Item 7. Management’s Discussion and Analysis
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.
Our
strategic focus remains on growing our existing client base and generating greater and more consistent revenues in part through our continued
shift in our business model toward enterprise level engagements with recurring revenue streams, while also broadening our platform with
innovative proprietary solutions such as our TelaRep™ 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.
As
the business continues to grow, operating expenses are expected to increase much more slowly than revenue.
The
following discussion includes an analysis and comparison of the Company’s 2021 and 2020 fiscal year results of operations, liquidity
and capital resources, and critical accounting policies.
C OVID-19
Business Update
The
COVID-19 pandemic created unprecedented challenges in the healthcare industry which increased the demand for unique solutions ranging
from access to accurate and timely information to increasing the accessibility of medications and care management. We also leveraged
our digital platform to provide telehealth capabilities for healthcare providers to adapt to COVID-19 restrictions.
At
the beginning of the pandemic, we transitioned our global workforce to working remotely to maintain the health and safety of our employees.
Governments of cities, states, and countries globally imposed restrictions on travel and business operations, which curtailed various
means of performing business and marketing activities such as the attending of health IT conferences. We are conducting business with
certain modifications to employee travel and employee work locations. In addition, we have implemented health and safety policies in
our offices to enable our employees to safely return to traditional working arrangements. We will continue to actively monitor the situation
and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we
determine are in the best interests of our employees, customers, and shareholders.
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The
COVID-19 pandemic did not have an adverse impact on our financial condition and results of operations in 2021, and we currently do not
expect the results of future operations and our near-and-long-term financial position and growth prospects to be negatively impacted
by the pandemic given the nature of the business and the increased demand for digital health solutions.
Information
pertaining to risk factors as it relates to the COVID-19 pandemic can be found in Item 1A. Risk Factors.
Key
Performance Indicators
We
developed a number of key performance indicators, and intend to monitor these going forward, to 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 increase in the average in 2021 as compared to 2020 is primarily the result of our
focus on signing larger and more comprehensive deals.
Twelve
Months Ended
December 31
2021
2020
Average revenue
per top 20 pharmaceutical manufacturer
$ 2,484,557
$ 1,945,650
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 increase from 2020 to 2021 reflects continued penetration into this core customer base and reflects
two new top 20 pharma customers in 2021.
Twelve
Months Ended
December 31
2021
2020
Percent of top
20 pharmaceutical manufacturers that are customers
95 %
85 %
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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 this core group of customers grew slightly faster than our overall revenue, enabling
us to maintain a similar percentage of revenues from this group.
Twelve
Months Ended
December 31
2021
2020
Percent of total
revenue attributable to top 20 pharmaceutical manufacturers
77 %
76 %
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 2020 was increased as a result of unplanned disruption to the industry caused by the Covid-19
pandemic. Our customers shifted funds previously designated for in-person events to digital marketing throughout 2020. By 2021, while
the pandemic continued, there was less disruption and customers shifted some funds back to traditional channels.
Twelve
Months Ended
December 31
2021
2020
Net revenue retention
127 %
162 %
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 grew more quickly than our increase in the number of employees, allowing us to achieve more productivity.
We were able to do this by taking advantage of the expandable technology infrastructure that we have built over the years.
Twelve
Months Ended
December 31
2021
2020
Revenue per average full-time employee
$ 729,674
$ 614,378
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Results
of Operations for the Years Ended December 31, 2021 and 2020
Net
Revenue
Our
net revenue increased 42% to $61.3 million for the year ended December 31, 2021 from $43.3 million for the year ended December 31, 2020.
This increase resulted from a combination of factors, including the shift to enterprise contracts, increased pharmaceutical brands, an
increased distribution network, and growth in our messaging solutions. We expect continued revenue growth in 2022 as a result of the
foundations laid in 2020 and 2021.
Because
the pharmaceutical industry is dominated by large companies with multiple brands, our revenue is concentrated in a relatively small number
of companies. We have approximately 50 pharmaceutical companies as customers. However, we had only one and three customers that individually
represented more than 10% of our revenues in 2021 and 2020, respectively.
Cost
of Revenues
Our
total cost of revenues, composed primarily of revenue share expense paid to our network partners, increased in the year ended December
31, 2021 compared to the year ended December 31, 2020 due to the increase in revenues. Our cost of revenues as a percentage of revenue
decreased from approximately 44% in the year ended December 31, 2020 to approximately 42% in the year ended December 31, 2021.
This
decrease in our cost of revenues as a percentage of revenue resulted primarily from solution mix, specifically the increase in 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 2020 to 2021 as a result of the increased
revenue. In addition, our gross margin percentage increased from 56% in 2020 to 58% in 2021 for the reasons discussed above in the cost
of revenues section. We expect our gross margins to be in the 57% to 60% range in 2022.
Operating
Expenses
Operating
expenses increased to $35.3 million for the year ended December 31, 2021, from $26.2 million for the year ended December 31, 2020, an
increase of approximately 34%. The detail by major category is reflected in the table below. Certain 2020 expenses were reclassified
in the table to be comparable to the 2021 presentation.
Years
Ended December 31
2021
2020
Compensation Expense
$ 17,926,205
$ 13,666,805
Stock-based Compensation
5,491,957
3,172,840
Contractors and Consultants
1,763,906
1,925,192
Professional Fees
1,528,893
1,312,395
Board Compensation
245,000
225,250
Investor Relations
215,490
132,652
Advertising and Promotion
1,029,208
615,938
Depreciation and Amortization
2,086,452
2,075,888
Technology Infrastructure
Costs
1,149,855
834,879
Data
1,008,098
246,242
Integration Incentives
1,425,274
811,131
Office, Facility and Other
1,047,672
893,787
Travel
359,104
327,741
Total
Operating Expense
$ 35,277,114
$ 26,240,740
The
main drivers for the overall increase in operating expenses in 2021 was our focus on staffing and scaling our company to foster and be
able to support our planned growth.
Within
the operating expenses, there were a variety of increases, the largest of which was in compensation expense as a result of additional
staff added in 2020 and 2021, including related benefits. During 2021, we added to our staff in several key areas, including product
development, sales, and IT, and the addition of our General Counsel and Chief Compliance Officer, and Chief Financial Officer/ Chief
Operating Officer. During 2021 we hired 27 net additional employees. We expect our compensation expense to continue to increase in 2022,
as a result of the full year impact of 2021 hires and new hires in 2022.
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Stock
based compensation increased by $2.3 million from $3.2 million in 2020 to $5.5 million in 2021 primarily because of more employees and
an increase in our stock price. There is a relationship between the price of the stock at the time of either the option grant or the
RSU grant and the fair value of the option or RSU, resulting in a higher cost when the stock price is higher. Our stock price was higher,
on average, in 2021 than 2020. In addition, we hired 3 high level executives, which tend to have larger awards, and awarded the CEO a
market-based grant with a requisite service period of less than 3 years.
Contractors
and consultants decreased from 2020 to 2021 as we added staff to fill roles previously filled by consultants or contractors.
Professional
fees increased by 16% in 2021 compared with 2020. With the assistance of an outside legal firm, we undertook a comprehensive governance
review of our bylaws, board charters, equity compensation plan, and overall corporate policies. The cost of this review, partially offset
by a reduction in the cost of our audit, accounts for the increase.
Board
compensation increased slightly from 2020 to 2021 due to the full year impact of an increase in the size of our board in 2020. This represents
only the cash portion of the compensation.
Investor
relations increased in 2021as a result of hiring a new investor relations firm, as well as increased activity in the area.
Our
advertising and promotion costs increased from 2020 to 2021 as a result of a resumption in the sponsorship of, and attendance at, conferences.
These activities were drastically reduced in 2020 due to the global pandemic. These activities were increased in 2021 once a Covid vaccine
was developed.
Technology
infrastructure costs increased due to continued investment in our operating systems to facilitate new products as well as the implementation
of additional software products to increase efficiency and information dissemination.
Data
costs increased as we have purchased more data, primarily to aid in our selling effort and allow customers to target their messages more
appropriately based on this data, thereby increasing our ability to charge premium prices for more highly targeted messages.
Integration
and exclusivity costs, which represent payments to partners for access and/or exclusivity, increased because of new agreements signed.
These payments are usually made in lump sums and expensed over the term of the contracts. These expenses are an important part of our
ability to expand our network. These costs increased in 2021, as we signed more contracts and contracts with larger payments.
Depreciation
and amortization in 2021 remained relatively similar to 2020. We expect depreciation and amortization expense in 2022 to increase from
2021 levels as we continue to invest in the growth of our business.
Office,
facility, and other miscellaneous costs increased from 2020 to 2021. The main reason for the change related to a higher level of activity
with more employees, as well as hiring expenses, including recruiter fees.
Travel
increased slightly from 2020 to 2021 as we reopened travel gradually in the second half of the year. In 2020, we had three months of
normal travel pre-pandemic followed by very little the remainder of the year, while 2021 had lower levels than normal spread more throughout
the year.
Net
Income (Loss)
We
finished the year ended December 31, 2021 with net income of $0.4 million, as compared to a net loss of $2.2 million during the year
ended December 31, 2020. 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 $5.2 million in noncash operating expenses in 2020 and $7.6 million in noncash operating expenses in 2021.
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Quarterly
Financial Information
Following
is a table of our quarterly operating results for 2021 for information purposes.
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
Year
Revenues
$ 11,229,211
$ 13,625,639
$ 16,124,951
$ 20,312,797
61,292,598
Cost of revenues
5,104,603
5,580,964
7,047,832
7,920,985
25,654,384
Gross Profit
6,124,608
8,044,675
9,077,119
12,391,812
35,638,214
Operating
Expenses
6,762,916
7,704,536
9,038,929
11,770,733
35,277,114
Income (Loss) from Operations
(638,308 )
340,139
38,190
621,079
361,100
Other
income (expense)
931
11,961
1,704
2,383
16,979
Income (loss) before Taxes
(637,377 )
352,100
39,894
623,462
378,079
Income
tax benefit
-
-
-
-
-
Net
Income (Loss)
(637,377 )
352,100
39,894
623,462
378,079
Earnings (loss) per share
Basic
$ (0.04 )
$ 0.02
$ 0.00
$ 0.04
$ 0.02
Diluted
$ (0.04 )
$ 0.02
$ 0.00
$ 0.03
$ 0.02
Sum
of four quarterly per share amounts does not equal annual total due to rounding and the mechanics of the weighted average shares outstanding
calculation.
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Following
is a table of our quarterly operating results for 2020 for information purposes.
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
Year
Revenues
$ 7,584,602
$ 8,783,230
$ 10,519,191
$ 16,426,301
$ 43,313,324
Cost of revenues
3,241,763
3,639,016
4,504,844
7,822,280
19,207,903
Gross Profit
4,342,839
5,144,214
6,014,347
8,604,021
24,105,421
Operating
Expenses
6,602,091
6,200,027
6,191,069
7,247,553
26,240,740
Income (Loss) from Operations
(2,259,252 )
(1,055,813 )
(176,722 )
1,356,468
(2,135,319 )
Other
income (expense)
55,321
(21,655 )
(106,172 )
698
(71,808 )
Income (loss) before Taxes
(2,203,931 )
(1,077,468 )
(282,894 )
1,357,166
(2,207,127 )
Income
tax benefit
-
-
-
-
-
Net
Income (Loss)
(2,203,931 )
(1,077,468 )
(282,894 )
1,357,166
(2,207,127 )
Earnings (loss) per share
Basic
$ (0.15 )
$ (0.07 )
$ (0.02 )
$ 0.09
$ (0.15 )
Diluted
$ (0.15 )
$ (0.07 )
$ (0.02 )
$ 0.08
$ (0.15 )
Sum
of four quarterly per share amounts does not equal annual total due to rounding and the mechanics of the weighted average shares outstanding
calculation.
Liquidity
and Capital Resources
As
of December 31, 2021, we had total current assets of $115.1 million, compared with current liabilities of $9.4 million, resulting in
working capital of $105.7 million and a current ratio of 12 to 1. This compares with the working capital balance of $22.9 million and
the current ratio of 3.3 to 1 at December 31, 2020. This increase in working capital, as discussed in more detail below, is primarily
the result of a public offering of common stock in 2021.
Following
is a table with summary data from the consolidated statement of cash flows for the years ended December 31, 2021 and 2020, as presented.
2021
2020
Net cash provided
by (used in) operating activities
$ 726,039
$ (6,310,386 )
Net cash used in investing
activities
(485,999 )
(124,725 )
Net
cash provided by (used in) financing activities
73,924,954
(1,900,793 )
Net
increase in cash and cash equivalents
$ 74,164,994
$ (8,335,904 )
Our
operating activities provided $0.7 million in the year ended December 31, 2021, as compared with approximately $6.3 million used in operating
activities in the year ended December 31, 2020. 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. The cash used in 2020 was primarily the result of the increased working capital required to support higher revenues,
totaling $9.7 million. In addition, we had a net loss of $2.2 million, but non-cash expenses included in that loss of $5.6 million, resulting
in net cash generated of $3.4 million between the two, which offset the investment in working capital.
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We
used $0.5 million in investing activities in 2021, compared with $0.1 million in 2020, primarily as the result of purchase of both tangible
and intangible assets. 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. The majority of the 2020 investments were in computers, with small
additional amounts of capitalized software.
Financing
activities provided $73.9 million in the year ended December 31, 2021. 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 used cash of $1.9 million in 2020
as the result of the payment of contingent consideration related to previous acquisitions of $4.4 million, partially offset by the proceeds
from option exercises of $2.5 million.
We
believe that funds generated from operations, together with existing cash, 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, 2021, there were no off-balance sheet arrangements.
Critical
Accounting Policies
A
“critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and
results, and requires management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain.
Our
accounting policies are discussed in detail in the footnotes to our financial statements included in this Annual Report on Form 10-K
for the year ended December 31, 2021; however, we consider our critical accounting policies to be those related to revenue recognition,
calculation of revenue share expense (cost of revenues), stock-based compensation, capitalization and related amortization of intangible
assets and impairment of assets. Following is a summary of those policies.
Revenue
Recognition
Recognition
of revenue requires evidence of a contract, probable collection of proceeds, and completion of substantially all performance obligations.
We use a 5-step model to recognize revenue. These steps are: identify the contract with a customer, identify the performance obligations
in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and
recognize revenue when or as the performance obligations are satisfied.
Revenues
are primarily generated from content delivery activities in which we deliver financial, clinical, or brand messaging through a distribution
network of eprescribers and electronic health record technology providers (channel partners), directly to consumers, or from reselling
services that complement the business. This content delivery for a customer is referred to as a program. Unless otherwise specified,
revenue is recognized based on the selling price to customers.
25
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.
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, four years for covenants not to compete, and three to
four years for software and websites, all using the straight-line method. These assets are evaluated when there is a triggering event.
There was no impairment of our intangible assets in either year presented.
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Goodwill
We
evaluate goodwill for impairment during our fiscal fourth quarter, or more frequently if an event occurs or circumstances change. We
determined there was no impairment as goodwill had a fair value comfortably in excess of its carrying value.
Stock-based
Compensation
We
use the fair value method to account for stock-based compensation. The fair value of the equity instrument is charged directly to compensation
expense and additional paid-in capital over the period during which services are rendered. The fair value of each award is estimated
on the date of each grant.
For
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 Company is currently
evaluating the effect of this pronouncement on its Consolidated Financial Statements, but it is not expected to have a material impact.
Item
7A. Quantitative and Qualitative Disclosures About Market Risk
Not
applicable.
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