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, 2004
COMMISSION FILE NUMBER: 0-17493
OMNI U.S.A., INC.
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(Name of Registrant)
NEVADA 88-0237223
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(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
Issuer's internet address: www.ousa.com
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 $19,151,939
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of October 12, 2004 was approximately $1,021,660 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, 2004 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.
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. The Company believes that the consolidation of manufacturing operations
will reduce costs with little or no adverse impact to future sales levels.
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% of the Company's
revenues in fiscal years 2004 and 2003.
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% of the Company's net
sales in fiscal years 2004 and 2003.
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
sufficiently
4
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.
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 prior to fiscal 2004 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
$1,628,000 in inventory at the Houston, Texas facility, approximately $972,000
at the Butler, Kentucky facility, approximately $985,000 at the Shanghai, China
facility, approximately $146,000 in Brazil and approximately $282,000 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, 2004, the Company's backlog was approximately $10,600,000.
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 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 two hundred
sixteen persons worldwide; (i) one hundred sixty-two by Shanghai Omni Gear, (ii)
nineteen at the Company's Houston, Texas facility, (iii) thirty at the Company's
facilities in Butler, Kentucky, (iv) three by Omni Gear do Brazil, and (v) two
by Omni Resources. Twenty-three of Butler's thirty 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 three 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 and
Shanghai, 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. 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.
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, 2004.
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
-------------- --- ----
06/30/02 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
09/30/03 0.50 1.80
12/31/03 0.70 0.70
03/31/04 0.36 1.12
06/30/04 0.88 1.65
As of October 12, 2004, the closing price of the Company's Common Stock
was $1.11 per share. As of June 30, 2004, 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 $2,109,416 as of June 30, 2004; 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 $347,040 at
June 30, 2004. The Company had working capital of $2,436,127 as of June 30, 2004
and $2,108,434 as of June 30, 2003; an increase of $327,687 during the fiscal
year ended June 30, 2004. The change in working capital was due primarily to
decreases in accounts receivable, accounts payable, inventory, accrued expenses
and borrowings on long-term debt offset by payments on the Company's lines of
credit in the fiscal year ended June 30, 2004.
The Company had negative cash flow of $176,208 which resulted in a cash
balance of $533,022 at the year ended June 30, 2004, compared to the June 30,
2003 cash balance of $709,230. The negative cash flow was generated by increases
in payments to the line of credit and notes payable and capital additions.
The inventory balance as of June 30, 2004 was $4,013,221, a decrease of
$887 compared to the June 30, 2003 inventory of $4,014,108.
The Company's cash used in investing activities for the year ended June
30, 2004 of ($150,160) consisted primarily of capital expenditures for fixed
assets compared to ($355,792) for the year ended June 30, 2003. 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, 2004
of $2,015,956 consisted primarily of net repayments of the Company's line of
credit as well as the temporary factoring agreement.
The Company's current ratio was 1.56 as of June 30, 2004, which is a 19%
increase when compared to the June 30, 2003 current ratio of 1.31.
On August 4, 2004, the Company entered into a revolving line of credit
agreement with a new financing company with maximum borrowings up to $5,000,000,
dependent upon qualifying trade accounts receivable and inventory balances. The
line of credit matures August 3, 2007, bears interest a prime plus 1.75% and
incurs an unused line of credit fee of .25%. The credit line is subject to
certain financial ratio and reporting covenants. The line of credit is secured
by all of the assets of the Company and personal guarantees by two officers of
the Company of $1,000,000 each. Proceeds received under the line of credit
agreement were used to repay any amounts owed under the inventory note payable.
With its access to the line of credit and its anticipated ability to
generate funds internally, the Company believes 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's ability 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, 2004, compared to fiscal year ended June 30
2003. 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 $19,151,939 for the year ended June 30, 2004. This
represents a decrease of 4% compared to the year ended June 30, 2003 net sales
of $19,963,387. The following table indicates the Company's net sales comparison
and percentage of change for the years ended June 30, 2004 and 2003:
YEAR ENDED % YEAR ENDED % DOLLAR %
NET SALES 6/30/04 OF TOTAL 6/30/03 OF TOTAL CHANGE CHANGE
-------------------------------------------------------------------------------------------------------------
Power Transmission Components $15,961,652 83% $16,530,045 83% $ (568,393) (3%)
Trailer and Implement Components 3,190,287 17% 3,433,342 17% (243,055) (7%)
Consolidated $19,151,939 100% $19,963,387 100% $ (811,448) (4%)
The decrease of net sales of both business segments was relative to a general
market decline.
Gross profit for the year ended June 30, 2004 decreased $96,274 to
$4,536,093, compared to gross profit for the year ended June 30, 2003 of
$4,632,367. The decrease in gross profit is due primarily to decrease in net
sales, offset by improved efficiencies in manufacturing, ongoing efforts to
manage and decrease overhead. Gross profit as a percentage of net sales was 24%
for the year ended June 30, 2004 and 23% for the year ended June 30, 2003.
Selling, general and administrative expenses decreased $159,726 to
$3,821,650 in the year ended June 30, 2004 from $3,981,376 in the year ended
June 30, 2003. Selling, general and administrative expenses as a percentage of
sales was 20% for the year ended June 30, 2004 and 20% for the year ended June
30, 2003. The decrease in selling, general and administrative expenses are due
to decreased operational support required by the decrease in sales activity as
well as operational efficiencies gained due to consolidation of the Butler
facilities.
Income from operations for the Company increased $63,452 to $714,443 for
the year ended June 30, 2004, compared to $650,991 for the year ended June 30,
2003. This increase is primarily the result of decreased gross profit, offset by
decreased selling, general, and administrative expenses during the year ended
June 30, 2004.
Interest expense increased $18,589, to $438,616 for the year ended June
30, 2004 from $420,027 for the year ended June 30, 2003. 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, net (expense) was income of $28,898 for the year ended June
30, 2004 compared to an income of $164,496 for the year ended June 30, 2003. The
change was mostly attributable to the reduction in miscellaneous income in
foreign operations.
The Company's net income decreased $81,852 to $282,301, or $0.24 per
share, for the year ended June 30, 2004 compared to $364,153, or $0.31 per
share, for the year ended June 30, 2003.
Critical Accounting Policies
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.
12
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.
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, 2004 and 2003
14
Harper & Pearson Company
One Riverway, Suite 1000
Houston, Texas 77056
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2004 and 2003, and the related consolidated
statements of income and comprehensive income, 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 the standards of the Public Company
Accounting Oversight Board (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, 2004 and 2003, 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, 2004
15
OMNI U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2004 AND 2003
2004 2003
------------ ------------
ASSETS
CURRENT ASSETS
Cash $ 533,022 $ 709,230
Accounts receivable, trade, net 2,042,392 3,891,727
Accounts receivable, related parties 24,740 29,167
Inventories, net 4,013,221 4,014,108
Notes receivable, trade - 63,810
Prepaid expenses 200,041 224,049
------------ ------------
TOTAL CURRENT ASSETS 6,813,416 8,932,091
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 1,522,830 1,706,669
OTHER ASSETS - primarily intangible assets, net 329,756 330,248
------------ ------------
TOTAL ASSETS $ 8,666,002 $ 10,969,008
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,430,087 $ 2,805,776
Revolving line of credit 347,040 2,740,030
Accrued expenses 256,031 458,244
Current portion of notes payable 1,344,134 819,604
------------ ------------
TOTAL CURRENT LIABILITIES 4,377,292 6,823,654
------------ ------------
NOTES PAYABLE 1,014,436 1,161,953
------------ ------------
STOCKHOLDERS' EQUITY
Common stock (1,227,079 shares issued and 1,171,812 6,129 6,129
shares outstanding)
Additional paid-in capital 5,372,815 5,372,815
Treasury stock (55,267 shares) (100,071) (100,071)
Retained deficit (2,109,416) (2,391,717)
Foreign currency translation adjustment 104,817 96,245
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 3,274,274 2,983,401
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 8,666,002 $ 10,969,008
============ ============
See accompanying notes.
16
OMNI U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED JUNE 30, 2004 AND 2003
2004 2003
------------ ------------
NET SALES $ 19,151,939 $ 19,963,387
COST OF SALES (14,615,846) (15,331,020)
------------ ------------
Gross Profit 4,536,093 4,632,367
OPERATING EXPENSES
Selling, general and administrative (3,821,650) (3,981,376)
------------ ------------
Operating income 714,443 650,991
OTHER INCOME (EXPENSE)
Commission income, net (22,424) 9,086
Interest expense (438,616) (420,027)
Other, net 28,898 164,496
------------ ------------
INCOME BEFORE INCOME TAX EXPENSE 282,301 404,546
INCOME TAX EXPENSE - 40,393
NET INCOME 282,301 364,153
GAIN (LOSS) ON FOREIGN CURRENCY
TRANSLATION ADJUSTMENT 8,572 (75)
------------ ------------
COMPREHENSIVE INCOME $ 290,873 $ 364,078
============ ============
BASIC INCOME PER SHARE $ 0.24 $ 0.31
============ ============
DILUTED INCOME PER SHARE $ 0.24 $ 0.31
============ ============
See accompanying notes.
17
OMNI U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2004 AND 2003
Common Stock
---------------------
Number Additional Foreign
of Shares Paid-In Treasury Retained Currency
Outstanding Amount Capital Stock Deficit Adjustment Total
----------- ------ ------- ----- ------- ---------- -----
Balance, June 30, 2002 1,207,912 $ 6,129 $ 5,372,815 $ (57,141) $ (2,755,870) $ 96,320 $ 2,662,253
Number of Shares Repurchased (36,100) (42,930) (42,930)
Net Income (Loss) 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
Number of Shares Repurchased
Net Income (Loss) 282,301 282,301
Unrealized gain on foreign
currency translation adjustment 8,572 8,572
--------- ------- ----------- ---------- ------------ --------- -----------
Balance, June 30, 2004 1,171,812 $ 6,129 $ 5,372,815 $ (100,071) $ (2,109,416) $ 104,817 $ 3,274,274
========= ======= =========== ========== ============ ========= ===========
See accompanying notes.
18
OMNI U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2004 AND 2003
2004 2003
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 282,301 $ 364,153
------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 344,980 363,605
Deferred tax expense - 40,393
Loss on disposal of assets - 4,542
Changes in operating assets and liabilities:
Accounts and notes receivable 1,917,572 (427,101)
Inventories 887 154,418
Prepaid expenses 24,008 (109,137)
Accounts payable and accrued expenses (577,904) 511,955
Other assets (10,509) -
------------ ------------
Total adjustments 1,699,035 538,675
------------ ------------
Net cash provided by operating
activities 1,981,336 902,828
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (150,160) (224,320)
Acquisition of intangible and other assets - (131,472)
------------ ------------
Net cash used by investing activities (150,160) (355,792)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings on lines of credit 12,818,577 14,410,218
Payments on line of credit (15,211,546) (14,520,458)
Purchase of Treasury Stock - (42,930)
Payments on notes payable 377,013 (506,105)
------------ ------------
Net cash used by financing
activities (2,015,956) (659,275)
------------ ------------
Gain (Loss) on foreign currency translation adjustment 8,572 (75)
------------ ------------
NET DECREASE IN CASH (176,208) (112,314)
CASH AT BEGINNING OF PERIOD 709,230 821,544
------------ ------------
CASH AT END OF PERIOD $ 533,022 $ 709,230
============ ============
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 do 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 distributing 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 do 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 $436,952 and $560,493 in 2004 and 2003,
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. Sales of receivables without recourse under the Company's
factoring arrangement as further discussed in Note 2 are recorded as a
sales of assets.
As of June 30, 2004, one customer accounted for 15% of consolidated
receivables. As of June 30, 2003 one customer accounted for 28% 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 $985,000 and
$827,846 at June 30, 2004 and 2003, respectively and in Brazil of
approximately $146,000 and $126,000 at June 30, 2004 and 2003,
respectively.
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 of non-goodwill intangibles 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, 2004 and
2003, the Company had $168,000 in intangible goodwill is no longer being
amortized as a result of this statement. Management believes that there is
no impairment to goodwill at June 30, 2004 and 2003.
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, 2004
and 2003 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, 2004 and 2003, the Company does not
have any derivatives and has experienced no impact from adoption of SFAS
No. 133.
Other Income - Other income consists of income received from sales of
scrap inventory and gains and losses on the sales of assets. Value added
tax rebates classified as other income at June 30, 2003 amounting to
approximately $199,000 has been reclassified to cost of goods sold to
conform to the presentation at June 30, 2004.
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 ACCOUNTS RECEIVABLE
Accounts receivable at June 30 consisted of the following:
2004 2003
---- ----
Accounts receivable, trade $2,167,540 $4,127,126
Allowance for doubtful accounts (125,148) (235,399)
---------- ----------
$2,042,392 $3,891,727
========== ==========
In May 2004, the Company entered into a factoring agreement with a
financing company which temporarily replaced the Company's revolving line
of credit. Under the factoring agreement, the financing company purchases
qualifying accounts receivable without recourse subject to a residual
payment of 15% of the receivable balance less factoring fees. The Company
accounts for the factoring of the receivables as a sale of assets in
accordance with Statement of Financial Accounting Standards No. 140
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. Total receivables sold under the factoring
agreement were $1,419,630 at June 30, 2004. Included in accounts
receivable at June 30, 2004 are $212,944 in residual payments due to the
Company from the financing company. Subsequent to June 30, 2004, the
factoring arrangement was replaced with a revolving line of credit as
further discussed in Note 18.
23
NOTE 3 INVENTORIES
Inventories at June 30 consisted of the following:
2004 2003
---- ----
Raw materials $ 299,755 $ 225,106
Work in process 196,438 225,634
Finished Goods 3,646,008 3,684,368
Reserve for obsolete inventory (128,980) (121,000)
----------- -----------
$ 4,013,221 $ 4,014,108
=========== ===========
NOTE 4 PROPERTY AND EQUIPMENT
Property and equipment at June 30 consisted of the following:
2004 2003
---- ----
Warehouse, manufacturing, and office equipment $ 3,842,786 $ 3,730,611
Land, buildings, and leasehold improvements 634,209 620,669
Tooling costs 546,651 522,206
----------- -----------
5,023,646 4,873,486
Accumulated depreciation and amortization (3,500,816) (3,166,817)
----------- -----------
$ 1,522,830 $ 1,706,669
=========== ===========
NOTE 5 OTHER ASSETS
Other assets at June 30 consisted of the following:
2004 2003
---- ----
Intangible assets $ 439,412 $ 931,113
Cash surrender value of life insurance - 12,419
--------- ---------
$ 439,412 $ 943,532
Accumulated amortization (124,671) (613,284)
--------- ---------
$ 314,741 $ 330,248
========= =========
24
NOTE 6 REVOLVING LINES OF CREDIT
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 $347,040 and
$224,569 at June 30, 2004 and June 30, 2003, respectively. The line of
credit matures November 30, 2004 and bears interest at 5.625%.
The Company previously had a revolving line of credit with a financing
company which provided for maximum borrowings of $4,000,000. The line of
credit bore interest at prime plus 1-2% dependent upon certain financial
ratios, required maintenance of certain levels of income and tangible net
worth and was secured by essentially all of the U.S. assets of the
Company. The line of credit matured in June 2003 and was not in compliance
with its minimum financial reporting covenants at June 30, 2003. The
Company continued to borrow under the line of credit under verbal
extensions and waivers from the financing company until the financing
company halted borrowings in May 2004. The line of credit was repaid and
replaced with a factoring facility and inventory term loan with another
financing company as discussed in Notes 2 and 7. Borrowings under the line
of credit at June 30, 2004 and 2003 amounted to $0 and $2,515,461,
respectively.
On August 4, 2004, the Company entered into a revolving line of credit
agreement with a new financing company with maximum borrowings up to
$5,000,000, dependent upon qualifying trade accounts receivable and
inventory balances. The line of credit matures August 3, 2007, bears
interest a prime plus 1.75% and incurs an unused line of credit fee of
.25%. The credit line is subject to certain financial ratio and reporting
covenants. The line of credit is secured by all of the assets of the
Company and personal guarantees by two officers of the Company of
$1,000,000 each. Proceeds received under the line of credit agreement were
used to repay any amounts owed under the inventory note payable.
25
NOTE 7 NOTES PAYABLE
Notes payable at June 30 consisted of the following:
2004 2003
---- ----
Notes payable to banks/finance companies, due in aggregate monthly
installments of $949 including interest ranging from 1.9% to 7.7%,
maturing at various dates through 2006, secured by vehicles $ 12,691 $ 23,967
Notes payable to equipment manufacturer, due in aggregate monthly
installments of $198 including interest, maturing at various dates
through 2008 6,636 -
Note payable to equipment manufacturer, secured by equipment
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. 178,683 230,985
Note payable to PACCAR, Inc. due in minimum monthly payments of $18,600
including principle and interest of approximately 11% commencing for a
period of 5 years in May 2002, unsecured 601,647 738,639
Note payable to supplier of $435,916 payable in a 10% premium paid on
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. 347,902 435,916
Note payable to foreign third party principle due in one payment
January 27, 2006, interest at 0.54% due monthly and secured by certain
machinery and equipment of Shanghai Omni Gear 362,443 302,050
Junior Subordinated Notes to Butler Products Corporation former owners
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. 181,974 250,000
Inventory note payable of $850,000 at 7% due in monthly payments of
$30,000 with the remaining balance due August 31, 2004. The note
payable is subject to certain financial and reporting covenants and
secured by the assets of the Company. The Company was in not in
compliance with its covenants at June 30, 2004. The note was repaid in
August 2004 as further discussed in Note 18 with a new revolving line
of credit. 666,595 -
---------- ----------
2,358,570 1,981,557
Less current portion 1,344,134 819,604
---------- ----------
Long term portion $1,014,436 $1,161,953
========== ==========
26
NOTE 7 NOTES PAYABLE (CONTINUED)
Future maturities of long-term debt by fiscal year are as follows:
2005 $ 1,344,134
2006 346,232
2007 367,114
2008 251,374
2009 49,716
------------
$ 2,358,570
============
NOTE 8 COMMON STOCK
The Company has authorized 50,000,000 shares of common stock with a par
value of $.004995 per share. At June 30, 2004, the Company had issued
1,227,079 shares with 1,171,812 shares outstanding and 55,267 treasury
shares. 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 $2,109,416 as of June 30, 2004;
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.
NOTE 9 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
Price per Warrants
Expiration Date Share Issued
--------------- --------- ---------
Class B Series (PACCAR. Inc.) July 1st, 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.
27
NOTE 10 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-
Total # $12.00 $3.00 $4.875 $6.75 $3.564 $3.1875 Average
Stock Option Summary of Shares Options Options Options Options Options Options Exercise Price
----------------------------- --------- ------- ------- ------- ------- ------- ------- --------------
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 0
Options Canceled 0 0 0 0 0 0 0 0
Options Outstanding at June 345,667 23,333 297,333 10,000 5,000 10,000 0 3.63
30, 2003
Options Granted 0 0 0 0 0 0 0 0
Options Canceled 0 0 0 0 0 0 0 0
Options Outstanding at June 345,667 23,333 297,333 10,000 5,000 10,000 0 3.63
30, 2004
Exercisable at June 30, 2004 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 3.63
Available for future grant at
June 30, 2004 154,333
------- ------ ------- ------- ----- ------ -- ----
Weighted-average remaining
contractual life in years 2.7 1 2.5 5 5 5.5 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, 2004 and 2003 and there was no effect to the income
statement under SFAS 123 and 148.
28
NOTE 11 EARNINGS PER SHARE
The following sets forth the computation of basic and diluted earnings per
share at June 30, 2004 and 2003.
2004 2003
----------- -----------
Numerator
Net Income (loss) $ 282,301 $ 364,153
=========== ===========
Denominator
Denominator for basic earnings per share -
weighted average common shares outstanding 1,171,812 1,184,287
Effect of dilutive securities:
Conversion of dilutive stock options - -
----------- -----------
Denominator for dilutive earnings per share -
adjusted weighted average shares and assumed conversion 1,171,812 1,184,287
=========== ===========
Basic Earnings Per Share $ 0.24 $ 0.31
=========== ===========
Diluted Net Earnings Per Share $ 0.24 $ 0.31
=========== ===========
Stock options at June 30, 2004 and 2003 are antidilutive as all exercise
prices are currently higher than the market price.
NOTE 12 INCOME TAXES
Income tax (expense) benefit is comprised of the following:
2004 2003
---- ----------
Current state - -
Deferred - Current - 40,393
Deferred - Long-Term - -
---- ----------
- $ 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.
29
NOTE 12 INCOME TAXES (continued)
The components of the Company's deferred tax assets and liabilities
at June 30 are as follows:
2004 2003
--------- ---------
Current deferred tax assets
Accounts receivable $ 43,000 $ 71,000
Inventory 63,000 60,000
Domestic net operating loss carry-forwards 164,000 144,000
Foreign subsidiary net operating loss carry-forwards 517,000 528,000
--------- ---------
Deferred tax assets 787,000 803,000
Non-current deferred tax liabilities
Depreciation (128,000) (77,000)
--------- ---------
Net deferred income tax assets 659,000 726,000
Valuation allowance (659,000) (726,000)
--------- ---------
Net deferred income taxes - -
========= =========
The valuation allowance decreased $67,000 and $30,107 during 2004
and 2003, respectively due to losses. At June 30, 2004 the Company
had approximately $482,000 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, 2004. The cumulative amount of undistributed
losses of its foreign subsidiaries is approximately $1,500,000 at
June 30, 2004.
The difference between the effective rate of income tax expense at
June 30, 2004 and 2003 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.
2004 2003
-------- ----------
Provision for income tax benefit/(expense) at U.S. statutory rates $(64,407) $ (137,550)
Change in income tax benefit/(expense) resulting from:
Non-deductible expense (3,600) (3,183)
Utilization of NOL carry forwards previously reserved - 71,728
Other 1,007 (1,495)
Change in valuation reserve 67,000 30,107
-------- ----------
Income tax benefit (expense) - ($40,393)
======== ==========
30
NOTE 13 COMMITMENTS AND CONTINGENCIES
Operating Leases - The Company leases equipment and office,
warehouse and manufacturing space in Houston, Texas and Shanghai,
China. The Houston lease is $8,500 per month through 2005. The
Shanghai lease began in 1996 and has a thirty-year term at
approximately $10,000 per month. At June 30, 2004, the future
minimum rental payments required under operating leases were
approximately:
2005 $ 232,824
2006 137,717
2007 129,217
2008 129,217
2009 127,457
Thereafter 1,751,842
----------
Total $2,508,274
==========
Rent expense was approximately $257,000 and $303,400 during the
years ended June 30, 2004 and 2003, 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 - Seventy-seven percent of one of the subsidiary's
employees, (specifically, twenty-three of thirty 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, 2004 and 2003, the
Company made no contributions to the plan.
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.
31
NOTE 14 MAJOR CUSTOMERS AND SUPPLIERS
The Company and its subsidiaries had consolidated sales in its power
transmission component segment of $3,954,991 and $4,622,482 to one
customer representing 21% and 22% of total consolidated sales in
fiscal 2004 and 2003, respectively.
Approximately 61% and 65% of the Company's inventory purchases were
from two companies in China in 2004 and 2003, respectively.
NOTE 15 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 loss carryforwards, the Company was not
required to pay any income taxes in 2004 and 2003.
The Company paid interest of $438,616 and $401,230 during the fiscal
years ended June 30, 2004 and 2003 respectively.
NOTE 16 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:
2004 2003
-------------- --------------
Net Sales
Power Transmission Components $ 15,961,652 $ 16,530,045
Trailer and Implement Components 3,190,287 3,433,342
-------------- --------------
Total Omni U.S.A., Inc. $ 19,151,939 $ 19,963,387
============== ==============
Income from Operations
Power Transmission Components $ 901,049 $ 1,029,695
Trailer and Implement Components (186,606) (378,704)
-------------- --------------
Total Omni U.S.A., Inc. $ 714,443 $ 650,991
============== ==============
Net Income (Loss)
Power Transmission Components $ 571,980 $ 872,744
Trailer and Implement Components (289,679) (508,591)
-------------- --------------
Total Omni U.S.A., Inc. $ 282,301 $ 364,153
============== ==============
32
NOTE 16 SEGMENT INFORMATION (continued)
Identifiable Assets
Power Transmission Components $ 5,819,116 $ 8,359,439
Trailer and Implement Components 2,846,886 2,609,569
----------- -----------
Total Omni U.S.A., Inc. $ 8,666,002 $10,969,008
=========== ===========
Revenues
Domestic Customers $16,823,270 $17,989,668
Foreign Customers 2,328,669 1,973,719
----------- -----------
Total Revenues $19,151,939 $19,963,387
=========== ===========
Property and Equipment (net)
Domestic $ 469,990 $ 533,084
Foreign 1,052,840 1,173,585
----------- -----------
Total Property and Equipment $ 1,522,830 $ 1,706,669
=========== ===========
Depreciation and amortization
Power Transmission Components $ 237,070 $ 245,053
Trailer and Implement Components 107,910 118,552
----------- -----------
Total Omni U.S.A., Inc. $ 344,980 $ 363,605
=========== ===========
Interest Expense
Power Transmission Components $ 333,370 $ 292,983
Trailer and Implement Components 105,246 127,044
----------- -----------
Total Omni U.S.A., Inc. $ 438,616 $ 420,027
=========== ===========
33
NOTE 17 RESTRUCTURING
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 were moved to Butler, Kentucky to fill excess
capacity and space. The Company believes that the consolidation of
manufacturing operations will reduce costs with little or no adverse
impact to future sales levels.
NOTE 18 SUBSEQUENT EVENTS
On August 4, 2004, the Company entered into a revolving line of credit
agreement with a new financing company with maximum borrowings up to $5
million dependent upon qualifying trade accounts receivable and inventory
balances. The line of credit matures August 3, 2007, bears interest a
prime plus 1.75% and incurs an unused line of credit fee of .25%. The
credit line is subject to certain financial ratio and reporting covenants.
The line of credit is secured by all of the assets of the Company and
personal guarantees by two officers of the Company of $1,000,000 each.
Proceeds received under the line of credit agreement were used to repay
any amounts owed under the inventory note payable.
NOTE 19 FOURTH QUARTER ADJUSTMENTS (UNAUDITED)
During the fourth quarter, the Company recorded adjustments of
approximately $80,000 to write down inventory in its Trailer Implement
Components business segment as a result of its consolidation of facilities
to Butler, Kentucky during the second quarter of fiscal year 2004, the
adjustments were the result of determinations that certain transferred
inventory from discontinued operations retained no value.
34
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 43 President, Chief Executive Officer and Director
Craig L. Daniel 44 Vice President-Manufacturing and Director
Kevin Guan 46 Director
Didi Duan 57 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.
35
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 2002 $ 115,000 - - - - - -
2003 110,000 - - - - - -
2004 110,000 - - - - - -
Craig L. Daniel
Vice President- 2002 85,000 - - - - - -
Manufacturing 2003 85,000 - - - - - -
2004 85,000 - - - - - -
No other executive officer's salary or bonus exceeded $100,000 for the three
most recent fiscal years ended June 30, 2004.
---------------------------
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.
36
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.
37
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
38
Under the 1996 ISOP, options for 318,334 shares had been granted as of
June 30, 20042003. Under the 1994 NQSOP, options for 93,333 shares had been
granted as of June 30, 2004. 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 2004 based on the closing price
of Common Stock at June 30, 2004 of :
1994 NQSOP and 1996 ISOP
---------------------------------------------------------
Total Number of Shares
Name and Position Dollar Value / Shares 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, 2004.
(1) Indicates number of options exercisable and unexercisable as of June 30,
2004.
(2) Based upon closing price of Common stock at June 30, 2004 of $1.01.
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.
39
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
remaining available for
Number of securities to be Weighted-average exercise future issuance under equity
issued upon exercise of price of outstanding options, compensation plans
outstanding option, warrants warrants and rights (excluding securities
and rights 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, 2004, 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).
40
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,
2004, 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 14.2%
Craig L. Daniel (2)(5) 134,837 10.6%
Jeffrey K. Daniel (2)(4) 116,561 9.9%
Executive Officers and Directors as a Group 251,398 21.4%
----------
(1) Based upon 1,171,812 shares of Common Stock outstanding as of June 30,
2004.
(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.
41
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. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table presents fees for professional audit services rendered
by Harper & Pearson Company for the years ended June 30, 2004 and 2003.
2004 2003
----------- -----------
Audit Fees: (1) $101,892.85 $ 90,652.49
Audit-Related Fees (2) 0 0
Tax Fees: (3) 9,300.00 17,158.00
All Other Fees: (4) 0 0
----------- -----------
Total $101,892.85 $107,810.49
=========== ===========
(1) Audit Fees: Fees for professional services performed by Harper &
Pearson Company for the audit of our annual financial statements and
review of financial statements included in our 10-QSB filings, and
services that are normally provided in connection with statutory and
regulatory filings.
(2) Audit-Related Fees: Harper & Pearson Company did not provide any
audit-related services.
(3) Tax Fees: Fees for professional services performed by Harper &
Pearson Company with respect to tax compliance, such as preparation and
filing of original and amended returns for us and our consolidated
subsidiaries, refund claims, payment planning, tax audit assistance and
tax work stemming from "Audit-Related" items.
(4) All Other Fees: Harper & Pearson Company did not provide other
permissible work for us that does not meet the above category
descriptions.
PRE-APPROVAL POLICY
Our Board of Directors is responsible for approving all Audit, Audit-Related,
Tax and Other Non-Audit Services. The Board of Directors approves all auditing
services and permitted non-audit services, including all fees and terms to be
performed for us by our independent auditor at the beginning of the fiscal year.
Non-audit services are reviewed and pre-approved by project at the beginning of
the fiscal year. Any additional non-audit services contemplated by the company
after the beginning of the fiscal year are submitted to the Audit Committee
chairman for pre-approval prior to engaging the independent auditor for such
services. Such interim pre-approvals are reviewed with the full Audit Committee
at its next meeting for ratification.
42
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 & PRESIDENT SEPTEMBER 29, 2004
-----------------------
JEFFREY K. DANIEL
43
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.
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.
44
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 adapted 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 adapted 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.
45