Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Overview
We are a digital health technology company enabling
care-focused engagement between life sciences organizations, healthcare providers, and patients at critical junctures throughout the patient
care journey. Connecting over 60% of U.S. healthcare providers and millions of their patients through an intelligent technology platform
embedded within a proprietary point-of-care network, OptimizeRx helps patients start and stay on their medications.
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 continued to rise, our platform has expanded 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.
17
We employ a “land and expand” strategy
focused on growing our existing client base and generating greater and more consistent revenues in part through the continued shift in
our business model toward enterprise level engagements, 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. Our
strategy for driving revenue growth is also expected to work in tandem with our efforts to increase margin and profitability using the
aforementioned recurring revenue models that have inherently higher margins.
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 100 pharmaceutical
companies as customers, and our revenues are concentrated in these customers. Loss of one of more of our larger customers could have a
negative impact on our operating results. Our top five customers represented 39% of our revenue for the year ended December 31, 2022.
In each of 2022 and 2021, we had one customer that each represented more than 10% of our revenues.
Seasonality
In general, the pharmaceutical brand marketing
industry experiences seasonal trends that affect the vast majority of participants in the pharmaceutical digital marketing industry. Many
pharmaceutical companies allocate the largest portion of their brand marketing to the fourth quarter of the calendar year. As a result,
the first quarter tends to reflect lower activity levels and lower revenue, with gradual increases in the following quarters. We generally
expect these seasonality trends to continue and our ability to effectively manage our resources in anticipation of these trends may affect
our operating results.
Impact of Macroeconomic Events
Unfavorable conditions in the economy may
negatively affect the growth of our business and our results of operations. For example, macroeconomic events including the COVID-19
pandemic, rising inflation and the U.S. Federal Reserve raising interest rates have led to economic uncertainty. In addition, high
levels of employee turnover across the pharmaceutical industry as well as fewer number of U.S. drug approvals could create
additional certainty within our target customer markets. Historically, during periods of economic uncertainty and downturns,
businesses may slow spending, which may impact our business and our customers’ businesses. Adverse changes in demand could
impact our business, collection of accounts receivable and our expected cash flow generation, which may adversely impact our
financial condition and results of operations.
Key Performance Indicators
We monitor the following key performance indicators
to help us evaluate our business, measure our performance, identify trends affecting our business and make strategic decisions.
Average revenue per top 20 pharmaceutical manufacturer.
Average revenue per top 20 pharmaceutical manufacturer is calculated by taking the total revenue the company recognized through pharmaceutical
manufacturers listed in Fierce Pharma’s “The top 20 pharma companies by 2020 revenue” over the last twelve months, divided
by the total number of the aforementioned pharmaceutical manufacturers that our solutions helped support over that time period. The Company
uses this metric to monitor its progress in “landing and expanding” with key customers within its largest customer vertical
and believe it also provides investors with a transparent way to chart our progress in penetrating this important customer segment. The
decrease in the average in 2022 as compared to 2021 is primarily the result of the convergence of numerous macroeconomic factors that
resulted in our customers slowing their rate of spend, particularly for large and/or new implementations, which we believe prolonged sales
cycles with the top 20 pharmaceutical manufacturers that were existing customers.
Twelve Months Ended December 31
18
Percent of top 20 pharmaceutical manufacturers
that are customers. Percent of top 20 pharmaceutical manufacturers that are customers is calculated by taking the number of revenue
generating customers that are pharmaceutical manufacturers listed in Fierce Pharma’s “The top 20 pharma companies by 2020
revenue” over the last 12 months, which is then divided by 20—which is the number of pharmaceutical manufacturers included
in the aforementioned list. The Company uses this metric to monitor its progress in penetrating key customers within its largest customer
vertical and believes it also provides investors with a transparent way to chart our progress in penetrating this important customer segment.
The decrease in 2022 was due to the Company not supporting programs for a smaller revenue customer from 2021 in 2022.
Twelve Months Ended December 31
Percent of top 20 pharmaceutical manufacturers that are customers 90 % 95 %
Percent of total revenue attributable to top
20 pharmaceutical manufacturers. Percent of total revenue attributable to top 20 pharmaceutical manufacturers is calculated by taking
the total revenue the company recognized through pharmaceutical manufacturers listed in Fierce Pharma’s “The top 20 pharma
companies by 2020 revenue” over the last twelve months, divided by our consolidated revenue over the same period. The Company uses
this metric to monitor its progress in “landing and expanding” with key customers within its largest customer vertical and
believes it also provides investors with a transparent way to chart our progress in penetrating this important customer segment. Our revenue
from customers that aren’t top 20 pharmaceutical manufacturers increased faster than our overall revenue, decreasing the percentage of
our overall revenues from top 20 pharmaceutical manufacturers.
Twelve Months Ended December 31
Net revenue retention. Net revenue retention
is a comparison of revenue generated from all customers in the previous twelve-month period to total revenue generated from the same customers
in the following twelve-month period (i.e., excludes new customer relationships for the most recent twelve-month period). The Company
uses this metric to monitor its ability to improve its penetration with existing customers and believes it also provides investors with
a metric to chart our ability to increase our year-over-year penetration and revenue with existing customers. The retention rate in 2022
decreased due to the convergence of numerous macroeconomic factors that resulted in our customers slowing their rate of spend, particularly
for large and/or new implementations, which we believe prolonged sales cycles.
Twelve Months Ended December 31
Net revenue retention 90 % 127 %
Revenue per average full-time employee.
We define revenue per average full-time employee as total revenue over the last twelve months divided by the average number of employees
over the last twelve months (i.e., the average between the number of FTEs at the end of the reported period and the number of FTEs at
the end of the same period of the prior year). The Company uses this metric to monitor the productivity of its workforce and its ability
to scale efficiently over time and believes the metric provides investors with a way to chart our productivity and scalability. Our revenue
rate per employee declined year over year due to slower revenue growth and a higher average number of FTEs over the last 12 month period.
Twelve Months Ended December 31
19
Results of Operations for the Years Ended December
31, 2022 and 2021
The following table sets forth, for the periods
indicated, the dollar value and percentage of total return represented by certain items in our consolidated statements of operations:
Years Ended December 31,
(in thousands, except percentage data) 2022 2021
Income (loss) before provision for income taxes (11,438 ) (18.3 )% 378 0.6 %
Income tax benefit — — % — — %
Net Revenue
Our net revenue increased 2% to $62.5 million
for the year ended December 31, 2022 from $61.3 million for the year ended December 31, 2021. This increase resulted from increases
in sales of our access solutions.
Cost of Revenues
Our total cost of revenues, composed
primarily of revenue share expense paid to our network partners, decreased in the year ended December 31, 2022 compared to the
year ended December 31, 2021. Our cost of revenues as a percentage of revenue decreased to approximately 38% in the year ended
December 31, 2022 from approximately 42% in the year ended December 31, 2021. This decrease in our cost of revenues as a
percentage of revenue resulted primarily due to favorable solution and channel partner mix and increases in the type of services we
provide that are not subject to revenue share.
Gross Margin
Our gross margin, which is the difference between
our revenues and our cost of revenues, increased from 2021 to 2022 as a result of solution mix. In general, during 2022, there was an
increase in the percentage of activity flowing through our lower cost channels compared with 2021. Additionally, revenue increases in
our access solutions includes a much higher percentage of program design, which carries a higher margin than the delivery of the actual
messages. In addition, our gross margin percentage increased to 62% in 2022 from 58% in 2021 for the reasons discussed above in the cost
of revenues section.
Operating Expenses
Operating expenses increased to $51.3 million
for the year ended December 31, 2022, from $35.3 million for the year ended December 31, 2021, an increase of approximately
45%. The increase in sales, general and administrative expense was $5.8 million. The detail by major category is reflected in the table
below.
Years Ended December 31
20
Within the operating expenses, there were a variety
of increases, the largest of which was in stock-based compensation, a non-cash expense, which increased by $10.3 million from $5.5 million
in 2021 to $15.7 million in 2022. Stock-based compensation is awarded to all full-time employees upon their start of employment as well
as to directors, officers and certain key employees to provide an equity-based incentive to maintain and enhance the performance and profitability
of the Company. In the fourth quarter of 2021, we issued a significant market-based grant with a requisite service period of less than
3 years. The expense for the market-based award is amortized over the expected service period. The impact on 2022 expense for such market-based
award in 2022 was $6.1 million.
The increase in other sales, general, and administrative
expense is due to higher salaries, wages, and benefits and other human resources related costs as a result of the expansion of, and investment
in, our team to support additional growth. During 2022, we hired 12 net additional employees.
Net Income (Loss)
We finished the year ended December 31, 2022
with a net loss of $11.4 million, compared to net income of $0.4 million during the year ended December 31, 2021. The reasons for
specific components are discussed above. Overall, we had an increase in revenue and gross margin partially offset by increased operating
expenses. In addition, the income or loss in both periods included significant noncash items. We had $18.0 million in noncash operating
expenses in 2022 compared to $7.6 million in noncash operating expenses in 2021.
Liquidity and Capital Resources
Historically, our primary sources of liquidity have been cash receipts
from customers and proceeds from equity offerings. As of December 31, 2022, we had total current assets of $98.6 million, compared
with current liabilities of $8.4 million, resulting in working capital of $90.2 million and a current ratio of 12 to 1. This compares
with a working capital balance of $105.7 million and a current ratio of 12 to 1 at December 31, 2021. This decrease in working capital,
as discussed in more detail below, is primarily the result of the common stock buyback program.
Following is a table with summary data from the
consolidated statement of cash flows for the years ended December 31, 2022 and 2021, as presented.
Our operating activities provided $10.7 million
in the year ended December 31, 2022, as compared with approximately $0.7 million provided by operating activities in the year ended
December 31, 2021. We had a net loss of $11.4 million for 2022, but non-cash expenses of $18.1 million and working capital generated
by the collection of receivables offset the loss. The cash provided in 2021 was the result of our net income and non-cash expenses, which
together totaled $8.0 million. This was partially offset by the increased working capital, totaling $7.3 million, required to support
higher revenues.
We used $58.2 million in investing activities
in 2022, compared with $0.5 million in 2021. In addition to the $2.0 million investment in EvinceMed technology, we purchased $55.9 million
in Treasury bills in 2022 with maturity dates in 2023. The 2021 amount included $0.4 million of capitalized software development costs
related to our proprietary systems and $0.1 million of tangible property, primarily personal computers.
21
We used $19.0 million in financing activities
in the year ended December 31, 2022. We repurchased 1,214,398 shares of common stock for $20.0 million. This was partially offset
by the collection of $1.1 million related to the exercise of stock options during the period. The cash provided in 2021 was the result
of our underwritten offering in 2021, which generated $70.7 million, as well as from the proceeds of option exercises, which generated
$4.9 million. This was partially offset by the payment of contingent consideration related to previous acquisitions of $1.6 million.
We believe that funds generated from operations,
together with existing cash and short term investments, will be sufficient to finance our current operations and planned growth for the
next twelve months. We do not anticipate the need to raise any additional cash to support operations. However, we could require additional
debt or equity financing if we were to make any significant acquisitions for cash during that period. In addition, we believe we can generate
the cash needed to operate beyond the next 12 months from operations.
Off Balance Sheet Arrangements
As of December 31, 2022, there were no off-balance
sheet arrangements.
Critical Accounting Estimates
Our discussion and analysis of our financial condition
and results of operations are based upon the Consolidated Financial Statements, which have been prepared in accordance with U.S. generally
accepted accounting principles. The preparation of these financial statements requires us to make estimates, judgments and assumptions
that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and
expenses during the periods presented. Actual results could differ from those estimates and assumptions. See Note 2 to the Consolidated
Financial Statements for a discussion of significant accounting policies. Actual results may differ materially from these estimates due
to different assumptions or conditions. The following areas all require the use of subjective or complex judgments, estimates and assumptions:
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 the design of the programs and related consulting services to be performance obligations separate
from the delivery of messages.
22
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 recognize revenue for providing program performance reporting and maintenance, either by our company directly delivering reports
or by providing access to our 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.
In some instances, we license certain of our software
applications in arrangements that do not include other performance obligations. In those instances, we record license revenue when the
software is delivered for use to the license. In instances where our contracts included Software as a Service, the revenue is recognized
over the subscription period as services are delivered to the customer.
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 no 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 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. As our solution mix has expanded and our revenues have grown, financial
messaging has become a smaller percentage of our revenues and these payments to ConnectiveRx, a smaller portion of our revenue share.
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 fifteen to seventeen years for patents, eight years for customer relationships,
fifteen years for tradenames, two to four years for covenants not to compete, and three to ten 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 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.
23
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 options, fair value 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.
For restricted stock units, the fair value is
based on the market value of the Company’s common stock on the date of grant. For market based restricted stock units, fair value
is estimated using a Monte Carlo simulation model. This valuation technique includes estimating the movement of stock prices and the effects
of volatility, interest rates and dividends.
Recently Issued Accounting Pronouncements
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 was effective for us as of January 1, 2021. The adoption of this standard did not have a material
effect on our financial position, results of operations, or cash flows.
Not Yet Adopted
ASU Topic 2021-08 Business Combinations (Topic
805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract
liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with
ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. The standard is effective for the Company’s fiscal
year beginning January 1, 2023, 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.
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk
Not applicable.
24
Item 8. Financial Statements and Supplementary
Data
Index to Financial Statements Required by Article
8 of Regulation S-X:
Audited Financial Statements:
F-1 Report of Independent Registered Public Accounting Firm;
F-3 Consolidated Balance Sheets as of December 31, 2022 and 2021;
F-8 Notes to Consolidated Financial Statements
25
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 sheets of OptimizeRx Corporation and Subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related
consolidated statements of operations, stockholders’ equity and cash flows for the years then ended, and the related notes (collectively
referred to as the consolidated financial statements).
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and
the results of its operations and its cash flows for the years 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 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 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 included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits 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.
F-1
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.
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 exercised 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 (3) 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 10, 2023
Firm ID: 1195
F-2
OPTIMIZERx CORPORATION
Consolidated Balance Sheets
ASSETS
Current Assets
Other Assets
Security deposits and other assets 5,051 12,859
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Non-current Liabilities
Commitments and contingencies (See Note 15)
Stockholders’ Equity
The accompanying notes are an integral part of
these financial statements.
F-3
OPTIMIZERx CORPORATION
Consolidated Statements of Operations
For the year ended December 31, 2022 For the year ended December 31, 2021
Operating Expenses
Depreciation, amortization, and noncash lease expense 2,022,029 2,086,454
Other income
Income tax benefit — —
Income (loss) per share – basic $ (0.64 ) $ 0.02
Income (loss) per share – diluted $ (0.64 ) $ 0.02
The accompanying notes are an integral part of
these financial statements.
F-4
OPTIMIZERx CORPORATION
Consolidated Statement of Stockholders’
Equity for the Year
Ended December 31, 2022
Common Stock Treasury Stock Additional Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
Stock-based compensation expense
Issuance of common stock:
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, 2021
Common Stock Additional Paid-in Accumulated
Shares Amount Capital Deficit Total
Stock-based compensation expense
Issuance of common stock:
For restricted stock units vested 3,333 3 (3 ) — 3
The accompanying notes are an integral part of
these financial statements.
F-6
OPTIMIZERx CORPORATION
Consolidated Statements
of Cash Flows
For the year ended December 31, 2022 For the year ended December 31, 2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Changes in:
Change in operating lease liabilities 226 (3,891 )
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment (81,005 ) (100,322 )
EvinceMed acquisition (2,000,000 ) —
Purchase of short-term investments (55,931,821 ) —
CASH FLOWS (USED IN ) / PROVIDED BY FINANCING ACTIVITIES:
Repurchase of common stock (20,024,258 ) —
Payment of contingent consideration — (1,610,813 )
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ — $ —
Reduction of EvinceMed purchase price for amounts previously paid $ 708,334 $ —
Shares issued in connection with acquisition $ 9,374,455 $ —
Cash paid for income taxes $ — $ —
The accompanying notes are an integral part of
these financial statements.
F-7
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS
OptimizeRx is a digital health technology company
enabling care-focused engagement between life sciences organizations, healthcare providers, and patients at critical junctures throughout
the patient care journey. Connecting over 60% of U.S. healthcare providers and millions of their patients through an intelligent technology
platform embedded within a proprietary point-of-care network, OptimizeRx helps patients start and stay on their medications.
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,
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.
Foreign Currency
The Company’s functional currency is the
U.S. dollar, however it pays certain expenses related to its two foreign subsidiaries in the local currency, which is the shekel for
its subsidiary in Israel and the kuna for its Croatian subsidiary. All transactions are recorded at the exchange rate at the time of payment.
If there is a time lag between the time of recording the liability and the time of payment, a gain or loss is recorded in the Consolidated
Statement of Operations due to any fluctuations in the exchange rate.
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.
Investments
We account for marketable securities in accordance
with ASC 320, “Investments - Debt Securities”, which require that certain debt securities be classified into one of three categories:
held-to-maturity, available-for-sale, or trading securities, and depending upon the classification, value the security at amortized cost
or fair market value.
F-8
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 Company’s carrying amounts of financial instruments
including cash and cash equivalents, accounts receivable, accounts payable, and other current liabilites approximate their fair values
due to their short maturities.
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 $363,512 for the year
ended December 31, 2022 and $80,000 for the year ended December 31, 2021. The allowance for doubtful accounts was $352,043 and
$241,219 as of December 31, 2022 and 2021, 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. Included in accounts receivable are unbilled amounts of $3,582,735,$2,110,865
and $757,218 at December 31, 2022, 2021 and 2020, respectively.
F-9
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, two to four years for covenants not to compete, and three to ten 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 our
fiscal fourth quarter, or more frequently if an event occurs or circumstances change. Our analysis determined that there was no impairment
of our goodwill.
Revenue Recognition
Recognition of revenue requires evidence of a
contract, probable collection of proceeds, and completion of substantially all performance obligations. We use a 5-step model to recognize
revenue. These steps are: identify the contract with a customer, identify the performance obligations in the contract, determine the transaction
price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when or as the performance
obligations are satisfied.
Revenues are primarily generated from content
delivery activities in which the Company delivers financial, clinical, or brand messaging through a distribution network of eprescribers
and electronic health record technology providers (channel partners), directly to consumers, or from reselling services that complement
the business. 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.
The Company’s contracts are generally all
less than one year and the primary performance obligation is delivery of messages, or 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 program design 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. The Company recognizes setup fees that are required for
integrating client offerings and campaigns into the rule-based content delivery system and network over the life of the initial program,
based either on time, or units delivered, depending upon which is most appropriate in the specific situation. Should a program be cancelled
before completion, the balance of set up revenue is recognized at the time of cancellation, as set up fees are nonrefundable. Additionally,
the Company also recognizes revenue for providing program performance reporting and maintenance, either by the Company directly delivering
reports or by providing access to its online reporting portal that the client can utilize. 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.
F-10
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Disaggregation of Revenue
Consistent with ASC Topic 606, we have disaggregated our revenue by
timing of revenue recognition. The majority of our revenue is recognized over time as solutions are provided. A small portion of our revenue
related to program development, solution architect design, and other solutions is recognized at a point in time upon delivery to customers.
A break down is set forth in the table below.
Revenue Recognition (Continued)
In some instances, we license certain of our
software applications in arrangements that do not include other performance obligations. In those instances, we record license
revenue when the software is delivered for use to the license. In instances where our contracts included Software as a Service, the
revenue is recognized over the subscription period as services are delivered to the customer.
In some instances, the Company also resells 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 the Company sells solutions on a commission basis, net revenue is recognized based on the commission-based revenue split that the
Company receives. There were no programs recorded on a net basis in the years presented. In instances where the Company resells these
messaging solutions and has all financial risk and significant operation input and risk, the Company records 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. Cost of revenues does not include depreciation and amortization which is listed separately on the statements of operations.
Based on the volume of transactions that are delivered through the channel partner network, the Company provides a revenue share to compensate
the partner, or others, for their promotion of the campaign. Revenue shares are a negotiated percentage of the transaction fees and can
also be specific to special considerations and campaigns.
Income Taxes
Income taxes are computed using the asset and
liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences
between the financial reporting and tax basis of assets and liabilities and are measured using the currently enacted tax rates and laws.
A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.
The Company recognizes the tax benefit from uncertain
tax positions if it is more likely than not that the tax positions will be sustained on examination by the tax authorities, based on the
technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being
realized upon ultimate settlement. It is the Company’s policy to include interest and penalties related to tax positions as a component
of income tax expense.
F-11
OPTIMIZERx CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentration of Credit Risks