-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VcqWpeEcXPusVmrgyu92V0E5KBa2ED0SU2+KCu0SF56irX/G8ItxmHrmZPEXC5/W +NFKwTmibnvvgTFbNUA2kA== 0001021408-01-506770.txt : 20010917 0001021408-01-506770.hdr.sgml : 20010917 ACCESSION NUMBER: 0001021408-01-506770 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010914 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OMNICOMM SYSTEMS INC CENTRAL INDEX KEY: 0001034592 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 113349762 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-25203 FILM NUMBER: 1737868 BUSINESS ADDRESS: STREET 1: 3250 MARY STREET STREET 2: SUITE 402 CITY: MIAMI STATE: FL ZIP: 33133 BUSINESS PHONE: 7184693132 MAIL ADDRESS: STREET 1: 3250 MARY STREET STREET 2: SUITE 307 CITY: MIAMI STATE: FL ZIP: 33133 FORMER COMPANY: FORMER CONFORMED NAME: CORAL DEVELOPMENT CORP DATE OF NAME CHANGE: 19970225 10QSB/A 1 d10qsba.txt AMENDMENT NO. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB-A/1 [Mark One} [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended MARCH 31, 2001 -------------- [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _______ to ________ Commission file number: 0-25203 ------- OMNICOMM SYSTEMS, INC. ---------------------- (Name of small business issuer in its charter) Delaware 11-3349762 -------- ---------- (State of incorporation) (IRS employer Ident. No.) 3250 Mary Street, #402, Miami, FL 33133 --------------------------------- ----- (Address of principal office) (Zip Code) Registrant's telephone number: (305) 448-4700 Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X NO ____ --- The number of shares outstanding of each of the issuer's classes of equity as of March 31, 2001: 7,876,003 common stock $.001 par value, 4,215,224 preferred stock no par value. 1 OMNICOMM SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS
March 31, December 31, --------- ------------ 2001 2000 ---- ---- (unaudited) ----------- ASSETS CURRENT ASSETS Cash $ 10,985 $ 90,958 Accounts receivable 12,259 9,927 Prepaid expenses 3,862 -0- ----------- ----------- Total current assets 27,106 100,885 PROPERTY AND EQUIPMENT, Net 452,915 486,481 OTHER ASSETS Intangible assets, net 150,408 53,071 Goodwill, net 39,639 79,277 Other assets 100,160 25,160 ----------- ----------- TOTAL ASSETS $ 770,228 $ 744,874 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $ 1,263,402 $ 1,079,506 Notes payable - current 252,500 612,500 Notes payable related parties - current 210,000 660,000 Deferred revenue 14,363 26,861 ----------- ----------- Total current liabilities 1,740,265 2,378,867 CONVERTIBLE DEBT 1,710,000 462,500 ----------- ----------- TOTAL LIABILITIES 3,450,265 2,841,367 ----------- ----------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY (DEFICIT) 5% Series A convertible preferred stock, 5,000,000 3,812,179 3,857,179 shares authorized, 4,215,224 and 4,260,224 issued and outstanding, respectively, at par Common stock - 20,000,000 shares authorized, 8,497 7,975 8,496,954 and 7,974,578 issued, respectively, at $.001 par value Additional paid in capital 3,641,375 3,260,500 Less cost of treasury stock: Common - 620,951 and (293,912) (293,312) 620,951 shares, respectively Retained deficit (9,847,036) (8,927,695) Subscriptions receivable (1,140) (1,140) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (2,680,037) (2,096,493) ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 770,228 $ 744,874 =========== ===========
See accompanying summary of accounting policies and notes to financial statements. 2 OMNICOMM SYSTEMS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) For the Period January 1, 2000 to March 31, 2001 (unaudited)
5% Series A Convert. Total Common Stock Additional Preferred Stock Retained Shareholders' Number of $.001 Paid in Number Earnings Subscription Treasury Equity Shares Value Capital Of Shares $ No Par (Deficit) Receivable Stock (Deficit) ------ ----- ------- --------- -------- ----------- ------------ ----- --------- Balance at 3,344,066 $ 3,344 $ 238,007 4,117,500 $ 3,872,843 $(2,652,644) $ (850,952) $ -0- $ 610,598 January 1, 2000 Issuance of 40,000 40 89,960 90,000 common stock for services Issuance of 284,166 284 284 common stock Exercise of 1,025,895 1,026 297,024 298,050 stock options Purchase of (20,951) (293,312) (293,312) treasury stock in connection with stock appreciation rights Payment on 850,000 850,000 subscription receivable Acquisition of 1,200,000 1,200 4,433 5,633 WebIPA, Inc. Common stock (600,000) (600) (600) reacquired in the acquisition of WebIPA
3 OMINICOMM SYSTEMS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) For the Period January 1, 2000 to March 31, 2001 (unaudited)
5% Series A Convert. Total Common Stock Additional Preferred Stock Retained Shareholders' Number of $.001 Paid in Number Earnings Subscription Treasury Equity Shares Value Capital Of Shares $ No Par (Deficit) Receivable Stock (Deficit) ------ ----- ------- --------- -------- ----------- ------------ ----- --------- Issuance of 146,000 146,000 146,000 preferred stock Issuance costs (206,750) (206,750) on preferred stock Conversion of 320,000 320 366,393 366,713 conv. notes payable, net of issuance costs of $33,287 Exercise of 20,000 20 15,980 16,000 stock options Exercise of 481,834 482 963,186 963,668 stock warrants Exercise of 187,954 188 (188) -0- stock warrants Conversion of 66,667 67 99,933 (100,000) (100,000) -0- preferred stock to common stock Conversion of 91,608 92 206,026 206,118 notes payable to common stock Issuance of 70,990 71 188,784 188,855
4 OMINICOMM SYSTEMS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) For the Period January 1, 2000 to March 31, 2001 (unaudited)
5% Series A Convert. Total Common Stock Additional Preferred Stock Retained Shareholders' Number of $.001 Paid in Number Earnings Subscription Treasury Equity Shares Value Capital Of Shares $ No Par (Deficit) Receivable Stock (Deficit) ------ ----- ------- --------- -------- ----------- ------------ ----- --------- common stock for services Issuance of 668,334 668 600,833 601,501 common stock, net of issuance costs of $66,833 Issuance of 126,781 190,172 190,172 preferred stock for services Conversion of 66,667 100,000 100,000 notes payable into preferred stock Conversion of 96,724 97 144,989 (96,724) (145,086) -0- preferred stock to common stock Issuance of 76,340 76 45,552 45,628 common stock for services Net (loss) for (6,275,051) (6,275,051) ----------- ----------- the year ended December 31, 2000
5 OMINICOMM SYSTEMS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) For the Period January 1, 2000 to March 31, 2001 (unaudited)
5% Series A Convert. Total Common Stock Additional Preferred Stock Retained Shareholders' Number of $.001 Paid in Number Earnings Subscription Treasury Equity Shares Value Capital Of Shares $ No Par (Deficit) Receivable Stock (Deficit) ------ ----- ------- --------- -------- ----------- ------------ ----- --------- Balances at 7,353,627 $ 7,975 $3,261,100 4,260,224 3,857,179 (8,927,695) (1,140) (293,912) (2,096,493) December 31, 2000 Issuance of 90,000 90 74,910 75,000 common stock Conversion of 30,000 30 44,970 (45,000) (45,000) -0- preferred stock to common stock Conversion of 30,000 30 34,580 34,610 convertible notes payable to common stock, net of issuance costs of $2,890 Exercise of 20,000 20 15,980 16,000 stock options Stock issued in 126,338 126 97,732 97,858 lieu of pay and in satisfaction of trade payables Conversion of 226,038 226 112,103 112,329 notes payable to common stock Net loss for the (919,341) (919,341) ---------- ----------
6 OMINICOMM SYSTEMS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) For the Period January 1, 2000 to March 31, 2001 (unaudited)
5% Series A Convert. Total Common Stock Additional Preferred Stock Retained Shareholders' Number of $.001 Paid in Number Earnings Subscription Treasury Equity Shares Value Capital Of Shares $ No Par (Deficit) Receivable Stock (Deficit) ------ ----- ------- --------- -------- ----------- ------------ ----- --------- three months ended March 31, 2001 Balances at 7,876,003 $8,497 $3,641,375 4,215,224 $3,812,179 $(9,847,036) $ (1,140) $(293,912) $(2,680,037) ========= ====== ========== ========= ========== =========== ======== ========= =========== March 31, 2001
See accompanying summary of accounting policies and notes to financial statements 7 OMNICOMM SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
For the three months ended March 31, 2001 2000 ---------- ----------- REVENUES - SALES, Net $ 41,094 $ 24,978 COST OF SALES 16,484 35,120 ---------- ----------- GROSS MARGIN/(LOSS) 24,610 (10,142) OTHER EXPENSES Salaries, employee benefits and related expenses 561,851 572,933 Rent 41,377 60,932 Consulting - marketing and sales -0- 42,000 Consulting - medical advisory -0- 48,000 Consulting - product development -0- 28,435 Legal and professional fees 42,497 199,247 Travel 43,191 169,719 Telephone and internet 34,439 64,034 Selling, general and administrative 25,907 215,196 Interest expense, net 56,505 17,023 Depreciation and amortization 87,325 92,616 ---------- ----------- TOTAL OTHER EXPENSE 893,092 1,510,135 ---------- ----------- INCOME (LOSS) BEFORE TAXES AND PREFERRED DIVIDENDS (868,482) (1,520,277) INCOME TAX EXPENSE (BENEFIT) -0- -0- PREFERRED STOCK DIVIDENDS (50,859) (49,454) ---------- ----------- NET INCOME (LOSS) $ (919,341) $(1,569,731) ========== =========== BASIS AND DILUTED NET INCOME (LOSS) PER SHARE $ (.12) $ (.36) ========== =========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND 7,588,891 4,390,450 DILUTED ========== ===========
See accompanying summary of accounting policies and notes to financial statements 8 OMNICOMM SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the three months ended March 31, 2001 2000 ----------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (919,341) $(1,569,731) Adjustment to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 87,325 92,616 Common stock issued for services 97,858 90,000 Change in assets and liabilities: Accounts receivable (2,332) 424 Inventory -0- 3,997 Prepaid expenses (3,862) (57,260) Intangible assets (113,500) -0- Accounts payable and accrued expenses 196,325 148,576 Sales tax payable -0- (641) Deferred revenue (12,498) -0- ---------- ----------- Net cash provided by (used in) operating activities (670,025) (1,292,019) CASH FLOWS FROM INVESTING ACTIVITIES Equity investment in EMN -0- (335,000) Purchase of WebIPA -0- 5,033 Purchase of property and equipment (848) (130,655) ---------- ----------- Net cash provided by (used in) operating activities (848) (460,622) CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from convertible notes 524,900 -0- Payments on notes payable (10,000) -0- Proceeds from notes payable 60,000 -0- Issuance of 5% Series A convertible preferred stock, net of -0- 789,250 issuance costs Issuance of common stock -0- 284 Proceeds from stock option exercise 16,000 4,739 ---------- ----------- Net cash provided by (used in) financing activities 590,900 794,273 ---------- ----------- Net increase (decrease) in cash and cash equivalents (79,973) (958,368) Cash and cash equivalents at beginning of period 90,958 1,127,263 ---------- ----------- Cash and cash equivalents at end of period $ 10,985 $ 168,895 ========== ===========
9 OMNICOMM SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Continued)
For the three month ended March 31, 2001 2000 -------- -------- Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Income tax paid $ -0- $ -0- ------- -------- Interest paid $23,657 $ 44,728 ======= ========
Non-Cash Investing and Financing Transactions; Acquisition of all of the outstanding common stock of WebIPA, Inc. during the quarter ended March 31, 2000. Assets acquired, fair value $ 5,033 Cash acquired 5,033 --------- Net cash paid for acquisition $ -0- ========= In addition, the Company re-acquired 600,000 shares of its common stock that had been provided to WebIPA in October 1999 as a deposit towards the consummation of a transaction in which the Company would acquire WebIPA. The acquired shares have been accounted for as treasury stock under the cost method of accounting. During the year ended December 31, 2000, $400,000 of convertible notes payable were converted into 320,000 shares of common stock. During the year ended December 31, 2000, 1,018,604 incentive stock options were exercised utilizing stock appreciation rights. The net proceeds to the company would have been $293,312. The company recorded a treasury stock transaction in the amount of $293,312 to account for the stock appreciation rights. During the year ended December 31, 2000, a promissory note with a face value of $100,000 was converted into 66,667 shares of the Company's preferred stock at a rate of $1.50 per share. During the year ended December 31, 2000, promissory notes totaling $206,118 of principal and interest were converted into 91,608 shares of the Company's preferred stock at a rate of $2.25 per share. During the year ended December 31, 2000, $245,086 of the Company's convertible Series A Preferred Stock totaling 196,724 preferred shares were converted into 163,391 shares of common stock. During the period ended March 31, 2001, the Company issued 90,000 shares as collateral for a bridge loan with a principal amount due of $75,000. During the period ended March 31, 2001, $37,500 of convertible notes payable were converted into 30,000 shares of common stock, net of issuance costs of $2,890. During the period ended March 31, 2001, a promissory note with a face value of $100,000 with $12,329 in accrued interest was converted into 226,003 shares of the Company's common stock. During the period ended March 31, 2001, $45,000 of the Company's convertible Series A Preferred Stock totaling 45,000 preferred shares were converted into 30,000 shares of common stock. During the period ended March 31, 2001, $760,000 in notes payables were converted into 12% convertible notes of the Company. See accompanying summary of accounting policies and notes to financial statements 10 OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS MARCH 31, 2001 (unaudited) NOTE 1: ORGANIZATION AND NATURE OF OPERATIONS ------------------------------------- OmniComm Systems, Inc. (the "Company") was originally incorporated in Florida in February 1997. The Company provides Internet based database applications that integrate significant components of the clinical trial process, including the collection, compilation and validation of data over the Internet. The Company's primary products include TrialMaster(TM) and WebIPA(R). NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ CASH AND CASH EQUIVALENTS ------------------------- Cash equivalents consist of highly liquid, short-term investments with maturities of 90 days or less. The carrying amount reported in the accompanying balance sheets approximates fair value. CONSOLIDATION ------------- The Company's accounts include those of its two wholly owned subsidiaries, OmniCommerce and OmniTrial B.V. All significant intercompany transactions have been eliminated in consolidation. ACCOUNTS RECEIVABLE ------------------- Accounts receivable are judged as to collectibility by management and an allowance for bad debts is established as necessary. As of each balance sheet date, no reserve was considered necessary. EARNINGS PER SHARE ------------------ The Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS 128 replaced the previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants, and convertible securities. The diluted earnings per share calculation is very similar to the previously fully diluted earnings per share calculation method. SFAS 128 became effective December 31, 1997. Basic earnings per share were calculated using the weighted average number of shares outstanding of 7,588,891 and 4,390,450 for the periods ended March 31, 2001 and 2000; respectively. There were no differences between basic and diluted earnings per share. Options to purchase 3,554,006 shares of common stock at prices ranging from $.50 to $5.50 per share were outstanding at March 31, 2001, but they were not included in the computation of diluted earnings per share because the options have an anti-dilutive effect. The effect of the convertible debt and convertible preferred stock are anti-dilutive. 5% SERIES A CONVERTIBLE PREFERRED STOCK --------------------------------------- During the year ended December 31, 1999, the Company designated 5,000,000 shares of its 10,000,000 authorized preferred shares as 5% Series A Convertible Preferred Stock. Each share is convertible into common stock at $1.50 per share. In the event of liquidation, these shareholders will be entitled to receive in preference to the holders of common stock an amount equal to their original purchase price plus all accrued but unpaid dividends. Dividends are payable at the rate of 5% per annum, payable semi-annually. ADVERTISING ----------- Advertising costs are expensed as incurred. Advertising costs were $0 and $82,733 for the periods ended March 31, 2001 and 2000 respectively. 11 OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS MARCH 31, 2001 (unaudited) RECLASSIFICATIONS ----------------- Certain items from prior periods within the financial statements have been reclassified to conform to current period classifications. INTANGIBLE ASSETS AND GOODWILL ------------------------------ Included in Intangible Assets are the following assets:
March 31, 2001 Accumulated Cost Amortization ---- ------------ Covenant not to compete $120,000 $120,000 Software development costs 87,500 80,209 Organization costs 539 539 Debt acquisition costs 196,948 53,831 -------- -------- $404,987 $254,579 ======== ======== December 31, 2000 Accumulated Cost Amortization ---- ------------ Covenant not to compete $120,000 $120,000 Software development costs 87,500 72,917 Organization costs 539 539 Debt acquisition costs 86,338 47,850 -------- -------- $294,377 $241,306 ======== ========
The covenant not to compete and the software development costs were acquired as a result of the acquisition of Education Navigator, Inc. (EdNav) on June 26, 1998. The covenant is for a two-year period and is being amortized ratably over that time. The software development costs were capitalized and are being amortized ratably over a three-year period, as that is the expected life of the various products. Amortization expense was $7,292 for software development costs for the period ended March 31, 2001. During the first three months of 2001, the Company issued Convertible Notes totaling $1,285,000. The fees of $113,500 associated with these notes will be amortized ratably over the term of the notes, which is through January 31, 2002. Amortization expense of debt acquisition costs totaled $5,981 for the period ended March 31, 2001, and approximately $2,890 of the debt acquisition costs were reclassified as stock issuance costs in connection with the conversion of $37,500 (original cost) worth of the convertible notes into common stock of the Company during the period ended March 31, 2001. Included in Goodwill, as a result of the EdNav acquisition at March 31, 2001 and December 31, 2000 is the cost of $475,665 and accumulated amortization of $436,026 and $396,388 respectively. The goodwill is being amortized ratably over a period of three years. Goodwill amortization totaled $39,638 for the period ended March 31, 2001. 12 OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS MARCH 31, 2001 (unaudited) PROPERTY AND EQUIPMENT, AT COST ------------------------------- Property and equipment consists of the following:
March 31, 2001 December 31, 2000 Accumulated Accumulated Cost Depreciation Cost Depreciation ---- ------------ ---- ------------ Computer and office equipment $ 387,862 $108,205 $ 387,862 $ 88,812 Leasehold improvements 2,547 313 1,699 201 Computer software 212,412 72,859 212,412 60,067 Office furniture 42,350 10,879 42,350 8,762 ---------- -------- --------- ---------- $ 645,171 $192,256 $ 644,323 $ 157,842 ========== ======== ========= ==========
Renewals and betterments are capitalized; maintenance and repairs are expensed as incurred. Depreciation is calculated using the straight-line method over the asset's estimated useful life, which is 5 years for leasehold improvements, equipment and furniture and 3 years for software. Depreciation expense for the periods ended March 31, 2001 and 2000 was $34,414 and $24,660 respectively. DEFERRED REVENUE ---------------- 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 $14,363 in deferred revenue relating to one contract for services to be performed over the next three months. REVENUE RECOGNITION POLICY -------------------------- The Company recognizes sales, for both financial statement and tax purposes, when its products are shipped and when services are provided. The Company had $14,363 in deferred revenue relating to one contract for services to be rendered over the next three months. ESTIMATES IN FINANCIAL STATEMENTS --------------------------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 13 OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS MARCH 31, 2001 (unaudited) INCOME TAXES ------------ The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." SFAS 109 has as its basic objective the recognition of current and deferred income tax assets and liabilities based upon all events that have been recognized in the financial statements as measured by the provisions of the enacted tax laws. Valuation allowances are established when necessary to reduce deferred tax assets to the estimated amount to be realized. Income tax expense represents the tax payable for the current period and the change during the period in the deferred tax assets and liabilities. STOCK BASED COMPENSATION ------------------------ The Company adopted SFAS 123 to account for its stock based compensation plans. SFAS 123 defines the "fair value based method" of accounting for stock based compensation. Under the fair value based method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period. EARNINGS PER SHARE ------------------ Basic earnings per shares ("EPS") is computed by dividing income available to common shareholders (which for the Company equals its net loss) by the weighted average number of common shares outstanding, and dilutive EPS adds the dilutive effect of stock options and other common stock equivalents. Antidilutive shares aggregating 3,915,497 have been omitted from the calculation of dilutive EPS for the period ended March 31, 2001. A reconciliation between numerators and denominators of the basic and dilutive earnings per shares is as follows:
Period Ended March 31, 2001 Period Ended March 31, 2000 --------------------------- --------------------------- Net Income Shares Per- Net Income Shares Per- (Loss) Share (Loss) Share Numerator Denominator Amount Numerator Denominator Amount --------- ----------- ------- --------- ----------- ------- Basic EPS $(919,341) 7,588,891 $ (0.12) $(1,569,731) 4,390,450 $ (0.36) Effect of Dilutive Securities None. -0- -0- -0- -0- -0- -0- --------- ----------- ------- ------------ ----------- -------- Diluted EPS $(919,341) 7,588,891 $ (0.12) $ (1,569,731) 4,390,450 $ (0.36) ========= =========== ======= ============ =========== ========
IMPACT OF NEW ACCOUNTING STANDARDS ---------------------------------- In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), which is effective for all fiscal quarter of all fiscals years beginning after June 15, 2000, as amended by SFAS No. 137. In June 2000, SFAS No. 138 was issued which amended certain provisions of SFAS No. 133. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments imbedded in other contracts, and for hedging activities. In accordance with SFAS No. 133, an entity is required to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires that a company formally document, designate and assess the effectiveness of transactions that receive hedge accounting. The Company has not yet completed its evaluation of the impact of SFAS No. 133 on its consolidated financial statements. However, the Company does not 14 OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS MARCH 31, 2001 (unaudited) believe that the implementation of SFAS No. 133 will have a significant effect on its results of operations. FASB Interpretation No. 44 "Accounting for Certain Transactions Involving Stock Compensation" ("FIN No. 44"), provides guidance for applying APB Opinion No. 25, "Accounting for Stock Issued to Employees". With certain exceptions, FIN No. 44 applies prospectively to new awards, exchanges of awards in a business combination, modifications to outstanding awards and changes in grantee status on or after July 1, 2000. The Company does not believe that the implementation of FIN No. 44 will have a significant effect on its results of operations. In December 1999, The SEC issued Staff Accounting Bulletin No. 101, "Revenue Recognition Financial Statements" ("SAB No. 101"), which summarizes certain of the SEC staff's views in applying generally accounted principles to revenue recognition in financial statements. The Company will be required to adopt SAB No. 101 during fiscal year 2001. The Company does not believe that the implementation of SAB No. 101 will have a significant effect on its results of operations. NOTE 3: OPERATIONS AND LIQUIDITY -------------------------- The Company incurred substantial losses in 1999 and 2000. Until such time that the Company's products and services can be successfully marketed the Company will continue to need to fulfill working capital requirements through the sale of stock and the issuance of debt. The inability of the company to continue its operations, as a going concern would impact the recoverability and classification of recorded asset amounts. The ability of the Company to continue in existence is dependent on its having sufficient financial resources to bring products and services to market for marketplace acceptance. As a result of its significant losses, negative cash flows from operations, and accumulated deficits for the period ending March 31, 2001, there is doubt about the Company's ability to continue as a going concern. Management believes that its current available working capital, anticipated contract revenues and subsequent sales of stock and or placement of debt instruments will be sufficient to meet its projected expenditures for a period of at least twelve months from March 31, 2001. However, any projections of future cash needs and cash flows are subject to substantial uncertainty. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. NOTE 4: ACQUISITION ----------- WebIPA, Inc. Acquisition ------------------------ On February 9, 2000, the Company acquired WebIPA, Inc., a Florida corporation pursuant to an Agreement and Plan of Acquisition dated January 26, 2000. In consideration of receiving all of the issued and outstanding shares of WebIPA Inc., OmniComm issued 1,200,000 restricted shares of common stock to the shareholders of WebIPA Inc. The Company accounted for its acquisition of WebIPA under the purchase method of accounting. At the time of the transaction WebIPA was a development stage company with approximately $5,033 in assets and no recorded liabilities. 15 OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS MARCH 31, 2001 (unaudited) NOTE 5: EQUITY INVESTMENT ----------------- European Medical Network (EMN) Investment, at cost On March 20, 2000 the Company entered into a stock purchase agreement under which it agreed to purchase a 25% interest in Medical Network AG EMN, a Swiss company ("EMN"). The agreement, set to close on April 20, 2000, provided that the purchase price for 25% of EMN's stock equity was $838,500 to be paid partly in cash and stock. Two cash payments totaling US $645,000 were to be paid in installments as follows: $335,000 on March 20, 2000, upon which EMN would deliver 10% of its stock equity, and $310,000 on April 20, 2000, upon which EMN would deliver the remaining 15% of its stock equity. In addition, the Company was to provide 41,883 shares of restricted common stock to EMN. Pursuant to the terms of the stock purchase agreement, on March 20, 2000, EMN's shareholders entered into an agreement that provided for the Company to have one seat on EMN's board of directors and the right to veto any sale of equity in excess of 49% of the total issued and outstanding equity of EMN. On March 20, 2000, the Company paid EMN $335,000, received 10% of EMN's equity and a seat on EMN's board. On April 20, 2000, the Company did not make the second payment of $310,000 or the stock payment of 41,883 shares to EMN and the stock purchase agreement did not close. On July 11, 2000, the Company and EMN agreed to renegotiate the terms of their agreement subject to the Company's success in finding adequate financing. As part of the renegotiation the Company has resigned its seat on EMN's board and offered to sell its 10% interest back to EMN. The Company accounts for its investment in EMN under the cost method of accounting. The Company has established a valuation allowance of $335,000 against its investment in EMN to reflect the uncertainty of the fair market value of the investment as of March 31, 2001 and December 31, 2000. NOTE 6: NOTES PAYBLE ------------ Education Navigator -------------------- As of March 31, 2001, the Company owed $147,500 to the selling stockholders of Education Navigator. The notes are payable over two years and bear interest at 5.51% annually. The amount payable during fiscal 2001 is $157,500. At March 31, 2001 the Company was in default under the terms of the promissory notes governing the debt. Short-term Borrowings --------------------- At March 31, 2001 the Company owed $462,500 under short-term notes payable. The notes bear interest at rates ranging from 8% to 18%. The average original term of the promissory notes is 195 days. One of the notes is collateralized by common stock, the other notes are not collateralized. The note holders were granted stock warrants in the Company at prices ranging from $.50 to $2.25 per share. As of March 31, 2001 the Company was in default on four of the notes with principal owed of approximately $402,500. NOTE 7: CONVERTIBLE NOTES ----------------- During the first quarter of 1999, the Company issued Convertible Notes Payable in the amount of $862,500 pursuant to a Confidential Private Placement Memorandum. There were costs of $119,625 associated with this offering. The notes bear interest at ten percent annually, payable semi-annually. The notes are convertible after maturity, which is five years, into shares of common stock of the Company at $1.25 per share, including registration rights. As of March 31, 2001 approximately $437,500 of the Convertible Notes had been converted into 350,000 shares of common stock of the Company. 16 OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS March 31, 2001 (unaudited) During the first quarter of 2001, the Company issued Convertible Notes Payable in the amount of $1,285,000 pursuant to a Confidential Private Placement Memorandum. There were costs of $113,500 associated with this offering. The net proceeds to the Company were $1,285,000, with the costs of $113,500 accrued at March 31, 2001. The notes bear interest at twelve percent annually, payable at maturity. The notes are convertible after maturity, which is January 31, 2002, into shares of common stock of the Company at $0.50 per share, including registration rights. NOTE 8: COMMITMENTS AND CONTINGENCIES ----------------------------- The Company currently leases office space requiring minimum annual base rental payments for the fiscal periods shown as follows: 2001 $ 86,460 2002 116,125 2003 0 2004 0 2005 0 -------- Total $202,585 ======== In addition, to annual base rental payments, the company must pay an annual escalation for operating expenses as determined in the lease. CONTINGENT LIABILITIES ---------------------- On or about September 6, 2000, the Company's wholly owned subsidiary, OmniTrial B.V. ("OmniTrial") submitted a petition for bankruptcy protection from the bankruptcy court of the Netherlands. The court appointed a liquidating trustee and the case is still pending. The Company is claiming that certain assets of OmniTrial have been paid for by the Company and therefore should not be part of the liquidating assets of OmniTrial. The bankruptcy trustee has rejected that claim and has told the Company that the assets as part of the OmniTrial bankruptcy estate would be sold to diminish any deficiency of the estate. The Company would like to resolve its disputes with the trustee, but if unable to do so, intends to contest the outstanding matters in the bankruptcy court of the Netherlands. On January 26, 2001, a former employee of the Company, Eugene A. Gordon filed a lawsuit in the Circuit Court of the 11th Judicial Circuit in and for Dade County, Florida alleging breach of his employment contract with the Company. The plaintiff alleges the Company owes him more than $100,000 for back payment of salary per the terms of his employment contract. The Company disputes Mr. Gordon's allegations and is vigorously defending this lawsuit. On February 2, 2001, an advertising firm, Wray Ward Laseter filed a lawsuit in the Superior Court of North Carolina against the Company. The plaintiff alleges claims totaling approximately $84,160 against the Company for fees associated with advertising, marketing and public relations services provided between March and September 2000. On or about April 27, 2001, the Company and Wray Ward Laseter entered into a settlement agreement which provides that the plaintiff dismiss the lawsuit with prejudice and release its claims against the Company in return for a series of payments totaling $66,000. On February 16, 2001, a staffing agency, Temp Art, Inc. filed a lawsuit in the County Court in and for Miami-Dade County, Florida. The plaintiff alleges the Company breached its contract and owes approximately $13,126 for back payment of services rendered plus interest and costs. The Company disputes Temp Art's allegations and is vigorously defending this lawsuit. 17 OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS March 31, 2001 (unaudited) In December 2000, the Company received a demand letter from a former employee for fees owed relating to an advisers agreement between him and the Company. The demand letter sought $37,500 in the form of past due fees. The former employee later increased his demand to $50,000. After its initial settlement offer was rejected, the Company advised the former employee that it intended to vigorously defend itself against any claims and assert its own claims against him. The Company disputes his allegations and intends to vigorously defend itself should a lawsuit be filed. NOTE 9: RELATED PARTY TRANSACTIONS -------------------------- The Company was owed $0 and $3,406 at March 31, 2001 and March 31, 2000, respectively, from a shareholder. The interest rate was 6% annually. On July 18, 2000 the Company borrowed $50,000 from Guus van Kesteren a Director of the Company. The promissory note carries an interest rate of 12% per annum and has a maturity date of September 30, 2000. In addition, the Company granted Mr. van Kesteren an option to purchase 20,000 shares of the Company's common stock at a price of $2.25. At the Company's request Mr. van Kesteren elected to convert the promissory note as part of a private placement of debt of the Company. The private placement debt will accrue interest at 12% per annum and is convertible into common stock of the Company at a rate of $0.50 per share on January 31, 2002. On August 17, 2000 the Company borrowed $100,000 from Noesis N.V. a shareholder of the Company. The promissory note carries an interest rate of 8% per annum and has a maturity date of January 1, 2001. At the Company's request Noesis elected to convert the promissory note as part of a private placement of debt of the Company. The private placement debt will accrue interest at 12% per annum and is convertible into common stock of the Company at a rate of $0.50 per share on January 31, 2002. On October 26, 2000 the Company borrowed $250,000 from Profrigo N.V. a shareholder of the Company. The promissory note carries an interest rate of 5% per annum and has a maturity date of January 1, 2001. At the Company's request Profrigo elected to convert the promissory note as part of a private placement of debt of the Company. The private placement debt will accrue interest at 12% per annum and is convertible into common stock of the Company at a rate of $0.50 per share on January 31, 2002. On November 22, 2000 the Company borrowed $150,000 from Profrigo, N.V, a shareholder of the Company. The promissory note carries an interest rate of 18% per annum and has a maturity date of January 15, 2001. In addition, the Company granted Profrigo an option to purchase 150,000 shares of the Company's common stock at a price of $0.75. The promissory note is currently in default and continues to accrue interest at the rate of 18% per annum. On December 22, 2000 the Company borrowed $60,000 from Guus van Kesteren a Director of the Company. The promissory note carries an interest rate of 5% per annum and has a maturity date of January 1, 2001. At the Company's request Mr. van Kesteren elected to convert the promissory note as part of a private placement of debt of the Company. The private placement debt will accrue interest at 12% per annum and is convertible into common stock of the Company at a rate of $0.50 per share on January 31, 2002. On December 22, 2000 the Company borrowed $50,000 from Profrigo N.V. a shareholder of the Company. The promissory note carries an interest rate of 5% per annum and has a maturity date of January 1, 2001. At the Company's request Profrigo elected to convert the promissory note as part of a private placement of debt of the Company. The private placement debt will accrue interest at 12% per annum and is convertible into common stock of the Company at a rate of $0.50 per share on January 31, 2002. 18 OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS March 31, 2001 (unaudited) On February 20, 2001 the Company borrowed $60,000 from Guus van Kesteren a Director of the Company. The promissory note carries an interest rate of 12% per annum and has a maturity date of August 20, 2001. In addition, the Company granted Mr. van Kesteren an option to purchase 20,000 shares of the Company's common stock at a price of $0.30. NOTE 10: POST-RETIREMENT EMPLOYEE BENEFITS --------------------------------- The Company does not have a policy to cover employees for any health care or other welfare benefits that are incurred after employment (post-retirement). Therefore, no provision is required under SFAS's 106 or 112. NOTE 11: STOCK BASED COMPENSATION ------------------------ ACCOUNTING FOR STOCK-BASED COMPENSATION --------------------------------------- Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", ("SFAS No. 123") requires that stock awards granted subsequent to January 1, 1995, be recognized as compensation expense based on their fair value at the date of grant. Alternatively, a company may use Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", ("APB 25") and disclose pro forma income amounts which would have resulted from recognizing such awards at their fair value. The Company has elected to account for stock-based compensation expense under APB 25. STOCK OPTION PLAN ----------------- In 1998 the Company's Board of Directors approved the OmniComm Systems 1998 Stock Option Plan. (the "1998 Plan"). The Plan provides for granting Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Phantom Stock Unit Awards and Performance Share Units. Pursuant to the 1998 Plan the Company may grant options to purchase up to 3,000,000 shares of the Company's common stock. The term of each option may not exceed ten years from the date of grant, and options vest in accordance with a vesting schedule established by the plan administrator. The Company's share option activity and related information is summarized below:
Period ended March 31, March 31, 2001 December 31, 2000 Weighted Weighted Average Average Exercise Exercise Options Price Options Price Outstanding at beginning of period 3,316,006 $ 2.28 3,562,916 $ 1.00 Granted 345,000 $ 0.64 1,851,994 $ 3.46 Exercised 20,000 $ 0.80 1,045,894 $ 0.30 Cancelled 87,000 $ 2.00 1,053,010 $ 1.97 --------- -------- ---------- -------- Outstanding at end of period 3,554,006 $ 2.14 3,316,006 $ 2.28 ========= ======== ========== ======== Exercisable at end of period 1,662,051 $ 1.89 1,512,848 $ 2.19 ========= ======== ========== ========
19 OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS March 31, 2001 (unaudited) During the second and third quarters of 1999, the Company issued 86,377 and 68,000, respectively, common shares to employees and advisors under its stock bonus arrangement. The Company adopted SFAS 123 to account for its stock based compensation plans. SFAS 123 defines the "fair value based method" of accounting for stock based compensation. Under the fair value based method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period. In accordance with this method, the Company recognized expense of $56,145 and $44,200, respectively, during the second and third quarters of 1999, and $41,980 during the third quarter of 2000. During 2000 the Company issued an aggregate of 187,330 shares of common stock to employees and advisors with a fair market value as measured on the date of issuance of $324,482 for services rendered under employment and consulting agreement. In addition, the Company issued 126,781 shares of preferred stock with a fair market value as measured on the date of grant of $190,172 to a financial advisor in accordance with a consulting agreement. During 2001 the Company issued an aggregate of 70,263 shares of common stock to employees and advisors with a fair market value as measured on the date of issuance of $33,321 for services rendered under employment and consulting agreement. NOTE 12: OMNITRIAL, B.V. BANKRUPTCY -------------------------- OmniTrial B.V., a wholly owned subsidiary of the Company, was incorporated on October 15, 1999, in the Netherlands. On August 28, 2000, the Board of Directors of the Company voted to authorize David Ginsberg, D.O., it's President and Chief Executive Officer, to vote on any resolution pertaining to OmniTrial, including approval of a bankruptcy filing. On August 30, 2000, the Board of Directors of OmniTrial issued a written consent to apply for bankruptcy, which was instituted in The Netherlands on or about September 6, 2000. A liquidating trustee was appointed and the case is still pending as of this date. The Company requested that the bankruptcy trustee return to the Company several computer servers, which the Company claims it owns separately from OmniTrial. The bankruptcy trustee refused to return the servers and alleged that the Company caused the bankruptcy due to its mismanagement of OmniTrial. The Company is currently attempting to negotiate a settlement with the trustee. If the Company is unable to settle the matter with the trustee, it intends to defend its rights in the bankruptcy court in The Netherlands. 20 OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS March 31, 2001 (unaudited) NOTE 13: INCOME TAXES ------------ Income taxes are accrued at statutory US and state income tax rates. Income tax expense is as follows:
3/31/01 3/31/00 ======= ======= Current tax expense (benefit): Income tax at statutory rates $ -0- $ -0- Deferred tax expense (benefit): Amortization of goodwill and (17,660) (17,660) covenant Operating loss carryforward (309,150) (518,629) --------- --------- (326,810) (536,289) Valuation allowance 326,810 536,289 --------- --------- Total tax expense (benefit) $ -0- $ -0- ========= =========
The tax effects of significant temporary differences, which comprise the deferred tax assets are as follows:
3/31/01 12/31/00 ======= ======== Deferred tax assets: Amortization of intangibles $ 241,962 $ 224,302 Operating loss carryforwards 3,445,239 3,136,089 Gross deferred tax assets 3,687,201 3,360,391 Valuation allowance (3,687,201) (3,360,391) ----------- ----------- Net deferred tax asset $ -0- $ -0- =========== ===========
The Company has net operating loss carryforwards (NOL) for income tax purposes of approximately $9,143,552. This loss is allowed to be offset against future income until the year 2021 when the NOL's will expire. Other timing differences relate to depreciation and amortization for the stock acquisition of Education Navigator in 1998. The tax benefits relating to all timing differences have been fully reserved for in the valuation allowance account due to the lack of operating history and the substantial losses incurred in 2000. NOTE 14: INTERIM FINANCIAL REPORTING --------------------------- The unaudited financial statements of the Company for the period from January 1, 2001 to March 31, 2001 have been prepared by management from the books and records of the Company, and reflect, in the opinion of management, all adjustments necessary for a fair presentation of the financial position and operations of the Company as of the period indicated herein, and are of a normal recurring nature. 21 FORWARD-LOOKING STATEMENTS -------------------------- Statements contained in this Form 10-KSB 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-KSB 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-KSB. 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. 22 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS The following information should be read in conjunction with the Consolidated Financial Statements and Notes thereto and other information set forth in this report. General The Company changed the focus of its core business during 1999. The company is a provider of Internet based database products that integrate significant components of the clinical trial process, including the collection, compilation and validation of clinical trial data. Prior to 1999 the Company was a computer systems integrator providing services and hardware sales for the installation of local and wide area networks. The Company expects to continue phasing out the systems integration segment of its business throughout 2001. Virtually all of the Company's personnel are involved in the development and marketing of the Company's TrialMaster product. Period Ended March 31, 2001 Compared With the Period Ended March 31, 2000 Results of Operations Revenues Revenues for the period ended March 31, 2001 were $41,094 compared to $24,978 for the same period in 2000. Revenues associated with the Company's Internet based clinical trial products were approximately $18,348 and $0 for 2001 and 2000 respectively. Systems integration revenues in 2001 were approximately $22,746 versus $24,978 in fiscal 2000. The Company expects systems integration revenues in 2001 to parallel the results achieved in 2000 The Company's TrialMaster product is currently being sold as an application service provider ("ASP") that provides electronic data capture ("EDC") and other services such as an enterprise management suite which assists its clients in the pharmaceutical, biotechnology and medical device industries in accelerating the completion of clinical trials. TrialMaster contracts provide for pricing that is based on both the size and duration of the clinical trial. Size parameters include the number of patients participating in the trial and the number of data points being collected per patient. The client will pay a trial setup fee based on the previously mentioned factors, and then pay an on-going maintenance fee for the duration of the clinical trial that provides software and network support during the trial. Generally, these contracts will range in duration from 12 months to several years. The maintenance fee revenues are earned and recognized monthly. Costs associated with contract revenues are recognized as incurred. 23 Cost of Sales Cost of sales was $16,484 or 40.1% for the period ended March 31, 2001 versus $35,120 or 140.6% for the period ended March 31, 2000. The absolute decrease in cost of sales is attributable to the Company's curtailment of its systems integration business segment. The decrease in cost of sales on a percentage business is primarily the result of the Company increasing sales of its TrialMaster product which should provide significantly higher gross margins than the systems integration segment of its business. The Company does not anticipate that systems integration costs will be a significant source of expense in 2001. The Company's anticipates that the commercialization of its database product TrialMaster and its related components will be the source of most of its cost of sales. Other Expenses Salaries, Employee Benefits and Related Expenses Salaries and related expenses is the Company's biggest expense at 62.9% of total Other Expenses for 2001. Salaries and related expenses totaled $561,851 in 2001 compared to $572,933 in 2000. The Company increased its personnel in 2000 in anticipation of marketing both TrialMaster and WebIPA. The increase encompassed additional computer programmers, and increased sales and marketing personnel. The Company has reduced its sales and marketing personnel primarily through the closure of its European office based on its decision to focus on building its clinical trial clientele domestically in the US. In addition, the Company was able to reduce its research and development personnel through the consolidation of its Tampa, Florida and Miami, Florida offices. The Company currently employs approximately 18 employees out of its Miami corporate office. The Company expects to increase headcount within its technology-based functions in concert with anticipated increases in TrialMaster clients during fiscal 2001. Rent Rent expense was $41,377 for the period ended March 31, 2001 compared with $60,932 for the comparable period in fiscal 2000. The decrease can be attributed to approximately $14,275 in rent expense for the Company's office in Amsterdam incurred in fiscal 2000 which did not recur in 2001 due to the closure of the Amsterdam office in connection with the bankruptcy filing of the Company's European subsidiary, OmniTrial B.V. Consulting Expenses Consulting expenses, which are comprised of medical advisory, product development and marketing and sales consultants were $0 for the period ended March 31, 2001 compared to $118,435 in fiscal 2000. The decrease can be attributed to several factors. There was a decrease in marketing and sales consulting expense of $48,000 caused by the conversion of two sales consultants into marketing executives of the Company. There was a decrease of $42,000 in medical advisory consulting expenses that is directly correlated to a restructuring of the Company's medical advisory board. Product development fees were reduced by $28,435 through the discontinued use of temporary employees within the Company's research and development function. 24 Legal and Professional Fees Legal and professional fees decreased to $42,497 in the period ended March 31, 2001 compared to $199,247 in the same period in 2000. The decrease can be attributed to investment banking and financial advisory fees totaling $55,001 in 2000. Legal and accounting fees were $42,497 in 2001 compared to $54,247 for the same period in fiscal 2000. Telephone and Internet Telephone and Internet related costs decreased by $29,595 due to the decreased telephone and Internet access costs associated with the closing of the Company's offices in Amsterdam, the Netherlands and Tampa, Florida. The Company does not anticipate an increase in access charges during fiscal 2001 based on its own existing communications infrastructure and its projected 2001 workload. Selling, General and Administrative Selling, general and administrative expenses ("SG&A") includes all office oriented expenses, advertising, public relations and marketing costs and all other expenses not directly chargeable to either cost of sales or specifically detailed income statement categories. These expenses were approximately $25,907 in fiscal 2001 compared to $215,196 in fiscal 2000. A portion of the decrease is a result of increased expenditures for advertising ($11,816), conferences and seminars ($47,793) marketing ($70,916) and general office related costs ($38,104) in comparison with fiscal 2000. In addition, the Company had SG & A expenses of approximately $79,000 in its European operation. Depreciation and Amortization Depreciation and amortization expense was $87,325 for fiscal 2001 compared with $92,616 for fiscal 2000. The decrease is a result of an increase in depreciation expense in 2001 of approximately $9,756 that is associated with additional computer and office equipment offset by a $15,000 decrease in the amortization of the non-compete covenant associated with the Education Navigator acquisition in 1998. Liquidity and Capital Resources The Company changed its primary focus to providing Internet based database applications to the clinical trial industry in mid 1998. At that time it began phasing out its systems integration business segment. Since the Company made TrialMaster and its related components its primary business the Company has relied primarily on the proceeds from the sale of debt and equity securities to fund its operations. 25 Cash and cash equivalents decreased by $79,973 to $10,985 at March 31, 2001. This was the result of cash provided by financing activities of $590,900 offset by cash used in operating activities of approximately $670,025 and $848 in investing activities. The significant components of the activity include a loss from operations of approximately $919,341, an increase in debt acquisition costs of $113,500 related to a private placement of the Company's debt, the purchase of property and equipment of approximately $848, offset by an increase in accounts payable and accrued expenses of approximately $196,325 and approximately $600,900 the company raised through the sale of debt and equity securities. Because of the losses experienced in 1999 and 2000 the Company has needed to continue utilizing the proceeds from the sale of debt and equity securities to fund its working capital needs. The capital markets during the latter half of fiscal 2000 continuing through the present provided a difficult climate for the raising of capital because of the decline in value of publicly held technology stocks and the corresponding apprehension on the part of investors to invest in technology oriented firms. The softness in the capital markets coupled with the losses experienced caused working capital shortfalls. To compensate for its working capital needs the Company has used a combination of equity financing and short-term bridge loans. The Company's primary capital requirements are for daily operations and for the continued development and marketing of the TrialMaster system. The Company's Management believes that its current available working capital, anticipated and subsequent sales of stock and or debt financing will be sufficient to meet its projected expenditures for a period of at least twelve months from March 31, 2001. The Company's capital requirements, will need to be funded through debt and equity financing, of which there can be no assurance that such financing will be available or, if available, that it will be on terms favorable to the Company. 26 PART II -OTHER INFORMATION ITEM 5. OTHER INFORMATION Private Placement On January 1, 2001, Noesis Capital Corp., as placement agent, began the distribution of a Confidential Private Placement Memorandum to accredited investors on behalf of the Company. The terms of the offering are as follows: Amount: $2,500,000 , Best Efforts. Offering: 50 Units Maximum. Each Unit consists of a one (1) year convertible note (the "Note") in the principal amount of $50,000, bearing 12% annual interest, payable at maturity (January 31, 2002) with the principal convertible into shares of common stock, $.001 par value, of the Company ("Common Stock" or "Shares") at $0.50 per Share, subject to customary anti-dilution provisions. Price: $50,000 per Unit. The Company will accept subscriptions for partial Units. Registration Rights: Demand (so long as 50% of the aggregate amount of the total offering files notices) and PiggyBack registration rights. Use of Proceeds: Operating and Marketing Expenses Conditions: (1) Regulation D of the Securities Act of 1933, as amended. (2) Suitability Standards; Accredited Investors Only. (3) Board of Directors: Northeast Securities, placement agent, shall have the right to designate one observer with the same notice and reimbursement of expenses as other directors. (4) Termination Date: March 31, 2001, unless earlier terminated or extended by the Company. (5) Placement Fee: 5% Commission (cash); warrants to purchase a number of shares equal to 10% of the number of shares issuable upon conversion of the Notes sold in the offering, at an exercise price of $.50 per share, exercisable for a period of five (5) years, commencing on the final closing date of the offering. The private placement has been extended for an additional one hundred and twenty (120) days. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. None. (b) Reports on Form 8-K. None. 27 SIGNATURES ---------- 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. OmniComm Systems, Inc. - --------------------- Registrant - ---------- By: Ronald T. Linares, Vice President of Finance, Chief Financial and ----------------------------------------------------------------- Accounting Officer ------------------ Date: September 12, 2001 ------------------ 28 -----END PRIVACY-ENHANCED MESSAGE-----