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
For the fiscal year ended April 30, 2000
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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
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OMNI Rail Products, Inc.
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(Name of Small Business Issuer in its Charter)
Delaware 68-0281098
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization Identification No.)
975 SE Sandy Blvd. Portland, Oregon 97214
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(Address of Principal Executive Offices) (Zip Code)
(Issuer's Telephone Number (503) 230-8034
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock $.01 Par Value
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(Title of class)
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(Title of class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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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. $13,770,912.
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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 15, 2000. $2,191,795.
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State the number of shares outstanding of each of the issuers classes of
common equity, as of July 15, 2000. 1,753,098 common shares.
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OMNI RAIL PRODUCTS, INC.
FORM 10-KSB
ANNUAL REPORT FOR THE FISCAL YEAR ENDED April 30, 2000
PART I Item 1. Description of Business...............................1
Item 2. Description of Property...............................5
Item 3. Legal Proceeding......................................6
Item 4. Submission of Matters to a Vote of
Security Holders..................................6
PART II Item 5. Market for Common Equity
and Related Stockholder Matters...................6
Item 6. Management's Discussion and Analysis
of Financial Condition and Results of Operations..7
Item 7. Financial Statements
Independent Auditor's Report.........................F-1
Consolidated Balance Sheets..........................F-2
Consolidated Statements of Operations................F-3
Consolidated Statements of Stockholders'
Equity (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...................21
PART III Item 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with Section 16(a)
in the Exchange Act...................................21
Item 10. Executive Compensation................................23
Item 11. Security Ownership of Certain Beneficial Owners
and Management........................................23
Item 12. Certain Relationships and Related Transactions........25
Item 13. Exhibits and Reports on Form 8-K......................25
Index of Exhibits............................................................26
Signatures...................................................................28
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PART I
Item 1 Description of Business:
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Introduction
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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 forward 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 were sold. 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 assets of
the railroad grade crossing business from Riedel 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.
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.
Company Restructuring
---------------------
Near the end of 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
crossing surface materials. The Company ceased production of recycled
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rubber products 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. Some equipment,
primarily concrete forms, was transferred to the Company's remaining
facilities. At the same time the Company expanded manufacturing capacity
for its proprietary pre-cast concrete and rubber grade crossings products
through outsourcing agreements.
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 from taking any action against the Company
by reason of the existing defaults.
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. Those agreements placed each creditor into a
subordinated position with Finova, or any lender replacing the Finova
financing, and extended payoff of the obligations over a five-year period.
The Company has been making interest payments in accordance with those
agreements and will begin making principal payments on the obligations in
fiscal 2001. Those agreements remain in place under the new LaSalle
Business Credit financing which replaced Finova in June, 2000.
Products
--------
The Company through its subsidiary OMNI Products, Inc., designs, engineers,
manufactures and markets highway-railroad grade crossing surface products
primarily for the U.S. market. The Company's products offer a full spectrum
of crossing materials and price points to meet the customer's varying
needs. OMNI's premium products include crossings manufactured from full-
depth virgin rubber, reinforced concrete and concrete-rubber combinations.
The Company also provides high quality molded virgin rubber ("RailGuard")
flangeway filler, or railseal, and extruded virgin rubber railseal product.
The railseal products are typically used in conjunction with asphalt
crossings.
All major U.S. railroads, such as Burlington Northern Santa Fe, CSX
Transportation, Norfolk Southern and Union Pacific, and many regional
railroads and transit systems have approved and use the Company's products.
Crossing products are distributed by truck or rail. Transportation costs
represent a limiting factor in that companies with regional facilities with
shipping points nearest the delivery points realize a delivered price
advantage. As a result, a true nationwide supply network requires multiple
regional shipping locations.
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Rail Crossing Market and Competitive Business Conditions
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Grade crossings are an important part of the transportation infrastructure
wherever rail and highway traffic intersect. Premium grade crossing
surfaces made from 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-lived premium rubber or concrete
crossing surfaces significantly reduce maintenance costs as compared to the
traditional, non-premium asphalt or timber and asphalt surfaces, and
provide better safety, convenience and durability, as well as lower
maintenance and life-cycle costs. Premium surfaces are commonly used in
areas with high vehicular traffic densities and within industrial
facilities to speed the movement of lift trucks and to reduce cargo
spillage and damage.
Although many railroads continue to use asphalt as the major component of
their crossings, particularly at crossings with low traffic densities,
premium crossings are generally specified for work that is done in
conjunction with city, state or federally funded highway projects, and on
transit systems. With the ease of installation afforded by the use of
concrete panels, several major U.S. railroads have standardized on the use
of full-depth concrete crossing panels that incorporate a rubber flangeway
filler material adjacent to the rail. And with the recent consolidation
within the railroad industry, this trend has accelerated to the point that
combination concrete/rubber crossing materials now represent the majority
of the premium grade crossing surface market.
Based on the Federal Railroad Administration's Highway-Rail Crossing
Inventory Data, there are approximately 158,000 public and 100,000 private
crossings in the U.S. There are an estimated 50,000 additional crossings on
industrial properties, ports, intermodal and terminal yards, and on rail
transit systems. Assuming an average 1.5 tracks at each of these 308,000
crossings indicates that there is a total of 462,000 crossings in the U.S.,
alone. With an average estimated crossing length of 54 feet for each
crossing surface, the total estimated domestic crossing length is
approximately 25 million track feet.
With industry estimates of the useful life of a non-premium rail-crossing
surface at about 10 years, management believes that approximately 10%, or
2.5 million track feet, of the crossing inventory is renewed each year.
Management further believes that approximately 20%, or 500,000 track feet,
of the crossings renewed annually incorporate some type of premium surface
and the current annual domestic market for premium grade crossing surface
materials is approximately $65 million. The Company believes its revenues
currently represent approximately 21% of the total domestic market for all
premium grade crossing surfaces.
The vast majority of grade crossings are maintained or retrofitted with
asphalt, or asphalt and timber planks. However, with crossing safety being
increasingly scrutinized at the federal level, there is a trend in this
market segment toward conversion to the use of premium grade crossing
surface materials. The Company believes that the premium crossing surface
market could represent 25% of the overall annual usage within three years.
The federal government and many state governments recognize the importance
of safe and well- maintained highway-rail crossings. Through the Federal
Highway Administration and the Transportation Equity Act for the 21st
Century, 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
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of their ongoing maintenance programs and by industrial concerns as part of
the construction or maintenance of their facilities.
Because of the growing recognition that premium crossing surfaces
significantly reduce installation time, maintenance requirements and
overall lifecycle costs, several major railroads now install premium
crossing surfaces as part of their programmed maintenance work 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. Still, the market for premium
crossing surface materials can be volatile. The major railroads are not
consistent in their maintenance policies, which can cause large
fluctuations in a customer'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 and manufacturing efforts
from concrete to rubber, or vice-versa, as the market demands.
Sales and Marketing
-------------------
U.S. sales and marketing is implemented through a system of five regions
designed to provide comprehensive coverage of key railroad customers. Sales
manager employees manage three regions and independent sales
representatives manage the other two. All report to the Company's
President.
Although the Company has more than 300 customers, approximately 68% of its
fiscal 2000 sales were concentrated in its five largest customers. Sales to
the Company's five largest customers as a group for the fiscal years ended
April 30, 1999 and 1998 were 74% and 77%, respectively. The top three
railroad companies, Burlington Northern-Santa Fe, CSX Transportation and
Union Pacific, collectively, represented approximately 62%, 67% and 72%,
respectively, of the Company's fiscal years ended 2000, 1999 and 1998
sales.
Material Suppliers
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Basic raw materials required for manufacturing the Company's products
include virgin rubber, concrete, steel rebar and steel angle. These
materials are available from many sources in multiple locations. However,
availability of these materials is subject to seasonal demand and market
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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 Embedded 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.
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. At the end of fiscal 1999, the Company redesigned
and improved its existing embedded rubber and concrete product. The new
design has allowed the Company to sell to additional markets and to new
customers as the new design meets specifications for most railroad
crossings. The Company's expenditures on research and development for the
fiscal years ended April 30, 2000, 1999 and 1998 were $62,327, $113,795 and
$127,624, respectively.
Employees
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As of April 30, 2000, the Company had 68 full time employees and 1 part
time employee. Approximately 50 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
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The Company owns or leases the following properties:
Approximate Own or
Location Square Footage Lease Purpose
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Portland, OR (1) 3,000 Lease Executive Offices
McHenry, IL (2) 21,271 Own Manufacturing
Ennis, TX (2) 15,300 Own Manufacturing
Nevada City, CA (3) 30,000 Own Held for sale
(1) Leased on month-to-month basis.
(2) Properties are pledged as collateral for a revolving line of credit
and term loan.
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(3) Property is leased to others and is pledged as collateral for a
revolving line of credit and term loan.
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
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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 Riedel
Environmental Technologies, Inc., the predecessor in interest to OMNI. 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
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None.
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, 2000, the Company had approximately 300 record and
beneficial stockholders holding 1,740,102 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
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1999 2000
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Quarter High Low High Low
------- ---- --- ---- ---
1st 0.63 0.45 0.50 0.38
2nd 0.56 0.37 1.00 0.44
3rd 0.45 0.21 2.25 0.94
4th 0.55 0.27 2.50 1.19
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. Each share of Series B convertible preferred stock
had voting rights equal to one common share and was convertible to one
common share 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 those conversion
standards by the end of either such fiscal year end. As a result, the
Series B preferred stock was canceled by the Company upon issuance of its
April 30, 1999 audited consolidated financial statements.
Item 6 Management's Discussion and Analysis of Financial Condition and
Plan of Operation
---------------------------------------------------------------
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.
The following Selected Financial Data for the years ended April 30, 2000,
1999 and 1998 have been derived from the financial statements of the
Company audited by KPMG LLP, the Company's independent auditors. 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.
The following table sets forth the Company's operating results in thousands
of dollars and as a percentage of Net Sales for the years ended April 30:
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<TABLE>
<CAPTION>
2000 1999 1998
---------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 13,771 100.0% 12,438 100.0% 16,449 100.0%
Cost of Sales 9,647 70.1 9,100 73.2 13,447 81.7
Gross Profit 4,124 29.9 3,338 26.8 3,002 18.3
General & Administrative Expenses 1,272 9.2 1,117 9.0 1,587 9.6
Selling Expenses 960 7.0 985 7.9 1,666 10.1
Research, Development and Engineering 62 0.5 114 0.9 128 0.8
Restructuring Charges -- -- (130) (1.0) 1,685 10.2
Earnings (Loss) from operations 1,830 13.3 1,252 10.0 (2,063) (12.5)
Interest Expense (451) (3.3) (538) (4.3) (773) (4.7)
Other Income (Expense) 135 1.0 437 3.5 (44) (0.3)
Net earnings (loss) 2,006 14.6 1,151 9.2 (2,882) (17.5)
Basic earnings (loss) per share 1.18 0.66 (1.56)
</TABLE>
NET SALES
2000 vs. 1999
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 Sales for fiscal 2000 increased by $1,332,720, or
10.7% from last fiscal year. Although sales to the Company's top three
customers, the Class I railroads, BNSF, CSX and UP, increased slightly, the
major revenue increase resulted from efforts to improve inventory
availability and diversify the customer base.
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. However, the expansion of the Company's
customer base has resulted in their percentage of sales declining. These
railroads are not consistent in their purchase policies from year to year
and can significantly influence the market and the Company's revenues.
Management believes the premium rail crossing market will continue its
growth in coming years. However, such growth may not be linear and the
market can change radically from year to year due to the unpredictable
buying habits of the largest railroad systems.
Recycled rubber product manufacturing was discontinued in fiscal 1998. All
of that inventory was liquidated in 1998 and 1999, so there were no sales
of recycled rubber products in fiscal 2000.
1999 vs. 1998
Net revenues for fiscal 1999 declined by $4,010,684, or 24.4% from 1998. 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
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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.
COST OF SALES & GROSS PROFIT
2000 vs. 1999
Cost of sales increased from $9,100,437 in fiscal 1999 to $9,647,232 in
fiscal 2000 or a 6% increase. However, costs as a percent of sales
decreased from 73% in fiscal 1999 to 70% in fiscal 2000. This improved the
Company's gross profit margin percentage from 27% in fiscal 1999 to 30% in
fiscal 2000. Improvements in gross margin are related to lower production
costs achieved by more efficient operations and material cost reductions.
The Company records a percent of each sale towards the warranty expense and
places that amount into an accrued reserve. The amount accrued reflects
management's estimate of possible future warranty and customer claims
exposure. 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
2000 were $94,817. Actual warranty services incurred in 1999 were $83,000.
1999 vs. 1998
Cost of sales decreased from $13,446,678 to $9,100,437 in fiscal 1999 or
32% due to lower sales to the Company's largest fiscal 1998 customer.
However costs as a percentage of sales decreased from 81.7% in fiscal 1998
to 73.2% in fiscal 1999. This improved the company's gross margins from
18.3% in fiscal 1998 to 26.8% in fiscal 1999. The improvement in gross
margins was related to lower production and warranty costs as the company
discontinued sales in it's recycled rubber products and international
markets.
The actual warranty services incurred in 1999 were $83,000 compared to
actual warranty services in fiscal 1998 of $334,000. A majority of the 1998
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 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 recycled, virgin
rubber and concrete crossing materials.
GENERAL AND ADMINISTRATIVE EXPENSES
2000 vs.1999
General and administrative expenses increased by $154,538 or 13.8% in
fiscal 2000 over the prior fiscal year. This increase is due to
compensation and performance bonus accrual which resulted from the
increased operational performance of the company in fiscal 2000.
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Compensation also increased in fiscal 2000, because of the late 1999
promotion of the Company's Vice President of Marketing and Sales to
President and Chief Operating Officer of the Company.
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 reflecting 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. This reduction in personnel facilitated reductions in
travel, entertainment, and other variable personnel costs from telephone to
payroll services. 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.
SELLING EXPENSES
Selling expenses for the years ended April 30, 2000, 1999 and 1998 were
$960,285, $985,350, and $1,665,506 respectively, and represented 7.0%,
7.9%, and 10.1% of sales, respectively. Commissions are a primary component
of selling costs and were $549,001 (57% of selling costs) $598,007 (61% of
selling costs) and $783,284 (47% of selling costs) for fiscal years ended
2000, 1999 and 1998, respectively. Commission expense is directly tied to
total sales. The average commission rate as a percentage of sales remained
relatively constant at 4.8% for 1998 and 1999, but dropped to 4% for fiscal
2000.
2000 vs. 1999
Selling expenses in fiscal 2000 declined by $25,065 from fiscal 1999.
Increased expenses of an additional sales person and expanded marketing of
new and revitalized products were offset by a more favorable commission
structure.
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.
INTEREST EXPENSE & OTHER INCOME/EXPENSE
2000 vs.1999
Fiscal 2000 interest expense declined $86,636 or 16% from fiscal 1999. The
majority of the reduction is a result of lower borrowed funds during the
year. The average operating loan balance in fiscal 2000 was $425,000 lower
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than fiscal 1999. Additionally, the Company incurred an approximately 1.25%
average lower interest rate on borrowed funds through it's operating credit
facility with Finova during fiscal 2000.
In fiscal 2000 other income declined $301,967 from fiscal 1999. During
fiscal 1999 other income included a gain on sale of assets of
approximately $153,000 associated with the sale of the Company's
Pennsylvania manufacturing facility, a Workman's Compensation insurance
refund of $59,000, and payroll tax refund of $29,000. Also contributing to
the decline in other income in fiscal 2000 was rental income which declined
approximately $69,000 on the Company's Nevada City property due to the loss
of a tenant.
1999 vs. 1998
Fiscal 1999 interest expense fell $235,032 or 30% from fiscal 1998.The
reduction resulted from lowered borrowed funds. Borrowed funds during
fiscal 1999 averaged over $2M lower than during the prior fiscal year
(comparing quarter end borrowing balances). At the same time, the Company
realized higher rents on it's 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 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance at April 30, 2000 and 1999 amounted to $157,813
and $36,280, respectively. The Company's operating activities during fiscal
2000 generated cash of $1,242,627 on net earnings of $2,006,454. Reductions
in working capital and an increase in deferred taxes primarily account for
the difference. During fiscal 1999 the Company generated $634,028 of cash
from operations on net income for the year of $1,151,273.
Net working capital at April 30, 2000 amounted to $154,770 and the net
working capital deficit at April 30, 1999 was ($2,530,187). Reductions in
the Company's current debt borrowings as well as decreases in payables and
accrued liabilities helped eliminate 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. A major shift
occurred with the refinancing with LaSalle Business Credit. That resulted
in reclassification of a portion of existing debt that was refinanced from
long-term to current debt as of April 30, 2000.
The Company's borrowing agreement with its senior lender Finova Financial
Corporation ("Finova") was to expire in August 2000. Prior to the end of
the April 30, 2000 fiscal year, the Company negotiated a new senior lending
facility with LaSalle Business Credit that was executed as of June 2, 2000.
The agreement includes a $2,500,000 line of credit, secured by accounts
receivable and inventories, and term notes of $1,724,000 secured by the
Company's real estate and equipment. The financing arrangements also
include a $2,500,000 acquisition facility and a $300,000 capital equipment
facility. The notes are for a three year term ending June 2003 and bear
interest at 1% over prime.
11
<PAGE>
The Company's capital expenditures were $410,940 and $253,592 in fiscal
2000 and 1999, respectively. Expenditures in 2000 were incurred primarily
for expansion of manufacturing capacity. 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 combination
concrete/rubber grade crossing product. Although the Company's Nevada City,
California property is included in the LaSalle financing package, the
facility is for sale and the Company anticipates selling it once an
acceptable offer is received.
The Company's primary source of funds is cash generated from operations and
borrowings on its line of credit. The Company is restricted as to the
amount it can borrow from LaSalle based on a percentage of eligible
receivables and inventory and is subject to certain debt covenants.
The Company expects to meet its financing requirements for capital
expenditures through the $300,000 LaSalle credit facility. If available on
more favorable terms to the Company, or if requirements exceed the $300,000
LaSalle credit facility, the Company may use capital expenditure credit
financing primarily in the form of capital leases from time to time.
Assuming there is no significant change in our business, management
believes that the Company's cash resources and borrowing capacity on its
working capital lines of credit are sufficient to fund operations for the
next year.
12
<PAGE>
Item 7 Financial Statements
--------------------
OMNI RAIL PRODUCTS, INC. AND SUBSIDIARY
(Formerly Creative Medical Development, Inc.)
Consolidated Financial Statements
April 30, 2000 and 1999
(With Independent Auditors' Report Thereon)
13
<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, 2000 and 1999, 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, 2000. 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, 2000 and 1999, and the results of their operations
and their cash flows for each of the years in the three year period ended
April 30, 2000 in conformity with generally accepted accounting principles.
KPMG LLP
Portland, Oregon
June 9, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
OMNI RAIL PRODUCTS, INC.
AND SUBSIDIARY OMNI RAIL PRODUCTS, INC.
Consolidated Balance Sheets
April 30, 2000 and 1999
Assets 2000 1999
----------- ------------
<S> <C> <C>
Current assets:
Cash $ 157,813 36,280
Accounts receivable, less allowance for doubtful
accounts of $48,077 in 2000 and $56,916 in 1999 1,627,030 1,478,337
Inventories, net 1,593,645 1,330,663
Current deferred tax benefit 168,000 --
Prepaid expenses and deposits 78,658 51,241
----------- -----------
Total current assets 3,625,146 2,896,521
Deferred tax benefit 325,000 --
Real estate and other assets held for sale 1,400,000 1,400,000
Property, plant and equipment, net 2,098,590 1,904,156
----------- -----------
$ 7,448,736 6,200,677
=========== ===========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable 1,462,280 1,480,166
Accrued liabilities 855,262 879,995
Notes payable 693,373 1,693,135
Current portion of long-term debt 459,461 1,373,412
----------- -----------
Total current liabilities 3,470,376 5,426,708
----------- -----------
Long-term debt, less current portion 2,585,061 1,403,115
Commitments and contingencies Stockholders' equity (deficit):
Convertible preferred stock, $.01 par value, 25,000,000
shares authorized:
Series B, 1,000,000 shares authorized, 195,619 shares
issued and outstanding in 1999 -- 1,956
Common stock, 50,000,000 shares authorized, $.01 par value,
1,740,102 and 1,703,098 shares issued and outstanding in 2000 and 17,401 17,031
1999, respectively
Additional paid-in capital 2,387,457 2,369,880
Accumulated deficit (1,011,559) (3,018,013)
----------- -----------
Total stockholders' equity (deficit) 1,393,299 (629,146)
----------- -----------
$ 7,448,736 6,200,677
=========== ===========
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
OMNI RAIL PRODUCTS, INC.
AND SUBSIDIARY OMNI RAIL PRODUCTS, INC.
Consolidated Statements of Operations
Years ended April 30, 2000, 1999 and 1998
2000 1999 1998
------------ ------------ ------------
NET SALES $ 13,770,912 12,438,192 16,448,876
COST OF SALES 9,647,232 9,100,437 13,446,678
------------ ------------ ------------
GROSS PROFIT 4,123,680 3,337,755 3,002,198
------------ ------------ ------------
GENERAL AND ADMINISTRATIVE EXPENSES 1,271,558 1,117,020 1,586,956
SELLING EXPENSES 960,285 985,350 1,665,506
RESEARCH, DEVELOPMENT AND ENGINEERING 62,327 113,795 127,624
RESTRUCTURING CHARGES 0 (130,435) 1,684,833
------------ ------------ ------------
2,294,170 2,085,730 5,064,919
------------ ------------ ------------
EARNINGS (LOSS) FROM OPERATIONS 1,829,510 1,252,025 (2,062,721)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
INTEREST EXPENSE (451,316) (537,952) (772,984)
AMORTIZATION OF ORGANIZATION COSTS -- -- (237,955)
MISCELLANEOUS INCOME 139,450 273,151 163,686
GAIN (LOSS) ON SALE OF ASSETS (4,190) 164,049 29,683
------------ ------------ ------------
TOTAL OTHER EXPENSE (316,056) (100,752) (817,570)
------------ ------------ ------------
EARNINGS (LOSS) BEFORE INCOME TAXES 1,513,454 1,151,273 (2,880,291)
PROVISION (BENEFIT) FOR INCOME TAXES (493,000) -- 1,894
------------ ------------ ------------
NET EARNINGS (LOSS) $ 2,006,454 1,151,273 (2,882,185)
============ ============ ============
BASIC EARNINGS (LOSS) PER SHARE $ 1.18 0.66 (1.56)
============ ============ ============
DILUTED EARNINGS (LOSS) PER SHARE $ 0.64 0.52 (1.56)
============ ============ ============
BASIC WEIGHTED COMMON SHARES OUTSTANDING 1,707,201 1,735,473 1,844,242
============ ============ ============
DILUTED WEIGHTED COMMON SHARES OUTSTANDING 3,192,726 2,232,940 1,844,242
============ ============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
OMNI RAIL PRODUCTS, INC.AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended April 30, 2000, 1999 and 1998
Preferred stock
Series B Common stock Additional Accumulated Total
------------------------- --------------------- paid-in earnings stockholders'
Shares Amount Shares Amount capital (deficit) equity (deficit)
------ ------- ------ ------ ------------ ----------- ---------------
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 Puts -- -- (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 Earnings -- -- -- -- -- 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)
Cancellation of Preferred
Shares (195,619) (1,956) -- -- 1,956 -- --
Issuance of Common Stock
under Stock Options 5,991
-- -- 37,004 370 15,621 --
Net Earnings -- -- -- -- -- 2,006,454 2,006,454
----------- -------- ----------- -------- ----------- ----------- -----------
Balance, April 30, 2000 -- $ -- 1,740,102 $ 17,401 $ 2,387,457 $(1,011,559) $ 1,393,299
=========== ======== =========== ======== =========== =========== ===========
F-4
<PAGE>
OMNI RAIL PRODUCTS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 2000
2000 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES: ----------- --------- ---------
NET EARNINGS (LOSS) $ 2,006,454 1,151,273 (2,882,185)
ADJUSTMENTS TO RECONCILE NET EARNINGS (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 206,694 161,417 587,552
(GAIN) LOSS ON SALE OF ASSETS 4,190 (164,049) (29,683)
ASSET IMPAIRMENT - WRITE DOWN OF ASSETS -- -- 1,239,567
DEFERRED INCOME TAXES (493,000) -- --
CHANGE IN ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE (148,693) 374,943 (35,171)
INVENTORIES (262,982) 93,137 1,070,943
PREPAID EXPENSES AND DEPOSITS (27,417) 917 (31,478)
ACCOUNTS PAYABLE (17,886) (404,513) 520,600
ACCRUED LIABILITIES (24,733) (579,097) 377,038
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,242,627 634,028 817,183
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALE OF PROPERTY, PLANT AND EQUIPMENT 5,623 842,557 571,038
PURCHASE OF PROPERTY, PLANT AND EQUIPMENT (410,940) (253,592) (231,802)
PROCEEDS FROM SALE OF SECURITIES -- -- 752,573
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (405,317) 588,965 1,091,809
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
NET PAYMENT ON NOTES PAYABLE (999,762) (1,612,148) (1,071,440)
PAYMENTS ON LONG-TERM AND OTHER DEBT (913,952) (762,964) (552,058)
PROCEEDS FROM LONG-TERM DEBT FINANCING 1,181,946 -- --
BORROWINGS ON SUBORDINATED AND OTHER DEBT -- 813,274 --
RREPURCHASE OF STOCK -- (18,752) (31,252)
SALE OF STOCK UNDER OPTIONS 15,991 -- --
----------- ----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (715,777) (1,580,590) (1,654,750)
----------- ----------- -----------
(DECREASE) INCREASE IN CASH 121,533 (357,597) 254,242
CASH AT BEGINNING OF YEAR 36,280 393,877 139,635
----------- ----------- -----------
CASH AT END OF YEAR $ 157,813 36,280 393,877
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID FOR:
INTEREST $ 442,747 530,355 768,630
INCOME TAXES -- -- 1,894
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
ISSUANCE OF DEBT IN EXCHANGE FOR COMMON STOCK -- 67,499 --
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
</TABLE>
<PAGE>
OMNI RAIL PRODUCTS, INC.
AND SUBSIDIARY OMNI RAIL PRODUCTS, INC.
Notes to Consolidated Financial Statements
April 30, 2000, 1999 and 1998 Statements
(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.
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, CSX Transportation, Union Pacific and many
regional railroads and transit systems. From its operating facilities in
Illinois and Texas and through its relationships with key suppliers, OMNI
markets its products to all 50 states and Canada. 62% of the Company's
fiscal 2000 sales were concentrated in the three largest United States
railroad companies (down from 67% in fiscal 1999) (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.
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
F-6
<PAGE>
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 $58,818,
$17,346 and $44,424 for 2000, 1999 and 1998, 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, 2000 and 1999, 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, 2000 and 1999, 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 year ended April 30, 1998,
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. 131 (FAS 131),
Disclosures About Segments of an Enterprise and Related Information, in
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.
(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
1999, the Company sold or disposed of 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.
F-8
<PAGE>
(3) Inventories
Inventories consist of the following at April 30, 2000 and 1999:
2000 1999
---------- ----------
Raw materials $ 225,952 175,692
Finished goods 1,387,693 1,179,971
---------- ----------
1,613,645 1,355,663
Less allowance for excess
or obsolete inventory 20,000 25,000
---------- ----------
Inventories, net $1,593,645 1,330,663
========== ==========
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 2000, 1999 and 1998
inventory write-offs were $45,000, $14,555 and $1,085,600, respectively.
(4) Property, Plant and Equipment
Property, plant and equipment consist of the following at April 30, 2000
and 1999:
2000 1999
---------- ----------
Land $ 93,024 93,024
Buildings 837,598 812,684
Office furniture, manufacturing
equipment and vehicles 1,961,150 1,587,694
---------- ----------
2,891,772 2,493,402
Less accumulated depreciation 793,182 589,246
---------- ----------
$2,098,590 1,904,156
========== ==========
(5) Accrued Liabilities
Accrued liabilities consist of the following at April 30, 2000 and 1999:
2000 1999
-------- --------
Warranties and other customer claims $295,960 353,635
Accrued compensation 297,631 206,416
Accrued taxes 53,801 66,482
Accrued interest 88,731 80,162
Other 119,139 173,300
-------- --------
$855,262 879,995
======== ========
F-9
<PAGE>
(6) Notes Payable
The Company has a revolving line of credit with actual balances of $693,373
and $1,396,195 as of April 30, 2000 and 1999, 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 $1,800,000
against 85% of eligible accounts receivable and 50% of eligible inventory.
Interest on the line is at prime plus 1.5% and 2.25%, at April 30, 2000 and
1999, respectively (10% at both April 30, 2000 and 1999). The Company had a
capital loan payable to Finova totaling $296,940 at April 30, 1999, payable
in monthly installments of $12,500 plus interest of 11.5%. At the end of
fiscal 2000, the Company also had a term note payable to Finova of
$440,610, payable in monthly installments of $8,474, plus interest of 1.5%
over prime. The loans payable to Finova are secured by equipment and
inventory. The original maturity date was extended from August 31, 1999 to
August 31, 2000 as noted below. The Company is restricted from paying
dividends by covenant with Finova.
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.
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. On August 12, 1999, the Company entered into Amendment
No. 11 to the Loan Agreement ("Amendment") with Finova that extended the
due date of the Company's borrowings until August 31, 2000. Under terms of
the Amendment, the Company reduced its line of credit facility to $1.8
million of total borrowing availability (previously $3.5 million), and its
interest rate to 1.5 % over prime (previously 2.25% over prime). The
Amendment also reinstated certain financial covenants that were previously
excused under the Company's and Finova's Forbearance Agreement (entered
into in fiscal 1999), that include both senior debt and total debt coverage
ratios and waives all existing defaults as defined in the Forbearance
Agreement.
As more fully described in Note 13, on June 9, 2000, the Company entered
into a new senior lending arrangement with LaSalle Business Credit
("LaSalle"), whereby Finova and the Company's mortgage lenders, were paid
in full, and new term notes and line of credit financing were established
with LaSalle. The agreement with LaSalle established $1,724,000 of new
three year term notes payable in monthly installments of $15,400, plus
interest at 1% over prime. As a result of the foregoing, the Company has
reclassified a portion of existing debt that was refinanced as long-term
from current debt to long-term debt as of April 30, 2000.
F-10
<PAGE>
(7) Long-term Debt
Long-term debt is comprised of the following at April 30, 2000 and 1999:
2000 1999
---------- ---------
Note payable to Capital Consultants in monthly
installments of $13,631, including interest at
10%, payable in full in December 162,825 1999,
secured by real estate. $ -- 162,825
Note payable to Finova Capital Corporation in
monthly installments of $8,034, including interest
at 1.5% over prime, due August 31, 2000, secured
by all assets. 440,610 --
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. 1,184,045 1,201,279
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. 275,160 275,160
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. 1,101,027 1,077,114
Other note and capitalized lease with interest of
10% 43,680 60,149
---------- ---------
3,044,522 2,776,527
Less current portion 459,461 1,373,412
---------- ---------
Long-term debt $ 2,585,061 1,403,115
========== =========
The aggregate principal repayments and reductions required in each of the years
ending April 30, 2001 through April 30, 2004 for the Company's long-term debt is
as follows:
2001 459,461
2002 734,070
2003 558,840
2004 1,292,151
---------
$3,044,522
==========
F-11
<PAGE>
<TABLE>
<CAPTION>
(8) Income Taxes
The income tax (benefit) expense consists of the following:
2000 1999 1998
--------- --------- ---------
Current:
<S> <C> <C> <C>
Federal $ -- --
State -- -- 1,894
-- -- 1,894
Deferred:
Federal (408,178) -- --
State (84,822) --
--------- --------- ---------
(493,000) -- --
--------- --------- ---------
Total income tax (benefit) expense $(493,000) -- 1,894
========= ========= =========
</TABLE>
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, 2000 and 1999 are as follows:
2000 1999
---------- ---------
Deferred tax assets:
Restructuring costs $ 14,189 42,567
Warranty reserve 113,530 135,654
Legal settlement payable 123,390 123,390
Inventory write down 7,672 9,590
Bad debt reserve 20,360 21,833
Self-insurance reserve 2,493 9,313
Other 25,042 14,825
Capital loss carryforward 273,043 273,043
Net operating loss carryforwards:
Federal 424,282 852,724
State 88,169 177,203
---------- ----------
1,092,170 1,660,142
Less valuation allowance 81,263 1,185,580
---------- ----------
Net deferred tax asset 1,010,907 474,562
---------- ----------
Deferred tax liabilities:
Property, plant and equipment, due to
differences in depreciation 326,127 282,782
Real estate held for sale 191,780 191,780
---------- ----------
Net deferred tax liability 517,907 474,562
---------- ----------
Net deferred tax assets and liabilities $ 493,000 --
========== ==========
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:
<TABLE>
<CAPTION>
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% (34.0)%
State income taxes, net of federal income
tax benefit 4.4 4.4 (4.3)
Change in valuation allowance (73.0) (41.0) 40.5
Other 2.0 2.6 (2.1)
------ ------ ----
Effective tax rate (32.6)% 0.0% 0.1%
====== ====== ====
</TABLE>
F-12
<PAGE>
The Company has a valuation allowance of $81,263, $1,185,580 and
$1,657,570, as of April 30, 2000, 1999 and 1998, respectively. The change
in the valuation allowance was ($1,104,317), ($471,990) and $1,167,154, in
2000, 1999, and 1998, respectively.
At April 30, 2000 and 1999, the Company had approximately $1,336,000 and
$2,684,000, 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
carry forwards.
(9) Commitments and Contingencies
Operating Lease Commitments
The Company leases office space, vehicles, office equipment and
manufacturing equipment, inculding one lease of manurfacturing 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 $8,645. 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. Future minimum lease
payments to be received on the Company's California facility are $43,000
for fiscal 2001. Lease expense was approximately $80,200, $91,500 and
$159,000 for the years ended April 30, 2000, 1999 and 1998, respectively.
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
provided 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. Total royalty expense for fiscal years ended April 30, 2000,
1999 and 1998 were $34,625, $167,103 and $113,725, respectively.
F-13
<PAGE>
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 had authorized 1,000,000 shares of Series B convertible
preferred stock, of which 195,619 were issued and outstanding at April 30,
1999. The Series B preferred stock was convertible into 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. The Company neither reported gross annual
revenues of $20,000,000 nor annual pre-tax earnings of $1,500,000 during
either of such fiscal years. Accordingly, the Company canceled the series B
preferred stock effective as of the date of the issuance of its April 30,
1999 audited consolidated financial statements.
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 m arket
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 may be fully vested on the grant date.
However, in most cases they vest over a period of time as determined by the
Company's board of directors in accordance with the Plan.
The following table presents historic stock option activity under the plan:
<TABLE>
<CAPTION>
2000 1999 1998
------------------------- ------------------------ ----------------------
Number Weighted Number of Weighted Number Weighted
of Shares Average Shares Average of Average
Exercise Exercise Shares Exercise
Price Price Price
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at 329,740 $1.81 711,835 $2.67 698,199 $2.66
beginning of
year
Granted 94,000 0.70 206,668 0.42 13,636 3.00
Exercised (37,004) (0.43) -- -- -- --
Forfeited (35,420) (0.33) (588,763) (2.33) -- --
Expired (30,687) (6.10) -- -- -- --
Transferred 33,333 3.00 -- -- -- --
-------- ----- -------- ----- -------- -----
Options
outstanding
at April 30 353,965 1.18 329,740 1.81 711,835 2.67
======== ===== ======== ===== ======== =====
Exercisable at
April 30 191,299 1.69 206,407 2.63 711,835 2.67
======== ===== ======== ===== ======== =====
</TABLE>
F-14
<PAGE>
--------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding
at April 30, 2000:
<TABLE>
<CAPTION>
Outstanding Exercisable
-------------------------------------------------- -----------------------------
Range of Weighted Average Weighted Weighted
exercise Number of remaining years of average Number of average
price options contractual life exercise price Options exercise price
-------------------------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C>
$0.27 - 0.94 254,505 8.2 $0.55 91,839 $0.48
$2.16 - 2.70 37,800 5.8 $2.39 37,800 $2.39
$3.00 - 3.51 61,660 5.4 $3.07 61,660 $3.07
------- -------
353,965 191,299
======= =======
</TABLE>
The Company adopted SFAS 123 in 1997, and pursuant to its provisions
elected to continue using the intrinsic-value method of accounting for
stock-based awards granted to employees in accordance with APB 25.
Accordingly, the Company has not recognized compensation expense for its
stock-based awards to employees. The pro forma effects on net earnings
(loss) of applying SFAS No. 123 for fiscal years ended 2000 and 1999 were
expense of approximately $20,000 and $15,000, respectively, and basic and
diluted earnings per share of $0.01 and $0.01. There is no effect on pro
forma net loss from applying SFAS No. 123 to the fiscal year ended 1998.
The weighted average fair values of options at their grant date during
2000, 1999, and 1998, were $0.58, $0.37 and $2.63, respectively. The
estimated fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions
used for grants in 1999: dividend yield of 0.0%; expected volatility of
75%; risk-free interest rate of 6.00 %; and expected life of 10 years.
The Company reserved 1,000,000 shares of common stock for issuance under the
plan. At April 30, 2000, there were 646,035 shares available for grant under the
plan.
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, on which date the
warrants expired.
F-15
<PAGE>
(11) Earnings Per Share
The following table reconciles basic earnings per common share (EPS) to
diluted EPS for the years ended April 30, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
---------------------------------------- ---------------------------------------
Net Weighted Per Net Weighted Per
Earnings Average Share Earnings Average Share
Shares Amount Shares Amount
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income available to common $2,006,454 1,707,201 $ 1.18 $1,151,273 1,735,473 $ 0.66
shareholders
Effect of dilutive securities:
Stock Options -- 61,301 (0.01) -- 24,166 (0.01)
Convertible Notes 22,013 1,424,224 (0.53) 7,315 473,301 (0.13)
---------- ---------- ----- ---------- ---------- -----
Diluted EPS $2,028,467 3,192,726 ($ 0.64) $1,158,588 2,232,940 $ 0.52
========== ========== ===== ========== ========== =====
</TABLE>
The calculation of diluted earnings (loss) per share for the fiscal year
ended April 30, 1998, excludes any potentially dilutive shares as such
shares would have an antidilutive affect. Total common stock equivalents
not used in calculating diluted EPS were 262,126 and 1,504,539 shares in
fiscal 2000 and 1999, respectively,and represented stock options and
warrants with exercise prices greater than the average market price of the
common shares.
(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.
The Company sells products to customers primarily in the United States. On
April 30, 2000 and 1999, 100% and 88% , respectively, of the trade
receivables were concentrated within the domestic railroad industry, and 0%
and 12%, 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) Subsequent Event
Refinancing of the Company's Senior Debt
Subsequent to year end the Company negotiated a new senior lending facility
with Lasalle Business Credit that includes a $2,500,000 line of credit,
secured by accounts receivable and inventories, and term notes of
$1,724,000 secured by the Company's real estate and equipment. The
financing arrangements also include a $2,500,000 acquisition facility and a
$300,000 capital equipment facility. The notes are for a three year term
ending June 2003 and bear interest at 1% over prime.
F-16
<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 51 Chairman of the Board
Director
Edward S. Smith 81 Director
John E. Hart 61 Director and Secretary
Robert E. Tuzik 49 President and Chief Operating
Officer
David C. Anderson 47 Chief Financial Officer
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 accepted 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 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., an RF and microwave products company he co-founded as CEO
in 1981. Mr. Cook acts as a consultant to and/or serves on the boards of
several private companies. From June of 1999 through March 2000, Mr. Cook
served as a director and chairman of Uniax Corporation, a developer of
polymer electronic display technologies, primarily for wireless device
markets. Uniax was sold to E.I. Du Pont De Nemours and Company in March
2000. Since August, 1999, Mr. Cook has served on the board of directors of
Sparta, Inc., a reporting company which performs a wide range of
scientific, engineering and technical assistance services as a contractor
for the U.S. military services and other agencies of the Department of
Defense. Mr. Cook has both undergraduate and graduate degrees in
Engineering from North Carolina State University and a Masters degree in
Business Administration from the MIT Sloan School of Management.
21
<PAGE>
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. He served on the board of directors of Georgia Gulf
Corporation from May, 1985, until his retirement from the board in May,
2000. Currently he serves on the board of directors of 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 and 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. From 1989 to 1995 he was editor of Railway Track and Structures
and engineering editor of Railway Age, the preeminent railway industry
trade publications. Prior to that he worked for 12 years in a variety of
operating positions from switchman to supervisor of operations for the
Santa Fe Railway. Mr. Tuzik holds a BA in English and MS in Journalism from
the University of Illinois at Chicago and Northwestern University.
Effective July 19, 2000, David C. Anderson was appointed Vice President
Finance and Treasurer of the Company. Mr. Anderson has more than sixteen
years experience in management of manufacturing companies in various
capacities, including Chief Financial Officer, Chief Operating Officer and
Chief Executive Officer. Since August 1999, he had been Chief Executive
Officer of Workstation Technologies, Inc., a remanufacturer and value added
reseller of Sun Microsystems equipment and software, managing a work-out
situation. Prior to that, Mr. Anderson served for a year as Chief Financial
Officer and Chief Operating Officer of Fulfillment Plus, Inc., a provider
of fulfillment, telemarketing and e-commerce media services to telephone
companies. For two and one-half years prior to that, Mr. Anderson was Chief
Financial Officer of Century Electronics Manufacturing, Inc., a $125M high
volume electronic component contract manufacturer. During 1991 to 1995, Mr.
Anderson was Vice President and General Manager of AJ Electronics, Inc. (a
subsidiary of DDL Electronics, NYSE) a $27M electronic component contract
manufacturer with 150 employees. Mr. Anderson holds a BS degree in Business
from the University of Rhode Island.
On February 8, 2000, Mr. Kreitzberg filed a Form 5 reporting a June, 1997,
disposition of shares to the Company pursuant to a put agreemet;
cancellation, as of July, 1998, of shares held in escrow pursuant to the
agreement for merger of OMNI and the Company; reduction in the number of
shares held as a result of the reverse split of the Company's stock in
February, 1999; and, five open market acquisitions from March 18 to
November 5, 1999 for a total of 25,000 shares.
22
<PAGE>
Item 10 Executive Compensation
The following table sets forth remuneration paid to certain executive
officers for the fiscal years ended April 30, 2000, 1999 and 1998
respectively:
<TABLE>
<CAPTION>
Long-Term
Annual Paid 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>
William E. Cook 2000 0 0 97,500(1) 0 0 0
Chairman 1999 0 0 141,728(2) 33,334 0 0
1998 0 0 30,000 0 0 0
Robert E. Tuzik 2000 110,000 28,000(3) 0 50,000 0 0
President and COO 1999 95,940 15,000(3) 0 50,000 0 0
Michael L. DeBonny (4) 1999 0 0 0 0 0 125,000
President and COO 1998 150,000 0 0 0 0 0
</TABLE>
(1) Includes $30,000 consulting fees accrued to be paid during fiscal 2001
at Mr. Cook's request.
(2) Represents consulting fees paid during fiscal 1999. Mr. Cook's current
contract provides for a monthly consulting fee of $7,500.
(3) Bonus earned for fiscal year actually paid during following fiscal
year.
(4) 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 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.
Name and Address of Number of
Beneficial Owner (1) Shares Owned Percent of Class
-------------------- ------------ ----------------
William E. Cook (2) 686,973 28.2%
1413 Loniker Drive
Raleigh, NC 27615
Michael L. DeBonny 199,894 11.4%
16101 Parelius Circle
Lake Oswego, OR 97034
John E. Hart (3) 54,349 3.0%
Box 2495
Grass Valley, CA 95945
23
<PAGE>
Name and Address of Number of
Beneficial Owner (1) Shares Owned Percent of Class
-------------------- ------------ ----------------
Edward S. Smith (4) 326,467 16.7%
921 SW Washington St., Ste. 762
Portland, OR 97205
Richard A. Kreitzberg (5) 915,428 38.1%
3332 El Dorado Loop South
Salem, OR 97032
Ronald J. Gangemi (6) 132,668 7.6%
11950 Willow Valley Road
Nevada City, CA 95959
Robert E. Tuzik (7) 208,325 10.7%
1732 Aspen Ct.
Lake Oswego, OR 97034
David C. Anderson (8) 75,000 4.1%
975 SE Sandy Blvd., Ste. 200
Portland, OR 97293
All officers and directors 1,351,114 46.1%
as a group (5 persons)
----------
(1) Assumes no exercise or conversion of outstanding 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.
(2) Includes options held by Mr. Cook to purchase 50,001 shares of Common
Stock under the Company's Incentive Stock Option Plan and includes
634,472 shares available on conversion of convertible subordinated
notes.
(3) Includes options held by Mr. Hart to purchase 36,668 shares under the
Company's Incentive Stock Option Plan.
(4) Includes options held by Mr. Smith to purchase 41,642 shares of Common
Stock under the Company's Incentive Stock Option Plan and includes
155,280 shares available on conversion of convertible subordinated
note.
(5) Includes shares owned by Mr. Kreitzberg's spouse. Also includes
options held by Mr. Kreitzberg to purchase 16,667 shares of Common
Stock under the Company's Incentive Stock Option Plan and 634,472
shares available on conversion of convertible subordinated note.
(6) Includes shares owned by Mr. Gangemi's spouse and children.
(7) Includes options held by Mr. Tuzik to purchase 184,991 shares under
the Company's Incentive Stock Option Plan.
(8) Options held by Mr. Anderson to purchase shares under the Company's
Incentive Stock Option Plan.
24
<PAGE>
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.
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.
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,
2000.
25
<PAGE>
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(4)
2.06 Amended and Restated Certificate of Incorporation (3)
10.01 Incentive Stock Option Plan (1)
10.06 Merger Agreement and Plan of Reorganization (2)
10.08 Employment Agreement (Mr. DeBonny) (4)
10.09 Lease Agreement for Portland, Oregon Facility, dated May 21,
1997(3)
10.10 Amended and Restated 1994 Stock Option Plan (8)
10.11 FINOVA Forbearance Agreement dated June 1, 1998 (5)
10.12 Separation Agreement and Mutual Release between the Company and
Michael L. DeBonny, he Company's former Chief Executive Officer
(6)
10.13 Eight Percent Secured Convertible Subordinated Note Agreement
("Subordinated Note") between the Company and William E. Cook,
the Company's Board Chairman (7)
10.14 Registration Rights Agreement, establishing Note Holder's rights
and Company requirements for conversion of the Subordinated
Note (7)
10.15 Subordinated Security Agreement granting William E. Cook a
security interest in all assets of the Company, subordinated to
certain Senior lenders (7)
26
<PAGE>
Exhibit # Description
--------- -----------
10.16 Eight Percent Secured Convertible Subordinated Note Agreements
("Subordinated Notes") between the Company and Richard A
Kreitzberg (8)
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 (8)
10.18 Registration Rights Agreement, establishing Note Holder's rights
and Company requirements for registration of shares issued upon
conversion of the Subordinated Note (8)
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 (8)
10.20 Addendum to Subordinated Security Agreement, between the
Company and William E. Cook (8)
10.21 Addendum to Eight Percent Secured Convertible Subordinated Note,
between the Company and William E. Cook (8)
10.22 Amendment No. 11 to Loan and Security Agreement between the
Company and Finova Capital Corporation, including exhibits (9)
10.23 Term Loan A Promissory Note between the Company and Finova
Capital Corporation (9)
10.24 Filed herein, Loan and Security Agreement dated as of June 2,
2000 with LaSalle Business Credit
24.08 Consent of KPMG dated August 14, 2000 filed herewith
27 Financial Data Schedule--April 30, 2000
(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 an Exhibit to the Company's Form 8-K filed May 2,
1997.
(3) Previously filed as an Exhibit to the Company's Proxy filed pursuant
to Regulation 14A on April 3, 1998
(4) Previously filed as an Exhibit to the Company's Form 10-KSB filed for
the fiscal year ended April 30, 1997.
(5) Previously filed as an Exhibit to the Company's Form 10-KSB filed for
the fiscal year ended April 30, 1998.
(6) Previously filed as an Exhibit to the Company's Form 8-K on August 27,
1998.
(7) Previously filed as an Exhibit to the Company's form 10-QSB on
December 15, 1998.
(8) Previously filed as an Exhibit to the Company's form 10-QSB on March
17, 1999.
(9) Previously filed as an Exhibit to the Company's form 10-QSB on
September 17, 1999.
27
<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, 2000
---------------
In accordance with the Exchange Act, this report has bee signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By /s/ David C. Anderson By /s/ William E. Cook
------------------------------ -------------------------------
(Signature and Title) (Signature and Title)
David C. Anderson William E. Cook
Chief Financial Officer Chairman of the Board
Date August 12, 2000 Date August 12, 2000
--------------- ---------------
By /s/ John E. Hart By: /s/ Edward S. Smith
---------------- ------------------------------
(Signature and Title) (Signature and Title)
John E. Hart Edward S. Smith
Director Director
Date August 12, 2000 Date August 12, 2000
--------------- ---------------
28
