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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Omni Health Inc (CE) | USOTC:OMHE | OTCMarkets | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 0.000001 | 0.00 | 01:00:00 |
Omni Health, Inc.
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TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION |
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Item 1. Financial Statements |
3 |
Condensed Consolidated Balance Sheets as of October 31, 2016 (unaudited) and April 30, 2016 |
4 |
Condensed Consolidated Statements of Operations for the three months ended October 31, 2016 and 2015 (Unaudited) |
5 |
Condensed Consolidated Statements of Cash Flows for the three months ended October 31, 2016 and 2015(Unaudited) |
6 |
Notes to Condensed Consolidated Financial Statements (Unaudited) |
7 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
14 |
Item 3. Quantitative and Qualitative Disclosures about Market Risk |
20 |
Item 4. Controls and Procedures |
20 |
PART II. OTHER INFORMATION |
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Item 1. Legal Proceedings |
21 |
Item 1A. Risk Factors |
21 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
21 |
Item 3. Defaults Upon Senior Securities |
21 |
Item 4. Mine Safety Disclosures |
21 |
Item 5. Other Information |
21 |
Item 6. Exhibits |
21 |
SIGNATURES |
22 |
2 |
OMNI HEALTH, INC. Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1 – Organization and Basis of Presentation
The accompanying audited financial statements of Omni Health, Inc., formerly known as VitaCig, Inc., (the “Company”, “we”, “our”), have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”).
Description of Business
We were incorporated in Nevada on January 22, 2014. We began as a technology company that was engaged in the manufacturing and retailing of nicotine-free Electronic Cigarettes (“eCigs”) that are pre-packaged with vitamins, nutrients, and generic pharmaceuticals.
The Company was originally formed as a wholly-owned subsidiary of mCig, Inc. On February 24, 2014 the company entered into a Contribution Agreement with mCig, Inc. In accordance with this agreement VitaCig, Inc. accepted the contribution by mCig, Inc. of specific assets consisting solely of pending trademarks for the term “VitaCig” filed with the USPTO and $500 in cash as contribution in exchange for 500,135,000 shares of common capital stock representing 100% of the shares outstanding of the Company.
On November 28, 2014, mCig completed the spin-off of 54.1% of VitaCig, Inc. (the “Spin-off”) (See Note 9: Stockholders’ Equity of the Audited Financial Statement).
On June 17, 2016 VitaCig acquired Malecon Pharmacy, Inc., in a Stock Exchange Agreement. VitaCig issued LX Retail Group, LLC 575,000,000 common shares of stock in exchange for 100% of the stock of Malecon Pharmacy, Inc. Malecon Pharmacy, Inc., operates as a subsidiary of VitaCig, Inc. Malecon Pharmacy is a pharmacy that operates in Hialeah, Florida since 1974.
On June 22, 2016 VitaCig sold its eCig business element to mCig, Inc., in exchange for the return to treasury stock 172,500,000 shares of VitaCig stock and the reduction of the outstanding amount owed by Vitacig, Inc., to mCig, Inc., in the amount equal to reducing the outstanding balance to $95,000 . As a result of this transaction, VitaCig, Inc., became a holding company in which it has one wholly owned subsidiary, Malecon Pharmacy, Inc.
On September 9, 2016 the company changed its name to Omni Health, Inc.
The Company currently maintains its corporate office in Miami Beach, Florida.
Note 2 – Summary of Significant Accounting Policies
The principal accounting policies are set out below, these policies have been consistently applied to the period presented, unless otherwise stated:
Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and on various 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. The most significant estimates include: sales returns and other allowances; allowance for doubtful accounts; valuation of inventory; valuation and recoverability of long-lived assets; property and equipment; contingencies; and income taxes.
On a regular basis, management reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.
Inventory Prior to the acquisition of Malecon Pharmacy and the discontinued operations, inventory consisted of finished product, e-Cig products valued at the lower of cost and net realizable value under the first-in, first-out method of costing. Upon the acquisition of Malecon Pharmacy, the inventory consisted of prescription drugs, non-prescription drugs and retail merchandise. The Company continues to value its inventory at the lower of cost and net realizable value under the first-in, first-out method of costing.
7 |
Item |
October 31, 2016 |
April 30, 2016 |
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Prescription Drugs |
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$ 119, 201 |
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$ - |
Non-prescription Drugs |
4 0 , 559 |
- |
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Retail Merchandise |
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107, 259 |
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- |
Finished Goods |
- |
26,641 |
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Total Inventory |
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$ 267,019 |
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$ 26,641 |
Accounts Receivable The Company's accounts receivable is primarily from its contracts associated with healthcare insurance companies. Under various agreements, the Company maintains receivables with 17 companies with accounts ranging from 30-90 days. While the company attempts to collect on all outstanding balances owed, the financial statements do not account for any outstanding receivables beyond 90 days. All receivables beyond 90 days are written off as a drawn down from revenue. Should the company collect at a later date, which it intends to do, the Company reinstates the revenue during the quarter in which it is paid. Due to the nature of these funds, the Company expects these receivables to be fully collectible and therefore has not estimated an allowance for doubtful accounts for the period. The Company did not report any accounts receivable from any of its retail customers. The following table reflects the accounts receivables as of October 31, 2016. |
|
|
Amount |
0-30 days |
$ 254, 282 |
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31-60 days |
|
25 6 , 408 |
61-90 days |
275, 090 |
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Total |
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$ 785, 780 |
Intangible Assets The Company’s intangible assets consist primarily of certain website development costs and are amortized over its estimated useful life of three years.
Revenue Recognition Pharmacy Services. We sells prescription drugs directly through our mail service pharmacies, home delivery, and through our retail pharmacy. We recognize revenues from prescription drugs sold by our mail service and home delivery and the retail pharmacy through contracts where we are the principal using the gross method at the contract prices negotiated with our customers. Revenue from Pharmacy Services includes: (i) the portion of the price the customer pays directly to us, net of any volume-related or other discounts paid back to the customer, (ii) the portion of the price paid to us in a national retail pharmacy network through the customers insurance plan, and (iii) administrative payments from national retail pharmacy network contracts for incentives and initiatives.
SEC Staff Accounting Bulletin 104, “Revenue Recognition, corrected copy” ( “SAB 104”) provides the general criteria for the timing aspect of revenue recognition, including consideration of whether: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the seller’s price to the buyer is fixed or determinable and (iv) collectability is reasonably assured. The Company has established the following revenue recognition policies in accordance with SAB 104:
· Revenues generated from prescription drugs sold by mail service pharmacies are recognized when the prescription is shipped. At the time of shipment, the Company has performed substantially all of its obligations under its customer contracts and does not experience a significant level of reshipments. · Revenues generated from prescription drugs sold through national retail pharmacy network and associated administrative fees are recognized at the point-of-sale, which is when the claim is adjudicated by the online claims processing system.
We determine whether we are the principal or agent for our national retail pharmacy network transactions using the indicators set forth in Emerging Issues Task Force (“EITF”) Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent” on a contract by contract basis. In all of our current contracts, we have determined we are the principal due to it: (i) being the primary obligor in the arrangement, (ii) having latitude in establishing the price, changing the product or performing part of the service, (iii) having discretion in supplier selection, (iv) having involvement in the determination of product or service specifications and (v) having credit risk. Responsibilities under our customer contracts typically include validating eligibility and coverage levels, communicating the prescription price and the co-payments due to the retail pharmacy, identifying possible adverse drug interactions for the pharmacist to address with the physician prior to dispensing, suggesting clinically appropriate generic alternatives where appropriate and approving the prescription for dispensing. Although we do not have credit risk with respect to Retail Co-Payments, management believes that all of the other indicators of gross revenue reporting are present.
8 |
Drug Discounts ~ We deduct from our revenues any discounts paid to our customers as required by EITF No. 01-9, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)” (“EITF 01-9”). Retail Pharmacy Segment ~ We recognize revenue from the sale of merchandise (other than prescription drugs) at the time the merchandise is purchased by the retail customer. Revenue from the sale of prescription drugs is recognized at the time the prescription is filled, which is or approximates when the retail customer picks up the prescription. Customer returns are not material. Revenue generated from the performance of services is recognized at the time the services are performed.
Cost of Goods Sold The Company recognizes the direct cost of purchasing product for sale, including freight-in and packaging, as cost of goods sold in the accompanying income statement.
Financial Instruments The carrying amounts reflected in the balance sheets for cash and due to related parties approximate the respective fair values due to the short maturities of these items. The Company does not hold any investments that are available-for-sale.
As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The three levels of the fair value hierarchy are described below:
Level 1 —Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2 —Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3 —Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.
The Company does not have any assets or liabilities that are required to be measured and recorded at fair value on a recurring basis.
Income Taxes Income taxes are accounted for under the assets and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.
Basic and Diluted Net Income (Loss) Per Share The Company follows ASC Topic 260 to account for earnings (loss) per share. Basic earnings (loss) per share (“EPS”) calculations are determined by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the three months. Diluted earnings per share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation.
There is no potential dilutive security as of October 31, 2016 or 2015.
Concentration of Credit Risk Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash and trade receivables. Concentrations of credit risk with respect to trade receivables are limited due to the clients that comprise our customer base and their dispersion across different business and geographic areas. We estimate and maintain an allowance for potentially uncollectible accounts and such estimates have historically been within management's expectations.
9 |
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As of |
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|
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April 30, 2016 |
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Weighted
|
|
Gross Carrying Amount |
|
Accumulated Amortization |
|
Net Carrying
|
|
|
|
$ |
|
$ |
|
$ |
Finite lived intangible assets |
|
|
|
|
|
|
|
Internet website |
3 |
|
4,400 |
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(2,799) |
|
1,601 |
Total identifiable intangible assets |
|
4,400 |
|
(2,799) |
|
1,601 |
|
|
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As of |
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|
|
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June 22, 2016 |
||||
|
Weighted
|
|
Gross Carrying Amount |
|
Accumulated Amortization |
|
Net Carrying
|
|
|
|
$ |
|
$ |
|
$ |
Finite lived intangible assets |
|
|
|
|
|
|
|
Internet website |
3 |
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4,400 |
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(3,057) |
|
1,343 |
Total identifiable intangible assets |
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4,400 |
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(3,057) |
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1,343 |
10 |
Amortization expense on intangible assets was $258 and $0 for the six months and three months period ending October 31, 2016, respectively, and $1,466 for the year ended April 30, 2016. The intangible asset was sold as part of the Company's discontinued operation on June 22, 2016. See Note 10.
Note 5 - Notes Payable
The following table lists the short term and long term notes payable: |
Short Term Notes Payable |
Original Amount/Assumed Amount |
As of October 31, 2016 |
||||
Current portion of the Lending Club |
10,070 |
|
10,866 |
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Small Business loan |
268,331 |
161,935 |
||||
Current portion of Circle Back Lending |
|
5,230 |
|
5,647 |
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Star Capital Loan |
1,000,000 |
646,110 |
||||
Assumed Liabilities |
|
20,532 |
|
6,750 |
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Due to mCig |
95,000 |
- |
||||
Loan from Shareholder |
|
10,000 |
|
10,000 |
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Total Short Term Notes Payable |
1,409,163 |
841,308 |
||||
Long Term Notes Payable |
|
|
|
|
|
|
The Lending Club |
23,376 |
18,518 |
||||
Circle Back Lending |
|
12,448 |
|
10,009 |
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Loan from Shareholder |
812,000 |
573,000 |
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Total Long Term Notes Payable |
|
847,824 |
|
601,527 |
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Total Notes Payable |
2,256,987 |
1,292,835 |
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As a part of the discontinue operations of VitaCig the company entered into a convertible promissory note with mCig, Inc., in the amount of $95,000 on June 6, 2016. The company accrued $3,108 in interest on the promissory note through October 31, 2016 bringing the total balance due to $98,108. On October 31, 2016 mCig, Inc. elected to convert the promissory note into shares of the company's stock. See Note 8. The Lending Club loan was executed by Malecon Pharmacy on April 23, 2016 in the amount of $35,000. The company assumed the remaining balance of $33,446 on June 17, 2016. The note is scheduled to be paid off on March 23, 2019 and has a monthly payment of $1,218.
The Small Business loan was executed by Malecon Pharmacy on April 22, 2016 in the amount of $300,000. The company assumed the remaining balance of $161,935 on June 17, 2016. The payment terms of the note are $1,550 each business day for 240 business days. There was 209 business days left on the note at the time of acquisition and 116 remaining as of October 31, 2016.
The Circle Back Lending loan was executed by Malecon Pharmacy on April 21, 2016 in the amount of $18,500. The company assumed the remaining balance of $17,718 on June 17, 2016. The note is scheduled to be paid off on March 21, 2019 and has a monthly payment of $674.
The Star Capital loan was executed by the Malecon Pharmacy on June 24, 2016 in the amount of $500,000. The note is scheduled to be paid off on December 23, 2016 and has a monthly payment of $90,833. In September 2016, the company entered into a second loan with Star Capital for up to an additional $500,000 in financing. The company has received $350,000. The company recognizes the remaining amount of $150,000 as other receivable. The company is scheduled to pay off this new loan portion on August 2017 and has a monthly payment of $49,167.
The company assumed certain other liabilities and a loan from the shareholder of Malecon Pharmacy in the amount of $30,532 for various obligations associated with the day-to-day operations of the specialty pharmacy. The company paid $5,243 during the period ending October 31, 2016 leaving a remaining balance of $6,750 in assumed liabilities and $10,000 due to related party.
Note 6 - Related Parties and Related Party Transactions
Details of balances between the company and related partied are disclosed below:
|
As of October 31, 2016 |
As of April 30, 2016 |
|||
Loan from related parties |
|
$ 583, 000 |
|
$ 96,208 |
11 |
The following entities have been identified as related parties:
LX Retail Group, Inc. Greater than 10% stockholder. Andrey Soloviev Director and CEO mCig, Inc. Greater than 10% stockholder during the reporting period. The Chief Financial Officer of mCig, Inc., is the current Interim CEO and Interim CFO of the Company.
On June 22, 2016 when the company acquired Malecon Pharmacy, Inc., it assumed the liability of $812,000 owed to the principal owner of Malecon Pharmacy, Inc. During the three months and six months ended October 31, 2016, the company paid $77,000 and $239,000 towards that outstanding balance, respectively, leaving a balance of $573,000 owed.
Note 7 - Commitments and Contingencies
The Company has commitments for three leased facilities. In addition, the Company has a lease commitment for its pharmacy software system.
- The company office and conference facilities located in Miami Beach, Florida. The office rent is $5,947.41 per month. The lease expires on May 1, 2019. - The Company Pharmacy building and headquarters are in Hialeah, Florida. The rent for the facility is $8,146.74 per month. The lease expires on February 1, 2017. - The Company Warehouse and Distribution Center in Miami Florida. The company pays $1,605 a month as rent, which expires August 1, 2017. - The Company has a lease for its QS/1 Data System. The company pays $527.26 per month, which expires on April 30, 2018.
The following chart shows the Company commitments for the next five years: |
Year |
|
Amount |
2016 |
$ 97,359 |
|
2017 |
|
17 8 , 425 |
2018 |
81, 127 |
|
2019 |
|
71,370 |
2020 |
5,948 |
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Total |
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$ 434, 22 9 |
Note 8 - Stockholders' Equity (Deficit)
Common Stock
The authorized capital stock of the Company consists of 2,000,000,000 shares of Common Stock, par value $0.0001 per share. On February 24, 2014, the Company entered into a Contribution Agreement with mCig, Inc. In accordance with this agreement, VitaCig, Inc. accepted the contribution by mCig, Inc. of specific assets consisting solely of pending trademarks for the term “VitaCig” filed with the USPTO on January 18, 2014, and $500 in cash as contribution in exchange for 500,135,000 shares of common capital stock representing 100% of the shares outstanding of the Company.
On November 28, 2014, mCig completed the spin-off of 54.1% of VitaCig, Inc. (the “Spin-off).
As of April 30, 2016, the Company was authorized to issue 560,000,000 common shares at a par value of $0.0001. As of April 30, 2015 the Company had issued 500,135,000 common shares. During the year the Company issued 54,416,683 shares of common stock for services rendered - the price evaluate is $441,405. As of April 30, 2016 the total issued and outstanding of common stock was 554,551,683.
On June 17, 2016, the Company issued LX Retailers, LLC 575,000,000 shares of the Company’s common stock as the purchase price for Malecon Pharmacy. On October 31, 2016 mCig elected to convert its promissory note into shares of the company stock. The total amount due at the time of conversion was $98,108. The company issued 17,677,058.
Note 9 - Acquisition of Malecon Pharmacy, Inc.
On June 17, 2016, the Company and LX Retail Group, Inc. entered into a share exchange agreement whereby the Company acquired 100% of the stock of Malecon Pharmacy, Inc., whereby LX Retail Group, Inc. transferred the assets and operations of the business of Malecon Pharmacy, Inc., to Company in exchange for 575,000,000 shares of the Company’s Common Stock.
The purchase price of Malecon Pharmacy, Inc., was $3,392,500. The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed, at the date of acquisition:
|
Purchase Price (575,000,000 shares @ $0.0059) |
|
$ |
3,392,500 |
Cash |
|
$ |
107,276 |
Accounts Receivable |
739,224 |
||
Inventory |
|
|
256,507 |
Medical Equipment |
254,232 |
||
Property, plant & equipment |
|
|
64,661 |
Cost basis investment |
3,430,973 |
||
Total assets acquired |
|
$ |
4,852,873 |
Accounts Payable |
359,510 |
||
Other Liabilities |
|
|
20,532 |
Small Business Loan |
268,331 |
||
Due to Related Party |
|
|
812,000 |
Total liabilities assumed |
|
1,460,373 |
|
Net assets acquired |
|
$ |
3,392,500 |
12 |
In accordance with ASC 805-10-50, the Company is providing the following unaudited pro-forma to present a summary of the combined results of the Company’s consolidated operations with the acquisition as if the acquisition had been completed as of the beginning of the reporting period. |
For three month ending October 31, |
For six months ending October 31, |
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CONSOLIDATED STATEMENT of OPERATIONS: |
2016 |
2015 |
2016 |
2015 |
||||||||
Sales |
|
$ |
1,285,503 |
|
$ |
1,503,330 |
$ |
2,912,190 |
|
$ |
3,300,946 |
|
Cost of Sales |
|
904,692 |
|
1,170,735 |
|
1,690,366 |
|
2,609,788 |
||||
Gross Profit |
|
|
380,811 |
|
|
332,595 |
|
1,221,824 |
|
|
691,158 |
|
Operating Expenses |
|
345,344 |
|
315,690 |
|
578,463 |
|
1,346,766 |
||||
(Loss) from Operations |
|
|
35,467 |
|
|
16,905 |
|
643,361 |
|
|
(655,608) |
|
Other Income / (Expense) |
(73,772) |
- |
(102,705) |
- |
||||||||
Gain from discontinued operations |
|
|
- |
|
|
- |
|
1,078,457 |
|
|
- |
|
Net Income (Loss) |
$ |
(38,305) |
$ |
16,905 |
$ |
1,619,113 |
$ |
(655,608) |
Note 10 - Discontinued Operations On June 22, 2016, the Company sold off its VitaCig operations. The Company was returned 172,500,000 shares of common stock of the Company’s common stock, par value $0.0001 per share (“Common Stock”), from mCig, Inc., and was forgiven $68,123 in debt owed to MCIG in exchange for the VitaCig operations. The record date for the transaction was June 22, 2016. The transaction was completed for the purpose of legally and structurally separating the VitaCig operation from the newly acquired business and the Company’s change in direction.
The selloff of VitaCig has been presented as discontinued operations in our financial statements. The following tables represent the current assets and liabilities associated with the discontinued operations as of October 31, 2016: Assets |
Cash |
|
$ |
44,280 |
Accounts receivable |
10,518 |
||
Prepaid expenses |
|
|
3,300 |
Inventory |
26,607 |
||
Intangible assets |
|
|
1,343 |
Total assets related to discontinued operations |
$ |
86,048 |
Liabilities |
Current liabilities |
|
|
12,974 |
Deferred revenue |
31,874 |
||
Due to mCig payable |
|
|
68,123 |
Due to related party |
|
2,000 |
|
Liabilities related to discontinued operations |
|
$ |
114,971 |
As of October 31, 2016, the Company has recorded a gain of $1,078,457 for its discontinued operations. The following table presents the net book value of VitaCig as of the selloff, the pro-rata value received as part of the selloff, and the net gain for the selloff of the VitaCig operations: |
Net book value of VitaCig at selloff |
|
$ |
(28,923) |
FMV of stock received as purchase price |
1,049,534 |
||
Net gain from selloff |
|
$ |
1,078, 457 |
Note 11. Basic Loss per Share Basic Income (Loss) Per Share - The computation of basic and diluted loss per common share is based on the weighted average number of shares outstanding during each period. 13 |
|
|
Three Months Ended |
|||
|
|
October 31, |
|||
|
|
2016 |
|
|
2015 |
Net income (loss) |
|
$ (14,308) |
|
|
$ (67,105) |
Basic income (loss) per share |
|
$ (0.00) |
|
|
$ (0.00) |
Basic weighted average number of shares outstanding |
|
854,959,292 |
|
|
503,232,826 |
|
|
Six Months Ended |
|||
|
|
October 31, |
|||
|
|
2016 |
|
|
2015 |
Net income (loss) |
|
$ 1, 013 , 824 |
|
|
$ (86, 617 ) |
Basic income (loss) per share |
|
$ (0.00) |
|
|
$ (0.00) |
Basic weighted average number of shares outstanding |
|
854,959,292 |
|
|
50 1 , 683 , 913 |
Additional information concerning these and other risks and uncertainties is contained in our filings with the Securities and Exchange Commission, including the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended April 30, 2016.
Unless otherwise indicated or the context otherwise requires, all references in this Form 10-Q to “we,” “us,” “our,” “our company,” “ Omni Health ” or the “Company” refer to Omni Health , Inc.
Our Ability to Continue as a Going Concern
Our independent registered public accounting firm has issued its report dated October 31, 2016, in connection with the audit of our annual financial statements as of April 30, 2016, that included an explanatory paragraph describing the existence of conditions that raise substantial doubt about our ability to continue as a going concern and Note 3 to the unaudited financial statements for the period ended October 31, 2016 also describes the existence of conditions that raise substantial doubt about our ability to continue as a going concern.
O verview
Corporate History
We were incorporated in Nevada on January 22, 2014. We began as a technology company that was engaged in the manufacturing and retailing of nicotine-free Electronic Cigarettes (“eCigs”) that are pre-packaged with vitamins, nutrients, and generic pharmaceuticals.
We were originally formed as a wholly-owned subsidiary of mCig, Inc. On February 24, 2014, our company entered into a Contribution Agreement with mCig, Inc. In accordance with this agreement we accepted the contribution by mCig, Inc. of specific assets consisting solely of pending trademarks for the term “VitaCig” filed with the USPTO and $500 in cash as contribution in exchange for 500,135,000 shares of common capital stock representing 100% of the shares outstanding of VitaCig, Inc.
On November 28, 2014, mCig completed the spin-off of 54.1% of VitaCig, Inc.
On June 17, 2016 VitaCig acquired Malecon Pharmacy, Inc., in a Stock Exchange Agreement. VitaCig issued LX Retail Group, LLC 575,000,000 common shares of stock in exchange for 100% of the stock of Malecon Pharmacy, Inc. Malecon Pharmacy, Inc., operates as a subsidiary of VitaCig, Inc. Malecon Pharmacy is a premiere anti-aging cream manufacturer, wholesaler, and distributor.
On June 22, 2016 VitaCig sold its eCig business element to mCig, Inc., in exchange for the return to treasury stock 172,500,000 shares of VitaCig stock and the reduction of the outstanding amount owed by Vitacig, Inc., to mCig, Inc., the amount of $122,394. As a result of this transaction, VitaCig, Inc., became a holding company in which it has one wholly owned subsidiary, Malecon Pharmacy, Inc.
On August 9, 2016 the Company changed its name from “VitaCig, Inc.” to “Omni Health, Inc.”.
The fiscal year end is April 30.
Our Company
The Company operates a pharmacy in Hialeah, Florida. All of our operations are conducted through our wholly-owned subsidiaries, Malecon Pharmacy, Inc.
Malecon Pharmacy, Inc., is a vertically integrated company focused on healthcare and operating in the highly lucrative pharmaceutical, medical and wellness industries, since 1974. We are licensed provider of innovative health, wellness and pharmacy services through our pharmacy located in Hialeah, Florida. 15 |
Governmental Regulation Our business is subject to federal, state and local laws, regulations, and administrative practices, including, among others: federal, state and local licensure and registration requirements concerning the operation of pharmacies and the practice of pharmacy; the Health Insurance Portability and Accountability Act (HIPAA); the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2012 (collectively, the Health Reform Law); statutes and regulations of the FDA, the U.S. Federal Trade Commission, the U.S. Drug Enforcement Administration and the U.S. Consumer Product Safety Commission, as well as regulations promulgated by comparable state agencies concerning the sale, advertisement and promotion of the products we sell. Below are descriptions of some of the various federal and state laws and regulations which may govern or impact our current and planned operations.
Pharmacy Regulation Our pharmacy operations are regulated by both individual states and the federal government. Every state has laws and regulations addressing pharmacy operations, including regulations relating specifically to compounding pharmacy operations. These regulations generally include licensing requirements for pharmacists, pharmacy technicians and pharmacies, as well as regulations related to compounding processes, safety protocols, purity, sterility, storage, controlled substances, recordkeeping and regular inspections, among other things. State rules and regulations are updated periodically, generally under the jurisdiction of individual state boards of pharmacy. Failure to comply with the state pharmacy regulations of a particular state could result in a pharmacy being prohibited from operating in that state, financial penalties and/or becoming subject to additional oversight from that state’s board of pharmacy. In addition, many states are considering imposing, or have already begun to impose, more stringent requirements on compounding pharmacies. If our pharmacy operations become subject to additional licensure requirements, are unable to maintain their required licenses or if states place burdensome restrictions or limitations on pharmacies, our ability to operate could be limited.
Certain provisions of the FDCA govern the preparation, handling, storage, marketing and distribution of pharmaceutical products. The Drug Quality and Security Act of 2013 (DQSA) clarifies and strengthens the federal regulatory framework governing compounding pharmacies. Title 1 of the DQSA, the Compounding Quality Act, modifies provisions of the Section 503A of the FDCA that were found to be unconstitutional by the U.S. Supreme Court in 2002. In general, Section 503A provides that pharmacies are exempt from the provisions of the FDCA requiring compliance with cGMP, labeling with adequate directions for use and FDA approval prior to marketing if the pharmacy complies with certain other requirements. Among other things, to comply with Section 503A, a compounded drug must be compounded by a licensed pharmacist for an identified individual patient on the basis of a valid prescription. Pharmacies may only compound in limited quantities before receipt of a prescription for an individual patient and are subject to limitations on anticipatory compounding for distribution, which generally permit anticipatory compounding only based on historical prescription volumes.
Confidentiality, Privacy and HIPAA Our pharmacy operations involve the receipt, use and disclosure of confidential medical, pharmacy and other health-related information. In addition, we use aggregated and blinded (anonymous) data for research and analysis purposes. The federal privacy regulations under HIPAA are designed to protect the medical information of a healthcare patient or health plan enrollee that could be used to identify the individual. Among other things, HIPAA limits certain uses and disclosures of protected health information and requires compliance with federal security regulations regarding the storage, utilization and transmission of and access to electronic protected health information. The requirements imposed by HIPAA are extensive. In addition, most states have enacted privacy and security laws that protect identifiable patient information that is not health-related. Further, several states have enacted more protective and comprehensive pharmacy-related privacy legislation that not only applies to patient records but also prohibits the transfer or use for commercial purposes of pharmacy data that identifies prescribers. These regulations impose substantial requirements on covered entities and their business associates regarding the storage, utilization and transmission of and access to personal health and non-health information. Many of these laws apply to our business.
Medicare and Medicaid Reimbursement Medicare is a federally funded program that provides health insurance coverage for qualified persons age 65 or older and for some disabled persons with certain specific conditions. State-funded Medicaid programs provide medical benefits to groups of low-income and disabled individuals, some of whom may have inadequate or no medical insurance. Currently, most of our commercially available formulations are sold in cash transactions and our customers may choose to seek reimbursement opportunities from Medicare, Medicaid and other third parties to the extent that they exist. As part of our initiative, we work with third-party insurers, pharmacy benefit managers and buying groups to offer patient-specific customizable compounded formulations at accessible prices. We plan to continue to devote time and other resources to seek reimbursement and patient pay opportunities for these and other compounded formulations and we have hired pharmacy billers to process certain existing reimbursement opportunities for certain formulations. However, we may be unsuccessful in achieving these goals, as many third-party payors have imposed significant restrictions on reimbursement for compounded formulations in recent years. Moreover, third-party payors, including Medicare, are increasingly attempting to contain health care costs by limiting coverage and the level of reimbursement for new drugs and by refusing, in some cases, to provide coverage for uses of approved products for disease indications for which the FDA has not granted labeling approval. Further, the Health Reform Law may have a considerable impact on the existing U.S. system for the delivery and financing of health care and could conceivable have a material effect on our business. As a result, reimbursement from Medicare, Medicaid and other third-party payors may never be available for any of our products or, if available, may not be sufficient to allow us to sell the products on a competitive basis and at desirable price points.
To the extent we obtain third-party reimbursement for our compounded formulations, we may become subject to Medicare, Medicaid and other publicly financed health benefit plan regulations prohibiting kickbacks, beneficiary inducement and the submission of false claims. 16 |
Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates, including those related to uncollectible receivables, inventory valuation, deferred compensation and contingencies.
We base our estimates on historical performance and on various other assumptions that we believe to be reasonable under the circumstances. These estimates allow us to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
We believe the following accounting policies are our critical accounting policies because they are important to the portrayal of our financial condition and results of operations and they require critical management judgments and estimates about matters that may be uncertain. If actual results or events differ materially from those contemplated by us in making these estimates, our reported financial condition and results of operations for future periods could be materially affected.
Pharmacy Services. We sells prescription drugs directly through our mail service pharmacies, home delivery, and through our retail pharmacy. We recognize revenues from prescription drugs sold by our mail service and home delivery and the retail pharmacy through contracts where we are the principal using the gross method at the contract prices negotiated with our customers. Revenue from Pharmacy Services includes: (i) the portion of the price the customer pays directly to us, net of any volume-related or other discounts paid back to the customer, (ii) the portion of the price paid to us in a national retail pharmacy network through the customers insurance plan, and (iii) administrative payments from national retail pharmacy network contracts for incentives and initiatives.
SEC Staff Accounting Bulletin 104, “Revenue Recognition, corrected copy” ( “SAB 104”) provides the general criteria for the timing aspect of revenue recognition, including consideration of whether: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the seller’s price to the buyer is fixed or determinable and (iv) collectability is reasonably assured. The Company has established the following revenue recognition policies in accordance with SAB 104:
· Revenues generated from prescription drugs sold by mail service pharmacies are recognized when the prescription is shipped. At the time of shipment, the Company has performed substantially all of its obligations under its customer contracts and does not experience a significant level of reshipments. · Revenues generated from prescription drugs sold through national retail pharmacy network and associated administrative fees are recognized at the point-of-sale, which is when the claim is adjudicated by the online claims processing system.
We determine whether we are the principal or agent for our national retail pharmacy network transactions using the indicators set forth in Emerging Issues Task Force (“EITF”) Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent” on a contract by contract basis. In all of our current contracts, we have determined we are the principal due to it: (i) being the primary obligor in the arrangement, (ii) having latitude in establishing the price, changing the product or performing part of the service, (iii) having discretion in supplier selection, (iv) having involvement in the determination of product or service specifications and (v) having credit risk. Responsibilities under our customer contracts typically include validating eligibility and coverage levels, communicating the prescription price and the co-payments due to the retail pharmacy, identifying possible adverse drug interactions for the pharmacist to address with the physician prior to dispensing, suggesting clinically appropriate generic alternatives where appropriate and approving the prescription for dispensing. Although we do not have credit risk with respect to Retail Co-Payments, management believes that all of the other indicators of gross revenue reporting are present.
Drug Discounts ~ We deduct from our revenues any discounts paid to our customers as required by EITF No. 01-9, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)” (“EITF 01-9”).
Retail Pharmacy Segment ~ We recognize revenue from the sale of merchandise (other than prescription drugs) at the time the merchandise is purchased by the retail customer. Revenue from the sale of prescription drugs is recognized at the time the prescription is filled, which is or approximates when the retail customer picks up the prescription. Customer returns are not material. Revenue generated from the performance of services is recognized at the time the services are performed.
Amounts billed or collected in excess of revenue recognized are recorded as deferred revenue.
17 |
Our operating results for the three months ended October 31, 2016 and 2015 are summarized as follows: |
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For the Three Months Ended October 31, |
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2016 |
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2015 |
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Revenue |
$ |
1,285,503 |
|
$ |
11,707 |
Cost of Goods Sold |
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904,692 |
|
|
3,616 |
Gross Profit |
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380,811 |
|
|
8,091 |
Expenses |
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345,344 |
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75,196 |
Net Income(Loss) from operations |
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35,467 |
|
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(67,105) |
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For the Six Months Ended October 31, |
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2016 |
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2015 |
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Revenue |
$ |
1,799,950 |
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$ |
78,743 |
Cost of Goods Sold |
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1,293,568 |
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48,082 |
Gross Profit |
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506,382 |
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30,661 |
Expenses |
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495,021 |
|
|
117,278 |
Net Income(Loss) from operations |
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11,361 |
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(86,617) |
Results of Operations
Three Months Ended October 31, 2016 Compared to Three Months Ended October 31, 2015
Revenue
Our revenue from operations for the three months ended October 31, 2016 was $1,285,503 compared to $11,707, an increase of $1,273,796, for the three months ended October 31, 2015. This increase is primarily due to an increase in sales upon the acquisition of Malecon Pharmacy on June 22, 2016. Revenues consist primarily of results from the sales of prescription drugs, non-prescription drugs, and specialty products and related accessories.
Cost of Goods Sold
Our cost of goods sold for the three months ended October 31, 2016 was $904,692 compared to $3,616 for the three months ended October 31, 2015. This increase is primarily due to the increase in sales.
Gross Profit
Our gross profit for the three months ended October 31, 2016 was $380,811 compared to $8,091 for the three months ended October 31, 2015. The gross profit of $380,811 for the three months ended October 31, 2016 represents approximately 29.6% as a percentage of total revenue. The gross profit of $8,091 for the three months ended October 31, 2015 represents approximately 69.1% as a percentage of total revenue. This decrease in the gross profit percentage is primarily attributed to the pricing policies of the company’s new subsidiary, Malecon Pharmacy.
Operating Expenses
Our operating expenses increased by $270,148 to $345,344 for the three months ended October 31, 2016, from $75,196 for the three months ended October 31, 2015. The increase was primarily due to the increases in payroll of $69,874, consulting fees of $131,738, selling, general and administrative expenses of $75,000, and depreciation of $7,286, and a decrease in professional fees of $13,750.
Our total operating expenses for the three months ended October 31, 2016 of $345,344 consisted of $136,079 of selling, general and administrative expenses, $69,874 in payroll expenses, $131,738 in consulting fees, and $7,653 in depreciation expenses. Our general and administrative expenses consist of rent, bank charges, telephone expenses, meals and entertainments, computer and internet expenses, postage and delivery, office supplies and other expenses.
18 |
Net Income
Our net loss decreased by $28,800 to $38,305 for the three months ended October 31, 2016 compared to a net loss of $67,105 for the three months ending October 31, 2015. The decrease in net income compared to the prior period is primarily a result of the increase in operating expenses of $270,148 and the increase in gross profit of $372,720.
Six Months Ended October 31, 2016 Compared to Six Months Ended October 31, 2015
Revenue
Our revenue from operations for the six months ended October 31, 2016 was $1,799,950 compared to $78,743, an increase of $1,721,207, for the six months ended October 31, 2015. This increase is primarily due to an increase in sales upon the acquisition of Malecon Pharmacy on June 22, 2016. Revenues consist primarily of results from the sales of prescription drugs, non-prescription drugs, and specialty products and related accessories.
Cost of Goods Sold
Our cost of goods sold for the six months ended October 31, 2016 was $1,293,568 compared to $48,082 for the six months ended October 31, 2015. This increase is primarily due to the increase in sales.
Gross Profit
Our gross profit for the six months ended October 31, 2016 was $506,382 compared to $30,661 for the six months ended October 31, 2015. The gross profit of $506,382 for the six months ended October 31, 2016 represents approximately 28.1% as a percentage of total revenue. The gross profit of $30,661 for the six months ended October 31, 2015 represents approximately 38.9% as a percentage of total revenue. This decrease in the gross profit percentage is primarily attributed to the pricing policies of the company’s new subsidiary, Malecon Pharmacy. Operating Expenses Our operating expenses increased by $377,923 to $495,021 for the six months ended October 31, 2016, from $117,278 for the six months ended October 31, 2015. The increase was primarily due to the increase in selling, general and administrative expenses of $98,076, an increase in payroll of $114,752, an increase in consulting fees of $170,670, an increase in depreciation of $6,920, and a decrease in professional fees of $12,675.
Our total operating expenses for the six months ended October 31, 2016 of $495,021 consisted of $200,871 of selling, general and administrative expenses, $114,752 in payroll expenses, $1,075 in professional fees, $170,670 in consulting fees, and $7,653 in depreciation expenses. Our general and administrative expenses consist of salaries, bank charges, telephone expenses, meals and entertainments, computer and internet expenses, postage and delivery, office supplies and other expenses.
Net Income Our net income increased by $1,076,446 to $989,829 for the six months ended October 31, 2016 compared to a net loss of $86,617 for the six months ending October 31, 2015. The increase in net income compared to the prior period is primarily a result of the increase in gain from discontinued operation of $1,081,173, the increase in operating expenses of $377,743 and the increase in gross profit of $475,721.
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21 |
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.
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Omni Health, Inc. |
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Dated: February 1, 2017 |
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/s/ Andrey Soloviev |
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By: |
Andrey Soloviev |
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Its: |
Chief Executive Officer (Principal Executive Officer) |
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Dated: February 1, 2017 |
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/s/ Michael W. Hawkins |
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By: |
Michael W. Hawkins |
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Its: |
Chief Financial Officer (Principal Financial Officer) |
22 |
1 Year Omni Health (CE) Chart |
1 Month Omni Health (CE) Chart |
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