UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ________
Commission file number: 001-38543
OptimizeRx Corporation
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of
incorporation or organization)
400 Water Street, Ste. 200
Rochester, MI
(Address of principal executive offices)
26-1265381
(I.R.S. Employer
Identification No.)
48307
(Zip Code)
Registrant’s telephone number: 248-651-6568
Securities registered under Section 12(b) of the Exchange Act:
Title of each class
Common Stock, par value $0.001
Name of each exchange on which registered
Nasdaq Capital Market
Securities registered under Section 12(g) of the Exchange Act:
Title of each class
Common Stock, par value of $0.001
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or
emerging growth company.
☐ Large accelerated filer
☐ Non-accelerated filer
☒ Accelerated filer
☒ Smaller reporting company
☐ Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the
common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently
completed second fiscal quarter. $221,759,775
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. 14,635,611 common shares
as of March 24, 2020.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
TABLE OF CONTENTS
PART I
PART II
Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Financial Statements and Supplementary Data
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Exhibits, Financial Statement Schedules
PART IV
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Forward-Looking Statements
PART I
This Annual Report on Form 10-K contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995.
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and
expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking
statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,”
“would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and
assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability
to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our
operations and future prospects on a consolidated basis include but are not limited to: changes in economic conditions, legislative/regulatory changes,
availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in
evaluating forward-looking statements and undue reliance should not be placed on such statements.
Item 1. Business
Overview
We are a digital health company focused on connecting life sciences companies to our clients with critical content at the point-of-care. We provide
electronic clinical information via electronic health record companies (EHRs) to the medical profession, providing a direct channel for pharmaceutical
companies to communicate with healthcare providers. Our cloud-based solution supports patient adherence to medications by providing real-time access to
financial assistance, prior authorization, and critical clinical information. Our 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.
2019 Company Highlights
1) Our net revenue increased to a record $24.6 million in 2019, a 16% increase over 2018.
2) Our net revenue was a record $7.4 million in Q4 2019, up 12% over Q4 2018.
3) We successfully completed an underwritten offering in Q2 2019, raising $21.3 million in growth capital.
4) We acquired RMDY Health, Inc. (“RMDY”), a multipurpose digital therapeutics SaaS platform used by pharma, payers, medtech companies, and
medical associations.
5) We expanded our sales team and established a strong base for growth in 2020.
6) We signed an exclusive three-year partnership with NewCrop, LLC for messaging distribution, which included the creation of an innovation lab
where clients can experiment with new digital communication solutions.
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Sales and Marketing Updates
Our sales team continues to expand our business with existing and new clients communicating the increased value of our enterprise platform approach. We
are focused on increasing the depth and breadth of our business across existing client product portfolios by maximizing the utilization of our network. We
are also expanding our business by providing new solutions and obtaining new clients. Our team is also working on converting clients from individual
solutions to enterprise platform deals that give them access to our full set of solutions across our network. These enterprise deals will enable us to increase
our revenue per customer, as well as give us a more predictable and consistent revenue stream.
As a result of our acquisition of RMDY in late 2019, we restructured our sales organization by client type. We now have one team focused on
pharmaceutical clients and another focused on payers, medtech, and associations.
We have continued to ramp up our marketing efforts by attending and taking on more strategic roles at conferences and other industry events. We are
sponsoring conferences and our leadership team is actively participating as speakers and panelists. Most notable in 2019 were:
● Moderating two panels at the 13th Annual Digital Pharma East conference: “Innovation and Communication in Today’s Digitally-Charged Pharma
Landscape” and “Success in Today’s Evolving Pharma Marketing Landscape”; and
● Sponsoring the “Women at HLTH” program at HLTH Conference.
We also expanded our attendance and participation at investor conferences in 2019.
Our presence and leadership at these conferences and industry events has enabled us to provide valuable industry insights and increase our presence across
more media channels. We have built marketing strategy momentum in 2019 with increased industry visibility that we expect to expand in 2020.
Operational Update
In 2019, we continued to expand our existing network and physician utilization of our partner networks. We continue to work individually with our partners
to improve point-of-care workflow, increase overall revenue derived from each channel and increase coupon utilization by providers who have access. We
are also focused on increasing the number of physicians who have access to our service offerings. In addition to revenue growth provided by new pharma
brands and network partners, we believe there is significant revenue growth potential within existing brands by better utilizing our existing partner
networks and expanding our product offerings.
We completed the integration activities related to our acquisition of RMDY and expect revenues from these activities to ramp up substantially in 2020.
Technology Updates
To support our growth and to further improve the efficiency of our systems, we have moved our core platform to Amazon Web Services. In 2019, we began
the process of migrating our patient engagement activities to Amazon Web Services (“AWS”), and the move is now complete. We plan to migrate the
RMDY platform to AWS by mid-2020.
As a result of our acquisitions in 2018 and 2019, we now have tech teams based in both Croatia and Israel, in addition to our core team in the U.S., to help
develop further applications throughout the organization.
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Principal Products and Applications
Our principal products and applications can be summarized as follows:
● Financial Messaging – Our integrated financial messaging platform is a revolutionary virtual “Patient Support Center” that allows doctors and
staff to access a universe of sample vouchers, co-pay coupons and other patient support through their EMR and/or e-Prescribe systems. It allows
them to search, print or electronically dispense directly to patients and a national network of pharmacies. Our platform eliminates the need for
physicians to manage and store physical drug samples by offering a more convenient and efficient way to allocate, administer and track samples
and co-pay savings for their patients. Today, nearly 60% of doctor offices ban or limit drug representatives and the samples they offer. While
samples are still valuable, our solution addresses the fact that many healthcare systems and doctors are looking for an easier, more effective way to
increase affordable access and adherence to their prescribed branded medications.
● Brand and Clinical Messaging – Our brand messaging services include a variety of brand awareness and clinical messaging services that can be
tailored to meet the needs of a brand. These messages can include brand awareness messages, reminder ads, clinical messages and unbranded
messages that can be targeted by specialty, diagnostic code and other criteria. Brand messaging is highly complementary to our core financial
messaging product. Historically, we have sold brand messaging based on specific products offered by our EHR partners, but we have developed
our own proprietary banner messaging system, rolled this product out in 2017, and expanded it in 2018. We also developed our own clinical
messaging system and launched it with our first partner in late 2018. We believe brand messaging represents a significant growth opportunity for
us.
● Brand Support – Our brand support is focused on educating and working with pharmaceutical manufacturers on identifying, formulating, and
implementing new eRx media strategies for promoting their products. Our services include: 1) Drug File Integration - a service designed to better
insure that manufacturers’ drugs are present in every ePrescribing platform available; 2) Sales Force Training – a service to educate the extended
field sales force on this new integrated solution and what to look for within their client base to insure maximum exposure of their brands; and 3)
Strategy Development – a service that assists pharmaceutical manufacturers in identifying and building a competitive strategy to take advantage of
this new digital frontier. Currently, this activity results in less than 10% of our revenue, but represents a significant growth opportunity for us.
● Patient Engagement – Our patient engagement activities arose out of our acquisition of CareSpeak Communications in October 2018. Our
technology solution provides digital messaging services through our cloud based Mobile Health Messenger (“MHM”) Platform. We provide
interactive health messaging for improved medication adherence and care coordination. Our HIPAA-compliant, automated, mobile messaging
platform allows pharmaceutical manufactures and related entities to directly engage with patients to improve regimen compliance.
● Digital Therapeutics – Our digital therapeutics activities result from our acquisition of RMDY in October 2019. Digital therapeutics consists of
delivering patient programs with treatment and affordability information, lifestyle and condition trackers, Internet device connectivity, forms and
surveys, with this all supported by a wide range of communication capabilities delivered via chat, bots, audio and telehealth. We enable this
functionality for our customers, with our solutions delivering a variety of intervention mechanisms that help treat chronic conditions, such as
diabetes and heart disease.
Competition
Our core platform competes in the highly competitive pharmaceutical and life sciences digital marketing industry that is dominated by large well-known
companies with established names, solid market niches, wide arrays of product offerings and marketing networks. Our messaging offerings compete for
pharmaceutical budgets with a variety of other forms of advertising and promotion.
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We have a growing list of potential partners whom either have content that they want to deliver through our distribution engine and network, or have
complementary technology and want to integrate our solution as a channel partner and thereby increase their reach to clinicians. The primary direct
competitor in our space of the market is ConnectiveRx. However, we believe our breadth of brands offered, extensive list of pharmaceutical clients, and the
vast reach of our network give us a substantial advantage and allow us to achieve a dominant position in the marketplace.
Intellectual Property
In 2012, we were awarded a patent for our innovative solution (US Patent No. 8,341,015). This award was a result of our extensive research and
development efforts. The awarded claims cover our ability to electronically process, display and distribute eligible prescription savings on the medications
and therapies healthcare providers wish to prescribe for their patients. As part of our acquisition of CareSpeak Communications, we also acquired (US
Patent No. 7,956,727) related to methods and systems for medication management.
We use a nationally ranked intellectual property law firm to further expand and protect our intellectual property. We believe our current and expanding IP
will allow us to continue being the leader in this rapidly growing space. We stand ready to prepare additional filings, as necessary, to protect our intellectual
property on any forthcoming solutions that will further assist and support physicians, pharmacists and patients.
OPTIMIZERx, CareSpeak, RMDY Wellness Layers, Diet Watch, and SampleMD are our licensed trademarks.
Government Regulation
Fraud and Abuse Laws
Anti-Kickback Statutes
The federal healthcare program Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, offering, receiving or providing
remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the furnishing, arranging for or recommending a
good or service for which payment may be made in whole or part under a federal healthcare program such as Medicare or Medicaid. The definition of
remuneration has been broadly interpreted to include anything of value, including for example gifts, discounts, the furnishing of supplies or equipment,
credit arrangements, payments of cash and waivers of payments. Several courts have interpreted the statute’s intent requirement to mean that if any one
purpose of an arrangement involving remuneration is to induce referrals or otherwise generate business involving goods or services reimbursed in whole or
in part under federal healthcare programs, the statute has been violated. The law contains a few statutory exceptions, including payments to bona fide
employees, certain discounts and certain payments to group purchasing organizations. Violations can result in significant penalties, imprisonment and
exclusion from Medicare, Medicaid and other federal healthcare programs. Exclusion of a manufacturer would preclude any federal healthcare program
from paying for its products. In addition, kickback arrangements can provide the basis for an action under the Federal False Claims Act, which is discussed
in more detail below. The Anti-Kickback Statute is broad and potentially prohibits many arrangements and practices that are lawful in businesses outside of
the healthcare industry. Recognizing that the Anti-Kickback Statute is broad and may technically prohibit many innocuous or beneficial arrangements, the
Office of Inspector General of Health and Human Services, or OIG, issued a series of regulations, known as the safe harbors, beginning in July 1991. These
safe harbors set forth provisions that, if all the applicable requirements are met, will assure healthcare providers and other parties that they will not be
prosecuted under the Anti-Kickback Statute. The failure of a transaction or arrangement to fit precisely within one or more safe harbors does not
necessarily mean that it is illegal or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy each applicable
safe harbor may result in increased scrutiny by government enforcement authorities such as the OIG. Arrangements that implicate the Anti-Kickback Law,
and that do not fall within a safe harbor, are analyzed by the OIG on a case-by-case basis. Government officials have focused recent enforcement efforts on,
among other things, the sales and marketing activities of healthcare companies, and recently have brought cases against individuals or entities with
personnel who allegedly offered unlawful inducements to potential or existing customers in an attempt to procure their business. Settlements of these cases
by healthcare companies have involved significant fines and/or penalties and in some instances criminal pleas. In addition to the Federal Anti-Kickback
Statute, many states have their own kickback laws. Often, these laws closely follow the language of the federal law, although they do not always have the
same exceptions or safe harbors. In some states, these anti-kickback laws apply with respect to all payors, including commercial health insurance
companies.
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False Claims Laws
Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government
or knowingly making, or causing to be made, a false statement to get a false claim paid. Manufacturers can be held liable under false claims laws, even if
they do not submit claims to the government, if they are found to have caused submission of false claims. The Federal Civil False Claims Act also includes
whistle blower provisions that allow private citizens to bring suit against an entity or individual on behalf of the United States and to recover a portion of
any monetary recovery. Many of the recent highly publicized settlements in the healthcare industry related to sales and marketing practices have been cases
brought under the False Claims Act. The majority of states also have statutes or regulations similar to the federal false claims laws, which apply to items
and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Sanctions under these federal and
state laws may include civil monetary penalties, exclusion of a manufacturer’s products from reimbursement under government programs, criminal fines
and imprisonment.
Privacy and Security
The Health Insurance Portability and Accountability Act of 1996, or HIPAA, and the rules promulgated there under require certain entities, referred to as
covered entities, to comply with established standards, including standards regarding the privacy and security of protected health information, or PHI.
HIPAA further requires that covered entities enter into agreements meeting certain regulatory requirements with their business associates, as such term is
defined by HIPAA, which, among other things, obligate the business associates to safeguard the covered entity’s PHI against improper use and disclosure.
While not directly regulated by HIPAA, our customers or distributors might face significant contractual liability pursuant to such an agreement if the
business associate breaches the agreement or causes the covered entity to fail to comply with HIPAA. It is possible that HIPPA compliance could become a
substantial regulatory burden and expense to our operations, although we do not believe that this will occur as a general website publisher.
Employees
As of December 31, 2019, we had 50 full-time employees in the U.S, as well as approximately 20 full-time international employees. None of our
employees are represented by a labor union with respect to their employment with us. We have not experienced any work stoppages, and we consider our
relations with our employees to be good.
Subsidiaries
We conduct our operations through our wholly-owned subsidiaries, OptimizeRx Corporation, a Michigan corporation, CareSpeak Communications, Inc., a
New Jersey corporation, CareSpeak Communications, D.O.O, a controlled foreign corporation incorporated in Croatia, RMDY Health, Inc. a Delaware
corporation, and Cyberdiet, a controlled foreign corporation incorporated in Israel.
Recent developments
In March 2020, our Board of Directors amended the 2013 Incentive Plan to increase the number of shares authorized under the plan to 3,000,000. At the
same time, we granted 84,746 shares of restricted common stock and options to purchase 233,049 shares of common stock to officers and options to
purchase 71,000 shares of common stock to non-officers.
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Item 1A. Risk Factors
Risks Relating to Business and Financial Condition
Because we have historically experienced losses, if we are unable to achieve profitability, our financial condition and company could suffer.
While we were profitable in 2018, since the inception of our business we have historically incurred losses as a result of investing in growth. We incurred a
loss in 2019 as a result of our increased spending to invest in growth – both through additional new hires, as well as through the acquisition of RMDY.
While we have increased revenues significantly, we have not yet consistently achieved profitability due to significant investments in our growth, and non-
cash expenses. Our ability to achieve consistent profitability depends on our ability to generate sales through our technology platform and advertising
model, while maintaining reasonable expense levels. If we do not achieve sustainable profitability, it may impact our ability to continue our operations.
Our business and growth may suffer if we are unable to attract and retain key employees.
Our success depends on the expertise of our executive officers and certain other key technical personnel. It may be difficult to find sufficiently qualified
individuals to replace management or other key technical personnel in the event of death, disability or resignation, thus frustrating our ability to implement
our business plan, which could negatively affect our operating results.
Furthermore, our ability to expand operations to accommodate our anticipated growth will also depend on our ability to attract and retain qualified media,
management, finance, marketing, sales and technical personnel. However, competition for these types of employees is intense due to the limited number of
qualified professionals. Our ability to meet our business development objectives will depend in part on our ability to recruit, train and retain top quality
people with advanced skills who understand our technology and business. If we are unable to engage and retain the necessary personnel, our business may
be materially and adversely affected.
Our failure to obtain, retain or attract additional customers could prevent us from successfully executing our business plan.
We currently work with many leading pharmaceutical companies, medical device manufacturers, payers, medtech, associations, and other companies. Our
failure to retain existing customers or expand with new customers could negatively impact our business.
We are dependent on a concentrated group of customers.
Our revenues are concentrated in less than 50 customers, primarily large pharmaceutical manufacturers. Loss of one or more of our larger customers could
have a negative impact on our operating results. In both 2019 and 2018, we had three customers that each represented slightly over 10% of our revenues,
however two of the three were different in each year.
We may be unable to support our technology to further scale our operations successfully.
Our plan is to grow rapidly through further integration of our technology in electronic platforms. Our growth will place significant demands on our
management and technology development, as well as our financial, administrative and other resources. We cannot guarantee that any of the systems,
procedures and controls we put in place will be adequate to support the commercialization of our operations. Our operating results will depend substantially
on the ability of our officers and key employees to manage changing business conditions and to implement and improve our financial, administrative and
other resources. If we are unable to respond to and manage changing business conditions, or the scale of our products, services and operations, then the
quality of our services, our ability to retain key personnel and our business could be harmed.
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If we are unable to maintain our contracts with electronic prescription platforms, our business will suffer.
We are reliant upon our contracts with leading electronic prescribing platforms and electronic health record systems. Such arrangements subject us to a
number of risks, including the following:
● Our contract partners may experience financial, regulatory or operational difficulties, which may impair their ability to focus on and fulfill their
contract obligations to us;
● Legal disputes or disagreements, including the ownership of intellectual property, may occur with one or more of our partners and may lead to
lengthy and expensive litigation or arbitration;
● Significant changes in a partner’s business strategy may adversely affect a partner’s willingness or ability to satisfy obligations under any such
arrangement; and
● A partner could terminate the partnership arrangement, which could negatively impact our ability to sell our products and achieve revenues.
We will need to maintain these relationships as well as diversify them. The inability to do so could adversely impact our business.
Our agreements with electronic prescription platforms and electronic health record systems are subject to audit.
Our agreements with our partners provide for revenue sharing payments to the platform partners based on the revenue we generate through the platform.
These payments are subject to audit by our partners, at their cost, and if there is a dispute as to the calculation, we may be liable for additional payments. If
an underpayment is determined to be in excess of a certain amount, for example 10%, some agreements would require us to pay for the cost of the audit, as
well.
Developing and implementing new and updated applications, features and services for our portals may be more difficult than expected, may take longer
and cost more than expected and may not result in sufficient increases in revenue to justify the costs.
We have completed the development and migration of our on-demand, rule based content delivery platform. Attracting and retaining users of our portals
requires us to continue to improve the technology underlying those portals and to continue to develop new and updated applications, features and services
for those portals. If we are unable to do so on a timely basis or if we are unable to implement new applications, features and services without disruption to
our existing ones, we may lose potential users and clients. The costs of development of these enhancements may negatively impact our ability to achieve
profitability.
We rely on a combination of internal development, strategic relationships, licensing and acquisitions to develop our portals and related applications,
features and services. Our development and/or implementation of new technologies, applications, features and services may cost more than expected, may
take longer than originally expected, may require more testing than originally anticipated and may require the acquisition of additional personnel and other
resources. There can be no assurance that the revenue opportunities from any new or updated technologies, applications, features or services will justify the
amounts spent.
If we are unable to adhere to the regulatory and competitive climate in which we operate, we could be materially and negatively impacted.
Due to the labyrinth of regulations in healthcare space, state and federal, as well as political sensitivity of healthcare delivery, our business model could be
negatively impacted or fail.
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The markets in which we operate are competitive, continually evolving and, in some cases, subject to rapid change.
● Our portals face competition from numerous other companies, both in attracting users and in generating revenue from advertisers and sponsors.
We compete for users with online services and websites that provide savings on medications and healthcare products, including both commercial
sites and not-for-profit sites. We compete for advertisers and sponsors with: health-related web sites; general purpose consumer web sites that
offer specialized health sub-channels; other high-traffic web sites that include both healthcare-related and non-healthcare-related content and
services; search engines that provide specialized health searches; and advertising networks that aggregate traffic from multiple sites.
● Our healthcare provider portals compete with: providers of healthcare decision-support tools and online health management applications; wellness
and disease management vendors; and health information services and health management offerings of healthcare benefits companies and their
affiliates.
Many of our competitors have greater financial, technical, product development, marketing and other resources than we do. These organizations may be
better known than we are and have more customers or users than we do. We cannot provide assurance that we will be able to compete successfully against
these organizations or any alliances they have formed or may form. Since there are no substantial barriers to entry into the markets in which our public
portals participate, we expect that competitors will continue to enter these markets.
Developments in the healthcare industry could adversely affect our business.
Most of our revenue is derived from the healthcare industry and could be affected by changes affecting healthcare spending. We are particularly dependent
on pharmaceutical, biotechnology and medical device companies for our advertising and sponsorship revenue.
General reductions in expenditures by healthcare industry participants could result from, among other things:
● Government regulation or private initiatives that affect the manner in which healthcare providers interact with patients, payers or other healthcare
industry participants, including changes in pricing or means of delivery of healthcare products and services;
● Government regulation prohibiting the use of coupons by patients covered by federally funded health insurance programs;
● Consolidation of healthcare industry participants;
● Reductions or changes in governmental funding for healthcare;
● Adverse changes in business or economic conditions affecting healthcare payers or providers, pharmaceutical, biotechnology or medical device
companies or other healthcare industry participants; and
● A move to a single-payer healthcare system in the U.S.
Even if general expenditures by industry participants remain the same or increase, developments in the healthcare industry may result in reduced spending
in some or all of the specific market segments that we serve or are planning to serve. For example, use of our products and services could be affected by:
● Changes in the design of health insurance plans;
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● A decrease in the number of new drugs or medical devices coming to market;
● A decrease in marketing expenditures by pharmaceutical or medical device companies, including as a result of governmental regulation or private
initiatives that discourage or prohibit advertising or sponsorship activities by pharmaceutical or medical device companies; and
● Payor pressure to move to generic brands.
In addition, our customers’ expectations regarding pending or potential industry developments may also affect their budgeting processes and spending
plans with respect to products and services of the types we provide.
The healthcare industry has changed significantly in recent years and we expect that significant changes will continue to occur. However, the timing and
impact of developments in the healthcare industry are difficult to predict. We cannot assure you that the markets for our products and services will continue
to exist at current levels or that we will have adequate technical, financial and marketing resources to react to changes in those markets.
A global pandemic may disrupt our business or the business of our customers.
The COVID-19 coronavirus, originating in China, has spread to a number of other countries, including the United States, and efforts to contain the spread
of the coronavirus have intensified, including travel and other restrictions. Efforts to contain the virus may cause our customers to reallocate resources, or
disrupt their business, which may impact our revenues. We are unable to predict how changing global economic conditions or potential global health
concerns such as the COVID-19 coronavirus will affect our customers or partners. Any negative impact of such matters on our customers or partners may
also have an adverse impact on our results of operations or financial condition.
A material weakness in our internal control over financial reporting, if not remediated, could result in material misstatements in our financial
statements.
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934, as amended. A material weakness (as defined in Rule 12b-2) is a deficiency, or combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be
prevented or detected on a timely basis. As disclosed in Part II, Item 9a, management identified material weaknesses in internal control over financial
reporting related to: (i) inadequate information technology general controls (ITGCs) in the areas of user access security, change management, IT operations
and third-party management over key financial information technology (IT) systems; and (ii) inadequate controls to ensure that data received from third
parties is complete and accurate. Those weaknesses have not been completely remediated as of December 31, 2019.
We have developed a remediation plan, but as a small company, we have limited resources and if as a result of changes in our business, additional material
weaknesses, were to be identified, it could result in our consolidated financial statements containing material misstatements in the future.
Our success is dependent in part on obtaining, maintaining and enforcing our proprietary rights and our ability to avoid infringing on the proprietary
rights of others.
We seek patent protection for those inventions and technologies for which we believe such protection is suitable and is likely to provide a competitive
advantage to us. Because patent applications in the United States are maintained in secrecy until either the patent application is published, or a patent is
issued, we may not be aware of third-party patents, patent applications and other intellectual property relevant to our products that may block our use of our
intellectual property or may be used in third-party products that compete with our products and processes. In the event a competitor or other party
successfully challenges our products, processes, patents or licenses or claims that we have infringed upon their intellectual property, we could incur
substantial litigation costs defending against such claims, be required to pay royalties, license fees or other damages or be barred from using the intellectual
property at issue, any of which could have a material adverse effect on our business, operating results and financial condition.
We also rely substantially on trade secrets, proprietary technology, nondisclosure and other contractual agreements, and technical measures to protect our
technology, application, design, and manufacturing know-how, and work actively to foster continuing technological innovation to maintain and protect our
competitive position. We cannot assure you that steps taken by us to protect our intellectual property and other contractual agreements for our business will
be adequate, that our competitors will not independently develop or patent substantially equivalent or superior technologies or be able to design around
patents that we may receive, or that our intellectual property will not be misappropriated.
9
We could be subject to economic, political, regulatory and other risks arising from international operations.
Operating in international markets requires significant resources and management attention and will subject us to regulatory, economic and political risks
that may be different from and incremental to those in the United States. In addition to the risks that we face in the United States, our international
operations, as a result of our acquisitions in 2018 and 2019 wherein we now operate in Israel and Croatia, may involve risks that could adversely affect our
business, including:
● the need to adapt our content and user interfaces for specific cultural and language differences;
● difficulties and costs associated with staffing and managing foreign operations;
● management distraction;
● natural or man-made disasters, political, social and economic instability, including wars, terrorism and political unrest, outbreak of disease (such
as the recent outbreak of the 2019 novel coronavirus, or COVID-19), boycotts, curtailment of trade, and other business restrictions;
● compliance with United States laws, such as the Foreign Corrupt Practices Act, export controls and economic sanctions, and local laws prohibiting
corrupt payments to government officials;
● unexpected changes in regulatory requirements;
● less favorable foreign intellectual property laws;
● adverse tax consequences such as those related to repatriation of cash from foreign jurisdictions into the United States, non-income related taxes
such as value-added tax or other indirect taxes, changes in tax laws or their interpretations, or the application of judgment in determining our
global provision for income taxes and other tax liabilities given inter-company transactions and calculations where the ultimate tax determination
is uncertain;
● fluctuations in currency exchange rates, which could impact revenues and expenses of our international operations and expose us to foreign
currency exchange rate risk;
● profit repatriation and other restrictions on the transfer of funds;
● differing payment processing systems as well as consumer use and acceptance of electronic payment methods, such as payment cards;
● new and different sources of competition;
● different and more stringent user protection, data protection, privacy and other laws; and
● availability of reliable broadband connectivity and wide area networks in targeted areas for expansion.
Our failure to manage any of these risks successfully could harm our international operations and our overall business, as well as results of our operations.
Our business will suffer if our network systems fail or become unavailable.
A reduction in the performance, reliability and availability of our network infrastructure would harm our ability to distribute our products to our users, as
well as our reputation and ability to attract and retain customers. Our systems and operations could be damaged or interrupted by fire, flood, power loss,
telecommunications failure, Internet breakdown, earthquake and similar events. Our systems could also be subject to viruses, break-ins, sabotage, acts of
terrorism, acts of vandalism, hacking, cyber-terrorism and similar misconduct. We might not carry adequate business interruption insurance to compensate
us for losses that may occur from a system outage. Any system error or failure that causes interruption in availability of our product or an increase in
response time could result in a loss of potential customers, which could have a material adverse effect on our business, financial condition and results of
operations. If we suffer sustained or repeated interruptions, then our products and services could be less attractive to our users and our business would be
materially harmed.
If we are unable to manage growth, our operations could be adversely affected.
Our progress is expected to require the full utilization of our management, financial and other resources. Our ability to manage growth effectively will
depend on our ability to improve and expand operations, including our financial and management information systems, and to recruit, train and manage
personnel. There can be no absolute assurance that management will be able to manage growth effectively.
If we do not properly manage the growth of our business, we may experience significant strains on our management and operations and disruptions in our
business. Various risks arise when companies and industries grow quickly. If our business or industry grows too quickly, our ability to meet customer
demand in a timely and efficient manner could be challenged. We may also experience development delays as we seek to meet increased demand for our
products. Our failure to properly manage the growth that we or our industry might experience could negatively impact our ability to execute on our
operating plan and, accordingly, could have an adverse impact on our business, our cash flow and results of operations, and our reputation with our current
or potential customers.
Our business is subject to changing regulation of corporate governance and public disclosure.
Because our common stock is publicly traded, we are subject to certain rules and regulations of federal and state entities charged with the protection of
investors and the oversight of companies whose securities are publicly traded. These entities have continued to develop additional regulations and
requirements in response to laws enacted by Congress, most notably the Sarbanes-Oxley Act of 2002. Complying with these new regulations has resulted
in, and is likely to continue to result in, increased general and administrative costs and a diversion of management time and attention from revenue
generating and other business activities to compliance activities.
10
Risks Relating to Our Securities
If a market for our common stock does not develop, shareholders may be unable to sell their shares.
Our common stock is quoted under the symbol “OPRX” on the Nasdaq Capital Market. We do not currently have a consistent active trading market. There
can be no assurance that a consistent active and liquid trading market will develop or, if developed, that it will be sustained.
Our securities are thinly traded. Accordingly, it may be difficult to sell shares of our common stock without significantly depressing the value of the stock.
Unless we are successful in developing continued investor interest in our stock, sales of our stock could continue to result in major fluctuations in the price
of the stock.
The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which
are beyond our control.
Our stock price is subject to a number of factors, including:
● Technological innovations or new products and services by us or our competitors;
● Government regulation of our products and services;
● The establishment of partnerships with other healthcare companies;
● Intellectual property disputes;
● Additions or departures of key personnel;
● Sales of our common stock;
● Our ability to integrate operations, technology, products and services;
● Our ability to execute our business plan;
● Operating results below or exceeding expectations;
● Whether we achieve profits or not;
● Loss or addition of any strategic relationship;
● Industry developments;
● Economic and other external factors; and
● Period-to-period fluctuations in our financial results.
Our stock price may fluctuate widely as a result of any of the above. In addition, the securities markets have from time to time experienced significant price
and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and
adversely affect the market price of our common stock.
We do not expect to pay dividends in the foreseeable future. Any return on investment may be limited to the value of our common stock.
We do not anticipate paying cash dividends on our common stock in the foreseeable future. The payment of dividends on our common stock will depend on
earnings, financial condition and other business and economic factors affecting it at such time as the board of directors may consider relevant. If we do not
pay dividends, our common stock may be less valuable because a return on your investment will occur only if our stock price appreciates.
11
Provisions in the Nevada Revised Statutes and our Bylaws could make it very difficult for an investor to bring any legal actions against our directors or
officers for violations of their fiduciary duties or could require us to pay any amounts incurred by our directors or officers in any such actions.
Members of our board of directors and our officers will have no liability for breaches of their fiduciary duty of care as a director or officer, except in
limited circumstances, pursuant to provisions in the Nevada Revised Statutes and our Bylaws as authorized by the Nevada Revised Statutes. Specifically,
Section 78.138 of the Nevada Revised Statutes provides that a director or officer is not individually liable to the company or its shareholders or creditors
for any damages as a result of any act or failure to act in his or her capacity as a director or officer unless it is proven that (1) the director’s or officer’s act
or failure to act constituted a breach of his or her fiduciary duties as a director or officer and (2) his or her breach of those duties involved intentional
misconduct, fraud or a knowing violation of law. This provision is intended to afford directors and officers protection against and to limit their potential
liability for monetary damages resulting from suits alleging a breach of the duty of care by a director or officer. Accordingly, you may be unable to prevail
in a legal action against our directors or officers even if they have breached their fiduciary duty of care. In addition, our Bylaws allow us to indemnify our
directors and officers from and against any and all costs, charges and expenses resulting from their acting in such capacities with us. This means that if you
were able to enforce an action against our directors or officers, in all likelihood, we would be required to pay any expenses they incurred in defending the
lawsuit and any judgment or settlement they otherwise would be required to pay. Accordingly, our indemnification obligations could divert needed
financial resources and may adversely affect our business, financial condition, results of operations and cash flows, and adversely affect prevailing market
prices for our common stock.
Item 1B. Unresolved Staff comments
None
Item 2. Properties
Currently, we do not own any real estate. Our principal executive offices are located at 400 Water Street, Suite 200, Rochester, Michigan 48307.
We have operating leases with terms greater than 12 months for office space in three multitenant facilities. The lease on our headquarters space in
Rochester, Michigan expires November 30, 2022, with a three-year renewal option through 2025, with monthly rent payable at rates ranging from $6,384 to
$6,688. We have assumed renewal of the lease. We also have a lease on office space in Cranbury, New Jersey, expiring in 2022 with monthly payments
ranging from $3,008 to $3,158, as well as a lease of approximately $1,883 per month in Zagreb, Croatia expiring in 2022. We also lease minor amounts of
space in shared space facilities on a month to month basis as necessary.
We believe that our properties are adequate for our current needs, but growth potential may require larger facilities due to anticipated addition of personnel.
We do not have any policies regarding investments in real estate, securities or other forms of property.
Item 3. Legal Proceedings
We have no current legal proceedings.
Item 4. Mine Safety Disclosures
Not applicable.
12
PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is traded under the symbol “OPRX” on the Nasdaq Capital Market. Only a limited market exists for our securities. There is no
assurance that a regular trading market will develop, or if developed, that it will be sustained. Therefore, a shareholder may be unable to resell his securities
in our company.
The following tables set forth the range of high and low bid information for our common stock for the each of the periods indicated. These quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
Fiscal Year Ending December 31, 2018
Quarter Ended
March 31, 2018
June 30, 2018
September 30, 2018
December 31, 2018
Quarter Ended
March 31, 2019
June 30, 2019
September 30, 2019
December 31, 2019
Fiscal Year Ending December 31, 2019
High $
Low $
4.98
11.00
18.39
18.00
3.36
4.29
9.32
8.92
High $
Low $
15.71
16.75
17.24
14.74
9.96
10.00
13.42
8.63
Quarter Ended March 31, 2020 (through March 24, 2020)
$
11.99 $
6.50
On March 24, 2020, the last sales price per share of our common stock was $7.93
Holders of Our Common Stock
As of March 24, 2020, we had 14,605,611 shares of our common stock issued and outstanding, held by approximately 382 shareholders of record at our
transfer agent, with approximately 2,200 additional shareholders holding our shares in street name.
Dividends
We currently intend to retain future earnings for the operation of our business. We have never declared or paid cash dividends on our common stock, and
we do not anticipate paying any cash dividends in the foreseeable future.
In the event that a dividend is declared, common stockholders on the record date are entitled to share ratably in any dividends that may be declared from
time to time on the common stock by our board of directors from funds legally available.
13
There are no restrictions in our articles of incorporation or bylaws that restrict us from declaring dividends. The Nevada Revised Statutes, however, do
prohibit us from declaring dividends where, after giving effect to the distribution of the dividend:
1. We would not be able to pay our debts as they become due in the usual course of business; or
2. Our total assets would be less than the sum of our total liabilities, plus the amount that would be needed to satisfy the rights of shareholders who
have preferential rights superior to those receiving the distribution.
Securities Authorized for Issuance under Equity Compensation Plans
On June 13, 2013, our Board of Directors adopted the 2013 Equity Incentive Plan (the “Plan”). The purpose of the Plan is to attract and retain the best
available personnel for positions of substantial responsibility with us, to provide additional incentive to employees, directors and consultants, and to
promote our success. Under the Plan, we are currently able to issue up to an aggregate total of 3,000,000 incentive or non-qualified options to purchase our
common stock, stock awards and other offerings.
Equity Compensation Plans as of December 31, 2019
Equity Compensation Plans Approved by the Shareholders
2013 Equity Compensation Plan
Other Equity Compensation (restricted stock awards)
Total
Recent Sales of Unregistered Securities
Weighted-
average
exercise price
of
outstanding
options
(b)
Number
of Securities to
be issued upon
exercise
of outstanding
options
(a)
1,624,221 $
90,000
1,714,221 $
6.27
N/A
6.27
Number of
Securities
remaining
available
for future
issuance under
equity
compensation
plans
(c)
236,614
N/A
236,614
The information set forth below relates to our issuances of securities without registration under the Securities Act of 1933 during the reporting period
which were not previously included in a Quarterly Report on Form 10-Q or Current Report on Form 8-K.
In December 2019, we issued 8,334 shares of restricted common stock to our outside Directors as part of our director compensation package for services
rendered in Q4 2019.
From October through December 2019, we issued 35,500 shares of common stock and received proceeds of $113,280 in connection with the exercise of
options.
In 2020, we issued 35,032 shares of common stock and received proceeds of $112,151 in connection with the exercise of options.
These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention
to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an
informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates
with the appropriate restrictive legend affixed to the restricted stock.
14
Item 6. Selected Financial Data
Not required under Regulation S-K for “smaller reporting companies.”
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations for the Years Ended December 31, 2019 and 2018
Net Revenue
Our net revenue for the year ended December 31, 2019 was approximately $24.6 million, an increase of 16% from the year ended December 31, 2018. This
increase resulted from a combination of factors, including increased pharmaceutical brands, an increased distribution network, strong growth in our brand
messaging product, and our acquisition of CareSpeak Communications in late 2018 and RMDY Health in late 2019. We expect continued strong revenue
growth in 2020 as a result of the foundations laid in 2018 and 2019.
Because the pharmaceutical industry is dominated by large companies with multiple brands, our revenue is concentrated in a relatively small number of
companies. We have approximately 50 pharmaceutical companies as customers. We have focused our efforts on expanding our customer base and through
our acquisitions, have added medical device manufactures, payers, associations and other entities. In both 2019 and 2018, we had three customers that each
represented slightly over 10% of our revenues, however two of the three were different in each year.
Cost of Revenues
Our total cost of revenues, composed primarily of revenue share expense, increased in the year ended December 31, 2019 compared to the year ended
December 31, 2018 due to the increase in revenues. Our cost of revenues as a percentage of revenue, however, decreased from approximately 42% in the
year ended December 31, 2018 to approximately 37% in the year ended December 31, 2019.
This decrease in our cost of revenues as a percentage of revenue resulted primarily from product mix, specifically the increase in our patient engagement
revenues that have a minimal cost of sales.
Gross Margin
Our gross margin, which is simply the difference between our revenues and our cost of revenues, discussed above, increased from 2018 to 2019 as a result
of the increased revenue. In addition, our gross margin percentage increased from approximately 58% in 2018 to 63% in 2019 for the reasons discussed
above in the cost of revenues section. We expect our margins to remain at the 63% level, or higher in 2020.
15
Operating Expenses
Operating expenses increased to approximately $19.1 million for the year ended December 31, 2019, from approximately $12.0 million for the year ended
December 31, 2018, an increase of approximately 60%. The detail by major category is reflected in the table below.
Salaries, Wages and Benefits
Professional Fees
Acquisition Related Costs
Board Compensation
Investor Relations
Consultants
Advertising and Promotion
Depreciation and Amortization
Research, Development, and Maintenance
Integration Incentives
Office, Facility and Other
Travel
Subtotal
Stock-based Compensation
Total Operating Expense
$
Years Ended December 31
2019
2018
8,471,278 $
850,086
799,623
137,000
105,639
245,386
709,006
1,282,786
2,672,406
208,855
695,493
695,283
5,823,057
362,678
607,670
144,125
113,059
167,694
299,955
316,502
675,660
132,500
472,250
390,563
16,872,841
9,505,713
2,260,298
2,520,852
$
19,133,139 $
12,026,565
The main drivers for the overall increase in operating expenses in 2019 was our focus on staffing and scaling our company to foster, and be able to support,
accelerated revenue growth.
Within the operating expenses, there were a variety of increases, the largest of which was in salaries, wages and benefits, as a result of additional staff
added in 2018 and 2019, including related benefits. During 2019, we hired a chief commercial officer, a chief technology officer, five new salespeople, a
human resources manager, as well as other administrative positions. We also added 14 employees as a result of our RMDY acquisition in October 2019.
During 2018, we added to our staff in several key areas, including a head of data analytics, an additional VP of sales, and a controller. We also added 10
employees in late 2018 as a result of our CareSpeak acquisition. The full year impact of these 2018 hires also increased payroll expense in 2019. We expect
our compensation expense to increase in 2020, but at a much lower rate than in 2019.
Professional fees increased primarily because of costs associated with our uplisting to Nasdaq and the completion of the underwritten offering, as well as
ongoing compliance with Sarbanes Oxley. We also switched auditors in 2019, which resulted in higher audit fees.
Acquisition costs are related to our acquisitions of RMDY Health in 2019 and CareSpeak Communications in October 2018. These costs include
investment banker fees, legal and accounting due diligence, audit costs associated with CareSpeak, valuation experts for the purchase price allocation, and
other miscellaneous costs. Since RMDY Health was a larger company than CareSpeak Communications, the costs associated with the acquisition were
higher.
Board compensation decreased slightly from 2018 to 2019 as we had five independent directors for a portion of 2018, as opposed to the four that we had in
2019.
The cost of consultants increased from 2018 to 2019. The primary reason for the increase was related to consultants used for quality certifications, as well
as for marketing activities.
Our advertising and promotion costs increased significantly from 2018 to 2019 as a result of increased marketing activities. This included increased
attendance and sponsorship at conferences, rebranding, and other marketing activities.
Expenses related to research, development, management, and maintenance of our technology increased in 2019 primarily as a result of research into
potential new product areas.
Integration incentives, which are fees paid to accelerate access to new partners, increased in 2019, as we launched with a greater number of new EHRs in
2019 than in 2018.
16
Depreciation and amortization increased significantly in 2019 from the 2018 levels. The increased amortization resulting from the acquisition of CareSpeak
and the resulting intangible assets were amortized for a full year in 2019 as opposed to only the fourth quarter of 2018. We also had three months of
amortization related to the intangible assets acquired as part of the acquisition of RMDY in October 2019. We expect depreciation and amortization
expense in 2020 to increase over 2019 levels due to the full year of amortization of RMDY intangibles.
Office, facility, and other costs increased from 2018 to 2019. The main reason for the change related to a higher level of activity with more employees and
increased expenses resulting from the RMDY acquisition.
Stock based compensation decreased by approximately $260,000 from $2.5 million in 2018 to $2.3 million in 2019 primarily because performance-based
awards granted in 2018 vested, whereas performance-based awards granted in 2019 did not vest because we did not meet the stretch goals required for
vesting.
Net Loss
We finished the year ended December 31, 2019 with a net loss of approximately $3.1 million, as compared to net income of approximately $0.2 million
during the year ended December 31, 2018. The reasons for specific components are discussed above. Overall, we had an increase in revenue and gross
margin offset by increased operating expenses to support future growth and costs associated with our acquisition of RMDY in 2019. In addition, the income
or loss in both periods included significant noncash items. We had approximately $3.54 million in noncash operating expenses in 2019 and approximately
$2.85 million in noncash operating expenses in 2018.
Quarterly Financial Information
Following is a table of our quarterly operating results for 2019 for information purposes.
Revenues
Cost of revenues
Gross Profit
Operating Expenses
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total Year
$
5,209,434 $
7,006,291 $
5,002,767 $
7,379,782 $
24,598,274
1,583,480
2,687,143
1,981,143
2,906,933
9,158,699
3,625,954
4,319,148
3,021,624
4,472,849
15,439,575
3,493,789
3,839,105
5,008,934
6,791,311
19,133,139
Income (Loss) from Operations
132,165
480,043
(1,987,310)
(2,318,462)
(3,693,564)
Other income (expense)
Income (loss) before Taxes
Income tax benefit
Net Income (Loss)
Earnings (loss) per share
Basic
Diluted
(125,636)
(73,426)
416,368
(564,278)
(346,972)
6,529
406,617
(1,570,942)
(2,882,740)
(4,040,536)
-
-
-
897,960
897,960
6,529
406,617
(1,570,942)
(1,984,780)
(3,142,576)
$
$
0.00 $
0.00 $
0.03 $
0.03 $
(0.11) $
(0.11) $
(0.14) $
(0.14) $
(0.23)
(0.23)
Sum of four quarterly per share amounts does not equal annual total due to rounding.
17
Liquidity and Capital Resources
As of December 31, 2019, we had total current assets of approximately $27.1 million, compared with current liabilities of approximately $6.1 million,
resulting in working capital of approximately $21.0 million and a current ratio of approximately 4.4 to 1. This compares with the working capital balance
of approximately $11.5 million and the current ratio of 3.7 to 1 at December 31, 2018. This increase in working capital, as discussed in more detail below,
is primarily the result of the capital we raised in 2019.
Following is a table with summary data from the consolidated statement of cash flows for the years ended December 31, 2019 and 2018, as presented.
Net cash provided by (used in) operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net increase in cash and cash equivalents
$
2019
(1,660,796) $
(10,582,086)
22,181,528
2018
792,555
(5,686,833)
8,685,739
$
9,938,646 $
3,791,461
Our operating activities used approximately $1.7 million in the year ended December 31, 2019, as compared with approximately $0.8 million provided by
operating activities in the year ended December 31, 2018. The cash provided in 2018 was the result of our net income and non-cash expenses, partially
offset by the increased working capital required to support higher revenues. The cash used in operations in 2019 was the result of increased levels of
working capital required to support higher revenue levels, expenditures related to growth, and costs associated with our acquisition in 2019.
We used approximately $5.7 million in investing activities in the year ended December 31, 2018, as compared with approximately $10.6 million used in
investing activities in the year ended December 31, 2019. The majority of the investing activities in 2018 related to our acquisition of CareSpeak
communications in October 2018. The majority of investing in activities in 2019 related to our acquisitions of RMDY Health, Inc. in 2019, as well as a
software purchase in 2019.
Financing activities provided $8.7 million in the year ended December 31, 2018, as compared with $22.2 million in the year ended December 31, 2019.
The cash provided in 2018 was primarily the result of the equity raised in connection with our uplisting to Nasdaq, as well as from the proceeds of option
exercises. The cash used in 2019 was the result of our underwritten offering in 2019, as well as from the proceeds of option exercises.
With our cash on hand, we have sufficient cash to operate our business for more than the next 12 months and we do not anticipate the need to raise
additional equity for operating purposes.
Off Balance Sheet Arrangements
As of December 31, 2019, there were no off-balance sheet arrangements.
Critical Accounting Policies
A “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s
most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Our accounting policies are discussed in detail in the footnotes to our financial statements included in this Annual Report on Form 10-K for the year ended
December 31, 2019; however, we consider our critical accounting policies to be those related to revenue recognition, calculation of revenue share expense
(cost of revenues), stock-based compensation, capitalization and related amortization of intangible assets and impairment of assets. Following is a summary
of those policies.
18
Revenue Recognition
Recognition of revenue requires evidence of a contract, 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 contract with a customer, 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 we deliver 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.
Our contracts are generally all less than one year and the primary performance obligation is delivery of messages, 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. We recognize 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, we also recognize revenue for providing program performance reporting and maintenance, either
by us directly delivering reports, or by providing access to our online reporting portal that the client can utilize. These fees are charged monthly and
recognized as recurring monthly revenue at the time of delivery.
We also generate revenue by providing other services such as design services related to our patient engagement programs. Revenue for services provided is
recognized over the time period during which services are provided.
In some instances, we also resell 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 we receive.
Cost of Revenues
The primary cost of revenue is revenue share expense. Based on the volume of transactions that are delivered through the channel partner network, we
provide 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, we pay 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 our integrated network. The contractual amount due to the channel partners is recorded as an expense at the
time the eCoupon is distributed.
Intangible Assets
Intangible assets are stated at cost. Finite-lived assets are being amortized over their estimated useful lives of 15 to 17 years for patents, 8 to 15 years for
customer relationships, 2 to 4 years for covenants not to compete, 10 years for technology, and 3 to 4 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.
19
Goodwill
We evaluate goodwill for impairment during our fiscal fourth quarter, or more frequently if an event occurs or circumstances change.
Stock-based Compensation
We use 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 following assumptions. Estimated volatilities are based on the historical volatility of our 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. We use 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. We have never paid dividends and do not expect to pay
any dividends in the future.
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. Our 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.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Under ASU No. 2016-02, we recognize most leases on our balance sheet as
lease liabilities with corresponding right-of-use assets. ASU No. 2016-02 was effective for fiscal years beginning after December 15, 2018. We adopted
ASU No. 2016-02 on January 1, 2019. See Note 13 “Leases” for information regarding this standard and its adoption in the accompanying consolidated
financial statements included elsewhere in this Form 10-K.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350). ASU No. 2017-04 was issued to simplify the
accounting for goodwill impairment. ASU No. 2017-04 removes the second step of the goodwill impairment test, which requires that a hypothetical
purchase price allocation be performed to determine the amount of impairment, if any. Under ASU No. 2017-04, a goodwill impairment charge will be
based on the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU No. 2017-04
became effective on a prospective basis for us on January 1, 2020. The adoption of this standard is not expected to have a material effect on our financial
position, results of operations, or cash flows.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which introduces the Current Expected Credit Losses
(“CECL”) accounting model. CECL requires earlier recognition of credit losses, while also providing additional transparency about credit risk. CECL
utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired.
The expected credit losses are adjusted each period for changes in expected lifetime credit losses. ASU No. 2016-13 is effective for us 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 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 12, 2020,
with early adoption permitted. We do not expect the adoption of ASU 2019-12 to have a material impact on our consolidated financial statements.
20
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements Required by Article 8 of Regulation S-X:
Audited Financial Statements:
F-1
F-3
F-4
F-5
F-6
F-7
F-8
Reports of Independent Registered Public Accounting Firms;
Consolidated Balance Sheets as of December 31, 2019 and 2018;
Consolidated Statements of Operations for the years ended December 31, 2019 and 2018;
Consolidated Statement of Stockholders’ Equity for the year ended December 31, 2019;
Consolidated Statement of Stockholders’ Equity for the year ended December 31, 2018;
Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018; and
Notes to Consolidated Financial Statements
21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
OptimizeRx Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of OptimizeRx Corporation and Subsidiaries (the “Company”) as of December 31, 2019,
and the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended, and the related notes (collectively
referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the
Company as of December 31, 2019, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's
internal control over financial reporting as of December 31, 2019, based on the criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013 and our report dated March 26, 2020, expressed an adverse opinion
on the effectiveness of the Company’s internal control over financial reporting because of the existence of material weaknesses.
Adoption of New Accounting Standards
As discussed in Note 2 to the financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of ASU No. 2016-
02, Leases (Topic 842), as amended, effective January 1, 2019, using the modified retrospective approach.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial
statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Marcum LLP
Marcum LLP
We have served as the Company’s auditor since 2019.
New York, NY
March 26, 2020
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of OptimizeRx Corporation:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of OptimizeRx Corporation (“the Company”) as of December 31, 2018, the related
consolidated statement of operations, stockholders’ equity, and cash flows for the year ended December 31, 2018 and the related notes (collectively referred
to as the “consolidated financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for the year ended December 31, 2018,
in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included
performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Sadler, Gibb & Associates, LLC
We served as the Company’s auditor from 2017 to 2019.
Salt Lake City, UT
March 12, 2019
F-2
OPTIMIZERx CORPORATION
Consolidated Balance Sheets
ASSETS
Current Assets
Cash and cash equivalents
Accounts receivable, net
Prepaid expenses
Total Current Assets
Property and equipment, net
Other Assets
Goodwill
Technology assets, net
Patent rights, net
Right of use assets, net
Other intangible assets, net
Security deposits and other assets
Total Other Assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable – trade
Accrued expenses
Revenue share payable
Current portion of lease liabilities
Contingent purchase price payable
Deferred revenue
Total Current Liabilities
Non-current Liabilities
Lease liabilities, net of current portion
Contingent purchase price payable, net of current portion
Total Non-Current Liabilities
Total Liabilities
Commitments and contingencies (See Note 15)
Stockholders’ Equity
Preferred stock, $0.001 par value, 10,000,000 shares authorized, none issued and outstanding at December 31, 2019
and 2018,
Common stock, $0.001 par value, 166,666,667 shares authorized, 14,600,579 and 12,038,618 shares issued and
outstanding at December 31, 2019 and 2018, respectively
Additional paid-in-capital
Accumulated deficit
Total Stockholders’ Equity
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
The accompanying notes are an integral part of these financial statements.
F-3
December 31,
2019
December 31,
2018
$
18,852,680 $
7,418,025
871,043
27,141,748
176,014
8,914,034
6,457,841
360,146
15,732,021
149,330
$
$
14,740,031
6,238,453
2,550,587
559,863
5,151,102
80,727
29,320,763
56,638,525 $
3,678,513
104,820
2,766,944
-
2,387,303
235,647
9,173,227
25,054,578
492,995 $
1,800,635
1,618,438
115,431
1,500,000
580,014
6,107,513
448,753
5,220,000
5,668,753
11,776,266
-
411,010
1,300,882
1,908,616
-
-
610,625
4,231,133
-
2,365,000
2,365,000
6,596,133
-
-
-
14,601
78,272,268
(33,424,610)
44,862,259
56,638,525 $
12,039
48,725,211
(30,278,805)
18,458,445
25,054,578
$
OPTIMIZERx CORPORATION
Consolidated Statements of Operations
Revenue
Cost of revenues
Gross margin
Operating expenses
Stock-based compensation
Depreciation and amortization
Other general and administrative expenses
Total operating expenses
(Loss) income from operations
Other income (expense)
Interest income
Change in fair value of contingent consideration
Total other (expense) income
Loss (income) before provision for income taxes
Income tax benefit
Net (loss) income
Weighted average number of shares outstanding – basic
Weighted average number of shares outstanding – diluted
(Loss) income per share – basic
(Loss) income per share – diluted
For the
year ended
December 31,
2019
For the
year ended
December 31,
2018
$
24,598,274 $
9,158,699
15,439,575
21,206,363
8,999,666
12,206,697
2,260,298
1,282,787
15,590,054
19,133,139
(3,693,564)
288,028
(635,000)
(346,972)
(4,040,536)
897,960
(3,142,576) $
13,387,863
13,387,863
(0.23) $
(0.23) $
2,520,852
316,502
9,189,211
12,026,565
180,132
46,212
-
46,212
226,344
-
226,344
10,832,209
11,862,991
0.02
0.02
$
$
$
The accompanying notes are an integral part of these financial statements.
F-4
OPTIMIZERx CORPORATION
Consolidated Statement of Stockholders’ Equity for the Year
Ended December 31, 2018
Balance, December 31, 2017
Cumulative effect of change in accounting
principle related to revenue recognition
Stock Compensation Expense
Issuance of common stock:
for services
for cash
for options exercised
for warrants exercised
Shares issued for acquisition
Shares issued in payment of revenue share
Additional shares issued in connection with
reverse split due to rounding
Net income for the year
Balance, December 31, 2018
Common
Stock
Shares
Common
Stock
Amount
Stock
Warrants
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
Equity
9,772,694 $
9,773 $
1,286,424 $
35,287,464 $ (30,363,122) $
6,220,539
51,494
1,666,669
165,169
251,046
30,638
100,000
51
1,667
165
251
31
100
908
1
12,038,618 $
12,039 $
(142,027)
(1,286,424)
1,863,911
656,883
8,162,807
521,105
1,286,173
499,969
446,900
(1)
226,344
48,725,211 $ (30,278,805) $
- $
(142,027)
1,863,911
656,934
8,164,474
521,270
-
500,000
447,000
-
226,344
18,458,445
The accompanying notes are an integral part of these financial statements.
F-5
OPTIMIZERx CORPORATION
Consolidated Statement of Stockholders’ Equity for the Year
Ended December 31, 2019
Balance, January 1, 2019
Cumulative effect of change in accounting principle related to
lease accounting
Shares issued in 2019 for restricted stock awards granted and
expensed in 2018
Stock-based Compensation Expense
Options
Restricted Stock
Issuance of common stock:
for services
for cash
for options exercised
Shares issued for acquisition
Net loss for the year
Balance, December 31, 2019
Common
Stock
Shares
Common
Stock
Amount
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
Equity
12,038,618, $
12,039 $
48,725,211 $ (30,278,805) $
18,458,445
(3,229)
(3,229)
130,001
130
(130)
1,687,745
125,160
33,344
1,769,275
246,448
382,893
33
1,769
247
383
447,360
21,302,057
877,455
5,107,410
14,600,579 $
14,601 $
(3,142,576)
78,272,268 $ (33,424,610) $
-
1,687,745
125,160
447,393
21,303,826
877,702
5,107,793
(3,142,576)
44,862,259
The accompanying notes are an integral part of these financial statements.
F-6
OPTIMIZERx CORPORATION
Consolidated Statements of Cash Flows
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income for the period
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization
Noncash lease expense
Increase in bad debt reserve
Loss on disposal of assets
Stock-based compensation
Income tax benefit
Change in fair value of contingent consideration
Changes in:
Accounts receivable
Prepaid expenses and other assets
Accounts payable
Revenue share payable
Accrued expenses and other
Change in operating lease liabilities
Deferred revenue
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment
Acquisition of intangible assets
Cash paid in acquisition, net of cash acquired
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of offering costs
Proceeds from exercise of stock options
NET CASH PROVIDED BY FINANCING ACTIVITIES
NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS – BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS – END OF PERIOD
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest
Cash paid for income taxes
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Exercise of stock warrants
Issuance of shares for restricted stock awards in 2019 for awards expensed in 2018
Lease liabilities arising from right of use assets
Common stock issued for debt
Shares issued in connection with acquisitions
Non-cash effect of cumulative adjustments to accumulated deficit
For the
year ended
December 31,
2019
For the
year ended
December 31,
2018
$
(3,142,576) $
226,344
1,175,131
107,656
80,000
-
2,260,298
(897,960)
635,000
(628,830)
(343,838)
(46,249)
(290,178)
(432,075)
(106,564)
(30,611)
(1,660,796)
(87,717)
(1,500,000)
(8,994,369)
(10,582,086)
21,303,826
877,702
22,181,528
9,938,646
8,914,034
18,852,680 $
316,502
-
-
2,401
2,520,845
-
-
(2,789,252)
(319,754)
(83,319)
730,810
226,535
-
(38,557)
792,555
(34,362)
(56,651)
(5,595,820)
(5,686,833)
8,164,475
521,264
8,685,739
3,791,461
5,122,573
8,914,034
- $
- $
-
-
- $
130
207,559
- $
5,107,793 $
3,229 $
1,286,424
-
-
447,000
500,000
142,027
$
$
$
$
$
$
$
$
The accompanying notes are an integral part of these financial statements.
F-7
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS
OptimizeRx Corporation is a digital health company focused on connecting life sciences companies to their clients with critical content at the point-of-care.
It provides electronic clinical information via electronic health record companies (EHRs) to the medical profession, 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, 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.
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 valuation allowance for the deferred tax asset, the timing of revenue recognition
and related revenue share expenses, and inputs used in the calculation of stock based compensation. 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, RMDY Health, Inc., a Delaware corporation, CareSpeak Communications, Inc., a New Jersey corporation, Cyberdiet,
a controlled foreign corporation incorporated in Israel, 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, consisting of money market accounts, 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.
F-8
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
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, 2019 and 2018 and the valuation techniques used by the Company to determine those fair values.
Level 1
Level 2
2019
Level 3
Fair Value
Carrying Value
Liabilities
Contingent Purchase Price Payable (1)
$
- $
- $
6,720,000 $
6,720,000 $
6,720,000
Level 1
Level 2
2018
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. For 2018, 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%. For 2019, the hypothetical spot prices were simulated using a monte carlo simulation utilizing 2020 and
2021 revenue projections and revenue volatility of 40%. The risk-free rate of return and terms utilized were 1.40% and 1 -2 years, respectively, and
expected volatility was 40%.
F-9
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 2019
and 2018.
Balance December 31, 2017
Contingent consideration liability recorded as the result of the CareSpeak Communications acquisition (see note 3)
Balance December 31, 2018
Increase in fair value of CareSpeak Communications contingent consideration
Contingent consideration liability recorded as the result of the RMDY Health, Inc. acquisition (see note 3)
Balance December 31, 2019
Amount
-
2,365,000
2,365,000
635,000
3,720,000
6,720,000
$
$
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 $80,000 for the year ended December 31, 2019 and $0 for the year ended
December 31, 2018. The allowance for doubtful accounts was $80,000 and $0 as of December 31, 2019 and 2018, respectively.
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, fifteen years for tradenames, 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.
F-10
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
Recognition of revenue requires evidence of a contract, 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 contract with a customer, 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 messages, 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, as a flat fee occurring
over a period of time, or upon completion of the program, 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. Should a program be cancelled before completion, the balance of set
up revenue is recognized at the time of cancellation, as set up fees are nonrefundable. 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.
Cost of Revenues
The primary cost of revenue is revenue share expense. Based on the volume of transactions that are delivered through the channel partner network, the
Company provides a revenue share to compensate the partner, or others, 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.
F-11
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 2019 and 2018 the Company had $18,047,903 and $8,414,034, respectively, 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. Research and development expense was $1,604,195 and $0 in 2019 and 2018,
respectively.
Stock-based Compensation
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, forfeitures, 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.
F-12
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Expected dividend yield
Risk free interest rate
Expected option term
Turnover/forfeiture rate
Expected volatility
2019
2018
0%
1.51% - 2.37%
3.5 years
0%
64% - 67%
0%
1.96% - 2.84%
3.5 - 5 years
0%
64% - 66%
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) Earnings Per Common and Common Equivalent Share
The computation of basic (loss) earnings per common share is computed using the weighted average number of common shares outstanding during the
year. The computation of diluted (loss) 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 that were excluded from the
diluted loss per common share calculation in 2019 was 891,224 related to options, and 59,918 related to restricted stock, for a total of 951,142 because they
are anti-dilutive, as a result of a net loss for the year ended December 31, 2019.
The computation of weighted average shares outstanding and the basic and diluted earnings per common share for the years ended December 31, 2019 and
2018 consisted of the following:
Year ended December 31, 2019
Basic EPS
Diluted EPS
Year ended December 31, 2018:
Basic EPS
Effect of dilutive stock options and warrants
Diluted EPS
Net (Loss)
Shares
Per Share
Amount
$
(3,142,576)
13,387,863 $
$
(3,142,576)
13,387,863 $
(0.23)
(0.23)
Net Income
Shares
Per Share
Amount
$
226,344
10,832,209 $
1,030,782
0.02
$
226,344
11,862,991 $
0.02
F-13
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Under ASU No. 2016-02, the Company recognizes most leases on its balance
sheet as lease liabilities with corresponding right-of-use assets. ASU No. 2016-02 was effective for fiscal years beginning after December 15, 2018. The
Company adopted ASU No. 2016-02 on January 1, 2019. See Note 13 “Leases” for information regarding this standard and its adoption.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350). ASU No. 2017-04 was issued to simplify the
accounting for goodwill impairment. ASU No. 2017-04 removes the second step of the goodwill impairment test, which requires that a hypothetical
purchase price allocation be performed to determine the amount of impairment, if any. Under ASU No. 2017-04, a goodwill impairment charge will be
based on the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU No. 2017-04
became effective on a prospective basis for the Company on January 1, 2020. The adoption of this standard did not have a material effect on the Company’s
financial position, results of operations or cash flows.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which introduces the Current Expected Credit Losses
(“CECL”) accounting model. CECL requires earlier recognition of credit losses, while also providing additional transparency about credit risk. CECL
utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired.
The expected credit losses are adjusted each period for changes in expected lifetime credit losses. ASU No. 2016-13 is effective for the Company on
January 1, 2020. The adoption of this standard will not have a material effect on the Company’s financial position, results of operations or cash flows.
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 12, 2020,
with early adoption permitted. We do not expect the adoption of ASU 2019-12 to have a material impact on our consolidated financial statements.
NOTE 3 – ACQUISITIONS
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.
F-14
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
NOTE 3 – ACQUISITION (CONTINUED)
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 target patient engagement revenues were achieved in 2019 and are expected to be achieved in
2020. The calculated fair value of the contingent payment is $3,000,000 at December 31, 2019.
Purchase Price Allocation
The purchase price of the CareSpeak acquisition was allocated as follows:
Purchase Price
Cash paid
Common stock issued
Contingent payment
Total
Allocation
Current assets
Property and equipment
Intangibles
Goodwill, including assembled workforce in place
Patent
Tradename
Non-compete agreements
Customer relationships
Current liabilities assumed
Total
$
$
$
$
5,628,451
500,000
2,365,000
8,493,451
254,263
8,487
3,678,513
2,227,000
982,000
977,000
492,000
(125,812)
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.
On October 4, 2019, we acquired RMDY Health, Inc. (“RMDY”), a Delaware corporation and technology solutions company engaged in developing and
marketing digital health SAAS solutions across a range of healthcare and life science initiatives, used by pharmaceutical companies, payers, medtech
companies, and medical associations nationwide to improve medication adherence and care coordination. The total purchase price was $17,822,162.
Acquisition costs of approximately $799,623 were expensed as incurred.
The purchase price contains a contingent element that will be paid only if the Company achieves certain revenues related to the legacy RMDY business in
2020 and 2021. The total contingent payment may be up to $30.0 million, with a minimum payment of $1.0 million each year. The calculated fair value of
the contingent payment is $3,720,000 at December 31, 2019.
F-15
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
NOTE 3 – ACQUISITION (CONTINUED)
The purchase price of the RMDY acquisition was allocated as follows:
Purchase Price
Cash paid
Common stock issued
Contingent payment
Total
Allocation
Current assets
Accounts receivable
Prepaid Expense
Property and equipment
Intangibles
Goodwill, including assembled workforce in place
Web technology
Tradename
Non-compete agreements
Customer relationships
Current liabilities assumed
Accounts payable
Accrued expenses
Deferred tax liability
Total
$
$
$
$
8,994,369
5,107,793
3,720,000
17,822,162
411,354
12,139
19,173
11,061,518
5,125,000
2,604,000
116,000
431,000
(128,234)
(931,828)
(897,960)
17,822,162
As described in greater detail in Note 6, the amortizable intangible assets acquired have estimated useful lives ranging from 2 to 15 years. We determined
the estimated fair value of the identifiable intangible assets acquired primarily by using the income approach.
Included in accrued expenses is $800,000 withheld at closing as part of an indemnification provision against potential future claims.
We began consolidating the results of CareSpeak operations and cashflows into our consolidated financial statements after October 17, 2018, the date of
acquisition and the results of RMDY operations and cashflows after October 3, 2019, the date of that acquisition. The unaudited Pro forma results of
operations as if both acquisitions had occurred January 1, 2018 are presented in the following table:
Revenues
Net (Loss) Income
(Loss) Earnings per common share:
Basic
Diluted
2019
As Reported
$
24,598,278 $
(3,142,576)
2018
Pro Forma
As Reported
Pro Forma
26,118,278 $
(3,869,577)
21,206,363 $
226,344
24,520,995
(564,340)
$
$
(0.23) $
(0.23) $
(0.29) $
(0.29) $
0.02 $
0.02 $
(0.05)
(0.05)
F-16
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
NOTE 4 – PREPAID EXPENSES
Prepaid expenses consisted of the following as of December 31, 2019 and 2018:
Insurance
Prepaid revenue share payments
EHR access fees
Other
Total prepaid expenses
NOTE 5 – PROPERTY AND EQUIPMENT
2019
2018
69,250 $
201,114
313,121
287,558
871,043 $
43,284
-
302,527
14,335
360,146
$
$
The Company owned equipment recorded at cost, which consisted of the following as of December 31, 2019 and 2018:
Computer equipment
Furniture and fixtures
Subtotal
Less accumulated depreciation
Property and equipment, net
2019
2018
137,763 $
187,167
324,930
148,916
176,014 $
94,384
159,648
254,032
104,702
149,330
$
$
Depreciation expense was $80,206 and $58,423 for the years ended December 31, 2019 and 2018, respectively.
NOTE 6 – INTANBIGLE ASSETS
Goodwill
The goodwill is related to the acquisition of RMDY Health, Inc. in 2019 and CareSpeak Communications in 2018 and is primarily related to expected
improvements and technology performance and functionality, 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.
F-17
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
NOTE 6 – INTANBIGLE ASSETS (CONTINUED)
Intangible Assets
Intangible assets included on the balance sheet consist of the following:
Patent rights
Technology Assets
Other intangible assets
Tradename
Non-compete agreements
Customer relationships
Total other
Total Intangibles
Patent rights
Technology assets
Other intangible assets
Tradename
Non-compete agreements
Customer relationships
Total other
Total Intangibles
Gross
Carrying
Amount
December 31, 2019
Accumulated
Amortization
3,329,457 $
8,140,013 $
778,870 $
1,901,560 $
Net
2,550,587
6,238,453
3,586,000 $
1,093,000
923,000
5,602,000
17,071,470 $
59,767 $
309,635
81,496
450,898
3,131,328 $
3,526,233
783,365
841,504
5,151,102
13,940,142
$
$
$
$
Weighted
Average Life
Remaining
11.7
8.0
14.5
2.7
10.5
Gross
Carrying
Amount
December 31, 2018
Accumulated
Amortization
$
$
3,329,457 $
1,515,013 $
562,513 $
1,473,890 $
982,000
977,000
492,000
2,451,000
7,295,470 $
-
50,885
12,812
63,697
2,036,403 $
$
Weighted
Average Life
Remaining
12.7
1.1
Indefinite
3.8
7.8
Net
2,766,944
104,820
982,000
926,115
479,188
2,387,303
5,259,067
Intangibles are being amortized on a straight-line basis over the following estimated useful lives.
Patents
Tradenames
Non-compete agreements
Customer relationships
Technology assets
F-18
15 – 17 years
15 years
2 – 4 years
8 – 15 years
3 – 10 years
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
NOTE 6 – INTANBIGLE ASSETS (CONTINUED)
The Company recorded amortization expense of $1,094,924 and $258,079 in the years ended December 31, 2019 and 2018, respectively. Expected future
amortization expenses of the intangibles assets as of December 31, 2019 is as follows:
Year ended December 31,
2020
2021
2022
2023
2024
Thereafter
Total
$
$
1,811,400
1,794,795
1,391,965
990,267
990,267
6,961,448
13,940,142
In addition to the technology assets acquired in connection with the RMDY acquisition, the company also acquired software with a cost of $1.5 million in
2019.
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
$580,014 and $610,625 as of December 31, 2019 and 2018, 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, 2019.
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 was no longer a related party, however the transactions
between WPP and the Company while they were a related party 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.
The following table sets forth the activity between the Company and WPP for the year ended December 31 2018:
Total billings to WPP Agencies
Revenue recognized from WPP Agencies
Accounts receivable
$
$
$
6,217,735
6,527,051
2,051,532
F-19
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
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 target patient engagement revenues were achieved in 2019 and
are expected to be achieved in 2020. The calculated fair value of the contingent payment was $2,365,000 at December 31, 2018 and $3,000,000 at
December 31, 2019.
Our purchase of RMDY Health, Inc. also contains a contingent element that will be paid only if the Company achieves certain revenues in 2020 and 2021
related to the RMDY business. The total contingent payment may be up to $30.0 million. The minimum payment is $1.0 million in each of the two years.
The calculated fair value of the contingent payment was $3,720,000 at December 31, 2019. We determined the fair value of the Contingent Purchase Price
Payable at December 31, 2019 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 1.4%, a term of 2 years, and volatility of 40%. Changes in the inputs could result in a different fair value
measurement.
The total fair value of contingent purchase price payable at December 31, 2019 is as follows.
CareSpeak Communications, Inc.
RMDY Health, Inc.
Total
NOTE 10 – STOCKHOLDERS’ EQUITY
Current
Long-Term
$
$
1,500,000 $
-
1,500,000 $
1,500,000 $
3,720,000
5,220,000 $
Total
3,000,000
3,720,000
6,720,000
Preferred Stock
The Company has 10,000,000 shares of preferred stock, $.001 par value per share, authorized as of December 31, 2019. No shares were issued or
outstanding in either 2018 or 2019.
Common Stock
The Company had 166,666,667 shares of common stock, $.001 par value per share, authorized as of December 31, 2019. There were 14,600,579 and
12,038,618 shares of common stock issued and outstanding at December 31, 2019 and 2018, respectively.
F-20
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
NOTE 10 – STOCKHOLDERS’ EQUITY (CONTINUED)
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 connection with this reverse split, our authorized shares were reduced from 500,000,000 to 166,666,667.
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.
During 2019, in an underwritten public 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 the Company of $21,303,826.
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 33,344 and 36,494 shares were granted and
issued in the years ended December 31, 2019 and 2018, respectively, in connection with this compensation plan. These shares were valued at $447,393 and
$428,884, respectively. The Company also awarded 130,001 restricted stock awards, valued at $546,007, to executive officers in 2018. 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 were issued in 2019.
During 2019, we issued 382,893 shares of common stock, valued at $5,107,793, to the former shareholders of RMDY Health, Inc. in connection with the
acquisition of RMDY in 2019. 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.
We issued 246,448 shares of common stock and received proceeds of $877,702 in 2019 in connection with the exercise of options. We also issued 165,169
shares of common stock and received proceeds of $521,270 in 2018 in connection with the exercise of options.
During 2018, we issued 15,000 shares of our common stock, valued at $228,050, for investor relations services.
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 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. We adopted the new lease accounting standard ASC 842 as of January 1, 2019, which resulted in a charge of $3,229 to
Retained Earnings on that date.
F-21
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
NOTE 11 – STOCK COMPENSATION
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 shares were initially reserved for issuance under the Plan. The Plan was amended
several times since then to eventually increase the authorized shares to 2,500,000 as of December 31, 2019. A total of 1,624,221 shares of common stock
underlying options were outstanding at December 31, 2019. The Company had 236,614 remaining shares available to grant under the Plan at December 31,
2019.
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.
The compensation cost that has been charged against income related to options for the years ended December 31, 2019 and 2018, was $1,687,745 and
$1,317,904, 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, 2019 and 2018:
Outstanding, January 1, 2018
Granted – 2018
Exercised – 2018
Expired – 2018
Outstanding, December 31, 2018
Granted – 2019
Exercised – 2019
Expired – 2019
Outstanding, December 31, 2019
Exercisable, December 31, 2019
Number of
Options
Weighted
average
exercise price
Weighted
average
remaining
contractual life
(years)
Aggregate
intrinsic
value $
1,368,772 $
401,099 $
(165,169) $
(50,002) $
1,554,700 $
410,134 $
(251,063) $
(89,550) $
1,624,221 $
1,143,637 $
3.12
9.27
3.16
5.48
4.63
12.28
3.73
12.55
6.27
4.39
3.0
2.6 $
1.9 $
7,925,643
7,197,053
Of the options outstanding at December 31, 2019, 1,143,637 were exercisable with a weighted average contractual life of 1.9 years.
F-22
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
NOTE 11 – STOCK COMPENSATION (CONTINUED)
The table below shows the expiration date and exercise price of the options outstanding at December 31, 2019.
Number of Options
Exercise Price
175,799 $
41,668 $
210,520 $
470,000 $
105,836 $
100,006 $
8,336 $
8,336 $
8,000 $
139,000 $
8,336 $
11,800 $
6,000 $
10,000 $
15,000 $
14,084 $
30,500 $
16,000 $
40,000 $
29,000 $
16,000 $
12,000 $
125,000 $
16,000 $
7,000 $
Total
1,624,221 $
2.46
3.15
3.15
3.21
3.45
4.20
4.62
4.71
9.76
10.18
10.40
12.49
12.51
12.70
12.73
12.77
13.06
13.31
13.34
14.48
15.10
15.32
15.40
15.51
16.24
6.27
Expiration Date
03/31/22
06/24/20
07/27/22
02/22/21
07/28/21
02/01/23
03/31/23
12/31/22
12/02/24
11/24/24
06/30/23
08/13/23
08/20/23
08/22/23
09/04/23
04/08/24
02/27/24
06/10/24
10/04/24
09/30/24
05/23/24
0715/24
10/16/23
05/30/24
10/22/23
There is $1,612,382 of expense remaining to be recognized over a period of approximately 1.8 years related to options outstanding at December 31, 2019.
In 2019, the Company granted restricted stock awards of 50,000 shares, valued at $653,000, which would vest if the Company achieved certain 2019
revenue targets. The Company did not achieve those targets, so the awards expired unvested on December 31, 2019. The Company also granted a restricted
stock award of 90,000 shares, valued at $938,700, and vesting over a period of 5 years. The Company recognized $125,160 expense related to this award in
2019 and $813,540 remains to be recognized at December 31, 2019 over a period of 4.3 years.
The Company also awarded 130,001 restricted stock awards, valued at $546,007, in 2018. 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 were issued in 2019.
F-23
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
NOTE 12 –WARRANTS
The Company has issued warrants to purchase common stock in the past, 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 or 2019.
The Company had the following warrant activity during the year ended December 31, 2018:
Balance, December 31, 2017
Exercised
Balance, December 31, 2018
NOTE 13 – LEASES
Number of
Shares
Underlying
Warrants
Weighted
average
exercise price
3.33
3.33
-
348,194 $
(348,194) $
-
In February 2016, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance on leases. The accounting standard, effective
January 1, 2019, requires virtually all leases to be recognized on the balance sheet. Effective January 1, 2019, we adopted the standard using the modified
retrospective method, under which we elected the package of practical expedients and transition provisions allowing us to bring our existing operating
leases onto the consolidated balance sheet without adjusting comparative periods, but recognizing a cumulative-effect adjustment to the opening balance of
accumulated deficit on January 1, 2019. Under the guidance, we have also elected not to separate lease and non-lease components in recognition of the
lease-related assets and liabilities, as well as the related lease expense.
We have operating leases with terms greater than 12 months for office space in three multitenant facilities, which are recorded as assets and liabilities. The
lease on our headquarters space in Rochester, Michigan expires November 30, 2022, with a three-year renewal option through 2025, with monthly rent
payable at rates ranging from $6,384 to $6,688. We have assumed renewal of the lease. We also have a lease on office space in Cranbury, New Jersey,
expiring in 2022 with monthly payments ranging from $3,008 to $3,158, as well as a lease of approximately $1,883 per month in Zagreb, Croatia expiring
in 2022.
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. Operating lease expense is recognized on a straight-line basis over the
lease term, while variable lease payments are expensed as incurred.
Upon adoption of the standard on January 1, 2019, we recorded approximately $462,000 of right of use assets and $465,000 of lease-related liabilities, with
the difference recorded in accumulated deficit as the cumulative effect of change in accounting principle at that date.
F-24
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
NOTE 13 – LEASES (CONTINUED)
For the year ended December 31, 2019, the Company’s lease cost consisted of the following components, each of which is included in operating expenses
within the Company’s consolidated statements of operations:
Operating lease cost
Short-term lease cost (1)
Total lease cost
(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 December 31, 2019:
For the year ending December 31,
2020
2021
2022
2023
2024
Thereafter
Total
Less: present value discount
Total lease liabilities
Year Ended
December 31,
2019
$
$
132,020
84,935
216,955
$
$
138,019
140,367
102,367
99,209
80,375
70,224
630,561
66,377
564,184
The weighted average remaining lease term for operating leases is 5.1 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 $106,564. For the year ended December 31, 2019,
payments on lease obligations were $132,867 and amortization on the right of use assets was $107,656.
NOTE 14 – MAJOR CUSTOMERS AND VENDORS
The Company had the following customers that accounted for 10% or greater of revenue in either 2019 or 2018. No other customers accounted for more
than 10% of revenue in either year presented.
Customer A
Customer B
Customer C
Customer D
Customer E
2019
2018
$
%
$
%
3,883,589
2,801,748
2,533,766
1,349,214
-
15.8
11.4
10.3
5.5
0
1,678,669
930,682
2,122,657
2,547,113
2,280,873
7.9
4.4
10.0
12.0
10.8
F-25
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
NOTE 14 – MAJOR CUSTOMERS AND VENDORS (CONTINUED)
Our accounts receivable includes 3 customers that individually make up more than 10% of our accounts receivable at December 31, 2019 in the
percentages of 17.8%, 15.4% and 13.3%.
The Company had four key partners through which 10% or greater of its revenue was generated in either 2019 or 2018 as set forth below. The amounts in
the table below reflect the amount of revenue generated through those customers.
Partner A
Partner B
Partner C
Partner D
NOTE 15 – INCOME TAXES
2019
2018
$
%
$
%
1,315,706
9,210,347
4,051,217
1,007,573
5.3
37.4
16.5
4.1
6,841,386
5,350,393
2,584,103
2,159,356
32.3
25.2
12.2
10.2
As of December 31, 2019, the Company had net operating loss carry-forwards for federal income tax purposes of approximately $18.3 million, consisting
of pre-2018 losses in the amount of approximately $14.3 million that expire from 2020 through 2037, and post-2017 losses in the amount of approximately
$4 million that never expire. These net operating losses 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.
The provision for Federal income tax consists of the following for the years ended December 31, 2019 and 2018:
Federal income tax benefit (expense) attributable to:
Current operations
Acquisition costs
Change in fair value of contingent consideration
Other permanent items
Deferred Adjustment
Valuation allowance
Net provision for federal income tax
Current tax benefit (expense) - Federal
Deferred tax benefit (expense) - Federal
Adjustment of valuation allowance from business combination
Total tax benefit (expense) on income
F-26
2019
2018
848,000 $
(143,000)
(133,000)
29,000
(913,000)
1,209,960
897,960 $
(48,000)
-
-
(36,000)
-
84,000
-
2019
2018
- $
-
897,960
897,960 $
-
-
-
-
$
$
$
$
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
NOTE 15 – 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, 2019
and 2018:
Deferred tax asset attributable to:
Net operating loss carryover
Stock compensation
Intangible Assets
Other
Deferred tax asset
Deferred tax liabilities attributable to:
Fixed assets
Intangibles
Other
Valuation allowance
Deferred tax liability
Net deferred tax asset
2019
2018
3,839,000 $
320,000
-
36,000
4,195,000 $
2,290,000
535,000
124,000
3,000
2,952,000
(13,000) $
(2,438,000)
(16,000)
(1,728,000)
(4,195,000) $
(5,000)
-
(9,000)
(2,938,000)
(2,952,000)
- $
-
$
$
$
$
$
The ultimate realization of deferred tax assets is dependent upon the Company’s ability to generate sufficient taxable income during the periods in which
the net operating losses expire and the temporary differences become deductible. The Company has determined that there is significant uncertainty that the
results of future operations and the reversals of existing taxable temporary differences will generate sufficient taxable income to realize the deferred tax
assets; therefore, a valuation allowance has been recorded. In making this determination, the Company considered historical levels of income as well as
projections for future periods.
The tax years 2016 to 2019 remain open for potential audit by the Internal Revenue Service. There are no uncertain tax positions as of December 31, 2018
or December 31, 2019, and none are expected in the next 12 months. The Company’s foreign subsidiaries are cost centers that are reimbursed for expenses,
so generate no income or loss. Pretax book income (loss) is all from domestic operations. Up to four years of returns remain open for potential audit in
foreign jurisdictions, however any audits for periods prior to ownership by the Company are the responsibility of the previous owners.
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 16 – 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%. From
time to time the Company enters into arrangements with a partner to acquire minimum amounts of messaging capabilities. As of December 31, 2019, the
Company had had commitments for future minimum payments of $13.5 million that will be reflected in cost of revenues during the years from 2020
through 2022. Minimum payments are due in 2020, 2021, and 2022, in the amounts of $6.5 million, $5.5 million, and $2.0 million, respectively.
NOTE 17 – 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 $126,557 and $172,107 recorded in 2019 and 2018, respectively, for
company contributions to the plan.
F-27
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
NOTE 18 – SUBSEQUENT EVENTS
In March 2020, the Company’s Board of Directors amended the 2013 Equity Compensation Plan to increase the number of shares authorized under the plan
to 3.0 million shares. At the same time, the Company granted 84,746 shares of restricted common stock and options to purchase 233,049 shares of common
stock to officers that vest over the balance of 2020. The Board also granted options to purchase 33,000 shares of common stock to a non-officer, that were
fully vested at the time of grant and 38,000 time-based options to new employees.
In 2020, the company issued 35,032 shares and received proceeds of $112,151 in connection with the exercise of options.
F-28
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) are designed
to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and
reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and to ensure that information required to be
disclosed is accumulated and communicated to management, including our principal executive and financial officers, to allow timely decisions regarding
disclosure. Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive
officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act were not effective as of December 31, 2019 due to the material weaknesses described below.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f)
under the Exchange Act). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that:
(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and the dispositions of our assets; (2) provide
reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles and that our receipts and expenditures are being made only in accordance with appropriate authorizations; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of
effectiveness for future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the criteria set forth in
Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). A
material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility
that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Based on this assessment,
management identified the following material weaknesses which have caused management to conclude that our disclosure controls and procedures were
not effective: (i) inadequate information technology general controls (ITGCs) in the areas of user access security, change management, IT operations and
third-party management over its key financial information technology (IT) systems; and (ii) inadequate controls to ensure that data received from third
parties is complete and accurate. Those weaknesses have not been completely remediated as of December 31, 2019.
The material weaknesses did not result in any identified misstatements to the financial statements, and there were no changes to previously released
financial results.
The Company’s independent registered public accounting firm, Marcum LLP, has issued an adverse opinion on the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2019, which appears in Item 9a of this Form 10-K.
22
Management’s Remediation Plan
As previously disclosed in Part II, item 9A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, we identified two
material weaknesses in internal control over financial reporting. The first material weakness related to inadequate segregation of duties with the finance
department due to limited personnel. We had only two financial department employees for the majority of 2018. We hired a third employee in late 2018,
and two additional employees in 2019, and reallocated duties to provide adequate segregation of duties. This weakness was remediated in 2019.
The second material weakness related to inadequate information technology reporting systems. and ineffective information technology general controls
(ITGCs) in the areas of user access and change-management. To address the weakness related to inadequate information reporting systems, we installed a
new accounting software system with more stringent build in controls in 2019. In addition, we implemented additional controls in the area of user access
and change management late in 2019. However, these additional controls were implemented too late in the year to be considered remediated as of
December 31, 2019 and the documentation related to the operation of these controls was inadequate to demonstrate the controls were effective. We are
currently working on improving the documentation of these controls and expect this to be completed in the second quarter of 2020.
To address the inadequate controls over information received from third parties, the Company intends to review the reporting systems used by the third
parties in cases where the information received is material to the financial statements, and to document such review. The Company has historically
performed extensive analytical procedures on the data received to ensure that it is complete and accurate and intends to continue those reviews as well.
Changes in Internal Control Over Financial Reporting
Other than the changes to internal controls described above, there has been no material changes in our internal control over financial reporting during the
most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
23
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Shareholders and Board of Directors of
OptimizeRx Corporation
Adverse Opinion on Internal Control over Financial Reporting
We have audited OptimizeRx Corporation and Subsidiaries’ (the "Company") internal control over financial reporting as of December 31, 2019, based on
criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, because of the effect of the material weaknesses described in the following paragraph on the achievement of the objectives of the control
criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2019, based on criteria established in
Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
A material weakness is a control deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. The
following material weaknesses have been identified and included in “Management's Report on Internal Control Over Financial Reporting”:
1) The Company did not properly design or implement information technology general controls (ITGCs) in the areas of user access security, change
management, IT operations and third-party management over its key financial information technology (IT) systems, which are relied upon by
management in recording amounts pertaining to revenue and accounts receivable and revenue share expense and revenue share expense payable.
In addition, certain IT control processes lacked the sufficient documentation required to demonstrate that such processes were operating
effectively.
2) The Company did not properly design or implement controls to ensure that data received from third parties is complete and accurate. Such data is
relied on by the Company in recording amounts pertaining to revenue and accounts receivable and revenue share expense and revenue share
expense payable.
These material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the fiscal 2019 consolidated
financial statements, and this report does not affect our report dated March 26, 2020 on those financial statements.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated
balance sheet as of December 31, 2019 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended
of the Company and our report dated March 26, 2020 expressed an unqualified opinion on those financial statements.
24
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying "Management Report on Internal Control Over Financial Reporting." Our
responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial
statements.
Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that degree of compliance
with the policies or procedures may deteriorate.
/s/ Marcum LLP
Marcum LLP
New York, NY
March 26, 2020
Item 9B. Other Information
None
25
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The following information sets forth the names, ages, and positions of our current directors and executive officers.
Name
William J. Febbo
Stephen L. Silvestro
Miriam J. Paramore
Douglas P. Baker
Gus D. Halas
Patrick Spangler
Lynn Vos
James Lang
Age
51
42
57
63
69
64
64
55
Positions and Offices Held
Chief Executive Officer and Director
Chief Commercial Officer
President
Chief Financial Officer
Chairperson and Director
Director
Director
Director
Set forth below is a brief description of the background and business experience of each of our current executive officers and directors.
William J. Febbo
Mr. Febbo joined our company as Chief Executive Officer and Director on February 22, 2016. Mr. Febbo brings more than 20 years of experience in
building and managing health services and financial businesses. Before joining our company. From 2007 to 2015, he worked with Merriman Holdings, Inc.,
an investment banking firm. There he served as Chief Operating Officer and assisted with capital raises in the tech, biotech, cleantech, consumer and
resources industries. Prior to Merriman, Mr Febbo was CEO and co-founder of MedPanel, a provider of market intelligence and communications for the
pharmaceutical, biomedical, and medical device industries, which was eventually acquired by MCF Corporation.
Mr. Febbo holds a Bachelor of Arts in International Studies from Dickinson College, in Pennsylvania. Febbo serves on the board of The United Nations of
Greater Boston, a non-profit focused on building global citizens within inner-city schools in Massachusetts, is faculty on the MIT linq program and
currently serves as a board member of Modular Medical (MODD).
Aside from that provided above, Mr. Febbo does not hold and has not held over the past five years any other directorships in any company with a class of
securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company
registered as an investment company under the Investment Company Act of 1940.
Mr. Febbo is qualified to serve on our Board of Directors because of his wealth of experience in building and managing health services and financial
businesses.
Stephen L. Silvestro
Mr. Silvestro joined the company as Chief Commercial Officer on April 29, 2019. Mr. Silvestro was with CCH® Tagetik as its Vice President and General
Manager from January 2018 until he joined us. From April 2017 to January 2018, Mr. Silvestro was with Prognos as its Chief Commercial Officer and,
before that, from September 2007 to April 2017, he was with Decision Resources Group in various capacitates with him last serving as Executive Vice
President, Head of Global Sales.
26
Aside from that provided above, Mr. Silvestro does not hold and has not held over the past five years any other directorships in any company with a class
of securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company
registered as an investment company under the Investment Company Act of 1940.
Miriam J. Paramore
Ms. Paramore joined the company as President in August 2017. She has vast experience with healthcare companies, running businesses ranging from start-
ups to large divisions of public and private companies. Her early career was spent at Ernst & Young, as a Healthcare Management Consultant. She has
since occupied executive level and director positions at several healthcare companies. Most recently, from April 2016 to April 2017, Ms. Paramore served
as COO and CTO of Lucro, Inc., a privately held company located in| Nashville, Tennessee focused on the healthcare sector. From March 2015 to February
2016, she served as Executive Vice President of PDX a privately held company in Fort Worth, Texas that provides health information technology for
pharmacies. From May 2008 to December 2013, she served as Executive Vice President of Emdeon, Inc. in Nashville, Tennessee, a health information
technology and tech-enabled services company.
Aside from that provided above, Ms. Paramore does not hold and has not held over the past five years any other directorships in any company with a class
of securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company
registered as an investment company under the Investment Company Act of 1940.
Gus D. Halas
Mr. Halas joined our company as a Director on August 7, 2014. Mr. Halas has served as CEO of several companies. He was Chief Executive Officer and
President of the Central Operating Companies at Central Garden & Pet Company from April 2011 through May 2013 and currently serves as a consultant
to that Company. Mr. Halas was President and Chief Executive Officer of T-3 Energy Services, Inc. from May 2003 to March 2009 and also served as
Chairman of the Board of Directors from March 2004 to March 2009. From August 2001 to April 2003, Mr. Halas served as President and Chief Executive
Officer of Clore Automotive, Inc. He also serves as a director for Triangle Petroleum Corp., Hooper Holmes, Inc., School Specialty, Inc., and Madelena
Energy.
Aside from that provided above, Mr. Halas does not hold and has not held over the past five years any other directorships in any company with a class of
securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company
registered as an investment company under the Investment Company Act of 1940.
Mr. Halas is qualified to serve on our Board of Directors because of his experience and expertise as an executive and a director with companies
implementing “turnaround” strategies.
27
Lynn Vos
Ms. Vos has been the President and CEO of the Muscular Distrophy Association since October 2017. Prior to that, Ms. Vos had been chief executive officer
of ghg | greyhealth group since 1994 and is a champion of using digital capabilities to improve the public health. Ms. Vos also serves on the board of nTelos
Wireless, a NASDAQ listed company, the Jed Foundation, a leading nonprofit dedicated to protecting the emotional health of college students, and was a
founding board member of MMRF, a pioneering cancer research foundation.
Aside from that provided above, Ms. Vos does not hold and has not held over the past five years any other directorships in any company with a class of
securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company
registered as an investment company under the Investment Company Act of 1940.
Ms. Vos is qualified to serve on our Board of Directors because of her extensive executive skills in digital marketing and communications in the healthcare
industry.
James Lang
Mr. Lang joined our Board January 12, 2017. He brings us more than 25 years of experience in healthcare data, analytic, and technology enabled business
services. Mr. Lang is the CEO of Eversana, a leading independent provider of global commercial services to the life science industry, and also presently
serves as an executive advisor to Water Street, a strategic private equity firm focused exclusively on building market-leading companies in healthcare. In
that capacity, he currently serves as Board Chairman to The Access Group, Health Strategies Group, Alliance Life Sciences, and Dohmen Life
Science Services. He is also a director of BioVie, a development-stage company pioneering an innovative therapeutic that targets complications due to
liver cirrhosis.
Mr. Lang previously served as CEO of Decision Resources Group, a leading healthcare research and consulting company providing high-value healthcare
industry analysis and insights, where he helped transform the company into an industry leader. Earlier, he was president of Strategic Decisions Group, a
premier global strategy consultancy, and he expanded the life sciences practice and later sold it to IMS Health. He is an active private investor and advisor
with healthcare companies, including Boston Heart Diagnostics (acquired by Eurofins) and AlphalmpactRx (acquired by IMS Health).
Aside from that provided above, Mr. Lang does not hold and has not held over the past five years any other directorships in any company with a class of
securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company
registered as an investment company under the Investment Company Act of 1940.
Mr. Lang is qualified to serve on our Board of Directors because of his extensive executive skills and background in the healthcare industry.
Patrick Spangler
Mr. Spangler presently serves as CFO of VigiLanz, a digital healthcare intelligence firm, and as a member of the board of directors of Lifespace
Communities. He has more than 30 years of experience in the health care industry, executing domestic and international growth and exit strategies. He has
helped lead high-performance, emerging growth firms, as well as large publicly-traded companies.
Earlier, Mr. Spangler served as executive vice president and CFO of Healthland, an EHR company serving the critical access hospital market. He has also
served as CFO at the point-of-care medical applications provider, Epocrates, that he helped bring public in 2011, and which was eventually acquired by
Athenahealth. Prior to Epocrates, he was CFO of the ev3, a vascular therapy that went public in 2005 and then acquired by Covidien, as well as CFO of the
medical device manufacturer, Empi, which was acquired by Encore Medical.
Aside from that provided above, Mr. Spangler does not hold and has not held over the past five years any other directorships in any company with a class
of securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company
registered as an investment company under the Investment Company Act of 1940.
Mr. Spangler is qualified to serve on our Board of Directors because of his extensive executive skills and background in the healthcare industry and his
finance experience.
Douglas P. Baker
Mr. Baker has served as our CFO since May 19, 2014. Mr. Baker is a Certified Public Account with a Master’s Degree in Business Administration. He has
extensive business experience including 9 years in public accounting with Plante Moran, four years as CFO of a privately held printing company, 5 years in
a variety of divisional financial roles at MascoTech, Inc., a Fortune 500 automotive supplier, and from 1996 to 2014 as Chief Financial Officer of Applied
Nanotech Holdings, Inc., (“APNT”) a publicly held nanotechnology research and licensing company. Mr. Baker was also a member of the Board of
Directors of APNT from 2006 through 2014. He was a member of the Board Directors of Total Health Care, Inc., a Detroit based Health Maintenance
Organization from 1987 through January 2020, including his latest role as Chairman of the Board, until it was acquired by Priority Health, a Michigan
based HMO in January 2020. He became a member of the Priority Health Board in January 2020.
Aside from that provided above, Mr. Baker does not hold and has not held over the past five years any other directorships in any company with a class of
securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company
registered as an investment company under the Investment Company Act of 1940.
28
Directors
Our bylaws authorize no less than three (3) and no more than Seven (7) Directors unless changed by the Board of Directors. We currently have five (5)
Directors.
Term of Office
Our Directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in
accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board, subject to their respective
employment agreements.
Significant Employees
We have no significant employees other than our officers and directors.
Family Relationships
There are no family relationships between or among the directors, executive officers or persons nominated or chosen by us to become directors or executive
officers.
Involvement in Certain Legal Proceedings
During the past 10 years, other than as set forth below, none of our current directors, nominees for directors or current executive officers has been involved
in any legal proceeding identified in Item 401(f) of Regulation S-K, including:
1. Any petition under the Federal bankruptcy laws or any state insolvency law filed by or against, or a receiver, fiscal agent or similar officer was appointed
by a court for the business or property of such person, or any partnership in which he or she was a general partner at or within two years before the time of
such filing, or any corporation or business association of which he or she was an executive officer at or within two years before the time of such filing;
2. Any conviction in a criminal proceeding or being named a subject of a pending criminal proceeding (excluding traffic violations and other minor
offenses);
3. Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining him or her from, or otherwise limiting, the following activities:
i. Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction
merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment
adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan
association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
ii. Engaging in any type of business practice; or
iii. Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State
securities laws or Federal commodities laws;
29
4. Being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or
otherwise limiting for more than 60 days the right of such person to engage in any type of business regulated by the Commodity Futures Trading
Commission, securities, investment, insurance or banking activities, or to be associated with persons engaged in any such activity;
5. Being found by a court of competent jurisdiction in a civil action or by the SEC to have violated any Federal or State securities law, and the judgment in
such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;
6. Being found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal
commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed,
suspended or vacated;
7. Being subject to, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended
or vacated, relating to an alleged violation of:
i. Any Federal or State securities or commodities law or regulation; or
ii. Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order
of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
iii. Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
8. Being subject to, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in
Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7
U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated
with a member.
On January 29, 2018, FINRA accepted a Letter of Acceptance, Waiver and Consent (No. 2015044865501) (the “Consent”) submitted by William Febbo.
From August 2012 to October 2015, Mr. Febbo was the Financial and Operations Principal (FinOp) for a registered broker-dealer, Merriman Capital, Inc.
(Merriman). During certain months while Mr. Febbo was FINOP, FINRA found that certain of Merriman’s net capital filings with FINRA were inaccurate
because of the method by which Merriman calculated net capital and that, when corrected, it was retroactively determined that Merriman had operated
below its minimum net capital requirements. Febbo, as FinOp, signed certain of these reports and was thus held responsible. Based on the Consent, in
settlement, Mr. Febbo, who was then no longer registered with any broker-dealer, accepted a fine of $5,000 and a 10-business day suspension from acting
as FinOp for any FINRA member.
Director Independence
The Board of Directors reviews the independence of our directors on the basis of standards adopted by the Nasdaq Stock Market (“Nasdaq”). As a part of
this review, the Board of Directors considers transactions and relationships between our company, on the one hand, and each director, members of the
director’s immediate family, and other entities with which the director is affiliated, on the other hand. The purpose of such a review is to determine which,
if any, of such transactions or relationships were inconsistent with a determination that the director is independent under Nasdaq rules. As a result of this
review, the Board of Directors has determined that each of our directors other than Mr. Febbo is an “independent director” within the meaning of applicable
Nasdaq listing standards.
30
Committees of the Board
The Board of Directors has three standing committees to facilitate and assist the Board of Directors in the execution of its responsibilities: (1) Nominating
and Governance Committee; (2) Audit Committee and (3) Compensation Committee. Each committee acts pursuant to a written charter adopted by the
Board of Directors. Each committee’s charter is available on our corporate website at http://www.optimizerx.com. (The information contained in our
website is not incorporated into this Annual Report on Form 10-K.) All of the committees are comprised solely of non-employee, independent directors as
defined by Nasdaq market listing standards.
Nominating and Governance Committee
The Board of Directors has established a Nominating and Governance Committee. In 2019, the committee members were Directors Vos (Chair), Lang, and
Halas. The Nominating and Corporate Governance Committee held 4 meetings during the fiscal year ended December 31, 2019. The Nominating and
Corporate Governance Committee’s responsibilities, which are discussed in detail in its charter, include the responsibility to:
● Develop qualifications and criteria for selecting and evaluating directors and nominees;
● Consider and propose director nominees;
● Make recommendations to the Board regarding Board compensation;
● Make recommendations to the Board regarding Board committee memberships;
● Develop and recommend to the Board corporate governance guidelines;
● Facilitate an annual assessment of the performance of the Board and each of its standing committees;
● Consider the independence of each director and nominee for director; and
● Perform other functions or duties deemed appropriate by the Board.
Compensation Committee
The Board of Directors has established a Compensation Committee. The Compensation Committee held 4 meetings during the fiscal year ended December
31, 2019, and held other informal discussions as needed. In 2019, the Committee was composed of Directors Halas, Spangler, and Lang, and is chaired by
Director Lang. The Compensation Committee’s responsibilities, which are discussed in detail in its charter, include the responsibility to:
● In consultation with our senior management, establish our general compensation philosophy and oversee the development and implementation of
our compensation programs;
● Recommend the base salary, incentive compensation and any other compensation for our Chief Executive Officer to the Board of Directors and
review and approve the Chief Executive Officer’s recommendations for the compensation of all other officers of our company and its subsidiary;
● Administer our incentive and stock-based compensation plans, and discharge the duties imposed on the Compensation Committee by the terms of
those plans;
● Review and approve any severance or termination payments proposed to be made to any current or former officer of our company; and
● Perform other functions or duties deemed appropriate by the Board of Directors.
31
Audit Committee
In 2019, the Audit Committee was comprised of Directors Halas, Spangler and Vos, and is chaired by Director Spangler. The Audit Committee held four
meetings during the fiscal year ended December 31, 2019 and held informal discussions as necessary.
The Audit Committee approves the selection of our independent accountants and meets and interacts with the independent accountants to discuss issues
related to financial reporting. In addition, the Audit Committee reviews the scope and results of the audit with the independent accountants, reviews with
management and the independent accountants our annual operating results, considers the adequacy of our internal accounting procedures, including our
internal control over financial reporting, and considers other auditing and accounting matters including fees to be paid to the independent auditor and the
performance of the independent auditor.
For the fiscal year ending December 31, 2019, the Audit Committee:
1. Reviewed and discussed the audited financial statements with management, and
2. Reviewed and discussed the written disclosures and the letter from our independent auditors on the matters relating to the auditor’s independence.
Based upon the Audit Committee’s review and discussion of the matters above, the board of directors authorized inclusion of the audited financial
statements for the year ended December 31, 2019 to be included in this Annual Report on Form 10-K and filed with the Securities and Exchange
Commission.
The Board has determined that each member of the Audit Committee qualifies as an audit committee financial expert as defined under applicable SEC rules
and also meets the additional criteria for independence of audit committee members set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of
1934, as amended.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and executive officers and persons who beneficially own more than ten percent of a registered
class of the Company’s equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other
equity securities of the Company. Officers, directors and greater than ten percent beneficial shareholders are required by SEC regulations to furnish us with
copies of all Section 16(a) forms they file. To the best of our knowledge based solely on a review of Forms 3, 4, and 5 (and any amendments thereof)
received by us, no persons have failed to file, on a timely basis, the identified reports required by Section 16(a) of the Exchange Act during fiscal year
ended December 31, 2019, other than AWM Investment Company, Inc., which was late in one instance in filing its Form 4 obligation.
Code of Ethics
In October 2017, the Board of Directors adopted a Code of Ethics for the Company, which was attached to our 2017 Annual Report on Form 10-K as
Exhibit 14.1.
32
Item 11. Executive Compensation
The table below summarizes all compensation awarded to, earned by, or paid to our current executive officers for the fiscal years ended December 31, 2019
and 2018.
Name and principal position
William J. Febbo (1)
CEO, Director
Stephen L.Silvestro
Chief Commercial Officer
Miriam Paramore (2)
President
Douglas P. Baker (3)
CFO
Year
2019
2018
2019
2018
2019
2018
2019
2018
Salary
($)
300,000
275,000
188,821
-
250,000
232,500
240,000
220,000
Bonus
($)
126,990
294,838
82,678
-
70,550
131,781
67,728
124,696
Stock
Awards
($)
391,800
336,000
938,700
-
130,600
70,000
130,600
70,000
Option
Awards
($)
All Other
Compensation
($)
-
-
-
-
-
-
-
15,200
17,300
-
-
11,200
11,000
11,200
11,000
Total
($)
833,990
923,138
1,120,199
-
462,350
445,281
449,528
425,696
Narrative Disclosure to the Summary Compensation Table
(1) Amounts reflected in All Other Compensation column for Mr. Febbo in 2018 is composed of $11,000 employer matching contributions to the
Company’s retirement plan, $4,000 for a term life policy, and $2,300 for legal fees. The 2019 amounts are $10,800 employer matching
contributions to the Company’s retirement plan and the balance for a term life policy.
(2) Amount reflected in All Other Compensation for Ms. Paramore for both years reflects employer matching contributions to the Company’s
retirement plan.
(3) Amounts reflected in All Other Compensation column for Mr. Baker in both years represents employer matching contributions to the Company’s
retirement plan.
Mr. Febbo joined the Company as CEO on February 22, 2016. On September 10, 2018, Mr. Febbo signed a new employment agreement calling for a base
salary of $275,000 in 2018 and $300,000 in 2019. In March 2020, the Board of Directors amended his contract to provide a base salary of $350,000 per
year in 2020 and $400,000 per year in 2021. In addition, he is eligible to participate in the Company’s executive bonus plan with a target bonus of 60% of
his annual salary. He is also eligible for vacation, sick days, insurance, to participate in the Company’s 401k plan, and other benefits covering all
employees. Mr. Febbo’s contract also calls for him to be reimbursed $4,000 per year for a separate term life insurance policy. Mr. Febbo’s contract calls for
12 months of severance if he is terminated without cause.
In February 2018, the Board of Directors agreed to accelerate vesting on 100,000 of Mr. Febbo’s options that were originally scheduled to vest on the fifth
anniversary of his contract in 2021, by three years, to vest in February 2018. In February 2019, the Board of Directors agreed to accelerate the vesting of
the remaining 100,000 unvested options held by Mr. Febbo from February 2020 to February 2019.
The Company also granted to Mr. Febbo 80,000 shares of restricted common stock in February 2018 that vest if the Company achieved targeted stretch
revenue goals in either 2018 or 2019. The Company achieved those targeted revenues in 2018, so the shares vested. In February 2019, the Board of
Directors also granted Mr. Febbo an additional 30,000 shares of restricted common stock if the Company achieves certain targeted stretch revenue goals in
2019. Those goals were not achieved, so the shares did not vest. In March 2020, the Board of Directors granted Mr. Febbo an additional 84,786 shares of
restricted common stock.
33
Mr. Silvestro joined the Company as Chief Commercial Officer on April 29, 2019. Under the terms of his employment agreement, he received an annual
base salary of $280,000 and a signing bonus of $30,000, paid in two installments of $15,000 in 2019. In March 2020, the Board of Directors amended his
contract to increase his base salary to $300,000 for 2020. In addition, he was eligible to participate in the Company’s executive bonus plan with a target
bonus of 40% of his annual salary. In March 2020, the Board increased his target bonus percentage to 50% of his base salary. He is also eligible for
vacation, sick days, insurance, to participate in the Company’s 401k plan, and other benefits covering all employees. Mr. Silvestro’s contract also calls for
12 months of severance if he is terminated without cause.
Mr. Silvestro also received a grant of 90,000 shares of restricted common stock at the time of his employment. The grant vests all at one time upon
completion of five years of employment. In March 2020, the Board of Directors granted Mr. Silvestro 105,993 options, which vest quarterly throughout
2020, to purchase shares of common stock at a price of $7.54 per share.
Ms. Paramore joined the Company as President on August 1, 2017. On September 10, 2018 Ms. Paramore signed a new employment agreement calling for
a base salary of $250,000. In March 2020, the Board of Directors amended her contract to increase her base salary to $275,000 for 2020. In addition, she is
eligible to participate in the Company’s executive bonus plan with a target bonus of 40% of her annual salary. She is also eligible for vacation, sick days,
insurance, to participate in the Company’s 401k plan, and other benefits covering all employees. Ms. Paramore’s contract also calls for 12 months of
severance if she is terminated without cause.
Under the terms of her contract, in 2017, the Company also granted to Ms. Paramore an option to purchase 166,667 shares of common stock, exercisable at
a price of $3.15 per share, and vesting annually over a period of 5 years. Ms. Paramore was also granted 16,667 shares of restricted common stock in
February 2018 that vest if the Company achieved targeted stretch revenue goals in either 2018 or 2019. The Company achieved those targeted revenues in
2018, so the shares vested. In February 2019, the Board of Directors also granted Ms. Paramore an additional 10,000 shares of restricted common stock if
the Company achieves certain targeted stretch revenue goals in 2019. Those goals were not achieved, so the shares did not vest. In March 2020, the Board
of Directors granted Ms. Paramore 63,558 options, which vest quarterly through 2020, to purchase shares of common stock at a price of $7.54 per share.
On September 10, 2018, Mr. Baker signed a new employment agreement calling for a base salary of $220,000. In February 2019, Mr. Baker signed an
amended employment agreement increasing his base salary to $240,000 for 2019. In March 2020, the Board of Directors amended his contract to increase
his base salary to $260,000 for 2020. In addition, he is eligible to participate in the Company’s executive bonus plan with a target bonus of 40% of his
annual salary. He is also eligible for vacation, sick days, insurance, to participate in the Company’s 401k plan, and other benefits covering all employees.
Mr. Baker’s contract calls for 12 months of severance if he is terminated without cause. In February 2019, Mr. Baker signed an amended employment
agreement increasing his base salary to $240,000 for 2019.
Mr. Baker was also granted 16,667 shares of restricted common stock in February 2018 that vests if the Company achieves targeted stretch revenue goals in
either 2018 or 2019. The Company achieved those targeted revenues in 2018, so the shares vested. In February 2019, the Board of Directors also granted
Mr. Baker an additional 10,000 shares of restricted common stock if the Company achieves certain targeted stretch revenue goals in 2019. Those goals
were not achieved, so the shares did not vest. In March 2020, the Board of Directors granted Mr. Baker 63,558 options, which vest quarterly through 2020,
to purchase shares of common stock at a price of $7.54 per share.
For all four executive officers, the executive bonus plan contains a provision whereby each officer could receive a bonus ranging from $0 to $1.0 million if
a change of control transaction occurs prior to December 31, 2021, depending up on the transaction price.
34
Outstanding Equity Awards at Fiscal Year-End
The table below summarizes all unexercised options, stock that has not vested, and equity incentive plan awards for each named executive officers as of
December 31, 2019.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
OPTION AWARDS
STOCK AWARDS
Equity
Incentive
Plan
Awards:
Market
or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have
Not
Vested
(#)
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have
Not
Vested
(#)
Number
of
Shares
or Units
of Stock
That
Have
Not
Vested
(#)
Market
Value of
Shares
or Units
of Stock
That
Have
Not
Vested
($)
Option
Exercise
Price
($)
Option
Expiration
Date
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
$
3.21 02/21/21
90,000
$
$
$
3.15 07/27/22
3.15 06/24/20
2.46 03/31/22
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
470,000
-
66,667
28,334
100,001
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
-
-
100,000
-
-
Name
Will Febbo
Steve Silvestro
Miriam Paramore
Douglas Baker
Director Compensation
The table below summarizes all compensation of our directors as of December 31, 2019:
Name
Gus D. Halas
James Lang
Patrick Spangler
Lynn Vos
Fees Earned
or Paid in
Cash
($)
43,500
30,000
33,500
33,000
Stock
Awards
($)
111,848
111,848
111,848
111,848
Option
Awards
($)
All Other
Compensation
($)
-
-
-
-
-
-
-
-
Total
($)
155,348
141,848
145,348
144,848
35
Narrative Disclosure to the Director Compensation Table
Pursuant to our Director Compensation Plan, independent directors (“Outside Directors”) received:
(a) an annual cash retainer for Board and Committee service in 2019 as set forth in the table below, payable in equal quarterly installments, and
(b) reimbursement for expenses related to Board meeting attendance and any committee participation.
Basic Director Fee
Board Chair
Audit Committee Chair
Audit Committee Member
Compensation Committee Chair
Compensation Committee Member
Nominating and Governance Chair
Nominating and Governance Committee Member
Annual Fee ($)
25,000
12,500
5,000
2,500
5,000
2,500
2,500
1,000
In addition, Outside Directors also each received 8,336 shares of Common Stock per year, payable in equal quarterly installments, which vested
immediately upon issuance. Directors that are also employees of our company shall not receive additional compensation for serving on the Board. Both the
cash retainer and stock awards are prorated for partial quarters of service when a new Director joins the Board.
Directors are expected to attend four meetings per year as well as spend an additional 10 – 20 hours per month on company matters.
In March 2020, the Board amended the Outside Director plan to increase the annual cash fees, payable quarterly, as set forth in the table below.
Basic Director Fee
Board Chair
Audit Committee Chair
Audit Committee Member
Compensation Committee Chair
Compensation Committee Member
Nominating and Governance Chair
Nominating and Governance Committee Member
In addition, the Outside Directors will receive common shares valued at $100,000 annually, payable in equal quarterly installments.
36
Annual Fee ($)
40,000
40,000
5,500
-
-
-
-
-
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
CERTAIN BENEFICIAL OWNERS
The following table sets forth the beneficial ownership by each person, other than executive officers and directors, known to us to beneficially own 5% or
more of our outstanding common stock as of March 24, 2020. For the purposes of this Annual Report, beneficial ownership of securities is defined in
accordance with the rules of the SEC to mean generally the power to vote or dispose of securities, regardless of any economic interest therein, including
any such security that the person has the right to acquire within 60 days after such date.
More Than 5% Beneficial Owners:
Common
Common
Common
Common
Common
Name and Address
Park West Asset Management(1)
900 Larkspur Landing Circle
Suite 165
Larkspur, CA 94939
AWM Investment(2)
527 Madison Ave. Suite 2600
New York, NY 10022
BlackRock, Inc.(3)
55 East 52nd Street
New York, NY 10055
Harvey L. Poppel(4)
110 El Mirasol
Palm Beach, FL 33480
Ronald L. Chez(5)
55 East Monroe Street, Suite 3700
Chicago, IL 60603
(1) As stated in a Schedule 13G/A filed with the Securities and Exchange Commission on February 14, 2020.
(2) As stated in a Schedule 13G/A filed with the Securities and Exchange Commission on February 12, 2020.
(3) As stated in a Schedule 13G filed with the Securities and Exchange Commission on February 7, 2020.
(4) As stated in a Schedule 13G filed with the Securities and Exchange Commission on January 13, 2020.
(5) As stated in a Schedule 13D/A filed with the Securities and Exchange Commission on September 27, 2019.
37
Common
Shares
Owned
Percentage of
Class
814,668
5.6%
952,027
6.5%
938,436
6.4%
1,060,693
7.2%
1,122,918
7.7%
SECURITY OWNERSHIP OF MANAGEMENT
Set forth below is certain information with respect to beneficial ownership of our common stock as of March 24, 2020, by each director, each executive
officer, and by the directors and executive officers as a group. Unless otherwise indicated, each person or member of the group listed has sole voting and
investment power with respect to the shares of common stock listed.
Name(1)
William J. Febbo
Steve Silvestro
Miriam Paramore
Lynn Vos
Douglas P. Baker
Gus D. Halas
Patrick Spangler
James Lang
All Executive Officers and Directors as a group (8 persons)
*
Less than 1%
Options
Included
in Beneficial
Ownership (2)
Restricted
Stock
Awards (3)
Common
Shares
Owned
Common
Stock
Beneficial
Ownership
Percentage
of Class
440,000
26,483
115,891
-
139,193
-
-
-
721,567
21,187
21,187
163,237
-
24,079
24,238
71,917
57,176
14,683
25,008
380,338
624,424
26,483
139,970
24,238
211,110
57,176
14,683
25,008
1,123,092
4.2%
*
*
*
1.4%
*
*
*
7.4%
(1) The address of each person named in this table is c/o OptimizeRx Corp., 400 Water Street, Suite 200, Rochester, MI 48307.
(2) This column lists shares that are subject to options exercisable within sixty (60) days of March 24, 2020 and are included in common stock beneficial
ownership pursuant to Rule 13d-3(d)(1) of the Exchange Act.
(3) This column lists shares resulting from restricted stock awards that have vested as of March 24, 2020, but for which shares have not been issued.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Other than described below or the transactions described under the heading “Executive Compensation” (or with respect to which such information is
omitted in accordance with SEC regulations), there have not been, and there is not currently proposed, any transaction or series of similar transactions to
which we were or will be a participant in which the amount involved exceeded or will exceed the lesser of $120,000 or one percent of the average of our
total assets at year-end for the last two completed fiscal years, and in which any director, executive officer, holder of 5% or more of any class of our capital
stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest.
During the year ended December 31, 2015, WPP made a strategic investment in the Company and was a shareholder that owned approximately 20% of the
shares of the Company at the time. WPP sold its entire ownership position in December 2018, and is no longer a shareholder of the Company.
38
The following table sets forth the activity between the Company and WPP in 2018:
Total billings to WPP Agencies
Revenue recognized from WPP Agencies
Accounts receivable from WPP Agencies
Item 14. Principal Accounting Fees and Services
2018
6,217,735
6,527,051
2,051,532
$
$
$
Below are tables of Audit Fees (amounts in US$) billed by our auditors in connection with the audit of the Company’s annual financial statements and
review of the quarterly financial statements for the years indicated below: Our 2018 financial statements were audited by Sadler Gibb & Associates. Our
2019 financial statements were audited by Marcum, LLP.
Marcum, LLP
Financial Statements for the
Year Ended December 31
2019
2018
Sadler Gibb & Associates
Financial Statements for the
Year Ended December 31
2019
2018
39
Audit Related
Fees
Tax Fees
Audit Services
$
$
396,850 $
- $
- $
- $
Audit Related
Fees
Tax Fees
Audit Services
$
$
102,409 $
116,430 $
5,550 $
14,220 $
Other Fees
- $
- $
-
-
Other Fees
- $
- $
-
-
Item 15. Exhibits, Financial Statements Schedules
(a) Financial Statements and Schedules
PART IV
The following financial statements and schedules listed below are included in this Form 10-K.
Financial Statements (See Item 8)
(b) Exhibits
Exhibit
Number
3.1
3.2
3.3
3.4
3.5
3.6
10.1
10.2
10.3
10.4
10.5
10.6
14.1
21.1**
23.1**
31.1**
31.2**
32.1**
101**
Description
Articles of Incorporation of OptimizeRx Corporation (the “Company”)1
Amended and Restated Bylaws of the Company2
Certificate of Designation, filed on September 5, 2008 with the Secretary of State of the State of Nevada by the Company1
Certificate of Designation, filed on June 3, 2010 with the Secretary of State of the State of Nevada by the Company3
Certificate of Correction, dated April 30, 20184
Certificate of Withdrawal of Certificate of Designation, dated May 10, 20184
Fourth Amended and Restated 2013 Equity Incentive Plan5
Amendment to Employment Agreement with Terry Hamilton, dated February 7, 20196
Amendment to Employment Agreement with Doug Baker, dated March 10, 2020**
Amendment to Employment Agreement with William Febbo, dated March, 10, 2020**
Amendment to Employment Agreement with Stephen Silvestro, dated March, 10, 2020**
Amendment to Employment Agreement with Miriam Paramore, dated March, 10, 2020**
Code of Business Conduct and Ethics7
List of Subsidiaries
Consent of Marcum LLP**
Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 formatted in Extensible
Business Reporting Language (XBRL).
Incorporated by reference to the Form S-1, filed by the Company with the Securities and Exchange Commission on November 12, 2008.
Incorporated by reference to the Form 8-K, filed by the Company with the Securities and Exchange Commission on July 16, 2010.
Incorporated by reference to the Form 8-K, filed by the Company with the Securities and Exchange Commission on June 11, 2010.
Incorporated by reference to the Form 10-K, filed by the Company with the Securities and Exchange Commission on March 12, 2019,
Incorporated by reference to the Form 8-K filed by the Company with the Securities and Exchange Commission on March 12, 2020.
Incorporated by reference to the Form 8-K filed by the Company with the Securities and Exchange Commission on February 8, 2019.
Incorporated by reference to the Form 10-K filed by the Company with the Securities and Exchange Commission on March 8, 2018.
1
2
3
4
5
6
7
** provided herewith
40
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SIGNATURES
OptimizeRx Corporation
By:
/s/ William J. Febbo
William Febbo
Chief Executive Officer, Principal Executive Officer
March 26, 2020
By:
/s/ Douglas P. Baker
Douglas P. Baker
Title: Chief Financial Officer, Principal Financial Officer
and Principal Accounting Officer
Date: March 26, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
By:
/s/ William J. Febbo
William J. Febbo
Title: Chief Executive Officer, Principal Executive Officer
and Director
Date: March 26, 2020
By:
/s/ James Lang
James Lang
Title: Director
Date: March 26, 2020
By:
/s/ Gus D. Halas
Gus D. Halas
Title: Chairman and Director
Date: March 26, 2020
By:
/s/ Patrick Spangler
Patrick Spangler
Title: Director
Date: March 26, 2020
By:
/s/ Lynn Vos
Lynn Vos
Title: Director
Date: March 26, 2020
41
Employment Agreement Addendum I
Addendum to agreement dated February 17, 2019
Exhibit 10.3
This first addendum to the employment agreement (the “Addendum”) is made this 10th day of March 2020, by and between OptimizeRx, Corporation (the
“Company”), a Nevada Company, and Douglas Baker (the “Executive”).
Base Salary: The Executive will receive a base salary at the annualized rate of $260,000.00 (“Base Salary”), which will be paid in accordance with normal
Company payroll practices and subject to the usual and applicable required withholding(s).
Effective Date: January 1, 2020
Acknowledgment:
Except as expressly set forth herein, all other terms of the Agreement remain in full force and effect.
OptimizeRx, Corporation
By: Will Febbo
Its:
Date: March 10, 2020
Chief Executive Officer
Douglas Baker
Douglas P. Baker
By:
Date: March 10, 2020
Employment Agreement Addendum I
Addendum to agreement dated September 10, 2018
Exhibit 10.4
This first addendum to the employment agreement (the “Addendum”) is made this 10th day of March 2020, by and between OptimizeRx, Corporation (the
“Company”), a Nevada Company, and William Febbo (the “Executive”).
Base Salary: The Executive will receive a base salary at the annualized rate of $350,000.00 (“Base Salary”), for 2020 and $400,000.00 for 2021 calendar
year, which will be paid in accordance with normal Company payroll practices and subject to the usual and applicable required withholding(s).
Effective Date: January 1, 2020 & January 1, 2021
Acknowledgment:
Except as expressly set forth herein, all other terms of the Agreement remain in full force and effect.
OptimizeRx, Corporation
By:
Douglas P. Baker
Chief Financial Officer
Its:
Date: March 10, 2020
William Febbo
By: William Febbo
Date: March 10, 2020
Employment Agreement Addendum I
Addendum to agreement dated March 18, 2019
Exhibit 10.5
This first addendum to the employment agreement (the “Addendum”) is made this 10th day of March 2020, by and between OptimizeRx, Corporation (the
“Company”), a Nevada Company, and Stephen Silvestro (the “Executive”).
Base Salary: The Executive will receive a base salary at the annualized rate of $300,000.00 (“Base Salary”), which will be paid in accordance with normal
Company payroll practices and subject to the usual and applicable required withholding(s).
Bonus: The Executive will be eligible to participate in the Company’s Executive Bonus Plan, subject to terms and conditions, with an annual target bonus
of 50% of base salary.
Effective Date: January 1, 2020
Acknowledgment:
Except as expressly set forth herein, all other terms of the Agreement remain in full force and effect.
OptimizeRx, Corporation
By: William Febbo
Its:
Date: March 10, 2020
Chief Executive Officer
Stephen Silvestro
Stephen Silvestro
By:
Date: March 10, 2020
Employment Agreement Addendum I
Addendum to agreement dated September 10, 2018
Exhibit 10.6
This first addendum to the employment agreement (the “Addendum”) is made this 10th day of March 2020, by and between OptimizeRx, Corporation (the
“Company”), a Nevada Company, and Miriam Paramore (the “Executive”).
Base Salary: The Executive will receive a base salary at the annualized rate of $275,000.00 (“Base Salary”), which will be paid in accordance with normal
Company payroll practices and subject to the usual and applicable required withholding(s).
Effective Date: January 1, 2020
Acknowledgment:
Except as expressly set forth herein, all other terms of the Agreement remain in full force and effect.
OptimizeRx, Corporation
By: William Febbo
Its:
Date: March 10, 2020
Chief Executive Officer
Miriam Paramore
By: Miriam Paramore
Date: March 10, 2020
OptimizeRx Corporation, A Michigan corporation
CareSpeak Communications, Inc., a New Jersey corporation
CareSpeak Communications D.O.O., a controlled foreign corporation located in Croatia.
List of Subsidiaries
RMDY Health, Inc., A Delaware corporation
Cyberdiet, a controlled foreign corporation located in Israel
Exhibit 21.1
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT
We consent to the incorporation by reference in the Registration Statement of OptimizeRx Corporation on Form S-3 (File No. 333-228357) and Form S-8
(File Nos. 333-230212; 333-210653; and 333-189439) of our report dated March 26, 2020, with respect to our audit of the consolidated financial
statements of OptimizeRx Corporation and Subsidiaries as of December 31, 2019 and for the year then ended and our report dated March 26, 2020 with
respect to our audit of the effectiveness of internal control over financial reporting of OptimizeRx Corporation as of December 31, 2019, which reports are
included in this Annual Report on Form 10-K of OptimizeRx Corporation for the year ended December 31, 2019.
Our report on the consolidated financial statements refers to a change in the Company’s method of accounting for leases in 2019 due to the adoption of
ASU No. 2016-02, Leases (Topic 842), as amended, effective January 1, 2019, using the modified retrospective approach.
Our report on the effectiveness of internal control over financial reporting expressed an adverse opinion because of the existence of material weaknesses.
Exhibit 23.1
/s/ Marcum LLP
Marcum LLP
New York, NY
March 26, 2020
Exhibit 31.1
I, William J. Febbo, certify that;
CERTIFICATIONS
1.
I have reviewed this annual report on Form 10-K for the year ended December 31, 2019 of OptimizeRx Corp (the “registrant”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 26, 2020
/s/ William J. Febbo
By: William J. Febbo
Title: Chief Executive Officer, Principal Executive Officer
Exhibit 31.2
I, Douglas P. Baker, certify that;
CERTIFICATIONS
1.
I have reviewed this annual report on Form 10-K for the year ended December 31, 2019 of OptimizeRx Corp (the “registrant”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 26, 2020
/s/ Douglas P. Baker
By: Douglas P. Baker
Title: Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the annual Report of OptimizeRx Corp (the “Company”) on Form 10-K for the year ended December 31, 2019 filed with the Securities
and Exchange Commission (the “Report”), I, William J. Febbo, Chief Executive Officer of the Company, and I, Douglas P. Baker, Chief Financial Officer
of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.
2.
The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates
presented and the consolidated result of operations of the Company for the periods presented.
/s/ William J. Febbo
By:
Name: William J. Febbo
Title:
Date: March 26, 2020
Chief Executive Officer, Principal Executive Officer
/s/ Doug Baker
By:
Name: Doug Baker
Title:
Date: March 26, 2020
Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer
This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.