NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2018
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 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. The Company has adopted a December 31
st
fiscal year-end.
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.
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, CareSpeak Communications, Inc., a New Jersey Corporation, 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 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,
2018
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, 2018 and 2017 and the valuation techniques used by the Company to determine those fair
values.
|
|
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. 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%.
|
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, 2018 and 2017.
|
|
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
|
|
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2018
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 2018 and 2017. The
allowance for doubtful accounts was $0 as of both December 31, 2018 and 2017.
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, 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.
Revenue
Recognition
Recognition
of revenue requires evidence of a contact, 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 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 the message,
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, or as a flat fee occurring over a period of time, 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. 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.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2018
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Revenue
Share Expenses
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 its integrated network, or $0.37 per financial message distributed through its integrated 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.
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, 2018, the Company had $8,414,034 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. 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.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2018
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk free interest rate
|
|
|
1.96% - 2.84
|
%
|
|
|
1.47% - 1.81
|
%
|
Expected option term
|
|
|
3.5
- 5 years
|
|
|
|
3.5
- 5 years
|
|
Turnover/forfeiture rate
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
64% - 66
|
%
|
|
|
65% - 78
|
%
|
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.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2018
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 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 and warrants that were excluded from the diluted loss per common share calculation in 2017
was approximately 489,201, because they are anti-dilutive, as a result of a net loss for the year ended December 31, 2017.
The
computation of weighted average shares outstanding and the basic and diluted earnings per common share for the year ended December
31, 2018 consisted of the following:
|
|
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
|
|
|
|
11,862,911
|
|
|
$
|
0.02
|
|
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
On
January 1, 2018, we adopted the new accounting standard ASC 606,
Revenue from Contracts with Customers
, and all of the
related amendments (“new revenue standard”). We recorded the change, which was immaterial, related to adopting the
new revenue standard using the modified retrospective method. Under this method, we recognized the cumulative effect of initially
applying the new revenue standard as an adjustment to the opening balance of retained earnings. This results in no restatement
of prior periods, which continue to be reported under the accounting standards in effect for those periods. We expect the impact
of the adoption of the new revenue standard to continue to be immaterial on an ongoing basis.
We
have applied the new revenue standard to all contracts as of the date of initial application. The overwhelming majority of our
revenue continues to be recognized when transactions occur, such as the delivery of a message. We previously recognized revenue
related to set-ups when a program launched, and all related activities had been accomplished. Under the new revenue standard,
we are recognizing revenue related to these set ups over the term of the initial contract. Since set up fees are generally small
relative to the size of the overall contract and because most contracts are for a year or less, the impact of this change is immaterial.
The
impact of recording this change as of January 1, 2018 resulted in an increase in deferred revenue of $142,027 at that date and
a corresponding decrease in retained earnings as well. The impact of adopting the new revenue standard in 2018 resulted in lower
revenues of $59,387 than would have been reported under the previous method.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2018
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In
October 2016, the FASB issued ASC 2016-16 amending the accounting for income taxes, primarily related to intercompany transfers
of inventory. We adopted this in 2018 and it had no impact on our financial statements or disclosures.
In
February 2016, the FASB issued ASU 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.
NOTE
3 – ACQUISITION
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.
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 calculated fair value of the contingent payment
is $2,365,000 at December 31, 2018.
We began consolidating the
results of CareSpeak operations and cashflows into our consolidated financial statements after October 17, 2018, the date of acquisition.
The unaudited Pro forma results of operations as if the acquisition occurred January 1, 2017 are presented in the following table:
|
|
2018
|
|
|
2017
|
|
|
|
As Reported
|
|
|
Pro Forma
|
|
|
As Reported
|
|
|
Pro Forma
|
|
Net Sales
|
|
$
|
21,206,363
|
|
|
$
|
22,152,995
|
|
|
$
|
12,127,422
|
|
|
$
|
12,927,881
|
|
Net Income (loss)
|
|
|
226,344
|
|
|
|
690,492
|
|
|
|
(2,104,029
|
)
|
|
|
(2,513,029
|
)
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.02
|
|
|
$
|
0.06
|
|
|
$
|
(0.21
|
)
|
|
$
|
(0.26
|
)
|
Diluted
|
|
$
|
0.02
|
|
|
$
|
0.06
|
|
|
$
|
(0.21
|
)
|
|
$
|
(0.26
|
)
|
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2018
NOTE
3 – ACQUISITION (CONTINUED)
Purchase
Price Allocation
The
purchase price of the 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.
NOTE
4 – PREPAID EXPENSES
Prepaid
expenses consisted of the following as of December 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
Insurance
|
|
$
|
43,284
|
|
|
$
|
43,764
|
|
Rent
|
|
|
1,589
|
|
|
|
8,539
|
|
EHR access fees
|
|
|
533,125
|
|
|
|
203,125
|
|
Other
|
|
|
12,746
|
|
|
|
-
|
|
Total prepaid expenses
|
|
$
|
590,744
|
|
|
$
|
255,428
|
|
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2018
NOTE
5 – PROPERTY AND EQUIPMENT
The
Company owned equipment recorded at cost which consisted of the following as of December 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
Computer equipment
|
|
$
|
94,384
|
|
|
$
|
83,079
|
|
Furniture and fixtures
|
|
|
159,648
|
|
|
|
158,502
|
|
Subtotal
|
|
|
254,032
|
|
|
|
241,581
|
|
Less accumulated depreciation
|
|
|
104,702
|
|
|
|
74,276
|
|
Property and equipment, net
|
|
$
|
149,330
|
|
|
$
|
167,305
|
|
Depreciation
expense was $58,423 and $48,587 for the years ended December 31, 2018 and 2017, respectively.
NOTE
6 – INTANBIGLE ASSETS
Goodwill
The
goodwill is related to the acquisition of CareSpeak Communications in 2018 and is primarily related to expected improvements and
technology performance and functionality, as well 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.
Intangible
Assets
Intangible
assets included on the balance sheet consist of the following:
|
|
December 31, 2017
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Patent rights
|
|
$
|
1,102,457
|
|
|
$
|
463,691
|
|
|
$
|
638,766
|
|
Other intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Web-Based Technology
|
|
|
1,458,362
|
|
|
|
1,314,632
|
|
|
|
143,730
|
|
Total other
|
|
|
1,458,362
|
|
|
|
1,314,632
|
|
|
|
143,730
|
|
Total Intangibles
|
|
$
|
2,560,819
|
|
|
$
|
1,778,323
|
|
|
$
|
782,496
|
|
|
|
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
|
|
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
|
|
Web-based technology
|
|
|
1,515,013
|
|
|
|
1,410,193
|
|
|
|
104,820
|
|
|
|
1.1
|
|
Total other
|
|
|
3,966,013
|
|
|
|
1,473,890
|
|
|
|
2,492,123
|
|
|
|
|
|
Total Intangibles
|
|
$
|
7,295,470
|
|
|
$
|
2,036,403
|
|
|
$
|
5,259,067
|
|
|
|
|
|
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2018
NOTE
6 – INTANBIGLE ASSETS (CONTINUED)
Intangibles
are being amortized on a straight-line basis over the following estimated useful lives.
Patents
|
|
|
15 - 17 years
|
|
Non-compete agreements
|
|
|
4 years
|
|
Customer relationships
|
|
|
8 years
|
|
Web-based technology
|
|
|
3 years
|
|
The
Company recorded amortization expense $258,079 and $275,964 in the years ended December 31, 2018 and 2017, respectively. Expected
future amortization expenses of the intangibles assets as of December 31, 2018 is as follows:
Year ended December 31,
|
|
|
|
2019
|
|
$
|
593,682
|
|
2020
|
|
|
540,991
|
|
2021
|
|
|
536,468
|
|
2022
|
|
|
471,222
|
|
2023
|
|
|
277,857
|
|
Thereafter
|
|
|
1,856,847
|
|
Total
|
|
$
|
4,277,067
|
|
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 $610,625 and $507,160 as of December 31, 2018 and 2017, 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, 2018.
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 is no longer a related party,
however the transactions between WPP and the Company 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.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2018
NOTE
8 – RELATED PARTY TRANSACTIONS (CONTINUED)
The
following table sets forth the activity between the Company and WPP for the years ended December 31:
|
|
2018
|
|
|
2017
|
|
Total billings to WPP Agencies
|
|
$
|
6,217,735
|
|
|
$
|
3,554,168
|
|
Revenue recognized from WPP Agencies
|
|
$
|
6,527,051
|
|
|
$
|
3,696,214
|
|
Accounts receivable from WPP Agencies
|
|
$
|
2,051,532
|
|
|
$
|
1,173,614
|
|
Rebates given to WPP Agencies
|
|
$
|
-
|
|
|
$
|
33,249
|
|
Marketing services purchased from WPP Agencies
|
|
$
|
-
|
|
|
$
|
54,762
|
|
Revenue share expense recorded to WPP Agencies
|
|
$
|
-
|
|
|
$
|
401,596
|
|
Revenue share expenses owed to WPP Agencies
|
|
$
|
-
|
|
|
$
|
447,670
|
|
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 calculated fair value of the
contingent payment is $2,365,000 at December 31, 2018. We determined the fair value of the Contingent Purchase Price Payable 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 return of 2.89%, a term of 2.46 years, and volatility of 35%. Changes in the inputs could
result in a different fair value measurement.
NOTE
10 – EQUITY
Preferred
Stock
The
Company has 10,000,000 shares of preferred stock, $.001 par value per share, authorized as of December 31, 2018. No shares were
issued or outstanding in either year presented.
Common
Stock
The
Company had 500,000,000 shares of common stock, $.001 par value per share, authorized as of December 31, 2018. There were 12,038,618
and 9,772,694 shares of common stock issued and outstanding at December 31, 2018 and 2017, respectively.
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
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.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2018
NOTE
10 – EQUITY (CONTINUED)
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 36,494 and 25,000 shares
were granted and issued in the years ended December 31, 2018 and 2017, respectively in connection with this compensation plan.
These shares were valued at $428,884 and $87,375, respectively. The Company also awarded 130,001 restricted stock awards, valued
at 546,007, to executive officers. 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 will be issued in 2019.
During
2018, we issued 15,000 shares of our common stock, valued at $228,050, for investor relations services. 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.
The
entire amount recorded in equity related to stock-based compensation is $1,863,911, including the $1,317,904 discussed in Note
11 below related to options.
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 also issued 165,169 shares of common stock and received proceeds of $521,270 in connection with the exercise of options in
2018. In 2017 the Company issued 24,214 shares in connection with the exercise of stock options. The options exercised in 2017
were exercised on a net settled basis and no cash proceeds were received.
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.
In
2017, the Company purchased and cancelled 500,000 shares of common stock held by the previous CEO at a price of $0.78 per share
for a total payment of $390,000.
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 500,000 (post-split) shares were initially
reserved for issuance under the Plan. The Plan was amended in 2016 to increase the authorized shares to 1,333,334 shares, again
in 2018 to increase the authorized shares to 1,833,334, and again in 2019 to increase the authorized shares to 2,500,000. A total
of 1,554,700 shares of common stock underlying options were outstanding at December 31, 2018. The Company had no remaining shares
available to grant under the Plan at December 31, 2018.
The
Plan allows the Company to grant incentive stock options, non-qualified stock options, stock appreciation rights, 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.
OPTIMIZERx CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2018
NOTE
11 – STOCK OPTIONS (CONTINUED)
The
compensation cost that has been charged against income related to options for the years ended December 31, 2018 and 2017, was
$1,317,904 and $815,014, respectively. No income tax benefit was recognized in the income statement and no compensation was capitalized
in any of the years presented.
The
Company had the following option activity during the years ended December 31, 2018 and 2017:
|
|
Number of Options
|
|
|
Weighted average exercise price
|
|
|
Weighted average remaining contractual life (years)
|
|
|
Aggregate intrinsic value $
|
|
Outstanding, January 1, 2017
|
|
|
1,040,022
|
|
|
$
|
3.36
|
|
|
|
|
|
|
|
|
|
Granted – 2017
|
|
|
480,417
|
|
|
$
|
2.88
|
|
|
|
|
|
|
|
|
|
Exercised – 2017
|
|
|
(43,333
|
)
|
|
$
|
3.81
|
|
|
|
|
|
|
|
|
|
Expired – 2017
|
|
|
(108,334
|
)
|
|
$
|
4.02
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2017
|
|
|
1,368,772
|
|
|
$
|
3.12
|
|
|
|
3.2
|
|
|
|
|
|
Granted – 2018
|
|
|
401,099
|
|
|
$
|
9.27
|
|
|
|
|
|
|
|
|
|
Exercised – 2018
|
|
|
(165,169
|
)
|
|
$
|
3.16
|
|
|
|
|
|
|
|
|
|
Expired – 2018
|
|
|
(50,002
|
)
|
|
$
|
5.48
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2018
|
|
|
1,554,700
|
|
|
$
|
4.63
|
|
|
|
3.0
|
|
|
$
|
10,523,497
|
|
Exercisable, December 31, 2018
|
|
|
1,041,533
|
|
|
$
|
3.34
|
|
|
|
2.8
|
|
|
$
|
7,928,828
|
|
Of
the options outstanding at December 31, 2018, 1,041,533 were exercisable with a weighted average contractual life of 2.8 years
and the remaining 513,167 were non-vested.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2018
NOTE
11 – STOCK OPTIONS (CONTINUED)
The
table below shows the expiration date and exercise price of the options outstanding at December 31, 2018.
Number of Options
|
|
|
Exercise Price
|
|
|
Expiration Date
|
|
194,666
|
|
|
$
|
2.46
|
|
|
03/31/22
|
|
20,000
|
|
|
$
|
3.15
|
|
|
03/17/19
|
|
18,334
|
|
|
$
|
3.15
|
|
|
05/19/19
|
|
46,668
|
|
|
$
|
3.15
|
|
|
06/24/20
|
|
235,604
|
|
|
$
|
3.15
|
|
|
07/27/22
|
|
500,000
|
|
|
$
|
3.21
|
|
|
02/22/21
|
|
129,169
|
|
|
$
|
3.45
|
|
|
07/28/21
|
|
5,167
|
|
|
$
|
3.51
|
|
|
11/01/22
|
|
28,574
|
|
|
$
|
3.66
|
|
|
03/03/19
|
|
161,675
|
|
|
$
|
4.20
|
|
|
02/01/23
|
|
15,003
|
|
|
$
|
4.62
|
|
|
03/31/23
|
|
10,420
|
|
|
$
|
4.71
|
|
|
12/31/22
|
|
10,420
|
|
|
$
|
10.40
|
|
|
06/30/23
|
|
16,000
|
|
|
$
|
12.49
|
|
|
08/13/23
|
|
6,000
|
|
|
$
|
12.51
|
|
|
08/20/23
|
|
10,000
|
|
|
$
|
12.70
|
|
|
08/22/23
|
|
15,000
|
|
|
$
|
12.73
|
|
|
09/04/23
|
|
125,000
|
|
|
$
|
15.40
|
|
|
10/16/23
|
|
7,000
|
|
|
$
|
16.24
|
|
|
10/22/23
|
|
|
|
|
|
|
|
|
|
|
Total
|
1,554,700
|
|
|
$
|
4.63
|
|
|
|
There
is $1,433,198 of expense remaining to be recognized related to options outstanding at December 31, 2018.
NOTE
12 –WARRANTS
The
Company has issued warrants to purchase common stock, primarily in connection with capital raising activities. However, all remaining
warrants were exercised in 2018 and there are no remaining warrants outstanding at December 31, 2018.
The
Company had the following warrant activity during the years ended December 31, 2018 and 2017:
|
|
Number of Shares Underlying Warrants
|
|
|
Weighted average exercise price
|
|
Outstanding, January 1, 2017
|
|
|
681,527
|
|
|
$
|
5.01
|
|
Expired
|
|
|
(333,333
|
)
|
|
$
|
6.75
|
|
Balance, December 31, 2017
|
|
|
348,194
|
|
|
$
|
3.33
|
|
Exercised
|
|
|
(348,194
|
)
|
|
$
|
3.33
|
|
Balance, December 31, 2018
|
|
|
-
|
|
|
|
-
|
|
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2018
NOTE
13 – MAJOR CUSTOMERS AND VENDORS
The
Company had the following customers that accounted for 10% or greater of revenue in either 2018 or 2017. No other customers accounted
for more than 10% of revenue in either year presented.
|
|
2018
|
|
|
2017
|
|
|
|
|
$
|
|
|
|
|
%
|
|
|
|
$
|
|
|
|
|
%
|
|
Customer A
|
|
|
2,547,113
|
|
|
|
12.0
|
|
|
|
957,222
|
|
|
|
7.9
|
|
Customer B
|
|
|
2,280,873
|
|
|
|
10.8
|
|
|
|
1,422,072
|
|
|
|
11.7
|
|
Customer C
|
|
|
2,122,657
|
|
|
|
10.0
|
|
|
|
1,153,714
|
|
|
|
9.5
|
|
The
Company had four key partners through which 10% or greater of its revenue was generated in either 2018 or 2017 as set forth below.
|
|
2018
|
|
|
2017
|
|
|
|
|
$
|
|
|
|
|
%
|
|
|
|
$
|
|
|
|
|
%
|
|
Partner A
|
|
|
6,841,386
|
|
|
|
32.3
|
|
|
|
3,901,811
|
|
|
|
32.2
|
|
Partner B
|
|
|
5,350,393
|
|
|
|
25.2
|
|
|
|
2,047,238
|
|
|
|
16.9
|
|
Partner C
|
|
|
2,584,103
|
|
|
|
12.2
|
|
|
|
1,231,662
|
|
|
|
10.2
|
|
Partner D
|
|
|
2,159,356
|
|
|
|
10.2
|
|
|
|
1,279,321
|
|
|
|
10.5
|
|
NOTE
14 – INCOME TAXES
As
of December 31, 2018, the Company had net operating loss carry forwards of approximately $10.9 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.
In
2017, the U.S. enacted the Tax Cuts and Jobs Act which significantly changed U.S. tax law. The Act lowered the U.S. statutory
federal income tax rate from 35% to 21% effective January 1, 2018. This had an affect on the value of the Company’s net
operating loss carryover, but since the deferred tax asset is fully reserved, it had no impact on the Company’s financial
statements. The impact of the change was reflected in the 2017 financial statements.
The
provision for Federal income tax consists of the following for the years ended December 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
Federal income tax benefit attributable to:
|
|
|
|
|
|
|
|
|
Current operations
|
|
$
|
(48,000
|
)
|
|
$
|
715,000
|
|
Permanent and timing differences (net)
|
|
|
(36,000
|
)
|
|
|
(280,000
|
)
|
Tax rate change
|
|
|
-
|
|
|
|
(1,600,000
|
)
|
Valuation allowance
|
|
|
84,000
|
|
|
|
1,165,000
|
|
Net provision for federal income tax
|
|
$
|
-
|
|
|
$
|
-
|
|
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2018
NOTE
14 – INCOME TAXES (CONTINUED)
The
cumulative tax effect of significant items comprising our net deferred tax amount at the expected rate of 21% is as follows as
of December 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
Deferred tax asset attributable to:
|
|
|
|
|
|
|
|
|
Net operating loss carryover
|
|
$
|
2,290,000
|
|
|
$
|
2,551,000
|
|
Depreciation and amortization
|
|
|
119,000
|
|
|
|
98,000
|
|
Stock compensation
|
|
|
535,000
|
|
|
|
372,000
|
|
Other
|
|
|
(6,000
|
)
|
|
|
|
|
Valuation allowance
|
|
|
(2,938,000
|
)
|
|
|
(3,021,000
|
)
|
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%.
Operating
Leases
The
Company initially signed the lease for its current office space located in Rochester Michigan on December 1, 2011. That lease
expired on 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 lease termination payment of $7,300 will be due at the end of the initial 3-year term.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2018
NOTE
15 – COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
The
Company also has a short-term lease on office space in Somerset, New Jersey expiring March 31, 2018. The lease is a twelve-month
lease calling for twelve monthly payments of $700.
The
Company also has a short-term lease on an office space in Zagreb, Croatia expiring July 4, 2018. The lease is a twelve-month lease
calling for twelve monthly payments approximately $630 USD.
The
Company also has a month to month leases on shared office spaces in Nashville, Tennessee, payable at a rate of approximately $2,050
per month.
Minimum
annual rent payments are as follows for the remaining term of the leases:
Year ended December 31:
|
|
|
|
2019
|
|
|
76,104
|
|
Total lease commitment
|
|
$
|
76,104
|
|
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 $172,107 and
$137,858 recorded in 2018 and 2017, respectively, for company contributions to the plan.
NOTE
17 – SUBSEQUENT EVENTS
In
February 2019, the Company’s Board of Directors amended the 2013 Equity Compensation Plan to increase the number of shares
authorized under the plan to 2,500,000. At the same time, the Company granted 50,000 shares of restricted common stock to officers
and options to purchase 67,050 shares of common stock with an exercise price of $13.06 to non-officers, both of which vest only
if the Company achieves certain stretch revenue goals in 2019. In addition, the Company granted 35,500 time-based options, with
the same exercise price, to new employees, as well as accelerated vesting to 2019 on 100,000 existing options that previously
vested in 2020.
In
January 2019, the Company signed a new lease on office space in Cranbury New Jersey commencing on February 1, 2019. The lease
is a 3-year lease calling for monthly payments ranging from $2,707 to $2,808 plus utilities during the term of the lease.
In
2019, the company issued 56,493 shares and received proceeds of $228,386 in connection with the exercise of options.