NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE
30, 2016
NOTE
1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION
We
are a technology solution company focused on the health care industry. Our objective is to bring better access to better care
by leveraging our proprietary technology to provide on demand savings and clinical messaging within physicians’ and patients’
web based platforms, including Electronic Health Records, e-prescribing platforms, pharmacies and Patient Portals. Initially defined
as a marketing and advertising company through our consumer website, OptimizeRx.com, we have matured as a technology solutions
provider through our direct to physician solutions, which allows physicians to automatically display and distribute sample vouchers
and/or co-pay coupons electronically within the ePrescription platform to pharmacies on behalf of their patients. The OptimizeRx
solution is integrated into the ePrescribing or Electronic Medical Records applications, but can also be accessed on a desktop
computer, as well as most mobile devices.
Our
solutions provide health care institutions with an alternative option to the traditional inefficiencies and issues associated
with storing and managing physical drug samples and pre-printed coupons and provide better access and affordability to patients
to improve affordability, adherence, education and outcomes. In turn, we provide pharmaceutical manufacturers with both direct-to-consumer
and direct-to-physician channels for more efficiently communicating and promoting their products and savings with a method of
transparent return on investment.
The
consolidated financial statements for the three and six month periods ended June 30, 2016 and 2015, have been prepared by us without
audit pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all adjustments
necessary to present fairly our financial position, results of operations, and cash flows as of June 30, 2016 and 2015, and for
the periods then ended, have been made. Those adjustments consist of normal and recurring adjustments. The consolidated balance
sheet as of December 31, 2015, has been derived from the audited consolidated balance sheet as of that date.
Certain
information and note disclosures normally included in our annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with
a reading of the financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December
31, 2015, as filed with the Securities and Exchange Commission.
The
results of operations for the three and six month periods ended June 30, 2016, are not necessarily indicative of the results to
be expected for the full year. Certain reclassifications have been made in our consolidated financial statements for the prior
period to conform to the presentation of our consolidated financial statements for the current period.
NOTE
2 – STOCKHOLDERS EQUITY
As
described in greater detail in Note 4, related party transactions, in February 2016, we made a one-time payment of $720,415 to
our previous CEO in lieu of issuing shares owed to him from prior years. A portion of this payment, $357,415, was for 295,384
shares of common stock reflected in stock payable at December 31, 2015.
In
March 2016, we issued 12,500 shares of common stock to Independent Directors in connection with our Director Compensation plan
which calls for the issuance of 6,250 shares per quarter to each Independent Director. These shares were valued at $13,125. In
July 2016, we issued an additional 12,500 shares of common stock, valued at $14,375 that were reflected in stock payable at June
30, 2016.
In
January 2015, we issued 12,500 shares of common stock to our Independent Directors in connection with the same compensation plan.
Those shares were recorded as stock payable at December 31, 2014. In addition, we recorded an additional 12,500 shares, valued
at $16,375, as stock payable at March 31, 2015 for shares that were issued in April 2015 and, finally, 12,500 shares, valued at
$13,375, that were issued in June 2015.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE
30, 2016
NOTE
2 – STOCKHOLDERS EQUITY (CONTINUED)
In
February 2015, we entered into a capital markets advisory agreement covering a one-year period, which calls for 90,000 shares
of common stock to be issued as compensation. These shares were valued at $112,500 and are being amortized to expense over the
period of service. Of these shares, 45,000 were issued in March 2015, and the balance were issued in August 2015.
In
June 2015, we agreed to grant 197,605 fully vested shares of our common stock to two executive officers as bonuses. These shares
were not issued, but were recorded as stock payable and could be requested by the officers at any time. A total of 79,042 of these
shares were redeemed in cash in February 2016, in lieu of issuing the shares and the remaining 118,563 shares remain in stock
payable at June 30, 2016. We also issued 50,000 shares of common stock in June 2016 related to shares that were previously reflected
in common stock payable. In addition, we issued 69,519 shares during the six-month period ended June 30, 2016 in connection with
the cashless exercise of previous option grants that were approaching expiration.
We
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 5.
NOTE
3 – SHARE BASED PAYMENTS – OPTIONS
We
use the fair value method to account for stock-based compensation. We recorded $155,703 and $110,039 in compensation expense in
the periods ended June 30, 2016 and 2015, respectively, related to options issued under our stock-based incentive compensation
plan. This includes expense related to options issued in prior years for which the requisite service period for those options
includes the current year, options granted in the current year and options repriced in the current year. The fair value of these
instruments was calculated using the Black-Scholes option pricing model. Information related to the assumptions used in this model
is set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
NOTE
4 – RELATED PARTY TRANSACTIONS
In
February 2016, after hiring a new CEO, we paid our previous CEO $720,415 in lieu of issuing him 595,384 shares of common stock
based on the 50-day average price of $1.21 per share. A total of 295,384 of these shares were due as a result of previously granted
stock awards in 2014 and 2015, for which shares had not yet been issued. These shares were recorded as stock payable on the balance
sheet at December 31, 2015. The remaining 300,000 shares were due in connection with the purchase of a patent from the previous
CEO in 2010. These shares were recorded as accounts payable – related party on the balance sheet at December 31, 2015. The
difference between the value the shares were initially recorded at in 2010 and the amount they were redeemed at in 2016 was recorded
as additional paid in capital.
Also,
in April 2016, we and the previous CEO entered into a separation agreement and an 18-month consulting agreement, both of which
we recently disclosed in a Form 8-K that we filed with the U.S. Securities and Exchange Commission. The consulting agreement set
forth the terms of the previous CEO’s continued relationship with our company. He remained our employee through March 31,
2016 and the consulting agreement began April 1, 2016. Under the terms of the consulting agreement, he will receive a monthly
payment of $15,000, with the potential for up to $54,000 in additional bonus payments during the term of the agreement. This agreement
also calls for total payments of $12,425 related to insurance benefits. The separation agreement and consulting agreement replace
and supersede all previously disclosed payments related to his severance and board fees.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE
30, 2016
NOTE
5 – COMMITMENTS AND CONTINGENCIES
Litigation
The
company is currently involved in the following legal proceedings.
Commencing
in September, 2014, we have been 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 Mr. Stastney the cash and shares and registered his shares in fulfillment of our
settlement obligations.
In
March, 2015, we initiated litigation against LDM Group, LLC and PDR Network, LLC related to the breach by LDM, and PDR as successor,
of the settlement agreement signed February 28, 2014 related to previous litigation with LDM. LDM has failed to live up to its
obligations under the settlement agreement including, but not limited to, not allowing us to distribute our eCoupon programs in
the LDM network, not allowing us to distribute the LDM patient education programs, and not providing other information required
under the settlement agreement. In addition, our claims include PDR’s breach of the Master Services Agreement requiring
PDR to exclusively use our eCoupon solution. We assert that PDR’s acquisition of LDM and the use of the LDM network to distribute
coupons by PDR violates the agreement between the parties. 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 as a result of LDM and PDR’s breach of the agreements.
The
case is currently before the court in the State of Missouri. The defendants have filed a motion to dismiss two of the four counts
in the consolidated complaint. In January, 2016, the Court dismissed one of our four claims, but allowed the other three to continue
forward. The parties are currently in the discovery process.
NOTE
6 – SUBSEQUENT EVENTS
In
accordance with ASC 855-10, we have analyzed our operations subsequent to June 30, 2016 through the date these financial statements
were issued and have determined that we do not have any material subsequent events to disclose in these financial statements other
than the events described below.
In
July 2016, we issued 384,188 shares of our common stock to an unrelated investor and used the proceeds to retire a stock payable
due to an executive officer.