| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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 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. 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 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. 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. 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. 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 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. 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. |
