-----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, CVhew5S9yt3dSQcgTr00cJXZxNGZXVdLj61eSHKs5u71LNVMH1uyGE0feU2uIJcr ugq2H97XvNBNL0ALpHQtJA== 0001034592-99-000018.txt : 19991206 0001034592-99-000018.hdr.sgml : 19991206 ACCESSION NUMBER: 0001034592-99-000018 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991203 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OMNICOMM SYSTEMS INC CENTRAL INDEX KEY: 0001034592 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 113349762 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: SEC FILE NUMBER: 000-25203 FILM NUMBER: 99768559 BUSINESS ADDRESS: STREET 1: 3250 MARY STREET STREET 2: SUITE 307 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 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB/A [Mark One] [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended: September 30, 1999 [ ] 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 September 30, 1999: 2,047,377 common stock $.001 par value. 1,300,000 5% Series A Convertible Preferred Stock, at par. OMNICOMM SYSTEMS, INC. Part I - Financial Information Page Consolidated Balance Sheet - September 30, 1999 and December 31, 1998 Consolidated Statements of Shareholders' Equity(Deficit) B January 1, 1998 to September 30, 1999 Consolidated Statements of Operations - Three months and Nine months ended September 30, 1999 and 1998 Consolidated Statement of Cash Flows - Nine months ended September 30, 1999 and 1998 Notes to Consolidated Financial Statements Management's Discussion and Analysis of Financial Condition and Results Part II - Other Information Item 2, Changes in Securities Item 5, Other Information Item 6, Exhibits and Reports on Form 8-K Signature Page OMNICOMM SYSTEMS, INC. FINANCIAL STATEMENTS SEPTEMBER 30, 1999 I N D E X Page CONSOLIDATED BALANCE SHEETS 1 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)2 CONSOLIDATED STATEMENTS OF OPERATIONS 3-4 CONSOLIDATED STATEMENTS OF CASH FLOWS 5 NOTES TO THE FINANCIAL STATEMENTS 6-13 OMNICOMM SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS A S S E T S Sept. 30, 1999 December 31, (Unaudited) 1998 CURRENT ASSETS Cash $ 187,310 $ 44,373 Accounts Receivable 35,186 77,188 Inventory 1,158 4,240 Total Current Assets 223,654 125,801 PROPERTY AND EQUIPMENT - Net 235,854 33,352 OTHER ASSETS Stockholder Loans 8,406 3,406 Intangible Assets, net 197,947 163,276 Goodwill, net 277,471 396,387 Other Assets 1,800 9,300 TOTAL ASSETS $ 945,132 $ 731,522 L I A B I L I T I E S A N D S H A R E H O L D E R S' E Q U I T Y CURRENT LIABILITIES Accounts Payable and Accrued Expenses $ 140,311 $ 286,478 Notes Payable - Current 67,500 262,500 Sales Tax Payable 11,330 39,835 Due to Factoring Agent -0- 139,012 Total Current Liabilities 219,141 727,825 Notes Payable - Long Term -0- 182,500 Convertible Notes 862,500 -0- Total Liabilities 1,081,641 910,325 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY (DEFICIT) Preferred Stock - 8,000,000 shares authorized, none issued and outstanding at $.001 par value -0- -0- 5% Series A Convertible Preferred Stock, 2,000,000 shares authorized,1,300,000 and -0- issued and outstanding, respectively, at par 1,244,910 -0- Common Stock - 20,000,000 shares authorized, 2,047,377 and 1,343,000 issued and outstanding, respectively, at $.001 par value 1,095 391 Additional Paid in Capital 235,104 132,213 Retained Earnings (Deficit) (1,617,618) (311,407) (136,509) (178,803) TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 945,132 $ 731,522 The accompanying notes are an integral part of these financial statements. Page 1 of 13 OMNICOMM SYSTEMS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) For The Period January 1, 1998 to September 30, 1999
5% Series A Convertible Total Common Stock Preferred Stock Additional Retained Shareholders' Number $.001 Number Paid in Earnings Equity of Shares Value of Shares $ Par Capital (Deficit) (Deficit) JAN. 1, 1998 1,002,250 $ 187 $ (16,040) $ (15,853) Issuance of Common Stock 199,750 63 63 Acquisition of Education Navigator Inc. 141,000 141 $132,213 132,354 Net Income (Loss) for Year Ended Dec 31, 1998 (295,367) (295,367) BALANCES AT DEC 31, 1998 (Audited) 1,343,000 391 132,213 (311,407) (178,803) Issuance of Common Stock 250,000 250 250 Issuance of Common Stock for Services 86,377 86 56,059 56,145 Issuance of Common Stock 300,000 300 2,700 3,000 Issuance of Common Stock for Services 68,000 68 44,132 44,200 Issuance of Preferred Stock, net of $95,090 Issuance Costs 1,300,000 $1,244,910 1,244,910 Net Income (Loss) for nine months ended Sept 30 1999 (1,306,211) (1,306,211) BALANCES AT SEPT 30 1999 (Unaudited) 2,047,377 $1,095 1,300,000 $1,244,910 $235,104 $(1,617,618) $ (136,509)
The accompanying notes are an integral part of these financial statements. Page 2 of 13 OMNICOMM SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the three months ended September 30, 1999 1998 REVENUES - SALES, Net $ 244,536 $423,116 COST OF SALES 187,279 314,995 GROSS MARGIN 57,257 108,121 OTHER EXPENSES Depreciation and Amortization 84,780 63,324 Interest Expense 21,638 (481) Salaries and Wages 194,801 75,980 Factoring Fees 71 22,230 Rent 17,349 12,303 Independent Consultants 154,060 24,468 Selling, General and Administrative 186,166 44,890 Income (Loss) Before Taxes (601,608) (134,593) Income Tax Expense (Benefit) -0- (43,735) NET INCOME (LOSS) $(601,608) $(90,858) Net Income (Loss) Per Share, Basic & Diluted $(.32) $(.07) Weighted Average Number of Shares Outstanding 1,895,247 1,343,000 The accompanying notes are an integral part of these financial statements. Page 3 of 13 OMNICOMM SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the nine months ended September 30, 1999 1998 REVENUES - SALES, Net $ 1,156,937 $1,375,857 COST OF SALES 821,803 916,820 GROSS MARGIN 335,134 459,037 OTHER EXPENSES Depreciation and Amortization 224,176 63,324 Interest Expense 51,077 1,719 Salaries and Wages 426,067 126,989 Factoring Fees 4,571 31,881 Rent 44,903 27,975 Independent Consultants 365,511 50,935 Selling, General and Administrative 525,040 139,702 Income (Loss) Before Taxes (1,306,211) 16,512 Income Tax Expense (Benefit) -0- 3,265 NET INCOME (LOSS) $(1,306,211) $ 13,247 Net Income (Loss) Per Share, Basic & Diluted $(.79) $.01 Weighted Average Number of Shares Outstanding 1,655,612 1,226,834 The accompanying notes are an integral part of these financial statements. Page 4 of 13 OMNICOMM SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the nine months ended September 30, 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES Net Income (Loss) $(1,306,211) $ 13,247 Adjustment to Reconcile Net Income to Net Cash Provided By (Used In) Operating Activities: Depreciation and Amortization 224,176 63,324 Change in Assets and Liabilities, net of effects of acquisition of Education Navigator Inc (EdNav): (Increase) Decrease in Accounts Receivable 42,002 (178,910) (Increase) Decrease in Inventory 3,082 -0- (Increase) Decrease in Other Assets 2,500 7,500 Increase (Decrease) in Accounts Payable and Accrued Expenses (146,167) 202,350 Increase (Decrease) in Sales Tax Payable (28,505) 36,592 Increase (Decrease) in Due to Factoring Agent (139,012) -0- Net Cash Provided By (Used In) Operating Activities (1,348,135) 144,103 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of Equipment (222,808) (2,168) Purchase of Ed Nav, Net of Cash Acquired -0- (67,500) Net Cash (Used In) Investing Activities (222,808) (69,668) CASH FLOWS FROM FINANCING ACTIVITIES Net Proceeds from Convertible Notes, net of issuance costs of $119,625 742,875 -0- (Payments of) Notes Payable (377,500) (87,500) Issuance of Common Stock 103,595 63 Issuance of Series A Convertible Preferred 5% Stock, net of issuance costs of $95,090 1,244,910 -0- Net Cash Provided By (Used In) Financing Activities 1,713,880 (87,437) Net Increase (Decrease) in Cash and Cash Equivalents 142,937 (13,002) Cash and Cash Equivalents at Beginning of Period 44,373 16,077 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 187,310 $ 3,075 Supplemental Disclosures of Cash Flow Information: Cash Paid During the Period for: Income Tax Paid $ -0- $ -0- Interest Paid $ 27,982 $ 1,719 The accompanying notes are an integral part of these financial statements. Page 5 of 13 OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Unaudited) NOTE 1: ORGANIZATION AND NATURE OF OPERATIONS OmniComm Systems, Inc. (the Company) formerly The Premisys Group, Inc. was incorporated in Florida in February 1997. The Company is a computer systems integrator providing services and hardware sales for the installation of local and wide area networks. The Company's customers are located throughout North America. In addition, the Company is developing a web based database application for the collection, compilation, and validation of clinical data over the internet. The application is called TrialMaster. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH AND CASH EQUIVALENTS Cash equivalents consist of highly liquid, short-term investments with maturities of 90 days or less. The carrying amount reported in the accompanying balance sheets approximates fair value. CONSOLIDATION During the period from July 1, 1998 through December 31, 1998 the accounts of the Company's wholly owned subsidiary, Omnicommerce Systems Inc. (Omnicommerce) were included in the consolidated financial position and results of operations and cash flows. Omnicommerce was formed in July 1998 for the purpose of acquiring Education Navigator, Inc. (See Note 3, Acquisition.) All significant intercompany transactions have been eliminated in consolidation. ACCOUNTS RECEIVABLE Accounts receivable are judged as to collectibility by management and an allowance for bad debts is established as necessary. As of each balance sheet date, no reserve was considered necessary. COMMON STOCK During the period January 1, 1998 to December 31, 1998 the Company had authorized common stock of 10,000,000 shares with no par value. On February 17, 1999 Omnicomm shareholders exchanged all of their issued and outstanding common stock for Coral Development Corp (Coral) common stock at the ratio of 3.129 Omnicomm shares for one share of Coral in a reverse merger (see footnote 10.) Page 6 of 13 OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Unaudited) (Continued) Concurrently, Omnicomm changed its common stock from no par to $.001 per share and increased the number of authorized shares from 10,000,000 to 20,000,000. All share and per share information has been restated retroactively for all periods to include the equivalent number shares exchanged in the transaction and the redenomination of par value. 5% SERIES A CONVERTIBLE PREFERRED STOCK During the quarter ended September 30, 1999, the company designated 2,000,000 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 semi-annually. ADVERTISING Advertising costs are expensed as incurred. INTANGIBLE ASSETS AND GOODWILL Included in Intangible Assets are the following assets: Sept 30, 1999 Accumulated Cost Amortization Covenant not to compete $120,000 $ 75,000 Software development costs 87,500 36,458 Organization costs 539 315 Debt acquisition costs 119,625 17,944 $327,664 $129,717 December 31, 1998 Accumulated Cost Amortization Covenant not to compete $120,000 $30,000 Software development costs 87,500 14,583 Organization costs 539 180 Debt acquisition costs -0- -0- $208,039 $44,763 The covenant not to compete and the software development costs were acquired as a result of the acquisition of EdNav (see Note 3). The covenant is for a two year period and is being amortized ratably over that time. The software development costs were capitalized and are being amortized ratably over a three year period as that is the expected life of the various products. Page 7 of 13 OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Unaudited) (Continued) During the first nine months of 1999, the Company issued Convertible Notes totaling $862,500. The fees of $119,625 associated with these notes are being amortized ratably over the term of the notes, which is five years. During the first nine months of 1999, the amortization was $17,944. Included in Goodwill, as a result of the EdNav acquisition (see Note 3), at September 30, 1999 and December 31, 1998 is the cost of $475,665 and accumulated amortization of $198,194 and $79,278, respectively. The goodwill is amortized ratably over a three year period. CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Company to concentration of credit risk are accounts receivable. Major customers are as follows: For the nine months ended Sept 30, 1999 Sept 30, 1998 % of % of Customer Sales $ Total Sales Sales $ TotalSales Commercial Services Inc $941,108 81% $1,086,439 79% Office Depot Inc $114,994 10% $ 114,719 8% The Company performs ongoing credit evaluations of its customers but generally does not require collateral to support customer receivables. The loss of any one of these customers could have a material adverse effect on the financial condition of the company. PROPERTY AND EQUIPMENT, At Cost Property and equipment consists of the following: December 31, 1998 Sept 30, 1999 Accumulated Accumulated Cost Depreciation Cost Depreciation Computer and office equipment $33,274 $4,636 $256,082 $24,412 Office furniture 4,950 236 4,950 766 $38,224 $4,872 $261,032 $25,178 Renewals and betterments are capitalized; maintenance and repairs are expensed as incurred. Depreciation is calculated using the straight line method over the asset's estimated useful life, which is 5 years for equipment and 7 years for office furniture. Depreciation expense for for the nine months ended September 30, 1999 and 1998 was $20,307 and $-0- respectively. Page 8 of 13 OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Unaudited) (Continued) REVENUE RECOGNITION POLICY The company recognizes sales, for both financial statement purposes and for tax purposes, when the products are shipped and when services are provided. ESTIMATES IN FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." SFAS 109 has as its basic objective the recognition of current and deferred income tax assets and liabilities based upon all events that have been recognized in the financial statements as measured by the provisions of the enacted tax laws. Valuation allowances are established when necessary to reduce deferred tax assets to the estimated amount to be realized. Income tax expense represents the tax payable for the current period and the change during the period in the deferred tax assets and liabilities. STOCK OPTION PLAN In 1998 the Company initiated a stock option plan. The Plan provides for granting Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Phantom Stock Unit Awards and Performance Share Units. In 1998 the Company granted an option to an employee (see Note 3., Acquisition) to purchase 85,000 shares of common stock. The option is exercisable after one year. No compensation expense was recognized during 1998. 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. Page 9 of 13 OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Unaudited) (Continued) NON CASH INVESTING AND FINANCING TRANSACTIONS: Acquisition of all of the Outstanding Common Stock of Education Navigator Inc. during the nine months ended September 30, 1998 Assets Acquired, Fair Value $ 732,354 Notes to Sellers Issued (525,000) Common Stock Issued (132,354) Cash Acquired (7,500) Net Cash Paid for Acquisition $ 67,500 NOTE 3: ACQUISITION On June 26, 1998 the Company acquired all of the outstanding common stock of Education Navigator, Inc. (EdNav). The purchase has been accounted for under the purchase method in accordance with APB Opinion 16. The Company paid the sellingstockholders of EdNav $600,000 ($75,000 downpayment and $525,000 in a promissory note) and issued 441,180 shares of common stock of the Company to the selling stockholders EdNav. The Company valued these shares at $.30 each based principally on the earnings potential of the combined operations. Therefore, the total purchase price was $732,354. The Company also granted a stock option to one selling stockholder to purchase 85,000 shares of the Company for $.60 per share. The option is pursuant to a stock option plan (which has 3,000,000 shares reserved under the plan) and is exercisable over the next three years at 14,166 shares, 28,334 shares and 42,500 shares, respectively. EdNav is an Internet company that has developed and is developing dynamic web applications for business. The acquisition of EdNav is accounted for as under the purchase method. All results of EdNav's operations are included in the financial statements from June 26, 1998 forward. The acquisition resulted in $475,665 recorded as goodwill, which will be amortized ratably over 3 years. The fair value of the assets acquired were as follows: Cash $ 7,500 Accounts receivable 13,945 Computer and office equipment 27,744 Covenant not to compete 120,000 Software developed 87,500 Goodwill 475,665 $732,354 The following table shows the unaudited results of operations on a pro forma basis for the period presented as though the companies had combined at the beginning of the period. This information is presented for informational purposes only and does not purport to be indicative of the results of operations that actually would have resulted if the acquisition had been consummated on January 1, 1998 nor which may result from future operations. Page 10 of 13 OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Unaudited) (Continued) 1/1/98-9/30/98 Revenues $1,460,791 Income (Loss) before extraordinary items (111,927) Net Income (Loss) (111,927) Earnings (Loss) Per Share $(.08) Weighted Average Shares Outstanding 1,320,318 Proforma adjustments to the results of operations are as follows: 1/1/98-9/30/98 Depreciation $ 2,774 Amortization: Software developed 14,583 Covenant not to Compete 30,000 Goodwill 79,278 126,635 EdNav net income (Loss): 1/1/98-6/30/98 403 Proforma Adjustment $127,038 NOTE 4: NOTES PAYABLE At December 31, 1998 the Company owed $445,000 to the selling stockholders of Ed Nav (see Note 3). The notes are payable over the next two years and bear interest at 5.51% annually. The amount payable in the fiscal year 1999 is $262,500 and the amount due in the fiscal year 2000 is $182,500. At September 30, 1999 the Company owed a total of $67,500 on these notes. NOTE 5: 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 Company also granted the agent the option to purchase 250,000 common shares at $.001. The agent exercised the option. The net proceeds to the Company was $742,875. The notes bear interest of ten (10) percent annually, payable semi-annually. The notes are convertible after maturity, which is five (5) years, into shares of common stock of the Company at $1.25 per share, including registration rights. Page 11 of 13 OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Unaudited) (Continued) NOTE 6: COMMITMENTS AND CONTINGENCIES The company is currently in a lease for office space requiring minimum annual base rental payments for the fiscal periods shown as follows: 1999 $ 25,747 2000 26,552 2001 27,357 2002 28,161 2003 28,966 Total $136,783 In addition to annual base rental payments, the company must pay an annual escalation for operating expenses as determined in the lease. NOTE 7: INCOME TAXES Income taxes are accrued at the statutory U.S. and state income tax rates. Income tax expense is as follows: 9/30/99 9/30/98 Current tax expense (benefit): Income tax at statutory rates $ -0- $3,265 Deferred tax expense (benefit): Amortization of Goodwill and Covenant (25,038) -0- Operating Loss Carryforward (10,154) -0- 35,192 3,265 Valuation allowance (35,192) -0- Total Tax Expense (Benefit) $ -0- $3,265 The tax effect of significant temporary differences, which comprise the deferred tax assets are as follows: 9/30/99 12/31/98 Deferred tax assets: Amortization of Intangibles $ 73,457 $ 48,419 Operating loss carryforwards 69,097 58,943 Gross deferred tax assets 142,554 107,362 Valuation allowance (142,554) (107,362) Net deferred tax assets $ -0- $ -0- During 1998 the Company incurred a net operating loss (NOL) for income tax purposes of approximately $170,000. This loss is allowed to be offset against future income until the year 2018 when the NOL will expire. Other timing differences relate to depreciation and amortization for the stock acquisition of EdNav (Note 3). The tax benefits relating to all timing differences have been fully reserved for in the valuation allowance account due to the lack of operating history and substantial losses. Page 12 of 13 OMNICOMM SYSTEMS, INC. NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Unaudited) (Continued) NOTE 8: RELATED PARTY TRANSACTIONS The Company was owed $8,406 and $3,406 at September 30, 1999 and December 31, 1998, respectively from a shareholder. The amount is payable on demand. The interest rate is 6% annually. NOTE 9: POSTRETIREMENT EMPLOYEE BENEFITS The Company does not have a policy to cover employees for any health care or other welfare benefits that are incurred after employment (postretirement). Therefore, no provision is required under SFAS's 106 or 112. NOTE 10: REVERSE MERGER On February 17, 1999 Omnicomm merged with Coral Development Corp. (Coral) in a reverse merger. In consideration of receiving all of the issued and outstanding shares of Omnicomm, Coral will issue 940,000 restricted shares of common stock to the shareholders of Omnicomm. Coral had 403,000 shares issued and outstanding prior to the merger. The merger was accounted for as a reverse merger since Omnicomm is the continuing entity as a result of the recapitalization. Accordingly, a recapitalization occurred and no goodwill was recorded and the operating results of Coral have been included in the financial statements from the date of consummation of the merger. On this basis, the historical financial statements prior to February 17, 1999 represent the consolidated financial statements of Omnicomm. The historical shareholders' equity accounts of Omnicomm as of September 30, 1999 have been retroactively restated for all periods presented to reflect the issuance of the additional 940,000 shares. All share and per share amounts have been retroactively restated for all periods to include the equivalent number of shares received in the transaction. NOTE 11: INTERIM FINANCIAL REPORTING The unaudited financial statements of the Company for the period from January 1, 1999 to September 30, 1999 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. Page 13 of 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation Forward Looking Statements In addition to historical information, this Quarterly Report contains "forward looking statements". These statements can often be identified by the use of forward-looking terminology such as "estimate", "project", "believe", "expect", "may", "will", "should", "intends", or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. We wish to caution the reader that these forward-looking statements, such as statements relating to timing, costs and of the acquisition of, or investments in, existing business, the revenue profitability levels of such businesses and other matters contained in this Quarterly Report 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 Quarterly Report. 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. RESULTS OF OPERATION Revenues: Total revenues decreased to $244,536 from $423,116 and $1,156,937 from $1,375,857 for the three and nine month periods ending September 30, 1999 compared to the corresponding periods in fiscal year 1998. This decrease in revenue is primarily attributed to a decrease in projects initiated by Office Depot and Commercial Services International. Substantially all of the revenue is attributed to three clients: Commercial Services International, Office Depot, and Republic Industries. Of these three, Commercial Services International is responsible for 81% of the total revenue. All of the Company's revenue is attributed to its systems integration business. The Company has earned no revenue from its TrialMasterJ system. Operating Expenses: Total operating expenses increased to $658,865 from $242,714 and $1,641,345 from $442,525 for the three and ninth month periods ending September 30, 1999 compared to the corresponding periods in fiscal year 1998. This substantial increase in operating expenses is attributed to a number of factors including the continuing financial obligations associated with the acquisition of Education Navigator in June of 1998 and the decision to focus the Company=s resources on the development of the TrialMasterTM Internet system. Salaries and Wages. Salaries and wages increased to $194,801 from $75,980 and $426,067 from $126,989 for the three and ninth month periods ending September 30, 1999 compared to the corresponding periods in fiscal year 1998. The increase in salaries and wages is attributed to an increase in the number of employees currently employed by the Company. The Company currently has thirteen employees. Independent Consultants. Fees to independent consultants increased to $154,060 from $24,468 and $365,511 from $50,935 for the three and ninth month periods ending September 30, 1999 compared to the corresponding period in fiscal year 1998. The Company decided to outsource a number of areas during the initial phase of developing, marketing and implementing the TrialMasterTM system. These areas concern product development, marketing and sales, and medical/strategic consulting. Selling, General and Administrative. Selling, general and administrative expenses increased to $186,166 from $44,890 and $525,040 from $139,702 for the three and ninth month periods ending September 30, 1999 compared to the corresponding periods in fiscal year 1998. The substantial increase in selling, general and administrative expenses is attributed to the increase in operations related to the development and marketing of the Company's TrialMasterTM system. LIQUIDITY AND CAPITAL RESOURCES: Cash and cash equivalents increased to $187,310 from $44,373 for the period ending September 30, 1999 compared to the period ending December 31, 1998. The increase is attributed to the cash received from the private placement of the 5%, Series A Convertible Preferred shares. See Item 2. Total liabilities increased to $1,081,641 from $910,325 for the period ending September 30, 1999 compared to the period ending December 31, 1998. The increased in total liabilities are primarily attributed to the placement of convertible notes totaling $862,500. The Company generated losses of $601,608 and $1,306,211 from operations for the three and nine month periods ending September 30, 1999 compared to a loss of $90,858 and income of $13,247 for the corresponding period in fiscal year 1998. The loss is primarily attributed to the continued financial obligations associated with the acquisition of Education Navigator in June of 1998 and the development and marketing of the TrialMasterTM system. The Company has initiated a private placement of 5% Series A Convertible Preferred Shares to accredited investors pursuant to Regulation S of the Securities Act of 1933, as amended. See Item 2. PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds Preferred Stock On June 28, 1999, the Company amended its articles of incorporation to create a class of preferred stock. The Company shall have the authority to issue 10,000,000, $.001 par value preferred shares. The board of directors of the Company shall have the authority to divide the preferred into series or classes and to designate the respective rights of each series or class. 5% Series A Convertible Preferred Stock On July 19, 1999, the Company filed a certificate of designation authorizing the creation of a 5% Series A Convertible Preferred stock ("Preferred Stock"). The preferences of the Preferred Stock are as follows: 1. In the event of liquidation, the holders of Preferred Stock will be entitled to receive in preference to the holders of Common Stock an amount equal to their original purchase price plus all accrued but unpaid dividends. 2. Dividends shall be paid at the rate of 5.00% (five percent) per annum (365 days), payable semi-annually, on January 1 and July 1 of each following year. 3. Conversion: (a) Voluntary Conversion: The holders of Preferred Stock shall have the right to convert at any time at the option of the holder, each share of Preferred Stock into one share of Common Stock, subject to antidilution provisions set forth in subsection (c) below. (b) Automatic Conversion: At any time after one year from the date of the final Closing Date, the Company can require that all outstanding shares of Preferred Stock be automatically converted at the conversion then in effect if at the time (a) the closing bid price of the Company's Common Stock has exceeded $3.00 for 20 consecutive trading days; (b) the Company's Common Stock has been listed on the Nasdaq or such other comparable national stock exchange and; (c) a registration statement covering the shares of Common Stock issuable upon conversion of the Preferred Stock has been filed with the Securities and Exchange Commission and declared effective. 4. Anti-Dilution: Each share of Preferred Stock upon conversion into Shares shall have proportional antidilution protection for stock splits, stock dividends, combinations, and recapitalizations. The conversion price shall also be subject to adjustment to prevent dilution in the event the Company issues additional shares of Common Stock or equivalents at a purchase price less than the applicable conversion price. 5. The Preferred Stock shall not be sold, assigned, transferred or pledged except upon satisfaction of the conditions specified in the subscription agreement executed by the Holder, which conditions are intended to ensure compliance with the provisions of the Securities Act. Each Holder will cause any proposed purchaser, assignee, transferee, or pledgee of the Preferred Share or the Common Stock issuable upon conversion held by a Holder to agree to take and hold such securities subject to the provisions and conditions of the subscription agreement. 6. Each certificate representing (i) the Preferred Stock and (ii) any other securities issued in respect of the Preferred Stock upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall be stamped or otherwise imprinted with a legend in the following form (in addition to any legend required under applicable state securities laws): THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION. 7. A Holder shall have a right to vote that number of votes equal to the number of shares of Common Stock issuable upon conversion of the Preferred Stock. In addition to the foregoing, a holder of the Preferred Stock shall have registrations rights shares of Common Stock issuable upon conversion of the Preferred Stock. Issuance of Unregistered Securities The Company issued 1,300,000 of its Series A 5% Convertible Preferred Shares ("Shares") realizing gross proceeds of $1,244,910 from the placement of the shares. Attendant to the issuance of the Shares the Company issued 300,000 shares of its common stock realizing gross proceeds of $3,000. The Company issued shares of common stock totaling 68,000 shares to employees and members of its Medical Advisory Board. The shares were issued pursuant to Rule 701 and Sec. 4(2) of the Act. Item 5. Other Information See Item 2, above. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27.1 Financial Data Schedule (b) Reports on Form 8-K Form 8-K filed March 3, 1999; Items 1,2,5, and 6. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. By: Peter Knezevich Chief Executive Officer Dated: December 2, 1999 -----END PRIVACY-ENHANCED MESSAGE-----