U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2003
COMMISSION FILE NUMBER: 0-17493
OMNI U.S.A., INC.
(Name of Registrant)
NEVADA 88-0237223
------------------------ ---------------------------------
(State of Incorporation) (IRS Employer Identification No.)
7502 MESA ROAD, HOUSTON, TEXAS 77028
(Address of principal executive offices)
Issuer's telephone number: (713) 635-6331
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK $.004995 PAR VALUE
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(g) of the Securities Exchange Act of 1934 during the past 12
months, and (2) has been subject to such filing requirements for the past 90
days.
YES [X] NO [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulations S-B contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form, 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year were $ 19,963,387.
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of September 22, 2003 was approximately $1,350,000 based on
quoted sales on the Over The Counter (OTC) Bulletin Board on such date.
The number of shares of the Registrant's common stock outstanding as of
September 22, 2003 was 1,171,812.
1
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Overview
History of the Company. Omni U.S.A., Inc. (the "Company"), a Nevada
corporation, through its wholly-owned subsidiary, Omni U.S.A., Inc., a
Washington corporation ("Omni-Washington") and Omni-Washington's wholly-owned
subsidiary, Omni Resources, Ltd., a Hong Kong company ("Omni Resources"),
through its wholly-owned manufacturing facility, Shanghai Omni Gear Co., Ltd.
("Shanghai Omni Gear"), designs, develops, manufactures and distributes power
transmissions (also known as "gearboxes" or "enclosed geardrives") for use in
agricultural, industrial, "off-highway" and construction equipment. The Company,
through another wholly-owned subsidiary, Butler Products Corporation, designs,
develops, manufactures and distributes trailer and implement jacks and couplers,
which include light and heavy-duty jacks and couplers used in a variety of
trailers. The Company's products are distributed to original equipment
manufacturers and distributors in North America and in several foreign countries
including Argentina, Australia, Brazil, Canada, France, Mexico, New Zealand,
South Africa and Thailand. The Company began procuring the manufacture of its
products by Chinese manufacturers in China in 1980, and since 1986 substantially
all of its geardrives have been manufactured in China; 30% of its trailer and
implement products are manufactured in China and approximately 70% of its
trailer and implement products are manufactured in the United States.
Omni-Washington, the Company's primary operating subsidiary, was
incorporated in 1961 and in 1974, began distributing power transmissions in the
U.S., and later established Omni Resources to distribute its products in certain
foreign markets. In 1988, Omni-Washington acquired the outstanding minority
ownership interest in Omni Resources and thereafter operated it as a wholly
owned subsidiary.
Effective July 1, 1988, Ed Daniel, the then sole shareholder, exchanged
all of the outstanding stock of Omni-Washington for 6,650,000 shares of voting
Common Stock of Triste Corporation, a Nevada corporation incorporated in 1988
("Triste"), giving him a 42.5% interest in Triste. Triste thereafter changed its
name to Omni U.S.A., Inc. ("Omni" or the "Company").
In December 1994, Omni Resources formed Shanghai Omni Gear, a
Cooperative Joint Venture Limited Liability Company (the "Joint Venture"), with
a Chinese manufacturing company that owns a multi-building manufacturing complex
in Shanghai for the purpose of manufacturing planetary and industrial
geardrives.
The Articles of Association of the Joint Venture provide that each
joint venturer's liability for the obligations of the Joint Venture is limited
to such joint venturer's investment. The Joint Venture has a thirty-year term,
which can be extended for an additional ten years by consent of the joint
venturers. The Joint Venture may be liquidated in the event of either party's
failure to perform its obligations under the Joint Venture Agreement. Shanghai
Omni Gear manufactures the Company's planetary and helical geardrive product
lines. The facility is being used for assembly of planetary drives, helical
geardrives and inspection of drives produced in other Chinese manufacturing
facilities.
Shanghai Omni Gear was formed in accordance with the Law of the
People's Republic of China on Cooperative Joint Ventures, and its activities are
governed by all laws, decrees, rules and regulations of the People's Republic of
China, including, but not limited to, labor and employment, tax, foreign
exchange and insurance laws and regulations. Shanghai Omni Gear is obligated to
contribute five percent of its after-tax profits per year, up to a maximum of
50% of the registered capital of the Company (or $1,312,500) to a reserve
enterprise development and welfare fund for staff and workers.
The Chinese manufacturer contributed to the Joint Venture the use of
land and factory space in its manufacturing complex under a 30-year facilities
lease; Omni Resources agreed to contribute an aggregate of $2,625,000 in working
capital, leasehold improvements, machinery and other assets required to
establish a fully operational manufacturing facility, and, as of the date
hereof, has contributed approximately $3,270,000 to the Joint Venture. Omni
Resources controls Shanghai Omni Gear, as it appoints a majority of Shanghai
Omni Gear's Board of Directors and also appoints the General Manager of the
Joint Venture. The Chinese manufacturer has a single representative on Shanghai
Omni Gear's Board of Directors and does not participate in the profits of
Shanghai Omni Gear; its only return from Shanghai Omni Gear being a rental fee
from the facilities lease.
2
On October 1, 1996, the Company acquired 100% of the common stock of
Butler Products Corporation ("Butler"). Consideration paid to the shareholders
of Butler included $225,000 in cash, $500,000 in junior subordinated notes.
Located in Butler, Kentucky, Butler is a long-standing manufacturer of jack and
trailer products typically sold to manufacturers and distributors of heavy-duty
trailers.
Commencing July 1, 1997, all towing products designed, developed,
manufactured and sold by the Company are marketed under the "Butler" name and
associated trademarks; all power transmission products designed, developed,
manufactured and sold by the Company are marketed under the "Omni Gear" name and
associated trademarks.
On July 16, 1999, Butler acquired the assets of Piecemaker, Inc.
("Piecemaker"), a manufacturer of horse, agricultural and utility trailer
components located in Madill, Oklahoma. Subsequent to the Piecemaker
acquisition, Butler consolidated its small jack and coupler manufacturing
facilities with that of Piecemaker in Madill, OK. During fiscal year 2003,
Piecemaker divested itself of approximately $253,000 in inventory held for
resale but not manufactured by Piecemaker.
On June 14, 2001, the Company effected a reduction in the number of
authorized shares of common stock and a corresponding one-for-three reverse
stock split of its common stock at a special meeting of the Board of Directors.
In addition, all holders of options or warrants to purchase future shares of the
Company's common stock were reduced on an equal basis of three to one. The par
value of the common stock was unchanged. The move was initiated to raise the
Company's share price above the $1.00 minimum level, which would enable Omni's
stock to meet the requirements and continue to trade on the NADSAQ SmallCap
Market.
On June 7, 2002, June 19, 2002 and September 10, 2002, the Company
received notification from NASDAQ that the Company's stock would be removed from
the NASDAQ listing as Omni's share price had fallen below the minimum required
ask price of $1.00 per share and as the Company's Minimum Value of Publicly Held
Securities had fallen below the minimum of $1,200,000. As of November 12, 2002
the Company is no longer listed on the NASDAQ exchange and is currently listed
and traded on the Over the Counter (OTC) Bulletin Board.
Since the Company began selling power transmission products in 1974, it
has achieved a number of competitive advantages including:
(i) Strong customer relationships and a reputation for quality
products at a good value;
(ii) Recognition as the low cost producer in the industry resulting
from the Company's extensive Chinese manufacturing capability
with Chinese contract manufacturers and with Shanghai Omni Gear;
(iii) Substantial market penetration in the agricultural implement
market with right-angle gear boxes;
(iv) Reputation for responsive customer service;
(v) Recognition for design innovation in response to customers
needs; and
(vi) The accumulation of a substantial body of technical and industry
specific knowledge.
The Company plans to build on this base of strategic advantages in its
attempt to achieve growth in both sales and profits in the power transmission
segment. To achieve this objective the Company has developed a growth strategy
encompassing the following:
(i) Expand market share in the planetary and industrial markets for
power transmission components;
(ii) Continued improvement in operating efficiencies in Shanghai Omni
Gear;
(iii) New product innovation and development; and
(iv) Evaluate new business opportunities, asset acquisitions and
potential sales that maximize shareholder value and benefit the
Company.
Products
3
OMNI GEAR
Power Transmission Components. Power transmissions (also known as
"enclosed geardrives" or "gearboxes") are configurations of gears enclosed in a
housing or casing that transfer or transmit power from one point to another.
Omni Gear currently distributes a standard product line of over 300,000 gearbox
configurations. As a percentage of revenues, Omni Gear's power transmission
components are its most significant product, representing 83% and 79% of the
Company's revenues in fiscal years 2003 and 2002.
Although Omni Gear distributes power transmissions for numerous
applications and purposes, the majority of its sales revenues are derived from
sales of power transmission components manufactured for three distinct
applications:
Agricultural equipment. Omni Gear distributes power transmissions for
tractor powered implements with capacities ranging from 3 to 300
horsepower for use in agricultural equipment, including post hole
diggers, which are accessories attached to tractors used to dig post
holes for fencing and tree planting; rotary cutters, which are large,
heavy-duty mowers for use in agriculture and highway right-of-way and
recreational area maintenance; grain augers, which convey grain to the
top of grain silos; and geardrives for fertilizer spreader and
roto-tiller applications.
Irrigation systems. Omni Gear distributes right-angle gearboxes for
vertical turbine pumps and electro-mechanical drivetrain components for
mechanized irrigation. Omni Gear supplies both helical gear and worm
gear primary drive units, some of which are integrated with electric
motors, as well as worm gear and planetary gear final drives.
Construction, mobile off-highway, industrial and utility equipment.
Omni Gear distributes planetary drive power transmissions for use in
construction, mobile off-highway (which includes a wide variety of
equipment designed for use in rugged terrain, construction sites, or
undeveloped areas), industrial, and utility equipment, such as
four-wheel drive forklifts, skid steer loaders, telephone and power
cable installation and replacement equipment, road rollers and dirt
compactors. Planetary geardrives utilize more complex configurations of
gears and are used in applications where transmission of high torque at
low speeds is needed. Omni Gear believes that it can expand its share
of the market of planetary drives, and Omni Gear's goal of increased
production of these products was a primary factor in the Company's
decision to establish a manufacturing facility in China.
BUTLER
Trailer and Implement Components. Butler manufactures a wide variety of
jacks with capacities ranging from 1,000 lbs. to 220,000 lbs. These
jacks are used to level and lift various trailers, agricultural
implements and equipment for recreational, utility, construction,
agricultural and trucking industries as well as for military
applications. Butler's products include heavy-duty implement jacks,
spring return jacks, stabilizing jacks and wheel chocks for
semi-trailers, a series of high density polyethylene lubricating plates
for the trucking industry and a complete line of bumper-pull and
gooseneck couplers for trailers with gross weights up to 30,000 lbs.
Butler's Oklahoma facility manufactures component parts for horse,
livestock and utility trailers. Their products include greaseable gate
and hinge sleeves, back gate handles and extensions, roller pin
assemblies, spring loaded latches, butt bars and plates, hinge
assemblies and roof bows. As a percentage of revenues, trailer and
implement component sales represented 17% and 21% of the Company's net
sales in fiscal years 2003 and 2002.
New Products. The Company continues to improve its products and expand
product application. Currently, the Company is designing gearboxes to expand its
agricultural, universal, bevel, irrigation, planetary, commercial turf and
mobile utility geardrive product lines and Butler product lines.
Product Manufacturing
Current Manufacturing Arrangements. A majority of the Company's
geardrives are assembled incorporating raw materials and components manufactured
or produced in China by four manufacturers, some of whom the Company has been
doing business with since 1980. The Company believes that these manufacturers
can be relied upon to provide a reliable source of quality manufactured goods
for the foreseeable future. The Company and certain manufacturers have from time
to time memorialized their working relationships in written memoranda. In the
Company's experience, business relationships in China are not established and
are not governed by written agreements of contract, and the Chinese legal system
is not
4
sufficiently developed to provide for the enforcement of contracts or remedies
to an aggrieved party in the event of a breach of contract. Rather, business in
China is conducted primarily upon the basis of personal relationships among the
parties, and commercial disputes are resolved almost entirely through
negotiation. The Company believes that it has established solid working
relationships with these factories. These relationships are and will continue to
be critical to the Company's ability to obtain quality manufactured products on
acceptable terms.
The Company owns a 35,000 square foot facility in Butler, Kentucky
where all jacks from 10,000 lbs. to 220,000 lbs. capacities are manufactured.
The light-duty jacks and bumper pull and gooseneck couplers are manufactured in
China in accordance with Butler's quality specifications, as are certain
components of its coupler line which are assembled at Butler's 20,000 sq. ft.
leased facility in Madill, OK.
Availability of Raw Materials and Components. Product components and
raw materials are currently purchased from numerous suppliers in the U.S. and
China, selected by the Company on the basis of available production capacity,
reputation for quality, and relative costs. The Company believes that there are
sufficient supplies of raw materials and components in China to meet its needs
for the foreseeable future, and the Company's suppliers have generally been able
to meet the Company's specifications and schedules. However, in the few
instances in which resources of sufficient quality have not been available in
China, the Company has generally encountered little difficulty in locating
substitutes outside China and importing them for production. Based on the number
of potential suppliers in China, the Company does not believe that the loss of
any supplier would have a material adverse effect on the Company.
Manufacturing Capacity. At this time, the Company has the ability to
expand its Shanghai Omni Gear facility to accommodate customer demand. The
contract manufacturers it currently employs possess sufficient excess capacity
to meet the Company's production requirements for the foreseeable future. Based
on the number of potential manufacturers in China and excess capacity of
manufacturers currently used, the Company does not believe that the loss of
services of any single manufacturer would have a material adverse effect on the
Company.
Distribution, Sales and Marketing
Distribution. The Company distributes its products primarily to
original equipment manufacturers and distributors. Customers with limited
requirements, and most of the Company's North American customers, typically
purchase Omni Gear product from inventories. Omni Resources, including Shanghai
Omni Gear, on the other hand, ships parallel shaft and planetary geardrive
products, marketed under Omni Gear, directly from the factory to U.S. customers
and foreign customers located primarily in Australia, Europe, South America and
Japan, or to other customers that purchase entire containers or production runs
of Omni Gear products. Butler distributes its products to after-market
distributors, trailer OEMs and export brokers. All products are shipped from
Butler's manufacturing facility in Butler, Kentucky or from Butler's facility in
Madill, Oklahoma. Sales are divided between Omni Gear, Omni Resources, and
Butler based on product line, location of the customer and size of the orders,
with the majority of the sales to customers in the United States.
On October 3, 1994, the Company and its subsidiaries signed an
exclusive ten-year distribution agreement (the "Distribution Agreement") with
the Braden Winch division of PACCAR Inc. ("PACCAR"), an international
manufacturer, marketer and distribution of winches and planetary geardrives
located in Broken Arrow, Oklahoma. The Distribution Agreement was modified and
amended on September 9, 1999. The amendment extended the Distribution Agreement
to 2014. Under the terms of the Distribution Agreement, PACCAR will market and
distribute throughout the world (except Japan and China) planetary drives, parts
and accessories designed and manufactured by the Company. The drives and parts
will be marketed by PACCAR under the "Braden" trademark and trade name owned by
PACCAR. The Company retained the rights to sell its products in Japan and China,
and also retained the right to market its planetary drives under its own name to
certain original equipment manufacturers that it now services and to all current
and potential pivot irrigation makers or after-market resellers for products
designed exclusively for the irrigation market. By agreement dated April 30,
2001, the distribution agreement was modified to allow the Company to distribute
planetary drives, parts and accessories designed and manufactured by the Company
in the world market. PACCAR may continue to represent the Company on an
exclusive customer basis at the Company's option.
5
The Company previously had a long time distribution agreement with
Champion Gear. In December 2002, the Company purchased all the assets of
Champion Gear, including customer and market information and all rights under
the product distribution agreement for $75,000, forgiveness of notes receivable
of $25,328 and settlement of all claims made by and counterclaims against the
Company. The purchase has been recorded in other assets.
Sales. The Company's sales are influenced by a variety of seasonal,
economic and climatic factors affecting its customers, many of which are
difficult to predict. Since a large proportion of the Company's products are
utilized in the agriculture industry, the Company's sales are lower during the
fall and winter months while farming and ranching activity is slower. Drought,
flooding, commodity prices, government subsidies and U.S. Agricultural
Department policies that affect farmers also impact demand for the Company's
products. The Company believes that the seasonality in its sales will become
less pronounced as it increases its market share in the construction,
off-highway and utility equipment markets.
The Company does not currently hold any government contracts, nor does
it sell more than an insignificant portion of its products to any governmental
agency. Accordingly, none of its contracts and subcontracts or purchase orders
are subject to governmental re-negotiation or cancellation.
Marketing. The Company distributes product catalogs to prospects, as
well as soliciting sales directly from new customers. From time to time, the
Company has also acquired customer lists which it uses as a basis for
solicitation of new customers, as well as solicited sales by manufacturer's
representatives, distributors, direct marketing and trade shows. Sales to new
customers are rarely an effort by a salesperson alone and Company engineers are
often required to consult with prospective customers, assist in identifying,
designing and developing products that fulfill a new customer's particular
requirements. After a sale is made, Company engineers continue to consult with
the customer on product improvements and modifications. Power transmissions are
usually manufactured according to a customer's specific applications and
specification. Because incorporating a power transmission manufactured by a
different supplier may require changes in product design or expensive retooling,
customers often do not replace a current supplier's product with a standard
product of another manufacturer and therefore do not frequently change suppliers
of power transmissions. Accordingly, while the Company regularly solicits
additional sales from new customers, a large portion of its sales are made to
existing customers with minimal marketing effort.
Inventories, Firm Orders and Backlogs. The Company maintains
approximately $1,755,000 in inventory at the Houston, Texas facility,
approximately $223,000 at the Butler, Kentucky facility, approximately $730,000
at the Madill, Oklahoma facility, approximately $828,000 at the Shanghai, China
facility, approximately $126,000 in Brazil and approximately $352,000 in
transit. Additionally, the Company has access to inventory located in bonded
warehouses and vendor facilities. The Company forecasts sales 12 months in
advance and maintains a three month rolling production schedule, which permits
the Company to maintain sufficient inventories to meet projected requirements of
its customers yet avoids excessive investments in inventory. The Company expects
that current inventory and production levels in the next fiscal year will
adequately supply product to fulfill the Company's backlog of orders.
As of June 30, 2003, the Company's backlog was approximately
$6,773,000. The Company determines the amount of backlog by estimating purchases
to be made by established customers with blanket purchase orders with the
Company. Average delivery time for the Company's power transmission equipment
varies depending upon the product. The Company can often fill and ship an order
from inventory in twenty-four hours; orders for products that require minimal
modification to an existing product can often be shipped in a few days; and
custom products requiring extensive design and retooling for production can
require a six month production schedule. The Company believes that virtually its
entire backlog is shippable in the next fiscal year.
Competition. The power transmission market is supplied by numerous
American and foreign manufacturers, ranging from conglomerates that distribute
broad product lines to customers around the world, to small manufacturers that
produce a limited number of products for specific applications to limited
markets. Accordingly, the market for power transmissions is difficult to define.
The Company identifies its competition according to power transmission and
trailer and implement components.
6
Power Transmission Components. In sales of power transmissions for 1)
rotary cutter, 2) tractor-powered implement and 3) universal geardrive product
lines, Omni Gear competes with a number of U.S. and foreign companies, including
Comer S.p.A. and Bondioli & Pavesi, each of which are Italian companies, and
Curtis Machine, Inc., Superior Gearbox Mfg., Inc., Hub City and Durst (both
divisions of Regal-Beloit Corporation), and ITG, all of which are American
companies, together with geardrives which are self-produced by certain OEM's.
Published statistics of the size of the market are not readily available.
In sales of the irrigation geardrive market, Omni Gear's most
significant competitors in the marketplace are Durst and Ohio Gear (both
divisions of Regal-Beloit Corporation), U.S. Motors (a division of Emerson
Electric), and Universal Motion Components, together with irrigation geardrives
which are self-produced by certain OEM's.
The Company estimates that the North American market for planetary
gearboxes with torque capacities up to 120,000 lbs. that Omni Gear can currently
supply is approximately $150,000,000 in sales per year, and that this market is
currently dominated by Auburn Gear, Fairfield Manufacturing and Eskridge
Manufacturing, all American companies. Other companies which supply planetary
geardrives in these rated torque capacities as a part of their overall planetary
products include Gear Products (a division of Blount), DP Manufacturing, Tulsa
Winch (a division of Dover), all American companies, and Brevini, Bosch Rexroth
AG, KYB, Carraro, Regiana & Riddutori, Teijin Seiki, and Trasmital Bonfiglioli,
all foreign companies. Omni Gear believes that it can increase its share in this
market in the future in spite of weak demand for construction and off-highway
equipment by providing quality product at reduced prices.
Trailer and Implement Components. In sales of Butler light duty product
lines, Butler competes with a number of U.S. and foreign companies, including
Atwood, Fulton and Hammerblow. Butler's heavy-duty product lines compete with a
number of U.S. and foreign companies, including Kaiser Austin Westran, Jost,
Holland/Binkley, and Sudisa.
The Company's most important competitive advantage is its competitive
pricing afforded by inexpensive Chinese labor and manufacturing costs. The
Company believes that it is competitive in its industry with respect to warranty
and return matters, payment terms, and product quality.
Other
Employment. The Company currently employs approximately one hundred
ninety-four persons worldwide; (i) one hundred forty-four by Shanghai Omni Gear,
(ii) eighteen at the Company's Houston, Texas facility, (iii) twenty-three at
the Company's facilities in Butler, Kentucky, and (iv) nine at the Company's
facility in Madill, OK. Fifteen of Butler's thirty-two employees are unionized.
No other Company employees are unionized or attempting to unionize. Management
believes its relations with its employees, union and non-union, are good.
Research and Development. The Company currently employs two full-time
engineers who design products to meet new customer specification or applications
and to make refinements in product manufacturing processes and product quality.
Research and development expenses, unless otherwise specified, are reflected in
the Company's financial statements as part of operating expenses.
Intangible Properties. The Company manufactures, advertises and sells
its products under numerous trademarks. Omni(R), Omni USA(R), Omni Gear(R), and
Butler(TM) trademarks are the primary marks under which the Company's products
are sold. The Company also owns other trademarks under which gearbox products
are sold such as RC-20(R), RC-30(R), RC-51(R), RC-61(R), RC-61T(R), RC-65T(R),
RC-71(R), RC-81(R), RC-91(R), RC-110(R), RCD-101(R), PHD-26HD(R), PHD-50A(R),
PHD-75(R), IR-15(R), IR-50(R), OFD-50(R), RC-130(TM), RC-25(TM), Irri-Torq(TM),
Voyager(R), Galaxy(TM), Enforcer(TM), Enforcer II(TM), Slick Disc(TM), and
Slider(R). Management believes that the Company's trademarks are well known in
its markets, are valuable and that their value is increasing with the
development of its business. The Company is not dependent on any one such
trademark. The Company vigorously protects its trademarks against infringement.
The Company has registered its trademarks in the appropriate jurisdictions.
Environmental Matters. The Company is not a party to any legal or
regulatory proceedings seeking to impose liability or responsibility for any
environmental damages or violations of any environmental laws or regulations,
nor is it aware of any circumstances in which its activities in China or in the
United States have created any basis for any environmental liability or
responsibility for damages.
7
Government Regulation. The Company is not subject to governmental
regulations other than those that typically apply to businesses importing
foreign manufactured goods into the United States and other countries, such as
customs laws and regulations. The Joint Venture is subject to certain Chinese
laws and regulations governing labor and employment, taxation, insurance,
foreign exchange, and other business matters, but the Company does not regard
these laws and regulations as significantly different in form or effect as those
that apply to the Company generally.
8
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently leases facilities located in Houston, Texas;
Madill, Oklahoma; and China, and owns a 35,000 square foot manufacturing
facility in Butler, Kentucky.
The Houston facility is a combination office/warehouse facility of
approximately 40,000 square feet, which the Company uses as its headquarters and
as an Omni Gear assembly center, inventory warehouse, warranty repair, quality
control, testing and inspection, and distribution center. The Houston facility
is leased from Phenix Investment Company, a real estate investment company
located in Houston, Texas under a long-term lease expiring July 2005, at a rate
of $8,500 per month.
Butler owns a 35,000 sq. ft. manufacturing facility in Butler, Kentucky
and leases a combination office/warehouse of approximately 20,000 sq. ft. in
Madill, Oklahoma under a long-term lease expiring July 2004, at a rate of $5,700
per month, less $1,425 for a sublease of 6,000 sq.ft.
Shanghai Omni Gear leases buildings in a manufacturing complex
containing approximately 130,000 square feet pursuant to a 30-year lease at a
rate of approximately $10,000 per month. The existing space is sufficient for
the activities currently conducted there; however, Shanghai Omni Gear has the
ability to acquire additional space in the complex if needed to expand future
operations.
The Company believes that its facilities are adequate for its needs in
the foreseeable future. In the event that any of the facilities became
unavailable for use by the Company for any reason, the Company believes that
alternative facilities are available on terms and conditions acceptable to the
Company.
ITEM 3. LEGAL PROCEEDINGS
The Company, from time to time, is a party to various legal proceedings
that constitute ordinary routine litigation incidental to the Company's
business. In the opinion of management, all such matters are either adequately
covered by insurance or are not expected to have a material adverse effect on
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the
Company during the quarter or fiscal year ended June 30, 2003.
9
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on the NASDAQ Over-The-Counter tier
of the NASDAQ Stock Market under the symbol "OUSA".
The following table sets forth in the periods indicated the range of
low and high sales prices per share of the Company's Common Stock traded as
reported by the NASDAQ Stock Market (amounts have been restated to account for
the reverse stock split):
Quarter Ending Low High
-------------- --- ----
06/30/01 0.84 1.98
09/30/01 1.00 1.73
12/31/01 0.78 1.12
03/31/02 0.75 0.97
06/30/02 0.86 1.16
09/30/02 0.55 1.20
12/31/02 0.25 1.05
03/31/03 0.25 0.35
06/30/03 0.35 1.01
On September 10, 2002, the Company received notification from NASDAQ
that the Company's stock would be removed from the NASDAQ listing as Omni's
share price had fallen below the minimum required ask price of $1.00 per share
and as the Company's Minimum Value of Publicly Held Securities had fallen below
the minimum of $1,000,000. On September 10, 2002, The Board of Directors
approved a stock repurchase plan to repurchase up to 500,000 shares of Omni
stock in efforts to improve its stock price in response to the notification
received from NASDAQ noted above and in consideration that the Company's common
stock represents and unusual value given the Company's overall business and
value. In fiscal year 2003, the Company repurchased 36,100 shares of Omni stock.
As of September 22, 2003, the closing price of the Company's Common
Stock was $1.70 per share. As of June 30, 2003, there were approximately 550
holders of record of the Company's Common Stock.
The Company has never paid cash dividends on its Common Stock. As a
result of net losses in prior fiscal years, the Company has a cumulative
retained deficit of $2,391,717 as of June 30, 2003; accordingly, the Company may
be prohibited by legal restrictions on capital from paying cash dividends for
the foreseeable future. In addition, the Company's revolving line of credit
facility prohibits the payment of dividends. While any determination as to the
payment of cash dividends will depend upon the Company's earnings, general
financial condition, capital needs, and other factors, the Company presently
intends to retain any earnings to finance working capital needs and expand its
business, and therefore does not expect to pay cash dividends in the foreseeable
future.
10
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Liquidity and Capital Resources
The Company's primary capital requirements are for routine working
capital needs that are generally met through a combination of internally
generated funds, revolving line of credit facilities and credit terms from
suppliers. The Company's line of credit facilities had an outstanding balance of
$2,740,030 at June 30, 2003. The Company had working capital of $2,108,437 as of
June 30, 2003 and $1,632,585 as of June 30, 2002; an increase of $475,852 during
the fiscal year ended June 30, 2003. The change in working capital was due
primarily to increases in accounts receivable and decreases in accounts payable
and borrowings on the Company's lines of credit and current notes payable, which
were offset by decreases in inventory and increases in accrued expenses in the
fiscal year ended June 30, 2003.
The Company's had negative cash flow of $112,314 which resulted in a
cash balance of $709,230 at the year ended June 30, 2003, compared to the June
30, 2002 cash balance of $821,544. The negative cash flow was generated by
increases in payments to the line of credit and notes payable.
The inventory balance as of June 30, 2003 was $4,014,108; a decrease of
$154,418 compared to the June 30, 2002 inventory of $4,168,526. Inventories have
decreased from the prior year end in due to Piecemaker selling approximately
$253,000 in inventory held for resale but not manufactured by Piecemaker.
The Company's cash used in investing activities for the year ended June
30, 2003 of $(355,792) consisted primarily of capital expenditures for fixed
assets and the acquisition of other assets from Champion Gear, compared to
$50,956 for the year ended June 30, 2002. This increase is mostly attributed to
Shanghai Omni Gear's need to increase manufacturing capacity to keep production
parallel with our customers' demands. The Company believes that its present
facilities and planned capital expenditures are sufficient to provide adequate
capacity for operations in the next fiscal year.
Net cash used from financing activities for the year ended June 30,
2003 of ($659,275) consisted of net payments on the revolving line of credit of
$110,240, payments on long-term debt of $506,105 and purchases of treasury stock
of $42,930.
The Company's current ratio was 1.31 as of June 30, 2003, which is an
7% increase when compared to the June 30, 2002 current ratio of 1.23.
The Company believes that between its access to the line of credit
facilities and its anticipated ability to generate funds internally, it has
adequate capital resources to meet its working capital requirements for the next
fiscal year, given its current working capital requirements, known obligations,
and assuming current levels of operations. If however, operations do not remain
at current levels and the Company is unable to access or renew its line of
credit facilities or service its long term debt facilities, the Company will be
required to reduce its operations accordingly which may have a negative impact
on the Company to meet the needs of it customers, suppliers and credit
providers. In addition, the Company believes that it has the ability to raise
additional financing in the form of debt to fund additional capital
expenditures, if required.
11
Results of Operations
Fiscal year ended June 30, 2003, compared to fiscal year ended June 30,
2002. The Company's business is cyclical and dependent on industrial spending
levels and is impacted by the strength of the economy and other factors. The
Company had net sales of $19,963,387 for the year ended June 30, 2003. This
represents an increase of 11% compared to the year ended June 30, 2002 net sales
of $18,051,928. The following table indicates the Company's net sales comparison
and percentage of change for the years ended June 30, 2003 and 2002:
--------------------------------------------------------------------------------------------------------------
YEAR ENDED % YEAR ENDED % DOLLAR %
NET SALES 6/30/03 OF TOTAL 6/30/02 OF TOTAL CHANGE CHANGE
--------------------------------------------------------------------------------------------------------------
Power Transmission Components $ 16,530,045 83% $14,236,785 79% $ 2,293,260 16%
--------------------------------------------------------------------------------------------------------------
Trailer and Implement Components 3,433,342 17% 3,815,143 21% (381,801) (10%)
--------------------------------------------------------------------------------------------------------------
Consolidated $ 19,963,387 100% $18,051,928 100% $ 1,911,459 11%
==============================================================================================================
The increase was primarily due to increased sales volume from new customers.
Gross profit for the year ended June 30, 2003 increased $1,101,360 to
$4,432,942, compared to gross profit for the year ended June 30, 2002 of
$3,331,582. The increase in gross profit is due primarily to the increase in
sales. Gross profit as a percentage of net sales was 22% for the year ended June
30, 2003, compared with 18% for the year ended June 30, 2002. This change in
gross margin percentage is primarily attributable to improved product mix of
sales for the year with higher margins and bulk purchase pricing incentives
providing decreasing costs.
Selling, general and administrative expenses increased $505,913 to
$3,981,376 in the year ended June 30, 2003 from $3,475,463 in the year ended
June 30, 2002. Selling, general and administrative expenses as a percentage of
sales were 19% for both years ended June 30, 2003 and 2002. The increases in
selling, general and administrative expenses are due to increased sales..
Income (loss) from operations for the Company increased $595,447 to
$451,566 for the year ended June 30, 2003, compared to ($143,881) for the year
ended June 30, 2002. This increase is primarily the result of increased sales
volumes in the year ended June 30, 2003.
Interest expense increased $27,017, to $420,027 for the year ended June
30, 2003 from $393,010 for the year ended June 30, 2002. The increase resulted
from increased borrowings occurring within the year which was partially offset
by declining interest rates and favorable terms on new and refinanced debt.
Other income (expense) was income of $363,921 for the year ended June
30, 2003 compared to an income of $69,009 for the year ended June 30, 2002. The
change was mostly attributable to the VAT refund in the Shanghai manufacturing
facility.
The Company's net income increased $824,873 to $364,153, or $0.31 per
share, for the year ended June 30, 2003 compared to ($460,720), or ($0.38) per
share, for the year ended June 30, 2002.
12
Cautionary Statement. This Annual Report on Form 10-KSB contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. The words "believes," "anticipates," "plans," "expects," and other similar
expressions are intended to identify forward-looking statements. Investors are
cautioned that such forward-looking statements are based on the current
expectations of management and are inherently subject to a number of risks and
uncertainties that could cause the actual results of the Company to differ
materially from such forward-looking statements. Forward-looking statements
involve risks and uncertainties, including, but not limited to, continued
acceptance of the Company's products in the marketplace, competitive factors,
new products and technological changes, the Company's dependence upon
third-party suppliers, political and economic circumstances in China, ability to
access or renew credit facilities and service long term debt facilities and
other risks detailed from time to time in the Company's periodic report filings
with the Securities and Exchange Commission. Investors are directed to the
Company's periodic reports filed with the Securities and Exchange Commission.
The Company is not obligated to update or revise the aforementioned statements
for those new developments.
13
ITEM 7. FINANCIAL STATEMENTS
OMNI U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
14
Harper & Pearson Company
One Riverway, Suite 1000
Houston, Texas 77056
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and
Board of Directors of
Omni U.S.A., Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Omni U.S.A.,
Inc. and Subsidiaries as of June 30, 2003 and 2002, and the related consolidated
statements of operations and comprehensive loss, changes in stockholders' equity
and cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. 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 U.S.A., Inc.
and Subsidiaries at June 30, 2003 and 2002, and the results of their operations
and their cash flows for the years then ended, in conformity with generally
accepted accounting principles in the United States.
/s/ HARPER & PEARSON COMPANY
Houston, Texas
September 23, 2003
15
OMNI U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2003 AND 2002
ASSETS
2003 2002
------------ ------------
CURRENT ASSETS
Cash $ 709,230 $ 821,544
Accounts receivable, trade, net 3,891,727 3,440,402
Accounts receivable, related parties 29,167 28,063
Inventories, net 4,014,108 4,168,526
Notes receivable, trade 63,810 89,138
Prepaid expenses 224,049 114,912
Deferred tax assets - 40,393
------------ ------------
TOTAL CURRENT ASSETS 8,932,091 8,702,978
------------ ------------
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 1,706,669 1,812,007
------------ ------------
OTHER ASSETS - primarily intangible assets, net 330,248 204,265
------------ ------------
TOTAL ASSETS $ 10,969,008 $ 10,719,250
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,805,776 $ 3,001,120
Revolving line of credit 2,740,030 2,850,270
Accrued expenses 458,244 217,154
Current portion of notes payable 819,604 1,001,849
------------ ------------
TOTAL CURRENT LIABILITIES 6,823,654 7,070,393
------------ ------------
NOTES PAYABLE 1,161,953 986,604
------------ ------------
STOCKHOLDERS' EQUITY
Common stock (1,227,079 shares issued and 1,171,812 and 6,129 6,129
1,207,912 shares outstanding, respectively)
Additional paid-in capital 5,372,815 5,372,815
Treasury stock (55,267 and 19,167 shares respectively) (100,071) (57,141)
Retained deficit (2,391,717) (2,755,870)
Foreign currency translation adjustment 96,245 96,320
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 2,983,401 2,662,253
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 10,969,008 $ 10,719,250
============ ============
See accompanying notes.
16
OMNI U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED JUNE 30, 2003 AND 2002
2003 2002
------------- -------------
NET SALES $ 19,963,387 $ 18,051,928
COST OF SALES (15,530,445) (14,720,346)
------------- -------------
Gross Profit 4,432,942 3,331,582
------------- -------------
OPERATING EXPENSES
Selling, general and administrative (3,981,376) (3,475,463)
------------- -------------
Operating income (loss) 451,566 (143,881)
OTHER INCOME (EXPENSE)
Commission income, net 9,086 7,162
Interest expense (420,027) (393,010)
Other, net 363,921 69,009
------------- -------------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE 404,546 (460,720)
INCOME TAX EXPENSE 40,393 -
------------- -------------
NET INCOME (LOSS) 364,153 (460,720)
------------- -------------
LOSS ON FOREIGN CURRENCY TRANSLATION ADJUSTMENT
(75) (628)
------------- -------------
COMPREHENSIVE INCOME (LOSS) $ 364,078 $ (461,348)
============= =============
BASIC INCOME (LOSS) PER SHARE $ 0.31 $ (0.38)
============= =============
DILUTED INCOME (LOSS) PER SHARE $ 0.31 $ (0.38)
============= =============
See accompanying notes.
17
OMNI U.S.A INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2003 AND 2002
Common Stock
------------------
Number Additional Foreign
of Shares Paid-In Treasury Retained Currency
Outstanding Amount Capital Stock Deficit Adjustment Total
---------------------------------------------------------------------------------
Balance, June 30, 2001 1,207,912 $6,129 $5,372,815 $(57,141) $(2,295,150) $96,948 $3,123,601
Net Loss (460,720) (460,720)
Unrealized loss on foreign
currency translation adjustment (628) (628)
---------------------------------------------------------------------------------
Balance, June 30, 2002 1,207,912 6,129 5,372,815 (57,141) (2,755,870) 96,320 2,662,253
Treasury Stock Repurchased (36,100) (42,930) (42,930)
Net Income 364,153 364,153
Unrealized loss on foreign
currency translation adjustment (75) (75)
---------------------------------------------------------------------------------
Balance, June 30, 2003 1,171,812 $6,129 $5,372,815 $(100,071) $(2,391,717) $96,245 $2,983,401
=================================================================================
See accompanying notes.
18
OMNI U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2003 AND 2002
2003 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 364,153 $ (460,720)
------------ ------------
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and Amortization 363,605 350,514
Deferred tax expense 40,393 -
Loss on disposal of assets 4,542 3,511
Changes in operating assets and liabilities:
Accounts and Notes receivable (427,101) (35,692)
Inventories 154,418 817,384
Prepaid expenses (109,137) (6,688)
Accounts payable and accrued expenses 511,955 (610,064)
------------ ------------
Total adjustments 538,675 518,965
------------ ------------
Net cash provided by operating
activities 902,828 58,245
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (224,320) (50,956)
Acquisition of other assets (131,472) -
------------ ------------
Net cash used by investing activities (355,792) (50,956)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings on lines of credit 14,410,218 13,678,044
Payments on line of credit (14,520,458) (13,598,935)
Proceeds from borrowings on notes payable - 253,727
Purchase of Treasury Stock (42,930) -
Payments on notes payable (506,105) (177,054)
------------ ------------
Net cash (used) provided by financing
activities (659,275) 155,782
------------ ------------
Loss on foreign currency translation adjustment (75) (628)
------------ ------------
NET (DECREASE) INCREASE IN CASH (112,314) 162,443
CASH AT BEGINNING OF PERIOD 821,544 659,101
------------ ------------
CASH AT END OF PERIOD $ 709,230 $ 821,544
============ ============
See accompanying notes.
19
NOTE 1 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Principles of Consolidation - Omni U.S.A., Inc. (the Company) is
incorporated in the state of Nevada. The Company's consolidated
financial statements include the accounts of the Company and its
wholly-owned subsidiaries Omni U.S.A., Inc. (a Washington
Company), Omni Resources, Ltd. (a Hong Kong Corporation), Butler
Products Corporation (a Kentucky Corporation) and Omni Gear de
Brazil (a Brazilian Company). The financial statements of Omni
Resources, Ltd. include the activity of its wholly-owned
subsidiary, Shanghai Omni Gear Co., Ltd. located in Shanghai,
China. All material inter-company transactions and balances have
been eliminated in consolidation.
Organization and Business - The Company designs, develops,
manufactures and distributes power transmission components and
trailer and implement components, used primarily for agricultural,
material handling, mobile off-highway and industrial purposes, to
original equipment manufacturers and distributors worldwide. The
Company's manufacturing and distribution system involves locating
qualified domestic or foreign manufacturers of products, (in the
case of contract manufacturing) contracting with such
manufacturers, and distribution to an ultimate third party
customer. The Company also self-produces products using both
domestic and foreign components. Since 1986, the Company's power
transmission products have been manufactured primarily in China
and approximately 70% of the Company's towing products are
manufactured in the United States. In 2002, the Company formed
Omni Gear de Brazil to distribute its products in Brazil and South
America. Currently, its operations have been minimal and limited
to sales to primarily one customer.
Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue Recognition - The Company adopted The Securities and
Exchange Commission Staff Accounting Bulletin (SAB) 101 in the
fourth quarter of the fiscal year ended June 30, 2001 and the
Company's revenue recognition policies are in compliance with SAB
101. The Company's acceptance provisions, as some products are
manufactured to customer specifications, are that customers must
approve engineered drawings in advance, place a firm purchase
order with the Company for manufacture of the products and
initially approve a representative sample prior to manufacture.
Costs of shipping and handling for the Company are generally
accounted for as a component of cost of sales with revenues
recorded gross. The Company recognizes revenues upon shipment to
the customer.
Warranties - The Company's policy for warranties stipulates that
Omni Gear's products and Butler Products' products are warranted
to be free of defects in material and workmanship and to meet Omni
Gear's and Butler Products' specifications at the time of sale.
The Company accounts for warranties by accruing a liability for
warranty provision based on the Company's historical analysis of
warranty costs. To date, however, actual return rates have been
very low and incremental costs associated with those returns have
been historically immaterial to the Company. The Company has a
policy for sales returns, whereby the customer may apply for and
be granted the right to return product for warranty consideration.
Once returned, the product is inspected for warranty qualification
and, if granted, warranty work is performed and the product
generally returned to the customer.
20
NOTE 1 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Concentration of Credit Risk - Financial instruments which
potentially subject the Company to concentrations of credit risk
consist principally of trade receivables and cash. The Company
places its cash with high credit quality financial institutions.
Cash in financial institutions located abroad totaled $560,493 and
$130,548 in 2003 and 2002, respectively.
Trade accounts receivable consist of receivables from both
domestic and foreign customers in various industries and
geographic regions worldwide, with more than one half of
consolidated sales being to customers in the Southern and Central
United States. Generally, no collateral or other security is
required to support customer receivables. An allowance for
doubtful accounts is established as needed based upon factors
surrounding the credit risk of specific customers, historical
trends and other information.
As of June 30, 2003, one customer accounted for 28% of
consolidated receivables. As of June 30, 2002 one customer
accounted for 19% of consolidated receivables.
Notes receivable result from sales made with extended credit terms
and are payable in monthly installments and carry interest.
The Company has inventory located in China of approximately
$827,846 and $615,680 at June 30, 2003 and 2002, respectively and
Brazil of approximately $125,831 at June 30, 2003.
Inventories - Inventories are stated at the lower of cost or
market using the weighted average cost for inventories on hand and
the specific identification method for any other inventory. The
Company records inventory and any related obligation at the time
title to the goods passes to the Company based on the specific
terms of the transaction.
Property, Equipment, Depreciation and Amortization - Property and
equipment are stated at cost. Depreciation and amortization are
computed over the estimated useful lives of the assets using the
straight-line method for financial reporting purposes as follows:
Estimated useful
lives (years)
-------------
Warehouse, manufacturing and office equipment 3 to 10
Leasehold improvements 5 to 10
Tooling costs 5 to 10
The costs of repairs and maintenance are charged to operations
when incurred. Major renewals or improvements are capitalized.
When properties are sold or retired, the cost and related
accumulated depreciation and amortization are removed from the
accounts and any resulting gain or loss is included in the results
of operations.
21
NOTE 1 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Intangible Assets and Organizational Costs - Intangible assets
consist of goodwill from the Butler Products acquisition,
engineering plans, designs, trademarks and patents. Amortization
is provided on a straight-line basis over five to fifteen year
periods. The Company adopted SFAS No. 142 effective July 1, 2001.
At June 30, 2003 and 2002, the Company had $168,000 in intangible
goodwill that will no longer be amortized under this statement.
Management believes that there is no impairment to goodwill at
June 30, 2003 and 2002.
Foreign Currency Translation - There are significant operations in
Mainland China and some operations in Brazil; however, the
functional exchange rate for those operations is the U.S. dollar.
The foreign currency translation adjustment primarily arises from
the translation of amounts from operations in Hong Kong in which
the functional currency is that of the foreign location. Income
and expense amounts are translated at the average rates of
exchange for the periods. These translation adjustments are
reported separately as a component of stockholders' equity.
Current year changes are included in comprehensive income.
Earnings Per Share - Basic earnings per share (EPS) is computed by
dividing consolidated net income available to common shareholders
by the weighted-average number of common shares outstanding for
the year. Diluted EPS reflects the potential dilution that could
occur if dilutive securities and other contracts to issue common
stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the consolidated
net income of the Company.
Fair Value of Financial Instruments - The fair values of financial
instruments approximate their reported carrying amounts at June
30, 2003 and 2002 due to their relative short lives for current
assets and liabilities and long-term liabilities are at interest
rates comparable to current market rates. As of June 30, 2003 and
2002, the Company does not have any derivatives and has
experienced no impact from adoption of SFAS No. 133.
Other income - Other income includes value added tax subsidies
received from the Chinese government for export sales outside of
China as well as income received from sales of scrap inventory
and gains and losses on the sales of assets.
New Accounting Pronouncements -
In June 2002, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 146 (SFAS
146), Accounting for Costs Associated with Exit or Disposal
Activities. This statement addresses financial accounting and
reporting for costs and recognition of liabilities associated with
exit or disposal activities. This statement is effective for exit
or disposal activities initiated after December 31, 2002. For an
exit activity initiated under an exit plan prior to the initial
application of SFAS 146, prior generally accepted accounting
principles continue to apply. The adoption of SFAS 146 did not
have a material impact on the consolidated financial statements.
In November 2002, the FASB issued Interpretation No. 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. This
interpretation clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee.
The initial recognition and initial measurement provisions of this
Interpretation are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002. The disclosure
requirements in this Interpretation are effective for financial
statements of interim or annual periods ending after December 15,
2002. The adoption of this interpretation did not have a material
impact on the consolidated financial statements.
22
NOTE 1 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
In December 2002, the FASB issued Statement of Financial
Accounting Standards No. 148 (SFAS 148), Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment
of FASB Statement No. 123, to provide alternative methods of
transition for a voluntary change to the fair value based method
of accounting for stock-based employee compensation. In addition,
this Statement amends the disclosure requirements of FASB
Statement No. 123 to require prominent disclosures in both annual
and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method
used on reported results. The Company anticipates no material
impact on the consolidated financials from adoption of SFAS 148.
In May 2003, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 150,
"Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity" (SFAS 150). This Statement
prescribes how an issuer classifies and measures certain financial
instruments. Financial instruments within the scope of SFAS 150
are required to be classified as liabilities (or assets in some
circumstances). Many of those instruments were previously
classified as equity. SFAS 150 is effective for financial
instruments entered into or modified after May 31, 2003, and
otherwise is effective for the Company July 1, 2003. There was no
impact to the Company from adopting SFAS 150.
NOTE 2 ACQUISITIONS AND DISPOSITIONS OF ASSETS
The Company previously had a long time distribution agreement with
Champion Gear. In December 2002, the Company purchased all the
assets of Champion Gear, including customer and market information
and all rights under the product distribution agreement for
$75,000, forgiveness of notes receivable of $25,328 and settlement
of all claims made by and counterclaims against the Company. The
purchase has been recorded in other assets.
NOTE 3 ACCOUNTS RECEIVABLE
Accounts receivable at June 30 consisted of the following:
2003 2002
---------- ----------
Accounts receivable, trade $4,127,126 $3,579,109
Allowance for doubtful accounts (235,399) (138,707)
---------- ----------
$3,891,727 $3,440,402
========== ==========
NOTE 4 INVENTORIES
Inventories at June 30 consisted of the following:
2003 2002
---------- ----------
Raw materials $ 225,106 $ 279,384
Work in process 225,634 113,457
Finished goods 3,684,368 3,825,685
Reserve for obsolete inventory (121,000) (50,000)
---------- ----------
$4,014,108 $4,168,526
========== ==========
23
NOTE 5 PROPERTY AND EQUIPMENT
Property and equipment at June 30 consisted of the following:
2003 2002
----------- -----------
Warehouse, manufacturing and
office equipment $ 3,730,611 $ 3,443,144
Land, buildings & leasehold improvements 620,669 613,252
Tooling costs 522,206 521,206
----------- -----------
4,873,486 4,577,602
Accumulated depreciation and amortization (3,166,817) (2,765,595)
----------- -----------
$1,706,669 $ 1,812,007
=========== ===========
NOTE 6 OTHER ASSETS
Other assets at June 30 consisted of the following:
2003 2002
----------- -----------
Intangible assets $ 931,113 $ 801,640
Cash surrender value of life insurance 12,419 10,420
----------- -----------
$ 943,532 $ 812,060
Accumulated amortization (613,284) (607,795)
----------- -----------
$ 330,248 $ 204,265
=========== ===========
NOTE 7 REVOLVING LINES OF CREDIT
The Company has a revolving line of credit with a financing
company which provides for maximum borrowings of $4,000,000 as
determined by a formula based on trade accounts receivable and
inventory. The line of credit matures June 2003, bears interest at
prime plus 1%-2% depending upon certain financial ratios, requires
the maintenance of certain levels of income and tangible net worth
and is secured by essentially all of the U.S. assets of the
Company. The Company has signed a letter of intent with a domestic
bank to refinance the outstanding domestic line of credit and
anticipates comparable terms. Outstanding borrowings amounted to
$2,515,461 and $2,662,945 at June 30, 2003 and June 30, 2002,
respectively. At June 30, 2002, the Company was not in compliance
with the required minimum nine months earnings requirement. At
June 30, 2003, the Company was in compliance with its minimum
financial reporting covenants.
The Company also maintains a line of credit with a foreign
financial institution which provides for maximum borrowings of
$750,000 based on the creditworthiness of the Company's customers
serviced by the Company's foreign subsidiary. Outstanding
borrowings amounted to $224,569 and $187,325 at June 30, 2003 and
June 30, 2002, respectively. The line of credit matures November
30, 2003 and bears interest at 5.625%.
24
NOTE 8 NOTES PAYABLE
Notes payable at June 30 consisted of the following:
2003 2002
------------ -----------
Notes payable to banks/finance companies, due in aggregate monthly $ 23,967 $ 4,998
installments of $356 including interest ranging from 1.9% to 7.7%,
maturing at various dates through 2006, secured by vehicles
Note payable to equipment manufacturer, secured by equipment. 230,985 275,400
Management has classified these balances and payments based upon
management's plan to repay the debt over a 60 month period in monthly
installments of $5,800 including interest at 8% through 2007.
Butler Products Corporation Industrial Bonds due in monthly - 24,018
installments of $2,730 including interest at 5.5% through March 2003,
secured by equipment
Note payable to finance company to finance the assets acquired from - 99,875
Piecemaker Inc., due in monthly installments of $4,250 including
interest at prime plus 2% through 2004
Note payable to PACCAR, Inc. due in minimum monthly payments of $18,300 738,639 860,435
including principle and interest of approximately 11% commencing for a
period of 5 years commencing in May 2002, unsecured
Note payable to supplier of $435,916 payable in a 10% premium paid on 435,916 -
all future purchases from the supplier until the balance is paid in
full. Classification of current and long term portions are based upon
Management's best estimate of future repayments.
Note payable to foreign third party principle due in one payment 302,050 253,727
January 27, 2004, interest at 0.54% due monthly and secured by certain
machinery and equipment of Shanghai Omni Gear
Junior Subordinated Notes to Butler Products Corporation former owners 250,000 470,000
at 8% annual interest with variable payments based upon margins earned
on certain Butler product sales and from proceeds of any Butler assets
sold in the future, if any. The former owners have the right to
further amend and accelerate the repayment terms if repayment of
principle is not deemed adequate by the former owners under the above
repayment plan. Management has classified the balance as current.
------------ -----------
1,981,557 1,988,453
Less current portion 819,604 1,001,849
------------ -----------
Long term portion $ 1,161,953 $ 986,604
============ ===========
Future maturities of long-term debt by fiscal year are as
follows:
2004 $ 819,604
2005 290,691
2006 305,477
2007 322,209
2008 243,576
------------
$ 1,981,557
============
25
NOTE 9 COMMON STOCK
The Company has authorized 50,000,000 shares of common stock with a
par value of $.004995 per share. At June 30, 2003, the Company had
issued 1,227,079 shares with 1,171,812 shares outstanding and
55,267 treasury shares. In September and November 2002, The
Company repurchased 8,500 and 27,600 shares of stock,
respectively, for a total of 36,100 shares of stock. The Company
has never paid cash dividends on its Common Stock. As a result of
net losses in the prior fiscal years, the Company has a cumulative
retained deficit of $2,391,717 as of June 30, 2003; accordingly,
the Company may be prohibited by legal restrictions on capital
from paying cash dividends for the foreseeable future. In
addition, the Company's revolving line of credit facility
prohibits the payment of dividends.
On June 7, 2002, June 19, 2002 and September 10, 2002, the Company
received notification from NASDAQ that the Company's stock would
be removed from the NASDAQ listing as Omni's share price had
fallen below the minimum required ask price of $1.00 per share and
as the Company's Minimum Value of Publicly Held Securities had
fallen below the minimum of $1,200,000. As of November 12, 2002
the Company is no longer listed on the NASDAQ exchange and is
currently listed and traded on the Over the Counter (OTC) Bulletin
Board.
NOTE 10 WARRANTS TO PURCHASE COMMON STOCK
The Company has Class B Warrants that entitle the holder to
purchase shares of common stock as follows:
Number of
Per Share Warrants
Expiration Date Price Issued
--------------- --------- ---------
Class B Series 2 (PACCAR, Inc.) July 1, 2009 6.00 166,667
On September 23, 1999, the Company entered into a $1,000,000 loan
agreement with PACCAR Inc. (PACCAR). Under the terms of the loan,
PACCAR received 166,667 warrants to purchase shares of the
Company's common stock. The warrants may be exercised through July
2009 at $6.00 per share. The warrants to purchase stock may be
reduced to 116,667 upon the occurrence of certain subsequent
events.
26
NOTE 11 STOCK OPTION PLANS
The Company maintains a Non-Qualified Stock Option Plan (the
"NQSOP") and a 1996 Incentive Stock Option Plan (the "1996 ISOP").
The NQSOP covers 200,000 shares of Common Stock and the 1996 ISOP
covers 300,000 shares of Common Stock. The purpose of the NQSOP
and 1996 ISOP, under the discretion of the Company's Board of
Directors, is to offer eligible employees of the Company and its
subsidiaries an opportunity to acquire or increase their
proprietary interests in the Company and provide additional
incentive to contribute to its performance and growth.
The Board of Directors has reserved 500,000 shares under the
Plans.
-----------------------------------------------------------------------------------------------------------------
Weighted-
Average
Total # $12.00 $3.00 $4.875 $6.75 $3.564 $3.1875 Exercise
Stock Option Summary of Shares Options Options Options Options Options Options Price
-----------------------------------------------------------------------------------------------------------------
Options Outstanding at
June 30, 2001 411,667 23,333 343,333 10,000 5,000 20,000 10,000 3.63
Options Granted 0 0 0 0 0 0 0
Options Canceled 0 0 0 0 0 0 0 0
Options Forfeited (66,000) (46,000) (10,000) (10,000) 3.37
Options Outstanding at
June 30, 2002 345,667 23,333 297,333 10,000 5,000 10,000 0 3.63
Options Granted 0 0 0 0 0 0 0
Options Canceled 0 0 0 0 0 0 0 0
Options Outstanding at
June 30, 2003 345,667 23,333 297,333 10,000 5,000 10,000 0 3.63
Exercisable at June 30, 2003 345,667 23,333 297,333 10,000 5,000 10,000 0 3.87
Exercisable at June 30, 2002 345,667 23,333 297,333 10,000 5,000 10,000 0 3.87
Available for future grant at
June 30, 2003 154,333
-----------------------------------------------------------------------------------------------------------------
Weighted-average remaining
contractual life in years 3.7 1 3.5 6 6 6.5 0
-----------------------------------------------------------------------------------------------------------------
SFAS No. 123 and 148, "Accounting for Stock-Based Compensation,"
encourages, but does not require, companies to record compensation
costs for stock-based employee compensation plans at fair value.
The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related Interpretations. Accordingly,
compensation costs for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date
of the grant over the amount an employee must pay to acquire the
stock. No options were granted in the fiscal years ended June 30,
2003 and 2002 and there was no effect to the income statement
under SFAS 123 and 148.
27
NOTE 12 EARNINGS PER SHARE
The following sets forth the computation of basic and diluted
earnings per share at June 30, 2003 and 2002.
2003 2002
----------- ------------
Numerator
Net Income (loss) $ 364,153 $ (460,720)
=========== ============
Denominator
Denominator for basic earnings per share -
weighted average common shares outstanding 1,184,287 1,207,912
Effect of dilutive securities:
Conversion of dilutive stock options - -
----------- ------------
Denominator for dilutive earnings per share -
adjusted weighted average shares and assumed conversion 1,184,287 1,207,912
=========== ============
Basic Earnings Per Share $ 0.31 $ (0.38)
=========== ============
Diluted Net Earnings Per Share $ 0.31 $ (0.38)
=========== ============
Stock options at June 30, 2003 and 2002 are antidilutive as all
exercise prices are currently higher than the market price.
NOTE 13 INCOME TAXES
Income tax (expense) benefit is comprised of the following:
2003 2002
----------- ------------
Current -state $ - $ -
Deferred - Current (40,393) 6,100
Deferred - Long-term - (6,100)
----------- ------------
$ (40,393) $ -
=========== ============
Deferred income taxes result from timing differences in reporting
income and expenses for financial statement and income tax
purposes. The primary sources of deferred income taxes result
from: (1) the use of different methods of depreciation for income
tax and financial statement purposes, (2) the uniform
capitalization of inventory for income tax purposes, (3) inventory
obsolescence reserves, (4) direct write-off of bad debts for
income tax purposes and (5) foreign losses.
28
NOTE 13 INCOME TAXES (continued)
The components of the Company's deferred tax assets and
liabilities at June 30 are as follows:
2003 2002
---------- ----------
Current deferred tax assets:
Accounts receivable $ 71,000 $ 45,000
Inventory 60,000 39,000
Domestic net operating loss carry-forwards 144,000 59,000
Foreign subsidiary net operating loss carry-forwards 528,000 737,000
---------- ----------
Deferred tax assets 803,000 880,000
Non-current deferred tax liabilities:
Depreciation (77,000) (83,500)
---------- ----------
Net deferred income tax assets 726,000 796,500
Valuation allowance (726,000) (756,107)
---------- ----------
Net deferred income taxes $ - $ 40,393
========== ==========
The valuation allowance decreased $30,107 and increased $148,000
during 2003 and 2002, respectively due to losses. At June 30, 2003
the Company had $423,000 of domestic net operating losses, which
expire in 2022.
The Company has not provided for income taxes on the undistributed
earnings of its foreign subsidiaries because it intends to
reinvest these earnings in the continuing operations of these
subsidiaries. In determining the value of deferred tax assets,
management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
Management considers the scheduled reversals of deferred tax
assets and liabilities, projected future taxable income, if any,
and the tax planning strategies in determining this value.
Management does not believe it is more likely than not that the
Company will realize the benefits of its deferred tax assets, net
of existing valuation allowances at June 30, 2003. The cumulative
amount of undistributed losses of its foreign subsidiaries is
approximately $1,500,000 at June 30, 2003.
The difference between the effective rate of income tax expense at
June 30, 2003 and 2002 and the amounts which would be determined
by applying the statutory U.S. income tax rate of 34% to income
before income tax expense, are explained below according to the
tax implications of various items of income or expense.
2003 2002
---------- ----------
Provision for income tax benefit/(expense) at
U.S. statutory rates $ (137,550) $ 156,645
Change in income tax benefit (expense) resulting from:
Non-deductible expense (3,183) (3,531)
Utilization of NOL carry forwards previously reserved 71,728 -
Other (1,495) (5,114)
Change in valuation reserve 30,107 (148,000)
---------- ----------
Income tax benefit (expense) $ (40,393) $ -
========== ==========
29
NOTE 14 COMMITMENTS AND CONTINGENCIES
Operating Leases - The Company leases equipment and office,
warehouse and manufacturing space in Houston, TX; Madill, OK; and
Shanghai, China. The Houston lease is $8,500 per month through
2005. The Madill, Oklahoma leases are $5,700 per month through
2004. The Shanghai lease began in 1996 and has a thirty-year term
at approximately $10,000 per month. At June 30, 2003, the future
minimum rental payments required under operating leases were
approximately:
2004 $ 295,042
2005 228,745
2006 129,314
2007 120,814
2008 120,814
Thereafter 2,295,463
----------
Total $3,190,192
==========
Rent expense was approximately $303,400 and $252,600 during the
years ended June 30, 2003 and 2002, respectively.
Insurance Coverage - The Company is self-insured against product
liability and completed operations. This situation, while not
unique to the Company or its industry, may subject the Company to
some future liability. The Company maintains in force and effect,
product liability insurance for the trailer and implement segment,
with coverage up to $1,000,000 per occurrence and in aggregate, as
well as completed operations insurance held by Butler Products
Corporation at the time of acquisition.
Employment - Forty-seven percent of one of the subsidiary's
employees, (specifically, fifteen of thirty-two Butler employees)
are unionized and are covered by a collective bargaining
agreement. The collective bargaining agreement expires June 13,
2005.
Employee Benefits - The Company maintains a 401(k) plan, which
covers substantially all employees. Contributions by the Company
are discretionary. During the years ended June 30, 2003 and 2002,
the Company made no contributions to the plan.
Letters of Credit - The Company has $250,000 in unused letters of
credit outstanding at both June 30, 2003 and 2002.
Litigation - The Company continues to aggressively protect its
trademarks. From time to time the Company files suit to enforce
its trademark and other intellectual property. Historically, the
Company has been successful in preventing others from using Omni's
trademarks or trade dress or in seeking other relief.
30
NOTE 15 MAJOR CUSTOMERS AND SUPPLIERS
The Company and its subsidiaries had consolidated sales in its
power transmission component segment of $4,622,482 and $3,783,000
to one customer representing 22% and 21% of total consolidated
sales in fiscal 2003 and 2002, respectively.
Approximately 65% and 57% of the Company's inventory purchases
were from two companies in China in 2003 and 2002, respectively.
NOTE 16 SUPPLEMENTAL CASH FLOW INFORMATION AND NONCASH INVESTING AND
FINANCING ACTIVITIES
The Company converted $466,000 in accounts payable into notes
payable and acquired $33,000 in automobiles through direct
financing in 2003.
Due to net operating losses and net operating loss carryforwards,
the Company was not required to pay any income taxes in 2003 and
2002.
The Company paid interest of $401,230 and $464,146 during the
fiscal years ended June 30, 2003 and 2002 respectively.
NOTE 17 SEGMENT INFORMATION
The Company identifies its competition and business segments by
the power transmission and trailer and implement components.
Selected financial information by business segment with respect to
these activities for the years ended June 30 is as follows:
2003 2002
-------------- --------------
Net Sales
Power Transmission Components $ 16,530,045 $ 14,236,785
Trailer and Implement Components 3,433,342 3,815,143
-------------- --------------
Total Omni U.S.A., Inc. $ 19,963,387 $ 18,051,928
============== ==============
Income from Operations
Power Transmission Components $ 836,270 $ 96,492
Trailer and Implement Components (378,704) (240,373)
-------------- --------------
Total Omni U.S.A., Inc. $ 457,566 $ (143,881)
============== ==============
Net Income (Loss)
Power Transmission Components $ 872,744 $ (121,588)
Trailer and Implement Components (508,591) (339,132)
-------------- --------------
Total Omni U.S.A., Inc. $ 364,153 $ (460,720)
============== ==============
31
NOTE 17 SEGMENT INFORMATION (continued)
Identifiable Assets
Power Transmission Components $ 8,359,439 $ 7,360,696
Trailer and Implement Components 2,609,569 3,358,554
-------------- --------------
Total Omni U.S.A., Inc. $ 10,969,008 $ 10,719,250
============== ==============
Revenues
Domestic Customers $ 17,989,668 $ 15,645,638
Foreign Customers 1,973,719 2,406,290
-------------- --------------
Total Revenues $ 19,963,387 $ 18,051,928
============== ==============
Property and Equipment (net)
Domestic $ 533,084 $ 595,551
Foreign 1,173,585 1,216,456
-------------- --------------
Total Property and Equipment $ 1,706,669 $ 1,812,007
============== ==============
Depreciation and amortization
Power Transmission Components $ 245,053 $ 231,820
Trailer and Implement Components 118,552 118,694
-------------- --------------
Total Omni U.S.A., Inc. $ 363,605 $ 350,514
============== ==============
Interest Expense
Power Transmission Components $ 292,983 $ 300,470
Trailer and Implement Components 127,044 92,540
-------------- --------------
Total Omni U.S.A., Inc. $ 420,027 $ 393,010
============== ==============
32
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF EXCHANGE ACT
The directors, executive officers, promoters and control persons of the
Company are set forth below. All directors hold office for a term of one year or
until their successors are duly elected and qualified. Each executive officer of
the Company is appointed by the Board of Directors at each annual meeting and
serves until a successor is duly elected and qualified.
Name Age Position
---- --- --------
Jeffrey K. Daniel 42 President, Chief Executive
Officer and Director
Craig L. Daniel 43 Vice President-Manufacturing
and Director
Kevin Guan 45 Director
Didi Duan 56 Director
Jeffrey K. Daniel has been an employee of Omni since 1985 and is currently the
Chief Executive Officer and President of the Company. He has a Bachelors degree
in Business Administration from the University of Colorado. He was Vice
President from 1987 until May 1994, when he was elected Chief Executive Officer
and President. Jeffrey K. Daniel is the brother of Craig L. Daniel. Jeffrey K.
Daniel has served as a director of the Company since January 1988.
Craig L. Daniel has been a full time employee of Omni since April, 1989, and is
currently Vice President-Manufacturing for the Company, Managing Director of
Omni Resources, Ltd. and General Manager of Shanghai Omni Gear Co., Ltd. Craig
L. Daniel is the brother of Jeffrey K. Daniel. Craig L. Daniel has served as a
director of the Company since December 1993.
Kevin Guan is currently the Managing Director of SIIC Real Estate Co., a
commercial real estate developer of projects in Hong Kong and China, (a
subsidiary of Shanghai Industrial Investment Corp.). From February 1993 through
February 1995, Mr. Guan was the General Manager, Shanghai Wai Gao Qiao
Development Corp, in the PuDong development zone of Shanghai. Mr. Guan is a
graduate of Shanghai Jiao Tong University, and received his MBA from Shanghai
University.
Didi Duan is currently the Chief Financial Officer and Director of Jiao Tong
University's Ang Li Science and Technology Co., Ltd., a specialty pharmaceutical
processor in the Chinese and East Asian markets. From January 1986 to February
1997, Ms. Duan was the Chief Financial Officer of Dong Feng Automotive Truck
manufacturing Division, vertically manufacturing 15-40 ton trucks for the
Chinese market. Ms. Duan graduated from Wuhan University in Hubei, and is an
accountant in Shanghai, under the accounting rules in China.
33
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding
compensation paid to the Company's executive officers in each of the three most
recent fiscal years:
Annual Compensation Long Term Compensation
--------------------------------------------------------------------------------------------
Awards Payouts
------------------------------------------
Restricted Securities
Name and Other Annual Stock Underlying All Other
Position Year Salary Bonus Compensation Awards Options/SARs Payouts Compensation
-------------------------------------------------------------------------------------------------------------------------------
Jeffrey K. Daniel
President & CEO 2001 $ 130,000 - - - - - -
2002 115,000 - - - - - -
2003 110,000 - - - - - -
Craig L. Daniel
Vice President- 2001 85,000 - - - - - -
Manufacturing 2002 85,000 - - - - - -
2003 85,000 - - - - - -
No other executive officer's salary or bonus exceeded $100,000 for the three
most recent fiscal years ended June 30, 2003.
---------------------
None of the executive officers are employed by the Company pursuant to
any employment contract or other agreement, and there are no arrangements or
understandings for the payment of bonuses or other payments upon a termination
of employment, or otherwise.
34
STOCK OPTION PLANS AND STOCK OPTIONS
The Company maintains a 1994 Non-Qualified Stock Option Plan (the "1994
NQSOP") and a 1996 Incentive Stock Option Plan (the "1996 ISOP"). The NQSOP
covers 200,000 shares of Common Stock and the 1996 ISOP covers 300,000 shares of
Common Stock. The purpose of the NQSOP and 1996 ISOP, under the discretion of
the Company's Board of Directors, is to offer eligible employees of the Company
and its subsidiaries an opportunity to acquire or increase their proprietary
interests in the Company and provide additional incentive to contribute to its
performance and growth.
On June 6, 1997, the Board, upon recommendation from the Compensation
Committee, repriced all options granted and existing to current Company
employees under the 1996 ISOP and NQSOP from $12.00 per share to $3.00 per
share. The repriced options vest 50% twelve (12) months from date of grant and
50% twenty-four (24) months from date of grant.
On June 6, 1997, the Board, upon recommendation of the Compensation
Committee, granted options to purchase 45,333 shares of Common Stock at $3.00
per share to each Jeffrey K. Daniel and Craig L Daniel, and granted options to
purchase 22,667 shares of Common Stock at $3.00 per share to Michael A. Zahorik,
all such options to vest three (3) years from date of grant.
On January 25, 1999, the Board, under the NQSOP, granted 3,333 options
to purchase Company Common Stock at $4.875 per share to James L. Davis, John F.
Lillicrop, and W. Wayne Patterson. All director options were immediately vested.
On January 3, 2000, the Board, under the NQSOP, granted 3,333 options
to purchase Company Common Stock at $3.564 per share to James L. Davis, John F.
Lillicrop, and W. Wayne Patterson. All director options were immediately vested.
On March 8, 1999, under the 1996 ISOP, David M. Sallean was granted
options to purchase 10,000 shares of Common Stock at an exercise price of
$3.564, vesting 100% three (3) years from date of grant.
On February 24, 2000, under the 1996 ISOP, David M. Sallean was granted
options to purchase 10,000 shares of Common Stock at an exercise price of
$3.1875, vesting 100% three (3) years from date of grant.
Effective October 1, 2001, Michael A. Zahorik was terminated as an
employee of Omni USA, Inc. By operation of the ISOP Agreement, Mr. Zahorik's
options were not exercised, and accordingly all 46,000 options were cancelled.
Effective October 24, 2001, David M. Sallean was terminated as an
employee of Omni USA, Inc. By operation of the ISOP Agreement, Mr. Sallean's
options were not exercised, and accordingly all 20,000 options were cancelled.
35
The following table provides repricing information for options held by
the Company's five most highly compensated executive officers. The repricing was
implemented in 1997 on the recommendation of the Compensation Committee to
conform the options to prevailing market prices and provide an incentive for
which the options were designed.
Ten-Year Options/SAR Repricings
Number of Length
Securities Market Exercise of Original
Underlying Price of Stock Price of Stock Option Term
Options/SARs at Time of at Time of New Remaining at
Repriced or Repricing or Repricing or Exercise Date of
Name Date Amended Amendment Amendment Price Repricing
---- ---- ------------ ------------- ------------- -------- ------------
Jeffrey K. Daniel 6/6/97 53,334 $2.25 $12.00 $3.00 9 years
Craig L. Daniel 6/6/97 53,334 $2.25 $12.00 $3.00 9 years
36
Under the 1996 ISOP, options for 318,334 shares had been granted as of
June 30, 2003. Under the 1994 NQSOP, options for 93,333 shares had been granted
as of June 30, 2003. The following table shows how the 1996 ISOP options are
distributed to groups within the Company based on the dollar value of
exercisable options in effect during fiscal year 2003 based on the closing price
of Common Stock at June 30, 2003 of $0.60:
1994 NQSOP and 1996 ISOP
------------------------------------------------------
Dollar Value / Shares Total Number of Shares
Name and Position Exercisable Represented by Options
----------------- --------------------- -----------------------
Jeffrey K. Daniel $ 0/98,667 98,667
President and CEO
Craig L. Daniel $ 0/98,667 98,667
Vice President-Manufacturing
Executive Officer Group $0/197,334 197,334
Non-Executive Officer Employee Group $ 0/71,666 71,666
Total $0/269,000 269,000
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
Value of Unexercised
Number of Unexercised in-the-money Options/
Shares Acquired Value Options/SARs at FY-End SARs at FY-End (2)
Name on Exercise Realized (1) Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- -------- ----------------------------- -------------------------
Jeffrey K. Daniel
President & CEO N/A N/A 98,667 $ 0
-------- -----
98,667/0
$0/$0
Craig L. Daniel
Vice President-Manufacturing N/A N/A 98,667 $ 0
-------- -----
98,667/0 $0/$0
------------------------
N/A Not applicable. No options were exercised during the fiscal year
ended June 30, 2003.
(1) Indicates number of options exercisable and unexercisable as of
June 30, 2003. (2) Based upon closing price of Common stock at
June 30, 2003 of $0.60.
OTHER COMPENSATION
The Company has paid no bonuses to its executive officers. The Company
has a group medical plan which provides medical and hospital benefits and term
life insurance to its officers and employees, at no cost. Jeffrey K. Daniel and
Craig L. Daniel are not compensated as directors.
37
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
EQUITY COMPENSATION
The following table sets forth information relating to compensation
plans under which equity securities of the Company are authorized for issuance:
-------------------------------- ------------------------------- ------------------------------- ------------------------------
Number of securities to be Weighted-average exercise Number of securities
issued upon exercise of price of outstanding options, remaining available for
outstanding option, warrants warrants and rights future issuance under equity
and rights compensation plans
(excluding securities
reflected in column (a))
-------------------------------- ------------------------------- ------------------------------- ------------------------------
(a) (b) (c)
-------------------------------- ------------------------------- ------------------------------- ------------------------------
Equity compensation plans 345,667 $3.63 154,333
approved by security holders
-------------------------------- ------------------------------- ------------------------------- ------------------------------
Equity compensation plans
not approved by security
holders - - -
-------------------------------- ------------------------------- ------------------------------- ------------------------------
Total 345,667 $3.63 154,333
-------------------------------- ------------------------------- ------------------------------- ------------------------------
CAPITALIZATION
The Company's currently authorized equity securities are as follows:
(i) 50,000,000 shares of Common Stock, par value $.004995 per share (see Note
2), (ii) 454,258 Class B Common Stock Purchase Warrants ("Class B Warrants"). As
of September 30, 2003, the Company had outstanding 1,227,079 shares of Common
Stock, and Class B Warrants to purchase 166,667 shares of Common Stock.
Class B Warrants. There are 166,667 Class B Warrants to purchase Common
Stock. The Class B Series 1 Warrants, which were exercisable by the holder
thereof at any time between 90 days after issuance and March 15, 2001, at $6.00
per share, expired on March 15, 2001. None of these Class B Warrants were
exercised. The 166,667 Class B Series 2 Warrants issued to PACCAR, Inc. may be
exercised at any time and expire July 1, 2009 (see Note 10 in the footnotes to
the financial statements).
38
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of the close of business on June 30,
2002, by each person who is known to the Company to be a beneficial owner of 5%
or more of the Common Stock, by each current and Nominee director, and by all
directors and executive officers as a group.
Amount and Nature
Of Beneficial
Name and Address of Beneficial Owner Ownership Percent of Class(1)
------------------------------------ --------- ----------------
Edward L. Daniel (3) 175,689 15.0%
Joan J. Daniel (3) 175,689 15.0%
PACCAR, Inc. (6) 166,667 12.5%
Craig L. Daniel (2)(5) 134,837 10.6%
Jeffrey K. Daniel (2)(4) 116,561 9.2%
Executive Officers and Directors as a Group 251,398 19.0%
---------------
(1) Based upon 1,227,079 shares of Common Stock outstanding as of June 30,
2003.
(2) The address for all officers is 7502 Mesa Road, Houston, Texas 77028.
(3) Includes 125,000 shares each subject to certain conditions and
limitations set forth in the Registration Rights Agreement (see Exhibit
10.11). The address for such beneficial owner is 2476 Bolsover, #626,
Houston, Texas 77005.
(4) Includes 98,667 shares purchasable under options at $3.00 per share and
1,255 shares held in street name and 257 shares held of record by the
Jeffrey K. Daniel Individual Retirement Account, a self-directed IRA
and 4,129 shares purchased through the Company's 401(k) plan.
(5) Includes 98,667 shares purchasable under options exercisable at $3.00
per share and 2,267 shares held of record by the Craig L. Daniel
Individual Retirement Account, a self-directed IRA.
(6) Includes 166,667 shares purchasable under Class B Warrants exercisable
at $6.00 per share and expire July 1, 2009. The address of such
beneficial owner is 777 106th Avenue NE, Bellevue, WA 98004.
39
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 13. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
Within 90 days prior to the date of this report, the Company carried
out an evaluation, under the supervision and with the participation of
its management, including the Chief Executive Officer and Controller,
of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on this evaluation, the
Company's Chief Executive Officer and Controller concluded that the
Company's disclosure controls and procedures (as defined in Rules
13a-14(c) under the Securities Exchange Act of 1934 (the"Exchange
Act") are effective.
CHANGES IN INTERNAL CONTROLS.
Subsequent to the date of the most recent evaluation, there were no
significant changes in the Company's internal controls or in other
factors that could significantly affect the Company's disclosure
controls and procedures, and there were no corrective actions with
regard to significant deficiencies and material weaknesses based on
such evaluation.
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
None.
40
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934, THE COMPANY HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
OMNI U.S.A., INC.
BY: /s/ JEFFREY K. DANIEL
-------------------------------------
JEFFREY K. DANIEL
CHIEF EXECUTIVE OFFICER AND PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS REPORT HAS BEEN
SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE COMPANY AND IN THE CAPACITIES
AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JEFFREY K. DANIEL CHIEF EXECUTIVE OFFICER SEPTEMBER 29, 2003
----------------------- & PRESIDENT
JEFFREY K. DANIEL
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INDEX OF EXHIBITS
Exhibit No. Name of Exhibit
3.1 Amended and Restated Articles of the Company, as amended
November 30, 1994. Incorporated by reference from the
Company's Amendment No. 1 to Registration Statement on Form
SB-2 filed with the Commission on December 22, 1994.
3.2 Certificate of Designation of Series A Redeemable Convertible
Preferred Stock. Incorporated by reference from the Company's
Registration Statement on Form SB-2 filed with the Commission
on October 12, 1994.
3.3 Certificate of Designation of Series B Convertible and Series
C Convertible Preferred Stock. Incorporated by reference from
the Company's Registration Statement on Form SB-2 filed with
the Commission on October 12, 1994.
3.4 By-laws of the Company. Incorporated by reference from the
Company's Registration Statement on Form SB-2 filed with the
Commission on October 12, 1994.
4.1 Certificate of Designation of Series A Redeemable Convertible
Preferred Stock. Incorporated by reference from the Company's
Registration Statement on Form SB-2 filed with the Commission
on October 12, 1994.
4.2 Certificate of Designation of Series B Convertible and Series
C Convertible Preferred Stock. Incorporated by reference from
the Company's Registration Statement on Form SB-2 filed with
the Commission on October 12, 1994.
4.3 Form of Class A Common Stock Purchase Warrant. Incorporated by
reference from the Company's Registration Statement on Form
SB-2 filed with the Commission on October 12, 1994.
4.4 Form of Class B Common Stock Purchase Warrant. Incorporated by
reference from the Company's Registration Statement on Form
SB-2 filed with the Commission on October 12, 1994.
4.5 Equity Contract Note dated as of June 30, 1994 issued to
Edward L. Daniel in the original principal amount of $918,304.
Incorporated by reference from the Company's Amendment No. 1
to Registration Statement on Form SB-2 filed with the
Commission on December 22, 1994.
4.6 Equity Contract Note dated as of November 29, 1991 issued to
Edward L. Daniel in the principal amount of $1,000,000.
Incorporated by reference from the Company's Amendment No. 2
to Registration Statement on Form SB-2 filed with the
Commission on January 30, 1995.
4.7 Corrected Registered Equity Contract Note dated as of June 30,
1993 issued to Edward L. Daniel in the original principal
amount of $1,968,304.02. Incorporated by reference from the
Company's Amendment No. 2 to Registration Statement on Form
SB-2 filed with the Commission on January 30, 1995.
10.1 Settlement Agreement dated as of June 30, 1994 by and among
the Company, Edward L. Daniel, Joan J. Daniel, and Daniel
Development Corporation. Incorporated by reference from the
Company's Registration Statement on Form SB-2 filed with the
Commission on October 12, 1994.
10.2 1994 Qualified Stock Option Plan. Incorporated by reference
from the Company's Registration Statement on Form SB-2 filed
with the Commission on October 12, 1994.
10.3 1994 Non-Qualified Stock Option Plan. Incorporated by
reference from the Company's Registration Statement on Form
SB-2 filed with the Commission on October 12, 1994.
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10.4 Stock Option Grant to Jeffrey Daniel. Incorporated by
reference from the Company's Registration Statement on Form
SB-2 filed with the Commission on October 12, 1994.
10.5 Stock Option Grant to Craig Daniel. Incorporated by reference
from the Company's Registration Statement on Form SB-2 filed
with the Commission on October 12, 1994.
10.6 Letter Agreement dated November 1, 1994 between the Company,
Edward L. Daniel, and LaPlante Compressor Limited.
Incorporated by reference from the Company's Amendment No. 1
to Registration Statement on Form SB-2 filed with the
Commission on December 22, 1994.
10.7 Articles of Association for Omni Gear Shanghai Ltd. dated
December 21, 1994 between the Company and Shanghai Shengang
Metallurgical Industry Company. Incorporated by reference from
the Company's Amendment No. 6 to Registration Statement on
Form SB-2 filed with the Commission on April 17, 1995.
10.8 Cooperative Joint Venture Contract for the Formation and
Operation of Shanghai Omni Gear Co., Ltd. dated December 12,
1994 between Omni Resources (H.G.) Limited and Shanghai
Shengang Metallurgical Industry Company. Incorporated by
reference from the Company's Amendment No. 6 to Registration
Statement on Form SB-2 filed with the Commission on
April 17, 1995.
10.9 Butler Products Corporation Share Purchase Agreement dated
October 1, 1996, together with exhibits. Incorporated by
reference from the Company's Form 8-K filed on October 18,
1996 and from the Company's Amended Form 8-K filed on
December 11, 1996.
10.10 Mutual Release and Settlement Agreement between Edward L.
Daniel, Joan J. Daniel and their affiliates effective June 30,
1997. Incorporated by reference from the Company's Form 8-K
filed on September 10, 1997.
10.11 Registration Rights Agreement between Edward L. Daniel, Joan
J. Daniel and their affiliates effective June 30, 1997.
Incorporated by reference from the Company's Form 8-K filed on
September 10, 1997.
10.12 Amendment to Lease Agreement dated August 1, 1997.
Incorporated by reference from the Company's Form 8-K filed on
September 10, 1997.
10.13 Assignment Agreement between Edward L. Daniel, Joan J. Daniel
and their affiliates dated August 15, 1997. Incorporated by
reference from the Company's Form 8-K filed on September 10,
1997.
21.1 Subsidiaries of the Registrant. Incorporated by reference from
the Company's Registration Statement on Form SB-2 filed with
the Commission on October 12, 1994.
31.1 Certification of Jeffrey Daniel, CEO and Chairman of the
Board pursuant to Rule 13a-14(a)15d-14(a) and pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Craig Daniel, Vice-President pursuant to
Rule 13a-14(a)15d-14(a) and pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of Jeffrey Daniel, CEO and Chairman of the
Board pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Craig Daniel, Vice-President pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
99.1 Press Release dated September 10, 1997. Incorporated by
reference from the Company's Form 8-K filed on September 10,
1997.
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