| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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. 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. 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. 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. 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 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. 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. 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
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
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 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. |
