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<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Optimizer
Systems, LLC was formed in the State of Michigan on January 31, 2006. It then became a corporation in the State of Michigan on
October 22, 2007 and changed its name to OptimizeRx Corporation. On April 14, 2008, RFID, Ltd., a Colorado corporation, consummated
a reverse merger by entering into a share exchange agreement with the stockholders of OptimizeRx Corporation, pursuant to which
the stockholders of OptimizeRx Corporation exchanged all of the issued and outstanding capital stock of OptimizeRx Corporation
for 1,256,958 shares of common stock of RFID, Ltd., representing 100% of the outstanding capital stock of RFID, Ltd. As of April
30, 2008, RFID’s officers and directors resigned their positions and RFID changed its business to OptimizeRx’s business.
On April 15, 2008, RFID, Ltd.’s corporate name was changed to OptimizeRx Corporation. On September 4, 2008, a migratory merger
was completed, thereby changing the state of incorporation from Colorado to Nevada, resulting in the current corporate structure,
in which OptimizeRx Corporation, a Nevada corporation, is the parent corporation, and OptimizeRx Corporation, a Michigan corporation,
is a wholly-owned subsidiary (together, "OptimizeRx" and "the Company").</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
wholly-owned subsidiary, OptimizeRx Corporation, is a technology solutions company targeting the health care industry. Their objective
is to bring better access to better care through connecting patients, physicians and pharmaceutical manufacturers through technology.
Once defined as a marketing and advertising company through its consumer website, OptimizeRx is maturing as a technology solutions
provider as it launched its direct to physician solution, SampleMD. SampleMD allows physicians to search, print and send available
sample trial vouchers and/or co-pay coupons on behalf of their patients. The SampleMD solution can either sit on the doctor’s
desktop or can be integrated into the ePrescribing or Electronic Medical Records applications. OptimizeRx solutions provide pharmaceutical
manufacturers either a direct to consumer and/or direct to physician channels for communicating and promoting their products.
It provides health care providers a means to provide sampling and coupons without having to physically store samples on site,
and it provides better access and affordability to the patients.</font></p>
<p style="margin: 0pt"></p>
2006-01-31
2007-10-22
1256958
1.00
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><u>Basis
of Presentation</u></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should
be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Form 10-K filed
with the SEC as of and for the year ended December 31, 2012. In the opinion of management, all adjustments necessary for the financial
statements to be not misleading for the interim periods presented have been reflected herein. The results of operations for interim
periods are not necessarily indicative of the results to be expected for the full year.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><u>Accounting
Basis</u></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company uses the accrual basis of accounting and accounting principles generally accepted in the United States of America (“GAAP”
accounting). The Company has adopted a December 31 fiscal year end.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><u>Principles
of Consolidation</u></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
financial statements reflect the consolidated results of OptimizeRx Corporation (a Nevada corporation) and its wholly owned subsidiary
OptimizeRx Corporation (a Michigan corporation). All material inter-company transactions have been eliminated in the consolidation.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: center"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><u>Cash
and Cash Equivalents</u></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">For
purposes of the accompanying financial statements, the Company considers all highly liquid instruments with an initial maturity
of three months or less to be cash equivalents.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><u>Fair
Value of Financial Instruments</u></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
fair value of cash, accounts receivable, prepaid expenses, patent rights, web development costs, accounts payable, accounts payable
– related party, accrued expenses and deferred revenue approximates the carrying amount of these financial instruments due
to their short-term nature. The fair value of long-term debt, which approximates its carrying value, is based on current rates
at which the Company could borrow funds with similar remaining maturities.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><u>Accounts
Receivable and Allowance for Doubtful Accounts</u></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">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. Bad debt expense was $0 for the six months ended June 30, 2013 and 2012, respectively. The allowance for
doubtful accounts was $0 as of June 30, 2013 and December 31, 2012, respectively.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><u>Property
and Equipment</u></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
capital assets are being depreciated over their estimated useful lives, three to seven years using the straight-line method of
depreciation for book purposes.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font: 10pt Times New Roman, Times, Serif"><u>Revenue
Recognition</u></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">All
revenue is recognized when it is earned. Revenues are generated either through the Company’s website activities, in which
we earn revenue from advertising and lead generation activities, or from our SampleMD activities, which include offering setup
within the systems and our offers, coupons, and vouchers that enable our customers to save money on medical products and services.
The Company’s processes are monitored by third parties who collect revenues from clients on a per activity basis and report
and forward the revenue to the Company’s account.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font: 10pt Times New Roman, Times, Serif"><u>Research
and Development</u></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company’s key members are part of a continual research development team and monitor new technologies, trends, services and
partnerships that can provide the Company with additional services, value to healthcare and pharmaceutical industries and to the
patients it serves.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0.25in 0 0; letter-spacing: -0.1pt; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company seeks to educate team members through understanding of all market dynamics that have the potential to affect the business
both short term and longer term. The primary goal is to help patients better afford and access the medicines their doctor prescribes,
as well as other healthcare products and services they need. Based on this, the Company continually seeks better ways to meet
this mission through technology, better user experiences and new ways to engage industries to provide new support for patients
needing their products. The Company is always seeking new services and solutions to offer. At this time, the three current platforms
provide robust opportunities and growth during the next five years.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: center"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font: 10pt Times New Roman, Times, Serif"><u>Income
Taxes</u></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">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 bases 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.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font: 10pt Times New Roman, Times, Serif"><u>Concentration
of Credit Risks</u></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">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.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font: 10pt Times New Roman, Times, Serif"><u>Use of
Estimates</u></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Estimates and assumptions have been made in determining the depreciable
lives of such assets and the allowance for doubtful accounts receivable. Actual results could differ from these estimates.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><u>Earnings
Per Common and Common Equivalent Share</u></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
computation of basic earnings per common share is computed using the weighted average number of common shares outstanding during
the year. The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during
the year plus common stock equivalents which would arise from the exercise of warrants outstanding using the treasury stock method
and the average market price per share during the year. Options, warrants and convertible preferred stock which are common stock
equivalents are not included in the diluted earnings per share calculation for June 30, 2012since their effect is anti-dilutive.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><u>Impairment
of Long-Lived Assets</u></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">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.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font: 10pt Times New Roman, Times, Serif"><u>Recently
Issued Accounting Guidance</u></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s
results of operations, financial position or cash flow.</font></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Basis of Presentation</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify">The accompanying unaudited
interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction
with the audited financial statements and notes thereto contained in the Company’s Form 10-K filed with the SEC as of and
for the year ended December 31, 2012. In the opinion of management, all adjustments necessary for the financial statements to be
not misleading for the interim periods presented have been reflected herein. The results of operations for interim periods are
not necessarily indicative of the results to be expected for the full year.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Accounting Basis</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company uses the accrual basis of accounting
and accounting principles generally accepted in the United States of America (“GAAP” accounting). The Company has adopted
a December 31 fiscal year end.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify"><u>Principles of Consolidation</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify">The financial statements
reflect the consolidated results of OptimizeRx Corporation (a Nevada corporation) and its wholly owned subsidiary OptimizeRx Corporation
(a Michigan corporation). All material inter-company transactions have been eliminated in the consolidation.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify"><u>Cash and Cash Equivalents</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify">For purposes of the
accompanying financial statements, the Company considers all highly liquid instruments with an initial maturity of three months
or less to be cash equivalents.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Fair Value of Financial Instruments</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify">The fair value of cash,
accounts receivable, prepaid expenses, patent rights, web development costs, accounts payable, accounts payable – related
party, accrued expenses and deferred revenue approximates the carrying amount of these financial instruments due to their short-term
nature. The fair value of long-term debt, which approximates its carrying value, is based on current rates at which the Company
could borrow funds with similar remaining maturities.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><u>Accounts
Receivable and Allowance for Doubtful Accounts</u></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">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. Bad debt expense was $0 for the six months ended June 30, 2013 and 2012, respectively. The allowance for
doubtful accounts was $0 as of June 30, 2013 and December 31, 2012, respectively.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Property and Equipment</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify">The capital assets
are being depreciated over their estimated useful lives, three to seven years using the straight-line method of depreciation for
book purposes.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><u>Revenue Recognition</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">All revenue is recognized when it is earned.
Revenues are generated either through the Company’s website activities, in which we earn revenue from advertising and lead
generation activities, or from our SampleMD activities, which include offering setup within the systems and our offers, coupons,
and vouchers that enable our customers to save money on medical products and services. The Company’s processes are monitored
by third parties who collect revenues from clients on a per activity basis and report and forward the revenue to the Company’s
account.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><u>Research and Development</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify">The Company’s
key members are part of a continual research development team and monitor new technologies, trends, services and partnerships that
can provide the Company with additional services, value to healthcare and pharmaceutical industries and to the patients it serves.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0.25in 0 0; letter-spacing: -0.1pt; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify">The Company seeks to
educate team members through understanding of all market dynamics that have the potential to affect the business both short term
and longer term. The primary goal is to help patients better afford and access the medicines their doctor prescribes, as well as
other healthcare products and services they need. Based on this, the Company continually seeks better ways to meet this mission
through technology, better user experiences and new ways to engage industries to provide new support for patients needing their
products. The Company is always seeking new services and solutions to offer. At this time, the three current platforms provide
robust opportunities and growth during the next five years.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><u>Income Taxes</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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 bases 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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><u>Concentration of Credit Risks</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><u>Use of Estimates</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify">The preparation of
financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Estimates and assumptions have been made in determining the depreciable lives
of such assets and the allowance for doubtful accounts receivable. Actual results could differ from these estimates.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Earnings Per Common and Common Equivalent
Share</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify">The computation of
basic earnings per common share is computed using the weighted average number of common shares outstanding during the year. The
computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the year
plus common stock equivalents which would arise from the exercise of warrants outstanding using the treasury stock method and the
average market price per share during the year. Options, warrants and convertible preferred stock which are common stock equivalents
are not included in the diluted earnings per share calculation for June 30, 2012 since their effect is anti-dilutive.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Impairment of Long-Lived Assets</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><u>Recently Issued Accounting Guidance</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify">The Company does not
expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of
operations, financial position or cash flow.</p>
0
0
--12-31
0
0
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify">Prepaid expenses consisted
of the following as of June 30, 2013 and December 31, 2012:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" align="center" style="width: 55%; border-collapse: collapse; font-size: 10pt">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2013</td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2012</td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="padding-left: 5.4pt; width: 54%">Insurance</td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 20%">6,584</td>
<td style="text-align: left; width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 20%">6,437</td>
<td style="text-align: left; width: 1%"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="padding-left: 5.4pt">Rent</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">5,049</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">5,049</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="padding-left: 5.4pt">Consulting</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">44,086</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">31,672</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="padding-bottom: 1pt; padding-left: 5.4pt">Legal</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">0</td>
<td style="text-align: left; padding-bottom: 1pt"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">25,000</td>
<td style="text-align: left; padding-bottom: 1pt"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left; padding-bottom: 2.5pt; padding-left: 5.4pt">Total prepaid expenses</td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">55,719</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">68,158</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" align="center" style="width: 55%; border-collapse: collapse; font-size: 10pt">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2013</td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2012</td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="padding-left: 5.4pt; width: 54%">Insurance</td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 20%">6,584</td>
<td style="text-align: left; width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 20%">6,437</td>
<td style="text-align: left; width: 1%"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="padding-left: 5.4pt">Rent</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">5,049</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">5,049</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="padding-left: 5.4pt">Consulting</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">44,086</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">31,672</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="padding-bottom: 1pt; padding-left: 5.4pt">Legal</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">0</td>
<td style="text-align: left; padding-bottom: 1pt"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">25,000</td>
<td style="text-align: left; padding-bottom: 1pt"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left; padding-bottom: 2.5pt; padding-left: 5.4pt">Total prepaid expenses</td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">55,719</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">68,158</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td></tr>
</table>
6584
6437
5049
5049
44086
31672
0
25000
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company owned equipment recorded at cost
which consisted of the following as of June 30, 2013 and December 31, 2012:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: center"> </p>
<table cellspacing="0" cellpadding="0" align="center" style="width: 55%; border-collapse: collapse; font-size: 10pt">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2013</td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2012</td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left; padding-left: 5.4pt; width: 54%">Computer equipment</td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 20%">22,360</td>
<td style="text-align: left; width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 20%">22,360</td>
<td style="text-align: left; width: 1%"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">Furniture and fixtures</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">11,088</td>
<td style="text-align: left; padding-bottom: 1pt"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">11,088</td>
<td style="text-align: left; padding-bottom: 1pt"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="padding-left: 5.4pt">Subtotal</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">33,448</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">33,448</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">Accumulated depreciation</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">(15,577</td>
<td style="text-align: left; padding-bottom: 1pt">)</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">(12,763</td>
<td style="text-align: left; padding-bottom: 1pt">)</td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left; padding-bottom: 2.5pt; padding-left: 5.4pt">Property and equipment, net</td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">17,871</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">20,685</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Depreciation expense was $1,407 and $1,412
for the three months ended June 30, 2013 and 2012, respectively. Depreciation expense was $2,814 and $2,712 for the six months
ended June 30, 2013 and 2012, respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" align="center" style="width: 55%; border-collapse: collapse; font-size: 10pt">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2013</td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2012</td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left; padding-left: 5.4pt; width: 54%">Computer equipment</td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 20%">22,360</td>
<td style="text-align: left; width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 20%">22,360</td>
<td style="text-align: left; width: 1%"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">Furniture and fixtures</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">11,088</td>
<td style="text-align: left; padding-bottom: 1pt"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">11,088</td>
<td style="text-align: left; padding-bottom: 1pt"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="padding-left: 5.4pt">Subtotal</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">33,448</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">33,448</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">Accumulated depreciation</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">(15,577</td>
<td style="text-align: left; padding-bottom: 1pt">)</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">(12,763</td>
<td style="text-align: left; padding-bottom: 1pt">)</td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left; padding-bottom: 2.5pt; padding-left: 5.4pt">Property and equipment, net</td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">17,871</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">20,685</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td></tr>
</table>
2814
1407
1412
2712
22360
22360
11088
11088
33448
33448
-15577
-12763
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company has capitalized costs in developing
their website and web-based products, which consisted of the following as of June 30, 2013 and December 31, 2012:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" align="center" style="width: 55%; border-collapse: collapse; font-size: 10pt">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2013</td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2012</td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left; padding-left: 5.4pt; width: 54%">OptimizeRx web development</td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 20%">154,133</td>
<td style="text-align: left; width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 20%">154,133</td>
<td style="text-align: left; width: 1%"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">SampleMD web development</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">602,517</td>
<td style="text-align: left; padding-bottom: 1pt"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">602,517</td>
<td style="text-align: left; padding-bottom: 1pt"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left; padding-left: 5.4pt">Subtotal, web development costs</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">756,650</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">756,650</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; padding-left: 5.4pt">Accumulated amortization</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(375,497</td>
<td style="text-align: left">)</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(310,352</td>
<td style="text-align: left">)</td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="padding-bottom: 1pt; padding-left: 5.4pt">Impairment</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">(59,083</td>
<td style="text-align: left; padding-bottom: 1pt">)</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">(59,083</td>
<td style="text-align: left; padding-bottom: 1pt">)</td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; padding-bottom: 2.5pt; padding-left: 5.4pt">Web development costs, net</td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">322,070</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">387,215</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Amortization is recorded using the straight-line
method over a period of five years. The Company determined that the original OptimizeRx website was no longer useful so the remaining
unamortized balance of $59,083 was impaired as of December 31, 2010. Amortization expense for the web development costs was $32,572
and $32,241 for the three months ended June 30, 2013 and 2012, respectively. Amortization expense for the web development costs
was $65,145 and $63,288 for the six months ended June 30, 2013 and 2012, respectively.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" align="center" style="width: 55%; border-collapse: collapse; font-size: 10pt">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2013</td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2012</td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left; padding-left: 5.4pt; width: 54%">OptimizeRx web development</td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 20%">154,133</td>
<td style="text-align: left; width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 20%">154,133</td>
<td style="text-align: left; width: 1%"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">SampleMD web development</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">602,517</td>
<td style="text-align: left; padding-bottom: 1pt"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">602,517</td>
<td style="text-align: left; padding-bottom: 1pt"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left; padding-left: 5.4pt">Subtotal, web development costs</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">756,650</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">756,650</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; padding-left: 5.4pt">Accumulated amortization</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(375,497</td>
<td style="text-align: left">)</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(310,352</td>
<td style="text-align: left">)</td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="padding-bottom: 1pt; padding-left: 5.4pt">Impairment</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">(59,083</td>
<td style="text-align: left; padding-bottom: 1pt">)</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">(59,083</td>
<td style="text-align: left; padding-bottom: 1pt">)</td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; padding-bottom: 2.5pt; padding-left: 5.4pt">Web development costs, net</td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">322,070</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">387,215</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td></tr>
</table>
154133
154133
602517
602517
756650
756650
-375497
-310352
59083
-59083
322070
387215
65145
32572
32241
63288
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On April 26, 2010, the Company acquired from
an officer and shareholder the technical contributions and assignment of all exclusive rights to and for the SampleMD patent currently
in process in exchange for 300,000 shares of common stock to be granted at the discretion of the seller in addition to 200,000
stock options valued at $360,000. The shares were valued on the grant date at $570,000 and have been recorded as a payable to the
related party.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company has capitalized costs in purchasing
the SampleMD patent, which consisted of the following as of June 30, 2013 and December 31, 2012:</p>
<p style="font: 10pt/6pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" align="center" style="width: 55%; border-collapse: collapse; font-size: 10pt">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2013</td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2012</td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left; padding-left: 5.4pt; width: 54%">Patent rights and intangible assets</td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 20%">968,278</td>
<td style="text-align: left; width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 20%">930,000</td>
<td style="text-align: left; width: 1%"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">Accumulated amortization</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">(165,142</td>
<td style="text-align: left; padding-bottom: 1pt">)</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">(136,764</td>
<td style="text-align: left; padding-bottom: 1pt">)</td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left; padding-bottom: 2.5pt; padding-left: 5.4pt">Patent rights and intangible assets, net</td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">803,136</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">793,236</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company began amortizing the patent, using
the straight-line method over the estimated useful life of 17 years, once it was put into service in July 2010. In 2013, the Company
began incurring costs related to defense of the patent. These costs have been capitalized and will be amortized using the straight-line
method over the remaining useful life of the original patent. Amortization expense was $14,246 and $13,676 for the three months
ended June 30, 2013 and 2012, respectively. Amortization expense was $28,378 and $27,352 for the six months ended June 30, 2013
and 2012, respectively.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" align="center" style="width: 55%; border-collapse: collapse; font-size: 10pt">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2013</td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2012</td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left; padding-left: 5.4pt; width: 54%">Patent rights and intangible assets</td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 20%">968,278</td>
<td style="text-align: left; width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 20%">930,000</td>
<td style="text-align: left; width: 1%"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">Accumulated amortization</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">(165,142</td>
<td style="text-align: left; padding-bottom: 1pt">)</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">(136,764</td>
<td style="text-align: left; padding-bottom: 1pt">)</td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left; padding-bottom: 2.5pt; padding-left: 5.4pt">Patent rights and intangible assets, net</td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">803,136</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">793,236</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td></tr>
</table>
968278
930000
-165142
-136764
803136
793236
300000
200000
360000
570000
28378
14246
13676
27352
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On January 14, 2013, the Company hired a new
CEO. The employment agreement requires annual compensation of $175,000 that will be accrued and deferred until at least January
1, 2014. Additionally, the agreement requires the issuance of 2,000,000 options with an exercise price of $1.00 for a term of five
years. The options are not exercisable until at least January 1, 2014. The Company has accrued $87,500, or six months compensation,
at June 30, 2013.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Accrued expenses consisted of the following
as of June 30, 2013 and December 31, 2012:</p>
<p style="font: 10pt/6pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/6pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" align="center" style="width: 55%; border-collapse: collapse; font-size: 10pt">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2013</td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2012</td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left; padding-left: 5.4pt; width: 54%">Accrued compensation</td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 20%">87,500</td>
<td style="text-align: left; width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 20%">0</td>
<td style="text-align: left; width: 1%"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">Accrued audit fees</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">0</td>
<td style="text-align: left; padding-bottom: 1pt"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">6,000</td>
<td style="text-align: left; padding-bottom: 1pt"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left; padding-bottom: 2.5pt; padding-left: 5.4pt">Total accrued expenses</td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">87,500</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">6,000</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" align="center" style="width: 55%; border-collapse: collapse; font-size: 10pt">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2013</td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2012</td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left; padding-left: 5.4pt; width: 54%">Accrued compensation</td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 20%">87,500</td>
<td style="text-align: left; width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 20%">0</td>
<td style="text-align: left; width: 1%"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">Accrued audit fees</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">0</td>
<td style="text-align: left; padding-bottom: 1pt"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">6,000</td>
<td style="text-align: left; padding-bottom: 1pt"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left; padding-bottom: 2.5pt; padding-left: 5.4pt">Total accrued expenses</td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">87,500</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">6,000</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td></tr>
</table>
87500
0
0
6000
87500
6000
175000
2000000
1.00
P5Y
<p style="margin: 0pt"><font style="font: 10pt Times New Roman, Times, Serif">The Company has signed several contracts with customers
for either the distribution or redemption of coupons. The payments are not taken into revenue until either the coupon is distributed
to a patient or the coupon has been redeemed depending on the specific contract. The distributions and redemptions are tracked
by the company’s administrative tool. Additionally, customer setup contracts that have been paid in full are deferred until
the Company has completed the obligations of the contacts. Deferred revenue was $42,620 and $49,252 as of June 30, 2013 and December
31, 2012, respectively</font></p>
<p></p>
<p style="margin: 0pt"><font style="font: 10pt Times New Roman, Times, Serif">During the year ended December 31, 2010, the Company
acquired from an officer and shareholder the technical contributions and assignment of all exclusive rights to and for the SampleMD
patent currently in process in exchange for 300,000 shares of common stock to be granted at the discretion of the seller in addition
to 200,000 stock options valued at $360,000. The shares were valued on the grant date at $570,000 and have been recorded as a
payable to the related party.</font></p>
<p></p>
300000
200000
360000
570000
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">OptimizeRx
Corporation has 500,000,000 shares of $.001 par value common stock authorized as of June 30, 2013.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">There
were 14,252,496 and 14,232,496 common shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">On
June 1, 2012, the Company entered into a consulting agreement with North Coast Advisors, Inc. for various services. The Company
agreed to issue 40,000 shares of common stock as of the date of the contract. However, these shares were not issued until July
12, 2012. The Company also agreed to issue an additional 40,000 shares every six months in alignment with the agreement renewal
up to the two years of the agreement. The first 40,000 shares were valued at the Company’s common stock price as of the date
of the contract, which was $1.12/share and has been expensed. No additional shares were issued and the agreement was voided and
replaced by a new agreement as noted below.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">On
June 1, 2013, the Company entered into a consulting agreement with North Coast Advisors, Inc. for various services. The Company
agreed to issue 20,000 shares of common stock as of the date of the contract. The Company also agreed to issue an additional 20,000
shares every six months in alignment with the agreement renewal up to the two years of the agreement. The first 20,000 shares
were valued at the Company’s common stock price as of the date of the contract, which was $1.945/share and has been expensed.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="margin: 0pt"></p>
40000
20000
40000
20000
1.12
1.945
P2Y
P2Y
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><u>Series
A Preferred</u></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">During
the year ended December 31, 2008, 35 preferred shares were issued for $3,500,000. Issuance costs totaled $515,000 resulting in
net proceeds of $2,985,000. The 35 shares are convertible to 3,500,000 shares of common stock and bear a 10% cumulative dividend.
In addition, there was a warrant issued to purchase 6,000,000 shares of common stock at an exercise price of $2 for a period of
seven years.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
holders of the preferred stock are entitled to semi-annual dividends payable on the stated value of the Series A preferred stock
at a rate of 10% per annum, which shall be cumulative, and accrue daily from the issuance date. The dividends may be paid in cash
or shares of the Company's common stock at management’s discretion. If after the conversion eligibility date, the market
price for the common stock for any ten consecutive trading days in which the stock trades for over $2 per share and trading exceeds
100,000 shares per day, the preferred shareholders can be required to convert their shares to common stock. Each share of Series
A preferred stock shall also be convertible at the option of the holder into that number of shares of common stock of the Company
at the stated value of such share at a $1 conversion price.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif">  </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><u>Series
A Preferred Continued</u></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
holder may cause this conversion at the time the shares are eligible for resale by the holder. The conversion price is subject
to adjustment as hereinafter provided, at any time, or from time to time upon the terms and in the manner hereinafter set forth
in the shareholder agreement. There is no conversion expiration date, however, the holder must provide 30 days notice for the
registration of the conversion.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">On
May 12, 2010, the Company’s Board declared and issued 236,598 common shares as payment for all cumulative and current semi-annual
dividends. On November 16, 2010, the Company’s Board declared and issued 173,922 common shares for its semi-annual dividend
payment. On March 25, 2011, the Company’s Board declared and issued 176,768 common shares for its semi-annual dividend payment.
On September 21, 2011, the Company's Board declared and issued 156,306 common shares for its semi-annual dividend payment. The
Company has undeclared dividends that were due in February and September 2012 totaling $350,000 and undeclared dividends of $175,000
that were due in February 2013 for a total undeclared amount of $525,000 as of June 30, 2013.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><u>Series
B Preferred</u></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">During
the year ended December 31, 2010, 15 preferred shares were issued for $1,500,000. The 15 shares are convertible to 1,000,000 shares
of common stock and bear a 10% cumulative dividend. In addition, there was a warrant issued to purchase 3,000,000 shares of common
stock at an exercise price of $3 for a period of seven years.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
preferred stock was issued for $1,500,000 less associated issuance costs of $350,000 for net proceeds of $1,150,000. Additionally,
3,000,000 common stock warrants were issued with the preferred stock. Based on the fair values of the preferred stock and common
stock warrants on the issue date, $341,100 was allocated to preferred stock and $1,158,900 was allocated to the common stock warrants.
Equity issuance costs of $350,000 were allocated to the preferred stock.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">During
the quarter ended September 30, 2011, 15 preferred shares were issued to an investor for $1,500,000. The 15 shares are convertible
to 1,000,000 shares of common stock and bear a 10% cumulative dividend. In addition, there was a warrant issued to purchase 1,000,000
shares of common stock at an exercise price of $3 for a period of seven years. Based on the fair values of the preferred stock
and common stock warrants on the issue date, $855,460 was allocated to preferred stock and $644,540 was allocated to the common
stock warrants. See Note 12.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
holders of the preferred stock are entitled to semi-annual dividends payable on the stated value of the Series B preferred stock
at a rate of 10% per annum, which shall be cumulative, and accrue daily from the issuance date. The dividends may be paid in cash
or shares of the Company's common stock at management’s discretion. If after the conversion eligibility date, the market
price for the common stock for any ten consecutive trading days in which the stock trades for over $2 per share and trading exceeds
100,000 shares per day, the preferred shareholders can be required to convert their shares to common stock. Each share of Series
B preferred stock shall also be convertible at the option of the holder into that number of shares of common stock of the Company
at the stated value of such share at a $1.50 conversion price.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><u>Series
B Preferred Continued</u></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
holder may cause this conversion at the time the shares are eligible for resale by the holder. The conversion price is subject
to adjustment as hereinafter provided, at any time, or from time to time upon the terms and in the manner hereinafter set forth
in the shareholder agreement. On March 25, 2011, the Company’s Board declared and issued 75,758 common shares for its semi-annual
dividend payment. On September 21, 2011, the Company's Board declared and issued 66,988 common shares for its semi-annual dividend
payment. The Company has undeclared dividends that were due in February and September 2012 totaling $150,000 and undeclared dividends
of $75,000 that were due in February 2013 for a total undeclared amount of $225,000 as of June 30, 2013.</font></p>
<p style="margin: 0pt"></p>
35
3500000
515000
2985000
3500000
.10
6000000
3000000
2.00
3.00
P7Y
P7Y
15
1500000
1000000
10
3000000
350000
1500000
341100
1158900
176768
156306
236598
173922
75758
66988
225000
150000
75000
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company accounts for employee stock-based
compensation in accordance with the guidance of ASC Topic 718: Compensation - Stock Compensation, which requires all share-based
payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their
fair values.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company follows ASC Topic 505-50, formerly
EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with
Selling Goods and Services,” for stock options and warrants issued to consultants and other non-employees. In accordance
with ASC Topic 505-50, these stock options and warrants issued as compensation for services provided to the Company are accounted
for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can
be more clearly determined. 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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On May 31, 2011, the Company issued 285,000
stock options to 3 employees at an exercise price of $1.00. The options were valued on the grant date using the Black-Scholes option-pricing
model with the following assumptions: dividend yield of 0%, expected volatility of 218%, risk-free interest rate of 1.68% and expected
life of 60 months. The total value of the options was $320,585. The options vest over one year. The Company recognized share-based
compensation expense of $187,005 during the year ended December 31, 2011. The remaining balance of $133,580 was recognized over
the first five months of 2012.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the quarter ended December 31, 2011,
the Company issued 20,000 stock options to 2 employees at an exercise price of $1.00. The options were valued on the grant date
using the Black-Scholes option-pricing model with the following assumptions: dividend yield of 0%, expected volatility of 204-205%,
risk-free interest rate of 0.88-0.93% and expected life of 60 months. The total value of the options was $19,270. The options vest
over one year. <font style="color: black; background-color: white"> </font><font style="background-color: white">The Company<font style="color: black">
recognized share-based compensation expense of $2,480 during the year ended </font>December 31, 2011 a<font style="color: black">nd
$9,633 during the </font>six months ended June 30, 2012<font style="color: black">. The remaining balance was recognized during
the remainder of 2012. </font></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On November 21, 2011, the Company issued 100,000
stock options to an individual at an exercise price of $0.73. The options were valued on the grant date using the Black-Scholes
option-pricing model with the following assumptions: dividend yield of 0%, expected volatility of 205%, risk-free interest rate
of 0.92% and expected life of 60 months. <font style="background-color: white"> The Company recognized expenses of $8,346 during
the year ended December 31, 2011 and $50,078 during the six months ended June</font> 30, 2012.<font style="background-color: white">
The remaining balance was recognized during the remainder of 2012.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the quarter ended March 31, 2012, the
Company issued 50,000 stock options to 4 non-employees at an exercise price of $0.89. The options were valued on the grant date
using the Black-Scholes option-pricing model with the following assumptions: dividend yield of 0%, expected volatility of 198%,
risk-free interest rate of 0.65% and expected life of 48 months. The total value of the options was $35,091. The options vest over
4 months. The Company recognized share-based compensation expense of $35,091 during the six months ended June 30, 2012.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the quarter ended December 31, 2012,
the Company issued 25,000 stock options to a non-employee at an exercise price of $1.58. The options were valued on the grant date
using the Black-Scholes option-pricing model with the following assumptions: dividend yield of 0%, expected volatility of 200%,
risk-free interest rate of 0.67% and expected life of 60 months. The total value of the options was $40,007. The options vest over
1 year. The Company recognized share-based compensation expense of $8,335 during the three months ended December 31, 2012 and $20,004
during the six months ended June 30, 2013. The remaining balance will be recognized over the remainder of 2013.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company had the following options outstanding
as of June 30, 2013:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" align="center" style="width: 65%; border-collapse: collapse; font-size: 10pt">
<tr>
<td style="padding-left: 5.75pt; width: 47%; padding-right: 5.75pt; vertical-align: top"> </td>
<td style="border-bottom: windowtext 1pt solid; text-align: center; padding-left: 5.75pt; width: 28%; padding-right: 5.75pt; vertical-align: bottom"><font style="font: 10pt Times New Roman, Times, Serif">Number of Options</font></td>
<td style="border-bottom: windowtext 1pt solid; text-align: center; padding-left: 5.75pt; width: 25%; padding-right: 5.75pt; vertical-align: bottom"><font style="font: 10pt Times New Roman, Times, Serif">Weighted average exercise</font><br /><font style="font: 10pt Times New Roman, Times, Serif">price</font></td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">Outstanding, January 1, 2012</font></td>
<td style="text-align: right; padding-left: 5.75pt; padding-right: 4.1pt"><font style="font: 10pt Times New Roman, Times, Serif">405,000</font></td>
<td style="text-align: right; padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">$ 1.01 </font></td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">Granted - 2012</font></td>
<td style="text-align: right; padding-left: 5.75pt; padding-right: 4.1pt"><font style="font: 10pt Times New Roman, Times, Serif">75,000 </font></td>
<td style="text-align: right; padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">1.17 </font></td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">Exercised - 2012</font></td>
<td style="text-align: right; padding-left: 5.75pt; padding-right: 4.1pt"><font style="font: 10pt Times New Roman, Times, Serif">0 </font></td>
<td style="text-align: right; padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">0 </font></td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">Expired - 2012</font></td>
<td style="border-bottom: windowtext 1pt solid; text-align: right; padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">(455,000)</font></td>
<td style="border-bottom: windowtext 1pt solid; text-align: right; padding-left: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">(.98)</font></td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">Balance, December 31, 2012</font></td>
<td style="text-align: right; padding-left: 5.75pt; padding-right: 4.1pt"><font style="font: 10pt Times New Roman, Times, Serif">25,000 </font></td>
<td style="text-align: right; padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">1.58 </font></td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">Granted - 2013</font></td>
<td style="text-align: right; padding-left: 5.75pt; padding-right: 4.1pt"><font style="font: 10pt Times New Roman, Times, Serif">0 </font></td>
<td style="text-align: right; padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">0</font></td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">Exercised - 2013</font></td>
<td style="text-align: right; padding-left: 5.75pt; padding-right: 4.1pt"><font style="font: 10pt Times New Roman, Times, Serif">0 </font></td>
<td style="text-align: right; padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">0 </font></td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">Expired - 2013</font></td>
<td style="border-bottom: windowtext 1pt solid; text-align: right; padding-left: 5.75pt; padding-right: 4.1pt"><font style="font: 10pt Times New Roman, Times, Serif">0</font></td>
<td style="border-bottom: windowtext 1pt solid; text-align: right; padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">0</font></td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">Balance, June 30, 2013</font></td>
<td style="border-bottom: windowtext 1.5pt double; text-align: right; padding-left: 5.75pt; padding-right: 4.1pt"><font style="font: 10pt Times New Roman, Times, Serif">25,000 </font></td>
<td style="border-bottom: windowtext 1.5pt double; text-align: right; padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">$ 1.58 </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company had the following warrants outstanding
as of June 30, 2013:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" align="center" style="width: 65%; border-collapse: collapse; font-size: 10pt">
<tr style="vertical-align: bottom">
<td colspan="3" style="text-align: center"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">Number of Warrants</td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">Weighted average exercise price</td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left; width: 1%"> </td>
<td style="text-align: right; width: 33%; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">Outstanding, January 1, 2012</font></td>
<td style="text-align: left; width: 1%"> </td>
<td style="text-align: left; width: 1%"> </td>
<td style="text-align: right; width: 31%">14,344,434</td>
<td style="text-align: left; width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 30%">2.41</td>
<td style="text-align: left; width: 1%"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left"> </td>
<td style="text-align: right; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">Granted - 2012</font></td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">0</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">0</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left"> </td>
<td style="text-align: right; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">Exercised - 2012</font></td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">0</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">0</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">Expired - 2012</font></td>
<td style="text-align: left; padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">0</td>
<td style="text-align: left; padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">0</td>
<td style="text-align: left; padding-bottom: 1pt"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left"> </td>
<td style="text-align: right; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">Balance, December 31, 2012</font></td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">14,344,434</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2.41</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left"> </td>
<td style="text-align: right; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">Granted - 2013</font></td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">0</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">0</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left"> </td>
<td style="text-align: right; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">Exercised - 2013</font></td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">0</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">0</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">Expired - 2013</font></td>
<td style="text-align: left; padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">0</td>
<td style="text-align: left; padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">0</td>
<td style="text-align: left; padding-bottom: 1pt"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="border-bottom: black 2.5pt double; text-align: left"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">Balance, June 30, 2013</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right">14,344,434</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">2.41</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" align="center" style="width: 65%; border-collapse: collapse; font-size: 10pt">
<tr>
<td style="padding-left: 5.75pt; width: 47%; padding-right: 5.75pt; vertical-align: top"> </td>
<td style="border-bottom: windowtext 1pt solid; text-align: center; padding-left: 5.75pt; width: 28%; padding-right: 5.75pt; vertical-align: bottom"><font style="font: 10pt Times New Roman, Times, Serif">Number of Options</font></td>
<td style="border-bottom: windowtext 1pt solid; text-align: center; padding-left: 5.75pt; width: 25%; padding-right: 5.75pt; vertical-align: bottom"><font style="font: 10pt Times New Roman, Times, Serif">Weighted average exercise</font><br /><font style="font: 10pt Times New Roman, Times, Serif">price</font></td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">Outstanding, January 1, 2012</font></td>
<td style="text-align: right; padding-left: 5.75pt; padding-right: 4.1pt"><font style="font: 10pt Times New Roman, Times, Serif">405,000</font></td>
<td style="text-align: right; padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">$ 1.01 </font></td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">Granted - 2012</font></td>
<td style="text-align: right; padding-left: 5.75pt; padding-right: 4.1pt"><font style="font: 10pt Times New Roman, Times, Serif">75,000 </font></td>
<td style="text-align: right; padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">1.17 </font></td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">Exercised - 2012</font></td>
<td style="text-align: right; padding-left: 5.75pt; padding-right: 4.1pt"><font style="font: 10pt Times New Roman, Times, Serif">0 </font></td>
<td style="text-align: right; padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">0 </font></td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">Expired - 2012</font></td>
<td style="border-bottom: windowtext 1pt solid; text-align: right; padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">(455,000)</font></td>
<td style="border-bottom: windowtext 1pt solid; text-align: right; padding-left: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">(.98)</font></td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">Balance, December 31, 2012</font></td>
<td style="text-align: right; padding-left: 5.75pt; padding-right: 4.1pt"><font style="font: 10pt Times New Roman, Times, Serif">25,000 </font></td>
<td style="text-align: right; padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">1.58 </font></td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">Granted - 2013</font></td>
<td style="text-align: right; padding-left: 5.75pt; padding-right: 4.1pt"><font style="font: 10pt Times New Roman, Times, Serif">0 </font></td>
<td style="text-align: right; padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">0</font></td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">Exercised - 2013</font></td>
<td style="text-align: right; padding-left: 5.75pt; padding-right: 4.1pt"><font style="font: 10pt Times New Roman, Times, Serif">0 </font></td>
<td style="text-align: right; padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">0 </font></td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">Expired - 2013</font></td>
<td style="border-bottom: windowtext 1pt solid; text-align: right; padding-left: 5.75pt; padding-right: 4.1pt"><font style="font: 10pt Times New Roman, Times, Serif">0</font></td>
<td style="border-bottom: windowtext 1pt solid; text-align: right; padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">0</font></td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">Balance, June 30, 2013</font></td>
<td style="border-bottom: windowtext 1.5pt double; text-align: right; padding-left: 5.75pt; padding-right: 4.1pt"><font style="font: 10pt Times New Roman, Times, Serif">25,000 </font></td>
<td style="border-bottom: windowtext 1.5pt double; text-align: right; padding-left: 5.75pt; padding-right: 5.75pt"><font style="font: 10pt Times New Roman, Times, Serif">$ 1.58 </font></td></tr>
</table>
<table cellspacing="0" cellpadding="0" align="center" style="width: 65%; border-collapse: collapse; font-size: 10pt">
<tr style="vertical-align: bottom">
<td colspan="3" style="text-align: center"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">Number of Warrants</td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">Weighted average exercise price</td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left; width: 1%"> </td>
<td style="text-align: right; width: 33%; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">Outstanding, January 1, 2012</font></td>
<td style="text-align: left; width: 1%"> </td>
<td style="text-align: left; width: 1%"> </td>
<td style="text-align: right; width: 31%">14,344,434</td>
<td style="text-align: left; width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 30%">2.41</td>
<td style="text-align: left; width: 1%"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left"> </td>
<td style="text-align: right; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">Granted - 2012</font></td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">0</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">0</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left"> </td>
<td style="text-align: right; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">Exercised - 2012</font></td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">0</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">0</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">Expired - 2012</font></td>
<td style="text-align: left; padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">0</td>
<td style="text-align: left; padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">0</td>
<td style="text-align: left; padding-bottom: 1pt"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left"> </td>
<td style="text-align: right; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">Balance, December 31, 2012</font></td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">14,344,434</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2.41</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left"> </td>
<td style="text-align: right; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">Granted - 2013</font></td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">0</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">0</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left"> </td>
<td style="text-align: right; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">Exercised - 2013</font></td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">0</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">0</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">Expired - 2013</font></td>
<td style="text-align: left; padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">0</td>
<td style="text-align: left; padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">0</td>
<td style="text-align: left; padding-bottom: 1pt"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="border-bottom: black 2.5pt double; text-align: left"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">Balance, June 30, 2013</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right">14,344,434</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">2.41</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company signed a lease for new office space
on December 1, 2011 at an approximate rent of $5,000 per month. The new offices are in Rochester, Michigan. The lease is for three
years with an option to renew for an additional two years at approximately $5,200 per month with six months advance notice to exercise
the option. Minimum annual rent is as follows for the initial term of the lease:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" align="center" style="width: 50%; border-collapse: collapse; font-size: 10pt">
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: right; width: 49%; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">Year ended December 31, 2013</font></td>
<td style="text-align: left; width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 47%">60,591</td>
<td style="text-align: left; width: 1%"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: right">2014</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">55,542</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="border-bottom: black 1pt solid; text-align: right">2015</td>
<td style="text-align: left; padding-bottom: 1pt"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">0</td>
<td style="text-align: left; padding-bottom: 1pt"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="border-bottom: black 2.5pt double; text-align: right; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">Total lease commitment</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">116,133</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"> </p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" align="center" style="width: 50%; border-collapse: collapse; font-size: 10pt">
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: right; width: 49%; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">Year ended December 31, 2013</font></td>
<td style="text-align: left; width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 47%">60,591</td>
<td style="text-align: left; width: 1%"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: right">2014</td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">55,542</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="border-bottom: black 1pt solid; text-align: right">2015</td>
<td style="text-align: left; padding-bottom: 1pt"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">0</td>
<td style="text-align: left; padding-bottom: 1pt"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="border-bottom: black 2.5pt double; text-align: right; font-size: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">Total lease commitment</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">116,133</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td></tr>
</table>
60591
55542
0
116133
5000
25000
P3Y
P2Y
<p style="margin: 0pt"><font style="font: 10pt Times New Roman, Times, Serif"> The Company had two major customers that accounted
for 63% and two major customers that accounted for 53% of the Company’s revenues for the six months ended June 30, 2013 and
2012, respectively. The Company expects to continue to maintain these relationships with the customers.</font></p>
<p></p>
.63
.53
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">For the six months ended June 30, 2013, the
Company incurred net income of approximately $249,000 but has no tax liability. The Company began operations in 2007 and has previous
net operating loss carry-forwards of $13,843,000 through December 31, 2012. The cumulative loss of $13,594,000 will be carried
forward and can be used through the year 2033 to offset future taxable income. In the future, the cumulative net operating loss
carry-forward for income tax purposes may differ from the cumulative financial statement loss due to timing differences between
book and tax reporting.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The provision for Federal income tax consists
of the following for the six months ended June 30, 2013 and 2012:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" align="center" style="width: 50%; border-collapse: collapse; font-size: 10pt">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2013</td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2012</td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left">Federal income tax benefit attributable to:</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; width: 54%">Current operations</td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 20%">(84,000</td>
<td style="text-align: left; width: 1%">)</td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 20%">102,000</td>
<td style="text-align: left; width: 1%"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left; padding-bottom: 1pt">Valuation allowance</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">84,000</td>
<td style="text-align: left; padding-bottom: 1pt"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">(102,000</td>
<td style="text-align: left; padding-bottom: 1pt">)</td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; padding-bottom: 2.5pt">Net provision for federal income tax</td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">0</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">0</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The cumulative tax effect at the expected rate
of 34% of significant items comprising our net deferred tax amount is as follows as of June 30, 2013 and December 31, 2012:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; letter-spacing: -0.1pt; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" align="center" style="width: 50%; border-collapse: collapse; font-size: 10pt">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2013</td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2012</td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left">Deferred tax asset attributable to:</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; width: 54%">Net operating loss carryover</td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 20%">4,622,000</td>
<td style="text-align: left; width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 20%">4,706,000</td>
<td style="text-align: left; width: 1%"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left; padding-bottom: 1pt">Valuation allowance</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">(4,622,000</td>
<td style="text-align: left; padding-bottom: 1pt">)</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">(4,706,000</td>
<td style="text-align: left; padding-bottom: 1pt">)</td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; padding-bottom: 2.5pt">Net deferred tax asset</td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">0</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">0</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Due to the change in ownership provisions of
the Tax Reform Act of 1986, net operating loss carry forwards of approximately $13,594,000 for Federal income tax reporting purposes
are subject to annual limitations. Should a change in ownership occur, net operating loss carry forwards may be limited as to use
in future years.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" align="center" style="width: 50%; border-collapse: collapse; font-size: 10pt">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2013</td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2012</td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left">Federal income tax benefit attributable to:</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; width: 54%">Current operations</td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 20%">(84,000</td>
<td style="text-align: left; width: 1%">)</td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 20%">102,000</td>
<td style="text-align: left; width: 1%"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left; padding-bottom: 1pt">Valuation allowance</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">84,000</td>
<td style="text-align: left; padding-bottom: 1pt"> </td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">(102,000</td>
<td style="text-align: left; padding-bottom: 1pt">)</td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; padding-bottom: 2.5pt">Net provision for federal income tax</td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">0</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">0</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td></tr>
</table>
<table cellspacing="0" cellpadding="0" align="center" style="width: 50%; border-collapse: collapse; font-size: 10pt">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2013</td>
<td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2012</td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left">Deferred tax asset attributable to:</td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; width: 54%">Net operating loss carryover</td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 20%">4,622,000</td>
<td style="text-align: left; width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 20%">4,706,000</td>
<td style="text-align: left; width: 1%"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left; padding-bottom: 1pt">Valuation allowance</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">(4,622,000</td>
<td style="text-align: left; padding-bottom: 1pt">)</td>
<td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">(4,706,000</td>
<td style="text-align: left; padding-bottom: 1pt">)</td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; padding-bottom: 2.5pt">Net deferred tax asset</td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">0</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">0</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td></tr>
</table>
-84000
102000
84000
-102000
0
0
4622000
4706000
-4622000
-4706000
0
0
249000
13594000
13843000
2033-01-01
.34
<p style="margin: 0pt"><font style="font: 10pt Times New Roman, Times, Serif">On January 14, 2013, the Company hired a new CEO.
The employment agreement requires annual compensation of $175,000 that will be accrued and deferred until at least January 1,
2014. Additionally, the agreement requires the issuance of 2,000,000 options with an exercise price of $1.00 for a term of five
years. The options are not exercisable until at least January 1, 2014, and are only exercisable after reaching certain financial
terms and conditions. Due to these restrictions, no accrual has been made for the issuance of these options</font></p>
<p></p>
2014-01-01
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Operating expenses consisted of the following
for the three months and six months ended June 30, 2013 and 2012, respectively:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 2.5in; text-indent: -13.5pt"> </p>
<table cellspacing="0" cellpadding="0" align="center" style="width: 65%; border-collapse: collapse; font-size: 10pt">
<tr style="vertical-align: bottom">
<td style="text-align: center"> </td>
<td colspan="6" style="border-bottom: black 1pt solid; text-align: center">Three months ended<br />June 30</td>
<td colspan="6" style="border-bottom: black 1pt solid; text-align: center">Six months ended <br />June 30</td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2013</td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2012</td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2013</td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2012</td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="padding-left: 5.4pt; width: 52%">Advertising</td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 10%">3,825</td>
<td style="text-align: left; width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 10%">32,651</td>
<td style="text-align: left; width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 10%">7,165</td>
<td style="text-align: left; width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 10%">43,921</td>
<td style="text-align: left; width: 1%"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; padding-left: 5.4pt">Professional fees</td>
<td style="text-align: left"> </td>
<td style="text-align: right">79,190</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">34,632</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">132,288</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">72,635</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="padding-left: 5.4pt">Consulting</td>
<td style="text-align: left"> </td>
<td style="text-align: right">19,722</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">1,220</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">40,129</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">7,835</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; padding-left: 5.4pt">Salaries, wages and benefits</td>
<td style="text-align: left"> </td>
<td style="text-align: right">320,188</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">294,570</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">695,259</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">601,465</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="padding-left: 5.4pt">Rent</td>
<td style="text-align: left"> </td>
<td style="text-align: right">15,148</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">15,148</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">30,296</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">32,066</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; padding-left: 5.4pt">Depreciation and amortization</td>
<td style="text-align: left"> </td>
<td style="text-align: right">48,226</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">47,329</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">96,337</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">93,352</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="padding-left: 5.4pt">Stock-based compensation</td>
<td style="text-align: left"> </td>
<td style="text-align: right">10,002</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">100,835</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">20,004</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">228,383</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="padding-left: 5.4pt">Revenue share expense</td>
<td style="text-align: left"> </td>
<td style="text-align: right">197,200</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">8,135</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">237,403</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">8,135</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">General and administrative</td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">56,465</td>
<td style="text-align: left; padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">57,110</td>
<td style="text-align: left; padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">265,257</td>
<td style="text-align: left; padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">134,160</td>
<td style="text-align: left; padding-bottom: 1pt"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; padding-bottom: 2.5pt; padding-left: 5.4pt">Total Operating Expenses</td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">749,966</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">591,630</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">1,524,138</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">1,221,952</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" align="center" style="width: 65%; border-collapse: collapse; font-size: 10pt">
<tr style="vertical-align: bottom">
<td style="text-align: center"> </td>
<td colspan="6" style="border-bottom: black 1pt solid; text-align: center">Three months ended<br />June 30</td>
<td colspan="6" style="border-bottom: black 1pt solid; text-align: center">Six months ended <br />June 30</td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2013</td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2012</td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2013</td>
<td colspan="3" style="border-bottom: black 1pt solid; text-align: center">2012</td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="padding-left: 5.4pt; width: 52%">Advertising</td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 10%">3,825</td>
<td style="text-align: left; width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 10%">32,651</td>
<td style="text-align: left; width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 10%">7,165</td>
<td style="text-align: left; width: 1%"> </td>
<td style="text-align: left; width: 1%">$</td>
<td style="text-align: right; width: 10%">43,921</td>
<td style="text-align: left; width: 1%"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; padding-left: 5.4pt">Professional fees</td>
<td style="text-align: left"> </td>
<td style="text-align: right">79,190</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">34,632</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">132,288</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">72,635</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="padding-left: 5.4pt">Consulting</td>
<td style="text-align: left"> </td>
<td style="text-align: right">19,722</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">1,220</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">40,129</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">7,835</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; padding-left: 5.4pt">Salaries, wages and benefits</td>
<td style="text-align: left"> </td>
<td style="text-align: right">320,188</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">294,570</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">695,259</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">601,465</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="padding-left: 5.4pt">Rent</td>
<td style="text-align: left"> </td>
<td style="text-align: right">15,148</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">15,148</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">30,296</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">32,066</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; padding-left: 5.4pt">Depreciation and amortization</td>
<td style="text-align: left"> </td>
<td style="text-align: right">48,226</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">47,329</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">96,337</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">93,352</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="padding-left: 5.4pt">Stock-based compensation</td>
<td style="text-align: left"> </td>
<td style="text-align: right">10,002</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">100,835</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">20,004</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">228,383</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="padding-left: 5.4pt">Revenue share expense</td>
<td style="text-align: left"> </td>
<td style="text-align: right">197,200</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">8,135</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">237,403</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">8,135</td>
<td style="text-align: left"> </td></tr>
<tr style="background-color: rgb(204,238,204); vertical-align: bottom">
<td style="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">General and administrative</td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">56,465</td>
<td style="text-align: left; padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">57,110</td>
<td style="text-align: left; padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">265,257</td>
<td style="text-align: left; padding-bottom: 1pt"> </td>
<td style="border-bottom: black 1pt solid; text-align: left"> </td>
<td style="border-bottom: black 1pt solid; text-align: right">134,160</td>
<td style="text-align: left; padding-bottom: 1pt"> </td></tr>
<tr style="background-color: white; vertical-align: bottom">
<td style="text-align: left; padding-bottom: 2.5pt; padding-left: 5.4pt">Total Operating Expenses</td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">749,966</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">591,630</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">1,524,138</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right">1,221,952</td>
<td style="text-align: left; padding-bottom: 2.5pt"> </td></tr>
</table>
7165
3825
32651
43921
132288
79190
34632
72635
40129
19722
1220
7835
695259
320188
294570
601465
30296
15148
15148
32066
20004
10002
100835
228383
187005
133580
2480
9633
8346
50078
35091
8335
20004
237403
197200
8135
8135
265257
56465
57110
134160
<p style="margin: 0pt"><font style="font: 10pt Times New Roman, Times, Serif">In accordance with ASC 855-10, the Company has analyzed
its operations subsequent to June 30, 2013 through the date these financial statements were issued and has determined that it
does not have any material subsequent events to disclose in these financial statements other than the events described above.</font></p>
<p></p>
25000
405000
25000
75000
0
0
0
-455000
0
1.17
0
0
0
-0.98
0
14344434
14344434
14344434
14344434
2.41
2.41
2.41
2.41
0
0
0
0
0
0
0
0
0
0
0
0
1.58
1.01
1.58
1.00
1.00
.73
.89
1.58
P1Y
P1Y
P4M
P1Y
320585
19270
35091
40007
285000
20000
100000
50000
25000
P5Y
P3Y
P7Y
P17Y