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, 2003
[ ] 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. 0-26177
OMNI MEDICAL HOLDINGS, INC.
(Name of Small Business Issuer in its Charter)
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UTAH 87-0425275
---- ----------
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
1107 Mt. Rushmore Road, Suite 2
Rapid City, South Dakota 57701
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(Address of Principal Executive Offices)
Issuer's Telephone Number: (605) 718-0380
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
--- --- --- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Not applicable.
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date:
February 13, 2004
14,349,958
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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.
Unaudited Consolidated Balance Sheet
December 31,
2003
ASSETS
Current assets:
Cash and cash equivalents $ 987
Accounts receivable, net, including unbilled amounts
of approximately $191,000 355,820
Prepaid expenses 2,421
-----------
Total current assets 359,228
-----------
Property and equipment, net 291,606
Deferred financing costs 25,000
Goodwill 36,000
Intangible assets 572,227
-----------
$ 1,284,061
===========
LIABILITIES
Current liabilities:
Trade accounts payable $ 177,089
Accrued expenses 187,106
Notes payable, current portion 582,642
-----------
Total current liabilities 946,837
Notes payable, net of current portion 269,596
-----------
Total liabilities 1,216,433
-----------
Minority interest -
SHAREHOLDERS' EQUITY
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; 14,082,841 issued and outstanding 14,083
Common stock to be issued:
Under reorganization agreement, 824,880 shares (Note 1) 825
Under private placement agreements, 235,000 shares (Note 5) 235
Capital in excess of par value 1,744,491
Deferred compensation expense (10,708)
Accumulated deficit (1,681,298)
-----------
Total stockholders' equity 67,628
-----------
$ 1,284,061
===========
See notes to consolidated financial statements.
2
Omni Medical Holdings, Inc.
Unaudited Consolidated Statements of Operations
Three Months Ended Nine Months Ended
December 31, December 31,
2003 2002 2003 2002
Revenue $ 363,476 $ 28,485 $ 743,315 $ 71,512
Cost of sales 242,119 23,049 446,593 40,668
---------- --------- --------- --------
Gross operating profit 121,357 5,436 296,722 30,844
General and administrative expenses 296,185 58,768 609,134 121,788
---------- --------- --------- --------
Loss from operations (174,828) (53,332) (312,412) (90,944)
Other income (expense):
Interest income - 17,377 260 17,603
Interest expense (8,750) (4,740) (26,728) (6,904)
---------- --------- --------- --------
Total other income (expense) (8,750) 12,637 (26,468) 10,699
---------- --------- --------- --------
Loss from continuing operations
before minority interest (183,578) (40,695) (338,880) (80,245)
Minority interest 20,482 - 23,884 -
---------- --------- --------- --------
Loss from continuing operations (163,096) (40,695) (314,996) (80,245)
Loss from discontinued operations - (129,373) (33,736) (174,140)
---------- --------- --------- --------
Net loss $ (163,096) $(170,068)$(348,732)$(254,385)
========== ========= ========= ========
Loss per share basic and diluted:
Continuing operations $ (0.01) $ * $ (0.02)$ *
Discontinued operations - (0.01) * (0.01)
---------- --------- --------- --------
$ (0.01) $ (0.01)$ (0.02) $ (0.01)
========== ========= ========= ========
Weighted average number of common
shares outstanding 14,984,949 20,589,893 14,619,022 20,013,604
========== ========== ========== ==========
* Less than $0.01 per share.
See notes to consolidated financial statements.
3
Omni Medical Holdings, Inc.
Unaudited Consolidated Statement of Shareholders' Equity
Shares Additional
issued and to Amount Amount Paid-in
be issued Issued To be Issued Capital
Balances, April 1, 2003 20,620,247 $ 20,620 $ 0 $ 1,564,299
Disposition of subsidiary
(unaudited) (7,795,520) (7,795) 31,721
Sale of common stock pursuant
to private placements (unaudited) 92,216 92 44,908
Earned compensation expense
(unaudited) - - - -
Repurchase of dissenter's common
stock (unaudited) (9,222) (9) - (111)
-----------
12,907,721
Acquisition of Piezo on
September 5, 2003 (unaudited) 2,000,000 1,175 825 (17,091)
Common stock to be issued
pursuant to private placements
(unaudited) 200,000 200 99,800
Common stock to be issued
pursuant to private placements
(unaudited) 10,000 10 5,990
Common stock to be issued
pursuant to private placements
(unaudited) 25,000 25 14,975
Net loss (unaudited) - - - -
----------- ------- ----------- -----------
Balances, December 31, 2003
(unaudited) 15,142,721 $14,083 $ 1,060 $ 1,744,491
=========== ======= =========== ===========
[CONTINUED]
Omni Medical Holdings, Inc.
Unaudited Consolidated Statement of Shareholders' Equity
Deferred Advance
compensation Accumulated receivable
expense deficit shareholder Total
Balances, April 1, 2003 $(41,111) $(1,332,566) $(24,708) $ 186,534
Disposition of subsidiary
(unaudited) 24,708 48,634
Sale of common stock pursuant
to private placements (unaudited) 45,000
Earned compensation expense
(unaudited) 39,196 39,196
Repurchase of dissenter's common
stock (120)
Acquisition of Piezo on
September 5, 2003 (unaudited) (8,793) (23,884)
Common stock to be issued
pursuant to private placements
(unaudited) 100,000
Common stock to be issued
pursuant to private placements
(unaudited) 6,000
Common stock to be issued
pursuant to private placements
(unaudited) 15,000
Net loss (unaudited) (348,732) (348,732)
------- ----------- ---------- --------
Balances, December 31, 2003
(unaudited) $(10,708) $(1,681,298) $ 67,628
======= =========== ========== ========
See notes to consolidated financial statements.
4
Omni Medical Holdings, Inc.
Unaudited Consolidated Statements of Cash Flows
Nine Months Ended
December 31,
----------------
2003 2002
---- ----
Loss from continuing operations $ (314,996) $ (80,245)
Adjustments to reconcile net loss to net cash
(used in) provided by continuing operations:
Stock-based compensation expense 39,196 72,500
Depreciation and amortization 69,055 19,642
Minority interest (23,884) -
Changes in operating assets and liabilities, net
of effects of business acquisitions and
disposition:
Accounts receivable (172,178) 2,747
Prepaid expenses (2,421) -
Accounts payable 129,990 (14,273)
Accrued expenses 150,666 507
---------- ----------
Net cash (used in) provided by
continuing operations (124,572) 878
---------- ----------
Net cash used in discontinued operations (32,905) (208,505)
---------- ----------
Net cash used in operating activities (157,477) (207,627)
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment (16,387) (48,417)
Payment for disposition of subsidiary, net (28,737) -
Payment for purchase of businesses (250,000) (65,000)
---------- ---------
Net cash used in investing activities (295,124) (113,417)
---------- ---------
Cash flows from financing activities:
Repurchases of dissenter's common stock (120) -
Deferred financing costs (25,000) -
Payments of notes payable (20,633) (18,460)
Proceeds from issuance of debt 75,378 125,000
Proceeds from issuance of common stock 166,000 545,000
---------- ---------
Net cash provided by financing activities 195,625 651,540
---------- ---------
(Decrease) increase in cash and cash
equivalents (256,976) 330,496
Cash and cash equivalents:
Beginning of period 257,963 9,344
---------- ---------
End of period $ 987 $ 339,840
========== =========
Supplemental disclosure of cash flow information:
Cash paid for interest in continuing
operations $ 19,802 $ 6,904
========== =========
Cash paid for interest in discontinued
operations $ 1,402 $ 23,029
========== =========
See notes to consolidated financial statements.
5
Supplemental disclosure of non-cash investing and
financing activities:
Conversion of debt to equity $ 45,000
=========
Business acquisitions:
Fair value of assets acquired $ 790,000 $ 184,761
Issuance of debt/assumption of liabilities (540,000) (89,761)
Common stock issued at acquisition - (30,000)
---------- ---------
Cash paid $ 250,000 $ 65,000
========== =========
See notes to consolidated financial statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business, organization and interim financial statements:
Business:
Omni Medical Holdings, Inc. ("Omni"), a Utah corporation, provides medical
billing and transcription services to medical practitioners in Alabama,
Mississippi, South Dakota and Kentucky.
Organization:
The Company was previously organized as Piezo Instruments, Inc. ("Piezo"), a
Utah corporation. Effective September 5, 2003, Piezo and Omni executed an
Agreement and Plan of Reorganization (the "Reorganization Agreement"), whereby
Piezo agreed to acquire 100% of the issued and outstanding shares of common
stock of Omni in exchange for up to 16,000,000 newly issued shares of common
stock of Piezo, (of which 12,082,841 have been issued as of December 31,
2003 and 824,880 shares are to be issued as of December 31, 2003 for a total
of 12,907,721 shares,) or approximately 94% of the post-Reorganization
Agreement outstanding securities of Piezo. The transaction was accounted for
as a reverse acquisition of Piezo by Omni. Shares of common stock authorized
and issued have been retroactively restated to present the capital structure
of Piezo. Concurrent with the merger, Piezo changed its name to Omni Medical
Holdings, Inc.
At the closing, and excluding the shares exchanged for Omni, the outstanding
common stock of Piezo totaled 2,000,000 shares, after taking into account
a 1 for 14.5 reverse split and the following transactions: 1. In consideration
of the closing of the Reorganization Agreement, certain principal stockholders
of Piezo (i) delivered 1,466,379 post-split shares of Piezo for cancellation,
which included 225,000 post-split shares of common stock underlying an option
granted to one of the canceling stockholders; and (ii) waived any registration
rights that had been granted to them or were applicable to any of the
cancelled shares. In exchange for the cancellation of these shares and the
waiver of any registration rights, Piezo issued an aggregate of 500,000 post-
split newly issued shares of common stock to the canceling stockholders. 2.
Piezo issued 293,104 shares of common stock to certain principal stockholders
of Piezo in exchange for services to be rendered under a six month consulting
agreement, resulting in consulting expense of approximately $8,800, of which
approximately $2,900 is deferred at December 31, 2003.
As of October 31, 2003, the deadline for completing the share exchange
transaction with Piezo, approximately 81% of Omni's outstanding shares had
been tendered to the Company in accordance with the instructions for
exchanging shares (12,082,841 shares have been issued as of December 31, 2003
and an additional 824,880 shares are to be issued as of December 31, 2003).
The other 19% of Omni's outstanding shares had taken no action whatsoever and
continue to own a minority interest in the Company's subsidiary. Shareholders
of approximately 9,222 shares exercised their rights to dissent, and the
Company repurchased the
shares for $120.
Interim financial statements:
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB 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. There has not been any
change in the significant accounting policies of Omni Medical Holdings, Inc.
for the periods presented.
7
1. Business, organization and interim financial statements (continued):
Interim financial statements (continued):
Certain information and note disclosures normally included in the Company's
annual financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted. These consolidated financial statements should be read in conjunction
with a reading of the Omni consolidated financial statements and notes thereto
included in the Company's Form 8-K/A filed with the Securities and Exchange
Commission ("SEC") in November 2003 as well as the 2002 Piezo annual report
filed on Form 10-KSB with the SEC.
In the opinion of Management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
The results for these interim periods are not necessarily indicative of
results for the entire year.
2. Business acquisitions:
Effective December 1, 2003, Omni, through its wholly-owned subsidiary, Omni
Medical Services, Inc., ("OMS"), completed an asset purchase agreement with
McCoy Business Services, Inc. ("McCoy"), a corporation based in Kentucky and a
provider of medical transcription services. The aggregate purchase price was
$360,000, including $120,000 payable at closing, (of which $100,000 was paid
as of December 31, 2003) and $240,000 payable in eight equal quarterly
installments beginning on February 29, 2004. The quarterly payments are
subject to an earn-out provision to be calculated based on a multiple of the
amount by which revenues for each quarter are greater or less than a baseline
amount. The adjustments will be recorded as an adjustment to the acquisition
cost of McCoy.
The following table summarizes the estimated fair values of the assets
acquired as of December 1, 2003, the date of acquisition. The allocation of
the purchase price is subject to refinement.
Furniture and equipment $ 60,000
Intangible asset customer list 140,000
Intangible asset covenant not to compete 100,000
Intangible asset - tradename 60,000
------------
Net assets acquired $ 360,000
============
A supplemental agreement was signed concurrent with the McCoy asset purchase
agreement whereby OMS agreed to purchase additional assets that were not
included under the original asset purchase agreement for $16,243, payable in
eight equal quarterly installments beginning February 29, 2004.
Effective May 30, 2003, Omni, through OMS, completed an asset purchase
agreement with Medical Billing Management, Inc. ("MBM"), a corporation based
in Mississippi and a provider of medical billing and collection services to
medical practitioners. The aggregate purchase price was $450,000, including
$150,000 paid at closing, $75,000 payable on November 30, 2003 (paid in
February 2004) and $225,000 payable on May 31, 2004. The May 31, 2004 payable
is subject to an adjustment which is to be calculated based on a multiple of
the amount by which revenues for the year ending May 31, 2004 are greater or
less than a baseline amount. The adjustment will be recorded as an adjustment
to the acquisition cost of MBM.
The following table summarizes the estimated fair values of the assets
acquired as of May 30, 2003, the date of acquisition. The aggregate purchase
price was discounted by $20,000 to impute interest on the non-interest bearing
debt payable on November 30, 2003 and May 31, 2004. This discount has
resulted in a $20,000 decrease to the amount included in intangible assets
from the Company's initial allocation of the purchase price that was shown on
the Company's unaudited financial statements for the six month period ended
September 30, 2003. The allocation of the purchase price is subject to
further refinement.
8
2. Business acquisitions (continued):
Accounts receivable, net $ 62,000
Furniture and equipment 78,000
Intangible asset - customer list 290,000
-----------
Net assets acquired $ 430,000
===========
Effective July 10, 2002, Omni entered into an asset purchase agreement with
A&V Digital Transcription Services ("A&V"), a general partnership and provider
of medical transcription services based in Alabama. On September 4, 2002,
Omni formed Omni Medical Services, Inc., (formerly Mastel Precision Health
Information Services, Inc. and a wholly owned subsidiary of Omni) to operate
the transcription services business acquired from A&V.
The aggregate purchase price was $95,000, including $65,000 in cash,
assumption of liabilities of $90,000 and common stock valued at $30,000.
The following table summarizes the estimated fair values of the assets
acquired and the liabilities assumed at July 10, 2002, the date of
acquisition.
Current assets $ 8,000
Property, plant and equipment 109,000
Intangible asset - customer list 32,000
Goodwill 36,000
----------
Total assets acquired 185,000
----------
Current liabilities (19,000)
Long-term debt (71,000)
----------
Total liabilities assumed (90,000)
----------
Net assets acquired $ 95,000
==========
The McCoy, MBM and A&V acquisitions were accounted for as purchases and their
results of operations are included in the Company's financial statements from
the dates of acquisition. Goodwill arising on the acquisition of A&V is
expected to be fully deductible for tax purposes. Intangible assets (customer
lists and tradenames) acquired from McCoy, MBM and A&V are expected to be
amortized over 5 years and the covenant not to compete acquired from McCoy is
to be amortized over 2 years.
The following unaudited proforma financial information presents results as if
the MBM and McCoy acquisitions had occurred at the beginning of the three and
nine month periods ended December 31, 2003 and 2002 (the impact of the A&V
acquisition on 2002 unaudited proforma operating results was not significant).
9
Three months ended
December 31,
2003 2002
Revenues $ 482,000 $ 527,000
Net loss $ 201,000 $ 81,000
Basic and diluted loss per share $ 0.01 $ *
* Less than $0.01 per share
Nine months ended
December 31,
2003 2002
Revenues $ 1,221,000 $ 1,733,000
Net loss $ 510,000 $ 101,000
Basic and diluted loss per share $ (0.03) $ (0.01)
3. Discontinued operations:
Through May 2, 2003, Omni also produced handheld surgical instruments used by
ophthalmic surgeons in refractive, corneal and LASIK surgeries and was also a
developer of technology to ophthalmic surgeons, specifically within the domain
of anterior segment cataract extraction, and foldable intraocular lens
placement as well as keratorefractive procedures such as LASIK. Omni operated
its surgical instruments business through its wholly-owned subsidiary, Mastel
Precision Surgical Instruments, Inc ("MPSI") out of its facility in Rapid
City, South Dakota.
Effective May 2003, Omni entered into an agreement with one of its officers
and shareholders whereby Omni agreed to exchange 100% of the common stock of
MPSI and $36,000 cash for all shares of common stock of Omni owned
individually or jointly by the officer and his wife. As of April 30, 2003,
the assets of MPSI had a carrying value of approximately $442,000 (primarily
accounts receivable of approximately $53,000, inventories of approximately
$387,000 and property and equipment of approximately $30,000) and MPSI's
obligations and liabilities had a carrying value of approximately $527,000
(primarily accounts payable of approximately $226,000 and debt of
approximately $286,000). Due to the related party nature of the transaction,
no gain was recognized and shareholders equity was increased by $49,000. The
results of operations from MPSI have been retroactively restated as
discontinued operations.
4. Managements plans:
Omni financial statements for the years ended March 31, 2003 and 2002 (not
included herein) and for the nine months ended December 31, 2003 and 2002 show
that Omni has incurred net losses of $515,090, $186,720, $348,732 and
$254,385, respectively, and has a working capital deficiency of $587,609, as
of December 31, 2003. Management's plans to address concerns raised by this
issue include:
a. The disposition of MPSI will allow the Company to concentrate on its
medical billing and transcription operations, which management believes
can be operated more profitably than MPSI. MPSI's operating losses for
the years ended March 31, 2003 and 2002 were approximately $325,000 and
$122,000, respectively.
b. Management expects that cash flows will increase as a result of the
Company's disposition of MPSI and it's acquisition of transcription
and medical billing businesses.
10
4. Managements plans (continued):
c. In early June 2003, the Company retained the services of Windstone
Capital, an investment banking firm in Phoenix, Arizona to raise capital
for additional acquisitions. A private placement offering began in early
November and management believes the firm will be successful in raising
$800,000, the maximum amount of the offering.
d. During December 2003, Omni entered into a loan agreement and security
agreement with Presidential Financial Corporation allowing the Company to
borrow up to 80% of its accounts receivable or $300,000 whichever is less.
The loan is secured by accounts receivable and other tangible assets of
OMS and accrues interest at prime plus 2%. As of December 31, 2003, no
amounts had been borrowed on the line of credit. As of February 10, 2004
the Company had borrowed $85,000 on the line of credit.
e. A private securities offering was initiated on February 15, 2004 and as of
February 20, 2004 the Company has raised net proceeds of $115,500 from the
sale of 362,350 common shares. It is anticipated the Company will raise
additional funds under this offering.
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.
5. COMMON STOCK PRIVATE PLACEMENTS
During the quarter ended December 31, 2003, the Company sold 35,000 shares of
common stock at $0.60 per share and 200,000 shares at $0.50 per share,
respectively. The sale of 200,000 shares at $0.50 per share was with the wife
of the Company's chief executive officer and president.
6. COMMITMENTS:
In 2003, the Company retained the services of an investment banking firm to
raise capital for future acquisitions. Through December 31, 2003 the Company
has paid $25,000 in deferred financing costs which will be offset against
future equity proceeds.
In conjunction with the MBM acquisition, Omni entered into an employment
agreement with one of MBM's former owners, guaranteeing employment with Omni
through May 30, 2004 at an annual salary of $50,000 plus a performance based
bonus.
In conjunction with the McCoy acquisition, Omni entered into an employment
agreement with one of McCoy's former owners, guaranteeing employment with Omni
through November 30, 2005 at an annual salary of $30,000 plus performance
based bonuses and benefits.
Omni has signed a letter of intent to acquire a medical transcription business
based in Iowa. The purchase price is $225,000, of which $150,000 is to be
paid at closing and the balance would be subject to an earn out provision
over one year.
Omni entered into an employment agreement with its chief executive officer and
president commencing October 1, 2003 through December 31, 2008. The agreement
provides compensation at an annual base salary of $150,000 and increases to
$180,000 annually the first month Omni's gross revenue exceeds $450,000 in a
month. The agreement also provides for a $75,000 bonus to be paid as of
February 1, 2004 and awards stock options based upon achieving revenue
targets. As of February 23, 2004, no amounts have been paid and no stock
options have been earned under the agreement.
7. Contingencies:
On October 1, 2003, certain minority shareholders of Omni notified the
Company that they believe that Omni has taken actions that have diluted their
interests. These minority shareholders have demanded the return of certain
assets or a substantial financial settlement to be reached within 15 days.
These minority shareholders have notified the Company of their intentions to
make a filing with the American Arbitration Association pursuant to the
Agreement for the Exchange of Common Stock dated April 15, 2002 if the matter
is not resolved within the 15 day timeframe. No such filing has been made and
there have been no stated monetary damages claimed. Management believes that
the issue raised by these minority shareholders is without merit and
management intends to vigorously defend any action, if filed. However, it is
too early to determine the ultimate outcome of the matter.
11
Item 2. Management's Discussion and Analysis
"SAFE HARBOR" STATEMENT UNDER THE UNITED STATES PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995.
This Form 10-QSB 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.
RECENT EVENTS
Omni Medical Holdings is in the business of providing medical services to
doctors, clinics and hospitals. Currently the Company provides medical
transcription, billing and collection services. The Company is actively
acquiring companies in these industries as well as other medical services
related areas.
Discussion of Corporate Restructuring
The past nine months have been ones of great change for the Company. Effective
May 2003, the Company entered into an Agreement with one of its officers and
shareholders whereby the Company agreed to exchange 100% of the common stock
of its wholly owned subsidiary, Mastel Precision Surgical Insturments ("MPSI")
and $36,000 cash for all shares of common stock of the Company owned
individually or jointly by the officer and his wife, a total of 7,795,520
shares. As of April 30, 2003, the assets of MPSI had a carrying value of
$442,000, and MPSI's obligations and liabilities had a carrying value of
$527,000. Due to the related party nature of the transaction, no gain was
recognized and shareholders' equity was increased by $49,000. The results of
operations from MPSI have been retroactively restated as discontinued
operations.
Effective May 30, 2003, the Company completed an Asset Purchase Agreement with
Medical Billings Management Inc. ("MBM"), a corporation based in Mississippi.
The aggregate purchase price was $450,000, including $150,000
paid at closing, a working capital loan of $75,000 payable on November 30,
2003 (paid in February 2004), and $225,000 payable on May 31, 2004 (subject to
an adjustment based on actual revenues through May 2004).
In early June, 2003, the Company retained the services of Windstone Capital,
an investment banking firm in Phoenix, Arizona, to raise capital for
additional acquisitions. A private placement offering began in early November,
and management believes the firm will be successful in raising $800,000, the
maximum amount of the offering.
In early July, 2003, Mastel Precision, Inc. changed its name to Omni Medical
Holdings, Inc., a Nevada corporation. On September 3, 2003, the name was again
changed, this time to Omni Medical of Nevada. This was done in order to
facilitate the impending merger with Piezo Instruments, Inc.
11
Effective September 5, 2003, Piezo Instruments Inc. ("Piezo") (OTCBB: PEZO)
announced the closing of the acquisition of a majority of the outstanding
securities of Omni Medical Holdings Inc., and then changed its name to "Omni
Medical of Nevada Inc." ("Omni"). Terms of the Agreement and
Plan of Reorganization (the "Reorganization Agreement") provided for Piezo to
issue up to 16,000,000 post-split shares of its common stock to the
shareholders of Omni for all of the outstanding common stock of Omni.
At the closing, and excluding the shares exchanged for Omni, the outstanding
common stock of Piezo amounted to 2,000,000 shares, after taking into account
a 1 for 14.5 reverse split and the following transactions: 1. In consideration
of the closing of the Reorganization Agreement, certain principal stockholders
of Piezo (i) delivered 1,466,379 post-split shares of Piezo for cancellation,
which included 225,000 post-split shares of common stock underlying an option
granted to one of the canceling stockholders; and (ii) waived any registration
rights that had been granted to them or were applicable to any of the
cancelled shares. In exchange for the cancellation of these shares and the
waiver of any registration rights, Piezo issued an aggregate of 500,000 post-
split newly issued shares of common stock to the canceling stockholders. 2.
Piezo issued 293,104 shares of common stock to certain principal stockholders
of Piezo in exchange for services to be rendered under a six month consulting
agreement, resulting in consulting expense of approximately $8,800, of which
approximately $2,900 is deferred at December 31, 2003.
As of October 31, 2003, the deadline for completing the share exchange
transaction with Piezo, 81% of Omni's outstanding shares had been tendered to
the Company in accordance with the instructions for exchanging shares
(12,082,841 shares were issued through December 31, 2003 and an additional
824,880 shares are to be issued as of December 31, 2003). The other 19% of
Omni's outstanding shares had taken no action whatsoever and continue to own a
minority interest in the Company's subsidiary. Shareholders of approximately
9,222 shares exercised their rights to dissent, and the Company repurchased
the shares for $120.
Omni Medical also announced the addition of Lance Weaver to the Board of
Directors effective October 1, 2003. Mr. Weaver is a stockholder in the
company.
Effective December 1, 2003, Omni completed an Asset Purchase Agreement with
McCoy Business Services, Inc. ("McCoy"), a corporation based in Kentucky and a
provider of medical transcription services. The aggregate purchase price was
$360,000 including $120,000 payable at closing, of which $100,000 was paid as
of December 31, 2003, and $240,000 payable in eight equal quarterly
installments beginning on February 29, 2004. The quarterly payments are
subject to an earn-out provision to be calculated based on a multiple of the
amount by which revenues for each quarter are greater or less than a baseline
amount.
Discussion of Impending Acquisition
Omni Medical Holdings, Inc. announced it had signed a Letter of Intent to
acquire a medical transcription company based in Iowa with a nine year history
in providing transcription services.
This company will be merged with existing activities and the Kentucky
transcription company resulting in greater efficiencies and economies of
scale. This acquisition will increase Omni's presence to five states and
increase revenue to nearly $3 million annually.
12
The Iowa company has a total purchase price of $225,000. At closing, $150,000
is to be paid with the balance subject to a one year earn out provision and
the closing will be contingent upon raising additional equity capital.
CAPITAL RESOURCE REQUIREMENTS
LIQUIDITY
As of December 31, 2003, the Company's working capital deficit was $588,000,
compared to a surplus of $113,000 as of March 31, 2003. The Company's cash
balance decreased from $258,000 at March 31, 2003 to $1,000 at December 31,
2003. The decrease of $257,000 was primarily the result of utilizing $125,000
of cash to fund continuing operating activities for the first nine months of
the year, cash used to fund discontinued operations of $33,000, cash paid for
the acquisition of MBM and McCoy of $150,000 and $100,000 respectively, net
cash paid to the shareholders of MPSI of $29,000 and $25,000 of deferred
financing costs, offset by $166,000 received from the issuance of common stock
and stock subscriptions and $75,000 of proceeds from the working capital loan
from MBM.
The Company currently has commitments under an Employment Agreement with one
of the former owners of MBM through May 30, 2004, guaranteeing annual
compensation of $50,000 plus a performance based bonus, in addition to an
Employment Agreement with one of the former owners of McCoy through November
30, 2005, guaranteeing annual compensation of $30,000 plus a performance based
bonus. The Company currently leases office space under an operating lease for
$6,000 per month, which terminates July 31, 2006.
Effective October 1, 2003, Omni entered into an Employment Agreement with its
chief executive officer and president through December 31, 2008. The
agreement provides compensation at an annual base salary of $150,000 and
increases to $180,000 annually the first month Omni's gross revenue exceeds
$450,000 in a month. The Agreement also provides for a $75,000 bonus to be
paid as of February 1, 2004, and awards stock options based upon revenue
targets. As of February 23, 2004, no amounts have been paid and no stock
options have been earned under the Agreement.
To support the above activities and commitments, the Company will need to seek
additional financing including equity financing. With the assistance of
Windstone Capital, the Company is currently involved in a private placement of
securities. The offering calls for 12% cumulative convertible preferred stock
with warrants, with a fixed conversion price. The maximum offering amount is
$800,000; however, if all warrants are exercised it would eventually total
$3,000,000. A private securities offering was also initiated on February 15,
2004, and has raised $115,500 in net proceeds from the sale of 362,350 shares
of common stock as of February 20, 2004. It is anticipated that the Company
will raise additional funds from this offering.
During December 2003, Omni entered into a Loan Agreement and Security
Agreement with Presidential Financial Corporation allowing the Company to
borrow up to 80% 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, 2003 no amounts had
been borrowed on the line of credit. As of February 10, 2004, the Company had
borrowed $85,000 on the line of credit.
RESULTS OF OPERATIONS
For the nine-month period ended December 31, 2003, the Company had revenues
from continuing operations totaling $743,000 compared to $72,000 for the
nine-month period ended December 31, 2002. During the nine month period ended
December 31, 2002, revenues represented less than six months of transcription
services due to the acquisition of A&V becoming effective in July 2002. During
the nine-month period ended December 31, 2003, A&V's revenues of $98,000 were
for a full nine months, while the acquisition of MBM effective May 30, 2003,
accounted for
13
seven months of medical billings revenue of $598,000 and the remaining revenue
was derived from one month of transcription revenue due to the McCoy
acquisition. During the three-month period ended December 31, 2003, the
Company had revenues from continuing operations totaling $363,000, comprised
of revenues from medical billings of $293,000 and revenues from transcription
services of $70,000. The Company's revenues from continuing operations during
the comparable period in 2002 were $28,000, all derived from transcription
services.
Cost of sales for the nine-month period ended December 31, 2003, were $447,000
compared to $41,000 during the same period in the prior year. Cost of sales
increased during the nine-months ended December 31, 2003, due to having nine
months of A&V transcription costs ($48,000) and seven months of medical
billings costs ($351,000) and one month of costs due to the McCoy acquisition,
while the same period in 2002 had only five full month's of transcription
costs due to the July acquisition of A&V. For the three-months ended
September 30, 2003 and 2002, cost of sales were $242,000 and $23,000
respectively. Costs of sales during the three-month period ended December 31,
2003 were higher compared to the same period in the prior year due to the
acquisitions in the current year.
14
General and administrative expenses for the nine months ended December 31,
2003 were $609,000 compared to $122,000 for the same period in 2002. Salaries
and benefits were $276,000 and $32,000 for the nine-month periods ended
December 31, 2003 and 2002 respectively. The increase in salaries and
benefits is primarily due to the increased number of employees resulting from
the acquisitions of A&V, MBM and McCoy, recognition of deferred compensation
expense for an employee who left effective September 30, 2003, and an accrual
for the chief executive officer's salary and bonus under the terms of his
Employment Agreement effective October 1, 2003. Professional fees increased
from $27,000 during the nine-months ended December 31, 2002, to $134,000 for
the same period in 2003, primarily due to legal and accounting fees incurred
due to the acquisition of MBM, the Piezo transaction and the accounting and
audit costs for the fiscal year ended March 31, 2003. Lease and rental costs
increased from $7,000 for the nine-month period ended December 31, 2002, to
$57,000 for the comparable period in 2003, due to the fact the Company is
doing business in four states and incurring rent and equipment lease costs to
support the increased workforce. For the nine-months ended December 31,
2003, the Company recorded amortization of $46,000 for the customer lists
acquired from the A&V and MBM acquisitions and the intangible asset acquired
from the McCoy acquisition, while $3,000 in amortization expense was recorded
for the same period in 2002.
General and administrative expenses for the three-month period ended December
31, 2003, were $296,000 compared to $59,000 for the comparable period in 2002.
Salaries and benefits were higher for the three month period ended September
30, 2003, compared to the same period in 2002 due to the additional costs of
the MBM and McCoy employees, the recognition of deferred compensation expense
due to an officer's departure and accrual of salary and bonus under a new
employment contract with the chief executive officer and president of Omni
effective October 1, 2003.
Interest expense was $9,000 and $27,000 for the three-month and nine-month
period ended December 31, 2003, respectively, compared to $5,000 and $7,000
for the three-month and nine-month periods ended December 31, 2002. The
increase in the current fiscal year is due to the interest bearing debt
assumed in the A&V acquisition in July 2002 and imputed interest on the MBM
acquisition liabilities.
Item 3. Controls and Procedures
A review and evaluation was performed by the Company's management, including
the Company's Chief Executive Officer (the "CEO"), of the effectiveness of the
design and operation of the Company's disclosure controls and procedures as of
the end of the quarterly period covered by this quarterly report. Based on
that review and evaluation, the CEO has concluded that Company's current
disclosure controls and procedures, as designed and implemented, were
effective. There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect the Company's
internal controls subsequent to the date of their evaluation. There were no
significant material weaknesses identified in the course of such review and
evaluation and, therefore, no corrective measures were taken by the Company.
15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
----------------------------
None; not applicable.
Item 2. Changes in Securities and Use of Proceeds.
----------------------------------------------------
As of October 31, 2003, the deadline for completing the share
exchange transaction with Piezo, 81% of Omni's outstanding shares had been
tendered to the Company in accordance with the instructions for exchanging
shares (12,082,841 shares were issued through December 31, 2003 and an
additional 824,880 shares are to be issued as of December 31, 2003). The
other 19% had taken no action whatsoever and continue to own a minority
interest in the Company's subsidiary. Shareholders of approximately
9,222 shares exercised their rights to dissent, and the Company repurchased
the shares for $120.
On November 23, 2003, Omni Medical Holdings, Inc. (the "Company")
signed an Asset Purchase Agreement, which was deemed to have been completed as
of December 1, 2003, by and between McCoy Business Services, Inc., a Kentucky
corporation ("McCoy"), and the Company, and whereby the Company purchased all
of McCoy's tangible assets related to medical transcription services provided
by McCoy and assumed McCoy's lease for its principal office space. The
consideration for this transaction was $360,000; with $100,000 paid as of
December 31, 2003, and $240,000 to be paid in eight quarterly payments of
$30,000 each, with an earnout provision, which is described fully in the Asset
Purchase Agreement.
The purchase price was allocated $60,000 for equipment, furniture
and other depreciable assets; $140,000 for the customer list; $60,000 for the
tradename; and $100,000 for a related Covenant Not to Compete of Marlene
McCoy, McCoy's principal stockholder and director and executive officer, who
was also given a two year Employment Agreement. A complete list of the
equipment acquired and the Employment Agreement are respectively Exhibits A
and C to the Asset Purchase Agreement.
The consideration paid was negotiated at "arms length," and the
directors of the Company determined that the consideration for the purchase
was reasonable, under these circumstances.
During the quarter ended December 31, 2003, the Company sold common
stock under subscription agreements for 10,000, 200,000 and 25,000 shares at
$0.60, $0.50 and $0.60 per share, respectively. The subscription agreement
for 200,000 shares at $0.50 per share was with the wife of the Company's chief
executive officer and president.
Item 3. Defaults Upon Senior Securities.
------------------------------------------
None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
--------------------------------------------------------------
None; not applicable.
Item 5. Other Information.
----------------------------
See Item 2.
Item 6. Exhibits and Reports on Form 8-K.
-------------------------------------------
(a) Exhibits.
31 302 Certification of Arthur D. Lyons.
32 906 Certification.
(b) Reports on Form 8-K.
None.
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: 2/26/04 By: /s/ Arthur D. Lyons
--------- -----------------------------------
Arthur D. Lyons, President,
Treasurer and Director
Date: 2/26/04 By: /s/ John Globoker
--------- -----------------------------------
John Globoker, Vice President,
Secretary and Director