NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2017
NOTE
1 – ORGANIZATION AND NATURE OF BUSINESS
OptimizeRx
Corporation is a leading provider of digital health messaging via electronic health records (EHRs), 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, education and critical clinical
information. The company’s network is comprised of leading EHR platforms and provides more than half a million healthcare
providers access to these benefits within their workflow at the point of care.
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. 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.
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.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2017
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
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, 2017 and 2016. The
allowance for doubtful accounts was $0 as of both December 31, 2017 and 2016.
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 and are being amortized over their estimated useful lives of seventeen years for patents and three to
four years for software and websites using the straight-line method.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2017
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue
Recognition and Revenue Share Expense
Revenue
is recognized when it is earned. Revenues are primarily generated from content delivery activities in which the Company delivers
financial or brand messaging through a distribution network of ePrescribers and Electronic Health Record technology providers
(channel partners), or from reselling services that complement the business for other partners.
The
Company recognizes setup fees that are required for integrating client offerings and campaigns into the rule-based content delivery
system and network upon completion of the setup when the client’s campaign is ready to launch within the system. 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, 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, 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.
Based
on the volume of transactions that are delivered through the channel partner network, the Company provides 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, the Company pays 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 through the network, or $0.37 per financial message distributed through our network. The contractual amount
due to the 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.
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.
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.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2017
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
|
|
2017
|
|
2016
|
|
|
|
|
|
Expected dividend yield
|
|
0%
|
|
0%
|
Risk free interest rate
|
|
1.47% - 1.81%
|
|
0.86%-1.15%
|
Expected option term
|
|
3.5 – 5 years
|
|
4.5 years
|
Turnover/forfeiture rate
|
|
0%
|
|
0%
|
Expected volatility
|
|
65%-78%
|
|
91% - 99%
|
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.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2017
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. The number of common shares potentially issuable upon the exercise of
certain options and warrants that were excluded from the diluted loss per common share calculation was approximately 489,201,
because they are anti-dilutive, as a result of a net loss for the year ended December 31, 2017. As described in Notes 11 and 12,
the Company had options and warrants outstanding as indicated in the table below.
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Options
|
|
|
4,106,250
|
|
|
|
3,120,000
|
|
Warrants
|
|
|
1,044,583
|
|
|
|
2,044,583
|
|
Weighted average exercise price
|
|
$
|
1.06
|
|
|
$
|
1.34
|
|
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) (“ASU 2016-02”), which modifies lease accounting
for lessees to increase transparency and comparability by recording lease assets and liabilities for operating leases and disclosing
key information about leasing arrangements. The Company will adopt ASU 2016-02 in its first quarter of 2019. While the Company
is currently evaluating the timing and impact of adopting ASU 2016-02, currently the Company anticipates no material impact to
its Consolidated Statements of Operations. However, the ultimate impact of adopting ASU 2016-02 will depend on the Company’s
lease portfolio as of the adoption date.
In
May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which
amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition
of revenue at an amount an entity expects to be entitled when products are transferred to customers.
Subsequently,
the FASB has issued the following standards related to ASU 2014-09: ASU No. 2016-08, Revenue from Contracts with Customers (Topic
606): Principal versus Agent Considerations (“ASU 2016-08”); ASU No. 2016-10, Revenue from Contracts with Customers
(Topic 606): Identifying Performance Obligations and Licensing (“ASU 2016-10”); ASU No. 2016-12, Revenue from Contracts
with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”); and ASU No. 2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers (“ASU 2016-20”). The Company
must adopt ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 with ASU 2014-09 (collectively, the “new revenue standards”).
The
new revenue standards may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect
recognized as of the date of adoption. The Company will adopt the new revenue standards in its first quarter of 2018. The new
revenue standards are not expected to have a material impact on the amount and timing of revenue recognized in the Company’s
consolidated financial statements.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2017
NOTE
3 – PREPAID EXPENSES
Prepaid
expenses consisted of the following as of December 31, 2017 and 2016:
|
|
2017
|
|
|
2016
|
|
Insurance
|
|
$
|
43,764
|
|
|
$
|
43,608
|
|
Rent
|
|
|
8,539
|
|
|
|
7,212
|
|
EHR access fees
|
|
|
203,125
|
|
|
|
-
|
|
Legal
|
|
|
-
|
|
|
|
30,000
|
|
Total prepaid expenses
|
|
$
|
255,428
|
|
|
$
|
80,820
|
|
NOTE
4 – PROPERTY AND EQUIPMENT
The
Company owned equipment recorded at cost which consisted of the following as of December 31, 2017 and 2016:
|
|
2017
|
|
|
2016
|
|
Computer equipment
|
|
$
|
83,079
|
|
|
$
|
66,433
|
|
Furniture and fixtures
|
|
|
158,502
|
|
|
|
132,905
|
|
Subtotal
|
|
|
241,581
|
|
|
|
199,338
|
|
Accumulated depreciation
|
|
|
74,276
|
|
|
|
(25,689
|
)
|
Property and equipment, net
|
|
$
|
167,305
|
|
|
$
|
173,649
|
|
Depreciation
expense was $48,587 and $22,414 for the years ended December 31, 2017 and 2016, respectively.
NOTE
5 – WEB-BASED TECHNOLOGY
The
Company has capitalized costs in developing its technology, which consisted of the following as of December 31, 2017 and
2016:
|
|
2017
|
|
|
2016
|
|
OptimizeRx consumer web-based technology
|
|
$
|
154,132
|
|
|
$
|
154,133
|
|
OptimizeRx EHR integrated technology
|
|
|
1,304,230
|
|
|
|
1,304,230
|
|
Subtotal
|
|
|
1,458,362
|
|
|
|
1,458,363
|
|
Accumulated amortization
|
|
|
(1,314,632
|
)
|
|
|
(1,106,559
|
)
|
Web-based technology, net
|
|
$
|
143,730
|
|
|
$
|
351,804
|
|
Amortization
is recorded using the straight-line method over periods of up to five years. The consumer web-based technology has no carrying
value at either December 31, 2016 or 2017. Amortization expense for the technology costs was $208,074 and $152,502 for the years
ended December 31, 2017 and 2016, respectively. Amortization expense related to these assets is expected to be $91,039 in
2018 and $52,691 in 2019 to completely amortize the December 31, 2017 carrying value.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2017
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, valued at $570,000 and 200,000 stock
options, valued at $360,000.
The
Company has capitalized costs in purchasing and defending its patent, which consisted of the following as of December 31,
2017 and 2016:
|
|
2017
|
|
|
2016
|
|
Patent rights and intangible assets
|
|
$
|
930,000
|
|
|
$
|
930,000
|
|
Patent defense costs
|
|
|
172,457
|
|
|
|
172,457
|
|
New patents and trademarks
|
|
|
-
|
|
|
|
65,738
|
|
Subtotal
|
|
|
1,102,457
|
|
|
|
1,168,165
|
|
Accumulated amortization
|
|
|
(463,691
|
)
|
|
|
(395,801
|
)
|
Patent rights and intangible assets, net
|
|
$
|
638,766
|
|
|
$
|
772,394
|
|
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 $67,890 and $67,758 for the years ended December 31, 2017 and 2016, respectively. We expect our amortization
expense related to these patents to be $67,890 for each of the years from 2018 through 2022.
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 $507,160 and $386,581 as of December 31, 2017 and 2016, 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, plc made a strategic investment in the Company and is a shareholder that owns approximately
20% of the shares of the Company.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2017
NOTE
8 – RELATED PARTY TRANSACTIONS (continued)
The
following table sets forth the activity between the Company and WPP
|
|
2017
|
|
|
2016
|
|
Total billings to WPP Agencies
|
|
$
|
3,554,168
|
|
|
$
|
2,613,942
|
|
Revenue recognized from WPP Agencies
|
|
$
|
3,696,214
|
|
|
$
|
1,542,411
|
|
Accounts receivable from WPP Agencies
|
|
$
|
1,173,614
|
|
|
$
|
1,108,585
|
|
Rebates given to WPP Agencies
|
|
$
|
33,249
|
|
|
$
|
24,519
|
|
Marketing services purchased from WPP Agencies
|
|
$
|
54,762
|
|
|
$
|
190,686
|
|
Accounts payable to WPP Agencies
|
|
$
|
-
|
|
|
$
|
12,600
|
|
Revenue share expense recorded to WPP Agencies
|
|
$
|
401,596
|
|
|
$
|
177,372
|
|
Revenue share expenses owed to WPP Agencies
|
|
$
|
447,670
|
|
|
$
|
127,458
|
|
NOTE
9 – PREFERRED STOCK
The
Company has 10,000,000 shares of preferred stock, $.001 par value per share, authorized as of December 31, 2017. Of those shares,
1,000 were designated as Series A and Series B. There were no shares outstanding at any time during the periods covered by these
financial statements. The Series A and B designations were transaction specific in 2008 and 2010 and were redeemed in 2014. When
outstanding, the shares had a liquidation preference and bore dividends at a rate of 10%, payable in cash or stock, but are no
longer applicable. The Company intends to remove the designations in 2018.
NOTE
10 – COMMON STOCK
The
Company had 500,000,000 shares of common stock, $.001 par value per share, authorized as of December 31, 2017. There were 29,318,018
and 29,718,867 shares of common stock issued and outstanding at December 31, 2017 and 2016, respectively.
In
2017, the Company purchased and cancelled 500,000 shares held by the previous CEO at a price of $0.78 per share for a total payment
of $390,000.
In
2017 the Company issued 24,214 shares in connection with the exercise of employee stock options by former employees. The options
were exercised on a net settled basis and no cash proceeds were received.
The
Company has a Director Compensation plan covering its independent non-employee Directors. A total of 75,000 and 50,000 shares
were granted and issued in the years ended December 31, 2017 and 2016, respectively in connection with this compensation plan.
These shares were valued at $87,375 and $51,375, respectively.
In
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.
In
2016, the Company issued 100,000 shares of common stock, valued at $110,000, to Shadron Stastney in connection with the settlement
of litigation.
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.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2017
NOTE
10 – COMMON STOCK (continued)
In
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
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 2016 and the remaining 45,000 shares were not issued.
In
2014, the Company agreed to grant 337,500 shares of common stock to two executive officers at the time 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 at the time. 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.
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 and again in 2018
to increase the authorized shares to 5,500,000. A total of 4,106,250 options were 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, 2017, the Company has no remaining
restricted shares owed. The Company had no remaining shares available to grant under the Plan at December 31, 2017.
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 were outstanding at December 31, 2016 that were granted prior to the establishment of the 2013 Plan, but
those options expired in 2017.
The
compensation cost that has been charged against income related to options for the years ended December 31, 2017 and 2016, was
$815,014 and $384,126, respectively. No income tax benefit was recognized in the income statement and no compensation was capitalized
in any of the years presented.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2017
NOTE
11 – STOCK OPTIONS (continued)
The
Company had the following option activity during the years ended December 31, 2017 and 2016:
|
|
Number of Options
|
|
|
Weighted average exercise price
|
|
|
Weighted average remaining contractual life (years)
|
|
|
Aggregate intrinsic value $
|
|
Outstanding, January 1, 2016
|
|
|
1,615,000
|
|
|
$
|
1.09
|
|
|
|
|
|
|
|
|
|
Granted - 2016
|
|
|
2,040,000
|
|
|
$
|
1.09
|
|
|
|
|
|
|
|
|
|
Exercised - 2016
|
|
|
(485,000
|
)
|
|
$
|
0.89
|
|
|
|
|
|
|
|
|
|
Expired – 2016
|
|
|
(50,000
|
)
|
|
$
|
1.08
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2016
|
|
|
3,120,000
|
|
|
$
|
1.12
|
|
|
|
3.6
|
|
|
|
|
|
Granted – 2017
|
|
|
1,441,250
|
|
|
$
|
0.96
|
|
|
|
|
|
|
|
|
|
Exercised – 2017
|
|
|
(130,000
|
)
|
|
$
|
1.27
|
|
|
|
|
|
|
|
|
|
Expired – 2017
|
|
|
(325,000
|
)
|
|
$
|
1.34
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2017
|
|
|
4,106,250
|
|
|
$
|
1.04
|
|
|
|
3.2
|
|
|
$
|
2,173,700
|
|
Exercisable, December 31, 2017
|
|
|
1,891,250
|
|
|
$
|
1.02
|
|
|
|
2.9
|
|
|
$
|
1,035,900
|
|
Of
the options outstanding at December 31, 2016, 1,220,000 were exercisable with a weighted average contractual life of 1.1 years
and the remaining 1,900,000 were non-vested.
The
table below shows the expiration date and exercise price of the options outstanding at December 31, 2017.
Number of Options
|
|
Exercise Price
|
|
Expiration Date
|
600,000
|
|
$0.82
|
|
03/31/22
|
150,000
|
|
$1.00
|
|
10/30/18
|
1,135,000
|
|
$1.05
|
|
03/03/19
|
1,500,000
|
|
$1.07
|
|
02/22/21
|
500,000
|
|
$1.15
|
|
07/28/21
|
20,000
|
|
$1.17
|
|
11/01/22
|
100,000
|
|
$1.22
|
|
03/03/19
|
31,250
|
|
$1.57
|
|
12/31/22
|
10,000
|
|
$1.85
|
|
01/29/19
|
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2017
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 connection with the strategic investment by WPP, in 2015 the Company issued warrants to purchase 240,444 shares of
common stock with an exercise price of $0.7875 per share.
The
Company had the following warrants, with an intrinsic value of $485,678, outstanding as of December 31, 2017:
Number of Shares Underlying Warrants
|
|
Exercise Price
|
|
Expiration Date
|
804,139
|
|
$1.20
|
|
03/17/2019
|
240,444
|
|
$0.7875
|
|
09/24/2020
|
The
Company had the following warrant activity during the years ended December 31, 2017 and 2016:
|
|
Number of Shares Underlying Warrants
|
|
|
Weighted average exercise price
|
|
Outstanding, January 1, 2016
|
|
|
2,094,583
|
|
|
$
|
1.65
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(50,000
|
)
|
|
$
|
0.89
|
|
Balance, December 31, 2016
|
|
|
2,044,583
|
|
|
$
|
1.67
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(1,000,000
|
)
|
|
$
|
2.25
|
|
Balance, December 31, 2017
|
|
|
1,044,583
|
|
|
$
|
1.11
|
|
NOTE
13 – MAJOR CUSTOMERS
The
Company had one customer that individually accounted for approximately 12% of revenue in 2017 and a different customer that individually
accounted for approximately 12% of revenue in 2016. No other customers accounted for more than 10% of revenue in either year presented.
NOTE
14 – INCOME TAXES
As
of December 31, 2017, the Company had net operating loss carry forwards of approximately $12.2 million that expire from 2027 through
2037 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.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2017
NOTE
14 – INCOME TAXES (continued)
The
provision for Federal income tax consists of the following for the years ended December 31, 2017 and 2016:
|
|
2017
|
|
|
2016
|
|
Federal income tax benefit attributable to:
|
|
|
|
|
|
|
Current operations
|
|
$
|
715,000
|
|
|
$
|
523,000
|
|
Permanent and timing differences (net)
|
|
|
(280,000
|
)
|
|
|
133,000
|
|
Tax rate change
|
|
|
(1,600,000
|
)
|
|
|
-
|
|
Valuation allowance
|
|
|
1,165,000
|
|
|
|
(656,000
|
)
|
Net provision for federal income tax
|
|
$
|
-
|
|
|
$
|
-
|
|
The
cumulative tax effect at the expected rate of 34%, as of December 31, 2016, and 21% as of December 31, 2017, of significant items
comprising our net deferred tax amount is as follows as of December 31, 2017 and 2016:
|
|
2017
|
|
|
2016
|
|
Deferred tax asset attributable to:
|
|
|
|
|
|
|
Net operating loss carryover
|
|
$
|
2,551,000
|
|
|
$
|
3,648,000
|
|
Depreciation and amortization
|
|
|
98,000
|
|
|
|
126,000
|
|
Stock compensation
|
|
|
372,000
|
|
|
|
339,000
|
|
Other
|
|
|
-
|
|
|
|
73,000
|
|
Valuation allowance
|
|
|
(3,021,000
|
)
|
|
|
(4,186,000
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
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.
NOTE
15 – COMMITMENTS AND CONTINGENT LIABILITIES
Legal
The
Company is not involved in any legal proceedings.
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%.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2017
NOTE
15 – COMMITMENTS AND CONTINGENT LIABILITIES (continued)
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 current 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 month to month leases on shared office spaces in Cambridge Massachusetts and Nashville, Tennessee, payable at
rates of $2,700 per month and $1,370 per month, respectively.
Minimum
annual rent payments are as follows for the remaining term of the leases:
Year ended December 31:
|
|
|
|
2018
|
|
|
75,772
|
|
2019
|
|
|
70,224
|
|
Total lease commitment
|
|
$
|
145,996
|
|
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 originally
was due when the e-Coupon functionality was launched on a widespread basis in the Touchworks platform, which occurred February
28, 2017. A payment of $325,000 was made at the time and the remaining amount due was extended until October, 2018.
Hosting
agreement
The
Company has an agreement with a third party to host and administer its software through March 31, 2018 at a rate of $24,230 per
month for a total of $72,690 for the three-month period. That agreement was terminated in December 2017 with an effective date
of March 31, 2018 in conjunction with moving to a more cost-effective solution and in connection with that termination, the Company
will make additional payments of $220,440
NOTE
16 – 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 expense of $137,858 and
$64,690 recorded in 2017 and 2016, respectively, for company contributions to the plan.
NOTE
17 – SUBSEQUENT EVENTS
In
February 2018, the Company’s Board of Directors amended the 2013 Equity Compensation Plan to increase the number of shares
authorized under the plan to 5,500,000. At the same time, the Company granted 390,000 shares of restricted common stock to officers
and options to purchase 320,000 shares of common stock with an exercise price of $1.40 to non-officers, both of which vest only
if the Company achieves certain stretch revenue goals in either 2019 or 2020. In addition, the Company accelerated vesting to
2018 on 300,000 existing options that previously vested in 2021.