SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form SB-2
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. [_]
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X]
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 December 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)
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Common Stock
Par value
$.001 per share 22,058,334 $0.303 $6,689,500 $1,598.79
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SUBJECT TO COMPLETION
Prospectus Dated December 14, 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
22,058,334 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 could receive approximately $2,540,000 in proceeds from the sale of the Shares upon the conversion of certain securities described herein. The Shares covered hereby include (i) shares of Common Stock that are issuable upon conversion of previously-issued shares of the 8% Series B Convertible Preferred Stock (the "Series B Preferred"), (ii) shares of Common Stock that are issuable upon conversion of the 12% Convertible Notes (the "Convertible Notes"), (iii) shares of Common Stock issuable upon the exercise of warrants issued in connection with the Series B Preferred (the "Series B Warrants"), (iv) shares of Common Stock issuable upon the exercise of options and warrants to purchase Shares held by the Company's Placement Agent, (the "Unit Purchase Option"), (v) Shares of Common Stock sold in a private placement during 2000, (the "2000 Common Round") and (vi) Common Stock, held by certain Selling Security Holders (the "Series B Holders", "Convertible Note Holders", "Warrant Holders", "2000 Common Round Holders", and "Unit Purchase Options 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 B Holders, Convertible Note Holders and Unit Purchase Option Holders, and the exercise of all the warrants by the Warrant Holders and registration of all the common stock held by the 2000 Common Round Holders and assumes that a total of 22,058,334 Shares are issued pursuant thereto. See "Selling Security Holders," "Plan of Distribution" and "Description of Capital Stock." The Shares offered would hereby represent approximately 74% 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 December 14, 2001, the last reported sale price of the Common Stock on the OTC Bulletin Board was $0.30 per share. This Prospectus may be used by the Selling Security Holders or any broker-dealer who may participate in sales of the Common Stock covered hereby.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is December , 2001.
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 3
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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. is an eResearch Company that has developed an Internet- Based B2B (Business to Business) technology suite called TrialMaster(TM) for the clinical research industry. These Internet based applications integrate the critical elements required for the collection and management of regulated clinical trial data enhancing the timely and effective completion of clinical trials by pharmaceutical, medical device and biotechnology companies.
The clinical research industry currently represents a $54 billion a year marketplace that is undergoing dramatic growth. The eHealth commerce market is expected to grow to $1.3 trillion a year within three to five years. Within its market segment, OmniComm is poised to be a proven market leader.
It is axiomatic that the Internet has transformed the way in which business is conducted around the world. The clinical trials market is following suit and is expected to undergo significant change. The pharmaceutical, medical device and biotechnology sector of the healthcare market is aggressively searching for new business models since the historical procedures for bringing drugs and devices to market are outdated and collapsing under the weight of competitive pressures, increased government regulation, globalization, development and growth of the genomics industry and technological innovation.
The amount of time and money spent on clinical trial studies is staggering, with the current dynamics sorely in need of transformation:
. In July 1997, Pfizer submitted the first electronic application to the
Federal Drug Administration in the United States.
. It can cost as much as $800,000,000 to bring a potential "blockbuster"
drug to market, 40% of which is spent on the clinical trial process.
. Each day a blockbuster drug such as Lipitor is not "in the market," as
much as $13,000,000 is lost daily in revenues.
. The current paper system for clinical studies costs $15-20 per patient
per page, while the TrialMaster system can reduce costs to $2 per
patient per page.
. It can take 1 to 4 weeks to process the required paperwork for every
patient in a drug study, while TrialMaster reduces the data process
time to minutes since the processing is done in real-time.
. The current system costs $80 to $100 to process clinical data edit
queries, while TrialMaster dramatically reduces those costs to
pennies.
Sources: Tufts Center for the Study of Drug Development, CenterWatch, Pfizer Inc.
In view of the historically inefficient and labor intensive nature of the clinical trials field, the TrialMaster application is strategically poised to help transform the industry:
. Reduced time - 30% faster to completion of study with
TrialMaster
. Reduced costs - 80% less expensive to process information
65% less time spent in the data capture cycle
. Improved results - 80% improvement in data discrepancy
Source: F.A.C/Equities
The primary of objective of EDC services is to reduce inefficiencies in data capture and review. TrialMaster is designed to reduce those inefficiencies and hasten the development and approval of new drugs. It is estimated as quoted by Centerwatch that global pharmaceutical companies could capture $2 billion in annual savings through the implementation of electronic data capture and management technologies.
Efficient, secure, cost effective and FDA compliant, TrialMaster's Internet- based real time data collection, compilation and validation system significantly reduces costs, improves data quality and expedites results. The data integrity, system reliability, management control and auditable quality of TrialMaster provides a compelling competitive answer to any pharmaceutical, medical device or biotechnology company that wants to improve clinical trial efficiencies, speed results and ensure regulatory compliance.
The clinical trials marketplace represents a highly lucrative segment of the healthcare industry that is currently experiencing a dramatic upsurge in profile and activity. Industry and regulatory trends have led clinical trial sponsors to rapidly increase research and development for "blockbuster" drugs, new medical devices and improved gene manipulation technology. As a result, companies have been forced to conduct increasingly complex trials and develop multinational clinical trials capability. Moreover, time is critical in bringing drugs to market. TrialMaster allows the rapid and effective completion of a clinical study.
RISK FACTORS
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;
. 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.
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 or may be diminished. 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.
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 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.
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.
We had net loss of approximately $6,275,051 in fiscal 2000 and have incurred losses of $2,550,062 during fiscal 2001. 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 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.
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 Ft. Lauderdale, 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 10,160,000 shares of common stock, $.001 par value, at a price of $0.25 per share, is estimated to be approximately $2,540,000. Those proceeds would result from the exercise of the Warants and the Unit Purchase Option that was granted to the Company Placement Agent. There is no guarantee that any of the Warrants or the Unit Purchase Option will be exercised. The Registrant expects to use the maximum possible gross proceeds as shown below:
General working capital $2,524,000 99.38%
Legal and Accounting Fees $ 15,000 0.58%
Printing $ 1,000 0.04%
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Total $2,540,000 100.00%
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The foregoing represents the Company's estimate of the allocation of the proceeds of the Offering, based upon the current status of its operations and anticipated business plans. It is possible, however, that the application of funds may vary, depending on numerous factors including, but not limited to, changes in the economic climate or unanticipated complications, delay and expenses.
Although the Company plans to use the net proceeds as described immediately above, management has discretion regarding the actual application of the funds. The occurrence of certain unforeseen events or changed business conditions, however, could result in the application of the proceeds of the offering in a manner other than as described in this Prospectus.
Pending the use of proceeds as described above, or as otherwise determined by management, the net proceeds will be invested in government securities or investment-grade interest-bearing instruments, including money market funds.
ITEM NO. 5 DETERMINATION OF OFFERING PRICE
The Series B Preferred, Convertible Notes and Unit Purchase Options have conversion rates that are contractually specified in the instruments establishing the rights of the Series B Holders, Convertible Note Holders and Unit Purchase Option 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
Our net tangible book value at September 30, 2001 (the last balance sheet date presented in this prospectus), was approximately $(2,404,394), or $(0.29) per share. Pro forma net tangible book value per share is equal to our total tangible assets less our total liabilities, divided by the total number of shares of our common stock outstanding. After giving effect to the conversion of the Convertible Notes, the Series B Preferred Stock and the exercise of the Series B Warrants and the Unit Purchase Options at their contractually stated rates and after deducting estimated offering expenses payable by us, our as adjusted pro forma net tangible book value at September 30, 2001 would have been approximately $117,007, or $0.004 per share.
As of the date of this Prospectus none of the Selling Security Holders would be diluted by virtue of this offering. The shares offered in this Prospectus are offered only for resale.
The foregoing discussion and tables assume no exercise of any stock options outstanding as of September 30, 2001. As of September 30, 2001, there were options to purchase a total of 3,409,539 shares of our common stock at a weighted average price of $1.38 per share. To the extent that any of these shares are issued, there will be further dilution to new
investors. See Note 11, "Stock Based Compensation," "Stock Option Plan", to the September 30, 2001 Financial Statements.
ITEM NO. 7 SELLING SECURITY HOLDERS
The Series B Preferred, Convertible Note, Unit Purchase Option, 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 B Preferred or Convertible Notes, or exercise the Warrants or Unit Purchase Options, 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 is 22,058,334 shares of the Company.
David Ginsberg, D.O. has served as President and CEO of the Company since August 2, 2000. Noesis NV has provided financial consultanting services to the Company since 1999. In addition, Noesis has served as Placement Agent on three private placements of the Company's debt and equity securities since 1999.
The Series B Preferred Holders
The Selling Security Holders identified in the table below as "Series B Preferred Holders" acquired an aggregate of 200,000 shares of the Series B Preferred in a private placement transaction. Upon conversion, each of the Series B Preferred is equal to forty (40) shares of Common Stock at a conversion rate of $0.25 per share. Accordingly, if all the Series B Preferred Holders decide to convert, the Company would issue 8,000,000 common shares.
Registration Rights - Series B Preferred Holders
Pursuant to the terms and conditions of the subscription agreement for the Series B Preferred, the Company is required to prepare and file with the SEC a registration statement(s) covering the resale of the underlying common shares prior to the sixth (6) month following the closing of the offering of the Series B Preferred. The Company shall use its best efforts to cause such registration statement to be declared effective by the SEC within 10 months of the closing of the offering of the Series B Preferred
The Convertible Note Holders
The Selling Security Holders identified in the table below as "Convertible Note Holders" invested an aggregate of $1,615,000 in a private placement transaction. Upon conversion, each $0.50 is equal to one share of Common Stock. Accordingly, if all Convertible Note Holders decide to convert the Company would issue 3,230,000 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 8,000,000 shares of common stock as part of the private placement of the Company's 8% Convertible Series B Preferred Stock.
Registration Rights - Warrant Holders
Pursuant to the terms and conditions of the warrant agreement the Company has agreed to register the Warrants under the same terms and conditions as the Series B Preferred Stock
2000 Common Round Holders
The Selling Security Holders identified in the table below as "2000 Common Round Holders" acquired an aggregate of 668,334 shares of common stock.
Registration Rights - 2000 Common Round Holders
Pursuant to the terms and conditions of the subscription agreement for the Common Round Holders, 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.
Unit Purchase Option Holders
The Company's Placement Agent, Commonwealth Associates, L.P. ("Commonwealth"), was granted an option to purchase units of securities of the Company consisting of shares of the Company's 8% Series B Convertible Preferred Stock and warrants to purchase shares of common stock of the Company (the "Unit Purchase Option"). The Unit Purchase Option was granted in connection with the Company's private placement of the Series B Preferred Stock. Commonwealth has the ability upon conversion to acquire 1,080,000 shares of the Company's Series B Preferred Stock and 1,080,000 shares of common stock.
Registration Rights - Unit Purchase Option Holders
The Company has agreed to register the Shares underlying the Unit Purchase Option for resale on the terms and subject to the conditions set forth in the subscription agreement between the Company and the investors in the Series B Preferred offering, it being the intent that the holder shall have all the rights of a holder of the Series B Preferred Stock.
The following tables identify each Selling Security Holder based upon information provided to the Company, set forth as of December 14, 2001, with respect to the Shares beneficially held by or acquirable by, as the case may be, by 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 B Preferred into 8,000,000 shares of Common Stock and Convertible Notes into 3,230,000 shares of Common Stock and exercise of the Warrants into 8,000,000 shares of common stock and exercise of the Unit Purchase Option into 2,160,000 shares of common stock.
Selling Security Holders - Common Holders
Percentage
Amount to Amount Owned Before Owned
Name Be Offered The Offering After the Offering
---- ---------- ------------ ------------------
Guy Vercauteren 50,000 83,333 *
Luis Felipe Tavares 200,000 200,000 *
Pedro Carlos Rovai 50,000 50,000 *
Rik Klomp 50,000 50,000 *
Profrigo N.V. 245,000 645,000 2.12%
Cor Tech Funds 5,000 325,000 1.07%
Edward Mungenast 35,000 35,000 *
Onno Schamhart 33,334 66,667 *
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Selling Security Holders - Convertible Note Holders
Percentage
Amount to Amount Owned Before Owned After
Name Offered The Offering The Offering
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Profrigo N.V. 600,000 1,000,000 3.29%
Guus van Kesteren 220,000 525,001 1.73%
Gerry van Meteran 100,000 100,000 *
Jaap Hoff 200,000 572,126 1.88%
Everest Investment 200,000 727,044 2.39%
Hendrik Morelisse 100,000 100,000 *
Michiel Scholtien 100,000 183,333 *
Alvin Stroyny 50,000 86,833 *
Ad Klinkenberg 200,000 350,833 1.15%
Noesis Investment 200,000 200,000 *
Steve Yeung Chin 50,000 134,167 *
Karim Badr 40,000 86,667 *
Nathan Jacobson 100,000 225,000 *
Paul Van Roosebeke 10,000 10,000 *
Guy Brissette 240,000 300,000 *
Wim Boegem 200,000 200,000 *
Jos Dreesens 200,000 368,333 1.21%
Wisa Options B.V. 300,000 300,000 *
Cornelis F. Wit 120,000 349,899 1.15%
|
Selling Security Holders - Series B Preferred Holders
Amount to Amount Owned Before Percentage Owned
Name Be Offered The Offering After the Offering
---- ---------- ------------ ------------
Noesis N.V. 1,600,000 4,015,695 13.21%
Robert Priddy 1,000,000 1,000,000 3.29%
Comvest Venture Partners, L.P. 3,000,000 3,000,000 9.87%
David Ginsberg, D.O. 400,000 1,092,423 3.59%
Shari Misher 200,000 200,000 *
Jacob Safier 600,000 600,000 1.97%
Shea Ventures, LLC 1,000,000 1,000,000 3.29%
Noam Gottesman 200,000 200,000 *
|
Selling Security Holders - Warrant Holders
Amount to Amount Owned Before Percentage Owned
Name Be Offered The Offering After the Offering
---- ---------- ------------ ------------------
Noesis N.V. 1,600,000 4,015,695 13.21%
Robert Priddy 1,000,000 1,000,000 3.29%
Comvest Venture Partners, L.P. 3,000,000 3,000,000 9.87%
David Ginsberg, D.O. 400,000 1,092,423 3.59%
Shari Misher 200,000 200,000 *
Jacob Safier 600,000 600,000 1.97%
Shea Ventures, LLC 1,000,000 1,000,000 3.29%
Noam Gottesman 200,000 200,000 *
|
Selling Security Holders - Unit Purchase Options Holders
Amount to Amount Owned Before Percentage Owned
Name Be Offered The Offering After the Offering
---- ---------- ------------ ------------------
Commonwealth Associates, LP 904,000 904,000 2.97%
ComVest Venture Partners, LP 661,912 661,912 2.18%
Michael Falk 251,200 251,200 *
Harold Blue 125,600 125,600 *
Carl Kleidman 50,240 50,240 *
Keith Rosenbloom 25,120 25,120 *
Inder Tallur 25,120 25,120 *
Robert O'Sullivan 25,120 25,120 *
Joseph P. Wynne 25,120 25,120 *
Thom Waye 21,980 21,980 *
Scott Greiper 18,840 18,840 *
Anthony J. Giardina 12,560 12,560 *
John Gruber 9,420 9,420 *
Beth Lipman 2,512 2,512 *
Susan Hoffman 1,256 1,256 *
|
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-dealer engaged by the Selling Security Holder will attempt to sell Shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; (b) purchases by the broker-dealer as principal and resale by such broker or dealer for its account pursuant to this Prospectus; and (c) ordinary brokerage transactions and transactions in which the broker solicits purchasers. To the best of the Company's knowledge, the Selling Security Holders have not, as of the date hereof, entered into any arrangement with a broker or dealer for the sale of shares through a block trade, special offering, or secondary distribution of a purchase by a broker-dealer. In effecting sales, broker- dealers engaged by the Selling Security Holders may arrange for other broker- dealers to participate. Broker-dealers will receive commissions or discounts from the Selling Security Holders in amounts to be negotiated.
In offering the Shares, the Selling Security Holders and any broker-dealers who execute sales for the Selling Security Holders may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales, and any profits realized by the Selling Security Holders and the compensation of such broker-dealer may be deemed to be underwriting discounts and commissions.
Rule 10b-6 under the Exchange Act prohibits participants in a distribution from bidding for or purchasing for an account in which the participant has a beneficial interest, any of the securities that are the subject of the distribution. Rule 10b-7 under the Exchange Act governs bids and purchases made to stabilize the price of a security in connection with a distribution of the security.
This offering will terminate as to each Selling Security Holder on the date on which all Shares offered hereby have been sold by the Selling Security Holders. There can be no assurance that any of the Selling Security Holders will sell any or all of the shares of Common Stock offered hereby.
ITEM NO. 9 LEGAL PROCEEDINGS
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. The Company has made all of the payments required under the settlement agreement and expects dismissal of the case within the next 30 days.
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. An order of dismissal was entered by the court on September 25, 2001.
ITEM NO. 10 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Dr. David Ginsberg, 54, Chief Executive Officer and President. Dr. Ginsberg has been Chief Executive Officer and President since August 1, 2000. Dr. Ginsberg has been a Director of the Company since 2000 and shall serve until the next Annual Meeting. 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.
Randall G. Smith, 44, Chief Technology 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.
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 served as President of Corporate Finance of Noesis Capital Corp., an international banking and money management firm until September 2000 and currently serves as a consultant to Noesis. Mr. Wit was formerly President and CEO of DMV Inc., the North American subsidiary of Campina Melkunie.
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, 40, Director. Mr. Blue is 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 December 14, 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 4.64%
Randall G. Smith (4) 1,435,085 4.47%
Ronald T. Linares (5) 217,023 0.68%
Cornelius Wit (6) 349,899 1.09%
Guus van Kesteren (7) 525,001 1.63%
Harold Blue (8) 125,600 0.39%
--------- -----
All Directors and Officers as a
group (7 people) 4,145,031 12.90%
========= =====
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(1) The address for each person, unless otherwise noted, is 2555 Davie Road, Suite 110-B, Davie, Florida 33317.
(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 December 14, 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 466,539 shares issuable upon the exercise of currently exercisable
stock options, and 20,000 shares issuable upon conversion of stock
warrants.
(5) Includes 203,666 shares issuable upon the exercise of currently exercisable
stock options.
(6) Includes 210,000 shares issuable upon the exercise of currently exercisable
stock options, and 120,000 shares issuable upon conversion of the Company's
12% Convertible Note
(7) Includes 210,000 shares issuable upon the exercise of currently exercisable
stock options, 70,700 shares issuable upon the exercise of currently
exercisable stock warrants and 220,000 shares issuable upon conversion of
the Company's 12% Convertible Note
(8) Includes 62,800 shares issuable upon conversion of the Company's 8% Series
B Convertible Preferred Stock and 62,800 shares issuable upon converstion
of stock warrants.
ITEM NO. 12 DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 60,000,000 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 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 ("Series A Preferred"). The terms of the Series A
Preferred are as follows: (1) In the event of liquidation, the holders of Series
A Preferred 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
Series A Preferred shall have the right to convert at any time at the option of
the holder, each share of Series A Preferred 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 Series A
Preferred 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 Series A Preferred has been filed with the Securities and Exchange Commission and declared effective. (4) Anti-Dilution: Each share of Series A Preferred 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 Series A Preferred 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 Series A Preferred and (ii) any other securities issued in respect of the Series A Preferred 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 Series A Preferred.
On August 31, 2001, 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 8% Series B
Convertible Preferred Stock (the "Series B Preferred "). The terms of the Series
B Preferred are as follows: (1) In the event of liquidation, the holders of the
Series B Preferred will be entitled to receive in preference to the holders of
the 5% Series A Preferred Stock, Common Stock and prior to any other series of
preferred stock or any class or series of capital stock of the corporation
created after August 31, 2001 not specifically ranking senior to or on parity
with the Series B, an amount equal to their original purchase price plus all
accrued but unpaid dividends; (2) Dividends shall be paid at the rate of 8.00%
(eight percent) per annum (365 days), accruing quarterly, and payable when
declared by the Company's Board of Directors. Dividends will be cumulative; (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 the number of shares equal to the original purchase price
divided by the conversion price of $0.25 per shares, subject to anti-dilution
provisions set forth in subsection (4) below; (b) Automatic Conversion: Each
outstanding share of the Series B Preferred shall automatically be converted
into Common Stock of the Company upon the closing of a public offering of the
Corporation's equity securities raising gross proceeds in excess of $25 million
at a share price of more than $0.75 per share, as adjusted for any stock split,
stock dividend, recapitalization or other similar transactions; (c) Conversion
at the Option of the Corporation. The Company may upon not less than 30 days
written notice to the holders of the Series B Preferred cause each outstanding
share of the Series B Preferred to be converted into Common Stock provided that
(i) during a 20 consecutive trading day period ending not more than five trading
days prior to the date the written notice is sent, the closing bid or sales
price, as applicable, for the Common Stock of the Company equaled or exceeded at
least two times the conversion price ($0.25 per shares subject to the anti-
dilution provisions in subsection 4), (ii) during the 20 day trading period the
Common Stock of the Company was traded on a national securities exchange or
included for quotations on the NASDAQ SmallCap Market, the National Market
System or the OTC Bulletin Board, (iii) when converted the shares are fully
registered for resale pursuant to an effective registration statement and not
subject to any lock-up provisions, but (iv) the number of shares converted
cannot exceed the average trading volume during the 20 day trading period
multiplied by a factor of 10; (4) Anti-Dilution: Each share of Series B
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 SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS. SUCH SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN OPINION OF COUNSEL, IN A FORM REASONABLY SATISFACTORY TO THE ISSUER, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, SUCH SECURITIES MAY BE PLEDGED WITH CONNECTION WITH A BONA FIDE MARGIN ACCOUNT.
(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 Series B Preferred.
On November 16, 2001 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 an increase in the authorized number of common stock from 20 million shares to 60 million.
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"). MTC, a Delaware corporation, 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 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 at the time of the merger. 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, Omnicomm 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 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 Omnicomm would not make the deadline on December 5, 1998 so the SB-2 was
withdrawn. Coral and OmniComm 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.
OmniComm 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 their 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, clinical studies are actually getting longer, more complex and more costly. As pharmaceutical companies focus on developing drugs that treat chronic and degenerative diseases the complexity and length of clinical trials will increase. Case report forms, remote data entry and remote data capture lack industry standards.
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.
The amount of money and time spent on clinical trial studies is staggering. The following points are illustrative of the business process:
. It can cost as much as $800 million to bring a drug to market
. For every day Lipitor was in clinical trials Pfizer lost approximately
$13,000,000 in revenues a day
. Capitalized clinical trial costs increased at an inflation adjusted
rate of 11.8% in 2000.
Sources: Pfizer, Inc,. Tufts Center for the Study of Drug Development
The Internet has the ability to transform the fundamentals of 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
Covance estimates worldwide research and development expenditures by the pharmaceutical and biotechnology industries reached an estimated $54 billion in 2000 with $21 billion being spent by North American based pharmaceutical and medical device companies. Further, research and development expenditures in 2000 for the top 50 pharmaceutical companies increased approximately 10% from the previous year. It is estimated by F.A.C/Equities that pre-clinical and clinical trial costs represent approximately one-third of the total spent on research and development, with 20% of the total costs spent on data management.
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 and length 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 2000 for the major pharmaceutical companies in the world increased approximately 10% 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 possible time, thereby reducing costs, maintaining market share and speeding revenue production. Currently, total development of a new drug takes approximately 8 to 15 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 10-15% annual growth. The market opportunity points towards continued growth for the long-term, fueled by the demographics of an aging population and the increased demands of pharmaceutical, biotech and medical device sponsors for the development of new drugs to build the pipeline of potential new medicines required for sustained growth.
Discovering and developing new chemical entities is the life-force of the pharmaceutical and biotechnology industries. PhRMA estimates that there are about 1,000 medicines in development - either in human clinical trials or at the FDA awaiting approval. A study conducted by PriceWaterhouse Coopers estimates that sequencing of the human genome could produce as many as 25,000 new biological targets.
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.
The fact that Research and Development budgets are at all time highs, PhRMA estimates that R & D expenditures now approximate 18.5% of sales, suggests that companies are seriously exploring innovative high tech methods for the discovery process. According to research by Covance, Inc. pharmaceutical and biotechnology companies anticipated spending $54 billion on R&D in 2000. Of that amount approximately 20% was spent on data handling and management.
The reality is that despite tremendous R&D expenditures, the industry has been slow to invest in new technologies. CenterWatch estimates that the industry spends only about $128 million, or 1.2% of the $10.8 billion data handling and management dollars on EDC 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 several 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 input 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 8 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 2 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 filling 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". 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 directly 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 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 5.0(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.
A. Data Collection Comparison
Current System TrialMaster System
The cost to process data is approximately The cost to process the data is
$7.00 to $25.00 per page per patient. approximately two to five times
less per page per patient.
The time to process the data can take The time to process the data is
anywhere from one to eight weeks. reduced since data can be
entered in real-time with
validation occurring instantly..
--------------------------------------------------------------------------------
B. Validation and Edit Query Comparison
|
Current System TrialMaster System
The cost to process an edit query is The number of edit queries is
approximately $80-$115 per query. significantly reduced because
For a large trial it is not the system does the validation
uncommon to generate 500-1,000 edit when the data is inputted.
queries a week.
The time to process the data for each
patient can take anywhere from three
to eight weeks.
--------------------------------------------------------------------------------
23
|
-------------------------------------------------------------------------------- C. Monitoring |
Current System TrialMaster System
The cost for a monitoring visit can vary The number of visits can be
from $1,000 to $3,000 per visit per site. reduced because the status of
A trial can require as many as three to sites can be monitored remotely
seven visits. and in real time.
Monitoring hours can be reduced
The time for each visit is usually one by 50%. In addition, monitoring
to two days. visits can be more efficiently
scheduled due to the
availability of more accurate
and complete information on the
trials.
--------------------------------------------------------------------------------
|
Source: F.A.C/Equities
In view of the historically inefficient and labor intensive nature of the clinical trials field, the TrialMaster application is strategically poised to help transform the industry:
. Reduced time - 50% faster to completion of study with TrialMaster
. Reduced costs - 80% less expensive to process information
65% less personnel needed to complete the study
. Improved results - 80% improvement in data discrepancy
Source: F.A.C/Equities
The primary of objective of EDC services is to reduce inefficiencies in data capture and review. TrialMaster is designed to reduce those inefficiencies and hasten the development and approval of new drugs.
SALES AND MARKETING
EDC services are currently utilized in approximately 10% of clinical trials and the EDC market can be characterized as emerging growth with revenues in 2000 of approximately $128 million as estimated by CenterWatch. The Company's marketing and sales budget has limited the effectiveness of its market penetration to date. 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 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 industry. This is a $54 billion market, dominated by companies such as Pfizer, Johnson & Johnson 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 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 seven 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
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 20 full time employees and 2 part time employees. The Company believes that relations with its employees are good. None of our employees is represented by a union. The Company has employment agreements with its Chief Executive Officer, Chief Financial Officer and Chief Technology 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 OF 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.
Nine Months Ended September 30, 2001 Compared With the Period Ended September 30, 2000
Results of Operations
Revenues
Revenues for the period ended September 30, 2001 were $102,740 compared to $51,914 for the same period in 2000. Revenues associated with the Company's Internet based clinical trial products were approximately $79,543 and $4,167 for 2001 and 2000 respectively. Systems integration revenues in 2001 were approximately $23,197 versus $47,747 in fiscal 2000. The Company expects systems integration revenues in 2001 to slightly decrease in comparison to 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 $89,810 for the period ended September 30, 2001 versus $43,436 for the period ended September 30, 2000. The increase in cost of sales is attributable to the Company's increase in personnel in its development programming and Q/A functions offset by a curtailment of its systems integration business segment. Included in cost of sales is $73,563 in labor costs associated with clinical trial production and support in 2001 compared with $0 in 2000. The Company anticipates increasing development programming 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 58.5% of total Other Expenses for 2001. Salaries and related expenses totaled $1,403,599 in 2001 compared to $2,373,022 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 19 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 the fourth quarter of 2001 and during fiscal 2002.
Rent
Rent expense was $141,719 for the period ended September 30, 2001 compared with $203,250 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, offset by approximately $4,575 paid in additional rent in 2001 pursuant to standard lease cost of living adjustments.
Consulting Expenses
Consulting expenses, which are comprised of medical advisory, product development and marketing and sales consultants were $33,109 for the period ended September 30, 2001 compared to $260,065 in fiscal 2000. The decrease can be attributed to several factors. There was a decrease in marketing and sales consulting expense of $71,049 caused by the conversion of two sales consultants into marketing executives of the Company. There was a decrease of $117,667 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 $38,240 through the diminished use of temporary employees within the Company's research and development function.
Legal and Professional Fees
Legal and professional fees decreased to $134,696 in the period ended September 30, 2001 compared to $533,047 in the same period in 2000. The decrease can be attributed to investment banking and financial advisory fees totaling $430,669 in 2000 versus $52,500 in fiscal 2001. Legal and accounting fees were $82,196 in 2001 compared to $102,378 for the same period in fiscal 2000.
Telephone and Internet
Telephone and Internet related costs were reduced by $89,789 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 nine 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 increasing 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") 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 $83,858 in fiscal 2001 compared to $527,362 in fiscal 2000. A portion of the decrease is a result of reduced expenditures for advertising ($118,443), conferences and seminars ($52,955), marketing ($66,977) and general office related costs ($137,756) in comparison with fiscal 2000. In addition, during fiscal 2000, the Company had SG & A expenses of approximately $47,761 in its European operation.
Depreciation and Amortization
Depreciation and amortization expense was $250,220 for fiscal 2001 compared with $291,468 for fiscal 2000. The decrease is a result of an increase in depreciation expense in 2001 of approximately $7,654 that is associated with additional computer and office equipment and in amortization expense from debt acquisition costs of $31,222 offset by a decrease in the amortization of the non-compete covenant, goodwill and software development costs associated with the Education Navigator acquisition in 1998 of $30,000, $39,639 and $7,292, respectively.
Three Months Ended September 30, 2001 Compared With the Period Ended September 30, 2000
Results of Operations
Revenues
Revenues for the period ended September 30, 2001 were $45,561 compared to $11,154 for the same period in 2000. Revenues associated with the Company's Internet based clinical trial products were approximately $45,561 and $4,167 for 2001 and 2000 respectively. Systems integration revenues in 2001 were approximately $0 versus $6,987 in fiscal 2000.
Cost of Sales
Cost of sales was $51,613 for the period ended September 31, 2001 versus $(3,088) for the period ended September 30, 2000. The increase in cost of sales is attributable to increased labor costs for clinical trial development and support functions.
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 54.3% of total Other Expenses for 2001. Salaries and related expenses totaled $410,484 in 2001 compared to $861,694 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 19 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 its profile in the clinical trial community. The Electronic Data Capture ("EDC") market within the clinical trial industry remains an emerging growth market. The company expects the adoption rate of EDC services to continue growing dramatically for the next 2 to 3 years as the pharmaceutical industry evaluates the impact on drug development timetables.
Rent
Rent expense was $63,732 for the period ended September 30, 2001 compared with $40,842 for the comparable period in fiscal 2000. The increase can be attributed to approximately $12,000 paid in 2001 as part of a lease settlement on the Company's Tampa office, approximately $6,600 in additional rent expense for the Company's office in the Netherlands and approximately $4,290 paid in additional rent in 2001 pursuant to standard lease cost of living adjustments.
Consulting Expenses
Consulting expenses, which are comprised of medical advisory, product development and marketing and sales consultants were $33,109 for the period ended September 30, 2001 compared to $57,612 in fiscal 2000. The decrease can be attributed to several factors. There was an increase in marketing and sales consulting expense of $5,984 associated with new client contact initiatives launched in September 2001 by the Company. There was a decrease of $28,667 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 $1,820 through the diminished use of temporary employees within the Company's research and development function.
The Company may incur increased marketing and sales consulting expense over the next 6 to 18 months as it seeks 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 $33,779 in the period ended September 30, 2001 compared to $127,069 in the same period in 2000. The decrease can be attributed to investment banking and financial advisory fees totaling $85,712 in 2000 versus $7,500 in fiscal 2001. Legal and accounting fees were $26,279 in 2001 compared to $41,357 for the same period in fiscal 2000.
Telephone and Internet
Telephone and Internet related costs decreased by $5,698 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 any significant changes to its telephone and Internet access costs based on its own existing communications infrastructure and its projected 2001 and 2002 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 $31,983 in fiscal 2001 compared to $119,840 in fiscal 2000. The significant components of the decrease are a result of decreased expenditures for advertising ($6,994), public relations ($27,377), marketing ($18,960) and general office related costs associated with the Company's office in the Netherlands of ($31,461) in comparison with fiscal 2000.
Depreciation and Amortization
Depreciation and amortization expense was $67,287 for fiscal 2001 compared with $96,999 for fiscal 2000. The decrease is a result of a decrease in depreciation expense in 2001 of approximately $6,197, and by decrease in the amortization of the goodwill and software development costs associated with the Education Navigator acquisition in 1998 of $39,639 and 7,293 offset by the increased amortization of debt acquisition costs of $23,417.
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 increased by $766,302 to $857,260 at September 30, 2001. This was the result of cash provided by financing activities of $2,992,118 offset by cash used in operating activities of approximately $2,146,731 and $79,085 in investing activities. The significant components of the activity include a loss from operations of approximately $2,550,062, an increase in debt acquisition costs of $70,250 related to a private placement of the Company's debt, the purchase of property and equipment of approximately $79,085, offset by an increase in accounts payable and accrued expenses of approximately $105,478 and approximately $2,992,118 the company raised through the sale of debt and equity securities.
Because of the losses experienced in 1999, 2000 and the first nine 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 September 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 2555 Davie Road, Suite 110-B, Davie, Florida 33317 ("Davie Office"). The Davie Office is the Company's headquarters, and costs $6,784 per month and comprises approximately 6,000 square feet. 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 currently a consultant to Noesis Capital Corp and served as an officer of Noesis until September. 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 --------------------------------------------------------------------------------------------------------------------- September 2001 $0.95 $0.38 --------------------------------------------------------------------------------------------------------------------- |
The bid price which states over-the-counter market quotations reflects inter- dealer prices without real mark-up, mark-down or commissions and may not necessarily represent actual transactions.
The Company has approximately 403 shareholders of record of its common stock as of December 10, 2001.
ITEM NO. 21 EXECUTIVE COMPENSATION
Summary Compensation Table
Long term Compensation
Annual Compensation Awards Payouts
---------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
---------------------------------------------------------------------------------------------------------
Other Securities
Name Annual Restricted Under- All other
And Compen- Stock Lying LTIP Compen-
Principal sation Awards Options Payout sation
---------- -------- ---------- ---------- ------ ---------
Position Year Salary ($) 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% $2.50 7/30/09
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|
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
(a) (b) (c) (d) (e)
----------------------------------------------------------------------------------------------------------------------------
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-money
Options/SARs at Options/SARs at
Shares Acquired FY End (#) FY End ($)
On Exercise Value Realized
Name (#) ($) 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-
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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: $ 1,599
Legal Fees: $11,500
Accounting Fees: $ 3,500
Printing $ 1,000
Transfer Agent Fees: $ 1,000
-------
Total Expenses: $18,599
=======
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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 shares. 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. These shares were later exchanged when OmniComm merged with Coral Development in February 1999.
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 all of
which were accredited investors. The offering was concluded on December 31,
1999. The Company received gross proceeds of $4,313,500.
Rule 506 - Common Stock
On July 24, 2000, the Company entered into a private placement agreement with 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 all of which were accredited investors. The offering was concluded on October 15, 2000. The Company 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 $1,615,000 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
(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
-------------------------------------------------------------------------------------------------------------------
(ii) By-Laws: Incorporated herein by reference to Form SB-2 File No. 333-6410.
-------------------------------------------------------------------------------------------------------------------
(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 incorporated
herein by reference to Form SB-2/A-1 dated October 15, 2001
-------------------------------------------------------------------------------------------------------------------
(e) Amendment to Articles of Incorporation - Increase in Authorized Shares of Common
Stock dated November 16, 2001.
-------------------------------------------------------------------------------------------------------------------
(5) Opinion of Counsel, Jonathan D. Leinwand, P.A.
-------------------------------------------------------------------------------------------------------------------
(10) (a) Employment Contracts:
-------------------------------------------------------------------------------------------------------------------
(i) Randall G. Smith - Employment Agreement and Stock Option Agreement incorporated
herein by reference to Form SB-2/A-1 dated October 15, 2001.
-------------------------------------------------------------------------------------------------------------------
(ii) David Ginsberg, D.O. - Employment Agreement and Stock Option Agreement incorporated
herein by reference to Form SB-2/A-1 dated October 15, 2001.
-------------------------------------------------------------------------------------------------------------------
(ii) Ronald T. Linares. - Employment Agreement and Stock Option Agreement incorporated
herein by reference to Form SB-2/A-1 dated October 15, 2001.
-------------------------------------------------------------------------------------------------------------------
(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.
-------------------------------------------------------------------------------------------------------------------
(23) Consent of Greenberg & Company, LLC., Registrants Independent Auditors dated August
13, 2001.
-------------------------------------------------------------------------------------------------------------------
(99) Financial Statements
-------------------------------------------------------------------------------------------------------------------
|
(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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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 December 14, 2001.
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: December 14, 2001 By: /s/ Ronald T. Linares --------------------------------------------- Title: Chief Financial and Accounting Officer Date: December 14, 2001 By: /s/ Randall G. Smith --------------------------------------------- Title: Chief Technology Officer and Director Date: December 14, 2001 By: /s/ Guus van Kesteren --------------------------------------------- Title: Director Date: December 14, 2001 By: /s/ Harold Blue --------------------------------------------- Title: Director Date: December 14, 2001 By: /s/ Cornelis F. Wit --------------------------------------------- Title: Director Date: December 14, 2001 |
Exhibit Index
Exhibit
Number Description
-------- -----------
Ex4_e Certificate of Amendment
Ex5 Opinion of Counsel
Ex23 Independent Auditor's Consent
Ex99_1 Report of Independent Certified Public Accountants
|
Exhibit 4(E)
CERTIFICATE OF AMENDMENT
OF
OMNICOMM SYSTEMS, INC., a Delaware corporation.
The undersigned corporation
DOES HEREBY CERTIFY:
FIRST: That the holders of a majority of the issued and outstanding shares of common stock of OmniComm Systems, Inc., in accordance with Chapter 8, Subchapter VII, Section 228 of the laws of the State of Delaware have consented to amend the Certificate of Incorporation.
SECOND: That the amendment(s) or change(s) in the Certificate of Incorporation of OmniComm Systems, Inc. are as follows:
Fourth article is changed to read: The total number of common shares of stock which the corporation shall have the authority to issue is sixty million (60,000,000). All such shares are to have a par value of $0.001. The total number of preferred shares of stock which the corporation shall have the authority to issue is ten million (10,000,000). The board of directors of the 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 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.
THIRD: This amendment shall be effective on November 16, 2001.
Dated: November 27, 2001
OmniComm Systems, Inc.
By:/s/ David Ginsberg, D.O.
---------------------------
David Ginsberg, D.O.
Director and Chief Executive Officer
Attested By: /s/ Randall G. Smith
---------------------------------
Randall G. Smith, Secretary
|
EXHIBIT 5 - OPINION OF COUNSEL
2500 N. Federal Highway
Jonathan D. Leinwand, P.A. Suite 100 Ft. Lauderdale, FL 33305 Tel: (954) 563-1583 Fax: (954) 252-4265
E-mail: jdlpa@aol.com
December 20, 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 22,298,334 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 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 February 2, 2001, appearing in this Registration Statement.
Greenberg & Company LLC
Springfield, NJ
December 20, 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,
4,260,224 and 4,117,500 issued and outstanding, respectively, at par 3,857,179 3,872,843
Common stock - 20,000,000 shares authorized, 7,974,578 and 3,344,066 issued,
respectively, at $.001 par value 7,975 3,344
Additional paid in capital 3,261,100 238,007
Less cost of treasury stock: Common - 620,951 and -0- shares respectively (293,912) -0-
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
5% Series A Convertible
Common Stock Additional Preferred Stock Retained Total
Number of $0.001 Paid In Number of Earnings Subscription Treasury Shareholders'
Shares Par Capital Shares $0.00 Par (Deficit) Receivable Stock Equity
------ --- ------- ------ --------- --------- ---------- ----- ------
Value
-----
Balance at 1,343,000 $1,343 $ 132,213 -0- $ -0- $ (311,407) $ (952) $ -0- $ (178,803)
January 1, 1999
Issuance of 250,000 250 250
common stock
Issuance of 86,400 86 56,059 56,145
common stock
for services
Issuance of 300,000 300 2,700 3,000
common stock
Issuance of 68,000 68 44,132 44,200
common stock
for services
Issuance of 1,296,666 1,297 2,903 4,200
common stock
Issuance of 4,117,500 3,872,843 (850,000) 3,022,843
preferred
stock, net of
$134,590
issuance costs
Net loss for the (2,341,237) (2,341,237)
year ended Dec
31, 1999
Balance at 3,344,066 3,344 238,007 4,117,500 3,872,843 (2,652,644) (850,952) -0- 610,598
January 1, 2000
|
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1999 TO DECEMBER 31, 2000
5% Series A Convertible
Common Stock Additional Preferred Stock Retained Total
Number of $0.01 Paid In Number of Earnings Subscription Treasury Shareholders'
Shares Par Capital Shares $0.00 Par (Deficit) Receivable Stock Equity
------ --- ------- ------ --------- --------- ---------- ----- ------
Value
-----
Issuance of 40,000 40 89,960 90,000
common stock
for services
Issuance of 284,166 284 284
common stock
Exercise of 1,025,895 1,026 297,024 298,050
stock options
Purchase of (20,951) (293,312) (293,312)
treasury stock
in connection
with stock
appreciation
rights
Payment on 850,000 850,000
subscription
receivable
Acquisition of 1,200,000 1,200 4,433 5,633
WebIPA, Inc.
Common stock (600,000) (600) (600)
re-acquired in
the acquisition
of WebIPA
Issuance of 146,000 146,000 146,000
preferred stock
|
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1999 TO DECEMBER 31, 2000
5% Series A Convertible
Common Stock Additional Preferred Stock Retained Total
Number of $0.01 Paid In Number of Earnings Subscription Treasury Shareholders'
Shares Par Capital Shares $0.00 Par (Deficit) Receivable Stock Equity
------ --- ------- ------ -------- --------- ---------- ----- ------
Value
-----
Issuance costs (206,750) (206,750)
on preferred
stock
Conversion of 320,000 320 366,393 366,713
conv. notes
payable, net of
issuance costs
of $33,287
Exercise of 20,000 20 15,980 16,000
stock options
Exercise of 481,834 482 963,186 963,668
stock warrants
Exercise of 187,954 188 (188) -0-
stock warrants
Conversion of 66,667 67 99,933 (100,000) (100,000) -0-
preferred stock
to common stock
Conversion of 91,608 92 206,026 206,118
notes payable
to common stock
Issuance of 70,990 71 188,784 188,855
common stock
for services
|
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1999 TO DECEMBER 31, 2000
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,
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
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
-----
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 in come (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) operating 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-Share
(Loss) (Loss)
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 11/th/ 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.
OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
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.
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.
OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
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.
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
========= ========== ========== ==========
-----------------------------------------------------------------------------------------------------------------------------------
|
OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
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 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.
OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
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 (70,640) (105,243)
and covenant
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 September 30, 2001
OMNICOMM SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
September December 31,
---------- -----------
30, 2001 2000
-------- ----
(unaudited)
-----------
ASSETS
CURRENT ASSETS
Cash $ 857,260 $ 90,958
Accounts receivable 25,221 9,927
Prepaid expenses 8,323 -0-
------------ -----------
Total current assets 890,804 100,885
PROPERTY AND EQUIPMENT, Net 458,374 486,481
OTHER ASSETS
Intangible assets, net 56,682 53,071
Goodwill, net -0- 79,277
Other assets 25,160 25,160
------------ -----------
TOTAL ASSETS $ 1,431,020 $744,874
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,005,148 $ 1,079,506
Notes payable - current 10,000 612,500
Notes payable related parties - current 682,571 660,000
Deferred revenue 41,013 26,861
------------ -----------
Total current liabilities 1,738,732 2,378,867
CONVERTIBLE DEBT 2,040,000 462,500
------------ -----------
TOTAL LIABILITIES 3,778,732 2,841,367
------------ -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
5% Series A convertible preferred stock, 5,000,000 shares
authorized, 4,215,224 and 4,260,224 issued and outstanding,
respectively, at par 3,812,179 3,857,179
8% Series B convertible preferred stock, 200,000 shares
authorized, 200,000 and -0- issued and outstanding, respectively,
at $.001 par value 200 -0-
Common stock - 20,000,000 shares authorized, 8,964,648 and
7,974,578 issued, respectively, at $.001 par value 8,965 7,975
Additional paid in capital - preferred stock 1,736,818
Additional paid in capital - common stock 3,866,935 3,261,100
Less cost of treasury stock: Common - 620,951 and 620,951 shares,
respectively (293,912) (293,912)
Accumulated (deficit) (11,477,757) (8,927,695)
Subscriptions receivable (1,140) (1,140)
------------ -----------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (2,347,712) (2,096,493)
------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 1,431,020 $ 744,874
============ ===========
|
See accompanying summary of accounting policies and notes to financial statements.
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the nine months ended For the three months ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
Revenues $ 102,740 $ 51,914 $ 45,561 $ 11,154
Cost of sales 89,810 43,436 51,613 (3,088)
----------- ----------- ----------- -----------
Gross margin (loss) 12,930 8,478 (6,052) 14,242
Other expenses
Salaries, benefits and related taxes 1,403,599 2,373,022 410,484 861,694
Rent 141,719 203,250 63,732 40,842
Consulting - medical advisory -0- 117,667 -0- 28,667
Consulting - marketing sales 11,984 83,033 11,984 6,000
Consulting - product development 21,125 59,365 21,125 22,945
Legal and professional fees 134,696 533,047 33,779 127,069
Travel 48,739 331,671 6,529 21,228
Telephone and internet 78,032 167,821 20,776 26,474
Selling, general and administrative 83,858 527,362 31,983 119,840
Asset Impairment 9,127 -0- 9,127 -0-
Interest expense, net 215,034 62,492 79,356 20,512
Depreciation and amortization 250,220 291,468 67,287 96,999
----------- ----------- ----------- -----------
Total other expenses 2,398,133 4,750,198 756,162 1,372,270
----------- ----------- ----------- -----------
(Loss) before taxes and
preferred dividends (2,385,203) (4,741,720) (762,214) (1,358,028)
Income tax expense (benefit) -0- -0- -0- -0-
Preferred stock dividends (164,859) (154,921) (62,801) (53,353)
----------- ----------- ----------- -----------
Net(loss) $(2,550,062) $(4,896,641) $ (825,015) $(1,411,381)
=========== =========== =========== ===========
Net (loss) per share $ (0.32) $ (0.90) $ (0.10) $ (0.23)
=========== =========== =========== ===========
Weighted average number of
shares outstanding 7,857,571 5,437,653 8,082,386 6,182,576
=========== =========== =========== ===========
|
The accompanying notes are an integral part of these financial statements.
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the nine months ended
September 30,
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(2,550,062) $(4,896,641)
Adjustment to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 250,220 291,468
Asset impairment 9,127 -0-
Common stock issued for services 118,221 278,855
Preferred stock issued for services -0- 190,172
Accrued placement agent fee -0- (38,500)
Change in assets and liabilities:
Accounts receivable (15,294) (38,411)
Inventory -0- 5,496
Prepaid expenses (8,323) (12,494)
Shareholder loans -0- 3,406
Other assets -0- (12,842)
Intangible assets (70,250) -0-
Accounts payable and accrued expenses 105,478 938,396
Sales tax payable -0- (1,818)
Deferred revenue 14,152 39,376
----------- -----------
Net cash provided by (used in) operating activities (2,146,731) (3,253,537)
CASH FLOWS FROM INVESTING ACTIVITIES
Equity investment in EMN -0- (335,000)
Purchase of WebIPA -0- 5,033
Purchase of property and equipment (79,085) (333,911)
----------- -----------
Net cash provided by (used in) operating activities (79,085) (663,878)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from convertible notes 794,900 -0-
Payments on notes payable (50,000) (45,000)
Proceeds from notes payable 490,000 680,000
Proceeds from stock warrant exercise -0- 963,668
Issuance of 5% Series A convertible preferred stock, net of issuance costs -0- 789,250
Issuance of 8% Series B convertible preferred stock, net of issuance costs 1,737,018 -0-
Issuance of common stock 4,200 385,284
Proceeds from stock option exercise 16,000 20,739
----------- -----------
Net cash provided by (used in) financing activities 2,992,118 2,793,941
----------- -----------
Net increase (decrease) in cash and cash equivalents (766,302) (1,123,474)
Cash and cash equivalents at beginning of period 90,958 1,127,263
----------- -----------
Cash and cash equivalents at end of period $ 857,260 $ 3,789
=========== ===========
|
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Continued)
For the nine months ended
September 30,
2001 2000
---- ----
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Income tax paid $ -0- $ -0-
======= =======
Interest paid $44,653 $27,892
======= =======
Non-Cash Investing and Financing Transactions;
Acquisition of all of the outstanding common stock of WebIPA, Inc. during the nine months ended September 30, 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 September 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 September 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 September 30, 2001, a promissory note with a face value of $100,000 with $12,329 in accrued interest was converted into 226,038 shares of the Company's common stock.
During the period ended September 30, 2001, payments totaling $30,000 due under a non-compete agreement and a promissory note with a face value of $127,500 with $20,844 in accrued interest were converted into 356,688 shares of the Company's common stock.
During the period ended September 30, 2001, a promissory note with a face value of $75,000 with $13,993 in accrued interest was converted into 53,768 shares of the Company's common stock.
During the period ended September 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 September 30, 2001, $760,000 in notes payables were converted into 12% convertible notes of the Company.
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Continued
During the period ended September 30, 2001, $60,000 in accrued expenses owed to the Company's placement agent was assigned by the placement agent to a third party. The third party subsequently requested and the Company agreed to include the debt in the Company's 12% convertible promissory note private placement
The Company amended and restated $640,000 in promissory notes on August 31, 2001 in connection with a private placement of the Company's 8% Series B Convertible Preferred Stock. In addition, the Company included $42,571 in accrued interest on the promissory notes in the principal amount of the amended and restated notes. The aggregate amounts due on the amended and restated promissory notes is $682,571.
See accompanying summary of accounting policies and notes to financial statements
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
September 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 collectability 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 7,857,571 and 5,437,653 for the nine months ended September 30, 2001 and 2000; and 8,082,386 and 6,182,576 for the three months ended September 30, 2001 and 2000 respectively. There were no differences between basic and diluted earnings per share. Options to purchase 3,409,539 shares of common stock at prices ranging from $.25 to $5.50 per share were outstanding at September 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 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.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
September 30, 2001
(unaudited)
During the quarter ended September 30, 2001, the Company designated 200,000 shares of its 10,000,000 authorized preferred shares as 8% Series B Convertible Preferred Stock (`Series B"). Each share is convertible into common stock at $0.25 per share at a conversion rate of 40 common shares for each share of the Series B shares. In the event of liquidation, these shareholders will be entitled to receive in preference to the holders of common stock and the 5% Series A Convertible Preferred Stock an amount equal to their original purchase price plus all accrued but unpaid dividends. Dividends are payable at the rate of 8% per annum, payable semi-annually.
Advertising costs are expensed as incurred. Advertising costs were $7,650 and $126,093 for the periods ended September 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:
September 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 153,698 97,016
------- --------
$361,737 $305,055
======== ========
|
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
======== ========
|
The covenant not to compete and the software development costs were acquired as a result of the acquisition of Education Navigator, Inc. (EdNav) on September 26, 1998. The covenant is for a two-year period and is being amortized ratably over that time. The software development costs were capitalized were amortized ratably over a three-year period, the expected life of the various products. Amortization expense was $14,583 for software development costs for the period ended September 30, 2001.
During the first nine months of 2001, the Company issued Convertible Notes totaling $1,615,000. The fees of $70,250 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 $78,564 for the period ended September 30, 2001, and approximately
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
September 30, 2001
(unaudited)
$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 September 30, 2001.
Included in Goodwill, as a result of the EdNav acquisition at September 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 September 30, 2001.
Property and equipment consists of the following:
September 30, 2001 December 31, 2000
Accumulated Accumulated
Cost Depreciation Cost Depreciation
---- ------------------ ---- -----------------
Computer and $434,373 $148,341 $387,862 $ 88,812
office equipment
Leasehold 2,549 567 1,699 201
improvements
Computer software 244,136 101,011 212,412 60,067
Office furniture 42,350 15,114 42,350 8,762
-------- -------- -------- --------
$723,407 $265,033 $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 September 30, 2001 and 2000 was $107,193 and $99,539 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 $41,013 in deferred revenue relating to contracts for services to be performed over the next six to nine months.
The Company recognizes sales, for both financial statement and tax purposes in accordance with SEC Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements (SAB 101)". SAB 101 requires that revenues be recognized ratably over the life of a contract. In accordance with SAB 101 the Company will periodically record deferred revenues relating to advance payments in contracts. The Company had $41,013 in deferred revenue relating to contracts for services to be performed over the next six to nine months.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
September 30, 2001
(unaudited)
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.
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 APB 25 to account for its stock based compensation plans. APB 25 discloses pro forma income amounts which result from recognizing stock awards at their fair value
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 14,349,000 have been omitted from the calculation of dilutive EPS for the period ended September 30, 2001. A reconciliation between numerators and denominators of the basic and dilutive earnings per shares is as follows:
Period Ended September 30, 2001 Period Ended September 30, 2000
--------------------------------------- -----------------------------------------
Net Income Shares Per- Net Income Shares Per-
(Loss) Share (Loss) Share
Numerator Denominator Amount Numerator Denominator Amount
----------- ------------- ------- ----------- ------------- --------
Basic EPS $(2,550,062) 7,857,571 $ (0.32) $(4,896,641) 5,437,653 $ (0.90)
Effect of
Dilutive
Securities
None. -0- -0- -0- -0- -0- -0-
----------- ------------- ------- ----------- -------------- --------
Diluted EPS $(2,550,062) 7,857,571 $ (0.32) $(4,896,641) 5,437,653 $ (0.90)
=========== ============= ======= =========== ============= ========
|
In September 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 September 15, 2000, as amended by SFAS No. 137. In September 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
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
September 30, 2001
(unaudited)
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 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 nine 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 September 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 September 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.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
September 30, 2001
(unaudited)
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.
European Medical Network (EMN) Investment, at cost
On September 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 September 30, 2001 and December 31, 2000.
The Company satisfied the note payable to the selling stockholders of Education Navigator on August 24, 2001 for approximately 356,688 shares of common stock which included remuneration for accrued interest and amounts payable under non-compete agreements. The principal amount due at August 24, 2001 was approximately $127,500.
At September 30, 2001, the Company owed $10,000 under short-term notes payable. The note bears interest at 9.5%. As of September 30, 2001 the Company was in default on the note.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
September 30, 2001
(unaudited)
At September 30, 2001, the Company owed $682,571 in related party notes payable. The notes restated and amended previously existing notes payable as part of the Company's private placement of equity which was consummated in September 2001. The terms of the notes include payment of one-half of the principal upon the closing of any financing by the Company resulting in gross proceeds in excess of $2,000,000; with the balance including accrued interest payable twenty four (24) months from the date of notes payable. The notes accrued interest at a rate of 8% per annum.
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 September 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 nine months of 2001, the Company issued Convertible Notes Payable in the amount of $1,615,000 pursuant to a Confidential Private Placement Memorandum. There were costs of $70,250 associated with this offering. The net proceeds to the Company were $1,484,750 with the costs of $70,250 accrued at September 30, 2001, and $60,000 of accrued expenses converted into the private placement of debt. 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 $ 44,207
2002 66,900
2003 44,600
2004 0
2005 0
--------
Total $155,707
========
|
In addition, to annual base rental payments, the company must pay an annual escalation for operating expenses as determined in the lease.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
September 30, 2001
(unaudited)
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. The Company claimed that certain assets in the possession 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 11/th/ 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 alleged claims totaling approximately $84,160 against the Company for fees associated with advertising, marketing and public relations services provided between September 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 four payments totaling $45,600 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 September 25, 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 of $15,700.
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 per share. 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
September 30, 2001
(unaudited)
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 carried an interest rate of 18% per annum and had 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 per share. The promissory note was amended and restated on August 31, 2001 in connection with a private placement of the Company's 8% Series B Convertible Preferred Stock. The promissory note accrues interest at 8%. One half of the note is payable upon the closing of a financing with gross proceeds in excess of $2 million with the balance including accrued interest due twenty four months from the date of the promissory note.
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.
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 $0.50 per share. The promissory note was amended and restated on August 31, 2001 in connection with a private placement of the Company's 8% Series B Convertible Preferred Stock. The promissory note accrues interest at 8%. One half of the note is payable upon the closing of a financing with gross proceeds in excess of $2 million with the balance including accrued interest due twenty four months from the date of the promissory note.
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. The promissory note was amended and restated on August 31, 2001 in connection with a private placement of the Company's 8% Series B Convertible Preferred Stock. The promissory note accrues interest at 8%. One half of the note is payable upon the closing of a financing with gross proceeds in excess of $2 million with the balance including accrued interest due twenty four months from the date of the promissory note. 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 per share. The promissory note was amended and restated on August 31, 2001 in connection with a private placement of the Company's 8% Series B Convertible Preferred Stock. The promissory note accrues interest at 8%. One half of the note is payable upon the closing of a financing with gross proceeds in excess of $2 million with the balance including accrued interest due twenty four months from the date of the promissory note.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
September 30, 2001
(unaudited)
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 per share. The promissory note was amended and restated on August 31, 2001 in connection with a private placement of the Company's 8% Series B Convertible Preferred Stock. The promissory note accrues interest at 8%. One half of the note is payable upon the closing of a financing with gross proceeds in excess of $2 million with the balance including accrued interest due twenty four months from the date of the promissory note.
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 was 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. Mr. van Kesteren exercised the option to participate in the Company's private placement of its 8% Series B Convertible Preferred Stock in September 2001.
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 was 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. Mr. Wit exercised the option to participate in the Company's private placement of its 8% Series B Convertible Preferred Stock in September 2001.
On July 5, 2001 the Company borrowed $100,000 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 20,000 shares of the Company's common stock at a price of $0.41 per share. The promissory note was amended and restated on August 31, 2001 in connection with a private placement of the Company's 8% Series B Convertible Preferred Stock. The promissory note accrues interest at 8%. One half of the note is payable upon the closing of a financing with gross proceeds in excess of $2 million with the balance including accrued interest due twenty four months from the date of the promissory note.
On July 17, 2001 the Company borrowed $10,000 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 4,000 shares of the Company's common stock at a price of $0.40 per share. The promissory note was amended and restated on August 31, 2001 in connection with a private placement of the Company's 8% Series B Convertible Preferred Stock. The promissory note accrues interest at 8%. One half of the note is payable upon the closing of a financing with gross proceeds in excess of $2 million with the balance including accrued interest due twenty four months from the date of the promissory note.
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.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
September 30, 2001
(unaudited)
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 elected to account for stock-based compensation expense under APB 25.
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 Company's Board of Directors voted in August 2001 to recommend to the Company's shareholders to increase the number of shares authorized under the 1998 Plan from 3,000,000 to 5,000,000. The vote on that proposal will occur on November 16, 2001 at the Company's Annual Meeting of Shareholders. 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 September 30,
September 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 1,856,000 $0.49 1,851,994 $3.46
Exercised 20,000 $0.80 1,045,894 $0.30
Cancelled 1,742,467 $2.14 1,053,010 $1.97
--------- ----- --------- -----
Outstanding at end of period 3,409,539 $1.38 3,316,006 $2.28
========= ===== ========= =====
Exercisable at end of period 2,072,667 $1.50 1,512,848 $2.19
========= ===== ========= =====
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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 INTERIM FINANCIAL STATEMENTS
September 30, 2001
(unaudited)
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 170,451 shares of common stock to employees and advisors with a fair market value as measured on the date of issuance of $118,221 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. The Company claimed that certain assets in the possession 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.
9/30/01 9/30/00
======= =======
Current tax expense (benefit):
Income tax at statutory rates $ -0- $ -0-
Deferred tax expense (benefit):
Amortization of goodwill and
covenant (35,320) (72,458)
Operating loss carryforward (862,232) (1,792,607)
---------- -----------
(897,552) (1,865,065)
Valuation allowance 897,552 1,865,065
---------- -----------
Total tax expense (benefit) $ -0- $ -0-
========== ===========
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OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
September 30, 2001
(unaudited)
The tax effects of significant temporary differences, which comprise the deferred tax assets are as follows:
9/30/01 12/31/00
======= ========
Deferred tax assets:
Amortization of intangibles $ 259,622 $ 224,302
Operating loss carryforwards 3,998,321 3,136,089
----------- -----------
Gross deferred tax assets 4,257,943 3,360,391
Valuation allowance (4,257,943) (3,360,391)
----------- -----------
Net deferred tax asset $ -0- $ -0-
=========== ===========
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The Company has net operating loss carryforwards (NOL) for income tax purposes of approximately $10,600,000. 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 September 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.