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Replies to post #17851 on Omni Health Inc (OMHE)
08/16/17 10:30 AM
Form 10-K for the Year Ended April 30, 2016 Statements of Cash Flow, page F-6
1. For fiscal 2016, you reported a financing cash inflow of $441,405 from the issuance of common stock. This appears to be a noncash transaction related to Stock Based Compensation expense that should not be reported as a financing activity. Please advise.
Answer:
The Company concurs with the SEC Staff and has corrected its Fiscal Year 2016 financial cash flow statement to the following below.
The Company kept that portion of the stock issuance of par value ($0.0001) for the stock issuance in the financing section under Issuance of common stock and removed any inference to cash. The remainder ($435,963) is accounted for under operating activities as “common stock issued for services”.
The Company believes it may address this change in the upcoming audit and Form 10K for FY2016 and FY2017 and that an amendment to the former Form 10-K is not warranted or required.
Form 10-Q for Quarterly Period Ended October 31, 2016 General
2. We note your acquisition of Malecon Pharmacy Inc. in a stock exchange agreement. It appears this transaction should be recorded as a reverse acquisition, as it appears the shareholders of Malecon received a controlling interest in the transaction. Refer to ASC 805-10-55-11 through 15. In connection with this, it appears the asset line item on the balance sheet at October 31, 2016 “Cost basis investment” is not appropriate in the circumstances. Please advise.
Answer:
ASC 805-10-55-11, 14, and 15 are not applicable to the acquisition. We will address ASC-805-10-55-12 and 13 in our response.
ASC 805-10-55-13 states that usually the acquirer of the combining entity whose relative size (measured in, for example, assets, revenues, or earnings) is significantly larger than that of the other combining entity or entities. At the time of the acquisition, June 17, 2016 VitaCig had more than $4M is signed contracts with high profit margins. Malecon Pharmacy, Inc., while having more revenue had no future contracts and was projecting an overall net loss for the current fiscal year. Based upon this information, the Company believes that the acquirer was VitaCig, Inc.
Furthermore, ASC 805-10-55-12 states that the acquirer is usually the entity that issues its equity interest. In this case, VitaCig, Inc., issued its equity interest to the former owner of Malecon Pharmacy, Inc. The litany test to determine if an acquisition falls outside the boundary of “usually” the following factors were reviewed in accordance with the rule:
· The entity with the largest voting rights is the acquirer. While this rule may appear to warrant Malecon Pharmacy, Inc., as the surviving entity, the rule goes on to speak of “consideration of any unusual or special voting arrangements”. In this particular acquisition, the previous owners of Malecon Pharmacy, Inc., has pledged the right to vote 50% of their stock to the owners of VitaCig, Inc., pending the achievement of certain milestones. As such, the owners of VitaCig retained the right to a majority voting interest of VitaCig.
· The previous owners of VitaCig retained the right to appoint the officers and board members of the acquirer. In fact, the VitaCig management at the time of the acquisition remained the CEO, CFO, and Board of Directors after the acquisition.
Based upon these factors, management determined that VitaCig, Inc., was the acquirer and surviving entity. In further support of management’s belief that VitaCig, Inc., was the acquirer, which falls outside the bounds of ASC 805-10-55, management offers the following explanation. Malecon Pharmacy is a licensed pharmacy company within the state of Florida. Management believes that should Malecon Pharmacy, Inc., be the surviving entity and as such, was involved in the selling of e-Cigarettes (VitaCig business at the time), it would have required consideration and review by the state of Florida, which could have cancelled the state license for the selling of prescription drugs, and as such made Malecon Pharmacy, Inc., considerably less valuable.
Form 10-Q for Quarterly Period Ended October 31, 2016 - Statements of Cash Flows, page 6
3. The following appear to be noncash transactions that should not be reported in the statement:
· For fiscal 2017, you reported an investing cash outflow titled “Net cash received from acquisition” that appears to be associated with the noncash acquisition of Malecon.
· From information in your filing it appears the amounts in fiscal 2017 for “Acquisition of property, plant and equipment” in investing activities and all of the items in the financing activities section represent noncash transactions.
Please advise.
Answer:
The Company concurs with the SEC Staff and has addressed the issue with its auditors. The Company has corrected the statement of cash flow in its third quarter Form 10Q recently filed with the SEC, which is incorporated into this response.
As the Company has advised the its shareholders and readers of the Form 10Q by stating “The accompanying unaudited condensed interim financial statements have been prepared in accordance with the instructions to Form 10-Q. Therefore, they do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders’ equity in conformity with generally accepted accounting principles” and further adds, “Operating results for the three months ended July 31, 2016 are not necessarily indicative of the results that can be expected for the year ending April 30, 2017” the Company does not believe it is necessary to update the previously filed Form 10Q. The Form 10Q was filed in what management believed was the actual performance at that time.
Form 10-Q for Quarterly Period Ended October 31, 2016 - Notes to Condensed Consolidated Financial Statements Note 10 - Discontinued Operations, page 13
4. We note the $1,081,173 reported on the income statement for fiscal 2017 as “Net income from Discontinued Operations” includes a gain of $1,078,457 in regard to the exchange of your VitaCig operations to mCig for your common stock held by mCig. This appears to be a transaction that should be reported as a capital transaction in the equity section of the balance sheet. Please advise.
Answer:
First, the Company will address the figure of $1,078,457 identified as “Net income from Discontinued Operations” obtained from Note 9 of the Form 10Q quoted by Staff. The consolidated, unaudited, proforma, of the combined revenue of the two companies, as if they had been combined for the entire quarter, as required by rule, was incorrect in the filing, and should have been recorded as follows (Please note that this statement is unaudited and the change is immaterial and insignificant to the report of performance of the company):
(corrected statement inserted with new amount of $1,081,173)
As for the accounting of the sale of the VitaCig assets to MCIG as part of its discontinued operations, the Company believes it was appropriately accounted for in both the balance sheet section, as well as the Profit and Loss section.
· Balance Sheet Transaction: The transaction was recorded on the balance sheet as “Treasury Stock” in the amount of $1,052,250, which was the fair market value of the VitaCig stock the company purchased from MCIG with its VitaCig assetse. The Company is obligated to report its own stock it received from MCIG carried at cost (fair market value). Furthermore, the Company’s balance sheet reflects the changes to cash, accounts receivable, prepaid expenses, inventory, intangible assets, current liabilities, deferred revenue, due to MCIG and due to related parties, which in effect gives the Company a net book value of the sale of VitaCig of $28,923.
· The Company believes the appropriate offset for the sale of assets of VitaCig e-Cig business, as part of its discontinued operation, was properly recorded as “gain from discontinued operation.” The Company could have considered it to be Other Income and not incorporated it as a gain from discontinued operation. The Company feels the appropriate accounting of the sell-off and discontinued operations of the e-Cig business element was properly recorded in the P&L as a gain from discontinued operations.
We look forward to resolving the questions to the staff’s comments as quickly as possible. We hope that we have provided all the information requested by the Staff. Please let Mr. Hawkins know if there are any other information you need to bring closure to these issues.
