NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016
NOTE
1 – NATURE OF BUSINESS
OptimizeRx
Corporation is a technology solutions company serving the healthcare industry by aggregating pharma services for the electronic
health records (“EHR”) industry. Our objective is to bring better solutions to better healthcare outcomes through
connecting patients, physicians and pharmaceutical manufacturers through technology. We are a technology solutions provider with
a direct to physician solution through our EHR partners. Our platform allows physicians to search, print and send available sample
trial vouchers and/or co-pay coupons on behalf of their patients. Our solution is integrated into the physician’s ePrescribing
or EHR applications, but can also be a stand-alone desktop application. OptimizeRx solutions provide pharmaceutical manufacturers
a direct to physician channel for communicating and promoting their products. It allows healthcare providers a means to provide
sampling and coupons without having to physically store samples on site, and it provides better access and affordability to patients.
The
company was originally formed as Optimizer Systems, LLC in the State of Michigan on January 31, 2006. It converted its form to
a corporation on October 22, 2007 and changed its name to OptimizeRx Corporation. On April 14, 2008, RFID, Ltd., a Colorado corporation,
consummated a reverse merger by entering into a share exchange agreement with the stockholders of OptimizeRx Corporation, pursuant
to which the stockholders of OptimizeRx Corporation exchanged all of the issued and outstanding capital stock of OptimizeRx Corporation
for 1,256,958 shares of common stock of RFID, Ltd., representing 100% of the outstanding capital stock of RFID, Ltd. As of April
30, 2008, RFID’s officers and directors resigned their positions and RFID changed its business to OptimizeRx’s business.
On April 15, 2008, RFID, Ltd.’s corporate name was changed to OptimizeRx Corporation. On September 4, 2008, a migratory
merger was completed, thereby changing the state of incorporation from Colorado to Nevada, resulting in the current corporate
structure, in which OptimizeRx Corporation, a Nevada corporation, is the parent corporation, and OptimizeRx Corporation, a Michigan
corporation, is its wholly-owned subsidiary (together, "OptimizeRx" and "the Company").
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United
States of America and are presented in US dollars.
Accounting
Basis
The
Company uses the accrual basis of accounting and accounting principles generally accepted in the United States of America (“GAAP”
accounting). The Company has adopted a December 31 fiscal year-end.
Principles
of Consolidation
The
financial statements reflect the consolidated results of OptimizeRx Corporation (a Nevada corporation) and its wholly owned subsidiary,
OptimizeRx Corporation (a Michigan corporation). All material inter-company transactions have been eliminated in the consolidation.
Cash
and Cash Equivalents
For
purposes of the accompanying financial statements, the Company considers all highly liquid instruments with an initial maturity
of three months or less to be cash equivalents.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair
Value of Financial Instruments
The
fair value of cash, accounts receivable, prepaid expenses, accounts payable, accounts payable – related party, accrued expenses
and deferred revenue approximates the carrying amount of these financial instruments due to their short-term nature.
Fair
value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly
transaction between market participants at the measurement date and in the principal or most advantageous market for that asset
or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset
or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration
of non-performance risk including our own credit risk.
In
addition to defining fair value, the disclosure requirements around fair value establish a fair value hierarchy for valuation
inputs, which is expanded. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in
measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels, which is
determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
Level
1 – inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.
Level
2 – inputs are based upon significant observable inputs other than quoted prices included in Level 1, such as quoted prices
for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant
assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the
assets or liabilities.
Level
3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants
would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include
option pricing models, discounted cash flow models, and similar techniques. The Company’s stock options and warrants are
valued using level 3 inputs.
The
carrying value of the Company’s financial assets and liabilities, which consist of cash, accounts receivable, prepaid expenses,
patent rights, web development costs, accounts payable, accounts payable – related party, accrued expenses and deferred
revenue, are valued using level 1 inputs. The Company believes that the recorded values approximate their fair value due to the
short maturity of such instruments. Unless otherwise noted, it is management’s opinion that the Company is not exposed to
significant interest, exchange or credit risks arising from these financial instruments.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts
receivable are reported at realizable value, net of allowances for doubtful accounts, which is estimated and recorded in the period
the related revenue is recorded. The Company has a standardized approach to estimate and review the collectability of its receivables
based on a number of factors, including the period they have been outstanding. Historical collection and payer reimbursement experience
is an integral part of the estimation process related to allowances for doubtful accounts. In addition, the Company regularly
assesses the state of its billing operations in order to identify issues, which may impact the collectability of these receivables
or reserve estimates. Because the Company’s customers are primarily large well-capitalized companies, historically there
has been very little bad debt expense. Bad debt expense was $0 for each of the years ended December 31, 2016 and 2015. The allowance
for doubtful accounts was $0 as of both December 31, 2016 and 2015.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property
and Equipment
Capital
assets are being depreciated over their estimated useful lives of three to seven years using the straight-line method of depreciation
for book purposes.
Revenue
Recognition and Revenue Share Expense
Revenue
is recognized when it is earned. Revenues are primarily generated from our content delivery activities in which we deliver financial
messaging through a distribution network of ePrescribers and Electronic Health Record technology providers (channel partners),
or from reselling services that complement our business for other of our partners.
We
recognize setup fees that are required for integrating client offerings and campaigns into our rule-based content delivery system
and network upon completion of the setup when the client’s campaign is ready to launch within our system. As the messaging
is distributed through our platform and network of channel partners (a transaction), these transactions are recorded and revenue
is recognized at the time of distribution. Revenue for transactions can be realized based on a price per distribution, a price
per redemption, or as a flat fee over a period of time, depending on the client contract. Additionally, the Company also recognizes
revenue for providing program performance reporting and maintenance, either by the Company directly delivering reports or by providing
access to its online reporting portal that the client can utilize. These fees are charged monthly and recognized as recurring
monthly revenue.
In
some instances, we also resell products and or services that are available through our channel partners on a commission basis,
and that are complementary to our core business and client base. In these instances, net revenue is recognized based on the commission
based revenue split that the Company receives. In instances where we resell services and have all financial risk and significant
operation input and risk, we record the revenue gross.
Based
on the volume of transactions that are delivered through our channel partner network, we provide a revenue share to compensate
the partner for their promotion of the campaign. Revenue shares are a negotiated percentage of the transaction fees and can also
be specific to special considerations and campaigns. In addition, we pay revenue share to ConnectiveRx (formerly LDM/PDR) as a
result of a 2014 legal settlement in an amount equal to the greater of 10% of financial messaging distribution revenues generated
or $0.37 per financial message distributed. The contractual amount due to our channel partners is recorded as an expense at the
time the eCoupon is distributed.
Income
Taxes
Income
taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and
liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities and
are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax
assets that, based on available evidence, are not expected to be realized.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Estimates and assumptions have been made in determining the carrying
value of assets, depreciable and amortizable lives of tangible and intangible assets, the carrying value of liabilities, the amount
of revenue to be billed, and the timing of revenue recognition and related revenue share expenses. Actual results could differ
from these estimates.
Concentration
of Credit Risks
The
Company maintains its cash and cash equivalents in bank deposit accounts, which, at times, may exceed federally insured limits.
The Company has not experienced any losses in such accounts; however, amounts in excess of the federally insured limit may be
at risk if the bank experiences financial difficulties.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research
and Development
The
Company expenses research and development expenses as incurred. Our research efforts are focused on understanding the market dynamics
that have the potential to affect the business and increase revenue in both the short and long term. Our primary goal is to increase
revenue by helping patients better afford and access the medicines their doctors prescribe, as well as other healthcare products
and services they need. Based on this, the Company continually seeks ways to improve its technology to enhance user experiences,
and to develop new services and solutions for its customers.
Share-based
Payments
The
Company uses the fair value method to account for stock-based compensation. The fair value of the equity instrument is charged
directly to compensation expense and additional paid-in capital over the period during which services are rendered. The fair value
of each award is estimated on the date of each grant. For restricted stock, the fair market value is based on the market value
of the stock granted on the date of the grant. For options, it is estimated using the Black=Scholes option pricing model that
uses the assumptions noted in the following table. Estimated volatilities are based on the historical volatility of the Company’s
stock over the same period as the expected term of the options. The expected term of options granted represents the period of
time that options granted are expected to be outstanding. The Company uses historical data to estimate option exercise behavior
and to determine this term. The risk free rate used is based on the U.S. Treasury yield curve in effect at the time of the grant
using a time period equal to the expected option term. The Company has never paid dividends and does not expect to pay any dividends
in the future.
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk free interest rate
|
|
|
0.86%-1.15
|
%
|
|
|
0.24%-0.93
|
%
|
Expected option term
|
|
|
4.5 years
|
|
|
|
2.5 - 3.5 years
|
|
Turnover/forfeiture rate
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
91% - 99
|
%
|
|
|
67%
- 85
|
%
|
The
Black-Scholes option valuation model and other existing models were developed for use in estimating the fair value of traded options
that have no vesting restrictions and are fully transferable. These option valuation models require the input of, and are highly
sensitive to, subjective assumptions including the expected stock price volatility. OptimizeRx’s stock options have characteristics
significantly different from those of traded options, and changes in the subjective input assumptions could materially affect
the fair value estimate.
Loss
Per Common and Common Equivalent Share
The
computation of basic earnings per common share is computed using the weighted average number of common shares outstanding during
the year. The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during
the year plus common stock equivalents, which would arise from the exercise of warrants outstanding using the treasury stock method
and the average market price per share during the year. Options, warrants and convertible preferred stock have not been included
in the diluted earnings per share calculation for either year since their effect is anti-dilutive in all years presented.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment
of Long-Lived Assets
The
Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets may
not be recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived
assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows.
If the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss
based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower
of the carrying amount or the fair value less costs to sell.
Recently
Issued Accounting Guidance
The
Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s
results of operations, financial position or cash flow.
NOTE
3 – PREPAID EXPENSES
Prepaid
expenses consisted of the following as of December 31, 2016 and 2015:
|
|
2016
|
|
|
2015
|
|
Insurance
|
|
$
|
43,608
|
|
|
$
|
30,623
|
|
Rent
|
|
|
7,212
|
|
|
|
-0-
|
|
Legal
|
|
|
30,000
|
|
|
|
40,000
|
|
Total prepaid expenses
|
|
$
|
80,820
|
|
|
$
|
70,623
|
|
NOTE
4 – PROPERTY AND EQUIPMENT
The
Company owned equipment recorded at cost which consisted of the following as of December 31, 2016 and 2015:
|
|
2016
|
|
|
2015
|
|
Computer equipment
|
|
$
|
66,433
|
|
|
$
|
21,565
|
|
Furniture and fixtures
|
|
|
132,905
|
|
|
|
11,088
|
|
Subtotal
|
|
|
199,338
|
|
|
|
32,653
|
|
Accumulated depreciation
|
|
|
(25,689
|
)
|
|
|
(22,414
|
)
|
Property and equipment, net
|
|
$
|
173,649
|
|
|
$
|
10,239
|
|
Depreciation
expense was $22,414 and $4,620 for the years ended December 31, 2016 and 2015, respectively.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016
NOTE
5 – WEB-BASED TECHNOLOGY
The
Company has capitalized costs in developing its technology, which consisted of the following as of December 31, 2016 and 2015:
|
|
2016
|
|
|
2015
|
|
OptimizeRx consumer web-based technology
|
|
$
|
154,133
|
|
|
$
|
154,133
|
|
OptimizeRx EHR integrated technology
|
|
|
1,304,230
|
|
|
|
1,140,394
|
|
Subtotal
|
|
|
1,458,363
|
|
|
|
1,294,527
|
|
Accumulated amortization
|
|
|
(1,106,559
|
)
|
|
|
(954,057
|
)
|
Web-based technology, net
|
|
$
|
351,804
|
|
|
$
|
340,470
|
|
Amortization
is recorded using the straight-line method over a period of up to five years. All remaining carrying value at December 31, 2015
and 2016 relates to the EHR integrated technology. Amortization expense for the technology costs was $152,502 and $261,572 for
the years ended December 31, 2016 and 2015, respectively.
NOTE
6 – PATENT AND TRADEMARKS
On
April 26, 2010, the Company acquired the technical contributions and assignment of all exclusive rights to and for a key patent
from the former CEO of the Company in exchange for 300,000 shares of common stock to be granted at the discretion of the seller
and 200,000 stock options, valued at $360,000. The shares were valued on the grant date at $570,000 and were recorded as a payable
to the related party. The obligation to deliver those shares was redeemed in 2016 for a cash payment of $363,000.
The
Company has capitalized costs in purchasing and defending its patent, which consisted of the following as of December 31, 2016
and 2015:
|
|
2016
|
|
|
2015
|
|
Patent rights and intangible assets
|
|
$
|
930,000
|
|
|
$
|
930,000
|
|
Patent defense costs
|
|
|
172,457
|
|
|
|
172,457
|
|
New patents and trademarks
|
|
|
65,738
|
|
|
|
58,469
|
|
Accumulated amortization
|
|
|
(395,801
|
)
|
|
|
(328,042
|
)
|
Patent rights and intangible assets, net
|
|
$
|
772,394
|
|
|
$
|
832,884
|
|
The
Company began amortizing the patent, using the straight-line method over the estimated useful life of 17 years, once it was put
into service in July 2010. In 2013, the Company began incurring costs related to defense of the patent. These costs have been
capitalized and will be amortized using the straight-line method over the remaining useful life of the original patent. Amortization
expense was $67,758 for both of the years ended December 31, 2016 and 2015.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016
NOTE
7 – DEFERRED REVENUE
The
Company has several signed contracts with customers for the distribution of financial messaging, or other services, which include
payment in advance. The payments are not recorded as revenue until the revenue is earned under its revenue recognition policy
discussed in Note 2. Deferred revenue was $386,581 and $227,002 as of December 31, 2016 and 2015, respectively.
NOTE
8 – RELATED PARTY TRANSACTIONS
During
the year ended December 31, 2010, the Company acquired the technical contributions and assignment of all exclusive rights to and
for a key patent in process at the time from a former CEO in exchange for 300,000 shares of common stock to be granted at the
discretion of the seller and 200,000 stock options, valued at $360,000, which expired in April 2015. The shares were valued on
the grant date at $570,000 and were recorded as a payable to the related party. In 2016 the obligation to issue those shares was
redeemed for a payment of $363,000 in cash.
During
the year ended December 31, 2015, WPP made a strategic investment in the Company and is a shareholder that owns approximately
20% of the shares of the Company.
During
2016, we had billings of $2,613,942 to agencies that are part of the WPP group and recognized revenue of $1,542,411 related to
those billings. As of December 31, 2016, we have receivables included in trade receivables on the balance sheet of $1,108,585
from WPP agencies and amounts due to WPP agencies included in revenue share payable of $127,458 as of December 31, 2016. In addition,
we purchased of $190,686 from WPP agencies in 2016 and had amounts owed related to those services of $12,600 in accounts payable
at December 31, 2016.
During
2015, we had billings of $420,503 to agencies that are part of the WPP group and recognized revenue of $178,855 related to those
billings. As of December 31, 2015, we have receivables included in trade receivables on the balance sheet of $381,125 from WPP
agencies and amounts due to WPP agencies included in revenue share payable of $37,803 as of December 31, 2015.
NOTE
9 – PREFERRED STOCK
The
Company has 10,000,000 shares of preferred stock, $.001 par value per share, authorized as of December 31, 2016. There were no
shares outstanding at any time during the periods covered by these financial statements.
NOTE
10 – COMMON STOCK
The
Company had 500,000,000 shares of common stock, $.001 par value per share, authorized as of December 31, 2016. There were 29,718,867
and 29,030,925 shares of common stock issued and outstanding at December 31, 2016 and 2015, respectively.
In
July 2016, we issued 384,118 shares of common stock to an unrelated party in a private transaction, the proceeds of which were
used to redeem shares of common stock payable to an executive officer.
The
Company has a Director Compensation plan covering its independent non-employee Directors. A total of 50,000 shares were granted
and issued in each of the years ended December 31, 2016 and 2015 in connection with this compensation plan. These shares were
valued at $51,375 and $60,125, respectively.
The
Company issued 100,000 shares of common stock, valued at $110,000, to Shadron Stastney in connection with the settlement of litigation
described in greater detail in Note 16.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016
NOTE
10 – COMMON STOCK (CONTINUED)
The
Company issued 103,754 shares of common stock in 2016 in connection with the cashless exercise of stock options granted in prior
years that were about to expire in 2016.
In
February, 2015, the Company entered into a capital markets advisory agreement covering a one-year period, which called for 90,000
shares of common stock to be issued as compensation. These shares were valued at $112,500 and were amortized to expense over the
period of service. 45,000 of these shares were issued in March 2015. The agreement was terminated in July 2015, effective in August,
and the remaining 45,000 shares were not issued. The total expense recognized was $56,250.
In
June, 2015, the Company agreed to grant 197,605 fully vested shares of its common stock to two executive officers as bonuses.
These shares were not issued at the time, but were recorded as stock payable. The obligation to issue these shares was redeemed
for cash in 2016 for a total payment of $232,602.
In
September, 2015, the Company entered into a new capital markets advisory agreement covering a one-year period, which called for
90,000 shares of common stock to be issued as compensation. The first 45,000 shares were issued in September 2015 and valued at
$41,400. These shares were amortized over a six-month period. The agreement was cancelled in February 2016 and the remaining 45,000
shares were not issued.
In
February 2014, the Company agreed to grant 337,500 shares of common stock, half of which vested immediately and half of which
vested in August 2014, to two executive officers as bonuses based on their efforts to recapitalize the Company. Stock-based compensation
related to these bonuses of $570,375 was recorded during the year ended December 31, 2014. These shares were not issued at the
time and were recorded as stock payable. The obligation to issue these shares was redeemed in 2016 for cash payments of $397,038.
Also in 2014, as part of a capital raise, the Company agreed to grant 200,000 shares of common stock to three executive officers.
The shares were part of an equity raise and the issuance was recorded as part of equity issuance costs, so no expense was recorded.
In 2016, a total of 150,000 of those shares were redeemed for a cash payment of $177,275 and the remaining 50,000 shares were
issued to a former executive officer.
In
September, 2015, the Company entered into a securities purchase agreement pursuant to which the Company sold 6,011,106 shares
of its common stock for $0.7875 per share, or gross proceeds of $4,733,746. The shares were issue to a subsidiary of WPP, the
world’s largest marketing services company, as part of a strategic investment by WPP. Placement agents in the offering received
commissions and expenses of $387,300, or approximately 8.2% of the gross proceeds. The net proceeds received were $4,346,446.
Placement agents also received warrants to purchase up to 240,444 shares of our common stock with an exercise price of $0.7875
per share and a term of 5 years. The warrants were valued at $176,213 and have been recorded as equity issuance costs.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016
NOTE
11 – STOCK OPTIONS
The
Company sponsors a stock-based incentive compensation plan known as the 2013 Equity Compensation Plan (the “Plan”),
which was established by the Board of Directors of the Company in June 2013. A total of 1,500,000 shares were initially reserved
for issuance under the Plan. The Plan was amended in 2016 to increase the authorized shares to 4,000,000 shares. A total of 3,095,000
options have been granted and remain outstanding at December 31, 2016. In addition, a total of 735,105 restricted shares were
granted in 2014 and 2015, but not issued at the time. A total 685,015 of these shares were redeemed for cash in 2016 and 50,000
of these shares were issued in 2016. As of December 31, 2016, the Company has no remaining restricted shares owed. The Company
has 855,000 shares available to grant under the Plan at December 31, 2016.
The
Plan allows the Company to grant incentive stock options, non-qualified stock options, stock appreciation right, or restricted
stock. The incentive stock options are exercisable for up to ten years, at an option price per share not less than the fair market
value on the date the option is granted. The incentive stock options are limited to persons who are regular full-time employees
of the Company at the date of the grant of the option. Non-qualified options may be granted to any person, including, but not
limited to, employees, independent agents, consultants and attorneys, who the Company’s Board or Compensation Committee
believes have contributed, or will contribute, to the success of the Company. Non-qualified options may be issued at option prices
of less than fair market value on the date of grant and may be exercisable for up to ten years from date of grant. The option
vesting schedule for options granted is determined by the Compensation Committee of the Board of Directors at the time of the
grant. The Plan provides for accelerated vesting of unvested options if there is a change in control, as defined in the Plan.
Prior
to establishment of the Plan, the Board granted options under terms similar to those described in the preceding paragraphs. A
total of 25,000 options are outstanding at December 31, 2016 that were granted prior to the establishment of the 2013 Plan.
The
compensation cost that has been charged against income related to options for the years ended December 31, 2016 and 2015, was
$384,126 and $253,358, respectively. No income tax benefit was recognized in the income statement and no compensation was capitalized
in any of the years presented.
The
Company had the following option activity during the years ended December 31, 2016 and 2015:
|
|
Number of Options
|
|
|
Weighted average exercise price
|
|
Outstanding, January 1, 2015
|
|
|
1,307,500
|
|
|
$
|
1.31
|
|
Granted - 2015
|
|
|
550,000
|
|
|
|
1.25
|
|
Exercised - 2015
|
|
|
0
|
|
|
|
0
|
|
Expired – 2015
|
|
|
(242,500
|
)
|
|
|
(1.68
|
)
|
Balance, December 31, 2015
|
|
|
1,615,000
|
|
|
|
1.09
|
|
Granted – 2016
|
|
|
2,040,000
|
|
|
|
1.09
|
|
Exercised – 2016
|
|
|
(485,000
|
)
|
|
|
0.89
|
|
Expired – 2016
|
|
|
(50,000
|
)
|
|
|
(1.08
|
)
|
Balance, December 31, 2016
|
|
|
3,120,000
|
|
|
$
|
1.12
|
|
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016
NOTE
12 – WARRANTS
The
Company has issued warrants to purchase common stock, primarily in connection with capital raising activities. As discussed in
Note 10, in 2015, the Company issued warrants to purchase 240,444 shares of common stock, with an exercise price of $0.7875 per
share in connection with the strategic investment by WPP.
The
Company had the following warrants outstanding as of December 31, 2016:
Number of Shares
Underlying Warrants
|
|
|
Exercise Price
|
|
|
Expiration Date
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
$
|
2.25
|
|
|
10/5/2017
|
|
804,139
|
|
|
$
|
1.20
|
|
|
3/17/2019
|
|
240,444
|
|
|
$
|
0.7875
|
|
|
9/24/2020
|
The
Company had the following warrant activity during the years ended December 31, 2016 and 2015:
|
|
Number of Shares Underlying Warrants
|
|
|
Weighted average exercise price
|
|
Outstanding, January 1, 2015
|
|
|
1,854,139
|
|
|
$
|
1.69
|
|
Granted
|
|
|
240,444
|
|
|
|
0.7875
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
Balance, December 31, 2015
|
|
|
2,094,583
|
|
|
|
1.65
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(50,000
|
)
|
|
|
0.89
|
|
Balance, December 31, 2016
|
|
|
2,044,583
|
|
|
$
|
1.67
|
|
NOTE
13 – OPERATING LEASES
The
Company initially signed the lease for its current office space located in Rochester Michigan on December 1, 2011. That lease
expired November 30, 2016 and the Company signed a new lease for the same space. The new lease is a three-year lease beginning
December 1, 2016, with options for up to an additional 6 years. The rent is payable monthly at rates of $6,232, $6,308, and $6,384
per month for years 1, 2, and 3 of the lease, respectively. The monthly rates for the option years range from $6,384 per month
to $6,688 per month for the option years 4 through 9 of the lease. If the Company fails to exercise its option for option years
4 and 5, a least termination payment of $7,300 will be due at the end of the initial 3-year term.
The
Company also has a short-term lease on shared office space in Cambridge Massachusetts expiring May 31, 2017. The lease is a nine-month
lease calling for six monthly payments of $2,997 and three free months.
Minimum
annual rent payments are as follows for the remaining term of the leases:
Year ended December 31:
|
|
|
|
2017
|
|
$
|
77,857
|
|
2018
|
|
|
75,772
|
|
2019
|
|
|
70,224
|
|
Total lease commitment
|
|
$
|
223,853
|
|
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016
NOTE
14 – MAJOR CUSTOMERS
The
Company had the following major customers that individually accounted for 10% or more of revenue in any one of the years presented:
`
|
|
2016
|
|
|
Percentage
|
|
|
2015
|
|
|
Percentage
|
|
Customer A
|
|
$
|
899,299
|
|
|
|
12
|
%
|
|
$
|
1,409,720
|
|
|
|
20
|
%
|
Customer B
|
|
|
449,322
|
|
|
|
6
|
%
|
|
|
958,653
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
7,751,462
|
|
|
|
100
|
%
|
|
|
7,220,678
|
|
|
|
100
|
%
|
NOTE
15 – INCOME TAXES
As
of December 31, 2016, the Company had net operating loss carry forwards of approximately $9.1 million that expire from 2027 through
2036 that are available to offset future taxable income. The Company was formed in 2006 as a limited liability company and changed
to a corporation in 2007. Activity prior to incorporation is not reflected in the Company’s corporate tax returns. In the
future, the cumulative net operating loss carry-forward for income tax purposes may differ from the cumulative financial statement
loss due to timing differences between book and tax reporting.
The
provision for Federal income tax consists of the following for the years ended December 31, 2016 and 2015:
|
|
2016
|
|
|
2015
|
|
Federal income tax benefit attributable to:
|
|
|
|
|
|
|
|
|
Current operations
|
|
$
|
523,000
|
|
|
$
|
202,000
|
|
Permanent and Timing Differences (net)
|
|
|
133,000
|
|
|
|
(218,000
|
)
|
Valuation allowance
|
|
|
(656,000
|
)
|
|
|
16,000
|
|
Net provision for federal income tax
|
|
$
|
0
|
|
|
$
|
0
|
|
The
cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows as
of December 31, 2016 and 2015:
|
|
2016
|
|
|
2015
|
|
Deferred tax asset attributable to:
|
|
|
|
|
|
|
|
|
Net operating loss carryover
|
|
$
|
3,766,000
|
|
|
$
|
3,110,000
|
|
Valuation allowance
|
|
|
(3,766,000
|
)
|
|
|
(3,110,000
|
)
|
Net deferred tax asset
|
|
$
|
0
|
|
|
$
|
0
|
|
Under
certain circumstances issuance of common shares can result in an ownership change under Internal Revenue Code Section 382 which
limits the Company’s ability to utilize carry forwards from prior to the ownership change. Any such ownership change resulting
from stock issuances and redemptions could limit the Company’s ability to utilize any net operating loss carry forwards
or credits generated before this change in ownership. These limitations can limit both the timing of usage of these laws, as well
as the loss of the ability to use these net operating losses. It is likely that fundraising activities have resulted in such an
ownership change.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016
NOTE
16 – COMMITMENTS AND CONTINGENT LIABILITIES
Legal
The
Company is currently involved in the following legal proceedings.
Commencing
in September 2014, we were a party to a lawsuit involving our prior CEO, Shadron Stastney, in the U.S. District Court in the Eastern
District of Michigan as a result of a dispute related to his separation agreement. On May 27, 2016, we settled the action. For
a complete release of claims and dismissal of the action, we agreed to pay Mr. Stastney $50,000 and to issue him 100,000 shares
of our common stock. We further agreed to register 133,333 of his existing shares with the Securities and Exchange Commission
on Form S-1 by June 30, 2016. We have tendered to Mr. Stastney the cash and shares and registered his shares in fulfillment of
our settlement obligations.
In March, 2015, we initiated litigation
in federal court against LDM Group, LLC and PDR Network, LLC. That action was dismissed and later re-initiated in Missouri state
court. Our claims are related to the breach by LDM of the settlement agreement signed February 28, 2014 to resolve previous
litigation with LDM. Following execution of that agreement, LDM failed to live up to its obligations under that 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 on a timely basis or at all as required under the settlement
agreement. In addition, our claims include PDR’s breach of the Master Services Agreement requiring PDR’s exclusive
use of 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. We are also claiming that LDM and PDR entered a civil conspiracy
to violate their respective agreements with us. We are seeking enforcement of the agreements 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.
The parties are currently in the discovery
process.
Revenue-share
contracts
The
Company has contacts with various Electronic Health Records systems and ePrescribe platforms, whereby we agree to share a portion
of the revenue we generate for eCoupons distributed through their networks. These contracts grant audit rights related to the
payments to our partners, and in some cases would require us to pay for the audit if the audit determined there was an underpayment
and the underpayment meets certain thresholds, such as 10%.
Allscripts
Agreement
In
2015, we signed an amendment to our Allscripts agreement whereby we became its exclusive eCoupon supplier and Allscripts agreed
to integrate our eCoupon functionality into its Touchworks platform. Under the terms of this agreement, we agreed to pay $900,000
in two installments. The first installment of $250,000 was due and paid in November 2015. The second installment of $650,000 becomes
due when the e-Coupon functionality is launched on a widespread basis in the Touchworks platform, which occurred February 28,
2017.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016
NOTE
17 – RETIREMENT PLAN
The
Company sponsors a defined contribution 401(k) profit sharing plan which was adopted in December, 2015, effective in January 2016.
Under the terms of the plan, the Company matches 100% of the first 3% of payroll contributed by the employee and 50% of the next
2% of payroll contributed by the employee to a maximum of 4% of an employee’s payroll. There was no expense under this plan
in 2015, as the plan became effective in 2016. There was expense of $64,690 recorded in 2016 for company contributions to the
plan.
NOTE
18 – SUBSEQUENT EVENTS
In
accordance with ASC 855-10, the Company has analyzed its operations subsequent to December 31, 2016 through the date these financial
statements were issued and has determined that it does not have any material subsequent events to disclose in these financial
statements.