OptimizeRx
Annual Report 2019

Plain-text annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 ☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to ________ Commission file number: 001-38543 OptimizeRx Corporation (Exact name of registrant as specified in its charter) Nevada (State or other jurisdiction of incorporation or organization) 400 Water Street, Ste. 200 Rochester, MI (Address of principal executive offices) 26-1265381 (I.R.S. Employer Identification No.) 48307 (Zip Code) Registrant’s telephone number: 248-651-6568 Securities registered under Section 12(b) of the Exchange Act: Title of each class Common Stock, par value $0.001 Name of each exchange on which registered Nasdaq Capital Market Securities registered under Section 12(g) of the Exchange Act: Title of each class Common Stock, par value of $0.001 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. ☐ Large accelerated filer ☐ Non-accelerated filer ☒ Accelerated filer ☒ Smaller reporting company ☐ Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $221,759,775 Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. 14,635,611 common shares as of March 24, 2020. Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosures TABLE OF CONTENTS PART I PART II Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management’s Discussion and Analysis of Financial Condition and Results of Operations Financial Statements and Supplementary Data Changes In and Disagreements With Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information PART III Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accountant Fees and Services Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. Item 5. Item 6. Item 7. Item 8. Item 9. Item 9A. Item 9B. Item 10. Item 11. Item 12. Item 13. Item 14. Item 15. Exhibits, Financial Statement Schedules PART IV i Page 1 6 12 12 12 12 13 15 15 21 22 22 25 26 33 37 38 39 40 Forward-Looking Statements PART I This Annual Report on Form 10-K contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Item 1. Business Overview We are a digital health company focused on connecting life sciences companies to our clients with critical content at the point-of-care. We provide electronic clinical information via electronic health record companies (EHRs) to the medical profession, providing a direct channel for pharmaceutical companies to communicate with healthcare providers. Our cloud-based solution supports patient adherence to medications by providing real-time access to financial assistance, prior authorization, and critical clinical information. Our network is comprised of leading EHR platforms and provides more than half of the ambulatory patient market with access to these benefits within their workflow at the point-of-care. 2019 Company Highlights 1) Our net revenue increased to a record $24.6 million in 2019, a 16% increase over 2018. 2) Our net revenue was a record $7.4 million in Q4 2019, up 12% over Q4 2018. 3) We successfully completed an underwritten offering in Q2 2019, raising $21.3 million in growth capital. 4) We acquired RMDY Health, Inc. (“RMDY”), a multipurpose digital therapeutics SaaS platform used by pharma, payers, medtech companies, and medical associations. 5) We expanded our sales team and established a strong base for growth in 2020. 6) We signed an exclusive three-year partnership with NewCrop, LLC for messaging distribution, which included the creation of an innovation lab where clients can experiment with new digital communication solutions. 1 Sales and Marketing Updates Our sales team continues to expand our business with existing and new clients communicating the increased value of our enterprise platform approach. We are focused on increasing the depth and breadth of our business across existing client product portfolios by maximizing the utilization of our network. We are also expanding our business by providing new solutions and obtaining new clients. Our team is also working on converting clients from individual solutions to enterprise platform deals that give them access to our full set of solutions across our network. These enterprise deals will enable us to increase our revenue per customer, as well as give us a more predictable and consistent revenue stream. As a result of our acquisition of RMDY in late 2019, we restructured our sales organization by client type. We now have one team focused on pharmaceutical clients and another focused on payers, medtech, and associations. We have continued to ramp up our marketing efforts by attending and taking on more strategic roles at conferences and other industry events. We are sponsoring conferences and our leadership team is actively participating as speakers and panelists. Most notable in 2019 were: ● Moderating two panels at the 13th Annual Digital Pharma East conference: “Innovation and Communication in Today’s Digitally-Charged Pharma Landscape” and “Success in Today’s Evolving Pharma Marketing Landscape”; and ● Sponsoring the “Women at HLTH” program at HLTH Conference. We also expanded our attendance and participation at investor conferences in 2019. Our presence and leadership at these conferences and industry events has enabled us to provide valuable industry insights and increase our presence across more media channels. We have built marketing strategy momentum in 2019 with increased industry visibility that we expect to expand in 2020. Operational Update In 2019, we continued to expand our existing network and physician utilization of our partner networks. We continue to work individually with our partners to improve point-of-care workflow, increase overall revenue derived from each channel and increase coupon utilization by providers who have access. We are also focused on increasing the number of physicians who have access to our service offerings. In addition to revenue growth provided by new pharma brands and network partners, we believe there is significant revenue growth potential within existing brands by better utilizing our existing partner networks and expanding our product offerings. We completed the integration activities related to our acquisition of RMDY and expect revenues from these activities to ramp up substantially in 2020. Technology Updates To support our growth and to further improve the efficiency of our systems, we have moved our core platform to Amazon Web Services. In 2019, we began the process of migrating our patient engagement activities to Amazon Web Services (“AWS”), and the move is now complete. We plan to migrate the RMDY platform to AWS by mid-2020. As a result of our acquisitions in 2018 and 2019, we now have tech teams based in both Croatia and Israel, in addition to our core team in the U.S., to help develop further applications throughout the organization. 2 Principal Products and Applications Our principal products and applications can be summarized as follows: ● Financial Messaging – Our integrated financial messaging platform is a revolutionary virtual “Patient Support Center” that allows doctors and staff to access a universe of sample vouchers, co-pay coupons and other patient support through their EMR and/or e-Prescribe systems. It allows them to search, print or electronically dispense directly to patients and a national network of pharmacies. Our platform eliminates the need for physicians to manage and store physical drug samples by offering a more convenient and efficient way to allocate, administer and track samples and co-pay savings for their patients. Today, nearly 60% of doctor offices ban or limit drug representatives and the samples they offer. While samples are still valuable, our solution addresses the fact that many healthcare systems and doctors are looking for an easier, more effective way to increase affordable access and adherence to their prescribed branded medications. ● Brand and Clinical Messaging – Our brand messaging services include a variety of brand awareness and clinical messaging services that can be tailored to meet the needs of a brand. These messages can include brand awareness messages, reminder ads, clinical messages and unbranded messages that can be targeted by specialty, diagnostic code and other criteria. Brand messaging is highly complementary to our core financial messaging product. Historically, we have sold brand messaging based on specific products offered by our EHR partners, but we have developed our own proprietary banner messaging system, rolled this product out in 2017, and expanded it in 2018. We also developed our own clinical messaging system and launched it with our first partner in late 2018. We believe brand messaging represents a significant growth opportunity for us. ● Brand Support – Our brand support is focused on educating and working with pharmaceutical manufacturers on identifying, formulating, and implementing new eRx media strategies for promoting their products. Our services include: 1) Drug File Integration - a service designed to better insure that manufacturers’ drugs are present in every ePrescribing platform available; 2) Sales Force Training – a service to educate the extended field sales force on this new integrated solution and what to look for within their client base to insure maximum exposure of their brands; and 3) Strategy Development – a service that assists pharmaceutical manufacturers in identifying and building a competitive strategy to take advantage of this new digital frontier. Currently, this activity results in less than 10% of our revenue, but represents a significant growth opportunity for us. ● Patient Engagement – Our patient engagement activities arose out of our acquisition of CareSpeak Communications in October 2018. Our technology solution provides digital messaging services through our cloud based Mobile Health Messenger (“MHM”) Platform. We provide interactive health messaging for improved medication adherence and care coordination. Our HIPAA-compliant, automated, mobile messaging platform allows pharmaceutical manufactures and related entities to directly engage with patients to improve regimen compliance. ● Digital Therapeutics – Our digital therapeutics activities result from our acquisition of RMDY in October 2019. Digital therapeutics consists of delivering patient programs with treatment and affordability information, lifestyle and condition trackers, Internet device connectivity, forms and surveys, with this all supported by a wide range of communication capabilities delivered via chat, bots, audio and telehealth. We enable this functionality for our customers, with our solutions delivering a variety of intervention mechanisms that help treat chronic conditions, such as diabetes and heart disease. Competition Our core platform competes in the highly competitive pharmaceutical and life sciences digital marketing industry that is dominated by large well-known companies with established names, solid market niches, wide arrays of product offerings and marketing networks. Our messaging offerings compete for pharmaceutical budgets with a variety of other forms of advertising and promotion. 3 We have a growing list of potential partners whom either have content that they want to deliver through our distribution engine and network, or have complementary technology and want to integrate our solution as a channel partner and thereby increase their reach to clinicians. The primary direct competitor in our space of the market is ConnectiveRx. However, we believe our breadth of brands offered, extensive list of pharmaceutical clients, and the vast reach of our network give us a substantial advantage and allow us to achieve a dominant position in the marketplace. Intellectual Property In 2012, we were awarded a patent for our innovative solution (US Patent No. 8,341,015). This award was a result of our extensive research and development efforts. The awarded claims cover our ability to electronically process, display and distribute eligible prescription savings on the medications and therapies healthcare providers wish to prescribe for their patients. As part of our acquisition of CareSpeak Communications, we also acquired (US Patent No. 7,956,727) related to methods and systems for medication management. We use a nationally ranked intellectual property law firm to further expand and protect our intellectual property. We believe our current and expanding IP will allow us to continue being the leader in this rapidly growing space. We stand ready to prepare additional filings, as necessary, to protect our intellectual property on any forthcoming solutions that will further assist and support physicians, pharmacists and patients. OPTIMIZERx, CareSpeak, RMDY Wellness Layers, Diet Watch, and SampleMD are our licensed trademarks. Government Regulation Fraud and Abuse Laws Anti-Kickback Statutes The federal healthcare program Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the furnishing, arranging for or recommending a good or service for which payment may be made in whole or part under a federal healthcare program such as Medicare or Medicaid. The definition of remuneration has been broadly interpreted to include anything of value, including for example gifts, discounts, the furnishing of supplies or equipment, credit arrangements, payments of cash and waivers of payments. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals or otherwise generate business involving goods or services reimbursed in whole or in part under federal healthcare programs, the statute has been violated. The law contains a few statutory exceptions, including payments to bona fide employees, certain discounts and certain payments to group purchasing organizations. Violations can result in significant penalties, imprisonment and exclusion from Medicare, Medicaid and other federal healthcare programs. Exclusion of a manufacturer would preclude any federal healthcare program from paying for its products. In addition, kickback arrangements can provide the basis for an action under the Federal False Claims Act, which is discussed in more detail below. The Anti-Kickback Statute is broad and potentially prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. Recognizing that the Anti-Kickback Statute is broad and may technically prohibit many innocuous or beneficial arrangements, the Office of Inspector General of Health and Human Services, or OIG, issued a series of regulations, known as the safe harbors, beginning in July 1991. These safe harbors set forth provisions that, if all the applicable requirements are met, will assure healthcare providers and other parties that they will not be prosecuted under the Anti-Kickback Statute. The failure of a transaction or arrangement to fit precisely within one or more safe harbors does not necessarily mean that it is illegal or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy each applicable safe harbor may result in increased scrutiny by government enforcement authorities such as the OIG. Arrangements that implicate the Anti-Kickback Law, and that do not fall within a safe harbor, are analyzed by the OIG on a case-by-case basis. Government officials have focused recent enforcement efforts on, among other things, the sales and marketing activities of healthcare companies, and recently have brought cases against individuals or entities with personnel who allegedly offered unlawful inducements to potential or existing customers in an attempt to procure their business. Settlements of these cases by healthcare companies have involved significant fines and/or penalties and in some instances criminal pleas. In addition to the Federal Anti-Kickback Statute, many states have their own kickback laws. Often, these laws closely follow the language of the federal law, although they do not always have the same exceptions or safe harbors. In some states, these anti-kickback laws apply with respect to all payors, including commercial health insurance companies. 4 False Claims Laws Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, or causing to be made, a false statement to get a false claim paid. Manufacturers can be held liable under false claims laws, even if they do not submit claims to the government, if they are found to have caused submission of false claims. The Federal Civil False Claims Act also includes whistle blower provisions that allow private citizens to bring suit against an entity or individual on behalf of the United States and to recover a portion of any monetary recovery. Many of the recent highly publicized settlements in the healthcare industry related to sales and marketing practices have been cases brought under the False Claims Act. The majority of states also have statutes or regulations similar to the federal false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Sanctions under these federal and state laws may include civil monetary penalties, exclusion of a manufacturer’s products from reimbursement under government programs, criminal fines and imprisonment. Privacy and Security The Health Insurance Portability and Accountability Act of 1996, or HIPAA, and the rules promulgated there under require certain entities, referred to as covered entities, to comply with established standards, including standards regarding the privacy and security of protected health information, or PHI. HIPAA further requires that covered entities enter into agreements meeting certain regulatory requirements with their business associates, as such term is defined by HIPAA, which, among other things, obligate the business associates to safeguard the covered entity’s PHI against improper use and disclosure. While not directly regulated by HIPAA, our customers or distributors might face significant contractual liability pursuant to such an agreement if the business associate breaches the agreement or causes the covered entity to fail to comply with HIPAA. It is possible that HIPPA compliance could become a substantial regulatory burden and expense to our operations, although we do not believe that this will occur as a general website publisher. Employees As of December 31, 2019, we had 50 full-time employees in the U.S, as well as approximately 20 full-time international employees. None of our employees are represented by a labor union with respect to their employment with us. We have not experienced any work stoppages, and we consider our relations with our employees to be good. Subsidiaries We conduct our operations through our wholly-owned subsidiaries, OptimizeRx Corporation, a Michigan corporation, CareSpeak Communications, Inc., a New Jersey corporation, CareSpeak Communications, D.O.O, a controlled foreign corporation incorporated in Croatia, RMDY Health, Inc. a Delaware corporation, and Cyberdiet, a controlled foreign corporation incorporated in Israel. Recent developments In March 2020, our Board of Directors amended the 2013 Incentive Plan to increase the number of shares authorized under the plan to 3,000,000. At the same time, we granted 84,746 shares of restricted common stock and options to purchase 233,049 shares of common stock to officers and options to purchase 71,000 shares of common stock to non-officers. 5 Item 1A. Risk Factors Risks Relating to Business and Financial Condition Because we have historically experienced losses, if we are unable to achieve profitability, our financial condition and company could suffer. While we were profitable in 2018, since the inception of our business we have historically incurred losses as a result of investing in growth. We incurred a loss in 2019 as a result of our increased spending to invest in growth – both through additional new hires, as well as through the acquisition of RMDY. While we have increased revenues significantly, we have not yet consistently achieved profitability due to significant investments in our growth, and non- cash expenses. Our ability to achieve consistent profitability depends on our ability to generate sales through our technology platform and advertising model, while maintaining reasonable expense levels. If we do not achieve sustainable profitability, it may impact our ability to continue our operations. Our business and growth may suffer if we are unable to attract and retain key employees. Our success depends on the expertise of our executive officers and certain other key technical personnel. It may be difficult to find sufficiently qualified individuals to replace management or other key technical personnel in the event of death, disability or resignation, thus frustrating our ability to implement our business plan, which could negatively affect our operating results. Furthermore, our ability to expand operations to accommodate our anticipated growth will also depend on our ability to attract and retain qualified media, management, finance, marketing, sales and technical personnel. However, competition for these types of employees is intense due to the limited number of qualified professionals. Our ability to meet our business development objectives will depend in part on our ability to recruit, train and retain top quality people with advanced skills who understand our technology and business. If we are unable to engage and retain the necessary personnel, our business may be materially and adversely affected. Our failure to obtain, retain or attract additional customers could prevent us from successfully executing our business plan. We currently work with many leading pharmaceutical companies, medical device manufacturers, payers, medtech, associations, and other companies. Our failure to retain existing customers or expand with new customers could negatively impact our business. We are dependent on a concentrated group of customers. Our revenues are concentrated in less than 50 customers, primarily large pharmaceutical manufacturers. Loss of one or more of our larger customers could have a negative impact on our operating results. In both 2019 and 2018, we had three customers that each represented slightly over 10% of our revenues, however two of the three were different in each year. We may be unable to support our technology to further scale our operations successfully. Our plan is to grow rapidly through further integration of our technology in electronic platforms. Our growth will place significant demands on our management and technology development, as well as our financial, administrative and other resources. We cannot guarantee that any of the systems, procedures and controls we put in place will be adequate to support the commercialization of our operations. Our operating results will depend substantially on the ability of our officers and key employees to manage changing business conditions and to implement and improve our financial, administrative and other resources. If we are unable to respond to and manage changing business conditions, or the scale of our products, services and operations, then the quality of our services, our ability to retain key personnel and our business could be harmed. 6 If we are unable to maintain our contracts with electronic prescription platforms, our business will suffer. We are reliant upon our contracts with leading electronic prescribing platforms and electronic health record systems. Such arrangements subject us to a number of risks, including the following: ● Our contract partners may experience financial, regulatory or operational difficulties, which may impair their ability to focus on and fulfill their contract obligations to us; ● Legal disputes or disagreements, including the ownership of intellectual property, may occur with one or more of our partners and may lead to lengthy and expensive litigation or arbitration; ● Significant changes in a partner’s business strategy may adversely affect a partner’s willingness or ability to satisfy obligations under any such arrangement; and ● A partner could terminate the partnership arrangement, which could negatively impact our ability to sell our products and achieve revenues. We will need to maintain these relationships as well as diversify them. The inability to do so could adversely impact our business. Our agreements with electronic prescription platforms and electronic health record systems are subject to audit. Our agreements with our partners provide for revenue sharing payments to the platform partners based on the revenue we generate through the platform. These payments are subject to audit by our partners, at their cost, and if there is a dispute as to the calculation, we may be liable for additional payments. If an underpayment is determined to be in excess of a certain amount, for example 10%, some agreements would require us to pay for the cost of the audit, as well. Developing and implementing new and updated applications, features and services for our portals may be more difficult than expected, may take longer and cost more than expected and may not result in sufficient increases in revenue to justify the costs. We have completed the development and migration of our on-demand, rule based content delivery platform. Attracting and retaining users of our portals requires us to continue to improve the technology underlying those portals and to continue to develop new and updated applications, features and services for those portals. If we are unable to do so on a timely basis or if we are unable to implement new applications, features and services without disruption to our existing ones, we may lose potential users and clients. The costs of development of these enhancements may negatively impact our ability to achieve profitability. We rely on a combination of internal development, strategic relationships, licensing and acquisitions to develop our portals and related applications, features and services. Our development and/or implementation of new technologies, applications, features and services may cost more than expected, may take longer than originally expected, may require more testing than originally anticipated and may require the acquisition of additional personnel and other resources. There can be no assurance that the revenue opportunities from any new or updated technologies, applications, features or services will justify the amounts spent. If we are unable to adhere to the regulatory and competitive climate in which we operate, we could be materially and negatively impacted. Due to the labyrinth of regulations in healthcare space, state and federal, as well as political sensitivity of healthcare delivery, our business model could be negatively impacted or fail. 7 The markets in which we operate are competitive, continually evolving and, in some cases, subject to rapid change. ● Our portals face competition from numerous other companies, both in attracting users and in generating revenue from advertisers and sponsors. We compete for users with online services and websites that provide savings on medications and healthcare products, including both commercial sites and not-for-profit sites. We compete for advertisers and sponsors with: health-related web sites; general purpose consumer web sites that offer specialized health sub-channels; other high-traffic web sites that include both healthcare-related and non-healthcare-related content and services; search engines that provide specialized health searches; and advertising networks that aggregate traffic from multiple sites. ● Our healthcare provider portals compete with: providers of healthcare decision-support tools and online health management applications; wellness and disease management vendors; and health information services and health management offerings of healthcare benefits companies and their affiliates. Many of our competitors have greater financial, technical, product development, marketing and other resources than we do. These organizations may be better known than we are and have more customers or users than we do. We cannot provide assurance that we will be able to compete successfully against these organizations or any alliances they have formed or may form. Since there are no substantial barriers to entry into the markets in which our public portals participate, we expect that competitors will continue to enter these markets. Developments in the healthcare industry could adversely affect our business. Most of our revenue is derived from the healthcare industry and could be affected by changes affecting healthcare spending. We are particularly dependent on pharmaceutical, biotechnology and medical device companies for our advertising and sponsorship revenue. General reductions in expenditures by healthcare industry participants could result from, among other things: ● Government regulation or private initiatives that affect the manner in which healthcare providers interact with patients, payers or other healthcare industry participants, including changes in pricing or means of delivery of healthcare products and services; ● Government regulation prohibiting the use of coupons by patients covered by federally funded health insurance programs; ● Consolidation of healthcare industry participants; ● Reductions or changes in governmental funding for healthcare; ● Adverse changes in business or economic conditions affecting healthcare payers or providers, pharmaceutical, biotechnology or medical device companies or other healthcare industry participants; and ● A move to a single-payer healthcare system in the U.S. Even if general expenditures by industry participants remain the same or increase, developments in the healthcare industry may result in reduced spending in some or all of the specific market segments that we serve or are planning to serve. For example, use of our products and services could be affected by: ● Changes in the design of health insurance plans; 8 ● A decrease in the number of new drugs or medical devices coming to market; ● A decrease in marketing expenditures by pharmaceutical or medical device companies, including as a result of governmental regulation or private initiatives that discourage or prohibit advertising or sponsorship activities by pharmaceutical or medical device companies; and ● Payor pressure to move to generic brands. In addition, our customers’ expectations regarding pending or potential industry developments may also affect their budgeting processes and spending plans with respect to products and services of the types we provide. The healthcare industry has changed significantly in recent years and we expect that significant changes will continue to occur. However, the timing and impact of developments in the healthcare industry are difficult to predict. We cannot assure you that the markets for our products and services will continue to exist at current levels or that we will have adequate technical, financial and marketing resources to react to changes in those markets. A global pandemic may disrupt our business or the business of our customers. The COVID-19 coronavirus, originating in China, has spread to a number of other countries, including the United States, and efforts to contain the spread of the coronavirus have intensified, including travel and other restrictions. Efforts to contain the virus may cause our customers to reallocate resources, or disrupt their business, which may impact our revenues. We are unable to predict how changing global economic conditions or potential global health concerns such as the COVID-19 coronavirus will affect our customers or partners. Any negative impact of such matters on our customers or partners may also have an adverse impact on our results of operations or financial condition. A material weakness in our internal control over financial reporting, if not remediated, could result in material misstatements in our financial statements. Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. A material weakness (as defined in Rule 12b-2) is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. As disclosed in Part II, Item 9a, management identified material weaknesses in internal control over financial reporting related to: (i) inadequate information technology general controls (ITGCs) in the areas of user access security, change management, IT operations and third-party management over key financial information technology (IT) systems; and (ii) inadequate controls to ensure that data received from third parties is complete and accurate. Those weaknesses have not been completely remediated as of December 31, 2019. We have developed a remediation plan, but as a small company, we have limited resources and if as a result of changes in our business, additional material weaknesses, were to be identified, it could result in our consolidated financial statements containing material misstatements in the future. Our success is dependent in part on obtaining, maintaining and enforcing our proprietary rights and our ability to avoid infringing on the proprietary rights of others. We seek patent protection for those inventions and technologies for which we believe such protection is suitable and is likely to provide a competitive advantage to us. Because patent applications in the United States are maintained in secrecy until either the patent application is published, or a patent is issued, we may not be aware of third-party patents, patent applications and other intellectual property relevant to our products that may block our use of our intellectual property or may be used in third-party products that compete with our products and processes. In the event a competitor or other party successfully challenges our products, processes, patents or licenses or claims that we have infringed upon their intellectual property, we could incur substantial litigation costs defending against such claims, be required to pay royalties, license fees or other damages or be barred from using the intellectual property at issue, any of which could have a material adverse effect on our business, operating results and financial condition. We also rely substantially on trade secrets, proprietary technology, nondisclosure and other contractual agreements, and technical measures to protect our technology, application, design, and manufacturing know-how, and work actively to foster continuing technological innovation to maintain and protect our competitive position. We cannot assure you that steps taken by us to protect our intellectual property and other contractual agreements for our business will be adequate, that our competitors will not independently develop or patent substantially equivalent or superior technologies or be able to design around patents that we may receive, or that our intellectual property will not be misappropriated. 9 We could be subject to economic, political, regulatory and other risks arising from international operations. Operating in international markets requires significant resources and management attention and will subject us to regulatory, economic and political risks that may be different from and incremental to those in the United States. In addition to the risks that we face in the United States, our international operations, as a result of our acquisitions in 2018 and 2019 wherein we now operate in Israel and Croatia, may involve risks that could adversely affect our business, including: ● the need to adapt our content and user interfaces for specific cultural and language differences; ● difficulties and costs associated with staffing and managing foreign operations; ● management distraction; ● natural or man-made disasters, political, social and economic instability, including wars, terrorism and political unrest, outbreak of disease (such as the recent outbreak of the 2019 novel coronavirus, or COVID-19), boycotts, curtailment of trade, and other business restrictions; ● compliance with United States laws, such as the Foreign Corrupt Practices Act, export controls and economic sanctions, and local laws prohibiting corrupt payments to government officials; ● unexpected changes in regulatory requirements; ● less favorable foreign intellectual property laws; ● adverse tax consequences such as those related to repatriation of cash from foreign jurisdictions into the United States, non-income related taxes such as value-added tax or other indirect taxes, changes in tax laws or their interpretations, or the application of judgment in determining our global provision for income taxes and other tax liabilities given inter-company transactions and calculations where the ultimate tax determination is uncertain; ● fluctuations in currency exchange rates, which could impact revenues and expenses of our international operations and expose us to foreign currency exchange rate risk; ● profit repatriation and other restrictions on the transfer of funds; ● differing payment processing systems as well as consumer use and acceptance of electronic payment methods, such as payment cards; ● new and different sources of competition; ● different and more stringent user protection, data protection, privacy and other laws; and ● availability of reliable broadband connectivity and wide area networks in targeted areas for expansion. Our failure to manage any of these risks successfully could harm our international operations and our overall business, as well as results of our operations. Our business will suffer if our network systems fail or become unavailable. A reduction in the performance, reliability and availability of our network infrastructure would harm our ability to distribute our products to our users, as well as our reputation and ability to attract and retain customers. Our systems and operations could be damaged or interrupted by fire, flood, power loss, telecommunications failure, Internet breakdown, earthquake and similar events. Our systems could also be subject to viruses, break-ins, sabotage, acts of terrorism, acts of vandalism, hacking, cyber-terrorism and similar misconduct. We might not carry adequate business interruption insurance to compensate us for losses that may occur from a system outage. Any system error or failure that causes interruption in availability of our product or an increase in response time could result in a loss of potential customers, which could have a material adverse effect on our business, financial condition and results of operations. If we suffer sustained or repeated interruptions, then our products and services could be less attractive to our users and our business would be materially harmed. If we are unable to manage growth, our operations could be adversely affected. Our progress is expected to require the full utilization of our management, financial and other resources. Our ability to manage growth effectively will depend on our ability to improve and expand operations, including our financial and management information systems, and to recruit, train and manage personnel. There can be no absolute assurance that management will be able to manage growth effectively. If we do not properly manage the growth of our business, we may experience significant strains on our management and operations and disruptions in our business. Various risks arise when companies and industries grow quickly. If our business or industry grows too quickly, our ability to meet customer demand in a timely and efficient manner could be challenged. We may also experience development delays as we seek to meet increased demand for our products. Our failure to properly manage the growth that we or our industry might experience could negatively impact our ability to execute on our operating plan and, accordingly, could have an adverse impact on our business, our cash flow and results of operations, and our reputation with our current or potential customers. Our business is subject to changing regulation of corporate governance and public disclosure. Because our common stock is publicly traded, we are subject to certain rules and regulations of federal and state entities charged with the protection of investors and the oversight of companies whose securities are publicly traded. These entities have continued to develop additional regulations and requirements in response to laws enacted by Congress, most notably the Sarbanes-Oxley Act of 2002. Complying with these new regulations has resulted in, and is likely to continue to result in, increased general and administrative costs and a diversion of management time and attention from revenue generating and other business activities to compliance activities. 10 Risks Relating to Our Securities If a market for our common stock does not develop, shareholders may be unable to sell their shares. Our common stock is quoted under the symbol “OPRX” on the Nasdaq Capital Market. We do not currently have a consistent active trading market. There can be no assurance that a consistent active and liquid trading market will develop or, if developed, that it will be sustained. Our securities are thinly traded. Accordingly, it may be difficult to sell shares of our common stock without significantly depressing the value of the stock. Unless we are successful in developing continued investor interest in our stock, sales of our stock could continue to result in major fluctuations in the price of the stock. The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control. Our stock price is subject to a number of factors, including: ● Technological innovations or new products and services by us or our competitors; ● Government regulation of our products and services; ● The establishment of partnerships with other healthcare companies; ● Intellectual property disputes; ● Additions or departures of key personnel; ● Sales of our common stock; ● Our ability to integrate operations, technology, products and services; ● Our ability to execute our business plan; ● Operating results below or exceeding expectations; ● Whether we achieve profits or not; ● Loss or addition of any strategic relationship; ● Industry developments; ● Economic and other external factors; and ● Period-to-period fluctuations in our financial results. Our stock price may fluctuate widely as a result of any of the above. In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock. We do not expect to pay dividends in the foreseeable future. Any return on investment may be limited to the value of our common stock. We do not anticipate paying cash dividends on our common stock in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting it at such time as the board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment will occur only if our stock price appreciates. 11 Provisions in the Nevada Revised Statutes and our Bylaws could make it very difficult for an investor to bring any legal actions against our directors or officers for violations of their fiduciary duties or could require us to pay any amounts incurred by our directors or officers in any such actions. Members of our board of directors and our officers will have no liability for breaches of their fiduciary duty of care as a director or officer, except in limited circumstances, pursuant to provisions in the Nevada Revised Statutes and our Bylaws as authorized by the Nevada Revised Statutes. Specifically, Section 78.138 of the Nevada Revised Statutes provides that a director or officer is not individually liable to the company or its shareholders or creditors for any damages as a result of any act or failure to act in his or her capacity as a director or officer unless it is proven that (1) the director’s or officer’s act or failure to act constituted a breach of his or her fiduciary duties as a director or officer and (2) his or her breach of those duties involved intentional misconduct, fraud or a knowing violation of law. This provision is intended to afford directors and officers protection against and to limit their potential liability for monetary damages resulting from suits alleging a breach of the duty of care by a director or officer. Accordingly, you may be unable to prevail in a legal action against our directors or officers even if they have breached their fiduciary duty of care. In addition, our Bylaws allow us to indemnify our directors and officers from and against any and all costs, charges and expenses resulting from their acting in such capacities with us. This means that if you were able to enforce an action against our directors or officers, in all likelihood, we would be required to pay any expenses they incurred in defending the lawsuit and any judgment or settlement they otherwise would be required to pay. Accordingly, our indemnification obligations could divert needed financial resources and may adversely affect our business, financial condition, results of operations and cash flows, and adversely affect prevailing market prices for our common stock. Item 1B. Unresolved Staff comments None Item 2. Properties Currently, we do not own any real estate. Our principal executive offices are located at 400 Water Street, Suite 200, Rochester, Michigan 48307. We have operating leases with terms greater than 12 months for office space in three multitenant facilities. The lease on our headquarters space in Rochester, Michigan expires November 30, 2022, with a three-year renewal option through 2025, with monthly rent payable at rates ranging from $6,384 to $6,688. We have assumed renewal of the lease. We also have a lease on office space in Cranbury, New Jersey, expiring in 2022 with monthly payments ranging from $3,008 to $3,158, as well as a lease of approximately $1,883 per month in Zagreb, Croatia expiring in 2022. We also lease minor amounts of space in shared space facilities on a month to month basis as necessary. We believe that our properties are adequate for our current needs, but growth potential may require larger facilities due to anticipated addition of personnel. We do not have any policies regarding investments in real estate, securities or other forms of property. Item 3. Legal Proceedings We have no current legal proceedings. Item 4. Mine Safety Disclosures Not applicable. 12 PART II Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is traded under the symbol “OPRX” on the Nasdaq Capital Market. Only a limited market exists for our securities. There is no assurance that a regular trading market will develop, or if developed, that it will be sustained. Therefore, a shareholder may be unable to resell his securities in our company. The following tables set forth the range of high and low bid information for our common stock for the each of the periods indicated. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. Fiscal Year Ending December 31, 2018 Quarter Ended March 31, 2018 June 30, 2018 September 30, 2018 December 31, 2018 Quarter Ended March 31, 2019 June 30, 2019 September 30, 2019 December 31, 2019 Fiscal Year Ending December 31, 2019 High $ Low $ 4.98 11.00 18.39 18.00 3.36 4.29 9.32 8.92 High $ Low $ 15.71 16.75 17.24 14.74 9.96 10.00 13.42 8.63 Quarter Ended March 31, 2020 (through March 24, 2020) $ 11.99 $ 6.50 On March 24, 2020, the last sales price per share of our common stock was $7.93 Holders of Our Common Stock As of March 24, 2020, we had 14,605,611 shares of our common stock issued and outstanding, held by approximately 382 shareholders of record at our transfer agent, with approximately 2,200 additional shareholders holding our shares in street name. Dividends We currently intend to retain future earnings for the operation of our business. We have never declared or paid cash dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future. In the event that a dividend is declared, common stockholders on the record date are entitled to share ratably in any dividends that may be declared from time to time on the common stock by our board of directors from funds legally available. 13 There are no restrictions in our articles of incorporation or bylaws that restrict us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where, after giving effect to the distribution of the dividend: 1. We would not be able to pay our debts as they become due in the usual course of business; or 2. Our total assets would be less than the sum of our total liabilities, plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution. Securities Authorized for Issuance under Equity Compensation Plans On June 13, 2013, our Board of Directors adopted the 2013 Equity Incentive Plan (the “Plan”). The purpose of the Plan is to attract and retain the best available personnel for positions of substantial responsibility with us, to provide additional incentive to employees, directors and consultants, and to promote our success. Under the Plan, we are currently able to issue up to an aggregate total of 3,000,000 incentive or non-qualified options to purchase our common stock, stock awards and other offerings. Equity Compensation Plans as of December 31, 2019 Equity Compensation Plans Approved by the Shareholders 2013 Equity Compensation Plan Other Equity Compensation (restricted stock awards) Total Recent Sales of Unregistered Securities Weighted- average exercise price of outstanding options (b) Number of Securities to be issued upon exercise of outstanding options (a) 1,624,221 $ 90,000 1,714,221 $ 6.27 N/A 6.27 Number of Securities remaining available for future issuance under equity compensation plans (c) 236,614 N/A 236,614 The information set forth below relates to our issuances of securities without registration under the Securities Act of 1933 during the reporting period which were not previously included in a Quarterly Report on Form 10-Q or Current Report on Form 8-K. In December 2019, we issued 8,334 shares of restricted common stock to our outside Directors as part of our director compensation package for services rendered in Q4 2019. From October through December 2019, we issued 35,500 shares of common stock and received proceeds of $113,280 in connection with the exercise of options. In 2020, we issued 35,032 shares of common stock and received proceeds of $112,151 in connection with the exercise of options. These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock. 14 Item 6. Selected Financial Data Not required under Regulation S-K for “smaller reporting companies.” Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Results of Operations for the Years Ended December 31, 2019 and 2018 Net Revenue Our net revenue for the year ended December 31, 2019 was approximately $24.6 million, an increase of 16% from the year ended December 31, 2018. This increase resulted from a combination of factors, including increased pharmaceutical brands, an increased distribution network, strong growth in our brand messaging product, and our acquisition of CareSpeak Communications in late 2018 and RMDY Health in late 2019. We expect continued strong revenue growth in 2020 as a result of the foundations laid in 2018 and 2019. Because the pharmaceutical industry is dominated by large companies with multiple brands, our revenue is concentrated in a relatively small number of companies. We have approximately 50 pharmaceutical companies as customers. We have focused our efforts on expanding our customer base and through our acquisitions, have added medical device manufactures, payers, associations and other entities. In both 2019 and 2018, we had three customers that each represented slightly over 10% of our revenues, however two of the three were different in each year. Cost of Revenues Our total cost of revenues, composed primarily of revenue share expense, increased in the year ended December 31, 2019 compared to the year ended December 31, 2018 due to the increase in revenues. Our cost of revenues as a percentage of revenue, however, decreased from approximately 42% in the year ended December 31, 2018 to approximately 37% in the year ended December 31, 2019. This decrease in our cost of revenues as a percentage of revenue resulted primarily from product mix, specifically the increase in our patient engagement revenues that have a minimal cost of sales. Gross Margin Our gross margin, which is simply the difference between our revenues and our cost of revenues, discussed above, increased from 2018 to 2019 as a result of the increased revenue. In addition, our gross margin percentage increased from approximately 58% in 2018 to 63% in 2019 for the reasons discussed above in the cost of revenues section. We expect our margins to remain at the 63% level, or higher in 2020. 15 Operating Expenses Operating expenses increased to approximately $19.1 million for the year ended December 31, 2019, from approximately $12.0 million for the year ended December 31, 2018, an increase of approximately 60%. The detail by major category is reflected in the table below. Salaries, Wages and Benefits Professional Fees Acquisition Related Costs Board Compensation Investor Relations Consultants Advertising and Promotion Depreciation and Amortization Research, Development, and Maintenance Integration Incentives Office, Facility and Other Travel Subtotal Stock-based Compensation Total Operating Expense $ Years Ended December 31 2019 2018 8,471,278 $ 850,086 799,623 137,000 105,639 245,386 709,006 1,282,786 2,672,406 208,855 695,493 695,283 5,823,057 362,678 607,670 144,125 113,059 167,694 299,955 316,502 675,660 132,500 472,250 390,563 16,872,841 9,505,713 2,260,298 2,520,852 $ 19,133,139 $ 12,026,565 The main drivers for the overall increase in operating expenses in 2019 was our focus on staffing and scaling our company to foster, and be able to support, accelerated revenue growth. Within the operating expenses, there were a variety of increases, the largest of which was in salaries, wages and benefits, as a result of additional staff added in 2018 and 2019, including related benefits. During 2019, we hired a chief commercial officer, a chief technology officer, five new salespeople, a human resources manager, as well as other administrative positions. We also added 14 employees as a result of our RMDY acquisition in October 2019. During 2018, we added to our staff in several key areas, including a head of data analytics, an additional VP of sales, and a controller. We also added 10 employees in late 2018 as a result of our CareSpeak acquisition. The full year impact of these 2018 hires also increased payroll expense in 2019. We expect our compensation expense to increase in 2020, but at a much lower rate than in 2019. Professional fees increased primarily because of costs associated with our uplisting to Nasdaq and the completion of the underwritten offering, as well as ongoing compliance with Sarbanes Oxley. We also switched auditors in 2019, which resulted in higher audit fees. Acquisition costs are related to our acquisitions of RMDY Health in 2019 and CareSpeak Communications in October 2018. These costs include investment banker fees, legal and accounting due diligence, audit costs associated with CareSpeak, valuation experts for the purchase price allocation, and other miscellaneous costs. Since RMDY Health was a larger company than CareSpeak Communications, the costs associated with the acquisition were higher. Board compensation decreased slightly from 2018 to 2019 as we had five independent directors for a portion of 2018, as opposed to the four that we had in 2019. The cost of consultants increased from 2018 to 2019. The primary reason for the increase was related to consultants used for quality certifications, as well as for marketing activities. Our advertising and promotion costs increased significantly from 2018 to 2019 as a result of increased marketing activities. This included increased attendance and sponsorship at conferences, rebranding, and other marketing activities. Expenses related to research, development, management, and maintenance of our technology increased in 2019 primarily as a result of research into potential new product areas. Integration incentives, which are fees paid to accelerate access to new partners, increased in 2019, as we launched with a greater number of new EHRs in 2019 than in 2018. 16 Depreciation and amortization increased significantly in 2019 from the 2018 levels. The increased amortization resulting from the acquisition of CareSpeak and the resulting intangible assets were amortized for a full year in 2019 as opposed to only the fourth quarter of 2018. We also had three months of amortization related to the intangible assets acquired as part of the acquisition of RMDY in October 2019. We expect depreciation and amortization expense in 2020 to increase over 2019 levels due to the full year of amortization of RMDY intangibles. Office, facility, and other costs increased from 2018 to 2019. The main reason for the change related to a higher level of activity with more employees and increased expenses resulting from the RMDY acquisition. Stock based compensation decreased by approximately $260,000 from $2.5 million in 2018 to $2.3 million in 2019 primarily because performance-based awards granted in 2018 vested, whereas performance-based awards granted in 2019 did not vest because we did not meet the stretch goals required for vesting. Net Loss We finished the year ended December 31, 2019 with a net loss of approximately $3.1 million, as compared to net income of approximately $0.2 million during the year ended December 31, 2018. The reasons for specific components are discussed above. Overall, we had an increase in revenue and gross margin offset by increased operating expenses to support future growth and costs associated with our acquisition of RMDY in 2019. In addition, the income or loss in both periods included significant noncash items. We had approximately $3.54 million in noncash operating expenses in 2019 and approximately $2.85 million in noncash operating expenses in 2018. Quarterly Financial Information Following is a table of our quarterly operating results for 2019 for information purposes. Revenues Cost of revenues Gross Profit Operating Expenses First Quarter Second Quarter Third Quarter Fourth Quarter Total Year $ 5,209,434 $ 7,006,291 $ 5,002,767 $ 7,379,782 $ 24,598,274 1,583,480 2,687,143 1,981,143 2,906,933 9,158,699 3,625,954 4,319,148 3,021,624 4,472,849 15,439,575 3,493,789 3,839,105 5,008,934 6,791,311 19,133,139 Income (Loss) from Operations 132,165 480,043 (1,987,310) (2,318,462) (3,693,564) Other income (expense) Income (loss) before Taxes Income tax benefit Net Income (Loss) Earnings (loss) per share Basic Diluted (125,636) (73,426) 416,368 (564,278) (346,972) 6,529 406,617 (1,570,942) (2,882,740) (4,040,536) - - - 897,960 897,960 6,529 406,617 (1,570,942) (1,984,780) (3,142,576) $ $ 0.00 $ 0.00 $ 0.03 $ 0.03 $ (0.11) $ (0.11) $ (0.14) $ (0.14) $ (0.23) (0.23) Sum of four quarterly per share amounts does not equal annual total due to rounding. 17 Liquidity and Capital Resources As of December 31, 2019, we had total current assets of approximately $27.1 million, compared with current liabilities of approximately $6.1 million, resulting in working capital of approximately $21.0 million and a current ratio of approximately 4.4 to 1. This compares with the working capital balance of approximately $11.5 million and the current ratio of 3.7 to 1 at December 31, 2018. This increase in working capital, as discussed in more detail below, is primarily the result of the capital we raised in 2019. Following is a table with summary data from the consolidated statement of cash flows for the years ended December 31, 2019 and 2018, as presented. Net cash provided by (used in) operating activities Net cash used in investing activities Net cash provided by financing activities Net increase in cash and cash equivalents $ 2019 (1,660,796) $ (10,582,086) 22,181,528 2018 792,555 (5,686,833) 8,685,739 $ 9,938,646 $ 3,791,461 Our operating activities used approximately $1.7 million in the year ended December 31, 2019, as compared with approximately $0.8 million provided by operating activities in the year ended December 31, 2018. The cash provided in 2018 was the result of our net income and non-cash expenses, partially offset by the increased working capital required to support higher revenues. The cash used in operations in 2019 was the result of increased levels of working capital required to support higher revenue levels, expenditures related to growth, and costs associated with our acquisition in 2019. We used approximately $5.7 million in investing activities in the year ended December 31, 2018, as compared with approximately $10.6 million used in investing activities in the year ended December 31, 2019. The majority of the investing activities in 2018 related to our acquisition of CareSpeak communications in October 2018. The majority of investing in activities in 2019 related to our acquisitions of RMDY Health, Inc. in 2019, as well as a software purchase in 2019. Financing activities provided $8.7 million in the year ended December 31, 2018, as compared with $22.2 million in the year ended December 31, 2019. The cash provided in 2018 was primarily the result of the equity raised in connection with our uplisting to Nasdaq, as well as from the proceeds of option exercises. The cash used in 2019 was the result of our underwritten offering in 2019, as well as from the proceeds of option exercises. With our cash on hand, we have sufficient cash to operate our business for more than the next 12 months and we do not anticipate the need to raise additional equity for operating purposes. Off Balance Sheet Arrangements As of December 31, 2019, there were no off-balance sheet arrangements. Critical Accounting Policies A “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our accounting policies are discussed in detail in the footnotes to our financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2019; however, we consider our critical accounting policies to be those related to revenue recognition, calculation of revenue share expense (cost of revenues), stock-based compensation, capitalization and related amortization of intangible assets and impairment of assets. Following is a summary of those policies. 18 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 we deliver 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. Unless otherwise specified, revenue is recognized based on the gross selling price to customers. Our contracts are generally all less than one year and the primary performance obligation is delivery of messages, but the contract may contain additional performance obligations. Additional performance obligations may include program design and set up, and reporting. As the messaging is distributed through the platform and network of channel partners (a transaction), these transactions are recorded, and revenue is recognized at the time of distribution. Revenue for transactions can be realized based on a price per message, a price per redemption, or as a flat fee occurring over a period of time, depending on the client contract. We recognize 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. Additionally, we also recognize revenue for providing program performance reporting and maintenance, either by us directly delivering reports, or by providing access to our online reporting portal that the client can utilize. These fees are charged monthly and recognized as recurring monthly revenue at the time of delivery. We also generate revenue by providing other services such as design services related to our patient engagement programs. Revenue for services provided is recognized over the time period during which services are provided. In some instances, we also resell products and/or services that are available through channel partners on a commission basis, and that are complementary to the core business and client base. In these instances, net revenue is recognized based on the commission-based revenue split that we receive. Cost of Revenues The primary cost of revenue is revenue share expense. Based on the volume of transactions that are delivered through the channel partner network, we provide a revenue share to compensate the partner 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. In addition, we pay revenue share to ConnectiveRx (formerly LDM/PDR) as a result of a 2014 legal settlement in an amount equal to the greater of 10% of financial messaging distribution revenues generated through its integrated network, or $0.37 per financial message distributed through our integrated network. The contractual amount due to the channel partners is recorded as an expense at the time the eCoupon is distributed. Intangible Assets Intangible assets are stated at cost. Finite-lived assets are being amortized over their estimated useful lives of 15 to 17 years for patents, 8 to 15 years for customer relationships, 2 to 4 years for covenants not to compete, 10 years for technology, and 3 to 4 years for software and websites, all using the straight- line method. These assets, as well as our indefinite-lived asset, are evaluated annually in our fiscal fourth quarter for impairment. 19 Goodwill We evaluate goodwill for impairment during our fiscal fourth quarter, or more frequently if an event occurs or circumstances change. Stock-based Compensation We use 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, the fair market value is based on the market value of the stock granted on the date of the grant. For options, it is estimated using the Black- Scholes option pricing model that uses the following assumptions. Estimated volatilities are based on the historical volatility of our 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. We use 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. We have never paid dividends and do not expect to pay any dividends in the future. 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. Our 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. Recently Issued Accounting Pronouncements In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Under ASU No. 2016-02, we recognize most leases on our balance sheet as lease liabilities with corresponding right-of-use assets. ASU No. 2016-02 was effective for fiscal years beginning after December 15, 2018. We adopted ASU No. 2016-02 on January 1, 2019. See Note 13 “Leases” for information regarding this standard and its adoption in the accompanying consolidated financial statements included elsewhere in this Form 10-K. In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350). ASU No. 2017-04 was issued to simplify the accounting for goodwill impairment. ASU No. 2017-04 removes the second step of the goodwill impairment test, which requires that a hypothetical purchase price allocation be performed to determine the amount of impairment, if any. Under ASU No. 2017-04, a goodwill impairment charge will be based on the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU No. 2017-04 became effective on a prospective basis for us on January 1, 2020. The adoption of this standard is not expected to have a material effect on our financial position, results of operations, or cash flows. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which introduces the Current Expected Credit Losses (“CECL”) accounting model. CECL requires earlier recognition of credit losses, while also providing additional transparency about credit risk. CECL utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. ASU No. 2016-13 is effective for us on January 1, 2020. The adoption of this standard did not have a material effect on our financial position, results of operations, or cash flows. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to improve consistent application and simplify the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance. ASU 2019-12 is effective for annual and interim reporting periods beginning after December 12, 2020, with early adoption permitted. We do not expect the adoption of ASU 2019-12 to have a material impact on our consolidated financial statements. 20 Item 8. Financial Statements and Supplementary Data Index to Financial Statements Required by Article 8 of Regulation S-X: Audited Financial Statements: F-1 F-3 F-4 F-5 F-6 F-7 F-8 Reports of Independent Registered Public Accounting Firms; Consolidated Balance Sheets as of December 31, 2019 and 2018; Consolidated Statements of Operations for the years ended December 31, 2019 and 2018; Consolidated Statement of Stockholders’ Equity for the year ended December 31, 2019; Consolidated Statement of Stockholders’ Equity for the year ended December 31, 2018; Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018; and Notes to Consolidated Financial Statements 21 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of OptimizeRx Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of OptimizeRx Corporation and Subsidiaries (the “Company”) as of December 31, 2019, and the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting as of December 31, 2019, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013 and our report dated March 26, 2020, expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting because of the existence of material weaknesses. Adoption of New Accounting Standards As discussed in Note 2 to the financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of ASU No. 2016- 02, Leases (Topic 842), as amended, effective January 1, 2019, using the modified retrospective approach. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the 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 audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ Marcum LLP Marcum LLP We have served as the Company’s auditor since 2019. New York, NY March 26, 2020 F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of OptimizeRx Corporation: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of OptimizeRx Corporation (“the Company”) as of December 31, 2018, the related consolidated statement of operations, stockholders’ equity, and cash flows for the year ended December 31, 2018 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, 2018, and the results of its operations and its cash flows for the year ended December 31, 2018, in conformity with accounting principles generally accepted in the United States 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 PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ Sadler, Gibb & Associates, LLC We served as the Company’s auditor from 2017 to 2019. Salt Lake City, UT March 12, 2019 F-2 OPTIMIZERx CORPORATION Consolidated Balance Sheets ASSETS Current Assets Cash and cash equivalents Accounts receivable, net Prepaid expenses Total Current Assets Property and equipment, net Other Assets Goodwill Technology assets, net Patent rights, net Right of use assets, net Other intangible assets, net Security deposits and other assets Total Other Assets TOTAL ASSETS LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Accounts payable – trade Accrued expenses Revenue share payable Current portion of lease liabilities Contingent purchase price payable Deferred revenue Total Current Liabilities Non-current Liabilities Lease liabilities, net of current portion Contingent purchase price payable, net of current portion Total Non-Current Liabilities Total Liabilities Commitments and contingencies (See Note 15) Stockholders’ Equity Preferred stock, $0.001 par value, 10,000,000 shares authorized, none issued and outstanding at December 31, 2019 and 2018, Common stock, $0.001 par value, 166,666,667 shares authorized, 14,600,579 and 12,038,618 shares issued and outstanding at December 31, 2019 and 2018, respectively Additional paid-in-capital Accumulated deficit Total Stockholders’ Equity TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY The accompanying notes are an integral part of these financial statements. F-3 December 31, 2019 December 31, 2018 $ 18,852,680 $ 7,418,025 871,043 27,141,748 176,014 8,914,034 6,457,841 360,146 15,732,021 149,330 $ $ 14,740,031 6,238,453 2,550,587 559,863 5,151,102 80,727 29,320,763 56,638,525 $ 3,678,513 104,820 2,766,944 - 2,387,303 235,647 9,173,227 25,054,578 492,995 $ 1,800,635 1,618,438 115,431 1,500,000 580,014 6,107,513 448,753 5,220,000 5,668,753 11,776,266 - 411,010 1,300,882 1,908,616 - - 610,625 4,231,133 - 2,365,000 2,365,000 6,596,133 - - - 14,601 78,272,268 (33,424,610) 44,862,259 56,638,525 $ 12,039 48,725,211 (30,278,805) 18,458,445 25,054,578 $ OPTIMIZERx CORPORATION Consolidated Statements of Operations Revenue Cost of revenues Gross margin Operating expenses Stock-based compensation Depreciation and amortization Other general and administrative expenses Total operating expenses (Loss) income from operations Other income (expense) Interest income Change in fair value of contingent consideration Total other (expense) income Loss (income) before provision for income taxes Income tax benefit Net (loss) income Weighted average number of shares outstanding – basic Weighted average number of shares outstanding – diluted (Loss) income per share – basic (Loss) income per share – diluted For the year ended December 31, 2019 For the year ended December 31, 2018 $ 24,598,274 $ 9,158,699 15,439,575 21,206,363 8,999,666 12,206,697 2,260,298 1,282,787 15,590,054 19,133,139 (3,693,564) 288,028 (635,000) (346,972) (4,040,536) 897,960 (3,142,576) $ 13,387,863 13,387,863 (0.23) $ (0.23) $ 2,520,852 316,502 9,189,211 12,026,565 180,132 46,212 - 46,212 226,344 - 226,344 10,832,209 11,862,991 0.02 0.02 $ $ $ The accompanying notes are an integral part of these financial statements. F-4 OPTIMIZERx CORPORATION Consolidated Statement of Stockholders’ Equity for the Year Ended December 31, 2018 Balance, December 31, 2017 Cumulative effect of change in accounting principle related to revenue recognition Stock Compensation Expense Issuance of common stock: for services for cash for options exercised for warrants exercised Shares issued for acquisition Shares issued in payment of revenue share Additional shares issued in connection with reverse split due to rounding Net income for the year Balance, December 31, 2018 Common Stock Shares Common Stock Amount Stock Warrants Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity 9,772,694 $ 9,773 $ 1,286,424 $ 35,287,464 $ (30,363,122) $ 6,220,539 51,494 1,666,669 165,169 251,046 30,638 100,000 51 1,667 165 251 31 100 908 1 12,038,618 $ 12,039 $ (142,027) (1,286,424) 1,863,911 656,883 8,162,807 521,105 1,286,173 499,969 446,900 (1) 226,344 48,725,211 $ (30,278,805) $ - $ (142,027) 1,863,911 656,934 8,164,474 521,270 - 500,000 447,000 - 226,344 18,458,445 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, 2019 Balance, January 1, 2019 Cumulative effect of change in accounting principle related to lease accounting Shares issued in 2019 for restricted stock awards granted and expensed in 2018 Stock-based Compensation Expense Options Restricted Stock Issuance of common stock: for services for cash for options exercised Shares issued for acquisition Net loss for the year Balance, December 31, 2019 Common Stock Shares Common Stock Amount Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity 12,038,618, $ 12,039 $ 48,725,211 $ (30,278,805) $ 18,458,445 (3,229) (3,229) 130,001 130 (130) 1,687,745 125,160 33,344 1,769,275 246,448 382,893 33 1,769 247 383 447,360 21,302,057 877,455 5,107,410 14,600,579 $ 14,601 $ (3,142,576) 78,272,268 $ (33,424,610) $ - 1,687,745 125,160 447,393 21,303,826 877,702 5,107,793 (3,142,576) 44,862,259 The accompanying notes are an integral part of these financial statements. F-6 OPTIMIZERx CORPORATION Consolidated Statements of Cash Flows CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income for the period Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization Noncash lease expense Increase in bad debt reserve Loss on disposal of assets Stock-based compensation Income tax benefit Change in fair value of contingent consideration Changes in: Accounts receivable Prepaid expenses and other assets Accounts payable Revenue share payable Accrued expenses and other Change in operating lease liabilities Deferred revenue NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment Acquisition of intangible assets Cash paid in acquisition, net of cash acquired NET CASH USED IN INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock, net of offering costs Proceeds from exercise of stock options NET CASH PROVIDED BY FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS – BEGINNING OF PERIOD CASH AND CASH EQUIVALENTS – END OF PERIOD SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest Cash paid for income taxes NON-CASH INVESTING AND FINANCING ACTIVITIES: Exercise of stock warrants Issuance of shares for restricted stock awards in 2019 for awards expensed in 2018 Lease liabilities arising from right of use assets Common stock issued for debt Shares issued in connection with acquisitions Non-cash effect of cumulative adjustments to accumulated deficit For the year ended December 31, 2019 For the year ended December 31, 2018 $ (3,142,576) $ 226,344 1,175,131 107,656 80,000 - 2,260,298 (897,960) 635,000 (628,830) (343,838) (46,249) (290,178) (432,075) (106,564) (30,611) (1,660,796) (87,717) (1,500,000) (8,994,369) (10,582,086) 21,303,826 877,702 22,181,528 9,938,646 8,914,034 18,852,680 $ 316,502 - - 2,401 2,520,845 - - (2,789,252) (319,754) (83,319) 730,810 226,535 - (38,557) 792,555 (34,362) (56,651) (5,595,820) (5,686,833) 8,164,475 521,264 8,685,739 3,791,461 5,122,573 8,914,034 - $ - $ - - - $ 130 207,559 - $ 5,107,793 $ 3,229 $ 1,286,424 - - 447,000 500,000 142,027 $ $ $ $ $ $ $ $ The accompanying notes are an integral part of these financial statements. F-7 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS OptimizeRx Corporation is a digital health company focused on connecting life sciences companies to their clients with critical content at the point-of-care. It provides electronic clinical information via electronic health record companies (EHRs) to the medical profession, providing a direct channel for pharmaceutical companies to communicate with healthcare providers. The Company’s cloud-based solution supports patient adherence to medications by providing real-time access to financial assistance, prior authorization, and critical clinical information. The Company’s network is comprised of leading EHR platforms and provides more than half of the ambulatory patient market with access to these benefits within their workflow at the point-of-care. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions have been made in determining the carrying value of assets, depreciable and amortizable lives of tangible and intangible assets, the carrying value of liabilities, the valuation allowance for the deferred tax asset, the timing of revenue recognition and related revenue share expenses, and inputs used in the calculation of stock based compensation. Actual results could differ from these estimates. Principles of Consolidation The financial statements reflect the consolidated results of OptimizeRx Corporation, a Nevada corporation, and its wholly owned subsidiaries: OptimizeRx Corporation, a Michigan corporation, RMDY Health, Inc., a Delaware corporation, CareSpeak Communications, Inc., a New Jersey corporation, Cyberdiet, a controlled foreign corporation incorporated in Israel, and CareSpeak Communications D.O.O., a Controlled Foreign Corporation incorporated in Croatia. Together, these companies are referred to as “OptimizeRx” and “the Company.” All material intercompany transactions have been eliminated. Reclassifications Certain items in the previous year financial statements have been reclassified to match the current year presentation. 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. 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. F-8 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) In addition to defining fair value, the disclosure requirements around fair value establish a fair value hierarchy for valuation inputs, which is expanded. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels, which is determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are: Level 1 – Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets. Level 2 – Inputs are based upon significant observable inputs other than quoted prices included in Level 1, such as quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 – Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques. The Company’s stock options and warrants are valued using level 3 inputs. The following tables present the fair values and carrying values of the Company’s financial assets and liabilities measured on a recurring basis as of December 31, 2019 and 2018 and the valuation techniques used by the Company to determine those fair values. Level 1 Level 2 2019 Level 3 Fair Value Carrying Value Liabilities Contingent Purchase Price Payable (1) $ - $ - $ 6,720,000 $ 6,720,000 $ 6,720,000 Level 1 Level 2 2018 Level 3 Fair Value Carrying Value Liabilities Contingent Purchase Price Payable (1) $ - $ - $ 2,365,000 $ 2,365,000 $ 2,365,000 (1) The contingent consideration is based off achieving certain revenue milestones in each of the next two years. The Geometric-Brownian motion analysis was used to generate spot prices for use in an option pricing model. For 2018, the hypothetical spot prices were simulated using a monte carlo simulation utilizing 2018 revenue as a base and revenue volatility of 37%. The risk-free rate of return and terms utilized were 2.89% and 1.46-2.46, respectively, and expected volatility was 35%. For 2019, the hypothetical spot prices were simulated using a monte carlo simulation utilizing 2020 and 2021 revenue projections and revenue volatility of 40%. The risk-free rate of return and terms utilized were 1.40% and 1 -2 years, respectively, and expected volatility was 40%. F-9 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The following table provides a summary of changes in fair value of the Company’s Level 3 financial instruments for the years ended December 31, 2019 and 2018. Balance December 31, 2017 Contingent consideration liability recorded as the result of the CareSpeak Communications acquisition (see note 3) Balance December 31, 2018 Increase in fair value of CareSpeak Communications contingent consideration Contingent consideration liability recorded as the result of the RMDY Health, Inc. acquisition (see note 3) Balance December 31, 2019 Amount - 2,365,000 2,365,000 635,000 3,720,000 6,720,000 $ $ Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable are reported at realizable value, net of allowances for doubtful accounts, which is estimated and recorded in the period the related revenue is recorded. The Company has a standardized approach to estimate and review the collectability of its receivables based on a number of factors, including the period they have been outstanding. Historical collection and payer reimbursement experience is an integral part of the estimation process related to allowances for doubtful accounts. In addition, the Company regularly assesses the state of its billing operations in order to identify issues, which may impact the collectability of these receivables or reserve estimates. Because the Company’s customers are primarily large well-capitalized companies, historically there has been very little bad debt expense. Bad debt expense was $80,000 for the year ended December 31, 2019 and $0 for the year ended December 31, 2018. The allowance for doubtful accounts was $80,000 and $0 as of December 31, 2019 and 2018, respectively. Property and Equipment Property and equipment are stated at cost and are being depreciated over their estimated useful lives of three to five years for office equipment and three years for computer equipment using the straight-line method of depreciation for book purposes. Maintenance and repair charges are expensed as incurred. Intangible Assets Intangible assets are stated at cost. Finite-lived assets are being amortized over their estimated useful lives of fifteen to seventeen years for patents, eight years for customer relationships, fifteen years for tradenames, four years for covenants not to compete, and three to four years for software and websites, all using the straight-line method. These assets, as well as our indefinite-lived asset, are evaluated annually in our fiscal fourth quarter for impairment. Goodwill We evaluate goodwill for impairment during our fiscal fourth quarter, or more frequently if an event occurs or circumstances change. F-10 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. Unless otherwise specified, revenue is recognized based on the gross selling price to customers. The Company’s contracts are generally all less than one year and the primary performance obligation is delivery of messages, but the contract may contain additional performance obligations. Additional performance obligations may include program design and set up, and reporting. As the messaging is distributed through the platform and network of channel partners (a transaction), these transactions are recorded, and revenue is recognized, at the time of distribution. 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. These fees are charged monthly and recognized as recurring monthly revenue at the time of delivery. In some instances, the Company also resells products and or services that are available through channel partners on a commission basis, and that are complementary to the core business and client base. In these instances, net revenue is recognized based on the commission-based revenue split that the Company receives. In instances where the Company resells services and have all financial risk and significant operation input and risk, the Company records the revenue gross. Cost of Revenues The primary cost of revenue is revenue share expense. Based on the volume of transactions that are delivered through the channel partner network, the Company provides a revenue share to compensate the partner, or others, for their promotion of the campaign. Revenue shares are a negotiated percentage of the transaction fees and can also be specific to special considerations and campaigns. F-11 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Income Taxes Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized. The Company recognizes the tax benefit from uncertain tax positions if it is more likely than not that the tax positions will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. It is the Company’s policy to include interest and penalties related to tax positions as a component of income tax expense. Concentration of Credit Risks The Company maintains its cash and cash equivalents in bank deposit accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts; however, amounts in excess of the federally insured limit may be at risk if the bank experiences financial difficulties. As of December 31, 2019 and 2018 the Company had $18,047,903 and $8,414,034, respectively, in cash balances in excess of federally insured limits, primarily at Bank of America/Merrill Lynch. Research and Development The Company expenses research and development expenses as incurred. Research and development expense was $1,604,195 and $0 in 2019 and 2018, 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, the fair market value is based on the market value of the stock granted on the date of the grant. For options, it is estimated using the Black-Scholes option pricing model that uses the assumptions noted in the following table. Estimated volatilities are based on the historical volatility of the Company’s 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, forfeitures, 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 does not expect to pay any dividends in the future. F-12 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Expected dividend yield Risk free interest rate Expected option term Turnover/forfeiture rate Expected volatility 2019 2018 0% 1.51% - 2.37% 3.5 years 0% 64% - 67% 0% 1.96% - 2.84% 3.5 - 5 years 0% 64% - 66% 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) Earnings Per Common and Common Equivalent Share The computation of basic (loss) earnings per common share is computed using the weighted average number of common shares outstanding during the year. The computation of diluted (loss) earnings per common share is based on the basic weighted average number of shares outstanding during the year plus common stock equivalents, which would arise from the exercise of options and warrants outstanding using the treasury stock method and the average market price per share during the year. The number of common shares potentially issuable upon the exercise of certain options that were excluded from the diluted loss per common share calculation in 2019 was 891,224 related to options, and 59,918 related to restricted stock, for a total of 951,142 because they are anti-dilutive, as a result of a net loss for the year ended December 31, 2019. The computation of weighted average shares outstanding and the basic and diluted earnings per common share for the years ended December 31, 2019 and 2018 consisted of the following: Year ended December 31, 2019 Basic EPS Diluted EPS Year ended December 31, 2018: Basic EPS Effect of dilutive stock options and warrants Diluted EPS Net (Loss) Shares Per Share Amount $ (3,142,576) 13,387,863 $ $ (3,142,576) 13,387,863 $ (0.23) (0.23) Net Income Shares Per Share Amount $ 226,344 10,832,209 $ 1,030,782 0.02 $ 226,344 11,862,991 $ 0.02 F-13 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Impairment of Long-Lived Assets The Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell. Recently Issued Accounting Guidance In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Under ASU No. 2016-02, the Company recognizes most leases on its balance sheet as lease liabilities with corresponding right-of-use assets. ASU No. 2016-02 was effective for fiscal years beginning after December 15, 2018. The Company adopted ASU No. 2016-02 on January 1, 2019. See Note 13 “Leases” for information regarding this standard and its adoption. In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350). ASU No. 2017-04 was issued to simplify the accounting for goodwill impairment. ASU No. 2017-04 removes the second step of the goodwill impairment test, which requires that a hypothetical purchase price allocation be performed to determine the amount of impairment, if any. Under ASU No. 2017-04, a goodwill impairment charge will be based on the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU No. 2017-04 became effective on a prospective basis for the Company on January 1, 2020. The adoption of this standard did not have a material effect on the Company’s financial position, results of operations or cash flows. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which introduces the Current Expected Credit Losses (“CECL”) accounting model. CECL requires earlier recognition of credit losses, while also providing additional transparency about credit risk. CECL utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. ASU No. 2016-13 is effective for the Company on January 1, 2020. The adoption of this standard will not have a material effect on the Company’s financial position, results of operations or cash flows. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to improve consistent application and simplify the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance. ASU 2019-12 is effective for annual and interim reporting periods beginning after December 12, 2020, with early adoption permitted. We do not expect the adoption of ASU 2019-12 to have a material impact on our consolidated financial statements. NOTE 3 – ACQUISITIONS On October 17, 2018, we acquired CareSpeak Communications, Inc., a New Jersey corporation and technology solutions company, which provides digital messaging services to the healthcare industry to expand our service offerings. Through its cloud based Mobile Health Messenger (“MHM”) Platform, CareSpeak provides interactive health messaging for improved medication adherence, care coordination, and patient engagement. The total purchase price was $8,493,451. Acquisition costs of approximately $607,670 were expensed as incurred. F-14 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 3 – ACQUISITION (CONTINUED) The purchase price contains a contingent element that will be paid only if the Company achieves certain patient engagement revenues in 2019 and 2020. The total contingent payment may be up to $3.0 million. The target patient engagement revenues were achieved in 2019 and are expected to be achieved in 2020. The calculated fair value of the contingent payment is $3,000,000 at December 31, 2019. Purchase Price Allocation The purchase price of the CareSpeak acquisition was allocated as follows: Purchase Price Cash paid Common stock issued Contingent payment Total Allocation Current assets Property and equipment Intangibles Goodwill, including assembled workforce in place Patent Tradename Non-compete agreements Customer relationships Current liabilities assumed Total $ $ $ $ 5,628,451 500,000 2,365,000 8,493,451 254,263 8,487 3,678,513 2,227,000 982,000 977,000 492,000 (125,812) 8,493,451 As described in greater detail in Note 6, the amortizable intangible assets acquired have estimated useful lives ranging from 4 to 15 years. We determined the estimated fair value of the identifiable intangible assets acquired primarily by using the income approach. On October 4, 2019, we acquired RMDY Health, Inc. (“RMDY”), a Delaware corporation and technology solutions company engaged in developing and marketing digital health SAAS solutions across a range of healthcare and life science initiatives, used by pharmaceutical companies, payers, medtech companies, and medical associations nationwide to improve medication adherence and care coordination. The total purchase price was $17,822,162. Acquisition costs of approximately $799,623 were expensed as incurred. The purchase price contains a contingent element that will be paid only if the Company achieves certain revenues related to the legacy RMDY business in 2020 and 2021. The total contingent payment may be up to $30.0 million, with a minimum payment of $1.0 million each year. The calculated fair value of the contingent payment is $3,720,000 at December 31, 2019. F-15 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 3 – ACQUISITION (CONTINUED) The purchase price of the RMDY acquisition was allocated as follows: Purchase Price Cash paid Common stock issued Contingent payment Total Allocation Current assets Accounts receivable Prepaid Expense Property and equipment Intangibles Goodwill, including assembled workforce in place Web technology Tradename Non-compete agreements Customer relationships Current liabilities assumed Accounts payable Accrued expenses Deferred tax liability Total $ $ $ $ 8,994,369 5,107,793 3,720,000 17,822,162 411,354 12,139 19,173 11,061,518 5,125,000 2,604,000 116,000 431,000 (128,234) (931,828) (897,960) 17,822,162 As described in greater detail in Note 6, the amortizable intangible assets acquired have estimated useful lives ranging from 2 to 15 years. We determined the estimated fair value of the identifiable intangible assets acquired primarily by using the income approach. Included in accrued expenses is $800,000 withheld at closing as part of an indemnification provision against potential future claims. We began consolidating the results of CareSpeak operations and cashflows into our consolidated financial statements after October 17, 2018, the date of acquisition and the results of RMDY operations and cashflows after October 3, 2019, the date of that acquisition. The unaudited Pro forma results of operations as if both acquisitions had occurred January 1, 2018 are presented in the following table: Revenues Net (Loss) Income (Loss) Earnings per common share: Basic Diluted 2019 As Reported $ 24,598,278 $ (3,142,576) 2018 Pro Forma As Reported Pro Forma 26,118,278 $ (3,869,577) 21,206,363 $ 226,344 24,520,995 (564,340) $ $ (0.23) $ (0.23) $ (0.29) $ (0.29) $ 0.02 $ 0.02 $ (0.05) (0.05) F-16 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 4 – PREPAID EXPENSES Prepaid expenses consisted of the following as of December 31, 2019 and 2018: Insurance Prepaid revenue share payments EHR access fees Other Total prepaid expenses NOTE 5 – PROPERTY AND EQUIPMENT 2019 2018 69,250 $ 201,114 313,121 287,558 871,043 $ 43,284 - 302,527 14,335 360,146 $ $ The Company owned equipment recorded at cost, which consisted of the following as of December 31, 2019 and 2018: Computer equipment Furniture and fixtures Subtotal Less accumulated depreciation Property and equipment, net 2019 2018 137,763 $ 187,167 324,930 148,916 176,014 $ 94,384 159,648 254,032 104,702 149,330 $ $ Depreciation expense was $80,206 and $58,423 for the years ended December 31, 2019 and 2018, respectively. NOTE 6 – INTANBIGLE ASSETS Goodwill The goodwill is related to the acquisition of RMDY Health, Inc. in 2019 and CareSpeak Communications in 2018 and is primarily related to expected improvements and technology performance and functionality, sales growth from future product and service offerings and new customers, together with certain intangible assets that do not qualify for separate recognition, such as the assembled workforce in place. Goodwill is generally not amortizable for tax purposes and is not amortizable for financial statement purposes. F-17 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 6 – INTANBIGLE ASSETS (CONTINUED) Intangible Assets Intangible assets included on the balance sheet consist of the following: Patent rights Technology Assets Other intangible assets Tradename Non-compete agreements Customer relationships Total other Total Intangibles Patent rights Technology assets Other intangible assets Tradename Non-compete agreements Customer relationships Total other Total Intangibles Gross Carrying Amount December 31, 2019 Accumulated Amortization 3,329,457 $ 8,140,013 $ 778,870 $ 1,901,560 $ Net 2,550,587 6,238,453 3,586,000 $ 1,093,000 923,000 5,602,000 17,071,470 $ 59,767 $ 309,635 81,496 450,898 3,131,328 $ 3,526,233 783,365 841,504 5,151,102 13,940,142 $ $ $ $ Weighted Average Life Remaining 11.7 8.0 14.5 2.7 10.5 Gross Carrying Amount December 31, 2018 Accumulated Amortization $ $ 3,329,457 $ 1,515,013 $ 562,513 $ 1,473,890 $ 982,000 977,000 492,000 2,451,000 7,295,470 $ - 50,885 12,812 63,697 2,036,403 $ $ Weighted Average Life Remaining 12.7 1.1 Indefinite 3.8 7.8 Net 2,766,944 104,820 982,000 926,115 479,188 2,387,303 5,259,067 Intangibles are being amortized on a straight-line basis over the following estimated useful lives. Patents Tradenames Non-compete agreements Customer relationships Technology assets F-18 15 – 17 years 15 years 2 – 4 years 8 – 15 years 3 – 10 years OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 6 – INTANBIGLE ASSETS (CONTINUED) The Company recorded amortization expense of $1,094,924 and $258,079 in the years ended December 31, 2019 and 2018, respectively. Expected future amortization expenses of the intangibles assets as of December 31, 2019 is as follows: Year ended December 31, 2020 2021 2022 2023 2024 Thereafter Total $ $ 1,811,400 1,794,795 1,391,965 990,267 990,267 6,961,448 13,940,142 In addition to the technology assets acquired in connection with the RMDY acquisition, the company also acquired software with a cost of $1.5 million in 2019. NOTE 7 – 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 $580,014 and $610,625 as of December 31, 2019 and 2018, respectively. NOTE 8 – RELATED PARTY TRANSACTIONS During the year ended December 31, 2010, the Company acquired the technical contributions and assignment of all exclusive rights to and for a key patent in process at the time from a former CEO in exchange for a total payment in shares of common stock and options valued at $930,000 at the time, and recorded at that cost. That patent remains in Patents on the consolidated balance sheet as of December 31, 2019. During the year ended December 31, 2015, WPP, plc made a strategic investment in the Company and owned approximately 20% of the outstanding shares of the Company until December 2018, when it sold the shares. As of December 31, 2018, WPP was no longer a related party, however the transactions between WPP and the Company while they were a related party are set forth in the table below. The Company considers the pharmaceutical companies being represented by WPP agencies to be its customers and it received no preferable pricing from WPP agencies as a result of its related party status. The following table sets forth the activity between the Company and WPP for the year ended December 31 2018: Total billings to WPP Agencies Revenue recognized from WPP Agencies Accounts receivable $ $ $ 6,217,735 6,527,051 2,051,532 F-19 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 9 – CONTINGENT PURCHASE PRICE Our purchase of CareSpeak Communications contains a contingent element that will be paid only if the Company achieves certain patient engagement revenues in 2019 and 2020. The total contingent payment may be up to $3.0 million. The target patient engagement revenues were achieved in 2019 and are expected to be achieved in 2020. The calculated fair value of the contingent payment was $2,365,000 at December 31, 2018 and $3,000,000 at December 31, 2019. Our purchase of RMDY Health, Inc. also contains a contingent element that will be paid only if the Company achieves certain revenues in 2020 and 2021 related to the RMDY business. The total contingent payment may be up to $30.0 million. The minimum payment is $1.0 million in each of the two years. The calculated fair value of the contingent payment was $3,720,000 at December 31, 2019. We determined the fair value of the Contingent Purchase Price Payable at December 31, 2019 using a Geometric-Brownian motion analysis of the expected revenue and resulting earnout payment using inputs that include the spot price, a risk free rate of return of 1.4%, a term of 2 years, and volatility of 40%. Changes in the inputs could result in a different fair value measurement. The total fair value of contingent purchase price payable at December 31, 2019 is as follows. CareSpeak Communications, Inc. RMDY Health, Inc. Total NOTE 10 – STOCKHOLDERS’ EQUITY Current Long-Term $ $ 1,500,000 $ - 1,500,000 $ 1,500,000 $ 3,720,000 5,220,000 $ Total 3,000,000 3,720,000 6,720,000 Preferred Stock The Company has 10,000,000 shares of preferred stock, $.001 par value per share, authorized as of December 31, 2019. No shares were issued or outstanding in either 2018 or 2019. Common Stock The Company had 166,666,667 shares of common stock, $.001 par value per share, authorized as of December 31, 2019. There were 14,600,579 and 12,038,618 shares of common stock issued and outstanding at December 31, 2019 and 2018, respectively. F-20 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 10 – STOCKHOLDERS’ EQUITY (CONTINUED) Effective May 14, 2018, in connection with our listing on the Nasdaq Capital Market, we implemented a reverse split of our common stock by exchanging each three shares of our common stock for one share. Our financial statements and all equity transactions have been retroactively adjusted to account for the reverse stock split. We elected to round fractional shares up to the nearest whole number rather than redeem them for cash, and as a result we issued 908 additional shares as a result of this rounding. In connection with this reverse split, our authorized shares were reduced from 500,000,000 to 166,666,667. In 2018, we issued 100,000 shares of common stock to a subsidiary of WPP, one of the world’s largest media companies, and a shareholder at the time, in full payment of all amounts due under a co-marketing agreement that covered certain WPP agencies, whereby we shared a portion of our revenue with those agencies related to new programs through those agencies. The shares were valued at $447,000, the market value of the stock on the date of issuance. The amount due was recorded as a liability in revenue share payable at December 31, 2017. During 2019, in an underwritten public offering, we issued 1,769,275 shares of our common stock for gross proceeds of $23,000,575. In connection with this transaction, we incurred equity issuance costs of $1,696,749 related to payments to the underwriter, advisors and legal fees associated with the transaction, resulting in net proceeds to the Company of $21,303,826. During 2018, in a private transaction, we issued 1,666,669 shares of our common stock for gross proceeds of $9,000,000. In connection with this transaction, we incurred equity issuance costs of $835,526 related to payments to advisors and legal fees associated with the transaction, resulting in net proceeds to the Company of $8,164,474. The Company has a Director Compensation plan covering its independent non-employee Directors. A total of 33,344 and 36,494 shares were granted and issued in the years ended December 31, 2019 and 2018, respectively, in connection with this compensation plan. These shares were valued at $447,393 and $428,884, respectively. The Company also awarded 130,001 restricted stock awards, valued at $546,007, to executive officers in 2018. These awards would vest only if the Company achieved certain stretch revenue goals in 2018 or 2019. It was determined that the goal was achieved as of December 31, 2018, so the entire expense was recognized in 2018, but the shares related to these awards were issued in 2019. During 2019, we issued 382,893 shares of common stock, valued at $5,107,793, to the former shareholders of RMDY Health, Inc. in connection with the acquisition of RMDY in 2019. We also issued 30,638 shares of common stock, valued at $500,000, to the former shareholders of CareSpeak Communications, Inc., in connection with the acquisition of the CareSpeak in 2018. We issued 246,448 shares of common stock and received proceeds of $877,702 in 2019 in connection with the exercise of options. We also issued 165,169 shares of common stock and received proceeds of $521,270 in 2018 in connection with the exercise of options. During 2018, we issued 15,000 shares of our common stock, valued at $228,050, for investor relations services. During, 2018, we issued 251,046 shares of common stock in connection with the cashless exercise of a warrant to purchase 348,194 shares. We adopted the new accounting standard ASC 606, Revenue from Contracts with Customers, as of January 1, 2018, which resulted in a charge of $142,027 to Retained Earnings on that date. We adopted the new lease accounting standard ASC 842 as of January 1, 2019, which resulted in a charge of $3,229 to Retained Earnings on that date. F-21 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 11 – STOCK COMPENSATION The Company sponsors a stock-based incentive compensation plan known as the 2013 Equity Compensation Plan (the “Plan”), which was established by the Board of Directors of the Company in June 2013. A total of 500,000 shares were initially reserved for issuance under the Plan. The Plan was amended several times since then to eventually increase the authorized shares to 2,500,000 as of December 31, 2019. A total of 1,624,221 shares of common stock underlying options were outstanding at December 31, 2019. The Company had 236,614 remaining shares available to grant under the Plan at December 31, 2019. The Plan allows the Company to grant incentive stock options, non-qualified stock options, stock appreciation rights, or restricted stock. The incentive stock options are exercisable for up to ten years, at an option price per share not less than the fair market value on the date the option is granted. The incentive stock options are limited 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, employees, independent agents, consultants and attorneys, who the Company’s Board or Compensation Committee believes have contributed, or will contribute, to the success of the Company. Non-qualified options may be issued at option prices of less than fair market value on the date of grant and may be exercisable for up to ten years from date of grant. The option vesting schedule for options granted is determined by the Compensation Committee of the Board of Directors at the time of the grant. The Plan provides for accelerated vesting of unvested options if there is a change in control, as defined in the Plan. The compensation cost that has been charged against income related to options for the years ended December 31, 2019 and 2018, was $1,687,745 and $1,317,904, respectively. No income tax benefit was recognized in the income statement and no compensation was capitalized in any of the years presented. The Company had the following option activity during the years ended December 31, 2019 and 2018: Outstanding, January 1, 2018 Granted – 2018 Exercised – 2018 Expired – 2018 Outstanding, December 31, 2018 Granted – 2019 Exercised – 2019 Expired – 2019 Outstanding, December 31, 2019 Exercisable, December 31, 2019 Number of Options Weighted average exercise price Weighted average remaining contractual life (years) Aggregate intrinsic value $ 1,368,772 $ 401,099 $ (165,169) $ (50,002) $ 1,554,700 $ 410,134 $ (251,063) $ (89,550) $ 1,624,221 $ 1,143,637 $ 3.12 9.27 3.16 5.48 4.63 12.28 3.73 12.55 6.27 4.39 3.0 2.6 $ 1.9 $ 7,925,643 7,197,053 Of the options outstanding at December 31, 2019, 1,143,637 were exercisable with a weighted average contractual life of 1.9 years. F-22 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 11 – STOCK COMPENSATION (CONTINUED) The table below shows the expiration date and exercise price of the options outstanding at December 31, 2019. Number of Options Exercise Price 175,799 $ 41,668 $ 210,520 $ 470,000 $ 105,836 $ 100,006 $ 8,336 $ 8,336 $ 8,000 $ 139,000 $ 8,336 $ 11,800 $ 6,000 $ 10,000 $ 15,000 $ 14,084 $ 30,500 $ 16,000 $ 40,000 $ 29,000 $ 16,000 $ 12,000 $ 125,000 $ 16,000 $ 7,000 $ Total 1,624,221 $ 2.46 3.15 3.15 3.21 3.45 4.20 4.62 4.71 9.76 10.18 10.40 12.49 12.51 12.70 12.73 12.77 13.06 13.31 13.34 14.48 15.10 15.32 15.40 15.51 16.24 6.27 Expiration Date 03/31/22 06/24/20 07/27/22 02/22/21 07/28/21 02/01/23 03/31/23 12/31/22 12/02/24 11/24/24 06/30/23 08/13/23 08/20/23 08/22/23 09/04/23 04/08/24 02/27/24 06/10/24 10/04/24 09/30/24 05/23/24 0715/24 10/16/23 05/30/24 10/22/23 There is $1,612,382 of expense remaining to be recognized over a period of approximately 1.8 years related to options outstanding at December 31, 2019. In 2019, the Company granted restricted stock awards of 50,000 shares, valued at $653,000, which would vest if the Company achieved certain 2019 revenue targets. The Company did not achieve those targets, so the awards expired unvested on December 31, 2019. The Company also granted a restricted stock award of 90,000 shares, valued at $938,700, and vesting over a period of 5 years. The Company recognized $125,160 expense related to this award in 2019 and $813,540 remains to be recognized at December 31, 2019 over a period of 4.3 years. The Company also awarded 130,001 restricted stock awards, valued at $546,007, in 2018. These awards would vest only if the Company achieved certain stretch revenue goals in 2018 or 2019. It was determined that the goal was achieved as of December 31, 2018, so the entire expense was recognized in 2018, but the shares related to these awards were issued in 2019. F-23 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 12 –WARRANTS The Company has issued warrants to purchase common stock in the past, primarily in connection with capital raising activities. However, all remaining warrants were exercised in 2018 and there are no remaining warrants outstanding at December 31, 2018 or 2019. The Company had the following warrant activity during the year ended December 31, 2018: Balance, December 31, 2017 Exercised Balance, December 31, 2018 NOTE 13 – LEASES Number of Shares Underlying Warrants Weighted average exercise price 3.33 3.33 - 348,194 $ (348,194) $ - 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. Effective January 1, 2019, we adopted the standard using the modified retrospective method, under which we elected the package of practical expedients and transition provisions allowing us to bring our existing operating leases onto the consolidated balance sheet without adjusting comparative periods, but recognizing a cumulative-effect adjustment to the opening balance of accumulated deficit on January 1, 2019. Under the guidance, we have also elected not to separate lease and non-lease components in recognition of the lease-related assets and liabilities, as well as the related lease expense. We have operating leases with terms greater than 12 months for office space in three multitenant facilities, which are recorded as assets and liabilities. The lease on our headquarters space in Rochester, Michigan expires November 30, 2022, with a three-year renewal option through 2025, with monthly rent payable at rates ranging from $6,384 to $6,688. We have assumed renewal of the lease. We also have a lease on office space in Cranbury, New Jersey, expiring in 2022 with monthly payments ranging from $3,008 to $3,158, as well as a lease of approximately $1,883 per month in Zagreb, Croatia expiring in 2022. Lease-related assets, or right-of-use assets, are recognized at the lease commencement date at amounts equal to the respective lease liabilities, adjusted for prepaid lease payments, initial direct costs, and lease incentives received. Lease-related liabilities are recognized at the present value of the remaining contractual fixed lease payments, discounted using our incremental borrowing rate. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred. Upon adoption of the standard on January 1, 2019, we recorded approximately $462,000 of right of use assets and $465,000 of lease-related liabilities, with the difference recorded in accumulated deficit as the cumulative effect of change in accounting principle at that date. F-24 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 13 – LEASES (CONTINUED) For the year ended December 31, 2019, 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: Operating lease cost Short-term lease cost (1) Total lease cost (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, 2019: For the year ending December 31, 2020 2021 2022 2023 2024 Thereafter Total Less: present value discount Total lease liabilities Year Ended December 31, 2019 $ $ 132,020 84,935 216,955 $ $ 138,019 140,367 102,367 99,209 80,375 70,224 630,561 66,377 564,184 The weighted average remaining lease term for operating leases is 5.1 years and the weighted average discount rate used in calculating the operating lease asset and liability is 4.5%. Cash paid for amounts included in the measurement of lease liabilities was $106,564. For the year ended December 31, 2019, payments on lease obligations were $132,867 and amortization on the right of use assets was $107,656. NOTE 14 – MAJOR CUSTOMERS AND VENDORS The Company had the following customers that accounted for 10% or greater of revenue in either 2019 or 2018. No other customers accounted for more than 10% of revenue in either year presented. Customer A Customer B Customer C Customer D Customer E 2019 2018 $ % $ % 3,883,589 2,801,748 2,533,766 1,349,214 - 15.8 11.4 10.3 5.5 0 1,678,669 930,682 2,122,657 2,547,113 2,280,873 7.9 4.4 10.0 12.0 10.8 F-25 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 14 – MAJOR CUSTOMERS AND VENDORS (CONTINUED) Our accounts receivable includes 3 customers that individually make up more than 10% of our accounts receivable at December 31, 2019 in the percentages of 17.8%, 15.4% and 13.3%. The Company had four key partners through which 10% or greater of its revenue was generated in either 2019 or 2018 as set forth below. The amounts in the table below reflect the amount of revenue generated through those customers. Partner A Partner B Partner C Partner D NOTE 15 – INCOME TAXES 2019 2018 $ % $ % 1,315,706 9,210,347 4,051,217 1,007,573 5.3 37.4 16.5 4.1 6,841,386 5,350,393 2,584,103 2,159,356 32.3 25.2 12.2 10.2 As of December 31, 2019, the Company had net operating loss carry-forwards for federal income tax purposes of approximately $18.3 million, consisting of pre-2018 losses in the amount of approximately $14.3 million that expire from 2020 through 2037, and post-2017 losses in the amount of approximately $4 million that never expire. These net operating losses are available to offset future taxable income. The Company was formed in 2006 as a limited liability company and changed to a corporation in 2007. Activity prior to incorporation is not reflected in the Company’s corporate tax returns. In the future, the cumulative net operating loss carry-forward for income tax purposes may differ from the cumulative financial statement loss due to timing differences between book and tax reporting. The provision for Federal income tax consists of the following for the years ended December 31, 2019 and 2018: Federal income tax benefit (expense) attributable to: Current operations Acquisition costs Change in fair value of contingent consideration Other permanent items Deferred Adjustment Valuation allowance Net provision for federal income tax Current tax benefit (expense) - Federal Deferred tax benefit (expense) - Federal Adjustment of valuation allowance from business combination Total tax benefit (expense) on income F-26 2019 2018 848,000 $ (143,000) (133,000) 29,000 (913,000) 1,209,960 897,960 $ (48,000) - - (36,000) - 84,000 - 2019 2018 - $ - 897,960 897,960 $ - - - - $ $ $ $ OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2019 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, 2019 and 2018: Deferred tax asset attributable to: Net operating loss carryover Stock compensation Intangible Assets Other Deferred tax asset Deferred tax liabilities attributable to: Fixed assets Intangibles Other Valuation allowance Deferred tax liability Net deferred tax asset 2019 2018 3,839,000 $ 320,000 - 36,000 4,195,000 $ 2,290,000 535,000 124,000 3,000 2,952,000 (13,000) $ (2,438,000) (16,000) (1,728,000) (4,195,000) $ (5,000) - (9,000) (2,938,000) (2,952,000) - $ - $ $ $ $ $ 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 as well as projections for future periods. The tax years 2016 to 2019 remain open for potential audit by the Internal Revenue Service. There are no uncertain tax positions as of December 31, 2018 or December 31, 2019, and none are expected in the next 12 months. The Company’s foreign subsidiaries are cost centers that are reimbursed for expenses, so generate no income or loss. Pretax book income (loss) is all from domestic operations. Up to four years of returns remain open for potential audit in foreign jurisdictions, however any audits for periods prior to ownership by the Company are the responsibility of the previous owners. Under certain circumstances issuance of common shares can result in an ownership change under Internal Revenue Code Section 382, which limits the Company’s ability to utilize carry-forwards from prior to the ownership change. Any such ownership change resulting from stock issuances and redemptions could limit the Company’s ability to utilize any net operating loss carry-forwards or credits generated before this change in ownership. These limitations can limit both the timing of usage of these laws, as well as the loss of the ability to use these net operating losses. It is likely that fundraising activities have resulted in such an ownership change. NOTE 16 – COMMITMENTS AND CONTINGENT LIABILITIES Legal The Company is not involved in any legal proceedings. Revenue-share contracts The Company has contacts with various electronic health records systems and ePrescribe platforms, whereby we agree to share a portion of the revenue we generate for eCoupons distributed through their networks. These contracts grant audit rights related to the payments to our partners, and, in some cases would require us to pay for the audit if the audit determined there was an underpayment and the underpayment meets certain thresholds, such as 10%. From time to time the Company enters into arrangements with a partner to acquire minimum amounts of messaging capabilities. As of December 31, 2019, the Company had had commitments for future minimum payments of $13.5 million that will be reflected in cost of revenues during the years from 2020 through 2022. Minimum payments are due in 2020, 2021, and 2022, in the amounts of $6.5 million, $5.5 million, and $2.0 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 $126,557 and $172,107 recorded in 2019 and 2018, respectively, for company contributions to the plan. F-27 OPTIMIZERx CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2019 NOTE 18 – SUBSEQUENT EVENTS In March 2020, the Company’s Board of Directors amended the 2013 Equity Compensation Plan to increase the number of shares authorized under the plan to 3.0 million shares. At the same time, the Company granted 84,746 shares of restricted common stock and options to purchase 233,049 shares of common stock to officers that vest over the balance of 2020. The Board also granted options to purchase 33,000 shares of common stock to a non-officer, that were fully vested at the time of grant and 38,000 time-based options to new employees. In 2020, the company issued 35,032 shares and received proceeds of $112,151 in connection with the exercise of options. F-28 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure None Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and to ensure that information required to be disclosed is accumulated and communicated to management, including our principal executive and financial officers, to allow timely decisions regarding disclosure. Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were not effective as of December 31, 2019 due to the material weaknesses described below. Management’s Report on Internal Control over Financial Reporting The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and the dispositions of our assets; (2) provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that our receipts and expenditures are being made only in accordance with appropriate authorizations; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness for future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Based on this assessment, management identified the following material weaknesses which have caused management to conclude that our disclosure controls and procedures were not effective: (i) inadequate information technology general controls (ITGCs) in the areas of user access security, change management, IT operations and third-party management over its key financial information technology (IT) systems; and (ii) inadequate controls to ensure that data received from third parties is complete and accurate. Those weaknesses have not been completely remediated as of December 31, 2019. The material weaknesses did not result in any identified misstatements to the financial statements, and there were no changes to previously released financial results. The Company’s independent registered public accounting firm, Marcum LLP, has issued an adverse opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019, which appears in Item 9a of this Form 10-K. 22 Management’s Remediation Plan As previously disclosed in Part II, item 9A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, we identified two material weaknesses in internal control over financial reporting. The first material weakness related to inadequate segregation of duties with the finance department due to limited personnel. We had only two financial department employees for the majority of 2018. We hired a third employee in late 2018, and two additional employees in 2019, and reallocated duties to provide adequate segregation of duties. This weakness was remediated in 2019. The second material weakness related to inadequate information technology reporting systems. and ineffective information technology general controls (ITGCs) in the areas of user access and change-management. To address the weakness related to inadequate information reporting systems, we installed a new accounting software system with more stringent build in controls in 2019. In addition, we implemented additional controls in the area of user access and change management late in 2019. However, these additional controls were implemented too late in the year to be considered remediated as of December 31, 2019 and the documentation related to the operation of these controls was inadequate to demonstrate the controls were effective. We are currently working on improving the documentation of these controls and expect this to be completed in the second quarter of 2020. To address the inadequate controls over information received from third parties, the Company intends to review the reporting systems used by the third parties in cases where the information received is material to the financial statements, and to document such review. The Company has historically performed extensive analytical procedures on the data received to ensure that it is complete and accurate and intends to continue those reviews as well. Changes in Internal Control Over Financial Reporting Other than the changes to internal controls described above, there has been no material changes in our internal control over financial reporting during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 23 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING To the Shareholders and Board of Directors of OptimizeRx Corporation Adverse Opinion on Internal Control over Financial Reporting We have audited OptimizeRx Corporation and Subsidiaries’ (the "Company") internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, because of the effect of the material weaknesses described in the following paragraph on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. A material weakness is a control deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in “Management's Report on Internal Control Over Financial Reporting”: 1) The Company did not properly design or implement information technology general controls (ITGCs) in the areas of user access security, change management, IT operations and third-party management over its key financial information technology (IT) systems, which are relied upon by management in recording amounts pertaining to revenue and accounts receivable and revenue share expense and revenue share expense payable. In addition, certain IT control processes lacked the sufficient documentation required to demonstrate that such processes were operating effectively. 2) The Company did not properly design or implement controls to ensure that data received from third parties is complete and accurate. Such data is relied on by the Company in recording amounts pertaining to revenue and accounts receivable and revenue share expense and revenue share expense payable. These material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the fiscal 2019 consolidated financial statements, and this report does not affect our report dated March 26, 2020 on those financial statements. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet as of December 31, 2019 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended of the Company and our report dated March 26, 2020 expressed an unqualified opinion on those financial statements. 24 Basis for Opinion The Company's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying "Management Report on Internal Control Over Financial Reporting." Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that degree of compliance with the policies or procedures may deteriorate. /s/ Marcum LLP Marcum LLP New York, NY March 26, 2020 Item 9B. Other Information None 25 Item 10. Directors, Executive Officers and Corporate Governance PART III The following information sets forth the names, ages, and positions of our current directors and executive officers. Name William J. Febbo Stephen L. Silvestro Miriam J. Paramore Douglas P. Baker Gus D. Halas Patrick Spangler Lynn Vos James Lang Age 51 42 57 63 69 64 64 55 Positions and Offices Held Chief Executive Officer and Director Chief Commercial Officer President Chief Financial Officer Chairperson and Director Director Director Director Set forth below is a brief description of the background and business experience of each of our current executive officers and directors. William J. Febbo Mr. Febbo joined our company as Chief Executive Officer and Director on February 22, 2016. Mr. Febbo brings more than 20 years of experience in building and managing health services and financial businesses. Before joining our company. From 2007 to 2015, he worked with Merriman Holdings, Inc., an investment banking firm. There he served as Chief Operating Officer and assisted with capital raises in the tech, biotech, cleantech, consumer and resources industries. Prior to Merriman, Mr Febbo was CEO and co-founder of MedPanel, a provider of market intelligence and communications for the pharmaceutical, biomedical, and medical device industries, which was eventually acquired by MCF Corporation. Mr. Febbo holds a Bachelor of Arts in International Studies from Dickinson College, in Pennsylvania. Febbo serves on the board of The United Nations of Greater Boston, a non-profit focused on building global citizens within inner-city schools in Massachusetts, is faculty on the MIT linq program and currently serves as a board member of Modular Medical (MODD). Aside from that provided above, Mr. Febbo does not hold and has not held over the past five years any other directorships in any company with a class of securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment company under the Investment Company Act of 1940. Mr. Febbo is qualified to serve on our Board of Directors because of his wealth of experience in building and managing health services and financial businesses. Stephen L. Silvestro Mr. Silvestro joined the company as Chief Commercial Officer on April 29, 2019. Mr. Silvestro was with CCH® Tagetik as its Vice President and General Manager from January 2018 until he joined us. From April 2017 to January 2018, Mr. Silvestro was with Prognos as its Chief Commercial Officer and, before that, from September 2007 to April 2017, he was with Decision Resources Group in various capacitates with him last serving as Executive Vice President, Head of Global Sales. 26 Aside from that provided above, Mr. Silvestro does not hold and has not held over the past five years any other directorships in any company with a class of securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment company under the Investment Company Act of 1940. Miriam J. Paramore Ms. Paramore joined the company as President in August 2017. She has vast experience with healthcare companies, running businesses ranging from start- ups to large divisions of public and private companies. Her early career was spent at Ernst & Young, as a Healthcare Management Consultant. She has since occupied executive level and director positions at several healthcare companies. Most recently, from April 2016 to April 2017, Ms. Paramore served as COO and CTO of Lucro, Inc., a privately held company located in| Nashville, Tennessee focused on the healthcare sector. From March 2015 to February 2016, she served as Executive Vice President of PDX a privately held company in Fort Worth, Texas that provides health information technology for pharmacies. From May 2008 to December 2013, she served as Executive Vice President of Emdeon, Inc. in Nashville, Tennessee, a health information technology and tech-enabled services company. Aside from that provided above, Ms. Paramore does not hold and has not held over the past five years any other directorships in any company with a class of securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment company under the Investment Company Act of 1940. Gus D. Halas Mr. Halas joined our company as a Director on August 7, 2014. Mr. Halas has served as CEO of several companies. He was Chief Executive Officer and President of the Central Operating Companies at Central Garden & Pet Company from April 2011 through May 2013 and currently serves as a consultant to that Company. Mr. Halas was President and Chief Executive Officer of T-3 Energy Services, Inc. from May 2003 to March 2009 and also served as Chairman of the Board of Directors from March 2004 to March 2009. From August 2001 to April 2003, Mr. Halas served as President and Chief Executive Officer of Clore Automotive, Inc. He also serves as a director for Triangle Petroleum Corp., Hooper Holmes, Inc., School Specialty, Inc., and Madelena Energy. Aside from that provided above, Mr. Halas does not hold and has not held over the past five years any other directorships in any company with a class of securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment company under the Investment Company Act of 1940. Mr. Halas is qualified to serve on our Board of Directors because of his experience and expertise as an executive and a director with companies implementing “turnaround” strategies. 27 Lynn Vos Ms. Vos has been the President and CEO of the Muscular Distrophy Association since October 2017. Prior to that, Ms. Vos had been chief executive officer of ghg | greyhealth group since 1994 and is a champion of using digital capabilities to improve the public health. Ms. Vos also serves on the board of nTelos Wireless, a NASDAQ listed company, the Jed Foundation, a leading nonprofit dedicated to protecting the emotional health of college students, and was a founding board member of MMRF, a pioneering cancer research foundation. Aside from that provided above, Ms. Vos does not hold and has not held over the past five years any other directorships in any company with a class of securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment company under the Investment Company Act of 1940. Ms. Vos is qualified to serve on our Board of Directors because of her extensive executive skills in digital marketing and communications in the healthcare industry. James Lang Mr. Lang joined our Board January 12, 2017. He brings us more than 25 years of experience in healthcare data, analytic, and technology enabled business services. Mr. Lang is the CEO of Eversana, a leading independent provider of global commercial services to the life science industry, and also presently serves as an executive advisor to Water Street, a strategic private equity firm focused exclusively on building market-leading companies in healthcare. In that capacity, he currently serves as Board Chairman to The Access Group, Health Strategies Group, Alliance Life Sciences, and Dohmen Life Science Services. He is also a director of BioVie, a development-stage company pioneering an innovative therapeutic that targets complications due to liver cirrhosis. Mr. Lang previously served as CEO of Decision Resources Group, a leading healthcare research and consulting company providing high-value healthcare industry analysis and insights, where he helped transform the company into an industry leader. Earlier, he was president of Strategic Decisions Group, a premier global strategy consultancy, and he expanded the life sciences practice and later sold it to IMS Health. He is an active private investor and advisor with healthcare companies, including Boston Heart Diagnostics (acquired by Eurofins) and AlphalmpactRx (acquired by IMS Health). Aside from that provided above, Mr. Lang does not hold and has not held over the past five years any other directorships in any company with a class of securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment company under the Investment Company Act of 1940. Mr. Lang is qualified to serve on our Board of Directors because of his extensive executive skills and background in the healthcare industry. Patrick Spangler Mr. Spangler presently serves as CFO of VigiLanz, a digital healthcare intelligence firm, and as a member of the board of directors of Lifespace Communities. He has more than 30 years of experience in the health care industry, executing domestic and international growth and exit strategies. He has helped lead high-performance, emerging growth firms, as well as large publicly-traded companies. Earlier, Mr. Spangler served as executive vice president and CFO of Healthland, an EHR company serving the critical access hospital market. He has also served as CFO at the point-of-care medical applications provider, Epocrates, that he helped bring public in 2011, and which was eventually acquired by Athenahealth. Prior to Epocrates, he was CFO of the ev3, a vascular therapy that went public in 2005 and then acquired by Covidien, as well as CFO of the medical device manufacturer, Empi, which was acquired by Encore Medical. Aside from that provided above, Mr. Spangler does not hold and has not held over the past five years any other directorships in any company with a class of securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment company under the Investment Company Act of 1940. Mr. Spangler is qualified to serve on our Board of Directors because of his extensive executive skills and background in the healthcare industry and his finance experience. Douglas P. Baker Mr. Baker has served as our CFO since May 19, 2014. Mr. Baker is a Certified Public Account with a Master’s Degree in Business Administration. He has extensive business experience including 9 years in public accounting with Plante Moran, four years as CFO of a privately held printing company, 5 years in a variety of divisional financial roles at MascoTech, Inc., a Fortune 500 automotive supplier, and from 1996 to 2014 as Chief Financial Officer of Applied Nanotech Holdings, Inc., (“APNT”) a publicly held nanotechnology research and licensing company. Mr. Baker was also a member of the Board of Directors of APNT from 2006 through 2014. He was a member of the Board Directors of Total Health Care, Inc., a Detroit based Health Maintenance Organization from 1987 through January 2020, including his latest role as Chairman of the Board, until it was acquired by Priority Health, a Michigan based HMO in January 2020. He became a member of the Priority Health Board in January 2020. Aside from that provided above, Mr. Baker does not hold and has not held over the past five years any other directorships in any company with a class of securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment company under the Investment Company Act of 1940. 28 Directors Our bylaws authorize no less than three (3) and no more than Seven (7) Directors unless changed by the Board of Directors. We currently have five (5) Directors. Term of Office Our Directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board, subject to their respective employment agreements. Significant Employees We have no significant employees other than our officers and directors. Family Relationships There are no family relationships between or among the directors, executive officers or persons nominated or chosen by us to become directors or executive officers. Involvement in Certain Legal Proceedings During the past 10 years, other than as set forth below, none of our current directors, nominees for directors or current executive officers has been involved in any legal proceeding identified in Item 401(f) of Regulation S-K, including: 1. Any petition under the Federal bankruptcy laws or any state insolvency law filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he or she was a general partner at or within two years before the time of such filing, or any corporation or business association of which he or she was an executive officer at or within two years before the time of such filing; 2. Any conviction in a criminal proceeding or being named a subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); 3. Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him or her from, or otherwise limiting, the following activities: i. Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity; ii. Engaging in any type of business practice; or iii. Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws; 29 4. Being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any type of business regulated by the Commodity Futures Trading Commission, securities, investment, insurance or banking activities, or to be associated with persons engaged in any such activity; 5. Being found by a court of competent jurisdiction in a civil action or by the SEC to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated; 6. Being found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated; 7. Being subject to, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: i. Any Federal or State securities or commodities law or regulation; or ii. Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or iii. Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or 8. Being subject to, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. On January 29, 2018, FINRA accepted a Letter of Acceptance, Waiver and Consent (No. 2015044865501) (the “Consent”) submitted by William Febbo. From August 2012 to October 2015, Mr. Febbo was the Financial and Operations Principal (FinOp) for a registered broker-dealer, Merriman Capital, Inc. (Merriman). During certain months while Mr. Febbo was FINOP, FINRA found that certain of Merriman’s net capital filings with FINRA were inaccurate because of the method by which Merriman calculated net capital and that, when corrected, it was retroactively determined that Merriman had operated below its minimum net capital requirements. Febbo, as FinOp, signed certain of these reports and was thus held responsible. Based on the Consent, in settlement, Mr. Febbo, who was then no longer registered with any broker-dealer, accepted a fine of $5,000 and a 10-business day suspension from acting as FinOp for any FINRA member. Director Independence The Board of Directors reviews the independence of our directors on the basis of standards adopted by the Nasdaq Stock Market (“Nasdaq”). As a part of this review, the Board of Directors considers transactions and relationships between our company, on the one hand, and each director, members of the director’s immediate family, and other entities with which the director is affiliated, on the other hand. The purpose of such a review is to determine which, if any, of such transactions or relationships were inconsistent with a determination that the director is independent under Nasdaq rules. As a result of this review, the Board of Directors has determined that each of our directors other than Mr. Febbo is an “independent director” within the meaning of applicable Nasdaq listing standards. 30 Committees of the Board The Board of Directors has three standing committees to facilitate and assist the Board of Directors in the execution of its responsibilities: (1) Nominating and Governance Committee; (2) Audit Committee and (3) Compensation Committee. Each committee acts pursuant to a written charter adopted by the Board of Directors. Each committee’s charter is available on our corporate website at http://www.optimizerx.com. (The information contained in our website is not incorporated into this Annual Report on Form 10-K.) All of the committees are comprised solely of non-employee, independent directors as defined by Nasdaq market listing standards. Nominating and Governance Committee The Board of Directors has established a Nominating and Governance Committee. In 2019, the committee members were Directors Vos (Chair), Lang, and Halas. The Nominating and Corporate Governance Committee held 4 meetings during the fiscal year ended December 31, 2019. The Nominating and Corporate Governance Committee’s responsibilities, which are discussed in detail in its charter, include the responsibility to: ● Develop qualifications and criteria for selecting and evaluating directors and nominees; ● Consider and propose director nominees; ● Make recommendations to the Board regarding Board compensation; ● Make recommendations to the Board regarding Board committee memberships; ● Develop and recommend to the Board corporate governance guidelines; ● Facilitate an annual assessment of the performance of the Board and each of its standing committees; ● Consider the independence of each director and nominee for director; and ● Perform other functions or duties deemed appropriate by the Board. Compensation Committee The Board of Directors has established a Compensation Committee. The Compensation Committee held 4 meetings during the fiscal year ended December 31, 2019, and held other informal discussions as needed. In 2019, the Committee was composed of Directors Halas, Spangler, and Lang, and is chaired by Director Lang. The Compensation Committee’s responsibilities, which are discussed in detail in its charter, include the responsibility to: ● In consultation with our senior management, establish our general compensation philosophy and oversee the development and implementation of our compensation programs; ● Recommend the base salary, incentive compensation and any other compensation for our Chief Executive Officer to the Board of Directors and review and approve the Chief Executive Officer’s recommendations for the compensation of all other officers of our company and its subsidiary; ● Administer our incentive and stock-based compensation plans, and discharge the duties imposed on the Compensation Committee by the terms of those plans; ● Review and approve any severance or termination payments proposed to be made to any current or former officer of our company; and ● Perform other functions or duties deemed appropriate by the Board of Directors. 31 Audit Committee In 2019, the Audit Committee was comprised of Directors Halas, Spangler and Vos, and is chaired by Director Spangler. The Audit Committee held four meetings during the fiscal year ended December 31, 2019 and held informal discussions as necessary. The Audit Committee approves the selection of our independent accountants and meets and interacts with the independent accountants to discuss issues related to financial reporting. In addition, the Audit Committee reviews the scope and results of the audit with the independent accountants, reviews with management and the independent accountants our annual operating results, considers the adequacy of our internal accounting procedures, including our internal control over financial reporting, and considers other auditing and accounting matters including fees to be paid to the independent auditor and the performance of the independent auditor. For the fiscal year ending December 31, 2019, the Audit Committee: 1. Reviewed and discussed the audited financial statements with management, and 2. Reviewed and discussed the written disclosures and the letter from our independent auditors on the matters relating to the auditor’s independence. Based upon the Audit Committee’s review and discussion of the matters above, the board of directors authorized inclusion of the audited financial statements for the year ended December 31, 2019 to be included in this Annual Report on Form 10-K and filed with the Securities and Exchange Commission. The Board has determined that each member of the Audit Committee qualifies as an audit committee financial expert as defined under applicable SEC rules and also meets the additional criteria for independence of audit committee members set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires our directors and executive officers and persons who beneficially own more than ten percent of a registered class of the Company’s equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent beneficial shareholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. To the best of our knowledge based solely on a review of Forms 3, 4, and 5 (and any amendments thereof) received by us, no persons have failed to file, on a timely basis, the identified reports required by Section 16(a) of the Exchange Act during fiscal year ended December 31, 2019, other than AWM Investment Company, Inc., which was late in one instance in filing its Form 4 obligation. Code of Ethics In October 2017, the Board of Directors adopted a Code of Ethics for the Company, which was attached to our 2017 Annual Report on Form 10-K as Exhibit 14.1. 32 Item 11. Executive Compensation The table below summarizes all compensation awarded to, earned by, or paid to our current executive officers for the fiscal years ended December 31, 2019 and 2018. Name and principal position William J. Febbo (1) CEO, Director Stephen L.Silvestro Chief Commercial Officer Miriam Paramore (2) President Douglas P. Baker (3) CFO Year 2019 2018 2019 2018 2019 2018 2019 2018 Salary ($) 300,000 275,000 188,821 - 250,000 232,500 240,000 220,000 Bonus ($) 126,990 294,838 82,678 - 70,550 131,781 67,728 124,696 Stock Awards ($) 391,800 336,000 938,700 - 130,600 70,000 130,600 70,000 Option Awards ($) All Other Compensation ($) - - - - - - - 15,200 17,300 - - 11,200 11,000 11,200 11,000 Total ($) 833,990 923,138 1,120,199 - 462,350 445,281 449,528 425,696 Narrative Disclosure to the Summary Compensation Table (1) Amounts reflected in All Other Compensation column for Mr. Febbo in 2018 is composed of $11,000 employer matching contributions to the Company’s retirement plan, $4,000 for a term life policy, and $2,300 for legal fees. The 2019 amounts are $10,800 employer matching contributions to the Company’s retirement plan and the balance for a term life policy. (2) Amount reflected in All Other Compensation for Ms. Paramore for both years reflects employer matching contributions to the Company’s retirement plan. (3) Amounts reflected in All Other Compensation column for Mr. Baker in both years represents employer matching contributions to the Company’s retirement plan. Mr. Febbo joined the Company as CEO on February 22, 2016. On September 10, 2018, Mr. Febbo signed a new employment agreement calling for a base salary of $275,000 in 2018 and $300,000 in 2019. In March 2020, the Board of Directors amended his contract to provide a base salary of $350,000 per year in 2020 and $400,000 per year in 2021. In addition, he is eligible to participate in the Company’s executive bonus plan with a target bonus of 60% of his annual salary. He is also eligible for vacation, sick days, insurance, to participate in the Company’s 401k plan, and other benefits covering all employees. Mr. Febbo’s contract also calls for him to be reimbursed $4,000 per year for a separate term life insurance policy. Mr. Febbo’s contract calls for 12 months of severance if he is terminated without cause. In February 2018, the Board of Directors agreed to accelerate vesting on 100,000 of Mr. Febbo’s options that were originally scheduled to vest on the fifth anniversary of his contract in 2021, by three years, to vest in February 2018. In February 2019, the Board of Directors agreed to accelerate the vesting of the remaining 100,000 unvested options held by Mr. Febbo from February 2020 to February 2019. The Company also granted to Mr. Febbo 80,000 shares of restricted common stock in February 2018 that vest if the Company achieved targeted stretch revenue goals in either 2018 or 2019. The Company achieved those targeted revenues in 2018, so the shares vested. In February 2019, the Board of Directors also granted Mr. Febbo an additional 30,000 shares of restricted common stock if the Company achieves certain targeted stretch revenue goals in 2019. Those goals were not achieved, so the shares did not vest. In March 2020, the Board of Directors granted Mr. Febbo an additional 84,786 shares of restricted common stock. 33 Mr. Silvestro joined the Company as Chief Commercial Officer on April 29, 2019. Under the terms of his employment agreement, he received an annual base salary of $280,000 and a signing bonus of $30,000, paid in two installments of $15,000 in 2019. In March 2020, the Board of Directors amended his contract to increase his base salary to $300,000 for 2020. In addition, he was eligible to participate in the Company’s executive bonus plan with a target bonus of 40% of his annual salary. In March 2020, the Board increased his target bonus percentage to 50% of his base salary. He is also eligible for vacation, sick days, insurance, to participate in the Company’s 401k plan, and other benefits covering all employees. Mr. Silvestro’s contract also calls for 12 months of severance if he is terminated without cause. Mr. Silvestro also received a grant of 90,000 shares of restricted common stock at the time of his employment. The grant vests all at one time upon completion of five years of employment. In March 2020, the Board of Directors granted Mr. Silvestro 105,993 options, which vest quarterly throughout 2020, to purchase shares of common stock at a price of $7.54 per share. Ms. Paramore joined the Company as President on August 1, 2017. On September 10, 2018 Ms. Paramore signed a new employment agreement calling for a base salary of $250,000. In March 2020, the Board of Directors amended her contract to increase her base salary to $275,000 for 2020. In addition, she is eligible to participate in the Company’s executive bonus plan with a target bonus of 40% of her annual salary. She is also eligible for vacation, sick days, insurance, to participate in the Company’s 401k plan, and other benefits covering all employees. Ms. Paramore’s contract also calls for 12 months of severance if she is terminated without cause. Under the terms of her contract, in 2017, the Company also granted to Ms. Paramore an option to purchase 166,667 shares of common stock, exercisable at a price of $3.15 per share, and vesting annually over a period of 5 years. Ms. Paramore was also granted 16,667 shares of restricted common stock in February 2018 that vest if the Company achieved targeted stretch revenue goals in either 2018 or 2019. The Company achieved those targeted revenues in 2018, so the shares vested. In February 2019, the Board of Directors also granted Ms. Paramore an additional 10,000 shares of restricted common stock if the Company achieves certain targeted stretch revenue goals in 2019. Those goals were not achieved, so the shares did not vest. In March 2020, the Board of Directors granted Ms. Paramore 63,558 options, which vest quarterly through 2020, to purchase shares of common stock at a price of $7.54 per share. On September 10, 2018, Mr. Baker signed a new employment agreement calling for a base salary of $220,000. In February 2019, Mr. Baker signed an amended employment agreement increasing his base salary to $240,000 for 2019. In March 2020, the Board of Directors amended his contract to increase his base salary to $260,000 for 2020. In addition, he is eligible to participate in the Company’s executive bonus plan with a target bonus of 40% of his annual salary. He is also eligible for vacation, sick days, insurance, to participate in the Company’s 401k plan, and other benefits covering all employees. Mr. Baker’s contract calls for 12 months of severance if he is terminated without cause. In February 2019, Mr. Baker signed an amended employment agreement increasing his base salary to $240,000 for 2019. Mr. Baker was also granted 16,667 shares of restricted common stock in February 2018 that vests if the Company achieves targeted stretch revenue goals in either 2018 or 2019. The Company achieved those targeted revenues in 2018, so the shares vested. In February 2019, the Board of Directors also granted Mr. Baker an additional 10,000 shares of restricted common stock if the Company achieves certain targeted stretch revenue goals in 2019. Those goals were not achieved, so the shares did not vest. In March 2020, the Board of Directors granted Mr. Baker 63,558 options, which vest quarterly through 2020, to purchase shares of common stock at a price of $7.54 per share. For all four executive officers, the executive bonus plan contains a provision whereby each officer could receive a bonus ranging from $0 to $1.0 million if a change of control transaction occurs prior to December 31, 2021, depending up on the transaction price. 34 Outstanding Equity Awards at Fiscal Year-End The table below summarizes all unexercised options, stock that has not vested, and equity incentive plan awards for each named executive officers as of December 31, 2019. OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END OPTION AWARDS STOCK AWARDS Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#) Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) Number of Shares or Units of Stock That Have Not Vested (#) Market Value of Shares or Units of Stock That Have Not Vested ($) Option Exercise Price ($) Option Expiration Date Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) $ 3.21 02/21/21 90,000 $ $ $ 3.15 07/27/22 3.15 06/24/20 2.46 03/31/22 Number of Securities Underlying Unexercised Options (#) Exercisable 470,000 - 66,667 28,334 100,001 Number of Securities Underlying Unexercised Options (#) Unexercisable - - 100,000 - - Name Will Febbo Steve Silvestro Miriam Paramore Douglas Baker Director Compensation The table below summarizes all compensation of our directors as of December 31, 2019: Name Gus D. Halas James Lang Patrick Spangler Lynn Vos Fees Earned or Paid in Cash ($) 43,500 30,000 33,500 33,000 Stock Awards ($) 111,848 111,848 111,848 111,848 Option Awards ($) All Other Compensation ($) - - - - - - - - Total ($) 155,348 141,848 145,348 144,848 35 Narrative Disclosure to the Director Compensation Table Pursuant to our Director Compensation Plan, independent directors (“Outside Directors”) received: (a) an annual cash retainer for Board and Committee service in 2019 as set forth in the table below, payable in equal quarterly installments, and (b) reimbursement for expenses related to Board meeting attendance and any committee participation. Basic Director Fee Board Chair Audit Committee Chair Audit Committee Member Compensation Committee Chair Compensation Committee Member Nominating and Governance Chair Nominating and Governance Committee Member Annual Fee ($) 25,000 12,500 5,000 2,500 5,000 2,500 2,500 1,000 In addition, Outside Directors also each received 8,336 shares of Common Stock per year, payable in equal quarterly installments, which vested immediately upon issuance. Directors that are also employees of our company shall not receive additional compensation for serving on the Board. Both the cash retainer and stock awards are prorated for partial quarters of service when a new Director joins the Board. Directors are expected to attend four meetings per year as well as spend an additional 10 – 20 hours per month on company matters. In March 2020, the Board amended the Outside Director plan to increase the annual cash fees, payable quarterly, as set forth in the table below. Basic Director Fee Board Chair Audit Committee Chair Audit Committee Member Compensation Committee Chair Compensation Committee Member Nominating and Governance Chair Nominating and Governance Committee Member In addition, the Outside Directors will receive common shares valued at $100,000 annually, payable in equal quarterly installments. 36 Annual Fee ($) 40,000 40,000 5,500 - - - - - Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. CERTAIN BENEFICIAL OWNERS The following table sets forth the beneficial ownership by each person, other than executive officers and directors, known to us to beneficially own 5% or more of our outstanding common stock as of March 24, 2020. For the purposes of this Annual Report, beneficial ownership of securities is defined in accordance with the rules of the SEC to mean generally the power to vote or dispose of securities, regardless of any economic interest therein, including any such security that the person has the right to acquire within 60 days after such date. More Than 5% Beneficial Owners: Common Common Common Common Common Name and Address Park West Asset Management(1) 900 Larkspur Landing Circle Suite 165 Larkspur, CA 94939 AWM Investment(2) 527 Madison Ave. Suite 2600 New York, NY 10022 BlackRock, Inc.(3) 55 East 52nd Street New York, NY 10055 Harvey L. Poppel(4) 110 El Mirasol Palm Beach, FL 33480 Ronald L. Chez(5) 55 East Monroe Street, Suite 3700 Chicago, IL 60603 (1) As stated in a Schedule 13G/A filed with the Securities and Exchange Commission on February 14, 2020. (2) As stated in a Schedule 13G/A filed with the Securities and Exchange Commission on February 12, 2020. (3) As stated in a Schedule 13G filed with the Securities and Exchange Commission on February 7, 2020. (4) As stated in a Schedule 13G filed with the Securities and Exchange Commission on January 13, 2020. (5) As stated in a Schedule 13D/A filed with the Securities and Exchange Commission on September 27, 2019. 37 Common Shares Owned Percentage of Class 814,668 5.6% 952,027 6.5% 938,436 6.4% 1,060,693 7.2% 1,122,918 7.7% SECURITY OWNERSHIP OF MANAGEMENT Set forth below is certain information with respect to beneficial ownership of our common stock as of March 24, 2020, by each director, each executive officer, and by the directors and executive officers as a group. Unless otherwise indicated, each person or member of the group listed has sole voting and investment power with respect to the shares of common stock listed. Name(1) William J. Febbo Steve Silvestro Miriam Paramore Lynn Vos Douglas P. Baker Gus D. Halas Patrick Spangler James Lang All Executive Officers and Directors as a group (8 persons) * Less than 1% Options Included in Beneficial Ownership (2) Restricted Stock Awards (3) Common Shares Owned Common Stock Beneficial Ownership Percentage of Class 440,000 26,483 115,891 - 139,193 - - - 721,567 21,187 21,187 163,237 - 24,079 24,238 71,917 57,176 14,683 25,008 380,338 624,424 26,483 139,970 24,238 211,110 57,176 14,683 25,008 1,123,092 4.2% * * * 1.4% * * * 7.4% (1) The address of each person named in this table is c/o OptimizeRx Corp., 400 Water Street, Suite 200, Rochester, MI 48307. (2) This column lists shares that are subject to options exercisable within sixty (60) days of March 24, 2020 and are included in common stock beneficial ownership pursuant to Rule 13d-3(d)(1) of the Exchange Act. (3) This column lists shares resulting from restricted stock awards that have vested as of March 24, 2020, but for which shares have not been issued. Item 13. Certain Relationships and Related Transactions, and Director Independence Other than described below or the transactions described under the heading “Executive Compensation” (or with respect to which such information is omitted in accordance with SEC regulations), there have not been, and there is not currently proposed, any transaction or series of similar transactions to which we were or will be a participant in which the amount involved exceeded or will exceed the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years, and in which any director, executive officer, holder of 5% or more of any class of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest. During the year ended December 31, 2015, WPP made a strategic investment in the Company and was a shareholder that owned approximately 20% of the shares of the Company at the time. WPP sold its entire ownership position in December 2018, and is no longer a shareholder of the Company. 38 The following table sets forth the activity between the Company and WPP in 2018: Total billings to WPP Agencies Revenue recognized from WPP Agencies Accounts receivable from WPP Agencies Item 14. Principal Accounting Fees and Services 2018 6,217,735 6,527,051 2,051,532 $ $ $ Below are tables of Audit Fees (amounts in US$) billed by our auditors in connection with the audit of the Company’s annual financial statements and review of the quarterly financial statements for the years indicated below: Our 2018 financial statements were audited by Sadler Gibb & Associates. Our 2019 financial statements were audited by Marcum, LLP. Marcum, LLP Financial Statements for the Year Ended December 31 2019 2018 Sadler Gibb & Associates Financial Statements for the Year Ended December 31 2019 2018 39 Audit Related Fees Tax Fees Audit Services $ $ 396,850 $ - $ - $ - $ Audit Related Fees Tax Fees Audit Services $ $ 102,409 $ 116,430 $ 5,550 $ 14,220 $ Other Fees - $ - $ - - Other Fees - $ - $ - - Item 15. Exhibits, Financial Statements Schedules (a) Financial Statements and Schedules PART IV The following financial statements and schedules listed below are included in this Form 10-K. Financial Statements (See Item 8) (b) Exhibits Exhibit Number 3.1 3.2 3.3 3.4 3.5 3.6 10.1 10.2 10.3 10.4 10.5 10.6 14.1 21.1** 23.1** 31.1** 31.2** 32.1** 101** Description Articles of Incorporation of OptimizeRx Corporation (the “Company”)1 Amended and Restated Bylaws of the Company2 Certificate of Designation, filed on September 5, 2008 with the Secretary of State of the State of Nevada by the Company1 Certificate of Designation, filed on June 3, 2010 with the Secretary of State of the State of Nevada by the Company3 Certificate of Correction, dated April 30, 20184 Certificate of Withdrawal of Certificate of Designation, dated May 10, 20184 Fourth Amended and Restated 2013 Equity Incentive Plan5 Amendment to Employment Agreement with Terry Hamilton, dated February 7, 20196 Amendment to Employment Agreement with Doug Baker, dated March 10, 2020** Amendment to Employment Agreement with William Febbo, dated March, 10, 2020** Amendment to Employment Agreement with Stephen Silvestro, dated March, 10, 2020** Amendment to Employment Agreement with Miriam Paramore, dated March, 10, 2020** Code of Business Conduct and Ethics7 List of Subsidiaries Consent of Marcum LLP** Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 formatted in Extensible Business Reporting Language (XBRL). Incorporated by reference to the Form S-1, filed by the Company with the Securities and Exchange Commission on November 12, 2008. Incorporated by reference to the Form 8-K, filed by the Company with the Securities and Exchange Commission on July 16, 2010. Incorporated by reference to the Form 8-K, filed by the Company with the Securities and Exchange Commission on June 11, 2010. Incorporated by reference to the Form 10-K, filed by the Company with the Securities and Exchange Commission on March 12, 2019, Incorporated by reference to the Form 8-K filed by the Company with the Securities and Exchange Commission on March 12, 2020. Incorporated by reference to the Form 8-K filed by the Company with the Securities and Exchange Commission on February 8, 2019. Incorporated by reference to the Form 10-K filed by the Company with the Securities and Exchange Commission on March 8, 2018. 1 2 3 4 5 6 7 ** provided herewith 40 Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES OptimizeRx Corporation By: /s/ William J. Febbo William Febbo Chief Executive Officer, Principal Executive Officer March 26, 2020 By: /s/ Douglas P. Baker Douglas P. Baker Title: Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer Date: March 26, 2020 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ William J. Febbo William J. Febbo Title: Chief Executive Officer, Principal Executive Officer and Director Date: March 26, 2020 By: /s/ James Lang James Lang Title: Director Date: March 26, 2020 By: /s/ Gus D. Halas Gus D. Halas Title: Chairman and Director Date: March 26, 2020 By: /s/ Patrick Spangler Patrick Spangler Title: Director Date: March 26, 2020 By: /s/ Lynn Vos Lynn Vos Title: Director Date: March 26, 2020 41 Employment Agreement Addendum I Addendum to agreement dated February 17, 2019 Exhibit 10.3 This first addendum to the employment agreement (the “Addendum”) is made this 10th day of March 2020, by and between OptimizeRx, Corporation (the “Company”), a Nevada Company, and Douglas Baker (the “Executive”). Base Salary: The Executive will receive a base salary at the annualized rate of $260,000.00 (“Base Salary”), which will be paid in accordance with normal Company payroll practices and subject to the usual and applicable required withholding(s). Effective Date: January 1, 2020 Acknowledgment: Except as expressly set forth herein, all other terms of the Agreement remain in full force and effect. OptimizeRx, Corporation By: Will Febbo Its: Date: March 10, 2020 Chief Executive Officer Douglas Baker Douglas P. Baker By: Date: March 10, 2020 Employment Agreement Addendum I Addendum to agreement dated September 10, 2018 Exhibit 10.4 This first addendum to the employment agreement (the “Addendum”) is made this 10th day of March 2020, by and between OptimizeRx, Corporation (the “Company”), a Nevada Company, and William Febbo (the “Executive”). Base Salary: The Executive will receive a base salary at the annualized rate of $350,000.00 (“Base Salary”), for 2020 and $400,000.00 for 2021 calendar year, which will be paid in accordance with normal Company payroll practices and subject to the usual and applicable required withholding(s). Effective Date: January 1, 2020 & January 1, 2021 Acknowledgment: Except as expressly set forth herein, all other terms of the Agreement remain in full force and effect. OptimizeRx, Corporation By: Douglas P. Baker Chief Financial Officer Its: Date: March 10, 2020 William Febbo By: William Febbo Date: March 10, 2020 Employment Agreement Addendum I Addendum to agreement dated March 18, 2019 Exhibit 10.5 This first addendum to the employment agreement (the “Addendum”) is made this 10th day of March 2020, by and between OptimizeRx, Corporation (the “Company”), a Nevada Company, and Stephen Silvestro (the “Executive”). Base Salary: The Executive will receive a base salary at the annualized rate of $300,000.00 (“Base Salary”), which will be paid in accordance with normal Company payroll practices and subject to the usual and applicable required withholding(s). Bonus: The Executive will be eligible to participate in the Company’s Executive Bonus Plan, subject to terms and conditions, with an annual target bonus of 50% of base salary. Effective Date: January 1, 2020 Acknowledgment: Except as expressly set forth herein, all other terms of the Agreement remain in full force and effect. OptimizeRx, Corporation By: William Febbo Its: Date: March 10, 2020 Chief Executive Officer Stephen Silvestro Stephen Silvestro By: Date: March 10, 2020 Employment Agreement Addendum I Addendum to agreement dated September 10, 2018 Exhibit 10.6 This first addendum to the employment agreement (the “Addendum”) is made this 10th day of March 2020, by and between OptimizeRx, Corporation (the “Company”), a Nevada Company, and Miriam Paramore (the “Executive”). Base Salary: The Executive will receive a base salary at the annualized rate of $275,000.00 (“Base Salary”), which will be paid in accordance with normal Company payroll practices and subject to the usual and applicable required withholding(s). Effective Date: January 1, 2020 Acknowledgment: Except as expressly set forth herein, all other terms of the Agreement remain in full force and effect. OptimizeRx, Corporation By: William Febbo Its: Date: March 10, 2020 Chief Executive Officer Miriam Paramore By: Miriam Paramore Date: March 10, 2020 OptimizeRx Corporation, A Michigan corporation CareSpeak Communications, Inc., a New Jersey corporation CareSpeak Communications D.O.O., a controlled foreign corporation located in Croatia. List of Subsidiaries RMDY Health, Inc., A Delaware corporation Cyberdiet, a controlled foreign corporation located in Israel Exhibit 21.1 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT We consent to the incorporation by reference in the Registration Statement of OptimizeRx Corporation on Form S-3 (File No. 333-228357) and Form S-8 (File Nos. 333-230212; 333-210653; and 333-189439) of our report dated March 26, 2020, with respect to our audit of the consolidated financial statements of OptimizeRx Corporation and Subsidiaries as of December 31, 2019 and for the year then ended and our report dated March 26, 2020 with respect to our audit of the effectiveness of internal control over financial reporting of OptimizeRx Corporation as of December 31, 2019, which reports are included in this Annual Report on Form 10-K of OptimizeRx Corporation for the year ended December 31, 2019. Our report on the consolidated financial statements refers to a change in the Company’s method of accounting for leases in 2019 due to the adoption of ASU No. 2016-02, Leases (Topic 842), as amended, effective January 1, 2019, using the modified retrospective approach. Our report on the effectiveness of internal control over financial reporting expressed an adverse opinion because of the existence of material weaknesses. Exhibit 23.1 /s/ Marcum LLP Marcum LLP New York, NY March 26, 2020 Exhibit 31.1 I, William J. Febbo, certify that; CERTIFICATIONS 1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2019 of OptimizeRx Corp (the “registrant”); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f)) for the registrant and have: a. b. c. d. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a. b. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: March 26, 2020 /s/ William J. Febbo By: William J. Febbo Title: Chief Executive Officer, Principal Executive Officer Exhibit 31.2 I, Douglas P. Baker, certify that; CERTIFICATIONS 1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2019 of OptimizeRx Corp (the “registrant”); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f)) for the registrant and have: a. b. c. d. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a. b. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: March 26, 2020 /s/ Douglas P. Baker By: Douglas P. Baker Title: Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 32.1 In connection with the annual Report of OptimizeRx Corp (the “Company”) on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission (the “Report”), I, William J. Febbo, Chief Executive Officer of the Company, and I, Douglas P. Baker, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. 2. The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and the consolidated result of operations of the Company for the periods presented. /s/ William J. Febbo By: Name: William J. Febbo Title: Date: March 26, 2020 Chief Executive Officer, Principal Executive Officer /s/ Doug Baker By: Name: Doug Baker Title: Date: March 26, 2020 Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 

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