Item 1A. Risk Factors 5
Item 1B. Unresolved Staff Comments 17
Item 1C. Cybersecurity 17
Item 2. Properties 19
Item 3. Legal Proceedings 19
Item 4. Mine Safety Disclosures 19
Item 4.1 Information about Our Executive Officers 20
PART II
Item 6. Reserved 22
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 31
Item 8. Financial Statements and Supplementary Data 32
Item 9A. Controls and Procedures 33
Item 9B. Other Information 34
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 35
PART III
Item 10. Directors, Executive Officers and Corporate Governance 36
Item 11. Executive Compensation 36
Item 14. Principal Accountant Fees and Services 37
PART IV
Item 15. Exhibits and Financial Statement Schedules 38
i
PART
I
Forward-Looking
Statements
This
Annual Report on Form 10-K contains statements that relate to future events and expectations and, as such, constitute forward-looking
statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Certain statements, other than purely historical
information, including estimates, projections, statements relating to our strategies, outlook, business and financial prospects, business
plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking
statements.” These forward-looking statements generally are identified by the words “believes,” “project,”
“expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,”
“may,” “will,” “would,” “will be,” “will continue,” “will likely result,”
and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties
which may cause actual results to differ materially from the forward-looking statements. Forward-looking statements are not guarantees
of future performance. Although OptimizeRx believes that the expectations reflected in any forward-looking statements are based on reasonable
assumptions, these expectations may not be attained and it is possible that actual results may differ materially from those indicated
by these forward-looking statements due to a variety of risks, uncertainties and changes in circumstances, many of which are beyond OptimizeRx’s
control.
For
a discussion of some of the specific factors that could cause actual results to differ materially from the information contained in this
report, see the following sections of this report: Part I, Item 1A. “Risk Factors,” and Part II, Item 7. “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” including the disclosures under “Critical Accounting
Estimates”. Market projections are subject to the risks discussed in this report and other risks in the market. OptimizeRx disclaims
any intention or obligation to update publicly any forward-looking statements, whether in response to new information, future events
or otherwise, except as required by applicable law.
Unless
otherwise specified or the context otherwise requires, when used in this Annual Report on Form 10-K, the terms “we,” “our,”
“us,” “OptimizeRx,” or the “Company” refer to OptimizeRx Corporation and its subsidiaries.
Item
1. Business
General
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 two million U.S. healthcare providers and millions
of their patients through an intelligent omni-channel technology platform embedded within a proprietary point-of-care network, as well
as mass digital communications channels, OptimizeRx helps life sciences organizations engage and support their customers.
We
are a Nevada corporation organized in September 2008. We conduct our operations through our wholly-owned subsidiaries, Healthy Offers,
Inc. (d/b/a Medicx Health or “Medicx Health”), a Nevada corporation, CareSpeak Communications, Inc., a New Jersey corporation,
CareSpeak Communications, d.o.o., a controlled foreign corporation incorporated in Croatia, and Cyberdiet, a controlled foreign corporation
incorporated in Israel.
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 Artificial Intelligence (AI) powered Dynamic Audience and Activation Platform (“DAAP”),
expanding on previous iterations of the RWD.AI technology. which uses sophisticated machine-learning algorithms to find the best audiences
in the correct channels at the right time.
1
Industry
Background
Life
sciences organizations face a challenging commercial landscape. In recent years, they have met increased competition, shrinking market
sizes, and inconsistent access to patients and healthcare professionals - their most important customers. 81% of new drug approvals are
specialty medications, leading to more complex diagnosis criteria, increased utilization management by healthcare payors, and lengthy
wait times for patients to begin treatment after care decisions are made.
As
a result, life sciences organizations have increasingly turned to technology solutions to support their commercial strategies. Spending
on digital solutions to facilitate greater access to their end markets accounts for one-third of their collective commercial spend in
the United States of approximately $30 billion.
We
believe significant opportunity exists to address the unmet needs of life sciences organizations as they relate to digital solutions,
including omnichannel access to health care professionals, for complex commercial challenges.
2023
Company Highlights
1. Net revenue increased to $71.5 million in 2023, a 15% increase over 2022.
Principal
Solutions
The
Company’s original solution was Financial Messaging - the delivery of treatment-specific financial support information for patients distributed
directly to healthcare prescribers through a combination of our proprietary technology and a network of electronic health record (EHR)
and electronic prescribing (ERx) platforms. Over time, the demand for different types of communication and marketing solutions among
life sciences organizations, healthcare providers, and patients led us to expand upon our initial solution to increase the variety of
health-related information we deliver, as well as the platforms, technology, and audiences through and to which we deliver. Today, we
offer diverse tech-enabled marketing solutions through our AI-generated DAAP, which enables customers to execute traditional marketing
campaigns on our proprietary digital point-of-care network, as well as dynamic marketing campaigns that optimize audiences in real time
to increase the value of treatment information for healthcare professionals and patients in response to clinical care events.
Our principal
solutions, available individually or through our DAAP, can be summarized as follows:
Audience
Development
2
Audience
Activation and Media Execution
Financial
Messaging
Sales
and Marketing
We
employ a sales team of over 20 people, marketing our solutions to new and existing clients. Our sales team drives awareness of the increased
value of our technology stack as an AI tech-enabled marketing platform. Accordingly, our sales efforts are not directed merely at selling
individual solutions, but more broadly towards selling enterprise platform engagements with access to our full set of solutions.
Our
sales and marketing teams work closely together to cultivate customer relationships. We use a number of methods to market and promote
our solutions, including digital advertising, industry events, trade shows, conferences, media coverage, social media and email. In 2023,
we enhanced our RWD.AI platform solution to become the premier platform to devise and execute Next-Best-Action marketing strategies within
healthcare professional audiences and branded the platform as DAAP.
Technology
To
support our growth and provide maximum security, scalability, and flexibility, all of our systems, including from acquisitions, are now
hosted and integrated in the cloud. Our technology development and systems management core team is in the U.S. and in Croatia, with contractors
in India and Ukraine to provide bench depth, rich skills experience, and business economies. The teams are organized into Centers of
Excellence focused on Product Domains, Quality Assurance, Information Security, Data Warehousing and Business Intelligence, Platform
Services, and Internal Systems Support. Systems enhancements in 2023 included upgrades and documentation of processes and procedures
and security implementation for ongoing cybersecurity, Sarbanes Oxley, HIPAA, and customer security assessments, and in achieving enterprise
HITRUST recertification.
Competition
Our
solutions face competition from numerous other companies, both in attracting users and in generating revenue from advertisers and sponsors.
We compete for users with online services and websites that provide savings on medications and healthcare products. Our messaging offerings
compete for pharmaceutical budgets with a variety of other forms of advertising and promotion.
3
Our
solutions compete broadly in the highly competitive pharmaceutical and life sciences digital marketing industry that is dominated by
large well-known companies with established names, solid market niches, and wide arrays of product offerings and marketing networks.
Many of our competitors have greater financial, technical, product development, marketing and other resources than we do. These companies
may be better known than we are and have more customers or users than we do. As a result, many of these companies may respond more quickly
to new or emerging technologies and standards and changes in customer requirements.
These
companies may be able to invest more resources in research and development, strategic acquisitions, and sales and marketing. We generally
compete on the basis of several factors, including size of our network, quality of our service, our ability to target specific customer
needs, and to a lesser extent, price. For more information on risks relating to our competition, see Item 1A. Risk Factors.
Intellectual
Property
Historically,
we have created intellectual property or obtained intellectual property through commercial relationships and in connection with acquisitions.
We
own patents important to our business, and we expect to continue to file patent applications to protect our research and development
investments in new products. As of December 31, 2023, we held five patents and two pending patent applications, including foreign
counterpart patents and foreign applications. For the United States, patents may last 20 years from the date of the patent’s filing,
subject to term adjustments made by the patent office.
In
addition, we own registered trademarks in the United States and other countries. As of December 31, 2023, OPTIMIZERx, OPTIMIZEMD,
CareSpeak, DIETWATCH, Innovate4Outcomes, SPRx, SPx, RMDY, Specialty Express, TELAREP, Medicx, Micro-Neighborhood, and Geomedical Targeting
are our registered trademarks. We also have several pending trademark applications.
We
also have licenses to intellectual property for the use and sale of certain of our solutions. In addition, we obtain other intellectual
property rights and/or licenses used in connection with our business when practical and appropriate.
Government
Regulation
The
healthcare industry and, in particular, our customers and partners are subject to U.S. federal, state and local laws and regulations,
including those governing fraud, abuse, privacy and security. Many of these laws and regulations are complicated and how they might apply
to us, our customers, our partners, or the specific services and relationships we have with our customers and partners are not always
well-defined. Our failure, or perceived failure, to accurately apply, or comply with, these laws and regulations could subject us to
significant fines and liability, result in reputational harm, and adversely affect our business. Any new or amended laws or regulations
that impose significant operational restrictions and compliance requirements may negatively impact our business. See Item 1A. Risk Factors
for more information on the impact of Government Regulations on OptimizeRx.
Employees
As
of December 31, 2023, we had 116 full-time employees and 1 part-time employee in the U.S, as well as 19 full-time employees in Croatia.
None of our employees are represented by a labor union or collective bargaining agreement with respect to their employment with us. The
majority of our employees work remotely and are geographically distributed across the United States and Croatia. We supplement our workforce
with contractors in the United States and internationally on an as-needed basis. We consider our relationship with our employees to be
good and have not experienced any work stoppages.
We
are dedicated to providing a supportive and respectful environment to our employees where everyone feels valued, and we celebrate both
the differences and similarities among our people. We also believe that diversity in all areas, including cultural background, experience
and thought, is essential to bettering a professional environment and in making our Company stronger. Our Diversity, Equity, Inclusion
& Belonging Committee (DEI&B) is actively engaged in improving our culture, hiring practices and training. In 2023, we upheld
the Parity Pledge – a commitment made in 2021 to interview and consider at least one qualified woman and one underrepresented minority
for every open role, VP or higher. In addition, the DEI&B Committee sponsored quarterly events in 2023, including “Historic
Women Inventors”, “Mental Health Awareness”, “Step Challenge”, and “Affinity Groups”.
4
We
prioritize recruiting, retaining, and incentivizing a highly qualified, diverse workforce as the success of our Company is dependent
on the skills, experience, and efforts of our employees. A skilled workforce not only improves a company’s performance, but also
contributes to overall employee satisfaction and enhances human capital. We have increased our focus on training and development for
our current employees and have implemented a Learning Management System where current and future training modules will be presented and
tracked for reporting purposes. We offer other learning and development opportunities and resources to support our employees in achieving
and enhancing their development objectives. We equip our managers with the skills and tools to provide ongoing coaching and feedback
so employees can maximize their performance and potential, delivering success for the Company and the employee.
We
pay our employees competitively and offer a broad range of company-paid benefits, which we believe are competitive with others in our
industry. Moreover, we believe our long-term incentives are structured in a manner to provide time-based vesting schedules that are retentive
and we incentivize select employees through the granting of stock-based
awards and cash-based performance bonus awards.
Available
Information
We
are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and
in accordance therewith, we file reports, proxy and information statements and other information with the Securities and Exchange Commission
(the “SEC”). You can read our SEC filings over the Internet at the SEC’s website at www.sec.gov. Our filings with the
SEC are also available free of charge through the investor relations section of our website at www.optimizerx.com. Reports are
available free of charge as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. From
time to time, we also use multiple social media channels to communicate with the public about OptimizeRx. It is possible that the information
we post on social media could be deemed to be material information. Therefore, we encourage you to review the information we post on
the social media channels listed on our investor relations website, if any.
Information
contained on or accessible through the websites and social media channels referred to above is not incorporated by reference in, or otherwise
a part of, this Annual Report, and any references to these websites and social media channels are intended to be inactive textual references
only.
Item
1A. Risk Factors
Risks
Relating to Our Business
Because
we have historically experienced losses, if we are unable to achieve profitability, our financial condition and company could suffer.
With
the exception of 2021, we have historically incurred losses as a result of investing in future growth. We incurred losses in 2023 as
a result of our increased spending to build the organization to support expected future growth – both through additional new hires,
as well as through acquisitions. While we have increased revenues, we have not yet consistently achieved profitability due to these investments
and non-cash expenses. Our ability to achieve consistent profitability depends on our ability to generate sales through our technology
platform and advertising model, while maintaining reasonable expense levels. If we do not achieve sustainable profitability, it may impact
our ability to continue our operations.
Seasonal
trends in the pharmaceutical brand marketing industry could affect our operating results.
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.
5
Developing
and implementing new and updated applications, features and services for our solutions may be more difficult than expected, may take
longer and cost more than expected and may not result in sufficient increases in revenue to justify the costs.
Attracting
and retaining users of our solutions requires us to continue to improve the technology underlying those solutions and to continue to
develop new and updated applications, features and services for those solutions. If we are unable to do so on a timely basis or if we
are unable to implement new applications, features and services without disruption to our existing ones, we may lose potential users
and clients. The costs of development of these enhancements may negatively impact our ability to achieve profitability.
We
rely on a combination of internal development, strategic relationships, licensing and acquisitions to develop our solutions and related
applications, features and services. Our development and/or implementation of new technologies, applications, features and services may
cost more than expected, may take longer than originally expected, may require more testing than originally anticipated and may require
the acquisition of additional personnel and other resources. There can be no assurance that the revenue opportunities from any new or
updated technologies, applications, features or services will justify the amounts spent.
Any
failure to offer high-quality customer support for our solutions may adversely affect our relationships with our customers and harm our
financial results.
Once
our solutions are implemented, our customers use our support organization to resolve technical issues relating to our solutions. In addition,
we also believe that our success in selling our solutions is highly dependent on our business reputation and on favorable recommendations
from our existing customers. Any failure to maintain high-quality customer support, or a market perception that we do not maintain high-quality
support, could harm our reputation, adversely affect our ability to maintain existing customers or sell our solutions to existing and
prospective customers, and harm our business, operating results and financial condition.
We
may be unable to respond quickly enough to accommodate short-term increases in customer demand for support services. Increased customer
demand for these services, without corresponding revenues, could also increase costs and adversely affect our operating results.
We
are dependent on a concentrated group of customers.
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 manufacturers as customers, and our revenues are concentrated in these customers.
Loss of one or more of our larger customers could have a negative impact on our operating results. Our top five customers represented
approximately 44% of revenue for the year ended December 31, 2023. In each of 2023 and 2022, we had one customer that each represented
over 10% of our revenues.
We
expect that we will continue to depend upon a relatively small number of customers for a significant portion of our total revenues for
the foreseeable future. The loss of any of these customers or groups of customers for any reason, or a change of relationship with any
of our key customers could cause a material decrease in our total revenues.
Additionally,
mergers or consolidations among our customers in the healthcare industry could reduce the number of our customers and could adversely
affect our revenues and sales. In particular, if our customers are acquired by entities that are not also our customers, that do not
use our solutions or that have more favorable contract terms with competitors and choose to discontinue, reduce or change the terms of
their use of our solutions, our business and operating results could be materially and adversely affected.
6
If
we are unable to maintain our contracts with electronic prescription platforms, our business will suffer.
We
are reliant upon our contracts with leading electronic prescribing (“ERx”) platforms and electronic health record (“EHR”)
systems to generate a portion of the revenues received from our customers. Such arrangements subject us to a number of risks, including
the following:
We generated 36.4% and 31.8% of our revenue through
our largest partner in 2023 and 2022, respectively. As such, the inability to maintain these relationships could adversely impact our
business.
Our
agreements with ERx and EHR channel partners are subject to audit.
Our
agreements with our ERx and EHR channel partners provide for revenue-sharing payments to them based on the revenue we generate through
their platforms and systems. These payments are subject to audit by our channel partners, at their cost, and if there is a dispute as
to the calculation, we may be liable for additional payments. Some agreements would require us to also pay for the cost of the audit
if an underpayment is determined to be in excess of a certain amount.
If
we fail to attract new customers or retain and expand existing customers, our business and future prospects may be materially and adversely
impacted.
We
currently work with many leading pharmaceutical companies, medical device manufacturers, associations, and other companies. While we
have experienced customer growth, this growth may not continue at the same pace in the future or at all. Achieving growth in our customer
base may require us to engage in increasingly sophisticated and costly sales and marketing efforts that may not result in additional
customers. We may also need to modify our pricing model to attract and retain such customers. If we fail to attract new customers or
fail to maintain or expand existing relationships in a cost-effective manner, our business and future prospects may be materially and
adversely impacted.
Actual
or perceived failures to comply with applicable laws and regulations that affect the healthcare industry, including data protection,
privacy and security, fraud and abuse laws, regulations, standards and other requirements could adversely affect our business, results
of operations, and financial condition.
The
global data protection landscape is rapidly evolving, and we are or may become subject to numerous state, federal and foreign laws, requirements
and regulations governing the collection, use, disclosure, retention, and security of personal information, including health-related
information. This evolution may create uncertainty in our business, affect our ability to operate in certain jurisdictions or to collect,
store, transfer, use and share personal information, necessitate the acceptance of more onerous obligations in our contracts, result
in liability or impose additional costs on us. The cost of compliance with these laws, regulations and standards is high and is likely
to increase in the future. Any failure or perceived failure by us to comply with federal, state or foreign laws or regulation, our internal
policies and procedures or our contracts governing our processing of personal information could result in negative publicity, government
investigations and enforcement actions, claims by third parties, and damage to our reputation, any of which could have a material adverse
effect on our operations, financial performance and business.
7
We
also may be bound by contractual obligations and other obligations relating to privacy, data protection, and information security that
are more stringent than applicable laws and regulations. The costs of compliance with, and other burdens imposed by, laws, regulations,
standards, and other obligations relating to privacy, data protection, and information security are significant. Although we work to
comply with applicable laws, regulations, and standards, our contractual obligations and other legal obligations, these requirements
are evolving and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and may conflict
with another or other legal obligations with which we must comply. Accordingly, our failure, or perceived inability, to comply with these
laws, regulations, standards, and other obligations may limit the use and adoption of our solution, reduce overall demand for our solution,
lead to regulatory investigations, breach of contract claims, litigation, and significant fines, penalties, or liabilities for actual
or alleged noncompliance or slow the pace at which we close sales transactions, any of which could harm our business.
The
Health Insurance Portability and Accountability Act of 1996, or HIPAA, and the rules promulgated thereunder require certain entities,
referred to as Covered Entities, to comply with established standards, including standards regarding the privacy and security of protected
health information, or PHI. HIPAA further requires that Covered Entities enter into agreements meeting certain regulatory requirements
with their business associates, as such term is defined by HIPAA, which, among other things, obligate the business associates to safeguard
the covered entity’s PHI against improper use and disclosure. While we are not a Covered Entity, we have contracted as a business
associate of our Covered Entity customers and, as such, may be regulated by HIPAA and have contractual obligations under such agreements,
including to enter into business associate agreements with our third-party vendors. We, and our Covered Entity customers might face significant
contractual liability pursuant to such business associate agreements if the business associate breaches the agreement or causes the Covered
Entity to fail to comply with HIPAA.
Certain
other laws and regulations such as federal and state anti-kickback and false claims laws may apply to us indirectly through our relationships
with our customers and partners. Violations can result in considerable penalties and sanctions. If we are found to have violated, or
to have facilitated the violation of such laws, we could be subject to significant penalties.
The
markets in which we operate are competitive, continually evolving and, in some cases, subject to rapid change.
Our
solutions face competition from numerous other companies, both in attracting users and in generating revenue from advertisers and sponsors.
We compete for users with online services and websites that provide savings on medications and healthcare products, including both commercial
sites and not-for-profit sites. We compete for advertisers and sponsors with health-related web sites, general purpose consumer web sites
that offer specialized health sub-channels, other high-traffic web sites that include both healthcare-related and non-healthcare-related
content and services, search engines that provide specialized health searches, and advertising networks that aggregate traffic from multiple
sites.
Many
of our competitors have greater financial, technical, product development, marketing and other resources than we do. These organizations
may be better known than we are and have more customers or users than we do. We cannot provide assurance that we will be able to compete
successfully against these organizations or any alliances they have formed or may form. Since there are no substantial barriers to entry
into the markets in which we participate, we expect that competitors will continue to enter these markets.
8
Developments
in the healthcare industry could adversely affect our business.
Most
of our revenue is derived from pharmaceutical manufacturers and could be affected by changes affecting the broader healthcare industry,
including decreased spending in the industry overall.
General
reductions in expenditures by healthcare industry participants could result from, among other things:
● Consolidation of healthcare industry participants;
● Reductions in governmental funding for healthcare; and
Even
if general expenditures by industry participants remain the same or increase, developments in the healthcare industry may result in reduced
spending in some or all of the specific market segments that we serve now or may serve in the future. For example, use of our solutions
and services could be affected by:
● A decrease in the number of new drugs or medical devices coming to market; and
The
healthcare industry has changed significantly in recent years and we expect that significant changes will continue to occur. However,
the timing and impact of developments in the healthcare industry are difficult to predict. We cannot assure you that the demands for
our solutions and services will continue to exist at current levels or that we will have adequate technical, financial and marketing
resources to react to changes in the healthcare industry.
If
we are unable to manage growth, our operations could be adversely affected.
Our
ability to manage growth effectively will depend on our ability to improve and expand operations, including our financial and management
information systems, and to recruit, train and manage personnel. There can be no assurance that management will be able to manage growth
effectively. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems
and controls to expand, train and manage our employee base. Our ability to manage our operations and growth effectively will require
us to continue to expend funds to enhance our operational, financial and management controls, reporting systems and procedures, and to
attract and retain sufficient talented personnel.
If
we do not properly manage the growth of our business, we may experience significant strains on our management and operations and disruptions
in our business. Various risks arise when companies grow too quickly. If our business grows too quickly, our ability to meet customer
demand in a timely and efficient manner could be challenged. We may also experience development delays as we seek to meet increased demand
for our solutions. Our failure to properly manage the growth that we or our industry might experience could negatively impact our ability
to execute on our operating plan and, accordingly, could have an adverse impact on our business, our cash flow and results of operations,
and our reputation with our current or potential customers.
9
We
may not be able to identify suitable acquisition candidates, complete acquisitions or integrate acquisitions successfully.
We
may not be able to identify suitable acquisition candidates, complete acquisitions, or integrate acquisitions successfully. We may seek
additional acquisition opportunities, both to further diversify our business and to penetrate or expand important product offerings or
markets. There are no assurances, however, that we will be able to successfully identify suitable candidates, negotiate appropriate terms,
obtain financing on acceptable terms, complete proposed acquisitions, successfully integrate acquired businesses, or expand into new
markets. Once acquired, operations may not achieve anticipated levels of revenues or profitability. Acquisitions involve risks, including
difficulties in the integration of the operations, technologies, services and products of the acquired companies and the diversion of
management’s attention from other business concerns. Although our management will endeavor to evaluate the risks inherent in any particular
transaction, there are no assurances that we will properly ascertain all such risks. Difficulties encountered with acquisitions could
have a material adverse impact on our business.
Our
acquisition activities may disrupt our ongoing business and may involve increased expenses, and we may not realize the financial and
strategic goals contemplated at the time of a transaction.
We
have acquired, and may in the future acquire, companies, businesses, products, services and technologies. Acquisitions involve significant
risks and uncertainties, including:
– we may not further our business strategy as we expected,
Impairment
charges for goodwill or other intangible assets may be increased as we shift our focus away from our non-core businesses.
Annually,
we evaluate goodwill and long-lived assets to determine if impairment has occurred. Additionally, interim reviews are performed whenever
events or changes to the business could indicate possible impairment. Any future impairment of our goodwill or long-lived assets could
require us to record an impairment charge, which would negatively impact our results of operations. For example, our strategic shift
away from non-core business resulted in an impairment of one or more of our long-lived assets. See Part II, Item 7. “Management’s
Discussion and Analysis of Financial Condition and Results of Operations - Results of Operation of the Years Ended December 31,
2023 and 2022 - Operating Expenses.”
10
Market
conditions could adversely change and our earnings could decline resulting in charges to impair intangible assets, such as goodwill.
As
a result of our various acquisitions, the consolidated balance sheet at December 31,
2023 contains goodwill of approximately $78.4 million and
intangible assets, net of approximately $49.4 million. We evaluate on an ongoing basis whether
facts and circumstances indicate any impairment to the carrying value of indefinite-lived intangible assets such as goodwill. As circumstances
after an acquisition can change, we may not realize the value of these intangible assets. During the year ended December 31,
2023, we recorded impairment charges, related to certain intangible assets, of approximately $6.7
million. Any future impairment charges related to our goodwill or long-lived assets could require
us to record additional impairment charges, which would negatively impact our results of operations.
Restrictions
in our Credit Agreement could adversely affect our business, financial condition, results of operations, ability to make distributions,
and the value of our securities.
Our
Credit Agreement contains customary affirmative covenants, including, among others, covenants pertaining to the delivery of financial
statements; certain financial covenants; notices of default and certain other material events; payment of obligations; preservation of
corporate existence, rights, privileges, permits, licenses, franchises and intellectual property; maintenance of property and insurance
and compliance with laws, as well as customary negative covenants, including, among others, limitations on the incurrence of liens and
entering into capital leases, investments and indebtedness; mergers and certain other fundamental changes; dispositions of assets; restricted
payments; changes in our line of business; transactions with affiliates and burdensome agreements. These covenants could affect our ability
to operate our business, increase the amount of interest expense we ultimately pay pursuant to the Credit Agreement, and may limit our
ability to take advantage of potential business opportunities as they arise.
Our
ability to comply with the covenants and restrictions contained in our Credit Agreement, may be affected by events beyond our control,
including prevailing economic, financial, and industry conditions. If market or other economic conditions deteriorate, our ability to
comply with these covenants may be impaired. A failure to comply with these provisions could result in a default or an event of default.
Upon an event of default, unless waived, the lenders could elect to terminate their commitments, cease making further loans, require
cash collateralization of letters of credit, cause their loans to become due and payable in full, foreclose against any assets securing
the debt under our Credit Agreement and force us and our subsidiaries into bankruptcy or liquidation. If the payment of our debt is accelerated,
our assets may be insufficient to repay such debt in full, and the holders of our stock could experience a partial or total loss of their
investment.
Servicing
debt and funding other obligations requires a significant amount of cash, and our ability to generate sufficient cash depends on many
factors, some of which are beyond our control.
Our
ability to make payments on and refinance our indebtedness and to fund our operations and capital expenditures depends on our ability
to generate cash flow and secure financing in the future. Our ability to generate future cash flow depends, among other things, on future
operating performance, general economic conditions, competition, and legislative and regulatory factors affecting our operations and
business.
Some
of these factors are beyond our control. There is no assurance that our business will generate cash flow from operations or that future
debt or equity financings will be available to us to enable us to pay our indebtedness or to fund other needs. As a result, we may need
to refinance all or a portion of our indebtedness on or before maturity. There is no assurance that we will be able to refinance any
of our indebtedness on favorable terms, or at all. Any inability to generate sufficient cash flow or refinance our indebtedness on favorable
terms could have an adverse effect on our financial condition.
11
Our
business and growth may suffer if we are unable to attract and retain members of our senior management team and other key employees.
Our
success has been largely dependent on the skills, experience and efforts of our senior management team and key employees and the loss
of the services of any of our senior management team or other key employees, without a properly executed transition plan, could have
an adverse effect on us. The loss of any member of our senior management team or any of our other key employees could damage critical
customer relationships, result in the loss of vital knowledge, experience and expertise, lead to an increase in recruitment and training
costs, and make it more difficult to successfully operate our business and execute our business strategy. We may not be able to find
qualified potential replacements for these individuals and the integration of potential replacements may be disruptive to our business.
Furthermore,
our business also depends on our ability to attract and retain qualified management, sales and technical personnel. However, competition
for these types of employees is intense due to the limited number of qualified professionals with expertise in our industry. Our ability
to meet our business development objectives will depend in part on our ability to recruit, train, incentivize, and retain top quality
people with advanced skills who understand our industry, technology, and business. Our compensation arrangements, including our equity
award programs, are essential to retaining our senior management team and other key employees, but may not always be successful in attracting
new employees or retaining and motivating our existing key employees for reasons that may include movement in our stock price or our
ability to maintain or increase our equity pool. If we are unable to engage, incentivize, and retain the necessary personnel, our business
may be materially and adversely affected.
Geopolitical
events may affect our business and our customer base and have a material adverse impact on our sales and operating results.
Our
results of operations may be affected by the conditions in the global capital markets and the economy generally, both in the U.S. and
elsewhere in the world. The war between Russia and Ukraine as well as the conflict between Israel and Hamas have caused uncertainty in
the credit markets and could cause our customers and potential customers to postpone or reduce spending on technology products or services
or put downward pressure on prices, which could have an adverse effect on our business.
We
could be subject to economic, political, regulatory and other risks arising from our international operations.
Operating
in international markets requires significant resources and management attention and will subject us to regulatory, economic and political
risks that may be different from, and incremental to, those in the United States. In addition to the risks that we face in the United
States, our international operations in Israel and Croatia, may involve risks that could adversely affect our business, including:
● unexpected changes in regulatory requirements;
● less favorable foreign intellectual property laws;
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● profit repatriation and other restrictions on the transfer of funds;
● new and different sources of competition; and
Our
failure to manage any of these risks successfully could harm our international operations and our overall business, as well as results
of our operations.
We
may in the future be adversely affected by health epidemics and pandemics, including COVID-19, which may significantly harm our business,
prospects, financial condition and operating results.
We
face risks related to health epidemics and other outbreaks, including the global outbreak of the novel coronavirus and the disease caused
by it, COVID-19. During 2020, the spread of the novel coronavirus led to disruption and volatility in the global capital markets. If
such disruption and volatility recurs, there could be an increase to our cost of capital and an adverse effect on our ability to access
the capital markets. In addition, efforts to contain the COVID-19 pandemic led to implementing numerous measures to try to contain the
virus, such as travel bans and restrictions, quarantines, stay-at-home or shelter-in-place orders, and business shutdowns. The extent
to which a pandemic, epidemic or outbreak of an infectious disease impacts our operations will depend on future occurrences, which are
highly uncertain and cannot be predicted with confidence, including the duration of any outbreak and the actions to contain or treat
its impact, among others. We are prepared to take steps to modify our business practices and mitigate the impact of the emergence and
spread of new variants and resurgences, or another pandemic or epidemic; however, there can be no assurance that such steps will be successful,
or that our business operations, or the operations of our customers or partners will not be materially and adversely affected by the
consequences of such pandemic or epidemic, which could materially impact our results of operations, cash flows, and financial condition.
Risks
Related to Inflation, Interest Rates, and Other Adverse Economic Conditions
Inflation,
the current interest rate environment, and other adverse economic conditions may adversely affect our business, results of operations
and financial condition.
Recently,
inflation has increased throughout the U.S. economy. In an inflationary environment, we may experience increases in the prices of labor
and other costs of doing business. Additionally, cost increases may outpace our expectations, causing us to use our cash and other liquid
assets faster than forecasted. If we are unable to successfully manage the effects of inflation, our business, operating results, cash
flows and financial condition may be adversely affected. The occurrence or perception of an economic slowdown or recession, or of a further
increase in inflation, may have a negative impact on the global economy and may reduce customer demand for our products and services.
In
addition, macroeconomic effects such as changes in interest rates and other measures taken by central banks and other policy makers could
have a negative effect on overall economic activity that could reduce our customers’ demand for our products and serves. Changing
interest rates may have unpredictable effects on markets, may result in heightened market volatility and may detract from our performance
to the extent we are exposed to such interest rates and/or volatility. An adjustment in rates would impact our variable rate debt. If
interest rates increase or remain elevated, we could face higher debt service requirements, which would adversely affect our cash flow
and could adversely impact our results of operations. If we are unable to generate sufficient cash flow to service our debt or to fund
our other liquidity needs, we could need to restructure or refinance all or a portion of our debt. Any refinancing of indebtedness could
be at higher interest rates, thereby resulting in an overall increase in interest expense.
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.
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Risks
Related to Our Intellectual Property and Technology
We
are dependent, in part, on our intellectual property. If we are not able to protect our proprietary rights or if those rights are invalidated
or circumvented, our business may be adversely affected.
Our
business is dependent, in part, on our ability to innovate, and, as a result, we are reliant on our intellectual property. We generally
protect our intellectual property through patents, trademarks, trade secrets, confidentiality and nondisclosure agreements and other
measures to the extent our budget permits. There can be no assurance that patents will be issued from pending applications that we have
filed or that our patents will be sufficient to protect our key technology from misappropriation or falling into the public domain, nor
can assurances be made that any of our patents, patent applications, trademarks or our other intellectual property or proprietary rights
will not be challenged, invalidated or circumvented. In the event a competitor or other party successfully challenges our solutions,
processes, patents or licenses or claims that we have infringed upon their intellectual property, we could incur substantial litigation
costs defending against such claims, be required to pay royalties, license fees or other damages or be barred from using the intellectual
property at issue, any of which could have a material adverse effect on our business, operating results and financial condition. We cannot
assure that steps taken by us to protect our intellectual property and other contractual agreements for our business will be adequate,
that our competitors will not independently develop or patent substantially equivalent or superior technologies or be able to design
around patents that we may receive, or that our intellectual property will not be misappropriated.
If
we are unable to protect our proprietary rights, we may be at a disadvantage to others who do not incur the substantial time and expense
we incur. Preventing unauthorized use or infringement of our intellectual property rights is inherently difficult. Moreover, it may be
difficult or practically impossible to detect theft or unauthorized use of our intellectual property. Any of the foregoing could have
a material adverse effect upon our business, financial condition and results of operations.
Cybersecurity
incidents could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation
and results of operations.
Global
cybersecurity threats can range from uncoordinated individual attempts to gain unauthorized access to our information technology (IT)
systems to sophisticated and targeted measures known as advanced persistent threats. While we employ extensive measures to prevent, detect,
address and mitigate these threats (including access controls, insurance, vulnerability assessments, continuous monitoring of our IT
networks and systems, maintenance of backup and protective systems and user training and education), cybersecurity incidents, depending
on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical data
and confidential or proprietary information (our own or that of third parties) and the disruption of business operations. The potential
consequences of a material cybersecurity incident include reputational damage, loss of customers, loss of income, litigation with customers
and other parties, loss of trade secrets and other proprietary business data and increased cybersecurity protection and remediation costs,
which in turn could adversely affect our competitiveness and results of operations.
We
may be unable to support our technology to further scale our operations successfully.
Our
plan is to grow through further integration of our technology in electronic platforms. Our growth will place significant demands on our
management and technology development, as well as our financial, administrative and other resources. We cannot guarantee that any of
the systems, procedures and controls we put in place will be adequate to support the commercialization of our operations. Our operating
results will depend substantially on the ability of our officers and key employees to manage changing business conditions and to implement
and improve our financial, administrative and other resources. If we are unable to respond to and manage changing business conditions,
or the scale of our solutions, services and operations, then the quality of our services, our ability to retain key personnel and our
business could be harmed.
Our
business will suffer if our network systems fail or become unavailable.
A
reduction in the performance, reliability and availability of our network infrastructure would harm our ability to distribute our solutions
to our users, as well as our reputation and ability to attract and retain customers. Our systems and operations could be damaged or interrupted
by fire, flood, power loss, telecommunications failure, internet breakdown, earthquake and similar events. Our systems could also be