NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER
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 innovate and connect to improve healthcare
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 solution, which allows physicians to automatically display and distribute financial messaging,
composed of sample vouchers and/or copay coupons, and clinical messaging electronically within the ePrescription platform to physicians
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 nine month periods ended September 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 September 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 nine month periods ended September 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
Our
Director Compensation plan calls for the issuance of 6,250 shares of our common stock per quarter to each Independent Director.
In connection with this plan, we issued 12,500 shares of our common stock in each of the months of March, July, and September
2016 that were valued at $13,125, $14,375, and $13,750, respectively, based on the fair market value at time of issuance.
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 issued an additional 12,500 shares each quarter
for the quarters ended March 31, June 30, and September 30, 2015. These shares were valued at $16,375, $13,375, and $15,125, respectively,
based on the fair market value at the time of issuance.
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.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER
30, 2016
NOTE
2 – STOCKHOLDERS EQUITY (CONTINUED)
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.
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
September 2015, we entered into a new capital markets advisory agreement covering a one year period, which calls 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 the six month period ended February, 2016.
In
September 2015, we entered into a securities purchase agreement pursuant to which we sold 6,011,106 shares of our 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.
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 were redeemed in July 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 nine-month period ended September 30, 2016 in connection with the cashless exercise
of previous option grants that were approaching expiration.
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 previous 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 July 2016, we also made a one-time payment to our Senior
Vice President of Sales of $449,500 to redeem 384,188 shares of common stock owing to him from 2014 and 2015 that were reflected
in stock payable at December 31, 2015.
NOTE
3 – SHARE BASED PAYMENTS – OPTIONS
We
use the fair value method to account for stock-based compensation. We recorded $270,117 and $171,864 in compensation expense in
the periods ended September 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.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER
30, 2016
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.
In
April 2016, we and the previous CEO entered into a separation agreement and an 18-month consulting agreement, both of which we
disclosed in a Form 8-K that we filed with the Securities and Exchange Commission. The consulting agreement sets forth the terms
of the previous CEO’s continued relationship with our company. He remained our employee through March 31, 2016 and the consulting
relationship began April 1, 2016. Under the terms of the consulting agreement, he receives 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.
In
July 2016, we redeemed 384,118 shares of common stock owed to our Senior Vice President of Sales from stock grants awarded in
2014 and 2015, but not issued at the time of the grant. We redeemed these shares for a payment of $449,500.
NOTE
5 – COMMITMENTS AND CONTINGENCIES
Litigation
The
company has been involved in the following legal proceedings in 2016.
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 the cash and shares to Mr. Stastney 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 parties are currently in the discovery process.
NOTE
6 – SUBSEQUENT EVENTS
In
accordance with ASC 855-10, we have analyzed our operations subsequent to September 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.