NOTE 1 – NATURE OF BUSINESS
Optimizer Systems, LLC was formed in the State of Michigan on January 31, 2006. It then became a corporation in the State of Michigan 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 0;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 a wholly-owned subsidiary (together, "OptimizeRx" and "the Company").
The wholly-owned subsidiary, OptimizeRx Corporation, is a development stage website publisher and marketing company that creates, promotes and fulfills custom marketing and advertising programs. The Company helps patients better afford and manage their rising healthcare costs. In addition, the Company also provides unique advertising programs to the pharmaceutical and healthcare industries. The Company's websites provide the following services: (i) OptimizeRx provides patients an opportunity to centrally review and participate in prescription and healthcare savings/support programs; (ii) OFFERx provides a platform to allow manufacturers to create, promote and fulfill new patient offer programs in over 64,000 pharmacies; and (iii) ADHERxE provides a platform that allows manufacturers to engage and monito r patients each month in exchange for activation of their monthly co-pay coupons.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, who is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied to the preparation of the financial statements.
Basis of Accounting
The accompanying financial statements have been prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. The Company is currently a development stage enterprise. All losses accumulated since the inception of the business have been considered as part of its development stage activities. Revenues are recognized as income when earned and expenses are recognized when they are incurred.
Basis of Presentation
The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Form 10-K filed with the SEC as of and for the period ended December 31, 2009. In the opinion of management, all adjustments necessary for the financial statements to be not misleading for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.
OPTIMIZERx CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 and accrued expenses approximates the carrying amount of these financial instruments due to their short-term nature. The fair value of long-term debt, which approximates its carrying value, is based on current rates at which the Company could borrow funds with similar remaining maturities.
Property and Equipment
The capital assets are being depreciated over their estimated useful lives using the straight-line method of depreciation for book purposes. As of October 18, 2007, the Company acquired the majority of its capital assets at the lower market cost from the Optimizer Systems, LLC.
Research and Development
The Company’s key members are part of a continual research development team and monitor new technologies, trends, services and partnerships that can provide the Company with additional services, value to healthcare and pharmaceutical industries and to the patients it serves.
The Company is currently in launch phase with SampleMD to allow pharmaceutical and healthcare manufacturers a unique way to engage and monitor patients each month in exchange for activation of their next savings offer.
The Company seeks to educate team members through understanding of all market dynamics that have the potential to affect the business both short term and longer term. The primary goal is to help patients better afford and access the medicines their doctor prescribes, as well as other healthcare products and services they need. Based on this, the Company continually seeks better ways to meet this mission through technology, better user experiences and new ways to engage industries to provide new support for patients needing their products. The Company is always seeking new services and solutions to offer. At this time, the three current platforms provide robust opportunities and growth during the next five years.
Revenue Recognition
Substantially all revenue is recognized when it is earned. All revenues are generated through the Company's website activities. The Company's processes are monitored by third parties who collect revenues from clients on a per activity basis and report and forward the revenue to the Company's account.
Management 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 depreciable lives of such assets and the allowance for doubtful accounts receivable. Actual results could differ from these estimates.
OPTIMIZERx CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
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.
Earnings 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. Options warrants and convertible preferred stock which are common stock equivalents are not included in the diluted earnings per share calculation for September 30, 2010 and September 30, 2009, respectively, since their effect is anti-dilutive.
Recently Issued Accounting Guidance
The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flow.
NOTE 3 – PROPERTY AND EQUIPMENT
The Company owned equipment recorded at cost which consisted of the following:
| | September 30, 2010 | | December 31, 2009 |
| Computer equipment | $ | 13,824 | | $ | 12,594 |
| Furniture and fixtures | | 4,294 | | | 4,294 |
| Subtotal | | 18,118 | | | 16,888 |
| Less: Accumulated depreciation | | (4,604) | | | (3,307) |
| Property and equipment, net | $ | 13,514 | | $ | 13,581 |
Depreciation expense was $1,297 and $1,689 for the nine months ended September 30, 2010 and the year ended December 31, 2009, respectively.
NOTE 4 – WEBSITE DEVELOPMENT COSTS
The Company has capitalized costs in developing their website, which consisted of the following:
| | September 30, 2010 | | December 31, 2009 |
| Website development costs | $ | 416,292 | | $ | 261,833 |
| Less: Accumulated amortization | | (87,342) | | | (64,223) |
| Website development costs, net | $ | 328,950 | | $ | 197,610 |
The Company began amortizing the website costs, using the straight-line method over the estimated useful life of five years, once it was put into service in December 2007. The Company is currently developing a new website and has capitalized $197,359. The site is currently in process and has not started to be amortized at September 30, 2010. Amortization expense was $23,120 for the nine months ended September 30, 2010 and $30,827 for the year ended December 31, 2009, respectively.
OPTIMIZERx CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
NOTE 5 – ACCRUED EXPENSES
Accrued expenses consisted of the following:
| | September 30, 2010 | | December 31, 2009 |
| Accrued payroll taxes | $ | 0 | | $ | 106 |
| Accrued audit fees | | 0 | | | 4,500 |
| Accrued expenses | $ | 0 | | $ | 4,606 |
NOTE 6 – COMMON STOCK
OptimizeRx Corporation has 500,000,000 shares of $.001 par value common stock authorized as of September 30, 2010. There were 13,233,754 and 12,826,117 common shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively.
During the nine months ended September 30, 2010 and 2009, 103,000 and 197,251 shares were issued as compensation for services, respectively. Included in operating expenses at September 30, 2010 and 2009 is $201,140 and $921,491 for the issuance of these shares. There were 43,039 and 365,908 shares issued as a cashless exchange of common stock warrants during the nine months ended September 30, 2010 and year ended December 31, 2009, respectively.
During the nine months ended September 30, 2010, the Company acquired from an officer the technical contributions and assignment of all exclusive rights to and for the Sample MD patent currently in process in exchange for 200,000 stock options valued at $404,762 and a payable of 300,000 shares of common stock to be granted at a later date. These shares were valued at the date of the assignment for $570,000 and have been recorded as a related party payable.
Additionally, during the nine months ended September 30, 2010, stock warrants with an exercise price of $.35 per share were converted into 25,000 shares of common stock in exchange for $8,750.
NOTE 7 – PREFERRED STOCK
Series A Preferred
During the year ended December 31, 2008, 35 preferred shares were issued for $3,500,000. Issuance costs totaled $515,000 resulting in net proceeds of $2,985,000. The 35 shares are convertible to 3,500,000 shares of common stock and bear a 10% cumulative dividend. In addition, there was a warrant issued to purchase 6,000,000 shares of common stock at an exercise price of $2 for a period of seven years.
The holders of the preferred stock are entitled to semi-annual dividends payable on the stated value of the Series A preferred stock at a rate of 10% per annum, which shall be cumulative, and accrue daily from the issuance date. The dividends may be paid in cash or shares of the Company's common stock at management’s discretion. If after the conversion eligibility date, the market price for the common stock for any ten consecutive trading days in which the stock trades for over $2 per share and trading exceeds 100,000 shares per day, the preferred shareholders can be required to convert their shares to common stock. Each share of Series A preferred stock shall also be convertible at the option of the holder into that number of shares of common stock of the Company at the stated value of such share at a $1 co nversion price.
OPTIMIZERx CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
NOTE 7 – PREFERRED STOCK (CONTINUED)
Series A Preferred (continued)
The holder may cause this conversion at the time the shares are eligible for resale by the holder. The conversion price is subject to adjustment as hereinafter provided, at any time, or from time to time upon the terms and in the manner hereinafter set forth in the shareholder agreement. The shares are required to be redeemed on September 5, 2010.
On May 12, 2010, the Company’s Board declared and issued 236,598 common shares as payment for all cumulative and current semi-annual dividends. As of September 30, 2010, all preferred stock dividends are current.
Series B Preferred
During the nine months ended September 30, 2010, 15 preferred shares were issued for $1,500,000. The 15 shares are convertible to 1,500,000 shares of common stock and bear a 10% cumulative dividend. In addition, there was a warrant issued to purchase 2,000,000 shares of common stock at an exercise price of $3 for a period of seven years.
The holders of the preferred stock are entitled to semi-annual dividends payable on the stated value of the Series B preferred stock at a rate of 10% per annum, which shall be cumulative, and accrue daily from the issuance date. The dividends may be paid in cash or shares of the Company's common stock at management’s discretion. If after the conversion eligibility date, the market price for the common stock for any ten consecutive trading days in which the stock trades for over $2 per share and trading exceeds 100,000 shares per day, the preferred shareholders can be required to convert their shares to common stock. Each share of Series B preferred stock shall also be convertible at the option of the holder into that number of shares of common stock of the Company at the stated value of such share at a $1.50 conversion price.
The holder may cause this conversion at the time the shares are eligible for resale by the holder. The conversion price is subject to adjustment as hereinafter provided, at any time, or from time to time upon the terms and in the manner hereinafter set forth in the shareholder agreement. The shares are required to be redeemed on June 30, 2011. As of September 30, 2010, no cumulative dividends have been declared or accrued.
NOTE 8 – STOCK-BASED COMPENSATION
Effective January 1, 2006, the Company adopted SFAS No. 123 (revised), "Share-Based Payment: (SFAS 123(R)) utilizing the modified prospective approach. Prior to the adoption of SFAS 123(R) we accounted for stock option grant in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees," and accordingly, recognized compensation expense for stock option grants using the intrinsic value method.
Under the modified prospective approach, SFAS 123(R) applies to new awards and to awards that were outstanding on January 1, 2006 that are subsequently modified, repurchased or cancelled. Under the modified prospective approach, compensation cost recognized in the first quarter of fiscal 2006 includes compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006 based on the grant-date fair value estimated in accordance with the original provisions of SFAS 123, and compensation cost for all share-based payments granted subsequent to January 1, 2006 based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). For all quarters after the first quarter of fiscal 2006, compensation costs recognized will include the compensation costs for all share-based payments g ranted based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R).
OPTIMIZERx CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
NOTE 8 – STOCK-BASED COMPENSATION (CONTINUED)
The fair value of each option granted in 2010 is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: dividend yield of 0%, expected volatility of 262%, risk-free interest rate of 2.54% and expected life of 60 months. The Company capitalized $404,762 on the 200,000 options issued on April 19, 2010 related to the patent rights.
The fair value of each option granted in 2009 is estimated on the date of grant using the Black-Scholes Option Pricing Model. The Company recognized expense of $1,939,257 on the 1,050,000 options and warrants in 2009.
NOTE 9 – STOCK WARRANTS
During the nine months ended September 30, 2010, the Company exchanged 75,400 common stock warrants with an exercise price of $1 for 43,039 shares of common stock in a cashless exchange. This exchange has been reflected in the stockholders’ equity for 2010. The Company capitalized $404,762 on the 200,000 options issued on April 19, 2010 related to the patent rights.
The company also issued 100,000 warrants in exchange for services during the three months ended September 30, 2010. The warrants were valued at $98,935 and recorded in consulting expenses. The fair value of the warrants granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: dividend yield of 0%, expected volatility of 241%, risk-free interest rate of 1.26% and expected life of 60 months.
During the year ended December 31, 2009, the Company exchanged 173,000 common stock warrants with an exercise price of $1 and 108,908 common stock warrants with an exercise price of $2, for 365,908 shares of common stock in a cashless exchange. This exchange has been reflected in the stockholders' equity for 2009.
The Company issued 300,000 stock warrants in connection with non-employee services. The Company also issued 750,000 warrants as part of employment agreements with various employees. The Company has accounted for these warrants as equity instruments in accordance with EITF 00-19 (ASC 815-40), Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, and as such, will be classified in stockholders’ equity as they meet the definition of “…indexed to the issuer’s stock” in EITF 01-06 (ASC 815-40) The Meaning of Indexed to a Company’s Own Stock. The Company has estimated the fair value of the warrants issued in connection with the non-employee services at $616,079, and the employment agreements at $1,323,178, as of December 31, 2009 using the Black-Scholes option pricing model.
The Company issued 3,000,000 stock warrants in connection with obtaining additional capital. The Company has accounted for these warrants as equity instruments in accordance with EITF 00-19 (ASC 815-40), Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, and as such, will be classified in stockholders’ equity as they meet the definition of “…indexed to the issuer’s stock” in EITF 01-06 (ASC 815-40), The Meaning of Indexed to a Company’s Own Stock. The Company has estimated the fair value of the warrants issued at $5,096,472, as of September 30, 2010 using the Black-Scholes option pricing model.
NOTE 10 – COMMITMENTS AND CONTINGENCIES
The Company leases their offices for $2,500 a month on a month-to-month rental.
OPTIMIZERx CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
NOTE 11 – INCOME TAXES
For the nine months ended September 30, 2010, the Company incurred a net loss of approximately $1,640,000 and therefore has no tax liability. The Company began operations in 2007 and has previous net operating loss carry-forwards of $12,276,000 through December 31, 2009. The cumulative loss of approximately $13,916,000 will be carried forward and can be used in various amounts through the year 2030 to offset future taxable income. 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.
The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:
| | September 30, 2010 | | December 31, 2009 |
| Deferred tax asset attributable to: | | | |
| Net operating loss carryover | $ | 4,731,440 | | $ | 3,788,000 |
| Valuation allowance | | (4,731,440) | | | (3,788,000) |
| Net deferred tax asset | $ | -0- | | $ | -0- |
NOTE 12 – OPERATING EXPENSES
Operating expenses consisted of the following for the three months ended September 30, 2010 and 2009.
| | 2010 | | 2009 |
| Advertising | $ | 32,146 | | $ | 317,670 |
| Professional fees | | 89,557 | | | 60,724 |
| Consulting | | 138,554 | | | - |
| Salaries and wages | | 193,188 | | | 136,828 |
| Rent | | 7,500 | | | 7,500 |
| General and administrative | | 84,944 | | | 103,181 |
| Total Operating Expenses | $ | 545,889 | | $ | 625,953 |
Operating expenses consisted of the following for the nine months ended September 30, 2010 and 2009.
| | 2010 | | 2009 |
| Advertising | $ | 123,411 | | $ | 634,523 |
| Professional fees | | 158,911 | | | 86,350 |
| Consulting | | 670,707 | | | 799,105 |
| Salaries and wages | | 512,473 | | | 431,956 |
| Rent | | 22,500 | | | 22,500 |
| General and administrative | | 213,065 | | | 291,397 |
| Total Operating Expenses | $ | 1,701,067 | | $ | 2,265,831 |
OPTIMIZERx CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
NOTE 13 – GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has sustained substantial losses since inception.
In view of this matter, the ability of the Company to continue as a going concern is dependent upon growth of revenues and the ability of the Company to raise additional capital. Management believes that its successful ability to raise capital and their plans for increases in revenues will provide the opportunity for the Company to continue as a going concern.
NOTE 14 – SUBSEQUENT EVENTS
On October 5, 2010, the Company issued a secure promissory note in the amounts of $1,000,000 to an investor. The investor also received a seven year warrant to purchase up to 1,000,000 shares of common stock at an initial exercise price of $2.25 per share and a contingent seven year warrant to purchase up to an aggregate of 1,000,000 shares of common stock at an initial exercise price of $2.00 per share based on royalties received under a Strategic Partnering Agreement with the investor.
Management has analyzed its operations subsequent to September 30, 2010 to November 15, 2010, the date these financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial statements other than the event listed above.
