SECURITIES AND EXCHANGE COMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[Mark One}
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from _______ to ________
Delaware 11-3349762
(State of incorporation) (IRS employer Ident. No.)
2555 Davie Road, Suite 110-B, Davie, Florida 33317
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(Address of principal office) (Zip Code)
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Registrant's telephone number: (954) 473-1254
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X NO ____
The number of shares outstanding of each of the issuer's classes of equity as of June 30, 2002: 8,323,697 common stock $.001 par value, 4,215,224 Series A Preferred stock, $.001 par value, 200,000 Series B Preferred Stock, $.001 par value, 79,950 Series C Preferred Stock, $.001 par value.
OMNICOMM SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2002 2001
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(UNAUDITED)
-----------
ASSETS
CURRENT ASSETS
Cash $ 60,356 $ 142,826
Accounts receivable 22,673 65,705
Prepaid expenses 14,679 2,095
------------ ------------
Total current assets 97,708 210,626
PROPERTY AND EQUIPMENT, net 341,574 421,512
OTHER ASSETS
Intangible assets, net -0- 48,452
Other assets 5,500 5,500
------------ ------------
TOTAL ASSETS $ 444,782 $ 686,090
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,841,510 $ 1,026,919
Notes payable - current 242,963 242,963
Notes payable related party- current 98,322 98,322
Deferred revenue 21,641 83,085
------------ ------------
Total current liabilities 2,204,436 1,451,289
CONVERTIBLE DEBT 2,065,000 2,065,000
NOTES PAYABLE, net of current portion 242,963 242,963
NOTES PAYABLE RELATED PARTY, net of current portion 98,322 98,322
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TOTAL LIABILITIES 4,610,721 3,857,574
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Undesignated preferred stock - $.001 par value. 4,022,500 shares -0- -0-
authorized, no shares issued and outstanding
8% Series B convertible preferred stock, - $.001 par value. 230,000 200 200
shares authorized, 200,000 and 200,000 issued and outstanding,
respectively; liquidation preference $2,000,000 and $2,000,000,
respectively
8% Series C convertible preferred stock, - $.001 par value. 747,500 80 -0-
shares authorized, 79,950 and -0- issued and outstanding,
respectively; liquidation preference $799,500 and $-0-, respectively
5% Series A convertible preferred stock - $0.001 par value, 4,215 4,215
5,000,000 shares authorized; 4,215,224 and 4,215,224 issued and
outstanding, respectively; liquidation preference $4,215,224 and
$4,215,224, respectively
Common stock - 20,000,000 shares authorized, 8,323,697 issued and 8,944 8,944
outstanding, after deducting 620,951 shares of treasury stock, at
$.001 par value
Additional paid in capital - preferred 6,072,146 5,519,282
Additional paid in capital - common 8,980,604 8,613,635
Less: Treasury stock, cost method, 620,951 and 620,951 - shares, (293,912) (293,912)
respectively
Accumulated deficit (18,854,361) (16,932,609)
Deferred compensation (82,715) (90,099)
Subscriptions receivable (1,140) (1,140)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (4,165,939) (3,171,484)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 444,782 $ 686,090
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SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL STATEMENTS.
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE SIX MONTHS ENDED FOR THE THREE MONTHS ENDED
JUNE 30, JUNE 30,
2002 2001 2002 2001
----------- ----------- ----------- -----------
REVENUES $ 225,973 $ 57,179 $ 121,951 $ 16,084
COST OF SALES 202,934 38,198 78,225 21,713
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GROSS MARGIN 23,039 18,981 43,726 (5,629)
OTHER EXPENSES
Salaries, benefits and related taxes 876,565 995,097 438,952 431,858
Rent & occupancy expenses 78,565 77,986 38,345 36,610
Consulting - medical advisory 14,423 -0- 14,423 -0-
Consulting - marketing sales 582 -0- 582 -0-
Legal and professional fees 118,795 100,917 36,869 58,419
Travel 20,260 42,210 5,814 (980)
Telephone and internet 40,056 57,256 16,531 22,817
Selling, general and administrative 53,484 51,874 34,739 25,967
Interest expense, net 145,026 753,286 72,982 82,649
Depreciation and amortization 128,394 182,933 45,612 95,605
----------- ----------- ----------- -----------
Total other expenses 1,476,150 2,261,559 704,849 752,945
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(Loss) before taxes and preferred dividends (1,453,111) (2,242,578) (661,123) (758,574)
Income tax expense (benefit) -0- -0- -0- -0-
----------- ----------- ----------- -----------
Net income (loss) (1,453,111) (2,242,578) (661,123) (758,574)
Preferred stock dividends, including deemed dividends
of $366,804 and $263,805 for the six and three months
ended June 30, 2002, and dividends in arrears of
$79,342 and $39,890 on the Series B Preferred Stock
for the six and three months ended June 30, 2002 and
$12,094 and $10,063 on the Series C Preferred Stock
for the six and three months ended June 30, 2002 (560,078) (102,059) (364,960) (51,200)
----------- ----------- ----------- -----------
Net income (loss) attributable to common stockholders $(2,013,189) $(2,344,637) $(1,026,083) $ (809,774)
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Net (loss) per share $ (0.24) $ (0.30) $ (0.12) $ (0.10)
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Weighted average number of shares outstanding 8,323,697 7,739,214 8,323,697 7,883,732
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SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL STATEMENTS
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 30,
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(1,453,111) $(2,242,578)
Adjustment to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization 128,394 182,933
Common stock issued for services -0- 97,858
Interest expense from beneficial conversion feature on 12% convertible note -0- 508,835
Amortization of deferred compensation 7,384 1,981
Interest expense on detachable warrants 165 108,773
Change in assets and liabilities:
Accounts receivable 43,032 (18,324)
Prepaid expenses (12,584) (2,458)
Intangible assets -0- (66,750)
Accounts payable and accrued expenses 712,750 135,465
Deferred revenue (61,444) 3,613
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Net cash provided by (used in) operating activities (635,414) (1,290,652)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment -0- (21,508)
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Net cash provided by (used in) operating activities -0- (21,508)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from convertible notes, net of issuance costs -0- 794,900
Payments on notes payable (3,841) (16,000)
Proceeds from notes payable 3,841 430,000
Proceeds from issuance of common stock -0- 4,200
Issuance of Series C convertible preferred stock, net of issuance costs 552,944 -0-
Proceeds from stock option exercise -0- 16,000
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Net cash provided by (used in) financing activities 552,944 1,229,100
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Net increase (decrease) in cash and cash equivalents (82,470) (83,060)
Cash and cash equivalents at beginning of period 142,826 90,958
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Cash and cash equivalents at end of period $ 60,356 $ 7,898
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OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
FOR THE SIX MONTHS ENDED
JUNE 30,
2002 2001
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Income tax paid $ -0- $ -0-
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Interest paid $ 22,560 $ 23,657
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NON-CASH TRANSACTIONS
Conversion of convertible notes payable into shares of common stock $ -0- $ 37,500
Common stock issued in exchange for notes payable and accrued interest $ -0- $112,329
Conversion of notes payable into 12% convertible notes $ -0- $760,000
Shares issued as collateral for a note payable $ -0- $ 75,000
Conversion of Series A preferred stock into shares of common stock $ -0- $ 45,000
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SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL STATEMENTS
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
OmniComm Systems, Inc. is an Internet-based healthcare technology company that provides Web-based electronic data capture ("EDC") solutions and related value-added services to pharmaceutical and biotech companies, clinical research organizations, and other clinical trial sponsors. Our Internet-based TrialMaster(R) software allows clinical trial sponsors and investigative sites to securely collect, validate, transmit, and analyze clinical study data.
The Company's accounts include those of its two wholly owned subsidiaries, OmniCommerce and OmniTrial B.V and have been prepared in conformity with (i) generally accepted accounting principles; and (ii) the rules and regulations of the United States Securities and Exchange Commission. All significant intercompany accounts and transactions between the Company and its subsidiaries have been eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes thereto. Actual results may differ from those estimates.
Certain reclassifications have been made in the 2001 financial statements to conform to the 2002 presentation. These reclassifications did not have any effect on net income (loss) or shareholders' equity.
The Company operates in one reportable segment.
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 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.
Accounts receivable subject the Company to its highest potential concentration of credit risk. The Company reserves for credit losses. The Company does not require collateral on trade accounts receivables.
Property and equipment are recorded at cost. Additions and betterments are capitalized; maintenance and repairs are expensed as incurred. Depreciation is calculated using the straight-line method over the asset's estimated useful life, which is 5 years for leasehold improvements, equipment and furniture and 3 years for software. Gains or losses on disposal are charged to operations.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
Intangible assets are amortized on a straight-line basis over periods ranging from one to five years. The Company continually reviews the recoverability of the carrying value of these assets using the methodology prescribed in SFAS 121. The Company also reviews long-lived assets and the related intangible assets for impairment whenever events or changes in circumstances indicate the carrying amounts of such assets may not be recoverable. If it is determined the carrying amount of the assets is permanently impaired then intangible assets are written down to fair value and the useful life of the asset may be changed prospectively. Fair value is determined based on discounted cash flows, appraised values or management's estimates, depending upon the nature of the assets. As of June 30, 2002, management believes no revision to the remaining useful lives or write-down of intangible assets is required.
Deferred revenue represents cash advances received in excess of revenue earned on on-going contracts. Payment terms vary with each contract but may include an initial payment at the time the contract is executed, with future payments dependent upon the completion of certain contract phases or targeted milestones. In the event of contract cancellation, the Company is entitled to payment for all work performed through the point of cancellation. The Company had $21,641 in deferred revenues relating to contracts for services to be performed over the next six to nine months.
OmniComm's revenue model is transaction-based and can be implemented either as an ASP (application service provider) or licensed for implementation by a customer such as a pharmaceutical company. Revenues are derived from the set-up of clinical trial engagements; on-going maintenance fees incurred throughout the duration of an engagement; fees for report writing and change orders. The clinical trials that are conducted using TrialMaster can last from 4 months to several years. Most of the fees associated with our product including post-setup customer support in the form of maintenance charges are recognized ratably over the term of the clinical trial. Cost of sales is primarily comprised of programmer salaries and taxes and is expensed as incurred.
The Company recognizes sales, for both financial statement and tax purposes in accordance with SEC Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements (SAB 101)". SAB 101 requires that revenues be recognized ratably over the life of a contract. In accordance with SAB 101 the Company will periodically record deferred revenues relating to advance payments in contracts. The Company had $21,641 in deferred revenue relating to contracts for services to be performed over the next six to nine months.
Advertising costs are expenses as incurred. Advertising costs were $4,050 and $1,600 for the periods ended June 30, 2002 and 2001, respectively.
Software development costs are included in research and development and are expensed as incurred. Statement of Financial Accounting Standards No. 86 ("SFAS 86") requires the capitalization of certain development costs of software to be sold once technological feasibility is established, which the Company defines as completion to the point of marketability. The capitalized cost is then amortized on a straight-line basis over the estimated product life. To date, the period between achieving technological feasibility and the general availability of such software has been short and software development costs qualifying for capitalization have been immaterial. Accordingly, the Company has not capitalized any software development costs under SFAS 86. Research and development expense was approximately $237,987 in 2002 and $209,803 in 2001 for the six months ended June 30.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
The Company uses the intrinsic-value method of accounting for stock-based awards granted to employees and, accordingly, does not recognize compensation expense for its stock-based awards to employees in the Consolidated Statements of Income. See Note 15 for pro forma information on the impact of the fair-value method of accounting for stock options.
Stock-based compensation is recognized using the intrinsic value method in accordance with the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". For disclosure purposes, pro forma net loss and loss per common share are provided in accordance with Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation", as if the fair value method had been applied.
The Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS 128 replaced the previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants, and convertible securities. The diluted earnings per share calculation is very similar to the previously fully diluted earnings per share calculation method.
Basic earnings per share were calculated using the weighted average number of shares outstanding of 8,323,697 and 7,739,214 for the six months ended June 30, 2002 and 2001 and 8,323,697 and 7,883,732 for the three months ended June 30, 2002 and 2001, respectively. There were no differences between basic and diluted earnings per share. Options to purchase 2,367,041 shares of common stock at prices ranging from $.25 to $5.50 per share were outstanding at June 30, 2002. Stock warrants to purchase 13,194,428 shares of common stock at prices ranging from $0.25 to $10.00 per share were outstanding at June 30, 2002. The Company granted a Unit Purchase Option ("Agent Option") to the Placement Agent of its Series B Convertible Preferred Stock that provides the Placement Agent the ability to purchase 27,000 Series B Preferred Shares with 1,080,000 detachable common stock warrants. The exercise of the Agent Option would result in the issuance of an aggregate of 2,160,000 shares of common stock at an exercise price of $0.25 per share. The options, warrants and Agent Options were not included in the computation of diluted earnings per share because they have an anti-dilutive effect on net loss per share. The Company's convertible debt and convertible preferred stock have an anti-dilutive effect on net loss per share.
The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." SFAS 109 has as its basic objective the recognition of current and deferred income tax assets and liabilities based upon all events that have been recognized in the financial statements as measured by the provisions of the enacted tax laws.
Valuation allowances are established when necessary to reduce deferred tax assets to the estimated amount to be realized. Income tax expense represents the tax payable for the current period and the change during the period in the deferred tax assets and liabilities.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 141"), and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). They also issued Statement of Financial Accounting Standards No. 143, "Accounting for Obligations Associated with the Retirement of Long Lived Assets" ("SFAS 143"), and Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), in August and October 2001, respectively.
SFAS 141 requires all business combinations initiated after June 30, 2001 be accounted for under the purchase method. SFAS 141 supersedes APB Opinion No. 16, "Business Combination's", and Statement of Financial Accounting Standards No. 38, "Accounting for Preacquisition Contingencies" of purchased Enterprises, and is effective for all business combinations initiated after June 30, 2001.
SFAS 142 addresses the financial accounting and reporting for acquired goodwill and other intangible assets. Under the new rules, the Company is no longer required to amortize goodwill and other intangible assets with indefinite lives, but will be subject to periodic testing for impairment. SFAS 142 supercedes APB Opinion No. 17, "Intangible Assets". The Company expects that SFAS 142 will not have a material impact on its consolidated results of operations and financial position upon adoption. The Company adopted SFAS 142 on January 1, 2002.
SFAS 143 establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. It also provides accounting guidance for legal obligations associated with the retirement of tangible long-lived assets. SFAS 143 is effective in fiscal years beginning after June 15, 2002, with early adoption permitted. The Company expects that the provisions of SFAS 143 will not have a material impact on its consolidated results of operations and financial position upon adoption. The Company adopted SFAS 143 effective January 1, 2002.
SFAS 144 establishes a single accounting model for the impairment or disposal of long-lived assets, including discontinued operations. SFAS 144, supersedes Statement of Financial Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), and APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions". The provisions of SFAS 144 are effective in fiscal years beginning after December 15, 2001, with early adoption permitted, and in general are to be applied prospectively. The Company adopted SFAS 144 effective January 1, 2002 and does not expect that the adoption will have a material impact on its consolidated results of operations and financial position.
Management determined that warrants issued during 2001 by the Company should have been valued in accordance with Statement of Financial Accounting Standards No. 123 "Accounting for Stock Compensation" ("SFAS 123"). SFAS 123 requires businesses to value stock based compensation utilizing a fair value approach. Upon review, management determined that the Black-Scholes option pricing model should have been used to estimate the respective fair value of warrants that had been issued in connection with certain bridge loans the Company entered into in 2001.
As a result, the financial statements of OmniComm Systems as of June 30, 2001 and for the period then ended have been restated to reflect the utilization of the Black-Scholes pricing model where applicable. The effect of the restatement was to increase additional paid in capital by $670,610, increase deferred compensation by 51,021 and increase accumulated deficit by $619,589 resulting in no change to the total stockholders' equity as of June 30, 2001; and to increase the net loss attributable to common stockholders by $619,589, a non-cash charge, for the six months ended June 30, 2001.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
The Company issued $1,550,000 in 12% Convertible Notes during the first six months of 2001. A portion of the notes were issued at prices below market value. EITF 98-5, "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios", requires the recording of interest expense on convertible debt that is issued with an embedded beneficial conversion feature, or in the money, at the date the investor is committed to purchase the convertible securities. The Company valued the 12% Convertible Notes Payable utilizing the intrinsic value method and recorded $508,835 in interest expense with a corresponding credit to additional paid-in capital.
During 2001 we issued 176,700 detachable common stock warrants as additional compensation in connection with short-term bridge loans that were used for working capital purposes. We valued the warrants utilizing the Black-Scholes model and recorded $108,773 as interest expense.
A summary of the effects of the restatement is as follows;
AT JUNE 30, 2001 AS PREVIOUSLY REPORTED AS RESTATED
---------------- ---------------------- ------------
Series A preferred stock $ 4,215 $ 4,215
Common stock 8,510 8,510
Additional paid in capital - common 3,645,562 4,316,172
Additional paid in capital - preferred 3,807,964 3,807,964
Accumulated deficit (10,652,743) (11,272,332)
Treasury stock (293,912) (293,912)
Deferred compensation -0- (51,021)
Subscriptions receivable (1,140) (1,140)
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Stockholders' equity $ (3,481,544) $ (3,481,544)
============ ============
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AS PREVIOUSLY REPORTED AS RESTATED
-------------------------------------- ---------------------- ------------
Salaries, benefits and related taxes $ 993,116 $ 995,097
Interest expense 135,678 753,286
Net loss (1,622,989) (2,242,578)
Net loss attributable to common stockholders (1,725,048) (2,344,637)
Basic and diluted net loss per common share $ (0.22) $ (0.30)
FOR THE THREE MONTHS ENDED JUNE 30, 2001 AS PREVIOUSLY REPORTED AS RESTATED
---------------------------------------- ---------------------- ------------
Salaries, benefits and related taxes $ 431,264 $ 431,858
Interest expense 79,176 82,649
Net loss (754,507) (758,574)
Net loss attributable to common stockholders (805,707) (809,774)
Basic and diluted net loss per common share $ (0.10) $ (0.10)
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We have experienced negative cash flow from operations since 1999 and have funded our activities to date primarily from debt and equity financings. We will continue to require substantial funds to continue our research and development activities and to market, sell and commercialize our technology. We will need to raise substantial additional capital to fund our future operations. Our capital requirements will depend on many factors, including the problems, delays, expenses and complications frequently encountered by companies developing and commercializing new technologies; the progress of our research and development activities; the rate of technological advances; determinations as to the commercial potential of our technology under development; the status of competitive technology; the establishment of collaborative relationships; the success of our
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
sales and marketing programs; and other changes in economic, regulatory or competitive conditions in our planned business. Estimates about the adequacy of funding for our activities are based upon certain assumptions, including assumptions that the research and development programs relating to our technology can be conducted at projected costs and that progress towards the commercialization of our technology will be timely and successful. There can be no assurance that changes in our research and development plans, acquisitions or other events will not result in accelerated or unexpected expenditures.
To satisfy our capital requirements, we will seek additional financing through debt and equity financings. There can be no assurance that any such fundings will be available to us on favorable terms or at all. If adequate funds are not available when needed, we may be required to delay, scale back or eliminate some or all of our research and product development and marketing programs. If we are successful in obtaining additional financings, the terms of such financings may have the effect of diluting or adversely affecting the holdings or the rights of the holders of our common and preferred stock.
The ability of the Company to continue in existence is dependent on its having sufficient financial resources to bring products and services to market for marketplace acceptance. As a result of its significant losses, negative cash flows from operations, and accumulated deficits for the periods ending June 30, 2002, there is doubt about the Company's ability to continue as a going concern.
Included in Intangible Assets are the following assets:
JUNE 30, 2002
ACCUMULATED
COST AMORTIZATION
---- ------------
Covenant not to compete $120,000 $120,000
Software development costs 87,500 87,500
Organization costs 539 539
Debt acquisition costs 301,888 301,888
-------- --------
$509,927 $509,927
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DECEMBER 31, 2001
ACCUMULATED
COST AMORTIZATION
---- ------------
Covenant not to compete $120,000 $120,000
Software development costs 87,500 87,500
Organization costs 539 539
Debt acquisition costs 301,888 253,436
-------- --------
$509,927 $461,475
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The covenant not to compete and the software development costs were acquired as a result of the acquisition of Education Navigator, Inc. (EdNav) on June 26, 1998. The covenant was for a two-year period and was being amortized ratably over that time. The software development costs were capitalized and were amortized ratably over a three-year period, as that was the expected life of the various products.
During the year ended December 31, 2001, the Company issued Convertible Notes with gross proceeds totaling $1,615,000. The Company recorded total debt acquisition fees of $218,440 of which $70,250 were to be paid in cash and $148,190 were deemed additional compensation derived from 323,000 stock warrants issued to the placement agent as additional compensation. The debt acquisition costs were amortized ratably over the term of the notes. Amortization expense of the debt acquisition costs totaled $48,552 for the six months ended June 30, 2002. Approximately $2,890 of the debt acquisition costs were reclassified as stock issuance costs in connection with the conversion of $12,500 (original cost) of the convertible notes into common stock of the Company during 2001.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
Property and equipment consists of the following:
JUNE 30, 2002 DECEMBER 31, 2001
ACCUMULATED ACCUMULATED ESTIMATED
COST DEPRECIATION COST DEPRECIATION USEFUL LIVES
-------- ------------ -------- ------------ ------------
Computer and $420,298 $211,386 $420,298 $169,408
office equipment 5 years
Leasehold 3,299 1,062 3,299 732
improvements 5 years
Computer software 260,287 150,745 260,287 117,349 3 years
Office furniture 42,350 21,466 42,350 17,231 5 years
-------- -------- -------- --------
$726,234 $384,660 $726,234 $304,720
======== ======== ======== ========
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Depreciation expense for the periods ended June 30, 2002 and 2001 was $79,940 and $69,693 respectively.
Accounts payable and accrued expenses consist of the following at June 30, 2002 and December 31, 2001:
6/30/02 12/31/01
------- --------
Accounts payable $386,628 $155,531
Accrued payroll and related costs 251,075 41,818
Other accrued expenses 227,034 77,083
Accrued interest 334,538 212,089
Accrued dividends 514,716 412,879
Accrued expenses of OmniTrial BV 127,519 127,519
---------- ----------
Total accounts payable and accrued expenses $1,841,510 $1,026,919
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Other accrued expenses consist primarily of placement agent fees and expenses due on private placements of our debt and equity securities that occurred during 2000, 2001 and 2002 and accrued legal fees associated with the sale of Series C Convertible Preferred Stock. Accrued payroll and related costs includes approximately $221,000 in past due payroll taxes accrued during the first and second quarter that the Company has not yet paid, but are considered legal obligations of the Company.
Basic earnings per shares ("EPS") is computed by dividing income available to common shareholders (which for the Company equals its net loss) by the weighted average number of common shares outstanding, and dilutive EPS adds the dilutive effect of stock options and other common stock equivalents. Antidilutive shares aggregating 31,839,617 have been omitted from the calculation of dilutive EPS for the period ended June 30, 2002. A reconciliation between numerators and denominators of the basic and diluted earnings per shares is as follows:
SIX MONTHS ENDED JUNE 30, 2002 SIX MONTHS ENDED JUNE 30, 2001
------------------------------ ------------------------------
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
NUMERATOR DENOMINATOR AMOUNT NUMERATOR DENOMINATOR AMOUNT
----------- --------- ------ ----------- --------- ------
Basic EPS $(2,013,189) 8,323,697 $(0.24) $(2,344,637) 7,739,214 $(0.30)
Effect of
Dilutive
Securities
None. -0- -0- -0- -0- -0- -0-
----------- --------- ------ ----------- --------- ------
Diluted EPS $(2,013,189) 8,323,697 $(0.24) $(2,344,637) 7,739,214 $(0.30)
=========== ========= ====== =========== ========= ======
|
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
THREE MONTHS ENDED JUNE 30, 2002 THREE MONTHS ENDED JUNE 30, 2001
-------------------------------- --------------------------------
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
NUMERATOR DENOMINATOR AMOUNT NUMERATOR DENOMINATOR AMOUNT
----------- --------- ------ ----------- --------- ------
Basic EPS $(1,026,083) 8,323,697 $(0.12) $ (809,774) 7,883,732 $(0.10)
Effect of
Dilutive
Securities
None. -0- -0- -0- -0- -0- -0-
----------- --------- ------ ----------- --------- ------
Diluted EPS $(1,026,083) 8,323,697 $(0.12) $ (809,774) 7,883,732 $(0.10)
=========== ========= ====== =========== ========= ======
|
On March 20, 2000 the Company entered into a stock purchase
agreement under which it agreed to purchase a 25% interest in
Medical Network AG EMN, a Swiss company ("EMN"). The
agreement, set to close on April 20, 2000, provided that the
purchase price for 25% of EMN's stock equity was $838,500 to
be paid partly in cash and stock. Two cash payments totaling
US $645,000 were to be paid in installments as follows:
$335,000 on March 20, 2000, upon which EMN would deliver 10%
of its stock equity, and $310,000 on April 20, 2000, upon
which EMN would deliver the remaining 15% of its stock equity.
In addition, the Company was to provide 41,883 shares of
restricted common stock to EMN. Pursuant to the terms of the
stock purchase agreement, on March 20, 2000, EMN's
shareholders entered into an agreement that provided for the
Company to have one seat on EMN's board of directors and the
right to veto any sale of equity in excess of 49% of the total
issued and outstanding equity of EMN.
On March 20, 2000, the Company paid EMN $335,000, received 10% of EMN's equity and a seat on EMN's board. On April 20, 2000, the Company did not make the second payment of $310,000 or the stock payment of 41,883 shares to EMN and the stock purchase agreement did not close. On July 11, 2000, the Company and EMN agreed to renegotiate the terms of their agreement subject to the Company's success in finding adequate financing. As part of the renegotiation the Company resigned its seat on EMN's board and offered to sell its 10% interest back to EMN. The Company accounts for its investment in EMN under the cost method of accounting. The Company has established a valuation allowance of $335,000 against its investment in EMN to reflect the uncertainty of the fair market value of the investment as of June 30, 2002 and 2001.
At June 30, 2002, the Company owed $485,926 in long-term notes payable, of which $242,963 was classified as the current portion due of notes payable. These promissory notes were amended and restated on August 31, 2001, in connection with the private placement of the Company's 8% Series B Preferred Stock, with new terms which include an interest rate of 8% per annum, and with one half of the principal payable upon the closing of any financing by the Company resulting in gross proceeds in excess of $2,000,000, and the balance of the principal together with accrued interest payable no later than August 31, 2003.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
At June 30, 2002, the Company owed $196,644 in related party notes payable. These promissory notes were amended and restated on August 31, 2001 with new terms which include an interest rate of 8% per annum, and with one half of the principal payable upon the closing of any financing by the Company resulting in gross proceeds in excess of $2,000,000, and the balance of the principal together with accrued interest payable no later than August 31, 2003.
During March 2002, the Company borrowed $2,341 from Randall Smith, the Company's Chairman and Chief Technology Officer. This amount was repaid without interest on April 12, 2002.
During April 2002, the Company borrowed $1,500 from Ronald Linares, the Company's Chief Financial Officer. This amount was repaid without interest on May 1, 2002.
During the first quarter of 1999, the Company issued 10% Convertible Notes Payable in the amount of $862,500 pursuant to a Confidential Private Placement Memorandum. There were costs of $119,625 associated with this offering. The Company also granted the agent the option to purchase 250,000 common shares at $.001 per share. The agent exercised the option. The net proceeds to the Company were $742,875. The notes bear interest at ten percent annually, payable semi-annually. The notes are convertible after maturity, which is five years, into shares of common stock of the Company at $1.25 per share. As of June 30, 2002 approximately $412,500 of the Convertible Notes had been converted into 330,000 shares of common stock of the Company leaving an outstanding balance of $450,000.
The Company is currently in default on interest payments owed totaling $11,280 on its 10% Convertible Notes. The terms of the notes provide a payment grace period of thirty days in which to make required semi-annual interest payments. The company was in default effective January 30, 2002.
During the first six months of 2001, the Company issued 12% Convertible Notes Payable in the amount of $1,615,000 pursuant to a Confidential Private Placement Memorandum. There were costs of $218,440 associated with the offering of which $148,190 is attributable to warrants issued to the placement agent as additional compensation that were valued using the Black-Scholes method. The net proceeds to the Company were $1,484,750 with the cash compensation costs of $70,250 accrued at June 30, 2002, and $60,000 of accrued expenses due to the placement agent converted as part of the private placement of the 12% Convertible Notes Payable. The notes bear interest at twelve percent annually, payable at maturity. The notes are convertible after maturity, which is January 31, 2002, into shares of common stock of the Company at $0.50 per share. EITF 98-5, "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios", requires Company's to record interest expense on convertible debt that is issued with an embedded beneficial conversion feature, or in the money at the date the investor is committed to purchase the convertible securities. The Company valued the 12% Convertible Notes Payable utilizing the intrinsic value method and recorded $508,835 in interest expense with a corresponding credit to additional paid-in capital.
The Company is currently in default in the repayment of principal and interest due on its 12% Convertible Notes. The terms of the notes provides a payment grace period of thirty days in which to make any required monetary payments. Principal of $1,615,000 together with accrued interest of $184,236 was in default effective March 3, 2002. Accrued interest totaled $263,880 on June 30, 2002.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
The Company currently leases office space under operating leases. The minimum future lease payments required under the Company's operating leases at June 30, 2002 are as follows:
2002 $33,450
2003 44,600
2004 0
2005 0
2006 0
-------
Total $78,050
=======
|
In addition, to annual base rental payments, the Company pays for the operating expenses associated with its leased office space and is responsible for any escalation in operating expenses as determined in the lease. Rental expense was $78,565 and $77,986 for the six months ended June 30, 2002 and 2001.
On or about September 6, 2000, the Company's wholly owned subsidiary, OmniTrial B.V. ("OmniTrial") submitted a petition for bankruptcy protection from the bankruptcy court of the Netherlands. The court appointed a liquidating trustee. The Company claimed that certain assets in the possession of OmniTrial were paid for by the Company and therefore should not be part of the liquidating assets of OmniTrial. The bankruptcy trustee rejected that claim and told the Company that as part of the OmniTrial bankruptcy estate the assets would be sold to diminish any deficiency of the estate. On July 5, 2001 the Company signed a settlement agreement providing for the return of the assets to the Company in exchange for a payment of $10,000 that was made on or about July 5, 2001. The Company does not expect to incur any additional liability in this bankruptcy proceeding.
In January 2001, a former employee, Eugene A. Gordon, filed a lawsuit in Dade County, Florida alleging breach of his employment contract with us. The plaintiff alleges we owe him more than $100,000 for back payment of salary according to the terms of his employment contract. We dispute Mr. Gordon's allegations and are vigorously defending this lawsuit. As part of its defense, the Company recently filed a counterclaim against Mr. Gordon and a counter-suit against his wife. This matter remains pending.
On February 2, 2001, an advertising firm, Wray Ward Laseter filed a lawsuit in the Superior Court of North Carolina against the Company. The plaintiff alleged claims totaling approximately $84,160 against the Company for fees associated with advertising, marketing and public relations services provided between March and September 2000. On or about April 27, 2001, the Company and Wray Ward Laseter entered into a settlement agreement which provided that the plaintiff dismiss the lawsuit with prejudice and release its claims against the Company in return for a series of payments totaling $66,000. The Company made all required payments under the settlement agreement. Wray Ward Laseter filed and the Superior Court accepted on November 30, 2001 a Stipulation of Dismissal.
On February 16, 2001, a staffing agency, Temp Art, Inc. filed a lawsuit in the County Court in and for Miami-Dade County, Florida. The plaintiff alleged the Company breached its contract and owed approximately $13,126 for back payment of services rendered plus interest and costs. On September 25, 2001, the Company and Temp Art entered into a settlement agreement that provided that the plaintiff dismiss the lawsuit with prejudice and release its claims against the Company in return for a payment of $15,700. The Company made the required payment on September 25, 2001 and a Voluntary Dismissal was entered by the County Court on October 5, 2001.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
During 2001, the Company entered into three-year employment agreements with its Chairman/Chief Technology Officer and Chief Financial Officer with compensation for up to six months if terminated under certain conditions. Under separate stock option agreements entered into concurrently with their employment agreements, the Chairman/Chief Technology Officer and Chief Financial Officer were granted incentive stock options to purchase 210,000 shares of common stock at the market price per share respectively.
During June 2002, the Company entered into a one-year employment agreement with its President and Chief Executive Officer. The Company concurrently entered into stock options agreements that provide for 50,000 options to be issued at the time of execution with additional options issued based on the achievement of certain operating parameters that include revenue and operating cash flow performance.
During March 2002, the Company entered into a one-year financial advisory agreement with Noesis Capital to assist the Company in performing certain financial advisory services including the sale of securities, and the possible sale, merger or other business combination involving the Company. Pursuant to this agreement, the Company is obligated to pay $90,000 in professional fees.
During March 2002, the Company borrowed $2,341 from Randall Smith, the Company's Chairman and Chief Technology Officer. This amount was repaid without interest on April 12, 2002.
During April 2002, the Company borrowed $1,500 from Ronald Linares, the Company's Chief Financial Officer. This amount was repaid without interest on May 1, 2002.
Cornelis F. Wit, our President and Chief Executive Officer and a member of our Board of Directors, is a consultant to Noesis Capital Corp. and served as President of Corporate Finance of Noesis Capital Corp. from March 1995 to September 2000. Noesis Capital Corp. has served as placement agent for us in three private placements of securities which were closed between June 1999 and January 2001. Guus van Kesteren, a member of our Board of Directors, is a consultant for Noesis Capital Corp.
In December 1999, we entered into a consulting agreement with Messrs. van Kesteren and Wit, each of whom is a member of our Board of Directors, providing that we will compensate each of these individuals for sales leads or contacts developed by them in connection with our TrialMaster system. For the periods ended June 30, 2001 and 2002, no compensation was earned by either Mr. van Kesteren or Mr. Wit under this agreement. This agreement was terminated upon mutual agreement of the Company and Messrs. Wit and van Kesteren effective June 30, 2002, and a new agreement with identical terms was entered into on the same date with Mr. van Kesteren only.
On April 5, 2002, Cornelis F. Wit, President and Chief Executive Officer and a Director of the Company, invested $10,000 in a private placement of our Series C Convertible Preferred Stock. The Series C Convertible Preferred Stock is convertible into shares of the Company's common stock at a conversion price of $0.25 per share and carries a stated dividend rate of 8% per annum.
On April 5, 2002, Guus van Kesteren a Director of the Company, invested $10,000 in a private placement of our Series C Convertible Preferred Stock. The Series C Convertible Preferred Stock is convertible into shares of the Company's common stock at a conversion price of $0.25 per share and carries a stated dividend rate of 8% per annum.
On January 30 2002, Noesis N.V., one of our stockholders, invested $90,000 in a private placement of our Series C Convertible Preferred Stock. The Series C Convertible Preferred Stock is convertible into shares of the Company's common stock at a conversion price of $0.25 per share and carries a stated dividend rate of 8% per annum.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
From time to time we have borrowed funds from Mr. van Kesteren, including:
between July 2000 and December 2000, we borrowed an aggregate of $110,000 from him under two promissory notes, one of which bore interest at a rate of 12% per annum and the other at 5% per annum. These notes were converted into debt issued as part of a private placement of our debt in January 2000. The private placement debt accrues interest at 12% per annum and is convertible into shares of our Common Stock at the holder's option at a rate of $0.50 per share commencing on January 31, 2002.
between February 2001 and July 2001, we borrowed an aggregate of $190,000 from him under promissory notes which bore interest of 12% per annum. These promissory notes were amended and restated on August 30, 2001 with new terms which included an interest rate of 8% per annum, and with one half of the principal payable upon the closing of any financing by us resulting in gross proceeds in excess of $2,000,000, and the balance of the principal together with accrued interest payable no later than August 30, 2003.
in June 2001, we borrowed an aggregate of $25,000 from him under promissory notes which bore interest at a rate of 12% per annum and had a maturity date of December 22, 2001. These notes were converted into the Units sold in our private placement of Series B Convertible Preferred Stock in August 2001.
in conjunction with these various loans, we have granted Mr. van Kesteren warrants to purchase an aggregate of 70,700 shares of our Common Stock at exercise prices ranging from $.30 to $2.25 per share.
The Company granted Randall G. Smith, Chairman of the Board and Chief Technology Officer, warrants to purchase 20,000 shares of our Common stock at an exercise price of $0.41 per share in connection with a pledge of real property he made in securing a loan made to the Company by Mr. van Kesteren in July 2001, in the amount of $100,000
On August 17, 2000, we borrowed $100,000 from Noesis N.V., one of our stockholders. One of our directors, Mr. Wit, at that time, was President of Corporate Finance of Noesis Capital Corp., an affiliate of Noesis N.V., and remains a consultant to the firm. The promissory note bore interest rate at a rate of 8% per annum and had a maturity date of January 1, 2001. At our request, Noesis N.V. agreed to convert this promissory note into debt issued as part of a private placement of our debt in January 2001. The private placement debt accrues interest at 12% per annum and is convertible into shares of our Common Stock at the holder's option at a rate of $0.50 per share commencing on January 31, 2002.
The Company does not have a policy to cover employees for any health care or other welfare benefits that are incurred after employment (post-retirement). Therefore, no provision is required under SFAS's 106 or 112.
The authorized capital stock of the Company consists of 20,000,000 shares of Common Stock, $.001 par value per share, and 10,000,000 shares of preferred stock, par value $.001 per share, of which 5,000,000 shares have been designated as Series A Convertible Preferred Stock, 230,000 shares have been designated as Series B Convertible Preferred Stock and 747,500 shares have been designated as Series C Convertible Preferred Stock.
As of June 30, 2002 the Company had the following outstanding securities:
|_| 8,323,697 shares of Common Stock issued and outstanding;
|_| 14,274,428 warrants issued and outstanding to purchase shares of our common stock;
|_| 4,215,224 shares of our 5% Series A Convertible Preferred Stock issued and outstanding, and
|_| 200,000 shares of our 8% Series B Convertible Preferred Stock issued and outstanding
|_| 79,950 shares of our Series C Convertible Preferred Stock issued and outstanding
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
Holders of Common Stock are entitled to one vote for each share on all matters submitted to a stockholder vote. Holders of our voting securities do not have cumulative voting rights and holders of a majority of our voting securities voting for the election of directors can elect all of the directors. Holders of Common Stock are entitled to share in all dividends that the board of directors, in its discretion, declares from legally available funds.
Holders of Common Stock have no conversion, preemptive or other subscription rights, and there are no redemption provisions for the Common Stock. The rights of the holders of Common Stock are subject to any rights that may be fixed for holders of preferred stock, when and if any preferred stock is outstanding. All outstanding shares of Common Stock are duly authorized, validly issued, fully paid and non-assessable.
Our Board of Directors, without further stockholder approval, may issue preferred stock in one or more series from time to time and fix or alter the designations, relative rights, priorities, preferences, qualifications, limitations and restrictions of the shares of each series. The rights, preferences, limitations and restrictions of different series of preferred stock may differ with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions and other matters. Our Board of Directors may authorize the issuance of preferred stock which ranks senior to our Common Stock for the payment of dividends and the distribution of assets on liquidation. In addition, our Board of Directors can fix limitations and restrictions, if any, upon the payment of dividends on our Common Stock to be effective while any shares of preferred stock are outstanding.
In 1999, our Board of Directors designated 5,000,000 shares of our preferred stock as 5% Series A Convertible Preferred Stock. The 5% Series A Preferred Stock was created pursuant to a Certificate of Designations filed with the Delaware Secretary of State on July 19, 1999. Between June 1999 and January 2000 the Company issued 4,263,500 shares of the 5% Series A Convertible Preferred Stock with net proceeds of $4,018,843.
The designations, rights and preferences of the Series A Convertible Preferred Stock include:
|_| the shares are not redeemable,
|_| each share of Series A Convertible Preferred Stock is convertible into shares of our Common Stock at any time at the option of the holder at a conversion price of $1.50 per share. The conversion price will be further adjusted for any stock splits, stock dividends, and corporate reorganizations, and certain other corporate transactions and issuances of securities at below the applicable conversion price per share. The Series A Convertible Preferred Stockholders have waived their rights to an anti-dilution adjustment reducing their conversion price as a result of the issuance of the Series B Convertible Preferred Stock,
|_| the shares of Series A Convertible Preferred Stock currently pay a dividend at a rate of 5.00% per annum, payable semi-annually, on January 1 and July 1 of each year,
|_| in the event of our liquidation or winding up, each share of Series A Convertible Preferred Stock carries a liquidation preference equal to $1.50 per share,
|_| each share of Series A Convertible Preferred Stock has full voting rights, share for share, with the then outstanding Common Stock on the basis of one vote for each share of Common Stock issuable upon the conversion of the Series A Convertible Preferred Stock.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
|_| the holders of the Series A Convertible Preferred Stock were granted certain demand and piggy-back registration rights covering the shares of our Common Stock issuable upon the conversion of the Series A Convertible Preferred Stock into Common Stock of the Company.
|_| the holders of the 5% Series A Convertible Preferred Stock are entitled to vote two of the five members of the Company's Board of Directors.
There were $514,716 and $309,354 of accrued and unpaid dividends on the Series A Convertible Preferred Stock at June 30, 2002 and 2001, respectively.
In August 2001, our Board of Directors designated 200,000 shares of our preferred stock as Series B Convertible Preferred Stock. The 8% Series B Preferred Stock was created pursuant to a Certificate of Designations filed with the Delaware Secretary of State on August 31, 2001. A Corrected Certificate of Designations was filed on February 7, 2002 with the Delaware Secretary of State increasing the number of shares authorized as Series B Convertible Stock to 230,000. During September 2001 the Company issued 200,000 shares of the 8% Series B Convertible Preferred Stock with net proceeds of $1,711,518.
The designations, rights and preferences of the Series B Convertible Preferred Stock include:
|_| the stated value of each share is $10.00 per share,
|_| the shares are not redeemable,
|_| each share of Series B Convertible Preferred Stock is convertible into shares of our Common Stock at the option of the holder at any time commencing January 31, 2002 at the option of the holder at $0.25 per share, as adjusted, and the shares automatically convert into shares of our Common Stock at $0.25 per share at such time as we complete a public offering raising proceeds in excess of $25 million at an offering price of at least $0.75 per share. We may require all outstanding shares of the Series B Convertible Preferred Stock to convert in the event the closing bid price of our Common Stock exceeds $0.50 for 20 consecutive trading days, and our Common Stock has been listed on The Nasdaq Stock Market or other comparable national stock exchange or the OTC Bulletin Board and a registration statement registering the shares of Common Stock issuable upon conversion of the Series B Convertible Preferred Stock has been declared effective,
|_| The conversion price will be further adjusted for any stock splits, stock dividends, and corporate reorganizations, and certain other corporate transactions and issuances of securities at below the applicable conversion price per share or market value of the Common Stock,
|_| the shares of Series B Convertible Preferred Stock pay a dividend at a rate of 8% per annum, payable when and as declared by the Board of Directors, or upon conversion or liquidation. At our option, dividends can be paid in cash or shares of Common Stock valued at the conversion price of the Series B Preferred Stock. Dividends are cumulative,
|_| each share of Series B Convertible Preferred Stock will rank senior to our Series A Convertible Preferred Stock,
|_| in the event of our liquidation or winding up, each share of Series B Convertible Preferred Stock carries a liquidation preference equal to $10.00 per share plus accrued and unpaid dividends, and
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
|_| the holders of the Series B Convertible Preferred Stock are entitled to vote, together with the holders of our Common Stock, on the basis of one vote for each share of Common Stock issuable upon the conversion of the Series B Convertible Stock,
|_| the holders of the Series B Convertible Preferred Stock were granted certain registration rights covering the shares of our Common Stock issuable upon the conversion of the Series B Convertible Preferred Stock,
|_| the holders of the 8% Series B Convertible Preferred Stock are entitled to vote one of the five members of the Company's Board of Directors.
There were arrearages of $130,599 and $-0- on the Series B Convertible Preferred Stock for undeclared dividends as of June 30, 2002 and 2001.
In March 2002, our Board of Directors designated 747,500 shares of our preferred stock as Series C Convertible Preferred Stock. The 8% Series C Preferred Stock was created pursuant to a Certificate of Designations filed with the Delaware Secretary of State on March 31, 2002. To date, the Company has issued 79,950 shares of the Series C Convertible Preferred Stock with net proceeds of approximately $552,944. At June 30 2002 the Company was still actively marketing the Series C Preferred Stock Private Placement to accredited investors.
The designations, rights and preferences of the Series C Convertible Preferred Stock include:
|_| the stated value of each share is $10.00 per share,
|_| the shares are not redeemable,
|_| each share of Series C Convertible Preferred Stock is convertible at any time, at the option of the holder, into a number of shares of Common Stock determined by dividing the stated value per share of the Series C Convertible Preferred Stock by $0.25, which is the Series C Conversion Price.The Series C Convertible Preferred Stock will automatically convert into shares of our Common Stock upon a public offering of our securities raising gross proceeds in excess of $25,000,000 at a per share price greater than 2.5 times the Series C Conversion Price per share, as adjusted for any stock split, stock dividend, recapitalization, or other similar transaction. In addition, the Series C Convertible Preferred Stock will automatically convert into shares of our Common Stock at the Series C Conversion Price at such time as the closing bid price for our Common Stock has traded at two times the then prevailing Series C Conversion Price for a period of 20 consecutive trading days, provided that (i) a public trading market exists for our Common Stock on a national securities exchange, the Nasdaq Stock Market, or the over the counter market; and (ii) the Conversion Shares have been registered for resale and are not subject to any lock-up and the number of shares of the Series C Convertible Preferred Stock which can be converted in any 30-day period will be limited to the number of shares of Common Stock underlying the Series C Convertible Preferred Stock equal to 10 times the average daily trading volume during the 20-day look-back period set forth above,
|_| The conversion price will be further adjusted for any stock splits, stock dividends, and corporate reorganizations, and certain other corporate transactions and issuances of securities at below the applicable conversion price per share or market value of the Common Stock,
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
|_| the shares of Series C Convertible Preferred Stock pay a dividend at a rate of 8% per annum, payable when and as declared by the Board of Directors, or upon conversion or liquidation. At our option, dividends can be paid in cash or shares of Common Stock valued at the conversion price of the Series C Preferred Stock. Dividends are cumulative,
|_| each share of Series C Convertible Preferred Stock will rank pari passu with our Series B Convertible Preferred Stock and senior to our Series A Convertible Preferred Stock,
|_| in the event of our liquidation or winding up, each share of Series C Convertible Preferred Stock carries a liquidation preference equal to $10.00 per share plus accrued and unpaid dividends, and
|_| the holders of the Series C Convertible Preferred Stock are entitled to vote, together with the holders of our Common Stock, on the basis of one vote for each share of Common Stock issuable upon the conversion of the Series C Convertible Stock,
|_| the holders of the Series C Convertible Preferred Stock were granted certain registration rights covering the shares of our Common Stock issuable upon the conversion of the Series C Convertible Preferred Stock,
|_| the holders of the Series C Convertible Preferred Stock are entitled to vote two of the seven members of the Company's Board of Directors.
There were arrearages of $12,095 and $-0- on the Series C Convertible Preferred Stock for undeclared dividends as of June 30, 2002 and 2001.
We have issued and outstanding warrants to purchase a total of 13,194,428 shares of our Common Stock, including:
|_| warrants to purchase 2,359,832 shares of our Series A Preferred Stock at an exercise price of $2.00 per share expiring in December 2002 which were issued by us in connection with the offering of the Series A Preferred Stock offering.
|_| warrants to purchase 8,000,000 shares of our Common Stock at an exercise price of $.25 per share expiring September 2006 which were issued by us in connection with the Series B Convertible Preferred Stock offering, which warrants contain a cashless exercise provision.
|_| warrants to purchase 1,235,596 shares of our Common Stock at exercise prices ranging from $.30 to $10.00 per share expiring through July 2006 which were issued by us to various individuals for a variety of reasons including consulting services, advisory services, settlement of a long-term lease obligation, and in connection with the issuance of certain promissory notes.
|_| warrants to purchase 1,599,000 shares of our Common Stock at an exercise price of $.25 per share expiring May 2007 which were issued by us in connection with the Series C Convertible Preferred Stock offering, which warrants contain a cashless exercise provision.
Commonwealth Associates, L.P. acted as our placement agent in connection with the September 2001 private placement of units which included our 8% Series B Convertible Preferred Stock. We issued Commonwealth Associates a seven year option to purchase 2.7 units, each unit consisting of 10,000 shares of Series B Convertible Preferred Stock and warrants to purchase 400,000 shares of Common Stock, exercisable at $100,000 per unit, as additional compensation.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
The Company has adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", ("SFAS No. 123") and as permitted under SFAS 123 applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", ("APB 25") and related interpretations in accounting for stock-based compensation plans. If the Company had elected to adopt optional recognition provisions of SFAS 123 for its stock option plans, net loss and net loss per share would have been changed to pro forma amounts indicated below:
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA) 2002 2001
----------------------------------------- ---- ----
Net loss available to common stockholders
As reported $(2,013) $(2,345)
Pro forma $(2,021) $(2,567)
Basic and diluted net loss per share
As reported $(0.24) $(0.30)
Pro forma $(0.24) $(0.33)
|
These pro forma amounts may not be representative of future disclosures since the estimated fair value of stock options is amortized to expense over the vesting period, and additional options may be granted in future years.
The estimated fair value of each OmniComm option granted is calculated using the Black-Scholes pricing model. The weighted average assumptions used in the model were as follows:
2002 2001
---- ----
Risk-free interest rate 5.00% 5.00%
Expected years until exercise 6 Years 6 Years
Expected stock volatility 150.0 % 150.0%
Dividend yield 0% 0%
|
In 1998, the Company's Board of Directors approved the OmniComm Systems 1998 Stock Option Plan, (the "1998 Plan"). The 1998 Plan provides for granting Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Phantom Stock Unit Awards and Performance Share Units. Pursuant to the 1998 Plan the Company may grant options to purchase up to 3,000,000 shares of the Company's common stock. The term of each option may not exceed ten years from the date of grant, and options vest in accordance with a vesting schedule established by the Plan administrator.
The Company's share option activity and related information is summarized below:
PERIOD ENDED JUNE 30, YEAR ENDED DECEMBER 31,
2002 2001
----------------------------- ---------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
------- ----- ------- -----
Outstanding at beginning of period 3,584,039 $1.33 3,316,006 $2.28
Granted 25,000 $0.35 2,089,500 $0.48
Exercised -0- $0.00 20,000 $0.80
Cancelled 1,241,998 $1.38 1,801,467 $2.09
--------- --------- -----
Outstanding at end of period 2,367,041 $0.77 3,584,039 $1.33
========= ===== ========= =====
Exercisable at end of period 1,943,703 $1.22 2,636,372 $1.47
========= ===== ========= =====
|
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
The following table summarizes information about stock options outstanding at June 30, 2002:
OUTSTANDING EXERCISABLE
------------------------------------------------------------------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
YEARS OF AVERAGE AVERAGE
RANGE OF NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
EXERCISE PRICES OPTIONS LIFE PRICE OPTIONS PRICE
--------------- ------- ---- ----- ------- -----
$0.25 - $0.47 1,041,501 4.72 $0.41 704,831 $0.40
$0.50 - $0.83 532,334 7.17 $0.55 445,666 $0.55
$1.00 - $2.50 789,206 3.56 $1.73 789,206 $1.73
$2.61 - $5.50 4,000 7.09 $2.75 4,000 $2.75
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During 2001, the Company issued an aggregate of 126,340 shares of common stock to employees and advisors with a fair market value of $97,858 for services rendered under employment and consulting agreements.
During 2001, the Company issued 50,000 warrants to advisors as compensation for services to be rendered over periods ranging from 3 to 5 years. The Company valued the warrants in accordance with SFAS 123 utilizing the Black-Scholes Model. The Company recorded $95,689 in deferred compensation and is amortizing the amounts over the expected life of the consulting services to be rendered. The Company recognized non-cash compensation expense totaling $7,384 during the six months ended June 30, 2002 in connection with the warrant grants.
On or about September 6, 2000, the Company's wholly owned subsidiary, OmniTrial B.V. ("OmniTrial") submitted a petition for bankruptcy protection from the bankruptcy court of the Netherlands. The court appointed a liquidating trustee. The Company claimed that certain assets in the possession of OmniTrial were paid for by the Company and therefore should not be part of the liquidating assets of OmniTrial. The bankruptcy trustee rejected that claim and told the Company that as part of the OmniTrial bankruptcy estate the assets would be sold to diminish any deficiency of the estate. On July 5, 2001 the Company signed a settlement agreement providing for the return of the assets to the Company in exchange for a payment of $10,000.
Income taxes are accrued at statutory US and state income tax rates. Income tax expense is as follows:
6/30/02 6/30/01
------- -------
Current tax expense (benefit):
Income tax at statutory rates $ -0- $ -0-
========= =========
Deferred tax expense (benefit):
Amortization of goodwill and -0- (35,320)
covenant
Operating loss carryforward (546,806) (575,411)
--------- ---------
(546,806) (610,731)
Valuation allowance 546,806 610,731
--------- ---------
Total tax expense (benefit) $ -0- $ -0-
======== =========
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OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
The tax effects of significant temporary differences, which comprise the deferred tax assets are as follows:
6/30/02 12/31/01
------- --------
Deferred tax assets:
Amortization of intangibles $ 283,698 $ 283,698
Operating loss carryforwards 5,088,372 4,257,868
----------- ------------
Gross deferred tax assets 5,372,070 4,541,566
Valuation allowance (5,372,070) (4,541,566)
----------- ------------
Net deferred tax asset $ -0- $ -0-
=========== ============
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The Company has net operating loss carryforwards (NOL) for income tax purposes of approximately $11,850,000. This loss is allowed to be offset against future income until the year 2021 when the NOL's will expire. Other timing differences relate to depreciation and amortization for the stock acquisition of Education Navigator in 1998. The tax benefits relating to all timing differences have been fully reserved for in the valuation allowance account due to the lack of operating history and the substantial losses incurred through 2002.
GENERAL
The following information should be read in conjunction with the Consolidated Interim Financial Statements and Notes thereto and other information set forth in this report.
Statements contained in this Form 10-QSB that are not historical fact are "forward looking statements". These statements can often be identified by the use of forward-looking terminology such as "estimate", "project", "believe", "expect", "may", "will", "should", "intends", or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. We wish to caution the reader that these forward-looking statements, such as statements relating to timing, costs and of the acquisition of, or investments in, existing business, the revenue or profitability levels of such businesses, and other matters contained in this Form 10-QSB 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-QSB. Therefore, our actual experience and results achieved during the period covered by any particular projections or forward-looking statements may differ substantially from those projected. Consequently, the inclusion of projections and other forward- looking statements should not be regarded as a representation by us or any other person that these plans will be consummated or that estimates and projections will be realized, and actual results may vary materially. There can be no assurance that any of these expectations will be realized or that any of the forward-looking statements contained herein will prove to be accurate. The Company does not undertake any obligation to update or revise any forward-looking statement made by it or on its behalf, whether as a result of new information, future events or otherwise.
OVERVIEW
We are an Internet-based healthcare technology company that provides Web-based electronic data capture ("EDC") solutions and related value-added services to pharmaceutical and biotechnology companies, clinical research organizations, and other clinical trial sponsors. Our Internet-based TrialMaster(R) software allows clinical trial sponsors and investigative sites to securely collect, validate, transmit, and analyze clinical study data including patient histories, patient dosing, adverse events, and other clinical trial information. We phased out the systems integration segment of our business during 2001. All of our personnel are involved in the development and marketing of TrialMaster.
THE SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH THE SIX MONTHS ENDED JUNE 30,
2001
RESULTS OF OPERATIONS
REVENUES
Revenues for the period ended June 30, 2002 were $225,973 compared to $57,179 for the same period in 2001. The increase can be attributed to increased success we have experienced in marketing TrialMaster. In particular, we found the markets increasingly receptive to utilizing EDC services during the second half of 2001 and we have continued building upon this momentum both through the acquisition of new clients and more importantly via repeat engagements with existing clients. This is consistent with our expectation that the market will begin adopting EDC services more rapidly as early adopters bring increasing credibility to the market. We anticipate increasing the personnel dedicated to sales during the third quarter of 2002 and will begin targeting clinical research organizations and academic institutions on a more concentrated basis in an effort to broaden our exposure in the marketplace. While industry growth estimates vary, most predictions indicate that EDC is anticipated to become
widely accepted. For example, Forrester Research and Frost & Sullivan each predict annual double-digit growth in the use of EDC technologies between 2001 and 2006. Web-based EDC has been around for approximately four years and between 5% and 10% of all clinical trials are currently conducted using Web-based EDC. Incremental growth within the industry should continue as competitive pressures mount in the pharmaceutical industry to replace existing prescription drugs losing their patent protection. Revenues associated with our Internet-based clinical trial products were approximately $225,973 and $33,981 for 2002 and 2001 respectively. Systems integration revenues in 2001 were approximately $23,198 compared to $0 in 2002. We do not expect any systems integration revenues in 2002.
Our TrialMaster product is currently being sold as an application service provider ("ASP") that provides EDC and other services such as an enterprise management suite which assists its clients in the pharmaceutical, biotechnology and medical device industries in accelerating the completion of clinical trials.
TrialMaster contracts provide for pricing that is based on both the size and duration of the clinical trial. Size parameters include the number of patients participating in the trial and the number of data points being collected per patient. The client will pay a trial setup fee based on the previously mentioned factors, and then pay an on-going maintenance fee for the duration of the clinical trial that provides software, network and site support during the trial. Generally, these contracts will range in duration from four months to several years. Setup fees are generally earned prior to the inception of a trial, however, the revenues will be recognized in accordance with SEC Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" which requires that the revenues be recognized ratably over the life of the contract. The maintenance fee revenues are earned and recognized monthly. Costs associated with contract revenues are recognized as incurred.
COST OF GOODS SOLD
Cost of goods sold increased to $202,934 in 2002 compared to $38,198. Approximately 43% of the expenses incurred in 2001 relate to our systems integration business and these expenses were eliminated in 2002 as we continued phasing out that line of our business. Cost of goods sold now relates primarily to salaries and benefits associated with the programmers, developers and systems analysts producing clinical trials on behalf of our clients.
We expect to increase development programming labor costs on an absolute basis as our trial revenues increase. We expect labor costs to decrease on a relative percentage basis as we increase our trial base and develop economies of scale with regard to trial production. In addition, we expect that use of TrialMaster V3.0, the latest release of our trial-building software will exponentially improve our ability to reduce our trial production related costs.
OTHER EXPENSES
SALARIES, BENEFITS AND RELATED TAXES
Salaries and related expenses are our biggest expense at 57% of total Other Expenses for the first quarter of 2002. Salaries and related expenses totaled $876,565 in 2002 compared to $995,097 in 2001. Total salaries increased by approximately 6% versus 2001 since a portion of total payroll is now accounted for in cost of goods sold. We currently employ approximately 18 employees out of our Davie, Florida corporate office. We expect to increase headcount within our technology and sales and marketing functions in concert with anticipated increases in TrialMaster clients during the second-half of fiscal 2002.
RENT & OCCUPANCY EXPENSES
Rent expense was $78,565 for fiscal 2002 compared with $77,986 for fiscal 2001. Although rent expense remained relatively constant, the components of the costs have changed. Our development office in Tampa was closed in March 2001 and that function was relocated to the corporate office to provide a more effective synthesis of workflows between our R & D function and our operations and marketing departments. During November 2001 our corporate offices were relocated to the Ft. Lauderdale, Florida area. We believe this market provides a better environment for technical personnel recruiting. We were also able to reduce our rent obligations by approximately $3,300 per month. In December 2001, we established a disaster recovery site at a Bell South Co-Location facility in Atlanta, Georgia. This is designed to ensure 100% system up-time.
LEGAL AND PROFESSIONAL FEES
Legal and professional fees totaled $118,795 in 2002 compared with $100,917 during fiscal 2001. Key components of the 2002 amounts include $45,000 paid to our former placement agent for financial advisory services, $42,383 to our accountants for audit and tax related services, $9,653 in legal expenses related to various matters and $21,758 that relate to accounting and legal services associated with our obligations as a public company. We expect on-going legal and professional fees to fall in-line with what was experienced during 2001.
TRAVEL
We incurred $20,260 in travel expenses during fiscal 2002 compared to $42,210 during 2001. We began reducing travel expenses during mid-2000 as a result of the on-going working capital difficulties that we have been experiencing. Those cost-cutting measures continued in 2001 and during the first quarter of 2002. We expect travel to increase as we experience more success in penetrating the marketplace with our sales efforts. We expect this increase to be offset by the increase in accompanying revenues.
TELEPHONE AND INTERNET
Telephone and Internet related costs were reduced by $17,200 due to decreased telephone and Internet access costs associated with the closing of our office in Tampa, Florida, and a decrease in overall long-distance charges associated with the closed facilities. We do not anticipate increases in access charges during fiscal 2002 based on our own existing communications infrastructure and our projected 2002 clinical trial workload.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SGA") were $53,484 during the second quarter of 2002. These expenses relate primarily to costs incurred in running our office day-to-day and other costs not directly related to other captioned items in our income statement, and include the cost of office equipment and supplies, the costs of attending conferences and seminars and other expenses incurred in the normal course of business. We made a concerted effort during the second half of 2000 to eliminate or reduce SGA expenses not crucial to the efficient operation of our company. This effort continued during 2001 and is now culturally ingrained. We do expect to increase the overall dollar volume spent on SGA as we increase our revenue base and step-up our overall activity.
INTEREST EXPENSE
Interest expense was $145,026 during 2002 versus $753,286 in fiscal 2001. During 2001 we entered into a private placement of 12% Convertible Notes. We recorded interest expense of $508,835 in connection with a "beneficial conversion feature" that was deemed to exist when the conversion price of some of the 12% Notes was issued at a discount to the prevailing market price of the stock. This expense is non-cash and we recorded a corresponding increase to our additional paid-in capital.
During 2001 we issued 176,700 detachable common stock warrants as additional compensation in connection with short-term bridge loans that were used for working capital purposes. We valued the warrants utilizing the Black-Scholes model and recorded $108,773 as interest expense.
PREFERRED STOCK DIVIDENDS
During 2002 we issued 1,599,000 warrants to investors in a private placement of our Series C Convertible Preferred Stock. The warrants were valued at $366,804 utilizing the Black-Scholes model. The net proceeds received in the Series C Convertible Preferred Stock Unit offering were allocated to the Series C Preferred Stock and we recognized a deemed dividend on preferred stock of $366,804 resulting in a charge to retained earnings and a credit to additional paid-in capital within our stockholders' equity as of June 30, 2002. Dividends on our Series A Preferred Stock totaled $101,839 in 2002 compared to $102,059 for the comparable period in 2001. There were arrearages of $79,342 in Series B Preferred Stock dividends and $12,094 in Series C Preferred Stock dividends at June 30, 2002 and we therefore deducted $91,436 from Net Income (Loss) Attributable to Common Stockholders'.
LIQUIDITY AND CAPITAL RESOURCES
We changed our primary focus to providing Internet based database applications to the clinical trial industry in mid-1998. At that time we began phasing out our systems integration business segment and we effectively completed that transition during the first half of 2001. Since we made TrialMaster and its related components our primary business we have experienced negative cash flows and have relied primarily on the proceeds from the sale of debt and equity securities to fund our operations. In addition, we have utilized stock-based compensation as a means of paying for consulting and salary related expenses.
Cash and cash equivalents decreased by $82,470 to $60,356 at June 30, 2002. This was the result of cash provided by financing activities of $552,944 offset by cash used in operating activities of approximately $635,414. The significant components of the activity include a loss from operations of approximately $1,453,111 offset by non-cash expenses of 135,943, increases in cash of $681,754 from changes in working capital accounts and approximately $552,944 we raised through the sale of debt and equity securities.
We are not currently bound by any long or short-term agreements for the purchase or lease of capital expenditures. Any amounts expended for capital expenditures would be the result of an increase in the capacity needed to adequately service any increase in our business. To date we have paid for any needed additions to our capital equipment infrastructure from working capital funds and anticipate this being the case in the future.
The Company is currently in default on interest payments owed totaling $11,280 on its 10% Convertible Notes. The terms of the notes provides a payment grace period of thirty days in which to make required semi-annual interest payments. The company was in default effective January 30, 2002.
The Company is currently in default in the repayment of principal and interest due on its 12% Convertible Notes. The terms of the notes provides a payment grace period of thirty days in which to make any required monetary payments. Principal of $1,615,000 together with accrued interest of $199,103 was in default effective March 3, 2002. Total accrued interest was $263,880 at June 30, 2002.
The Company has incurred approximately $221,000 in payroll taxes during the first and second quarters of fiscal 2002 that had not been paid as of June 30, 2002. Those payroll taxes became legal responsibilities when incurred and will be required to be paid during the third quarter of 2002.
On March 28, 2002 our Placement Agent, Noesis Capital, began the distribution of a Confidential Private Placement Memorandum for the sale to accredited investors of our Series C Convertible Preferred Stock. Gross proceeds to date have totaled $799,500 and we have accrued $246,556 in transaction related fees leaving net proceeds of approximately $552,944. In September 2001 we completed a private placement of our Series B Preferred Stock that resulted in $2,000,000 in gross proceeds.
Because of the losses experienced since 1999 we have needed to continue utilizing the proceeds from the sale of debt and equity securities to fund our working capital needs. The capital markets since mid-2000 have provided a difficult climate for the raising of capital because of the decline in value of publicly held technology stocks and the corresponding apprehension on the part of investors to invest in technology oriented firms. In addition, when available, capital has been expensive relative to the valuations that were afforded during the expansion of the Internet sector in 1999 and 2000. The softness in the capital markets coupled with the losses experienced have caused working capital shortfalls. We have used a combination of equity financing and short-term bridge loans to fund our working capital needs. Other than our current capital and capital we may raise from future debt or equity offerings or short-term bridge loans, we do not have any additional sources of working capital.
We will continue to require substantial funds to continue our research and development activities and to market, sell and commercialize our technology. We will need to raise substantial additional capital to fund our future operations. Our capital requirements will depend on many factors, including the problems, delays, expenses and complications frequently encountered by companies developing and commercializing new technologies; the progress of our research and development activities; the rate of technological advances; determinations as to the commercial potential of our technology under development; the status
of competitive technology; the establishment of collaborative relationships; the success of our sales and marketing programs; the cost of filing, prosecuting and defending and enforcing patents and intellectual property rights; and other changes in economic, regulatory or competitive conditions in our planned business. Estimates about the adequacy of funding for our activities are based upon certain assumptions, including assumptions that the research and development programs relating to our technology can be conducted at projected costs and that progress towards the commercialization of our technology will be timely and successful. There can be no assurance that changes in our research and development plans, acquisitions or other events will not result in accelerated or unexpected expenditures.
To satisfy our capital requirements, we will seek additional financing through debt and equity financings. There can be no assurance that any such fundings will be available to us on favorable terms or at all. If adequate funds are not available when needed, we may be required to delay, scale back or eliminate some or all of our research and product development programs. If we are successful in obtaining additional financings, the terms of such financings may have the effect of diluting or adversely affecting the holdings or the rights of the holders of our common and preferred stock.
The ability of the Company to continue in existence is dependent on its having sufficient financial resources to bring products and services to market for marketplace acceptance. As a result of its significant losses, negative cash flows from operations, and accumulated deficits for the periods ending June 30, 2002, there is doubt about the Company's ability to continue as a going concern.
THE THREE MONTHS ENDED JUNE 30, 2002 COMPARED WITH THE THREE MONTHS ENDED JUNE
30, 2001
RESULTS OF OPERATIONS
REVENUES
Revenues for the three months ended June 30, 2002 were $121,951 compared to $16,084 for the same period in 2001. Revenues associated with our Internet-based clinical trial products were approximately $121,951 and $14,805 for 2002 and 2001 respectively. Systems integration revenues in 2001 were approximately $1,279 compared to $0 in 2002. We do not expect any systems integration revenues in 2002.
COST OF GOODS SOLD
Cost of goods sold increased to $78,225 in 2002 compared to $21,713. Cost of goods sold now relates primarily to salaries and benefits associated with the programmers, developers and systems analysts producing clinical trials on behalf of our clients.
Cost of goods sold should remain constant from the levels experienced during the second quarter of 2002 for the short-term. We expect that increases in production work will be offset by the use of our new trial-building software. In the long-term we expect cost of goods sold to decrease on a percentage basis as we achieve higher levels of productivity in our production department.
OTHER EXPENSES
SALARIES, BENEFITS AND RELATED TAXES
Salaries and related expenses are our biggest expense at 62% of total Other Expenses for the first quarter of 2002. Salaries and related expenses totaled $438,952 in 2002 compared to $431,858 in 2001. Total salaries increased by 14% versus 2001 since a portion of total payroll is now accounted for in cost of goods sold.
RENT & OCCUPANCY EXPENSES
Rent expense was $38,345 for fiscal 2002 compared with $36,610 for fiscal 2001. Although rent expense remained relatively constant, the components of the costs have changed. Our development office in Tampa was closed in March 2001 and that function was relocated to the corporate office to provide a more effective synthesis of workflows between our R & D function and our operations and
marketing departments. During November 2001 our corporate offices were relocated to the Ft. Lauderdale, Florida area. We believe this market provides a better environment for technical personnel recruiting. We were also able to reduce our rent obligations by approximately $3,300 per month. In December 2001, we established a disaster recovery site at a Bell South Co-Location facility in Atlanta, Georgia. This is designed to ensure 100% system up-time.
LEGAL AND PROFESSIONAL FEES
Legal and professional fees totaled $36,869 in 2002 compared with $58,419 during fiscal 2001. Key components of the 2002 amounts include $22,500 paid to our former placement agent for financial advisory services, $5,000 to our accountants for audit and tax related services, $203 in legal expenses related to various matters and $9,166 that relate to accounting and legal services associated with our obligations as a public company. We expect on-going legal and professional fees to fall in-line with what was experienced during 2001.
TRAVEL
We incurred $5,814 in travel expenses during fiscal 2002 compared to $(980) during 2001. We began reducing travel expenses during mid-2000 as a result of the on-going working capital difficulties that we have been experiencing. Those cost-cutting measures continued in 2001 and during the first quarter of 2002. We expect travel to increase as we experience more success in penetrating the marketplace with our sales efforts. We expect this increase to be offset by the increase in accompanying revenues.
TELEPHONE AND INTERNET
Telephone and Internet related costs were reduced by $6,286 due to decreased telephone and Internet access costs associated with the closing of our office in Tampa, Florida, and a decrease in overall long-distance charges associated with the closed facilities. We do not anticipate increases in access charges during fiscal 2002 based on our own existing communications infrastructure and our projected 2002 clinical trial workload.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SGA") were $34,739 during the second quarter of 2002. These expenses relate primarily to costs incurred in running our office day-to-day and other costs not directly related to other captioned items in our income statement, and include the cost of office equipment and supplies, the costs of attending conferences and seminars and other expenses incurred in the normal course of business.
INTEREST EXPENSE
Interest expense was $72,982 during 2002 versus $82,649 in fiscal 2001.
PREFERRED STOCK DIVIDENDS
During the second quarter of 2002 we issued 1,150,000 warrants to investors in a private placement of our Series C Convertible Preferred Stock. The warrants were valued at $263,805 utilizing the Black-Scholes model. The net proceeds received in the Series C Convertible Preferred Stock Unit offering were allocated to the Series C Preferred Stock and we recognized a deemed dividend on preferred stock of $263,805 resulting in a charge to retained earnings and a credit to additional paid-in capital within our stockholders' equity as of June 30, 2002. Dividends on our Series A Preferred Stock totaled $51,202 in 2002 compared to $51,200 for the comparable period in 2001. There were dividend arrearages incurred during the second quarter of 2002 of $39,890 on our Series B Preferred Stock and $10,063 on our Series C Preferred Stock dividends and we therefore deducted $49,953 from Net Income (Loss).
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
The following documents are filed as a part of this report or are incorporated by reference to previous filings, if so indicated:
EXHIBIT NO. DESCRIPTION
----------- -----------
10.7 Employment Agreement and Stock Option Agreement between
OmniComm and Cornelis F. Wit dated June 1, 2002.
10.8 Consulting Agreement between OmniComm and David Ginsberg, D.O.
dated June 13, 2002.
99.1 Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Cornelis F. Wit, CEO
99.2 Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Ronald T Linares, CFO
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(b) REPORTS ON FORM 8-K.
NONE.
IN ACCORDANCE WITH SECTION 13 OR 15(D) OF THE EXCHANGE ACT, THE REGISTRANT CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
By: /s/Cornelis F. Wit, Director, Chief Executive Officer and President
-------------------------------------------------------------------
Date: August 12, 2002
---------------
By: /s/Ronald T. Linares, Vice President of Finance, Chief Financial and Accounting Officer
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Date: August 12, 2002
---------------
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EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated as of June 1, 2002, between OmniComm Systems, Inc., a Delaware corporation, (the "Company"), and Cornelis Wit (the "Executive").
WITNESSETH:
WHEREAS, the Executive has experience in managing at a senior level a publicly traded company (or a division of such a company) involved in a medical-related business;
WHEREAS, the parties acknowledge that the Executive's abilities and services are unique and essential to the prospects of the Company; and,
WHEREAS, in light of the foregoing, the Company desires to employ the Executive as its Chief Executive Officer and President and the Executive desires to accept such employment.
NOW, THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby employs the Executive and the Executive hereby accepts employment upon the terms and conditions hereinafter set forth.
2. TERM AND TERMINATION. This Agreement shall commence on June 1, 2002 and shall terminate as of the earlier of:
May 31, 2003, unless extended by the Company;
(b) the death or disability of the Executive. Disability shall mean the Executive's inability, due to sickness or injury, to perform effectively his duties hereunder for a period of at least 90 consecutive days;
(c) thirty (30) days after notice is given by the Company to the Executive after a material breach hereof by the Executive; or,
(d) thirty (30) days after notice is given by the Executive to the Company after a material breach hereof by the Company.
The exercise of the Company's or the Executive's right to terminate this Agreement pursuant to clause (c) or (d) hereof, as the case may be, shall not abrogate the rights and remedies of the terminating party in respect of the breach giving rise to such termination.
3. COMPENSATION. For all services rendered under this Agreement:
(a) During the term of his employment, the Company shall pay the Executive an annual salary of $120,000. The Executive's salary may be paid in the form of cash and/or stock, as agreed upon by the parties.
(b) During the term of his employment, the Executive shall be reimbursed for the expense of his existing group health insurance.
(c) The Executive shall be permitted to participate in the Company's stock option plan. The number of shares subject to options, type of options, and vesting of the options are set forth on Exhibit "A," attached hereto as if fully set forth herein.
(d) In the event that the Company consummates a transaction with a third party resulting in the sale, merger, consolidation, reorganization or other business combination involving all or a majority of the business, assets or stock of the Company, whether effected in one transaction or a series of transactions (a "Sale Transaction"), due to the initiative of Executive (whether or not during the term of this Agreement), Executive shall receive a fee equal to 2% of the Aggregate Consideration, as defined below (the "Fee").
For purposes of this Section 3(d), the "initiative of Executive" shall include, but not be limited to, the introduction or referral of a third party to the Company or any officer or director of the Company for any purpose, including but not limited to any such introduction or referral of a purchaser, strategic partner, financing source or otherwise, which results (whether or not through the efforts of Executive) in the consummation of a Sale Transaction; provided however that if the purpose of Executive's initiative is other than for the purpose of a Sale Transaction, then the Fee would only be payable if such introduction or referral resulted in a Sale Transaction that is consummated within a period of one year following such introduction or referral.
For purposes of this Section, the term Aggregate Consideration means the amount of cash and the fair market value (on the date of payment) of securities (whether debt or equity) or assets receivable by the Company, its employees or its securityholders, as the case may be. Aggregate Consideration shall also include the amount of any indebtedness of the Company assumed, continued, refinanced or otherwise paid in connection with a Sale Transaction. The fair market value of non-cash, non-publicly traded securities shall be determined in good faith by the Company.
4. DUTIES. The Executive shall be employed as Chief Executive Officer of the Company and, subject to the direction of the Board of Directors and the Company's officers designated by the Board of Directors, shall perform and discharge well and faithfully the duties which may be assigned to him from time to time by the Company in connection with the conduct of its business. If the Executive is elected or appointed a director of the Company or any subsidiary thereof during the term of this Agreement, the Executive will serve in such capacity without further compensation.
5. EXTENT OF SERVICES. Except as set forth below, the Executive shall devote most of his time, attention and energies to the business of the Company and shall not during the term of this Agreement be engaged in any other business or professional activity, whether or not such activity is pursued for gain, profit, or other pecuniary advantage which interferes with his ability to perform his duties hereunder. Notwithstanding the foregoing, the Executive shall be allowed to serve on the Board of Directors of other companies so long as such Board participation does not interfere with the Executive fulfilling his duties to the Company and the Executive obtains the prior written approval of the Company's Board of Directors. In addition, the Executive shall be allowed to provide consulting services to other companies so long as he obtains the prior written approval of the Company's Board of Directors.
6. DISCLOSURE OF INFORMATION. The Executive recognizes and acknowledges that the Company's trade secrets and proprietary information and processes, as they may exist from time to time, are valuable, special and unique assets of the Company's business, access to and knowledge of which are essential to the performance of the Executive's duties hereunder. The Executive will not, during or after the term of his employment by the Company, in whole or in part, disclose such secrets, information or processes to any person, firm, corporation, association or other entity for any reason or purpose whatsoever, nor shall the Executive make use of any such property for his own purposes or for the benefit of any person, firm, corporation or other entity except the Company under any circumstances during or after the term of his employment, provided that after the term of his employment these restrictions shall not apply to such secrets, information and processes which are then in the public domain provided that the Executive was not responsible, directly or indirectly, for such secrets, information or processes entering the public domain without the Company's consent. The Executive agrees to hold as the Company's property, all memoranda, books, papers, letters, formulas and other data, and all copies thereof and therefrom, in any way relating to the Company's business and affairs, whether made by him or otherwise coming into his possession, and on termination of his employment, or on demand of the Company, at any time, to deliver the same to the Company. In the event an action is instituted and prior knowledge is an issue, it shall be the obligation of the Executive to prove by clear and convincing evidence that the confidential information disclosed was in the public domain, was already known by the Executive prior to his employment with the Company, or was developed independently by the Executive.
7. INVENTIONS. The Executive hereby sells, transfers and assigns to the Company or to any person, or entity designated by the Company, all of the entire right, title and interest of the Executive in and to all inventions, ideas, disclosures and improvements, whether patented or unpatented, and copyrightable material, made or conceived by the Executive, solely or jointly, or in whole or in part, during the term hereof which (i) relate to methods, apparatus, designs, products, processes or devices sold, leased, used or under construction or development by the Company or any subsidiary, or (ii) otherwise relate to or pertain to the business, functions or operations of the Company or any subsidiary, or (iii) arise wholly or partly from the efforts of the Executive during the term hereof. The Executive shall communicate promptly and disclose to the Company, in such form as the Company requests, all information, details and data pertaining to the aforementioned inventions, ideas, disclosures and improvements; and, whether during the term hereof or thereafter, the Executive shall execute and deliver to the Company such formal transfers and assignments and such other papers and documents as maybe required of the Executive at the Company's expense to permit the Company or any person or entity designated by the Company to file and prosecute the patent applications and, as to copyrightable material, to obtain copyright thereon. Any invention by the Executive within one (1) year following the termination of this Agreement shall be deemed to fall within the provisions of this paragraph unless proved by the Executive to have been first conceived and made following such termination.
8. COVENANT NOT TO COMPETE.
(a) During the term hereof and for a period of one (1) year thereafter if the Executive leaves voluntarily or six (6) months if the Executive is terminated by the Company, the Executive shall not compete, directly or indirectly, with the Company, interfere with, disrupt or attempt to disrupt the relationship, contractual or otherwise, between the Company and any customer, client, supplier, consultant, or employee of the Company and any customer, client, supplier, consultant or employee of the Company, including, without limitation, employing or being an investor (representing more than 5% equity interest) in, or officer, director, or consultant to, any person or entity which employs any former key or technical employee whose employment with the Company was terminated after the date which is one year prior to the date of termination of the Executive's employment therewith. An activity competitive with an activity engaged in by the Company shall mean performing services whether as an employee, officer, consultant, director, partner, or sole proprietor for any person or entity engaged in the business then engaged in by the Company, which services involve the development and marketing of a web-based system to collect, manage, and compile clinical trial and research data.
(b) It is the desire and intent of the parties that the provisions of this
Section shall be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular portion of this Section shall be adjudicated to
be invalid or unenforceable, this Section shall be deemed amended to delete
therefrom the portion thus adjudicated to be invalid or unenforceable, such
deletion to apply only with respect to the operation of this Section in the
particular jurisdiction in which such adjudication is made.
(c) Nothing in this Section shall reduce or abrogate the Executive's obligations during the term of this Agreement under Sections 4 and 5 hereof.
9. REMEDIES. If there is a breach or threatened breach of the provisions of Section 6, 7 or 8 of this Agreement, the Company shall be entitled to an injunction restraining the Executive from such breach. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies for such breach or threatened breach.
10. ASSIGNMENT. This Agreement may not be assigned by any party hereto; provided that the Company may assign this Agreement: (a) to an affiliate so long as such affiliate assumes the Company's obligations hereunder; provided that no such assignment shall discharge the Company of its obligations herein, or (b) in connection with a merger or consolidation involving the Company or a sale of more than 50% of the Company's securities or assets, to the surviving corporation or purchaser as the case may be, so long as such assignee assumes the Company's obligations thereunder.
11. NOTICES. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and sent by registered mail to the Executive at his residence at:
Cees Wit
6356, 26th Terrace
Boca Raton, FL 33496
and to the Company at:
OmniComm Systems, Inc.
2555 Davie Road, Suite 110-B
Davie, FL 33317
12. WAIVER OF BREACH. A waiver by the Company or the Executive of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by the other party.
13. ENTIRE AGREEMENT. This instrument contains the entire agreement of the parties. It may be changed only by an agreement in writing signed by a party against whom enforcement of any waiver, change, modification, extension or discharge is sought.
14. GOVERNING LAW. This Agreement shall be construed in accordance with the laws of the State of Florida. All questions with respect to the construction hereof and the rights and liabilities of the parties hereto shall be governed by the laws of the State of Florida. Any action or proceeding arising out of or relating hereto shall be brought in Broward County, State of Florida.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first hereinabove written.
OMNICOMM SYSTEMS, INC.
By: /s/ Randall Smith
------------------
Randall Smith
Chairman of the Board
|
EXECUTIVE:
By: /s/ Cornelis Wit ------------------ Cornelis Wit |
EXHIBIT "A"
GRANT OF INCENTIVE AND NON-QUALIFIED STOCK OPTION
50,000 Options exercisable at $0.25 will be granted and shall vest immediately upon the execution of this Agreement.
50,000 Options exercisable at fair market value shall be granted in the event that the Company becomes cash flow positive by December 31, 2002. In such event the exercise price shall be determined as of December 31, 2002.
50,000 Options exercisable at fair market value shall be granted for every $1,000,000 of revenue generated by the Company from new contracts and/or customers following June 1, 2002. Such grant(s) shall be determined and awarded on a quarterly calendar basis and the exercise price shall for each such Option grant shall be determined by taking the average closing stock price for the Company's common stock for the month in which the afore-mentioned revenue level was realized.
OTHER RIGHTS:
1. "Piggyback" rights in equal proportion to other employees.
2. Acceleration of the vesting of all options in the event of change in control, defined as a sale of more than 50% of the Company's securities or assets to a third party.
3. Options will be granted as Incentive Stock Options (ISO's) to the extent possible under Sec. 422 of the Internal Revenue Code of 1986.
4. Length of options: ISO 5 years; NonQ 7 years
5. Existing options granted, but unissued, under Stock Option Agreements preceding this Employment Agreement shall remain in force.
NOTES:
1. ISO: Incentive stock option pursuant to Sec. 422 of the Internal Revenue Code of 1986. ISO option price shall be the fair market value at the date of grant x 110%
2. NONQ: Non-qualified stock option.
EXHIBIT 10.8
AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of the 13th day of June 2002, by and between OmniComm Systems, Inc., a Delaware corporation (the "Company"), and Dr. David Ginsberg ("Ginsberg" and collectively with OmniComm, the "Parties").
WHEREAS, the Parties believe that it is in the best interests of the Company for Ginsberg to relinquish his role as CEO and director of the Company and assume the role of a medical consultant to the Company; and
WHEREAS, the Company and Ginsberg have reached certain agreements with regard to this transition and desire to set forth their agreements and understanding in a definitive agreement.
NOW THEREFORE, for and in consideration of the premises and the mutual covenants and agreements herein contained, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound hereby, agree as follows:
1. Ginsberg hereby resigns as CEO and as a director of the Company's Board of Directors (the "Board"), effective immediately. Ginsberg is hereby appointed as principal medical consultant to the Board and President of the Company's Medical Advisory Board. Such appointment shall be for a term of one year from the date hereof, extendable upon mutual agreement of the Parties. Ginsberg shall devote approximately six days per month (1-1/2 days per week on average) to performing advisory and consulting activities for the Company. Ginsberg shall at all times report to the Board and his activities shall at all times be subject to the Board's direction and control. Ginsberg shall have no authority to enter into any contracts binding upon the Company, or to create any obligations on the part of the Company, except such as shall be specifically authorized by the Board in writing. The services to be rendered hereunder by Ginsberg can be rendered at the Company's facility or other location(s) as the parties hereto reasonably agree.
2. In consideration of rendering services and providing agreements hereunder Ginsberg will receive $250,000 annually, payable in monthly installments in accordance with the Company's current payroll practices. In addition, the Company shall continue to make available to Ginsburg (a) health insurance through May 31, 2003 at the Company's expense and (b) dental insurance through May 31, 2003 at Ginsburg's expense. After May 31, 2003, the Company shall offer Ginsberg to continue such benefits with COBRA, in accordance with applicable laws.
3. As Ginsberg will no longer be CEO or a director of the Company, Ginsberg shall relinquish all his rights, title and interest to stock options for the purchase of 1,190,000 shares of Common Stock of the Company ("Stock Options"), issued in his name, vested and non-vested. Ginsberg hereby represents and warrants that he has not endorsed, sold, delivered, gifted, pledged, transferred, assigned, hypothecated or otherwise encumbered the Stock Options to any third party at any time. Ginsberg acknowledges that the Company is relying upon these representations in entering into this Agreement. Notwithstanding the foregoing, the parties agree
and understand that Ginsberg owns and will continue to own after the execution, delivery and performance of this Agreement the following securities in the Company: 136,756 shares of Common Stock, 10,000 shares of Series B Convertible Preferred Stock and warrants to purchase up to 400,000 shares of Common Stock at $0.25 per share. The execution, delivery and performance of this Agreement shall not affect Ginsberg's ownership of or rights in the securities described in the immediately preceding sentence.
4. In the event that the Company and/or its shareholders consummate a transaction with a third party resulting in the sale, merger, consolidation, reorganization or other business combination involving all or a majority of the business, assets or stock of the Company, whether effected in one transaction or a series of transactions (a "Sale Transaction"), due to the initiative of Ginsberg (whether or not during the term of this Agreement), Ginsberg shall receive a fee equal to 1% of the Aggregate Consideration above $90,000,000 upon consummation of the sale (the "Fee").
For purposes of this Section 4, the "initiative of Ginsberg" shall include, but not be limited to, the introduction or referral of a third party to the Company or any officer or director of the Company for any purpose, including but not limited to any such introduction or referral of a purchaser, strategic partner, financing source or otherwise, which results (whether or not through the efforts of Ginsberg) in the consummation of a Sale Transaction; provided however that if the purpose of Ginsberg's initiative is other than for the purpose of a Sale Transaction, then the Fee would only be payable if such introduction or referral resulted in a Sale Transaction that is consummated within a period of one year following such introduction or referral.
For purposes of this Section 4, the term Aggregate Consideration means the amount of cash and the fair market value (on the date of payment) of securities (whether debt or equity) or assets receivable by the Company, its employees or its securityholders, as the case may be. Aggregate Consideration shall also include the amount of any indebtedness of the Company assumed, continued, refinanced or otherwise paid in connection with a Sale Transaction. The fair market value of non-cash, non-publicly traded securities shall be mutually determined in good faith by the Company and Ginsberg.
5. The Company and Ginsberg agree not to, directly or indirectly, disparage each other, nor shall Ginsberg directly or indirectly disparage the Company's products, services, directors or employees in any way to any third parties including any of the Company's customers, employees, vendors, partners or anyone who does or may in the future have any business relationship with the Company. The Parties recognize that any such disparagement of the other will cause irreparable harm and therefore agree that the disparaging party shall pay the disparaged party $100,000 in liquidated damages should he or it violate this paragraph. In addition, the disparaged party will also be entitled to recover from the disparaging party, attorney's fees and costs incurred due to any breach of this paragraph.
6. The Company represents, warrants, covenants and agrees as follows:
(a) The Company has the requisite corporate power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated herein and such has been duly authorized by all necessary corporation action on the part of the Company.
(b) This Agreement has been duly executed and delivered by the Company, and the Agreement constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms.
(c) Other than the approval of its board of directors, the Company is not required to give any notice to or obtain any consent from any Person in connection with the execution and delivery of this Agreement or any of the documents contemplated hereby or the consummation or performance of any of the transactions contemplated hereby.
(d) Except for $175,536 of employment-related taxes due and payable by the Company, the Company has paid all taxes due and payable by the Company. The Company covenants to use its best efforts to pay such employment-related taxes in full as soon as is reasonably possible. The Company agrees to indemnify and hold Ginsberg harmless for all losses, expenses and costs (including attorneys' fees) associated with any failure by the Company to pay taxes.
(e) There is no pending or, to the Company's knowledge, threatened legal proceeding by or against the Company that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, any of the transactions contemplated hereby.
7. Ginsberg represents and warrants the following:
(a) Ginsberg has all necessary legal capacity to enter into this Agreement and to perform his obligations hereunder and thereunder.
(b) This Agreement has been duly executed and delivered by Ginsberg, and the Agreement constitutes the legal, valid and binding obligation of Ginsberg, enforceable against Ginsberg in accordance with its terms.
(c) Ginsberg is not required to give any notice to or obtain any consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the transactions contemplated hereby.
(d) There is no pending or, to Ginsberg's knowledge, threatened legal proceeding by or against Ginsberg that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, any of the transactions contemplated hereby.
8. Ginsberg recognizes and acknowledges that the Company's trade secrets and proprietary information and processes, as they may exist from time to time, are valuable, special and unique assets of the Company's business. Ginsberg will not, during or after the term of this Agreement by the Company, in whole or in part, disclosure such secrets, information or processes to any person, firm, corporation, association or other entity for any reason or purpose whatsoever, nor shall Ginsberg make use of any such property for his own purposes or for the benefit of any person, firm, corporation or other entity except the Company under any circumstances during or after the term of this Agreement, provided that after the term of this Agreement, these restrictions shall not apply to such secrets, information and processes which are then in the public domain provided that Ginsberg was not responsible, directly or indirectly, for such secrets, information or processes entering the public domain without the Company's consent. Ginsberg 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 during the term hereof, and on termination of this Agreement, or on demand of the Company, at any time, to deliver the same to the Company.
9. For a period of one (1) year from the date hereof, Ginsberg shall not (i) engage in an activity that is, directly or indirectly, competitive with the Company, (ii) interfere with, disrupt or attempt to disrupt the relationship, contractual or otherwise, between the Company and any customer, client, supplier, consultant, or employee of the Company or (iii) be an investor (representing more than 5% equity interest) in any entity that engages in an activity that is, directly or indirectly, competitive with the Company and derives a majority of its operating revenues from such competitive activities. The phrase "engaging in an activity that is, directly or indirectly, competitive with the Company" shall mean performing services whether as an employee, officer, consultant, director, partner, or sole proprietor for any person or entity, if such services involve the development and marketing of an internet-based and/or intranet-based system to collect, manage, and compile clinical trial and research data; provided that the parties agree that Ginsberg may provide services to any person or entity and in any capacity, so long as such services do not involve the development and marketing of an internet-based and/or intranet-based system to collect, manage, and compile clinical trial and research data.
10. Ginsberg 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 Ginsberg in and to all inventions, ideas, disclosures and improvements, whether patented or unpatented and copyrightable material, made or conceived by Ginsberg, solely or jointly, or in whole or in part, during the term of this Agreement which (i) relate to methods, apparatus, designs, products, processes or devices sold, leased, used or under construction or development by the Company or any subsidiary, or (ii) otherwise relate to or pertain to the business, functions or operations of the Company or any subsidiary, or (iii) arise wholly or partly from the efforts of Ginsberg during the term of this Agreement. Ginsberg shall communicate promptly 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 of this Agreement or thereafter, Ginsberg shall execute and deliver to the Company such formal transfers and assignments and such other papers and documents as may be required of Ginsberg 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.
11. If there is a breach or threatened breach by Ginsberg of the provisions of Section 9, or 10 of this Agreement, the Company shall be entitled to an injunction restraining Ginsberg from such breach. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies for such breach or threatened breach. The covenants of Sections 9 and 10 shall terminate and become of no further force in the event that the Company breaches its payment obligations set forth in Section 2 hereof.
12. Reference is made to that certain Employment Agreement (the "Employment Agreement") dated as of September 1, 2001 between the Company and Ginsberg. The Employment Agreement is hereby terminated and shall not be of any further force or effect. The Company agrees and acknowledges that, to its knowledge, (a) Ginsberg fully satisfied his respective duties under the Employment Agreement and (b) Ginsberg was at no time in breach of any of his obligations thereunder.
13. The Company shall indemnify, defend and hold Ginsberg harmless from any actions, causes of action, suits, claims, controversies, covenants, contracts, agreements, rights, promises, trespasses, damages, losses and expenses, judgments, sums of money, debts, dues, demands, obligations or liabilities of any nature whatsoever, at law or in equity, whether asserted or unasserted, mature or contingent, known or unknown, accrued or unaccrued pertaining to taxes owed or to be owed by the Company, including but not limited to employment-related taxes and legally-mandated withholdings.
14. This Agreement shall be binding upon and inure the benefit of the Parties hereto and their respective successors, assigns, heir and devisees, if any.
15. This Agreement shall be construed and enforced in accordance with the laws of the State of Florida. Any action or proceeding arising out of or relating hereto shall be brought in Broward County, State of Florida.
16. The Parties agree to cooperate in resolving any matters that may arise in connection with this Agreement. The Parties further agree to execute such additional documents and take such further actions as may be necessary to effectuate the terms of this Agreement.
17. All notices that are required or permitted hereunder shall be in writing and shall be sufficient if personally delivered or sent by certified or registered mail, facsimile message or Federal Express or other overnight and nationally reputable delivery service to the addresses listed below. Any notices shall be deemed given upon the earlier of the date when received at, or refused when sent by registered or certified mail, the day on which it is personally delivered, the day on which it is sent by facsimile message (with confirmation receipt received by sender) or the day after the date when sent by Federal Express (or other overnight and nationally reputable delivery service) to, the address or fax number set forth below, unless such address or fax number is changed by notice to the other party hereto given in accordance with the foregoing notice procedures:
If to the Company:
OmniComm Systems, Inc.
2225 Davie Road, Suite 1108
Ft. Lauderdale, FL 33316
Attention: Cees Wit, CEO
Fax: (954) 473-1256
If to Ginsberg:
Dr. David Ginsberg
7289 Sairmento Place
Delray Beach, FL 33446
Fax: (561) 638-4284
with a copy to:
Blank Rome Comisky & McCauley LLP
1200 N. Federal Highway, Suite 417
Boca Raton, FL 33432
Attention: Michael Leeds, Esquire
Fax: (561) 417-8101
18. The parties to this Agreement shall pay their own respective expenses incident to the preparation, negotiation and execution of this Agreement including, without limitation, all fees and costs and expenses of their respective accountants and legal counsel whether or not the transactions contemplated hereunder are consummated.
19. This Agreement may be amended, modified or supplemented only by a written instrument duly executed by each of the parties hereto. If any provision of this Agreement shall for any reason be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision hereof, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, legal representatives, successors and permitted assigns of the parties hereto. No party to this Agreement shall have the right to assign this Agreement without the prior written consent of the other parties. Any term or provision of this Agreement may be waived at any time by the party entitled to the benefit thereof by a written instrument duly executed by such party. The parties hereto shall execute and deliver any and all documents and take any and all other actions that may be deemed reasonably necessary by their respective counsel to complete the transactions contemplated hereby.
20. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or such provision, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
21. This Agreement and the appendix contemplated hereby constitutes the entire agreement among the parties hereto and any other prior agreements between or among them are hereby terminated and shall have no other force or effect.
22. This Agreement may be executed in any number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the Parties hereto, each acting under due and proper authority, have executed this Agreement as of the date written above.
OMNICOMM SYSTEMS, INC.
By:/s/Cornelis Wit
-------------------------
Cees Wit, CEO
/s/David Ginsberg
---------------------------
|
EXHIBIT 99.1
STATEMENT REQUIRED BY 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-QSB of OmniComm Systems, Inc. (the "Company") for the quarter ended June 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Cornelis F. Wit, Chief Executive Officer of the Company, certify that:
o the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
o information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Cornelis F. Wit ------------------- Cornelis F. Wit Director, President and Chief Executive Officer August 12, 2002 |
This certification accompanies this Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.
EXHIBIT 99.2
STATEMENT REQUIRED BY 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-QSB of OmniComm Systems, Inc. (the "Company") for the quarter ended June 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ronald T. Linares, Chief Financial Officer of the Company, certify that:
o the Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
o information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Ronald T. Linares ----------------------- Ronald T. Linares Vice President and Chief Financial Officer August 12, 2002 |
This certification accompanies this Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.