketing, promotion, advertising
and sales related costs were down approximately $96,000, again mainly due
to the drop in sales and consolidation of the Company's sales offices. Bad
debt expense is recognized through selling expenses and declined by
$141,938 from fiscal 1998 to fiscal 1999. The higher bad debt expense in
fiscal 1998 resulted from write-off of several significant European
accounts. Fiscal 1999 bad debt write-offs were approximately $22,000.
1998 vs. 1997
Selling expenses increased by $342,436 for fiscal 1998 over fiscal 1997.
One component of this increase came from greater commission expense of
$113,665 as noted above. Additionally, selling payroll costs in fiscal 1998
were higher by $192,315 over fiscal l997 also due to greater commissions
paid to employees associated with greater sales. Other selling costs were
marginally higher in fiscal 1999, again mainly due to the greater sales
activity.
13
<PAGE>
RESTRUCTURING CHARGES
The Company recorded restructuring charges in fiscal 1998 associated with
the shut down of two factories and associated with the write down and
liquidation of manufacturing equipment. These charges are the result of the
Company's refocus of its operation into producing more concrete and virgin
rubber grade crossing material and elimination of excess capacity in the
company's recycled rubber manufacturing operations. The total restructuring
charges of $1,684,833 included $1,239,567 in write down of manufacturing
equipment to fair value, $226,950 in costs associated with plant shut downs
and equipment liquidation, $158,316 in severance costs and $60,000 in other
restructuring charges.
Recoveries in fiscal 1999 recognized against prior fiscal year's
restructuring charge includes $25,000 for a negotiated reduction of
severance and $105,000 realized on elimination of accrued costs associated
with the Company's Portland production facility terminated lease. The
remaining $35,000 of Portland's lease accrual was converted into a note as
settlement with the landlord. All liabilities accrued in fiscal 1998 as
part of the restructuring were paid or converted to a note in fiscal 1999.
During fiscal 1999, the Company sold virtually all assets written down in
fiscal 1998, at amounts at or below the assets' written down values. The
Company did not write down its Lancaster, PA facility in fiscal 1998 and
sold the facility at a gain of approximately $159,000.
INTEREST EXPENSE & OTHER INCOME/EXPENSE
1999 vs. 1998
Fiscal 1999 interest expense fell $235,032 or 30% from fiscal 1998. The
reduction resulted from lower borrowed funds. Borrowed funds during fiscal
1999 averaged over $2 million lower than during the prior fiscal year
(comparing quarter end borrowing balances). At the same time, the Company
realized higher rents on its California facility contributing to the
increased other income. The Company also recognized amortization costs as
an other expense in fiscal 1998 and 1997 that became fully amortized at the
end of fiscal 1998. Other income in fiscal 1999 also includes gains on sale
of assets including an approximate $153,000 gain realized on the sale of
the Company's Pennsylvania manufacturing facility that occurred in December
1998.
1998 vs. 1997
Interest Expense was $772,984 and $827,095 for the years ended April 30,
1998 and 1997, respectively. The decline is due to lower levels of
principal on all the Company's term debt as well as a reduction in
borrowings on the Company's line of credit. This includes over $1 million
in principal reduction in fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's combined cash balance at April 30, 1999 and 1998 amounted to
$36,280 and $393,887, respectively. The Company's operating activities
during fiscal 1999 generated cash of $634,028 on net income of $1,151,273.
Reductions in working capital offset cash generated from operations. During
fiscal 1998 the Company generated $817,183 of cash from operations despite
loss for the year of $2,882,185. Much of fiscal 1998's loss occurred due to
write down or write-off of non-producing assets. Cash generated from
operations in 1997 was $331,424. The Company also received $100,000 of net
proceeds from the sale of stock in fiscal 1997.
14
<PAGE>
Net working capital deficit at April 30, 1999 and 1998 amounted to
($2,530,187) and ($5,062,315), respectively. Reductions in the Company's
current debt borrowings as well as decreases in payables and accrued
liabilities helped lower the working capital deficit. Short term debt was
paid down through cash generated from the Company's operations as well as
from proceeds from sales of assets. At the same time funds were also used
to acquire $253,592 of fixed assets in fiscal 1999. The Company also
converted approximately $538,000 of short-term obligations, and $67,500 of
common stock puts into 7% long-term subordinated notes. Terms of the notes
require interest only payments beginning in October 1999 with 12 equal
quarterly principal payments beginning in October 2000 plus interest. The
notes are subject to a subordination and standstill agreement with Finova.
The Company was in material default of certain financial and non-financial
loan covenants under its Security and Loan Agreement with its senior lender
Finova Financial Corporation ("Finova"). In July 1998 the Company entered
into a Forbearance Agreement with Finova under which Finova agreed to
forbear in taking any action against the Company by reason of the existing
defaults. In addition, under the terms of the Forbearance Agreement, the
Company was permitted an overadvance facility of up to $400,000 beyond the
normal terms of the line of credit trough June 30, 1999. The Forbearance
Agreement also eliminated the monthly principal payment requirements on
Finova's term debt. As part of the Forbearance Agreement the Company was
subject to additional covenants that it met during fiscal 1999. This
included requiring the Company to raise an additional $250,000 in equity
capital or subordinated debt and disposal of certain assets (proceeds must
go to pay down various loans with Finova). The Company raised $275,160 in
the form of subordinated convertible secured notes. These notes bear
interest at 8% payable monthly, and are convertible into the Company's
common stock at approximately $0.19 per share. The notes become callable
and have a put feature that becomes effective two years after their
issuance. The notes are subject to a subordination and standstill agreement
with Finova
The Company's capital expenditures were $253,592 and $231,802 in fiscal
1999 and 1998, respectively. Expenditures in 1998 were incurred primarily
for necessary improvements in the Company's production facilities.
Expenditures in fiscal 1999 were mostly for changes to the Company's
existing concrete forms to allow production of a new, improved and more
widely accepted embedded rubber in concrete premium railroad grade crossing
product. In addition, Company liquidated its security holdings in fiscal
1998 that generated an additional proceeds to the Company of $752,573.
Sales of assets generated $842,557 and $571,038 of proceeds in fiscal 1999
and 1998, respectively. These proceeds were used to retire much of the
Company's term debt and mortgage in fiscal 1999. The Company's Nevada City,
California property is subject to a mortgage that has an extended due date
of December 1999. This facility is for sale and the Company anticipates
selling it once an acceptable offer is received.
The Company's primary source of funds is from its operations and borrowings
on its line of credit. The Company is restricted as to the amount it can
borrow from Finova based on a percent of eligible receivables and
inventory. Additionally, the Company will need replacement debt or equity
financing after the end of the Finova agreement on August 31, 1999. The
Company is presently negotiating financing that will replace its existing
borrowing facility and anticipates adding additional long term financing to
assist in expected future capital expenditures that will allow increased
capacity.
There can be no assurance the Company will be able to complete the sale of
its California facility prior to its mortgage maturity date. Additionally,
the Company's current financing facility will require restructuring or
additional financing must be found prior to the date when Finova's debt is
due.
15
<PAGE>
YEAR 2000 COMPLIANCE ISSUES
The year 2000 issue results when older computer programs use two digits,
rather than four digits to define a year, thus programs do not recognize a
year that begins with "20" rather than the familiar "19." If not corrected,
many computer applications could fail or create erroneous results.
Risks of the Company's year 2000 issues:
----------------------------------------
The Company's products are relatively non-technical and are produced in a
non-automated environment. The Company's main use of electronic automation
is in its administrative processes. As such, the Company feels that its
direct internal exposure to year 2000 issues are limited to certain
computer software applications and hardware systems and to a few items of
office and facility equipment. The Company also uses an electronic data
transfer mechanism (EDI) for transferring transactional information and
funds. Electronic transactions must be year 2000 compliant to ensure proper
processing of information. Exposure to year 2000 issues from third party
vendors or customers may occur. In addition, the Company would be
negatively impacted in the event its Senior financing source was unable to
forward funds when needed to meet the Company's financial commitments.
The Company's present state of readiness:
-----------------------------------------
The Company uses a fiscal year end that straddles the calendar year 2000.
Because of this, the Company has had to upgrade its computer systems,
including installing updated computer software and hardware, in order to
begin fiscal 2000 accounting and reporting. The Company has also performed
various tests of certain systems that contain micro-processing chips that
may have a built in year 2000 problem. This includes phone systems, fax
machines and other automated office devices. The Company feels that its
internal systems should not present a significant issue on January 1, 2000.
The Company will update its EDI software and systems in the calendar fourth
quarter of 1999, and is investigating customer year 2000 compliance with
these systems. Many of the Company's raw material suppliers do not rely
heavily on automated systems for manufacturing product. Although the
Company has made only limited inquiry of its vendors on their year 2000
preparedness, the Company feels any exposure will be minimal.
Costs to Address the Year 2000 issues:
--------------------------------------
Through April 30, 1999, the Company had incurred approximately $30,000 in
costs to upgrade its systems. The Company expects to incur another similar
amount to achieve full preparedness for year 2000.
The Company's Contingency plans:
--------------------------------
The Company's worst case scenario for year 2000 is the effects it will have
on the Company's customers. The Federal Reserve Board of the United States
has expressed that its primary concern for small business is not from
actual year 2000 issues, but rather from the effects from the small
businesses' larger customers building up supplies as a contingency for the
year 2000. The result could be an over supply by the large customer and
discontinued orders to the small supplier as those supplies are used up.
The Company has no contingency plan in the event orders should diminish
after the end of the calendar year. However, the Company feels, even in
this situation, that its exposure is limited. The Company's business is
seasonal with the winter months the slowest time of the year already. The
Company generally anticipates this slow period and takes steps to ensure
adequate funds are available until business picks up in the Spring.
Additionally, the Company's product is usually not one that larger
customers stock pile as an essential inventory item. Most crossing material
is purchased on an as needed basis and as such orders should be unaffected
by this issue. Other issues or problems could occur that management cannot
foresee or control and therefore Management cannot adequately determine the
outcome of such occurrences. Management believes the Company, as a small
non-technical business, will probably better deal with year 2000 issues as
they arise than larger automated companies.
16
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
OMNI RAIL PRODUCTS, INC. AND SUBSIDIARY
(Formerly Creative Medical Development, Inc.)
Consolidated Financial Statements
April 30, 1999 and 1998
(With Independent Auditors' Report Thereon)
17
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
OMNI Rail Products, Inc.:
We have audited the accompanying consolidated balance sheets of OMNI Rail
Products, Inc. and Subsidiary (formerly Creative Medical Development, Inc., the
"Company") as of April 30, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the years in the three year period ended April 30, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of OMNI Rail Products,
Inc. and Subsidiary (formerly Creative Medical Development, Inc.) as of April
30, 1999 and 1998, and the results of their operations and their cash flows for
each of the years in the three year period ended April 30, 1999 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 13 to
the consolidated financial statements, the Company suffers liquidity
constraints, has significant debt maturities within one year and has a working
capital deficit. In addition, the Company has a shareholder deficit. These
factors 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 13. 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 25, 1999
F-1
<PAGE>
<TABLE>
<CAPTION>
OMNI RAIL PRODUCTS, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
April 30, 1999 and 1998
Assets 1999 1998
---- ----
Current assets:
<S> <C> <C>
Cash $ 36,280 393,877
Accounts receivable, less allowance for doubtful
accounts of $56,916 in 1999 and $68,776 in 1998 1,478,337 1,853,280
Inventories, net 1,330,663 1,423,800
Prepaid expenses and deposits 51,241 52,158
----------- -----------
Total current assets 2,896,521 3,723,115
Real estate and other assets held for sale 1,400,000 1,618,275
Property, plant and equipment, net 1,904,156 2,272,214
----------- -----------
$ 6,200,677 7,613,604
=========== ===========
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable 1,480,166 1,884,679
Accrued liabilities 879,995 1,459,092
Notes payable 1,693,135 3,305,283
Current portion of long-term debt 1,373,412 2,136,376
----------- -----------
Total current liabilities 5,426,708 8,785,430
----------- -----------
Long-term debt, less current portion 1,403,115 522,342
Commitments and contingencies
Stockholders' deficit:
Convertible preferred stock, $.01 par value,
25,000,000 shares authorized:
Series B, 1,000,000 shares authorized, 195,619
and 207,355 shares issued and outstanding in
1999 and 1998, respectively 1,956 6,221
Common stock, 50,000,000 shares authorized, $.01
par value, 1,703,098 and 1,841,586 shares issued
and outstanding in 1999 and 1998, respectively 17,031 55,246
Additional paid-in capital 2,369,880 2,413,651
Accumulated deficit (3,018,013) (4,169,286)
----------- -----------
Total stockholders' deficit (629,146) (1,694,168)
----------- -----------
$ 6,200,677 7,613,604
=========== ===========
See accompanying notes to consolidated financial statements.
F-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OMNI RAIL PRODUCTS, INC.
AND SUBSIDIARY
Consolidated Statements of Operations
Years ended April 30, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales $ 12,438,192 16,448,876 12,902,491
Cost of sales 9,100,437 13,446,678 10,557,688
------------ ------------ ------------
Gross profit 3,337,755 3,002,198 2,344,803
------------ ------------ ------------
General and administrative expenses 1,117,020 1,586,956 1,137,978
Selling expenses 985,350 1,665,506 1,323,070
Research, development and engineering 113,795 127,624 61,646
Restructuring charges (130,435) 1,684,833 --
------------ ------------ ------------
2,085,730 5,064,919 2,522,694
------------ ------------ ------------
Earnings (loss) from operations 1,252,025 (2,062,721) (177,891)
------------ ------------ ------------
Other income (expense):
Interest expense (537,952) (772,984) (827,095)
Legal settlement -- -- (334,500)
Amortization of organization costs -- (237,955) (119,249)
Miscellaneous income 273,151 163,686 133,219
Gain (loss) on sale of assets 164,049 29,683 (25,156)
------------ ------------ ------------
Total other expense (100,752) (817,570) (1,172,781)
------------ ------------ ------------
Earnings (Loss) before income taxes 1,151,273 (2,880,291) (1,350,672)
Provision (benefit) for income taxes -- 1,894 (55,607)
------------ ------------ ------------
Net earnings (loss) $ 1,151,273 (2,882,185) (1,295,065)
============ ============ ============
Basic earnings (loss) per share $ 0.66 (1.56) (1.24)
============ ============ ============
Diluted earnings (loss) per share $ 0.52 (1.56) (1.24)
============ ============ ============
Basic weighted common shares outstanding 1,735,473 1,844,242 1,042,098
============ ============ ============
Diluted weighted common shares outstanding 2,232,940 1,844,242 1,042,098
============ ============ ============
See accompanying notes to consolidated financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OMNI RAIL PRODUCTS, INC.
AND SUBSIDIARY
Consolidated Statements of Stockholders' (Deficit) Equity
Years ended April 30, 1999, 1998 and 1997
Preferred stock
Series B Common stock Additional Total
-------------------------- -------------------------- paid-in Accumulated stockholders'
Shares Amount Shares Amount capital deficit equity (deficit)
------ ------ ------ ------ ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, April 30, 1996 -- $ -- 1,033,721 $ 31,010 $ 1,328,990 $ 72,964 $ 1,432,964
Issuance of common stock -- -- 37,248 1,117 116,383 -- 117,500
Dividends -- -- -- -- -- (65,000) (65,000)
Payment of stock dividend -- -- 77,809 2,334 186,478 -- 188,812
Preferred and common shares
issued in merger 207,355 6,221 702,715 21,082 812,755 -- 840,058
Net loss -- -- -- -- -- (1,295,065) (1,295,065)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, April 30, 1997 207,355 6,221 1,851,493 55,543 2,444,606 (1,287,101) 1,219,269
Repurchase of stock puts -- -- (9,907) (297) (30,955) -- (31,252)
Net loss -- -- -- -- -- (2,882,185) (2,882,185)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, April 30, 1998 207,355 6,221 1,841,586 55,246 2,413,651 (4,169,286) (1,694,168)
Repurchase of stock put (5,944) (59) (18,693) (18,752)
Conversion of stock puts
to debt (21,397) (214) (67,285) (67,499)
Cancellation of escrowed
shares (11,736) (117) (111,147) (1,111) 1,228 --
Effect of one for three
reverse split (4,148) (36,831) 40,979 --
Net income 1,151,273 1,151,273
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, April 30, 1999 195,619 $ 1,956 1,703,098 $ 17,031 $ 2,369,880 $(3,018,013) $ (629,146)
=========== =========== =========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OMNI RAIL PRODUCTS, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended April 30, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net (loss) earnings $ 1,151,273 (2,882,185) (1,295,065)
Adjustments to reconcile net (loss) earnings to net
cash provided by operating activities:
Depreciation and amortization 161,417 587,552 491,642
Legal settlement -- -- 334,500
(Gain) loss on sale of assets (164,049) (29,683) 25,156
Asset impairment - write down of assets -- 1,239,567 --
Deferred income taxes -- -- (55,607)
Change in assets and liabilities:
Accounts receivable 374,943 (35,171) (199,814)
Inventories 93,137 1,070,943 296,361
Prepaid expenses and deposits 917 (31,478) 1,876
Accounts payable (404,513) 520,600 425,992
Accrued liabilities (579,097) 377,038 306,383
----------- ----------- -----------
Net cash provided by operating activities 634,028 817,183 331,424
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 842,557 571,038 17,166
Purchase of property, plant and equipment (253,592) (231,802) (375,316)
Proceeds from sale of securities -- 752,573 --
----------- ----------- -----------
Net cash provided by (used in) investing
activities 588,965 1,091,809 (358,150)
----------- ----------- -----------
Cash flows from financing activities:
Net payment on notes payable (1,612,148) (1,071,440) (116,326)
Payments on long-term debt (762,964) (552,058) (14,281)
Proceeds from Subordinated Convertible debt 275,160 -- --
Borrowings on Subordinated and other debt 538,114 -- --
Sale (repurchase) of stock (18,752) (31,252) 100,000
Acquisition costs -- -- (185,065)
----------- ----------- -----------
Net cash used in financing activities (1,580,590) (1,654,750) (215,672)
----------- ----------- -----------
(Decrease) increase in cash (357,597) 254,242 (242,398)
Cash at beginning of year 393,877 139,635 382,033
----------- ----------- -----------
Cash at end of year $ 36,280 393,877 139,635
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 530,355 768,630 807,847
Income taxes -- 1,894 --
Supplemental schedule of non-cash investing and
financing activities:
Stock dividend -- -- 65,000
Issuance of common stock on conversion of debt -- -- 17,500
Issuance of debt in exchange for common stock 67,499 -- --
Effect of acquisition:
Fair value of assets acquired -- -- 2,255,123
Liabilities assumed -- -- 1,230,000
See accompanying notes to consolidated financial statements.
F-5
</TABLE>
<PAGE>
OMNI RAIL PRODUCTS, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
April 30, 1999, 1998 and 1997
(1) Summary of Significant Accounting Policies
Principles of Consolidation, Description of the Company and Basis of
Presentation
---------------------------------------------------------------------------
The consolidated financial statements include the accounts of OMNI Rail
Products, Inc. (the Company, a Delaware corporation), formerly Creative
Medical Development, Inc. ("CMD", name changed during fiscal 1999), and its
wholly-owned subsidiary, OMNI Products, Inc. All material intercompany
transactions and balances have been eliminated in the consolidated
financial statements. Effective April 30, 1997, CMD and OMNI International
Rail Products, Inc. (OMNI), completed an agreement and plan of merger. The
transaction between CMD and OMNI was considered a reverse acquisition for
financial reporting purposes and was accounted for under the purchase
method of accounting.
The Company designs, engineers, manufactures and distributes a variety of
rubber, rubber/concrete and concrete premium grade railroad crossing
surface products primarily for the United States market. OMNI's products
are approved by all major North American Class 1 railroads, such as
Burlington Northern-Santa Fe and Union Pacific and many regional railroads
and transit systems. From its operating facilities in Illinois, Texas,
Oregon and through its relationship with key suppliers, OMNI markets its
products to all 50 states and Canada. 67% of the Company's fiscal 1999
sales were concentrated in the three largest United States railroad
companies (down from 72% in fiscal 1998) (Note 12).
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.
Accounts Receivable
-------------------
The Company extends sales credit to virtually all of its customers under
specific terms and conditions. The Company performs periodic credit
evaluations of its customers to determine the extent of each customer's
allowable credit limit and to determine the need for an allowance on
potential credit losses.
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 between three and 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.
Warranty
--------
The Company provides a six-year warranty for its products and establishes
an accrual at the time of sale, based on historical warranty experience, to
provide for estimated warranty costs.
F-6
<PAGE>
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.
Research and Development Costs
------------------------------
The Company charges all research and development costs associated with the
development of products to expense when incurred.
Advertising Expenses
--------------------
Advertising expenses are charged to expense as incurred and were $17,346,
$44,424 and $102,310 for 1999, 1998 and 1997, respectively.
Revenue Recognition
-------------------
Revenues are recognized when products are shipped.
Stock Option Plan
-----------------
As permitted by Financial Accounting Standards No. 123 (FAS 123),
Accounting for Stock-Based Compensation, the Company measures compensation
expense for its stock-based employee compensation plans using the intrinsic
method prescribed by APB 25 Accounting for Stock Issued to Employees.
Fair Value of Financial Instruments
-----------------------------------
At April 30, 1999 and 1998, 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, 1999 and 1998, 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 available to the Company.
Basic and Diluted Net Earnings (Loss) Per Common Share
------------------------------------------------------
In 1997, the Financial Accounting Standards Board issued Financial
Accounting Standards No.128 (FAS 128), "Earnings Per Share" which replaced
the calculation of primary and fully diluted earnings per share with basic
and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share is similar to the
previously reported fully diluted earnings per share. The calculation of
diluted earnings (loss) per share for fiscal years ended April 30, 1998 and
1997, excludes any potentially dilutive shares as such shares would have an
antidilutive affect (Note 11). The Company adopted FAS 128 in fiscal 1998.
Reverse Stock Split
-------------------
The Company effected a one-for-three stock split to stockholders of record
as of the close of business on February 25, 1999. Share and per share
amounts for all periods presented have been adjusted to reflect the reverse
stock split.
F-7
<PAGE>
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.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
-----------------------------------------------------------------------
The Company reviews long-lived assets and certain identifiable intangibles
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, then the impairment to
be recognized is measured by the amount by which the carrying amount of the
assets exceeds its fair value. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
Recent Accounting Pronouncements
--------------------------------
The Company adopted Financial Accounting Standards No.130 (FAS 130),
"Reporting Comprehensive Income" and Financial Accounting Standards No.131
(FAS 131), "Disclosures About Segments of an Enterprise and Related
Information" in fiscal 1999. FAS 130 requires companies to report, in
addition to net income, other components of comprehensive income, including
unrealized gains or losses on available-for-sale securities, foreign
currency translation adjustments and minimum pension liability adjustments.
The Company had no components of other comprehensive income during fiscal
1999. FAS 131 requires an enterprise to report segment information based on
how management internally evaluates the operating performance of its
business units (segments). The Company's operations are confined to one
business segment, the production and sale of premium railroad crossing
materials.
In 1998, Financial Accounting Standards No.133 (FAS 133), "Accounting for
Derivative Instruments and Hedging Activities" was issued and is effective,
as amended by FAS 137, for fiscal years commencing after June 15, 2000. The
Company will comply with the requirements of FAS 133 in fiscal year 2000
and does not expect the adoption of FAS 133 will be material to the
Company's consolidated results of operations.
Reclassifications
-----------------
Certain reclassifications have been made to the 1997 and 1998 balance
sheets, statements of operation and statements of cash flows to conform
with 1999 presentation.
(2) Restructuring charges and Asset Impairments
In fiscal year 1998, the Company recorded restructuring charges associated
with the shut down of two factories and charges associated with the write
down and liquidation of manufacturing equipment. These charges are the
result of the Company's refocus of its operation into producing primarily
concrete and virgin rubber grade crossings and elimination of excess
capacity in the Company's recycled rubber manufacturing operations. Total
fiscal 1998 charges of $1,684,833 included $1,239,567 in write down of
manufacturing equipment to fair value, $226,950 in costs associated with
plant shut downs and equipment liquidation, $158,316 in severance costs and
$60,000 in other restructuring charges. Total accrued and unpaid
restructuring costs at the end of 1998 were $249,295 not including
severance costs that were accounted for in accrued compensation. All
associated charges were paid during fiscal 1998 and 1999. During fiscal
F-8
<PAGE>
1999, the Company sold or disposed virtually all assets written down in
fiscal 1998, at amounts at or below the assets' written down values. The
Company did not write down its Lancaster, PA facility in fiscal 1998 and
sold the facility at a gain of approximately $159,000 in the Company's
third quarter of fiscal 1999. In addition, the Company wrote off excess or
out of specification inventory as part of the restructuring. During fiscal
1999 the Company recovered certain costs associated with the fiscal 1998
restructuring charge. These recovered costs included accrued anticipated
lease charges of $105,435 and accrued severance charges of $25,000.
(3) Inventories
Inventories consist of the following at April 30, 1999 and 1998:
1999 1998
---------- ----------
Raw materials $ 175,692 383,527
Finished goods 1,179,971 1,054,828
---------- ----------
1,355,663 1,438,355
Less allowance for excess or obsolete
inventory 25,000 14,555
---------- ----------
Inventories, net $1,330,663 1,423,800
========== ==========
In conjunction with the fiscal 1998 restructuring, the Company wrote-off
$812,840 of excess and out of specification recycled rubber inventory and
included such charge in Cost of sales. Total fiscal 1999, 1998 and 1997
inventory write-offs were $14,555, $1,085,000 and $571,200, respectively.
(4) Property, Plant and Equipment
Property, plant and equipment consist of the following at April 30, 1999
and 1998:
1999 1998
---------- ----------
Land $ 93,024 217,593
Buildings 812,684 1,163,115
Office furniture, manufacturing
equipment and vehicles 1,587,694 1,382,915
---------- ----------
2,493,402 2,763,623
Less accumulated depreciation 589,246 491,409
---------- ----------
$1,904,156 2,272,214
========== ==========
Certain property, plant and equipment serves as collateral for short and
long-term debt obligations. As discussed in note 2, certain manufacturing
equipment was written down during 1998 as part of the Company's
restructuring
F-9
<PAGE>
(5) Accrued Liabilities
Accrued liabilities consist of the following at April 30, 1999 and 1998:
1999 1998
---------- ----------
Warranties and other customer claims $ 353,635 268,902
Accrued compensation 206,416 486,520
Accrued restructuring charges -- 249,195
Accrued merger costs -- 60,000
Accrued interest 80,162 72,565
Other 239,782 321,910
---------- ----------
$ 879,995 1,459,092
========== ==========
(6) Notes Payable
The Company has a revolving line of credit totaling $1,396,195 and
$2,107,966 as of April 30, 1999 and 1998, respectively, under a Loan and
Security Agreement ("Loan Agreement") with Finova Capital Corporation
(Finova). The line of credit allows the Company to borrow up to $3,500,000
against 85% of eligible accounts receivable and 50% of eligible inventory.
Interest on the line is at prime rate plus 2.25% (10% and 10.75% at April
30, 1999 and 1998, respectively), with a minimum interest charge of $9,000
per month. The Company also has a capital loan payable to Finova totaling
$296,940 and $507,502 at April 30, 1999 and 1998, respectively, payable in
monthly installments of $12,500 plus interest of 11.5%. At the end of
fiscal 1998, the Company also had a term note payable to Finova of
$689,815, that was fully paid at April 30, 1999. The loans payable to
Finova are secured by equipment and inventory. The original maturity date
was extended from April 26, 1999 to August 31, 1999 as noted below. The
Company is restricted from paying dividends by covenant with Finova.
From time to time the Company has entered into various amendments to the
Loan Agreement with Finova. These amendments have modified the various loan
agreements providing for certain changes to the underlying provisions of
the various notes. One such amendment extended the loans' maturity dates
until August 31, 1999. At the end of fiscal 1998, the Company was in
violation of certain financial and non-financial loan covenants, including
negative covenants for cash requirements for Senior Debt Coverage and Net
Worth of Borrower.
On July 15, 1998, the Company entered into a Forbearance Agreement
("Agreement") that significantly realigned the borrowing arrangement
between the Company and Finova. This Agreement, that continued through June
1, 1999, allowed the Company to borrow up to an additional $400,000 over
the calculated eligible borrowing balance ("Permitted Overadvance"), and
deferred installment payments on the Company's term debt. The Permitted
Overadvance was subject to an interest rate of 6.25% over prime and the
term note balance was subject to the default rate of interest at 2% over
the stated note interest rate. The Agreement also waived all prior and
existing defaults and put in place new financial covenants based on the
Company achieving forecast operating results. These covenants included a
requirement to raise $250,000 in subordinated financing to aid in the
financing of the Company. A total of $275,160 was raised, in part, from an
outside investor and from two current directors of the Company. Also, as
part of the Agreement, and as part of the Company's restructuring plan, the
Company entered into Modification Agreements and, in some cases,
Subordination and Standstill agreements with eight unsecured creditors.
These agreements place the note holder into a subordinate position with
Finova and extends payoff of any obligation over a five-year period.
F-10
<PAGE>
(7) Long-term Debt
Long-term debt is comprised of the following at April 30, 1999 and 1998:
1999 1998
----------- -----------
Note payable to Capital Consultants in
monthly installments of $13,631, including
interest at 10%, payable in full in
December 1999, secured by real estate. $ 162,825 866,458
Mortgage payable to financial institution in
monthly installments of $12,750, including
interest at 11.375%, payable in full in
December 1999, secured by real estate. 1,201,279 1,216,668
Secured convertible subordinated notes,
interest payable monthly at 8%. Due
October 2003 and January 2004, with put
option for payout in twelve monthly
payments after second anniversary date.
Convertible into common stock at $0.1932
per share. Subject to Subordination and
Standstill Agreement with Finova. 275,160 --
Subordinated notes payable to various
individuals and entity, interest paid
quarterly beginning October 15, 1999 at 7%
interest and principal paid quarterly
beginning October 15, 2000, with final
payment due July 15, 2003. Subject to
Subordination and Standstill Agreement
with Finova. 1,077,114 575,592
Other note and capitalized lease with
interest of 10% 60,149 --
----------- -----------
2,776,527 2,658,718
Less current portion 1,373,412 2,136,376
----------- -----------
Long-term debt $ 1,403,115 522,342
=========== ===========
The aggregate principal repayments and reductions required in each of the
years ending April 30, 2000 through April 30, 2004 for the Company's
long-term debt is as follows:
2000 $1,373,412
2001 405,805
2002 540,198
2003 366,227
2004 90,885
----------
$2,776,527
==========
F-11
<PAGE>
(8) Income Taxes
The income tax (benefit) expense consists of the following:
1999 1998 1997
---- ---- ----
Current:
Federal $ -- -- --
State -- 1,894 --
------- ------- -------
-- 1,894 --
------- ------- -------
Deferred:
Federal -- -- (46,039)
State -- -- (9,568)
------- ------- -------
-- -- (55,607)
------- ------- -------
Total income tax (benefit) expense $ -- 1,894 (55,607)
======= ======= =======
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, 1999 and 1998 are as
follows:
1999 1998
---------- ----------
Deferred tax assets:
Restructuring costs $ 42,567 143,895
Warranty reserve 135,654 91,028
Legal settlement payable 123,390 123,390
Inventory write down 9,590 369,307
Bad debt reserve 21,833 26,380
Self-insurance reserve 9,313 22,490
Other 14,825 27,879
Capital loss carryforward 273,043 273,043
Net operating loss carryforwards:
Federal 852,724 767,970
State 177,203 98,391
---------- ----------
1,660,142 1,943,773
Less valuation allowance 1,246,759 1,657,570
---------- ----------
Net deferred tax asset 413,383 286,203
---------- ----------
Deferred tax liability:
Property, plant and equipment, due to
differences in depreciation 221,603 94,423
Real estate held for sale 191,780 191,780
---------- ----------
Net deferred tax liability 413,383 286,203
---------- ----------
Net deferred tax assets and liabilities $ -- --
========== ==========
F-12
<PAGE>
The provision (benefit) for income taxes differs from the amount of income
tax determined by applying the applicable Federal statutory income tax rate
to earnings (loss) before income taxes as a result of the following
differences:
1999 1998 1997
---- ---- ----
Statutory federal income tax rate 34.0% (34.0)% (34.0)%
State income taxes, net of federal
income tax benefit 4.4 (4.3) (4.4)
Change in valuation allowance (35.7) 40.5 36.2
Other (2.7) (2.1) (2.1)
------ ------ ------
Effective tax rates 0.0% .1% (4.3)%
====== ====== ======
The Company has a valuation allowance of $1,246,759, $1,657,570 and
$490,416, as of April 30, 1999, 1998 and 1997, respectively. The change in
the valuation allowance was ($410,811), $1,167,154 and $490,416, in 1999,
1998 and 1997, respectively.
At April 30, 1999 and 1998, the Company had approximately $2,684,000 and
$2,284,000, respectively, of net operating loss carryforwards to offset
future income for federal and state income tax purposes which will expire
2009 through 2019.
A provision of the Tax Reform Act of 1986, as amended, requires that net
operating loss and credit carryforward utilization be limited when there is
a more than 50% cumulative change in ownership of the Company in a 3 year
period. Such change in ownership may have occurred with the merger of OMNI
into CMDI. The merger affects the CMDI portion of the Company's net
operating loss carryforward or approximately $3,376,000, and as such, this
amount is not included as a deferred tax asset or in the valuation
allowance above. The date of the change and the amount of loss and credits
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
carryforwards.
(9) Commitments and Contingencies
Operating Lease Commitments
---------------------------
The Company leases office space, vehicles, office equipment and
manufacturing equipment, from a director of the Company, under various
operating lease agreements that are either month-to-month or that expire
during the next year. The Company's minimum monthly lease payments under
the various cancelable and non-cancelable lease agreements are $6,074.
Total future minimum lease commitments under non-cancelable leases is
$8,743. In addition, the Company, as lessor, leases all of its space at its
Grass Valley building, shown under real estate and assets held for sale. At
present, such rental revenues exceed the costs to finance and operate the
facility. Future minimum lease payments to be received on the Company's
California facility are $142,276 for fiscal 2000 and $42,046 for fiscal
2001. Lease expense was approximately $91,500, $159,000 and $108,000 for
the years ended April 30, 1999, 1998 and 1997, respectively.
F-13
<PAGE>
Royalty Agreements
------------------
The Company assumed 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. Total royalty expense for fiscal
years ended April 30, 1999, 1998 and 1997 were $167,103, $113,725 and
$137,994, respectively.
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.
(10) Stockholders' Equity
Convertible Preferred Stock Series B
------------------------------------
The Company has authorized 1,000,000 shares of Series B convertible
preferred stock, of which 195,619 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 was convertible to
a like number of common shares had the Company reported gross annual
revenues of $20,000,000 or annual pre-tax earnings of $1,500,000
during either of the fiscal years ended April 30, 1998 or 1999. These
conversion standards were not met, and therefore 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.
Put Agreement
-------------
In February, 1997, two OMNI directors purchased shares in OMNI for a total
of $67,499 at $3.25 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. The put agreements with
these two parties were not repaid according to the put agreements and were
subsequently converted to subordinated notes as of July 1998.
Cancellation of Merger Shares in Escrow
---------------------------------------
As part of the merger between CMD and OMNI ten percent of the CMD common
shares and series B preferred shares exchanged for OMNI shares in the
transaction, were placed in escrow ("Escrow Shares") pending final
valuation and settlement. The final ownership ratio was adjusted pursuant
to the Merger Agreement to reflect differences that resulted from changes
in assets of both companies between the date of acquisition and the
settlement date of April 30, 1998. The determination of final asset values
was not resolved until August 1, 1998, at which time 111,147 common and
11,736 series B preferred Escrowed Shares were canceled to reflect the
final ownership ratio.
F-14
<PAGE>
Stock Options
-------------
The Company's 1994 Amended and Restated Stock Option Plan (the 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% of fair market value. The term of options granted under the 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 fair value of each option grant is estimated on the date of grant using
the Black-Sholes option-pricing model with the following assumptions used
for grants in 1999: dividend yield of 0.0%; expected volatility of 86%;
risk-free interest rate of 6.35%; and expected life of 10 years.
The Company applies APB Opinion No. 25 in accounting for its Plan and, no
compensation cost has been recognized for its stock options in the
financial statements. The pro forma effects on net earnings (loss) of
applying SFAS No. 123 for fiscal year ended 1999 was an expense of
approximately $2,000. There is no effect on pro forma net loss from
applying SFAS No. 123 to fiscal years ended 1998 and 1997
The following table presents historic stock option activity under the plan:
Weighted
Average
Number Exercise
of shares Price
--------- -----
Options outstanding at April 30, 1997 698,199 $ 2.66
Granted 13,636 3.00
Exercised -- --
Forfeited -- --
Expired -- --
Options outstanding at April 30, 1998 711,835 2.67
Granted 206,668 0.42
Exercised -- --
Forfeited (588,763) (2.33)
Expired -- --
-------- --------
Options outstanding at April 30, 1999 329,740 $ 1.86
======== ========
There were no unvested stock options or other equity instruments issued
during fiscal 1998 or 1997. The Company reserved 1,000,000 shares of common
stock for issuance under the plan. At April 30, 1999, there were 670,260
shares available for grant under the plan. At April 30, 1999, the range of
exercise prices and weighted average remaining contractual life of
outstanding options under the plan were $0.27 - $5.00 and 7 years,
respectively. The number of exercisable options and weighted average price
of such options at April 30, 1999 were 206,407 and $2.63, respectively.
F-15
<PAGE>
Warrants Outstanding
--------------------
CMD issued warrants in conjunction with its initial public offering in
1993, prior to its merger with OMNI. These warrants were due to expire on
May 13, 1999. On May 4, 1999 the Company's board of directors extended the
exercise date of such warrants until November 15, 1999. The following table
presents warrants outstanding at April 30, 1999, all of which were issued
by CMD in consideration for service rendered, debt and debt restructuring,
or stock purchases and placements:
Number of
Common
Shares Exercise Expiration
Issuable price date
-------- ----- ----
17,500 $ 18.15 May 13, 1999
201,250 19.50 Nov. 15, 1999
16,667 30.00 April 14, 2000
(11) Earnings Per Share
The following table reconciles basic earnings per common share (EPS) to
diluted EPS:
For the year ended April 30, 1999
Weighted
Average Per share
Income Shares amount
------ ------ ------
Income available to common
Shareholders $1,151,273 1,735,473 $ 0.66
Effect of dilutive securities:
Stock options 24,166 (0.01)
Convertible notes 7,315 473,301 (0.13)
---------- ---------- --------
Diluted EPS $1,158,588 2,232,940 $ 0.52
========== ========== ========
The calculation of diluted earnings (loss) per share for fiscal years ended
April 30, 1998 and 1997, excludes any potentially dilutive shares as such
shares would have an antidilutive affect. Total common stock equivalents
not used in calculating diluted EPS were 1,504,539 shares in fiscal 1999,
and represented stock options and warrants with exercise prices greater
than market price and averaging of convertible debt. Total common stock
equivalents not used in calculating diluted EPS for both fiscal 1998 and
1997 was approximately 332,150 shares and represented stock option and
warrants with exercise prices greater than market price.
(12) 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.
F-16
<PAGE>
The Company sells products to customers primarily in the United States. On
April 30, 1999 and 1998, 88% and 71%, respectively, of the trade
receivables were concentrated within the domestic railroad industry, and
12% and 29%, respectively, of trade receivables were with companies and
distributors located in foreign countries. Although the Company does not
currently foresee a credit risk associated with its receivables, repayment
is somewhat dependent upon the financial stability of the companies with
which the Company does business.
(13) Going Concern
As reflected in the accompanying financial statements, current debt
maturities and other short-term commitments exceed the Company's liquid
assets available to repay such commitments. In addition, as discussed in
Note 1, the Company has a significant concentration of Product sales with
its top three customers. To finance debt maturities, management has and
will continue to seek both debt and equity investors to provide additional
capital. Management believes the Company will be profitable in fiscal 2000
and is expecting to refinance its debt as discussed in Note 14. However,
there can be no assurance that the Company will be profitable, will retain
its largest customers, or that it will be able to complete the refinancing
of its debt.
(14) Subsequent Event
Litigation Settlement
---------------------
Subsequent to the end of the fiscal year, the Company entered into a
settlement agreement with Transcontinental Capital Partners ("TCP") that
ends the litigation between the Company and TCP. The Company had accrued
the full amount of the settlement as of the fiscal year end.
Refinancing of the Company's Senior Debt
----------------------------------------
Subsequent to year end the Company negotiated an amendment with its senior
lender Finova that provides an extension of a reduced credit facility ($1.8
million) under similar terms and conditions that existed at year end, until
August 31, 2000, at interest of prime plus 1-1/2%. The new financing
package also provides $600,000 of new term debt at prime plus 2.25% payable
in 60 monthly installments of principal and interest. The Company had not
yet signed the new financing package prior issuing its financial
statements.
F-17
<PAGE>
Item 8. Changes In And Disagreements With Accountants On Accounting And
Financial Disclosure
- --------------------------------------------------------------------------------
None.
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
William E. Cook 50 Chairman of the Board, Director
Edward S. Smith 80 Director
John E. Hart 60 Director and Secretary
Robert E. Tuzik 47 President and Chief Operating
Officer
M. Charles Van Rossen 43 Chief Financial Officer, Vice
President Finance and Treasurer
Each director is elected for a period of one year and serves until the
stockholders duly elect his or her successor. The Board of Directors has no
committees. Officers of the Company are elected by, and serve at the
discretion of the Board of Directors. None of the above individuals has any
family relationship with any other.
The principal occupations of each director and executive officer of the
Company, for at least the past five years, are as follows:
William E. Cook served as restructuring consultant and interim Chief
Executive Officer of the Company from March 31, 1998 through November 1998,
when he accept a seat on the board of directors and the chairmanship of the
board. Mr. Cook, through his company Riptide Holdings, Inc., was hired by
the Company to assist with the restructuring and turnaround of the Company.
Mr. Cook has been President of Riptide for four years. For the four years
Prior to that Mr. Cook was President, CEO, a director and board chairman of
DDL Electronics, Inc., a New York Stock Exchange company with printed
18
<PAGE>
circuit board and electronic contract assembly manufacturer operations in
the United States and Europe. Prior to that, Mr. Cook was a partner with
TBM Associates, a venture capital firm based in Boston, Massachusetts.
Prior to that, Mr. Cook was President and CEO of Signal Technology, Inc., a
company he co-founded in 1981. Mr. Cook acts as a consultant and/or serves
on the boards of several private companies. Mr. Cook has both undergraduate
and graduate degrees in Engineering from North Carolina State University
and a Masters degree in Business Administration from MIT.
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.
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.
Robert E. Tuzik has been President Chief Operating Officer of the Company
since October 1998. Prior to that Mr. Tuzik was 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 of OMNI 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 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.
M. Charles Van Rossen served as the Company's interim CFO from May 1, 1998
until his appoint as Chief Financial Officer, Vice President Finance and
Treasurer on August 11, 1998. From 1995 to 1998 he was a private financial
and management consultant. Prior to that he spent four years as Chief
Financial Officer and Controller of DDL Electronics, Inc., a New York Stock
Exchange company with printed circuit board and electronic contract
assembly manufacturer operations in the United States and Europe. Prior to
that he spent seven years with the Pacificorp group of companies working in
various management positions for that company's many subsidiaries. Prior to
that Mr. Van Rossen was an audit manager with KPMG Peat Marwick. He is a
Certified Public Accountant and holds a BS degree in Accounting and
Quantitative Methods from the University of Oregon.
19
<PAGE>
Item 10. Executive Compensation
- -------------------------------
The following table sets forth remuneration paid to certain executive
officers for the fiscal years ended April 30, 1999, 1998 and 1997,
respectively:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
------------------------------------- -------------------
Other Securities
Year Annual Underlying
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>
William E. Cook 1999 141,728(1) 33,334
Interim CEO 1998 0 0 30,000 0 0 0
Michael L. DeBonny (2) 1999 0 0 0 0 0 125,000
Former CEO, President 1998 150,000 0 0 0 0 0
and Treasurer 1997 151,814 0 0 618,144 0 0
</TABLE>
(1) Represents consulting fees paid during fiscal 1999. Mr. Cook's current
contract provides for a monthly consulting fee of $7,500.
(2) Mr. DeBonny resigned from the Company effective April 30, 1998.
Pursuant to his employment contract and the settlement agreement
reached between him and the Company, Mr. DeBonny was paid $125,000
severance during fiscal 1999.
The Company's nonsalaried directors receive $500 for each Board
meeting attended, and receive $2,500 quarterly, 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 and Series B Preferred
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 officers; 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.
20
<PAGE>
Name and Address of Number of
Beneficial Owner (1)(2) Shares Owned Percent of Class
----------------------- ------------ ----------------
William E. Cook (3) 865,951 23.7%
1413 Loniker Drive
Raleigh, NC 27615
Michael L. DeBonny 220,826 6.0%
16101 Parelius Circle
Lake Oswego, OR 97034
John E. Hart (4) 61,016 1.7%
Box 2495
Grass Valley, CA 95945
Edward S. Smith (5) 397,231 10.9%
921 SW Washington St., Ste. 762
Portland, OR 97205
Richard A. Kreitzberg (6) 1,091,241 29.8%
3332 El Dorado Loop South
Salem, OR 97032
Ronald J. Gangemi (7) 226,765 6.2%
11950 Willow Valley Road
Nevada City, CA 95959
Robert E. Tuzik (8) 60,220 1.6%
1732 Aspen Ct.
Lake Oswego, OR 97034
M. Charles Van Rossen (9) 50,000 1.4%
2747 SW English Ct.
Portland, OR 97201
All officers and directors 1,212,398 39.2%
as a group (5 persons)
- ----------
21
<PAGE>
(1) Assumes (i) no exercise or conversion of 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 or
conversion of debt is deemed outstanding and beneficially owned by
such persons in calculating their percentage ownership; or (ii)
conversion of the Series B Preferred Stock.
(2) Includes shares of Series B Preferred Stock held by the person listed.
(3) Includes options held by Mr. Cook to purchase 33,334 shares of Common
Stock under the Company's Incentive Stock Option Plan and includes
634,472 shares available on conversion of convertible subordinated
notes.
(4) Includes options held by Mr. Hart to purchase 36,668 shares under the
Company's Incentive Stock Option Plan.
(5) Includes options held by Mr. Smith to purchase 44,485 shares of Common
Stock under the Company's Incentive Stock Option Plan and includes
155,280 shares available on conversion of convertible subordinated
note.
(6) Includes shares owned by Mr. Kreitzberg's spouse. Also includes
634,472 shares available on conversion of convertible subordinated
note.
(7) Includes shares owned by Mr. Gangemi's spouse and children.
(8) Includes options held by Mr. Tuzik
(9) Includes options held by Mr. Van Rossen
Item 12. Certain Relationships and Related Transactions
- -------------------------------------------------------
On July 6, 1998, Michael L. DeBonny who had served as an officer and
director of the Company entered into a Separation and Mutual Release
Agreement which resolved certain disputes and controversies between him and
the Company. Mr. DeBonny's employment was terminated and he resigned as a
director both effective April 30, 1998. In addition, Mr. DeBonny
relinquished options to purchase 618,144 shares of common stock and 63,150
shares of Series B preferred stock and granted the directors of the Company
an irrevocable proxy to vote all shares he is entitled to vote through
April 30, 2000. Mr. DeBonny will receive, subject to possible adjustments,
his salary and certain fringe benefits through February 28, 1999.
22
<PAGE>
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 and the put price adjusted. In March, 1998, they agreed
to defer exercise of the puts until April 2, 1999 and to adjust the price
of the put to reflect an 11% per annum return on the investment. Effective
as of June 30, 1998, in conjunction with the FINOVA debt restructuring, Mr.
Smith's put was deemed exercised and a note was issued to him for the
amount due. The note is subordinated to the FINOVA obligations and has
deferred payments on the same terms as other unsecured creditors who were
required by FINOVA to subordinate and defer payment. Mr. DeBonny's put was
cancelled as of June 30, 1998, in conjunction with the FINOVA debt
restructuring and his separation agreement. The subordinated promissory
note from the Company to Mr. DeBonny which had been used to pay for the
stock issued in the put transaction in February 1997 was reinstated and
payment was deferred on the same terms as other unsecured creditors who
were required by FINOVA to subordinate and defer payment.
In March, 1997, OMNI entered into a short-term equipment rental agreement
with one of its directors. The Company continues to rent such equipment on
a month-to-month basis.
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.
On October 15, 1998, the directors authorized the issuance of up to
$250,000 worth of convertible subordinated notes to comply with the FINOVA
debt restructuring requirements. William E. Cook, who was restructuring
consultant to the Company and interim CEO, until joining the board of
directors and becoming Chairman of the Board on November 10, 1998, invested
a total of $122,580 in those notes. Mr. Smith invested $30,000. The notes
are secured, are convertible into common stock at $0.1932 per share and are
due October 2003 and January 2004, with put option for payout in twelve
monthly payments after the notes' second anniversary date. The notes are
subject to Subordination and Standstill Agreements with the Company's
senior lender.
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,
1999.
Index of Exhibits
-----------------
Exhibit # Description
--------- -----------
2.01 Certificate of Incorporation of the Registrant (1)
2.02 Bylaws of the Registrant (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 (9)
23
<PAGE>
Exhibit # Description
--------- -----------
2.06 Amended and Restated Certificate of Incorporation (8)
2.07 Certificate of Amendment of Certificate of Incorporation
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)
10.03 Agreement with LBI general partnership (1)
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) (8)
10.09 Lease Agreement for Portland, Oregon Facility, dated May 21,
1997(7)
10.10 Amended and Restated 1994 Stock Option Plan (8)
10.11 FINOVA Forbearance Agreement (9)
10.12 Separation Agreement and Mutual Release between the Company
and Michael L. DeBonny, he Company's former Chief Executive
Officer (10)
10.13 Eight Percent Secured Convertible Subordinated Note
Agreement ("Subordinated Note") between the Company and
William E. Cook, the Company's Board Chairman (11)
10.14 Registration Rights Agreement, establishing Note Holder's
rights and Company requirements for conversion of the
Subordinated Note (11)
10.15 Subordinated Security Agreement granting William E. Cook a
security interest in all assets of the Company, subordinated
to certain Senior lenders (11)
24
<PAGE>
Exhibit # Description
--------- -----------
10.16 Eight Percent Secured Convertible Subordinated Note
Agreements ("Subordinated Notes") between the Company and
Richard A Kreitzberg (12)
10.17 Eight Percent Secured Convertible Subordinated Note
Agreements ("Subordinated Notes") between the Company and
Edward S. Smith, a member of the Company's board of
directors (12)
10.18 Registration Rights Agreement, establishing Note Holder's
rights and Company requirements for registration of shares
issued upon conversion of the Subordinated Note (12)
10.19 Subordinated Security Agreement granting Richard A.
Kreitzberg and Edward S. Smith a security interest in all
assets of the Company, subordinated to certain Senior
lenders (12)
19.20 Addendum to Subordinated Security Agreement, between the
Company and William E. Cook (12)
19.21 Addendum to Eight Percent Secured Convertible Subordinated
Note, between the Company and William E. Cook (12)
27.05 Financial Data Schedule--April 30, 1999
(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.
(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.
25
<PAGE>
(8) Previously filed as an Exhibit to the Company's Form 10-KSB filed
for the fiscal year ended April 30, 1997.
(9) Previously filed as an Exhibit to the Company's Form 10-KSB filed
for the fiscal year ended April 30, 1998.
(10) Previously filed as an Exhibit to the Company's Form 8-K on
August 25, 1998.
(11) Previously filed as an Exhibit to the Company's form 10-QSB on
December 15, 1998.
(12) Previously filed as an Exhibit to the Company's form 10-QSB on
January 14, 1999.
26
<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.
OMNI Rail Products, Inc.
(Registrant)
By /s/ Robert E. Tuzik
----------------------
(Signature and Title)
Robert E. Tuzik
President and Chief Operating Officer
Date: August 12, 1999
---------------------
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/ M. Charles Van Rossen By: /s/ William E. Cook
- ----------------------------- -----------------------
(Signature and Title) (Signature and Title)
M. Charles Van Rossen William E. Cook,
Chief Financial Officer Chairman of the Board
Date August 12, 1999 Date August 12, 1999
- -------------------- --------------------
By /s/ JOHN E. HART By: /s/ EDWARD S. SMITH
- ------------------- -----------------------
(Signature and Title) (Signature and Title)
John E. Hart, Director Edward S. Smith, Director
Date August 12, 1999 Date August 12, 1999
- -------------------- --------------------
27
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
CREATIVE MEDICAL DEVELOPMENT, INC.
John E. Hart certifies that:
1. He is the Secretary of Creative Medical Development, Inc., a Delaware
corporation (the "Corporation").
2. Article FIRST of the Corporation's Certificate of Incorporation is
amended to read in its entirety as follows: "FIRST: The name of the corporation
is OMNI Rail Products, Inc."
3. The foregoing amendment of the Certificate of Incorporation has been
duly approved by the board of directors.
4. The foregoing amendment of the Certificate of Incorporation has been
duly approved by the required vote of shareholders in accordance with Section
242 of the Delaware Corporations Code.
February 23, 1999
/s/ John E. Hart
- ----------------
John E. Hart
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-END> APR-30-1999
<CASH> 36,280
<SECURITIES> 0
<RECEIVABLES> 1,535,253
<ALLOWANCES> 56,916
<INVENTORY> 1,330,663
<CURRENT-ASSETS> 2,896,521
<PP&E> 3,893,402
<DEPRECIATION> 589,246
<TOTAL-ASSETS> 6,200,677
<CURRENT-LIABILITIES> 5,426,708
<BONDS> 1,403,115
0
1,956
<COMMON> 17,031
<OTHER-SE> (648,133)
<TOTAL-LIABILITY-AND-EQUITY> 6,200,677
<SALES> 12,438,192
<TOTAL-REVENUES> 12,438,192
<CGS> 9,100,437
<TOTAL-COSTS> 2,085,730
<OTHER-EXPENSES> (437,200)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 537,952
<INCOME-PRETAX> 1,151,273
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,151,273
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,151,273
<EPS-BASIC> 0.66
<EPS-DILUTED> 0.52
</TABLE>
