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 March 31, 2012
[ ] 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. |
(Exact name of registrant as specified in its Charter) |
| |
| |
Delaware | 11-3349762 |
(State or other jurisdiction of Incorporation or organization) | (IRS Employer Identification Number) |
| |
2101 W. Commercial Blvd. Suite 3500, Ft. Lauderdale, FL | 33309 |
Address of principal executive offices | Zip Code |
| |
954.473.1254 |
(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 [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 [X] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting 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 | [√] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The number of shares outstanding of each of the issuer’s classes of common equity as of May 10, 2012: 86,481,495 common stock $.001 par value.
TABLE OF CONTENTS TO THE QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2012
| | |
| | Page No. |
PART I. - FINANCIAL INFORMATION |
Item 1. | Financial Statements | 3 |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 36 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 48 |
Item 4 | Controls and Procedures | 48 |
PART II - OTHER INFORMATION |
Item 1. | Legal Proceedings | 49 |
Item 1A. | Risk Factors | 49 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 49 |
Item 3. | Defaults Upon Senior Securities | 49 |
Item 4. | Mine Safety Disclosures | 49 |
Item 5. | Other Information | 49 |
Item 6. | Exhibits | 49 |
SIGNATURES | 50 |
| |
Exhibit 31.1 | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – CEO Cornelis F. Wit* |
Exhibit 31.2 | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – CFO Ronald T. Linares* |
Exhibit 32.1 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 –Principal Executive Officer and Principal Financial Officer** |
Exhibit 101.INS | XBRL Instance Document*** |
Exhibit 101.SCH | XBRL Taxonomy Extension Schema Document*** |
Exhibit 101.CAL | XBRL Taxonomy Extension Calculation Document*** |
Exhibit 101.DEF | XBRL Taxonomy Extension Definition Document*** |
Exhibit 101.LAB | XBRL Taxonomy Extension Label Document*** |
Exhibit 101.PRE | XBRL Taxonomy Extension Presentation Document*** |
| |
* Filed herewith |
**Furnished herewith |
*** In accordance with Rule 406T of Regulation S-T, the information in Exhibit 101 is furnished and deemed not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Exchange Act of 1934, and otherwise is not subject to liability under these sections and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing. |
PART I. FINANCIAL INFORMATION
Item1. Financial Statements
OMNICOMM SYSTEMS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS
| | March 31, 2012 | | | December 31, 2011 | |
| | (unaudited) | | | | |
ASSETS | |
| | | | | | |
CURRENT ASSETS | | | | | | |
Cash | | $ | 714,140 | | | $ | 1,302,287 | |
Accounts receivable, net of allowance for doubtful accounts of $142,444 and $142,444, respectively | | | 1,718,241 | | | | 1,283,944 | |
Prepaid expenses | | | 137,003 | | | | 157,363 | |
Total current assets | | | 2,569,384 | | | | 2,743,594 | |
Property and equipment, net | | | 666,076 | | | | 766,207 | |
Other assets | | | | | | | | |
Intangible assets, net | | | 116,058 | | | | 232,117 | |
Other assets | | | 34,183 | | | | 33,669 | |
| | | | | | | | |
TOTAL ASSETS | | $ | 3,385,701 | | | $ | 3,775,587 | |
| | | | | | | | |
LIABILITIES AND SHAREHOLDERS' (DEFICIT) | |
| | | | | | | | |
CURRENT LIABILITIES | | | | | | | | |
Accounts payable and accrued expenses | | $ | 1,372,659 | | | $ | 1,460,835 | |
Notes payable, current portion | | | 646,286 | | | | 214,300 | |
Deferred revenue, current portion | | | 4,579,580 | | | | 4,293,316 | |
Convertible notes payable, current portion | | | 75,000 | | | | 75,000 | |
Patent settlement liability, current portion | | | 962,500 | | | | 925,000 | |
Conversion feature liability, related parties | | | 1,600,037 | | | | 740,218 | |
Conversion feature liability | | | 39,298 | | | | 18,693 | |
Warrant liability, related parties | | | 3,173,954 | | | | 1,506,287 | |
Warrant liability | | | 283,246 | | | | 186,421 | |
Total current liabilities | | | 12,732,560 | | | | 9,420,070 | |
| | | | | | | | |
LONG TERM LIABILITIES | | | | | | | | |
Notes payable - long term, net of current portion | | | 137,500 | | | | 569,486 | |
Notes payable related parties, long term, net of discount of $1,013,239 and $1,132,144, respectively | | | 3,473,640 | | | | 3,354,735 | |
Deferred revenue, long term, net of current portion | | | 610,056 | | | | 584,608 | |
Convertible notes payable, related parties, net of current portion | | | 9,440,000 | | | | 9,440,000 | |
Convertible notes payable, net of current portion | | | 150,000 | | | | 150,000 | |
Patent settlement liability - long term, net of current portion | | | 1,399,906 | | | | 1,455,247 | |
| | | | | | | | |
TOTAL LIABILITIES | | | 27,943,662 | | | | 24,974,146 | |
| | | | | | | | |
COMMITMENTS AND CONTINGENCIES (See Note 11) | | | | | |
| | | | | | | | |
SHAREHOLDERS' (DEFICIT) | | | | | | | | |
Preferred stock, $0.001 par value, 10,000,000 shares authorized 3,722,500 shares undesignated | | | -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 A convertible preferred stock - 5,000,000 shares authorized, 4,125,224 and 4,125,224 issued and outstanding, respectively at $0.001 par value; liquidation preference $4,125,224 and $4,125,224, respectively | | | 4,125 | | | | 4,125 | |
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 - 250,000,000 shares authorized, 86,481,495 and 86,481,495 issued and outstanding, respectively, at $0.001 par value | | | 86,482 | | | | 86,482 | |
Additional paid in capital - preferred | | | 4,717,804 | | | | 4,717,804 | |
Additional paid in capital - common | | | 36,589,760 | | | | 36,572,099 | |
Accumulated other comprehensive (loss) | | | (52,492 | ) | | | (53,714 | ) |
Accumulated deficit | | | (65,903,890 | ) | | | (62,525,605 | ) |
| | | | | | | | |
TOTAL SHAREHOLDERS' (DEFICIT) | | | (24,557,961 | ) | | | (21,198,559 | ) |
| | | | | | | | |
TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) | | $ | 3,385,701 | | | $ | 3,775,587 | |
See accompanying summary of accounting policies and notes to unaudited consolidated financial statements
OMNICOMM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| | For the three months ended March 31, | |
| | 2012 | | | 2011 | |
Revenues | | $ | 3,533,638 | | | $ | 3,314,668 | |
Reimbursable revenues | | | 235,856 | | | | -0- | |
Total revenues | | | 3,769,494 | | | | 3,314,668 | |
| | | | | | | | |
Cost of goods sold | | | 690,711 | | | | 446,055 | |
Reimbursable expenses - cost of goods sold | | | 157,124 | | | | -0- | |
Cost of revenues | | | 847,835 | | | | 446,055 | |
| | | | | | | | |
Gross margin | | | 2,921,659 | | | | 2,868,613 | |
| | | | | | | | |
Operating expenses | | | | | | | | |
Salaries, benefits and related taxes | | | 2,128,244 | | | | 2,098,741 | |
Rent and occupancy expenses | | | 198,638 | | | | 225,037 | |
Consulting services | | | 62,346 | | | | 50,178 | |
Legal and professional fees | | | 104,038 | | | | 136,130 | |
Travel | | | 111,853 | | | | 120,508 | |
Telephone and internet | | | 35,082 | | | | 66,917 | |
Selling, general and administrative | | | 227,686 | | | | 285,967 | |
Depreciation expense | | | 118,399 | | | | 126,557 | |
Amortization expense | | | 116,059 | | | | 116,058 | |
Total operating expenses | | | 3,102,345 | | | | 3,226,093 | |
| | | | | | | | |
Operating loss | | | (180,686 | ) | | | (357,480 | ) |
| | | | | | | | |
Other income (expense) | | | | | | | | |
Interest expense | | | (30,645 | ) | | | (271,613 | ) |
Interest expense, related parties | | | (523,001 | ) | | | (358,990 | ) |
Interest income | | | 177 | | | | 388 | |
Change in derivative liabilities | | | (2,644,916 | ) | | | (2,910,570 | ) |
Other comprehensive income (loss) | | | 786 | | | | 4,342 | |
Loss before income taxes and preferred dividends | | | (3,378,285 | ) | | | (3,893,923 | ) |
Net loss | | | (3,378,285 | ) | | | (3,893,923 | ) |
Preferred stock dividends | | | | | | | | |
Preferred stock dividends in arrears | | | | | | | | |
Series A Preferred | | | (74,115 | ) | | | (50,720 | ) |
Total preferred stock dividends | | | (74,115 | ) | | | (50,720 | ) |
Net loss attributable to common stockholders | | $ | (3,452,400 | ) | | $ | (3,944,643 | ) |
| | | | | | | | |
Net loss per share | | | | | | | | |
Basic and diluted | | $ | (0.04 | ) | | $ | (0.05 | ) |
Weighted average number of shares outstanding | | | | | | | | |
Basic and diluted | | | 86,481,495 | | | | 86,081,495 | |
See accompanying summary of accounting policies and notes to unaudited consolidated financial statements
OMNICOMM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(unaudited)
| | For the three months ended March 31, | |
| | 2012 | | | 2011 | |
Net loss attributable to common stockholders | | $ | (3,452,400 | ) | | $ | (3,944,643 | ) |
Other comprehensive income (loss): | | | | | | | | |
Change in foreign currency translation adjustment | | | 1,222 | | | | (9,575 | ) |
| | | | | | | | |
Other comprehensive income (loss) | | | 1,222 | | | | (9,575 | ) |
| | | | | | | | |
Comprehensive loss | | $ | (3,451,178 | ) | | $ | (3,954,218 | ) |
See accompanying summary of accounting policies and notes to unaudited consolidated financial statements
OMNICOMM SYSTEMS, INC. AND SUBSIDIARIESFOR THE PERIOD JANUARY 1, 2011 TO MARCH 31, 2012
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' (DEFICIT)(unaudited)
| | Preferred Stock | | Common Stock | | | | | | | | | | | | | |
| | 5% Series A Convertible | | 8% Series B Convertible | | 8% Series C Convertible | | Series D Preferred Stock | | | | | | | | | | | | | | | | | | | | | |
| | | | $0.001 Par value | | | | $0.001 Par value | | | | $0.001 Par value | | | | $0.001 Par value | | | | | | $0.001 Par value | | | | | | | | Accumulated other comprehensive income | | | | | | | |
Balances at December 31, 2010 | | | 4,125,224 | | $ | 4,125 | | | -0- | | $ | -0- | | | -0- | | $ | -0- | | | 250,000 | | $ | 250 | | $ | 4,717,804 | | | 86,081,495 | | $ | 86,082 | | $ | 36,906,356 | | | $ | (59,001,262 | ) | | $ | (24,298 | ) | | $ | (503,086 | ) | | $ | (17,814,029 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Employee stock option expense | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 129,229 | | | | | | | | | | | | | | | | 129,229 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Treasury stock retired | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (503,086 | ) | | | | | | | | | | | 503,086 | | | | -0- | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (29,416 | ) | | | | | | | (29,416 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of common stock in lieu of salary | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 400,000 | | | 400 | | | 39,600 | | | | | | | | | | | | | | | | 40,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss for the year ended December 31, 2011 | | | -0- | | | -0- | | | -0- | | | -0- | | | -0- | | | -0- | | | -0- | | | -0- | | | -0- | | | -0- | | | -0- | | | -0- | | | | (3,524,343 | ) | | | -0- | | | | -0- | | | | (3,524,343 | ) |
| | | | | | | | | | | | | | �� | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances at December 31, 2011 | | | 4,125,224 | | | 4,125 | | | -0- | | | -0- | | | -0- | | | -0- | | | 250,000 | | | 250 | | | 4,717,804 | | | 86,481,495 | | | 86,482 | | | 36,572,099 | | | | (62,525,605 | ) | | | (53,714 | ) | | | -0- | | | | (21,198,559 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Employee stock option expense | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 17,661 | | | | | | | | | | | | | | | | 17,661 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 1,222 | | | | | | | | 1,222 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss for the three months ended March 31, 2012 | | | -0- | | | -0- | | | -0- | | | -0- | | | -0- | | | -0- | | | -0- | | | -0- | | | -0- | | | -0- | | | -0- | | | -0- | | | | (3,378,285 | ) | | | -0- | | | | -0- | | | | (3,378,285 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances at March 31, 2012 | | | 4,125,224 | | $ | 4,125 | | | -0- | | $ | -0- | | | -0- | | $ | -0- | | | 250,000 | | $ | 250 | | $ | 4,717,804 | | | 86,481,495 | | $ | 86,482 | | $ | 36,589,760 | | | $ | (65,903,890 | ) | | $ | (52,492 | ) | | $ | -0- | | | $ | (24,557,961 | ) |
See accompanying summary of accounting policies and notes to unaudited consolidated financial statements
OMNICOMM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| | For the three months ended March 31, | |
| | 2012 | | | 2011 | |
| | | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | |
Net loss | | $ | (3,378,285 | ) | | $ | (3,893,923 | ) |
Adjustment to reconcile net loss to net cash (used in) operating activities | | | | | |
Change in derivative liabilities | | | 2,644,916 | | | | 2,910,570 | |
Interest expense from derivative instruments | | | 118,905 | | | | 243,685 | |
Employee stock option expense | | | 17,661 | | | | 60,336 | |
Depreciation and amortization | | | 234,458 | | | | 242,615 | |
Changes in operating assets and liabilities | | | | | | | | |
Accounts receivable | | | (434,297 | ) | | | (134,139 | ) |
Prepaid expenses | | | 20,360 | | | | (44,831 | ) |
Other assets | | | (514 | ) | | | (1,149 | ) |
Accounts payable and accrued expenses | | | (88,177 | ) | | | (88,589 | ) |
Patent settlement liability | | | (17,841 | ) | | | (4,919 | ) |
Deferred revenue | | | 311,712 | | | | (98,190 | ) |
Net cash used in operating activities | | | (571,102 | ) | | | (808,534 | ) |
| | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | |
Purchase of property and equipment | | | (18,267 | ) | | | (44,179 | ) |
Net cash used in investing activities | | | (18,267 | ) | | | (44,179 | ) |
| | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | |
Repayments of notes payable | | | -0- | | | | (212,500 | ) |
Net cash provided by financing activities | | | -0- | | | | (212,500 | ) |
| | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | 1,222 | | | | (9,575 | ) |
Net decrease in cash and cash equivalent | | | (588,147 | ) | | | (1,074,788 | ) |
Cash and cash equivalents at beginning of period | | | 1,302,287 | | | | 1,213,397 | |
| | | | | | | | |
Cash and cash equivalents at end of period | | $ | 714,140 | | | $ | 138,609 | |
| | | | | | | | |
Supplemental disclosures of cash flow information: | | | | | | | | |
Cash paid during the period for: | | | | | | | | |
Income taxes | | $ | -0- | | | $ | -0- | |
Interest | | $ | 497,510 | | | $ | 395,352 | |
| | | | | | | | |
| | | | | | | | |
Non-cash transactions | | | | | | | | |
Notes payable issued in exchange for existing notes payable | | $ | -0- | | | $ | 3,004,379 | |
Notes payable issued for matured convertible note payable | | $ | -0- | | | $ | 1,200,000 | |
See accompanying summary of accounting policies and notes to unaudited consolidated financial statements
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND MARCH 31, 2011
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, clinical research organizations, and other clinical trial sponsors principally located in the United States and Europe. Our proprietary EDC software applications; TrialMaster®; TrialOne®; and eClinical Suite, allow clinical trial sponsors and investigative sites to securely collect, validate, transmit, and analyze clinical trial data.
Our ability to compete within the EDC industry is predicated on our ability to continue enhancing and broadening the scope of solutions offered through our EDC software and services. Our research and development (sometimes referred to as “R & D”) efforts are focused on developing new and complementary software solutions, as well as enhancing our existing software solutions through the addition of increased functionality. During the three month periods ended March 31, 2012 and March 31, 2011 we spent approximately $560,404 and $654,875, respectively, on research and development activities, which is primarily comprised of salaries to our developers and other R & D 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 2011 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.
ESTIMATES IN FINANCIAL STATEMENTS
The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes thereto. Significant estimates incorporated in our financial statements include the recorded allowance for doubtful accounts, the estimate of the appropriate amortization period of our intangible assets, the evaluation of whether our intangible assets have suffered any impairment, the allocation of revenues under multiple-element customer contracts, royalty-based patent liabilities, the value of derivatives associated with debt 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 2011 financial statements to conform to the 2012 presentation. These reclassifications did not have any effect on our net loss or shareholders’ deficit.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND MARCH 31, 2011
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company’s foreign subsidiaries are translated in accordance with ASC 830-30, Foreign Currency Matters—Translation of Financial Statements. The reporting currency for the Company is the U.S. dollar. The functional currencies of the Company’s subsidiaries, OmniComm Europe GmbH in Germany and OmniComm Ltd., in the United Kingdom, are the Euro and British Pound Sterling, respectively. Accordingly, the assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars using the exchange rate in effect at each balance sheet date. Revenue and expense accounts of the Company’s foreign subsidiaries are translated using an average rate of exchange during the period. Foreign currency translation adjustments are accumulated as a component of other comprehensive income (loss) as a separate component of stockholders’ equity. Gains and losses arising from transactions denominated in foreign currencies are primarily related to intercompany accounts that have been determined to be temporary in nature and accordingly, are recorded directly to the statement of operations. We record translation gains and losses in accumulated other comprehensive income as a component of stockholders’ equity. We recorded a translation gain of $1,222 for the three months ended March 31, 2012 and a translation loss of $9,575 for the three months ended March 31, 2011.
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 and eClinical Suite (the “EDC Software”). Service revenues are derived principally from the Company's delivery of the hosted solutions of its TrialMaster and eClinical Suite software products, and consulting services and customer support, including training, for all of the Company's products.
The Company recognizes revenues when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the product or service has been provided to the customer; (3) the collection of fees is probable; and (4) the amount of fees to be paid by the customer is fixed or determinable.
The Company operates in one reportable segment which is the delivery of EDC Software and services to clinical trial sponsors. The Company segregates its revenues based on the activity cycle used to generate its revenues. Accordingly, revenues are currently generated through four main activities. These activities include hosted applications, licensing, professional services and maintenance-related services.
Hosted Application Revenues
The Company offers its TrialMaster and eClinical Suite software products as hosted application solutions delivered through a standard Web-browser, with customer support and training services. The Company's TrialOne solution is presently available only on a licensed basis. To date, hosted applications revenues have been primarily related to TrialMaster.
Revenues resulting from TrialMaster and eClinical Suite application hosting services consist of three components of services for each clinical trial: the first component is comprised of application set up, including design of electronic case report forms and edit checks, installation and server configuration of the system. The second component involves application hosting and related support services as well as billable change orders which consist of amounts billed to customers for functionality changes made. The third stage involves services required to close out, or lock, the database for the clinical trial.
Fees charged and costs incurred for the trial system design, set up and implementation are amortized and recognized ratably over the estimated hosting period. Work performed outside the original scope of work is contracted for separately as an additional fee and is generally recognized ratably over the remaining term of the hosting period. Fees for the first and third stages of the service are billed based upon milestones. Revenues earned upon completion of a contractual milestone are deferred and recognized over the estimated remaining hosting period. Fees for application hosting and related services in the second stage are generally billed quarterly in advance. Revenues resulting from hosting services for the eClinical Suite products consist of installation and server configuration, application hosting and related support services. Services for this offering are generally charged as a fixed fee payable on a quarterly or annual basis. Revenues are recognized ratably over the period of the service.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND MARCH 31, 2011
Licensing Revenues
The Company's software license revenues are earned from the sale of off-the-shelf software. From time-to-time a client might require significant modification or customization subsequent to delivery to the customer. The Company generally enters into software term licenses for its EDC Software products with its customers for 3 to 5 year periods, although customers have entered into both longer and shorter term license agreements. These arrangements typically include multiple elements: software license, consulting services and customer support. The Company bills its customers in accordance with the terms of the underlying contract. Generally, the Company bills license fees in advance for each billing cycle of the license term which typically is either on a quarterly or annual basis. Payment terms are generally net 30 days.
In the past the Company has sold perpetual licenses for EDC Software products in certain situations to existing customers with the option to purchase customer support, and may in the future do so for new customers based on customer requirements or market conditions. The Company has established vendor specific objective evidence of fair value for the customer support. Accordingly, license revenues are recognized upon delivery of the software and when all other revenue recognition criteria are met. Customer support revenues are recognized ratably over the term of the underlying support arrangement. The Company generates customer support and maintenance revenues from its perpetual license customer base.
Professional Services
The Company may also enter into arrangements to provide consulting services separate from a license arrangement. In these situations, revenue is recognized on a time-and-materials basis. Professional services can be deemed to be as essential to the functionality of the software at inception and typically are for initial trial configuration, implementation planning, loading of software, building simple interfaces and running test data and documentation of procedures. Subsequent additions or extensions to license terms do not generally include additional professional services.
Maintenance Revenues
Maintenance includes telephone-based help desk support and software maintenance. The Company generally bundles customer support with the software license for the entire term of the arrangement. As a result, the Company generally recognizes revenues for both maintenance and software licenses ratably over the term of the software license and support arrangement. The Company allocates the revenues recognized for these arrangements to the different elements based on management's estimate of the relative fair value of each element. The Company generally invoices each of the elements based on separately quoted amounts and thus has a fairly accurate estimate of the relative fair values of each of the invoiced revenue elements.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND MARCH 31, 2011
The fees associated with each business activity for the three month periods ended March 31, 2012 and March 31, 2011, respectively are:
| | For the three months ended | |
Revenue Activity | | March 31, 2012 | | | March 31, 2011 | |
Set-up fees | | $ | 1,148,177 | | | $ | 755,555 | |
Change orders | | | 91,756 | | | | 77,881 | |
Maintenance | | | 1,315,647 | | | | 1,396,053 | |
Software licenses | | | 767,082 | | | | 819,054 | |
Professional services | | | 285,157 | | | | 97,007 | |
Hosting | | | 161,675 | | | | 169,118 | |
Total | | $ | 3,769,494 | | | $ | 3,314,668 | |
COST OF REVENUES
Cost of revenues primarily consists of costs related to hosting, maintaining and supporting the Company’s application suite and delivering professional services and support. These costs include salaries, benefits, bonuses and stock-based compensation for the Company’s professional services staffs. Cost of revenues also includes outside service provider costs. Cost of revenues 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 $142,444 as of March 31, 2012 and December 31, 2011, respectively.
The following table summarizes activity in the Company's allowance for doubtful accounts for the periods presented.
| | March 31, 2012 | | | December 31, 2011 | |
Beginning of period | | $ | 142,444 | | | $ | 269,869 | |
Bad debt expense | | | -0- | | | | (119,889 | ) |
Write-offs | | | -0- | | | | (7,536 | ) |
End of period | | $ | 142,444 | | | $ | 142,444 | |
CONCENTRATION OF CREDIT RISK
Cash and cash equivalents and restricted cash are deposited with major financial institutions and, at times, such balances with any one financial institution may be in excess of FDIC-insured limits. As of March 31, 2012, $186,600 in cash and cash equivalents were 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 and Europe. The Company is directly affected by the overall financial condition of the pharmaceutical, biotechnology and medical device industries and management believes that credit risk exists and that any credit risk the Company faces has been adequately reserved for as of March 31, 2012. The Company maintains an allowance for doubtful accounts based on accounts past due according to contractual terms and historical collection experience. Actual losses when incurred are charged to the allowance. The Company's losses related to collection of accounts receivable have consistently been within management's expectations. As of March 31, 2012, the Company believes no additional credit risk exists beyond the amounts provided for in our allowance for uncollectible accounts. The Company evaluates its allowance for uncollectable accounts on a monthly basis based on a specific review of receivable agings and the period that any receivables are beyond the standard payment terms. The Company does not require collateral from its customers in order to mitigate credit risk.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND MARCH 31, 2011
One customer accounted for 17% of our revenues during the three month period ended March 31, 2012 or approximately $635,000 and one accounted for 16% or $602,879. One customer accounted for 17% of our revenues during the three month period ended March 31, 2011 or approximately $561,250 and one accounted for 15% or $495,608. The following table summarizes the number of customers who individually comprise greater than 10% of total revenue and/or total accounts receivable and their aggregate percentage of the Company's total revenue and gross accounts receivable for the three month periods presented.
| | Revenues | | | Accounts receivable | |
For the period ended | | Number of customers | | | Percentage of total revenues | | | Number of customers | | | Percentage of accounts receivable | |
March 31, 2012 | | | 2 | | | | 33% | | | | 3 | | | | 49% | |
December 31, 2011 | | | 1 | | | | 21% | | | | 3 | | | | 59% | |
March 31, 2011 | | | 2 | | | | 32% | | | | 2 | | | | 22% | |
Subsequent to two acquisitions completed in fiscal 2009, the Company’s European operations have become a more material portion of its overall revenues. The table below provides revenues from European customers for the three month periods ended March 31, 2012 and March 31, 2011, respectively.
European revenues | |
For the three months ended | |
March 31, 2012 | | | March 31, 2011 | |
European revenues | | | % of Total revenues | | European revenues | | | % of Total revenues | |
$ | 352,738 | | | | 9.4 | % | | $ | 913,910 | | | | 27.6 | % |
The Company serves all of its hosting customers from third-party web hosting facilities located in the United States. The Company does not control the operation of these facilities, and they are vulnerable to damage or interruption. The Company maintains redundant systems that can be used to provide service in the event the third-party web hosting facilities become unavailable, although in such circumstances, the Company's service may be interrupted during the transition.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Additions and betterments are capitalized; maintenance and repairs are expensed as incurred. Depreciation is calculated using the straight-line method over the asset’s estimated useful life, which is 5 years for leasehold improvements, computers, equipment and furniture and 3 years for software. Gains or losses on disposal are charged to operations.
ASSET IMPAIRMENT
Acquisitions and Intangible Assets
We account for acquisitions in accordance with ASC 805, Business Combinations (“ASC 805”) and ASC 350, Intangibles- Goodwill and Other (“ASC 350”). The acquisition method of accounting requires that assets acquired and liabilities assumed be recorded at their fair values on the date of a business acquisition. Our consolidated financial statements and results of operations reflect an acquired business from the completion date of an acquisition.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND MARCH 31, 2011
The judgments that we make in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact net income in periods following an asset acquisition. We generally use either the income, cost or market approach to aid in our conclusions of such fair values and asset lives. The income approach presumes that the value of an asset can be estimated by the net economic benefit to be received over the life of the asset, discounted to present value. The cost approach presumes that an investor would pay no more for an asset than its replacement or reproduction cost. The market approach estimates value based on what other participants in the market have paid for reasonably similar assets. Although each valuation approach is considered in valuing the assets acquired, the approach ultimately selected is based on the characteristics of the asset and the availability of information.
Long-lived Assets
We review long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount and the asset’s residual value, if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available. We use quoted market prices when available and independent appraisals and management estimates of future operating cash flows, as appropriate, to determine fair value.
DEFERRED REVENUE
Deferred revenue represents cash advances received in excess of revenue earned on on-going contracts. Payment terms vary with each contract but may include an initial payment at the time the contract is executed, with future payments dependent upon the completion of certain contract phases or targeted milestones. In the event of contract cancellation, the Company is generally entitled to payment for all work performed through the point of cancellation. As of March 31, 2012, the Company had $5,189,636 in deferred revenues relating to contracts for services to be performed over periods ranging from 1 month to 5 years. The Company had $4,579,580 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 $74,489 and $81,429 for the three month periods ended March 31, 2012 and March 31, 2011, respectively and are included under selling, general and administrative expenses on our consolidated financial statements.
RESEARCH AND DEVELOPMENT EXPENSES
Software development costs are included in research and development and are expensed as incurred. ASC 985.20, Software Industry Costs of Software to Be Sold, Leased or Marketed, requires the capitalization of certain development costs of software to be sold once technological feasibility is established, which the Company defines as completion to the point of marketability. The capitalized cost is then amortized on a straight-line basis over the estimated product life. To date, the period between achieving technological feasibility and the general availability of such software has been short and software development costs qualifying for capitalization have been immaterial. Accordingly, the Company has not capitalized any software development costs under ASC 985.20. During the three month periods ended March 31, 2012 and March 31, 2011 we spent approximately $560,404 and $654,875 respectively, on research and 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 development costs are primarily included under Salaries, benefits and related taxes in our Statement of Operations.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND MARCH 31, 2011
EMPLOYEE EQUITY INCENTIVE PLANS
The OmniComm Systems, Inc. 2009 Equity Incentive Plan (the “2009 Plan”) was approved at our Annual Meeting of Shareholders on July 10, 2009. The 2009 Plan provides for the issuance of up to 7.5 million shares to employees, directors and key consultants in accordance with the terms of the 2009 Plan documents. The predecessor plan, the OmniComm Systems, Inc., 1998 Stock Incentive Plan (the “1998 Plan”) expired on December 31, 2008. The 1998 Plan provided for the issuance of up to 12.5 million shares in accordance with the terms of the 1998 Plan document. Each plan is more fully described in “Note 14, Employee Equity Incentive Plans.” The Company accounts for its employee equity incentive plans under ASC 718, Compensation – Stock Compensation which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions.
ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statements of operations. The Company currently uses the Black Scholes option pricing model to determine grant date fair value.
EARNINGS PER SHARE
The Company accounts for Earnings per Share using ASC 260 – Earnings per Share. Unlike diluted earnings per share, basic earnings per share excludes any dilutive effects of options, warrants, and convertible securities.
INCOME TAXES
The Company accounts for income taxes in accordance ASC 740, Income Taxes. ASC 740 has as its basic objective the recognition of current and deferred income tax assets and liabilities based upon all events that have been recognized in the financial statements as measured by the provisions of the enacted tax laws.
Valuation allowances are established when necessary to reduce deferred tax assets to the estimated amount to be realized. Income tax expense represents the tax payable for the current period and the change during the period in the deferred tax assets and liabilities.
IMPACT OF NEW ACCOUNTING STANDARDS
During fiscal 2012, we adopted the following new accounting pronouncements:
In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 amends ASC 820, Fair Value Measurements (“ASC 820”), providing a consistent definition and measurement of fair value, as well as similar disclosure requirements between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles, clarifies the application of existing fair value measurement and expands the ASC 820 disclosure requirements, particularly for Level 3 fair value measurements. Our adoption of these new provisions of ASU 2011-04 on January 1, 2012 did not have an impact on our consolidated financial statements.
In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 requires the presentation of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements. We adopted the provisions of ASU 2011-05 on January 1, 2012 and have elected to present two separate consecutive statements in our 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.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND MARCH 31, 2011
NOTE 3: GOING CONCERN
We have experienced net losses and negative cash flows from operations and have utilized debt and equity financings to help provide for our working capital, capital expenditure and R&D needs. We will continue to require substantial funds to continue our research and 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 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; 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 the research and development programs relating to our technology can be conducted at projected costs and that progress towards the commercialization of our technology will be timely and successful. There can be no assurance that changes in our research and development plans, acquisitions or other events will not result in accelerated or unexpected expenditures.
To satisfy our capital requirements, we may seek 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 and marketing programs. If we are successful in obtaining additional financings, the terms of such financings may have the effect of diluting or adversely affecting the holdings or the rights of the holders of our common and preferred stock or result in increased interest expense in future periods.
The ability of the Company to continue in existence is dependent on its having sufficient financial resources to bring products and services to market for marketplace acceptance. As a result of our historical operating losses, negative cash flows and accumulated deficits for the period ending March 31, 2012 there is substantial doubt about the Company’s ability to continue as a going concern.
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 4 EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share were calculated using the weighted average number of shares outstanding of 86,481,495 and 86,081,495 for the three month periods ended March 31, 2012 and March 31, 2011, respectively.
Antidilutive shares aggregating 87,167,175 and 91,676,777 have been omitted from the calculation of dilutive earnings (loss) per share for the three month periods ended March 31, 2012 and March 31, 2011, respectively, as the shares were antidilutive. Provided below is the reconciliation between numerators and denominators of the basic and diluted earnings per shares: There were no differences between basic and diluted earnings per share. The table below provides a reconciliation of anti-dilutive securities outstanding as of March 31, 2012 and March 31, 2011, respectively.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND MARCH 31, 2011
| Anti-dilutive security | | March 31, 2012 | | | March 31, 2011 | |
Preferred stock | | | | 2,750,149 | | | | 2,750,149 | |
Employee stock options | | | | 11,093,000 | | | | 11,557,000 | |
Warrants | | | | 48,274,288 | | | | 52,195,758 | |
Convertible notes | | | | 24,620,000 | | | | 24,620,000 | |
Shares issuable for accrued interest | | | | 429,738 | | | | 553,870 | |
Total | | | | 87,167,175 | | | | 91,676,777 | |
The employee stock options are exercisable at prices ranging from $0.045 to $0.69 per share. The exercise price on the stock warrants range from $0.25 to $0.60 per share. Shares issuable upon conversion of Convertible Debentures have conversion prices ranging from $0.25 to $0.50 per share.
The Company’s convertible debt and convertible preferred stock have an anti-dilutive effect on net income (loss) per share and were not included in the computation of diluted earnings per share.
For the three months ended | |
| | March 31, 2012 | | | March 31, 2011 | |
| | Income (loss) | | | Shares | | | Per-share | | | Income (loss) | | | Shares | | | Per-share | |
| | numerator | | | denominator | | | amount | | | numerator | | | denominator | | | amount | |
Basic EPS | | $ | (3,452,400 | ) | | | 86,481,495 | | | $ | (0.04 | ) | | $ | (3,944,643 | ) | | | 86,081,495 | | | $ | (0.05 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Effect of dilutive securities | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
None | | | -0- | | | | -0- | | | | -0- | | | | -0- | | | | -0- | | | | -0- | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Diluted EPS | | $ | (3,452,400 | ) | | | 86,481,495 | | | $ | (0.04 | ) | | $ | (3,944,643 | ) | | | 86,081,495 | | | $ | (0.05 | ) |
NOTE 5: PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following:
| | March 31, 2012 | | | December 31, 2011 | | |
| | Cost | | | Accumulated depreciation | | | Net book value | | | Cost | | | Accumulated depreciation | | | Net book value | | Estimated useful life |
Computer & office equipment | | $ | 1,570,581 | | | $ | 1,143,940 | | | $ | 426,641 | | | $ | 1,550,907 | | | $ | 1,094,152 | | | $ | 456,755 | | 5 Years |
Leasehold improvements | | | 75,476 | | | | 62,609 | | | | 12,867 | | | | 75,476 | | | | 60,785 | | | | 14,691 | | 5 Years |
Computer software | | | 1,481,057 | | | | 1,277,603 | | | | 203,454 | | | | 1,477,539 | | | | 1,207,662 | | | | 269,877 | | 3 Years |
Office furniture | | | 107,804 | | | | 84,690 | | | | 23,114 | | | | 107,389 | | | | 82,505 | | | | 24,884 | | 5 Years |
Total | | $ | 3,234,918 | | | $ | 2,568,842 | | | $ | 666,076 | | | $ | 3,211,311 | | | $ | 2,445,104 | | | $ | 766,207 | | |
Depreciation expense for the three month periods ended March 31, 2012 and March 31, 2011 was $118,399 and $126,557, respectively.
NOTE 6: INTANGIBLE ASSETS, AT COST
Intangible assets consist of the following:
| | March 31, 2012 | | | December 31, 2011 | | |
Asset | | Cost | | | Accumulated amortization | | Net book value | | | Cost | | | Accumulated amortization | | Net book value | | Estimated useful life |
Customer lists | | $ | 1,392,701 | | | $ | 1,276,643 | | | $ | 116,058 | | | $ | 1,392,701 | | | $ | 1,160,584 | | | $ | 232,117 | | 3 Years |
| | $ | 1,392,701 | | | $ | 1,276,643 | | | $ | 116,058 | | | $ | 1,392,701 | | | $ | 1,160,584 | | | $ | 232,117 | | |
Amortization expense was $116,059 and $116,058 for the three month periods ended March 31, 2012 and March 31, 2011, respectively.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND MARCH 31, 2011
Remaining amortization expense for the Company’s intangible assets is as follows:
2012 | | $ | 116,058 | |
2013 | | | -0- | |
2014 | | | -0- | |
2015 | | | -0- | |
Total | | $ | 116,058 | |
NOTE 7: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
Account | | March 31, 2012 | | | December 31, 2011 | |
Accounts payable | | $ | 508,323 | | | $ | 672,516 | |
Accrued payroll and related costs | | | 308,946 | | | | 176,900 | |
Other accrued expenses | | | 76,787 | | | | 70,047 | |
Accrued interest | | | 478,603 | | | | 541,372 | |
Total accounts payable and accrued expenses | | $ | 1,372,659 | | | $ | 1,460,835 | |
NOTE 8: NOTES PAYABLE
At March 31, 2012, the Company owed $5,270,665 in notes payable all of which are unsecured. The table below provides details as to the terms and conditions of the notes payable.
| | | | | | | Ending | | | Non related party | | | Related party | |
Origination | | Maturity | | Interest | | | principal | | | | | | Long | | | | | | Long | |
date | | date | | rate | | | March 31, 2012 | | | Current | | | term | | | Current | | | term | |
12/31/2010 | | 7/1/2012 | | 12% | | | $ | 51,800 | | | $ | 51,800 | | | $ | -0- | | | $ | -0- | | | $ | -0- | |
12/31/2010 | | 7/1/2012 | | 12% | | | | 60,000 | | | | 60,000 | | | | -0- | | | | -0- | | | | -0- | |
2/1/2011 | | 4/1/2013 | | 12% | | | | 137,500 | | | | -0- | | | | 137,500 | | | | -0- | | | | -0- | |
4/1/2011 | | 10/1/2012 | | 12% | | | | 45,000 | | | | 45,000 | | | | -0- | | | | -0- | | | | -0- | |
12/31/2011 | | 4/1/2013 | | 12% | | | | 20,000 | | | | -0- | | | | -0- | | | | -0- | | | | 20,000 | |
12/31/2010 | | 4/1/2012 | | 12% | | | | 37,500 | | | | 37,500 | | | | -0- | | | | -0- | | | | -0- | |
12/16/2010 | | 12/16/2012 | | 12% | | | | 20,000 | | | | 20,000 | | | | -0- | | | | -0- | | | | -0- | |
12/31/2010 | | 1/1/2013 | | 10% | | | | 308,561 | | | | 308,561 | | | | -0- | | | | -0- | | | | -0- | |
12/31/2010 | | 1/1/2013 | | 10% | | | | 123,425 | | | | 123,425 | | | | -0- | | | | -0- | | | | -0- | |
3/31/2011 | | 4/1/2014 | | 12% | | | | 2,866,879 | | | | -0- | | | | -0- | | | | -0- | | | | 2,866,879 | |
12/31/2011 | | 1/1/2015 | | 12% | | | | 1,600,000 | | | | -0- | | | | -0- | | | | -0- | | | | 1,600,000 | |
Discount on note payable | | | | | | | | | | -0- | | | | -0- | | | | -0- | | | | (1,013,239 | ) |
Total | | | | | | | $ | 5,270,665 | | | $ | 646,286 | | | $ | 137,500 | | | $ | -0- | | | $ | 3,473,640 | |
At December 31, 2011, the company owed $5,270,665 in notes payable all of which are unsecured. The table below provides details as to the terms and conditions of the notes payable.
| | | | | | | Ending | | | Non related party | | | Related party | |
| | | | | | | principal December 31, 2011 | | | Current | | | | | | Current | | | | |
12/31/2010 | | 7/1/2012 | | 12% | | | $ | 51,800 | | | $ | 51,800 | | | $ | -0- | | | $ | -0- | | | $ | -0- | |
12/31/2010 | | 7/1/2012 | | 12% | | | | 60,000 | | | | 60,000 | | | | -0- | | | | -0- | | | | -0- | |
2/1/2011 | | 4/1/2013 | | 12% | | | | 137,500 | | | | -0- | | | | 137,500 | | | | -0- | | | | -0- | |
4/1/2011 | | 10/1/2012 | | 12% | | | | 45,000 | | | | 45,000 | | | | -0- | | | | -0- | | | | -0- | |
12/31/2011 | | 4/1/2013 | | 12% | | | | 20,000 | | | | -0- | | | | -0- | | | | -0- | | | | 20,000 | |
12/31/2010 | | 4/1/2012 | | 12% | | | | 37,500 | | | | 37,500 | | | | -0- | | | | -0- | | | | -0- | |
12/16/2010 | | 12/16/2012 | | 12% | | | | 20,000 | | | | 20,000 | | | | -0- | | | | -0- | | | | -0- | |
12/31/2010 | | 1/1/2013 | | 10% | | | | 308,561 | | | | -0- | | | | 308,561 | | | | -0- | | | | -0- | |
12/31/2010 | | 1/1/2013 | | 10% | | | | 123,425 | | | | -0- | | | | 123,425 | | | | -0- | | | | -0- | |
3/31/2011 | | 4/1/2014 | | 12% | | | | 2,866,879 | | | | -0- | | | | -0- | | | | -0- | | | | 2,866,879 | |
12/31/2011 | | 1/1/2015 | | 12% | | | | 1,600,000 | | | | -0- | | | | -0- | | | | -0- | | | | 1,600,000 | |
Discount on note payable | | | | | | | | | | -0- | | | | -0- | | | | -0- | | | | (1,132,144 | ) |
Total | | | | | | | $ | 5,270,665 | | | $ | 214,300 | | | $ | 569,486 | | | $ | -0- | | | $ | 3,354,735 | |
On March 31, 2011, the Company issued a note payable in the principal amount of $2,866,879 and warrants to purchase 11,467,517 shares of common stock of the Company at an exercise price of $0.25 per share with an expiration date of March 31, 2016 to our Chief Executive Officer and Director, Cornelis F. Wit. The note accrues interest at a rate of 12% per annum and has a maturity date of April 1, 2014. This issuance caused us to calculate and record a derivative liability for the warrant liability. The warrants were valued using the Black Scholes option pricing model. A value of $1,178,861 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 $1,688,018. The warrant liability (discount) will be amortized over the 36 month duration of the note payable. The Company will continue to perform a fair value calculation periodically on the warrant liability and accordingly the warrant liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is reflected in operations as an unrealized gain or loss on changes in derivative liabilities.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND MARCH 31, 2011
The Promissory Note replaced the following Promissory Notes that had been previously issued:
i. Promissory Note issued on April 13, 2010 for $450,000 with a maturity date of December 31, 2010.
ii. Promissory Note issued on June 29, 2010 for $115,000 with a maturity date of December 31, 2010.
iii. Promissory Note issued on September 30, 2010 for $695,000 with a maturity date of December 31, 2010.
iv. Promissory Note issued on December 31, 2010 for $1,197,500 with a maturity date of December 31, 2011.
v. Promissory Note issued on December 31, 2010 for $409,379 with a maturity date of April 01, 2012.
On May 13, 2011, the Company issued a note payable in the principal amount of $96,000 to our Chief Executive Officer and Director, Cornelis F. Wit. The note accrues interest at a rate of 12% per annum and has a maturity date of January 1, 2013. This note was consolidated on December 31, 2011 into a new note with a principal amount of $1,600,000.
On September 2, 2011, the Company issued a note payable in the principal amount of $50,000 to our Chief Executive Officer and Director, Cornelis F. Wit. The note bore interest at a rate of 12% per annum and had a maturity date of January 1, 2013. This note was repaid in full on September 7, 2011.
On September 30, 2011, the Company issued a promissory note in the principal amount of $342,000 to our Chief Executive Officer and Director, Cornelis F. Wit. The note carries an interest rate of 12% per annum and is due on April 1, 2014. The promissory note consolidates the principal amounts owed under the following promissory notes originally issued during 2011. This note was consolidated on December 31, 2011 into a new note with a principal amount of $1,600,000.
i. Promissory Note issued on August 16, 2011 for $80,000 with a maturity date of January 01, 2013.
ii. Promissory Note issued on August 19, 2011 for $15,000 with a maturity date of January 01, 2013.
iii. Promissory Note issued on August 25, 2011 for $35,000 with a maturity date of January 01, 2013.
iv. Promissory Note issued on September 02, 2011 for $32,000 with a maturity date of January 01, 2013.
v. Promissory Note issued on September 15, 2011 for $80,000 with a maturity date of January 01, 2013.
vi. Promissory Note issued on September 28, 2011 for $100,000 with a maturity date of January 01, 2013.
On October 5, 2011, the Company issued a note payable in the principal amount of $130,000 to our Chief Executive Officer and Director, Cornelis F. Wit. The note accrues interest at a rate of 12% per annum and had a maturity date of April 1, 2014. This note was consolidated on December 31, 2011 into a new note with a principal amount of $1,600,000.
On October 28, 2011, the Company issued a note payable in the principal amount of $123,000 to our Chief Executive Officer and Director, Cornelis F. Wit. The note accrues interest at a rate of 12% per annum and had a maturity date of April 1, 2014. This note was consolidated on December 31, 2011 into a new note with a principal amount of $1,600,000.
On October 31, 2011, the Company issued a note payable in the principal amount of $82,000 to our Chief Executive Officer and Director, Cornelis F. Wit. The note accrues interest at a rate of 12% per annum and had a maturity date of April 1, 2014. This note was consolidated on December 31, 2011 into a new note with a principal amount of $1,600,000.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND MARCH 31, 2011
On November 23, 2011, the Company issued a note payable in the principal amount of $60,000 to our Chief Executive Officer and Director, Cornelis F. Wit. The note accrues interest at a rate of 12% per annum and had a maturity date of January 1, 2013. This was note was consolidated on December 31, 2011 into a new note with a principal amount of $1,600,000.
On December 1, 2011, the Company issued a note payable in the principal amount of $150,000 to our Chief Executive Officer and Director, Cornelis F. Wit. The note bore interest at a rate of 12% per annum and had a maturity date of January 1, 2013. This note was repaid in full on December 27, 2011.
On December 31, 2011, the Company issued a promissory note in the principal amount of $1,600,000 and warrants to purchase 6,400,000 shares of common stock of the Company at an exercise price of $0.25 per share with an expiration date of December 31, 2015 to our Chief Executive Officer and Director, Cornelis F. Wit. The note carries an interest rate of 12% per annum and is due on January 1, 2015. The promissory note consolidates the amounts owed as detailed below:
i. Promissory Note issued on May 13, 2011 for $96,000 with a maturity date of January 01, 2013;
ii. Promissory Note issued on September 30, 2011 for $342,000 with a maturity date of April 01, 2014;
iii. Promissory Note issued on October 05, 2011 for $130,000 with a maturity date of April 01, 2014;
iv. Promissory Note issued on October 28, 2011 for $123,000 with a maturity date of April 01, 2014;
v. Promissory Note issued on October 31, 2011 for $82,000 with a maturity date of April 01, 2014;
vi. Promissory Note issued on November 23, 2011 for $60,000 with a maturity date of January 1, 2013; and
vii. Accrued and unpaid interest in the amount of $767,000.
This issuance caused us to calculate and record a derivative liability for the warrant liability. The warrants were valued using the Black Scholes option pricing model. A value of $247,999 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 $1,352,001. The warrant liability (discount) will be amortized over the 36 month duration of the note payable. The Company will continue to perform a fair value calculation periodically 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 9: CONVERTIBLE NOTES PAYABLE
The following table summarizes the convertible debt outstanding as of March 31, 2012.
| | | | | | | | | | | | | | | | | | | | | | | | | Carrying amount | |
| | | | | | | | | | Principal at | | | | | | Total | | | Discount at | | | Carrying amount at | | | Short term | | | Long term | |
| | | | | | | | | | | | | | | | discount amortized | | | March 31,2012 | | | March 31, 2012 | | | Related | | | Non related | | | Related | | | Non related | |
August 1, 1999 | | June 30, 2004 | | 10% | | | $ | 862,500 | | | $ | 75,000 | | | $ | -0- | | | $ | -0- | | | $ | -0- | | | $ | 75,000 | | | $ | -0- | | | $ | 75,000 | | | $ | -0- | | | $ | -0- | |
August 29, 2008 | | August 29, 2013 | | 10% | | | | 2,270,000 | | | | 1,920,000 | | | | 2,052,080 | | | | 2,052,080 | | | | -0- | | | | 1,920,000 | | | | -0- | | | | -0- | | | | 1,920,000 | | | | -0- | |
December 16, 2008 | | December 16, 2013 | | 12% | | | | 5,075,000 | | | | 4,980,000 | | | | 1,370,250 | | | | 1,370,250 | | | | -0- | | | | 4,980,000 | | | | -0- | | | | -0- | | | | 4,980,000 | | | | -0- | |
September 30, 2009 | | April 1, 2013 | | 12% | | | | 1,400,000 | | | | 1,200,000 | | | | 526,400 | | | | 526,400 | | | | -0- | | | | 1,200,000 | | | | -0- | | | | -0- | | | | 1,100,000 | | | | 100,000 | |
December 31, 2009 | | October 1, 2013 | | 12% | | | | 1,490,000 | | | | 1,490,000 | | | | 935,720 | | | | 935,720 | | | | -0- | | | | 1,490,000 | | | | -0- | | | | -0- | | | | 1,440,000 | | | | 50,000 | |
Total | | | | | | | $ | 11,097,500 | | | $ | 9,665,000 | | | $ | 4,884,450 | | | $ | 4,884,450 | | | $ | -0- | | | $ | 9,665,000 | | | $ | -0- | | | $ | 75,000 | | | $ | 9,440,000 | | | $ | 150,000 | |
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND MARCH 31, 2011
The following table summarizes the convertible debt outstanding as of December 31, 2011.
| | | | | | | | | | | | | | | | | | | | | Carrying | | | Carrying amount | |
| | | | | | | | | Principal at | | | | | | Total | | | Discount at | | | amount at | | | Short term | | | Long term | |
| | | | | | | | | | | | | | | | | | | | | December31, 2011 | | | Related | | | Non related | | | Related | | | Non related | |
August 1, 1999 | June 30, 2004 | | 10% | | | $ | 862,500 | | | $ | 75,000 | | | $ | -0- | | | $ | -0- | | | $ | -0- | | | $ | 75,000 | | | $ | -0- | | | $ | 75,000 | | | $ | -0- | | | $ | -0- | |
August 29, 2008 | August 29, 2013 | | 10% | | | | 2,270,000 | | | | 1,920,000 | | | | 2,052,080 | | | | 2,052,080 | | | | -0- | | | | 1,920,000 | | | | -0- | | | | -0- | | | | 1,920,000 | | | | -0- | |
December 16, 2008 | December 16, 2013 | | 12% | | | | 5,075,000 | | | | 4,980,000 | | | | 1,370,250 | | | | 1,370,250 | | | | -0- | | | | 4,980,000 | | | | -0- | | | | -0- | | | | 4,980,000 | | | | -0- | |
September 30, 2009 | April 1, 2013 | | 12% | | | | 1,400,000 | | | | 1,200,000 | | | | 526,400 | | | | 526,400 | | | | -0- | | | | 1,200,000 | | | | -0- | | | | -0- | | | | 1,100,000 | | | | 100,000 | |
December 31, 2009 | October 1, 2013 | | 12% | | | | 1,490,000 | | | | 1,490,000 | | | | 935,720 | | | | 935,720 | | | | -0- | | | | 1,490,000 | | | | -0- | | | | -0- | | | | 1,440,000 | | | | 50,000 | |
Total | | | | | | $ | 11,097,500 | | | $ | 9,665,000 | | | $ | 4,884,450 | | | $ | 4,884,450 | | | $ | -0- | | | $ | 9,665,000 | | | $ | -0- | | | $ | 75,000 | | | $ | 9,440,000 | | | $ | 150,000 | |
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 ten percent 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. As of March 31, 2012, approximately $787,500 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 $75,000. There was $96,598 of accrued interest at March 31, 2012.
Secured Convertible Debentures
On September 30, 2009, we 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 Chief Executive Officer. We 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 convertible notes until April 1, 2013, including $1,100,000 in convertible notes held by our Chief Executive Officer and Director, Cornelis F. Wit. The Company also extended the expiration date of the warrants associated with the September 2009 offering. The warrants are now exercisable until September 30, 2015 at an exercise price of $0.25 per share.
Convertible Debentures
On December 31, 2009, we sold an aggregate of $1,490,000 principal amount 12% Convertible Debentures (the “Debentures”) and common stock purchase warrants (the “Warrants”) to purchase an aggregate of 5,960,000 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 three accredited investors including our Chief Executive Officer. We received net proceeds of $1,490,000. The Debentures, which bear interest at 12% per annum, matured on June 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 September 30, 2011, the Company extended all $1,490,000 of the convertible notes until October 1, 2013, including $1,440,000 in convertible notes held by our Chief Executive Officer and Director, Cornelis F. Wit. The Company also extended the expiration date of the warrants associated with the December 2009 offering. The warrants are now exercisable until December 31, 2015 at an exercise price of $0.25 per share.
The payments required at maturity under the Company’s outstanding convertible debt at March 31, 2012 are as follows:
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND MARCH 31, 2011
2012 | | $ | 75,000 | |
2013 | | | 9,590,000 | |
2014 | | | -0- | |
2015 | | | -0- | |
2016 | | | -0- | |
Total | | $ | 9,665,000 | |
NOTE 10: FAIR VALUE MEASUREMENT
The Company measures the fair value of its assets and liabilities under the guidance of ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but its provisions apply to all other accounting pronouncements that require or permit fair value measurement.
ASC 820 clarifies that fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based on the highest and best use of the asset or liability. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. ASC 820 requires the Company to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:
| · | Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets; |
| · | Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly such as quoted 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 method |
| C. | Cost approach - Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost) |
The Company also adopted the provisions of ASC 825, Financial Instruments. ASC 825 allows companies to choose to measure eligible assets and liabilities at fair value with changes in value recognized in earnings. Fair value treatment may be elected either upon initial recognition of an eligible asset or liability or, for an existing asset or liability, if an event triggers a new basis of accounting. The Company did not elect to re-measure any of its existing financial assets or liabilities under the provisions of this Statement and did not elect the fair value option for any financial assets and liabilities transacted in the three month periods ended March 31, 2012 and March 31, 2011.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND MARCH 31, 2011
The Company’s financial assets or liabilities subject to ASC 820 as of March 31, 2012 include the conversion feature and warrant liability associated with convertible debentures issued during fiscal 2008 and 2009 and the warrants issued during 2011 that are associated with notes payable that were issued to our Chief Executive Officer and Director, Cornelis F. Wit. 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 9 – Convertible Notes Payable.
Following is a description of the valuation methodologies used to determine the fair value of the Company’s financial assets including the general classification of such instruments pursuant to the valuation hierarchy.
A summary of the fair value of liabilities measured at fair value on a recurring basis follows: | |
| | | | | | | | | | | | |
| | Fair value | | | Quoted prices in active markets for identical assets/ liabilities | | Significant other observable inputs | | Significant unobservable inputs | |
| | at March 31, 2012 | | (Level 1) | | | (Level 2) | | | (Level 3) | |
| | | | | | | | | | | | |
Derivatives: (1) (2) | | | | | | | | | | | | |
Conversion feature liability | | $ | 1,639,335 | | | $ | -0- | | | $ | -0- | | | $ | 1,639,335 | |
Warrant liability | | | 3,457,200 | | | | -0- | | | | -0- | | | | 3,457,200 | |
Total of derivative liabilties | | $ | 5,096,535 | | | $ | -0- | | | $ | -0- | | | $ | 5,096,535 | |
| | | | | | | | | | | | | | | | |
(1) The fair value of the derivative instruments was estimated using the Black Scholes option pricing model with the following assumptions for the three months ended March 31, 2012 | |
(2) The fair value at the measurement date is equal to their carrying value on the balance sheet | |
Significant valuation assumptions of derivative instruments at March 31, 2012 |
Risk free interest rate | | | 0.16% to 0.38% |
Dividend yield | | | 0.00% | |
Expected volatility | | | 191.2% to 262.2% | |
Expected life (range in years) | | | | |
Conversion feature liability | | | 1.00 to 1.71 | |
Warrant liability | | | 0.19 to 4.00 | |
A summary of the fair value of liabilities measured at fair value on a recurring basis follows: | |
| | | | | | | | | | | | |
| | Fair value at December 31, | | | Quoted prices in active markets for identical assets/ liabilities | | Significant other observable inputs | | Significant unobservable inputs | |
| | 2011 | | | (Level 1) | | | (Level 2) | | | (Level 3) | |
| | | | | | | | | | | | |
Derivatives: (1) (2) | | | | | | | | | | | | |
Conversion feature liability | | $ | 758,911 | | | $ | -0- | | | $ | -0- | | | $ | 758,911 | |
Warrant liability | | | 1,692,708 | | | | -0- | | | | -0- | | | | 1,692,708 | |
Total of derivative liabilties | | $ | 2,451,619 | | | $ | -0- | | | $ | -0- | | | $ | 2,451,619 | |
| | | | | | | | | | | | | | | | |
(1) The fair value of the derivative instruments was estimated using the Black Scholes option pricing model with the following assumptions for the year ended December 31, 2011 | |
(2) The fair value at the measurement date is equal to their carrying value on the balance sheet | |
Significant valuation assumptions of derivative instruments at December 31, 2011 | |
Risk free interest rate | | 0.11% to 0.39% | |
Dividend yield | | 0.00 | |
Expected volatility | | 179.7% to 261.0% | |
Expected life (range in years) | | | |
Conversion feature liability | | 1.25 to 1.96 | |
Warrant liability | | 0.16 to 4.25 | |
| | Other income | |
| | for the three months ended | |
| | March 31, 2012 | | | March 31, 2011 | |
The net amount of total gains/(losses) for the period included in earnings attributable to the unrealized gain or loss from changes in derivative liabilities at the reporting date | | $ | (2,644,916 | ) | | $ | (2,910,570 | ) |
| | | | | | | | |
Total unrealized gains/(losses) included in earnings | | $ | (2,644,916 | ) | | $ | (2,910,570 | ) |
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 periods ended March 31, 2012 and December 31, 2011. The tables reflect changes for all financial liabilities at fair value categorized as Level 3 as of March 31, 2012 and December 31, 2011.
| | Level 3 financial assets and financial liabilities at fair value | |
| | | | | Net realized gains/(losses) | | | Net unrealized (gains)/losses relating to instruments still held at the reporting date | | | | | | Net transfers in and/or out of Level 3 | | | | |
Three months ended March 31, 2012 | | | | | | | | | | | | | | | | |
Derivatives: | | | | | | | | | | | | | | | | | | |
Conversion feature liability | | $ | 758,911 | | | $ | -0- | | | $ | 880,424 | | | $ | -0- | | | $ | -0- | | | $ | 1,639,335 | |
Warrant liability | | | 1,692,708 | | | | -0- | | | | 1,764,492 | | | | -0- | | | | -0- | | | | 3,457,200 | |
Total of derivative liabilities | | $ | 2,451,619 | | | $ | -0- | | | $ | 2,644,916 | | | $ | -0- | | | $ | -0- | | | $ | 5,096,535 | |
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND MARCH 31, 2011
| | Level 3 financial assets and financial liabilities at fair value | |
| | | | | Net realized gains/(losses) | | | Net unrealized (gains)/losses relating to instruments still held at the reporting date | | | | | | Net transfers in and/or out of Level 3 | | | | |
Year ended December 31, 2011 | | | | | | | | | | | | | | | | | | |
Derivatives: | | | | | | | | | | | | | | | | | | |
Conversion feature liability | | $ | 92,206 | | | $ | -0- | | | $ | 666,705 | | | $ | -0- | | | $ | -0- | | | $ | 758,911 | |
Warrant liability | | | 261,148 | | | | -0- | | | | 4,700 | | | | 1,426,860 | | | | -0- | | | | 1,692,708 | |
Total of derivative liabilties | | $ | 353,354 | | | $ | -0- | | | $ | 671,405 | | | $ | 1,426,860 | | | $ | -0- | | | $ | 2,451,619 | |
NOTE 11: COMMITMENTS AND CONTINGENCIES
The Company currently leases office space under operating leases for its office locations and has several operating leases related to server and network co-location and disaster recovery for its operations. The minimum future lease payments required under the Company’s operating leases at March 31, 2012 are as follows:
2012 | | $ | 279,615 | |
2013 | | | 194,738 | |
2014 | | | 189,760 | |
2015 | | | 197,350 | |
2016 | | | 152,409 | |
Total | | $ | 1,013,872 | |
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 $198,638 and $225,037 for the three month periods ended March 31, 2012 and March 31, 2011, respectively.
The Company’s corporate office lease expires in September 2016. The Company’s lease on its New Jersey field office expires in February 2013. The Company currently operates its wholly-owned subsidiary, OmniComm Ltd., in the United Kingdom under the terms of a lease that expires in October 2012. The Company currently operates its wholly-owned subsidiary, OmniComm Europe, GmbH, in Germany under the terms of a lease that expires in December 2012. The Company is presently reviewing its options in relation to its office lease for the German office but believes that suitable office space is available at market rates similar to those it currently has.
LEGAL PROCEEDINGS
On November 24, 2010, Achyut Dhakal, a former employee, filed suit in the United States District Court for the Southern District of Fort Lauderdale, Florida, Miami Division, alleging racial and national discrimination, retaliation for a requested FMLA leave, retaliation under state whistleblower provisions and monies owed for overtime pay under the Fair Labor Standards Act (FLSA). The Company disagreed with the allegations and submitted its response on February 1, 2011. On March 3, 2011, the Company and Mr. Dhakal, subject to the terms agreed to during a court mandated settlement conference, entered into a Settlement Agreement and Full Release subject to mutual non-disclosure provisions. On March 3, 2011, the Court entered an Order of Dismissal with Prejudice approving the settlement.
On January 9, 2012, Simon Kemp, a former employee in the UK of our OmniComm Ltd. subsidiary, filed a claim with the Southampton Employment Tribunal alleging unfair dismissal, failure to provide a written statement of particulars of employment and breach of contract. The company disagrees with the allegations and filed a response with the Employment Tribunal in February 2012. This matter is ongoing and we are prepared to vigorously defend against the claim.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND MARCH 31, 2011
PATENT LITIGATION SETTLEMENT
On 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 license, we are obligated to pay royalties quarterly for sales of Licensed Products, as defined therein, from January 1, 2009 until the expiration of the Licensed Patent equal to two percent (2%) of OmniComm’s annual Gross Revenues or, alternatively, the annual minimum royalty payment(s), whichever is greater. The remaining minimum royalty payments per year are as follows:
| 2012 | | $ | 450,000 | |
| 2013 | | | 450,000 | |
| 2014 | | | 450,000 | |
| 2015 | | | 450,000 | |
| 2016 | | | 450,000 | |
| 2017 | | | 450,000 | |
| Total | | $ | 2,700,000 | |
During the three month periods ended March 31, 2012 and March 31, 2011 the Company recorded a charge to earnings of $57,157 and $60,169, respectively, which amounts represent (1) the amount of additional license expense incurred above the stipulated minimum in the DataSci License Agreement during the three month periods ended March 31, 2012 and March 31, 2011 and (2) the accretion of the difference between the total stipulated annual minimum royalty payments and the recorded present value accrual of the annual minimum royalty payments.
EMPLOYMENT AGREEMENTS
We have employment agreements in place with the following members of our executive management team:
Cornelis F. Wit, Chief Executive Officer
Randall G. Smith, Chief Technology Officer
Stephen E. Johnson, President and Chief Operating Officer
The agreements provide, among other things, for participation in employee benefits available to employees and executives. Each of the agreements will renew for successive one-year terms unless the agreement is expressly cancelled by either the employee or the Company ninety days prior to the end of the term. Under the terms of the agreement, we may terminate the employee’s employment upon 30 days notice of a material breach and the employee may terminate the agreement under the same terms and conditions. The employment agreements contain customary non-disclosure and severance provisions, as well as non-compete clauses.
In December 2011, we entered into a consulting agreement with Dr. Ronald T. Linares to serve as our Chief Financial Officer. The consulting agreement commences on January 1, 2012 and may be terminated by either party at any time and for any reason upon thirty (30) days prior written notice. The agreement also provides, among other things, for participation in employee benefit plans or programs applicable to employees and executives. The consulting agreement contains customary non-disclosure provisions, as well as a one year non-competition restriction following the termination of the agreement.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND MARCH 31, 2011
NOTE 12: RELATED PARTY TRANSACTIONS
Fernando Montero, a former member of our Board of Directors, is president, director and sole shareholder of Mentor Capital Corporation (“Mentor Capital”). Mentor Capital is the fund manager for Atlantic Balanced Fund (“ABF”) having voting and dispositive control of the shares in OmniComm Systems, Inc. held by ABF and therefore Mr. Montero may be deemed to beneficially own the shares held by ABF. Mr. Montero also has voting and dispositive control of the shares in OmniComm Systems, Inc. held by Atlantic Security Bank (“ASB”) and therefore may be deemed to beneficially own the shares held by ASB. Mr. Montero may be deemed to beneficially own an aggregate of 7,873,411 shares of the Common Stock (as described below), which constitute approximately 9.1% of the outstanding shares of our Common Stock.
On December 16, 2010, we issued a promissory note with a principal amount of $20,000 to our Chairman and Chief Technology Officer, Randall G. Smith. On December 31, 2011, the Company extended the promissory note that had matured on that date. The promissory note bears interest at 12% per annum with interest payable monthly. Mr. Smith extended the maturity date of his promissory note until April 1, 2013
As of March 31, 2012, we have an aggregate of $13,126,879 principal amount of convertible debentures and promissory notes outstanding to Cornelis Wit, our Chief Executive Officer and a director, and have issued certain warrants to Mr. Wit, as follows:
· | On February 14, 2008, $150,000 principal amount promissory note. This note was convertible at the option of the holder into any New Securities (“New Securities”) we issue before maturity of this promissory note on the same terms and conditions of the sale of the New Securities. This convertible note carried an interest rate of 10% per annum and was due on December 31, 2009. On December 16, 2008, Mr. Wit agreed to convert this convertible note into a private placement of convertible debentures, which convertible debentures were due on December 16, 2010. Mr. Wit waived his anti-dilution rights relating to the outstanding debenture and warrants issued in this transaction as part of the terms and conditions of a secured convertible debenture financing the Company completed in September 2009. In addition, Mr. Wit agreed to extend the maturity date of the convertible debenture he was issued by three years to December 16, 2013. |
· | On June 10, 2008, $210,000 principal amount convertible note and common stock purchase warrants to purchase an aggregate of 264,706 shares of our common stock. We received net proceeds of $210,000. This note was convertible at the option of the holder into any securities we issue (“New Securities”) before maturity of the convertible debenture on the same terms and conditions of the sale of the New Securities. This convertible debenture, which carried an interest rate of 10% per annum, was due on June 10, 2009. On August 29, 2008, Mr. Wit agreed to convert this convertible debenture into a private placement of convertible debentures that originally matured on August 29, 2010. Mr. Wit waived his anti-dilution rights relating to the outstanding debenture and warrants issued in this transaction as part of the terms and conditions of a secured convertible debenture financing the Company completed in September 2009. In addition, Mr. Wit agreed to extend the maturity date of convertible debenture he was issued by three years to August 29, 2013. |
· | On June 10, 2008, $300,000 principal amount convertible note. This note was convertible at the option of the holder into any New Securities (“New Securities”) we issue before maturity of this promissory note on the same terms and conditions of the sale of the New Securities. This convertible note carried an interest rate of 10% per annum and was originally due on June 30, 2010. On August 29, 2008, Mr. Wit agreed to convert this convertible note into a private placement of convertible debentures, which convertible debentures that originally matured on August 29, 2010. Mr. Wit waived his anti-dilution rights relating to the outstanding debenture and warrants issued in this transaction as part of the terms and conditions of a secured convertible debenture financing the Company completed in September 2009. In addition, Mr. Wit agreed to extend the maturity date of convertible debenture he was issued by three years to August 29, 2013. |
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND MARCH 31, 2011
· | During August 2008, $1,260,000 principal amount convertible note that is part of a private placement of Convertible Debentures that originally matured in August 29, 2010. Mr. Wit waived his anti-dilution rights relating to the outstanding debenture and warrants issued in this transaction as part of the terms and conditions of a Secured Convertible Debenture financing the Company completed in September 2009. In addition, Mr. Wit agreed to extend the maturity date of convertible debenture he was issued by three years to August 29, 2013. |
· | From September 2008 to December 2008, $4,200,000 principal amount convertible notes. These notes were convertible at the option of the holder into any New Securities (“New Securities”) we issue before maturity of the Convertible Note on the same terms and conditions of the sale of the New Securities. These convertible notes carried an interest rate of 12% per annum and were due on December 31, 2009. On December 16, 2008, Mr. Wit agreed to convert these convertible notes into a private placement of convertible debentures, which convertible debentures originally matured on December 16, 2010. Mr. Wit waived his anti-dilution rights relating to the outstanding debenture and warrants issued in this transaction as part of the terms and conditions of a secured convertible debenture financing the Company completed in September 2009. In addition, Mr. Wit agreed to extend the maturity date of convertible debenture he was issued by three years to December 16, 2013. |
· | From July 2009 to September 2009, Mr. Wit invested $1,100,000 which amount was aggregated under the terms of one convertible note dated September 30, 2009. This note was convertible at the option of the holder into any new securities we issue before maturity of this promissory note on the same terms and conditions of the sale of any new securities issued. This convertible note carried an interest rate of 12% per annum and was due on December 31, 2009. On September 30, 2009, Mr. Wit agreed to convert this Convertible Note into a private placement of secured convertible debentures bearing interest at a rate of 12% per annum, which Secured Convertible Debentures were due on March 30, 2011 which were convertible into 4,400,000 shares of common stock and received 4,400,000 warrants to purchase common stock of the Company. On March 30, 2011, Mr. Wit extended the maturity date of his convertible note until April 1, 2013 in accordance with the terms of Amendment Number One To Securities Purchase Agreement. The Company also extended the expiration date of the 4,400,000 warrants issued with convertible note by two years to September 30, 2015. |
· | From October 2009 to December 2009, Mr. Wit invested $1,440,000 which amount was aggregated under the terms of one convertible note dated December 31, 2009. This note was convertible at the option of the holder into any new securities we issued before the maturity of this promissory note on the same terms and conditions of the sale of any new securities issued. This convertible note carried an interest rate of 12% per annum and was due on December 31, 2009. On December 31, 2009, Mr. Wit agreed to convert this Convertible Note into a private placement of unsecured convertible debentures bearing interest at a rate of 12% per annum, which Convertible Debentures were due on June 30, 2011. Mr. Wit extended the maturity date of his convertible note until October 1, 2013 in accordance with the terms of Amendment Number One To Securities Purchase Agreement. The Company also extended the expiration date of the 5,760,000 warrants issued with convertible note by two years to December 31, 2015. |
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND MARCH 31, 2011
· | On September 30, 2010, $1,000,000 principal amount promissory note with a maturity date of December 31, 2011. This note carries an interest rate of 12% per annum. The promissory note was comprised of the following amounts received on the following dates: (i) principal amount of $50,000 received on July 6, 2010, (ii) principal amount of $65,000 received on July 14, 2010, (iii) principal amount of $175,000 received on July 15, 2010, (iv) principal amount of $140,000 received on July 30, 2010, (v) principal amount of $400,000 received on August 12, 2010, (vi) principal amount of $90,000 received on August 27, 2010, and (vii) principal amount of $80,000 received on August 31, 2010. On November 30, 2010, the note was converted by Mr. Wit into 250,000 shares of the Company’s Series D Preferred Stock. |
· | On April 13, 2010, $450,000 principal amount promissory note with a maturity date of December 31, 2011. This note carries an interest rate of 12% per annum and was consolidated on March 31, 2011 into a new note with a principal amount of $2,866,879. |
· | On June 29, 2010, $115,000 principal amount promissory note with a maturity date of December 31, 2011. This note carries an interest rate of 12% per annum and was consolidated on March 31, 2011 into a new note with a principal amount of $2,866,879. |
· | On September 30, 2010, $695,000 principal amount promissory note with a maturity date of December 31, 2011. This note carries an interest rate of 12% per annum. The promissory note was comprised of the following amounts received on the following dates: (i) principal amount of $120,000 received on August 31, 2010, (ii) principal amount of $50,000 received on September 7, 2010, (iii) principal amount of $200,000 received on September 15, 2010, (iv) principal amount of $90,000 received on September 22, 2010, (v) principal amount of $200,000 received on September 29, 2010, and (vi) principal amount of $35,000 received on September 30, 2010. This note was consolidated on March 31, 2011 into a new note with a principal amount of $2,866,879. |
· | On December 31, 2010, $1,197,500 principal amount promissory note with a maturity date of December 31, 2011. The note carries an interest rate of 12% per annum. The promissory note is comprised of the following amounts received on the following dates: (i) principal amount of $150,000 received on October 15, 2010, (ii) principal amount of $140,000 received on October 26, 2010, (iii) principal amount of $200,000 received on October 28, 2010, (iv) principal amount of $43,500 received on November 2, 2010, (v) principal amount of $200,000 received on November 10, 2010, (vi) principal amount of $32,000 received on November 22, 2010, (vii) principal amount of $37,000 received on November 29, 2010, (viii) principal amount of $160,000 received on November 30, 2010, (ix) principal amount of $25,000 received on December 2, 2010, (x) principal amount of $50,000 received on December 8, 2010, (xi) principal amount of $10,000 received on December 9, 2010, (xii) principal amount of $40,000 received on December 15, 2010, and (xiii) principal amount of $110,000 received on December 16, 2010. This note was consolidated on March 31, 2011 into a new note with a principal amount of $2,866,879. |
· | On December 31, 2010, $409,379 principal amount promissory note with a maturity date of April 1, 2012. The note carries and interest rate of 12% per annum. The note is comprised of accrued and unpaid interest owed as of December 31, 2010 on various notes held by Mr. Wit that were converted into the principal amount owed under this note payable. This note was consolidated on March 31, 2011 into a new note with a principal amount of $2,866,879. |
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND MARCH 31, 2011
· | On March 31, 2011, the Company issued a note payable in the principal amount of $2,866,879 and warrants to purchase 11,467,517 shares of common stock of the Company at an exercise price of $0.25 per share with an expiration date of March 31, 2016 to our Chief Executive Officer and Director, Cornelis F. Wit. The note accrues interest at a rate of 12% per annum and has a maturity date of April 1, 2014. The Promissory Note replaced the following Promissory Notes that had been previously issued: |
i. | Promissory Note issued on April 13, 2010 for $450,000 with a maturity date of December 31, 2011. |
ii. | Promissory Note issued on June 29, 2010 for $115,000 with a maturity date of December 31, 2011. |
iii. | Promissory Note issued on September 30, 2010 for $695,000 with a maturity date of December 31, 2011. |
iv. | Promissory Note issued on December 31, 2010 for $1,197,500 with a maturity date of December 31, 2011. |
v. | Promissory Note issued on December 31, 2010 for $409,379 with a maturity date of April 01, 2012. |
· | On May 13, 2011, the Company issued a note payable in the principal amount of $96,000 to our Chief Executive Officer and Director, Cornelis F. Wit. The note accrues interest at a rate of 12% per annum and has a maturity date of January 1, 2013. This note was consolidated on December 31, 2011 into a new note with a principal amount of $1,600,000. |
· | On September 2, 2011, the Company issued a note payable in the principal amount of $50,000 to our Chief Executive Officer and Director, Cornelis F. Wit. The note bore interest at a rate of 12% per annum and had a maturity date of January 1, 2013. This note was repaid in full on September 7, 2011. |
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND MARCH 31, 2011
· | On September 30, 2011, the Company issued a promissory note in the principal amount of $342,000 to our Chief Executive Officer and Director, Cornelis F. Wit. The note carries an interest rate of 12% per annum and is due on April 1, 2014. The promissory note consolidates the principal amounts owed under the following promissory notes originally issued during 2011. This note was consolidated on December 31, 2011 into a new note with a principal amount of $1,600,000. |
i. | Promissory Note issued on August 16, 2011 for $80,000 with a maturity date of January 01, 2013. |
ii. | Promissory Note issued on August 19, 2011 for $15,000 with a maturity date of January 01, 2013. |
iii. | Promissory Note issued on August 25, 2011 for $35,000 with a maturity date of January 01, 2013. |
iv. | Promissory Note issued on September 02, 2011 for $32,000 with a maturity date of January 01, 2013. |
v. | Promissory Note issued on September 15, 2011 for $80,000 with a maturity date of January 01, 2013. |
vi. | Promissory Note issued on September 28, 2011 for $100,000 with a maturity date of January 01, 2013. |
· | On October 5, 2011, the Company issued a note payable in the principal amount of $130,000 to our Chief Executive Officer and Director, Cornelis F. Wit. The note accrues interest at a rate of 12% per annum and had a maturity date of April 1, 2014. This note was consolidated on December 31, 2011 into a new note with a principal amount of $1,600,000. |
· | On October 28, 2011, the Company issued a note payable in the principal amount of $123,000 to our Chief Executive Officer and Director, Cornelis F. Wit. The note accrues interest at a rate of 12% per annum and had a maturity date of April 1, 2014. This note was consolidated on December 31, 2011 into a new note with a principal amount of $1,600,000. |
· | On October 31, 2011, the Company issued a note payable in the principal amount of $82,000 to our Chief Executive Officer and Director, Cornelis F. Wit. The note accrues interest at a rate of 12% per annum and had a maturity date of April 1, 2014. This note was consolidated on December 31, 2011 into a new note with a principal amount of $1,600,000. |
· | On November 23, 2011, the Company issued a note payable in the principal amount of $60,000 to our Chief Executive Officer and Director, Cornelis F. Wit. The note accrues interest at a rate of 12% per annum and had a maturity date of January 1, 2013. This note was consolidated on December 31, 2011 into a new note with a principal amount of $1,600,000. |
· | On December 1, 2011, the Company issued a note payable in the principal amount of $150,000 to our Chief Executive Officer and Director, Cornelis F. Wit. The note bore interest at a rate of 12% per annum and had a maturity date of January 1, 2013. This note was repaid in full on December 27, 2011. |
· | On December 31, 2011, the Company issued a promissory note in the principal amount of $1,600,000 and warrants to purchase 6,400,000 shares of common stock of the Company at an exercise price of $0.25 per share with an expiration date of December 31, 2015 to our Chief Executive Officer and Director, Cornelis F. Wit. The note carries an interest rate of 12% per annum and is due on January 1, 2015. The promissory note consolidates the amounts owed as detailed below: |
i. | Promissory Note issued on May 13, 2011 for $96,000 with a maturity date of January 01, 2013; |
ii. | Promissory Note issued on September 30, 2011 for $342,000 with a maturity date of April 01, 2014; |
iii. | Promissory Note issued on October 05, 2011 for $130,000 with a maturity date of April 01, 2014; |
iv. | Promissory Note issued on October 28, 2011 for $123,000 with a maturity date of April 01, 2014; |
v. | Promissory Note issued on October 31, 2011 for $82,000 with a maturity date of April 01, 2014; |
vi. | Promissory Note issued on November 23, 2011 for $60,000 with a maturity date of January 1, 2013; and |
vii. | Accrued and unpaid interest in the amount of $767,000. |
For the three months ended March 31, 2012 and March 31, 2011 we incurred $523,001, and $358,990, respectively, in interest expense payable to related parties.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND MARCH 31, 2011
NOTE 13: STOCKHOLDERS’ (DEFICIT)
Our authorized capital stock consists of 250,000,000 shares of common stock, $.001 par value per share, and 10,000,000 shares of preferred stock, par value $.001 per share, of which 5,000,000 shares have been designated as 5% Series A Preferred, 230,000 shares have been designated as Series B Preferred Stock, 747,500 shares have been designated as Series C Preferred Stock and 250,000 shares have been designated as Series D Preferred Stock.
As of March 31, 2012 we had the following outstanding securities:
| o | 86,481,495 shares of common stock issued and outstanding; |
| o | 48,274,288 warrants issued and outstanding to purchase shares of our common stock; |
| o | 4,125,224 shares of our Series A Preferred Stock issued and outstanding, |
| o | -0- shares of our Series B Preferred Stock issued and outstanding; |
| o | -0- shares of our Series C Preferred Stock issued and outstanding; |
| o | 250,000 Series D Preferred Stock issued and outstanding; and |
| o | $9,665,000 principal amount Convertible Debentures convertible into 24,560,000 shares of common stock. |
Common Stock
Holders of common stock are entitled to one vote for each share on all matters submitted to a stockholder vote. Holders of our voting securities do not have cumulative voting rights. Holders of common stock are entitled to share in all dividends that the Board of Directors, in its discretion, declares from legally available funds. In the event of our liquidation, dissolution or winding up, subject to the preferences of the Series A Preferred Stockholders, each outstanding share of common stock entitles its holder to participate in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock.
Holders of common stock have no conversion, preemptive or other subscription rights, and there are no redemption provisions for the common stock. The rights of the holders of common stock are subject to any rights that may be fixed for holders of preferred stock, when and if any preferred stock is outstanding. All outstanding shares of common stock are duly authorized, validly issued, fully paid and non-assessable.
Preferred stock
Our Board of Directors, without further stockholder approval, may issue preferred stock in one or more series from time to time and fix or alter the designations, relative rights, priorities, preferences, qualifications, limitations and restrictions of the shares of each series. In addition, the Board of Directors may fix and determine all privileges and rights of the authorized preferred stock series including:
o dividend and liquidation preferences,
o voting rights,
o conversion privileges, and
o redemption terms.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND MARCH 31, 2011
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 preferred dividends accreted for the three month periods ended March 31, 2012 and March 31, 2011, respectively, and the per share effect of the preferred dividends if their effect was not anti-dilutive.
| | Dividends accreted | | | Dividends per share | |
| | three months ended March 31, | | | three months ended March 31, | |
| | 2012 | | | 2011 | | | 2012 | | | 2011 | |
Preferred stock dividends in arrears Series A | | $ | 74,115 | | | $ | 50,720 | | | $ | 0.0180 | | | $ | 0.0125 | |
Preferred stock dividends in arrears Series B | | $ | -0- | | | $ | -0- | | | $ | 0.0000 | | | $ | 0.0000 | |
Preferred stock dividends in arrears Series C | | $ | -0- | | | $ | -0- | | | $ | 0.0000 | | | $ | 0.0000 | |
Warrants Issued for Services and in Capital Transactions
The following tables summarize all warrants issued to consultants and warrants issued as part of convertible debt transactions for the three month periods ended March 31, 2012 and March 31, 2011, and the related changes during these periods.
March 31, 2012 Warrants outstanding | | March 31, 2012 Warrants exercisable |
| | | Number outstanding at | Weighted average | | | Weighted average | Number exercisable at | Weighted average |
| Range of exercise price | | March 31, 2012 | | remaining contractual life | | | exercise price | | March 31, 2012 | | | exercise price |
$ | 0.25 – 0.60 | | 48,274,288 | | 2.07 | | $ | 0.36 | | 48,274,288 | | $ | 0.36 |
| | | | | | | | | | | | | |
December 31, 2011 Warrants outstanding | | December 31, 2011 Warrants exercisable |
| | | Number outstanding at | Weighted average | | | Weighted average | Number exercisable at | Weighted average |
| Range of exercise price | | December 31, 2011 | | remaining contractual life | | | exercise price | | December 31, 2011 | | | exercise price |
$ | 0.25 – 0.60 | | 58,595,758 | | 1.94 | | $ | 0.38 | | 58,595,758 | | $ | 0.38 |
Warrants | | | |
Balance at December 31, 2011 | | | 58,595,758 | |
Issued | | | -0- | |
Exercised | | | -0- | |
Expired/forfeited | | | (10,321,470 | ) |
Balance at March 31, 2012 | | | 48,274,288 | |
Warrants exercisable at March 31, 2012 | | | 48,274,288 | |
Weighted average fair value of warrants granted during 2012 | | | n/a | |
Other Comprehensive Gain (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 gain (loss). The following table lists the beginning balance, quarterly activity and ending balance of the components of accumulated other comprehensive gain (loss).
| | Foreign currency translation | | | Accumulated other comprehensive gain (loss) | |
Balance December 31, 2010 | | $ | (24,298 | ) | | $ | (24,298 | ) |
2011 Activity | | | (29,416 | ) | | | (29,416 | ) |
Balance at December 31, 2011 | | | (53,714 | ) | | | (53,714 | ) |
2012 Activity | | | 1,222 | | | | 1,222 | |
Balance at March 31, 2012 | | $ | (52,492 | ) | | $ | (52,492 | ) |
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND MARCH 31, 2011
NOTE 14: EMPLOYEE EQUITY INCENTIVE PLANS
Stock Option Plan
Description of 2009 Equity Incentive Plan
In 2009, the Company’s Board of Directors and shareholders approved the 2009 Equity Incentive Plan of OmniComm Systems, Inc. (the “2009 Plan”). The 2009 Plan provides for granting Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Phantom Stock Unit Awards and Performance Share Units. Pursuant to the 2009 Plan, 7,500,000 shares of the Company’s common stock are authorized for issuance.
The maximum term for any option grant under the 2009 Plan is ten years from the date of the grant; however, options granted under the 2009 Plan will generally expire five years from the date of grant for most employees, officers and directors of the Company. 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, occurs upon completion of one full year of employment from the date of grant and the second vesting occurs on the second anniversary of the employee’s employment. The vesting period typically begins on the date of hire for new employees and on the date of grant for existing employees.
As of March 31, 2012, there were 4,451,000 outstanding options that have been granted under the 2009 Plan. At March 31, 2012, there were 3,049,000 shares available for grant as options or other forms of share-based compensation under the 2009 Plan.
Description of 1998 Stock Incentive Plan
In 1998, the Company’s Board of Directors and shareholders approved the 1998 Stock Incentive Plan of OmniComm Systems, Inc. (the “1998 Plan”). The 1998 Plan provides for granting Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Phantom Stock Unit Awards and Performance Share Units. Pursuant to the 1998 Plan, 12,500,000 shares of the Company’s common stock were authorized for issuance. The 1998 Plan expired as of December 31, 2008. As of March 31, 2012, there were 6,642,000 outstanding options that have been granted under the 1998 Plan.
The following table summarizes the stock option activity for the Company’s equity incentive plans:
| | Number of shares | | | Weighted average exercise price (per share) | | | Weighted average remaining contractual term (in years) | | | Aggregate intrinsic value | |
| | | | | | | | | | | | |
Outstanding at December 31, 2010 | | | 11,822,000 | | | $ | 0.39 | | | | 3.21 | | | $ | -0- | |
Granted | | | 1,686,000 | | | | 0.12 | | | | | | | | | |
Exercised | | | -0- | | | | -0- | | | | | | | | | |
Forfeited/cancelled/expired | | | (2,350,000 | ) | | | 0.30 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding at December 31, 2011 | | | 11,158,000 | | | | 0.37 | | | | 2.52 | | | $ | -0- | |
Granted | | | -0- | | | | -0- | | | | | | | | | |
Exercised | | | -0- | | | | -0- | | | | | | | | | |
Forfeited/cancelled/expired | | | (65,000 | ) | | | 0.18 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding at March 31, 2012 | | | 11,093,000 | | | | 0.37 | | | | 2.26 | | | $ | 11,250 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Vested and exercisable at March 31, 2012 | | | 9,304,500 | | | $ | 0.42 | | | | 1.91 | | | $ | -0- | |
The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company’s closing stock price at fiscal year-end and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on March 31, 2012.
The total number of shares vested and the fair value of shares vested for the three month periods ended March 31, 2012 and March 31, 2011, respectively, was:
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND MARCH 31, 2011
| | Number of options vested | | | Fair value of options vested | |
Fair value of options vested during the three months ended March 31, 2012 | | | 25,000 | | | $ | 2,675 | |
Fair value of options vested during the three months ended March 31, 2011 | | | 662,500 | | | $ | 240,918 | |
Cash received from stock option exercises for the three month periods ended March 31, 2012 and March 31, 2011 was $-0- and $-0-, respectively. Due to the Company’s net loss position, no income tax benefit has been realized during the three month periods ended March 31, 2012 and March 31, 2011.
The following table summarizes information concerning options outstanding at March 31, 2012:
Awards breakdown by price range at March 31, 2012 | |
| | Outstanding | | | Vested | |
Strike price range ($) | | 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 to 0.20 | | | 3,311,000 | | | | 3.50 | | | $ | 0.15 | | | | 1,522,500 | | | | 2.77 | | | $ | 0.20 | |
0.21 to 0.29 | | | 2,785,000 | | | | 1.83 | | | | 0.26 | | | | 2,785,000 | | | | 1.83 | | | | 0.26 | |
0.30 to 0.49 | | | 875,000 | | | | 1.65 | | | | 0.45 | | | | 875,000 | | | | 1.65 | | | | 0.45 | |
0.50 to 0.70 | | | 4,122,000 | | | | 1.69 | | | | 0.60 | | | | 4,122,000 | | | | 1.69 | | | | 0.60 | |
0 to 0.70 | | | 11,093,000 | | | | 2.26 | | | $ | 0.37 | | | | 9,304,500 | | | | 1.91 | | | $ | 0.42 | |
The following table summarizes information concerning options outstanding at December 31, 2011:
Awards breakdown by price range at December 31, 2011 | |
| | 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 | | | 3,376,000 | | | | 3.75 | | | $ | 0.15 | | | | 1,547,500 | | | | 3.02 | | | $ | 0.20 | |
0.21 to 0.29 | | | 2,785,000 | | | | 2.08 | | | | 0.26 | | | | 2,785,000 | | | | 2.08 | | | | 0.26 | |
0.30 to 0.49 | | | 875,000 | | | | 1.90 | | | | 0.45 | | | | 875,000 | | | | 1.90 | | | | 0.45 | |
0.50 to 0.70 | | | 4,122,000 | | | | 1.94 | | | | 0.60 | | | | 4,122,000 | | | | 1.94 | | | | 0.60 | |
0.00 to 0.70 | | | 11,158,000 | | | | 2.52 | | | $ | 0.37 | | | | 9,329,500 | | | | 2.16 | | | $ | 0.42 | |
The weighted average fair value (per share) of options granted during the three month periods ended March 31, 2012, and March 31, 2011 using the Black Scholes option-pricing model was $ 0.00 as no options were granted during the periods.
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.
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND MARCH 31, 2011
The fair value of share-based payments for the three months ended March 31, 2012 and the three months ended March 31, 2011 was not calculated as no options were granted during either period.
| | Stock option assumptions for the three months ended | |
| | March 31, 2012 | | | March 31, 2011 | |
Stock option assumptions | | n/a | | | n/a | |
Risk-free interest rate | | n/a | | | n/a | |
Expected dividend yield | | n/a | | | n/a | |
Expected volatility | | n/a | | | n/a | |
Expected life of options (in years) | | n/a | | | n/a | |
The following table summarizes weighted average grant date fair value activity for the Company incentive stock plans:
| | Weighted average grant date fair value | |
| | 2012 | | | 2011 | |
Stock options granted during the three month period ended March 31, | | | n/a | | | | n/a | |
| | | | | | | | |
Stock options vested during the three month period ended March 31, | | $ | 0.11 | | | $ | 0.36 | |
| | | | | | | | |
Stock options forfeited during the three month period ended March 31, | | $ | 0.10 | | | $ | 0.16 | |
A summary of the status of the Company’s non-vested shares underlying stock options as of March 31, 2012, and changes during the three month period ended March 31, 2012 is as follows:
| | Shares underlying stock options | | | Weighted average grant date fair value | |
Nonvested shares at January 1, 2012 | | | 1,828,500 | | | $ | 0.10 | |
| | | | | | | | |
Nonvested shares at March 31, 2012 | | | 1,788,500 | | | $ | 0.10 | |
As of March 31, 2012, approximately $107,723 of total unrecognized compensation cost related to unvested stock options is expected to be recognized over a weighted-average period of 1.81 years.
NOTE 15: INCOME TAXES
A reconciliation of income tax expense and the amount computed by applying the statutory federal income tax rate to the income before provision for income taxes is as follows:
| | March 31, 2012 | | | March 31, 2011 | |
Statutory rate applied to loss before income taxes | | $ | (1,301,373 | ) | | $ | (717,220 | ) |
Increase (decrease) in income taxes results from: | | | | | | | | |
Non deductible expenses | | | 1,076,797 | | | | 461,588 | |
Change in deferred assets | | | 21,508 | | | | 22,641 | |
Other | | | -0- | | | | -0- | |
Change in valuation allowance | | | 203,068 | | | | 232,991 | |
| | | | | | | | |
Income tax expense (benefit) | | $ | -0- | | | $ | -0- | |
OMNICOMM SYSTEMS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012 AND MARCH 31, 2011
The components of income tax expense (benefit) for the three month periods ended:
| | March 31, 2012 | | | March 31, 2011 | |
Current tax expense (benefit): | | | | | | |
Income tax at statutory rates | | $ | -0- | | | $ | -0- | |
Deferred tax expense (benefit): | | | | | | | | |
Bad debt allowance | | | -0- | | | | -0- | |
Operating loss carryforward | | | (224,576 | ) | | | (255,632 | ) |
Patent litigation settlement | | | 21,508 | | | | 22,641 | |
| | | (203,068 | ) | | | (232,991 | ) |
Valuation allowance | | | 203,068 | | | | 232,991 | |
Total tax expense (benefit) | | $ | -0- | | | $ | -0- | |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows:
| | March 31, 2012 | | | December 31, 2011 | |
Amortization of intangibles | | $ | 283,698 | | | $ | 283,698 | |
Bad debt allowance | | | 52,629 | | | | 52,629 | |
Patent litigation liability accrual | | | 447,383 | | | | 468,891 | |
Operating loss carryforwards | | | 17,144,632 | | | | 16,920,055 | |
Gross deferred tax assets | | | 17,928,342 | | | | 17,725,273 | |
| | | | | | | | |
Valuation allowance | | | (17,928,342 | ) | | | (17,725,273 | ) |
Net deferred tax asset | | $ | -0- | | | $ | -0- | |
The Company has net operating loss carryforwards (NOL) for income tax purposes of approximately $47,807,174. This loss is allowed to be offset against future income until the year 2032 when the NOL’s will expire. Other timing differences relate to depreciation and amortization for the stock acquisition of Education Navigator in 1998. The tax benefits relating to all timing differences have been fully reserved for in the valuation allowance account due to the substantial losses incurred through March 31, 2012. The change in the valuation allowance for the three month period ended March 31, 2012 was an increase of $203,068.
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 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. 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. 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, and other clinical trial sponsors worldwide. Our proprietary EDC software applications: TrialMaster®; TrialOne®; and eClinical Suite™ (the “eClinical Software Products”), allow clinical trial sponsors and investigative sites to securely collect, validate, transmit and analyze clinical trial data.
In 2012, the primary focus of our strategy includes:
| · | Stimulating demand by providing clinical trial sponsors with high value eClinical applications and services; |
| · | Continued emphasis on expanding our business model by offering our software solutions on a licensed basis in addition to our existing hosted-services solutions; |
| · | An emphasis on penetrating the Phase I trial market with our dedicated Phase I solution, TrialOne; |
| · | Expanding our penetration of the large pharmaceutical sponsor market; |
| · | Broadening our eClinical suite of services and software applications on an organic R & D basis and on a selective basis via the acquisition or licensing of complementary solutions; |
| · | Expanding our business development efforts in Europe to capitalize on our operational and clinical capabilities vis-à-vis our competition in that geographic market; |
| · | Providing our services to small and midsize pharmaceutical, biotechnology, medical device companies and CROs; and |
| · | Emphasizing low operating costs. |
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. During 2011, we increased our marketing and sales personnel both in the U.S. and European markets and expanded the scope of our CRO Preferred Program in order to increase our penetration of the domestic CRO market. The CRO Preferred Program offers fixed pricing and pay-as-you-go hosted services. Additionally, we believe we have established an effective presence in the European clinical trial market by expanding the number of clients we service in the European market after the acquisition of the EDC assets of eResearch Technology, Inc., (“eRT” or “eResearch Technologies”). We will seek to aggressively expand the scope of our sales and marketing efforts both domestically and in Europe during 2012.
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 R & D 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 approximately $560,404 and $654,875 on R & D activities during the three months ended March 31, 2012 and March 31, 2011, respectively. The majority of these expenses represent salaries and related benefits to our developers which include costs associated with the customization of our EDC software applications for our clients’ projects. Our R&D team is comprised of software programmers, engineers and related support personnel.
Our selling efforts include marketing our products to several Fortune 1000 pharmaceutical and medical device manufacturers and several of the largest CROs. We have experienced, both via organic growth and through our 2009 acquisitions, success in broadening our client roster over the past several fiscal years. Continued success in broadening our existing client relationships and forging new relationships should provide us the opportunity to limit our need for funding our operations via debt and equity capital. Continuing to obtain contracts with clients of this size and reputation will also increase the credibility of the Company to the clinical trial market. We believe that strengthening our reputation and broadening the scope of our brand recognition will serve to improve the effectiveness of our sales and marketing efforts.
Our business development focus continues to include increasing our penetration of all phases of the clinical trial market with a particular emphasis on becoming the market leader in Phase I EDC services. We believe this market is an operating and strategic strength of the Company due to the inherent flexibility of our solutions including the solutions provided by our TrialOne products and services. We believe we have the ability to produce trials more quickly and economically than our competitors for this specialized and large market. During fiscal 2011, we emphasized commercializing our products on a licensed basis. During 2011 we experienced positive strides towards achieving this goal. We successfully increased the number of clients utilizing the software on a licensed basis as well as increasing the scope of licenses existing clients had deployed in our eClinical and TrialMaster product lines. In the first three months of 2012 we added two new clients to our base of installed licenses. We expect to experience increased success in penetrating the market for larger pharmaceutical, biotechnology and medical device clinical trial sponsors as we continue expanding our marketing and sales efforts during the remainder of 2012.
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. Additionally, we continue to focus on adding CROs as strategic and marketing partners. There is an industry-wide emphasis in establishing strategic relationships with CROs. These relationships provide marketing leverage in the form of joint marketing and sales efforts and provide an installed base of trained users for our EDC and eClinical software applications. This installed base of users increases our ability to provide rapidly developed, cost effective solutions for our clients. Additionally, we believe we have established an effective presence in the European clinical trial market and will seek to aggressively expand the scope of our sales and marketing operations there. The European market accounted for approximately 9% of total revenues for the three months ended March 31, 2012.
We feel that the momentum established from new client acquisitions and our ability to retain clients for repeat engagements provide a good operating base from which to build during the remainder of 2012. We have increased the marketing and business development budget for our TrialOne product during 2012 as we place increased emphasis on increasing our penetration of the Phase I market both in the U.S. and in Europe since we believe that segment of the EDC market is the least penetrated and allows for the greatest potential increases in market share and in sales volumes. 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 the number of industry tradeshows and conferences that we attend. 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 three months ended March 31, 2012 compared with the three months ended March 31, 2011
Results of Operations
A summarized version of our results of operations for the three months ended March 31, 2012 and March 31, 2011 is included in the table below.
| | Summarized Statement of Operations | | | | | | | |
| | For the three months ended | | | | | | | |
| | March 31, | | | | | | | |
| | | | | % of | | | | | | % of | | | $ | | | % | |
| | 2012 | | | Revenues | | | 2011 | | | Revenues | | | Change | | | Change | |
Total revenues | | $ | 3,769,494 | | | | | | $ | 3,314,668 | | | | | | $ | 454,826 | | | | 13.7 | % |
| | | | | | | | | | | | | | | | | | | | | | |
Cost of sales | | | 847,835 | | | | 22.5 | % | | | 446,055 | | | | 13.5 | % | | | 401,780 | | | | 90.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross margin | | | 2,921,659 | | | | 77.5 | % | | | 2,868,613 | | | | 86.5 | % | | | 53,046 | | | | 1.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Salaries, benefits and related taxes | | | 2,128,244 | | | | 56.5 | % | | | 2,098,741 | | | | 63.3 | % | | | 29,503 | | | | 1.4 | % |
Rent | | | 198,638 | | | | 5.3 | % | | | 225,037 | | | | 6.8 | % | | | (26,399 | ) | | | -11.7 | % |
Consulting | | | 62,346 | | | | 1.7 | % | | | 50,178 | | | | 1.5 | % | | | 12,168 | | | | 24.2 | % |
Legal and professional fees | | | 104,038 | | | | 2.8 | % | | | 136,130 | | | | 4.1 | % | | | (32,092 | ) | | | -23.6 | % |
Other expenses | | | 381,393 | | | | 10.1 | % | | | 430,040 | | | | 13.0 | % | | | (48,647 | ) | | | -11.3 | % |
Selling, general and administrative | | | 227,686 | | | | 6.0 | % | | | 285,967 | | | | 8.6 | % | | | (58,281 | ) | | | -20.4 | % |
Total operating expenses | | | 3,102,345 | | | | 82.3 | % | | | 3,226,093 | | | | 97.3 | % | | | (123,748 | ) | | | -3.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating loss | | | (180,686 | ) | | | -4.8 | % | | | (357,480 | ) | | | -10.8 | % | | | 176,794 | | | | -49.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense | | | (553,646 | ) | | | -14.7 | % | | | (630,603 | ) | | | 19.0 | % | | | 76,957 | | | | -12.2 | % |
Interest income | | | 177 | | | | 0.0 | % | | | 388 | | | | 0.0 | % | | | (211 | ) | | | -54.4 | % |
Other comprehensive income | | | 786 | | | | 0.0 | % | | | 4,342 | | | | 0.0 | % | | | (3,556 | ) | | | -81.9 | % |
Change in derivatives | | | (2,644,916 | ) | | | -70.2 | % | | | (2,910,570 | ) | | | -87.8 | % | | | 265,654 | | | | -9.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | (3,378,285 | ) | | | -89.6 | % | | | (3,893,923 | ) | | | -117.5 | % | | | 515,638 | | | | -13.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total preferred stock dividends | | | (74,115 | ) | | | 2.0 | % | | | (50,720 | ) | | | -1.5 | % | | | 23,395 | | | | 46.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net loss attributable to common stockholders | | $ | (3,452,400 | ) | | | -91.6 | % | | $ | (3,944,643 | ) | | | -119.0 | % | | $ | 492,243 | | | | -12.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net loss per share | | $ | (0.04 | ) | | | | | | $ | (0.05 | ) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average number of shares outstanding | | | 86,481,495 | | | | | | | | 86,081,495 | | | | | | | | | | | | | |
Revenues for the three months ended March 31, 2012 increased 13.7% as compared to the three months ended March 31, 2011. The table below provides a comparison of our recognized revenues for the three months ended March 31, 2012 and March 31, 2011.
| | For the three months ended | | | | | | | |
Revenue activity | | March 31, 2012 | | | March 31, 2011 | | | $ Change | | | % Change | |
Set-up fees | | $ | 1,148,177 | | | | 30.5 | % | | $ | 755,555 | | | | 22.8 | % | | $ | 392,622 | | | | 52.0 | % |
Change orders | | | 91,756 | | | | 2.4 | % | | | 77,881 | | | | 2.3 | % | | | 13,875 | | | | 17.8 | % |
Maintenance | | | 1,315,647 | | | | 34.9 | % | | | 1,396,053 | | | | 42.2 | % | | | (80,406 | ) | | | -5.8 | % |
Software licenses | | | 767,082 | | | | 20.3 | % | | | 819,054 | | | | 24.7 | % | | | (51,972 | ) | | | -6.3 | % |
Professional services | | | 285,157 | | | | 7.6 | % | | | 97,007 | | | | 2.9 | % | | | 188,150 | | | | 194.0 | % |
Hosting | | | 161,675 | | | | 4.3 | % | | | 169,118 | | | | 5.1 | % | | | (7,443 | ) | | | -4.4 | % |
Total | | $ | 3,769,494 | | | | 100.0 | % | | $ | 3,314,668 | | | | 100.0 | % | | $ | 454,826 | | | | 13.7 | % |
Overall Revenue increased by $454,826 or 13.7%. This is primarily the result of an increase in Set-up fees relating to the successful acquisition of new ASP contracts. Revenue from Set-up fees was $1,148,177 and $755,555 for the three months ended March 31, 2012 and March 31, 2011 respectively, a 52% increase.
We recorded revenue of $2,630,034, including $422,233 from licensing and $775,344 from maintenance associated with our TrialMaster suite during the three months ended March 31, 2012 compared with Revenue of $1,837,030 that included $221,295 in licensing revenues and $720,877 in maintenance revenues during the three months ended March 31, 2011. The increase in revenue is the result of maintaining and expanding our relationships with our existing clients while also expanding our installed client base with the addition of new clients.
We recorded $1,103,534 in revenues associated with clients using the eClinical software application suite (“eClinical”) during the three months ended March 31, 2012 compared with $915,633 for the three months ended March 31, 2011. eClinical revenues are primarily comprised of license subscriptions and revenues associated with our hosting and maintenance services.
We recorded $142,622 in revenues from hosting activities and $110,366 in consulting services associated with the eClinical suite during the three months ended March 31, 2012 compared with $131,692 from hosting activities and $64,411 from consulting activities for the three months ended March 31, 2011. Generally, these revenues are paid quarterly and are connected to hosting and client support for clients licensing that application. In addition we recorded $338,182 in from licensing relating to eClinical in the first three months of 2012 as compared to $121,269 for the first three months of 2011.
We recorded $34,606 in revenues associated with clients on our TrialOne EDC software for the three months ended March 31, 2012 compared with $562,005 for the three months ended March 31, 2011. Approximately $477,000 of the Q1 2011 revenue related to a one-time sale to a single client. We are continuing our efforts at commercializing and developing our sales and marketing campaign for the TrialOne application. We expect to significantly increase our participation in industry trade shows and conferences and are in the process of developing a dedicated sales force for the TrialOne software. TrialOne revenues are comprised of license subscriptions and maintenance services since the software is currently only sold under a technology transfer basis.
Our TrialMaster EDC application has historically been 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 (the “Acquired Software”). Both 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 both 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 Accounting Standards Codification 605 (“ASC 605”) “Revenue Recognition”, which requires that the revenues be recognized ratably over the life of the contract. 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 any licenses it sells of its software products to be sold in three to five year term licenses.
Our top five customers accounted for approximately 49.2% of our revenues during the three months ended March 31, 2012 and approximately 44.8% of our revenues during the three months ended March 31, 2011. One customer accounted for approximately 17% and another accounted for approximately 16% of our revenues during the three months ended March 31, 2012. One customer accounted for approximately 17% and another accounted for approximately 15% of our revenues during the three months ended March 31, 2011. The loss of any of these contracts or these customers in the future could adversely affect our results of operations.
Cost of goods sold increased approximately 90.1% or $401,780 for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011. Cost of goods sold were approximately 22.5% of revenues for the three months ended March 31, 2012 compared to approximately 13.5% for the three months ended March 31, 2011. Cost of goods sold relates primarily to salaries and related benefits associated with the programmers, developers and systems analysts producing clinical trials on behalf of our clients and the costs associated with pass-thru revenues. Cost of goods sold increased during the three months ended March 31, 2012 primarily due to an increase in volume relating to pass-thru expenses for a third-party service that is classified under cost of goods sold. The pass-thru revenue and expense primarily relate to specific work being performed for a single client. At this time we do not expect the volume of the pass-thru revenue and expense to grow significantly and therefore we do not expect any significant degradation of our gross margin. Although our experience to-date in licensing and deploying TrialMaster on a technology transfer or licensed basis has been limited, we expect our cost of goods sold related to these types of engagements to approximate 20% of revenues associated with those engagements.
We expect to increase development programming and support labor costs on an absolute basis as our trial revenues increase. We expect our cost of goods sold to return to the 20% to 22% range we have historically experienced as we expand the number of licenses we deploy and service since we expect cost of sales from licensed engagements to fall in the 20% range as that business model matures. We expect to continue to increase follow-on engagements from existing clients and expect to increase the phase I and CRO portions of our client base. At least initially, we expect the costs to deploy TrialOne to exceed our long-term estimates as we develop and refine our installation, validation, and training procedures.
Overall, total operating expenses decreased approximately 3.8% for the three months ended March 31, 2012 when compared to the three months ended March 31, 2011. The decrease in operating expenses can be attributed to our continued focus to maintain our cost structure in line with our revenue. Total operating expenses were approximately 82.3% of revenues during the three months ended March 31, 2012 compared to approximately 97.3% of revenues for the three months ended March 31, 2011.
Salaries and related expenses were our biggest operating expense at 68.6% of total operating expenses for the three months ended March 31, 2012 compared to 65.1% of total operating expenses for the three months ended March 31, 2011. Salaries and related expenses increased approximately 1.4% for the three months ended March 31, 2012 when compared to the same period that ended March 31, 2011. The increase in salary expense is related to the additional staff required to support our increased workload resulting from the successful acquisition of new business coupled with cost of living and merit increases that occurred during the 4th quarter of 2011. The table below provides a summary of the significant components of salary and related expenses by primary cost category.
| | For the three months ended | |
| | March 31, 2012 | | | March 31, 2011 | | | Change | | | % Change | |
OmniComm corporate operations | | $ | 1,663,043 | | | $ | 1,338,578 | | | $ | 324,465 | | | | 24.2 | % |
New Jersey operations office | | | 69,135 | | | | 279,742 | | | | (210,607 | ) | | | -75.3 | % |
OmniComm Europe, GmbH | | | 277,542 | | | | 256,412 | | | | 21,130 | | | | 8.2 | % |
OmniComm Ltd. | | | 100,863 | | | | 163,673 | | | | (62,810 | ) | | | -38.4 | % |
Employee stock option expense | | | 17,661 | | | | 60,336 | | | | (42,675 | ) | | | -70.7 | % |
Total salaries and related expenses | | $ | 2,128,244 | | | $ | 2,098,741 | | | $ | 29,503 | | | | 1.4 | % |
We currently employ approximately 53 employees out of our Ft. Lauderdale, Florida corporate office, seven employees out of our New Jersey regional operating office, nine out-of-state employees, seven employees out of a wholly-owned subsidiary in the United Kingdom and 21 employees out of a wholly-owned subsidiary in Bonn, Germany. We expect to continue to selectively add experienced sales and marketing personnel over the next six to nine months in an effort to increase our market penetration, particularly as it relates to the largest pharmaceutical, biotechnology and CRO customers and to continue broadening our client base domestically as well as in Europe. In addition we expect to increase R & D personnel as we continue our efforts to integrate an end-to-end solution comprised of our three primary eClinical solutions: TrialMaster, TrialOne and eClinical Suite.
During the three months ended March 31, 2012 and the three months ended March 31, 2011 we incurred $17,661 and $60,336, 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 decreased by approximately 11.7% during the three months ended March 31, 2012 when compared to the three months ended March 31, 2011. The table below details the significant portions of our rent expense. In particular, the decrease in 2012 is primarily associated with reductions in our co-location and disaster recovery facilities, German office and Corporate office rent expense offset by increases in our straight-line rent and our U.K. office rent expense. Our primary data site is located at a Cincinnati Bell owned 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 lease co-location and disaster recovery space in the Ft. Lauderdale, Florida area. This facility provides us with disaster recovery and business continuity services for our operations. This lease expires in August 2012. We currently lease office space in Bonn, Germany for our European subsidiary, OmniComm Europe, GmbH. That lease expires in December 2012. We currently lease office space for a regional operating office in New Jersey. The staff at this location is primarily focused on the integration of the eResearch EDC Assets. That lease expires in February 2013. Our OmniComm Ltd. subsidiary leases office space in Lymington, UK. That office lease expires in October 2012. In September 2010 we renewed our corporate office lease. That lease now extends through September 2016. The table below provides the significant components of our rent related expenses by location or subsidiary. Included in rent during the first three months of 2012 was a reduction in expense of $4,961 in non-cash, straight line rent recorded to give effect to contractual, inflation-based rent increases in our leases compared to a reduction in expense of $8,609 in the first quarter of 2011.
| | For the three months ended | |
| | March 31, 2012 | | | March 31, 2011 | | | Change | | | % Change | |
Corporate office | | $ | 74,070 | | | $ | 80,911 | | | $ | (6,841 | ) | | | -8.5 | % |
Co location and disaster recovery facilities | | | 73,869 | | | | 89,403 | | | | (15,534 | ) | | | -17.4 | % |
New Jersey operations office | | | 19,437 | | | | 19,159 | | | | 278 | | | | 1.5 | % |
OmniComm Europe, GmbH | | | 10,880 | | | | 21,995 | | | | (11,115 | ) | | | -50.5 | % |
OmniComm Ltd. | | | 25,343 | | | | 22,178 | | | | 3,165 | | | | 14.3 | % |
Straight-line rent expense | | | (4,961 | ) | | | (8,609 | ) | | | 3,648 | | | | -42.4 | % |
Total | | $ | 198,638 | | | $ | 225,037 | | | $ | (26,399 | ) | | | -11.7 | % |
Consulting services expense increased to $62,346 for the three months ended March 31, 2012 compared with $50,178 for the three months ended March 31, 2011, an increase of $12,168 or 24.2%. Consulting services were comprised of fees paid to consultants for help with developing our computer applications and for services related to our sales and marketing efforts. The table provided below provides the significant components of the expenses incurred related to consulting services. Consulting fees for Product Development were higher during the first three months of 2012 as we utilized the services of additional third-party sources for portions of our product development work.
| | For the three months ended | |
Expense Category | | March 31, 2012 | | | March 31, 2011 | | | Change | | | % Change | |
Sales and marketing | | $ | 2,643 | | | $ | 900 | | | $ | 1,743 | | | | 193.7 | % |
Product development | | | 59,703 | | | | 49,278 | | | | 10,425 | | | | 21.2 | % |
Total | | $ | 62,346 | | | $ | 50,178 | | | $ | 12,168 | | | | 24.2 | % |
Legal and professional fees decreased approximately 23.6% for the three months ended March 31, 2012 compared with the three months ended March 31, 2011. Professional fees include fees paid to our auditors for services rendered on a quarterly and annual basis in connection with our SEC filings 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. During 2012 legal and professional fees decreased primarily due to a decrease in Audit and Related expenses and decreases in Employment Related Legal Expenses relating to new and existing employees as well as Financial-Related Legal expenses. These decreases were partially offset by an increase in General Legal expense. The table below compares the significant components of our legal and professional fees for the three months ended March 31, 2012 and March 31, 2011, respectively.
| | For the three months ended | |
Expense Category | | March 31, 2012 | | | March 31, 2011 | | | Change | | | % Change | |
Audit and related | | $ | 30,600 | | | $ | 42,004 | | | $ | (11,404 | ) | | | -27.1 | % |
Accounting services | | | 47,003 | | | | 49,221 | | | | (2,218 | ) | | | -4.5 | % |
Miscellaneous | | | -0- | | | | 8,111 | | | | (8,111 | ) | | | -100.0 | % |
Legal- employment related | | | 10,879 | | | | 27,544 | | | | (16,665 | ) | | | -60.5 | % |
Legal- financial related | | | 725 | | | | 8,106 | | | | (7,381 | ) | | | -91.1 | % |
General legal | | | 14,831 | | | | 1,144 | | | | 13,687 | | | | 1196.4 | % |
Total | | $ | 104,038 | | | $ | 136,130 | | | $ | (32,092 | ) | | | -23.6 | % |
Selling, general and administrative expenses (“SGA”) decreased approximately 20.4% for the three months ended March 31, 2012 compared to the three months ended March 31, 2011. This decrease is primarily due to a decrease in our insurance expenses coupled with our continued focus to maintain our cost structure inline with our revenue. During the three months ended March 31, 2012 we recorded $57,157 in license fees associated with our license agreement with DataSci, LLC compared to $60,169 during the three months ended March 31, 2011. We recorded a license fee of $0.00 during the three months ended March 31, 2012 as compared to an expense of $2,629 for the three months ended March 31, 2011, relating to a license agreement with Logos Holdings, Ltd. relating to certain clients we acquired as part of our acquisition of Logos Technologies, Ltd. in August 2009. In addition, SGA expenses relate primarily to costs incurred in running our offices in Fort Lauderdale, FL, Monmouth Junction, New Jersey, Lymington, England and Bonn, Germany on a day-to-day basis and other costs not directly related to other captioned items in our income statement. SGA 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. In 2011 and 2010 the company spent approximately $250,000 per year on marketing, sales and advertising. We expect that the 2012 marketing, sales and advertising expenses will be in line with the prior years’ expenditures.
During the three month periods ended March 31, 2012 and March 31, 2011 respectively, we did not recognize any bad debt expense. During 2012 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 A/R. We believe that our current allowance for uncollectible accounts accurately reflects any accounts which may prove uncollectible during fiscal 2012.
Interest expense was $553,646 during the three months ended March 31, 2012 compared to $630,603 for the three months ended March 31, 2011, a decrease of $76,957. Interest incurred to related parties was $523,001 during the three months ended March 31, 2012 and $358,990 for the three months ended March 31, 2011. Included in interest expense for both periods is the accretion of discounts recorded related to financial instrument derivatives that were deemed a part of the financings we undertook in fiscal 2008 and 2009 and relating to warrants issued during 2011. The table below provides detail on the significant components of interest expense for the three months ended March 31, 2012 and March 31, 2011.
Interest expense | |
| | | | | | | | | |
| | For the three months ended | | | | |
Debt description | | March 31, 2012 | | | March 31, 2011 | | | Change $ | |
Accretion of discount from derivatives | | $ | 118,905 | | | $ | 243,685 | | | $ | (124,780 | ) |
August 2008 convertible notes | | | 47,868 | | | | 47,342 | | | | 526 | |
December 2008 convertible notes | | | 148,991 | | | | 147,353 | | | | 1,638 | |
Sept 2009 secured convertible debentures | | | 35,901 | | | | 41,359 | | | | (5,458 | ) |
Dec 2009 convertible debentures | | | 44,578 | | | | 44,088 | | | | 490 | |
General interest | | | 23,165 | | | | 17,638 | | | | 5,527 | |
Related party notes payable | | | 134,238 | | | | 89,138 | | | | 45,100 | |
Total | | $ | 553,646 | | | $ | 630,603 | | | $ | (76,957 | ) |
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 difficult 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 2011 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 fiscal 2008 and 2009. We recorded a net unrealized loss of $2,644,916 during the three months ended March 31, 2012 compared with a net unrealized loss of $2,910,570 during the three months ended March 31, 2011. 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 was issued. Accordingly the warrant and conversion feature liabilities are increased or decreased based on the fair value calculations made at each balance sheet date. These non-cash gains and losses have materially impacted our results of operations during the three months ended March 31, 2012 and March 31, 2011 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 OTC Bulletin Board. 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, in the future if we issue securities 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 Company recorded arrearages of $74,115 and $50,720 in its 5% Series A Preferred Stock dividends for the three month periods ended March 31, 2012, and March 31, 2011, respectively. As of March 31, 2012, the Company had cumulative arrearages for preferred stock dividends as follows:
Series of preferred stock | | Cumulative arrearage | |
| | | |
Series A | | $ | 2,018,776 | |
Series B | | | 609,904 | |
Series C | | | 1,469,593 | |
Total preferred stock arrearages | | $ | 4,098,273 | |
Liquidity and Capital Resources
Liquidity is the ability of a company to generate adequate amounts of cash to meet its 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. In addition, we have utilized stock-based compensation as a means of paying for consulting and salary related expenses. At March 31, 2012, we had working capital deficit of approximately $10,163,176.
The table provided below summarizes key measures of our liquidity and capital resources:
Liquidity and Capital Resources | |
| | | | | | | | | |
Summarized Balance Sheet Disclosure | |
| | March 31, 2012 | | | December 31, 2011 | | | Change | |
Cash | | $ | 714,140 | | | $ | 1,302,287 | | | $ | (588,147 | ) |
Accounts Receivable, net of allowance for doubtful accounts | | | 1,718,241 | | | | 1,283,944 | | | | 434,297 | |
Prepaids | | | 137,003 | | | | 157,363 | | | | (20,360 | ) |
Current Assets | | | 2,569,384 | | | | 2,743,594 | | | | (174,210 | ) |
| | | | | | | | | | | | |
Accounts Payable and accrued expenses | | | 1,372,659 | | | | 1,460,835 | | | | (88,176 | ) |
Notes payable, current portion | | | 646,286 | | | | 214,300 | | | | 431,986 | |
Patent litigation settlement liability, current portion | | | 962,500 | | | | 925,000 | | | | 37,500 | |
Deferred revenue, current portion | | | 4,579,580 | | | | 4,293,316 | | | | 286,264 | |
Convertible notes payable, current portion, net of discount | | | 75,000 | | | | 75,000 | | | | -0- | |
Conversion feature liability, related parties | | | 1,600,037 | | | | 740,218 | | | | 859,819 | |
Conversion feature liability | | | 39,298 | | | | 18,693 | | | | 20,605 | |
Warrant liability, related parties | | | 3,173,954 | | | | 1,506,287 | | | | 1,667,667 | |
Warrant liability | | | 283,246 | | | | 186,421 | | | | 96,825 | |
Current liabilities | | | 12,732,560 | | | | 9,420,070 | | | | 3,312,490 | |
| | | | | | | | | | | | |
Working Capital (Deficit) | | $ | (10,163,176 | ) | | $ | (6,676,476 | ) | | $ | (3,486,700 | ) |
| | | | | | | | | | | | |
Statement of Cash Flows Disclosure | |
| | | | | | | | | | | | |
| | March 31, 2012 | | | March 31, 2011 | | | | | |
Net cash used in operating activities | | $ | (571,102 | ) | | $ | (808,534 | ) | | | | |
Net cash used in investing activities | | | (18,267 | ) | | | (44,179 | ) | | | | |
Net cash provided by financing activities | | | -0- | | | | (212,500 | ) | | | | |
| | | | | | | | | | | | |
Net (decrease) in cash and cash equivalents | | | (588,147 | ) | | | (1,074,788 | ) | | | | |
| | | | | | | | | | | | |
Changes in working capital accounts | | | (208,757 | ) | | | (371,817 | ) | | | | |
| | | | | | | | | | | | |
Effect of non-cash transactions on cash and cash equivalents | | $ | 3,015,940 | | | $ | 3,457,206 | | | | | |
Cash and Cash Equivalents
Cash and cash equivalents decreased by $588,147 to $714,140 at March 31, 2012. The decrease is comprised of an operating loss of $3,378,285 and changes in working capital accounts of $208,756 offset by an increase from non-cash transactions of $3,015,939. During the three months ended March 31, 2012 we had investing activities comprised of purchases of property and equipment of $18,267 and we did not have any financing activities.
During 2011 our ability to collect on trade receivables improved as compared to fiscal 2009 and 2010. We saw decreased incidence of customers discontinuing operations and experienced a small amount of uncollectable receivables. Our expectation is that during the remainder of 2012 we will continue to see improved trade receivables collections and will not experience any material customer defaults.
In the past, the Company has through extending payments on trade payables managed to improve its working capital and cash position. Additionally, the amounts expended on payroll and operating expenses were decreased during fiscal 2011 in connection with a 2010 restructuring of our costs. The Company has experienced a commensurate decrease in payables and payroll related expenses and expects these trends to continue during fiscal 2012.
Capital Expenditures
We are not currently bound by any long or short-term agreements for the purchase or lease of 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 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 $550,000 planned for capital expenditures to further develop the Company’s infrastructure to allow for growth in our operations during the remainder of 2012. 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 during the next five years as of March 31, 2012:
Contractual obligations | | Payments due by period | |
| | | | | | | | | | | | | | | |
| | Total | | | Less than 1 year | | | 1-2 Years | | | 2-3 Years | | | 3-5 Years | |
Promissory notes (1) | | $ | 5,270,665 | | | $ | 646,286 | (2) | | $ | 157,500 | (3) | | $ | 4,466,879 | (4) | | $ | -0- | |
Convertible notes | | | 9,665,000 | | | | 75,000 | (5) | | | 9,590,000 | (6) | | | -0- | | | | -0- | |
Operating lease obligations (7) | | | 1,013,873 | | | | 337,056 | | | | 184,268 | | | | 191,639 | | | | 300,910 | |
Patent licensing fees (8) | | | 2,762,500 | | | | 962,500 | | | | 450,000 | | | | 450,000 | | | | 900,000 | |
Total | | $ | 18,712,038 | | | $ | 2,020,842 | | | $ | 10,381,768 | | | $ | 5,108,518 | | | $ | 1,200,910 | |
1. Amounts do not include interest to be paid. |
|
2. Includes $37,500 of 12% notes payable that mature in April 2012; $111,800 of notes payable that mature in July 2012; $45,000 of 12% notes payable that mature in October 2012, $20,000 of notes payable that mature in December 2012 and 431,986 of 12% notes payable that mature in January 2013. |
|
3. Includes $157,500 of 12% notes payable that mature in April 2013. |
|
4. Includes $2,866,879 of 12% notes payable that mature in April 2014 and $1,600,000 of 12% notes payable that mature in January 2015. |
|
5. Includes $75,000 of 10% convertible notes currently in default and due that are convertible into shares of common stock at the option of the holder at a conversion rate of $1.25 per share. |
|
6. Includes $1,200,000 of 12% Convertible Notes that mature in April 2013; $1,920,000 in 10% Convertible Notes that mature in August 2013; $1,490,000 in 12% Convertible Notes that mature in October 2013, and $4,980,000 in 12% Convertible Notes that mature in December 2013. |
|
7. Includes office lease obligations for our headquarters in Fort Lauderdale, our regional operating office in New Jersey, our R & D office in England, our European headquarters in Bonn, Germany and lease obligations for co-location and disaster recovery computer service centers in Cincinnati, Ohio and Fort Lauderdale, Florida. |
| | | | |
8. Relates to guaranteed minimum payments owed in connection with our settlement of a patent infringement lawsuit brought against the Company by DataSci, LLC. |
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
We are currently in arrears on principal and interest payments owed totaling $171,598 on our 10% Convertible Notes that were issued in 1998. We were in default effective January 30, 2002.
On February 1, 2011, the Company issued a promissory note payable totaling $137,500 in exchange for a promissory note payable in the same amount originally issued in fiscal 2008 with a maturity date in 2011. The promissory note bears interest at 12% and matures in April 2013.
On March 31, 2011, the Company issued a promissory note payable totaling $2,866,879 to our Chief Executive Officer in exchange for promissory notes totaling $2,866,879 that matured in 2011 and 2012. The new promissory note bears interest at 12% per annum and matures in April 2013.
On April 1, 2011, the Company issued a promissory note payable totaling $45,000 in exchange for outstanding professional fees. The promissory note bears interest at 12% and matures in October 2012.
On December 31, 2011, the Company issued a promissory note payable totaling $1,600,000 to our Chief Executive Officer in exchange for $833,000 in promissory notes that matured in 2013 and 2014 along with $767,000 in accrued interest outstanding. The new promissory note bears interest at 12% per annum and matures in January 2015.
On December 31, 2011, the Company issued a promissory note payable totaling $20,000 to our Chairman and Chief Technology Officer in exchange for a promissory note that matured in 2011. The new promissory note bears interest at 12% per annum and matures in April 2013.
During fiscal 2010, $111,800 in promissory notes originally issued in fiscal 2009 matured. The promissory notes were held by two long term investors and were extended to July 2012. The new promissory notes bear interest at 12% per annum.
During fiscal 2010, $70,000 in convertible notes originally issued in fiscal 2008 matured. The convertible notes were held by two senior managers of the Company. The convertible notes were extended utilizing promissory notes with $12,500 of the notes payable in January 2011, $37,500 payable in April 2012 and $20,000 payable in December 2012. The new promissory notes bear interest at 12% per annum.
During the next twelve months we expect debt in the aggregate amount of $721,286 to mature as follows: $75,000 of 10% convertible notes currently in default and due that are convertible into shares of common stock at the option of the debenture holder at a conversion rate of $1.25 per share; $37,500 of 12% notes payable that mature in April 2012; $111,800 of 12% notes payable that mature in July 2012; $45,000 of 12% notes payable that mature in October 2012; $20,000 of notes payable that mature in December 2012; and $431,986 of 12% notes payable that mature in January 2013.
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 sale of debt and 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 or short-term bridge loans, we do not have any additional sources of working capital.
We raised $1,600,000 and $2,886,879 in 2011 and 2010 respectively from promissory notes to our Chief Executive Officer. In addition, in 2011 we extended a $20,000 promissory note to our Chairman and Chief Technology Officer that was originally issued in 2010.
We may continue to require substantial funds to continue our research and 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 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 the research and 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 development plans or other events will not result in accelerated or unexpected expenditures.
During the second half of 2010, the Company made material changes to its cost structure including reducing commitments for financial advisory and product development consulting arrangements. We have looked closely at staffing costs and attempted to ensure that our overall salary levels are structured around the current and projected business development and contract levels expected for the next 12 months.
While the Company has 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 the holders of our common and preferred stock. Further, there can be no assurance that even if such additional capital is obtained or the 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 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.
Our ability to continue in existence is dependent on our having sufficient financial resources to bring products and services to market. As a result of our historical operating losses, negative cash flows and accumulated deficits for the periods ending March 31, 2012, there is substantial doubt about our ability to continue as a going concern. In addition, our auditors Webb & Company, P.A., included language which qualified their opinion regarding our ability to continue as a going concern in their report dated March 22, 2012 regarding our audited financial statements for the year ended December 31, 2011.
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 Consolidated Financial Statements describes the significant accounting policies used in the preparation of the 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 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 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.
DEFERRED REVENUE
Deferred revenue represents cash advances received in excess of revenue earned on on-going contracts. Payment terms vary with each contract but may include an initial payment at the time the contract is executed, with future payments dependent upon the completion of certain contract phases or targeted milestones. In the event of contract cancellation, the Company is generally entitled to payment for all work performed through the point of cancellation.
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; 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, for both financial statement and tax purposes in accordance with SEC Staff Accounting Bulletin No. 104 “Revenue Recognition in Financial Statements (SAB 104)” (Codified within Accounting Standards Codification (ASC) Revenue Recognition ASC 605) and AICPA Statement of Position 97-2 (SOP 97-2) “Software Revenue Recognition” as amended by SOP 98-9 (Codified within ASC 605.985, Software Industry Revenue Recognition). SAB 104 requires that revenues be recognized ratably over the life of a contract. The Company will periodically record deferred revenues relating to advance payments in contracts. Under its licensing arrangements the Company recognizes revenue pursuant to SOP 97-2. Under these arrangements the Company recognizes revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer and/or delivery has occurred; (3) the collection of fees is probable; and (4) the fee is fixed or determinable. SOP 97-2, as amended, requires revenue earned on software arrangements involving multiple elements to be allocated to each element based on the relative fair values of the elements. We have analyzed each element in our multiple element arrangements and determined that we have sufficient vendor-specific objective evidence (“VSOE”) to allocate revenues to license updates and product support. License revenues are recognized on delivery if the other conditions of SOP 97-2 are satisfied. License updates and product support revenue is recognized ratably over the term of the arrangement. In arrangements where term licenses are bundled with license updates and product support and such revenue is recognized ratably over the term of the arrangement, we allocate the revenue to license revenue and to license updates and product support revenue based on the VSOE of fair value for license updates and product support revenue on perpetual licenses of similar products.
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 Income. 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 three months of 2012, we adopted the following new accounting pronouncements:
In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 amends ASC 820, Fair Value Measurements (“ASC 820”), providing a consistent definition and measurement of fair value, as well as similar disclosure requirements between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles, clarifies the application of existing fair value measurement and expands the ASC 820 disclosure requirements, particularly for Level 3 fair value measurements. Our adoption of these new provisions of ASU 2011-04 on January 1, 2012 did not have an impact on our consolidated financial statements.
In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 requires the presentation of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements. We adopted the provisions of ASU 2011-05 on January 1, 2012 and have elected to present two separate consecutive statements in our 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, 2011 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 March 31, 2012, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as 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.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of OmniComm’s internal control over financial reporting as of March 31, 2012. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Based on the assessment using those criteria, management concluded that our internal control over financial reporting was effective as of March 31, 2012 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Changes in Internal Controls over Financial Reporting
There were no significant changes in the Company’s internal controls over financial reporting or in other factors that could significantly affect these controls over financial reporting that occurred subsequent to the date of their evaluation and up to the filing date of this quarterly report on Form 10-Q. There were no significant deficiencies or material weaknesses, and therefore there were no corrective actions taken.
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.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 1A. RISK FACTORS.
Not applicable for a smaller reporting company.
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.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS
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 | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, promulgated under the Securities and Exchange Act of 1934, as amended. |
31.2 | Certification of Principal Financial and Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, promulgated under the Securities and Exchange Act of 1934, as amended. |
32.1 | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002. |
101.INS* | XBRL Instance Document |
101.SCH* | XBRL Taxonomy Extension Schema Document |
101.CAL* | XBRL Taxonomy Extension Calculation |
101.DEF* | XBRL Taxonomy Extension Definition |
101.LAB* | XBRL Taxonomy Extension Label |
101.PRE* | XBRL Taxonomy Extension Presentation |
*** | In accordance with Rule 406T of Regulation S-T, the information in Exhibit 101 is furnished and deemed not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Exchange Act of 1934, and otherwise is not subject to liability under these sections and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing. |
SIGNATURES
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: May 10, 2012
| OMNICOMM SYSTEMS, INC. | |
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| By: | /s/Cornelis F. Wit | |
| Cornelis F Wit, Chief Executive Officer | |
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| By: | /s/Ronald T. Linares | |
| Ronald T. Linares, Chief Accounting and Financial Officer | |
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