UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Amendment No. 1
(Mark One)
|X| Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act
of 1934
For quarterly period ended December 31, 2005
|_| Transition Report Under Section 13 or 15(d) of The Securities Exchange Act
of 1934
For the transition period from _____ to _____
COMMISSION FILE NUMBER 0-17493
Omni U.S.A., INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 88-0237223
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2236 Rutherford Road, Suite 107
Carlsbad, California 92008
(Address of principal executive offices)
Issuer's telephone number (760) 929-7500
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes ___ No __X_
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock, $.001 par value 25,498,794
(Class) Outstanding at May 25, 2006
Transitional Small Business Disclosure Format (Check one): Yes |_| No |X|
Omni U.S.A, Inc.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Restated:
Consolidated Balance Sheet as of December 31, 2005 (unaudited) 3
Consolidated Statements of Operations for the three and
six months ended December 31, 2005 and 2004 (unaudited) 4
Consolidated Statements of Cash Flows for the six
months ended December 31, 2005 and 2004 (unaudited) 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 16
Item 3. Controls and Procedures 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings *
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds *
Item 3. Defaults upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders *
Item 5. Other Information *
Item 6. Exhibits 25
SIGNATURES 25
* No information provided due to inapplicability of the item.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Omni U.S.A., Inc.
Consolidated Balance Sheet - As Restated
(Unaudited)
December 31,
2005
-----------
ASSETS
Current assets:
Cash $ 54,681
Note receivable 216,502
Accounts receivable, net 57,947
Prepaid expenses and other current assets 748
-----------
Total current assets 329,878
Property and equipment, net 25,883
Deposits 7,808
-----------
$ 363,569
-----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Convertible notes payable in default $ 255,000
Accrued interest in default 68,886
Accrued interest 373,472
Accounts payable 119,380
Accrued wages 790,657
Current porton of lease obligations 2,437
Deferred revenue 91,168
-----------
Total current liabilities 1,701,000
Long term portion of lease obligations 8,545
Stockholders' deficit
Common stock, $.004995 par value; 50,000,000 shares authorized:
25,498,794 issued and outstanding 127,366
Paid in capital 4,415,818
Accumulated deficit (5,889,160)
-----------
Total stockholders' deficit (1,345,976)
-----------
$ 363,569
-----------
See accompanying summary of accounting policies and notes to unaudited
consolidated financial statements.
3
Omni U.S.A., Inc.
Consolidated Statements of Operation - As Restated
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
2005 2004 2005 2004
----------- ----------- ----------- -----------
Net sales $ 111,806 $ 140,997 $ 221,648 $ 237,412
Cost of sales 25,594 58,677 51,863 86,190
----------- ----------- ----------- -----------
Gross profit 86,212 82,320 169,785 151,222
Operating expenses: 272,738 184,197 514,887 431,320
----------- ----------- ----------- -----------
Loss from operations (186,526) (101,877) (345,102) (280,098)
Other expense
Interest expense (64,019) (80,618) (147,741) (161,118)
----------- ----------- ----------- -----------
Loss before provision for income taxes (250,545) (182,495) (492,843) (441,216)
Provision for income taxes -- -- -- --
----------- ----------- ----------- -----------
Net loss $ (250,545) $ (182,495) $ (492,843) $ (441,216)
=========== =========== =========== ===========
Basic and diluted loss per share $ (0.05) $ (0.04) $ (0.10) $ (0.10)
=========== =========== =========== ===========
Basic and diluted weighted-average
comon shares outstanding 5,205,667 4,673,909 4,962,213 4,641,494
=========== =========== =========== ===========
See accompanying summary of accounting policies and notes to unaudited
consolidated financial statements.
4
Omni U.S.A., Inc.
Consolidated Statements of Cash Flows - As Restated
(Unaudited)
Six Months Ended
December 31,
2005 2004
----------- -----------
Operating activities:
Net loss $ (492,843) $ (441,216)
Adjustments to reconcile net (loss) income
to cash provided by operating activities:
Depreciation 3,614 881
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 13,804 (7,870)
(Increase) decrease in prepaid expense and other assets (31,911) 289
Increase (decrease) in accounts payable 6,722 90,063
Increase (decrease) in accrued liabilities 28,776 129,342
Increase (decrease) in deferred revenue 28,171 4,583
----------- -----------
Net cash provided by operating activities (443,667) (223,928)
----------- -----------
Investing activities:
Purchase of property and equipment (17,136) --
----------- -----------
Net cash used in investing activities (17,136) --
----------- -----------
Financing activities:
Principal payments on lease obligations (1,018) --
Proceeds from note receivable on sale of Omni divisions 281,498 --
Proceeds from issuance of common stock 202,500 235,700
----------- -----------
Net cash provided by financing activities 482,980 235,700
----------- -----------
Net increase in cash 22,177 11,772
Cash, beginning of period 32,504 9,898
----------- -----------
Cash, end of period $ 54,681 $ 21,670
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 8,892 $ 7,500
Income taxes $ -- $ --
Non Cash investing and Financing Activities:
Conversion of Brendan notes payable into common stock $ 1,692,972 $ --
Conversion of Brendan accrued interest into common stock $ 961,226 $ --
Issuance of common stock in payment of accounts payable $ 35,000 $ --
See accompanying summary of accounting policies and notes to unaudited
consolidated financial statements.
5
OMNI U.S.A., INC.
Notes to the Unaudited Consolidated Financial Statements
1. BASIS OF PRESENTATION
Restatement
Subsequent to the filing of our Form 10QSB for the quarter ended December 31,
2005, we became aware of certain errors in the allocation of revenues and
expenses in the proper period for the three and six month periods ended December
31, 2005 and 2004. The effect of the restatement is as follows:
Statement of Operations for the three months ended December 31, 2005
As Reported As Adjusted Effect of Change
Revenues $ 99,806 $ 111,806 $ 12,000
Expenses 359,351 362,351 3,000
----------- ----------- -----------
Net loss $ (259,545) $ (250,545) $ 9,000
----------- ----------- -----------
Basic and diluted loss per share $ (0.05) $ (0.05) $ --
----------- ----------- -----------
Statement of Operations for the three months ended December 31, 2004
As Reported As Adjusted Effect of Change
Revenues $ 127,513 $ 140,997 $ 13,484
Expenses 388,366 323,492 (64,874)
----------- ----------- -----------
Net loss $ (260,853) $ (182,495) $ 78,358
----------- ----------- -----------
Basic and diluted loss per share $ (0.06) $ (0.04) $ 0.02
----------- ----------- -----------
Statement of Operations for the six months ended December 31, 2005
As Reported As Adjusted Effect of Change
Revenues $ 221,648 $ 221,648 $ --
Expenses 711,492 714,491 2,999
----------- ----------- -----------
Net loss $ (489,844) $ (492,843) $ (2,999)
----------- ----------- -----------
Basic and diluted loss per share $ (0.10) $ (0.10) $ --
----------- ----------- -----------
Statement of Operations for the six months ended December 31, 2004
As Reported As Adjusted Effect of Change
Revenues $ 223,928 $ 237,412 $ 13,484
Expenses 784,463 678,628 (105,835)
----------- ----------- -----------
Net loss $ (560,535) $ (441,216) $ 119,319
----------- ----------- -----------
Basic and diluted loss per share $ (0.12) $ (0.10) $ 0.02
----------- ----------- -----------
Balance Sheet as of December 31, 2005
As Reported As Adjusted Effect of Change
Accumlated deficit $(5,886,160) $(5,889,160) $ (3,000)
Statement of Cash Flows for the six months ended December 31, 2005
As Reported As Adjusted Effect of Change
Net loss $ (489,844) $ (492,843) $ (2,999)
Changes in assets and liabilities 74,437 45,562 (28,875)
Statement of Cash Flows for the six months ended December 31, 2004
As Reported As Adjusted Effect of Change
Net loss $ (560,535) $ (441,216) $ 119,319
Changes in assets and liabilities 335,725 216,407 (119,318)
6
OMNI U.S.A., INC.
Notes to the Unaudited Consolidated Financial Statements (Continued)
Merger of Brendan Technologies, Inc. into Omni, U.S.A., Inc.
On December 29, 2005, Omni U.S.A., Inc., a Nevada corporation, ("Omni" or the
"Company") through its wholly-owned subsidiary, Omni Merger Sub, Inc., a
Michigan corporation, Jeffrey Daniel and Edward Daniel entered into an Agreement
and Plan of Merger with Brendan Technologies, Inc., ("Brendan") pursuant to
which Omni Merger Sub, Inc. was merged with and into Brendan and Brendan became
the surviving corporation in the merger and a wholly-owned subsidiary of Omni.
Brendan continued its corporate existence under the laws of the State of
Michigan.
Concurrently with the merger, 4,754,709 shares of Brendan common stock
outstanding immediately before the merger were converted into 19,018,836 shares
of Omni common stock, a four for one ratio. Also concurrently with the merger,
4,352,879 shares of Omni common stock were issued to the holders of Brendan
Senior and Bridge Notes totaling $2,654,198 in aggregate principal and interest,
a conversion rate of 1.64 shares per $1.00 under such debt; and 900,000 shares
of Omni common stock was issued to individuals who participated in the
arrangement of the merger.
Common stock options and warrants exercisable into 973,500 shares of Brendan
before the merger became exercisable into 3,894,000 common shares of Omni after
the merger. The exercise price of the Omni stock options and warrants became 25%
of the exercise price of the Brendan stock options and warrants.
The merger was accounted for as a reverse merger and for accounting purposes,
Brendan is the acquirer in the reverse acquisition transaction, and
consequently, the financial statements of Omni going forward will be the
historical financial statements of Brendan and the reverse merger will be
treated as a recapitalization of Omni. The consideration and other terms of
these transactions were determined as a result of arm's-length negotiations
between the parties.
Following the closing of the reverse merger, Brendan's existing management
assumed their same positions with Omni.
As a result of the reverse merger, Brendan became a wholly-owned subsidiary of
the publicly traded company, Omni, trading on the NASD's OTC Bulletin Board
(OUSA.OB) and, accordingly, subject to the information and reporting
requirements of the U.S. securities laws. The public company costs of preparing
and filing annual and quarterly reports, proxy statements and other information
with the SEC and furnishing audited reports to shareholders will cause the
Company's expenses to be higher than they would have been had Brendan remained
privately held.
Brendan was incorporated on October 30, 1997 in the state of Michigan. Brendan
develops and markets scientific computer software for applications in the
pharmaceutical/biotechnical research, clinical diagnostic, environmental, and
other life and physical science markets.
2. GOING CONCERN
These financial statements have been prepared on a going concern basis. However,
during the six months ended December 31, 2005 and the transitional six month
period ended June 30, 2005, the Company incurred net losses of $492,843 and
$164,772, respectively, and had an accumulated deficit of $5,889,160 and
$5,396,316, at December 31, 2005 and June 30, 2005, respectively. The Company's
7
OMNI U.S.A., INC.
Notes to the Unaudited Consolidated Financial Statements (Continued)
ability to continue as a going concern is dependent upon its ability to generate
profitable operations in the future and/or to obtain the necessary financing to
meet its obligations and repay its liabilities arising from normal business
operations when they come due. The outcome of these matters cannot be predicted
with any certainty at this time. Since inception, the Company has satisfied its
capital needs through debt and equity financings.
On December 29, 2005, immediately following the reverse merger, Omni sold its
operating subsidiaries to Omni's original founders for a note receivable of
$770,000. The note was subsequently discounted to $498,000 of which $98,000 was
advanced to Brendan to cover a portion of the costs associated with the reverse
merger, $185,000 was received in cash as of December 31, 2005 and the balance of
$215,000 was received in cash subsequent to December 31, 2005. In addition,
Brendan's noteholders converted $2,654,198 of notes payable and accrued interest
into 4,352,879 common shares of Omni. Brendan's shareholders converted 4,754,709
shares of common stock into 19,018,836 common shares of Omni. An additional
900,000 shares of Omni's common stock was issued to individuals who participated
in the reverse merger. It is unlikely that the cash proceeds from the sale of
the note will be sufficient to meet the Company's ongoing liquidity
requirements. Therefore, the Company will likely need to seek additional
financing to meet its liquidity requirements.
Management plans to continue to provide for its capital needs during the twelve
months ending December 31, 2006, by increasing sales through the continued
development of its products and by debt and/or equity financings. These
financial statements do not include any adjustments to the amounts and
classification of assets and liabilities that may be necessary should the
Company be unable to continue as a going concern.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of Omni presented herein have been
prepared pursuant to the rules of the Securities and Exchange Commission ("the
SEC") for quarterly reports on Form 10-QSB and do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America. These statements should be read in conjunction
with our audited consolidated financial statements and notes thereto included in
our Current Report on Form 8-K filed with the SEC on January 5, 2006.
In the opinion of management, the interim consolidated financial statements
reflect all adjustments of a normal recurring nature necessary for a fair
statement of the results for interim periods. Operating results for the three
and six month periods are not necessarily indicative of the results that may be
expected for the year ending June 30, 2006.
Revenue Recognition
The Company recognizes revenues related to software licenses and software
maintenance in accordance with the American Institute of Certified Public
Accountants ("AICPA") Statements of Position ("SOP") No. 97-2, "Software Revenue
Recognition," as amended by SOP No. 94-4 and SOP No. 98-9. We follow the
guidance established by the SEC in Staff Accounting Bulletin No. 104, as well as
generally accepted criteria for revenue recognition, which require that, before
revenue is recorded, there is persuasive evidence of an arrangement, the fee is
fixed or determinable, collection is reasonably assured, and delivery to our
customer has occurred. The Company's software is sold with an indefinite license
period, and as such, product revenue is recorded at the time of the customer's
acceptance (generally 30 days after shipment), net of estimated allowances and
returns. Post-contract customer support ("PCS") obligations are for annual
services and are recognized over the period of service. Revenues for which
payment has been received are treated as deferred revenue until services are
provided and revenues have been earned. The Company provides, for a fee,
additional training and service calls to its customers and recognizes
8
OMNI U.S.A., INC.
Notes to the Unaudited Consolidated Financial Statements (Continued)
revenue at the time the training or service call is provided. A portion of our
revenues are derived from the collection of royalties. We recognize revenue from
royalties only after the cash has been collected (typically 30 days after the
end of the quarter on which the royalty payment is based.)
Software Development Costs
Costs associated with the development and enhancement of proprietary software
for sale is expensed as incurred. The costs incurred between the time when our
products reach technological feasibility and when they are available for general
release to the public are capitalized and amortized over their estimated useful
lives. When such assets have been capitalized, they are reviewed each period to
determine if the value of the asset has been impaired. We currently have no
capitalized and unamortized software development costs.
Trade Accounts Receivable
The Company provides for the possible inability to collect accounts receivable
by recording an allowance for doubtful accounts. The Company writes off an
account when it is considered to be uncollectible.
Property and Equipment
Property and equipment are stated at cost. The Company provides for depreciation
and amortization using the straight-line and accelerated methods over the
estimated useful lives of the principal classes of property of three years.
Stock-Based Compensation
The Company applies Accounting Principles Board ("APB") Opinion 25, "Accounting
for Stock Issued to Employees," and related Interpretations in accounting for
all stock option plans. Under APB Opinion 25, compensation cost has been
recognized for stock options granted to employees when the option price is less
than the market price of the underlying common stock on the date of grant.
SFAS No. 123, "Accounting for Stock-Based Compensation," and SFAS No. 148,
"Accounting for Stock-Based Compensation-Transition and Disclosure," require the
Company to provide pro forma information regarding net income as if compensation
cost for the Company's stock option plans had been determined in accordance with
the fair value based method prescribed in SFAS No. 123. To provide the required
pro forma information, the Company estimates the fair value of each stock option
at the grant date by using the Black-Scholes option-pricing model. SFAS No. 148
also provides for alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee compensation.
The Company has elected to continue to account for stock-based compensation
under APB No. 25.
On December 15, 2005, Brendan's Board of Directors accelerated the vesting of
350,000 unvested stock options held by their employees with exercise prices of
$3.00 per share. The options would have otherwise vested over various periods
through January 2007. Brendan's Board of Directors determined that the
acceleration of the vesting of the stock options described above was in the best
interests of the Company to enhance the incentive of the affected options and to
provide it with greater flexibility for future grants of share-based incentives
as SFAS 123(R) becomes effective. The Company plans to adopt SFAS 123(R) in
January 2006.
9
OMNI U.S.A., INC.
Notes to the Unaudited Consolidated Financial Statements (Continued)
The Company applies SFAS No. 123 in valuing options granted to consultants and
estimates the fair value of such options using the Black-Scholes option-pricing
model. The fair value is recorded as consulting expense as services are
provided. Options granted to consultants for which vesting is contingent based
on future performance are measured at their then current fair value at each
period end, until vested.
Under the accounting provisions of SFAS No. 123, the Company's net loss per
share would have been increased by the pro forma amounts indicated below:
Three months ended Six months ended
December 31, December 31,
2005 2004 2005 2004
---------------------------------------------------------------------------------------------------------------
Net income (loss), as reported $ (250,545) $ (182,495) $ (492,843) $ (441,216)
Stock-based employee compensation,
net of tax effects (55,797) (260) (57,078) (1,541)
------------ ------------- ------------- -------------
Proforma net income (loss) $ (306,342) $ (182,755) $ (549,921) $ (442,757)
============ ============= ============= =============
Net income (loss) per share:
Basic and diluted- as reported $ (0.05) $ (0.04) $ (0.10) $ (0.10)
============ ============= ============= =============
Basic and diluted- proforma $ (0.06) $ (0.04) $ (0.11) $ (0.10)
============ ============= ============= =============
For purposes of computing the pro forma disclosures required by SFAS No. 123,
the fair value of each option granted to employees and directors is estimated
using the Black-Scholes option-pricing model. No stock options were granted
during the six months ended December 31, 2005 or the transitional six month
period ended June 30, 2005 and no stock options were granted for which the
exercise price was less than the market price on the grant date.
Loss Per Share
The Company utilizes SFAS No. 128, "Earnings per Share." Basic loss per share is
computed by dividing loss available to common shareholders by the
weighted-average number of common shares outstanding. Diluted loss per share is
computed similar to basic loss per share except that the denominator is
increased to include the number of additional common shares that would have been
outstanding if the potential common shares had been issued and if the additional
common shares were dilutive. Common equivalent shares are excluded from the
computation if their effect is anti-dilutive.
For the six months ended December 31, 2005 and 2004, the following common
equivalent shares were excluded from the computation of loss per share since
their effects are anti-dilutive.
December 31,
-----------------------------------
2005 2004
--------------- ---------------
(Post-split)
Options 3,840,000 3,840,000
Warrants 54,000 358,400
--------------- ---------------
Total 3,894,000 4,198,400
=============== ===============
10
OMNI U.S.A., INC.
Notes to the Unaudited Consolidated Financial Statements (Continued)
Fair Value of Financial Instruments
The Company's financial instruments include cash, accounts receivable, notes
receivable, accounts payable, and accrued wages. The book value of all other
financial instruments is representative of their fair values.
Research and Development
Research and Development costs are charged to operations as incurred. Such costs
were not considered material.
Income Taxes
The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements
or tax returns. Under this method, deferred income taxes are recognized for the
tax consequences in future years of differences between the tax bases of assets
and liabilities and their financial reporting amounts at each period-end based
on enacted tax laws and statutory tax rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
Estimates
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to credit risk are
primarily cash and accounts receivable. The Company deposits its cash with what
it considers high-credit, quality financial institutions. At times, balances are
in excess of the Federal Deposit Insurance Corporation insured limit. As of
December 31, 2005, the Company did not have any uninsured cash. Credit risk
concentration with respect to receivables is limited due to the geographic
dispersion of the Company's customer base. The Company conducts ongoing credit
evaluations but does not obtain collateral or other forms of security. The
Company believes its credit policies do not result in significant adverse risk
and historically has not experienced significant credit-related losses.
4. RECENT ACCOUNTING PRONOUNCEMENTS
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs-an amendment of
ARB. No. 43, Chapter 4". This Statement amends the guidance in ARB No. 43,
Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts
of idle facility expense, freight, handling costs, and wasted material
(spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that "... under
some circumstances, items such as idle facility expense, excessive spoilage,
double freight, and re-handling costs may be so abnormal as to require treatment
as current period charges...." This Statement requires that those items be
recognized as current-period charges regardless of whether they meet the
criterion of
11
OMNI U.S.A., INC.
Notes to the Unaudited Consolidated Financial Statements (Continued)
"so abnormal." In addition, this Statement requires that allocation of fixed
production overheads to the costs of conversion be based on the normal capacity
of the production facilities. The Company will adopt this standard on January 1,
2006. Management is still evaluating the impact this standard will have on our
financial statements.
In December 2004, the FASB issued SFAS No. 123R, "Share Based Payment". This
Statement is a revision of FASB Statement No. 123, "Accounting for Stock-Based
Compensation". This Statement supersedes APB Opinion No. 25, "Accounting for
Stock Issued to Employees", and its related implementation guidance. This
Statement establishes standards for the accounting for transactions in which an
entity exchanges its equity instruments for goods or services. It also addresses
transactions in which an entity incurs liabilities in exchange for goods or
services that are based on the fair value of the entity's equity instruments or
that may be settled by the issuance of those equity instruments. This Statement
focuses primarily on accounting for transactions in which an entity obtains
employee services in share-based payment transactions. This Statement does not
change the accounting guidance for share-based payment transactions with parties
other than employees provided in Statement 123 as originally issued and EITF
Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services." This Statement does not address the accounting for employee share
ownership plans, which are subject to AICPA Statement of Position 93-6,
"Employers' Accounting for Employee Stock Ownership Plans". The Company will
adopt this standard on January 1, 2006. Management is still evaluating the
impact this standard will have on our financial statements.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections" ("SFAS 154") which replaces Accounting Principles Board Opinions
No. 20 "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in
Interim Financial Statements-An Amendment of APB Opinion No. 28." SFAS 154
provides guidance on the accounting for and reporting of accounting changes and
error corrections. It establishes retrospective application, or the latest
practicable date, as the required method for reporting a change in accounting
principle and the reporting of a correction of an error. SFAS 154 is effective
for accounting changes and a correction of errors made in fiscal years beginning
after December 15, 2005 and is required to be adopted by the Company in the
first quarter of fiscal 2007. The Company is currently evaluating the effect
that the adoption of SFAS 154 will have on its consolidated results of
operations and financial condition.
5. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 2005 consisted of the following:
December 31,
2005
--------------
Accounts receivable - trade $ 62,947
Allowance for doubtful accounts (5,000)
--------------
Accounts receivable, net $ 57,947
==============
12
OMNI U.S.A., INC.
Notes to the Unaudited Consolidated Financial Statements (Continued)
6. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2005 consisted of the following:
December 31,
2005
--------------------------------------------------------
Computer equipment $ 39,976
Furniture and fixtures 101,231
-------------
141,207
Less accumulated depreciation (115,324)
-------------
$ 25,883
--------------------------------------------------------
Depreciation expense was $3,614 and $881, for the six months ended December 31,
2005, and 2004.
7. CONVERTIBLE NOTES PAYABLE IN DEFAULT
Convertible notes payable, the majority of which were converted into common
stock of Omni consisted of the following:
December 31,
2005
---------------------
Forty-six convertible, unsecured, senior subordinated notes
payable, due on various dates on or before September 2004,
bearing interest at 8% per annum. Forty-four of the notes
were converted into 2,062,300 shares of the Company's common
stock on December 29, 2005 $ 130,000
Unsecured, convertible note payable for $125,000,
which bears interest at a rate of 12% per annum. 125,000
---------------------
255,000
Less current portion 255,000
---------------------
Long-term portion $ -
=====================
Three notes which were not converted as part of the reverse merger remain in
default. The Company and noteholders are in discussions to determine when and
how these remaining obligations will be satisfied.
13
OMNI U.S.A., INC.,
Notes to the Unaudited Consolidated Financial Statements (continued)
8. SHAREHOLDER'S DEFICIT
Common Stock
The Company has authorized 50,000,000 shares of common stock at $.004995 par
value.
Common
Shares Dollars
---------------- ----------------
Balance July 1, 2005 4,687,209 $ 1,185,361
Brendan common stock issued for cash,
net of costs 67,500 170,625
Brendan shares converted to Omni at 4 to 1 14,264,127 -
Brendan notes payable and accrued interest
converted to Omni stock 4,352,879 2,654,198
Omni common shares issued in payment of
Brendan accounts payable related to merger 100,000 35,000
Omni common shares issued to an individual
as costs of the merger 800,000 -
Omni shares previously outstanding
recapitalized due to the merger 1,227,079 -
Sale of previous Omni operating subsidiaries
treated as contributed capital - 498,000
---------------- ----------------
Balance December 31, 2005 25,498,794 $ 4,543,184
================ ================
Warrants
In August 2005, Brendan issued a warrant exercisable, after giving effect to the
reverse merger on December 29, 2005, into 54,000 shares of the Company's stock
at an exercise price of $.75 per share with an expiration date of five years
from the date of grant. The Company estimated the fair value of the warrant at
the issuance date by using the Black-Scholes pricing model with the following
weighted average assumptions used for the three and six months ended December
31, 2005: dividend yield of zero percent; expected volatility of 100%; risk free
interest rate of 4.08%; and expected life of 5 years. The valuation of the
warrant, $7,407, was recorded as a stock offering cost.
Stock Option Plan
In January 1999, Brendan's Board of Directors adopted and Brendan's shareholders
approved the 1999 Stock Option Plan (the "Option Plan") under which a total of
310,000 shares of common stock had been reserved for issuance. In August 2000,
the shareholders approved an increase in the number of shares that may be
granted under the Option Plan to 410,000. In January 2002, the shareholders
approved an increase in the number of shares that may be granted under the
Option Plan to 610,000. In January 2004, the shareholders approved an increase
in the number of shares that may be granted under the option plan to 4,000,000
shares after giving effect to the reverse merger on December 29, 2005. The
Option Plan terminates in 2012, subject to earlier termination by the Board of
Directors.
14
OMNI U.S.A., INC.
Notes to the Unaudited Consolidated Financial Statements (Continued)
As of December 31, 2005, 3,840,000 options are outstanding at prices ranging
from $0.025 to $.75 per share with expiration dates ranging from 2009 to 2014
after giving effect to the reverse merger on December 29, 2005.
9. INCOME TAXES
Deferred income taxes are provided for by recognizing temporary differences in
certain income and expense items for financial and tax reporting purposes.
Deferred tax assets consist primarily of income tax benefits from net operating
loss carry-forwards. A valuation allowance has been recorded to fully offset the
deferred tax asset as it is more likely than not that the assets will not be
utilized. The valuation allowance increased approximately $180,000 for the six
months ended December 31, 2005, from $2,149,000 at June 30, 2005 to $2,329,000
at December 31, 2005.
As of December 31, 2005, the Company had estimated net operating loss
carry-forwards for federal and state income tax purposes of approximately
$5,064,000 and $2,532,000, respectively, which expire from 2012 to 2025.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO OUR
FUTURE FINANCIAL PERFORMANCE. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
CURRENTLY ANTICIPATED AND FROM HISTORICAL RESULTS DEPENDING UPON A VARIETY OF
FACTORS, INCLUDING THOSE DESCRIBED BELOW UNDER THE SUB-HEADING, "RISK FACTORS."
SEE ALSO OUR CURRENT REPORT ON FORM 8-K FILED WITH THE SEC ON JANUARY 5, 2006.
Overview
Omni completed a reverse merger transaction on December 29, 2005 with Brendan
Technologies, Inc., a Michigan corporation formed in October 1997. Prior to the
merger, Omni, through its wholly-owned subsidiary, Omni U.S.A., Inc., a
Washington corporation ("Omni-Washington") and Omni-Washington's wholly-owned
subsidiary, Omni Resources, Ltd., a Hong Kong company ("Omni Resources"),
through its wholly-owned manufacturing facility, Shanghai Omni Gear Co.,
Ltd.("Shanghai Omni Gear"), designed, developed, manufactured and distributed
power transmissions (also known as "gearboxes" or "enclosed geardrives") for use
in agricultural, industrial, "off-highway" and construction equipment. Omni,
through another wholly-owned subsidiary, Butler Products Corporation, designed,
developed, manufactured and distributed trailer and implement jacks and
couplers, which included light and heavy-duty jacks and couplers used in a
variety of trailers. Upon the closing of the merger, the subsidiaries of Omni
were sold to its founders and Brendan became the only wholly owned subsidiary of
Omni, the public company. The directors and management of Brendan became the
directors and management of Omni. For a more complete description of the reverse
merger transaction and sale of the subsidiaries in which Omni received
approximately $498,000 in gross proceeds, see our current report on Form 8-K,
dated December 29, 2005 and filed with the SEC on January 5, 2006.
Brendan was incorporated on October 30, 1997 in the state of Michigan. Brendan
develops and markets scientific computer software for applications in the
pharmaceutical/biotechnical research, clinical diagnostic, environmental, and
other life and physical science markets.
Since our business is that of Brendan only, the management of Brendan became the
management of the Company and the former Brendan stockholders and note holders
received a majority of the total common stock of the Company in the reverse
merger, the merger was accounted for as a recapitalization of Omni and, the
information in this Form 10-QSB is that of Brendan.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in accordance with
accounting principles generally accepted in the United States requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities.
On an ongoing basis, we evaluate our estimates, including those related to our
product returns, bad debts, intangible assets, long-lived assets and
contingencies and litigation. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
We have identified three accounting principles that we believe are key to an
understanding of our financial statements. These important accounting policies
require management's most difficult, subjective judgments.
1. Accounts receivable.
Accounts receivable are carried at the expected net realizable value. The
allowance for doubtful accounts is based on management's assessment of the
collectibility of specific customer accounts and the aging of the accounts
receivable. If there were a deterioration of a major customer's
creditworthiness, or actual defaults were higher than historical experience, our
estimates of the recoverability of amounts due to us could be overstated, which
could have a negative impact on operations.
16
2. Revenue Recognition
The Company recognizes revenues related to software licenses and software
maintenance in accordance with the American Institute of Certified Public
Accountants ("AICPA") Statements of Position ("SOP") No. 97-2, "Software Revenue
Recognition," as amended by SOP No. 94-4 and SOP No. 98-9. We follow the
guidance established by the SEC in Staff Accounting Bulletin No. 104, as well as
generally accepted criteria for revenue recognition, which require that, before
revenue is recorded, there is persuasive evidence of an arrangement, the fee is
fixed or determinable, collection is reasonably assured, and delivery to our
customer has occurred. The Company's software is sold with an indefinite license
period, and as such, product revenue is recorded at the time of the customer's
acceptance (generally 30 days after shipment), net of estimated allowances and
returns. Post-contract customer support ("PCS") obligations are for annual
services and are recognized over the period of service. Revenues for which
payment has been received are treated as deferred revenue until services are
provided and revenues have been earned. The Company provides, for a fee,
additional training and service calls to its customers and recognizes revenue at
the time the training or service call is provided. A portion of our revenues are
derived from the collection of royalties. We recognize revenue from royalties
only after the cash has been collected (typically 30 days after the end of the
quarter on which the royalty payment is based.)
3. Stock Options and Warrants
The Company applies Accounting Principles Board ("APB") Opinion 25, "Accounting
for Stock Issued to Employees," and related Interpretations in accounting for
all stock option plans. Under APB Opinion 25, compensation cost has been
recognized for stock options granted to employees when the option price is less
than the market price of the underlying common stock on the date of grant.
SFAS No. 123, "Accounting for Stock-Based Compensation," and SFAS No. 148,
"Accounting for Stock-Based Compensation-Transition and Disclosure," require the
Company to provide pro forma information regarding net income as if compensation
cost for the Company's stock option plans had been determined in accordance with
the fair value based method prescribed in SFAS No. 123. To provide the required
pro forma information, the Company estimates the fair value of each stock option
at the grant date by using the Black-Scholes option-pricing model. SFAS No. 148
also provides for alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee compensation.
The Company has elected to continue to account for stock-based compensation
under APB No. 25 through the period ended December 31, 2005. Effective January
1, 2006, the Company adopted SFAS No. 123.
The Company applies SFAS No. 123 in valuing options granted to consultants and
estimates the fair value of such options using the Black-Scholes option-pricing
model. The fair value is recorded as consulting expense as services are
provided. Options granted to consultants for which vesting is contingent based
on future performance are measured at their then current fair value at each
period end, until vested.
Results of Operations
Three Months Ended December 31, 2005 Compared to Three Months Ended December 31,
2004
Selected Financial Information
Three Months Ended
---------------------------
Increase
12/31/05 12/31/04 (Decrease) %
------------ ------------
Statements of Operations:
Net sales $ 111,806 $ 140,997 $ (29,191) -21%
Cost of sales 25,594 58,677 (33,083) -56%
% of net sales 23% 42% -19% -45%
Gross profit 86,212 82,320 3,892 5%
% of net sales 77% 58% 19% 32%
Total operating expenses 272,738 184,197 88,541 48%
Interest expense (64,019) (80,618) (16,599) -21%
Provision for (benefit from) taxes - - - NM
Net (loss) income (250,545) (182,495) (68,050) 37%
Net (loss) income per share basic and diluted (0.05) (0.04) (0.01) 25%
17
Net Sales
Net sales for the quarter ended December 31, 2005 decreased $29,191, 21%, to
$111,806 compared to $140,997 for the quarter ended December 31, 2004. The
primary reason for the sales decrease was a reduction in royalty income for
StatLIA, our primary software package.
Cost of Sales
Cost of sales as a percentage of net sales decreased from 42% for the quarter
ended December 31, 2004 to 23% for the quarter ended December 31, 2005. This
decrease was primarily due to decreased expenses charged to cost of sales
associated with validation of software sales.
Operating Expenses
Operating expenses increased by $88,541, a 48% increase, to $272,738 for the
quarter ended December 31, 2005 from $184,197 for the quarter ended December 31,
2004. The primary reasons for the increase were approximately $27,000 increase
in expenses associated with the hiring of personnel including a chief financial
officer, approximately $29,000 for auditing and professional fees associated
with becoming a public company, and approximately $14,000 increase in costs for
travel, trade shows and training classes.
Interest Expense
Interest expense decreased by $16,599, a 21% decrease, to $64,019 for the
quarter ended December 31, 2005 from $80,618 for the quarter ended December 31,
2004. The primary reason for the decrease was the conversion of notes payable
into common stock of Omni.
Six months ended December 31, 2005 Compared to Six months ended December 31,
2004
Selected Financial Information
Six Months Ended
----------------------------
Increase
12/31/05 12/31/04 (Decrease) %
------------ -------------
Statements of Operations:
Net sales $ 221,648 $ 237,412 $ (15,764) -7%
Cost of sales 51,863 86,190 (34,327) -40%
% of net sales 23% 36% -13% -36%
Gross profit 169,785 151,222 18,563 12%
% of net sales 77% 64% 13% 20%
Total operating expenses 514,887 431,320 83,567 19%
Interest expense (147,741) (161,118) (13,377) -8%
Provision for (benefit from) taxes - - - NM
Net (loss) income (492,843) (441,216) (51,627) 12%
Net (loss) income per share basic and diluted (0.10) (0.10) - 0%
Net Sales
Net sales for the six months ended December 31, 2005 decreased $15,764, 7%, to
$221,648 compared to $237,412 for the six months ended December 31, 2004. The
primary reason for the sales decrease was a reduction in royalty income for
StatLIA, our primary software package.
Cost of Sales
Cost of sales as a percentage of net sales decreased from 36% for the six months
ended December 31, 2004 to 23% for the six months ended December 31, 2005. This
decrease was primarily due to decreased expenses charged to cost of sales
associated with validation of software sales.
18
Operating Expenses
Operating expenses increased by $83,567, a 19% increase, to $514,887 for the six
months ended December 31, 2005 from $431,320 for the six months ended December
31, 2004. The primary reasons for the increase were approximately $27,000
increase in expenses associated with the hiring of personnel including a chief
financial officer, approximately $30,000 for auditing and professional fees
associated with becoming a public company, and approximately $28,000 increase in
costs for travel, trade shows and training classes.
Interest Expense
Interest expense decreased by $13,377, an 8% decrease, to $147,741 for the six
months ended December 31, 2005 from $161,118 for the quarter ended December 31,
2004. The primary reason for the decrease was the conversion of notes payable
into common stock of Omni.
Capital Resources
Working Capital
Increase
12/31/05 6/30/05 (Decrease)
------------- ------------- -------------
Current assets $ 329,878 $ 104,967 $ 224,911
Current liabilities 1,701,000 4,326,255 (2,625,255)
------------- ------------- -------------
Working capital (deficit) $ (1,371,122) $ (4,221,288) $ 2,850,166
============= ============= =============
Long-term debt $ 8,545 $ 9,836 $ (1,291)
============= ============= =============
Stockholders' equity (deficit) $ (1,345,976) $ (4,210,956) $ (2,864,980)
============= ============= =============
Statements of Cash Flows Select Information
Six Months Ended
------------------------- Increase
12/31/05 12/31/04 (Decrease)
Net cash provided by (used in):
Operating activities $ (443,667) $ (223,928) $ (219,739)
Investing activities $ (17,136) $ - $ (17,136)
Financing activities $ 482,980 $ 235,700 $ 247,280
Balance Sheet Select Information
12/31/05 6/30/05 Increase
------------ ------------ (Decrease)
Cash and cash equivalients $ 54,681 $ 32,504 $ 22,177
============ ============ =============
Notes and accounts receivable $ 274,449 $ 71,751 $ 202,698
============ ============ =============
Convertible notes payable
and interest $ 697,358 $ 3,212,708 $ (2,515,350)
============ ============ =============
Accounts payable and
accrued expenses $ 910,037 $ 1,048,387 $ (138,350)
============ ============ =============
19
Liquidity
Brendan has historically financed its operations through debt and equity
financings. At December 31, 2005, we had cash holdings of $54,681, an increase
of $22,177 compared to June 30, 2005. Our net working capital deficit at
December 31, 2005, was $1,371,122 compared to $4,221,288 as of June 30, 2005.
These financial statements have been prepared on a going concern basis. However,
during the six months ended December 31, 2005 and the transitional six month
period ended June 30, 2005, the Company incurred net losses of $492,843 and
$164,772, respectively, and had an accumulated deficit of $5,889,160 and
$5,396,316, at December 31, 2005 and June 30, 2005, respectively. The Company's
ability to continue as a going concern is dependent upon its ability to generate
profitable operations in the future and/or to obtain the necessary financing to
meet its obligations and repay its liabilities arising from normal business
operations when they come due. The outcome of these matters cannot be predicted
with any certainty at this time. Since inception, the Company has satisfied its
capital needs through debt and equity financings.
As described in Note 2, on December 29, 2005, Omni immediately following the
reverse merger, sold its operating subsidiaries to their original founders for a
note receivable of $770,000. The note was subsequently discounted to $498,000 of
which $98,000 was advanced to Brendan to cover a portion of the costs associated
with the reverse merger, $185,000 was received in cash as of December 31, 2005
and the balance of $215,000 was received as cash subsequent to December 31,
2005. In addition, Brendan's noteholders converted $2,654,198 of notes payable
and accrued interest into 4,352,879 common shares of Omni. Brendan's
shareholders converted 4,754,709 shares of common stock into 19,018,836 common
shares of Omni. An additional 900,000 shares of Omni's common stock was issued
to individuals who participated in the reverse merger. The cash proceeds from
the sale of the note will be insufficient to meet the Company's ongoing
liquidity requirements. Therefore, the Company will need to seek additional
financing to meet its liquidity requirements.
Management plans to continue to provide for its capital needs during the twelve
months ending December 31, 2006, by increasing sales through the continued
development of its products and by debt and/or equity financings. These
financial statements do not include any adjustments to the amounts and
classification of assets and liabilities that may be necessary should the
Company be unable to continue as a going concern.
New Accounting Pronouncements
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs-an amendment of
ARB. No. 43, Chapter 4". This Statement amends the guidance in ARB No. 43,
Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts
of idle facility expense, freight, handling costs, and wasted material
(spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that "... under
some circumstances, items such as idle facility expense, excessive spoilage,
double freight, and re-handling costs may be so abnormal as to require treatment
as current period charges...." This Statement requires that those items be
recognized as current-period charges regardless of whether they meet the
criterion of "so abnormal." In addition, this Statement requires that allocation
of fixed production overheads to the costs of conversion be based on the normal
capacity of the production facilities. The Company will adopt this standard on
April 1, 2006. Management is still evaluating the impact this standard will have
on our financial statements.
In December 2004, the FASB issued SFAS No. 123R, "Share Based Payment". This
Statement is a revision of FASB Statement No. 123, "Accounting for Stock-Based
Compensation". This Statement supersedes APB Opinion No. 25, "Accounting for
Stock Issued to Employees", and its related implementation guidance. This
Statement establishes standards for the accounting for transactions in which an
entity exchanges its equity instruments for goods or services. It also addresses
transactions in which an entity incurs liabilities in exchange for goods or
services that are based on the fair value of the entity's equity instruments or
that may be settled by the issuance of those equity instruments. This Statement
focuses primarily on accounting for transactions in which an entity obtains
employee services in share-based payment transactions. This Statement does not
change the accounting guidance for share-based payment transactions with parties
other than employees provided in Statement 123 as originally issued and EITF
Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services." This Statement does not address the accounting for employee share
ownership plans, which are subject to AICPA Statement of Position 93-6,
"Employers' Accounting for Employee Stock Ownership Plans". The Company will
adopt this standard on January 1, 2006. Management is still evaluating the
impact this standard will have on our financial statements.
20
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections" ("SFAS 154") which replaces Accounting Principles Board Opinions
No. 20 "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in
Interim Financial Statements-An Amendment of APB Opinion No. 28." SFAS 154
provides guidance on the accounting for and reporting of accounting changes and
error corrections. It establishes retrospective application, or the latest
practicable date, as the required method for reporting a change in accounting
principle and the reporting of a correction of an error. SFAS 154 is effective
for accounting changes and a correction of errors made in fiscal years beginning
after December 15, 2005 and is required to be adopted by the Company in the
first quarter of fiscal 2007. The Company is currently evaluating the effect
that the adoption of SFAS 154 will have on its consolidated results of
operations and financial condition.
Risk Factors
You should consider the following discussion of risks as well as other
information regarding our common stock. The risks and uncertainties described
below are not the only ones. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial also may impair our business
operations. If any of the following risks actually occur, our business could be
harmed.
We have a limited operating history.
Brendan commenced operations in November, 1997 and has a limited
operating history. The success of the Company will be dependent upon its ability
to successfully exploit its unique proprietary technology. The Company's success
will depend in large part on its ability to deal with the problems, expenses,
and delays frequently associated with developing and marketing its software
technology. Losses are likely to continue before the Company's operations will
become profitable. There is no assurance that the Company's operations will
prove profitable.
The market for our products is unproven and acceptance of the Company's
products is crucial.
The market for the Company's software and services has only recently
begun to develop, is rapidly evolving and could be subject to an increasing
number of competitive market entries. While the Company believes that its
software products offer significant advantages for quality assurance, regulatory
compliance, cross-platform standardization, accuracy, and reliability in the
clinical, pharmaceutical, environmental, and manufacturing industries, there can
be no assurance that its products will become widely adopted for use in those
industries.
Because a market for the Company's products and services is new and
evolving, it is difficult to predict the future growth rate, if any, and size of
this market. There can be no assurance that the market for the Company's
products and services will develop or that its products and services will be
used in the marketplace. If the market fails to develop, develops more slowly
than expected, or becomes saturated with competitors, or if the Company's
products do not achieve market acceptance, the Company's business, operating
results and financial condition will be materially adversely affected.
We depend on new products and development to generate revenues.
Substantially all of the Company's revenues have been derived, and
substantially all of the Company's future revenues are expected to be derived,
from the license of the Software and sale of its associated services, and the
development and sale of future products. Accordingly, broad acceptance of the
Company's software products and services by customers is critical to the
Company's future success as is the Company's ability to design, develop, test
and support new software products and enhancements on a timely basis that meet
changing customer needs and respond to technological developments in emerging
industry standards. There can be no assurance that the Company will be
successful in developing and marketing new software products and enhancements
that meet changing customer needs and respond to such technological changes or
evolving industry standards.
Our success depends upon developing distribution channels.
The Company's distribution strategy is to develop multiple distribution
channels. The Company has historically sold its products only through direct
sales, Internet sales, and original equipment manufacturers ("OEMs"). The
Company expects to increasingly utilize OEMs, direct sales, reagent
manufacturers, and systems integrators. There can be no assurances that these
distribution channels will be effective sales channels.
21
Our success is dependent on our founders and other key personnel.
The Company's performance is substantially dependent upon the
performance of its executive officers and key employees, particularly that of
Dr. John R. Dunn, II. Dr. Dunn was responsible for creation of the Software and
the scientific principles incorporated therein. As a result, Dr. Dunn is the
single most knowledgeable person with regard to the Software. It would be
difficult for the Company to find an adequate replacement for Dr. Dunn in the
immediate future.
Given the Company's early stage of development, the Company is further
dependent upon its ability to retain and motivate high quality personnel,
especially its management and highly skilled development teams. The Company does
not have key person life insurance policies on any of its employees. The loss of
the services of any of its executive officers or other key employees could have
a materially adverse effect on the business, operating results or financial
condition of the Company. The Company intends to purchase key man life insurance
when management decides funds are available.
The Company's future success also depends on its continuing ability to
identify, hire, train, and retain other highly qualified technical and
managerial personnel. Competition for such personnel is intense and there can be
no assurance that the Company will be able to attract, hire or retain other
highly qualified technical and managerial personnel in the future. The inability
to attract and retain the necessary technical and managerial personnel could
have a materially adverse effect upon the Company's business operating results
or financial condition.
The Company's success will depend, in part, on the continuing and
growing interest in quality control and quality assurance regarding reliable
laboratory and manufacturing testing results among the markets targeted by the
Company's products.
An additional factor which the Company believes will be critical to the
acceptance of its products is a continuing need in its targeted markets for more
powerful solutions for instrument connectivity, networking, and data management.
No governmental or regulatory agency must approve the production or
sale of any of the Company's products at this time. However the Company intends
to voluntarily pursue the acknowledgment and approval of certain federal
agencies to gain further awareness and acceptance for its new statistical
methodologies. There can be no assurance that the interest in quality control
and quality assurance will continue among the testing industry, general public
or governmental and regulatory agencies.
We compete with companies that have substantially greater resources.
Management of the Company believes that over 90% of the Company's
current competitors are instrument manufacturers. These manufacturers primarily
develop and market their software programs to be used with only their
instruments and not as stand-alone programs (which could be used with competing
manufacturers' instruments or even earlier models of their own instruments). The
level of interoperability of such software with the instruments sold by their
competitors is minimal or nonexistent. This market is splintered into many
fragments and no one or few of these instrument manufacturers hold a commanding
percentage of market share. To the Company's knowledge, no commercial product
available in the world today offers the accuracy, quality control and quality
assurance capabilities or many of the advanced computational features found in
StatLIA. However, the Company believes that at some point in the future, many of
its competitors will use quality assurance methodologies similar to, or as
effective as, those incorporated in StatLIA. Some of these competitors may be of
greater size and have greater financial resources than the Company. The Company
believes that most instrument manufacturers currently marketing immunoassay
software will remain focused on instrumentation and not develop software as
complex as StatLIA for the limited market share held by any one of these
manufacturers. The Company believes that most of its future competition will be
from software companies but the Company can give no assurances. Because the
Company's products are either newly-developed or in the process of being
developed, no guarantees can be given as to how commercially viable such new
products will be in the marketplace.
The Company intends to interface StatLIA with all immunoassay testing
instruments which are capable of exporting unprocessed raw data. Although the
Company has been able to receive, decode and process data from all instruments
attempted to date, there can be no assurance that the Company will be able to
collect data from all immunoassay instruments manufactured.
22
Although device manufacturers are currently the largest competitors,
the company believes that OEM's will soon serve as ideal partners as equipment
makers seek to remove themselves from software development and partner with more
powerful programs. OEM's will be a primary sales channel focus of the Company.
The Company believes that the statistical quality control and quality
assurance principles and the connectivity and data management methodologies
incorporated in StatLIA can be applied in new products for other disciplines and
technologies. The Company has outlined other programs in addition to StatLIA to
be developed in the next three years for application in testing laboratories and
manufacturing. However, the statistical quality control and quality assurance
principles and methodology have been tested only in the immunoassay field for
which StatLIA was designed, and to a lesser extent, in steel tensile testing and
chromatography. There can be no assurances that the Company will be able to
successfully develop and market all of the Company's intended products.
The Company's success and ability to compete is dependent in part upon
its proprietary technology.
While the Company relies on trademark, trade secret and copyright law
to protect its technology, the Company believes that factors such as the
technological and creative skills of its personnel, new product developments,
frequent product enhancements, name recognition and reliable product maintenance
are more essential to establishing and maintaining a technology leadership
position. The Company does not presently have any patents or patent applications
pending. There can be no assurance that others will not develop technologies
that are similar or superior to the Company's technology. The source code for
the Company's proprietary software is protected both as a trade secret and as a
copyrighted work. The Company generally enters into confidentiality or license
agreements with its employees, consultants and vendors, and generally controls
further access to and distribution of its software, documentation and other
proprietary information. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use the Company's products or
technology without authorization, or to develop similar technology
independently. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. Policing
unauthorized use of the Company's products is difficult. There can be no
assurance that the steps taken by the Company will prevent misappropriation of
its technology or that such agreements will be enforceable.
The Company has workman's compensation and general liability insurance
but does not have professional liability insurance at this time.
The Company does intend to purchase such insurance with proceeds from
the Offering if management concludes that the benefit of having such a policy
outweighs its cost. Any professional liability claims made prior to acquiring
such insurance or for amounts exceeding the coverage after the insurance is
purchased, could have an adverse material effect on the Company. In addition,
the Company will purchase a key man life insurance policy naming Dr. John Dunn
II as the insured and the Company as the beneficiary if management concludes
that the benefit of having such a policy outweighs its cost. The Company further
intends to purchase director and officer liability insurance when management
decides that funds are available in order to attract additional directors and
officers.
We are subject to the risks and uncertainties inherent in new
businesses.
We are subject to the risks and uncertainties inherent in new
businesses, including the following:
o We may not be able to raise enough money to develop our services and bring
them to market;
o Our projected capital needs may be inaccurate, and we may not have enough
money to develop our services and bring them to market;
o We may experience unanticipated development or marketing expenses, which
may make it more difficult to develop our services and bring them to
market;
o Even if we are able to develop our services and bring them to market, we
may not earn enough revenues from the sales of our services to cover the
costs of operating our business.
o If we are unsuccessful in our development efforts, we are not likely to
ever become profitable.
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The Company has never paid cash dividends on the Common Stock, and does
not anticipate that it will pay cash dividends in the foreseeable future.
The payment of dividends by the Company will depend on its earnings,
financial condition and such other factors as the Board of Directors of the
Company may consider relevant. The Company currently plans to retain any
earnings to provide for the development and growth of the Company.
We will need additional financing.
The Company's ability to continue as a going concern is dependent upon
its ability to generate profitable operations in the future and/or to obtain the
necessary financing to meet its obligations and repay its liabilities arising
form normal business operations when they come due. The outcome of these matters
cannot be predicted with any certainty at this time. Since inception, the
Company has satisfied its capital needs through debt and equity financings. The
Company will need to seek additional financing to meet its liquidity
requirements. There is no assurance that financings can be obtained in amounts
and at terms acceptable to the Company.
ITEM 3. CONTROLS AND PROCEDURES.
(a) Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of the design and operation of our disclosure controls
and procedures, as such term is defined under Rules 13a-14(c) and 15d-14(c)
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), within 90 days of the filing date of this report. Based on that
evaluation, our principal executive officer and our principal financial officer
concluded that the design and operation of our disclosure controls and
procedures were effective in timely alerting them to material information
required to be included in the Company's periodic reports filed with the SEC
under the Securities Exchange Act of 1934, as amended. The design of any system
of controls is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions, regardless of
how remote.
(b) During the six months ended December 31, 2005, we recruited a chief
financial officer who has begun establishing, designing and implementing systems
and procedures over our internal control over financial reporting as well as
added internal control expertise which includes:
o Preparation of periodic income tax provisions;
o Review and recording of equity transactions, including warrant and
option valuations;
o Certain end of period financial reconciliations; and
o Financial statement preparation and disclosures.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS.
(a) Exhibits -
Exhibit No. Title
31.1 302 Certification of John R. Dunn II, Chief Executive Officer
31.2 302 Certification of Lowell W. Giffhorn, Chief Financial Officer
32.1 906 Certification of John R. Dunn II, Chief Executive Officer
32.2 906 Certification of Lowell W. Giffhorn, Chief Financial Officer
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
OMNI U.S.A., INC.
a Nevada corporation
Date: May 25, 2006 By: /s/ JOHN R. DUNN II
-----------------------
John R. Dunn II
Chief Executive Officer
(Principal Executive and duly authorized
to sign on behalf of the Registrant)
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