SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-Q
[Mark One]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended September 30, 2018
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _______ to _______
Commission File Number: 0-25203 |
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OmniComm Systems, Inc. |
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(Exact name of registrant as specified in its Charter) |
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Delaware |
11-3349762 |
(State or other jurisdiction of Incorporation or organization) |
(IRS Employer Identification Number) |
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2101 W. Commercial Blvd. Suite 3500, Fort Lauderdale, FL |
33309 |
Address of principal executive offices |
Zip Code |
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954.473.1254 |
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(Registrant’s Telephone Number including area code) |
No Changes
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [√] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [√] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
[ ] |
Accelerated filer |
[ ] |
Non-accelerated filer (Do not check if smaller reporting company) |
[ ] |
Smaller reporting company |
[√] |
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Emerging growth company |
[ ] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [√]
The number of shares outstanding of each of the issuer’s classes of common equity as of November 12, 2018: 152,343,647 common stock $.001 par value.
Table of Contents to the Quarterly Report on Form 10-Q for the nine month period ended September 30, 2018
ITEM 1. FINANCIAL STATEMENTS
OMNICOMM SYSTEMS, INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE SHEETS |
September 30, 2018 |
December 31, 2017 |
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(unaudited) |
||||||||
ASSETS | ||||||||
CURRENT ASSETS |
||||||||
Cash |
$ | 1,371,962 | $ | 1,176,551 | ||||
Accounts receivable, net of allowance for doubtful accounts of $197,911 and $149,980, respectively |
5,124,404 | 7,492,597 | ||||||
Prepaid expenses |
390,565 | 297,131 | ||||||
Other current assets |
11,917 | 11,463 | ||||||
Total current assets |
6,898,848 | 8,977,742 | ||||||
Property and equipment, net |
1,330,744 | 552,538 | ||||||
Other assets |
||||||||
Intangible assets, net |
819,750 | 97,925 | ||||||
Other assets |
129,018 | 46,714 | ||||||
TOTAL ASSETS |
$ | 9,178,360 | $ | 9,674,919 | ||||
LIABILITIES AND SHAREHOLDERS' (DEFICIT) | ||||||||
CURRENT LIABILITIES |
||||||||
Accounts payable and accrued expenses |
$ | 1,686,536 | $ | 2,586,045 | ||||
Notes payable, related parties, current portion, net of discount of $46,946 and $-0-, respectively |
353,054 | -0- | ||||||
Convertible notes payable, current portion |
-0- | 50,000 | ||||||
Deferred revenue, current portion |
6,209,198 | 7,564,587 | ||||||
Capital lease liability, current portion |
114,594 | -0- | ||||||
Patent settlement liability, current portion |
-0- | 112,500 | ||||||
Conversion feature liability, related parties |
1,744,002 | 1,604,723 | ||||||
Conversion feature liability |
96,510 | 81,224 | ||||||
Warrant liability, related parties |
2,754,207 | 2,196,570 | ||||||
Warrant liability |
1,682,000 | 1,244,229 | ||||||
Total current liabilities |
14,640,101 | 15,439,878 | ||||||
LONG TERM LIABILITIES |
||||||||
Line of credit, long term |
3,200,000 | 2,650,000 | ||||||
Notes payable, related parties, long term, net of current portion, net of discount of $-0- and $117,365, respectively |
-0- | 282,635 | ||||||
Notes payable, long term, net of current portion, net of discount of $186,268 and $279,402, respectively |
516,232 | 423,098 | ||||||
Convertible notes payable, related parties, long term, net of current portion |
5,770,000 | 5,770,000 | ||||||
Convertible notes payable, long term, net of current portion |
200,000 | 350,000 | ||||||
Deferred revenue, long term, net of current portion |
1,658,064 | 1,952,366 | ||||||
Capital lease liability, long term, net of current portion |
206,010 | -0- | ||||||
TOTAL LIABILITIES |
26,190,407 | 26,867,977 | ||||||
COMMITMENTS AND CONTINGENCIES (See Note 10) |
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SHAREHOLDERS' (DEFICIT) |
||||||||
Preferred stock, $0.001 par value, 10,000,000 shares authorized, 3,772,500 shares undesignated | ||||||||
Series A convertible preferred stock, 5,000,000 shares authorized, -0- and -0- issued and outstanding, respectively, at $0.001 par value; liquidation preference $-0- and $-0-, respectively |
-0- | -0- | ||||||
Series B convertible preferred stock, 230,000 shares authorized, -0- and -0- issued and outstanding, respectively, at $0.001 par value; liquidation preference $-0- and $-0-, respectively |
-0- | -0- | ||||||
Series C convertible preferred stock, 747,500 shares authorized, -0- and -0- issued and outstanding, respectively, at $0.001 par value; liquidation preference $-0- and $-0-, respectively |
-0- | -0- | ||||||
Series D preferred stock, 250,000 shares authorized, 250,000 and 250,000 issued and outstanding, respectively, at $0.001 par value |
250 | 250 | ||||||
Common stock, 500,000,000 shares authorized, 152,309,472 and 148,542,805 issued and outstanding, respectively, at $0.001 par value |
152,311 | 148,544 | ||||||
Additional paid in capital - preferred |
999,750 | 999,750 | ||||||
Additional paid in capital - common |
55,130,550 | 54,379,454 | ||||||
Accumulated other comprehensive (loss) |
(431,661 | ) | (397,237 | ) | ||||
Accumulated (deficit) |
(72,863,247 | ) | (72,323,819 | ) | ||||
TOTAL SHAREHOLDERS' (DEFICIT) |
(17,012,047 | ) | (17,193,058 | ) | ||||
TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) |
$ | 9,178,360 | $ | 9,674,919 |
See accompanying summary of accounting policies and notes to unaudited condensed consolidated financial statements
OMNICOMM SYSTEMS, INC. AND SUBSIDIARIES |
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
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(unaudited) |
For the nine months ended |
For the three months ended |
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September 30, |
September 30, |
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2018 |
2017 |
2018 |
2017 |
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Revenues |
$ | 19,557,161 | $ | 19,420,456 | $ | 6,379,641 | $ | 6,490,147 | ||||||||
Reimbursable revenues |
775,788 | 755,344 | 463,183 | 225,766 | ||||||||||||
Total revenues |
20,332,949 | 20,175,800 | 6,842,824 | 6,715,913 | ||||||||||||
Cost of goods sold |
3,240,449 | 3,320,190 | 1,044,020 | 1,133,480 | ||||||||||||
Reimbursable expenses-cost of goods sold |
368,542 | 802,975 | 253,793 | 181,965 | ||||||||||||
Total cost of goods sold |
3,608,991 | 4,123,165 | 1,297,813 | 1,315,445 | ||||||||||||
Gross margin |
16,723,958 | 16,052,635 | 5,545,011 | 5,400,468 | ||||||||||||
Operating expenses |
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Salaries, benefits and related taxes |
10,695,132 | 9,906,293 | 3,483,627 | 3,393,915 | ||||||||||||
Rent and occupancy expenses |
930,972 | 841,718 | 337,824 | 292,669 | ||||||||||||
Consulting services |
219,856 | 185,222 | 55,736 | 64,488 | ||||||||||||
Legal and professional fees |
381,648 | 367,403 | 72,776 | 126,959 | ||||||||||||
Travel |
588,247 | 679,766 | 190,785 | 188,406 | ||||||||||||
Telephone and internet |
114,696 | 115,660 | 43,682 | 39,786 | ||||||||||||
Selling, general and administrative |
1,297,008 | 937,313 | 383,958 | 277,047 | ||||||||||||
Bad debt expense |
47,931 | 40,369 | 21,679 | 87,366 | ||||||||||||
Intangible asset impairment |
79,634 | -0- | -0- | -0- | ||||||||||||
Depreciation expense |
279,532 | 249,801 | 115,687 | 87,382 | ||||||||||||
Amortization expense |
248,790 | 16,455 | 91,343 | 5,580 | ||||||||||||
Total operating expenses |
14,883,446 | 13,340,000 | 4,797,097 | 4,563,598 | ||||||||||||
Operating income/(loss) |
1,840,512 | 2,712,635 | 747,914 | 836,870 | ||||||||||||
Other income/(expense) |
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Interest expense, related parties |
(682,986 | ) | (717,782 | ) | (229,906 | ) | (252,585 | ) | ||||||||
Interest expense |
(283,407 | ) | (342,240 | ) | (95,622 | ) | (127,488 | ) | ||||||||
Interest income |
16 | 589 | 7 | 3 | ||||||||||||
Change in derivative liabilities |
(1,160,473 | ) | 723,532 | (2,918,886 | ) | (812,535 | ) | |||||||||
Transaction gain/(loss) |
(97,984 | ) | 19,006 | (12,128 | ) | (3,104 | ) | |||||||||
Income/(loss) before income taxes |
(384,322 | ) | 2,395,740 | (2,508,621 | ) | (358,839 | ) | |||||||||
Income tax (expense) |
(155,106 | ) | (1,194 | ) | (154,071 | ) | -0- | |||||||||
Net income/(loss) attributable to common stockholders |
$ | (539,428 | ) | $ | 2,394,546 | $ | (2,662,692 | ) | $ | (358,839 | ) | |||||
Net income/(loss) per share |
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Basic |
$ | (0.00 | ) | $ | 0.02 | $ | (0.02 | ) | $ | (0.00 | ) | |||||
Diluted |
$ | (0.00 | ) | $ | 0.02 | $ | (0.02 | ) | $ | (0.00 | ) | |||||
Weighted average number of shares outstanding |
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Basic |
150,282,732 | 147,805,410 | 150,905,124 | 147,858,566 | ||||||||||||
Diluted |
150,282,732 | 147,850,886 | 150,905,124 | 147,858,566 |
See accompanying summary of accounting policies and notes to unaudited condensed consolidated financial statements
OMNICOMM SYSTEMS, INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) |
(unaudited) |
For the nine months ended |
For the three months ended |
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September 30, |
September 30, |
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2018 |
2017 |
2018 |
2017 |
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Net income/(loss) attributable to common stockholders |
$ | (539,428 | ) | $ | 2,394,546 | $ | (2,662,692 | ) | $ | (358,839 | ) | |||||
Other comprehensive income/(loss) |
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Change in foreign currency translation adjustment |
(34,424 | ) | 13,386 | (13,256 | ) | 1,310 | ||||||||||
Other comprehensive income/(loss) |
(34,424 | ) | 13,386 | (13,256 | ) | 1,310 | ||||||||||
Comprehensive income/(loss) |
$ | (573,852 | ) | $ | 2,407,932 | $ | (2,675,948 | ) | $ | (357,529 | ) |
See accompanying summary of accounting policies and notes to unaudited condensed consolidated financial statements
OMNICOMM SYSTEMS, INC. AND SUBSIDIARIES |
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CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' (DEFICIT) |
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FOR THE YEAR ENDED DECEMBER 31, 2017 AND THE NINE MONTHS ENDED SEPTEMBER 30, 2018 |
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(unaudited) |
Preferred Stock |
Common Stock |
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Series D Preferred |
Additional |
Additional |
Accumulated other |
Total |
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Number |
$0.001 |
paid in capital |
Number |
$0.001 |
paid in capital |
Accumulated |
comprehensive |
shareholders' |
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of shares |
Par value |
preferred |
of shares |
Par value |
common |
(deficit) |
(loss) |
(deficit) |
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Balances at December 31, 2016 |
250,000 | $ | 250 | $ | 999,750 | 147,786,917 | $ | 147,788 | $ | 53,425,956 | $ | (75,291,037 | ) | $ | (410,505 | ) | $ | (21,127,798 | ) | ||||||||||||||
Employee stock option expense |
364,271 | 364,271 | |||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
13,268 | 13,268 | |||||||||||||||||||||||||||||||
Restricted stock issuance/(forfeiture) |
(16,668 | ) | (17 | ) | (2,817 | ) | (2,834 | ) | |||||||||||||||||||||||||
Cashless issuance of common stock, stock option exercise |
22,556 | 23 | (23 | ) | -0- | ||||||||||||||||||||||||||||
Issuance of common stock, stock option exercise |
250,000 | 250 | 35,000 | 35,250 | |||||||||||||||||||||||||||||
Issuance of common stock, warrant exercise |
500,000 | 500 | 154,500 | 155,000 | |||||||||||||||||||||||||||||
Reclassification of conversion feature liability associated with convertible debt |
402,567 | 402,567 | |||||||||||||||||||||||||||||||
Net income/(loss) for the year ended December 31, 2017 |
-0- | -0- | -0- | -0- | -0- | -0- | 2,967,218 | -0- | 2,967,218 | ||||||||||||||||||||||||
Balances at December 31, 2017 |
250,000 | 250 | 999,750 | 148,542,805 | 148,544 | 54,379,454 | (72,323,819 | ) | (397,237 | ) | (17,193,058 | ) | |||||||||||||||||||||
Employee stock option expense |
157,628 | 157,628 | |||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
(34,424 | ) | (34,424 | ) | |||||||||||||||||||||||||||||
Restricted Stock Issuance/Forfeiture |
1,900,000 | 1,900 | 39,835 | 41,735 | |||||||||||||||||||||||||||||
Issuance of common stock, purchase of Acuity software |
1,666,667 | 1,667 | 498,333 | 500,000 | |||||||||||||||||||||||||||||
Issuance of common stock, stock option exercise |
200,000 | 200 | 44,800 | 45,000 | |||||||||||||||||||||||||||||
Reclassification of conversion feature liability associated with convertible debt |
10,500 | 10,500 | |||||||||||||||||||||||||||||||
Net income/(loss) for the period ended September 30, 2018 |
-0- | -0- | -0- | -0- | -0- | -0- | (539,428 | ) | -0- | (539,428 | ) | ||||||||||||||||||||||
Balances at September 30, 2018 (unaudited) |
250,000 | $ | 250 | $ | 999,750 | 152,309,472 | $ | 152,311 | $ | 55,130,550 | $ | (72,863,247 | ) | $ | (431,661 | ) | $ | (17,012,047 | ) |
See accompanying summary of accounting policies and notes to unaudited condensed consolidated financial statements
OMNICOMM SYSTEMS, INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(unaudited) |
For the nine months ended |
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September 30, |
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2018 |
2017 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net income/(loss) |
$ | (539,428 | ) | $ | 2,394,546 | |||
Adjustment to reconcile net income/(loss) to net cash provided by/(used in) operating activities |
||||||||
Change in derivative liabilities |
1,160,473 | (723,532 | ) | |||||
Intangible asset impairment |
79,634 | -0- | ||||||
Interest expense from derivative instruments |
163,553 | 241,664 | ||||||
Employee stock compensation |
199,363 | 467,930 | ||||||
Provision for doubtful accounts |
47,931 | 40,369 | ||||||
Depreciation and amortization |
528,322 | 266,256 | ||||||
Changes in operating assets and liabilities |
||||||||
Accounts receivable |
2,320,262 | (889 | ) | |||||
Prepaid expenses |
(93,434 | ) | (47,519 | ) | ||||
Other current assets |
(454 | ) | 2,915 | |||||
Other assets |
(82,304 | ) | 4,843 | |||||
Accounts payable and accrued expenses |
(899,509 | ) | (510,316 | ) | ||||
Patent settlement liability |
(112,500 | ) | (449,479 | ) | ||||
Deferred revenue |
(1,649,691 | ) | (406,867 | ) | ||||
Net cash provided by/(used in) operating activities |
1,122,218 | 1,279,921 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||
Purchase of property and equipment |
(700,028 | ) | (212,173 | ) | ||||
Purchase of Acuity software |
(552,403 | ) | -0- | |||||
Net cash provided by/(used in) investing activities |
(1,252,431 | ) | (212,173 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
Repayments of notes payable |
(200,000 | ) | (1,020,000 | ) | ||||
Proceeds/(repayments) from revolving line of credit |
550,000 | (200,000 | ) | |||||
Proceeds from exercise of stock options |
45,000 | 35,250 | ||||||
Principal repayment of capital lease obligation |
(38,064 | ) | -0- | |||||
Net cash provided by/(used in) financing activities |
356,936 | (1,184,750 | ) | |||||
Effect of exchange rate changes on fixed and intangible assets |
3,112 | (18,125 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents |
(34,424 | ) | 13,386 | |||||
Net increase/(decrease) in cash and cash equivalents |
195,411 | (121,741 | ) | |||||
Cash and cash equivalents at beginning of period |
1,176,551 | 1,439,332 | ||||||
Cash and cash equivalents at end of period |
$ | 1,371,962 | $ | 1,317,591 | ||||
Supplemental disclosures of cash flow information: |
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Cash paid during the period for: |
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Income taxes |
$ | 1,035 | $ | 1,194 | ||||
Interest |
$ | 889,984 | $ | 802,327 | ||||
Non-cash transactions: |
||||||||
Notes payable issued in exchange for existing notes payable |
$ | -0- | $ | 350,000 | ||||
Restricted stock issuance/(forfeiture) |
$ | 41,735 | $ | (2,834 | ) | |||
Common stock issued for the purchase of Acuity software |
$ | 500,000 | $ | -0- | ||||
Capital expenditures funded by capital lease borrowing |
$ | 359,603 | $ | -0- | ||||
Reclassification of conversion feature liability associated with convertible debt |
$ | 10,500 | $ | 402,567 |
See accompanying summary of accounting policies and notes to unaudited condensed consolidated financial statements
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017
(unaudited)
NOTE 1: |
ORGANIZATION AND NATURE OF OPERATIONS |
OmniComm Systems, Inc. (“OmniComm” or the “Company”) is a healthcare technology company that provides web-based electronic data capture (“EDC”) solutions and related value-added services to pharmaceutical and biotech companies, contract research organizations (“CROs”) and other clinical trial sponsors principally located in the United States, Europe and East Asia. Our proprietary software applications: TrialMaster®, TrialOne®, eClinical Suite, Promasys®, IRTMaster, AutoEncoder and Acuity Analytics (the “EDC Software”) allow clinical trial sponsors and investigative sites to securely collect, validate, transmit and analyze clinical trial data.
Our ability to compete within the EDC industry is predicated on our ability to continue enhancing and broadening the scope of solutions offered through our EDC Software and services. Our research and product development efforts are focused on developing new and complementary software solutions, as well as enhancing our existing software solutions through the addition of increased functionality. During the nine month periods ended September 30, 2018 and September 30, 2017 we spent $2,469,280 and $2,230,565, respectively, on research and product development activities, which are primarily comprised of salaries to our developers and other research and product development personnel and related costs associated with the development of our software products.
NOTE 2: |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The Company’s accounts include those of all its wholly-owned subsidiaries, which are more fully described in the Company’s 2017 Annual Report filed on Form 10-K with the Securities and Exchange Commission, and have been prepared in conformity with (i) accounting principles generally accepted in the United States of America; and (ii) the rules and regulations of the United States Securities and Exchange Commission. All significant intercompany accounts and transactions between the Company and its subsidiaries have been eliminated in consolidation.
UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, pursuant to the rules and regulations of the Securities and Exchange Commission. Pursuant to such rules and regulations, certain financial information and footnote disclosures normally included in the consolidated financial statements have been condensed or omitted. The results for the nine month periods ended September 30, 2018 and September 30, 2017 are unaudited, but reflect all adjustments (consisting only of normally recurring adjustments) which management considers necessary for a fair presentation of operating results.
The operating results for the nine month period ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year-ended December 31, 2018. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2017.
ESTIMATES IN FINANCIAL STATEMENTS
The preparation of the unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes thereto. Significant estimates incorporated in our financial statements include the recorded allowance for doubtful accounts, the estimate of the appropriate amortization period of our intangible assets, the evaluation of whether our intangible assets have suffered any impairment, the allocation of revenues under multiple-element customer contracts, royalty-based patent liabilities, the value of derivatives associated with debt issued by the Company and the valuation of any corresponding discount to the issuance of our debt. Actual results may differ from those estimates.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017
(unaudited)
Reclassifications
Certain reclassifications have been made in the 2017 financial statements to conform to the 2018 presentation. These reclassifications did not have any effect on our net income/(loss) or shareholders’ deficit.
foreign currency translation
The financial statements of the Company’s foreign subsidiaries are translated in accordance with Accounting Standards Codification (“ASC”) 830-30, Foreign Currency Matters—Translation of Financial Statements ("ASC 830-30"). The reporting currency for the Company is the U.S. dollar. The functional currency of the Company’s subsidiaries, OmniComm Europe GmbH in Germany, OmniComm Spain S.L. in Spain and OmniComm Systems B.V. in the Netherlands is the Euro. The functional currency of the Company’s subsidiary, OmniComm Ltd. in the United Kingdom, is the British Pound Sterling. The functional currency of the Company’s subsidiary, OmniComm eClinical Solutions Pvt. Ltd. in India, is the Indian Rupee. Accordingly, the assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars using the exchange rate in effect at each balance sheet date. Revenue and expense accounts of the Company’s foreign subsidiaries are translated using an average rate of exchange during the period. Foreign currency translation adjustments are accumulated as a component of other comprehensive income/(loss) as a separate component of stockholders’ equity. Gains and losses arising from transactions denominated in foreign currencies are primarily related to intercompany accounts that have been determined to be temporary in nature and accordingly, are recorded directly to the statement of operations. We record translation gains and losses in accumulated other comprehensive income as a component of stockholders’ equity. We recorded a translation loss of $34,424 and a translation gain of $13,386 for the nine month periods ended September 30, 2018 and September 30, 2017, respectively.
REVENUE RECOGNITION POLICY
The Company derives revenues from software licenses and services of its EDC products and services which can be purchased on a stand-alone basis. License revenues are derived principally from the sale of term licenses for the following software products offered by the Company: TrialMaster, TrialOne, eClinical Suite and Promasys. Service revenues are derived principally from the Company's delivery of the hosted solutions of its TrialMaster software product, and consulting services and customer support, including training, for all of the Company's products.
For revenue from product sales, the Company recognizes revenue in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 606 (“ASC 606"). A five-step analysis must be met as outlined in ASC 606: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) performance obligations are satisfied. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.
The Company operates in one reportable segment which is the delivery of EDC Software and services to clinical trial sponsors. The Company segregates its revenues based on the activity cycle used to generate its revenues. Accordingly, revenues are currently generated through four main activities, including hosted applications, licensing, professional services and maintenance-related services.
Hosted Application Revenues
The Company offers its TrialMaster and TrialOne software products as hosted application solutions delivered through a standard web browser, with customer support and training services. The Company's TrialOne and Promasys solutions are primarily deployed on a technology transfer or off-the-shelf basis. To date, hosted applications revenues have been primarily related to TrialMaster. On April 30, 2019, OmniComm will decommission its eClinical Suite hosting platform as the eClinical Suite clients utilizing these hosting services have transitioned to TrialMaster, the eClinical Suite studies have been completed or the studies have transitioned to another hosting platform.
Revenues resulting from TrialMaster application hosting services consist of three components of services for each clinical trial. The first component is comprised of application set-up, including design of electronic case report forms and edit checks, installation and server configuration of the system. The second component involves application hosting and related support services as well as billable change orders which consist of amounts billed to customers for functionality changes made. The third component involves services required to close out, or lock, the database for the clinical trial.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017
(unaudited)
Fees charged for the trial system design, set-up and implementation are amortized and recognized ratably over the estimated hosting period. Work performed outside the original scope of work is contracted for separately as an additional fee and is generally recognized ratably over the remaining term of the hosting period. Fees for the first and third stages of the service are typically billed based upon milestones. Revenues earned upon completion of a contractual milestone are deferred and recognized over the estimated remaining hosting period. Fees for application hosting and related services in the second stage are generally billed monthly or quarterly in advance.
Licensing Revenues
The Company's software license revenues are earned from the sale of off-the-shelf software. From time to time a client might require significant modification or customization subsequent to delivery to the customer. The Company generally enters into software term licenses for its EDC Software products with its customers for three to five year periods, although customers have entered into both longer and shorter term license agreements. These arrangements typically include multiple elements: software license, consulting services and customer support. The Company bills its customers in accordance with the terms of the underlying contract. Generally, the Company bills license fees in advance for each billing cycle of the license term, which typically is either on a quarterly or annual basis. Payment terms are generally net 30 to net 45 days.
The Company has sold perpetual licenses for EDC Software products in certain situations to existing customers with the option to purchase customer support, and may, in the future, do so for new customers based on customer requirements or market conditions. The Company has established vendor specific objective evidence of fair value for the customer support. Accordingly, license revenues are recognized upon delivery of the software and when all other revenue recognition criteria are met. Customer support revenues are recognized ratably over the term of the underlying support arrangement. The Company generates customer support and maintenance revenues from its perpetual license customer base.
Professional Services
The Company may also enter into arrangements to provide consulting services separate from a license arrangement. In these situations, revenue is recognized on a time-and-materials basis. Professional services can be deemed to be as essential to the functionality of the software at inception and typically are for initial trial configuration, implementation planning, loading of software, building simple interfaces, running test data and documentation of procedures. Subsequent additions or extensions to license terms do not generally include additional professional services.
Maintenance Revenues
Maintenance includes telephone-based help desk support and software maintenance, including updates to the software through new software version releases. The Company generally bundles customer support with the software license for the entire term of the arrangement. As a result, the Company generally recognizes revenues for both maintenance and software licenses ratably over the term of the software license and support arrangement. The Company allocates the revenues recognized for these arrangements to the different elements based on management's estimate of the relative fair value of each element. The Company generally invoices each of the elements based on separately quoted amounts and thus has a fairly accurate estimate of the relative fair values of each of the invoiced revenue elements.
Pass-through Revenue and Expense
The Company accounts for pass-through revenue and expense (reimbursable revenue and reimbursable expense) in accordance with Accounting Standards Update 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), (“ASU 2016-08”). In accordance with ASU 2016-08 these amounts are recorded as revenue in the statement of operations with a corresponding expense recorded in cost of goods sold. Pass-through revenues and expenses include amounts associated with third-party services provided to our customers by our service and product partners. These third-party services are primarily comprised of Interactive Voice and Web Response software services (IVR and IWR), travel and shipping that are incurred on our clients’ behalf.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017
(unaudited)
The fees associated with each business activity for the nine month periods ended September 30, 2018 and September 30, 2017, respectively, are:
For the nine months ended |
||||||||
Revenue activity |
September 30, 2018 |
September 30, 2017 |
||||||
Set-up fees |
$ | 2,683,182 | $ | 3,948,687 | ||||
Change orders |
1,090,333 | 1,054,288 | ||||||
Maintenance |
4,163,138 | 3,749,897 | ||||||
Software licenses |
8,423,355 | 7,951,228 | ||||||
Professional services |
2,617,149 | 2,526,379 | ||||||
Hosting |
1,355,792 | 945,321 | ||||||
Total |
$ | 20,332,949 | $ | 20,175,800 |
COST OF GOODS SOLD
Cost of goods sold primarily consists of costs related to hosting, maintaining and supporting the Company’s application suite and delivering professional services and support. These costs include salaries, benefits and bonuses for the Company’s professional services staff. Cost of goods sold also includes outside service provider costs. Cost of goods sold is expensed as incurred.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid, short-term investments with maturities of 90 days or less. The carrying amount reported in the accompanying consolidated balance sheets approximates fair value.
ACCOUNTS RECEIVABLE
Accounts receivable are judged as to collectability by management and an allowance for bad debts is established as necessary. The allowance is based on an evaluation of the collectability of accounts receivable and prior bad debt experience. The Company had recorded an allowance for uncollectible accounts receivable of $197,911 as of September 30, 2018 and $149,980 as of December 31, 2017.
The following table summarizes activity in the Company's allowance for doubtful accounts for the nine month period ended September 30, 2018 and the year ended December 31, 2017.
September 30, 2018 |
December 31, 2017 |
|||||||
Beginning of period |
$ | 149,980 | $ | 179,813 | ||||
Bad debt expense |
47,931 | 130,346 | ||||||
Write-offs |
-0- | (160,179 | ) | |||||
End of period |
$ | 197,911 | $ | 149,980 |
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017
(unaudited)
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 September 30, 2018, $1,404,402 was deposited in excess of FDIC-insured limits. Management believes the risk in these situations to be minimal.
Except as follows, the Company has no significant off-balance-sheet risk or credit risk concentrations. Financial instruments that subject the Company to potential credit risks are principally cash equivalents and accounts receivable. Concentrated credit risk with respect to accounts receivable is limited to creditworthy customers. The Company's customers are principally located in the United States, Europe and East Asia. The Company is directly affected by the overall financial condition of the pharmaceutical, biotechnology and medical device industries and management believes that credit risk exists and that any credit risk the Company faces has been adequately reserved for as of September 30, 2018. The Company maintains an allowance for doubtful accounts based on accounts past due according to contractual terms and historical collection experience. Actual losses, when incurred, are charged to the allowance. The Company's losses related to collection of accounts receivable have consistently been within management's expectations. As of September 30, 2018, the Company believes no additional credit risk exists beyond the amounts provided for in our allowance for uncollectible accounts. The Company evaluates its allowance for uncollectable accounts on a quarterly basis based on a specific review of receivable aging and the period that any receivables are beyond the standard payment terms. The Company does not require collateral from its customers in order to mitigate credit risk.
One customer accounted for 12% of our revenues during the nine month period ended September 30, 2018 or approximately $2,339,000. One customer accounted for 10% of our revenues during the nine month period ended September 30, 2017 or approximately $2,021,000. The following table summarizes the number of customers who individually comprise greater than 10% of total revenue and/or total accounts receivable and their aggregate percentage of the Company's total revenue and gross accounts receivable for the nine month periods ended September 30, 2018 and September 30, 2017 and the year ended December 31, 2017.
Revenues |
Accounts receivable |
|||||||||||
For the period ended |
Number of customers |
Percentage of total revenues |
Number of customers |
Percentage of accounts receivable |
||||||||
September 30, 2018 |
1 | 12% | 1 | 13% | ||||||||
December 31, 2017 |
1 | 10% | 1 | 24% | ||||||||
September 30, 2017 |
1 | 10% | 2 | 38% |
The table below provides revenues from European customers for the nine month periods ended September 30, 2018 and September 30, 2017.
European revenues |
||||||||||
For the nine months ended |
||||||||||
September 30, 2018 |
September 30, 2017 |
|||||||||
European revenues |
% of Total revenues |
European revenues |
% of Total revenues |
|||||||
$3,513,571 | 17% | $2,514,601 | 12% |
The Company serves its hosting customers from third-party web hosting facilities located in the United States and Germany. 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 UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017
(unaudited)
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.
FAIR VALUE MEASUREMENT
OmniComm’s capital structure includes the use of warrants and convertible debt features that are classified as derivative financial instruments. Derivative financial instruments are recognized as either assets or liabilities and are measured at fair value under ASC 815, Derivatives and Hedging (“ASC 815”). ASC 815 requires that changes in the fair value of derivative financial instruments with no hedging designation be recognized as gains/(losses) in the earnings statement. The fair value measurement is determined in accordance with ASC 820, Fair Value Measurements and Disclosures (“ASC 820”).
DEFERRED REVENUE
Deferred revenue represents cash advances and amounts in accounts receivable as of the balance sheet date received in excess of revenue earned on on-going contracts. Payment terms vary with each contract but may include an initial payment at the time the contract is executed, with future payments dependent upon the completion of certain contract phases or targeted milestones. In the event of contract cancellation, the Company is generally entitled to payment for all work performed through the point of cancellation. As of September 30, 2018, the Company had $7,867,262 in deferred revenues relating to contracts for services to be performed over periods ranging from one month to 7 years. The Company had $6,209,198 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 $671,030 and $528,777 for the nine month periods ended September 30, 2018 and September 30, 2017, respectively, and are included under selling, general and administrative expenses in our unaudited condensed consolidated financial statements.
RESEARCH AND PRODUCT DEVELOPMENT EXPENSES
Software development costs are expensed as incurred. ASC 985-20, Software Industry Costs of Software to Be Sold, Leased or Marketed (“ASC 985-20”), requires the capitalization of certain development costs of software to be sold once technological feasibility is established, which the Company defines as completion to the point of marketability. The capitalized cost is then amortized on a straight-line basis over the estimated product life. To date, the period between achieving technological feasibility and the general availability of such software has been short and software development costs qualifying for capitalization have been immaterial. Accordingly, the Company has not capitalized any software development costs under ASC 985-20. During the nine month periods ended September 30, 2018 and September 30, 2017 we spent $2,469,280 and $2,230,565, respectively, on research and product development activities, which include costs associated with the development of our software products and services for our clients’ projects and which are primarily comprised of salaries and related expenses for our software developers and consulting fees paid to third-party consultants. Research and product development costs are primarily included under Salaries, benefits and related taxes in our Statement of Operations.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017
(unaudited)
EQUITY INCENTIVE PLANS
The OmniComm Systems, Inc. 2016 Equity Incentive Plan (the “2016 Plan”) was approved at our Annual Meeting of Stockholders on June 16, 2016. The 2016 Plan initially provides for the issuance of up to 10,000,000 shares of our common stock. In addition, the number of shares of common stock available for issuance under the 2016 Plan automatically increases on January 1st of each year for a period of nine (9) years commencing on January 1, 2017 and ending on (and including) January 1, 2025, in an amount equal to five percent (5%) of the total number of shares authorized under the 2016 Plan. As of September 30, 2018 11,025,000 shares of our common stock were authorized for issuance under the 2016 Plan.
The predecessor plan, the OmniComm Systems, Inc. 2009 Equity Incentive Plan (the “2009 Plan”) was approved at our Annual Meeting of Stockholders on July 10, 2009 and terminated on June 16, 2016 upon the approval of the 2016 Plan. The 2009 Plan provided for the issuance of up to 7,500,000 shares to employees, directors and key consultants. The 2016 and 2009 Plans are more fully described in “Note 13, Equity Incentive Plans”.
The Company accounts for its employee equity incentive plans under ASC 718, Compensation – Stock Compensation, (“ASC 718”) which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statements of operations. The Company currently uses the Black Scholes option pricing model to determine grant date fair value.
EARNINGS PER SHARE
The Company accounts for Earnings per Share using ASC 260, Earnings per Share, (“ASC 260”). Unlike diluted earnings per share basic earnings per share excludes any dilutive effects of options, warrants and convertible securities.
INCOME TAXES
The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”). ASC 740 has as its basic objective the recognition of current and deferred income tax assets and liabilities based upon all events that have been recognized in the financial statements as measured by the provisions of the enacted tax laws.
Valuation allowances are established, when necessary, to reduce deferred tax assets to the estimated amount to be realized. Income tax expense represents the tax payable for the current period and the change during the period in the deferred tax assets and liabilities.
IMPACT OF NEW ACCOUNTING STANDARDS
During the first nine months of 2018, we adopted the following new accounting pronouncements:
In February 2016, the FASB issued Accounting Standard Update No. 2016-02, “Leases (Topic 842)”, (“ASU 2016-02”). ASU 2016-02 requires that an entity should recognize assets and liabilities for leases with a maximum possible term of more than 12 months. 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, 2018. 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 on our consolidated financial statements.
In April 2016, the FASB issued Accounting Standards Update 2016–10 “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.” The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation guidance on (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments in this Update are intended to render more detailed implementation guidance with the expectation to reduce the degree of judgement necessary to comply with Topic 606. The Company adopted the new standard effective January 1, 2018 using the modified retrospective method. Therefore, the comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods. The adoption of the new standard did not have a material impact on the Company’s consolidated financial statements.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017
(unaudited)
Accounting standards-setting organizations frequently issue new or revised accounting rules. We regularly review all new pronouncements to determine their impact, if any, on our financial statements.
NOTE 3: |
EARNINGS/(LOSS) PER SHARE |
Basic earnings/(loss) per share were calculated using the weighted average number of shares outstanding of 150,282,732 and 147,805,410 for the nine month periods ended September 30, 2018 and September 30, 2017, respectively.
The outstanding share balance as of September 30, 2018 and September 30, 2017, respectively, includes 1,900,000 and -0- restricted shares that have been issued but are still at risk of forfeiture as the restrictions have not lapsed.
Antidilutive shares of 40,741,945 have been omitted from the calculation of dilutive earnings/(loss) per share for the nine month period ended September 30, 2018 and 31,924,411 for the nine month period ended September 30, 2017, as the shares were antidilutive. Provided below is the reconciliation between numerators and denominators of the basic and diluted earnings per share. The table below provides a reconciliation of anti-dilutive securities outstanding as of September 30, 2018 and September 30, 2017, respectively.
Anti-dilutive security |
September 30, 2018 |
September 30, 2017 |
||||||
Employee stock options |
2,670,000 | 4,050,000 | ||||||
Warrants |
26,020,000 | 27,020,000 | ||||||
Convertible notes |
11,940,000 | 740,000 | ||||||
Shares issuable for accrued interest |
111,945 | 114,411 | ||||||
Total |
40,741,945 | 31,924,411 |
The employee stock options are exercisable at prices ranging from $0.17 to $0.34 per share. The exercise prices on the warrants range from $0.25 to $0.60 per share. Shares issuable upon conversion of convertible debentures or accrued interest have a conversion price of $0.50 per share.
Some of the Company’s convertible debt has an anti-dilutive effect on net income/(loss) per share and was not included in the computation of diluted earnings per share.
For the nine months ended |
||||||||||||||||||||||||
September 30, 2018 |
September 30, 2017 |
|||||||||||||||||||||||
Income/(loss) |
Shares |
Per-share |
Income/(loss) |
Shares |
Per-share |
|||||||||||||||||||
numerator |
denominator |
amount |
numerator |
denominator |
amount |
|||||||||||||||||||
Basic EPS |
$ | (539,428 | ) | 150,282,732 | $ | (0.00 | ) | $ | 2,394,546 | 147,805,410 | $ | 0.02 | ||||||||||||
Effect of dilutive securities |
-0- | -0- | -0- | -0- | 45,476 | -0- | ||||||||||||||||||
Diluted EPS |
$ | (539,428 | ) | 150,282,732 | $ | (0.00 | ) | $ | 2,394,546 | 147,850,886 | $ | 0.02 |
For the three months ended |
||||||||||||||||||||||||
September 30, 2018 |
September 30, 2017 |
|||||||||||||||||||||||
Income/(loss) |
Shares |
Per-share |
Income/(loss) |
Shares |
Per-share |
|||||||||||||||||||
numerator |
denominator |
amount |
numerator |
denominator |
amount |
|||||||||||||||||||
Basic EPS |
$ | (2,662,692 | ) | 150,905,124 | $ | (0.02 | ) | $ | (358,839 | ) | 147,858,566 | $ | (0.00 | ) | ||||||||||
Effect of dilutive securities |
-0- | -0- | -0- | -0- | -0- | -0- | ||||||||||||||||||
Diluted EPS |
$ | (2,662,692 | ) | 150,905,124 | $ | (0.02 | ) | $ | (358,839 | ) | 147,858,566 | $ | (0.00 | ) |
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017
(unaudited)
NOTE 4: |
PROPERTY AND EQUIPMENT, NET |
Property and equipment consists of the following:
September 30, 2018 |
December 31, 2017 |
||||||||||||||||||||||||||
Description |
Cost |
Accumulated depreciation |
Net book value |
Cost |
Accumulated depreciation |
Net book value |
Estimated useful life (years) |
||||||||||||||||||||
Computer & office equipment |
$ | 3,046,561 | $ | 2,129,785 | $ | 916,776 | $ | 2,322,833 | $ | 1,949,982 | $ | 372,851 | 5 | ||||||||||||||
Leasehold improvements |
137,054 | 104,335 | 32,719 | 118,380 | 98,901 | 19,479 | 5 | ||||||||||||||||||||
Computer software |
2,305,155 | 1,957,405 | 347,750 | 2,010,999 | 1,886,342 | 124,657 | 3 | ||||||||||||||||||||
Office furniture |
169,122 | 135,623 | 33,499 | 162,799 | 127,248 | 35,551 | 5 | ||||||||||||||||||||
Total |
$ | 5,657,892 | $ | 4,327,148 | $ | 1,330,744 | $ | 4,615,011 | $ | 4,062,473 | $ | 552,538 |
Depreciation expense for the nine month period ended September 30, 2018 was $279,532 and $249,801 for the nine month period ended September 30, 2017.
NOTE 5: |
INTANGIBLE ASSETS, NET |
Intangible assets consist of the following:
September 30, 2018 |
December 31, 2017 |
||||||||||||||||||||||||||
Asset |
Cost |
Accumulated amortization |
Net book value |
Cost |
Accumulated amortization |
Net book value |
Estimated useful life (years) |
||||||||||||||||||||
eClinical Suite customer lists |
$ | 1,392,701 | $ | 1,392,701 | $ | -0- | $ | 1,392,701 | $ | 1,392,701 | $ | -0- | 3 | ||||||||||||||
Promasys B.V. customer lists |
114,877 | 114,877 | -0- | 118,780 | 32,994 | 85,786 | 15 | ||||||||||||||||||||
Promasys B.V. software code |
72,837 | 71,623 | 1,214 | 72,837 | 60,698 | 12,139 | 5 | ||||||||||||||||||||
Promasys B.V. URLs/website |
58,019 | 58,019 | -0- | 59,990 | 59,990 | -0- | 3 | ||||||||||||||||||||
Acuity software code |
1,052,403 | 233,867 | 818,536 | -0- | -0- | -0- | 3 | ||||||||||||||||||||
Total |
$ | 2,690,837 | $ | 1,871,087 | $ | 819,750 | $ | 1,644,308 | $ | 1,546,383 | $ | 97,925 |
During the second quarter of 2018 we recognized an impairment loss of $79,634 on the Promasys B.V. customer list after performing a fair value analysis on the asset utilizing a discounted cash flow model. The impairment charge is separately presented on the Statement of Operations.
Amortization expense for the nine month period ended September 30, 2018 was $248,790 and $16,455 for the nine month period ended September 30, 2017.
Remaining amortization expense for the Company’s intangible assets is as follows:
Year |
Amortization |
|||
2018 |
$ | 88,914 | ||
2019 |
350,801 | |||
2020 |
350,801 | |||
2021 |
29,234 | |||
Total |
$ | 819,750 |
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017
(unaudited)
NOTE 6: |
ACCOUNTS PAYABLE AND ACCRUED EXPENSES |
Accounts payable and accrued expenses consist of the following:
Account |
September 30, 2018 |
December 31, 2017 |
||||||
Accounts payable |
$ | 760,557 | $ | 1,303,073 | ||||
Accrued payroll and related costs |
681,354 | 925,890 | ||||||
Other accrued expenses |
168,675 | 184,131 | ||||||
Accrued interest |
75,950 | 172,951 | ||||||
Total accounts payable and accrued expenses |
$ | 1,686,536 | $ | 2,586,045 |
NOTE 7: |
LINE OF CREDIT, NOTES PAYABLE AND LIQUIDITY |
On March 18, 2013, the Company entered into a $2,000,000 revolving Line of Credit (“Line of Credit”) with The Northern Trust Company guaranteed by our then Chief Executive Officer and Director, Cornelis F. Wit (“Mr. Wit”). Mr. Wit receives 2.0% interest (approximately $9,500 per month) from the Company on the assets pledged for the Line of Credit. On December 18, 2013 the Company renewed the Line of Credit and increased the available balance to $4,000,000. On February 3, 2015 the Company renewed the Line of Credit and increased the available balance to $5,000,000. On April 7, 2017 the Company renewed the Line of Credit. The Line of Credit currently matures on April 7, 2020 and carries a variable interest rate based on the prime rate. At September 30, 2018, $3,200,000 was outstanding on the Line of Credit at an interest rate of 4.25%.
Our primary sources of working capital are funds from operations and borrowings under our revolving Line of Credit. In the event that the Line of Credit is called for any reason, Mr. Wit has pledged to replace the borrowing capacity under the Line of Credit with a promissory note that utilizes the same maturity date and interest rate as the Line of Credit.
To satisfy our capital requirements, we may seek additional financing. There can be no assurance that any such funding will be available to us on favorable terms or at all. If adequate funds are not available when needed, we may be required to delay, scale back or eliminate some or all of our research and product development and marketing programs. If we are successful in obtaining additional financings, the terms of such financings may have the effect of diluting or adversely affecting the holdings or the rights of the holders of our securities or result in increased interest expense in future periods.
The following table summarizes the notes payable outstanding as of September 30, 2018.
Ending |
Non related party |
Related party |
|||||||||||||||||||||||
Origination |
Maturity |
Interest |
principal |
Long |
Long |
||||||||||||||||||||
date |
date |
rate |
September 30, 2018 |
Current |
term |
Current |
term |
||||||||||||||||||
2/29/2016 |
4/1/2019 |
12% | $ | 400,000 | $ | -0- | $ | -0- | $ | 400,000 | $ | -0- | |||||||||||||
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- | (186,268 | ) | (46,946 | ) | -0- | |||||||||||||||||||
Total |
$ | 1,102,500 | $ | -0- | $ | 516,232 | $ | 353,054 | $ | -0- |
The following table summarizes the notes payable outstanding as of December 31, 2017.
Ending |
Non related party |
Related party |
|||||||||||||||||||||||
Origination |
Maturity |
Interest |
principal |
Long |
Long |
||||||||||||||||||||
date |
date |
rate |
December 31, 2017 |
Current |
term |
Current |
term |
||||||||||||||||||
2/29/2016 |
4/1/2019 |
12% | $ | 400,000 | $ | -0- | $ | -0- | $ | -0- | $ | 400,000 | |||||||||||||
6/30/2016 |
4/1/2020 |
10% | 420,000 | -0- | 420,000 | -0- | -0- | ||||||||||||||||||
6/30/2016 |
4/1/2020 |
12% | 282,500 | -0- | 282,500 | -0- | -0- | ||||||||||||||||||
Discount on notes payable |
-0- | (279,402 | ) | -0- | (117,365 | ) | |||||||||||||||||||
Total |
$ | 1,102,500 | $ | -0- | $ | 423,098 | $ | -0- | $ | 282,635 |
On February 29, 2016, the Company issued a promissory note in the principal amount of $450,000 and warrants to purchase 1,800,000 shares of common stock of the Company at an exercise price of $0.25 per share with an expiration date of April 1, 2019 to our then Chief Executive Officer and Director, Cornelis F. Wit (“Mr. Wit”), in exchange for accrued interest in the amount of $450,000. The note carries an interest rate of 12% per annum and has a maturity date of April 1, 2019. On December 5, 2016, Mr. Wit sold 1,000,000 of the warrants to an employee of the Company. On August 31, 2017, the Company repaid $50,000 of the outstanding principal to Mr. Wit.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017
(unaudited)
The issuance caused us to calculate and record a derivative liability for the warrant liability. The warrants were valued using the Black Scholes option pricing model. A value of $325,689 was calculated and allocated to the warrants and recorded as a liability to the issuance of the note payable. As a result of the liability we recorded a discount to the note payable. The carrying amount of the note at the time of issuance was therefore $124,311. The warrant liability (discount) will be amortized over the 37 month duration of the note payable. The Company will continue to perform a fair value calculation quarterly on the warrant liability and accordingly the warrant liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is reflected in operations as an unrealized gain or loss on changes in derivative liabilities.
On June 30, 2016, the Company issued promissory notes in the principal amount of $372,500 and warrants to purchase 1,490,000 shares of common stock of the Company at an exercise price of $0.25 per share with an expiration date of April 1, 2020 to two investors in exchange for existing promissory notes in the same amount. The notes carry an interest rate of 12% per annum and have a maturity date of April 1, 2020. On August 31, 2017 a promissory note for $90,000 was repaid in full.
The issuance caused us to calculate and record a derivative liability for the warrant liability. The warrants were valued using the Black Scholes option pricing model. A value of $246,921 was calculated and allocated to the warrants and recorded as a liability to the issuance of the note payable. As a result of the liability we recorded a discount to the note payable. The carrying amount of the note at the time of issuance was therefore $125,579. The warrant liability (discount) will be amortized over the 45 month duration of the note payables. The Company will continue to perform a fair value calculation quarterly on the warrant liability and accordingly the warrant liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is reflected in operations as an unrealized gain or loss on changes in derivative liabilities.
On June 30, 2016, the Company issued promissory notes in the principal amount of $420,000 and warrants to purchase 1,680,000 shares of common stock of the Company at an exercise price of $0.25 per share with an expiration date of April 1, 2020 to two investors, in exchange for existing promissory notes in the same amount. The notes carry an interest rate of 10% per annum and have a maturity date of April 1, 2020.
The issuance caused us to calculate and record a derivative liability for the warrant liability. The warrants were valued using the Black Scholes option pricing model. A value of $278,408 was calculated and allocated to the warrants and recorded as a liability to the issuance of the note payable. As a result of the liability we recorded a discount to the note payable. The carrying amount of the note at the time of issuance was therefore $141,592. The warrant liability (discount) will be amortized over the 45 month duration of the note payables. The Company will continue to perform a fair value calculation quarterly on the warrant liability and accordingly the warrant liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is reflected in operations as an unrealized gain or loss on changes in derivative liabilities.
NOTE 8: |
CONVERTIBLE NOTES PAYABLE |
The following table summarizes the convertible debt outstanding as of September 30, 2018.
Carrying amount |
|||||||||||||||||||||||||
Date of |
Maturity |
Interest |
Principal at |
Short term |
Long term |
||||||||||||||||||||
issuance |
date |
rate |
September 30, 2018 |
Related |
Non related |
Related |
Non related |
||||||||||||||||||
8/29/2008 |
4/1/2020 |
10% | $ | 1,770,000 | $ | -0- | $ | -0- | $ | 1,770,000 | $ | -0- | |||||||||||||
12/16/2008 |
4/1/2020 |
12% | 4,000,000 | -0- | -0- | 4,000,000 | -0- | ||||||||||||||||||
12/16/2008 |
4/1/2021 |
12% | 200,000 | -0- | -0- | -0- | 200,000 | ||||||||||||||||||
Total |
$ | 5,970,000 | $ | -0- | $ | -0- | $ | 5,770,000 | $ | 200,000 |
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017
(unaudited)
The following table summarizes the convertible debt outstanding as of December 31, 2017.
Carrying amount |
|||||||||||||||||||||||||
Date of |
Maturity |
Interest |
Principal at |
Short term |
Long term |
||||||||||||||||||||
issuance |
date |
rate |
December 31, 2017 |
Related |
Non related |
Related |
Non related |
||||||||||||||||||
8/1/1999 |
6/30/2004 |
10% | $ | 50,000 | $ | -0- | $ | 50,000 | $ | -0- | $ | -0- | |||||||||||||
8/29/2008 |
4/1/2019 |
10% | 150,000 | -0- | -0- | -0- | 150,000 | ||||||||||||||||||
8/29/2008 |
4/1/2020 |
10% | 1,770,000 | -0- | -0- | 1,770,000 | -0- | ||||||||||||||||||
12/16/2008 |
4/1/2020 |
12% | 4,000,000 | -0- | -0- | 4,000,000 | -0- | ||||||||||||||||||
12/16/2008 |
4/1/2021 |
12% | 200,000 | -0- | -0- | -0- | 200,000 | ||||||||||||||||||
Total |
$ | 6,170,000 | $ | -0- | $ | 50,000 | $ | 5,770,000 | $ | 350,000 |
10% Convertible Notes
During 1999, the Company issued 10% Convertible Notes payable in the amount of $862,500 pursuant to a Confidential Private Placement Memorandum. There were costs of $119,625 associated with this offering. The net proceeds to the Company were $742,875. The notes bear interest at 10% annually, payable semi-annually. The notes were convertible after maturity, which was June 30, 2004, into shares of common stock of the Company at $1.25 per share. On September 30, 2018, the final $50,000 note was repaid in full along with the accrued interest of $96,949. As of September 30, 2018, $862,500 of the Convertible Notes had been repaid in cash or converted into 1,495,179 shares of common stock of the Company leaving an outstanding principal balance of $-0-.
Secured Convertible Debentures
On September 30, 2009, the Company sold an aggregate of $1,400,000 principal amount 12% Secured Convertible Debentures (the “Debentures”) and common stock purchase warrants (the “Warrants”) to purchase an aggregate of 5,600,000 shares of our common stock exercisable at a price of $0.25 per share for four years subsequent to the closing of the transaction to four accredited investors including our then Chief Executive Officer and Director, Cornelis F. Wit (“Mr. Wit”). The Company received net proceeds of $1,400,000. The Debentures, which bear interest at 12% per annum, matured on March 30, 2011. The Debentures are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.25 per share.
On March 30, 2011, the Company repaid $200,000 of the outstanding principal amounts owed and extended $1,200,000 of the Debentures until April 1, 2013, including $1,100,000 in Debentures held by Mr. Wit. The Company also extended the expiration date of the warrants associated with the Debentures.
On February 22, 2013, the Company and two holders extended $1,200,000 of the Debentures until January 1, 2016, including $1,100,000 in Debentures held by Mr. Wit. Mr. Wit also waived all his rights to the security interest under his $1,100,000 of Debentures. The expiration date of the warrants associated with the Debentures was also extended to January 1, 2016.
On January 31, 2015, the Company and Mr. Wit extended the maturity date of $1,100,000 of the Debentures to April 1, 2017. The expiration date of the warrants associated with the Debentures was also extended to April 1, 2017. On November 19, 2015, Mr. Wit converted $475,000 of the Debentures into 1,900,000 shares of our common stock. On November 19, 2015, the Company and Mr. Wit agreed to cancel the 1,900,000 warrants related to the $475,000 of Debentures and $475,000 of unrelated promissory notes in exchange for 1,900,000 shares of our common stock. On November 23, 2015, Mr. Wit sold the remaining $625,000 of Debentures and the related warrants to two unrelated non-affiliate stockholders.
On April 1, 2015, the Company and the holder extended the maturity date of $100,000 of Debentures to April 1, 2018. The expiration date of the warrants associated with the debentures was also extended to April 1, 2018. On June 30, 2017 the Company repaid the $100,000 of Debentures.
On June 30, 2016, the Company and two holders extended the maturity date of $625,000 of Debentures to April 1, 2020. The expiration date of the warrants associated with the debentures was also extended to April 1, 2020. In August 2017 the Company repaid the $625,000 of Debentures in full.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017
(unaudited)
Convertible Debentures
August 2008
On August 29, 2008, the Company sold $2,270,000 of convertible debentures and warrants to purchase an aggregate of 4,540,000 shares of our common stock to four accredited investors including our then Chief Executive Officer and Director, Cornelis F. Wit (“Mr. Wit”) and one of our then Directors. The convertible debentures, which bear interest at 10% per annum, were due on August 29, 2010. The convertible debentures are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.50 per share.
On September 30, 2009, the Company and two Affiliates of the Company extended $1,920,000 of the convertible debentures until August 29, 2013 in accordance with the terms of a Secured Convertible Debenture issued on that date. The expiration date of the warrants associated with the debentures was also extended to August 29, 2013.
On February 22, 2013, the Company and Mr. Wit extended the maturity date of $1,770,000 of the convertible debentures to January 1, 2016. The expiration date of the warrants associated with the debentures was also extended to January 1, 2016.
On February 22, 2013, the Company and Mr. van Kesteren extended the maturity date of $150,000 of the convertible debentures due to our former Director, Guus van Kesteren (“Mr. van Kesteren”) to January 1, 2015. The expiration date of the warrants associated with the debentures was also extended to January 1, 2015.
On April 21, 2014, the Company and Mr. van Kesteren extended the maturity date of his $150,000 of convertible debentures to April 1, 2016. The expiration date of the warrants associated with the debentures was also extended to April 1, 2016. On July 31, 2014 Mr. van Kesteren’s term on the Board of Directors ended. Effective on the same date, his convertible note in the amount of $150,000 was reclassified from Related Party to Non-Related Party.
On January 31, 2015, the Company and Mr. Wit extended the maturity date of the $1,770,000 of convertible debentures to April 1, 2017. The expiration date of the warrants associated with the debentures was also extended to April 1, 2017.
On June 30, 2015, the Company and Mr. van Kesteren extended the maturity date of $150,000 of convertible debentures to April 1, 2017. The expiration date of the warrants associated with the debentures was also extended to April 1, 2017.
On June 30, 2016, the Company and Mr. Wit extended the maturity date of the $1,770,000 of convertible debentures to April 1, 2020. The expiration date of the warrants associated with the debentures was also extended to April 1, 2020.
On June 30, 2016, the Company and Mr. van Kesteren extended the maturity date of $150,000 of convertible debentures to April 1, 2018. The expiration date of the warrants associated with the debentures was also extended to April 1, 2018.
On June 30, 2017, the Company and Mr. van Kesteren extended the maturity date of $150,000 of convertible debentures to April 1, 2019. The expiration date of the warrants associated with the debentures was also extended to April 1, 2019. The $150,000 of convertible debentures was repaid in full on June 30, 2018.
December 2008
On December 16, 2008, the Company sold $5,075,000 of convertible debentures and warrants to purchase an aggregate of 10,150,000 shares of common stock to eleven accredited investors, including our then Chief Executive Officer and Director, Cornelis F. Wit (“Mr. Wit”), our then Chief Operating Officer and President, Stephen E. Johnson (“Mr. Johnson”), our then Chief Technology Officer, Randall G. Smith (“Mr. Smith”), our then Chief Financial Officer, Ronald T. Linares and four of our then Directors. The convertible debentures, which bear interest at 12% per annum, were due on December 16, 2010. The convertible debentures are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.50 per share.
On September 30, 2009, the Company and eight Affiliates of the Company extended $4,980,000 of the convertible debentures until December 16, 2013 in accordance with the terms of a Secured Convertible Debenture issued on that date. The expiration date of the warrants associated with the convertible debentures was also extended to December 16, 2013.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017
(unaudited)
On February 22, 2013, the Company and the holders agreed to extend the maturity date of $4,505,000 of the convertible debentures including $4,475,000 due to Mr. Wit, $25,000 due to Mr. Johnson and $5,000 due to Mr. Smith, to January 1, 2016. The expiration date of the warrants associated with the debentures was also extended to January 1, 2016.
On February 27, 2013, the Company and our former director Mr. Veatch extended the maturity date of $15,000 of the convertible debentures to January 1, 2016. The expiration date of the warrants associated with the debentures was also extended to January 1, 2016.
On March 6, 2013, the Company and the holder extended the maturity date of $200,000 of convertible debentures to January 1, 2014. The expiration date of the warrants associated with the debentures was also extended to January 1, 2014.
On March 12, 2013, the Company and the holder agreed to extend the maturity date of $100,000 of convertible debentures to January 1, 2015. The expiration date of the warrants associated with the debentures was also extended to January 1, 2015.
In December 2013, the Company and two holders agreed to extend the maturity date of $360,000 of the convertible debentures, including $160,000 due to our then director, Guus van Kesteren (“Mr. van Kesteren”), to January 1, 2016. The expiration date of the warrants associated with the debentures was also extended to January 1, 2016. On July 31, 2014 Mr. van Kesteren’s term on the Board of Directors ended. Effective on the same date, his convertible note in the amount of $160,000 was reclassified from Related Party to Non-Related Party.
On April 28, 2014, the Company and the holder extended the maturity date of $100,000 of convertible debentures to April 1, 2016. The expiration date of the warrants associated with the debentures was also extended to April 1, 2016.
On January 31, 2015, the Company and Mr. Wit extended the maturity date of $4,475,000 of convertible debentures to April 1, 2017. The expiration date of the warrants associated with the debentures was also extended to April 1, 2017. On November 19, 2015, the Company and Mr. Wit agreed to cancel $420,000 of the debentures and 1,680,000 of unrelated warrants in exchange for 1,680,000 shares of our common stock.
On April 27, 2015, the Company and the holder extended the maturity date of $200,000 of convertible debentures to April 1, 2018. The expiration date of the warrants associated with the debentures was also extended to April 1, 2018.
On April 30, 2015, the Company and Mr. Johnson extended the maturity date of $25,000 of convertible debentures to April 1, 2018. The expiration date of the warrants associated with the debentures was also extended to April 1, 2018. The convertible debentures were repaid in full on December 14, 2016.
On May 1, 2015, the Company and Mr. van Kesteren extended the maturity date of $160,000 of the convertible debentures to April 1, 2017. The expiration date of the warrants associated with the debentures was also extended to April 1, 2017.
On May 1, 2015, the Company repaid $5,000 of the convertible debentures to Mr. Smith.
On May 7, 2015, the Company and Mr. Veatch, extended the maturity date of $15,000 of the convertible debentures to April 1, 2018. The expiration date of the warrants associated with the debentures was also extended to April 1, 2018. The $15,000 of convertible debentures were repaid in full on December 14, 2016.
On June 30, 2015, the Company and the holder extended the maturity date of $100,000 of convertible debentures to April 1, 2017. The expiration date of the warrants associated with the debentures was also extended to April 1, 2017.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017
(unaudited)
On June 30, 2016, the Company and Mr. Wit extended the maturity date of $4,055,000 of convertible debentures to April 1, 2020. The expiration date of the warrants associated with the debentures was also extended to April 1, 2020. On August 31, 2017, the Company repaid $55,000 of the convertible debentures to Mr. Wit.
On June 30, 2016, the Company and Mr. van Kesteren extended the maturity date of $160,000 of the convertible debentures to April 1, 2018. The expiration date of the warrants associated with the debentures was also extended to April 1, 2018. The $160,000 of convertible debentures was repaid in full on December 14, 2016.
On June 30, 2016, the Company and the holder extended the maturity date of $100,000 of convertible debentures to April 1, 2020. The expiration date of the warrants associated with the debentures was also extended to April 1, 2020. On August 31, 2017, the Company repaid $100,000 of convertible debentures to the holder.
On June 30, 2017, the Company and the holder extended the maturity date of $200,000 of the convertible debentures to April 1, 2021. The expiration date of the warrants associated with the debentures was also extended to April 1, 2021.
The principal payments required at maturity under the Company’s outstanding convertible debt at September 30, 2018 are as follows:
Year |
Amount |
|||
2018 |
$ | -0- | ||
2019 |
-0- | |||
2020 |
5,770,000 | |||
2021 |
200,000 | |||
Total |
$ | 5,970,000 |
NOTE 9: |
FAIR VALUE MEASUREMENT |
The Company measures the fair value of its assets and liabilities under the guidance of ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but its provisions apply to all other accounting pronouncements that require or permit fair value measurement.
ASC 820 clarifies that fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based on the highest and best use of the asset or liability. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. ASC 820 requires the Company to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:
● |
Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets; |
● |
Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly such as quoted prices for similar assets or liabilities or market-corroborated inputs; and |
● |
Level 3: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions about how market participants would price the assets or liabilities. |
The valuation techniques that may be used to measure fair value are as follows:
A. |
Market approach - Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities |
B. |
Income approach - Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about those future amounts, including present value techniques, option-pricing models and excess earnings methods |
C. |
Cost approach - Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost) |
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017
(unaudited)
The Company also adopted the provisions of ASC 825, Financial Instruments (“ASC 825”). ASC 825 allows companies to choose to measure eligible assets and liabilities at fair value with changes in value recognized in earnings. Fair value treatment may be elected either upon initial recognition of an eligible asset or liability or, for an existing asset or liability, if an event triggers a new basis of accounting. The Company did not elect to re-measure any of its existing financial assets or liabilities under the provisions of this Statement.
The Company’s financial assets or liabilities subject to ASC 820 as of September 30, 2018 include the conversion feature and warrant liability associated with convertible debentures issued during 2008 and 2009 and the warrants issued during 2011 and 2016 that are associated with notes payable. The conversion feature and warrants were deemed to be derivatives (the “Derivative Instruments”) since a fixed conversion price cannot be determined for either of the Derivative Instruments due to anti-dilution provisions embedded in the offering documents for the convertible debentures. The derivative instruments were not issued for risk management purposes and as such are not designated as hedging instruments under the provisions of ASC 815, Disclosures about Derivative Instruments and Hedging Activities. See Note 8 – Convertible Notes Payable.
Following is a description of the valuation methodologies used to determine the fair value of the Company’s financial liabilities including the general classification of such instruments pursuant to the valuation hierarchy.
A summary, as of September 30, 2018, of the fair value of liabilities measured at fair value on a recurring basis follows:
Fair value at |
Quoted prices in active markets for identical assets/ liabilities |
Significant other observable inputs |
Significant unobservable inputs |
|||||||||||||
Derivatives: (1) (2) |
September 30, 2018 |
(Level 1) |
(Level 2) |
(Level 3) |
||||||||||||
Conversion feature liability |
$ | 1,840,512 | $ | -0- | $ | -0- | $ | 1,840,512 | ||||||||
Warrant liability |
4,436,207 | -0- | -0- | 4,436,207 | ||||||||||||
Total of derivative liabilities |
$ | 6,276,719 | $ | -0- | $ | -0- | $ | 6,276,719 |
(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 nine month period ended September 30, 2018.
(2) The fair value at the measurement date is equal to the carrying value on the balance sheet.
Significant valuation assumptions for derivative instruments at September 30, 2018 |
|||||
Risk free interest rate |
2.45% | to | 2.45% | ||
Dividend yield |
0.00% | ||||
Expected volatility |
85.7% | to | 105.8% | ||
Expected life (range in years) |
|||||
Conversion feature liability |
1.50 | to | 2.50 | ||
Warrant liability |
0.25 | to | 2.50 |
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 |
|||||||||||||
Derivatives: (1) (2) |
December 31, 2017 |
(Level 1) |
(Level 2) |
(Level 3) |
||||||||||||
Conversion feature liability |
$ | 1,685,947 | $ | -0- | $ | -0- | $ | 1,685,947 | ||||||||
Warrant liability |
3,440,799 | -0- | -0- | 3,440,799 | ||||||||||||
Total of derivative liabilities |
$ | 5,126,746 | $ | -0- | $ | -0- | $ | 5,126,746 |
(1) The fair value of the derivative instruments was estimated using the Income Approach and the Black Scholes option pricing model with the following assumptions for the year ended December 31, 2017.
(2) The fair value at the measurement date is equal to the carrying value on the balance sheet.
Significant valuation assumptions for derivative instruments at December 31, 2017 |
|||||
Risk free interest rate |
1.56% | to | 1.81% | ||
Dividend yield |
0.00% | ||||
Expected volatility |
87.0% | to | 118.4% | ||
Expected life (range in years) |
|||||
Conversion feature liability |
1.25 | to | 3.25 | ||
Warrant liability |
0.25 | to | 3.25 |
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017
(unaudited)
A summary, as of September 30, 2018, of the fair value of assets measured at fair value on a non-recurring basis follows:
Carrying amount |
Carrying amount |
Quoted prices in active markets for identical assets/ liabilities |
Significant other observable inputs |
Significant unobservable inputs |
||||||||||||||||
Acquired assets (1) |
December 31, 2017 |
September 30, 2018 |
(Level 1) |
(Level 2) |
(Level 3) |
|||||||||||||||
Promasys B.V. customer list (2) (3) |
$ | 85,786 | $ | -0- | $ | -0- | $ | -0- | $ | 136,253 | ||||||||||
Promasys B.V. software code (2) |
12,139 | 1,214 | -0- | -0- | 72,943 | |||||||||||||||
Acuity software code (4) |
-0- | 818,536 | -0- | -0- | 1,052,403 | |||||||||||||||
Total |
$ | 97,925 | $ | 819,750 | $ | -0- | $ | -0- | $ | 1,261,599 |
(1) The fair value of the acquired assets was estimated using the Income Approach with a discounted cash flow valuation methodology applied.
(2) The acquired Promasys B.V. software code and customer list are not measured on a recurring basis since their initial fair value has been deemed to have a finite life and is being amortized periodically. Instead, the Company performs an impairment analysis on a quarterly basis in order to determine whether the carrying value of the assets reflects the fair value of the assets in a market based transaction.
(3) During the second quarter of 2018 we recognized an impairment loss of $79,634 on the Promasys B.V. Customer List after performing a fair value analysis on the asset utilizing a discounted cash flow model. The impairment charge is separately presented on the Statement of Operations.
(4) The acquired Acuity software code is not measured on a recurring basis since the initial fair value has been deemed to have a finite life and is being amortized periodically. Instead, the Company performs an impairment analysis on a quarterly basis in order to determine whether the carrying value of the assets reflects the fair value of the assets in a market based transaction.
A summary, as of December 31, 2017, of the fair value of assets measured at fair value on a non-recurring basis follows:
Carrying amount |
Carrying amount |
Quoted prices in active markets for identical assets/ liabilities |
Significant other observable inputs |
Significant unobservable inputs |
||||||||||||||||
Acquired assets (1) |
December 30, 2016 |
December 31, 2017 |
(Level 1) |
(Level 2) |
(Level 3) |
|||||||||||||||
Promasys B.V. customer list (2) |
$ | 82,173 | $ | 85,786 | $ | -0- | $ | -0- | $ | 136,253 | ||||||||||
Promasys B.V. software code (2) |
26,707 | 12,139 | -0- | -0- | 72,943 | |||||||||||||||
Total |
$ | 108,880 | $ | 97,925 | $ | -0- | $ | -0- | $ | 209,196 |
(1) The fair value of the acquired assets was estimated using the Income Approach with a discounted cash flow valuation methodology applied.
(2) The acquired Promasys B.V. software code and customer list are not measured on a recurring basis since their initial fair value has been deemed to have a finite life and is being amortized periodically. Instead the Company performs an impairment analysis on a quarterly basis in order to determine whether the carrying value of the assets reflects the fair value of the assets in a market based transaction.
Other identifiable intangible assets, which are subject to amortization, are being amortized using the straight-line method over their estimated useful lives ranging from 3 to 15 years. The Impairment or Disposal of Long-Lived Asset subsection of ASC 360, Property, Plant and Equipment requires us to test the recoverability of long-lived assets, including identifiable intangible assets with definite lives, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In testing for potential impairment, if the carrying value of the asset group exceeds the expected undiscounted cash flows, we must then determine the amount by which the fair value of those assets exceeds the carrying value and determine the amount of impairment, if any.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017
(unaudited)
The table below presents the unrealized gains/(losses) for the nine month periods ended September 30, 2018 and September 30, 2017.
Other income/(expense) |
||||||||
For the nine months ended |
||||||||
September 30, 2018 |
September 30, 2017 |
|||||||
The net amount of gains/(losses) for the period included in earnings attributable to the unrealized and realized gains/(losses) from changes in derivative liabilities at the reporting date |
$ | (1,160,473 | ) | $ | 723,532 | |||
Total unrealized and realized gains/(losses) included in earnings |
$ | (1,160,473 | ) | $ | 723,532 |
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 nine month period ended September 30, 2018 and the year ended December 31, 2017. The tables reflect changes for all financial liabilities at fair value categorized as Level 3 as of September 30, 2018 and December 31, 2017.
The table below presents the Level 3 financial liabilities at fair value for the nine month period ended September 30, 2018.
Level 3 financial liabilities at fair value |
||||||||||||||||||||||||
Net |
Reclassification |
|||||||||||||||||||||||
purchases, |
of conversion |
|||||||||||||||||||||||
Balance, |
issuances |
feature liability |
Balance, |
|||||||||||||||||||||
beginning |
Net realized |
Net unrealized |
and |
associated with |
end |
|||||||||||||||||||
Derivatives: |
of year |
gains/(losses) |
gains/(losses) |
settlements |
convertible debt |
of period |
||||||||||||||||||
Conversion feature liability |
$ | (1,685,947 | ) | $ | -0- | $ | (165,065 | ) | $ | -0- | $ | 10,500 | $ | (1,840,512 | ) | |||||||||
Warrant liability |
(3,440,799 | ) | -0- | (995,408 | ) | -0- | -0- | (4,436,207 | ) | |||||||||||||||
Total of derivative liabilities |
$ | (5,126,746 | ) | $ | -0- | $ | (1,160,473 | ) | $ | -0- | $ | 10,500 | $ | (6,276,719 | ) |
The table below presents the Level 3 financial liabilities at fair value for the year ended December 31, 2017.
Level 3 financial liabilities at fair value |
||||||||||||||||||||||||
Net |
Reclassification |
|||||||||||||||||||||||
purchases, |
of conversion |
|||||||||||||||||||||||
Balance, |
issuances |
feature liability |
Balance, |
|||||||||||||||||||||
beginning |
Net realized |
Net unrealized |
and |
associated with |
end |
|||||||||||||||||||
Derivatives: |
of year |
gains/(losses) |
gains/(losses) |
settlements |
convertible debt |
of year |
||||||||||||||||||
Conversion feature liability |
$ | (2,325,730 | ) | $ | 48,375 | $ | 188,841 | $ | -0- | $ | 402,567 | $ | (1,685,947 | ) | ||||||||||
Warrant liability |
(3,999,362 | ) | -0- | 558,563 | -0- | -0- | (3,440,799 | ) | ||||||||||||||||
Total of derivative liabilities |
$ | (6,325,092 | ) | $ | 48,375 | $ | 747,404 | $ | -0- | $ | 402,567 | $ | (5,126,746 | ) |
NOTE 10: |
COMMITMENTS AND CONTINGENCIES |
The Company currently leases office space under operating leases for most of its office locations and has operating leases related to server and network co-location and disaster recovery for its operations. The minimum future lease payments required under the Company’s operating leases at September 30, 2018 are as follows:
Year |
Payments |
|||
2018 |
$ | 226,880 | ||
2019 |
654,275 | |||
2020 |
413,574 | |||
2021 |
337,397 | |||
2022 |
337,480 | |||
Thereafter |
75,052 | |||
Total |
$ | 2,044,658 |
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017
(unaudited)
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 $930,972 and $841,718 for the nine month periods ended September 30, 2018 and September 30, 2017, respectively.
The Company’s Fort Lauderdale, Florida corporate office lease expires in February 2023. The Company’s lease on its New Jersey field office expires in March 2021. The Company currently operates its wholly-owned subsidiary, OmniComm Ltd., in the United Kingdom under the terms of a lease that expires in September 2020. The Company currently operates its wholly-owned subsidiary, OmniComm Europe, GmbH, in Germany under the terms of a lease that expires in July 2019. The Company currently operates its wholly-owned subsidiary, OmniComm Systems B.V, in the Netherlands under the terms of a lease that expires in October 2018. Our offices in Barcelona, Spain, Tokyo, Japan and Bengaluru, India are administered under service agreements that include the use of office space and other services.
The Company currently leases computer hardware for its operations under leases classified as capital leases. The leased equipment is amortized on a straight line basis over five years. The minimum future lease payments required under the Company’s capital leases at September 30, 2018 are as follows:
Year |
Payments |
|||
2018 |
$ | 32,958 | ||
2019 |
131,832 | |||
2020 |
131,832 | |||
2021 |
52,779 | |||
Total minimum capital lease payments |
349,401 | |||
Less: Amount representing interest |
(28,797 | ) | ||
Present value of minimum capital lease payments |
$ | 320,604 |
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 September 30, 2018, there were no pending legal proceedings to which the Company or its subsidiaries are a party or to which any of its property is subject that could reasonably be expected to have a material effect on the results of our operations.
PATENT LITIGATION SETTLEMENT
Effective April 9, 2009, we entered into a Settlement and License Agreement with DataSci, LLC (“DataSci”). DataSci granted us a worldwide, non-exclusive non-transferable right and license under the Licensed Patent and the right to sublicense TrialMaster on a Technology Transfer and Technology Transition basis. Under the terms of the Settlement and License Agreement, as amended, we are obligated to pay royalties quarterly for sales of Licensed Products, as defined therein, from January 1, 2009 until the termination of the Settlement and License Agreement on December 31, 2017 equal to two percent (2%) of OmniComm’s annual Gross Revenues or, alternatively, the annual minimum royalty payment(s), whichever is greater. In addition to the payment of royalties, the Settlement and Licensing Agreement imposes certain obligations on us including commercialization, certain sublicensing, other payments, insurance and confidentiality. In addition and as a license fee for past use of the Licensed Patent which may have occurred prior to the effective date of the Settlement and Licensing Agreement, we issued a warrant to DataSci to purchase 1,000,000 shares of our common stock at an exercise price of $.01 per share. The Settlement and Licensing Agreement provides that upon the expiration date of the warrant, at DataSci’s sole discretion, DataSci shall exercise its option under the warrant or licensee shall pay DataSci $300,000. The warrant was exercisable commencing on the second anniversary of the Settlement and Licensing Agreement, April 2, 2011, through the expiration date of the warrant on December 31, 2017. On December 31, 2017, DataSci exercised 50% of the warrant for 500,000 common shares and requested cash payment on 50% of the warrant. As a result of the exercise, DataSci received 500,000 restricted common shares and a net cash payment of $145,000.
On June 23, 2009, we entered into an agreement to acquire the EDC assets of eResearch Technology. Concurrent with the consummation of that transaction we entered into the First Amendment to Settlement and Licensing Agreement with DataSci, (i) to include the eResearch Technology EDC assets acquired within the definition of Licensed Products, and as such subject to the royalty payment(s), under and in accordance with the Settlement and Licensing Agreement, and (ii) provide a release by DataSci of any and all claims of infringement of the Licensed Patent in connection with the eResearch Technology EDC assets acquired which may have occurred prior to the effective date of the First Amendment to Settlement and Licensing Agreement for an aggregate amount of $300,000.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017
(unaudited)
No further payments are due under the Settlement and Licensing Agreement.
During the nine month period ended September 30, 2017 the Company recorded a charge to earnings of ($111,979), which amount represented (i) the amount of additional license expense incurred above the stipulated minimum in the DataSci Settlement and License Agreement during the nine month period ended September 30, 2017 and (ii) the accretion of the difference between the total stipulated annual minimum royalty payments and the recorded present value accrual of the annual minimum royalty payments.
EMPLOYMENT AGREEMENTS
We have employment agreements in place with the following members of our executive management team:
Cornelis F. Wit, Executive Chairman
Randall G. Smith, Executive Vice Chairman
Stephen E. Johnson, Chief Executive Officer and President
Thomas E. Vickers, Chief Financial Officer
The employment agreements provide, among other things, for participation in employee benefits available to employees and executives. Each of the agreements will renew for successive one-year terms unless the agreement is expressly terminated by either the employee or the Company prior to the end of the then current term as provided for in the employment agreement. Under the terms of the agreement, we may terminate the employee’s employment upon 30 or 60 days notice of a material breach and the employee may terminate the agreement under the same terms and conditions. The employment agreements contain non-disclosure provisions, as well as non-compete clauses. The agreements for Mr. Smith, Mr. Johnson and Mr. Vickers contain severance provisions which entitles the employee to severance pay equal to one (1) year's salary and benefits in the event of the employee's termination by the Company for any reason other than for cause, as described in the employment agreement, or termination by the employee pursuant to a material breach of the agreement by the Company.
NOTE 11: |
RELATED PARTY TRANSACTIONS |
As of September 30, 2018, we have an aggregate of $5,770,000 of convertible debentures and $400,000 of promissory notes outstanding to our Executive Chairman and Chairman of the Board, Cornelis F. Wit (“Mr. Wit”) and have issued certain warrants to Mr. Wit, as follows:
● |
In June 2008, Mr. Wit invested $510,000 in convertible notes. On August 29, 2008, Mr. Wit converted the $510,000 and invested an additional $1,260,000 in a private placement of convertible debentures and warrants to purchase 3,540,000 shares of our common stock. The convertible debentures, which bear interest at 10% per annum, were due on August 29, 2010. The convertible debentures are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.50 per share. On September 30, 2009, the Company and Mr. Wit extended the $1,770,000 of convertible debentures until August 29, 2013 in accordance with the terms of a Secured Convertible Debenture issued on that date. The expiration date of the warrants associated with the debentures was also extended to August 29, 2013.On February 22, 2013, the Company and Mr. Wit extended the maturity date of the $1,770,000 of convertible debentures to January 1, 2016. The expiration date of the warrants associated with the debentures was also extended to January 1, 2016. On January 31, 2015, the Company and Mr. Wit extended the maturity date of the $1,770,000 of convertible debentures to April 1, 2017. The expiration date of the warrants associated with the debentures was also extended to April 1, 2017. On June 30, 2016, the Company and Mr. Wit extended the maturity date of the $1,770,000 of convertible debentures to April 1, 2020. The expiration date of the warrants associated with the debentures was also extended to April 1, 2020. |
● |
In February 2008, Mr. Wit invested $150,000 in promissory notes and from September 2008 to December 2008, Mr. Wit invested $4,200,000 in convertible notes. On December 16, 2008, Mr. Wit converted the $4,350,000 into a private placement of convertible debentures and warrants to purchase 8,700,000 shares of our common stock. The convertible debentures, which bear interest at 12% per annum, were due on December 16, 2010. The convertible debentures are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.50 per share. On September 30, 2009, the Company and Mr. Wit extended the $4,350,000 of convertible debentures until December 16, 2013 in accordance with the terms of a Secured Convertible Debenture issued on that date. The expiration date of the warrants associated with the debentures was also extended to December 16, 2013. In a private transaction on October 16, 2012, Mr. Wit purchased $125,000 of the December 2008 convertible debentures and the related 250,000 warrants from Mr. Ronald Linares, the Company’s former Chief Financial Officer. On February 22, 2013, the Company and Mr. Wit extended the maturity date of the $4,475,000 of convertible debentures to January 1, 2016. The expiration date of the warrants associated with the debentures was also extended to January 1, 2016. On January 31, 2015, the Company and Mr. Wit extended the maturity date of the $4,475,000 of convertible debentures to April 1, 2017. The expiration date of the warrants associated with the debentures was also extended to April 1, 2017. On November 19, 2015, the Company and Mr. Wit agreed to cancel $420,000 of the debentures and 1,680,000 of unrelated warrants in exchange for 1,680,000 shares of our common stock. On June 30, 2016, the Company and Mr. Wit extended the maturity date of the $4,055,000 of convertible debentures to April 1, 2020. The expiration date of the warrants associated with the debentures was also extended to April 1, 2020. On August 31, 2017, the Company repaid $55,000 to Mr. Wit. |
● |
On February 29, 2016, the Company issued a promissory note in the principal amount of $450,000 and warrants to purchase 1,800,000 shares of common stock of the Company at an exercise price of $0.25 per share with an expiration date of April 1, 2019 to Mr. Wit in exchange for accrued interest in the amount of $450,000. The note carries an interest rate of 12% per annum and has a maturity date of April 1, 2019. On Aug 31, 2017, the Company repaid $50,000 to Mr. Wit. |
On March 18, 2013, the Company entered into a $2,000,000 revolving Line of Credit (“Line of Credit”) with The Northern Trust Company guaranteed by our then Chief Executive Officer and Director, Cornelis F. Wit. Mr. Wit receives 2.0% interest (approximately $9,500 per month) from the Company on the assets pledged for the Line of Credit. On December 18, 2013, the Company renewed the Line of Credit and increased the available balance to $4,000,000. On February 3, 2015, the Company renewed the Line of Credit and increased the available balance to $5,000,000. On April 7, 2017, the Company renewed the Line of Credit. The Line of Credit currently matures on April 7, 2020 and carries a variable interest rate based on the prime rate. At September 30, 2018, $3,200,000 was outstanding on the Line of Credit at an interest rate of 4.25%.
For the nine month period ended September 30, 2018 we incurred $682,986 in interest expense payable to related parties and $717,782 for the nine month period ended September 30, 2017.
NOTE 12: |
STOCKHOLDERS’ (DEFICIT) |
Our authorized capital stock consists of 500,000,000 shares of common stock, $.001 par value per share and 10,000,000 shares of preferred stock, par value $.001 per share, of which 5,000,000 shares have been designated as 5% Series A Preferred Stock, 230,000 shares have been designated as Series B Preferred Stock, 747,500 shares have been designated as Series C Preferred Stock and 250,000 shares have been designated as Series D Preferred Stock.
As of September 30, 2018 we had the following outstanding securities:
○ |
152,309,472 shares of common stock issued and outstanding; |
○ |
26,020,000 warrants issued and outstanding to purchase shares of our common stock; |
○ |
2,670,000 options issued and outstanding to purchase shares of our common stock; |
○ |
250,000 shares of our Series D Preferred Stock issued and outstanding; and |
○ |
$5,970,000 principal amount of Convertible Debentures and $55,973 of accrued interest convertible into 11,940,000 and 111,945 shares of common stock, respectively. |
Common Stock
Holders of common stock are entitled to one vote for each share on all matters submitted to a stockholder vote. Holders of our voting securities do not have cumulative voting rights. Holders of common stock are entitled to share in all dividends that the Board of Directors, in its discretion, declares from legally available funds. In the event of our liquidation, dissolution or winding up each outstanding share of common stock entitles its holder to participate in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock.
Holders of common stock have no conversion, preemptive or other subscription rights, and there are no redemption provisions for the common stock. The rights of the holders of common stock are subject to any rights that may be fixed for holders of preferred stock, when and if any preferred stock is outstanding. All outstanding shares of common stock are duly authorized, validly issued, fully paid and non-assessable.
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; |
○ |
voting rights; |
○ |
conversion privileges; and |
○ |
redemption terms. |
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.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017
(unaudited)
The following table presents the cumulative arrearage of undeclared dividends by class of preferred stock as of September 30, 2018 and September 30, 2017, respectively, and the per share amount by class of preferred stock.
Cumulative arrearage as of |
Cumulative arrearage per share as of |
|||||||||||||||
September 30, |
September 30, |
|||||||||||||||
Series of preferred stock |
2018 |
2017 |
2018 |
2017 |
||||||||||||
Series B |
$ | 609,887 | $ | 609,887 | $ | 3.05 | $ | 3.05 | ||||||||
Series C |
1,472,093 | 1,472,093 | $ | 4.37 | $ | 4.37 | ||||||||||
Total preferred stock arrearage |
$ | 2,081,980 | $ | 2,081,980 |
Warrants Issued in Capital Transactions
The following tables summarize all outstanding warrants for the nine month period ended September 30, 2018 and the year ended December 31, 2017, and the related changes during these periods.
September 30, 2018 |
September 30, 2018 |
||||||||||||||||||
Warrants outstanding |
Warrants exercisable |
||||||||||||||||||
Weighted average |
Weighted average |
Weighted average |
|||||||||||||||||
Range of exercise price |
Number outstanding |
remaining contractual life |
exercise price |
Number exercisable |
exercise price |
||||||||||||||
$0.25 |
– | $0.60 | 26,020,000 | 1.15 | $ | 0.42 | 26,020,000 | $ | 0.42 |
December 31, 2017 | December 31, 2017 | ||||||||||||||||||
Warrants outstanding |
Warrants exercisable |
||||||||||||||||||
Weighted average |
Weighted average |
Weighted average |
|||||||||||||||||
Range of exercise price |
Number outstanding |
remaining contractual life |
exercise price |
Number exercisable |
exercise price |
||||||||||||||
$0.25 |
– | $0.60 | 27,020,000 | 1.84 | $ | 0.42 | 27,020,000 | $ | 0.42 |
Warrants |
||||
Balance at December 31, 2016 |
27,860,000 | |||
Issued |
-0- | |||
Exercised |
-0- | |||
Expired/forfeited |
(840,000 | ) | ||
Balance at December 31, 2017 |
27,020,000 | |||
Issued |
-0- | |||
Exercised |
-0- | |||
Expired/forfeited |
(1,000,000 | ) | ||
Balance at September 30, 2018 |
26,020,000 | |||
Warrants exercisable at September 30, 2018 |
26,020,000 | |||
Weighted average fair value of warrants granted during 2018 |
n/a |
Other Comprehensive (Loss)
Due to the availability of net operating losses and related deferred tax valuations, there is no tax effect associated with any component of other comprehensive (loss). The following table lists the beginning balance, activity and ending balance of the components of accumulated other comprehensive (loss).
Foreign currency translation |
Accumulated other comprehensive (loss) |
|||||||
Balance at December 31, 2016 |
$ | (410,505 | ) | $ | (410,505 | ) | ||
2017 Activity |
13,268 | 13,268 | ||||||
Balance at December 31, 2017 |
(397,237 | ) | (397,237 | ) | ||||
2018 Activity |
(34,424 | ) | (34,424 | ) | ||||
Balance at September 30, 2018 |
$ | (431,661 | ) | $ | (431,661 | ) |
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017
(unaudited)
NOTE 13: |
EQUITY INCENTIVE PLANS |
Stock Option Plans
Description of 2016 Equity Incentive Plan
In 2016, the Company’s Board of Directors and stockholders approved the OmniComm Systems, Inc. 2016 Equity Incentive Plan (the “2016 Plan”). The 2016 Plan provides for granting Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Phantom Stock Unit Awards and Performance Share Units. The 2016 Plan initially provides for the issuance of up to 10,000,000 shares of our common stock for issuance upon awards granted under the 2016 Plan. In addition, the number of shares of common stock available for issuance under the 2016 Plan automatically increases on January 1st of each year for a period of nine (9) years commencing on January 1, 2017 and ending on (and including) January 1, 2025, in an amount equal to five percent (5%) of the total number of shares authorized under the 2016 Plan. As of September 30, 2018 11,025,000 shares of our common stock were authorized for issuance under the 2016 Plan. Unless earlier terminated by the Board, the 2016 Plan shall terminate on June 29, 2026.
The maximum term for any option grant under the 2016 Plan is ten years from the date of the grant; however, options granted under the 2016 Plan will generally expire five years from the date of grant. Options granted to employees generally vest either upon grant or in two installments. The first vesting, which is equal to 50% of the granted stock options, usually occurs upon completion of one full year of employment from the date of grant and the second vesting usually occurs on the second anniversary of the date of grant. The vesting period typically begins on the date of hire for new employees and on the date of grant for existing employees. The restrictions on restricted shares granted to employees generally lapse in three equal annual installments on the anniversary of the date of grant. Any unvested stock options or restricted shares with restrictions that have not lapsed that are granted under the 2016 Plan are forfeited and expire upon termination of employment.
On September 6, 2018, the Company entered into restricted stock agreements (“RSAs”) with its Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and Chief Technology Officer intended to provide incentive to the executives to ensure certain economic performance of the Company. The shares issuable under the RSAs were valued as of the grant date at $0.33 per share. The RSAs provided for the issuance of up to 225,000 performance related shares of the Company's common stock to each of the executives provided certain milestones were met as follows: a) 75,000 performance related shares are subject to individual performance. b) If the Company's 2018 Revenue equals or exceeds $30 million and the Company’s 2018 EBITDA equals or exceeds $6 million, the Company would award 75,000 shares of common stock; c) If the Company's 2018 Revenue equals or exceeds $32 million and the Company’s 2018 EBITDA equals or exceeds $7 million, the Company would award an additional 75,000 shares of common stock. The restrictions on 1/3 of the awarded performance shares will lapse on the first, second and third anniversaries of the 2018 Annual Stockholder Meeting, which was held on June 7, 2018. As of November 12, 2018 the Company had not achieved the milestones.
On September 6, 2018, the Company entered into restricted stock agreements (“RSAs”) with its Board of Directors intended to provide incentive to ensure certain economic performance of the Company. The shares issuable under the RSAs were valued as of the grant date at $0.33 per share. The RSAs provided for the issuance of a total of 200,000 restricted shares with the restrictions lapsing on the day prior to the the 2019 Annual Stockholder Meeting to each director. The RSAs include 75,000 performance related shares of the Company's common stock that are subject to the Company's 2018 Revenue equaling or exceeding $30 million and the Company’s 2018 EBITDA equaling or exceeding $6 million. As of November 12, 2018 the Company had not achieved the milestones.
The total combined restricted stock compensation expense recognized, in the statement of operations, during the quarter ended September 30, 2018 was $41,735.
As of September 30, 2018, there were 2,495,000 options and 1,900,000 restricted stock shares that have been granted under the 2016 Plan. At September 30, 2018, there were 6,630,000 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 OmniComm Systems, Inc. 2009 Equity Incentive Plan (the “2009 Plan”). On June 16, 2016, the 2009 Plan terminated upon the approval of the 2016 Plan. The 2009 Plan provided for granting Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Phantom Stock Unit Awards and Performance Share Units. Pursuant to the 2009 Plan, 7,500,000 shares of the Company’s common stock were authorized for issuance.
The maximum term for any option grant under the 2009 Plan was ten years from the date of the grant; however, options granted under the 2009 Plan generally expired five years from the date of grant. Options granted to employees generally vested either upon grant or in two installments. The first vesting, which was equal to 50% of the granted stock options, usually occurred upon completion of one full year of employment from the date of grant and the second vesting usually occurred on the second anniversary of the date of grant. The vesting period typically began on the date of hire for new employees and on the date of grant for existing employees. The restrictions on restricted shares granted to employees generally lapsed in three equal annual installments on the anniversary of the date of grant. Any unvested stock options or restricted shares with restrictions that had not lapsed that were granted under the 2009 Plan were forfeited and expired upon termination of employment.
As of September 30, 2018, there were 275,000 outstanding options and 3,876,662 restricted stock shares that have been granted under the 2009 Plan. At September 30, 2018, there were -0- shares available for grant as options or other forms of share-based compensation under the 2009 Plan.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017
(unaudited)
The following table summarizes the stock option activity for the Company’s equity incentive plans:
Number of options |
Weighted average exercise price |
Weighted average remaining contractual term |
Aggregate intrinsic value |
||||||||||||
Outstanding at December 31, 2016 |
1,225,000 | $ | 0.17 | 2.62 | $ | 83,425 | |||||||||
Granted |
4,650,000 | 0.26 | |||||||||||||
Exercised |
(300,000 | ) | 0.13 | ||||||||||||
Forfeited/cancelled/expired |
(300,000 | ) | 0.14 | ||||||||||||
Outstanding at December 31, 2017 |
5,275,000 | 0.26 | 4.09 | $ | 130,475 | ||||||||||
Granted |
570,000 | 0.28 | |||||||||||||
Exercised |
(200,000 | ) | 0.22 | ||||||||||||
Forfeited/cancelled/expired |
(2,975,000 | ) | 0.25 | ||||||||||||
Outstanding at September 30, 2018 |
2,670,000 | $ | 0.27 | 3.58 | $ | 396,500 | |||||||||
Vested and exercisable at September 30, 2018 |
800,000 | $ | 0.22 | 2.57 | $ | 158,425 |
The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company’s closing stock price at quarter-end and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2018.
The total number of shares vesting and the fair value of shares vesting for the nine month periods ended September 30, 2018 and September 30, 2017, respectively, was:
Fair value of options vesting for the period ended |
Number of options vested |
Fair value of options vested |
||||||
September 30, 2018 |
625,000 | $ | 125,190 | |||||
September 30, 2017 |
62,500 | $ | 12,742 |
Cash received for stock option exercises for the nine month periods ended September 30, 2018 and September 30, 2017 was $45,000 and $35,250, respectively. Due to the Company’s net loss position, no income tax benefit has been realized during the nine month periods ended September 30, 2018 and September 30, 2017.
The following table summarizes information concerning options outstanding at September 30, 2018:
Awards breakdown by price range at September 30, 2018 |
||||||||||||||||||||||||||
Outstanding |
Vested |
|||||||||||||||||||||||||
Strike price range ($) |
Outstanding stock options |
Weighted average remaining contractual life |
Weighted average outstanding strike price |
Vested stock options |
Weighted average remaining vested contractual life |
Weighted average vested strike price |
||||||||||||||||||||
0.00 | to | 0.20 | 250,000 | 0.74 | $ | 0.17 | 250,000 | 0.74 | $ | 0.17 | ||||||||||||||||
0.21 | to | 0.30 | 1,695,000 | 3.79 | 0.26 | 550,000 | 3.40 | 0.25 | ||||||||||||||||||
0.31 | to | 0.50 | 725,000 | 4.07 | 0.34 | -0- | 0.00 | 0.00 | ||||||||||||||||||
0.00 | to | 0.50 | 2,670,000 | 3.58 | $ | 0.27 | 800,000 | 2.57 | $ | 0.22 |
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017
(unaudited)
The following table summarizes information concerning options outstanding at December 31, 2017:
Awards breakdown by price range at December 31, 2017 |
||||||||||||||||||||||||||
Outstanding |
Vested |
|||||||||||||||||||||||||
Strike price range ($) |
Outstanding stock options |
Weighted average remaining contractual life |
Weighted average outstanding strike price |
Vested stock options |
Weighted average remaining vested contractual life |
Weighted average vested strike price |
||||||||||||||||||||
0.00 | to | 0.20 | 300,000 | 1.93 | $ | 0.18 | 250,000 | 1.48 | $ | 0.17 | ||||||||||||||||
0.21 | to | 0.30 | 4,250,000 | 4.12 | 0.25 | 150,000 | 1.30 | 0.22 | ||||||||||||||||||
0.31 | to | 0.50 | 725,000 | 4.82 | 0.34 | -0- | 0.00 | 0.00 | ||||||||||||||||||
0.00 | to | 0.50 | 5,275,000 | 4.09 | $ | 0.26 | 400,000 | 1.42 | $ | 0.19 |
The weighted average fair value (per share) of options granted during the nine month period ended September 30, 2018 was $0.23 and $0.19 during the nine month period ended September 30, 2017. The Black Scholes option-pricing model was utilized to calculate these values.
Basis for Fair Value Estimate of Share-Based Payments
Based on analysis of its historical volatility, the Company expects that the future volatility of its share price is likely to be similar to the historical volatility the Company experienced since the Company’s commercialization activities were initiated during the second half of 2000. The Company used a volatility calculation utilizing the Company’s own historical volatility to estimate its future volatility for purposes of valuing the share-based payments that have been granted. Actual volatility, and future changes in estimated volatility, may differ substantially from the Company’s current estimates.
The Company utilizes the historical data available regarding employee and director exercise activity to calculate an expected life of the options. The table below presents the weighted average expected life in years of options granted under the Plan as described above. The risk-free rate of the stock options is based on the U.S. Treasury yield curve in effect at the time of grant, which corresponds with the expected term of the option granted.
Below are the assumptions for the fair value of share-based payments for the nine month period ended September 30, 2018 and the year ended December 31, 2017.
Stock option assumptions for the period ended |
||||||
Stock option assumptions |
September 30, 2018 |
December 31, 2017 |
||||
Risk-free interest rate |
2.71% | 1.81% | ||||
Expected dividend yield |
0.0% | 0.0% | ||||
Expected volatility |
110.3% | 127.1% | ||||
Expected life of options (in years) |
5 | 5 |
The following table summarizes weighted average grant date fair value activity for the Company’s incentive stock plans:
Weighted average grant date fair value |
||||||||
for the period ended September 30, |
||||||||
2018 |
2017 |
|||||||
Stock options granted during the period |
$ | 0.23 | $ | 0.19 | ||||
Stock options vested during the period |
$ | 0.20 | $ | 0.20 | ||||
Stock options forfeited during the period |
$ | 0.19 | $ | 0.13 |
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017
(unaudited)
A summary of the status of the Company’s non-vested shares underlying stock options as of September 30, 2018 and changes during the nine month period ended September 30, 2018 is as follows:
Shares underlying stock options |
Weighted average grant date fair value |
|||||||
Nonvested shares at January 1, 2018 |
4,875,000 | $ | 0.21 | |||||
Nonvested shares at September 30, 2018 |
1,870,000 | $ | 0.24 |
As of September 30, 2018, $309,142 of total unrecognized compensation cost related to unvested stock options is expected to be recognized over a weighted-average period of 1.9 years.
NOTE 14: |
SUBSEQUENT EVENTS |
Subsequent to September 30, 2018 the Company repaid $900,000 on its revolving Line of Credit.
Subsequent to September 30, 2018, John Fontenault, our Chief Operating Officer, exercised options that had been granted to him. As a result 34,175 common shares were issued to him.
Subsequent to September 30, 2018 the Company extended the lease for the office in Leiden, the Netherlands until October 2019.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following information should be read in conjunction with the information contained in our unaudited condensed consolidated financial statements and notes thereto appearing elsewhere herein and other information set forth in this report.
Forward-Looking Statements
Statements contained in this Form 10-Q that are not historical fact are "forward-looking statements". These statements can often be identified by the use of forward-looking terminology such as "estimate", "project", "believe", "expect", "may", "will", "should", "intends", or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. We wish to caution the reader that these forward-looking statements, contained in this Form 10-Q regarding matters that are not historical facts, are only predictions and are based on information available at the time and/or management’s good faith belief with respect to future events. No assurance can be given that plans for the future will be consummated or that the future results indicated, whether expressed or implied, will be achieved. While sometimes presented with numerical specificity, these plans and projections and other forward-looking statements are based upon a variety of assumptions, which we consider reasonable, but which nevertheless may not be realized. Because of the number and range of the assumptions underlying our projections and forward-looking statements, many of which are subject to significant uncertainties and contingencies that are beyond our reasonable control, some of the assumptions inevitably will not materialize, and unanticipated events and circumstances may occur subsequent to the date of this Form 10-Q. Therefore, our actual experience and results achieved during the period covered by any particular projections or forward-looking statements may differ substantially from those projected. Consequently, the inclusion of projections and other forward-looking statements should not be regarded as a representation by us or any other person that these plans will be consummated or that estimates and projections will be realized, and actual results may vary materially. There can be no assurance that any of these expectations will be realized or that any of the forward-looking statements contained herein will prove to be accurate. Forward-looking statements speak only as of the date the statement was made. The Company does not undertake any obligation to update or revise any forward-looking statement made by it or on its behalf, whether as a result of new information, future events or otherwise.
Overview
We are a healthcare technology company that provides web based electronic data capture (“EDC”) solutions and related value-added services to pharmaceutical and biotech companies, clinical research organizations (“CROs”) and other clinical trial sponsors worldwide. Our proprietary software applications: TrialMaster®; TrialOne®; eClinical Suite; Promasys®, IRTMaster, AutoEncoder and Acuity Analytics (the “EDC Software”), allow clinical trial sponsors and investigative sites to securely collect, validate, transmit and analyze clinical trial data electronically (“eClinical”).
In 2018, the primary focus of our strategy includes:
● |
Increasing our penetration of the Phase I trial market with our dedicated Phase I solution, TrialOne |
● |
Stimulating demand by providing clinical trial sponsors with high value eClinical applications and services including our new AutoEncoder, coding solution as well as Acuity Analytics our new data analytics solution |
● |
Expanding our penetration of the large pharmaceutical sponsor market |
● |
Broadening our suite of services and software applications on an organic research and product development basis and on a selective basis via the acquisition or licensing of complementary solutions |
● |
Expanding our business development efforts in Europe and East Asia to capitalize on our operational and clinical capabilities vis-à-vis our competition in those geographic markets |
Our operating focus is first, to increase our sales and marketing capabilities and penetration rate and secondly, to continue developing and improving our software solutions and services to ensure our services and products remain an attractive, high-value EDC choice. Our ability to compete within the EDC and eClinical industries is predicated on our ability to continue enhancing and broadening the scope of solutions we offer. Our research and product development efforts are focused on developing new, complementary software solutions, as well as enhancing our existing software solutions through the addition of increased functionality. We spent $2,469,280 and $2,230,565 on research and product development activities during the nine months ended September 30, 2018 and September 30, 2017, respectively. The majority of these expenses represent salaries and related benefits to our developers which include the costs associated with the continued development of our EDC Software applications to meet current customer requirements and with our efforts at enhancing our suite of products by incorporating new features and services we believe will improve the products and consequently improve our market position. Our research and product development team is comprised of software programmers, engineers and related support personnel.
Our clients are able to partially or completely license our EDC solutions. The licensing business model provides our clients with a more cost effective means of deploying our EDC solutions on a large-scale basis. Our licensed products, falling under the auspices of either a Tech Transition (partial transfer with some services performed by OmniComm) or Tech Transfer, allows us to broaden our potential client base, provides us with a high-margin revenue source and affords us the ability to improve our competitive position within the EDC industry.
We feel that the momentum established from new client acquisitions in 2017 and the first nine months of 2018 coupled with our ability to retain clients for repeat engagements provide a good operating base from which to build during the remainder of 2018. We expect to continue increasing the level of resources deployed in our sales and marketing efforts through the addition of sales personnel and by increasing our marketing efforts. We feel that a combination of our existing infrastructure, broadened array of eClinical products and services and increased success in new client acquisition, coupled with our ability to retain our existing clients will allow us to compete effectively within the EDC market.
The nine months ended September 30, 2018 compared to the nine months ended September 30, 2017
RESULTS OF OPERATIONS
A summarized version of our results of operations for the nine months ended September 30, 2018 and September 30, 2017 is included in the table below.
Summarized Statement of Operations |
For the nine months ended |
September 30, |
% of |
% of |
$ |
% |
|||||||||||||||||||
2018 |
Revenues |
2017 |
Revenues |
Change |
Change |
|||||||||||||||||
Total revenues |
$ | 20,332,949 | $ | 20,175,800 | $ | 157,149 | 0.8 | % | ||||||||||||||
Cost of goods sold |
3,608,991 | 17.7% | 4,123,165 | 20.4% | (514,174 | ) | -12.5 | % | ||||||||||||||
Gross margin |
16,723,958 | 82.3% | 16,052,635 | 79.6% | 671,323 | 4.2 | % | |||||||||||||||
Salaries, benefits and related taxes |
10,695,132 | 52.6% | 9,906,293 | 49.1% | 788,839 | 8.0 | % | |||||||||||||||
Rent |
930,972 | 4.6% | 841,718 | 4.2% | 89,254 | 10.6 | % | |||||||||||||||
Consulting services |
219,856 | 1.1% | 185,222 | 0.9% | 34,634 | 18.7 | % | |||||||||||||||
Legal and professional fees |
381,648 | 1.9% | 367,403 | 1.8% | 14,245 | 3.9 | % | |||||||||||||||
Other expenses |
1,358,830 | 6.7% | 1,102,051 | 5.5% | 256,779 | 23.3 | % | |||||||||||||||
Selling, general and administrative |
1,297,008 | 6.4% | 937,313 | 4.6% | 359,695 | 38.4 | % | |||||||||||||||
Total operating expenses |
14,883,446 | 73.3% | 13,340,000 | 66.1% | 1,543,446 | 11.6 | % | |||||||||||||||
Operating income/(loss) |
1,840,512 | 9.1% | 2,712,635 | 13.4% | (872,123 | ) | -32.2 | % | ||||||||||||||
Interest expense |
(966,393 | ) | -4.8% | (1,060,022 | ) | -5.3% | 93,629 | 8.8 | % | |||||||||||||
Interest income |
16 | 0.0% | 589 | 0.0% | (573 | ) | -97.3 | % | ||||||||||||||
Change in derivatives |
(1,160,473 | ) | -5.7% | 723,532 | 3.6% | (1,884,005 | ) | -260.4 | % | |||||||||||||
Transaction gain/(loss) |
(97,984 | ) | -0.5% | 19,006 | 0.1% | (116,990 | ) | -615.5 | % | |||||||||||||
Income/(loss) before income taxes and dividends |
(384,322 | ) | -1.9% | 2,395,740 | 11.9% | (2,780,062 | ) | -116.0 | % | |||||||||||||
Income tax (expense) |
(155,106 | ) | -0.8% | (1,194 | ) | 0.0% | (153,912 | ) | -12890.5 | % | ||||||||||||
Net income/(loss) attributable to common stockholders |
$ | (539,428 | ) | -2.7% | $ | 2,394,546 | 11.9% | $ | (2,933,974 | ) | -122.5 | % |
The table below provides a comparison of our recognized revenues for the nine months ended September 30, 2018 and September 30, 2017.
For the nine months ended |
||||||||||||||||||||||||
Revenue activity |
September 30, 2018 |
September 30, 2017 |
$ Change |
% Change |
||||||||||||||||||||
Set-up fees |
$ | 2,683,182 | 13.2% | $ | 3,948,687 | 19.6% | $ | (1,265,505 | ) | -32.0 | % | |||||||||||||
Change orders |
1,090,333 | 5.4% | 1,054,288 | 5.2% | 36,045 | 3.4 | % | |||||||||||||||||
Maintenance |
4,163,138 | 20.4% | 3,749,897 | 18.6% | 413,241 | 11.0 | % | |||||||||||||||||
Software licenses |
8,423,355 | 41.4% | 7,951,228 | 39.4% | 472,127 | 5.9 | % | |||||||||||||||||
Professional services |
2,617,149 | 12.9% | 2,526,379 | 12.5% | 90,770 | 3.6 | % | |||||||||||||||||
Hosting |
1,355,792 | 6.7% | 945,321 | 4.7% | 410,471 | 43.4 | % | |||||||||||||||||
Total |
$ | 20,332,949 | 100.0% | $ | 20,175,800 | 100.0% | $ | 157,149 | 0.8 | % |
Overall revenue increased by $157,149 or 0.8% for the nine months ended September 30, 2018 compared with revenue for the nine months ended September 30, 2017. This increase is primarily the result of increases in software licenses, maintenance and hosting offset by a decrease in set-up fees.
We recorded revenue of $13,401,543 including $4,000,779 from software licensing, $2,678,656 from set-up fees and $2,784,867 from maintenance revenues associated with TrialMaster during the nine months ended September 30, 2018 compared with revenue of $15,184,340 that included $4,838,537 from software licensing, $3,948,687 in set-up fees and $2,557,261 in maintenance revenues during the nine months ended September 30, 2017.
We recorded $823,082 in revenues associated with clients using the eClinical Suite during the nine months ended September 30, 2018 compared with revenue of $1,329,257 for the nine months ended September 30, 2017. eClinical Suite revenues are primarily comprised of license subscriptions and revenues associated with maintenance services.
We recorded $643,424 in revenues in maintenance and $47,700 from hosting activities associated with the eClinical Suite during the nine months ended September 30, 2018 compared with revenue of $682,135 from maintenance and $188,367 from hosting activities for the nine months ended September 30, 2017. Generally, these revenues are paid quarterly and are connected to hosting and client support for clients licensing the eClinical Suite. On April 30, 2019, OmniComm will decommission its eClinical Suite hosting platform as the eClinical Suite clients utilizing these hosting services have transitioned to TrialMaster, the eClinical Suite studies have been completed or the studies have transitioned to another hosting platform.
We recorded revenue of $5,402,178 including $4,053,847 from software licensing and $593,868 for maintenance for clients utilizing our TrialOne EDC software for the nine months ended September 30, 2018 compared with revenue of $3,286,129 including $2,573,361 from software licensing and $313,551 for maintenance for the nine months ended September 30, 2017. TrialOne revenues are primarily comprised of license subscriptions, professional services and maintenance services.
We recorded revenue of $450,506 for the nine months ended September 30, 2018 including $67,491 from software licensing and $140,979 from maintenance associated with clients utilizing the Promasys EDC solution as compared to revenue of $376,074 for the nine months ended September 30, 2017 including $90,274 from software licensing and $196,950 from maintenance.
Our TrialMaster EDC application has historically been primarily sold on an application service provider (“ASP”) basis that provides EDC and other services such as an enterprise management suite which assists our clients in the pharmaceutical, biotechnology and medical device industries in accelerating the completion of clinical trials. During 2009 we completed the acquisition of the eResearch EDC Assets and TrialOne, in 2013 we acquired Promasys and in 2018 we acquired Acuity Analytics (collectively the “Acquired Software”). These software applications have historically been sold on a licensed or technology transfer basis. As we continue developing our software applications and our client relationships mature, we expect some of our clients to deploy TrialMaster on a licensed, rather than ASP hosted basis. We expect the Acquired Software applications to continue to be sold primarily on a licensed basis.
TrialMaster contracts for ASP services provide for pricing that is based on both the size and duration of the clinical trial. Size parameters include the number of case report forms used to collect data and the number of sites utilizing TrialMaster. The client will pay a trial setup fee at the beginning of a project based on the previously mentioned factors and then pay an on-going maintenance fee for the duration of the clinical trial that provides software, network and site support during the trial.
Generally, ASP contracts will range in duration from one month to several years. ASP setup fees are generally recognized in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 606 (“ASC 606"). ASC 606, which requires that the revenues be recognized when or as performance obligations are satisfied. ASP maintenance fee revenues are earned and recognized monthly. Costs associated with contract revenues are recognized as incurred.
License contracts are typically sold on a subscription basis that takes into account system usage both on a data volume and system user basis. Pricing includes additional charges for consulting services associated with the installation, validation, training and deployment of our eClinical software and solutions. Licensed contracts of the eClinical Suite have historically been sold both on a term and on a perpetual license basis with hosting and maintenance charges being paid quarterly. The Company expects most licenses it sells of its software products to be sold under three to five year term licenses.
Our top five customers accounted for approximately 34% of our revenues during the nine month period ended September 30, 2018 and approximately 35% of our revenues during the nine month period ended September 30, 2017. One customer accounted for approximately 12% of our revenues during the nine month period ended September 30, 2018. One customer accounted for approximately 10% of our revenues during the nine month period ended September 30, 2017. The loss of any of these contracts or these customers in the future could adversely affect our results of operations.
Our international customers, who are principally located in Europe and East Asia, accounted for approximately 30% of our total revenues for the nine month period ended September 30, 2018 and approximately 21% of our total revenues for the nine month period ended September 30, 2017.
One customer accounted for approximately 13% of our accounts receivables as of September 30, 2018. One customer accounted for approximately 27% and another customer accounted for approximately 11% of our accounts receivable as of September 30, 2017.
Cost of goods sold decreased approximately 12% or $514,174 from $4,123,165 for the nine months ended September 30, 2017 as compared to $3,608,991 for the nine months ended September 30, 2018. Cost of goods sold were approximately 18% of revenues for the nine months ended September 30, 2018 compared to approximately 20% for the nine months ended September 30, 2017. Cost of goods sold relates primarily to (i) salaries and related benefits associated with the programmers, developers and systems analysts producing clinical trials on behalf of our clients and (ii) the costs associated with pass-through revenues (reimbursable revenues). Cost of goods sold decreased during the nine months ended September 30, 2018 primarily due to a decrease in the costs associated with pass-through revenues (reimbursable revenues). The pass-through revenue and expense primarily relate to specific work being performed for a few clients. At this time we do not expect the volume of the pass-through revenue and expense to grow significantly and therefore we do not expect any significant degradation of our gross margin.
Overall, total operating expenses increased approximately 12% for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The increase in operating expenses is primarily the result of an increase in salaries, benefits and related taxes as well as an increase in selling, general and administrative expenses.
Salaries and related expenses were our biggest operating expense at 72% of total operating expenses for the nine months ended September 30, 2018 compared to 74% of total operating expenses for the nine months ended September 30, 2017. Salaries and related expenses increased by approximately 8% for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The table below provides a summary of the significant components of salaries and related expenses by primary cost category.
For the nine months ended |
||||||||||||||||
Expense category |
September 30, 2018 |
September 30, 2017 |
$ Change |
% Change |
||||||||||||
OmniComm corporate operations |
$ | 7,722,487 | $ | 6,815,015 | $ | 907,472 | 13.3 | % | ||||||||
New Jersey operations office |
817,044 | 814,050 | 2,994 | 0.4 | % | |||||||||||
OmniComm Europe, GmbH |
501,030 | 481,792 | 19,238 | 4.0 | % | |||||||||||
OmniComm Ltd. |
895,071 | 655,418 | 239,653 | 36.6 | % | |||||||||||
OmniComm Spain S.L. |
261,984 | 295,138 | (33,154 | ) | -11.2 | % | ||||||||||
OmniComm Systems B.V. |
269,112 | 376,950 | (107,838 | ) | -28.6 | % | ||||||||||
OmniComm eClinical Solutions Pvt. Ltd. |
29,041 | -0- | 29,041 | n/a | ||||||||||||
Employee stock compensation |
199,363 | 467,930 | (268,567 | ) | -57.4 | % | ||||||||||
Total salaries and related expenses |
$ | 10,695,132 | $ | 9,906,293 | $ | 788,839 | 8.0 | % |
As of September 30, 2018, we employed 162 employees and consultants Company-wide as follows: 66 out of our headquarters in Fort Lauderdale, Florida, 8 out of a regional operating office in Somerset, New Jersey, 27 in remote locations throughout the United States and Canada. Our wholly-owned subsidiary, OmniComm Europe, GmbH, employs 19 in Bonn, Germany. Our wholly-owned subsidiary, OmniComm Ltd., employs 13 in Southampton, England. Our wholly-owned subsidiary, OmniComm Spain, S. L. employs 2 in Barcelona, Spain. Our wholly-owned subsidiary, OmniComm Systems B.V. employs 3 in the Netherlands and 2 in Japan. Our wholly-owned subsidiary, OmniComm eClinical Solutions Pvt. Ltd. employs 22 in the Bengaluru, India. We believe that relations with our employees are good. None of our employees are represented by a collective bargaining agreement.
During the nine months ended September 30, 2018 and the nine months ended September 30, 2017 we incurred $199,363 and $467,930, respectively, in salary expense in connection with ASC 718, Compensation – Stock Compensation, (“ASC 718”) which establishes standards for transactions in which an entity exchanges its equity instruments services from employees. This standard requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award.
Rent and related expenses increased by approximately 11% during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The table below details the significant portions of our rent expense. Our primary data site is located at a co-location facility in Cincinnati, Ohio and we will continue utilizing this facility for the foreseeable future since it is designed to ensure 100% production system up-time and to provide system redundancy. We also utilize co-location and disaster recovery space in the Fort Lauderdale, Florida area. This facility provides us with disaster recovery and business continuity services for our operations. In 2018 we added a new co-location facility in Frankfurt, Germany. We currently lease office space in Bonn, Germany for our European subsidiary, OmniComm Europe, GmbH under a lease that expires in July 2019. We currently lease office space for a regional operating office in New Jersey under a lease that expires in March 2021. Our OmniComm Ltd. subsidiary leases office space in Southampton, UK under a lease that expires in September 2020. Our OmniComm Systems B.V. subsidiary leases office space in Leiden, the Netherlands under a lease that expires in October 2018. Our Fort Lauderdale corporate office lease expires in February 2023. Our offices in Barcelona, Spain, Tokyo, Japan and Bengaluru, India are administered under service agreements that include the use of office space and other services. The table below provides the significant components of our rent related expenses by location or subsidiary. Included in rent during the nine months ended September 30, 2018 was a decrease in expense of $5,592 in non-cash, straight line rent recorded to give effect to contractual, inflation-based rent increases in our leases compared to a decrease in expense of $2,882 for the nine months ended September 30, 2017.
For the nine months ended |
||||||||||||||||
Expense category |
September 30, 2018 |
September 30, 2017 |
$ Change |
% Change |
||||||||||||
Corporate office |
$ | 343,399 | $ | 310,813 | $ | 32,586 | 10.5 | % | ||||||||
Co-location and disaster recovery facilities |
413,134 | 379,856 | 33,278 | 8.8 | % | |||||||||||
New Jersey operations office |
39,444 | 39,444 | -0- | 0.0 | % | |||||||||||
OmniComm Europe, GmbH |
66,845 | 58,254 | 8,591 | 14.7 | % | |||||||||||
OmniComm Ltd. |
50,862 | 43,463 | 7,399 | 17.0 | % | |||||||||||
OmniComm Spain S.L. |
8,400 | 5,958 | 2,442 | 41.0 | % | |||||||||||
OmniComm Systems B.V. |
5,547 | 6,812 | (1,265 | ) | -18.6 | % | ||||||||||
OmniComm eClinical Solutions Pvt. Ltd. |
8,933 | -0- | 8,933 | n/a | ||||||||||||
Straight-line rent expense |
(5,592 | ) | (2,882 | ) | (2,710 | ) | -94.0 | % | ||||||||
Total |
$ | 930,972 | $ | 841,718 | $ | 89,254 | 10.6 | % |
Consulting services expense increased to $219,856 for the nine months ended September 30, 2018 compared with $185,222 for the nine months ended September 30, 2017. Consulting services are comprised of fees paid to consultants for help with product development and for services related to our sales and marketing efforts. Product development consulting expenses increased year over year as we utilized the services of additional consultants during the nine month period ended September 30, 2018. The table provided below provides the significant components of the expenses incurred related to consulting services.
For the nine months ended |
||||||||||||||||
Expense category |
September 30, 2018 |
September 30, 2017 |
$ Change |
% Change |
||||||||||||
Sales and marketing |
$ | 45,549 | $ | 56,000 | $ | (10,451 | ) | -18.7 | % | |||||||
Product development |
174,307 | 129,222 | 45,085 | 34.9 | % | |||||||||||
Total |
$ | 219,856 | $ | 185,222 | $ | 34,634 | 18.7 | % |
Legal and professional fees increased approximately 4% for the nine months ended September 30, 2018 compared with the nine months ended September 30, 2017. Professional fees include fees paid to our auditors for services rendered on a quarterly and annual basis in connection with our filings with the Securities and Exchange Commission (“SEC”) and fees paid to our attorneys in connection with representation in matters involving litigation and acquisitions or for services rendered to us related to securities and SEC related matters. The table below compares the significant components of our legal and professional fees for the nine months ended September 30, 2018 and September 30, 2017, respectively.
For the nine months ended |
||||||||||||||||
Expense category |
September 30, 2018 |
September 30, 2017 |
$ Change |
% Change |
||||||||||||
Financial advisory |
$ | 27,633 | $ | 52,974 | $ | (25,341 | ) | -47.8 | % | |||||||
Audit and related |
48,222 | 39,777 | 8,445 | 21.2 | % | |||||||||||
Accounting services |
159,405 | 178,588 | (19,183 | ) | -10.7 | % | ||||||||||
Legal-employment related |
11,439 | 21,778 | (10,339 | ) | -47.5 | % | ||||||||||
Legal-financial related |
108,605 | 67,122 | 41,483 | 61.8 | % | |||||||||||
General legal |
26,344 | 7,164 | 19,180 | 267.7 | % | |||||||||||
Total |
$ | 381,648 | $ | 367,403 | $ | 14,245 | 3.9 | % |
Selling, general and administrative expenses (“SG&A”) increased by $359,695 or approximately 38% from $937,313 for the nine months ended September 30, 2017 compared to $1,297,008 for the nine months ended September 30, 2018. SG&A expenses relate primarily to costs incurred in running our offices in Fort Lauderdale, Florida, Somerset, New Jersey, Southampton, England, Barcelona, Spain, Bonn, Germany, Leiden, the Netherlands, Tokyo, Japan and Bengaluru, India on a day-to-day basis and other costs not directly related to other captioned items in our income statement. SG&A includes the cost of office equipment and supplies, the costs of attending conferences and seminars and other expenses incurred in the normal course of business.
During the nine months ended September 30, 2018 we recognized bad debt expense of $47,931 compared to bad debt expense of $40,369 for the nine months ended September 30, 2017. This change was primarily the result of a increase in aged receivable balances that caused us to increase our reserve. During the remainder of 2018 we will continue to carefully and actively manage our potential exposure to bad debt by closely monitoring our accounts receivable and proactively taking the action necessary to limit our exposure. We have been very successful in managing and collecting our outstanding accounts receivable. We believe that our current allowance for uncollectible accounts accurately reflects any accounts which may prove uncollectible during the remainder of 2018.
Interest expense was $966,393 for the nine months ended September 30, 2018 compared to $1,060,022 for the nine months ended September 30, 2017, a decrease of $93,629. Interest incurred to related parties was $682,986 during the nine months ended September 30, 2018 and $717,782 for the nine months ended September 30, 2017. Included in interest expense is the accretion of discounts recorded related to financial instrument derivatives that were deemed a part of the financings we undertook in 2008 and 2009 and relating to warrants issued during 2011 and 2016. Interest expense decreased year over year primarily due to the repayment of outstanding debt. The table below provides detail on the significant components of interest expense for the nine months ended September 30, 2018 and September 30, 2017.
For the nine months ended |
||||||||||||||||
Debt description |
September 30, 2018 |
September 30, 2017 |
$ Change |
% Change |
||||||||||||
Accretion of discount from derivatives |
$ | 163,553 | $ | 241,664 | $ | (78,111 | ) | -32.3 | % | |||||||
August 2008 convertible notes |
139,825 | 143,605 | (3,780 | ) | -2.6 | % | ||||||||||
December 2008 convertible notes |
376,964 | 389,347 | (12,383 | ) | -3.2 | % | ||||||||||
September 2009 secured convertible debentures |
-0- | 54,962 | (54,962 | ) | -100.0 | % | ||||||||||
General interest |
164,884 | 105,282 | 59,602 | 56.6 | % | |||||||||||
Related party notes payable |
121,167 | 125,162 | (3,995 | ) | -3.2 | % | ||||||||||
Total |
$ | 966,393 | $ | 1,060,022 | $ | (93,629 | ) | -8.8 | % |
We evaluate the cost of capital available to us in combination with our overall capital structure and the prevailing market conditions in deciding what financing best fulfills our short and long-term capital needs. Given the overall economic climate and in particular the difficulties nano-cap companies have experienced in obtaining financing, we believe the structure and terms of the transactions we entered into during 2016 and 2017 were obtained at the best terms available to the Company.
We record unrealized gains/losses related to changes in our derivative liabilities associated with the issuance of convertible debt that occurred during 2008 and 2009 and warrants associated with promissory notes issued in 2011 and 2016. We recorded a net unrealized loss of $1,160,473 during the nine month period ended September 30, 2018 compared with a net unrealized gain of $723,532 during the nine month period ended September 30, 2017. The unrealized gains/losses can be attributed to fair value calculations undertaken periodically on the warrant and conversion feature liabilities recorded by us at the time the convertible debt and promissory notes were issued. Accordingly the warrant and conversion feature liabilities are increased or decreased based on the fair value calculations made at each quarterly balance sheet date. These non-cash gains and losses have materially impacted our results of operations during the nine month periods ended September 30, 2018 and September 30, 2017 and can be reasonably anticipated to materially affect our net loss or net income in future periods. The fair value calculations are heavily reliant on the value of our common stock and on the calculated volatility of the price of our common stock on the OTCQX Marketplace. Accordingly, significant changes in our stock price will create large unrealized gains and losses on our financial statements. We are, however, unable to estimate the amount of such income/expense in future periods as the income/expense is partly based on the market price of our common stock at the end of a future measurement date. In addition, if we issue securities in the future which are classified as derivatives we will incur expense and income items in future periods. Investors are cautioned to consider the impact of this non-cash accounting treatment on our financial statements.
The below table contains the cumulative arrearage for each series of preferred stock as of September 30, 2018.
Series of Preferred Stock |
Cumulative Arrearage |
|||
Series B |
$ | 609,887 | ||
Series C |
1,472,093 | |||
Total preferred stock arrearages |
$ | 2,081,980 |
The three months ended September 30, 2018 compared to the three months ended September 30, 2017
RESULTS OF OPERATIONS
A summarized version of our results of operations for the three months ended September 30, 2018 and September 30, 2017 is included in the table below.
Summarized Statement of Operations |
|||||||
For the three months ended |
|||||||
September 30, |
% of |
% of |
$ |
% |
|||||||||||||||||||||
2018 |
Revenues |
2017 |
Revenues |
Change |
Change |
|||||||||||||||||||
Total revenues |
$ | 6,842,824 | $ | 6,715,913 | $ | 126,911 | 1.9 | % | ||||||||||||||||
Cost of goods sold |
1,297,813 | 19.0% | 1,315,445 | 19.6% | (17,632 | ) | -1.3 | % | ||||||||||||||||
Gross margin |
5,545,011 | 81.0% | 5,400,468 | 80.4% | 144,543 | 2.7 | % | |||||||||||||||||
Salaries, benefits and related taxes |
3,483,627 | 50.9% | 3,393,915 | 50.5% | 89,712 | 2.6 | % | |||||||||||||||||
Rent |
337,824 | 4.9% | 292,669 | 4.4% | 45,155 | 15.4 | % | |||||||||||||||||
Consulting services |
55,736 | 0.8% | 64,488 | 1.0% | (8,752 | ) | -13.6 | % | ||||||||||||||||
Legal and professional fees |
72,776 | 1.1% | 126,959 | 1.9% | (54,183 | ) | -42.7 | % | ||||||||||||||||
Other expenses |
463,176 | 6.8% | 408,520 | 6.1% | 54,656 | 13.4 | % | |||||||||||||||||
Selling, general and administrative |
383,958 | 5.6% | 277,047 | 4.1% | 106,911 | 38.6 | % | |||||||||||||||||
Total operating expenses |
4,797,097 | 70.1% | 4,563,598 | 68.0% | 233,499 | 5.1 | % | |||||||||||||||||
Operating income/(loss) |
747,914 | 10.9% | 836,870 | 12.5% | (88,956 | ) | -10.6 | % | ||||||||||||||||
Interest expense |
(325,528 | ) | -4.8% | (380,073 | ) | -5.7% | 54,545 | 14.4 | % | |||||||||||||||
Interest income |
7 | 0.0% | 3 | 0.0% | 4 | 133.3 | % | |||||||||||||||||
Change in derivatives |
(2,918,886 | ) | -42.7% | (812,535 | ) | -12.1% | (2,106,351 | ) | -259.2 | % | ||||||||||||||
Transaction gain/(loss) |
(12,128 | ) | -0.2% | (3,104 | ) | 0.0% | (9,024 | ) | -290.7 | % | ||||||||||||||
Income/(loss) before income taxes and dividends |
(2,508,621 | ) | -36.7% | (358,839 | ) | -5.3% | (2,149,782 | ) | -599.1 | % | ||||||||||||||
Income tax (expense) |
(154,071 | ) | -2.3% | -0- | 0.0% | (154,071 | ) | n/a | ||||||||||||||||
Net income/(loss) attributable to common stockholders |
$ | (2,662,692 | ) | -38.9% | $ | (358,839 | ) | -5.3% | $ | (2,303,853 | ) | -642.0 | % |
The table below provides a comparison of our recognized revenues for the three months ended September 30, 2018 and September 30, 2017.
For the three months ended |
||||||||||||||||||||||||
Revenue activity |
September 30, 2018 |
September 30, 2017 |
$ Change |
% Change |
||||||||||||||||||||
Set-up fees |
$ | 692,995 | 10.1% | $ | 1,256,579 | 18.7% | $ | (563,584 | ) | -44.9 | % | |||||||||||||
Change orders |
320,622 | 4.7% | 352,782 | 5.3% | (32,160 | ) | -9.1 | % | ||||||||||||||||
Maintenance |
1,380,780 | 20.1% | 1,371,203 | 20.4% | 9,577 | 0.7 | % | |||||||||||||||||
Software licenses |
2,920,623 | 42.7% | 2,444,604 | 36.4% | 476,019 | 19.5 | % | |||||||||||||||||
Professional services |
1,106,940 | 16.2% | 919,821 | 13.7% | 187,119 | 20.3 | % | |||||||||||||||||
Hosting |
420,864 | 6.2% | 370,924 | 5.5% | 49,940 | 13.5 | % | |||||||||||||||||
Total |
$ | 6,842,824 | 100.0% | $ | 6,715,913 | 100.0% | $ | 126,911 | 1.9 | % |
Overall revenue increased by $126,911 or 1.9% for the three months ended September 30, 2018 compared with revenue for the three months ended September 30, 2017. This increase is primarily the result of increases in software licenses and consulting offset by a decrease in set-up fees.
We recorded revenue of $4,324,630 including $1,201,670 from software licensing, $688,834 from set-up fees and $928,964 from maintenance revenues associated with TrialMaster during the three months ended September 30, 2018 compared with revenue of $5,077,629 that included $1,525,942 from software licensing, $1,256,579 in set-up fees and $1,001,970 in maintenance revenues during the three months ended September 30, 2017.
We recorded $237,881 in revenues associated with clients using the eClinical Suite during the three months ended September 30, 2018 compared with revenue of $469,712 for the three months ended September 30, 2017. eClinical Suite revenues are primarily comprised of license subscriptions and revenues associated with maintenance services.
We recorded $181,278 in revenues in maintenance and $18,700 from hosting activities associated with the eClinical Suite during the three months ended September 30, 2018 compared with revenue of $190,758 from maintenance and $54,900 from hosting activities for the three months ended September 30, 2017. Generally, these revenues are paid quarterly and are connected to hosting and client support for clients licensing the eClinical Suite. On April 30, 2019, OmniComm will decommission its eClinical Suite hosting platform as the eClinical Suite clients utilizing these hosting services have been transitioned to TrialMaster, the eClinical Suite studies have completed or the studies have transitioned to another hosting platform.
We recorded revenue of $1,931,107 including $1,516,629 from software licensing and $225,521 for maintenance for clients utilizing our TrialOne EDC software for the three months ended September 30, 2018 compared with revenue of $1,033,981 including $680,864 from software licensing and $132,481 for maintenance for the three months ended September 30, 2017. TrialOne revenues are primarily comprised of license subscriptions, professional services and maintenance services.
We recorded revenue of $135,678 for the three months ended September 30, 2018 including $34,888 from software licensing and $45,017 from maintenance associated with clients utilizing the Promasys EDC solution as compared to revenue of $134,591 for the three months ended September 30, 2017 including $13,744 from software licensing and $45,995 from maintenance.
Our TrialMaster EDC application has historically been primarily sold on an application service provider (“ASP”) basis that provides EDC and other services such as an enterprise management suite which assists our clients in the pharmaceutical, biotechnology and medical device industries in accelerating the completion of clinical trials. During 2009 we completed the acquisition of the eResearch EDC Assets and TrialOne, in 2013 we acquired Promasys and in 2018 we acquired Acuity Analytics (collectively the “Acquired Software”). These software applications have historically been sold on a licensed or technology transfer basis. As we continue developing our software applications and our client relationships mature, we expect some of our clients to deploy TrialMaster on a licensed, rather than ASP hosted basis. We expect the Acquired Software applications to continue to be sold primarily on a licensed basis.
TrialMaster contracts for ASP services provide for pricing that is based on both the size and duration of the clinical trial. Size parameters include the number of case report forms used to collect data and the number of sites utilizing TrialMaster. The client will pay a trial setup fee at the beginning of a project based on the previously mentioned factors and then pay an on-going maintenance fee for the duration of the clinical trial that provides software, network and site support during the trial.
Generally, ASP contracts will range in duration from one month to several years. ASP setup fees are generally recognized in accordance with ASC 606, which requires that the revenues be recognized when or as performance obligations are satisfied. ASP maintenance fee revenues are earned and recognized monthly. Costs associated with contract revenues are recognized as incurred.
License contracts are typically sold on a subscription basis that takes into account system usage both on a data volume and system user basis. Pricing includes additional charges for consulting services associated with the installation, validation, training and deployment of our eClinical software and solutions. The Company expects most licenses it sells of its software products to be sold under three to five year term licenses.
Our top five customers accounted for approximately 39% of our revenues during the three months ended September 30, 2018 and approximately 35% of our revenues during the three months ended September 30, 2017. One customer accounted for approximately 13% of our revenues and another customer accounted for approximately 11% of our revenues during the three months ended September 30, 2018. One customer accounted for approximately 14% of our revenues and another customer accounted for approximately 10% of our revenues during the three months ended September 30, 2017. The loss of any of these contracts or these customers in the future could adversely affect our results of operations.
Our international customers, who are principally located in Europe and East Asia, accounted for approximately 28% of our total revenues for the three month period ended September 30, 2018 and approximately 21% of our total revenues for the three months ended September 30, 2017.
One customer accounted for approximately 13% of our accounts receivables as of September 30, 2018. One customer accounted for approximately 27% and another customer accounted for approximately 11% of our accounts receivable as of September 30, 2017.
Cost of goods sold decreased approximately 1% or $17,632 from $1,315,445 for the three months ended September 30, 2017 as compared to $1,297,813 for the three months ended September 30, 2018. Cost of goods sold were approximately 19% of revenues for the three months ended September 30, 2018 compared to approximately 20% for the three months ended September 30, 2017. Cost of goods sold relates primarily to (i) salaries and related benefits associated with the programmers, developers and systems analysts producing clinical trials on behalf of our clients and (ii) the costs associated with pass-through revenues (reimbursable revenues). Cost of goods sold decreased during the three months ended September 30, 2018 primarily due to a decrease in the costs associated with salaries and related costs. The pass-through revenue and expense primarily relate to specific work being performed for a few clients. At this time we do not expect the volume of the pass-through revenue and expense to grow significantly and therefore we do not expect any significant degradation of our gross margin.
Overall, total operating expenses increased approximately 5% for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. The increase in operating expenses is primarily the result of an increase in salaries, benefits and related taxes as well as an increase in selling, general and administrative expenses.
Salaries and related expenses were our biggest operating expense at 73% of total operating expenses for the three months ended September 30, 2018 compared to 74% of total operating expenses for the three months ended September 30, 2017. Salaries and related expenses increased by approximately 3% for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. The table below provides a summary of the significant components of salaries and related expenses by primary cost category.
For the three months ended |
||||||||||||||||
Expense category |
September 30, 2018 |
September 30, 2017 |
$ Change |
% Change |
||||||||||||
OmniComm corporate operations |
$ | 2,518,326 | $ | 2,345,258 | $ | 173,068 | 7.4 | % | ||||||||
New Jersey operations office |
256,526 | 255,625 | 901 | 0.4 | % | |||||||||||
OmniComm Europe, GmbH |
161,659 | 165,778 | (4,119 | ) | -2.5 | % | ||||||||||
OmniComm Ltd. |
272,246 | 222,079 | 50,167 | 22.6 | % | |||||||||||
OmniComm Spain S.L. |
74,006 | 119,543 | (45,537 | ) | -38.1 | % | ||||||||||
OmniComm Systems B.V. |
79,535 | 79,628 | (93 | ) | -0.1 | % | ||||||||||
OmniComm eClinical Solutions Pvt. Ltd. |
29,041 | -0- | 29,041 | n/a | ||||||||||||
Employee stock compensation |
92,288 | 206,004 | (113,716 | ) | -55.2 | % | ||||||||||
Total salaries and related expenses |
$ | 3,483,627 | $ | 3,393,915 | $ | 89,712 | 2.6 | % |
As of September 30, 2018, we employed 162 employees and consultants Company-wide as follows: 66 out of our headquarters in Fort Lauderdale, Florida, 8 out of a regional operating office in Somerset, New Jersey, 27 in remote locations throughout the United States and Canada. Our wholly-owned subsidiary, OmniComm Europe, GmbH, employs 19 in Bonn, Germany. Our wholly-owned subsidiary, OmniComm Ltd., employs 13 in Southampton, England. Our wholly-owned subsidiary, OmniComm Spain, S. L. employs 2 in Barcelona, Spain. Our wholly-owned subsidiary, OmniComm Systems B.V. employs 3 in the Netherlands and 2 in Japan. Our wholly-owned subsidiary, OmniComm eClinical Solutions Pvt. Ltd. employs 22 in the Bengaluru, India. We believe that relations with our employees are good. None of our employees are represented by a collective bargaining agreement.
During the three months ended September 30, 2018 and the three months ended September 30, 2017 we incurred $92,288 and $206,004, respectively, in salary expense in connection with ASC 718, Compensation – Stock Compensation, which establishes standards for transactions in which an entity exchanges its equity instruments services from employees. This standard requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award.
Rent and related expenses increased by approximately 15% during the three months ended September 30, 2018 compared to the three months ended September 30, 2017. The table below details the significant portions of our rent expense. Our primary data site is located at a co-location facility in Cincinnati, Ohio and we will continue utilizing this facility for the foreseeable future since it is designed to ensure 100% production system up-time and to provide system redundancy. We also utilize co-location and disaster recovery space in the Fort Lauderdale, Florida area. This facility provides us with disaster recovery and business continuity services for our operations. In 2018 we added a new co-location facility in Frankfurt, Germany. We currently lease office space in Bonn, Germany for our European subsidiary, OmniComm Europe, GmbH under a lease that expires in July 2019. We currently lease office space for a regional operating office in New Jersey under a lease that expires in March 2021. Our OmniComm Ltd. subsidiary leases office space in Southampton, UK under a lease that expires in September 2020. Our OmniComm Systems B.V. subsidiary leases office space in Leiden, the Netherlands under a lease that expires in October 2018. Our Fort Lauderdale corporate office lease expires in February 2023. Our offices in Barcelona, Spain, Tokyo, Japan and Bengaluru, India are administered under service agreements that include the use of office space and other services.The table below provides the significant components of our rent related expenses by location or subsidiary. Included in rent during the three months ended September 30, 2018 was a decrease in expense of $433 in non-cash, straight line rent recorded to give effect to contractual, inflation-based rent increases in our leases compared to a decrease in expense of $1,363 for the three months ended September 30, 2017.
For the three months ended |
||||||||||||||||
Expense category |
September 30, 2018 |
September 30, 2017 |
$ Change |
% Change |
||||||||||||
Corporate office |
$ | 130,827 | $ | 104,652 | $ | 26,175 | 25.0 | % | ||||||||
Co-location and disaster recovery facilities |
137,856 | 136,300 | 1,556 | 1.1 | % | |||||||||||
New Jersey operations office |
13,148 | 13,148 | -0- | 0.0 | % | |||||||||||
OmniComm Europe, GmbH |
23,871 | 20,751 | 3,120 | 15.0 | % | |||||||||||
OmniComm Ltd. |
19,120 | 14,821 | 4,299 | 29.0 | % | |||||||||||
OmniComm Spain S.L. |
2,452 | 2,463 | (11 | ) | -0.4 | % | ||||||||||
OmniComm Systems B.V. |
2,050 | 1,897 | 153 | 8.1 | % | |||||||||||
OmniComm eClinical Solutions Pvt. Ltd. |
8,933 | -0- | 8,933 | n/a | ||||||||||||
Straight-line rent expense |
(433 | ) | (1,363 | ) | 930 | 68.2 | % | |||||||||
Total |
$ | 337,824 | $ | 292,669 | $ | 45,155 | 15.4 | % |
Consulting services expense decreased to $55,736 for the three months ended September 30, 2018 compared with $64,488 for the three months ended September 30, 2017. Consulting services are comprised of fees paid to consultants for help with product development and for services related to our sales and marketing efforts. Product development consulting expenses decreased year over year as we reduced the utilization of the services of consultants during the three month period ended September 30, 2018. The table provided below provides the significant components of the expenses incurred related to consulting services.
For the three months ended |
||||||||||||||||
Expense category |
September 30, 2018 |
September 30, 2017 |
$ Change |
% Change |
||||||||||||
Sales and marketing |
$ | 18,968 | $ | 18,000 | $ | 968 | 5.4 | % | ||||||||
Product development |
36,768 | 46,488 | (9,720 | ) | -20.9 | % | ||||||||||
Total |
$ | 55,736 | $ | 64,488 | $ | (8,752 | ) | -13.6 | % |
Legal and professional fees decreased approximately 43% for the three months ended September 30, 2018 compared with the three months ended September 30, 2017. Professional fees include fees paid to our auditors for services rendered on a quarterly and annual basis in connection with our filings with the Securities and Exchange Commission (“SEC”) and fees paid to our attorneys in connection with representation in matters involving litigation and acquisitions or for services rendered to us related to securities and SEC related matters. The table below compares the significant components of our legal and professional fees for the three months ended September 30, 2018 and September 30, 2017, respectively.
For the three months ended |
||||||||||||||||
Expense category |
September 30, 2018 |
September 30, 2017 |
$ Change |
% Change |
||||||||||||
Financial advisory |
$ | -0- | $ | 25,500 | $ | (25,500 | ) | -100.0 | % | |||||||
Audit and related |
6,500 | 7,018 | (518 | ) | -7.4 | % | ||||||||||
Accounting services |
48,434 | 82,970 | (34,536 | ) | -41.6 | % | ||||||||||
Legal-employment related |
1,291 | (1,176 | ) | 2,467 | 209.8 | % | ||||||||||
Legal-financial related |
15,751 | 11,235 | 4,516 | 40.2 | % | |||||||||||
General legal |
800 | 1,412 | (612 | ) | -43.3 | % | ||||||||||
Total |
$ | 72,776 | $ | 126,959 | $ | (54,183 | ) | -42.7 | % |
Selling, general and administrative expenses (“SG&A”) increased by $106,911 or approximately 39% from $277,047 for the three months ended September 30, 2017 compared to $383,958 for the three months ended September 30, 2018. SG&A expenses relate primarily to costs incurred in running our offices in Fort Lauderdale, Florida, Somerset, New Jersey, Southampton, England, Barcelona, Spain, Bonn, Germany, Leiden, the Netherlands, Tokyo, Japan and Bengaluru, India on a day-to-day basis and other costs not directly related to other captioned items in our income statement. SG&A includes the cost of office equipment and supplies, the costs of attending conferences and seminars and other expenses incurred in the normal course of business.
During the three months ended September 30, 2018 we recognized a bad debt expense of $21,679 compared to bad debt expense of $87,366 for the three months ended September 30, 2017. This change was primarily the result of a decrease in aged receivable balances that enabled us to decrease our reserve. During the remainder of 2018 we will continue to carefully and actively manage our potential exposure to bad debt by closely monitoring our accounts receivable and proactively taking the action necessary to limit our exposure. We have been very successful in managing and collecting our outstanding accounts receivable. We believe that our current allowance for uncollectible accounts accurately reflects any accounts which may prove uncollectible during the remainder of 2018.
Interest expense was $325,528 for the three months ended September 30, 2018 compared to $380,073 for the three months ended September 30, 2017, a decrease of $54,545. Interest incurred to related parties was $229,906 during the three months ended September 30, 2018 and $252,585 for the three months ended September 30, 2017. Included in interest expense is the accretion of discounts recorded related to financial instrument derivatives that were deemed a part of the financings we undertook in 2008 and 2009 and relating to warrants issued during 2011 and 2016. Interest expense decreased year over year primarily due to the repayment of outstanding debt. The table below provides detail on the significant components of interest expense for the three months ended September 30, 2018 and September 30, 2017.
For the three months ended |
||||||||||||||||
Debt description |
September 30, 2018 |
September 30, 2017 |
$ Change |
% Change |
||||||||||||
Accretion of discount from derivatives |
$ | 54,518 | $ | 118,806 | $ | (64,288 | ) | -54.1 | % | |||||||
August 2008 convertible notes |
44,614 | 48,394 | (3,780 | ) | -7.8 | % | ||||||||||
December 2008 convertible notes |
127,035 | 130,195 | (3,160 | ) | -2.4 | % | ||||||||||
September 2009 secured convertible debentures |
-0- | 11,820 | (11,820 | ) | -100.0 | % | ||||||||||
General interest |
58,528 | 29,006 | 29,522 | 101.8 | % | |||||||||||
Related party notes payable |
40,833 | 41,852 | (1,019 | ) | -2.4 | % | ||||||||||
Total |
$ | 325,528 | $ | 380,073 | $ | (54,545 | ) | -14.4 | % |
We evaluate the cost of capital available to us in combination with our overall capital structure and the prevailing market conditions in deciding what financing best fulfills our short and long-term capital needs. Given the overall economic climate and in particular the difficulties nano-cap companies have experienced in obtaining financing, we believe the structure and terms of the transactions we entered into during 2016 and 2017 were obtained at the best terms available to the Company.
We record unrealized gains/losses related to changes in our derivative liabilities associated with the issuance of convertible debt that occurred during 2008 and 2009 and warrants associated with promissory notes issued in 2011 and 2016. We recorded a net unrealized loss of $2,918,886 during the three month period ended September 30, 2018 compared with a net unrealized loss of $812,535 during the three month period ended September 30, 2017. The unrealized gains/losses can be attributed to fair value calculations undertaken periodically on the warrant and conversion feature liabilities recorded by us at the time the convertible debt and promissory notes were issued. Accordingly the warrant and conversion feature liabilities are increased or decreased based on the fair value calculations made at each quarterly balance sheet date. These non-cash gains and losses have materially impacted our results of operations during the three month periods ended September 30, 2018 and September 30, 2017 and can be reasonably anticipated to materially affect our net loss or net income in future periods. The fair value calculations are heavily reliant on the value of our common stock and on the calculated volatility of the price of our common stock on the OTCQX Marketplace. Accordingly, significant changes in our stock price will create large unrealized gains and losses on our financial statements. We are, however, unable to estimate the amount of such income/expense in future periods as the income/expense is partly based on the market price of our common stock at the end of a future measurement date. In addition, if we issue securities in the future which are classified as derivatives we will incur expense and income items in future periods. Investors are cautioned to consider the impact of this non-cash accounting treatment on our financial statements.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability of a company to generate adequate amounts of cash to meet its operating, investing and financing needs for cash. We have historically experienced negative cash flows and have relied on the proceeds from the sale of debt and equity securities to fund our operations. At September 30, 2018, we had working capital deficit of $7,741,253.
The table provided below summarizes key measures of our liquidity and capital resources:
Liquidity and Capital Resources |
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Summarized Balance Sheet Disclosure |
September 30, 2018 |
December 31, 2017 |
$ Change |
% Change |
|||||||||||||
Cash |
$ | 1,371,962 | $ | 1,176,551 | $ | 195,411 | 16.6 | % | ||||||||
Accounts receivable, net of allowance for doubtful accounts |
5,124,404 | 7,492,597 | (2,368,193 | ) | -31.6 | % | ||||||||||
Prepaid expenses |
390,565 | 297,131 | 93,434 | 31.4 | % | |||||||||||
Other current assets |
11,917 | 11,463 | 454 | 4.0 | % | |||||||||||
Current assets |
6,898,848 | 8,977,742 | (2,078,894 | ) | -23.2 | % | ||||||||||
Accounts payable and accrued expenses |
1,686,536 | 2,586,045 | (899,509 | ) | -34.8 | % | ||||||||||
Notes payable, related parties, current portion, net of discount |
353,054 | -0- | 353,054 | n/a | ||||||||||||
Convertible notes payable, current portion, net of discount |
-0- | 50,000 | (50,000 | ) | -100.0 | % | ||||||||||
Deferred revenue, current portion |
6,209,198 | 7,564,587 | (1,355,389 | ) | -17.9 | % | ||||||||||
Capital lease liability |
114,594 | -0- | 114,594 | n/a | ||||||||||||
Patent litigation settlement liability, current portion |
-0- | 112,500 | (112,500 | ) | -100.0 | % | ||||||||||
Conversion feature liability, related parties |
1,744,002 | 1,604,723 | 139,279 | 8.7 | % | |||||||||||
Conversion feature liability |
96,510 | 81,224 | 15,286 | 18.8 | % | |||||||||||
Warrant liability, related parties |
2,754,207 | 2,196,570 | 557,637 | 25.4 | % | |||||||||||
Warrant liability |
1,682,000 | 1,244,229 | 437,771 | 35.2 | % | |||||||||||
Current liabilities |
14,640,101 | 15,439,878 | (799,777 | ) | -5.2 | % | ||||||||||
Working capital (deficit) |
$ | (7,741,253 | ) | $ | (6,462,136 | ) | $ | (1,279,117 | ) | -19.8 | % |
Statement of Cash Flows Disclosure |
For the nine months ended |
||||||||||||||||
September 30, 2018 |
September 30, 2017 |
$ Change |
% Change |
|||||||||||||
Net cash provided by/(used in) operating activities |
$ | 1,122,218 | $ | 1,279,921 | $ | (157,703 | ) | -12.3 | % | |||||||
Net cash provided by/(used in) investing activities |
(1,252,431 | ) | (212,173 | ) | (1,040,258 | ) | -490.3 | % | ||||||||
Net cash provided by/(used in) financing activities |
356,936 | (1,184,750 | ) | 1,541,686 | 130.1 | % | ||||||||||
Net increase/(decrease) in cash and cash equivalents |
195,411 | (121,741 | ) | 317,152 | 260.5 | % | ||||||||||
Changes in operating accounts |
(517,630 | ) | (1,407,312 | ) | 889,682 | 63.2 | % | |||||||||
Effect of non-cash transactions on cash and cash equivalents |
$ | 2,179,276 | $ | 292,687 | $ | 1,886,589 | 644.6 | % |
Cash and Cash Equivalents
Cash and cash equivalents increased by $195,411 to $1,371,962 at September 30, 2018 from $1,176,551 at December 31, 2017. The decrease is primarily comprised of a net loss of ($539,428), changes in working capital accounts of ($517,630) and a increase from non-cash transactions of $2,179,276. During the nine months ended September 30, 2018 we had investing activities of ($1,252,431). We had financing activities that included proceeds of $550,000 from our revolving line of credit, repayment of notes payable of $200,000, proceeds of $45,000 from stock option exercises and payment of $38,064 for capital leases during the nine month period ended September 30, 2018.
Capital Expenditures
Any amounts expended for capital expenditures would be the result of an increase in the capacity needed to adequately service any increase in our business. To date we have primarily paid for any needed additions to our capital equipment infrastructure from working capital funds and anticipate this being the case in the future.
Presently, we have approximately $300,000 planned for capital expenditures to further develop our infrastructure to allow for growth in our operations during the remainder of 2018. We expect to fund these capital expenditure needs through a combination of vendor-provided financing, the use of operating or capital equipment leases and cash provided from operations.
Contractual Obligations
The following table sets forth our contractual obligations as of September 30, 2018:
Contractual obligation |
Payments due by period |
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Total |
Less than 1 year |
1-2 Years |
2-3 Years |
3+ Years |
||||||||||||||||
Promissory notes (1) |
$ | 1,102,500 | $ | 400,000 | (2) | $ | 702,500 | (3) | $ | -0- | $ | -0- | ||||||||
Convertible notes (1) |
5,970,000 | -0- | 5,770,000 | (4) | 200,000 | (5) | -0- | |||||||||||||
Lines of credit (6) |
3,200,000 | -0- | 3,200,000 | -0- | -0- | |||||||||||||||
Operating lease obligations (7) |
2,044,658 | 770,411 | 433,332 | 346,239 | 494,676 | (8) | ||||||||||||||
Capital lease obligations (9) |
320,604 | 114,594 | 122,213 | 83,797 | -0- | |||||||||||||||
Total |
$ | 12,637,762 | $ | 1,285,005 | $ | 10,228,045 | $ | 630,036 | $ | 494,676 |
1. |
Amounts do not include interest to be paid. |
2. |
Includes $400,000 in 12% notes payable that mature in April 2019. |
3. |
Includes $420,000 in 10% notes payable that mature in April 2020 and $282,500 in 12% notes payable that mature in April 2020. |
4. |
Includes $1,770,000 in 10% convertible notes that mature in April 2020 and $4,000,000 in 12% convertible notes that mature in April 2020. |
5. |
Includes $200,000 in 12% convertible notes that mature in April 2021. |
6. |
Includes $3,200,000 due on the revolving Line of Credit with The Northern Trust Company. |
7. |
Includes office lease obligations for our Corporate Office in Florida, our regional operating office in New Jersey, our co-location and disaster recovery locations in Ohio, Florida and Germany, our office in England, our office in the Netherlands and our European headquarters in Germany. |
8. |
Includes office lease obligations through 2023. |
9. |
Includes capital lease obligations for hardware located in our co-location sites in Ohio and Germany. |
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Debt Obligations
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 $50,000 to Mr. Wit.
On June 30, 2016, the Company and Mr. Wit extended the maturity date of $4,055,000 of convertible debentures originally issued in December 2008. The debentures carry an interest rate of 12% and have a maturity date of 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 June 30, 2016, the Company and Mr. Wit extended the maturity date of $1,770,000 of convertible debentures originally issued in August 2008. The debentures carry an interest rate of 10% and have a maturity date of 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 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.
On June 30, 2016, the Company issued promissory notes in the principal amount of $372,500 and warrants to purchase 1,490,000 shares of common stock of the Company at an exercise price of $0.25 per share with an expiration date of April 1, 2020 to two investors, in exchange for existing promissory notes in the same amount. The notes carry an interest rate of 12% per annum and have a maturity date of April 1, 2020. On August 31, 2017, the Company repaid $90,000 to one of the holders.
On April 7, 2017, the Company renewed the Line of Credit. The Line of Credit currently matures on April 7, 2020 and carries a variable interest rate based on the prime rate. At September 30, 2018, $3,200,000 was outstanding on the Line of Credit at an interest rate of 4.25%.
On June 30, 2017, the Company and our former director, Mr. van Kesteren ("Mr. van Kesteren") extended the maturity date of $150,000 of convertible debentures originally issued in August 2008. The debentures carry an interest rate of 10% and have a maturity date of April 1, 2019. The expiration date of the warrants associated with the debentures was also extended to April 1, 2019. The $150,000 of convertible debentures was repaid in full on June 30, 2018.
On June 30, 2017, the Company and the holder extended the maturity date of $200,000 of convertible debentures originally issued in December 2008. The debentures carry an interest rate of 12% and have a maturity date of April 1, 2021. The expiration date of the warrants associated with the debentures was also extended to April 1, 2021.
During the next twelve months we expect debt in the aggregate amount of $400,000 to mature as follows:
|
● |
$400,000 of 12% promissory notes. |
Sources of Liquidity and Capital Resources
Because of the losses we have experienced from operations we have needed to continue utilizing the proceeds from the issuance of debt and the sale of equity securities to fund our working capital needs. We have used a combination of equity financing, short-term bridge loans and long-term loans to fund our working capital needs. Other than our revenues, current capital and capital we may raise from future debt or equity offerings, the $5,000,000 revolving line of credit with The Northern Trust Company $3,200,000 of which is outstanding as of September 30, 2018) or short-term bridge loans, we do not have any additional sources of working capital.
We may continue to require substantial funds to continue our research and product development activities and to market, sell and commercialize our technology. We may need to raise substantial additional capital to fund our future operations. Our capital requirements will depend on many factors, including the problems, delays, expenses and complications frequently encountered by companies developing and commercializing new technologies; the progress of our research and product development activities; the rate of technological advances; determinations as to the commercial potential of our technology under development; the status of competitive technology; the establishment of collaborative relationships; the success of our sales and marketing programs; the cost of filing, prosecuting, defending and enforcing intellectual property rights; and other changes in economic, regulatory or competitive conditions in our planned business. Estimates about the adequacy of funding for our activities are based upon certain assumptions, including assumptions that our research and product development programs relating to our technology can be conducted at projected costs and that progress towards broader commercialization of our technology will be timely and successful. There can be no assurance that changes in our research and product development plans or other events will not result in accelerated or unexpected expenditures.
While we have not sought capital from venture capital or private equity sources we believe that those sources of capital remain available although possibly under terms and conditions that might be disadvantageous to existing investors.
To satisfy our capital requirements, including ongoing future operations, we may seek to raise additional financing through debt and equity financings. 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 programs, and our business operations. 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 our stockholders or impose restrictive covenants that may adversely impact our business. Further, there can be no assurance that even if such additional capital is obtained or planned cost reductions are implemented, that we will achieve positive cash flow or profitability or be able to continue as a business.
While several of our officers and directors have historically, either personally or through funds with which they are affiliated, provided substantial capital either in the form of debt or equity financing there can be no assurance that they will continue to provide any such funding to us on favorable terms or at all.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make judgments, assumptions and estimates that affect the amounts reported. Note 2 of Notes to the Condensed Consolidated Financial Statements describes the significant accounting policies used in the preparation of the condensed consolidated financial statements. Certain of these significant accounting policies are considered to be critical accounting policies, as defined below.
A critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes: 1) we are required to make assumptions about matters that are highly uncertain at the time of the estimate; and 2) different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.
Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the condensed consolidated financial statements as soon as they became known. In addition, our Management is periodically faced with uncertainties, the outcomes of which are not within our control and will not be known for prolonged periods of time. Based on a critical assessment of its accounting policies and the underlying judgments and uncertainties affecting the application of those policies, our Management believes that our condensed consolidated financial statements are fairly stated in accordance with accounting principles generally accepted in the United States (GAAP), and present a meaningful presentation of our financial condition and results of operations.
Our Management believes that the following are our critical accounting policies:
ASSET IMPAIRMENT
Asset Acquisitions and Intangible Assets
We account for asset acquisitions in accordance with ASC 350, Intangibles-Goodwill and Other. The acquisition method of accounting requires that assets acquired and liabilities assumed be recorded at their fair values on the date of an asset acquisition.
The judgments that we make in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact net income in periods following an asset acquisition. We generally use either the income, cost or market approach to aid in our conclusions of such fair values and asset lives. The income approach presumes that the value of an asset can be estimated by the net economic benefit to be received over the life of the asset, discounted to present value. The cost approach presumes that an investor would pay no more for an asset than its replacement or reproduction cost. The market approach estimates value based on what other participants in the market have paid for reasonably similar assets. Although each valuation approach is considered in valuing the assets acquired, the approach ultimately selected is based on the characteristics of the asset and the availability of information.
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, as appropriate, to determine fair value.
FAIR VALUE MEASUREMENT
OmniComm’s capital structure includes the use of warrants and convertible debt features that are classified as derivative financial instruments. Derivative financial instruments are recognized as either assets or liabilities and are measured at fair value under ASC 815, Derivatives and Hedging (“ASC 815”). ASC 815 requires that changes in the fair value of derivative financial instruments with no hedging designation be recognized as gains/(losses) in the earnings statement. The fair value measurement is determined in accordance with ASC 820, Fair Value Measurements and Disclosures.
DEFERRED REVENUE
Deferred revenue represents cash advances and accounts receivable 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.
REVENUE RECOGNITION POLICY
OmniComm’s revenue model is transaction-based and can be implemented either as an ASP (application service provider) or licensed for implementation by a customer such as a pharmaceutical company. Revenues are derived from the set-up of clinical trial engagements; licensing arrangements, fees earned for hosting our clients’ data and projects, on-going maintenance fees incurred throughout the duration of an engagement; and fees for report writing and project change orders. The clinical trials that are conducted using our EDC applications can last from a few months to several years. Most of the fees associated with our product including post-setup customer support in the form of maintenance charges are recognized ratably over the term of clinical trial projects. Cost of sales is primarily comprised of programmer salaries and taxes and is expensed as incurred.
The Company recognizes revenues in accordance with FASB Accounting Standards Codification 606. A five-step analysis must be met as outlined in Topic 606: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) performance obligations are satisfied. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered.
STOCK BASED COMPENSATION.
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.
EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During the first nine months of 2018, we adopted the following new accounting pronouncements:
In February 2016, the FASB issued Accounting Standard Update No. 2016-02, “Leases (Topic 842)”, (“ASU 2016-02”). ASU 2016-02 requires that an entity should recognize assets and liabilities for leases with a maximum possible term of more than 12 months. 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, 2018. 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 on our consolidated financial statements.
In April 2016, the FASB issued Accounting Standards Update 2016–10 “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.” The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation guidance on (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments in this Update are intended to render more detailed implementation guidance with the expectation to reduce the degree of judgement necessary to comply with Topic 606. The Company adopted the new standard effective January 1, 2018 using the modified retrospective method. The adoption of the new standard did not have a material impact on the Company’s consolidated financial statements.
Accounting standards-setting organizations frequently issue new or revised accounting rules. We regularly review all new pronouncements that have been issued since the filing of our Form 10-K for the year ended December 31, 2017 to determine their impact, if any, on our financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, being September 30, 2018, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures, as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) are effective such that the information relating to OmniComm, including our consolidating subsidiaries, required to be disclosed by the Company in reports that it files or submits under the Exchange Act (1) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (2) is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, during the quarter ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
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 September 30, 2018, there were no pending legal proceedings to which the Company or its subsidiaries are a party or to which any of its property is subject that could reasonably be expected to have a material effect on the results of our operations.
In addition to the information set forth in this Form 10-Q, you should carefully consider the risk factors discussed in Part I, Item 1A of our most recent Annual Report on Form 10-K, which could materially affect our business, financial condition, or future results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
None.
The following documents are filed as a part of this report or are incorporated by reference to previous filings, if so indicated:
EXHIBIT NO. |
DESCRIPTION |
31.1* |
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31.2* |
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32.1** |
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101.INS* |
XBRL Instance Document |
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101.SCH* |
XBRL Taxonomy Extension Schema Document |
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101.CAL* |
XBRL Taxonomy Extension Calculation Document |
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101.DEF* |
XBRL Taxonomy Extension Definition Document |
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101.LAB* |
XBRL Taxonomy Extension Label Document |
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101.PRE* |
XBRL Taxonomy Extension Presentation Document |
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* |
Filed herewith |
** |
Furnished herewith |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: November 13, 2018
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OMNICOMM SYSTEMS, INC. By: /s/ Cornelis F. Wit Cornelis F. Wit, Executive Chairman (Principal Executive Officer)
By: /s/ Thomas E. Vickers Thomas E. Vickers, Chief Financial Officer (Principal Financial Officer) |
52
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, CORNELIS F. WIT, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the period ended September 30, 2018 of OmniComm Systems, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
November 13, 2018
By: /s/ Cornelis F. Wit
Cornelis F. Wit
Principal Executive Officer
[A signed original of this written statement required by Section 906 has been provided to OmniComm Systems, Inc. and will be retained by OmniComm Systems, Inc. and furnished to the United States Securities and Exchange Commission or its staff upon request.]
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, THOMAS E. VICKERS, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the period ended September 30, 2018 of OmniComm Systems, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
November 13, 2018
By: /s/ Thomas E. Vickers
Thomas E. Vickers
Chief Financial Officer
[A signed original of this written statement required by Section 906 has been provided to OmniComm Systems, Inc. and will be retained by OmniComm Systems, Inc. and furnished to the United States Securities and Exchange Commission or its staff upon request.]
EXHIBIT 32.1
CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of OmniComm Systems, Inc. (the “Company”) for the period ended September 30, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, being, Cornelis F. Wit, Principal Executive Officer of the Company, and Thomas E. Vickers, Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
2.) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
November 13, 2018
/s/ Cornelis F. Wit
Cornelis F. Wit
Principal Executive Officer
November 13, 2018
/s/ Thomas E. Vickers
Thomas E. Vickers
Chief Financial Officer
The foregoing certification is being furnished pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and it is not to be incorporated by reference into any filing of the Company, regardless of any general incorporation language in such filing.
Document And Entity Information - shares |
9 Months Ended | |
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Sep. 30, 2018 |
Nov. 12, 2018 |
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Document Information [Line Items] | ||
Entity Registrant Name | OMNICOMM SYSTEMS INC | |
Entity Central Index Key | 0001034592 | |
Trading Symbol | omcm | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Non-accelerated Filer | |
Entity Current Reporting Status | Yes | |
Entity Emerging Growth Company | false | |
Entity Small Business | true | |
Entity Common Stock, Shares Outstanding (in shares) | 152,343,647 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2018 | |
Document Fiscal Year Focus | 2018 | |
Document Fiscal Period Focus | Q3 | |
Amendment Flag | false |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Revenues | $ 6,379,641 | $ 6,490,147 | $ 19,557,161 | $ 19,420,456 |
Reimbursable revenues | 463,183 | 225,766 | 775,788 | 755,344 |
Total revenues | 6,842,824 | 6,715,913 | 20,332,949 | 20,175,800 |
Cost of goods sold | 1,044,020 | 1,133,480 | 3,240,449 | 3,320,190 |
Reimbursable expenses-cost of goods sold | 253,793 | 181,965 | 368,542 | 802,975 |
Total cost of goods sold | 1,297,813 | 1,315,445 | 3,608,991 | 4,123,165 |
Gross margin | 5,545,011 | 5,400,468 | 16,723,958 | 16,052,635 |
Operating expenses | ||||
Salaries, benefits and related taxes | 3,483,627 | 3,393,915 | 10,695,132 | 9,906,293 |
Rent and occupancy expenses | 337,824 | 292,669 | 930,972 | 841,718 |
Consulting services | 55,736 | 64,488 | 219,856 | 185,222 |
Legal and professional fees | 72,776 | 126,959 | 381,648 | 367,403 |
Travel | 190,785 | 188,406 | 588,247 | 679,766 |
Telephone and internet | 43,682 | 39,786 | 114,696 | 115,660 |
Selling, general and administrative | 383,958 | 277,047 | 1,297,008 | 937,313 |
Bad debt expense | 21,679 | 87,366 | 47,931 | 40,369 |
Intangible asset impairment | 0 | 0 | 79,634 | 0 |
Depreciation expense | 115,687 | 87,382 | 279,532 | 249,801 |
Amortization expense | 91,343 | 5,580 | 248,790 | 16,455 |
Total operating expenses | 4,797,097 | 4,563,598 | 14,883,446 | 13,340,000 |
Operating income/(loss) | 747,914 | 836,870 | 1,840,512 | 2,712,635 |
Other income/(expense) | ||||
Interest expense, related parties | (229,906) | (252,585) | (682,986) | (717,782) |
Interest expense | (95,622) | (127,488) | (283,407) | (342,240) |
Interest income | 7 | 3 | 16 | 589 |
Change in derivative liabilities | (2,918,886) | (812,535) | (1,160,473) | 723,532 |
Transaction gain/(loss) | (12,128) | (3,104) | (97,984) | 19,006 |
Income/(loss) before income taxes | (2,508,621) | (358,839) | (384,322) | 2,395,740 |
Income tax (expense) | (154,071) | 0 | (155,106) | (1,194) |
Net income/(loss) attributable to common stockholders | $ (2,662,692) | $ (358,839) | $ (539,428) | $ 2,394,546 |
Net income/(loss) per share | ||||
Basic (in dollars per share) | $ (0.02) | $ 0 | $ 0 | $ 0.02 |
Diluted (in dollars per share) | $ (0.02) | $ 0 | $ 0 | $ 0.02 |
Weighted average number of shares outstanding | ||||
Basic (in shares) | 150,905,124 | 147,858,566 | 150,282,732 | 147,805,410 |
Diluted (in shares) | 150,905,124 | 147,858,566 | 150,282,732 | 147,850,886 |
Condensed Consolidated Statements of Comprehensive Income/(Loss) (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Net income/(loss) attributable to common stockholders | $ (2,662,692) | $ (358,839) | $ (539,428) | $ 2,394,546 |
Other comprehensive income/(loss) | ||||
Change in foreign currency translation adjustment | (13,256) | 1,310 | (34,424) | 13,386 |
Other comprehensive income/(loss) | (13,256) | 1,310 | (34,424) | 13,386 |
Comprehensive income/(loss) | $ (2,675,948) | $ (357,529) | $ (573,852) | $ 2,407,932 |
Note 1 - Organization and Nature of Operations |
9 Months Ended | ||
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Sep. 30, 2018 | |||
Notes to Financial Statements | |||
Nature of Operations [Text Block] |
OmniComm Systems, Inc. (“OmniComm” or the “Company”) is a healthcare technology company that provides web-based electronic data capture (“EDC”) solutions and related value-added services to pharmaceutical and biotech companies, contract research organizations (“CROs”) and other clinical trial sponsors principally located in the United States, Europe and East Asia. Our proprietary software applications: TrialMaster ® , TrialOne® , eClinical Suite, Promasys® , IRTMaster, AutoEncoder and Acuity Analytics (the “EDC Software”) allow clinical trial sponsors and investigative sites to securely collect, validate, transmit and analyze clinical trial data.Our ability to compete within the EDC industry is predicated on our ability to continue enhancing and broadening the scope of solutions offered through our EDC Software and services. Our research and product development efforts are focused on developing new and complementary software solutions, as well as enhancing our existing software solutions through the addition of increased functionality. During the nine month periods ended September 30, 2018 and September 30, 2017 we spent $2,469,280 and $2,230,565, respectively, on research and product development activities, which are primarily comprised of salaries to our developers and other research and product development personnel and related costs associated with the development of our software products. |
Note 2 - Summary of Significant Accounting Policies |
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Significant Accounting Policies [Text Block] |
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION The Company’s accounts include those of all its wholly-owned subsidiaries, which are more fully described in the Company’s 2017 Annual Report filed on Form 10 -K with the Securities and Exchange Commission, and have been prepared in conformity with (i) accounting principles generally accepted in the United States of America; and (ii) the rules and regulations of the United States Securities and Exchange Commission. All significant intercompany accounts and transactions between the Company and its subsidiaries have been eliminated in consolidation.UNAUDITED FINANCIAL STATEMENTS The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, pursuant to the rules and regulations of the Securities and Exchange Commission. Pursuant to such rules and regulations, certain financial information and footnote disclosures normally included in the consolidated financial statements have been condensed or omitted. The results for the nine month periods ended September 30, 2018 and September 30, 2017 are unaudited, but reflect all adjustments (consisting only of normally recurring adjustments) which management considers necessary for a fair presentation of operating results.The operating results for the nine month period ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year-ended December 31, 2018. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10 -K for the year-ended December 31, 2017. ESTIMATES IN FINANCIAL STATEMENTS The preparation of the unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes thereto. Significant estimates incorporated in our financial statements include the recorded allowance for doubtful accounts, the estimate of the appropriate amortization period of our intangible assets, the evaluation of whether our intangible assets have suffered any impairment, the allocation of revenues under multiple-element customer contracts, royalty-based patent liabilities, the value of derivatives associated with debt issued by the Company and the valuation of any corresponding discount to the issuance of our debt. Actual results may differ from those estimates.Reclassifications Certain reclassifications have been made in the 2017 financial statements to conform to the 2018 presentation. These reclassifications did not have any effect on our net income/(loss) or shareholders’ deficit.foreign currency translation The financial statements of the Company’s foreign subsidiaries are translated in accordance with Accounting Standards Codification (“ASC”) 830 -30, Foreign Currency Matters—Translation of Financial Statements ("ASC 830 -30" ). The reporting currency for the Company is the U.S. dollar. The functional currency of the Company’s subsidiaries, OmniComm Europe GmbH in Germany, OmniComm Spain S.L. in Spain and OmniComm Systems B.V. in the Netherlands is the Euro. The functional currency of the Company’s subsidiary, OmniComm Ltd. in the United Kingdom, is the British Pound Sterling. The functional currency of the Company’s subsidiary, OmniComm eClinical Solutions Pvt. Ltd. in India, is the Indian Rupee. Accordingly, the assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars using the exchange rate in effect at each balance sheet date. Revenue and expense accounts of the Company’s foreign subsidiaries are translated using an average rate of exchange during the period. Foreign currency translation adjustments are accumulated as a component of other comprehensive income/(loss) as a separate component of stockholders’ equity. Gains and losses arising from transactions denominated in foreign currencies are primarily related to intercompany accounts that have been determined to be temporary in nature and accordingly, are recorded directly to the statement of operations. We record translation gains and losses in accumulated other comprehensive income as a component of stockholders’ equity. We recorded a translation loss of $34,424 and a translation gain of $13,386 for the nine month periods ended September 30, 2018 and September 30, 2017, respectively.REVENUE RECOGNITION POLICY The Company derives revenues from software licenses and services of its EDC products and services which can be purchased on a stand-alone basis. License revenues are derived principally from the sale of term licenses for the following software products offered by the Company: TrialMaster, TrialOne, eClinical Suite and Promasys. Service revenues are derived principally from the Company's delivery of the hosted solutions of its TrialMaster software product, and consulting services and customer support, including training, for all of the Company's products. For revenue from product sales, the Company recognizes revenue in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 606 (“ASC 606" ). A five -step analysis must be met as outlined in ASC 606: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) performance obligations are satisfied. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.The Company operates in one reportable segment which is the delivery of EDC Software and services to clinical trial sponsors. The Company segregates its revenues based on the activity cycle used to generate its revenues. Accordingly, revenues are currently generated through four main activities, including hosted applications, licensing, professional services and maintenance-related services.Hosted Application Revenues The Company offers its TrialMaster and TrialOne software products as hosted application solutions delivered through a standard web browser, with customer support and training services. The Company's TrialOne and Promasys solutions are primarily deployed on a technology transfer or off-the-shelf basis. To date, hosted applications revenues have been primarily related to TrialMaster. On April 30, 2019, OmniComm will decommission its eClinical Suite hosting platform as the eClinical Suite clients utilizing these hosting services have transitioned to TrialMaster, the eClinical Suite studies have been completed or the studies have transitioned to another hosting platform.Revenues resulting from TrialMaster application hosting services consist of three components of services for each clinical trial. The first component is comprised of application set-up, including design of electronic case report forms and edit checks, installation and server configuration of the system. The second component involves application hosting and related support services as well as billable change orders which consist of amounts billed to customers for functionality changes made. The third component involves services required to close out, or lock, the database for the clinical trial.Fees charged for the trial system design, set-up and implementation are amortized and recognized ratably over the estimated hosting period. Work performed outside the original scope of work is contracted for separately as an additional fee and is generally recognized ratably over the remaining term of the hosting period. Fees for the first and third stages of the service are typically billed based upon milestones. Revenues earned upon completion of a contractual milestone are deferred and recognized over the estimated remaining hosting period. Fees for application hosting and related services in the second stage are generally billed monthly or quarterly in advance.Licensing Revenues The Company's software license revenues are earned from the sale of off-the-shelf software. From time to time a client might require significant modification or customization subsequent to delivery to the customer. The Company generally enters into software term licenses for its EDC Software products with its customers for three to five year periods, although customers have entered into both longer and shorter term license agreements. These arrangements typically include multiple elements: software license, consulting services and customer support. The Company bills its customers in accordance with the terms of the underlying contract. Generally, the Company bills license fees in advance for each billing cycle of the license term, which typically is either on a quarterly or annual basis. Payment terms are generally net 30 to net 45 days.The Company has sold perpetual licenses for EDC Software products in certain situations to existing customers with the option to purchase customer support, and may, in the future, do so for new customers based on customer requirements or market conditions. The Company has established vendor specific objective evidence of fair value for the customer support. Accordingly, license revenues are recognized upon delivery of the software and when all other revenue recognition criteria are met. Customer support revenues are recognized ratably over the term of the underlying support arrangement. The Company generates customer support and maintenance revenues from its perpetual license customer base.Professional Services The Company may also enter into arrangements to provide consulting services separate from a license arrangement. In these situations, revenue is recognized on a time-and-materials basis. Professional services can be deemed to be as essential to the functionality of the software at inception and typically are for initial trial configuration, implementation planning, loading of software, building simple interfaces, running test data and documentation of procedures. Subsequent additions or extensions to license terms do not generally include additional professional services.Maintenance Revenues Maintenance includes telephone-based help desk support and software maintenance, including updates to the software through new software version releases. The Company generally bundles customer support with the software license for the entire term of the arrangement. As a result, the Company generally recognizes revenues for both maintenance and software licenses ratably over the term of the software license and support arrangement. The Company allocates the revenues recognized for these arrangements to the different elements based on management's estimate of the relative fair value of each element. The Company generally invoices each of the elements based on separately quoted amounts and thus has a fairly accurate estimate of the relative fair values of each of the invoiced revenue elements. Pass-through Revenue and Expense The Company accounts for pass-through revenue and expense (reimbursable revenue and reimbursable expense) in accordance with Accounting Standards Update 2016 -08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), (“ASU 2016 -08” ). In accordance with ASU 2016 -08 these amounts are recorded as revenue in the statement of operations with a corresponding expense recorded in cost of goods sold. Pass-through revenues and expenses include amounts associated with third -party services provided to our customers by our service and product partners. These third -party services are primarily comprised of Interactive Voice and Web Response software services (IVR and IWR), travel and shipping that are incurred on our clients’ behalf.The fees associated with each business activity for the nine month periods ended September 30, 2018 and September 30, 2017, respectively, are:
COST OF GOODS SOLD Cost of goods sold primarily consists of costs related to hosting, maintaining and supporting the Company’s application suite and delivering professional services and support. These costs include salaries, benefits and bonuses for the Company’s professional services staff. Cost of goods sold also includes outside service provider costs . Cost of goods sold is expensed as incurred.CASH AND CASH EQUIVALENTS Cash equivalents consist of highly liquid, short-term investments with maturities of 90 days or less. The carrying amount reported in the accompanying consolidated balance sheets approximates fair value.ACCOUNTS RECEIVABLE Accounts receivable are judged as to collectability by management and an allowance for bad debts is established as necessary. The allowance is based on an evaluation of the collectability of accounts receivable and prior bad debt experience. The Company had recorded an allowance for uncollectible accounts receivable of $197,911 as of September 30, 2018 and $149,980 as of December 31, 2017. The following table summarizes activity in the Company's allowance for doubtful accounts for the nine month period ended September 30, 2018 and the year ended December 31, 2017.
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 September 30, 2018, $1,404,402 was deposited in excess of FDIC-insured limits. Management believes the risk in these situations to be minimal.Except as follows, the Company has no significant off-balance-sheet risk or credit risk concentrations. Financial instruments that subject the Company to potential credit risks are principally cash equivalents and accounts receivable. Concentrated credit risk with respect to accounts receivable is limited to creditworthy customers. The Company's customers are principally located in the United States, Europe and East Asia. The Company is directly affected by the overall financial condition of the pharmaceutical, biotechnology and medical device industries and management believes that credit risk exists and that any credit risk the Company faces has been adequately reserved for as of September 30, 2018. The Company maintains an allowance for doubtful accounts based on accounts past due according to contractual terms and historical collection experience. Actual losses, when incurred, are charged to the allowance. The Company's losses related to collection of accounts receivable have consistently been within management's expectations. As of September 30, 2018, the Company believes no additional credit risk exists beyond the amounts provided for in our allowance for uncollectible accounts. The Company evaluates its allowance for uncollectable accounts on a quarterly basis based on a specific review of receivable aging and the period that any receivables are beyond the standard payment terms. The Company does not require collateral from its customers in order to mitigate credit risk.One customer accounted for 12% of our revenues during the nine month period ended September 30, 2018 or approximately $2,339,000. One customer accounted for 10% of our revenues during the nine month period ended September 30, 2017 or approximately $2,021,000. The following table summarizes the number of customers who individually comprise greater than 10% of total revenue and/or total accounts receivable and their aggregate percentage of the Company's total revenue and gross accounts receivable for the nine month periods ended September 30, 2018 and September 30, 2017 and the year ended December 31, 2017.
The table below provides revenues from European customers for the nine month periods ended September 30, 2018 and September 30, 2017.
The Company serves its hosting customers from third -party web hosting facilities located in the United States and Germany. The Company does not control the operation of these facilities and they are vulnerable to damage or interruption. The Company maintains redundant systems that can be used to provide service in the event the third -party web hosting facilities become unavailable, although in such circumstances, the Company's service may be interrupted during the transition.PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Additions and betterments are capitalized; maintenance and repairs are expensed as incurred. Depreciation is calculated using the straight-line method over the asset’s estimated useful life, which is 5 years for leasehold improvements, computers, equipment and furniture and 3 years for software. Gains or losses on disposal are charged to operations.ASSET IMPAIRMENT Acquisitions and Intangible Assets We account for acquisitions in accordance with ASC 805, Business Combinations (“ASC 805” ) and ASC 350, Intangibles- Goodwill and Other (“ASC 350” ). The acquisition method of accounting requires that assets acquired and liabilities assumed be recorded at their fair values on the date of a business acquisition. Our consolidated financial statements and results of operations reflect an acquired business from the completion date of an acquisition.The judgments that we make in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact net income in periods following an asset acquisition. We generally use either the income, cost or market approach to aid in our conclusions of such fair values and asset lives. The income approach presumes that the value of an asset can be estimated by the net economic benefit to be received over the life of the asset, discounted to present value. The cost approach presumes that an investor would pay no more for an asset than its replacement or reproduction cost. The market approach estimates value based on what other participants in the market have paid for reasonably similar assets. Although each valuation approach is considered in valuing the assets acquired, the approach ultimately selected is based on the characteristics of the asset and the availability of information.Long-lived Assets We review long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount and the asset’s residual value, if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available. We use quoted market prices when available and independent appraisals and management estimates of future operating cash flows, as appropriate, to determine fair value.FAIR VALUE MEASUREMENT OmniComm’s capital structure includes the use of warrants and convertible debt features that are classified as derivative financial instruments. Derivative financial instruments are recognized as either assets or liabilities and are measured at fair value under ASC 815, Derivatives and Hedging (“ASC 815” ). ASC 815 requires that changes in the fair value of derivative financial instruments with no hedging designation be recognized as gains/(losses) in the earnings statement. The fair value measurement is determined in accordance with ASC 820, Fair Value Measurements and Disclosures (“ASC 820” ).DEFERRED REVENUE Deferred revenue represents cash advances and amounts in accounts receivable as of the balance sheet date received in excess of revenue earned on on-going contracts. Payment terms vary with each contract but may include an initial payment at the time the contract is executed, with future payments dependent upon the completion of certain contract phases or targeted milestones. In the event of contract cancellation, the Company is generally entitled to payment for all work performed through the point of cancellation. As of September 30, 2018, the Company had $7,867,262 in deferred revenues relating to contracts for services to be performed over periods ranging from one month to 7 years. The Company had $6,209,198 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 $671,030 and $528,777 for the nine month periods ended September 30, 2018 and September 30, 2017, respectively, and are included under selling, general and administrative expenses in our unaudited condensed consolidated financial statements.RESEARCH AND PRODUCT DEVELOPMENT EXPENSES Software development costs are expensed as incurred. ASC 985 -20, Software Industry Costs of Software to Be Sold, Leased or Marketed (“ASC 985 -20” ), requires the capitalization of certain development costs of software to be sold once technological feasibility is established, which the Company defines as completion to the point of marketability. The capitalized cost is then amortized on a straight-line basis over the estimated product life. To date, the period between achieving technological feasibility and the general availability of such software has been short and software development costs qualifying for capitalization have been immaterial. Accordingly, the Company has not capitalized any software development costs under ASC 985 -20. During the nine month periods ended September 30, 2018 and September 30, 2017 we spent $2,469,280 and $2,230,565, respectively, on research and product development activities, which include costs associated with the development of our software products and services for our clients’ projects and which are primarily comprised of salaries and related expenses for our software developers and consulting fees paid to third -party consultants. Research and product development costs are primarily included under Salaries, benefits and related taxes in our Statement of Operations.EQUITY INCENTIVE PLANS The OmniComm Systems, Inc. 2016 Equity Incentive Plan (the “2016 Plan”) was approved at our Annual Meeting of Stockholders on June 16, 2016. The 2016 Plan initially provides for the issuance of up to 10,000,000 shares of our common stock. In addition, the number of shares of common stock available for issuance under the 2016 Plan automatically increases on January 1st of each year for a period of nine (9 ) years commencing on January 1, 2017 and ending on (and including) January 1, 2025, in an amount equal to five percent (5% ) of the total number of shares authorized under the 2016 Plan. As of September 30, 2018 11,025,000 shares of our common stock were authorized for issuance under the 2016 Plan.The predecessor plan, the OmniComm Systems, Inc. 2009 Equity Incentive Plan (the “2009 Plan”) was approved at our Annual Meeting of Stockholders on July 10, 2009 and terminated on June 16, 2016 upon the approval of the 2016 Plan. The 2009 Plan provided for the issuance of up to 7,500,000 shares to employees, directors and key consultants. The 2016 and 2009 Plans are more fully described in “Note 13, Equity Incentive Plans”.The Company accounts for its employee equity incentive plans under 718, Compensation – Stock Compensation , (“ASC 718” ) which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statements of operations. The Company currently uses the Black Scholes option pricing model to determine grant date fair value.EARNINGS PER SHARE The Company accounts for Earnings per Share using ASC 260, Earnings per Share, (“ASC 260” ). Unlike diluted earnings per share basic earnings per share excludes any dilutive effects of options, warrants and convertible securities.INCOME TAXES The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740” ). ASC 740 has as its basic objective the recognition of current and deferred income tax assets and liabilities based upon all events that have been recognized in the financial statements as measured by the provisions of the enacted tax laws.Valuation allowances are established, when necessary, to reduce deferred tax assets to the estimated amount to be realized. Income tax expense represents the tax payable for the current period and the change during the period in the deferred tax assets and liabilities. IMPACT OF NEW ACCOUNTING STANDARDS During the first nine months of 2018, we adopted the following new accounting pronouncements:In February 2016, the FASB issued Accounting Standard Update No. 2016 -02, “Leases (Topic 842 )”, (“ASU 2016 -02” ). ASU 2016 -02 requires that an entity should recognize assets and liabilities for leases with a maximum possible term of more than 12 months. 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, 2018. 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 on our consolidated financial statements.In April 2016, the FASB issued Accounting Standards Update 2016–10 “Revenue from Contracts with Customers (Topic 606 ):Identifying Performance Obligations and Licensing.” The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation guidance on (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments in this Update are intended to render more detailed implementation guidance with the expectation to reduce the degree of judgement necessary to comply with Topic 606. The Company adopted the new standard effective January 1, 2018 using the modified retrospective method. Therefore, the comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods. The adoption of the new standard did not have a material impact on the Company’s consolidated financial statements.Accounting standards-setting organizations frequently issue new or revised accounting rules. We regularly review all new pronouncements to determine their impact, if any, on our financial statements. |
Note 3 - Earnings (Loss) Per Share |
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Earnings Per Share [Text Block] |
Basic earnings/(loss) per share were calculated using the weighted average number of shares outstanding of 150,282,732 and 147,805,410 for the nine month periods ended September 30, 2018 and September 30, 2017, respectively.The outstanding share balance as of September 30, 2018 and September 30, 2017, respectively, includes 1,900,000 and -0 - restricted shares that have been issued but are still at risk of forfeiture as the restrictions have not lapsed.Antidilutive shares of 40,741,945 have been omitted from the calculation of dilutive earnings/(loss) per share for the nine month period ended September 30, 2018 and 31,924,411 for the nine month period ended September 30, 2017, as the shares were antidilutive. Provided below is the reconciliation between numerators and denominators of the basic and diluted earnings per share. The table below provides a reconciliation of anti-dilutive securities outstanding as of September 30, 2018 and September 30, 2017, respectively.
The employee stock options are exercisable at prices ranging from $0.17 to $0.34 per share. The exercise prices on the warrants range from $0.25 to $0.60 per share. Shares issuable upon conversion of convertible debentures or accrued interest have a conversion price of $0.50 per share.Some of the Company’s convertible debt has an anti-dilutive effect on net income/(loss) per share and was not included in the computation of diluted earnings per share.
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Note 4 - Property and Equipment, Net |
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Property, Plant and Equipment Disclosure [Text Block] |
Property and equipment consists of the following:
Depreciation expense for the nine month period ended September 30, 2018 was $279,532 and $249,801 for the nine month period ended September 30, 2017. |
Note 5 - Intangible Assets, Net |
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Intangible Assets Disclosure [Text Block] |
Intangible assets consist of the following:
During the second quarter of 2018 we recognized an impairment loss of $79,634 on the Promasys B.V. customer list after performing a fair value analysis on the asset utilizing a discounted cash flow model. The impairment charge is separately presented on the Statement of Operations. Amortization expense for the nine month period ended September 30, 2018 was $248,790 and $16,455 for the nine month period ended September 30, 2017. Remaining amortization expense for the Company’s intangible assets is as follows:
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Note 6 - Accounts Payable and Accrued Expenses |
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Accounts Payable and Accrued Liabilities Disclosure [Text Block] |
Accounts payable and accrued expenses consist of the following:
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Note 7 - Line of Credit, Notes Payable and Liquidity |
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Debt Disclosure [Text Block] |
On March 18, 2013, the Company entered into a $2,000,000 revolving Line of Credit (“Line of Credit”) with The Northern Trust Company guaranteed by our then Chief Executive Officer and Director, Cornelis F. Wit (“Mr. Wit”). Mr. Wit receives 2.0% interest (approximately $9,500 per month) from the Company on the assets pledged for the Line of Credit. On December 18, 2013 the Company renewed the Line of Credit and increased the available balance to $4,000,000. On February 3, 2015 the Company renewed the Line of Credit and increased the available balance to $5,000,000. On April 7, 2017 the Company renewed the Line of Credit. The Line of Credit currently matures on April 7, 2020 and carries a variable interest rate based on the prime rate. At September 30, 2018, $3,200,000 was outstanding on the Line of Credit at an interest rate of 4.25%. Our primary sources of working capital are funds from operations and borrowings under our revolving Line of Credit. In the event that the Line of Credit is called for any reason, Mr. Wit has pledged to replace the borrowing capacity under the Line of Credit with a promissory note that utilizes the same maturity date and interest rate as the Line of Credit. To satisfy our capital requirements, we may seek additional financing. There can be no assurance that any such funding will be available to us on favorable terms or at all. If adequate funds are not available when needed, we may be required to delay, scale back or eliminate some or all of our research and product development and marketing programs. If we are successful in obtaining additional financings, the terms of such financings may have the effect of diluting or adversely affecting the holdings or the rights of the holders of our securities or result in increased interest expense in future periods.The following table summarizes the notes payable outstanding as of September 30, 2018.
The following table summarizes the notes payable outstanding as of December 31, 2017.
On February 29, 2016, the Company issued a promissory note in the principal amount of $450,000 and warrants to purchase 1,800,000 shares of common stock of the Company at an exercise price of $0.25 per share with an expiration date of April 1, 2019 to our then Chief Executive Officer and Director, Cornelis F. Wit (“Mr. Wit”), in exchange for accrued interest in the amount of $450,000. The note carries an interest rate of 12% per annum and has a maturity date of April 1, 2019. On December 5, 2016, Mr. Wit sold 1,000,000 of the warrants to an employee of the Company. On August 31, 2017, the Company repaid $50,000 of the outstanding principal to Mr. Wit.The issuance caused us to calculate and record a derivative liability for the warrant liability. The warrants were valued using the Black Scholes option pricing model. A value of $325,689 was calculated and allocated to the warrants and recorded as a liability to the issuance of the note payable. As a result of the liability we recorded a discount to the note payable. The carrying amount of the note at the time of issuance was therefore $124,311. The warrant liability (discount) will be amortized over the 37 month duration of the note payable. The Company will continue to perform a fair value calculation quarterly on the warrant liability and accordingly the warrant liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is reflected in operations as an unrealized gain or loss on changes in derivative liabilities.On June 30, 2016, the Company issued promissory notes in the principal amount of $372,500 and warrants to purchase 1,490,000 shares of common stock of the Company at an exercise price of $0.25 per share with an expiration date of April 1, 2020 to two investors in exchange for existing promissory notes in the same amount. The notes carry an interest rate of 12% per annum and have a maturity date of April 1, 2020. On August 31, 2017 a promissory note for $90,000 was repaid in full.The issuance caused us to calculate and record a derivative liability for the warrant liability. The warrants were valued using the Black Scholes option pricing model. A value of $246,921 was calculated and allocated to the warrants and recorded as a liability to the issuance of the note payable. As a result of the liability we recorded a discount to the note payable. The carrying amount of the note at the time of issuance was therefore $125,579. The warrant liability (discount) will be amortized over the 45 month duration of the note payables. The Company will continue to perform a fair value calculation quarterly on the warrant liability and accordingly the warrant liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is reflected in operations as an unrealized gain or loss on changes in derivative liabilities.On June 30, 2016, the Company issued promissory notes in the principal amount of $420,000 and warrants to purchase 1,680,000 shares of common stock of the Company at an exercise price of $0.25 per share with an expiration date of April 1, 2020 to two investors, in exchange for existing promissory notes in the same amount. The notes carry an interest rate of 10% per annum and have a maturity date of April 1, 2020. The issuance caused us to calculate and record a derivative liability for the warrant liability. The warrants were valued using the Black Scholes option pricing model. A value of $278,408 was calculated and allocated to the warrants and recorded as a liability to the issuance of the note payable. As a result of the liability we recorded a discount to the note payable. The carrying amount of the note at the time of issuance was therefore $141,592. The warrant liability (discount) will be amortized over the 45 month duration of the note payables. The Company will continue to perform a fair value calculation quarterly on the warrant liability and accordingly the warrant liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is reflected in operations as an unrealized gain or loss on changes in derivative liabilities. |
Note 8 - Convertible Notes Payable |
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Convertible Debt Disclosure [Text Block] |
The following table summarizes the convertible debt outstanding as of September 30, 2018.
The following table summarizes the convertible debt outstanding as of December 31, 2017.
10% Convertible NotesDuring 1999, the Company issued 10% Convertible Notes payable in the amount of $862,500 pursuant to a Confidential Private Placement Memorandum. There were costs of $119,625 associated with this offering. The net proceeds to the Company were $742,875. The notes bear interest at 10% annually, payable semi-annually. The notes were convertible after maturity, which was June 30, 2004, into shares of common stock of the Company at $1.25 per share. On September 30, 2018, the final $50,000 note was repaid in full along with the accrued interest of $96,949. As of September 30, 2018, $862,500 of the Convertible Notes had been repaid in cash or converted into 1,495,179 shares of common stock of the Company leaving an outstanding principal balance of $-0 -.Secured Convertible Debentures On September 30, 2009, the Company sold an aggregate of $1,400,000 principal amount 12% Secured Convertible Debentures (the “Debentures”) and common stock purchase warrants (the “Warrants”) to purchase an aggregate of 5,600,000 shares of our common stock exercisable at a price of $0.25 per share for four years subsequent to the closing of the transaction to four accredited investors including our then Chief Executive Officer and Director, Cornelis F. Wit (“Mr. Wit”). The Company received net proceeds of $1,400,000. The Debentures, which bear interest at 12% per annum, matured on March 30, 2011. The Debentures are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.25 per share.On March 30, 2011, the Company repaid $200,000 of the outstanding principal amounts owed and extended $1,200,000 of the Debentures until April 1, 2013, including $1,100,000 in Debentures held by Mr. Wit. The Company also extended the expiration date of the warrants associated with the Debentures.On February 22, 2013, the Company and two holders extended $1,200,000 of the Debentures until January 1, 2016, including $1,100,000 in Debentures held by Mr. Wit. Mr. Wit also waived all his rights to the security interest under his $1,100,000 of Debentures. The expiration date of the warrants associated with the Debentures was also extended to January 1, 2016. On January 31, 2015, the Company and Mr. Wit extended the maturity date of $1,100,000 of the Debentures to April 1, 2017. The expiration date of the warrants associated with the Debentures was also extended to April 1, 2017. On November 19, 2015, Mr. Wit converted $475,000 of the Debentures into 1,900,000 shares of our common stock. On November 19, 2015, the Company and Mr. Wit agreed to cancel the 1,900,000 warrants related to the $475,000 of Debentures and $475,000 of unrelated promissory notes in exchange for 1,900,000 shares of our common stock. On November 23, 2015, Mr. Wit sold the remaining $625,000 of Debentures and the related warrants to two unrelated non-affiliate stockholders.On April 1, 2015, the Company and the holder extended the maturity date of $100,000 of Debentures to April 1, 2018. The expiration date of the warrants associated with the debentures was also extended to April 1, 2018. On June 30, 2017 the Company repaid the $100,000 of Debentures.On June 30, 2016, the Company and two holders extended the maturity date of $625,000 of Debentures to April 1, 2020. The expiration date of the warrants associated with the debentures was also extended to April 1, 2020. In August 2017 the Company repaid the $625,000 of Debentures in full.Convertible Debentures August 2008 On August 29, 2008, the Company sold $2,270,000 of convertible debentures and warrants to purchase an aggregate of 4,540,000 shares of our common stock to four accredited investors including our then Chief Executive Officer and Director, Cornelis F. Wit (“Mr. Wit”) and one of our then Directors. The convertible debentures, which bear interest at 10% per annum, were due on August 29, 2010. The convertible debentures are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.50 per share.On September 30, 2009, the Company and two Affiliates of the Company extended $1,920,000 of the convertible debentures until August 29, 2013 in accordance with the terms of a Secured Convertible Debenture issued on that date. The expiration date of the warrants associated with the debentures was also extended to August 29, 2013. On February 22, 2013, the Company and Mr. Wit extended the maturity date of $1,770,000 of the convertible debentures to January 1, 2016. The expiration date of the warrants associated with the debentures was also extended to January 1, 2016. On February 22, 2013, the Company and Mr. van Kesteren extended the maturity date of $150,000 of the convertible debentures due to our former Director, Guus van Kesteren (“Mr. van Kesteren”) to January 1, 2015. The expiration date of the warrants associated with the debentures was also extended to January 1, 2015. On April 21, 2014, the Company and Mr. van Kesteren extended the maturity date of his $150,000 of convertible debentures to April 1, 2016. The expiration date of the warrants associated with the debentures was also extended to April 1, 2016. On July 31, 2014 Mr. van Kesteren’s term on the Board of Directors ended. Effective on the same date, his convertible note in the amount of $150,000 was reclassified from Related Party to Non-Related Party.On January 31, 2015, the Company and Mr. Wit extended the maturity date of the $1,770,000 of convertible debentures to April 1, 2017. The expiration date of the warrants associated with the debentures was also extended to April 1, 2017. On June 30, 2015, the Company and Mr. van Kesteren extended the maturity date of $150,000 of convertible debentures to April 1, 2017. The expiration date of the warrants associated with the debentures was also extended to April 1, 2017. On June 30, 2016, the Company and Mr. Wit extended the maturity date of the $1,770,000 of convertible debentures to April 1, 2020. The expiration date of the warrants associated with the debentures was also extended to April 1, 2020. On June 30, 2016, the Company and Mr. van Kesteren extended the maturity date of $150,000 of convertible debentures to April 1, 2018. The expiration date of the warrants associated with the debentures was also extended to April 1, 2018. On June 30, 2017, the Company and Mr. van Kesteren extended the maturity date of $150,000 of convertible debentures to April 1, 2019. The expiration date of the warrants associated with the debentures was also extended to April 1, 2019. The $150,000 of convertible debentures was repaid in full on June 30, 2018. December 2008 On December 16, 2008, the Company sold $5,075,000 of convertible debentures and warrants to purchase an aggregate of 10,150,000 shares of common stock to eleven accredited investors, including our then Chief Executive Officer and Director, Cornelis F. Wit (“Mr. Wit”), our then Chief Operating Officer and President, Stephen E. Johnson (“Mr. Johnson”), our then Chief Technology Officer, Randall G. Smith (“Mr. Smith”), our then Chief Financial Officer, Ronald T. Linares and four of our then Directors. The convertible debentures, which bear interest at 12% per annum, were due on December 16, 2010. The convertible debentures are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.50 per share.On September 30, 2009, the Company and eight Affiliates of the Company extended $4,980,000 of the convertible debentures until December 16, 2013 in accordance with the terms of a Secured Convertible Debenture issued on that date. The expiration date of the warrants associated with the convertible debentures was also extended to December 16, 2013. On February 22, 2013, the Company and the holders agreed to extend the maturity date of $4,505,000 of the convertible debentures including $4,475,000 due to Mr. Wit, $25,000 due to Mr. Johnson and $5,000 due to Mr. Smith, to January 1, 2016. The expiration date of the warrants associated with the debentures was also extended to January 1, 2016. On February 27, 2013, the Company and our former director Mr. Veatch extended the maturity date of $15,000 of the convertible debentures to January 1, 2016. The expiration date of the warrants associated with the debentures was also extended to January 1, 2016. On March 6, 2013, the Company and the holder extended the maturity date of $200,000 of convertible debentures to January 1, 2014. The expiration date of the warrants associated with the debentures was also extended to January 1, 2014. On March 12, 2013, the Company and the holder agreed to extend the maturity date of $100,000 of convertible debentures to January 1, 2015. The expiration date of the warrants associated with the debentures was also extended to January 1, 2015. In December 2013, the Company and two holders agreed to extend the maturity date of $360,000 of the convertible debentures, including $160,000 due to our then director, Guus van Kesteren (“Mr. van Kesteren”), to January 1, 2016. The expiration date of the warrants associated with the debentures was also extended to January 1, 2016. On July 31, 2014 Mr. van Kesteren’s term on the Board of Directors ended. Effective on the same date, his convertible note in the amount of $160,000 was reclassified from Related Party to Non-Related Party.On April 28, 2014, the Company and the holder extended the maturity date of $100,000 of convertible debentures to April 1, 2016. The expiration date of the warrants associated with the debentures was also extended to April 1, 2016. On January 31, 2015, the Company and Mr. Wit extended the maturity date of $4,475,000 of convertible debentures to April 1, 2017. The expiration date of the warrants associated with the debentures was also extended to April 1, 2017. On November 19, 2015, the Company and Mr. Wit agreed to cancel $420,000 of the debentures and 1,680,000 of unrelated warrants in exchange for 1,680,000 shares of our common stock.On April 27, 2015, the Company and the holder extended the maturity date of $200,000 of convertible debentures to April 1, 2018. The expiration date of the warrants associated with the debentures was also extended to April 1, 2018. On April 30, 2015, the Company and Mr. Johnson extended the maturity date of $25,000 of convertible debentures to April 1, 2018. The expiration date of the warrants associated with the debentures was also extended to April 1, 2018. The convertible debentures were repaid in full on December 14, 2016. On May 1, 2015, the Company and Mr. van Kesteren extended the maturity date of $160,000 of the convertible debentures to April 1, 2017. The expiration date of the warrants associated with the debentures was also extended to April 1, 2017. On May 1, 2015, the Company repaid $5,000 of the convertible debentures to Mr. Smith.On May 7, 2015, the Company and Mr. Veatch, extended the maturity date of $15,000 of the convertible debentures to April 1, 2018. The expiration date of the warrants associated with the debentures was also extended to April 1, 2018. The $15,000 of convertible debentures were repaid in full on December 14, 2016. On June 30, 2015, the Company and the holder extended the maturity date of $100,000 of convertible debentures to April 1, 2017. The expiration date of the warrants associated with the debentures was also extended to April 1, 2017. On June 30, 2016, the Company and Mr. Wit extended the maturity date of $4,055,000 of convertible debentures to April 1, 2020. The expiration date of the warrants associated with the debentures was also extended to April 1, 2020. On August 31, 2017, the Company repaid $55,000 of the convertible debentures to Mr. Wit.On June 30, 2016, the Company and Mr. van Kesteren extended the maturity date of $160,000 of the convertible debentures to April 1, 2018. The expiration date of the warrants associated with the debentures was also extended to April 1, 2018. The $160,000 of convertible debentures was repaid in full on December 14, 2016. On June 30, 2016, the Company and the holder extended the maturity date of $100,000 of convertible debentures to April 1, 2020. The expiration date of the warrants associated with the debentures was also extended to April 1, 2020. On August 31, 2017, the Company repaid $100,000 of convertible debentures to the holder.On June 30, 2017, the Company and the holder extended the maturity date of $200,000 of the convertible debentures to April 1, 2021. The expiration date of the warrants associated with the debentures was also extended to April 1, 2021. The principal payments required at maturity under the Company’s outstanding convertible debt at September 30, 2018 are as follows:
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Note 9 - Fair Value Measurement |
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Fair Value Disclosures [Text Block] |
The Company measures the fair value of its assets and liabilities under the guidance of ASC 820, Fair Value Measurements and Disclosures (“ASC 820” ), which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but its provisions apply to all other accounting pronouncements that require or permit fair value measurement.ASC 820 clarifies that fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based on the highest and best use of the asset or liability. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. ASC 820 requires the Company to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:
The valuation techniques that may be used to measure fair value are as follows:
The Company also adopted the provisions of ASC 825, Financial Instruments (“ASC 825” ). ASC 825 may be elected either upon initial recognition of an eligible asset or liability or, for an existing asset or liability, if an event triggers a new basis of accounting. The Company did not elect to re-measure any of its existing financial assets or liabilities under the provisions of this Statement.The Company’s financial assets or liabilities subject to ASC 820 as of September 30, 2018 include the conversion feature and warrant liability associated with convertible debentures issued during 2008 and 2009 and the warrants issued during 2011 and 2016 that are associated with notes payable. The conversion feature and warrants were deemed to be derivatives (the “Derivative Instruments”) since a fixed conversion price cannot be determined for either of the Derivative Instruments due to anti-dilution provisions embedded in the offering documents for the convertible debentures. The derivative instruments were not issued for risk management purposes and as such are not designated as hedging instruments under the provisions of ASC 815, Disclosures about Derivative Instruments and Hedging Activities . See Note 8 – Convertible Notes Payable.Following is a description of the valuation methodologies used to determine the fair value of the Company’s financial liabilities including the general classification of such instruments pursuant to the valuation hierarchy. A summary, as of September 30, 2018, of the fair value of liabilities measured at fair value on a recurring basis follows:
( 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 nine month period ended September 30, 2018. ( 2 ) The fair value at the measurement date is equal to the carrying value on the balance sheet.
A summary, as of December 31, 2017, of the fair value of liabilities measured at fair value on a recurring bas is follows:
( 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.
A summary, as of September 30, 2018, of the fair value of assets measured at fair value on a non-recurring basis follows:
( 1 ) The fair value of the acquired assets was estimated using the Income Approach with a discounted cash flow valuation methodology applied.( 2 ) The acquired Promasys B.V. software code and customer list are not measured on a recurring basis since their initial fair value has been deemed to have a finite life and is being amortized periodically. Instead, the Company performs an impairment analysis on a quarterly basis in order to determine whether the carrying value of the assets reflects the fair value of the assets in a market based transaction.( 3 ) During the second quarter of 2018 we recognized an impairment loss of $79,634 on the Promasys B.V. Customer List after performing a fair value analysis on the asset utilizing a discounted cash flow model. The impairment charge is separately presented on the Statement of Operations.( 4 ) The acquired Acuity software code is not measured on a recurring basis since the initial fair value has been deemed to have a finite life and is being amortized periodically. Instead, the Company performs an impairment analysis on a quarterly basis in order to determine whether the carrying value of the assets reflects the fair value of the assets in a market based transaction.A summary, as of December 31, 2017, of the fair value of assets measured at fair value on a non-recurring basis follows:
( 1 ) The fair value of the acquired assets was estimated using the Income Approach with a discounted cash flow valuation methodology applied.( 2 ) The acquired Promasys B.V. software code and customer list are not measured on a recurring basis since their initial fair value has been deemed to have a finite life and is being amortized periodically. Instead the Company performs an impairment analysis on a quarterly basis in order to determine whether the carrying value of the assets reflects the fair value of the assets in a market based transaction.Other identifiable intangible assets, which are subject to amortization, are being amortized using the straight-line method over their estimated useful lives ranging from 3 to 15 years. The Impairment or Disposal of Long-Lived Asset subsection of ASC 360, Property, Plant and Equipment requires us to test the recoverability of long-lived assets, including identifiable intangible assets with definite lives, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In testing for potential impairment, if the carrying value of the asset group exceeds the expected undiscounted cash flows, we must then determine the amount by which the fair value of those assets exceeds the carrying value and determine the amount of impairment, if any.The table below presents the unrealized gains/(losses) for the nine month periods ended September 30, 2018 and September 30, 2017.
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 nine month period ended September 30, 2018 and the year ended December 31, 2017. The tables reflect changes for all financial liabilities at fair value categorized as Level 3 as of September 30, 2018 and December 31, 2017. The table below presents the Level 3 financial liabilities at fair value for the nine month period ended September 30, 2018.
The table below presents the Level 3 financial liabilities at fair value for the year ended December 31, 2017.
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Note 10 - Commitments and Contingencies |
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Commitments and Contingencies Disclosure [Text Block] |
The Company currently leases office space under operating leases for most of its office locations and has operating leases related to server and network co-location and disaster recovery for its operations. The minimum future lease payments required under the Company’s operating leases at September 30, 2018 are as follows:
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 $930,972 and $841,718 for the nine month periods ended September 30, 2018 and September 30, 2017, respectively.The Company’s Fort Lauderdale, Florida corporate office lease expires in February 2023. The Company’s lease on its New Jersey field office expires in March 2021. The Company currently operates its wholly-owned subsidiary, OmniComm Ltd., in the United Kingdom under the terms of a lease that expires in September 2020. The Company currently operates its wholly-owned subsidiary, OmniComm Europe, GmbH, in Germany under the terms of a lease that expires in July 2019. The Company currently operates its wholly-owned subsidiary, OmniComm Systems B.V, in the Netherlands under the terms of a lease that expires in October 2018. Our offices in Barcelona, Spain, Tokyo, Japan and Bengaluru, India are administered under service agreements that include the use of office space and other services. The Company currently leases computer hardware for its operations under leases classified as capital leases. The leased equipment is amortized on a straight line basis over five years. The minimum future lease payments required under the Company’s capital leases at September 30, 2018 are as follows:
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 September 30, 2018, there were no pending legal proceedings to which the Company or its subsidiaries are a party or to which any of its property is subject that could reasonably be expected to have a material effect on the results of our operations.PATENT LITIGATION SETTLEMENT Effective April 9, 2009, we entered into a Settlement and License Agreement with DataSci, LLC (“DataSci”). DataSci granted us a worldwide, non-exclusive non-transferable right and license under the Licensed Patent and the right to sublicense TrialMaster on a Technology Transfer and Technology Transition basis. Under the terms of the Settlement and License Agreement, as amended, we are obligated to pay royalties quarterly for sales of Licensed Products, as defined therein, from January 1, 2009 until the termination of the Settlement and License Agreement on December 31, 2017 equal to two percent (2% ) of OmniComm’s annual Gross Revenues or, alternatively, the annual minimum royalty payment(s), whichever is greater. In addition to the payment of royalties, the Settlement and Licensing Agreement imposes certain obligations on us including commercialization, certain sublicensing, other payments, insurance and confidentiality. In addition and as a license fee for past use of the Licensed Patent which may have occurred prior to the effective date of the Settlement and Licensing Agreement, we issued a warrant to DataSci to purchase 1,000,000 shares of our common stock at an exercise price of $.01 per share. The Settlement and Licensing Agreement provides that upon the expiration date of the warrant, at DataSci’s sole discretion, DataSci shall exercise its option under the warrant or licensee shall pay DataSci $300,000. The warrant was exercisable commencing on the second anniversary of the Settlement and Licensing Agreement, April 2, 2011, through the expiration date of the warrant on December 31, 2017. On December 31, 2017, DataSci exercised 50% of the warrant for 500,000 common shares and requested cash payment on 50% of the warrant. As a result of the exercise, DataSci received 500,000 restricted common shares and a net cash payment of $145,000. On June 23, 2009, we entered into an agreement to acquire the EDC assets of eResearch Technology. Concurrent with the consummation of that transaction we entered into the First Amendment to Settlement and Licensing Agreement with DataSci, (i) to include the eResearch Technology EDC assets acquired within the definition of Licensed Products, and as such subject to the royalty payment(s), under and in accordance with the Settlement and Licensing Agreement, and (ii) provide a release by DataSci of any and all claims of infringement of the Licensed Patent in connection with the eResearch Technology EDC assets acquired which may have occurred prior to the effective date of the First Amendment to Settlement and Licensing Agreement for an aggregate amount of $300,000. No further payments are due under the Settlement and Licensing Agreement. During the nine month period ended September 30, 2017 the Company recorded a charge to earnings of ($111,979 ), which amount represented (i) the amount of additional license expense incurred above the stipulated minimum in the DataSci Settlement and License Agreement during the nine month period ended September 30, 2017 and (ii) the accretion of the difference between the total stipulated annual minimum royalty payments and the recorded present value accrual of the annual minimum royalty payments.EMPLOYMENT AGREEMENTS We have employment agreements in place with the following members of our executive management team: Cornelis F. Wit, Executive Chairman Randall G. Smith, Executive Vice Chairman Stephen E. Johnson, Chief Executive Officer and President Thomas E. Vickers, Chief Financial Officer The employment agreements provide, among other things, for participation in employee benefits available to employees and executives. Each of the agreements will renew for successive one -year terms unless the agreement is expressly terminated by either the employee or the Company prior to the end of the then current term as provided for in the employment agreement. Under the terms of the agreement, we may terminate the employee’s employment upon 30 or 60 days notice of a material breach and the employee may terminate the agreement under the same terms and conditions. The employment agreements contain non-disclosure provisions, as well as non-compete clauses. The agreements for Mr. Smith, Mr. Johnson and Mr. Vickers contain severance provisions which entitles the employee to severance pay equal to one (1 ) year's salary and benefits in the event of the employee's termination by the Company for any reason other than for cause, as described in the employment agreement, or termination by the employee pursuant to a material breach of the agreement by the Company. |
Note 11 - Related Party Transactions |
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Related Party Transactions Disclosure [Text Block] |
As of September 30, 2018, we have an aggregate of $5,770,000 of convertible debentures and $400,000 of promissory notes outstanding to our Executive Chairman and Chairman of the Board, Cornelis F. Wit (“Mr. Wit”) and have issued certain warrants to Mr. Wit, as follows:
On March 18, 2013, the Company entered into a $2,000,000 revolving Line of Credit (“Line of Credit”) with The Northern Trust Company guaranteed by our then Chief Executive Officer and Director, Cornelis F. Wit. Mr. Wit receives 2.0% interest (approximately $9,500 per month) from the Company on the assets pledged for the Line of Credit. On December 18, 2013, the Company renewed the Line of Credit and increased the available balance to $4,000,000. On February 3, 2015, the Company renewed the Line of Credit and increased the available balance to $5,000,000. On April 7, 2017, the Company renewed the Line of Credit. The Line of Credit currently matures on April 7, 2020 and carries a variable interest rate based on the prime rate. At September 30, 2018, $3,200,000 was outstanding on the Line of Credit at an interest rate of 4.25%. For the nine month period ended September 30, 2018 we incurred $682,986 in interest expense payable to related parties and $717,782 for the nine month period ended September 30, 2017. |
Note 12 - Stockholders' (Deficit) |
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Stockholders' Equity Note Disclosure [Text Block] |
Our authorized capital stock consists of 500,000,000 shares of common stock, $.001 par value per share and 10,000,000 shares of preferred stock, par value $.001 per share, of which 5,000,000 shares have been designated as 5% Series A Preferred Stock, 230,000 shares have been designated as Series B Preferred Stock, 747,500 shares have been designated as Series C Preferred Stock and 250,000 shares have been designated as Series D Preferred Stock.As of September 30, 2018 we had the following outstanding securities:
Common Stock Holders of common stock are entitled to one vote for each share on all matters submitted to a stockholder vote. Holders of our voting securities do not have cumulative voting rights. Holders of common stock are entitled to share in all dividends that the Board of Directors, in its discretion, declares from legally available funds. In the event of our liquidation, dissolution or winding up each outstanding share of common stock entitles its holder to participate in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock.Holders of common stock have no conversion, preemptive or other subscription rights, and there are no redemption provisions for the common stock. The rights of the holders of common stock are subject to any rights that may be fixed for holders of preferred stock, when and if any preferred stock is outstanding. All outstanding shares of common stock are duly authorized, validly issued, fully paid and non-assessable.Preferred Stock Our Board of Directors, without further stockholder approval, may issue preferred stock in one or more series from time to time and fix or alter the designations, relative rights, priorities, preferences, qualifications, limitations and restrictions of the shares of each series. In addition, the Board of Directors may fix and determine all privileges and rights of the authorized preferred stock series including:
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 September 30, 2018 and September 30, 2017, respectively, and the per share amount by class of preferred stock.
Warrants Issued in Capital Transactions The following tables summarize all outstanding warrants for the nine month period ended September 30, 2018 and the year ended December 31, 2017, and the related changes during these periods.
Other Comprehensive (Loss) Due to the availability of net operating losses and related deferred tax valuations, there is no tax effect associated with any component of other comprehensive (loss). The following table lists the beginning balance, activity and ending balance of the components of accumulated other comprehensive (loss).
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Note 13 - Equity Incentive Plans |
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Disclosure of Compensation Related Costs, Share-based Payments [Text Block] |
Stock Option Plans Description of 2016 Equity Incentive PlanIn 2016, the Company’s Board of Directors and stockholders approved the OmniComm Systems, Inc. 2016 Equity Incentive Plan (the “2016 Plan”). The 2016 Plan provides for granting Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Phantom Stock Unit Awards and Performance Share Units. The 2016 Plan initially provides for the issuance of up to 10,000,000 shares of our common stock for issuance upon awards granted under the 2016 Plan. In addition, the number of shares of common stock available for issuance under the 2016 Plan automatically increases on January 1st of each year for a period of nine (9 ) years commencing on January 1, 2017 and ending on (and including) January 1, 2025, in an amount equal to five percent (5% ) of the total number of shares authorized under the 2016 Plan. As of September 30, 2018 11,025,000 shares of our common stock were authorized for issuance under the 2016 Plan. Unless earlier terminated by the Board, the 2016 Plan shall terminate on June 29, 2026. The maximum term for any option grant under the 2016 Plan is ten years from the date of the grant; however, options granted under the 2016 Plan will generally expire five years from the date of grant. Options granted to employees generally vest either upon grant or in two installments. The first vesting, which is equal to 50% of the granted stock options, usually occurs upon completion of one full year of employment from the date of grant and the second vesting usually occurs on the second anniversary of the date of grant. The vesting period typically begins on the date of hire for new employees and on the date of grant for existing employees. The restrictions on restricted shares granted to employees generally lapse in three equal annual installments on the anniversary of the date of grant. Any unvested stock options or restricted shares with restrictions that have not lapsed that are granted under the 2016 Plan are forfeited and expire upon termination of employment.On September 6, 2018, the Company entered into restricted stock agreements (“RSAs”) with its Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and Chief Technology Officer intended to provide incentive to the executives to ensure certain economic performance of the Company. The shares issuable under the RSAs were valued as of the grant date at $0.33 per share. The RSAs provided for the issuance of up to 225,000 performance related shares of the Company's common stock to each of the executives provided certain milestones were met as follows: a) 75,000 performance related shares are subject to individual performance. b) If the Company's 2018 Revenue equals or exceeds $30 million and the Company’s 2018 EBITDA equals or exceeds $6 million, the Company would award 75,000 shares of common stock; c) If the Company's 2018 Revenue equals or exceeds $32 million and the Company’s 2018 EBITDA equals or exceeds $7 million, the Company would award an additional 75,000 shares of common stock. The restrictions on 1/3 of the awarded performance shares will lapse on the first, second and third anniversaries of the 2018 Annual Stockholder Meeting, which was held on June 7, 2018. As of November 12, 2018 the Company had not achieved the milestones.On September 6, 2018, the Company entered into restricted stock agreements (“RSAs”) with its Board of Directors intended to provide incentive to ensure certain economic performance of the Company. The shares issuable under the RSAs were valued as of the grant date at $0.33 per share. The RSAs provided for the issuance of a total of 200,000 restricted shares with the restrictions lapsing on the day prior to the the 2019 Annual Stockholder Meeting to each director. The RSAs include 75,000 performance related shares of the Company's common stock that are subject to the Company's 2018 Revenue equaling or exceeding $30 million and the Company’s 2018 EBITDA equaling or exceeding $6 million. As of November 12, 2018 the Company had not achieved the milestones.The total combined restricted stock compensation expense recognized, in the statement of operations, during the quarter ended September 30, 2018 was $41,735. As of September 30, 2018, there were 2,495,000 options and 1,900,000 restricted stock shares that have been granted under the 2016 Plan. At September 30, 2018, there were 6,630,000 shares available for grant as options or other forms of share-based compensation under the 2016 Plan.Description of 2009 Equity Incentive PlanIn 2009, the Company’s Board of Directors and stockholders approved the OmniComm Systems, Inc. 2009 Equity Incentive Plan (the “2009 Plan”). On June 16, 2016, the 2009 Plan terminated upon the approval of the 2016 Plan. The 2009 Plan provided for granting Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Phantom Stock Unit Awards and Performance Share Units. Pursuant to the 2009 Plan, 7,500,000 shares of the Company’s common stock were authorized for issuance.The maximum term for any option grant under the 2009 Plan was ten years from the date of the grant; however, options granted under the 2009 Plan generally expired five years from the date of grant. Options granted to employees generally vested either upon grant or in two installments. The first vesting, which was equal to 50% of the granted stock options, usually occurred upon completion of one full year of employment from the date of grant and the second vesting usually occurred on the second anniversary of the date of grant. The vesting period typically began on the date of hire for new employees and on the date of grant for existing employees. The restrictions on restricted shares granted to employees generally lapsed in three equal annual installments on the anniversary of the date of grant. Any unvested stock options or restricted shares with restrictions that had not lapsed that were granted under the 2009 Plan were forfeited and expired upon termination of employment.As of September 30, 2018, there were 275,000 outstanding options and 3,876,662 restricted stock shares that have been granted under the 2009 Plan. At September 30, 2018, there were -0 - shares available for grant as options or other forms of share-based compensation under the 2009 Plan.The following table summarizes the stock option activity for the Company’s equity incentive plans:
The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company’s closing stock price at quarter-end and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2018. The total number of shares vesting and the fair value of shares vesting for the nine month periods ended September 30, 2018 and September 30, 2017, respectively, was:
Cash received for stock option exercises for the nine month periods ended September 30, 2018 and September 30, 2017 was $45,000 and $35,250, respectively. Due to the Company’s net loss position, no income tax benefit has been realized during the nine month periods ended September 30, 2018 and September 30, 2017. The following table summarizes information concerning options outstanding at September 30, 2018:
The following table summarizes information concerning options outstanding at December 31, 2017:
The weighted average fair value (per share) of options granted during the nine month period ended September 30, 2018 was $0.23 and $0.19 during the nine month period ended September 30, 2017. The Black Scholes option-pricing model was utilized to calculate these values.Basis for Fair Value Estimate of Share-Based Payments Based on analysis of its historical volatility, the Company expects that the future volatility of its share price is likely to be similar to the historical volatility the Company experienced since the Company’s commercialization activities were initiated during the second half of 2000. The Company used a volatility calculation utilizing the Company’s own historical volatility to estimate its future volatility for purposes of valuing the share-based payments that have been granted. Actual volatility, and future changes in estimated volatility, may differ substantially from the Company’s current estimates.The Company utilizes the historical data available regarding employee and director exercise activity to calculate an expected life of the options. The table below presents the weighted average expected life in years of options granted under the Plan as described above. The risk-free rate of the stock options is based on the U.S. Treasury yield curve in effect at the time of grant, which corresponds with the expected term of the option granted. Below are the assumptions for the fair value of share-based payments for the nine month period ended September 30, 2018 and the year ended December 31, 2017.
The following table summarizes weighted average grant date fair value activity for the Company’s incentive stock plans:
A summary of the status of the Company’s non-vested shares underlying stock options as of September 30, 2018 and changes during the nine month period ended September 30, 2018 is as follows:
As of September 30, 2018, $309,142 of total unrecognized compensation cost related to unvested stock options is expected to be recognized over a weighted-average period of 1.9 years. |
Note 14 - Subsequent Events |
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Subsequent Events [Text Block] |
Subsequent to September 30, 2018 the Company repaid $900,000 on its revolving Line of Credit.Subsequent to September 30, 2018, John Fontenault, our Chief Operating Officer, exercised options that had been granted to him. As a result 34,175 common shares were issued to him.Subsequent to September 30, 2018 the Company extended the lease for the office in Leiden, the Netherlands until October 2019. |
Significant Accounting Policies (Policies) |
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Basis of Accounting, Policy [Policy Text Block] | BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION The Company’s accounts include those of all its wholly-owned subsidiaries, which are more fully described in the Company’s 2017 Annual Report filed on Form 10 -K with the Securities and Exchange Commission, and have been prepared in conformity with (i) accounting principles generally accepted in the United States of America; and (ii) the rules and regulations of the United States Securities and Exchange Commission. All significant intercompany accounts and transactions between the Company and its subsidiaries have been eliminated in consolidation. |
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Use of Estimates, Policy [Policy Text Block] | ESTIMATES IN FINANCIAL STATEMENTS The preparation of the unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes thereto. Significant estimates incorporated in our financial statements include the recorded allowance for doubtful accounts, the estimate of the appropriate amortization period of our intangible assets, the evaluation of whether our intangible assets have suffered any impairment, the allocation of revenues under multiple-element customer contracts, royalty-based patent liabilities, the value of derivatives associated with debt issued by the Company and the valuation of any corresponding discount to the issuance of our debt. Actual results may differ from those estimates. |
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Reclassification, Policy [Policy Text Block] | Reclassifications Certain reclassifications have been made in the 2017 financial statements to conform to the 2018 presentation. These reclassifications did not have any effect on our net income/(loss) or shareholders’ deficit. |
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Foreign Currency Transactions and Translations Policy [Policy Text Block] | foreign currency translation The financial statements of the Company’s foreign subsidiaries are translated in accordance with Accounting Standards Codification (“ASC”) 830 -30, Foreign Currency Matters—Translation of Financial Statements ("ASC 830 -30" ). The reporting currency for the Company is the U.S. dollar. The functional currency of the Company’s subsidiaries, OmniComm Europe GmbH in Germany, OmniComm Spain S.L. in Spain and OmniComm Systems B.V. in the Netherlands is the Euro. The functional currency of the Company’s subsidiary, OmniComm Ltd. in the United Kingdom, is the British Pound Sterling. The functional currency of the Company’s subsidiary, OmniComm eClinical Solutions Pvt. Ltd. in India, is the Indian Rupee. Accordingly, the assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars using the exchange rate in effect at each balance sheet date. Revenue and expense accounts of the Company’s foreign subsidiaries are translated using an average rate of exchange during the period. Foreign currency translation adjustments are accumulated as a component of other comprehensive income/(loss) as a separate component of stockholders’ equity. Gains and losses arising from transactions denominated in foreign currencies are primarily related to intercompany accounts that have been determined to be temporary in nature and accordingly, are recorded directly to the statement of operations. We record translation gains and losses in accumulated other comprehensive income as a component of stockholders’ equity. We recorded a translation loss of $34,424 and a translation gain of $13,386 for the nine month periods ended September 30, 2018 and September 30, 2017, respectively. |
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Revenue Recognition, Policy [Policy Text Block] | REVENUE RECOGNITION POLICY The Company derives revenues from software licenses and services of its EDC products and services which can be purchased on a stand-alone basis. License revenues are derived principally from the sale of term licenses for the following software products offered by the Company: TrialMaster, TrialOne, eClinical Suite and Promasys. Service revenues are derived principally from the Company's delivery of the hosted solutions of its TrialMaster software product, and consulting services and customer support, including training, for all of the Company's products. For revenue from product sales, the Company recognizes revenue in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 606 (“ASC 606" ). A five -step analysis must be met as outlined in ASC 606: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) performance obligations are satisfied. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.The Company operates in one reportable segment which is the delivery of EDC Software and services to clinical trial sponsors. The Company segregates its revenues based on the activity cycle used to generate its revenues. Accordingly, revenues are currently generated through four main activities, including hosted applications, licensing, professional services and maintenance-related services.Hosted Application Revenues The Company offers its TrialMaster and TrialOne software products as hosted application solutions delivered through a standard web browser, with customer support and training services. The Company's TrialOne and Promasys solutions are primarily deployed on a technology transfer or off-the-shelf basis. To date, hosted applications revenues have been primarily related to TrialMaster. On April 30, 2019, OmniComm will decommission its eClinical Suite hosting platform as the eClinical Suite clients utilizing these hosting services have transitioned to TrialMaster, the eClinical Suite studies have been completed or the studies have transitioned to another hosting platform.Revenues resulting from TrialMaster application hosting services consist of three components of services for each clinical trial. The first component is comprised of application set-up, including design of electronic case report forms and edit checks, installation and server configuration of the system. The second component involves application hosting and related support services as well as billable change orders which consist of amounts billed to customers for functionality changes made. The third component involves services required to close out, or lock, the database for the clinical trial.Fees charged for the trial system design, set-up and implementation are amortized and recognized ratably over the estimated hosting period. Work performed outside the original scope of work is contracted for separately as an additional fee and is generally recognized ratably over the remaining term of the hosting period. Fees for the first and third stages of the service are typically billed based upon milestones. Revenues earned upon completion of a contractual milestone are deferred and recognized over the estimated remaining hosting period. Fees for application hosting and related services in the second stage are generally billed monthly or quarterly in advance.Licensing Revenues The Company's software license revenues are earned from the sale of off-the-shelf software. From time to time a client might require significant modification or customization subsequent to delivery to the customer. The Company generally enters into software term licenses for its EDC Software products with its customers for three to five year periods, although customers have entered into both longer and shorter term license agreements. These arrangements typically include multiple elements: software license, consulting services and customer support. The Company bills its customers in accordance with the terms of the underlying contract. Generally, the Company bills license fees in advance for each billing cycle of the license term, which typically is either on a quarterly or annual basis. Payment terms are generally net 30 to net 45 days.The Company has sold perpetual licenses for EDC Software products in certain situations to existing customers with the option to purchase customer support, and may, in the future, do so for new customers based on customer requirements or market conditions. The Company has established vendor specific objective evidence of fair value for the customer support. Accordingly, license revenues are recognized upon delivery of the software and when all other revenue recognition criteria are met. Customer support revenues are recognized ratably over the term of the underlying support arrangement. The Company generates customer support and maintenance revenues from its perpetual license customer base.Professional Services The Company may also enter into arrangements to provide consulting services separate from a license arrangement. In these situations, revenue is recognized on a time-and-materials basis. Professional services can be deemed to be as essential to the functionality of the software at inception and typically are for initial trial configuration, implementation planning, loading of software, building simple interfaces, running test data and documentation of procedures. Subsequent additions or extensions to license terms do not generally include additional professional services.Maintenance Revenues Maintenance includes telephone-based help desk support and software maintenance, including updates to the software through new software version releases. The Company generally bundles customer support with the software license for the entire term of the arrangement. As a result, the Company generally recognizes revenues for both maintenance and software licenses ratably over the term of the software license and support arrangement. The Company allocates the revenues recognized for these arrangements to the different elements based on management's estimate of the relative fair value of each element. The Company generally invoices each of the elements based on separately quoted amounts and thus has a fairly accurate estimate of the relative fair values of each of the invoiced revenue elements. Pass-through Revenue and Expense The Company accounts for pass-through revenue and expense (reimbursable revenue and reimbursable expense) in accordance with Accounting Standards Update 2016 -08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), (“ASU 2016 -08” ). In accordance with ASU 2016 -08 these amounts are recorded as revenue in the statement of operations with a corresponding expense recorded in cost of goods sold. Pass-through revenues and expenses include amounts associated with third -party services provided to our customers by our service and product partners. These third -party services are primarily comprised of Interactive Voice and Web Response software services (IVR and IWR), travel and shipping that are incurred on our clients’ behalf.The fees associated with each business activity for the nine month periods ended September 30, 2018 and September 30, 2017, respectively, are:
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Cost of Sales, Policy [Policy Text Block] | COST OF GOODS SOLD Cost of goods sold primarily consists of costs related to hosting, maintaining and supporting the Company’s application suite and delivering professional services and support. These costs include salaries, benefits and bonuses for the Company’s professional services staff. Cost of goods sold also includes outside service provider costs . Cost of goods sold is expensed as incurred. |
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Cash and Cash Equivalents, Policy [Policy Text Block] | 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. |
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Receivables, Policy [Policy Text Block] | 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 $197,911 as of September 30, 2018 and $149,980 as of December 31, 2017. The following table summarizes activity in the Company's allowance for doubtful accounts for the nine month period ended September 30, 2018 and the year ended December 31, 2017.
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Concentration Risk, Credit Risk, Policy [Policy Text Block] | 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 September 30, 2018, $1,404,402 was deposited in excess of FDIC-insured limits. Management believes the risk in these situations to be minimal.Except as follows, the Company has no significant off-balance-sheet risk or credit risk concentrations. Financial instruments that subject the Company to potential credit risks are principally cash equivalents and accounts receivable. Concentrated credit risk with respect to accounts receivable is limited to creditworthy customers. The Company's customers are principally located in the United States, Europe and East Asia. The Company is directly affected by the overall financial condition of the pharmaceutical, biotechnology and medical device industries and management believes that credit risk exists and that any credit risk the Company faces has been adequately reserved for as of September 30, 2018. The Company maintains an allowance for doubtful accounts based on accounts past due according to contractual terms and historical collection experience. Actual losses, when incurred, are charged to the allowance. The Company's losses related to collection of accounts receivable have consistently been within management's expectations. As of September 30, 2018, the Company believes no additional credit risk exists beyond the amounts provided for in our allowance for uncollectible accounts. The Company evaluates its allowance for uncollectable accounts on a quarterly basis based on a specific review of receivable aging and the period that any receivables are beyond the standard payment terms. The Company does not require collateral from its customers in order to mitigate credit risk.One customer accounted for 12% of our revenues during the nine month period ended September 30, 2018 or approximately $2,339,000. One customer accounted for 10% of our revenues during the nine month period ended September 30, 2017 or approximately $2,021,000. The following table summarizes the number of customers who individually comprise greater than 10% of total revenue and/or total accounts receivable and their aggregate percentage of the Company's total revenue and gross accounts receivable for the nine month periods ended September 30, 2018 and September 30, 2017 and the year ended December 31, 2017.
The table below provides revenues from European customers for the nine month periods ended September 30, 2018 and September 30, 2017.
The Company serves its hosting customers from third -party web hosting facilities located in the United States and Germany. 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. |
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Property, Plant and Equipment, Policy [Policy Text Block] | 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. |
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Impairment or Disposal of Long-Lived Assets, Including Intangible Assets, Policy [Policy Text Block] | ASSET IMPAIRMENT Acquisitions and Intangible Assets We account for acquisitions in accordance with ASC 805, Business Combinations (“ASC 805” ) and ASC 350, Intangibles- Goodwill and Other (“ASC 350” ). The acquisition method of accounting requires that assets acquired and liabilities assumed be recorded at their fair values on the date of a business acquisition. Our consolidated financial statements and results of operations reflect an acquired business from the completion date of an acquisition.The judgments that we make in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact net income in periods following an asset acquisition. We generally use either the income, cost or market approach to aid in our conclusions of such fair values and asset lives. The income approach presumes that the value of an asset can be estimated by the net economic benefit to be received over the life of the asset, discounted to present value. The cost approach presumes that an investor would pay no more for an asset than its replacement or reproduction cost. The market approach estimates value based on what other participants in the market have paid for reasonably similar assets. Although each valuation approach is considered in valuing the assets acquired, the approach ultimately selected is based on the characteristics of the asset and the availability of information.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. |
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Fair Value Measurement, Policy [Policy Text Block] | FAIR VALUE MEASUREMENT OmniComm’s capital structure includes the use of warrants and convertible debt features that are classified as derivative financial instruments. Derivative financial instruments are recognized as either assets or liabilities and are measured at fair value under ASC 815, Derivatives and Hedging (“ASC 815” ). ASC 815 requires that changes in the fair value of derivative financial instruments with no hedging designation be recognized as gains/(losses) in the earnings statement. The fair value measurement is determined in accordance with ASC 820, Fair Value Measurements and Disclosures (“ASC 820” ). |
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Revenue Recognition, Deferred Revenue [Policy Text Block] | DEFERRED REVENUE Deferred revenue represents cash advances and amounts in accounts receivable as of the balance sheet date received in excess of revenue earned on on-going contracts. Payment terms vary with each contract but may include an initial payment at the time the contract is executed, with future payments dependent upon the completion of certain contract phases or targeted milestones. In the event of contract cancellation, the Company is generally entitled to payment for all work performed through the point of cancellation. As of September 30, 2018, the Company had $7,867,262 in deferred revenues relating to contracts for services to be performed over periods ranging from one month to 7 years. The Company had $6,209,198 in deferred revenues that are expected to be recognized in the next twelve fiscal months. |
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Advertising Costs, Policy [Policy Text Block] | ADVERTISING Advertising costs are expensed as incurred. Advertising costs were $671,030 and $528,777 for the nine month periods ended September 30, 2018 and September 30, 2017, respectively, and are included under selling, general and administrative expenses in our unaudited condensed consolidated financial statements. |
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Research, Development, and Computer Software, Policy [Policy Text Block] | RESEARCH AND PRODUCT DEVELOPMENT EXPENSES Software development costs are expensed as incurred. ASC 985 -20, Software Industry Costs of Software to Be Sold, Leased or Marketed (“ASC 985 -20” ), requires the capitalization of certain development costs of software to be sold once technological feasibility is established, which the Company defines as completion to the point of marketability. The capitalized cost is then amortized on a straight-line basis over the estimated product life. To date, the period between achieving technological feasibility and the general availability of such software has been short and software development costs qualifying for capitalization have been immaterial. Accordingly, the Company has not capitalized any software development costs under ASC 985 -20. During the nine month periods ended September 30, 2018 and September 30, 2017 we spent $2,469,280 and $2,230,565, respectively, on research and product development activities, which include costs associated with the development of our software products and services for our clients’ projects and which are primarily comprised of salaries and related expenses for our software developers and consulting fees paid to third -party consultants. Research and product development costs are primarily included under Salaries, benefits and related taxes in our Statement of Operations. |
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Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block] | EQUITY INCENTIVE PLANS The OmniComm Systems, Inc. 2016 Equity Incentive Plan (the “2016 Plan”) was approved at our Annual Meeting of Stockholders on June 16, 2016. The 2016 Plan initially provides for the issuance of up to 10,000,000 shares of our common stock. In addition, the number of shares of common stock available for issuance under the 2016 Plan automatically increases on January 1st of each year for a period of nine (9 ) years commencing on January 1, 2017 and ending on (and including) January 1, 2025, in an amount equal to five percent (5% ) of the total number of shares authorized under the 2016 Plan. As of September 30, 2018 11,025,000 shares of our common stock were authorized for issuance under the 2016 Plan.The predecessor plan, the OmniComm Systems, Inc. 2009 Equity Incentive Plan (the “2009 Plan”) was approved at our Annual Meeting of Stockholders on July 10, 2009 and terminated on June 16, 2016 upon the approval of the 2016 Plan. The 2009 Plan provided for the issuance of up to 7,500,000 shares to employees, directors and key consultants. The 2016 and 2009 Plans are more fully described in “Note 13, Equity Incentive Plans”.The Company accounts for its employee equity incentive plans under 718, Compensation – Stock Compensation , (“ASC 718” ) which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statements of operations. The Company currently uses the Black Scholes option pricing model to determine grant date fair value. |
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Earnings Per Share, Policy [Policy Text Block] | EARNINGS PER SHARE The Company accounts for Earnings per Share using ASC 260, Earnings per Share, (“ASC 260” ). Unlike diluted earnings per share basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. |
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Income Tax, Policy [Policy Text Block] | INCOME TAXES The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740” ). ASC 740 has as its basic objective the recognition of current and deferred income tax assets and liabilities based upon all events that have been recognized in the financial statements as measured by the provisions of the enacted tax laws.Valuation allowances are established, when necessary, to reduce deferred tax assets to the estimated amount to be realized. Income tax expense represents the tax payable for the current period and the change during the period in the deferred tax assets and liabilities. |
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New Accounting Pronouncements, Policy [Policy Text Block] | IMPACT OF NEW ACCOUNTING STANDARDS During the first nine months of 2018, we adopted the following new accounting pronouncements:In February 2016, the FASB issued Accounting Standard Update No. 2016 -02, “Leases (Topic 842 )”, (“ASU 2016 -02” ). ASU 2016 -02 requires that an entity should recognize assets and liabilities for leases with a maximum possible term of more than 12 months. 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, 2018. 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 on our consolidated financial statements.In April 2016, the FASB issued Accounting Standards Update 2016–10 “Revenue from Contracts with Customers (Topic 606 ):Identifying Performance Obligations and Licensing.” The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation guidance on (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments in this Update are intended to render more detailed implementation guidance with the expectation to reduce the degree of judgement necessary to comply with Topic 606. The Company adopted the new standard effective January 1, 2018 using the modified retrospective method. Therefore, the comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods. The adoption of the new standard did not have a material impact on the Company’s consolidated financial statements.Accounting standards-setting organizations frequently issue new or revised accounting rules. We regularly review all new pronouncements to determine their impact, if any, on our financial statements. |
Note 2 - Summary of Significant Accounting Policies (Tables) |
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Allowance for Credit Losses on Financing Receivables [Table Text Block] |
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Note 3 - Earnings (Loss) Per Share (Tables) |
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Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block] |
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Schedule of Earnings Per Share, Basic and Diluted [Table Text Block] |
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Note 4 - Property and Equipment, Net (Tables) |
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Table Text Block] |
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Note 5 - Intangible Assets, Net (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Finite-Lived Intangible Assets [Table Text Block] |
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Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block] |
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Note 6 - Accounts Payable and Accrued Expenses (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accounts Payable and Accrued Liabilities [Table Text Block] |
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Note 7 - Line of Credit, Notes Payable and Liquidity (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Debt [Table Text Block] |
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Note 8 - Convertible Notes Payable (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Maturities of Long-term Debt [Table Text Block] |
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Convertible Debt [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Long-term Debt Instruments [Table Text Block] |
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Note 9 - Fair Value Measurement (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value, Liabilities Measured on Recurring Basis [Table Text Block] |
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Fair Value Measurements, Recurring and Nonrecurring [Table Text Block] |
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Fair Value Measurements, Nonrecurring [Table Text Block] |
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Fair Value, Measured on Recurring Basis, Gain (Loss) Included in Earnings [Table Text Block] |
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Schedule of Derivative Liabilities at Fair Value [Table Text Block] |
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Note 10 - Commitments and Contingencies (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||
Notes Tables | |||||||||||||||||||||||||||||||||||||||||
Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block] |
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Schedule of Future Minimum Lease Payments for Capital Leases [Table Text Block] |
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Note 12 - Stockholders' (Deficit) (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule Of Dividends In Arrears [Table Text Block] |
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Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block] |
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Share-based Compensation, Activity [Table Text Block] |
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Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block] |
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Warrant [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based Compensation, Activity [Table Text Block] |
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Note 13 - Equity Incentive Plans (Tables) |
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Share-based Compensation, Stock Options, Activity [Table Text Block] |
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Share-based Compensation Arrangements by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding [Table Text Block] |
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Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range [Table Text Block] |
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Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block] |
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Share-based Compensation, Activity [Table Text Block] |
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Schedule of Nonvested Share Activity [Table Text Block] |
|
Note 1 - Organization and Nature of Operations (Details Textual) - USD ($) |
9 Months Ended | |
---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Research and Development Expense, Total | $ 2,469,280 | $ 2,230,565 |
Note 2 - Summary of Significant Accounting Policies - Revenue by Business Activity (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Revenues, Total | $ 6,842,824 | $ 6,715,913 | $ 20,332,949 | $ 20,175,800 |
Set Up Fees [Member] | ||||
Revenues, Total | 2,683,182 | 3,948,687 | ||
Change Orders [Member] | ||||
Revenues, Total | 1,090,333 | 1,054,288 | ||
Maintenance 1 [Member] | ||||
Revenues, Total | 4,163,138 | 3,749,897 | ||
Software Licenses [Member] | ||||
Revenues, Total | 8,423,355 | 7,951,228 | ||
Professional Services [Member] | ||||
Revenues, Total | 2,617,149 | 2,526,379 | ||
Hosting [Member] | ||||
Revenues, Total | $ 1,355,792 | $ 945,321 |
Note 2 - Summary of Significant Accounting Policies - Allowance for Doubtful Account Summary (Details) - USD ($) |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Dec. 31, 2017 |
|
Beginning of period | $ 149,980 | $ 179,813 | $ 179,813 | ||
Bad debt expense | $ 21,679 | $ 87,366 | 47,931 | $ 40,369 | 130,346 |
Write-offs | 0 | (160,179) | |||
End of period | $ 197,911 | $ 197,911 | $ 149,980 |
Note 2 - Summary of Significant Accounting Policies - Customer Concentration (Details) - Customer Concentration Risk [Member] |
9 Months Ended | 12 Months Ended | |
---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Dec. 31, 2017 |
|
Sales Revenue, Net [Member] | |||
Number of customers | 1 | 1 | 1 |
Concentration risk, percentage | 12.00% | 10.00% | 10.00% |
Accounts Receivable [Member] | |||
Number of customers | 1 | 2 | 1 |
Concentration risk, percentage | 13.00% | 38.00% | 24.00% |
Note 2 - Summary of Significant Accounting Policies - Revenue From European Operations (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Revenues | $ 6,842,824 | $ 6,715,913 | $ 20,332,949 | $ 20,175,800 |
Reportable Geographical Components [Member] | Europe [Member] | ||||
Revenues | $ 17 | $ 12 | ||
Concentration risk, percentage | 2514601.00% |
Note 3 - Earnings (Loss) Per Share - Reconciliation of Anti-dilutive Securities (Details) - shares |
9 Months Ended | |
---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Anti-dilutive Security (in shares) | 40,741,945 | 31,924,411 |
Employee Stock Option [Member] | ||
Anti-dilutive Security (in shares) | 2,670,000 | 4,050,000 |
Warrant [Member] | ||
Anti-dilutive Security (in shares) | 26,020,000 | 27,020,000 |
Convertible Debt Securities [Member] | ||
Anti-dilutive Security (in shares) | 11,940,000 | 740,000 |
Shares Issuable For Accrued Interest [Member] | ||
Anti-dilutive Security (in shares) | 111,945 | 114,411 |
Note 3 - Earnings (Loss) Per Share - Computation of Diluted Earnings Per Share (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Basic EPS, Income (loss) numerator | $ (2,662,692) | $ (358,839) | $ (539,428) | $ 2,394,546 |
Weighted Average Number of Shares Outstanding, Basic, Total | 150,905,124 | 147,858,566 | 150,282,732 | 147,805,410 |
Basic EPS, Per-share amount (in dollars per share) | $ (0.02) | $ 0 | $ 0 | $ 0.02 |
Effect of dilutive securities, Income (loss) numerator | $ 0 | $ 0 | $ 0 | $ 0 |
Effect of dilutive securities, Shares denominator (in shares) | 0 | 0 | 0 | 45,476 |
Effect of dilutive securities, Per-share amount (in dollars per share) | $ 0 | $ 0 | $ 0 | $ 0 |
Diluted EPS, Income (loss) numerator | $ (2,662,692) | $ (358,839) | $ (539,428) | $ 2,394,546 |
Diluted EPS, Shares denominator (in shares) | 150,905,124 | 147,858,566 | 150,282,732 | 147,850,886 |
Diluted EPS, Per-share amount (in dollars per share) | $ (0.02) | $ 0 | $ 0 | $ 0.02 |
Note 4 - Property and Equipment, Net (Details Textual) - USD ($) |
9 Months Ended | |
---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Depreciation, Total | $ 279,532 | $ 249,801 |
Note 4 - Property and Equipment, Net - Property and Equipment (Details) - USD ($) |
9 Months Ended | |
---|---|---|
Sep. 30, 2018 |
Dec. 31, 2017 |
|
Cost | $ 5,657,892 | $ 4,615,011 |
Accumulated Depreciation | 4,327,148 | 4,062,473 |
Net Book Value | 1,330,744 | 552,538 |
Computer And Office Equipment [Member] | ||
Cost | 3,046,561 | 2,322,833 |
Accumulated Depreciation | 2,129,785 | 1,949,982 |
Net Book Value | $ 916,776 | 372,851 |
Estimated Useful Lives (Year) | 5 years | |
Leasehold Improvements [Member] | ||
Cost | $ 137,054 | 118,380 |
Accumulated Depreciation | 104,335 | 98,901 |
Net Book Value | $ 32,719 | 19,479 |
Estimated Useful Lives (Year) | 5 years | |
Computer Equipment [Member] | ||
Cost | $ 2,305,155 | 2,010,999 |
Accumulated Depreciation | 1,957,405 | 1,886,342 |
Net Book Value | $ 347,750 | 124,657 |
Estimated Useful Lives (Year) | 3 years | |
Furniture and Fixtures [Member] | ||
Cost | $ 169,122 | 162,799 |
Accumulated Depreciation | 135,623 | 127,248 |
Net Book Value | $ 33,499 | $ 35,551 |
Estimated Useful Lives (Year) | 5 years |
Note 5 - Intangible Assets, Net (Details Textual) - USD ($) |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2018 |
Jun. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Impairment of Intangible Assets, Finite-lived | $ 0 | $ 79,634 | $ 0 | $ 79,634 | $ 0 |
Amortization of Intangible Assets, Total | $ 91,343 | $ 5,580 | $ 248,790 | $ 16,455 |
Note 5 - Intangible Assets, Net - Intangible Assets, Future Amortization Expense (Details) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
2018 | $ 88,914 | |
2019 | 350,801 | |
2020 | 350,801 | |
2021 | 29,234 | |
Total | $ 819,750 | $ 97,925 |
Note 6 - Accounts Payable and Accrued Expenses - Accounts Payable and Accrued Expenses (Details) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Accounts payable | $ 760,557 | $ 1,303,073 |
Accrued payroll and related costs | 681,354 | 925,890 |
Other accrued expenses | 168,675 | 184,131 |
Accrued interest | 75,950 | 172,951 |
Total accounts payable and accrued expenses | $ 1,686,536 | $ 2,586,045 |
Note 8 - Convertible Notes Payable - Convertible Debt Maturity Payments (Details) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Total | $ 5,970,000 | $ 6,170,000 |
Convertible Debt [Member] | ||
2018 | 0 | |
2019 | 0 | |
2020 | 5,770,000 | |
2021 | 200,000 | |
Total | $ 5,970,000 |
Note 9 - Fair Value Measurement (Details Textual) - USD ($) |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2018 |
Jun. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Impairment of Intangible Assets, Finite-lived | $ 0 | $ 79,634 | $ 0 | $ 79,634 | $ 0 |
Minimum [Member] | |||||
Finite-Lived Intangible Asset, Useful Life | 3 years | ||||
Maximum [Member] | |||||
Finite-Lived Intangible Asset, Useful Life | 15 years |
Note 9 - Fair Value Measurement - Fair Value Assumptions (Details) |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Measurement Input, Expected Dividend Rate [Member] | ||
Risk free interest rate | 0 | 0 |
Minimum [Member] | Measurement Input, Risk Free Interest Rate [Member] | ||
Risk free interest rate | 0.0245 | 0.0156 |
Minimum [Member] | Measurement Input, Price Volatility [Member] | ||
Risk free interest rate | 0.857 | 0.87 |
Minimum [Member] | Measurement Input, Expected Term [Member] | Conversion Feature Liability [Member] | ||
Risk free interest rate | 1.5 | 1.25 |
Minimum [Member] | Measurement Input, Expected Term [Member] | Warrant Liability [Member] | ||
Risk free interest rate | 0.25 | 0.25 |
Maximum [Member] | Measurement Input, Risk Free Interest Rate [Member] | ||
Risk free interest rate | 0.0245 | 0.0181 |
Maximum [Member] | Measurement Input, Price Volatility [Member] | ||
Risk free interest rate | 1.058 | 1.184 |
Maximum [Member] | Measurement Input, Expected Term [Member] | Conversion Feature Liability [Member] | ||
Risk free interest rate | 2.5 | 3.25 |
Maximum [Member] | Measurement Input, Expected Term [Member] | Warrant Liability [Member] | ||
Risk free interest rate | 2.5 | 3.25 |
Note 9 - Fair Value Measurement - Fair Value of Assets Acquired on Non-recurring Basis (Details) - Fair Value, Measurements, Nonrecurring [Member] - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Reported Value Measurement [Member] | |||||||||||||
Acquired assets | [1] | $ 819,750 | $ 97,925 | $ 108,880 | |||||||||
Reported Value Measurement [Member] | Promasys B.V. Customer List [Member] | |||||||||||||
Acquired assets | [1],[3] | 0 | [2] | 85,786 | 82,173 | ||||||||
Reported Value Measurement [Member] | Promasys B.V. Software Code [Member] | |||||||||||||
Acquired assets | [1],[3] | 1,214 | 12,139 | $ 26,707 | |||||||||
Reported Value Measurement [Member] | Acuity Software Code [Member] | |||||||||||||
Acquired assets | [1],[4] | 818,536 | 0 | ||||||||||
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member] | |||||||||||||
Acquired assets | [1] | 0 | 0 | ||||||||||
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member] | |||||||||||||
Acquired assets | [1] | 0 | 0 | ||||||||||
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member] | |||||||||||||
Acquired assets | [1] | 1,261,599 | 209,196 | ||||||||||
Estimate of Fair Value Measurement [Member] | Promasys B.V. Customer List [Member] | Fair Value, Inputs, Level 1 [Member] | |||||||||||||
Acquired assets | [1],[3] | 0 | [2] | 0 | |||||||||
Estimate of Fair Value Measurement [Member] | Promasys B.V. Customer List [Member] | Fair Value, Inputs, Level 2 [Member] | |||||||||||||
Acquired assets | [1],[3] | 0 | [2] | 0 | |||||||||
Estimate of Fair Value Measurement [Member] | Promasys B.V. Customer List [Member] | Fair Value, Inputs, Level 3 [Member] | |||||||||||||
Acquired assets | [1],[3] | 136,253 | [2] | 136,253 | |||||||||
Estimate of Fair Value Measurement [Member] | Promasys B.V. Software Code [Member] | Fair Value, Inputs, Level 1 [Member] | |||||||||||||
Acquired assets | [1],[3] | 0 | 0 | ||||||||||
Estimate of Fair Value Measurement [Member] | Promasys B.V. Software Code [Member] | Fair Value, Inputs, Level 2 [Member] | |||||||||||||
Acquired assets | [1],[3] | 0 | 0 | ||||||||||
Estimate of Fair Value Measurement [Member] | Promasys B.V. Software Code [Member] | Fair Value, Inputs, Level 3 [Member] | |||||||||||||
Acquired assets | [1],[3] | 72,943 | $ 72,943 | ||||||||||
Estimate of Fair Value Measurement [Member] | Acuity Software Code [Member] | Fair Value, Inputs, Level 1 [Member] | |||||||||||||
Acquired assets | [1],[4] | 0 | |||||||||||
Estimate of Fair Value Measurement [Member] | Acuity Software Code [Member] | Fair Value, Inputs, Level 2 [Member] | |||||||||||||
Acquired assets | [1],[4] | 0 | |||||||||||
Estimate of Fair Value Measurement [Member] | Acuity Software Code [Member] | Fair Value, Inputs, Level 3 [Member] | |||||||||||||
Acquired assets | [1],[4] | $ 1,052,403 | |||||||||||
|
Note 9 - Fair Value Measurement - Unrealized Gain or Loss Included in Earnings (Details) - USD ($) |
9 Months Ended | |
---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
|
The net amount of gains/(losses) for the period included in earnings attributable to the unrealized and realized gains/(losses) from changes in derivative liabilities at the reporting date | $ (1,160,473) | $ 723,532 |
Note 9 - Fair Value Measurement - Change in Level 3 Financial Liabilities Fair Value (Details) - USD ($) |
9 Months Ended | 12 Months Ended |
---|---|---|
Sep. 30, 2018 |
Dec. 31, 2017 |
|
Balance, beginning of year | $ (5,126,746) | $ (6,325,092) |
Net realized gains/(losses) | 0 | 48,375 |
Net unrealized gains/(losses) relating to instruments still held at the reporting date | (1,160,473) | 747,404 |
Net purchases, issuances and settlements | 0 | 0 |
Net transfers in and/or out of Level 3 | 10,500 | 402,567 |
Balance, end of period | (6,276,719) | (5,126,746) |
Conversion Feature Liability [Member] | ||
Balance, beginning of year | (1,685,947) | (2,325,730) |
Net realized gains/(losses) | 0 | 48,375 |
Net unrealized gains/(losses) relating to instruments still held at the reporting date | (165,065) | 188,841 |
Net purchases, issuances and settlements | 0 | 0 |
Net transfers in and/or out of Level 3 | 10,500 | 402,567 |
Balance, end of period | (1,840,512) | (1,685,947) |
Warrant Liability [Member] | ||
Balance, beginning of year | (3,440,799) | (3,999,362) |
Net realized gains/(losses) | 0 | 0 |
Net unrealized gains/(losses) relating to instruments still held at the reporting date | (995,408) | 558,563 |
Net purchases, issuances and settlements | 0 | 0 |
Net transfers in and/or out of Level 3 | 0 | 0 |
Balance, end of period | $ (4,436,207) | $ (3,440,799) |
Note 10 - Commitments and Contingencies (Details Textual) - USD ($) |
9 Months Ended | 108 Months Ended | |||
---|---|---|---|---|---|
Dec. 31, 2017 |
Jun. 23, 2009 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Dec. 31, 2017 |
|
Operating Leases, Rent Expense, Total | $ 930,972 | $ 841,718 | |||
Stock Issued During Period, Shares, Exercise of Warrants | 500,000 | ||||
License Payments | $ 300,000 | ||||
Additional Income (Expense) Related to Settlement Agreement | $ 111,979 | ||||
Settlement and Licensing Agreement [Member] | |||||
Patent Royalty Percentage Obligation | 2.00% | ||||
Class of Warrant or Right, Number of Securities Called by Warrants or Rights | 1,000,000 | 1,000,000 | |||
Class of Warrant or Right, Exercise Price of Warrants or Rights | $ 0.01 | $ 0.01 | |||
Loss Contingency, Estimate of Possible Loss | $ 300,000 | $ 300,000 | |||
Class of Warrant or Right, Percentage, Exercised for Stock | 50.00% | ||||
Stock Issued During Period, Shares, Exercise of Warrants | 500,000 | ||||
Class of Warrant or Right, Percentage, Exercised for Cash Payment | 50.00% | ||||
Proceeds from Warrant Exercises | $ 145,000 |
Note 10 - Commitments and Contingencies - Future Minimum Lease Payments (Details) |
Sep. 30, 2018
USD ($)
|
---|---|
2018 | $ 226,880 |
2019 | 654,275 |
2020 | 413,574 |
2021 | 337,397 |
2022 | 337,480 |
Thereafter | 75,052 |
Total | $ 2,044,658 |
Note 10 - Commitments and Contingencies - Future Minimum Capital Lease Payments (Details) |
Sep. 30, 2018
USD ($)
|
---|---|
2018 | $ 32,958 |
2019 | 131,832 |
2020 | 131,832 |
2021 | 52,779 |
Total minimum capital lease payments | 349,401 |
Less: Amount representing interest | (28,797) |
Present value of minimum capital lease payments | $ 320,604 |
Note 11 - Related Party Transactions (Details Textual) - USD ($) |
1 Months Ended | 3 Months Ended | 9 Months Ended | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Aug. 31, 2017 |
Nov. 19, 2015 |
Mar. 18, 2013 |
Dec. 16, 2008 |
Aug. 29, 2008 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Jun. 30, 2018 |
Dec. 31, 2017 |
Jun. 30, 2016 |
Feb. 29, 2016 |
Feb. 03, 2015 |
Jan. 31, 2015 |
Dec. 31, 2013 |
Dec. 18, 2013 |
Feb. 22, 2013 |
Oct. 16, 2012 |
Sep. 30, 2009 |
Jun. 30, 2008 |
Feb. 29, 2008 |
|
Convertible Notes Payable, Total | $ 5,970,000 | $ 5,970,000 | $ 6,170,000 | |||||||||||||||||||
Debt Instrument, Interest Rate, Stated Percentage | 2.00% | |||||||||||||||||||||
Debt Instrument, Convertible, Conversion Price | $ 0.50 | $ 0.50 | ||||||||||||||||||||
Repayments of Notes Payable | $ 200,000 | $ 1,020,000 | ||||||||||||||||||||
Line of Credit Facility, Maximum Borrowing Capacity | $ 2,000,000 | $ 5,000,000 | $ 4,000,000 | |||||||||||||||||||
Long-term Line of Credit, Total | $ 3,200,000 | $ 3,200,000 | ||||||||||||||||||||
Line of Credit Facility, Interest Rate at Period End | 4.25% | 4.25% | ||||||||||||||||||||
Interest Expense, Related Party | $ 229,906 | $ 252,585 | $ 682,986 | $ 717,782 | ||||||||||||||||||
The Northern Trust Company [Member] | ||||||||||||||||||||||
Line of Credit Facility, Maximum Borrowing Capacity | $ 2,000,000 | $ 5,000,000 | $ 4,000,000 | |||||||||||||||||||
Line of Credit Facility, Interest Rate During Period | 2.00% | |||||||||||||||||||||
Long-term Line of Credit, Total | $ 3,200,000 | |||||||||||||||||||||
Line of Credit Facility, Interest Rate at Period End | 4.25% | |||||||||||||||||||||
Director Mr. Wit [Member] | ||||||||||||||||||||||
Class of Warrant or Right Cancelled During the Period | 1,900,000 | |||||||||||||||||||||
Interest Expense, Related Party Approximately Monthly Amount | $ 9,500 | |||||||||||||||||||||
Chief Executive Officer [Member] | ||||||||||||||||||||||
Notes Payable, Related Parties | $ 450,000 | |||||||||||||||||||||
Class of Warrant or Right, Number of Securities Called by Warrants or Rights | 1,800,000 | |||||||||||||||||||||
Debt Instrument, Interest Rate, Stated Percentage | 12.00% | |||||||||||||||||||||
Repayments of Notes Payable | $ 50,000 | |||||||||||||||||||||
Class of Warrant or Right, Exercise Price of Warrants or Rights | $ 0.25 | |||||||||||||||||||||
Interest Payable | $ 450,000 | |||||||||||||||||||||
Convertible Debentures [Member] | Director Mr. Wit [Member] | ||||||||||||||||||||||
Due to Related Parties, Total | 5,770,000 | 5,770,000 | ||||||||||||||||||||
Convertible Notes Payable, Total | $ 510,000 | |||||||||||||||||||||
Debt Conversion, Converted Instrument, Amount | $ 510,000 | |||||||||||||||||||||
Promissory Notes [Member] | CEO And Director [Member] | ||||||||||||||||||||||
Notes Payable, Related Parties | $ 400,000 | $ 400,000 | ||||||||||||||||||||
Convertible Debenture Initiated In June 2008 [Member] | Director Mr. Wit [Member] | ||||||||||||||||||||||
Convertible Notes Payable, Total | $ 1,260,000 | $ 1,770,000 | $ 1,770,000 | $ 1,770,000 | $ 1,770,000 | |||||||||||||||||
Class of Warrant or Right, Number of Securities Called by Warrants or Rights | 3,540,000 | |||||||||||||||||||||
Debt Instrument, Interest Rate, Stated Percentage | 10.00% | |||||||||||||||||||||
Debt Instrument, Convertible, Conversion Price | $ 0.50 | |||||||||||||||||||||
Convertible Debenture Initiated In February 2008 [Member] | Director Mr. Wit [Member] | ||||||||||||||||||||||
Notes Payable, Related Parties | $ 150,000 | |||||||||||||||||||||
Convertible Notes Payable, Total | 4,475,000 | 4,475,000 | $ 125,000 | $ 4,350,000 | $ 4,200,000 | |||||||||||||||||
Debt Conversion, Converted Instrument, Amount | $ 4,350,000 | |||||||||||||||||||||
Class of Warrant or Right, Number of Securities Called by Warrants or Rights | 1,680,000 | 8,700,000 | 250,000 | |||||||||||||||||||
Debt Instrument, Convertible, Conversion Price | $ 0.50 | |||||||||||||||||||||
Debt Conversion, Converted Instrument, Rate | 12.00% | |||||||||||||||||||||
Extinguishment of Debt, Amount | $ 420,000 | |||||||||||||||||||||
Class of Warrant or Right Cancelled During the Period | 1,680,000 | |||||||||||||||||||||
Convertible Debenture Initiated In February 2008 [Member] | Director Mr. Wit [Member] | Extended Maturity Debentures [Member] | ||||||||||||||||||||||
Convertible Notes Payable, Total | $ 4,055,000 | |||||||||||||||||||||
Convertible Debentures Issued December 2008 [Member] | ||||||||||||||||||||||
Convertible Notes Payable, Total | $ 5,075,000 | |||||||||||||||||||||
Convertible Debentures Issued December 2008 [Member] | Extended Maturity Debentures [Member] | ||||||||||||||||||||||
Convertible Notes Payable, Total | $ 360,000 | |||||||||||||||||||||
Convertible Debentures Issued December 2008 [Member] | Director Mr. Wit [Member] | ||||||||||||||||||||||
Class of Warrant or Right, Number of Securities Called by Warrants or Rights | 1,680,000 | |||||||||||||||||||||
Extinguishment of Debt, Amount | $ 420,000 | |||||||||||||||||||||
Class of Warrant or Right Cancelled During the Period | 1,680,000 | |||||||||||||||||||||
Convertible Debentures Issued December 2008 [Member] | Director Mr. Wit [Member] | Extended Maturity Debentures [Member] | ||||||||||||||||||||||
Convertible Notes Payable, Total | $ 4,475,000 | |||||||||||||||||||||
Convertible Debentures Issued December 2008 [Member] | Chief Executive Officer and Director Mr. Wit [Member] | ||||||||||||||||||||||
Repayments of Notes Payable | $ 55,000 | |||||||||||||||||||||
Convertible Debentures Issued December 2008 [Member] | Chief Executive Officer [Member] | ||||||||||||||||||||||
Convertible Notes Payable, Total | $ 4,475,000 |
Note 12 - Stockholders' (Deficit) (Details Textual) |
9 Months Ended | ||
---|---|---|---|
Sep. 30, 2018
USD ($)
$ / shares
shares
|
Dec. 31, 2017
$ / shares
shares
|
Dec. 31, 2016
shares
|
|
Common Stock, Shares Authorized | 500,000,000 | 500,000,000 | |
Common Stock, Par or Stated Value Per Share | $ / shares | $ 0.001 | $ 0.001 | |
Preferred Stock, Shares Authorized | 10,000,000 | 10,000,000 | |
Preferred Stock, Par or Stated Value Per Share | $ / shares | $ 0.001 | $ 0.001 | |
Common Stock, Shares, Issued, Total | 152,309,472 | 148,542,805 | |
Common Stock, Shares, Outstanding, Ending Balance | 152,309,472 | 148,542,805 | |
Class of Warrant or Right, Issued | 26,020,000 | ||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance | 2,670,000 | 5,275,000 | 1,225,000 |
Convertible Debt, Total | $ | $ 5,970,000 | ||
Class of Warrant or Right, Outstanding | 26,020,000 | 27,020,000 | 27,860,000 |
Conversion of Conversion Debt into Common Stock [Member] | |||
Debt Instrument, Convertible, Number of Equity Instruments | 11,940,000 | ||
Conversion of Accrued Interest into Common Stock [Member] | |||
Debt Instrument, Convertible, Number of Equity Instruments | 111,945 | ||
Convertible Debt [Member] | |||
Interest Payable | $ | $ 55,973 | ||
Series A Preferred Stock [Member] | |||
Preferred Stock, Shares Authorized | 5,000,000 | 5,000,000 | |
Preferred Stock, Par or Stated Value Per Share | $ / shares | $ 0.001 | $ 0.001 | |
Preferred Stock, Dividend Rate, Percentage | 5.00% | ||
Preferred Stock, Shares Outstanding, Ending Balance | 0 | 0 | |
Preferred Stock, Shares Issued, Total | 0 | 0 | |
Series B Preferred Stock [Member] | |||
Preferred Stock, Shares Authorized | 230,000 | 230,000 | |
Preferred Stock, Par or Stated Value Per Share | $ / shares | $ 0.001 | $ 0.001 | |
Preferred Stock, Shares Outstanding, Ending Balance | 0 | 0 | |
Preferred Stock, Shares Issued, Total | 0 | 0 | |
Series C Preferred Stock [Member] | |||
Preferred Stock, Shares Authorized | 747,500 | 747,500 | |
Preferred Stock, Par or Stated Value Per Share | $ / shares | $ 0.001 | $ 0.001 | |
Preferred Stock, Shares Outstanding, Ending Balance | 0 | 0 | |
Preferred Stock, Shares Issued, Total | 0 | 0 | |
Series D Preferred Stock [Member] | |||
Preferred Stock, Shares Authorized | 250,000 | 250,000 | |
Preferred Stock, Par or Stated Value Per Share | $ / shares | $ 0.001 | $ 0.001 | |
Preferred Stock, Shares Outstanding, Ending Balance | 250,000 | 250,000 | |
Preferred Stock, Shares Issued, Total | 250,000 | 250,000 |
Note 12 - Stockholders' (Deficit) - Cumulative Arrearage of Undeclared Dividends (Details) - USD ($) |
9 Months Ended | |
---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Preferred Stock, Dividend, Cumulative Arrearage | $ 2,081,980 | $ 2,081,980 |
Preferred Stock, Dividend, Cumulative Arrearage Per Share (in dollars per share) | ||
Series B Preferred Stock [Member] | ||
Preferred Stock, Dividend, Cumulative Arrearage | $ 609,887 | $ 609,887 |
Preferred Stock, Dividend, Cumulative Arrearage Per Share (in dollars per share) | $ 3.05 | $ 3.05 |
Series C Preferred Stock [Member] | ||
Preferred Stock, Dividend, Cumulative Arrearage | $ 1,472,093 | $ 1,472,093 |
Preferred Stock, Dividend, Cumulative Arrearage Per Share (in dollars per share) | $ 4.37 | $ 4.37 |
Note 12 - Stockholders' (Deficit) - Warrants (Details) - $ / shares |
9 Months Ended | 12 Months Ended | |
---|---|---|---|
Sep. 30, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Number outstanding (in shares) | 26,020,000 | 27,020,000 | 27,860,000 |
Weighted average remaining contractual life (Year) | 1 year 54 days | 1 year 306 days | |
Weighted average exercise price (in dollars per share) | $ 0.42 | $ 0.42 | |
Class of Warrant or Right, Exercisable (in shares) | 26,020,000 | 27,020,000 | |
Warrants exercisable, weighted average exercise price (in dollars per share) | $ 0.42 | $ 0.42 | |
Minimum [Member] | |||
Range of exercise price (in dollars per share) | 0.25 | 0.25 | |
Maximum [Member] | |||
Range of exercise price (in dollars per share) | $ 0.60 | $ 0.60 |
Note 12 - Stockholders' (Deficit) - Warrants Activity (Details) - shares |
9 Months Ended | 12 Months Ended |
---|---|---|
Sep. 30, 2018 |
Dec. 31, 2017 |
|
Balance (in shares) | 27,020,000 | 27,860,000 |
Issued (in shares) | 0 | 0 |
Exercised (in shares) | 0 | 0 |
Expired/forfeited (in shares) | (1,000,000) | (840,000) |
Balance (in shares) | 26,020,000 | 27,020,000 |
Warrants exercisable at September 30, 2018 (in shares) | 26,020,000 | 27,020,000 |
Note 12 - Stockholders' (Deficit) - Accumulated Other Comprehensive Gain (Loss) (Details) - USD ($) |
9 Months Ended | 12 Months Ended |
---|---|---|
Sep. 30, 2018 |
Dec. 31, 2017 |
|
Balance | $ (17,193,058) | $ (21,127,798) |
Balance | (17,012,047) | (17,193,058) |
Accumulated Foreign Currency Adjustment Attributable to Parent [Member] | ||
Balance | (397,237) | (410,505) |
Activity | (34,424) | 13,268 |
Balance | (431,661) | (397,237) |
AOCI Attributable to Parent [Member] | ||
Balance | (397,237) | (410,505) |
Activity | (34,424) | 13,268 |
Balance | $ (431,661) | $ (397,237) |
Note 13 - Equity Incentive Plans (Details Textual) - USD ($) |
3 Months Ended | 9 Months Ended | |||||
---|---|---|---|---|---|---|---|
Sep. 06, 2018 |
Sep. 30, 2018 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Jun. 16, 2016 |
|
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance | 2,670,000 | 2,670,000 | 5,275,000 | 1,225,000 | |||
Proceeds from Stock Options Exercised | $ 45,000 | $ 35,250 | |||||
Employee Service Share-based Compensation, Tax Benefit from Compensation Expense | $ 0 | $ 0 | |||||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value | $ 0.23 | $ 0.19 | |||||
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options | $ 309,142 | $ 309,142 | |||||
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition | 1 year 328 days | ||||||
Restricted Stock [Member] | |||||||
Allocated Share-based Compensation Expense, Total | $ 41,735 | ||||||
The 2016 Plan [Member] | |||||||
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized | 11,025,000 | 11,025,000 | 10,000,000 | ||||
Common Stock Available for Issuance Increasing Period | 9 years | ||||||
Common Stock Available for Issuance, Annual Increase Percent | 5.00% | ||||||
Common Stock, Capital Shares Reserved for Future Issuance | 11,025,000 | 11,025,000 | |||||
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period | 5 years | ||||||
Share-based Compensation Arrangement, Restricted Shares Granted to Employees, Number of Installments in Which Restrictions Lapse | 3 | ||||||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance | 2,495,000 | 2,495,000 | |||||
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant | 6,630,000 | 6,630,000 | |||||
The 2016 Plan [Member] | Share-based Compensation Award, Tranche One [Member] | |||||||
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage | 50.00% | ||||||
Share-based Compensation Arrangement by Share-based Payment Award, Award Requisite Service Period | 1 year | ||||||
The 2016 Plan [Member] | Employee Stock Option [Member] | |||||||
Share-based Compensation Arrangement, Installments for Vesting | 2 | ||||||
The 2016 Plan [Member] | Restricted Stock [Member] | |||||||
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number, Ending Balance | 1,900,000 | 1,900,000 | |||||
The 2016 Plan [Member] | Maximum [Member] | |||||||
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period | 10 years | ||||||
RSAs [Member] | Restricted Stock [Member] | Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and Chief Technology Officer [Member] | |||||||
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value, Ending Balance | $ 0.33 | ||||||
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant Subject to Individual Performance | 75,000 | ||||||
Share-based Compensation Arrangement by Share-based Payment Award, Minimum Revenues to be Recognized | $ 30,000,000 | ||||||
Share-based Compensation Arrangement by Share-based Payment Award, Minimum EBITDA to be Recognized | $ 6,000,000 | ||||||
Share-based Compensation Arrangement by Share-based Payment Award, Shares Issubable upon Milestones Achieved | 75,000 | ||||||
Share-based Compensation Arrangement by Share-based Payment Award, Minimum Revenues to be Recognized for Additional Shares | $ 32,000,000 | ||||||
Share-based Compensation Arrangement by Share-based Payment Award, Minimum EBITDA to be Recognized for Additional Shares | $ 7,000,000 | ||||||
Share-based Compensation Arrangement by Share-based Payment Award, Additional Shares Issubable upon Milestones Achieved | 75,000 | ||||||
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period | 3 years | ||||||
RSAs [Member] | Restricted Stock [Member] | Director [Member] | |||||||
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value, Ending Balance | $ 0.33 | ||||||
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant For Each Recipient | 200,000 | ||||||
Share-based Compensation Arrangement by Share-based Payment Award, Minimum Revenues to be Recognized | $ 30,000,000 | ||||||
Share-based Compensation Arrangement by Share-based Payment Award, Minimum EBITDA to be Recognized | $ 6,000,000 | ||||||
Share-based Compensation Arrangement by Share-based Payment Award, Shares Issubable upon Milestones Achieved | 75,000 | ||||||
RSAs [Member] | Restricted Stock [Member] | Share-based Compensation Award, Tranche Two [Member] | Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and Chief Technology Officer [Member] | |||||||
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage | 33.00% | ||||||
RSAs [Member] | Restricted Stock [Member] | Share-based Compensation Award, Tranche Three [Member] | Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and Chief Technology Officer [Member] | |||||||
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage | 33.00% | ||||||
RSAs [Member] | Maximum [Member] | Restricted Stock [Member] | Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and Chief Technology Officer [Member] | |||||||
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant For Each Recipient | 225,000 | ||||||
Equity Incentive Plan 2009 [Member] | |||||||
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized | 7,500,000 | 7,500,000 | |||||
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period | 5 years | ||||||
Share-based Compensation Arrangement, Installments for Vesting | 2 | ||||||
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number, Ending Balance | 275,000 | 275,000 | |||||
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant | 0 | 0 | |||||
Equity Incentive Plan 2009 [Member] | Share-based Compensation Award, Tranche One [Member] | |||||||
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage | 50.00% | ||||||
Share-based Compensation Arrangement by Share-based Payment Award, Award Requisite Service Period | 1 year | ||||||
Equity Incentive Plan 2009 [Member] | Restricted Stock [Member] | |||||||
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number, Ending Balance | 3,876,662 | 3,876,662 | |||||
Equity Incentive Plan 2009 [Member] | Maximum [Member] | |||||||
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period | 10 years |
Note 13 - Equity Incentive Plans - Stock Option Activity (Details) - USD ($) |
9 Months Ended | 12 Months Ended | |
---|---|---|---|
Sep. 30, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Number of shares (in shares) | 5,275,000 | 1,225,000 | |
Weighted average exercise price (per share) (in dollars per share) | $ 0.26 | $ 0.17 | |
Weighted average remaining contractual term (in years) (Year) | 3 years 211 days | 4 years 32 days | 2 years 226 days |
Aggregate intrinsic value | $ 396,500 | $ 130,475 | $ 83,425 |
Number of shares, granted (in shares) | 570,000 | 4,650,000 | |
Weighted average exercise price (per share), granted (in dollars per share) | $ 0.28 | $ 0.26 | |
Number of shares, exercised (in shares) | (200,000) | (300,000) | |
Weighted average exercise price (per share), exercised (in dollars per share) | $ 0.22 | $ 0.13 | |
Number of shares, forfeited/cancelled/expired (in shares) | (2,975,000) | (300,000) | |
Weighted average exercise price (per share), forfeited/cancelled/expired (in dollars per share) | $ 0.25 | $ 0.14 | |
Number of shares (in shares) | 2,670,000 | 5,275,000 | 1,225,000 |
Weighted average exercise price (per share) (in dollars per share) | $ 0.27 | $ 0.26 | $ 0.17 |
Vested and exercisable at September 30, 2018 (in shares) | 800,000 | ||
Vested and exercisable at September 30, 2018 (in dollars per share) | $ 0.22 | ||
Vested and exercisable at September 30, 2018 (Year) | 2 years 208 days | ||
Vested and exercisable at September 30, 2018 | $ 158,425 |
Note 13 - Equity Incentive Plans - Vested Shares (Details) - USD ($) |
9 Months Ended | |
---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Number of options vested (in shares) | 625,000 | 62,500 |
Fair value of options vested | $ 125,190 | $ 12,742 |
Note 13 - Equity Incentive Plans - Stock Options Outstanding (Details) - $ / shares |
9 Months Ended | 12 Months Ended |
---|---|---|
Sep. 30, 2018 |
Dec. 31, 2017 |
|
Low price range (in dollars per share) | $ 0 | $ 0 |
High price range (in dollars per share) | $ 0.50 | $ 0.50 |
Outstanding stock options (in shares) | 2,670,000 | 5,275,000 |
Weighted average remaining contractual life - outstanding (Year) | 3 years 211 days | 4 years 32 days |
Weighted average outstanding strike price - outstanding (in dollars per share) | $ 0.27 | $ 0.26 |
Vested stock options (in shares) | 800,000 | 400,000 |
Weighted average remaining contractual life - vested (Year) | 2 years 208 days | 1 year 153 days |
Weighted average outstanding strike price - vested (in dollars per share) | $ 0.22 | $ 0.19 |
Range One [Member] | ||
Low price range (in dollars per share) | 0 | 0 |
High price range (in dollars per share) | $ 0.20 | $ 0.20 |
Outstanding stock options (in shares) | 250,000 | 300,000 |
Weighted average remaining contractual life - outstanding (Year) | 270 days | 1 year 339 days |
Weighted average outstanding strike price - outstanding (in dollars per share) | $ 0.17 | $ 0.18 |
Vested stock options (in shares) | 250,000 | 250,000 |
Weighted average remaining contractual life - vested (Year) | 270 days | 1 year 175 days |
Weighted average outstanding strike price - vested (in dollars per share) | $ 0.17 | $ 0.17 |
Range Two [Member] | ||
Low price range (in dollars per share) | 0.21 | 0.21 |
High price range (in dollars per share) | $ 0.30 | $ 0.30 |
Outstanding stock options (in shares) | 1,695,000 | 4,250,000 |
Weighted average remaining contractual life - outstanding (Year) | 3 years 288 days | 4 years 43 days |
Weighted average outstanding strike price - outstanding (in dollars per share) | $ 0.26 | $ 0.25 |
Vested stock options (in shares) | 550,000 | 150,000 |
Weighted average remaining contractual life - vested (Year) | 3 years 146 days | 1 year 109 days |
Weighted average outstanding strike price - vested (in dollars per share) | $ 0.25 | $ 0.22 |
Range Three [Member] | ||
Low price range (in dollars per share) | 0.31 | 0.31 |
High price range (in dollars per share) | $ 0.50 | $ 0.50 |
Outstanding stock options (in shares) | 725,000 | 725,000 |
Weighted average remaining contractual life - outstanding (Year) | 4 years 25 days | 4 years 299 days |
Weighted average outstanding strike price - outstanding (in dollars per share) | $ 0.34 | $ 0.34 |
Vested stock options (in shares) | 0 | 0 |
Weighted average remaining contractual life - vested (Year) | 0 years | 0 years |
Weighted average outstanding strike price - vested (in dollars per share) | $ 0 | $ 0 |
Note 13 - Equity Incentive Plans - Fair Value Assumptions of Share-based Payments (Details) |
9 Months Ended | 12 Months Ended |
---|---|---|
Sep. 30, 2018 |
Dec. 31, 2017 |
|
Risk-free interest rate | 2.71% | 1.81% |
Expected dividend yield | 0.00% | 0.00% |
Expected volatility | 110.30% | 127.10% |
Expected life of options (Year) | 5 years | 5 years |
Note 13 - Equity Incentive Plans - Weighted Average Grant Date Fair Value Activity (Details) - $ / shares |
9 Months Ended | |
---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Stock options granted during the period (in dollars per share) | $ 0.23 | $ 0.19 |
Stock options vested during the period (in dollars per share) | 0.20 | 0.20 |
Stock options forfeited during the period (in dollars per share) | $ 0.19 | $ 0.13 |
Note 13 - Equity Incentive Plans - Status of Non-vested Shares (Details) - $ / shares |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Shares underlying stock options (in shares) | 1,870,000 | 4,875,000 |
Weighted average grant date fair value (in dollars per share) | $ 0.24 | $ 0.21 |
Note 14 - Subsequent Events (Details Textual) - USD ($) |
1 Months Ended | 9 Months Ended | 12 Months Ended |
---|---|---|---|
Nov. 12, 2018 |
Sep. 30, 2018 |
Dec. 31, 2017 |
|
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period | 200,000 | 300,000 | |
Subsequent Event [Member] | |||
Repayments of Lines of Credit | $ 900,000 | ||
Subsequent Event [Member] | Chief Operating Officer [Member] | |||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period | 34,175 |
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