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 June 30, 2019

[ ] 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

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, Fort 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)

Securities registered pursuant to Section 12(b) of the Act: None.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [√] No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes [√] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	[ ]	Accelerated filer	[ ]
Non-accelerated filer	[ ]	Smaller reporting company	[√]
		Emerging growth company	[ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [√]

The number of shares outstanding of each of the issuer’s classes of common equity as of August 13, 2019: 160,190,785 common stock $0.001 par value.

Table of Contents

Table of Contents to the Quarterly Report on Form 10-Q for the six month

period ended June 30, 2019

PART I. FINANCIAL INFORMATION	3
ITEM 1. FINANCIAL STATEMENTS	3
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	37
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	53
ITEM 4. CONTROLS AND PROCEDURES	53
PART II. OTHER INFORMATION	53
ITEM 1. LEGAL PROCEEDINGS	53
ITEM 1A. RISK FACTORS	53
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	53
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	54
ITEM 4. MINE SAFETY DISCLOSURES	54
ITEM 5. OTHER INFORMATION	54
ITEM 6. EXHIBITS	54
SIGNATURES	55

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

OMNICOMM SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2019			December 31, 2018
	(unaudited)
ASSETS

CURRENT ASSETS
Cash	$	1,110,409		$	1,440,524
Accounts receivable, net of allowance for doubtful accounts of $126,108 and $176,220, respectively		6,467,749			6,175,277
Prepaid expenses		342,050			384,212
Other current assets		(67	)		5,204
Total current assets		7,920,141			8,005,217
Property and equipment, net		1,446,604			1,360,315
Other assets
Intangible assets, net		555,435			730,835
Operating lease right-of-use assets		1,249,907			-0-
Other assets		81,320			131,847

TOTAL ASSETS	$	11,253,407		$	10,228,214

LIABILITIES AND SHAREHOLDERS' (DEFICIT)

CURRENT LIABILITIES
Accounts payable and accrued expenses	$	1,799,853		$	2,070,158
Line of credit		1,900,000			-0-
Notes payable, current portion, net of discount of $42,424 and $-0-, respectively		277,576			-0-
Deferred revenue, current portion		7,404,492			6,457,319
Capital lease liability, current portion		119,354			115,761
Conversion feature liability, related parties		1,526,170			670,634
Conversion feature liability		-0-			35,705
Warrant liability, related parties		1,451,674			601,781
Warrant liability		421,275			687,118
Operating lease liability, current portion		516,748			-0-
Total current liabilities		15,417,142			10,638,476

LONG TERM LIABILITIES
Line of credit, long term		-0-			2,900,000
Notes payable, long term, net of current portion, net of discount of $-0- and $123,184, respectively		-0-			434,316
Convertible notes payable, related parties, long term, net of current portion		5,770,000			5,770,000
Convertible notes payable, long term, net of current portion		-0-			200,000
Deferred revenue, long term, net of current portion		2,001,371			1,794,237
Capital lease liability, long term, net of current portion		114,140			175,089
Operating lease liability, long term, net of current portion		833,709			-0-

TOTAL LIABILITIES		24,136,362			21,912,118

COMMITMENTS AND CONTINGENCIES (See Note 11)

SHAREHOLDERS' (DEFICIT)
Preferred stock, $0.001 par value, 10,000,000 shares authorized, 3,772,500 shares undesignated
Series A convertible preferred stock, 5,000,000 shares authorized, -0- and -0- issued and outstanding, respectively, at $0.001 par value; liquidation preference $-0- and $-0-, respectively		-0-			-0-
Series B convertible preferred stock, 230,000 shares authorized, -0- and -0- issued and outstanding, respectively, at $0.001 par value; liquidation preference $-0- and $-0-, respectively		-0-			-0-
Series C convertible preferred stock, 747,500 shares authorized, -0- and -0- issued and outstanding, respectively, at $0.001 par value; liquidation preference $-0- and $-0-, respectively		-0-			-0-
Series D preferred stock, 250,000 shares authorized, 250,000 and 250,000 issued and outstanding, respectively, at $0.001 par value		250			250
Common stock, 500,000,000 shares authorized, 160,190,785 and 155,368,647 issued and outstanding, respectively, at $0.001 par value		160,192			155,370
Additional paid in capital - preferred		999,750			999,750
Additional paid in capital - common		57,300,373			56,233,085
Accumulated other comprehensive (loss)		(448,532	)		(436,505	)
Accumulated (deficit)		(70,894,988	)		(68,635,854	)

TOTAL SHAREHOLDERS' (DEFICIT)		(12,882,955	)		(11,683,904	)

TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT)	$	11,253,407		$	10,228,214

See accompanying summary of accounting policies and notes to unaudited condensed consolidated financial statements

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OMNICOMM SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	For the six months ended						For the three months ended
	June 30,						June 30,
	2019			2018			2019			2018
Revenues	$	12,219,104		$	13,177,520		$	6,684,806		$	6,137,151
Reimbursable revenues		394,896			312,605			213,375			162,502
Total revenues		12,614,000			13,490,125			6,898,181			6,299,653

Cost of goods sold		2,188,582			2,196,429			1,133,901			1,042,804
Reimbursable expenses-cost of goods sold		127,903			114,749			58,684			56,873
Total cost of goods sold		2,316,485			2,311,178			1,192,585			1,099,677

Gross margin		10,297,515			11,178,947			5,705,596			5,199,976

Operating expenses
Salaries, benefits and related taxes		7,366,535			7,211,505			3,704,103			3,552,165
Rent and occupancy expenses		634,520			593,148			322,721			303,814
Consulting services		149,179			164,120			98,352			38,584
Legal and professional fees		460,427			308,872			328,664			87,620
Travel		362,182			397,462			213,620			197,066
Telephone and internet		94,480			71,014			43,846			41,331
Selling, general and administrative		900,567			913,050			460,034			503,294
Bad debt expense		(50,112	)		26,252			(26,759	)		29,639
Intangible asset impairment		-0-			79,634			-0-			79,634
Depreciation expense		259,463			163,845			130,663			86,069
Amortization expense		175,401			157,447			87,701			93,298
Total operating expenses		10,352,642			10,086,349			5,362,945			5,012,514

Operating income/(loss)		(55,127	)		1,092,598			342,651			187,462

Other income/(expense)
Interest expense, related parties		(382,331	)		(453,080	)		(192,222	)		(227,662	)
Interest expense		(172,924	)		(187,785	)		(93,654	)		(96,842	)
Interest income		8			9			4			4
Change in derivative liabilities		(1,544,875	)		1,758,413			(961,218	)		1,729,997
Transaction gain/(loss)		(28,896	)		(85,856	)		(13,170	)		(63,178	)
Income/(loss) before income taxes		(2,184,145	)		2,124,299			(917,609	)		1,529,781
Income tax (expense)		(74,989	)		(1,035	)		(75,000	)		-0-
Net income/(loss) attributable to common stockholders	$	(2,259,134	)	$	2,123,264		$	(992,609	)	$	1,529,781

Net income/(loss) per share
Basic	$	(0.01	)	$	0.01		$	(0.01	)	$	0.01
Diluted	$	(0.01	)	$	0.01		$	(0.01	)	$	0.01
Weighted average number of shares outstanding
Basic		158,321,294			149,966,378			159,289,879			150,275,406
Diluted		158,321,294			164,067,795			159,289,879			164,376,823

See accompanying summary of accounting policies and notes to unaudited condensed consolidated financial statements

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OMNICOMM SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(unaudited)

	For the six months ended						For the three months ended
	June 30,						June 30,
	2019			2018			2019			2018
Net income/(loss) attributable to common stockholders	$	(2,259,134	)	$	2,123,264		$	(992,609	)	$	1,529,781
Other comprehensive income/(loss)
Change in foreign currency translation adjustment		(12,027	)		(21,168	)		(6,597	)		(22,455	)

Other comprehensive income/(loss)		(12,027	)		(21,168	)		(6,597	)		(22,455	)

Comprehensive income/(loss)	$	(2,271,161	)	$	2,102,096		$	(999,206	)	$	1,507,326

See accompanying summary of accounting policies and notes to unaudited condensed consolidated financial statements

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OMNICOMM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' (DEFICIT)
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2019 AND JUNE 30, 2018

FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2019

	Preferred Stock					Common Stock										Accumulated
	Series D Preferred			Additional						Additional						other			Total
	Number	$0.001		paid in capital		Number		$0.001		paid in capital			Accumulated			comprehensive			shareholders'
	of shares	Par value		preferred		of shares		Par value		common			(deficit)			(loss)			(deficit)

Balances at December 31, 2018	250,000	$	250	$	999,750		155,368,647	$	155,370	$	56,233,085		$	(68,635,854	)	$	(436,505	)	$	(11,683,904	)

Employee stock option expense											82,562									82,562

Foreign currency translation adjustment																	(12,027	)		(12,027	)

Restricted stock issuance/forfeiture							1,900,000		1,900		188,154									190,054

Issuance of common stock, stock option exercise							50,000		50		8,450									8,500

Issuance of common stock, warrant exercise and reclassification of warrant liability							2,600,000		2,600		695,400									698,000

Cashless issuance of common stock, warrant exercise							209,694		210		66,571									66,781

Reclassification of conversion feature liability associated with convertible debt											26,213									26,213

Share reinstatement and cancellation							62,444		62		(62	)								-0-

Net income/(loss) for the period ended June 30, 2019	-0-		-0-		-0-		-0-		-0-		-0-			(2,259,134	)		-0-			(2,259,134	)

Balances at June 30, 2019 (unaudited)	250,000	$	250	$	999,750		160,190,785	$	160,192	$	57,300,373		$	(70,894,988	)	$	(448,532	)	$	(12,882,955	)

FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2018

	Preferred Stock					Common Stock									Accumulated
	Series D Preferred			Additional						Additional					other			Total
	Number		$0.001	paid in capital		Number			$0.001	paid in capital		Accumulated			comprehensive			shareholders'
	of shares	Par value		preferred		of shares		Par value		common		(deficit)			(loss)			(deficit)

Balances at December 31, 2017	250,000	$	250	$	999,750		148,542,805	$	148,544	$	54,379,454	$	(72,323,819	)	$	(397,237	)	$	(17,193,058	)

Employee stock option expense											107,075								107,075

Foreign currency translation adjustment																(21,168	)		(21,168	)

Issuance of common stock, purchase of Acuity							1,666,667		1,667		498,333								500,000

Issuance of common stock, stock option exercise							200,000		200		44,800								45,000

Reclassification of conversion feature liability associated with convertible debt											10,500								10,500

Net income/(loss) for the period ended June 30, 2018	-0-		-0-		-0-		-0-		-0-		-0-		2,123,264			-0-			2,123,264

Balances at June 30, 2018 (unaudited)	250,000	$	250	$	999,750		150,409,472	$	150,411	$	55,040,162	$	(70,200,555	)	$	(418,405	)	$	(14,428,387	)

See accompanying summary of accounting policies and notes to unaudited condensed consolidated financial statements

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OMNICOMM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' (DEFICIT)
FOR THE THREE MONTH PERIODS ENDED JUNE 30, 2019 AND JUNE 30, 2018

FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2019

	Preferred Stock					Common Stock										Accumulated
	Series D Preferred			Additional						Additional						other			Total
	Number	$0.001		paid in capital		Number		$0.001		paid in capital			Accumulated			comprehensive			shareholders'
	of shares	Par value		preferred		of shares		Par value		common			(deficit)			(loss)			(deficit)

Balances at March 31, 2019 (unaudited)	250,000	$	250	$	999,750		158,278,341	$	158,280	$	56,877,493		$	(69,902,379	)	$	(441,935	)	$	(12,308,541	)

Employee stock option expense											29,635									29,635

Foreign currency translation adjustment																	(6,597	)		(6,597	)

Restricted stock issuance/forfeiture							1,000,000		1,000		111,444									112,444

Issuance of common stock, stock option exercise							50,000		50		8,450									8,500

Issuance of common stock, warrant exercise and reclassification of warrant liability							800,000		800		247,200									248,000


Reclassification of conversion feature liability associated with convertible debt											26,213									26,213

Share reinstatement and cancellation							62,444		62		(62	)								-0-

Net income/(loss) for the period ended June 30, 2019	-0-		-0-		-0-		-0-		-0-		-0-			(992,609	)		-0-			(992,609	)

Balances at June 30, 2019 (unaudited)	250,000	$	250	$	999,750		160,190,785	$	160,192	$	57,300,373		$	(70,894,988	)	$	(448,532	)	$	(12,882,955	)

FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2018

	Preferred Stock					Common Stock									Accumulated
	Series D Preferred			Additional						Additional					other			Total
	Number		$0.001	paid in capital		Number			$0.001	paid in capital		Accumulated			comprehensive			shareholders'
	of shares	Par value		preferred		of shares		Par value		common		(deficit)			(loss)			(deficit)

Balances at March 31, 2018 (unaudited)	250,000	$	250	$	999,750		150,209,472	$	150,211	$	54,934,313	$	(71,730,336	)	$	(395,950	)	$	(16,041,762	)

Employee stock option expense											50,549								50,549

Foreign currency translation adjustment																(22,455	)		(22,455	)

Issuance of common stock, stock option exercise							200,000		200		44,800								45,000

Reclassification of conversion feature liability associated with convertible debt											10,500								10,500

Net income/(loss) for the period ended June 30, 2018	-0-		-0-		-0-		-0-		-0-		-0-		1,529,781			-0-			1,529,781

Balances at June 30, 2018 (unaudited)	250,000	$	250	$	999,750		150,409,472	$	150,411	$	55,040,162	$	(70,200,555	)	$	(418,405	)	$	(14,428,387	)

See accompanying summary of accounting policies and notes to unaudited condensed consolidated financial statements

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OMNICOMM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

	For the six months ended
	June 30,
	2019			2018

CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss)	$	(2,259,134	)	$	2,123,264
Adjustment to reconcile net income/(loss) to net cash provided by/(used in) operating activities
Change in derivative liabilities		1,544,875			(1,758,413	)
Intangible asset impairment		-0-			79,634
Interest expense from derivative instruments		80,760			109,035
Employee stock compensation		272,616			107,075
Provision for doubtful accounts		(50,112	)		26,252
Depreciation and amortization		434,864			321,292
Operating lease right-of-use assets		479,723			-0-
Changes in operating assets and liabilities
Accounts receivable		(242,360	)		817,348
Prepaid expenses		42,162			79,967
Other current assets		5,271			(3,016	)
Other assets		50,527			(48,361	)
Accounts payable and accrued expenses		(270,305	)		(979,804	)
Operating lease liability		(379,173	)		-0-
Patent settlement liability		-0-			(112,500	)
Deferred revenue		1,154,307			(1,446,290	)
Net cash provided by/(used in) operating activities		864,021			(684,517	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(346,042	)		(438,573	)
Purchase of Acuity software		-0-			(552,403	)
Net cash (used in) investing activities		(346,042	)		(990,976	)

CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of notes payable		(437,500	)		(150,000	)
Proceeds/(repayments) from revolving line of credit		(1,000,000	)		1,750,000
Proceeds from exercise of stock options		8,500			45,000
Proceeds from exercise of warrants		650,000			-0-
Principal repayment of capital lease obligation		(57,356	)		(10,546	)
Net cash provided by/(used in) financing activities		(836,356	)		1,634,454

Effect of exchange rate changes on fixed and intangible assets		289			2,835
Effect of exchange rate changes on cash and cash equivalents		(12,027	)		(21,168	)
Net increase/(decrease) in cash and cash equivalents		(330,115	)		(59,372	)
Cash and cash equivalents at beginning of period		1,440,524			1,176,551

Cash and cash equivalents at end of period	$	1,110,409		$	1,117,179

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes	$	162,885		$	1,035
Interest	$	482,395		$	523,061

Non-cash transactions:
Notes payable issued in exchange for existing notes payable	$	5,770,000		$	-0-
Common stock issued for the purchase of Acuity software	$	-0-		$	500,000
Reclassification of conversion feature liability associated with convertible debt	$	26,213		$	-0-
Reclassification of warrant liability associated with warrant exercise	$	114,781		$	-0-
Capital expenditures funded by capital lease borrowing	$	-0-		$	359,603
Operating lease right-of-use assets and operating lease liability upon adoption of ASU 2016-02, Leases (Topic 842)	$	1,729,630		$	-0-

See accompanying summary of accounting policies and notes to unaudited condensed consolidated financial statements

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OMNICOMM SYSTEMS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND JUNE 30, 2018

(unaudited)

NOTE 1:

ORGANIZATION AND NATURE OF OPERATIONS

OmniComm Systems, Inc. (“OmniComm” or the “Company”) is a healthcare technology company that provides web-based electronic data capture (“EDC”) and eClinical solutions and related value-added services to pharmaceutical and biotech companies, contract research organizations (“CROs”) and other clinical trial sponsors principally located in the United States, Europe and East Asia. Our proprietary EDC and eClinical software applications: TrialMaster^®, TrialOne^®, eClinical Suite, Promasys^®, IRTMaster, AutoEncoder and Acuity (the “EDC Software”) allow clinical trial sponsors and investigative sites to securely collect, validate, transmit and analyze clinical trial data.

Our ability to compete within the EDC and eClinical industry is predicated on our ability to continue enhancing and broadening the scope of solutions offered through our EDC and eClinical software and services. Our research and product development efforts are focused on developing new and complementary software solutions, as well as enhancing our existing software solutions through the addition of increased functionality. While our main product development efforts are conducted in our Fort Lauderdale, Florida office, we also conduct product development in other parts of the U.S. as well as in Southampton, England and Bengaluru, India. During the six month periods ended June 30, 2019 and June 30, 2018 we spent $2,101,484, which represents 17% of revenue, and $1,682,336, which represents 12% of revenue, respectively, on research and product development activities, which are primarily comprised of salaries to our developers and other research and product development personnel and related costs associated with the development of our software products.

NOTE 2:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

The Company’s accounts include those of all its wholly-owned subsidiaries, which are more fully described in the Company’s 2018 Annual Report filed on Form 10-K with the Securities and Exchange Commission, and have been prepared in conformity with (i) accounting principles generally accepted in the United States of America; and (ii) the rules and regulations of the United States Securities and Exchange Commission. All significant intercompany accounts and transactions between the Company and its subsidiaries have been eliminated in consolidation.

UNAUDITED FINANCIAL STATEMENTS

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, pursuant to the rules and regulations of the Securities and Exchange Commission. Pursuant to such rules and regulations, certain financial information and footnote disclosures normally included in the consolidated financial statements have been condensed or omitted. The results for the six month periods ended June 30, 2019 and June 30, 2018 are unaudited, but reflect all adjustments (consisting only of normally recurring adjustments) which management considers necessary for a fair presentation of operating results.

The operating results for the six month period ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ended December 31, 2019. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2018.

ESTIMATES IN FINANCIAL STATEMENTS

The preparation of the unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes thereto. Significant estimates incorporated in our financial statements include the recorded allowance for doubtful accounts, the estimate of the appropriate amortization period of our intangible assets, the evaluation of whether our intangible assets have suffered any impairment, the allocation of revenues under multiple-element customer contracts, the determination of lease term and lease assets and liabilities, the value of derivatives associated with debt issued by the Company and the valuation of any corresponding discount to the issuance of our debt. Actual results may differ from those estimates.

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OMNICOMM SYSTEMS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND JUNE 30, 2018

(unaudited)

Reclassifications

Certain reclassifications have been made in the 2018 financial statements to conform to the 2019 presentation. These reclassifications did not have any effect on our net income/(loss) or shareholders’ deficit.

foreign currency translation

The financial statements of the Company’s foreign subsidiaries are translated in accordance with Accounting Standards Codification (“ASC”) 830-30, Foreign Currency Matters—Translation of Financial Statements ("ASC 830-30"). The reporting currency for the Company is the U.S. dollar. The functional currency of the Company’s subsidiaries, OmniComm Europe GmbH in Germany, OmniComm Spain S.L. in Spain and OmniComm Systems B.V. in the Netherlands is the Euro. The functional currency of the Company’s subsidiary, OmniComm Ltd. in the United Kingdom, is the British Pound Sterling. The functional currency of the Company’s subsidiary, OmniComm eClinical Solutions Pvt. Ltd. in India, is the Indian Rupee. Accordingly, the assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars using the exchange rate in effect at each balance sheet date. Revenue and expense accounts of the Company’s foreign subsidiaries are translated using an average rate of exchange during the period. Foreign currency translation adjustments are accumulated as a component of other comprehensive income/(loss) as a separate component of stockholders’ equity. Gains and losses arising from transactions denominated in foreign currencies are primarily related to intercompany accounts that have been determined to be temporary in nature and accordingly, are recorded directly to the statement of operations. We record translation gains and losses in accumulated other comprehensive income as a component of stockholders’ equity. We recorded a translation loss of $12,027 and a translation loss of $21,168 for the six month periods ended June 30, 2019 and June 30, 2018, respectively.

REVENUE RECOGNITION POLICY

The Company derives revenues from software licenses and services of its EDC and eClinical products and services which can be purchased on a stand-alone basis. License revenues are derived principally from the sale of term licenses for the following software products offered by the Company: TrialMaster, TrialOne, eClinical Suite and Promasys. Service revenues are derived principally from the Company's delivery of the hosted solutions of its TrialMaster software product, and consulting services and customer support, including training, for all of the Company's products.

For revenue from product sales, the Company recognizes revenue in accordance with Financial Accounting Standards Board ("FASB") ASC 606 (“ASC 606"). A five-step analysis must be met as outlined in ASC 606: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) performance obligations are satisfied. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.

The Company operates in one reportable segment which is the delivery of EDC and eClinical Software and services to clinical trial sponsors. The Company segregates its revenues based on the activity cycle used to generate its revenues. Accordingly, revenues are currently generated through four main activities, including hosted applications, licensing, professional services and maintenance-related services.

Hosted Application Revenues

The Company offers its TrialMaster and TrialOne software products as hosted application solutions delivered through a standard web browser, with customer support and training services. The Company's TrialOne and Promasys solutions are primarily deployed on a technology transfer or off-the-shelf basis. To date, hosted applications revenues have been primarily related to TrialMaster. OmniComm announced that it would decommission its eClinical Suite hosting platform effective April 30, 2019 as many of the eClinical Suite clients utilizing these hosting services have transitioned to TrialMaster, the eClinical Suite studies have been completed or the studies have transitioned to another hosting platform. Currently there is one remaining client utilizing the hosting platform and we are finalizing the transition plan with the client.

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OMNICOMM SYSTEMS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND JUNE 30, 2018

(unaudited)

Revenues resulting from TrialMaster application hosting services consist of three components of services for each clinical trial. The first component is comprised of application set-up, including design of electronic case report forms and edit checks, installation and server configuration of the system. The second component involves application hosting and related support services as well as billable change orders which consist of amounts billed to customers for functionality changes made. The third component involves services required to close out, or lock, the database for the clinical trial.

Fees charged for the trial system design, set-up and implementation are amortized and recognized ratably over the estimated hosting period. Work performed outside the original scope of work is contracted for separately as an additional fee and is generally recognized ratably over the remaining term of the hosting period. Fees for the first and third stages of the service are typically billed based upon milestones. Revenues earned upon completion of a contractual milestone are deferred and recognized over the estimated remaining hosting period. Fees for application hosting and related services in the second stage are generally billed monthly or quarterly in advance.

Licensing Revenues

The Company's software license revenues are earned from the sale of off-the-shelf software. From time to time a client might require significant modification or customization subsequent to delivery to the customer. The Company generally enters into software term licenses for its EDC and eClinical Software products with its customers for three to five year periods, although customers have entered into both longer and shorter term license agreements. These arrangements typically include multiple elements: software license, consulting services and customer support. The Company bills its customers in accordance with the terms of the underlying contract. Generally, the Company bills license fees in advance for each billing cycle of the license term, which typically is either on a quarterly or annual basis. Payment terms are generally net 30 to net 45 days.

The Company has sold perpetual licenses for EDC and eClinical Software products in certain situations to existing customers with the option to purchase customer support, and may, in the future, do so for new customers based on customer requirements or market conditions. The Company has established vendor specific objective evidence of fair value for the customer support. Accordingly, license revenues are recognized upon delivery of the software and when all other revenue recognition criteria are met. Customer support revenues are recognized ratably over the term of the underlying support arrangement. The Company generates customer support and maintenance revenues from its perpetual license customer base.

Professional Services

The Company may also enter into arrangements to provide consulting services separate from a license arrangement. In these situations, revenue is recognized on a time-and-materials basis or upon completion of milestones. Professional services can be deemed to be as essential to the functionality of the software at inception and typically are for initial trial configuration, implementation planning, loading of software, building simple interfaces, running test data and documentation of procedures. Subsequent additions or extensions to license terms do not generally include additional professional services.

Maintenance Revenues

Maintenance includes telephone-based help desk support and software maintenance, including updates to the software through new software version releases. The Company generally bundles customer support with the software license for the entire term of the arrangement. As a result, the Company generally recognizes revenues for both maintenance and software licenses ratably over the term of the software license and support arrangement. The Company allocates the revenues recognized for these arrangements to the different elements based on management's estimate of the relative fair value of each element. The Company generally invoices each of the elements based on separately quoted amounts and thus has a fairly accurate estimate of the relative fair values of each of the invoiced revenue elements.

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OMNICOMM SYSTEMS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND JUNE 30, 2018

(unaudited)

Pass-through Revenue and Expense

The Company accounts for pass-through revenue and expense (reimbursable revenue and reimbursable expense) in accordance with Accounting Standards Update ("ASU") 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), (“ASU 2016-08”). In accordance with ASU 2016-08 these amounts are recorded as revenue in the statement of operations with a corresponding expense recorded in cost of goods sold. Pass-through revenues and expenses include amounts associated with third-party services provided to our customers by our service and product partners. These third-party services are primarily comprised of Interactive Voice and Web Response software services (IVR and IWR), travel and shipping that are incurred on our clients’ behalf.

The fees associated with each business activity for the six month periods ended June 30, 2019 and June 30, 2018, respectively, are:

	For the six months ended
Revenue activity	June 30, 2019		June 30, 2018
Set-up fees	$	1,674,550	$	1,990,187
Change orders		608,318		769,711
Maintenance		2,784,334		2,782,358
Software licenses		5,360,283		5,502,732
Professional services		1,399,970		1,510,209
Hosting		786,545		934,928
Total	$	12,614,000	$	13,490,125

COST OF GOODS SOLD

Cost of goods sold primarily consists of costs related to hosting, maintaining and supporting the Company’s application suite and delivering professional services and support. These costs include salaries, benefits and bonuses for the Company’s professional services staff. Cost of goods sold also includes outside service provider costs. Cost of goods sold is expensed as incurred.

CASH AND CASH EQUIVALENTS

Cash equivalents consist of highly liquid, short-term investments with maturities of 90 days or less. The carrying amount reported in the accompanying consolidated balance sheets approximates fair value.

ACCOUNTS RECEIVABLE

Accounts receivable are judged as to collectability by management and an allowance for bad debts is established as necessary. The allowance is based on an evaluation of the collectability of accounts receivable and prior bad debt experience. The Company had recorded an allowance for uncollectible accounts receivable of $126,108 as of June 30, 2019 and $176,220 as of December 31, 2018.

The following table summarizes activity in the Company's allowance for doubtful accounts for the six month period ended June 30, 2019 and the year ended December 31, 2018.

	June 30, 2019			December 31, 2018
Beginning of period	$	176,220		$	149,980
Bad debt expense		(50,112	)		41,782
Write-offs		-0-			(15,542	)
End of period	$	126,108		$	176,220

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OMNICOMM SYSTEMS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND JUNE 30, 2018

(unaudited)

Concentration of Credit Risk

Cash and cash equivalents and restricted cash are deposited with major financial institutions and, at times, such balances with any one financial institution may be in excess of FDIC-insured limits. As of June 30, 2019, $433,538 was deposited in excess of FDIC-insured limits. Management believes the risk in these situations to be minimal.

Except as follows, the Company has no significant off-balance-sheet risk or credit risk concentrations. Financial instruments that subject the Company to potential credit risks are principally cash equivalents and accounts receivable. Concentrated credit risk with respect to accounts receivable is limited to creditworthy customers. The Company's customers are principally located in the United States, Europe and East Asia. The Company is directly affected by the overall financial condition of the pharmaceutical, biotechnology and medical device industries and management believes that credit risk exists and that any credit risk the Company faces has been adequately reserved for as of June 30, 2019. The Company maintains an allowance for doubtful accounts based on accounts past due according to contractual terms and historical collection experience. Actual losses, when incurred, are charged to the allowance. The Company's losses related to collection of accounts receivable have consistently been within management's expectations. As of June 30, 2019, the Company believes no additional credit risk exists beyond the amounts provided for in our allowance for uncollectible accounts. The Company evaluates its allowance for uncollectable accounts on a quarterly basis based on a specific review of receivable aging and the period that any receivables are beyond the standard payment terms. The Company does not require collateral from its customers in order to mitigate credit risk.

One customer accounted for 7% of our revenues during the six month period ended June 30, 2019 or approximately $870,000. One customer accounted for 11% of our revenues during the six month period ended June 30, 2018 or approximately $1,467,000. The following table summarizes the number of customers who individually comprise greater than 10% of total revenue and/or total accounts receivable and their aggregate percentage of the Company's total revenue and gross accounts receivable for the six month periods ended June 30, 2019 and June 30, 2018 and the year ended December 31, 2018.

	Revenues		Accounts receivable
For the period ended	Number of customers	Percentage of total revenues	Number of customers	Percentage of accounts receivable
June 30, 2019	-0-	0%	2	30%
December 31, 2018	1	13%	1	20%
June 30,2018	1	11%	2	32%

The table below provides revenues from European customers for the six month periods ended June 30, 2019 and June 30, 2018.

European revenues
For the six months ended
June 30, 2019			June 30, 2018
European revenues		% of Total revenues	European revenues		% of Total revenues
$	2,341,362	19%	$	2,340,251	17%

The Company serves its hosting customers from third-party web hosting facilities located in the United States and Europe. The Company does not control the operation of these facilities and they are vulnerable to damage or interruption. The Company maintains redundant systems that can be used to provide service in the event the third-party web hosting facilities become unavailable, although in such circumstances, the Company's service may be interrupted during the transition.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Additions and betterments are capitalized; maintenance and repairs are expensed as incurred. Depreciation is calculated using the straight-line method over the asset’s estimated useful life, which is 5 years for leasehold improvements, computers, equipment and furniture and 3 years for software. Gains or losses on disposal are charged to operations.

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OMNICOMM SYSTEMS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND JUNE 30, 2018

(unaudited)

LEASES

The Company accounts for leases in accordance with ASU No. 2016-02, “Leases (Topic 842)”, (“ASU 2016-02”). We determine if an arrangement is a lease at inception. As part of the lease determination process, we assess several factors, including, but not limited to, assessing our right to control and direct the use of the asset, as well as, assessing if the other party has a substantive substitution right. If we enter into leases that contain multiple components, we identify separate lease components based on whether or not the right to use the underlying assets is distinct and either highly dependent or highly interrelated with other rights in the contract. We also evaluate whether there are any non-lease components in the arrangement. If separate lease and non-lease components are identified, we allocate the consideration in the contract to the lease and non-lease components at the lease inception. Operating lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating leases are included in operating lease assets and operating lease liabilities on our balance sheet at June 30, 2019. Operating lease assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date to determine the present value of future payments. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. The lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

With the adoption of Topic 842 on January 1, 2019, the Company recognized operating lease assets and operating lease liabilities of $1,729,630. There was no impact to the opening accumulated deficit balance as of January 1, 2019. Prior period amounts continue to be reported in accordance with our historic accounting under previous lease guidance, Topic 840.

ASSET IMPAIRMENT

Acquisitions and Intangible Assets

We account for acquisitions in accordance with ASC 805, Business Combinations (“ASC 805”) and ASC 350, Intangibles- Goodwill and Other (“ASC 350”). The acquisition method of accounting requires that assets acquired and liabilities assumed be recorded at their fair values on the date of a business acquisition. Our consolidated financial statements and results of operations reflect an acquired business from the completion date of an acquisition.

The judgments that we make in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact net income in periods following an asset acquisition. We generally use either the income, cost or market approach to aid in our conclusions of such fair values and asset lives. The income approach presumes that the value of an asset can be estimated by the net economic benefit to be received over the life of the asset, discounted to present value. The cost approach presumes that an investor would pay no more for an asset than its replacement or reproduction cost. The market approach estimates value based on what other participants in the market have paid for reasonably similar assets. Although each valuation approach is considered in valuing the assets acquired, the approach ultimately selected is based on the characteristics of the asset and the availability of information.

Long-lived Assets

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount and the asset’s residual value, if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available. We use quoted market prices when available and independent appraisals and management estimates of future operating cash flows, as appropriate, to determine fair value.

FAIR VALUE MEASUREMENT

OmniComm’s capital structure includes the use of warrants and convertible debt features that are classified as derivative financial instruments. Derivative financial instruments are recognized as either assets or liabilities and are measured at fair value under ASC 815, Derivatives and Hedging (“ASC 815”). ASC 815 requires that changes in the fair value of derivative financial instruments with no hedging designation be recognized as gains/(losses) in the earnings statement. The fair value measurement is determined in accordance with ASC 820, Fair Value Measurements and Disclosures (“ASC 820”).

DEFERRED REVENUE

Deferred revenue represents cash advances and amounts in accounts receivable as of the balance sheet date received in excess of revenue earned on on-going contracts. Payment terms vary with each contract but may include an initial payment at the time the contract is executed, with future payments dependent upon the completion of certain contract phases or targeted milestones. In the event of contract cancellation, the Company is generally entitled to payment for all work performed through the point of cancellation. As of June 30, 2019, the Company had $9,405,863 in deferred revenues relating to contracts for services to be performed over periods ranging from one month to 6.0 years. The Company had $7,404,492 in deferred revenues that are expected to be recognized in the next twelve fiscal months.

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OMNICOMM SYSTEMS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND JUNE 30, 2018

(unaudited)

ADVERTISING

Advertising costs are expensed as incurred. Advertising costs were $419,933 and $532,821 for the six month periods ended June 30, 2019 and June 30, 2018, respectively, and are included under selling, general and administrative expenses in our unaudited condensed consolidated financial statements.

RESEARCH AND PRODUCT DEVELOPMENT EXPENSES

Software development costs are expensed as incurred. ASC 985-20, Software Industry Costs of Software to Be Sold, Leased or Marketed (“ASC 985-20”), requires the capitalization of certain development costs of software to be sold once technological feasibility is established, which the Company defines as completion to the point of marketability. The capitalized cost is then amortized on a straight-line basis over the estimated product life. To date, the period between achieving technological feasibility and the general availability of such software has been short and software development costs qualifying for capitalization have been immaterial. Accordingly, the Company has not capitalized any software development costs under ASC 985-20. During the six month periods ended June 30, 2019 and June 30, 2018 we spent $2,101,484, which represents 17% of revenue, and $1,682,336, which represents 12% of revenue, respectively, on research and product development activities, which include costs associated with the development of our software products and services for our clients’ projects and which are primarily comprised of salaries and related expenses for our software developers and consulting fees paid to third-party consultants. Research and product development costs are primarily included under Salaries, benefits and related taxes in our Statement of Operations.

EQUITY INCENTIVE PLANS

The OmniComm Systems, Inc. 2016 Equity Incentive Plan (the “2016 Plan”) was approved at our Annual Meeting of Stockholders on June 16, 2016. The 2016 Plan initially provides for the issuance of up to 10,000,000 shares of our common stock. In addition, the number of shares of common stock available for issuance under the 2016 Plan automatically increases on January 1st of each year for a period of nine (9) years commencing on January 1, 2017 and ending on (and including) January 1, 2025, in an amount equal to five percent (5%) of the total number of shares authorized under the 2016 Plan. As of June 30, 2019 11,576,250 shares of our common stock were authorized for issuance under the 2016 Plan.

The predecessor plan, the OmniComm Systems, Inc. 2009 Equity Incentive Plan (the “2009 Plan”) was approved at our Annual Meeting of Stockholders on July 10, 2009 and terminated on June 16, 2016 upon the approval of the 2016 Plan. The 2009 Plan provided for the issuance of up to 7,500,000 shares to employees, directors and key consultants. The 2016 and 2009 Plans are more fully described in “Note 14, Equity Incentive Plans”.

The Company accounts for its employee equity incentive plans under ASC 718, Compensation – Stock Compensation, (“ASC 718”) which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statements of operations. The Company currently uses the Black Scholes option pricing model to determine grant date fair value.

EARNINGS PER SHARE

The Company accounts for Earnings per Share using ASC 260, Earnings per Share, (“ASC 260”). Unlike diluted earnings per share basic earnings per share excludes any dilutive effects of options, warrants and convertible securities.

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OMNICOMM SYSTEMS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND JUNE 30, 2018

(unaudited)

INCOME TAXES

The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”). ASC 740 has as its basic objective the recognition of current and deferred income tax assets and liabilities based upon all events that have been recognized in the financial statements as measured by the provisions of the enacted tax laws.

Valuation allowances are established, when necessary, to reduce deferred tax assets to the estimated amount to be realized. Income tax expense represents the tax payable for the current period and the change during the period in the deferred tax assets and liabilities.

IMPACT OF NEW ACCOUNTING STANDARDS

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, (“ASU 2016-02”). ASU 2016-02 requires that an entity should recognize assets and liabilities for leases with a maximum possible term of more than 12 months. On January 1, 2019, we adopted ASU 2016-02, as amended, which supersedes the lease accounting guidance under Topic 840, and generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use (ROU) assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. We adopted the new guidance using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application and not restating comparative periods. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while our accounting for finance leases remained substantially unchanged.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and other - Internal-Use Software (Topic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This standard requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Topic 350-40 to determine which implementation costs to capitalize as assets. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the effect that implementation of this standard will have on the Company's consolidated financial statements.

Accounting standards-setting organizations frequently issue new or revised accounting rules. We regularly review all new pronouncements to determine their impact, if any, on our financial statements.

NOTE 3:

EARNINGS/(LOSS) PER SHARE

Basic earnings/(loss) per share were calculated using the weighted average number of shares outstanding of 158,321,294 and 149,966,378 for the six month periods ended June 30, 2019 and June 30, 2018, respectively.

The outstanding share balance as of June 30, 2019 and June 30, 2018, respectively, includes 2,100,000 and -0- restricted shares that have been issued but are still at risk of forfeiture as the restrictions have not lapsed.

Antidilutive shares of 31,888,000 have been omitted from the calculation of dilutive earnings/(loss) per share for the six month period ended June 30, 2019 and 14,396,945 for the six month period ended June 30, 2018, as the shares were antidilutive. Provided below is the reconciliation between numerators and denominators of the basic and diluted earnings per share. The table below provides a reconciliation of anti-dilutive securities outstanding as of June 30, 2019 and June 30, 2018, respectively.

Anti-dilutive security	June 30, 2019		June 30, 2018
Employee stock options		2,320,000		1,295,000
Warrants		17,920,000		12,550,000
Convertible notes		11,540,000		440,000
Shares issuable for accrued interest		108,000		111,945
Total		31,888,000		14,396,945

The employee stock options are exercisable at prices ranging from $0.17 to $0.34 per share. The exercise prices on the warrants range from $0.25 to $0.60 per share. Shares issuable upon conversion of convertible debentures or accrued interest have a conversion price of $0.50 per share.

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OMNICOMM SYSTEMS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND JUNE 30, 2018

(unaudited)

Some of the Company’s convertible debt has an anti-dilutive effect on net earnings/(loss) per share and was not included in the computation of diluted earnings per share.

	For the six months ended
	June 30, 2019								June 30, 2018
	Income/(loss)			Shares		Per-share			Income/(loss)			Shares		Per-share
	numerator			denominator		amount			numerator			denominator		amount
Basic EPS	$	(2,259,134	)		158,321,294	$	(0.01	)	$	2,123,264			149,966,378	$	0.01

Effect of dilutive securities		-0-			-0-		-0-			(317,701	)		14,101,417		(0.02	)

Diluted EPS	$	(2,259,134	)		158,321,294	$	(0.01	)	$	1,805,563			164,067,795	$	0.01

	For the three months ended
	June 30, 2019								June 30, 2018
	Income/(loss)			Shares		Per-share			Income/(loss)			Shares		Per-share
	numerator			denominator		amount			numerator			denominator		amount
Basic EPS	$	(992,609	)		159,289,879	$	(0.01	)	$	1,529,781			150,275,406	$	0.01

Effect of dilutive securities		-0-			-0-		-0-			(281,506	)		14,101,417		(0.02	)

Diluted EPS	$	(992,609	)		159,289,879	$	(0.01	)	$	1,248,275			164,376,823	$	0.01

NOTE 4:

PROPERTY AND EQUIPMENT, NET

Property and equipment consists of the following:

	June 30, 2019						December 31, 2018
Description	Cost		Accumulated depreciation		Net book value		Cost		Accumulated depreciation		Net book value		Estimated useful life (years)
Computer & office equipment	$	3,143,981	$	2,323,964	$	820,017	$	3,067,069	$	2,202,166	$	864,903	5
Leasehold improvements		137,904		111,078		26,826		136,648		106,362		30,286	5
Computer software		2,692,552		2,117,329		575,223		2,426,339		1,991,842		434,497	3
Office furniture		169,131		144,593		24,538		169,120		138,491		30,629	5
Total	$	6,143,568	$	4,696,964	$	1,446,604	$	5,799,176	$	4,438,861	$	1,360,315

Depreciation expense for the six month period ended June 30, 2019 was $259,463 and $163,845 for the six month period ended June 30, 2018.

NOTE 5:

INTANGIBLE ASSETS, NET

Intangible assets consist of the following:

	June 30, 2019						December 31, 2018
Asset	Cost		Accumulated amortization		Net book value		Cost		Accumulated amortization		Net book value		Estimated useful life (years)
eClinical Suite customer lists	$	1,392,701	$	1,392,701	$	-0-	$	1,392,701	$	1,392,701	$	-0-	3
Promasys B.V. customer lists		112,756		112,756		-0-		113,220		113,220		-0-	15
Promasys B.V. software code		72,837		72,837		-0-		72,837		72,837		-0-	5
Promasys B.V. URLs/website		56,947		56,947		-0-		57,182		57,182		-0-	3
Acuity software code		1,052,403		496,968		555,435		1,052,403		321,568		730,835	3
Total	$	2,687,644	$	2,132,209	$	555,435	$	2,688,343	$	1,957,508	$	730,835

During the second quarter of 2018 we recognized an impairment loss of $79,634 on the Promasys B.V. customer list after performing a fair value analysis on the asset utilizing a discounted cash flow model. The impairment charge is separately presented on the Statement of Operations.

Amortization expense for the six month period ended June 30, 2019 was $175,401 and $157,447 for the six month period ended June 30, 2018.

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OMNICOMM SYSTEMS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND JUNE 30, 2018

(unaudited)

Remaining amortization expense for the Company’s intangible assets is as follows:

Year	Amortization
2019	$	175,401
2020		350,801
2021		29,233
Total	$	555,435

NOTE 6:

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

Account	June 30, 2019		December 31, 2018
Accounts payable	$	837,782	$	895,145
Accrued payroll and related costs		802,668		851,530
Other accrued expenses		93,403		250,570
Accrued interest		66,000		72,913
Total accounts payable and accrued expenses	$	1,799,853	$	2,070,158

NOTE 7:

LINE OF CREDIT, NOTES PAYABLE AND LIQUIDITY

On March 18, 2013, the Company entered into a $2,000,000 revolving Line of Credit (“Line of Credit”) with The Northern Trust Company guaranteed by our then Chief Executive Officer and Director, Cornelis F. Wit (“Mr. Wit”). Mr. Wit receives 2.0% interest (approximately $9,500 per month) from the Company on the assets pledged for the Line of Credit. On December 18, 2013 the Company renewed the Line of Credit and increased the available balance to $4,000,000. On February 3, 2015 the Company renewed the Line of Credit and increased the available balance to $5,000,000. On April 7, 2017 the Company renewed the Line of Credit. The Line of Credit currently matures on April 7, 2020 and carries a variable interest rate based on the prime rate. At June 30, 2019, $1,900,000 was outstanding on the Line of Credit at an interest rate of 4.50%.

Our primary sources of working capital are funds from operations and borrowings under our revolving Line of Credit. In the event that the Line of Credit is called for any reason, Mr. Wit has pledged to replace the borrowing capacity under the Line of Credit with a promissory note that utilizes the same maturity date and interest rate as the Line of Credit.

To satisfy our capital requirements, we may seek additional financing. There can be no assurance that any such funding will be available to us on favorable terms or at all. If adequate funds are not available when needed, we may be required to delay, scale back or eliminate some or all of our research and product development and marketing programs. If we are successful in obtaining additional financings, the terms of such financings may have the effect of diluting or adversely affecting the holdings or the rights of the holders of our securities or result in increased interest expense in future periods.

Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND JUNE 30, 2018

(unaudited)

The following table summarizes the notes payable outstanding as of June 30, 2019.

			Ending		Non related party					Related party
Origination	Maturity	Interest	principal					Long				Long
date	date	rate	June 30, 2019		Current			term		Current		term
6/30/2016	4/1/2020	10%	$	320,000	$	320,000		$	-0-	$	-0-	$	-0-
Discount on notes payable						(42,424	)		-0-		-0-		-0-
Total			$	320,000	$	277,576		$	-0-	$	-0-	$	-0-

The following table summarizes the notes payable outstanding as of December 31, 2018.

			Ending		Non related party					Related party
Origination	Maturity	Interest	principal				Long					Long
date	date	rate	December 31, 2018		Current		term			Current		term
6/30/2016	4/1/2020	10%	$	420,000	$	-0-	$	420,000		$	-0-	$	-0-
6/30/2016	4/1/2020	12%		137,500		-0-		137,500			-0-		-0-
Discount on notes payable						-0-		(123,184	)		-0-		-0-
Total			$	557,500	$	-0-	$	434,316		$	-0-	$	-0-

On February 29, 2016, the Company issued a promissory note in the principal amount of $450,000 and warrants to purchase 1,800,000 shares of common stock of the Company at an exercise price of $0.25 per share with an expiration date of April 1, 2019 to our then Chief Executive Officer and Director, Cornelis F. Wit (“Mr. Wit”), in exchange for accrued interest in the amount of $450,000. The note carries an interest rate of 12% per annum and has a maturity date of April 1, 2019. On December 5, 2016, Mr. Wit sold 1,000,000 of the warrants to an employee of the Company. On August 31, 2017, the Company repaid $50,000 of the outstanding principal to Mr. Wit. On December 27, 2018, the Company and Mr. Wit cancelled the remaining outstanding $400,000 in principal in exchange for the exercise price of $400,000 for 1,600,000 warrants of the 2,000,000 warrants with an exercise price of $0.25 per share that he exercised on that date.

The issuance caused us to calculate and record a derivative liability for the warrant liability. The warrants were valued using the Black Scholes option pricing model. A value of $325,689 was calculated and allocated to the warrants and recorded as a liability to the issuance of the note payable. As a result of the liability we recorded a discount to the note payable. The carrying amount of the note at the time of issuance was therefore $124,311. The warrant liability (discount) will be amortized over the 37 month duration of the note payable. The Company will continue to perform a fair value calculation quarterly on the warrant liability and accordingly the warrant liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is reflected in operations as an unrealized gain or loss on changes in derivative liabilities.

On June 30, 2016, the Company issued promissory notes in the principal amount of $372,500 and warrants to purchase 1,490,000 shares of common stock of the Company at an exercise price of $0.25 per share with an expiration date of April 1, 2020 to two investors in exchange for existing promissory notes in the same amount. The notes carry an interest rate of 12% per annum and have a maturity date of April 1, 2020. On August 31, 2017, the Company repaid $90,000 to one of the lenders. On December 31, 2018, the Company repaid $145,000 to one of the lenders. On June 30, 2019, the Company repaid the remaining $137,500 to the lender.

The issuance caused us to calculate and record a derivative liability for the warrant liability. The warrants were valued using the Black Scholes option pricing model. A value of $246,921 was calculated and allocated to the warrants and recorded as a liability to the issuance of the note payable. As a result of the liability we recorded a discount to the note payable. The carrying amount of the note at the time of issuance was therefore $125,579. The warrant liability (discount) will be amortized over the 45 month duration of the note payables. The Company will continue to perform a fair value calculation quarterly on the warrant liability and accordingly the warrant liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is reflected in operations as an unrealized gain or loss on changes in derivative liabilities.

On June 30, 2016, the Company issued promissory notes in the principal amount of $420,000 and warrants to purchase 1,680,000 shares of common stock of the Company at an exercise price of $0.25 per share with an expiration date of April 1, 2020 to two investors, in exchange for existing promissory notes in the same amount. The notes carry an interest rate of 10% per annum and have a maturity date of April 1, 2020. On June 26, 2019, the Company repaid $100,000 to one of the lenders.

The issuance caused us to calculate and record a derivative liability for the warrant liability. The warrants were valued using the Black Scholes option pricing model. A value of $278,408 was calculated and allocated to the warrants and recorded as a liability to the issuance of the note payable. As a result of the liability we recorded a discount to the note payable. The carrying amount of the note at the time of issuance was therefore $141,592. The warrant liability (discount) will be amortized over the 45 month duration of the note payables. The Company will continue to perform a fair value calculation quarterly on the warrant liability and accordingly the warrant liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is reflected in operations as an unrealized gain or loss on changes in derivative liabilities.

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OMNICOMM SYSTEMS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND JUNE 30, 2018

(unaudited)

NOTE 8:

CONVERTIBLE NOTES PAYABLE

The following table summarizes the convertible debt outstanding as of June 30, 2019.

					Carrying amount
Date of	Maturity	Interest	Principal at		Short term				Long term
issuance	date	rate	June 30, 2019		Related		Non related		Related		Non related
8/29/2008	4/1/2023	10%	$	1,770,000	$	-0-	$	-0-	$	1,770,000	$	-0-
12/16/2008	4/1/2023	12%		4,000,000		-0-		-0-		4,000,000		-0-
Total			$	5,770,000	$	-0-	$	-0-	$	5,770,000	$	-0-

The following table summarizes the convertible debt outstanding as of December 31, 2018.

					Carrying amount
Date of	Maturity	Interest	Principal at		Short term				Long term
issuance	date	rate	December 31, 2018		Related		Non related		Related		Non related
8/29/2008	4/1/2020	10%	$	1,770,000	$	-0-	$	-0-	$	1,770,000	$	-0-
12/16/2008	4/1/2020	12%		4,000,000		-0-		-0-		4,000,000		-0-
12/16/2008	4/1/2021	12%		200,000		-0-		-0-		-0-		200,000
Total			$	5,970,000	$	-0-	$	-0-	$	5,770,000	$	200,000

10% Convertible Notes

During 1999, the Company issued 10% Convertible Notes payable in the amount of $862,500 pursuant to a Confidential Private Placement Memorandum. There were costs of $119,625 associated with this offering. The net proceeds to the Company were $742,875. The notes bear interest at 10% annually, payable semi-annually. The notes were convertible after maturity, which was June 30, 2004, into shares of common stock of the Company at $1.25 per share. On September 30, 2018, the final $50,000 note was repaid in full along with the accrued interest of $96,949. As of June 30, 2019, $862,500 of the Convertible Notes had been repaid in cash or converted into 1,495,179 shares of common stock of the Company leaving an outstanding principal balance of $-0-.

Convertible Debentures

August 2008

On August 29, 2008, the Company sold $2,270,000 of convertible debentures and warrants to purchase an aggregate of 4,540,000 shares of our common stock to four accredited investors including our then Chief Executive Officer and Director, Cornelis F. Wit (“Mr. Wit”) and one of our then Directors. The convertible debentures, which bear interest at 10% per annum, were due on August 29, 2010. The convertible debentures are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.50 per share.

On September 30, 2009, the Company and two Affiliates of the Company extended $1,920,000 of the convertible debentures until August 29, 2013 in accordance with the terms of a Secured Convertible Debenture issued on that date. The expiration date of the warrants associated with the debentures was also extended to August 29, 2013.

On February 22, 2013, the Company and Mr. Wit extended the maturity date of $1,770,000 of the convertible debentures to January 1, 2016. The expiration date of the warrants associated with the debentures was also extended to January 1, 2016.

On February 22, 2013, the Company and Mr. van Kesteren extended the maturity date of $150,000 of the convertible debentures due to our former Director, Guus van Kesteren (“Mr. van Kesteren”) to January 1, 2015. The expiration date of the warrants associated with the debentures was also extended to January 1, 2015.

On April 21, 2014, the Company and Mr. van Kesteren extended the maturity date of his $150,000 of convertible debentures to April 1, 2016. The expiration date of the warrants associated with the debentures was also extended to April 1, 2016. On July 31, 2014 Mr. van Kesteren’s term on the Board of Directors ended. Effective on the same date, his convertible note in the amount of $150,000 was reclassified from Related Party to Non-Related Party.

On January 31, 2015, the Company and Mr. Wit extended the maturity date of the $1,770,000 of convertible debentures to April 1, 2017. The expiration date of the warrants associated with the debentures was also extended to April 1, 2017.

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OMNICOMM SYSTEMS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND JUNE 30, 2018

(unaudited)

On June 30, 2015, the Company and Mr. van Kesteren extended the maturity date of $150,000 of convertible debentures to April 1, 2017. The expiration date of the warrants associated with the debentures was also extended to April 1, 2017.

On June 30, 2016, the Company and Mr. Wit extended the maturity date of the $1,770,000 of convertible debentures to April 1, 2020. The expiration date of the warrants associated with the debentures was also extended to April 1, 2020.

On June 30, 2016, the Company and Mr. van Kesteren extended the maturity date of $150,000 of convertible debentures to April 1, 2018. The expiration date of the warrants associated with the debentures was also extended to April 1, 2018.

On June 30, 2017, the Company and Mr. van Kesteren extended the maturity date of $150,000 of convertible debentures to April 1, 2019. The expiration date of the warrants associated with the debentures was also extended to April 1, 2019. The $150,000 of convertible debentures was repaid in full on June 30, 2018.

On June 30, 2019, the Company and Mr. Wit extended the maturity date of the $1,770,000 of convertible debentures to April 1, 2023. The expiration date of the warrants associated with the debentures was also extended to April 1, 2023.

December 2008

On December 16, 2008, the Company sold $5,075,000 of convertible debentures and warrants to purchase an aggregate of 10,150,000 shares of common stock to eleven accredited investors, including our then Chief Executive Officer and Director, Cornelis F. Wit (“Mr. Wit”), our then Chief Operating Officer and President, Stephen E. Johnson (“Mr. Johnson”), our then Chief Technology Officer, Randall G. Smith (“Mr. Smith”), our then Chief Financial Officer, Ronald T. Linares and four of our then Directors. The convertible debentures, which bear interest at 12% per annum, were due on December 16, 2010. The convertible debentures are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.50 per share.

On September 30, 2009, the Company and eight Affiliates of the Company extended $4,980,000 of the convertible debentures until December 16, 2013 in accordance with the terms of a Secured Convertible Debenture issued on that date. The expiration date of the warrants associated with the convertible debentures was also extended to December 16, 2013.

On February 22, 2013, the Company and the holders agreed to extend the maturity date of $4,505,000 of the convertible debentures including $4,475,000 due to Mr. Wit, $25,000 due to Mr. Johnson and $5,000 due to Mr. Smith, to January 1, 2016. The expiration date of the warrants associated with the debentures was also extended to January 1, 2016.

On February 27, 2013, the Company and our former director Mr. Veatch extended the maturity date of $15,000 of the convertible debentures to January 1, 2016. The expiration date of the warrants associated with the debentures was also extended to January 1, 2016.

On March 6, 2013, the Company and the holder extended the maturity date of $200,000 of convertible debentures to January 1, 2014. The expiration date of the warrants associated with the debentures was also extended to January 1, 2014.

On March 12, 2013, the Company and the holder agreed to extend the maturity date of $100,000 of convertible debentures to January 1, 2015. The expiration date of the warrants associated with the debentures was also extended to January 1, 2015.

In December 2013, the Company and two holders agreed to extend the maturity date of $360,000 of the convertible debentures, including $160,000 due to our then director, Guus van Kesteren (“Mr. van Kesteren”), to January 1, 2016. The expiration date of the warrants associated with the debentures was also extended to January 1, 2016. On July 31, 2014 Mr. van Kesteren’s term on the Board of Directors ended. Effective on the same date, his convertible note in the amount of $160,000 was reclassified from Related Party to Non-Related Party.

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OMNICOMM SYSTEMS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND JUNE 30, 2018

(unaudited)

On April 28, 2014, the Company and the holder extended the maturity date of $100,000 of convertible debentures to April 1, 2016. The expiration date of the warrants associated with the debentures was also extended to April 1, 2016.

On January 31, 2015, the Company and Mr. Wit extended the maturity date of $4,475,000 of convertible debentures to April 1, 2017. The expiration date of the warrants associated with the debentures was also extended to April 1, 2017. On November 19, 2015, the Company and Mr. Wit agreed to cancel $420,000 of the debentures and 1,680,000 of unrelated warrants in exchange for 1,680,000 shares of our common stock.

On April 27, 2015, the Company and the holder extended the maturity date of $200,000 of convertible debentures to April 1, 2018. The expiration date of the warrants associated with the debentures was also extended to April 1, 2018.

On April 30, 2015, the Company and Mr. Johnson extended the maturity date of $25,000 of convertible debentures to April 1, 2018. The expiration date of the warrants associated with the debentures was also extended to April 1, 2018. The convertible debentures were repaid in full on December 14, 2016.

On May 1, 2015, the Company and Mr. van Kesteren extended the maturity date of $160,000 of the convertible debentures to April 1, 2017. The expiration date of the warrants associated with the debentures was also extended to April 1, 2017.

On May 1, 2015, the Company repaid $5,000 of the convertible debentures to Mr. Smith.

On May 7, 2015, the Company and Mr. Veatch, extended the maturity date of $15,000 of the convertible debentures to April 1, 2018. The expiration date of the warrants associated with the debentures was also extended to April 1, 2018. The $15,000 of convertible debentures were repaid in full on December 14, 2016.

On June 30, 2015, the Company and the holder extended the maturity date of $100,000 of convertible debentures to April 1, 2017. The expiration date of the warrants associated with the debentures was also extended to April 1, 2017.

On June 30, 2016, the Company and Mr. Wit extended the maturity date of $4,055,000 of convertible debentures to April 1, 2020. The expiration date of the warrants associated with the debentures was also extended to April 1, 2020. On August 31, 2017, the Company repaid $55,000 of the convertible debentures to Mr. Wit.

On June 30, 2016, the Company and Mr. van Kesteren extended the maturity date of $160,000 of the convertible debentures to April 1, 2018. The expiration date of the warrants associated with the debentures was also extended to April 1, 2018. The $160,000 of convertible debentures was repaid in full on December 14, 2016.

On June 30, 2016, the Company and the holder extended the maturity date of $100,000 of convertible debentures to April 1, 2020. The expiration date of the warrants associated with the debentures was also extended to April 1, 2020. The $100,000 of convertible debentures was repaid in full on August 31, 2017.

On June 30, 2017, the Company and the holder extended the maturity date of $200,000 of the convertible debentures to April 1, 2021. The expiration date of the warrants associated with the debentures was also extended to April 1, 2021. The $200,000 of convertible debentures was repaid in full on June 30, 2019.

On June 30, 2019, the Company and Mr. Wit extended the maturity date of $4,000,000 of convertible debentures to April 1, 2023. The expiration date of the warrants associated with the debentures was also extended to April 1, 2023.

Table of Contents

OMNICOMM SYSTEMS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND JUNE 30, 2018

(unaudited)

The principal payments required at maturity under the Company’s outstanding convertible debt at June 30, 2019 are as follows:

Year	Amount
2019	$	-0-
2020		-0-
2021		-0-
2022		-0-
2023		5,770,000
Total	$	5,770,000

NOTE 9:

FAIR VALUE MEASUREMENT

The Company measures the fair value of its assets and liabilities under the guidance of ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), which defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but its provisions apply to all other accounting pronouncements that require or permit fair value measurement.

ASC 820 clarifies that fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based on the highest and best use of the asset or liability. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. ASC 820 requires the Company to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:

●

Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets;

●

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly such as quoted prices for similar assets or liabilities or market-corroborated inputs; and

●

Level 3: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions about how market participants would price the assets or liabilities.

The valuation techniques that may be used to measure fair value are as follows:

Market approach - Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities

Income approach - Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about those future amounts, including present value techniques, option-pricing models and excess earnings methods

Cost approach - Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost)

The Company also adopted the provisions of ASC 825, Financial Instruments (“ASC 825”). ASC 825 allows companies to choose to measure eligible assets and liabilities at fair value with changes in value recognized in earnings. Fair value treatment may be elected either upon initial recognition of an eligible asset or liability or, for an existing asset or liability, if an event triggers a new basis of accounting. The Company did not elect to re-measure any of its existing financial assets or liabilities under the provisions of this Statement.

The Company’s financial assets or liabilities subject to ASC 820 as of June 30, 2019 include the conversion feature and warrant liability associated with convertible debentures issued during 2008 and 2009 and the warrants issued during 2016 that are associated with notes payable. The conversion feature and warrants were deemed to be derivatives (the “Derivative Instruments”) since a fixed conversion price cannot be determined for either of the Derivative Instruments due to anti-dilution provisions embedded in the offering documents for the convertible debentures. The derivative instruments were not issued for risk management purposes and as such are not designated as hedging instruments under the provisions of ASC 815, Disclosures about Derivative Instruments and Hedging Activities. See Note 8 – Convertible Notes Payable.

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OMNICOMM SYSTEMS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND JUNE 30, 2018

(unaudited)

Following is a description of the valuation methodologies used to determine the fair value of the Company’s financial liabilities including the general classification of such instruments pursuant to the valuation hierarchy.

A summary, as of June 30, 2019, of the fair value of liabilities measured at fair value on a recurring basis follows:

	Fair value at		Quoted prices in active markets for identical assets/ liabilities		Significant other observable inputs		Significant unobservable inputs
Derivatives: (1) (2)	June 30, 2019		(Level 1)		(Level 2)		(Level 3)
Conversion feature liability	$	1,526,170	$	-0-	$	-0-	$	1,526,170
Warrant liability		1,872,949		-0-		-0-		1,872,949
Total of derivative liabilities	$	3,399,119	$	-0-	$	-0-	$	3,399,119

(1) The fair value of the derivative instruments was estimated using the Income Approach and the Black Scholes option pricing model with the following assumptions for the period ended June 30, 2019.

(2) The fair value at the measurement date is equal to the carrying value on the balance sheet.

	Significant valuation assumptions for derivative instruments at June 30, 2019
Risk free interest rate	2.16%	to	2.34%
Dividend yield		0.00%
Expected volatility	99.7%	to	110.4%
Expected life (range in years)
Conversion feature liability	3.76	to	3.76
Warrant liability	0.76	to	3.76

A summary, as of December 31, 2018, of the fair value of liabilities measured at fair value on a recurring basis follows:

	Fair value at		Quoted prices in active markets for identical assets/ liabilities		Significant other observable inputs		Significant unobservable inputs
Derivatives: (1) (2)	December 31, 2018		(Level 1)		(Level 2)		(Level 3)
Conversion feature liability	$	706,339	$	-0-	$	-0-	$	706,339
Warrant liability		1,288,899		-0-		-0-		1,288,899
Total of derivative liabilities	$	1,995,238	$	-0-	$	-0-	$	1,995,238

(1) The fair value of the derivative instruments was estimated using the Income Approach and the Black Scholes option pricing model with the following assumptions for the year ended December 31, 2018.

(2) The fair value at the measurement date is equal to the carrying value on the balance sheet.

	Significant valuation assumptions for derivative instruments at December 31, 2018
Risk free interest rate	2.70%	to	2.70%
Dividend yield		0.00%
Expected volatility	92.2%	to	97.0%
Expected life (range in years)
Conversion feature liability	1.25	to	2.25
Warrant liability	0.00	to	2.25

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OMNICOMM SYSTEMS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND JUNE 30, 2018

(unaudited)

A summary, as of June 30, 2019, of the fair value of assets measured at fair value on a non-recurring basis follows:

	Carrying amount		Carrying amount		Quoted prices in active markets for identical assets/ liabilities		Significant other observable inputs		Significant unobservable inputs
Acquired assets (1)	December 31, 2018		June 30, 2019		(Level 1)		(Level 2)		(Level 3)
Promasys B.V. customer list (2) (3)	$	-0-	$	-0-	$	-0-	$	-0-	$	136,253
Promasys B.V. software code (2)		-0-		-0-		-0-		-0-		72,943
Acuity software code (4)		730,835		555,435		-0-		-0-		1,052,403
Total	$	730,835	$	555,435	$	-0-	$	-0-	$	1,261,599

(1) The fair value of the acquired assets was estimated using the Income Approach with a discounted cash flow valuation methodology applied.

(2) The acquired Promasys B.V. software code and customer list are not measured on a recurring basis since their initial fair value has been deemed to have a finite life and is being amortized periodically. Instead, the Company performs an impairment analysis on a quarterly basis in order to determine whether the carrying value of the assets reflects the fair value of the assets in a market based transaction.

(3) During the second quarter of 2018 we recognized an impairment loss of $79,634 on the Promasys B.V. customer list after performing a fair value analysis on the asset utilizing a discounted cash flow model. The impairment charge is separately presented on the Statement of Operations.

(4) The acquired Acuity software code is not measured on a recurring basis since the initial fair value has been deemed to have a finite life and is being amortized periodically. Instead, the Company performs an impairment analysis on a quarterly basis in order to determine whether the carrying value of the assets reflects the fair value of the assets in a market based transaction.

A summary, as of December 31, 2018, of the fair value of assets measured at fair value on a non-recurring basis follows:

	Carrying amount		Carrying amount		Quoted prices in active markets for identical assets/ liabilities		Significant other observable inputs		Significant unobservable inputs
Acquired assets (1)	December 31, 2017		December 31, 2018		(Level 1)		(Level 2)		(Level 3)
Promasys B.V. customer list (2) (3)	$	85,786	$	-0-	$	-0-	$	-0-	$	136,253
Promasys B.V. software code (2)		12,139		-0-		-0-		-0-		72,943
Acuity software code (4)		-0-		730,835		-0-		-0-		1,052,403
Total	$	97,925	$	730,835	$	-0-	$	-0-	$	1,261,599

(1) The fair value of the acquired assets was estimated using the Income Approach with a discounted cash flow valuation methodology applied.

Other identifiable intangible assets, which are subject to amortization, are being amortized using the straight-line method over their estimated useful lives ranging from 3 to 15 years. The Impairment or Disposal of Long-Lived Asset subsection of ASC 360, Property, Plant and Equipment requires us to test the recoverability of long-lived assets, including identifiable intangible assets with definite lives, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In testing for potential impairment, if the carrying value of the asset group exceeds the expected undiscounted cash flows, we must then determine the amount by which the fair value of those assets exceeds the carrying value and determine the amount of impairment, if any.

The table below presents the unrealized gains/(losses) for the six month periods ended June 30, 2019 and June 30, 2018.

	Other income/(expense)
	For the six months ended
	June 30, 2019			June 30, 2018
The net amount of gains/(losses) for the period included in earnings attributable to the unrealized and realized gains/(losses) from changes in derivative liabilities at the reporting date	$	(1,544,875	)	$	1,758,413

Total unrealized and realized gains/(losses) included in earnings	$	(1,544,875	)	$	1,758,413

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OMNICOMM SYSTEMS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND JUNE 30, 2018

(unaudited)

The tables below set forth a summary of changes in fair value of the Company’s Level 3 financial liabilities at fair value for the six month period ended June 30, 2019 and the year ended December 31, 2018. The tables reflect changes for all financial liabilities at fair value categorized as Level 3 as of June 30, 2019 and December 31, 2018.

The table below presents the Level 3 financial liabilities at fair value for the six month period ended June 30, 2019.

	Level 3 financial liabilities at fair value
									Net		Reclassification
									purchases,		of conversion
	Balance,								issuances		feature liability		Balance,
	beginning			Net realized		Net unrealized			and		associated with		end
Derivatives:	of year			gains/(losses)		gains/(losses)			settlements		convertible debt		of period
Conversion feature liability	$	(706,339	)	$	-0-	$	(846,044	)	$	-0-	$	26,213	$	(1,526,170	)
Warrant liability		(1,288,899	)		-0-		(698,831	)		114,781		-0-		(1,872,949	)
Total of derivative liabilities	$	(1,995,238	)	$	-0-	$	(1,544,875	)	$	114,781	$	26,213	$	(3,399,119	)

The table below presents the Level 3 financial liabilities at fair value for the year ended December 31, 2018.

	Level 3 financial liabilities at fair value
								Net		Reclassification
								purchases,		of conversion
	Balance,							issuances		feature liability		Balance,
	beginning			Net realized		Net unrealized		and		associated with		end
Derivatives:	of year			gains/(losses)		gains/(losses)		settlements		convertible debt		of year
Conversion feature liability	$	(1,685,947	)	$	-0-	$	969,108	$	-0-	$	10,500	$	(706,339	)
Warrant liability		(3,440,799	)		-0-		2,142,652		9,248		-0-		(1,288,899	)
Total of derivative liabilities	$	(5,126,746	)	$	-0-	$	3,111,760	$	9,248	$	10,500	$	(1,995,238	)

NOTE 10:

LEASES

We adopted ASU 2016-02, Leases ("Topic 842"), as of January 1, 2019, using the modified retrospective transition approach. The financial results reported in periods prior to 2019 are unchanged. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification and use hindsight to determine the lease term.

Adoption of the new standard resulted in additional operating lease liabilities and lease assets of $1,729,630, as of January 1, 2019. The standard did not materially impact our consolidated net income or cash flow classification.

Operating right of use asset and operating lease liability are recognized at the lease commencement date. Operating lease liability represents the present value of lease payments not yet paid. Operating right of use asset represent our right to use an underlying asset and are based upon the operating lease liability adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. The Company used our incremental borrowing rate to determine the present value of lease payments not yet paid.

If we enter into leases that contain multiple components, we identify separate lease components based on whether or not the right to use the underlying assets is distinct and either highly dependent or highly interrelated with other rights in the contract. We also evaluate whether there are any non-lease components in the arrangement. If separate lease and non-lease components are identified, we allocate the consideration in the contract to the lease and non-lease components at the lease inception.

We evaluate arrangements at inception to determine if lease components are included. An arrangement includes a lease component if it identifies an asset and we have control over the asset. For new leases beginning January 1, 2019 or later, we have elected to separate lease components from the non-lease components, included in an arrangement, when measuring the leased asset and leased liability.

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OMNICOMM SYSTEMS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND JUNE 30, 2018

(unaudited)

Lease assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet. We recognize lease expense on a straight-line basis over the lease term. The discount rate selected is our incremental borrowing rate.

Some of our leases include one or more options to extend the lease term. Certain leases also include options to terminate early. Optional periods may be included in the lease term and measured as part of the lease asset and lease liability if we are reasonably certain to exercise our right to use the leased asset during the optional periods. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company currently leases office space under operating leases for most of its office locations and has operating leases related to server and network co-location and disaster recovery for its operations. The Company’s Fort Lauderdale, Florida corporate office lease expires in February 2023. The Company’s lease on its New Jersey field office was terminated on June 30, 2019. The employees began working remotely on July 1, 2019. The Company currently operates its wholly-owned subsidiary, OmniComm Ltd., in the United Kingdom under the terms of a lease that expires in September 2020. The Company currently operates its wholly-owned subsidiary, OmniComm Europe, GmbH, in Germany under the terms of a lease that expires in July 2020. The Company currently operates its wholly-owned subsidiary, OmniComm eClinical Solutions Pvt. Ltd., in India under the terms of a lease that expires in May 2023. The Company currently operates its wholly-owned subsidiary, OmniComm Systems B.V, in the Netherlands under the terms of an agreement that expires in October 2019. Our offices in Barcelona, Spain and Tokyo, Japan are administered under service agreements that include the use of office space and other services.

Supplemental balance sheet information related to leases was as follows:

Operating Leases	Classification	June 30, 2019
Right-of-use assets	Operating lease assets	$	1,249,907

Current lease liability	Current operating lease liability		516,748
Non-current lease liability	Long term operating lease liability		833,709
Total lease liabilities		$	1,350,457

Our weighted average lease terms and discount rates are as follows:

	June 30, 2019
Weighted-average remaining lease term (in years)
Operating leases		3.87
Finance leases		1.90

Weighted-average discount rate
Operating leases		4.50	%
Finance leases		6.94	%

The components of lease cost were as follows:

	June 30, 2019
Operating lease cost	$	337,110
Variable lease cost (1)		290,200
Total lease liabilities	$	627,310

(1) Variable lease cost primarily relates to common area maintenance, property taxes and insurance on leased real estate

Supplemental disclosures of cash flow information related to leases were as follows:

	For the six months ended June 30, 2019
Cash paid for operating lease cost	$	338,685

Operating lease assets obtained in exchange for operating lease liabilities	$	1,729,630

The minimum future lease payments required under the Company’s operating leases at June 30, 2019 are as follows:

Year	Payments
2019	$	275,228
2020		429,392
2021		329,170
2022		341,173
Thereafter		76,628
Total undiscounted lease payments		1,451,591
Less: amount representing interest		(101,134	)
Present value of lease payments	$	1,350,457

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OMNICOMM SYSTEMS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND JUNE 30, 2018

(unaudited)

As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease accounting, minimum future lease payments were as follows as of December 31, 2018:

Year	Payments
2019	$	655,901
2020		414,973
2021		340,029
2022		340,270
Thereafter		76,243
Total	$	1,827,416

In addition to annual base rental payments, the Company pays for the operating expenses associated with its leased office space and is responsible for any escalation in operating expenses as determined in the leases. Rent expense was $634,520 and $593,148 for the six month periods ended June 30, 2019 and June 30, 2018, respectively.

The Company currently leases computer hardware for its operations under leases classified as finance leases. The leased equipment is amortized on a straight line basis over five years. Our finance lease costs for the six month period ending June 30, 2019 was $65,228. The minimum future lease payments required under the Company’s finance leases at June 30, 2019 are as follows:

Year	Payments
2019	$	65,426
2020		130,853
2021		52,290
Total minimum capital lease payments		248,569
Less: Amount representing interest		(15,075	)
Present value of minimum capital lease payments	$	233,494

NOTE 11:

COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

From time to time the Company may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of June 30, 2019, there were no pending legal proceedings to which the Company or its subsidiaries are a party or to which any of its property is subject that could reasonably be expected to have a material effect on the results of our operations.

EMPLOYMENT AGREEMENTS

We have employment agreements in place with the following members of our executive management team:

Cornelis F. Wit, Executive Chairman

Randall G. Smith, Executive Vice Chairman

Stephen E. Johnson, Chief Executive Officer and President

Thomas E. Vickers, Chief Financial Officer

The employment agreements provide, among other things, for participation in employee benefits available to employees and executives. Each of the agreements will renew for successive one-year terms unless the agreement is expressly terminated by either the employee or the Company prior to the end of the then current term as provided for in the employment agreement. Under the terms of the agreement, we may terminate the employee’s employment upon 30 or 60 days notice of a material breach and the employee may terminate the agreement under the same terms and conditions. The employment agreements contain non-disclosure provisions, as well as non-compete clauses. The agreements for Mr. Smith, Mr. Johnson and Mr. Vickers contain severance provisions which entitles the employee to severance pay equal to one (1) year's salary and benefits in the event of (i) the employee's termination by the Company for any reason other than for cause, as described in the employment agreement, (ii) termination by the employee pursuant to a material breach of the agreement by the Company or for good reason in connection with a change of control, or (iii) non-renewal of the employment agreement by the Company.

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OMNICOMM SYSTEMS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND JUNE 30, 2018

(unaudited)

NOTE 12:

RELATED PARTY TRANSACTIONS

As of June 30, 2019, we have an aggregate of $5,770,000 of convertible debentures outstanding to our Executive Chairman and Executive Chairman of the Board, Cornelis F. Wit (“Mr. Wit”) and have issued certain warrants to Mr. Wit, as follows:

●

In June 2008, Mr. Wit invested $510,000 in convertible notes. On August 29, 2008, Mr. Wit converted the $510,000 and invested an additional $1,260,000 in a private placement of convertible debentures and warrants to purchase 3,540,000 shares of our common stock. The convertible debentures, which bear interest at 10% per annum, were due on August 29, 2010. The convertible debentures are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.50 per share. On September 30, 2009, the Company and Mr. Wit extended the $1,770,000 of convertible debentures until August 29, 2013 in accordance with the terms of a Secured Convertible Debenture issued on that date. The expiration date of the warrants associated with the debentures was also extended to August 29, 2013.On February 22, 2013, the Company and Mr. Wit extended the maturity date of the $1,770,000 of convertible debentures to January 1, 2016. The expiration date of the warrants associated with the debentures was also extended to January 1, 2016. On January 31, 2015, the Company and Mr. Wit extended the maturity date of the $1,770,000 of convertible debentures to April 1, 2017. The expiration date of the warrants associated with the debentures was also extended to April 1, 2017. On June 30, 2016, the Company and Mr. Wit extended the maturity date of the $1,770,000 of convertible debentures to April 1, 2020. The expiration date of the warrants associated with the debentures was also extended to April 1, 2020. On June 30, 2019, the Company and Mr. Wit extended the maturity date of the $1,770,000 of convertible debentures to April 1, 2023. The expiration date of the warrants associated with the debentures was also extended to April 1, 2023.

●

In February 2008, Mr. Wit invested $150,000 in promissory notes and from September 2008 to December 2008, Mr. Wit invested $4,200,000 in convertible notes. On December 16, 2008, Mr. Wit converted the $4,350,000 into a private placement of convertible debentures and warrants to purchase 8,700,000 shares of our common stock. The convertible debentures, which bear interest at 12% per annum, were due on December 16, 2010. The convertible debentures are convertible at any time at the option of the holder into shares of our common stock based upon a conversion rate of $0.50 per share. On September 30, 2009, the Company and Mr. Wit extended the $4,350,000 of convertible debentures until December 16, 2013 in accordance with the terms of a Secured Convertible Debenture issued on that date. The expiration date of the warrants associated with the debentures was also extended to December 16, 2013. In a private transaction on October 16, 2012, Mr. Wit purchased $125,000 of the December 2008 convertible debentures and the related 250,000 warrants from Mr. Ronald Linares, the Company’s former Chief Financial Officer. On February 22, 2013, the Company and Mr. Wit extended the maturity date of the $4,475,000 of convertible debentures to January 1, 2016. The expiration date of the warrants associated with the debentures was also extended to January 1, 2016. On January 31, 2015, the Company and Mr. Wit extended the maturity date of the $4,475,000 of convertible debentures to April 1, 2017. The expiration date of the warrants associated with the debentures was also extended to April 1, 2017. On November 19, 2015, the Company and Mr. Wit agreed to cancel $420,000 of the debentures and 1,680,000 of unrelated warrants in exchange for 1,680,000 shares of our common stock. On June 30, 2016, the Company and Mr. Wit extended the maturity date of the $4,055,000 of convertible debentures to April 1, 2020. The expiration date of the warrants associated with the debentures was also extended to April 1, 2020. On August 31, 2017, the Company repaid $55,000 to Mr. Wit. On June 30, 2019, the Company and Mr. Wit extended the maturity date of the $4,000,000 of convertible debentures to April 1, 2023. The expiration date of the warrants associated with the debentures was also extended to April 1, 2023.

●

On February 29, 2016, the Company issued a promissory note in the principal amount of $450,000 and warrants to purchase 1,800,000 shares of common stock of the Company at an exercise price of $0.25 per share with an expiration date of April 1, 2019 to Mr. Wit in exchange for accrued interest in the amount of $450,000. The note carries an interest rate of 12% per annum and has a maturity date of April 1, 2019. On Aug 31, 2017, the Company repaid $50,000 to Mr. Wit. On December 27, 2018, the Company and Mr. Wit cancelled the remaining outstanding $400,000 in principal in exchange for the exercise price of $400,000 for 1,600,000 warrants of the 2,000,000 warrants with an exercise price of $0.25 per share that he exercised on that date.

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OMNICOMM SYSTEMS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND JUNE 30, 2018

(unaudited)

On March 18, 2013, the Company entered into a $2,000,000 revolving Line of Credit (“Line of Credit”) with The Northern Trust Company guaranteed by our then Chief Executive Officer and Director, Cornelis F. Wit. Mr. Wit receives 2.0% interest (approximately $9,500 per month) from the Company on the assets pledged for the Line of Credit. On December 18, 2013, the Company renewed the Line of Credit and increased the available balance to $4,000,000. On February 3, 2015, the Company renewed the Line of Credit and increased the available balance to $5,000,000. On April 7, 2017, the Company renewed the Line of Credit. The Line of Credit currently matures on April 7, 2020 and carries a variable interest rate based on the prime rate. At June 30, 2019, $1,900,000 was outstanding on the Line of Credit at an interest rate of 4.50%.

For the six month period ended June 30, 2019 we incurred $382,331 in interest expense payable to related parties and $453,080 for the six month period ended June 30, 2018.

NOTE 13:

STOCKHOLDERS’ (DEFICIT)

Our authorized capital stock consists of 500,000,000 shares of common stock, $0.001 par value per share and 10,000,000 shares of preferred stock, par value $0.001 per share, of which 5,000,000 shares have been designated as 5% Series A Preferred Stock, 230,000 shares have been designated as Series B Preferred Stock, 747,500 shares have been designated as Series C Preferred Stock and 250,000 shares have been designated as Series D Preferred Stock.

As of June 30, 2019 we had the following outstanding securities:

	○	160,190,785 shares of common stock issued and outstanding;
	○	17,920,000 warrants issued and outstanding to purchase shares of our common stock;
	○	2,320,000 options issued and outstanding to purchase shares of our common stock;
	○	250,000 shares of our Series D Preferred Stock issued and outstanding; and
	○	$5,770,000 principal amount of Convertible Debentures and $54,000 of accrued interest convertible into 11,540,000 and 108,000 shares of common stock, respectively.

Common Stock

Holders of common stock are entitled to one vote for each share on all matters submitted to a stockholder vote. Holders of our voting securities do not have cumulative voting rights. Holders of common stock are entitled to share in all dividends that the Board of Directors, in its discretion, declares from legally available funds. In the event of our liquidation, dissolution or winding up each outstanding share of common stock entitles its holder to participate in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock.

Holders of common stock have no conversion, preemptive or other subscription rights, and there are no redemption provisions for the common stock. The rights of the holders of common stock are subject to any rights that may be fixed for holders of preferred stock, when and if any preferred stock is outstanding. All outstanding shares of common stock are duly authorized, validly issued, fully paid and non-assessable.

On January 1, 2019 the Company issued 1,800,000 shares of common stock to Randall G. Smith, our Executive Vice Chairman, upon the exercise of 1,800,000 warrants with an exercise price of $0.25 per share for an aggregate purchase price of $450,000.

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OMNICOMM SYSTEMS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND JUNE 30, 2018

(unaudited)

On March 14, 2019, the Company entered into restricted stock award agreements (“RSAs”) with its Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and Chief Technology Officer intended to provide incentive to the executives to ensure certain economic performance of the Company. Under the terms of the RSAs, each executive was awarded 225,000 performance related restricted shares of the Company's common stock subject to forfeiture restrictions based on certain milestones having been met for the year ended December 31, 2019 as follows: a) 75,000 performance related shares are subject to individual performance, b) 75,000 performance related shares shall be forfeited if the Company's 2019 revenue does not equal or exceed $32.5 million and the Company’s 2019 Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") does not equal or exceed $6.5 million, and c) 75,000 performance related shares shall be forfeited if the Company's 2019 revenue does not equal or exceed $33.9 million and the Company’s 2019 EBITDA does not equal or exceed $6.8 million. The restrictions on 1/3 of the awarded performance shares will lapse on the 1st of April in 2020, 2021 and 2022 provided the individual remains an employee of the Company. The restricted shares granted under the RSAs were valued as of the grant date at $0.28 per share.

On March 21, 2019 the Company issued 209,694 shares of common stock to an employee upon the cashless exercise of 1,000,000 warrants with an exercise price of $0.25 per share.

On April 1, 2019, the Company issued 800,000 shares of common stock to Mr. Wit, our Executive Chairman, upon the exercise of 800,000 warrants with an exercise price of $0.25 per share for an aggregate purchase price of $200,000.

On April 30, 2019, the Company issued 50,000 shares of common stock to an employee upon the exercise of 50,000 options granted under the 2009 Equity Incentive Plan with an exercise price of $0.17 per share for an aggregate purchase price of $8,500.

On June 13, 2019, the Company entered into restricted stock award agreements (“RSAs”) with each member of the Board of Directors. Under the terms of the RSAs, each Director was awarded 200,000 performance related restricted shares of the Company's common stock subject to forfeiture restrictions based on certain milestones having been met for the year ended December 31, 2019 as follows: 75,000 performance related shares shall be forfeited if the Company's 2019 revenue does not equal or exceed $32.5 million and the Company’s 2019 Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") does not equal or exceed $6.5 million. The restrictions on the awarded performance shares will lapse on the day prior to the 2020 Annual Stockholder Meeting provided the individual remains a Director of the Company. The restricted shares granted under the RSAs were valued as of the grant date at $0.25 per share.

On June 30, 2019, the Company reinstated 62,444 shares of common stock to adjust a historical discrepancy from 2008.

Preferred Stock

Our Board of Directors, without further stockholder approval, may issue preferred stock in one or more series from time to time and fix or alter the designations, relative rights, priorities, preferences, qualifications, limitations and restrictions of the shares of each series. In addition, the Board of Directors may fix and determine all privileges and rights of the authorized preferred stock series including:

	○	dividend and liquidation preferences;
	○	voting rights;
	○	conversion privileges; and
	○	redemption terms.

Our Board of Directors may authorize the issuance of preferred stock which ranks senior to our common stock for the payment of dividends and the distribution of assets on liquidation. In addition, our Board of Directors can fix limitations and restrictions, if any, upon the payment of dividends on our common stock to be effective while any shares of preferred stock are outstanding.

The following table presents the cumulative arrearage of undeclared dividends by class of preferred stock as of June 30, 2019 and June 30, 2018, respectively, and the per share amount by class of preferred stock.

	Cumulative arrearage as of				Cumulative arrearage per share as of
	June 30,				June 30,
Series of preferred stock	2019		2018		2019		2018
Series B	$	609,887	$	609,887	$	3.05	$	3.05
Series C		1,472,093		1,472,093	$	4.37	$	4.37
Total preferred stock arrearage	$	2,081,980	$	2,081,980

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OMNICOMM SYSTEMS, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019 AND JUNE 30, 2018

(unaudited)

Warrants Issued in Capital Transactions

The following tables summarize all outstanding warrants for the six month period ended June 30, 2019 and the year ended December 31, 2018, and the related changes during these periods.

June 30, 2019

Warrants outstanding

Warrants exercisable

Weighted average

Range of exercise price

Number outstanding

remaining contractual life

exercise price

Number exercisable

exercise price

$0.25

–

$0.60

17,920,000

2.71

0.49

17,920,000

0.49

December 31, 2018

Warrants outstanding

Warrants exercisable

Weighted average

Range of exercise price

Number outstanding

remaining contractual life

exercise price

Number exercisable

exercise price

$0.25

–

$0.60

22,020,000

1.06

0.45

22,020,000

0.45

Warrants
Balance at December 31, 2017	27,020,000
Issued	-0-
Exercised	(4,000,000	)
Expired/forfeited	(1,000,000	)
Balance at December 31, 2018	22,020,000
Issued	-0-
Exercised	(3,600,000	)
Expired/forfeited	(500,000	)
Balance at June 30, 2019

OMNICOMM SYSTEMS INC 10-Q