U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A
Amendment No. 3
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR 12(g) OF THE SECURITIES ACT OF 1934
OmniComm Systems, Inc.
Delaware 11-3349762___
(State or Other Jurisdiction of (I.R.S. Employer
incorporation of oragnization) Identification No.)
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3250 Mary Street, Ste. 307, Miami, FL.33133
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 305-448-4700
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be registered each class is to be
registered
None None
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Securities to be registered under Section 12(g) of the Act:
Common Stock, $.001 par value
PART I
Item 1. BUSINESS
Forward-Looking Statements
Statements contained in this Form 10-SB 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 profitability levels of such businesses, and other matters contained in this Form 10-SB 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 10-SB. 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.
Y2K COMPLIANCE
Year 2000 Program
Introduction
The "Year 2000 Problem" arose because many existing computer programs use only the last two digits to refer to a year. Therefore, these computer programs do not properly recognize a year that begins with "20" instead of the familiar "19." If not corrected, many computer applications could fail or create erroneous results. The problems created by using abbreviated dates appear in hardware (such as microchips), operating systems and other software programs. The Company's Year 2000 ("Y2K") compliance project is intended to determine the readiness of the Company's business for the Year 2000. The Company defines Y2K "compliance" to mean that the computer code will process all defined future dates properly and give accurate results.
Description of Areas of Impact and Risk
The Company has identified four areas where the Y2K problem creates risk to the Company. These areas are: a) internal Information Technology ("IT") systems; b) non-IT systems with embedded chip technology; c) system capabilities of third party businesses with relationships with the Company, including product suppliers, customers, service providers (such as telephone, power, logistics, financial services) and other businesses whose failure to be Y2K compliant could have a material adverse effect on the Company's business, financial condition or results of operations; and d) product liability claims arising out of the non-performance of computer products distributed by the Company.
Plan to Address Year 2000 Compliance
The Company has formed a Year 2000 Compliance Project Team and began developing an overall plan to address Y2K readiness issues. This plan includes five phases as follows: Phase I is to create an inventory of the Company's IT systems, non-IT systems and service providers (each of these being referred to as "business components") that need to be analyzed for Y2K compliance. During Phase I a priority is established so that the Company will first address the most important business components to determine Y2K readiness. Phase II analyzes the identified business components to determine which of the business components in the inventory require additional effort to be Y2K compliant. Phase III is the repair, modification or replacement of business components which the analysis determines are not Y2K compliant ("remediation"). Phase IV consists of various types of testing to confirm that the remediation process has resulted in the business components being Y2K compliant. Phase V is the development of contingency plans to address potential risks that the Y2K compliance project may not fully address.
State of Readiness
IT Systems - The initial Phase I inventory and prioritization process for the Company's U.S. based IT systems has been completed. The Company's current focus in this area is on testing and remediation, inventory refinement, and test plan refinement. Approximately 92% of all identified IT system business components have been deemed to be Y2K compliant as of March 31, 1999 with analysis of the remaining 8% continuing. Testing will continue through July 1999 when all compliance testing is anticipated to be completed. Even though the original design of the Company's network and accounting software system (the Company's system performing the primary business functions of sales order entry, billing, purchasing, distribution and inventory control) considered the Y2K problem and is currently deemed compliant, the test plan includes detailed testing of this business critical system. Desktop hardware and software systems testing and remediation is anticipated to be completed in June 1999.
Non-IT systems - Non-IT systems consist of any device which is able to store and report date-related information, such as access control systems, elevators, security systems and other items containing a microprocessor or internal clock. The phased plan approach utilized by the Company for analysis of the IT systems is also being used for non-IT systems. Phase I inventory and prioritization has been completed for non-IT systems. Phase II analysis will be performed on systems material to the Company's operations with the assistance of the Company's vendors. The Company currently plans to complete the Y2K compliance program for all material non-IT systems by the end of June 1999.
Material Third Parties - The Company has created an inventory of what it believes to be all material third parties with whom the Company has a business relationship in the U.S. Requests for binding Y2K compliance letters were sent to these third parties beginning in March 1999. The Company is currently reviewing the responses to these requests to determine the Y2K readiness of these third parties. For those critical third party suppliers, service providers and customers that fail to respond to the Company's survey, the Company intends to pursue alternative means of obtaining Y2K readiness information, such as review of publicly available information published by such third parties. The Company plans to continue to review its third party relationships throughout the Y2K compliance program to ensure all material third party relationships are addressed.
Product Liability - The Company does not make any representations or warranties that the products it distributes are or will be Y2K ready or compliant. In certain countries where the Company or its subsidiaries distribute products, the Company may have an obligation to accept returns of products which fail because the product is not Y2K ready. In most cases, these returns may be passed on to the manufacturer. In those countries where product return obligations may exist, the Company plans to carefully review manufacturer representations regarding products that are sold in material volumes by the Company or its subsidiaries.
Contingency Planning and Risks
Upon completion of Phase I (inventory of components) and Phase II (analysis of Y2K readiness) the Y2K compliance project team will commence development of a contingency plan to address risks arising from Y2K. While the Company believes that its approach to Y2K readiness is sound, it is possible that some business components are not identified in the inventory, or that the scanning or testing process does not result in analysis and remediation of all source code. The Company will assume a third party is not Y2K ready if no response or an inadequate response is received. The Company's contingency plan will address alternative providers and processes to deal with business interruptions that may be caused by internal system or third party providers failure to be Y2K ready to the extent it is possible.
The failure to correct a material Y2K problem could result in an interruption in, or a failure of, certain normal business activities or operations. Such failure could materially and adversely affect the Company's results of operations, liquidity and financial condition. In addition, the Company's operating results could be materially adversely affected if it were to be held responsible for the failure of any products sold by the Company to be Y2K ready despite the Company's disclaimer of product warranties and the limitation of liability contained in its sales terms and conditions.
The expenditures related to the Year 2000 compliance program are approximately $7,500.
Business Development
Coral Development Corp. ("Coral") was incorporated under the laws of the State of Delaware on November 16, 1996 as a wholly owned subsidiary of Modern Technology Corp. ("MTC") a Delaware corporation who received 403,000 shares of common stock of Coral in exchange for $30,000.
In June of 1997, Coral registered 403,000 shares of common stock to be distributed to the shareholders of MTC as a shared dividend. The registration and issuance of the shares was subject to the provisions of Rule 419 ("Rule 419") of Regulation C of the Rules and Regulations of the Securities Act of 1933, as amended.
Rule 419 sets forth the requirements that apply to every registration statement filed under the Act relating to an offering by a "blank check company". A "blank check company" is a company that is a development stage company that has no specific plan or purpose or has indicated that its business plan is to engage in a merger or acquisition with an unidentified company or companies, or other entity or person. At the time of filing the registration statement, Coral was a "blank check company". The main requirements of Rule 419 are: escrowing the securities that are subject to the registration statement prior to issuance of the securities and consummating a transaction within 18 months of filing the registration statement.
Coral and OmniComm Systems, Inc. (the "Company") entered into an Agreement and Plan of Merger on July 22, 1998. The terms of the agreement provided that all of the issued and outstanding shares of OmniComm Systems, Inc. would be exchanged for 940,000 shares of common stock of Coral. The officers and directors of Coral would resign and the name of Coral would be changed to OmniComm Systems, Inc. Further, as part of the plan of merger, the five OmniComm shareholders will receive options representing an additional 2,687,000 shares of common stock of the Company. The options will vest in the event the Company generates $4,000,000 in gross revenue on a cumulative basis. The issuance of the shares subject to the options will cause substantial dilution to the existing shareholders.
Coral had until December 5, 1998 (18 months from the filing date of the Form SB-2 - June 5, 1997) to finalize a transaction. Prior to entering into the Agreement and Plan of Merger, the Company acquired Education Navigator, Inc. on June 26, 1998. The closeness in time of these two transactions presented a logistical problem in completing due diligence and providing audited financial statements for OmniComm Systems, Inc. and especially Education Navigator, Inc. which did not have audited financial statements. To further complicate the matter, the financial statements when completed needed to be presented in such a way so as to show pro- forma information as if the mergers had occurred a year earlier. Coral received a comment letter from the Securities Exchange Commission concerning the Post-Effective amendment to the SB-2. It was clear from the comments that Coral and the Company would not make the deadline on December 5, 1998 so the SB-2 was withdrawn. Coral and the Company understood that if the SB-2 did not go effective by December 5, 1998, they would have to re-file the registration statement since it was very unlikely that an extension would be given. The shares that had been held in escrow pursuant to Rule 419 were returned to MTC.
Since the parties were specifically identified for purposes of an acquisition it was felt that the proscriptions of Rule 419 would not apply and the safeguards for issuance of the shares such as the escrow requirements would not have to be adhered to which would shorten the time period for completing the transactions. In addition, the Division of Corporate Finance had issued Staff Legal Bulletin No. 4, which gave specific guidance to the parties for the type of transaction that was contemplated.
The Company and Coral continued with their plans to finalize the merger and to become a reporting company. The parties executed an Amended Agreement and Plan of Merger to include MTC, the parent of Coral, as a party for the sole purpose of issuing the shares in accordance with the Agreement and Plan of Merger. A Form 10-SB was filed on December 22, 1998 to register the common shares of Coral, pursuant to Section 12(g) of the Securities Exchange Act of 1934.
The Company and Coral finalized the merger on February 17, 1999. None of the shares have been distributed to the MTC shareholders.
BUSINESS OF ISSUER
OmniComm Systems, Inc. is developing and marketing TrialMaster(TM) a data base application to collect, validate and compile clinical trial data over the Internet. TrialMaster(TM) is an integrated solution for participants in the clinical trial process such as pharmaceutical and medical device companies, and clinical research organizations (CRO) to implement a system that utilizes the principal strengths of the Internet to conduct clinical trials:
Less Expensive
Faster
More Efficient
Real-Time Access
TrialMaster(TM) automates the entire process of data collection and validation; effectively reducing development and testing time for medical drug and device research projects. See TrialMaster(TM) Overview.
The Company plans to distribute and maintain the TrialMaster(TM) system directly. The Company plans on implementing a sales and marketing staff within the next 12 months. The Company has expended approximately $100,000 on continued refinements of the system since acquiring the system when Education Navigator was acquired.
In addition to the development and marketing of its TrialMaster(TM) application, OmniComm is a systems integrator: a provider of services and products designed to build, manage and enhance computer network infrastructures, local and wide area, for businesses.
The Company made a strategic decision during the beginning of January 1999 to focus substantially all of its resources, both financial and personnel, on the development and marketing of its TrialMaster(TM) system. The Company had begun the development of the application during the fourth calendar quarter of 1998.
The Company, however, will continue with its systems integration business and its current projects with its current client base including Office Depot, Republic Industries, and Commercial Services International and other private companies.
TRIALMASTER(TM)
Overview
In order for a drug or device to be marketed in the United States, Europe or Japan, the drug or medical device must undergo extensive testing and regulatory review in order to determine that the drug or device is safe and effective.
To support an application for regulatory approval, clinical data must be collected. Clinical data is collected from the Clinical Report Forms (CRF) that are submitted to and filled out by an investigator, typically a doctor or research assistant who is participating in the clinical trial. These CRFs can be 5 to 100 pages and document a series of visits by patients over a period of time. See Clinical Trial Overview.
Once information is collected from the patient/study subject by the investigators and the relevant portion of the CRF is filled out, it is then submitted to either the sponsor of the study, such as a pharmaceutical company, or the clinical research organization (CRO), an entity that has contracted with the sponsor to conduct the clinical trial. The data is then inputted manually into a data base. Typically, double data entry is used in order to resolve errors.
TrialMaster(TM) allows participants in the clinical trial process such as a sponsor or CRO to perform the foregoing data collection and handling via a direct, secure Internet connection.
Description
OmniComm provides a fully integrated solution for the collection of clinical data utilizing its TrialMaster(TM) application. OmniComm works closely with a sponsor such as a drug company, CRO to develop a CRF that is Internet enabled. During this process, the protocol of the trial in the form of validation parameters are incorporated into the CRF. The development of the Internet based CRF and the incorporation of the validation criteria are done internally and, when necessary, outside software programming assistance is utilized.
After the CRFs are Internet enabled and the validation criteria encoded, the CRFs 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 can provide the necessary infrastructure components including network consulting and implementation, hardware procurement, hosting, and maintenance.
TrialMaster(TM) is an open system that is fully integratable with existing legacy data systems such as Oracle(R) and Microsoft SQL(R). The application utilizes standard browsers such as Internet Explorer 4.0(R) and Netscape(R).
The cost for implementing the application is based on a per page/per patient fee which 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. As an example, a 400 patient trial using a 5 page CRF would approximately $100,000. The cost per page, in this case, would be $50.00 per page. The cost per page would decrease as the number of patients or pages increase.
TrialMaster(TM) allows clinical data to be entered directly from a source document such as a patient record or doctor's notes via a computer. The clinical data is transmitted via the Internet to a secure server where the data is validated and stored. The following flow chart shows how the system works.
TrialMaster(TM) significantly impacts the clinical trial process in the following three areas: Data Collection, Validation and Edit Queries, and Monitoring.
Data Collection Comparison
Clinical data is collected from the Clinical Report Forms (CRF) that are submitted to and filled out by an investigator - doctor/research assistant - who is participating in the clinical trial. These forms can be 5 to 100 pages per patient and encompass a series of visits by patients over a period of time. For example, the cost for data handling and collection in an ongoing 12,000 patient European clinical trial with a 70-page clinical report form (CRF) is $1,000 per patient.
Current System TrialMaster(TM) System
The cost to process data is The cost to process data is
approximately $15.00 to $25.00 approximately 5-10 times
per page per patient. less per page per patient.
The time to process the data can The time to process the data
take anywhere from 1 - 4 weeks is approximately 1 minute.
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Validation and Edit Query Comparison
Upon submission, data is reviewed to see whether the collected data is within certain parameters of the clinical trial, primary validation. If data is outside of the clinical trial parameters or there are typographical errors or similar data problems the data collection process will generate an edit query. This edit query must be submitted to the investigator for resolution and resubmitted for data processing.
Current System TrialMaster(TM) System
The cost to process an edit The number of edit queries
query is approximately $80-$100 is significantly reduced or
per query. For a large trial even eliminated because the
it would not be uncommon to system does the validation
generate 500-1000 edit queries when the data is inputted.
a week.
The time to process the data can The time to process the data
take anywhere from 3 - 5 weeks. is approximately 1 minute.
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Monitoring
Monitors are an integral and necessary part of the clinical trial process. These individuals travel to the clinical sites to ensure that the investigators are complying with good clinical practice (GCP) standards. Essentially, their role is to make sure clinical data is being collected and submitted in a safe, timely and accurate manner. Monitoring and its associated costs such as travel can make up one quarter of the total costs of a clinical trial. Current System
The cost for a monitoring
visit can vary between
$1,000 to $3,000 per visit
per site. A trial can have
as many as 3-7 visits.
The time for each visit is
usually 1 to 2 days.
TrialMaster(TM) System
The number of visits can be
reduced because the status
of sites can be monitored
remotely and in real time.
The time for a visit can be
reduced 25% to 30%.
CLINICAL TRIAL INDUSTRY OVERVIEW
Worldwide research and development expenditures by the
pharmaceutical and biotechnology industries reached an estimated
$40 billion in 1997. Further, research and development expenditures
in 1997 for the top 50 pharmaceutical companies in the world
increased approximately 11% from the previous year(1). Clinical Trial
costs represent approximately $7 billion. Drug testing can cost
$150 million or more for a single medication(2).
The Company believes that certain industry and regulatory trends have led pharmaceutical, biotechnology, cosmetic and device companies to increase research and development for proprietary new drugs, cosmetic 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:
Drug Development Pressures.
Globalization of Clinical Development and Regulatory Strategy.
Increasingly Complex and Stringent Regulation; Need for
Technological Capabilities.
Competitive Pressures.
Growth of Biotechnology and Genomics Industries.
These trends have created even greater competitive demands on the industry to bring products to market efficiently and quickly. It has been estimated that for each day a given product remains in clinical trials a company loses approximately $1,000,000 in revenue per day(3).
CLINICAL TRIAL OVERVIEW
The regulatory review process is time consuming and expensive. A new drug application (NDA) can take up to 2 years before it is approved. This is in addition to 3 to 5 years of studies required to provide the data to support the NDA. The following is an overview of the process that is generally undertaken to bring a drug or device to market:
Preclinical Research (1 to 3.5 years). In vitro ("test tube") and animal studies 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.
Clinical Trials (3.5 to 6 years)
(1)The data is extracted from the 1998 Center Watch Industry Directory
(2)"Drug Marketing Drives Many Clinical Trials", Wall Street Journal, 11/16/98
(3)Inter@ctive Week Online, October 13, 1998, "Net Lends a Hand in Cancer Fight"
Phase I (6 months to 1 year). Basic safety and pharmacology testing in 20 to 80 human subjects, usually healthy volunteers, 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.
Phase II (1 to 2 years). Basic efficacy (effectiveness) and dose- range testing in 100 to 200 afflicted volunteers to help determine the best effective dose, confirm that the drug works as expected, and provide additional safety data.
Phase III (2 to 3 years). Efficacy and safety studies in hundreds or thousands of patients at many investigational sites (hospitals and clinics) can be placebo-controlled trials, in which the new drug is compared with a "sugar pill," or studies comparing the new drug with one or more drugs with established safety and efficacy profiles in the same therapeutic category.
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.
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 today comprises, on average, roughly 100,000 pages.
FDA Review & Approval (1 to 1.5 years). Careful scrutiny of data from all phases of development (including a TIND) 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.
Post-Marketing Surveillance and Phase IV Studies. Federal regulation requires the manufacturer to collect and periodically report to FDA additional safety and efficacy data on the drug for as long as the manufacturer markets the drug (post-marketing surveillance
To alleviate the enormous amount of paperwork that is generated and submitted for purposes of receiving approval, the United States Food and Drug Administration ("FDA") promulgated regulations on March 20, 1997 concerning the electronic submission of data to the FDA: 21 CFR Part 11 "Electronic Records; Electronic Signatures; Final Rule". Essentially, this regulation provided for the voluntary submission of parts or all of regulatory records in electronic format without an accompanying paper copy. More recently, the FDA promulgated "Providing Regulatory Submissions in Electronic Format-General Considerations".
EMPLOYEES
The Company and its wholly owned subsidiary, OmniCommerce Systems, Inc., currently have nine (9) full time employees.
SALES AND MARKETING
The Company has made a strategic decision to focus all of its resources both financial and personnel on developing, marketing and selling its TrialMaster(TM) application. The Company is focusing its marketing efforts on three (3) core groups: clinical and academic research organizations; pharmaceutical companies; and, device manufactures.
The Company has retained the services of Mr. Lawrence Kronick as its consulting applications manager to assist the Company in defining and formulating a strategic marketing plan. Mr. Kronick has 15 years experience in the sales and marketing of products and services within the medical community throughout the United States, Europe, and Asia. Mr. Kronick is paid a monthly retainer of $3,500 per month, has an option to purchase 60,000 shares of common stock vesting over 3 years, and receives a 10% commission based on sales of the application.
OmniComm is taking a very focused approach to marketing TrialMaster(TM). To date the Company has focused primarily its marketing on the interventional cardiology market. This is a significant market dominated by companies such as Guidant, Johnson & Johnson, Medtronic, Eli Lily, and others. Since becoming involved in this market, however, there are a few factors that lend themselves to the use of TrialMaster(TM):
A very competitive market with relatively short product cycles
providing for a need to get products to market quickly.
A number of products within a specific segment such as stents that
have an incremental difference which need clinical trials to
show clinical and functional superiority.
A tight group of opinion leaders within the market segment.
The clinical trial industry requires an approach grounded on establishing relationships with opinion leaders and decision- makers. The Company is in the early stages of establishing these relationships. OmniComm is planning on attending various meetings including the European Society of Cardiology meeting in Barcelona in August 1999, and the American Heart Association in October 1999.
To date, the Company has not received any revenues from the sale of the TrialMaster(TM) application.
COMPETITION
TrialMaster(TM) - Data Collection
There are other entities that compete with the Company's Internet based data collection system, TrialMaster(TM). Principally, the competitors include Phase Forward Incorporated (www.phaseforward.com), CB Technologies (www.MetaTrial.com), and a British based company, RDE Ltd. Most of these competitors have significantly greater financial, technical and marketing resources, or name recognition than that of the Company.
Systems Integration
The market for the type of system integration services the Company provides includes a large number of competitors and is subject to rapid change. Primary competitors include participants from a variety of market segments, including systems consulting and implementation firms, application software firms, service groups of computer equipment companies, systems integration companies, and general management consulting firms and programming companies. Most of the competitors have significantly greater financial, technical and marketing resources and name recognition that the Company. In addition, the Company competes with its clients' internal resources, particularly where these resources represent a fixed cost to the client. Such competition will impose additional financial and pricing pressures on the Company.
The Company believes that the most significant competitive factors it faces is a lack of operating history and an attendant perception of a lack of experience in competing in such a changing and competitive environment. The Company believes, however, that its technical expertise, the knowledge and experience of its principals of the industry, quality of service and responsiveness to client needs and speed in delivering solutions will allow it to compete favorably within this environment.
MEDICAL ADVISORY BOARD
Given the Company's basic approach in developing and marketing the TrialMaster(TM) application as if it were a medical device, the Company decided to form a Medical Advisory Board. The purpose of the Board is to advise and consult the Company on the development, implementation, and marketing of the TrialMaster(TM) application. The Board is to be composed of 3-5 individuals who have the background and expertise to provide meaningful insight into the process of developing, implementing, and marketing TrialMaster(TM) to the medical drug and device industry. The Board members are paid a retainer of $1,000 per month and given an option to purchase 50,000 shares of common stock of the Company at $1.00 per share over a 3-year period. Currently, there are two members on the Board:
Warren Scott Grundfest, M.D., F.A.C.S. Dr. Grundfest is currently the holder of the Dorothy and E. Phillip Lyon Chair in Laser Research, Director of the laser research and technology development program of Cedars-Sinai Medical Center, Los Angeles, CA.
Bruce Edward Murphy, M.D., Ph.D., F.A.C.C. Dr. Murphy is the Director of Medicine of the Arkansas Heart Hospital; and, Chairman of the Board of the Arkansas Heart Institute.
INTELLECTUAL PROPERTY RIGHTS
The Company acquired Education Navigator, Inc., in part, for its e-commerce applications that it had created and implemented. The Company believes that some of these applications such as TrialMaster(TM) may be subject to patent and/or copyright protection. The Company is currently investigating the viability of securing such protection. Given the uncertainties of the patenting process especially within the field of computer software and business processes, no assurance can be given that such patent protection will be secured.
The Company relies upon a combination of nondisclosure 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 for a patent on a "Distributed System and Method for Collecting and Evaluating Clinical Data". Serial No. 60/134,671.
The Company is in the process of registering the trademarks "OMNICOMM SYSTEMS, INC.", AND "TRIALMASTER" with the U.S. Patent and Trademark Office. The Company intends to make such other state and federal filings as the Company deems necessary and appropriate to protect its intellectual property rights.
Item 2. Management's Discussion and Analysis or Plan of Operation
The Company
The proposed business of Coral (n/k/a OmniComm Systems, Inc.) was to provide a mechanism to take advantage of business opportunities. Through inception, November 19, 1996, to February 17, 1999, the Company conducted no business other than organizational activities.
On June 5, 1997, a registration statement relating to a dividend distribution of 403,000 shares of the Company's Common Stock was declared effective. The offering was made pursuant to Rule 419. The Company realized no net proceeds. The Rule 419 offering did not proceed due to time limitations.
On July 22, 1998, Coral signed an Agreement and Plan of
Reorganization with the Company and its shareholders and an
Amendment thereto dated November 3, 1998("Agreement"). The
essential terms of the Agreement are described above, "Other
Matters", "Acquisition of Education Navigator". The Agreement was
finalized on February 17, 1999. The Company has filed a copy of the
Agreement with the Securities and Exchange Commission on Form 8-
K. The OmniComm shares now owned by MTC will be distributed to
MTC shareholders on the basis of one OmniComm share for each fifty
(50) MTC shares.
OMNICOMM SYSTEMS, INC.
Results of Operations
The foregoing takes into account the accounts of the Company's wholly owned subsidiary OmniCommerce. OmniCommerce was formed in July 1998 for the purpose of acquiring Education Navigator, Inc.
From the date of inception (February 28, 1997) to December 31, 1997.
From the date of inception (February 28, 1997) through December 31, 1997, the Company was a subchapter S Corporation. During this period, the Company had a gross profit of $45,423 on revenues of $210,373 and a net loss of $16,040. A significant portion, approximately seventy-five percent (75%), of the revenue generated during this period was from a single client, Commercial Services International, Inc. (CSI). The source of the revenue was primarily from hardware procurement.
For the twelve month period ending December 31, 1998.
For the twelve-month period ending December 31, 1998 the Company had a gross profit of $466,776 on revenues of $1,689,794 and a net loss of $295,367. The net loss is primarily attributed to the acquisition of Education Navigator, Inc.
Comparison between the twelve period ending December 31, 1997 and December 31, 1998.
For the twelve period ending December 31, 1997 the Company had a gross profit of $45,423 on revenues of $210,373 and a net loss of $16,040. For a similar period ending December 31, 1998 the Company had an increase in revenues of $1,479,421. The increase in revenue for the period ending December 31, 1998 is due to a significant increase in projects initiated by the Company's clients, primarily CSI, which represents 78% of the total. During this same period, there was an attendant increase in selling, general and administrative expenses, and salaries to $425,854 from $25,889 representing an increase of $399,965. The major expense items concerning selling, general and administrative expenses were as follows: wages - $180,275; rent - $42,902; health insurance - $14,312; professional fees (accnts./legal) - $27,293; travel - $20,890; telephone - $13,531; fedex - $5,157; office expense/supplies - $10,494; internet access/web - $7,588 In addition to the costs associated with the acquisition of Education Navigator, Inc., the Company hired four additional full time employees, relocated its operations to 3250 Mary Street, Suite 307, Miami, Florida 33133, and rented an additional 1750 square feet for the operations of OmniCommerce Systems, Inc. located at 9400 S. Dadeland Blvd., Suite 112, Miami, Florida 33156.
Plan of Operation
The Company currently has sufficient cash flow from its systems integration projects to fund its day to day operations. The Company has recently initiated a private placement, see below, of 5 year, 10% convertible notes to accredited investors. The proceeds from this offering should be sufficient to assist in the marketing of the TrialMaster application for the next 6 months and to make the necessary debt payments to the Education Navigator shareholders. See Recent Sales of Unregistered Securities - Private Placement.
The Company intends to raise additional funds to develop, market and implement the TrialMaster(TM) application. The Company would expect to raise these funds through additional private placements of debt or equity securities.
Private Placement
On June 4, 1999, the Company entered into a private placement agreement with Noesis Capital Corp. ("Noesis") whereby Noesis has undertaken to raise on a "best efforts" "all or nothing" basis, with a $500,000 minimum on or before June 30, 1999, $3,000,000 from the sale of 2,000,000 shares of 5% Series "A" Convertible Preferred capital stock at $1.50 per share. The offer and sale of the securities is made pursuant to Regulation S of the Securities Act of 1933.
LIQUIDITY
The sole source of revenue for the Company is from its systems integration business and its current projects. The Company has not derived any revenue from its TrialMaster(TM) application.
The Company is generating adequate amounts of cash to meet its current operational needs. With the acquisition of Education Navigator, Inc. the Company, through its wholly owned subsidiary OmniCommerce Systems, Inc., has acquired certain Internet applications including, more specifically, the TrialMaster application. To fully take advantage of the TrialMaster(TM) application the Company anticipates having to raise additional funds to market and develop the infrastructure to support the applications. It is possible that the Company could support such marketing and infrastructure development from current cash flow. However, the Company feels that such an approach would diminish the ultimate value of the applications by not bringing them to market as quickly as possible.
OTHER MATTERS
Acquisition of Education Navigator, Inc.
The Company decided during the beginning of 1998 to diversify its range of services to include applications and services related to the Internet. It is the Company's belief that the Internet has become the network of choice for business entities. The Company decided to search for a company to acquire that was involved in the Internet as opposed to internally developing the capability. It was felt this approach would be more expedient and efficient given the rapidly changing technology base concerning the Internet.
The Company searched for an entity that had the technological base to develop applications or render services, primarily e- commerce, related to the Internet. The Company was not primarily concerned with the financial structure or resources of the entity; rather the Company wanted to acquire a core technology base.
On April 6, 1998 the Company entered into a letter of intent to acquire all of the issued and outstanding shares of Education Navigator, Inc. During the next 45 days the parties negotiated the terms and conditions of the proposed merger and conducted due diligence. On June 26, 1998 the parties entered into a Merger Agreement the principal terms of which are set forth below. Education Navigator, Inc. and its shareholders, Clifton Middleton and Hugh McCallum, were represented by counsel in the transaction. There were no related parties involved in the transaction and all negotiations were conducted on an "arms length" basis.
The payment to the shareholders of EdNav of $600,000 was structured as follows: (a) seventy five thousand dollars ($75,000) was paid on the closing (less a credit for the $5,000 deposit previously paid by Company to the EdNav shareholders); (b) five hundred twenty-five thousand dollars ($525,000) was paid at closing by the delivery of a promissory note issued by the Company which providing for payments of principal as follows: $75,000 within sixty (60) days of closing; $95,000 on or before December 31, 1998; $177,500 on the first anniversary date of the closing; $177,500 on the second anniversary date of the closing. In addition, the shareholders of EdNav were issued 441,180 shares of common stock of the Company.
As part of the acquisition transaction, the two shareholders of Education Navigator, Inc. entered into convenants not to compete. The covenants prohibit the shareholders from engaging in activities that compete with OmniComm Systems, Inc. The Company employs one of the shareholders and the convenant has been incorporated into his employment contract. The covenants shall terminate on June 26, 2001. The Company has agreed to pay the shareholders $60,000 for entering into the convenants. The payment of $60,000 is to be paid as follows: (a) $10,000 upon execution of this Agreement, (b)$10,000 on or before December 31, 1998, (c) $10,000 on or before March 31, 1999, (e) $15,000 on or before July 1, 1999, and (e) $15,000 on or before July 1, 2000.
Factoring
In order to flatten its cash flow requirements the Company entered into a factoring agreement with Bankest Capital Corporation on March 3, 1998. The fees and charges for the factoring arrangement are customary and reasonable. The Company does not factor all invoices, but selectively factors invoices as the need arises.
Item 3. Description of Property
OmniComm's principal executive offices currently are located at 3250 Mary Street, Suite 307, Miami, Florida 33133. The Company currently is on a month to month lease at this location. The Company has also entered into a five year lease for space at 9400 South Dadeland Boulevard, Suite 112, Miami, Florida 33131. The rent for this space ranges from $25,000 to $29,000. The operations of OmniCommerce will be conducted from this location. OmniComm does not expect that any additional space will be required for the foreseeable future.
Item 4.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of July 15, 1999 the number and percentage of shares beneficially owned after giving effect to the consummation of the merger and distribution of the shares of common stock of the Company, owned of record and beneficially, by each officer and director of the Company and by any other person owning more than 5% of the Company's outstanding Common Stock, and by all Officers and Directors as a group.
Shares of Percentage
Common After
Stock After Merger Percentage
Merger and and Prior To
Name Distribution Distribution(3) Merger(4)
Randall Smith(2) 421,461 26% 0%
Peter Knezevich(2) 281,640 18% 0%
Fred Sager 153,500 10% 0%
Clifton Middleton(2) 102,461 6% 0%
Hugh McCallum 102,461 6% 0%
Arthur Seidenfeld(1)(5) 193,096 12% 48%
Anne Seidenfeld(1) (5) 48,530 3% 12%
All directors and
officers as a group
(2) 805,562 50.5%
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(1) May be deemed to be a parent and promoter as such terms are
defined under the Securities Act.
(2) Directors and/or Officers of the Company since February 17,
1999
(3) At the time of filing the amended Form 10-SB none of the
shares have been distributed to the individuals set forth
above. However, after filing and distribution there will be
1,593,000 shares outstanding which reflects the 940,000
shares to be issued to the OmniComm shareholders.
(4) All of the shares were owned by MTC prior to the
acquisition.
(5) As an affiliate of MTC may be construed to own that
percentage of shares held by MTC.
Item 5. Directors, Executive Officers, Promoters and Control Persons
The officers and directors (giving effect to the OmniComm acquisition) are as follows:
Name Age Position
Peter S. Knezevich 43 Chief Executive Officer &
Director
Randall G. Smith 41 President, Director & Chairman
Clifton R. Middleto 51 Vice President
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Peter S. Knezevich, 43, Director, Chief Executive Officer. Mr. Knezevich has been a Director of OmniComm Systems, Inc., since October of 1997 and shall serve as a Director until the next annual meeting. On March 31, 1999, Mr. Knezevich was appointed as Chief Executive Officer of the Company. Since inception (June 30, 1998) Mr. Knezevich has been Director and Chief Operating and Financial Officer of OmniCommerce Systems, Inc., the wholly owned subsidiary of OmniComm Systems, Inc.
From April 1995 to September 1997, Mr. Knezevich was Vice President and General Counsel of Imaging Diagnostic systems, Inc., a development stage, reporting and publicly traded company.
From May 1994 to March 1995, Mr. Knezevich was in the private practice of law.
From June 1991 to April 1994, Mr. Knezevich was an associate with the Miami, Florida law firm of Ferrell and Fertel, P.A.
Randall G. Smith, 41, Chairman, Director and President. Mr. Smith has been a Director of OmniComm Systems, Inc. since inception and shall serve as a Director until the next annual meeting. Since inception (June 30, 1998) Mr. Smith has been Director and Chief Technical Officer of OmniCommerce Systems, Inc., the wholly owned subsidiary of OmniComm Systems, Inc.
From December 1995 to May 1997, Mr. Smith was Director of Operations for Global Communications Group, a Miami, Florida, based systems integrator.
From November 1993 to December 1994, Mr. Smith was General Manager and Chief Operating Officer of Genesis International, a Charlotte, North Carolina, based regional systems integrator.
From January 1989 to November 1993, Mr. Smith was Executive Vice President and Chief Operating Officer of CableNet, Inc., a Charlotte, North Carolina based engineering company that developed, manufactured and marketed world-wide computer interface products. Mr. Smith developed the Company's first product; the universal network adapter utilizing a proprietary dual ram-linked RISC processor architecture.
Clifton R. Middleton, 51, Vice President and Director of Internet Development and Applications. Since inception (June 30, 1998) Mr. Middleton has been Director and President of OmniCommerce Systems, Inc., the wholly owned subsidiary of OmniComm Systems, Inc. Prior to June 1998, for the past five years, he was President of Education Navigator, Inc., acquired by OmniComm.
Item 6. Executive Compensation
The following sets forth the compensation paid to the officers and directors during the past fiscal year ended December 31, 1998. Officers and directors of Coral received no remuneration.
Long Term
Name and Annual Compensation Compensation
Principal Securities Underlying
Position Year Salary Bonus Options/SARs
Randall Smith 1997 0
President/Dir. 1998 $29,000
Peter Knezevich 1997 0
CEO/Dir. 1998 $29,000
Clifton
Middleton 1998 $85,000 85,000
Vice President
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Item 7. Certain Relationships and Related Transactions
As the parent of Coral Development, MTC beneficially owns all of the issued and outstanding shares of Coral Development totaling 403,000 shares of common stock for which it paid $30,000. In addition, loans were extended to cover all legal, accounting, and other costs associated with consummating a merger. The loans were subsequently written off as expenses associated with the merger. As of March 31, 1999 the amount written off was $27,659.97.
Arthur and Anne Seidenfeld are shareholders of MTC and will be shareholders of OmniComm Coral once the shares are distributed as a result of the spin-off: Arthur Seidenfeld will beneficially own 193,096 shares of common stock and Anne Seidenfeld, his mother, will beneficially own 48,530 shares of common stock. As a consequence of finalizing the merger, Arthur and Anne Seidenfeld are no longer officers or directors of OmniComm (f/k/a/ Coral Development Corp.).
The Company's wholly owned subsidiary, OmniCommerce Systems, Inc., was incorporated on June 30, 1998. OmniCommerce was originally incorporated to further develop the applications developed by Education Navigator and acquired by OmniComm. The Company beneficially owns 100 shares of common stock of OmniCommerce Systems, Inc. The Company has pledged these shares as security for the obligations owed to the shareholders Education Navigator, Inc. as a result of the acquisition. OmniComm Systems, Inc. employs Clifton Middleton, one of the shareholders of Education Navigator, as its vice-president responsible for Internet applications and development. Mr. Middleton is paid $85,000 per annum and was granted an incentive stock option on June 26, 1998 to purchase 85,000 shares of common stock at $.60 per share. The option shall vest over a 3-year period as follows: 14,166, 28,334, and, 42,500.
In addition, the Company paid rent of $22,500 during fiscal year 1997 to Mr. Lawton Jackson, vice president and general counsel of the Company. Also, as of September 30, 1998, Mr. Jackson owed the Company $3,406.
Item 8. Description of Securities
The authorized capital stock of the Company consists of 20,000,000 shares of Common Stock, $.001 par value per share and 10,000,000 million shares of Preferred Stock, $.001 par value.
Holders of the Common Stock are entitled to receive dividends when and as declared by the Company's Board of Directors out of funds available therefore. Any such dividends may be paid in cash, property or shares of the Common Stock. The Company has not paid any dividends since its inception and presently anticipates that all earnings, if any, will be retained for development and expansion of the Company's business, and that no dividends on the Common Stock will be declared in the foreseeable future. Any future dividends will be subject to the discretion of the Company's Board of Directors and would depend upon, among other things, future earnings, the operating and financial condition of the Company, its capital requirements, and general business conditions.
Each holder of Common Stock is entitled to one vote per share on all matters, including the election of directors, submitted to a vote of such class. Holders of Common Stock do not have cumulative voting rights. The absence of cumulative voting means that the holders of more than 50% of the shares voting for the election of directors can elect all directors if they choose to do so. In such event, the holders of the remaining shares of the Common Stock will not be entitled to elect any director. The Board of Directors shall be elected each year to a one year term. A majority of the shares entitled to vote, represented in person or by proxy, constitutes a quorum at a meeting of shareholders.
On June 25, 1999 the Company amended its article of
incorporation pursuant to section Chapter 8, Subchapter VII,
Section 228 and 242 of the laws of the State of Delaware to
authorize the issuance of preferred shares. In accordance with
Chapter 8, Subchapter VII, Section 151 of the laws of the State of
Delaware the Board of Directors of OmniComm Systems, Inc. shall
have the authority to divide the preferred stock into as many
series as it shall from time to time determine. The Board of
Directors shall also determine the number of shares comprising each
series of preferred stock, which number may, unless otherwise
provided by the board of directors in creating such series, be
increased from time to time by action of the board of directors.
Each series of preferred stock shall be so designated as to
distinguish such series from the shares of each other series. All
series of preferred stock shall be of equal rank and have the same
powers, preferences and rights, and shall be subject to the same
qualifications, limitations and restrictions, without distinction
between the shares of different series thereof; provided, however,
that there may be variations among different series of preferred
stock as to dividend rates, prices, terms, conditions of
redemption, if any, liquidation rights, and terms and conditions of
conversion, if any, which variations may be fixed and determined by
the board of directors in their discretion.
On July 19, 1999 the Board of Directors, pursuant to Chapter 8, Subchapter VII, Section 151 of the laws of the State of Delaware, filed a with the State of Delaware a Certificate of Designation authorizing the creation of a 5% Series A Convertible Preferred stock. The Certificate of Designation has been attached as Exhibit 4(b).
Miscellaneous Rights and Provisions
Shares of the Common Stock have no preemptive or conversion rights, no redemption or sinking funds provisions and are not liable to further call or assessment. The outstanding shares of the Common Stock are fully paid and non-assessable. Each share of the Common Stock is entitled to share ratably in any assets available for distribution to holders of its equity securities upon liquidation of the Company.
PART II
Item 1. Market Price of and Dividends on Registrant's Common Equity and Other Shareholder Matters
The Common Stock has not traded. Until this distribution Modern Technology Corp owned all shares. There is no representation made that any trading market will develop, or if developed that it will be sustained. There is no indication of any potential trading prices. As of July 15, 1999, assuming the distribution, the Company will have approximately 385 shareholders of record. The Company has not paid any dividends since inception and does not anticipate paying any dividends.
The following indicate the amounts of common equity:
(i) that are subject to outstanding options or warrants to purchase, or securities convertible into common equity of the registrant: 1,915,000
(ii) that could be sold pursuant to Rule 144 under the Securities Act or that the registrant has agreed to register under the Securities Act for sale by security holders: None.
Item 2. Legal Proceedings
None
Item 3. Changes in and Disagreements with Accountants
Not Applicable
Item 4. 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 the founders of Premisys totaling 1,875,000. On February 1, 1998, the Board of Directors of OmniComm Systems, Inc. authorized the issuance of 625,000 shares of common stock to Peter S. Knezevich. These shares were issued pursuant to Section 4(2) of the Securities Act of 1933 in exchange for services rendered and to be rendered as evidenced by a written employment agreements.
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 $.60 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. It is intended that all of the issued and outstanding shares of OmniComm Systems, Inc. will be 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. The terms of the offering were as follows:
Amount: $400,000 Minimum/$750,000 Maximum, All or none, Best Efforts.
Offering: 16 Units Minimum/30 Units Maximum. Each Unit consists of a five (5) year convertible note in the principal amount of $25,000, bearing 10% annual interest, payable semi- annually with the principal convertible into shares of common stock, $.001 par value, of the Company ("Common Stock" or "Shares") at $1.25 per Share, subject to customary anti-dilution provisions. The Convertible Notes may be called in whole or in part at a premium of 102% of par into shares at the conversion price, as may be adjusted, in the event the Company's Common Stock publicly trades on a recognized exchange, NASDAQ or OTC Bulletin Board, for a period of 20 consecutive trading days at a bid price per share of $3.50 or greater, and provided the Shares underlying the Convertible Note have been registered and may be sold without restriction by the holders thereof.
Interest Adjustment: In the event holders demand registration of the Shares underlying the Convertible Notes and such registration statement is not effective within 90 days after the date of notice of demand by said holders, the interest rate on the Convertible Notes beginning on the next quarter following the expiration of the 90 day period, shall increase to 15%, and shall remain at 15% until said registration statement is effective, at which time the interest rate shall revert back to 10%.
Price: $25,000 per Unit. The Company will accept subscriptions for partial Units.
Registration Rights: Demand (so long as 50% of the aggregate
amount of the total offering files notices) and Piggy-Back
registration rights (subject
to underwriter's cut-back).
Use of Proceeds: Operating and Marketing Expenses
Conditions:
(1) Regulation D of the Securities Act of 1933, as amended.
(2) Suitability Standards; Accredited Investors Only.
(3) Board of Directors: Northeast Securities, placement agent, shall have the right to designate one observer with the same notice and reimbursement of expenses as other directors.
(4) Termination Date: March 31, 1999
(5) Placement Fee: 250,000 Common Shares at a purchase price of $.001 per share at the closing of the Minimum.
(6) The Company agrees not to issue equity securities except ISO stock options and other options or stock bonuses to employ consultants and advisors.
(7) Northeast shall have a right of first refusal to match any bonafide equity based offering proposal.
(8) The Company shall have no more than 4,000,000 Shares outstanding on a fully diluted basis prior to the placement of the Convertible Notes.
Placement Agent Fees: 10% Commission (cash); 3% NonAccountable expense allowance (cash); $7,500 advance against non- accountable due diligence expense.
As of August 1, 1999, the Company had received gross proceeds of $862,500 as a result of the private placement. The offering was closed June 15, 1999.
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.
The following is a list of the accredited investors who invested in the private placement:
Bert Amador
Debabrata Chakrabarty
Andrew S. & Marilyn M. Edson
Micheal Ettinger
Eva D. Glass
Claude Haussman
Charlotte Horowitz
Clifford Jacobson
Harvey Jacobson
Ronald Kassover
Harvey Manes
Abraham Masliansky
Richard B. Montanye
Modern Technology Corp.
Rachel Nevitt
Thomas & Rose Perretta
Joseph H. Popolow
Khal Racfert
Elliot & Arlene Schwartz
Elliot Schwartz
Jacob & Yosepha Solomon
Paul Sullivan
Martin Troll
Else Wolfermann
Louis & Irene Katz
Henk Kos
Cees Baas
Kleanthi Xenopoulos
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. The options were granted 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 - 5% Series A Convertible Preferred
On June 4, 1999, the Company entered into a private placement agreement ("Agreement") with Noesis Capital Corp. ("Noesis") wherein Noesis would act as the placement agent for the offer and sale of the Company's 5% Series A Convertible Preferred stock pursuant to and in accordance with Regulation S of the Securities Act of 1933, as amended. Noesis shall receive 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 offering is on a "best efforts" basis.
On June 28, 1999, the Company amended its articles of incorporation to create a class of preferred stock. The Company shall have the authority to issue 10,000,000, $.001 par value preferred shares. The board of directors of the Company shall have the authority to divide the preferred into series or classes and to designate the respective rights of each series or class.
On July 19, 1999, the Company filed a certificate of designation authorizing the creation of a 5% Series A Convertible Preferred stock ("Preferred Stock"). The preferences of the Preferred Stock are as follows:
1. In the event of liquidation, the holders of Preferred Stock will be entitled to receive in preference to the holders of Common Stock an amount equal to their original purchase price plus all accrued but unpaid dividends.
2. Dividends shall be paid at the rate of 5.00% (five percent) per annum (365 days), payable semi-annually, on January 1 and July 1 of each following year.
3. Conversion: (a) Voluntary Conversion: The holders of Preferred
Stock shall have the right to convert at any time at the option of
the holder, each share of Preferred Stock into one share of Common
Stock, subject to antidilution provisions set forth in subsection
(c) below. (b) Automatic Conversion: At any time after one year
from the date of the final Closing Date, the Company can require
that all outstanding shares of Preferred Stock be automatically
converted at the conversion then in effect if at the time (a) the
closing bid price of the Company's Common Stock has exceeded $3.00
for 20 consecutive trading days; (b) the Company's Common Stock has
been listed on the Nasdaq or such other comparable national stock
exchange and; (c) a registration statement covering the shares of
Common Stock issuable upon conversion of the Preferred Stock has
been filed with the Securities and Exchange Commission and declared
effective.
4. Anti-Dilution: Each share of Preferred Stock upon conversion into Shares shall have proportional antidilution protection for stock splits, stock dividends, combinations, and recapitalizations. The conversion price shall also be subject to adjustment to prevent dilution in the event the Company issues additional shares of Common Stock or equivalents at a purchase price less than the applicable conversion price.
5. The Preferred Stock shall not be sold, assigned, transferred or pledged except upon satisfaction of the conditions specified in the subscription agreement executed by the Holder, which conditions are intended to ensure compliance with the provisions of the Securities Act. Each Holder will cause any proposed purchaser, assignee, transferee, or pledgee of the Preferred Share or the Common Stock issuable upon conversion held by a Holder to agree to take and hold such securities subject to the provisions and conditions of the subscription agreement.
6. Each certificate representing (i) the Preferred Stock and (ii) any other securities issued in respect of the Preferred Stock upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall be stamped or otherwise imprinted with a legend in the following form (in addition to any legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
7. A Holder shall have a right to vote that number of votes equal to the number of shares of Common Stock issuable upon conversion of the Preferred Stock.
As of August 17, 1999, the Company has received gross proceeds of $1,060,000.
Item 5. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of Delaware
provides for broad indemnification of officers and directors and
Section 326 of the General Corporation Law of Delaware states as
follows: When an officer, director or stockholder shall pay any
debt of a corporation for which he is made liable by the provisions
of this chapter, he may recover the amount so paid in an action
against the corporation for money paid for its use, and in such
action only the property of the corporation shall be liable to be
taken and not the property of any stockholder.
Part III
Financial Statements
OmniComm Systems, Inc.: December 31, 1998 and 1997
Coral Development Corp.: December 31, 1998, June 30, 1998 and 1997
Education Navigator, Inc: December 31, 1997 and 1996
Exhibits
4 (b) Certificate of Designation - 5% Series A Convertible Preferred
10 (f) Standard Agreement - Proprietary Protection
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the Registrant caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized.
OmniComm Systems, Inc.
/s/ Peter S. Knezevich Peter S. Knezevich, Chief Executive Officer Dated: August 17, 1999 |
OMNICOMM SYSTEMS, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
I N D E X
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT 1 BALANCE SHEETS 2 STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) 3 STATEMENTS OF OPERATIONS 4 STATEMENTS OF CASH FLOWS 5-6 NOTES TO THE FINANCIAL STATEMENTS 7-14 |
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
To the Board of Directors and Shareholders
OMNICOMM SYSTEMS, INC.
Miami, Florida
We have audited the accompanying balance sheet of OMNICOMM SYSTEMS, INC. as of December 31, 1998 and 1997 and the related statements of operations, statements of shareholders' equity (deficit) and cash flows for the periods ended December 31, 1998 and 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based upon our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of OMNICOMM SYSTEMS, INC. as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the periods ended December 31, 1998 and 1997, in conformity with generally accepted accounting principles.
GREENBERG & COMPANY LLC
Springfield, New Jersey
January 15, 1999
(with the exception of note 9, which date
is March 24, 1999)
OMNICOMM SYSTEMS, INC.
BALANCE SHEETS
A S S E T S
December 31,
1998 1997
CURRENT ASSETS
Cash $ 44,373 $ 16,077
Accounts Receivable 77,188 26,086
Inventory 4,240 -0-
Total Current Assets 125,801 42,163
PROPERTY AND EQUIPMENT - Net 33,352 6,800
OTHER ASSETS
Stockholder Loans 3,406 10,906
Intangible Assets, net 163,276 467
Goodwill, net 396,387 -0-
Other Assets 9,300 -0-
TOTAL ASSETS $ 731,522 $ 60,336
L I A B I L I T I E S A N D S H A R E H O L D E R S' E Q U I T Y
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 286,478 $ 26,189
Notes Payable - Current 262,500 50,000
Sales Tax Payable 39,835 -0-
Due to Factoring Agent 139,012 -0-
Total Current Liabilities 727,825 76,189
Notes Payable - Long Term 182,500 -0-
Total Liabilities 910,325 76,189
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred Stock - 2,000,000 shares
authorized, none issued and outstanding
Common Stock - 10,000,000 shares
authorized, 2,941,180 and 1,875,000
issued and outstanding, respectively,
at no par value 132,604 187
Retained Earnings (Deficit) (311,407) (16,040)
(178,803) (15,853)
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT) $ 731,522 $ 60,336
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The accompanying notes are an integral part of these financial statements.
OMNICOMM SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For The Period February 28, 1997 (inception) to December 31, 1998
Total
Share-
Common Stock Retained holders'
Number No Par Earnings Equity
of Shares Value (Deficit) (Deficit)
Issuance of
Common Stock 1,875,000 $ 187 $ -0- $ 187
Net Income (Loss)
for the period
Feb. 28, 1997
(inception) through
December 31, 1997 (16,040) (16,040)
BALANCES AT
DECEMBER 31, 1997 1,875,000 187 (16,040) (15,853)
Issuance of
Common Stock 625,000 63 63
Acquisition of
Education Navigator,
Inc. 441,180 132,354 132,354
Net Income (Loss)
for the Year Ended
December 31, 1998 (295,367) (295,367)
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BALANCES AT
DECEMBER 31, 1998 2,941,180 $132,604 $(311,407) $(178,803)
The accompanying notes are an integral part of these financial statements.
OMNICOMM SYSTEMS, INC.
STATEMENTS OF OPERATIONS
February 28, 1997
For the year ended (inception) to
December 31, 1998 December 31, 1997
REVENUES - SALES, Net $1,689,794 $210,373
COST OF SALES 1,223,018 164,950
GROSS MARGIN (LOSS) 466,776 45,423
OTHER EXPENSES
Depreciation and Amortization 128,196 717
Interest 15,428 5,620
Salaries and Wages 224,796 3,750
Factoring Fees 68,597 -0-
Rent 47,199 24,737
Independent Consultants 76,869 4,500
Selling, General and
Administrative 201,058 22,139
Income (Loss) Before Taxes (295,367) (16,040)
Income Taxes Expense (Benefit) -0- -0-
NET INCOME (LOSS) $ (295,367) $(16,040)
Net Income (Loss) Per Share $(.11) $(.01)
Weighted Average Number of
Shares Outstanding 2,675,375 1,875,000
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The accompanying notes are an integral part of these financial statements.
OMNICOMM SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
February 28, 1997
For the year ended (inception) to
December 31, 1998 December 31, 1997
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $(295,367) $(16,040)
Adjustment to Reconcile Net Income
to Net Cash Provided By (Used In)
Operating Activities:
Depreciation and Amortization 128,196 717
Change in Assets and Liabilities,
net of effects of acquisition of
Education Navigator Inc (EdNav):
(Increase) Decrease in Accounts
Receivable (37,157) (26,086)
(Increase) Decrease in Inventory (4,240) -0-
Increase (Decrease) in Other
Assests (9,300) (539)
Increase (Decrease) in Accounts
Payable and Accrued Expenses 260,289 26,189
Increase (Decrease) in Sales
Tax Payable 39,835 -0-
Increase (Decrease) in Due to
Factoring Agent 139,012 -0-
Net Cash Provided By (Used In)
Operating Activities 221,268 (15,759)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment (3,035) (7,445)
Purchase of EdNav, Net of Cash
Acquired (67,500) -0-
Net Cash Provided By (Used In)
Investing Activities (70,535) (7,445)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Proceeds from Note Payable -0- 50,000
(Payments of) Notes Payable (130,000) -0-
(Loans to) Payments From Stockholder 7,500 (10,906)
Proceeds from Common Stock Issuance 63 187
Net Cash Provided By (Used In)
Financing Activities (122,437) 39,281
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The accompanying notes are an integral part of these financial statements.
OMNICOMM SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(CONTINUED)
February 28, 1997
For the year ended (inception) to
December 31, 1998 December 31, 1997
Net Increase (Decrease) in Cash and
Cash Equivalents 28,296 16,077
Cash and Cash Equivalents at
Beginning of Period 16,077 -0-
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 44,373 $ 16,077
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period for:
Income Tax Paid $ -0- $ -0-
Interest Paid $ 1,636 $ 5,020
Non Cash Investing and Financing
Transactions:
Acquisition of all of the Outstanding
Common Stock of Education Navigator
Inc. during the year ended
December 31, 1998
Assets Acquired, Fair Value $ 732,354
Notes to Sellers Issued (525,000)
Common Stock Issued (132,354)
Cash Acquired (7,500)
Net Cash Paid for Acquisition $ 67,500
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The accompanying notes are an integral part of these financial statements.
NOTE 1: ORGANIZATION AND NATURE OF OPERATIONS
OmniComm Systems, Inc. (the Company) formerly The Premisys Group, Inc. was incorporated in Florida in February 1997. The Company is a computer systems integrator providing services and hardware sales for the installation of local and wide area networks. The Company's customers are located throughout North America.
In addition, the Company is developing a web based database application for the collection, compilation, and validation of clinical data over the internet. The application is called TrialMaster.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid, short-term investments with maturities of 90 days or less. The carrying amount reported in the accompanying balance sheets approximates fair value.
CONSOLIDATION
During the period from July 1, 1998 through December 31, 1998 the accounts of the Company's wholly owned subsidiary, Omnicommerce Systems Inc. (Omnicommerce) were included in the consolidated financial position and results of operations and cash flows. Omnicommerce was formed in July 1998 for the purpose of acquiring Education Navigator, Inc. (See Note 3, Acquisition.) All significant intercompany transactions have been eliminated in consolidation.
ACCOUNTS RECEIVABLE
Accounts receivable are judged as to collectibility by management and an allowance for bad debts is established as necessary. As of each balance sheet date, no reserve was considered necessary.
ADVERTISING
Advertising costs are expensed as incurred.
OMNICOMM SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
INTANGIBLE ASSETS AND GOODWILL
Included in Intangible Assets are the following assets:
December 31, 1998
Cost Accum Amortization Asset
$120,000 $30,000 Covenant not to compete
87,500 14,583 Software development costs
539 180 Organization costs
$208,039 $44,763
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December 31, 1997
Cost Accum Amortization Asset
$ 539 $ 72 Organization costs
The covenant not to compete and the software development costs were acquired as a result of the acquisition of EdNav (see Note 3). The covenant is for a two year period and is being amortized ratably over that time. The software development costs were capitalized and are being amortized ratably over a three year period as that is the expected life of the various products.
Included in Goodwill, as a result of the EdNav acquisition (see Note 3), at December 31, 1998 is the cost of $475,665 and accumulated amortization of $79,278. The goodwill is amortized ratably over a three year period.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration of credit risk are accounts receivable. Major customers are as follows:
December 31, 1998 December 31, 1997
% of % of
Customer Sales $ Total Sales Sales $ TotalSales
Commercial
Services Inc $1,289,594 76% $155,648 74%
Metropolitan
Mortgage -0- -0- 25,934 12%
Office Depot
Inc 176,965 10% -0- -0-
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The Company performs ongoing credit evaluations of its customers but generally does not require collateral to support customer receivables. The loss of any one of these customers could have a material adverse effect on the financial condition of the company.
PROPERTY AND EQUIPMENT, At Cost
Property and equipment consists of the following:
December 31, 1998 December 31, 1997
Accumulated Accumulated
Cost Depreciation Cost Depreciation
Computer and
office
equipment $33,274 $4,636 $7,445 $645
Office
furniture 4,950 236 -0- -0-
$38,224 $4,872 $7,445 $645
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Renewals and betterments are capitalized; maintenance and repairs are expensed as incurred.
Depreciation is calculated using the straight line method over the asset's estimated useful life, which is 5 years for equipment and 7 years for office furniture.
Depreciation expense for 1998 and 1997 was $4,573 and $645 respectively.
REVENUE RECOGNITION POLICY
The company recognizes sales, for both financial statement purposes and for tax purposes, when the products are shipped and when services are provided.
ESTIMATES IN FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." SFAS 109 has as its basic objective the recognition of current and deferred income tax assets and liabilities based upon all events that have been recognized in the financial statements as measured by the provisions of the enacted tax laws.
Valuation allowances are established when necessary to reduce deferred tax assets to the estimated amount to be realized. Income tax expense represents the tax payable for the current period and the change during the period in the deferred tax assets and liabilities.
STOCK OPTION PLAN
In 1998 the Company initiated a stock option plan. The Plan provides for granting Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Phantom Stock Unit Awards and Performance Share Units. In 1998 the Company granted an option to an employee (see Note 3., Acquisition) to purchase 85,000 shares of common stock. The option is exercisable after one year. No compensation expense has been recognized during the periods presented.
NOTE 3: ACQUISITION
On June 26, 1998 the Company acquired all of the outstanding common stock of Education Navigator, Inc. (EdNav). The purchase has been accounted for under the purchase method in accordance with APB Opinion 16. The Company paid the selling stockholders of EdNav $600,000 ($75,000 downpayment and $525,000 in a promissory note) and issued 441,180 shares of common stock of the Company to the selling stockholders of EdNav. The Company valued these shares at $.30 each based principally on the earnings potential of the combined operations. Therefore, the total purchase price was $732,354. The Company also granted a stock option to one selling stockholder to purchase 85,000 shares of the Company for $.60 per share. The option is pursuant to a stock option plan (which has 3,000,000 shares reserved under the plan) and is exercisable over the next three years at 14,166 shares, 28,334 shares and 42,500 shares, respectively.
OMNICOMM SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
EdNav is an Internet company that has developed and is developing dynamic web applications for business. The acquisition of EdNav is accounted for as under the purchase method. All results of EdNav's operations are included in the financial statements from June 26, 1998 forward. The acquisition resulted in $475,665 recorded as goodwill, which will be amortized ratably over 3 years.
The fair value of the assets acquired were as follows:
Cash $ 7,500
Accounts receivable 13,945
Computer and office equipment 27,744
Covenant not to compete 120,000
Software developed 87,500
Goodwill 475,665
$732,354
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The following table shows the results of operations on a pro forma basis for the periods presented as though the companies had combined at the beginning of the period. This information is presented for informational purposes only and does not purport to be indicative of the results of operations that actually would have resulted if the acquisition had been consummated on February 28, 1997 nor which may result from future operations.
1/1/98-12/31/98 2/28/97-12/31/97
Revenues $1,775,835 $ 343,933
Income (Loss) before
extraordinary items (421,599) (325,358)
Net Income (Loss) (421,599) (325,358)
Earnings (Loss)
Per Share $(.14) $(.14)
Weighted Average
Shares Outstanding 2,942,106 2,317,106
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Proforma adjustments to the results of operations are as follows:
1/1/98-12/31/98 2/28/97-12/31/97
Depreciation -
Equipment $ 2,774 $ 5,548
Amortization:
Software developed 14,583 29,167
Covenant not to
Compete 30,000 60,000
Goodwill 79,278 158,555
(126,635) (253,270)
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OMNICOMM SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
EdNav net income
(Loss):
1/1/98-6/30/98 403
1/1/97-12/31/97 (56,048)
Proforma Adjustment $(126,232) $(309,318)
NOTE 4: NOTES PAYABLE
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At December 31, 1997 the Company owed $50,000 to a third party. The note was payable on demand and bore interest at two percent per month. The note was secured by all accounts receivable of the Company. This note was repaid in 1998.
At December 31, 1998 the Company owed $445,000 to the selling stockholders of Ed Nav (see Note 3). The notes are payable over the next two years and bear interest at 5.51% annually. The amount payable in the fiscal year 1999 is $262,500 and the amount due in the fiscal year 2000 is $182,500.
NOTE 5: COMMITMENTS AND CONTINGENCIES
The company is currently in a lease for office space
requiring minimum annual base rental payments for the fiscal
periods shown as follows:
1999 $ 25,747 2000 26,552 2001 27,357 2002 28,161 2003 28,966 Total $136,783 |
In addition to annual base rental payments, the company must pay an annual escalation for operating expenses as determined in the lease. Rent expense for 1998 and 1997 was $47,199 and $24,737, respectively.
NOTE 6: INCOME TAXES
Income taxes are accrued at the statutory U.S. and state income tax rates.
During the period ended December 31, 1997 the Company elected to be taxed as an 'S' corporation for federal and state income tax purposes. Therefore, the corporate income is taxed directly to the shareholders. This election was terminated as of January 1, 1998.
OMNICOMM STSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
Income tax expense is as follows:
December 31, 1998
Current tax expense (benefit):
Income tax at statutory rates $ -0-
Deferred tax expense (benefit):
Amortization of Goodwill and
Covenant (48,419)
Operating Loss Carryforward (58,943)
107,362
Valuation allowance (107,362)
Total Tax Expense (Benefit) $ -0-
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The tax effect of significant temporary differences, which comprise the deferred tax assets are as follows:
December 31, 1998
(Unaudited)
Deferred tax assets:
Amortization of Intangibles $ 48,419
Operating loss carryforwards 58,943
Gross deferred tax assets 107,362
Valuation allowance (107,362)
Net deferred tax assets $ -0-
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During 1998 the Company incurred a net operating loss (NOL) for income tax purposes of approximately $170,000. This loss is allowed to be offset against future income until the year 2018 when the NOL will expire. Other timing differences relate to depreciation and amortization for the stock acquisition of EdNav (Note 3).
The tax benefits relating to all timing differences have been fully reserved for in the valuation allowance account due to the lack of operating history and substantial losses.
NOTE 7: RELATED PARTY TRANSACTIONS
The Company paid rent of $22,500 to a shareholder for the use of office space during 1997.
The Company was owed $10,906 and $3,406 at December 31, 1997 and December 31, 1998, respectively, from shareholder. The amounts are payable on demand. The interest rate is 6% annually.
NOTE 8: POSTRETIREMENT EMPLOYEE BENEFITS
The Company does not have a policy to cover employees for any health care or other welfare benefits that are incurred after employment (postretirement). Therefore, no provision is required under SFAS's 106 or 112.
NOTE 9: SUBSEQUENT EVENTS
On February 17, 1999 Omnicomm merged with Coral Development Corp. (Coral) in a reverse merger. In consideration of receiving all of the issued and outstanding shares of Omnicomm, Coral will issue 940,000 restricted shares of common stock to the shareholders of Omnicomm. Coral had 403,000 shares issued and outstanding prior to the merger. On January 18, 1999 the Company prepared a Confidential Private Placement Memorandum. The offering consisted of units consisting of a five (5) year term note in the principal amount of $25,000, bearing 10% annual interest, with principal and interest, convertible into shares of common stock of the Company at $1.25 per share, including registration rights. Pursuant to this offering the Company has raised a total of $380,625 as of March 24, 1999.
CORAL DEVELOPMENT CORP.
FINANCIAL STATEMENTS
DECEMBER 31, 1998
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT 1 BALANCE SHEETS 2 STATEMENT OF STOCKHOLDER'S EQUITY 3 STATEMENTS OF OPERATIONS 4-5 STATEMENTS OF CASH FLOWS 6 NOTES TO THE FINANCIAL STATEMENTS 7-8 |
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
To the Board of Directors and Stockholders
CORAL DEVELOPMENT CORP.
Brooklyn, New York
We have reviewed the balance sheets of CORAL DEVELOPMENT CORP. (A Development Stage Enterprise) as of December 31, 1998 and the related statements of operations, stockholder's equity and cash flows for the six month periods ended December 31, 1998 and 1997, in accordance with standards established by the American Institute of Certified Public Accountants.
A review of interim financial information consists principally of obtaining an understanding of the system for the preparation of interim financial information, applying analytical review procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an examination in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the financial statements for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing standards, the balance sheet as of June 30, 1998, and the related statements of operations, shareholder's equity and cash flows for the year then ended, and in our report dated August 6, 1998, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying balance sheet as of June 30, 1998 is fairly stated in all material respects in relation to the balance sheet from which it has been derived.
GREENBERG & COMPANY LLC
Springfield, New Jersey
January 21, 1999
Dec 31, 1998 June 30,
(Unaudited) 1998
ASSETS
ASSETS
Current assets - cash $ 431 $ 1,299 Deferred registration costs 48,930 26,007 Organization expense 300 300 TOTAL ASSETS $49,661 $27,606 |
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accrued expense $ 8,465 $ -0-
Due to parent company 27,660 6,701
TOTAL CURRENT LIABILITIES 36,125 6,701
STOCKHOLDER'S EQUITY
Common stock par value $.001
Authorized: 20,000,000 shares
Shares Issued and Outstanding:
403,000 Shares 403 403
Additional paid in capital 29,897 29,897
(Deficit) accumulated during the
development stage (16,764) (9,395)
Total Stockholder's Equity 13,536 20,905
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $49,661 $27,606
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Subject to the comments contained in the Accountants' Review Report.
CORAL DEVELOPMENT CORP.
(A WHOLLY OWNED SUBSIDIARY)
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE PERIOD NOVEMBER 19, 1996 (INCEPTION) TO DECEMBER 31, 1998
(Deficit)
Common Accumulated Total
Stock Additional During the Stock-
# of $.001 par Paid in Development holder's
Shares Value Capital Stage Equity
Initial investment
in capital stock 403,000 $403 $29,897 $ -0- $30,300
BALANCE AT
DECEMBER 16, 1996 403,000 403 29,897 -0- 30,300
Net (Loss) for the
period (578) (578)
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BALANCE AT
JUNE 30, 1997
(Audited) 403,000 403 29,897 (578) 29,722 Net (Loss) for the year ended June 30, 1998 (8,817) (8,817) |
BALANCE AT
JUNE 30, 1998
(Audited) 403,000 403 29,897 (9,395) 20,905 Net (Loss) for the six months ended December 31, 1998 (7,369) (7,369) |
BALANCE AT
DECEMBER 31, 1998
(Unaudited) 403,000 $403 $29,897 $(16,764) $13,536
Subject to the comments contained in the Accountants' Review Report.
CORAL DEVELOPMENT CORP.
(A WHOLLY OWNED SUBSIDIARY)
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
FOR THE PERIOD NOVEMBER 19, 1996 (INCEPTION) TO DECEMBER 31, 1998
(Unaudited)
Period from
For the Three For the Three Nov. 19, 1996
Months Ended Months Ended (inception) to
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998
General and administrative
expenses $( 834) $(6,319) $(16,764)
Net (Loss) for the period $( 834) $(6,319) $(16,764)
Net (Loss) per share $ (0.00) $ (0.02) $ (0.04)
Weighted average common
shares outstanding 403,000 403,000 403,000
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Subject to the comments contained in the Accountants' Review Report.
For the Six For the Six
Months Ended Months Ended
Dec. 31, 1998 Dec. 31, 1997
General and administrative expenses $(7,369) $(7,439) Net (Loss) for the period $(7,369) $(7,439) Net (Loss) per share $ (0.02) $ (0.02) Weighted average common shares outstanding 403,000 403,000 |
Subject to the comments contained in the Accountants' Review Report.
CORAL DEVELOPMENT CORP.
(A WHOLLY OWNED SUBSIDIARY)
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(Unaudited)
Cumulative
For the Six For the Six Amounts
Months Ended Months Ended From
Dec 31, 1998 Dec 31, 1997 Inception
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CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $(7,369) $(7,439) $(16,764)
Changes In Assets
(Increase) in Organization Expense -0- -0- (300)
Increase (Decrease) in Accrued
Expenses 8,465 1,500 8,465
Net Cash Provided By (Used In)
Operating Activities 1,096 (5,939) (8,599)
CASH FLOWS FROM INVESTING ACTIVITIES -0- -0- -0-
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CASH FLOWS FROM FINANCING ACTIVITIES
Loans from Parent Company 20,959 4,451 27,660
Common Stock Issuance -0- -0- 30,300
(Increase) in Deferred Registration
Costs (22,923) (100) (48,930)
Net Cash Provided By (Used In)
Financing Activities (1,964) 4,351 9,030
Net Increase (Decrease) in Cash (868) (1,588) 431
Cash, Beginning of Period 1,299 3,515 -0-
CASH, END OF PERIOD $ 431 $ 1,927 $ 431
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Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Taxes $ -0- $ -0- $ -0-
Interest $ -0- $ -0- $ -0-
Subject to the comments contained in the Accountants' Review Report.
NOTE 1: ORGANIZATION AND NATURE OF OPERATIONS
Coral Development Corp. (CDC) is a Delaware corporation. CDC is in the development stage and has not begun any formal operations. CDC's office is located in New York. The principal purpose of CDC is to find and merge with an operating company. The Company's fiscal year end is June 30.
On December 10, 1996 Modern Technology Corp. (Modern), the parent company of Coral Development Corp., purchased 403,000 shares of the company for $30,300. The shares of the Company were registered on June 6, 1997 with the Securities and Exchange Commission. The intention of Modern is to distribute those shares to Modern's stockholders in the form of a dividend.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING POLICIES
Coral Development Corp.'s accounting policies conform to generally accepted accounting principles. Significant policies followed are described below.
ESTIMATES IN FINANCIAL STATEMENTS
The preparation of the 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 and disclosure of contingent 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.
NOTE 3: INCOME TAXES
The Company follows Statement of Financial Accounting Standards No. 109 (FAS 109), "Accounting for Income Taxes." FAS 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. The Company has net operating loss carry forwards
CORAL DEVELOPMENT CORP.
(A WHOLLY OWNED SUBSIDIARY)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998
(UNAUDITED)
of approximately $16,000 available to reduce any future income taxes. The tax benefit of these losses, approximately $5,600, has been offset by a valuation allowance due to the uncertainty of its realization.
NOTE 4: DEFERRED REGISTRATION COSTS
As of December 31, 1998, the Company has incurred deferred registration costs of $48,930 relating to expenses incurred in connection with the Proposed Distribution (see Note 1). Upon consummation of this Proposed Distribution, the deferred registration costs will be charged to equity. Should the Proposed Distribution prove to be unsuccessful, these deferred costs, as well as additional expenses to be incurred, will be charged to operations.
NOTE 5: INTERIM FINANCIAL REPORTING
The unaudited financial statements of the Company for the period July 1, 1998 to December 31, 1998 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.
CORAL DEVELOPMENT CORP.
FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT 1 BALANCE SHEETS 2 STATEMENT OF STOCKHOLDER'S EQUITY 3 STATEMENTS OF OPERATIONS 4 STATEMENTS OF CASH FLOWS 5 NOTES TO THE FINANCIAL STATEMENTS 6-7 |
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
To the Board of Directors and Stockholders
CORAL DEVELOPMENT CORP.
Brooklyn, New York
We have audited the accompanying balance sheets of CORAL DEVELOPMENT CORP. (A Development Stage Enterprise) as of June 30, 1998 and 1997 and the related statements of stockholder's equity, operations and cash flows for the period ended June 30, 1998 and 1997. These financial statements are the responsibility of the Company'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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents fairly, in all material respects, the financial position of CORAL DEVELOPMENT CORP. (A Development Stage Enterprise) as of June 30, 1998 and 1997, and the statement of its operations and cash flows for the periods then ended, in conformity with generally accepted accounting principles.
GREENBERG & COMPANY LLC
Springfield, New Jersey
August 6, 1998
June 30,
1998 1997
ASSETS
ASSETS
Current assets - cash $ 1,299 $ 3,515 Deferred registration costs 26,007 25,907 Organization Expense 300 300 TOTAL ASSETS $27,606 $29,722 |
LIABILITIES AND STOCKHOLDER'S EQUITY
Due to parent company $ 6,701 $ -0-
TOTAL LIABILITIES 6,701 $ -0-
STOCKHOLDER'S EQUITY
Common stock par value $.001
20,000,000 shares authorized
403,000 shares issued and outstanding 403 403
Additional paid in capital 29,897 29,897
(Deficit) accumulated during the
development stage (9,395) (578)
TOTAL STOCKHOLDER'S EQUITY 20,905 29,722
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $27,606 $29,722
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The accompanying notes are an integral part of this financial statement.
CORAL DEVELOPMENT CORP.
(A WHOLLY OWNED SUBSIDIARY)
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE PERIOD NOVEMBER 19, 1996 (INCEPTION) TO JUNE 30, 1998
(Deficit)
Common Accumulated Total
Stock Additional During the Stock-
# of $.001 par Paid in Development holder's
Shares Value Capital Stage Equity
Initial investment
in capital stock 403,000 $403 $29,897 $ -0- $30,300
Balance -
December 16, 1996 403,000 403 29,897 -0- 30,300
Net (Loss) for the
period (578) (578)
Balance -
June 30, 1997 403,000 403 29,897 (578) 29,722
Net (Loss) for the
year ended
June 30, 1998 (8,817) (8,817)
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BALANCE -
JUNE 30, 1998 403,000 $403 $29,897 $(9,395) $20,905
The accompanying notes are an integral part of this financial statement.
CORAL DEVELOPMENT CORP.
(A WHOLLY OWNED SUBSIDIARY)
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
Period from
For the Year Ended December 17, 1996
June 30, 1998 to June 30, 1997
General and administrative
expenses $(8,817) $ (578)
Net (Loss) for the period $(8,817) $ (578)
Net (Loss) per share $ (0.02) $ (0.00)
Weighted average common shares
outstanding 403,000 403,000
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Cumulative amounts from inception:
General and administrative expenses $ 9,395 Net (Loss) $(9,395) Net (Loss) per share $ (0.02) |
The accompanying notes are an integral part of this financial statement.
CORAL DEVELOPMENT CORP.
(A WHOLLY OWNED SUBSIDIARY)
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
Cumulative
For The Period From Amounts
Year Ended 12/17/96 From
6/30/98 to 6/30/97 Inception
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CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $(8,817) $ (578) $ (9,395)
Changes In Assets
(Increase) in Organization Expense -0- -0- (300)
Net Cash (Used In) Operating
Activities (8,817) (578) (9,695)
CASH FLOWS FROM INVESTING ACTIVITIES -0- -0- -0-
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CASH FLOWS FROM FINANCING ACTIVITIES
Loan from Parent Company 6,701 -0- 6,701
Common Stock Issuance -0- -0- 30,300
(Increase) in Deferred Registration
Costs (100) (25,907) (26,007)
Net Cash Provided By (Used In)
Financing Activities 6,601 (25,907) 10,994
Net Increase (Decrease) in Cash (2,216) (26,485) 1,299
Cash, Beginning of Period 3,515 30,000 -0-
CASH, END OF PERIOD $ 1,299 $ 3,515 $ 1,299
Supplemental Disclosures of
Cash Flow Information
Cash Paid During Period for:
Income Taxes $ -0- $ -0- $ -0-
Interest $ -0- $ -0- $ -0-
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The accompanying notes are an integral part of this financial statement.
NOTE 1: ORGANIZATION AND NATURE OF OPERATIONS
Coral Development Corp. (CDC) is a Delaware corporation. CDC is in the development stage and has not begun any formal operations. CDC's office is located in New York. The principal purpose of CDC is to find and merge with an operating company. The Company's fiscal year end is June 30.
On December 10, 1996 Modern Technology Corp., the parent company of Coral Development Corp., purchased 403,000 shares of the company for $30,300. The shares of the Company were registered on June 6, 1997 with the Securities and Exchange Commission. The intention of Modern Technology Corp. is to distribute those shares to Modern Technology Corp.'s stockholders in the form of a dividend.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING POLICIES
Coral Development Corp.'s accounting policies conform to generally accepted accounting principles. Significant policies followed are described below.
ESTIMATES IN FINANCIAL STATEMENTS
The preparation of the 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 and disclosure of contingent 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.
NOTE 3: INCOME TAXES
The Company follows Statement of Financial Accounting Standards No. 109 (FAS 109), "Accounting for Income Taxes." FAS 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. The Company has net operating loss carry forwards of approximately $10,000 available to reduce any future
income taxes. The tax benefit of these losses, approximately $3,500, has been offset by a valuation allowance due to the uncertainty of its realization.
NOTE 4: DEFERRED REGISTRATION COSTS
As of June 30, 1998, the Company has incurred deferred registration costs of $26,007 relating to expenses incurred in connection with the Proposed Distribution (see Note 1). Upon consummation of this Proposed Distribution, the deferred registration costs will be charged to equity. Should the Proposed Distribution prove to be unsuccessful, these deferred costs, as well as additional expenses to be incurred, will be charged to operations.
NOTE 5: SUBSEQUENT EVENT
On July 22, 1998, the Company signed an Agreement and Plan of Reorganization with Omnicomm Systems, Inc. (Omnicomm). The agreement calls for Omnicomm to be merged into the Company. Omnicomm is a privately held company engaged in the computer software industry. The transaction is contingent upon receiving shareholder approval from both companies and also subject to the conditions of Rule 419 of the Securities Act of 1933 and approval by the Securities and Exchange Commission of a post-effective amendment to the registration statement.
EDUCATION NAVIGATOR, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT 1 BALANCE SHEETS 2 STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) 3 STATEMENTS OF OPERATIONS 4 STATEMENTS OF CASH FLOWS 5 NOTES TO THE FINANCIAL STATEMENTS 6-9 |
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
To the Board of Directors and Shareholders
EDUCATION NAVIGATOR, INC.
Miami, Florida
We have audited the accompanying balance sheet of EDUCATION NAVIGATOR, INC. as of December 31, 1997 and 1996 and the related statements of operations, statements of shareholders' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based upon our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of EDUCATION NAVIGATOR, INC. as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles.
GREENBERG & COMPANY LLC
Springfield, New Jersey
November 5, 1998
EDUCATION NAVIGATOR, INC.
BALANCE SHEETS
ASSETS
December 31,
1997 1996
CURRENT ASSETS
Cash $ 3,521 $ 4,328
Accounts Receivable 1,550 -0-
Total Current Assets 5,071 4,328
PROPERTY AND EQUIPMENT - Net 22,351 10,241
OTHER ASSETS
Deposit 2,807 2,807
Organization Costs, net 581 733
TOTAL ASSETS $ 30,810 $ 18,109
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LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 41,633 $ 8,604
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock - 100,000 shares
authorized, 1,000 issued and
outstanding at $.001 par value 1 1
Additional Paid In Capital 82,083 46,413
Retained Earnings (Deficit) (92,907) (36,859)
Less: Stock Subscription Receivable -0- (50)
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (10,823) 9,505
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TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT) $ 30,810 $ 18,109
The accompanying notes are an integral part of these financial statements.
EDUCATION NAVIGATOR, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For The Period September 24, 1996 (inception) to December 31, 1997
Total
Stock Share-
Number $.001 Additional Retained Subscrip- holders'
of Par Paid-In Earnings tion Equity
Shares Value Capital (Deficit) Receivable (Deficit)
Issuance of
Common Stock 1,000 $1 $46,413 $ -0- $ 46,414
Stock Subscription
Receivable $(50) (50)
Net Income (Loss)
for the period
Sept. 24, 1996
(inception) through
December 31, 1996 (36,859) (36,859)
BALANCES AT
DECEMBER 31, 1996 1,000 1 46,413 (36,859) (50) 9,505
Capital
Contribution 35,670 35,670
Stock Subscription
Payment 50 50
Net Income (Loss) for
the Year Ended
December 31, 1997 (56,048) (56,048)
BALANCES AT
DECEMBER 31, 1997 1,000 $1 $82,083 $(92,907) $-0- $(10,823)
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The accompanying notes are an integral part of these financial statements.
EDUCATION NAVIGATOR, INC.
STATEMENTS OF OPERATIONS
September 24,1996
For The Year Ended (inception) to
December 31, 1997 December 31, 1996
SALES, Net $133,560 $ -0-
COST OF SALES 90,689 -0-
GROSS PROFIT 42,871 -0-
OTHER EXPENSES
Depreciation and
Amortization Expense 3,893 562
Interest Expense -0- 363
Bad Debts 25,200 -0-
Selling, General and
Administrative 69,826 35,934
Income (Loss) Before Taxes (56,048) (36,859)
Income Taxes -0- -0-
NET INCOME (LOSS) $(56,048) $(36,859)
Earnings (Loss) Per Share $(56.05) $(36.86)
Number of Weighted Average
Shares Outstanding 1,000 1,000
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The accompanying notes are an integral part of these financial statements.
EDUCATION NAVIGATOR, INC.
STATEMENTS OF CASH FLOWS
September 24,1996
For the Year Ended (inception) to
December 31, 1997 December 31, 1996
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $(56,048) $(36,859)
Adjustment to Reconcile Net Income
to Net Cash Provided By (Used In)
Operating Activities:
Depreciation and Amortization 3,893 562
Change in Assets and Liabilities:
(Increase) Decrease in Accounts
Receivable (1,550) -0-
(Increase) Decrease in Deposit -0- (2,807)
(Decrease) Increase in Accounts
Payable and Accrued Expenses 33,029 8,604
Net Cash Provided By (Used In)
Operating Activities (20,676) (30,500)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (15,851) (10,778)
Organization Costs -0- (758)
Net Cash Provided By (Used In)
Investing Activities (15,851) (11,536)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Common Stock Issuance -0- 46,364
Additional Paid In Capital 35,720 -0-
Net Cash Provided By (Used In)
Financing Activities 35,720 46,364
Net Increase (Decrease) in Cash (807) 4,328
Cash At Beginning of Period 4,328 -0-
CASH AT END OF PERIOD $ 3,521 $ 4,328
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Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period for:
Income Tax Paid $ -0- $ -0-
Interest Paid $ 363 $ -0-
The accompanying notes are an integral part of these financial statements.
NOTE 1: ORGANIZATION AND NATURE OF OPERATIONS
Education Navigator, Inc. (the Company) was incorporated in Florida in September 1996. The Company develops and maintains dynamic internet web site applications for business. The Company's customers are located throughout North America.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid, short-term investments with maturities of 90 days or less. The carrying amount reported in the accompanying balance sheets approximates fair value.
ACCOUNTS RECEIVABLE
Accounts receivable are judged as to collectibility by management and an allowance for bad debts is established as necessary. As of each balance sheet date, no reserve was considered necessary.
ADVERTISING
Advertising costs are expensed as incurred.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration of credit risk are accounts receivable.
The Company performs ongoing credit evaluations of its customers but generally does not require collateral to support customer receivables.
EDUCATION NAVIGATOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
PROPERTY AND EQUIPMENT
The components of property and equipment at cost are as
follows:
12/31/97 12/31/96
Computer equipment $23,147 $ 7,296
Office Furniture 2,783 2,783
Office Equipment 699 699
26,629 10,778
Accumulated Depreciation (4,278) (537)
Property & Equipment, Net $22,351 $10,241
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Renewals and betterments are capitalized; maintenance and repairs are expensed as incurred.
Depreciation is calculated using the straight line method over the asset's estimated useful life, which is 5 years for equipment and 7 years for office furniture.
Depreciation expense for 1997 and 1996 was $3,741 and $537, respectively.
REVENUE RECOGNITION POLICY
The company recognizes sales, for both financial statement purposes and for tax purposes, when the products are shipped and when services are provided.
ORGANIZATION COSTS
Organization costs of $758 were capitalized upon incorporation. Amortization is recognized ratably over five years. Amortization expense for 1996 and 1997 was $25 and $152, respectively.
ESTIMATES IN FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." SFAS 109 has as its basic objective the recognition of current and deferred income tax assets and liabilities based upon all events that have been recognized in the financial statements as measured by the provisions of the enacted tax laws.
Valuation allowances are established when necessary to reduce deferred tax assets to the estimated amount to be realized. Income tax expense represents the tax payable for the current period and the change during the period in the deferred tax assets and liabilities.
NOTE 3: SUBSEQUENT EVENT - ACQUISITION
On June 26, 1998 the Company was acquired by Omnicomm Systems, Inc. (Omni) for $600,000 and 441,200 shares of Omni stock.
NOTE 4: COMMITMENTS AND CONTINGENCIES
The company is currently in a lease for office and factory space requiring minimum annual base rental payments for the fiscal periods shown as follows:
1999 $ 25,747 2000 26,552 2001 27,357 2002 28,161 2003 28,966 Total $136,783 |
In addition to annual base rental payments, the company must pay an annual escalation for operating expenses as determined under the lease. Rent expense for 1996 and 1997 was $2,132 and $21,482, respectively.
NOTE 5: INCOME TAXES
Income taxes are accrued at the statutory U.S. and state income tax rates.
During the periods ended December 31, 1996 and 1997 the Company elected to be taxed as an 'S' corporation for federal and state income tax purposes. Therefore, the corporate income is taxed directly to the shareholders. This election was terminated as of June 26, 1998, when Omnicomm acquired all of the outstanding stock of the Company.
NOTE 6: POSTRETIREMENT EMPLOYEE BENEFITS
The Company does not have a policy to cover employees for any health care or other welfare benefits that are incurred after employment (postretirement). Therefore, no provision is required under SFAS's 106 or 112.
Exhibit 4(b)
Certificate of Designation
CERTIFICATE OF DESIGNATION
OF
5% SERIES A CONVERTIBLE PREFERRED
OF
OMNICOMM SYSTEMS, INC., a Delaware corporation.
The undersigned corporation
DOES HEREBY CERTIFY:
FIRST: The Board of Directors of OmniComm Systems, Inc. has
authorized the designation of a portion of it's preferred
stock as 5% Series A Convertible Preferred (hereinafter the
"Preferred Stock") consisting of 2,000,000 shares. Each share
of Preferred Stock shall be convertible into shares of the
common stock of OmniComm Systems, Inc. (hereinafter the
"Common Stock") at $1.50 per share.
SECOND: In the event of liquidation, the holders of Preferred Stock
will be entitled to receive in preference to the holders of
Common Stock an amount equal to their original purchase price
plus all accrued but unpaid dividends.
THIRD: 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.
FOURTH: Conversion:
(a) Voluntary Conversion: The holders of Preferred Stock shall
have the right to convert at any time at the option of the
holder, each share of Preferred Stock into one share of Common
Stock, subject to antidilution provisions set forth in
subsection (c) below.
(b) Automatic Conversion: At any time after one year from the
date of the final Closing Date, the Company can require that
all outstanding shares of Preferred Stock be automatically
converted at the conversion then in effect if at the time (a)
the closing bid price of the Company's Common Stock has
exceeded $3.00 for 20 consecutive trading days; (b) the
Company's Common Stock has been listed on the Nasdaq or such
other comparable national stock exchange and; (c) a
registration statement covering the shares of Common Stock
issuable upon conversion of the Preferred Stock has been filed
with the Securities and Exchange Commission and declared
effective.
(c) Anti-Dilution: Each share of Preferred Stock upon
conversion into Shares shall have proportional antidilution
protection for stock splits, stock dividends, combinations,
and recapitalizations. The conversion price shall also be
subject to adjustment to prevent dilution in the event the
Company issues additional shares of Common Stock or
equivalents at a purchase price less than the applicable
conversion price.
FIFTH: 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.
SIXTH: 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
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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.
SEVENTH: A Holder shall have a right to vote that number of votes equal
to the number of shares of Common Stock issuable upon
conversion of the Preferred Stock.
EIGHTH: This amendment shall be effective on July 19, 1999.
Dated: July 19, 1999.
OmniComm Systems, Inc.
By: /s/Randall Smith
Randall Smith, as
Director
By: /s/ Peter S. Knezevich
Peter S. Knezevich, as
Director and Chief Executive
Officer
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Exhibit 10(f)
Standard Agreement - Proprietary Protection
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") is made as of _______, 1999 by and between OmniComm Systems, Inc., a Delaware Corporation (hereinafter referred to as "Company"), and ________(hereinafter referred to as "Consultant").
RECITALS:
Whereas, the Company is in the business of developing and marketing an Internet based data collection system;
Whereas, the Consultant has certain expertise, experience and capabilities in the development of databases; and,
Whereas, the Company desires to retain the Consultant, and Consultant desires to be retained by the Company, upon the following terms and conditions.
NOW THEREFORE, in consideration of the promises herein contained and the following provisions, the parties agree to be legally bound as follows:
1. Status of Consultant. Company hereby employs Consultant and Consultant hereby accepts such employment by Company, upon the terms and conditions set forth herein. This Agreement calls for the performance of the services of the Consultant, as an independent contractor and Consultant will not be considered an employee of the Company for any purpose whatsoever. The Company shall determine the work to be done by the Consultant, but the Consultant shall determine the legal means by which it accomplishes the work specified by the Company. The Company is not responsible for withholding, and shall not withhold, FICA or taxes of any kind from any payments which it owes the Consultant. The Consultant shall not be entitled to receive any benefits which employees of the Company are entitled to receive and shall not be entitled to workers' compensation, unemployment compensation, medical insurance, life insurance, paid vacations, paid holidays, pension, profit sharing, or Social Security on account of their work for the Company.
2. Nature of Employment. _______________________
3. Place of Work. Consultant's services will be rendered at a location mutually agreed upon by the parties.
4. Efforts of Consultant. While acting as a consultant for the Company, the Consultant shall devote his best efforts and skill to the performance of his duties as a Consultant to the Company.
5. Fee and Stock Option. Company shall pay to Consultant and Consultant agrees to accept from Company, in full payment for Consultant's services hereunder, the payment of $_______.
6. Term and Termination by Company or Consultant. The term of this Agreement shall be at will. Either party shall have the right to terminate the Agreement and their respective rights and obligations at any time on written notice.
7. Disclosure of Confidential Business and Technical Information. The Consultant recognizes and acknowledges that the Company's trade secrets and proprietary information and processes, ("Confidential Business and Technical Information") as they may exist from time to time, are valuable, special and unique assets of the Company's business, access to and knowledge of which are essential to the performance of the Consultant's duties hereunder. It shall be presumed that any and all information pertaining to the Company's TrialMaster(TM) system shall be considered Confidential Business and Technical Information. The Consultant will not, during or after the term of this Agreement, in whole or in part, disclose such Confidential Business and Technical Information to any person, firm, corporation, association or other entity for any reason or purpose whatsoever, nor shall the Consultant make use of any such Confidential Business and Technical Information for his own purposes or for the benefit of any person, firm, corporation or other entity except the Company under any circumstances during or after the term of his employment, provided that after the term of his employment these restrictions shall not apply to such secrets, information and processes which are then in the public domain provided that the Employee was not responsible, directly or indirectly, for such secrets, information or processes entering the public domain without the Company's consent. In the event an action is instituted and prior knowledge is an issue, it shall be the obligation of the Consultant to prove by clear and convincing evidence that the Confidential Business and Technical Information disclosed was in the public domain, was already known by the Consultant, or was developed independently by the Consultant. The Consultant agrees to hold as the Company's property, all memoranda, books, papers, letters, formulas and other data, and all copies thereof and therefrom, in any way relating to the Company's business and affairs, whether made by him or otherwise coming into his possession, and on termination of his employment, or on demand of the Company, at any time, to deliver the same to the Company.
8. Inventions. The Consultant hereby sells, transfers and assigns
to the Company or to any person, or entity designated by the Company,
all of the entire right, title and interest of the Consultant in and to
all inventions, ideas, disclosures and improvements, whether patented or
unpatented, and copyrightable material, made or conceived by the
Consultant specifically for the Company or at the Company's premises,
solely or jointly, or in whole or in part, during the term hereof which
(i) relate to methods, apparatus, designs, products, processes or
devices sold, leased, used or under construction or development by the
Company or any subsidiary, or (ii) otherwise relate to or pertain to the
business, functions or operations of the Company or any subsidiary. The
Consultant shall communicate promptly and disclose to the Company, in
such form as the Company requests, all information, details and data
pertaining to the aforementioned inventions, ideas, disclosures and
improvements; and, whether during the term hereof or thereafter, the
Consultant shall execute and deliver to the Company such formal
transfers and assignments and such other papers and documents as maybe
required of the Consultant at the Company's expense to permit the
Company or any person or entity designated by the Company to file and
prosecute the patent applications and, as to copyrightable material, to
obtain copyright thereon.
9. Covenant Not to Compete. During the term of this Agreement, unless terminated earlier pursuant to Section 7, the Consultant shall not, directly or indirectly, be employed or retained by an individual or entity or involved in any activity that is involved in or with the development of software or a database that is the subject of this Agreement.
10. Remedies. If there is a breach or threatened breach of Section(s) 7, 8, or 9 of this Agreement, the Company shall be entitled to an injunction restraining the Consultant from such breach. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies for such breach or threatened breach.
11. General Provisions.
(a) Invalidity of Provisions. In the event that any provision or portion of a provision of this Agreement shall be held to be unreasonable or unenforceable, such unenforceability shall attach to such provision or portion thereof only to the extent of the specific finding of unenforceability, and in all other respects such provision or portion thereof shall be deemed enforceable, it being the intention of the parties that this Agreement be construed in all respects as if such invalid or unenforceable provision were omitted.
(b) Non-Assignability. This Agreement is personal and shall not be assigned by Consultant. This Agreement may be assigned by the Company to any person or entity that acquires the entire assets of the Company
(c) Applicable Law. This Agreement and the rights of the parties hereunder shall be governed, construed, and enforced in all respects pursuant to the laws of the State of Florida.
(d) Waiver of Breach. The waiver by Company of a breach of any provision of this Agreement by Consultant shall not operate or be construed as a waiver of any subsequent breach by Consultant.
(e) Entire Understanding. This Agreement shall constitute the entire understanding between the parties with reference to the subject matter hereof, shall supersede all prior understandings or agreements, whether oral or written and shall not be altered, modified, or discharged except in a writing signed by the parties.
(f) Benefit of Parties. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of Consultant and his personal representatives and the Company, its successors and permitted assigns.
(g) Right to Contract. The parties represent and warrant that each has the right to enter into this Agreement and to assume all obligations and grant all rights herein and that Consultant has neither made nor will make any contractual or other commitments which are in conflict with this Agreement.
(h) Litigation. In the event of any cause of action, arbitration or litigation arising hereunder, all costs and reasonable attorney's fees of the prevailing party, including, without limitation, attorney's fees and costs at all administrative and appellate levels and in all bankruptcy proceedings, shall be paid by the other party. All actions and proceedings arising out of or relating to this Agreement shall be heard and determined in a state or federal court sitting in the County of Dade, State of Florida. Service of process shall be considered effective if done pursuant to any of the methods set forth in Rule 4(i), Federal Rule of Civil Procedure or pursuant to Florida law.
(i) Counterparts. This Agreement may be executed in any number of counterparts, all of which shall be deemed to be an original, but all of which shall be deemed to constitute but one instrument.
(j) Conflicting Agreements. The Consultant warrants and represents that the execution, delivery and performance of and compliance with this Agreement shall not result in any violation of, or conflict with, or constitute a material default under any other agreements entered into by the Recipient.
IN WITNESS WHEREOF, the parties hereto have set their hands the day and year first above written.
Consultant
Date:
Company
OmniComm Systems, Inc.
By:_________________________
Date: