NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019 AND MARCH 31, 2018
(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”) and eClinical 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 and eClinical software applications: TrialMaster
®
, TrialOne
®
, eClinical Suite, Promasys
®
, IRTMaster, AutoEncoder 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 and eClinical industry is predicated on our ability to continue enhancing and broadening the scope of solutions offered through our EDC and eClinical 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. While our main product development efforts are conducted in our Fort Lauderdale, Florida office, we also conduct product development in other parts of the U.S. as well as in Southampton, England and Bengaluru, India. During the three month periods ended March 31, 2019 and March 31, 2018 we spent $1,089,081, which represents 19% of revenue, and $922,304, which represents 13% of revenue, 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 2018 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, 2019 and March 31, 2018 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, 2019 are not necessarily indicative of the results that may be expected for the year-ended December 31, 2019. 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, 2018.
ESTIMATES IN FINANCIAL STATEMENTS
The preparation of the unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles ("GAAP") 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, the determination of lease term and lease assets and 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.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019 AND MARCH 31, 2018
(unaudited)
Reclassifications
Certain reclassifications have been made in the 2018 financial statements to conform to the 2019 presentation. These reclassifications did not have any effect on our net income/(loss) or shareholders’ deficit.
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. The functional currency of the Company’s subsidiary, OmniComm eClinical Solutions Pvt. Ltd. in India, is the Indian Rupee. 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 loss of $5,430 and a translation gain of $1,287 for the three month periods ended March 31, 2019 and March 31, 2018, respectively.
REVENUE RECOGNITION POLICY
The Company derives revenues from software licenses and services of its EDC and eClinical 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 software product, 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") ASC 606 (“ASC 606"). A five-step analysis must be met as outlined in ASC 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 and eClinical 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 TrialOne 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. OmniComm announced that it would decommission its eClinical Suite hosting platform effective April 30, 2019 as many of the eClinical Suite clients utilizing these hosting services have transitioned to TrialMaster, the eClinical Suite studies have been completed or the studies have transitioned to another hosting platform. Currently there is one remaining client utilizing the hosting platform and we are finalizing the transition plan with the client.
Revenues resulting from TrialMaster 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.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019 AND MARCH 31, 2018
(unaudited)
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.
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 and eClinical 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 to net 45 days.
The Company has sold perpetual licenses for EDC and eClinical 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 or upon completion of milestones. 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 Accounting Standards Update ("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, 2019 AND MARCH 31, 2018
(unaudited)
The fees associated with each business activity for the three month periods ended March 31, 2019 and March 31, 2018, respectively, are:
|
|
For the three months ended
|
|
Revenue activity
|
|
March 31, 2019
|
|
|
March 31, 2018
|
|
Set-up fees
|
|
$
|
811,354
|
|
|
$
|
1,208,554
|
|
Change orders
|
|
|
218,622
|
|
|
|
420,080
|
|
Maintenance
|
|
|
1,413,243
|
|
|
|
1,370,091
|
|
Software licenses
|
|
|
2,300,130
|
|
|
|
3,269,400
|
|
Professional services
|
|
|
603,731
|
|
|
|
431,083
|
|
Hosting
|
|
|
368,739
|
|
|
|
491,264
|
|
Total
|
|
$
|
5,715,819
|
|
|
$
|
7,190,472
|
|
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 $152,867 as of March 31, 2019 and $176,220 as of December 31, 2018.
The following table summarizes activity in the Company's allowance for doubtful accounts for the three month period ended March 31, 2019 and the year ended December 31, 2018.
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Beginning of period
|
|
$
|
176,220
|
|
|
$
|
149,980
|
|
Bad debt expense
|
|
|
(23,353
|
)
|
|
|
41,782
|
|
Write-offs
|
|
|
-0-
|
|
|
|
(15,542
|
)
|
End of period
|
|
$
|
152,867
|
|
|
$
|
176,220
|
|
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, 2019, $932,167 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, 2019. 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, 2019, 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, 2019 AND MARCH 31, 2018
(unaudited)
One customer accounted for 7% of our revenues during the three month period ended March 31, 2019 or approximately $417,000. One customer accounted for 11% of our revenues during the three month period ended March 31, 2018 or approximately $770,000. 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, 2019 and March 31, 2018 and the year ended December 31, 2018.
|
|
Revenues
|
|
|
Accounts receivable
|
|
For the period ended
|
|
Number of
customers
|
|
|
Percentage of
total revenues
|
|
|
Number of
customers
|
|
|
Percentage of
accounts receivable
|
|
March 31, 2019
|
|
|
-0-
|
|
|
|
0%
|
|
|
|
1
|
|
|
|
10%
|
|
December 31, 2018
|
|
|
1
|
|
|
|
13%
|
|
|
|
1
|
|
|
|
20%
|
|
March 31,2018
|
|
|
1
|
|
|
|
11%
|
|
|
|
2
|
|
|
|
20%
|
|
The table below provides revenues from European customers for the three month periods ended March 31, 2019 and March 31, 2018.
European revenues
|
|
For the three months ended
|
|
March 31, 2019
|
|
|
March 31, 2018
|
|
European revenues
|
|
|
% of Total revenues
|
|
|
European revenues
|
|
|
% of Total revenues
|
|
$
|
1,167,460
|
|
|
|
20%
|
|
|
$
|
1,068,475
|
|
|
|
15%
|
|
The Company serves its hosting customers from third-party web hosting facilities located in the United States and Europe. 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.
LEASES
The Company accounts for leases in accordance with ASU No. 2016-02, “Leases (Topic 842)”, (“ASU 2016-02”). We determine if an arrangement is a lease at inception. As part of the lease determination process, we assess several factors, including, but not limited to, assessing our right to control and direct the use of the asset, as well as, assessing if the other party has a substantive substitution right. If we enter into leases that contain multiple components, we identify separate lease components based on whether or not the right to use the underlying assets is distinct and either highly dependent or highly interrelated with other rights in the contract. We also evaluate whether there are any non-lease components in the arrangement. If separate lease and non-lease components are identified, we allocate the consideration in the contract to the lease and non-lease components at the lease inception. Operating lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating leases are included in operating lease assets and operating lease liabilities on our balance sheet at March 31, 2019. Operating lease assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date to determine the present value of future payments. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. The lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
With the adoption of Topic 842 on January 1, 2019, the Company recognized operating lease assets and operating lease liabilities of $1,729,630. There was no impact to the opening accumulated deficit balance as of January 1, 2019. Prior period amounts continue to be reported in accordance with our historic accounting under previous lease guidance, Topic 840.
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, 2019 AND MARCH 31, 2018
(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, 2019, the Company had $7,214,630 in deferred revenues relating to contracts for services to be performed over periods ranging from one month to 6.25 years. The Company had $5,302,370 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 $185,181 and $209,790 for the three month periods ended March 31, 2019 and March 31, 2018, 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, 2019 and March 31, 2018 we spent $1,089,081, which represents 19% of revenue, and $922,304, which represents 13% of revenue, 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.
EQUITY INCENTIVE PLANS
The OmniComm Systems, Inc. 2016 Equity Incentive Plan (the “2016 Plan”) was approved at our Annual Meeting of Stockholders 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, 2019 11,576,250 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 Stockholders 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 14, 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.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019 AND MARCH 31, 2018
(unaudited)
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
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, (“ASU 2016-02”). ASU 2016-02 requires that an entity should recognize assets and liabilities for leases with a maximum possible term of more than 12 months. On January 1, 2019, we adopted ASU 2016-02, as amended, which supersedes the lease accounting guidance under Topic 840, and generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use (ROU) assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. We adopted the new guidance using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application and not restating comparative periods. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while our accounting for finance leases remained substantially unchanged.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and other - Internal-Use Software (Topic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This standard requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Topic 350-40 to determine which implementation costs to capitalize as assets. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the effect that implementation of this standard will have 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 157,341,946 and 149,653,916 for the three month periods ended March 31, 2019 and March 31, 2018, respectively.
The outstanding share balance as of March 31, 2019 and March 31, 2018, respectively, includes 1,825,000 and -0- restricted shares that have been issued but are still at risk of forfeiture as the restrictions have not lapsed.
Antidilutive shares of 33,495,677 have been omitted from the calculation of dilutive earnings/(loss) per share for the three month period ended March 31, 2019 and 26,343,224 for the three month period ended March 31, 2018, 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, 2019 and March 31, 2018, respectively.
Anti-dilutive security
|
|
March 31, 2019
|
|
|
March 31, 2018
|
|
Employee stock options
|
|
|
2,420,000
|
|
|
|
1,295,000
|
|
Warrants
|
|
|
19,020,000
|
|
|
|
12,950,000
|
|
Convertible notes
|
|
|
11,940,000
|
|
|
|
11,980,000
|
|
Shares issuable for accrued interest
|
|
|
115,677
|
|
|
|
118,224
|
|
Total
|
|
|
33,495,677
|
|
|
|
26,343,224
|
|
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 a conversion price of $0.50 per share.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019 AND MARCH 31, 2018
(unaudited)
Some of the Company’s convertible debt has an anti-dilutive effect on net earnings/(loss) per share and was not included in the computation of diluted earnings per share.
|
|
For the three months ended
|
|
|
|
March 31, 2019
|
|
|
March 31, 2018
|
|
|
|
Income/(loss)
|
|
|
Shares
|
|
|
Per-share
|
|
|
Income/(loss)
|
|
|
Shares
|
|
|
Per-share
|
|
|
|
numerator
|
|
|
denominator
|
|
|
amount
|
|
|
numerator
|
|
|
denominator
|
|
|
amount
|
|
Basic EPS
|
|
$
|
(1,266,525
|
)
|
|
|
157,341,946
|
|
|
$
|
(0.01
|
)
|
|
$
|
593,483
|
|
|
|
149,653,916
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
139
|
|
|
|
3,039,750
|
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
(1,266,525
|
)
|
|
|
157,341,946
|
|
|
$
|
(0.01
|
)
|
|
$
|
593,622
|
|
|
|
152,693,666
|
|
|
$
|
0.00
|
|
NOTE 4:
|
PROPERTY AND EQUIPMENT, NET
|
Property and equipment consists of the following:
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
Description
|
|
Cost
|
|
|
Accumulated
depreciation
|
|
|
Net book
value
|
|
|
Cost
|
|
|
Accumulated
depreciation
|
|
|
Net book
value
|
|
|
Estimated
useful life
(years)
|
|
Computer & office equipment
|
|
$
|
3,105,515
|
|
|
$
|
2,264,773
|
|
|
$
|
840,742
|
|
|
$
|
3,067,069
|
|
|
$
|
2,202,166
|
|
|
$
|
864,903
|
|
|
|
5
|
|
Leasehold improvements
|
|
|
138,383
|
|
|
|
108,926
|
|
|
|
29,457
|
|
|
|
136,648
|
|
|
|
106,362
|
|
|
|
30,286
|
|
|
|
5
|
|
Computer software
|
|
|
2,653,982
|
|
|
|
2,051,411
|
|
|
|
602,571
|
|
|
|
2,426,339
|
|
|
|
1,991,842
|
|
|
|
434,497
|
|
|
|
3
|
|
Office furniture
|
|
|
168,839
|
|
|
|
141,271
|
|
|
|
27,568
|
|
|
|
169,120
|
|
|
|
138,491
|
|
|
|
30,629
|
|
|
|
5
|
|
Total
|
|
$
|
6,066,719
|
|
|
$
|
4,566,381
|
|
|
$
|
1,500,338
|
|
|
$
|
5,799,176
|
|
|
$
|
4,438,861
|
|
|
$
|
1,360,315
|
|
|
|
|
|
Depreciation expense for the three month period ended March 31, 2019 was $128,800 and $77,776 for the three month period ended March 31, 2018.
NOTE 5:
|
INTANGIBLE ASSETS, NET
|
Intangible assets consist of the following:
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
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
|
|
|
111,057
|
|
|
|
111,057
|
|
|
|
-0-
|
|
|
|
113,220
|
|
|
|
113,220
|
|
|
|
-0-
|
|
|
|
15
|
|
Promasys B.V. software code
|
|
|
72,837
|
|
|
|
72,837
|
|
|
|
-0-
|
|
|
|
72,837
|
|
|
|
72,837
|
|
|
|
-0-
|
|
|
|
5
|
|
Promasys B.V. URLs/website
|
|
|
56,090
|
|
|
|
56,090
|
|
|
|
-0-
|
|
|
|
57,182
|
|
|
|
57,182
|
|
|
|
-0-
|
|
|
|
3
|
|
Acuity software code
|
|
|
1,052,403
|
|
|
|
409,268
|
|
|
|
643,135
|
|
|
|
1,052,403
|
|
|
|
321,568
|
|
|
|
730,835
|
|
|
|
3
|
|
Total
|
|
$
|
2,685,088
|
|
|
$
|
2,041,953
|
|
|
$
|
643,135
|
|
|
$
|
2,688,343
|
|
|
$
|
1,957,508
|
|
|
$
|
730,835
|
|
|
|
|
|
During the second quarter of 2018 we recognized an impairment loss of $79,634 on the Promasys B.V. customer list after performing a fair value analysis on the asset utilizing a discounted cash flow model. The impairment charge is separately presented on the Statement of Operations.
Amortization expense for the three month period ended March 31, 2019 was $87,700 and $64,149 for the three month period ended March 31, 2018.
Remaining amortization expense for the Company’s intangible assets is as follows:
Year
|
|
Amortization
|
|
2019
|
|
$
|
263,101
|
|
2020
|
|
|
350,801
|
|
2021
|
|
|
29,233
|
|
Total
|
|
$
|
643,135
|
|
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019 AND MARCH 31, 2018
(unaudited)
NOTE 6:
|
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
|
Accounts payable and accrued expenses consist of the following:
Account
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Accounts payable
|
|
$
|
473,266
|
|
|
$
|
895,145
|
|
Accrued payroll and related costs
|
|
|
541,369
|
|
|
|
851,530
|
|
Other accrued expenses
|
|
|
142,544
|
|
|
|
250,570
|
|
Accrued interest
|
|
|
72,913
|
|
|
|
72,913
|
|
Total accounts payable and accrued expenses
|
|
$
|
1,230,092
|
|
|
$
|
2,070,158
|
|
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, 2019, $2,500,000 was outstanding on the Line of Credit at an interest rate of 4.50%.
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.
The following table summarizes the notes payable outstanding as of March 31, 2019.
|
|
|
|
|
|
|
|
Ending
|
|
|
Non related party
|
|
|
Related party
|
|
Origination
|
|
Maturity
|
|
Interest
|
|
|
principal
|
|
|
|
|
|
|
Long
|
|
|
|
|
|
|
Long
|
|
date
|
|
date
|
|
rate
|
|
|
March 31, 2019
|
|
|
Current
|
|
|
term
|
|
|
Current
|
|
|
term
|
|
6/30/2016
|
|
4/1/2020
|
|
|
10%
|
|
|
$
|
420,000
|
|
|
$
|
-0-
|
|
|
$
|
420,000
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
6/30/2016
|
|
4/1/2020
|
|
|
12%
|
|
|
|
137,500
|
|
|
|
-0-
|
|
|
|
137,500
|
|
|
|
-0-
|
|
|
|
-0-
|
|
Discount on notes payable
|
|
|
|
|
|
|
|
|
|
|
-0-
|
|
|
|
(98,548
|
)
|
|
|
-0-
|
|
|
|
-0-
|
|
Total
|
|
|
|
|
|
$
|
557,500
|
|
|
$
|
-0-
|
|
|
$
|
458,952
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
The following table summarizes the notes payable outstanding as of December 31, 2018.
|
|
|
|
|
|
|
|
Ending
|
|
|
Non related party
|
|
|
Related party
|
|
Origination
|
|
Maturity
|
|
Interest
|
|
|
principal
|
|
|
|
|
|
|
Long
|
|
|
|
|
|
|
Long
|
|
date
|
|
date
|
|
rate
|
|
|
December 31, 2018
|
|
|
Current
|
|
|
term
|
|
|
Current
|
|
|
term
|
|
6/30/2016
|
|
4/1/2020
|
|
|
10%
|
|
|
$
|
420,000
|
|
|
$
|
-0-
|
|
|
$
|
420,000
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
6/30/2016
|
|
4/1/2020
|
|
|
12%
|
|
|
|
137,500
|
|
|
|
-0-
|
|
|
|
137,500
|
|
|
|
-0-
|
|
|
|
-0-
|
|
Discount on notes payable
|
|
|
|
|
|
|
|
|
|
|
-0-
|
|
|
|
(123,184
|
)
|
|
|
-0-
|
|
|
|
-0-
|
|
Total
|
|
|
|
|
|
$
|
557,500
|
|
|
$
|
-0-
|
|
|
$
|
434,316
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
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. On December 27, 2018, the Company and Mr. Wit cancelled the remaining outstanding $400,000 in principal in exchange for the exercise price of $400,000 for 1,600,000 warrants of the 2,000,000 warrants with an exercise price of $0.25 per share that he exercised on that date.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019 AND MARCH 31, 2018
(unaudited)
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, the Company repaid $90,000 to one of the lenders. On December 31, 2018, the Company repaid $145,000 to one of the lenders.
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.
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, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount
|
|
Date of
|
|
Maturity
|
|
Interest
|
|
|
Principal at
|
|
|
Short term
|
|
|
Long term
|
|
issuance
|
|
date
|
|
rate
|
|
|
March 31, 2019
|
|
|
Related
|
|
|
Non related
|
|
|
Related
|
|
|
Non related
|
|
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
|
|
|
|
|
|
$
|
5,970,000
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
5,770,000
|
|
|
$
|
200,000
|
|
The following table summarizes the convertible debt outstanding as of December 31, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount
|
|
Date of
|
|
Maturity
|
|
Interest
|
|
|
Principal at
|
|
|
Short term
|
|
|
Long term
|
|
issuance
|
|
date
|
|
rate
|
|
|
December 31, 2018
|
|
|
Related
|
|
|
Non related
|
|
|
Related
|
|
|
Non related
|
|
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
|
|
|
|
|
|
$
|
5,970,000
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
5,770,000
|
|
|
$
|
200,000
|
|
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019 AND MARCH 31, 2018
(unaudited)
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. On September 30, 2018, the final $50,000 note was repaid in full along with the accrued interest of $96,949. As of March 31, 2019, $862,500 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 $-0-.
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.
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. The $150,000 of convertible debentures was repaid in full on June 30, 2018.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019 AND MARCH 31, 2018
(unaudited)
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.
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.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019 AND MARCH 31, 2018
(unaudited)
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.
The principal payments required at maturity under the Company’s outstanding convertible debt at March 31, 2019 are as follows:
Year
|
|
Amount
|
|
2019
|
|
$
|
-0-
|
|
2020
|
|
|
5,770,000
|
|
2021
|
|
|
200,000
|
|
Total
|
|
$
|
5,970,000
|
|
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 GAAP 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, 2019 include the conversion feature and warrant liability associated with convertible debentures issued during 2008 and 2009 and the warrants issued during 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.
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.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019 AND MARCH 31, 2018
(unaudited)
A summary, as of March 31, 2019, 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
|
|
Derivatives: (1) (2)
|
|
March 31, 2019
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Conversion feature liability
|
|
$
|
907,498
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
907,498
|
|
Warrant liability
|
|
|
1,604,616
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
1,604,616
|
|
Total of derivative liabilities
|
|
$
|
2,512,114
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
2,512,114
|
|
(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 period ended March 31, 2019.
|
|
(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, 2019
|
|
Risk free interest rate
|
|
2.55%
|
to
|
2.55%
|
|
Dividend yield
|
|
|
0.00%
|
|
|
Expected volatility
|
|
88.4%
|
to
|
95.4%
|
|
Expected life (range in years)
|
|
|
|
|
|
Conversion feature liability
|
|
1.01
|
to
|
2.01
|
|
Warrant liability
|
|
0.00
|
to
|
2.01
|
|
A summary, as of December 31, 2018, 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
|
|
Derivatives: (1) (2)
|
|
December 31, 2018
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Conversion feature liability
|
|
$
|
706,339
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
706,339
|
|
Warrant liability
|
|
|
1,288,899
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
1,288,899
|
|
Total of derivative liabilities
|
|
$
|
1,995,238
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
1,995,238
|
|
(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, 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 December 31, 2018
|
|
Risk free interest rate
|
|
2.70%
|
to
|
2.70%
|
|
Dividend yield
|
|
|
0.00%
|
|
|
Expected volatility
|
|
92.2%
|
to
|
97.0%
|
|
Expected life (range in years)
|
|
|
|
|
|
Conversion feature liability
|
|
1.25
|
to
|
2.25
|
|
Warrant liability
|
|
0.00
|
to
|
2.25
|
|
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019 AND MARCH 31, 2018
(unaudited)
A summary, as of March 31, 2019, 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
|
|
Acquired assets (1)
|
|
December 31, 2018
|
|
|
March 31, 2019
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Promasys B.V. customer list (2) (3)
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
136,253
|
|
Promasys B.V. software code (2)
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
72,943
|
|
Acuity software code (4)
|
|
$
|
730,835
|
|
|
|
643,135
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
1,052,403
|
|
Total
|
|
$
|
730,835
|
|
|
$
|
643,135
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
1,261,599
|
|
(1) The fair value of the acquired assets was estimated using the Income Approach with a discounted cash flow valuation methodology applied.
|
|
(2) 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.
|
|
(3) During the second quarter of 2018 we recognized an impairment loss of $79,634 on the Promasys B.V. Customer List after performing a fair value analysis on the asset utilizing a discounted cash flow model. The impairment charge is separately presented on the Statement of Operations.
|
|
(4) 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, 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
|
|
Acquired assets (1)
|
|
December 31, 2017
|
|
|
December 31, 2018
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Promasys B.V. customer list (2) (3)
|
|
$
|
85,786
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
136,253
|
|
Promasys B.V. software code (2)
|
|
|
12,139
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
72,943
|
|
Acuity software code (4)
|
|
|
-0-
|
|
|
|
730,835
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
1,052,403
|
|
Total
|
|
$
|
97,925
|
|
|
$
|
730,835
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
1,261,599
|
|
(1) The fair value of the acquired assets was estimated using the Income Approach with a discounted cash flow valuation methodology applied.
|
|
(2) 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.
|
|
(3) During the second quarter of 2018 we recognized an impairment loss of $79,634 on the Promasys B.V. Customer List after performing a fair value analysis on the asset utilizing a discounted cash flow model. The impairment charge is separately presented on the Statement of Operations.
|
|
(4) 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.
|
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, 2019 and March 31, 2018.
|
|
Other income/(expense)
|
|
|
|
For the three months ended
|
|
|
|
March 31, 2019
|
|
|
March 31, 2018
|
|
The net amount of gains/(losses) for the period included in earnings attributable to the unrealized and realized gains/(losses) from changes in derivative liabilities at the reporting date
|
|
$
|
(583,657
|
)
|
|
$
|
28,416
|
|
|
|
|
|
|
|
|
|
|
Total unrealized and realized gains/(losses) included in earnings
|
|
$
|
(583,657
|
)
|
|
$
|
28,416
|
|
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019 AND MARCH 31, 2018
(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, 2019 and the year ended December 31, 2018. The tables reflect changes for all financial liabilities at fair value categorized as Level 3 as of March 31, 2019 and December 31, 2018.
The table below presents the Level 3 financial liabilities at fair value for the three month period ended March 31, 2019.
|
|
Level 3 financial liabilities at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Reclassification
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
purchases,
|
|
|
of conversion
|
|
|
|
|
|
|
|
Balance,
|
|
|
|
|
|
|
|
|
|
|
issuances
|
|
|
feature liability
|
|
|
Balance,
|
|
|
|
beginning
|
|
|
Net realized
|
|
|
Net unrealized
|
|
|
and
|
|
|
associated with
|
|
|
end
|
|
Derivatives:
|
|
of period
|
|
|
gains/(losses)
|
|
|
gains/(losses)
|
|
|
settlements
|
|
|
convertible debt
|
|
|
of period
|
|
Conversion feature liability
|
|
$
|
(706,339
|
)
|
|
$
|
-0-
|
|
|
$
|
(201,159
|
)
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
(907,498
|
)
|
Warrant liability
|
|
|
(1,288,899
|
)
|
|
|
-0-
|
|
|
|
(382,498
|
)
|
|
|
66,781
|
|
|
|
-0-
|
|
|
|
(1,604,616
|
)
|
Total of derivative liabilities
|
|
$
|
(1,995,238
|
)
|
|
$
|
-0-
|
|
|
$
|
(583,657
|
)
|
|
$
|
66,781
|
|
|
$
|
-0-
|
|
|
$
|
(2,512,114
|
)
|
The table below presents the Level 3 financial liabilities at fair value for the year ended December 31, 2018.
|
|
Level 3 financial liabilities at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Reclassification
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
purchases,
|
|
|
of conversion
|
|
|
|
|
|
|
|
Balance,
|
|
|
|
|
|
|
|
|
|
|
issuances
|
|
|
feature liability
|
|
|
Balance,
|
|
|
|
beginning
|
|
|
Net realized
|
|
|
Net unrealized
|
|
|
and
|
|
|
associated with
|
|
|
end
|
|
Derivatives:
|
|
of year
|
|
|
gains/(losses)
|
|
|
gains/(losses)
|
|
|
settlements
|
|
|
convertible debt
|
|
|
of year
|
|
Conversion feature liability
|
|
$
|
(1,685,947
|
)
|
|
$
|
-0-
|
|
|
$
|
969,108
|
|
|
$
|
-0-
|
|
|
$
|
10,500
|
|
|
$
|
(706,339
|
)
|
Warrant liability
|
|
|
(3,440,799
|
)
|
|
|
-0-
|
|
|
|
2,142,652
|
|
|
|
9,248
|
|
|
|
-0-
|
|
|
|
(1,288,899
|
)
|
Total of derivative liabilities
|
|
$
|
(5,126,746
|
)
|
|
$
|
-0-
|
|
|
$
|
3,111,760
|
|
|
$
|
9,248
|
|
|
$
|
10,500
|
|
|
$
|
(1,995,238
|
)
|
We adopted ASU 2016-02, Leases ("Topic 842"), as of January 1, 2019, using the modified retrospective transition approach. The financial results reported in periods prior to 2019 are unchanged. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification and use hindsight to determine the lease term.
Adoption of the new standard resulted in additional operating lease liabilities and lease assets of $1,729,630, as of January 1, 2019. The standard did not materially impact our consolidated net income or cash flow classification.
Operating right of use asset and operating lease liability are recognized at the lease commencement date. Operating lease liability represents the present value of lease payments not yet paid. Operating right of use asset represent our right to use an underlying asset and are based upon the operating lease liability adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. The Company used our incremental borrowing rate to determine the present value of lease payments not yet paid.
If we enter into leases that contain multiple components, we identify separate lease components based on whether or not the right to use the underlying assets is distinct and either highly dependent or highly interrelated with other rights in the contract. We also evaluate whether there are any non-lease components in the arrangement. If separate lease and non-lease components are identified, we allocate the consideration in the contract to the lease and non-lease components at the lease inception.
We evaluate arrangements at inception to determine if lease components are included. An arrangement includes a lease component if it identifies an asset and we have control over the asset. For new leases beginning January 1, 2019 or later, we have elected to separate lease components from the non-lease components, included in an arrangement, when measuring the leased asset and leased liability.
Lease assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet. We recognize lease expense on a straight-line basis over the lease term. The discount rate selected is our incremental borrowing rate.
Some of our leases include one or more options to extend the lease term. Certain leases also include options to terminate early. Optional periods may be included in the lease term and measured as part of the lease asset and lease liability if we are reasonably certain to exercise our right to use the leased asset during the optional periods. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019 AND MARCH 31, 2018
(unaudited)
The Company currently leases office space under operating leases for most of its office locations and has operating leases related to server and network co-location and disaster recovery for its operations. 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 2020. The Company currently operates its wholly-owned subsidiary, OmniComm eClinical Solutions Pvt. Ltd., in India under the terms of a lease that expires in May 2023. The Company currently operates its wholly-owned subsidiary, OmniComm Systems B.V, in the Netherlands under the terms of an agreement that expires in October 2019. Our offices in Barcelona, Spain and Tokyo, Japan are administered under service agreements that include the use of office space and other services.
Supplemental balance sheet information related to leases was as follows:
Operating Leases
|
|
Classification
|
|
March 31, 2019
|
|
Right-of-use assets
|
|
Operating lease assets
|
|
$
|
1,569,465
|
|
|
|
|
|
|
|
|
Current lease liability
|
|
Current operating lease liability
|
|
|
598,108
|
|
Non-current lease liability
|
|
Long term operating lease liability
|
|
|
971,357
|
|
Total lease liabilities
|
|
|
|
$
|
1,569,465
|
|
|
|
|
|
|
|
|
Our weighted average lease terms and discount rates are as follows:
|
|
March 31, 2019
|
|
Weighted-average remaining lease term (in years)
|
|
|
|
|
Operating leases
|
|
|
3.30
|
|
Finance leases
|
|
|
2.12
|
|
|
|
|
|
|
Weighted-average discount rate
|
|
|
|
|
Operating leases
|
|
|
4.50%
|
|
Finance leases
|
|
|
6.94%
|
|
The components of lease cost were as follows:
|
|
For the three months ended
March 31, 2019
|
|
Operating lease cost
|
|
$
|
167,888
|
|
Variable lease cost (1)
|
|
|
140,910
|
|
Total lease cost
|
|
$
|
308,798
|
|
(1) Variable lease cost primarily relates to common area maintenance, property taxes and insurance on leased real estate
|
|
|
|
|
Supplemental disclosures of cash flow information related to leases were as follows:
|
|
For the three months ended
March 31, 2019
|
Cash paid for operating lease cost
|
|
$
|
167,942
|
|
|
|
|
Operating lease assets obtained in exchange for operating lease liabilities
|
|
$
|
1,729,630
|
The minimum future lease payments required under the Company’s operating leases at March 31, 2019 are as follows:
Year
|
|
Payments
|
|
2019
|
|
$
|
468,042
|
|
2020
|
|
|
476,293
|
|
2021
|
|
|
340,478
|
|
2022
|
|
|
340,746
|
|
Thereafter
|
|
|
76,446
|
|
Total undiscounted lease payments
|
|
|
1,702,005
|
|
Less: amount representing interest
|
|
|
(132,540
|
)
|
Present value of lease payments
|
|
$
|
1,569,465
|
|
As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease accounting, minimum future lease payments were as follows as of December 31, 2018:
Year
|
|
Payments
|
|
2019
|
|
$
|
655,901
|
|
2020
|
|
|
414,973
|
|
2021
|
|
|
340,029
|
|
2022
|
|
|
340,270
|
|
Thereafter
|
|
|
76,243
|
|
Total
|
|
$
|
1,827,416
|
|
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 $311,799 and $289,334 for the three month periods ended March 31, 2019 and March 31, 2018, respectively.
The Company currently leases compute
r hardware for its operations under leases classified as finance leases. The leased equipment is amortized on a straight line basis over five years. Our finance lease costs for the three month period ending March 31, 2019 was $32,683. The minimum future lease payments required under the Company’s finance leases at March 31, 2019 are as follows:
Year
|
|
Payments
|
|
2019
|
|
$
|
97,552
|
|
2020
|
|
|
130,069
|
|
2021
|
|
|
51,898
|
|
Total minimum finance lease payments
|
|
|
279,519
|
|
Less: amount representing interest
|
|
|
(19,034
|
)
|
Present value of minimum finance lease payments
|
|
$
|
260,485
|
|
NOTE 11:
|
COMMITMENTS AND CONTINGENCIES
|
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, 2019, 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.
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 (i) the employee's termination by the Company for any reason other than for cause, as described in the employment agreement, (ii) termination by the employee pursuant to a material breach of the agreement by the Company or for good reason in connection with a change of control, or (iii) non-renewal of the employment agreement by the Company.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019 AND MARCH 31, 2018
(unaudited)
NOTE 12:
|
RELATED PARTY TRANSACTIONS
|
As of March 31, 2019, we have an aggregate of $5,770,000 of convertible debentures outstanding to our Executive Chairman and Executive 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 December 27, 2018, the Company and Mr. Wit cancelled the remaining outstanding $400,000 in principal in exchange for the exercise price of $400,000 for 1,600,000 warrants of the 2,000,000 warrants with an exercise price of $0.25 per share that he exercised on that date.
|
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, 2019, $2,500,000 was outstanding on the Line of Credit at an interest rate of 4.50%.
For the three month period ended March 31, 2019 we incurred $190,109 in interest expense payable to related parties and $225,418 for the three month period ended March 31, 2018.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019 AND MARCH 31, 2018
(unaudited)
NOTE 13:
|
STOCKHOLDERS’ (DEFICIT)
|
Our authorized capital stock consists of 500,000,000 shares of common stock, $0.001 par value per share and 10,000,000 shares of preferred stock, par value $0.001 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.
As of March 31, 2019 we had the following outstanding securities:
|
○
|
158,278,341 shares of common stock issued and outstanding;
|
|
○
|
19,020,000 warrants issued and outstanding to purchase shares of our common stock;
|
|
○
|
2,420,000 options issued and outstanding to purchase shares of our common stock;
|
|
○
|
250,000 shares of our Series D Preferred Stock issued and outstanding; and
|
|
○
|
$5,970,000 principal amount of Convertible Debentures and $57,838 of accrued interest convertible into 11,940,000 and 115,677 shares of common stock, respectively.
|
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.
On January 1, 2019 the Company issued 1,800,000 shares of common stock to Randall G. Smith, our Executive Vice Chairman, upon the exercise of 1,800,000 warrants with an exercise price of $0.25 per share for an aggregate purchase price of $450,000.
On March 14, 2019, the Company entered into restricted stock award agreements (“RSAs”) with its Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and Chief Technology Officer intended to provide incentive to the executives to ensure certain economic performance of the Company. Under the terms of the RSAs, each executive was awarded 225,000 performance related restricted shares of the Company's common stock subject to forfeiture restrictions based on certain milestones having been met for the year ended December 31, 2019 as follows: a) 75,000 performance related shares are subject to individual performance, b) 75,000 performance related shares shall be forfeited if the Company's 2019 revenue does not equal or exceed $32.5 million and the Company’s 2019 Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") does not equal or exceed $6.5 million, and c) 75,000 performance related shares shall be forfeited if the Company's 2019 revenue does not equal or exceed $33.9 million and the Company’s 2019 EBITDA does not equal or exceed $6.8 million. The restrictions on 1/3 of the awarded performance shares will lapse on the 1st of April in 2020, 2021 and 2022 provided the individual remains an employee of the Company. The restricted shares granted under the RSAs were valued as of the grant date at $0.28 per share.
On March 21, 2019 the Company issued 209,694 shares of Common stock to an employee upon the cashless exercise of 1,000,000 warrants with an exercise price of $0.25 per share.
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:
|
○
|
dividend and liquidation preferences;
|
|
○
|
conversion privileges; and
|
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, 2019 and March 31, 2018, 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
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
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
|
|
|
|
|
|
|
|
|
|
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019 AND MARCH 31, 2018
(unaudited)
Warrants Issued in Capital Transactions
The following tables summarize all outstanding warrants for the three month period ended March 31, 2019 and the year ended December 31, 2018, and the related changes during these periods.
March 31, 2019
|
|
|
March 31, 2019
|
|
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
|
|
|
19,020,000
|
|
|
|
0.97
|
|
|
$
|
0.48
|
|
|
|
19,020,000
|
|
|
$
|
0.48
|
|
December 31, 2018
|
|
|
December 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
|
|
|
22,020,000
|
|
|
|
1.06
|
|
|
$
|
0.45
|
|
|
|
22,020,000
|
|
|
$
|
0.45
|
|
Warrants
|
|
|
|
|
Balance at December 31, 2017
|
|
|
27,020,000
|
|
Issued
|
|
|
-0-
|
|
Exercised
|
|
|
(4,000,000
|
)
|
Expired/forfeited
|
|
|
(1,000,000
|
)
|
Balance at December 31, 2018
|
|
|
22,020,000
|
|
Issued
|
|
|
-0-
|
|
Exercised
|
|
|
(2,800,000
|
)
|
Expired/forfeited
|
|
|
(200,000
|
)
|
Balance at March 31, 2019
|
|
|
19,020,000
|
|
Warrants exercisable at March 31, 2019
|
|
|
19,020,000
|
|
|
|
|
|
|
Weighted average fair value of warrants granted during 2019
|
|
|
n/a
|
|
Other Comprehensive Income/(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 income/(loss). The following table lists the beginning balance, activity and ending balance of the components of accumulated other comprehensive income/(loss).
|
|
Foreign currency
translation
|
|
|
Accumulated other
comprehensive
income/(loss)
|
|
Balance at December 31, 2017
|
|
$
|
(397,237
|
)
|
|
$
|
(397,237
|
)
|
2018 Activity
|
|
|
(39,268
|
)
|
|
|
(39,268
|
)
|
Balance at December 31, 2018
|
|
|
(436,505
|
)
|
|
|
(436,505
|
)
|
2019 Activity
|
|
|
(5,430
|
)
|
|
|
(5,430
|
)
|
Balance at March 31, 2019
|
|
$
|
(441,935
|
)
|
|
$
|
(441,935
|
)
|
NOTE 14:
|
EQUITY INCENTIVE PLANS
|
Stock Option Plans
Description of 2016 Equity Incentive Plan
In 2016, the Company’s Board of Directors and stockholders 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, 2019 11,576,250 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.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019 AND MARCH 31, 2018
(unaudited)
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.
On September 6, 2018, the Company entered into restricted stock agreements (“RSAs”) with its Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and Chief Technology Officer intended to provide incentive to the executives to ensure certain economic performance of the Company. The shares issuable under the RSAs were valued as of the grant date at $0.33 per share. The RSAs provided for the issuance of up to 225,000 performance related shares of the Company's common stock to each of the executives provided certain milestones were met as follows: a) 75,000 performance related shares are subject to individual performance; b) If the Company's 2018 Revenue equals or exceeds $30 million and the Company’s 2018 EBITDA equals or exceeds $6 million, the Company would award 75,000 shares of common stock; and c) If the Company's 2018 Revenue equals or exceeds $32 million and the Company’s 2018 EBITDA equals or exceeds $7 million, the Company would award an additional 75,000 shares of common stock. The restrictions on 1/3 of the awarded performance shares will lapse on the first, second and third anniversaries of the 2018 Annual Stockholder Meeting, which was held on June 7, 2018. Effective December 31, 2018 the Company had not achieved the milestones relating to Revenue and EBITDA and therefore each of the Officers forfeited 150,000 of the 225,000 restricted shares that had been issued to each of them.
On September 6, 2018, the Company entered into restricted stock agreements (“RSAs”) with its Board of Directors intended to provide incentive to ensure certain economic performance of the Company. The shares issuable under the RSAs were valued as of the grant date at $0.33 per share. The RSAs provided for the issuance of a total of 200,000 restricted shares with the restrictions lapsing on the day prior to the the 2019 Annual Stockholder Meeting to each director. The RSAs include 75,000 performance related shares of the Company's common stock that are subject to the Company's 2018 Revenue equaling or exceeding $30 million and the Company’s 2018 EBITDA equaling or exceeding $6 million. Effective December 31, 2018 the Company had not achieved the milestones relating to Revenue and EBITDA and therefore each of the directors forfeited 75,000 of the 200,000 restricted shares that had been issued to each of them.
On March 14, 2019, the Company entered into restricted stock award agreements (“RSAs”) with its Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and Chief Technology Officer intended to provide incentive to the executives to ensure certain economic performance of the Company. Under the terms of the RSAs, each executive was awarded 225,000 performance related restricted shares of the Company's common stock subject to forfeiture restrictions based on certain milestones having been met for the year ended December 31, 2019 as follows: a) 75,000 performance related shares are subject to individual performance, b) 75,000 performance related shares shall be forfeited if the Company's 2019 revenue does not equal or exceed $32.5 million and the Company’s 2019 EBITDA does not equal or exceed $6.5 million, and c) 75,000 performance related shares shall be forfeited if the Company's 2019 revenue does not equal or exceed $33.9 million and the Company’s 2019 EBITDA does not equal or exceed $6.8 million. The restrictions on 1/3 of the awarded performance shares will lapse on the 1st of April in 2020, 2021 and 2022 provided the individual remains an employee of the Company. The restricted shares granted under the RSAs were valued as of the grant date at $0.28 per share.
The total combined restricted stock compensation expense recognized, in the statement of operations, during the quarter ended March 31, 2019 was $77,610.
As of March 31, 2019, there were 2,245,000 outstanding stock options, 100,000 exercised stock options and 1,825,000 restricted stock shares that have been granted under the 2016 Plan. At March 31, 2019, there were 7,406,250 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 stockholders 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.
As of March 31, 2019, there were 175,000 outstanding options and 3,876,662 restricted stock shares that have been granted under the 2009 Plan. At March 31, 2019, there were -0- shares available for grant as options or other forms of share-based compensation under the 2009 Plan.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019 AND MARCH 31, 2018
(unaudited)
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, 2017
|
|
|
5,275,000
|
|
|
$
|
0.26
|
|
|
|
4.09
|
|
|
$
|
130,475
|
|
Granted
|
|
|
570,000
|
|
|
|
0.28
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(300,000
|
)
|
|
|
0.21
|
|
|
|
|
|
|
|
|
|
Forfeited/cancelled/expired
|
|
|
(2,975,000
|
)
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
|
2,570,000
|
|
|
|
0.28
|
|
|
|
3.47
|
|
|
$
|
16,675
|
|
Granted
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
Forfeited/cancelled/expired
|
|
|
(150,000
|
)
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2019
|
|
|
2,420,000
|
|
|
$
|
0.28
|
|
|
|
3.20
|
|
|
$
|
109,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable at March 31, 2019
|
|
|
1,547,500
|
|
|
$
|
0.26
|
|
|
|
2.96
|
|
|
$
|
94,275
|
|
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, 2019.
The total number of shares vesting and the fair value of shares vesting for the three month periods ended March 31, 2019 and March 31, 2018, respectively, was:
Fair value of options vesting for the period ended
|
|
Number of options
vested
|
|
|
Fair value of
options vested
|
|
March 31, 2019
|
|
|
660,000
|
|
|
$
|
136,775
|
|
March 31, 2018
|
|
|
500,000
|
|
|
$
|
99,121
|
|
Cash received for stock option exercises for the three month periods ended March 31, 2019 and March 31, 2018 was $-0- and $-0-, respectively. Due to the Company’s net loss position, no income tax benefit has been realized during the three month periods ended March 31, 2019 and March 31, 2018.
The following table summarizes information concerning options outstanding at March 31, 2019:
Awards breakdown by price range at March 31, 2019
|
|
|
|
|
Outstanding
|
|
|
Vested
|
|
Strike price range ($)
|
|
|
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
|
|
|
|
150,000
|
|
|
|
0.68
|
|
|
$
|
0.17
|
|
|
|
150,000
|
|
|
|
0.68
|
|
|
$
|
0.17
|
|
0.21
|
to
|
0.30
|
|
|
|
1,545,000
|
|
|
|
3.28
|
|
|
|
0.26
|
|
|
|
1,210,000
|
|
|
|
3.15
|
|
|
|
0.26
|
|
0.31
|
to
|
0.50
|
|
|
|
725,000
|
|
|
|
3.57
|
|
|
|
0.34
|
|
|
|
187,500
|
|
|
|
3.57
|
|
|
|
0.34
|
|
0.00
|
to
|
0.50
|
|
|
|
2,420,000
|
|
|
|
3.20
|
|
|
$
|
0.28
|
|
|
|
1,547,500
|
|
|
|
2.96
|
|
|
$
|
0.26
|
|
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019 AND MARCH 31, 2018
(unaudited)
The following table summarizes information concerning options outstanding at December 31, 2018:
Awards breakdown by price range at December 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
|
|
|
|
150,000
|
|
|
|
0.93
|
|
|
$
|
0.17
|
|
|
|
150,000
|
|
|
|
0.93
|
|
|
$
|
0.17
|
|
0.21
|
to
|
0.30
|
|
|
|
1,695,000
|
|
|
|
3.54
|
|
|
|
0.26
|
|
|
|
550,000
|
|
|
|
3.15
|
|
|
|
0.25
|
|
0.31
|
to
|
0.50
|
|
|
|
725,000
|
|
|
|
3.82
|
|
|
|
0.34
|
|
|
|
187,500
|
|
|
|
3.82
|
|
|
|
0.34
|
|
0.00
|
to
|
0.50
|
|
|
|
2,570,000
|
|
|
|
3.47
|
|
|
$
|
0.28
|
|
|
|
887,500
|
|
|
|
2.92
|
|
|
$
|
0.25
|
|
The weighted average fair value (per share) of options granted during the three month period ended March 31, 2019 was $0.00 as no options were granted during the period and $0.23 during the three month period ended March 31, 2018. 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, 2019 and the year ended December 31, 2018.
|
|
Stock option assumptions for the period ended
|
|
Stock option assumptions
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Risk-free interest rate
|
|
|
2.48%
|
|
|
|
2.91%
|
|
Expected dividend yield
|
|
|
0.0%
|
|
|
|
0.0%
|
|
Expected volatility
|
|
|
102.6%
|
|
|
|
111.0%
|
|
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 period ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Stock options granted during the period
|
|
$
|
-0-
|
|
|
$
|
0.23
|
|
|
|
|
|
|
|
|
|
|
Stock options vested during the period
|
|
$
|
0.21
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
Stock options forfeited during the period
|
|
$
|
0.21
|
|
|
$
|
0.19
|
|
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019 AND MARCH 31, 2018
(unaudited)
A summary of the status of the Company’s non-vested shares underlying stock options as of March 31, 2019 and changes during the three month period ended March 31, 2019 is as follows:
|
|
Shares underlying stock
options
|
|
|
Weighted average grant
date fair value
|
|
Nonvested shares at January 1, 2019
|
|
|
1,682,500
|
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
|
|
Nonvested shares at March 31, 2019
|
|
|
872,500
|
|
|
$
|
0.27
|
|
As of March 31, 2019, $195,598 of total unrecognized compensation cost related to unvested stock options is expected to be recognized over a weighted-average period of 1.9 years.
NOTE 15:
|
SUBSEQUENT EVENTS
|
Subsequent to March 31, 2019 the Compan
y repaid $1,400,000 on its re
volving Line of Credit.
Subsequent to March 31, 2019 an employee exercised options that had been granted to him in 2014. As a result 50,000 common shares were issued to the employee.
Subsequent to March 31, 2019 Cornelis F. Wit, the Company's Executive Chairman, exercised 800,000 warrants with an exercise price of $0.25 per share, as a result 800,000 shares were issued to Mr. Wit.