Exhibit 99.1 - Financial Statements
-----------------------------------
OmniComm Systems, Inc. Financial Statements for the Year and Period Ended
December 31, 2000
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Shareholders and Board of Directors
OMNICOMM SYSTEMS, INC.
Miami, Florida
We have audited the accompanying consolidated balance sheets of OMNICOMM
SYSTEMS, INC. as of December 31, 2000 and 1999 and the related consolidated
statements of operations, changes in shareholders' equity (deficit) and cash
flows for each of the two years in the period ended December 31, 2000. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based upon
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements'
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
OMNICOMM SYSTEMS, INC. at December 31, 2000 and 1999, and the consolidated
results of their operations and cash flows for each of the two years in the
period ended December 31, 2000, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Corporation will continue as a going concern. As discussed in Note 3
to the consolidated financial statements, the Corporation has incurred losses
and negative cash flows from operations in recent years through December 31,
2000 and these conditions are expected to continue through 2001, raising
substantial doubt about the Corporation's ability to continue as a going
concern. Management's plans in regard to these matters are also discussed in
Note 3. These financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
GREENBERG & COMPANY LLC
Springfield, New Jersey
February 2, 2001
F-1
OMNICOMM SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
2000 1999
---- ----
ASSETS
CURRENT ASSETS
Cash $ 90,958 $ 1,127,263
Accounts receivable 9,927 8,458
Inventory -0- 10,166
----------- -----------
Total current assets 100,885 1,145,887
PROPERTY AND EQUIPMENT, Net 486,481 353,183
OTHER ASSETS
Shareholder loans -0- 3,406
Intangible assets, net 53,071 169,629
Goodwill, net 79,277 237,832
Other assets 25,160 26,960
----------- -----------
TOTAL ASSETS $ 744,874 $ 1,936,897
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses 1,079,506 $ 284,481
Notes payable - current 612,500 177,500
Notes payable related parties - current 660,000 -0-
Sales tax payable -0- 1,818
Deferred revenue 26,861 -0-
----------- -----------
Total current liabilities 2,378,867 463,799
CONVERTIBLE DEBT 462,500 862,500
----------- -----------
TOTAL LIABILITIES 2,841,367 1,326,299
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
5% Series A convertible preferred stock, 5,000,000 shares authorized, 3,857,179 3,872,843
4,260,224 and 4,117,500 issued and outstanding, respectively, at par
Common stock - 20,000,000 shares authorized, 7,974,578 and 3,344,066 7,975 3,344
issued, respectively, at $.001 par value
Additional paid in capital 3,261,100 238,007
Less cost of treasury stock: Common -- 620,951 and -0- shares (293,912) -0-
respectively
Retained deficit (8,927,695) (2,652,644)
Subscriptions receivable (1,140) (850,952)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (2,096,493) 610,598
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 744,874 $ 1,936,897
=========== ===========
See accompanying summary of accounting policies and notes to financial
statements.
F-2
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1999 TO DECEMBER 31, 2000
(unaudited)
5% Series A Convertible
Common Stock Additional Preferred Stock Retained Total
Number of $.001 Paid In Number of Earnings Subscription Treasury Shareholders'
Shares Par Value Capital Shares $0.00 Par (Deficit) Receivable Stock Equity
------ --------- ------- ------ --------- --------- ---------- ----- ------
Balance at
January 1, 1999 1,343,000 $1,343 $132,213 -0- $ -0- $ (311,407) $ (952) $ -0- $ (178,803)
Issuance of
common stock 250,000 250 250
Issuance of
common stock
for services 86,400 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
common stock 1,296,666 1,297 2,903 4,200
Issuance of
preferred stock,
net of $134,590
issuance costs 4,117,500 3,872,843 (850,000) 3,022,843
Net loss for
the year ended
Dec 31, 1999 (2,341,237) (2,341,237)
Balance at
January 1, 2000 3,344,066 3,344 238,007 4,117,500 3,872,843 (2,652,644) (850,952) -0- 610,598
F-3
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1999 TO DECEMBER 31, 2000
(unaudited)
5% Series A Convertible
Common Stock Additional Preferred Stock Retained Total
Number of $.001 Paid In Number of Earnings Subscription Treasury Shareholders'
Shares Par Capital Shares $0.00 Par (Deficit) Receivable Stock Equity
------ --- ------- ------ --------- --------- ---------- ----- ------
Value
-----
Issuance of common
stock for services 40,000 40 89,960 90,000
Issuance of common
stock 284,166 284 284
Exercise of stock
options 1,025,895 1,026 297,024 298,050
Purchase of treasury
stock in connection
with stock
appreciation rights (20,951) (293,312) (293,312)
Payment on
subscription
receivable 850,000 850,000
Acquisition of
WebIPA, Inc. 1,200,000 1,200 4,433 5,633
Common stock
re-acquired in the
acquisition of WebIPA (600,000) (600) (600)
Issuance of
preferred stock 146,000 146,000 146,000
F-4
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1999 TO DECEMBER 31, 2000
(unaudited)
Common Stock Additional Preferred Stock Retained Total
Number of $.001 Paid In Number of Earnings Subscription Treasury Shareholders'
Shares ar Value Capital Shares $0.00 Par (Deficit) Receivable Stock Equity
------ -------- ------- ------ --------- --------- ---------- ----- ------
Issuance costs on (206,750) (206,750)
preferred stock
Conversion of conv. 320,000 320 366,393 366,713
notes payable, net of
issuance costs of
$33,287
Exercise of stock 20,000 20 15,980 16,000
options
Exercise of stock 481,834 482 963,186 963,668
warrants
Exercise of stock 187,954 188 (188) -0-
warrants
Conversion of 66,667 67 99,933 (100,000) (100,000) -0-
preferred stock to
common stock
Conversion of notes 91,608 92 206,026 206,118
payable to common
stock
Issuance of common 70,990 71 188,784 188,855
stock for services
F-5
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1999 TO DECEMBER 31, 2000
(unaudited)
5% Series A Convertible
Common Stock Additional Preferred Stock Retained Total
Number of $.001 Paid In Number of Earnings Subscription Treasury Shareholders
Shares Par Value Capital Shares $0.00 Par (Deficit) Receivable Stock Equity
------ --------- ------- ------ --------- --------- ---------- ----- ------
Issuance of common
stock, net of
issuance costs of
$66,833 668,334 668 600,833 601,501
Issuance of preferred
stock for services 126,781 190,172 190,172
Conversion of notes
payable into
preferred stock 66,667 100,000 100,000
Conversion of
preferred stock to
common stock 96,724 97 144,989 (96,724) (145,086) -0-
Issuance of common
stock for services 76,340 76 45,552 45,628
F-6
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1999 TO DECEMBER 31, 2000
(unaudited)
5% Series A Convertible
Common Stock Additional Preferred Stock Retained Total
Number of $.001 Paid In Number of Earnings Subscription Treasury Shareholders'
Shares Par Value Capital Shares $0.00 Par (Deficit) Receivable Stock Equity
------ --------- ------- ------ --------- --------- ---------- ----- ------
Net (loss) for the
year ended December
31, 2000 (6,275,051) (6,275,051)
Balances at December
31, 2000 7,353,627 $7,975 $3,261,100 4,260,224 $3,857,179 $(8,927,695) $(1,140) $(293,912) $(2,096,493)
========= ====== ========== ========= ========== ============ ======== ========== ============
See accompanying summary of accounting policies and notes to financial
statements
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended
December 31,
2000 1999
---- ----
REVENUES - SALES, Net $ 70,976 $ 1,259,214
COST OF SALES 52,492 1,005,338
----------- -----------
GROSS MARGIN 18,484 253,876
OTHER EXPENSES
Salaries, employee benefits and related expenses 2,895,108 784,635
Rent 242,471 108,371
Consulting - marketing and sales 107,600 237,630
Consulting - medical advisory 93,033 210,503
Consulting - product development 69,365 109,618
Legal and professional fees 613,797 98,895
Travel 374,558 334,753
Telephone and internet 197,858 67,109
Factoring fees -0- 4,571
Selling, general and administrative 617,006 208,226
Impairment of equity investment 335,000 -0-
Loss on subsidiary bankruptcy 78,131 -0-
Interest expense, net 91,193 97,379
Depreciation and amortization 370,278 299,402
----------- -----------
TOTAL OTHER EXPENSE 6,085,398 2,561,092
----------- -----------
INCOME (LOSS) BEFORE TAXES AND PREFERRED DIVIDENDS (6,066,914) (2,307,216)
INCOME TAX EXPENSE (BENEFIT) -0- -0-
PREFERRED STOCK DIVIDENDS (208,137) (34,021)
----------- -----------
NET INCOME (LOSS) (6,275,051) $(2,341,237)
=========== ===========
BASIS AND DILUTED NET INCOME (LOSS) PER SHARE $ (1.07) $ (1.27)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED 5,859,593 1,840,550
=========== ===========
See accompanying summary of accounting policies and notes to financial
statements
8
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended
December 31,
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(6,275,051) $(2,341,237)
Adjustment to reconcile net income to net cash provided by (used in)
operating activities:
Impairment of equity investment 335,000 -0-
Loss subsidiary bankruptcy 78,131 -0-
Depreciation and amortization 370,278 299,402
Common stock issued for services 324,482 104,545
Preferred stock issued for services 190,172 -0-
Accrued placement agent fee (66,833) -0-
Change in assets and liabilities:
Accounts receivable (1,468) 68,730
Inventory 10,166 (5,926)
Shareholder loans 3,406
Other assets 1,800 (17,660)
Accounts payable and accrued expenses 795,026 (1,997)
Sales tax payable (1,818) (38,018)
Due to factoring agent -0- (139,012)
Deferred revenue 26,861 -0-
----------- -----------
Net cash provided by (used in) operating activities (4,209,848) (2,071,173)
CASH FLOWS FROM INVESTING ACTIVITIES
Equity investment in EMN (335,000) -0-
Purchase of WebIPA 5,033 -0-
Purchase of property and equipment (333,765) (347,405)
----------- -----------
NET cash provided by (used in) financing activities (663,732) (347,405)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from convertible notes, net of issuance costs -0- 742,875
Payments on notes payable (45,000) (267,500)
Proceeds from notes payable 1,440,000 -0-
Issuance of 5% Series A convertible preferred stock, net of issuance costs 789,250 3,022,843
Issuance of common stock 668,618 3,250
Proceeds from stock warrant exercise 963,668 -0-
Proceeds from stock option exercise 20,739 -0-
----------- -----------
Net cash provided by (used in) financing activities 3,837,275 3,501,468
----------- -----------
Net increase (decrease) in cash and cash equivalents (1,036,305) 1,082,890
Cash and cash equivalents at beginning of period 1,127,263 44,373
----------- -----------
Cash and cash equivalents at end of period $ 90,958 $ 1,127,263
=========== ===========
9
OMNICOMM SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
For the years ended
December 31,
2000 1999
---- ----
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Income tax paid $ -0- $ -0-
======= =======
Interest paid $65,827 $67,297
======= =======
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 all of the common stock of
WebIPA. The re-acquired shares have been accounted for as treasury stock.
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 shares were converted into 163,391
shares of common stock.
See accompanying summary of accounting policies and notes to financial
statements
F-10
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
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 5,859,593 and 1,840,550 for the years
ended December 31, 2000 and 1999; respectively. There were no
differences between basic and diluted earnings per share. Options to
purchase 4,301,900 shares of common stock at prices ranging from $.60
to $6.50 per share were outstanding at December 31, 2000, 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
$127,175 and $7,599 for the years ended December 31, 2000 and 1999
respectively.
F-11
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
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:
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 119,625 81,137
-------- --------
$327,664 $274,593
======== ========
December 31, 1999
Accumulated
Cost Amortization
---- ------------
Covenant not to compete $120,000 $ 90,000
Software development costs 87,500 43,750
Organization costs 539 360
Debt acquisition costs 119,625 23,925
-------- --------
$327,664 $158,035
======== ========
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 $30,000 on the covenant not to compete, and
$29,167 for software development costs for the year ended December 31,
2000.
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. Amortization expense of the debt acquisition costs totaled
$23,925 for the year ended December 31, 2000, and approximately
$33,287 of the debt acquisition costs were reclassified as stock
issuance costs in connection with the conversion of $400,000 (original
cost) worth of the convertible notes into common stock of the Company.
Included in Goodwill, as a result of the EdNav acquisition at December
31, 2000 and December 31, 1999 is the cost of $475,665 and accumulated
amortization of $396,388 and $237,833 respectively. The goodwill is
being amortized ratably over a period of three years. Goodwill
amortization totaled $158,555 for the year ended December 31, 2000.
F-12
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
PROPERTY AND EQUIPMENT, AT COST
-------------------------------
Property and equipment consists of the following:
December 31, 2000 December 31, 1999
Accumulated Accumulated
Cost Depreciation Cost Depreciation
---- ------------ ---- ------------
Computer and office equipment $387,862 $ 88,812 $195,340 $30,146
Leasehold improvements 1,699 201 0 0
Computer software 212,412 60,067 167,220 1,034
Office furniture 42,350 8,762 23,070 1,267
-------- -------- -------- -------
$644,323 $157,842 $385,630 $32,447
======== ======== ======== =======
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 years ended December 31, 2000 and 1999
was $128,454 and $20,307 respectively. Included in depreciation
expense for 2000 is approximately $3,059 related to assets from the
Company's European subsidiary. As described in Note 12 that
subsidiary has filed for bankruptcy protection under the laws of the
Netherlands and accordingly those assets have been excluded from the
Company's balance sheet as of December 31, 2000 since the
recoverability of any of those assets is considered unlikely.
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 $26,861
in deferred revenue relating to one contract for services to be
performed over the next six 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 $26,861 in deferred revenue relating to one
contract for services to be rendered over the next six 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.
F-13
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
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 4,658,515
have been omitted from the calculation of dilutive EPS for the fiscal
year ended December 31, 2000. A reconciliation between numerators and
denominators of the basic and dilutive earnings per shares is as
follows:
Year Ended December 31, 2000 Year Ended December 31, 1999
---------------------------- ----------------------------
Net Income Shares Per-Share Net Income Shares Per-
(Loss) (Loss) Share
Numerator Denominator Amount Numerator Denominator Amount
-------- ----------- ------ --------- ----------- ------
Basic EPS $(6,275,051) 5,859,593 $ (1.07) $(2,341,237) 1,840,550 $(1.27)
Effect of Dilutive
Securities
None. -0- -0- -0- -0- -0- -0-
----------- ----------- --------- ----------- ------------- --------
Diluted EPS $(6,275,051) 5,859,593 $ (1.07) $(2,341,237) 1,840,550 $ (1.27)
=========== =========== ========= =========== ============= ========
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
F-14
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
its consolidated financial statements. However, the Company does not
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 has 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 periods ending December 31, 2000, 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 December 31,
2000. 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 FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
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 December
31, 2000.
NOTE 6: NOTES PAYBLE
------------
Education Navigator
--------------------
As of December 31, 2000, the Company owed $157,500 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 2000 is $177,500. At March 31, 2001 the Company was in default
under the terms of the promissory notes governing the debt.
Short-term Borrowings
---------------------
At December 31, 2000 the Company owed $1,115,000 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 64 days. One
of the notes is collateralized by common stock owned by an Officer of
the Company, 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 December 31, 2000 the Company was in default
on five of the notes with face value amounts of $380,000 and principal
owed of approximately $355,000.
Holders of notes totaling approximately $610,000 have agreed to
participate in a private placement of the Company's debt. Accordingly,
the notes representing that indebtedness will be converted into one-
year 12% convertible notes. The notes are convertible into common
stock of the Company at a rate of $0.50 per share.
16
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
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 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 were $742,875. The notes bear
interest at ten percent annually, payable semi-annually. The notes are
convertible after maturity, which is five years, into shares of common
stock of the Company at $1.25 per share, including registration
rights. As of December 31, 2000 approximately $400,000 of the
Convertible Notes had been converted into 320,000 shares of common
stock of the Company.
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 $123,114
2002 103,576
2003 0
2004 0
2005 0
--------
Total $226,690
========
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. 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. The Company intends to
vigorously defend this lawsuit.
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 FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
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 December 30, 2000 and December
31, 1999, 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. The
promissory note is currently in default and continues to accrue
interest at the rate of 12% 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 November 22, 2000 the Company borrowed $150,000 from Profrigo, N.V.
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 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 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.
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.
18
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
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 selected to account
for stock-based compensation expense under SFAS No. 123.
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:
Year ended December 31,
--------------------------------------------------------------------------------------------------------------
1999 2000
--------------------------------------------------------------------------------------------------------------
Weighted Weighted
--------------------------------------------------------------------------------------------------------------
Average Average
--------------------------------------------------------------------------------------------------------------
Exercise Exercise
--------------------------------------------------------------------------------------------------------------
Options Price Options Price
--------------------------------------------------------------------------------------------------------------
Outstanding at beginning of period 50,000 $ 1.00 3,502,916 $1.00
--------------------------------------------------------------------------------------------------------------
Granted 3,512,916 $ 0.99 1,851,994 $3.46
--------------------------------------------------------------------------------------------------------------
Exercised -0- $ 0.00 1,045,894 $0.30
--------------------------------------------------------------------------------------------------------------
Cancelled 60,000 $ 0.60 1,053,010 $1.97
--------- ------ --------- -----
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Outstanding at end of period 3,502,916 $ 1.00 3,316,006 $2.28
========= ====== ========= =====
--------------------------------------------------------------------------------------------------------------
Exercisable at end of period 1,248,953 $ 0.40 1,512,848 $2.19
========= ====== ========= =====
--------------------------------------------------------------------------------------------------------------
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.
19
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
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 grant 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.
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 claimed it owned
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 contest the
outstanding matters in the bankruptcy court in The Netherlands.
NOTE 13: INCOME TAXES
------------
Income taxes are accrued at statutory US and state income tax rates.
Income tax expense is as follows:
12/31/00 12/31/99
======== ========
Current tax expense (benefit):
Income tax at statutory rates $ -0- $ -0-
Deferred tax expense (benefit):
Amortization of goodwill and covenant (70,640) (105,243)
Operating loss carryforward (2,212,340) (864,806)
---------- ---------
(2,282,980) (970,049)
Valuation allowance 2,282,980 970,049
---------- --------
Total tax expense (benefit) $ -0- $ -0-
========== ========
The tax effects of significant temporary differences, which comprise
the deferred tax assets are as follows:
12/31/00 12/31/99
======== ========
Deferred tax assets:
Amortization of intangibles $ 224,302 $ 153,662
Operating loss carryforwards 3,136,089 923,749
Gross deferred tax assets 3,360,391 1,077,411
Valuation allowance (3,360,391) (1,077,411)
----------- -----------
Net deferred tax asset $ -0- $ -0-
=========== ===========
The Company has net operating loss carryforwards (NOL) for income tax
purposes of approximately $8,322,000. This loss is allowed to be
offset against future income until the year 2020 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.
20