-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E9Vym0aW5rfJhBA2rCSF5/eD7fwnDgelL7+PIg9IO0fN85J8VZXDZz70nUqzbY83 Ko/IKgFo+7FIIqYqOHpqVg== 0000912057-96-006443.txt : 19960416 0000912057-96-006443.hdr.sgml : 19960416 ACCESSION NUMBER: 0000912057-96-006443 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960415 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OZO DIVERSIFIED AUTOMATION INC /CO/ CENTRAL INDEX KEY: 0000812152 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 840922701 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB40 SEC ACT: 1934 Act SEC FILE NUMBER: 000-16335 FILM NUMBER: 96547071 BUSINESS ADDRESS: STREET 1: 7450 EAST JEWELL AVE STE A CITY: DENVER STATE: CO ZIP: 80231 BUSINESS PHONE: 3033680401 MAIL ADDRESS: STREET 1: 7450 E JEWELL AVE STREET 2: STE A CITY: DENVER STATE: CO ZIP: 80231 10KSB40 1 10KSB40 FORM 10-KSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 / X / ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________to _______________. Commission File Number 0-16335 OZO DIVERSIFIED AUTOMATION, INC. (Name of Small Business Issuer as Specified in its Charter) Colorado 84-0922701 (State or other juris- (IRS Employer diction of incorpora- Identification No.) tion or organization) 7450 East Jewell Avenue Suite A Denver, Colorado 80231 (Address of Principal Executive Offices) Issuer's telephone number, including area code: (303) 368-0401 Securities registered under Section 12(g) of the Exchange Act: $0.10 Par Value Common Stock (Title of Class) Indicate by check mark whether the Issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and, (2) has been subject to such filing requirements for the past 90 days. YES /X / NO / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not 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. / X / Revenues for fiscal year ended Dec. 31, 1995 were $1,736,938. The aggregate market value of the Registrant's voting stock held as of March 25, 1996 by nonaffiliates of the Registrant was $339,498. As of March 25, 1996, Registrant had 452,664 shares of its $0.10 par value common stock outstanding. Total Pages _________ Exhibit Index at Page ________ PART I ITEM 1. BUSINESS. (a) Business Development. OZO Diversified Automation, Inc. ("OZO" or the "Company") was incorporated as a Colorado corporation on October 13, 1983. Since its formation, the Company has designed, manufactured and marketed computer controlled equipment for electronics industry applications. The initial products of the company were Computer Numeric Controlled ("CNC") workstations for the fabrication of prototype printed circuit boards ("PCBs"). The Company's workstations are utilized in four application areas of the electronics industry: electronics assembly companies, product designers, printed circuit board fabricators and test fixture fabricators. During the fiscal year ended December 31, 1995, the Company had net sales of $1,736,938, and $1,446,137 for the fiscal year ended December 31, 1994. (b) Business of Issuer. OZO manufactures and markets computer aided manufacturing workstations that are used by electronics industry manufacturers. The workstations are CNC equipment, that is, equipment controlled by computer software. The software developed by the Company controls the operation and function of the machinery hardware developed by the Company. OZO's products enable electronics assembly companies to rout or depanel PCBs from panels that are produced on a surface mount assembly line, product designers to produce prototype PCBs, printed circuit board fabricators to drill and rout PCBs, and test fixture fabricators to drill and rout test fixtures. (1) Products. The Company's products are packaged to address specific market niches of the electronics equipment market. Each workstation includes an OZO machine, associated spindles for the machine, a computer controller and software. The Company's products include the spindles for each of its workstation products. Drilling, routing, and mechanical etch spindles are produced by the Company. The drill spindle is an automatic tool change spindle. The router head enables the product to depanel PCBs from a panel or to cut printed circuit boards to final size and shape. The mechanical etch head mills the outline of the circuitry of a PCB board into standard copper-clad material enabling customers to quickly fabricate prototypes without the need for chemistry. The Company's Model 18, Model 24, Model 16, Model 18 HS, and Large Format machines are marketed under the PanelMASTER, PanelMASTER HS, PanelROUTER SI, FixtureMASTER, Large Format FixtureMASTER, EtchMASTER, and LabMASTER product designations. The Company's other product is the Model 2-24, which is a two spindle drilling machine for medium volume producers of PCBs. The Company's Model 2-24, Large Format, Model 16, and Model 18 HS products utilize a servo motor drive system designed by the Company. The Company's Model 18 and Model 24 products utilize a stepper motor drive system designed by the Company. The Company manufactures depaneling equipment for automated assembly lines that produce assembled printed circuit boards. This is called in-line equipment, equipment that is incorporated into an automated assembly line. The Company offers customized solutions to in-line depaneling equipment customers by producing customized fixturing for machines and integrating machines into assembly lines. The Company also manufactures stand alone depaneling equipment, that is, the equipment is off-line and not incorporated into an automated assembly line. The Company's Model 16 PanelROUTER SI can be utilized as an in-line or off-line system. The Company's PanelMASTER and PanelMASTER HS are off-line systems. Manufacturing and Assembly of Products The Company fabricates some machined parts at its in-house machine shop and contracts with independent machine shops, sheet metal suppliers, paint and anodize shops, and electronic manufacturers for various parts and services. Off-the-shelf components are purchased from various industrial suppliers. Final assembly, testing and inspection of the finished systems are done by the Company's employees at its facility. A modified drive motor is a long-lead time item purchased from a single source of supply, and the Company carries an inventory of this component. Management has the option, if necessary, to purchase a complete off-the-shelf replacement component for this item or the Company could modify the drive motor and related electronics in-house. Accordingly, the Company is not dependent on one or a few major suppliers. (2) Distribution. The Company utilizes in-house sales engineers for direct sales in the United States, Canada, and Mexico, a limited number of manufacturer representative organizations in the United States, and international distributors covering Western and Eastern Europe, South Korea, Japan, Taiwan, Singapore, Malaysia, Hong Kong and the Peoples Republic of China, Australia, India and Brazil. The Company has a policy of supporting its international distributor base, providing regular service, training visits, individualized sales literature and support for trade shows held within their respective territories. (3) Status of Product. During 1994, the Company introduced an in-line high speed depaneling machine, the Model 16 PanelROUTER SI. Marketplace interest in this product was slower to develop than the Company anticipated. Orders for five Model 16 PanelMASTER SI units were received in 1995. In February, 1995 the Company introduced the Model 18 PanelMASTER HS, an off-line high speed depaneling system. Orders for eight of these units were received in 1995. The depaneling market niche for the PanelMASTER HS and the PanelROUTER SI products was the Company's most important United States market in 1995. Based on the needs of this market the Company introduced the off-line high speed depaneling system in February, 1995 and continued to aggressively market the in-line high speed depaneling system developed in 1994. The first two international sales of depaneling systems were made in 1995. The Company continues to sell systems to test fixture fabricators and small printed circuit board facilities in the United States. Internationally, test fixture fabricators, small printed circuit board facilities and prototype operations are a consistent market for the Company's Model 18, Model 24, and Model 2-24 products. International marketing of the PanelMASTER HS and the PanelROUTER SI was initiated in 1995. Longer-term development projects include equipment related to multichip module prototyping. The Company is continuing to investigate the sale of individual motion control components, which were developed for and incorporated into the Company's products. (4) Competition. The Company competes in four areas of the equipment market for the electronics industry. The four areas are: depaneling equipment, low to medium volume bare board drilling and routing equipment, test fixture drilling and routing equipment, and prototyping equipment. The Company has identified two U.S. competitors, who are manufacturers of depaneling equipment, and two foreign competitors. All of the competitors are divisions of companies larger than OZO and produce revenues from various products. The Company believes that it competes favorably in the depaneling equipment market. The Company believes that its ability to continue to compete will depend upon its ability to produce competitively priced full featured equipment for the off-line depaneling equipment market and upon its ability to produce customized solutions for the in-line depaneling equipment market. The Company estimates that there are twenty competitors worldwide who manufacture drilling and routing equipment. The Company believes that it competes favorably only in the low to medium volume drilling equipment market and in the test fixture drilling application market. The Company's drilling equipment customers are predominantly small businesses, who prefer the Company's products over more expensive products. The Company has identified one U.S. competitor and one foreign competitor who manufacture printed circuit board prototyping equipment. The Company believes that it competes favorably in this market for customers seeking full function equipment, but cannot compete with single function lower cost prototyping equipment. While other competitors supplying products necessary for the development, production, and depaneling of printed electronic circuit boards exist or may enter the market, the Company anticipates that its specialized products will continue to find acceptance. Presently, however, the Company's relatively small size may give competitors with established reputations and greater marketing capability and financial resources an advantage in the marketplace. (5) Raw Materials. The availability of raw materials is not applicable to the Company's business. (6) Customer Dependence. The Company is not dependent on one or a few major customers. (7) Patents, Trademarks and Licenses. The Company has not sought patent protection for the hardware it has developed and presently considers certain aspects thereof to be proprietary to the Company protected by its trade secrets. The Company has made only a limited search of existing patents to determine the extent to which such proprietary protection may have been available or whether the Company's products infringe on patents held by others. A claim against the Company for possible infringement of a patent was made in 1994 and the Company has executed a License Agreement with the unaffiliated claimant. Royalties were paid in 1995 under this License Agreement. The Company is unaware of any other claims or proprietary rights of others on which the Company's products may be deemed to infringe. As additional developments of the Company's products and proprietary information occur, the Company intends to pursue the appropriate protection. Should products of the Company be deemed to infringe on patents held by others, the Company would be subject to the risk of litigation, expense of licensing rights to use such proprietary technology, or other adverse results. Copyright protection for the Company's proprietary software, which is a key component of the operation of the Company's workstation systems, has been acquired by the Company. Copyright protection for the Company's proprietary stepper motor software was acquired on May 26, 1988. Copyright protection for the Company's servo motor software was acquired by the Company on October 27, 1994. (8) Government Approval. The Company is not subject to any government approval for its products. (9) Government Regulation. The Company has no knowledge of impending government regulation on its business. (10) Research and Development. Research and development expenses for the fiscal years ending December 31, 1995 and December 31, 1994 were approximately $164,757 and $146,240 respectively. Continuing projects for 1996 include inline automation fixturing, inline automation software, improvement of spindle driver electronics, servo driver and amplifier reliability improvements, and software enhancements. The Company does not receive funding from other parties to conduct research and development, except in the case of U.S. government NSF or ARPA grants. The Company received no grants in 1994 or 1995. The Company was a participant in proposals submitted in 1995, but no funding was awarded. (11) Environmental Regulation. Since its inception, the Company has not made any material capital expenditures for environmental control facilities and the Company does not expect to make any such expenditures during the current or forthcoming fiscal year. (12) Employees. As of December 31, 1995, the Company had 19 full-time employees and one part-time employee. ITEM 2. PROPERTIES The Company leases approximately 6,440 square feet of office and production space in Denver, Colorado. The monthly rental committment is $3050 per month. The Company's lease expires April 14, 1996 and the Company is currently in the process of renegotiating the lease. ITEM 3. LEGAL PROCEEDINGS There are no pending legal proceedings to which the Company is a party or of which any of its property is the subject as of the date of this report and there were no such proceedings during the fiscal year ended December 31, 1995. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted during the fourth quarter of the fiscal year covered by this report to a vote of the Company's security holders. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Market Information. On August 11, 1987, the Company completed its initial public offering of 75,000,000 Units, each Unit consisting of one share of the Company's $0.0001 par value common stock and one Class A Common Stock Purchase Warrant to purchase one share of common stock and one-half of a Class B Common Stock Purchase Warrant. A total of 15,102,350 Class A Warrants were exercised prior to expiration of the Class A Warrants in October 1989. The Company's securities are not listed on NASDAQ, but they are quoted on NASDAQ's OTC Bulletin Board. A 1-for-1000 reverse stock split was approved by the Company's shareholders at a Special Meeting of Shareholders on March 7, 1991, following which each share of $0.0001 par value common stock became one thousandth (.001) of a share of $0.10 par value common stock. As a result of the Company's 1-for-1,000 reverse stock split there were 7,580 Class B Warrants outstanding. The Class B Warrants expired October 25, 1991. No Class B Warrants were exercised prior to the expiration date. In September 1994 the Company reduced the exercise price to $1.00 per share, for a sixty-day period, of warrants issued in conjunction with a 1993 private offering. A total of 100,000 warrants were exercised. As of December 31, 1995 note holders held unexercised warrants to purchase 10,000 shares of the Company's common stock at an exercise price of $2.00. The following table shows the range of high and low bid quotations of the Common Stock as traded in the over-the-counter market during the last two fiscal years. Common Stock High Low Fiscal Period Bid Bid 1994 First Quarter 1 1/2 Second Quarter 1 1/2 3/4 Third Quarter 1 1/2 3/4 Fourth Quarter 1 1/2 1995 First Quarter 1 1/2 Second Quarter 1 1/2 Third Quarter 1 1/2 3/4 Fourth Quarter 1 1/2 3/4 The above quotations were reported by market makers in the stock and by the National Quotation Bureau, Inc. The quotations represent prices between dealers, do not include retail markups, markdowns or commissions and do not necessarily represent prices at which actual transactions were or could have been effected. (b) Holders. As of December 31, 1995, the Company had approximately 750 holders of record of its $0.10 par value common stock. (c) Dividends. The Company has not declared cash dividends on its common stock since its inception, and the Company does not anticipate paying any dividends in the foreseeable future. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Year Ended December 31, 1995 Compared to Year Ended December 31, 1994 Results of Operations Sales of the the Company's products increased to $1,736,938 during the fiscal year ended December 31, 1995, an increase of approximately $290,801 (20%) from the fiscal year ended December 31, 1994. The increase in revenues was due to the sales of the Company's two new products: The PanelMASTER HS first introduced in February 1995, and the PanelROUTER SI introduced in 1994. During 1995 the Company sold eight PanelMASTER HS units and one PanelROUTER SI systems. Domestic sales at December 31, 1995 were $706,441, a 16% increase compared to $607,070 for the same period in 1994. International sales were $806,000 and $665,000 respectively, a 21% increase from the prior period in 1994. Parts and service revenue accounted for the remaining sales of $224,497, or 13% of total revenues. Foreign export sales are an integral part of the Company's strategic sales forecasting and the Company is reliant upon its foreign distributors to produce revenues in these areas. Approximately 80% of foreign revenues are generated by Pacific Rim (Asian) countries. Domestic and International regions comprised approximately 54% and 46% respectively, for both 1995 and 1994. Parts and service revenue in 1994 was $174,064, or 12% of total revenues. Varying exchange rates, policies of local governments regarding import duties or trade restrictions on U.S. produced equipment and fluctuations of local economies may affect the Company's ability to generate revenues internationally. These same rates and fluctuations also hinder the predictability of sales projections in this region. The Company is equally dependent upon Domestic and International sectors for sustaining its revenue flow from year to year. Results of operations further declined from a loss of $171,323 for the fiscal year ended December 31, 1994, to a loss of $219,848 for the same period in 1995. The loss for 1995 was due to initial production runs for the PanelMASTER HS and the PanelROUTER SI, development costs of the new depaneling products, including greater than anticipated developmental costs involving costly on-site customer service to get these new systems on-line. The Company had anticipated losses resulting from these costs of development. The Company believes that the new product development programs, though costly, were crucial to remain viable in the marketplace in an increasingly competitive environment. The losses can also be attributed to higher warranty expenses, rising prices of vendor parts, higher inventories, rising prices of air travel for scheduled equipment installation and sales activities and added staff for quality control and customer service. Price increases to adjust for these costs were reviewed in December 1995 and effected during January of 1996. Gross profit margin increased from 39% in 1994 to 40% in 1995. Gross margins are expected to eventually increase in 1996 as sales of the Company's new products gain a larger percentage of total product revenues and the Company becomes more efficient in manufacturing its new products. General and administrative costs increased to $232,536, only up 2% in 1995 from $228,933 in 1994. The slight increase in administrative costs was attributable to higher rent expense due to additional building space lease agreements entered into during 1994 and an equipment lease buyout. Marketing and sales costs increased to $482,849, up 47% from $327,806 in 1994. Seventy five percent (75%) of the increase relates to higher commissions paid in 1995 to international distributors, domestic sales representatives, and in-house sales engineers. Although commissions increase with increased reveunes, the commission expense also fluctuates based on foreign distributor pricing and the territory location of domestic sales. The remainder of the increased marketing and sales costs was due to the rising prices of air travel for scheduled equipment installation and marketing and sales activities and increased expenditures for marketing promotional materials. Research and development costs increased to $164,757, an increase of 13% in 1995 from $146,240 in 1994. Research and development increases, associated with the introduction of the Company's new products, were attributed to additional costs for materials expense. There was also an increase in salaries due to having an additional employee in the department for the full year during 1995 instead of just part of the year in 1994. The Company expects research and development to continue at this level, primarily to support continuing product development. Liquidity and Capital Resources In July, 1995 the Company received revolving line of credit financing from its local bank in the amount of $30,000 to help augment short-term cash shortages. The credit line continues in force at the time of this filing. This funding helped provide the necessary cash flow for the Company during the last half of 1995. The Company's working capital and cash position decreased at December 31, 1995 compared to December 31, 1994. The Company's cash position decreased over the previous year due to inventory purchases for the new products. At December 31, 1995 inventories increased by $252,305 over the same period in 1994. The increased mix of products manufactured by the Company contributed to the increase in inventory, with many components for the new products being more costly. Accounts payable increased by $156,719 at December 31, 1995 compared to the same period in 1994. The increase was attributed to additional inventories necessary to sustain sales of new products. Accounts receivable and notes receivable had no appreciable change from the previous year. The Company's introduction of the PanelMASTER HS and PanelROUTER SI has been well received. Multiple system orders from customers have been received for both products. The Company shipped eight PanelMASTER HS systems during 1995. Two more shipped in early 1996. One PanelROUTER was shipped during 1995 and three were shipped in early 1996. Based upon the Company's sales and marketing projections, future sales of these two new systems, in the opinion of management, will provide a strong product base of the latest technology in the electronics equipment industry. Management believes, based upon current order projections and customer approval, that improved revenues and gross profit margins will enable the Company to begin to recoup previous losses experienced in the developmental years of 1994-1995. The current backlog of $630,000, plus forecasted orders, the continuation of cost control programs, continuing improvements in manufacturing efficiencies, and the expanding of marketing efforts on these new products, in management's opinion provide the opportunity for the Company to continue as a going concern. Backlog As of March 29, 1996 the Company's backlog of orders was $630,000, compared to $380,000 as of March 21, 1995. Year Ended December 31, 1994 Compared to Year Ended December 31, 1993 Results of Operations Sales of the the Company's products decreased to $1,446,137 during the fiscal year ended December 31, 1994, a decrease of approximately $363,180 (20%) from the fiscal year ended December 31, 1993. The decrease in revenues was due to decreased sales of the Company's Model 18, 24, and 2-24 products. The decrease in revenues was also attributed to competitive factors that resulted in price discounting. Limited customer financing and their internal administrative or purchasing department delays resulted in continuous shipment delays of domestic shipments, adversely affecting Company orders and sales. International customers were experiencing slow-downs in local economies or the inability to obtain financing for purchases. Domestic sales at December 31, 1994 were $607,070, a less than 1% increase compared to $605,981 for the same period in 1993. International sales were $665,000 and $1,028,112 respectively, a 35% decrease from the prior period in 1993. Parts and service revenue accounted for the remaining sales of $174,064, or 12% of total revenues. Foreign sales are an integral part of the Company's strategic sales forecasting and the Company is reliant upon its foreign distributors to produce revenues in these areas. Approximately 80% of foreign revenues are generated by Pacific Rim (Asian) countries. Domestic and International regions comprised about 50% each of total revenues during 1994. In 1993, Domestic and International regions comprised approximately 42% and 58% respectively. Parts and service revenue in 1993 was $175,221, or 10% of total revenues. Varying exchange rates, policies of local governments regarding import duties or trade restrictions on U.S. produced equipment and fluctuations of local economies greatly affect the Company's ability to generate revenues internationally. These same rates and fluctuations also hinder the predictability of sales projections in this region. The Company is equally dependent upon Domestic and International sectors for sustaining its revenue flow from year to year. Results of operations declined from a profit of $97,289 for the fiscal year ended December 31, 1993, to a loss of $171,323 for the same period in 1994. The loss for 1994 was due to a decline in sales of the Model 18, 24 and 2-24 products, no sales made in 1994 of the Model 16 SI product introduced in February 1994, non-recurring charges for consulting, contract labor, design, marketing costs, and initial production run costs. Declining revenues, competitors offering significant pricing discounts, and increased interest expense relating to payments made to private placement investors beginning in 1994, all contributed to the loss for the year. The Company had anticipated a loss resulting from the costs of development and marketing of a new product. The Company believes that the new product development programs, though costly, were crucial to remain viable in an increasingly competitive environment. Gross profit margin decreased from 48% in 1993 to 39% in 1994. The reduction in margins for 1994 was due to decreased production of Model 18, 24 and 2-24 products, price discounting, and higher production costs related to a new product and initial production runs. Gross margins are expected to stabilize in 1995 as new production runs gain efficiency. General and administrative costs increased to $228,933, up 26% in 1994 from $181,063 in 1993. To accommodate future growth in production runs and provide improved demonstration and training facilities, the Company entered into agreement with its landlord to obtain additional building space plus leasehold improvements. The Company also experienced an increase in interest expense relating to the debt service of the private placement concluded on December 30, 1993. In an effort to control administrative costs, wages and salaries were frozen in 1994. However, a fourth quarter stock distribution to employees generated an increase in salary expense. Marketing and sales costs decreased to $327,806, down 30% from $466,494 in 1993. Marketing costs increased 58% in 1994, relating to expenses incurred with new product introduction programs. The overall reduction of costs was effected by the Company's revamping of its United States sales representative force resulting in a $116,205 reduction in sales commission and other expenses in 1994 over the same period in 1993. Manufacturer representative firms considered non-productive were terminated or replaced and the Company shifted to direct sales methods, which reduced sales commission costs. Research and development costs increased to $146,240, an increase of 35% in 1994 from $108,304 in 1993. Research and development increases, associated with the introduction of the Company's new product, were attributed to additional costs for salaries, consulting fees, contract labor, and materials expense. The Company expects research and development to continue at this level, primarily to support continuing product development. Liquidity and Capital Resources In September 1994, the Company reduced the exercise price for a sixty day period, of warrants issued in conjunction with a private offering to $1.00 per share. At this reduced exercise price, 100,000 shares were sold. The net proceeeds to the Company were $100,000. This funding provided the necessary cash flow for the Company to meet financial obligations during the reduced cash flow period of the third and fourth quarters. The Company's working capital and cash position decreased at December 31, 1994 compared to December 31, 1993. The Company's cash position decreased over the previous year due to cash proceeds of $199,366 received during December, 1993 from the private placement offering, which greatly augmented the cash position during that period in comparison to the present period ending December 31, 1994. Additional inventory purchases for the new product also affected the decrease in cash position. At December 31, 1994 inventories increased by $33,201 over the same period in 1993. The increased mix of products manufactured by the Company contributed to the increase in inventory. Accounts payable decreased by $64,120 at December 31, 1994 compared to the same period in 1993. Reduction of payables was a result of influx of capital resulting from the warrant exercise in September and October of 1994. Accounts receivable and notes receivable increased by $51,611 during this period compared to the same period in 1993. This was a result of extended payment terms given to specific customers to secure sales of equipment in 1994. The Company introduced a new product, the PanelMASTER HS in February, 1995 at an industry trade show and has received an order for that product. An order for the PanelROUTER SI product, which was introduced in 1994, has been received and will be installed at a customer site in April, 1995. The current backlog of the Company, $380,000, forecasted orders, the continuation of cost control programs, continuing improvements in manufacturing efficiencies, and the expanding of marketing efforts on new products, in management's opinion provide the opportunity for the Company to continue as a going concern. Backlog As of March 21, 1995 the Company's backlog of orders was $380,000, compared to $242,800 as of March 15, 1994. ITEM 7. FINANCIAL STATEMENTS See Financial Statements. ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS (a) Identification of Directors and Executive Officers Name and Position in the Company Age Director Since Marjorie Zimdars-Orthman 47 1983 (President since February 1992, Director) Ron C. Carpenter 49 February 1992 (Secretary-Treasurer, Director) David W. Orthman 46 February 1992 (Director) The present term of office of each director will expire at the next annual meeting of shareholders. The executive officers of the Company are elected annually at the first meeting of the Company's Board of Directors held after each Annual Meeting of Shareholders. Each executive officer holds office until his successor is duly elected and qualified or until his resignation or until he shall be removed in the manner provided by the Company's Bylaws. There was no arrangement or understanding between any director or any executive officer and any other person pursuant to which any person was selected as a director or an executive officer. Business Experience. The following is a brief account of the business experience during the past five years of each director and executive officer:
Name of Director Principal Occupation During the Last Five Years Marjorie Zimdars-Orthman President and Chief Executive Officer since February 1992; Director of Technical Services for ScanCAD International, Inc. from February 1991 to February 1992; Technical Documentation Writer and Quality Control Inspector for the Company from January 1988 to February 1991; Vice President of the Company from 1983 to February 1991; Secretary/Treasurer of the Company from January 1989 to February 1992. Ron C. Carpenter Secretary/Treasurer of the Company since February 1992; Corporate Controller of the Company since June 1, 1991; Accountant for the Alert Centre, Inc., a Telecommunications company from February 1990 to March 1991; Corporate Controller of Aero Systems, Inc., an Aerospace research company from April 1986 to December 1990. David W. Orthman Director of Research and Development since April 1, 1992; Director of Special Projects from June 6, 1990 to March 31, 1992; Vice President of the Company from January 1989 to June 1990; Chairman of the Board of Directors of the Company from March 1988 to December 1988; President of the Company from October 1983 to March 1988.
Directorships No director of the Company is a director of any other Company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, or subject to the requirements of Section 15(d) of such Act, or any company registered as an investment company under the Investment Company Act of 1940, as amended. (b) Identification of Certain Significant Employees David W. Orthman became Director of Research and Development on April 1, 1992. He was Director of Special Projects from June 6, 1990 to March 31, 1992. He was President of the Company from October 1983 to March 1988, Chairman of the Board of Directors of the Company from March 1988 to December 1988, and Vice President of the Company from January 1989 to June 1990. Mr. Orthman was a Director of the Company from October 1983 to December 1988. Mr. Orthman developed the Model 18 and related products and technology and the Model 2-20, 2-24, and the PanelMASTER HS and PanelMASTER SI high speed depaneling motion system and related products and technology. (c) Family Relationships David W. Orthman and Marjorie Zimdars-Orthman are husband and wife. There are no other family relationships between any director, executive officer or person nominated or chosen by the Company to become a director or executive officer. (d) Involvement in Legal Proceedings N/A ITEM 10. EXECUTIVE COMPENSATION Summary Compensation Table. The following table shows information regarding compensation paid to the officers of the Registrant for the three years ending December 31, 1995:
Annual COMPENSATION Long Term Compensation Name and Principal Other Annual Restricted Stock Position Year Salary($) Bonus Compensation Awards($) Other M. Zimdars-Orthman CEO 1995 39,500 0 0 None None CEO 1994 32,760 0 0 7500 None CEO 1993 30,500 0 0 None None Ron C. Carpenter Corporate Controller, 1995 40,000 0 0 None None Secretary Treasurer 1994 41,962 0 0 3750 None 1993 39,000 0 0 1875 None David W. Orthman R&D Director, 1995 48,000 0 0 None None Director 1994 48,297 0 0 750 None 1993 48,000 0 0 None None
Except for the Incentive Stock Option Plan described below, the Company has no other option, pension, benefit plans or similar types of compensation arrangement. Incentive Stock Option Plan. On October 21, 1985 the Company's shareholders approved an Incentive Stock Option Plan ("Plan") and reserved an aggregate of 28,000 shares of the Company's $0.10 par value common stock for issuance pursuant to the Plan. As of December 31, 1995 no options were outstanding. Other Plans. There are no other bonus, profit sharing, pension, retirement, stock option, stock purchase, or other remuneration or incentive plans in effect. Long Term Incentive Plan. The Company has no long term incentive plans. Compensation of Directors. No compensation is currently being paid to members of the Board of Directors for their services as directors, execept for their salaries as reported above under executive officer compensation. Employment Contracts and Termination of Employment and Change-in-Control Arrangements. The Company has no employment contracts with any executive officer. The Company has no compensation plan or arrangement with respect to any executive officer which plan or arrangement results or will result from the resignation, retirement or any other termination of such individual's employment with the Company. The Company has no plan or arrangement with respect to any such persons which will result from a change in control of the Company or a change in the individual's responsibilities folllowing a change in control. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Security Ownership of Management. The following table sets forth, as of March 25, 1996, the number of shares of the Company's Common Stock beneficially owned by owner's of more than five percent of the Company's outstanding Common Stock who are known to the Company and the Directors of the Company, individually, and the Officers and Directors of the Company as a group, and the percentage of ownership of the outstanding Common Stock represented by such shares.
Amount and Nature of Beneficial Percent Name of Beneficial Owner Position With Company Ownership of Class Marjorie A. Zimdars-Orthman Director, President, 89,090(1) 19.7% 7450 E. Jewell Ave., #A Chief Executive Officer Denver, Colorado 80231 David W. Orthman Director, Director of 84,710(1) 18.7% 7450 E. Jewell Ave., #A Research & Development Denver, Colorado 80231 Ron C. Carpenter Director, Secretary- 8,750 1.9% 7450 E. Jewell Ave., #A Treasurer, Corporate Denver, Colorado 80231 Controller All Officers and Directors as a Group (3 Persons) 103,460 22.9% _________________ Steven N. Bronson 2101 W. Commercial Blvd. None 82,900 18.3% #1500 Ft. Lauderdale, Florida 33309
(1) 79,090 shares held by Marjorie A. Zimdars-Orthman are owned jointly by her and her husband, David W. Orthman. Ms. Zimdars-Orthman may be deemed to have shared voting and investment power over these shares. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions With Management and Others and Certain Business Relationships. None. ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements: Independent Auditors' Report Balance Sheet--As of December 31, 1995 Statements of Operations--Years Ended December 31, 1995, and 1994 Statements of Stockholders' Deficiency--Years Ended December 31, 1994, and 1995 Statements of Cash Flows for the Years Ended December 31, 1995, and 1994 Notes to Financial Statements (b) 8-K Reports: No 8-K reports were filed in the fourth quarter of 1995. (c) Exhibits: 2 Plan of Recapitalization incorporated by reference to Current Report on Form 8-K dated March 7, 1991, as Exhibit 2. 3.1 Articles of Incorporation incorporated by reference to Registration Statement No. 33-13074-D as Exhibit 3.1. 3.2 Amended Bylaws adopted June 1, 1987, incorporated by reference to Annual Report on Form 10-K for the fiscal year ended December 31, 1987 as Exhibit 3.2. 3.4 Articles of Amendment to Restated Articles of Incorporation dated March 7, 1991. Incorporated by reference to Annual Report on Form 10-K for fiscal year ended December 31, 1990 as exhibit 3.4. 4.0 Warrant Agreement dated July 29, 1987, incorporated by reference to Registration Statement No. 33-13074-D as Exhibit 3.3. 4.1 Amendment No. 1 to Warrant Agreement dated July 13, 1988, incorporated by reference to Current Report on Form 8-K dated July 13, 1988 as Exhibit 4.1. 4.2 Amendment No. 2 to Warrant Agreement dated November 9, 1988, incorporated by reference to Current Report on Form 8-K dated November 9, 1988 as Exhibit 4.1. 4.3 Amendment No. 3 to Warrant Agreement dated May 26, 1989, incorporated by reference to Current Report on Form 8-K dated June 8, 1989 as Exhibit 4.1. 4.4 Amendment No. 4 to Warrant Agreement dated July 21, 1989, incorporated by reference to Post-Effective Amendment No. 5 on Form S-18 dated July 24, 1989 as Exhibit 4.4. 4.5 Amendment No. 5 to Warrant Agreement dated April 24, 1990, incorporated by reference to Current Report on Form 8-K dated April 24, 1990 as Exhibit 4.5. 4.6 Amendment No. 6 to Warrant Agreement dated October 26, 1990, incorporated by reference to Current Report on From 8-K dated October 26, 1990 as Exhibit 4.6. 10.1 Incentive Stock Option Plan dated October 21, 1985, incorporated by reference to Registration Statement No. 33-13074-D as Exhibit 10.1. 10.13 Supplement to Employment Agreement dated October 10, 1989 between the Company and Peter C. Harrity incorporated by reference to Annual Report on Form 10-K for the fiscal year ended December 31, 1989 as Exhibit 10.13. 10.14 Supplement to Employment Agreement dated May 16, 1989 between the Company and William F. Loving, incorporated by reference to Post-Effective Amendment No. 3 on Form S-18 dated May 30, 1989 as Exhibit 10.14. 10.15 Employment Agreement dated December 26, 1989, but effective as of September 27, 1989, between the Company and Norman A. Newton incorporated by reference to Annual Report on Form 10-K for the fiscal year ended December 31, 1989 as Exhibit 10.15. 10.16 OEM Purchase Agreement dated January 15, 1990, between the Company and Ariel Electronics, Inc.incorporated by reference to Annual Report on Form 10-K for the fiscal year ended December 31, 1989 as Exhibit 10.16. 10.2 Form of Convertible Promissory Note, 12/30/93 Private Placement incorporated by reference to Annual Report on Form 10-KSB for the fiscal year ended December 31, 1993 as Exhibit 10.2. 10.3 Form of Non-Convertible Promissory Note, 12/30/93 Private Placement incorporated by reference to Annual Report on Form 10-KSB for the fiscal year ended December 31, 1993 as Exhibit 10.3. 10.4 Form of Note Purchaser Warrant Agreement and Warrant, 12/30/93 Private Placement incorporated by reference to Annual Report on Form 10-KSB for the fiscal year ended December 31, 1993 as Exhibit 10.4. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: April 12, 1996. OZO DIVERSIFIED AUTOMATION, INC., a Colorado corporation By: Marjorie Zimdars-Orthman Marjorie Zimdars-Orthman President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Date Name and Title Signature April 12, 1996 Marjorie Zimdars-Orthman Marjorie Zimdars-Orthman Principal Executive Officer Principal Financial Officer Director April 12, 1996 Ron C. Carpenter Ron C. Carpenter Director April 12, 1996 David W. Orthman David W. Orthman Director
OZO DIVERSIFIED AUTOMATION, INC. INDEX TO FINANCIAL STATEMENTS PAGE INDEPENDENT AUDITOR'S REPORT F-2 BALANCE SHEET DECEMBER 31, 1995 F-3 - F-4 STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1995 AND 1994 F-5 STATEMENTS OF STOCKHOLDERS' DEFICIENCY YEARS ENDED DECEMBER 31, 1994 AND 1995 F-6 STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1995 AND 1994 F-7 - F-8 NOTES TO FINANCIAL STATEMENTS F-9 - F-18 F - 1 INDEPENDENT AUDITOR'S REPORT To The Board of Directors and Stockholders OZO DIVERSIFIED AUTOMATION, INC. We have audited the accompanying balance sheet of Ozo Diversified Automation, Inc. as of December 31, 1995 and the related statements of operations, stockholders' deficiency, and cash flows for each of the two years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ozo Diversified Automation, Inc. as of December 31, 1995 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations. This factor, and others discussed in Note 2, raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. WHEELER WASOFF, P.C. Denver, Colorado March 27, 1996 F - 2 OZO DIVERSIFIED AUTOMATION, INC. BALANCE SHEET DECEMBER 31, 1995 ASSETS
CURRENT ASSETS Cash $ 3,162 Accounts receivable, (net of allowance for doubtful accounts of $11,022) 178,745 Note receivable - trade 2,215 Inventories (Note 3) 506,396 Prepaid expenses 15,144 ----------- Total Current Assets 705,662 ----------- PROPERTY AND EQUIPMENT, at cost (Note 5) Manufacturing 160,186 Furniture and fixtures 154,062 Assets under capitalized lease 14,620 Vehicle 10,820 ----------- 339,688 Less accumulated depreciation and amortization 315,909 ----------- 23,779 ----------- OTHER ASSETS Deferred financing costs (net of accumulated amortization of $16,254) 24,380 ----------- $ 753,821 ----------- -----------
See accompanying notes to financial statements. F - 3 OZO DIVERSIFIED AUTOMATION, INC. BALANCE SHEET (CONTINUED) DECEMBER 31, 1995 LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES Note payable - bank $ 27,500 Accounts payable - trade 218,080 Commissions payable 58,719 Accrued salary (Note 11) 32,795 Accrued expenses 55,068 Customer deposits 109,623 Deferred income 48,495 Current portion of long term debt and capitalized lease obligation (Note 5) 22,899 ----------- Total Current Liabilities 573,179 ----------- LONG TERM DEBT AND CAPITALIZED LEASE OBLIGATION (Note 5) 248,406 ----------- COMMITMENTS (Note 7) STOCKHOLDERS' DEFICIENCY, (Note 6) Preferred stock - $.10 par value authorized - 1,000,000 shares issued - none - Common stock - $.10 par value authorized - 5,000,000 shares issued and outstanding - 452,664 shares 45,261 Capital in excess of par value 1,169,809 Accumulated deficit (1,282,834) ----------- (67,764) ----------- $ 753,821 ----------- -----------
See accompanying notes to financial statements. F - 4 OZO DIVERSIFIED AUTOMATION, INC. STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994 NET SALES $1,736,938 $1,446,137 COST OF SALES 1,050,768 884,367 ---------- ---------- Gross profit 686,170 561,770 OPERATING EXPENSES General and administrative 232,536 228,933 Marketing and sales 482,849 327,806 Research and development 164,757 146,240 ---------- ---------- 880,142 702,979 ---------- ---------- OTHER (EXPENSE) ITEMS Interest expense (25,876) (30,114) ---------- ---------- NET (LOSS) $ (219,848) $ (171,323) ---------- ---------- ---------- ---------- NET (LOSS) PER COMMON SHARE $ (.49) $ (.47) ---------- ---------- ---------- ---------- WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 452,664 360,727 ---------- ---------- ---------- ----------
See accompanying notes to financial statements. F - 5 OZO DIVERSIFIED AUTOMATION, INC. STATEMENTS OF STOCKHOLDERS' DEFICIENCY YEARS ENDED DECEMBER 31, 1994 AND 1995
COMMON STOCK CAPITAL IN EXCESS OF ACCUMULATED SHARES AMOUNT PAR VALUE DEFICIT BALANCE, JANUARY 1, 1994 352,664 $35,261 $1,076,696 $ (891,663) Cancellation of shares previously issued, valued at $.60 per share (20,750) (2,075) (10,375) - Exercise of common stock warrants, at $1.00 per share 100,000 10,000 90,000 - Issuance of common stock to employees, valued at $.75 per share 20,750 2,075 13,488 - Net Loss - - - (171,323) ------- ------ --------- ----------- BALANCE, DECEMBER 31, 1994 452,664 45,261 1,169,809 (1,062,986) Net Loss - - - (219,848) ------- ------ --------- ----------- BALANCE, DECEMBER 31, 1995 452,664 $45,261 $1,169,809 $(1,282,834) ------- ------- ---------- ----------- ------- ------- ---------- -----------
See accompanying notes to financial statements. F - 6 OZO DIVERSIFIED AUTOMATION, INC. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) $(219,848) $(171,323) Adjustments to reconcile net (loss) to net cash (used) by operating activities Depreciation and amortization 24,593 26,757 Stock issuance to employees - 15,563 Other 6,022 (12,450) Changes in assets and liabilities Decrease (increase) in accounts and notes receivable 13,142 (51,611) (Increase) in inventories (252,305) (33,201) Decrease in prepaids 2,241 686 Increase (decrease) in accounts payable and accrued expenses 214,049 (64,120) Increase in deferred income and customer deposits 158,118 - --------- --------- Net cash (used) by operating activities (53,988) (289,699) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (642) (18,858) --------- --------- Net cash (used) by investing activities (642) (18,858) CASH FLOWS FROM FINANCING ACTIVITIES Payment of long term debt and capital lease (16,819) (21,593) Proceeds from bank loan 199,500 - Payment of bank loan (172,000) - Proceeds from sale of stock - 100,000 --------- --------- Net cash provided by financing activities 10,681 78,407 --------- --------- NET (DECREASE) IN CASH (43,949) (230,150) CASH, BEGINNING OF YEAR 47,111 277,261 --------- --------- CASH, END OF YEAR $ 3,162 $ 47,111 --------- ---------
See accompanying notes to financial statements. F - 7 OZO DIVERSIFIED AUTOMATION, INC. STATEMENTS OF CASH FLOWS (CONTINUED) YEARS ENDED DECEMBER 31, 1995 AND 1994 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION The Company paid cash for interest of $19,501 and $25,969 during the years ended December 31, 1995 and 1994, respectively. SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES In 1995, the Company acquired equipment by entering into a lease obligation of $14,620. During 1994 the Company issued 20,750 shares of its common stock to employees, valued at $15,563, as additional compensation. See accompanying notes to financial statements. F - 8 OZO DIVERSIFIED AUTOMATION, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Ozo Diversified Automation, Inc. (the Company) was incorporated under the laws of the State of Colorado on October 13, 1983. The Company is engaged in the design, manufacture, and marketing of computer controlled manufacturing and machining equipment predominately to entities in North America and the Pacific Rim. INVENTORIES Inventories are stated at the lower of cost or market, with cost determined on a first-in, first-out basis. WARRANTY COSTS The Company provides a warranty on products sold for a period of one year from the date of sale. Estimated warranty costs are charged to cost of sales at the time of sale. PROPERTY AND EQUIPMENT Property and equipment acquired from Company founders in exchange for stock was recorded at its depreciated cost at the time of transfer. Other property and equipment is recorded at cost. Depreciation is provided by use of the straight-line method over the estimated useful lives of the related assets. Expenditures for replacements, renewals and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation expense and amortization of capitalized lease was $16,466 and $18,630 for the years ended December 31, 1995 and 1994, respectively. RESEARCH AND DEVELOPMENT Expenditures for the research and development of new products are charged to operations as they are incurred. F - 9 OZO DIVERSIFIED AUTOMATION, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) DEFERRED FINANCING COSTS Deferred financing costs consist of costs incurred in conjunction with the Company's sale of 9% convertible notes (Note 5). These costs are being amortized over the term of the related notes. INCOME TAXES The Company has adopted the provisions of Statement of Financial Accounting Standards 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, the deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. LOSS PER SHARE Loss per common share is computed based on the weighted average number of common shares outstanding during each period. Common stock equivalents, consisting of warrants and convertible debt, are not considered in the calcula- tion of net loss per share as their inclusion would be antidilutive. STATEMENT OF CASH FLOWS For purposes of the Statement of Cash Flows, the Company considers as cash equivalents all highly liquid investments with a maturity of three months or less at the purchase date. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires F -10 OZO DIVERSIFIED AUTOMATION, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2 - BASIS OF ACCOUNTING The accompanying financial statements have been prepared on the basis of accounting principles applicable to a going concern which contemplates the realization of assets and extinguishment of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company has incurred a net loss of $219,848 for 1995 and has accumulated a deficit of $1,282,834 through December 31, 1995. These factors, among others, may indicate that the Company may be unable to continue in existence. The Company's financial statements do not include any adjustments related to the carrying value of assets or the amount and classification of liabilities that might be necessary should the Company be unable to continue in existence. The Company's ability to establish itself as a going concern is dependent on its ability to meet its financing require- ments and ultimately to achieve profitable operations. Management is continuing its programs of cost control and containment; installing new production and budgetary controls in all aspects of operations; expanding its marketing efforts, especially on new products, and pursuing additional financing from outside sources. Management believes that these actions presently being taken to revise the Company's operating and financial requirements provide the opportunity to continue as a going concern. F - 11 OZO DIVERSIFIED AUTOMATION, INC. NOTES TO FINANCIAL STATEMENTS NOTE 3 - INVENTORIES Inventories at December 31, 1995 consist of the following:
Raw materials $293,230 Work in process and components 81,521 Finished goods 131,645 -------- $506,396 -------- --------
NOTE 4 - NOTE PAYABLE - BANK Note payable - bank consists of the balance due on a revolving line of credit from a commercial bank. The note matures in July 2000, and is repayable monthly at the rate of a 2% principal reduction and interest thereon. Interest on the note is 2% above the prime rate. The note is secured by substantially all assets of the Company including receivables, inventory and equipment. At December 31, 1995, the Company had $2,500 available to be drawn upon under the line of credit. F - 12 OZO DIVERSIFIED AUTOMATION, INC. NOTES TO FINANCIAL STATEMENTS NOTE 5 - LONG TERM DEBT AND CAPITALIZED LEASE OBLIGATION Long term debt and capitalized lease obligation consist of the following at December 31, 1995:
Capitalized lease obligation, repayable in monthly installments of $431 secured by equip- ment, interest at 8.76% $ 12,638 9% note, due November 2, 1996, secured by assets of the Company (Note 5) 18,667 9% unsecured convertible notes, due December 30, 1998, interest payable quarterly 120,000 9% unsecured non-convertible notes, due December 30, 1998, interest payable quarterly 120,000 -------- 271,305 Less current maturities 22,899 -------- $248,406 -------- --------
F - 13 OZO DIVERSIFIED AUTOMATION, INC. NOTES TO FINANCIAL STATEMENTS NOTE 5 - LONG TERM DEBT AND CAPITALIZED LEASE OBLIGATION (CONTINUED) Aggregate maturities of long term debt, including capitalized lease obligation, over the next five years are as follows: 1996 - $22,899; 1997 - $4,619; and 1998 - $243,787. Future minimum payments on a non-cancelable capitalized lease is as follows:
1996 $ 5,173 1997 5,173 1998 3,917 -------- 14,263 Less amount representing interest 1,625 -------- Present value of net minimum lease payments including current maturity $ 12,638 -------- --------
In December 1993, the Company completed a private offering of $240,000 of units. Each unit consists of two 9% promissory notes of $10,000 each, due December 30, 1998, and a warrant to acquire up to 5,000 shares of the Company's common stock. One of the notes is convertible into shares of the Company's common stock at $1.14 per share, while the other note is non-convertible. The warrants are exercisable for a period of five years at $2.00 per share, through December 30, 1998. Net proceeds to the Company were $199,366. In conjunction with the offering, the Company issued to the placement agent warrants to purchase 50,000 shares of the Company's common stock, at a price of $1.14 per share, through December, 30, 1998 (Note 6). The effective interest rate of these promissory notes, reflecting the related financing costs, is 12%. F - 14 OZO DIVERSIFIED AUTOMATION, INC. NOTES TO FINANCIAL STATEMENTS NOTE 6 - STOCKHOLDERS' EQUITY COMMON STOCK In 1994 the Company issued 20,750 shares of its common stock to employees, valued at $15,563 ($.75 per share). These shares were issued from 20,750 shares returned to the Company in 1994 which were originally issued in 1992 to an unrelated entity for consulting services. The shares were returned to the Company pursuant to an agreement between the unrelated entity and the Company. In September 1994 the Board of Directors reduced the exercise price, for a sixty-day period, of warrants issued in conjunction with a private offering (Note 5) to $1.00 per share; 50,000 shares were sold to note holders and 50,000 shares were sold to the placement agent at this reduced exercise price. At December 31, 1995 note holders held unexercised warrants to purchase 10,000 shares of the Company's common stock at an exercise price of $2.00 per share. INCENTIVE STOCK OPTION PLAN The Company has adopted an incentive stock option plan for key employees and has reserved 28,000 shares of authorized but unissued common stock for issuance under the plan. As of December 31, 1995, no options were outstanding. NOTE 7 - COMMITMENTS The Company leases office and production space under non- cancelable lease agreements through 1996. Minimum payments under these leases are $7,581 for 1996. Rent expense was $43,408 and $38,976 for 1995 and 1994, respectively. In January 1990, the Company entered into an agreement with a nonaffiliated customer to supply certain equipment in minimum quantities over the next two years. As a condition of the agreement, the customer made three loans F -15 OZO DIVERSIFIED AUTOMATION, INC. NOTES DTO FINANCIAL STATEMENTS NOTE 7 - COMMITMENTS (CONTINUED) to the Company aggregating $110,000 for the purpose of offsetting the costs the Company will incur to modify certain of its production processes for this customer. The loans accrued interest at 6%, compounded semi- annually, and were to be repaid no later than June 30, 1992. Additionally, the agreement contained an option for the customer to purchase certain manufacturing rights for a one-time fee of $150,000. In 1992 the Company entered into a settlement agreement with the non-affiliated customer. Under the terms of the agreement, the Company paid the customer $10,000 cash and issued a new promissory note in the face value of $45,000, payable with interest at 9% per annum in monthly installments of $1,500 only when the Company's revenues from its business operations are at least $125,000. The unpaid principal balance and accrued interest is due no later than November 2, 1996. The note is secured by substantially all assets of the Company, including receivables, inventory and equipment. NOTE 8 - SEGMENT INFORMATION Foreign sales represent export sales, and were approximately 46% of net sales revenue for each of the years ended December 31, 1995 and 1994. Export sales, by geographic region, are as follows:
1995 1994 Pacific Rim $ 666,000 $ 554,000 South America 95,000 74,000 Asia 45,000 - Europe - 37,000 --------- --------- $ 806,000 $ 665,000 --------- --------- --------- ---------
In 1995, sales by two distributors in the Pacific Rim represented 21% and 15% of total net sales revenue. In 1994, sales by one distributor in the Pacific Rim represented 21% of total net sales revenue. F - 16 OZO DIVERSIFIED AUTOMATION,INC. NOTES TO FINANCIAL STATEMENTS NOTE 9 - INCOME TAXES At December 31, 1995, the Company has net operating loss carryforwards totaling approximately $1,119,000 that may be offset against future taxable income through 2010 and research and development credits of approximately $63,000 expiring through 2010. The Company has fully reserved the tax benefits of these operating losses because the likelihood of realization of the tax benefits cannot be determined. These carry- forwards are subject to review by the Internal Revenue Service. The $232,000 tax benefit of the loss carryforward has been offset by a valuation allowance of the same amount. Of the total tax benefit, $32,000 is attributable to 1995. Temporary differences between the time of reporting certain items for financial and tax reporting purposes, primarily from using different methods of reporting depreciation costs and warranty and vacation accruals, are not considered significant by management of the Company. NOTE 10 - FINANCIAL INSTRUMENTS FAIR VALUE The carrying amount reported in the balance sheets for cash, accounts receivable, accounts payable and accrued liabilities approximates fair value because of the immediate or short-term maturity of these financial instruments. CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable. Credit risk F - 17 OZO DIVERSIFIED AUTOMATION, INC. NOTES TO FINANCIAL STATEMENTS NOTE 10 - FINANCIAL INSTRUMENTS (CONTINUED) with respect to these receivables is generally diver- sified due to the number of entities comprising the Company's customer base and their dispersion across many different industries and geographies. NOTE 11 - RELATED PARTY TRANSACTIONS At December 31, 1995 the President of the Company had accrued wages due of $32,795. F - 18 EXHIBIT INDEX Exhibit Page No. Document No. 2 Plan of Recapitalization incorporated by reference to N/A Current Report on Form 8-K dated March 7, 1991, as Exhibit 2. 3.1 Articles of Incorporation incorporated by reference to N/A Registration Statement No. 33-13074-D as Exhibit 3.1. 3.2 Amended Bylaws adopted June 1, 1987, incorporated by N/A reference to Annual Report on Form 10-K for the fiscal year eneded December 31, 1987 as Exhibit 3.2. 3.4 Articles of Amendment to Restated Articles of Incorporation N/A dated March 7, 1991. 4.0 Warrant Agreement dated July 29, 1987, incorporated by N/A reference to Registration Statement No. 33-13074-D as Exhibit 3.3. 4.1 Amendment No. 1 to Warrant Agreement dated July 13, 1988, N/A incorporated by reference to Current Report on Form 8-K dated July 13, 1988 as Exhibit 4.1. 4.2 Amendment No. 2 to Warrant Agreement dated November 9, 1988, N/A incorporated by reference to Current Report on Form 8-K dated November 9, 1988 as Exhibit 4.1. 4.3 Amendment No. 3 to Warrant Agreement dated May 26, 1989, N/A incorporated by reference to Current Report on Form 8-K dated June 8, 1989 as Exhibit 4.1. 4.4 Amendment No. 4 to Warrant Agreement dated July 21, 1989, N/A incorporated by reference to Post-Effective Amendment No. 5 on Form S-18 dated July 24, 1989 as Exhibit 4.4. 4.5 Amendment No. 5 to Warrant Agreement dated April 24, 1990, N/A incorporated by reference to Current Report on Form 8-K dated April 24, 1990 as Exhibit 4.5. 4.6 Amendment No. 6 to Warrant Agreement dated October 26, N/A 1990, incorporated by reference to Current Report on Form 8-K dated October 26, 1990 as Exhibit 4.6. 10.1 Incentive Stock Option Plan dated October 21, 1985, N/A incorporated by reference to Registration Statement No. 33-13074-D as Exhibit 10.1. EXHIBIT INDEX Exhibit Page No. Document No. 10.13 Supplement to Employment Agreement dated October 10, 1989 N/A between the Company and Peter C. Harrity incorporated by reference to Annual Report on Form 10-K for the fiscal year ended December 31, 1989 as Exhibit 10.13. 10.14 Supplement to Employment Agreement dated May 16, 1989 between N/A the Company and William F. Loving, incorporated by reference to Post-Effective Amendment No. 3 on Form S-18 dated May 30, 1989 as Exhibit 10.14. 10.15 Employment Agreement dated December 26, 1989, but effective as N/A of September 27, 1989, between the Company and Norman A. Newton incorporated by reference to Annual Report on Form 10-K for the fiscal year ended December 31, 1989 as Exhibit 10.15. 10.16 OEM Purchase Agreement dated January 15, 1990, between the N/A Company and Ariel Electronics, Inc. incorporated by reference to Annual Report on Form 10-K for the fiscal year ended December 31, 1989 as Exhibit 10.16. 10.2 Form of Convertible Promissory Note, 12/30/93 Private N/A Placement incorporated by reference to Annual Report on Form 10-KSB for the fiscal year ended December 31, 1993 as Exhibit 10.2. 10.3 Form of Non-Convertible Promissory Note, 12/30/93 Private N/A Placement incorporated by reference to Annual Report on Form 10-KSB for the fiscal year ended December 31, 1993 as Exhibit 10.3. 10.4 Form of Note Purchaser Warrant Agreement and Warrant, N/A 12/30/93 Private Placement incorporated by reference to Annual Report on Form 10-KSB for the fiscal year ended December 31, 1993 as Exhibit 10.4. EX-27 2 EXHIBIT 27 FDS
5 YEAR DEC-31-1995 DEC-31-1995 3,162 0 178,745 0 506,396 705,662 339,688 315,909 753,821 573,179 240,000 0 0 45,261 0 753,821 1,736,938 1,736,938 1,050,768 1,050,768 0 0 25,876 (219,848) 0 0 0 0 0 (219,848) (.49) 0
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