As filed with the Securities and Exchange Commission on September __, 2001
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form SB-2/A
Amendment No. 1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
OmniComm Systems, Inc.
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(Name of small business issuer in its charter)
Delaware 11-3349762
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(State of incorporation) (IRS employer Ident. No.)
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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 filed 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 filed 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 September 10, 2001, 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 Class Proposed Amount Proposed Maximum Maximum Aggregate Amount of of Securities to be To be Offering Offering Registration Registered Registered Price Per Unit Price Fee (1) Common Stock Par value $.001 per share 4,665,600 $0.57 $2,659,392 $702.08 |
(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 on November 14, 2000.
SUBJECT TO COMPLETION
Prospectus Dated September 10, 2001
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
4,665,600 Shares
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 $125,500 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 4,665,600 Shares are issued. See "Selling Security Holders," "Plan of Distribution" and "Description of Capital Stock." The Shares offered hereby represent approximately 37% 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 September 10, 2001, the last reported sale price of the Common Stock on the OTC Bulletin Board was $0.57 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.
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 September 10, 2001.
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Table of Contents
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Location
Item in
No. Item Caption Prospectus
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1 Front of Registration Statement and Outside Front Cover of Prospectus
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2 Inside Front and Outside Back Cover Pages of Prospectus
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3 Summary Information and Risk Factors 5
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4 Use of Proceeds 9
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5 Determination of Offering Price 9
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6 Dilution 9
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7 Selling Security Holders 10
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8 Plan of Distribution 12
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9 Legal Proceedings 13
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10 Directors, Executive Officers, Promoters and Control Persons 13
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11 Security Ownership of Certain Beneficial Owners and Management 14
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12 Description of Securities 15
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13 Interest of Named Experts and Counsel 16
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14 Disclosure of Commission Position on Indemnification for Securities Act 16
Liabilities
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15 Organization Within Last Five Years 16
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16 Description of Business 17
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17 Management's Discussion and Analysis of Plan of Operation 27
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18 Description of Property 35
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19 Certain Relationships and Related Transactions 35
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20 Market for Common Equity and Related Stockholder Matters 35
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21 Executive Compensation 36
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22 Financial Statements 73
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23 Changes In and Disagreements with Accountants on Accounting and Financial 37
Disclosure
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PART II INFORMATION NOT REQUIRED IN PROSPECTUS
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24 Indemnification of Directors and Officers 37
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25 Other Expenses of Issuance and Distribution 38
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26 Recent Sales of Unregistered Securities 38
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27 Exhibits 41
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28 Undertakings 42
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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(R) is an Internet based approach that upgrades and integrates 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 $500,000,000 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 as Viagra(TM)
. In the United States only 2% of the doctors and 5% of the eligible
patients are involved in clinical trials
One of 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 for a successful clinical trial.
TrialMaster 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 the clinical trial industry ("Industry") will realize cost efficiencies by improving data quality and integrity and shortening the time to market for medical products and drugs.
OmniComm will derive revenue from sponsors of clinical trials who utilize TrialMaster to manage their trials.
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 utilization of the Internet to enhance doctor and patient participation in the clinical trial industry. If the market for electronic data collection or utilization of 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 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 may include 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 industries 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 2000, we had net loss of approximately $6,275,051. 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 TrialMaster 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 gross proceeds to the Registrant from the sale of 115,000 shares of common stock, $.001 par value, at prices ranging from $0.45 to $2.25 per share, is estimated to be approximately $125,500. Those proceeds would result from the exercise of stock warrants. There is no guarantee that any of the stock warrants will be exercised. The Registrant expects to use the maximum possible gross proceeds as shown below:
General working capital $125,500 100%
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Total $125,500 100%
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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.
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 4,665,600 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 4,168,500 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 the Series A Preferred Holders decide to convert, the Company would issue 2,779,000 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 $425,000 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 340,000 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 identify each Selling Security Holder based upon information provided to the Company, set forth as of September 10, 2001, 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 2,779,000 shares of Common Stock and Convertible Notes into 340,000 shares of Common Stock.
Selling Security Holders - Series A Preferred Holders
Percentage
Amount to Amount Owned Before Owned After
Name Be Offered The Offering The Offering
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Jaap Hoff 200,000 205,459 3.12%
Everest Investment 266,667 260,377 4.05%
Onno Schamhart 33,333 33,334 *
Financial Trading & Cons. 100,000 0 *
Ad Klinkenberg 133,334 17,500 1.16%
Jos Dreesens 133,334 35,000 1.29%
Steve Yeung 66,667 17,500 *
Jan Willem van den Dorpel 133,333 16,667 1.15%
Denison Smith 30,000 0 *
Appie Wouters 33,333 0 *
Leonard Epstein 33,333 0 *
Michiel Scholten 83,333 0 *
M. Visser 133,333 0 1.02%
Alvin Stroyny 33,333 3,500 *
Nathan Jacobson 100,000 25,000 *
Guy Vercauteren 33,333 0 *
Abdel Karim Badr 46,667 0 *
G. I. A. Foundation 60,000 0 *
Peter van Kesteren 8,333 0 *
Harvey Babbitt 30,000 0 *
Peter Marchisello 13,333 0 *
Mary Jo Marchisello 46,667 0 *
Bert Van Deun 100,000 0 *
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 1.28%
Profrigo SA NV 400,000 245,000 4.96%
Lawrence Terry 30,667 0 *
Durango Global 66,667 0 *
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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 *
Michael Ettinger 30,000 0 *
Eva D. Glass 10,000 0 *
Charlotte Horowitz 60,000 0 *
Harvey Jacobson 10,000 0 *
Ronald Kassover 20,000 0 *
Thomas & Rose Perretta 20,000 0 *
Khal Racfert 40,000 0 *
Elliot & Arlene Schwartz 20,000 0 *
Elliot Schwartz 30,000 0 *
Jacob & Yoseph Solomon 10,000 0 *
Henk Kos 10,000 0 *
Cees Baas 20,000 0 *
Kleanthi Xenopoulos 20,000 0 *
Louis & Irene Katz 20,000 0 *
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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. 20,000 536,498 4.28%
Linda Grable 35,000 226,038 2.01%
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Common Holders
Amount to Amount Owned Before Percentage Owned
Name Be Offered The Offering After the Offering
---- ---------- -------------------- ------------------
Noesis Int'l Holding 163,600 163,600 1.26%
Water Oak Investments 295,666 295,666 2.27%
Everest Holdings 230,377 260,377 3.77%
Noesis N.V. 536,498 536,498 4.12%
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ITEM NO. 8 PLAN OF DISTRIBUTION
The registration statement of which this Prospectus forms a part has been filed pursuant to the 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-deal 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
On or about September 6, 2000, the Company's wholly owned subsidiary, OmniTrial B.V. ("OmniTrial") submitted a petition for bankruptcy protection from the bankruptcy court of the Netherlands. The court appointed a liquidating trustee and the case is still pending. The Company claimed that certain assets of OmniTrial were paid for by the Company and therefore should not be part of the liquidating assets of OmniTrial. The bankruptcy trustee rejected that claim and told the Company that as part of the OmniTrial bankruptcy estate the assets would be sold to diminish any deficiency of the estate. On July 5, 2001 the Company signed a settlement agreement providing for the return of the assets to the Company in exchange for a payment of $10,000.
On January 26, 2001, a former employee of the Company, Eugene A. Gordon, filed a lawsuit in the Circuit Court of the 11th Judicial Circuit in and for Dade County, Florida alleging breach of his employment contract with the Company. The plaintiff alleges the Company owes him more than $100,000 for back payment of salary according to the terms of his employment contract. The Company disputes Mr. Gordon's allegations and is vigorously defending this lawsuit. As part of its defense, the Company recently filed a counterclaim against Mr. Gordon and a counter-suit against his wife, Ileana Bravo.
On February 2, 2001, an advertising firm, Wray Ward Laseter, filed a lawsuit in the Superior Court of North Carolina against the Company. The plaintiff alleged claims totaling approximately $84,160 against the Company for fees associated with advertising, marketing and public relations services provided between June and September 2000. On or about April 27, 2001, the Company and Wray Ward Laseter entered into a settlement agreement which provides that the plaintiff dismiss the lawsuit with prejudice and release its claims against the Company in return for a series of payments totaling $66,000. To date the Company has made three payments totaling $35,450 under the settlement agreement.
On February 16, 2001, a staffing agency, Temp Art, Inc. filed a lawsuit in the County Court in and for Miami-Dade County, Florida. The plaintiff alleges the Company breached its contract and owes approximately $13,126 for back payment of services rendered plus interest and costs. On or about September 10, 2001, the Company and Temp Art entered into a settlement agreement which provides that the plaintiff dismiss the lawsuit with prejudice and release its claims against the Company in return for a payment in the amount of $15,700.
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, 55, 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, 44, 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.
Ronald T. Linares, 38, Chief Financial Officer. Mr. Linares has served as Chief Financial Officer since April 2000. Mr. Linares was the Chief Financial Officer of First Performance Corp., a financial consulting firm, from 1996 to 1999. From 1992 to 1996 Mr. Linares served in various senior financial positions within the Kenny Rogers Roasters Company including Chief Financial Officer of Foodquest, Inc. from 1994 to 1996.
Guus van Kesteren, 60, 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 Pharmaceutica, a subsidiary of Johnson & Johnson, responsible for the pharmaceutical business in South East Asia, Australia, and New Zealand.
Harold Blue, 39, Director. Mr. Blue is Executive Vice President and Chief Operating Officer at Commonwealth Associates where he focuses on managing Commonwealth's relationships with its portfolio companies. Since September 2000, Mr. Blue has served as Vice Chairman of Proxymed, Inc., a healthcare information systems company; between August 1993 until September 2000 he served as Proxymed's Chairman and Chief Executive Officer. Mr. Blue serves as a director of Proxymed Inc., MonsterDaata Inc., Healthwatch Inc., Futurelink, eB2B Inc and Notify.
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 September 10, 2001, 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
-------------------- --------------- ----------
David Ginsberg (3) 1,492,423 9.79%
Randall G. Smith (4) 1,100,546 7.22%
Ronald T. Linares (5) 241,357 1.58%
Cornelius Wit (6) 229,899 1.51%
Guus van Kesteren (7) 305,001 2.00%
Harold Blue -0- 0%
Jan Vandamme -0- 0%
-------------- ----------
All Directors and Officers as a
group (7 people) 3,369,226 22.11%
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(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 10, 2001.
(3) Includes 556,667 shares issuable upon the exercise of currently exercisable
stock options, 400,000 shares issuable upon conversion of the Company's 8%
Series B Convertible Stock, and 400,000 shares issuable upon conversion of
stock warrants.
(4) Includes 132,000 shares issuable upon the exercise of currently exercisable
stock options, and 20,000 shares issuable upon conversion of stock
warrants.
(5) Includes 228,000 shares issuable upon the exercise of currently exercisable
stock options.
(6) Includes 210,000 shares issuable upon the exercise of currently exercisable
stock options.
(7) Includes 210,000 shares issuable upon the exercise of currently exercisable stock options and 70,700 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 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 articles 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 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 POSITION 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" or "OmniComm") 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 would 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 would 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 go 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.
OMNITRIAL B.V. BANKRUPTCY
On or about September 6, 2000, the Company's wholly owned subsidiary, OmniTrial B.V. ("OmniTrial") submitted a petition for bankruptcy protection from the bankruptcy court of the Netherlands. The court appointed a liquidating trustee and the case is still pending. The Company claimed that certain assets of OmniTrial were paid for by the Company and therefore should not be part of the liquidating assets of OmniTrial. The bankruptcy trustee rejected that claim and told the Company that as part of the OmniTrial bankruptcy estate the assets would be sold to diminish any deficiency of the estate. On July 5, 2001 the Company signed a settlement agreement providing for the return of the assets to the Company in exchange for a payment of $10,000.
ITEM NO. 16 DESCRIPTION OF BUSINESS
BUSINESS OF ISSUER
THE CLINICAL TRIALS OPPORTUNITY
With increasing pressure to be first to market, sponsors of clinical studies have been undertaking a comprehensive re-examination of every phase of drug and medical device development. The process includes exploring new approaches to discovery, continues by identifying therapeutic targets that optimize core competencies, and finishes by moving compounds more quickly into and through better-designed global clinical trials. Achieving this ambitious goal requires modifying many traditional approaches to drug and medical device development.
Large pharmaceutical companies are using a combination of approaches at every step. To access new technologies that can lead to pipelines full with promising new therapies, sponsors are increasing the headcount in the Research and Development phase while continuing to make strategic alliances and licensing agreements with biotechnology firms. The need to conduct faster trials creates significant outsourcing opportunities for various types of contract services.
Even dollar-conscious sponsors see outside contractors as partners in shortening the clinical trials process. Outside contractors offer an attractive global infrastructure, allow sponsors to shift fixed costs, and provide a way for sponsors to manage peaks and valleys in the research pipeline. If the promise of technology results in the development of new chemical entities, sponsors need structured processes to send the successful ones through well-designed and efficient clinical trials to yield clean data.
Although the pharmaceutical industry is very healthy, it is currently in flux. The requirements of sponsors are changing as technology evolves and competition increases. Since all dollars flow from the sponsors, contract service providers continue to reinvent themselves to suit the markets changing needs. Part of this process requires that stumbling blocks be acknowledged and addressed. Despite recent passage of the FDA Modernization Act that shortens FDA review time, studies are actually getting longer, more complex and more costly. Case report forms, remote data entry and remote data capture lack industry standards. Investigators and doctors who view conducting clinical trials as a way to make easy money typically underestimate the requisite effort and cost of studies.
As an application software provider, ("ASP"), OmniComm's portal technology, TrialMaster, places the Company in a unique position to leverage the rapid transformation taking place in the market and become a market leader in the ownership and operation of proprietary software applications urgently needed to streamline and modernize the clinical trials industry.
OmniComm Systems, Inc. is marketing and implementing TrialMaster and WebIPA. TrialMaster and WebIPA 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 money and time spent on the process are enormous. The following points are illustrative of the business process:
. It can cost as much as $500 million to bring a drug to market
. 50% of clinical trials are delayed due to a lack of patients
. For every day Viagra was in clinical trials Pfizer lost approximately
$1,000,000 a day
. In the United States less than 2% of the doctors and less than 5% of
the eligible patients are involved in clinical trial
A fundamental way in which the Internet is transforming business is the way in which it changes 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.
The Company's current business strategy focuses on the continued development, marketing and sale of its TrialMaster product. The Company believes the domestic clinical trial industry with its inherent inefficiencies, vast size and considerable growth afford the greatest opportunity for revenue growth. The Company expects to devote the majority of its human and capital resources to TrialMaster over the next 12 to 18 months
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 and medical device companies. Further, research and development expenditures in 1999 for the top 50 pharmaceutical companies 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.
Pre-clinical and clinical trials historically were performed almost exclusively by in-house personnel at the major pharmaceutical companies. Over the last two decades pharmaceutical companies have transitioned to a model that includes the outsourcing of clinical trial management to clinical research organization ("CRO"), which has resulted in significant growth in the outsource contract segment of the clinical trials industry.
The Company believes that certain industry and regulatory trends have led pharmaceutical, biotechnology and medical device companies to increase research and development for proprietary new drugs and medical devices. These trends have required companies to conduct increasingly complex clinical trials, and develop multinational clinical trial capability, while seeking to control internal fixed costs. The trends driving the industry's growth can be summarized as follows:
Increasing Cost Containment Pressures. The increasing pressure to control rising health care costs, and the penetration of managed health care and health care reform, have caused changes in the pharmaceutical industry. A number of pharmaceutical companies have publicly committed to hold net effective price increases in line with inflation. In the area of clinical development, many pharmaceutical and biotechnology companies are seeking to reduce the high fixed costs associated with peak-load staffing by reducing internal clinical staff and relying on a combination of internal resources and external resources thereby shifting fixed costs to variable costs.
Managed Care. Managed care providers and insurance carriers have become major participants in the delivery of pharmaceuticals along with pharmacy benefits organizations. These companies limit the selection of drugs from which affiliated physicians may prescribe, thus increasing the competition to develop more effective products in a shorter time frame.
Consolidation. As pharmaceutical companies seek to create economies of scale, there have been several large mergers within the industry, and as a result of these mergers, the pharmaceutical industry has experienced large scale employee lay-offs and cutbacks.
Competitive And Regulatory Factors. Factors such as competition from generic drugs following patent expiration, more stringent regulatory requirements and the increasing complexity of clinical trials have resulted in increasing market pressure on profit margins.
Globalization of Clinical Research and Development. Due to the increasing cost of new drug development, many projects that are not expected to achieve sufficient annual worldwide revenue are abandoned. Pharmaceutical companies are increasingly attempting to maximize returns from their drugs by pursuing regulatory approvals in multiple countries simultaneously rather than sequentially. A pharmaceutical company seeking approval in a country in which it lacks experience or internal resources will frequently turn to an outsource vendor for assistance in interacting with regulators or in organizing and conducting clinical trials.
Complex and Stringent Regulation; Need for Technology Capabilities. Increasingly complex and stringent regulatory requirements have increased the volume of data required for regulatory filings and escalated the demand for data collection and analysis during the drug development process. In recent years, the FDA and the corresponding regulatory agencies of Canada, Japan and Europe have developed many common standards for pre-clinical and clinical studies and the format and content of applications for new drug approvals. Further, the FDA encourages the use of computer-assisted filings in an effort to expedite the approval process. As regulatory requirements have become more complex, the pharmaceutical and biotechnology industries are increasingly outsourcing to leverage data management expertise, technological capabilities and global presence.
Escalating Research and Development Expenditures. R&D expenditures in 1999 for the major pharmaceutical companies in the world increased approximately 14% from the previous year. Such expenditures have resulted from an increased emphasis on developing effective products for the treatment of chronic disorders and life threatening acute conditions such as infectious diseases. One of the reasons the cost of developing therapies for chronic disorders, such as arthritis, Alzheimer's disease and osteoporosis is higher, is because the treatments must be studied for a longer period to demonstrate their effectiveness in curbing the chronic disorder and to determine any possible long-term side effects.
Reducing Drug Development Time Requirements. Pharmaceutical and biotechnology companies face increased pressure to bring new drugs to market in the shortest time, thereby reducing costs, maintaining market share and speeding revenue production. Currently, total development of a new drug takes approximately 8 to 12 years, a significant portion of a drug's 20 year period for protection under U.S. patent laws. Pharmaceutical and biotechnology companies are attempting to increase the speed of new product development and maximize the period of marketing exclusivity and thus economic returns for their products, by outsourcing development activities. Some pharmaceutical companies are beginning to contract with one organization to conduct preclinical and all phases of clinical trials for new product programs rather than contracting phases of drug development to several different companies.
New Drug Development Pressures. R&D expenditures have increased as a result of the constant pressure to develop and patent products, and to respond to the demand for products for an aging population and for the treatment of chronic disorders and life-threatening conditions. In response to this pressure, trial sponsors are outsourcing preclinical/clinical trials in order to use internal resources to develop additional drugs.
Growth of Biotechnology Industry. The biotechnology industry and the number of drugs produced by it which require FDA approval have grown substantially over the past decade. Many biotechnology companies have chosen not to expend resources to develop sufficient staff or expertise to conduct clinical trials in-house, but rather have utilized outside providers to perform these services.
These trends have created even greater competitive demands on the industry to bring products to market efficiently and quickly.
The pharmaceutical and CRO industry is experiencing 11-20% annual growth. At this point, the industry seems to grow from its own momentum, fueled by the demographics of an aging population and the changing demands of pharmaceutical, biotech and medical device sponsors.
Discovering and developing new chemical entities is the life-force of the pharmaceutical and biotechnology industries. Without them, Research and Development has no purpose. Currently, it is estimated that there are about 4,700 pharmaceutical compounds and 1,000 biotech compounds in pre-clinical studies, and 2,900 pharmaceutical and 1,000 biotech candidates in some phase of clinical development or regulatory review.
Suddenly, technology has created the possibility that sponsors can dramatically increase the number of new chemical entities they discover and slate for development. This capability could not have come at a better time. Sponsors need many new chemical entities ("NCEs") in their pipelines so that a stream of innovative products can be generated to feed investors' demands for sustained double-digit earnings growth. The current thinking is that drug companies will have to become about three times as productive to grow 10% annually. PhRMA's March 1997 survey says that big pharmaceutical companies require three target NCEs annually, medium-sized companies require two, and small companies require at least one just to maintain revenue growth in a highly competitive environment.
Some sponsors have set annual targets for the number of products to come to market. Bristol-Myers Squibb plans to double the number of drugs it has in early development, and then double that number again by 2003. Also, the company hopes to introduce three products a year annually by 2003. Currently, Bristol-Myers Squibb launches approximately one new drug annually. Glaxo Wellcome Inc.'s goal is to introduce three new drugs per year.
The fact that Research and Development budgets are at all time highs suggests that companies are seriously exploring innovative high tech methods for the discovery process. According to a September 1997 article, "Their Growth Has Just Begun," pharmaceutical and biotechnology companies anticipated spending $33 billion on R&D in 1997. Of that, $16.32 billion was spent on clinical development.
The reality is that despite tremendous R&D expenditures, the industry has been slow to invest in new technologies. Industry observers estimate that the industry spends only about $600 million, or 3% of the $16.32 billion clinical development dollars on clinical information systems management. This is in sharp contrast to the aerospace and auto motive industries, in which technology purchases are estimated to be 5% of industry revenues.
At present, the industry shows historic 10% annual growth in clinical spending, which has obvious implications for all phases of pre-clinical and clinical trial testing. According to UBS Securities LLC, about $3.1 billion was outsourced to CROs in 1997, an estimated $3.7 billion in 1998, $4.3 billion by 1999 and $5.1 billion by 2000, representing 17.4% annual growth in this four year period. A variety of outside contractors besides CROs stand to benefit from this positive trend, most notably site management organizations, technology vendors, individual sites and physician practice management organizations.
CLINICAL TRIAL OVERVIEW
THE INDUSTRY
In order for a drug or medical device to be marketed in the United States, Europe or Japan, the drug or device must undergo extensive testing and regulatory review to determine that it is safe and effective.
To support an application for regulatory approval, clinical data must be collected, reviewed and compiled. Clinical data is collected from case 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 five to one hundred pages long and document a series of visits by patients over a period of time.
Once information is collected about the patient by the investigator and the relevant portion of the CRF is filled out, it is then submitted to either the sponsor of the study or the CRO. The data is then inputted manually into a database. Typically, double data entry is used in order to resolve errors.
TrialMaster allows participants in the clinical trial process such as a sponsor or CRO to perform data collection, handling and transmission via a direct, secure Internet connection. After the CRFs are Internet enabled and the validation criteria encoded, the CRF forms are distributed via the Internet from the Company's server to the sites where the clinical trials are to take place. In addition to installing the application, OmniComm provides the necessary infrastructure components including network consulting and implementation, hardware procurement, hosting and maintenance.
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 8 years)
a. Phase I (6 months to 1 year). Basic safety and pharmacology testing is conducted in 20 to 100 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 1,000 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 5 years). Efficacy and safety studies are conducted in 1,000 to 10,000 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 and 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).
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.
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.
THE OMNICOMM SOLUTION
TRIALMASTER
OmniComm has developed and is marketing TrialMaster as an Application Service Provider. TrialMaster is a web-based 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.
TrialMaster enables participants in the clinical trial process to utilize the inherent benefits of the Internet - pervasiveness, scalability, efficiency and security - to conduct and manage clinical trials in a real-time paperless electronic environment.
In addition to its core activities, TrialMaster incorporates communications, time and financial management and outcomes tracking.
TrialMaster 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. TrialMaster allows clinical data to be entered directly from a source document such as a patient record or doctor's notes via computer. The clinical data is transmitted via the Internet to a secure server where the data is validated and stored.
TrialMaster significantly impacts the clinical trial process in the following three areas: Data Collection, Validation/Edit Queries, and Monitoring.
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A. Data Collection Comparison
Clinical data is collected from the Clinical Report Forms ("CRF") that are submitted to and filled out by an
investigator - a doctor or research assistant - who is participating in the clinical trial. These forms can be
five to one hundred pages per patient and encompass a series of visits by patients over a period of time.
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Current System TrialMaster System
The cost to process data is approximately $7.00 to The cost to process the data is approximately five to ten
$25.00 per page per patient. times less per page per patient.
The time to process the data can take anywhere from The time to process the data is approximately one minute.
one to eight weeks.
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B. 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.
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Current System TrialMaster System
The cost to process an edit query is approximately The number of edit queries is significantly reduced or
$80-$115 per query. For a large trial it is not even eliminated because the system does the validation
uncommon to generate 500-1,000 edit queries a week. when the data is inputted.
The time to process the data for each patient can The time to process the data is approximately one minute.
take anywhere from three to eight weeks.
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C. Monitoring
Study monitors are an integral and necessary part of the clinical trial process. These individuals travel to
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.
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Current System TrialMaster System
The cost for a monitoring visit can vary from $1,000 The number of visits can be reduced because the status of
to $3,000 per visit per site. A trial can require as sites can be monitored remotely and in real time.
many as three to seven visits.
Monitoring hours can be reduced by 50%. In addition,
The time for each visit is usually one to two days. monitoring visits can be more efficiently scheduled due
to the availability of more accurate and complete
information on the trials.
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With the use of the TrialMaster technology, OmniComm Enterprise Manager ("Enterprise Manager") incorporates management tools into the Internet-based system that allow the home office, field managers and project managers to track the activity of hundreds clinical trials, including principal investigator and sub-investigator financial data, patient accruals, budgeted patient accruals, payments and projected payments.
TrialMaster's Enterprise Manager significantly enhances the management of clinical trials through faster and more accurate communication, cleaner information and real-time reporting on hundreds of studies going on throughout the country and around the world.
TrialMaster's robust standard features give the manager the capability to successfully manage hundreds of clinical trials from start to finish.
As part of the TrialMaster design, our clients are provided with the tools for clinical trial creation and tracking technology as well as a robust milestone tracking and alert system. TrialMaster automatically monitors targets and exceptions, trial progression and verifications based on the clients requirements. Some of the Enterprise Manager features include:
. Milestones / Payment Schedule
. Document Transmittal
. Study Maintenance
. Drug Request Approval
. Letter Template
. Budget Maintenance
. Archive Processing
. Grant and Addenda Approval
. Audit Sub-system
. Alerts - Trial Duration, Email, Check Requests, Inactivity, Budgetary,
Investigator, Grant Approval, Investigator/Institution and Payment
. Data Export - Real time and on-demand
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. The Company is focusing a large portion of its sales efforts at small and mid-size pharmaceutical, medical device and clinical research organizations. These types of clients are considered a prototypical client since TrialMaster is capable of providing both an operating efficiency to the clinical trial process as well as potential cost savings. Small and mid-size companies are unlikely to have the technological resources necessary to develop a product like TrialMaster.
TrialMaster
TrialMaster 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 to the pharmaceutical and medical device industries. This is a $50 billion market, dominated by companies such as Pfizer, Johnson & Johnson, Medtronic, and Eli Lilly. The following are the relevant factors for approaching these markets:
. 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 -
. A tight group of opinion leaders within the market segment with which
we have direct relationships.
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 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, including advertising in trade periodicals and attending a number of medical conventions including, the American College of Cardiology, Drug Information Association and The American Heart Association.
Current Implementation
The Company is involved in conducting or developing multi-center, clinical trials for ten clients. In addition, the Company completed in 2000 a multi- center, multi-nation clinical trial with a European based medical device company and a European based clinical research organization. The clinical trial encompassed 400 patients in 42 sites throughout Canada, Western Europe, and Scandinavia.
The Company is in negotiations with several US based pharmaceutical and clinical research organization's to implement TrialMaster. The Company executed a Strategic Alliance Agreement with ClinARC in October 2000 providing for a joint effort at promoting ClinARC's CRO services and OmniComm's TrialMaster product. The agreement has a one-year duration.
COMPETITION
The Company competes in the electronic data capture (EDC) market. This industry can be characterized as rapidly evolving, highly competitive and fragmented.
There are other entities that compete with the Company's Internet based data collection system, TrialMaster. The principal competitors include Phase Forward Incorporated, CB Technologies, PHT Clinical Networks and eResearch Technology. Most of these competitors have significantly greater financial, technical and marketing resources, or name recognition than that of the Company. In addition, other companies could enter the EDC market due to the vast size of the market opportunity. The Company believes that the most significant competitive factors it faces are 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 industry, quality of service, responsiveness to client needs and speed in delivering solutions will allow it to compete favorably within this environment. Further, the Company believes that none of the aforementioned companies have developed an approach to the clinical trial process that is as malleable and customizable as TrialMaster.
MEDICAL ADVISORY BOARD
Given the Company's basic approach in developing and marketing the TrialMaster application as if it were a medical device, the Company has formed 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 application. Currently, there is one member on the Board:
Dr. Gervasio Lamas: brings to OmniComm a wealth of practical and academic experience in the design and execution of clinical trials, and many years of experience and contacts in the pharmaceutical industry, device industry and federal government. Dr. Lamas is a graduate of Harvard University (1974), and the NYU School of Medicine (1978). Dr. Lamas completed his medical and cardiology training at Harvard Medical School and Brigham and Women's Hospital in Boston, Massachusetts, where he was on the faculty until 1993. He has authored or co- authored over 100 publications and reports in numerous research areas in the cardiovascular field, with a particular focus on the treatment of patients with coronary disease and disorders of heart rhythm. His research has led to first author publications in medical journals such as the "New England Journal of Medicine" and "Circulation." At present, Dr. Lamas serves as Principal Investigator, Study Chairman, Co-Chairman, or National Leader in many ongoing national and international multi-center trials in the fields of coronary disease, congestive heart failure, cardiac pacing and preventive cardiology. In these roles, he coordinates the activities of a network of over 200 clinical centers worldwide.
INTELLECTUAL PROPERTY RIGHTS
The Company relies upon a combination of non-disclosure and other contractual arrangements and trade secret, 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 and on May 17, 2000 the Company filed its follow up formal application for the patent on the TrialMaster product. (Described in the applications as the "Distributed System and Method for Collecting and Evaluating Clinical Data" Serial No. 60/134,671 for the provisional application, Serial No. 09/573,101 for the formal application.) The Company is in the process of registering a number of trademarks including "OMNICOMM SYSTEMS, INC.," and has registered "TRIALMASTER," as well as copyrights on any computer software applications produced by the Company. The Company intends to make such other state and federal registrations as the Company deems necessary and appropriate to protect its intellectual property rights.
EMPLOYEES
The Company currently has 18 full time employees and 1 part time employee. The Company believes that relations with its employees are good. None of its employees are represented by a union. The Company has employment agreements with its Chief Executive Officer, Chief Financial Officer and Chief Technical Officer. The loss of the services of any of its executive officers could have a materially adverse effect on the business or operations of the Company. The Company stresses the importance of attracting, retaining and motivating employees capable of advancing the Company's business goals.
ITEM NO. 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Statements contained in this Form SB-2 that are not historical fact are "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 or profitability levels of such businesses, and other matters contained in this Form SB-2 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 Form SB-2. Therefore, our actual experience and results achieved during the period covered by any particular projections or forward-looking statements may differ substantially from those projected. Consequently, the inclusion of projections and other forward- looking statements should not be regarded as a representation by us or any other person that these plans will be consummated or that estimates and projections will be realized, and actual results may vary materially. There can be no assurance that any of these expectations will be realized or that any of the forward-looking statements contained herein will prove to be accurate. The Company does not undertake any obligation to update or revise any forward-looking statement made by it or on its behalf, whether as a result of new information, future events or otherwise.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following information should be read in conjunction with the Consolidated Financial Statements and Notes thereto and other information set forth in this report.
General
The Company changed the focus of its core business during 1999. The company is a provider of Internet based database products that integrate significant components of the clinical trial process, including the collection, compilation and validation of clinical trial data. Prior to 1999 the Company was a computer systems integrator providing services and hardware sales for the installation of local and wide area networks.
The Company expects to continue phasing out the systems integration segment of its business throughout 2001. Virtually all of the Company's personnel are involved in the development and marketing of the Company's TrialMaster product.
Six Months Ended June 30, 2001 Compared With the Period Ended June 30, 2000
Results of Operations
Revenues
Revenues for the period ended June 30, 2001 were $57,179 compared to $40,760 for the same period in 2000. Revenues associated with the Company's Internet based clinical trial products were approximately $33,981 and $0 for 2001 and 2000 respectively. Systems integration revenues in 2001 were approximately $23,198 versus $40,760 in fiscal 2000. The Company expects systems integration revenues in 2001 to parallel the results achieved in 2000.
The Company's TrialMaster product is currently being sold as an application service provider ("ASP") that provides electronic data capture ("EDC") and other services such as an enterprise management suite which assists its clients in the pharmaceutical, biotechnology and medical device industries in accelerating the completion of clinical trials.
TrialMaster contracts provide for pricing that is based on both the size and duration of the clinical trial. Size parameters include the number of patients participating in the trial and the number of data points being collected per patient. The client will pay a trial setup fee based on the previously mentioned factors, and then pay an on-going maintenance fee for the duration of the clinical trial that provides software, network and site support during the trial. Generally, these contracts will range in duration from 4 months to several years. Setup fees are generally earned prior to the inception of a trial, however, the revenues will be recognized in accordance with SEC Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" which requires that the revenues be recognized ratably over the life of the contract. The maintenance fee revenues are earned and recognized monthly. Costs associated with contract revenues are recognized as incurred.
Cost of Sales
Cost of sales was $38,198 for the period ended June 30, 2001 versus $46,524 for the period ended June 30, 2000. The decrease in cost of sales is attributable to the Company's curtailment of its systems integration business segment. Included in cost of sales is $21,950 in labor costs associated with clinical trial production and support in 2001 compared with $0 in 2000. The Company anticipates increasing production labor costs on an absolute basis as its trial revenues increase. We expect labor costs to decrease on a relative percentage basis as we increase our trial base and develop economies of scale with regard to trial production.
The Company does not anticipate that systems integration costs will be a significant source of expense in 2001. The Company anticipates that the commercialization of its database product TrialMaster and its related components will be the source of most of its cost of sales.
Other Expenses
Salaries, Employee Benefits and Related Expenses
Salaries and related expenses is the Company's biggest expense at 60.5% of total Other Expenses for 2001. Salaries and related expenses totaled $993,116 in 2001 compared to $1,511,329 in 2000. The Company increased its personnel in 2000 in anticipation of marketing both TrialMaster and WebIPA. The increase encompassed additional computer programmers, and increased sales and marketing personnel. The Company has reduced its sales and marketing personnel primarily through the closure of its European office based on its decision to focus on building its clinical trial clientele domestically in the US. In addition, the Company was able to reduce its research and development personnel through the consolidation of its Tampa, Florida and Miami, Florida offices. The Company currently employs approximately 17 employees out of its Miami corporate office. The Company expects to increase headcount within its technology and sales & marketing based functions in concert with anticipated increases in TrialMaster clients during fiscal 2001.
Rent
Rent expense was $77,986 for the period ended June 30, 2001 compared with $162,408 for the comparable period in fiscal 2000. The decrease can be attributed to $36,989 paid as a lease settlement in 2000 and approximately $29,117 in rent expense for the Company's office in Amsterdam incurred in fiscal 2000 which did not recur in 2001 due to the closure of the Amsterdam office in connection with the bankruptcy filing of the Company's European subsidiary, OmniTrial B.V.
Consulting Expenses
Consulting expenses, which are comprised of medical advisory, product development and marketing and sales consultants were $0 for the period ended June 31, 2001 compared to $202,453 in fiscal 2000. The decrease can be attributed to several factors. There was a decrease in marketing and sales consulting expense of $77,033 caused by the conversion of two sales consultants into marketing executives of the Company. There was a decrease of $89,000 in medical advisory consulting expenses that is directly correlated to a restructuring of the Company's medical advisory board. Product development fees were reduced by $36,420 through the discontinued use of temporary employees within the Company's research and development function.
Legal and Professional Fees
Legal and professional fees decreased to $100,917 in the period ended June 30, 2001 compared to $405,978 in the same period in 2000. The decrease can be attributed to investment banking and financial advisory fees totaling $334,766 in 2000 versus $45,000 in fiscal 2001. Legal and accounting fees were $55,917 in 2001 compared to $71,212 for the same period in fiscal 2000.
Telephone and Internet
Telephone and Internet related costs were reduced by $84,091 due to decreased telephone and Internet access costs associated with the closing of the Company's offices in Amsterdam, the Netherlands and Tampa, Florida, and a decrease in overall long-distance charges associated with the closed facilities. In addition, there were credits due which were not recognized during the first six months of 2000 totaling approximately $37,200 for excess charges by the Company's long distance and network access provider. The Company does not anticipate any increase in access charges during fiscal 2001 based on its own existing communications infrastructure and its projected 2001 clinical trial workload.
Selling, General and Administrative
Selling, general and administrative expenses ("SG&A") include all office oriented expenses, advertising, public relations and marketing costs and all other expenses not directly chargeable to either cost of sales or specifically detailed income statement categories. These expenses were approximately $51,874 in fiscal 2001 compared to $407,521 in fiscal 2000. A portion of the decrease is a result of expenditures for advertising ($111,449), conferences and seminars ($56,056), marketing ($40,252) and general office related costs ($100,129) in comparison with fiscal 2000. In addition, the Company had SG & A expenses of approximately $47,761 in its European operation.
Depreciation and Amortization
Depreciation and amortization expense was $182,933 for fiscal 2001 compared with $194,470 for fiscal 2000. The decrease is a result of an increase in depreciation expense in 2001 of approximately $11,136 that is associated with additional computer and office equipment and in amortization expense from debt acquisition costs of $7,417 offset by a $30,000 decrease in the amortization of the non-compete covenant associated with the Education Navigator acquisition in 1998
Three Months Ended June 30, 2001 Compared With the Period Ended June 30, 2000
Results of Operations
Revenues
Revenues for the period ended June 30, 2001 were $16,084 compared to $15,782 for the same period in 2000. Revenues associated with the Company's Internet based clinical trial products were approximately $15,633 and $0 for 2001 and 2000 respectively. Systems integration revenues in 2001 were approximately $451 versus $15,782 in fiscal 2000.
The Company's TrialMaster product is currently being sold as an application service provider ("ASP") that provides electronic data capture ("EDC") and other services such as an enterprise management suite which assists its clients in the pharmaceutical, biotechnology and medical device industries in accelerating the completion of clinical trials.
TrialMaster contracts provide for pricing that is based on both the size and duration of the clinical trial. Size parameters include the number of patients participating in the trial and the number of data points being collected per patient. The client will pay a trial setup fee based on the previously mentioned factors, and then pay an on-going maintenance fee for the duration of the clinical trial that provides software and network support during the trial. Generally, these contracts will range in duration from 12 months to several years. The maintenance fee revenues are earned and recognized monthly. Costs associated with contract revenues are recognized as incurred.
Cost of Sales
Cost of sales was $21,713 for the period ended June 30, 2001 versus $11,404 for the period ended June 30, 2000. The increase in cost of sales is attributable to increased labor costs for clinical trial production and support.
The Company does not anticipate that systems integration costs will be a significant source of expense in 2001. The Company anticipates that the commercialization of its database product TrialMaster and its related components will be the source of most of its cost of sales.
Other Expenses
Salaries, Employee Benefits and Related Expenses
Salaries and related expenses is the Company's biggest expense at 57.6% of total Other Expenses for 2001. Salaries and related expenses totaled $431,264 in 2001 compared to $938,396 in 2000. The Company increased its personnel in 2000 in anticipation of marketing both TrialMaster and WebIPA. The increase encompassed additional computer programmers, and increased sales and marketing personnel. The Company has reduced its sales and marketing personnel primarily through the closure of its European office based on its decision to focus on building its clinical trial clientele domestically in the US. In addition, the Company was able to reduce its research and development personnel through the consolidation of its Tampa, Florida and Miami, Florida offices. The Company currently employs approximately 17 employees out of its Miami corporate office. The Company expects to increase headcount within its technology based functions in concert with anticipated increases in TrialMaster clients during fiscal 2001 and is likely to increase its sales and marketing force in an effort to increase market penetration
Rent
Rent expense was $36,610 for the period ended June 30, 2001 compared with $101,476 for the comparable period in fiscal 2000. The decrease can be attributed to $36,989 paid as a lease settlement in 2000 and approximately $14,842 in rent expense for the Company's office in Amsterdam incurred in fiscal 2000 which did not recur in 2001 due to the closure of the Amsterdam office in connection with the bankruptcy filing of the Company's European subsidiary, OmniTrial B.V.
Consulting Expenses
Consulting expenses, which are comprised of medical advisory, product development and marketing and sales consultants were $0 for the period ended June 30, 2001 compared to $84,018 in fiscal 2000. The decrease can be attributed to several factors. There was a decrease in marketing and sales consulting expense of $29,033 caused by the conversion of two sales consultants into marketing executives of the Company. There was a decrease of $47,000 in medical advisory consulting expenses that is directly correlated to a restructuring of the Company's medical advisory board. Product development fees were reduced by $7,985 through the discontinued use of temporary employees within the Company's research and development function.
The Company may incur marketing and sales consulting expense over the next 6 to 18 months as we seek to increase our market penetration. We view the additional consulting expense as a cost effective means of stepping up our sales efforts without incurring additional fixed salary costs.
Legal and Professional Fees
Legal and professional fees decreased to $58,419 in the period ended June 30, 2001 compared to $206,731 in the same period in 2000. The decrease can be attributed to investment banking and financial advisory fees totaling $189,766 in 2000 versus $45,000 in fiscal 2001. Legal and accounting fees were $13,419 in 2001 compared to $13,870 for the same period in fiscal 2000.
Telephone and Internet
Telephone and Internet related costs decreased by $54,496 due to the decreased telephone and Internet access costs associated with the closing of the Company's offices in Amsterdam, the Netherlands and Tampa, Florida. The Company does not anticipate an increase in access charges during fiscal 2001 based on its own existing communications infrastructure and its projected 2001 workload.
Selling, General and Administrative
Selling, general and administrative expenses ("SG&A") includes all office oriented expenses, advertising, public relations and marketing costs and all other expenses not directly chargeable to either cost of sales or specifically detailed income statement categories. These expenses were approximately $25,967 in fiscal 2001 compared to $192,325 in fiscal 2000. The significant components of the decrease are a result of decreased expenditures for advertising ($99,632), and general office related costs ($18,965) in comparison with fiscal 2000. In addition, the Company had SG & A expenses of approximately $47,761 in its European operation during fiscal 2000.
Depreciation and Amortization
Depreciation and amortization expense was $95,605 for fiscal 2001 compared with $101,854 for fiscal 2000. The decrease are a result of increased in depreciation expense in 2001 of approximately $3,433 that is associated with additional computer and office equipment, and amortization of debt acquisition costs of $7,417 offset by a $15,000 decrease in the amortization of the non- compete covenant associated with the Education Navigator acquisition in 1998.
Liquidity and Capital Resources
The Company changed its primary focus to providing Internet based database applications to the clinical trial industry in mid 1998. At that time it began phasing out its systems integration business segment. Since the Company made TrialMaster and its related components its primary business, the Company has relied primarily on the proceeds from the sale of debt and equity securities to fund its operations.
Cash and cash equivalents decreased by $83,060 to $7,898 at June 30, 2001. This was the result of cash provided by financing activities of $1,229,100 offset by cash used in operating activities of approximately $1,290,652 and $21,508 in investing activities. The significant components of the activity include a loss from operations of approximately $1,725,048, an increase in debt acquisition costs of $66,750 related to a private placement of the Company's debt, the purchase of property and equipment of approximately $21,508, offset by an increase in accounts payable and accrued expenses of approximately $237,524 and approximately $1,229,100 the company raised through the sale of debt and equity securities.
Because of the losses experienced in 1999, 2000 and the first six months of 2001, the Company has needed to continue utilizing the proceeds from the sale of debt and equity securities to fund its working capital needs. The capital markets during the latter half of fiscal 2000 continuing through the present provided a difficult climate for the raising of capital because of the decline in value of publicly held technology stocks and the corresponding apprehension on the part of investors to invest in technology oriented firms. The softness in the capital markets coupled with the losses experienced caused working capital shortfalls. To compensate for its working capital needs the Company has used a combination of equity financing and short-term bridge loans.
The Company's primary capital requirements are for daily operations and for the continued development and marketing of the TrialMaster system. The Company's 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, 2001. 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.
Year Ended December 31, 2000 Compared With the Year Ended December 31, 1999
Results of Operations
Revenues
Revenues for the year ended December 31, 2000 were $70,976 compared to $1,259,214 for the same period in 1999. The substantial decrease is attributable to the Company significantly curtailing its systems integration business segment. Revenues associated with the Company's Internet based clinical trial products were approximately $17,825 and $0 for 2000 and 1999 respectively. Systems integration revenues in 2000 were approximately $53,151. The Company expects systems integration revenues in 2001 to parallel the results achieved in 2000
The Company's TrialMaster product is currently being sold as an application service provider ("ASP") that provides electronic data capture ("EDC") and other services such as an enterprise management suite which assists its clients in the pharmaceutical, biotechnology and medical device industries in accelerating the completion of clinical trials.
TrialMaster contracts provide for pricing that is based on both the size and duration of the clinical trial. Size parameters include the number of patients participating in the trial and the number of data points being collected per patient. The client will pay a trial setup fee based on the previously mentioned factors, and then pay an on-going maintenance fee for the duration of the clinical trial that provides software and network support during the trial. Generally, these contracts will range in duration from 12 months to several years. The maintenance fee revenues are earned and recognized monthly. Costs associated with contract revenues are recognized as incurred.
Cost of Sales
Cost of sales was $52,492 or 74.0% for the year ended December 31, 2000 versus $1,005,338 or 79.8% for the year ended December 31, 1999. The absolute decrease in cost of sales is attributable to the Company's curtailment of its systems integration business segment. The decrease in cost of sales on a percentage basis is primarily the result of the Company providing more high margin installation services in 2000 than hardware sales.
The Company does not anticipate that systems integration costs will be a significant source of expense in 2001. The Company's anticipates that the commercialization of its database product TrialMaster and its related components will be the source of most of its cost of sales.
Other Expenses
Salaries, Employee Benefits and Related Expenses
Salaries and related expenses is the Company's biggest expense at 47.6% of total Other Expenses for 2000. Salaries and related expenses totaled $2,895,108 in 2000 compared to $784,635 in 1999. The marked increase is attributable to an increase in headcount from approximately 8 employees during 1999 to an average of 23 employees in 2000. In addition, two employees were accounted for as consultants in 1999 and subsequently converted to full-time employees in 2000. The Company increased its personnel in 2000 in anticipation of marketing both TrialMaster and WebIPA. The increase encompassed additional computer programmers, and increased sales and marketing personnel. The Company has reduced its sales and marketing personnel primarily through the closure of its European office based on its decision to focus on building its clinical trial clientele domestically in the US. In addition, the Company was able to reduce its research and development personnel through the consolidation of its Tampa, Florida and Miami, Florida offices.
Rent
Rent expense was $242,471 for the year ended December 31, 2000 compared with $108,371 for the comparable period in 1999. The increase can be attributed to approximately $32,728 in rent expense for the Company's office in Amsterdam and an increase of approximately $20,990 in rent expense for the Company's Tampa office. In addition, the Company relocated its corporate office in November 1999 to a larger facility within the same office building. The move created approximately $80,000 in additional rent expense in 2000.
Consulting Expenses
Consulting expenses, which are comprised of medical advisory, product development and marketing and sales consultants were $269,998 for the year ended December 31, 2000 compared to $557,751 in fiscal 1999. The decrease of $287,753 was caused by several factors. There was a decrease in marketing and sales consulting expense of $130,030 caused by the conversion of two sales consultants into marketing executives of the Company. There was a decrease of $117,470 in medical advisory consulting expenses that is directly correlated to a curtailment of the Company's medical advisory board. In addition, there was medical advisory consulting expense recognized in connection with the payment of stock bonuses to several members of the medical advisory board in 1999. Product development fees were reduced by $40,253 through the reduced use of temporary employees within the Company's research and development function.
Legal and Professional Fees
Legal and professional fees increased to $613,797 in the year ended December 31, 2000 compared to $98,895 in the same period in 1999. The increase can be attributed to investment banking and financial advisory fees totaling $496,889 in 2000. Legal and accounting fees were $116,908 in 2000 compared to $98,895 for the same period in fiscal 1999.
Telephone and Internet
Telephone and Internet related costs increased by $130,749 due to the increased telephone and Internet access costs associated with the Company's additional offices in Amsterdam, the Netherlands and Tampa, Florida. The Company anticipates a reduction in access charges due to the closure of its European offices and the recent closing of its Tampa office.
Selling, General and Administrative
Selling, general and administrative expenses ("SG&A") includes all office oriented expenses, advertising, public relations and marketing costs and all other expenses not directly chargeable to either cost of sales or specifically detailed income statement categories. These expenses were approximately $617,006 in fiscal 2000 compared to $208,226 in fiscal 1999. A portion of the increase is a result of increased expenditures for advertising ($160,000), marketing ($87,000) and public relations ($30,000) in comparison with fiscal 1999. In addition, the Company had SG & A expenses of approximately $79,000 in its European operation.
Impairment of Equity 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 was 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.
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. 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. The Company accounts for its investment in EMN under the cost method of accounting. The Company has established a valuation allowance of $335,000 against its investment in EMN to reflect the uncertainty of the fair market value of the investment as of December 31, 2000.
Loss on Subsidiary Bankruptcy
As discussed in Item Fifteen of this filing OmniTrial BV, the Company's European subsidiary, filed for bankruptcy protection on or about September 6, 2000. In connection with the bankruptcy filing the Company has recognized a loss of approximately $78,131 which represents the value of the assets of OmniTrial immediately prior to the bankruptcy filing. The Company believes it is unlikely that any of the assets of OmniTrial will be recovered through the bankruptcy proceeding.
The Company has negotiated a settlement with the trustee which would provide (i) settlement of all matters relating to the case, (ii) release the Company from further claims, and (iii) return the servers to the Company in exchange for an amount to be paid to the trustee.
Depreciation and Amortization
Depreciation and amortization expense was $370,278 for fiscal 2000 compared with $299,402 for fiscal 1999. The increase is a result of an increase in depreciation expense in 2000 of approximately $108,147 that is associated with additional computer and office equipment offset by a $30,000 decrease in the amortization of the non-compete covenant associated with the Education Navigator acquisition in 1998.
Preferred Stock Dividends
Preferred stock dividends increased to $208,137 in fiscal 2000 compared with $34,021 for the comparable period in 1999. The expense in fiscal 2000 represents a full year's worth of dividends payable to preferred shareholders versus an average period outstanding of approximately 50 days in 1999.
Liquidity and Capital Resources
The Company changed its primary focus to providing Internet based database applications to the clinical trial industry in mid 1998. At that time it began phasing out its systems integration business segment. Since the Company made TrialMaster and its related components its primary business the Company has relied primarily on the proceeds from the sale of debt and equity securities to fund its operations.
Cash and cash equivalents decreased by $1,036,305 to $90,958 at December 31, 2000. This was the result of cash provided by financing activities of $3.8 million offset by cash used in operating activities of approximately $4.2 million and $664 thousand in investing activities. The significant components of the activity include a loss from operations of approximately $6.3 million, cash used in an equity investment in EMN of $335,000, the purchase of property and equipment of approximately $333,765, offset by an increase in accounts payable and accrued expenses of approximately $795,000 and approximately $3.9 million the company raised through the sale of debt and equity securities.
Because of the losses experienced in 1999 and 2000 the Company has needed to continue utilizing the proceeds from the sale of debt and equity securities to fund its working capital needs. The capital markets during the latter half of fiscal 2000 provided a difficult climate for the raising of capital because of the decline in value of publicly held technology stocks and the corresponding apprehension on the part of investors to invest in technology oriented firms. The softness in the capital markets coupled with the losses experienced caused working capital shortfalls. To compensate for its working capital needs the Company has used a combination of equity financing and short-term bridge loans.
The Company's primary capital requirements are for daily operations and for the continued development and marketing of the TrialMaster system. The Company's 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 December 31, 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.
ITEM NO. 18 DESCRIPTION OF PROPERTY
The Company's facilities are located at 3250 Mary Street, Suite 402, Miami, Florida 33133 ("Miami Office"), and 5680 West Cypress Street, Suite I, Tampa, Florida 33607 ("Tampa Office"). The Miami Office is the Company's headquarters, and costs $9,352 per month and comprises approximately 5,048 square feet. The Tampa Office is where the Company's software development activities were located through February 2001. The Tampa Office is rented for $2,449 per month and comprises approximately 1,540 square feet. The Company is currently attempting to negotiate a lease termination settlement with the Tampa landlord since it has moved all of its staffing functions out of that office. The Company believes that these facilities are adequate for its current and reasonably foreseeable future needs.
ITEM NO. 19 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Cornelis F. Wit, a Director of the Company, is also currently an officer of Noesis Capital Corp. Noesis Capital Corp. has served as placement agent for the Company on three private placements of securities.
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 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 --------------------------------------------------------------------------------------------------------------------- September 2000 $4.25 $1.50 --------------------------------------------------------------------------------------------------------------------- December 2000 $2.25 $0.63 --------------------------------------------------------------------------------------------------------------------- March 2001 $1.56 $0.38 --------------------------------------------------------------------------------------------------------------------- June 2001 $0.56 $0.25 --------------------------------------------------------------------------------------------------------------------- |
The bid price which states over-the-counter market quotations reflects inter- dealer prices without real mark-up, mark-down or commissions and may not necessarily represent actual transactions.
The Company has approximately 403 shareholders of record of its common stock as of September 10, 2001.
ITEM NO. 21 EXECUTIVE COMPENSATION
Summary Compensation Table
-----------------------------------------------------------------------------------------------------------
Long term Compensation
-----------------------------------------------------------------------------------------------------------
Annual Compensation Awards Payouts
-----------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
-----------------------------------------------------------------------------------------------------------
Other Securities
-----------------------------------------------------------------------------------------------------------
Name Annual Restricted Under- All other
-----------------------------------------------------------------------------------------------------------
And Compen- Stock Lying LTIP Compen-
-----------------------------------------------------------------------------------------------------------
Principal sation Awards Options Payout sation
-----------------------------------------------------------------------------------------------------------
Position Year Salary Bonus ($) ($) ($) SARs (#) ($) ($)
-------- ---- ------ --------- --------
($)
-----------------------------------------------------------------------------------------------------------
David Ginsberg,
CEO/Director 2000 $134,255 $-0- $ -0- $-0- 240,000 $-0- $16,759
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Peter Knezevich
CEO/Director 2000 $131,231 $-0- $ -0- $-0- -0- $-0- $ 5,300
-----------------------------------------------------------------------------------------------------------
1999 $ 84,278 $-0- $ -0- $-0- 897,568 $-0- $ 4,000
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Randall Smith
President/Director 2000 $119,831 $-0- $ -0- $-0- 336,539 $-0- $ 6,800
-----------------------------------------------------------------------------------------------------------
1999 $ 84,278 $-0- $6,205 $-0- 732,107 $-0- $ 4,000
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Clifton Middleton
Vice President 2000 $100,899 $-0- $ -0- $-0- 252,000 $-0- $ 3,000
-----------------------------------------------------------------------------------------------------------
1999 $ 91,358 $-0- $6,237 $-0- 534,113 $-0- $ 3,000
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Gene Gordon
Vice President 2000 $115,000 $-0- $ -0- $-0- 2,000 $-0- $ 6,600
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OPTION/SAR GRANTS IN LAST FISCAL YEAR
-----------------------------------------------------------------------------------------------------------
Individual Grants
-----------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
-----------------------------------------------------------------------------------------------------------
Number of
-----------------------------------------------------------------------------------------------------------
Securities % of Total
-----------------------------------------------------------------------------------------------------------
Underlying Options/SARs
-----------------------------------------------------------------------------------------------------------
Options/ Granted to
-----------------------------------------------------------------------------------------------------------
SARs Employees in Exercise or Base Expiration
-----------------------------------------------------------------------------------------------------------
Name Granted (#) Fiscal Year Price ($/Share) Date
---- ----------- ----------- --------------- ----
-----------------------------------------------------------------------------------------------------------
David Ginsberg 200,000 10.8% $5.50 12/31/07
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David Ginsberg 40,000 2.2% $2.61 8/2/05
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Peter Knezevich -0- 0.0% -0 n/a
-----------------------------------------------------------------------------------------------------------
Randall Smith 2,000 0.1% $2.50 7/30/09
-----------------------------------------------------------------------------------------------------------
Clifton Middleton 2,000 0.1% $2.50 7/30/09
-----------------------------------------------------------------------------------------------------------
Gene Gordon 2,000 0.1% $2.50 7/30/09
-----------------------------------------------------------------------------------------------------------
|
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
(a) (b) (c) (d) (e)
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
Number of
----------------------------------------------------------------------------------------------------------------------------
Securities Value of
----------------------------------------------------------------------------------------------------------------------------
Underlying Unexercised
----------------------------------------------------------------------------------------------------------------------------
Unexercised In-the-money
----------------------------------------------------------------------------------------------------------------------------
Options/SARs at Options/SARs at
----------------------------------------------------------------------------------------------------------------------------
Shares FY End (#) FY End ($)
Acquired
----------------------------------------------------------------------------------------------------------------------------
On Exercise Value
----------- -----
Name (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- --- ------------ ----------- ------------- ----------- -------------
----------------------------------------------------------------------------------------------------------------------------
David Ginsberg -0- $-0- 240,000/ -0- -0- -0-
----------------------------------------------------------------------------------------------------------------------------
Peter Knezevich -0- $-0- -0- -0- -0- -0-
----------------------------------------------------------------------------------------------------------------------------
Randall Smith -0- $-0- 2,000 334,539 -0- -0-
----------------------------------------------------------------------------------------------------------------------------
Clifton -0- $-0- 2,000 250,000 -0- -0-
Middleton
----------------------------------------------------------------------------------------------------------------------------
Gene Gordon -0- $-0- 2,000 -0- -0- -0-
----------------------------------------------------------------------------------------------------------------------------
|
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
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.
In addition, the Company currently carries Directors and Officers liability insurance providing coverage against liability claims and providing reimbursement for legal representation of Directors and Officers.
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: $ 5,000
Accounting Fees: $ 3,500
Transfer Agent Fees: $ 1,000
-------
Total Expenses: $12,655
=======
|
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 and
Section 4(2) 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.
Rule 506 - Common Stock
On July 24, 2000, 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 common stock pursuant to and in accordance with Rule 506, Regulation D of the Securities Act of 1933, as amended. Noesis was entitled to receive as a commission 8% of the gross proceeds received by the Company and a warrant to purchase at $1.10 per share, 10% of the shares placed. In addition, Noesis was granted a 2% non- accountable expense allowance. The Company sold the common stock to foreign investors and to a small group of US based investors of which all were accredited investors. The offering was concluded on October 15, 2000. The Company had received gross proceeds of $668,334 and incurred investment banking fees of $66,833.
Rule 506 Transaction - 12% Convertible Note
On January 1, 2001, Noesis Capital Corp., as placement agent, began the distribution of a Confidential Private Placement Memorandum to accredited investors on behalf of the Company. Noesis received the following placement agent fees: 5% commission (cash); warrants to purchase a number of shares equal to 10% of the number of shares issuable upon conversion of the Notes sold in the offering, at an exercise price of $.50 per share, exercisable for a period of five (5) years, commencing on the final closing date of the offering. The offering was closed on June 15, 2001. The Company received gross proceeds of $1,555,000 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 506 - 8% Series B Convertible Preferred
On August 31, 2001, the Company entered into an Agency Agreement ("Agreement") with Commonwealth Associates, LP. ("Commonwealth") wherein Commonwealth would act as the placement agent for the offer and sale of the Company's 8% Series B Convertible Preferred stock pursuant to and in accordance with Rule 506, Regulation D of the Securities Act of 1933, as amended. Commonwealth received as a commission 10% of the gross proceeds received by the Company and an option to purchase Placement Agent Units ("Units") equal to 15% of the shares placed. The Units consist of (a) 10,000 shares (the "Preferred Shares") of Series B Convertible Preferred Stock of the Company ("Preferred Stock"), each share of Preferred Stock convertible into 40 shares of common stock, par value $.001 per share (the "Common Stock") and (b) 5-year warrants (the "Warrants") to purchase 400,000 shares of Common Stock at an exercise price of $.25 per share of Common Stock, at an exercise price of $100,000 per Unit. The Company sold the preferred stock to a small group of US based investors all of which were accredited investors. The offering was concluded on September 9, 2001. The Company received gross proceeds of $2,000,000.
ITEM NO. 27 EXHIBITS
(a) Exhibits
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(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 by herein by
reference to Form 10-SB dated December 20, 1998.
---------------------------------------------------------------------------------------------------------------------
(c) Plan of Merger: Incorporated herein by reference to From 10-SB/A dated August 17,
1999.
---------------------------------------------------------------------------------------------------------------------
(d) Agreement and Plan of Acquisition of WebIPA dated January 26, 2000: Incorporated
herein by reference to Form 8-K dated February 9, 2000.
---------------------------------------------------------------------------------------------------------------------
(3) (a) (i) Certificate of Incorporation: Incorporated herein by reference to Form SB-2 File
No. 333--6410
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(ii) By-Laws: Incorporated herein by reference to Form SB-2 File No. 333-6410.
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(4) (a) Amendment to Articles of Incorporation - 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 Stock. Incorporated
herein by reference to From 10-SB/A dated August 17, 1999.
---------------------------------------------------------------------------------------------------------------------
(c) Certificate of Increase - 5% Series A Convertible Preferred Stock. Incorporated
herein by reference to Form 10-KSB dated March 29, 2000.
---------------------------------------------------------------------------------------------------------------------
(d) Certificate of Designation - 8% Series B Convertible Preferred Stock
---------------------------------------------------------------------------------------------------------------------
(5) Opinion of Counsel,
---------------------------------------------------------------------------------------------------------------------
(10) (a) Employment Contracts
---------------------------------------------------------------------------------------------------------------------
(i) Randall G. Smith - Employment Agreement and Stock Option Agreement.
---------------------------------------------------------------------------------------------------------------------
(ii) David Ginsberg, D.O. - Employment Agreement and Stock Option Agreement.
---------------------------------------------------------------------------------------------------------------------
(ii) Ronald T. Linares. - Employment Agreement and Stock Option Agreement.
---------------------------------------------------------------------------------------------------------------------
(b) 1998 Stock Incentive Plan. Incorporated herein by reference to Form 10SB-A dated
August 17, 1999.
---------------------------------------------------------------------------------------------------------------------
(c) Medical Advisory Board Agreement. Incorporated herein by reference to Form 10SB-A
dated August 17, 1999.
---------------------------------------------------------------------------------------------------------------------
(d) Standard Agreement - Proprietary Protection. Incorporated herein by reference to
Form 10-SB/A dated August 17, 1999.
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(23) Consent of Greenberg & Company, LLC., Registrants Independent Auditors dated September
12, 2001.
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(99) Financial Statements
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|
(b) Reports on Form 8-K Incorporated 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.
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 September 10, 2001.
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: September 10, 2001 By: /s/Ronald T. Linares ------------------------------------- Title: Chief Financial and Accounting Officer Date: September 10, 2001 By: /s/Randall G. Smith ------------------------------------ Title: Chief Technical Officer and Director Date: September 10, 2001 By: /s/ Guus van Kesteren -------------------------------------- Title: Director Date: September 10, 2001 By: /s/ Harold Blue ---------------------------------------------------------------------- Title: Director Date: September 10, 2001 By: /s/Cornelis F. Wit ------------------------------------------------------------------------- Title: Director Date: September 10, 2001 |
Exhibit Index
Exhibit Description
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(d) Certificate of Designation - 8% Series B Convertible Preferred Stock
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(5) Opinion of Counsel, Jonathan D. Leinwamd, P.A.
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(10) (a) Employment Contracts
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(i) Randall G. Smith - Employment Agreement and Stock Option Agreement.
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(ii) David Ginsberg, D.O. - Employment Agreement and Stock Option Agreement.
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(ii) Ronald T. Linares. - Employment Agreement and Stock Option Agreement.
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(23) Consent of Greenberg & Company, LLC., Registrants Independent Auditors dated August
13, 2001.
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(99) Financial Statements
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EXHIBIT 4(D)
CERTIFICATE OF DESIGNATIONS, POWERS
PREFERENCES AND RIGHTS OF SERIES B CONVERTIBLE
PREFERRED STOCK
-OF-
The undersigned DOES HEREBY CERTIFY that the following resolution was duly adopted by the Board of Directors (the "Board of Directors") of OmniComm Systems, Inc., a Delaware corporation (the "Corporation"), at a meeting held on August 31, 2001:
RESOLVED, that there be, and hereby is, created out of the class of 10,000,000 shares of preferred stock of the Corporation, par value $.001 per share, a series of preferred stock with the following designations, powers, preferences and relative, participating, optional or other special rights, qualifications, limitations or restrictions (this instrument hereinafter referred to as the "Designation"):
(A) Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary ("Liquidation"), the holders of record of the shares of the Series B Preferred Stock shall be entitled to receive, before and in preference to any distribution or payment of assets of the Corporation or the proceeds thereof may be made or set apart for the holders of Junior Securities, an amount in cash equal to the Stated Value per share (subject to adjustment in the event of stock splits, combinations or similar events) plus an amount equal to accrued and unpaid
dividends. If, upon such Liquidation, the assets of the Corporation available for distribution to the holders of Series B Preferred Stock and any Parity Securities shall be insufficient to permit payment in full to the holders of the Series B Preferred Stock and Parity Securities, then the entire assets and funds of the Corporation legally available for distribution to such holders and the holders of the Parity Securities then outstanding shall be distributed ratably among the holders of the Series B Preferred Stock and Parity Securities based upon the proportion the total amount distributable on each share upon Liquidation bears to the aggregate amount required to be distributed, but for the provisions of this sentence, on all shares of the Series B Preferred Stock and of such Parity Securities, if any.
(B) For purposes of this Section 3, (i) a merger or consolidation, (ii) a sale of all or substantially all of the assets of the Corporation or (iii) an acquisition of fifty (50%) percent or more of the voting power or equity interests of the Corporation by a single person or "group" (as determined in accordance with Section 13(d) of the Securities and Exchange Act of 1934, as amended) shall be considered a Liquidation, provided that a transaction described in subclause (i) above shall not be considered a Liquidation if the holders of the Series B Preferred Stock receive securities of the surviving corporation having substantially similar rights as the Series B Preferred Stock and the stockholders of the Corporation immediately prior to such transaction are holders of at least a majority of the voting securities of the surviving Corporation immediately thereafter. Such provision may be waived in writing by the holders of a majority of the then outstanding shares of Series B Preferred Stock.
(A) The holders of record of shares of Series B Preferred Stock shall be entitled to receive, when and as declared and paid by the Board of Directors or upon conversion or Liquidation of the Series B Preferred Stock, out of any funds legally available for the declaration and payment of dividends, and in preference to any declaration or payment of dividends and distributions on any Junior Securities, dividends, at the rate of 8% of the Stated Value per share per annum (subject to adjustment in the event of stock splits, combinations or similar events). Such dividends shall accrue quarterly from the date of issuance of the Series B Preferred Stock. Dividends per share shall be payable, at the Corporation's option, either in cash or in shares of Common Stock valued at the Conversion Price (as defined below) in effect on the date of declaration. Dividends on the Series B Preferred Stock shall be cumulative so that if, for any dividend accrual period, dividends in the amount specified in this Section 4(A) are not declared and paid or set aside for payment, the amount of accrued but unpaid dividends shall accumulate and be added to the dividends payable for subsequent dividend accrual periods.
(B) Unless full cumulative dividends on all outstanding shares of Series B Preferred Stock for all past dividend periods have been declared and paid, or declared and a sufficient sum for the payment thereof set apart, no dividend whatsoever be declared or paid upon, nor shall any distribution be made upon, any Junior Securities, nor shall any shares of Junior Securities be purchased or redeemed by the Corporation nor shall any moneys be paid to or made available for a sinking fund for the purchase or redemption of any Junior Securities (other than, in each case, a distribution or payment made solely in shares of Junior Securities), without, in each such case, the written consent of the holders of a majority of the outstanding shares of Series B Preferred Stock, voting together as a class.
(A) In case the Corporation shall hereafter (i) declare a dividend or make a distribution on its outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification shall be adjusted so that it shall equal the price determined by multiplying the Conversion Price by a fraction, the denominator of which shall be the number of shares of Common Stock outstanding after giving effect to such action, and the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such action. Such adjustment shall be made successively whenever any event listed above shall occur.
(B) In case the Corporation shall fix a record date for the issuance of rights or warrants to all holders of its Common Stock entitling them to subscribe for or purchase shares of Common Stock (or securities convertible into Common Stock) at a price (the "Subscription Price") (or having a conversion price per share) less than the current market price on such record date (as defined in Subsection (H) below), the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the date of such issuance by a fraction, the numerator of which shall be the sum of the number of shares of Common Stock outstanding on the record date mentioned below and the number of additional shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered (or the aggregate conversion price of the convertible securities so offered) would purchase at such current market price per share (as defined in Subsection (H) below) of the Common Stock, and the denominator of which shall be the sum of the number of shares of Common Stock outstanding on such record date and the number of additional shares of Common Stock offered for subscription or purchase (or into which the convertible securities so offered are convertible). Such adjustment shall be made successively whenever such rights or warrants are issued and shall become effective immediately after the record date for the determination of shareholders entitled to receive such rights or warrants.
(C) In case the Corporation shall hereafter distribute to the holders of its Common Stock evidences of its indebtedness or assets (excluding cash dividends or distributions and dividends or distributions referred to in Subsection (A) above) or subscription rights or warrants (excluding those referred to in Subsection (B) above), then in each such case the Conversion Price in effect thereafter shall be determined by multiplying the Conversion Price in effect immediately prior thereto by a fraction, the numerator of which shall be the total number of shares of Common Stock outstanding multiplied by the current market price (as defined in Subsection (H) below) per share of Common Stock, less the fair market value (as determined by the Corporation's Board of Directors) of said assets or evidences of indebtedness so distributed or of such rights or warrants, and the denominator of which shall be the total number of shares of Common Stock outstanding multiplied by such current market price per share of Common Stock. Such adjustment shall be made successively whenever such a record date is fixed. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date for the determination of shareholders entitled to receive such distribution.
(D) In case the Corporation shall hereafter issue shares of its Common Stock (excluding shares issued (i) in any of the transactions described in Subsection (A) above, (ii) upon exercise of options granted to the Corporation's officers, directors, employees and consultants under a plan or plans adopted by the Corporation's Board of Directors or a committee thereof and approved by its shareholders, if such shares would otherwise be included in this Subsection (D) (but only to the
extent that the aggregate number of shares excluded by this Subsection (D)(ii)
does not exceed 15% of the Corporation's Common Stock outstanding, on a fully
diluted basis, at the time of any issuance), (iii) upon exercise of options,
warrants, convertible securities and convertible debentures outstanding as of
the final closing of the Initial Financing (as defined in the Agency Agreement),
(iv) to shareholders of any corporation which merges into the Corporation in
proportion to their stock holdings of such corporation immediately prior to such
merger, upon such merger, (v) in a private placement where the Offering Price
(as defined below) is at least 75% of the current market price, (vi) in a bona
fide public offering pursuant to a firm commitment underwriting, or (vii) in
connection with an acquisition of a business or technology which has been
approved by a majority of the Corporation's outside directors but only if no
adjustment is required pursuant to any other specific subsection of this Section
7 (without regard to Subsection (I) below) with respect to the transaction
giving rise to such rights) for a consideration per share (the "Offering Price")
less than the current market price on the date of such issuance (as defined in
Subsection (H) below), the Conversion Price shall be adjusted immediately
thereafter so that it shall equal the price determined by multiplying the
Conversion Price in effect immediately prior thereto by a fraction, the
numerator of which shall be the sum of the number of shares of Common Stock
outstanding immediately prior to the issuance of such additional shares and the
number of shares of Common Stock which the aggregate consideration received for
the issuance of such additional shares would purchase at such current market
price per share of Common Stock, and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after the issuance of
such additional shares. Such adjustment shall be made successively whenever such
an issuance is made.
(E) In case the Corporation shall hereafter issue any securities
convertible into or exchangeable for its Common Stock (excluding securities
issued in transactions described in Subsections (B), (C) and (D)(i) through
(vii) above) for a consideration per share of Common Stock (the "Exchange
Price") initially deliverable upon conversion or exchange of such securities
(determined as provided in Subsection (G) below) less than the current market
price on the date of such issuance (as defined in Subsection (H) below), the
Conversion Price shall be adjusted immediately thereafter so that it shall equal
the price determined by multiplying the Conversion Price in effect immediately
prior thereto by a fraction, the numerator of which shall be the sum of the
number of shares of Common Stock outstanding immediately prior to the issuance
of such securities and the number of shares of Common Stock which the aggregate
consideration received for such securities would purchase at such current market
price per share of Common Stock, and the denominator of which shall be the sum
of the number of shares of Common Stock outstanding immediately prior to such
issuance and the maximum number of shares of Common Stock of the Corporation
deliverable upon conversion of or in exchange for such securities at the initial
conversion or exchange price or rate. Such adjustment shall be made
successively whenever such an issuance is made.
(F) Whenever the Conversion Price is adjusted pursuant to Subsections (A), (B), (C), (D) or (E) above or (J) below, the number of Conversion Shares issuable upon conversion of a share of Series B Preferred Stock shall simultaneously be adjusted by multiplying the number of Conversion Shares initially issuable upon conversion of such shares of Series B Preferred Stock by the Conversion Price in effect on the date hereof and dividing the product so obtained by the Conversion Price, as adjusted.
(G) For purposes of any computation respecting consideration received pursuant to Subsections (D) and (E) above and (J) below, the following shall apply:
(i) in the case of the issuance of shares of Common Stock for cash, the consideration shall be the amount of such cash, provided that in no case shall any deduction be made for any commissions, discounts or other expenses incurred by the Corporation for any underwriting of the issue or otherwise in connection therewith;
(ii) in the case of the issuance of shares of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined in good faith by the Board of Directors of the Corporation (irrespective of the accounting treatment thereof), whose determination shall be conclusive; and
(iii) in the case of the issuance of securities convertible into or exchangeable for shares of Common Stock, the aggregate consideration received therefor shall be deemed to be the consideration received by the Corporation for the issuance of such securities plus the additional minimum consideration, if any, to be received by the Corporation upon the conversion or exchange thereof (the consideration in each case to be determined in the same manner as provided in clauses (A) and (B) of this Subsection (G)). Upon the expiration or termination of any such securities convertible into or exchangeable for shares of Common Stock, the Conversion Price shall be automatically readjusted to the Conversion Price that would have been obtained had such convertible or exchangeable securities not been issued.
(H) For the purpose of any computation under any Subsection above, the current market price per share of Common Stock at any date shall be determined as follows:
(i) If the Common Stock is listed on a national securities exchange or admitted to unlisted trading privileges on such exchange or listed for trading on the NASDAQ National Market System, the current market price per share of Common Stock at any date shall be the higher of (a) the average of the last reported sales prices of the Common Stock on such exchange for the 20 consecutive trading days before such date and (b) the last reported sales price on the trading day immediately preceding such date; provided that if no such sale is made on a day within such period or no closing sale price is quoted, that day's market price shall be the average of the closing bid and asked prices for such day on such exchange or system; or
(ii) If the Common Stock is not so listed or admitted to unlisted trading privileges, but is traded on the NASDAQ Small Cap Market, the current market price per share of Common Stock on any date shall be the higher of (a) the average of the closing bid and asked prices for the 20 consecutive trading days before such date on such market and (b) the last reported bid price on the trading day immediately preceding such date on such market, and if the Common Stock is not so traded, the current market price per share of Common Stock on any date shall be the higher of (x) the mean of the last reported bid and asked prices reported by the NASD Over the Counter Bulletin Board for the 20 consecutive trading days before such date and (y) the last reported bid price on the trading day immediately preceding such date as reported by the NASD Over the Counter Bulletin Board; or
(iii) If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current market price per share of Common Stock on any date shall be an amount determined in a reasonable manner by the Board of Directors of the Corporation.
(I) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least five cents ($0.05) in such price; provided, however, that any adjustments which by reason of this Subsection (I) are not required to be made shall be carried forward and taken into account in any subsequent adjustment required to be made hereunder. All calculations under this Section 7 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. Anything in this Section 7 to the contrary notwithstanding, the Corporation shall be entitled, but shall not be required, to make such changes in the Conversion Price, in addition to those required by this Section 7, as it shall determine, in its sole discretion, to be advisable in order that any dividend or distribution in shares of Common Stock, or any subdivision, reclassification or combination of Common Stock, hereafter made by the Corporation shall not result in any Federal Income tax liability to the holders of Common Stock or securities convertible into Common Stock.
(J) Notwithstanding the other provisions of this Section 7, (a) in the event that the Corporation shall at any time issue securities under Subsections (B), (D) or (E) (other than securities issued in transactions of the type described in subsection (D)(i) through (vii) above) having an Offering Price, Subscription Price or Exchange Price less than the Conversion Price, then the Conversion Price shall be immediately reset to equal such lower Offering Price, Subscription Price or Exchange Price and (b) no adjustment under Subsections (B), (D) or (E) shall be required for issuances below the current market price if (i) the Offering Price, Subscription Price or Exchange Price, as applicable, is at least 300% of the Conversion Price then in effect and (ii) a registration statement covering the Conversion Shares is in effect and remains in effect for the 90 days after such issuance or Rule 144(k) under the Securities Act of 1933, as amended (the "Act") is available for resale of all of the Conversion Shares.
(K) Whenever the Conversion Price is adjusted, as herein provided, the Corporation shall promptly cause a notice setting forth the adjusted Conversion Price and adjusted number of Conversion Shares issuable upon conversion of each share of Series B Preferred Stock, and, if requested, information describing the transactions giving rise to such adjustments, to be mailed to the holders at their last address appearing on the books and records of the Corporation maintained for such purpose, and shall cause a certified copy thereof to be mailed to its transfer agent, if any. The Corporation may retain a firm of independent certified public accountants selected by the Board of Directors (who may be the regular accountants employed by the Corporation) to make any computation required by this Section 7, and a certificate signed by such firm shall be conclusive evidence of the correctness of such adjustment, absent manifest error.
(L) In the event that at any time, as a result of an adjustment made pursuant to this Section 7, the holders of the Series B Preferred Stock thereafter shall become entitled to receive any securities, other than Common Stock, thereafter the number of such other securities so receivable upon conversion of the Series B Preferred Stock shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Subsections (A) to (J), inclusive above.
(M) In case of any reorganization, reclassification or change of the Common Stock (including any such reorganization, reclassification or change in connection with a consolidation or merger in which the Corporation is the continuing entity), or any consolidation of the Corporation with, or merger of the Corporation with or into, any other entity (other than a consolidation or merger in which the Corporation is the continuing entity), or of any sale of the properties and assets of the Corporation as, or substantially as, an entirety to any other person or entity, each share of Series B Preferred Stock then outstanding shall thereafter be convertible into the kind and amount of stock or other securities or property receivable upon such reorganization, reclassification, change, consolidation, merger or sale by a holder of the number of shares of Common Stock into which such shares of Series B Preferred Stock would have been converted prior to such transaction. The provisions of this Paragraph (M) shall similarly apply to successive reorganizations, reclassifications, changes, consolidations, mergers or sales immediately prior to such reorganization, reclassification, change, consolidation, merger or sale.
(A) In addition to any other rights provided for herein or by law, the
holders of Series B Preferred Stock shall be entitled to vote, together with the
holders of Common Stock, on all matters as to which holders of Common Stock
shall be entitled to vote, in the same manner and with the same effect (subject
to the provisions of the last sentence of this Section 8(A)) as such Common
Stock holders. With respect to all matters as to which the holders of Common
Stock shall be entitled to vote as a class, the holders of the Series B
Preferred Stock shall be entitled to vote, together with the holders of Common
Stock as one class, in the same manner and with the same effect (subject to the
provisions of the next sentence) as such Common Stock holders, except as
otherwise required by law. In any such vote each share of Series B Preferred
Stock shall entitle the holder thereof to a number of votes equal to the number
of whole shares of Common Stock which the holder of such share of Series B
Preferred Stock would be entitled to vote if the share of Series B Preferred
Stock was converted into Common Stock immediately prior to such vote without
regard to whether or not (x) such vote is taken prior to the Conversion Date,
(y) the Corporation has sufficient available Common Stock to effect the
conversion and (z) the Series B Preferred Stock for any other reason could not
be converted at such time into Common Stock.
(B) In the event the holders of the Series B Preferred Stock are required to vote as a class, the affirmative vote of holders of not less than a majority of the then outstanding shares of Series B Preferred Stock shall be required to approve each such matter to be voted upon and if any matter is approved by such requisite percentage of holders of Series B Preferred Stock, such approval shall bind all holders of Series B Preferred Stock.
(C) The terms of the Series B Preferred Stock may be amended, modified or waived only with the consent of the holders of a majority of the then outstanding Series B Preferred Stock, voting as one class, either expressed in writing or at a meeting called for that purpose.
(D) Each share of the Series B Preferred Stock shall entitle the holder thereof to one vote on all matters to be voted on by the holders of the Series B Preferred Stock as a class.
(A) If the Corporation shall fail to hold an annual or special meeting of its stockholders on or before January 31, 2002 and obtain at such meeting the approval of the stockholders of the Corporation (the "Shareholder Approval") to the increase in the number of authorized shares of
capital stock of the Corporation to a number of authorized shares sufficient to issue the securities contemplated to be issued pursuant to the Initial Financing and Second Financing (as such terms are defined in the Agency Agreement) and any securities issuable upon conversion or exercise of such securities and to file with the Secretary of State of the State of Delaware on or before January 31, 2002 an amendment to the Certificate of Incorporation of the Corporation reflecting such increase, then the holders of a majority of the then outstanding Series B Preferred Stock ("Majority Holders") may, by delivery of written notice to the Corporation, elect to cause the Corporation to redeem any or all of the shares of the Series B Preferred Stock in accordance with the provisions set forth below, at a redemption price equal to Twenty Dollars $20 per share of Series B Preferred Stock ("Redemption Price");
(A) There is no sinking fund with respect to the Series B Preferred Stock.
(B) The shares of the Series B Preferred Stock shall not have any preferences, voting powers or relative, participating, optional, preemptive or other special rights except as set forth above in this Designation and in the Certificate of Incorporation of the Corporation.
(C) The holders of the Series B Preferred Stock shall be entitled to receive all communications sent by the Corporation to the holders of the Common Stock.
IN WITNESS WHEREOF, the Corporation has caused this Designation to be signed by its Chief Executive Officer, on this 31st day of August, 2001, and such person hereby affirms under penalty of perjury that this Designation is the act and deed of the Corporation and that the facts stated herein are true and correct.
OMNICOMM SYSTEMS, INC.
By: /s/ David Ginsberg, D.O.
------------------------
Name: David Ginsberg, D.O.
Title: CEO & President
Attest:
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EXHIBIT 5 - OPINION OF COUNSEL
[LETTERHEAD OF JONATHAN D. LEINWAND]
September 10, 2001
Omnicomm Systems, Inc.
3250 Mary Street, Suite 402
Coconut Grove, FL 33133
Dear Sirs:
In connection with the registration under the Securities Act of 1933 (the "Act") of 4,665,600 shares (the "Securities") of Common Stock, par value $.001 per share, of OmniComm Systems, Inc., a Delaware corporation (the "Company"), we, as your counsel, have examined such corporate records and other documents, and such questions of law, as we have considered necessary or appropriate for the purposes of this opinion. Upon the basis of such examination, we advise you that, in our opinion:
The Securities have been validly issued and are fully paid and nonassessable.
We have relied as to certain matters on information obtained from public officials, officers of the Company and other sources believed by us to be responsible.
We hereby consent to the filing of this opinion as an exhibit to the registration statement relating to the Securities and to the reference to us under the heading "Validity of Common Stock" in the Prospectus. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act.
Very Truly Yours,
JONATHAN D. LEINWAND, P.A.
/s/ JONATHAN D. LEINWAND, ESQ. |
Exhibit 10 (a)(i)
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), dated as of September 1, 2001, between OmniComm Systems, Inc., a Delaware corporation, (the "Company"), and Randall G. Smith (the "Executive").
WITNESSETH:
WHEREAS, the Executive has experience in managing at a senior level the technology of 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 Technology Officer 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 September 1, 2001 and shall terminate as of the earlier of:
(a) 3 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 $150,000. The Executive's salary may be paid in the form of cash and/or stock, as agreed upon by the parties. This amount may be increased at the discretion of the Board of Directors and shall be adjusted to compensate for annual cost of living increases.
(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) four 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 based upon
achieving technology related milestones set forth in a particular
calendar year. The Executive shall be entitled to receive a bonus
to be agreed upon by the Executive and the Company's Board of
Directors. The Company's Board of Directors and the Executive
shall agree upon the milestones and if the Executive meets the
milestone conditions, he shall be paid 30 days after the end of
the Company's calendar year.
(e) The Executive shall also be entitled to severance pay equal
to six (6) months salary and benefits in the event of termination
by the Company for any reason other than commission of a felony
or a crime involving moral turpitude relating to services
provided to the Company, or termination by the Company pursuant
to Paragraph 2(c). Options which have vested prior to the date of
termination shall remain exercisable during the severance period.
Unvested options shall terminate in accordance with the terms of
the respective Stock Opti on Agreements.
4. Duties. The Executive shall be employed as Chief Technology 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 such Board participation 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 prior to his employment with the Company, 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 assignee 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:
Randall G. Smith 214 N. Park Ave.
Batesville, IN 47006
and to the Company at:
OmniComm Systems, Inc.
3250 Mary Street, Suite 402
Coconut Grove, Florida 33133
Attention: Chief Financial Officer
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/ David Ginsberg, D.O. ------------------------ Dr. David Ginsberg Chief Executive Officer |
Executive
/s/ Randall G. Smith ------------------- Randall G. Smith |
Exhibit "A"
Incentive and Non-Qualified Stock Option
Total Number of Shares Subject to Options: 210,000
Vesting Schedule: 3 years
Amount Price Vesting Date
Year 1 2001 70,000 Market Price+10% September 1, 2001
Year 2 2002 70,000 Market Price+10% September 1, 2002
Year 3 2003 70,000 Market Price+10% September 1, 2003
|
Other rights:
1. "Piggyback" rights in equal proportion to other employees.
2. Acceleration of all unvested options in the event of change in control,
defined as a sale of more than 50% of the Company's securities or assets to a
third party other than shares sold to Commonwealth Associates, LLP or its
affiliates in the Series B or Series C Preferred Private Placements.
3. Options will be granted as Incentive Stock Options (ISO's) to the extent
possible under Sec. 422 of the Internal Revenue Code of 1986.
4. Length of options: ISO 5 years; NonQ 7 years
5. Existing options granted, but unissued, under Stock Option Agreements
preceding this Employment Agreement shall remain in force.
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 10 (a)(ii)
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), dated as of September 1, 2001, between OmniComm Systems, Inc., a Delaware corporation, (the "Company"), and David Ginsberg, D.O. (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, the Company has entered into an agreement for funding and a condition of that agreement is that the Executive restructure an existing employment agreement dated July 18, 2001; and,
WHEREAS, the Company and the Executive agree that this Agreement hereby replaces and supercedes the existing employment agreement between the Company and the Executive dated July 18, 2000; 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 September 1, 2001 and shall terminate as of the earlier of:
(a) 3 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 $200,000. 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) four 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) The Company shall pay Executive a minimum guaranteed bonus
of twelve thousand five hundred dollars ($12,500.00) quarterly in
arrears.
(ii) 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 a bonus
to be agreed upon by the Executive and the Company's Board of
Directors. The Company's Board of Directors and the Executive
shall agree upon the Company's budgetary requirements or key
milestones, such requirements or milestones to be decided within
thirty (30) days of the closing of the private placement with
Commonwealth Associates, and if the Executive meets the budgetary
requirement conditions, he shall be paid 30 days after the end of
the Company's calendar year.
(e) The Executive shall also be entitled to severance pay equal to six (6) months salary and benefits in the event of termination by the Company for any reason other than commission of a felony or a crime involving moral turpitude relating to services provided to the Company, or termination by the Company pursuant to Paragraph 2(c). Options which have vested prior to the date of termination shall remain exercisable during the severance period. Unvested options shall terminate in accordance with the terms of the respective Stock Option Agreements.
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 such Board participation 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 prior to his employment with the Company, 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 if
the Executive leaves voluntarily or six (6) months if the Executive is
terminated by the Company, 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 assignee 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.
7289 Sarimento Place
Delray Beach, FL 33446
and to the Company at:
OmniComm Systems, Inc. 3250 Mary Street, Suite 402 Coconut Grove, Florida 33133 Attention: Chief Financial Officer
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/Randall Smith ------------------ Randall Smith Chairman of the Board |
Executive
/s/David Ginsberg, D.O. ----------------------- Dr. David Ginsberg |
Exhibit "A" Incentive and Non-Qualified Stock Option
Total Number of Shares Subject to Options: 500,000
Vesting Schedule: 3 years
Amount Price Vesting Date
Year 1 2001 166,667 $.43 September 1, 2001
Year 2 2002 166,667 $.43 September 1, 2002
Year 3 2003 166,666 $.43 September 1, 2003
|
Other rights:
1. "Piggyback" rights in equal proportion to other employees.
2. Acceleration of the vesting 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 to a third party, other than shares sold to Commonwealth Associates, LLP
or its affiliates in the Series B or Series C Preferred Private Placements.
3. Options will be granted as Incentive Stock Options (ISO's) to the extent
possible under Sec. 422 of the Internal Revenue Code of 1986.
4. Length of options: ISO 5 years; NonQ 7 years
5. Existing options granted, but unissued, under Stock Option Agreements
preceding this Employment Agreement shall remain in force.
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 10 (a)(iii)
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), dated as of September 1, 2001, between OmniComm Systems, Inc., a Delaware corporation, (the "Company"), and Ronald Linares (the "Executive").
WITNESSETH:
WHEREAS, the Executive has experience in managing at a senior level the financial activities of 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 Financial Officer 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 September 1, 2001 and shall terminate as of the earlier of:
(a) 3 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 $126,254. The Executive's salary may be paid in
the form of cash and/or stock, as agreed upon by the parties. This amount may be
increased at the discretion of the Board of Directors and shall be adjusted to
compensate for annual cost of living increases.
(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 based upon
achieving financial milestones set forth in a particular calendar year. The
Executive shall be entitled to receive a bonus to be agreed upon by the
Executive and the Company's Board of Directors. The Company's Board of
Directors and the Executive shall agree upon the milestones and if the Executive
meets the milestone conditions, he shall be paid 30 days after the end of the
Company's calendar year.
(e) The Executive shall also be entitled to severance pay equal to
six (6) months salary and benefits in the event of termination by the Company
for any reason other than commission of a felony or a crime involving moral
turpitude relating to services provided to the Company, or termination by the
Company pursuant to Paragraph 2(c). Options which have vested prior to the date
of termination shall remain exercisable during the severance period. Unvested
options shall terminate in accordance with the terms of the respective Stock
Option Agreements.
4. Duties. The Executive shall be employed as Chief Financial 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 such Board participation 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 prior to his employment with the Company, 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 assignee 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:
Ronald Linares 1000 NW 190 Ave Pembroke Pines, FL 33029
and to the Company at:
OmniComm Systems, Inc. 3250 Mary Street, Suite 402 Coconut Grove, Florida 33133 Attention: Chief Executive Officer
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/David Ginsberg, D.O. Dr. David Ginsberg Chief Executive Officer |
Executive
/s/Ronald Linares Ronald Linares |
Exhibit "A" Incentive and Non-Qualified Stock Option
Total Number of Shares Subject to Options: 210,000
Vesting Schedule: 3 years
Amount Price Vesting Date
Year 1 2001 70,000 Market Price+10% September 30, 2001
Year 2 2002 70,000 Market Price+10% September 30, 2002
Year 3 2003 70,000 Market Price+10% September 30, 2003
|
Other rights:
1. "Piggyback" rights in equal proportion to other employees.
2. Acceleration of all unvested options in the event of change in control,
defined as a sale of more than 50% of the Company's securities or assets to a
third party other than shares sold to Commonwealth Associates, LLP or its
affiliates in the Series B or Series C Preferred Private Placements.
3. Options will granted as Incentive Stock Options (ISO's) to the extent
possible under Sec. 422 of the Internal Revenue Code of 1986.
4. Length of options: ISO 5 years; NonQ 7 years
5. Existing options granted, but unissued, under Stock Option Agreements
preceding this Employment Agreement shall remain in force.
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
September 12, 2001
OmniComm Systems, Inc. Financial Statements for the Year and Period Ended December 31, 2000
To the Shareholders and Board of Directors
OMNICOMM SYSTEMS, INC.
Miami, Florida
We have audited the accompanying consolidated balance sheets of OMNICOMM SYSTEMS, INC. as of December 31, 2000 and 1999 and the related consolidated statements of operations, changes in shareholders' equity (deficit) and cash flows for each of the two years in the period ended December 31, 2000. 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 audits.
We conducted our audits 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 statements' presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of OMNICOMM SYSTEMS, INC. at December 31, 2000 and 1999, and the consolidated results of their operations and cash flows for each of the two years in the period ended December 31, 2000, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Corporation will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Corporation has incurred losses and negative cash flows from operations in recent years through December 31, 2000 and these conditions are expected to continue through 2001, 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
February 2, 2001
OMNICOMM SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
2000 1999
---- ----
ASSETS
CURRENT ASSETS
Cash $ 90,958 $ 1,127,263
Accounts receivable 9,927 8,458
Inventory -0- 10,166
----------- -----------
Total current assets 100,885 1,145,887
PROPERTY AND EQUIPMENT, Net 486,481 353,183
OTHER ASSETS
Shareholder loans -0- 3,406
Intangible assets, net 53,071 169,629
Goodwill, net 79,277 237,832
Other assets 25,160 26,960
----------- -----------
TOTAL ASSETS $ 744,874 $ 1,936,897
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses 1,079,506 $ 284,481
Notes payable - current 612,500 177,500
Notes payable related parties - current 660,000 -0-
Sales tax payable -0- 1,818
Deferred revenue 26,861 -0-
----------- -----------
Total current liabilities 2,378,867 463,799
CONVERTIBLE DEBT 462,500 862,500
----------- -----------
TOTAL LIABILITIES 2,841,367 1,326,299
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
5% Series A convertible preferred stock, 5,000,000 shares authorized, 3,857,179 3,872,843
4,260,224 and 4,117,500 issued and outstanding, respectively, at par
Common stock - 20,000,000 shares authorized, 7,974,578 and 3,344,066 7,975 3,344
issued, respectively, at $.001 par value
Additional paid in capital 3,261,100 238,007
Less cost of treasury stock: Common -- 620,951 and -0- shares (293,912) -0-
respectively
Retained deficit (8,927,695) (2,652,644)
Subscriptions receivable (1,140) (850,952)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (2,096,493) 610,598
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 744,874 $ 1,936,897
=========== ===========
|
See accompanying summary of accounting policies and notes to financial statements.
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1999 TO DECEMBER 31, 2000
(unaudited)
5% Series A Convertible
Common Stock Additional Preferred Stock Retained Total
Number of $.001 Paid In Number of Earnings Subscription Treasury Shareholders'
Shares Par Value Capital Shares $0.00 Par (Deficit) Receivable Stock Equity
------ --------- ------- ------ --------- --------- ---------- ----- ------
Balance at
January 1, 1999 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
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
Dec 31, 1999 (2,341,237) (2,341,237)
Balance at
January 1, 2000 3,344,066 3,344 238,007 4,117,500 3,872,843 (2,652,644) (850,952) -0- 610,598
|
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1999 TO DECEMBER 31, 2000
(unaudited)
5% Series A Convertible
Common Stock Additional Preferred Stock Retained Total
Number of $.001 Paid In Number of Earnings Subscription Treasury Shareholders'
Shares Par Capital Shares $0.00 Par (Deficit) Receivable Stock Equity
------ --- ------- ------ --------- --------- ---------- ----- ------
Value
-----
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 on
subscription
receivable 850,000 850,000
Acquisition of
WebIPA, Inc. 1,200,000 1,200 4,433 5,633
Common stock
re-acquired in the
acquisition of WebIPA (600,000) (600) (600)
Issuance of
preferred stock 146,000 146,000 146,000
|
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1999 TO DECEMBER 31, 2000
(unaudited)
Common Stock Additional Preferred Stock Retained Total
Number of $.001 Paid In Number of Earnings Subscription Treasury Shareholders'
Shares ar Value Capital Shares $0.00 Par (Deficit) Receivable Stock Equity
------ -------- ------- ------ --------- --------- ---------- ----- ------
Issuance costs on (206,750) (206,750)
preferred stock
Conversion of conv. 320,000 320 366,393 366,713
notes payable, net of
issuance costs of
$33,287
Exercise of stock 20,000 20 15,980 16,000
options
Exercise of stock 481,834 482 963,186 963,668
warrants
Exercise of stock 187,954 188 (188) -0-
warrants
Conversion of 66,667 67 99,933 (100,000) (100,000) -0-
preferred stock to
common stock
Conversion of notes 91,608 92 206,026 206,118
payable to common
stock
Issuance of common 70,990 71 188,784 188,855
stock for services
|
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1999 TO DECEMBER 31, 2000
(unaudited)
5% Series A Convertible
Common Stock Additional Preferred Stock Retained Total
Number of $.001 Paid In Number of Earnings Subscription Treasury Shareholders
Shares Par Value Capital Shares $0.00 Par (Deficit) Receivable Stock Equity
------ --------- ------- ------ --------- --------- ---------- ----- ------
Issuance of common
stock, net of
issuance costs of
$66,833 668,334 668 600,833 601,501
Issuance of preferred
stock for services 126,781 190,172 190,172
Conversion of notes
payable into
preferred stock 66,667 100,000 100,000
Conversion of
preferred stock to
common stock 96,724 97 144,989 (96,724) (145,086) -0-
Issuance of common
stock for services 76,340 76 45,552 45,628
|
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1999 TO DECEMBER 31, 2000
(unaudited)
5% Series A Convertible
Common Stock Additional Preferred Stock Retained Total
Number of $.001 Paid In Number of Earnings Subscription Treasury Shareholders'
Shares Par Value Capital Shares $0.00 Par (Deficit) Receivable Stock Equity
------ --------- ------- ------ --------- --------- ---------- ----- ------
Net (loss) for the
year ended December
31, 2000 (6,275,051) (6,275,051)
Balances at December
31, 2000 7,353,627 $7,975 $3,261,100 4,260,224 $3,857,179 $(8,927,695) $(1,140) $(293,912) $(2,096,493)
========= ====== ========== ========= ========== ============ ======== ========== ============
|
See accompanying summary of accounting policies and notes to financial statements
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended
December 31,
2000 1999
---- ----
REVENUES - SALES, Net $ 70,976 $ 1,259,214
COST OF SALES 52,492 1,005,338
----------- -----------
GROSS MARGIN 18,484 253,876
OTHER EXPENSES
Salaries, employee benefits and related expenses 2,895,108 784,635
Rent 242,471 108,371
Consulting - marketing and sales 107,600 237,630
Consulting - medical advisory 93,033 210,503
Consulting - product development 69,365 109,618
Legal and professional fees 613,797 98,895
Travel 374,558 334,753
Telephone and internet 197,858 67,109
Factoring fees -0- 4,571
Selling, general and administrative 617,006 208,226
Impairment of equity investment 335,000 -0-
Loss on subsidiary bankruptcy 78,131 -0-
Interest expense, net 91,193 97,379
Depreciation and amortization 370,278 299,402
----------- -----------
TOTAL OTHER EXPENSE 6,085,398 2,561,092
----------- -----------
INCOME (LOSS) BEFORE TAXES AND PREFERRED DIVIDENDS (6,066,914) (2,307,216)
INCOME TAX EXPENSE (BENEFIT) -0- -0-
PREFERRED STOCK DIVIDENDS (208,137) (34,021)
----------- -----------
NET INCOME (LOSS) (6,275,051) $(2,341,237)
=========== ===========
BASIS AND DILUTED NET INCOME (LOSS) PER SHARE $ (1.07) $ (1.27)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED 5,859,593 1,840,550
=========== ===========
|
See accompanying summary of accounting policies and notes to financial statements
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended
December 31,
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(6,275,051) $(2,341,237)
Adjustment to reconcile net income to net cash provided by (used in)
operating activities:
Impairment of equity investment 335,000 -0-
Loss subsidiary bankruptcy 78,131 -0-
Depreciation and amortization 370,278 299,402
Common stock issued for services 324,482 104,545
Preferred stock issued for services 190,172 -0-
Accrued placement agent fee (66,833) -0-
Change in assets and liabilities:
Accounts receivable (1,468) 68,730
Inventory 10,166 (5,926)
Shareholder loans 3,406
Other assets 1,800 (17,660)
Accounts payable and accrued expenses 795,026 (1,997)
Sales tax payable (1,818) (38,018)
Due to factoring agent -0- (139,012)
Deferred revenue 26,861 -0-
----------- -----------
Net cash provided by (used in) operating activities (4,209,848) (2,071,173)
CASH FLOWS FROM INVESTING ACTIVITIES
Equity investment in EMN (335,000) -0-
Purchase of WebIPA 5,033 -0-
Purchase of property and equipment (333,765) (347,405)
----------- -----------
NET cash provided by (used in) financing activities (663,732) (347,405)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from convertible notes, net of issuance costs -0- 742,875
Payments on notes payable (45,000) (267,500)
Proceeds from notes payable 1,440,000 -0-
Issuance of 5% Series A convertible preferred stock, net of issuance costs 789,250 3,022,843
Issuance of common stock 668,618 3,250
Proceeds from stock warrant exercise 963,668 -0-
Proceeds from stock option exercise 20,739 -0-
----------- -----------
Net cash provided by (used in) financing activities 3,837,275 3,501,468
----------- -----------
Net increase (decrease) in cash and cash equivalents (1,036,305) 1,082,890
Cash and cash equivalents at beginning of period 1,127,263 44,373
----------- -----------
Cash and cash equivalents at end of period $ 90,958 $ 1,127,263
=========== ===========
|
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
For the years ended
December 31,
2000 1999
---- ----
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Income tax paid $ -0- $ -0-
======= =======
Interest paid $65,827 $67,297
======= =======
|
Non-Cash Investing and Financing Transactions; 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-
=======
|
In addition, the Company re-acquired 600,000 shares of its common stock that had been provided to WebIPA in October 1999 as a deposit towards the consummation of a transaction in which the Company would acquire all of the common stock of WebIPA. The re-acquired shares have been accounted for as treasury stock.
During the year ended December 31, 2000, $400,000 of convertible notes payable were converted into 320,000 shares of common stock.
During the year ended December 31, 2000, 1,018,604 incentive stock options were exercised 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.
During the year ended December 31, 2000, a promissory note with a face value of $100,000 was converted into 66,667 shares of the Company's preferred stock at a rate of $1.50 per share.
During the year ended December 31, 2000, promissory notes totaling $206,118 of principal and interest were converted into 91,608 shares of the Company's preferred stock at a rate of $2.25 per share.
During the year ended December 31, 2000, $245,086 of the Company's convertible Series A Preferred Stock totaling 196,724 shares were converted into 163,391 shares of common stock.
See accompanying summary of accounting policies and notes to financial statements
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
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(R).
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.
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 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.
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 5,859,593 and 1,840,550 for the years ended December 31, 2000 and 1999; respectively. There were no differences between basic and diluted earnings per share. Options to purchase 4,301,900 shares of common stock at prices ranging from $.60 to $6.50 per share were outstanding at December 31, 2000, but they 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.
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 costs are expensed as incurred. Advertising costs were $127,175 and $7,599 for the years ended December 31, 2000 and 1999 respectively.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
Certain items from prior periods within the financial statements have been reclassified to conform to current period classifications.
Included in Intangible Assets are the following assets:
December 31, 2000
Accumulated
Cost Amortization
---- ------------
Covenant not to compete $120,000 $120,000
Software development costs 87,500 72,917
Organization costs 539 539
Debt acquisition costs 119,625 81,137
-------- --------
$327,664 $274,593
======== ========
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 $29,167 for software development costs for the year ended December 31, 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 $23,925 for the year ended December 31, 2000, and approximately $33,287 of the debt acquisition costs were reclassified as stock issuance costs in connection with the conversion of $400,000 (original cost) worth of the convertible notes into common stock of the Company.
Included in Goodwill, as a result of the EdNav acquisition at December 31, 2000 and December 31, 1999 is the cost of $475,665 and accumulated amortization of $396,388 and $237,833 respectively. The goodwill is being amortized ratably over a period of three years. Goodwill amortization totaled $158,555 for the year ended December 31, 2000.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
Property and equipment consists of the following:
December 31, 2000 December 31, 1999
Accumulated Accumulated
Cost Depreciation Cost Depreciation
---- ------------ ---- ------------
Computer and office equipment $387,862 $ 88,812 $195,340 $30,146
Leasehold improvements 1,699 201 0 0
Computer software 212,412 60,067 167,220 1,034
Office furniture 42,350 8,762 23,070 1,267
-------- -------- -------- -------
$644,323 $157,842 $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 leasehold improvements, equipment and furniture and 3 years for software.
Depreciation expense for the years ended December 31, 2000 and 1999 was $128,454 and $20,307 respectively. Included in depreciation expense for 2000 is approximately $3,059 related to assets from the Company's European subsidiary. As described in Note 12 that subsidiary has filed for bankruptcy protection under the laws of the Netherlands and accordingly those assets have been excluded from the Company's balance sheet as of December 31, 2000 since the recoverability of any of those assets is considered unlikely.
Deferred revenue represents cash advances received in excess of revenue earned on on-going contracts. Payment terms vary with each contract but may include an initial payment at the time the contract is executed, with future payments dependent upon the completion of certain contract phases or targeted milestones. In the event of contract cancellation, the Company is entitled to payment for all work performed through the point of cancellation. The Company had $26,861 in deferred revenue relating to one contract for services to be performed over the next six months.
The Company recognizes sales, for both financial statement and tax purposes, when its products are shipped and when services are provided. The Company had $26,861 in deferred revenue relating to one contract for services to be rendered over the next six months.
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.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
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.
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.
Basic earnings per shares ("EPS") is computed by dividing income available to common shareholders (which for the Company equals its net loss) by the weighted average number of common shares outstanding, and dilutive EPS adds the dilutive effect of stock options and other common stock equivalents. Antidilutive shares aggregating 4,658,515 have been omitted from the calculation of dilutive EPS for the fiscal year ended December 31, 2000. A reconciliation between numerators and denominators of the basic and dilutive earnings per shares is as follows:
Year Ended December 31, 2000 Year Ended December 31, 1999
---------------------------- ----------------------------
Net Income Shares Per-Share Net Income Shares Per-
(Loss) (Loss) Share
Numerator Denominator Amount Numerator Denominator Amount
-------- ----------- ------ --------- ----------- ------
Basic EPS $(6,275,051) 5,859,593 $ (1.07) $(2,341,237) 1,840,550 $(1.27)
Effect of Dilutive
Securities
None. -0- -0- -0- -0- -0- -0-
----------- ----------- --------- ----------- ------------- --------
Diluted EPS $(6,275,051) 5,859,593 $ (1.07) $(2,341,237) 1,840,550 $ (1.27)
=========== =========== ========= =========== ============= ========
|
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), which is effective for all fiscal quarter of all fiscals years beginning after June 15, 2000, as amended by SFAS No. 137. In June 2000, SFAS No. 138 was issued which amended certain provisions of SFAS No. 133. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments imbedded in other contracts, and for hedging activities. In accordance with SFAS No. 133, an entity is required to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires that a company formally document, designate and assess the effectiveness of transactions that receive hedge accounting. The Company has not yet completed its evaluation of the impact of SFAS No. 133 on
OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
its consolidated financial statements. However, the Company does not believe that the implementation of SFAS No. 133 will have a significant effect on its results of operations.
FASB Interpretation No. 44 "Accounting for Certain Transactions Involving Stock Compensation" ("FIN No. 44"), provides guidance for applying APB Opinion No. 25, "Accounting for Stock Issued to Employees". With certain exceptions, FIN No. 44 applies prospectively to new awards, exchanges of awards in a business combination, modifications to outstanding awards and changes in grantee status on or after July 1, 2000. The Company does not believe that the implementation of FIN No. 44 will have a significant effect on its results of operations.
In December 1999, The SEC issued Staff Accounting Bulletin No. 101, "Revenue Recognition Financial Statements" ("SAB No. 101"), which summarizes certain of the SEC staff's views in applying generally accounted principles to revenue recognition in financial statements. The Company will be required to adopt SAB No. 101 during fiscal year 2001. The Company does not believe that the implementation of SAB No. 101 will have a significant effect on its results of operations.
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 December 31, 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 December 31, 2000. However, any projections of future cash needs and cash flows are subject to substantial uncertainty. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all.
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.
The Company accounted for its acquisition of WebIPA under the purchase method of accounting. At the time of the transaction WebIPA was a development stage company with approximately $5,033 in assets and no recorded liabilities.
OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
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. 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. The Company accounts for its investment in EMN under the cost method of accounting. The Company has established a valuation allowance of $335,000 against its investment in EMN to reflect the uncertainty of the fair market value of the investment as of December 31, 2000.
As of December 31, 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 March 31, 2001 the Company was in default under the terms of the promissory notes governing the debt.
At December 31, 2000 the Company owed $1,115,000 under short-term notes payable. The notes bear interest at rates ranging from 8% to 18%. The average original term of the promissory notes is 64 days. One of the notes is collateralized by common stock owned by an Officer of the Company, the other notes are not collateralized. The note holders were granted stock warrants in the Company at prices ranging from $.50 to $2.25 per share. As of December 31, 2000 the Company was in default on five of the notes with face value amounts of $380,000 and principal owed of approximately $355,000.
Holders of notes totaling approximately $610,000 have agreed to participate in a private placement of the Company's debt. Accordingly, the notes representing that indebtedness will be converted into one- year 12% convertible notes. The notes are convertible into common stock of the Company at a rate of $0.50 per share.
OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
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 December 31, 2000 approximately $400,000 of the Convertible Notes had been converted into 320,000 shares of common stock of the Company.
The Company currently leases office space requiring minimum annual base rental payments for the fiscal periods shown as follows:
2001 $123,114
2002 103,576
2003 0
2004 0
2005 0
--------
Total $226,690
========
|
In addition, to annual base rental payments, the company must pay an annual escalation for operating expenses as determined in the lease.
On or about September 6, 2000, the Company's wholly owned subsidiary, OmniTrial B.V. ("OmniTrial") submitted a petition for bankruptcy protection from the bankruptcy court of the Netherlands. The court appointed a liquidating trustee and the case is still pending. The Company is claiming that certain assets of OmniTrial have been paid for by the Company and therefore should not be part of the liquidating assets of OmniTrial. The bankruptcy trustee has rejected that claim and has told the Company that the assets as part of the OmniTrial bankruptcy estate would be sold to diminish any deficiency of the estate. The Company would like to resolve its disputes with the trustee, but if unable to do so, intends to contest the outstanding matters in the bankruptcy court of the Netherlands.
On January 26, 2001, a former employee of the Company, Eugene A. Gordon filed a lawsuit in the Circuit Court of the 11th Judicial Circuit in and for Dade County, Florida alleging breach of his employment contract with the Company. The plaintiff alleges the Company owes him more than $100,000 for back payment of salary per the terms of his employment contract. The Company disputes Mr. Gordon's allegations and is vigorously defending this lawsuit.
On February 2, 2001, an advertising firm, Wray Ward Laseter filed a lawsuit in the Superior Court of North Carolina. The plaintiff alleges claims totaling approximately $84,160 against the Company for fees associated with advertising, marketing and public relations services provided between March and September 2000. The Company intends to vigorously defend this lawsuit.
On February 16, 2001, a staffing agency, Temp Art, Inc. filed a lawsuit in the County Court in and for Miami-Dade County, Florida. The plaintiff alleges the Company breached its contract and owes approximately $13,126 for back payment of services rendered plus interest and costs. The Company disputes Temp Art's allegations and is vigorously defending this lawsuit.
OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
In December 2000, the Company received a demand letter from a former employee for fees owed relating to an advisers agreement between him and the Company. The demand letter sought $37,500 in the form of past due fees. The former employee later increased his demand to $50,000. After its initial settlement offer was rejected, the Company advised the former employee that it intended to vigorously defend itself against any claims and assert its own claims against him. The Company disputes his allegations and intends to vigorously defend itself should a lawsuit be filed.
The Company was owed $0 and $3,406 at December 30, 2000 and December 31, 1999, respectively, from a shareholder. The interest rate was 6% annually.
On July 18, 2000 the Company borrowed $50,000 from Guus van Kesteren a Director of the Company. The promissory note carries an interest rate of 12% per annum and has a maturity date of September 30, 2000. In addition, the Company granted Mr. van Kesteren an option to purchase 20,000 shares of the Company's common stock at a price of $2.25. The promissory note is currently in default and continues to accrue interest at the rate of 12% per annum.
On December 22, 2000 the Company borrowed $60,000 from Guus van Kesteren a Director of the Company. The promissory note carries an interest rate of 5% per annum and has a maturity date of January 1, 2001. At the Company's request Mr. van Kesteren elected to convert the promissory note as part of a private placement of debt of the Company. The private placement debt will accrue interest at 12% per annum and is convertible into common stock of the Company at a rate of $0.50 per share on January 31, 2002.
On November 22, 2000 the Company borrowed $150,000 from Profrigo, N.V. The promissory note carries an interest rate of 18% per annum and has a maturity date of January 15, 2001. In addition, the Company granted Profrigo an option to purchase 150,000 shares of the Company's common stock at a price of $0.75. The promissory note is currently in default and continues to accrue interest at the rate of 18% per annum.
On October 26, 2000 the Company borrowed $250,000 from Profrigo N.V. a shareholder of the Company. The promissory note carries an interest rate of 5% per annum and has a maturity date of January 1, 2001. At the Company's request Profrigo elected to convert the promissory note as part of a private placement of debt of the Company. The private placement debt will accrue interest at 12% per annum and is convertible into common stock of the Company at a rate of $0.50 per share on January 31, 2002.
On December 22, 2000 the Company borrowed $50,000 from Profrigo N.V. a shareholder of the Company. The promissory note carries an interest rate of 5% per annum and has a maturity date of January 1, 2001. At the Company's request Profrigo elected to convert the promissory note as part of a private placement of debt of the Company. The private placement debt will accrue interest at 12% per annum and is convertible into common stock of the Company at a rate of $0.50 per share on January 31, 2002.
On August 17, 2000 the Company borrowed $100,000 from Noesis N.V. a shareholder of the Company. The promissory note carries an interest rate of 8% per annum and has a maturity date of January 1, 2001. At the Company's request Noesis elected to convert the promissory note as part of a private placement of debt of the Company. The private placement debt will accrue interest at 12% per annum and is convertible into common stock of the Company at a rate of $0.50 per share on January 31, 2002.
OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
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.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", ("SFAS No. 123") requires that stock awards granted subsequent to January 1, 1995, be recognized as compensation expense based on their fair value at the date of grant. Alternatively, a company may use Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", ("APB 25") and disclose pro forma income amounts which would have resulted from recognizing such awards at their fair value. The Company has selected to account for stock-based compensation expense under SFAS No. 123.
In 1998 the Company's Board of Directors approved the OmniComm Systems 1998 Stock Option Plan. (the "1998 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. Pursuant to the 1998 Plan the Company may grant options to purchase up to 3,000,000 shares of the Company's common stock. The term of each option may not exceed ten years from the date of grant, and options vest in accordance with a vesting schedule established by the plan administrator.
The Company's share option activity and related information is summarized below:
Year ended December 31,
--------------------------------------------------------------------------------------------------------------
1999 2000
--------------------------------------------------------------------------------------------------------------
Weighted Weighted
--------------------------------------------------------------------------------------------------------------
Average Average
--------------------------------------------------------------------------------------------------------------
Exercise Exercise
--------------------------------------------------------------------------------------------------------------
Options Price Options Price
--------------------------------------------------------------------------------------------------------------
Outstanding at beginning of period 50,000 $ 1.00 3,502,916 $1.00
--------------------------------------------------------------------------------------------------------------
Granted 3,512,916 $ 0.99 1,851,994 $3.46
--------------------------------------------------------------------------------------------------------------
Exercised -0- $ 0.00 1,045,894 $0.30
--------------------------------------------------------------------------------------------------------------
Cancelled 60,000 $ 0.60 1,053,010 $1.97
--------- ------ --------- -----
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Outstanding at end of period 3,502,916 $ 1.00 3,316,006 $2.28
========= ====== ========= =====
--------------------------------------------------------------------------------------------------------------
Exercisable at end of period 1,248,953 $ 0.40 1,512,848 $2.19
========= ====== ========= =====
--------------------------------------------------------------------------------------------------------------
|
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.
OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
During 2000 the Company issued an aggregate of 187,330 shares of common stock to employees and advisors with a fair market value as measured on the date of grant of $324,482 for services rendered under employment and consulting agreement. In addition, the Company issued 126,781 shares of preferred stock with a fair market value as measured on the date of grant of $190,172 to a financial advisor in accordance with a consulting agreement.
OmniTrial B.V., a wholly owned subsidiary of the Company, was incorporated on October 15, 1999, in The Netherlands. On August 28, 2000, the Board of Directors of the Company voted to authorize David Ginsberg, D.O., it's President and Chief Executive Officer, to vote on any resolution pertaining to OmniTrial, including approval of a bankruptcy filing. On August 30, 2000, the Board of Directors of OmniTrial issued a written consent to apply for bankruptcy, which was instituted in The Netherlands on or about September 6, 2000. A liquidating trustee was appointed and the case is still pending as of this date.
The Company requested that the bankruptcy trustee return to the Company several computer servers, which the Company claimed it owned separately from OmniTrial. The bankruptcy trustee refused to return the servers and alleged that the Company caused the bankruptcy due to its mismanagement of OmniTrial. The Company is currently attempting to negotiate a settlement with the trustee. If the Company is unable to settle the matter with the trustee, it intends to contest the outstanding matters in the bankruptcy court in The Netherlands.
Income taxes are accrued at statutory US and state income tax rates.
Income tax expense is as follows:
12/31/00 12/31/99
======== ========
Current tax expense (benefit):
Income tax at statutory rates $ -0- $ -0-
Deferred tax expense (benefit):
Amortization of goodwill and covenant (70,640) (105,243)
Operating loss carryforward (2,212,340) (864,806)
---------- ---------
(2,282,980) (970,049)
Valuation allowance 2,282,980 970,049
---------- --------
Total tax expense (benefit) $ -0- $ -0-
========== ========
|
The tax effects of significant temporary differences, which comprise the deferred tax assets are as follows:
12/31/00 12/31/99
======== ========
Deferred tax assets:
Amortization of intangibles $ 224,302 $ 153,662
Operating loss carryforwards 3,136,089 923,749
Gross deferred tax assets 3,360,391 1,077,411
Valuation allowance (3,360,391) (1,077,411)
----------- -----------
Net deferred tax asset $ -0- $ -0-
=========== ===========
|
The Company has net operating loss carryforwards (NOL) for income tax purposes of approximately $8,322,000. 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 Education Navigator in 1998. 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 the substantial losses incurred in 2000.
OmniComm Systems, Inc. Financial Statements for the Period Ended June 30, 2001
OMNICOMM SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 2001 December 31,
------------- ----------
(unaudited) 2000
--------- ----
ASSETS
CURRENT ASSETS
Cash $ 7,898 $ 90,958
Accounts receivable 28,251 9,927
Prepaid expenses 2,458 -0-
---------- ----------
Total current assets 38,607 100,885
PROPERTY AND EQUIPMENT, Net 438,296 486,481
OTHER ASSETS
Intangible assets, net 82,968 53,071
Goodwill, net -0- 79,277
Other assets 100,160 25,160
---------- ----------
TOTAL ASSETS $ 660,031 $ 744,874
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $1,304,601 $1,079,506
Notes payable - current 446,500 612,500
Notes payable related parties - current 380,000 660,000
Deferred revenue 30,474 26,861
---------- ----------
Total current liabilities 2,161,575 2,378,867
CONVERTIBLE DEBT 1,980,000 462,500
---------- ----------
TOTAL LIABILITIES 4,141,575 2,841,367
---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
5% Series A convertible preferred stock, 5,000,000 shares 3,812,179 3,857,179
authorized, 4,215,224 and 4,260,224 issued and outstanding,
respectively, at par
Common stock - 20,000,000 shares authorized, 8,510,079 and 8,510 7,975
7,974,578 issued, respectively, at $.001 par value
Additional paid in capital 3,645,562 3,261,100
Less cost of treasury stock: Common - 620,951 and 620,951 (293,912) (293,912)
shares, respectively
Retained deficit (10,652,743) (8,927,695)
Subscriptions receivable (1,140) (1,140)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (3,481,544) (2,096,493)
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 660,031 $ 744,874
========== ==========
|
See accompanying summary of accounting policies and notes to financial statements.
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the Period January 1, 2000 to June 30, 2001
(unaudited)
5% Series A Convert. Total
Common Stock Additional Preferred Stock Retained Shareholders'
Number of $.001 Paid in Number Earnings Subscription Treasury Equity
Shares Value Capital Of Shares $ No Par (Deficit) Receivable Stock (Deficit)
------ ----- ------- --------- -------- --------- ---------- ----- ---------
Balance at
January 1, 2000 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 on subscription
receivable 850,000 850,000
Acquisition
of WebIPA, Inc. 1,200,000 1,200 3,833 5,033
Common stock reacquired
in the acquisition of
WebIPA (600,000) (600) (600)
Issuance of
preferred stock 146,000 146,000 146,000
Issuance costs on
preferred stock (206,750) (206,750)
|
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
For the Period January 1, 2000 to June 30, 2001
(unaudited)
Common Stock Additional Preferred Stock Retained Shareholders'
Number of $.001 Paid In Number of Earnings Subscription Treasury Equity
---------
Shares Value Capital Shares $ No Par (Deficit) Receivable Stock (Deficit)
------ ----- ------- ------ -------- --------- ---------- ----- --------
Conversion of conv.
notes payable, net of
issuance costs of
$33,287 320,000 320 366,393 366,713
Exercise of stock
options 20,000 20 15,980 16,000
Exercise of stock
warrants 481,834 482 963,186 963,668
Exercise of stock
warrants 187,954 188 (188) -0-
Conversion of
preferred stock to
common stock 66,667 67 99,933 (100,000) (100,000) -0-
Conversion of notes
payable to common 91,608 92 206,026 206,118
stock
Issuance of common
stock for services 70,990 71 188,784 188,855
Issuance of common
stock, net of
issuance costs of
$66,833 668,334 668 600,833 601,501
|
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the Period January 1, 2000 to June 30, 2000
(unaudited)
Common Stock Additional Preferred Stock Retained Total
Number of $.001 Paid In Number of Earnings Subscription Treasury Shareholders'
---------
Shares Value Capital Shares $ No Par (Deficit) Receivable Stock (Deficit)
------ ----- ------- ------ -------- --------- ---------- ----- ---------
Issuance of preferred
stock for services 126,781 190,172 190,172
Conversion of notes
payable into
preferred stock 66,667 100,000 100,000
Conversion of
preferred stock to
common stock 96,724 97 144,989 (96,724) (145,086) -0-
Issuance of common
stock for services 76,340 76 45,552 45,628
Net (loss) for the
year ended December
31, 2000 (6,275,051) (6,275,051)
---------- ----------
Balances at December
31, 2000 7,353,627 $7,975 $3,261,100 4,260,224 3,857,179 (8,927,695) (1,140) (293,912) (2,096,493)
Issuance of common
stock 90,000 90 74,910 75,000
Conversion of
preferred stock to
common stock 30,000 30 44,970 (45,000) (45,000) -0-
|
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
For the Period January 1, 2000 to June 30, 2001
(unaudited)
5% Series A Total
Common Stock Additional Preferred Stock Retained Shareholders
Number of $.001 Paid in Number Earnings Subscription Treasury Equity
Shares Value Capital Of Shares $ No Par (Deficit) Receivable Stock (Deficit)
Conversion of
convertible Notes
payable to common
stock, net of
issuance costs
of $2,890 30,000 30 34,580 34,610
Exercise of stock
options 20,000 20 15,980 16,000
Stock issued in lieu
of pay and in
satisfaction of
trade payables 126,338 126 97,732 97,858
Conversion of notes
payable to common
stock 226,038 226 112,103 112,329
Issuance of common
stock 13,125 13 4,187 4,200
Net loss for the
six months ended
June 30, 2001 (1,725,048) (1,725,048)
------------ -----------
Balances at June
30, 2001 7,889,128 $8,510 $3,645,562 4,215,224 $3,812,179 $(10,652,743) $(1,140) $(293,912) $(3,481,544)
========= ====== ========== ========= ========== ============ ======= ========= ===========
|
See accompanying summary of accounting policies and notes to financial statements
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the six months ended For the three months ended
June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----
Revenues $ 57,179 $ 40,760 $ 16,084 $ 15,782
Cost of sales 38,198 46,524 21,713 11,404
----------- ----------- ---------- -----------
Gross margin(loss) 18,981 (5,764) (5,629) 4,378
Other expenses
Salaries, benefits and related taxes 993,116 1,511,329 431,264 938,396
Rent 77,986 162,408 36,610 101,476
Consulting - medical advisory -0- 89,000 -0- 47,000
Consulting - marketing sales -0- 77,033 -0- 29,033
Consulting - product development -0- 36,420 -0- 7,985
Legal and professional fees 100,917 405,978 58,419 206,731
Travel 42,210 310,443 (980) 140,724
Telephone and internet 57,256 141,347 22,817 77,313
Selling, general and administrative 51,874 407,521 25,967 192,325
Interest expense, net 135,678 41,979 79,176 24,956
Depreciation and amortization 182,933 194,470 95,605 101,854
----------- ----------- ---------- -----------
Total other expenses 1,641,970 3,377,928 748,878 1,867,793
----------- ----------- ---------- -----------
(Loss) before taxes and (1,622,989) (3,383,692) (754,507) (1,863,415)
preferred dividends
Income tax expense (benefit) -0- -0- -0- -0-
Preferred stock dividends (102,059) (101,569) (51,200) (52,155)
----------- ----------- ---------- -----------
Net (loss) $(1,725,048) $(3,485,261) $ (805,707) $(1,915,530)
=========== =========== ========== ===========
Net (loss) per share $ (0.22) $ (0.70) $ (0.10) $ (0.35)
=========== =========== ========= ==========
Weighted average number of
shares outstanding
7,739,214 5,000,089 7,883,732 5,549,470
============ =========== ========== ===========
|
The accompanying notes are an integral part of these financial statements.
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the six months ended
June 30,
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(1,725,048) $(3,485,261)
Adjustment to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 182,933 194,470
Common stock issued for services 97,858 90,000
Change in assets and liabilities:
Accounts receivable (18,324) (27,301)
Inventory -0- 5,120
Prepaid expenses (2,458) (22,260)
Other assets -0- (13,892)
Intangible assets (66,750) -0-
Accounts payable and accrued expenses 237,524 1,118,544
Sales tax payable -0- (1,487)
Deferred revenue 3,613 -0-
----------- -----------
Net cash provided by (used in) operating activities (1,290,652) (2,142,067)
CASH FLOWS FROM INVESTING ACTIVITIES
Equity investment in EMN -0- (335,000)
Purchase of WebIPA -0- 5,033
Purchase of property and equipment (21,508) (272,900)
----------- -----------
Net cash provided by (used in) operating activities (21,508) (602,867)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from convertible notes 794,900 -0-
Payments on notes payable (16,000) -0-
Proceeds from notes payable 430,000 530,000
Proceeds from stock warrant exercise -0- 492,000
Issuance of 5% Series A convertible preferred stock, net of issuance costs -0- 789,250
Issuance of common stock 4,200 284
Proceeds from stock option exercise 16,000 20,739
----------- -----------
Net cash provided by (used in) financing activities 1,229,100 1,832,273
----------- -----------
Net increase (decrease) in cash and cash equivalents (83,060) (912,661)
Cash and cash equivalents at beginning of period 90,958 1,127,263
----------- -----------
Cash and cash equivalents at end of period $ 7,898 $ 214,602
=========== ===========
|
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Continued)
For the six month ended
June 30,
2001 2000
---- ----
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Income tax paid $ -0- $ -0-
======= =======
Interest paid $23,657 $44,728
======= =======
|
Non-Cash Investing and Financing Transactions; Acquisition of all of the outstanding common stock of WebIPA, Inc. during the quarter ended June 31, 2000.
Assets acquired, fair value $ 5,033
Cash acquired 5,033
--------
Net cash paid for acquisition $ -0-
========
|
During the year ended December 31, 2000, $400,000 of convertible notes payable were converted into 320,000 shares of common stock.
During the year ended December 31, 2000, 1,018,604 incentive stock options were exercised 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.
During the year ended December 31, 2000, a promissory note with a face value of $100,000 was converted into 66,667 shares of the Company's preferred stock at a rate of $1.50 per share.
During the year ended December 31, 2000, promissory notes totaling $206,118 of principal and interest were converted into 91,608 shares of the Company's preferred stock at a rate of $2.25 per share.
During the year ended December 31, 2000, $245,086 of the Company's convertible Series A Preferred Stock totaling 196,724 preferred shares were converted into 163,391 shares of common stock.
During the period ended June 30, 2001, the Company issued 90,000 shares as collateral for a bridge loan with a principal amount due of $75,000.
During the period ended June 30, 2001, $37,500 of convertible notes payable were converted into 30,000 shares of common stock, net of issuance costs of $2,890.
During the period ended June 30, 2001, a promissory note with a face value of $100,000 with $12,329 in accrued interest was converted into 226,003 shares of the Company's common stock.
During the period ended June 30, 2001, $45,000 of the Company's convertible Series A Preferred Stock totaling 45,000 preferred shares were converted into 30,000 shares of common stock.
During the period ended June 30, 2001, $760,000 in notes payables were converted into 12% convertible notes of the Company.
See accompanying summary of accounting policies and notes to financial statements
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
June 30, 2001
(unaudited)
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(R).
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.
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 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.
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 7,739,214 and 5,000,089 for the six months ended June 30, 2001 and 2000; and 7,883,732 and 5,549,470 for the three months ended June 30, 2001 and 2000 respectively. There were no differences between basic and diluted earnings per share. Options to purchase 2,750,039 shares of common stock at prices ranging from $.25 to $5.50 per share were outstanding at June 30, 2001, but they 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.
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
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIOM FINANCIAL STATEMENTS
June 30, 2001
(unaudited)
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 costs are expensed as incurred. Advertising costs were $1,600 and $113,049 for the periods ended June 30, 2001 and 2000 respectively.
Certain items from prior periods within the financial statements have been reclassified to conform to current period classifications.
Included in Intangible Assets are the following assets:
June 30, 2001
Accumulated
Cost Amortization
---- ------------
Covenant not to compete $120,000 $120,000
Software development costs 87,500 87,500
Organization costs 539 539
Debt acquisition costs 150,198 67,230
-------- --------
$358,237 $275,269
======== ========
December 31, 2000
Accumulated
Cost Amortization
---- ------------
Covenant not to compete $120,000 $120,000
Software development costs 87,500 72,917
Organization costs 539 539
Debt acquisition costs 86,338 47,850
-------- --------
$294,377 $241,306
======== ========
|
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 $14,583 for software development costs for the period ended June 30, 2001.
During the first six months of 2001, the Company issued Convertible Notes totaling $1,555,000. The fees of $66,750 associated with these notes will be amortized ratably over the term of the notes, which is through January 31, 2002. Amortization expense of debt acquisition costs totaled $19,380 for the period ended June 30, 2001, and approximately $2,890 of the debt acquisition costs were reclassified as stock issuance costs in connection with the conversion of $37,500 (original cost) worth of the convertible notes into common stock of the Company during the period ended June 30, 2001.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
June 30, 2001
(unaudited)
Included in Goodwill, as a result of the EdNav acquisition at June 30, 2001 and December 31, 2000 is the cost of $475,665 and accumulated amortization of $475,665 and $396,388 respectively. The goodwill is being amortized ratably over a period of three years. Goodwill amortization totaled $79,277 for the period ended June 30, 2001.
Property and equipment consists of the following:
June 30, 2001 December 31, 2000
Accumulated Accumulated
Cost Depreciation Cost Depreciation
---- ------------ ----- ------------
Computer and $391,477 $127,719 $387,862 $ 88,812
office equipment
Leasehold 2,549 440 1,699 201
improvements
Computer software 229,453 86,378 212,412 60,067
Office furniture 42,350 12,996 42,350 8,762
-------- -------- -------- --------
$665,829 $227,533 $644,323 $157,842
======== ======== ======== ========
|
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 periods ended June 30, 2001 and 2000 was $69,693 and $58,557 respectively.
Deferred revenue represents cash advances received in excess of revenue earned on on-going contracts. Payment terms vary with each contract but may include an initial payment at the time the contract is executed, with future payments dependent upon the completion of certain contract phases or targeted milestones. In the event of contract cancellation, the Company is entitled to payment for all work performed through the point of cancellation. The Company had $30,474 in deferred revenue relating to one contract for services to be performed over the next three months.
The Company recognizes sales, for both financial statement and tax purposes, when its products are shipped and when services are provided. The Company had $30,474 in deferred revenue relating to one contract for services to be rendered over the next three months.
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.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATMENETS
June 30, 2001
(unaudited)
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.
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.
Basic earnings per shares ("EPS") is computed by dividing income available to common shareholders (which for the Company equals its net loss) by the weighted average number of common shares outstanding, and dilutive EPS adds the dilutive effect of stock options and other common stock equivalents. Antidilutive shares aggregating 3,784,000 have been omitted from the calculation of dilutive EPS for the period ended June 30, 2001. A reconciliation between numerators and denominators of the basic and dilutive earnings per shares is as follows:
Period Ended June 30, 2001 Period Ended June 30, 2000
-------------------------- --------------------------
Net Income Shares Per- Net Income Shares Per-
(Loss) Share (Loss) Share
Numerator Denominator Amount Numerator Denominator Amount
-------- ---------- ------ --------- ----------- ------
Basic EPS $(1,726,048) 7,739,214 $(0.22) $(3,485,261) 5,000,089 $(0.70)
Effect of Dilutive
Securities
None. -0- -0- -0- -0- -0- -0-
----------- --------- ------ ----------- ---------- ------
Diluted EPS $(1,726,048) 7,739,214 $(0.22) $(3,485,261) 5,000,089 $(0.70)
=========== ========= ====== =========== ========= ======
|
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), which is effective for all fiscal quarter of all fiscals years beginning after June 15, 2000, as amended by SFAS No. 137. In June 2000, SFAS No. 138 was issued which amended certain provisions of SFAS No. 133. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments imbedded in other contracts, and for hedging activities. In accordance with SFAS No. 133, an entity is required to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires that a company
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
June 30, 2001
(unaudited)
formally document, designate and assess the effectiveness of transactions that receive hedge accounting.
The Company has not yet completed its evaluation of the impact of SFAS No. 133 on its consolidated financial statements. However, the Company does not believe that the implementation of SFAS No. 133 will have a significant effect on its results of operations.
FASB Interpretation No. 44 "Accounting for Certain Transactions Involving Stock Compensation" ("FIN No. 44"), provides guidance for applying APB Opinion No. 25, "Accounting for Stock Issued to Employees". With certain exceptions, FIN No. 44 applies prospectively to new awards, exchanges of awards in a business combination, modifications to outstanding awards and changes in grantee status on or after July 1, 2000. The Company does not believe that the implementation of FIN No. 44 will have a significant effect on its results of operations.
In December 1999, The SEC issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB No. 101"), which summarizes certain of the SEC staff's views in applying generally accounted principles to revenue recognition in financial statements. The Company will be required to adopt SAB No. 101 during fiscal year 2001. The Company has reviewed SAB No. 101 and expects the pronouncement to have an effect on its method of recognizing revenues. The Company's typical engagement will last from 4 months to several years, and the revenue generated from those engagements will be ratably recognized over the life of the engagement.
The Company incurred substantial losses in 1999, 2000 and during the first six months of fiscal 2001. 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 period ending June 30, 2001, 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, 2001. However, any projections of future cash needs and cash flows are subject to substantial uncertainty. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all.
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
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
June 30, 2001
(unaudited)
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.
The Company accounted for its acquisition of WebIPA under the purchase method of accounting. At the time of the transaction WebIPA was a development stage company with approximately $5,033 in assets and no recorded liabilities.
European Medical Network (EMN) Investment, at cost
On June 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. 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. The Company accounts for its investment in EMN under the cost method of accounting. The Company has established a valuation allowance of $335,000 against its investment in EMN to reflect the uncertainty of the fair market value of the investment as of June 30, 2001 and December 31, 2000.
As of June 30, 2001, the Company owed $141,500 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 2001 is $157,500. At June 30, 2001 the Company was in default under the terms of the promissory notes governing the debt.
At June 30, 2001 the Company owed $685,000 under short-term notes payable. The notes bear interest at rates ranging from 9.5% to 18%. The average term of the promissory notes is 201 days. One of the notes is collateralized by common stock, the other notes are not collateralized. The note holders were granted stock warrants in the Company at prices ranging from $.50 to $2.25 per share. As of June 30, 2001 the Company was in default on three of the notes with principal owed of approximately $255,000.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
June 30, 2001
(unaudited)
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 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, 2001 approximately $437,500 of the Convertible Notes had been converted into 350,000 shares of common stock of the Company.
During the first half of 2001, the Company issued Convertible Notes Payable in the amount of $1,555,000 pursuant to a Confidential Private Placement Memorandum. There were costs of $66,750 associated with this offering. The net proceeds to the Company were $1,488,250, with the costs of $66,750 accrued at June 30, 2001. The notes bear interest at twelve percent annually, payable at maturity. The notes are convertible after maturity, which is January 31, 2002, into shares of common stock of the Company at $0.50 per share, including registration rights.
The Company currently leases office space requiring minimum annual base rental payments for the fiscal periods shown as follows:
2001 $ 54,418
2002 116,125
2003 0
2004 0
2005 0
--------
Total $170,543
========
|
In addition, to annual base rental payments, the company must pay an annual escalation for operating expenses as determined in the lease.
On or about September 6, 2000, the Company's wholly owned subsidiary, OmniTrial B.V. ("OmniTrial") submitted a petition for bankruptcy protection from the bankruptcy court of the Netherlands. The court appointed a liquidating trustee and the case is still pending. The Company claimed that certain assets of OmniTrial were paid for by the Company and therefore should not be part of the liquidating assets of OmniTrial. The bankruptcy trustee rejected that claim and told the Company that as part of the OmniTrial bankruptcy estate the assets would be sold to diminish any deficiency of the estate. On July 5, 2001 the Company signed a settlement agreement providing for the return of the assets to the Company in exchange for the payment of $10,000.
On January 26, 2001, a former employee of the Company, Eugene A. Gordon filed a lawsuit in the Circuit Court of the 11th Judicial Circuit in and for Dade County, Florida alleging breach of his employment contract with the Company. The plaintiff alleges the Company owes him more than $100,000 for back payment of salary per the terms of his employment contract. The Company disputes Mr. Gordon's allegations and is vigorously defending this lawsuit.
On February 2, 2001, an advertising firm, Wray Ward Laseter filed a lawsuit in the Superior Court of North Carolina against the Company. The plaintiff alleges claims totaling approximately $84,160 against the Company for fees associated with advertising, marketing and public relations services provided between June
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
June 30, 2001
(unaudited)
and September 2000. On or about April 27, 2001, the Company and Wray Ward Laseter entered into a settlement agreement which provides that the plaintiff dismiss the lawsuit with prejudice and release its claims against the Company in return for a series of payments totaling $66,000. To date the Company has made two payments totaling $25,200 under the settlement agreement.
On February 16, 2001, a staffing agency, Temp Art, Inc. filed a lawsuit in the County Court in and for Miami-Dade County, Florida. The plaintiff alleges the Company breached its contract and owes approximately $13,126 for back payment of services rendered plus interest and costs. The Company disputes Temp Art's allegations and is vigorously defending this lawsuit.
In December 2000, the Company received a demand letter from a former employee for fees owed relating to an advisers agreement between him and the Company. The demand letter sought $37,500 in the form of past due fees. The former employee later increased his demand to $50,000. After its initial settlement offer was rejected, the Company advised the former employee that it intended to vigorously defend itself against any claims and assert its own claims against him. The Company disputes his allegations and intends to vigorously defend itself should a lawsuit be filed.
On July 18, 2000 the Company borrowed $50,000 from Guus van Kesteren a Director of the Company. The promissory note carried an interest rate of 12% per annum and had a maturity date of September 30, 2000. In addition, the Company granted Mr. van Kesteren an option to purchase 20,000 shares of the Company's common stock at a price of $2.25. At the Company's request Mr. van Kesteren elected to convert the promissory note as part of a private placement of debt of the Company. The private placement debt will accrue interest at 12% per annum and is convertible into common stock of the Company at a rate of $0.50 per share on January 31, 2002.
On August 17, 2000 the Company borrowed $100,000 from Noesis N.V. a shareholder of the Company. The promissory note carried an interest rate of 8% per annum and had a maturity date of January 1, 2001. At the Company's request Noesis elected to convert the promissory note as part of a private placement of debt of the Company. The private placement debt will accrue interest at 12% per annum and is convertible into common stock of the Company at a rate of $0.50 per share on January 31, 2002.
On October 26, 2000 the Company borrowed $250,000 from Profrigo N.V. a shareholder of the Company. The promissory note carried an interest rate of 5% per annum and had a maturity date of January 1, 2001. At the Company's request Profrigo elected to convert the promissory note as part of a private placement of debt of the Company. The private placement debt will accrue interest at 12% per annum and is convertible into common stock of the Company at a rate of $0.50 per share on January 31, 2002.
On November 22, 2000 the Company borrowed $150,000 from Profrigo, N.V, a shareholder of the Company. The promissory note carries an interest rate of 18% per annum and has a maturity date of January 15, 2001. In addition, the Company granted Profrigo an option to purchase 150,000 shares of the Company's common stock at a price of $0.75. The promissory note is currently in default and continues to accrue interest at the rate of 18% per annum.
On December 22, 2000 the Company borrowed $60,000 from Guus van Kesteren a Director of the Company. The promissory note carried an interest rate of 5% per annum and had a maturity date of January 1, 2001. At the Company's request Mr. van Kesteren elected to convert the promissory note as part of a private placement of debt of the Company. The private placement debt will accrue interest at 12% per annum and is convertible into common stock of the Company at a rate of $0.50 per share on January 31, 2002.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
June 30, 2001
(unaudited)
On December 22, 2000 the Company borrowed $50,000 from Profrigo N.V. a shareholder of the Company. The promissory note carried an interest rate of 5% per annum and had a maturity date of January 1, 2001. At the Company's request Profrigo elected to convert the promissory note as part of a private placement of debt of the Company. The private placement debt will accrue interest at 12% per annum and is convertible into common stock of the Company at a rate of $0.50 per share on January 31, 2002.
On February 20, 2001 the Company borrowed $60,000 from Guus van Kesteren a Director of the Company. The promissory note carries an interest rate of 12% per annum and has a maturity date of August 20, 2001. In addition, the Company granted Mr. van Kesteren an option to purchase 20,000 shares of the Company's common stock at a price of $0.30.
On March 19, 2001 the Company borrowed $100,000 from Profrigo N.V a shareholder of the Company. The promissory note carries an interest rate of 12% per annum and has a maturity date of September 19, 2001.
On April 24, 2001 the Company borrowed $20,000 from Guus van Kesteren a Director of the Company. The promissory note carries an interest rate of 12% per annum and has a maturity date of August 26, 2001. In addition, the Company granted Mr. van Kesteren an option to purchase 6,700 shares of the Company's common stock at a price of $0.30.
On June 22, 2001 the Company borrowed $25,000 from Guus van Kesteren a Director of the Company. The promissory note carries an interest rate of 12% per annum and has a maturity date of December 22, 2001. The note is convertible into common stock prior to maturity solely at the noteholders option at a price equivalent to that offered in any financing closed by the Company exceeding $1,000,000 prior to the notes maturity.
On June 22, 2001 the Company borrowed $25,000 from Cornelis Wit a Director of the Company. The promissory note carries an interest rate of 12% per annum and has a maturity date of December 22, 2001. The note is convertible into common stock prior to maturity solely at the noteholders option at a price equivalent to that offered in any financing closed by the Company exceeding $1,000,000 prior to the notes maturity.
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 Nos. 106 or 112.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", ("SFAS No. 123") requires that stock awards granted subsequent to January 1, 1995, be recognized as compensation expense based on their fair value at the date of grant. Alternatively, a company may use Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", ("APB 25") and disclose pro forma income amounts which would have resulted from recognizing such awards at their fair value. The Company has selected to account for stock-based compensation expense under APB 25.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
June 30, 2001
(unaudited)
In 1998 the Company's Board of Directors approved the OmniComm Systems 1998 Stock Option Plan. (the "1998 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. Pursuant to the 1998 Plan the Company may grant options to purchase up to 3,000,000 shares of the Company's common stock. The term of each option may not exceed ten years from the date of grant, and options vest in accordance with a vesting schedule established by the plan administrator.
The Company's share option activity and related information is summarized below:
Period ended June 30,
June 30, 2001 December 31, 2000
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
Outstanding at beginning of period 3,316,006 $ 2.28 3,562,916 $ 1.00
Granted 595,000 $ 0.64 1,851,994 $ 3.46
Exercised 20,000 $ 0.80 1,045,894 $ 0.30
Cancelled 1,140,467 $ 2.00 1,053,010 $ 1.97
---------- ---------- ---------- ----------
Outstanding at end of period 2,750,539 $ 1.79 3,316,006 $ 2.28
========== ========== ========== ==========
Exercisable at end of period 1,556,000 $ 1.79 1,512,848 $ 2.19
========== ========== ========== ==========
|
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.
During 2000 the Company issued an aggregate of 187,330 shares of common stock to employees and advisors with a fair market value as measured on the date of issuance of $324,482 for services rendered under employment and consulting agreement. In addition, the Company issued 126,781 shares of preferred stock with a fair market value as measured on the date of grant of $190,172 to a financial advisor in accordance with a consulting agreement.
During 2001 the Company issued an aggregate of 126,338 shares of common stock to employees and advisors with a fair market value as measured on the date of issuance of $97,732 for services rendered under employment and consulting agreement.
On or about September 6, 2000, the Company's wholly owned subsidiary, OmniTrial B.V. ("OmniTrial") submitted a petition for bankruptcy protection from the bankruptcy court of the Netherlands. The court appointed a liquidating trustee and the case is still pending. The Company claimed that certain assets of OmniTrial were paid for by the Company and therefore should not be part of the liquidating assets of OmniTrial. The bankruptcy trustee rejected that claim and told the Company that as part of the OmniTrial bankruptcy estate the
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
June 30, 2001
(unaudited)
assets would be sold to diminish any deficiency of the estate. On July 5, 2001 the Company signed a settlement agreement providing for the return of the assets to the Company in exchange for the payment of $10,000.
Income taxes are accrued at statutory US and state income tax rates.
Income tax expense is as follows:
6/30/01 6/30/00
======= =======
Current tax expense (benefit):
Income tax at statutory rates $ -0- $ -0-
Deferred tax expense (benefit):
Amortization of goodwill (35,320) (48,306)
and covenant
Operating loss carryforward (575,411) (1,310,946)
--------- ------------
(610,731) (1,359,252)
Valuation allowance 610,731 1,359,252
--------- ------------
Total tax expense (benefit) $ -0- $ -0-
========= ============
The tax effects of significant temporary differences, which comprise
the deferred tax assets are as follows:
6/30/01 12/31/00
======= ========
Deferred tax assets:
Amortization of intangibles $ 259,622 $ 224,302
Operating loss carryforwards 3,711,500 3,136,089
----------- -----------
Gross deferred tax assets 3,971,122 3,360,391
Valuation allowance (3,971,122) (3,360,391)
----------- -----------
Net deferred tax asset $ -0- $ -0-
=========== ===========
|
The Company has net operating loss carryforwards (NOL) for income tax purposes of approximately $9,851,000. This loss is allowed to be offset against future income until the year 2021 when the NOL's will expire. Other timing differences relate to depreciation and amortization for the stock acquisition of Education Navigator in 1998. 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 the substantial losses incurred in 2000.
NOTE 14: INTERIM FINANCIAL REPORTING
The unaudited financial statements of the Company for the period from January 1, 2001 to June 30, 2001 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.