SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
Commission File Number: 0-17493
OMNI U.S.A., INC.
(Exact name of registrant as specified in its charter)
Nevada 88-0237223
(State of Incorporation) (IRS Employer Identification No.)
7502 Mesa Road, Houston, Texas 77028
(Address of principal executive offices)
(713) 635-6331
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
At November 14, 2003, there were 1,171,812 shares of common stock $.004995 par
value outstanding.
OMNI U.S.A., INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
September 30, 2003 and June 30, 2003
Condensed Consolidated Statements of Operations
Three Months Ended September 30, 2003 and September 30, 2002
Condensed Consolidated Statements of Cash Flows
Three Months Ended September 30, 2003 and September 30, 2002
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OMNI U.S.A., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, 2003 June 30, 2003
(unaudited)
------------------ -------------
CURRENT ASSETS
Cash $ 399,997 $ 709,230
Accounts receivable, trade, net 2,441,628 3,891,727
Accounts receivable, related parties 24,946 29,167
Inventories, net 4,231,556 4,014,108
Notes receivable 63,810 63,810
Prepaid expenses 246,533 224,049
----------- ------------
TOTAL CURRENT ASSETS 7,408,470 8,932,091
----------- ------------
PROPERTY AND EQUIPMENT, net of
Accumulated depreciation and amortization 1,665,856 1,706,669
----------- ------------
OTHER ASSETS
Primarily intangible assets, net 334,442 330,248
----------- ------------
TOTAL ASSETS $ 9,408,768 $ 10,969,008
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,609,760 $ 2,805,776
Line of credit 1,646,901 2,740,030
Accrued expenses 417,259 458,244
Current portion of long-term debt 822,891 819,604
----------- ------------
TOTAL CURRENT LIABILITIES 5,496,811 6,823,654
----------- ------------
LONG-TERM DEBT 1,101,639 1,161,953
----------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock (1,227,079 shares issued and 6,129 6,129
1,171,812 outstanding)
Additional paid-in capital 5,372,815 5,372,815
Treasury Stock (28,667 shares) (100,071) (100,071)
Retained earnings (deficit) (2,571,672) (2,391,717)
Foreign currency translation adjustment 103,117 96,245
----------- ------------
TOTAL STOCKHOLDERS' EQUITY 2,810,318 2,983,401
----------- ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 9,408,768 $ 10,969,008
=========== ============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
OMNI U.S.A., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three For the three
months ended months ended
September 30, 2003 September 30, 2002
------------------ ------------------
NET SALES $ 3,543,233 $ 4,462,093
COST OF SALES 2,792,474 3,242,660
----------- -----------
Gross Profit 750,759 1,219,433
----------- -----------
OPERATING EXPENSES
Selling, general and administrative 838,820 970,720
----------- -----------
Operating income/(loss) (88,061) 248,713
----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (95,405) (101,499)
Other, net 3,511 30,266
----------- -----------
OTHER INCOME (EXPENSE) (91,894) (71,233)
----------- -----------
NET INCOME/(LOSS) BEFORE INCOME TAXES $ (179,955) $ 177,480
----------- -----------
INCOME TAXES -- (40,393)
NET INCOME/(LOSS) $ (179,955) $ 137,087
----------- -----------
COMPREHENSIVE INCOME - Foreign
Currency Translation Adjustment $ 6,872 $ 366
----------- -----------
NET AND COMPREHENSIVE INCOME/(LOSS) $ (173,083) $ 137,453
=========== ===========
BASIC INCOME/(LOSS) PER SHARE $ (0.15) $ 0.11
=========== ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
OMNI U.S.A., INC. AND SUBSIDIARIES
CONDENDSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the three For the three
months ended months ended
September 30, 2003 September 30, 2002
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income/(loss) $ (179,955) $ 137,087
----------- -----------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 92,771 69,333
Deferred taxes -- 40,393
Changes in operating assets and
liabilities:
Accounts receivable/Notes receivable 1,454,320 184,212
Inventories (217,448) (55,120)
Prepaid expenses (22,484) (54,750)
Accounts payable and accrued expenses (237,001) (35,007)
Other (6,875) 1,070
----------- -----------
Total adjustments 1,063,283 150,131
----------- -----------
Net cash provided by operating
activities 883,328 287,218
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (49,277) (28,185)
----------- -----------
Net cash used by investing activities (49,277) (28,185)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock -- (9,516)
Borrowings on line of credit 2,921,241 2,972,790
Payments on line of credit (4,014,370) (3,486,252)
Payments on long-term debt (57,027) (47,325)
----------- -----------
Net cash used by financing activities (1,150,156) (570,303)
----------- -----------
TRANSLATION EFFECT OF FOREIGN CURRENCIES 6,872 366
NET DECREASE IN CASH (309,233) (310,904)
CASH AT BEGINNING OF PERIOD 709,230 821,544
----------- -----------
CASH AT END OF PERIOD $ 399,997 $ 510,640
=========== ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
The consolidated financial statements have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. As permitted under those rules, certain footnotes or
other financial information that are normally required by generally accepted
accounting principles in the United States (GAAP) have been condensed or
omitted. The Company believes that the disclosures made in this report are
adequate to make the information presented not misleading. These condensed
financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's latest annual
report on Form 10-KSB.
The Company's management is responsible for the unaudited financial
statements included in this document. In the opinion of the Company, all
adjustments, consisting of normal recurring adjustments, necessary to
present fairly the financial position of Omni U.S.A., Inc. and subsidiaries
as of September 30, 2003, and the results of their operations and cash flows
for the three months ended September 30, 2003, and 2002, have been made in
accordance with GAAP.
There are significant operations in Mainland China; 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 and Japan in which the functional currency is that
of the foreign location.
2. EARNINGS PER SHARE:
Basic and diluted income/(loss) per share is based on the weighted average
number of shares of common stock outstanding. For the periods ended
September 30, 2003 and 2002, the Company's weighted average shares are
calculated as follows:
September 30, September 30,
2003 2002
------------- -------------
Weighted average common shares outstanding 1,171,812 1,207,912
When the Company is in a net loss position, all common stock equivalents are
considered anti-dilutive and are therefore not included in the calculation
of earnings per share. During the three month period ended September 30,
2002, the Company had positive net income; however, the exercise price of
all common stock equivalents exceeded its average fair value. Accordingly,
all common stock equivalents were considered anti-dilutive during the period
and are therefore not included in the calculation of earnings per share.
3. MAJOR CUSTOMERS AND VENDORS:
During the fiscal quarters ended September 30, 2003 and September 30, 2002,
the Company and its subsidiaries had consolidated sales of $321,646 and
$780,941 to a domestic customer for a total of 9.1% and 17% of consolidated
sales. During the three months ended September 30, 2003 and September 30,
2002, the Company and its subsidiaries had consolidated purchases of
$1,063,496 and $1,600,995 from two vendors for a total of 51% and 49% of
consolidated purchases.
4. REVOLVING LINE OF CREDIT AND LONG-TERM DEBT:
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. Management is currently in negotiations to renegotiate the
terms and due dates of this line of credit under what it believes will be
comparable terms.
The Company also maintains a line of credit with a foreign financial
institution, which provides for maximum borrowings of $1,000,000 based on
the creditworthiness of the Company's customers serviced by the Company's
foreign subsidiary. Outstanding borrowings amounted to $56,121 and $224,569
at September 30, 2003 and June 30, 2003, respectively. The foreign line of
credit matures November 30, 2003 and bears interest at 5.625%. Management is
currently in negotiations to renegotiate the terms and due dates of this
foreign line of credit under what it believes will be comparable terms.
5. INCOME TAXES
The difference between the expected income tax benefit/(expense) at
September 30, 2003 of $61,185 and ($60,343) at September 30, 2002 which
would be determined by applying the statutory U.S. income tax rate of 34% to
income/(loss) before income tax expense, are due to differences in the
expected year-end effective income tax rate and increases in the valuation
allowance because the determination that the realization of tax assets in
future periods will be more likely than not can not be made at this time.
6. OPERATING LEASES
The Company leases equipment and office, warehouse and manufacturing space
in Houston, TX; Butler, KY, Madill, OK; Shanghai, China; and Hong Kong. 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 a real estate investment company located in Houston,
Texas, under a long-term lease expiring July 2005. The Butler facility is a
35,000 square feet manufacturing facility. The Shanghai facility leases
buildings in a manufacturing complex containing approximately 130,000 square
feet.
7. LITIGATION AND CONTINGENCIES
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.
8. SUBSEQUENT EVENTS
In October 2003, the Company committed to a plan to consolidate the
operations of its Trailer and Implement Components business segment into one
manufacturing facility. The Madill, Oklahoma facility was closed and its
employees terminated or relocated to Butler, Kentucky. The inventory,
machinery and equipment are being moved to Butler, Kentucky to fill excess
capacity and space. While the Company is still committed to the Madill
lease, it believes that the consolidation of manufacturing operations will
reduce costs with little or no adverse impact to future sales levels. The
Company anticipates approximately $25,000 in moving and severance expenses.
9. SEGMENT INFORMATION:
The Company and its subsidiaries are engaged in the business of designing,
developing and distributing power transmissions and trailer and implement
components used for agricultural, construction and industrial equipment.
Selected financial information by business segment with respect to these
activities for the first quarter ended September 30th is as follows
2003 2002
----------- -----------
Net Sales
---------
Power Transmission Components $ 2,740,136 $ 3,490,338
Trailer and Implement Components 803,097 971,755
----------- -----------
Total Omni U.S.A., Inc. $ 3,543,233 $ 4,462,093
=========== ===========
Income (Loss) from Operations
-----------------------------
Power Transmission Components $ (15,161) $ 225,594
Trailer and Implement Components (72,900) 23,119
----------- -----------
Total Omni U.S.A., Inc. $ (88,061) $ 248,713
=========== ===========
Net Income (Loss)
-----------------
Power Transmission Components $ (68,718) $ 132,562
Trailer and Implement Components (111,237) 4,525
----------- -----------
Total Omni U.S.A., Inc. $ (179,955) $ 137,087
=========== ===========
Identifiable Assets
-------------------
Power Transmission Components $ 6,846,488 $ 6,927,795
Trailer and Implement Components 2,562,280 3,323,598
----------- -----------
Total Omni U.S.A., Inc. $ 9,408,768 $10,251,393
=========== ===========
Revenues
--------
Domestic $ 3,093,997 $ 3,903,199
Foreign 449,236 558,894
----------- -----------
Total Revenues $ 3,543,233 $ 4,462,093
=========== ===========
Property and Equipment (Net)
----------------------------
Domestic Customers $ 504,974 $ 591,007
Foreign Customers 1,160,882 1,180,151
----------- -----------
Total Property and Equipment $ 1,665,856 $ 1,771,158
=========== ===========
Depreciation and Amortization
-----------------------------
Power Transmission Components $ 63,358 $ 59,438
Trailer and Implement Components 29,413 9,895
----------- -----------
Total Omni U.S.A., Inc. $ 92,771 $ 69,333
=========== ===========
Interest Expense
----------------
Power Transmission Components $ 66,110 $ 76,196
Trailer and Implement Components 29,295 25,303
----------- -----------
Total Omni U.S.A., Inc. $ 95,405 $ 101,499
=========== ===========
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This report has been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. This report should be read in
conjunction with the Company's latest Form 10-KSB, a copy of which may be
obtained by visiting the Company's home page at www.ousa.com, or by writing to
the Investor Relations Department, Omni U.S.A., Inc., 7502 Mesa Road, Houston,
Texas 77028.
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
$1,646,901 at September 30, 2003. The Company had working capital of $1,911,659
as of September 30, 2003 and working capital of $2,108,437 as of June 30, 2003,
a decrease of $196,778. The decrease in working capital from June 30, 2003 was
due to decreases in sales, net operating losses and payments on the line of
credit.
The Company had a cash balance of $399,997 as of September 30, 2003;
reflecting a negative cash flow of $309,233 compared to the June 30, 2003 cash
balance of $709,230. The Company's cash provided by operating activities for the
3 months ended September 30, 2003 of $883,328 consisted of the net loss for the
period and increases in accounts payable and inventory offset by combined
decreases in accounts receivable.
The Company's cash used in investing activities for the three months
ended September 30, 2003 of $49,277 consisted of net capital expenditures for
the period.
Net cash used by financing activities for the three months ended
September 30, 2003 of $1,150,156 consisted primarily of payments on the line of
credit and long-term debt.
The Company's current ratio was 1.35 as of September 30, 2003, which is
a 3% increase when compared to the June 30, 2003 current ratio of 1.31.
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.
Results for the Quarter ended September 30, 2003 compared with the Quarter ended
September 30, 2002
The Company had net sales of $3,543,233 for the three months ended
September 30, 2003. This represents a decrease of 21% compared to the three
months ended September 30, 2002 net sales of $4,462,093. Management believes
that the decrease in sales is due to the annual sales cycle of the industry
during this time of year and some June 2002 deliveries that were delayed until
the three months ended September 30, 2002. The following table indicates the
Company's net sales comparison and percentage of change for the three months
ended September 30, 2003 and 2002:
-------------------------------------------------------------------------------------------------------------
QUARTER QUARTER
ENDED % OF ENDED % OF DOLLAR %
NET SALES 9/30/03 TOTAL 9/30/02 TOTAL CHANGE CHANGE
-------------------------------------------------------------------------------------------------------------
Power Transmission Components $2,740,136 77% $3,490,338 78% $(750,202) (21%)
-------------------------------------------------------------------------------------------------------------
Trailer and Implement Components 803,097 23% 971,755 22% $(168,658) (17%)
-------------------------------------------------------------------------------------------------------------
Consolidated $3,543,233 100% $4,462,093 100% $(918,860) (21%)
-------------------------------------------------------------------------------------------------------------
Gross profit for the three months ended September 30, 2003 decreased
$468,674 to $750,759, compared to gross profit for the three months ended
September 30, 2002 of $1,219,433. The decrease in sales and gross profit was
primarily attributable to a decrease in sales in both business segments. Gross
profit as a percentage of net sales for the three months ended September 30,
2003 decreased to 21% as compared to 27% for the three months ended September
30, 2002. This decrease was primarily due to the product mix of sales with
decreased sales of higher margin power transmission components for the period.
Selling, general and administrative expenses decreased $131,900 to
$838,820 in the three months September 30, 2003 compared to $970,720 in the
three months ended September 30, 2002. This included the reduction of certain
allowances and reserves in response to collection of certain older accounts
previously included in allowance for doubtful accounts and sales of slower
moving inventory previously included in the reserve for obsolete inventory.
Income from operations for the Company decreased $336,774 to a loss of
$88,061 for the three months ended September 30, 2003, compared to an operating
income of $248,713 for the three months ended September 30, 2002. Income from
operations as a percentage of sales decreased to (2%) in the three months ended
September 30, 2003 compared to a gain of 6% in the three months ended September
30, 2002. This decrease is principally the result of decrease in sales and
margins to comparable periods.
Interest expense decreased $6,094 to $95,405 for the three months ended
September 30, 2003 from $101,499 for the three months ended September 30, 2002.
The decrease resulted from decreased borrowings associated with the Company's
lines of credit and long-term debt.
Other income (expense) was income of $3,511 for the three months ended
September 30, 2003 compared to $30,266 for the three months ended September
30, 2002. This change primarily relates to decreased commission income and VAT
refund on increased sales.
The Company's net income decreased $317,042 resulting in a net loss of
$179,955, or a loss of ($0.15) per share, for the three months ended September
30, 2003 compared to a net income of $137,087 or $0.11 per share, for the three
months ended September 30, 2002.
Cautionary Statement
The following is a "Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995:
With the exception of historical facts, the statements contained in Item
2 of this form 10-QSB are forward-looking statements. Forward-looking statements
discuss future expectations, plans, strategies, activities or events. They often
include words such as believe, expect, anticipate, intend or plan, or words with
similar meaning or with future or conditional verbs such as will, would, should,
or may. The Company does not plan to update these forward-looking statements to
reflect events or changes that occur after they are made.
Actual results may differ materially from those contemplated by the
forward-looking statements. The Company cannot guarantee that any forward
looking statement will be realized, although the Company and its management
believe that it has been prudent in its plans and assumptions. Investors are
further directed to the Company's documents, such as its Annual Report on Form
10-KSB, Forms 10-QSB's and Forms 8-KSB filed with the Securities and Exchange
Commission. Achievement of future results and these forward-looking statements
involve risks and uncertainties, including but not limited to, the following:
1) acts or threats of war or terrorism, and the effects of such acts or
threats on the Company, its employees, its debtors, customers and
vendors as well as the local and international economies in which the
Company sells its products,
2) changes in the availability of debt and equity capital resulting in
increased costs, shareholder dilution, or reduced liquidity and lack of
working capital,
3) cyclical downturns affecting the markets for our products over which we
have no control,
4) our lack of ability to generate profitable operations and positive cash
flows from those operations,
5) the effects of our failure to timely pay our outstanding debts,
6) substantial increases in interest rates,
7) availability or material increases in the costs of select raw materials,
The Company undertakes no obligation to publicly update or otherwise
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. All subsequent written and oral forward looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the applicable cautionary statements.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There have been no material changes from the disclosure in the
Company's Form 10-KSB for the fiscal year ended June 30, 2003.
Item 6(a). Exhibits
Exhibit 31.1
Item 6(b). Reports on filed Form 8-K.
None
Item 7. 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 our
management, including our Chief Executive, of the effectiveness of
the design and operation of our disclosure controls and procedures.
Based on this evaluation, the Company's Chief Executive Officer
concluded that the Company's disclosure controls and procedures (as
defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934 (the "Exchange Act")) are effective to ensure
that information required to be disclosed by the Company in reports
that it files or submits under the Exchange Act is recorded,
processed, summarized and reported to the Company's management within
the time periods specified in the Securities and Exchange
Commission's rules and forms.
Changes in internal controls. Subsequent to the date of their
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 required with regard to significant deficiencies
and material weaknesses based on such evaluation.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 18, 2003 OMNI U.S.A., INC.
By: /s/ Jeffrey K. Daniel
-----------------------------
Jeffrey K. Daniel
President and Chief
Executive Officer