SECURITIES AND EXCHANGE COMISSION
Washington, D.C. 20549
FORM 10-QSB
[Mark One}
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period ended SEPTEMBER 30, 2000
------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from _______ to ________
Commission file number: 0-25203
-------
OMNICOMM SYSTEMS, INC.
(Name of small business issuer in its charter)
Delaware 11-3349762
-------- ----------
(State of incorporation) (IRS employer Ident. No.)
3250 Mary Street, #402, Miami, FL 33133
---------------------------------- -----
(Address of principal office) (Zip Code)
Registrant's telephone number: (305) 448-4700
Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X NO
--- ---
The number of shares outstanding of each of the issuer's classes of
equity as of September 30, 2000: 7,304,729 common stock $.001 par value,
4,356,948 preferred stock no par value.
<PAGE>
OMNICOMM SYSTEMS, INC.
Part I - Financial Information Page
------------------------------ ----
Item 1.
Consolidated Balance Sheet -
September 30, 2000 and December 31, 1999 1
Consolidated Statements of Shareholders' Equity - 2-5
January 1, 1999 to September 30, 2000
Consolidated Statements of Operations -
Three and nine months ended September 30, 2000 and 1999 6
Consolidated Statement of Cash Flows -
Nine months ended September 30, 2000 and 1999 7-8
Notes to Financial Statements 9-14
Items 2.
Managements' Discussion and Analysis of
Financial Condition and Results 15-18
Part II - Other Information 18
Item 1. Legal Proceedings: 18
Item 2. Changes in Securities: None
Item 3. Defaults Upon Senior Securities: None
Item 4. Submission of Matters To a Vote of
Security Holders: None
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
Exhibit 27.1 Financial Data Schedule 20
<PAGE>
OMNICOMM SYSTEMS, INC
---------------------
FINANCIAL STATEMENTS
--------------------
SEPTEMBER 30, 2000
------------------
<PAGE>
I N D E X
---------
Page
----
CONSOLIDATED BALANCE SHEETS 1
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) 2-4
CONSOLIDATED STATEMENTS OF OPERATIONS 5
CONSOLIDATED STATEMENTS OF CASH FLOWS 6-7
NOTES TO THE FINANCIAL STATEMENTS 8-13
<PAGE>
OMNICOMM SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
------
September 30 December 31,
2000 1999
(Unaudited)
------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 3,789 $ 1,127,263
Accounts receivable 46,869 8,458
Inventory 4,670 10,166
Prepaid expenses 12,494 -0-
----------- -----------
Total current assets 67,822 1,145,887
----------- -----------
Property and equipment, net 584,349 353,183
----------- -----------
OTHER ASSETS
Equity investment in Medical Networks EMN, at cost 335,000 -0-
Shareholder loans -0- 3,406
Intangible assets, net 105,939 169,629
Goodwill, net 118,916 237,832
Other assets 39,802 26,960
----------- -----------
TOTAL ASSETS $ 1,251,828 $ 1,936,897
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,222,877 $ 284,481
Notes payable - current 512,500 177,500
Deferred revenue 39,376 -0-
Sales tax payable -0- 1,818
----------- -----------
Total current liabilities 1,774,753 463,799
----------- -----------
Notes payable - long term - -
Convertible notes 462,500 862,500
----------- -----------
TOTAL LIABILITIES 2,237,253 1,326,299
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock - 10,000,000 shares authorized,
4,356,948 and 4,117,500 issued and 4,002,265 3,872,843
outstanding, respectively at par
Common Stock - 20,000,000 shares authorized,
7,304,729 and 3,344,066 issued and outstanding,
respectively, at $.001 par value 7,326 3,344
Additional paid in capital 2,848,721 238,007
Retained earnings (deficit) (7,549,285) (2,652,644)
Treasury stock, cost method, 20,951 shares (293,312) -0-
Stock subscriptions receivable (1,140) (850,952)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (985,425) 610,598
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT) $ 1,251,828 $ 1,936,897
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD JANUARY 1, 1999 TO SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
5% Series A Convertible
-----------------------
Common Stock Additional Preferred Stock Retained
------------ ---------- --------------- --------
Number $ 0.001 Paid In Number Earnings Subscription Treasury
------ ------- ------- ------ -------- ------------ --------
of Shares Value Capital of Shares $0.00 Par (Deficit) Receivable Stock
--------- ----- ------- --------- --------- --------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 1, 1998 1,002,250 $ 1,002 $ -0- -0- $ -0- $ (16,040) $ (815) $ -0-
Issuance of
common stock 199,750 200 (137)
Acquisition of
Education
Navigator, Inc. 141,000 141 132,213
Net (loss) for
year ended
December 31, 1998 (295,367)
--------- ----- ------- --------- --------- --------- ---------- -----
Balances at
December 31, 1998 1,343,000 1,343 132,213 - - (311,407) (952)
Issuance of
common stock 250,000 250
Issuance of common
stock for services 86,400 86 56,059
Issuance of
common stock 300,000 300 2,700
Issuance of common
stock for services 68,000 68 44,132
Issuance of
common stock 1,296,666 1,297 2,903
Issuance of
preferred stock, net
of $134,590
issuance costs 4,117,500 3,872,843 (850,000)
<CAPTION>
Total
-----
Shareholders'
-------------
Equity
------
(Deficit)
---------
<S> <C>
January 1, 1998 $ (15,853)
Issuance of
common stock 63
Acquisition of
Education
Navigator, Inc. 132,354
Net (loss) for
year ended
December 31, 1998 (295,367)
---------
Balances at
December 31, 1998 (178,803)
Issuance of
common stock 250
Issuance of common
stock for services 56,145
Issuance of
common stock 3,000
Issuance of common
stock for services 44,200
Issuance of
common stock 4,200
Issuance of
preferred stock, net
of $134,590
issuance costs 3,022,843
</TABLE>
<PAGE>
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD JANUARY 1, 1999 TO SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
5% Series A Convertible
-----------------------
Common Stock Additional Preferred Stock Retained
------------ ---------- --------------- --------
Number $ 0.001 Paid In Number Earnings Subscription Treasury
--------- ------- ------- ------ -------- ------------ --------
of Shares Value Capital of Shares $0.00 Par (Deficit) Receivable Stock
--------- ------- ------- --------- --------- --------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net loss for the
year ended
December 31, 1999 (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)
Issuance of common
stock for services 40,000 40 89,960
Issuance of common
stock 284,166 284
Exercise of stock
options 1,025,895 1,026 297,024
Purchase of treasury
stock in connection
with stock
appreciation rights (20,951) (293,312)
Payment of
subscription
receivable 850,000
Acquisition of
WebIPA, Inc. 1,200,000 $ 1,200 $ 3,833
Issuance of
preferred stock 146,000 146,000
Issuance costs (206,750)
Conversion of
convertible notes
<CAPTION>
Total
-----
Shareholders'
-------------
Equity
------
(Deficit)
---------
<S> <C>
Net loss for the
year ended
December 31, 1999 (2,341,237)
----------
Balances at
December 31, 1999 $ 610,598
Issuance of common
stock for services 90,000
Issuance of common
stock 284
Exercise of stock
options 298,050
Purchase of treasury
stock in connection
with stock
appreciation rights (293,312)
Payment of
subscription
receivable 850,000
Acquisition of
WebIPA, Inc. 5,033
Issuance of
preferred stock 146,000
Issuance costs (206,750)
Conversion of
convertible notes
</TABLE>
<PAGE>
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD JANUARY 1, 1999 TO SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
5% Series A Convertible
-----------------------
Common Stock Additional Preferred Stock Retained
------------ ---------- --------------- --------
Number $ 0.001 Paid In Number Earnings Subscription Treasury
------ ------- ------- ------ -------- ------------ --------
of Shares Value Capital of Shares $0.00 Par (Deficit) Receivable Stock
--------- ----- ------- --------- --------- --------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
payable 320,000 $ 320 $399,680
Exercise of stock
options 20,000 $ 20 $ 15,980
Exercise of stock
warrants 481,834 $ 482 $963,186
Exercise of stock
warrants 187,954 $ 188 $ - $ (188)
Conversion of
preferred stock to
common stock 66,667 $ 67 $ 99,933 (100,000) $(100,000)
Conversion of notes
payable to common
stock 91,608 $ 92 $206,026
Issuance of common
stock for services 70,990 $ 71 $188,784
Issuance of common
stock, net of issuance 192,500 $ 192 $346,308
costs of $38,500
Issuance of preferred
stock for services 126,781 $ 190,172
Conversion of notes
payable to preferred
stock 66,667 $ 100,000
Net (loss) for the
Nine months ended
September 30, 2000 (4,896,641)
--------- ----- ------- --------- --------- ---------- ---------- -----
<CAPTION>
Total
-----
Shareholders'
-------------
Equity
------
(Deficit)
---------
<S> <C>
payable 400,000
Exercise of stock
options 16,000
Exercise of stock
warrants 963,668
Exercise of stock
warrants -
Conversion of
preferred stock to
common stock (0)
Conversion of notes
payable to common
stock 206,118
Issuance of common
stock for services 188,855
Issuance of common
stock, net of issuance 346,500
costs of $38,500
Issuance of preferred 190,172
stock for services
Conversion of notes
payable to preferred
stock 100,000
Net (loss) for the
Nine months ended
September 30, 2000 (4,896,641)
----------
</TABLE>
<PAGE>
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD JANUARY 1, 1999 TO SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
5% Series A Convertible
-----------------------
Common Stock Additional Preferred Stock Retained
------------ ---------- --------------- --------
Number $ 0.001 Paid In Number Earnings Subscription Treasury
------ ------- ------- ------ -------- ------------ --------
of Shares Value Capital of Shares $0.00 Par (Deficit) Receivable Stock
--------- ----- ------- --------- --------- --------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
September 30, 2000 7,304,729 $ 7,326 $2,848,721 4,356,948 $4,002,265 $(7,549,285) $ (1,140) $ (293,312)
========= ======= ========== ========= ========== =========== ========= ==========
<CAPTION>
Total
-----
Shareholders'
-------------
Equity
------
(Deficit)
---------
<S> <C>
Balances at
September 30, 2000 $ (985,425)
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended For the three months ended
September 30 September 30
--------------------------- ----------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue - sales, net $ 51,914 $ 1,156,937 $ 11,154 $ 244,536
Cost of sales 43,436 821,803 (3,088) 187,279
-------- ----------- -------- ---------
Gross margin 8,478 335,134 14,242 57,257
-------- ----------- -------- ---------
Other expenses
Salaries, benefits and related taxes 2,373,022 426,067 861,694 194,801
Rent 203,250 44,903 40,842 17,349
Consulting - medical advisory 117,667 159,345 28,667 159,345
Consulting - marketing sales 83,033 198,780 6,000 (11,322)
Consulting - product development 59,365 6,036 22,945 6,036
Legal and professional fees 533,047 84,301 127,069 13,027
Travel 331,671 206,234 21,228 100,544
Telephone and internet 167,821 29,613 26,474 20,135
Factoring fees -0- 4,571 -0- 71
Selling, general and administrative 527,362 206,242 119,840 52,461
Interest expense, net 62,492 51,077 20,512 21,638
Depreciation and amortization 291,468 224,176 96,999 84,780
-------- ----------- -------- ---------
Total other expenses 4,750,198 1,641,345 1,372,270 658,865
(Loss) before taxes and preferred dividends (4,741,720) (1,306,211) (1,358,028) (601,608)
Income tax expense (benefit) -0- -0- -0- -0-
Preferred stock dividends (154,921) -0- (53,353) -0-
-------- ----------- -------- ---------
Net (loss) $(4,896,641) $ (1,306,211) $ (1,411,381) $ (601,608)
=========== ============ ============ ==========
Net (loss) per share $ (0.82) $ (0.79) $ (0.21) $ (0.32)
=========== ============ ============ ==========
Weighted average number of
shares outstanding 5,975,431 1,655,612 6,782,576 1,895,247
=========== ============ ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30
----------------------------------
2000 1999
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (4,896,641) $(1,306,211)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities
Common stock issued for services 278,855 -0-
Preferred stock issued for services 190,172 -0-
Accrued placement agent fee (38,500) -0-
Depreciation and amortization 291,468 224,176
Changes in operating assets and liabilities, net of
effects of acquisition of Education
Navigator, Inc. (EdNav)
Accounts receivable (38,411) 42,002
Inventory 5,496 3,082
Due from placement agent -0- -0-
Prepaid expenses (12,494) -0-
Shareholder loans 3,406 -0-
Other assets (12,842) 2,500
Accounts payable and accrued expenses 938,396 (146,167)
Sales tax payable (1,818) (28,505)
Deferred revenue 39,376 -0-
Due to factoring agent -0- (139,012)
------------ -----------
Net cash provided by (used in) operating activities (3,253,537) (1,348,135)
------------ -----------
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 (333,911) (222,808)
------------ -----------
Net cash provided by (used in) investing activities (663,878) (222,808)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from convertible notes -0- 742,875
Proceeds from notes payable 680,000 -0-
Proceeds from the issuance of preferred stock,
net of issuance costs 789,250 1,244,910
Issuance of common stock 385,284 103,595
Proceeds from stock warrant exercise 963,668 -0-
Proceeds from stock option exercise 20,739 -0-
Payments on notes payable (45,000) (377,500)
------------ -----------
Net cash provided by financing activities 2,793,941 1,713,880
------------ -----------
Net increase (decrease) in cash and cash equivalents (1,123,475) 142,937
Cash and cash equivalents at beginning of period 1,127,263 44,373
------------ -----------
Cash and cash equivalents at end of period $ 3,789 $ 187,310
============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ -0- $ -0-
============ ==========
Interest $ 26,736 $ 27,982
============ ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Non Cash Investing and Financing Transactions; September 30, 2000
------------
<S> <C>
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-
============
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.
<PAGE>
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(R) 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
share 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 5,975,431 and
1,655,612 for the nine months ended September 30, 2000 and
1999; and 6,782,576 and 1,895,247 for the three months ended
September 30, 2000 and 1999 respectively. There were no
differences between basic and diluted earnings per share.
Options to purchase 4,049,669 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 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 costs
were $126,093 and $2,197 for the nine months ended September
30, 2000 and 1999 respectively.
<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:
September 30, 2000
------------------
Accumulated
-----------
Cost Amortization
---- ------------
Covenant not to compete $120,000 $ 120,000
Software development costs 87,500 65,625
Organization costs 539 494
Debt acquisition costs 119,625 41,869
Trademarks 1,363 0
Patents 4,901 0
--------- ---------
$333,928 $ 227,988
========= =========
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. Amortization
expense was $30,000 on the covenant not to compete, and
$21,875 for software development costs for the nine months
ended September 30, 2000.
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. Amortization
expense of the debt acquisition costs totaled $17,944 for the
nine months ended September 30, 2000.
Included in Goodwill, as a result of the EdNav acquisition at
September 30, 2000 and December 31, 1999 is the cost of
$475,665 and accumulated amortization of $356,749 and $237,833
respectively. The goodwill is being amortized ratably over a
period of three years. Goodwill amortization totaled $118,916
for the nine months ended September 30, 2000.
<PAGE>
PROPERTY AND EQUIPMENT, AT COST
-------------------------------
Property and equipment consists of the following:
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
----------------------- ------------------------
Accumulated Accumulated
------------ ------------
Cost Depreciation Cost Depreciation
--------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Computer and
Office equipment 440,858 $ 79,660 $195,340 $30,146
Leasehold
Improvements 1,699 114 0 0
Computer software 228,262 48,596 167,220 1,034
Office furniture 49,093 7,193 23,070 1,267
--------- -------- -------- -------
$ 719,912 $135,563 $385,630 $32,447
========= ======== ========= =======
</TABLE>
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
leasehold improvements, equipment and furniture and 3 years
for software.
Depreciation expense for the nine months ended September 30,
2000 and 1999 was $99,539 and $20,307 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.
<PAGE>
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
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,
and $41,980 during the third quarter of 2000.
As of September 30, 2000 the Company had issued 4,049,677
options to purchase common stock at prices ranging from $0.25
to $6.50 per share with expiration dates through December 16,
2010.
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 the 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 September 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 September 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.
<PAGE>
NOTE 5: EQUITY INVESTMENT
-----------------
European Medical Network (EMN) Investment, at cost
--------------------------------------------------
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, 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 renogiatiation the Company has
resigned its seat on EMN's board and offered to sell its 10%
interest back to EMN. The Company accounts for its investment
in EMN under the cost method of accounting.
NOTE 6: NOTES PAYBLE
------------
Education Navigator
-------------------
As of September 30, 2000, the Company owed $157,500 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 notes the Company will pay a late
charge equal to 5% of the $177,500 due at maturity, 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 September 30, 2000 the Company owed $355,000 under
short-term notes payable. The notes bear interest at rates
ranging from 8% to 12%. The average term of the promissory
notes is 40 days. One of the notes is collateralized by common
stock owned by an Officer of the Company, the other three
notes are not collateralized. The note holders were granted
stock warrants in the Company at a price of $2.25 per share.
As of September 30, 2000 the Company was in default on the two
of the notes with face value amounts of $200,000 and principal
owed of approximately $175,000.
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 September 30, 2000 approximately
$400,000 of the Convertible Notes had been converted into
320,000 shares of common stock of the Company.
<PAGE>
NOTE 8: COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company currently leases office space requiring minimum
annual base rental payments for the fiscal periods shown as
follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 38,221
2001 142,341
2002 139,965
2003 0
2004 0
--------
Total $320,527
========
</TABLE>
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 September 30, 2000 and
December 31, 1999, respectively, from a shareholder. The
interest rate was 6% annually.
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: INCOME TAXES
------------
Income taxes are accrued at statutory US and state income tax
rates. Income tax expense is as follows:
9/30/00 9/30/99
Current tax expense (benefit):
Income tax at statutory rates $ -0- $ -0-
Deferred tax expense (benefit):
Amortization of goodwill and
Covenant (72,458) (25,038)
Operating loss carryforward (1,792,607) (10,154)
------------ -----------
1,865,065 35,192
Valuation allowance (1,865,065) (35,192)
------------ -----------
Total tax expense (benefit) $ -0- $ -0-
============ ===========
The tax effect of significant temporary differences, which
comprise the deferred tax assets are as follows:
9/30/00 12/31/99
Deferred tax assets:
Amortization of intangibles $ 226,120 $153,662
Operating loss carryforwards 2,716,356 923,749
----------- -----------
Gross deferred tax assets 2,942,476 1,077,411
Valuation allowance (2,942,476) (1,077,411)
----------- -----------
Net deferred tax asset $ -0- $ -0-
----------- -----------
NOTE 12: INTERIM FINANCIAL REPORTING
---------------------------
The unaudited financial statements of the Company for the
period from January 1, 2000 to September 30, 2000 and January
1, 1999 to September 30, 1999 have been prepared by management
from the books and records of the Company, and reflect, in the
opinion of management, all adjustments necessary for a fair
presentation of the financial position and operations of the
Company as of the period indicated herein, and are of a normal
recurring nature.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
FORWARD LOOKING STATEMENTS
In addition to historical information, this Quarterly Report contains "forward
looking statements". These statements can often be identified by the use of
forward-looking terminology such as "estimate", "project", "believe", "expect",
"may", "will", "should", "intends", or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties. We wish to caution the reader
that these forward-looking statements, such as statements relating to timing,
costs and of the acquisition of, or investments in, existing business, the
revenue profitability levels of such businesses, and other matters contained in
this Quarterly Report regarding matters that are not historical facts, are only
predictions. No assurance can be given that plans for the future will be
consummated or that the future results indicated, whether expressed or implied,
will be achieved. While sometimes presented with numerical specificity, these
plans and projections and other forward-looking statements are based upon a
variety of assumptions, which we consider reasonable, but which nevertheless may
not be realized. Because of the number and range of the assumptions underlying
our projections and forward-looking statements, many of which are subject to
significant uncertainties and contingencies that are beyond our reasonable
control, some of the assumptions inevitably will not materialize, and
unanticipated events and circumstances may occur subsequent to the date of this
Quarterly Report. Therefore, our actual experience and results achieved during
the period covered by any particular projections or forward-looking statements
may differ substantially from those projected. Consequently, 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 NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
Revenues:
Total revenues decreased to $51,914 from $1,156,937 for the nine months ended
September 30, 2000 compared to the corresponding period in fiscal year 1999. The
substantial decrease in revenue can be attributed to the Company changing its
focus from computer systems integration to the development and marketing of
Internet based database products for the clinical trial industry.
All of the Company's revenue for 1999 can be attributed to its systems
integration business. The Company has earned approximately $4,167 in revenue
from its clinical trial operations during fiscal 2000. The Company anticipates
that substantially all of its future revenues will come from the sale and
servicing of its Internet based solutions to the clinical trial industry.
Revenue sources will include short and long-term consulting engagements
associated with the Company's on-going pharmaceutical and health care industry
clients.
Cost of Sales:
Total cost of sales decreased to $43,436 from $821,803 for the nine months
ending September 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 to the development and marketing of the TrialMaster
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 anticipates that its
cost of sales will increase as it increases revenues generated from its clinical
trial operations.
Other Expenses:
Salaries and Wages. Salaries and wages increased to $2,373,022 from $426,067 for
the nine month period ending September 30, 2000 compared to the corresponding
period in fiscal year 1999. The Company currently has twenty
<PAGE>
seven employees compared to fifteen 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 and WebIPA systems.
Selling, General and Administrative. Selling, general and administrative
expenses which includes; rent, telephone and Internet expenses and travel,
increased to $1,230,104 from $491,563 for the first nine 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 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 nine 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 $533,047
from $84,301 for the first nine 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 an investment bank in conjunction
with the Company's attempt to raise capital during the first half of fiscal
2000.
Independent Consultants. Independent consulting expenses decreased to $260,065
from $364,161 for the nine months ended September 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 an increase in Product Development
Consulting Fees. The Company retained the services of independent programmers to
assist in finalizing certain software issues related to its software
applications. 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 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 $3,789 from $1,127,263 during the first
nine months of fiscal year 2000. The decrease can be attributed to the losses
incurred during the first nine months of fiscal 2000, the Company's investment
in European Medical networks of $335,000, and the purchase of property and
equipment offset by the receipt of equity financing received from the issuance
of Series A Convertible Preferred Convertible Stock, from the exercise of common
stock warrants associated with the Series A Preferred shareholders, and from
funds received through bridge financing in the form of interest bearing debt.
The Company generated a loss of $4,896,641 from operations during the first nine
months of fiscal year 2000 compared to a loss of $1,306,211 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 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 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 September 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.
<PAGE>
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
Revenues:
Total revenues decreased to $11,154 from $244,536 for the three months ended
September 30, 2000 compared to the corresponding period in fiscal year 1999.
This substantial decrease in revenue can be attributed to the Company moving 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 an Internet development and marketing oriented business had been completed by
the end of fiscal 1999.
All of the Company's revenue for 1999 were attributable to its systems
integration business. The Company earned approximately $4,167 in revenue from
its clinical trial oriented businesses during the three months ended
September 30, 2000.
Cost of Sales:
Total cost of sales decreased to $(3,088) from $182,279 for the three months
ending September 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 to the development and marketing of the TrialMaster
Internet and WebIPA systems. The Company experienced a decrease in product and
service revenues in connection with the change in its strategic focus and
therefore a corresponding decrease in cost of goods sold. The Company does not
anticipate any substantial increases in the cost of sales from its computer
systems integration business.
Other Expenses:
Salaries and Wages. Salaries and wages increased to $861,694 from $194,801 for
the three month period ending September 30, 2000 compared to the corresponding
period in fiscal year 1999. The Company currently has twenty seven employees
compared to fifteen 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 $208,384 from $190,560 for the three months ended September 30,
2000 compared to the corresponding period in fiscal year 1999. The 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 and WebIPA systems. The Company experienced a decrease in
its, travel expenses as it worked to limit its operating expenses during the
quarter. The Company incurred slightly 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 three months ended September 30, 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 $127,069
from $13,027 for the three months ended September 30, 2000 compared to the
comparable period in fiscal 1999. The increase is primarily attributable to
investment banking and financial advisory fees paid to an investment bank in
conjunction with the Company's attempt to raise capital during the first half of
fiscal 2000.
Independent Consultants. Independent consulting expenses decreased to $57,612
from $154,059 for the three months ended September 30, 2000 compared to the
corresponding period in fiscal year 1999. The decrease can be attributed to a
decrease in Medical Advisory fees offset by an increase in Product Development
Consulting Fees. The Company 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
<PAGE>
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.
PART II. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
In the Circuit Court of the 11th Judicial Circuit Court 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. alleging OmniComm's
breach of a lease for real property. The parties have reached a settlement of
their claims and are in the final stages of executing that settlement.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On February 9, 2000 the company filed a current report on Form 8-K
dated February 9, 2000 reporting items 1,2,5,6 and 7 in connection with
its acquisition WebIPA, Inc. pursuant to an Agreement and Plan of
Acquisition dated January 26, 2000
On March 6, 2000 the company filed a current report on Form 8-K dated
March 6, 2000 reporting items 1,2,5,6 and 7 in connection with its
preliminary agreement to acquire 25% of the current stock equity of
Medical Network EMN Ltd. for cash and restricted common stock of
Omnicomm.
On June 30, 2000 the company filed a current report on Form 8-K dated
June 30, 2000 reporting items 5 and 7 in connection with organizational
changes occurring on that date. The Company announced that Cornelis F.
Wit a member of the Company's Board of Directors had been named interim
CEO. The Company also announced that Peter S. Knezevich had been
replaced as CEO and would remain on as Director of the Company.
On September 20, 2000 the company filed a current report on Form 8-K
dated July 31, 2000 reporting items 5 and 7 in connection
organizational changes occurring on that date. The Company announced
that David Ginsberg, D.O. had been named President and CEO. The Company
also announced that Peter S. Knezevich had resigned as a Director of
the Company as of August 1, 2000. The Company announced at the same
time the closing of its wholly owned European subsidiary, OmniTrial
B.V.. On September 5, 2000 OmniTrial applied for bankruptcy in The
Netherlands and a Trustee was appointed by a Dutch bankruptcy court to
liquidate its assets.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
OMNICOMM SYSTEMS, INC.
Registrant
Date: November 20, 2000
/s/ David Ginsberg, D.O.
------------------------
David Ginsberg,D.O.
President and
Chief Executive Officer
/s/ Ronald T. Linares
---------------------
Ronald T. Linares
Vice President and
Chief Financial and
Chief Accounting Officer
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
27.1 Financial Data Schedule
