SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[Mark One]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly
period ended: March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 for the transition
period from _____to______
Commission file number: 0-25203
OMNICOMM SYSTEMS, INC.
(Name of small business issuer in its charter)
Delaware 11-3349762
(State of incorporation) (IRS employer Ident. No.)
3250 Mary Street, #307, Miami, FL. 33313
(Address of principal office) (Zip Code)
Registrant's telephone number: (305) 448-4700
Indicate by check mark whether the Registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X__ No_____
The number of shares outstanding of each of the
issuer's classes of equity as of March 31, 1999: 1,593,000
common stock $.001 par value<PAGE>
OMNICOMM SYSTEMS, INC.
Part I - Financial Information Page
Item 1.
Consolidated Balance Sheet -
March 31, 1999 and December 31, 1998 1
Consolidated Statements of Shareholders' Equity - 2
January 1, 1998 to March 31, 1999
Consolidated Statements of Operations -
Three months ended March 31, 1999 and 1998 3
Consolidated Statement of Cash Flows -
Three months ended March 31, 1999 and 1998 4
Notes to Financial Statements 5-12
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results
Part II - Other Information
Item 1, Legal Proceedings: None
Item 2, Changes in Securities: None
Item 3, Defaults Upon Senior Securities: None
Item 4, Submission of Matters To a Vote of
Security Holders: None
Item 5, Other Information
Item 6, Exhibits and Reports on Form 8-K
Signature <PAGE>
OMNICOMM SYSTEMS, INC.
FINANCIAL STATEMENTS
MARCH 31, 1999
<PAGE>
I N D E X
Page
CONSOLIDATED BALANCE SHEETS 1
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
2
CONSOLIDATED STATEMENTS OF OPERATIONS 3
CONSOLIDATED STATEMENTS OF CASH FLOWS 4
NOTES TO THE FINANCIAL STATEMENTS 5-12
<PAGE>
OMNICOMM SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
A S S E T S
March 31,
1999 December 31,
(Unaudited) 1998
CURRENT ASSETS
Cash $ 130,057 $ 44,373
Accounts Receivable 136,112 77,188
Inventory 28,706 4,240
Due from Placement Agent 293,625 -0-
Total Current Assets 588,500 125,801
PROPERTY AND EQUIPMENT - Net 31,512 33,352
OTHER ASSETS
Stockholder Loans 3,406 3,406
Intangible Assets, net 243,776 163,276
Goodwill, net 356,749 396,387
Other Assets 1,800 9,300
TOTAL ASSETS $1,225,743 $ 731,522
L I A B I L I T I E S A N D S H A R E H O L D E R S' E Q U I T Y
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 182,753 $ 286,478
Notes Payable - Current 132,500 262,500
Sales Tax Payable 6,013 39,835
Due to Factoring Agent 177,388 139,012
Total Current Liabilities 498,654 727,825
Notes Payable - Long Term 182,500 182,500
Convertible Notes 775,000 -0-
Total Liabilities 1,456,154 910,325
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred Stock - 2,000,000 shares
authorized, none issued and outstanding
Common Stock - 20,000,000 shares
authorized, 1,593,000 and 1,343,000
issued and outstanding, respectively,
at $.001 par value 132,854 132,604
Retained Earnings (Deficit) (363,015) (311,407)
Stock Subscription Receivable (250) -0-
(230,411) (178,803)
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT) $1,225,743 $ 731,522
The accompanying notes are an integral part of these financial
statements.
Page 1 of 12
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For The Period January 1, 1998 to March 31, 1999
Total
Share-
Common Stock Stock Sub- Retained holders'
Number $.001 scription Earnings Equity
of Shares Value Receivable (Deficit) (Deficit)
JANUARY 1, 1998 1,002,250 $ 187 $ -0- $ (16,040) $ (15,853)
Issuance of
Common Stock 199,750 63 63
Acquisition of
Education Navigator,
Inc. 141,000 132,354 132,354
Net Income (Loss)
for the Year Ended
December 31, 1998 (295,367) (295,367)
BALANCES AT
DECEMBER 31, 1998 1,343,000 132,604 (311,407) (178,803)
Issuance of
Common Stock 250,000 250 (250) -0-
Net Income (Loss) for
the three months ended
March 31, 1999 (51,608) (51,608)
BALANCES AT
MARCH 31, 1999
(Unaudited) 1,593,000 $132,854 $(250) $(363,015) $(230,411)
The accompanying notes are an integral part of these financial statements.
Page 2 of 12
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended
March 31,
1999 1998
REVENUES - SALES, Net $ 528,722 $193,985
COST OF SALES 225,291 94,136
GROSS MARGIN (LOSS) 303,431 99,849
OTHER EXPENSES
Depreciation and Amortization 69,228 -0-
Interest Expense 8,831 1,400
Salaries and Wages 102,935 6,446
Factoring Fees 3,868 -0-
Rent 15,373 7,695
Independent Consultants 50,547 7,500
Selling, General and
Administrative 104,257 12,655
Income (Loss) Before Taxes (51,608) 64,153
Income Tax Expense (Benefit) -0- 13,694
NET INCOME (LOSS) $ (51,608) $ 50,459
Net Income (Loss) Per Share $(.04) $.04
Weighted Average Number of
Shares Outstanding 1,459,667 1,133,197
The accompanying notes are an integral part of these financial statements.
Page 3 of 12
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months ended
March 31,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (51,608) $ 50,459
Adjustment to Reconcile Net Income
to Net Cash Provided By (Used In)
Operating Activities:
Depreciation and Amortization 69,228 -0-
Change in Assets and Liabilities,
net of effects of acquisition of
Education Navigator Inc (EdNav):
(Increase) Decrease in Accounts
Receivable (58,924) (34,504)
(Increase) Decrease in Inventory (24,466) -0-
(Increase) Decrease in Due from
Placement Agent (293,625) -0-
(Increase) Decrease in Other
Assets 7,500 -0-
Increase (Decrease) in Accounts
Payable and Accrued Expenses (103,725) 12,205
Increase (Decrease) in Sales
Tax Payable (33,822) -0-
Increase (Decrease) in Due to
Factoring Agent 38,376 -0-
Net Cash Provided By (Used In)
Operating Activities (451,066) 28,160
CASH FLOWS FROM FINANCING ACTIVITIES
Net Proceeds from Convertible Notes 666,750 -0-
(Payments of) Notes Payable (130,000) (40,000)
Net Cash Provided By (Used In)
Financing Activities 536,750 (40,000)
Net Increase (Decrease) in Cash and
Cash Equivalents 85,684 (11,840)
Cash and Cash Equivalents at
Beginning of Period 44,373 16,077
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 130,057 $ 4,237
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period for:
Income Tax Paid $ -0- $ -0-
Interest Paid $ 1,532 $ 1,400
The accompanying notes are an integral part of these financial statements.
Page 4 of 12
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: ORGANIZATION AND NATURE OF OPERATIONS
OmniComm Systems, Inc. (the Company) formerly The Premisys
Group, Inc. was incorporated in Florida in February 1997. The
Company is a computer systems integrator providing services and
hardware sales for the installation of local and wide area
networks. The Company's customers are located throughout North
America.
In addition, the Company is developing a web based database
application for the collection, compilation, and validation of
clinical data over the internet. The application is called
TrialMaster.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid, short-term
investments with maturities of 90 days or less. The carrying
amount reported in the accompanying balance sheets approximates
fair value.
CONSOLIDATION
During the period from July 1, 1998 through December 31, 1998
the accounts of the Company's wholly owned subsidiary,
Omnicommerce Systems Inc. (Omnicommerce) were included in the
consolidated financial position and results of operations and
cash flows. Omnicommerce was formed in July 1998 for the
purpose of acquiring Education Navigator, Inc. (See Note 3,
Acquisition.) All significant intercompany transactions have
been eliminated in consolidation.
ACCOUNTS RECEIVABLE
Accounts receivable are judged as to collectibility by
management and an allowance for bad debts is established as
necessary. As of each balance sheet date, no reserve was
considered necessary.
COMMON STOCK
During the period January 1, 1998 (the earliest date covered by
this report) to December 31, 1998 the Company had authorized
common stock of 10,000,000 shares with no par value. On
February 17, 1999 Omnicomm shareholders exchanged all of their
issued and outstanding common stock for Coral Development Corp
(Coral) common stock at the ratio of 3.129 Omnicomm shares for
one share of Coral in a reverse merger (see footnote 10.)
Page 5 of 12
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Concurrently, Omnicomm changed its common stock from no par to
$.001 per share and increased the number of authorized shares
from 10,000,000 to 20,000,000. All share and per share
information has been restated retroactively for all periods to
include the equivalent number shares exchanged in the
transaction and the redenomination of par value.
ADVERTISING
Advertising costs are expensed as incurred.
INTANGIBLE ASSETS AND GOODWILL
Included in Intangible Assets are the following assets:
March 31, 1999
Accumulated
Cost Amortization
Covenant not to compete $120,000 $45,000
Software development costs 87,500 21,875
Organization costs 539 225
Debt acquisition costs 108,250 5,413
$316,289 $72,513
December 31, 1998
Accumulated
Cost Amortization
Covenant not to compete $120,000 $30,000
Software development costs 87,500 14,583
Organization costs 539 180
Debt acquisition costs -0- -0-
$208,039 $44,763
The covenant not to compete and the software development costs
were acquired as a result of the acquisition of EdNav (see Note
3). The covenant is for a two year period and is being
amortized ratably over that time. The software development
costs were capitalized and are being amortized ratably over a
three year period as that is the expected life of the various
products.
During the first quarter of 1999, the Company issued
Convertible Notes totaling $775,000. The fees of $108,250
associated with these notes are being amortized ratably over
the term of the notes, which is five years. During the first
quarter of 1999, the amortization was $5,413.
Included in Goodwill, as a result of the EdNav acquisition (see
Note 3), at March 31, 1999 and December 31, 1998 is the cost of
$475,665 and accumulated amortization of $118,916 and $79,278,
respectively. The goodwill is amortized ratably over a three
year period.
Page 6 of 12
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
(Continued)
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentration of credit risk are accounts receivable. Major
customers are as follows:
For the three months ended
March 31, 1999 March 31, 1998
% of % of
Customer Sales $ Total Sales Sales $ Total Sales
Commercial
Services Inc $388,818 74% $161,155 83%
Office Depot
Inc $ 94,958 18% $ 23,847 12%
The Company performs ongoing credit evaluations of its
customers but generally does not require collateral to support
customer receivables. The loss of any one of these customers
could have a material adverse effect on the financial
condition of the company.
PROPERTY AND EQUIPMENT, At Cost
Property and equipment consists of the following:
December 31, 1998 March 31, 1999
Accumulated Accumulated
Cost Depreciation Cost Depreciation
Computer and
office
equipment $33,274 $4,636 $33,274 $6,299
Office
furniture 4,950 236 4,950 413
$38,224 $4,872 $38,224 $6,712
Renewals and betterments are capitalized; maintenance and
repairs are expensed as incurred.
Depreciation is calculated using the straight line method over
the asset's estimated useful life, which is 5 years for
equipment and 7 years for office furniture.
Depreciation expense for for the three months ended March 31,
1999 and 1998 was $1,840 and $-0- respectively.
REVENUE RECOGNITION POLICY
The company recognizes sales, for both financial statement
purposes and for tax purposes, when the products are shipped
and when services are provided.
Page 7 of 12
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
(Continued)
ESTIMATES IN FINANCIAL STATEMENTS
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
INCOME TAXES
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." SFAS 109 has as its basic
objective the recognition of current and deferred income tax
assets and liabilities based upon all events that have been
recognized in the financial statements as measured by the
provisions of the enacted tax laws.
Valuation allowances are established when necessary to reduce
deferred tax assets to the estimated amount to be realized.
Income tax expense represents the tax payable for the current
period and the change during the period in the deferred tax
assets and liabilities.
STOCK OPTION PLAN
In 1998 the Company initiated a stock option plan. The Plan
provides for granting Incentive Stock Options, Nonqualified
Stock Options, Stock Appreciation Rights, Restricted Stock
Awards, Phantom Stock Unit Awards and Performance Share Units.
In 1998 the Company granted an option to an employee (see Note
3., Acquisition) to purchase 85,000 shares of common stock.
The option is exercisable after one year. No compensation
expense has been recognized during the periods presented.
NOTE 3: ACQUISITION
On June 26, 1998 the Company acquired all of the outstanding
common stock of Education Navigator, Inc. (EdNav). The
purchase has been accounted for under the purchase method in
accordance with APB Opinion 16. The Company paid the selling
stockholders of EdNav $600,000 ($75,000 downpayment and
$525,000 in a promissory note) and issued 441,180 shares of
common stock of the Company to the selling stockholders of
EdNav. The Company valued these shares at $.30 each based
principally on the earnings potential of the combined
operations. Therefore, the total purchase price was $732,354.
Page 8 of 12
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
(Continued)
The Company also granted a stock option to one selling
stockholder to purchase 85,000 shares of the Company for $.60
per share. The option is pursuant to a stock option plan
(which has 3,000,000 shares reserved under the plan) and is
exercisable over the next three years at 14,166 shares, 28,334
shares and 42,500 shares, respectively.
EdNav is an Internet company that has developed and is
developing dynamic web applications for business. The
acquisition of EdNav is accounted for as under the purchase
method. All results of EdNav's operations are included in the
financial statements from June 26, 1998 forward. The
acquisition resulted in $475,665 recorded as goodwill, which
will be amortized ratably over 3 years.
The fair value of the assets acquired were as follows:
Cash $ 7,500
Accounts receivable 13,945
Computer and office equipment 27,744
Covenant not to compete 120,000
Software developed 87,500
Goodwill 475,665
$732,354
The following table shows the unaudited results of operations
on a pro forma basis for the period presented as though the
companies had combined at the beginning of the period. This
information is presented for informational purposes only and
does not purport to be indicative of the results of operations
that actually would have resulted if the acquisition had been
consummated on January 1, 1998 nor which may result from
future operations.
1/1/98-3/31/98
Revenues $236,991
Income (Loss) before
extraordinary items (14,165)
Net Income (Loss) (14,165)
Earnings (Loss)
Per Share $(.01)
Weighted Average
Shares Outstanding 1,274,197
Page 9 of 12
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Proforma adjustments to the results of operations are as
follows:
1/1/98-3/31/98
Amortization:
Software developed $ 7,292
Covenant not to Compete 15,000
Goodwill 39,638
(61,930)
EdNav net income (Loss):
1/1/98-3/31/98 (2,694)
Proforma Adjustment $(64,624)
NOTE 4: NOTES PAYABLE
At December 31, 1998 the Company owed $445,000 to the selling
stockholders of Ed Nav (see Note 3). The notes are payable
over the next two years and bear interest at 5.51% annually.
The amount payable in the fiscal year 1999 is $262,500 and the
amount due in the fiscal year 2000 is $182,500. At March 31,
1999 the Company owed a total of $315,000 on these notes.
NOTE 5: CONVERTIBLE NOTES
During the first quarter of 1999, the Company issued
Convertible Notes Payable in the amount of $775,000 pursuant
to a Confidential Private Placement Memorandum. There were
costs of $108,250 associated with this offering. The Company
also granted the agent the option to purchase 250,000 common
shares at $.001. The agent exercised the option. The net
proceeds to the Company was $666,750. The notes bear interest
of ten (10) percent annually, payable semi-annually. The
notes are convertible after maturity, which is five (5) years,
into shares of common stock of the Company at $1.25 per share,
including registration rights.
NOTE 6: COMMITMENTS AND CONTINGENCIES
The company is currently in a lease for office space requiring
minimum annual base rental payments for the fiscal periods
shown as follows:
1999 $ 25,747
2000 26,552
2001 27,357
2002 28,161
2003 28,966
Total $136,783
Page 10 of 12
OMNICOMM STSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
(Continued)
In addition to annual base rental payments, the company must
pay an annual escalation for operating expenses as determined
in the lease.
NOTE 7: INCOME TAXES
Income taxes are accrued at the statutory U.S. and state income
tax rates.
Income tax expense is as follows:
3/31/99 3/31/98
Current tax expense (benefit):
Income tax at statutory rates $ -0- $13,694
Deferred tax expense (benefit):
Amortization of Goodwill and
Covenant (25,038) -0-
Operating Loss Carryforward (10,154) -0-
35,192 13,694
Valuation allowance (35,192) -0-
Total Tax Expense (Benefit) $ -0- $13,694
The tax effect of significant temporary differences, which
comprise the deferred tax assets are as follows:
3/31/99 12/31/98
Deferred tax assets:
Amortization of Intangibles $ 73,457 $ 48,419
Operating loss carryforwards 69,097 58,943
Gross deferred tax assets 142,554 107,362
Valuation allowance (142,554) (107,362)
Net deferred tax assets $ -0- $ -0-
During 1998 the Company incurred a net operating loss (NOL) for
income tax purposes of approximately $170,000. This loss is
allowed to be offset against future income until the year 2018
when the NOL will expire. Other timing differences relate to
depreciation and amortization for the stock acquisition of
EdNav (Note 3).
The tax benefits relating to all timing differences have been
fully reserved for in the valuation allowance account due to
the lack of operating history and substantial losses.
NOTE 8: RELATED PARTY TRANSACTIONS
The Company was owed $3,406 at March 31, 1999 and December 31,
1998 from shareholder. The amount is payable on demand. The
interest rate is 6% annually.
Page 11 of 12
OMNICOMM STSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
(Continued)
NOTE 9: POSTRETIREMENT EMPLOYEE BENEFITS
The Company does not have a policy to cover employees for any
health care or other welfare benefits that are incurred after
employment (postretirement). Therefore, no provision is
required under SFAS's 106 or 112.
NOTE 10: REVERSE MERGER
On February 17, 1999 Omnicomm merged with Coral Development
Corp. (Coral) in a reverse merger. In consideration of
receiving all of the issued and outstanding shares of Omnicomm,
Coral will issue 940,000 restricted shares of common stock to
the shareholders of Omnicomm. Coral had 403,000 shares issued
and outstanding prior to the merger.
The merger was accounted for as a reverse merger since Omnicomm
is the continuing entity as a result of the recapitalization.
Accordingly, a recapitalization occurred and no goodwill was
recorded and the operating results of Coral have been included
in the financial statements from the date of consummation of
the merger. On this basis, the historical financial statements
prior to February 17, 1999 represent the consolidated financial
statements of Omnicomm. The historical shareholders' equity
accounts of Omnicomm as of March 31, 1999 have been
retroactively restated for all periods presented to reflect the
issuance of the additional 940,000 shares. All share and per
share amounts have been retroactively restated for all periods
to include the equivalent number of shares received in the
transaction.
NOTE 11: INTERIM FINANCIAL REPORTING
The unaudited financial statements of the Company for the
period from January 1, 1999 to March 31, 1999 have been
prepared by management from the books and records of the
Company, and reflect, in the opinion of management, all
adjustments necessary for a fair presentation of the financial
position and operations of the Company as of the period
indicated herein, and are of a normal recurring nature.
Page 12 of 12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation
Forward Looking Statements
In addition to historical information, this Quarterly Report contains
'forward looking statements'. These statements can often be identified
by the use of forward-looking terminology such as 'estimate', 'project',
'believe', 'expect', 'may', 'will', 'should', 'intends', or
'anticipates' or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy that involve risks
and uncertainties. We wish to caution the reader that these forward-
looking statements, such as statements relating to timing, costs and of
the acquisition of, or investments in, existing business, the revenue
profitability levels of such businesses, and other matters contained in
this Quarterly Report regarding matters that are not historical facts,
are only predictions. No assurance can be given that plans for the
future will be consummated or that the future results indicated, whether
expressed or implied, will be achieved. While sometimes presented with
numerical specificity, these plans and projections and other forward-
looking statements are based upon a variety of assumptions, which we
consider reasonable, but which nevertheless may not be realized.
Because of the number and range of the assumptions underlying our
projections and forward-looking statements, many of which are subject to
significant uncertainties and contingencies that are beyond our
reasonable control, some of the assumptions inevitably will not
materialize, and unanticipated events and circumstances may occur
subsequent to the date of this Quarterly Report. Therefore, our actual
experience and results achieved during the period covered by any
particular projections or forward-looking statements may differ
substantially from those projected. Consequently, the inclusion of
projections and other forward-looking statements should not be regarded
as a representation by us or any other person that these plans will be
consummated or that estimates and projections will be realized, and
actual results may vary materially. There can be no assurance that any
of these expectations will be realized or that any of the forward-
looking statements contained herein will prove to be accurate.
Results of Operation
REVENUES:
Total revenues increased to $528,722 from $193,985 in the first quarter
of fiscal year 1999 compared to the corresponding period in fiscal year
1998. This substantial increase in revenue is attributed to the
Company's growing relationships with a core group of clients who are
increasingly looking to the Company for hardware and systems procurement
and implementation. Substantially all of the revenue is attributed to
three clients: Commercial Services International, Office Depot, and
Republic Industries. Of these three, Commercial Services International
is responsible for 74% of the total revenue.
All of the Company's revenue is attributed to its systems integration
business. The Company has earned no revenue from its TrialMaster(TM)
system.
OPERATING EXPENSES:
Total operating expenses increased to $355,039 from $35,696 in the first
quarter of fiscal year 1999 compared to the corresponding period in
fiscal year 1998. This substantial increase in operating expenses is
attributed to the acquisition of Education Navigator in June of 1998 and
an attendant decision to focus the Company's resources on the
development of the TrialMaster(TM) Internet system.
Salaries and Wages. Salaries and wages increased to $102,935 from $6,446
in the first quarter of fiscal year 1999 compared to the corresponding
period in fiscal year 1998. The Company currently has eight employees:
the Company hired four additional employees and has begun paying
salaries to three of the four other employees who had been employed by
the Company. Of the eight employees currently employed, five are
directly involved in the development, marketing, and implementation of
the TrialMaster(TM) system.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $104,257 from $12,655 in the first quarter of
fiscal year 1999 compared to the corresponding period in fiscal year
1998. The substantial increase in selling, general and administrative
expenses is attributed to the increase in operations related to the
development and marketing of the Company's TrialMaster(TM) system.
Independent Consultants. Independent consulting expenses increased to
$50,547 from $7,500 in the first quarter of fiscal year 1999 compared to
the corresponding period in fiscal year 1998. The increase is attributed
to the development and marketing of the TrialMaster(TM) system. The Company
has retained the services of independent programmers to assist in
finalizing certain software issues related to the application. In
addition, the Company has retained the services of consultants to assist
in developing marketing strategies for the marketing and sales of the
TrialMaster(TM) system. The Company has also established a medical advisory
board and the members are paid a monthly retainer of $1,000 per month.
LIQUIDITY AND CAPITAL RESOURCES:
Cash and cash equivalents increased to $130,057 from $4,237 in the first
three months of fiscal year 1999 over the corresponding period in 1998.
The increase is attributed to the cash received from the private
placement of 5 year, 10% Convertible Notes the Company initiated during
January 1999. See Item 5. Other Information.
The Company generated a loss of $51,608 from operations in the first
three months of fiscal year 1999 compared to income of $50,459 for the
corresponding period in 1998. The loss is primarily attributed to the
payment of $130,000 on promissory notes payable as a result of Education
Navigator in June of 1998.
The Company anticipates that current cash balances, as well as
anticipated cash flows from operations, will be sufficient to meet its
working capital and capital expenditure needs for the foreseeable
future.
The Company has initiated a private placement, see Item 5. Other
Information, of 5 year, 10% convertible notes to accredited investors.
The proceeds from this offering should be sufficient to assist in the
marketing of the TrialMaster application for the next 6 months and to
make the necessary debt payments to the Education Navigator
shareholders.
PART II. OTHER INFORMATION
Item 5. Other Information
Private Placement
On January 18, 1999, Northeast Securities, Inc., as placement
agent, began the distribution of a Confidential Private Placement
Memorandum to accredited investors on behalf of the Company. The terms
of the offering are as follows:
Amount: $400,000 Minimum/$750,000 Maximum, All or none, Best
Efforts.
Offering: 16 Units Minimum/30 Units Maximum. Each Unit consists of
a five (5) year convertible note in the principal amount of $25,000,
bearing 10% annual interest, payable semi-annually with the principal
convertible into shares of common stock, $.001 par value, of the Company
('Common Stock' or 'Shares') at $1.25 per Share, subject to customary
anti-dilution provisions. The Convertible Notes may be called in whole
or in part at a premium of 102% of par into shares at the conversion
price, as may be adjusted, in the event the Company's Common Stock
publicly trades on a recognized exchange, NASDAQ or OTC Bulletin Board,
for a period of 20 consecutive trading days at a bid price per share of
$3.50 or greater, and provided the Shares underlying the Convertible
Note have been registered and may be sold without restriction by the
holders thereof.
Interest Adjustment: In the event holders demand registration of
the Shares underlying the Convertible Notes and such registration
statement is not effective within 90 days after the date of notice of
demand by said holders, the interest rate on the Convertible Notes
beginning on the next quarter following the expiration of the 90 day
period, shall increase to 15%, and shall remain at 15% until said
registration statement is effective, at which time the interest rate
shall revert back to 10%.
Price: $25,000 per Unit. The Company will accept subscriptions for
partial Units.
Registration Rights: Demand (so long as 50% of the aggregate amount
of the total offering files notices) and Piggy-Back registration rights
(subject
to underwriter's cut-back).
Use of Proceeds: Operating and Marketing Expenses
Conditions:
(1) Regulation D of the Securities Act of 1933, as amended.
(2) Suitability Standards; Accredited Investors Only.
(3) Board of Directors: Northeast Securities, placement agent,
shall have the right to designate one observer with the same notice
and reimbursement of expenses as other directors.
(4) Termination Date: March 31, 1999
(5) Placement Fee: 250,000 Common Shares at a purchase price of
$.001 per share at the closing of the Minimum.
(6) The Company agrees not to issue equity securities except ISO
stock options and other options or stock bonuses to employ
consultants and advisors.
(7) Northeast shall have a right of first refusal to match any
bonafide equity based offering proposal.
(8) The Company shall have no more than 4,000,000 Shares
outstanding on a fully diluted basis prior to the placement of the
Convertible Notes.
Placement Agent Fees: 10% Commission (cash); 3%
NonAccountable expense allowance (cash); $7,500 advance against
non-accountable due diligence expense.
The private placement was extended for an additional forty-five (45)
days.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K filed March 3, 1999; Items 1,2,5, and 6.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
By: Peter Knezevich
Chief Executive Officer
Dated: May 13, 1999
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