SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 28, 1997
Commission file number 1-13656
OMNI MULTIMEDIA GROUP, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 04-2729490
(State of Organization) (I.R.S. Employer
Identification Number)
50 Howe Avenue
Millbury, Massachusetts 01527
(508) 581-1000
(Address, including zip code, and telephone number,
including area code, of issuer's principal
executive offices)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Number of Shares Outstanding
as of August 14, 1997
Common Stock, $.01 par value 10,119,211
OMNI MULTIMEDIA GROUP, INC.
INDEX
Part I. Financial Information.
Item 1. Financial Statements Page
Condensed Consolidated Balance Sheet -
as of March 29, 1997 (Audited) and June 29, 1997 (Unaudited) 2
Condensed Consolidated Statements of Operations (Unaudited)
for the three month period ended June 28, 1997 and June 29, 1996 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the three months ended June 28, 1997 and June 29, 1996 5
Notes to Condensed Consolidated Financial Statements 6
Basis of Presentation
Significant Events
Recently Enacted Accounting Pronouncements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Part II. Other Information. 10
Item 1. Legal Proceedings
[Not applicable.]
Item 2. Changes in Securities
[Not applicable.]
Item 3. Defaults Upon Senior Securities
[See Management Discussion and Analysis of Financial Condition
and Results of Operations.]
Item 4. Submission of Matters to a Vote of Security-Holders
[No matters have been submitted to a vote of security-holders during
the period covered by this report.]
Item 5. Other Information
[Not applicable.]
Item 6. Exhibits
Signatures 11-12
2
OMNI MULTIMEDIA GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
------
June 28, March 29,
1997 1996
(Unaudited) (Audited)
----------- -----------
Current Assets
Cash and cash equivalents $ 73,844 $ 1,039,664
Accounts receivable, net of
allowance for doubtful accounts
$ 470,000 for June 28, 1997
and $550,000 at March 29, 1997 4,158,498 3,232,047
Inventories 1,170,002 1,310,970
Prepaid expenses and other
current assets 672,183 710,477
Refundable incomes taxes -- --
----------- -----------
6,074,527 6,293,158
----------- -----------
Property and equipment, net 19,814,515 20,102,698
Due from related parties 490,409 482,807
Other assets, net 1,319,797 1,376,395
----------- -----------
$27,699,248 $28,255,058
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
3
OMNI MULTIMEDIA GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
June 28, March 29,
1997 1997
(Unaudited) (Audited)
----------- ---------
Current liabilities
Accounts payable $ 4,293,650 $ 3,697,552
Line of credit 2,603,202 1,797,321
Current portion of long-term debt
and capital lease obligations 16,078,966 14,797,900
Accrued expenses 1,922,872 1,611,855
----------- -----------
24,898,690 21,904,628
----------- -----------
Long-term debt -- 497,901
Capital lease obligations -- 267,685
----------- -----------
Stockholders' Equity
Convertible Preferred stock; $.01 par value;
1,000,000 shares authorized; 1050 shares of Series A
Preferred shares issued and 0 shares outstanding
Common Stock; $.01 par value;
14,000,000 shares authorized; 10,192,348
shares issued and outstanding at
June 28, 1997 and 10,119,211 shares issued
and outstanding at March 29, 1997 101,191 101,191
Additional paid-in-capital 20,821,691 20,821,691
Retained earnings (accumulated deficit) (18,122,324) (15,338,038)
----------- -----------
2,800,558 5,584,844
----------- -----------
$27,699,248 $28,255,058
=========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
4
OMNI MULTIMEDIA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 28, 1997 June 29, 1996
------------- -------------
<S> <C> <C>
Net sales $ 5,508,649 $ 2,432,189
Cost of goods sold 6,153,177 2,911,317
------------ ------------
Gross profit(loss) (644,528) (479,128)
Operating expenses
Selling 1,222,823 640,860
General and administrative 1,755,008 679,605
------------ ------------
2,977,831 1,320,465
Loss from operations (3,622,359) (1,799,593)
Other income 1,374,422 96,143
------------ ------------
(2,247,937) (1,703,450)
Other expenses, net
Interest expense 501,666 82,130
Other expense, net 34,683 34,424
------------ ------------
536,349 116,554
Loss before income taxes (2,784,286) (1,820,004)
Income tax provision -- --
------------ ------------
Net loss $ (2,784,286) $ (1,820,004)
Net loss per common shares and
equivalents
Primary $ (.27) $ (.47)
Fully diluted $ (.27) $ (.47)
Weighted average common shares
and equivalents outstanding
Primary 10,154,574 3,889,950
Fully diluted 10,192,348 3,889,950
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
OMNI MULTIMEDIA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 28,1997 June 29, 1996
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,784,286) $ (1,820,004)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,194,835 413,310
Provision for losses on accounts receivable 34,395 15,000
Gain on disposal of fixed assets -- (590)
(Increase) decrease in accounts receivable (960,846) 24,212
Decrease in inventories 140,968 87,359
Decrease in prepaid expenses and other
current assets 24,294 28,100
Increase in refundable income taxes -- (15,850)
(Increase) decrease in other assets 15,373 (71,663)
Increase (decrease) in accounts payable 709,778 (468,450)
Increase (decrease) in accrued expenses 311,017 (42,384)
Decrease in income taxes payable -- (190,063)
------------ ------------
Net cash used in operating activities (1,314,472) (2,041,023)
Cash flows from investing activities:
Expenditures for property and equipment (243,703) (3,806,076)
Proceeds from sale of fixed assets -- 18,100
------------ ------------
Net cash used in investing activities (243,703) (3,787,976)
Cash flows from financing activities:
Repayments on long-term borrowing
and capital lease obligations (205,924) (211,958)
Proceeds from long term borrowing -- 1,094,500
Advance (repayments) on revolving line
of credit, net 805,881 (455,714)
Decrease in subscription receivable -- 1,790,374
Proceeds from issuance of Convertible
Preferred Stock -- 9,381,962
Increase in due from related parties (7,602) (7,356)
Increase in debt issue costs -- (20,850)
------------ ------------
Net cash provided by financing activities 592,355 11,570,958
Increase (decrease) in cash and cash equivalents (965,820) 5,741,959
Cash and cash equivalents, beginning of period 1,039,664 5,706,822
------------ ------------
Cash and cash equivalents, end of period $73,844 $11,448,781
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
6
OMNI MULTIMEDIA GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of OMNI
MultiMedia Group, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete consolidated financial
statements.
In the opinion of management, all adjustments (consisting solely of normal
recurring adjustments) considered necessary for a fair statement of the interim
financial data have been included. Results of operations for the three month
periods ended June 28, 1997 are not necessarily indicative of the results that
may be expected for the fiscal year ending March 28, 1998.
For further information, refer to the consolidated financial statements and the
footnotes thereto for the year ended March 28, 1997, contained in the Company's
Annual Report on Form 10-KSB.
Net loss per share is computed based upon the weighted average number of common
and dilutive common equivalent shares outstanding during the period.
Note 2. Significant Events
Acquisitions. In October 1996, the Company purchased the assets of
Allenbach Industries, a California company with manufacturing facilities in San
Jose, California and Bloomington, Minnesota. In March 1997, the Company
purchased CSTM Corporation, a California company. Using the facilities and
manufacturing capabilities of Allenbach and the sales and marketing capability
of CSTM, as well as a customer base of approximately $8,000,000, the Company
planned to develop a strong West and Midwest market position. These entities
were forecast to achieve $18,000,000 in profitable sales for FY 1998. During the
first quarter of Fiscal 1998, the companies failed to achieve breakeven sales
levels forecasted by their management. This, combined with shortage of operating
funds caused by inability to raise additional capital in a timely manner, forced
the Company to close the West Coast facility at the end of June and sell the
Midwest facility effective July 5.
Allenbach and CSTM contributed approximately $1.8 million in sales and
approximately $1,000,000 in operating losses during the First Quarter of FY
1998. The Company recognized a $1.3 million gain on the write-down of unsecured
debt which was done to reflect the funds available after the liquidation of
assets and payment of secured creditors. The West Coast facility was totally
liquidated and the assets of the Midwest facility were sold for approximately
$35,000 with the Company retaining the receivables. The Company expects no
further write-offs for the elimination of these facilities other than a $175,000
reserve set up for contingencies and administration of receivables collection.
Seventy-five employees at the West Coast facility and 21 employees at the
Midwest facility were terminated.
Printing Facility. During the First Quarter of FY 1998, OMNI completed
a total upgrade of its in-house printing capability and brought this facility
online, bringing the majority of its printing in-house at costs management
believes will be lower than those being paid to outside vendors. Strong in-house
printing is a positive factor for a number of OMNI's clients.
7
Recently Enacted Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB")
issued statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share." In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The Company will implement SFAS No. 128 as required in its
next fiscal year and, at this time, the future adoption is not expected to have
a material effect on earnings per share. The Company will implement SFAS No. 130
and No. 131 as required in fiscal 1999 which require the Company to report and
display certain information related to comprehensive income and operating
segments.
Item 1. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
The following discussion and analysis should be read in conjunction with the
Condensed Consolidated Financial Statements of the Company (including the Notes
thereto) appearing elsewhere in this Report. This report contains
"forward-looking statements" regarding financial ond operating projections for
the Company within the meaning of the Private Securities Litigation Reform Act
of 1995, which statements can be identified by the use of forward-looking
terminology such as "may," "will," "would," "can," "could," "intend," "plan,"
"expect," "anticipate," "estimate," or "continue" or the negative thereof or
other variations thereon or comparable terminology. The following
forward-looking statements include certain risks and uncertainties that could
cause actual results to differ materially from those in such forward-looking
statements. Potential investors are urged to carefully consider the risks
associated with an investment in the Company's securities, including continuing
losses, working capital deficit, significant debt service and competition.
Three Months Ended June 28, 1997 ("First Quarter 1998") compared to
the Three Months Ended June 29, 1996 ("First Quarter 1997").
Net sales increased to $5,508,649 for First Quarter 1998, an increase of $
3,076,460 or 126% over net sales of $2,432,189 in First Quarter 1997. This sales
differential reflects the precipitous drop-off of the 3.5" floppy disk business
in First Quarter 1997 as compared to the growing OMNI compact disc replication
and fulfillment business in the First Quarter 1998. First Quarter 1998 sales
results also include approximately $230,000 of 4CDs Corporation online catalog
and encrypted CD-ROM sales. 4CDs was not significantly active in First Quarter
1997. Sales in First Quarter 1998 also reflect the CSTM and Allenbach
acquisitions. These companies contributed approximately $1.8 million in sales
during this quarter. Without sales from these now discontinued operations, sales
for the First Quarter 1998 would have been approximately $3,700,000 or an
increase of approximately 52%
Cost of goods sold in both periods exceeded sales revenues. In First Quarter
1997, there was a severe drop-off in sales without a proportionate reduction in
manufacturing costs. The manufacturing costs were not reduced in First Quarter
1997 as the staff was retained, and in fact increased, in preparation for an
accelerated program to bring the compact disc replication facility online. In
First Quarter 1998, manufacturing costs reflect large capital investment to
support compact disc replication and in-house printing as well as the necessary
technical staff to operate these areas. Due to a high percentage of fixed costs,
the manufacturing break-even level for OMNI in First Quarter 1998 was
approximately $7.2
8
million. It is anticipated that the elimination of the West and Midwest
operations will lower this threshold to approximately $5 million in the Second
Quarter of 1998 (assuming a similar product mix). Salary reductions and layoffs
implemented in July should reduce the break-even level by and additional $400K
for the Second Quarter of 1998.
Selling expenses in First Quarter 1998 of $1,222,823 were approximately $600,000
higher than in First Quarter 1997, reflecting the sales and marketing operations
of OMNI as well as the Midwest and West Coast facilities, which combined, had 16
sales people as well as the 4CDs operation which had stepped up its promotion
and advertising. Consolidating operations into the East Coast facility, combined
with a sales force reduction from 16 to 6 people as well as salary cuts and
reduced promotional expenses should lower selling expenses by $500,000 in the
Second Quarter of 1998.
General and administrative expenses of $1,755,008 exceeded the same period last
year by approximately $1.1 million, reflecting primarily the increased staffing
which accompanied the addition of the Midwest and West Coast facilities as well
as stepped-up auditing, legal, promotional and MIS support. The cost reduction
efforts and closing of facilities should reduce general and administrative
expenses by $500,000 in the Second Quarter of 1998.
The Company continues to have an accumulated deficit, a net working capital
deficiency, and is in arrears in payment of a number of its loans and capital
lease obligations in First Quarter 1998. The Company is actively addressing
these areas and is taking a number of steps to reduce operating losses and raise
capital. The Company believes that continuing increased sales levels with the
potential for profitability in the next few quarters and is pursuing the
following actions to achieve financial stability:
Achieve break-even levels of revenues. Management intends to grow revenues by
continuing to focus on building its customer base for CD-ROM replication
services through its remaining sales force of 6 people. In addition,
revenues from the Company's 4CDs electronic distribution services are
beginning to be realized. In First Quarter 1998, 4CDs revenues of $230,000
exceeded total revenues of FY 1997. The Company's revenues in July were
approximately $1.9 million, of which 4CDs contributed $350,000. Sales for
both OMNI and 4CDs are expected to continue to trend upwards, reaching
break-even or possible profitability depending on product mix, in
September, 1997. Should this sales trend continue, of which there can be no
assurance, management anticipates that the company will be profitable in
the last two quarters of FY 1998.
Cost reduction program. Management has implemented a cost reduction program,
which includes reductions in workforce (e.g. non-essential employees in the
print shop, packout and assembly areas) and salary decreases for all key
employees and further reductions in general and administrative expenses.
Management has also ceased operations in both the West and Midwest
facilities, which should reduce losses by approximately $800,000 per
quarter. Material costs had been reduced from 48% to 30% during First
Quarter 1998, reflecting full utilization of the facility, increased
pricing and broader product mix. This activity has reduced the expected
break-even sales range from the $3-3.5 million level to the $2-2.5 million
range.
Renegotiate capital equipment loans and leases. Management is currently
renegotiating with its various lenders to work out acceptable arrangements
for the continuance of its loan and lease agreements. The Company expects
cash flow to turn positive before interest and principal payments on its
fixed debts and currently anticipates that this can be achieved in the
Second Quarter of 1998. In such an event, the Company should be able to
resume interest and principal payments on its fixed debts in September,
1997. While it cannot be assumed that all of the Company's asset-
9
based lenders will cooperate until September, management believes that
sales growth and positive cash flow will greatly assist its efforts to
attain continued support from asset-based lenders.
Raiseadditional capital. The Company is seeking to obtain a new credit facility
which will allow it to restructure much of its debt and several equipment
leases. The Company is also seeking to raise additional equity capital. The
Company is currently negotiating with both lenders and sources of equity
financing. Continued sales growth, positive cash flow and demonstrated
progress toward profitability enhances the Company's chance of achieving
this goal.
Work out extended payment plans with trade creditors. If the Company achieves
break-even operating levels, it expects to be able to resume normal terms
with its vendors and arrange an extended plan to pay down over 90 day
payables.
Although the Company continues to receive support from its customers, as
evidenced by growing sales, and believes that these goals can be achieved, there
is no guarantee that this will happen. Should sales fall off or the operating
line of credit be suspended, or the capital equipment be repossessed, the
Company might be forced to seek protection under federal bankruptcy laws.
Liquidity and Capital Resources
The company remains critically short of operating cash due to continued losses.
During the First Quarter 1998, the Company sustained its operations by extending
payments to its vendors by approximately $2 million, deferring payments of
interest and principal to asset-based lenders of approximately $1.3 million, and
cash on-hand of approximately $1 million. The Company can only continue as long
as its line of credit against receivables and inventory is active in conjunction
with steadily increasing sales and continued deferment of principal and interest
on fixed debt and leases. The Company anticipates that it will begin to make
payments on fixed debt and interest in September, 1997, and should be in a
position to begin to reduce payables and deferred lease and note payments during
the Third Quarter 1998.
At June 28, 1997, the Company had total current assets of $6,074,527 and total
current liabilities of $24,898,690 including approximately $ 11.5 million of its
long term debt and equipment leases which have been reclassified as current
liabilites. Cash used in operating activities in First Quarter 1998 was $489,898
as compared to $2,041,023 in First Quarter 1997. Cash used in investing
activities was $243,703, all of which was for equipment expenditures, as
compared to $3,787,976 in First Quarter 1997, all of which was for expenditures
for property and equipment.
The Company has a $5 million credit facility with a lending institution
consisting of a term loan, an equipment expenditure facility and a revolving
line of credit, all of which are secured by substantially all of the assets of
the Company. At June 28, 1997, the amounts due under the credit facility were
$2,603,202 with no further sums available to borrow against under the formula
for borrowing. At June 28, 1997, the Company also had other long-term debt and
capital leases of $15,254,392 outstanding, used to fund equipment purchases and
secured by such equipment. Due to the Company's constrained cash position, the
Company is in default of payment on virtually all of its loans and capital lease
obligations and has received notices of default from four lessors. The Company
has been successful in obtaining agreements with virtually all of these lenders
and equipment lessors to defer payments for a short term. Approximately $11.5 of
debt and capital lease obligation have been reclassified from noncurrent to
current liabilities as a result of the defaults. If the Company is unable to
renegotiate the terms of their borrowings and capital lease obligations or to
obtain additional financing, the Company might be forced to seek protection
under federal bankruptcy laws.
10
Part II. Other Information.
Item 1. Legal Proceedings.
[Not applicable.]
Item 2. Changes in Securities.
[Not applicable.]
Item 3. Defaults upon Senior Securities.
[See Management Discussion and Analysis]
Item 4. Submission of Matters to a Vote of Security-Holders.
[No matters have been submitted to a vote of security-holders
during the period covered by this report.]
Item 5. Other Information.
[Not applicable.]
Item 6.
Exhibit 99a. Asset Purchase Agreement
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OMNI MULTIMEDIA GROUP, INC.
Date: August 14, 1997 By: /s/ Robert E. Lee
----------------------------------------
Robert E. Lee, Executive Vice President,
Treasurer, and Chief Financial Officer
12
EXHIBIT 99a
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered
into effective as of 12:01 a.m., Central Daylight Savings Time, on the 6th day
of July, 1997 (the "Effective Date") by and among Cycle Software Services, Inc.,
a Minnesota corporation (the "Company"); Omni Resources Corporation -- Midwest,
a Massachusetts corporation ("Midwest"); and Omni Multimedia Group, Inc., a
Delaware corporation ("Multimedia").
BACKGROUND
----------
Midwest desires to sell certain of its assets to the Company and the
Company desires to purchase such assets.
AGREEMENT
---------
In consideration of the foregoing premises and of the mutual agreements
hereinafter set forth, the Company, Midwest and Multimedia agree as follows:
1. SALE OF ASSETS. (a) Multimedia and Midwest hereby sell, contribute,
assign, transfer and deliver to the Company certain of Midwest's tangible and
intangible assets, properties and rights (the "Purchased Assets"), as described
in paragraphs (i) through (v) below (but excluding the Excluded Assets, as
defined in Section 2), free and clear of any lien, claim, or encumbrance of any
nature whatsoever, other than the Assumed Liabilities and a security interest
held by Finova Capital Corporation ("FINOVA"):
(i) Fixed Assets. All furniture, fixtures, equipment,
leasehold improvements and other fixed assets owned and used by Midwest and
located at its leased premises at 8711 Lyndale Avenue South, Bloomington,
Minnesota (the "Leased Premises").
(ii) Lease. Except as otherwise set forth herein, all of
Midwest's right, title and interest in and to the lease for the Leased Premises,
including any security and damage deposit related thereto (the "Lease").
(iii) Books and Records. All of Midwest's files, client
records, job records, archives, sales, supplier and operating records, vendor
lists and other records with respect to the Business (whether maintained in
printed copy or computer or electronic databases), including any software
related thereto, as well as copies of Midwest's employees' records for the
twelve (12) month period preceding the Closing Date and copies of personnel
files for Midwest's current employees.
(iv) Client List. All of Midwest's client lists, prospect
lists and other related records with respect to (whether maintained in printed
copy or computer or electronic data bases), including any related software.
(v) Inventory. All of Midwest's inventory, whether in the form
of raw materials, work in process or finished products (the `Inventory").
(b) The Purchased Assets are being purchased on an as is/where is basis
and ALL EXPRESS AND IMPLIED WARRANTIES, INCLUDING WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE, ARE HEREBY EXPRESSLY EXCLUDED AND
DISCLAIMED.
(c) The purchase price for the Purchased Assets (except for the
Inventory) shall be $15,000, which shall be paid on behalf of Midwest to FINOVA.
The Inventory is hereby transferred to the Company on a consignment basis. The
Company shall use its best efforts to sell or use the Inventory in a
commercially reasonable manner. In the event the Company uses any Inventory, it
shall pay to FINOVA on behalf of Midwest the book value of such Inventory. Any
amounts collected with respect to sales of Inventory shall be paid, on behalf of
Midwest and Multimedia, to FINOVA, with an accounting of such payments to
FINOVA, Midwest and Multimedia.
2. EXCLUDED ASSETS. Notwithstanding anything in this Agreement to the
contrary, the Purchased Assets shall not include any assets not specified in
Section 1 hereof, including without limitation the following assets of Midwest
(the "Excluded Assets"), which shall be retained by Midwest:
(a) Midwest's accounts receivable;
(b) Midwest's corporate minute books and stock records
and tax returns; and
(c) Midwest's intellectual property, including all
trademarks, trade names, including the name "Omni
Midwest," service marks, copyrights, drawings,
current and previous marketing material, portfolios
and other intellectual property owned or used by
Midwest.
3. ASSUMPTION OF LIABILITIES. Subject to the representations and
warranties provided in this Agreement, the Company shall assume the liabilities,
duties and obligations of Midwest arising under the Lease; provided, however,
that Midwest shall retain and be responsible for (a) any liabilities or
obligations arising under the Lease relating to events occurring prior to the
Effective Date and (b) unpaid real estate taxes in the amount of $14,299.17 (and
any penalties or late charges relating thereto), which Midwest shall pay by
August 1, 1997. The Company shall offer employment to all of Midwest employees
(except for Beth Bergeth, who shall be terminated by Midwest), shall credit such
employees with all accrued vacation earned in connection with their employment
by Midwest as of the Effective Date and shall be responsible for their salaries
and benefits (excluding medical insurance) commencing on the Effective Date.
Midwest shall be responsible for any obligations arising out of the termination
of Ms. Bergeth. The obligations of the Company set forth in this Section 3 are
hereinafter referred to as the "Assumed Liabilities."
4. LIABILITIES EXCLUDED. Except for the liabilities assumed in Section
3, the Company is not assuming and shall not be liable for any claims, potential
claims, liabilities, debts or obligations (contractual or otherwise) of Midwest
or Multimedia of any kind, whether now existing or hereafter arising, whether
accrued or contingent, including, without limitation, the following: (i) claims,
potential claims, obligations, debts and liabilities arising directly or
indirectly from or in connection with the operation of the Business on or before
the Effective Date, including, without limitation, any claims, potential claims,
obligations, debts, liabilities or expenses arising directly or indirectly from
or in connection with any of Midwest's projects completed prior to the Effective
Date; (ii) claims, potential claims and liabilities arising directly or
indirectly from
or in connection with the Lease prior to the Effective Date; (iii) obligations,
debts and liabilities arising directly or indirectly from or in connection with
any breach or default by Midwest or Multimedia with respect to obligations to
third parties arising from the consummation of the transactions contemplated
herein; (vi) obligations, debts and liabilities arising directly or indirectly
from or in connection with any acts or omissions of Midwest or Multimedia,
whether occurring before, on, or after the Effective Date; (vii) obligations,
debts and liabilities arising directly or indirectly from or in connection with
any liability or obligation of Midwest in respect of any state, local, federal
or foreign taxes (whether in the nature of income, transfer, sales, withholding,
employee, excise, property, customs, gross receipts, special assessments or
other taxes or duties of any kind whatsoever) or penalties, interest or fines in
respect thereof, or any reporting requirement or estimated tax payable with
respect thereto; (viii) claims, potential claims, obligations, debts and
liabilities arising directly or indirectly from or in connection with any
litigation, investigation or other proceeding pending or threatened in respect
of Midwest or Multimedia on or prior to the Effective Date or subsequently
asserted which is attributable to facts existing, events or omissions occurring
or projects completed by Midwest or Multimedia or their affiliates prior to the
Effective Date; (ix) obligations, debts and liabilities arising directly or
indirectly from or in connection with any liability or obligation to any party
under any Midwest employee benefit plan; and (x) obligations, debts and
liabilities arising directly or indirectly from or in connection with any
liability or obligation of Midwest to any employee or former employee of Midwest
for periods on or prior to the Effective Date, whether under an employment
contract or for unpaid or accrued salary, severance pay, termination pay,
pensions, bonuses or otherwise, but only to the extent such obligations are not
being assumed by the Company hereunder.
As used in this Section 4, "claims" shall mean demands against Midwest
by Midwest's clients or others for money or equitable relief, including, but not
limited to, lawsuits or arbitrations in which Midwest is a party and all events
or circumstances of which Midwest has notified its insurers. As used in this
Section 4, "potential claims" shall mean circumstances of
which Midwest is or should be aware and which may give rise to a claim by
Midwest's clients or others against Midwest or Midwest's employees or
consultants.
5. MIDWEST'S REPRESENTATIONS AND WARRANTIES. In order to induce the
Company to enter into this Agreement and to consummate the transactions
contemplated herein, Midwest hereby makes the representations and warranties to
the Company set forth below. As used throughout this Agreement, the term
"knowledge" and the phrase "should have knowledge" shall mean as known to
Midwest, its directors, officers and principals, as the case may be, after
reasonable inquiry and investigation by Midwest, its directors, officers, and
principals, as the case may be.
(a) Clear Title. Midwest has full right, title and interest in
and to the Purchased Assets and the unrestricted right and authority to
contribute, assign, transfer and deliver all of the Purchased Assets in
accordance with the terms of this Agreement. All of the Purchased Assets are
free and clear of all security interests, liens, pledges, mortgages, conditional
sales contracts, lessors' interests (other than the Lease), attachments,
judgments, claims, easements and other encumbrances of every kind and nature,
except for a security interest held by FINOVA.
(b) Contractual Commitments. There are no written or oral
commitments, contracts or agreements to which Midwest or Multimedia is a party
or by which any of them is bound that will be binding upon or otherwise affect
the Company or the Purchased Assets.
(c) Litigation. There is no action, suit, claim, litigation,
investigation, proceeding or controversy in any court or any arbitration or
other proceeding before any arbitrator or public commission, bureau, board or
agency pending, or, to the best knowledge of Midwest, threatened by or against
Midwest. There is no judgment, order, writ, stipulation, award or injunction
enjoining Midwest in the conduct of its business or any decree of any court or
governmental agency adversely affecting the operation of its business.
(d) Midwest's Employees. Midwest has no written or oral
agreement with any employee that is not terminable by Midwest upon not more than
30 days' written notice without
payment of any additional consideration. No unfair labor practice, equal
opportunity complaint, wage and hour complaint, OSHA, or other alleged
employment-, health- or safety-related or health violation is pending or, to the
best knowledge of Midwest, threatened against Midwest.
(e) Incorporation, Legal Capacity, and Authority. Midwest is
duly organized, validly existing and in good standing under the laws of the
State of Minnesota. Midwest is qualified to do business in any states where it
is required to qualify to transact business, except where the failure to qualify
would not have a material adverse effect on Midwest.
(f) Authorization. This Agreement and the transactions
provided for hereunder have been duly authorized by all necessary corporate
action of Midwest and Multimedia, and this Agreement constitutes the valid and
legally binding obligation of Midwest and Multimedia, enforceable against each
in accordance with its terms. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated by this
Agreement, will violate any provision of Midwest's articles of incorporation,
by-laws or any provision of any agreement, indenture, instrument, order,
judgment or decree to which Midwest or Multimedia is a party or by which any one
or more of them is bound.
(g) No Disputes. Midwest has no material disputes with any of
its creditors or employees.
(h) Taxes. Midwest has duly filed all reports and returns
required to be filed on or before the Effective Date with respect to sales and
use taxes, and all sales and use taxes due and payable in connection with
Midwest's business up to the Effective Date have been or will be paid when
required to be paid.
(i) Ownership of Midwest. Multimedia owns 100 percent of the
outstanding common stock of Midwest and no other rights to or interests in
Midwest common stock exist or are outstanding.
(k) No Brokers. Midwest and Multimedia have no contractual
commitments with, or are required to pay to, any broker or finder any commission
or fee in connection with the consummation of the transactions contemplated in
this Agreement.
6. THE COMPANY'S REPRESENTATIONS AND WARRANTIES. In order to induce
Midwest and Multimedia to enter into this Agreement and to consummate the
transaction contemplated herein, the Company makes the representations and
warranties set forth below.
(a) Organization. The Company is duly organized, validly
existing, and in good standing under the laws of the State of Minnesota. The
Company is qualified to do business in all states where it is required to
qualify to transact business, except where the failure to qualify would not have
a material adverse effect on the Company. To the best of the Company's
knowledge, no consent, approval, or order of, no registration, filing, or
qualification with, and no application or notice to any third party is required
in order to consummate the transactions contemplated in this Agreement.
(b) Authorization. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated by this
Agreement, or violate any provision of the Company's Articles of Incorporation,
Bylaws or any provision of any agreement, indenture, instrument, order, judgment
or decree to which the Company is a party or by which it is bound.
(c) Litigation. There is no action, suit, claim, litigation,
investigation, proceeding or controversy in any court or any arbitration or
other proceeding before any arbitrator or public commission, bureau, board or
agency pending, or, to the best knowledge of the Company, threatened by or
against the Company. There is no judgment, order, writ, stipulation, award or
injunction enjoining the Company in the conduct of its business or any decree of
any court or governmental agency adversely affecting the operation of its
business.
(d) No Brokers. The Company has no contractual commitments
with, or is required to pay to, any broker or finder any commission or fee in
connection with the consummation of the transactions contemplated in this
Agreement.
7. COVENANTS OF THE PARTIES.
(a) Medical Coverage. Midwest shall offer COBRA medical
coverage to its employees through August 31, 1997, at the employees' cost.
(b) Accounts Receivable. The Company shall use its standard
and customary efforts to collect on behalf of, and as agent for, Midwest the
accounts receivable outstanding as of the Effective Date and shall promptly pay
to FINOVA, on behalf of Midwest and Multimedia, any amounts so collected, with
an accounting of such payments to FINOVA, Midwest and Multimedia. Midwest hereby
constitutes the Company the true and lawful attorney of Midwest for ninety days
from the date hereof, to demand and receive payments with respect to such
accounts receivable and to give receipts in respect of the same and to assert or
enforce any claim, right or title of Midwest with respect to said accounts
receivable. The Company shall not compromise or settle any unpaid receivable
without the prior consent of Midwest. At the expiration of such ninety day
period, the Company shall assign to Midwest, at Midwest's option, any receivable
which has not been fully collected.
(c) Preservation of Records. Midwest will, for a period of
three years after the Effective Date, maintain and keep copies of any books and
records that have been retained by Midwest in the ordinary course and relate to
its business and its operations prior to the Effective Date, and will permit the
Company or its duly authorized officers, agents or employees, to examine any
such books and records upon prior notice, at reasonable times.
(d) Further Assurance. For the better assuring and confirming
in the Company of its rights in and title to the Purchased Assets, Midwest and
Multimedia shall execute and deliver or cause to be executed and delivered all
such further bills of sale, assignments, powers of attorney and assurances as
the Company shall reasonably request. Midwest and Multimedia agree that they
will not (and will cause Omni Resources Corporation - Midwest not to) take any
action detrimental or adverse to the Company in connection with their rights,
pursuant to a Letter Agreement with FINOVA, dated February 7, 1997, to purchase
or obtain any assignment of amounts owed to FINOVA, or to enforce the same
against the Company.
8. CONDITIONS TO CLOSING.
It shall be a condition to the Company's obligation to execute and
close this Agreement that FINOVA consent to this transaction and agree to
release its security interest in the Purchased
Assets (other than the Inventory and proceeds therefrom), in a manner
satisfactory to the Company and to permit the sale of the Inventory in the
normal and ordinary course. It shall be a condition to Midwest's and
Multimedia's obligation to execute and close this Agreement that they be
released from obligations under the Lease (except as set forth in Section 3(b)
hereof) in a manner satisfactory to them.
9. INDEMNIFICATION.
(a) Indemnity for Damages. The Company shall indemnify, defend
and hold Midwest and Multimedia, their affiliates, directors and officers and
each of their successors and assigns, harmless in respect of any Damages (as
hereinafter defined) incurred by such parties; and Midwest and Multimedia,
jointly and severally, shall indemnify, defend and hold the Company, its
affiliates, directors and officers, and each of their successors and assigns,
harmless in respect of any Damages incurred by such parties.
(b) Definition of Damages. "Damages" as used in this Section
12 shall mean any claim, loss, cost, expense, liability, fine, penalty,
interest, payment or damage (including reasonable attorneys' fees, accountants'
fees, and any cost of litigation, negotiation, settlement, or appeal):
(i) incurred by the Company, its shareholders, its
affiliates, directors or officers, or their successors or assigns, resulting or
arising from or in connection with (A) the breach of any of the representations
or warranties made by Midwest; (B) the breach or the failure of performance by
Midwest or Multimedia of any of the covenants required to be performed by them
hereunder; (C) other than the Assumed Liabilities, any liability arising from or
in connection with the operation of the Midwest's business on or prior to the
Effective Date; or (D) the Excluded Assets or any obligation, debt, or other
liability of Midwest, of any nature whatsoever, not expressly assumed by the
Company pursuant hereto; provided, however, that Midwest and Multimedia shall
not be liable for any amounts in excess of $20,000 in the aggregate with respect
to any Damages arising from subsection (i)(A).
(ii) incurred by Midwest, Multimedia, their
affiliates, their directors or officers or their successors or assigns resulting
or arising from or in connection with (A) the breach of any of the
representations or warranties made by the Company in this Agreement; (B) the
breach or failure of performance by the Company of any of the covenants required
to be performed by the Company hereunder, including but not limited to, any
failure to pay amounts due Midwest under this Agreement or any failure to
assume, pay, discharge, or perform any of the Assumed Liabilities; or (C) any
liability arising exclusively from the use of the Purchased Assets after the
Effective Date.
(c) Definition of Affiliates. The term "Affiliate" of the
Company, Midwest or Multimedia shall mean any person directly or indirectly
controlling, controlled by, or under common control with, the Company, Midwest
or Multimedia, as the case may be.
10. EXPENSES. The Company, Midwest and Multimedia shall each pay their
respective costs and expenses, including, without limitation, attorney and
accounting fees, incurred or to be incurred by them in negotiating and preparing
this Agreement and in closing and carrying out the transactions contemplated by
this Agreement.
11. MISCELLANEOUS.
(a) Entire Agreement. This Agreement supersedes all other
agreements and understandings among the parties, either oral or written,
constitutes the entire agreement of the parties with respect to the subject
matter hereof, and shall be amended only by an instrument in writing executed by
all parties.
(b) Binding Effect. This Agreement and the covenants herein
contained shall be binding upon, and inure to the benefit of, the parties hereto
and their respective successors, assigns, and legal representatives.
(c) Notices. Any notices hereunder shall be deemed given when
personally delivered in writing, when dispatched via overnight courier or when
mailed as described below, and shall be deemed received when personally
delivered in writing, twenty-four (24) hours after being sent via overnight
express courier, or seventy-two (72) hours after it has been deposited in
the United States Mail, registered or certified, postage prepaid, properly
addressed to the party to whom it is intended at the address set forth below or
at such other address to which notice is given in accordance herewith:
(i) In the case of the Company, to:
6552 Edenvale Boulevard
Eden Prairie, Minnesota 55346
Attn: David H. Littlefield
With a copy to:
Mark S. Weitz, Esq.
Leonard, Street and Deinard, P.A.
150 South Fifth Street, Suite 2300
Minneapolis, Minnesota 55402
(ii) In the case of Midwest and Multimedia:
Omni Multimedia Group, Inc.
50 Howe Avenue
Milbury, Massachusetts 01527
Attn: Robert E. Lee
Executive Vice President
With a copy to:
Richard Wise, Esq.
Gordon & Wise
101 Federal Street, 17th Floor
Boston, MA 02110
(d) Specific Performance. In addition to any other remedies
the parties may have under this Agreement or at law or equity, the parties
acknowledge that the Purchased Assets are unique and that a party may have no
adequate remedy at law if the other party shall fail to perform any of its
obligations hereunder. In such event, such party shall have the right, in
addition to any other rights it may have under this Agreement or under law, to
specific performance of this Agreement plus costs and attorneys fees.
(e) Paragraph and Subparagraph Headings, Etc. Paragraph and
subparagraph headings throughout this Agreement are for the convenience of the
parties and do not constitute a part of this Agreement. Personal pronouns shall
be deemed masculine, feminine or neuter, singular or plural, as the context
requires.
(f) Governing Law. This Agreement shall be governed by the
laws of the State of Minnesota.
(g) Counterparts. This Agreement may be executed in several
counterparts, including execution by facsimile counterparts, each of which shall
be deemed an original but all of which counterparts collectively shall
constitute one instrument representing the Agreement among the parties.
(h) Further Assurances. Each party agrees to execute and
deliver, or cause to be executed and delivered, all instruments, certificates,
and documents, and to take all such other actions, as the other party to this
Agreement may reasonably request from time to time in order to effectuate the
purpose and intent of this Agreement.
(i) Survival of Representations and Warranties. Each of the
representations and warranties of the parties contained in this Agreement shall
survive the Closing.
(j) Third Party Beneficiary. FINOVA shall be a third party beneficiary
of, and shall be entitled to enforce, the Company's obligations as set forth in
Sections 1(c) and 7(b) hereof.
SIGNATURES:
CYCLE SOFTWARE SERVICES, INC.
By_______________________________
Its_____________________________
OMNI RESOURCES CORPORATION -- MIDWEST
By_______________________________
Its_____________________________
OMNI MULTIMEDIA GROUP, INC.
By_______________________________
Its___
EXHIBIT 11
----------
COMPUTATION OF PER SHARE EARNINGS
OMNI MULTIMEDIA GROUP, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 28, December 30, December 28, December 30,
1996 1995 1996 1995
------ ------ ------ -----
<S> <C> <C> <C> <C>
Net income(loss) $ (3,465,321) $ 384,268 $ (8,110,318) $ 408,799
Primary weighted common
shares outstanding:
Common Stock 7,815,740 2,751,500 5,246,307 2,667,167
Stock options -- (1) 64,651 -- (1) 49,905
Stock warrants -- (1) 141,055 -- (1) 39,902
----------- ----------- --------------
Primary weighted average
shares 7,815,740 2,957,206 5,246,307 2,756,974
=========== =========== ============== ============
Primary net income (loss)
per share ($ 0.44) 0.13 ($ 1.55) $ 0.15
=========== =========== ============== ============
Fully diluted weighted common shares outstanding:
Common Stock 7,815,740 2,751,500 5,246.307 2,667,167
Stock Options --(1) 64,651 --(1) 49,905
Stock Warrants --(1) 141,055 --(1) 39,902
Shares attributable
to Preferred Stock
converted using the
if converted method 1,628,736 -- 3,251,842 --
------------ ------------ ------------- ------------
Fully diluted weighted
average shares 9,444,476 2,957,206 8,498,149 2,756,974
============ ============ ============= ============
Fully diluted net income
(loss) per share ($ 0.37) $ 0.13 ($ 0.95) $ 0.15
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AT DECEMBER 28, 1996 AND THE COMPANY'S STATEMENT OF
OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 28, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-29-1997
<PERIOD-END> DEC-28-1996
<CASH> 5,209,426
<SECURITIES> 0
<RECEIVABLES> 3,381,729
<ALLOWANCES> 250,000
<INVENTORY> 1,299,909
<CURRENT-ASSETS> 10,584,453
<PP&E> 24,762,089
<DEPRECIATION> 3,795,826
<TOTAL-ASSETS> 33,663,409
<CURRENT-LIABILITIES> 7,625,164
<BONDS> 0
0
1
<COMMON> 38,909
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 33,663,409
<SALES> 4,009,797
<TOTAL-REVENUES> 4,009,797
<CGS> 4,402,877
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 234,350
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 439,024
<INCOME-PRETAX> (3,465,321)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,465,321)
<EPS-PRIMARY> (0.44)
<EPS-DILUTED> (0.37)
</TABLE>
