10-K/A 1 omcm20140905_10ka.htm FORM 10-K/A omcm20131231_10k.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

  


FORM 10-K/A

Amendment No. 1

 

 ☒

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

  

For the fiscal year ended December 31, 2013

 

 ☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File No. 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)

(I.R.S. Employer Identification No.)

2101 West Commercial Blvd, Suite 3500

Fort Lauderdale, FL 33309

(Address of principal executive offices)

 (954)473-1254

 (Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

None

 

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 par value per share

(Title of class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  ☐  No  ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.  Yes  ☐  No  ☒

 

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 such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☐  No  ☒

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  ☒  No  ☐

 

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

 

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

 

Large Accelerated Filer  ☐

Accelerated Filer  ☐

Non-accelerated filer  ☐

Smaller reporting company  ☒

  

 
 

 

 

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

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked prices of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

 

Date

Non-Affiliate Voting Shares Outstanding

Aggregate Market Value

June 28, 2013

72,636,733

$15,980,081

 

Our common stock trades on the Over-the-Counter Bulletin Board (OTCBB).  Shares of voting stock held by each officer and director and by each person who owns 10% or more of the outstanding common stock have been excluded in that such person may be deemed to be affiliates.  This determination of affiliate status is not necessarily a conclusive determination for other purposes.  The registrant has no shares of non-voting stock authorized or outstanding.

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

 

Date

Class

Outstanding Shares

March 28, 2014

Common Stock, $0.001 par value per share

90,104,659

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the information to be set forth in our Proxy Statement to be filed by us pursuant to Regulation 14A relating to our 2014 Annual Meeting of Stockholders to be held on July 31, 2014 is incorporated by reference in Items 10, 11, 12, 13 and 14 of Part III of this Form 10-K.

  

 
 

 

 

EXPLANATORY NOTE

 

This Amendment No. 1 on Form 10-K/A (“Amendment”) amends our Annual Report on Form 10-K for the year ended December 31, 2013, that was filed with the Securities and Exchange Commission (“SEC”) on March 31, 2014 (the “Original Filing”). We are filing this Amendment to revise the following Items:

 

Item 1A of Part I - add discussion of risk factors associated with untimely filing of the disclosure pursuant to the provisions of Item 9 of Form 8-K and Article 8 of Regulation S-X under the Exchange Act in connection with our acquisition of Promasys B.V.

 

Item 7 of Part II under Overview – to expand our description of our CRO Preferred Program.

 

Item 7 of Part II under Cash and Cash Equivalents – to revise language regarding our collection of trade receivables.

 

Item 9A of Part II under Controls and Procedures – (i) to include additional disclosure under Evaluation of Disclosure Controls and Procedures as of December 31, 2013, and (ii) to revise the language pursuant to Item 308(c) of Regulation S-K under Changes in Internal Control over Financial Reporting.

 

Item 15 of Part IV Exhibits – to file the consent of our independent registered public accounting firm pursuant to Item 601(b)(23)(ii) of Regulation S-K.

 

Item 15 of Part IV Exhibits 31.1 and 31.2 - to revise the language and to file complete certifications pursuant to Item 601(b)(31)(i). The revised versions of Exhibits 31.1 and 31.2 supersede in their entirety Exhibits 31.1 and 31.2 to the Original Filing.

 

For the convenience of the reader, this Amendment sets forth the Original Filing, in its entirety, as modified and superseded where necessary to reflect the revisions noted above.

 

Except as set forth in the Items noted above, no other changes are made to the Original Filing. Unless expressly stated, this Amendment does not reflect events occurring after the filing of the Original Filing, nor does it modify or update in any way the disclosures contained in the Original Filing. Throughout this Amendment, references to the “Company,” “we,” “our,” or “us” refer to OmniComm Systems, Inc. and its consolidated subsidiaries, taken as a whole, unless the context otherwise indicates.

 

 
 

 

 

OMNICOMM SYSTEMS, INC.

ANNUAL REPORT ON

FORM 10-K/A

FOR THE YEAR ENDED DECEMBER 31, 2013

 

Table of Contents

  

  

Page

  

Part I

  

  

  

  

Item 1.

Business

  5

  

  

  

Item 1A.

Risk Factors

  19

  

  

  

Item 1B.

Unresolved Staff Comments

  26

  

  

  

Item 2.

Properties

27

  

  

  

Item 3.

Legal Proceedings

27

 

 

 

Item 4.

Mine Safety Disclosures

27

  

  

  

  

Part II

  

  

  

  

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

  27

  

  

  

Item 6.

Selected Financial Data

  28

  

  

  

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  28

  

  

  

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

41

  

  

  

Item 8.

Financial Statements and Supplementary Data

41

  

  

  

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

41

  

  

  

Item 9A.

Controls and Procedures

41

  

  

  

Item 9B.

Other Information

42

  

  

  

  

Part III

  

  

  

  

Item 10.

Directors, Executive Officers and Corporate Governance

42

  

  

  

Item 11.

Executive Compensation

42

  

  

  

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

42

  

  

  

Item 13.

Certain Relationships and Related Transactions; and Director Independence

42

  

  

  

Item 14.

Principal Accounting Fees and Services

42

  

  

  

  

Part IV

  

  

  

  

Item 15.

Exhibits, Financial Statement Schedules

43

  

  

  

Signatures

  

47

 

 
 

 

 

PART I.

 

ITEM 1.          BUSINESS

 

This business section and other parts of this Annual Report on Form 10-K (“Annual Report”) contain forward-looking statements that involve risk and uncertainties.  Our actual results may differ significantly from the results discussed in the forward-looking statements.  Factors that might cause such a difference include, but are not limited to, those set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Certain Factors That May Affect Future Results” and elsewhere in this Annual Report.  Reference to “us,” “we,” “our,” the “Company” means OmniComm Systems, Inc.® and our wholly owned subsidiaries OmniComm USA, Inc., OmniComm Ltd., OmniComm Europe GmbH, OmniComm Spain S.L. and Promasys B.V.

 

Overview

 

OmniComm Systems, Inc. provides Web-based electronic data capture (“EDC”) and eClinical (“eClinical”) software and services that streamline the clinical research process. Our eClinical software and service offerings (“eClinical Products” or “eClinical Solutions”) include TrialMaster®, TrialOne®, Promasys® and eClinical Suite™.  Our eClinical Products are designed to allow clinical trial sponsors and investigative sites to easily and securely collect, validate, transmit and analyze clinical study data. Our eClinical Products are 21 CFR Part 11 compliant solutions and are designed to offer clinical trial sponsors the ability to conduct clinical trials under multiple platforms, with significant flexibility, ease-of-use and with complete control over collected data.

 

Our eClinical Products offer significant business benefits to our customers and are designed to help clinical trial sponsors more efficiently conduct their clinical trials.  This efficiency can translate into more rapid initiation of data collection, less cost incurred in the data collection process and the ability to make more timely Go/No-Go decisions.   We also provide business process consulting services that focus on more effectively integrating EDC and the broader array of eClinical Solutions and processes into the clinical trial process.  Our goal is to provide our clients a data collection process that is streamlined, efficient and cost-effective.  We believe that our eClinical Solutions are significantly more efficient than the traditional paper collection methods employed by the clinical trial industry in the past.  TrialMaster has been designed to make the trial building process more efficient than the technologies deployed by our competitors.  We are in the process of integrating the TrialOne and the eClinical Suites with TrialMaster in order to provide an end-to-end eClinical solution for our clients.

 

The benefits of managing a clinical trial using our eClinical products include:

 

 

Real-Time Access to the Data.  Our eClinical products are designed to provide all interested parties with real-time access to study data over the Internet as it is generated. This allows for the monitoring of patient enrollments and study outcome related clinical trial metrics in a time-frame that allows study sponsors the ability to make effective study conduct related decisions.

 

Faster Study Completion: We believe our eClinical products and services save time at the back-end of a clinical trial by eliminating most of the time it takes for database "clean-up" when compared with studies completed by paper-based Case Report Forms (“CRF”s). This is done by eliminating most incorrect or incomplete entries at the time of entry.  This may be critical if there are any unanticipated future delays in either the commencement or conduct of the study.

 

Cost Savings: EDC involves fixed upfront system development costs.  The use of EDC can be even more cost effective when applied to multiple studies, which we believe is relatively easy to do in certain therapeutic areas, in which there are a few primary indications and the studies are relatively simple and similar in terms of the type of data captured.

 

Improved quality and visibility of results. Our eClinical software applications allow users engaged in clinical trials to enhance the quality and completeness of their data earlier in the clinical trial process by providing real-time data cleansing and eliminating duplicative manual entry of data. We believe decision making is enhanced through consistent access to reliable data, including allowing for adaptive trial design, the early identification and termination of unsuccessful trials and timely access to trial data that may identify significant safety concerns.

 

Comprehensive clinical development solution. We have designed our comprehensive solutions to provide support throughout the clinical development process, from providing consulting services in the protocol authoring process to preparing data for regulatory analysis and submission. We provide third-party technology providers with access to our application programming interface, or API, and developer tools, which facilitates integration with complementary business systems. Our eClinical Products can be integrated easily with auxiliary clinical and operational data systems, making it the core of a complete end-to-end solution.

 

 
5

 

 

According to a February 2012 study by PhRMA, developing a new medicine or therapy takes an average of 10 to 15 years.  The process begins with the identification of 5,000 to 10,000 potential compounds.  250 of these compounds will make it to the Preclinical stage after 3 to 6 years.  Then after 6 to 7 years of Phase 1, Phase 2 and Phase 3 Trials, each with potentially hundreds or thousands of volunteers, the U.S. Food and Drug Administration ("FDA") might grant approval to a single new drug.  All of the trials for the approved drug as well as the trials for all of the compounds that were abandoned during the research and development ("R&D") process require extensive data capture and tracking.  The effective use of EDC can help reduce the timeline to approval and help ensure data integrity.  The need for EDC does not end with FDA approval.  Post marketing surveillance and the related data capture go on for years after the drug is approved and marketed.  

 

Our Strategy

 

Our primary goal is to establish ourselves as a leading EDC and eClinical software and services provider by offering our customers the highest quality service with a differentiated, user-friendly product. Our eClinical Solutions are priced to provide a solid value, which we believe will stimulate customer demand.  We have increased the scope and quality of the products and services we offer.  We maintain a continuous focus on cost-containment and operating efficiencies. We intend to follow a controlled growth plan designed to take advantage of our competitive strengths. Historically, our growth has occurred through a combination of continued high-quality service to our existing clients and by adding new clients, often served by higher-cost EDC competitors or less effective “home-grown” EDC systems.  During 2013 we continued to update our products and increase their functionality to offer new solutions to our clients’ challenges. In December 2013, we released TrialMaster version 4.2.  This new release includes hundreds of innovative productivity and functionality enhancements, including additional features for auto-redaction for faster and more efficient centralized and risked based monitoring, and major new features for exporting data utilizing OmniComm’s Export Utility. During 2013 we expanded our product line and our global customer base through the acquisition of Promasys B.V.

 

Our business strategy is based upon leveraging the experience of our operations, business development and marketing teams; on building programs and services around our learned best practices; and on building on our existing business model by expanding our relationships and resources.  Key facets of our strategy include:

 

• 

Scope Expansion – We plan on expanding the scope of services and products offered within the eClinical product spectrum via organic product and service development, through strategic partnerships and relationships and through the selective use of acquisitions;

 

• 

Customer Base Expansion – We will seek to expand the customer base for our existing set of eClinical Solutions and we will design complementary solutions that will allow us to expand the universe of clients that we service; and

 

• 

Diversification – We will continue to diversify our revenue and customer base in order to avoid over-concentration of our business on any solution/product set or client-base.

 

We believe the following factors play a key role in the development of our strategic goals and in the implementation of the corresponding programs and services aimed at helping us achieve our strategic goals and operational objectives:

 

Expand our global customer base. We expect global EDC adoption to increase, resulting in significant growth in spending on EDC solutions. We will continue to pursue new relationships with large global pharmaceutical and biotechnology companies by leveraging our support infrastructure, unique language translation capabilities and industry expertise. In addition, we have marketing, sales and services resources dedicated to small and middle-market life sciences companies, since we believe this market represents an under-penetrated opportunity for customer expansion.

 

Stimulate Demand by providing Clinical Trial Sponsors with High Value eClinical Services and Products.  Deploying eClinical services and products can be an expensive proposition.  Each trial is considered a stand-alone project and can incur data collection costs that are, according to a CenterWatch report, approximately 8.5% of total drug development costs.  Our eClinical solutions have been designed to make the trial building process more efficient than the technologies deployed by our competitors and we have been able to provide pricing that is in many cases substantially lower than that of the competition.  We believe we provide a broad array of eClinical solutions, excellent customer service, including full project management and process improvement consulting - while maintaining significant gross margins.  The combination of our cost structure and our use of technology allows us to compete on both quality and price.

 

Increase Sales to our Existing Customers. We intend to increase the share of eClinical spending we receive from our existing customers by continuing to increase the scope of services and eClinical Products we offer. The two acquisitions completed in 2009 allowed us to add a dedicated Phase One solution, TrialOne, and a broad set of eClinical solutions including an enhanced reporting tool, a clinical trial management system (“CTMS”), a clinical data management system (“CDMS”) and a client portal that provides user dashboard functionality.  By offering end-to-end eClinical solutions to our customers, we believe we afford them the opportunity to experience seamless integration of the services and software products needed to bring their therapies to market.  We believe a suite of integrated eClinical Products and Services will diminish the total cost of ownership, increase the efficiency of the solutions we provide, and will allow us to capture revenues that are currently being spent with other eClinical solution providers.

 

 
6

 

 

Emphasize Low Operating Costs.  We are committed to keeping our operating and general and administrative costs low. We have achieved our high gross margins primarily by designing a flexible, customizable EDC product that does not require numerous hours of configuration time.  We believe that we use advanced technologies and employ a well incentivized, productive and highly professional workforce. We are continually focused on developing and implementing improvements that increase our efficiency and we believe that as we continue to integrate our three existing software platforms and services that we will enhance our ability to broaden our product line. We have already derived benefit from economies of scale by leveraging our current infrastructure over an expanded operation. Our acquisition of Promasys B.V. will allow us to further leverage our existing clinical, sales and administrative infrastructure.

 

Provide EDC Services to Small and Midsize Pharmaceutical, Bio-Technology and Medical Device Companies.  In considering new markets, we focus on service to markets that we believe are underserved. In determining which markets to select, we have analyzed the size of our potential markets and concluded that providing service to small and mid-sized firms provides a substantial marketing opportunity.  These firms conduct many thousands of clinical trials annually.  Most do not have the technological or financial resources to develop eClinical products such as eClinical Suite, TrialOne or TrialMaster and often prefer working with small companies themselves.  Yet, the advantages of eClinical services, such as quick trial deployment, cost-savings and more rapid Go/No-Go decisions are just as crucial to this size firm as to their Fortune 500 competitors.

 

Continue Expansion of Indirect Sales Through CRO Partnerships.  Penetrating the CRO market is an important component of our strategic plan.  CROs now employ more R&D personnel worldwide than the major pharmaceutical companies according to a February 2012 report by the Tufts Center for the Study of Drug Development.  By emphasizing CRO partnerships through our CRO Preferred Program™ we have been able to add a significant number of potential users for our products and services since outsourcing clinical trials in the US market is an established practice.  During 2013, the percentage of revenues from our CRO clients totaled approximately 27%.  We initiated the marketing of our CRO Preferred Program in early 2007 and as of December 31, 2013 we had approximately 40 CRO Partner relationships.  CRO partnerships allow us to leverage the selling and marketing capabilities of the CRO itself.  Our CRO strategy has allowed us to augment our selling efforts in a cost-effective manner by forging long-term strategic relationships with our CRO partners and their existing client base.  Our CRO partners gain the ability to manage the EDC decision making process proactively and add an extension to their line of products.  The CRO Preferred Program offers fixed pricing and pay-as-you-go Hosted Services.

 

Develop New Consulting Services.  Organizations are continually seeking advice and assistance in the implementation of tools and processes to better manage their clinical business and meet regulatory requirements.  Our experience working with many different sizes and types of organizations allows us to assist organizations with business strategy, business requirements, and customer software and integration solutions, all using tools, methods, and operating processes required for regulated data and applications.

 

Increase Public Relations and Marketing Activities.  We believe that targeted marketing efforts using web advertising campaigns, social networking tools, and industry publications and presentations will raise awareness and significantly increase sales opportunities.

 

Differentiate Through Service.  We believe that a key to our initial and long-term success is that we offer customers a robust EDC product and a distinctive experience that includes highly efficient integration with data imports and exports, quick set-up times and a growing list of eClinical enhancements.  Based on customer feedback, we believe our service is an important reason why our customers choose us over other EDC providers.

 

Penetrate the Large Pharma Market. Historically, we have had difficulty penetrating this market due to the size and scope of our operations.  Our long-term success in the eClinical market is predicated on leveraging the R&D, clinical and SG&A investments we have made over as large a group of clients and projects as possible.  It is typically more cost efficient, both to us and our clients, to deploy EDC and eClinical Solutions over a broader array of projects since EDC and eClinical solutions provide significant economies of scale from a human resources perspective when compared with traditional paper-based data collection methods.  The largest pharmaceutical companies have R&D budgets encompassing a significantly larger number of therapies and projects than others in the clinical trial space and are therefore in a position to spend more on EDC and eClinical Solutions.

 

Our Business Model

 

The scope of client clinical trial support service needs can vary from trial to trial.  Experience with EDC and other eClinical trial management solutions can also vary based on such factor as client size and sophistication.  Our approach to satisfying the diverse needs of our customers is a “crawl, walk, run” approach to Web-based EDC solutions.  We offer our eClinical Products under several business models including ASP as well as technology transition (“Technology Transition”) and technology transfer (“Technology Transfer”) models (both of which are considered licensed) which constituted 26% and 23%, respectively of our revenues for 2013.

 

 
7

 

   

We offer a fully hosted ASP model designed to let the client bring study administration and set-up services in-house yet continue to host the solution with us, as well as a complete Technology Transfer model for clients that want to bring their eClinical technology solution in-house. This methodology allows our customers to use our services at their own pace, given the logistics of their human resource, infrastructure and capital constraints.  This model allows us the flexibility to deliver eClinical solutions to a broader array of clinical trial sponsors.

 

Under our ASP and Technology Transition models, critical data is housed in Cincinnati Bell’s e-business center in Cincinnati, Ohio.  For Technology Transfer engagements, OmniComm provides an array of implementation services such as installation, configuration, training, and validation support to assist our customers during the migration of the eClinical software and services to client owned facilities.

 

ASP contracts provide for flexible pricing that is based on both the size and duration of the clinical trial.  Size parameters for ASP engagements include the number of CRFs used to collect data and the number of sites utilizing our eClinical Products.  The client pays a trial setup fee based on the previously mentioned factors and then pays an on-going maintenance fee for the duration of the clinical trial that provides software updates, network and site support during the trial. Generally, these contracts will range in duration from three months to five years.  Setup fees are generally earned prior to the inception of a trial; however, the revenues are recognized in accordance with SEC Staff Accounting Bulletin No. 104 “Revenue Recognition” codified within Accounting Standards Codification 605 – Revenue Recognition, which requires that the revenues be recognized ratably over the life of the contract.  The maintenance fee revenues are earned and recognized monthly.  Costs associated with contract revenues are recognized as incurred.  In the short-run this method of revenue recognition diminishes the revenues recognized on a periodic basis on our financial statements and obliges us to record a liability.  In the long-run, we believe this backlog of “unrecognized” revenue, which is recorded as deferred revenues on our balance sheet, will provide our customers and investors revenue visibility and provide meaningful information on the size and scope of our selling efforts.

 

Pricing for Technology Transition and Technology Transfer is based on the transfer of a license for one of our eClinical solutions either on a perpetual or term license basis.  Pricing for the license is determined by the number of named users of the licensee and the volume of CRF pages collected annually.  Under our Technology Transition model there is also an annual maintenance charge incurred for hosting and hosting related services.  As part of our licensing model we offer professional and consulting services.  The scope of services offered includes installation, implementation, validation and training services related to the purchase of an eClinical software application license.  In addition, our professional services team provides consulting services aimed at helping our clients adopt “best practices” related to eClinical use within their existing operations.  Professional and consulting services are generally offered on a time-and-materials basis.

 

Both the TrialOne software application and eClinical Suites have historically been, and are expected to be sold in the future, under Technology Transfer arrangements.  Technology Transfer and Technology Transition relationships afford our clients with the ability to license eClinical solutions on a more cost-effective basis.  However, these relationships are normally predicated on the client having the internal infrastructure needed to effectively deploy EDC and eClinical products and services.  Consequently, we have found and continue to expect the typical client that licenses our eClinical applications to be a mid-sized or larger CRO; biotechnology or pharmaceutical client that is testing multiple therapies over a significant number of projects.

 

The advantage to us of having the licensing business model is that it allows us to significantly increase our installed base of EDC clients with a concomitant increase in revenues; however, we are able to make smaller investments in incremental cost of goods sold.  We expect our gross margins under licensing arrangements to exceed those we have historically experienced under our ASP model.

 

Our Software Products and Services

 

To date, our software has been used to run over 4,000 clinical trials at approximately 40,000 clinical investigative sites worldwide.

 

TrialMaster Solution for Electronic Data Capture

 

Our core product is TrialMaster, which allows organizations conducting clinical trials to collect and manage their clinical trial data over the internet. Users at investigative sites such as hospitals and doctors' offices can enter data into electronic forms that represent the study protocol, and the data is immediately validated against a set of protocol-specific rules. For example, a rule could check that a medication start date is earlier than the medication stop date, and prompt the user to correct this before proceeding. Compared to paper studies such real-time feedback dramatically improves the initial data quality. This in turn decreases the time it takes to analyze the study results, helping pharmaceutical, biotech and medical device companies bring their products to market sooner.

 

TrialMaster has a number of competitive strengths when compared to other EDC products. A key differentiator is that the rule checks described above are implemented using JavaScript, giving a highly-responsive user experience. For example, if a medication is marked as “continuing”, the stop date field can be immediately disabled, preventing inconsistent data from being entered. Other products would allow inconsistent data to be entered and only catch the problem after the user saves the whole form, which is less friendly and considerably more time-consuming. Additionally, TrialMaster has an intuitive user interface, easy navigation, and robust tools for monitoring and tracking the state of the data at any time. Finally, TrialMaster has open Application Programming Interfaces (APIs) that allow other clinical trial applications to send and receive data over the internet. For example, laboratory data can be transmitted and loaded automatically, while an external project management system could inquire about how many patients were enrolled in a particular TrialMaster study and update a summary table accordingly.

 

 
8

 

 

TrialMaster has an integrated electronic learning system, a comprehensive set of standard reports and integrated ad-hoc reporting using a sophisticated business intelligence tool called LogiXML®.  TrialMaster allows the collected data to be extracted in a variety of standard formats, such as database tables, comma-delimited files, and SAS® datasets. The latest release also allows the data to be extracted in an industry-standard format called SDTM (Study Data Tabulation Model), simply by defining mappings between the input and output data structures. We believe this feature can save our customers considerable programming time.

 

It is standard practice to monitor all the data in the EDC system against the source medical records, an activity called Source Document Verification (SDV). In August 2011, the FDA issued draft guidance stating, among other things, that it was no longer necessary to perform 100% SDV, providing the data selection was part of a risk-based monitoring plan. TrialMaster includes a facility called “dynamic monitoring,” which allows organizations conducting clinical trials to select a subset of data for SDV based on a configurable, statistical algorithm. This capability allows TrialMaster customers to save significant costs in the conduct of clinical trials, since monitoring activities typically consume 30% of the total costs for a trial.

 

TrialBuilder® is the tool our customers and professional services staff use to model a clinical study. This includes the data collection forms, the data consistency rules and the visit schedule, as well as the workflow and security rules for accessing and managing the data. TrialBuilder is a sophisticated multi-window application with a productive user interface that utilizes drag-and-drop functionality. For example, to program the rule that a medication start date must be before the stop date, the user would simply drag the start and stop date fields into an expression window, and insert a “less than” sign between them. Our experience indicates that the TrialBuilder tool can be used to model a clinical study far more quickly than is possible with competitive products. This means our customers can get their studies enrolling patients more rapidly and at lower cost.

 

TrialMaster Archive allows us to provide human and machine readable copies of the data when a clinical study has been completed. The human-readable format consists of PDF files that represent the data exactly as it was displayed on the interactive web pages.  These are delivered to the client via CD in a read-only format, affording our clients and the FDA the ability to review clinical trial data by trial, site, patient, visit and form. Trial sponsors receive a CD with data for all sites including final data exports in the formats their TrialMaster study used.  Each site is provided with a CD with just their site specific data.  The program is self-contained, so no software is needed to view the CD, there are no minimum system requirements and an Internet connection is not required. The TrialMaster Archive also includes an optional Submission Module, which creates a casebook containing PDF formatted copies of all CRFs in FDA submission format.  This casebook is fully tabbed and bookmarked making it easy to find and view particular CRFs.

 

Hosting. Substantially all of our customers use our hosting services for TrialMaster at our dedicated data center in Cincinnati, Ohio, which is specifically designed to optimize the delivery of our application services and to ensure the availability and security of our customers’ research data. Our state of the art facility includes 24 by 7 staffing, enterprise class security, redundant power and cooling systems, large-scale data back-up capabilities and multiple Internet access points and providers.  In addition, we maintain back-up facilities and disaster recovery services out of a location in Fort Lauderdale, Florida.  We use Iron Mountain for offsite data storage.

 

Our hosting operations incorporate industry-standard hardware, databases and application servers in a flexible, scalable architecture. Elements of our applications’ infrastructure can be replaced or added with minimal interruption in service in order to reduce the likelihood that the failure of any single device will cause a broad service outage. We can scale to increasing numbers of customers by adding additional capacity in the form of servers and disk space. We have invested heavily in our data center operations to expand our storage capacity to meet increasing customer demands. Our storage architecture helps to ensure the safe, secure archiving of customers’ data and to deliver the speed and performance required to enable customers to access and manage their clinical study data in real-time.

 

Support. We have a multi-national organization to support our applications worldwide. We also offer 24 by 7 support to our customers’ investigator sites through multi-lingual help desks located in our US offices and in Bonn, Germany.

 

Consulting and Professional Services

 

Our services include delivery of our hosted solutions and consulting services, customer support and training and the delivery of implementation services for Technology Transfer engagements, including installation, configuration, validation and training. The primary consulting services we offer for both ASP and Technology Transfer engagements include:

 

 

Project Management – We assign a project manager to oversee every project and provide up-to-date communications on the status of the project.  We use a methodology called OmniAdvance, to ensure that all deliverables are standard and of high quality.

     

 

Clinical Services – We have expertise in translating a clinical protocol into an electronic Case Report Form format.  We ensure that CRF design, Visit Schedule, Site and Patient Definitions, Edit Checks, Derivations, and Code Lists are all optimized to use industry best practices, and, where applicable, CDISC/CDASH standards.

 

 
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Training. We provide extensive hands-on and eLearning-based EDC training classes.  Training classes can be conducted at a sponsor location, at an investigator meeting or at an investigator site and via Web-cast.

 

 

Custom Configuration.  Our EDC and eClinical platforms are flexible and allow for major reconfiguration.  Each trial can be designed to suit the specific client workflows and trial design.  Our eClinical includes a clinical trial management system (CTMS), Drug Supply, Safety and Randomization options that can simplify the trial management experience.

 

 

System Integration. We help our clients integrate our EDC solutions with existing systems or external systems (Patient Diaries, Medical Devices and Labs, etc.).  We analyze the client’s legacy systems and data management needs in order to decide how to most efficiently integrate EDC.

 

 

SOPs and implementation assistance.  Our client services and support personnel can be engaged to write an implementation plan designed to effectively integrate with our EDC solutions.  We can also write standard operating procedures (“SOP”s) to help client staff clearly understand their roles in using TrialMaster to conduct trial activities.  We can also analyze and document business processes to determine where greater operating efficiency may be gained.

 

 

Installation.  There are various architectures for deploying a secure EDC solution to remote investigator sites. These services explore different security, performance and system management alternatives and help the client design and install an optimal solution to meet their unique needs.

 

 

Validation.  We offer a test kit that includes test cases and documentation to validate the installation of our EDC applications against regulatory requirements.

 

TrialOne Phase I EDC Software

 

The Pharma and Biotech Industries are responding to growing pressure to reduce development time and increase the number of new medicines.  According to an October 2010 Advanced Pharma Report, the number of total compounds in active clinical trials has increased from 3,987 in 2004 to 5,605 in 2009.  At the same time the total procedures per protocol have increased from an average of 105.9 during the 4 year period prior to 2004 to an average of 158.1 post 2004.  The majority of EDC vendors cannot support the unique way Phase I trials are conducted.  Often clinical trial sponsors will conduct numerous small studies that require frequent last minute changes.  Those changes can be both time consuming and costly to implement.  Typically, this has caused pharmaceutical companies to continue using traditional paper-based data collection methods.  Typically, Phase I trials are conducted on small subject populations and often only at one site. Studies can be broken down into multiple cohorts where the majority of data is collected in the first 48 hours.

 

TrialOne has been designed for real-time source-based data collection. Where this is not possible, data is collected through customizable data collection forms that are designed to match the source paper collection forms in order to reduce the errors inherent to data entry.

 

We believe TrialOne can help dramatically reduce queries through the use of real time edit checks and direct data capture from source medical instrumentation (e.g., ECG, vital sign monitors).  The schedule-driven system, which is automated via the TrialOne application, assists investigators and their staff to collect accurate data at the point of patient collection, thus reducing errors inherent with manual operations in a clinical trial.

 

TrialOne is a web-based application which provides secure real-time access to all study information, in particular trial sponsors and investigators are provided with information that allows for faster decision making.  Mid-study data provides trial sponsors with information useful in determining a drug’s safety and efficacy. More rapid access to clinical trial data will also allow trial sponsors to stop unsuccessful compounds sooner and to bring the successful therapies to market more quickly.

 

The key benefits of TrialOne for our customers include:

 

 

Faster data collection which leads to the ability to get to a quicker database lock allowing for a timelier analysis of study data;

  

An ability for clinical trial sponsors to reduce their total cost throughout the entire Phase I process by streamlining the patient recruitment process, improving error rates through the use of edit queries and through the effective use of integration with medical instrumentation;

  

Access to valid data earlier provides more visibility for “Go/No Go” decisions;

  

Increase trial subject safety-review data (e.g. vital sign trends) in real-time;

  

Trial sponsors can manage or run more studies with less human resources; and

  

The use of bar-coded samples reduces laboratory errors thereby increasing patient safety.

  

 
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TrialOne Phase I Application Suite

 

TrialOne is a comprehensive software application suite that provides clinical trial site sponsors, study investigators and study monitors with several tools designed at making the overall Phase I operation more efficient.  Phase I studies are used to conduct the first tests of new drugs or medical devices in humans. They are often held in dedicated Phase I clinics, where volunteers follow a strict timed schedule of dosing followed by measurements such as vital signs, electrocardiograms and repeated blood draws. TrialOne is designed to manage the automation of Phase I clinics. It allows the specification of the schedule and the corresponding dosing and required measurements, then supports the real-time collection of data according to that schedule. Much of the data collection is automated via direct entry from instruments, such as barcode scanners that read barcodes on both the patients and the vials of blood being filled. In short, TrialOne brings tried and tested production-line technology to the process of Phase I clinical trials.

 

The key components of the TrialOne application include:

 

Sample Tracking.  TrialOne allows customers to completely automate their site’s laboratory. Samples can be tracked and batched while alarms and information can be configured specific to each sample. Dispatch lists and labels are automatically produced for shipment of samples to the central laboratory. Data is then received back electronically into the TrialOne database.

 

Subject Recruitment and Screening.  In a May 2012 Applied Clinical Trials Online article Kenneth Getz with the Tufts CSDD reported that at least 90% of clinical trials are extended by at least 6 weeks due to failing to enroll patients on schedule and only approximately one-third of the sites in multisite trials successfully enroll the requisite number of patients.  The TrialOne subject recruitment module provides essential functionality for automating the collection and tracking of information involved in finding, screening and scheduling subject candidates for an early phase study.   The use of TrialOne for subject recruitment allows customers to access a comprehensive volunteer record management system with ease and efficiency.  The customized database can be searched for volunteers based on specific demographics, medical history and concomitant medications.  Trial sponsors can define study-specific screening test panels and record volunteer screening test results.  Outbound communications can be managed allowing for the scheduling of calls, sending e-mail blasts, printing mailing labels or exporting flexible CSV files.

 

The process of screening and interviewing study volunteers can be a time-consuming and expensive proposition.  TrialOne provides staff with an easy-to-use, scripted interface for interviewing volunteers that allows staff to automatically evaluate study volunteers based on configurable inclusion and exclusion requirements.  Finally, the TrialOne recruitment module seamlessly integrates data with the TrialOne EDC solution when a volunteer is accepted into a study

 

Scheduler.  The scheduler module provides a mechanism for defining the study structure including a time and events schedule.  The module optimizes study build times using a wizard-driven design tool creating database efficiencies using object libraries and templates.   This can quickly produce clear, easy to use, schedule driven electronic case report forms suitable for complex and adaptive clinical trials including study alarms and real time validation criteria with edits.  Additionally, the Scheduler can define actions or events to be automatically offset relative to the study drug and rapidly address mid-study changes.

 

Direct Data Capture (DDC).  The DDC module allows capture of real-time data for screening or study at data collection stations, bed-side or roaming.  The system allows for the collection of data online, over an intranet or internet using a desktop, notebook, or tablet PC.  Using a library of custom drivers the DDC module can collect vital signs or other biologic data directly from device and/or instrumentation.  As with later phase applications the system can clean data at the point of collection with real-time validation edit checks while enhancing protocol compliance via schedule-driven workflow.  Working with the Subject Recruitment and Screening module the system seamlessly maps data to the recruitment database for future criteria searches.  Automation and authentication checks are maintained using a full array of barcode and scanner support for all aspects of the clinic including subject ID’s, sample labeling and event tracking.

 

AdHoc Reporting.  An integrated Ad-Hoc reporting tool is available with wizard-driven report generation with drill-down reports that include interactive charts and graphs.  The AdHoc module supports aggregate data and advanced calculations, an advanced and easy to use export feature, and distributable system reports by configurable schedules.  Data is protected by event configurable security and role-based security.  The AdHoc module allows for real-time data access to important trends such as vital signs and adverse events.

 

 eClinical Suite

 

The eClinical Suite is comprised of a number of highly configurable modules that can be combined to provide a robust solution for capturing and managing clinical trial data based on specific client needs.  The modules are:

 

eClinical Portal – the gateway to all functions, data and reports.  It provides the means to create an environment specific to any Protocol and User needs.

 

eClinical Data Management – where protocols are defined using libraries of reusable standard objects (Codelists, Data Items, Data Modules, Pages, Edit Checks, etc.).

  

 
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eClinical Data Capture – is the (EDC) module used by Investigator Sites and client personnel such as Data Managers, Statisticians, Safety, etc.  In this module data can be entered and reviewed; queries resolved, etc.  The interface is highly intuitive and easy to use thereby minimizing end-user training times.  High performance is maintained to keep page turn wait times to a minimum.

 

eClinical Study Conduct – proactively allows the clinical operations organization to manage the timelines, resources, budget, payments, clinical supplies, and key study milestones and metrics.

 

eClinical Adverse Event Reporting – based on industry standards for safety reporting, this module allows for the capture, review, reporting and global submission of both serious and non-serious adverse event cases.

 

eClinical Autoencoder – delivers both automated and manual coding of adverse event and drug medication terminology using standard and custom dictionaries and configurable coding algorithms.

 

OmniComm believes the eClinical suite is a robust and proven platform with a loyal customer base. There is some functional overlap with TrialMaster, in that both offer an EDC capability.  We continue to progressively integrate the features of the eClinical and TrialMaster tools and have offered those eClinical customers that solely use EDC the option to transition to TrialMaster.

 

Promasys B.V. Acquisition

 

On November 11, 2013, with economic effect as of October 31, 2013, we acquired 100% of the capital stock of Promasys B.V., a privately held Netherlands company, from the shareholders of Promasys B.V. pursuant to a share exchange agreement in exchange for 435,998 euros (approximately $593,000) and 2,270,000 shares of our common stock. We issued the 2,270,000 shares to the shareholders who were all non US-persons/non US-entities and the issuance of the shares to them occurred in an offshore transaction.

 

We believe this acquisition complements our current product offerings by adding a product line dedicated to providing a flexible, cost effective EDC product specifically developed for academic and investigator initiated trials and by diversifying our customer base into the Far East.

 

The acquisition has been accounted for in accordance with FASB ASC Topic 805-Business Combination. The results of the acquisition’s operations have been included in the consolidated statements of operations since November 1, 2013. In 2013 the Promasys B.V. acquisition contributed $105,660 of revenue.

 

Promasys Software

 

Promasys is an integrated clinical trial data management and EDC system that brings industry standard quality and efficiency to the data collection, data management and reporting process in clinical trials. Setting up a new clinical study database in Promasys is straightforward and easy and does not require any programming knowledge.

 

iPad Application

Promasys 7.1 brings new features and capabilities. An iPad compatible version brings secure mobile data entry and subject management to the clinical trials work floor. The Promasys iPad app delivers Promasys’ featured support for data quality and integrity and regulatory compliance on a mobile device making it easier for study investigators and study monitors to enter data while at the point of care.

 

Study Life Cycle™

System access control is managed based on user ID and password. For each user or user group, access rights are configured in detail with 4 levels of access; none, read, write, and admin that can be specified for each menu function, clinical trial, and study center. For multi-center trials, access rights can be configured easily to match the roles of the trial staff in the different centers while limiting access to subjects belonging to the user’s own center only. Promasys supports the execution of GCP compliant clinical trials with the Study Life Cycle™, the quality engine of the system that divides a clinical trial in 7 distinct phases. The Study Life Cycle™ dynamically adjusts the access rights of users when a trial moves from one phase to the next. In this way, the quality of the trial is supported and the integrity of the data is guaranteed, without the need for user intervention.

 

Web CRF

The WebCRF is a data entry interface that works through a standard web browser. It allows enrolling and including subjects and entering trial data without the need to install Promasys’ windows client component. Access to subjects is securely controlled, based on the user’s login credentials that reflect the functional role as well as the study center of the user.

  

Industry Background

 

The eClinical industry is poised for growth over the next few years in both the domestic and international clinical trial market. Furthermore, we believe that industry and regulatory trends summarized below have led pharmaceutical, biotechnology and medical device companies to increase R&D for proprietary new drugs and medical devices. We believe these trends have required companies to conduct increasingly complex clinical trials and develop multinational clinical trial capability, while seeking to control costs.  We believe demand for simplified integration and improved collaboration has driven EDC vendors to develop broader eClinical trial suites to give sponsors shorter, less costly trials and give investigators easier ways to execute and manage them.

 

Government Health Care Reform.  There has been continued pressure in the U.S. to enact health care reform.  New legislation may alter the dynamic of how prescription drugs are reimbursed by both private insurers and government-sponsored agencies.  These pressures which may mandate significant cost containment measures including government sponsored health care and regulation over the cost of therapies may increase the pressure on drug and device manufacturers to expedite the approval of their products and services.

 

Generic Drug Effect.  Competition from generic drugs following patent expiration has resulted in increasing market pressure on profit margins.  A 2011 EvaluatePharma report estimated that medicines now generating approximately $133 billion in revenues will be subject to generic competition by 2016.  In 2011 Lipitor, the top selling pharmaceutical medicine in the world came off patent and is now competing with generic versions.  Over the next several years, more drugs will come off patent.  The major pharmaceutical companies will need to increase R&D in order to identify new drugs that can replace the revenue lost to generic versions of their previously protected drugs.

 

 
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Increasingly Complex and Stringent Regulation.  Increasingly complex and stringent regulatory requirements have increased the volume and quality of data required for regulatory filings and escalated the demand for real-time, high-accuracy data collection and analysis during the drug development process.

 

Reducing Drug Development Time Requirements.  To reduce costs, maintain market share and speed revenue production, pharmaceutical, medical device and biotechnology companies face increasing pressure to bring new drugs to market in the shortest possible time.

 

New Drug Development Pressures.  To respond to the demand for products for an aging population and for the treatment of chronic disorders and life-threatening conditions, research and development expenditures have increased as a result of the constant pressure to develop and patent new therapies.

 

Expansion of Approved Treatment Indications.  There is substantial incentive on the part of the pharmaceutical and biotechnology drug and therapy owners to expand the scope of FDA approved treatment indications for their already approved therapies.  A significant benefit of developing new indications is the ability to extend patent protection for products already approved by the FDA.

 

These trends have created even greater competitive demands on the industry to bring products to market efficiently and quickly.

 

Market Opportunity

 

Clinical trials are a critical component in bringing a drug or medical device to market.  All prescription drug and medical device therapies must undergo extensive testing as part of the regulatory approval process.  We believe many clinical trials continue to be conducted in an antiquated manner and fail to optimize the resources available for a successful clinical trial.  We believe that our solutions significantly reduce costs, improve data quality and expedite results.  We believe the data integrity, system reliability, management control and auditable quality of our eClinical applications will aid clinical trial sponsors that want to improve clinical trial efficiencies, speed-up results and ensure regulatory compliance.

 

In order for a drug or medical device to be marketed in the United States, Europe or Japan, the drug or device must undergo extensive testing and regulatory review to determine that it is safe and effective.  The regulatory review process for new drugs and devices is time consuming and expensive.  For example, a new drug application (“NDA”) can take up to two years before FDA approval.  This is in addition to approximately five to nine years of studies required to provide the data to support the NDA.  The amount of money and time currently spent on clinical trials is enormous. The following points are illustrative of clinical trial industry dynamics:

 

 

Drug companies can lose as much as $35.6 million in potential revenue for each day a trial is delayed on a blockbuster drug such as Lipitor®.  Source: Pfizer, Inc. website.

 

 

In 2009, over 5,000 compounds were in active clinical trials and the FDA approved 83 drugs for sale.   Source: 2011 Tufts Center for the Study of Drug Development report.

 

 

According to a 2011 Tufts Center for the Study of Drug Development report, the average drug approved for sale by the FDA costs over $1.3 Billion to bring to market.

 

Included in the above cost analysis of bringing a new medicine to market are expenses of project failures and the impact that long development times have on investment costs.  The estimate also accounts for out-of-pocket discovery and preclinical development costs, post-approval marketing studies and the cost of capital.  Lengthening development times caused by complex disease targets and a more intensive regulatory process have more than tripled the cost of developing a drug over the past 15 years.  The estimates which were published as part of a 2010 Tufts University study cite that drug companies are under great pressure to reduce costs and to increase the pace of drug development.

 

We believe that success in the EDC market is predicated on several criteria.  As the industry grows and matures the ability of participants to fulfill the varied needs of clinical trial sponsors becomes more critical to achieving operational and financial success.  We believe these success criteria include:

 

 

Deployment options.  Successful EDC vendors provide clinical trial sponsors flexibility in choosing whether to deploy EDC on an ASP, Technology Transfer or Technology Transition basis.  The ultimate criteria for the selection of the type of technology delivery methodology is often predicated on the size of the clinical trial sponsor.  Since this will often determine first the financial resources available for the deployment of new technologies and second, will help determine the sophistication of the company’s technology infrastructure and therefor their ability to bring in-house their EDC operations.

 

 

Interoperability.  Most clinical trial sponsors have invested in other technology platforms to run their trials.  These include clinical data management systems, interactive voice response systems and Central Labs.  The ability for an eClinical solution to integrate with existing technology platforms is a key decision making factor.

 

 

Scalability.  The ability to scale the eClinical solutions to absorb additional projects seamlessly is important to trial sponsors.  Scalable solutions will retain their speed and performance metrics as projects and engagements increase in size.

  

 
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Migration from hosted to technology transfer solutions.  When clinical trial sponsors decide to bring the eClinical services and solutions in-house it is vital that they do not experience a degradation of speed, performance or system reliability.

 

 

Flexibility.  The more robust eClinical systems will be designed to provide the ability to increase functionality and guarantee interoperability with other industry technology solutions.  As the industry and technology matures clinical trial sponsors will demand new functionality without loss of performance or reliability.

 

 

Vendor stability.  eClinical vendors should be able to demonstrate a viable business model and financial structure that can sustain a long-term relationship with clinical trial sponsors.

 

 

Systematic adoption of best practices.  eClinical vendors will be expected to assimilate best-practice workflows and process tools.

 

 

Professional services.  The adoption and implementation of eClinical solutions into a clinical trial environment requires significant financial, technical and human resource investment on the part of clinical trial sponsors.  A robust offering of professional services that fully integrate with the technological eClinical offerings will be considered an integral part of any eClinical purchase.

 

License Agreements

 

DataSci, LLC

 

On April 9, 2009, we entered into a Settlement and License Agreement with DataSci, LLC (“DataSci”) which relates to a lawsuit filed on June 18, 2008 in the United States District Court for the District of Maryland by DataSci against OmniComm alleging infringement of U.S. Patent No. 6,496,827 B2 entitled “Methods and Apparatus for the Centralized Collection and Validation of Geographically Distributed Clinical Study Data with Verification of Input Data to the Distributed System” (“Licensed Patent”) owned by DataSci. Pursuant to the Settlement and License Agreement, the parties agreed to enter into a Stipulated Order of Dismissal of the lawsuit filed by DataSci and DataSci granted us a worldwide, non-exclusive non-transferable right and license under the Licensed Patent the subject of the claim and the right to sublicense TrialMaster on a Technology Transfer and Technology Transition basis. The license expressly excludes the right to make, use, sell, import, market, distribute, oversee the operation of, or service systems covered by a claim (if any) of the Licensed Patent to the extent such systems are used for creating and managing source documentation and conducting remote data validation in clinical trial studies using a tablet PC with stylus, touch screen device, digitizing tablet, digitizer pen or similar mobile processing device (“Digitizing Device”), wherein the source documentation is electronic and is completed using a Digitizing Device. Under the terms of the license, we are obligated to pay royalties quarterly for sales of Licensed Products, as defined therein, from January 1, 2009 until the expiration of the Licensed Patent. We anticipate that this will approximate the annual minimum royalty payment(s) during any calendar year as follows:  2014 - until expiration of the Licensed Patent - $450,000 per year.  In addition to the cash consideration the Company has issued a warrant for 1,000,000 shares of our common stock with an exercise price of $.01 per share.  The warrant has been granted for past use of the Licensed Patent.  The warrant can be exercised by DataSci in month 24 or later or upon its sole discretion require the Company to pay $300,000 in cash in lieu of exercising the warrant.

 

On June 23, 2009, we entered into an agreement to acquire the EDC assets of eResearch Technology.  Concurrent with the consummation of that transaction we entered into the First Amendment to Settlement and Licensing Agreement with DataSci, LLC to provide for license payments of $300,000 to DataSci over the next three years for the eResearch Technology EDC assets acquired.

 

 
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Our Customers

 

We are committed to developing long-term, partnering relationships with our clients and adapting our products and services to meet the unique and challenging needs of their trials. Our customers include leading pharmaceutical, biotechnology, medical device companies, academic institutions, clinical research organizations and other entities engaged in clinical trials. As of December 31, 2013, we had approximately 110 customers, including 2 of the top 10 global pharmaceutical companies measured by revenue, the largest medical device company and the eighth largest biotechnology company. Our representative customers by sponsor type include:

 

Trial Sponsor

Sponsor Type

Boston Scientific

Medical Device

Alkermes

Biotechnology

Gilead Sciences

Biopharmaceutical

Columbia University (InChoir)

Academic

INC Research

Contract Research Organization

Johnson & Johnson

Pharmaceutical

Pfizer

Pharmaceutical

 

Sales and Marketing

 

We sell our products through a direct sales force, relationships with CRO Partners, and through co-marketing agreements with Vendor and Channel Partners.  Our marketing efforts to-date have focused on increasing market awareness of our firm and products.  These efforts have primarily been comprised of attendance and participation in industry conferences and seminars.  A primary focus of our future marketing efforts will be to continue increasing our market penetration and market awareness.  As of December 31, 2013, we had 13 employees in sales and marketing.

 

Our efforts during 2014 will include continuing to increase the number of sales personnel and sales support staff employed in the U.S. and Europe, increasing our attendance and marketing efforts at industry conferences and increasing the number of Company sponsored events including webinars, symposiums and other marketing events. 

 

Our marketing strategy is to generate qualified sales leads, enhance the global recognition of our brand and products and establish OmniComm as a provider of high value eClinical solutions. Our principal marketing initiatives target key executives and decision makers within our existing and prospective customer base.  We sponsor and participate in industry events including user conferences, trade shows and webinars. During 2014 we expect to increase the number of articles authored by OmniComm employees and to increase our efforts at participating in cooperative marketing efforts with our CRO partners and other providers of complementary services or technology, including joint press announcements, joint trade show activities and joint seminars and webinars.

 

Clinical trial sponsors have historically outsourced many of their clinical research activities in an attempt to control costs and expand capacity. Our CRO relationships help us position our software solutions as the core platform for their outsourced client trial management services. Through our CRO Preferred Program, we partner with CROs to deliver our eClinical technologies along with the CRO’s project and data management expertise. We also train, certify and support our CRO and other clinical services partners, which enables them to quickly and cost-effectively implement our technology in sponsors’ studies.  A critical aspect of the program is our ability to deliver our eClinical solutions on a fixed cost basis to our partners.  Because of the economics intrinsic to the CRO industry, a fixed cost solution affords the partner a stronger ability to manage their costs and deliver cost-effective solutions to their clinical trial sponsor clients.

 

We have been able to obtain valuable insight into our customers’ needs through the following customer specific initiatives:

 

Innovation Forum: For 2013 the scope of our annual user group meeting was changed to a client driven Innovation Forum. The goal of the Innovation Forum is to ensure that attendees receive practical information, training and collaboration that can be taken back, implemented and shared within their respective organizations. The Innovation Forum attracted more than 100 attendees, along with the highest number of external thought leading and keynote speakers as well as the largest number of sponsoring and exhibiting partners. Content included product demonstrations, customer case studies, panel discussions, partner presentations, plus thought provoking presentations from independent industry thought leaders.

 

eClinical webinars:  We host periodic web-based seminars for current and prospective customers, which are typically focused on our products or current developments in the eClinical industry.  These webinars offer informative industry related topics to our customers and foster good relationships with our current and potential customers.

 

Online Customer Forum:  OmniComm has created an online blog via LinkedIn that allows us to have constant communication with our customers.  This interactive forum allows us to post questions, solicit feedback, and share information with our customers on a daily basis.  It also allows our customers to share their opinions with us and other customers as well.  This feedback is invaluable to OmniComm as we strive to produce cutting-edge technology to keep pace with our customers’ needs.  OmniComm will continue to explore innovative approaches to offer value added information to our clients, leveraging social media and other available outlets.

 

Research and Development

 

Our ability to compete within the EDC industry is predicated on our ability to continue enhancing and broadening the scope of solutions offered through our eClinical solutions.  Our R&D efforts are focused on developing new, complementary software solutions, as well as enhancing our existing software solutions through the addition of increased functionality.  Our development of TrialMaster and its subsequent improvements and refinements have been handled by our in-house staff of developers.  In the past, our philosophy towards software development has been to design and implement all of our solutions through in-house development. As of December 31, 2013, we had approximately 35 employees involved in our R&D efforts.

 

 
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We currently partner with several eClinical applications in an effort to expand the scope of products and services we offer our customers.  In the past, integrating these platforms has required R&D time, effort and expenditures.  We anticipate expending R&D funds on these efforts as we expand these relationships to include more formalized relationships which could include revenue sharing or private label arrangements.

 

We expect our R&D efforts over the next few years to be aimed at first, effectively integrating the broad array of functionality that exists in our current product base (TrialMaster, TrialOne and eClinical Suite), and second, broadening the scope of our eClinical functionality and services by selectively developing or acquiring new complementary products and services.  These efforts may include select strategic alliances with software and service partners possessing clinical trial industry experience.

 

When developing our technical solutions to manage clinical data, industry regulatory requirements also dictate that substantial documentation be created to demonstrate the integrity of the solution, known in the industry as a validation package. Our software development lifecycle practices include streamlined methodologies for generating and maintaining validation packages during the software release process. These methodologies include a validated path for upgrading existing installations and data. We currently release major updates to our software applications approximately twice per year.  We believe that the completeness of our validation packages provides our customers with an ability to stay on current technology, allowing us to minimize the number of legacy releases that require maintenance and support.

 

Our R&D department includes a product management team that works with both internal and customer experts to create new features and functionality, a technical documentation team, as well as product engineering and software quality assurance functions. We also have a dedicated R&D team building integration software and APIs on top of our platform. During fiscal 2013, we spent approximately $2,403,504 on R&D activities, the majority of which represented the salaries of our programmers and developers.  In fiscal 2012 we spent approximately $2,337,904 on R&D activities, the majority of which represented salaries to our programmers and developers.

 

Intellectual Property

 

Our success and ability to compete are dependent on our efforts to develop and maintain the proprietary aspects of our technology. We rely upon a combination of trademark, trade secret, copyright and unfair competition laws, as well as license agreements and other contractual provisions, to protect our intellectual property and other proprietary rights. In addition, we attempt to protect our intellectual property and proprietary information by requiring our employees and consultants to enter into confidentiality, non-competition and assignment of inventions agreements. We have registered trademarks and service marks in the United States and abroad, and have filed applications for the registration of additional trademarks and service marks. Our principal trademarks are “OmniComm Systems,” “TrialMaster,” “TrialBuilder,” “TrialExplorer,” “Promasys” and “TrialOne.”  These legal protections afford only limited protection for our technology. Our agreements with employees, consultants and others who participate in development activities could be breached.  However, due to rapid technological change, we believe that factors such as the technological and creative skills of our personnel, new product and service developments and enhancements to existing products and services are more important than the various legal protections of our technology to establish and maintain a technology leadership position.

 

We currently hold several domain names, including the domain names “omnicomm.com,” “promasyssoftware.nl,” “promasyssoftware.com” and “trialmaster.com.” Additionally, legislative proposals have been made by the U.S. federal government that would afford broad protection to owners of databases of information. The protection of databases already exists in the European Union. The adoption of legislation protecting database owners could have a material adverse effect on our business, requiring us to develop additional, complex data protection features for our software products.

 

Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our software solutions or to obtain and use information that we regard as proprietary. The laws of many countries do not protect our proprietary rights to as great an extent as do the laws of the United States. Litigation may be necessary in the future to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Any such litigation could result in substantial costs and diversion of resources and could have a material adverse effect on our business, operating results or financial condition. There can be no assurance that our means of protecting our proprietary rights will be adequate or that our competitors will not independently develop similar technology. Any failure to meaningfully protect our intellectual property and other proprietary rights could have a material adverse effect on our business, operating results or financial condition.

 

 
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In addition, since the software and Internet-based industries are characterized by the existence of a large number of patents, trademarks and copyrights it also involves frequent litigation based on allegations of infringement or other violations of intellectual property rights. We, and other companies in our industry, have entered into a settlement and obtained a license from a patent holder to license third-party technology and other intellectual property rights that are incorporated into some elements of our services and solutions. Our technologies may not be able to withstand third-party claims or rights against their use. Any intellectual property claims against us, with or without merit, could be time-consuming and expensive to litigate or settle, could divert management attention from executing our business plan or require us to enter into royalty or licensing agreements with third parties. Such royalty or licensing agreements, if required, might not be available on terms acceptable to us or at all, which could have a material adverse effect upon our business and financial position. There is no assurance that we will not become subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different industry segments overlaps. An adverse determination on such a claim would increase our costs and could also prevent us from offering our technologies and services to others.

 

We have licensed in the past, and expect that we may license in the future, certain of our proprietary rights, such as trademarks, technology or copyrighted material, to third parties. We generally provide in our customer agreements that we will indemnify our customers against third-party infringement claims relating to our technology provided to the customer.

 

Competition

 

The market for electronic data collection, data management and adverse event reporting systems is highly competitive, rapidly evolving, fragmented and is subject to changing technology, shifting customer needs and frequent introductions of new products and services. We compete with systems and paper-based processes utilized by existing or prospective customers, as well as other commercial vendors of EDC and eClinical applications, clinical data management systems and adverse event reporting software, including:

 

 

systems developed internally by existing or prospective customers;

 

vendors of EDC, eClinical,  clinical trial management systems and adverse event reporting product suites, including Oracle Clinical and PhaseForward, Inc., business units of Oracle Corporation and Medidata Solutions;

 

vendors of stand-alone EDC, data management and adverse event reporting products; and

 

CROs with internally developed EDC, clinical data management systems or adverse event reporting systems.

 

Our ability to remain competitive will depend to a great extent upon our ongoing performance in the areas of product development, customer support and service delivery. We believe that the principal competitive factors in our market include the following:

 

 

product functionality and breadth of integration among the EDC, eClinical, clinical trial management systems and adverse event reporting solutions;

 

reputation and financial stability of the vendor;

 

low total cost of ownership and demonstrable benefits for customers;

 

depth of expertise and quality of consulting and training services;

 

performance, security, scalability, flexibility and reliability of the solutions;

 

speed and ease of implementation and integration; and

 

sales and marketing capabilities and the quality of customer support.

 

We believe that our technical expertise, the knowledge and experience of our principals in the industry, quality of service, responsiveness to client needs and speed in delivering solutions will allow us to compete favorably within this market.  Many of our competitors and potential competitors have greater name recognition, longer operating histories and significantly greater resources. There can be no assurance that our current or prospective competitors will not offer or develop products or services that are superior to, or that achieve greater market acceptance than, our products and services.

 

Government Regulation

 

The conduct of clinical trials is subject to regulation and regulatory guidance associated with the approval of new drugs, biological products and medical devices imposed upon the clinical trial process by the U.S. federal government and related regulatory authorities such as the FDA, and by foreign governments. Use of our software products, services and hosted solutions by entities engaged in clinical trials must be done in a manner that is compliant with these regulations and regulatory guidance. Failure to do so could have an adverse impact on a clinical trial sponsor’s ability to obtain regulatory approval of new drugs, biological products or medical devices. If our product and service offerings fail to allow our customers and potential customers to operate in a manner that is compliant with applicable regulations and regulatory guidance, clinical trial sponsors and other entities conducting clinical research may be unwilling to use our software products, services and hosted solutions. Accordingly, we design our product and service offerings to allow our customers and potential customers to operate in a manner that is compliant with applicable regulations and regulatory guidance. We also expend considerable time and effort monitoring regulatory developments that could impact the use of our products and services by our customers and use this information in designing or modifying our product and service offerings.

 

The following is an overview of some of the regulations that our customers and potential customers are required to comply with in the conduct of clinical trials.

 

 
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The clinical testing of drugs, biologics and medical devices is subject to regulation by the FDA and other governmental authorities worldwide. The use of software during the clinical trial process must adhere to the regulations and regulatory guidance known as Good Clinical Practices, other various codified FDA regulations, the Consolidated Guidance for Industry from the International Conference on Harmonization regarding Good Clinical Practice for Europe, Japan and the United States and other guidance documents. Our products, services and hosted solutions are developed using our domain expertise and are designed to allow compliance with applicable rules or regulations.

 

In addition to the aforementioned regulations and regulatory guidance, the FDA has developed regulations and regulatory guidance concerning electronic records and electronic signatures. The regulations, codified as 21 CFR Part 11, are interpreted for clinical trials in a guidance document titled Computerized Systems Used in Clinical Trials. This regulatory guidance stipulates that computerized systems used to capture or manage clinical trial data must meet certain standards for attributability, accuracy, retrievability, traceability, inspectability, validity, security and dependability. Other guidance documents have been issued that also help in the interpretation of 21 CFR Part 11.

 

Regulation of the use and disclosure of personal medical information is complex and growing. Federal legislation in the United States, known as the Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes a number of requirements on the use and disclosure of “protected health information” which is individually identifiable, including standards for the use and disclosure by the health care facilities and providers who are involved in clinical trials. HIPAA also imposes on these healthcare facilities and providers standards to assure the confidentiality of health information stored or processed electronically, including a series of administrative, technical and physical security procedures. This may affect us in several ways. Many users of our products and services are directly regulated under HIPAA and, to the extent our products cannot be utilized in a manner that is consistent with the users’ HIPAA compliance requirements, our products will likely not be selected. In addition, we may be directly affected by HIPAA and similar state privacy laws. Under HIPAA, to the extent we perform functions or activities on behalf of customers that are directly regulated by such medical privacy laws, such customers may be required to obtain satisfactory assurance, in the form of a written agreement that we will comply with a number of the same HIPAA requirements.

 

Business Segments and Geographic Information

 

We view our operations and manage our business as one operating segment.  Our revenues prior to 2009 had been generated almost exclusively from U.S. based clients.  Our 2009 acquisitions allowed us to increase the number of clients we service in the European market.  TrialMaster has been deployed in clinical trials conducted both domestically in the U.S. and internationally in Europe, Asia, Africa and Australia.  We began operations in Europe through our wholly owned subsidiary OmniComm Europe BV which has ceased operations.  In 2007, we created a subsidiary in Germany, OmniComm Europe, GmbH and merged the operations of OmniComm Europe BV into that unit. OmniComm Europe, GmbH, operates out of an office in Bonn, Germany.  We currently employ 13 FTEs in that office spanning all areas of our operation including study development, project management, quality assurance and clinical support and services.  In 2012 we expanded our European operations by creating a wholly owned subsidiary in Spain, OmniComm Spain S.L. We currently have one employee in Spain.

 

In August 2009 we acquired the EDC assets of Logos Technologies Ltd. out of administration (similar to a U.S. Chapter 11 bankruptcy proceeding) in the U.K.  As part of that transaction we opened an R&D office for our newly acquired phase one product, TrialOne.  We currently employ nine employees out of that office.

 

During 2009 we also completed the acquisition of the EDC assets of eResearch Technology.  One of the results of our two acquisitions was to increase the number of clients serviced in the European market to approximately 21 clients.  In 2014, we expect the percentage of revenues generated from our European operations to increase.  In 2013 approximately 13% of total revenue was generated in the European market.

 

In November 2013, with economic effect as of October 31, 2013, we acquired Promasys B.V. This acquisition gave us a new product line, Promasys Software that is designed for academic and investigator initiated trials. We currently have three employees in Leiden, the Netherlands and one in Tokyo, Japan.

 

Background and History

 

OmniComm Systems, Inc. was originally organized as Coral Development Corp., under the laws of the State of Delaware, on November 19, 1996, by Modern Technology Corp. (“Modern”).  Modern originally completed a “blind pool/blank check” offer pursuant to Rule 419 by having Modern distribute Coral Development shares as a dividend to Modern shareholders.  On February 17, 1999, OmniComm Systems, Inc., a company organized under the laws of the State of Florida as the Premisys Group, Inc. on March 4, 1997, merged with Coral Development.  Coral Development was the surviving entity post-merger.  The merged entity changed its name to OmniComm Systems, Inc.

  

 
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Employees

 

We currently have 108 full time equivalents (“FTEs”) of which four are executives, four are administrative, 36 are programmers, engineers or technology specialists, 47 work in clinical operations, three are technology and systems managers and fourteen are in sales and marketing.  We employ 55 employees out of our headquarters in Fort Lauderdale, Florida, eleven employees out of a regional operating office in Monmouth Junction, New Jersey and thirteen field employees located throughout the United States.  Our wholly-owned subsidiary, OmniComm Europe, GmbH, employs thirteen FTEs in Bonn, Germany.  Our wholly-owned subsidiary, OmniComm Ltd., employs eleven employees in Southampton, England.  Our wholly-owned subsidiary, OmniComm Spain, S. L. employs one employee in Barcelona, Spain.  Our wholly-owned subsidiary, Promasys B.V. employs three employees in the Netherlands and one employee in Japan. We believe that relations with our employees are good.  None of our employees are represented by a collective bargaining agreement.

 

Available Information

 

We were incorporated in Delaware in 1997.  We currently have operating subsidiaries in Bonn, Germany, Southampton, England, Barcelona, Spain, Leiden, the Netherlands and a wholly-owned U.S. subsidiary, OmniComm USA, Inc.  Our Internet website address is http://www.omnicomm.com.  Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available either via a link on our website or on the Securities and Exchange Commission website, http://www.sec.gov.

 

ITEM 1A.  Risk Factors

RISK FACTORS

 

An investment in our securities is speculative in nature and involves a high degree of risk.  In addition to the other information contained in this Annual Report on Form 10-K, the following material risk factors should be considered carefully in evaluating us and our business before purchasing our securities.

 

WE HAVE A HISTORY OF LOSSES AND ANTICIPATE FUTURE LOSSES. WE MAY NEVER ACHIEVE OR MAINTAIN PROFITABILITY.

 

We incurred net losses attributable to common stockholders of $3,367,603 and $8,062,487 in fiscal 2013 and 2012, respectively. At December 31, 2013, we had an accumulated deficit of approximately $73,519,917 and a working capital deficit of approximately $16,145,300.  We expect net losses and negative cash flow for the foreseeable future until such time as we can generate sufficient revenues to achieve profitability.  We expect our operating cash flows to improve in fiscal 2014, but we have little control over the timing of contracted projects.  We expect our client and contract base to expand and diversify to the point where it meets our on-going operating needs, but this may not happen in the short-term or at all.  While we expect to achieve additional revenue through the growth of our business, we cannot assure you that we will generate sufficient revenue to fund our expenses and achieve and maintain profitability in any period.

 

OUR ABILITY TO CONDUCT OUR BUSINESS WOULD BE MATERIALLY AFFECTED IF WE WERE UNABLE TO PAY OUR OUTSTANDING INDEBTEDNESS.

 

At December 31, 2013, we had outstanding borrowings of approximately $18,832,865 of which:

 

 

approximately $75,000, at 10% interest, was due June 2004.  We are in default in the payment of principal and interest;

 

approximately $17,500 at 12% interest is due in January 2014;

 

approximately $20,000 at 12% interest is due in December 2014;

 

approximately $3,500,000 at 2.25% interest is due in December 2014;

 

approximately $581,986 at 10% interest is due in January 2015;

 

approximately $1,882,500 at 12% interest is due in January 2015;

 

approximately $1,770,000 at 10% interest is due in January 2016;

 

approximately $8,119,000 at 12% interest is due in January 2016 and,

 

approximately $2,866,879 at 12% interest is due in March 2016.

 

No assurance can be given that the holders of the $75,000 in principal amount 10% Convertible Notes will not seek immediate collection of the amounts due and owing. Further, no assurance can be given that faced with future principal repayment and interest obligations, our cash flow from operations or external financing will be available or sufficient to enable us to meet our financial obligations.  If we are unable to meet our financial obligations, the lenders could obtain a judgment against us in the amount of the notes and foreclose on our assets.  Such foreclosure would materially and adversely affect our ability to conduct our business.

  

 
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WE HAVE HISTORICALLY NEEDED AND POTENTIALLY WILL LIKELY NEED ADDITIONAL FINANCING, THE TERMS OF WHICH MAY BE UNFAVORABLE TO OUR THEN EXISTING STOCKHOLDERS.

 

During the years ended December 31, 2013 and 2012 we were required to raise working capital to meet operating expenses in the amount of approximately $3,500,000 and $-0-. Our plan of operations going forward may require us to raise additional working capital if our revenue projections are not realized. Even if our projections are realized, we may need to raise additional financing to meet our ongoing obligations, including the repayment of existing debt obligations currently in the amount of $18,832,865. In addition, we may also need to raise additional funds to meet known needs or to respond to future business opportunities, which may include the need to:

 

 

fund more rapid expansion;

 

fund additional capital or marketing expenditures;

 

develop new or enhanced features, services and products;

 

enhance our operating infrastructure;

 

respond to competitive pressures; or

 

acquire complementary businesses or necessary technologies.

 

If we raise additional capital through the issuance of debt, this will result in increased interest expenses. If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders will be reduced, and these newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders or debt holders.  We cannot assure you that additional financing will be available on terms favorable to us, or at all.  If adequate funds are not available or are not available on acceptable terms, our ability to fund our operations, repay our outstanding debt obligations and remain in business may be significantly limited.

 

IF WE ARE NOT ABLE TO RELIABLY MEET OUR DATA STORAGE AND MANAGEMENT REQUIREMENTS, OR IF WE EXPERIENCE ANY FAILURE OR INTERRUPTION IN THE DELIVERY OF OUR SERVICES OVER THE INTERNET, CUSTOMER SATISFACTION AND OUR REPUTATION COULD BE HARMED AND CUSTOMER CONTRACTS MAY BE TERMINATED.

 

As part of our current business model, we store and manage in excess of ten terabytes of data for our customers, resulting in substantial information technology infrastructure and ongoing technological challenges, which we expect to continue to increase over time. If we do not reliably meet these data storage and management requirements, or if we experience any failure or interruption in the delivery of our services over the Internet, customer satisfaction and our reputation could be harmed and this could lead to reduced revenues and increased expenses. Our hosting services are subject to service level agreements and, in the event that we fail to meet guaranteed service or performance levels, we could be subject to customer credits or termination of these customer contracts. If the cost of meeting these data storage and management requirements increases, our results of operations could be harmed.

 

A SYSTEM FAILURE COULD RESULT IN SIGNIFICANTLY REDUCED REVENUES.

 

Any system failure, including network, software or hardware failure that causes an interruption in our service could affect the performance of our software and result in reduced revenues. The servers that host our software are backed-up by remote servers, but we cannot be certain that the back-up servers will not fail or cause an interruption in our service.  Clinical trial data could also be affected by computer viruses, electronic break-ins or other similar disruptions.  Our users will depend on Internet service providers, online service providers and other web site operators for access to our products.  Each of these providers may have experienced significant outages in the past and could experience outages, delays and other difficulties due to system failures unrelated to our systems.  Further, our systems are vulnerable to damage or interruption from fire, flood, power loss, telecommunications and/or power failure, break-ins, hurricanes, earthquake and similar events. Regionalized power loss caused by hurricanes or other storms if occurring over a long period of time could adversely impact our ability to service our clients.   Our insurance policies have low coverage limits and may not adequately compensate us for any such losses that may occur due to interruptions in our service.

 

WE HAVE NOT FILED CERTAIN INFORMATION REQUIRED TO BE FILED BY US UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE “EXCHANGE ACT”) AND UNTIL WE DO SO, WE WILL NOT BE INCOMPLIANCE WITH OUR REPORTING OBLIGATIONS UNDER THE EXCHANGE ACT.

 

Subsequent to the closing date of our acquisition of Promasys BV, a Netherlands company, (“Promasys”) and continuing until recently, we determined that we incorrectly applied the provisions of Item 9 of Form 8-K and Article 8 of Regulation S-X under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as a result of which, (a) we concluded, incorrectly, that our acquisition of Promasys was not a “significant acquisition” within the meaning of Regulation S-X, and (b) we did not timely file a periodic report containing the audited financial statements, unaudited interim financial statements or pro-forma financial information (with reconciliation to U.S. GAAP) required under Rules 8-04 and 8-05 of Regulation S-X to be filed in connection with our acquisition of Promasys. We have filed the required audited financial statements as an exhibit to our Current Report on Form 8-K filed August 14, 2014 (“Current Report”) and we will file the unaudited interim financial statements and pro-forma financial information (with reconciliation to U.S. GAAP), and the reconciliation to U.S. GAAP of the audited financial statements, by amendment to the Current Report as soon as practicable following the receipt of the necessary information from our Dutch subsidiary.

 

The assets, liabilities and results of operations of Promasys have been consolidated in our financial statements since the effective date of acquisition, and our late filing of the required audited financial statements, interim financial statements and pro-forma financial statements are not expected to have any impact on our financial statements or results of operations. However, until such time as we file the interim financial statements and pro-forma financial information, and the reconciliation to U.S. GAAP of the audited financial statements, (a) we will not be considered in compliance with our reporting obligations under the Exchange Act and (b) Form S-8 will not be available to us for the registration or resale of shares issued under our equity compensation plan. Our continued non-compliance with our Exchange Act reporting requirements could subject us to regulatory scrutiny and the imposition of sanctions including the revocation of our registration under Section 12(g) of the Exchange Act.

 

 
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OUR FAILURE TO PROPERLY APPLY CERTAIN FINANCIAL TESTS AND THE RESULTING FAILURE TO FILE CERTAIN INFORMATION WITH THE SEC MAY BE INDICATIVE OF WEAKNESSES IN OUR INTERNAL CONTROL OVER FINANCIAL REPORTING AND OUR DISCLOSURE CONTROLS AND PROCEDURES.

 

The Securities and Exchange Commission (“SEC”) has indicated that the failure to file a report required to be filed under the Exchange Act may be evidence of a weakness in disclosure controls. Moreover, our incorrect application of Item 9 of Form 8-K and Article 8 of Regulation S-X in connection with our acquisition of Promasys could be indicative of a deficiency in our internal control over financial reporting. In order to reduce the likelihood that a similar event will occur in the future, we have taken remedial action. While we believe the remedial steps we have taken will reduce the likelihood of a similar occurrence in the future, there is no assurance that a significant deficiency or material weakness will not be identified in the future as a result of this or other circumstances.

 

In 2013 we acquired PROMASYS B.V. we may expand our business further through new acquisitions in the future. Any such acquisitions, AND OUR FAILURE TO MANAGE OUR GROWTH THEREFROM, could disrupt our business, harm our financial condition and dilute current stockholders’ ownership interests in our company.

 

We intend to pursue potential acquisitions of, and investments in, businesses, technologies or products complementary to our business and periodically engage in discussions regarding such possible acquisitions. For example, during 2013 we acquired 100% of the outstanding shares of Promasys B.V.

 

Acquisitions involve numerous risks, including some or all of the following:  

 

 

difficulties in identifying and acquiring complementary products, technologies or businesses;

 

substantial cash expenditures;

 

incurrence of debt and contingent liabilities, some of which we may not identify at the time of acquisition;

 

difficulties in assimilating the operations and personnel of the acquired companies;

  

 
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diversion of management’s attention away from other business concerns;

 

risk associated with entering markets in which we have limited or no direct experience;

 

potential loss of key employees, customers and strategic alliances from either our current business or the target company’s business; and

 

delays in customer purchases due to uncertainty and the inability to maintain relationships with customers of the acquired businesses.

 

If we fail to properly evaluate acquisitions or investments, we may not achieve the anticipated benefits of such acquisitions, we may incur costs in excess of what we anticipate and management resources and attention may be diverted from other necessary or valuable activities. An acquisition may not result in short-term or long-term benefits to us. The failure to evaluate and execute acquisitions or investments successfully or otherwise adequately address these risks could materially harm our business and financial results. We may incorrectly judge the value or worth of an acquired company or business. In addition, our future success will depend in part on our ability to manage the growth anticipated with these acquisitions.

 

Furthermore, the development or expansion of our business or any acquired business or companies may require a substantial capital investment by us. We may not have these necessary funds or they might not be available to us on acceptable terms or at all. We may also seek to raise funds for an acquisition by issuing equity securities or convertible debt, as a result of which our existing stockholders may be diluted or the market price of our stock may be adversely affected.

 

OUR REVENUES DERIVED FROM INTERNATIONAL OPERATIONS ARE SUBJECT TO RISK, INCLUDING RISKS RELATING TO UNFAVORABLE ECONOMIC, POLITICAL, LEGAL, REGULATORY, TAX, LABOR AND TRADE CONDITIONS IN THE FOREIGN COUNTRIES IN WHICH WE OPERATE, THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS.

 

International customers accounted for 18% and 16% of total revenues in 2013 and 2012, respectively.  International operations are subject to inherent risks. These risks include:

 

 

the economic conditions in these various foreign countries and their trading partners, including conditions resulting from disruptions in the world credit and equity markets;

 

political instability;

 

greater difficulty in accounts receivable collection and enforcement of agreements and longer payment cycles;

 

compliance with foreign laws;

 

changes in regulatory requirements;

 

fewer legal protections for intellectual property and contract rights;

 

tariffs or other trade barriers;

 

staffing and managing foreign operations;

 

exposure to currency exchange and interest rate fluctuations;

 

potentially adverse tax consequences; and

 

recently proposed changes to taxation of offshore earnings.

 

EXTENSIVE GOVERNMENTAL REGULATION OF THE CLINICAL TRIAL PROCESS AND OUR PRODUCTS AND SERVICES COULD REQUIRE SIGNIFICANT COMPLIANCE COSTS AND HAVE A MATERIAL ADVERSE EFFECT ON THE DEMAND FOR OUR SOLUTIONS.

 

The clinical trial process is subject to extensive and strict regulation by the U.S. Food and Drug Administration and other regulatory authorities worldwide. Our software products, services and hosted solutions are also subject to state, federal and foreign regulations. Demand for our solutions is largely a function of such government regulation, which is generally increasing at the state and federal levels in the United States and elsewhere, and subject to change at any time. Changes in the level of regulation, including a relaxation in regulatory requirements or the introduction of simplified drug approval procedures, could have a material adverse effect on the demand for our solutions. For example, proposals to place caps on drug prices could limit the profitability of existing or planned drug development programs, making investment in new drugs and therapies less attractive to pharmaceutical companies. Similarly, the requirements in the United States, the European Union and elsewhere to create a detailed registry of all clinical trials could have an impact on customers’ willingness to perform certain clinical studies. Likewise, a proposal for government-funded universal health care could subject expenditures for health care to governmental budget constraints and limits on spending. In addition, the uncertainty surrounding the possible adoption and impact on health care of any Good Clinical Practice reforms could cause our customers to delay planned R&D until some of these uncertainties are resolved. Until the new legislative agenda is finalized and enacted, it is not possible to determine the impact of any such changes.

 

Modifying our software products and services to comply with changes in regulations or regulatory guidance could require us to incur substantial costs. Further, changing regulatory requirements may render our solutions obsolete or make new products or services more costly or time consuming than we currently anticipate. Failure by us, our customers, or our competitors to comply with applicable regulations could result in increased regulatory scrutiny and enforcement. If our solutions fail to comply with government regulations or guidelines, we could incur significant liability or be forced to cease offering our applicable products or services. If our solutions fail to allow our customers to comply with applicable regulations or guidelines, customers may be unwilling to use our solutions and any such non-compliance could result in the termination of or additional costs arising from contracts with our customers.

 

 
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IF OUR LICENSE TO USE THIRD-PARTY TECHNOLOGIES IN OUR PRODUCTS IS TERMINATED, WE MAY BE UNABLE TO DEVELOP, MARKET OR SELL OUR PRODUCTS.

 

We are dependent on a license agreement relating to our current and possibly proposed products that give us rights under intellectual property rights of a third party. This agreement can be terminated on short notice by the licensor if we default on our obligations under the license and fail to cure such default after notice is provided. The license imposes commercialization, certain sublicensing, royalty, insurance and other obligations on us. Our failure, or any third party's failure, to comply with the terms of this license could result in our losing our rights to the license, which could result in our being unable to develop or sell our products.

 

WE DEPEND PRIMARILY ON THE PHARMACEUTICAL, BIOTECHNOLOGY AND MEDICAL DEVICE INDUSTRIES AND ARE THEREFORE SUBJECT TO RISKS RELATING TO CHANGES IN THESE INDUSTRIES.

 

Our business depends on the clinical trials conducted or sponsored by pharmaceutical, biotechnology and medical device companies and other entities conducting clinical research. General economic downturns, increased consolidation or decreased competition in the industries in which these companies operate could result in fewer products under development or decreased pressure to accelerate product approval which, in turn, could materially adversely impact our revenues. Our operating results may also be adversely impacted by other developments that affect these industries generally, including:

 

 

the introduction or adoption of new technologies or products;

 

changes in third-party reimbursement practices;

 

changes in government regulation or governmental price controls;

 

changes in medical practices;

 

the assertion of product liability claims; and

 

changes in general business conditions.

 

Any decrease in R&D expenditures or in the size, scope or frequency of clinical trials conducted or sponsored by pharmaceutical, biotechnology or medical device companies or other entities as a result of the foregoing or other factors could materially adversely affect our operations or financial condition.

 

WE MAY BE REQUIRED TO SPEND SUBSTANTIAL TIME AND EXPENSE BEFORE WE RECOGNIZE A SIGNIFICANT PORTION OF THE REVENUES, IF ANY, ATTRIBUTABLE TO OUR CUSTOMER CONTRACTS.

 

The sales cycle for some of our software solutions frequently takes six months to a year or longer from initial customer contact to contract execution. During this time, we may expend substantial time, effort and financial resources without realizing any revenue with respect to the potential sale. In addition, in the case of our hosted EDC solutions, we do not begin recognizing revenue until implementation cycles are complete. Moreover, while we begin recognizing revenue upon completion of the scope of work detailed in our contracts, it may be difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new customers is recognized over the applicable contract term, typically three months to five years. As a result, we may not recognize significant revenues, if any, from some customers despite incurring considerable expense related to our sales and implementation process. Even if we do realize revenues from a contract, our pricing model may keep us from recognizing a significant portion of these revenues during the same period in which sales and implementation expenses were incurred. Those timing differences could cause our gross margins and profitability to fluctuate significantly from quarter to quarter. Similarly, a decline in new or renewed client contracts in any one quarter will not necessarily be fully reflected in the revenue in that quarter and may negatively affect our revenue in future quarters. This could cause our operating results to fluctuate significantly from quarter to quarter.

 

THE LOSS OF ONE OR MORE MAJOR CUSTOMERS COULD MATERIALLY AND ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

 

Our top five customers accounted for approximately 37% of our revenues during 2013 and approximately 48% of our revenues during 2012.  One customer accounted for 11% of our revenues during 2013 or approximately $1,551,000.  One customer accounted for 19% of our revenues during 2012, or approximately $2,909,000.  These customers can terminate our services at any time.  The loss of any of our major customers could have a material adverse effect on our results of operations or financial condition. We may not be able to maintain our customer relationships, and our customers may not renew their agreements with us, which could adversely affect our results of operations or financial condition. A significant change in the liquidity or financial position of any of these customers could also have a material adverse effect on the collectability of our accounts receivables, our liquidity and our future operating results.

 

 
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WE COULD INCUR SUBSTANTIAL COSTS RESULTING FROM PRODUCT LIABILITY CLAIMS RELATING TO OUR PRODUCTS OR SERVICES OR OUR CUSTOMERS’ USE OF OUR PRODUCTS OR SERVICES.

 

Any failure or errors in a customer’s clinical trial or adverse event reporting obligations caused or allegedly caused by our products or services could result in a claim for substantial damages against us by our customers or the clinical trial participants, regardless of our responsibility for the failure. Although we are entitled to indemnification under our customer contracts against claims brought against us by third parties arising out of our customers’ use of our products, we might find ourselves entangled in lawsuits against us that, even if unsuccessful, divert our resources and energy and adversely affect our business. Further, in the event we seek indemnification from a customer, we cannot assure you that a court will enforce our indemnification right if challenged by the customer obligated to indemnify us or that the customer will be able to fund any amounts for indemnification owed to us. We also cannot assure you that our existing general liability or professional liability insurance coverage will continue to be available on reasonable terms or will be available in amounts sufficient to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim.

 

WE FACE INTENSE COMPETITION AND WILL HAVE TO COMPETE FOR MARKET SHARE.

 

There can be no assurance that our products will achieve or maintain a competitive advantage.  There are currently a number of companies who market services and products for Web-based clinical trial data collection.  Barriers to entry on the Internet are relatively low, and we expect competition to increase significantly in the future.  We face competitive pressures from numerous actual and potential competitors, both online and offline, many of which have longer operating histories, greater brand name recognition, larger customer bases and significantly greater financial, technical and marketing resources than we do.  We cannot assure you that the Web-based clinical trials maintained by our existing and potential competitors will not be perceived by clinical trial sponsors as being superior to ours.

 

WE MAY BE UNABLE TO PREVENT COMPETITORS FROM USING OUR INTELLECTUAL PROPERTY, AND WE COULD FACE POTENTIALLY EXPENSIVE LITIGATION TO ASSERT OUR RIGHTS.  IF WE CANNOT PROTECT OUR PROPRIETARY INFORMATION, WE MAY LOSE A COMPETITIVE ADVANTAGE AND SUFFER DECREASED REVENUES AND CASH FLOW.

 

We are dependent, in part, on proprietary data, analytical computer programs and methods and related know-how for our day-to-day operations.  We rely on a combination of confidentiality agreements, contract provisions, license agreements, trademarks and trade secret laws to protect our proprietary rights.  Although we intend to protect our rights vigorously, to the extent that our intellectual property and other proprietary rights are not adequately protected, third parties might gain access to our proprietary information, develop and market products or services similar to ours, or use trademarks similar to ours, each of which could materially harm our business.  If we resort to legal proceedings to enforce our intellectual property rights or to determine the validity and scope of the intellectual property or other proprietary rights of others, the proceedings could be burdensome and expensive, even if we were to prevail. There can be no assurance we will be successful in protecting our proprietary rights.  If we are unable to protect our proprietary rights, or if our proprietary information and methods become widely available, we may lose our ability to obtain or maintain a competitive advantage within our market niche, which may have a material adverse effect on our business, results of operations or financial condition.

 

CLAIMS THAT WE OR OUR TECHNOLOGIES INFRINGE UPON THE INTELLECTUAL PROPERTY OR OTHER PROPRIETARY RIGHTS OF A THIRD PARTY MAY REQUIRE US TO INCUR SIGNIFICANT COSTS, TO ENTER INTO ROYALTY OR LICENSING AGREEMENTS OR TO DEVELOP OR LICENSE SUBSTITUTE TECHNOLOGY.

 

We have been, and may in the future be, subject to claims that our technologies infringe upon the intellectual property or other proprietary rights of a third party. For instance, in April 2009, we settled a lawsuit against us which alleged that we infringed a patent claimed to be owned by the plaintiff. We incurred substantial professional fees in connection with this claim and agreed to enter into a license for the patent pursuant to which we issued warrants and agreed to pay royalties and future royalties in order to settle this litigation. In addition, this licensor could become subject to similar infringement claims. Although we believe that our software solutions do not infringe the patents or other intellectual property rights of any third party, we cannot assure you that our technology does not infringe patents or other intellectual property rights held or owned by others or that they will not in the future.  Any future claims of infringement could cause us to incur substantial costs defending against such claims, even if the claims are without merit, and could distract our management from our business. Moreover, any settlement or adverse judgment resulting from such claims could require us to pay substantial amounts or obtain a license to continue to use the technology that is the subject of the claim, or otherwise restrict or prohibit our use of the technology. There can be no assurance that we would be able to obtain a license from the third party asserting the claim on commercially reasonable terms, if at all, that we would be able to successfully develop alternative technology on a timely basis, if at all, or that we would be able to obtain a license from another provider of suitable alternative technology to permit us to continue offering, and our customers to continue using, the applicable technology. In addition, we generally provide in our customer agreements that we will indemnify our customers against third-party infringement claims relating to our technology provided to the customer, which could obligate us to fund significant amounts. Infringement claims asserted against us or our licensor may have a material adverse effect on our business, results of operations or financial condition.

 

 
24

 

 

FAILURE TO ADAPT TO EVOLVING TECHNOLOGIES AND USER DEMANDS COULD RESULT IN THE LOSS OF USERS.

 

To be successful, we must adapt to rapidly changing technologies and user demands by continuously enhancing our products and services and introducing new products and services.  If we need to modify our products and services or infrastructure to adapt to changes affecting clinical trials, we could incur substantial development or acquisition costs.  As described below, we will be dependent upon the availability of additional financing to fund these development and acquisition costs.  If these funds are not available to us, and if we cannot adapt to these changes, or do not sufficiently increase the features and functionality of our products and services, our users may switch to the product and service offerings of our competitors.

 

WE MAY BE UNABLE TO ADEQUATELY DEVELOP OUR SYSTEMS, PROCESSES AND SUPPORT IN A MANNER THAT WILL ENABLE US TO MEET THE DEMAND FOR OUR SERVICES.

 

Our future success will depend on our ability to develop the infrastructure, including additional hardware and software, and implement the services, including customer support, necessary to meet the demand for our services.  In the event we are not successful in developing the necessary systems and implementing the necessary services on a timely basis, our revenues could be adversely affected, which would have a material adverse effect on our financial condition.

 

FAILURE TO MANAGE RAPID GROWTH EFFECTIVELY COULD HARM OUR BUSINESS.

 

To manage our current and anticipated future growth effectively, we must continue to maintain and may need to enhance our information technology infrastructure, financial and accounting systems and controls and manage expanded operations in geographically distributed locations. Our failure to manage our rapid growth effectively could have a material adverse effect on our business, operating results or financial condition.

 

IN THE COURSE OF CONDUCTING OUR BUSINESS, WE POSSESS OR COULD BE DEEMED TO POSSESS PERSONAL MEDICAL INFORMATION IN CONNECTION WITH THE CONDUCT OF CLINICAL TRIALS, WHICH IF WE FAIL TO KEEP PROPERLY PROTECTED, COULD SUBJECT US TO SIGNIFICANT LIABILITY.

 

Our software solutions are used to collect, manage and report information in connection with the conduct of clinical trials. This information is or could be considered to be personal medical information of the clinical trial participants. Regulation of the use and disclosure of personal medical information is complex and growing. Increased focus on individuals’ rights to confidentiality of their personal information, including personal medical information, could lead to an increase of existing and future legislative or regulatory initiatives giving direct legal remedies to individuals, including rights to damages, against entities deemed responsible for not adequately securing such personal information. In addition, courts may look to regulatory standards in identifying or applying a common law theory of liability, whether or not that law affords a private right of action. Since we receive and process personal information of clinical trial participants from our customers, there is a risk that we could be liable if there were a breach of any obligation to a protected person under contract, standard of practice or regulatory requirement. If we fail to properly protect this personal information that is in our possession or deemed to be in our possession, we could be subjected to significant liability.

 

OUR FINANCIAL STATEMENTS CONTAIN A GOING CONCERN QUALIFICATION.

 

Because of our historical operating losses, accumulated deficit, negative cash flows and the uncertainty as to our ability to secure additional financing, the report of our independent auditors on our consolidated financial statements for the year ended December 31, 2013 contained an explanatory paragraph indicating there is substantial doubt about our ability to continue as a going concern.

 

FUTURE SALES OF SHARES BY EXISTING STOCKHOLDERS AS WELL AS THE ISSUANCE OF ADDITIONAL SHARES OF OUR COMMON STOCK COULD RESULT IN A DECLINE IN THE MARKET PRICE OF THE STOCK.

 

At March 25, 2014, we had 90,104,659 shares of common stock issued and outstanding and 77,844,022 shares issuable upon the conversion of preferred stock, convertible debt or exercise of warrants or options.  Of the issued shares, 15,559,570 are eligible for resale pursuant to Rule 144.  In general, Rule 144 permits a shareholder who has owned restricted shares for at least six months, to sell without registration, within a three-month period, up to one percent of our then outstanding common stock.  In addition, shareholders other than our officers, directors or 5% or greater shareholders who have owned their shares for at least one year may sell them without volume limitation or the need for our reports to be current.

 

We cannot predict the effect, if any, that market sales of common stock or the availability of these shares for sale will have on the market price of the shares from time to time.  Nevertheless, the possibility that substantial amounts of common stock may be sold in the public market could adversely affect market prices for the common stock and could damage our ability to raise capital through the sale of our equity securities.

 

 
25

 

 

THE EXERCISE OF OUTSTANDING OPTIONS AND WARRANTS AND THE CONVERSION OF OUTSTANDING SHARES OF PREFERRED STOCK AND CONVERTIBLE PROMISSORY NOTES WILL BE DILUTIVE TO OUR EXISTING STOCKHOLDERS.

 

As of March 26, 2014, we had a total of 78,743,517 shares of our common stock underlying options, warrants and other convertible securities and 2,750,149 shares of common stock underlying convertible preferred stock.  The exercise of these warrants and options and/or the conversion of these convertible securities will have a dilutive effect on our existing stockholders.

 

THE 250,000 SHARES OF SERIES D PREFERRED STOCK ISSUED IN 2010 PROVIDE SUPER-VOTING RIGHTS THAT RESULTED IN A CHANGE OF CONTROL OF THE CORPORATION

 

Each share of the Series D Preferred Stock entitles the holder to 400 votes at any meeting of our stockholders and such shares of Series D Preferred Stock will vote together with the common stockholders, provided for the election or removal of directors the shares of Series D Preferred Stock will be voted in the same percentage as all voting shares of common stock voted for each director.  As a result of the change in control, the holder of the Series D Preferred Shares could vote the shares in a manner that could be contrary to the interests of the holders of our common stock.  

 

THERE IS ONLY A LIMITED TRADING MARKET FOR OUR COMMON STOCK.

 

There is a limited trading market for our common stock.  We cannot predict the extent to which investor interest in us will lead to the development of an active trading market or how liquid that trading market might become.  If a liquid trading market does not develop or is not sustained, investors may find it difficult to dispose of shares of our common stock and may suffer a loss of all or a substantial portion of their investment in our common stock.

 

BECAUSE OUR STOCK CURRENTLY TRADES BELOW $5.00 PER SHARE, AND IS QUOTED ON THE OTC BULLETIN BOARD, OUR COMMON STOCK IS CONSIDERED A "PENNY STOCK" WHICH CAN ADVERSELY EFFECT ITS LIQUIDITY.

 

If our common stock continues to be quoted on the OTC Bulletin Board, and the trading price of our common stock remains less than $5.00 per share, our common stock is considered a penny stock, and trading in our common stock is subject to the requirements of Rule 15g-9 under the Securities Exchange Act of 1934.  Under this rule, broker/dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements.  The broker/dealer must make an individualized written suitability determination for the purchaser and receive the purchaser's written consent prior to the transaction.

 

The Securities and Exchange Commission regulations also require additional disclosure in connection with any trades involving a penny stock, including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and its associated risks.  These requirements severely limit the liquidity of securities in the secondary market because few broker or dealers are likely to undertake these compliance activities.  In addition to the applicability of the penny stock rules, other risks associated with trading in penny stocks could also be price fluctuations and the lack of a liquid market.

 

PROVISIONS OF OUR ARTICLES OF INCORPORATION AND BY-LAWS MAY DELAY OR PREVENT A TAKE-OVER WHICH MAY NOT BE IN THE BEST INTERESTS OF OUR COMMON STOCKHOLDERS.

 

Provisions of our Articles of Incorporation and By-laws may be deemed to have anti-takeover effects, which include when and by whom special meetings of our stockholders may be called, and may delay, defer or prevent a takeover attempt. In addition, our articles of incorporation authorize the issuance of up to 10,000,000 shares of preferred stock with such rights and preferences as may be determined from time to time by our Board of Directors, of which 4,375,224 shares are currently issued and outstanding.  Our Board of Directors may, without stockholder approval, issue additional series of preferred stock with dividends, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of our common stock.

 

ITEM 1B.       UNRESOLVED STAFF COMMENTS

 

None.

 

 
26

 

  

ITEM 2.          PROPERTIES

 

Our corporate headquarters and other material leased real property as of December 31, 2013 are shown in the following table. We do not own any real property.

 

Location

  

Use

  

Size

  

Expiration of Lease

Fort Lauderdale, Florida

  

Corporate Headquarters

  

11,519 square feet

  

September 2016

Monmouth Junction, New Jersey

  

Office Space

  

2,508 square feet

  

February 2016

Bonn, Germany

  

European Headquarters

  

3,714 square feet

  

July 2015

Southampton, United Kingdom

  

Office Space

  

1,415 square feet

  

September 2017

Leiden, Netherlands

 

Office Space

 

285 square feet

 

October 2018

Cincinnati, Ohio

  

Data Center

  

1,000 square feet

  

July 2016

Fort Lauderdale, Florida

  

Data Center / Disaster Recovery Office Space

  

  

  

November 2014

 

Our principal executive offices are located in approximately 11,500 square feet of commercial office space at 2101 West Commercial Blvd., Fort Lauderdale, Florida, and our telephone number is (954) 473-1254.  We lease these offices under the terms of a lease expiring in September 2016.  Our annual rental payment under this lease is $187,880 plus sales tax.

 

We have a regional operating office located at 1100 Cornwall Road, Monmouth Junction, New Jersey.  This office is located in approximately 2,500 square feet of commercial office space.  We lease this office under the terms of a lease expiring in February 2016 and our annual rental payment under this lease is $50,414 plus sales tax.

 

Our European headquarters are located in approximately 3,700 square feet of commercial office space at Kaiserstrasse 139-141, Bonn, Germany.  We lease these offices under the terms of a lease expiring in July 2015.  Our annual rental payment under this lease is 58,600 Euros or approximately $80,500.

 

We have an R&D office in Europe for our TrialOne software application. The office is located at Medino House, Rushington Business Park, Totten, Southampton, UK. The office has an area of approximately 1,400 square feet.   We lease these offices under the terms of a lease expiring in September 2017.  Our annual rental payment under this lease is 34,500 British Pounds or approximately $57,300.

 

We have an office in the Netherlands for our Promasys software application. The office is located at Zernikedreef 8, 2333 CL, Leiden, the Netherlands. We lease this space under a lease expiring in October 2018. Our annual rent payment under this lease is 5,000 Euros or approximately $7,000.

 

We currently have one data site, which serves as our primary network and data hosting location. It is located in Cincinnati, Ohio and is leased from Cincinnati Bell Technology Solutions. We lease this space under the terms of a lease expiring in July 2016.  Our annual lease payment under this lease is approximately $133,800 plus sales tax.

 

We maintain a business-continuity site for disaster recovery purposes.  We lease rack space for our SG&A servers and redundant data hosting in Fort Lauderdale, Florida and office space and cubicles in Boca Raton, Florida that will allow us to maintain operations in the event of a disaster.  We lease this space under the terms of a lease that expires in November 2014. Our annual rental payment under this agreement is $175,000 plus sales tax.  

 

We believe these facilities and additional or alternative space available to us will be adequate to meet our needs for the foreseeable future.

 

ITEM 3.          LEGAL PROCEEDINGS

 

None.

 

ITEM 4.          MINE SAFETY DISCLOSURES

 

Not Applicable

  

PART II

 

ITEM 5.          MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Our common stock is traded on a limited basis on the OTC Bulletin Board under the symbol OMCM. The following table sets forth the range of high and low bid prices for our common stock as reported by the OTC Bulletin Board for the periods indicated.  The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.  The quotation of our common stock on the OTC Bulletin Board does not assure that a meaningful, consistent and liquid market for such securities currently exists.

 

 
27

 

  

   

HIGH

   

LOW

 

Fiscal 2013

               

1st Quarter

  $ 0.30     $ 0.15  

2nd Quarter

  $ 0.26     $ 0.13  

3rd Quarter

  $ 0.27     $ 0.17  

4th Quarter

  $ 0.20     $ 0.14  
                 

Fiscal 2012

               

1st Quarter

  $ 0.12     $ 0.05  

2nd Quarter

  $ 0.09     $ 0.05  

3rd Quarter

  $ 0.30     $ 0.06  

4th Quarter

  $ 0.20     $ 0.14  

 

On March 26, 2014 the closing price of our common stock as reported on the OTC Bulletin Board was $0.17. At March 26, 2014 we had approximately 350 shareholders of record; however, we believe that we have in excess of 1,000 beneficial owners of our common stock.

 

Dividend Policy

 

Holders of our common stock are entitled to cash dividends when, and as may be declared by the board of directors.  We have never declared or paid any cash dividends on our common stock.  We currently expect to retain future earnings, if any, to finance the growth and development of our business and we do not anticipate that any cash dividends will be paid in the foreseeable future.  Our future payment of dividends will be subject to the discretion of our Board of Directors and will depend on our earnings, capital requirements, expansion plans, financial condition and other relevant factors.  We are currently restricted under Delaware corporate law from declaring any cash dividends due to our current working capital and stockholders’ deficit.  There can be no assurance that cash dividends of any kind will ever be paid.

 

A special note about penny stock rules

 

The Securities and Exchange Commission has adopted regulations which generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions.  Our common stock should be considered to be a penny stock.  A penny stock is subject to rules that impose additional sales practice requirements on broker/dealers who sell these securities to persons other than established customers and accredited investors.  For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of these securities.  In addition, they must receive the purchaser’s written consent to the transaction prior to the purchase.  They must also provide certain written disclosures to the purchaser.  Consequently, the penny stock rules may restrict the ability of broker-dealers to sell our securities and may negatively affect the ability of holders of shares of our common stock to sell them.

 

ITEM 6.          SELECTED FINANCIAL DATA

 

Not applicable to a smaller reporting company.

 

ITEM 7.          MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

General

 

The following information should be read in conjunction with the information contained in our audited consolidated financial statements and notes thereto appearing elsewhere herein and other information set forth in this report.

 

Forward-Looking Statements

 

Statements contained in this Form 10-K that are not historical fact are "forward looking statements." These statements can often be identified by the use of forward-looking terminology such as "estimate," "project," "believe," "expect," "may," "will," "should," "intends," or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. We wish to caution the reader that these forward-looking statements, contained in this Form 10-K regarding matters that are not historical facts, are only predictions. No assurance can be given that plans for the future will be consummated or that the future results indicated, whether expressed or implied, will be achieved. While sometimes presented with numerical specificity, these plans and projections and other forward-looking statements are based upon a variety of assumptions, which we consider reasonable, but which nevertheless may not be realized. Because of the number and range of the assumptions underlying our projections and forward-looking statements, many of which are subject to significant uncertainties and contingencies that are beyond our reasonable control, some of the assumptions inevitably will not materialize, and unanticipated events and circumstances may occur subsequent to the date of this Form 10-K. Therefore, our actual experience and results achieved during the period covered by any particular projections or forward-looking statements may differ substantially from those projected. Consequently, the inclusion of projections and other forward- looking statements should not be regarded as a representation by us or any other person that these plans will be consummated or that estimates and projections will be realized, and actual results may vary materially. There can be no assurance that any of these expectations will be realized or that any of the forward-looking statements contained herein will prove to be accurate. The Company does not undertake any obligation to update or revise any forward-looking statement made by it or on its behalf, whether as a result of new information, future events or otherwise.

 

 
28

 

 

Overview

 

We are a healthcare technology company that provides Web-based electronic data capture (“EDC”) solutions and related value-added services to pharmaceutical and biotech companies, clinical research organizations (“CROs”), and other clinical trial sponsors worldwide. Our proprietary EDC software applications: TrialMaster®; TrialOne®; Promasys®; and eClinical Suite™ (the “eClinical Software Products”), allow clinical trial sponsors and investigative sites to securely collect, validate, transmit and analyze clinical trial data.

 

During fiscal 2013 we sought to build and expand on our strategic efforts. The primary focus of our strategy includes:

 

 

Stimulating demand by providing clinical trial sponsors with high value eClinical applications and services;

 

Continued emphasis on expanding our business model by offering our software solutions on a licensed basis in addition to our existing hosted-services solutions;

 

An emphasis on penetrating the Phase I trial market with our dedicated Phase I solution, TrialOne;

 

Broadening our eClinical suite of services and software applications on an organic R&D basis and on a selective basis via the acquisition or licensing of complementary solutions;

 

Expanding our business development efforts in Europe to capitalize on our operational and clinical capabilities vis-à-vis our competition in that geographic market;

 

Providing our services to small and midsize pharmaceutical, biotechnology, medical device companies and CROs; and

 

Emphasizing low operating costs.

 

Our operating focus is first, to increase our sales and marketing capabilities and penetration rate and secondly, to continue developing and improving our software solutions and services to ensure our services and products remain an attractive, high-value EDC choice.  During 2013, we increased our marketing and sales personnel both in the U.S. and European markets and expanded the scope of our CRO Preferred Program in order to increase our penetration of the domestic CRO market.  CROs are organizations that provide support and services to pharmaceutical, biotech, medical device and other clinical trial sponsors. CROs can range from small specialty niche service providers to very large global service providers. According to a Tufts Center for the Study of Drug Development study published in late 2012, the overall US market for the 15 highest CRO-concentration geographic areas is estimated at between $32.5 and $39.5 billion. A single CRO could be managing clinical trials for one or more trial sponsors. Our CRO Preferred Program is designed to help the CRO service their existing clients and win new business. By building our relationship with the CRO, we gain access to trial sponsors that we might not be able to reach through other sales channels. The CRO Preferred Program offers our suite of EDC solutions to the CROs with a number of advantages including fixed pricing with no upfront fees, product demonstration support to trial sponsors, sales support, and integrated eLearning. Additionally, we believe we have established an effective presence in the European clinical trial market by expanding the number of clients we service in the European market after the acquisition of the EDC assets of eResearch Technology, Inc., (“eRT” or “eResearch Technologies”). We will seek to aggressively expand the scope of our sales and marketing operations in Europe during 2014.

 

Our ability to compete within the EDC and eClinical industries is predicated on our ability to continue enhancing and broadening the scope of solutions we offer. Our R&D efforts are focused on developing new, complementary software solutions, as well as enhancing our existing software solutions through the addition of increased functionality. We spent approximately $2,403,504 and $2,337,904 on R&D activities during years ended December 31, 2013 and December 31, 2012, respectively.  The majority of these expenses represent salaries and related benefits to our developers which include costs associated with the customization of our EDC software applications for our clients’ projects.  We currently employ software programmers, engineers and related support personnel.

 

Our selling efforts include marketing our products to several Fortune 1000 pharmaceutical and medical device manufacturers and several of the largest CROs. We have experienced, both via organic growth and through our 2009 and 2013 acquisitions, success in broadening our client roster over the past several fiscal years. Continued success in broadening our existing client relationships and forging new relationships should provide us the opportunity to limit our need for funding our operations via debt and equity capital. Continuing to obtain contracts with clients of this size and reputation will also increase the credibility of the Company to the clinical trial market.  We believe that strengthening our reputation and broadening the scope of our brand recognition will serve to improve the effectiveness of our sales and marketing efforts.

 

Our business development focus continues to include increasing our penetration of all phases of the clinical trial market with a particular emphasis on becoming the market leader in Phase I EDC services. We believe this market is an operating and strategic strength of the Company due to the inherent flexibility of our solutions including the solutions provided by our TrialOne products and services. We believe we have the ability to produce trials more quickly and economically than our competitors for this specialized and large market. During fiscal 2013, we emphasized commercializing our products on a licensed basis.  During 2013 we experienced positive strides towards achieving this goal.  We successfully increased the number of clients utilizing the software on a licensed basis as well as increasing the scope of licenses existing clients had deployed in our eClinical and TrialMaster product lines.  In 2013 we added nine new clients to our license install base and expanded the number of licenses held by fifteen existing clients.  We expect to experience increased success in penetrating the market for larger pharmaceutical, biotechnology and medical device clinical trial sponsors as we continue expanding our marketing and sales efforts during 2014.

 

 
29

 

 

 

Our clients are able to partially or completely license our EDC solutions. The licensing business model provides our clients with a more cost effective means of deploying our EDC solutions on a large-scale basis. Our licensed products, falling under the auspices of either a Tech Transition (partial transfer with some services performed by OmniComm) or Tech Transfer, allows us to broaden our potential client base, provides us with a high-margin revenue source and affords us the ability to improve our competitive position within the EDC industry.  The acquisitions completed during fiscal 2009 (the eResearch EDC Assets and TrialOne) and 2013 (Promasys B.V.) have historically been sold on a licensed basis and have allowed us to broaden our base of licensed customers.  Additionally, we continue to focus on adding CROs as strategic and marketing partners. There is an industry-wide emphasis in establishing strategic relationships with CROs. These relationships provide marketing leverage in the form of joint marketing and sales efforts and provide an installed base of trained users for our EDC and eClinical software applications. This installed base of users increases our ability to provide rapidly developed, cost effective solutions for our clients.  Additionally, we believe we have established an effective presence in the European clinical trial market and will seek to aggressively expand the scope of our sales and marketing operations there.  The European market accounted for approximately 13% of total revenues for the year ended December 31, 2013.

 

We feel that the momentum established from new client acquisitions and our ability to retain clients for repeat engagements provide a good operating base from which to build during fiscal 2014.  We increased the marketing and business development budget for our TrialOne product during 2013 as we place increased emphasis on increasing our penetration of the Phase I market both in the U.S. and in Europe since we believe that segment of the EDC market is the least penetrated and allows for the greatest potential increases in market share and in sales volumes.  We expect to continue increasing the level of resources deployed in our sales and marketing efforts. We feel that a combination of our existing infrastructure, broadened array of eClinical products and services, and increased success in new client acquisition, coupled with our ability to retain our existing clients will allow us to compete effectively within the EDC market.

 

 
30

 

 

The Year ended December 31, 2013 compared with the Year ended December 31, 2012

 

Results of Operations

 

A summarized version of our results of operations for the years ended December 31, 2013 and December 31, 2012 is included in the table below.

 

Summarized Statement of Operations

 

For the year ended

 

December 31,

 
           

% of

           

% of

       $    

%

 
   

2013

   

Revenues

   

2012

   

Revenues

   

Change

   

Change

 

Total revenues

  $ 14,331,840             $ 15,552,263             $ (1,220,423 )     -7.8 %
                                                 

Cost of sales

    2,911,213       20.3 %     3,213,657       20.7 %     (302,444 )     -9.4 %
                                                 

Gross margin

    11,420,627       79.7 %     12,338,606       79.3 %     (917,979 )     -7.4 %
                                                 
Salaries, benefits and related taxes     8,758,276       61.1 %     8,335,565       53.6 %     422,711       5.1 %
Rent     894,121       6.2 %     881,503       5.7 %     12,618       1.4 %
Consulting     157,905       1.1 %     152,297       1.0 %     5,608       3.7 %
Legal and professional fees     265,251       1.9 %     278,427       1.8 %     (13,176 )     -4.7 %
Other expenses     970,387       6.8 %     1,159,470       7.5 %     (189,083 )     -16.3 %
Selling, general and administrative     851,642       5.9 %     931,269       6.0 %     (79,627 )     -8.6 %

Total operating expenses

    11,897,582       83.0 %     11,738,531       75.5 %     159,051       1.4 %
                                                 

Operating income/(loss)

    (476,955 )     -3.3 %     600,075       3.9 %     (1,077,030 )     -179.5 %
                                                 

Interest expense

    (2,490,112 )     -17.4 %     (2,225,280 )     -14.3 %     (264,832 )     11.9 %

Interest income

    9       0.0 %     237       0.0 %     (228 )     -96.2 %

Other comprehensive (loss)

    (5,041 )     0.0 %     1,220       0.0 %     (6,261 )  

n/m

 

Loss on sale of fixed assets

    -0-       0.0 %     (22,106 )     -0.1 %     22,106       -100.0 %

Change in derivatives

    (95,121 )     -0.7 %     (6,123,302 )     -39.4 %     6,028,181       -98.4 %
                                                 

(Loss) before income taxes and dividends

    (3,067,220 )     -21.4 %     (7,769,156 )     -50.0 %     4,701,936       -60.5 %

Income tax (expense)

    (94,122 )     -0.7 %     (63,814 )     -0.4 %     (30,308 )     47.5 %
                                                 

Net (loss)

    (3,161,342 )     -22.1 %     (7,832,970 )     -50.4 %     4,671,628       -59.6 %
                                                 

Total preferred stock dividends

    (206,261 )     -1.4 %     (229,517 )     -1.5 %     23,256       -10.1 %
                                                 

Net loss attributable to common stockholders

  $ (3,367,603 )     -23.5 %   $ (8,062,487 )     -51.8 %   $ 4,694,884       -58.2 %
                                                 

Net loss per share

  $ (0.04 )           $ (0.09 )                        
                                                 

Weighted average number of shares outstanding

    87,969,202               86,522,332                          

 

 

Revenues for the year ended December 31, 2013 decreased 7.8% from the year ended December 31, 2012. The table below provides a comparison of our recognized revenues for the years ended December 31, 2013 and December 31, 2012.

 

   

For the year ended

         

Revenue activity

 

December 31, 2013

   

December 31, 2012

   

$ Change

   

% Change

 

Set-up fees

  $ 3,369,670       23.5 %   $ 4,990,378       32.1 %   $ (1,620,708 )     -32.5 %

Change orders

    475,680       3.3 %     249,673       1.6 %     226,007       90.5 %

Maintenance

    4,584,594       32.0 %     5,270,913       33.9 %     (686,319 )     -13.0 %

Software licenses

    2,911,509       20.3 %     3,364,324       21.6 %     (452,815 )     -13.5 %

Professional services

    2,207,181       15.4 %     996,081       6.4 %     1,211,100       121.6 %

Hosting

    783,206       5.5 %     680,894       4.4 %     102,312       15.0 %

Total

  $ 14,331,840       100.0 %   $ 15,552,263       100.0 %   $ (1,220,423 )     -7.8 %

 

 
31

 

 

Overall Revenue decreased by approximately $1.2 Million or 7.8%. This is primarily the result of a reduction in business from one of our clients.

 

We recorded $105,660 in revenue associated with our acquisition of Promasys B.V. These revenues represent revenues recognized from the effective date of the acquisition, October 31, 2013 through December 31, 2013. We expect our full-year revenues from clients related to Promasys to be approximately $700,000.

 

We recorded $1,302,420 in revenues associated with clients on our TrialOne EDC software for the year ended December 31, 2013 compared with $220,058 for the year ended December 31, 2012.  We are continuing our efforts at commercializing and developing our sales and marketing campaign for the TrialOne application.  We expect to significantly increase our participation in industry trade shows and conferences and are in the process of developing a dedicated sales force for the TrialOne software.  TrialOne revenues are comprised of license subscriptions and maintenance services since the software is currently only sold under a technology transfer basis.

 

We recorded revenue of $9,632,765, including $1,620,791 from licensing and $2,655,259 from maintenance associated with our TrialMaster suite during the year ended December 31, 2013 compared with Revenue of $11,024,013 that included $2,087,175 and $3,092,120, respectively, during the year ended December 31, 2012.  The decrease in revenue is primarily the result of a reduction in business from one of our existing clients.

 

We recorded $3,290,995 in revenues associated with clients from our acquisition of the eResearch Technology eClinical software application suite (“eClinical”) during the year ended December 31, 2013 compared with $4,308,192 for the year ended December 31, 2012.  The eClinical revenues are primarily comprised of license subscriptions and revenues associated with our hosting and maintenance services.  The 2012 Revenue results included additional one-time revenue from several long standing eClinical clients demonstrating our success in continuing to expand our relationships with these clients.

 

We recorded $433,084 in revenues from hosting activities and $437,156 in consulting services associated with the eClinical suite during the year ended December 31, 2013 compared with $546,976 and $445,820 respectively, for the year ended December 31, 2012.  Generally, these revenues are paid quarterly and are connected to hosting and client support for clients licensing that application.

 

Our TrialMaster EDC application had historically been sold on an application service provider (“ASP”) basis that provides EDC and other services such as an enterprise management suite which assists our clients in the pharmaceutical, biotechnology and medical device industries in accelerating the completion of clinical trials. During 2009 we completed the acquisition of the eResearch EDC Assets and TrialOne (the “Acquired Software”).  Both software applications have historically been sold on a licensed or technology transfer basis.  As we continue developing our software applications and our client relationships mature, we expect some of our clients to deploy TrialMaster on a licensed, rather than ASP hosted basis. We expect both Acquired Software applications to continue to be sold primarily on a licensed basis.

 

TrialMaster contracts for ASP services provide for pricing that is based on both the size and duration of the clinical trial. Size parameters include the number of case report forms used to collect data and the number of sites utilizing TrialMaster. The client will pay a trial setup fee at the beginning of a project based on the previously mentioned factors and then pay an on-going maintenance fee for the duration of the clinical trial that provides software, network and site support during the trial.

 

Generally, ASP contracts will range in duration from one month to several years. ASP Setup fees are generally recognized in accordance with Accounting Standards Codification 605 (“ASC 605”) “Revenue Recognition”, which requires that the revenues be recognized ratably over the life of the contract. ASP maintenance fee revenues are earned and recognized monthly. Costs associated with contract revenues are recognized as incurred.

 

License contracts are typically sold on a subscription basis that takes into account system usage both on a data volume and system user basis.  Pricing includes additional charges for consulting services associated with the installation, validation, training and deployment of our eClinical software and solutions.  Licensed contracts of the eClinical suite have historically been sold on a perpetual license basis with hosting and maintenance charges being paid annually.  The Company expects any licenses it sells of its software products to be sold in three to five year term licenses.

 

Our top five customers accounted for approximately 37% of our revenues during the year ended December 31, 2013 and approximately 48% of our revenues during the year ended December 31, 2012.  One customer accounted for approximately 11% of our revenues during the year ended December 31, 2013.   One customer accounted for approximately 19% and another accounted for approximately 16% of our revenues during the year ended December 31, 2012. The loss of any of these contracts or these customers in the future could adversely affect our results of operations.

 

Cost of goods sold decreased approximately 9.4% or $302,444 for the year ended December 31, 2013 as compared to the year ended December 31, 2012.  Cost of goods sold were approximately 20.3% of revenues for the year ended December 31, 2013 compared to approximately 20.7% for the year ended December 31, 2012. Cost of goods sold relates primarily to salaries and related benefits associated with the programmers, developers and systems analysts producing clinical trials on behalf of our clients. Cost of goods sold decreased during the year ended December 31, 2013 primarily due to a decrease in volume relating to a pass-thru expense for a third-party service that is classified under cost of goods sold.  

 

 
32

 

 

We expect to continue to increase follow-on engagements from existing clients and expect to increase the phase I and CRO portions of our client base.  At least initially, we expect the costs to deploy TrialOne to exceed our long-term estimates as we develop and refine our installation, validation, and training procedures.

 

Overall, total operating expenses increased approximately 1.4% for the year ended December 31, 2013 when compared to the year ended December 31, 2012.  Total operating expenses were approximately 83.0% of revenues during the year ended December 31, 2013 compared to approximately 75.5% of revenues for the year ended December 31, 2012.

 

Operating expenses increased during the year ended December 31, 2013 primarily due to an increase in salary expenses.

 

Salaries and related expenses were our biggest operating expense at 73.6% of total operating expenses for the year ended December 31, 2013 compared to 71.0% of total operating expenses for the year ended December 31, 2012.  Salaries and related expenses increased approximately 5.1% for the year ended December 31, 2013 when compared to the same period ended December 31, 2012.  The increase in salary expense is primarily related to increased headcount coupled with salary increases for our existing staff.  The table below provides a summary of the significant components of salary and related expenses by primary cost category.

  

    For the year ended              
   

December 31, 2013

   

December 31, 2012

   

$ Change

   

% Change

 

OmniComm corporate operations

  $ 6,613,879     $ 6,227,358     $ 386,521       6.2 %

New Jersey operations office

    338,675       488,270       (149,595 )     -30.6 %

OmniComm Europe, GmbH

    821,087       999,236       (178,149 )     -17.8 %

OmniComm Ltd.

    639,020       512,575       126,445       24.7 %

OmniComm Spain

    147,772       38,081       109,691       288.0 %

Promasys B.V.

    113,278       -0-       113,278    

n/a

 

Employee stock compensation

    84,565       70,045       14,520       20.7 %

Total salaries and related expenses

  $ 8,758,276     $ 8,335,565     $ 422,711       5.1 %

 

 

We currently employ approximately 55 employees out of our Fort Lauderdale, Florida corporate office, eleven employees out of our New Jersey regional operating office, thirteen out-of-state employees, eleven employees out of a wholly-owned subsidiary in the United Kingdom, 18 employees out of a wholly-owned subsidiary in Bonn, Germany, 4 employees out of a wholly-owned subsidiary in Leiden, the Netherlands and one employee out of a wholly-owned subsidiary in Barcelona, Spain.  We expect to continue to selectively add experienced sales and marketing personnel over the next six to nine months in an effort to increase our market penetration, particularly as it relates to the largest pharmaceutical, biotechnology and CRO customers and to continue broadening our client base domestically as well as in Europe.  

 

During the year ended December 31, 2013 and the year ended December 31, 2012 we incurred $137,000 and $65,744, respectively, in salary expense in connection with ASC 718 Compensation – Stock Compensation, which establishes standards for transactions in which an entity exchanges its equity instruments services from employees. This standard requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award.

 

Rent and related expenses increased by approximately 1.4% during the year ended December 31, 2013 when compared to the year ended December 31, 2012.  The table below details the significant portions of our rent expense.  In particular, the increase in 2013 is associated with increases in our Corporate office, German office and co-location rent expense offset by decreases in our New Jersey office, UK office and straight line rent expense.  Our primary data site is located at a Cincinnati Bell owned co-location facility in Cincinnati, Ohio and we will continue utilizing this facility for the foreseeable future since it is designed to ensure 100% production system up-time and to provide system redundancy. We lease co-location and disaster recovery space in the Fort Lauderdale, Florida area. This facility provides us with disaster recovery and business continuity services for our operations.  We currently lease office space in Bonn, Germany for our European subsidiary, OmniComm Europe, GmbH.  That lease expires in July 2015.  We currently lease office space for a regional operating office in New Jersey.  The staff at this location is primarily focused on the integration of the eResearch EDC Assets.  That lease expires in February 2016.  Our OmniComm Ltd. subsidiary leases office space in Southampton, UK.  That office lease expires in September 2017.  Our Promasys B.V. subsidiary leases office space in Leiden, the Netherlands under a lease that expires in October 2018. Our Fort Lauderdale corporate office lease expires in September 2016.  The table below provides the significant components of our rent related expenses by location or subsidiary.  Included in rent during 2013 was a reduction of $9,372 in non-cash, straight line rent expense recorded to give effect to contractual, inflation-based rent increases in our leases.

 

 
33

 

 

    For the year ended              
   

December 31, 2013

   

December 31, 2012

   

$ Change

   

% Change

 

Corporate office

  $ 344,044     $ 290,732     $ 53,312       18.3 %

Co-location and disaster recovery facilities

    340,830       338,840       1,990       0.6 %

New Jersey operations office

    58,634       79,666       (21,032 )     -26.4 %

OmniComm Europe, GmbH

    87,401       59,170       28,231       47.7 %

OmniComm Ltd.

    63,430       91,871       (28,441 )     -31.0 %

OmniComm Spain

    7,984       1,306       6,678       511.3 %

Promasys B.V.

    1,170       -0-       1,170    

n/a

 

Straight-line rent expense

    (9,372 )     19,918       (29,290 )     -147.1 %

Total

  $ 894,121     $ 881,503     $ 12,618       1.4 %

 

 

 Consulting services expense increased slightly to $157,905 for the year ended December 31, 2013 compared with $152,297 for the year ended December 31, 2012, an increase of $5,608 or 3.7%. Consulting services were comprised of fees paid to consultants for help with developing our computer applications, fees incurred as part of our employee recruiting programs and for services related to our sales and marketing efforts. The table provided below provides the significant components of the expenses incurred related to consulting services. Consulting fees for Product Development were higher during 2013 as we increased the utilization of the services of third-party sources for portions of our product development work. The increase in Product Development consulting expense was slightly offset by a decrease of consulting expenses relating to Sales and Marketing.

 

    For the year ended              

Expense Category

 

December 31, 2013

   

December 31, 2012

   

$ Change

   

% Change

 

Sales and marketing

  $ 21,412     $ 27,079     $ (5,667 )     -20.9 %

Product development

    136,493       125,218       11,275       9.0 %

Total

  $ 157,905     $ 152,297     $ 5,608       3.7 %

 

 

Legal and professional fees decreased approximately 4.7% for the year ended December 31, 2013 compared with the year ended December 31, 2012. Professional fees include fees paid to our auditors for services rendered on a quarterly and annual basis in connection with our SEC filings and fees paid to our attorneys in connection with representation in matters involving litigation and acquisitions or for services rendered to us related to securities and SEC related matters. During 2013 Legal-employment related fees decreased and Audit and Accounting professional fees increased. The table below compares the significant components of our legal and professional fees for the years ended December 31, 2013 and December 31, 2012, respectively.

 

    For the year ended              

Expense Category

 

December 31, 2013

   

December 31, 2012

   

$ Change

   

% Change

 

Audit and related

  $ 62,178     $ 59,256     $ 2,922       4.9 %

Accounting services

    135,993       121,922       14,071       11.5 %

Legal-employment related

    26,061       60,252       (34,191 )     -56.7 %

Legal-financial related

    15,932       10,397       5,535       53.2 %

General legal

    25,087       26,500       (1,413 )     -5.3 %

Total

  $ 265,251     $ 278,327     $ (13,076 )     -4.7 %

 

 

Selling, general and administrative expenses (“SG&A”) decreased approximately 8.6% for the year ended December 31, 2013 compared to the year ended December 31, 2012. This decrease is primarily due to decreases in our Miscellaneous, License and Office Equipment expenses offset by increases in Insurance and Office Software expenses. During the year ended December 31, 2013 we recorded $189,408 in license fees associated with our license agreement with DataSci, LLC compared to $218,467 during the year ended December 31, 2012. In addition, SG&A relates primarily to costs incurred in running our offices in Fort Lauderdale, Florida, Monmouth Junction, New Jersey, Southampton, England, Leiden, the Netherlands and Bonn, Germany on a day-to-day basis and other costs not directly related to other captioned items in our income statement. SG&A includes the cost of office equipment and supplies, the costs of attending conferences and seminars and other expenses incurred in the normal course of business. In 2013 we spent approximately $226,000 on marketing, sales and advertising as compared to approximately $270,000 in 2012. We expect that the 2014 marketing, sales and advertising expenses will be approximately $750,000 as we plan to increase our attendance at tradeshows and our marketing efforts worldwide.

 

During the year ended December 31, 2013 we recognized $11,131 in bad debt expense compared to a credit of $58,234 for the year ended December 31, 2012.  During 2013, we continued to carefully and actively manage our potential exposure to bad debt by closely monitoring our accounts receivable and proactively taking the action necessary to limit our exposure.  We were very successful in managing and collecting our outstanding A/R.  We believe that our current allowance for uncollectible accounts accurately reflects any accounts which may prove uncollectible during fiscal 2014.

 

 
34

 

 

Interest expense was $2,490,112 during the year ended December 31, 2013 compared to $2,225,280 for the year ended December 31, 2012, an increase of $264,832.  Interest incurred to related parties was $2,339,702 during the year ended December 31, 2013 and $2,108,749 for the year ended December 31, 2012.  Included in interest expense for both periods is the accretion of discounts recorded related to financial instrument derivatives that were deemed a part of the financings we undertook in fiscal 2008 and 2009.  The table below provides detail on the significant components of interest expense for the years ended December 31, 2013 and December 31, 2012.

 

Interest Expense

 
                         
    For the year ended            

Debt Description

 

December 31, 2013

   

December 31, 2012

   

$ Change

 

Accretion of discount from derivatives

  $ 609,000     $ 475,620     $ 133,380  

August 2008 convertible notes

    192,000       192,526       (526 )

December 2008 convertible notes

    597,600       599,237       (1,637 )

Sept 2009 secured convertible debentures

    144,000       144,394       (394 )

Dec 2009 convertible debentures

    178,800       179,290       (490 )

General interest

    95,360       94,312       1,048  

Related party notes payable

    673,352       539,901       133,451  

Total

  $ 2,490,112     $ 2,225,280     $ 264,832  

 

 

We evaluate the cost of capital available to us in combination with our overall capital structure and the prevailing market conditions in deciding what financing best fulfills our short and long-term capital needs. Given the difficult overall economic climate and in particular the difficulties nano-cap companies have experienced in obtaining financing, we believe the structure and terms of the transactions we entered into during 2013 were obtained at the best terms available to the Company.

 

We record unrealized gains/losses related to changes in our derivative liabilities associated with the issuance of convertible debt that occurred during fiscal 2008 and 2009.  We recorded a net unrealized loss of $95,121 during the year ended December 31, 2013 compared with a net unrealized loss of $6,123,302 during the year ended December 31, 2012.  The unrealized gains/losses can be attributed to fair value calculations undertaken periodically on the warrant and conversion feature liabilities recorded by us at the time the convertible debt was issued.  Accordingly the warrant and conversion feature liabilities are increased or decreased based on the fair value calculations made at each balance sheet date.  These non-cash gains and losses have materially impacted our results of operations during the years ended December 31, 2013 and December 31, 2012 and can be reasonably anticipated to materially affect our net loss or net income in future periods. We are, however, unable to estimate the amount of such income/expense in future periods as the income/expense is partly based on the market price of our common stock at the end of a future measurement date. In addition, if we issue securities which are classified as derivatives we will incur expense and income items in future periods. Investors are cautioned to consider the impact of this non-cash accounting treatment on our financial statements.

 

The Company recorded arrearages of $206,261 and $229,517 in its 5% Series A Preferred Stock dividends for the years ended December 31, 2013 and December 31, 2012, respectively.  As of December 31, 2013, the Company had cumulative arrearages for preferred stock dividends as follows:

 

Series of Preferred Stock   Cumulative Arrerage  
         

Series A

  $ 2,380,439  

Series B

    609,887  

Series C

    1,472,093  

Total preferred stock arrearages

  $ 4,462,419  

 

 

Liquidity and Capital Resources

 

Liquidity is the ability of a company to generate adequate amounts of cash to meet its needs for cash.   We have historically experienced negative cash flows and have relied on the proceeds from the sale of debt and equity securities to fund our operations. In addition, we have utilized stock-based compensation as a means of paying for consulting and salary related expenses. At December 31, 2013, we had working capital deficit of approximately $16,145,300.

 

 
35

 

 

 

The table provided below summarizes key measures of our liquidity and capital resources:

 

Liquidity and Capital Resources

 
                         

Summarized Balance Sheet Disclosure

 
   

December 31, 2013

   

December 31, 2012

   

$ Change

 

Cash

  $ 1,160,720     $ 873,315     $ 287,405  

Accounts receivable, net of allowance for doubtful accounts

    1,599,568       1,240,898       358,670  

Prepaids

    146,907       131,942       14,965  

Current assets

    2,907,195       2,246,155       661,040  
                         

Accounts payable and accrued expenses

    2,540,956       2,124,365       416,591  

Notes payable, current portion

    37,500       -0-       37,500  

Patent litigation settlement liability, current portion

    962,500       962,500       -0-  

Deferred revenue, current portion

    2,866,356       3,732,240       (865,884 )

Line of credit

    3,500,000       -0-       3,500,000  

Convertible notes payable, current portion, net of discount

    75,000       75,000       -0-  

Convertible notes payable, related parties, current portion, net of discount

    -0-       160,000       (160,000 )

Conversion feature liability, related parties

    2,979,392       2,240,782       738,610  

Conversion feature liability

    146,814       46,541       100,273  

Warrant liability

    144,031       192,445       (48,414 )

Warrant liability, related parties

    5,799,946       6,095,153       (295,207 )

Current liabilities

    19,052,495       15,629,026       3,423,469  
                         

Working capital (deficit)

  $ (16,145,300 )   $ (13,382,871 )   $ (2,762,429 )

 

Statement of Cash Flows Disclosure

 
   

For the year ended

 
   

December 31, 2013

   

December 31, 2012

 

Net cash (used in) operating activities

  $ (2,453,763 )   $ (173,912 )

Net cash (used in) investing activities

    (740,320 )     (107,882 )

Net cash provided by/(used in) financing activities

    3,500,000       (131,800 )
                 

Net increase/(decrease) in cash and cash equivalents

    287,405       (428,972 )
                 

Changes in working capital accounts

    (382,716 )     420,359  
                 

Effect of non-cash transactions on cash and cash equivalents

  $ 1,090,295     $ 7,238,699  

 

 

Cash and Cash Equivalents

 

Cash and cash equivalents increased to $1,160,720 at December 31, 2013 from $873,315 at December 31, 2012. The increase is primarily comprised of a net loss of $3,161,342, offset by an increase from non-cash transactions of $1,090,295, changes in working capital accounts of ($382,716) investment activities of ($740,320) and financing proceeds of $3,500,000.

 

Capital Expenditures

 

We are not currently bound by any long or short-term agreements for the purchase or lease of capital expenditures. Any amounts expended for capital expenditures would be the result of an increase in the capacity needed to adequately service any increase in our business. To date we have paid for any needed additions to our capital equipment infrastructure from working capital funds and anticipate this being the case in the future.

 

Presently, we have approximately $500,000 planned for capital expenditures to further develop the Company’s infrastructure to allow for growth in our operations over the next 12 months.  We expect to fund these capital expenditure needs through a combination of vendor-provided financing, the use of operating or capital equipment leases and cash provided from operations.

  

 
36

 

 

Contractual Obligations

 

The following table sets forth our contractual obligations during the next five years as of December 31, 2013:

 

 

Contractual obligations

   

Payments due by period

 
                                 
   

Total

    Less than 1 year     1-2 Years     2-3 Years     3-5 Years  

Promissory notes (1)

  $ 5,667,865     $ 37,500 (2)   $ 2,214,486 (3)   $ 3,415,879

(4)

  $ -0-  

Convertible notes

    9,665,000       75,000 (5)     250,000 (6)     9,340,000

(7)

    -0-  

Lines of credit (8)

    3,500,000       3,500,000       -0-       -0-       -0-  

Operating lease obligations (9)

    1,378,483       537,630       502,131       279,174       59,548  

Patent licensing fees (10)

    2,312,500       962,500       450,000       450,000       450,000  

Total

  $ 22,523,848     $ 5,112,630     $ 3,416,617     $ 13,485,053     $ 509,548  

  

1. Amounts do not include interest to be paid.

2. Includes $17,500 of 12% notes payable that mature in January 2014; and $20,000 of 12% notes payable that mature in December 2014.

3. Includes $431,986 of 10% notes payable that mature in January 2015; and $1,782,500 of 12% notes payable that mature in January 2015.

4. Includes $549,000 of 12% notes payable that mature in January 2016 and $2,866,879 of 12% notes payable that mature in March 2016.

5. Includes $75,000 of 10% convertible notes currently in default and due that are convertible into shares of common stock at the option of of the holder at a conversion rate of $1.25 per share.

6. Includes $150,000 in 10% convertible notes that mature in January 2015 and $100,000 in 12% convertible notes that mature in January 2015.

7. Includes $1,770,000 in 10% convertible notes that mature in January 2016 and $7,570,000 in 12% convertible notes that mature in January 2016.

8. Includes $3,500,000 due on the revolving line of credit with The Northern Trust Company.

9. Includes office lease obligations for our headquarters in Fort Lauderdale, Florida, our regional operating office in Monmouth Junction, New Jersey, our R&D office in Southhampton, England, our office in Leiden, the Netherlands and our European headquarters in Bonn, Germany.

10. Relates to guaranteed minimum payments owed in connection with our settlement of a patent infringement lawsuit brought against the Company by DataSci, LLC.

 

Off Balance Sheet Arrangements

 

We have no off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

Debt Obligations

 

We are currently in arrears on principal and interest payments owed totaling $184,748 on our 10% Convertible Notes that were issued in 1998. We were in default effective January 30, 2002.

 

On December 31, 2011, the Company issued a promissory note payable totaling $1,600,000 to our CEO and Director, Cornelis F. Wit, in exchange for $833,000 in promissory notes that matured in 2013 and 2014 along with $767,000 in accrued interest outstanding.  The new promissory note bears interest at 12% per annum and matures in January 2015.

 

On April 1, 2012 the Company issued promissory notes in the amount of $37,500 in exchange for an existing promissory note in the same amount.  The promissory notes carry an interest rate of 12%. $20,000 of the note was due on May 1, 2012 and the remaining $17,500 had a maturity date of January 1, 2014. The note has been paid in full.

 

On December 17, 2012 the Company issued a promissory note in the amount of $20,000 in exchange for an existing promissory note in the same amount.  The promissory note carries an interest rate of 12% and has a maturity date of December 16, 2014.

 

On January 1, 2013 the Company issued a promissory note payable to our CEO and Director, Cornelis F. Wit, in exchange for accrued interest in the amount of $529,000.  The note carries an interest rate of 12% per annum and matures on January 1, 2016.

 

On January 1, 2013 the Company issued promissory notes in the amount of $431,987 in exchange for existing promissory notes in the same amount.  The promissory notes carry an interest rate of 10% and have a maturity date of January 1, 2015.

 

On January 1, 2013 the Company issued a promissory note in the amount of $45,000 in exchange for an existing promissory note in the same amount.  The promissory note carries an interest rate of 12% and has a maturity date of January 1, 2015.

 

On February 1, 2013 the Company issued a promissory note in the amount of $20,000 to our Chairman and CTO, Randall G. Smith, in exchange for an existing promissory note in the same amount.  The promissory note carries an interest rate of 12% and has a maturity date of January 1, 2016.

 

On February 22, 2013 the Company extended the maturity date of $150,000 of convertible debentures to our Director, Guus van Kesteren, originally issued in August 2008.  The debentures carry an interest rate of 10% and have a maturity date of January 1, 2015.  The expiration date of the warrants associated with the debentures was also extended to January 1, 2015.

 

On February 22, 2013 the Company extended the maturity date of $1,770,000 of convertible debentures to our CEO and Director, Cornelis F. Wit, originally issued in August 2008.  The debentures carry an interest rate of 10% and have a maturity date of January 1, 2016.  The expiration date of the warrants associated with the debentures was also extended to January 1, 2016.

 

 
37

 

  

On February 22, 2013 the Company extended the maturity date of $4,505,000 of convertible debentures, including $4,475,000 due to our CEO and Director, Cornelis F. Wit, $25,000 due to our COO and President, Stephen E. Johnson, and $5,000 due to our Chairman and CTO, Randall G. Smith, originally issued in December 2008.  The debentures carry an interest rate of 12% and have a maturity date of 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 extended the maturity date of $1,200,000 of convertible debentures, including $1,100,000 due to our CEO and Director, Cornelis F. Wit, originally issued in September 2009.  The debentures carry an interest rate of 12% and have a maturity date of 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 extended the maturity date of $1,490,000 of convertible debentures including $1,440,000 due to our CEO and Director, Cornelis F. Wit, originally issued in December 2009.  The debentures carry an interest rate of 12% and have a maturity date of 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 extended the maturity date of $15,000 of convertible debentures originally issued to our former Director, Matthew Veatch, in December 2008.  The debentures carry an interest rate of 12% and have a maturity date of January 1, 2016.  The expiration date of the warrants associated with the debentures was also extended to January 1, 2016.

 

On March 5, 2013 the Company issued a promissory note in the amount of $137,500 in exchange for a promissory note in the same amount.  The promissory note carries an interest rate of 12% and has a maturity date of January 1, 2015.

 

On March 12, 2013, the Company extended the maturity date of $100,000 of convertible debentures originally issued in December 2008.  The debentures carry an interest rate of 12% and have a maturity date of January 1, 2015.  The expiration date of the warrants associated with the debentures was also extended to January 1, 2015.

 

On April 1, 2013 the Company issued a promissory note totaling $2,866,879 to our CEO and Director, Cornelis F. Wit, in exchange for a promissory note in the same amount.  The new promissory note bears interest at 12% per annum and matures on March 31, 2016.

 

On December 5, 2013 the Company extended the maturity date of $160,000 of convertible debentures to our Director, Guus van Kesteren, originally issued in August 2008.  The debentures carry an interest rate of 12% and have a maturity date of January 1, 2016.  The expiration date of the warrants associated with the debentures was also extended to January 1, 2016.

 

On December 9, 2013, the Company extended the maturity date of $200,000 of convertible debentures originally issued in December 2008.  The debentures carry an interest rate of 12% and have a maturity date of January 1, 2016.  The expiration date of the warrants associated with the debentures was also extended to January 1, 2016.

 

During the next twelve months we expect debt in the aggregate amount of $112,500 to mature as follows:  $75,000 of 10% convertible notes currently in default and due that are convertible into shares of common stock at the option of the debenture holder at a conversion rate of $1.25 per share and $17,500 of 12% notes payable that mature in January 2014 and $20,000 of 12% notes payable that mature in December 2014.

 

Sources of Liquidity and Capital Resources

 

Because of the losses we have experienced from operations we have needed to continue utilizing the proceeds from the sale of debt and equity securities to fund our working capital needs. We have used a combination of equity financing, short-term bridge loans and long-term loans to fund our working capital needs. Other than our revenues, current capital and capital we may raise from future debt or equity offerings or short-term bridge loans, we do not have any additional sources of working capital.

 

Since 2008 the Company has utilized the proceeds of convertible debentures and promissory notes to satisfy its working capital and capital expenditure needs.  During 2008 and 2009 we raised $9,590,000 in convertible debentures that remain outstanding.  Approximately 97% of those debentures were issued to officers, directors or significant senior managers of the Company, including debentures totaling $8,785,000 to our CEO and Director, Cornelis F. Wit.  In 2013 we raised $3,500,000 from our line of credit with The Northern Trust Company. In 2012 we did not need or utilize any external financing. 

 

 
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We may continue to require substantial funds to continue our R&D activities and to market, sell and commercialize our technology. We may need to raise substantial additional capital to fund our future operations. Our capital requirements will depend on many factors, including the problems, delays, expenses and complications frequently encountered by companies developing and commercializing new technologies; the progress of our R&D activities; the rate of technological advances; determinations as to the commercial potential of our technology under development; the status of competitive technology; the establishment of collaborative relationships; the success of our sales and marketing programs; the cost of filing, prosecuting, defending and enforcing intellectual property rights; and other changes in economic, regulatory or competitive conditions in our planned business.  Estimates about the adequacy of funding for our activities are based upon certain assumptions, including assumptions that the R&D programs relating to our technology can be conducted at projected costs and that progress towards broader commercialization of our technology will be timely and successful. There can be no assurance that changes in our R&D plans or other events will not result in accelerated or unexpected expenditures.

 

While the Company has not sought capital from venture capital or private equity sources we believe that those sources of capital remain available although possibly under terms and conditions that might be disadvantageous to existing investors.

 

To satisfy our capital requirements, including ongoing future operations, we may seek to raise additional financing through debt and equity financings. There can be no assurance that any such funding will be available to us on favorable terms or at all. If adequate funds are not available when needed, we may be required to delay, scale back or eliminate some or all of our R&D development programs, and our business operations. If we are successful in obtaining additional financings, the terms of such financings may have the effect of diluting or adversely affecting the holdings or the rights of the holders of our common and preferred stock. Further, there can be no assurance that even if such additional capital is obtained or the planned cost reductions are implemented, that we will achieve positive cash flow or profitability or be able to continue as a business.

 

While several of our officers and directors have historically, either personally or through funds with which they are affiliated, provided substantial capital either in the form of debt or equity financing there can be no assurance that they will continue to provide any such funding to us on favorable terms or at all.

 

Our ability to continue in existence is dependent on our having sufficient financial resources to bring products and services to market. As a result of our historical operating losses, negative cash flows and accumulated deficits for the periods ending December 31, 2013, there is substantial doubt about our ability to continue as a going concern. In addition, our auditors Liggett, Vogt & Webb, P.A., included language which qualified their opinion regarding our ability to continue as a going concern in their report dated March 31, 2014 regarding our audited financial statements for the year ended December 31, 2013.

 

CRITICAL ACCOUNTING POLICIES

 

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make judgments, assumptions and estimates that affect the amounts reported. Note 2 of Notes to the Consolidated Financial Statements describes the significant accounting policies used in the preparation of the consolidated financial statements. Certain of these significant accounting policies are considered to be critical accounting policies, as defined below.

 

A critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes: 1) we are required to make assumptions about matters that are highly uncertain at the time of the estimate; and 2) different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.

 

Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they became known. In addition, our Management is periodically faced with uncertainties, the outcomes of which are not within our control and will not be known for prolonged periods of time.  Based on a critical assessment of its accounting policies and the underlying judgments and uncertainties affecting the application of those policies, our Management believes that our consolidated financial statements are fairly stated in accordance with accounting principles generally accepted in the United States (GAAP), and present a meaningful presentation of our financial condition and results of operations.

 

Our Management believes that the following are our critical accounting policies:

 

ASSET IMPAIRMENT

 

Asset Acquisitions, Goodwill and Intangible Assets

 

We account for asset acquisitions in accordance with ASC 350, Intangibles- Goodwill and Other Intangible Assets. The acquisition method of accounting requires that assets acquired and liabilities assumed be recorded at their fair values on the date of an asset acquisition.

 

 
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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.

 

Goodwill is evaluated for impairment using a two-step process that is performed at least annually or when circumstances indicate that an impairment may exist. The first step is a qualitative measure. If this first test is passed, the second step is not necessary. If the book value exceeds the fair value, then the second, quantitative test is performed to measure the impairment loss

 

Long Lived Assets

 

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

 

DEFERRED REVENUE

 

Deferred revenue represents cash advances received in excess of revenue earned on on-going contracts.  Payment terms vary with each contract but may include an initial payment at the time the contract is executed, with future payments dependent upon the completion of certain contract phases or targeted milestones.  In the event of contract cancellation, the Company is generally entitled to payment for all work performed through the point of cancellation.

 

REVENUE RECOGNITION POLICY

 

OmniComm’s revenue model is transaction-based and can be implemented either as an ASP (application service provider) or licensed for implementation by a customer such as a pharmaceutical company.  Revenues are derived from the set-up of clinical trial engagements; licensing arrangements, fees earned for hosting our clients’ data and projects, on-going maintenance fees incurred throughout the duration of an engagement; fees for report writing and project change orders.  The clinical trials that are conducted using our EDC Applications can last from a few months to several years.  Most of the fees associated with our product including post-setup customer support in the form of maintenance charges are recognized ratably over the term of clinical trial projects.  Cost of sales is primarily comprised of salaries and taxes and is expensed as incurred.

 

The Company recognizes revenues, for both financial statement and tax purposes in accordance with SEC Staff Accounting Bulletin No. 104 “Revenue Recognition in Financial Statements (SAB 104)” (Codified within Accounting Standards Codification (ASC) Revenue Recognition ASC 605) and AICPA Statement of Position 97-2 (SOP 97-2) “Software Revenue Recognition” as amended by SOP 98-9 (Codified within ASC 605.985, Software Industry Revenue Recognition). SAB 104 requires that revenues be recognized ratably over the life of a contract.  The Company will periodically record deferred revenues relating to advance payments in contracts.  Under its licensing arrangements the Company recognizes revenue pursuant to SOP 97-2.  Under these arrangements the Company recognizes revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer and/or delivery has occurred; (3) the collection of fees is probable; and (4) the fee is fixed or determinable.  SOP 97-2, as amended, requires revenue earned on software arrangements involving multiple elements to be allocated to each element based on the relative fair values of the elements.  We have analyzed each element in our multiple element arrangements and determined that we have sufficient vendor-specific objective evidence (“VSOE”) to allocate revenues to license updates and product support.  License revenues are recognized on delivery if the other conditions of SOP 97-2 are satisfied.  License updates and product support revenue is recognized ratably over the term of the arrangement. In arrangements where term licenses are bundled with license updates and product support and such revenue is recognized ratably over the term of the arrangement, we allocate the revenue to license revenue and to license updates and product support revenue based on the VSOE of fair value for license updates and product support revenue on perpetual licenses of similar products.

 

STOCK BASED COMPENSATION.

 

The Company accounts for its employee equity incentive plans under ASC 718, Compensation – Stock Compensation which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions.

 

 
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ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s Consolidated Statements of Income. The Company currently uses the Black-Scholes option pricing model to determine grant date fair value.

 

EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

During fiscal 2013, we adopted the following new accounting pronouncements:

 

In December 2011, FASB issued Accounting Standards Update 2011-11, “Balance Sheet - Disclosures about Offsetting Assets and Liabilities” to enhance disclosure requirements relating to the offsetting of assets and liabilities on an entity's balance sheet. The update requires enhanced disclosures regarding assets and liabilities that are presented net or gross in the statement of financial position when the right of offset exists, or that are subject to an enforceable master netting arrangement. The new disclosure requirements relating to this update are retrospective and effective for annual and interim periods beginning on or after January 1, 2013. The update only requires additional disclosures, as such, the adoption of this standard did not have a material impact on our results of operations, cash flows or financial condition.

 

In January 2013, the FASB issued authoritative guidance on the presentation of amounts reclassified out of accumulated other comprehensive income. This guidance requires an entity to provide information about the amounts reclassified from accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the income statement or in the notes, significant amounts reclassified from accumulated other comprehensive income by the net income line item. The adoption of this standard, which is required for reporting periods beginning in 2013, did not have an impact on its consolidated financial position or results of operations.

 

In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This ASU amends ASC 740, Income Taxes, to require that an unrecognized tax benefit be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward; to the extent that a net operating loss carry forward, a similar tax loss, or a tax credit carryforward does not exist at the reporting date, the unrecognized tax benefit should be presented in the financial statements as a liability and not combined with deferred tax assets. ASU No. 2013-11 is effective for interim and annual periods beginning after December 15, 2013, with early adoption permitted. The Company will adopt ASU No. 2013-11 on January 1, 2014 and the adoption is not expected to have a material impact on its consolidated financial statements.

 

Accounting standards-setting organizations frequently issue new or revised accounting rules. We regularly review all new pronouncements that have been issued since the filing of our Form 10K for the year ended December 31, 2012 to determine their impact, if any, on our financial statements.

 

ITEM 7A.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not applicable to smaller reporting companies.

 

ITEM 8.          FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Our financial statements are set forth on Pages F-1 through F-37 attached hereto.

 

ITEM 9.          CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A.       CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, being December 31, 2013, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as defined in  Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) are effective such that the information relating to OmniComm, including our consolidating subsidiaries, required to be disclosed by the Company in reports that it files or submits under the Exchange Act (1) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (2) is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

However, subsequent to the closing date of our acquisition of Promasys BV (“Promasys”), and continuing thereafter, we determined that we incorrectly applied the provisions of Item 9 of Form 8-K and Article 8 of Regulation S-X under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as a result of which, (a) we concluded, incorrectly, that our acquisition of Promasys was not a “significant acquisition” within the meaning of Regulation S-X, and (b) we did not timely file a periodic report containing the audited financial statements, unaudited interim financial statements or pro-forma financial information required under Rules 8-04 and 8-05 of Regulation S-X to be filed in connection with our acquisition of Promasys. The Securities and Exchange Commission (“SEC”) has indicated that a company’s failure to file a report required to be filed under the Exchange Act may be evidence of a weakness in disclosure controls. Moreover, our incorrect application of Item 9 of Form 8-K and Article 8 of Regulation S-X could be indicative of a deficiency in our internal control over financial reporting.

 

We believe that our incorrect application of Item 9 of Form 8-K and Article 8 of Regulation S-X, and the resulting failure to timely file a required report under the Exchange Act, was caused by a lack of full familiarization on the part of our financial officers with the SEC’s accounting rules relating to acquisition transactions. However, the assets, liabilities and results of operations of Promasys have been consolidated in our financial statements since the effective date of acquisition, and our late filing of the required audited financial statements, interim financial statements and pro-forma financial statements are not expected to have any impact on our financial statements or results of operations. In order to reduce the likelihood that a similar event will occur in the future, we have taken remedial action including (a) establishing a policy that all proposed acquisitions be discussed with both our SEC counsel and our independent auditors prior to their consummation and (b) devoting resources to bolstering our financial officers’ knowledge of SEC accounting requirements, particularly those associated with acquisition transactions.

 

 
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While we believe the remedial steps we have taken will reduce the likelihood of a similar occurrence in the future, there is no assurance that a significant deficiency or material weakness will not be identified in the future as a result of this or other circumstances.

 

Management’s Report on Internal Control over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Management assessed the effectiveness of OmniComm’s internal control over financial reporting as of December 31, 2013. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Based on the assessment using those criteria, management concluded that our internal control over financial reporting was effective as of December 31, 2013 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, during the fourth quarter ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

 

ITEM 9B.       OTHER INFORMATION

 

None.

 

PART III

 

ITEM 10.        DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The information required in response to this item is incorporated by reference from the information contained in the sections “Nominees for the Board of Directors,” “Management,” “Compliance with Section 16(a) of the Exchange Act,”  and “Stock Option Plan,” in our Proxy Statement for our 2014 Annual Meeting of Stockholders to be held on July 31, 2014 (the “Proxy Statement”).

 

ITEM 11.        EXECUTIVE COMPENSATION

 

The information required in response to this item is incorporated by reference from the information contained in the section captioned “Executive Compensation” in the Proxy Statement.

 

ITEM 12.        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The information required in response to this item is incorporated by reference from the information contained in the section captioned “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement.  The information required by Item 201(d) of Regulation S-K is incorporated by reference from the information contained in the section captioned “Executive Compensation Equity Compensation Plan Information” in the Proxy Statement.

 

ITEM 13.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS; AND DIRECTOR INDEPENDENCE

 

The information required in response to this item is incorporated by reference from the information contained in the section captioned “Management” - “Certain Relationships and Related Transactions” in the Proxy Statement.

 

ITEM 14.        PRINCIPAL ACCOUNTING FEES AND SERVICES.

 

The information required in response to this item is incorporated by reference from the information contained in the section captioned “Ratification of the Appointment of Liggett, Vogt & Webb, P.A. as independent auditors of OmniComm Systems” in the Proxy Statement.

 

 
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PART IV

 

ITEM 15.        EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

The following documents are filed as a part of this report or are incorporated by reference to previous filings, if so indicated:

 

(a)           Exhibits

 

EXHIBIT NO.

DESCRIPTION

  

  

2.1

Agreement and Plan of Reorganization dated July 22, 1998 (1)

2.2

Amendment to Agreement and Plan of Reorganization (2)

2.3

Plan of Merger (3)

2.4

Agreement and Plan of Acquisition of WebIPA dated January 26, 2000 (4)

3.1

Certificate of Incorporation (5)

3.2

Certificate of Designation – Series A Preferred Stock (6)

3.3

Certificate of Increase – Series A Preferred Stock (7)

3.4

Certificate of Designation –Series B Preferred Stock (8)

3.5

Amendment to Certificate of Incorporation (9)

3.6

By-laws (10)

3.7

Certificate of Amendment – Certificate of Designation – Series A Preferred Stock (11)

3.8

Certificate of Amendment – Certificate of Incorporation (12)

3.9

Certificate of Designation – Series C  Preferred Stock (13)

3.10

Certificate of Designation – Series D Preferred Stock (14)

4.3

Form of 10% Convertible Note (15)

10.1

Employment Agreement and Stock Option Agreement between the Company and Randall G. Smith (16)

10.2

Employment Agreement and Stock Option Agreement between the Company and Ronald T. Linares (17)

10.3

1998 Stock Incentive Plan (18)

10.4

Standard Agreement – Proprietary Protection (19)

10.6

Employment Agreement and Stock Option Agreement between the Company and Cornelis F. Wit (20)

10.7

Amendment to Employment Agreement between the Company and Cornelis F. Wit (21)

10.9

Amendment to Employment Agreement between the Company and Randall G. Smith (22)

10.10

Amendment to Employment Agreement between the Company and Ronald T. Linares (23)

10.20

Lease Agreement for principal offices dated March 24, 2006 between OmniComm Systems, Inc. and RFP Mainstreet 2101 Commercial, LLC (24)

10.21

Employment Agreement and Stock Option Agreement between the Company and Stephen E. Johnson dated September 4, 2006 (25)

10.23

Form of Debenture dated February 29, 2008 (26)

10.24

Form of Warrant February 29, 2008 (27)

10.27

Form of Debenture dated August 29, 2008 (28)

10.28

Form of Warrant dated August 29, 2008 (29)

10.29

Securities Purchase Agreement dated December 16, 2008 by and between OmniComm Systems, Inc. and each individual or entity named on an executed counterpart of the signature page thereto (30)

10.30

Form of Debenture dated December 16, 2008 (31)

10.31

Form of Warrant December 16, 2008 (32)

10.32

Asset Purchase Agreement with eResearch Technology, Inc. dated June 23, 2009 (33)

10.33

Transition Service Agreement with eResearch Technology, Inc. dated June 23, 2009 (34)

10.34

Lock-up and Registration Rights Agreement with eResearch Technology, Inc. dated June 23, 2009 (35)

10.35

Agreement by and between OmniComm, Ltd. and Logos Technologies, Ltd dated August 3, 2009 (36)

10.36

Securities Purchase Agreement dated September 30, 2009 by and between OmniComm Systems, Inc. and each individual or entity named on an executed counterpart of the signature page thereto (37)

10.37

Form of Debenture dated September 30, 2009 (38)

10.38

Form of Warrant dated September 30, 2009 (39)

10.40

Subscription Agreement for the Series D Preferred Stock dated November 30, 2010 by and between OmniComm Systems, Inc. and Cornelis F. Wit (40)

10.41

Promissory note payable to Cornelis F. Wit dated September 30, 2010 (41)

10.42

Promissory note payable to Cornelis F. Wit dated December 31, 2010 (42)

10.43

Promissory note payable to Cornelis F. Wit dated December 31, 2010 (43)

10.44

Promissory note payable to Cornelis F. Wit dated March 31, 2011 (44)

10.45

Promissory note payable to Cornelis F. Wit dated December 31, 2011 (45)

 

 
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10.46

Promissory note payable to Randall Smith dated December 31, 2011 (46)

10.47

2009 Equity Incentive Plan (47)

10.48

Promissory note payable to Noesis International Holdings dated January 1, 2013 (48)

10.49

Promissory note payable to Ad Klinkenberg dated January 1, 2013 (49)

10.50

Promissory note payable to Wim Boegem dated January 1, 2013 (50)

10.51

Promissory note payable to Cornelis F. Wit dated January 1, 2013 (51)

10.52

Promissory note payable to Randall Smith dated February 1, 2013 (52)

10.53

August 2008 convertible note maturity date extension with Guus van Kesteren dated 2/22/2013 (53)

10.54

August 2008 convertible note maturity date extension with Cornelis F. Wit dated 2/22/2013 (54)

10.55

December 2008 convertible note maturity date extension with Stephen Johnson dated 2/22/2013 (55)

10.56

December 2008 convertible note maturity date extension with Randall Smith dated 2/22/2013 (56)

10.57

December 2008 convertible note maturity date extension with Cornelis F. Wit dated 2/22/2013 (57)

10.58

Amendment number two to securities purchase agreement between the Company and the Leonard and Janine Epstein 2012 Revocable Trust dated 2/22/2013 (58)

10.59

Amendment number two to securities purchase agreement between the Company and Cornelis F. Wit dated 2/22/2013 (59)

10.60

Amendment number two to securities purchase agreement between the Company and Richard & Carolyn Danzansky dated 2/22/2013 (60)

10.61

Amendment number two to securities purchase agreement between the Company and Paul Spitzberg dated 2/22/2013 (61)

10.62

Amendment number two to securities purchase agreement between the Company and Cornelis F. Wit dated 2/22/2013 (62)

10.63

December 2008 convertible note maturity date extension with Matthew Veatch dated 2/27/2013 (63)

10.64

Promissory note payable to Noesis International Holdings dated March 5, 2013 (64)

10.65

December 2008 convertible note maturity date extension with Fernando Montero Incentive Savings Trust dated 3/6/2013 (65)

10.66

December 2008 convertible note maturity date extension with Noesis International Holdings dated 3/12/2013 (66)

10.67

Promissory note payable to The Northern Trust Company dated March 18, 2013 (67)

10.68

Pledge Agreement between Northern Trust and Cornelis F. Wit (68)

10.69

Securities Account Control Agreement between Northern Trust and Cornelis F. Wit (69)

10.70

Promissory note payable to Cornelis F. Wit dated April 1, 2013 (70)

10.71

Share Purchase Agreement Promasys B. V. (71)

10.72

Lease, Promasys B.V. (72)

10.73

December 2008 convertible note maturity date extension with Guus van Kesteren dated 12/05/2013

10.74

December 2008 convertible note maturity date extension with the Fernando Montero Incentive Savings Trust dated 12/09/2013

10.75

Promissory note payable to Cornelis F. Wit dated January 1, 2014

14

OmniComm Systems, Inc. Code of Ethics (73)

21

Subsidiaries of the Company

23 Consent of Liggett, Vogt & Webb, P.A., independent registered public accounting firm*

31.1

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, promulgated under the Securities and Exchange Act of 1934, as amended.*

31.2

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, promulgated under the Securities and Exchange Act of 1934, as amended.*

32.1

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**

101.INS

XBRL Instance Document***

101.SCH

XBRL Taxonomy Extension Schema Document***

101.CAL

XBRL Taxonomy Extension Calculation***

101.DEF

XBRL Taxonomy Extension Definition***

101.LAB

XBRL Taxonomy Extension Label***

101.PRE

XBRL Taxonomy Extension Presentation***

 

1

Incorporated by reference to Exhibit 2 filed with our Report on Form 8-K dated March 3, 1999.

2

Incorporated by reference to Exhibit 2(c) filed with our Registration Statement on Form 10-SB dated December 22, 1998.

3

Incorporated by reference to Exhibit 2(c) filed with our amended Registration Statement on Form 10-SB dated July 27, 1999.

4

Incorporated by reference to Exhibit 2 filed with our Report on Form 8-K dated February 9, 2000.

5

Incorporated by reference to Exhibit 3(a) filed with our Registration Statement on Form SB-2 dated February 6, 1997.

6

Incorporated by reference to Exhibit 4(b) filed with our amended Registration Statement on Form 10-SB dated August 25, 1999.

 

 
44

 

 

7

Incorporated by reference to Exhibit 4(c) filed with our Annual Report on Form 10-K for the fiscal year ended December 31, 1999.

8

Incorporated by reference to Exhibit 4(D) filed with our amended Registration Statement on Form SB-2 dated September 17, 2001.

9

Incorporated by reference to Exhibit 4(E) filed with our Registration Statement on Form SB-2 dated December 27, 2001.

10

Incorporated by reference to Exhibit 3(b) filed with our Registration Statement on Form SB-2 dated February 6, 1997.

11

Incorporated by reference to Exhibit 3.7 filed with our Annual Report on Form 10-K for the fiscal year ended December 31, 2002.

12

Incorporated by reference to Exhibit 3.8 filed with our Annual Report on Form 10-K for the fiscal year ended December 31, 2002.

13

Incorporated by reference to Exhibit 3.9 filed with our Annual Report on Form 10-K for the fiscal year ended December 31, 2002.

14

Incorporated by reference to Exhibit 3.10 filed with our Form 8-K dated November 30, 2010

15

Incorporated by reference to Exhibit 4.3 filed with our Registration Statement filed on Form SB-2 dated September 29, 2003

16

Incorporated by reference to Exhibit 10(a)(i) filed with our amended Registration Statement on Form SB-2 dated September 17, 2001.

17

Incorporated by reference to Exhibit 10(a)(iii) filed with our amended Registration Statement on Form SB-2 dated September 17, 2001.

18

Incorporated by reference to Exhibit 10(c) filed with our amended Registration Statement on Form 10-SB dated July 27, 1999.

19

Incorporated by reference to Exhibit 10(f) filed with our amended Registration Statement on Form 10-SB dated August 25, 1999.

20

Incorporated by reference to Exhibit 10.7 filed with our Form 10-Q for the period ended June 30, 2002.

21

Incorporated by reference to Exhibit 10.8 filed with our Registration Statement filed on Form SB-2 dated September 29, 2003

22

Incorporated by reference to Exhibit 10.9 filed with our Form 10-Q for the period ended September 30, 2004.

23

Incorporated by reference to Exhibit 10.10 filed with our Form 10-Q for the period ended September 30, 2004.

24

Incorporated by reference to Exhibit 10.1 filed with our Form 10-Q for the period ended June 30, 2006.

25

Incorporated by reference to Exhibit 10.1 filed with our Form 10-Q for the period ended September 30, 2006.

26

Incorporated by reference to Exhibit 10.2 filed with our Form 8-K dated March 5, 2008.

27

Incorporated by reference to Exhibit 10.3 filed with our Form 8-K dated March 5, 2008.

28

Incorporated by reference to Exhibit 4.8 filed with our Form 10-K dated December 31, 2009.

29

Incorporated by reference to Exhibit 4.9 filed with our Form 10-K dated December 31, 2009.

30

Incorporated by reference to Exhibit 10.1 filed with our Form 8-K dated December 17, 2008.

31

Incorporated by reference to Exhibit 10.2 filed with our Form 8-K dated December 17, 2008.

32

Incorporated by reference to Exhibit 10.3 filed with our Form 8-K dated December 17, 2008.

33

Incorporated by reference to Exhibit 10.26 filed with our Form 8-K dated June 26, 2009.

34

Incorporated by reference to Exhibit 10.27 filed with our Form 8-K dated June 26, 2009.

35

Incorporated by reference to Exhibit 10.28 filed with our Form 8-K dated June 26, 2009.

36

Incorporated by reference to Exhibit 10.29 filed with our Form 8-K dated August 4, 2009.

37

Incorporated by reference to Exhibit 10.1 filed with our Form 8-K dated October 5, 2009.

38

Incorporated by reference to Exhibit 10.2 filed with our Form 8-K dated October 5, 2009.

39

Incorporated by reference to Exhibit 10.3 filed with our Form 8-K dated October 5, 2009.

40

Incorporated by reference to Exhibit 10.32 filed with our Form 8-K dated November 30, 2010.

41

Incorporated by reference to Exhibit 10.41 filed with our Form 10-K dated December 31, 2010.

42

Incorporated by reference to Exhibit 10.42 filed with our Form 10-K dated December 31, 2010.

43

Incorporated by reference to Exhibit 10.43 filed with our Form 10-K dated December 31, 2010.

44

Incorporated by reference to Exhibit 10.44 filed with our Form 10-K dated December 31, 2011.

45

Incorporated by reference to Exhibit 10.45 filed with our Form 10-K dated December 31, 2011.

46

Incorporated by reference to Exhibit 10.46 filed with our Form 10-K dated December 31, 2011.

47

Incorporated by reference to Exhibit B filed with our 2009 Proxy Statement on Schedule 14A dated June 16, 2009.

48

Incorporated by reference to Exhibit 10.48 filed with our Form 10-K dated December 31, 2012.

49

Incorporated by reference to Exhibit 10.49 filed with our Form 10-K dated December 31, 2012.

50

Incorporated by reference to Exhibit 10.50 filed with our Form 10-K dated December 31, 2012.

51

Incorporated by reference to Exhibit 10.51 filed with our Form 10-K dated December 31, 2012.

52

Incorporated by reference to Exhibit 10.52 filed with our Form 10-K dated December 31, 2012.

53

Incorporated by reference to Exhibit 10.53 filed with our Form 10-K dated December 31, 2012.

54

Incorporated by reference to Exhibit 10.54 filed with our Form 10-K dated December 31, 2012.

55

Incorporated by reference to Exhibit 10.55 filed with our Form 10-K dated December 31, 2012.

 

 
45