NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND DECEMBER 31, 2016
NOTE
1:
ORGANIZATION AND NATURE OF OPERATIONS
OmniComm Systems, Inc. (“OmniComm” or the “Company”) is a healthcare te
chnology company that provides web-based electronic data capture (“EDC”) solutions and related value-added services to pharmaceutical and biotechnology companies, contract research organizations (“CROs”), and other clinical trial sponsors principally located in the United States, Europe and East Asia. Our proprietary EDC software applications; TrialMaster
®
; TrialOne
®
; IRTMaster
™
; Promasys
®
; and eClinical Suite
™
, allow clinical trial sponsors and investigative sites to securely collect, validate, transmit, and analyze clinical trial data.
Our ability to compete within the EDC industry is predicated on our ability to continue enhancing and broadening the scope of solutions offered through our EDC software and services.
Our research and product development efforts are focused on developing new and complementary software solutions, as well as enhancing our existing software solutions through the addition of increased functionality. During the year ended
December 31, 2017
we spent approximately
$2,854,428
and during the year ended
December 31, 2016
we spent approximately
$2
,598,962
on research and product development activities, which is 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 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.
ESTIMATES IN FINANCIAL STATEMENTS
The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes thereto.
Significant estimates incorporated in our financial statements include the recorded allowance for doubtful accounts, the estimate of the appropriate amortization period of our intangible assets, the evaluation of whether our intangible assets have suffered any impairment, the allocation of revenues under multiple-element customer contracts, royalty-based patent liabilities, the value of derivatives associated with debt and warrants issued by the Company and the valuation of any corresponding discount to the issuance of our debt. Actual results
may
differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made in the
2016
financial statements to conform to the
2017
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 ASC
830
-
30,
Foreign Currency Matters—Translation of Financial Statements
. The reporting currency for the Company is the U.S. dollar. The functional currency of the Company’s subsidiaries, OmniComm Europe GmbH in Germany, OmniComm Spain S.L. in Spain and OmniComm Systems B.V. in the Netherlands is the Euro. The functional currency of the Company's subsidiary, OmniComm Ltd. in the United Kingdom is the British Pound Sterling. Accordingly, the assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars using the exchange rate in effect at each balance sheet date. Revenue and expense accounts of the Company’s foreign subsidiaries are translated using an average rate of exchange during the period. Foreign currency translation adjustments are accumulated as a component of other comprehensive income/(loss) as a separate component of stockholders’ equity. Gains and losses arising from transactions denominated in foreign currencies are primarily related to intercompany accounts that have been determined to be temporary in nature and accordingly, are recorded directly to the statement of operations. We record translation gains and losses in accumulated other comprehensive income as a component of stockholders’ equity. We recorded a translation gain of
$13,268
for the year ended
December 31, 2017
and a translation loss of
$44,150
for the year ended
December 31, 2016.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
AND
DECEMBER 31, 2016
REVENUE RECOGNITION POLICY
The Company derives revenues from software licenses and services of its EDC products and services which can be purchased on a stand-alone basis. License revenues are derived principally from the sale of term licenses for the following software products offered by the Company:
TrialMaster, TrialOne
, IRTMaster, Promasys
and
eClinical Suite (
the
“EDC Software”).
Service revenues are derived principally from the Company's delivery of the hosted solutions of its
TrialMaster
and
eClinical Suite
software products, and consulting services and customer support, including training, for all of the Company's products.
The Company recognizes revenues when all of the following conditions are satisfied: (
1
)
there is persuasive evidence of an arrangement; (
2
) the product or service has been provided to the customer; (
3
) the collection of fees is probable; and (
4
) the amount of fees to be paid by the customer is fixed or determinable.
The Company operates in
one
reportable segment which is the delivery of EDC software and services to clinical trial sponsors.
The Company segregates its revenues based on the activity cycle used to generate its revenues. Accordingly, revenues are currently generated through
four
main activities. These activities include hosted applications, licensing, professional services and maintenance-related services.
Hosted Application Revenues
The Company offers its
TrialMaster
and
eClinical Suite
software products as hosted application solutions delivered through a standard web-browser, with customer support and training services.
Revenues resulting from
TrialMaster
and
eClinical Suite
application hosting services consist of
three
components of services for each clinical trial: the
first
component is comprised of application set up, including design of electronic case report forms and edit checks, installation and server configuration of the system. The
second
component involves application hosting and related support services as well as billable change orders which consist of amounts billed to customers for functionality changes made. The
third
stage involves services required to close out, or lock, the database for the clinical trial.
Fees charged for the trial system design, set up and implementation are amortized and recognized ratably over the estimated hosting period.
Work performed outside the original scope of work is contracted for separately as an additional fee and is generally recognized ratably over the remaining term of the hosting period. Fees for the
first
and
third
stages of the service are 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 quarterly in advance. Revenues resulting from hosting services for the
eClinical Suite
products consist of installation and server configuration, application hosting and related support services. Services for this offering are generally charged as a fixed fee payable on a quarterly or annual basis. Revenues are recognized ratably over the period of the service.
Licensing Revenues
The Company's software license revenues are earned from the sale of off-the-shelf software.
From time-to-time a client might require significant modification or customization subsequent to delivery to the customer. The Company generally enters into software term licenses for its EDC software products with its customers for
3
to
5
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
or net
45
days.
In the past the Company has sold perpetual licenses for EDC Software products in certain situations to existing customers with the option to purchase customer support, and
may
in the future do so for new customers based on customer requirements or market conditions. The Company has established vendor specific objective evidence of fair value for the customer support. Accordingly, license revenues are recognized upon delivery of the software and when all other revenue recognition criteria are met. Customer support revenues are recognized ratably over the term of the underlying support arrangement.
The Company generates customer support and maintenance revenues from its perpetual license customer base.
Professional Services
The Company
may
also enter into arrangements to provide consulting services separate from a license arrangement. In these situations, revenue is recognized on a time-and-materials basis. Professional services can be deemed to be as essential to the functionality of the software at inception and typically are for initial trial configuration, implementation planning, loading of software, building simple interfaces and running test data and documentation of procedures.
Subsequent additions or extensions to license terms do
not
generally include additional professional services.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
AND
DECEMBER 31, 2016
Maintenance Revenues
Maintenance includes telephone-based help desk support and software maintenance. 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.
The fees associated with each business activity for the years ended
December 31, 2017
and
December 31, 2016,
respectively are:
|
|
For the year ended
|
|
Revenue activity
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Set-up fees
|
|
$
|
4,981,941
|
|
|
$
|
6,658,987
|
|
Change orders
|
|
|
1,540,167
|
|
|
|
1,212,153
|
|
Maintenance
|
|
|
5,107,787
|
|
|
|
4,803,171
|
|
Software licenses
|
|
|
10,658,977
|
|
|
|
7,885,023
|
|
Professional services
|
|
|
3,359,554
|
|
|
|
3,843,641
|
|
Hosting
|
|
|
1,331,232
|
|
|
|
1,016,535
|
|
Total
|
|
$
|
26,979,658
|
|
|
$
|
25,419,510
|
|
COST OF
GOOD
S
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, bonuses and stock-based compensation 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
$149,980
as of
December 31, 2017
and
$179,813
as of
December 31, 2016.
The following table summarizes activity in the Company's allowance for doubtful accounts for the years presented.
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Beginning of period
|
|
$
|
179,813
|
|
|
$
|
116,834
|
|
Bad debt expense
|
|
|
130,346
|
|
|
|
132,767
|
|
Write-offs
|
|
|
(160,179
|
)
|
|
|
(69,788
|
)
|
End of period
|
|
$
|
149,980
|
|
|
$
|
179,813
|
|
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
December 31, 2017,
$755,893
was deposited in excess of FDIC-insured limits. Management believes the risk in these situations to be minimal.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
AND
DECEMBER 31, 2016
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
December 31, 2017.
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
December 31, 2017,
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 monthly 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.
One customer accounted
for
10%
of our revenue during the year ended
December 31, 2017
or approximately
$2,691,000.
One customer accounted for
16%
of our revenues during the year ended
December 31, 2016
or approximately
$4,167,000.
The following table summarizes the number of customers who individually comprise
10%
or more of total revenue and/or total accounts receivable and their aggregate percentage of the Company's total revenue and gross accounts receivable for the years presented.
One customer accounted for approximately
24%
of our accounts receivable
as of
December 31, 2017.
Two customers each individually accounted for approximately
11%
of our accounts receivables as of
December 31, 2016.
|
|
Revenues
|
|
|
Accounts receivable
|
|
For the period ended
|
|
Number of
customers
|
|
|
Percentage of
total revenues
|
|
|
Number of
customers
|
|
|
Percentage of
accounts receivable
|
|
December 31, 2017
|
|
|
1
|
|
|
|
10%
|
|
|
|
1
|
|
|
|
24%
|
|
December 31, 2016
|
|
|
1
|
|
|
|
16%
|
|
|
|
2
|
|
|
|
21%
|
|
The table below provides revenues from European customers for the years ended
December 31, 2017
and
December 31, 2016.
European revenues
|
|
For the year ended
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
European revenues
|
|
|
% of Total revenues
|
|
|
European revenues
|
|
|
% of Total revenues
|
|
|
$3,632,537
|
|
|
|
14%
|
|
|
|
$2,702,660
|
|
|
|
11%
|
|
The Company serves all of its hosting customers from
third
-party web hosting facilities located in the United States. The Company does
not
control the operation of these facilities, and they are vulnerable to damage or interruption. The Company maintains redundant systems that can be used to provide service in the event the
third
-party web hosting facilities become unavailable, although in such circumstances, the Company's service
may
be interrupted during the transition.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost.
Additions and betterments are capitalized; maintenance and repairs are expensed as incurred. Depreciation is calculated using the straight-line method over the asset’s estimated useful life, which is
5
years for leasehold improvements, computers, equipment and furniture and
3
years for software. Gains or losses on disposal are charged to operations.
ASSET IMPAIRMENT
Acquisitions and Intangible Assets
We account for acquisitions in accordance with ASC
805,
Business Combinations
(“ASC
805”
) and ASC
350,
Intangibles- Goodwill and Other
(“ASC
350”
). The acquisition method of accounting requires that assets acquired and liabilities assumed be recorded at their fair values on the date of a business acquisition. Our consolidated financial statements and results of operations reflect an acquired business from the completion date of an acquisition.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
AND
DECEMBER 31, 2016
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.
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.
DEFERRED REVENUE
Deferred revenue represents cash advances received in excess of revenue earned on on-going contracts.
Payment terms vary with each contract but
may
include an initial payment at the time the contract is executed, with future payments dependent upon the completion of certain contract phases or targeted milestones. In the event of contract cancellation, the Company is generally entitled to payment for all work performed through the point of cancellation. As of
December 31, 2017,
the Company had
$9,516,953
in deferred revenues relating to contracts for services to be performed over periods ranging from
1
month to
5
years. The Company had
$7,564,587
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
$701,161
for the year ended
December 31, 2017
and
$712,179
for the year ended
December 31, 2016
and are included under selling, general and administrative expenses on our consolidated financial statements.
RESEARCH AND
PRODUCT
DEVELOPMENT EXPENSES
Software development costs are included in
research and product development and are expensed as incurred.
ASC
985.20,
Software Industry Costs of Software to Be Sold, Leased or Marketed
, 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 year ended
December 31, 2017
we spent approximately
$2,854,428
and during the year ended
December 31, 2016
we spent approximately
$2,598,962,
on research and product development activities, which include costs associated with the development of our software products and services for our client’s 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.
EMPLOYEE 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 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 shall automatically increase 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 December
31,
2017
10,500,000
shares were authorized under the
2016
Plan.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
AND
DECEMBER 31, 2016
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
7.5
million shares to employees, directors and key consultants in accordance with the terms of the
2009
Plan documents.
Each plan is more fully described in “Note
1
3,
Employee Equity Incentive Plans.” The Company accounts for its employee equity incentive plans under
ASC
718,
Compensation – Stock Compensation
which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions.
ASC
718
requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company
’s consolidated statements of operations. The Company currently uses the Black Scholes option pricing model to determine grant date fair value.
EARNINGS/(LOSS)
PER SHARE
The Company accounts for Earnings/(loss) Per Share using ASC
260
– Earnings per Share. 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
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.
On
December 22, 2017,
the Tax Cuts and Jobs Act ("Tax Act") was signed into law by the President of the United States. The Tax Act is a tax reform act that among other things, reduced corporate tax rates to
21
percent effective
January 1, 2018.
FASB ASC
740,
Income Taxes
, requires deferred tax assets and liabilities to be adjusted for the effect of a change in tax laws or rates in the year of enactment, which is the year in which the change was signed into law. Accordingly, the Company adjusted its deferred tax assets and liabilities at
December 31, 2017,
using the new corporate tax rate of
2l
percent. See Note
14.
Income Taxes.
IMPACT OF NEW ACCOUNTING STANDARDS
During fiscal
2017,
we adopted the following new accounting pronouncements:
In
February 2016,
the FASB issued accounting standard update (“
ASU”)
No.
2016
-
02,
“Leases (Topic
842
)”
, (“ASU
2016
-
02”
). This ASU requires that an entity should recognize assets and liabilities for leases with a maximum possible term of more than
12
months. A lessee would recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the leased asset (the underlying asset) for the lease term. This guidance also provides accounting updates with respect to lessor accounting under a lease arrangement. This new lease guidance is effective for fiscal years beginning after
December 15, 2019.
Entities have the option of using either a full retrospective or a modified approach (cumulative effect adjustment in period of adoption) to adopt the new guidance. Early adoption is permitted for all entities. We are currently evaluating the impact of the adoption of this guidance in our consolidated financial statements.
In
March 2016,
April 2016,
and
December 2016,
the FASB issued ASU
2016
-
08,
"
Revenue from Contracts with Customers - Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
", (“ASU
2016
-
08”
), ASU
2016
-
10,
"
Revenue from Contracts with Customers - Identifying Performance Obligations and Licensing
", (“ASU
2016
-
10”
), and ASU
2016
-
20,
"
Technical Corrections and Improvements to Topic
606,
Revenue from Contracts with Customers"
, (“ASU
2016
-
20”
) respectively, which further clarify the guidance for those specific topics within ASU
2014
-
09.
In
May 2016,
the FASB issued ASU
2016
-
12,
"
Revenue from Contracts with Customers - Narrow Scope Improvements and Practical Expedients
", to reduce the risk of diversity in practice for certain aspects in ASU
2014
-
09,
including collectability, noncash consideration, presentation of sales tax and transition. These updates permit the use of either the retrospective or cumulative effect transition method. Early application is permitted as of the original effective date for annual reporting periods beginning after
December 15, 2016,
including interim reporting periods within that reporting period.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
AND
DECEMBER 31, 2016
In
July 2017,
The Financial Accounting Standards Board issued Accounting Standards Update
2017
-
11
“
Earnings per Share (Topic
260
), Distinguishing Liabilities from Equity (Topic
480
), Derivatives and Hedging (Topic
815
)
” (“ASU
2017
-
11”
) This ASU addresses narrow issues identified as a result of the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and equity. Part I of the amendment change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. The amendments also clarify existing disclosure requirements for equity-classified instruments. Part II of the update recharacterize the indefinite deferral of certain provisions of Topic
480
that now are presented as pending content in the Codification, to a scope exception. Those amendments do
not
have an accounting effect. Part I of ASU
2017
-
11
is effective for public business entities for fiscal years, and interim period within those fiscal years, beginning after
December 15, 2018,
with early adoption permitted. The Company is currently evaluating the impact of adopting ASU-
2017
-
11.
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
income/(loss) per share was calculated using the weighted average number of shares outstanding of
147,865,246
for the year ended
December 31, 2017
and
145,868,227
for the year ended
December 31, 2016.
Antidilutive shares aggregating
43,343,224
for the year ended
December 31, 2017
and
43,775,016
for the year ended
December 31, 2016
have been omitted from the calculation of dilutive income/(loss) per share as the shares were antidilutive. The table below provides a reconciliation of anti-dilutive securities outstanding as of
December 31, 2017
and
December 31, 2016.
Anti-dilutive security
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Employee stock options
|
|
|
4,225,000
|
|
|
|
275,000
|
|
Warrants
|
|
|
27,020,000
|
|
|
|
27,860,000
|
|
Convertible notes
|
|
|
11,980,000
|
|
|
|
15,490,000
|
|
Shares issuable for accrued interest
|
|
|
118,224
|
|
|
|
150,016
|
|
Total
|
|
|
43,343,224
|
|
|
|
43,775,016
|
|
The employee stock options are exercisable at prices ranging from
$0.
17
to
$0.34
per share. The exercise price on the stock warrants range from
$0.25
to
$0.60
per share. Shares issuable upon conversion of Convertible Debentures have conversion prices ranging from
$0.25
to
$1.25
per share.
Provided below is the reconciliation between numerators and denominators of the basic and diluted income/(loss) per shares.
|
|
For the year ended
|
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
Income/(loss)
|
|
|
Shares
|
|
|
Per-share
|
|
|
Income/(loss)
|
|
|
Shares
|
|
|
Per-share
|
|
|
|
numerator
|
|
|
denominator
|
|
|
amount
|
|
|
numerator
|
|
|
denominator
|
|
|
amount
|
|
Basic EPS
|
|
$
|
2,967,218
|
|
|
|
147,865,246
|
|
|
$
|
0.02
|
|
|
$
|
101,880
|
|
|
|
145,868,227
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
4,766
|
|
|
|
312,738
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
294,200
|
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
2,971,984
|
|
|
|
148,177,984
|
|
|
$
|
0.02
|
|
|
$
|
101,880
|
|
|
|
146,162,427
|
|
|
$
|
0.00
|
|
NOTE
4
:
PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
Cost
|
|
|
Accumulated depreciation
|
|
|
Net book
value
|
|
|
Cost
|
|
|
Accumulated depreciation
|
|
|
Net book
value
|
|
|
Estimated
useful life
(years)
|
|
Computer & office equipment
|
|
$
|
2,322,833
|
|
|
$
|
1,949,982
|
|
|
$
|
372,851
|
|
|
$
|
2,125,067
|
|
|
$
|
1,761,879
|
|
|
$
|
363,188
|
|
|
|
5
|
|
Leasehold improvements
|
|
|
118,380
|
|
|
|
98,901
|
|
|
|
19,479
|
|
|
|
114,719
|
|
|
|
89,789
|
|
|
|
24,930
|
|
|
|
5
|
|
Computer software
|
|
|
2,010,999
|
|
|
|
1,886,342
|
|
|
|
124,657
|
|
|
|
1,925,462
|
|
|
|
1,720,399
|
|
|
|
205,063
|
|
|
|
3
|
|
Office furniture
|
|
|
162,799
|
|
|
|
127,248
|
|
|
|
35,551
|
|
|
|
158,436
|
|
|
|
114,065
|
|
|
|
44,371
|
|
|
|
5
|
|
Total
|
|
$
|
4,615,011
|
|
|
$
|
4,062,473
|
|
|
$
|
552,538
|
|
|
$
|
4,323,684
|
|
|
$
|
3,686,132
|
|
|
$
|
637,552
|
|
|
|
|
|
Depreciation expense
was
$336,102
for the year ended
December 31, 2017
and
$302,893
for the year ended
December 31, 2016.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
AND
DECEMBER 31, 2016
NOTE
5
:
INTANGIBLE ASSETS,
NET
Intangible assets consist of the following:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
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
|
|
|
118,780
|
|
|
|
32,994
|
|
|
|
85,786
|
|
|
|
104,163
|
|
|
|
21,990
|
|
|
|
82,173
|
|
|
|
15
|
|
Promasys B.V. software code
|
|
|
72,837
|
|
|
|
60,698
|
|
|
|
12,139
|
|
|
|
72,837
|
|
|
|
46,130
|
|
|
|
26,707
|
|
|
|
5
|
|
Promasys B.V. URLs/website
|
|
|
59,990
|
|
|
|
59,990
|
|
|
|
-0-
|
|
|
|
52,608
|
|
|
|
52,608
|
|
|
|
-0-
|
|
|
|
3
|
|
Total
|
|
$
|
1,644,308
|
|
|
$
|
1,546,383
|
|
|
$
|
97,925
|
|
|
$
|
1,622,309
|
|
|
$
|
1,513,429
|
|
|
$
|
108,880
|
|
|
|
|
|
Amortization expense was $
22,048
for the year ended
December 31, 2017
and
$37,331
for the year ended
December 31, 2016.
Annual amortization expense for the Company
’s intangible assets is as follows:
Year
|
|
Amortization
|
|
2018
|
|
$
|
20,058
|
|
2019
|
|
|
7,919
|
|
2020
|
|
|
7,919
|
|
2021
|
|
|
7,919
|
|
2022
|
|
|
7,919
|
|
Thereafter
|
|
|
46,191
|
|
Total
|
|
$
|
97,925
|
|
NOTE
6
:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
Account
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Accounts payable
|
|
$
|
1,303,073
|
|
|
$
|
697,060
|
|
Accrued payroll and related costs
|
|
|
925,890
|
|
|
|
886,334
|
|
Other accrued expenses
|
|
|
184,131
|
|
|
|
431,961
|
|
Accrued interest
|
|
|
172,951
|
|
|
|
107,718
|
|
Total accounts payable and accrued expenses
|
|
$
|
2,586,045
|
|
|
$
|
2,123,073
|
|
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 with The Northern Trust Company ("Line of Credit") guaranteed by Cornelis F. Wit, our then Chief Executive Officer and Director ("Mr. Wit"). Mr. Wit receives
2.0%
interest (approximately
$9,500
per month) 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 matures on
April 7
, 2020
and carries a variable interest rate based on the prime rate. At
December 31, 2017,
$2,650,000
was outstanding on the Line of Credit at an interest rate of
3.5%.
Our primary sources of working capital are funds from operations and borrowings under our 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 common and preferred stock or result in increased interest expense in future periods.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
AND
DECEMBER 31, 2016
At
December 31, 2017,
the Company owed
$1,102,500
in notes payable all of which are unsecured. The table below provides details as to the terms and conditions of the notes payable.
|
|
|
|
|
|
|
|
Ending
|
|
|
Non related party
|
|
|
Related party
|
|
Origination
|
|
Maturity
|
|
Interest
|
|
|
principal
|
|
|
|
|
|
|
Long
|
|
|
|
|
|
|
Long
|
|
date
|
|
date
|
|
rate
|
|
|
December 31, 2017
|
|
|
Current
|
|
|
term
|
|
|
Current
|
|
|
term
|
|
2/29/2016
|
|
4/1/2019
|
|
|
12%
|
|
|
$
|
400,000
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
400,000
|
|
6/30/2016
|
|
4/1/2020
|
|
|
10%
|
|
|
|
420,000
|
|
|
|
-0-
|
|
|
|
420,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
6/30/2016
|
|
4/1/2020
|
|
|
12%
|
|
|
|
282,500
|
|
|
|
-0-
|
|
|
|
282,500
|
|
|
|
-0-
|
|
|
|
-0-
|
|
Discount on notes payable
|
|
|
|
|
|
|
|
|
|
|
-0-
|
|
|
|
(279,402
|
)
|
|
|
-0-
|
|
|
|
(117,365
|
)
|
Total
|
|
|
|
|
|
$
|
1,102,500
|
|
|
$
|
-0-
|
|
|
$
|
423,098
|
|
|
$
|
-0-
|
|
|
$
|
282,635
|
|
At
December 31, 2016,
the Company owed
$1,242,500
in notes payable all of which are unsecured. The table below provides details as to the terms and conditions of the notes payable.
|
|
|
|
|
|
|
|
Ending
|
|
|
Non related party
|
|
|
Related party
|
|
Origination
|
|
Maturity
|
|
Interest
|
|
|
principal
|
|
|
|
|
|
|
Long
|
|
|
|
|
|
|
Long
|
|
date
|
|
date
|
|
rate
|
|
|
December 31, 2016
|
|
|
Current
|
|
|
term
|
|
|
Current
|
|
|
term
|
|
2/29/2016
|
|
4/1/2019
|
|
|
12%
|
|
|
$
|
450,000
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
450,000
|
|
6/30/2016
|
|
4/1/2020
|
|
|
10%
|
|
|
|
420,000
|
|
|
|
-0-
|
|
|
|
420,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
6/30/2016
|
|
4/1/2020
|
|
|
12%
|
|
|
|
372,500
|
|
|
|
-0-
|
|
|
|
372,500
|
|
|
|
-0-
|
|
|
|
-0-
|
|
Discount on notes payable
|
|
|
|
|
|
|
|
|
|
|
-0-
|
|
|
|
(455,285
|
)
|
|
|
-0-
|
|
|
|
(237,664
|
)
|
Total
|
|
|
|
|
|
$
|
1,242,500
|
|
|
$
|
-0-
|
|
|
$
|
337,215
|
|
|
$
|
-0-
|
|
|
$
|
212,336
|
|
On
April 1, 2015
the Company issued a promissory note in the amount of
$20,000
to our then Chairman and Chief Technology Officer, Randall G. Smith (“Mr. Smith”) in exchange for an existing promissory note in the same amount. The promissory note carries an interest rate of
12%
and has a maturity date of
April 1, 2018. O
n
December 14, 2016 t
he
$20,000
note was repaid in full
.
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.
This 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 the statement of operations as an unrealized gain or loss on changes in derivative liabilities.
On
June 30, 2016,
the Company issued promissory notes in the principal amount of
$372,500
and warrants to purchase
1,490,000
shares of common stock of the Company at an exercise price of
$0.25
per share with an expiration date of
April 1, 2020
to
two
investors, in exchange for existing promissory notes in the same amount. The notes carry an interest rate of
12%
per annum and have a maturity date of
April 1, 2020.
On
August 31
, 2017
a promissory note for
$90,000
was repaid in full.
This 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 notes payable. As a result of the liability we recorded a discount to the notes payable. The carrying amount of the notes at the time of issuance was therefore
$125,579.
The warrant liability (discount) will be amortized over the
45
month duration of the notes 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 the statement of 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.
This 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 notes payable. As a result of the liability we recorded a discount to the notes payable. The carrying amount of the notes at the time of issuance was therefore
$141,592.
The warrant liability (discount) will be amortized over the
45
month duration of the notes 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 the statement of operations as an unrealized gain or loss on changes in derivative liabilities.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
AND
DECEMBER 31, 2016
NOTE
8:
CONVERTIBLE NOTES PAYABLE
The following table summarizes the convertible debt outstanding as of
December 31, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount
|
|
Date of
|
|
Maturity
|
|
|
Interest
|
|
|
Principal at
|
|
|
Short term
|
|
|
Long term
|
|
issuance
|
|
date
|
|
|
rate
|
|
|
December 31, 2017
|
|
|
Related
|
|
|
Non related
|
|
|
Related
|
|
|
Non related
|
|
3/26/1999
|
|
6/30/2004
|
|
|
|
10%
|
|
|
$
|
50,000
|
|
|
$
|
-0-
|
|
|
$
|
50,000
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
8/29/2008
|
|
4/1/2019
|
|
|
|
10%
|
|
|
|
150,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
150,000
|
|
8/29/2008
|
|
4/1/2020
|
|
|
|
10%
|
|
|
|
1,770,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
1,770,000
|
|
|
|
-0-
|
|
12/16/2008
|
|
4/1/2020
|
|
|
|
12%
|
|
|
|
4,000,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
4,000,000
|
|
|
|
-0-
|
|
12/16/2008
|
|
4/1/2021
|
|
|
|
12%
|
|
|
|
200,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
200,000
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
6,170,000
|
|
|
$
|
-0-
|
|
|
$
|
50,000
|
|
|
$
|
5,770,000
|
|
|
$
|
350,000
|
|
The following table summarizes the convertible debt outstanding as of
December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount
|
|
Date of
|
|
Maturity
|
|
|
Interest
|
|
|
Principal at
|
|
|
Short term
|
|
|
Long term
|
|
issuance
|
|
date
|
|
|
rate
|
|
|
December 31, 2016
|
|
|
Related
|
|
|
Non related
|
|
|
Related
|
|
|
Non related
|
|
3/26/1999
|
|
6/30/2004
|
|
|
|
10%
|
|
|
$
|
50,000
|
|
|
$
|
-0-
|
|
|
$
|
50,000
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
8/29/2008
|
|
4/1/2018
|
|
|
|
10%
|
|
|
|
150,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
150,000
|
|
8/29/2008
|
|
4/1/2020
|
|
|
|
10%
|
|
|
|
1,770,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
1,770,000
|
|
|
|
-0-
|
|
12/16/2008
|
|
4/1/2018
|
|
|
|
12%
|
|
|
|
200,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
200,000
|
|
12/16/2008
|
|
4/1/2020
|
|
|
|
12%
|
|
|
|
100,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
100,000
|
|
12/16/2008
|
|
4/1/2020
|
|
|
|
12%
|
|
|
|
4,055,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
4,055,000
|
|
|
|
-0-
|
|
9/30/2009
|
|
4/1/2018
|
|
|
|
12%
|
|
|
|
100,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
100,000
|
|
9/30/2009
|
|
4/1/2020
|
|
|
|
12%
|
|
|
|
625,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
625,000
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
7,050,000
|
|
|
$
|
-0-
|
|
|
$
|
50,000
|
|
|
$
|
5,825,000
|
|
|
$
|
1,175,000
|
|
10%
Convertible Notes
During
1999
the Company issued
10%
Convertible Notes payable in the amount of
$862,500
pursuant to a Confidential Private Placement Memorandum.
There were costs of
$119,625
associated with this offering. The net proceeds to the Company were
$742,875.
The notes bear interest at
10%
annually, payable semi-annually. The notes were convertible after maturity, which was
June 30, 2004,
into shares of common stock of the Company at
$1.25
per share. We are in default in the payment of principal and interest. As of
December 31, 2017,
$812,500
of the Convertible Notes had been repaid in cash or converted into
1,495,179
shares of common stock of the Company leaving an outstanding principal balance of
$50,000.
There was
$93,210
of accrued interest at
December 31, 2017.
Secured Convertible Debentures
On
September 30, 2009
the Company sold an aggregate of
$1,400,000
principal amount
12%
Secured Convertible Debentures (the “Debentures”) and common stock purchase warrants (the “Warrants”) to purchase an aggregate of
5,600,000
shares of our common stock exercisable at a price of
$0.25
per share for
four
years subsequent to the closing of the transaction to
four
accredited investors including our then
Chief Executive Officer and Director, Cornelis F. Wit (“Mr. Wit”). The Company received net proceeds of
$1,400,000.
The Debentures, which bear interest at
12%
per annum, matured on
March 30, 2011.
The Debentures are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of
$0.25
per share.
On
March 30, 2011
the Company repaid
$200,000
of the outstanding principal amounts owed and extended
$1,200,000
of the
Debentures until
April 1, 2013,
including
$1,100,000
held by Mr. Wit. The Company also extended the expiration date of the warrants associated with the Debentures.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
AND
DECEMBER 31, 2016
On
February 22, 2013
the Company
and
two
holders extended
$1,200,000
of the Debentures until
January 1, 2016,
including
$1,100,000
of the Debentures held by Mr. Wit. The expiration date of the warrants associated with the Debentures was also extended to
January 1, 2016.
On
January 31, 2015
the Company and Mr. Wit extended the maturity date of
$1,100,000
of the Debentures to
April 1, 2017.
The expiration date of the warrants associated with the Debentures was also extended to
April 1, 2017.
On
November 19, 2015
Mr. Wit converted
$475,000
of the Debentures into
1,900,000
shares of our common stock. On
November 19, 2015
the Company and Mr. Wit agreed to cancel the
1,900,000
warrants related to the
$475,000
of Debentures and
$475,000
of unrelated promissory notes in exchange for
1,900,000
shares of our common stock. On
November 23, 2015
Mr. Wit sold the remaining
$625,000
of Debentures and the related warrants to
two
unrelated non-affiliate stockholders.
On
April 1, 2015
the Company and the
holder extended the maturity date of
$100,000
of 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 repaid the
$100,000
of Debentures in full.
On
June 30, 2016
the Company and
two
holders extended the maturity date of
$625,000
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
August 2017
the Company repaid the
$625,000
of Debentures in full.
Convertible Debentures
August 2008
On
August 29, 2008
the Company sold
$2,270,000
of convertible debentures and warrants to purchase an aggregate of
4,540,000
shares of our common stock to
four
accredited investors including our then
Chief Executive Officer and Director, Cornelis F. Wit 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 the maturity date of
$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.
On
February 22, 2013
the Company and Mr. Wit extended the maturity date of
$1,770,000
o
f 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 our then
Director, Guus van Kesteren (“Mr. van Kesteren”)
extended the maturity date of
$150,000
of the convertible debentures
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
$150,000
of the 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 $
1,770,000
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
June 30, 2015
the Company and Mr. van Kesteren extended the maturity date of
$150,000
of the convertible debentures t
o
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
$1,770,000
of the 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 the 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,
201
7
the Company and Mr. van Kesteren extended the maturity date of
$150,000
of the convertible debentures to
April 1, 2019.
The expiration date of the warrants associated with the debentures was also extended to
April 1, 2019.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
AND
DECEMBER 31, 2016
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 our 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 Chairman and 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 the maturity date of
$4,980,000
of the Convertible Notes until
December 16, 2013
in accordance with the terms of a Secured Convertible Debenture issued on that date.
On
February 22, 2013
the Company and the
holders extended 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 May 1, 2015 the $5,000 of convertible debentures to Mr. Smith were repaid in full.
On
February 27, 2013
the Company and our former director Mr. Veatch ("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 the 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 extended the maturity date of
$100,000
of the 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 Co
mpany and
two
holders extended 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 the 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 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
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 the convertible debentures to A
pril 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 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
$25,000
of 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 7, 2015
the Company and Mr. Veatch extended the maturity date of
$15,000
of the convertible debentures to A
pril 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.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
AND
DECEMBER 31, 2016
On
June 30, 2015
the Company and the holder extended the maturity date of
$100,000
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
June 30, 2016
the Company and Mr. Wit extended the maturity date of
$4,055,000
of the 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 the convertible debentures were repaid in full on
December 14, 2016.
On
June 30, 2016
the Company and the holder extended the maturity date of
$100,000
of the convertible debentures to
April 1, 2020.
The expiration date of the warrants associated with the debentures was also extended to
April 1, 2020.
The
$100,000
of the convertible debentures were repaid in full on
August 31, 2017.
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 payments required at maturity under the Company
’s outstanding convertible debt at
December 31, 2017
are as follows:
Year
|
|
Amount
|
|
2018
|
|
$
|
50,000
|
|
2019
|
|
|
150,000
|
|
2020
|
|
|
5,770,000
|
|
2021
|
|
|
200,000
|
|
Total
|
|
$
|
6,170,000
|
|
NOTE
9
: FAIR VALUE MEASUREMENT
The Company measures the fair value of its assets and liabilities under the guidance of
ASC
820,
Fair Value Measurements and Disclosures
, which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. ASC
820
does
not
require any new fair value measurements, but its provisions apply to all other accounting pronouncements that require or permit fair value measurement.
ASC
820
clarifies that fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based on the highest and best use of the asset or liability. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. ASC
820
requires the Company to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:
|
●
|
Level
1:
Observable inputs such as quoted prices for identical assets or liabilities in active markets;
|
|
●
|
Level
2:
Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly such as quoted pri
ces 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:
|
●
|
Market approach - Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilit
ies
|
|
●
|
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 method
|
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
AND
DECEMBER 31, 2016
|
●
|
Cos
t 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
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 and did
not
elect the fair value option for any financial assets and liabilities transacted in the years ended
December 31, 2017
and
December 31, 2016.
The Company
’s financial assets or liabilities subject to ASC
820
as of
December 31, 2017
include the conversion feature and warrant liability associated with convertible debentures issued during fiscal
2008
and
2009,
the warrants issued during
2011
and
2016
that are associated with notes payable and the value of Intellectual Property and a customer list associated with the acquisition of Promasys B. V. during
2013.
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 assets including the general classification of such instruments pursuant to the valuation hierarchy.
A summary
as of
December 31, 2017
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
|
|
|
|
December 31, 2017
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Derivatives: (1) (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion feature liability
|
|
$
|
1,685,947
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
1,685,947
|
|
Warrant liability
|
|
|
3,440,799
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
3,440,799
|
|
Total of derivative liabilities
|
|
$
|
5,126,746
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
5,126,746
|
|
(
1
) The fair value of the derivative instruments was estimated using the Income Approach and the Black Scholes option pricing model with the following assumptions for the year ended
December 31, 2017
|
|
(
2
) The fair value at the measurement date is equal to the carrying value on the balance sheet
|
Significant valuation assumptions for derivative instruments at
December 31, 2017
|
Risk free interest rate
|
|
|
1.56%
|
to
|
1.81%
|
|
Dividend yield
|
|
|
|
0.00%
|
|
|
Expected volatility
|
|
|
87.0%
|
to
|
118.4%
|
|
Expected life (range in years)
|
|
|
|
|
|
|
Conversion feature liability
|
|
|
1.25
|
to
|
3.25
|
|
Warrant liability
|
|
|
0.25
|
to
|
3.25
|
|
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
AND
DECEMBER 31, 2016
A summary as of
December 31, 2017
of the fair value of assets measured at fair value on a nonrecurring basis follows:
|
|
Carrying amount
|
|
|
Carrying amount
|
|
|
Quoted prices in
active markets
for identical
assets/ liabilities
|
|
|
Significant other
observable inputs
|
|
|
Significant
unobservable inputs
|
|
|
|
December 31, 2016
|
|
|
December 31, 2017
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Acquired assets (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Promasys B.V. customer list (4)
|
|
$
|
82,173
|
|
|
$
|
85,786
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
136,253
|
|
Promasys B.V. software code (4)
|
|
|
26,707
|
|
|
|
12,139
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
72,943
|
|
Total
|
|
$
|
108,880
|
|
|
$
|
97,925
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
209,196
|
|
(
3
) The fair value of the acquired assets was estimated using the Income Approach with a discounted cash flow valuation methodology applied.
|
|
(
4
) The acquired Promasys B.V. customer list and software code 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.
|
A summary as of
December 31, 2016
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
|
|
|
|
December 31, 2016
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Derivatives: (1) (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion feature liability
|
|
$
|
2,325,730
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
2,325,730
|
|
Warrant liability
|
|
|
3,999,362
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
3,999,362
|
|
Total of derivative liabilities
|
|
$
|
6,325,092
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
6,325,092
|
|
(
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, 2016
|
(
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, 2016
|
Risk free interest rate
|
|
|
0.82%
|
to
|
1.45%
|
|
Dividend yield
|
|
|
|
0.00%
|
|
|
Expected volatility
|
|
|
117.3%
|
to
|
143.8%
|
|
Expected life (range in years)
|
|
|
|
|
|
|
Conversion feature liability
|
|
|
1.25
|
to
|
3.25
|
|
Warrant liability
|
|
|
0.25
|
to
|
3.25
|
|
A summary as of
December 31, 2016
of the fair value of assets measured at fair value on a nonrecurring basis follows:
|
|
Carrying amount
|
|
|
Carrying amount
|
|
|
Quoted prices in
active markets
for identical
assets/ liabilities
|
|
|
Significant other
observable inputs
|
|
|
Significant
unobservable
inputs
|
|
|
|
December 31, 2015
|
|
|
December 31, 2016
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Acquired assets (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Promasys B.V. customer list (4)
|
|
$
|
92,444
|
|
|
$
|
82,173
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
136,253
|
|
Promasys B.V. software code (4)
|
|
|
41,274
|
|
|
|
26,707
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
72,943
|
|
Promasys B.V. URLs/website (4)
|
|
|
15,159
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
68,814
|
|
Total
|
|
$
|
148,877
|
|
|
$
|
108,880
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
278,010
|
|
(
3
) The fair value of the acquired assets was estimated using the Income Approach with a discounted cash flow valuation methodology applied.
|
|
(
4
) The acquired Promasys B.V. software code, customer list and URLs/website 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.
|
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
AND
DECEMBER 31, 2016
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 the Property, Plant and Equipment Topic of the FASB ASC, 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.
|
|
Other income/(expense)
|
|
|
|
For the year ended
|
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
The net amount of gains/(losses) for the period included in earnings attributable to the unrealized and realized gain/(losses) from changes in derivative liabilities at the reporting date
|
|
$
|
795,779
|
|
|
$
|
(2,657,910
|
)
|
|
|
|
|
|
|
|
|
|
Total unrealized and realized gains/(losses) included in earnings
|
|
$
|
795,779
|
|
|
$
|
(2,657,910
|
)
|
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 years ended
December 31, 2017
and
December 31, 2016.
The tables reflect gains and losses for all financial liabilities at fair value categorized as Level
3
as of
December 31, 2017
and
December 31, 2016.
|
|
Level 3 financial liabilities at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Reclassification
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
purchases,
|
|
|
of conversion
|
|
|
|
|
|
|
|
Balance,
|
|
|
|
|
|
|
|
|
|
|
issuances
|
|
|
feature liability
|
|
|
Balance,
|
|
For the year ended
|
|
beginning
|
|
|
Net realized
|
|
|
Net unrealized
|
|
|
and
|
|
|
associated with
|
|
|
end
|
|
December 31, 2017
|
|
of year
|
|
|
gains/(losses)
|
|
|
gains/(losses)
|
|
|
settlements
|
|
|
convertible debt
|
|
|
of year
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion feature liability
|
|
$
|
(2,325,730
|
)
|
|
$
|
48,375
|
|
|
$
|
188,841
|
|
|
$
|
-0-
|
|
|
$
|
402,567
|
|
|
$
|
(1,685,947
|
)
|
Warrant liability
|
|
|
(3,999,362
|
)
|
|
|
-0-
|
|
|
|
558,563
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
(3,440,799
|
)
|
Total of derivative liabilities
|
|
$
|
(6,325,092
|
)
|
|
$
|
48,375
|
|
|
$
|
747,404
|
|
|
$
|
-0-
|
|
|
$
|
402,567
|
|
|
$
|
(5,126,746
|
)
|
|
|
Level 3 financial liabilities at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
purchases,
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
|
|
|
|
|
|
|
|
|
|
|
issuances
|
|
|
|
|
|
|
Balance,
|
|
For the year ended
|
|
beginning
|
|
|
Net realized
|
|
|
Net unrealized
|
|
|
and
|
|
|
Net transfers
|
|
|
end
|
|
December 31, 2016
|
|
of year
|
|
|
gains/(losses)
|
|
|
gains/(losses)
|
|
|
settlements
|
|
|
in and/or out
|
|
|
of year
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion feature liability
|
|
$
|
(901,243
|
)
|
|
$
|
29,108
|
|
|
$
|
(1,453,595
|
)
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
(2,325,730
|
)
|
Warrant liability
|
|
|
(1,914,923
|
)
|
|
|
-0-
|
|
|
|
(1,233,423
|
)
|
|
|
(851,016
|
)
|
|
|
-0-
|
|
|
|
(3,999,362
|
)
|
Total of derivative liabilities
|
|
$
|
(2,816,166
|
)
|
|
$
|
29,108
|
|
|
$
|
(2,687,018
|
)
|
|
$
|
(851,016
|
)
|
|
$
|
-0-
|
|
|
$
|
(6,325,092
|
)
|
NOTE
1
0
:
COMMITMENTS AND CONTINGENCIES
The Company currently leases office space under operating leases for its office locations and has several operating leases related to server and network co-location and disaster recovery for its operations.
The minimum future lease payments required under the Company’s operating leases at
December 31, 2017
are as follows:
Year
|
|
Payments
|
|
2018
|
|
$
|
651,376
|
|
2019
|
|
|
475,638
|
|
2020
|
|
|
339,287
|
|
2021
|
|
|
269,962
|
|
2022
|
|
|
266,000
|
|
Thereafter
|
|
|
44,549
|
|
Total
|
|
$
|
2,046,812
|
|
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
AND
DECEMBER 31, 2016
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
$1,125,147
for the year ended
December 31, 2017
and
$1,071,363
for the year ended
December 31, 2016.
The Company
’s 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 2018.
The Company currently operates its wholly-owned subsidiary, OmniComm Systems B.V., in the Netherlands under the terms of a lease that expires in
October 2018.
LEGAL PROCEEDINGS
From time to time the Company
may
be involved in litigation relating to claims arising out of our operations in the normal course of business. As of
December 31, 2017,
there were
no
pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations.
PATENT LITIGATION SETTLEMENT
Effective
April 2, 2009,
we entered into a Settlement and Licensing Agreement with DataSci, LLC (“DataSci”) which relates to a lawsuit filed on
June 18, 2008
in the United States District Court for the District of Maryland by DataSci against OmniComm alleging infringement of U.S. Patent
No.
6,496,827
B2
entitled “Methods and Apparatus for the Centralized Collection and Validation of Geographically Distributed Clinical Study Data with Verification of Input Data to the Distributed System” (“Licensed Patent”) owned by DataSci. Pursuant to the Settlement and Licensing Agreement, the parties entered into a Stipulated Order of Dismissal of the lawsuit filed by DataSci and DataSci (i) granted us a worldwide, non-exclusive non-transferable right and license under the Licensed Patent the subject of the claim for the Licensed Products and the right to sublicense TrialMaster on a Technology Transfer and Technology Transition basis
, and (ii) released us from any and all claims of infringement of the Licensed Patent which
may
have occurred prior to the effective date of the Settlement and Licensing Agreement. Licensed Products is defined as all products and services of OmniComm and of its subsidiaries in the field of electronic data capture, whether sold by OmniComm directly or through its affiliates, parents, subsidiaries, partners, vendors, agents and/or representatives, including TrialMaster, products and services or other products and services that perform the substantially equivalent function of TrialMaster, and any other products and services that OmniComm
may
develop in the future in the field of electronic data capture. The license expressly excludes the right to make, use, sell, import, market, distribute, oversee the operation of, or service systems covered by a claim (if any) of the Licensed Patent to the extent such systems are used for creating and managing source documentation and conducting remote data validation in clinical trial studies using a tablet PC with stylus, touch screen device, digitizing tablet, digitizer pen or similar mobile processing device (“Digitizing Device”), wherein the source documentation is electronic and is completed using a Digitizing Device. Under the terms of the license, we were obligated to pay royalties quarterly for sales of Licensed Products from
January 1, 2008
until
December 31, 2017
in the amount of the greater of
two
percent (
2%
) of our annual gross revenues from Licensed Products or, alternatively, the annual minimum royalty payment(s). The Settlement and Licensing Agreement and the amendment thereto (described below) could be terminated on
thirty
(
30
) days’ notice by the licensor if we were in default on our obligations thereunder and failed to cure such default within the
thirty
(
30
) day period after notice is provided. In addition to the payment of royalties, the Settlement and Licensing Agreement imposed certain obligations on us including commercialization, certain sublicensing, other payments, insurance, and confidentiality.
In addition and as a license fee for past use of the Licensed Patent which
may
have occurred prior to the effective date of the Settlement and Licensing Agreement, we issued a warrant to DataSci to purchase
1,000,000
shares of our common stock at an exercise price of
$.01
per share. The Settlement and Licensing Agreement provides that upon the expiration date of the warrant, at DataSci’s sole discretion, DataSci shall exercise its option under the warrant or licensee shall pay DataSci
$300,000.
The warrant was exercisable commencing on the
second
anniversary of the Settlement and Licensing Agreement,
April 2, 2011,
through the expiration date of the warrant on
December 31, 2017.
On
December 31, 2017
DataSci exercised
50%
of the warrant for
500,000
common shares and requested cash payment on
50%
of the warrant. As a result of the exercise, DataSci received
500,000
restricted common shares and a net cash payment of
$145,000.
The remaining minimum royalty payments per year are as follows:
Year
|
|
Payment
|
|
2018
|
|
$
|
112,500
|
|
Total
|
|
$
|
112,500
|
|
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
AND
DECEMBER 31, 2016
On
June 23, 2009,
we entered into an agreement to acquire the EDC assets of eResearch Technology.
Concurrent with the consummation of that transaction we entered into the First Amendment to Settlement and Licensing Agreement with DataSci, (i) to include the eResearch Technology EDC assets acquired within the definition of Licensed Products, and as such subject to the royalty payment(s), under and in accordance with the Settlement and Licensing Agreement, and (ii) provide a release by DataSci of any and all claims of infringement of the Licensed Patent in connection with the eResearch Technology EDC assets acquired which
may
have occurred prior to the effective date of the First Amendment to Settlement and Licensing Agreement for an aggregate of
$300,000.
The Company recorded a
credit to earnings of
$108,702
during the year ended
December 31, 2017
and a charge of
$94,129
during the year ended
December 31, 2016,
which amounts represent (
1
) the amount of additional license expense incurred above the stipulated minimum in the DataSci License Agreement during the years ended
December 31, 2017
and
December 31, 2016
and (
2
) the accretion of the difference between the total stipulated annual minimum royalty payments and the recorded present value accrual of the annual minimum royalty payments.
EMPLOYMENT AGREEMENTS
The Company
has 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 cancelled by either the employee or the Company
ninety
days prior to the end of the term. Under the terms of the agreement,
the Company
may
terminate the employee’s employment upon
30
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 and severance provisions, as well as non-compete clauses.
NOTE
1
1
:
RELATED PARTY TRANSACTIONS
On
April 1, 2015
the Company issued a promissory note in the amount of
$20,000
to our then Chairman and Chief Technology Officer, Randall G. Smith
(“Mr. Smith”), in exchange for an existing promissory note in the same amount. The promissory note carries an interest rate of
12%
and has a maturity date of
April 1, 2018.
The note was repaid in full on
December 14, 2016.
On
April 30, 2015,
the Company and Mr. Johnson extended the maturity date of
$25,000
of convertible debentures to our then Chief Operating Officer and President, Stephen E. Johnson, originally issued in
December 2008.
The debentures carry an interest rate of
12%
and have a maturity date of
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.
As of
December 31, 2017,
the Company has an aggregate of
$5,770,000
of convertible debentures and
$400,000
of promissory notes to our Executive Chairman and Chairman of the Board, Cornelis F. Wit (“Mr. Wit”), and have issued certain warrants to Mr. Wit, as follows:
●
|
In
June 2008,
Mr. Wit invested
$510,000
in convertible notes. On
August 29, 2008,
Mr. Wit converted the
$510,000
and invested an additional
$1,260,000
in a private placement of convertible debentures and warrants to purchase
3,540,000
shares of our common stock. The convertible debentures, which bear interest at
10%
per annum, were due on
August 29, 2010.
The convertible debentures are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of
$0.50
per share. On
September 30, 2009,
the Company and Mr. Wit extended the
$1,770,000
of convertible debentures until
August 29, 2013
in accordance with the terms of a Secured Convertible Debenture issued on that date. 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.
|
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
AND
DECEMBER 31, 2016
●
|
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. 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
August 31, 2017,
the Company repaid
$5
0,000
to Mr. Wit.
|
On
March 18, 2013,
the Company entered into a
$2,000,000
revolving Line of Credit with The Northern Trust Company
guaranteed by Mr. Wit. 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. Mr. Wit receives
2.0%
interest (approximately
$9,500
per month) on the assets pledged for the Line for Credit. The Line of Credit matures on
April 7, 2020
and carries a variable interest rate based on the prime rate. At
December 31, 2017,
$2,650,000
was outstanding on the Line of Credit at an interest rate of
3.5%.
The Company
incurred interest expense payable to related parties of
$947,688
for the year ended
December 31, 2017
and
$918,189
for the year ended
December 31, 2016.
NOTE
1
2
:
STOCKHOLDERS’ (DEFICIT)
Our authorized capital stock consists of
5
00,000,000
shares of common stock,
$.001
par value per share, and
10,000,000
shares of preferred stock, par value
$.001
per share, of which
5,000,000
shares have been designated as
5%
Series A Preferred,
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
December 31, 2017
we had the following outstanding securities:
|
●
|
148,542,805
shares of common stock issued and outstanding;
|
|
●
|
27,020,000
warrants issued and outstanding to purchase shares of our common stock;
|
|
●
|
5,275,000
options issued and outstanding to purchase shares of our common stock;
|
|
●
|
250,000
Series D Preferred Stock issued and outstanding; and
|
|
●
|
$
6,170,000
principal amount Convertible Debentures convertible into
12
,28
0,000
shares of common stock.
|
Common Stock
Holders of common stock are entitled to
one
vote for each share on all matters submitted to a stockholder vote.
Holders of our voting securities do
not
have cumulative voting rights. Holders of common stock are entitled to share in all dividends that the Board of Directors, in its discretion, declares from legally available funds. In the event of our liquidation, dissolution or winding up each outstanding share of common stock entitles its holder to participate in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
AND
DECEMBER 31, 2016
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.
During the
first
four
months of
2016
14,615,696
common shares were issued to the Series A Preferred stockholders who accepted the Series A Preferred Share Exchange Offer.
On A
pril
13,
2016
an employee exercised stock options granted to the employee. As a result of the exercise,
3,012
common shares were issued to the individual.
On A
pril
25,
2016
an employee exercised stock options granted to the employee. As a result of the exercise,
1,000,000
common shares were issued to the individual.
On A
pril
26,
2016
an employee exercised stock options granted to the employee. As a result of the exercise,
1,594
common shares were issued to the individual.
On
June 1
6,
2016
the Company issued
360,000
restricted shares of our common stock to our Board of Directors under the
2009
Plan. The restrictions on the shares lapse ratably over a
3
year period.
On
July 20, 2016
an employee exercised stock options granted to the employee. As a result of the exercise,
3,038
common shares were issued to the individual.
On
December 30, 2016
Thomas E. Vickers, our Chief Financial Officer, exercised stock options granted to him in
2011.
As a result of the exercise,
100,000
common shares were issued to him.
On
March 24, 2017
16,668
restricted shares were forfeited when an employee resigned prior to the lapsing of the restrictions.
On
June 26, 2017
an employee exercised stock options granted to the employee. As a result of the exercise,
22,556
common shares were issued to the individual.
On A
ugust
2,
2017
Thomas E. Vickers, our Chief Financial Officer, exercised stock options granted to him in
2012.
As a result of the exercise,
100,000
common shares were issued to him.
On
September 29, 2017
an employee exercised stock options granted to the employee. As a result of the exercise,
50,000
common shares were issued to the individual.
On
September 29, 2017
Kuno van der Post, our Chief Commercial Officer, exercised stock options granted to him in
2012.
As a result of the exercise,
100,000
common shares were issued to him.
On
December 31, 2017
DataSci exercised
50%
of their warrant and as a result
500,000
restricted common shares were issued to DataSci.
The
2009
Plan is more fully described in “Note
1
3,
Employee Equity Incentive Plans”.
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
|
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
AND
DECEMBER 31, 2016
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
December 31, 2017
and
December 31, 2016
and the per share amount by class of preferred stock.
|
|
Cumulative arrearage
as of
|
|
|
Cumulative arrearage per share
as of
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Series of preferred stock
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
Series A Preferred Stock
In
1999,
our Board of Directors designated
5,000,000
shares of our preferred stock as
5%
Series A Convertible Preferred Stock (“Series A Preferred Stock”), of which
-
0
- shares are issued and outstanding.
The designations, rights and preferences of the Series A Preferred include:
|
●
|
the shares are
not
redeemable,
|
|
●
|
each share of Series A Preferred Stock is convertible into shares of our common stock at any time at the option of the holder at a conversion price of
$1.
11
per share, or if
not
so converted after
one
year from issuance, at any time at our option if the closing bid price of our common stock has exceeded
$3.00
for
20
consecutive trading days, our common stock is listed on The NASDAQ Stock Market or other national stock exchange, and the shares of common stock issuable upon conversion of the Series A Preferred Stock are registered under a registration statement,
|
|
●
|
the conversion price has certain anti-dilution protections for any stock splits, stock dividends, and corporate reorganizations, and certain other corporate transactions and issuances of securities at below the applicable conversion price per share.
The Series A Preferred Stockholders have waived their rights to an anti-dilution adjustment reducing their conversion price as a result of the issuance of the Series B Preferred Stock and Series C Preferred Stock,
|
|
●
|
the shares of Series A Preferred Stock pay a cumulative dividend at a rate of
5%
per annum based on the stated value of
$1.00
per share, payable when and as declared by the Board of Directors, or upon conversion or liquidation. Dividends on the Series A Preferred Stock have priority to our common stock and are junior to Series B Preferred Stock and Series C Preferred Stock.
At our option, dividends can be paid in cash or shares of common stock valued at the conversion price of the Series A Preferred Stock,
|
|
●
|
in the event of our liquidation or winding up, each share of Series A Preferred Stock has a liquidation preference equal to
$1.00
per share,
and
|
|
●
|
the holders of the Series A Preferred Stock are entitled to vote together with the holders of our common stock, on the basis of
one
vote for each share of common stock issuable upon the conversion of the Series A Preferred Stock.
|
In addition, the holders of the Series A Preferred Stock were granted certain demand and piggy-back registration rights for the shares of our common stock issuable upon the conversion of the Series A Preferred Stock.
Prior to
2015
the Company had
235,000
shares of its
5%
Series A Preferred stock that have been converted by the stockholders into shares of our common stock. Pursuant to Delaware General Corporate Law, once the Company has a positive net worth, the cumulative dividends would be payable in either cash or in shares of our common stock upon the declaration of dividends by our Board of Directors.
In
December 2015
the Company initiated an Exchange Offer to the remaining
34
Series A Preferred stockholders. The terms of the exchange offer were
4
shares of our common stock in exchange for each share of Series A Preferred stock and the waiver of the accrued and unpaid dividends on the Series A Preferred shares exchanged. On
December 31, 2015
four
5%
Series A Preferred Stock Stockholders accepted the Exchange Offer and converted a total of
487,500
Series A shares into
1,950,000
common shares. During the
first
4
months of
2016,
the remaining Series A Preferred stockholders accepted the Exchange Offer and converted a total of
3,637,724
Series A shares into
14,615,696
common shares.
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
AND
DECEMBER 31, 2016
Series B Preferred Stock
In
August 2001,
our Board of Directors designated
200,000
shares of our preferred stock as Series B Convertible Preferred Stock (“Series B Preferred Stock”). A Corrected Certificate of Designations was filed on
February 7, 2002
with the Delaware Secretary of State increasing the number of shares authorized as Series B Preferred Stock to
230,000
shares, of which -
0
- shares are issued and outstanding.
The designations, rights and preferences of the Series B Preferred Stock include:
|
●
|
the stated value of each share is
$10.00
per share,
|
|
●
|
the shares are
not
redeemable,
|
|
●
|
each share of Series B Preferred Stock is convertible into shares of our common stock at the option of the holder at any time commencing
January 31, 2002
at the option of the holder at
$0.25
per share, as adjusted, and the shares automatically convert, subject to limitations based on trading volume, into shares of our common stock at
$0.25
per share at such time as we complete a public offering raising proceeds in excess of
$25
million at an offering price of at least
$0.75
per share.
We
may
require all outstanding shares of the Series B Preferred Stock to convert in the event the closing bid price of our common stock exceeds
$0.50
for
20
consecutive trading days, and our common stock has been listed on The NASDAQ Stock Market or other comparable national stock exchange or an OTC Marketplace and a registration statement registering the shares of common stock issuable upon conversion of the Series B Preferred Stock has been declared effective,
|
|
●
|
the conversion price has certain anti-dilution protections for any stock splits, stock dividends, and corporate reorganizations, and certain other corporate transactions and issuances of securities at below the applicable conversion price per share or market value of the common stock,
|
|
●
|
the shares of Series B Preferred Stock pay a cumulative dividend at a rate of
8%
per annum based on the stated value of
$10.00
per share, payable when and as declared by the Board of Directors, or upon conversion or liquidation.
At our option, dividends can be paid in cash or shares of common stock valued at the conversion price of the Series B Preferred Stock,
|
|
●
|
each share of Series B Preferred Stock will rank senior to our Series A Preferred and pari passu with our Series C Preferred Stock,
|
|
●
|
in the event of our liquidation or winding up, each share of Series B Preferred Stock has a liquidation preference equal to
$10.00
per share plus accrued and unpaid dividends, and
|
|
●
|
the holders of the Series B Preferred Stock are entitled to vote, together with the holders of our common stock, on the basis of
one
vote for each share of common stock issuable upon the conversion of the Series B Preferred Stock,
|
There were cumulative arrearages of
$609,887
and
$609,887,
or
$3.05
and
$3.05
per share, on the Series B Preferred Stock dividends as of
December 31, 2017
and
December 31, 2016,
respectively.
The Company has
200,000
shares of its Series B Preferred stock that have been converted by the
stockholders into shares of our common stock. Pursuant to Delaware General Corporate Law, once the Company has a positive net worth, the cumulative dividends would be payable in either cash or in shares of our common stock upon the declaration of dividends by our Board of Directors.
In addition, the holders of the Series B Preferred Stock were granted certain mandatory and piggy-back registration rights for the shares of our common stock issuable upon the conversion of the Series B Preferred Stock and were entitled to vote
one
member to our Board of Directors.
Series C Preferred Stock
In
March 2002,
our Board of Directors designated
747,500
shares of our preferred stock as Series C Convertible Preferred Stock of which -
0
- shares are issued and outstanding.
The designations, rights and preferences of the Series C Preferred Stock include:
|
●
|
the stated value of each share is
$10.00
per share,
|
|
●
|
the shares are
not
redeemable,
|
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
AND
DECEMBER 31, 2016
|
●
|
each share of Series C Preferred Stock is convertible at any time, at the option of the holder, into a number of shares of common stock determined by dividing the stated value per share of the Series C Preferred Stock by
$0.25,
which is the Series C Conversion Price.
The Series C Preferred Stock will automatically convert, subject to limitations based on trading volume, into shares of our common stock upon a public offering of our securities raising gross proceeds in excess of
$25,000,000
at a per share price greater than
2.5
times the Series C Conversion Price per share, as adjusted for any stock split, stock dividend, recapitalization, or other similar transaction. In addition, the Series C Preferred Stock will automatically convert into shares of our common stock at the Series C Conversion Price at such time as the closing bid price for our common stock has traded at
two
times the then prevailing Series C Conversion Price for a period of
20
consecutive trading days, provided that (i) a public trading market exists for our common stock on a national securities exchange, the NASDAQ Stock Market, or the over the counter market; and (ii) the Conversion Shares have been registered for resale and are
not
subject to any lock-up and the number of shares of the Series C Preferred Stock which can be converted in any
30
-day period will be limited to the number of shares of common stock underlying the Series C Preferred Stock equal to
10
times the average daily trading volume during the
20
-day look-back period set forth above,
|
|
●
|
the conversion price
has certain anti-dilution protections for any stock splits, stock dividends, and corporate reorganizations, and certain other corporate transactions and issuances of securities at below the applicable conversion price per share or market value of the common stock,
|
|
●
|
the shares of Series C Preferred Stock pay a cumulative dividend at a rate of
8%
per annum based on the stated value of
$10.00
per share, payable when and as declared by the Board of Directors, or upon conversion or liquidation.
At our option, dividends can be paid in cash or shares of common stock valued at the conversion price of the Series C Preferred Stock,
|
|
●
|
each share of Series C Preferred Stock will rank pari passu with our Series B
Preferred Stock and senior to our Series A Preferred Stock,
|
|
●
|
in the event of our liquidation or winding up, each share of Series C Preferred Stock
has a liquidation preference equal to
$10.00
per share plus accrued and unpaid dividends, and
|
|
●
|
the holders of the Series C Preferred Stock are entitled to vote, together with the holders of our common stock, on the basis of
one
vote for each share of common stock issuable upon the conversion of the Series C Preferred Stock.
|
There were cumulative arrearages of
$1,472,093
and
$1,472,093,
or
$4.3
7
and
$4.37
per share, on the Series C Preferred Stock for undeclared dividends as of
December 31, 2017
and
December 31, 2016,
respectively.
The Company has
337,150
shares of its Series C Preferred stock that have been converted by the
stockholders into shares of our common stock. Pursuant to Delaware General Corporate Law, once the Company has a positive net worth, the cumulative dividends would be payable in either cash or in shares of our common stock upon the declaration of dividends by our Board of Directors.
In addition, the holders of the Series C Preferred Stock were granted certain mandatory and piggy-back registration rights covering the shares of our common stock issuable upon the conversion of the Series C Preferred Stock and were entitled to vote
two
members to our Board of Directors.
Series D Preferred Stock
In
November 2010,
our Board of Directors designated
250,000
shares of our preferred stock as Series D Convertible Preferred Stock of which
250,000
shares are issued and outstanding.
The designations, rights and preferences of the Series D Preferred Stock include:
|
●
|
the stated value of the Series
D Preferred is
$0.001
per share,
|
|
●
|
the Series D Preferred has
no
rights to receive dividend distributions or to participate in any dividends declared by the Corporation to or for the benefit of
the holders of its common stock,
|
|
●
|
the shares of Series D Preferred are
not
convertible into or exchangeable for any ot
her security of the Corporation,
|
|
●
|
except as provided in Series D Preferred Designation, in the case of the death or disability of Series D Preferred holder, the Series D Preferred is
not
redeemable without the prior express written consent of the holders of the majority of the voting power of all then outstanding shares of such Series D Preferred. In the event any shares of Series D Preferred are redeemed pursuant, the shares redeemed will automatically be canceled and returned to the status of authorized but uni
ssued shares of preferred stock,
|
|
●
|
each share of Series D Preferred entitles the holder to
four hundred
(
400
) votes. With respect to such vote, the holder is entitled to notice of any stockholders' meeting in accordance with the bylaws of the Company, and is entitled to vote, together as a single class with holders of common stock and any other series of preferred stock then outstanding, with respect to any question or matter upon which holders of common stock have the right to vote. The Series D Preferred will also entitle the holders to vote the shares as a separate class as set forth herein and as required by law. In the event of any stock split, stock dividend or reclassification of the Corporation's common stock, the number of votes which attach to each share of Series D Preferred shall be adjusted in the same proportion as any adjustment to the number of outstanding shares of common stock. The shares of Series D Preferred present at a meeting of the Company’s stockholders shall vote in the same percentage as all voting shares voted for each director at the Company’s stockholder meeting in connection with the election or removal of directors to or from the Corporation’s Board of Directors,
|
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
AND
DECEMBER 31, 2016
|
●
|
in the event of the liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, the holders of shares of the Series D Preferred then outstanding are entitled to receive before holders of shares of common stock receive any amounts, out of the remaining assets of the Corporation available for distribution to its stockholders, an amount equal to
$0.001
pe
r share,
|
|
●
|
so long as any shares of Series D Preferred are outstanding, the Company cannot without
first
obtaining the written approval of the holders of at least a majority of the voting power of the then outstanding shares of such Series D Preferred Stock (i) alter or change the rights, preferences or privileges of the Series D Preferred, or (ii) increase or decrease the total number of authorized sha
res of Series D Preferred Stock,
|
|
●
|
the holders of the Series D Preferred are
not
entitled to rights to subscribe for, purchase or receive any part of any new or additional shares of any class, whether now or hereinafter authorized, or of bonds or debentures, or other evidences of indebtedness convertible into or exchangeable for shares of
any class,
|
|
●
|
the Company has a
thirty
(
30
) day “right of
first
refusal” in which to match the terms and conditions set forth in any bona fide offer received by holders of the Series D Preferred Stock.
The Company must purchase all of those shares of Series D Preferred offered by the holder of the Series D Preferred Stock, and
|
|
●
|
the holders of Series D Preferred cannot, directly or indirectly, transfer any shares of Series D Preferred.
Any such purported transfer shall be of
no
force or effect and shall
not
be recognized by the Company.
|
Warrants Issued for Services and in Capital Transactions
The following tables summarize all warrants issued as part of debt transactions for the year
s ended
December 31, 2017
and
December 31, 2016,
and the related changes during these years.
December 31, 2017
|
|
|
December 31, 2017
|
|
Warrants outstanding
|
|
|
Warrants exercisable
|
|
|
|
|
|
|
|
Weighted average
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
Range of exercise price
|
|
Number
outstanding
|
|
|
remaining
contractual life
|
|
|
average
exercise price
|
|
|
Number exercisable
|
|
|
average
exercise price
|
|
$0.25
|
–
|
$0.60
|
|
|
27,020,000
|
|
|
|
1.84
|
|
|
$
|
0.42
|
|
|
|
27,020,000
|
|
|
$
|
0.42
|
|
December 31, 2016
|
|
|
December 31, 2016
|
|
Warrants outstanding
|
|
|
Warrants exercisable
|
|
|
|
|
|
|
|
Weighted average
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
Range of exercise price
|
|
Number
outstanding
|
|
|
remaining
contractual life
|
|
|
average
exercise price
|
|
|
Number exercisable
|
|
|
average
exercise price
|
|
$0.25
|
–
|
$0.60
|
|
|
27,860,000
|
|
|
|
2.71
|
|
|
$
|
0.42
|
|
|
|
27,860,000
|
|
|
$
|
0.42
|
|
Warrants
|
|
|
|
|
Balance at December 31, 2015
|
|
|
22,900,000
|
|
Issued
|
|
|
4,970,000
|
|
Exercised
|
|
|
-0-
|
|
Expired/forfeited
|
|
|
(10,000
|
)
|
Balance at December 31, 2016
|
|
|
27,860,000
|
|
Issued
|
|
|
-0-
|
|
Exercised
|
|
|
-0-
|
|
Expired/forfeited
|
|
|
(840,000
|
)
|
Balance at December 31, 2017
|
|
|
27,020,000
|
|
Warrants exercisable at December 31, 2017
|
|
|
27,020,000
|
|
|
|
|
|
|
Weighted average fair value of warrants granted during 2017
|
|
|
n/a
|
|
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
AND
DECEMBER 31, 2016
Other Comprehensive (Loss)
Due to the availability of net operating losses and related deferred tax valuations, there is
no
tax effect associated with any component of other comprehensive (loss).
The following table lists the beginning balance, yearly activity and ending balance of the components of accumulated other comprehensive (loss).
|
|
Foreign currency
translation
|
|
|
Accumulated other
comprehensive (loss)
|
|
Balance at December 31, 2015
|
|
$
|
(366,355
|
)
|
|
$
|
(366,355
|
)
|
2016 Activity
|
|
|
(44,150
|
)
|
|
|
(44,150
|
)
|
Balance at December 31, 2016
|
|
|
(410,505
|
)
|
|
|
(410,505
|
)
|
2017 Activity
|
|
|
13,268
|
|
|
|
13,268
|
|
Balance at December 31, 2017
|
|
$
|
(397,237
|
)
|
|
$
|
(397,237
|
)
|
NOTE
1
3
:
EMPLOYEE EQUITY INCENTIVE PLANS
Stock Option Plan
s
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 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 shall automatically increase 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. Unless earlier terminated by the Board, the
2016
Plan shall terminate on
June 29, 2026. As of December 31, 2017 10,500,000 shares were authorized under the 2016 Plan.
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 under the
2016
Plan generally vest either upon grant or in
two
installments and may be conditioned on performance. Performance based options may be conditioned upon the attainment of revenue, EDITDA or other financial or performance goals of the Company. 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 under the
2016
Plan generally lapse in
three
equal annual installments on the anniversary of the date of grant.
Any unvested stock options or restricted shares with restrictions that have
not
lapsed that are granted under the
2016
Plan are forfeited and expire upon termination of employment.
As of
December 31, 2017,
there were
4,900,000
outstanding options and -
0
- restricted stock shares that have been granted under the
2016
Plan. At
December 31, 2017,
there were
5,600,000
shares available for grant as options or other forms of share-based compensation under the
2016
Plan.
Description of
2009
Equity Incentive Plan
In
2009,
the Company
’s Board of Directors and stockholders approved the
2009
Equity Incentive Plan of OmniComm Systems, Inc. (the
“2009
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 op
tion 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 for most employees, officers and directors of the Company. Options granted under the
2009
Plan generally vested either upon grant or in
two
installments. The
first
vesting, which is equal to
50%
of the granted stock options, occurred upon completion of
one
full year of employment from the date of grant and the
second
vesting occurred on the
second
anniversary of the employee’s employment. 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 under the
2009
Plan 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. The
2009
Plan was terminated upon the approval of the
2016
Plan.
No
further grants will be made under the
2009
Plan.
As of
December 31, 2017,
there were
375,000
outstanding options and
3,876,662
restricted stock shares that have been granted under the
2009
Plan. At
December 31, 2017,
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 CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
AND
DECEMBER 31, 2016
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, 2015
|
|
|
2,002,500
|
|
|
$
|
0.14
|
|
|
|
1.40
|
|
|
$
|
198,990
|
|
Granted
|
|
|
450,000
|
|
|
|
0.20
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,120,000
|
)
|
|
|
0.12
|
|
|
|
|
|
|
|
|
|
Forfeited/cancelled/expired
|
|
|
(107,500
|
)
|
|
|
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
1,225,000
|
|
|
|
0.17
|
|
|
|
2.62
|
|
|
$
|
83,425
|
|
Granted
|
|
|
4,650,000
|
|
|
|
0.26
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(300,000
|
)
|
|
|
0.13
|
|
|
|
|
|
|
|
|
|
Forfeited/cancelled/expired
|
|
|
(300,000
|
)
|
|
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2017
|
|
|
5,275,000
|
|
|
$
|
0.26
|
|
|
|
4.09
|
|
|
$
|
130,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable at December 31, 2017
|
|
|
400,000
|
|
|
$
|
0.19
|
|
|
|
1.42
|
|
|
$
|
32,638
|
|
The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company
’s closing stock price at fiscal year-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
December 31, 2017.
The total number of shares vested and the fair value of shares vested for the years ended
December 31, 2017
and
December 31, 2016,
respectively, was:
Fair value of options vesting
for the year ended
|
|
Number of options
vested
|
|
|
Fair value of
options vested
|
|
December 31, 2017
|
|
|
62,500
|
|
|
$
|
12,742
|
|
December 31, 2016
|
|
|
162,500
|
|
|
$
|
33,622
|
|
Cash received from stock option exercises for the year ended
December 31, 2017
was
$35,250
and
$129,500
for the year ended
December 31, 2016.
Due to the Company’s net loss position,
no
income tax benefit has been realized during the years ended
December 31, 2017
and
December 31, 2016.
The following table summarizes information concerning options outstanding at
December 31, 2017:
Awards breakdown by price range at December 31, 2017
|
|
|
|
|
|
|
Outstanding
|
|
|
Vested
|
|
Strike price
range ($)
|
|
|
Outstanding
stock options
|
|
|
Weighted
average
remaining
contractual life
|
|
|
Weighted
average
outstanding
strike price
|
|
|
Vested stock
options
|
|
|
Weighted
average
remaining
vested
contractual life
|
|
|
Weighted
average vested
strike price
|
|
0.00
|
to
|
0.20
|
|
|
|
300,000
|
|
|
|
1.93
|
|
|
$
|
0.18
|
|
|
|
250,000
|
|
|
|
1.48
|
|
|
$
|
0.17
|
|
0.21
|
to
|
0.30
|
|
|
|
4,250,000
|
|
|
|
4.12
|
|
|
|
0.25
|
|
|
|
150,000
|
|
|
|
1.30
|
|
|
|
0.22
|
|
0.31
|
to
|
0.50
|
|
|
|
725,000
|
|
|
|
4.82
|
|
|
|
0.34
|
|
|
|
-0-
|
|
|
|
0.00
|
|
|
|
0.00
|
|
0.00
|
to
|
0.50
|
|
|
|
5,275,000
|
|
|
|
4.09
|
|
|
$
|
0.26
|
|
|
|
400,000
|
|
|
|
1.42
|
|
|
$
|
0.19
|
|
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
AND
DECEMBER 31, 2016
The following table summarizes information concerning options outstanding at
December 31, 2016:
Awards breakdown by price range at December 31, 2016
|
|
|
|
|
|
|
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
|
|
|
|
850,000
|
|
|
|
2.15
|
|
|
$
|
0.15
|
|
|
|
625,000
|
|
|
|
1.32
|
|
|
$
|
0.14
|
|
0.21
|
to
|
0.30
|
|
|
|
375,000
|
|
|
|
3.70
|
|
|
|
0.23
|
|
|
|
112,500
|
|
|
|
1.67
|
|
|
|
0.21
|
|
0.31
|
to
|
0.50
|
|
|
|
-0-
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
-0-
|
|
|
|
0.00
|
|
|
|
0.00
|
|
0.00
|
to
|
0.50
|
|
|
|
1,225,000
|
|
|
|
2.62
|
|
|
$
|
0.17
|
|
|
|
737,500
|
|
|
|
1.38
|
|
|
$
|
0.15
|
|
The weighted average fair value (per share) of
options granted during the year ended
December 31, 2017
was
$0.21
and
$0.19
for the year ended
December 31, 2016
using the Black Scholes option-pricing model.
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 granted during fiscal
2017
and
2016.
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.
The fair value of share-based payments was estimated using the Black Scholes option pricing model with the following assumptions for grants made during the periods indicated.
|
|
For the year ended
|
|
Stock option assumptions
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Risk-free interest rate
|
|
|
1.81%
|
|
|
|
1.45%
|
|
Expected dividend yield
|
|
|
0.0%
|
|
|
|
0.0%
|
|
Expected volatility
|
|
|
127.1%
|
|
|
|
155.5%
|
|
Expected life of options (in years)
|
|
|
5
|
|
|
|
5
|
|
The following table summarizes weighted average grant date fair value for the Company incentive stock plans:
|
|
Weighted average grant date fair value
|
|
|
|
for the year ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Stock options granted during the period
|
|
$
|
0.21
|
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
Stock options vested during the period
|
|
$
|
0.20
|
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
Stock options forfeited during the period
|
|
$
|
0.13
|
|
|
$
|
0.28
|
|
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
AND
DECEMBER 31, 2016
A summary of the status of the Company
’s non-vested shares underlying stock options as of
December 31, 2017,
and changes during the year ended
December 31, 2017
is as follows:
|
|
Shares underlying stock
options
|
|
|
Weighted average grant
date fair value
|
|
Nonvested shares at January 1, 2017
|
|
|
487,500
|
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
Nonvested shares at December 31, 2017
|
|
|
4,875,000
|
|
|
$
|
0.21
|
|
As of
December 31, 2017,
approximately
$656,978
of total unrecognized compensation cost related to unvested stock options is expected to be recognized over a weighted-average period of
2.08
years.
NOTE
1
4
:
INCOME TAXES
A reconciliation of income tax expense and the amount computed by applying the statutory federal income tax rate to the income before provision for income taxes is as follows
:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Federal statutory rate applied to income/(loss) before income taxes
|
|
$
|
1,117,014
|
|
|
$
|
38,740
|
|
Increase/(decrease) in income taxes results from:
|
|
|
|
|
|
|
|
|
Current tax expense/(benefit)
|
|
|
1,194
|
|
|
|
1,069
|
|
Nondeductible expenses
|
|
|
(44,845
|
)
|
|
|
1,078,519
|
|
Change in deferred assets
|
|
|
(35,423
|
)
|
|
|
41,019
|
|
Change in valuation allowance
|
|
|
(1,036,746
|
)
|
|
|
(1,158,278
|
)
|
|
|
|
|
|
|
|
|
|
Income tax expense/(benefit)
|
|
$
|
1,194
|
|
|
$
|
1,069
|
|
The components of income tax expense
/(benefit) for the year ended:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Current tax expense/(benefit):
|
|
$
|
1,194
|
|
|
$
|
1,069
|
|
Deferred tax expense/(benefit):
|
|
|
|
|
|
|
|
|
Bad debt allowance
|
|
|
11,226
|
|
|
|
(23,699
|
)
|
Operating loss carryforward
|
|
|
1,060,942
|
|
|
|
1,140,957
|
|
Amortization of intangibles
|
|
|
5,482
|
|
|
|
5,482
|
|
Patent litigation settlement
|
|
|
(40,904
|
)
|
|
|
35,538
|
|
|
|
|
1,037,940
|
|
|
|
1,159,347
|
|
Valuation allowance
|
|
|
(1,036,746
|
)
|
|
|
(1,158,278
|
)
|
|
|
|
|
|
|
|
|
|
Total tax expense/(benefit)
|
|
$
|
1,194
|
|
|
$
|
1,069
|
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Amortization of intangibles
|
|
$
|
261,771
|
|
|
$
|
267,253
|
|
Bad debt allowance
|
|
|
55,436
|
|
|
|
66,662
|
|
Patent litigation liability accrual
|
|
|
169,709
|
|
|
|
128,804
|
|
Impact of the Tax Cuts and Jobs Act
|
|
|
(1,699,440
|
)
|
|
|
-0-
|
|
Operating loss carryforwards
|
|
|
17,973,631
|
|
|
|
19,034,573
|
|
Gross deferred tax assets
|
|
|
16,761,107
|
|
|
|
19,497,292
|
|
Valuation allowance
|
|
|
(16,761,107
|
)
|
|
|
(19,497,292
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability/(asset)
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
OMNICOMM SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
AND
DECEMBER 31, 2016
The Company has net operating loss carry forwards (NOL) for income tax purposes of approximately $
32,543,685.
This loss is allowed to be offset against future income until the year
2037
when the NOL’s will expire. Other timing differences relate to depreciation and amortization for the stock acquisition of Education Navigator in
1998.
The tax benefits relating to all timing differences have been fully reserved for in the valuation allowance account due to the substantial losses incurred through
December 31, 2017.
The change in the valuation allowance for the year ended
December 31, 2017
was a decrease of
$2,736,185.
The Company's tax returns for the prior
three
years remain subject to examination by major tax jurisdictions.
On
December 22, 2017,
the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act ("Tax Act"). The Tax Act establishes new tax laws that affect
2018
and future years, including a reduction in the U.S. federal corporate tax rate to
21
percent effective
January 1, 2018.
For certain deferred tax assets and deferred tax liabilities, we have recorded a provisional change of
$1,699,440,
with a corresponding net adjustment to valuation allowance of
$1,699,440
as of
December 31, 2017.
NOTE
1
5
:
SUBSEQUENT EVENTS
Subsequent to
December 31, 2017
the Company drew
$1,750,000
on its Line of Credit.
Subsequent to
December 31, 2017
the Company acquired certain assets and liabilities from Algorithm, Inc. for the price of
$500,000
in cash and
1,666,667
restricted common shares.
Subsequent to
December 31, 2017
the Company
cancelled the performance based stock option grants to the executive officers and external directors that had been granted in
2017
as the performance criteria had
not
been met.
F-
36