As filed with the Securities and Exchange Commission on November 12, 2008

Registration No. 333 -155280

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM S-1 /A

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

OPTIMIZERX CORPORATION

(Name of registrant as specified in its charter)

Nevada (State or other jurisdiction of incorporation or organization)

7389 (Primary Standard Industrial Classification Code Number)

26-1265381 (I.R.S. Employer Identification No.)

407 Sixth Street, Rochester, MI 48307

(248) 651-6558

 (Address and telephone number of principal executive offices and principal place of business)

 

The Corporation Trust Company of Nevada

6100 Neil Road, Suite 500

Reno, NV 86511

 (755) 688-3061

 (Name, address and telephone number of agent for service)

 

Copies of all communications to:

Darrin Ocasio, Esq.

Sichenzia Ross Friedman Ference LLP

61 Broadway, 32 nd Floor

New York, New York 10006

Phone: (212) 930-9700

Fax: (212) 930-9725

Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. x

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, as amended, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, as amended, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, as amended, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

Large accelerated filer  o	Accelerated filer  o
Non-accelerated filer  o	Smaller reporting company x

 

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We face significant competition for our products and services

 

The markets in which we operate are intensely competitive, continually evolving and, in some cases, subject to rapid change.

	•	Our public 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 Web sites 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 search; and advertising networks that aggregate traffic from multiple sites.
	•	Our private 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.
	•	Our Publishing and Other Services segment’s products and services compete with numerous other offline publications, some of which have better access to traditional distribution channels than we have, and also compete with online information sources.

 

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.

 

Failure to maintain and enhance the “ OptimizeRx ” brand could have a material adverse effect on our business

 

We believe that the “OptimizeRx” brand identity that we have developed has contributed to the success of our business and has helped us achieve recognition as a trusted source of health and wellness information. We also believe that maintaining and enhancing that brand is important to expanding the user base for our public portals, to our relationships with sponsors and advertisers and to our ability to gain additional employer and healthcare payer clients for our private portals. We have expended considerable resources on establishing and enhancing the “WebMD” brand and our other brands, and we have developed policies and procedures designed to preserve and enhance our brands, including editorial procedures designed to provide quality control of the information we publish. We expect to continue to devote resources and efforts to maintain and enhance our brand. However, we may not be able to successfully maintain or enhance awareness of our brands, and events outside of our control may have a negative effect on our brands. If we are unable to maintain or enhance awareness of our brand, and do so in a cost-effective manner, our business could be adversely affected.

 

Our online businesses have a limited operating history

 

Our online businesses have a limited operating history and participate in relatively new and rapidly changing markets. These businesses have undergone significant changes during their short history as a result of changes in the types of services provided, technological changes and changes in market conditions and are expected to continue to change for similar reasons. Many companies with business plans based on providing healthcare information and related services through the Internet have failed to be profitable and some have filed for bankruptcy and/or ceased operations. Even if demand from users exists, we cannot assure you that our businesses will continue to be profitable.

 

Our failure to attract and retain qualified executives and employees may have a material adverse effect on our business

 

Our business depends largely on the skills, experience and performance of key members of our management team. We also depend, in part, on our ability to attract and retain qualified writers and editors, software developers and other technical personnel and sales and marketing personnel. Competition for qualified personnel in the healthcare information services and Internet industries is intense. We cannot assure you that we will be able to hire or retain a sufficient number of qualified personnel to meet our requirements, or that we will be able to do so at salary and benefit costs that are acceptable to us. Failure to do so may have an adverse effect on our business.

 

The timing of our advertising and sponsorship revenue may vary significantly from quarter to quarter

 

Our advertising and sponsorship revenue, which accounted for approximately100% of our total online services segment revenue for the year ended December 31, 2007, may vary significantly from quarter to quarter due to a number of factors, not all of which are in our control, and any of which may be difficult to forecast accurately. The majority of our advertising and sponsorship contracts are for terms of approximately one to twelve  months. We cannot assure you that our current customers for these services will continue to use our services beyond the terms of their existing contracts or that they will enter into any additional contracts.

 

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In addition, the time between the date of initial contact with a potential advertiser or sponsor regarding a specific program and the execution of a contract with the advertiser or sponsor for that program may be lengthy, especially for larger contracts, and may be subject to delays over which we have little or no control, including as a result of budgetary constraints of the advertiser or sponsor or their need for internal approvals. Other factors that could affect the timing of our revenue from advertisers and sponsors include:

 

	•	the timing of FDA approval for new products or for new approved uses for existing products;
	•	the timing of FDA approval of generic products that compete with existing brand name products;
	•	the timing of withdrawals of products from the market;
	•	seasonal factors relating to the prevalence of specific health conditions and other seasonal factors that may affect the timing of promotional campaigns for specific products; and
	•	the scheduling of conferences for physicians and other healthcare professionals.

 

Lengthy sales and implementation cycles for our private online portals and offer development make it difficult to forecast our revenues from these applications and may have an adverse impact on our business

 

The period from our initial contact with a potential client for a private online portal and the first purchase of our solution by the client is difficult to predict. In the past, this period has generally ranged from one to twelve months, but in some cases has been longer. These sales may be subject to delays due to a client’s internal procedures for approving large expenditures and other factors beyond our control. Implementation may be subject to delays based on the availability of the internal resources of the client that are needed and other factors outside of our control. As a result, we have limited ability to forecast the timing of revenue from new clients. This, in turn, makes it more difficult to predict our financial performance from quarter to quarter.

 

During the sales cycle and the implementation period, we may expend substantial time, effort and money preparing contract proposals, negotiating contracts and implementing the private online portal without receiving any related revenue. In addition, many of the expenses related to providing private online portals are relatively fixed in the short term, including personnel costs and technology and infrastructure costs. Even if our private portal revenue is lower than expected, we may not be able to reduce related short-term spending in response. Any shortfall in such revenue would have a direct impact on our results of operations.

 

Expansion to markets outside the United States will subject us to additional risks

 

One element of our growth strategy is to seek to expand our online services to markets outside the United States. Generally, we expect that we would accomplish this through partnerships or joint ventures with other companies having expertise in the specific country or region. However, our participation in international markets will still be subject to certain risks beyond those applicable to our operations in the United States, such as:

 

	•	difficulties in staffing and managing operations outside of the United States;
	•	fluctuations in currency exchange rates;
	•	burdens of complying with a wide variety of legal, regulatory and market requirements;

 

	•	variability of economic and political conditions;
	•	tariffs or other trade barriers;
	•	costs of providing and marketing products and services in different markets;
	•	potentially adverse tax consequences, including restrictions on repatriation of earnings; and
	•	difficulties in protecting intellectual property.

 

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Risks Related to Use of the Internet and to Our Technological Infrastructure

 

Any service interruption or failure in the systems that we use to provide online services could harm our business

 

Our online services are designed to operate 24 hours a day, seven days a week, without interruption. However, we have experienced and expect that we will in the future experience interruptions and delays in services and availability from time to time. We rely on internal systems as well as third-party vendors, including data center providers and bandwidth providers, to provide our online services. We may not maintain redundant systems or facilities for some of these services. In the event of a catastrophic event with respect to one or more of these systems or facilities, we may experience an extended period of system unavailability, which could negatively impact our relationship with users. In addition, system failures may result in loss of data, including user registration data, content, and other data critical to the operation of our online services, which could cause significant harm to our business and our reputation.

 

To operate without interruption or loss of data, both we and our service providers must guard against:

 

	•	damage from fire, power loss and other natural disasters;
	•	communications failures;
	•	software and hardware errors, failures and crashes;
	•	security breaches, computer viruses and similar disruptive problems; and
	•	other potential service interruptions.

 

Any disruption in the network access or co-location services provided by third-party providers to us or any failure by these third-party providers or our own systems to handle current or higher volume of use could significantly harm our business. We exercise little control over these third-party vendors, which increases our vulnerability to problems with services they provide.

 

Any errors, failures, interruptions or delays experienced in connection with these third-party technologies and information services or our own systems could negatively impact our relationships with users and adversely affect our brand and our business and could expose us to liabilities to third parties. Although we maintain insurance for our business, the coverage under our policies may not be adequate to compensate us for all losses that may occur. In addition, we cannot provide assurance that we will continue to be able to obtain adequate insurance coverage at an acceptable cost.

Implementation of additions to or changes in hardware and software platforms used to deliver our online services may result in performance problems and may not provide the additional functionality that was expected

 

From time to time, we implement additions to or changes in the hardware and software platforms we use for providing our online services. During and after the implementation of additions or changes, a platform may not perform as expected, which could result in interruptions in operations, an increase in response time or an inability to track performance metrics. In addition, in connection with integrating acquired businesses, we may move their operations to our hardware and software platforms or make other changes, any of which could result in interruptions in those operations. Any significant interruption in our ability to operate any of our online services could have an adverse effect on our relationships with users and clients and, as a result, on our financial results. We rely on a combination of purchasing, licensing, internal development, and acquisitions to develop our hardware and software platforms. Our implementation of additions to or changes in these platforms may cost more than originally expected, may take longer than originally expected, and may require more testing than originally anticipated. In addition, we cannot provide assurance that additions to or changes in these platforms will provide the additional functionality and other benefits that were originally expected.

 

If the systems we use to provide online portals experience security breaches or are otherwise perceived to be insecure, our business could suffer

 

We retain and transmit confidential information, including personal health records, in the processing centers and other facilities we use to provide online services. It is critical that these facilities and infrastructure remain secure and be perceived by the marketplace as secure. A security breach could damage our reputation or result in liability. We may be required to expend significant capital and other resources to protect against security breaches and hackers or to alleviate problems caused by breaches. Despite the implementation of security measures, this infrastructure or other systems that we interface with, including the Internet and related systems, may be vulnerable to physical break-ins, hackers, improper employee or contractor access, computer viruses, programming errors, denial-of-service attacks or other attacks by third parties or similar disruptive problems. Any compromise of our security, whether as a result of our own systems or the systems that they interface with, could reduce demand for our services and could subject us to legal claims from our clients and users, including for breach of contract or breach of warranty.

 

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Government regulation of the Internet could adversely affect our business

 

The Internet and its associated technologies are subject to government regulation. Our failure, or the failure of our business partners or third-party service providers, to accurately anticipate the application of laws and regulations affecting our products and services and the manner in which we deliver them, or any other failure to comply with such laws and regulations, could create liability for us, result in adverse publicity and negatively affect our business. In addition, new laws and regulations, or new interpretations of existing laws and regulations, may be adopted with respect to the Internet or other online services covering user privacy, patient confidentiality, consumer protection and other issues, including pricing, content, copyrights and patents, distribution and characteristics and quality of products and services. We cannot predict whether these laws or regulations will change or how such changes will affect our business.

We face potential liability related to the privacy and security of personal information we collect from or on behalf of users of our services

Privacy of personal health information, particularly personal health information stored or transmitted electronically, is a major issue in the United States. The Privacy Standards under the Health Insurance Portability and Accountability Act of 1996 (or HIPAA) establish a set of basic national privacy standards for the protection of individually identifiable health information by health plans, healthcare clearinghouses and healthcare providers (referred to as covered entities) and their business associates. Only covered entities are directly subject to potential civil and criminal liability under the Privacy Standards. Accordingly, the Privacy Standards do not apply directly to us. However, portions of our business, such as those managing employee or plan member health information for employers or health plans, are or may be business associates of covered entities and are bound by certain contracts and agreements to use and disclose protected health information in a manner consistent with the Privacy Standards. Depending on the facts and circumstances, we could potentially be subject to criminal liability for aiding and abetting or conspiring with a covered entity to violate the Privacy Standards. We cannot assure you that we will adequately address the risks created by the Privacy Standards. In addition, we are unable to predict what changes to the Privacy Standards might be made in the future or how those changes could affect our business. Any new legislation or regulation in the area of privacy of personal information, including personal health information, could also affect the way we operate our business and could harm our business.

 

In addition, internet user privacy and the use of consumer information to track online activities are major issues both in the United States and abroad. For example, in December 2007, the FTC published for comment proposed principles to govern tracking of consumers’ activities online in order to deliver advertising targeted to the interests of individual consumers. We have privacy policies posted on our Web sites that we believe comply with applicable laws requiring notice to users about our information collection, use and disclosure practices. However, whether and how existing privacy and consumer protection laws in various jurisdictions apply to the Internet is still uncertain. We also notify users about our information collection, use and disclosure practices relating to data we receive through offline means such as paper health risk assessments. We cannot assure you that the privacy policies and other statements we provide to users of our products and services, or our practices will be found sufficient to protect us from liability or adverse publicity in this area. A determination by a state or federal agency or court that any of our practices do not meet applicable standards, or the implementation of new standards or requirements, could adversely affect our business.

We may not be successful in protecting our intellectual property and proprietary rights

Our intellectual property and proprietary rights are important to our businesses. The steps that we take to protect our intellectual property, proprietary information and trade secrets may prove to be inadequate and, whether or not adequate, may be expensive. We rely on a combination of trade secret, patent and other intellectual property laws and confidentiality procedures and non-disclosure contractual provisions to protect our intellectual property. We cannot assure you that we will be able to detect potential or actual misappropriation or infringement of our intellectual property, proprietary information or trade secrets. Even if we detect misappropriation or infringement by a third party, we cannot assure you that we will be able to enforce our rights at a reasonable cost, or at all. In addition, our rights to intellectual property, proprietary information and trade secrets may not prevent independent third-party development and commercialization of competing products or services.

Third parties may claim that we are infringing their intellectual property, and we could suffer significant litigation or licensing expenses or be prevented from providing certain services, which may harm our business

 

We could be subject to claims that we are misappropriating or infringing intellectual property or other proprietary rights of others. These claims, even if not meritorious, could be expensive to defend and divert management’s attention from our operations. If we become liable to third parties for infringing these rights, we could be required to pay a substantial damage award and to develop non-infringing technology, obtain a license or cease selling the products or services that use or contain the infringing intellectual property. We may be unable to develop non-infringing products or services or obtain a license on commercially reasonable terms, or at all. We may also be required to indemnify our customers if they become subject to third-party claims relating to intellectual property that we license or otherwise provide to them, which could be costly.

 

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Third parties may challenge the enforceability of our online agreements

 

The law governing the validity and enforceability of online agreements and other electronic transactions is evolving. We could be subject to claims by third parties that the online terms and conditions for use of our Web sites, including disclaimers or limitations of liability, are unenforceable. A finding by a court that these terms and conditions or other online agreements are invalid could harm our business.

 

We may be subject to claims brought against us as a result of content we provide

 

Consumers access health-related information through our online services, including information regarding particular medical conditions and possible adverse reactions or side effects from medications. If our content, or content we obtain from third parties, contains inaccuracies, it is possible that consumers, employees, health plan members or others may sue us for various causes of action. Although our Web sites contain terms and conditions, including disclaimers of liability, that are intended to reduce or eliminate our liability, the law governing the validity and enforceability of online agreements and other electronic transactions is evolving. We could be subject to claims by third parties that our online agreements with consumers and physicians that provide the terms and conditions for use of our public or private portals are unenforceable. A finding by a court that these agreements are invalid and that we are subject to liability could harm our business and require costly changes to our business.

 

We have editorial procedures in place to provide quality control of the information that we publish or provide. However, we cannot assure you that our editorial and other quality control procedures will be sufficient to ensure that there are no errors or omissions in particular content. Even if potential claims do not result in liability to us, investigating and defending against these claims could be expensive and time consuming and could divert management’s attention away from our operations. In addition, our business is based on establishing the reputation of our portals as trustworthy and dependable sources of healthcare information. Allegations of impropriety or inaccuracy, even if unfounded, could therefore harm our reputation and business.

 

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announcement by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;

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additions or departures of key personnel; and

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fluctuations in stock market price and volume.

Additionally, in recent years the stock market in general, and technology stocks in particular, have experienced extreme price and volume fluctuations. In some cases these fluctuations are unrelated or disproportionate to the operating performance of the underlying company. These market and industry factors may materially and adversely affect our stock price regardless of our operating performance. The historical trading of our common stock is not necessarily an indicator of how it will trade in the future and our trading price as of the date of this prospectus is not necessarily an indicator of what the trading price of our common stock might be in the future.

 

In the past, class action litigation has often been brought against companies following periods of volatility in the market price of those companies' common stock. If we become involved in this type of litigation in the future it could result in substantial costs and diversion of management attention and resources, which could have a further negative effect on your investment in our stock.

Our issuance of common stock at a price below prevailing trading prices at the time of issuance may cause our stock price to decline.

As of November 7, 2008 there was outstanding $3,500,000 worth of preferred stock that is convertible into approximately 3,500,000 shares of common stock at $1.00 per share and warrants to purchase 6,000,000 shares of common stock, having an exercise price of $2.00 per share.  These, as well as those we may issue in the future, including dividends we may issue from time to time to the holders of Series A Preferred Stock , may result in shares of common stock being issued for consideration that is less than the trading price of our common stock at the time the shares are issued.  We may also issue shares of common stock in the future at a discount to the trading price of our common stock.  Any such below market issuances, or the potential for such issuances, could cause our stock price to decline.  Moreover, if investors holding a significant number of these shares decided to sell them in a short period of time, such sales could contribute significant downward pressure on the trading price of our stock.

Our issuance of shares of preferred stock, warrants and stock options may have a negative effect on the trading price of our common stock.

We currently have a large number of shares of preferred stock, stock options and warrants outstanding.  The conversion and exercise of these shares of preferred stock, stock options and warrants could cause significant dilution to our stockholders.   Currently, upon the exercise of all outstanding Warrants, an additional 7,200,000 shares of Common Stock would be outstanding; upon conversion of all outstanding Series A Preferred Stock, an additional 3,500,000 shares of Common Stock would be outstanding and upon exercise of all outstanding options, an additional 365,000 shares of Common Stock would be outstanding .  Moreover, we intend to continue to minimize our use of cash for consulting services by granting stock options and warrants to consultants at or below the current market price, which will cause additional dilution to our stockholders.  In addition to the potential dilutive effect of issuing a large number of stock options and warrants, there is the potential that a large number of the shares may be sold in the public market at any given time, which could place additional downward pressure on the trading price of our common stock.

You may experience dilution of your ownership interests due to the future issuance of additional shares of our common stock.

 

Our board of directors may authorize the issuance of additional common or preferred shares under applicable state law without shareholder approval.  We are authorized to issue 500,000,000 shares of common stock and 10,000,000 shares of preferred stock with such designations, preferences and rights as may be determined by our board of directors. We may also issue additional shares of our common stock or other securities that are convertible into or exercisable for common stock in connection with the hiring of personnel, future acquisitions, future private placements of our securities for capital raising purposes or for other business purposes. Future sales of substantial amounts of our common stock, or the perception that sales could occur, could have a material adverse effect on the price of our common stock.  If we need to raise additional capital to expand or continue operations, it may be necessary for us to issue additional equity or convertible debt securities.   If we issue equity or convertible debt securities, the net tangible book value per share may decrease, the percentage ownership of our current stockholders may be diluted and such equity securities may have rights, preferences or privileges senior or more advantageous to our common stockholders.

There is no assurance of an established public trading market, which would adversely affect the ability of investors in our company to sell their securities in the public markets.

Although our common stock trades on the Pink Sheets, a regular trading market for our common stock may not be sustained in the future.  The Pink Sheets is an inter-dealer market that provides significantly less liquidity than a national securities exchange or automated quotation system. Quotes for stocks included on the Pink Sheets are not listed in the financial sections of newspapers as are those for stocks listed on national securities exchanges or automated quotation systems. Therefore, prices for securities traded solely on the Pink Sheets may be difficult to obtain and holders of common stock may be unable to resell their securities at or near their original offering price or at any price. Market prices for our common stock may be influenced by a number of factors, including:

 

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	·	the issuance of new equity securities;
	·	changes in interest rates;
	·	competitive developments, including announcements by competitors of new products or services or significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;
	·	variations in quarterly operating results;
	·	change in financial estimates by securities analysts;
	·	the depth and liquidity of the market for our common stock;
	·	investor perceptions of our company and the technologies industries generally; and
	·	general economic and other national conditions.

Our limited prior public market and trading market may cause volatility in the market price of our common stock.

Our common stock has only been quoted for trading since January 4, 2008.  Our common stock is currently traded on a limited basis on the Pink Sheets.  The quotation of our common stock on the Pink Sheets does not assure that a meaningful, consistent and liquid trading market currently exists, and in recent years such market has experienced extreme price and volume fluctuations that have particularly affected the market prices of many smaller companies like us. Our common stock is thus subject to volatility. In the absence of an active trading market:

	·	investors may have difficulty buying and selling or obtaining market quotations;
	·	market visibility for our common stock may be limited; and
	·	lack of visibility for our common stock may have a depressive effect on the market for our common stock.

Our common stock is a "Penny Stock."

Our common stock is a “low-priced” security, or a penny stock, under rules promulgated under the Exchange Act.   A stock could be considered to be a "penny stock" if it meets one or more of the definitions in Rules 15g-2 through 15g-6 promulgated under Section 15(g) of the Exchange Act. These include but are not limited to the following: (i) the stock trades at a price less than $5.00 per share; (ii) it is NOT traded on a "recognized" national exchange; (iii) it is NOT quoted on The NASDAQ Stock Market, or even if so, has a price less than $5.00 per share; or (iv) is issued by a company with net tangible assets less than $2.0 million, if in business more than a continuous three years, or with average revenues of less than $6.0 million for the past three years. The principal result or effect of being designated a "penny stock" is that securities broker-dealers cannot recommend the stock but must trade in it on an unsolicited basis.

 

In accordance with these rules, broker-dealers participating in transactions in low-priced securities must first deliver a risk disclosure document which describes the risks associated with such stocks, the broker-dealer’s duties in selling the stock, the customer’s rights and remedies and certain market and other information. Furthermore, the broker-dealer must make a suitability determination approving the customer for low-priced stock transactions based on the customer’s financial situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent from the customer, and provide monthly account statements to the customer. The effect of these restrictions probably decreases the willingness of broker-dealers to make a market in our common stock, decreases liquidity of our common stock and increases transaction costs for sales and purchases of our common stock as compared to other securities.

Broker-dealer requirements may affect trading and liquidity.

 

Section 15(g) of the Securities Exchange Act of 1934, as amended, and Rule 15g-2 promulgated thereunder by the SEC require broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor's account.   Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor's financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.

 

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Once there is an effective registration statement, we may force conversion of the Series A Preferred Stock into common stock if the market price for 10 consecutive trading days exceeds $2.00 (subject to adjustment for reverse and forward stock splits, stock combinations and other similar transactions of the Common Stock that occur after the date thereof) and the average daily trading volume for the Common Stock during such ten-(10) day period exceeds 100,000 shares, we may, at any time after the fifth (5th) trading day after the end of any such period, deliver a notice to the holder to cause the holder to immediately convert all and not less than all of the stated value of the shares held by such holder plus accumulated and unpaid dividends at the then current conversion price.

 

So long as any shares of Series A Preferred Stock are outstanding, unless the holders of at least 50% of the then outstanding shares of Series A Preferred Stock shall have otherwise given prior written consent, we shall not, and shall not permit any of our subsidiaries to, directly or indirectly:

 

a) (i) Except with respect to the Series A Preferred Stock, or forward stock splits in the form of a dividend, declare or pay any dividends or make any distributions to any holder(s) of any shares of our capital stock or (ii) purchase, redeem or otherwise acquire any shares of our Common Stock or warrants or rights to acquire such Common Stock, except as may be required by the terms of the Series A Preferred Stock; or (iii) purchase, redeem or otherwise acquire any shares of our preferred stock or warrants or rights to acquire such stock, except as may be required by the terms of such preferred stock;

 

b) Effect any reclassification, combination or reverse stock split of the Common Stock;

 

c) Create, incur, assume, suffer, permit to exist, or guarantee, directly or indirectly, any indebtedness, excluding, however, from the following:

	·	Indebtedness to the extent existing on September 8, 2008 or any replacement indebtedness to existing indebtedness;
	·	Indebtedness which may be incurred or guaranteed by us in an aggregate principal amount not to exceed $500,000;
	·	the endorsement of instruments for the purpose of deposit or collection in the ordinary course of business;
	·	Indebtedness relating to our contingent obligations and our subsidiaries under guaranties in the ordinary course of business of the obligations of suppliers, customers, and licensees of the company and our subsidiaries;
	·	Indebtedness relating to loans from the company to our subsidiaries;
	·	Indebtedness relating to capital leases in an amount not to exceed $500,000;
	·	accounts or notes payable arising out of the purchase of merchandise, supplies, equipment, software, computer programs or services in the ordinary course of business;
	·	Common Stock issued or issuable to financial institutions, or lessors, pursuant to a commercial credit arrangement, equipment financing transaction, accounts receivable factoring, or a similar transaction;

d) Issue securities senior to or equal to that of the Series A Preferred Stock;

 

e) Sell, transfer, lease or dispose of 20% or more of its consolidated assets in any single transaction or series of transactions, or liquidate, dissolve, recapitalize or reorganize in any form of transaction;

 

f) Enter into a change of control transaction, which means the occurrence of (a) an acquisition by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control of in excess of fifty percent (50%) of our voting securities, (b) a replacement at one time or over time of more than one-half of the members of our Board, which is not approved by a majority of those individuals who are members of the Board (or by those individuals who are serving as members of the Board on any date whose nomination to the Board was approved by a majority of the members of the Board who are members on the date hereof), (c) the merger or consolidation of the company or any of our subsidiaries in one or a series of related transactions with or into another entity (except in connection with a merger involving the company solely for the purpose, and with the sole effect, of reorganizing the company under the laws of another jurisdiction; provided that the certificate of incorporation and bylaws (or similar charter or organizational documents) of the surviving entity are substantively identical to those of the company), or (d) the execution by the company of an agreement to which the company is a party or by which it is bound, providing for any of the events set forth above in (a), (b) or (c);

 

g) Amend or waive any provision of our Articles of Incorporation or Bylaws;

 

h) Engage in any transaction with any of our officers, directors, employees or affiliates of the company or of its subsidiaries, except on terms no less favorable to the company or the subsidiary as could be obtained in an arm’s length transactions; or

 

i) Divert business or opportunity of the company or our subsidiary to any other corporate or business entity; or

 

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j) File any registration statement with the Securities and Exchange Commission (“SEC”) until this registration statement or registration statements registering all the conversion shares, warrant shares and other registrable securities is declared effective by the SEC.

 

In the event of any liquidation or winding up, the holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders an amount per share equal to the stated value of the Series A Preferred Stock plus the aggregate amount of accumulated but unpaid dividends on each share of Series A Preferred Stock.

 

The Series A Warrants are exercisable for a period of seven years at an exercise price of $2.00 per share.  The Series A Warrants are exercisable on a cashless basis. In addition, the warrants are subject to anti-dilution adjustments and protections in the event of stock splits and stock dividends, subsequent equity sales entitling persons to acquire shares of common stock at an effective price per share that is lower than the then exercise price of the warrants and subsequent rights offerings, in the event we issue rights, options or warrant to all holders of common stock and not to the warrant holders, pro rata distributions of assets or indebtedness and fundamental transactions, such as a merger, consolidation or recapitalization.  The anti-dilution adjustment shall apply the lowest sale price as being the adjusted option price or conversion ratio for existing shareholders.  

 

The Registration Rights Agreement between us and the selling stockholders, which, as amended, requires the Company to make the requisite SEC filings to achieve and subsequently maintain the effectiveness of a registration statement covering the common stock issuable upon exercise of the Series A Preferred shares generally on or before February 6, 2009.  Failure to file a required registration statement or to achieve or subsequently maintain the effectiveness of a required registration statement through the required time will subject the Company to liquidated damages equal to one percent (1.0%) of the face value of the Series A Preferred Shares then held by such holder on such date and one-half percent (0.5%) of the face value of the Series A Preferred then held by such holder for each calendar month or portion thereof thereafter from the event date until cured.  In no event shall the amount of liquidated damages payable at any time and from time to time to any holder exceed an aggregate of six percent (6.0%) of the face value of the Series A Preferred then held by such holder.

 

The shares may also be sold under Rule 144 under the Securities Act of 1933, as amended (“Securities Act”), if available, rather than under this prospectus.  The selling security holders have the sole and absolute discretion not to accept any purchase offer or make any sale of shares if they deem the purchase price to be unsatisfactory at any particular time.

 

The selling security holders may pledge their shares to their brokers under the margin provisions of customer agreements.  If a selling security holder defaults on a margin loan, the broker may, from time to time, offer and sell the pledged shares.

 

Broker-dealers engaged by the selling security holders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling security holders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, which commissions as to a particular broker or dealer may be in excess of customary commissions to the extent permitted by applicable law.

 

If sales of shares offered under this prospectus are made to broker-dealers as principals, we would be required to file a post-effective amendment to the registration statement of which this prospectus is a part.  In the post-effective amendment, we would be required to disclose the names of any participating broker-dealers and the compensation arrangements relating to such sales.

 

The selling security holders and any broker-dealers or agents that are involved in selling the shares offered under this prospectus may be deemed to be “underwriters” within the meaning of the Securities Act in connection with these sales.  Commissions received by these broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.  Any broker-dealers or agents that are deemed to be underwriters may not sell shares offered under this prospectus unless and until we set forth the names of the underwriters and the material details of their underwriting arrangements in a supplement to this prospectus or, if required, in a replacement prospectus included in a post-effective amendment to the registration statement of which this prospectus is a part.

 

The selling security holders and any other persons participating in the sale or distribution of the shares offered under this prospectus will be subject to applicable provisions of the Exchange Act, and the rules and regulations under that act, including Regulation M.  These provisions may restrict activities of, and limit the timing of purchases and sales of any of the shares by, the selling security holders or any other person.  Furthermore, under Regulation M, persons engaged in a distribution of securities are prohibited from simultaneously engaging in market making and other activities with respect to those securities for a specified period of time prior to the commencement of such distributions, subject to specified exceptions or exemptions.  All of these limitations may affect the marketability of the shares.

 

If any of the shares of common stock offered for sale pursuant to this prospectus are transferred other than pursuant to a sale under this prospectus, then subsequent holders could not use this prospectus until a post-effective amendment or prospectus supplement is filed, naming such holders.  We offer no assurance as to whether any of the selling security holders will sell all or any portion of the shares offered under this prospectus.

 

We have agreed to pay all fees and expenses we incur incident to the registration of the shares being offered under this prospectus.  However, each selling security holder and purchaser is responsible for paying any discounts, commissions and similar selling expenses they incur.

 

We and the selling security holders have agreed to indemnify one another against certain losses, damages and liabilities arising in connection with this prospectus, including liabilities under the Securities Act.

 

Penny Stock

The Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:

	·	that a broker or dealer approve a person's account for transactions in penny stocks; and
	·	the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person's account for transactions in penny stocks, the broker or dealer must

	·	obtain financial information and investment experience objectives of the person; and
	·	make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

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The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:

	·	sets forth the basis on which the broker or dealer made the suitability determination; and
	·	that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

DESCRIPTION OF SECURITIES TO BE REGISTERED

Our authorized capital stock consists of 500,000,000 shares of common stock at a par value of $0.001 per share and 10,000,000 shares of preferred stock at a par value of $0.001 per share.  As of November 7, 2008, there were 12,126,209 shares of our common stock issued and outstanding and 35 shares of Series A Preferred Stock issued and outstanding, which are currently convertible, at the option of the holder, into an aggregate of 35,000,000 shares of our common stock, 625,000 are reserved for outstanding stock options and warrants, and 1,490,000 are reserved for future grant under the 2008 Company Stock Option Plan.

 

Holders of our common stock are entitled to one vote for each share on all matters submitted to a stockholder vote. Holders of common stock do not have cumulative voting rights. Therefore, holders of a majority of the shares of our common stock voting for the election of directors can elect all of the directors. Holders of our common stock representing a majority of the voting power of our capital stock issued, outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of stockholders. A vote by the holders of a majority of our outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to our articles of incorporation.

 

Subject to the rights of our Series A Preferred Stock, holders of our common stock are entitled to share in all dividends that the board of directors, in its discretion, declares from legally available funds.  In the event of liquidation, dissolution or winding up, subject to the rights of our Series A Preferred Stock, each outstanding share entitles its holder to participate pro rata in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock. Our common stock has no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to our common stock.

 

The rights of our common stockholders may be affected by rights, preferences and privileges of our Series A Preferred Stock.  The following is a description of the rights, preferences and privileges of our Series A Preferred Stock:

 

Holders of the Series A Preferred Stock are entitled to receive cumulative preferred dividends at the rate per share of 10% per annum, payable on the first day of September and February of each year. So long as certain equity conditions are met, we may elect to pay dividends in either (i) cash, or (ii) shares of our common stock. If we pay in shares of common stock, and if the shares of common stock are registered for sale by the selling stockholders; provided, however, we shall not be permitted to issue registered shares of common stock as dividend payments in the event that the market price is less than $0.50.  In addition, we must make dividend payments in cash if we are unable to make dividend payments in shares of common stock that are eligible for public resale by the Holder under an effective registration statement covering such shares.  The number of shares of common stock to be issued as payment of a dividend shall be determined by dividing (i) the total amount of the dividend to be paid in common stock by (ii) ninety percent (90%) of the average closing price of the common stock for the five-(5) day period prior to such date on the Pink Sheets as reported by Bloomberg Financial L.P., the Pink Sheets if not reported on Bloomberg Financial, or other eligible market on which the common stock trades on.

 

The Series A Preferred Stock has redemption rights upon the occurrence of certain triggering events, including, (i) consolidation or a merger with or into (if we are not the surviving corporation) another entity, or (ii) the selling, assignment, transfer, conveyance or disposition of all or substantially all of the properties or our assets to another entity, or (iii) allowing another person or persons to make a purchase, tender or exchange offer that is accepted by the holders of more than the 50% of the outstanding shares of voting stock (not including any shares of voting stock held by the person or persons making or party to, or associated or affiliated with the person or persons making or party to, such purchase, tender or exchange offer), or (iv) consummate a stock purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another person whereby such other person acquires more than the 50% of either the outstanding shares of voting stock (not including any shares of voting stock held by the other person or other persons making or party to, or associated or affiliated with the other Persons making or party to, such stock purchase agreement or other business combination), (v) reorganize, recapitalize or reclassify its common stock or (vi) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 50% of our aggregate voting stock.  Each share of Series A Preferred Stock subject to redemption shall be redeemed by us in cash at a price equal to one hundred twenty percent (120%) of the stated value of the Series A Preferred Stock plus all accrued and unpaid dividends thereon at the time of such request.  The number of shares of common stock to be issued as payment in redemption shall be determined by dividing (i) the total amount of the dividend to be paid in common stock by (ii) ninety percent (90%) of the market price of our common stock for the five (5) days immediately preceding the date of redemption.

 

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The Series A Preferred Stock has voting rights. holders of shares of Series A Preferred Stock shall be entitled to vote on all matters submitted to a vote of our shareholders and shall have such number of votes equal to the number of shares of common stock into which such holders’ shares of Series A Preferred Stock are convertible pursuant to the provisions hereof and subject to the limitations on conversion contained herein, at the record date for the determination of shareholders entitled to vote on such matters or, if no such record date is established, at the date such vote is taken or any written consent of shareholders is solicited. Except as otherwise required by law, the holders of shares of Series A Preferred Stock and common stock shall vote together as a single class, and not as separate classes.  In the event that the holders of the Series A Preferred Stock are required to vote separately as a class, the affirmative vote of holders of a majority of the outstanding shares of Series A Preferred Stock shall be required to approve each such matter to be voted upon, and if any matter is approved by such requisite percentage of holders of Series A Preferred Stock, such matter shall bind all holders of Series A Preferred Stock.

 

The Series A Preferred Stock is subject to anti-dilution adjustment in the event of stock splits and stock dividends (other than to the Series A Preferred Stock), subsequent equity sales entitling persons to acquire shares of common stock at an effective price per share that is lower than the then Conversion Price of the Series A Preferred Stock and subsequent rights offerings, in the event we issue rights, options or warrant to all holders of common stock and not to the holders of Series A Preferred Stock, pro rata distributions of assets or indebtedness and fundamental transactions, such as a merger, consolidation or recapitalization.  The anti-dilution adjustment provides that, if, at any time while the Series A Preferred Stock is outstanding, if we sell or grant any option to purchase or sell or grant any right to reprice our securities, or otherwise dispose of or issue (or announce any sale, grant or any option to purchase or other disposition) any common stock or common stock equivalents entitling any person to acquire shares of common stock at an effective price per share that is lower than the then conversion price (such lower price, the "Base Conversion Price") (if the holder of the common stock or common stock equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of common stock at an effective price per share that is lower than the conversion price, such issuance shall be deemed to have occurred for less than the conversion price on such date of the dilutive issuance), then all of such shares of common stock or common stock underlying such option shall be deemed to be outstanding and to have been issued and sold by us at the time of the granting or sale of such option for such price per share.

 

So long as any shares of Series A Preferred Stock are outstanding, unless the holders of at least 50% of the then outstanding shares of Series A Preferred Stock shall have otherwise given prior written consent, we shall not, and shall not permit any of our subsidiaries to, directly or indirectly:

 

a) (i) Except with respect to the Series A Preferred Stock, or forward stock splits in the form of a dividend, declare or pay any dividends or make any distributions to any holder(s) of any shares of our capital stock or (ii) purchase, redeem or otherwise acquire any shares of our common stock or warrants or rights to acquire such common stock, except as may be required by the terms of the Series A Preferred Stock; or (iii) purchase, redeem or otherwise acquire any shares of our preferred stock or warrants or rights to acquire such stock, except as may be required by the terms of such preferred stock;

 

b) Effect any reclassification, combination or reverse stock split of the common stock;

 

c) Create, incur, assume, suffer, permit to exist, or guarantee, directly or indirectly, any indebtedness, excluding, however, from the following:

	·	Indebtedness to the extent existing on September 8, 2008 or any replacement indebtedness to existing indebtedness;
	·	Indebtedness which may be incurred or guaranteed by us in an aggregate principal amount not to exceed $500,000;
	·	the endorsement of instruments for the purpose of deposit or collection in the ordinary course of business;
	·	Indebtedness relating to our contingent obligations and our subsidiaries under guaranties in the ordinary course of business of the obligations of suppliers, customers, and licensees of the company and our subsidiaries;
	·	Indebtedness relating to loans from the company to our subsidiaries;
	·	Indebtedness relating to capital leases in an amount not to exceed $500,000;
	·	accounts or notes payable arising out of the purchase of merchandise, supplies, equipment, software, computer programs or services in the ordinary course of business;
	·	Common Stock issued or issuable to financial institutions, or lessors, pursuant to a commercial credit arrangement, equipment financing transaction, accounts receivable factoring, or a similar transaction;

 

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d) Issue securities senior to or equal to that of the Series A Preferred Stock;

 

e) Sell, transfer, lease or dispose of 20% or more of its consolidated assets in any single transaction or series of transactions, or liquidate, dissolve, recapitalize or reorganize in any form of transaction;

 

f) Enter into a change of control transaction, which means the occurrence of (a) an acquisition by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control of in excess of fifty percent (50%) of our voting securities, (b) a replacement at one time or over time of more than one-half of the members of our Board, which is not approved by a majority of those individuals who are members of the Board (or by those individuals who are serving as members of the Board on any date whose nomination to the Board was approved by a majority of the members of the Board who are members on the date hereof), (c) the merger or consolidation of the company or any of our subsidiaries in one or a series of related transactions with or into another entity (except in connection with a merger involving the company solely for the purpose, and with the sole effect, of reorganizing the company under the laws of another jurisdiction; provided that the certificate of incorporation and bylaws (or similar charter or organizational documents) of the surviving entity are substantively identical to those of the company), or (d) the execution by the company of an agreement to which the company is a party or by which it is bound, providing for any of the events set forth above in (a), (b) or (c);

 

g) Amend or waive any provision of our Articles of Incorporation or Bylaws;

 

h) Engage in any transaction with any of our officers, directors, employees or affiliates of the company or of its subsidiaries, except on terms no less favorable to the company or the subsidiary as could be obtained in an arm’s length transactions; or

 

i) Divert business or opportunity of the company or our subsidiary to any other corporate or business entity; or

 

j) File any registration statement with the Securities and Exchange Commission (“SEC”) until this registration statement or registration statements registering all the conversion shares, warrant shares and other registrable securities is declared effective by the SEC.

 

In the event of any liquidation or winding up, the holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders an amount per share equal to the stated value of the Series A Preferred Stock plus the aggregate amount of accumulated but unpaid dividends on each share of Series A Preferred Stock.  If, upon liquidation or winding up, the assets of the Company, or proceeds thereof, to be distributed among the holders of the Series A Preferred Stock are insufficient to permit payment in full to such holders of the aggregate amount that they are entitled to be paid by their terms, then the entire assets, or proceeds thereof, available to be distributed to the corporation’s stockholders shall be distributed to the holders of the Series A Preferred Stock ratably in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. Prior to such liquidation or winding up, we shall declare for payment all accrued and unpaid dividends with respect to the Series A Preferred Stock but only to the extent that funds legally available for the payment of dividends.

Penny Stock Regulations

The SEC has adopted regulations which generally define "penny stock" to be an equity security that has a market price of less than $5.00 per share. Our common stock, when and if a trading market develops, may fall within the definition of penny stock and subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000, or annual incomes exceeding $200,000 or $300,000, together with their spouse).

 

For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser's prior written consent to the transaction. Additionally, for any transaction, other than exempt transactions, involving a penny stock, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the Commission relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the "penny stock" rules may restrict the ability of broker-dealers to sell our common stock and may affect the ability of investors to sell their common stock in the secondary market.

 

Transfer Agent and Registrar

 

The transfer agent and registrar for our common stock is Integrity Stock Transfer, located at 3265 E. Warm Springs Road, Las Vegas, NV 89120.

 

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There were approximately 357 holders of record of our common stock as of November 7, 2008.

 

We have never declared or paid cash dividends on our common stock and do not expect to pay any dividends on our common stock in the foreseeable future. We currently intend to retain any future earnings for our business. The payment of any future dividends on our common stock will be determined by our Board of Directors and will depend on business conditions, our financial earnings and other factors.

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Forward Looking Statements

Some of the statements contained in this Prospectus that are not historical facts are "forward-looking statements" which can be identified by the use of terminology such as "estimates," "projects," "plans," "believes," "expects," "anticipates," "intends," or the negative or other variations, or by discussions of strategy that involve risks and uncertainties. We urge you to be cautious of the forward-looking statements, that such statements, which are contained in this Prospectus, reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors affecting our operations, market growth, services, products and licenses. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of the risks we face, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events. Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include without limitation:

 

·	Our ability to attract and retain management, and to integrate and maintain technical information and management information systems;
·	Our ability to raise capital when needed and on acceptable terms and conditions;
·	The intensity of competition; and
·	General economic conditions.
·	Changes in government regulations

 

Plan of Operation

 

We are a development-stage company located in Michigan. Since our formation, we have concentrated on developing our business strategy and obtaining financing. We plan to expand awareness, traffic and database to our patient savings portal OPTIMIZERx.com, as well as the launch of our offer development systems OFFERx™ and ADHERxE.  We expect that the primary components of our business will be:

 

·	The online patient savings portal OPTIMIZERx.com and our network affiliates
·	OFFERx to develop, promote and fulfill new offers from pharmaceutical and healthcare manufactures
·	ADHERxE to allow manufacturers to re-engage their customers per activation of new savings each month

 

As demand increases for savings and support programs to help the growing number of patients manage their rising healthcare costs, we plan to extend our reach and visibility through increased online, print and broadcast marketing to increase traffic and our database of qualified health care consumers.

 

In turn, we will generate revenues through: (i) advertising sales from our online OPTIMIZERx.com and affiliate network; (ii) its database; (iii) direct marketing and sponsorships and (iv) our platforms to create, promote and manage new savings offers for additional clients.

 

Results of Operations

 

Since inception, OPTIMIZERx Corp. has generated minimal revenue from advertising and use of its database.  In the same period, OPTIMIZERx Corp has incurred expenses related to funding the development of the business plan, new products and platforms and raising capital.

 

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Nine Months Ended September 30, 2008

 

Since our formation in January 2006, we have focused on developing a business and financing plan to launch and expand  OPTIMIZERx.com and its additional marketing and offer development platforms.

 

Our operating loss for the nine months ended September 30, 2008 was $569,954.  The operating loss for the period reflects expenses paid to consultants and firms related to developing the operating functions of our business in editorial, finance, product development and technology infrastructure.

 

Liquidity and Capital Resources

 

As of September 30, 2008, we had a cash balance of $2,807,520. On Sept 8, 2008, we received gross proceeds of $3,500,000 from VICIS Capital (net $2,985,000).

 

In July 7, 2008, we entered into an investment placement agent agreement with Midtown Partners & Co LLC to raise on a best efforts basis an amount of up to USD $3 million.  Prior to this relationship our financing activities consisted of private investors and loans to cover our operating expenses.

 

On Sept 8, 2008 we received gross proceeds of $3,500,000 (net $2,985,000) from VICIS Capital for preferred equity share sales which was used towards our working capital.

 

We believe that our currently available working capital after receiving the net proceeds of the VICIS Capital agreement should be adequate to sustain our operations at our current levels through at least the next twelve to eighteen months. However, depending on our future needs and changes and trends in the capital markets affecting our shares and us, we may determine to seek additional equity or debt financing in the private or public markets. Additional financing, whether through public or private equity or debt financing, arrangements with stockholders or other sources to fund operations, may not be available, or if available, may be on terms unacceptable to us.

The Company’s monthly use of funds is for general operations, product development, sales and marketing. Our operational overhead is generally minimized through our small staff and use of independent contractors.  However, we anticipate our marketing/advertising expenses to both the pharmaceutical industry and direct to consumers to be our biggest variable expense. Based on confirmation of successful online and traditional advertising programs, we will aggressively ramp up these programs to increase site traffic, membership database and revenue. Management anticipates our current cash balance positions us well to manage the required expenses to support our growth plans over the next twelve months.

 

Years ended December 31, 2007 and 2006

 

Our net losses for the fiscal years ending December 31, 2007 and 2006 were $361,466 and $184,310 respectively.

 

Liquidity and Capital Resources

 

At December 31, 2007, our financing since inception activities consisted of founder equity financing, loans and advances made to cover our operating expenses in 2007 and 2006 respectively.

Beginning October 2007 and ending September 2008, we sold an aggregate of 875,000 shares of our common stock in a private placement to multiple accredited investors at a price of $1.00 per share for an aggregate purchase price of $875,000.

 

On September 8, 2008, we sold 35 shares Series A Preferred Stock for $3,500,000 to an accredited investor in a private placement exempt from registration under Rule 506 of Regulation D of the Securities Act.    

Off-Balance Sheet Arrangements

 

None.

 

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EXECUTIVE COMPENSATION

 

SUMMARY COMPENSATION TABLE

 

The following table sets forth the aggregate cash compensation paid during the fiscal years ended December 31, 2007 and 2006 to our Chief Executive Officer and our three most highly compensated executive officers other than our Chief Executive Officer. Other than as listed below, the Company had no executive officers whose total annual salary and bonus exceeded $100,000 for that fiscal year

 

Name and Principal Position		Year		Salary $				Bonus $				Stock Awards $				Option Awards $				Total $
David Harrell		2007		$	144,000			$	-0-			$	-0-			$	-0-			$	144,000
President & Chief Executive Officer		2006		$	111,000			$	-0-			$	-0-			$	-0-			$	111,000
James Vandeberg		2007		$	-0-			$	-0-			$	-0-			$	-0-			$	-0-
Former Chief Executive Officer of RFID Ltd.		2006		$	-0-			$	-0-			$	-0-			$	-0-			$	-0-

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Market Information

 

There is currently no trading market for our common stock.  Upon completion of this offering we intend to take the steps necessary to have our common stock included for quotation on the Over the Counter Bulletin Board.

Holders

 

As of November 7, 2008, there were 12,126,209 shares of common stock issued and outstanding.

As of November 7, 2008, there were approximately 357 holders of record of our common stock.

As of November 7, 2008, we had the following shares of common stock reserved for issuance:

11,590,000 shares (options, warrants, plans, etc.)

 

OPTIMIZERx CORPORATION

OPTIMIZER SYSTEMS, LLC

(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

FOR THE PERIOD FROM JANUARY 31, 2006 (INCEPTION) TO DECEMBER 31, 2007

 

		2007				2006				Period from January 31, 2006 (inception) to December 31, 2007
Cash Flows from Operating Activities:
Net Loss		$	(361,466	)		$	(184,311	)		$	(545,777	)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
Depreciation and amortization expense			2,824				39				2,863
Changes in Assets and Liabilities
(Increase) in prepaid rent			(2,000	)			-0-				(2,000	)
Increase in accounts payable			43,216				-0-				43,216
Increase in accrued expenses			13,793				5,133				18,926
Net Cash Used in Operating Activities			(303,633	)			(179,139	)			(482,772	)
Cash Flows from Investing Activities:
Acquisitions of property and equipment			(5,493	)			(774	)			(6,267	)
Website site development costs			(120,088	)			(34,044	)			(154,132	)
Net Cash Used in Investing Activities			(125,581	)			(34,818	)			(160,399	)
Cash Flows from Financing Activities:
Proceeds from issuance of notes payable			70,000				4,000				74,000
Member contributions			180,000				224,600				404,600
Sale of common stock			300,000				-0-				300,000
Net Cash Provided by Financing Activities			550,000				228,600				778,600
Net Increase in Cash and Cash Equivalents			120,786				14,643				135,429
Cash and Cash Equivalents – Beginning			14,643				-0-				-0-
Cash and Cash Equivalents – Ending		$	135,429			$	14,643			$	135,429
Supplemental Cash Flow Information:
Cash Paid for Interest		$	4,453			$	-0-			$	4,453
Cash Paid for Income Taxes		$	-0-			$	-0-			$	-0-
Supplemental Disclosure of Noncash Investing and Financing Activities:
Distributions paid through issuance of notes payable-related party		$	253,750			$	-0-			$	253,750

The accompanying notes are an integral part of the financial statements.

 

F-5

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OPTIMIZERx CORPORATION

OPTIMIZER SYSTEMS, LLC

 NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2007

Note 1:       Nature of Operations

Optimizer Systems, LLC was formed in the State of Michigan on January 31, 2006.  It then became a corporation in the state of Michigan on October 22, 2007 and changed our name to OptimizeRx Corporation on October 22, 2007.  On April 14, 2008, RFID Ltd. consummated a reverse merger by entering into a share exchange agreement with the stockholders of OptimizeRx Corporation, pursuant to which the stockholders of OptimizeRx Corporation exchanged all of the issued and outstanding capital stock of OptimizeRx Corporation for 1,256,958 shares of common stock of RFID Ltd., representing 100% of the outstanding capital stock of RFID Ltd.  As of April 30, 2008, RFID’s officers and directors resigned their positions and RFID changed its business to OptimizeRx’s business.  As a result, the historical discussion and financial statements included in this Form S-1 are those of OptimizeRx Corporation.  On April 15, 2008, RFID Ltd’s corporate name was changed to OptimizeRx Corporation. On September 4, 2008, we then completed a migratory merger, thereby changing our state of incorporation from Colorado to Nevada, resulting in the current corporate structure in which we, OptimizeRx Corporation, a Nevada corporation is the parent corporation, and OptimizeRx Corporation, a Michigan Corporation is our wholly-owned subsidiary.

 

We, through our wholly-owned subsidiary, OptimizeRx Corporation, a Michigan corporation, are a development-stage website publisher and marketing company that creates, promotes and fulfills custom marketing and advertising programs.  We help patients better afford and manage their rising healthcare costs.  In addition, we also provide unique advertising programs to pharmaceutical and healthcare industries.  Through our websites, we provide the following services:  (i) through our website, we provide patients to centrally review and participate in prescription and healthcare savings/support programs; (ii) through OFFERx, we provide a platform to allow manufacturers to create, promote and fulfill new patient offer programs in over 64,000 pharmacies; and (iii) through ADHERxE, we provide a platform that allows manufacturers to engage and monitor patients each month in exchange for activation of their monthly co-pay coupons.

 

Note 2:       Significant Accounting Policies

This summary of significant accounting policies of the Company is presented to assist in understanding the company’s financial statements.  The financial statements and notes are representations of the company’s management, who is responsible for their integrity and objectivity.  These accounting policies conform to generally accepted accounting principles and have been consistently applied to the preparation of the financial statements.

 

Basis of Accounting

The financial statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America.  Revenues are recognized as income when earned and expenses are recognized when they are incurred.

 

Cash and Cash Equivalents

The Company consider cash on hand, cash in banks, as cash and cash equivalents.

F-6

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OPTIMIZERx CORPORATION

OPTIMIZER SYSTEMS, LLC

(A DEVELOPMENT STAGE COMPANY)

 NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2007

Note 2:       Significant Accounting Policies (continued)

Fair Value of Financial Instruments

The fair value of cash, accounts receivable and accounts payable approximates the carrying amount of these financial instruments due to their short-term nature. The fair value of long-term debt, which approximates its carrying value, is based on current rates at which we could borrow funds with similar remaining maturities.

 

Property and Equipment

The capital assets have been capitalized and are being depreciated over their estimated useful lives using straight line methods of depreciation for book purposes. As of October 18, 2007, the Company acquired the majority of its capital assets at the lower market cost from the LLC.

 

Research and Development

All of our key members are part of our continual research development team and monitor new technologies, trends, services and partnerships that can provide us with additional services, value to healthcare and pharmaceutical industries and to the patients we serve.

 

We are currently in launch phase with ADHERxE to allow pharmaceutical and healthcare manufacturers unique way to engage and monitor patients each month in exchange for activation of their next savings offer.

 

We seek to educate our team through understanding of all market dynamics that have the potential to affect our business both short term and longer term.  Our primary goal is to help patients better afford and access the medicines their doctor prescribes, as well as other healthcare products and services they need. Based on this, we continually seek better ways to meet this mission through technology, better user experience and new ways we can engage industries to provide new support program to patients needing their products. Like any company, we are seeking new services and solutions to offer.  However, our three current platforms provide robust opportunities and growth during the next five years.

 

Revenue Recognition

Substantially all revenue is recognized when it is earned. All Revenues are generated through our Website activities.  Our processes are monitored by outside third parties who collect revenues from our client on a per activity basis and report and forward the revenue to our account.

 

Management Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Estimates and assumptions have been made in determining the depreciable lives of such assets, the allowance for doubtful accounts receivable. Actual results could differ from those estimates.

 

Recently Issued Accounting Guidance

The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operation, financial position or cash flow.

 

F-7

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OPTIMIZERx CORPORATION

OPTIMIZER SYSTEMS, LLC

(A DEVELOPMENT STAGE COMPANY)

 NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2007

Note 2:        Significant Accounting Policies (continued)

Concentration of credit risks

The Company maintains its cash 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.

OPTIMIZERx CORPORATION

OPTIMIZER SYSTEMS, LLC

(A DEVELOPMENT STAGE COMPANY)

 NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2007

 

Note 9:       Capital Stock

The Company has 40,000,000 shares of $.001 par value common stock authorized as of December 31, 2007. There were 10,300,000 common shares issued and outstanding at December 31, 2007.

Note 10:     Related Party Transactions

 

The company has engaged an officer of the company for management services under a contract that paid him $114,500 and $101,900 in 2007 and 2006, respectively.

 

Upon the transfer of the assets and liabilities from the LLC to the corporation, the LLC members were issued promissory notes totaling $253,750 under a dilution agreement for a portion of their interests in Optimizer Systems, LLC.

 

The company has a $50,000 note payable to a shareholder (see note 5) that will be repaid only if $1,000,000 of additional capital is raised.  In addition there is a $24,000 note to an officer of the company (see note 5).

 

Note 11:     Income Taxes

For the periods ended December 31, 2007, the Company has incurred a net loss of approximately 200,000 and therefore has no tax liability. The company began operations in 2007 and therefore it has no previous net operating loss carry-forwards.  The 2007 loss will be carried forward and can be used through the year 2027 to offset future taxable income.  In the future the cumulative net operating loss carry-forward for income tax purposes may differ from the cumulative financial statement loss due to timing differences between book and tax reporting.

 

The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:

		2007
Deferred tax asset attributable to:
Net operating loss carryover		$	68,000
Valuation allowance			(68,000	)
Net deferred tax asset		$	-

II-2

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The undersigned registrant hereby undertakes:

 

That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

 

That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:

 

The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

 

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

 

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

 

(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

 

II-3

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