Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Overview
We are a pioneering digital health company that provides healthcare
communications solutions for life science companies to connect and deliver relevant information to healthcare providers and patients.
As the largest digital health network of its kind, the OptimizeRx platform bridges the communication gap that exists between key
stakeholders in healthcare, including pharmaceutical companies, payers, hospitals, physicians, and patients, providing patient
affordability, access, and adherence directly at the point of care through EHRs and e-prescribing systems.
Historically, our revenue was generated primarily through the
facilitation of financial messages to health care providers via their EHR and ePrescribe systems using the OptimizeRx proprietary
network to solve the ever-increasing communication barriers between pharmaceutical representatives and healthcare providers that
have presented in the rapidly changing healthcare industry. Over time, as the demand for communication of an increasing variety
of different health information between life science companies, providers, and patients continues to rise, our platform has expanded
over the years to encompass additional solutions that enable healthcare providers to access information for patients at the point
of care. These solutions include brand messaging, therapeutic support messaging, brand support, and innovative patient engagement
services, all of which now make up a significant portion of our total revenue.
Our strategic focus remains on growing our existing client base
and generating greater and more consistent revenues in part through our continued shift in our business model toward enterprise
level engagements with recurring revenue streams, while also broadening our platform with innovative proprietary solutions such
as our TelaRepTM virtual communication solution and our AI-powered real-world evidence solution which uses sophisticated proprietary
algorithms to derive additional revenue from our existing network. In addition, we have continued to expand our team in preparation
for future growth aspirations, which may be supplemented with future acquisitions and other strategic collaborations and investments
to further solidify our market dominance in this space.
Our strategy for driving revenue growth is also expected to
work in tandem with our efforts to increase margin and profitability through the use of the aforementioned recurring revenue models
that have inherently higher margins.
Additionally, as the business continues to scale, operating
expenses are expected to remain relatively consistent given the nature of the Company’s business model, further driving profitability.
The following discussion includes an analysis and comparison
of the Company’s 2020 and 2019 fiscal year results of operations, liquidity and capital resources, and critical accounting
policies.
COVID-19 Business Update
During the COVID-19 pandemic, we have remained focused on being
a leading provider of digital health solutions to life science companies and connecting healthcare providers and patients along
the entire patient journey, while simultaneously expanding our client base, increasing our network of partners, and maintaining
the safety of our employees.
The COVID-19 pandemic has created unprecedented challenges in
the healthcare industry which has significantly increased the demand for unique solutions ranging from access to accurate and timely
information to increasing the accessibility of medications and care management. In March 2020, shortly after the World Health Organization
(WHO) declared COVID-19 a global pandemic, we launched a free interactive text message alert program available to the general public
that delivers current, relevant coronavirus information issued by the Centers for Disease Control and Prevention (CDC) directly
to any SMS-enabled mobile device. In April 2020, we launched our TelaRep communications solution to connect life science companies
and healthcare providers treating patients with specialty drug therapies in an environment facing a critical communication gap
with restricted face-to-face interactions. We also leveraged our digital platform to provide telehealth capabilities for healthcare
providers to adapt to COVID-19 restrictions.
17
During the beginning of the pandemic and onward, we transitioned
our global workforce to working remotely in an effort to maintain the health and safety of our employees. Governments of cities,
states, and countries globally have imposed restrictions on travel and business operations, which has curtailed various means of
performing business and marketing activities such as the attending of health IT conferences. We have been able to continue to achieve
our goals by leveraging innovative technology and existing resources while shifting strategies where necessary in areas such as
sales and marketing. As a result of these practices and initiatives, remote work arrangements and travel restrictions have not
had any adverse effects on our ability to maintain operations or achieve our goals. In addition, we have implemented health and
safety policies in our offices to enable our employees to safely return to traditional working arrangements should it become feasible.
The COVID-19 pandemic did not have an adverse impact on our
financial condition and results of operations in 2020, and we currently do not expect the results of future operations and our
near-and-long-term financial position and growth prospects to be negatively impacted by the pandemic given the nature of the business
and the increased demand for digital health solutions. We reported record year over year and quarterly net revenue results in 2020,
and we believe that the markets in which we compete will remain favorable. Additionally, there has been no impact on the accessibility
or terms of acquiring capital; we completed a public offering of common stock in February of 2021.
Information pertaining to risk factors as it relates to the
COVID-19 pandemic can be found in Item 1A. Risk Factors.
Results of Operations for the Years
Ended December 31, 2020 and 2019
Net Revenue
Our net revenue for the year ended December
31, 2020 was approximately $43.3 million, an increase of 76% from the year ended December 31, 2019. This increase resulted from
a combination of factors, including the shift to enterprise contracts, increased pharmaceutical brands, an increased distribution
network, strong growth in our brand messaging solution, and our acquisition of RMDY Health in late 2019. We expect continued strong
revenue growth in 2021 as a result of the foundations laid in 2019 and 2020.
Because the pharmaceutical industry is
dominated by large companies with multiple brands, our revenue is concentrated in a relatively small number of companies. We have
approximately 50 pharmaceutical companies as customers. We have focused our efforts on expanding our customer base and through
our acquisitions, have added medical device manufactures, payers, associations and other entities. In both 2020 and 2019, we had
three customers that each represented slightly over 10% of our revenues, however only one customer exceeded 10% of revenues in
both years.
Cost of Revenues
Our total cost of revenues, composed primarily
of revenue share expense, increased in the year ended December 31, 2020 compared to the year ended December 31, 2019 due to the
increase in revenues. Our cost of revenues as a percentage of revenue increased from approximately 37% in the year ended December
31, 2019 to approximately 44% in the year ended December 31, 2020.
This increase in our cost of revenues as
a percentage of revenue resulted primarily from solution mix, specifically the increase in our core messaging revenues that have
higher revenue share percentages.
18
Gross Margin
Our gross margin, which is simply the difference
between our revenues and our cost of revenues, discussed above, increased from 2019 to 2020 as a result of the increased revenue.
In addition, our gross margin percentage decreased from approximately 63% in 2019 to 56% in 2020 for the reasons discussed above
in the cost of revenues section. We expect our margins to remain in the 56% to 58% range in 2021.
Operating Expenses
Operating expenses increased to approximately
$26.2 million for the year ended December 31, 2020, from approximately $19.1 million for the year ended December 31, 2019, an increase
of approximately 37%. The detail by major category is reflected in the table below. Certain 2019 expenses were reclassified in
the table to be comparable to the 2020 presentation.
Years Ended December 31
Acquisition Related Costs - 799,623
The main drivers for the overall increase
in operating expenses in 2020 was our focus on staffing and scaling our company to foster, and be able to support, accelerated
revenue growth.
Within the operating expenses, there were
a variety of increases, the largest of which was in salaries, wages and benefits, as a result of additional staff added in 2019
and 2020, including related benefits. During 2019, we hired a chief commercial officer, a chief technology officer, five new salespeople,
a human resources manager, as well as other administrative positions at various times throughout the year. We also added 14 employees
as a result of our RMDY acquisition in October 2019. These 2019 additions were there for the entire year in 2020. During 2020,
we added to our staff in several key areas, including a head of product development, additional sales people, and additional IT
people, among others. We expect our compensation expense to increase in 2021, but at a much lower rate than in 2020.
Professional fees increased primarily because
of costs associated with our audit, as a result of our change to a larger, national firm, as well as increased legal costs due
to the increased complexity of our contracts. In addition, we incurred costs related to the finalization of our RMDY earnout.
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Acquisition costs are related to our acquisition
of RMDY Health in 2019. These costs include investment banker fees, legal and accounting due diligence, audit costs associated
with RMDY, valuation experts for the purchase price allocation, and other miscellaneous costs.
Board compensation increased slightly from
2019 to 2020 due to both an increase in the size of our board as well as a revision of the board compensation structure to pay
a larger portion in cash and a smaller portion in stock. This represents only the cash portion.
The cost of consultants increased from
2019 to 2020. The primary reason for the increase was related to consultants used in the IT area, primarily in the patient engagement
area, resulting from a full year of activity from the former RMDY Health business as opposed to a partial year in 2019.
Our advertising and promotion costs decreased
significantly from 2019 to 2020 as a result of a reduction in the sponsorship of, and attendance at, conferences as a result of
the global pandemic.
Expenses related to research, development,
management, and maintenance of our technology decreased in 2020 to more normal levels, as 2019 included significant nonrecurring
research projects.
Integration incentives and exclusivity
fees, which are fees paid to accelerate access to new partners and payments for exclusivity, increased in 2020, as we signed more
contracts and contracts with larger payments related to 2020.
Depreciation and amortization increased
significantly in 2020 from the 2019 levels. The increased amortization resulting from the acquisition of RMDY Health, and the resulting
intangible assets were amortized for a full year in 2020 as opposed to only part of the fourth quarter in 2019. We expect depreciation
and amortization expense in 2021 to be similar to 2020 levels.
Office, facility, and other costs increased
from 2019 to 2020. The main reason for the change related to a higher level of activity with more employees.
Stock based compensation increased by approximately
$900,000 from $2.3 million in 2019 to $3.2 million in 2020 primarily because of more employees and an increase in our stock price.
There is a relationship between the price of the stock at the time of the option grant and the value of the option, resulting in
a higher cost when the stock price is higher.
Net Loss
We finished the year ended December 31,
2020 with a net loss of approximately $2.2 million, as compared to a net loss of approximately $3.1 million during the year ended
December 31, 2019. The reasons for specific components are discussed above. Overall, we had an increase in revenue and gross margin
partially offset by increased operating expenses to support future growth. In addition, the income in both periods included significant
noncash items. We had approximately $3.5 million in noncash operating expenses in 2019 and approximately $5.2 million in noncash
operating expenses in 2020.
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Quarterly Financial Information
Following is a table of our quarterly operating results for
2020 for information purposes.
First Quarter Second Quarter Third Quarter Fourth Quarter Total Year
Income tax benefit - - - - -
Earnings (loss) per share
Sum of four quarterly per share amounts
does not equal annual total due to rounding and the mechanics of the weighted average shares outstanding calculation.
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Following is a table of our quarterly operating results for
2019 for information purposes.
First Quarter Second Quarter Third Quarter Fourth Quarter Total Year
Earnings (loss) per share
Liquidity and Capital Resources
As of December 31, 2020, we had total current
assets of approximately $32.9 million, compared with current liabilities of approximately $10.0 million, resulting in working capital
of approximately $22.9 million and a current ratio of approximately 3.3 to 1. This compares with the working capital balance of
approximately $21.0 million and the current ratio of 4.4 to 1 at December 31, 2019. This increase in working capital, as discussed
in more detail below, is primarily the result of the earnings before non-cash expenses.
Following is a table with summary data
from the consolidated statement of cash flows for the years ended December 31, 2020 and 2019, as presented.
Our operating activities used approximately
$6.3 million in the year ended December 31, 2020, as compared with approximately $1.7 million used in operating activities in the
year ended December 31, 2019. The cash used in both 2019 and 2020 was the result of our net loss and the increased working capital
required to support higher revenues, partially offset by our non-cash expenses.
We used approximately $125,000 in investing
activities in 2020, primarily as the result of purchase of assets. The majority of our approximately $10.6 million in investing
in activities in 2019 related to our acquisitions of RMDY Health, Inc., as well as a software purchase.
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Financing activities provided approximately
$22.2 million in the year ended December 31, 2019. The cash provided in 2019 was the result of our underwritten offering in 2019,
as well as from the proceeds of option exercises. We used cash of approximately $1.9 million in 2020 as the result of proceeds
of option exercises, partially offset by the payment of contingent consideration related to previous acquisitions.
With our cash on hand, we have sufficient
cash to operate our business for more than the next 12 months and we have raised approximately $71 million in February 2021 that
will enable us to continue to expand our business and accelerate revenue growth. We do not anticipate the need to raise any additional
cash.
Off Balance Sheet Arrangements
As of December 31, 2020, there were no
off-balance sheet arrangements.
Critical Accounting Policies
A “critical accounting policy”
is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s
most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that
are inherently uncertain.
Our accounting policies are discussed in
detail in the footnotes to our financial statements included in this Annual Report on Form 10-K for the year ended December 31,
2020; however, we consider our critical accounting policies to be those related to revenue recognition, calculation of revenue
share expense (cost of revenues), stock-based compensation, capitalization and related amortization of intangible assets and impairment
of assets. Following is a summary of those policies.
Revenue Recognition
Recognition of revenue requires evidence
of a contract, probable collection of proceeds, and completion of substantially all performance obligations. We use a 5-step model
to recognize revenue. These steps are: identify the contract with a customer, identify the performance obligations in the contract,
determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue
when or as the performance obligations are satisfied.
Revenues are primarily generated from content
delivery activities in which we deliver financial, clinical, or brand messaging through a distribution network of eprescribers
and electronic health record technology providers (channel partners), directly to consumers, or from reselling services that complement
the business. This content delivery for a customer is referred to as a program. Unless otherwise specified, revenue is recognized
based on the selling price to customers.
Our contracts are generally all less than
one year and the primary performance obligation is delivery of messages or other forms of content, but the contract may contain
additional services. Additional services may include program design, which is the design of the content delivery program, set up,
and reporting. We consider set up and reporting services to be complimentary to the primary performance obligation and recognized
through performance of the delivery of content. We consider these design of the programs and related consulting services to be
performance obligations separate from the delivery of messages.
As the content is distributed through the
platform and network of channel partners (a transaction), these transactions are recorded, and revenue is recognized, over time
as the distributions occur. Revenue for transactions can be realized based on a price per message, a price per redemption, as a
flat fee occurring over a period of time, or upon completion of the program, depending on the client contract. We recognize setup
fees that are required for integrating client offerings and campaigns into the rule-based content delivery system and network over
the life of the initial program, based either on time, or units delivered, depending upon which is most appropriate in the specific
situation. Should a program be cancelled before completion, the balance of set up revenue is recognized at the time of cancellation,
as set up fees are nonrefundable. Additionally, we also recognizes revenue for providing program performance reporting and maintenance,
either by our company directly delivering reports or by providing access to its online reporting portal that the client can utilize.
This reporting revenue is recognized over time as the messages are delivered. Program design, which is the design of the content
delivery program, and related consulting services are recognized as services are performed.
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We do not disaggregate our revenue as virtually
all types of revenue are generated through the same core group of customers and generally all involve the delivery of content.
Different types of revenue are not impacted by economic factors that affect the nature, amount, timing, or uncertainty of revenues
or cash flows.
In some instances, we also resell messaging
solutions that are available through channel partners that are complementary to the core business and client base. These partner
specific solutions are frequently similar to our own solutions and revenue recognition for these programs is the same as described
above. In instances where we sell solutions on a commission basis, net revenue is recognized based on the commission-based revenue
split that we receive. There were only minor immaterial programs recorded on a net basis in the years presented. In instances where
we resell these messaging solutions and have all financial risk and significant operation input and risk, we record the revenue
based on the gross amount sold and the amount paid to the channel partner as a cost of sales.
Cost of Revenues
The primary cost of revenue is revenue
share expense. Based on the volume of transactions that are delivered through the channel partner network, we provide a revenue
share to compensate the partner for their promotion of the campaign. Revenue shares are a negotiated percentage of the transaction
fees and can also be specific to special considerations and campaigns. In addition, we pay revenue share to ConnectiveRx (formerly
LDM/PDR) as a result of a 2014 legal settlement in an amount equal to the greater of 10% of financial messaging distribution revenues
generated through our integrated network, or $0.37 per financial message distributed through our integrated network. The contractual
amount due to the channel partners is recorded as an expense at the time the message is distributed.
Intangible Assets
Intangible assets are stated at cost. Finite-lived
assets are being amortized over their estimated useful lives of 15 to 17 years for patents, 8 to 15 years for customer relationships,
2 to 4 years for covenants not to compete, 10 years for technology, and 3 to 4 years for software and websites, all using the straight-line
method. These assets, as well as our indefinite-lived asset, are evaluated annually in our fiscal fourth quarter for impairment.
Goodwill
We evaluate goodwill for impairment during
our fiscal fourth quarter, or more frequently if an event occurs or circumstances change. We determined there was no impairment
as goodwill had a fair value comfortably in excess of its carrying value.
Stock-based Compensation
We use the fair value method to account
for stock-based compensation. The fair value of the equity instrument is charged directly to compensation expense and additional
paid-in capital over the period during which services are rendered. The fair value of each award is estimated on the date of each
grant. For restricted stock, the fair market value is based on the market value of the stock granted on the date of the grant.
For options, it is estimated using the Black-Scholes option pricing model that uses the following assumptions. Estimated volatilities
are based on the historical volatility of our stock over the same period as the expected term of the options. The expected term
of options granted represents the period of time that options granted are expected to be outstanding. We use historical data to
estimate option exercise behavior and to determine this term. The risk-free rate used is based on the U.S. Treasury yield curve
in effect at the time of the grant using a time period equal to the expected option term. We have never paid dividends and do not
expect to pay any dividends in the future.
The Black-Scholes option valuation model
and other existing models were developed for use in estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. These option valuation models require the input of, and are highly sensitive to, subjective assumptions
including the expected stock price volatility. Our stock options have characteristics significantly different from those of traded
options, and changes in the subjective input assumptions could materially affect the fair value estimate.
24
Recently Issued Accounting Pronouncements
In June 2016, the Financial Accounting
Standards Board (the “FASB”) issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments. ASU 2016-13 provides for a new impairment model that requires measurement and recognition of expected
credit losses for most financial assets and certain other instruments, including but not limited to accounts receivable and available
for sale debt securities. ASU 2016-13 was effective for us on January 1, 2020. The adoption of this standard did not have a material
effect on our financial position, results of operations, or cash flows.
In August 2019, the FASB issued ASU 2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU
2018-13 modifies the disclosure requirements on fair value measurements and became effective for us on January 1, 2020. The adoption
of this standard did not have a material effect on our financial position, results of operations, or cash flows.
In January 2017, the FASB issued ASU 2017-04,
Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the subsequent
measurement of goodwill by eliminating the second step of the goodwill impairment test. The second step measures a goodwill impairment
loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under
ASU 2017-04, a company will record an impairment charge based on the excess of a reporting unit’s carrying amount over its
fair value. ASU 2017-04 will be applied prospectively and is effective for annual or interim goodwill impairment tests in fiscal
years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed
on testing dates after January 1, 2017. The adoption of this standard did not have a material effect on our financial position,
results of operations, or cash flows.
Not Yet Adopted
In December 2019, the FASB issued ASU No.
2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to improve consistent application
and simplify the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and
clarifies and amends existing guidance. ASU 2019-12 is effective for annual and interim reporting periods beginning after December
15, 2020, with early adoption permitted. The adoption of this standard is not expected to have a material effect on our financial
position, results of operations, or cash flows.
25
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements Required
by Article 8 of Regulation S-X:
Audited Financial Statements:
F-1 Reports of Independent Registered Public Accounting Firms;
F-4 Consolidated Balance Sheets as of December 31, 2020 and 2019;
F-9 Notes to Consolidated Financial Statements
26
Report
of Independent Registered Public Accounting Firm
To the
Shareholders and Board of Directors of
OptimizeRx Corporation
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheet of OptimizeRx Corporation and Subsidiaries (the “Company”)
as of December 31, 2020, and the related consolidated statements of operations, stockholders’ equity and cash flows for the
year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company
as of December 31, 2020, and the results of its operations and its cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.
Basis
for Opinion
These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical
Audit Matter
The critical audit matter communicated
below is a matter arising from the current period audit of the consolidated financial statements that were communicated or required
to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated
financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit
matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating
the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to
which they related.
F-1
To the
Shareholders and Board of Directors of
OptimizeRx Corporation
Page Two
Critical
Audit Matter - Revenue Recognition
As
disclosed in Note 2 to the consolidated financial statements, the Company recognizes revenue upon transfer of control of
promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange
for those products or services.
Significant judgment is excised by the
Company in determining revenue recognition for these customer agreements, and includes the following: (1) determining whether services
are considered distinct performance obligations that should be accounted for separately versus together (2) the pattern and timing
of delivery for each distinct performance obligation, and (3) identification and treatment of contract terms that may impact the
timing and amount of revenue recognized.
How
the Critical Audit Matter Was Addressed in the Audit
The audit
procedures we performed to address this critical audit matter included the following: (1) obtaining an understanding of the
design and implementation of controls related to identifying distinct performance obligations, determining the timing of
revenue recognition and any estimation of variable consideration, (2) selection of a sample of customer agreements and
testing management’s identification and treatment of contract terms, and testing the mathematical accuracy of
management’s calculations of revenue and the associated timing of revenue recognized in the consolidated financial
statements.
We have served as the Company’s auditor since 2020.
/s/ UHY LLP
Sterling Heights, Michigan March 8, 2021
F-2
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
of
OptimizeRx Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheet of OptimizeRx Corporation and Subsidiaries (the “Company”) as of December 31, 2019, and the related consolidated
statements of operations, stockholders’ equity and cash flows for the year then ended, and the related notes (collectively
referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for
the year then ended, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting
as of December 31, 2019, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in 2013 and our report dated March 26, 2020, expressed an adverse opinion
on the effectiveness of the Company’s internal control over financial reporting because of the existence of material weaknesses.
Adoption of New Accounting Standards
As discussed in Note 2 to the financial
statements, the Company changed its method of accounting for leases in 2019 due to the adoption of ASU No. 2016-02, Leases (Topic
842), as amended, effective January 1, 2019, using the modified retrospective approach.
Basis for Opinion
These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audit in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our
audit provides a reasonable basis for our opinion.
/s/ Marcum llp
Marcum llp
We served as the Company’s auditor from 2019 to 2020.
New York, NY
March 26, 2020
F-3
OPTIMIZERx CORPORATION
Consolidated Balance Sheets
ASSETS
Current Assets
Other Assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Non-current Liabilities
Contingent purchase price payable, net of current portion - 5,220,000
Commitments and contingencies (See Note 15) - -
Stockholders’ Equity
The accompanying notes are an integral part
of these financial statements.
F-4
OPTIMIZERx CORPORATION
Consolidated Statements of Operations
For the year ended December 31, 2020 For the year ended December 31, 2019
Operating expenses
Other income (expense)
Change in fair value of contingent consideration (140,390 ) (635,000 )
Loss per share – basic $ (0.15 ) $ (0.23 )
Loss per share – diluted $ (0.15 ) $ (0.23 )
The accompanying notes are an integral part
of these financial statements.
F-5
OPTIMIZERx CORPORATION
Consolidated Statement of Stockholders’
Equity for the Year
Ended December 31, 2020
Stock-based compensation expense
Issuance of common stock:
The accompanying notes are an integral part
of these financial statements.
F-6
OPTIMIZERx CORPORATION
Consolidated Statement of Stockholders’
Equity for the Year
Ended December 31, 2019
Stock-based compensation expense
Issuance of common stock:
The accompanying notes are an integral
part of these financial statements.
F-7
OPTIMIZERx CORPORATION
Consolidated Statements of Cash Flows
For the year ended December 31, 2020 For the year ended December 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net loss to net cash used in operating activities:
Income tax benefit - (897,960 )
Change in fair value of contingent consideration 140,390 635,000
Changes in:
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (68,041 ) (87,717 )
Capitalized software development costs (44,752 ) -
Cash paid in acquisition, net of cash acquired - (8,994,369 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of offering costs - 21,303,826
Payment of contingent consideration (4,389,187 ) -
NET INCREASE (DECREASE IN) CASH AND CASH EQUIVALENTS (8,335,904 ) 9,938,646
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ - $ -
Cash paid for income taxes $ - $ -
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Lease liabilities arising from right of use assets - 207,559
Acquisition liabilities paid in stock $ 1,657,548 $ -
Shares issued in connection with acquisitions $ - $ 5,107,793
Non-cash effect of cumulative adjustments to accumulated deficit $ - $ 3,229
The accompanying notes are an integral part
of these financial statements.
F-8
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020
NOTE 1 – ORGANIZATION AND NATURE
OF BUSINESS
OptimizeRx is a digital health company
that provides communications solutions for life science companies, physicians and patients. Connecting over half of healthcare
providers in the U.S. and millions of patients through a proprietary network, the OptimizeRx digital health platform helps patients
afford and stay on medications. The platform unlocks new patient and physician touchpoints for life science companies along the
patient journey, from point-of-care, to retail pharmacy, through mobile patient engagement.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements of the Company
have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented
in US dollars.
Use of Estimates
The preparation of financial statements
in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Estimates and assumptions have been made in determining the carrying value of assets, depreciable
and amortizable lives of tangible and intangible assets, the carrying value of liabilities, the valuation allowance for the deferred
tax asset, the timing of revenue recognition and related revenue share expenses, and inputs used in the calculation of stock based
compensation. Actual results could differ from these estimates.
Principles of Consolidation
The financial statements reflect the consolidated
results of OptimizeRx Corporation, a Nevada corporation, and its wholly owned subsidiaries: OptimizeRx Corporation, a Michigan
corporation, RMDY Health, Inc., a Delaware corporation, CareSpeak Communications, Inc., a New Jersey corporation, Cyberdiet, a
controlled foreign corporation incorporated in Israel, and CareSpeak Communications D.O.O., a Controlled Foreign Corporation incorporated
in Croatia. Together, these companies are referred to as “OptimizeRx” and “the Company.” All material intercompany
transactions have been eliminated.
Reclassifications
Certain items in the previous year financial
statements have been reclassified to match the current year presentation.
Cash and Cash Equivalents
For purposes of the accompanying financial
statements, the Company considers all highly liquid instruments, consisting of money market accounts, with an initial maturity
of three months or less to be cash equivalents.
Fair Value of Financial Instruments
Fair value is defined as the price that
would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants
at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be
calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific
to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk including our own
credit risk.
F-9
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In addition to defining fair value, the
disclosure requirements around fair value establish a fair value hierarchy for valuation inputs, which is expanded. The hierarchy
prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the
market. Each fair value measurement is reported in one of the three levels, which is determined by the lowest level input that
is significant to the fair value measurement in its entirety. These levels are:
Level 1 – Inputs are based upon unadjusted
quoted prices for identical instruments traded in active markets.
Level 2 – Inputs are based upon significant
observable inputs other than quoted prices included in Level 1, such as quoted prices for identical or similar instruments in markets
that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or
can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Inputs are generally unobservable
and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.
The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow
models, and similar techniques. The Company’s stock options and warrants are valued using level 3 inputs.
The following tables present the fair values
and carrying values of the Company’s financial assets and liabilities measured on a recurring basis as of December 31, 2020
and 2019 and the valuation techniques used by the Company to determine those fair values.
Level 1 Level 2 Level 3 Fair Value Carrying Value
Liabilities
Level 1 Level 2 Level 3 Fair Value Carrying Value
Liabilities
F-10
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table provides a summary
of changes in fair value of the Company’s Level 3 financial instruments for the years ended December 31, 2020 and 2019.
Amount
Increase in the value of the CareSpeak Communication consideration 635,000
Increase in fair value of the RMDY Health, Inc. contingent consideration 140,390
Payment of CareSpeak Communication contingent consideration (1,389,187 )
Payment of RMDY Health, Inc. contingent consideration (3,860,390 )
Accounts Receivable and Allowance for
Doubtful Accounts
Accounts receivable are reported at realizable
value, net of allowances for doubtful accounts, which is estimated and recorded in the period the related revenue is recorded.
The Company has a standardized approach to estimate and review the collectability of its receivables based on a number of factors,
including the period they have been outstanding. Historical collection and payer reimbursement experience is an integral part of
the estimation process related to allowances for doubtful accounts. In addition, the Company regularly assesses the state of its
billing operations in order to identify issues, which may impact the collectability of these receivables or reserve estimates.
Because the Company’s customers are primarily large well-capitalized companies, historically there has been very little bad
debt expense. Bad debt expense was $200,000 for the year ended December 31, 2020 and $80,000 for the year ended December 31,
2019. The allowance for doubtful accounts was $158,163 and $80,000 as of December 31, 2020 and 2019, respectively. From time
to time, we may record revenue based on our revenue recognition policies described below in advance of being able to invoice the
customer. These amounts are included in accounts receivable and are immaterial, representing substantially less than 1% of the
accounts receivable balance at December 31, 2020.
Property and Equipment
Property and equipment are stated at cost
and are being depreciated over their estimated useful lives of three to five years for office equipment and three years for computer
equipment using the straight-line method of depreciation for book purposes. Maintenance and repair charges are expensed as incurred.
Intangible Assets
Intangible assets are stated at cost. Finite-lived
assets are being amortized over their estimated useful lives of fifteen to seventeen years for patents, eight years for customer
relationships, fifteen years for tradenames, four years for covenants not to compete, and three to four years for software and
websites, all using the straight-line method. These assets are evaluated when there is a triggering event. There was no impairment
of our intangible assets in either year presented.
Goodwill
We evaluate goodwill for impairment during