NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH
31, 2016
NOTE
1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION
We
are a technology solution company focused on the health care industry. Our objective is to bring better access to better care
by leveraging our proprietary technology to provide on demand savings and clinical messaging within physicians’ and patients’
web based platforms, including Electronic Health Records, e-prescribing platforms, pharmacies and Patient Portals. Initially defined
as a marketing and advertising company through its consumer website, OptimizeRx.com, we have matured as a technology solutions
provider through our direct to physician solutions, which allows physicians to automatically display and distribute sample vouchers
and/or co-pay coupons electronically within the ePrescription platform to pharmacies on behalf of their patients. The OptimizeRx
solution is integrated into the ePrescribing or Electronic Medical Records applications, but can also be accessed on their mobile
device as well as an application on a prescriber’s desktop.
Our
solutions provide health care institutions with an alternative option to the traditional inefficiencies and issues associated
with storing and managing physical drug samples and pre-printed coupons and provides better access and affordability to patients
to improve affordability, adherence, education and outcomes. In turn, we provide pharmaceutical manufacturers with both direct
to consumer and direct to physician channels for more efficiently communicating and promoting their products and savings with
a method of transparent return on investment.
The
consolidated financial statements for the three month periods ended March 31, 2016 and 2015 have been prepared by us without audit
pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. In the opinion of management, all adjustments
necessary to present fairly our financial position, results of operations, and cash flows as of March 31, 2016 and 2015, and for
the periods then ended, have been made. Those adjustments consist of normal and recurring adjustments. The consolidated balance
sheet as of December 31, 2015, has been derived from the audited consolidated balance sheet as of that date.
Certain
information and note disclosures normally included in our annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with
a reading of the financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December
31, 2015, as filed with the U.S. Securities and Exchange Commission.
The
results of operations for the three month period ended March 31, 2016, are not necessarily indicative of the results to be expected
for the full year. Certain reclassifications have been made in the prior period’s consolidated financial statements to conform
to the current period’s presentation.
NOTE
2 – STOCKHOLDERS EQUITY
As
described in greater detail in Note 4, related party transactions, in February 2016, we made a one-time payment of $720,415 to
our previous CEO in lieu of issuing shares owed to him from prior years. A portion of this payment, $357,415, was for 295,384
shares of common stock reflected in stock payable at December 31, 2015.
In
March 2016, we issued 12,500 shares of common stock to Independent Directors in connection with our Director Compensation plan
which calls for issuance of 6,250 shares per quarter to each Independent Director. These shares were valued at $13,125. In January
2015, we issued 12,500 shares of common stock to our Independent Directors in connection with the same compensation plan. Those
shares were recorded as stock payable at December 31, 2014. In addition, we recorded an additional 12,500 shares, valued at $16,375
as stock payable at March 31, 2015 for shares to be issued in April 2015.
In
February 2015, we entered into a capital markets advisory agreement covering a one year period, which calls for 90,000 shares
of common stock to be issued as compensation. These shares were valued at $112,500 and are being amortized to expense over the
period of service. Of these shares, 45,000 were issued in March 2015, and the balance were issued in August 2015.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH
31, 2016
NOTE
3 – SHARE BASED PAYMENTS – OPTIONS
We
use the fair value method to account for stock based compensation. We recorded $79,459 and $53,841 in compensation expense in
the periods ended March 31, 2016 and 2015, respectively, related to options issued under our stock-based incentive compensation
plan. This includes expense related to options issued in prior years for which the requisite service period for those options
includes the current year as well as options issued in the current year. The fair value of these instruments was calculated using
the Black-Scholes option pricing model. Information related to the assumptions used in this model is set forth in our Annual Report
on Form 10-K for the fiscal year ended December 31, 2015.
NOTE
4 – RELATED PARTY TRANSACTIONS
In
February 2016, after hiring a new CEO, we paid our previous CEO $720,415 in lieu of issuing him 595,384 shares of common stock
based on the 50 day average price of $1.21 per share. A total of 295,384 of these shares were due as a result of previously granted
stock awards in 2014 and 2015, for which shares had not yet been issued. These shares were recorded as stock payable on the balance
sheet at December 31, 2015. The remaining 300,000 shares were due in connection with the purchase of a patent from the previous
CEO in 2010. These shares were recorded as accounts payable – related party on the balance sheet at December 31, 2015. The
difference between the value the shares were initially recorded at in 2010 and the amount they were redeemed at in 2016 was recorded
as additional paid in capital.
Also,
in April 2016, we and the previous CEO entered into a separation agreement and an 18 month consulting agreement, both of which
we recently disclosed in a Form 8-K that we filed with the U.S. Securities and Exchange Commission. The consulting agreement set
forth the terms of the previous CEO’s continued relationship with our company. He remained our employee through March 31,
2016 and the consulting agreement began April 1, 2016. Under the terms of the consulting agreement, he will receive a monthly
payment of $15,000, with the potential for up to $54,000 in additional bonus payments during the term of the agreement. This agreement
also calls for total payments of $12,425 related to insurance benefits. The separation agreement and consulting agreement replace
and supersede all previously disclosed payments related to his severance and board fees.
NOTE
5 – CONTINGENCIES
Litigation
The
company is currently involved in the following legal proceedings.
In
September, 2014, we initiated litigation against Shadron Stastney, our CEO from January to December 2013, in the U.S. District
Court in the Eastern District of Michigan as a result of a dispute related to his separation agreement. Mr. Stastney alleged damages
related to the non-registration of shares that he was granted as part of his separation agreement signed in September 2013. Under
the terms of the contract we are not obligated to register the shares and we deny any obligation to do so. We have requested declarative
relief from the court and also requested an injunction from the court preventing Mr. Stastney from continuing to pursue his claims.
Mr. Stastney has filed a counterclaim requesting damages of $450,000 related to the non-registration of his shares. The parties
are currently in the discovery process and a dispositive motion has been filed by Mr. Stastney. We are in the process of preparing
our response to the motion.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH
31, 2016
NOTE
5 – CONTINGENCIES (continued)
In
March, 2015, we initiated litigation against LDM Group, LLC and PDR Network, LLC in the U.S. District Court in the Eastern District
of Missouri related to the breach by LDM, and PDR as successor, of the settlement agreement signed February 28, 2014 related to
previous litigation with LDM. LDM has failed to live up to its obligations under the settlement agreement including, but not limited
to, not allowing us to distribute our eCoupon programs in the LDM network, not allowing us to distribute the LDM patient education
programs, and not providing other information required under the settlement agreement. We are seeking enforcement of the settlement
agreement and we are seeking damages in an amount at least equal to the amounts paid to date to LDM under the settlement agreement,
which is in excess of $1.0 million, as well as damages for lost income and business value as a result of LDM’s breach of
the agreement.
In
March, 2015, we also initiated litigation against PDR Network, LLC in the U.S. District Court in the District of New Jersey as
a result of PDR’s breach of the Master Services Agreement between the parties requiring PDR to exclusively use our eCoupon
solution. We assert that PDR’s acquisition of LDM and the use of the LDM network to distribute coupons by PDR violates the
agreement between the parties and we are seeking damages in an amount at least equal the amounts paid to date by us to LDM under
the settlement agreement, which is in excess of $1.0 million, as well as damages for lost income and business value as a result
of PDR’s actions.
In
May, 2015, we filed an amended complaint in the Missouri case to consolidate the two cases and withdrew the case against PDR Networks
in the U.S. District Court in the District of New Jersey, without prejudice. In July, 2015, the U.S. District Court for the Eastern
District of Missouri dismissed the case, citing lack of Federal jurisdiction in the matter. We refiled the consolidated case against
PDR Network and LDM group in State court in Missouri. The defendants have filed a motion to dismiss two of the four counts in
the consolidated complaint. In January, 2016, the Court dismissed one of our four claims, but allowed the other three to continue
forward. The parties are currently in the discovery process.
NOTE
6 – SUBSEQUENT EVENTS
In
accordance with ASC 855-10, we have analyzed our operations subsequent to March 31, 2016 through the date these financial
statements were issued and have determined that we do not have any material subsequent events to disclose in these financial statements
other than the events described below.
In
April 2016, we issued 34,235 shares of common stock in connection with the cashless exercise of an expiring option to purchase
100,000 shares of common stock previously granted to a consultant.