JUNE 2, 2005
VIA EXPRESS MAIL AND FACSIMILE
United States Securities and Exchange Commission
Mail Stop 4561
Washington, D.C. 20549
| Re: | OmniComm Systems, Inc. |
Form 10-KSB for the Year Ended December 31, 2004
File No. 0-25203
Dear Mr. Gordon:
I am in receipt of your correspondence dated May 17, 2005 regarding the above captioned Form 10-KSB. Please find below our response to the comments included in that correspondence.
Response
Form 10-KSB for the Year Ended December 31, 2004
Financial Statements
Consolidated Statements of Operations
| 1. | We note that Interest Expense, net on the Statement of Operations was $938,639 in 2003 while Interest Expense, net was $138,757 per Management’s Discussion and Analysis. Also, the sum of total other expenses per the Statement of Operations for 2003 does not equal the sum of the individual components. Please advise and tell us the reasons for the significant reduction in interest expense, net from 2004 to 2003. In future filings revise to present interest income and interest expense separately. |
Presented below is a Consolidated Statement of Operations for the Year Ended December 31, 2003 showing the reported and correct results of operations for the captioned period. The company inadvertently and incorrectly reported the results of operations for the year ended December 31 2002 for all expense categories except for Depreciation Expense when reporting the December 31, 2003 Consolidated Statements of Operations on its Form 10-KSB for the Year Ended December 31, 2004. The Total Other Expenses of $2,484,061 was reported correctly.
U.S. Securities and Exchange Commission
June 2, 2005
As discussed in the Management’s Discussion and Analysis Interest Expense increased from $138,757 for the Year Ended December 31, 2003 to $287,599 during the Year Ended December 31, 2004. A portion of the increase, $76,800, is attributable to a beneficial conversion that was provided to certain holders of Convertible Notes that the Company issued in fiscal 1998. This beneficial conversion lowered the conversion price into common stock of the Company from $1.25 per share to $0.25 per share. Interest Expense was imputed on the conversion and recorded during the Year Ended December 31, 2004.
Interest Income was $888 and $37 for the Year Ended December 31, 2004 and December 31, 2003. Management considered these amounts immaterial to the overall financial statement presentation and therefore netted interest expense and interest income for the periods presented. The Company will show interest expense and interest income on a gross basis for all future filings.
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2003
| Corrected 2003 | As Reported 2003 | |||||||
| Revenues | ||||||||
Net sales | $ | 884,929 | $ | 884,929 | ||||
Other income | -0- | -0- | ||||||
Total Revenues | 884,929 | 884,929 | ||||||
Cost of sales | 240,398 | 240,398 | ||||||
Gross margin | 644,531 | 644,531 | ||||||
Other expenses | ||||||||
Salaries, benefits and related taxes | 1,709,614 | 1,620,663 | ||||||
Rent & occupancy expenses | 161,085 | 153,344 | ||||||
Consulting – medical advisory | (53,385 | ) | 139,423 | |||||
Consulting – marketing sales | 2,239 | 582 | ||||||
Legal and professional fees | 142,387 | 178,214 | ||||||
Travel | 47,903 | 34,548 | ||||||
Telephone and internet | 53,313 | 82,421 | ||||||
Selling, general and administrative | 137,181 | 224,844 | ||||||
Interest expense, net | 138,757 | 938,639 | ||||||
Depreciation and amortization | 144,967 | 144,967 | ||||||
Total other expenses | 2,484,061 | 2,484,061 | ||||||
(Loss) before taxes and preferred dividends | (1,839,530 | ) | (1,839,530 | ) | ||||
Income tax expense (benefit) | -0- | -0- | ||||||
Net income (loss) | (1,839,530 | ) | (1,839,530 | ) | ||||
Preferred stock dividends in arrears Series A Preferred | (205,364 | ) | (205,364 | ) | ||||
Preferred stock dividends in arrears Series B Preferred | (154,674 | ) | (154,674 | ) | ||||
Preferred stock dividends in arrears Series C Preferred | (265,925 | ) | (265,925 | ) | ||||
Preferred stock dividends – deemed dividends | (295,921 | ) | (295,921 | ) | ||||
Total preferred stock dividends | (921,884 | ) | (921,884 | ) | ||||
Net income (loss) attributable to common stockholders | $ | (2,761,414 | ) | $ | (2,761,414 | ) | ||
Net (loss) per share | $ | (0.20 | ) | $ | (0.20 | ) | ||
Weighted average number of shares outstanding | 13,688,721 | 13,688,721 | ||||||
U.S. Securities and Exchange Commission
June 2, 2005
Notes to the Consolidated Financial Statements
Note 7: Notes Payable
| 2. | We note the existence of notes payable with origination dates in fiscal year 2004 totaling $2,103,619. Please tell us how this relates to the cash from financing activities on the Statement of Cash Flows disclosing proceeds from notes payable of $1,024,099. Please tell us why the amounts differ. |
During the Year Ended December 31, 2004 the Company amended and restated notes payable with principal value of $1,079,520 by extending their maturity dates. Accordingly, these amounts did not affect cash and were therefore not included on Statements of Cash Flows for the Year Ended December 31, 2004 disclosing the Proceeds from Notes Payable
The Company proposes that more complete disclosure would be to include the principal amount of the amended notes payable within the Supplemental Disclosure of Cash Information section of its Consolidated Statements of Cash Flows. Presented below is a Consolidated Statement of Cash Flows for the Year Ended December 31, 2004 showing the reported and correct results of Supplemental Disclosure of Cash Flow Information for the captioned period.
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2003
| For the years ended December 31, 2004 | ||||||
| Corrected | As Reported | |||||
Supplemental Disclosure of Cash Flow Information: | ||||||
Cash paid during the period for: | ||||||
Income tax | $ | -0- | $ | -0- | ||
Interest | $ | 2,475 | $ | -0- | ||
Non-cash Transactions | ||||||
Treasury stock repurchase of stock for trade accounts receivable | $ | -0- | $ | -0- | ||
Conversion of Series B Preferred Stock into common stock | $ | 600,000 | $ | 600,000 | ||
Common stock issued in exchange for accrued interest | $ | 64,173 | $ | 64,173 | ||
Common stock issued for services and in lieu of pay | $ | -0- | $ | -0- | ||
Conversion of 10% Convertible Notes Payable into common stock | $ | -0- | $ | -0- | ||
Conversion of 10% Convertible Notes Payable into shares of common stock | $ | 120,000 | $ | 120,000 | ||
Amended notes payable – extended maturity date | $ | 1,079,520 | -0- | |||
U.S. Securities and Exchange Commission
June 2, 2005
In connection with our response to the comments provided to the Company from the Securities and Exchange Commission in its correspondence dated May 17, 2005 the Company acknowledges that:
| • | the Company is responsible for the adequacy and accuracy of the disclosure in the Form 10-KSB filed for the Year Ended December 31, 2004; |
| • | Staff comments or changes to disclosure do not foreclose the Commission from taking any action with respect to the filing; and |
| • | The company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. |
The Company intends to file an amended Form 10-KSB once it receives confirmation that the SEC has no further comments. After reviewing the above please do not hesitate to contact me with any questions or comments you might have regarding our response at (954) 473-1254.
Sincerely,
/s/ Ronald T. Linares
Ronald T. Linares
Chief Accounting and Financial Officer
OmniComm Systems, Inc.
