OptimizeRx Corp 10-K/A

Item 8. Financial Statements and Supplementary Data Index to Financial Statements Required by Article 8 of Regulation S-X: Audited Financial Statements: F-1 Reports of Independent Registered Public Accounting Firm; F-5 Consolidated Balance Sheets as of December 31, 2021 and 2020; F-6 Consolidated Statements of Operations for the years ended December 31, 2021 and 2020; F-7 Consolidated Statement of Stockholders’ Equity for the year ended December 31, 2021; F-8 Consolidated Statement of Stockholders’ Equity for the year ended December 31, 2020; F-9 Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020; and F-10 Notes to Consolidated Financial Statements 10 Report of Independent Registered Public Accounting Firm To the Stockholders 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, 2021 and 2020, 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, 2021 and 2020, 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. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 28, 2022, except for the restatement of the effectiveness of internal control over financial reporting for the material weakness related to the Company’s inability to obtain evidence about the effectiveness of controls over financial reporting at third-party service organizations, which is as of March 10, 2023, expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. 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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits 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 audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they related. 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. F- 1 To the Stockholders and Board of Directors of OptimizeRx Corporation Page Two 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 operating effectiveness of controls related to identifying distinct performance obligations, determining the timing of revenue recognition and any estimation of variable consideration, (2) selection of a sample of customer agreements and testing management’s identification and treatment of contract terms, and testing the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue recognized in the consolidated financial statements. We have served as the Company’s auditor since 2020. /s/ UHY LLP Sterling Heights, Michigan February 28, 2022, except as to the restatement of the effectiveness of internal control over financial reporting for the material weakness, which is as of March 10, 2023 F- 2 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors of OptimizeRx Corporation Adverse Opinion on Internal Control over Financial Reporting We have audited OptimizeRx Corporation and Subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, because of the effect of the material weakness described in the following paragraph on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2021, based on the criteria established in Internal Control---Integrated Framework (2013) issued by COSO. A material weakness is a control deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses has been identified and included in management’s assessment: The Company did not maintain effective control over and was unable to assess the effectiveness of controls at third-party service organizations. The Company utilizes data received from these service organizations in recording amounts pertaining to revenue, accounts receivable, revenue share expense and revenue share payable. Management’s inability to obtain evidence about the effectiveness of controls over financial reporting at these service organizations represents a material weakness. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets and the related statements of operations, stockholders’ equity, and cash flows of the Company, and our report dated February 28, 2022, expressed an unqualified opinion. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2021 consolidated financial statements, and this report does not affect our report dated February 28, 2022, on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Assessment of Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting 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 effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. F- 3 To the Stockholders and Board of Directors of OptimizeRx Corporation Page Two Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. / s/ UHY LLP Sterling Heights, Michigan February 28, 2022, except as to the restatement of the effectiveness of internal control over financial reporting for the material weakness, which is as of March 10, 2023 F- 4 OPTIMIZERx CORPORATION Consolidated Balance Sheets December 31, 2021 December 31, 2020 ASSETS Current Assets Cash and cash equivalents $ 84,681,770 $ 10,516,776 Accounts receivable, net 24,800,585 17,885,705 Prepaid expenses 5,630,655 4,456,611 Total Current Assets 115,113,010 32,859,092 Property and equipment, net 143,818 148,854 Other Assets Goodwill 14,740,031 14,740,031 Technology assets, net 4,589,126 5,251,822 Patent rights, net 2,155,026 2,349,570 Right of use assets, net 328,820 445,974 Other intangible assets, net 3,902,502 4,519,552 Security deposits and other assets 12,859 12,859 Total Other Assets 25,728,364 27,319,808 TOTAL ASSETS $ 140,985,192 $ 60,327,754 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Accounts payable – trade $ 606,808 $ 618,250 Accrued expenses 2,902,836 2,420,361 Revenue share payable 4,378,216 4,969,868 Current portion of lease liabilities 90,982 123,220 Contingent purchase price payable — 1,610,813 Deferred revenue 1,389,907 285,795 Total Current Liabilities 9,368,749 10,028,307 Non-current Liabilities Lease liabilities, net of current portion 236,726 325,533 Total Liabilities 9,605,475 10,353,840 Commitments and contingencies (See Note 14) Stockholders’ Equity Preferred stock, $ 0.001 par value, 10,000,000 shares authorized, none issued and outstanding at December 31, 2021 and 2020, — — Common stock, $ 0.001 par value, 166,666,667 shares authorized, 17,860,975 and 15,223,340 shares issued and outstanding at December 31, 2021 and 2020, respectively 17,861 15,223 Additional paid-in-capital 166,615,514 85,590,428 Accumulated deficit ( 35,253,658 ) ( 35,631,737 ) Total Stockholders’ Equity 131,379,717 49,973,914 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 140,985,192 $ 60,327,754 The accompanying notes are an integral part of these financial statements. F- 5 OPTIMIZERx CORPORATION Consolidated Statements of Operations For the year ended December 31, 2021 For the year ended December 31, 2020 Revenue $ 61,292,598 $ 43,313,323 Cost of revenues 25,654,384 19,207,902 Gross margin 35,638,214 24,105,421 Operating Expenses Stock-based compensation 5,491,957 3,172,840 Depreciation, amortization, and noncash lease expense 2,086,454 2,075,888 Other general and administrative expenses 27,698,703 20,992,012 Total operating expenses 35,277,114 26,240,740 Income (loss) from operations 361,100 ( 2,135,319 ) Other income (expense) Interest income 16,979 68,582 Change in fair value of contingent consideration — ( 140,390 ) Total other income (expense) 16,979 ( 71,808 ) Income (loss) before provision for income taxes 378,079 ( 2,207,127 ) Income tax benefit — — Net income (loss) $ 378,079 $ ( 2,207,127 ) Weighted average number of shares outstanding – basic 17,228,019 14,827,923 Weighted average number of shares outstanding – diluted 17,690,489 14,827,923 Income (loss) per share – basic $ 0.02 $ ( 0.15 ) Income (loss) per share – diluted $ 0.02 $ ( 0.15 ) The accompanying notes are an integral part of these financial statements. F- 6 OPTIMIZERx CORPORATION Consolidated Statement of Stockholders’ Equity for the Year Ended December 31, 2021 Common Stock Shares Common Stock Amount Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity Balance, January 1, 2021 15,223,340 $ 15,223 $ 85,590,428 $ ( 35,631,737 ) $ 49,973,914 Stock-based compensation expense Options — — 2,709,781 — 2,709,781 Restricted Stock 3,333 3 2,532,088 — 2,532,091 Issuance of common stock: For board compensation 4,730 5 250,080 — 250,085 For stock options exercised 1,105,822 1,106 4,863,125 — 4,864,231 Public offering of common shares, net of offering costs 1,523,750 1,524 70,670,012 — 70,671,536 Net income for the year — — — 378,079 378,079 Balance, December 31, 2021 17,860,975 $ 17,861 $ 166,615,514 $ ( 35,253,658 ) $ 131,379,717 The accompanying notes are an integral part of these financial statements. F- 7 OPTIMIZERx CORPORATION Consolidated Statement of Stockholders’ Equity for the Year Ended December 31, 2020 Common Stock Shares Common Stock Amount Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity Balance, January 1, 2020 14,600,579 $ 14,601 $ 78,272,268 $ ( 33,424,610 ) $ 44,862,259 Stock-based compensation expense Options — — 1,884,202 — 1,884,202 Restricted Stock 84,746 84 838,430 — 838,514 Issuance of common stock: For board compensation 28,809 29 450,095 — 450,124 For stock options exercised 414,705 415 2,487,979 — 2,488,394 For contingent purchase price and escrow hold back 94,501 94 1,657,454 — 1,657,548 Net loss for the year — — ( 2,207,127 ) ( 2,207,127 ) Balance, December 31, 2020 15,223,340 $ 15,223 $ 85,590,428 $ ( 35,631,737 ) $ 49,973,914 The accompanying notes are an integral part of these financial statements. F- 8 OPTIMIZERx CORPORATION Consolidated Statements of Cash Flows For the year ended December 31, 2021 For the year ended December 31, 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 378,079 $ ( 2,207,127 ) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 1,965,325 1,971,083 Noncash lease expense 121,129 104,805 Increase in bad debt reserve 80,000 200,000 Stock-based compensation 5,491,957 3,172,840 Change in fair value of contingent consideration — 140,390 Changes in: Accounts receivable ( 6,994,880 ) ( 10,667,680 ) Prepaid expenses and other assets ( 1,174,044 ) ( 3,517,700 ) Accounts payable ( 11,442 ) 125,255 Revenue share payable ( 591,652 ) 3,351,430 Accrued expenses and other 482,475 1,416,884 Change in operating lease liabilities ( 125,020 ) ( 106,347 ) Deferred revenue 1,104,112 ( 294,219 ) NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 726,039 ( 6,310,386 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment ( 100,322 ) ( 68,041 ) Acquisition of intangible assets, including intellectual property rights ( 21,511 ) ( 11,932 ) Capitalized software development costs ( 364,166 ) ( 44,752 ) NET CASH USED IN INVESTING ACTIVITIES ( 485,999 ) ( 124,725 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock, net of offering costs 70,671,536 — Proceeds from exercise of stock options 4,864,231 2,488,394 Payment of contingent consideration ( 1,610,813 ) ( 4,389,187 ) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 73,924,954 ( 1,900,793 ) NET INCREASE (DECREASE IN) CASH AND CASH EQUIVALENTS 74,164,994 ( 8,335,904 ) CASH AND CASH EQUIVALENTS – BEGINNING OF PERIOD 10,516,776 18,852,680 CASH AND CASH EQUIVALENTS – END OF PERIOD $ 84,681,770 $ 10,516,776 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $ — $ — Cash paid for income taxes $ — $ — NON-CASH INVESTING AND FINANCING ACTIVITIES: Acquisition liabilities paid in stock $ — $ 1,657,548 The accompanying notes are an integral part of these financial statements. F- 9 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 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, RMDY Health, Inc., a Delaware corporation, CareSpeak Communications, Inc., a New Jersey corporation, Cyberdiet, a controlled foreign corporation incorporated in Israel, and CareSpeak Communications D.O.O., a Controlled Foreign Corporation incorporated in Croatia. Together, these companies are referred to as “OptimizeRx” and “the Company.” All material intercompany transactions have been eliminated. Reclassifications Certain items in the previous year financial statements have been reclassified to match the current year presentation. 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 sheckel 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. F- 10 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 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 following tables present the fair values and carrying values of the Company’s financial assets and liabilities measured on a recurring basis as of December 31, 2021 and 2020 and the valuation techniques used by the Company to determine those fair values. 2021 Level 1 Level 2 Level 3 Fair Value Carrying Value Liabilities Contingent Purchase Price Payable $ — $ — $ — $ — $ — 2020 Level 1 Level 2 Level 3 Fair Value Carrying Value Liabilities Contingent Purchase Price Payable (1) $ — $ — $ 1,610,813 $ 1,610,813 $ 1,610,813 (1) The contingent consideration is based off achieving certain revenue milestones in each of the next two years. The Geometric-Brownian motion analysis was used to generate spot prices for use in an option pricing model. For 2020, the final payout had been determined and was paid in 2021. F- 11 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The following table provides a summary of changes in fair value of the Company’s Level 3 financial instruments for the years ended December 31, 2021 and 2020. Amount Balance December 31, 2019 $ 6,720,000 Payment of CareSpeak Communication contingent consideration ( 1,389,187 ) Payment of RMDY Health, Inc. contingent consideration ( 3,860,390 ) Increase in the value of the RMDY Health, Inc. contingent consideration 140,390 Balance December 31, 2020 1,610,813 Payment of CareSpeak Communication contingent consideration ( 1,610,813 ) Balance December 31, 2021 $ — 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 $ 80,000 for the year ended December 31, 2021 and $ 200,000 for the year ended December 31, 2020. The allowance for doubtful accounts was $ 241,219 and $ 158,163 as of December 31, 2021 and 2020, 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 $ 2,110,865 and $ 757,218 at December 31, 2021, and December 31, 2020, respectively. Property and Equipment Property and equipment are stated at cost and are being depreciated over their estimated useful lives of three to five years for office equipment and three years for computer equipment using the straight-line method of depreciation for book purposes. Maintenance and repair charges are expensed as incurred. Intangible Assets Intangible assets are stated at cost. Finite-lived assets are being amortized over their estimated useful lives of fifteen to seventeen years for patents, eight years for customer relationships, fifteen years for tradenames, four years for covenants not to compete, and three to four years for software and websites, all using the straight-line method. These assets are evaluated when there is a triggering event. There was no impairment of our intangible assets in either year presented. Goodwill We evaluate goodwill for impairment during 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. F- 12 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. The majority of our revenue is earned from life sciences companies, such as pharmaceutical and biotech companies, or medical device makers. A small portion of our revenue is earned from other sources, such as associations and technology companies. A break down is set forth in the table below. 2021 2020 Life Science Companies $ 59,018,033 $ 41,358,746 Other 2,274,565 1,954,577 Total Revenue $ 61,292,598 $ 43,313,323 Revenues (cont.) 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. F- 13 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. 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. Concentration of Credit Risks The Company maintains its cash and cash equivalents in bank deposit accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts; however, amounts in excess of the federally insured limit may be at risk if the bank experiences financial difficulties. As of December 31, 2021 and 2020 the Company had $ 83,312,524 and $ 9,936,806 , respectively, in cash balances in excess of federally insured limits, primarily at Bank of America/Merrill Lynch. Research and Development The Company expenses research and development expenses as incurred. There was no research and development expense for the years ended December 31, 2021 and 2020. Stock-based Compensation The Company uses the fair value method to account for stock-based compensation. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital over the period during which services are rendered. The fair value of each award is estimated on the date of each grant. For restricted stock awards, 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, the 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. F- 14 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 the Company’s common 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. The Company uses 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. The Company has never paid dividends and do not expect to pay any dividends in the future. 2021 2020 Expected dividend yield 0 % 0 % Risk free interest rate 0.19 % - 0.67 % 0.16 % - 1.63 % Expected option term 3.5 years 3.5 years Turnover/forfeiture rate 0 % 0 % Expected volatility 67 % - 70 % 65 % - 71 % Weighted average grant date fair value $ 26.36 $ 5.49 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. The Company’s 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. Loss Per Common and Common Equivalent Share The computation of basic (loss) earnings per common share is computed using the weighted average number of common shares outstanding during the year. The computation of diluted (loss) earnings per common share is based on the basic weighted average number of shares outstanding during the year plus common stock equivalents, which would arise from the exercise of options and warrants outstanding using the treasury stock method and the average market price per share during the year. The number of common shares potentially issuable upon the exercise of certain options that were excluded from the diluted loss per common share calculation in 2020 was 820,059 related to options, and 91,667 related to restricted stock units, for a total of 911,726 because they are anti-dilutive, as a result of a net loss for the year ended December 31, 2020. The computation of weighted average shares outstanding and the basic and diluted earnings per common share for the years ended December 31, 2021 and 2020 consisted of the following: Net Income Shares Per Share Amount Year ended December 31, 2021 Basic EPS $ 378,079 17,228,019 $ 0.02 Diluted EPS $ 378,079 17,690,489 $ 0.02 Net (Loss) Shares Per Share Amount Year ended December 31, 2020 Basic EPS $ ( 2,207,127 ) 14,827,923 $ ( 0.15 ) Diluted EPS $ ( 2,207,127 ) 14,827,923 $ ( 0.15 ) F- 15 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Impairment of Long-Lived Assets The Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell. Segment reporting We operate in one reportable segment. Overall, our business involves connecting life science companies to patients and providers. We have a common customer base for all of our solutions, which are primarily all communications with healthcare providers or patients on behalf of life science customers. Our customers are geographically located in the U.S although we have two technology centers located internationally. We do not prepare separate internal income statements by solutions as our focus is on selling enterprise arrangements covering multiple solutions that span the entire patient journey with a specific brand. Recently Issued Accounting Guidance 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. NOTE 3 – PREPAID EXPENSES Prepaid expenses consisted of the following as of December 31, 2021 and 2020: 2021 2020 Prepaid revenue share and exclusivity payments 4,266,668 3,750,000 EHR access fees 250,000 317,726 Data 168,462 29,408 Insurance 156,327 77,887 Other 789,198 281,590 Total prepaid expenses $ 5,630,655 $ 4,456,611 F- 16 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 NOTE 4 – PROPERTY AND EQUIPMENT The Company owned equipment recorded at cost, which consisted of the following as of December 31, 2021 and 2020: 2021 2020 Computer equipment $ 267,917 $ 169,247 Furniture and fixtures 200,250 198,665 468,167 367,912 Less accumulated depreciation 324,349 219,058 Property and equipment, net $ 143,818 $ 148,854 Depreciation expense was $ 105,360 and $ 95,202 for the years ended December 31, 2021 and 2020, respectively. NOTE 5 – INTANBIGLE ASSETS Goodwill Our goodwill is related to the acquisitions of RMDY Health, Inc. in 2019 and CareSpeak Communications in 2018. Goodwill is generally not amortizable for tax purposes and is not amortizable for financial statement purposes. Intangible Assets Intangible assets included on the consolidated balance sheets consist of the following: December 31, 2021 Weighted Gross Carrying Amount Accumulated Amortization Net Average Life Remaining Patent rights $ 3,362,898 $ 1,207,872 2,155,026 9.6 Technology Assets $ 8,548,930 $ 3,959,804 4,589,126 4.9 Other intangible assets Tradename $ 3,586,000 $ 537,900 3,084,100 12.7 Non-compete agreements 1,093,000 899,635 193,365 0.6 Customer relationships 923,000 261,963 661,037 8.4 Total other 5,602,000 1,699,498 3,902,502 Total Intangibles $ 17,513,828 $ 6,867,174 10,646,654 F- 17 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 NOTE 5 – INTANBIGLE ASSETS (CONTINUED) December 31, 2020 Weighted Gross Carrying Amount Accumulated Amortization Net Average Life Remaining Patent rights $ 3,341,388 $ 991,818 2,349,570 11.5 Technology Assets $ 8,184,765 $ 2,932,943 5,251,822 7.7 Other intangible assets Tradename $ 3,586,000 $ 298,833 3,287,167 13.7 Non-compete agreements 1,093,000 611,885 481,115 1.6 Customer relationships 923,000 171,730 751,270 9.8 Total other 5,602,000 1,082,448 4,519,552 Total Intangibles $ 17,128,153 $ 5,007,209 12,120,944 Intangibles are being amortized on a straight-line basis over the following estimated useful lives. Patents 15 – 17 years Tradenames 15 years Non-compete agreements 2 – 4 years Customer relationships 8 – 15 years Technology assets 3 – 10 years The Company recorded amortization expense of $ 1,859,965 and $ 1,875,882 in the years ended December 31, 2021 and 2020, respectively. Expected future amortization expenses of the intangibles assets as of December 31, 2021 is as follows: Year ended December 31, 2022 $ 1,532,756 2023 1,203,639 2024 1,203,639 2025 1,131,058 2026 1,009,499 Thereafter 4,566,063 Total $ 10,646,654 F- 18 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 NOTE 6 – DEFERRED REVENUE The Company has several signed contracts with customers for the distribution of financial messaging, or other services, which include payment in advance. The payments are not recorded as revenue until the revenue is earned under its revenue recognition policy discussed in Note 2. Deferred revenue was $ 1,389,908 and $ 285,795 as of December 31, 2021 and 2020, respectively. These contracts are all short term in nature and all revenue is expected to be recognized within 12 months, or less. Following is a summary of activity in the deferred revenue account for the year ended December 31, 2021. Balance January 1, 2021 $ 285,795 Revenue recognized ( 18,006,973 ) Amount collected 19,111,086 Balance December 31, 2021 $ 1,389,908 Following is a summary of activity in the deferred revenue account for the year ended December 31, 2020. Balance January 1, 2020 $ 580,014 Revenue recognized ( 16,260,166 ) Amount collected 15,680,152 Balance December 31, 2020 $ 285,795 NOTE 7 – RELATED PARTY TRANSACTIONS During the year ended December 31, 2010, the Company acquired the technical contributions and assignment of all exclusive rights to and for a key patent in process at the time from a former CEO in exchange for a total payment in shares of common stock and options valued at $ 930,000 at the time of the acquisition and recorded the patent at that cost. That patent remains in Patents on the consolidated balance sheet as of December 31, 2021. Jim Lang, one of our Board Members, is the CEO of Eversana, a leading global provider of services to the life sciences industry. Eversana is similar to other customers we generate revenue from, such as agencies or resellers. During the year ended December 31, 2021, we have recognized $ 218,333 in revenue from contracts engaged with Eversana. No revenues were recognized in 2020 related to contracts with Eversana. These contracts were sourced by Eversana on behalf of life science customers of theirs. The contracts are at market rates and were generated in the normal course of business. NOTE 8 – CONTINGENT PURCHASE PRICE Our purchase of CareSpeak Communications contained a contingent element that would be paid only if the Company achieved certain patient engagement revenues in 2019 and 2020. The total contingent payment could have been up to $ 3.0 million. The target patient engagement revenues were achieved in both 2019 and in 2020. The calculated fair value of the contingent payment was $ 3,000,000 at December 31, 2019 and $ 1,610,813 at December 31, 2020. The final required payment was made in 2021. Our purchase of RMDY Health, Inc. also contained a contingent element that would be paid only if the Company achieves certain revenues in 2020 and 2021 related to the RMDY business. The total contingent payment could have been up to $ 30.0 million. The minimum payment was $ 1.0 million in each of the two years. The calculated fair value of the contingent payment was $ 3,720,000 at December 31, 2019. We determined the fair value of the Contingent Purchase Price Payable at December 31, 2019 using a Geometric-Brownian motion analysis of the expected revenue and resulting earnout payment using inputs that include the spot price, a risk free rate of return of 1.4 %, a term of 2 years, and volatility of 35 %. During 2020, we reached agreement with the former shareholders of RMDY to fix the liability at $ 3.75 million, payable in a combination of cash and stock. Because of the change in the share price between the date of agreement and the date of payment, the amount recorded for the stock amount varied from the agreed amount. The liability was paid in full during 2020 and was paid with a $ 3.0 million cash payment and the remainder in shares of common stock. F- 19 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 NOTE 8 – CONTINGENT PURCHASE PRICE (CONTINUED) There was no contingent purchase price payable at December 31, 2021. The total fair value of contingent purchase price payable at December 31, 2020 is as follows. Current Long-Term Total CareSpeak Communications, Inc. $ 1,610,813 — $ 1,610,813 RMDY Health — — — Total $ 1,610,813 — $ 1,610,813 NOTE 9 – STOCKHOLDERS’ EQUITY Preferred Stock The Company has 10,000,000 shares of preferred stock, $.001 par value per share, authorized as of December 31, 2021. No shares were issued or outstanding in either 2020 or 2021. Common Stock The Company had 166,666,667 shares of common stock, $.001 par value per share, authorized as of December 31, 2021. There were 17,860,975 and 15,223,340 shares of common stock issued and outstanding at December 31, 2021 and 2020, respectively. During the quarter ended March 31, 2021, in an underwritten primary offering, we issued 1,523,750 shares of our common stock for gross proceeds of $ 75,425,625 . In connection with this transaction, we incurred equity issuance costs of $ 4,754,089 related to payments to the underwriter, advisors and legal fees associated with the transaction, resulting in net proceeds to the Company of $ 70,671,536 . The Company had a Director Compensation plan covering its independent non-employee Directors that was in effect through June 30, 2021. A total of 4,730 and 28,809 shares were granted and issued in the years ended December 31, 2021 and 2020, respectively, in connection with this compensation plan. These shares were valued at $ 250,085 and $ 450,124 , respectively. The plan was changed to grant restricted stock units under the Company’s 2021 Equity compensation plan and those grants are reflected in the information in Note 10. We issued 1,105,822 shares of common stock and received proceeds of $ 4,864,231 in 2021 in connection with the exercise of options. We also issued 414,705 shares of common stock and received proceeds of $ 2,488,394 in 2020 in connection with the exercise of options. We issued 3,333 shares of common stock in 2021 and 84,746 shares of common in stock in 2020 in connection with the vesting of restricted stock units and discussed in greater detail in Note 10, Stock Compensation. NOTE 10 – STOCK COMPENSATION The Company sponsors two stock-based incentive compensation plans. The first plan is known as the 2013 Incentive Plan (the “2013 Plan”) and was established by the Board of Directors of the Company in June 2013. The 2013 Plan, as amended, authorized the issuance of 3,000,000 shares of Company common stock. The amended plan was approved by shareholders. A total of 671,011 shares of common stock underlying options and 145,550 shares of common stock underlying restricted stock unit awards were outstanding at December 31, 2021. In connection with the adoption of a new plan in 2021, the Company froze the 2013 Plan. At December 31, 2021, there were no shares available for grant under the 2013 Plan. In 2021, the Company adopted a new plan known as the 2021 Equity Incentive Plan (“2021 Plan”). The plan was established by the Board of Directors and approved by shareholders in August 2021. A total of 2,500,000 shares are authorized for issuance under the 2021 Plan. A total of 112,536 shares of common stock underlying options and 254,188 shares of common stock underlying restricted stock unit awards were outstanding at December 31, 2021. At December 31, 2021, 2,133,276 shares were available for grant under the 2021 Plan. F- 20 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 NOTE 10 – STOCK COMPENSATION (CONTINUED) The 2021 Plan allows the Company to grant incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other stock-based awards. Incentive stock options may only be granted to persons who are regular full-time employees of the Company at the date of the grant of the option. Non-qualified options may be granted to any person, including, but not limited to, directors, officers, employees and consultants, who the Company’s Board or Compensation Committee determines. The exercise price of options granted under the 2021 Plan must be equal to at least 100 % of the fair market value of our common stock as of the date of the grant of the option. Options granted under the 2021 Plan are exercisable as determined by the Compensation Committee and specified in the applicable award agreement. In no event will an option be exercisable after ten years from the date of grant. The compensation cost that has been charged against income related to options for the years ended December 31, 2021 and 2020, was $ 2,709,781 and $ 1,884,202 , respectively. No income tax benefit was recognized in the consolidated statements of income and no compensation was capitalized in any of the years presented. The Company had the following option activity during the year ended December 31, 2021 and 2020: Number of Options Weighted average exercise price Weighted average remaining contractual life (years) Aggregate intrinsic value $ Outstanding at January 1, 2020 1,624,221 $ 6.27 Granted 467,549 $ 11.39 Exercised ( 420,586 ) $ 6.45 Expired or forfeited ( 125,666 ) $ 13.09 Outstanding at December 31, 2020 1,545,518 $ 7.31 2.3 $ 36,862,947 Granted 424,588 $ 54.34 Exercised ( 1,137,065 ) $ 7.33 Expired or forfeited ( 49,494 ) $ 24.57 Outstanding, December 31, 2021 783,547 $ 34.17 3.4 $ 23,368,961 Exercisable, December 31, 2021 197,271 $ 10.87 2.1 $ 10,109,168 F- 21 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 NOTE 10 – STOCK COMPENSATION (CONTINUED) The table below reflects information for the total options outstanding at December 31, 2021 Range of Exercise Prices Number of Options Weighted average remaining contractual life (years) Weighted average exercise price $ 2.46 to $ 10.00 127,005 1.1 $ 4.05 $10,00 to $20.00 166,945 2.8 $ 12.51 $ 20.00 to $ 40.00 180,561 3.9 $ 30.52 $ 40.00 to $ 60.00 196,500 4.3 $ 51.88 $ 60.00 to $ 96.70 112,536 4.7 $ 75.19 Total 783,547 3.4 $ 34.17 The table below reflects information for the vested options outstanding at December 31, 2021. Range of Exercise Prices Number of Options Weighted average remaining contractual life (years) Weighted average exercise price $ 2.46 to $ 10.00 78,669 0.9 $ 3.76 $10,00 to $20.00 89,938 2.5 $ 13.36 $ 20.00 to $ 40.00 28,664 3.9 $ 22.52 $ 40.00 to $ 60.00 — — — $ 60.00 to $ 96.70 — — — Total 197,271 2.1 $ 10.87 A summary of the status of the Company’s nonvested options as of December 31, 2021, and changes during the year ended December 31, 2021, is presented below. Nonvested Options Options Weighted- Average Exercise Price Nonvested at January 1, 2021 331,006 $ 12.44 Granted 424,588 54.34 Vested ( 119,823 ) 11.23 Forfeited ( 49,495 ) 24.57 Nonvested at December 31, 2021 586,276 $ 42.01 There is $ 9,685,867 of expense remaining to be recognized over a period of approximately 2.4 years related to options outstanding at December 31, 2021. F- 22 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 NOTE 10 – STOCK COMPENSATION (CONTINUED) The Company had the following restricted stock unit (“RSU”) activity during the years ended December 31, 2021 and 2020: Number of RSUs Grant date fair value Weighted average remaining contractual life (years) Outstanding at January 1, 2020 90,000 $ 10.43 Granted 94,746 $ 8.98 Shares issued ( 84,746 ) $ 7.54 Outstanding at December 31, 2020 100,000 $ 11.51 2.4 Granted 303,556 $ 66.30 Forfeited ( 485 ) $ 61.82 Shares issued ( 3,333 ) $ 21.20 Outstanding at December 31, 2021 399,738 $ 52.99 3.3 The Company granted restricted stock units of 303,556 and 94,746 units in 2021 and 2020, respectively, and valued at $ 20,125,861 and $ 850,985 , respectively. These restricted stock units vest over a period of 1.6 to 5 years. The Company recognized expense of $ 2,532,091 and $ 838,514 in 2021 and 2020, respectively, related to these restricted stock units. A total of $ 18,389,797 remains to be recognized at December 31, 2021 over a period of 3.0 years. Of the restricted stock units issued in 2021, 182,938 are market-based awards that vest if the Company’s stock price hits certain price targets and maintains that price for 30 days. A total of 60,191, 60,191, and 62,016 units vest if the stock price hits $98.87, $131.82, $164.78, respectively.As described in Note 2, these market-based restricted stock units were valued using a Monte Carlo simulation model, with expected vesting in 1.6, 2.25, and 2.71 years, respectively, for the three price targets. NOTE 11 – LEASES In February 2016, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance on leases. The accounting standard, effective January 1, 2019, requires virtually all leases to be recognized on the balance sheet. Under the guidance, we have elected not to separate lease and non-lease components in recognition of the lease-related assets and liabilities, as well as the related lease expense. We have operating leases with terms greater than 12 months for office space in three multitenant facilities, which are recorded as assets and liabilities. The lease on our headquarters space in Rochester, Michigan expires November 30, 2023 , with a renewal option through 2025, with monthly rent payable at rates ranging from $ 6,384 to $ 6,688 . We have assumed renewal of the lease. We also have a lease on office space in Cranbury, New Jersey, which expired in January 2022 with a monthly payment of $3,158, as well as a lease of approximately $1,883 per month in Zagreb, Croatia expiring in 2024. Lease-related assets, or right-of-use assets, are recognized at the lease commencement date at amounts equal to the respective lease liabilities, adjusted for prepaid lease payments, initial direct costs, and lease incentives received. Lease-related liabilities are recognized at the present value of the remaining contractual fixed lease payments, discounted using our incremental borrowing rate. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred. F- 23 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 NOTE 11 – LEASES (CONTINUED) For the years ended December 31, 2021 and 2020, the Company’s lease cost consisted of the following components, each of which is included in operating expenses within the Company’s consolidated statements of operations: 2021 2020 Operating lease cost $ 132,305 $ 119,954 Short-term lease cost (1) 52,375 130,216 Total lease cost $ 184,680 $ 250,170 (1) Short-term lease cost includes any lease with a term of less than 12 months. The table below presents the future minimum lease payments to be made under operating leases as of December 31, 2021: For the year ending December 31, 2022 103,418 2023 100,260 2024 80,550 2025 70,224 Total 354,452 Less: present value discount 26,744 Total lease liabilities $ 327,708 The weighted average remaining lease term for operating leases is 3.6 years and the weighted average discount rate used in calculating the operating lease asset and liability is 4.5 %. Cash paid for amounts included in the measurement of lease liabilities was $ 124,919 . For the year ended December 31, 2021, payments on lease obligations were $ 142,284 and amortization on the right of use assets was $ 121,129 . For the year ended December 31, 2020, payments on lease obligations were $ 138,019 and amortization on the right of use assets was $ 104,805 . NOTE 12 – MAJOR CUSTOMERS AND VENDORS The Company had the following customers that accounted for 10 % or greater of revenue in either 2021 or 2020. No other customers accounted for more than 10 % of revenue in either year presented. 2021 2020 $ % $ % Customer A 14,268,819 23.0 5,037,888 11.6 Customer B 5,206,305 8.5 4,824,454 11.1 Customer C 3,157,075 5.2 5,469,126 12.1 Our accounts receivable included 2 agencies that represented multiple customers that individually made up more than 10 % of our accounts receivable at December 31, 2021 in the percentages of 33.5 % and 12.2 %. As of December 31, 2020, our accounts receivable included 4 entities, including agencies that represented multiple customers that individually made up more than 10 % of our accounts receivable in the percentages of 19.7 %, 16.2 %, 15.8 % and 14.4 %. F- 24 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 NOTE 12 – MAJOR CUSTOMERS AND VENDORS (CONTINUED) The Company generates its revenues through its EHR and ePrescribe partners. It had two key partners and/or vendors through which 10 % or greater of its revenue was generated in either 2021 or 2020 as set forth below. The amounts in the table below reflect the amount of revenue generated through those partners. 2021 2020 $ % $ % Partner A 33,041,503 53.9 22,813,574 52.7 Partner B 9,554,266 15.6 7,092,477 16.4 NOTE 13 – INCOME TAXES As of December 31, 2021, the Company had net operating loss carry-forwards for federal income tax purposes of approximately $26.4 million, consisting of pre-2018 losses in the amount of approximately $13.2 million that expire from 2021 through 2037, and post-2017 losses in the amount of approximately $13.2 million that will never expire. These net operating losses are available to offset future taxable income. The Company was formed in 2006 as a limited liability company and changed to a corporation in 2007. Activity prior to incorporation is not reflected in the Company’s corporate tax returns. In the future, the cumulative net operating loss carry-forward for income tax purposes may differ from the cumulative financial statement loss due to timing differences between book and tax reporting. The provision for Federal income tax consists of the following for the years ended December 31, 2021 and 2020: 2021 2020 Federal income tax benefit (expense) attributable to: Current operations $ ( 79,000 ) $ 463,000 State tax effect, net of federal benefit 582,000 — State rate change 397,000 — Change in fair value of contingent consideration — ( 29,000 ) Option exercise benefits, net of Section 162M limitations 2,171,000 207,000 Other permanent items ( 9,000 ) ( 7,000 ) Other adjustments ( 30,000 ) 104,000 NOLs expiring ( 26,000 ) ( 209,000 ) Valuation allowance ( 3,006,000 ) ( 529,000 ) Net provision for federal income tax $ — $ — 2021 2020 Current tax benefit (expense) - Federal $ — $ — Deferred tax benefit (expense) - Federal — — Adjustment of valuation allowance from business combination — — Total tax benefit (expense) on income $ — $ — F- 25 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 NOTE 13 – INCOME TAXES (CONTINUED) The cumulative tax effect of significant items comprising our net deferred tax amount at the expected rate of 21 % is as follows as of December 31, 2021 and 2020: 2021 2020 Deferred tax asset attributable to: Net operating loss carryover $ 6,887,000 $ 4,057,000 Stock compensation 809,000 353,000 Operating lease liability 88,000 94,000 Fixed Assets 13,000 — Other 85,000 44,000 Deferred tax asset $ 7,882,000 $ 4,548,000 Deferred tax liabilities attributable to: Intangibles $ ( 2,490,000 ) $ ( 2,181,000 ) Operating lease right of use assets ( 88,000 ) ( 94,000 ) Other ( 41,000 ) ( 16,000 ) Deferred tax liability $ ( 2,619,000 ) $ ( 2,291,000 ) Net deferred tax asset $ 5,263,000 2,257,000 Valuation allowance ( 5,263,000 ) ( 2,257,000 ) Net deferred tax asset, net of valuation allowance $ — $ — The ultimate realization of deferred tax assets is dependent upon the Company’s ability to generate sufficient taxable income during the periods in which the net operating losses expire and the temporary differences become deductible. The Company has determined that there is significant uncertainty that the results of future operations and the reversals of existing taxable temporary differences will generate sufficient taxable income to realize the deferred tax assets; therefore, a valuation allowance has been recorded. In making this determination, the Company considered historical levels of income, projections for future periods, and the significant amount of tax deductions to be generated from the future exercise of stock options. The tax years 2018 to 2021 remain open for potential audit by the Internal Revenue Service. There are no uncertain tax positions as of December 31, 2020 or December 31, 2021, and none are expected in the next 12 months. The Company’s foreign subsidiaries are cost centers that are primarily reimbursed for expenses, as a result they generate an immaterial amount of income or loss. Pretax book income (loss) is all from domestic operations. Up to four years of returns remain open for potential audit in foreign jurisdictions, however any audits for periods prior to ownership by the Company are the responsibility of the previous owners. Under certain circumstances issuance of common shares can result in an ownership change under Internal Revenue Code Section 382, which limits the Company’s ability to utilize carry-forwards from prior to the ownership change. Any such ownership change resulting from stock issuances and redemptions could limit the Company’s ability to utilize any net operating loss carry-forwards or credits generated before this change in ownership. These limitations can limit both the timing of usage of these laws, as well as the loss of the ability to use these net operating losses. It is likely that fundraising activities have resulted in such an ownership change. F- 26 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 NOTE 14 – COMMITMENTS AND CONTINGENT LIABILITIES Legal The Company is not involved in any legal proceedings. Revenue-share contracts The Company has contracts with various electronic health records systems and ePrescribe platforms, whereby we agree to share a portion of the revenue we generate for eCoupons distributed through their networks. These contracts grant audit rights related to the payments to our partners, and, in some cases would require us to pay for the audit if the audit determined there was an underpayment and the underpayment meets certain thresholds, such as 10 %. From time to time the Company enters into arrangements with a partner to acquire minimum amounts of messaging capabilities. As of December 31, 2021, the Company had commitments for future minimum payments of $ 3.4 million that will be reflected in cost of revenues during the years from 2022 through 2023. Minimum payments are due in 2022 and 2023, in the amounts of $ 2.65 million and $ 0.75 million, respectively. NOTE 15 – RETIREMENT PLAN The Company sponsors a defined contribution 401(k) profit sharing plan which was adopted in December 2015, effective in January 2016. Under the terms of the plan, the Company matches 100% of the first 3% of payroll contributed by the employee and 50% of the next 2% of payroll contributed by the employee to a maximum of 4% of an employee’s payroll. There was expense of $ 343,221 and $ 373,027 recorded in 2021 and 2020, respectively, for the Company’s contributions to the plan. F- 27