NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018 AND MARCH 31, 2017
(unaudited)
NOTE 1:
|
ORGANIZATION AND NATURE OF OPERATIONS
|
OmniComm Systems, Inc. (“OmniComm” or the “Company”) is a healthcare technology company that provides web-based electronic data capture (“EDC”) solutions and related value-added services to pharmaceutical and biotech companies, contract research organizations (“CROs”) and other clinical trial sponsors principally located in the United States, Europe and East Asia. Our proprietary EDC software applications; TrialMaster
®
, TrialOne
®
, eClinical Suite, Promasys
®
and Acuity (the “EDC Software”) allow clinical trial sponsors and investigative sites to securely collect, validate, transmit and analyze clinical trial data.
Our ability to compete within the EDC industry is predicated on our ability to continue enhancing and broadening the scope of solutions offered through our EDC Software and services. Our research and product development efforts are focused on developing new and complementary software solutions, as well as enhancing our existing software solutions through the addition of increased functionality. During the three month periods ended March 31, 2018 and March 31, 2017 we spent $922,304 and $778,488, respectively, on research and product development activities, which are primarily comprised of salaries to our developers and other research and product development personnel and related costs associated with the development of our software products.
NOTE 2:
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The Company’s accounts include those of all its wholly-owned subsidiaries, which are more fully described in the Company’s 2017 Annual Report filed on Form 10-K with the Securities and Exchange Commission, and have been prepared in conformity with (i) accounting principles generally accepted in the United States of America; and (ii) the rules and regulations of the United States Securities and Exchange Commission. All significant intercompany accounts and transactions between the Company and its subsidiaries have been eliminated in consolidation.
UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, pursuant to the rules and regulations of the Securities and Exchange Commission. Pursuant to such rules and regulations, certain financial information and footnote disclosures normally included in the consolidated financial statements have been condensed or omitted. The results for the three month periods ended March 31, 2018 and March 31, 2017 are unaudited, but reflect all adjustments (consisting only of normally recurring adjustments) which management considers necessary for a fair presentation of operating results.
The operating results for the three month period ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year-ended December 31, 2018. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2017.
ESTIMATES IN FINANCIAL STATEMENTS
The preparation of the unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes thereto. Significant estimates incorporated in our financial statements include the recorded allowance for doubtful accounts, the estimate of the appropriate amortization period of our intangible assets, the evaluation of whether our intangible assets have suffered any impairment, the allocation of revenues under multiple-element customer contracts, royalty-based patent liabilities, the value of derivatives associated with debt issued by the Company and the valuation of any corresponding discount to the issuance of our debt. Actual results may differ from those estimates.
Reclassifications
Certain reclassifications have been made in the 2017 financial statements to conform to the 2018 presentation. These reclassifications did not have any effect on our net income/(loss) or shareholders’ deficit.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018 AND MARCH 31, 2017
(unaudited)
foreign currency translation
The financial statements of the Company’s foreign subsidiaries are translated in accordance with Accounting Standards Codification (“ASC”) 830-30,
Foreign Currency Matters—Translation of Financial Statements
("ASC 830-30"). The reporting currency for the Company is the U.S. dollar. The functional currency of the Company’s subsidiaries, OmniComm Europe GmbH in Germany, OmniComm Spain S.L. in Spain and OmniComm Systems B.V. in the Netherlands is the Euro. The functional currency of the Company’s subsidiary, OmniComm Ltd. in the United Kingdom, is the British Pound Sterling. Accordingly, the assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars using the exchange rate in effect at each balance sheet date. Revenue and expense accounts of the Company’s foreign subsidiaries are translated using an average rate of exchange during the period. Foreign currency translation adjustments are accumulated as a component of other comprehensive income/(loss) as a separate component of stockholders’ equity. Gains and losses arising from transactions denominated in foreign currencies are primarily related to intercompany accounts that have been determined to be temporary in nature and accordingly, are recorded directly to the statement of operations. We record translation gains and losses in accumulated other comprehensive income as a component of stockholders’ equity. We recorded a translation gain of $1,287 and a translation loss of $2,468 for the three month periods ended March 31, 2018 and March 31, 2017, respectively.
REVENUE RECOGNITION POLICY
The Company derives revenues from software licenses and services of its EDC products and services which can be purchased on a stand-alone basis. License revenues are derived principally from the sale of term licenses for the following software products offered by the Company:
TrialMaster, TrialOne, eClinical Suite
and
Promasys.
Service revenues are derived principally from the Company's delivery of the hosted solutions of its
TrialMaster
and
eClinical Suite
software products, and consulting services and customer support, including training, for all of the Company's products.
For revenue from product sales, the Company recognizes revenue in accordance with Financial Accounting Standards Board “FASB” Accounting Standards Codification “ASC” 606. A five-step analysis must be met as outlined in Topic 606: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) performance obligations are satisfied. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.
The Company operates in one reportable segment which is the delivery of EDC Software and services to clinical trial sponsors. The Company segregates its revenues based on the activity cycle used to generate its revenues. Accordingly, revenues are currently generated through four main activities, including hosted applications, licensing, professional services and maintenance-related services.
Hosted Application Revenues
The Company offers its
TrialMaster
and
eClinical Suite
software products as hosted application solutions delivered through a standard web browser, with customer support and training services. The Company's
TrialOne
and
Promasys
solutions are primarily deployed on a technology transfer or off-the-shelf basis. To date, hosted applications revenues have been primarily related to
TrialMaster
and
eClinical Suite
.
Revenues resulting from
TrialMaster
and
eClinical Suite
application hosting services consist of three components of services for each clinical trial. The first component is comprised of application set-up, including design of electronic case report forms and edit checks, installation and server configuration of the system. The second component involves application hosting and related support services as well as billable change orders which consist of amounts billed to customers for functionality changes made. The third component involves services required to close out, or lock, the database for the clinical trial.
Fees charged for the trial system design, set-up and implementation are amortized and recognized ratably over the estimated hosting period. Work performed outside the original scope of work is contracted for separately as an additional fee and is generally recognized ratably over the remaining term of the hosting period. Fees for the first and third stages of the service are typically billed based upon milestones. Revenues earned upon completion of a contractual milestone are deferred and recognized over the estimated remaining hosting period. Fees for application hosting and related services in the second stage are generally billed monthly or quarterly in advance. Revenues resulting from hosting services for the
eClinical Suite
products consist of installation and server configuration, application hosting and related support services. Revenues are recognized ratably over the period of the service.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018 AND MARCH 31, 2017
(unaudited)
Licensing Revenues
The Company's software license revenues are earned from the sale of off-the-shelf software. From time to time a client might require significant modification or customization subsequent to delivery to the customer. The Company generally enters into software term licenses for its EDC Software products with its customers for three to five year periods, although customers have entered into both longer and shorter term license agreements. These arrangements typically include multiple elements: software license, consulting services and customer support. The Company bills its customers in accordance with the terms of the underlying contract. Generally, the Company bills license fees in advance for each billing cycle of the license term, which typically is either on a quarterly or annual basis. Payment terms are generally net 30 days.
The Company has sold perpetual licenses for EDC Software products in certain situations to existing customers with the option to purchase customer support, and may, in the future, do so for new customers based on customer requirements or market conditions. The Company has established vendor specific objective evidence of fair value for the customer support. Accordingly, license revenues are recognized upon delivery of the software and when all other revenue recognition criteria are met. Customer support revenues are recognized ratably over the term of the underlying support arrangement. The Company generates customer support and maintenance revenues from its perpetual license customer base.
Professional Services
The Company may also enter into arrangements to provide consulting services separate from a license arrangement. In these situations, revenue is recognized on a time-and-materials basis. Professional services can be deemed to be as essential to the functionality of the software at inception and typically are for initial trial configuration, implementation planning, loading of software, building simple interfaces, running test data and documentation of procedures. Subsequent additions or extensions to license terms do not generally include additional professional services.
Maintenance Revenues
Maintenance includes telephone-based help desk support and software maintenance, including updates to the software through new software version releases. The Company generally bundles customer support with the software license for the entire term of the arrangement. As a result, the Company generally recognizes revenues for both maintenance and software licenses ratably over the term of the software license and support arrangement. The Company allocates the revenues recognized for these arrangements to the different elements based on management's estimate of the relative fair value of each element. The Company generally invoices each of the elements based on separately quoted amounts and thus has a fairly accurate estimate of the relative fair values of each of the invoiced revenue elements.
Pass-through Revenue and Expense
The Company accounts for pass-through revenue and expense (reimbursable revenue and reimbursable expense) in accordance with ASU 2016-08,
Principal versus Agent Considerations (Reporting Revenue Gross versus Net),
(“ASU 2016-08”). In accordance with ASU 2016-08 these amounts are recorded as revenue in the statement of operations with a corresponding expense recorded in cost of goods sold. Pass-through revenues and expenses include amounts associated with third-party services provided to our customers by our service and product partners. These third-party services are primarily comprised of Interactive Voice and Web Response software services (IVR and IWR), travel and shipping that are incurred on our clients’ behalf.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018 AND MARCH 31, 2017
(unaudited)
The fees associated with each business activity for the three month periods ended March 31, 2018 and March 31, 2017, respectively, are:
|
|
For the three months ended
|
|
Revenue activity
|
|
March 31, 2018
|
|
|
March 31, 2017
|
|
Set-up fees
|
|
$
|
1,208,554
|
|
|
$
|
1,381,981
|
|
Change orders
|
|
|
420,080
|
|
|
|
330,411
|
|
Maintenance
|
|
|
1,370,091
|
|
|
|
1,219,391
|
|
Software licenses
|
|
|
3,269,400
|
|
|
|
1,964,857
|
|
Professional services
|
|
|
431,083
|
|
|
|
559,080
|
|
Hosting
|
|
|
491,264
|
|
|
|
279,810
|
|
Total
|
|
$
|
7,190,472
|
|
|
$
|
5,735,530
|
|
COST OF GOODS SOLD
Cost of goods sold primarily consists of costs related to hosting, maintaining and supporting the Company’s application suite and delivering professional services and support. These costs include salaries, benefits and bonuses for the Company’s professional services staff. Cost of goods sold also includes outside service provider costs
.
Cost of goods sold is expensed as incurred.
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 consolidated balance sheets approximates fair value.
ACCOUNTS RECEIVABLE
Accounts receivable are judged as to collectability by management and an allowance for bad debts is established as necessary. The allowance is based on an evaluation of the collectability of accounts receivable and prior bad debt experience. The Company had recorded an allowance for uncollectible accounts receivable of $146,593 as of March 31, 2018 and $149,980 as of December 31, 2017.
The following table summarizes activity in the Company's allowance for doubtful accounts for the three month period ended March 31, 2018 and the year ended December 31, 2017.
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Beginning of period
|
|
$
|
149,980
|
|
|
$
|
179,813
|
|
Bad debt expense
|
|
|
(3,387
|
)
|
|
|
130,346
|
|
Write-offs
|
|
|
-0-
|
|
|
|
(160,179
|
)
|
End of period
|
|
$
|
146,593
|
|
|
$
|
149,980
|
|
Concentration of Credit Risk
Cash and cash equivalents and restricted cash are deposited with major financial institutions and, at times, such balances with any one financial institution may be in excess of FDIC-insured limits. As of March 31, 2018, $864,727 was deposited in excess of FDIC-insured limits. Management believes the risk in these situations to be minimal.
Except as follows, the Company has no significant off-balance-sheet risk or credit risk concentrations. Financial instruments that subject the Company to potential credit risks are principally cash equivalents and accounts receivable. Concentrated credit risk with respect to accounts receivable is limited to creditworthy customers. The Company's customers are principally located in the United States, Europe and East Asia. The Company is directly affected by the overall financial condition of the pharmaceutical, biotechnology and medical device industries and management believes that credit risk exists and that any credit risk the Company faces has been adequately reserved for as of March 31, 2018. The Company maintains an allowance for doubtful accounts based on accounts past due according to contractual terms and historical collection experience. Actual losses, when incurred, are charged to the allowance. The Company's losses related to collection of accounts receivable have consistently been within management's expectations. As of March 31, 2018, the Company believes no additional credit risk exists beyond the amounts provided for in our allowance for uncollectible accounts. The Company evaluates its allowance for uncollectable accounts on a quarterly basis based on a specific review of receivable aging and the period that any receivables are beyond the standard payment terms. The Company does not require collateral from its customers in order to mitigate credit risk.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018 AND MARCH 31, 2017
(unaudited)
One customer accounted for 11% of our revenues during the three month period ended March 31, 2018 or approximately $770,000. One customer accounted for 12% of our revenues during the three month period ended March 31, 2017 or approximately $678,000. The following table summarizes the number of customers who individually comprise greater than 10% of total revenue and/or total accounts receivable and their aggregate percentage of the Company's total revenue and gross accounts receivable for the three month periods ended March 31, 2018 and March 31, 2017 and the year ended December 31, 2017.
|
|
Revenues
|
|
|
Accounts receivable
|
|
For the period ended
|
|
Number of
customers
|
|
|
Percentage of
total revenues
|
|
|
Number of customers
|
|
|
Percentage of
accounts receivable
|
|
March 31, 2018
|
|
1
|
|
|
11%
|
|
|
2
|
|
|
20%
|
|
December 31, 2017
|
|
1
|
|
|
10%
|
|
|
1
|
|
|
24%
|
|
March 31, 2017
|
|
1
|
|
|
12%
|
|
|
2
|
|
|
30%
|
|
The table below provides revenues from European customers for the three month periods ended March 31, 2018 and March 31, 2017.
European revenues
|
|
For the three months ended
|
|
March 31, 2018
|
|
|
March 31, 2017
|
|
European revenues
|
|
|
% of Total revenues
|
|
|
European revenues
|
|
|
% of Total revenues
|
|
$1,068,475
|
|
|
15%
|
|
|
$687,209
|
|
|
12%
|
|
The Company serves all of its hosting customers from third-party web hosting facilities located in the United States. The Company does not control the operation of these facilities and they are vulnerable to damage or interruption. The Company maintains redundant systems that can be used to provide service in the event the third-party web hosting facilities become unavailable, although in such circumstances, the Company's service may be interrupted during the transition.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Additions and betterments are capitalized; maintenance and repairs are expensed as incurred. Depreciation is calculated using the straight-line method over the asset’s estimated useful life, which is 5 years for leasehold improvements, computers, equipment and furniture and 3 years for software. Gains or losses on disposal are charged to operations.
ASSET IMPAIRMENT
Acquisitions and Intangible Assets
We account for acquisitions in accordance with ASC 805,
Business Combinations
(“ASC 805”) and ASC 350,
Intangibles- Goodwill and Other
(“ASC 350”). The acquisition method of accounting requires that assets acquired and liabilities assumed be recorded at their fair values on the date of a business acquisition. Our consolidated financial statements and results of operations reflect an acquired business from the completion date of an acquisition.
The judgments that we make in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact net income in periods following an asset acquisition. We generally use either the income, cost or market approach to aid in our conclusions of such fair values and asset lives. The income approach presumes that the value of an asset can be estimated by the net economic benefit to be received over the life of the asset, discounted to present value. The cost approach presumes that an investor would pay no more for an asset than its replacement or reproduction cost. The market approach estimates value based on what other participants in the market have paid for reasonably similar assets. Although each valuation approach is considered in valuing the assets acquired, the approach ultimately selected is based on the characteristics of the asset and the availability of information.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018 AND MARCH 31, 2017
(unaudited)
Long-lived Assets
We review long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount and the asset’s residual value, if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available. We use quoted market prices when available and independent appraisals and management estimates of future operating cash flows, as appropriate, to determine fair value.
FAIR VALUE MEASUREMENT
OmniComm’s capital structure includes the use of warrants and convertible debt features that are classified as derivative financial instruments. Derivative financial instruments are recognized as either assets or liabilities and are measured at fair value under ASC 815,
Derivatives and Hedging
(“ASC 815”)
.
ASC 815 requires that changes in the fair value of derivative financial instruments with no hedging designation be recognized as gains/(losses) in the earnings statement. The fair value measurement is determined in accordance with ASC 820,
Fair Value Measurements and Disclosures
(“ASC 820”).
DEFERRED REVENUE
Deferred revenue represents cash advances and amounts in accounts receivable as of the balance sheet date 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 generally entitled to payment for all work performed through the point of cancellation. As of March 31, 2018, the Company had $7,234,826 in deferred revenues relating to contracts for services to be performed over periods ranging from one month to 5 years. The Company had $5,388,991 in deferred revenues that are expected to be recognized in the next twelve fiscal months.
ADVERTISING
Advertising costs are expensed as incurred. Advertising costs were $209,790 and $171,268 for the three month periods ended March 31, 2018 and March 31, 2017, respectively, and are included under selling, general and administrative expenses in our unaudited condensed consolidated financial statements.
RESEARCH AND PRODUCT DEVELOPMENT EXPENSES
Software development costs are expensed as incurred. ASC 985-20,
Software Industry Costs of Software to Be Sold, Leased or Marketed
(“ASC 985-20”), requires the capitalization of certain development costs of software to be sold once technological feasibility is established, which the Company defines as completion to the point of marketability. The capitalized cost is then amortized on a straight-line basis over the estimated product life. To date, the period between achieving technological feasibility and the general availability of such software has been short and software development costs qualifying for capitalization have been immaterial. Accordingly, the Company has not capitalized any software development costs under ASC 985-20. During the three month periods ended March 31, 2018 and March 31, 2017 we spent $922,304 and $778,488, respectively, on research and product development activities, which include costs associated with the development of our software products and services for our clients’ projects and which are primarily comprised of salaries and related expenses for our software developers and consulting fees paid to third-party consultants. Research and product development costs are primarily included under Salaries, benefits and related taxes in our Statement of Operations.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018 AND MARCH 31, 2017
(unaudited)
EQUITY INCENTIVE PLANS
The OmniComm Systems, Inc. 2016 Equity Incentive Plan (the “2016 Plan”) was approved at our Annual Meeting of Shareholders on June 16, 2016. The 2016 Plan initially provides for the issuance of up to 10,000,000 shares of our common stock. In addition, the number of shares of common stock available for issuance under the 2016 Plan automatically increases on January 1st of each year for a period of nine (9) years commencing on January 1, 2017 and ending on (and including) January 1, 2025, in an amount equal to five percent (5%) of the total number of shares authorized under the 2016 Plan. As of March 31, 2018 11,025,000 shares of our common stock were authorized for issuance under the 2016 Plan.
The predecessor plan, the OmniComm Systems, Inc. 2009 Equity Incentive Plan (the “2009 Plan”) was approved at our Annual Meeting of Shareholders on July 10, 2009 and terminated on June 16, 2016 upon the approval of the 2016 Plan. The 2009 Plan provided for the issuance of up to 7,500,000 shares to employees, directors and key consultants. The 2016 and 2009 Plans are more fully described in “Note 13, Equity Incentive Plans”.
The Company accounts for its employee equity incentive plans under
ASC 718,
Compensation – Stock Compensation
, (“ASC 718”) which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statements of operations. The Company currently uses the Black Scholes option pricing model to determine grant date fair value.
EARNINGS PER SHARE
The Company accounts for Earnings per Share using ASC 260,
Earnings per Share,
(“ASC 260”). Unlike diluted earnings per share basic earnings per share excludes any dilutive effects of options, warrants and convertible securities.
INCOME TAXES
The Company accounts for income taxes in accordance with ASC 740,
Income Taxes
(“ASC 740”)
.
ASC 740 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.
IMPACT OF NEW ACCOUNTING STANDARDS
During the first three months of 2018, we adopted the following new accounting pronouncements:
In April 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016–10
“Revenue from Contracts with Customers
(Topic 606):
Identifying Performance Obligations and Licensing.”
The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation guidance on (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments in this Update are intended to render more detailed implementation guidance with the expectation to reduce the degree of judgement necessary to comply with Topic 606. The Company adopted the new standard effective January 1, 2018 using the modified retrospective method. The adoption of the new standard did not have a material impact on the Company’s consolidated financial statements.
Accounting standards-setting organizations frequently issue new or revised accounting rules. We regularly review all new pronouncements to determine their impact, if any, on our financial statements
NOTE 3:
|
EARNINGS/(LOSS) PER SHARE
|
Basic earnings/(loss) per share were calculated using the weighted average number of shares outstanding of 149,653,916 and 147,785,621 for the three month periods ended March 31, 2018 and March 31, 2017, respectively.
The outstanding share balance as of March 31, 2018 and March 31, 2017, respectively, includes -0- and 1,238,350 restricted shares that have been issued but are still at risk of forfeiture as the restrictions have not lapsed.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018 AND MARCH 31, 2017
(unaudited)
Antidilutive shares of 26,343,224 have been omitted from the calculation of dilutive earnings/(loss) per share for the three month period ended March 31, 2018 and 47,325,940 for the three month period ended March 31, 2017, as the shares were antidilutive. Provided below is the reconciliation between numerators and denominators of the basic and diluted earnings per share. The table below provides a reconciliation of anti-dilutive securities outstanding as of March 31, 2018 and March 31, 2017, respectively.
Anti-dilutive security
|
|
March 31, 2018
|
|
|
March 31, 2017
|
|
Employee stock options
|
|
1,295,000
|
|
|
3,825,000
|
|
Warrants
|
|
12,950,000
|
|
|
27,860,000
|
|
Convertible notes
|
|
11,980,000
|
|
|
15,490,000
|
|
Shares issuable for accrued interest
|
|
118,224
|
|
|
150,940
|
|
Total
|
|
26,343,224
|
|
|
47,325,940
|
|
The employee stock options are exercisable at prices ranging from $0.17 to $0.34 per share. The exercise prices on the warrants range from $0.25 to $0.60 per share. Shares issuable upon conversion of Convertible Debentures or accrued interest have conversion prices ranging from $0.25 to $1.25 per share.
Some of the Company’s convertible debt and convertible preferred stock have an anti-dilutive effect on net income/(loss) per share and were not included in the computation of diluted earnings per share.
|
|
For the three months ended
|
|
|
|
March 31, 2018
|
|
|
March 31, 2017
|
|
|
|
Income/(loss)
|
|
|
Shares
|
|
|
Per-share
|
|
|
Income/(loss)
|
|
|
Shares
|
|
|
Per-share
|
|
|
|
numerator
|
|
|
denominator
|
|
|
amount
|
|
|
numerator
|
|
|
denominator
|
|
|
amount
|
|
Basic EPS
|
|
$
|
593,483
|
|
|
|
149,653,916
|
|
|
$
|
-0-
|
|
|
$
|
73,974
|
|
|
|
147,785,621
|
|
|
$
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
139
|
|
|
|
3,039,750
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
168,095
|
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
593,622
|
|
|
|
152,693,666
|
|
|
$
|
-0-
|
|
|
$
|
73,974
|
|
|
|
147,953,716
|
|
|
$
|
-0-
|
|
NOTE 4:
|
PROPERTY AND EQUIPMENT, NET
|
Property and equipment consists of the following:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
Cost
|
|
|
Accumulated depreciation
|
|
|
Net book
value
|
|
|
Cost
|
|
|
Accumulated depreciation
|
|
|
Net book
value
|
|
|
Estimated useful life (years)
|
|
Computer & office equipment
|
|
$
|
2,367,310
|
|
|
$
|
1,999,795
|
|
|
$
|
367,515
|
|
|
$
|
2,322,833
|
|
|
$
|
1,949,982
|
|
|
$
|
372,851
|
|
|
5
|
|
Leasehold improvements
|
|
|
133,659
|
|
|
|
100,846
|
|
|
|
32,813
|
|
|
|
118,380
|
|
|
|
98,901
|
|
|
|
19,479
|
|
|
5
|
|
Computer software
|
|
|
2,057,898
|
|
|
|
1,922,482
|
|
|
|
135,416
|
|
|
|
2,010,999
|
|
|
|
1,886,342
|
|
|
|
124,657
|
|
|
3
|
|
Office furniture
|
|
|
163,876
|
|
|
|
130,466
|
|
|
|
33,410
|
|
|
|
162,799
|
|
|
|
127,248
|
|
|
|
35,551
|
|
|
5
|
|
Total
|
|
$
|
4,722,743
|
|
|
$
|
4,153,589
|
|
|
$
|
569,154
|
|
|
$
|
4,615,011
|
|
|
$
|
4,062,473
|
|
|
$
|
552,538
|
|
|
|
|
Depreciation expense for the three month period ended March 31, 2018 was $77,776 and $79,924 for the three month period ended March 31, 2017.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018 AND MARCH 31, 2017
(unaudited)
NOTE 5:
|
INTANGIBLE ASSETS, NET
|
Intangible assets consist of the following:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
Asset
|
|
Cost
|
|
|
Accumulated amortization
|
|
|
Net book
value
|
|
|
Cost
|
|
|
Accumulated amortization
|
|
|
Net book
value
|
|
|
Estimated useful life (years)
|
|
eClinical Suite customer lists
|
|
$
|
1,392,701
|
|
|
$
|
1,392,701
|
|
|
$
|
-0-
|
|
|
$
|
1,392,701
|
|
|
$
|
1,392,701
|
|
|
$
|
-0-
|
|
|
3
|
|
Promasys B.V. customer lists
|
|
|
121,954
|
|
|
|
35,908
|
|
|
|
86,046
|
|
|
|
118,780
|
|
|
|
32,994
|
|
|
|
85,786
|
|
|
15
|
|
Promasys B.V. software code
|
|
|
72,837
|
|
|
|
64,340
|
|
|
|
8,497
|
|
|
|
72,837
|
|
|
|
60,698
|
|
|
|
12,139
|
|
|
5
|
|
Promasys B.V. URLs/website
|
|
|
61,593
|
|
|
|
61,593
|
|
|
|
-0-
|
|
|
|
59,990
|
|
|
|
59,990
|
|
|
|
-0-
|
|
|
3
|
|
Acuity software code
|
|
|
1,052,403
|
|
|
|
58,467
|
|
|
|
993,936
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
3
|
|
Total
|
|
$
|
2,701,488
|
|
|
$
|
1,613,009
|
|
|
$
|
1,088,479
|
|
|
$
|
1,644,308
|
|
|
$
|
1,546,383
|
|
|
$
|
97,925
|
|
|
|
|
Amortization expense for the three month period ended March 31, 2018 was $64,149 and $5,403 for the three month period ended March 31, 2017.
Remaining amortization expense for the Company’s intangible assets is as follows:
Year
|
|
Amortization
|
|
2018
|
|
$
|
277,696
|
|
2019
|
|
|
358,931
|
|
2020
|
|
|
358,931
|
|
2021
|
|
|
37,364
|
|
2022
|
|
|
8,130
|
|
Thereafter
|
|
|
47,427
|
|
Total
|
|
$
|
1,088,479
|
|
NOTE 6:
|
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
|
Accounts payable and accrued expenses consist of the following:
Account
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Accounts payable
|
|
$
|
681,888
|
|
|
$
|
1,303,073
|
|
Accrued payroll and related costs
|
|
|
565,848
|
|
|
|
925,890
|
|
Other accrued expenses
|
|
|
139,592
|
|
|
|
184,131
|
|
Accrued interest
|
|
|
174,184
|
|
|
|
172,951
|
|
Total accounts payable and accrued expenses
|
|
$
|
1,561,512
|
|
|
$
|
2,586,045
|
|
NOTE 7:
|
LINE OF CREDIT, NOTES PAYABLE AND LIQUIDITY
|
On March 18, 2013, the Company entered into a $2,000,000 revolving Line of Credit (“Line of Credit”) with The Northern Trust Company guaranteed by our then Chief Executive Officer and Director, Cornelis F. Wit (“Mr. Wit”). Mr. Wit receives 2.0% interest (approximately $9,500 per month) from the Company on the assets pledged for the Line of Credit. On December 18, 2013 the Company renewed the Line of Credit and increased the available balance to $4,000,000. On February 3, 2015 the Company renewed the Line of Credit and increased the available balance to $5,000,000. On April 7, 2017 the Company renewed the Line of Credit. The Line of Credit currently matures on April 7, 2020 and carries a variable interest rate based on the prime rate. At March 31, 2018, $4,400,000 was outstanding on the Line of Credit at an interest rate of 3.75%.
Our primary sources of working capital are funds from operations and borrowings under our revolving Line of Credit. In the event that the Line of Credit is called for any reason, Mr. Wit has pledged to replace the borrowing capacity under the Line of Credit with a promissory note that utilizes the same maturity date and interest rate as the Line of Credit.
To satisfy our capital requirements, we may seek additional financing. There can be no assurance that any such funding will be available to us on favorable terms or at all. If adequate funds are not available when needed, we may be required to delay, scale back or eliminate some or all of our research and product development and marketing programs. If we are successful in obtaining additional financings, the terms of such financings may have the effect of diluting or adversely affecting the holdings or the rights of the holders of our securities or result in increased interest expense in future periods.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018 AND MARCH 31, 2017
(unaudited)
The following table summarizes the notes payable outstanding as of March 31, 2018.
|
|
|
|
|
|
|
Ending
|
|
|
Non related party
|
|
|
Related party
|
|
Origination
|
|
Maturity
|
|
Interest
|
|
|
principal
|
|
|
|
|
|
|
Long
|
|
|
|
|
|
|
Long
|
|
date
|
|
date
|
|
rate
|
|
|
March 31, 2018
|
|
|
Current
|
|
|
term
|
|
|
Current
|
|
|
term
|
|
2/29/2016
|
|
4/1/2019
|
|
12%
|
|
|
$
|
400,000
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
400,000
|
|
6/30/2016
|
|
4/1/2020
|
|
10%
|
|
|
|
420,000
|
|
|
|
-0-
|
|
|
|
420,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
6/30/2016
|
|
4/1/2020
|
|
12%
|
|
|
|
282,500
|
|
|
|
-0-
|
|
|
|
282,500
|
|
|
|
-0-
|
|
|
|
-0-
|
|
Discount on notes payable
|
|
|
|
|
|
|
|
|
|
-0-
|
|
|
|
(248,357
|
)
|
|
|
-0-
|
|
|
|
(93,892
|
)
|
Total
|
|
|
|
|
$
|
1,102,500
|
|
|
$
|
-0-
|
|
|
$
|
454,143
|
|
|
$
|
-0-
|
|
|
$
|
306,108
|
|
The following table summarizes the notes payable outstanding as of December 31, 2017.
|
|
|
|
|
|
|
Ending
|
|
|
Non related party
|
|
|
Related party
|
|
Origination
|
|
Maturity
|
|
Interest
|
|
|
principal
|
|
|
|
|
|
|
Long
|
|
|
|
|
|
|
Long
|
|
date
|
|
date
|
|
rate
|
|
|
December 31, 2017
|
|
|
Current
|
|
|
term
|
|
|
Current
|
|
|
term
|
|
2/29/2016
|
|
4/1/2019
|
|
12%
|
|
|
$
|
400,000
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
400,000
|
|
6/30/2016
|
|
4/1/2020
|
|
10%
|
|
|
|
420,000
|
|
|
|
-0-
|
|
|
|
420,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
6/30/2016
|
|
4/1/2020
|
|
12%
|
|
|
|
282,500
|
|
|
|
-0-
|
|
|
|
282,500
|
|
|
|
-0-
|
|
|
|
-0-
|
|
Discount on notes payable
|
|
|
|
|
|
|
|
|
|
-0-
|
|
|
|
(279,402
|
)
|
|
|
-0-
|
|
|
|
(117,365
|
)
|
Total
|
|
|
|
|
$
|
1,102,500
|
|
|
$
|
-0-
|
|
|
$
|
423,098
|
|
|
$
|
-0-
|
|
|
$
|
282,635
|
|
On February 29, 2016, the Company issued a promissory note in the principal amount of $450,000 and warrants to purchase 1,800,000 shares of common stock of the Company at an exercise price of $0.25 per share with an expiration date of April 1, 2019 to our then Chief Executive Officer and Director, Cornelis F. Wit (“Mr. Wit”), in exchange for accrued interest in the amount of $450,000. The note carries an interest rate of 12% per annum and has a maturity date of April 1, 2019. On December 5, 2016 Mr. Wit sold 1,000,000 of the warrants to an employee of the Company. On August 31, 2017 the Company repaid $50,000 of the outstanding principal to Mr. Wit.
The issuance caused us to calculate and record a derivative liability for the warrant liability. The warrants were valued using the Black Scholes option pricing model. A value of $325,689 was calculated and allocated to the warrants and recorded as a liability to the issuance of the note payable. As a result of the liability we recorded a discount to the note payable. The carrying amount of the note at the time of issuance was therefore $124,311. The warrant liability (discount) will be amortized over the 37 month duration of the note payable. The Company will continue to perform a fair value calculation quarterly on the warrant liability and accordingly the warrant liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is reflected in operations as an unrealized gain or loss on changes in derivative liabilities.
On June 30, 2016, the Company issued promissory notes in the principal amount of $372,500 and warrants to purchase 1,490,000 shares of common stock of the Company at an exercise price of $0.25 per share with an expiration date of April 1, 2020 to two investors in exchange for existing promissory notes in the same amount. The notes carry an interest rate of 12% per annum and have a maturity date of April 1, 2020. On August 31, 2017 a promissory note for $90,000 was repaid in full.
The issuance caused us to calculate and record a derivative liability for the warrant liability. The warrants were valued using the Black Scholes option pricing model. A value of $246,921 was calculated and allocated to the warrants and recorded as a liability to the issuance of the note payable. As a result of the liability we recorded a discount to the note payable. The carrying amount of the note at the time of issuance was therefore $125,579. The warrant liability (discount) will be amortized over the 45 month duration of the note payables. The Company will continue to perform a fair value calculation quarterly on the warrant liability and accordingly the warrant liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is reflected in operations as an unrealized gain or loss on changes in derivative liabilities.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018 AND MARCH 31, 2017
(unaudited)
On June 30, 2016, the Company issued promissory notes in the principal amount of $420,000 and warrants to purchase 1,680,000 shares of common stock of the Company at an exercise price of $0.25 per share with an expiration date of April 1, 2020 to two investors, in exchange for existing promissory notes in the same amount. The notes carry an interest rate of 10% per annum and have a maturity date of April 1, 2020.
The issuance caused us to calculate and record a derivative liability for the warrant liability. The warrants were valued using the Black Scholes option pricing model. A value of $278,408 was calculated and allocated to the warrants and recorded as a liability to the issuance of the note payable. As a result of the liability we recorded a discount to the note payable. The carrying amount of the note at the time of issuance was therefore $141,592. The warrant liability (discount) will be amortized over the 45 month duration of the note payables. The Company will continue to perform a fair value calculation quarterly on the warrant liability and accordingly the warrant liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is reflected in operations as an unrealized gain or loss on changes in derivative liabilities.
NOTE 8:
|
CONVERTIBLE NOTES PAYABLE
|
The following table summarizes the convertible debt outstanding as of March 31, 2018.
|
|
|
|
|
|
|
|
|
|
|
Carrying amount
|
|
Date of
|
|
Maturity
|
|
Interest
|
|
|
Principal at
|
|
|
Short term
|
|
|
Long term
|
|
issuance
|
|
date
|
|
rate
|
|
|
March 31, 2018
|
|
|
Related
|
|
|
Non related
|
|
|
Related
|
|
|
Non related
|
|
8/1/1999
|
|
6/30/2004
|
|
10%
|
|
|
$
|
50,000
|
|
|
$
|
-0-
|
|
|
$
|
50,000
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
8/29/2008
|
|
4/1/2019
|
|
10%
|
|
|
|
150,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
150,000
|
|
8/29/2008
|
|
4/1/2020
|
|
10%
|
|
|
|
1,770,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
1,770,000
|
|
|
|
-0-
|
|
12/16/2008
|
|
4/1/2020
|
|
12%
|
|
|
|
4,000,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
4,000,000
|
|
|
|
-0-
|
|
12/16/2008
|
|
4/1/2021
|
|
12%
|
|
|
|
200,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
200,000
|
|
Total
|
|
|
|
|
$
|
6,170,000
|
|
|
$
|
-0-
|
|
|
$
|
50,000
|
|
|
$
|
5,770,000
|
|
|
$
|
350,000
|
|
The following table summarizes the convertible debt outstanding as of December 31, 2017.
|
|
|
|
|
|
|
|
|
|
|
Carrying amount
|
|
Date of
|
|
Maturity
|
|
Interest
|
|
|
Principal at
|
|
|
Short term
|
|
|
Long term
|
|
issuance
|
|
date
|
|
rate
|
|
|
December 31, 2017
|
|
|
Related
|
|
|
Non related
|
|
|
Related
|
|
|
Non related
|
|
8/1/1999
|
|
6/30/2004
|
|
10%
|
|
|
$
|
50,000
|
|
|
$
|
-0-
|
|
|
$
|
50,000
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
8/29/2008
|
|
4/1/2019
|
|
10%
|
|
|
|
150,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
150,000
|
|
8/29/2008
|
|
4/1/2020
|
|
10%
|
|
|
|
1,770,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
1,770,000
|
|
|
|
-0-
|
|
12/16/2008
|
|
4/1/2020
|
|
12%
|
|
|
|
4,000,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
4,000,000
|
|
|
|
-0-
|
|
12/16/2008
|
|
4/1/2021
|
|
12%
|
|
|
|
200,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
200,000
|
|
Total
|
|
|
|
|
$
|
6,170,000
|
|
|
$
|
-0-
|
|
|
$
|
50,000
|
|
|
$
|
5,770,000
|
|
|
$
|
350,000
|
|
10% Convertible Notes
During 1999, the Company issued 10% Convertible Notes payable in the amount of $862,500 pursuant to a Confidential Private Placement Memorandum. There were costs of $119,625 associated with this offering. The net proceeds to the Company were $742,875. The notes bear interest at 10% annually, payable semi-annually. The notes were convertible after maturity, which was June 30, 2004, into shares of common stock of the Company at $1.25 per share. We are in default in the payment of principal and interest. As of March 31, 2018, $812,500 of the Convertible Notes had been repaid in cash or converted into 1,495,179 shares of common stock of the Company leaving an outstanding principal balance of $50,000. There was $94,443 of accrued interest at March 31, 2018.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018 AND MARCH 31, 2017
(unaudited)
Secured Convertible Debentures
On September 30, 2009, the Company sold an aggregate of $1,400,000 principal amount 12% Secured Convertible Debentures (the “Debentures”) and common stock purchase warrants (the “Warrants”) to purchase an aggregate of 5,600,000 shares of our common stock exercisable at a price of $0.25 per share for four years subsequent to the closing of the transaction to four accredited investors including our then Chief Executive Officer and Director, Cornelis F. Wit (“Mr. Wit”). The Company received net proceeds of $1,400,000. The Debentures, which bear interest at 12% per annum, matured on March 30, 2011. The Debentures are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.25 per share.
On March 30, 2011, the Company repaid $200,000 of the outstanding principal amounts owed and extended $1,200,000 of the Debentures until April 1, 2013, including $1,100,000 in Debentures held by Mr. Wit. The Company also extended the expiration date of the warrants associated with the Debentures.
On February 22, 2013, the Company and two holders extended $1,200,000 of the Debentures until January 1, 2016, including $1,100,000 in Debentures held by Mr. Wit. Mr. Wit also waived all his rights to the security interest under his $1,100,000 of Debentures. The expiration date of the warrants associated with the Debentures was also extended to January 1, 2016.
On January 31, 2015 the Company and Mr. Wit extended the maturity date of $1,100,000 of the Debentures to April 1, 2017. The expiration date of the warrants associated with the Debentures was also extended to April 1, 2017. On November 19, 2015 Mr. Wit converted $475,000 of the Debentures into 1,900,000 shares of our common stock. On November 19, 2015 the Company and Mr. Wit agreed to cancel the 1,900,000 warrants related to the $475,000 of Debentures and $475,000 of unrelated promissory notes in exchange for 1,900,000 shares of our common stock. On November 23, 2015 Mr. Wit sold the remaining $625,000 of Debentures and the related warrants to two unrelated non-affiliate stockholders.
On April 1, 2015 the Company and the holder extended the maturity date of $100,000 of Debentures to April 1, 2018. The expiration date of the warrants associated with the debentures was also extended to April 1, 2018. On June 30, 2017 the Company repaid the $100,000 of Debentures.
On June 30, 2016 the Company and two holders extended the maturity date of $625,000 of Debentures to April 1, 2020. The expiration date of the warrants associated with the debentures was also extended to April 1, 2020. In August 2017 the Company repaid the $625,000 of Debentures in full.
Convertible Debentures
August 2008
On August 29, 2008, the Company sold $2,270,000 of convertible debentures and warrants to purchase an aggregate of 4,540,000 shares of our common stock to four accredited investors including our then Chief Executive Officer and Director, Cornelis F. Wit (“Mr. Wit”) and one of our then Directors. The convertible debentures, which bear interest at 10% per annum, were due on August 29, 2010. The convertible debentures are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.50 per share.
On September 30, 2009, the Company and two Affiliates of the Company extended $1,920,000 of the convertible debentures until August 29, 2013 in accordance with the terms of a Secured Convertible Debenture issued on that date. The expiration date of the warrants associated with the debentures was also extended to August 29, 2013.
On February 22, 2013 the Company and Mr. Wit extended the maturity date of $1,770,000 of the convertible debentures to January 1, 2016. The expiration date of the warrants associated with the debentures was also extended to January 1, 2016.
On February 22, 2013 the Company and Mr. van Kesteren extended the maturity date of $150,000 of the convertible debentures due to our former Director, Guus van Kesteren (“Mr. van Kesteren”) to January 1, 2015. The expiration date of the warrants associated with the debentures was also extended to January 1, 2015.
On April 21, 2014 the Company and Mr. van Kesteren extended the maturity date of his $150,000 of convertible debentures to April 1, 2016. The expiration date of the warrants associated with the debentures was also extended to April 1, 2016. On July 31, 2014 Mr. van Kesteren’s term on the Board of Directors ended. Effective on the same date, his convertible note in the amount of $150,000 was reclassified from Related Party to Non-Related Party.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018 AND MARCH 31, 2017
(unaudited)
On January 31, 2015 the Company and Mr. Wit extended the maturity date of the $1,770,000 of convertible debentures to April 1, 2017. The expiration date of the warrants associated with the debentures was also extended to April 1, 2017.
On June 30, 2015 the Company and Mr. van Kesteren extended the maturity date of $150,000 of convertible debentures to April 1, 2017. The expiration date of the warrants associated with the debentures was also extended to April 1, 2017.
On June 30, 2016 the Company and Mr. Wit extended the maturity date of the $1,770,000 of convertible debentures to April 1, 2020. The expiration date of the warrants associated with the debentures was also extended to April 1, 2020.
On June 30, 2016 the Company and Mr. van Kesteren extended the maturity date of $150,000 of convertible debentures to April 1, 2018. The expiration date of the warrants associated with the debentures was also extended to April 1, 2018.
On June 30, 2017 the Company and Mr. van Kesteren extended the maturity date of $150,000 of convertible debentures to April 1, 2019. The expiration date of the warrants associated with the debentures was also extended to April 1, 2019.
December 2008
On December 16, 2008, the Company sold $5,075,000 of convertible debentures and warrants to purchase an aggregate of 10,150,000 shares of common stock to eleven accredited investors including our then Chief Executive Officer and Director, Cornelis F. Wit (“Mr. Wit”), our then Chief Operating Officer and President, Stephen E. Johnson (“Mr. Johnson”), our then Chief Technology Officer, Randall G. Smith (“Mr. Smith”), our then Chief Financial Officer, Ronald T. Linares and four of our then Directors. The convertible debentures, which bear interest at 12% per annum, were due on December 16, 2010. The convertible debentures are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.50 per share.
On September 30, 2009 the Company and eight Affiliates of the Company extended $4,980,000 of the convertible debentures until December 16, 2013 in accordance with the terms of a Secured Convertible Debenture issued on that date. The expiration date of the warrants associated with the convertible debentures was also extended to December 16, 2013.
On February 22, 2013 the Company and the holders agreed to extend the maturity date of $4,505,000 of the convertible debentures including $4,475,000 due to Mr. Wit, $25,000 due to Mr. Johnson and $5,000 due to Mr. Smith, to January 1, 2016. The expiration date of the warrants associated with the debentures was also extended to January 1, 2016.
On February 27, 2013 the Company and our former director Mr. Veatch extended the maturity date of $15,000 of the convertible debentures to January 1, 2016. The expiration date of the warrants associated with the debentures was also extended to January 1, 2016.
On March 6, 2013, the Company and the holder extended the maturity date of $200,000 of convertible debentures to January 1, 2014. The expiration date of the warrants associated with the debentures was also extended to January 1, 2014.
On March 12, 2013, the Company and the holder agreed to extend the maturity date of $100,000 of convertible debentures to January 1, 2015. The expiration date of the warrants associated with the debentures was also extended to January 1, 2015.
In December 2013, the Company and two holders agreed to extend the maturity date of $360,000 of the convertible debentures, including $160,000 due to our then director, Guus van Kesteren (“Mr. van Kesteren”), to January 1, 2016. The expiration date of the warrants associated with the debentures was also extended to January 1, 2016. On July 31, 2014 Mr. van Kesteren’s term on the Board of Directors ended. Effective on the same date, his convertible note in the amount of $160,000 was reclassified from Related Party to Non-Related Party.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018 AND MARCH 31, 2017
(unaudited)
On April 28, 2014 the Company and the holder extended the maturity date of $100,000 of convertible debentures to April 1, 2016. The expiration date of the warrants associated with the debentures was also extended to April 1, 2016.
On January 31, 2015 the Company and Mr. Wit extended the maturity date of $4,475,000 of convertible debentures to April 1, 2017. The expiration date of the warrants associated with the debentures was also extended to April 1, 2017. On November 19, 2015 the Company and Mr. Wit agreed to cancel $420,000 of the debentures and 1,680,000 of unrelated warrants in exchange for 1,680,000 shares of our common stock.
On April 27, 2015, the Company and the holder extended the maturity date of $200,000 of convertible debentures to April 1, 2018. The expiration date of the warrants associated with the debentures was also extended to April 1, 2018.
On April 30, 2015, the Company and Mr. Johnson extended the maturity date of $25,000 of convertible debentures to April 1, 2018. The expiration date of the warrants associated with the debentures was also extended to April 1, 2018. The convertible debentures were repaid in full on December 14, 2016.
On May 1, 2015 the Company and Mr. van Kesteren extended the maturity date of $160,000 of the convertible debentures to April 1, 2017. The expiration date of the warrants associated with the debentures was also extended to April 1, 2017.
On May 1, 2015 the Company repaid $5,000 of the convertible debentures to Mr. Smith.
On May 7, 2015 the Company and Mr. Veatch, extended the maturity date of $15,000 of the convertible debentures to April 1, 2018. The expiration date of the warrants associated with the debentures was also extended to April 1, 2018. The $15,000 of convertible debentures were repaid in full on December 14, 2016.
On June 30, 2015 the Company and the holder extended the maturity date of $100,000 of convertible debentures to April 1, 2017. The expiration date of the warrants associated with the debentures was also extended to April 1, 2017.
On June 30, 2016 the Company and Mr. Wit extended the maturity date of $4,055,000 of convertible debentures to April 1, 2020. The expiration date of the warrants associated with the debentures was also extended to April 1, 2020. On August 31, 2017 the Company repaid $55,000 of the convertible debentures to Mr. Wit.
On June 30, 2016 the Company and Mr. van Kesteren extended the maturity date of $160,000 of the convertible debentures to April 1, 2018. The expiration date of the warrants associated with the debentures was also extended to April 1, 2018. The $160,000 of convertible debentures was repaid in full on December 14, 2016.
On June 30, 2016 the Company and the holder extended the maturity date of $100,000 of convertible debentures to April 1, 2020. The expiration date of the warrants associated with the debentures was also extended to April 1, 2020. On August 31, 2017 the Company repaid $100,000 of convertible debentures to the holder.
On June 30, 2017, the Company and the holder extended the maturity date of $200,000 of the convertible debentures to April 1, 2021. The expiration date of the warrants associated with the debentures was also extended to April 1, 2021.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018 AND MARCH 31, 2017
(unaudited)
The principal payments required at maturity under the Company’s outstanding convertible debt at March 31, 2018 are as follows:
Year
|
|
Amount
|
|
2018
|
|
$
|
50,000
|
|
2019
|
|
|
150,000
|
|
2020
|
|
|
5,770,000
|
|
2021
|
|
|
200,000
|
|
Total
|
|
$
|
6,170,000
|
|
NOTE 9:
|
FAIR VALUE MEASUREMENT
|
The Company measures the fair value of its assets and liabilities under the guidance of ASC 820,
Fair Value Measurements and Disclosures
(“ASC 820”), which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but its provisions apply to all other accounting pronouncements that require or permit fair value measurement.
ASC 820 clarifies that fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based on the highest and best use of the asset or liability. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. ASC 820 requires the Company to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:
|
●
|
Level 1
: Observable inputs such as quoted prices for identical assets or liabilities in active markets;
|
|
●
|
Level 2
: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly such as quoted prices for similar assets or liabilities or market-corroborated inputs; and
|
|
●
|
Level 3
: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions about how market participants would price the assets or liabilities.
|
The valuation techniques that may be used to measure fair value are as follows:
|
A.
|
Market approach
- Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities
|
|
B.
|
Income approach
- Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about those future amounts, including present value techniques, option-pricing models and excess earnings methods
|
|
C.
|
Cost approach
- Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost)
|
The Company also adopted the provisions of ASC 825,
Financial Instruments
(“ASC 825”). ASC 825
allows companies to choose to measure eligible assets and liabilities at fair value with changes in value recognized in earnings. Fair value treatment may be elected either upon initial recognition of an eligible asset or liability or, for an existing asset or liability, if an event triggers a new basis of accounting. The Company did not elect to re-measure any of its existing financial assets or liabilities under the provisions of this Statement.
The Company’s financial assets or liabilities subject to ASC 820 as of March 31, 2018 include the conversion feature and warrant liability associated with convertible debentures issued during 2008 and 2009 and the warrants issued during 2011 and 2016 that are associated with notes payable. The conversion feature and warrants were deemed to be derivatives (the “Derivative Instruments”) since a fixed conversion price cannot be determined for either of the Derivative Instruments due to anti-dilution provisions embedded in the offering documents for the convertible debentures. The derivative instruments were not issued for risk management purposes and as such are not designated as hedging instruments under the provisions of ASC 815,
Disclosures about Derivative Instruments and Hedging Activities
. See Note 8 – Convertible Notes Payable.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018 AND MARCH 31, 2017
(unaudited)
Following is a description of the valuation methodologies used to determine the fair value of the Company’s financial liabilities including the general classification of such instruments pursuant to the valuation hierarchy.
A summary as of March 31, 2018 of the fair value of liabilities measured at fair value on a recurring basis follows:
|
|
Fair value at
|
|
|
Quoted prices in
active markets for identical assets/ liabilities
|
|
|
Significant other observable inputs
|
|
|
Significant unobservable inputs
|
|
|
|
March 31, 2018
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Derivatives: (1) (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion feature liability
|
|
$
|
1,654,644
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
1,654,644
|
|
Warrant liability
|
|
|
3,443,686
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
3,443,686
|
|
Total of derivative liabilities
|
|
$
|
5,098,330
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
5,098,330
|
|
(1) The fair value of the derivative instruments was estimated using the Income Approach and the Black Scholes option pricing model with the following assumptions for the three month period ended March 31, 2018
(2) The fair value at the measurement date is equal to the carrying value on the balance sheet
Significant valuation assumptions for derivative instruments at March 31, 2018
|
|
Risk free interest rate
|
1.96%
|
to
|
2.36%
|
|
Dividend yield
|
|
0.00%
|
|
|
Expected volatility
|
81.0%
|
to
|
112.2%
|
|
Expected life (range in years)
|
|
|
|
|
Conversion feature liability
|
1.00
|
to
|
3.01
|
|
Warrant liability
|
0.01
|
to
|
3.01
|
|
A summary as of December 31, 2017 of the fair value of liabilities measured at fair value on a recurring ba
s
is follows:
|
|
Fair value at
|
|
|
Quoted prices in
active
markets for
identical
assets/
liabilities
|
|
|
Significant other observable inputs
|
|
|
Significant unobservable inputs
|
|
|
|
December 31, 2017
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Derivatives: (1) (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion feature liability
|
|
$
|
1,685,947
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
1,685,947
|
|
Warrant liability
|
|
|
3,440,799
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
3,440,799
|
|
Total of derivative liabilities
|
|
$
|
5,126,746
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
5,126,746
|
|
(1) The fair value of the derivative instruments was estimated using the Income Approach and the Black Scholes option pricing model with the following assumptions for the year ended December 31, 2017
|
|
(2) The fair value at the measurement date is equal to the carrying value on the balance sheet
|
Significant valuation assumptions for derivative instruments at December 31, 2017
|
|
Risk free interest rate
|
1.56%
|
to
|
1.81%
|
|
Dividend yield
|
|
0.00%
|
|
|
Expected volatility
|
87.0%
|
to
|
118.4%
|
|
Expected life (range in years)
|
|
|
|
|
Conversion feature liability
|
1.25
|
to
|
3.25
|
|
Warrant liability
|
0.25
|
to
|
3.25
|
|
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018 AND MARCH 31, 2017
(unaudited)
A summary as of March 31, 2018 of the fair value of assets measured at fair value on a non-recurring basis follows:
|
|
Carrying amount
|
|
|
Carrying amount
|
|
|
Quoted prices in
active markets
for identical
assets/ liabilities
|
|
|
Significant other observable inputs
|
|
|
Significant unobservable inputs
|
|
|
|
December 31, 2017
|
|
|
March 31, 2018
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Acquired assets (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Promasys B.V. customer list (4)
|
|
$
|
85,786
|
|
|
$
|
86,046
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
136,253
|
|
Promasys B.V. software code (4)
|
|
|
12,139
|
|
|
|
8,497
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
72,943
|
|
Acuity software code (5)
|
|
|
-0-
|
|
|
|
993,936
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
1,052,403
|
|
Total
|
|
$
|
97,925
|
|
|
$
|
1,088,479
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
1,261,599
|
|
(3) The fair value of the acquired assets was estimated using the Income Approach with a discounted cash flow valuation methodology applied.
|
|
(4) The acquired Promasys B.V. software code and customer list are not measured on a recurring basis since their initial fair value has been deemed to have a finite life and is being amortized periodically. Instead the Company performs an impairment analysis on a quarterly basis in order to determine whether the carrying value of the assets reflects the fair value of the assets in a market based transaction.
|
|
(5) The acquired Acuity software code is not measured on a recurring basis since the initial fair value has been deemed to have a finite life and is being amortized periodically. Instead the Company performs an impairment analysis on a quarterly basis in order to determine whether the carrying value of the assets reflects the fair value of the assets in a market based transaction.
|
A summary as of December 31, 2017 of the fair value of assets measured at fair value on a non-recurring basis follows:
|
|
Carrying amount
|
|
|
Carrying amount
|
|
|
Quoted prices in
active markets
for identical
assets/ liabilities
|
|
|
Significant other observable inputs
|
|
|
Significant unobservable inputs
|
|
|
|
December 30, 2016
|
|
|
December 31, 2017
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Acquired assets (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Promasys B.V. customer list (4)
|
|
$
|
82,173
|
|
|
$
|
85,786
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
136,253
|
|
Promasys B.V. software code (4)
|
|
|
26,707
|
|
|
|
12,139
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
72,943
|
|
Total
|
|
$
|
108,880
|
|
|
$
|
97,925
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
209,196
|
|
(3) The fair value of the acquired assets was estimated using the Income Approach with a discounted cash flow valuation methodology applied.
|
|
(4) The acquired Promasys B.V. software code and customer list are not measured on a recurring basis since their initial fair value has been deemed to have a finite life and is being amortized periodically. Instead the Company performs an impairment analysis on a quarterly basis in order to determine whether the carrying value of the assets reflects the fair value of the assets in a market based transaction.
|
Other identifiable intangible assets, which are subject to amortization, are being amortized using the straight-line method over their estimated useful lives ranging from 3 to 15 years. The Impairment or Disposal of Long-Lived Asset subsection of ASC 360,
Property, Plant and Equipment
requires us to test the recoverability of long-lived assets, including identifiable intangible assets with definite lives, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In testing for potential impairment, if the carrying value of the asset group exceeds the expected undiscounted cash flows, we must then determine the amount by which the fair value of those assets exceeds the carrying value and determine the amount of impairment, if any.
The table below presents the unrealized gains/(losses) for the three month periods ended March 31, 2018 and March 31, 2017.
|
|
Other income/(expense)
|
|
|
|
For the three months ended
|
|
|
|
March 31, 2018
|
|
|
March 31, 2017
|
|
The net amount of gains/(losses) for the period included in earnings attributable to the unrealized and realized gain/(losses) from changes in derivative liabilities at the reporting date
|
|
$
|
28,416
|
|
|
$
|
393,340
|
|
|
|
|
|
|
|
|
|
|
Total unrealized and realized gains/(losses) included in earnings
|
|
$
|
28,416
|
|
|
$
|
393,340
|
|
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018 AND MARCH 31, 2017
(unaudited)
The tables below set forth a summary of changes in fair value of the Company’s Level 3 financial liabilities at fair value for the three month period ended March 31, 2018 and the year ended December 31, 2017. The tables reflect changes for all financial liabilities at fair value categorized as Level 3 as of March 31, 2018 and December 31, 2017.
|
|
Level 3 financial liabilities at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Reclassification
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
purchases,
|
|
|
of conversion
|
|
|
|
|
|
|
|
Balance,
|
|
|
|
|
|
|
|
|
|
|
issuances
|
|
|
feature liability
|
|
|
Balance,
|
|
For the three months ended
|
|
beginning
|
|
|
Net realized
|
|
|
Net unrealized
|
|
|
and
|
|
|
associated with
|
|
|
end
|
|
March 31, 2018
|
|
of year
|
|
|
gains/(losses)
|
|
|
gains/(losses)
|
|
|
settlements
|
|
|
convertible debt
|
|
|
of period
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion feature liability
|
|
$
|
(1,685,947
|
)
|
|
$
|
-0-
|
|
|
$
|
31,303
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
(1,654,644
|
)
|
Warrant liability
|
|
|
(3,440,799
|
)
|
|
|
-0-
|
|
|
|
(2,887
|
)
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
(3,443,686
|
)
|
Total of derivative liabilities
|
|
$
|
(5,126,746
|
)
|
|
$
|
-0-
|
|
|
$
|
28,416
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
(5,098,330
|
)
|
|
|
Level 3 financial liabilities at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
purchases,
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
|
|
|
|
|
|
|
|
|
|
|
issuances
|
|
|
|
|
|
|
Balance,
|
|
For the year ended
|
|
beginning
|
|
|
Net realized
|
|
|
Net unrealized
|
|
|
and
|
|
|
Net transfers
|
|
|
end
|
|
December 31, 2017
|
|
of year
|
|
|
gains/(losses)
|
|
|
gains/(losses)
|
|
|
settlements
|
|
|
in and/or out
|
|
|
of year
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion feature liability
|
|
$
|
(2,325,730
|
)
|
|
$
|
48,375
|
|
|
$
|
188,841
|
|
|
$
|
-0-
|
|
|
$
|
402,567
|
|
|
$
|
(1,685,947
|
)
|
Warrant liability
|
|
|
(3,999,362
|
)
|
|
|
-0-
|
|
|
|
558,563
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
(3,440,799
|
)
|
Total of derivative liabilities
|
|
$
|
(6,325,092
|
)
|
|
$
|
48,375
|
|
|
$
|
747,404
|
|
|
$
|
-0-
|
|
|
$
|
402,567
|
|
|
$
|
(5,126,746
|
)
|
NOTE 10:
|
COMMITMENTS AND CONTINGENCIES
|
The Company currently leases office space under operating leases for its office locations and has operating leases related to server and network co-location and disaster recovery for its operations. The minimum future lease payments required under the Company’s operating leases at March 31, 2018 are as follows:
Year
|
|
Payments
|
|
2018
|
|
$
|
566,538
|
|
2019
|
|
|
531,676
|
|
2020
|
|
|
340,930
|
|
2021
|
|
|
269,962
|
|
2022
|
|
|
266,000
|
|
Thereafter
|
|
|
44,549
|
|
Total
|
|
$
|
2,019,655
|
|
In addition to annual base rental payments, the Company pays for the operating expenses associated with its leased office space and is responsible for any escalation in operating expenses as determined in the leases. Rent expense was $289,334 and $278,952 for the three month periods ended March 31, 2018 and March 31, 2017, respectively.
The Company’s Fort Lauderdale, Florida corporate office lease expires in February 2023. The Company’s lease on its New Jersey field office expires in March 2021. The Company currently operates its wholly-owned subsidiary, OmniComm Ltd., in the United Kingdom under the terms of a lease that expires in September 2020. The Company currently operates its wholly-owned subsidiary, OmniComm Europe, GmbH, in Germany under the terms of a lease that expires in July 2019. The Company currently operates its wholly-owned subsidiary, OmniComm Systems B.V, in the Netherlands under the terms of a lease that expires in October 2018.
LEGAL PROCEEDINGS
From time to time the Company may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of March 31, 2018, there were no pending legal proceedings to which the Company or its subsidiaries are a party or to which any of its property is subject that could reasonably be expected to have a material effect on the results of our operations.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018 AND MARCH 31, 2017
(unaudited)
PATENT LITIGATION SETTLEMENT
Effective April 9, 2009, we entered into a Settlement and License Agreement with DataSci, LLC (“DataSci”). DataSci granted us a worldwide, non-exclusive non-transferable right and license under the Licensed Patent and the right to sublicense TrialMaster on a Technology Transfer and Technology Transition basis. Under the terms of the Settlement and License Agreement, as amended, we are obligated to pay royalties quarterly for sales of Licensed Products, as defined therein, from January 1, 2009 until the termination of the Settlement and License Agreement on December 31, 2017 equal to two percent (2%) of OmniComm’s annual Gross Revenues or, alternatively, the annual minimum royalty payment(s), whichever is greater. In addition to the payment of royalties, the Settlement and Licensing Agreement imposes certain obligations on us including commercialization, certain sublicensing, other payments, insurance and confidentiality. In addition and as a license fee for past use of the Licensed Patent which may have occurred prior to the effective date of the Settlement and Licensing Agreement, we issued a warrant to DataSci to purchase 1,000,000 shares of our common stock at an exercise price of $.01 per share. The Settlement and Licensing Agreement provides that upon the expiration date of the warrant, at DataSci’s sole discretion, DataSci shall exercise its option under the warrant or licensee shall pay DataSci $300,000. The warrant was exercisable commencing on the second anniversary of the Settlement and Licensing Agreement, April 2, 2011, through the expiration date of the warrant on December 31, 2017. On December 31, 2017 DataSci exercised 50% of the warrant for 500,000 common shares and requested cash payment on 50% of the warrant. As a result of the exercise, DataSci received 500,000 restricted common shares and a net cash payment of $145,000.
On June 23, 2009, we entered into an agreement to acquire the EDC assets of eResearch Technology. Concurrent with the consummation of that transaction we entered into the First Amendment to Settlement and Licensing Agreement with DataSci, (i) to include the eResearch Technology EDC assets acquired within the definition of Licensed Products, and as such subject to the royalty payment(s), under and in accordance with the Settlement and Licensing Agreement, and (ii) provide a release by DataSci of any and all claims of infringement of the Licensed Patent in connection with the eResearch Technology EDC assets acquired which may have occurred prior to the effective date of the First Amendment to Settlement and Licensing Agreement for an aggregate amount of $300,000.
The remaining minimum royalty payment as of March 31, 2018 was $112,500 and this payment was made on April 3, 2018. No further payments are due under the Settlement and Licensing Agreement.
During the three month period ended March 31, 2017 the Company recorded a charge to earnings of ($127,983) respectively, which amount represented (i) the amount of additional license expense incurred above the stipulated minimum in the DataSci Settlement and License Agreement during the three month period ended March 31, 2017 and (ii) the accretion of the difference between the total stipulated annual minimum royalty payments and the recorded present value accrual of the annual minimum royalty payments.
EMPLOYMENT AGREEMENTS
We have employment agreements in place with the following members of our executive management team:
Cornelis F. Wit, Executive Chairman
Randall G. Smith, Executive Vice Chairman
Stephen E. Johnson, Chief Executive Officer and President
Thomas E. Vickers, Chief Financial Officer
The employment agreements provide, among other things, for participation in employee benefits available to employees and executives. Each of the agreements will renew for successive one-year terms unless the agreement is expressly terminated by either the employee or the Company prior to the end of the then current term as provided for in the employment agreement. Under the terms of the agreement, we may terminate the employee’s employment upon 30 or 60 days notice of a material breach and the employee may terminate the agreement under the same terms and conditions. The employment agreements contain non-disclosure provisions, as well as non-compete clauses. The agreements for Mr. Smith, Mr. Johnson and Mr. Vickers contain severance provisions which entitles the employee to severance pay equal to one (1) year's salary and benefits in the event of the employee's termination by the Company for any reason other than for cause, as described in the employment agreement, or termination by the employee pursuant to a material breach of the agreement by the Company.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018 AND MARCH 31, 2017
(unaudited)
NOTE 11:
|
RELATED PARTY TRANSACTIONS
|
As of March 31, 2018, we have an aggregate of $5,770,000 of convertible debentures and $400,000 of promissory notes outstanding to our Executive Chairman and Chairman of the Board, Cornelis F. Wit (“Mr. Wit”) and have issued certain warrants to Mr. Wit, as follows:
|
●
|
In June 2008, Mr. Wit invested $510,000 in convertible notes. On August 29, 2008, Mr. Wit converted the $510,000 and invested an additional $1,260,000 in a private placement of convertible debentures and warrants to purchase 3,540,000 shares of our common stock. The convertible debentures, which bear interest at 10% per annum, were due on August 29, 2010. The convertible debentures are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.50 per share. On September 30, 2009, the Company and Mr. Wit extended the $1,770,000 of convertible debentures until August 29, 2013 in accordance with the terms of a Secured Convertible Debenture issued on that date. The expiration date of the warrants associated with the debentures was also extended to August 29, 2013.On February 22, 2013, the Company and Mr. Wit extended the maturity date of the $1,770,000 of convertible debentures to January 1, 2016. The expiration date of the warrants associated with the debentures was also extended to January 1, 2016. On January 31, 2015 the Company and Mr. Wit extended the maturity date of the $1,770,000 of convertible debentures to April 1, 2017. The expiration date of the warrants associated with the debentures was also extended to April 1, 2017. On June 30, 2016 the Company and Mr. Wit extended the maturity date of the $1,770,000 of convertible debentures to April 1, 2020. The expiration date of the warrants associated with the debentures was also extended to April 1, 2020.
|
|
●
|
In February 2008, Mr. Wit invested $150,000 in promissory notes and from September 2008 to December 2008, Mr. Wit invested $4,200,000 in convertible notes. On December 16, 2008, Mr. Wit converted the $4,350,000 into a private placement of convertible debentures and warrants to purchase 8,700,000 shares of our common stock. The convertible debentures, which bear interest at 12% per annum, were due on December 16, 2010. The convertible debentures are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.50 per share. On September 30, 2009, the Company and Mr. Wit extended the $4,350,000 of convertible debentures until December 16, 2013 in accordance with the terms of a Secured Convertible Debenture issued on that date. The expiration date of the warrants associated with the debentures was also extended to December 16, 2013. In a private transaction on October 16, 2012, Mr. Wit purchased $125,000 of the December 2008 convertible debentures and the related 250,000 warrants from Mr. Ronald Linares, the Company’s former Chief Financial Officer. On February 22, 2013, the Company and Mr. Wit extended the maturity date of the $4,475,000 of convertible debentures to January 1, 2016. The expiration date of the warrants associated with the debentures was also extended to January 1, 2016. On January 31, 2015 the Company and Mr. Wit extended the maturity date of the $4,475,000 of convertible debentures to April 1, 2017. The expiration date of the warrants associated with the debentures was also extended to April 1, 2017. On November 19, 2015 the Company and Mr. Wit agreed to cancel $420,000 of the debentures and 1,680,000 of unrelated warrants in exchange for 1,680,000 shares of our common stock. On June 30, 2016 the Company and Mr. Wit extended the maturity date of the $4,055,000 of convertible debentures to April 1, 2020. The expiration date of the warrants associated with the debentures was also extended to April 1, 2020. On August 31, 2017 the Company repaid $55,000 to Mr. Wit.
|
|
●
|
On February 29, 2016, the Company issued a promissory note in the principal amount of $450,000 and warrants to purchase 1,800,000 shares of common stock of the Company at an exercise price of $0.25 per share with an expiration date of April 1, 2019 to Mr. Wit in exchange for accrued interest in the amount of $450,000. The note carries an interest rate of 12% per annum and has a maturity date of April 1, 2019. On Aug 31, 2017 the Company repaid $50,000 to Mr. Wit.
|
On March 18, 2013, the Company entered into a $2,000,000 revolving Line of Credit (“Line of Credit”) with The Northern Trust Company guaranteed by our then Chief Executive Officer and Director, Cornelis F. Wit. Mr. Wit receives 2.0% interest (approximately $9,500 per month) from the Company on the assets pledged for the Line of Credit. On December 18, 2013 the Company renewed the Line of Credit and increased the available balance to $4,000,000. On February 3, 2015 the Company renewed the Line of Credit and increased the available balance to $5,000,000. On April 7, 2017 the Company renewed the Line of Credit. The Line of Credit currently matures on April 7, 2020 and carries a variable interest rate based on the prime rate. At March 31, 2018, $4,400,000 was outstanding on the Line of Credit at an interest rate of 3.75%.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018 AND MARCH 31, 2017
(unaudited)
For the three month period ended March 31, 2018 we incurred $225,418 in interest expense payable to related parties and $231,459 for the three month period ended March 31, 2017.
NOTE 12:
|
STOCKHOLDERS’ (DEFICIT)
|
Our authorized capital stock consists of 500,000,000 shares of common stock, $.001 par value per share and 10,000,000 shares of preferred stock, par value $.001 per share, of which 5,000,000 shares have been designated as 5% Series A Preferred Stock, 230,000 shares have been designated as Series B Preferred Stock, 747,500 shares have been designated as Series C Preferred Stock and 250,000 shares have been designated as Series D Preferred Stock.
At the 2016 Annual Meeting of Stockholders the proposed amendment to the Company’s Certificate of Incorporation to increase the authorized number of shares of common stock by 250,000,000 shares to an aggregate of 500,000,000 shares received an affirmative vote from the holders of a majority of the outstanding shares of Voting Securities and an affirmative vote from the holders of a majority of the outstanding shares of common stock. Based on the votes received, the proposed amendment was approved and the number of authorized shares of common stock of the Company was increased from 250,000,000 shares to 500,000,000 shares.
As of March 31, 2018 we had the following outstanding securities:
o 150,209,472 shares of common stock issued and outstanding;
o 27,020,000 warrants issued and outstanding to purchase shares of our common stock;
o 3,020,000 options issued and outstanding to purchase shares of our common stock;
o 250,000 share of our Series D Preferred Stock issued and outstanding; and
o $6,170,000 principal amount Convertible Debentures convertible into 12,280,000 shares of common stock.
Common Stock
Holders of common stock are entitled to one vote for each share on all matters submitted to a stockholder vote. Holders of our voting securities do not have cumulative voting rights. Holders of common stock are entitled to share in all dividends that the Board of Directors, in its discretion, declares from legally available funds. In the event of our liquidation, dissolution or winding up each outstanding share of common stock entitles its holder to participate in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock.
Holders of common stock have no conversion, preemptive or other subscription rights, and there are no redemption provisions for the common stock. The rights of the holders of common stock are subject to any rights that may be fixed for holders of preferred stock, when and if any preferred stock is outstanding. All outstanding shares of common stock are duly authorized, validly issued, fully paid and non-assessable.
Preferred Stock
Our Board of Directors, without further stockholder approval, may issue preferred stock in one or more series from time to time and fix or alter the designations, relative rights, priorities, preferences, qualifications, limitations and restrictions of the shares of each series. In addition, the Board of Directors may fix and determine all privileges and rights of the authorized preferred stock series including:
o dividend and liquidation preferences;
o voting rights;
o conversion privileges; and
o redemption terms.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018 AND MARCH 31, 2017
(unaudited)
Our Board of Directors may authorize the issuance of preferred stock which ranks senior to our common stock for the payment of dividends and the distribution of assets on liquidation. In addition, our Board of Directors can fix limitations and restrictions, if any, upon the payment of dividends on our common stock to be effective while any shares of preferred stock are outstanding.
The following table presents the cumulative arrearage of undeclared dividends by class of preferred stock as of March 31, 2018 and March 31, 2017, respectively, and the per share amount by class of preferred stock.
|
|
Cumulative arrearage
as of
|
|
|
Cumulative arrearage per share
as of
|
|
|
|
March 31,
|
|
|
March 31,
|
|
Series of preferred stock
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B
|
|
$
|
609,887
|
|
|
$
|
609,887
|
|
|
$
|
3.05
|
|
|
$
|
3.05
|
|
Series C
|
|
|
1,472,093
|
|
|
|
1,472,093
|
|
|
$
|
4.37
|
|
|
$
|
4.37
|
|
Total preferred stock arrearage
|
|
$
|
2,081,980
|
|
|
$
|
2,081,980
|
|
|
|
|
|
|
|
|
|
Warrants Issued in Capital Transactions
The following tables summarize all outstanding warrants for the three month period ended March 31, 2018 and the year ended December 31, 2017, and the related changes during these periods.
March 31, 2018
|
|
|
March 31, 2018
|
|
Warrants outstanding
|
|
|
Warrants exercisable
|
|
|
|
|
|
|
|
|
Weighted average
|
|
|
Weighted average
|
|
|
|
|
|
Weighted average
|
|
Range of exercise price
|
|
Number outstanding
|
|
|
remaining contractual life
|
|
|
exercise price
|
|
|
Number exercisable
|
|
|
exercise price
|
|
$0.25
|
–
|
$0.60
|
|
27,020,000
|
|
|
1.59
|
|
|
$
|
0.42
|
|
|
27,020,000
|
|
|
$
|
0.42
|
|
December 31, 2017
|
|
|
December 31, 2017
|
|
Warrants outstanding
|
|
|
Warrants exercisable
|
|
|
|
|
|
|
|
|
Weighted average
|
|
|
Weighted average
|
|
|
|
|
|
Weighted average
|
|
Range of exercise price
|
|
Number outstanding
|
|
|
remaining contractual life
|
|
|
exercise price
|
|
|
Number exercisable
|
|
|
exercise price
|
|
$0.25
|
–
|
$0.60
|
|
27,020,000
|
|
|
1.84
|
|
|
$
|
0.42
|
|
|
27,020,000
|
|
|
$
|
0.42
|
|
Warrants
|
|
|
|
|
Balance at December 31, 2016
|
|
|
27,860,000
|
|
Issued
|
|
|
-0-
|
|
Exercised
|
|
|
-0-
|
|
Expired/forfeited
|
|
|
(840,000
|
)
|
Balance at December 31, 2017
|
|
|
27,020,000
|
|
Issued
|
|
|
-0-
|
|
Exercised
|
|
|
-0-
|
|
Expired/forfeited
|
|
|
-0-
|
|
Balance at March 31, 2018
|
|
|
27,020,000
|
|
Warrants exercisable at March 31, 2018
|
|
|
27,020,000
|
|
|
|
|
|
|
Weighted average fair value of warrants granted during 2018
|
|
|
n/a
|
|
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018 AND MARCH 31, 2017
(unaudited)
Other Comprehensive (Loss)
Due to the availability of net operating losses and related deferred tax valuations, there is no tax effect associated with any component of other comprehensive (loss). The following table lists the beginning balance, activity and ending balance of the components of accumulated other comprehensive (loss).
|
|
Foreign currency translation
|
|
|
Accumulated other comprehensive (loss)
|
|
Balance at December 31, 2016
|
|
$
|
(410,505
|
)
|
|
$
|
(410,505
|
)
|
2017 Activity
|
|
|
13,268
|
|
|
|
13,268
|
|
Balance at December 31, 2017
|
|
|
(397,237
|
)
|
|
|
(397,237
|
)
|
2018 Activity
|
|
|
1,287
|
|
|
|
1,287
|
|
Balance at March 31, 2018
|
|
$
|
(395,950
|
)
|
|
$
|
(395,950
|
)
|
NOTE 13:
|
EQUITY INCENTIVE PLANS
|
Stock Option Plans
Description of 2016 Equity Incentive Plan
In 2016, the Company’s Board of Directors and shareholders approved the OmniComm Systems, Inc. 2016 Equity Incentive Plan (the “2016 Plan”). The 2016 Plan provides for granting Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Phantom Stock Unit Awards and Performance Share Units. The 2016 Plan initially provides for the issuance of up to 10,000,000 shares of our common stock for issuance upon awards granted under the 2016 Plan. In addition, the number of shares of common stock available for issuance under the 2016 Plan automatically increases on January 1st of each year for a period of nine (9) years commencing on January 1, 2017 and ending on (and including) January 1, 2025, in an amount equal to five percent (5%) of the total number of shares authorized under the 2016 Plan. As of March 31, 2018 11,025,000 shares of our common stock were authorized for issuance under the 2016 Plan. Unless earlier terminated by the Board, the 2016 Plan shall terminate on June 29, 2026.
The maximum term for any option grant under the 2016 Plan is ten years from the date of the grant; however, options granted under the 2016 Plan will generally expire five years from the date of grant. Options granted to employees generally vest either upon grant or in two installments. The first vesting, which is equal to 50% of the granted stock options, usually occurs upon completion of one full year of employment from the date of grant and the second vesting usually occurs on the second anniversary of the date of grant. The vesting period typically begins on the date of hire for new employees and on the date of grant for existing employees. The restrictions on restricted shares granted to employees generally lapse in three equal annual installments on the anniversary of the date of grant. Any unvested stock options or restricted shares with restrictions that have not lapsed that are granted under the 2016 Plan are forfeited and expire upon termination of employment.
As of March 31, 2018, there were 3,020,000 outstanding options and -0- restricted stock shares that have been granted under the 2016 Plan. At March 31, 2018, there were 8,005,000 shares available for grant as options or other forms of share-based compensation under the 2016 Plan.
Description of 2009 Equity Incentive Plan
In 2009, the Company’s Board of Directors and shareholders approved the OmniComm Systems, Inc. 2009 Equity Incentive Plan (the “2009 Plan”). On June 16, 2016 the 2009 Plan terminated upon the approval of the 2016 Plan. The 2009 Plan provided 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 2009 Plan, 7,500,000 shares of the Company’s common stock were authorized for issuance.
The maximum term for any option grant under the 2009 Plan was ten years from the date of the grant; however, options granted under the 2009 Plan generally expired five years from the date of grant. Options granted to employees generally vested either upon grant or in two installments. The first vesting, which was equal to 50% of the granted stock options, usually occurred upon completion of one full year of employment from the date of grant and the second vesting usually occurred on the second anniversary of the date of grant. The vesting period typically began on the date of hire for new employees and on the date of grant for existing employees. The restrictions on restricted shares granted to employees generally lapsed in three equal annual installments on the anniversary of the date of grant. Any unvested stock options or restricted shares with restrictions that had not lapsed that were granted under the 2009 Plan were forfeited and expired upon termination of employment.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018 AND MARCH 31, 2017
(unaudited)
As of March 31, 2018, there were 375,000 outstanding options and 3,876,662 restricted stock shares that have been granted under the 2009 Plan. At March 31, 2018, there were -0- shares available for grant as options or other forms of share-based compensation under the 2009 Plan.
The following table summarizes the stock option activity for the Company’s equity incentive plans:
|
|
Number of
options
|
|
|
Weighted average exercise price
(per share)
|
|
|
Weighted average remaining contractual term
(in years)
|
|
|
Aggregate
intrinsic value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
1,225,000
|
|
|
$
|
0.17
|
|
|
|
2.62
|
|
|
$
|
83,425
|
|
Granted
|
|
|
4,650,000
|
|
|
|
0.26
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(300,000
|
)
|
|
|
0.13
|
|
|
|
|
|
|
|
|
|
Forfeited/cancelled/expired
|
|
|
(300,000
|
)
|
|
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2017
|
|
|
5,275,000
|
|
|
|
0.26
|
|
|
|
4.09
|
|
|
$
|
130,475
|
|
Granted
|
|
|
570,000
|
|
|
|
0.28
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-0-
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
Forfeited/cancelled/expired
|
|
|
(2,825,000
|
)
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2018
|
|
|
3,020,000
|
|
|
$
|
0.27
|
|
|
|
3.91
|
|
|
$
|
129,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable at March 31, 2018
|
|
|
900,000
|
|
|
$
|
0.22
|
|
|
|
2.67
|
|
|
$
|
70,988
|
|
The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company’s closing stock price at quarter-end and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on March 31, 2018.
The total number of shares vesting and the fair value of shares vesting for the three month periods ended March 31, 2018 and March 31, 2017, respectively, was:
Fair value of options vesting
for the year ended
|
|
Number of options
vested
|
|
|
Fair value of
options vested
|
|
March 31, 2018
|
|
|
500,000
|
|
|
$
|
99,121
|
|
March 31, 2017
|
|
|
-0-
|
|
|
$
|
-0-
|
|
Cash received for stock option exercises for the three month periods ended March 31, 2018 and March 31, 2017 was $-0- and $-0-, respectively. Due to the Company’s net loss position, no income tax benefit has been realized during the three month periods ended March 31, 2018 and March 31, 2017.
The following table summarizes information concerning options outstanding at March 31, 2018:
Awards breakdown by price range at March 31, 2018
|
|
|
|
|
|
|
Outstanding
|
|
|
Vested
|
|
Strike price
range ($)
|
|
|
Outstanding
stock options
|
|
|
Weighted
average
remaining contractual life
|
|
|
Weighted
average
outstanding
strike price
|
|
|
Vested stock options
|
|
|
Weighted
average
remaining
vested
contractual life
|
|
|
Weighted
average vested strike price
|
|
0.00
|
to
|
0.20
|
|
|
|
250,000
|
|
|
|
1.24
|
|
|
$
|
0.17
|
|
|
|
250,000
|
|
|
|
1.24
|
|
|
$
|
0.17
|
|
0.21
|
to
|
0.30
|
|
|
|
2,045,000
|
|
|
|
4.00
|
|
|
|
0.25
|
|
|
|
650,000
|
|
|
|
3.21
|
|
|
|
0.24
|
|
0.31
|
to
|
0.50
|
|
|
|
725,000
|
|
|
|
4.57
|
|
|
|
0.34
|
|
|
|
-0-
|
|
|
|
0.00
|
|
|
|
0.00
|
|
0.00
|
to
|
0.50
|
|
|
|
3,020,000
|
|
|
|
3.91
|
|
|
$
|
0.27
|
|
|
|
900,000
|
|
|
|
2.67
|
|
|
$
|
0.22
|
|
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018 AND MARCH 31, 2017
(unaudited)
The following table summarizes information concerning options outstanding at December 31, 2017:
Awards breakdown by price range at December 31, 2017
|
|
|
|
|
|
|
Outstanding
|
|
|
Vested
|
|
Strike price range ($)
|
|
|
Outstanding
stock options
|
|
|
Weighted
average
remaining contractual life
|
|
|
Weighted
average outstanding
strike price
|
|
|
Vested stock options
|
|
|
Weighted
average
remaining
vested
contractual life
|
|
|
Weighted
average vested strike price
|
|
0.00
|
to
|
0.20
|
|
|
|
300,000
|
|
|
|
1.93
|
|
|
$
|
0.18
|
|
|
|
250,000
|
|
|
|
1.48
|
|
|
$
|
0.17
|
|
0.21
|
to
|
0.30
|
|
|
|
4,250,000
|
|
|
|
4.12
|
|
|
|
0.25
|
|
|
|
150,000
|
|
|
|
1.30
|
|
|
|
0.22
|
|
0.31
|
to
|
0.50
|
|
|
|
725,000
|
|
|
|
4.82
|
|
|
|
0.34
|
|
|
|
-0-
|
|
|
|
0.00
|
|
|
|
0.00
|
|
0.00
|
to
|
0.50
|
|
|
|
5,275,000
|
|
|
|
4.09
|
|
|
$
|
0.26
|
|
|
|
400,000
|
|
|
|
1.42
|
|
|
$
|
0.19
|
|
The weighted average fair value (per share) of options granted during the three month period ended March 31, 2018 was $0.23 and $0.19 during the three month period ended March 31, 2017. The Black Scholes option-pricing model was utilized to calculate these values.
Basis for Fair Value Estimate of Share-Based Payments
Based on analysis of its historical volatility, the Company expects that the future volatility of its share price is likely to be similar to the historical volatility the Company experienced since the Company’s commercialization activities were initiated during the second half of 2000. The Company used a volatility calculation utilizing the Company’s own historical volatility to estimate its future volatility for purposes of valuing the share-based payments that have been granted. Actual volatility, and future changes in estimated volatility, may differ substantially from the Company’s current estimates.
The Company utilizes the historical data available regarding employee and director exercise activity to calculate an expected life of the options. The table below presents the weighted average expected life in years of options granted under the Plan as described above. The risk-free rate of the stock options is based on the U.S. Treasury yield curve in effect at the time of grant, which corresponds with the expected term of the option granted.
Below are the assumptions for the fair value of share-based payments for the three month period ended March 31, 2018 and the year ended December 31, 2017.
|
|
Stock option assumptions for the period ended
|
|
Stock option assumptions
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Risk-free interest rate
|
|
2.36%
|
|
|
1.81%
|
|
Expected dividend yield
|
|
0.0%
|
|
|
0.0%
|
|
Expected volatility
|
|
115.0%
|
|
|
127.1%
|
|
Expected life of options (in years)
|
|
5
|
|
|
5
|
|
The following table summarizes weighted average grant date fair value activity for the Company’s incentive stock plans:
|
|
Weighted average grant date fair value
|
|
|
|
for the three months ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Stock options granted during the period
|
|
$
|
0.23
|
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
Stock options vested during the period
|
|
$
|
0.20
|
|
|
$
|
-0-
|
|
|
|
|
|
|
|
|
|
|
Stock options forfeited during the period
|
|
$
|
0.19
|
|
|
$
|
0.13
|
|
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018 AND MARCH 31, 2017
(unaudited)
A summary of the status of the Company’s non-vested shares underlying stock options as of March 31, 2018 and changes during the three month period ended March 31, 2018 is as follows:
|
|
Shares underlying stock options
|
|
|
Weighted average grant
date fair value
|
|
Nonvested shares at January 1, 2018
|
|
|
4,875,000
|
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
Nonvested shares at March 31, 2018
|
|
|
2,120,000
|
|
|
$
|
0.24
|
|
As of March 31, 2018, $436,366 of total unrecognized compensation cost related to unvested stock options is expected to be recognized over a weighted-average period of 2.2 years.
NOTE 14:
|
SUBSEQUENT EVENTS
|
Subsequent to March 31, 2018 the Company repaid $900,000 on its revolving Line of Credit.