NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2019
NOTE
1 – ORGANIZATION AND NATURE OF BUSINESS
OptimizeRx
Corporation is a digital health company focused on connecting life sciences companies to their clients with critical content at
the point-of-care. It provides electronic clinical information via electronic health record companies (EHRs) to the medical profession,
providing a direct channel for pharmaceutical companies to communicate with healthcare providers. The Company’s cloud-based
solution supports patient adherence to medications by providing real-time access to financial assistance, prior authorization,
and critical clinical information. The Company’s network is comprised of leading EHR platforms and provides more than half
of the ambulatory patient market with access to these benefits within their workflow at the point-of-care.
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.
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 valuation allowance for the deferred
tax asset, the timing of revenue recognition and related revenue share expenses, and inputs used in the calculation of stock based
compensation. Actual results could differ from these estimates.
Principles of Consolidation
The financial statements reflect the consolidated
results of OptimizeRx Corporation, a Nevada corporation, and its wholly owned subsidiaries: OptimizeRx Corporation, a Michigan
corporation, RMDY Health, Inc., a Delaware corporation, CareSpeak Communications, Inc., a New Jersey corporation, Cyberdiet, a
controlled foreign corporation incorporated in Israel, and CareSpeak Communications D.O.O., a Controlled Foreign Corporation incorporated
in Croatia. Together, these companies are referred to as “OptimizeRx” and “the Company.” All material intercompany
transactions have been eliminated.
Reclassifications
Certain items in the previous year financial
statements have been reclassified to match the current year presentation.
Cash and Cash Equivalents
For purposes of the accompanying financial
statements, the Company considers all highly liquid instruments, consisting of money market accounts, with an initial maturity
of three months or less to be cash equivalents.
Fair Value of Financial Instruments
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.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2019
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
following tables present the fair values and carrying values of the Company’s financial assets and liabilities measured
on a recurring basis as of December 31, 2019 and 2018 and the valuation techniques used by the Company to determine those fair
values.
|
|
2019
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value
|
|
|
Carrying Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent Purchase Price Payable (1)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,720,000
|
|
|
$
|
6,720,000
|
|
|
$
|
6,720,000
|
|
|
|
2018
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value
|
|
|
Carrying Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent Purchase Price Payable (1)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,365,000
|
|
|
$
|
2,365,000
|
|
|
$
|
2,365,000
|
|
(1)
|
The contingent consideration is based off achieving certain revenue
milestones in each of the next two years. The Geometric-Brownian motion analysis was used to generate spot prices for use in an
option pricing model. For 2018, the hypothetical spot prices were simulated using a monte carlo simulation utilizing 2018 revenue
as a base and revenue volatility of 37%. The risk-free rate of return and terms utilized were 2.89% and 1.46-2.46, respectively,
and expected volatility was 35%. For 2019, the hypothetical spot prices were simulated using a monte carlo simulation utilizing
2020 and 2021 revenue projections and revenue volatility of 40%. The risk-free rate of return and terms utilized were 1.40% and
1 -2 years, respectively, and expected volatility was 40%.
|
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2019
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The
following table provides a summary of changes in fair value of the Company’s Level 3 financial instruments for the years
ended December 31, 2019 and 2018.
|
|
Amount
|
|
Balance December 31, 2017
|
|
$
|
-
|
|
Contingent consideration liability recorded as the result of the CareSpeak Communications acquisition (see note 3)
|
|
|
2,365,000
|
|
Balance December 31, 2018
|
|
|
2,365,000
|
|
Increase in fair value of CareSpeak Communications contingent consideration
|
|
|
635,000
|
|
Contingent consideration liability recorded as the result of the RMDY Health, Inc. acquisition (see note 3)
|
|
|
3,720,000
|
|
Balance December 31, 2019
|
|
$
|
6,720,000
|
|
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 $80,000 for the year ended December 31, 2019 and $0 for the year
ended December 31, 2018. The allowance for doubtful accounts was $80,000 and $0 as of December 31, 2019 and 2018, respectively.
Property
and Equipment
Property
and equipment are stated at cost and are being depreciated over their estimated useful lives of three to five years for office
equipment and three years for computer equipment using the straight-line method of depreciation for book purposes. Maintenance
and repair charges are expensed as incurred.
Intangible
Assets
Intangible assets are stated at cost. Finite-lived
assets are being amortized over their estimated useful lives of fifteen to seventeen years for patents, eight years for customer
relationships, fifteen years for tradenames, four years for covenants not to compete, and three to four years for software and
websites, all using the straight-line method. These assets, as well as our indefinite-lived asset, are evaluated annually in our
fiscal fourth quarter for impairment.
Goodwill
We
evaluate goodwill for impairment during our fiscal fourth quarter, or more frequently if an event occurs or circumstances change.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2019
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue
Recognition
Recognition
of revenue requires evidence of a contract, probable collection of proceeds, and completion of substantially all performance obligations.
We use a 5-step model to recognize revenue. These steps are: identify the contract with a customer, identify the performance obligations
in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract,
and recognize revenue when or as the performance obligations are satisfied.
Revenues
are primarily generated from content delivery activities in which the Company delivers financial, clinical, or brand messaging
through a distribution network of eprescribers and electronic health record technology providers (channel partners), directly
to consumers, or from reselling services that complement the business. Unless otherwise specified, revenue is recognized based
on the gross selling price to customers.
The
Company’s contracts are generally all less than one year and the primary performance obligation is delivery of messages,
but the contract may contain additional performance obligations. Additional performance obligations may include program design
and set up, and reporting.
As
the messaging is distributed through the 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 message,
a price per redemption, as a flat fee occurring over a period of time, or upon completion of the program, depending on the client
contract. The Company recognizes setup fees that are required for integrating client offerings and campaigns into the rule-based
content delivery system and network over the life of the initial program, based either on time, or units delivered, depending
upon which is most appropriate in the specific situation. Should a program be cancelled before completion, the balance of set
up revenue is recognized at the time of cancellation, as set up fees are nonrefundable. 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 at the time of delivery.
In
some instances, the Company also resells products and or services that are available through channel partners on a commission
basis, and that are complementary to the 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 the Company resells services and have all financial
risk and significant operation input and risk, the Company records the revenue gross.
Cost
of Revenues
The
primary cost of revenue is revenue share expense. Based on the volume of transactions that are delivered through the channel partner
network, the Company provides a revenue share to compensate the partner, or others, 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.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2019
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
The
Company recognizes the tax benefit from uncertain tax positions if it is more likely than not that the tax positions will be sustained
on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the
largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. It is the Company’s policy
to include interest and penalties related to tax positions as a component of income tax expense.
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. As of
December 31, 2019 and 2018 the Company had $18,047,903 and $8,414,034, respectively, in cash balances in excess of federally insured
limits, primarily at Bank of America/Merrill Lynch.
Research
and Development
The Company expenses research and development
expenses as incurred. Research and development expense was $1,604,195 and $0 in 2019 and 2018, respectively.
Stock-based Compensation
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, forfeitures, 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.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2019
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Expected
dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk
free interest rate
|
|
|
1.51%
- 2.37
|
%
|
|
|
1.96%
- 2.84
|
%
|
Expected
option term
|
|
|
3.5
years
|
|
|
|
3.5
- 5 years
|
|
Turnover/forfeiture
rate
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected
volatility
|
|
|
64%
- 67
|
%
|
|
|
64%
- 66
|
%
|
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. The Company’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) Earnings Per Common and Common Equivalent Share
The computation of basic (loss)
earnings per common share is computed using the weighted average number of common shares outstanding during the year. The
computation of diluted (loss) earnings per common share is based on the basic weighted average number of shares outstanding
during the year plus common stock equivalents, which would arise from the exercise of options and warrants outstanding using
the treasury stock method and the average market price per share during the year. The number of common shares potentially
issuable upon the exercise of certain options that were excluded from the diluted loss per common share calculation in 2019
was 891,224 related to options, and 59,918 related to restricted stock, for a total of 951,142 because they are
anti-dilutive, as a result of a net loss for the year ended December 31, 2019.
The
computation of weighted average shares outstanding and the basic and diluted earnings per common share for the years ended December
31, 2019 and 2018 consisted of the following:
|
|
Net (Loss)
|
|
|
Shares
|
|
|
Per Share Amount
|
|
Year ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
(3,142,576
|
)
|
|
|
13,387,863
|
|
|
$
|
(0.23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
(3,142,576
|
)
|
|
|
13,387,863
|
|
|
$
|
(0.23
|
)
|
|
|
Net Income
|
|
|
Shares
|
|
|
Per Share Amount
|
|
Year ended December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
226,344
|
|
|
|
10,832,209
|
|
|
$
|
0.02
|
|
Effect of dilutive stock options and warrants
|
|
|
|
|
|
|
1,030,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
226,344
|
|
|
|
11,862,991
|
|
|
$
|
0.02
|
|
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2019
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
In February 2016, the FASB issued ASU
No. 2016-02, Leases (Topic 842). Under ASU No. 2016-02, the Company recognizes most leases on its balance sheet as lease
liabilities with corresponding right-of-use assets. ASU No. 2016-02 was effective for fiscal years beginning after December 15,
2018. The Company adopted ASU No. 2016-02 on January 1, 2019. See Note 13 “Leases” for information regarding this standard
and its adoption.
In January 2017, the FASB issued ASU No. 2017-04,
Intangibles-Goodwill and Other (Topic 350). ASU No. 2017-04 was issued to simplify the accounting for goodwill impairment.
ASU No. 2017-04 removes the second step of the goodwill impairment test, which requires that a hypothetical purchase price allocation
be performed to determine the amount of impairment, if any. Under ASU No. 2017-04, a goodwill impairment charge will be based
on the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.
ASU No. 2017-04 became effective on a prospective basis for the Company on January 1, 2020. The adoption of this standard did
not have a material effect on the Company’s financial position, results of operations or cash flows.
In
June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which introduces the
Current Expected Credit Losses (“CECL”) accounting model. CECL requires earlier recognition of credit losses, while
also providing additional transparency about credit risk. CECL utilizes a lifetime expected credit loss measurement objective
for the recognition of credit losses at the time the financial asset is originated or acquired. The expected credit losses are
adjusted each period for changes in expected lifetime credit losses. ASU No. 2016-13 is effective for the Company on January 1,
2020. The adoption of this standard will not have a material effect on the Company’s financial position, results of operations
or cash flows.
In December 2019, the FASB issued ASU No.
2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to improve consistent
application and simplify the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic
740 and clarifies and amends existing guidance. ASU 2019-12 is effective for annual and interim reporting periods beginning after
December 12, 2020, with early adoption permitted. We do not expect the adoption of ASU 2019-12 to have a material impact on our
consolidated financial statements.
NOTE
3 – ACQUISITIONS
On
October 17, 2018, we acquired CareSpeak Communications, Inc., a New Jersey corporation and technology solutions company, which
provides digital messaging services to the healthcare industry to expand our service offerings. Through its cloud based Mobile
Health Messenger (“MHM”) Platform, CareSpeak provides interactive health messaging for improved medication adherence,
care coordination, and patient engagement. The total purchase price was $8,493,451. Acquisition costs of approximately $607,670
were expensed as incurred.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2019
NOTE
3 – ACQUISITION (CONTINUED)
The
purchase price contains a contingent element that will be paid only if the Company achieves certain patient engagement revenues
in 2019 and 2020. The total contingent payment may be up to $3.0 million. The target patient engagement revenues were achieved
in 2019 and are expected to be achieved in 2020. The calculated fair value of the contingent payment is $3,000,000 at December
31, 2019.
Purchase
Price Allocation
The
purchase price of the CareSpeak acquisition was allocated as follows:
Purchase Price
|
|
|
|
Cash paid
|
|
$
|
5,628,451
|
|
Common stock issued
|
|
|
500,000
|
|
Contingent payment
|
|
|
2,365,000
|
|
Total
|
|
$
|
8,493,451
|
|
|
|
|
|
|
Allocation
|
|
|
|
|
Current assets
|
|
$
|
254,263
|
|
Property and equipment
|
|
|
8,487
|
|
Intangibles
|
|
|
|
|
Goodwill, including assembled workforce in place
|
|
|
3,678,513
|
|
Patent
|
|
|
2,227,000
|
|
Tradename
|
|
|
982,000
|
|
Non-compete agreements
|
|
|
977,000
|
|
Customer relationships
|
|
|
492,000
|
|
Current liabilities assumed
|
|
|
(125,812
|
)
|
Total
|
|
$
|
8,493,451
|
|
As
described in greater detail in Note 6, the amortizable intangible assets acquired have estimated useful lives ranging from 4 to
15 years. We determined the estimated fair value of the identifiable intangible assets acquired primarily by using the income
approach.
On
October 4, 2019, we acquired RMDY Health, Inc. (“RMDY”), a Delaware corporation and technology solutions company engaged
in developing and marketing digital health SAAS solutions across a range of healthcare and life science initiatives, used by pharmaceutical
companies, payers, medtech companies, and medical associations
nationwide to improve medication adherence and care coordination. The total purchase price was $17,822,162. Acquisition costs
of approximately $799,623 were expensed as incurred.
The
purchase price contains a contingent element that will be paid only if the Company achieves certain revenues related to the legacy
RMDY business in 2020 and 2021. The total contingent payment may be up to $30.0 million, with a minimum payment of $1.0 million
each year. The calculated fair value of the contingent payment is $3,720,000 at December 31, 2019.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2019
NOTE
3 – ACQUISITION (CONTINUED)
The
purchase price of the RMDY acquisition was allocated as follows:
Purchase Price
|
|
|
|
Cash paid
|
|
$
|
8,994,369
|
|
Common stock issued
|
|
|
5,107,793
|
|
Contingent payment
|
|
|
3,720,000
|
|
Total
|
|
$
|
17,822,162
|
|
|
|
|
|
|
Allocation
|
|
|
|
|
Current assets
|
|
|
|
|
Accounts receivable
|
|
$
|
411,354
|
|
Prepaid Expense
|
|
|
12,139
|
|
Property and equipment
|
|
|
19,173
|
|
Intangibles
|
|
|
|
|
Goodwill, including assembled workforce in place
|
|
|
11,061,518
|
|
Web technology
|
|
|
5,125,000
|
|
Tradename
|
|
|
2,604,000
|
|
Non-compete agreements
|
|
|
116,000
|
|
Customer relationships
|
|
|
431,000
|
|
Current liabilities assumed
|
|
|
|
|
Accounts payable
|
|
|
(128,234
|
)
|
Accrued expenses
|
|
|
(931,828
|
)
|
Deferred tax liability
|
|
|
(897,960
|
)
|
Total
|
|
$
|
17,822,162
|
|
As
described in greater detail in Note 6, the amortizable intangible assets acquired have estimated useful lives ranging from 2 to
15 years. We determined the estimated fair value of the identifiable intangible assets acquired primarily by using the income
approach.
Included in accrued expenses is $800,000 withheld
at closing as part of an indemnification provision against potential future claims.
We
began consolidating the results of CareSpeak operations and cashflows into our consolidated financial statements after October
17, 2018, the date of acquisition and the results of RMDY operations and cashflows after October 3, 2019, the date of that acquisition.
The unaudited Pro forma results of operations as if both acquisitions had occurred January 1, 2018 are presented in the following
table:
|
|
2019
|
|
|
2018
|
|
|
|
As Reported
|
|
|
Pro Forma
|
|
|
As Reported
|
|
|
Pro Forma
|
|
Revenues
|
|
$
|
24,598,278
|
|
|
$
|
26,118,278
|
|
|
$
|
21,206,363
|
|
|
$
|
24,520,995
|
|
Net (Loss) Income
|
|
|
(3,142,576
|
)
|
|
|
(3,869,577
|
)
|
|
|
226,344
|
|
|
|
(564,340
|
)
|
(Loss) Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.23
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.05
|
)
|
Diluted
|
|
$
|
(0.23
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.05
|
)
|
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2019
NOTE
4 – PREPAID EXPENSES
Prepaid
expenses consisted of the following as of December 31, 2019 and 2018:
|
|
2019
|
|
|
2018
|
|
Insurance
|
|
$
|
69,250
|
|
|
$
|
43,284
|
|
Prepaid revenue share payments
|
|
|
201,114
|
|
|
|
-
|
|
EHR access fees
|
|
|
313,121
|
|
|
|
302,527
|
|
Other
|
|
|
287,558
|
|
|
|
14,335
|
|
Total prepaid expenses
|
|
$
|
871,043
|
|
|
$
|
360,146
|
|
NOTE
5 – PROPERTY AND EQUIPMENT
The
Company owned equipment recorded at cost, which consisted of the following as of December 31, 2019 and 2018:
|
|
2019
|
|
|
2018
|
|
Computer equipment
|
|
$
|
137,763
|
|
|
$
|
94,384
|
|
Furniture and fixtures
|
|
|
187,167
|
|
|
|
159,648
|
|
Subtotal
|
|
|
324,930
|
|
|
|
254,032
|
|
Less accumulated depreciation
|
|
|
148,916
|
|
|
|
104,702
|
|
Property and equipment, net
|
|
$
|
176,014
|
|
|
$
|
149,330
|
|
Depreciation
expense was $80,206 and $58,423 for the years ended December 31, 2019 and 2018, respectively.
NOTE
6 – INTANBIGLE ASSETS
Goodwill
The goodwill is related to the acquisition
of RMDY Health, Inc. in 2019 and CareSpeak Communications in 2018 and is primarily related to expected improvements and technology
performance and functionality, sales growth from future product and service offerings and new customers, together with certain
intangible assets that do not qualify for separate recognition, such as the assembled workforce in place. Goodwill is generally
not amortizable for tax purposes and is not amortizable for financial statement purposes.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2019
NOTE
6 – INTANBIGLE ASSETS (CONTINUED)
Intangible
Assets
Intangible
assets included on the balance sheet consist of the following:
|
|
December 31, 2019
|
|
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Weighted
Average Life
Remaining
|
Patent rights
|
|
$
|
3,329,457
|
|
|
$
|
778,870
|
|
|
$
|
2,550,587
|
|
|
11.7
|
Technology Assets
|
|
$
|
8,140,013
|
|
|
$
|
1,901,560
|
|
|
$
|
6,238,453
|
|
|
8.0
|
Other intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradename
|
|
$
|
3,586,000
|
|
|
$
|
59,767
|
|
|
$
|
3,526,233
|
|
|
14.5
|
Non-compete agreements
|
|
|
1,093,000
|
|
|
|
309,635
|
|
|
|
783,365
|
|
|
2.7
|
Customer relationships
|
|
|
923,000
|
|
|
|
81,496
|
|
|
|
841,504
|
|
|
10.5
|
Total other
|
|
|
5,602,000
|
|
|
|
450,898
|
|
|
|
5,151,102
|
|
|
|
Total Intangibles
|
|
$
|
17,071,470
|
|
|
$
|
3,131,328
|
|
|
$
|
13,940,142
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Weighted
Average Life
Remaining
|
Patent rights
|
|
$
|
3,329,457
|
|
|
$
|
562,513
|
|
|
$
|
2,766,944
|
|
|
12.7
|
Technology assets
|
|
$
|
1,515,013
|
|
|
$
|
1,473,890
|
|
|
$
|
104,820
|
|
|
1.1
|
Other intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradename
|
|
|
982,000
|
|
|
|
-
|
|
|
|
982,000
|
|
|
Indefinite
|
Non-compete agreements
|
|
|
977,000
|
|
|
|
50,885
|
|
|
|
926,115
|
|
|
3.8
|
Customer relationships
|
|
|
492,000
|
|
|
|
12,812
|
|
|
|
479,188
|
|
|
7.8
|
Total other
|
|
|
2,451,000
|
|
|
|
63,697
|
|
|
|
2,387,303
|
|
|
|
Total Intangibles
|
|
$
|
7,295,470
|
|
|
$
|
2,036,403
|
|
|
$
|
5,259,067
|
|
|
|
Intangibles
are being amortized on a straight-line basis over the following estimated useful lives.
Patents
|
|
|
15 – 17 years
|
|
Tradenames
|
|
|
15 years
|
|
Non-compete agreements
|
|
|
2 – 4 years
|
|
Customer relationships
|
|
|
8 – 15 years
|
|
Technology assets
|
|
|
3 – 10 years
|
|
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2019
NOTE
6 – INTANBIGLE ASSETS (CONTINUED)
The
Company recorded amortization expense of $1,094,924 and $258,079 in the years ended December 31, 2019 and 2018, respectively.
Expected future amortization expenses of the intangibles assets as of December 31, 2019 is as follows:
Year ended December 31,
|
|
|
|
2020
|
|
$
|
1,811,400
|
|
2021
|
|
|
1,794,795
|
|
2022
|
|
|
1,391,965
|
|
2023
|
|
|
990,267
|
|
2024
|
|
|
990,267
|
|
Thereafter
|
|
|
6,961,448
|
|
Total
|
|
$
|
13,940,142
|
|
In addition to the technology assets acquired
in connection with the RMDY acquisition, the company also acquired software with a cost of $1.5 million in 2019.
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 $580,014 and $610,625 as of December 31, 2019 and 2018, 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 a total payment in shares of common stock and
options valued at $930,000 at the time, and recorded at that cost. That patent remains in Patents on the consolidated balance
sheet as of December 31, 2019.
During
the year ended December 31, 2015, WPP, plc made a strategic investment in the Company and owned approximately 20% of the outstanding
shares of the Company until December 2018, when it sold the shares. As of December 31, 2018, WPP was no longer a related party,
however the transactions between WPP and the Company while they were a related party are set forth in the table below. The Company
considers the pharmaceutical companies being represented by WPP agencies to be its customers and it received no preferable pricing
from WPP agencies as a result of its related party status.
The
following table sets forth the activity between the Company and WPP for the year ended December 31 2018:
Total billings to WPP Agencies
|
|
$
|
6,217,735
|
|
Revenue recognized from WPP Agencies
|
|
$
|
6,527,051
|
|
Accounts receivable
|
|
$
|
2,051,532
|
|
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2019
NOTE
9 – CONTINGENT PURCHASE PRICE
Our purchase of CareSpeak Communications contains
a contingent element that will be paid only if the Company achieves certain patient engagement revenues in 2019 and 2020. The
total contingent payment may be up to $3.0 million. The target patient engagement revenues were achieved in 2019 and are expected
to be achieved in 2020. The calculated fair value of the contingent payment was $2,365,000 at December 31, 2018 and $3,000,000
at December 31, 2019.
Our
purchase of RMDY Health, Inc. also contains a contingent element that will be paid only if the Company achieves certain revenues
in 2020 and 2021 related to the RMDY business. The total contingent payment may be up to $30.0 million. The minimum payment is
$1.0 million in each of the two years. The calculated fair value of the contingent payment was $3,720,000 at December 31, 2019.
We determined the fair value of the Contingent Purchase Price Payable at December 31, 2019 using a Geometric-Brownian motion analysis
of the expected revenue and resulting earnout payment using inputs that include the spot price, a risk free rate of return of
1.4%, a term of 2 years, and volatility of 40%. Changes in the inputs could result in a different fair value measurement.
The
total fair value of contingent purchase price payable at December 31, 2019 is as follows.
|
|
Current
|
|
|
Long-Term
|
|
|
Total
|
|
CareSpeak Communications, Inc.
|
|
$
|
1,500,000
|
|
|
$
|
1,500,000
|
|
|
$
|
3,000,000
|
|
RMDY Health, Inc.
|
|
|
-
|
|
|
|
3,720,000
|
|
|
|
3,720,000
|
|
Total
|
|
$
|
1,500,000
|
|
|
$
|
5,220,000
|
|
|
$
|
6,720,000
|
|
NOTE 10 – STOCKHOLDERS’ EQUITY
Preferred
Stock
The
Company has 10,000,000 shares of preferred stock, $.001 par value per share, authorized as of December 31, 2019. No shares were
issued or outstanding in either 2018 or 2019.
Common
Stock
The Company had 166,666,667 shares of common
stock, $.001 par value per share, authorized as of December 31, 2019. There were 14,600,579 and 12,038,618 shares of common stock
issued and outstanding at December 31, 2019 and 2018, respectively.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2019
NOTE
10 – STOCKHOLDERS’ EQUITY (CONTINUED)
Effective May 14, 2018, in connection with
our listing on the Nasdaq Capital Market, we implemented a reverse split of our common stock by exchanging each three shares of
our common stock for one share. Our financial statements and all equity transactions have been retroactively adjusted to account
for the reverse stock split. We elected to round fractional shares up to the nearest whole number rather than redeem them for
cash, and as a result we issued 908 additional shares as a result of this rounding. In connection with this reverse split, our
authorized shares were reduced from 500,000,000 to 166,666,667.
In
2018, we issued 100,000 shares of common stock to a subsidiary of WPP, one of the world’s largest media companies, and a
shareholder at the time, in full payment of all amounts due under a co-marketing agreement that covered certain WPP agencies,
whereby we shared a portion of our revenue with those agencies related to new programs through those agencies. The shares were
valued at $447,000, the market value of the stock on the date of issuance. The amount due was recorded as a liability in revenue
share payable at December 31, 2017.
During 2019, in an underwritten public offering,
we issued 1,769,275 shares of our common stock for gross proceeds of $23,000,575. In connection with this transaction, we incurred
equity issuance costs of $1,696,749 related to payments to the underwriter, advisors and legal fees associated with the transaction,
resulting in net proceeds to the Company of $21,303,826.
During
2018, in a private transaction, we issued 1,666,669 shares of our common stock for gross proceeds of $9,000,000. In connection
with this transaction, we incurred equity issuance costs of $835,526 related to payments to advisors and legal fees associated
with the transaction, resulting in net proceeds to the Company of $8,164,474.
The
Company has a Director Compensation plan covering its independent non-employee Directors. A total of 33,344 and 36,494 shares
were granted and issued in the years ended December 31, 2019 and 2018, respectively, in connection with this compensation plan.
These shares were valued at $447,393 and $428,884, respectively. The Company also awarded 130,001 restricted stock awards, valued
at $546,007, to executive officers in 2018. These awards would vest only if the Company achieved certain stretch revenue goals
in 2018 or 2019. It was determined that the goal was achieved as of December 31, 2018, so the entire expense was recognized in
2018, but the shares related to these awards were issued in 2019.
During
2019, we issued 382,893 shares of common stock, valued at $5,107,793, to the former shareholders of RMDY Health, Inc. in connection
with the acquisition of RMDY in 2019. We also issued 30,638 shares of common stock, valued at $500,000, to the former shareholders
of CareSpeak Communications, Inc., in connection with the acquisition of the CareSpeak in 2018.
We
issued 246,448 shares of common stock and received proceeds of $877,702 in 2019 in connection with the exercise of options. We
also issued 165,169 shares of common stock and received proceeds of $521,270 in 2018 in connection with the exercise of options.
During
2018, we issued 15,000 shares of our common stock, valued at $228,050, for investor relations services.
During,
2018, we issued 251,046 shares of common stock in connection with the cashless exercise of a warrant to purchase 348,194 shares.
We
adopted the new accounting standard ASC 606, Revenue from Contracts with Customers, as of January 1, 2018, which resulted in a
charge of $142,027 to Retained Earnings on that date. We adopted the new lease accounting standard ASC 842 as of January 1, 2019,
which resulted in a charge of $3,229 to Retained Earnings on that date.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2019