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: June 30, 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 June 30, 1999: 1,679,377
common stock $.001 par value
OMNICOMM SYSTEMS, INC.
Part I - Financial Information Page
Item 1.
Consolidated Balance Sheet -
June 30, 1999 and December 31, 1998 1
Consolidated Statements of Shareholders' Equity 2
January 1, 1998 to June 30, 1999
Consolidated Statements of Operations -
Three and six months ended June 30, 1999 and 1998 3-4
Consolidated Statement of Cash Flows -
Six months ended June 30, 1999 and 1998 5
Notes to Financial Statements 6-13
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
OMNICOMM SYSTEMS, INC.
FINANCIAL STATEMENTS
JUNE 30, 1999
I N D E X
Page
CONSOLIDATED BALANCE SHEETS 1
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) 2
CONSOLIDATED STATEMENTS OF OPERATIONS 3-4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO THE FINANCIAL STATEMENTS 6-13
OMNICOMM SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
A S S E T S
June 30,
1999 December 31,
(Unaudited) 1998
CURRENT ASSETS
Cash $ 73,932 $ 44,373
Accounts Receivable 40,173 77,188
Inventory 1,685 4,240
Due from Placement Agent 12,431 -0-
Total Current Assets 128,221 125,801
PROPERTY AND EQUIPMENT - Net 55,214 33,352
OTHER ASSETS
Stockholder Loans 8,406 3,406
Intangible Assets, net 227,118 163,276
Goodwill, net 317,110 396,387
Other Assets 1,800 9,300
TOTAL ASSETS $ 737,869 $ 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 $ 301,223 $ 286,478
Notes Payable - Current 112,500 262,500
Sales Tax Payable 9,880 39,835
Due to Factoring Agent 96,527 139,012
Total Current Liabilities 520,130 727,825
Notes Payable - Long Term 182,500 182,500
Convertible Notes 862,500 -0-
Total Liabilities 1,565,130 910,325
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred Stock - 10,000,000 shares
authorized, none issued and
outstanding at $.001 par value
Common Stock - 20,000,000 shares
authorized, 1,679,377 and 1,343,000
issued and outstanding, respectively,
at $.001 par value 188,999 132,604
Retained Earnings (Deficit) (1,016,010) (311,407)
Stock Subscription Receivable (250) -0-
(827,261) (178,803)
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT) $ 737,869 $ 731,522
The accompanying notes are an integral part of these financial
statements.
Page 1 of 13
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For The Period January 1, 1998 to June 30, 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-
Issuance of Common
Stock for Services 86,377 56,145 56,145
Net Income (Loss) for
the six months ended
June 30, 1999 (704,603) (704,603)
BALANCES AT
JUNE 30, 1999
(Unaudited) 1,679,377 $188,999 $(250) $(1,016,010) $(827,261)
The accompanying notes are an integral part of these financial statements.
Page 2 of 13
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended
June 30,
1999 1998
REVENUES - SALES, Net $ 383,679 $758,756
COST OF SALES 409,233 507,689
GROSS MARGIN (LOSS) (25,554) 251,067
OTHER EXPENSES
Depreciation and Amortization 70,168 -0-
Interest Expense 20,608 800
Salaries and Wages 128,331 44,563
Factoring Fees 632 9,651
Rent 12,181 7,977
Independent Consultants 160,904 18,967
Selling, General and
Administrative 234,617 82,157
Income (Loss) Before Taxes (652,995) 86,952
Income Tax Expense (Benefit) -0- 33,306
NET INCOME (LOSS) $(652,995) $ 53,646
Net Income (Loss) Per Share $(.41) $.04
Weighted Average Number of
Shares Outstanding 1,604,390 1,203,549
The accompanying notes are an integral part of these financial statements.
Page 3 of 13
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the six months ended
June 30,
1999 1998
REVENUES - SALES, Net $ 912,401 $952,741
COST OF SALES 634,524 601,825
GROSS MARGIN (LOSS) 277,877 350,916
OTHER EXPENSES
Depreciation and Amortization 139,396 -0-
Interest Expense 29,439 2,200
Salaries and Wages 231,266 51,009
Factoring Fees 4,500 9,651
Rent 27,554 15,672
Independent Consultants 211,451 26,467
Selling, General and
Administrative 338,874 94,812
Income (Loss) Before Taxes (704,603) 151,105
Income Tax Expense (Benefit) -0- 47,000
NET INCOME (LOSS) $(704,603) $104,105
Net Income (Loss) Per Share $(.46) $.09
Weighted Average Number of
Shares Outstanding 1,532,428 1,168,568
The accompanying notes are an integral part of these financial statements.
Page 4 of 13
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended
June 30,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $(704,603) $104,105
Adjustment to Reconcile Net Income
to Net Cash Provided By (Used In)
Operating Activities:
Depreciation and Amortization 139,396 -0-
Change in Assets and Liabilities,
net of effects of acquisition of
Education Navigator Inc (EdNav):
(Increase) Decrease in Accounts
Receivable 37,015 (72,056)
(Increase) Decrease in Inventory 2,555 -0-
(Increase) Decrease in Due from
Placement Agent (12,431) -0-
(Increase) Decrease in Other Assets 2,500 13,923
Increase (Decrease) in Accounts
Payable and Accrued Expenses 14,745 28,260
Increase (Decrease) in Sales
Tax Payable (29,955) 3,622
Increase (Decrease) in Due to
Factoring Agent (42,485) -0-
Net Cash Provided By (Used In)
Operating Activities (593,263) 77,854
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment (26,198) -0-
Net Cash (Used In) Investing Activities (26,198) -0-
CASH FLOWS FROM FINANCING ACTIVITIES
Net Proceeds from Convertible Notes 742,875 -0-
(Payments of) Notes Payable (150,000) (50,000)
Issuance of Common Stock 56,145 -0-
Net Cash Provided By (Used In)
Financing Activities 649,020 (50,000)
Net Increase (Decrease) in Cash and
Cash Equivalents 29,559 27,854
Cash and Cash Equivalents at
Beginning of Period 44,373 16,077
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 73,932 $ 43,931
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period for:
Income Tax Paid $ -0- $ -0-
Interest Paid $ 1,532 $ 2,200
The accompanying notes are an integral part of these financial statements.
Page 5 of 13
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 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 6 of 13
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:
June 30, 1999
Accumulated
Cost Amortization
Covenant not to compete $120,000 $ 60,000
Software development costs 87,500 29,167
Organization costs 539 270
Debt acquisition costs 119,625 11,109
$327,664 $100,546
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 six months of 1999, the Company issued
Convertible Notes totaling $862,500. The fees of $119,625
associated with these notes are being amortized ratably over
the term of the notes, which is five years. During the first
six months of 1999, the amortization was $11,109.
Included in Goodwill, as a result of the EdNav acquisition (see
Note 3), at June 30, 1999 and December 31, 1998 is the cost of
$475,665 and accumulated amortization of $158,555 and $79,278,
respectively. The goodwill is amortized ratably over a three
year period.
Page 7 of 13
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 six months ended
June 30, 1999 June 30, 1998
% of % of
Customer Sales $ Total Sales Sales $ Total Sales
Commercial
Services Inc $742,802 81% $610,309 64%
Office Depot
Inc $ 94,958 10% $ 37,889 4%
Keen Battle $ -0- $105,055 11%
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 June 30, 1999
Accumulated Accumulated
Cost Depreciation Cost Depreciation
Computer and
office
equipment $33,274 $4,636 $59,472 $8,619
Office
furniture 4,950 236 4,950 589
$38,224 $4,872 $64,422 $9,208
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 six months ended June 30,
1999 and 1998 was $4,336 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 8 of 13
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 was recognized during 1998.
During the second quarter of 1999, the Company issued 86,377
common shares to employees and advisors under its stock bonus
arrangement. The Company adopted SFAS 123 to account for its
stock based compensation plans. SFAS 123 defines the "fair
value based method" of accounting for stock based
compensation. Under the fair value based method, compensation
cost is measured at the grant date based on the value of the
award and is recognized over the service period. In
accordance with this method, the Company recognized expense of
$56,145 during the second quarter of 1999.
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
Page 9 of 13
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
(Continued)
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 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.
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.
1/1/98-6/30/98
Revenues $1,038,782
Income (Loss) before
extraordinary items 19,873
Net Income (Loss) 19,873
Earnings (Loss)
Per Share $(.02)
Weighted Average
Shares Outstanding 1,309,708
Page 10 of 13
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Proforma adjustments to the results of operations are as
follows:
1/1/98-6/30/98
Depreciation $ 2,774
Amortization:
Software developed 14,583
Covenant not to Compete 30,000
Goodwill 79,278
126,635
EdNav net income (Loss):
1/1/98-6/30/98 403
Proforma Adjustment $126,232
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 June 30,
1999 the Company owed a total of $295,000 on these notes.
NOTE 5: CONVERTIBLE NOTES
During the first quarter of 1999, the Company issued
Convertible Notes Payable in the amount of $862,500 pursuant
to a Confidential Private Placement Memorandum. There were
costs of $119,625 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 $742,875. 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 11 of 13
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:
6/30/99 6/30/98
Current tax expense (benefit):
Income tax at statutory rates $ -0- $47,000
Deferred tax expense (benefit):
Amortization of Goodwill and
Covenant (25,038) -0-
Operating Loss Carryforward (10,154) -0-
35,192 47,000
Valuation allowance (35,192) -0-
Total Tax Expense (Benefit) $ -0- $47,000
The tax effect of significant temporary differences, which
comprise the deferred tax assets are as follows:
6/30/99 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 $8,406 and $3,406 at June 30, 1999 and
December 31, 1998, respectively from a shareholder. The amount
is payable on demand. The interest rate is 6% annually.
Page 12 of 13
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 June 30, 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 June 30, 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 13 of 13
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 decreased to $383,679 from $758,756 for the three months
ended June 30, 1999 compared to the corresponding period in fiscal year
1998. This decrease in revenue is primarily attributed to two large
system integration projects that were completed during the three month
period ending June 30, 1998. Total revenues decreased to $912,401 from
$952,741 for the six months ended June 30, 1999 compared to the
corresponding period in fiscal year 1998. This decrease in revenue is
attributed to, again, the completion of projects during the three months
ended June 30, 1998. Substantially all of the revenue is attributed to
three clients: Commercial Services International, Office Depot, and
Republic Industries. Of these three, Commercial Services International
was responsible for 81% and 64% of the total revenue for the periods
ended June 30, 1999 and 1998, respectively.
All of the Company's revenue is attributed to its systems integration
business. The Company has earned no revenue from its TrialMasterTM
system.
Operating Expenses:
Total operating expenses increased to $627,441 from $164,115 for the
three months ended June 30, 1999 compared to the corresponding period in
fiscal year 1998. Similarly, total operating expenses increased to
$982,480 from $199,811 for the six months ended June 30, 1999 compared
to the corresponding period in fiscal year 1998. This substantial
increase in operating expenses is attributed to a number of factors
including the continuing financial obligations associated with the
acquisition of Education Navigator in June of 1998 and the decision to
focus the Company's resources on the development of the TrialMasterTM
Internet system.
Salaries and Wages. Salaries and wages increased to $231,266 from
$51,009 for the six months ended June 30, 1999 compared to the
corresponding period in fiscal year 1998. The Company currently has nine
employees, eight of which are directly involved in the development,
marketing, and implementation of the TrialMasterTM system.
Independent Consultants. Fees to independent consultants increased to
$211,451 from $26,467 for the six months ended June 30, 1999 compared to
the corresponding period in fiscal year 1998. The Company decided to
outsource a number of areas during the initial phase of developing,
marketing and implementing the TrialMasterTM system. These areas concern
product development, marketing and sales, and medical/strategic
consulting. For the six months ending June 30, 1999, approximately
$81,000 of the $211,451, 39%, was expended on product development. The
other significant expenditure is $50,000 on medical/strategic
consulting.
Selling, General and Administrative(SG&A). Selling, general and
administrative expenses increased to $338,874 from $94,812 for the six
months ended June 30, 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 TrialMasterTM
system. In addition, $56,145 of expense associated with stock bonus
awards was recognized during the quareter and included in SG&A.
LIQUIDITY AND CAPITAL RESOURCES:
Cash and cash equivalents increased to $73,932 from $44,373 for the six-
month period ending June 30, 1999 compared to the corresponding period
in fiscal year 1998. The increase is attributed to the cash received
from the private placement of the 5-year, 10% Convertible Notes the
Company initiated during January 1999. See Item 5. Other Information.
Total liabilities increased to $1,565,130 from $910,325 for the six-
month period ending June 30, 1999 compared to the corresponding period
in fiscal year 1998. The increased in total liabilities is primarily
attributed to the placement of convertible notes totaling $862,500 or
55% of the total liabilities.
The Company generated a loss of $652,995 from operations for the three
months ended June 30, 1999 compared to income of $53,646 for the
corresponding period in fiscal year 1998. The loss is primarily
attributed to the continued financial obligations associated with the
acquisition of Education Navigator in June of 1998 and the development
and marketing of the TrialMasterTM system.
The Company has initiated a private placement of 5% Series A Convertible
Preferred Shares to accredited investors pursuant to Regulation S of the
Securities Act of 1933, as amended. See Item 5, Other Information. The
Company completed the private placement of its 5-year, 10% Convertible
Notes.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Preferred Stock
On June 28, 1999, the Company amended its articles of incorporation
to create a class of preferred stock. The Company shall have the
authority to issue 10,000,000, $.001 par value preferred shares. The
board of directors of the Company shall have the authority to divide the
preferred into series or classes and to designate the respective rights
of each series or class.
5% Series A Convertible Preferred Stock
On July 19, 1999, the Company filed a certificate of designation
authorizing the creation of a 5% Series A Convertible Preferred stock
("Preferred Stock"). The preferences of the Preferred Stock are as
follows:
1. In the event of liquidation, the holders of Preferred Stock will be
entitled to receive in preference to the holders of Common Stock an
amount equal to their original purchase price plus all accrued but
unpaid dividends.
2. Dividends shall be paid at the rate of 5.00% (five percent) per annum
(365 days), payable semi-annually, on January 1 and July 1 of each
following year.
3. Conversion: (a) Voluntary Conversion: The holders of Preferred Stock
shall have the right to convert at any time at the option of the holder,
each share of Preferred Stock into one share of Common Stock, subject to
antidilution provisions set forth in subsection (c) below. (b) Automatic
Conversion: At any time after one year from the date of the final
Closing Date, the Company can require that all outstanding shares of
Preferred Stock be automatically converted at the conversion then in
effect if at the time (a) the closing bid price of the Company's Common
Stock has exceeded $3.00 for 20 consecutive trading days; (b) the
Company's Common Stock has been listed on the Nasdaq or such other
comparable national stock exchange and; (c) a registration statement
covering the shares of Common Stock issuable upon conversion of the
Preferred Stock has been filed with the Securities and Exchange
Commission and declared effective.
4. Anti-Dilution: Each share of Preferred Stock upon conversion into
Shares shall have proportional antidilution protection for stock splits,
stock dividends, combinations, and recapitalizations. The conversion
price shall also be subject to adjustment to prevent dilution in the
event the Company issues additional shares of Common Stock or
equivalents at a purchase price less than the applicable conversion
price.
5. The Preferred Stock shall not be sold, assigned, transferred or
pledged except upon satisfaction of the conditions specified in the
subscription agreement executed by the Holder, which conditions are
intended to ensure compliance with the provisions of the Securities Act.
Each Holder will cause any proposed purchaser, assignee, transferee, or
pledgee of the Preferred Share or the Common Stock issuable upon
conversion held by a Holder to agree to take and hold such securities
subject to the provisions and conditions of the subscription agreement.
6. Each certificate representing (i) the Preferred Stock and (ii) any
other securities issued in respect of the Preferred Stock upon any stock
split, stock dividend, recapitalization, merger, consolidation or
similar event, shall be stamped or otherwise imprinted with a legend in
the following form (in addition to any legend required under applicable
state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION
OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE SHARES
AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
CORPORATION.
7. A Holder shall have a right to vote that number of votes equal to the
number of shares of Common Stock issuable upon conversion of the
Preferred Stock.
In addition to the foregoing, a holder of the Preferred Stock shall
have registration rights shares for the shares of Common Stock issuable upon
conversion of the Preferred Stock.
Issuance of Unregistered Securities
The Company completed the private placement of its 10% Convertible
Notes ("Notes") during May, 1999. The offer and sale of the Notes were
made pursuant to Regulation D, Rule 506 of the Securities Act of 1933,
as amended (the "Act"). Each purchaser was an accredited investor as
evidenced by a suitability questionnaire filed out by each investor.
Gross proceeds from the sale were $862,500; the Company paid commissions
totaling $119,625 to Northeast Securities as placement agent. The Notes
are convertible into common shares of the Company at $1.25 per share.
The Company issued shares of common stock totaling 86,377 shares to
employees and members of its Medical Advisory Board. The shares were
issued pursuant to Rule 701 and Sec. 4(2) of the Act.
Item 5. Other Information
Private Placement
On June 4, 1999, the Company and Noesis Capital Corp. entered into
a private placement agreement wherein Noesis Capital Corporation agreed
to act as placement agent in the placement of the Company's 5% Series A
Convertible Preferred Shares pursuant to Regulation S of the Securities
Act of 1933 (the "Act").
The Company has agreed to pay a commission to Noesis Capital Corp.
in the amount of 10% of the gross proceeds from the sale of the 5%
Series A Convertible Preferred Shares offered hereby all in cash. In
addition, on the Final Closing Date, the Placement Agent will have the
right to purchase shares of the Company's common stock equal to 10% of
the number of shares of common stock into which the Preferred shares are
convertible at $.001 per share.
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 undersibned thereunto duly authorized.
By: Peter Knezevich
Chief Executive Officer
Dated: August 16, 1999
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