SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
OmniComm Systems, Inc.
(Name of small business issuer in its charter)
Delaware 11-3349762
(State of incorporation) (IRS employer Ident. No.)
541511
(Primary Standard Industrial Classification Code No.)
3250 Mary Street, Suite 402, Miami, Fl. 33133
(Address of principal office) (Zip Code)
Issuer's telephone number: (305) 448-4700
____________________________
David Ginsberg, Chief Executive Officer
OmniComm Systems, Inc.
3250 Mary Street, Suite 402
Miami, Florida 33133
(305) 448-4700
(Name and address of agent of service)
__________________
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]_______________
If this Form is a post effective amendment flied pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]_______________
If this Form is a post effective amendment flied pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]_______________
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
CALCULATION OF REGISTRATION FEE
(1)Estimated solely for purposes of calculating the registration fee pursuant to
Rule 457(c) of the Securities Act of 1933, as amended, on the basis of the
average high and low sales prices of the Registrant's Common Stock on the NASDAQ
Electronic Bulletin Board on August 30, 2000, for OMCM.
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant files a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such dates as the Commission, acting pursuant to said
Section 8(a), may determine.
TITLE OF EACH PROPOSED PROPOSED
CLASS OF MAXIMUM MAXIMUM
SECURITIES AMOUNT OFFERING AGGREGATE AMOUNT OF
TO BE TO BE PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER UNIT PRICE FEE (1)
___________ _____________ _______ __________ ______________
Common Stock
Par value
$.001 per share 5,463,497 $2.25 $12,292,868 $3,245.32
(1) The Registrant paid $3,858.92 in connection with its initial filing of a
Form SB-2 Registration Statement covering the resale of certain common
shares. The entire $3,858.92 is available to apply against the current
registration fee.
SUBJECT TO COMPLETION
Preliminary Prospectus Dated August 30, 2000
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed with
the Securities and Exchange Commission.
These securities may not be sold nor may offers to buy be accepted prior to the
time the registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
PROSPECTUS
5,463,497 Shares
OMNICOMM SYSTEMS, INC.
Common Stock
----------------------
This prospectus ("Prospectus") covers the resale of certain shares ("Shares") of
common stock, $.001 par value per share (the "Common Stock") of OmniComm
Systems, Inc. ("OmniComm" or the "Company") held or acquirable by certain
persons ("Selling Security Holders") named in this Prospectus. The Company will
receive approximately $258,750 in proceeds from the sale of the Shares. The
Shares covered hereby include (i)shares of Common Stock that are issuable upon
conversion of previously-issued shares of Series A Convertible Preferred Stock
(the "Series A Preferred"),(ii) shares of Common Stock that are issuable upon
conversion of the 10% Convertible Notes(the "Convertible Notes"), (iii) shares
of Common Stock issuable upon the exercise of certain warrants, and (iv) Common
Stock, held by certain Selling Security Holders (the "Series A Holders",
"Convertible Note Holders", "Warrant Holders", and "Common Holders").
Except for the total number of shares to which this Prospectus relates as set
forth above, references in this Prospectus to the "number of Shares covered by
this Prospectus," or similar statements, and information in this Prospectus
regarding the number of Shares issuable to or held by the Selling Security
Holders and percentage information relating to the Shares of the outstanding
capital stock of the Company, are based upon the conversion ratio set forth in
the instruments establishing the rights of the Series A Preferred Holders and
Convertible Note holder, and the exercise of all the warrants by the Warrant
Holders and registration of all the common stock held by the Common Holders and
assumes that a total of 5,463,497 Shares are issued. See "Selling Security
Holders," "Plan of Distribution" and "Description of Capital Stock." The Shares
offered hereby represent approximately 85% of the Company's currently
outstanding Common Stock. The Shares are being offered on a continuous basis
pursuant to Rule 415 under the Securities Act of 1933, as amended (the
"Securities Act"). No underwriting discounts, commissions or expenses are
payable or applicable in connection with the sale of such Shares by the Selling
Security Holders. The Common Stock of the Company is quoted on the National
Association of Securities Dealers, Inc. (the "NASD") OTC Bulletin Board under
the symbol "OMCM". The Shares offered hereby will be sold from time to time at
the then prevailing market prices, at prices relating to prevailing market
prices or at negotiated prices. On August 30, 2000, the last reported sale
price of the Common Stock on the OTC Bulletin Board was $2.19 per share.
This Prospectus may be used by the Selling Security Holders or any
broker-dealer who may participate in sales of the Common Stock covered hereby.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE
AND INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE COMMISSION
PASSED ON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------------
The date of this Prospectus is August 30, 2000.
OmniComm Systems, Inc.
Table of Contents
Form SB-2 Location in
Item No. Item Caption Prospectus
PART I INFORMATION REQUIRED IN PROSPECTUS
1 Front of Registration Statement and Outside Front
Cover of Prospectus
2 Inside Front and Outside Back Cover Pages of
Prospectus
3 Summary Information and Risk Factors
4 Use of Proceeds
5 Determination of Offering Price
6 Dilution
7 Selling Security Holders
8 Plan of Distribution
9 Legal Proceedings
10 Directors, Executive Officers, Promoters and
Control Persons
11 Security Ownership of Certain Beneficial Owners
and Management
12 Description of Securities
13 Interest of Named Experts and Counsel
14 Disclosure of Commission Position on Indemnification
for Securities Act Liabilities
15 Organization Within Last Five Years
16 Description of Business
17 Management's Discussion and Analysis or Plan of Operation
18 Description of Property
19 Certain Relationships and Related Transactions
20 Market for Common Equity and Related Stockholder Matters
21 Executive Compensation
22 Financial Statements
23 Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
24 Indemnification of Directors and Officers
25 Other Expenses of Issuance and Distribution
26 Recent Sales of Unregistered Securities
27 Exhibits
28 Undertakings
PART I INFORMATION REQUIRED IN PROSPECTUS
ITEM NO. 3 SUMMARY INFORMATION
OmniComm Systems, Inc. (the "Company" or "OmniComm") is positioned to take
advantage of and leverage the burgeoning growth in the pharmaceutical, biotech
and medical device industries. TrialMaster(tm) and WebIPA(tm) are Internet based
approaches that upgrade and integrate the significant components of the clinical
trial process - trial management and doctor/patient recruitment - into a
seamless connection between industry, doctors, and patients.
The amount of money and time spent on the current clinical trial model is
staggering. The following points are illustrative of the dynamics:
* It can cost as much as $150,000,000 to bring a drug to market
* 50% of clinical trials are delayed due to a lack of patients
* Drug companies lose as much as $1 million in potential revenue for each day
a trial is delayed on a blockbuster drug such Viagra
* In the United States only 2% of the doctors and 5% of the eligible patients
are involved in clinical trials
The critical component in bringing a drug or medical device to market is the
process by which approval is sought to market the drug or device - a clinical
trial. The current clinical trial model is a business process that is antiquated
and fails to access the considerable resources available such as doctors and
patients that are critical resources for a successful clinical trial.
TrialMaster(tm) is an Internet-based application that manages the clinical
trial process including real time data collection and monitoring. It is
expected that by implementing TrialMaster(tm) industry will realize cost
efficiencies by improving data quality and integrity and shortening the time
to market for medical products and drugs.
WebIPA is an Internet destination site where doctors/patients and industry
converge to benefit from each other's respective needs:
* Industry: The infrastructure for conducting clinical trials has not kept pace
with the demands for growth in the industry.
* Doctors: Doctors are seeking ways to more efficiently conduct their practice
or leverage skills and interests into an increase in revenue.
* Patients: Patients who are ill are seeking new therapies and drugs.
OmniComm will derive revenue from sponsors of clinical trials who utilize
TrialMaster(tm) to manage their trial and who access OmniComm's "Internet Trial
Ready" network of sites and patients.
RISKS RELATED TO OUR BUSINESS MODEL
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT.
Although we were incorporated in 1997, we did not initiate our Internet
operations until August 1998. As a result, we have only a limited operating
history on which you can base an evaluation of our business and prospects. Our
prospects must be considered in light of the risks, uncertainties, expenses and
difficulties frequently encountered by companies in their early stages of
development, particularly companies in new and rapidly evolving markets like
ours. Our failure to successfully address these risks and uncertainties could
have a material adverse effect on our financial condition. Some of these risks
and uncertainties relate to our ability to:
- attract and maintain a base of end users;
- develop our infrastructure, including additional hardware and software;
- provide customer support, personnel and facilities, to support our business;
- develop and introduce desirable services;
- establish and maintain strategic relationships with distribution partners;
- establish and maintain relationships with industry ;
and
- respond effectively to competitive and technological developments.
WE ARE COMPETING IN A NEW MARKET WHICH MAY NOT DEVELOP OR IN WHICH WE MAY FAIL
TO GAIN MARKET ACCEPTANCE.
The market for our business model in the healthcare industry is new and
rapidly evolving. As a result, uncertainty as to the level of demand and market
acceptance exposes us to a high degree of risk. We cannot assure you that the
healthcare community will accept electronic data collection or utilizing the
Internet to enhance doctor and patient participation in the clinical trial
industry. If the market for electronic data collection or utilizing the Internet
to enhance doctor and patient participation in the clinical trial fails to
develop, develops more slowly than expected or becomes saturated with
competitors, or if our services do not achieve or sustain market acceptance,
our business will suffer.
FAILURE TO EFFECTIVELY MANAGE THE GROWTH OF OUR OPERATIONS AND INFRASTRUCTURE
COULD DISRUPT OUR OPERATIONS AND PREVENT US FROM GENERATING THE REVENUES WE
EXPECT.
We currently are experiencing a period of expansion in the development of
online clinical trials utilizing the TrialMaster(tm) system. To manage our
growth, we must successfully implement, constantly improve and effectively
utilize our operational and financial systems while aggressively expanding our
workforce. We must also maintain and strengthen the breadth and depth of our
current strategic relationships while rapidly developing new relationships. Our
existing or planned operational and financial systems may not be sufficient to
support our growth, and our management may not be able to effectively identify,
manage and exploit existing and emerging market opportunities. If we do not
adequately manage our potential growth, our business will suffer.
WE MAY BE UNABLE TO MAINTAIN OUR EXISTING RELATIONSHIPS WITH OUR DISTRIBUTION
PARTNERS OR TO BUILD NEW RELATIONSHIPS WITH OTHER DISTRIBUTION PARTNERS.
If we are not successful in developing and enhancing our relationships with
end users of our services, we could become less competitive and revenues may not
occur. We formed our existing relationships recently, and end users may not view
their relationships with us as significant to the success of their business. As
a result, they may reassess their commitment to us or decide to compete directly
with us in the future. We generally do not have agreements that prohibit our
distribution partners from competing against us directly or from contracting
with our competitors.
WE MAY BE UNABLE TO IMPLEMENT OUR ACQUISITION GROWTH STRATEGY, WHICH COULD HAVE
AN ADVERSE EFFECT ON OUR BUSINESS AND COMPETITIVE POSITION IN THE INDUSTRY.
Our business strategy includes increasing our market share and presence
through strategic acquisitions that complement or enhance our business. We do
not have substantial experience in completing and integrating large acquisitions
or multiple simultaneous acquisitions. In addition, we do not have experience
operating multiple remote offices. We may have difficulty integrating the
operations and realizing the results of these recently completed acquisitions.
We may not be able to identify, complete, integrate the operations or realize
the anticipated results of future acquisitions. Some of the risks that we may
encounter in implementing our acquisition growth strategy include:
- expenses associated with and difficulties in identifying potential targets and
the costs associated with acquisitions that are not completed;
- expenses, delays and difficulties of integrating the acquired company into our
existing organization;
- diversion of management's attention from other business matters;
- expense of amortizing the acquired company's intangible assets;
- adverse impact on our financial condition due to the timing of the
acquisition; and
If any of these risks are realized, our business could suffer.
OUR FUTURE SUCCESS DEPENDS ON REVENUES FROM CLINICAL TRIAL PARTICIPANTS AND THE
ACCEPTANCE AND EFFECTIVENESS OF ONLINE CLINICAL TRIALS IS UNCERTAIN.
We plan to derive revenues from industry such as pharmaceutical, medical
device, and biotech companies. The market for our services on the Internet is
new and rapidly evolving. Industry has limited or no experience with Internet
based clinical trials, and may ultimately conclude that Internet based clinical
trials are not effective relative to traditional clinical trial models. As a
result, the market for Internet based clinical trials may not continue to emerge
or become sustainable. This makes it difficult to project our future revenues.
If the market for Internet based clinical trials fails to develop or develops
more slowly than we expect, our business will suffer.
WITHOUT THE CONTINUED DEVELOPMENT AND MAINTENANCE OF THE INTERNET AND THE
AVAILABILITY OF INCREASED BANDWIDTH, OUR BUSINESS MAY NOT SUCCEED.
Given the online nature of our business, without the continued development
and maintenance of the Internet infrastructure, we could fail to meet our
overall strategic objectives and ultimately fail to generate the revenues we
expect. This continued development of the Internet includes maintenance of a
reliable network with the necessary speed, data capacity and security, as well
as timely development of complementary products for providing reliable Internet
access and services. Because commerce on the Internet and the online exchange of
information is new and evolving, we cannot predict whether the Internet will
prove to be a viable commercial marketplace in the long term.
The Internet has experienced, and is likely to continue to experience,
significant growth in the numbers of users and amount of traffic. As the
Internet continues to experience increased numbers of users, increased frequency
of use and increased bandwidth requirements, the Internet infrastructure may be
unable to support the demands placed on it. In addition, increased users or
bandwidth requirements may impair the performance of the Internet. The Internet
has experienced a variety of outages and other delays as a result of damage to
portions of its infrastructure, and it could face outages and delays in the
future. These outages and delays could reduce the level of Internet usage.
FINANCIAL RISKS
WE MAY NOT BE ABLE TO FORECAST OUR REVENUES ACCURATELY BECAUSE WE HAVE A LIMITED
OPERATING HISTORY.
As a result of our limited operating history, we do not have historical
financial data for a significant number of periods upon which to forecast
quarterly revenues and results of operations. We believe that period-to-period
comparisons of our operating results are not meaningful and should not be relied
upon as indicators of future performance. In addition, our operating results may
vary substantially. The actual effect of these factors on the price of our
stock, however, will be difficult to assess due to our limited operating
history. In one or more future quarters, our results of operations may fall
below the expectations of securities analysts and investors, and the trading
price of our common stock may decline.
WE EXPECT NET LOSSES IN THE FUTURE AND MAY NEVER ACHIEVE PROFITABILITY, WHICH
MAY CAUSE OUR STOCK PRICE TO FALL.
In 1999, we had net loss of approximately $2,341,237. We expect net losses
and negative cash flow for the foreseeable future and significant increases in
our operating expenses over the next several years. With increased expenses, we
will need to generate significant additional revenues in order to achieve
profitability. As a result, we may never achieve or sustain profitability and,
if we do achieve profitability in any period, we may not be able to sustain or
increase profitability on a quarterly or annual basis.
WE MAY NOT BE ABLE TO MEET OUR STRATEGIC BUSINESS OBJECTIVES UNLESS WE OBTAIN
ADDITIONAL FINANCING, WHICH MAY NOT BE AVAILABLE TO US ON FAVORABLE TERMS OR AT
ALL.
The Company will need to raise additional funds to meet operational needs
and to fund its strategic business objectives. We cannot assure you that
additional financing will be available on terms favorable to us, or at all. If
adequate funds are not available or are not available on acceptable terms, our
ability to fund our expansion, take advantage of available opportunities,
develop or enhance services or products or otherwise respond to competitive
pressures would be significantly limited. If we raise additional funds by
issuing equity or convertible debt securities, the percentage ownership of our
shareholders will be reduced, and these securities may have rights, preferences
or privileges senior to those of our shareholders.
RISKS RELATED TO SALES, MARKETING AND COMPETITION
WE EXPECT COMPETITION TO INCREASE SIGNIFICANTLY IN THE FUTURE THAT COULD REDUCE
OUR REVENUES, POTENTIAL PROFITS AND OVERALL MARKET SHARE.
The market for Internet based clinical trials is competitive. Barriers to
entry on the Internet are relatively low, and we expect competition to increase
significantly in the future. We face competitive pressures from numerous actual
and potential competitors, both online and offline, many of which have longer
operating histories, greater brand name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than we do.
We cannot assure you that the Internet based clinical trials maintained by our
existing and potential competitors will not be perceived by the healthcare
community as being superior to ours.
RISKS RELATED TO OPERATIONS
WE MAY BE UNABLE TO ADEQUATELY DEVELOP OUR SYSTEMS, PROCESSES AND SUPPORT IN A
MANNER THAT WILL ENABLE US TO MEET THE DEMAND FOR OUR SERVICES.
We have just recently initiated our online operations and are developing
our ability to provide our TrialMaster(tm) on a transactional basis over the
Internet as an Application Service Provider. Our future success will depend on
our ability to develop effectively the infrastructure, including additional
hardware and software, and implement the services, including customer support,
necessary to meet the demand for our services. In the event we are not
successful in developing the necessary systems and implementing the necessary
services on a timely basis, our revenues could be adversely affected, which
would have a material adverse effect on our financial condition.
OUR BUSINESS OPERATIONS COULD BE SIGNIFICANTLY DISRUPTED IF WE LOSE MEMBERS OF,
OR FAIL TO INTEGRATE, OUR MANAGEMENT TEAM.
Our future performance will be substantially dependent on the continued
services of our management team and our ability to retain them. The
loss of the services of any of our officers or senior managers could harm our
business, as we may not be able to find suitable replacements.
WE MAY NOT BE ABLE TO HIRE AND RETAIN A SUFFICIENT NUMBER OF QUALIFIED EMPLOYEES
AND, AS A RESULT, WE MAY NOT BE ABLE TO GROW AS WE EXPECT OR MAINTAIN THE
QUALITY OF OUR SERVICES.
Our future success will depend on our ability to attract, train, retain and
motivate other highly skilled technical, managerial, marketing and customer
support personnel. Competition for these personnel is intense, especially for
engineers and programmers, and we may be unable to successfully attract
sufficiently qualified personnel. We have experienced difficulty in the past
hiring qualified personnel in a timely manner for these positions. The pool of
qualified technical personnel, in particular, is limited in Miami, Florida,
which is where our headquarters are located. We will need to increase the size
of our staff to support our anticipated growth, without compromising the quality
of our offerings or customer service. Our inability to locate, hire, integrate
and retain qualified personnel in sufficient numbers may reduce the quality of
our services.
RISKS RELATED TO GOVERNMENT REGULATION, CONTENT AND INTELLECTUAL PROPERTY
GOVERNMENT REGULATION MAY REQUIRE US TO CHANGE THE WAY WE DO BUSINESS.
The laws and regulations that govern our business change rapidly. The
United States government and the governments of states and foreign countries
have attempted to regulate activities on the Internet. Evolving areas of law
that are relevant to our business include privacy laws and proposed encryption
laws. More specifically, the Food and Drug Administration has been active in
looking at and developing regulatory guidance in the area of Internet based
clinical trials. Because of this rapidly evolving and uncertain regulatory
environment, we cannot predict how these laws and regulations might affect our
business. In addition, these uncertainties make it difficult to ensure
compliance with the laws and regulations governing the Internet.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, AND WE MAY BE LIABLE FOR
INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
Our business could be harmed if unauthorized parties infringe upon or
misappropriate our proprietary systems, content, services or other information.
Our efforts to protect our intellectual property through copyright, trademarks
and other controls may not be adequate. In the future, litigation may be
necessary to enforce our intellectual property rights or to determine the
validity and scope of the proprietary rights of others, which could be time
consuming and costly. Intellectual property infringement claims could be made
against us as the number of our competitors grows. These claims, even if not
meritorious, could be expensive to defend and could divert our attention from
operating our company. In addition, if we become liable to third parties for
infringing their intellectual property rights, we could be required to pay a
substantial damage award and develop comparable non-infringing intellectual
property, to obtain a license or to cease providing the content or services that
contain the infringing intellectual property. We may be unable to develop non-
infringing intellectual property or obtain a license on commercially reasonable
terms, or at all.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements in "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and elsewhere. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," potential" or "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors, including the risks outlined
under "Risk Factors," that may cause our or our industry's actual results,
levels of activity, performance or achievements to be materially different from
any future results, levels of activity, performance or achievements expressed or
implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus to conform these statements to actual results.
ITEM NO. 4 USE OF PROCEEDS
The immediate gross proceeds to the Registrant from the sale of 115,000
shares of common stock, $.001 par value, at $2.25 per share, is estimated to be
approximately $258,750. The Registrant expects to use such gross proceeds as
shown below:
General working capital $258,750 100%
Total $258,750 100%
ITEM NO. 5 DETERMINATION OF OFFERING PRICE
The Series A Preferred, and Convertible Note shares have conversion
rates that are contractually specified in the instruments establishing the
rights of the Series A Holders and Convertible Note Holders. The Warrants have
negotiated exercise prices built into the instrument. The Common Stock is
only being registered and was previously issued as consideration
for consulting and professional services, and in the acquisition of WebIPA, Inc.
ITEM NO. 6 DILUTION
As of the effective date of this registration statement none of the Selling
Security Holders will be diluted by virtue of this offering. The current price
of Registrant's common stock exceeds the conversion price of the Series A
Preferred, and the Convertible Note, and also exceeds the strike price of the
Warrants.
ITEM NO. 7 SELLING SECURITY HOLDERS
The Series A Preferred, Convertible Note, Warrant, and Common Stock
Selling Security Shareholders are individuals and companies. The registration
statement of which this Prospectus is a part is being filed, and the Shares
offered hereby are included herein, pursuant to registration rights as provided
for in the subscription agreements entered into between the Company and the
Selling Security Holders (collectively, the "Registration Rights"). Due to the
uncertainty as to how many of the Selling Security Holders will convert either
the Series A Preferred or Convertible Notes or exercise the Warrants, the
Company is unable to determine the exact number of Shares that will actually be
sold pursuant to this Prospectus. The maximum numbers of Shares that the Selling
Security Holders will be able to convert, exercise, or register which are
subject to this registration statement are 5,463,497 Shares of the Company.
The Series A Preferred Holders
The Selling Security Holders identified in the table below as "Series A
Preferred Holders" acquired an aggregate of 4,313,500 shares of the Series A
Preferred in a private placement transaction. Upon conversion, each $1.50 of the
Series A Preferred is equal to one share of Common Stock. Accordingly,
if all Series A Preferred Holders decide to convert the Company would issue
2,875,665 common shares.
Registration Rights - Series A Preferred Holders
Pursuant to the terms and conditions of the subscription agreement for the
Series A Preferred, a majority of the Series A Preferred Holders may request
registration of the underlying common shares after the sixth (6) month following
the closing of the offering of the Series A Preferred. Pursuant to the terms and
conditions of the subscription agreement for the Series A Preferred, upon such a
request, the Company will: (a) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; (b) as soon as
practicable, use its best efforts to effect such registration (including,
without limitation, appropriate qualification under applicable regulations
issued under the Securities Act and any other governmental requirements or
regulations) as may be so requested and as would permit or facilitate the sale
and distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
a written request received by the Company within 20 days after receipt of such
written notice from the Company; and, (c) set forth in the written notice the
number of Registrable Securities each Holder may include in such registration.
The total number of Registrable Shares to be included shall be determined as a
percentage of the number of Registrable Shares issuable upon conversion of the
Preferred Shares beneficially owned by the Holder and the total number of shares
issued and outstanding.
The Convertible Note Holders
The Selling Security Holders identified in the table below as "Convertible
Note Holders" invested an aggregate of $862,500 in a private placement
transaction. Upon conversion, each $1.25 is equal to one share of Common Stock.
Accordingly, if all Convertible Note Holders decide to convert the Company would
issue 690,000 common shares.
Registration Rights - Convertible Note Holders
Pursuant to the terms and conditions of the subscription agreement for the
Convertible Note, if at any time or from time to time the Company shall
determine to register any of its securities, either for its own account or the
account of a security holder or holders, other than a registration relating
solely to employee benefit plans or a registration relating solely to a
Commission Rule transaction, the Company will: promptly give to each Holder
written
notice thereof; include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made within 20 days after receipt of such written notice from the
Company, by any Shareholder; and, set forth in the written notice the number of
Registrable Securities each Shareholder may include in each such registration.
The total number of Registrable Shares to be included shall be determined as a
percentage of the number of Registrable Shares beneficially owned by the
Shareholder and the total number of shares issued and outstanding.
Warrant Holders
The Selling Security Holders identified in the table below as "Warrant Holders"
acquired warrants to purchase an aggregate of 115,000 shares of common stock.
Registration Rights - Warrant Holders
Pursuant to the terms and conditions of the warrant agreement, if at any time or
from time to time the Company shall determine to register any of its securities,
either for its own account or the account of a security holder or holders, other
than a registration relating solely to employee benefit plans or a registration
relating solely to a Commission Rule transaction, the Company will: promptly
give to each Holder written notice thereof; include in such registration (and
any related qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made within 20 days after receipt of such written
notice from the Company, by any Shareholder; and, set forth in the written
notice the number of Registrable Securities each Shareholder may include in each
such registration.
The following tables identifies each Selling Security Holder based upon
information provided to the Company, set forth as of August 14, 2000, with
respect
to the Shares beneficially held by or acquirable by, as the case may be, each
Selling Security Holder and the shares of Common Stock beneficially owned by the
Selling Security Holder which are not covered by this Prospectus. No Selling
Security Holder has had any position, office or other material relationship with
the Company within the past three years. The percentage figures reflected in the
table assumes conversion of all shares of: Series A Preferred into 2,875,665
shares of Common Stock and Convertible Notes into 690,000 shares of Common
Stock.
Selling Security Holders - Series A Preferred Holders
Amount to Amount Owned Before Percentage Owned
Name Be Offered The Offering After the Offering
Jaap Hoff 200,000 185,857 4.41%
Everest Investment 266,667 150,000 4.77%
Onno Schamhart 33,333 0 *
Financial Trading
& Consultancy 100,000 0 1.14%
Ad Klinkenberg 133,333 0 1.53%
Keijser and Co 66,667 0 *
De Heer Dreesens 133,333 0 1.53%
Steve Yeung 66,667 0 *
Jan Willem van den
Dorpel 133,333 0 1.53%
Denison Smith 30,000 0 *
Appie Wouters 33,333 0 *
Leonard Epstein 33,333 0 *
Michiel Scholtien 83,333 0 *
M.Visser 133,333 0 1.53%
Alvin Stroyny 33,333 0 *
Nathan Jacobson 100,000 0 1.14%
Guy Vercanteren 33,333 0 *
Abdel Karim Badr 46,667 0 *
Guy Brisette 60,000 0 *
Peter van Kesteren 8,333 0 *
Harvey Babbitt 30,000 0 *
Robert A. Wolfe 30,000 0 *
Peter Marchisello 13,333 0 *
Mary Jo Marchisello 16,667 0 *
Mary Jo Marchisello 30,000 0 *
Bert van Deun 100,000 0 1.14%
Max Power 33,333 0 *
Pieter Versteeg 66,667 0 *
Randall Smith 15,000 0 *
Eric B.Sivertsen 15,000 0 *
Frido van Kesteren 30,000 0 *
Carlos Muhletaler 30,000 0 *
Marianne Creyf-
Theeboom 73,333 0 *
van Moer Santerre
Luxembourg 166,667 0 1.91%
Profrigo SA NV 400,000 0 4.58%
Lawrence Terry 30,667 0 *
Banque Meespierson 66,667 0 *
Selling Security Holders - Convertible Note Holders
Amount to Amount Owned Before Percentage Owned
Name Be Offered The Offering After the Offering
Bert Amador 20,000 0 *
Debabrata Chakrabarty
IRA 20,000 0 *
Andrew & Marilyn Edson
Trustee 20,000 0 *
Michael Ettinger 30,000 0 *
Eva D. Glass 10,000 0 *
Claude Haussman 10,000 0 *
Charlotte Harowitz 60,000 0 *
Clifford Jacobson 40,000 0 *
Harvey Jacobson 10,000 0 *
Ronald Kassover 20,000 0 *
Harvey Manes 20,000 0 *
Abraham Masliansky 40,000 0 *
Richard B. Montanye 20,000 0 *
Modern Technology Corp 80,000 0 *
Rachel Nevitt 20,000 0 *
Thomas & Rose Perretta 20,000 0 *
Joseph H. Popolow, IRA 10,000 0 *
Khal Racfert 40,000 0 *
Elliot& Arlene
Schwartz 20,000 0 *
Elliot Schwartz 30,000 0 *
Jacob & Yosepha
Solomon 10,000 0 *
Paul Sullivan 10,000 0 *
Martin Troll 20,000 0 *
Else Wolfermann 40,000 0 *
Louis & Irene Katz 20,000 0 *
Henk Kos 10,000 0 *
Cees Baas 20,000 0 *
Kleanthi Xenopoulos 20,000 0 *
Warrant Holders
Amount to Amount Owned Before Percentage Owned
Name Be Offered The Offering After the Offering
Wesley Pritchett 20,000 0 *
Andy Fiske 40,000 0 *
Noesis, N.V. 20,000 0 *
Linda Grable 35,000 0 *
Common Holders
Amount to Amount Owned Before Percentage Owned
Name Be Offered The Offering After the Offering
Jaap Hoff 185,857 185,857 4.41%
Park & Co. 71,710 71,710 *
Noesis International
Holding 179,599 179,599 2%
Noesis NV 300,000 300,000 3.40%
Water Oak Investments 295,666 295,666 3.30%
Everest Holdings 150,000 150,000 4.77%
Eugene Gordon 600,000 900,000 10.30%
ITEM NO. 8 PLAN OF DISTRIBUTION
The registration statement of which this Prospectus forms a part has been filed
pursuant to Registration Rights. To the Company's knowledge, as of the date
hereof, no Selling Security Holder had entered into any agreement, arrangement
or understanding with any particular broker or market maker with respect to the
Shares offered hereby, nor does the Company know the identity of the brokers or
market makers which will participate in the offering.
The Shares covered hereby may be offered and sold from time to time by the
Selling Security Holders. The Selling Security Holders will act independently of
the Company in making decisions with respect to the timing, manner and size of
each sale. Such sale may be made on the OTC Bulletin Board or otherwise, at
prices and on terms then prevailing or at prices related to the then market
price, or in negotiated transactions. The Shares may be sold by one or more of
the following methods: (a) a block trade in which the broker-dealer engaged by
the Selling Security Holder will attempt to sell Shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by the broker-dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus; and (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers.
To the best of the Company's knowledge, the Selling Security Holders have not,
as of the date hereof, entered into any arrangement with a broker or dealer for
the sale of shares through a block trade, special offering, or secondary
distribution of a purchase by a broker-dealer. In effecting sales, broker-
dealers engaged by the Selling Security Holders may arrange for other broker-
dealers to participate. Broker-dealers will receive commissions or discounts
from the Selling Security Holders in amounts to be negotiated.
In offering the Shares, the Selling Security Holders and any broker-
dealers who execute sales for the Selling Security Holders may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales, and any profits realized by the Selling Security Holders and the
compensation of such broker-dealer may be deemed to be underwriting discounts
and commissions.
Rule 10b-6 under the Exchange Act prohibits participants in a distribution
from bidding for or purchasing for an account in which the participant has a
beneficial interest, any of the securities that are the subject of the
distribution. Rule 10b-7 under the Exchange Act governs bids and purchases made
to stabilize the price of a security in connection with a distribution of the
security.
This offering will terminate as to each Selling Security Holder on the
date on which all Shares offered hereby have been sold by the Selling Security
Holders. There can be no assurance that any of the Selling Security Holders will
sell any or all of the shares of Common Stock offered hereby.
ITEM NO. 9 LEGAL PROCEEDINGS
In the Circuit Court of the 11th Judicial Circuit in and for Miami-Dade County,
Florida, SPP Real Estate, Inc. filed suit on May 24, 2000 for damages and other
relief against OmniComm Systems, Inc. concerning the breach of a lease for real
property.
ITEM NO. 10 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Dr. David Ginsberg, 53, Chief Executive Officer and President. Dr. Ginsberg has
been Chief Executive Officer and President since August 1, 2000. Prior to
joining the
Company Dr. Ginsberg served as Vice President of Field Operations for
Wyeth-Ayerst
from 1998 to 2000. Dr. Ginsberg served as President of Concorde Clinical
Research from 1994 to 1997.
Cornelis F. Wit, 54, Chief Executive Officer and Director. Mr. Wit has been a
Director of the Company since 1999 and shall serve until the next annual
meeting. Mr. Wit served as interim CEO of the Company from June 30, 2000 until
August 1, 2000. Mr. Wit is President of Corporate Finance of Noesis Capital
Corp.,
an international banking and money management firm. Mr. Wit was formerly
President and CEO of DMV Inc., the North American subsidiary of Campina
Melkunie.
Randall G. Smith, 43, Chief Technical Officer, Chairman and Director. Mr. Smith
has
been a Director of the Company since 1997 and shall serve until the next annual
meeting. From 1997 until the present date Mr. Smith has been an officer and
director of OmniComm Systems, Inc. Mr. Smith served as President of the Company
until August 1, 2000. From December 1995 to May 1997 Mr. Smith was Director of
Operations for Global Communications Group.
Clifton Middleton, 52, Executive Vice President. Mr. Middleton is the Executive
Vice President responsible for Internet Applications. He has served in this
capacity since June of 1998. From 1993 to June of 1998 Mr. Middleton was
President of Education Navigator, Inc.
Guus van Kesteren, 59, Director. Mr. Van Kesteren has been a Director of the
Company since 1999 and shall serve until the next annual meeting. Mr. Van
Kesteren is a consultant to Noesis Capital Corp., an international banking and
money management firm. Mr. Van Kesteren was formerly Vice President of Janssen
Pharmaceuticals, a subsidiary of Johnson & Johnson, responsible for the
pharmaceutical business in South East Asia, Australia, and New Zealand.
Jan Vandamme, 40, Director. Mr. Vandamme has been a Director of the Company
since 1999 and shall serve until the next annual meeting. Mr. Vandamme is CEO of
Profrigo SA, a 110-year old investment company which invests primarily in
internet and communication technology companies in both Europe and the US. Prior
of his involvement in Profrigo SA, Mr. Vandamme was the founder of United
Callers, one of Europe's first Internet Access and Service Provider companies.
ITEM NO. 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership
of
our common stock as of August 14, 2000, with respect to (i) each person know to
us to be the beneficial owner of more than 5% of our common stock, (ii) each
director, (iii) each executive officer named in the summary Compensation Table,
and (iv) all of our directors and officers as a group:
Name and Address(1) # of Shares(2) % of Class
Randall G. Smith 811,929 9.28%
Eugene Gordon 900,000 10.30%
Peter S. Knezevich 645,285 7.38%
Clifton Middleton 197,388 2.25%
Cees Wit (3) 65,000 0%
Guus Van Kesteren (3) 65,000 0%
Jan Vandamme 0 0%
All directors and
Officers as a group
(7 people) 2,684,602 29.21%
(1) The address for each person, unless otherwise noted, is 3250 Mary Street,
Suite 402, Miami, Florida 33133.
(2) In accordance with Rule 13d-3 of the Exchange Act, shares that are not
outstanding, but that are subject to options, warrants, rights or conversion
privileges exercisable within 60 days from August 30, 2000.
(3) Includes 65,000 shares issuable upon
the exercise of currently exercisable stock warrants.
ITEM NO. 12 DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, $.001 par value per share and 10,000,000 million shares of
Preferred Stock, $.001 par value.
Holders of the Common Stock are entitled to receive dividends when and as
declared by the Company's Board of Directors out of funds available therefore.
Any such dividends may be paid in cash, property or shares of the Common Stock.
The Company has not paid any dividends since its inception and presently
anticipates that all earnings, if any, will be retained for development and
expansion of the Company's business, and that no dividends on the Common Stock
will be declared in the foreseeable future. Any future dividends will be
subject to the discretion of the Company's Board of Directors and would depend
upon, among other things, future earnings, the operating and financial condition
of the Company, its capital requirements, and general business conditions.
Each holder of Common Stock is entitled to one vote per share on all
matters, including the election of directors, submitted to a vote of such class.
Holders of Common Stock do not have cumulative voting rights. The absence of
cumulative voting means that the holders of more than 50% of the shares voting
for the election of directors can elect all directors if they choose to do so.
In such event, the holders of the remaining shares of the Common Stock will not
be entitled to elect any director. The Board of Directors shall be elected each
year to a one year term. A majority of the shares entitled to vote, represented
in person or by proxy, constitutes a quorum at a meeting of shareholders.
On June 25, 1999 the Company amended its article of incorporation pursuant
to section Chapter 8, Subchapter VII, Section 228 and 242 of the laws of the
State of Delaware to authorize the issuance of preferred shares. In accordance
with Chapter 8, Subchapter VII, Section 151 of the laws of the State of Delaware
the Board of Directors of OmniComm Systems, Inc. shall have the authority to
divide the preferred stock into as many series as it shall from time to time
determine. The Board of Directors shall also determine the number of shares
comprising each series of preferred stock, which number may, unless otherwise
provided by the board of directors in creating such series, be increased from
time to time by action of the board of directors. Each series of preferred
stock shall be so designated as to distinguish such series from the shares of
each other series. All series of preferred stock shall be of equal rank and
have the same powers, preferences and rights, and shall be subject to the same
qualifications, limitations and restrictions, without distinction between the
shares of different series thereof; provided, however, that there may be
variations among different series of preferred stock as to dividend rates,
prices, terms, conditions of redemption, if any, liquidation rights, and terms
and conditions of conversion, if any, which variations may be fixed and
determined by the board of directors in their discretion.
On July 19, 1999 the Board of Directors, pursuant to Chapter 8, Subchapter
VII, Section 151 of the laws of the State of Delaware, filed a with the State of
Delaware a Certificate of Designation authorizing the creation of a 5% Series A
Convertible Preferred stock. The terms of the Preferred 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.
ITEM NO. 13 INTEREST OF NAMED EXPERTS AND COUNSEL
None.
ITEM NO. 14 DISCLOSURE OF COMMISSION POSTIION ON INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES
Article VI of the Company's Articles of Incorporation authorizes the Company to
indemnify directors and officers as follows:
1. So long as permitted by law, no director of the corporation shall be
personally liable to the corporation or its shareholders for damages for breach
of any duty owed by such person to the corporation or its shareholders;
provided, however, that, to the extent required by applicable law, this Article
shall not relieve any person from liability for any breach of duty based upon an
act or omission (i) in breach of such person's duty of loyalty to the
corporation or its shareholders, (ii) not in good faith or involving a knowing
violation of law or (iii) resulting in receipt by such person of an improper
personal benefit. No amendment to or repeal of this Article and no amendment,
repeal or termination of effectiveness of any law authorizing this Article shall
apply to or effect adversely any right or protection of any director for or with
respect to any acts or omissions of such director occurring prior to such
amendment, repeal or termination of effectiveness.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the forgoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against the
public policy as expressed in the Act and is, therefore, unenforceable.
ITEM NO. 15 BUSINESS WITHIN PAST FIVE YEARS
BUSINESS DEVELOPMENT
Coral Development Corp. ("Coral") was incorporated under the laws of the
State of Delaware on November 16, 1996 as a wholly owned subsidiary of Modern
Technology Corp. ("MTC") a Delaware corporation who received 403,000 shares of
common stock of Coral in exchange for $30,000.
In June of 1997, Coral registered 403,000 shares of common stock to be
distributed to the shareholders of MTC as a shared dividend. The registration
and issuance of the shares was subject to the provisions of Rule 419 ("Rule
419") of Regulation C of the Rules and Regulations of the Securities Act of
1933, as amended.
Rule 419 sets forth the requirements that apply to every registration
statement filed under the Act relating to an offering by a "blank check
company". A "blank check company" is a company that is a development stage
company that has no specific plan or purpose or has indicated that its business
plan is to engage in a merger or acquisition with an unidentified company or
companies, or other entity or person. At the time of filing the registration
statement, Coral was a "blank check company". The main requirements of Rule 419
are: escrowing the securities that are subject to the registration statement
prior to issuance of the securities and consummating a transaction within 18
months of filing the registration statement.
Coral and OmniComm Systems, Inc. (the "Company") entered into an Agreement
and Plan of Merger on July 22, 1998. The terms of the agreement provided that
all of the issued and outstanding shares of OmniComm Systems, Inc. would be
exchanged for 940,000 shares of common stock of Coral. The officers and
directors of Coral would resign and the name of Coral would be changed to
OmniComm Systems, Inc. Further, as part of the plan of merger, the five OmniComm
shareholders would receive options representing an additional 2,687,000 shares
of common stock of the Company. The options will vest in the event the Company
generates $4,000,000 in gross revenue on a cumulative basis. The issuance of the
shares subject to the options will cause substantial dilution to the existing
shareholders.
Coral had until December 5, 1998 (18 months from the filing date of the
Form SB-2 - June 5, 1997) to finalize a transaction. Prior to entering into the
Agreement and Plan of Merger, the Company acquired Education Navigator, Inc. on
June 26, 1998. The closeness in time of these two transactions presented a
logistical problem in completing due diligence and providing audited financial
statements for OmniComm Systems, Inc. and especially Education Navigator, Inc.
which did not have audited financial statements. To further complicate the
matter, the financial statements when completed needed to be presented in such a
way so as to show pro-forma information as if the mergers had occurred a year
earlier. Coral received a comment letter from the Securities Exchange Commission
concerning the Post-Effective amendment to the SB-2. It was clear from the
comments that Coral and the Company would not make the deadline on December 5,
1998 so the SB-2 was withdrawn. Coral and the Company understood that if the SB-
2 did not become effective by December 5, 1998, they would have to re-file the
registration statement since it was very unlikely that an extension would be
given. The shares that had been held in escrow pursuant to Rule 419 were
returned to MTC.
Since the parties were specifically identified for purposes of an
acquisition it was felt that the proscriptions of Rule 419 would not apply and
the safeguards for issuance of the shares such as the escrow requirements would
not have to be adhered to which would shorten the time period for completing the
transactions. In addition, the Division of Corporate Finance had issued Staff
Legal Bulletin No. 4, which gave specific guidance to the parties for the type
of transaction that was contemplated.
The Company and Coral continued with their plans to finalize the merger
and to become a reporting company. The parties executed an Amended Agreement and
Plan of Merger to include MTC, the parent of Coral, as a party for the sole
purpose of issuing the shares in accordance with the Agreement and Plan of
Merger. A Form 10-SB was filed on December 22, 1998 to register the common
shares of Coral, pursuant to Section 12(g) of the Securities Exchange Act of
1934. The Company and Coral finalized the merger on February 17, 1999.
ITEM NO. 16 DESCRIPTION OF BUSINESS
BUSINESS OF ISSUER
OmniComm Systems, Inc. (the "Company" or "OmniComm") is marketing and
implementing TrialMaster(tm) and WebIPA(tm). TrialMaster(tm) and WebIPA(tm) are
Internet based approaches that integrate the significant components of the
clinical trial process - trial management and doctor/patient recruitment - into
a seamless connection between industry, doctors, and patients.
The critical component in bringing a drug or medical device to market is the
process by which approval is sought to market the drug or device. The amount of
time and money spent on the process are enormous. The following points are
illustrative of the business process:
* It can cost as much as approximately $150,000,000 to bring a drug to market
* 50% of clinical trials are delayed due to a lack of patients
* For every day a drug is in clinical trials a sponsor can lose as much as
$1 million in sales.
* In the United States only 2% of the doctors and 5% of the eligible patients
are involved in clinical trials
A fundamental way that the Internet is transforming business is the way in
which it transforms institutional business processes such as clinical trials.
The Internet enables information to be easily and widely distributed and
allows the users of the information to use tools - web-based applications -
to benefit from and use the information.
WebIPA(tm) is the means by which the information is accessed and
TrialMaster(tm) is the tool by which the information is distributed and used.
Clinical Trial Industry Overview
Worldwide research and development expenditures by the pharmaceutical and
biotechnology industries reached an estimated $50 billion in 1999 with $24
billion being spent by US based pharmaceutical companies. Further, research and
development expenditures in 1999 for the top 50 pharmaceutical increased
approximately 14% from the previous year. It is estimated that pre-clinical and
clinical trial costs represent approximately one-third of the total spent on
research and development.
The Company believes that certain industry and regulatory trends have led
pharmaceutical, biotechnology, cosmetic and device companies to increase
research and development for proprietary new drugs, cosmetics and medical
devices. These trends have required companies to conduct increasingly complex
clinical trials, and develop multinational clinical trial capability, while
seeking to control fixed costs. The trends driving the industry's growth can be
summarized as follows:
* Drug Development Pressures.
* Globalization of Clinical Development and Regulatory Strategy.
* Increasingly Complex and Stringent Regulation; Need for Technological
Capabilities.
* Competitive Pressures.
* Growth of Biotechnology and Genomics Industries.
These trends have created even greater competitive demands on the industry
to bring products to market efficiently and quickly.
CLINICAL TRIAL OVERVIEW
In order for a drug or device to be marketed in the United States, Europe or
Japan, the drug or medical device must undergo extensive testing and regulatory
review in order to determine that the drug or device is safe and effective. The
regulatory review process is time consuming and expensive. A new drug
application (NDA) can take up to 2 years before it is approved. This is in
addition to 3 to 5 years of studies required to provide the data to support the
NDA. The following is an overview of the process that is generally undertaken to
bring a drug or device to market:
(1) Preclinical Research (1 to 3.5 years). In vitro ("test tube") and animal
studies are used to establish the relative toxicity of the drug over a wide
range of doses and to detect any potential to cause birth defects or cancer. If
results warrant continuing development of the drug, the manufacturer will file
an IND (Investigational New Drug Application), upon which the FDA may grant
permission to begin human trials.
(2) Clinical Trials (3.5 to 6 years)
a. Phase I (6 months to 1 year). Basic safety and pharmacology testing is
conducted in 20 to 80 human subjects, usually healthy volunteer testing includes
studies to determine how the drug works, how it is affected by other drugs,
where it goes in the body, how long it remains active, and how it is broken down
and eliminated from the body.
b. Phase II (1 to 2 years). Basic efficacy (effectiveness) and dose-range
testing is conducted in 100 to 200 afflicted volunteers to help determine the
best effective dose, confirm that the drug works as expected, and provide
additional safety data.
c. Phase III (2 to 3 years). Efficacy and safety studies are conducted in
hundreds or thousands of patients at multiple investigational sites (hospitals
and clinics) which can be placebo-controlled trials, in which the new drug is
compared with a placebo or studies comparing the new drug with one or more
drugs with established safety and efficacy profiles in the same therapeutic
category.
d. Treatment Investigational New Drug ("TIND") (may span late Phase II, Phase
III, and FDA review). When results from Phase II or Phase III show special
promise in the treatment of a serious condition for which existing therapeutic
options are limited or of minimal value, the FDA may allow the manufacturer to
make the new drug available to a larger number of patients through the regulated
mechanism of a TIND. Although less scientifically rigorous than a controlled
clinical trial, a TIND may enroll and collect a substantial amount of data from
tens of thousands of patients.
e. New Drug Application ("NDA") Preparation and Submission. Upon completion
of Phase III trials, the manufacturer assembles the statistically analyzed data
from all phases of development into a single large document, the NDA, which
comprises, on average, 100,000 pages.
f. FDA Review & Approval (1 to 1.5 years). Careful scrutiny of data from all
phases of development (including a TIND) is used to confirm that the
manufacturer has complied with regulations and that the drug is safe and
effective for the specific use (or "indication") under study.
g. Post-Marketing Surveillance and Phase IV Studies. Federal regulation
requires the manufacturer to collect and periodically report to the FDA
additional safety and efficacy data on the drug for as long as the manufacturer
markets the drug (post-marketing surveillance).
To support an application for regulatory approval, clinical data must be
collected, reviewed and compiled. Clinical data is collected from the clinical
report forms (CRF) that are submitted to and filled out by an investigator,
typically a doctor or research assistant, who is participating in the clinical
trial. These CRFs can be 5 to 100 pages and document a series of visits by
patients over a period of time.
An integral part of the clinical trial process is the monitoring of the
clinical
sites by monitors. These monitors visit sites throughout the clinical trial to
confirm that the sites are acting in accordance with good clinical practices and
filing out the documentation appropriately.
Once information is collected from the patient/study subject by the
investigators and the relevant portion of the CRF is filled out, it is then
submitted to either the sponsor of the study, such as a pharmaceutical company,
or the clinical research organization (CRO), an entity that has contracted with
the sponsor to conduct the clinical trial. The data is then inputted manually
into a database. Typically, double data entry is used to avoid and resolve
errors.
To alleviate the enormous amount of paperwork that is generated and submitted
for purposes of receiving approval, the United States Food and Drug
Administration ("FDA") promulgated regulations on March 20, 1997 concerning the
electronic submission of data to the FDA: 21 CFR Part 11 "Electronic Records;
Electronic Signatures; Final Rule". Essentially, this regulation provided for
the voluntary submission of parts or all of regulatory records in electronic
format without an accompanying paper copy. Also, the FDA promulgated "Providing
Regulatory Submissions in Electronic Format-General Considerations". More
recently, the FDA promulgated a guidance document "Computerized Systems Used In
Clinical Trials" which provides guidance to industry when utilizing a computer
system in a clinical trial. The FDA, however, does not regulate the TrialMaster
system.
TRIALMASTER(tm)
OmniComm has developed and is marketing as an Application Service Provider
TrialMaster(tm). TrialMaster(tm) is a web-based business-to-business (B2B)
enterprise management system for conducting and managing clinical trials. The
Company utilizes a trial-independent database to quickly generate the necessary
trial data-infrastructure to proceed with the clinical trial process.
It enables participants in the clinical trial process such as pharmaceutical
and
medical device companies, and clinical research organizations (CRO) to utilize
the inherent benefits of the Internet - pervasiveness, scalability, less costly,
and secure - to conduct and manage clinical trials in real-time.
In addition to the following core activities, TrialMaster incorporates
communications, time and financial management, and outcomes tracking. The list
is not exhaustive and all components are not currently available in the current
version but will be available during the middle of the year 2000.
TrialMaster(tm) significantly impacts the clinical trial process in the
following three areas: Data Collection, Validation and Edit Queries, and
Monitoring.
(1) Data Collection Comparison
Clinical data is collected from the Clinical Report Forms (CRF) that are
submitted to and filled out by an investigator - doctor/research assistant - who
is participating in the clinical trial. These forms can be 5 to 100 pages per
patient and encompass a series of visits by patients over a period of time.
Current System
* The cost to process data is approximately $15.00 to $25.00 per page per
patient.
* The time to process the data can take anywhere from 1 - 4 weeks
TrialMaster(tm) System
* The cost to process the data is approximately 5-10 times less than the current
system per page per patient.
* The time to process the data is approximately 1 minute
(2) Validation and Edit Query Comparison
Upon submission, data is reviewed to see whether the collected data is within
certain parameters of the clinical trial, primary validation. If data is outside
of the clinical trial parameters or there are typographical errors or similar
data problems the data collection process will generate an edit query. This edit
query must be submitted to the investigator for resolution and resubmitted for
data processing.
Current System
* The cost to process an edit query is approximately $80-$100 per query. For a
large trial it would not be uncommon to generate 500-1000 edit queries a week.
* The time to process the data can take anywhere from 4-6 weeks
TrialMaster(tm) System
* The number of edit queries is significantly reduced or even eliminated because
the system does the validation when the data is inputted.
* The time to process the data is approximately 1 minute
(3) Monitoring
Monitors are an integral and necessary part of the clinical trial process.
These
individuals travel to the clinical sites to ensure that the investigators are
complying with good clinical practice (GCP) standards. Essentially, their role
is to make sure clinical data is being collected and submitted in a safe, timely
and accurate manner. Monitoring and its associated costs such as travel can make
up one quarter of the total costs of a clinical trial.
Current System
* The cost for a monitoring visit can vary between $1,000 to $3,000 per visit
per site. A trial can have as many as 3-7 visits.
* The time for each visit is usually 1 to 2 days.
TrialMaster(tm) System
* The number of visits can be reduced because the status of sites can be
monitored remotely and in real time.
* Monitoring hours can be reduced by 50% or more.
TrialMaster(tm) is an open system that is fully integratable with existing
legacy data systems such as Oracle(r) and Microsoft SQL(r). The application
utilizes a standard browser such as Internet Explorer 4.0(r).
The cost for implementing the application is based on a data point per page/per
patient fee that will increase or decrease depending on the size of the trial in
terms of patients/subjects and the length of time to conduct the trial.
Current Implementation
The Company is currently involved in a multi-center, multi-national
clinical trial with a major European based medical device company and a European
based clinical research organization. The clinical trial involves 400 patients
in 42 sites throughout Canada, Spain, Europe, and Scandinavia.
The Company is currently in negotiations with a US based pharmaceutical
company and a European based CRO to implement TrialMaster(tm).
WEBIPA(tm) - "ARE YOU INTERNET TRIAL READY(tm)"
Only 2% of the estimated 660,000 United States based doctors and 5% of the
eligible patients participate in the clinical trial process. WebIPA.com is
the means by which the other 98% of the doctors and 95% of the eligible
patients have the opportunity to participate.
WebIPA.com is an Internet destination site where doctors/patients and industry
converge to benefit from each other's respective needs:
* Industry: The infrastructure for clinical trials has not kept pace with the
demands for growth in the industry. Accordingly, the conventional
infrastructure through which industry has been operating to conduct clinical
trials is inadequate. The critical components of this infrastructure are sites
for trials (doctors) and patients. Simply put, too many trials, not enough
patients and doctors.
* Doctors: As a result of managed care doctors have seen a drastic reduction in
income. Doctors are seeking ways to more efficiently conduct their practice or
leverage skills and interests into an increase in revenue.
* Patients: Patients who are ill are seeking new therapies and drugs to make
them well.
OmniComm is marketing TrialMaster(tm) to industry and, based on these contacts
and feedback, expects industry to move its clinical trial practice to the
Internet. OmniComm is marketing to doctors, through WebIPA, the concept of
"Internet Trial Ready". The Company is contracting with doctor groups to bring
them on-line for purposes of participating in clinical trials. De-identifiable
patient data will be utilized to connect industry with a patient through their
doctor to participate in trials.
This convergent approach has recently been endorsed by The IPA (Independent
Physician Association) Association of America to its membership of 883 doctor
groups encompassing 260,000 doctors and 12,000,000 patients. Also, the Company
has recently made "Internet Trial Ready" a 42 physician practice group with
approximately 250,000 patients.
CLINICAL TRIAL PATHWAYS
The Company owns approximately 150 URLs such as "breaststudy.com",
"livertrial.com", "cancertrial.com", "prostatetrial.com", and "aidstrial.com".
The Company through WebIPA plans to utilize these clinical trial pathways for
recruitment purposes and other clinical trial related opportunities.
SALES AND MARKETING
OmniComm has adopted a "push/pull" marketing strategy. The essential components
of the clinical trial industry are pharmaceutical/biotech/medical device,
doctors/patients, and opinion leaders. OmniComm is marketing to all three
components.
TrialMaster(tm)
Although TrialMaster(tm) can be used within any segment of the pharmaceutical,
biotech and medical device industry, to date, OmniComm has taken a deliberative
approach to marketing TrialMaster(tm) to the interventional cardiology market.
This is a $50 billion market, dominated by companies such as Guidant, Johnson &
Johnson, Medtronic, and Eli Lilly. The following are the relevant factors for
approaching the market:
* Access to "validators" for the market.
* Relatively standardized and advanced approach to clinical trial process.
* A very competitive market with relatively short product cycles providing for a
need to get products to market quickly.
* A number of products within the interventional market segment - coronary and
arterial stents - that have an incremental difference which need clinical trials
to show clinical and functional superiority.
* A tight group of opinion leaders within the market segment
The Company is also establishing relationships with "opinion leaders" and
decision-makers in other specialties within the clinical trial industry. In this
regard, the Company has created a Medical Advisory Board to advise the Company
on the development and marketing of the TrialMaster(tm) system. The Medical
Advisory Board will also provide a platform to contact these opinion leaders and
to provide information about the application. OmniComm is also using traditional
methods to market TrialMaster(tm), including advertising in trade periodicals
and attending a number of medical conventions including the European Society of
Cardiology, the American College of Cardiology, and The American Heart
Association.
Currently, the Company has one full time employee headquartered in the
Company's office in Amsterdam who is responsible for sales and marketing of
TrialMaster(tm). In addition, the Company has hired an employee to
assist in the marketing of TrialMaster in the United States.
WEBIPA
The sales and marketing functions for TrialMaster(tm) and WebIPA are separated
within OmniComm because the respective sales cycles are different.
To date, the Company's efforts to market WebIPA have involved The IPA
Association of America ("TIPAAA"). TIPAAA is a non-profit trade association
representing 883 independent physician associations (IPA) which encompass
approximately 260,000 doctors with a patient population of 12,000,000 patients.
TIPAAA has endorsed the "Internet Trial Ready" approach to its membership. The
Company has presented at the TIPAAA annual meeting during March 12-15, 2000. In
addition to TIPAAA, the Company is marketing directly to doctor groups and
doctors who have clinical trial experience.
COMPETITION
There are other entities that compete with the Company's Internet based data
collection system, TrialMaster(tm). Principally, the competitors include Phase
Forward Incorporated, CB Technologies, and Technologix. Most of these
competitors have significantly greater financial, technical and marketing
resources, or name recognition than that of the Company. The Company believes
that the most significant competitive factors it faces is a lack of operating
history and an attendant perception of a lack of experience in competing in such
a changing and competitive environment.
The Company believes, however, that its technical expertise, the knowledge and
experience of its principals of the clinical trial industry, quality of
service and responsiveness to client needs and speed in delivering solutions
will allow it to compete favorably within this environment.
MEDICAL ADVISORY BOARD
Given the Company's basic approach in developing and marketing the
TrialMaster(tm) application, the Company decided to form a Medical Advisory
Board. The purpose of the Board is to advise and consult the Company on the
development, implementation, and marketing of the TrialMaster(tm) application.
Currently, there are five members on the Board:
* Dr. Warren Grundfest: Director, School of BioMedical Engineering, University
of Southern California, Los Angeles, CA.
* Dr. Camilo Ricordi: Senior Researcher, Diabetes Research Institute, University
of Miami, Miami, FL.
* Dr. Bruce Murphy: Director of Medicine of the Arkansas Heart Hospital; and,
Chairman of the Board of the Arkansas Heart Institute, Little Rock, AK.
* Dr. Eugene Schiff: Professor of Medicine; Chief, Division of Hepatology;
Director, Center for Liver Diseases, University of Miami School of Medicine,
Miami, Florida. Dr. Schiff is the author of "Schiff's Diseases of the Liver".
* Dr. James Tcheng: Cardiology Associates, Assistant Professor of Medicine, Duke
University Medical Center
INTELLECTUAL PROPERTY RIGHTS
The Company relies upon a combination of nondisclosure and other
contractual arrangements and trade secrets, copyright and trademark laws to
protect its proprietary rights and the proprietary rights of third parties from
whom the Company licenses intellectual property. The Company enters into
confidentiality agreements with its employees and limits distribution of
proprietary information. There can be no assurance that the steps taken by the
Company in this regard will be adequate to deter misappropriation of proprietary
information or that the Company will be able to detect unauthorized use and take
appropriate steps to enforce its intellectual property rights.
On May 18, 1999, the Company filed a provisional application for a patent on a
"Distributed System and Method for Collecting and Evaluating Clinical Data".,.
Serial No. 60/134,671. The Company filed its final application for the patent
on May 17, 2000
The Company is in the process of registering the trademarks "OMNICOMM
SYSTEMS, INC.", AND "TRIALMASTER" with the U.S. Patent and Trademark Office.
The Company intends to make such other state and federal filings as the Company
deems necessary and appropriate to protect its intellectual property rights.
EMPLOYEES
The Company currently has 32 full time employees.
ITEM NO. 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
Revenues:
Year ended December 31, 1999 compared to December 31, 1998.
Total revenues decreased to $1,259,214 for year 1999 from $1,689,794 for
year 1998. This decrease in revenue is attributed to a decision made by
management to cease its systems integration business during the 3rd quarter of
1999. All of the Company's revenue is attributed to its systems integration
business. The Company has earned no revenue from its TrialMaster( system.
Operating Expenses:
Year ended December 31, 1999 compared to December 31, 1998.
Total operating expenses increased to $2,561,092 for the year 1999 from
$762,143 for the year 1998. This substantial increase in operating expenses is
attributed to a number of factors including the aggressive development and
marketing or TrialMaster and 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 TrialMaster( Internet
system.
Salaries and Wages. Salaries and wages increased to $784,635 for the year
1999 from $239,108 for the year 1998. The increase in salaries and wages is
attributed to an increase in the number of employees. The Company currently has
20 employees and 1 part time employee.
Independent Consultants. Fees to independent consultants increased to
$557,751 for the year 1999 from $76,869 for the year 1998. The Company decided
to outsource a number of areas during the initial phase of developing, marketing
and implementing the TrialMaster( system. These areas concern product
development, marketing and sales, and medical/strategic consulting.
LIQUIDITY AND CAPITAL RESOURCES:
Period ending December 31, 1999 compared to December 31, 1998.
Cash and cash equivalents increased to $1,127,263 for 1999 from $44,373
for 1998 The increase is attributed to the cash received from the private
placement of the 5%, Series A Convertible Preferred shares.
Total liabilities increased to $1,326,299 for the year ended December 31, 1999
from $910,325 for the year ended December 31, 1998. The increase in total
liabilities are primarily attributed to the placement of convertible notes
totaling $862,500.
The Company has generated a loss of $2,341,237 for the year 1999, this is
an increase from $295,367 for the year 1998. The loss is primarily attributed to
the development and marketing of the TrialMaster( system and the continued
financial obligations associated with the acquisition of Education Navigator in
June of 1998.
The Company will require additional funds for the continued development and
marketing of TrialMaster and WebIPA. Accordingly, the Company will be required
to raise additional funds during the next 12 months in order to continue
operations. The Company plans to raise additional funds by either: entering into
a transaction(s) to privately place equity, either common or preferred stock, or
debt securities, or combinations of both; or, placing equity into the public
market through an underwritten secondary offering. At the present time there
are no written commitments by individuals or entities for the additional funds.
However, the Company is confident that it will secure the necessary funding for
the continued development and marketing of TrialMaster and WebIPA.
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, we or
any other person that these plans will be consummated or that estimates and
projections will be realized, and actual results may vary materially should
not regard the inclusion of projections and other forward-looking statements as
a representation. 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 OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
Revenues:
Total revenues decreased to $40,760 from $912,401 for the six months ended
June 30, 2000 compared to the corresponding period in fiscal year 1999. This
substantial decrease in revenue can be attributed to the Company changing its
focus away from computer systems integration to the development and marketing
of Internet based database products.
All of the Company's revenue for both periods presented is attributed to its
systems integration business. The Company has earned no revenue from its
TrialMaster(TM) or WebIPA(TM) Internet based systems.
Cost of Sales:
Total cost of sales decreased to $46,524 from $634,524 for the six months ending
June 30, 2000 compared to the corresponding period in fiscal year 1999. The
decrease in cost of sales can be attributed to the Company's decision to
redeploy its resources on the development and marketing of the TrialMaster(TM)
Internet and WebIPA systems. The Company experienced a decrease in product and
service revenues in connection with the change in strategic focus and
therefore a corresponding decrease in cost of goods sold.
Other Expenses:
Salaries and Wages. Salaries and wages increased to $1,511,329 from $231,266 for
the six month period ending June 30, 2000 compared to the corresponding period
in fiscal year 1999. The Company currently has thirty two employees compared to
eight for the comparable period in fiscal 1999. All of the Company's employees
are directly involved in the development, marketing, and implementation of the
TrialMaster(TM) and WebIPA systems.
Selling, General and Administrative. Selling, general and administrative
expenses which includes; rent, telephone and Internet expenses and travel,
increased to $1,021,719 from $301,904 for the first six months of the fiscal
year 2000 compared to the corresponding period in fiscal year 1999. The
substantial increase in selling, general and administrative expenses can be
attributed to the increase in resources expended related to the development and
marketing of the Company's TrialMasterT and WebIPA systems. The Company
experienced increases in its, travel and general and administrative expenses
in connection with its decision to execute its Internet strategy. The Company
incurred significantly higher telephone and Internet access expenses related to
its move to an Internet based operating strategy. Rents increased during the
first six months in fiscal 2000 due to the opening of a Research and Development
facility in Tampa, Florida, and the establishment of OmniTrial B.V., a
wholly-owned subsidiary, in Amsterdam, The Netherlands.
Legal and Professional Fees. Legal and professional fees increased to $405,978
from $70,374 for the first six months of fiscal 2000 compared to the comparable
period in fiscal 1999. The increase is primarily attributable to Investment
Banking and Financial Advisory fees paid to First Stanford Healthcare in
conjunction with the Company's attempt to raise capital during the first half
of fiscal 2000.
Independent Consultants. Independent consulting expenses decreased to $202,453
from $210,101 for the six months ended June 30, 2000 compared to the
corresponding period in fiscal year 1999. The decrease can be attributed to a
decrease in marketing fees that was created by hiring one of the Company's
consultants as an employee, offset by increases in Medical Advisory and
Product Development Consulting Fees. The Company has retained the services of
independent programmers to assist in finalizing certain software issues related
to the application. In addition, the Company continues to retain the services of
consultants to assist in developing marketing strategies for the marketing
and sales of the TrialMaster(TM) system and WebIPA systems. The Company has
established a medical advisory board and the members are paid monthly retainers
ranging from $1,000 to $8,333 per month.
LIQUIDITY AND CAPITAL RESOURCES:
Cash and cash equivalents decreased to $214,602 from $1,127,263 during the first
three months of fiscal year 2000. The decrease can be attributed to the
losses incurred during the first fiscal quarter, the Company's investment in
European Medical networks of $335,000, the purchase of property and equipment
offset by the receipt of equity financing received from the issuance of Series
A Convertible Preferred Convertible Stock and from the exercise of
common stock warrants associated with the Series A Preferred shareholders.
The Company generated a loss of $3,485,261 from operations in the first six
months of fiscal year 2000 compared to a loss of $704,603 for the corresponding
period in 1999. The losses can be primarily attributed to the increased
expenses associated with the development and marketing of the TrialMaster(TM)
and WebIPA systems. The Company has incurred increased expenses in salaries
and wages, consulting fees, travel and professional fees in connection with
developing and marketing the Company's Internet based products.
The Company's primary capital requirements are for daily operations and for the
continued development and marketing of TrialMaster(TM) and WebIPA systems.
Management believes that its current available working capital, anticipated
and subsequent sales of stock and or debt financing will be sufficient to meet
its projected expenditures for a period of at least twelve months from June
30, 2000. The Company's capital requirements, will need to be funded through
debt and equity financing, of which there can be no assurance that such
financing will be available or, if available, that it will be on terms
favorable to the Company.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
Revenues:
Total revenues decreased to $15,782 from $383,679 for the three months ended
June 30, 2000 compared to the corresponding period in fiscal year 1999. This
substantial decrease in revenue can be attributed to the Company
changing its focus away from computer systems integration to the development
and marketing of Internet based database products. The Company began the shift
away from systems integration during the second quarter of fiscal 1999. The
Company's transition to a Internet development and marketing oriented business
had been completed by the end of fiscal 1999.
All of the Company's revenue for both periods presented is attributed to its
systems integration business. The Company has earned no revenue from its
TrialMaster(TM) or WebIPA(TM) Internet based systems.
Cost of Sales:
Total cost of sales decreased to $11,404 from $409,323 for the three months
ending June 30, 2000 compared to the corresponding period in fiscal year 1999.
The decrease in cost of sales can be attributed to the Company's decision to
redeploy its resources on the development and marketing of the TrialMaster(TM)
Internet and WebIPA systems. The Company experienced a decrease in product and
service revenues in connection with the change in strategic focus and therefore
a corresponding decrease in cost of goods sold. The Company does not anticipate
any substantial increases in either revenues or cost of sales from its computer
systems integration business.
Other Expenses:
Salaries and Wages. Salaries and wages increased to $938,396 from $128,331 for
the three month period ending June 30, 2000 compared to the corresponding
period in fiscal year 1999. The Company currently has thirty two employees
compared to eight for the comparable period in fiscal 1999. All of the
Company's employees are directly involved in the development, marketing, and
implementation of the TrialMaster(TM) and WebIPA systems.
Selling, General and Administrative. Selling, general and administrative
expenses which includes; rent, telephone and Internet expenses and travel,
increased to $511,838 from $215,215 for the first three months of the
fiscal year 2000 compared to the corresponding period in fiscal year 1999. The
substantial increase in selling, general and administrative expenses can be
attributed to the increase in resources expended related to the development
and marketing of the Company's TrialMaster(TM) and WebIPA systems. The Company
experienced increases in its, travel and general and administrative expenses in
connection with its decision to execute its Internet strategy. The Company
incurred significantly higher telephone and Internet access expenses related to
its move to an Internet based operating strategy. The Company anticipates that
telephone and Internet access charges will continue to grow on an absolute
dollar basis as it continues to expand its Internet businesses. Rents
increased during the first three months in fiscal 2000 due to the opening of a
Research and Development facility in Tampa, Florida, and the establishment of
OmniTrial B.V., a wholly-owned subsidiary, in Amsterdam, The Netherlands.
Legal and Professional Fees. Legal and professional fees increased to $206,731
from $32,407 for the first three months of fiscal 2000 compared to the
comparable period in fiscal 1999. The increase is primarily attributable
to Investment Banking and Financial Advisory fees paid to First Stanford
Healthcare in conjunction with the Company's attempt to raise capital during
the first half of fiscal 2000.
Independent Consultants. Independent consulting expenses decreased to $84,018
from $160,080 for the three months ended June 30, 2000 compared to the
corresponding period in fiscal year 1999. The decrease can be attributed to a
decrease in marketing fees that was created by hiring one of the Company's
consultants as an employee, offset by increases in Medical Advisory and Product
Development Consulting Fees. The Company has retained the services of
independent programmers to assist in finalizing certain software issues related
to the application. In addition, the Company continues to retain the services
of consultants to assist in developing marketing strategies for the marketing
and sales of the TrialMasterT system and WebIPA systems. The Company has
established a medical advisory board and the members are paid monthly retainers
ranging from $1,000 to $8,333 per month.
ITEM NO. 18 DESCRIPTION OF PROPERTY
The Company's facilities are located at 3250 Mary Street, Suite 402,
Miami, Florida 33133 ("Miami Office"), 5680 West Cypress St., Suite I, Tampa,
Fl. 33607 ("Tampa Office"), and Droogbak 2D, Amsterdam 1013 GE, Netherlands
("Amsterdam Office"). The Miami office is the Company's headquarters. It is
rented at $9,975 per month and comprises approximately 5,048 sq. ft. The Tampa
office is the where the Company's software development activities are
headquartered. It is rented at $2,332 per month and comprises approximately
1,808 sq. ft. The Amsterdam office is the Company's European sales office. It is
rented at $2,257 per month and comprises approximately 1,540 sq. ft. The Company
believes that these facilities are adequate for its current and reasonably
foreseeable future needs.
ITEM NO. 19 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 16, 1999, the Company entered into a consulting agreement
("Agreement") with Guus van Kesteren and Cornelis F. Wit both of whom are
directors of the Company. The Agreement provides for compensation to be paid to
Van Kesteren and Wit in the event sales leads or contacts developed by Van
Kesteren and Wit result in sales of the Company's TrialMaster(tm) system.
ITEM NO. 20 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock, $.001 par value, is traded on the over-the-counter
bulletin board market. The Company's preferred stock is not traded. There has
been trading in the Company's common stock since November 26, 1999. The symbol
for the Company's common stock is OMCM.
Quarter Ending
Fiscal Year High Bid Low Bid
December/1999 $5.75 $3.50
June/2000 $6.75 $2.06
The bid price which states over-the-counter market quotations reflect
inter-dealer prices without real mark-up, mark-down or commissions and may not
necessarily represent actual transactions.
The Company has approximately 394 shareholders of record of its common
stock as of August 30, 2000.
ITEM NO. 21 EXECUTIVE COMPENSATION
Summary Compensation Table
Long Term
Annual Compensation Compensation
Awards Payouts
Name Securities All
and Other Restricted Underlying Other
Principal Bonus Annual Stock Options/SARs LTIP Payouts Comp
Position Year Salary$ ($) Comp($) Award(s)($) (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Peter S.
Knezevich 897,568/
CEO/Dir 1999 $84,278 $11,155 897,568
1998 $29,000
Randall
Smith
732,107/
Pres/Dir 1999 $84,278 $6,205 732,107
1998 $29,000
Clifton
Middleton 534,113/
Exec.VP 1999 $91,358 $6,237 534,113
1998 $85,000
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
Percent of
Total
Options/SARs
Number of Securities Granted to Exercise of
Underlying Employees in Base Price Expiration
Name Options/SARs Granted Fiscal Year ($/Sh) Date
(a) (#) (b) (c) (d) (e)
Peter S. Knezevich 397,568/397,568 $ .25 6/14/04
500,000/500,000 $1.50 11/1/01
Randy Smith 397,568/397,568 $ .25 6/14/04
334,539/334,539 $1.50 11/1/01
Clifton Middleton 96,652/96,652 $ .25 6/25/04
250,000/250,000 $1.50 11/1/01
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
(Individual Grants)
Number of
Unexercised
Securities
Shares Underlying Value of Unexercised
Acquired Options/SARs At In-The-Money
On FY-End (#) Option/SARs At FY-End
Exercise Value Realized Exercisable ($) Exercisable
Name (#) ($) Unexercisable Unexercisable
(a) (b) (c) (d) (e)
Peter S. Knezevich 397,568/397,568 $1,391,488/0
500,000/500,000 0/$1,125,000
Randy Smith 397,568/397,568 $1,391,488/0
334,539/334,539 0/$752,713
Clifton Middleton 96,652/96,652 $338,282/0
250,000/250,000 0/$562,500
ITEM NO. 22 FINANCIAL STATEMENTS
The Registrants financial statements have been included as Exhibit 99 to
the Registration Statement filed on Form SB-2.
ITEM NO. 23 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM NO. 24 INDEMNIFICATION OF DIRECTORS AND OFFICERS
None.
ITEM NO. 25 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the expenses associated with this registration. None of the
expenses associated with this registration shall be borne by the Selling
Security Holders.
Registration Fee: $3,155
Legal Fees: $0
Accounting Fees: $3,500
Transfer Agent Fees: $1,000
Total Expenses: $7,655
ITEM NO. 26 RECENT SALES OF UNREGISTERED SECURITIES
Section 4(2) Transactions
On or about February 1997 OmniComm Systems, Inc. formerly known as The
Premisys Group, Inc. was incorporated. Contemporaneous with the incorporation of
OmniComm Systems, Inc. common stock was issued to Randy Smith and Lawton Jackson
totaling 1,875,000. On February 1, 1998, the Board of Directors of OmniComm
Systems, Inc. authorized the issuance of 625,000 shares of common stock to Peter
S. Knezevich. These shares were issued pursuant to Section 4(2) of the
Securities Act of 1933 in exchange for services rendered and to be rendered as
evidenced by a written employment agreement.
On or about December 1996, Coral Development issued 403,000 shares of common
stock to MTC, the Parent corporation of Coral Development, in exchange for
$30,000. The shares were issued pursuant to an exemption from registration
contained in Section 4(2) of the Securities Act of 1933.
On June 26, 1998, prior to executing the merger agreement with Coral
Development, the Company acquired Education Navigator, Inc. In exchange for all
the issued and outstanding shares of Education Navigator, the Company issued
441,180 shares of common stock of the Company to the two shareholders of
Education Navigator and issued promissory notes in the amount of $525,000. The
shares and promissory notes were issued pursuant to an exemption from
registration contained in Section 4(2) of the Securities Act of 1933. Subsequent
to the acquisition of Education Navigator, the Company executed an employment
agreement with Cliff Middleton, a shareholder of Education Navigator. In
addition, pursuant to Section 422 of the Internal Revenue Code, the Company
granted an incentive stock option to Cliff Middleton for 85,000 common shares at
$.65 per share, vesting over 3 years beginning June 26, 1999.
On February 17, 1999, OmniComm Systems, Inc. and Coral Development finalized
the merger pursuant to the terms and conditions set forth in the Agreement
and Plan of Reorganization. All of the issued and outstanding shares of
OmniComm Systems, Inc. were exchanged for 940,000 shares of common stock of
Coral Development; or, 3.129 shares of OmniComm Systems for 1 share of Coral
Development. The exchange and issuance of shares were issued pursuant to an
exemption from registration contained in Section 4(2) of the Securities Act of
1933.
Both of the foregoing issuances concerning the merger transactions dated June
26, 1998 (acquisition of Education Navigator), and February 17, 1999 (merger
with Coral Development Corp.), relied on the exemption from registration
afforded by Section 4(2) of the Securities Act of 1933 (the "Act"). The basis of
the exemption is a transaction by an issuer that does not involve a public
offering.
Critical to the application of the exemption is the availability of information
to the offeree and her sophistication. The availability of information can be
provided in two ways: access to information or disclosure.
In both transactions, the offerees were sophisticated; they have the financial
and business experience to evaluate the offer. In the Education Navigator
transaction the offerees were familiar with and professionals within the
computer and Internet market and had experience with the risks associated with
ventures involving start-up companies in the market. In the Coral/OmniComm
transaction the offerees have a level of sophistication sufficient to appreciate
the relative risks and benefits of being affiliated with a reporting company
including the statutory obligations, both federal and state.
In both transactions the offerees were provided with full disclosure
pursuant to
agreements including audited financial information and written legal opinions.
Also, in both cases, counsel who had sufficient experience with transactions of
the type consummated represented the offerees.
The transaction involving Coral Development Corp. and MTC was a transaction
involving a parent and a subsidiary where the parent had access to corporate
information concerning the subsidiary.
Rule 506 Transaction - 10% Convertible Note
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. Northeast received the following placement
agent fees: 10% Commission (cash); 3% nonaccountable expense allowance (cash);
$7,500 advance against non-accountable due diligence expense. The offering was
closed on June 15, 1999 and as of August 1, 1999, the Company had received gross
proceeds of $862,500 as a result of the private placement.
The offer and sale of the notes were made in reliance upon Rule 506,
Regulation D of the Securities Act of 1933. The offerees and purchasers were
accredited investors who were provided with a private placement memorandum that
met the requirements of Regulation D and who executed investor questionnaires.
Rule 701 Transactions
Rule 701 of the Securities Act of 1933, as amended (the "Act") is an
exemption from registration for offers and sales of securities pursuant to
certain compensatory benefit plans and contracts relating to compensation
provided bonafide services are rendered not related to capital raising or
pursuant to a written contract relating to compensation.
The Company granted an incentive stock option in accordance with Internal
Revenue Code (IRC) Code Section 422 to Clifton Middleton to purchase 85,000
shares of common stock at $.65 a share over a three (3) year period. The options
were granted pursuant to Rule 701 of the Act. The options were granted pursuant
the Company's 1998 Incentive Stock Option Plan and pursuant to a contract
relating to compensation and in accordance with Rule 701 of the Act.
The Company appointed Dr. Warren S. Grundfest to the Company's Medical
Advisory Board. Dr. Grundfest was granted stock options and a stock bonus. The
options and bonus stock were granted pursuant to the Company's 1998 Incentive
Stock Option Plan and in accordance with Rule 701 of the Act.
The Company retained Mr. Lawrence Kronick to act as a consultant for the
Company to assist in marketing the Company's TrialMaster(tm) system. Mr. Kronick
was granted options pursuant to a written contract of compensation and pursuant
to the Company's 1998 Incentive Stock Option Plan and in accordance with Rule
701 of the Act.
The Company appointed Dr. Richard Murphy to the Company's Medical Advisory
Board. Dr. Murphy was granted stock options and a stock bonus. The options and
bonus stock were granted pursuant to the Company's 1998 Incentive Stock Option
Plan and in accordance with Rule 701 of the Act.
The Company appointed Dr. Sameer Mehta as its consulting Medical Director.
Dr. Mehta was granted stock options and a stock bonus. The options and bonus
stock were granted pursuant to the Company's 1998 Incentive Stock Option Plan
and in accordance with Rule 701 of the Act.
The Company granted stock option and bonuses to employees of the Company.
The stock bonuses totaled 51,377 shares of common stock. The options and bonus
stock were granted pursuant to the Company's 1998 Incentive Stock Option Plan
and in accordance with Rule 701 of the Act.
Regulation S and Section 4(2) - 5% Series A Convertible Preferred
On June 4, 1999, the Company entered into a private placement agreement
("Agreement") with Noesis Capital Corp. ("Noesis") wherein Noesis would act as
the placement agent for the offer and sale of the Company's 5% Series A
Convertible Preferred stock pursuant to and in accordance with Regulation S of
the Securities Act of 1933, as amended. Noesis received as a commission 10% of
the gross proceeds received by the Company and a warrant to purchase at par
value, $.001, 10% of the shares placed. The Company sold the preferred to
foreign investors and to a small group of US based investors of which all were
accredited investors. The offering was concluded on December 31, 1999. The
Company had received gross proceeds of $4,313,500.
ITEM NO. 27 EXHIBITS
(a) Exhibits
2 (a) Agreement and Plan of Reorganization dated July
22, 1998: Incorporated herein by reference to Form 8-K, dated March 3, 1999.
File No. 000-25203
(b) Amendment to Agreement and Plan of
Reorganization: Incorporated herein by reference to Form 10-SB dated December
20, 1998.
(c) Plan of Merger: Incorporated herein by reference to Form 10-SB/A dated
August 17, 1999.
(d) Agreement and Plan of Acquisition dated January 26, 2000 of WebIPA:
Incorporated herein by reference to Form 8K dated February 9, 2000.
3 (i) Certificate of Incorporation: Incorporated
herein by reference to Form SB-2 #333-6410
(ii) By-Laws: Incorporated herein by reference to
Form SB-2 #333-6410
4 (a) Amendment to Article of Inc. - Authorization
to issue preferred shares. Incorporated herein by reference to Form 10-SB/A
dated August 17, 1999.
(b) Certificate of Designation - 5% Series A Convertible Preferred.
Incorporated herein by reference to Form 10-SB/A dated August 17, 1999.
(c) Certificate of Increase - 5% Series A Convertible Preferred dated
December 17, 1999.
10
(a) Employment Contracts.
(i) Clifton Middleton - Employment Agreement. Incorporated herein by reference
to Form 10-SB/A dated August 17, 1999.
(ii) Peter S. Knezevich - Employment Agreement and Stock Option Agreement.
Incorporated herein by reference to Form 10-KSB dated March 29, 2000.
(iii) Randy Smith - Employment Agreement and Stock Option Agreement.
Incorporated herein by reference to Form 10-KSB dated March 29, 2000.
(iv) David Ginsberg - Employment Agreement.
(b) Factor Agreement. Incorporated herein by reference to Form 10-SB/A dated
August 17, 1999.
(c) 1998 Stock Incentive Plan. Incorporated herein by reference to Form 10-
SB/A dated August 17, 1999.
(d) Consulting Contract - Larry Kronick. Incorporated herein by reference to
Form 10-SB/A dated August 17, 1999.
(e) Medical Advisory Board Agreement. Incorporated herein by reference to Form
10-SB/A dated August 17, 1999.
(f) Standard Agreement - Proprietary Protection. Incorporated herein by
reference to Form 10-SB/A dated August 17, 1999.
23 Consent of Greenberg & Company LLC, Registrants Independent Auditors
27 Financial Data Schedule
(b) Reports on Form 8-K
Incorporated herein by reference to Form 8-K File No. 000-25203
ITEM NO. 28 UNDERTAKINGS
The undersigned registrant hereby undertakes:
To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities Act
of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereto) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Miami,
State of Florida on August 30, 2000.
OmniComm Systems, Inc.
(Registrant)
By: /s/ David Ginsberg
Name: David Ginsberg
Title: Chief Executive Officer and President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and on the dates stated.
By: /s/David Ginsberg
Title: Chief Executive Officer and President
Date: August 30, 2000
By: /s/Ronald T. Linares
Title: Chief Financial and Accounting Officer
Date: August 30, 2000
By: /s/Randall G. Smith
Title: Chief Technical Officer and Director
Date: August 30, 2000
By: /s/ Guus Van Kesteren
Title: Director
Date: August 30, 2000
By: /s/ Jan Vandamme
Title: Director
Date: August 30, 2000
By: /s/Cornelis F. Wit
Title: Director
Date: August 30, 2000
EXHIBIT 4 (c) CERTIFICATE OF INCREASE SERIES A CONVERTIBLE PREFERRED
CERTIFICATE OF INCREASE
OF
5% SERIES A CONVERTIBLE PREFERRED
OF
OMNICOMM SYSTEMS, INC., a Delaware corporation.
The undersigned corporation
DOES HEREBY CERTIFY:
FIRST: On July 19, 1999, the Board of Directors of OmniComm Systems, Inc.
authorized the designation of a portion of it's preferred stock as 5% Series A
Convertible Preferred (hereinafter the "Preferred Stock") consisting of
2,000,000 shares. Each share of Preferred stock shall be convertible into
shares of the common stock of OmniComm Systems, Inc. (hereinafter the
"Common Stock") at $1.50 per share.
Second: The Board of Directors authorizes the designation of an additional
3,000,000 shares of the 5% Series A Convertible Preferred.
Third: The total number of shares of the 5% Series A Convertible Preferred
Stock authorized to be issued is 5,000,000 shares.
Fourth: This amendment shall be effective on December 17, 1999.
Dated December 17, 1999
OmniComm Systems, Inc.
By: /s/Randall G. Smith
Randall G. Smith, Director
By: /s/Peter S. Knezevich
Peter S. Knezevich, Director and Chief Executive Officer
By: /s/Guus van Kesteren
Guus van Kesteren, Director
By: /s/Cornelis F. Wit
Cornelis F. Wit, Director
EXHIBIT 10 (a)(iv)- EMPLOYMENT CONTRACT - DAVID GINSBERG
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), dated as of July 18, 2000,
between OmniComm Systems, Inc., a Delaware corporation, (the "Company"), and
Dr. David Ginsberg (the "Executive").
WITNESSETH:
WHEREAS, the Executive has experience in managing at a senior level a
publicly traded company (or a division of such a company) involved in the
clinical trials business;
WHEREAS, the parties acknowledge that the Executive's abilities and services
are unique and essential to the prospects of the Company; and,
WHEREAS, in light of the foregoing, the Company desires to employ the
Executive as its Chief Executive Officer and President and the Executive
desires to accept such employment.
NOW, THEREFORE, the parties hereto agree as follows:
1. Employment. The Company hereby employs the Executive and the Executive
hereby accepts employment upon the terms and conditions hereinafter set forth.
2. Term and Termination. This Agreement shall commence on August 1, 2000 and
shall terminate as of the earlier of:
(a) 2 years from the date hereof;
(b) the death or disability of the Executive. Disability shall mean the
Executive's inability, due to sickness or injury, to perform effectively his
duties hereunder for a period of at least 90 consecutive days;
(c) thirty (30) days after notice is given by the Company to the Executive
after a material breach hereof by the Executive; or,
(d) thirty (30) days after notice is given by the Executive to the Company
after a material breach hereof by the Company.
The exercise of the Company's or the Executive's right to terminate this
Agreement pursuant to clause (c) or (d) hereof, as the case may be, shall not
abrogate the rights and remedies of the terminating party in respect of the
breach giving rise to such termination.
3. Salary. For all services rendered under this Agreement:
(a) During the term of his employment, the Company shall pay the Executive an
annual salary of $350,000. The Executive's salary may be paid in the form of
cash and/or stock, as agreed upon by the parties.
(b) During the term of his employment, the Executive shall be entitled to
participate in employee benefit plans or programs of the Company, if any, to
the extent the Executive is eligible to participate thereunder. Such plans
and programs shall include, but not be limited to, the following:
(i) major medical health insurance for the Executive, his spouse and two
children; and
(ii) three weeks paid vacation.
(c) The Executive shall be permitted to participate in the Company's stock
option plan. The number of shares subject to options, type of options, and
vesting of the options are set forth on Exhibit "A," attached hereto as if
fully set forth herein.
(d) The Company shall also pay the Executive a bonus that shall consist of
any one or more of the following:
(i) In the event that the Executive is able to meet the Company's budgetary
requirements set forth in a particular calendar year, the Executive shall be
entitled to receive 5% of the Company's pre-tax profits. The Company's Board
of Directors and the Executive shall agree upon the Company's budgetary
requirements and if the Executive meets the budgetary requirement conditions,
he shall be paid 30 days after the end of the Company's calendar year.
(ii) In the event that more than 50% of the Company's securities or assets
are purchased by a third party, and such purchase was brought to the Company
through the Executive, and the Executive advised the Company's Board of
Directors in writing in advance of the existence of such potential purchaser,
the Executive shall be entitled to receive 2% of the purchase price, as
pro-rated by the percentage of the Company's securities or assets sold to the
third party. The 2% of the purchase price shall be paid to the Executive on or
after the closing of the sale in the form of the payment the Company receives.
4. Duties. The Executive shall be employed as Chief Executive Officer of the
Company and, subject to the direction of the Board of Directors and the
Company's officers designated by the Board of Directors, shall perform and
discharge well and faithfully the duties which may be assigned to him from
time to time by the Company in connection with the conduct of its business.
If the Executive is elected or appointed a director of the Company or any
subsidiary thereof during the term of this Agreement, the Executive will serve
in such capacity without further compensation.
5. Extent of Services. Except as set forth below, the Executive shall devote
his entire time, attention and energies to the business of the Company and
shall not during the term of this Agreement be engaged, whether or not during
normal business hours, in any other business or professional activity, whether
or not such activity is pursued for gain, profit, or other pecuniary advantage.
Notwithstanding the foregoing, the Executive shall be allowed to serve on the
Board of Directors of other companies so long as it
does not interfere with the Executive fulfilling his duties to the Company and
the Executive obtains the prior written approval of the Company's Board of
Directors. In addition, the Executive shall be allowed to provide consulting
services to other companies so long as he obtains the prior written approval
of the Company's Board of Directors, turns over to the Company the entire
amount of the compensation he receives as a result of providing such services,
and provides such services no more than three (3) days per month.
6. Disclosure of Information. The Executive recognizes and acknowledges that
the Company's trade secrets and proprietary information and processes, as they
may exist from time to time, are valuable, special and unique assets of the
Company's business, access to and knowledge of which are essential to the
performance of the Executive's duties hereunder. The Executive will not, during
or after the term of his employment by the Company, in whole or in part,
disclose such secrets, information or processes to any person, firm,
corporation, association or other entity for any reason or purpose whatsoever,
nor shall the Executive make use of any such property for his own purposes or
for the benefit
of any person, firm, corporation or other entity except the Company under any
circumstances during or after the term of his employment, provided that after
the term of his employment these restrictions shall not apply to such secrets,
information and processes which are then in the public domain provided that the
Executive was not responsible, directly or indirectly, for such secrets,
information or processes entering the public domain without the Company's
consent. The Executive agrees to hold as the Company's property, all memoranda,
books, papers, letters, formulas and other data, and all copies thereof and
therefrom, in any way relating to the Company's business and affairs, whether
made by him or otherwise coming into his possession, and on termination of his
employment, or on demand of the Company, at any time, to deliver the same to
the Company. In the event an action is instituted and prior knowledge is an
issue, it shall be the obligation of the Executive to prove by clear and
convincing evidence that the confidential information disclosed was in the
public domain, was already known by the Executive, or was developed
independently by the Executive.
7. Inventions. The Executive hereby sells, transfers and assigns to the
Company or to any person, or entity designated by the Company, all of the
entire right, title and interest of the Executive in and to all inventions,
ideas, disclosures and improvements, whether patented or unpatented, and
copyrightable material, made or conceived by the Executive, solely or jointly,
or in whole or in part, during the term hereof which (i) relate to methods,
apparatus, designs, products, processes or devices sold, leased, used or under
construction or development by the Company or any subsidiary, or
(ii) otherwise relate to
or pertain to the business, functions or operations of the Company or any
subsidiary, or (iii) arise wholly or partly from the efforts of the Executive
during the term hereof. The Executive shall communicate promptly and disclose
to the Company, in such form as the Company requests, all information, details
and data pertaining to the aforementioned inventions, ideas, disclosures and
improvements; and, whether during the term hereof or thereafter, the Executive
shall execute and deliver to the Company such formal transfers and assignments
and such other papers and documents as maybe required of the Executive at the
Company's expense to permit the Company or any person or entity designated by
the Company to file and prosecute the patent applications and, as to
copyrightable material, to obtain copyright thereon. Any invention by the
Executive within one (1) year following the termination of this Agreement shall
be deemed to fall within the provisions of this paragraph unless proved by the
Executive to have been first conceived and made following such termination.
8. Covenant Not to Compete.
(a) During the term hereof and for a period of one (1) year thereafter, the
Executive shall not compete, directly or indirectly, with the Company, interfere
with, disrupt or attempt to disrupt the relationship, contractual or otherwise,
between the Company and any customer, client, supplier, consultant, or employee
of the Company and any customer, client, supplier, consultant or employee of
the Company, including, without limitation, employing or being an investor
(representing more than 5% equity interest) in, or officer, director or
consultant to, any person or entity which employs any former key or technical
employee whose employment with the Company was terminated after the date which
is one year prior to the date of termination of the Executive's employment
therewith. An activity competitive with an activity engaged in by the Company
shall mean performing services whether as an employee, officer, consultant,
director, partner, or sole proprietor for any person or entity engaged in the
business then engaged in by the Company, which services involve the development
and marketing of a web-based system to collect, manage, and compile clinical
trial and research data.
(b) It is the desire and intent of the parties that the provisions of this
Section shall be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular portion of this Section shall be adjudicated
to be invalid or unenforceable, this Section shall be deemed amended to delete
therefrom the portion thus adjudicated to be invalid or unenforceable, such
deletion to apply only with respect to the operation of this Section in the
particular jurisdiction in which such adjudication is made.
(c) Nothing in this Section shall reduce or abrogate the Executive's
obligations during the term of this Agreement under Sections 4 and 5 hereof.
9. Remedies. If there is a breach or threatened breach of the provisions of
Section 6, 7 or 8 of this Agreement, the Company shall be entitled to an
injunction restraining the Executive from such breach. Nothing herein shall
be construed as prohibiting the Company from pursuing any other remedies for
such breach or threatened breach.
10. Assignment. This Agreement may not be assigned by any party hereto;
provided that the Company may assign this Agreement: (a) to an affiliate so
long as such affiliate assumes the Company's obligations hereunder; provided
that no such assignment shall discharge the Company of its obligations herein,
or (b) in connection with a merger or consolidation involving the Company or a
sale of more than 50% of the Company's securities or assets, to the surviving
corporation or purchaser as the case may be, so long as such asignee assumes
the Company's obligations thereunder.
11. Notices. Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing and sent by registered mail to the Executive
at his residence at:
David Ginsberg, D.O.
1280 S. Avignon Drive
Gladwyne, Pennsylvania 19035
and to the Company at:
OmniComm Systems, Inc.
4250 Mary Street, Suite 402
Coconut Grove, Florida 33133
Attention: General Counsel
12. Waiver of Breach. A waiver by the Company or the Executive of a breach of
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by the other party.
13. Entire Agreement. This instrument contains the entire agreement of the
parties. It may be changed only by an agreement in writing signed by a party
against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
14. Governing Law. This Agreement shall be construed in accordance with the
laws of the State of Florida. All questions with respect to the construction
hereof and the rights and liabilities of the parties hereto shall be governed
by the laws of the State of Florida. Any action or proceeding arising out of
or relating hereto shall be brought in Miami-Dade County, State of Florida.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first hereinabove written.
OmniComm Systems, Inc.
By:/s/ Cornelis Wit
Cornelis Wit
Interim Chief Executive Officer
Executive
By:/s/ Dr. David Ginsberg
Dr. David Ginsberg
Exhibit "A"
Incentive and Non-Qualified Stock Option
Total Number of Shares Subject to Options: 650,000
Vesting Schedule: 2 years
Amount Type Price Vesting Event/Date
Year 1 2000 40,000 ISO Market Price+10% Vests immediately
200,000 NonQ $5.50 December 31, 2000
Year 2 2001 40,000 ISO Market Price+10% January 1, 2001
100,000 NonQ $7.00 July 1, 2001
270,000 NonQ $7.00 $15.00 per share or more
for 60 consecutive trading days.
Other rights:
1. "Piggyback" rights in equal proportion to other employees.
2. Acceleration of all options in the event of change in control,
defined as a sale of more than 50% of the Company's securities or
assets by a third party
3. Stock appreciation rights.
4. Length of options: ISO 5 years; NonQ 7 years
Notes:
1. ISO: Incentive stock option pursuant to Sec. 422 of the Internal Revenue
Code
of 1986. ISO option price shall be the fair market value at the date of
grant x 110%
2. NonQ: Non-qualified stock option.
EXHIBIT 23 - INDEPENDENT AUDITORS' CONSENT
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Omnicomm Systems Inc on
Form SB-2 of our report dated January 26, 2000, appearing in this
Registration Statement.
Greenberg & Company LLC
Springfield, NJ
August 30, 2000
EXHIBIT 99 - FINANCIAL STATEMENTS
OMNICOMM SYSTEMS, INC.
FINANCIAL STATEMENTS
Independent Accountants' Review Report 1
Consolidated Balance Sheet -
June 30, 2000 and December 31, 1999 2
Consolidated Statements of Shareholders' Equity(Deficit) -
January 1, 1999 to June 30, 2000 3-5
Consolidated Statements of Operations -
Three and six months ended June 30, 2000 and 1999 6
Consolidated Statement of Cash Flows -
Six months ended June 30, 2000 and 1999 7-8
Notes to Financial Statements 9-14
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors and Stockholders of
Omnicomm Systems, Inc.
Miami, FL
We have reviewed the accompanying consolidated balance sheet of Omnicomm
Systems, Inc. as of June 30, 2000 and the related consolidated statements of
operations, shareholders' equity(deficit) and cash flows for the six-month
periods ended June 30, 2000 and 1999. These financial statements are the
responsibility of the Corporation's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and of making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such consolidated financial statements for them to be in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Corporation will continue as a going concern. As discussed in Note 3 to the
financial statements [and Note 3 to the annual financial statements for the year
ended December 31, 1999(not presented herein)], certain conditions raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 3 to
the respective financial statements.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Omnicomm Systems, Inc. as of
December 31, 1999 and the related consolidated statements of operations,
stockholders' equity, and cash flows for the year then ended (not presented
herein); and in our report dated January 26, 2000, we expressed an unqualified
opinion on those consolidated financial statements and included an explanatory
paragraph concerning matters that raise substantial doubt about the
Corporation's ability to continue as a going concern. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
December 31, 1999 is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
Greenberg & Company LLC
Springfield, NJ
September 8, 2000
1
<PAGE>
OMNICOMM SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
2000 1999
(Unaudited)
---------------------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 214,602 $ 1,127,263
Accounts receivable 35,759 8,458
Inventory 5,046 10,166
Prepaid expenses 22,260 0
----------- -----------
Total current assets 277,667 1,145,887
----------- -----------
Property and equipment, net 564,667 353,183
----------- -----------
OTHER ASSETS
Investment in Medical Networks EMN, at cost 335,000 0
Shareholder loans 0 3,406
Intangible assets, net 119,256 169,629
Goodwill, net 158,555 237,832
Other assets 40,852 26,960
----------- -----------
TOTAL ASSETS $ 1,495,997 $ 1,936,897
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,403,024 $ 284,481
Notes payable - current 707,500 177,500
Sales tax payable 331 1,818
----------- -----------
Total current liabilities 2,110,855 463,799
----------- -----------
Notes payable - long term 0 0
Convertible notes 462,500 862,500
----------- -----------
TOTAL LIABILITIES 2,573,355 1,326,299
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock - 10,000,000 shares authorized,
4,263,500 and 4,117,500 issued and 3,812,093 3,872,843
outstanding, respectively at par
Common Stock - 20,000,000 shares authorized,
6,459,176 and 3,344,066 issued and outstanding,
respectively, at $.001 par value 6,480 3,344
Additional paid in capital 1,536,238 238,007
Retained earnings (deficit) (6,137,905) (2,652,644)
Treasury stock (293,312) 0
Stock subscriptions receivable (952) (850,952)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY(DEFICIT) (1,077,358) 610,598
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT) $ 1,495,997 $ 1,936,897
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
See accompanying independent accountants' review report.
2
<PAGE>
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD JANUARY 1, 1999 TO JUNE 30, 2000
(unaudited)
<TABLE>
<CAPTION>
5% Series A Convertible Total
Common Stock Additional Preferred Stock Retained Shareholders'
Number $ 0.001 Paid In Number Earnings Subscription Treasury Equity
of Shares Value Capital of Shares $0.001 Par (Deficit) Receivable Stock (Deficit)
---------- ----------- ----------- --------- ----------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January 1, 1998 1,002,250 $ 1,002 $ 0 0 $ 0 $ (16,040) $ (815) $ 0 $ (15,853)
Issuance of
common stock 199,750 200 (137) 63
Acquisition of
Education
Navigator, Inc. 141,000 141 132,213 132,354
Net (loss) for
year ended
December 31, 1998 (295,367) (295,367)
---------- ----------- ----------- --------- ----------- ----------- --------- --------- -----------
Balances at
December 31, 1998 1,343,000 1,343 132,213 0 0 (311,407) (952) 0 (178,803)
Issuance of
common stock 250,000 250 250
Issuance of common
stock for services 86,400 86 56,059 56,145
Issuance of
common stock 300,000 300 2,700 3,000
Issuance of common
stock for services 68,000 68 44,132 44,200
</TABLE>
The accompanying notes are an integral part of these financial statements.
See accompanying independent accountants' review report.
3
<PAGE>
<TABLE>
<CAPTION>
5% Series A Convertible Total
Common Stock Additional Preferred Stock Retained Shareholders'
Number $ 0.001 Paid In Number Earnings Subscription Treasury Equity
of Shares Value Capital of Shares $0.001 Par (Deficit) Receivable Stock (Deficit)
---------- ----------- ----------- --------- ----------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
common stock 1,296,666 1,297 2,903 4,200
Issuance of
preferred stock, net
of $134,590
issuance costs 4,117,500 3,872,843 (850,000) 3,022,843
Net loss for the
year ended
December 31, 1999 (2,341,237) (2,341,237)
---------- ----------- ----------- --------- ----------- ----------- --------- --------- -----------
Balances at
December 31, 1999 3,344,066 3,344 238,007 4,117,500 3,872,843 (2,652,644) (850,952) 0 $ 610,598
Issuance of common
stock for services 40,000 40 89,960 90,000
Issuance of common
stock 284,166 284 284
Exercise of stock
options 1,025,895 1,026 297,024 298,050
Purchase of treasury
stock in connection
with stock
appreciation rights (20,951) (293,312) (293,312)
Payment of
subscription
receivable 850,000 850,000
Acquisition of
WebIPA, Inc. 1,200,000 $ 1,200 $ 3,833 5,033
Issuance of
preferred stock 146,000 146,000 146,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
See accompanying independent accountants' review report.
4
<PAGE>
<TABLE>
<CAPTION>
5% Series A Convertible Total
Common Stock Additional Preferred Stock Retained Shareholders'
Number $ 0.001 Paid In Number Earnings Subscription Treasury Equity
of Shares Value Capital of Shares $0.001 Par (Deficit) Receivable Stock (Deficit)
---------- ----------- ----------- --------- ----------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance costs (206,750) (206,750)
Conversion of
convertible notes
payable 320,000 $ 320 $ 399,680 400,000
Exercise of stock
options 20,000 $ 20 $ 15,980 16,000
Exercise of stock
warrants 246,000 $ 246 $ 491,754 492,000
Net (loss) for the
Six months ended
June 30, 2000 (3,485,261) (3,485,261)
---------- ----------- ----------- --------- ----------- ----------- --------- --------- -----------
Balances at
June 30, 2000 6,459,176 $ 6,480 $ 1,536,238 4,263,500 $ 3,812,093 $(6,137,905) $ (952) $(293,312) $(1,077,358)
========== =========== =========== ========= =========== =========== ========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
See accompanying independent accountants' review report.
5
<PAGE>
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended For the three months ended
June 30, June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue - sales, net $ 40,760 $ 912,401 $ 15,782 $ 383,679
Cost of sales 46,524 634,524 11,404 409,233
----------- ----------- ----------- -----------
Gross margin (loss) (5,764) 277,877 4,378 (25,554)
----------- ----------- ----------- -----------
Other expenses
Salaries, benefits and related taxes 1,511,329 231,266 938,396 128,331
Rent 162,407 27,554 101,476 12,181
Consulting - medical advisory 89,000 0 47,000 0
Consulting - marketing sales 77,033 210,101 29,033 160,080
Consulting - product development 36,420 0 7,985 0
Legal and professional fees 405,978 70,374 206,731 32,407
Travel 310,443 105,690 140,724 71,792
Telephone and internet 141,347 9,143 77,313 3,921
Factoring fees 0 4,500 0 632
Selling, general and administrative 407,521 155,017 192,325 127,321
Interest expense, net 41,979 29,439 24,956 20,608
Depreciation and amortization 194,470 139,396 101,854 70,168
----------- ----------- ----------- -----------
Total other expenses 3,377,928 982,480 1,867,793 627,441
(Loss) before taxes and preferred dividends (3,383,692) (704,603) (1,863,415) (652,995)
Income tax expense (benefit) 0 0 0 0
Preferred stock dividends (101,569) 0 (52,115) 0
----------- ----------- ----------- -----------
Net (loss) $(3,485,261) $ (704,603) $(1,915,530) $ (652,995)
=========== =========== =========== ===========
Net (loss) per share $ (0.63) $ (0.46) $ (0.31) $ (0.41)
=========== =========== =========== ===========
Weighted average number of
shares outstanding 5,500,089 1,532,428 6,149,470 1,604,390
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
See accompanying independent accountants' review report.
6
<PAGE>
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended
June 30,
---------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) (3,485,261) $ (704,603)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities
Common stock issued for services 90,000 0
Depreciation and amortization 194,470 139,396
Changes in operating assets and liabilities, net of
effects of acquisition of Education
Navigator, Inc. (EdNav)
Accounts receivable (27,301) 37,015
Inventory 5,120 2,555
Due from placement agent 0 (12,431)
Prepaid expenses (22,260) 0
Other assets (13,892) 2,500
Accounts payable and accrued expenses 1,118,544 14,745
Sales tax payable (1,487) (29,955)
Due to factoring agent -- (42,485)
----------- -----------
Net cash provided by (used in) operating activities (2,142,067) (593,263)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Equity investment in European Medical Networks (335,000) 0
Purchase of WebIPA 5,033 0
Purchase of property and equipment (272,900) (26,198)
----------- -----------
Net cash provided by (used in) investing activities (602,867) (26,198)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from convertible notes 0 742,875
Proceeds from notes payable 530,000 0
Proceeds from the issuance of preferred stock,
net of issuance costs 789,250 0
Issuance of common stock 284 56,145
Proceeds from stock warrant exercise 492,000 0
Proceeds from stock option exercise 20,739 0
Payments on notes payable -- (150,000)
----------- -----------
Net cash provided by financing activities 1,832,273 649,020
----------- -----------
Net increase (decrease) in cash and cash equivalents (912,661) 29,559
Cash and cash equivalents at beginning of period 1,127,263 44,373
----------- -----------
Cash and cash equivalents at end of period 214,602 $ 73,932
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
See accompanying independent accountants' review report.
7
<PAGE>
<TABLE>
<CAPTION>
For the six months ended
June 30,
---------------------------
2000 1999
----------- -----------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 0 $ 0
Interest $ 44,728 $ 1,532
Non Cash Investing and Financing Transactions; June 30, 2000
Acquisition of all of the outstanding common -------------
stock of WebIPA, Inc. during the quarter
ended March 31, 2000
Assets acquired, fair value $ 5,033
Cash acquired 5,033
-----------
Net cash paid for acquisition $ 0
===========
Non Cash Investing and Financing Transactions (continued)
During the quarter ended June 30, 2000, $400,000 of convertible notes
payable were converted into 320,000 shares of common stock
During the six months ended June, 2000, 1,018,604 incentive
stock options were excercised. The options were excercised
utilizing stock appreciation rights. The net proceeds to the
company would have been $293,312. The Company
recorded a treasury stock transaction in the amount of
$293,312 to account for the stock appreciation rights
</TABLE>
The accompanying notes are an integral part of these financial statements.
See accompanying independent accountants' review report.
8
<PAGE>
OMNICOMM SYSTEMS, INC.
NOTES THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(unaudited)
NOTE 1: ORGANIZATION AND NATURE OF OPERATIONS
OmniComm Systems, Inc. (the Company) was originally incorporated in
Florida in February 1997. The Company provides Internet based database
applications that integrate significant components of the clinical
trial process, including the collection, compilation and validation of
data over the Internet. The Company's primary products include
TrialMaster(TM) and WebIPA(TM).
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
The Company's accounts include those of its two wholly owned
subsidiaries OmniCommerce and OmniTrial B.V. 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.
EARNINGS PER SHARE
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS 128
replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants, and convertible securities. The diluted
earnings per shared calculation is very similar to the previously fully
diluted earnings per share calculation method. SFAS 128 became
effective December 31, 1997.
Basic earnings per share were calculated using the weighted average
number of shares outstanding of 5,500,089 and 1,532,428 for the six
months ended June 30, 2000 and 1999, respectively; and 6,149,470 and
1,604,390 for the three months ended June 30, 2000 and 1999,
respectively. There were no differences between basic and diluted
earnings per share. Options to purchase 3,605,497 shares of common
stock at prices ranging from $.25 to $6.50 per share were outstanding
during both periods, but were not included in the computation of
diluted earnings per share because the options have an anti-dilutive
effect. The effect of the convertible debt and convertible preferred
stock are anti-dilutive.
5% SERIES A CONVERTIBLE PREFERRED STOCK
During the year ended December 31, 1999, the Company designated
5,000,000 shares of its 10,000,000 authorized preferred share as 5%
Series A Convertible Preferred Stock. Each shares is convertible into
common stock at $1.50 per share. In the event of liquidation, these
shareholders 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. Dividends are payable at the rate of
5% per annum, payable semi-annually.
ADVERTISING
Advertising costs are expensed as incurred.
9
<PAGE>
Reclassifications
Certain items from prior periods within the financial statements have
been reclassified to conform to current period classifications.
INTANGIBLE ASSETS AND GOODWILL
Included in Intangible Assets are the following assets:
June 30, 2000
Accumulated
Cost Amortization
-------- --------
Covenant not to compete $120,000 $120,000
Software development costs 87,500 58,334
Organization costs 539 450
Debt acquisition costs 119,625 35,888
Trademarks 1,363 0
Patents 4,901 0
-------- --------
$333,928 $214,672
======== ========
December 31, 1999
Accumulated
Cost Amortization
-------- --------
Covenant not to compete $120,000 $ 90,000
Software development costs 87,500 43,750
Organization costs 539 360
Debt acquisition costs 119,625 23,925
-------- --------
$327,664 $158,035
======== ========
The covenant not to compete and the software development costs were
acquired as a result of the acquisition of Education Navigator, Inc.
(EdNav) on June 26, 1998. 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 nine 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.
Included in Goodwill, as a result of the EdNav acquisition at June 30,
2000 and December 1999 is the cost of $475,665 and accumulated
amortization of $317,110 and $237,833 respectively. The goodwill is
being amortized ratably over a period of three years.
10
<PAGE>
PROPERTY AND EQUIPMENT, AT COST
Property and equipment consists of the following:
June 30, 2000 December 31, 1999
-------------------- --------------------
Accumulated Accumulated
Cost Depreciation Cost Depreciation
-------- -------- -------- --------
Computer and
Office equipment 380,858 $ 76,964 $195,340 $ 30,146
Leasehold
Improvements 1,156 39 0 0
Computer software 227,433 9,664 167,220 1,034
Office furniture 47,108 5,221 23,070 1,267
-------- -------- -------- --------
$656,555 $ 91,888 $385,630 $ 32,447
======== ======== ======== ========
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
furniture and 3 years for software.
Depreciation expense for the six months ended June 30, 2000 and 1999
was $58,557 and $4,336 respectively.
REVENUE RECOGNITION POLICY
The Company recognizes sales, for both financial statement and tax
purposes, when its products are shipped and when services are provided.
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 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.
During the second and third quarters of 1999, the Company issued 86,377
and 68,000, respectively, 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
11
<PAGE>
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 and $44,200, respectively, during the second and third
quarters of 1999.
As of June 30, 2000 the Company had issued 3,605,497 options to
purchase common stock at prices ranging from $0.25 to $6.50 per share
with expirations through August 19, 2011
NOTE 3: OPERATIONS AND LIQUIDITY
The Company has incurred substantial losses in 1999 and 2000. Until
such time that the Company's products and services can be successfully
marketed the Company will continue to need to fulfill working capital
requirements through the sale of stock and issuance of debt. The
inability of the company to continue its operations, as a going concern
would impact the recoverability and classification of recorded asset
amounts.
The ability of the Company to continue in existence is dependent on its
having sufficient financial resources to bring products and services to
market for marketplace acceptance. As a result of its significant
losses, negative cash flows from operations, and accumulated deficits
for the periods ending June 30, 2000, there is doubt about the
Company's ability to continue as a going concern.
Management believes that its current available working capital,
anticipated contract revenues and subsequent sales of stock and or
placement of debt instruments will be sufficient to meet its projected
expenditures for a period of at least twelve months from June 30, 2000.
NOTE 4: ACQUISITION
WebIPA, Inc. Acquisition
On February 9, 2000, the Company acquired WebIPA, Inc., a Florida
corporation pursuant to an Agreement and Plan of Acquisition dated
January 26, 2000. In consideration of receiving all of the issued and
outstanding shares of WebIPA Inc., OmniComm issued 1,200,000 restricted
shares of common stock to the shareholders of WebIPA Inc.
NOTE 5: INVESTMENT, at cost
European Medical Network (EMN) Investment
On March 20, 2000 the Company entered into a stock purchase agreement
under which it agreed to purchase a 25% interest in Medical Network AG
EMN, a Swiss company ("EMN"). The agreement, set to close on April 20,
2000, provided that the purchase price for 25% of EMN's stock equity
was $838,500 to be paid partly in cash and stock. Two cash payments
totaling US $645,000 were to be paid in installments as follows:
$335,000 on March 20, 2000, upon which EMN would deliver 10% of its
stock equity, and $310,000 on April 20, 2000, upon which EMN would
deliver the remaining 15% of its stock equity. In addition, the Company
was to provide 41,883 shares of restricted common stock to EMN.
Pursuant to the terms of the stock purchase agreement, on March 20,
2000, EMN's shareholders entered into an agreement that provided for
the Company to have one seat on EMN's board of directors and the right
to veto any sale of equity in excess of 49% of the total issued and
outstanding equity of EMN.
On March 20, 2000, the Company paid EMN $335,000 and received 10% of
EMN's equity and a seat on EMN's board. On April 20, 2000, the Company
did not make the second payment of $310,000 or the stock payment of
41,883 shares to EMN and the stock purchase agreement did not close.
However, on July 11, 2000, the Company and EMN agreed to renegotiate
the terms of their agreement subject to the Company's success in
finding adequate financing. As part of the renegotiation the Company
has resigned its seat on EMN's board and offered to sell its 10%
interest back to EMN. Therefore, the investment is accounted for at
cost.
12
<PAGE>
NOTE 6: NOTES PAYBLE
Education Navigator
As of June 30, 2000, the Company owed $177,500 to the selling
stockholders of Education Navigator. The notes are payable over two
years and bear interest at 5.51% annually. The amount payable during
fiscal 2000 is $177,500. At August 15, 2000 the Company was in default
under the terms of the promissory note governing the debt. In
accordance with the terms of the promissory note the Company will pay a
late charge equal to 5% of the $177,500 due on June 26, 2000. In
addition, the interest rate on the note will increase to the maximum
rate allowed by law in the State of Florida.
Short-term Borrowings
At June 30, 2000 the Company owed $530,000 under short-term notes
payable. The notes bear interest at rates ranging from 8.75% to 12%.
The average term of the promissory notes is 40 days. The notes are not
collateralized and the note holders were granted stock warrants in the
Company at a price of $2.25 per share. As of June 30, 2000 the Company
was in default on the three of the notes for a principal amount of
$300,000. Subsequent to June 30, 2000, the Company negotiated a
conversion of the debt into common stock of the Company with all three
parties for the principal amount due plus all accrued interest.
NOTE 7: 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 were $742,875. The notes bear interest at ten
percent annually, payable semi-annually. The notes are convertible
after maturity, which is five years, into shares of common stock of the
Company at $1.25 per share, including registration rights. As of June
30, 2000 approximately $400,000 of the Convertible Notes had been
converted into 320,000 shares of common stock of the Company.
NOTE 8: COMMITMENTS AND CONTINGENCIES
The Company currently leases office space requiring minimum annual base
rental payments for the fiscal periods shown as follows:
2000 $ 75,469
2001 142,341
2002 139,965
2003 0
2004 0
--------
Total $357,775
========
In addition, to annual base rental payments, the company must pay an
annual escalation for operating expenses as determined in the lease.
NOTE 9: RELATED PARTY TRANSACTIONS
The Company was owed $0 and $3,406 at June 30, 2000 and December 31,
1999, respectively, from a shareholder. The interest rate was 6%
annually.
13
<PAGE>
NOTE 9: INCOME TAXES
Income taxes are accrued at statutory US and state income tax rates.
Income tax expense is as follows:
6/30/00 6/30/99
Current tax expense(benefit):
Income tax at statutory rates $ -0- $ -0-
Deferred tax expense(benefit):
Amortization of Goodwill and
Covenant (48,306) (25,038)
Operating loss carryforward (1,310,946) (10,154)
1,359,252 35,192
Valuation allowance (1,359,252) (35,192)
Total Tax Expense(Benefit) -0- -0-
The tax effect of significant temporary differences, which comprise
the deferred tax assets are as follows:
6/30/00 12/31/99
Deferred tax assets:
Amortization of Intangibles $ 201,968 $ 153,662
Operating loss carryforwards 2,234,695 923,749
Gross deferred tax assets 2,436,663 1,077,411
Valuation allowance (2,436,663) (1,077,411)
Net deferred tax assets $ -0- $ -0-
The Company has net operating loss (NOL) carryforwards for income tax
purposes of approximately $5,800,000. This loss is allowed to be
offset against future income until the year 2020 when the NOL's will
expire. Other timing differences relate to depreciation and
amortization for the stock acquisition of EdNav (Note 2). 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 10: POST-RETIREMENT 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
(post-retirement). Therefore, no provision is required under SFAS's 106
or 112.
NOTE 11: INTERIM FINANCIAL REPORTING
The unaudited financial statements of the Company for the period from
January 1, 2000 to June 30, 2000 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.
14
<PAGE>
OMNICOMM SYSTEMS, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1999
I N D E X
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT 1
CONSOLIDATED BALANCE SHEETS 2
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) 3
CONSOLIDATED STATEMENTS OF OPERATIONS 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5-6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7-15
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
To the Board of Directors and Shareholders
OMNICOMM SYSTEMS, INC.
Miami, Florida
We have audited the accompanying consolidated balance sheets of OMNICOMM
SYSTEMS, INC. as of December 31, 1999 and 1998 and the related consolidated
statements of operations, changes in shareholders' equity (deficiency) and
cash flows for each of the two years in the period ended December 31, 1999.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based upon our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of OMNICOMM SYSTEMS,
INC. as of December 31, 1999 and 1998, and the consolidated results of their
operations and cash flows for each of the two years in the period ended
December 31, 1999, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Corporation will continue as a going concern. As discussed in Note 3 to the
financial statements, the Corporation has incurred losses and negative cash
flows from operations in recent years through December 31, 1999 and these
conditions are expected to continue through 2000, raising substantial doubt
about the Corporation's ability to continue as a going concern. Management's
plans in regard to these matters are also discussed in Note 3. These
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
GREENBERG & COMPANY LLC
Springfield, New Jersey
January 26, 2000
Page 1 of 15
OMNICOMM SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
A S S E T S
December 31,
1999 1998
CURRENT ASSETS
Cash $ 1,127,263 $ 44,373
Accounts Receivable 8,458 77,188
Inventory 10,166 4,240
Total Current Assets 1,145,887 125,801
PROPERTY AND EQUIPMENT - Net 353,183 33,352
OTHER ASSETS
Stockholder Loans 3,406 3,406
Intangible Assets, net 169,629 163,276
Goodwill, net 237,832 396,387
Other Assets 26,960 9,300
TOTAL ASSETS $ 1,936,897 $ 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 $ 284,481 $ 286,478
Notes Payable - Current 177,500 262,500
Sales Tax Payable 1,818 39,835
Due to Factoring Agent -0- 139,012
Total Current Liabilities 463,799 727,825
Convertible Debt 862,500 -0-
Notes Payable - Long Term -0- 182,500
Total Liabilities 1,326,299 910,325
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred Stock - 5,000,000 shares
authorized, none issued and
outstanding at $.001 par value -0- -0-
5% Series A Convertible Preferred Stock,
5,000,000 shares authorized, 4,117,500
and -0- issued and outstanding,
respectively, at par 3,872,843 -0-
Common Stock - 20,000,000 shares
authorized, 3,344,066 and 1,343,000
issued and outstanding, respectively,
at $.001 par value 3,344 1,343
Additional Paid in Capital 238,007 132,213
Retained Earnings (Deficit) (2,652,644) (311,407)
Subscription Receivable (850,952) (952)
610,598 (178,803)
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT) $ 1,936,897 $ 731,522
The accompanying notes are an integral part of these financial
statements.
Page 2 of 15
<TABLE>
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For The Period January 1, 1998 to December 31, 1999
<CAPTION>
5% Series A Convertible Total
Common Stock Additional Preferred Stock Retained Subscrip- Shareholders'
Number $.001 Paid In Number Earnings tion Equity
of Shares Value Capital of Shares $ Par (Deficit) Receivable (Deficit)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
JAN. 1, 1998 1,002,250 $1,002 -0- -0- -0- $ (16,040) $ (815) $ (15,853)
Issuance of
Common Stock 199,750 200 (137) 63
Acquisition
of Education
Navigator
Inc. 141,000 141 $132,213 132,354
Net Income
(Loss) for
Year Ended
Dec 31, 1998 (295,367) (295,367)
BALANCES AT
DEC 31, 1998 1,343,000 1,343 (311,407) (952) (178,803)
Issuance of
Common Stock 250,000 250 250
Issuance of
Common Stock
for Services 86,400 86 56,059 56,145
Issuance of
Common Stock 300,000 300 2,700 3,000
Issuance of
Common Stock
for Services 68,000 68 44,132 44,200
Issuance of
Common Stock 1,296,666 1,297 2,903 4,200
Issuance of
Preferred Stock,
net of $134,590
Issuance Costs 4,117,500 $3,872,843 (850,000) 3,022,843
Net Income
(Loss) for the
year ended
Dec 31, 1999 (2,341,237) (2,341,237)
BALANCES AT
DEC 31, 1999 3,344,066 $3,344 $238,007 4,117,500 $3,872,843 $(2,652,644) $(850,952) $ 610,598
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3 of 15
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended
December 31,
1999 1998
REVENUES - SALES, Net $ 1,259,214 $1,689,794
COST OF SALES 1,005,338 1,223,018
GROSS MARGIN 253,876 466,776
OTHER EXPENSES
Depreciation and Amortization 299,402 128,196
Interest Expense, net 97,379 15,428
Salaries, Employee Benefits & Related Taxes 784,635 239,108
Factoring Fees 4,571 68,597
Rent 108,371 47,199
Consulting - Marketing/Sales 237,630 76,869
Consulting - Medical Advisory 210,503 -0-
Consulting - Product Development 109,618 -0-
Travel 334,753 37,117
Legal & Professional Fees 98,895 44,222
Telephone & Internet 67,109 18,119
Selling, General and
Administrative 208,226 87,288
Income (Loss) Before Taxes & Preferred
Dividends (2,307,216) (295,367)
Income Taxes Expense (Benefit) -0- -0-
Preferred Stock Dividends (34,021) -0-
NET INCOME (LOSS) $(2,341,237) $ (295,367)
Basic and Diluted Net Income
(Loss) Per Share $(1.27) $(.35)
Weighted Average Number of
Shares Outstanding - Basic and Diluted 1,840,550 855,046
The accompanying notes are an integral part of these financial statements.
Page 4 of 15
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended
December 31,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $(2,341,237) $(295,367)
Adjustment to Reconcile Net Income
to Net Cash Provided By (Used In)
Operating Activities:
Depreciation and Amortization 299,402 128,196
Stock Issued for Services 104,545 -0-
Change in Assets and Liabilities,
net of effects of acquisition of
Education Navigator Inc (EdNav):
(Increase) Decrease in Accounts
Receivable 68,730 (37,157)
(Increase) Decrease in Inventory (5,926) (4,240)
Increase (Decrease) in Other Assests (17,660) (9,300)
Increase (Decrease) in Accounts
Payable and Accrued Expenses (1,997) 260,289
Increase (Decrease) in Sales
Tax Payable (38,018) 39,835
Increase (Decrease) in Due to
Factoring Agent (139,012) 139,012
Net Cash Provided By (Used In)
Operating Activities (2,071,173) 221,268
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment (347,405) (3,035)
Purchase of EdNav, Net of Cash Acquired -0- (67,500)
Net Cash Provided By (Used In)
Investing Activities (347,405) (70,535)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Proceeds from Convertible Notes,
net of issuance costs of $119,625 742,875 -0-
(Payments of) Notes Payable (267,500) (130,000)
Issuance of Common Stock 3,250 63
Issuance of Series A Convertible
Preferred 5% Stock, net of
issuance costs of $134,590 3,022,843 -0-
(Loans to) Payments from Stockholder -0- 7,500
Net Cash Provided By (Used In)
Financing Activities 3,501,468 (122,437)
The accompanying notes are an integral part of these financial statements.
Page 5 of 15
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
For the years ended
December 31,
1999 1998
Net Increase (Decrease) in Cash and
Cash Equivalents 1,082,890 28,296
Cash and Cash Equivalents at
Beginning of Period 44,373 16,077
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 1,127,263 $ 44,373
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period for:
Income Tax Paid $ -0- $ -0-
Interest Paid $ 67,297 $ 1,636
Non Cash Investing and Financing
Transactions: December 31, 1998
Acquisition of all of the Outstanding
Common Stock of Education Navigator
Inc. during the year ended
December 31, 1998
Assets Acquired, Fair Value $ 732,354
Notes to Sellers Issued (525,000)
Common Stock Issued (132,354)
Cash Acquired (7,500)
Net Cash Paid for Acquisition $ 67,500
The accompanying notes are an integral part of these financial statements.
Page 6 of 15
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
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 4, Acquisition). The Company's
accounts also include those of its wholly owned subsidiary
Omnitrial, B.V. 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 11).
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.
Page 7 of 15
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Continued)
EARNINGS PER SHARE
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share." SFAS
128 replaced the previously reported primary and fully diluted
earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of options, warrants, and convertible
securities. The diluted earnings per share calculation is very
similar to the previous fully diluted earnings per share calculation
method. SFAS 128 became effective December 31, 1997.
Basic earnings per share under SFAS 128 were computed using the
weighted average number of shares outstanding of 7,826,840 in 1998,
7,816,417 in 1997 and 7,811,370 in 1996. There were no differences
between basic and diluted earnings per share. Options to purchase
3,458,669 shares of common stock at prices ranging from $.25 to
$3.50 per share were outstanding during 1999 but were not included
in the computation of diluted earnings per share because the options
exercise price was greater than the average market price of the
common shares and therefore, the effect would be anti-dilutive. The
effect of the convertible debt and convertible preferred stock is
anti-dilutive.
5% SERIES A CONVERTIBLE PREFERRED STOCK
During the year ended December 31, 1999, the company designated
5,000,000 shares of its 10,000,000 authorized preferred shares as 5%
Series A Convertible Preferred Stock. Each share is convertible
into common stock at $1.50 per share. In the event of liquidation,
these shareholders 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. Dividends are payable
at the rate of 5% per annum payable semi-annually.
ADVERTISING
Advertising costs are expensed as incurred. Advertising expense for
the years ended December 31, 1999 and 1998 was $7,599 and $1,385,
respectively.
RECLASSIFICATIONS
Certain items from prior periods within the financial statements
have been reclassified to conform to current period classifications.
Page 8 of 15
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Continued)
INTANGIBLE ASSETS AND GOODWILL
Included in Intangible Assets are the following assets:
Dec. 31, 1999
Accumulated
Cost Amortization
Covenant not to compete $120,000 $ 90,000
Software development costs 87,500 43,750
Organization costs 539 360
Debt acquisition costs 119,625 23,925
$327,664 $158,035
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 4). 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 nine 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 year ended December 31, 1999, the
amortization was $23,925.
Included in Goodwill, as a result of the EdNav acquisition (see Note
4), at December 31, 1999 and December 31, 1998 is the cost of
$475,665 and accumulated amortization of $237,833 and $79,278,
respectively. The goodwill is amortized ratably over a three year
period.
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 years ended
Dec. 31, 1999 Dec. 31, 1998
% of % of
Customer Sales $ Total Sales Sales $ Total Sales
Commercial
Services Inc $956,639 79% $1,289,594 76%
Office Depot
Inc $115,581 10% $ 176,965 10%
Page 9 of 15
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Continued)
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, 1999 Dec. 31, 1998
Accumulated Accumulated
Cost Depreciation Cost Depreciation
Computer and office
equipment $195,340 $30,146 $33,274 $4,636
Computer software 167,220 1,034 -0- -0-
Office furniture 23,070 1,267 4,950 236
$385,630 $32,447 $38,224 $4,872
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 twelve months ended December 31,
1999 and 1998 was $27,575 and $4,573, 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.
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.
Page 10 of 15
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Continued)
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 4, 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 and third quarters of 1999, the Company issued
86,400 and 68,000, respectively, 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 and $44,200,
respectively, during the second and third quarters of 1999.
NOTE 3: OPERATIONS AND LIQUIDITY
The Company has incurred substantial losses in 1999. Until such
time that the Company's products and services can be successfully
marketed the Company will continue to need to fulfill working
capital requirements through the sale of stock and issuance of debt.
The inability of the Company to continue its operations, as a going
concern would impact the recoverability and classification of
recorded asset amounts.
The ability of the Company to continue in existence is dependent on
its having sufficient financial resources to bring products and
services to market for marketplace acceptance. As a result of its
significant losses, negative cash flows from operations, and
accumulated deficits for the period ending December 31, 1999, there
is doubt about the Company's ability to continue as a going concern.
Management believes that its current available working capital,
anticipated contract revenues, subsequent sales of stock will be
sufficient to meet its projected expenditures for a period of at
least twelve months from December 31, 1999.
Page 11 of 15
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Continued)
NOTE 4: 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 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.
1/1/98-12/31/98
Revenues $1,775,835
Income (Loss) before
extraordinary items (421,599)
Net Income (Loss) (421,599)
Earnings (Loss) Per Share $(.14)
Weighted Average
Shares Outstanding 2,942,106
Page 12 of 15
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Continued)
Proforma adjustments to the results of operations are as follows:
1/1/98-12/31/98
Depreciation - Equipment $ 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 5: NOTES PAYABLE
At December 31, 1998 the Company owed $445,000 to the selling
stockholders of Ed Nav (see Note 4). 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 $177,500. At December 31, 1999 the Company
owed a total of $177,500 on these notes.
NOTE 6: 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 7: 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:
2000 $148,309
2001 153,295
2002 133,873
Total $435,477
In addition to annual base rental payments, the company must pay an
annual escalation for operating expenses as determined in the lease.
Rent expense for 1999 and 1998 was $108,371 and $47,199,
resssspectively.
Page 13 of 15
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Continued)
NOTE 8: INCOME TAXES
Income taxes are accrued at the statutory U.S. and state income tax
rates.
Income tax expense is as follows:
12/31/99 12/31/98
Current tax expense (benefit):
Income tax at statutory rates $ -0- $ -0-
Deferred tax expense (benefit):
Amortization of Goodwill and
Covenant (105,243) (48,419)
Operating Loss Carryforward (864,806) (58,943)
(970,049) (107,362)
Valuation allowance (970,049) (107,362)
Total Tax Expense (Benefit) $ -0- $ -0-
The tax effect of significant temporary differences, which comprise
the deferred tax assets are as follows:
12/31/99 12/31/98
Deferred tax assets:
Amortization of Intangibles $ 153,662 $ 48,419
Operating loss carryforwards 923,749 58,943
Gross deferred tax assets 1,077,411 107,362
Valuation allowance (1,077,411) (107,362)
Net deferred tax assets $ -0- $ -0-
The Company has net operating loss (NOL) carryforwards for income
tax purposes of approximately $2,500,000. This loss is allowed to
be offset against future income until the year 2019 when the NOL's
will expire. Other timing differences relate to depreciation and
amortization for the stock acquisition of EdNav (Note 4).
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 9: RELATED PARTY TRANSACTIONS
The Company was owed $3,406 and $3,406 at December 31, 1999 and
December 31, 1998, respectively from a shareholder. The amount is
payable on demand. The interest rate is 6% annually.
NOTE 10: 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.
Page 14 of 15
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Continued)
NOTE 11: 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 issued 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 December 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.
Page 15 of 15
