Item
1. Financial Statements
Our
consolidated financial statements included in this Form 10-Q are as follows:
2
|
Condensed
Consolidated Balance Sheets as of March 31, 2019 (unaudited) and December 31, 2018;
|
3
|
Condensed
Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018 (unaudited);
|
4
|
Condensed
Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2019 and 2018
(unaudited)
|
5
|
Condensed
Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018 (unaudited);
|
6
|
Notes
to Condensed Consolidated Financial Statements.
|
OPTIMIZERx
CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
10,133,940
|
|
|
$
|
8,914,034
|
|
Accounts receivable
|
|
|
4,902,888
|
|
|
|
6,457,841
|
|
Prepaid expenses
|
|
|
446,022
|
|
|
|
360,146
|
|
Total Current Assets
|
|
|
15,482,850
|
|
|
|
15,732,021
|
|
Property and equipment, net
|
|
|
146,543
|
|
|
|
149,330
|
|
Other Assets
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
3,678,513
|
|
|
|
3,678,513
|
|
Patent rights, net
|
|
|
2,712,855
|
|
|
|
2,766,944
|
|
Other intangible assets, net
|
|
|
2,397,791
|
|
|
|
2,492,123
|
|
Right of use assets, net
|
|
|
644,335
|
|
|
|
-
|
|
Other assets and deposits
|
|
|
193,972
|
|
|
|
235,647
|
|
Total Other Assets
|
|
|
9,627,466
|
|
|
|
9,173,227
|
|
TOTAL ASSETS
|
|
$
|
25,256,859
|
|
|
$
|
25,054,578
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable – trade
|
|
$
|
584,820
|
|
|
$
|
411,010
|
|
Accrued expenses
|
|
|
291,456
|
|
|
|
1,300,882
|
|
Revenue share payable
|
|
|
1,132,102
|
|
|
|
1,908,616
|
|
Current portion of lease obligations
|
|
|
110,065
|
|
|
|
-
|
|
Current portion of contingent purchase price payable
|
|
|
1,092,000
|
|
|
|
-
|
|
Deferred revenue
|
|
|
645,824
|
|
|
|
610,625
|
|
Total Current Liabilities
|
|
|
3,856,267
|
|
|
|
4,231,133
|
|
Non-current Liabilities
|
|
|
|
|
|
|
|
|
Lease obligations, net of current portion
|
|
|
537,716
|
|
|
|
-
|
|
Contingent purchase price payable, net of current portion
|
|
|
1,421,000
|
|
|
|
2,365,000
|
|
Total Non-current liabilities
|
|
|
1,958,716
|
|
|
|
2,365,000
|
|
Total Liabilities
|
|
|
5,814,983
|
|
|
|
6,596,133
|
|
Commitments and contingencies
|
|
|
-
|
|
|
|
-
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no issued and outstanding at March 31, 2019 or December 31, 2018
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.001 par value, 500,000,000 shares authorized, 12,278,833 and 12,038,618 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively
|
|
|
12,279
|
|
|
|
12,039
|
|
Additional paid-in-capital
|
|
|
49,705,102
|
|
|
|
48,725,211
|
|
Accumulated deficit
|
|
|
(30,275,505
|
)
|
|
|
(30,278,805
|
)
|
Total Stockholders’ Equity
|
|
|
19,441,876
|
|
|
|
18,458,445
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
25,256,859
|
|
|
$
|
25,054,578
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
OPTIMIZERx
CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
|
|
For the Three Months
Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
TOTAL REVENUE
|
|
$
|
5,209,434
|
|
|
$
|
4,112,237
|
|
COST OF REVENUES
|
|
|
1,583,480
|
|
|
|
2,008,092
|
|
|
|
|
|
|
|
|
|
|
GROSS MARGIN
|
|
|
3,625,954
|
|
|
|
2,104,145
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
3,493,789
|
|
|
|
2,295,341
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS
|
|
|
132,165
|
|
|
|
(191,196
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Interest Income
|
|
|
22,364
|
|
|
|
2,017
|
|
Change in Fair Value of Contingent Consideration
|
|
|
(148,000
|
)
|
|
|
-
|
|
Interest (Expense)
|
|
|
-
|
|
|
|
-
|
|
TOTAL OTHER INCOME (EXPENSE)
|
|
|
(125,636
|
)
|
|
|
2,017
|
|
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
|
|
|
6,529
|
|
|
|
(189,179
|
)
|
PROVISION FOR INCOME TAXES
|
|
|
-
|
|
|
|
-
|
|
NET INCOME (LOSS)
|
|
$
|
6,529
|
|
|
$
|
(189,179
|
)
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
|
12,077,829
|
|
|
|
9,786,027
|
|
DILUTED
|
|
|
13,077,917
|
|
|
|
9,786,027
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
$
|
0.00
|
|
|
$
|
(0.02
|
)
|
DILUTED
|
|
$
|
0.00
|
|
|
$
|
(0.02
|
)
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
OPTIMIZERx
CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY (UNAUDITED)
FOR
THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2019
|
|
|
12,038,618
|
|
|
$
|
12,039
|
|
|
$
|
48,725,211
|
|
|
$
|
(30,278,805
|
)
|
|
$
|
18,458,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting principle related to lease accounting
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,229
|
)
|
|
|
(3,229
|
)
|
Shares issued for restricted stock awards
|
|
|
130,001
|
|
|
|
130
|
|
|
|
(130
|
)
|
|
|
-
|
|
|
|
-
|
|
Shares issued for stock options exercised
|
|
|
101,878
|
|
|
|
102
|
|
|
|
343,683
|
|
|
|
-
|
|
|
|
343,785
|
|
Shares issued as compensation
|
|
|
8,336
|
|
|
|
8
|
|
|
|
106,026
|
|
|
|
-
|
|
|
|
106,034
|
|
Stock compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
530,312
|
|
|
|
-
|
|
|
|
530,312
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,529
|
|
|
|
6,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2019
|
|
|
12,278,833
|
|
|
$
|
12,279
|
|
|
$
|
49,705,102
|
|
|
$
|
(30,275,505
|
)
|
|
$
|
19,441,876
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2018
|
|
|
9,772,694
|
|
|
$
|
9,773
|
|
|
$
|
36,573,888
|
|
|
$
|
(30,363,122
|
)
|
|
|
6,078,512
|
|
Cumulative effect of change in accounting principle related to revenue recognition
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(142,027
|
)
|
|
|
(142,027
|
)
|
Shares issued for revenue share
|
|
|
100,000
|
|
|
|
100
|
|
|
|
446,900
|
|
|
|
-
|
|
|
|
447,000
|
|
Shares issued as compensation
|
|
|
6,249
|
|
|
|
6
|
|
|
|
28,869
|
|
|
|
-
|
|
|
|
28,875
|
|
Stock compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
468,247
|
|
|
|
-
|
|
|
|
468,247
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(189,179
|
)
|
|
|
(189,179
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2018
|
|
|
9,878,943
|
|
|
$
|
9,879
|
|
|
$
|
37,517,904
|
|
|
$
|
(30,691,428
|
)
|
|
$
|
6,691,428
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
OPTIMIZERx
CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
For the Three Months
Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net Income (loss)
|
|
$
|
6,529
|
|
|
$
|
(189,179
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
190,301
|
|
|
|
54,473
|
|
Stock-based compensation
|
|
|
530,312
|
|
|
|
468,247
|
|
Stock issued for services
|
|
|
106,034
|
|
|
|
28,875
|
|
Change in fair value of contingent consideration
|
|
|
148,000
|
|
|
|
-
|
|
Changes in:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,554,953
|
|
|
|
(414,508
|
)
|
Prepaid expenses and other assets
|
|
|
(44,201
|
)
|
|
|
64,015
|
|
Accounts payable
|
|
|
173,810
|
|
|
|
(323,419
|
)
|
Revenue share payable
|
|
|
(776,514
|
)
|
|
|
(279,328
|
)
|
Accrued expenses and other liabilities
|
|
|
(1,034,454
|
)
|
|
|
(404,291
|
)
|
Deferred revenue
|
|
|
35,199
|
|
|
|
207,727
|
|
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
|
|
889,969
|
|
|
|
(787,388
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS USED IN INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of equipment
|
|
|
(13,848
|
)
|
|
|
(3,803
|
)
|
Development costs
|
|
|
-
|
|
|
|
(32,763
|
)
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
(13,848
|
)
|
|
|
(36,566
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
343,785
|
|
|
|
-
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
343,785
|
|
|
|
-
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
1,219,906
|
|
|
|
(823,954
|
)
|
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
|
|
|
8,914,034
|
|
|
|
5,122,573
|
|
CASH AND CASH EQUIVALENTS - END OF PERIOD
|
|
$
|
10,133,940
|
|
|
$
|
4,298,619
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Non-cash effect of issuance of shares related to net settled options
|
|
$
|
-
|
|
|
$
|
-
|
|
Non-cash effect of cumulative adjustments to accumulated deficit
|
|
$
|
3,229
|
|
|
$
|
142,027
|
|
Lease liabilities arising from right of use assets
|
|
$
|
672,809
|
|
|
|
-
|
|
Non-cash issuance of shares to WPP, plc
|
|
$
|
-
|
|
|
$
|
447,000
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH
31, 2019
NOTE
1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION
The
accompanying condensed consolidated financial statements include OptimizeRx corporation and its wholly owned subsidiaries (collectively,
the “Company”, “we”, “our”, or “us”).
We
are a leading provider of digital health messaging via electronic health records (EHRs), 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, education and critical clinical information. Our network is comprised
of leading EHR platforms and provides more than half a million healthcare providers access to these services within their workflow
at the point of care.
The
consolidated condensed financial statements for the three months ended March 31, 2019 and 2018 have been prepared by us without
audit pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. In the opinion of management, all
adjustments necessary to present fairly our financial position at March 31, 2019, and our results of operations, changes in stockholders’
equity, and cash flows for the three months ended March 31, 2019 and 2018, have been made. Those adjustments consist of normal
and recurring adjustments. The condensed consolidated condensed balance sheet as of December 31, 2018, has been derived from the
audited consolidated condensed balance sheet as of that date.
Certain
information and note disclosures, including a detailed discussion about the Company’s significant accounting policies,
normally included in our annual financial statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These consolidated condensed financial statements should be read in conjunction with a
reading of the financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2018, as filed with the U.S. Securities and Exchange Commission on March 12, 2019.
The
results of operations for the three-months ended March 31, 2019, are not necessarily indicative of the results to be expected
for the full year. Certain reclassifications have been made in the prior period’s consolidated financial statements to conform
to the current period’s presentation.
NOTE
2 – NEW ACCOUNTING STANDARDS
In
February 2016, the 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 for office space in three multitenant facilities, which are recorded as assets and liabilities for those
leases with terms greater than 12 months. Certain leases contain renewal options and for the headquarters lease, we have assumed
renewal. 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 charged to accumulated deficit at that date.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH
31, 2019
NOTE
2 – NEW ACCOUNTING STANDARDS (continued)
For
the three months ended March 31, 2019, the Company’s lease cost consists of the following components, each of which is included
in operating expenses within the Company’s consolidated statements of operations:
|
|
Three Months Ended
March 31,
2019
|
|
|
|
|
|
Operating lease cost
|
|
$
|
30,684
|
|
Short-term lease cost (1)
|
|
|
9,841
|
|
Total lease cost
|
|
$
|
40,525
|
|
(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 March 31, 2019:
As of March 31, 2019
|
|
|
|
|
|
|
|
2019(a)
|
|
$
|
102,012
|
|
2020
|
|
|
138,533
|
|
2021
|
|
|
140,881
|
|
2022
|
|
|
102,881
|
|
2023
|
|
|
99,722
|
|
Thereafter
|
|
|
150,684
|
|
Total
|
|
|
734,713
|
|
Less: discount
|
|
|
86,932
|
|
Total lease liabilities
|
|
$
|
647,781
|
|
(a)
For the nine-month period beginning April 1, 2019.
The
weighted average remaining lease term for operating leases is 5.8 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 is $30,684.
For the three months ended March 31,2019 payments on lease obligations were $25,208 and amortization on the right of use
assets was $29,295.
The Company initially signed the lease for its current office space
located in Rochester Michigan on December 1, 2011. That lease expired on November 30, 2016 and the Company signed a new lease
for the same space. The current lease is a three-year lease beginning December 1, 2016, with options for up to an additional 6
years. The rent is payable monthly at rates of $6,232, $6,308, and $6,384 per month for years 1, 2, and 3 of the lease, respectively.
The monthly rates for the option years range from $6,384 per month to $6,688 per month for the option years 4 through 9 of the
lease. If the Company fails to exercise its option for option years 4 and 5, a lease termination payment of $7,300 will be due
at the end of the initial 3-year term.
In the first quarter of 2019, the Company
signed a new lease on office space in Cranbury New Jersey commencing on February 1, 2019. The lease is a 3-year lease calling for
monthly payments ranging from $2,707 to $2,808 plus utilities during the term of the lease.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (the
“FASB”) issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments. ASU 2016-13 provides for a new impairment model which requires measurement and recognition of expected credit losses
for most financial assets and certain other instruments, including but not limited to accounts receivable and available for sale
debt securities. ASU 2016-13 will become effective for the Company on January 1, 2020 and early adoption is permitted. The Company
is currently evaluating the impact of this guidance on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill
and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the subsequent measurement of goodwill
by eliminating the second step of the goodwill impairment test. The second step measures a goodwill impairment loss by comparing
the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under ASU 2017-04, a company
will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. ASU 2017-04
will be applied prospectively and is effective for annual or interim goodwill impairment tests in fiscal years beginning after
December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after
January 1, 2017. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement
(Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 modifies the disclosure
requirements on fair value measurements and will become effective for the Company on January 1, 2020 and early adoption is permitted.
The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH
31, 2019
NOTE
3 – STOCKHOLDERS’ EQUITY
During
the quarters ended March 31, 2019 and 2018, we issued 8,336 and 6,249 shares, respectively, of our common stock to our independent
directors in connection with our Director Compensation Plan, which calls for issuance of 2,084 shares per quarter to each independent
director. These shares were valued at $106,834 and $28,875 at March 31, 2019 and 2018, respectively.
During
the quarter ended March 31, 2019, we issued 89,826 shares of our common stock and received proceeds of $343,785 in connection
with the exercise of stock options under our 2013 equity compensation plan. We issued an additional 12,052 shares of our common
stock in connection with the exercise of options using the net-settled method, which resulted in no cash. whereby no cash was
received, but rather the exercise price was paid by the surrender of shares underlying the options. We also issued 130,001 shares
of our common stock in the quarter ended March 31, 2019 in connection with restricted stock awards awarded in 2018.
In
March 2018, we issued 100,000 shares of common stock to a subsidiary of WPP, plc one of the world’s largest advertising
companies, and a shareholder at the time, in full payment of all amounts due under a comarketing agreement that covered
certain WPP plc agencies, whereby we shared a portion of our revenue with those agencies related to programs awarded to us by
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.
NOTE
4 – SHARE BASED PAYMENTS – OPTIONS
We
use the fair value method to account for stock-based compensation. We recorded $530,312 and $468,247 in compensation expense in
the three months ended March 31, 2019 and 2018, respectively, related to options issued under our stock-based incentive compensation
plan. This includes expense related to options issued in prior years for which the requisite service period for those options
includes the current period as well as options issued in the current period. The fair value of these instruments was calculated
using the Black-Scholes option pricing model. There is $1,564,919 of remaining expense related to unvested options to be recognized
in the future.
NOTE
5 – CONTINGENCIES
Litigation
The
Company is not currently involved in any legal proceedings.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH
31, 2019
NOTE
6 – NET INCOME (LOSS) PER SHARE
The
following table sets forth the computation of basic and diluted net income (loss) per share.
|
|
Three Months Ended
March 31
|
|
|
|
2019
|
|
|
2018
|
|
Numerator
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
6,529
|
|
|
$
|
(189,179
|
)
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding used in computing net income (loss) per share
|
|
|
|
|
|
|
|
|
Basic
|
|
|
12,077,829
|
|
|
|
9,786,027
|
|
Effect of dilutive stock options, warrants, and stock grants
|
|
|
1,000,088
|
|
|
|
-
|
|
Diluted
|
|
|
13,077,917
|
|
|
|
9,786,027
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) per share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.00
|
|
|
$
|
(0.02
|
)
|
Diluted
|
|
$
|
0.00
|
|
|
$
|
(0.02
|
)
|
NOTE
7 – SUBSEQUENT EVENTS
In
accordance with ASC 855-10, we have analyzed our operations subsequent to March 31, 2019 through the date these financial
statements were issued and have determined that we do not have any material subsequent events to disclose or recognize in these
financial statements.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking
Statements
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” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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. We intend
such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. 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. We
undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future
events or otherwise. Further information concerning our business, including additional factors that could materially
affect our financial results, is included herein and in our other filings with the SEC.
Overview
Company
Highlights through April 2019
1.
|
Our
sales for the first three months of 2019 were $5.2 million, a 27% increase over the same period in 2018.
|
2.
|
We
continue to focus on adding additional brands for existing clients, providing new solutions, expanding the utilization of
our network for existing brands, and obtaining new pharmaceutical manufacturer clients and advertising agencies.
|
3.
|
We
sponsored a TrendTalks Roundtable discussion on Digital Pharma Marketing.
|
4.
|
We
formed OptimizeMDs, a multi-specialty physician panel with the mission of improving the effectiveness of digital health communications
delivered throughout the care continuum and sponsored our survey on drug price transparency and patient cost challenges.
|
5.
|
We
have made additional hires to support growth, including a VP of Sales to focus on the hospital market and a chief commercial
officer to focus on enterprise arrangements and product expansion across our customer base.
|
Our
success in acquiring, integrating and expanding into new EHR/eRx platforms continues to grow as well. For the remainder of 2019,
we expect to expand our reach to physicians, pharmacies and patients, and also increase the utilization of our existing partners
as they improve their work flow and reach. With the growth of both our pharmaceutical products and our distribution network, we
expect that our financial, brand, and clinical messaging, as well as our patient engagement activities, will continue to increase
and show strong growth throughout the year.
Results
of Operations for the Three Months Ended March 31, 2019 and 2018
Revenues
Our
total revenue reported for the three months ended March 31, 2019 was approximately $5.2 million, an increase of 27% over the approximately
$4.1 million from the same period in 2018. The increased revenue resulted primarily from increases in sales in our messaging products.
We do not breakout revenue by service at this stage, but as we achieve greater scale we plan to determine the best way to present
the growth by service.
Cost
of Revenues
Our
cost of revenue percentage, composed primarily of revenue share expense, declined as a percentage of revenues, from approximately
49% in the quarter ended March 31, 2018 to approximately 30% for the quarter ended March 31, 2019. This decrease was a result
of product mix and our focus on reducing our cost of revenues through improved revenue share contracts and the focus on products
with higher margins.
Gross
Margin
Our
gross margin improved from 51.2% in the quarter ended March 31, 2018 to 69.6% in the quarter ended March 31, 2019. We have been
focused on improving our margins. We had a favorable product mix in the 2019 quarter that had a positive impact on our margin.
We expect to maintain margins of at least 60% on a quarterly basis for the balance of the year.
Operating
Expenses
Operating
expenses increased from approximately $2.3 million for the three months ended March 31, 2018 to approximately $3.5 million for
the same period in 2019, an increase of approximately 52%. The detail by major category is reflected in the table below.
|
|
Three months ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Salaries, Wages, & Benefits
|
|
$
|
1,689,034
|
|
|
$
|
1,210,297
|
|
Stock-based Compensation
|
|
|
636,346
|
|
|
|
497,122
|
|
Professional Fees
|
|
|
239,025
|
|
|
|
73,026
|
|
Board Compensation
|
|
|
34,250
|
|
|
|
25,250
|
|
Investor Relations
|
|
|
21,736
|
|
|
|
26,237
|
|
Consultants
|
|
|
38,090
|
|
|
|
5,241
|
|
Advertising and Promotion
|
|
|
196,580
|
|
|
|
15,510
|
|
Depreciation and Amortization
|
|
|
190,301
|
|
|
|
54,473
|
|
Development, Maintenance, and Integration Costs
|
|
|
218,096
|
|
|
|
246,566
|
|
Office, Facility, and other
|
|
|
115,518
|
|
|
|
72,806
|
|
Travel
|
|
|
114,814
|
|
|
|
68,813
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expense
|
|
$
|
3,493,789
|
|
|
$
|
2,295,341
|
|
The
largest increases in operating expenses related to salaries, wages, and benefits and other human resource related costs. Since
the beginning of the first quarter of 2018, we have hired an additional vice President of sales, a vice president of marketing
and communications, a financial analyst, and 10 employees associated with our CareSpeak acquisition. These new hires also resulted
in increases in benefits, payroll taxes, and related travel. The increased stock-based compensation results from the acceleration
of vesting of previously granted options as well as the grant of new options. We expect stock-based compensation to decrease on
a quarterly basis for the balance of the year.
The
decrease in development, maintenance, and integration costs reflects cost savings related to our move to Amazon web services at
the end of the quarter ended March 31, 2018, which resulted in a reduction of our monthly hosting cost.
Advertising
and promotion increased substantially in 2019 because of our increased focus on marketing activities. This increase includes costs
associated with our physician survey on drug price transparency and patient cost challenges, our sponsorship of a healthcare panel
on digital pharma marketing, and attendance at several industry conferences. We also hired a public relations firm in late 2018.
Professional
fees increased in 2019 as a result of our move to the Nasdaq Capital Market in June 2018, our subsequent increase in market capitalization,
and our acquisition of CareSpeak Communications in late 2018. This increased the complexity of our year-end audit and we were
required to obtain an audit opinion on our internal controls under Sarbanes Oxley as of December 31, 2018 for the first time.
We also were required to obtain third party valuations of the allocation of our purchase price of CareSpeak and the fair value
of those assets and liabilities as of December 31, 2018.
Depreciation
and amortization increased because of the amortizable assets acquired in connection with our acquisition of CareSpeak Communications.
Office, facility, and other expenses also increased as a result of our acquisition of CareSpeak, which resulted in two additional
office locations for us, as well as the normal increased costs associated with increased business activity.
The
increase in the fair value of contingent consideration relates to our acquisition of CareSpeak Communications. The purchase price
included potential additional consideration to be paid if certain revenue levels are achieved in 2019 and 2020. That liability
is required to be adjusted to fair value each quarter and this represents the increase in the fair value of the liability during
the quarter ended March 31, 2019.
All
other variances in the table above are the result of normal fluctuations in activity.
We
expect our overall operating expenses to continue at the 2019 level, or slightly above as we further implement our business plan
and expand our operations to grow the business in a very dynamic and active marketplace. However, we have established a strong
team as a base to support growth and do not expect human resource costs to increase as quickly as revenues. We have made additional
growth hires in April 2019, including a VP of sales to focus on the hospital market and a chief commercial officer to focus on
enterprise arrangements and product expansion across our customer base.
Net
Income (Loss)
Our
net income for the three months ended March 31, 2019 was approximately $7,000, as compared to a loss of approximately $189,000
during the same period in 2018. The reasons and specific components associated with the move to profitability are discussed above.
Overall, the income resulted from increased revenues and gross margin, which offset the increase in operating expenses. Barring
unexpected, or one-time expenses, we expect to remain profitable on a quarterly basis.
Liquidity
and Capital Resources
As
of March 31, 2019, we had total current assets of approximately $15.5 million, compared with current liabilities of approximately
$3.9 million, resulting in working capital of approximately $11.6 million and a current ratio of approximately 4.0 to 1. This
represents an improvement from working capital of approximately $11.5 million and current ratio of 3.7 to 1 at December 31, 2018.
Our
operating activities provided approximately $890,000 in cash flow during the three months ended March 31, 2019, compared with
cash used of approximately $787,000 in the same period in 2018. The cash provided in the 2019 period was the result of our net
income, as well as working capital management. The cash used in the 2018 period was the result of our net loss as well as cash
used for working capital. The main use of cash in 2018 resulted from a change in payment terms for one of our key partners, as
well as payment of certain year end liabilities. We expect to continue to have positive cash flow from operations on a quarterly
basis for the balance of the year.
We
used insignificant amounts in investing activities in both the three months ended March 31, 2019, and 2018. These investments
related to purchases of equipment as well as investments related to the expansion of our network capabilities.
We
had proceeds from financing activities of approximately $344,000 during the three months ended March 31, 2019 related to the exercise
of stock options. We had no financing activities in the comparable period for 2018. We did however, as discussed in Note 3, issue
300,000 shares valued at $447,000 in 2018 in a non-cash transaction in payment of revenue share due under a comarketing agreement
and the accompanying termination of the agreement.
We
do not anticipate the need to raise additional capital in the short or long term for operating purposes or to fund our growth
plans. We are focused on growing our revenue, channel and partner network. However, as a company in a market that is active with
merger and acquisition activity, we may have opportunities, such as for acquisitions or strategic partner relationships, which
may require additional capital. We will assess these opportunities as they arise with the view of maximizing shareholder value.
Critical
Accounting Policies
In
December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management
Discussion and Analysis. The SEC indicated that 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 the footnotes to our financial statements included in our annual report on Form 10-K
for the year ended December 31, 2018; however, we consider our critical accounting policies to be those related to determining
the amount of revenue to be billed, the timing of revenue recognition, calculation of revenue share expense, stock-based compensation,
capitalization and related amortization of intangible assets, impairment of assets, and the fair value of liabilities.
Recently
Issued Accounting Pronouncements
In
June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-13, Financial Instruments-Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 provides for a new impairment model which
requires measurement and recognition of expected credit losses for most financial assets and certain other instruments, including
but not limited to accounts receivable and available for sale debt securities. ASU 2016-13 will become effective for the Company
on January 1, 2020 and early adoption is permitted. The Company is currently evaluating the impact of this guidance on its consolidated
financial statements.
In
January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.
ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test.
The second step measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with
the carrying amount of that goodwill. Under ASU 2017-04, a company will record an impairment charge based on the excess of a reporting
unit’s carrying amount over its fair value. ASU 2017-04 will be applied prospectively and is effective for annual or interim
goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual
goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of
this guidance on its consolidated financial statements.
In
August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements
for Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements on fair value measurements and will become effective
for the Company on January 1, 2020 and early adoption is permitted. The Company is currently evaluating the impact of this guidance
on its consolidated financial statements.
Off
Balance Sheet Arrangements
As
of March 31, 2019, there were no off-balance sheet arrangements.
Item
4. Controls and Procedures
Disclosure
Controls and Procedures
Under
the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer,
we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of
the period covered by this report (the “Evaluation Date”). Based upon that evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that, as of March 31, 2019, our disclosure controls and procedures were not effective due
to the presence of material weaknesses in internal control over financial reporting.
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 the company’s annual or interim financial statements will not
be prevented or detected on a timely basis. As described in more detail in our annual report on Form 10-K for the year ended December
31, 2018, management identified the following material weaknesses which have caused management to conclude that our disclosure
controls and procedures were not effective: (i) inadequate segregation of duties; and (ii) inadequate information technology reporting
systems to insure that accurate financial information is provided for accounting and financial reporting with respect to the requirements
and application of both US GAAP and SEC guidelines. Those weaknesses have not been completely remediated as of March 31, 2019.
Changes
in Internal Control over Financial Reporting
During
the quarter ended March 31, 2019, we hired an additional person in our accounting department to address the segregation of duties
issue and improve our internal control over financial reporting. We also evaluated and selected new accounting software to address
the information technology issues. We expect to have it fully implemented during the third quarter of 2019. We also improved the
documentation of the review of data entered into our system.
In
conjunction with the adoption of the new lease accounting standard, we implemented new lease administration software and updated
our business processes and internal controls in support of the new guidance.
While
we made other routine ongoing improvements in our internal control and processes, no other material changes were made during the
period.
Limitations
on the Effectiveness of Controls
Our
management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and
procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of
a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative
to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within our company have been detected.