NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION
The
accompanying condensed consolidated financial statements include OptimizeRx Corporation and its wholly owned subsidiaries (collectively,
the “Company”, “we”, “our”, or “us”).
We
are a digital health company that provides communications solutions for life science companies, physicians and patients. Connecting
over half of healthcare providers in the U.S. and millions of patients through a proprietary network, the OptimizeRx digital
health platform helps patients afford and stay on medications. The platform unlocks new patient and physician touchpoints for
life science companies along the patient journey, from point-of-care, to retail pharmacy, through mobile patient engagement.
The
condensed consolidated financial statements for the three and nine months ended September 30, 2020 and 2019 are unaudited and
have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). In
the opinion of management, all adjustments necessary to present fairly our consolidated financial position as of September 30,
2020, and our results of operations, changes in stockholders’ equity for the three and nine months ended September 30, 2020
and 2019 and the statements of cash flows for the nine months ended September 30, 2020 and 2019 have been made. Those adjustments
consist of normal and recurring adjustments. The condensed consolidated balance sheet as of December 31, 2019 has been derived
from the audited consolidated balance sheet as of that date.
Certain
information and note disclosures, including a detailed discussion about the Company’s significant accounting policies, normally
included in our annual financial statements prepared in accordance with generally accepted accounting principles (“GAAP”)
have been condensed or omitted. These consolidated condensed 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,
2019, as filed with the U.S. Securities and Exchange Commission on March 26, 2020.
We
operate in one reportable segment. The results of operations for the three and nine months ended September 30, 2020 are not necessarily
indicative of the results to be expected for the full year. Certain reclassifications have been made in the prior period’s
condensed consolidated financial statements to conform to the current period’s presentation.
NOTE
2 – NEW ACCOUNTING STANDARDS
Recently
adopted
In
June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-13, Financial Instruments-Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 provides for a new impairment model that
requires measurement and recognition of expected credit losses for most financial assets and certain other instruments, including
but not limited to accounts receivable and available for sale debt securities. ASU 2016-13 was effective for the Company on January
1, 2020. The adoption of this standard did not have a material effect on our financial position, results of operations, or cash
flows.
In
August 2019, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements
for Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements on fair value measurements and became effective for
the Company on January 1, 2020. The adoption of this standard did not have a material effect on our financial position, results
of operations, or cash flows.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
2 – NEW ACCOUNTING STANDARDS (continued)
In
January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.
ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test.
The second step measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with
the carrying amount of that goodwill. Under ASU 2017-04, a company will record an impairment charge based on the excess of a reporting
unit’s carrying amount over its fair value. ASU 2017-04 will be applied prospectively and is effective for annual or interim
goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual
goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this standard did not have a material
effect on our financial position, results of operations, or cash flows.
Not
yet Adopted
In
December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12
is intended to improve consistent application and simplify the accounting for income taxes. ASU 2019-12 removes certain exceptions
to the general principles in Topic 740 and clarifies and amends existing guidance. ASU 2019-12 is effective for annual and interim
reporting periods beginning after December 15, 2020, with early adoption permitted. The adoption of this standard is not expected
to have a material effect on our financial position, results of operations, or cash flows.
NOTE
3 – LEASES
We
have operating leases for office space in three multitenant facilities with lease terms greater than 12 months, which are recorded
as assets and liabilities on our balance sheet. These leases include our corporate headquarters, located in Rochester, Michigan,
a customer service facility in Cranbury, New Jersey, and a technical facility in Zagreb, Croatia. Certain leases contain renewal
options and, for the headquarters lease, we have assumed renewal. Lease-related assets, or right-of-use assets, are recognized
at the lease commencement date at amounts equal to the respective lease liabilities, adjusted for prepaid lease payments, initial
direct costs, and lease incentives received. Lease-related liabilities are recognized at the present value of the remaining contractual
fixed lease payments, discounted using our incremental borrowing rate. Amortization of the right of use assets is recognized as
non-cash lease expense on a straight-line basis over the lease term, while variable lease payments are expensed as incurred. Short
term lease costs include month to month leases in shared office space facilities, such as WeWork, or similar locations.
For
the three and nine months ended September 30, 2020, the Company’s lease cost consisted of the following components, each
of which is included in operating expenses within the Company’s condensed consolidated statements of operations:
|
|
Three Months
Ended
September 30,
2020
|
|
|
Nine Months
Ended
September 30,
2020
|
|
Operating
lease cost
|
|
$
|
32,814
|
|
|
$
|
98,441
|
|
Short-term
lease cost (1)
|
|
|
36,002
|
|
|
|
116,817
|
|
Total
lease cost
|
|
$
|
68,816
|
|
|
$
|
215,258
|
|
(1)
|
Short-term lease
cost includes any lease with a term of less than 12 months.
|
OPTIMIZERx
CORPORATION
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
3 – LEASES (continued)
For
the three and nine months ended September 30, 2019, the Company’s lease cost consisted of the following components, each
of which is included in operating expenses within the Company’s condensed consolidated statements of operations:
|
|
Three Months
Ended
September 30,
2019
|
|
|
Nine Months
Ended
September 30,
2019
|
|
Operating lease cost
|
|
$
|
33,868
|
|
|
$
|
98,043
|
|
Short-term lease
cost (1)
|
|
|
11,771
|
|
|
|
30,663
|
|
Total lease cost
|
|
$
|
45,639
|
|
|
$
|
128,706
|
|
(1)
|
Short-term lease
cost includes any lease with a term of less than 12 months.
|
The
table below presents the future minimum lease payments to be made under operating leases as of September 30, 2020:
As
of September 30, 2020
|
|
|
|
2020
(a)
|
|
$
|
34,636
|
|
2021
|
|
|
140,367
|
|
2022
|
|
|
102,367
|
|
2023
|
|
|
99,209
|
|
2024
|
|
|
80,375
|
|
Thereafter
|
|
|
70,224
|
|
Total
|
|
|
527,177
|
|
Less:
imputed interest
|
|
|
48,977
|
|
Total
lease liabilities
|
|
$
|
478,200
|
|
|
(a)
|
For
the three-month period beginning October 1, 2020.
|
The
weighted average remaining lease term at September 30, 2020 for operating leases is 4.5 years and the weighted average discount
rate used in calculating the operating lease asset and liability is 4.5%. Cash paid for amounts included in the measurement of
lease liabilities was $105,267 and $94,105 for the nine months ended September 30, 2020 and 2019, respectively. Cash paid for
amounts included in the measurement of lease liabilities was $33,919 and $29,930 for the three months ended September 30, 2020
and 2019, respectively. For the three months ended September 30, 2020 and 2019, payments on lease obligations were $28,482 and
$27,134, respectively, and amortization on the right of use assets was $28,600 and $27,430, respectively. For the nine months
ended September 30, 2020 and 2019, payments on lease obligations were $87,599 and $79,071, respectively, and amortization on the
right of use assets was $84,957 and $80,022, respectively.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
4 – CONTINGENT PURCHASE PRICE PAYABLE
The
contingent purchase price payable relates to the acquisitions of CareSpeak Communications in 2018 and RMDY Health in 2019. The
CareSpeak contingent amount is based on the CareSpeak product line achieving certain revenue targets in 2019 and 2020. The revenue
target for 2019 was achieved and the revenue target for 2020 has been achieved as of September 30, 2020. The maximum amount payable
under the agreement is $3.0 million. A total of $1,389,187 has been paid so far in 2020 and the remaining balance of $1,610,813
is payable in early 2021 and is reflected as a short-term liability on the consolidated balance sheet.
The
RMDY Health contingent amount was based on that product line achieving certain revenue targets in 2020 and 2021. The minimum amount
payable under the agreement was $2.0 million and the maximum amount payable was $30 million. As of the acquisition date in 2019,
we estimated the contingent purchase price payable to be $3.72 million and recorded that amount in 2019. During the quarter ended
September 30, 2020, we reached an agreement with the RMDY Health shareholders to fix the liability at $3.75 million payable in
a combination of cash and stock. A total of $3.0 million was paid in cash and $750,000 in common stock. There is no further liability
to the former shareholders of RMDY Health as of September 30, 2020.
The
income statement includes a charge of $140,390 related to the change in fair value of the contingent consideration. There are
three components to this charge. The first is the $30,000 recorded as of June 30, 2020 to adjust the initial estimate of $3.72
million to $3.75 million. The second component relates to the payment in common stock. Under the terms of the agreement, the number
of shares to be issued was calculated based on a volume weighted average price. On the date of the agreement, the value of the
stock exceeded the volume weighted average price, so the difference was recorded as a change in the fair value. The third component
was a deferred payment related to potential claims, previously included in accrued expenses, that was payable either in stock
or cash of $800,000. We chose to make this payment in stock and the number of shares was also based on a volume weighted average
price. On the date of the agreement, the value of the stock exceeded the volume weighted average price, so the difference was
recorded as a change in the fair value. The change in the fair value of contingent consideration recorded in the quarter ended
September 30, 2020, was entirely related to the variance between the volume weighted average prices and actual price of the common
stock on the date of the agreement.
NOTE
5 – STOCKHOLDERS’ EQUITY
During the quarters ended September, 30,
2020, June 30, 2020, and March 31, 2020, we issued 198,024 shares, 55,731 shares, and 35,032 shares of our common stock, and received
proceeds of $1,045,097, $174,831 and $112,152, respectively, in connection with the exercise of stock options under our 2013 incentive
plan.
During the quarters ended September 30,
2019, June 30, 2019 and March 31, 2019, we issued 48,775 shares, 60,295 shares and 101,878 shares of our common stock, and received
proceeds of $206,324, $214,314 and $343,785, respectively, in connection with the exercise of stock options under our 2013 incentive
plan. We also issued 130,001 shares of our common stock in the quarter ended March 31, 2019 in connection with restricted stock
awards awarded in 2018.
We
also issued 63,560 shares of our common stock in the nine months ended September 30, 2020 in connection with restricted stock
awards as described in more detail in Note 6 – Stock Based Compensation.
Our
Director Compensation Plan calls for issuance of shares of common stock each quarter to each independent director. In 2020, we
issued 11,136 shares valued at $100,000 in the quarter ended March 31, 2020, 7,748 shares valued at $100,027 in the quarter ended
June 30, 2020, and 5,915 shares valued at $124,984 in the quarter ended September 30, 2020. In 2019, we issued 8,336 shares each
quarter, valued at $106,034, $135,043 and $120,705 for the quarters ended March 31, June 30 and September 30, respectively.
During
the quarter ended June 30, 2019, in an underwritten primary offering, we issued 1,769,275 shares of our common stock for gross
proceeds of $23,000,575. In connection with this transaction, we incurred equity issuance costs of $1,696,749 related to payments
to the underwriter, advisors and legal fees associated with the transaction, resulting in net proceeds to our company of $21,303,826.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
6 – STOCK BASED COMPENSATION
We use the fair value method to account
for stock-based compensation. We recorded $1,447,826 and $1,329,713 in compensation expense in the nine months ended September
30, 2020 and 2019, respectively, related to options issued under our 2013 incentive plan. This includes expense related to options
issued in prior years for which the requisite service period for those options includes the current period as well as options
issued in the current period. The fair value of these instruments was calculated using the Black-Scholes option pricing model.
There is $1,603,417 of remaining expense related to unvested options to be recognized in the future over a weighted average remaining
period of approximately 1.7 years. The total intrinsic value of outstanding options at September 30, 2020 was $22,611,933.
The
Company also recorded expense related to restricted stock awards of $618,783 and $78,225 for the nine months ended September 30,
2020 and 2019, respectively. As of September 30, 2020, there was $832,473 of remaining expense related to unvested restricted
stock awards to be recognized in the future related to 111,186 shares of restricted stock awards that were unvested at September
30, 2020. A total of 63,560 shares related to these restricted stock awards vested in 2020 and were issued during the nine months
ended September 30, 2020.
NOTE
7 – EARNINGS (LOSS) PER SHARE
The
following table sets forth the computation of basic and diluted loss per share.
|
|
Three
Months Ended
September 30,
|
|
|
Nine
Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(282,894
|
)
|
|
$
|
(1,570,942
|
)
|
|
$
|
(3,564,293
|
)
|
|
$
|
(1,157,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding used in computing earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
14,900,971
|
|
|
|
14,146,489
|
|
|
|
14,726,534
|
|
|
|
12,996,590
|
|
Diluted
|
|
|
14,900,971
|
|
|
|
14,146,489
|
|
|
|
14,726,534
|
|
|
|
12,996,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per
share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.02
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.09
|
)
|
Diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.09
|
)
|
No
calculation of diluted earnings per share is included as the effect of the calculation would be antidilutive. The number of common
shares potentially issuable upon the exercise of certain options that were excluded from the diluted loss per common share calculation
was 984,084 and 802,330 shares in the three and nine months ended September 30, 2020, respectively, related to options, and 111,186
shares related to restricted stock for the three and nine months ended September 30, 2020. This results in total shares excluded
from the calculation of 1,095,270 and 913,516 for the three and nine months ended September 30, 2020, respectively. Total shares
excluded from the calculation were 1,039,598 and 955,740 for the three and nine months ended September 30, 2019.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
8 – CONTINGENCIES
Litigation
The
Company is not currently involved in any legal proceedings
NOTE
9 – SUBSEQUENT EVENTS
In
October 2020, we received proceeds of $201,855 and issued 36,420 shares of common stock in conjunction with the exercise of stock
options.
In
accordance with ASC 855-10, we have analyzed events and transactions that occurred subsequent to September 30, 2020 through
the date these financial statements were issued and have determined that we do not have any other material subsequent events to
disclose or recognize in these financial statements.