OptimizeRx Corp 10-K

Item 8. Financial Statements and Supplementary Data Index to Financial Statements Required by Article 8 of Regulation S-X: Audited Financial Statements: F-1 Report of Independent Registered Public Accounting Firm; F-3 Consolidated Balance Sheets as of December 31, 2022 and 2021; F-4 Consolidated Statements of Operations for the years ended December 31, 2022 and 2021; F-5 Consolidated Statement of Stockholders’ Equity for the year ended December 31, 2022; F-6 Consolidated Statement of Stockholders’ Equity for the year ended December 31, 2021; F-7 Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021; and F-8 Notes to Consolidated Financial Statements 25 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors of OptimizeRx Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of OptimizeRx Corporation and Subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. F- 1 Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they related. Critical Audit Matter - Revenue Recognition As disclosed in Note 2 to the consolidated financial statements, the Company recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. Significant judgment is exercised by the Company in determining revenue recognition for these customer agreements and includes the following: (1) determining whether services are considered distinct performance obligations that should be accounted for separately versus together, (2) the pattern and timing of delivery for each distinct performance obligation, and (3) identification and treatment of contract terms that may impact the timing and amount of revenue recognized. How the Critical Audit Matter Was Addressed in the Audit The audit procedures we performed to address this critical audit matter included the following: (1) obtaining an understanding of the design and implementation of controls related to identifying distinct performance obligations, determining the timing of revenue recognition and any estimation of variable consideration, (2) selection of a sample of customer agreements and testing management’s identification and treatment of contract terms, and (3) testing the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue recognized in the consolidated financial statements. We have served as the Company’s auditor since 2020. /s/ UHY LLP Sterling Heights, Michigan March 10, 2023 Firm ID: 1195 F- 2 OPTIMIZERx CORPORATION Consolidated Balance Sheets December 31, 2022 December 31, 2021 ASSETS Current Assets Cash and cash equivalents $ 18,208,685 $ 84,681,770 Short-term investments 55,931,821 — Accounts receivable, net 22,155,301 24,800,585 Prepaid expenses and other 2,280,828 5,630,655 Total Current Assets 98,576,635 115,113,010 Property and equipment, net 137,448 143,818 Other Assets Goodwill 22,673,820 14,740,031 Technology assets, net 7,702,895 4,589,126 Patent rights, net 1,940,178 2,155,026 Right of use assets, net 235,320 328,820 Other intangible assets, net 3,379,838 3,902,502 Security deposits and other assets 5,051 12,859 Total Other Assets 35,937,102 25,728,364 TOTAL ASSETS $ 134,651,185 $ 140,985,192 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Accounts payable – trade $ 1,549,979 $ 606,808 Accrued expenses 2,601,246 2,902,836 Revenue share payable 3,990,440 4,378,216 Current portion of lease liabilities 89,902 90,982 Deferred revenue 164,309 1,389,907 Total Current Liabilities 8,395,876 9,368,749 Non-current Liabilities Lease liabilities, net of current portion 144,532 236,726 Total Liabilities 8,540,408 9,605,475 Commitments and contingencies (See Note 15) Stockholders’ Equity Preferred stock, $ 0.001 par value, 10,000,000 shares authorized, none issued and outstanding at December 31, 2022 and 2021, respectively — — Common stock, $ 0.001 par value, 166,666,667 shares authorized, 18,288,571 and 17,860,975 shares issued at December 31, 2022 and 2021, respectively 18,289 17,861 Treasury stock, $ 0.001 par value, 1,214,398 and none held at December 31, 2022 and 2021, respectively ( 1,214 ) — Additional paid-in-capital 172,785,800 166,615,514 Accumulated deficit ( 46,692,098 ) ( 35,253,658 ) Total Stockholders’ Equity 126,110,777 131,379,717 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 134,651,185 $ 140,985,192 The accompanying notes are an integral part of these financial statements. F- 3 OPTIMIZERx CORPORATION Consolidated Statements of Operations For the year ended December 31, 2022 For the year ended December 31, 2021 Net revenue $ 62,450,156 $ 61,292,598 Cost of revenues 23,483,336 25,654,384 Gross margin 38,966,820 35,638,214 Operating Expenses Stock-based compensation 15,745,822 5,491,957 Depreciation, amortization, and noncash lease expense 2,022,029 2,086,454 Other general and administrative expenses 33,489,707 27,698,703 Total operating expenses 51,257,558 35,277,114 Income (loss) from operations ( 12,290,738 ) 361,100 Other income Interest income 852,298 16,979 Income (loss) before provision for income taxes ( 11,438,440 ) 378,079 Income tax benefit — — Net income (loss) $ ( 11,438,440 ) $ 378,079 Weighted average number of shares outstanding – basic 17,783,992 17,228,019 Weighted average number of shares outstanding – diluted 17,783,992 17,690,489 Income (loss) per share – basic $ ( 0.64 ) $ 0.02 Income (loss) per share – diluted $ ( 0.64 ) $ 0.02 The accompanying notes are an integral part of these financial statements. F- 4 OPTIMIZERx CORPORATION Consolidated Statement of Stockholders’ Equity for the Year Ended December 31, 2022 Common Stock Treasury Stock Additional Paid-in Accumulated Shares Amount Shares Amount Capital Deficit Total Balance, January 1, 2022 17,860,975 $ 17,861 — $ — $ 166,615,514 $ ( 35,253,658 ) $ 131,379,717 Stock-based compensation expense Options — — — — 4,956,619 — 4,956,619 Restricted Stock — — — — 10,789,203 — 10,789,203 Issuance of common stock: For stock options exercised 156,910 157 — — 1,205,724 — 1,205,881 For acquisition 240,741 241 — — 9,374,214 — 9,374,455 For restricted stock units vested, net of cancelled units 29,945 30 — — ( 132,430 ) — ( 132,400 ) Repurchase of common stock — — ( 1,214,398 ) 1,214 ( 20,023,044 ) — ( 20,021,830 ) Net loss for the year — — — — — ( 11,438,440 ) ( 11,438,440 ) Balance, December 31, 2022 18,288,571 $ 18,289 ( 1,214,398 ) $ 1,214 $ 172,785,800 $ ( 46,692,098 ) $ 126,110,777 The accompanying notes are an integral part of these financial statements. F- 5 OPTIMIZERx CORPORATION Consolidated Statement of Stockholders’ Equity for the Year Ended December 31, 2021 Common Stock Additional Paid-in Accumulated Shares Amount Capital Deficit Total 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 — — 2,532,091 — 2,532,088 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 For restricted stock units vested 3,333 3 ( 3 ) — 3 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- 6 OPTIMIZERx CORPORATION Consolidated Statements of Cash Flows For the year ended December 31, 2022 For the year ended December 31, 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ ( 11,438,440 ) $ 378,079 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 2,022,029 1,965,325 Increase in bad debt reserve 363,512 80,000 Stock-based compensation 15,745,822 5,491,957 Changes in: Accounts receivable 2,281,773 ( 6,994,880 ) Prepaid expenses and other assets 2,650,951 ( 1,174,044 ) Accounts payable 943,171 ( 11,442 ) Revenue share payable ( 387,776 ) ( 591,652 ) Accrued expenses and other liabilities ( 301,592 ) 482,475 Change in operating lease liabilities 226 ( 3,891 ) Deferred revenue ( 1,225,598 ) 1,104,112 NET CASH PROVIDED BY OPERATING ACTIVITIES 10,654,078 726,039 CASH FLOWS USED IN INVESTING ACTIVITIES: Purchases of property and equipment ( 81,005 ) ( 100,322 ) EvinceMed acquisition ( 2,000,000 ) — Purchase of short-term investments ( 55,931,821 ) — Acquisition of intangible assets, including intellectual property rights ( 1,830 ) ( 21,511 ) Capitalized software development costs ( 161,730 ) ( 364,166 ) NET CASH USED IN INVESTING ACTIVITIES ( 58,176,386 ) ( 485,999 ) CASH FLOWS (USED IN ) / PROVIDED BY FINANCING ACTIVITIES: Proceeds from public offering of common stock, net of offering costs — 70,671,536 Repurchase of common stock ( 20,024,258 ) — Proceeds from exercise of stock options, net of cash paid for withholding taxes 1,073,481 4,864,231 Payment of contingent consideration — ( 1,610,813 ) NET CASH (USED IN) / PROVIDED BY FINANCING ACTIVITIES ( 18,950,777 ) 73,924,954 NET (DECREASE) / INCREASE IN CASH AND CASH EQUIVALENTS ( 66,473,085 ) 74,164,994 CASH AND CASH EQUIVALENTS – BEGINNING OF PERIOD 84,681,770 10,516,776 CASH AND CASH EQUIVALENTS – END OF PERIOD $ 18,208,685 $ 84,681,770 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $ — $ — Reduction of EvinceMed purchase price for amounts previously paid $ 708,334 $ — Shares issued in connection with acquisition $ 9,374,455 $ — Cash paid for income taxes $ — $ — The accompanying notes are an integral part of these financial statements. F- 7 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS OptimizeRx is a digital health technology company enabling care-focused engagement between life sciences organizations, healthcare providers, and patients at critical junctures throughout the patient care journey. Connecting over 60 % of U.S. healthcare providers and millions of their patients through an intelligent technology platform embedded within a proprietary point-of-care network, OptimizeRx helps patients start and stay on their medications. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions have been made in determining the carrying value of assets, depreciable and amortizable lives of tangible and intangible assets, the carrying value of liabilities, the valuation allowance for the deferred tax asset, the timing of revenue recognition and related revenue share expenses, and inputs used in the calculation of stock based compensation. Actual results could differ from these estimates. Principles of Consolidation The financial statements reflect the consolidated results of OptimizeRx Corporation, a Nevada corporation, and its wholly owned subsidiaries: OptimizeRx Corporation, a Michigan corporation, CareSpeak Communications, Inc., a New Jersey corporation, Cyberdiet, a controlled foreign corporation incorporated in Israel, and CareSpeak Communications D.O.O., a Controlled Foreign Corporation incorporated in Croatia. Together, these companies are referred to as “OptimizeRx” and “the Company.” All material intercompany transactions have been eliminated. Reclassifications Certain items in the previous year financial statements have been reclassified to match the current year presentation. Foreign Currency The Company’s functional currency is the U.S. dollar, however it pays certain expenses related to its two foreign subsidiaries in the local currency, which is the shekel for its subsidiary in Israel and the kuna for its Croatian subsidiary. All transactions are recorded at the exchange rate at the time of payment. If there is a time lag between the time of recording the liability and the time of payment, a gain or loss is recorded in the Consolidated Statement of Operations due to any fluctuations in the exchange rate. Cash and Cash Equivalents For purposes of the accompanying financial statements, the Company considers all highly liquid instruments, consisting of money market accounts, with an initial maturity of three months or less to be cash equivalents. Investments We account for marketable securities in accordance with ASC 320, “Investments - Debt Securities”, which require that certain debt securities be classified into one of three categories: held-to-maturity, available-for-sale, or trading securities, and depending upon the classification, value the security at amortized cost or fair market value. F- 8 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Fair Value of Financial Instruments Fair value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk including our own credit risk. In addition to defining fair value, the disclosure requirements around fair value establish a fair value hierarchy for valuation inputs, which is expanded. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels, which is determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are: Level 1 – Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets. Level 2 – Inputs are based upon significant observable inputs other than quoted prices included in Level 1, such as quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 – Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques. The Company’s stock options and warrants are valued using level 3 inputs. The Company’s carrying amounts of financial instruments including cash and cash equivalents, accounts receivable, accounts payable, and other current liabilites approximate their fair values due to their short maturities. Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable are reported at realizable value, net of allowances for doubtful accounts, which is estimated and recorded in the period the related revenue is recorded. The Company has a standardized approach to estimate and review the collectability of its receivables based on a number of factors, including the period they have been outstanding. Historical collection and payer reimbursement experience is an integral part of the estimation process related to allowances for doubtful accounts. In addition, the Company regularly assesses the state of its billing operations in order to identify issues, which may impact the collectability of these receivables or reserve estimates. Because the Company’s customers are primarily large well-capitalized companies, historically there has been very little bad debt expense. Bad debt expense was $ 363,512 for the year ended December 31, 2022 and $ 80,000 for the year ended December 31, 2021. The allowance for doubtful accounts was $ 352,043 and $ 241,219 as of December 31, 2022 and 2021, respectively. From time to time, we may record revenue based on our revenue recognition policies described below in advance of being able to invoice the customer. Included in accounts receivable are unbilled amounts of $ 3,582,735 ,$ 2,110,865 and $ 757,218 at December 31, 2022, 2021 and 2020, respectively. F- 9 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Property and Equipment Property and equipment are stated at cost and are being depreciated over their estimated useful lives of three to five years for office equipment and three years for computer equipment using the straight-line method of depreciation for book purposes. Maintenance and repair charges are expensed as incurred. Intangible Assets Intangible assets are stated at cost. Finite-lived assets are being amortized over their estimated useful lives of fifteen to seventeen years for patents, eight years for customer relationships, fifteen years for tradenames, two to four years for covenants not to compete, and three to ten years for software and websites, all using the straight-line method. These assets are evaluated when there is a triggering event. There was no impairment of our intangible assets in either year presented. Goodwill We evaluate goodwill for impairment during our fiscal fourth quarter, or more frequently if an event occurs or circumstances change. Our analysis determined that there was no impairment of our goodwill. Revenue Recognition Recognition of revenue requires evidence of a contract, probable collection of proceeds, and completion of substantially all performance obligations. We use a 5-step model to recognize revenue. These steps are: identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when or as the performance obligations are satisfied. Revenues are primarily generated from content delivery activities in which the Company delivers financial, clinical, or brand messaging through a distribution network of eprescribers and electronic health record technology providers (channel partners), directly to consumers, or from reselling services that complement the business. This content delivery for a customer is referred to as a program. Unless otherwise specified, revenue is recognized based on the selling price to customers. The Company’s contracts are generally all less than one year and the primary performance obligation is delivery of messages, or content, but the contract may contain additional services. Additional services may include program design, which is the design of the content delivery program, set up, and reporting. We consider set up and reporting services to be complimentary to the primary performance obligation and recognized through performance of the delivery of content. We consider program design and related consulting services to be performance obligations separate from the delivery of messages. As the content is distributed through the platform and network of channel partners (a transaction), these transactions are recorded, and revenue is recognized over time as the distributions occur. Revenue for transactions can be realized based on a price per message, a price per redemption, as a flat fee occurring over a period of time, or upon completion of the program, depending on the client contract. The Company recognizes setup fees that are required for integrating client offerings and campaigns into the rule-based content delivery system and network over the life of the initial program, based either on time, or units delivered, depending upon which is most appropriate in the specific situation. Should a program be cancelled before completion, the balance of set up revenue is recognized at the time of cancellation, as set up fees are nonrefundable. Additionally, the Company also recognizes revenue for providing program performance reporting and maintenance, either by the Company directly delivering reports or by providing access to its online reporting portal that the client can utilize. This reporting revenue is recognized over time as the messages are delivered. Program design, which is the design of the content delivery program, and related consulting services are recognized as services are performed. F- 10 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Disaggregation of Revenue Consistent with ASC Topic 606, we have disaggregated our revenue by timing of revenue recognition. The majority of our revenue is recognized over time as solutions are provided. A small portion of our revenue related to program development, solution architect design, and other solutions is recognized at a point in time upon delivery to customers. A break down is set forth in the table below. 2022 2021 Revenue recognized over time $ 55,437,418 $ 57,077,743 Revenue recognized at a point in time 7,012,738 4,214,855 Total Revenue $ 62,450,156 $ 61,292,598 Revenue Recognition (Continued) In some instances, we license certain of our software applications in arrangements that do not include other performance obligations. In those instances, we record license revenue when the software is delivered for use to the license. In instances where our contracts included Software as a Service, the revenue is recognized over the subscription period as services are delivered to the customer. In some instances, the Company also resells messaging solutions that are available through channel partners that are complementary to the core business and client base. These partner specific solutions are frequently similar to our own solutions and revenue recognition for these programs is the same as described above. In instances where the Company sells solutions on a commission basis, net revenue is recognized based on the commission-based revenue split that the Company receives. There were no programs recorded on a net basis in the years presented. In instances where the Company resells these messaging solutions and has all financial risk and significant operation input and risk, the Company records the revenue based on the gross amount sold and the amount paid to the channel partner as a cost of sales. Cost of Revenues The primary cost of revenue is revenue share expense. Cost of revenues does not include depreciation and amortization which is listed separately on the statements of operations. Based on the volume of transactions that are delivered through the channel partner network, the Company provides a revenue share to compensate the partner, or others, for their promotion of the campaign. Revenue shares are a negotiated percentage of the transaction fees and can also be specific to special considerations and campaigns. Income Taxes Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized. The Company recognizes the tax benefit from uncertain tax positions if it is more likely than not that the tax positions will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement. It is the Company’s policy to include interest and penalties related to tax positions as a component of income tax expense. F- 11 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Concentration of Credit Risks 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, 2022 and 2021 the Company had $ 15,669,837 and $ 83,312,524 , respectively, in cash balances in excess of federally insured limits, primarily at Bank of America. 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, 2022 and 2021. 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. 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. 2022 2021 Expected dividend yield 0 % 0 % Risk free interest rate 0.82 % - 4.38 % 0.19 % - 0.67 % Expected option term 3.5 years 3.5 years Turnover/forfeiture rate 0 % 0 % Expected volatility 68 % - 71 % 67 % - 70 % Weighted average grant date fair value $ 12.82 $ 26.36 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 awards that were excluded from the diluted loss per common share calculation in 2022 was 93,626 related to options, and 170,859 related to restricted stock units, for a total of 264,485 because they are anti-dilutive, as a result of a net loss for the year ended December 31, 2022. F- 12 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The computation of weighted average shares outstanding and the basic and diluted earnings per common share for the years ended December 31, 2022 and 2021 consisted of the following: Year ended December 31, 2022 Net (Loss) Shares Per Share Amount Basic EPS $ ( 11,438,440 ) 17,783,992 $ ( 0.64 ) Effect of dilutive securities — — — Diluted EPS $ ( 11,438,440 ) 17,783,992 $ ( 0.64 ) Year ended December 31, 2021 Net Income Shares Per Share Amount Basic EPS $ 378,079 17,228,019 $ 0.02 Effect of dilutive securities 462,470 — Diluted EPS $ 378,079 17,690,489 $ 0.02 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. F- 13 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Not Yet Adopted ASU Topic 2021-08 Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. The standard is effective for the Company’s fiscal year beginning January 1, 2023, with early adoption permitted. The adoption of this standard is not expected to have a material effect on our financial position, results of operations, or cash flows. NOTE 3 – ACQUISITIONS On April 14, 2022, we completed the acquisition of substantially all of the assets of EvinceMed Corp., a privately held leading provider of delivering end-to-end automation for specialty pharmaceutical transactions. We completed the acquisition to expand the breadth of the solutions we offer our customers, particularly where specialty medications are involved, The acquisition included the full Market Access Management Platform for supporting pharma manufacturers, hub providers and pharmacies to improve patient access, speed to therapy and activation of affordability programs. With the EvinceMed platform, OptimizeRx is able to help patients get access to the drugs they need by simplifying the prescribing process for specialty medications, automating manual steps to determine drug eligibility and affordability, and introducing electronic enrollment and medical documentation across the OptimizeRx network of electronic health record (EHR) systems, ePrescribing platforms, and account-based marketing technologies. The consideration was comprised of $ 2.0 million in cash, the issuance of 240,741 shares of common stock valued at $ 9,374,455 , and $ 708,334 of amounts previously paid. The total purchase price was $ 12,082,789 . Of the 240,741 shares of common stock, 185,185 were issued at closing and 55,556 were issued but held back to secure potential adjustments to the purchase price that may result from the indemnification obligations of EvinceMed and the EvinceMed shareholder indemnitors. The holdback amount will be released twelve months from the closing, subject to any adjustments for the payment by EvinceMed and the shareholder indemnitors for its and their indemnification obligations. The purchase price was allocated to acquired technology totaling $ 4,149,000 with an estimated useful life of 8 years and the remaining $ 7,933,789 was allocated to goodwill. Goodwill represents the processes and synergies expected by integrating those processes with our own. The full amount of goodwill will be deductible for tax purposes using a 15 year life. The increase in goodwill for the period is fully accounted for by this acquisition. We determined pro forma data was immaterial for financial reporting purposes. The initial accounting is provisional and subject to change based on the completion of formal valuations. Acquisition costs of approximately $ 19,739 were expensed as incurred. F- 14 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 NOTE 4 – INVESTMENT SECURITIES At December 31, 2022 the Company held $ 55.9 million in U.S. government and agency securities. All securities have maturity dates of less than one year. The Company reports them at amortized cost. The amortized cost approximates fair value at December 31, 2022 due to the short nature of the securities. There were no securities held at December 31, 2021. NOTE 5 – PREPAID EXPENSES Prepaid expenses consisted of the following as of December 31, 2022 and 2021: 2022 2021 Revenue share and exclusivity payments $ 1,025,000 $ 4,516,668 Software 408,063 181,044 Insurance 221,580 156,327 Data 152,533 168,462 Other 473,652 608,154 Total prepaid expenses $ 2,280,828 $ 5,630,655 NOTE 6 – PROPERTY AND EQUIPMENT The Company owned equipment recorded at cost, which consisted of the following as of December 31, 2022 and 2021: 2022 2021 Computer equipment $ 230,467 $ 267,917 Furniture and fixtures 38,500 200,250 268,967 468,167 Less accumulated depreciation 131,519 324,349 Property and equipment, net $ 137,448 $ 143,818 Depreciation expense was $ 85,725 and $ 105,360 for the years ended December 31, 2022 and 2021, respectively. NOTE 7 – INTANGIBLE ASSETS Goodwill Our goodwill is related to the acquisitions of EvinceMed in 2022, RMDY Health, Inc. in 2019 and CareSpeak Communications in 2018. Goodwill is not amortizable for financial statement purposes. Changes in the carrying amount of goodwill on the consolidated balance sheet consist of the following: Balance at January 1, 2021 $ 14,740,031 Acquisitions - Impairments - Balance January 1, 2022 $ 14,740,031 Revenue recognized 7,933,789 Amount collected - Balance December 31, 2022 $ 22,673,820 F- 15 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 NOTE 7 – INTANGIBLE ASSETS (CONTINUED) Intangible Assets Intangible assets included on the consolidated balance sheets consist of the following: December 31, 2022 Gross Carrying Amount Accumulated Amortization Net Weighted Average Life Remaining Patent rights $ 3,364,729 $ 1,424,551 $ 1,940,178 8.5 Technology assets 12,859,660 5,156,765 7,702,895 5.1 Other intangible assets Tradename 3,586,000 776,966 2,809,034 11.7 Non-compete agreements 1,093,000 1,093,000 — 0 Customer relationships 923,000 352,196 570,804 7.4 Total other 5,602,000 2,222,162 3,379,838 Total intangible assets $ 21,826,389 $ 8,803,478 $ 13,022,911 December 31, 2021 Gross Carrying Amount Accumulated Amortization Net Weighted 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 3,048,100 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 intangible assets $ 17,513,828 $ 6,867,174 $ 10,646,654 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 years Technology assets 3 – 10 years F- 16 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 NOTE 7 – INTANGIBLE ASSETS (CONTINUED) The Company recorded amortization expense of $ 1,936,304 and $ 1,859,965 in the years ended December 31, 2022 and 2021, respectively. Expected future amortization expense of the intangibles assets as of December 31, 2022 is as follows: Year ended December 31, 2023 $ 1,769,212 2024 1,769,212 2025 1,682,054 2026 1,566,184 2027 1,483,765 Thereafter 4,752,484 Total $ 13,022,911 NOTE 8 – 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 $ 164,309 and $ 1,389,907 as of December 31, 2022 and 2021, 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, 2022. Balance January 1, 2022 $ 1,389,907 Revenue recognized ( 36,346,653 ) Amount collected 35,121,055 Balance December 31, 2022 $ 164,309 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 19,111,085 Balance December 31, 2021 $ 1,389,907 NOTE 9 – 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, 2022. 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 years ended December 31, 2022 and 2021, respectively, we have recognized $ 401,972 and $ 218,333 in revenue from contracts engaged 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. F- 17 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 NOTE 10 – STOCKHOLDERS’ EQUITY Preferred Stock The Company had 10,000,000 shares of preferred stock, $ 0.001 par value per share, authorized as of December 31, 2022. No shares were issued or outstanding in either 2021 or 2022. Common Stock The Company had 166,666,667 shares of common stock, $ 0.001 par value per share, authorized as of December 31, 2022. There were 17,074,173 and 17,860,975 shares of common stock outstanding, net of shares held in treasury, at December 31, 2022 and 2021, respectively. We issued 156,910 shares of common stock and received proceeds of $ 1,205,881 in 2022 in connection with the exercise of options. We also 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 issued 29,945 shares of common stock in 2022 and 3,333 shares of common in stock in 2021 in connection with the vesting of restricted stock units and discussed in greater detail in Note 11, Stock Based Compensation. 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 were granted and issued in the year ended December 31, 2021 in connection with this compensation plan. These shares were valued at $ 250,085 . The plan was changed to grant restricted stock units under the Company’s 2021 Equity Incentive Plan and those grants are discussed in Note 10, Stock Based Compensation. During the year ended December 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 . During the year ended December 31, 2022, the Board authorized a share repurchase program, under which the Company may repurchase up to $ 20.0 million of its outstanding common stock. Through December 31, 2022, we repurchased 1,214,398 shares of our common stock for a total of $ 20,024,258 , including commissions paid on repurchases. These shares were recorded as Treasury Shares using the par value method. NOTE 11 – STOCK BASED 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 410,701 shares of common stock underlying options and 128,590 shares of common stock underlying restricted stock unit awards were outstanding at December 31, 2022. In connection with the adoption of a new plan in 2021, the Company froze the 2013 Plan. At December 31, 2022, there were no shares available for grant under the 2013 Plan. F- 18 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 NOTE 11 – STOCK BASED COMPENSATION (CONTINUED) 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 896,169 shares of common stock underlying options and 660,484 shares of common stock underlying restricted stock unit awards were outstanding at December 31, 2022. At December 31, 2022, 921,946 shares were available for grant under the 2021 Plan. 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. Stock Options The compensation cost that has been charged against income related to options for the years ended December 31, 2022 and 2021, was $ 4,956,619 and $ 2,709,781 , respectively. No income tax benefit was recognized in the consolidated statements of income and no compensation was capitalized in any of the years presented. During the year ended December 31, 2022, we granted certain performance based options, the expense for which will be recorded over time once the achievement of the performance is deemed probable. There was no expense related to these options recorded during the period. The fair value of these instruments was calculated using the Black-Scholes option pricing model. In the year ended December 31, 2021, certain participants utilized a net withhold exercise method in which options were surrendered to cover payroll withholding tax. Of the cumulative net options exercised by participants were 31,243 options, valued at $ 100,290 , were surrendered and subsequently cancelled. The Company had the following option activity during the year ended December 31, 2022 and 2021: Number of Options Weighted average exercise price Weighted average remaining contractual life (years) Aggregate intrinsic value $ Outstanding at January 1, 2021 1,545,518 $ 7.31 Granted 424,588 $ 54.34 Exercised ( 1,105,822 ) $ 7.33 Withheld and cancelled ( 31,243 ) 3.21 Expired or forfeited ( 49,494 ) $ 24.57 Outstanding at December 31, 2021 783,547 $ 34.17 3.4 $ 23,368,961 Granted 862,938 $ 25.43 Exercised ( 156,910 ) $ 7.69 Expired or forfeited ( 182,705 ) $ 37.13 Outstanding, December 31, 2022 1,306,870 $ 31.14 2.7 $ 1,537,752 Exercisable, December 31, 2022 250,684 $ 33.82 2.6 $ 538,652 F- 19 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 NOTE 11 – STOCK BASED COMPENSATION (CONTINUED) The table below reflects information for the total options outstanding at December 31, 2022 Range of Exercise Prices Number of Options Weighted average remaining contractual life (years) Weighted average exercise price $ 4.20 to $ 10.00 30,335 1.5 $ 6.40 $ 10.00 to $ 20.00 568,358 2.6 $ 14.66 $ 20.00 to $ 40.00 322,916 2.6 $ 33.79 $ 40.00 to $ 60.00 284,231 2.8 $ 47.99 $ 60.00 to $ 96.70 101,030 3.7 $ 75.43 Total 1,306,870 2.7 $ 31.14 The table below reflects information for the vested options outstanding at December 31, 2022. Range of Exercise Prices Number of Options Weighted average remaining contractual life (years) Weighted average exercise price $ 4.20 to $ 10.00 24,168 1.3 $ 6.22 $ 10.00 to $ 20.00 69,868 1.7 $ 12.84 $ 20.00 to $ 40.00 69,170 2.9 $ 30.77 $ 40.00 to $ 60.00 54,667 3.3 $ 51.54 $ 60.00 to$ 96.70 32,811 3.7 $ 75.74 Total 250,684 2.6 $ 33.82 A summary of the status of the Company’s nonvested options as of December 31, 2022, and changes during the year ended December 31, 2022, is presented below. Nonvested Options Options Weighted average exercise price Nonvested at January 1, 2022 586,276 $ 42.01 Granted 862,938 $ 25.43 Vested ( 223,323 ) $ 35.04 Forfeited ( 169,705 ) $ 37.83 Nonvested at December 31, 2022 1,056,186 $ 30.51 There is $ 12,528,706 of expense remaining to be recognized over a period of approximately 2.1 years related to options outstanding at December 31, 2022. F- 20 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 NOTE 11 – STOCK BASED COMPENSATION (CONTINUED) Restricted Stock Units The Company had the following restricted stock unit (“RSU”) activity during the years ended December 31, 2022 and 2021: Number of RSUs Weighted average grant date fair value Weighted average remaining contractual life (years) Outstanding at January 1, 2021 100,000 $ 11.51 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 Granted 467,043 $ 25.69 Forfeited ( 39,346 ) $ 44.06 Vested and issued ( 29,945 ) $ 59.41 Withheld and cancelled ( 8,416 ) $ 68.69 Outstanding at December 31, 2022 789,074 $ 36.95 2.0 The Company granted restricted stock units of 467,043 and 303,556 units in 2022 and 2021, respectively, and valued at $11,996,111 and $20,125,861, respectively. These restricted stock units vest over a period of 1 year to 5 years. The Company recognized expense of $10,789,203 and $2,532,091 in 2022 and 2021, respectively, related to these restricted stock units. A total of $ 17,862,951 remains to be recognized at December 31, 2022 over a period of 2.0 years. In the year ended December 31, 2022, certain participants utilized a net withhold settlement method, in which shares were surrendered to cover payroll withholding tax. Of the cumulative net options exercised by participants were 31,243 options, valued at $ 100,290 , were surrendered and subsequently cancelled. Performance Stock Units 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, and $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 1.60, 2.25, and 2.71 years, respectively, for the three price targets. During the year ended December 31, 2022, we granted certain performance based stock units, the expense for which will be recorded over time once the achievement of the performance is deemed probable. There was no expense related to these options recorded during the period. Non-employee Directors’ Compensation Our previous director’s compensation plan called for the issuance of fully-vested shares of common stock each quarter to each independent director. In 2021, we issued 4,730 shares valued at $ 250,085 that immediately vested. Subsequent to these grants, we adopted a new directors compensation program that calls for the grant of restricted stock units with a one year vesting period. We granted 3,715 restricted stock units valued at $ 250,175 in the second half of 2021 under the new plan. These restricted stock units vested in 2022. There were 26,470 restricted stock units, valued at $ 750,130 , granted to the board of directors in 2022 that will vest in 2023, 12 months from the grant dates. NOTE 12 – 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. F- 21 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 NOTE 12 – LEASES (CONTINUED) We had 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 had 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. For the years ended December 31, 2022 and 2021, 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: 2022 2021 Operating lease cost $ 100,771 $ 132,305 Short-term lease cost (1) 75,784 52,375 Total lease cost $ 176,555 $ 184,680 (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, 2022: For the year ending December 31, 2023 $ 98,247 2024 80,215 2025 70,224 Total 248,686 Less: present value discount 14,252 Total lease liabilities $ 234,434 The weighted average remaining lease term for operating leases is 2.7 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 $ 89,111 . For the year ended December 31, 2022, payments on lease obligations were $ 101,405 and amortization on the right of use assets was $ 101,433 . 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 . F- 22 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 NOTE 13 – MAJOR CUSTOMERS AND VENDORS The Company had the following customers that accounted for 10 % or greater of revenue in either 2022 or 2021. No other customers accounted for more than 10 % of revenue in either year presented. 2022 2021 $ % $ % Customer A 6,817,682 10.9 5,206,305 8.5 Customer B 3,876,580 6.2 14,268,819 23.0 Our accounts receivable included two entities, including one agency that represented multiple customers, that individually made up more than 10 % of our accounts receivable at December 31, 2022 in the percentages of 13.3 % and 10.8 %. As of December 31, 2021, our accounts receivable included two agencies that represented multiple customers that individually made up more than 10 % of our accounts receivable in the percentages of 33.5 % and 12.2 %. The Company generates its revenues through its EHR and ePrescribe partners. There were three key partners and/or vendors through which 10 % or greater of its revenue was generated in either 2022 or 2021 as set forth below. The amounts in the table below reflect the amount of revenue generated through those partners. 2022 2021 $ % $ % Partner A 19,882,511 31.8 33,041,503 53.9 Partner B 12,494,227 20.0 2,761,893 4.5 Partner C 6,578,661 10.5 9,554,266 15.6 NOTE 14 – INCOME TAXES As of December 31, 2022, the Company had net operating loss (“NOLs”) carry-forwards for federal income tax purposes of approximately $21.5 million, consisting of pre-2018 losses in the amount of approximately $8.2 million that expire from 2022 through 2037, and post-2017 losses in the amount of approximately $13.3 million that will never expire. These net operating losses are available to offset future taxable income. The Company was formed in 2008 as a Nevada Corporation. 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. F- 23 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 NOTE 14 – INCOME TAXES (CONTINUED) The provision for Federal income tax consists of the following for the years ended December 31, 2022 and 2021: 2022 2021 Federal income tax benefit (expense) attributable to: Current operations $ 2,402,000 $ ( 79,000 ) State tax effect, net of federal benefit 545,000 979,000 Option exercise benefits (expenses), net of Section 162M limitations ( 268,000 ) 2,171,000 Other adjustments 221,000 ( 30,000 ) NOLs expiring — ( 26,000 ) Valuation allowance ( 2,900,000 ) ( 3,006,000 ) Net provision for federal income tax $ — $ — 2022 2021 Current tax benefit (expense) - Federal $ — $ — Deferred tax benefit (expense) - Federal — — Adjustment of valuation allowance from business combination — — Total tax benefit (expense) on income $ — $ — F- 24 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 NOTE 14 – 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, 2022 and 2021: 2022 2021 Deferred tax asset attributable to: Net operating loss carryover $ 5,545,000 $ 6,887,000 Stock compensation 3,953,000 809,000 Operating lease liability 63,000 88,000 Section 174 Capitalized Expenses 789,000 — Fixed Assets 126,000 13,000 Other 16,000 85,000 Deferred tax asset $ 10, 492,000 $ 7,882,000 Deferred tax liabilities attributable to: Intangibles $ ( 2,102,000 ) $ ( 2,490,000 ) Operating lease right of use assets ( 63,000 ) ( 88,000 ) Goodwill ( 106,000 ) — Other ( 59,000 ) ( 42,000 ) Deferred tax liability ( 2,330,000 ) ( 2,620,000 ) Net deferred tax asset $ 8,162,000 $ 5,262,000 Valuation allowance ( 8,162,000 ) ( 5,262,000 ) 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 2019 to 2022 remain open for potential audit by the Internal Revenue Service. There are no uncertain tax positions as of December 31, 2021 or December 31, 2022, 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. The Company had an ownership change as described in IRC Section 382 on March 18, 2014. The Company NOL’s generated up until March 18, 2014 have been fully released. F- 25 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 NOTE 15 – 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 and banners delivered 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, 2022, the Company had commitments for future minimum payments of $ 16.4 million that will be reflected in cost of revenues during the years from 2023 through 2025. Minimum payments are due in 2023, 2024 and 2025, in the amounts of $ 6.2 million, $ 5.2 million and $ 5.0 million, respectively. NOTE 16 – 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 $ 489,780 and $ 343,221 recorded in 2022 and 2021, respectively, for the Company’s contributions to the plan. NOTE 17 – SUBSEQUENT EVENTS None. F- 26 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure None