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 (PCAOB id 1195 ); F-4 Consolidated Balance Sheets as of December 31, 2023 and 2022; F-5 Consolidated Statements of Operations for the years ended December 31, 2023 and 2022; F-6 Consolidated Statement of Stockholders’ Equity for the year ended December 31, 2023; F-7 Consolidated Statement of Stockholders’ Equity for the year ended December 31, 2022; F-8 Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022; and F-9 Notes to Consolidated Financial Statements 32 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, 2023 and 2022, 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, 2023 and 2022, 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 Sates of America. 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 Public Company Accounting Oversight Board (United States) (“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. 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 audits, 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 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. F- 1 To the Stockholders and Board of Directors of OptimizeRx Corporation Page Two Critical Audit Matters The critical audit matters communicated below are matters 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 matters below, providing separate opinions on the critical audit matters 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. The principal considerations for our determination that performing procedures relating to revenue recognition is a critical audit matter is that significant judgment is exercised by the Company in determining revenue recognition for 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 estimating any variable consideration, (2) selecting of a sample of customer agreements and testing management’s identification and treatment of contract terms, (3) testing the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue recognized in the consolidated financial statements, (4) confirming data utilized to recognize revenue with third-party service providers to ensure completeness and accuracy of the data used to recognize revenue, and (5) confirming with the Company’s customers the contract terms and conditions of agreements and completion of the Company’s performance obligations under the contract. Critical Audit Matter – Business Combination and Valuation of Intangible Assets As disclosed in Notes 3 and 7 to the consolidated financial statements, on October 24, 2023, the Company completed the acquisition of Healthy Offers, Inc. (d/b/a Medicx Health or “Medicx”) for total consideration of approximately $95.9 million. Of the acquired intangible assets, $34 million of customer relationships and $8.3 million of technology solutions were recorded. The valuation methods used to determine the estimated fair value of these intangible assets included the multi-period excess earnings approach for customer relationships and the relief from royalty method for technology solutions. Several significant assumptions and estimates were involved in the application of these valuation methods, including forecasted revenues, royalty rates, gross margins, discount rates, and attrition rates. The principal considerations for our determination that performing procedures relating to the valuation of customer relationships and developed technology acquired in the acquisition of Medicx is a critical audit matter are (i) the significant judgment used by management when developing the fair value estimate of the customer relationships and developed technology acquired, (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the forecasted revenues, gross margins, discount rate, and attrition rate for customer relationships and forecasted revenues, royalty rate, and discount rate for developed technology acquired, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. F- 2 To the Stockholders and Board of Directors of OptimizeRx Corporation Page Three How the Critical Audit Matter Was Addressed in the Audit Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included (i) obtaining an understanding of the design and implementation of controls relating to the acquisition accounting, including controls over management’s valuation of the customer relationships and developed technology acquired, (ii) reading the purchase agreement, (iii) testing management’s process for developing the fair value estimate of the customer relationships and developed technology acquired, (iv) evaluating the appropriateness of the multi-period excess earnings and relief from royalty methods used by management, (v) testing the completeness and accuracy of the underlying data used in the multi-period excess earnings and relief from royalty methods, and (vi) evaluating the reasonableness of the significant assumptions used by management related to forecasted revenues, gross margins, discount rate, and attrition rate for customer relationships and forecasted revenues, royalty rate, and discount rate for developed technology acquired. Evaluating the reasonableness of the significant assumptions used by management related to the forecasted revenues and gross margins for customer relationships and developed technology involved considering (i) the current and past performance of the Medicx business and (ii) whether the assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the multi-period excess earnings and relief from royalty methods and (ii) the reasonableness of the discount rate, royalty rate, and attrition rate assumptions for customer relationships and the royalty rate assumptions for developed technology acquired. We have served as the Company’s auditor since 2020. /s/ UHY LLP Sterling Heights, Michigan April 15, 2024 F- 3 OPTIMIZERx CORPORATION Consolidated Balance Sheets December 31, 2023 December 31, 2022 ASSETS Current Assets Cash and cash equivalents $ 13,852,456 $ 18,208,685 Short-term investments — 55,931,821 Accounts receivable, net of allowance for credit losses of $ 239,172 and $ 352,043 at December 31, 2023 and 2022, respectively 36,253,214 22,155,301 Taxes receivable 1,035,754 — Prepaid expenses and other 3,189,468 2,280,828 Total Current Assets 54,330,892 98,576,635 Property and equipment, net 149,407 137,448 Other Assets Goodwill 78,357,074 22,673,820 Patent rights, net 6,184,742 1,940,178 Technology assets, net 9,012,756 7,702,895 Tradename and customer relationships, net 34,198,084 3,379,838 Operating lease right-of-use assets 572,895 235,320 Security deposits and other assets 568,048 5,051 Total Other Assets 128,893,599 35,937,102 TOTAL ASSETS $ 183,373,898 $ 134,651,185 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Current portion of long-term debt $ 2,000,000 $ — Accounts payable – trade 2,227,177 1,549,979 Accrued expenses 7,754,781 2,601,246 Revenue share payable 5,505,701 3,990,440 Current portion of lease liabilities 221,625 89,902 Deferred revenue 171,841 164,309 Total Current Liabilities 17,881,125 8,395,876 Non-current Liabilities Long-term debt, net 34,230,737 — Lease liabilities, net of current portion 371,438 144,532 Deferred tax liabilities, net 4,337,424 — Total Liabilities 56,820,724 8,540,408 Commitments and contingencies (See Note 16) Stockholders’ Equity Preferred stock, $ 0.001 par value, 10,000,000 shares authorized, none issued and outstanding at December 31, 2023 and 2022, respectively — — Common stock, $ 0.001 par value, 166,666,667 shares authorized, 19,899,679 and 18,288,571 shares issued at December 31, 2023 and 2022, respectively 19,899 18,289 Treasury stock, $ 0.001 par value, 1,741,397 and 1,214,398 purchased at December 31, 2023 and 2022, respectively ( 1,741 ) ( 1,214 ) Additional paid-in-capital 190,792,980 172,785,800 Accumulated deficit ( 64,257,964 ) ( 46,692,098 ) Total Stockholders’ Equity 126,553,174 126,110,777 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 183,373,898 $ 134,651,185 The accompanying notes are an integral part of these financial statements. F- 4 OPTIMIZERx CORPORATION Consolidated Statements of Operations For the year ended December 31, 2023 For the year ended December 31, 2022 Net revenue $ 71,521,506 $ 62,450,156 Cost of revenues, exclusive of depreciation and amortization presented separately below 28,621,589 23,483,336 Gross margin 42,899,917 38,966,820 Operating Expenses Stock-based compensation 13,717,333 15,745,822 Loss on disposal of a business 2,142,319 — Impairment charges 6,737,580 — Depreciation and amortization 2,401,628 2,022,029 Other sales, general and administrative expenses 44,302,771 33,489,707 Total operating expenses 69,301,631 51,257,558 Loss from operations ( 26,401,714 ) ( 12,290,738 ) Other income (expense) Interest expense ( 1,453,764 ) — Other income 500,001 — Interest income 2,191,689 852,298 Total other income (expense), net 1,237,926 852,298 Loss before provision for income taxes ( 25,163,788 ) ( 11,438,440 ) Income tax benefit 7,597,922 — Net loss $ ( 17,565,866 ) $ ( 11,438,440 ) Weighted average number of shares outstanding – basic 17,124,801 17,783,992 Weighted average number of shares outstanding – diluted 17,124,801 17,783,992 Loss per share – basic $ ( 1.03 ) $ ( 0.64 ) Loss per share – diluted $ ( 1.03 ) $ ( 0.64 ) 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, 2023 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 — — — — 5,925,416 — 5,925,416 Restricted stock — — — — 7,791,917 — 7,791,917 Issuance of common stock: For stock options exercised 24,668 25 — — 181,081 — 181,106 For acquisition 1,444,581 1,444 — — 12,089,698 — 12,091,142 For restricted stock units vested, net of cancelled units 141,859 141 — — ( 459,033 ) — ( 458,892 ) Repurchase of common stock — — ( 526,999 ) ( 527 ) ( 7,521,899 ) — ( 7,522,426 ) Net loss for the year — — — — — ( 17,565,866 ) ( 17,565,866 ) Balance, December 31, 2023 19,899,679 $ 19,899 ( 1,741,397 ) $ ( 1,741 ) $ 190,792,980 $ ( 64,257,964 ) $ 126,553,174 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, 2022 Common Stock Treasury Stock Additional Paid-in Accumulate 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 ) — ( 20,024,258 ) 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- 7 OPTIMIZERx CORPORATION Consolidated Statements of Cash Flows For the year ended December 31, 2023 For the year ended December 31, 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 17,565,866 ) $ ( 11,438,440 ) Adjustments to reconcile net loss to net cash (used in) / provided by operating activities: Depreciation and amortization 2,401,628 2,022,029 Asset impairment charges 6,737,580 — Loss on disposal of business 2,142,319 — Increase in bad debt expense 665,973 363,512 Stock-based compensation 13,717,333 15,745,822 Amortization of debt issuance costs 210,737 — Change in operating assets and liabilities, net of the effects of acquisitions: Accounts receivable ( 8,712,954 ) 2,281,773 Prepaid expenses and other assets ( 573,333 ) 2,650,951 Accounts payable ( 1,320,150 ) 943,171 Revenue share payable 1,515,262 ( 387,776 ) Accrued expenses and other liabilities 1,305,164 ( 301,366 ) Deferred tax liabilities ( 7,695,374 ) — Deferred revenue ( 67,472 ) ( 1,225,598 ) NET CASH (USED IN) / PROVIDED BY OPERATING ACTIVITIES ( 7,239,153 ) 10,654,078 CASH FLOWS USED IN INVESTING ACTIVITIES: Purchases of property and equipment ( 87,073 ) ( 81,005 ) Proceeds from sale of property and equipment 10,000 — Cash paid for acquisitions, net of cash acquired ( 82,947,264 ) ( 2,000,000 ) Proceeds from sale of business 2,540,000 — Purchase of short-term investments ( 162,777,510 ) ( 55,931,821 ) Redemptions of short-term investments 218,709,331 — Capitalized software development costs and other ( 784,349 ) ( 163,560 ) NET CASH USED IN INVESTING ACTIVITIES ( 25,336,865 ) ( 58,176,386 ) CASH FLOWS (USED IN ) / PROVIDED BY FINANCING ACTIVITIES: Proceeds from long-term debt, net of issuance costs 37,730,000 — Repayment of long-term debt ( 1,710,000 ) — Repurchase of common stock ( 7,522,426 ) ( 20,024,258 ) Proceeds from exercise of stock options, net of cash paid for withholding taxes ( 277,785 ) 1,073,481 NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES 28,219,789 ( 18,950,777 ) NET DECREASE IN CASH AND CASH EQUIVALENTS ( 4,356,229 ) ( 66,473,085 ) CASH AND CASH EQUIVALENTS – BEGINNING OF PERIOD 18,208,685 84,681,770 CASH AND CASH EQUIVALENTS – END OF PERIOD $ 13,852,456 $ 18,208,685 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $ 1,212,619 $ — ROU assets obtained in exchange for lease obligations $ 459,580 $ — Reduction of EvinceMed purchase price for amounts previously paid $ — $ 708,334 Shares issued in connection with acquisition $ 12,091,142 $ 9,374,455 Cash paid for income taxes $ 48,222 $ — The accompanying notes are an integral part of these financial statements. F- 8 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 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 two million U.S. healthcare providers and millions of their patients through an intelligent technology platform embedded within a proprietary point-of-care network, as well as mass digital communications channels, OptimizeRx helps life sciences organizations engage and support their customers. 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 allowance for credit losses, carrying value of assets, fair values assigned to acquired long-lived assets, depreciable and amortizable lives of tangible and intangible assets, the carrying value of liabilities, the valuation allowance for deferred tax assets, 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, Healthy Offers, Inc., a Nevada 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. Segment reporting We operate in one reportable segment and use consolidated net income as its measure of segment profit and loss. 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 solution as our focus is on selling enterprise arrangements covering multiple solutions that span the entire patient journey with a specific brand. Reclassifications Certain items in the previous year financial statements have been reclassified to match the current year presentation. F- 9 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 euro 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. 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 liabilities approximate their fair values due to their short maturities. F- 10 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Accounts Receivable and Allowance for Credit Losses Accounts receivable are reported at realizable value, net of allowances for credit losses, which is estimated and recorded in the period the related revenue is recorded. The Company does not seek collateral to secure its accounts receivable and amounts billed are are generally due within a short period of time based on terms and conditions normal for our industry. 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. If current or expected future economic trends, events, or changes in circumstances indicate that specific receivable balances may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly. Past-due receivable balances are written off when the Company’s collection efforts have been exhausted. The Company’s customers are primarily large well-capitalized companies, and historically there has been very little bad debt expense. Bad debt expense was $ 665,973 and $ 363,512 for the years ended December 31, 2023 and 2022, respectively. The allowance for credit losses was $ 239,172 and $ 352,043 as of December 31, 2023 and 2022, respectively. The changes in the allowance for credit losses in each of the years ended December 31, 2023 and 2022, were as follows: 2023 2022 Balance at beginning of year $ 352,043 $ 241,219 Bad debt expense 665,973 363,512 Write-offs ( 778,844 ) ( 252,688 ) Balance at end of year $ 239,172 $ 352,043 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 $ 4,198,312 , and $ 3,582,735 , at December 31, 2023, and 2022, 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. Leases Lease-related assets, or Operating lease right-of-use (“ROU”) 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. The Company reviews all options to extend, terminate, or purchase its ROU assets at the commencement of the lease and on an ongoing basis and accounts for these options when they are reasonably certain of being exercised. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred. The short-term lease recognition exemption is applied for leases with terms at commencement of not greater than 12 months. F- 11 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. Long-lived assets, such as property and equipment and amortizing intangible assets are reviewed whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Impairment of assets with definite-lives is generally determined by comparing projected undiscounted cash flows expected to be generated by the asset, or asset groups, to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted basis, an impairment is recognized to the extent fair value exceeds carrying value. Determining the extent of impairment, if any, typically requires various estimates and assumptions including cash flows directly attributable to the asset, the useful life of the asset and residual value, if any. When necessary, the Company uses internal cash flow estimates, quoted market prices and appraisals, as appropriate, to determine fair value. Actual results could vary from these estimates. In addition, the remaining useful life of the impaired asset is revised, if necessary. We recorded impairment charges of $ 6.7 million against the value of our intangible assets during the year ended December 31, 2023. No events or circumstances were noted that would be indicative of any potential impairment during the year ended December 31, 2022. Goodwill Goodwill represents the excess of the purchase price over the far value assigned to the net tangible and identifiable intangible assets of an acquired business. Goodwill is assessed for impairment at least annually as of December 31, of each year, or more frequently if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value. A qualitative assessment can be performed to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the reporting unit does not pass the qualitative assessment, then the reporting unit’s carrying value is compared to its fair value. The fair value of a reporting unit is calculated using the income approach (including Discounted Cash Flow (“DCF”) and validated using a market approach with the involvement of a third-party valuation specialist. The income approach uses expected future cash flows for the reporting unit and discounts those cash flows to present value. Expected future cash flows are estimated using management assumptions of growth rates, including long-term growth rates, capital expenditures and cost efficiencies. Future acquisitions or divestitures are not included in the expected future cash flows. The Company uses a discount rate based on a calculated weighted average cost of capital which is adjusted for company specific risk premiums. The market approach compares the valuation multiples of similar companies to that of the associated reporting unit. The Company then reconciles the calculated fair values to its market capitalization. The fair value is then compared to its carrying value including goodwill. If the fair value is in excess of its carrying value, the related goodwill is not impaired. If the fair value is less than carrying value, an impairment charge is recognized, equivalent to the amount that the carrying value exceeds the fair value. 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, 2023 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. The net contract balance for contracts in progress at December 31, 2023 and 2022 was $ 2.0 million and $ 5.4 million, respectively. The outstanding performance obligations are expected to be satisfied during the year ended December 31, 2024. In certain circumstances, the Company will offer sales rebates to customers based on spend volume. Rebates are typically contracted based on a quarterly or annual spend amount based on a volume threshold or tiered model. At the beginning of the year, the rebate percentage is estimated based on input from the sales team and analysis of prior year sales. Thereafter, the open contract balance for the customer is assessed quarterly to ensure the estimated rebate percentage being used for the rebate accrual remains reasonable. The estimated amount of variable consideration will be included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. For the year ended 2023, there were three contracts with customers that included a rebate clause. 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. 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 . 2023 2022 Revenue recognized over time $ 63,527,477 $ 55,437,418 Revenue recognized at a point in time 7,994,029 7,012,738 Total Revenue $ 71,521,506 $ 62,450,156 F- 13 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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. 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 Cost of Revenues include revenue-share expense and costs associated with licensing data from third parties. 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. Significant judgments are required in order to determine the realizability of these deferred tax assets. In assessing the need for a valuation allowance, the Company evaluates all significant available positive and negative evidence, including historical operating results, estimates of future taxable income and the existence of prudent and feasible tax planning strategies. Changes in the expectations regarding the realization of deferred tax assets could materially impact income tax expense in future periods. 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, 2023 and 2022 the Company had $ 13,260,816 and $ 15,669,837 , respectively, in cash balances in excess of federally insured limits, primarily at Bank of America. F- 14 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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, 2023 and 2022. Advertising Costs The Company expenses advertising costs as incurred. Advertising costs, included in Other general and administrative expenses were $ 775,548 and $ 743,975 , for the years ended December 31, 2023 and 2022, respectively. 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 was estimated using a Monte Carlo simulation model. This valuation technique included estimating the movement of stock prices and the effects of volatility, interest rates and dividends. At the year ended December 31, 2023 there are no market based restricted stock units outstanding. 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. 2023 2022 Expected dividend yield 0 % 0 % Risk free interest rate 3.76 % - 4.74 % 0.82 % - 4.38 % Expected option term 3.5 years 3.5 years Turnover/forfeiture rate 0 % 0 % Expected volatility 67 % - 72 % 68 % - 71 % Weighted average grant date fair value $ 6.58 $ 12.82 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 2023 and 2022 was 31,727 and 93,626 related to options, and 52,607 and 170,859 related to restricted stock units, for a total of 84,334 and 264,485 , respectively, because they are anti-dilutive, as a result of the net losses incurred in each of the years ended December 31, 2023 and 2022. F- 15 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 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, 2023 and 2022 consisted of the following: Year ended December 31, 2023 Net (Loss) Shares Per Share Amount Basic EPS $ ( 17,565,866 ) 17,124,801 $ ( 1.03 ) Effect of dilutive securities — — — Diluted EPS $ ( 17,565,866 ) 17,124,801 $ ( 1.03 ) Year ended December 31, 2022 Net Income 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 ) Recently Issued Accounting Guidance 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 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. Not Yet Adopted In November 2023, the FASB issued ASU No. 2023-07 (“ASU 2023-07”), Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 requires annual and interim disclosures that are expected to improve reportable segment disclosures, primarily through enhanced disclosures about significant segment expenses. The provisions of ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2023-07. In December 2023, the FASB issued ASU No. 2023-09 (“ASU 2023-09”), Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 addresses investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This update also includes certain other amendments to improve the effectiveness of income tax disclosures. The provisions of ASU 2023-09 are effective for annual periods beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2023-09. F- 16 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 NOTE 3 – ACQUISITIONS On October 24, 2023, the Company acquired 100 % of the issued and outstanding preferred and common stock of Healthy Offers, Inc., a Nevada corporation d/b/a Medicx Health. Medicx Health is a healthcare consumer-focused omnichannel marketing and analytics company. The acquisition of Medicx Health is expected to enhance and expand the Company’s technology offerings, providing additional opportunities for revenue growth. The acquisition date fair value of consideration transferred was calculated as follows: Net cash transferred $ 83,888,239 Fair value of common stock transferred 12,091,142 Fair value of consideration transferred $ 95,979,381 The goodwill balance reflects the benefits associated with future iterations of the technology platforms, new customer relationships anticipated as a result of the transaction and market participant synergies from economies of scale and is not deductible for tax purposes. In addition, the Company is required to remit, upon collection from the appropriate authorities, approximately $ 1.0 million related to certain state and federal income tax receivables which were included on Medicx Health’s balance sheet at the date of acquisition. The Company has recorded $ 1.0 million in Taxes receivable, to reflect the receivables due to the Company and $ 1.0 million in Accrued expenses, to reflect the total amount due to the former stockholders of Medicx Health. The following table summarizes the estimated fair value of assets acquired and liabilities assumed at the acquisition date: Assets Acquired Cash $ 940,974 Accounts receivable 6,028,048 Taxes receivable 1,035,754 Prepaid expenses and other 912,719 Property and equipment 33,476 Customer relationships intangible 34,000,000 Trademark and patent intangible 5,700,000 Technology intangibles 8,300,000 Operating lease right-of-use assets 145,075 Deposits 9,727 57,105,773 Liabilities Assumed Accounts payable 1,997,348 Accrued expenses 3,848,403 Lease liabilities 166,098 Deferred revenue 75,003 Deferred tax liabilities 12,032,798 18,119,650 Net assets acquired 38,986,123 Goodwill 56,993,258 Fair value of consideration transferred $ 95,979,381 F- 17 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 NOTE 3 – ACQUISITIONS (CONTINUED) The Company used a third-party valuation specialist to value the intangible assets acquired. The identifiable intangibles are being amortized on a straight line basis over the following estimated useful lives: Customer relationship intangible 15 years Trademark and patent intangible 10 years Technology intangibles 4 to 10 years The Company recognized $ 4.3 million of acquisition related costs that were expensed in the current period. These costs are included in the consolidated statement of operations in the line item entitled “Other sales, general and administrative expenses.” The results of operations of Medicx Health have been included in the consolidated statement of operations since the date of acquisition. The amounts of revenue and net income of Medicx Health included in the Company’s consolidated statement of operations for the period from the acquisition date until December 31, 2023, are as follows: Revenue $ 4,546,497 Net income 314,082 The following represents the pro-forma consolidated statement of operations as if Medicx Health had been included in the consolidated results of the Company for the full years ended December 31, 2023, and 2022: Year ended December 31, 2022 Pro-forma consolidated statement of operations 2023 2022 Revenue $ 97,066,241 $ 90,521,236 Net loss ( 18,616,303 ) ( 16,157,521 ) These amounts have been calculated after applying the Company’s accounting policies, adjusting Medicx Health results to reflect the additional amortization that would have been charged assuming the fair value adjustments to intangible assets had been applied on January 1, 2022, full year interest expense associated with the term loan and elimination of interest income on short-term investments that were used to fund the acquisition, one time transaction related items, including the amounts incurred by the Company, discussed above and $ 9.6 million in transaction related expenses incurred by Medicx Health. 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. 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 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. Acquisition costs of approximately $ 19,739 were expensed as incurred. F- 18 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 NOTE 4 – INVESTMENT SECURITIES There were no investment securities held at December 31, 2023. At December 31, 2022 the Company held $ 55.9 million in U.S. government and agency securities. All securities had maturity dates of less than one year. The Company reported these securities at amortized cost. The amortized cost approximates fair value at December 31, 2022 due to the short nature of the securities. Proceeds from the maturities of these securities during 2023 were used to partially fund the acquisition of Medicx Health. See Note 3 - Acquisitions. NOTE 5 – PREPAID EXPENSES Prepaid expenses consisted of the following as of December 31, 2023 and 2022: 2023 2022 Revenue share and exclusivity payments $ 1,495,127 $ 1,025,000 Software 407,480 408,063 Insurance 369,504 221,580 Data 513,244 152,533 Other 404,113 473,652 Total prepaid expenses $ 3,189,468 $ 2,280,828 NOTE 6 – PROPERTY AND EQUIPMENT The Company owned equipment recorded at cost, which consisted of the following as of December 31, 2023 and 2022: 2023 2022 Computer equipment $ 266,370 $ 230,467 Furniture and fixtures 33,899 38,500 300,269 268,967 Less accumulated depreciation 150,862 131,519 Property and equipment, net $ 149,407 $ 137,448 Depreciation expense was $ 99,849 and $ 85,725 for the years ended December 31, 2023 and 2022, respectively. NOTE 7 – GOODWILL AND INTANGIBLE ASSETS Goodwill Our goodwill is related to the acquisitions of Medicx Health in 2023, EvinceMed in 2022, RMDY Health, Inc. in 2019 and CareSpeak Communications in 2018. Goodwill is not amortizable for financial statement purposes. The Company performed its annual goodwill impairment review in the fourth quarters of each of the years ended December 31, 2023 and 2022, and also performed an interim impairment review as of November 30, 2023, following the completion of the transaction with Mercalis, Inc., which is discussed below. In both cases it was determined that the fair value of the Company’s single reporting unit was greater than its carrying value. F- 19 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 NOTE 7 – GOODWILL AND INTANGIBLE ASSETS (CONTINUED) The fair value of any reporting units, used in the annual assessments in 2023 and 2022, is classified as Level 3 measurements within the fair value hierarchy due to significant unobservable inputs such as discount rates, projections of revenue, cost of revenue and operating expense growth rates, long-term growth rates and income tax rates. Changes in the carrying amount of goodwill on the consolidated balance sheet consist of the following: Balance at January 1, 2022 $ 14,740,031 Acquisitions 7,933,789 Impairments — Balance January 1, 2023 $ 22,673,820 Acquisitions 56,993,258 Disposal of business ( 1,310,004 ) Impairments — Balance December 31, 2023 $ 78,357,074 During the year ended December 31, 2023, we entered into various agreements, including a Product License Agreement and Platform Assets Purchase Agreement, with Mercalis, Inc.(“Mercalis”), collectively the “Transaction”. Under the terms of the Transaction, Mercalis agreed to purchase certain customer contract assets and liabilities related to the Company’s Access and Patient Engagement technologies. In addition, Mercalis was granted a perpetual license to the Access products and a non-exclusive two-year term license to the Patient Engagement products. Total consideration due for the Transaction was $ 3,740,000 including $ 2,540,000 related to the Access products. The Access products portion of the Transaction was deemed to be the disposal of a business for accounting purposes and accordingly the Company recorded a loss on disposal of $ 2,142,319 including the allocation of a portion of the Company’s goodwill balance of $ 1,310,004 and the net book value of the underlying technology assets of $ 3,327,844 . Intangible Assets Intangible assets included on the consolidated balance sheets consist of the following: December 31, 2023 Gross Carrying Amount Accumulated Amortization Net Weighted Average Life Remaining Patent rights $ 7,163,729 $ 978,987 $ 6,184,742 8.8 Technology assets 12,387,622 3,374,866 9,012,756 6.6 Other intangible assets Tradename 134,000 — 134,000 10.7 Non-compete agreements 1,093,000 1,093,000 — — Customer relationships 34,923,000 858,916 34,064,084 14.6 Total Tradename and customer relationships 36,150,000 1,951,916 34,198,084 Total intangible assets $ 55,701,351 $ 6,305,769 $ 49,395,582 F- 20 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 NOTE 7 – GOODWILL AND INTANGIBLE ASSETS (CONTINUED) 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 — — 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 During the year ended December 31, 2023, we recorded asset impairment charges of $ 6,737,580 relating to Technology assets patent rights and tradenames that were not considered to be core solutions on a go forward basis, resulting in lower projected revenues for these solutions, as well as the outcome of the disposal of the Access products discussed above. 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 The Company recorded amortization expense of $ 2,301,779 and $ 1,936,304 in the years ended December 31, 2023 and 2022, respectively. Expected future amortization expense of the intangibles assets as of December 31, 2023 is as follows: Year ended December 31, 2024 $ 4,202,841 2025 4,128,899 2026 4,079,117 2027 3,972,613 2028 3,724,330 Thereafter 29,287,782 Total $ 49,395,582 F- 21 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 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 $ 171,841 and $ 164,309 as of December 31, 2023 and 2022, 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, 2023. Balance January 1, 2023 $ 164,309 Revenue recognized ( 12,358,640 ) Amount collected 12,291,169 Amount acquired 75,003 Balance December 31, 2023 $ 171,841 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 ( 13,455,253 ) Amount collected 12,229,655 Balance December 31, 2022 $ 164,309 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 Chief Executive Officer (“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, 2023. 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, 2023 and 2022, we have recognized $ 335,897 and $ 401,972 , respectively, 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. 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, 2023. No shares were issued or outstanding in either 2022 or 2023. Common Stock The Company had 166,666,667 shares of common stock, $ 0.001 par value per share, authorized as of December 31, 2023. There were 18,158,282 and 17,074,173 shares of common stock outstanding, net of shares held in treasury, at December 31, 2023 and 2022, respectively. We issued 24,668 shares of common stock and received proceeds of $ 181,106 in 2023 in connection with the exercise of options under our 2013 Equity Incentive Plan. We also issued 156,910 shares of common stock and received proceeds of $ 1,205,881 in 2022 in connection with the exercise of options under our 2013 Equity Incentive Plan. F- 22 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 NOTE 10 – STOCKHOLDERS’ EQUITY (CONTINUED) We issued 141,859 shares of common stock in 2023 and 29,945 shares of common stock in 2022 in connection with the vesting of restricted stock units under our 2013 and 2021 Equity Incentive Plans and discussed in greater detail in Note 11, Stock Based Compensation. Some of the participants utilized a net withhold settlement method, in which shares were surrendered to cover payroll withholding taxes. Of the shares issued to participants during the year ended December 31, 2023 and 2022, respectively, 42,489 and 8,416 shares, valued at $ 458,892 and $ 132,400 , 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. This stock repurchase authorization expires on the earlier of March 12, 2024, or when the repurchase of $ 15 million of shares of its common stock has been reached. Through December 31, 2023, the Company repurchased 526,999 shares of our common stock for a total of $ 7,522,426 , including commissions paid on repurchases. At December 31, 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. 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 345,435 shares of common stock underlying options and 111,628 shares of common stock underlying restricted stock unit awards were outstanding at December 31, 2023. In connection with the adoption of a new plan in 2021, the Company froze the 2013 Plan. At December 31, 2023, 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 1,209,626 shares of common stock underlying options and 631,581 shares of common stock underlying restricted stock unit awards were outstanding at December 31, 2023. At December 31, 2023, 276,844 shares were available for grant under the 2021 Plan. F- 23 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 NOTE 11 – STOCK BASED 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. Stock Options The compensation cost that has been charged against income related to options for the years ended December 31, 2023 and 2022, was $ 5,925,416 and $ 4,956,619 , 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, 2023, 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. 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. The Company had the following option activity during the year ended December 31, 2023 and 2022: Number of Options Weighted average exercise price Weighted average remaining contractual life (years) Aggregate intrinsic value $ Outstanding at January 1, 2022 783,547 $ 34.17 Granted 862,938 $ 25.43 Exercised ( 156,910 ) $ 7.69 Expired or forfeited ( 182,705 ) $ 37.13 Outstanding at December 31, 2022 1,306,870 $ 31.14 2.7 $ 1,537,752 Granted 426,703 $ 12.50 Exercised ( 24,668 ) $ 7.34 Expired or forfeited ( 153,844 ) $ 30.70 Outstanding, December 31, 2023 1,555,061 $ 26.38 3.4 $ 1,046,481 Exercisable, December 31, 2023 586,274 $ 33.10 2.6 $ 239,110 F- 24 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 NOTE 11 – STOCK BASED COMPENSATION (CONTINUED) The table below reflects information for the total options outstanding at December 31, 2023 Range of Exercise Prices Number of Options Weighted average remaining contractual life (years) Weighted average exercise price $ 4.20 to $ 10.00 108,044 4.3 $ 8.02 $ 10.00 to $ 20.00 851,751 3.8 $ 14.35 $ 20.00 to $ 40.00 247,284 2.7 $ 33.91 $ 40.00 to $ 60.00 247,723 2.6 $ 48.30 $ 60.00 to $ 96.70 100,259 2.7 $ 75.54 Total 1,555,061 3.4 $ 26.38 The table below reflects information for the vested options outstanding at December 31, 2023. Range of Exercise Prices Number of Options Weighted average remaining contractual life (years) Weighted average exercise price $ 4.20 to $ 10.00 15,667 1.1 $ 7.54 $ 10.00 to $ 20.00 222,707 2.9 $ 14.34 $ 20.00 to $ 40.00 143,670 2.4 $ 31.79 $ 40.00 to $ 60.00 138,776 2.5 $ 49.36 $ 60.00 to $ 96.70 65,454 2.7 $ 75.80 Total 586,274 2.6 $ 33.58 A summary of the status of the Company’s non-vested options as of December 31, 2023, and changes during the year ended December 31, 2023, is presented below. Nonvested Options Options Weighted average exercise price Nonvested at January 1, 2022 1,056,187 $ 30.51 Granted 426,703 $ 12.50 Vested ( 381,992 ) $ 31.61 Forfeited ( 132,111 ) $ 52.07 Nonvested at December 31, 2023 968,787 $ 22.03 There is $ 8,956,198 of expense remaining to be recognized over a period of approximately 1.77 years related to options outstanding at December 31, 2023. F- 25 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 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, 2023 and 2022: Number of RSUs Weighted average grant date fair value Weighted average remaining contractual life (years) Outstanding at January 1, 2022 399,738 $ 52.99 Granted 467,043 $ 25.69 Forfeited ( 39,346 ) $ 44.06 Shares issued ( 29,945 ) $ 59.41 Withheld and cancelled ( 8,416 ) $ 68.69 Outstanding at December 31, 2022 789,074 $ 36.95 2.0 Granted 383,406 $ 12.30 Forfeited ( 244,923 ) $ 58.18 Vested and issued ( 141,859 ) $ 31.38 Withheld and cancelled ( 42,489 ) $ 32.47 Outstanding at December 31, 2023 743,209 $ 18.62 1.7 The Company granted restricted stock units of 383,406 and 467,043 units in 2023 and 2022, respectively, and valued at $4,714,564 and $11,996,111, respectively. These restricted stock units vest over a period of 1 year to 5 years. The Company recognized expense of $7,791,917 and $10,789,203 in 2023 and 2022, respectively, related to these restricted stock units. A total of $ 11,106,405 remains to be recognized at December 31, 2023 over a period of 1.95 years. In the year ended December 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 year ended December 31, 2023 and 2022, respectively, 42,489 and 31,243 shares, valued at $ 458,892 and $ 100,290 , were surrendered and subsequently cancelled. During 2022, the Company granted certain performance based restricted 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 restricted stock units recorded during the period. Non-employee Directors Compensation The director’s compensation program calls for the grant of restricted stock units with a one year vesting period. The Company granted 26,470 restricted stock units to its non-employee directors, valued at $ 750,130 in 2022. These restricted stock units vested in 2023. There were 50,305 restricted stock units, valued at $ 750,050 granted to the non-employee directors in 2023 that will vest in 2024, 12 months from the grant dates. Equity Award Modification On April 16, 2023, the Compensation Committee approved a grant to the CEO of 86,685 restricted stock units and 161,698 stock options with a grant date fair value of $ 2.5 million to vest over a three-year period. Concurrently, the CEO forfeited his October 2021 grant of 182,398 market-based restricted stock units. The forfeiture and accompanying grant are considered an equity modification according to ASC 718, Compensation-Stock Compensation . The additional compensation value created by the termination and issuance of new equity awarded, as measured using a Monte Carlo simulation, was approximately $ 1.9 million in total. Under ASC 718 this results in a non-cash expense in current and future periods to be recognized over a three-year period. These expense values are reflected and included in the option and restricted stock expense values discussed above. F- 26 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 NOTE 12 – LONG-TERM DEBT Long-term debt consisted of the following at December 31, 2023 and 2022: 2023 2022 Term loan, due in 2027 $ 38,290,000 $ — Less: current portion of long-term debt ( 2,000,000 ) — Less: unamortized issuance costs ( 2,059,263 ) — Long-term debt, net $ 34,230,737 $ — On October 11, 2023, the Company entered into a Financing Agreement (the “Financing”) which provided for a term loan (the “Term Loan”) of $ 40 million, the net proceeds of which were used to partially finance the Medicx Health transaction described in Note 3 “Acquisitions”. In connection with the Financing the Company incurred issuance costs of approximately $ 2.3 million, which were capitalized and are being amortized to interest expense over the life of the Term Loan. Amortization of debt issuance costs for the year ended December 31, 2023, was $ 210,737 . The Company’s obligations under the Financing are secured by all of the Company’s and its subsidiaries’ assets (including a pledge of all of the capital stock and equity interests of its subsidiaries). The Term Loan is repayable in quarterly installments, beginning December 31, 2023, equivalent to 1.25 % or $ 500,000 , of the original principal amount, with the outstanding unpaid principal and all accrued but unpaid interest due and payable on the earlier of (i) the fourth anniversary of the closing date of the Term Loan or (ii) the date on which the Term Loan is declared due and payable pursuant to the terms of the Financing. The Company may prepay, subject to an Applicable Premium, 3 % if the prepayment is made on a date that is up to and including the first anniversary of closing, 2 %, if the prepayment is made up to and including the second anniversary, 1 % if the prepayment is made up to and including the third anniversary and zero thereafter, all or a portion of the Term Loan and, under certain circumstances, including certain asset disposals and the raising of indebtedness not permitted under the Financing is required to make mandatory prepayments of the principal balance. If the prepayment occurs within 12 months of the date of the loan, the Company is also required to pay lost interest from the prepayment date to one year from the loan funding date. In addition, the Company is required to make a mandatory prepayment on March 31, of each year, commencing with 2025, equivalent to Excess Cash Flow multiplied by a percentage factor of 25%, if the leverage ratio is 3.60 to 1.00 or less, 50% if the leverage ratio is greater than 3.60 to 1 or less than or equal; to 4.10 to 1.00 and 75%, if the leverage ratio is greater than 4.10 to 1.00. Excess Cash Flow is defined in the Financing as Consolidated EBITDA for the previous fiscal year less scheduled principal and interest payments, capital expenditure, cash taxes and any cash expenses/gains added back to net income in the calculation of Consolidated EBITDA, adjusted for any increase/decrease in working capital during the fiscal year. F- 27 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 NOTE 12 – LONG-TERM DEBT (CONTINUED) During the year ended December 31, 2023, the Company made total principal repayments of $ 1.7 million, including a mandatory prepayment of $ 1.2 million as a result of an asset sale completed during the year. At the Company’s option the Term Loan, or any portion thereof bears interest at either: a. The greater of (a) 4.00 % per annum, (b) the Federal Funds Rate plus 0.50 % per annum, (c) the one month Secured Funds Overnight Rate (“SOFR”), plus an adjustment of 26.161 basis point and 1.00 % per annum, and (d) the rate last quoted by The Wall Street Journal as the “Prime Rate”, plus an Applicable Margin of 7.5 %; or b. Three-month SOFR plus an adjustment of 26.161 basis points and an Applicable Margin of 8.5 % As of December 31, 2023, the Loan bears interest at 14.1 % per annum, with the effective interest rate for the year ended December 31, 2023, including the amortization of debt issuance costs and Applicable Premium and interest penalties of $ 181,895 associated with the prepayment during the year ended December 31, 2023, was 19.6 %. The Financing requires the Company to maintain the following financial covenants: a. A maximum leverage ratio, as defined in the Financing as follows: Fiscal Quarter End Leverage ratio March 31, 2024 4.50 to 1.00 June 30, 2024 4.00 to 1.00 September 30, 2024 3.50 to 1.00 December 31, 2024 3.00 to 1.00 March 31, 2025 2.50 to 1.00 June 30, 2025 2.25 to 1.00 September 30, 2025, and thereafter 2.00 to 1.00 b. Liquidity, as defined in the Financing, of at least $ 5.0 million. The Company was in compliance with its financial covenants as of December 31, 2023, and received a waiver from its lender to extend the date for providing the Company's audited financial statements from March 31, 2024, to April 15, 2024. The Financing contains customary events of default, which include, (subject to, in certain circumstances to grace and cure periods), non-payment of principal and interest, non-compliance with certain covenants, commencement of bankruptcy proceedings and a change in control. Payments due on the Loan in each of the next four years subsequent to December 31, 2023, are as follows: For the year ending December 31, 2024 $ 2,000,000 2025 2,000,000 2026 2,000,000 2027 32,290,000 $ 38,290,000 F- 28 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 NOTE 13 – 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 had operating leases with terms greater than 12 months for office space in four multi-tenant facilities, which are recorded as ROU assets and Operating lease liabilities. For the years ended December 31, 2023 and 2022, 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: 2023 2022 Operating lease cost $ 95,765 $ 100,771 Short-term lease cost (1) 38,850 75,784 Total lease cost $ 134,615 $ 176,555 (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, 2023: For the year ending December 31, 2024 $ 260,016 2025 178,082 2026 113,802 2027 65,866 2028 45,160 Total 662,926 Less: present value discount 69,863 Total lease liabilities $ 593,063 The weighted average remaining lease term for operating leases is 3.17 and the weighted average discount rate used in calculating the operating lease asset and liability is 6.7 %. Cash paid for amounts included in the measurement of lease liabilities was $ 78,875 . For the year ended December 31, 2023, payments on lease obligations were $ 91,228 and amortization on the right of use assets was $ 94,564 . 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 . F- 29 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 NOTE 14 – MAJOR CUSTOMERS AND VENDORS The Company had the following customers that accounted for 10 % or greater of revenue in either 2023 or 2022. No other customers accounted for more than 10 % of revenue in either year presented. 2023 2022 $ % $ % Customer A 5,825,151 8.1 6,817,682 10.9 Customer B 10,275,210 14.4 3,876,580 6.2 Our accounts receivable included two agencies, that represented multiple customers, that individually made up more than 10 % of our accounts receivable at December 31, 2023 in the percentages of 28.3 % and 14.1 %. As of December 31, 2022, our accounts receivable included two entities, including one agency that represented multiple customers that individually made up more than 10 % of our accounts receivable in the percentages of 13.3 % and 10.8 %. The Company generates a portion of 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 2023 or 2022 as set forth below. The amounts in the table below reflect the amount of revenue generated through those partners. 2023 2022 $ % $ % Partner A 26,035,135 36.4 19,882,511 31.8 Partner B 13,955,426 19.5 12,494,227 20.0 Partner C 6,498,694 9.1 6,578,661 10.5 NOTE 15 – INCOME TAXES As of December 31, 2023, the Company had net operating loss (“NOLs”) carry-forwards for federal income tax purposes of approximately $16.7 million, consisting of pre-2018 losses in the amount of approximately $3.3 million that expire from 2033 through 2037, and post-2017 losses in the amount of approximately $13.4 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- 30 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 NOTE 15 – INCOME TAXES (CONTINUED) The provision for Federal income tax consists of the following for the years ended December 31, 2023 and 2022: 2023 2022 Federal income tax benefit (expense) attributable to: Current operations $ 5,284,000 $ 2,402,000 State tax effect, net of federal benefit 569,000 545,000 Option exercise benefits (expenses), net of Section 162M limitations ( 3,100,000 ) ( 268,000 ) Transaction costs ( 360,000 ) — Other adjustments 44,922 221,000 Valuation allowance 5,160,000 ( 2,900,000 ) Income tax benefit $ 7,597,922 $ — 2023 2022 Current tax benefit (expense) - Federal $ — $ — Current tax benefit (expense) - State ( 97,452 ) — Total current (expense) ( 97,452 ) — Deferred tax benefit (expense) - Federal 6,488,661 — Deferred tax benefit (expense) - State 1,206,713 — Total deferred benefit 7,695,374 — Total tax benefit on loss $ 7,597,922 $ — F- 31 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 NOTE 15 – 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, 2023 and 2022: 2023 2022 Deferred tax assets attributable to: Net operating loss carryover $ 4,864,000 $ 5,545,000 Stock compensation 3,744,000 3,953,000 Operating lease liability 115,000 63,000 Section 174 capitalized expenses 2,533,000 789,000 Fixed assets — 126,000 Other 103,000 16,000 Deferred tax assets $ 11,720,000 $ 10,492,000 Deferred tax liabilities attributable to: Intangibles $ ( 12,393,000 ) $ ( 2,102,000 ) Operating lease right-of-use assets ( 110,000 ) ( 63,000 ) Goodwill — ( 106,000 ) Other ( 198,424 ) ( 59,000 ) Deferred tax liabilities ( 12,701,424 ) ( 2,330,000 ) Net deferred tax (liability) asset $ ( 981,424 ) $ 8,162,000 Valuation allowance ( 3,356,000 ) ( 8,162,000 ) Net deferred tax liabilities $ ( 4,337,424 ) $ — The valuation allowance decreased $ 4,806,000 , during the year ended December 31, 2023, as we determined that a portion of the deferred tax assets associated with historical NOL's were realizable. 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 2020 to 2023 remain open for potential audit by the Internal Revenue Service. There are no uncertain tax positions as of December 31, 2022 or December 31, 2023, 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- 32 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 NOTE 16 – COMMITMENTS AND CONTINGENT LIABILITIES Legal From time to time, the Company may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not a party to any material legal or administrative proceedings, and we are not aware of any pending or threatened material legal or administrative proceedings against us. Commitments From time to time, the Company enters into arrangements with partners to acquire minimum amounts of media, data or messaging capabilities. As of December 31, 2023, the Company had commitments for future minimum payments of $ 24.7 million that will be reflected in cost of revenues during the years from 2024 through 2028. Minimum payments are due in 2024, 2025, 2026, 2027 and 2028 in the amounts of $ 10.6 million, $ 8.3 million, $ 3.3 million, $ 2.4 million and $ 0.1 million, respectively. NOTE 17 – 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 $ 726,660 and $ 489,780 recorded in 2023 and 2022, respectively, for the Company’s contributions to the plan. NOTE 18 – SUBSEQUENT EVENTS None. F- 33 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure None.