ITEM 1. BUSINESS
Background
Oxford Technologies Inc. (the "Company") was incorporated in the State of Delaware on March 8, 2002, as a blank check company for the purpose of either merging with or acquiring an operating company with operating history and assets. On June 10, 2002, the Company voluntarily filed a registration statement on Form 10-SB with the Securities and Exchange Commission to become a reporting company under the Securities and Exchange Act of 1934, as amended. The registration statement became effective on or about August 11, 2002.
On January 24, 2003, Great Admirer Limited, a Hong Kong corporation ("Great Admirer"), acquired 85% or 4,250,000 shares of the Company's then issued and outstanding common stock from Waywood Investment Limited, then sole shareholder of Oxford Technologies Inc. through a stock purchase agreement.
On February 12, 2003, the Company entered into a share exchange agreement with Great Admirer, under which the Company issued 13,564,002 shares of its common stock to Great Admirer in exchange for all issued and outstanding capital shares of Axiom Manufacturing Services Limited ("Axiom") on a one for one basis. Axiom is an electronics manufacturing service provider based in the United Kingdom and a wholly owned subsidiary of Great Admirer. As a result of this transaction, Axiom became a wholly owned subsidiary of Oxford Technologies Inc., and the shareholders of Axiom became the controlling shareholders of Oxford Technologies Inc. This transaction was accounted for as a reverse acquisition.
Axiom was incorporated in the United Kingdom on September 3, 1980, under the name of Aiwa (UK) Limited, as a wholly owned subsidiary of the Aiwa Company of Japan, to engage in the manufacture of consumer electronics. The name of Aiwa (UK) Ltd. was changed in June 1997 to Aiwa Wales Manufacturing Limited ("AWM") and subsequently changed to Axiom Manufacturing Services Limited on April 10, 2002, following the acquisition of AWM by Great Admirer. Prior to its acquisition by Great Admirer in April 2002, Axiom was a wholly owned subsidiary of Aiwa Europe Limited, which in turn was a wholly-owned subsidiary of the Aiwa Company of Japan. (Note that the Aiwa business was acquired by the Sony Corporation on October 1, 2002). As the sole original equipment manufacturer of Aiwa's own-brand products in Europe, Axiom was responsible for producing consumer electronics products primarily audio and visual equipment on behalf of the Aiwa Company of Japan, for distribution in the UK, France, Germany, Poland and the Netherlands. Following a review of its global operation, Axiom's manufacturing facility in South Wales was deemed to be redundant and rather than abandoning it, Aiwa arranged for its sale to Great Admirer. Organizational and acquisition costs incurred by Aiwa/Axiom as a result of this transaction were recorded on the books of Axiom. As Great Admirer was a non-operating shell company and incurred minimal costs to acquire Axiom there was no requirement for any costs incurred by Great Admirer to be "pushed down" into the accounts of Axiom. Prior to the sale of AWM, now Axiom, to Great Admirer, Sony/Aiwa forgave US$11,864,000 of inter-company debt which was recorded as paid-in capital under US GAAP and incurred no other costs that were required to be "pushed down" to Axiom to complete this transaction.
This merger transaction was accounted for as a reverse acquisition under generally accepted accounting principles in the United States of America. Following the completion of the merger with Oxford, Oxford filed the financial information of Axiom, on a stand-alone basis, for the year prior to the acquisition (12/31/2002). The continuing operations of the Registrant will reflect the consolidated operations of Oxford and its wholly owned subsidiary, Axiom commencing on January 1, 2003. The acquisition of Axiom by Great Admirer was treated as a reverse merger in accordance with purchase accounting under APB 16.
Axiom (previously Aiwa Wales Manufacturing Limited) was formerly responsible for manufacturing Aiwa brand consumer electronics products, primarily audio and visual products on behalf of Aiwa Japan, for distribution in the Europe. In December 2000 due to gradually declining profit margins, Axiom started to provide electronic manufacturing services (EMS) for third parties. In July 2001 production of Aiwa branded products was terminated and Axiom became solely an EMS provider offering its customers a comprehensive and integrated design and manufacturing service, from initial product design through to volume production and aftermarket support.
Axioms principal offices and manufacturing facilities are located in Technology Park, Newbridge, South Wales, United Kingdom. Axiom owns the above mentioned facilities, which occupy approximately 18.77 acres. Axiom's website address is www.axiom-ms.com.
Description of the Business
The Company, through its subsidiary Axiom, provides electronics manufacturing services in the business to business or business to industry sectors and to original equipment manufacturers in the following market sectors:
o Medical devices o Industrial control equipment o Domestic appliances o Computer and related products o Testing and instrumentation products
As a result of efficiently managing costs and assets, Axiom is able to offer its customers an outsourcing solution that represents a lower total cost of acquisition than that typically provided by the OEM's own manufacturing operation. OEM's contract with Axiom to build their products or to obtain services related to product development and prototyping, volume manufacturing or aftermarket support. In many cases Axiom builds products that carry the brand name of its customers and substantially all of Axiom's manufacturing services are provided on a turnkey basis where Axiom purchases customer specific components from suppliers, assemble the components onto printed circuit boards, perform post production testing and provide the customer with production process and test documentation. Axiom also provides manufacturing services on a consignment basis where material is free issued by the customer for Axiom to build into finished printed circuit boards or product. Axiom offers its customers flexible just in time delivery programs which allow product shipments to be closely coordinated with the customers' inventory requirements. Additionally Axiom completes the assembly of final product for its customers by integrating the manufactured printed circuit boards into the customers finished products.
Axiom operates in several sectors within the electronics and technology markets with most of its customers being located within the United Kingdom.
The Company's Services
The Company believes that demand from OEM's for an integrated outsourcing solution is increasing and that more and more OEM's are looking for a collaborative relationship. By providing a total solution that includes a full range of services allowing it to take customer products from initial design through production to testing, distribution and after market support, the company is well placed to provide the partnership solution OEM's require. The service offered includes:
Engineering and Design. The Company offers engineering, design, prototyping and related services that help its customers design their products for optimal manufacturing and testing. The Company's electrical, mechanical and packaging engineers provide customers with circuit design, printed circuit board layout, mechanical and test fixture design services. The Company also provides design for procurement, design for manufacture and design for test services. The Company's design for procurement service identifies areas where the overall cost of the customers' products can be reduced through lower material costs and effective inventory management. The Company's design for manufacture service seeks to achieve defect-free and cost-effective product designs, reduce the product development cycle, create high initial production yields and establish superior product quality. The design for test service focuses on achieving the highest level of fault detection and isolation before products are shipped.
Materials Procurement and Management. Materials procurement and management consists of planning, purchasing, expediting and warehousing of components and materials. The company's inventory management and volume procurement capability contributes to cost reductions and reduces overall cycle times.
Product Assembly and System Integration. The Company offers assembly and manufacturing services which include assembly of electronic subsystems of final product as well as final assemblies incorporating printed circuit board assemblies, complex electromechanical subassemblies, enclosures, power supplies and other components. In addition, the Company's ability to build and configure product to order enables it to postpone final configuration of the customers' product until the end-user specifications are received, thus reducing finished inventory levels for both the Company and its customers. The Company builds a wide range of final products and believes it is well placed to take advantage of the anticipated acceleration in outsourcing of final product assembly and integration.
Testing. The Company offers computer-aided testing of assembled printed circuit boards, subassemblies and finished product, which contributes significantly to its ability to deliver high-quality products on a consistent basis. Its test capabilities include manufacturing defect analysis, in circuit tests to check the integrity of the circuits within the board, and functional tests using its own custom designed test equipment and software or equipment and software supplied by its customers. The Company can also provide environmental stress tests of circuit boards and finished products and works with its customers to develop test strategies.
Logistics and Distribution. The Company configures and ships customers' products, provides final product packaging and distribution services for completed products as well as direct order fulfillment. It is increasingly delivering final product directly to its customers' distribution channels and to its customers' end-users. The Company believes that these services complement its comprehensive manufacturing solution, and enables its customers to be more responsive to changing market demands and enable them to get their product to market more efficiently and at a lower total cost.
After-Market Services. The Company provides a range of after-market services, including repair, refurbishment, re-manufacturing, system upgrades and spare part manufacture. These services are supported by specific information systems and testing technologies and can be tailored to meet the requirements of each customer.
Business Strategy
The goal of the Company is to be the electronics manufacturing services outsourcing provider for leading original equipment manufacturers in high growth segments of the electronics industry. To meet this goal, the Company intends to implement the following strategies:
Maintain and develop close, long-term relationships with Customers. The Company's core strategy is to maintain and establish long-term relationships with leading original equipment manufacturers in expanding industries by becoming an integral part of its customers' manufacturing operations. To this end, the Company works closely with its customers throughout the design, manufacturing and distribution process, where the Company offers a flexible and responsive service. The Company develops strong customer relationships through dedicated account management teams who respond to frequently changing customer design specifications and production requirements.
Focus on high-end products in high growth sectors. The Company as a relative newcomer to the CEM market place has positioned itself as a supplier of low volume, high added value services in niche markets. Its customers typically fall in the consumer, industrial, military, office equipment and medical sectors with the products manufactured ranging from easy to assemble low cost high volume products for the consumer market to complicated, state of the art, mission critical electronic hardware. The Company's ability to offer both of these services enables it to maintain and expand its customer base.
Deliver complete high and low volume manufacturing solutions globally. The Company believes original equipment manufacturers increasingly require a wide range of specialized engineering and manufacturing services in order that they can reduce their costs and accelerate their time to market and time to volume production. Building on its integrated engineering and manufacturing capabilities, the Company offers services from initial product design and test to final product assembly and distribution to the original equipment manufacturers' customers. This full service capability allows the Company to offer its customers the flexibility to move quickly from design and new product introduction to commercial production and distribution.
Enhance the Company's integrated design, manufacturing and related services. The Company intends to continue to enhance its service offerings to meet the needs of its customers and to control and manage more effectively the supply chain. The Company has expanded its engineering and design capabilities and invested in its new product introduction services and believes that its ability to support customers in these areas provides it with an insight into its customers' future manufacturing requirements.
Generating increased levels of business from the Company's existing Customers and expansion of its Customer base. The Company believes that organically growing the level of business from its existing customers and expanding its customer base are critical to its future success. The Company continually evaluates the requirements of its existing customers, and looks for opportunities to provide them with additional services thereby strengthening the relationship and increasing the customers' dependence on the Company thus creating long term business relationships.
The Company pursues new customers by focusing marketing effort on selected sectors and customers, and increasing its brand awareness to win new business.
Marketing and Customers
The Company markets its manufacturing services primarily in the United Kingdom. For fiscal 2005 92% of the Company's sales were made in the United Kingdom, as compared to 85% in fiscal 2004. The Company markets its services through selective media advertising, telemarketing, levering its contacts in the supply chain and direct contact by sales staff. The following table shows the percentages of the Company's sales by industry sector for the last four years.
Year ending Dec. 31, 2002 2003 2004	 2005 - ----------------------- ---------- ----------- --------- ------- Computers & Peripherals 0.9% 7.4% 11.3% 8.1% Consumer 42.2 44.8 15.5 15.4 Medical 27.0 22.8 26.1 38.6 Industrial 24.4 22.0 47.0	 37.9 Office Equipment 5.5 3.0 -	 - ---------- --------- --------	 -------- TOTAL 100 % 100% 100%	 100%
The Company uses a number of database products to identify market sectors and customers and then uses an external telemarketing company to identify the decision makers for a direct approach from the Company's sales force.
Suppliers
The Company maintains a network of suppliers of components and other material used in assembling products, and procures components when a purchase order or forecast is received from a customer. The majority of components are industry standard and available from a number of alternative suppliers but a number of custom-made components are used and in this case a supplier may be the single source of supply. For the year ended December 31, 2005 there was one supplier who accounted for more than 10% of the Company's purchases; for the year ending December 31, 2004 there were no suppliers who accounted for 10% or more of the Company's purchases.
The Company procures components only when a purchase order has been received from the customer. Although the Company may experience component shortages and long lead times on some components from time to time, the Company has generally been able to reduce the impact of these shortages by working with customers to reschedule deliveries and by purchasing components from alternative sources of supply albeit at slightly higher prices.
Research and Development
For the year ended December 31, 2005, there were no product research and development expenses. The Company has no current plan to conduct any product research and development activities in the next twelve months.
Order Backlog
Order Backlog consists of customer purchase orders and forecasts with delivery dates scheduled within the next 12 months. At December 31, 2005, the Company's backlog was approximately $12.87 million. Because customers may cancel or reschedule deliveries, backlog is not a meaningful indicator of future financial results.
Patents and Trademarks
We do not own any patents or trademarks.
Competition
The electronic manufacturing services industry is highly competitive. A number of the Company's competitors are substantially larger, have greater financial, operating, manufacturing and marketing resources and have a broader geographic breadth and range of services. As more OEMs dispose of their manufacturing assets and increase their use of outsourcing, the Company faces increasing pressure to grow its business in order to maintain its competitive position.
Environmental Matters
The Company's operations are subject to certain national and local regulatory requirements relating to the environment, health and safety and waste management, and the use, release, storage, treatment, transportation, discharge, disposal and clean-up of hazardous substances and wastes, as well as practices and procedures applicable to the construction and operation of our plants. The Company is in substantial compliance with all applicable requirements and has achieved ISO 14001, an internationally recognized award. However, material costs and liabilities may arise from these requirements or from new, modified or more stringent requirements.
The Company periodically generates and temporarily handles limited amounts of material that are considered hazardous waste under applicable law. The Company contracts for the off-site disposal of these materials and has implemented a waste management program to address related regulatory issues. The current costs of compliance are not material to the Company, and the Company is not aware of any facts or circumstances that would cause it to incur significant costs or liabilities related to environmental or health and safety regulation compliance in the future. Nevertheless, additional or modified requirements may be imposed in the future which may result in the Company incurring additional expenditure.
Employees
As of December 31, 2005, the Company had 186 full-time employees. Fluctuations in workload may result in the Company hiring temporary workers. Five percent of the Company's employees are represented by the General Municipal Boilermakers Union. The Company considers its employee relations to be good. The Company does not expect significant changes in the number of employees in the next twelve months.
ITEM 1A.
ITEM 1A. RISK FACTORS
The Company's business involves various risks and uncertainties, including, but not limited to those discussed in this section. This information should be considered carefully together with the other information contained in this report including the financial statements and the related notes. If any of the following events described in the risk factors below actually occur, the Company's business, financial condition and results of operations could be adversely affected.
Risks Related to Our Business
WE HAVE EXPERIENCED LOSSES IN THE PAST, AND WE MAY NEVER ACHIEVE OR SUSTAIN PROFITABILITY.
Although we generated a net income of $1.47 million and $0.36 million for fiscal 2005 and 2004, respectively, we incurred a net loss of $1.85 million for fiscal 2003, and our accumulated deficit as of December 31, 2005, was $19.2 million. We may incur additional losses in the future, and we may not sustain profitability, which may cause you to lose all or part of your investment in our common stock.
WE NEED ADDITIONAL CAPITAL TO IMPLEMENT OUR CURRENT BUSINESS STRATEGY, WHICH MAY NOT BE AVAILABLE TO US, AND IF WE RAISE ADDITIONAL CAPITAL, IT MAY DILUTE YOUR OWNERSHIP IN US.
We currently depend on invoice discounting, bank loans and finance lease agreements to meet our short-term cash requirements. In order to grow revenues and sustain profitability, we will need additional capital. As of the date of this report, we do not have any arrangements for financing. Obtaining additional financing will be subject to a number of factors, including market conditions, our operating performance and investor sentiment. These factors may make the timing, amount, terms and conditions of additional financing unattractive to us. We cannot assure you that we will be able to obtain any additional financing. If we are unable to obtain the financing needed to implement our business strategy, our ability to increase revenues will be impaired and we may not be able to sustain profitability.
WE HAVE NO LONG-TERM MANUFACTURING CONTRACTS FROM OUR CUSTOMERS, AND REDUCTIONS, CANCELLATIONS OR DELAYS IN CUSTOMER ORDERS WOULD ADVERSELY AFFECT OUR OPERATING RESULTS.
As is typical in the electronics manufacturing service industry, we do not usually obtain long-term manufacturing orders or commitments from our customers. In addition, customers may cancel their orders, change production quantities or delay production for a number of reasons beyond our control. A significant number of cancellations, reductions or delays in orders by our customers would reduce our revenues and because many of our costs are fixed, this reduction in sales will have a disproportionate adverse effect on our operating results.
WE ARE DEPENDENT UPON A FEW LARGE CUSTOMERS, AND THE LOSS OF ANY OF THOSE CUSTOMERS, OR THEIR INABILITY TO PAY, COULD MATERIALLY REDUCE OUR REVENUES, LIQUIDITY AND CASH FLOWS.
For the past three years, a substantial portion of our revenues has been derived from our five largest customers, each of them was accounting for 10% or more of our total sales. For the years ended December 31, 2005, 2004 and 2003, sales to those five largest customers accounted for approximately 80%, 73%, and 76% of our total sales, respectively. The loss of any of those customers, or their inability to pay, could materially reduce our revenues, liquidity and cash flows.
OUR QUARTERLY OPERATING RESULTS, REVENUES AND EXPENSES MAY FLUCTUATE SIGNIFICANTLY WHICH COULD HAVE AN ADVERSE EFFECT ON THE MARKET PRICE OF OUR COMMON STOCK.
Our operating results, revenues and expenses may fluctuate significantly from quarter to quarter due to a variety of factors including:
o the timing, size and execution of orders and shipments,
o lengthy and unpredictable sales cycles,
o changes in our operating expenses,
o changes in exchange rates, and
o fluctuations in general economic conditions.
We believe that period-to-period comparisons of our results of operations are not a good indication of future performance. It is possible that our operating results will be below your expectations. In that event, the trading price of our common stock will fall.
WE POTENTIALLY BEAR THE RISK OF PRICE INCREASES ASSOCIATED WITH SHORTAGES IN THE AVAILABILITY OF ELECTRONICS COMPONENTS.
At various times, there have been shortages of components in the electronics industry, leading to increased component prices. After receiving manufacturing orders, we purchase electronics components to manufacture our customers' products. Although we work with both customers and suppliers to minimize the impact of such shortages, we potentially bear the risk of price increases for these components if we are unable to purchase components at the price level anticipated to support the margins assumed in our agreements with our customers.
WE OPERATE IN A COMPETITIVE BUSINESS ENVIRONMENT AND IF WE CANNOT COMPETE EFFECTIVELY, WE MAY NEVER BECOME PROFITABLE.
The market for our products and services is intensely competitive and subject to technological change. Competitors vary in size and in the scope and breadth of the products and services they offer. We compete in the United Kingdom with many large and small companies, to provide electronics manufacturing services to original equipment manufacturers. Some of our competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, engineering, technical, marketing and other resources than we do. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer demands or to devote greater resources to the development, promotion and sale of their products or services than we can. If we cannot compete effectively, we may never become profitable.
IF WE FAIL TO KEEP PACE WITH RAPID TECHNOLOGICAL CHANGES IN OUR INDUSTRY, WE COULD LOSE EXISTING CUSTOMERS AND BE UNABLE TO ATTRACT NEW BUSINESS.
The electronics manufacturing service market in which we operate is characterized by rapidly changing technologies, frequent new product and service introductions and evolving industry standards. We expect our competitors to provide new and additional service offerings , which will compete with, and reduce the demand for, our services. Our future success will depend, in part, on our ability to enhance the service offering introduce new technologies and processes to keep pace with technological developments and emerging industry standards, and to address the increasingly sophisticated needs of our customers. If we fail to keep pace with rapid technological changes in our industry, we could lose existing customers and be unable to attract new business.
OUR SUCCESS DEPENDS ON THE CONTINUING TREND OF ORIGINAL EQUIPMENT MANUFACTURERS TO OUTSOURCE. UNCERTAINTIES AND ADVERSE TRENDS AFFECTING THE ELECTRONICS INDUSTRY OR ANY OF OUR MAJOR CUSTOMERS MAY ADVERSELY AFFECT OUR OPERATING RESULTS.
Our revenue growth is dependent upon the continuing trend of original equipment manufacturers to outsource. To the extent that there are no new outsourcing opportunities, our future growth would be unfavorably impacted. In addition, our business depends on the electronics industry, which is subject to rapid technological changes, short product life cycles and pricing and margin pressure. When these factors adversely affect our customers, we may suffer similar effects.
FLUCTUATIONS IN THE EXCHANGE RATE BETWEEN THE BRITISH POUND STERLING AND THE UNITED STATES DOLLAR MAY ADVERSELY AFFECT OUR OPERATING RESULTS.
The functional currency of our operations in the United Kingdom is British Pound Sterling. Results of our operations are translated at average exchange rates into United States dollars for financial reporting purposes. As a result, fluctuations in exchange rates may adversely affect our expenses and results of operations as well as the value of our assets and liabilities. We have not entered into any foreign currency derivative financial instruments; however, we may choose to do so in the future in an effort to manage or hedge our foreign currency risk.
OUR ASSETS AND OFFICERS/DIRECTORS ARE LOCATED OUTSIDE OF THE U.S., IT IS DIFFICULT TO EFFECT SERVICE OF PROCESS AND ENFORCEMENT OF LEGAL JUDGMENTS UPON US AND OUR OFFICERS AND DIRECTORS.
Our assets, our officers and directors are located outside of the United States. As a result, it may be difficult to effect service of process within the United States and enforce judgment of the US courts obtained against us and our executive officers and directors. Particularly, our shareholders may not able to:
o effect service of process within the United States on us or any of our executive officers and directors;
o enforce judgments obtained in U.S. courts against us based upon the civil liability provisions of the U.S. federal securities laws;
o enforce, in a court outside of the United States, judgments of U.S. courts based on the civil liability provisions of the U.S. federal securities laws; and
o bring an original action in a court outside of the United States to enforce liabilities against us or any of our executive officers and directors based upon the U.S. federal securities laws.
Risks Related to Investment in Our Securities
OUR PRINCIPAL SHAREHOLDER CONTROLS A SUBSTANTIAL PORTION OF OUR COMMON STOCK; INVESTORS WILL HAVE LITTLE CONTROL OVER OUR MANAGEMENT OR OTHER MATTERS REQUIRING SHAREHOLDER APPROVAL.
Great Admirer Ltd., our principal shareholder, currently owns approximately 94.4% of our outstanding common stock, giving it the ability to control all matters submitted to our stockholders for approval and to control our management and affairs, including the election of our directors; the acquisition or disposition of our assets, the future issuance of our shares and approval of other significant corporate transactions. It may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests.
THERE IS NO AND THERE MAY NEVER BE A PUBLIC MARKET FOR OUR COMMON STOCK SHARES, WHICH MAY MAKE IT DIFFICULT FOR SHAREHOLDERS TO SELL THEIR SHARES.
There is currently no market for our common stock and we can provide no assurance that a market will develop. We intend to apply for quotation of our common stock on the OTC Bulletin Board. However, there is no assurance that our shares will be traded on the OTC Bulletin Board or, if traded, that a public market will materialize. If no market is ever developed for our shares, it will be difficult for shareholders to sell their stock.
OUR COMMON STOCK IS DEEMED TO BE A PENNY STOCK. AS A RESULT, TRADING OF OUR SHARES MAY BE SUBJECT TO SPECIAL REQUIREMENTS THAT COULD IMPEDE OUR SHAREHOLDERS' ABILITY TO RESELL THEIR SHARES.
The shares offered by this prospectus constitute penny stock under the Securities Exchange Act of 1934 ("Exchange Act"). The shares will remain penny stock for the foreseeable future. As defined in Rule 3a51-1 of the Exchange Act, penny stocks generally are equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system.
Section 15(g) of the Exchange Act and Rule 15g-2 of the Exchange Act require broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor's account. Moreover, Rule 15g-9 of the Exchange Act requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to:
o obtain from the investor information concerning his or her financial situation, investment experience and investment objectives;
o reasonably determine, based on that information, that transaction in penny stocks are suitable for the investor and that the investor has significant knowledge and experience to be reasonably capable of evaluating the risks of penny stock transactions;
o provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and
o receive a signed and dated copy of such statement from such investor, confirming that it accurately reflects the investor's financial situation, investment experience and investment objects.
Compliance with these requirements may make it more difficult for investors in our common stock to resell the shares to third parties or to otherwise dispose of them.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. PROPERTIES
The Company's principal operating offices, engineering and manufacturing facilities are situated on approximately 18.77 acres of land located in Technology Park, Newbridge in South Wales, the United Kingdom. The Company owns the above-mentioned property. The gross internal area is approximately 307,000 square feet. The Company believes that its property is suitable and adequate for its present and proposed needs. The Welsh Assembly holds a legal charge over land and buildings.
A portion of the Company's surplus office space is leased to General Dynamics UK Ltd., a defense manufacturing company, and previously, surplus warehouse space was let to Saints Transport, a haulage company based in the UK, for the storage of aircraft interiors. The following table summarizes information regarding the leases.
Leaseholder Leased property Monthly Rent Expiration Date - ----------------- ----------------------- -------------- --------------- General Dynamics 19,768 square feet $ 11,190 Monthly renewable General Dynamics 12,232 square feet $ 6,924 Monthly renewable Saints Transport 20,000 square feet $ 5,000 Monthly renewable
General Dynamics continue to rent space extending the original lease agreement on a monthly basis. It is anticipated that a new lease will be signed including further additional space for a two year period in July, 2006.
The Company leases approximately 1,000 square feet of office space at 80 Wall Street, Suite 818, New York, NY 10005 at a monthly rental of $2,500. The lease expires in October 2006.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings other than ordinary routine litigation incidental to its business, the outcome of which the Company believes will not have a material adverse affect on its business, financial condition, cash flows or results of operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of the fiscal year covered by this Annual Report on Form 10-K.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
There is no public trading market for our common stock.
Holders
As of August 2, 2006, there were 357 holders of record for our common shares. We have only one class of stock outstanding.
Stock Options, Warrants and Convertible Securities
We have not granted any stock options or warrants to purchase shares of our common stock, and we have not issued and do not have any securities outstanding that may be converted into our common shares or have any rights convertible or exchangeable into shares of our common stock.
Dividends
We have not paid any dividends since our incorporation and we do not have current plan to pay dividends in the foreseeable future.
There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Delaware Revised Status, however, does prohibit us from declaring dividends, after giving effect to the distribution of the dividend: (i) we would not be able to pay our debts as they become due in the usual course of business; or (ii) our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.
Securities Authorized for Issuance under Equity Compensation Plans
We do not have any compensation plan under which equity securities are authorized for issuance.
Sale of Unregistered Securities
On March 8, 2002, the Company issued 5,000,000 shares of common stock, valued at $500, to Waywood Investment Ltd. for services it rendered in connection with the Company's organization. The shares were issued under the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended. The Company believes this exemption is available because no public offering was involved.
On February 12, 2003, the Company entered into a share exchange agreement with Great Admirer Ltd., under which the Company issued 13,564,002 shares of its common stock to Great Admirer in exchange for all issued and outstanding ordinary shares of Axiom Manufacturing Services Ltd. on a one for one basis. The shares were issued under the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended. The Company believes this exemption is available because no public offering was involved.
On March 18, 2003, Great Admirer Ltd. distributed 213,000 shares out of the 13,564,002 shares of the Company's common stock to 355 employees of Great Admirer's affiliated companies. The securities described above were distributed in reliance upon exemptions from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended. All recipients are not "U.S. Persons" as defined in Regulation S promulgated under the Securities Act of 1933. No distribution was made in the United States, and no underwriters were involved in this transaction.
The Company has never utilized an underwriter for offerings of its securities.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Transfer Agent
Our transfer agent is Integrity Stock Transfer, 2920 N Green Valley Parkway, Building 5, Suite 527, Henderson, NV 89014.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The financial data as of and for the years ended December 31, 2002, 2003, 2004, and 2005 have been derived from our consolidated financial statements. The selected financial data should be read in conjunction with the consolidated financial statements and the notes thereto of the Company and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Annual Report on Form 10-K contains forward-looking statements, as such term is defined in the Private Securities Litigation Reform Act of 1995, and information relating to the Company that is based on beliefs of the management of the Company, as well as assumptions made by and information currently available to management of the Company. When used in this Report, the words "estimate," "project," "believe," "could," "anticipate," "intend," "expect," and similar expressions are intended to identify forward-looking statements. Such statements reflect the current views of the Company with respect to future events based on currently available information and are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Overview
The Company was incorporated in the State of Delaware on March 8, 2002, as a blank check company. On February 12, 2003, the Company acquired 100% of the outstanding securities of Axiom Manufacturing Services Ltd. ("Axiom") with the exchange and issuance of 13,564,002 shares of the Company's common stock (the "Merger"). Although the Company is the legal survivor in the Merger and remain the registrant with the SEC, under generally accepted accounting principles in the United States, the Merger was accounted for as a reverse acquisition, whereby Axiom is considered the "Acquirer" for financial reporting purposes as its shareholders controlled more than 50% of the post transaction combined company. Among other matters, this requires us to present all financial statements, prior historical financial and other information concerning Axiom, and requires a retroactive restatement of Axiom's historical shareholders investment for the equivalent number of shares of common stock received in the Merger. Accordingly, the Company's consolidated financial statements present the results of operations of Axiom for the year ended December 31, 2002, and reflect the acquisition of the Company on February 12, 2003, under the purchase method of accounting. Subsequent to February 12, 2003, the Company's operations reflect the combined operations of the former Oxford and Axiom.
The Company conducts its business through its subsidiary, Axiom Manufacturing Services Limited. Prior to its acquisition by Great Admirer Ltd. in April 2002, Axiom was a wholly owned subsidiary of Aiwa Europe Limited, which was itself a wholly owned subsidiary of the Aiwa Company of Japan. The Aiwa Company of Japan was effectively acquired by Sony Corporation on October 1, 2002. As the sole original equipment manufacturer of Aiwa's own brand products in Europe, Axiom was responsible for producing consumer electronics products, primarily audio and visual products for distribution in the UK, France, Germany, Poland and the Netherlands. In December 2000, due to gradually declining profit margins, Axiom started to provide electronic manufacturing services (EMS) for third parties and in July 2001 production of all Aiwa branded products was terminated, with Axiom becoming solely an EMS provider. On March 31, 2002, Axiom completed its first full year of operations as a contract electronics manufacturing services provider.
The Company provides electronics manufacturing services in the business to business or business to industry sectors and to original equipment manufacturers in the following market sectors:
o Medical devices o Industrial control equipment o Domestic appliances o Computer and related products o Testing and instrumentation products
As a result of efficiently managing costs and assets, Axiom is able to offer its customers an outsourcing solution that represents a lower total cost of acquisition that that typically provided by the OEM's own manufacturing operation. OEM's contract with Axiom to build their products or to obtain services related to product development and prototyping, volume manufacturing or aftermarket support. In many cases Axiom builds products that carry the brand name of its customers and substantially all of Axiom's manufacturing services are provided on a turnkey basis where Axiom purchases customer specific components from suppliers, assemble the components onto printed circuit boards, perform post production testing and provide the customer with production process and test documentation. Axiom also provides manufacturing services on a consignment basis where material is free issued by the customer for Axiom to build into finished printed circuit boards or product. Axiom offers its customers flexible just in time delivery programs which allow product shipments to be closely coordinated with the customers' inventory requirements. Additionally Axiom completes the assembly of final product for its customers by integrating the manufactured printed circuit boards into the customers finished products.
Results of Operations
The following table presents, for the periods indicated, the percentage relationship that certain items of the Company's statements of income bear to revenue and the percentage increase or (decrease) in the dollar amount of such items: 	 	 Year Ended 	 	 2005 2004 2003 ------------ ------------ ----------- Revenue 100% 100.0% 100.0% Cost of sales 90.6 91.9 102.6 Gross profit 9.4 8.1 (2.6) Operating expenses 8.1 10.5 11.2 Operating income (loss) 1.3 (2.5) (13.8) Other income (expense) 3.5 3.8 4.7 Income before income taxes 4.8 1.3 (9.1) Income tax - - - Net income 		 4.8% 1.3% (9.1)%
Year Ended December 31, 2005 compared to Year Ended December 31, 2004 - ---------------------------------------------------------------------
Revenues
Revenues for the year ended December 31, 2005 were $30.68 million representing an increase of $2.86 million, or 10.3%, as compared to $27.82 million for the year ended December 31, 2004. The increase in revenue was largely a result of generating additional revenues from existing customers by progressing from simple printed circuit board manufacture through to full product assembly. Substantially all of the revenues are derived from the provision of contract manufacturing services to OEM's however $584,000 or 2.1% of revenues in 2004 and $86,000 or 0.28% of revenues in 2005 were derived from a market returns, investigation and repair service offered to OEM's to process field failures. The number of customers remained constant at 15 as of December 31, 2005.
Cost of Sales
Cost of sales consists of the material cost of goods sold, direct overhead, direct wages, and direct depreciation expense. For the year ended December 31, 2005 the Company's cost of sales was $27.79 million as compared to $25.57 million for the year ended December 31, 2004 which was an increase of $2.22 million, or 8.7%, on the year ended December 31, 2004. The Company attributes this increase mainly to the growth in sales revenue during the year ended December 31, 2005; however the Company also achieved improved gross margins during 2005 due to better utilization and efficiency of labor and better product scheduling using its manufacturing resources planning system. As with revenues, the majority of cost of sales incurred related to the EMS business, however $460,000 (1.8%) in 2004 and $40,000 (0.14%) in 2005 related to the market return and repair service.
Operating Expenses
Operating expenses consist of selling, general and administrative expenses, plus restructuring costs. These were $2.85million in 2005 as compared to $2.93million in 2004, a reduction of $0.08 million, or 2.7%.
A significant proportion of the reduction is attributable to the savings in restructuring costs (zero in 2005 and $275,000 in 2004 which related to a reduction in headcount from 210 in December 2003 to 161 in December 2004). Following its transition from a large scale manufacturing operation for Aiwa to a small/medium sized EMS with a small customer base there was a necessity to significantly downsize the headcount of the company to ensure the successful transition to a competitive EMS. Through 2004 further adjustments were still being made to the organizational structure to refocus the business as a customer facing EMS. The skills required for a business of this type are substantially different to those needed for a multinational OEM. For example, as an OEM there were no sales staff and the procurement roles were largely progress chasing rather than negotiating prices with suppliers. A number of individuals were made redundant to further realign and streamline the indirect headcount and reduce the Company's cost base. This cost is the restructuring cost incurred in 2004 and resulted in lower indirect headcount costs as a result of which the Company was able to record its first profit. The lower cost base and improved organization structure and shape will enable the business to continue to be profitable in future years. Further restructuring costs are not anticipated at present.
Excluding the restructuring costs, there was an increase in operating expenses of $198,000, or 7.46%. This was due to increases in other personnel costs (recruitment costs) of $140,000, purchase of indirect materials which is linked to the higher sales volumes increased by $67,000 and buildings maintenance costs increased by $40,000 offset by small decreases in spend in a number of other areas.
Rental Income and Economic Development Grant
For the year ended December 31, 2005, the Company's rental income increased by $56,000 to $609,000 compared with $553,000 for the same period of the previous year. Since July 1, 2002, the Company has leased a total of 42,000 square feet of its unused office spaces to two corporate entities. The increase in rental income in fiscal 2005 was all due to renting out additional space.
For the year ended December 31, 2005, the government economic development grant was amortized in the amounts of $677,000 as compared to $682,000 for the year ended December 31, 2004. The grant was made by the Welsh Assembly Government to Axiom under Section 7 of the Industrial Development Act 1982: Regional Selective Assistance Grants to assist with a project to purchase the land, buildings and plant and machinery for contract electronics manufacture at Technology Park, Newbridge, Newport, United Kingdom. The grant is payable in two installments:
i) When Axiom has defrayed $13.2million on fixed assets for the project and secured 180 jobs, $3.863million payable.
ii) At least 1 year after the first installment when Axiom has defrayed $14.0million in total and 180 jobs safeguarded and a further 70 new full time jobs created, $966,000 payable. This has now been revised downwards to 180 jobs safeguarded and a further 35 new full time jobs created, $322,000 payable.
The $3.863million was paid over in July 2002 as cash into Axiom's bank account following the securing of 180 jobs and defraying the planned capital expenditure. Failure to maintain at least 180 full time jobs will lead to part or all of the grant being repaid. The Welsh Assembly government may require the grant to be repaid under the following circumstances for a period starting with final payment of the grant and ending either 18 months later, or 5 years after the first payment of grant whichever is longer.
1. If progress to the job target is not satisfactory (initial 180 jobs and then a further 35 jobs);
2. If the number of jobs created/safeguarded is not maintained;
3. The Company becomes insolvent or makes a voluntary agreement with its creditors or goes into liquidation or takes or suffers any steps preparatory to winding up the Company or the appointment of and Administrator, Liquidator or Receiver or commits or suffers any act equivalent to the foregoing;
4. There is a change of ownership or control of the Company;
5. For a period of more than 6 months, the company ceases to own or stops using for the purposes of the project part or all of the premises or specified assets;
6. If any information given in the grant application process changes substantially or is shown to be incorrect or misleading or any claim for a grant is based on misleading information;
7. The Company fails to comply with the terms of the grant letter or Schedules;
8. The preconditions in the offer letter are not maintained or the guarantee becomes ineffective (preconditions are that Sen Hong Resources acquires the business and assets of Aiwa Wales Manufacturing Limited, the National Assembly for Wales has a first charge over the land and buildings at Technology Park, Newbridge, and the valuation report dated September 11, 2001 is also addressed to the National Assembly for Wales and shows no material adverse changes).
Gain on sale of land
During the 2005, the Company sold the surplus North car park at its premises at Technology Park, Newbridge, Newport, United Kingdom. The gain on the sale of $364,000 represents the excess of the selling price over the adjusted cost of the land.
Interest Income
There was no interest income for either of the years ending December 31, 2005 or December 31, 2004 and reflects the fact that company held only small credit balances on its account.
Interest Expense
Interest expense for the year ended December 31, 2005, was $221,000 as compared to $190,000 for the year ended December 31, 2004 and reflected higher average borrowing levels throughout 2005.
Net Income
As a result of the factors discussed above, the Company reported a net income of $1.474million for the year ended December 31, 2005, as compared to a net income of $363,000 million for the previous year. This resulted in basic and diluted net income per share of $0.08 on weighted average common shares outstanding of 18,564,002 for the year ended December 31, 2005, as compared to net income per share of $0.02 on weighted average common shares outstanding of 18,564,002 for the year ended December 31, 2004.
Year Ended December 31, 2004 compared to Year Ended December 31, 2003 - ---------------------------------------------------------------------
Revenues
Revenues for the year ended December 31, 2004, were $27.82 million representing an increase of $7.40 million, or 36.2%, as compared to $20.42 million for the year ended December 31, 2003. Substantially all of the revenues are derived from the provision of contract manufacturing services to OEM's however $326,000 or 1.6% of revenues in 2003 and $584,000 or 2.1% of revenues in 2004 were derived from a market return, investigation and repair service offered to OEM's to process field failures. The increase in revenue was largely a result of adding two new major customers to the Company's customer base and by generating additional revenues from existing customers. The number of customers increased from 13 at the end of December 2003 to 15 as of December 31, 2004.
Cost of Sales
Cost of sales consists of the material cost of goods sold, direct overhead, direct wages, and direct depreciation expense. For the year ended December 31, 2004, the Company's cost of sales was $25.57 million as compared to $20.95 million for the year ended December 31, 2003 which was an increase of $4.62 million, or 22.1%, on the year ended December 31, 2003. As with revenues, the majority of cost of sales incurred related to the EMS business, however $377,000 (1.8%) in 2003 and $460,000 (1.8%) in 2004 related to the market return and repair service. The Company attributes this increase primarily to the growth of sales revenue during the year ended December 31, 2004; however the Company also achieved improved gross margins during 2004 due to better utilization and efficiency of labor, combined with better product scheduling using its manufacturing resources planning system.
Operating Expenses
Operating expenses consist of selling, general and administrative expenses, plus restructuring costs. These were $2.93million in 2004 as compared to $2.29million in 2003, an increase of $0.64 million, or 28.0%.
A significant proportion of the increase is attributable to the restructuring cost of $275,000 which relates to a reduction in headcount (from 210 in December 2003 to 161 in December 2004). Following its transition from a large scale manufacturing operation for Aiwa to a small/medium sized EMS with a small customer base there was a necessity to significantly downsize the headcount of the company to ensure the successful transition to a competitive EMS. Through 2004 further adjustments were still being made to the organizational structure to refocus the business as a customer facing EMS. The skills required for a business of this type are substantially different to those needed for a multinational OEM. For example, as an OEM there were no sales staff and the procurement roles were largely progress chasing rather than negotiating prices with suppliers. A number of individuals were made redundant to further realign and streamline the indirect headcount and reduce the Company's cost base. This cost is the restructuring cost incurred in 2004 and resulted in lower indirect headcount costs as a result of which the Company was able to record its first profit. The lower cost base and improved organization structure and shape will enable the business to continue to be profitable in future years. Further restructuring costs are not anticipated at present.
Excluding the restructuring costs, the remaining increase in operating expenses was $366,000, or 16.0% which was across selling, general and administrative expenses, but this increase was below the rate at which sales revenues were growing.
Rental Income and Economic Development Grant
For the year ended December 31, 2004, the Company's rental income increased by to $553,000 from $459,000 in the same period of the prior year. Since July 1, 2002, the Company has leased a total of 42,000 square feet of its unused office spaces to two corporate entities. The increase in rental income in fiscal 2004 was primarily due to renting out additional space.
For the year ended December 31, 2004, the government economic development grant was amortized in the amounts of $682,000 as compared to $606,000 for the year ended December 31, 2003. The grant was made by the Welsh Assembly Government to Axiom under Section 7 of the Industrial Development Act 1982: Regional Selective Assistance Grants to assist with a project to purchase the land, buildings and plant and machinery for contract electronics manufacture at Technology Park, Newbridge, Newport, United Kingdom. Please see discussion above on section of results of operations for fiscal 2005 and 2004 for more detailed information.
Interest Income
There was no interest income for the year ended December 31, 2004, as compared to $1,000 for the year ended December 31, 2003, as a result of lower average balances held on the Company's bank accounts.
Interest Expense
Interest expense for the year ended December 31, 2004, was $190,000 as compared to $103,000 for the year ended December 31, 2003 and reflected the higher borrowing levels in 2004.
Net Income/(Loss)
As a result of the factors discussed above, the Company reported a net income of $363,000 for the year ended December 31, 2004, as compared to net loss of $1.852 million for the previous year. This resulted in basic and diluted net income per share of $0.02 on weighted average common shares outstanding of 18,564,002 for the year ended December 31, 2004, as compared to net loss per share of $0.10 on weighted average common shares outstanding of 17,988,660 for the year ended December 31, 2003.
LIQUIDITY AND CAPITAL RESOURCES
Since 2002, the Company has been financed primarily through cash flow generated through operations, the Welsh Assembly Government grant, and to a lesser extent, limited short term financing. In July 2002, the Company received a grant in aid of $3,863,000 from Welsh Assembly Government in the UK. The funding was made available to safeguard jobs following the decision by Aiwa Europe Ltd. to end production at Newbridge. The Welsh Assembly Government has been given security in the form of a first lien on the land and buildings at Technology Park, Newbridge and has the right to require repayment of part or all of the grant under certain circumstances. The Company has treated the grant in aid as deferred income and recognized a monthly amortization, based upon a formula, to reduce expenses.
As of December 31, 2005, the Company had cash and cash equivalents of $556,000, as compared to $18,000 as of December 31, 2004, an increase of $538,000.
Working capital increased by $1.27million during the year with most of the increase attributable to an increase of $743,000 in the inventory balance, which is driven by the new customers taken on in 2004 moving to full volume shipments in 2005 plus inventory on hand to address the high projected first quarter sales for 2006.
Accounts receivable showed a decrease of $972,000 due mainly to low sales levels in December combined with improved cash collections while other debtors increased from $360,000 to $617,000 due to the recording of a deferred taxation asset of $201,000 plus an increase in prepayments of $56,000. Accounts payable also showed a reduction of $509,000 while other current liabilities increased by $196,000 mainly due to a higher tax liability (Value added tax, Corporation Tax and Employees Income Tax) plus higher levels of accrued expense.
For the year ended December 31, 2005, $624,000 was spent on the acquisition of further plant, machinery and computer equipment which will enable the Company to remain competitive in its product offering. Significantly higher amounts will need to be spent through the next two to three years to ensure compliance with new European Commission directives as well as responding to changes in technology - smaller components, larger printed circuit boards.
Funding expenditure was significantly lower (bank interest, invoice discounting and bank charges) which resulted in a reduction in borrowing of $323,000 and a closing cash balance of $556,000.
The Company's bank facilities comprise an invoice discounting facility with a maximum advance limit of $3,953,200, subject to the level of qualifying sales invoiced, and a bank overdraft of $125,000. Interest rates on these facilities are calculated based on the Bank of England Base lending rates. At December 31, 2005, interest on the invoice discounting facility was charged at 1.65% above Base (down from 1.8% over Base in 2004) and interest on the bank overdraft at 2% above Base. The accounts receivable of the Company are collateral for this arrangement.
The following summarizes the Company's debt and other contractual obligations at December 31, 2005:
As of the date of this Report, the Company is in compliance with all covenants under existing credit facilities. In the event that adequate funding is not available from existing credit facilities, the Company will work with its existing lenders to identify additional sources of financing. While there can be no assurance that the Company will have sufficient funds over the next twelve months, the Company believes that funds generated from operations plus borrowings under its invoice discounting facility will be adequate to meet anticipated future operating expenses, capital expenditure and debt obligations for at least the next twelve months. Nevertheless, the continuing operating and investing activities of the Company may require it to obtain additional sources of financing. There can be no assurance that any necessary additional financing will be available to us on commercially reasonable terms, if at all.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements.
Seasonality
The Company does not believe that seasonality has had a material effect on its operations.
Inflation
The Company does not believe that inflation has had a material effect on its operations.
CRITICAL ACCOUNTING POLICIES
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. The Company bases its estimates and judgments on historical experience and on various other assumptions the Company believes to be reasonable under the circumstances. Future events, however, may differ markedly from the Company's current expectations and assumptions. While there are a number of significant accounting policies affecting our consolidated financial statements, the Company believes revenue recognition and accounts receivable and allowance for doubtful accounts are two critical accounting policies that involve the most complex, difficult and subjective estimates and judgments.
Revenue recognition
The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin No. 104, "Revenue Recognition." SAB 104 requires that revenue generally can be recognized when all of the following four criteria are met: (1) Persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the selling price is fixed or determinable; and (4) collectibility is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectibility of those amounts.
Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period in which the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time when the Company and its customers jointly determine that the product has been delivered or no refund will be required.
Accounts Receivables and Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. The allowance is calculated based upon the evaluation and the level of past due accounts and the relationship with, and the economic status of, the Company's customers. The Company analyzes historical bad debts, customer credit worthiness, current economic trends and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts.
The Company's customer base consists of 15 long term customers and relationships with Customer staff are maintained across the Company's business including the finance department. Most of the revenue growth comes from customers for whom the Company has provided an EMS service for some time and who have a strong financial status. Accounts receivable issues are identified and resolved with the customer prior to the date at which the invoice falls due for payment and issues escalated and resolved through the sales force if necessary. Equally late payments are followed up promptly to ensure the earliest identification of problems and that further product is not shipped to compound the problem. Thus the accounts receivable ledger reflects receivables which are current or one month past due and therefore the need for an allowance for doubtful debts is small. To date the company has only incurred one bad debt to the value of $35,000.
Inventories and Reserves
Inventories are valued at the lower of cost and net realizable value after making due allowance for obsolete and slow moving items. Work in progress is valued based on materials at cost, labour time and a proportion of overhead costs. On an annual basis the Company takes a physical inventory verifying the materials on hand and comparing its perpetual records to physical counts.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
As of December 31, 2005, the Company was exposed to changes in interest rates relating to its factoring facility and other debt obligations. The factoring facility bears interest at a variable rate of 1.65% above the Bank of England base rate. The Company's outstanding borrowings on the factoring facility, including bank overdrafts and a bank loan, were approximately $2.50 million as of December 31, 2005. The remainder of the Company's interest-bearing debt obligations, including finance lease obligations, is denominated in British pounds and bears interest at a fixed rate. As of December 31, 2005, the face amounts of the outstanding borrowings on these fixed rate debt obligations were approximately $378,000. If interest rates were to change by a full percentage point, the net impact on interest expense would be approximately $25,000 per year.
Foreign Currency Risk
The Company faces foreign currency risks primarily as a result that the functional currency of the Company's operations in the UK is the British Pound Sterling. Results of operations and cash flows are translated at average exchange rates during the period while specific investing and financing activities are translated at rates in effect at the time of the cash inflow or outflow. Assets and liabilities are translated at end-of-period exchange rates. Translation adjustments are shown as a separate component of stockholders' equity. Foreign currency transaction gains or loss are included in the determination of net income. For the year ended December 31, 2005, the Company recorded a foreign currency translation loss of approximately $1.66 million, and for the years ended December 31, 2004 and 2003, the Company recorded a foreign currency translation gain of approximately $1.37 million and $1.03 million, respectively.
The Company has not entered into any foreign currency derivative financial instruments; however, it may choose to do so in the future in an effort to manage or hedge its foreign currency risk.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The audited financial statements required by Item 8 are set forth on pages through of this Form 10-K.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and porocedures. The Company's Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) have concluded that, as of December 31, 2005, the Company's disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company and its consolidated subsidiary would be made known to them by others within those entities.
(b) Management's report on internal control over financial reporting. The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. The Company's management assessed the effectiveness of its internal control over financial reporting as of December 31, 2005. The Company's management concluded that, as of December 31, 2005, its internal control over financial reporting is effective.
(c) Changes in internal controls. There has been no change in the Company's internal control over financial reporting that occurred during the fourth quarter of fiscal 2005 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
The Company's management, including its Chief Executive Officer and Chief Financial Officer, does not expect that the Company's disclosure controls and procedures or its internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers
Each of our directors is elected by the shareholders to a term of one (1) year and serves until his or her successor is elected and qualified, or until he or she resigns or is removed from office. Each of our officers is elected by the board of directors to a term of one (1) year and serves until his or her successor is duly elected and qualified, or until he or she resigns or is removed from office. The board of directors has no nominating or compensation committees.
The name, address, age and position of our officers and directors are as set forth below:
Name Age Positions - ------------------- ----- ------------------------------------------------ Jacinta Sit 34 President, Chief Financial Officer and Director Shaun Ashmead 39 Managing Director of Axiom Manufacturing Services Ltd. Vivian Lee-Yu Lam 37 Secretary and Director Wonn Chew Chai 47 Director - -----------------------------------------------------------------------------
JACINTA SIT has been our president and chief financial officer and a director since February 2003. From 2001 to the present, Ms. Sit holds various positions, most recently as an Executive Director, of South Sea Petroleum Holdings Limited, a Hong Kong corporation, whose principal business is the exploration and production of crude oil. Since September 2003, Ms. Sit has been the president, chief financial officer and a director of Cowley Technologies Corp., a magazine distributor in Hong Kong.
SHAUN ASHMEAD has held the position of Managing Director of Axiom Manufacturing Services Ltd. since March 2004. Prior to that, he was Axiom's Operations Director (August 2003 to March 2004), responsible for all aspects of the business other than sales. From September 2002 to August 2003, Mr. Ashmead was Head of the Administration Group responsible for Finance, Human Resources and Factory Engineering, and acted as Company Secretary. From July 2001 to September 2002 he was Axiom's Head of Quality and Engineering Groups, responsible for Technical Engineering, including new product introduction, supplier and product quality, Test Engineering and the Market Quality Investigation Centre. Mr. Ashmead has been employed with Axiom since 1986, predominately within a Quality Management role and was instrumental in ensuring Axiom achieved quality accreditations including ISO 9002, ISO 14001, QS 9000 and TS16949. He continues to ensure that the recognized standards are met or exceeded.
VIVIAN LEE-YU LAM has been our director and Corporate Secretary since February 2003. From 2000 to the present, Ms. Lam holds various positions, most recently as Company Secretary, of South Sea Petroleum Holdings Limited, a Hong Kong corporation whose principal business is the exploration and production of crude oil. Currently Ms. Lam also serves as a director of Great Admirer Limited, the parent company of the registrant, and since September 2003, secretary and a director of Cowley Technologies Corp., a magazine distributor in Hong Kong.
WOON CHEW CHAI was elected as an independent director of the Company in February 2003. From 1994 to the present, Mr. Chai has been a partner at Michael Chai & Co., a law firm in Kuala Lumpur, Malaysia. From 1991 to 1994, he was a legal associate with Shook Lin & Bok, a law firm in Kuala Lumpur, Malaysia. From 2002 to the present, he has served as director of South Sea Petroleum Holdings Limited, a Hong Kong corporation, whose principal business is the exploration and production of crude oil. Mr. Chai holds a Bachelor of Laws (Hons) degree from the University of Buckingham, and a Bachelor of Science (Hons) degree in Chemistry from University of Surrey, UK. Mr. Chai is qualified as Barrister at Law from Lincoln's Inn, England. Since September 2003, Mr. Chai has been serving as a director of Cowley Technologies Corp., a magazine distributor in Hong Kong.
Significant Employees
There are no significant employees other than our executive officers.
Family Relationships
There are no family relationships among directors or officers.
Involvement in Certain Legal Proceedings
During the past five years, none of our officers, directors, promoters or control persons has had any of the following events occur:
1. any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
2. any conviction in a criminal proceeding or being subject to a pending criminal proceeding, excluding traffic violations and other minor offenses;
3. being subject to any order, judgment or decree, not substantially reversed, suspended or vacated, of any court of competent jurisdiction, permanently enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking business; and/or
4. being found by a court of competent jurisdiction, in a civil action, the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
Code of Ethics
The Company has adopted a Code of Business Conduct and Ethics which applies to our principal executive officer, principal financial officer, principal accounting officer or controller and persons performing similar functions. Any person may request a free copy of the Code of Business Conduct and Ethics by writing to Oxford Technologies, Inc., 80 Wall Street, Suite 818, New York, NY 10005. We will disclose any waivers or amendments to our Code of Business Code and Ethics on Item 10 of a Form 8-K.
Audit Committee and Audit Committee Financial Expert
The Company's equity securities are not publicly traded. Our board of directors consists of members of our management, and interacts closely with our ultimate parent. We do not have a separate audit committee. Instead, our board of directors performs the functions that an audit committee would customarily perform. None of the current members of our board of directors has been formally designated as an "audit committee financial expert" as that term is defined under the rules and regulations of the Securities and Exchange Commission. Our board of directors believes, however, that each of its members is fully qualified to address any issue that is likely to come before it that would customarily be addressed by an audit committee, including the evaluation of our financial statements and supervision of our financial auditors.
ITEMS 11. EXECUTIVE COMPENSATION
None of the Company's executive officers receive salary or other kind of compensation from the Company, except Shaun Ashmead, Managing Director of the Company's subsidiary Axiom Manufacturing Services Ltd., who received approximately $145,602 in salary and approximately $13,832 in pension in 2005, approximately $122,792 in salary and $4,789 in pension on 2004 and approximately $97,603 in salary and approximately $8,704 in pension in 2003. Mr. Ashmead was appointed Axiom's managing director in March 2004. In accordance with Item 402(a)(5) of Regulation S-B, the Company has omitted certain columns from the table required by Item 402(b).
The Company has no profit sharing, stock option or other similar programs for the benefit of the Company's executive officers and directors.
Option/SAR Grants
The Company does not have a stock option plan. No stock options have been granted or exercised by any of the officers or directors since the Company was founded.
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Values
No individual grants of stock options, whether or not in tandem with stock appreciation rights known as SARs or freestanding SARs have been made to any executive officer or any director since the Company's inception; accordingly, no stock options have been granted or exercised by any of the officers or directors.
Long-Tem Incentive Plans and Awards
We do not have any long-term incentive plans that provide compensation intended to serve as incentive for performance. No individual grants or agreements regarding future payouts under non-stock price-based plans have been made to any executive officer or any director or any employee or consultant since our inception; accordingly, no future payouts under non-stock price-based plans or agreements have been granted or entered into or exercised by any of the officers or directors or employees or consultants since we were founded.
Compensation of Directors
The members of our Board of Directors are not compensated for their service as members of the Board of Directors, but may be reimbursed for reasonable expenses incurred in connection with attendance of meetings of the board of directors. There are no arrangements pursuant to which directors are or will be compensated in the future for any services provided as a director.
Employment Contracts, Termination of Employment, Change-in-Control Arrangements
There are no employment agreements between the Company and its executive officers. There are no compensatory plans or arrangements, including payments to be received from the Company, with respect to a named executive officer, if such plan or arrangement would result from the resignation, retirement or any other termination of such executive officer's employment with us or form a change in control or a change in the named executive officer's responsibilities following a change in control.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Security Ownership of Certain Beneficial Owners
The following table sets forth certain information regarding the beneficial ownership of our common stock, as of June 20, 2006, each person who is known by us to own beneficially more than 5% of our outstanding common stock. Except as otherwise indicated, we believe that the beneficial owners of the common stock listed below, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable.
Name and Address Number of Shares Percentage Title of Class of Beneficial Owner Beneficially Owned of the Class - ------------- ----------------------- ----------------- ---------------- Common Stock Great Admirer Ltd. (i) 17,601,002 94.8% (ii) 2 Queen's Road, Central Hong Kong - -------------------------------------------------------------------------------
(i) Great Admirer Ltd. is owned by South Sea Petroleum Holdings Ltd., a Hong Kong corporation.
(ii) Percentage of ownership is based on 18,564,002 shares of common stock outstanding as of August 2, 2006.
As of the date of this Report, no options, warrants or rights to acquire shares have been granted.
Security Ownership of Management
Except Shaun Ashmead, the managing director of Axiom Manufacturing Services Ltd., who owns 600 shares of our common stock, none of our executive officers and directors beneficially owned our securities.
Name and Address Number of Shares Percentage Title of Class of Beneficial Owner Beneficially Owned of the Class - --------------- ------------------------ -------------------- --------------- Common Stock Shaun Ashmead 600 0.003% (i) Axiom Manufacturing Services Ltd 		 Technology Park, Newbridge 		 Newport, Gwent United Kingdom - -----------------------------------------------------------------------------
(i) Percentage of ownership is based on 18,564,002 shares of common stock outstanding as of August 2, 2006.
Changes in Control
There are no arrangements that management is aware of that may result in changes in control as that term is defined by the provisions of Item 403(c) of Regulation S-B. There are no provisions within our Articles or Bylaws that would delay or prevent a change of control.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Officers and Directors
There are no transactions with officers and directors as required to be disclosed under Item 404(a) of Regulation S-B.
Transactions with Promoters
On March 8, 2002, in connection with our organization, we issued 5,000,000 shares of our common stock to Waywood Investment Ltd. for services valued at $500.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(1) Audit Fees: The aggregate fees billed by the Company's auditors for professional services rendered in connection with the audit of the Company's financial statements for the years ended December 31, 2005, 2004 and 2003 and reviews of the Company's interim financial statements included in the Company's Forms 10-KSB for fiscal 2005, 2004 and 2003 were $39,750, $39,000 and $32,000 respectively.
(2) Audit-Related Fees: The Company's auditors did not bill any additional fees for assurance and related services that are reasonably related to the performance of the audit or review of the Company's financial statements and are not reported under "Audit Fees" above.
(3) Tax Fees: The aggregate fees billed by the Company's auditors for taxation services amounted to $1,950 in 2005 ($0 in 2004 and 2003) for preparation of the Company's 2003 Corporate Income Tax return.
(4) All Other Fees: None.
(5) Board Approval of Services: It is the policy of the Board of Directors of the Company to approve the engagement to render audit or non-audit services before the accountant is engaged by the Company. The Board approved of 100% of the services provided by the independent accountant in 2005, 2004 and 2003.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES
(a) The following documents are filed as part of this Annual Report:
(1) Financial Statements. Please see the accompanying Index to Consolidated Financial Statements, which appears on page of the Annual Report.
(2) Financial Statement Schedules. Financial Statement Schedules have been omitted because the information required to be set forth therein is either not applicable or is included in the Consolidated Financial Statements or the notes thereto.
(3) Exhibits. See Item 15(b) below.
(b) Exhibits.
Exhibit No. Description and Location - ----------- ------------------------------------------------------------------ 3.1 Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 to the Company' Registration Statement on Form 10-SB filed on June 10, 2002 Commission File No. 0-49854).
3.2 Bylaws (Incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form 10-SB filed on June 10, 2002, Commission File No. 0-49854).
4.1 Specimen Form of the Company's Stock Certificate (Incorporated by reference to Exhibit 4 to the Company's Amendment No. 1 to the Registration Statement on Form 10-SB, filed on July 29, 2002, Commission File No. 0-49854.
14.1 Code of Business Conduct and Ethics (Incorporated by reference to Exhibit 14.1 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 2003).
21.1 Subsidiaries of the Registrant (Incorporated by reference to Exhibit 21 to the Company's Registration Statement on Form SB-2, filed on July 20, 2004. Commission File No. 333-117500).
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
(c) Financial Statement Schedules. Reference is made to Item 15(a)(2)above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
OXFORD TECHNOLOGIES INC.
a Delaware corporation
Dated: August 2, 2006
By: /s/ Jacinta Sit - ---------------------- Jacinta Sit, President
Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the date indicated.
Signature Capacity Date
/s/ Jacinta Sit - ---------------- President, Chief Financial Officer August 2, 2006 Jacinta Sit 	 (principal executive officer, principal financial officer and principal accounting officer) and Director
/s/ Vivian Lee-Yu Lam - --------------------- Director and Secretary August 2, 2006 Vivian Lee-Yu Lam
OXFORD TECHNOLOGIES, INC. CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report.....................................
Consolidated Balance Sheets as of December 31, 2005 and 2004.....
Consolidated Statement of Income for the Years Ended December 31, 2005, 2004 and 2003................................
Consolidated Statement of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003................................
Changes in Stockholders Equity...................................
Notes to Financial Statements as of December 31, 2005, 2004 and 2003
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Oxford Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Oxford Technologies, Inc. and subsidiary as of December 31, 2005 and 2004 and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2005. 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 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 Oxford Technologies, Inc. and subsidiary as of December 31, 2005 and 2004, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.
/s/ Demetrius & Company, LLC - ---------------------------- DEMETRIUS & COMPANY, L.L.C. Wayne, New Jersey April 21, 2006
OXFORD TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of the statements
OXFORD TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF INCOME
OXFORD TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS
The accompanying notes are an integral part of the statements.
OXFORD TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 and 2004
NATURE OF OPERATIONS
Oxford Technologies Inc. ("the Company") and its subsidiary, Axiom Manufacturing Services Limited ("Axiom") provide electronic manufacturing services (EMS) to third parties in the markets of telecommunication equipment, computers and related products, video/audio/entertainment products, industrial control equipment, testing and instrumentation products and medical devices. Axiom offers its customers comprehensive and integrated design and manufacturing services, from initial product design to volume production, direct order fulfillment and aftermarket support. The Company's customer base is primarily in the United Kingdom.
The Company was incorporated in the State of Delaware on March 8, 2002. On February 12, 2003, the Company acquired Axiom by issuing 13,564,002 shares of its common stock in exchange for all issued and outstanding capital shares of Axiom that were owned by Great Admirer Limited ("Great Admirer"), a Hong Kong corporation. The Company, as the legal acquirer, was the registrant on that date and remains the registrant with the Securities and Exchange Commission. The merger was accounted for as a reverse acquisition under accounting principles generally accepted in the United States of America. As a result of the acquisition, Axiom became the Company's wholly owned subsidiary and Great Admirer became the controlling shareholder of the Company. The continuing operations of the Company will reflect the consolidated operations of Oxford and its wholly owned subsidiary, Axiom.
At the time Great Admirer acquired Axiom in April 2002, Great Admirer was a non- operating shell company and incurred minimal costs to acquire Axiom. Therefore, no costs incurred by Great Admirer were recorded in the accounts of Axiom.
Axiom's principal offices and manufacturing facilities are located at Technology Park, Newbridge, South Wales, United Kingdom. Axiom is the owner of the above- mentioned facility.
Axiom was incorporated in South Wales, United Kingdom on September 3, 1980, under the name of Aiwa (UK) Ltd. Axiom's name was changed to Axiom Manufacturing Services Limited on April 10, 2002.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statement Presentation - The consolidated financial statements include the transactions of the Company and its subsidiary. All inter-company accounts and transactions have been eliminated in consolidation.
Net Income/(Loss) Per Common Share - Basic net income/ (loss) per share of common stock is calculated by dividing the net income/ (loss) by the weighted average number of shares of common stock outstanding during the period.
Use of 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 amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Foreign Currency Translation - The functional currency of the Company's operations in the UK is the British Pound Sterling. Results of operations and cash flows are translated at average exchange rates during the period while specific investing and financing activities are translated at rates in effect at the time of the cash inflow or outflow. Assets and liabilities are translated at end-of-period exchange rates. Translation adjustments are shown as a separate component of stockholders' equity. Foreign currency transaction gains or loss are included in the determination of net income.
Revenue Recognition - Sales revenues are generally recognized when the products are shipped to the customers or services are rendered, net of discounts, returns and allowance. In excess of 99% of both revenues generated and the cost of sale incurred relate to the EMS service offering (manufacturing of OEM customer products) with the remaining percentage of revenue and cost of sale relating to the provision of a market return and repair service.
Warranty - all products manufactured are warranted to be of satisfactory quality, comply with specification and free from defects in components (subject to the Company being able to prove they comply with specification) and workmanship. In the event that product fails to comply with this warranty, within 5 days of receipt the customer can return the product for replacement or beyond this period return the product for repair. For items repaired, the cost of the repair is expensed at the time it is incurred. This value is not material.
Cash Equivalents - The Company considers highly liquid instruments with original maturity of three months or less to be cash equivalents.
Trade Receivables - Trade receivables are stated at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts. The allowance is calculated based upon the level of past due accounts and the relationship with and financial status of our customers.
Inventories - Inventories are stated at the lower of cost or market value. Cost has been determined using the first-in, first-out method. Inventory quantities on-hand are regularly reviewed, and where necessary, reserves for excess and unusable inventories are recorded. Inventory consists of raw materials (components), work in progress and finished goods and is valued as follows: raw materials are valued at the standard cost of the material; both work in progress and finished goods are valued at the standard cost of the material used to manufacture these products plus an allowance for labor and overhead utilized to get these products to their current stage of completion.
Property, plant and Equipment - Property, plant and equipment are recorded at cost, net of accumulated depreciation. Depreciation is computed on a straight- line basis over estimated useful lives of various assets classes as follows:
Buildings & building improvements 20 to 45 years Machinery & equipment 5 to 10 years Fixtures & fittings 3 to 8 years
Upon retirement or sale, the costs of the asset disposed and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the determination of income. Repairs and maintenance costs are expensed as incurred. Annually, the Company routinely reviews its property and equipment for impairment, and accordingly, will write-down those assets to their estimated fair value.
Income Taxes - Deferred taxes are provided on an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the difference between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Fair Value of Financial Instruments - The carrying amounts of the Company's financial instruments, which include cash, accounts receivable, accounts payable, and accrued expenses are representative of their fair values due to the short term maturity of these instruments.
Concentration of Credit Risk - Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of accounts receivable.
Advertising Costs - The Company expenses advertising costs when incurred.
Comprehensive Income - The Company's comprehensive income for the year ended December 31, 2005, 2004 and 2003 includes foreign exchange translation gains.
Funding Arrangements - The Company has a full factoring facility provided by its bankers under which the bank advances up to 80% of the value of qualifying invoices on presentation. This is repaid when the customer settles the invoice with the remaining 20% released to the Company less bank charges at this time. The bank is responsible for collecting the debt and is supported in this by staff within the Company. Security for advances under this facility is provided by a charge over the accounts receivable of the Company, a chattels mortgage over fixed assets and a second charge on the building at Technology Park, Newbridge, South Wales. The amount borrowed under this facility is shown in Other Receivables on the Balance sheet. Management believes that this treatment complies with guidance provided in SFAS 140.
Critical Accounting Policies - The Company considers revenue recognition and the valuation of accounts receivable, allowance for doubtful accounts, and inventory and reserves as its significant accounting policies. Some of these policies require management to make estimates and assumptions that may affect the reported amounts in the Company's financial statement.
Restructuring - To downsize and streamline operations and rationalize manufacturing facilities, the Company has periodically recorded restructuring costs.
Recent Accounting Pronouncements - In November 2004, the FASB issued Statement No.151, Inventory Costs - an amendment of ARB No. 43, Chapter 4 (FAS 151), which is effective beginning January 1, 2006. FAS 151 requires that abnormal amounts of idle facility expenses, freight, handling costs and wasted material be recognized as current period charges. The Statement also requires that allocation of fixed production overhead be based on the normal capacity of the production facilities. The effect of this Statement on the Company's financial position or result of operation has not yet been determined.
In December 2004, the FASB issued Statement No.123R, Share-Based Payment (FAS 123R), which is effective beginning July 1, 2005. FAS 123R requires all share- based payments to employees to be expensed over the requisite service period based on the grant date fair value of the awards. The Statement allows for either prospective or retrospective adoption and requires that the unvested portion of all outstanding awards upon adoption be recognized using the same fair value and attribution methodologies previously determined under Statement No. 123, Accounting for Stock-Based Compensation. The effect of this Statement on the Company's financial position or results of operations has not yet been determined.
2. PROPERTY AND EQUIPMENT
Property, plant and equipment at December 31, 2005 and 2004 consisted of the following:
	 2005 2004 	 -------------- -------------- US'000 US'000
Building & building improvements $ 15,818 $ 18,017 Machinery & equipment 16,472 18,330 Fixtures and fittings 6,212 6,900 	 ------------- ------------- 	 38,502 43,247 Less: accumulated depreciation (24,498) (26,999) 	 ------------- ------------- Total $ 14,004 $ 16,248 	 ============= =============
Depreciation and amortization expenses amounted to $895,000, $671,000 and $1,300,000 for the years ended December 31, 2005, 2004 and 2003 respectively.
3. INVENTORIES
Inventories at December 31, 2005 and 2004 consisted of the following:
2005 2004 --------- ---------- US'000 US'000
Raw Materials 3,842 3,831 Work in progress 1,924 1,364 Finished Goods 221 49 				 ---------- ---------- TOTAL 5,987 5,244 				 ---------- ----------
4. LOAN PAYABLE
The following is a breakdown of loans payable as of December 31, 2005 and 2004:
December 31, 2005: Current portion Non-current ------------------- ---------------- Invoice discounting $ 2,292 $ - Bank overdraft 125 - Bank loan 62 15 Inter-company loan - 297 Finance lease agreement 163 215 --------------- --------------- Total $ 2,642 $ 527 =============== ===============
December 31, 2004: Current portion Non-current ---------------- --------------- Invoice discounting $ 2,770 $ - Bank overdraft 188 - Bank loan 69 86 Inter-company loan - 93 Finance lease agreement 144 142 ---------------- -------------- Total $ 3,171 $ 321 ================ ==============
The following is a schedule of future payments required under bank loan and finance leases:
2006 $ 2,642 2007 120 2008 52 2009		 43 2010 15 Thereafter 297 ------------ $ 3,169 ============
The invoice discounting facility is provided through the invoice finance arm of HSBC Bank where funds are advanced to the company based on the presentation of qualifying invoices up to a maximum level of $3.953million. There is no maturity date to this facility but it is reviewed annually. The invoice discounting facility is secured by the accounts receivable plus a chattels mortgage on specified fixed assets and a second charge on the property at Technology Park, Newbridge, Newport, United Kingdom. Interest on borrowings under this facility is charged at a rate of 1.8% above the Bank of England base rate.
The overdraft facility of $171,880 is reviewed and renewed annually and is secured against the property at Technology Park, Newbridge, Newport, interest is charged at a rate of 2% above the Bank of England base rate.
The inter-company loans are provided by the ultimate parent company and associate companies of Oxford Technologies and no repayments have been made or planned and the loans have no maturity date.
The bank loans were provided by HSBC to assist in the purchase of Surface Mount Technology (SMT) to enable the Company to compete in the EMS market place. The loan was taken in June 2002 for a five year period expiring in May 2007. Quarterly payments including principal and interest of 17.3% per annum total $16,228. The loan is secured against the SMT equipment acquired.
The Company is leasing a Multifunctional Placement Machine from HSBC Asset Finance. The lease term is five years with an expiration date of August 2007. At the end of the lease the equipment will be owned by the Company. Quarterly payments including principal and interest at 17.4% are $8,267.
The Company is leasing Wayne Kerr test platforms from HSBC Asset Finance. The lease term is five years with an expiration date of June 2007. At the end of the lease the equipment will be owned by the Company. Quarterly payments including principal and interest at 18.4% are $16,229.
The Company is leasing a BTU oven from Saleslease Purchase Limited, a subsidiary of the Bank of Scotland. The lease term is one year with an expiration date of April 2006. At the end of the lease the equipment will be owned by the Company. Monthly payments including principal and interest at 9.7% are $3,052.
The Company is leasing AOI equipment from HSBC Asset Finance. The lease term is five years with an expiration date of April 2010. At the end of the lease the equipment will be owned by the Company. Quarterly payments including principal and interest at 3.97% are $2,645.
The Company is leasing a PVA Coating Machine from HSBC Asset Finance. The lease term is five years with an expiration date of July 2010. At the end of the lease the equipment will be owned by the Company. Quarterly payments including principal and interest at 3.97% are $1,276.
These assets are being depreciated over their estimated useful economic lives and are included in the depreciation expenses for the years ending December 31, 2004 and 2005.
5. DEFERRED INCOME
In July 2002, the Company received a grant aid of $3.863million from the Welsh Assembly Government. This funding was made available to safeguard jobs following the decision by Aiwa Europe Limited to end original equipment production at Newbridge in South Wales. The Welsh Assembly Government has been given security in the form of a first lien on the land and buildings at Technology Park, Newbridge and has the right to require repayment of part or all of the grant under certain circumstances. The Company has treated the grant in aid as deferred income and recognized a monthly amortization, based upon a formula to credit other income as follows:
Amortization Allocation Monthly Category Months Amount Amortization - ------------------- --------------- ------------------ ----------------- US$'000 US$'000
Staff 60 $ 2,823 $ 47 Building 432 $ 1,014 $ 2 Plant & Machinery 84 $ 26 $ 1 ------------- ------------- Total $ 3,863 $ 50 ============= =============
6. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The main expense categories within this category and the values expensed in 2005 and 2004 are shown below:
2005 2004 2003 			 -------------- --------------	------------- Facilities & Maintenance $ 940,000 $ 900,000 $ 842,000 Other personnel costs $ 870,000 $ 730,000 $ 570,000 Bank charges $ 305,000 $ 359,000 $ 389,000 Advertising & promotion $ 218,000 $ 195,000 $ 181,000 Indirect Materials $ 187,000 $ 120,000 $ 93,000 Travel $ 73,000 $ 96,000 $ 74,000 Other $ 258,000 $ 253,000 $ 138,000 ------------- --------------- ----------- TOTAL $ 2,851,000 $ 2,653,000 $ 2,287,000 			 ============	 =============== ===========
7. ADVERTISING EXPENSES
Advertising expenses for the years 2005, 2004 and 2003 were $33,240 and $191,199 and $80,767 respectively.
8. RENTAL INCOME
The Company's subsidiary has subleased certain of its spaces on annual basis for $630,000 per year. The original lease term was from July 1, 2002 through June 30, 2004. The lessee has opted to extend the lease to June 30, 2007.
9. INCOME TAX
The Company's subsidiary, Axiom has UK carry forward losses amounting to US$25,163,000 and US$31,317,000 in 2005 and 2004 respectively. The components of the deferred tax asset and the related tax benefit, based upon UK corporate tax rates of 30%, are as follows:
Deferred tax asset: 2005 2004 ------------- ------------ 	 US$'000 US$'000
Net operating loss carry forward $ 25,163 $ 31,317 	=========== ==========
Deferred tax assets (30%) 7,548 9,395 Valuation allowance (7,213) (9,395) 	----------- ----------- Net deferred tax assets $ 335 $ 0 	=========== ===========
The balance of the deferred taxation account consists of the tax effect of timing differences in respect of:
2005 2004 -------------- ------------------ Excess of depreciation over	 $ 134		 - taxation allowances on fixed assets Tax losses available	 	 201 - ------------- ----------------- Deferred tax assets	 $ 335 $ 0 ============= =================
10. BENEFIT PLANS
The Company maintains a defined contribution plan for all its employees. The Company's contribution to the plan was $106,519, $133,026 and $132,000 for the years 2005, 2004 and 2003 respectively.
11. RELATED PARTY TRANSACTIONS
At December 31, 2005, the Company had inter-company loans of $297,000 due to its parent company and affiliates, which were recorded as non current notes payable. Of this $200,000 has been lent to the Company by the ultimate parent company South Sea Petroleum Holdings Limited of Hong Kong, $77,000 lent by an associate company Cowley Technologies Corporation registered in Delaware and $20,000 lent by an associate company Ridgefield Industries Corp. also registered in Delaware. As all lenders are related companies of Oxford Technologies Inc., the loans are unsecured, do not attract interest, and have no structured repayment arrangements.
12. CAPITAL LEASE
The following is an analysis of the capital lease by major classes. The capital lease liabilities are included in long-term debt.
Class of property Asset Balances at December 31, 2005 2004 --------------- ----------------- Plant and Machinery 1,032,533 564,749 Less: Accumulated Depreciation (401,111) (158,099) -------------- --------------- 631,422 406,650 			 ============== ==============
The following is a schedule by years of future lease payments under the capital leases as of December 31, 2005:
Year ending December 31 US $ ----------------- 	2006 $ 163,000 	2007 96,000 	2008 52,000 	2009			 52,000 	2010				 15,000 		 --------------- 	Total Minimum Lease Payments 378,000 	Less interest				 59,000 ---------------
	Present Value of minimum lease payments 378,000 	Less current portion			 163,000 						 --------------- 	Long term portion			 $ 215,000 						 ===============
13. RESTRUCTURING COSTS
During 2004, the Company recorded pre-tax restructuring of $275,000, relating to downsizing and realigning the business structure from (OEM) Original Equipment Manufacturing to EMS (Electronics Manufacturing Services). The charge is primarily related to employee termination benefits. Following its transition from a large scale manufacturing operation for Aiwa to a small/medium sized EMS with a small customer base there was a necessity to significantly downsize the headcount of the company to ensure the successful transition to a competitive EMS. Through 2004 further adjustments were still being made to the organizational structure to refocus the business as a customer facing EMS. The skills required for a business of this type are substantially different to those needed for a multinational OEM. For example, as an OEM there were no sales staff and the procurement roles were largely progress chasing rather than negotiating prices with suppliers. A number of individuals were made redundant to further realign and streamline the indirect headcount and reduce the Company's cost base. This cost is the restructuring cost incurred in 2004 and resulted in lower indirect headcount costs as a result of which the Company was able to record its first profit. The lower cost base and improved organization structure and shape will enable the business to continue to be profitable in future years. Further restructuring costs are not anticipated at present.
14. CONCENTRATION
Five customers represent eighty percent (80%), seventy three percent (73%) and seventy six percent (76%) of sales respectively in 2005, 2004 and 2003. Five customers represent seventy three percent (73%) and seventy four percent (74%) of Accounts Receivable respectively in 2005 and 2004, comparative data for 2003 is not available.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Security Ownership of Certain Beneficial Owners
The following table sets forth certain information regarding the beneficial ownership of our common stock, as of June 20, 2006, each person who is known by us to own beneficially more than 5% of our outstanding common stock. Except as otherwise indicated, we believe that the beneficial owners of the common stock listed below, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable.
Name and Address Number of Shares Percentage Title of Class of Beneficial Owner Beneficially Owned of the Class - ------------- ----------------------- ----------------- ---------------- Common Stock Great Admirer Ltd. (i) 17,601,002 94.8% (ii) 2 Queen's Road, Central Hong Kong - -------------------------------------------------------------------------------
(i) Great Admirer Ltd. is owned by South Sea Petroleum Holdings Ltd., a Hong Kong corporation.
(ii) Percentage of ownership is based on 18,564,002 shares of common stock outstanding as of August 2, 2006.
As of the date of this Report, no options, warrants or rights to acquire shares have been granted.
Security Ownership of Management
Except Shaun Ashmead, the managing director of Axiom Manufacturing Services Ltd., who owns 600 shares of our common stock, none of our executive officers and directors beneficially owned our securities.
Name and Address Number of Shares Percentage Title of Class of Beneficial Owner Beneficially Owned of the Class - --------------- ------------------------ -------------------- --------------- Common Stock Shaun Ashmead 600 0.003% (i) Axiom Manufacturing Services Ltd 		 Technology Park, Newbridge 		 Newport, Gwent United Kingdom - -----------------------------------------------------------------------------
(i) Percentage of ownership is based on 18,564,002 shares of common stock outstanding as of August 2, 2006.
Changes in Control
There are no arrangements that management is aware of that may result in changes in control as that term is defined by the provisions of Item 403(c) of Regulation S-B. There are no provisions within our Articles or Bylaws that would delay or prevent a change of control.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Officers and Directors
There are no transactions with officers and directors as required to be disclosed under Item 404(a) of Regulation S-B.
Transactions with Promoters
On March 8, 2002, in connection with our organization, we issued 5,000,000 shares of our common stock to Waywood Investment Ltd. for services valued at $500.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(1) Audit Fees: The aggregate fees billed by the Company's auditors for professional services rendered in connection with the audit of the Company's financial statements for the years ended December 31, 2005, 2004 and 2003 and reviews of the Company's interim financial statements included in the Company's Forms 10-KSB for fiscal 2005, 2004 and 2003 were $39,750, $39,000 and $32,000 respectively.
(2) Audit-Related Fees: The Company's auditors did not bill any additional fees for assurance and related services that are reasonably related to the performance of the audit or review of the Company's financial statements and are not reported under "Audit Fees" above.
(3) Tax Fees: The aggregate fees billed by the Company's auditors for taxation services amounted to $1,950 in 2005 ($0 in 2004 and 2003) for preparation of the Company's 2003 Corporate Income Tax return.
(4) All Other Fees: None.
(5) Board Approval of Services: It is the policy of the Board of Directors of the Company to approve the engagement to render audit or non-audit services before the accountant is engaged by the Company. The Board approved of 100% of the services provided by the independent accountant in 2005, 2004 and 2003.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES
(a) The following documents are filed as part of this Annual Report:
(1) Financial Statements. Please see the accompanying Index to Consolidated Financial Statements, which appears on page of the Annual Report.
(2) Financial Statement Schedules. Financial Statement Schedules have been omitted because the information required to be set forth therein is either not applicable or is included in the Consolidated Financial Statements or the notes thereto.
(3) Exhibits. See Item 15(b) below.
(b) Exhibits.
Exhibit No. Description and Location - ----------- ------------------------------------------------------------------ 3.1 Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 to the Company' Registration Statement on Form 10-SB filed on June 10, 2002 Commission File No. 0-49854).
3.2 Bylaws (Incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form 10-SB filed on June 10, 2002, Commission File No. 0-49854).
4.1 Specimen Form of the Company's Stock Certificate (Incorporated by reference to Exhibit 4 to the Company's Amendment No. 1 to the Registration Statement on Form 10-SB, filed on July 29, 2002, Commission File No. 0-49854.
14.1 Code of Business Conduct and Ethics (Incorporated by reference to Exhibit 14.1 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 2003).
21.1 Subsidiaries of the Registrant (Incorporated by reference to Exhibit 21 to the Company's Registration Statement on Form SB-2, filed on July 20, 2004. Commission File No. 333-117500).
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
(c) Financial Statement Schedules. Reference is made to Item 15(a)(2)above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
OXFORD TECHNOLOGIES INC.
a Delaware corporation
Dated: August 2, 2006
By: /s/ Jacinta Sit - ---------------------- Jacinta Sit, President
Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the date indicated.
Signature Capacity Date
/s/ Jacinta Sit - ---------------- President, Chief Financial Officer August 2, 2006 Jacinta Sit 	 (principal executive officer, principal financial officer and principal accounting officer) and Director
/s/ Vivian Lee-Yu Lam - --------------------- Director and Secretary August 2, 2006 Vivian Lee-Yu Lam
OXFORD TECHNOLOGIES, INC. CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report.....................................
Consolidated Balance Sheets as of December 31, 2005 and 2004.....
Consolidated Statement of Income for the Years Ended December 31, 2005, 2004 and 2003................................
Consolidated Statement of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003................................
Changes in Stockholders Equity...................................
Notes to Financial Statements as of December 31, 2005, 2004 and 2003
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Oxford Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Oxford Technologies, Inc. and subsidiary as of December 31, 2005 and 2004 and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2005. 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 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 Oxford Technologies, Inc. and subsidiary as of December 31, 2005 and 2004, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.
/s/ Demetrius & Company, LLC - ---------------------------- DEMETRIUS & COMPANY, L.L.C. Wayne, New Jersey April 21, 2006
OXFORD TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of the statements
OXFORD TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF INCOME
OXFORD TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS
The accompanying notes are an integral part of the statements.
OXFORD TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 and 2004
NATURE OF OPERATIONS
Oxford Technologies Inc. ("the Company") and its subsidiary, Axiom Manufacturing Services Limited ("Axiom") provide electronic manufacturing services (EMS) to third parties in the markets of telecommunication equipment, computers and related products, video/audio/entertainment products, industrial control equipment, testing and instrumentation products and medical devices. Axiom offers its customers comprehensive and integrated design and manufacturing services, from initial product design to volume production, direct order fulfillment and aftermarket support. The Company's customer base is primarily in the United Kingdom.
The Company was incorporated in the State of Delaware on March 8, 2002. On February 12, 2003, the Company acquired Axiom by issuing 13,564,002 shares of its common stock in exchange for all issued and outstanding capital shares of Axiom that were owned by Great Admirer Limited ("Great Admirer"), a Hong Kong corporation. The Company, as the legal acquirer, was the registrant on that date and remains the registrant with the Securities and Exchange Commission. The merger was accounted for as a reverse acquisition under accounting principles generally accepted in the United States of America. As a result of the acquisition, Axiom became the Company's wholly owned subsidiary and Great Admirer became the controlling shareholder of the Company. The continuing operations of the Company will reflect the consolidated operations of Oxford and its wholly owned subsidiary, Axiom.
At the time Great Admirer acquired Axiom in April 2002, Great Admirer was a non- operating shell company and incurred minimal costs to acquire Axiom. Therefore, no costs incurred by Great Admirer were recorded in the accounts of Axiom.
Axiom's principal offices and manufacturing facilities are located at Technology Park, Newbridge, South Wales, United Kingdom. Axiom is the owner of the above- mentioned facility.
Axiom was incorporated in South Wales, United Kingdom on September 3, 1980, under the name of Aiwa (UK) Ltd. Axiom's name was changed to Axiom Manufacturing Services Limited on April 10, 2002.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statement Presentation - The consolidated financial statements include the transactions of the Company and its subsidiary. All inter-company accounts and transactions have been eliminated in consolidation.
Net Income/(Loss) Per Common Share - Basic net income/ (loss) per share of common stock is calculated by dividing the net income/ (loss) by the weighted average number of shares of common stock outstanding during the period.
Use of 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 amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Foreign Currency Translation - The functional currency of the Company's operations in the UK is the British Pound Sterling. Results of operations and cash flows are translated at average exchange rates during the period while specific investing and financing activities are translated at rates in effect at the time of the cash inflow or outflow. Assets and liabilities are translated at end-of-period exchange rates. Translation adjustments are shown as a separate component of stockholders' equity. Foreign currency transaction gains or loss are included in the determination of net income.
Revenue Recognition - Sales revenues are generally recognized when the products are shipped to the customers or services are rendered, net of discounts, returns and allowance. In excess of 99% of both revenues generated and the cost of sale incurred relate to the EMS service offering (manufacturing of OEM customer products) with the remaining percentage of revenue and cost of sale relating to the provision of a market return and repair service.
Warranty - all products manufactured are warranted to be of satisfactory quality, comply with specification and free from defects in components (subject to the Company being able to prove they comply with specification) and workmanship. In the event that product fails to comply with this warranty, within 5 days of receipt the customer can return the product for replacement or beyond this period return the product for repair. For items repaired, the cost of the repair is expensed at the time it is incurred. This value is not material.
Cash Equivalents - The Company considers highly liquid instruments with original maturity of three months or less to be cash equivalents.
Trade Receivables - Trade receivables are stated at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts. The allowance is calculated based upon the level of past due accounts and the relationship with and financial status of our customers.
Inventories - Inventories are stated at the lower of cost or market value. Cost has been determined using the first-in, first-out method. Inventory quantities on-hand are regularly reviewed, and where necessary, reserves for excess and unusable inventories are recorded. Inventory consists of raw materials (components), work in progress and finished goods and is valued as follows: raw materials are valued at the standard cost of the material; both work in progress and finished goods are valued at the standard cost of the material used to manufacture these products plus an allowance for labor and overhead utilized to get these products to their current stage of completion.
Property, plant and Equipment - Property, plant and equipment are recorded at cost, net of accumulated depreciation. Depreciation is computed on a straight- line basis over estimated useful lives of various assets classes as follows:
Buildings & building improvements 20 to 45 years Machinery & equipment 5 to 10 years Fixtures & fittings 3 to 8 years
Upon retirement or sale, the costs of the asset disposed and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the determination of income. Repairs and maintenance costs are expensed as incurred. Annually, the Company routinely reviews its property and equipment for impairment, and accordingly, will write-down those assets to their estimated fair value.
Income Taxes - Deferred taxes are provided on an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the difference between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Fair Value of Financial Instruments - The carrying amounts of the Company's financial instruments, which include cash, accounts receivable, accounts payable, and accrued expenses are representative of their fair values due to the short term maturity of these instruments.
Concentration of Credit Risk - Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of accounts receivable.
Advertising Costs - The Company expenses advertising costs when incurred.
Comprehensive Income - The Company's comprehensive income for the year ended December 31, 2005, 2004 and 2003 includes foreign exchange translation gains.
Funding Arrangements - The Company has a full factoring facility provided by its bankers under which the bank advances up to 80% of the value of qualifying invoices on presentation. This is repaid when the customer settles the invoice with the remaining 20% released to the Company less bank charges at this time. The bank is responsible for collecting the debt and is supported in this by staff within the Company. Security for advances under this facility is provided by a charge over the accounts receivable of the Company, a chattels mortgage over fixed assets and a second charge on the building at Technology Park, Newbridge, South Wales. The amount borrowed under this facility is shown in Other Receivables on the Balance sheet. Management believes that this treatment complies with guidance provided in SFAS 140.
Critical Accounting Policies - The Company considers revenue recognition and the valuation of accounts receivable, allowance for doubtful accounts, and inventory and reserves as its significant accounting policies. Some of these policies require management to make estimates and assumptions that may affect the reported amounts in the Company's financial statement.
Restructuring - To downsize and streamline operations and rationalize manufacturing facilities, the Company has periodically recorded restructuring costs.
Recent Accounting Pronouncements - In November 2004, the FASB issued Statement No.151, Inventory Costs - an amendment of ARB No. 43, Chapter 4 (FAS 151), which is effective beginning January 1, 2006. FAS 151 requires that abnormal amounts of idle facility expenses, freight, handling costs and wasted material be recognized as current period charges. The Statement also requires that allocation of fixed production overhead be based on the normal capacity of the production facilities. The effect of this Statement on the Company's financial position or result of operation has not yet been determined.
In December 2004, the FASB issued Statement No.123R, Share-Based Payment (FAS 123R), which is effective beginning July 1, 2005. FAS 123R requires all share- based payments to employees to be expensed over the requisite service period based on the grant date fair value of the awards. The Statement allows for either prospective or retrospective adoption and requires that the unvested portion of all outstanding awards upon adoption be recognized using the same fair value and attribution methodologies previously determined under Statement No. 123, Accounting for Stock-Based Compensation. The effect of this Statement on the Company's financial position or results of operations has not yet been determined.
2. PROPERTY AND EQUIPMENT
Property, plant and equipment at December 31, 2005 and 2004 consisted of the following:
	 2005 2004 	 -------------- -------------- US'000 US'000
Building & building improvements $ 15,818 $ 18,017 Machinery & equipment 16,472 18,330 Fixtures and fittings 6,212 6,900 	 ------------- ------------- 	 38,502 43,247 Less: accumulated depreciation (24,498) (26,999) 	 ------------- ------------- Total $ 14,004 $ 16,248 	 ============= =============
Depreciation and amortization expenses amounted to $895,000, $671,000 and $1,300,000 for the years ended December 31, 2005, 2004 and 2003 respectively.
3. INVENTORIES
Inventories at December 31, 2005 and 2004 consisted of the following:
2005 2004 --------- ---------- US'000 US'000
Raw Materials 3,842 3,831 Work in progress 1,924 1,364 Finished Goods 221 49 				 ---------- ---------- TOTAL 5,987 5,244 				 ---------- ----------
4. LOAN PAYABLE
The following is a breakdown of loans payable as of December 31, 2005 and 2004:
December 31, 2005: Current portion Non-current ------------------- ---------------- Invoice discounting $ 2,292 $ - Bank overdraft 125 - Bank loan 62 15 Inter-company loan - 297 Finance lease agreement 163 215 --------------- --------------- Total $ 2,642 $ 527 =============== ===============
December 31, 2004: Current portion Non-current ---------------- --------------- Invoice discounting $ 2,770 $ - Bank overdraft 188 - Bank loan 69 86 Inter-company loan - 93 Finance lease agreement 144 142 ---------------- -------------- Total $ 3,171 $ 321 ================ ==============
The following is a schedule of future payments required under bank loan and finance leases:
2006 $ 2,642 2007 120 2008 52 2009		 43 2010 15 Thereafter 297 ------------ $ 3,169 ============
The invoice discounting facility is provided through the invoice finance arm of HSBC Bank where funds are advanced to the company based on the presentation of qualifying invoices up to a maximum level of $3.953million. There is no maturity date to this facility but it is reviewed annually. The invoice discounting facility is secured by the accounts receivable plus a chattels mortgage on specified fixed assets and a second charge on the property at Technology Park, Newbridge, Newport, United Kingdom. Interest on borrowings under this facility is charged at a rate of 1.8% above the Bank of England base rate.
The overdraft facility of $171,880 is reviewed and renewed annually and is secured against the property at Technology Park, Newbridge, Newport, interest is charged at a rate of 2% above the Bank of England base rate.
The inter-company loans are provided by the ultimate parent company and associate companies of Oxford Technologies and no repayments have been made or planned and the loans have no maturity date.
The bank loans were provided by HSBC to assist in the purchase of Surface Mount Technology (SMT) to enable the Company to compete in the EMS market place. The loan was taken in June 2002 for a five year period expiring in May 2007. Quarterly payments including principal and interest of 17.3% per annum total $16,228. The loan is secured against the SMT equipment acquired.
The Company is leasing a Multifunctional Placement Machine from HSBC Asset Finance. The lease term is five years with an expiration date of August 2007. At the end of the lease the equipment will be owned by the Company. Quarterly payments including principal and interest at 17.4% are $8,267.
The Company is leasing Wayne Kerr test platforms from HSBC Asset Finance. The lease term is five years with an expiration date of June 2007. At the end of the lease the equipment will be owned by the Company. Quarterly payments including principal and interest at 18.4% are $16,229.
The Company is leasing a BTU oven from Saleslease Purchase Limited, a subsidiary of the Bank of Scotland. The lease term is one year with an expiration date of April 2006. At the end of the lease the equipment will be owned by the Company. Monthly payments including principal and interest at 9.7% are $3,052.
The Company is leasing AOI equipment from HSBC Asset Finance. The lease term is five years with an expiration date of April 2010. At the end of the lease the equipment will be owned by the Company. Quarterly payments including principal and interest at 3.97% are $2,645.
The Company is leasing a PVA Coating Machine from HSBC Asset Finance. The lease term is five years with an expiration date of July 2010. At the end of the lease the equipment will be owned by the Company. Quarterly payments including principal and interest at 3.97% are $1,276.
These assets are being depreciated over their estimated useful economic lives and are included in the depreciation expenses for the years ending December 31, 2004 and 2005.
5. DEFERRED INCOME
In July 2002, the Company received a grant aid of $3.863million from the Welsh Assembly Government. This funding was made available to safeguard jobs following the decision by Aiwa Europe Limited to end original equipment production at Newbridge in South Wales. The Welsh Assembly Government has been given security in the form of a first lien on the land and buildings at Technology Park, Newbridge and has the right to require repayment of part or all of the grant under certain circumstances. The Company has treated the grant in aid as deferred income and recognized a monthly amortization, based upon a formula to credit other income as follows:
Amortization Allocation Monthly Category Months Amount Amortization - ------------------- --------------- ------------------ ----------------- US$'000 US$'000
Staff 60 $ 2,823 $ 47 Building 432 $ 1,014 $ 2 Plant & Machinery 84 $ 26 $ 1 ------------- ------------- Total $ 3,863 $ 50 ============= =============
6. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The main expense categories within this category and the values expensed in 2005 and 2004 are shown below:
2005 2004 2003 			 -------------- --------------	------------- Facilities & Maintenance $ 940,000 $ 900,000 $ 842,000 Other personnel costs $ 870,000 $ 730,000 $ 570,000 Bank charges $ 305,000 $ 359,000 $ 389,000 Advertising & promotion $ 218,000 $ 195,000 $ 181,000 Indirect Materials $ 187,000 $ 120,000 $ 93,000 Travel $ 73,000 $ 96,000 $ 74,000 Other $ 258,000 $ 253,000 $ 138,000 ------------- --------------- ----------- TOTAL $ 2,851,000 $ 2,653,000 $ 2,287,000 			 ============	 =============== ===========
7. ADVERTISING EXPENSES
Advertising expenses for the years 2005, 2004 and 2003 were $33,240 and $191,199 and $80,767 respectively.
8. RENTAL INCOME
The Company's subsidiary has subleased certain of its spaces on annual basis for $630,000 per year. The original lease term was from July 1, 2002 through June 30, 2004. The lessee has opted to extend the lease to June 30, 2007.
9. INCOME TAX
The Company's subsidiary, Axiom has UK carry forward losses amounting to US$25,163,000 and US$31,317,000 in 2005 and 2004 respectively. The components of the deferred tax asset and the related tax benefit, based upon UK corporate tax rates of 30%, are as follows:
Deferred tax asset: 2005 2004 ------------- ------------ 	 US$'000 US$'000
Net operating loss carry forward $ 25,163 $ 31,317 	=========== ==========
Deferred tax assets (30%) 7,548 9,395 Valuation allowance (7,213) (9,395) 	----------- ----------- Net deferred tax assets $ 335 $ 0 	=========== ===========
The balance of the deferred taxation account consists of the tax effect of timing differences in respect of:
2005 2004 -------------- ------------------ Excess of depreciation over	 $ 134		 - taxation allowances on fixed assets Tax losses available	 	 201 - ------------- ----------------- Deferred tax assets	 $ 335 $ 0 ============= =================
10. BENEFIT PLANS
The Company maintains a defined contribution plan for all its employees. The Company's contribution to the plan was $106,519, $133,026 and $132,000 for the years 2005, 2004 and 2003 respectively.
11. RELATED PARTY TRANSACTIONS
At December 31, 2005, the Company had inter-company loans of $297,000 due to its parent company and affiliates, which were recorded as non current notes payable. Of this $200,000 has been lent to the Company by the ultimate parent company South Sea Petroleum Holdings Limited of Hong Kong, $77,000 lent by an associate company Cowley Technologies Corporation registered in Delaware and $20,000 lent by an associate company Ridgefield Industries Corp. also registered in Delaware. As all lenders are related companies of Oxford Technologies Inc., the loans are unsecured, do not attract interest, and have no structured repayment arrangements.
12. CAPITAL LEASE
The following is an analysis of the capital lease by major classes. The capital lease liabilities are included in long-term debt.
Class of property Asset Balances at December 31, 2005 2004 --------------- ----------------- Plant and Machinery 1,032,533 564,749 Less: Accumulated Depreciation (401,111) (158,099) -------------- --------------- 631,422 406,650 			 ============== ==============
The following is a schedule by years of future lease payments under the capital leases as of December 31, 2005:
Year ending December 31 US $ ----------------- 	2006 $ 163,000 	2007 96,000 	2008 52,000 	2009			 52,000 	2010				 15,000 		 --------------- 	Total Minimum Lease Payments 378,000 	Less interest				 59,000 ---------------
	Present Value of minimum lease payments 378,000 	Less current portion			 163,000 						 --------------- 	Long term portion			 $ 215,000 						 ===============
13. RESTRUCTURING COSTS
During 2004, the Company recorded pre-tax restructuring of $275,000, relating to downsizing and realigning the business structure from (OEM) Original Equipment Manufacturing to EMS (Electronics Manufacturing Services). The charge is primarily related to employee termination benefits. Following its transition from a large scale manufacturing operation for Aiwa to a small/medium sized EMS with a small customer base there was a necessity to significantly downsize the headcount of the company to ensure the successful transition to a competitive EMS. Through 2004 further adjustments were still being made to the organizational structure to refocus the business as a customer facing EMS. The skills required for a business of this type are substantially different to those needed for a multinational OEM. For example, as an OEM there were no sales staff and the procurement roles were largely progress chasing rather than negotiating prices with suppliers. A number of individuals were made redundant to further realign and streamline the indirect headcount and reduce the Company's cost base. This cost is the restructuring cost incurred in 2004 and resulted in lower indirect headcount costs as a result of which the Company was able to record its first profit. The lower cost base and improved organization structure and shape will enable the business to continue to be profitable in future years. Further restructuring costs are not anticipated at present.
14. CONCENTRATION
Five customers represent eighty percent (80%), seventy three percent (73%) and seventy six percent (76%) of sales respectively in 2005, 2004 and 2003. Five customers represent seventy three percent (73%) and seventy four percent (74%) of Accounts Receivable respectively in 2005 and 2004, comparative data for 2003 is not available.