Omni-Lite - Answers to QuestionsHi in answering your questions I have restated them for everyone
1. While the stock looks cheap on the basis of its P/E, any concern about a huge increase in expenses once the senior executive officers are all being paid a salary?
ANSWER TO #1
General Labour in the US is relatively cheap because minimum wage is kept low and that includes a large pool of senior industrial management (california for the most part is streamlining jobs in the industrial sector and the choices these people have are limited to moving to the North East or taking a salary cut to stay in California)
With regards to Senior Executives - I don't think the company will be hiring anyone in those areas for probably another year and those salaries will still be no more than 100K US/year. If they brought someone on today they would start at around 50 to 60K US.
What one has to understand is that the company is gaining efficiencies (with their growth)as OML brings on new contracts and if they hire new executives - I believe they will just maintain the same margins (min. 30%net). They will eventually have to do this but I think the company will secure more than enough contracts to offset any change in margin.
2. Dose anyone have specific knowledge of why the accounts receivable and inventory have been going up significantly in the past two quarters?
ANSWER TO #2
I think your concern should be about dated accts rec rather than size. Management keeps a pretty tight lid on contracts that go more than 30 days. Those that are 30 days are growing as the business does. Most of OML's clients pay at shipping and even then they may cross over an accounting period and end up in rec. for that reporting period. I know that the company has had problems with only ONE small account in its history and is working towards an even more stringent policy with regards to providing any credit.
To answer your inventory question - I will have to break that down into 2 parts.
1. The company is growing inventory on purpose in the Sports & Rec Side (3year contract) to allow further R&D/Production efficencies and depending on shipping the inventory will sometimes be higher or lower depending on the reporting cutoff.
2. The company WILL get caught from time to time at cutoff with larger inventories due to the nature of its business. To have you better understand this I will give an example. A client orders x parts a year and OML would normally provide continuous shipping to keep its storage area to a min. In this case though the client will only accept a minimum size of 500,000 units because they have their own method of handling work in process. Therefore OML closes the accounting books and has 475,000 units completed (25,000) short of a shipping order. What happens here is that the next accounting period ships that order and everything averages out over the trailing 4 quarters.