UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-QSB
(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
o
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
(Exact
name of small business issuer as specified in its charter)
NEVADA
|
|
88-0237223
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
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 xNo
o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes oNo
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 February 21, 2006
|
Transitional
Small Business Disclosure Format (Check one): Yes o No
x
Omni
U.S.A, Inc.
|
Page
|
|
|
|
|
|
|
|
3
|
|
4
|
|
5
|
|
6
|
|
|
|
15
|
|
|
|
23
|
|
|
|
|
|
|
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
|
*
|
|
23
|
|
|
|
24
|
|
|
* |
No
information provided due to inapplicability of the item.
|
Omni
U.S.A., Inc.
|
|
(Unaudited)
|
|
|
December
31,
|
|
|
|
2005
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
Cash
|
|
$
|
54,681
|
|
Note
receivable
|
|
|
216,502
|
|
Accounts
receivable, net
|
|
|
57,948
|
|
Prepaid
expenses and other current assets
|
|
|
748
|
|
Total
current assets
|
|
|
329,879
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
25,883
|
|
|
|
|
|
|
Deposits
|
|
|
7,808
|
|
|
|
$
|
363,570
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Convertible
notes payable in default
|
|
$
|
255,000
|
|
Accrued
interest in default
|
|
|
68,887
|
|
Accrued
interest
|
|
|
373,472
|
|
Accounts
payable
|
|
|
116,380
|
|
Accrued
wages
|
|
|
790,657
|
|
Current
porton of lease obligations
|
|
|
2,437
|
|
Deferred
revenue
|
|
|
91,168
|
|
Total
current liabilities
|
|
|
1,698,001
|
|
|
|
|
|
|
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
|
|
|
(5,886,160
|
)
|
Total
stockholders' deficit
|
|
|
(1,342,976
|
)
|
|
|
$
|
363,570
|
|
See
accompanying summary of accounting policies and notes to unaudited
consolidated financial
statements.
|
Omni
U.S.A., Inc.
|
|
(Unaudited)
|
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
December
31,
|
|
December
31,
|
|
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
99,806
|
|
$
|
127,513
|
|
$
|
221,648
|
|
$
|
223,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
25,594
|
|
|
65,678
|
|
|
51,862
|
|
|
140,191
|
|
Gross
profit
|
|
|
74,212
|
|
|
61,835
|
|
|
169,786
|
|
|
83,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
269,738
|
|
|
242,070
|
|
|
511,889
|
|
|
483,154
|
|
Loss
from operations
|
|
|
(195,526
|
)
|
|
(180,235
|
)
|
|
(342,103
|
)
|
|
(399,417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(64,019
|
)
|
|
(80,618
|
)
|
|
(147,741
|
)
|
|
(161,118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before provision for income taxes
|
|
|
(259,545
|
)
|
|
(260,853
|
)
|
|
(489,844
|
)
|
|
(560,535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(259,545
|
)
|
$
|
(260,853
|
)
|
$
|
(489,844
|
)
|
$
|
(560,535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$
|
(0.05
|
)
|
$
|
(0.06
|
)
|
$
|
(0.10
|
)
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
|
|
Six
months ended
|
|
Six
months ended
|
|
|
|
December
31,
|
|
December
31,
|
|
|
|
2005
|
|
2004
|
|
Operating
activities:
|
|
|
|
|
|
Net
loss
|
|
$
|
(489,844
|
)
|
$
|
(560,535
|
)
|
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
|
|
|
13,803
|
|
|
(7,870
|
)
|
(Increase)
decrease in prepaid expense and other assets
|
|
|
(36
|
)
|
|
288
|
|
Increase
)decrease) in accounts payable
|
|
|
3,722
|
|
|
90,064
|
|
Increase
(decrease) in accrued liabilities
|
|
|
28,778
|
|
|
235,177
|
|
Increase
(decrease) in deferred revenue
|
|
|
28,171
|
|
|
18,067
|
|
Net
cash used by operating activities
|
|
|
(411,792
|
)
|
|
(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
|
|
Stock
offering costs
|
|
|
(31,875
|
)
|
|
|
|
Net
cash provided by financing activities
|
|
|
451,105
|
|
|
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
|
|
$
|
|
|
Conversioion
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 unaudiited
consolidated financial statements.
|
|
|
|
OMNI
U.S.A., INC.
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.
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 $489,844 and
$164,722, respectively, and had an accumulated deficit of $5,886,160 and
$5,396,317, 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.
OMNI
U.S.A., INC.
Notes
to the Unaudited Consolidated Financial Statements
(Continued)
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 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.)
OMNI
U.S.A., INC.
Notes
to the Unaudited Consolidated Financial Statements
(Continued)
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.
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
|
|
$
|
(259,545
|
)
|
$
|
(260,853
|
)
|
$
|
(489,844
|
)
|
$
|
(560,535
|
)
|
Stock-based
employee compensation,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of tax effects
|
|
|
(55,797
|
)
|
|
(260
|
)
|
|
(57,078
|
)
|
|
(1,541
|
)
|
Proforma
net income (loss)
|
|
$
|
(315,342
|
)
|
$
|
(261,113
|
)
|
$
|
(546,922
|
)
|
$
|
(562,076
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted- as reported
|
|
$
|
(0.05
|
)
|
$
|
(0.06
|
)
|
$
|
(0.10
|
)
|
$
|
(0.12
|
)
|
Basic
and diluted- proforma
|
|
$
|
(0.06
|
)
|
$
|
(0.06
|
)
|
$
|
(0.11
|
)
|
$
|
(0.12
|
)
|
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
|
|
|
|
|
|
(Pre-split)
|
|
Options
|
|
|
3,840,000
|
|
|
960,000
|
|
Warrants
|
|
|
54,000
|
|
|
89,600
|
|
Total
|
|
|
3,894,000
|
|
|
1,049,600
|
|
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
included in the total operating expenses for the six months ended December
31,
2005 and 2004, that amounted to $511,889 and $483,154,
respectively.
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 "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.
OMNI
U.S.A., INC.
Notes
to the Unaudited Consolidated Financial Statements
(Continued)
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.
Accounts
receivable at December 31, 2005 and June 30, 2005, consisted of the
following:
|
|
|
|
|
|
|
|
December
31,
|
|
June
30,
|
|
|
|
2005
|
|
2005
|
|
Accounts
receivable - trade
|
|
$
|
62,948
|
|
$
|
76,751
|
|
Allowance
for doubtful accounts
|
|
|
(5,000
|
)
|
|
(5,000
|
)
|
Accounts
receivable, net
|
|
$
|
57,948
|
|
$
|
71,751
|
|
|
|
|
|
|
|
|
|
OMNI
U.S.A., INC.
Notes
to the Unaudited Consolidated Financial Statements
(Continued)
6. |
PROPERTY
AND EQUIPMENT
|
Property
and equipment at December 31, 2005 and June 30, 2005, consisted of the
following:
|
|
|
|
|
|
|
|
December
31,
|
|
June
30,
|
|
|
|
2005
|
|
2005
|
|
Computer
equipment
|
|
$
|
39,976
|
|
$
|
29,022
|
|
Furniture
and fixtures
|
|
|
101,231
|
|
|
98,444
|
|
|
|
|
141,207
|
|
|
127,466
|
|
|
|
|
|
|
|
|
|
Less
accumulated depreciation
|
|
|
(115,324
|
)
|
|
(115,105
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
25,883
|
|
$
|
12,361
|
|
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,
|
|
June
30,
|
|
|
|
2005
|
|
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
the result of a reverse acquisition.
|
|
$
|
130,000
|
|
$
|
1,387,500
|
|
Six
convertible, unsecured, bridge notes payable, due
|
|
|
|
|
|
|
|
various
dates on or before December 2004, bearing
|
|
|
|
|
|
|
|
interest
at 12% per annum. The notes were converted
|
|
|
|
|
|
|
|
into
714,174 shares of the Company's common stock
|
|
|
|
|
|
|
|
on
December 29, 2005 as the result of a reverse
|
|
|
|
|
|
|
|
acquisition.
|
|
|
—
|
|
|
435,472
|
|
Unsecured,
convertible note payable for $125,000,
|
|
|
|
|
|
|
|
which
bears interest at a rate of 12% per annum.
|
|
|
125,000
|
|
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
|
255,000
|
|
|
1,947,972
|
|
Less
current portion
|
|
|
255,000
|
|
|
1,947,972
|
|
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.
OMNI
U.S.A., INC.,
Notes
to the Unaudited Consolidated Financial Statements
(continued)
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.
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.
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 $189,000 for the six months ended December 31, 2005,
from $2,149,000 at June 30, 2005 to $2,338,000 at December 31,
2005.
As
of
December 31, 2005, the Company had net operating loss carry-forwards for federal
and state income tax purposes of approximately $5,085,000 and $2,543,000,
respectively, which expire from 2012 to 2025.
The
following data shows the amounts used in computing earnings per share of common
stock for the period presented:
|
|
For
the Three Months Ended
|
|
For
the Six Months Ended
|
|
|
|
December
31,
|
|
December
31,
|
|
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) available to common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shareholders
(Numerator)
|
|
$
|
(259,545
|
)
|
$
|
(260,853
|
)
|
$
|
(489,844
|
)
|
$
|
(560,535
|
)
|
Weighted
average number of common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
outstanding used in basic income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(loss)
per share during the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Denominator)
|
|
|
5,205,667
|
|
|
4,673,909
|
|
|
4,962,213
|
|
|
4,641,494
|
|
Weighted
average number of common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
outstanding used in diluted income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(loss)
per share during the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Denominator)
|
|
|
5,205,667
|
|
|
4,673,909
|
|
|
4,962,213
|
|
|
4,641,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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.
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
|
|
$
|
99,806
|
|
$
|
127,513
|
|
$
|
(27,707
|
)
|
|
-22
|
%
|
Cost
of goods sold
|
|
|
25,594
|
|
|
65,678
|
|
|
(40,084
|
)
|
|
-61
|
%
|
%
of net sales
|
|
|
26
|
%
|
|
52
|
%
|
|
-26
|
%
|
|
-50
|
%
|
Gross
profit
|
|
|
74,212
|
|
|
61,835
|
|
|
12,377
|
|
|
20
|
%
|
%
of net sales
|
|
|
74
|
%
|
|
48
|
%
|
|
26
|
%
|
|
53
|
%
|
Total
operating expenses
|
|
|
269,738
|
|
|
242,070
|
|
|
27,668
|
|
|
11
|
%
|
Interest
expense
|
|
|
(64,019
|
)
|
|
(80,618
|
)
|
|
(16,599
|
)
|
|
-21
|
%
|
Provision
for (benefit from) taxes
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
NM
|
|
Net
(loss) income
|
|
|
(259,545
|
)
|
|
(260,853
|
)
|
|
1,308
|
|
|
-1
|
%
|
Net
(loss) income per share basic and diluted
|
|
|
(0.05
|
)
|
|
(0.06
|
)
|
|
0.01
|
|
|
-17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
Net
sales
for the quarter ended December 31, 2005 decreased $27,707, 22%, to $99,806
compared to $127,513 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 Goods Sold
Cost
of
goods sold as a percentage of net sales decreased from 52% for the quarter
ended
December 31, 2004 to 22% for the quarter ended December 31, 2005. This decrease
was primarily due to decreased expenses charged to cost of goods sold associated
with validation of software expenses.
Operating
Expenses
Operating
expenses increased by $27,688, an 11% increase, to $269,738 for the quarter
ended December 31, 2005 from $242,070 for the quarter ended December 31, 2004.
The primary reasons for the increase were approximately $24,000 increase in
expenses associated with the hiring of personnel including a chief financial
officer.
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
|
|
$
|
223,928
|
|
$
|
(2,280
|
)
|
|
-1
|
%
|
Cost
of goods sold
|
|
|
51,862
|
|
|
140,191
|
|
|
(88,329
|
)
|
|
-63
|
%
|
%
of net sales
|
|
|
23
|
%
|
|
63
|
%
|
|
-39
|
%
|
|
-63
|
%
|
Gross
profit
|
|
|
169,786
|
|
|
83,737
|
|
|
86,049
|
|
|
103
|
%
|
%
of net sales
|
|
|
77
|
%
|
|
37
|
%
|
|
39
|
%
|
|
105
|
%
|
Total
operating expenses
|
|
|
511,889
|
|
|
483,154
|
|
|
28,735
|
|
|
6
|
%
|
Interest
expense
|
|
|
(147,741
|
)
|
|
(161,118
|
)
|
|
(13,377
|
)
|
|
-8
|
%
|
Provision
for (benefit from) taxes
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
NM
|
|
Net
(loss) income
|
|
|
(489,844
|
)
|
|
(560,535
|
)
|
|
70,691
|
|
|
-13
|
%
|
Net
(loss) income per share basic and diluted
|
|
|
(0.10
|
)
|
|
(0.12
|
)
|
|
0.02
|
|
|
-17
|
%
|
Net
Sales
Net
sales
for the six months ended December 31, 2005 decreased $2,280, 1%, to $221,648
compared to $223,928 for the six months ended December 31, 2004.
Cost
of Goods Sold
Cost
of
goods sold as a percentage of net sales decreased from 63% for the six months
ended December 31, 2004 to 22% for the six months ended December 31, 2005.
This
decrease was primarily due to decreased expenses charged to cost of goods sold
associated with validation of software expenses.
Operating
Expenses
Operating
expenses increased by $28,735, a 6% increase, to $511,889 for the six months
ended December 31, 2005 from $483,154 for the six months ended December 31,
2004. The primary reasons for the increase were approximately $24,000 increase
in expenses associated with the hiring of personnel including a chief financial
officer.
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
|
|
$
|
329,879
|
|
$
|
104,967
|
|
$
|
224,912
|
|
Current
liabilities
|
|
|
1,698,001
|
|
|
4,326,256
|
|
|
(2,628,255
|
)
|
Working
capital (deficit)
|
|
$
|
(1,368,122
|
)
|
$
|
(4,221,289
|
)
|
$
|
2,853,167
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
$
|
8,545
|
|
$
|
9,836
|
|
$
|
(1,291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity (deficit)
|
|
$
|
(1,342,976
|
)
|
$
|
(4,210,956
|
)
|
$
|
(2,867,980
|
)
|
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
|
|
$
|
(411,792
|
)
|
$
|
(223,928
|
)
|
$
|
(187,864
|
)
|
Investing
activities
|
|
$
|
(17,136
|
)
|
$
|
—
|
|
$
|
(17,136
|
)
|
Financing
activities
|
|
$
|
451,105
|
|
$
|
235,700
|
|
$
|
215,405
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Select Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
12/31/05
|
|
6/30/05
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalients
|
|
$
|
54,681
|
|
$
|
32,504
|
|
$
|
22,177
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
and accounts receivable
|
|
$
|
274,450
|
|
$
|
71,751
|
|
$
|
202,699
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
notes payable and interest
|
|
$
|
697,359
|
|
$
|
3,212,708
|
|
$
|
(2,515,349
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
907,037
|
|
$
|
1,048,387
|
|
$
|
(141,350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
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 $1,368,122 compared to $4,221,289 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 $489,844 and
$164,722, respectively, and had an accumulated deficit of $5,886,160 and
$5,396,317, 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.
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 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 and independent sales representatives,
and
to pursue utilizing systems integrators, value added resellers (“VARs”), and
software retailers. There can be no assurances that these distribution channels
will be effective sales channels.
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 or with laboratory
computer systems 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 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.
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:
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·
|
We
may not be able to raise enough money to develop our services and
bring
them to market;
|
|
·
|
Our
projected capital needs may be inaccurate, and we may not have enough
money to develop our services and bring them to
market;
|
|
·
|
We
may experience unanticipated development or marketing expenses, which
may
make it more difficult to develop our services and bring them to
market;
|
|
·
|
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.
|
|
·
|
If
we are unsuccessful in our development efforts, we are not likely
to ever
become profitable.
|
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 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.
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.
(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:
|
|
·
|
Preparation
of periodic income tax provisions;
|
|
·
|
Review
and recording of equity transactions, including warrant and option
valuations;
|
|
·
|
Certain
end of period financial reconciliations;
and
|
|
·
|
Financial
statement preparation and
disclosures.
|
Exhibit
No.
|
|
Title
|
|
|
|
|
302
Certification of John R. Dunn II, Chief Executive Officer
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|
|
|
|
302
Certification of Lowell W. Giffhorn, Chief Financial
Officer
|
|
|
|
|
906
Certification of John R. Dunn II, Chief Executive Officer
|
|
|
32.2
|
|
906
Certification of Lowell W. Giffhorn, Chief Financial
Officer
|
|
|
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: February
21, 2006 |
By: |
/s/ JOHN
R.
DUNN II |
|
|
|
Name:
John R. Dunn II
Title:
Chief Executive Officer
(Principal Executive and duly authorized
to sign on behalf of the
Registrant)
|