U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the 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
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Commission File No. 000-26177
OMNI MEDICAL HOLDINGS, INC.
---------------------------
(Name of Small Business Issuer in its Charter)
UTAH 87-0425275
---- ----------
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
1257 Lake Plaza Drive, Suite 219
Colorado Springs, Colorado 80906
--------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number: (719) 884-2131
N/A
---
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the Registrant (1) filed all reports required to be filed by
Sections 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.
(1) Yes X No (2) Yes X No
--- --- --- ---
Indicate by check mark whether the Registrant is a shell company (as defined
by Rule 12b-2 of the Exchange Act) Yes No X
---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Not applicable.
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
December 31, 2005 - 12,912,069 shares
Transitional small business disclosure format (check one): Yes X No
--- ---
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
-------------------------------
The Financial Statements of the Registrant required to be filed with
this 10-QSB Quarterly Report were prepared by management, and commence on the
following page, together with Related Notes. In the opinion of management,
the Financial Statements fairly present the financial condition of the
Registrant.
Omni Medical Holdings, Inc.
Condensed Consolidated Financial Statements
December 31, 2005
Omni Medical Holdings, Inc.
Unaudited Condensed Consolidated Balance Sheet
December 31, 2005
ASSETS
Current assets:
Cash and cash equivalents $ -
Accounts receivable, net 2,081,265
Short-term investments, at fair value 113,453
Employee advances 5,317
Prepaid expenses 86,914
-----------
Total current assets 2,286,949
Property & equipment, net 1,370,526
Other assets:
Deferred financing costs 25,000
Goodwill 3,456,945
Intangible assets, net 1,904,647
-----------
Total other assets 5,386,592
-----------
TOTAL ASSETS $ 9,044,067
===========
See notes to condensed consolidated financial statements
F-2
Omni Medical Holdings, Inc.
Unaudited Condensed Consolidated Balance Sheet [continued]
December 31, 2005
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 838,625
Bank overdraft 10,128
Accrued expenses 2,744,997
Line of credit 117,283
Current portion notes payable 2,921,074
-----------
Total current liabilities 6,632,107
Convertible debt 1,830,672
Senior note payable-Note 6 133,333
Derivative liability on warrants-Note 6 240,000
Notes payable 2,061,277
Current portion notes payable (2,921,074)
-----------
Total long-term liabilities 1,344,208
Total liabilities 7,976,315
Minority interest (246,310)
Stockholders' equity-Note 5:
Preferred stock, no par value, 1,000,000 shares authorized,
no shares issued and outstanding -
Common stock, par value $0.001 per share; 50,000,000
shares authorized; 12,912,069 issued and outstanding 12,912
Common stock to be issued under reorganization agreement
118,665 shares 119
Capital in excess of par value 6,218,983
Unrealized loss on investment (165,520)
Accumulated deficit (4,752,432)
-----------
Total stockholders' equity 1,314,062
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,044,067
===========
See notes to condensed consolidated financial statements
F-3
Omni Medical Holdings, Inc.
Unaudited Condensed Consolidated Statements of Operations
For the three and nine month periods ended December 31, 2005 and 2004
For the three months ended For the nine months ended
December 31, December 31,
2005 2004 2005 2004
Revenue $1,251,743 $ 238,518 $ 4,233,046 $ 722,093
Cost of sales 740,567 169,180 2,285,136 431,291
--------- ---------- ----------- ----------
Gross operating profit 511,176 69,338 1,947,910 290,802
General and administrative
expenses 1,114,906 178,375 3,156,581 554,622
--------- ---------- ----------- ----------
Income (loss) from
operations (603,730) (109,037) (1,208,671) (263,820)
Other income (expense):
Interest expense (281,691) (10,461) (571,982) (28,118)
Loss on sale of assets - - - -
Gain (loss) on
derivatives instruments 60,000 60,000
Realized loss on
investment - (77,582) - (77,582)
--------- ---------- ----------- ----------
Total other income
(expense) (221,691) (88,043) (511,982) (105,700)
--------- ---------- ----------- ----------
Loss from continuing
operations before
minority interest (825,421) (197,080) (1,720,653) (369,520)
Minority interest 45,266 - 96,067 -
--------- ---------- ----------- ----------
Loss from continuing
operations before income
taxes (780,155) (197,080) (1,624,586) (369,520)
Provision for income taxes - - - -
--------- ---------- ----------- ----------
Loss from continuing
operations (780,155) (197,080) (1,624,586) (369,520)
Discontinued operations:
Loss from discontinued
operations, net of tax - (52,322) (94,233) (150,629)
Loss on disposal of
discontinued operations,
net of tax - - (6,520) -
--------- ---------- ----------- ----------
Net loss from discontinued
operations - (52,322) (100,753) (150,629)
--------- ---------- ----------- ----------
Net loss $(780,155) $ (249,402) $(1,725,339) $ (520,149)
========= ========== =========== ==========
Other comprehensive income:
Unrealized gain (loss) on
investments (20,468) (161,327) (27,092) (161,327)
--------- ---------- ----------- ----------
Total comprehensive income
(loss) $(800,623) $ (410,729) $(1,752,431) $ (681,476)
========= ========== =========== ==========
Loss per share basic and diluted:
Continuing operations $ (0.06) $ (0.04) $ (0.13) $ (0.08)
========= ========== =========== ==========
Discontinued operations $ 0.00 $ (0.01) $ (0.01) $ (0.03)
========= ========== =========== ==========
Net loss per share-basic
and diluted $ (0.06) $ (0.05) $ (0.14) $ (0.11)
========= ========== =========== ==========
Weighted average number of
common shares outstanding
-basic and diluted 12,901,089 5,502,984 12,613,559 4,777,142
========== ========== =========== ==========
See notes to condensed consolidated financial statements
F-4
Omni Medical Holdings, Inc.
Unaudited Consolidated Statements of Cash Flows
For the nine month periods ended December 31, 2005 and 2004
2005 2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,725,339) $ (520,149)
Adjustments to reconcile net loss to net
cash used in continuing operations:
Depreciation and amortization 548,434 151,752
Stock-based compensation expense - 7,342
Stock issued for services - 67,725
Non-cash interest on senior notes payable 133,333 -
Gain on derivative instruments (60,000) -
Minority interest (96,067) -
Loss on disposal of discontinued
operations 6,520
Loss on sale of assets - 21,878
Realized loss on investment - 77,582
Changes in operating assets and
liabilities, net of effect of business
acquisition and disposition:
Accounts receivable (385,475) (21,395)
Prepaid expenses (9,588) 2,568
Deposits 7,763 (350)
Accounts payable 501,294 7,685
Bank overdraft 10,128 -
Accrued expenses 910,121 3,432
------------- -----------
Net cash used in operating
activities (158,876) (201,930)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (146,840) (1,114)
Proceeds from sale of assets - 1,021
Software development (240,377) -
Proceeds from sale of investments - 107,219
------------- -----------
Net cash provided by (used in)
investing activities (387,217) 107,126
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on line of credit (46,170) 26,650
Proceeds from issuance of debt 651,145 78,000
Net payments of notes payable (224,731) (15,916)
Proceeds from the issuance of common stock 151,000 16,350
------------- -----------
Net cash provided by financing
activities 531,244 105,084
------------- -----------
NET INCREASE (DECREASE) IN CASH (14,849) 10,280
CASH AT BEGINNING OF PERIOD 14,849 6,140
------------- -----------
CASH AT END OF PERIOD $ 0 $ 16,420
============= ===========
See accompanying notes to financial statements
F-5
Omni Medical Holdings, Inc.
Consolidated Statements of Cash Flows [continued]
For the nine month periods ended December 31, 2005 and 2004
2005 2004
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest in continuing operations $ 140,689 $ 23,818
Cash paid for interest in discontinued operations - -
Cash paid for income taxes - -
NON-CASH OPERATING ACTIVITIES:
Stock issued as prepaid expenses $ - $ 72,379
NON-CASH INVESTING ACTIVITIES:
Stock issued for short-term investments $ - $507,454
NON-CASH FINANCING ACTIVITIES:
Stock issued to relinquish debt $ 25,696 $137,500
BUSINESS ACQUISITIONS:
Fair value of assets acquired $ 1,357,006 $ -
Issuance of debt/assumption of liabilities (357,006) -
Common stock issued at acquisition (1,000,000)
----------- --------
Cash paid $ 0 $ 0
=========== ========
See accompanying notes to financial statements
F-6
Omni Medical Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
December 31, 2005
Note 1 BUSINESS, ORGANIZATION AND INTERIM FINANCIAL STATEMENTS
Business - Omni Medical Holdings, Inc. ("Omni"), a Utah corporation,
provides medical billing and transcription services, and electronic
medical record solutions to medical practitioners.
Interim financial statements-The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions to Form 10QSB and Item 310 (b) of
Regulation S-B. Accordingly, they do not include all of the information
and footnotes required by accounting principles for complete financial
statements generally accepted in the United States of America. In the
opinion of management, the accompanying consolidated financial
statements contain all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the Company's financial
position as of December 31, 2005. There has not been any change in the
significant accounting policies of Omni Medical Holdings, Inc. for the
periods presented. It is suggested that these unaudited condensed
consolidated financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended March
31, 2005.
Note 2 BUSINESS ACQUISITIONS
Effective April 15, 2005, the Company entered into an Stock Purchase
Agreement ("the Plum Creek agreement") whereby the Company acquired 100%
of the outstanding shares of Plum Creek Outpatient, Inc.,("Plum Creek")
an Illinois corporation and provider of medical supplies in exchange
for 1,000,000 pre-split shares(250,000 post-split shares) of the
Company's common stock that are "restricted securities" as defined in
Rule 144 of the Securities and Exchange Commission. The Plum Creek
agreement calls for a Revenue Bonus to be paid to the sellers based on
annual calculations of the combined revenue of the Company and its
affiliates relating to medical supplies during two revenue bonus periods
ending April 15, 2006 and 2007. The Company also entered into a Put
Option agreement whereby anytime during the two year period from the
date of acquisition the Company, at the request of the seller, may be
required to purchase some or all of the 1,000,000 issued shares at a
price of $0.20 per share or issue additional shares of the Company's
common stock equal in number to the shortfall in payment of the Put
Price plus ten percent divided by the closing price per share at the
close of business on the last day of the payment period.
The following table summarizes the estimated fair values of the Plum
Creek assets acquired and liabilities assumed as of April 15, 2005, the
date of acquisition:
Accounts receivable, net $426,960
Equipment 40,000
Accounts payable (5,000)
Accrued expenses (261,960)
---------
Net assets acquired $ 200,000
=========
F-7
Omni Medical Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2005
Note 2 BUSINESS ACQUISITIONS-[continued]
On April 15, 2005 the Company also entered into an Asset Purchase
Agreement ("the Stat agreement") whereby the Company acquired the assets
of Stat Anesthesia, P.C., ("Stat") an Illinois corporation and medical
provider, in exchange for 4,000,000 pre-split shares(1,000,000 post-
split shares) of the Company's common stock that were also "restricted
securities" as defined in Rule 144 of the Securities and Exchange
Commission. Additionally, Stat signed an Administrative Services
Agreement with the Company in which the Company will provide financial
and administrative services for all of Stat's operations. While the
Company will have complete control over the administrative and financial
affairs of Stat, the Company will not be involved in any way in the
practice of medicine. The Stat agreement also calls for a Revenue Bonus
to be paid to the sellers based on annual calculations of the combined
revenue of the Company and its affiliates relating to medical services
during two revenue bonus periods ending April 15, 2006 and 2007. The
Company also entered into a Put Option agreement whereby anytime during
the two year period from the date of acquisition the Company, at the
request of the seller, may be required to purchase some or all of the
4,000,000 issued shares at a price of $0.20 per share or issue
additional shares of the Company's common stock equal in number to the
shortfall in payment of the Put Price plus ten percent divided by the
closing price per share at the close of business on the last day of the
payment period.
The following table summarizes the estimated fair values of the Stat
assets acquired and liabilities assumed as of April 15, 2005, the date
of acquisition:
Accounts receivable, net $850,046
Equipment 40,000
Accrued expenses (90,046)
--------
Net assets acquired $800,000
========
The DataFuzion, Plum Creek and Stat acquisitions were accounted for as
purchases and their results of operations are included in the Company's
financial statements from the date of acquisition.
The following proforma financial information presents results as if the
DataFuzion Plum Creek and Stat acquisitions had occurred at the
beginning of the nine month periods ended December 31, 2005 and 2004:
2005 2004
Revenues $4,366,042 $1,735,116
Net loss (1,579,562) (432,428)
Basic and diluted loss
per share $ (0.13) $ (0.09)
F-8
Omni Medical Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
December 31, 2005
Note 3 GOING CONCERN
The Company's financial statements for the periods ended December 31,
2005 and 2004 show incurred net losses of $1,725,339 and $520,149,
respectively, and has a working capital deficiency of $4,340,158, as of
December 31, 2005, raising substantial doubt about the company's ability
to continue as a going concern. Management's plans to address concerns
raised by this issue include:
a. Through the acquisition of Plum Creek Outpatient and administrative
services agreement with Stat Anesthesia, P.C., the Company believes it
has already acquired significant asset and adequate liquid assets for
operation. Furthermore, management believes these companies will provide
significant cash flow to provide for all corporate needs.
b. The Company also plans to raise additional capital and is working
with a number of financial sources to achieve this.
There is no assurance that these or any efforts will be successful.
However, management believes that these measures will enable the Company
to have adequate funds to support operations for the next twelve months.
Note 4 DISCONTINUED OPERATIONS
Effective September 1, 2005, Omni entered into a settlement agreement
with McCoy Financial Services, Inc.("MFS") whereby Omni agreed to sell,
transfer, and assign to MFS all of the Company's right, title and
interest in and to the transcription services segment net assets for
$10,000. As of September 1, 2005, the assets of the transcription
services segment was approximately $221,000 (primarily property and
equipment of approximately $37,000 and intangible assets of $184,000)
and transcription services segment obligations and liabilities had a
carrying value of approximately $527,000 (primarily accounts payable of
approximately $226,000 and debt of approximately $205,000). A loss on
the disposal of the assets was recognized in the amount of $6,520 The
results of operations from the transcription services segment have been
retroactively restated as discontinued operations.
Note 5 COMMON STOCK
On November 4, 2005 the Company announced it has executed a 1 for 4
reverse split of it's Common shares effective November 4, 2005,
resulting in 12,912,069 shares issued and outstanding after the reverse
split.
Note 6 FINANCING/SENIOR NOTE PAYABLE/DERIVATIVES
On October 26, 2005 the Company entered into a Note Purchase Agreement
with Sigma Opportunity Fund, LLC. Under the note purchase agreement,
Sigma purchased from Omni a Senior Note due April 26, 2006 for $400,000.
Interest is accrued on the note at 5% per annum or 12% per annum in the
case of default. In connection with the purchase the Company issued
Warrants to purchase 15,000 pre-split shares of Omni common stock for
each $1,000 principal amount of the note for an aggregate of 6,000,000
pre-split shares(1,500,000 post-split shares) with an exercise price of
$.001 per pre-split share ($.005 per post split share) with a 7-year
life. In connection with the Note Purchase Agreement with Sigma
Opportunity Fund, LLC, the Company was to file a Registration Statement
within 90 days of the closing or suffer a 2% penalty per month of the
note amount or $8,000 per month. The Company has not filed the
Registration Statement that was required by the Note Purchase Agreement
as of the date of this Report.
The proceeds from the note have been discounted for the relative fair
value of the warrants and the discount. All discounts will be amortized
over the life of the notes.
F-9
Omni Medical Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
December 31, 2005
Note 6 FINANCING/SENIOR NOTE PAYABLE/DERIVATIVES-[continued]
The Company has classified the warrants as derivatives and have recorded
them at their fair value. The fair value of the warrants is estimated on
the commitment date using the Black-Scholes option-pricing model with
the following assumptions: dividend yield of 0%, expected volatility of
250%, risk-free interest rate of 1.5% and expected life of 7 years.
Note 7 SUBSEQUENT EVENTS
On January 20, 2006 the Company issued Warrants to purchase 250,000
post-split shares of the Company's common stock to West Park Capital,
Inc.. The warrants are exercisable at $.01 per share and have a 5-year
life.
F-10
Item 2. Management's Discussion and Analysis
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995.
This Form 10-QSB Quarterly Report contains forward looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Omni Medical Holdings, Inc. is
referred to herein as "we" or "our." The words or phrases "would be," "will
allow," "intends to," "will likely result," "are expected to," "will
continue," "is anticipated," "estimate," "project," or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Actual results could differ
materially from those projected in the forward looking statements as a result
of a number of risks and uncertainties. Statements made herein are as of the
date of the filing of this Form 10-QSB with the Securities and Exchange
Commission and should not be relied upon as of any subsequent date. Except as
may otherwise be required by applicable law, we do not undertake, and
specifically disclaim, any obligation to update any forward-looking statements
contained in this Form 10-QSB to reflect occurrences, developments,
unanticipated events or circumstances after the date of such statement.
OVERVIEW:
Omni Medical Holdings (ONMH:OTCBB)provides a turn key back office suite
of products and services to doctors, clinics and hospitals throughout the
country. Omni continues to grow through its acquisition strategy and unique
combination of product offerings.
Omni Medical has positioned itself to offer a complete back office
solution of products and services for all medical practitioners.
Omni's DataFuzion subsidiary provides a complete line of integrated back-
office products including GE Centricity and Misys practice management and
electronic medical records solutions, and a proprietary web based decision
support reporting tools for physicians and hospitals (InfoBridgeTM). Our ASP
hosted products are designed to maximize practice performance by identifying
revenue enhancement and cost savings opportunities, while eliminating the
up front costs and ongoing expense of owning, upgrading, staffing and
maintaining multiple in-house operations and reporting systems.
When practitioners provide patient care, those actions must be
documented, usually by electronic dictation. Government and insurance
regulations are such that these important medical records, which affect
patient health, must be in readable form. Through our transcription division,
this service can be delivered to any practitioner in the world through our
proprietary digital web based system. All of our services are performed in
the United States.
Medical billing and collections are the lifeblood of any healthcare
facility, with accurate and timely collections insuring an effective practice
and high standard of care. The billing process is automated through either of
Omni's Centricity or Misys based hubs. Our nearly 20 years of experience
extends to most medical areas, especially anesthesiology.
Omni's complete back office solution gives:
* New revenue opportunities to our customers;
* More streamlined workflow;
* Executive managers the ability to use disease management benchmarking data,
increasing revenue and providing better patient outcomes;
* Elimination of costly data errors;
* Ability to integrate hardware and software with other systems; and
* "Drill down" from multiple servers, and provides greater analytical
solutions.
The opportunities in the healthcare services market are enormous and the
next 10 years will bring dramatic changes in how healthcare practitioners
manage and operate their practices. Omni Medical Holdings, along with its
DataFuzion subsidiary, is currently positioned to take advantage of those
opportunities now.
RESULTS OF OPERATIONS
Three months ended December 31, 2005.
-------------------------------------
During the quarterly period ended December 31, 2005, we recorded revenue from
continuing operations of $1,251,743, a substantial increase from revenue from
continuing operations of $238,518 in the quarter ended December 31, 2004.
Cost of sales from continuing operations totaled $740,567, versus $169,180 in
the third fiscal quarter of 2005.
During the third fiscal quarter of 2005, we recorded general and
administrative expenses of $1,114,906. These expenses totaled $178,375 in the
year-ago period.
Interest expense was $281,691 and $10,461 for the three-month period ended
December 31, 2005, and December 31, 2004, respectively.
For the three-month period ended December 31, 2005, we incurred a loss of
$780,155, as compared to a loss of $249,402 for the three-month period ended
December 31, 2004.
Revenue increased 425% during the three months ended December 31, 2005,
compared to the three month period ended December 31, 2004, due to the
acquisitions of DataFuzion, Stat Anesthesia and Plum Creek Outpatient.
Cost of sales increased 338% and general expenses increased 525% versus the
prior year due to higher operating costs associated with DataFuzion and Stat
Anesthesia. This included a 363% increase in depreciation expense and a 26
fold increase in interest expense over the previous year. Net loss increased
212% for the previously stated reason. We expect continued high levels of
depreciation as DataFuzion takes a conservative accounting approach to its
equipment and intangible assets. Interest expense will continue to remain
high until such time as the convertible bondholders exchange their debt for
equity.
Nine months ended December 31, 2005.
------------------------------------
During the nine months ended December 31, 2005, we recorded revenue from
continuing operations of $4,233,046, an increase from revenue from continuing
operations of $722,093 in the nine months ended December 31, 2004.
Cost of sales from continuing operations totaled $2,285,136, versus $431,291
in the nine months ended of 2004.
During the nine months ended December 2005, we recorded general and
administrative expenses of $3,156,581. These expenses totaled $554,622 in the
year-ago nine month period.
Interest expense was $571,982 and $28,118 for the nine-month period ended
December 31, 2005, and December 31, 2004, respectively.
For the nine-month period ended December 31, 2005, we incurred a loss of
$1,725,339, as compared to a loss of $520,149 for the nine-month period ended
December 31, 2004.
CAPITAL RESOURCE REQUIREMENTS
LIQUIDITY
As of December 31, 2005, Omni's working capital deficit was $4,345,158.
Our cash and cash equivalents at December 31, 2005, was $0, and we had a bank
overdraft of $10,128.
We currently lease office space under an operating lease for $6,000 per month,
which terminates July 31, 2006.
Effective March 1, 2005, Omni entered into an Employment Agreement with
Arthur D. Lyons, its chief executive officer and Douglas Davis, President
through March 1, 2010. The agreement provides compensation at an annual base
salary of $180,000, a $1,000 a month auto allowance, fully paid health
insurance and a bonus of 1% of gross revenue, paid quarterly to each.
During December 2003, Omni entered into a Loan Agreement and Security
Agreement with Presidential Financial Corporation allowing Omni to borrow up
to 80% against certain of its accounts receivable or $300,000, whichever is
less. The loan is secured by accounts receivable and other tangible assets of
Omni and accrues interest at prime plus 2%. As of December 31, 2005,
approximately $45,000 was owed on the line of credit.
During August 2005, Omni entered into a Loan Agreement and Security Agreement
with Alamo Capital Corporation allowing Omni to borrow 80% against the value
of certain specified accounts receivable up to $500,000. The loan is secured
by certain accounts receivable and accrues interest at prime plus 2%. As of
December 31, 2005, approximately $72,000 was owed on this line of credit.
On October 26, 2005, the Company entered into a Note Purchase Agreement with
Sigma Opportunity Fund, LLC. Under the note purchase agreement, Sigma
purchased from Omni a Senior Note due April 26, 2006, for $400,000. Interest
is accrued on the note at 5% per annum or 12% per annum in the case of
default. In connection with the purchase, the Company issued warrants to
purchase 15,000 pre-split shares of Omni common stock for each $1,000
principal amount of the note for an aggregate of 6,000,000 pre-split
shares(1,500,000 post-split shares) with an exercise price of $0.001 per
pre-split share ($0.005 per post split share) with a 7-year life.
The proceeds from the note have been discounted for the relative fair value of
the warrants and the discount. All discounts will be amortized over the life
of the notes.
The Company has classified the warrants as derivatives and have recorded them
at their fair value. The fair value of the warrants is estimated on the
commitment date using the Black-Scholes option-pricing model with the
following assumptions: dividend yield of 0%, expected volatility of 250%,
risk-free interest rate of 1.5% and expected life of 7 years.
On November 4, 2005, the Company announced it has executed a 1 for 4 reverse
split of its outstanding common shares, effective November 4, 2005.
Item 3. Controls and Procedures.
--------------------------------
As of the end of the period covered by this Quarterly Report, we carried
out an evaluation, under the supervision and with the participation of our
President and Treasurer, of the effectiveness of our disclosure controls and
procedures. Based on this evaluation, our President and Treasurer concluded
that our disclosure controls and procedures are effectively designed to ensure
that information required to be disclosed or filed by us is recorded,
processed or summarized, within the time periods specified in the rules and
regulations of the Securities and Exchange Commission. It should be noted
that 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. In addition, we
reviewed our internal controls over financial reporting, and there have been
no changes in our internal controls or in other factors in the last fiscal
quarter that has materially affected or is reasonably likely to materially
affect our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
----------------------------
An action has been brought by holders of promissory notes issued by our
Company's majority-owned subsidiary, DataFuzion, Inc. for enforcement of the
notes and possession of substantially all assets of DataFuzion which are
alleged to secure payment of the notes. Plaintiffs filed a motion for
possession of the assets, which was denied by the court. DataFuzion does not
dispute the execution or delivery of the notes and has recorded the notes in
these financial statements. In addition, DataFuzion has some claims against
some of the Plaintiffs which may give rise to offsets or counterclaims against
some(but in all likelihood, not all) of the Plaintiffs. Those claims have not
yet been pled or fully factually explored. The current status of this matter
is that the Plaintiffs have filed a Motion for Summary Judgement, seeking
judgment for the notes balances(without enforcement of their claimed
security interest). DataFuzion has sought and obtained an extension of time
to respond to this Motion, and has initiated settlement discussions with
Plaintiffs. Those settlement negotiations are ongoing.
Three former employees of DataFuzion have also brought an action against
the Company seeking back pay in total of approximately $60,000. DataFuzion
disputes the claims but has offered settlement of approximately $12,000, which
has been rejected. Discussions are ongoing.
Two shareholders of DataFuzion have brought an action against DataFuzion
for royalties due them related to new sales of DataFuzion's "Infobridge"
software. DataFuzion disputes the amounts owed and has entered into
settlement negotiations with the shareholders.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
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On October 26, 2005 the Company entered into a Note Purchase Agreement
with Sigma Opportunity Fund, LLC. Under the note purchase agreement, Sigma
purchased from Omni a Senior Note due April 26, 2006, for $400,000. Interest
is accrued on the note at 5% per annum or 12% per annum in the case of
default. In connection with the purchase, the Company issued warrants to
purchase 15,000 pre-split shares of Omni common stock for each $1,000
principal amount of the note for an aggregate of 6,000,000 pre-split
shares(1,500,000 post-split shares) with an exercise price of $0.001 per
pre-split share ($0.005 per post split share) with a 7-year life.
On January 20, 2006 the Company issued warrants to purchase 250,000 post-
split shares of the Company's common stock to West Park Capital, Inc. The
warrants are exercisable at $0.01 per share and have a 5-year life.
See Part II, Item 5, below, regarding the Company's one for four reverse
split that was effected on November 4, 2005.
We issued these securities to persons who were "accredited investors,"
and each of whom had prior access to all material information about us. We
believe that the offer and sale of these securities was exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to Sections 4(2) and 4(6) thereof, and Rule 506 of
Regulation D of the Securities and Exchange Commission.
Item 3. Defaults Upon Senior Securities.
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None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
--------------------------------------------------------------
None; not applicable.
Item 5. Other Information.
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On November 4, 2005, the Company announced it has executed a 1 for 4
reverse split of its outstanding common shares, effective November 4, 2005.
In connection with the Note Purchase Agreement with Sigma Opportunity
Fund, LLC, the Company was to file a Registration Statement within 90 days of
the closing or suffer a 2% penalty per month of the note amount or $8,000 per
month. The Company has not filed the Registration Statement that was required
by the Note Purchase Agreement as of the date of this Report. See the 8-K
Current Report dated October 26, 2005 and filed with the Securities and
Exchange Commission on November 4, 2005.
Item 6. Exhibits.
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(a) Exhibits.
31.1 302 Certification of Douglas Davis.
31.2 302 Certification of Arthur Lyons.
32 906 Certification.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
OMNI MEDICAL HOLDINGS, INC.
Date: 2/13/06 By: /s/ Arthur D. Lyons
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Arthur D. Lyons, CEO, Secretary
and Chairman of the Board
Date: 2/13/06 By: /s/ Douglas Davis
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Douglas Davis, President,
Treasurer and Director