OptimizeRx Corp 10-Q

Item 1. Financial Statements Our condensed consolidated financial statements included in this Form 10-Q are as follows: 2 Condensed Consolidated Balance Sheets as of March 31, 2023 (unaudited) and December 31, 2022 (unaudited); 3 Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022 (unaudited); 4 Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2023 and 2022 (unaudited); 5 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 (unaudited); 6 Notes to Condensed Consolidated Financial Statements (unaudited). 1 OPTIMIZERX CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) March 31, 2023 December 31, 2022 ASSETS Current assets Cash and cash equivalents $ 16,443,666 $ 18,208,685 Short-term investments 57,258,234 55,931,821 Accounts receivable, net 18,164,687 22,155,301 Prepaid expenses and other 4,014,853 2,280,828 Total current assets 95,881,440 98,576,635 Property and equipment, net 143,924 137,448 Other assets Goodwill 22,673,820 22,673,820 Technology assets, net 7,591,461 7,702,895 Patent rights, net 1,886,008 1,940,178 Right of use assets, net 213,324 235,320 Other intangible assets, net 3,302,563 3,384,889 Total other assets 35,667,176 35,937,102 TOTAL ASSETS $ 131,692,540 $ 134,651,185 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable – trade $ 1,288,854 $ 1,549,979 Accrued expenses 2,124,777 2,601,246 Revenue share payable 3,367,483 3,990,440 Current portion of lease liabilities 89,287 89,902 Deferred revenue 735,140 164,309 Total current liabilities 7,605,541 8,395,876 Non-current liabilities Lease liabilities, net of current portion 123,227 144,532 Total liabilities 7,728,768 8,540,408 Commitments and contingencies (See note 9) Stockholders’ equity Preferred stock, $ 0.001 par value, 10,000,000 shares authorized, none issued and outstanding at March 31, 2023 or December 31, 2022 — — Common stock, $ 0.001 par value, 166,666,667 shares authorized, 18,331,511 and 18,288,571 shares issued at March 31, 2023 and December 31, 2022, respectively 18,332 18,289 Treasury stock, $ 0.001 par value, 1,214,398 shares held at March 31, 2023 and December 31, 2022 ( 1,214 ) ( 1,214 ) Additional paid-in-capital 177,036,466 172,785,800 Accumulated deficit ( 53,089,812 ) ( 46,692,098 ) Total stockholders’ equity 123,963,772 126,110,777 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 131,692,540 $ 134,651,185 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 OPTIMIZERX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the Three Months Ended March 31, 2023 2022 Net revenue $ 13,002,910 $ 13,731,530 Cost of revenues, exclusive of depreciation and amortization presented separately below 5,569,621 5,629,858 Gross profit 7,433,289 8,101,672 Operating expenses General and administrative expenses 14,032,542 11,391,233 Depreciation, amortization and noncash lease expense 463,933 471,540 Total operating expenses 14,496,475 11,862,773 Loss from operations ( 7,063,186 ) ( 3,761,101 ) Other income Interest income 665,472 3 Loss before provision for income taxes ( 6,397,714 ) ( 3,761,098 ) Income tax benefit — — Net loss $ ( 6,397,714 ) $ ( 3,761,098 ) Weighted average number of shares outstanding – basic 17,094,676 17,878,068 Weighted average number of shares outstanding – diluted 17,094,676 17,878,068 Loss per share – basic $ ( 0.37 ) $ ( 0.21 ) Loss per share – diluted $ ( 0.37 ) $ ( 0.21 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 3 OPTIMIZERX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022 (UNAUDITED) Common Stock Treasury Stock Additional Paid in Accumulated Shares Amount Shares Amount Capital Deficit Total Balance January 1, 2023 18,288,571 $ 18,289 ( 1,214,398 ) $ ( 1,214 ) $ 172,785,800 $ ( 46,692,098 ) $ 126,110,777 Stock based compensation expense Options — — — — 1,466,694 — 1,466,694 Restricted stock — — — — 2,913,809 — 2,913,809 Issuance of common stock For options exercised 9,668 10 — — 40,596 — 40,606 For restricted stock units vested 33,272 33 — — ( 170,433 ) — ( 170,400 ) Net loss — — — — — ( 6,397,714 ) ( 6,397,714 ) Balance March 31, 2023 18,331,511 $ 18,332 ( 1,214,398 ) $ ( 1,214 ) $ 177,036,466 $ ( 53,089,812 ) $ 123,963,772 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 — — — — 905,744 — 905,744 Restricted stock — — — — 2,268,354 — 2,268,354 Issuance of common stock For options exercised 28,006 28 — — 258,100 — 258,128 For restricted stock units vested 13,627 14 — — ( 14 ) — — Net loss — — — — — ( 3,761,098 ) ( 3,761,098 ) Balance March 31, 2022 17,902,608 $ 17,903 — $ — $ 170,047,698 $ ( 39,014,756 ) $ 131,050,845 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 OPTIMIZERX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three Months Ended March 31, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 6,397,714 ) $ ( 3,761,098 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 463,933 471,540 Stock-based compensation 4,380,503 3,174,098 Increase in bad debt reserve 128,178 21,000 Changes in: Accounts receivable 3,862,436 5,643,761 Prepaid expenses and other assets ( 1,734,024 ) 1,021,166 Accounts payable ( 261,125 ) ( 6,079 ) Revenue share payable ( 622,956 ) ( 1,202,497 ) Accrued expenses and other liabilities ( 476,392 ) ( 1,184,784 ) Deferred revenue 570,831 ( 96,863 ) NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES ( 86,330 ) 4,080,244 CASH FLOWS USED IN INVESTING ACTIVITIES: Purchase of property and equipment ( 28,580 ) ( 14,480 ) Purchases of held-to-maturity investments ( 56,926,611 ) — Redemptions of held-to-maturity investments 55,600,198 — Acquisition of intangible assets, including intellectual property rights — ( 51,271 ) Capitalized software development costs ( 193,901 ) — NET CASH USED IN INVESTING ACTIVITIES ( 1,548,894 ) ( 65,751 ) CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES: Cash paid for employee withholding taxes related to the vesting of restricted stock units ( 170,400 ) — Proceeds from exercise of stock options 40,606 258,128 NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ( 129,794 ) 258,128 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ( 1,765,018 ) 4,272,621 CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 18,208,685 84,681,770 CASH AND CASH EQUIVALENTS - END OF PERIOD $ 16,443,667 $ 88,954,391 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $ — $ — Cash paid for income taxes $ — $ — The accompanying notes are an integral part of these condensed consolidated financial statements. 5 OPTIMIZERX CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 2023 NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION The accompanying condensed consolidated financial statements include OptimizeRx Corporation and its wholly owned subsidiaries (collectively, the “Company”, “we”, “our”, or “us”). We are a digital health technology company enabling care-focused engagement between life sciences organizations, healthcare providers, and patients at critical junctures throughout the patient care journey. Connecting over 60 % of U.S. healthcare providers and millions of their patients through an intelligent technology platform embedded within a proprietary point-of-care network, OptimizeRx helps patients start and stay on their medications. The condensed consolidated financial statements for the three months ended March 31, 2023 and 2022 have been prepared by us without audit pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments necessary to present fairly our financial position at March 31, 2023, and our results of operations, changes in stockholders’ equity, and cash flows for the three months ended March 31, 2023 and 2022, have been made. Those adjustments consist of normal and recurring adjustments. The condensed consolidated balance sheet as of December 31, 2022, has been derived from the audited consolidated condensed balance sheet as of that date. Certain information and note disclosures, including a detailed discussion about the Company’s significant accounting policies, normally included in our annual consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with a reading of the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the SEC on March 10, 2023. The results of operations for the three months ended March 31, 2023, are not necessarily indicative of the results to be expected for the full year. NOTE 2 – NEW ACCOUNTING STANDARDS ASU Topic 2021-08 Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , 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 was effective for the Company’s fiscal year beginning January 1, 2023. The adoption of this standard did not have a material effect on our financial position, results of operations, or cash flows. NOTE 3 – CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS Cash equivalents include items almost as liquid as cash with maturity periods of three months or less when purchased, and short-term investments include items with maturity dates between three months and one year when purchased. 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. At March 31, 2023 and December 31, 2022, we have recorded $ 57.3 million and $ 55.9 million, respectively, of held-to-maturity United States’ Treasury Bills at amortized cost basis. Our held-to-maturity United States’ Treasury Bills have maturity dates between April 2023 and June 2023 . NOTE 4 – REVENUES Under ASC 606, Revenue from Contracts with Customers , we record revenue when earned, rather than when billed. From time to time, we may record revenue based on our revenue recognition policies in advance of being able to invoice the customer, or we may invoice the customer prior to being able to recognize the revenue. Included in accounts receivable are unbilled amounts of $ 2,992,909 and $ 3,582,735 at March 31, 2023, and December 31, 2022, respectively. Amounts billed in advance of revenue recognition are presented as deferred revenue on the condensed consolidated balance sheets. 6 OPTIMIZERX CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 2023 NOTE 4 – REVENUES (CONTINUED) The Company has several signed contracts with customers for the distribution of 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. Deferred revenue was $ 735,140 and $ 164,309 as of March 31, 2023 and December 31, 2022, respectively. The 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 for the deferred revenue account for the quarter ended March 31. Balance January 1, 2023 $ 164,309 Revenue recognized ( 8,778,893 ) Amount collected 9,349,724 Balance March 31, 2023 $ 735,140 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. Three Months Ended March 31, 2023 2022 Revenue recognized over time $ 12,423,100 $ 12,902,664 Revenue recognized at a point in time 579,810 828,867 Total Revenue $ 13,002,910 $ 13,731,530 NOTE 5 – LEASES We have operating leases for office space in two multitenant facilities in Rochester, Michigan and Zagreb, Croatia. We also had a lease on office space in Cranbury, New Jersey, which expired in January 2022. For leases that contain renewal options, we have only assumed renewal for the headquarters lease. 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. Amortization of the right of use assets is recognized as non-cash lease expense on a straight-line basis over the lease term, while variable lease payments are expensed as incurred. Short term lease costs include month to month leases and occasional rent for transient meeting and office spaces in shared office space facilities. 7 OPTIMIZERX CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 2023 NOTE 5 – LEASES (CONTINUED) For the three months ended March 31, 2023 and 2022, the Company’s lease cost consists of the following components, each of which is included in operating expenses within the Company’s condensed consolidated statements of operations: Three Months Ended March 31, 2023 Three Months Ended March 31, 2022 Operating lease cost $ 24,696 $ 28,023 Short-term lease cost 8,063 8,092 Total lease cost $ 32,759 $ 36,115 The table below presents the future minimum lease payments to be made under operating leases as of March 31, 2023: As of March 31, 2023 2023 73,860 2024 80,253 2025 70,224 Total 224,337 Less: discount 11,823 Total lease liabilities $ 212,514 The weighted average remaining lease term at March 31, 2023 for operating leases is 2.5 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 $ 22,185 and $ 24,493 for the three months ended March 31, 2023 and 2022, respectively. For the three months ended March 31, 2023 and 2022, payments on lease obligations were $ 24,620 and $ 27,898 , respectively, and amortization on the right of use assets was $ 24,696 and $ 28,023 , respectively. NOTE 6 – STOCKHOLDERS’ EQUITY Preferred Stock The Company had 10,000,000 shares of preferred stock, $ 0.001 par value per share, authorized as of March 31, 2023. No shares were issued or outstanding in either 2023 or 2022. Common Stock The Company had 166,666,667 shares of common stock, $ 0.001 par value per share, authorized as of March 31, 2023. There were 17,117,113 and 17,074,173 shares of common stock outstanding, net of shares held in treasury, at March 31, 2023 and December 31, 2022, respectively. The Company issued 9,668 shares of common stock and received proceeds of $ 40,606 in the three months ended March 31, 2023 in connection with the exercise of options under our 2013 Incentive Plan. During the quarter ended March 31, 2022, we issued 28,006 shares of common stock and received proceeds of $ 258,128 under the same Plan. 8 OPTIMIZERX CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 2023 NOTE 6 – STOCKHOLDERS’ EQUITY (CONTINUED) The Company issued 33,272 and 13,627 shares of common stock in the three months ended March 31, 2023 and 2022, respectively in connection with the vesting of restricted stock units under our 2013 Incentive Plan and 2021 Equity Incentive Plan. In the three months ended March 31, 2023, certain participants utilized a net withhold settlement method, in which shares were surrendered to cover payroll withholding tax. Of the shares issued to participants during the three months ended March 31, 2023, 9,502 shares, valued at $ 170,400 , were surrendered and subsequently cancelled. Treasury Stock During the quarter ended March 31, 2023, the Board authorized a share repurchase program, under which the Company may repurchase up to $ 15 million of its outstanding common stock. During the quarter ended March 31, 2023, there were no shares of our common stock repurchased under this program. During 2022, the Board authorized a share repurchase program, under which the Company could repurchase up to $ 20.0 million of its outstanding common stock. During 2022, the Company repurchased 1,214,398 shares of our common stock for a total of $ 20,021,830 , including commissions paid on repurchases. These shares were recorded as treasury shares using the par value method. NOTE 7 – STOCK BASED COMPENSATION Stock Options The compensation expense related to options for the three months ended March 31, 2023 and 2022, was $ 1,466,694 and $ 905,744 , respectively. The fair value of these instruments was calculated using the Black-Scholes option pricing model. There is $ 11,021,446 of remaining expense related to unvested options to be recognized in the future over a weighted average period of 1.91 years. The total intrinsic value of outstanding options at March 31, 2023 was $ 392,669 . During 2022, the Company granted certain performance based stock 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. Restricted Stock Units The Company recorded of $ 2,913,809 and $ 2,268,354 in compensation expense related to restricted stock units for the three months ended March 31, 2023 and 2022, respectively. A total of $ 14,830,343 remains to be recognized at March 31, 2023 over a weighted average period of 1.9 years. Of the $ 2,913,809 and $ 2,268,354 in compensation expense, $ 1,503,359 for each period related to market-based equity grants. These market-based restricted stock units were valued using a Monte Carlo simulation There is $ 3,596,738 remaining to expense over a weighted average period of 0.95 years. During 2022, the Company 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 units recorded during the period. The director’s compensation program calls for the grant of restricted stock units with a one year vesting period. There was $ 184,620 and $ 62,889 included in the compensation expense discussed above related to director’s compensation for the periods ending March 31, 2023 and 2022, respectively. NOTE 8 – EARNINGS (LOSS) PER SHARE Basic earnings per share (“EPS”) is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. 9 OPTIMIZERX CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) March 31, 2023 NOTE 8 – EARNINGS (LOSS) PER SHARE (CONTINUED) The number of shares related to options and restricted stock units included in diluted EPS is based on the “Treasury Stock Method” prescribed in ASC 260-10, Earnings per Share . This method assumes the theoretical repurchase of shares using proceeds of the respective stock options exercised, and for restricted stock units, the amount of compensation cost attributed to future services which have not yet been recognized, and the amount of current and deferred tax benefit, if any, that would be credited to additional paid in capital upon the vesting of the restricted stock units, at a price equal to the issuer’s average stock price during the related earnings period. Accordingly, the number of shares includable in the calculation of EPS in respect of the stock options and restricted stock units is dependent on this average stock price and will increase as the average stock price increases. The following table sets forth the computation of basic and diluted net loss per share. Three Months Ended March 31, 2023 2022 Numerator Net loss $ ( 6,397,714 ) $ ( 3,761,098 ) Denominator Weighted average shares outstanding used in computing net loss per share Basic 17,094,676 17,878,068 Effect of dilutive stock options, warrants, and stock grants — — Diluted 17,094,676 17,878,068 Net loss per share Basic $ ( 0.37 ) $ ( 0.21 ) Diluted $ ( 0.37 ) $ ( 0.21 ) No calculation of diluted earnings per share is included for the three months ended March 31, 2023 or 2022 as the effect of the calculation would be anti-dilutive. The number of common shares potentially issuable upon the exercise of certain options that were excluded from the diluted loss per common share calculation for the three months ended March 31,2023 was 34,055 related to options, and 59,749 related to restricted stock units, for a total of 93,804 shares. The number of common shares potentially issuable upon the exercise of certain options that were excluded from the diluted loss per common share calculation for the three months ended March 31,2022 was 221,251 related to options, and 77,446 related to restricted stock units, for a total of 298,697 shares. NOTE 9 – CONTINGENCIES Litigation The Company is not currently involved in any material legal proceedings. NOTE 10 – INCOME TAXES As discussed in our annual report on Form 10-K for the year ended December 31, 2022, we had net operating loss carry-forwards for federal income tax purposes of approximately $ 21.5 million as of December 31, 2022. Accordingly, no federal income tax expense or benefit is recorded in the current period. Management monitors company-specific, and macro-economic factors and assesses the likelihood that the Company’s net deferred tax assets will be utilized prior to their expiration. As previously disclosed in our annual report, the Company maintained a valuation allowance against its net deferred tax assets. NOTE 11 – SUBSEQUENT EVENTS On April 18, 2023, Mr. Febbo forfeited his October 2021 grant under the 2021 Equity Incentive Plan (the “2021 Febbo Grant”). These shares were returned to the 2021 Equity Incentive Plan. In light of Mr. Febbo’s forfeiture of the 2021 Febbo Grant, the Compensation Committee determined to again include Mr. Febbo in the Company’s annual equity grants under the 2021 Equity Incentive Plan and subsequently issued Mr. Febbo a grant of options and restricted stock units with an aggregate grant date value of $ 2.5 million. The forfeiture and subsequent issuance will be accounted for as a modification in accordance with ASC 718. During the period April 1 through May 7, we issued 10,595 shares of common stock in conjunction with the vesting of restricted stock units. 10