Business Context and Reporting Period
Company: OptimizeRx Corporation (OptimizeRx)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: OptimizeRx is a development-stage company operating through its wholly-owned subsidiary, OptimizeRx Michigan. The company operates a direct-to-consumer website (OPTIMIZERx.com) designed to help patients manage healthcare costs and access savings programs. It also provides advertising and marketing platforms (OFFERx, ADHERxE, and SampleMD) to the pharmaceutical industry. The company is classified as a "smaller reporting company" and a "shell company" is not applicable, though it is a development-stage enterprise.
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Gross Revenues | $26,723 | $83,686 |
| Operating Expenses | $2,673,782 | $1,591,738 |
| Net Loss | $(4,555,689) | $(4,248,853) |
| Net Loss Per Share | $(0.36) | $(0.35) |
| Total Assets | $890,142 | $2,643,301 |
| Cash and Cash Equivalents | $656,394 | $2,502,656 |
| Working Capital | $641,121 | $2,289,497 |
| Total Current Liabilities | $37,830 | $217,797 |
Cash Flow Summary (2009):
- Net cash used in operating activities: $(1,769,562)
- Net cash used in investing activities: $(107,700) (primarily web development)
- Net cash provided by financing activities: $31,000 (proceeds from warrant conversion)
Material Changes vs. Prior Period
- Revenue Decline: Gross revenues decreased by approximately 68% from $83,686 in 2008 to $26,723 in 2009.
- Expense Increase: Operating expenses increased by 68% to $2.67 million, driven primarily by higher consulting fees ($852,736 vs. $322,625), advertising expenses ($668,751 vs. $380,497), and salaries ($524,500 vs. $151,593).
- Warrant Compensation: Other expenses decreased by $832,171, primarily due to a reduction in warrant-based compensation expense from $2.75 million in 2008 to $1.94 million in 2009.
- Cash Position: Cash and cash equivalents dropped significantly from $2.5 million to $656,394, reflecting the company's burn rate and lack of significant operating cash inflows.
- Partnership Termination: The company terminated its agreement with S&H Digital (Suddler and Hennessey) for non-performance subsequent to the reporting period, shifting ADHERxE content management internally.
Outlook, Risks, and Management Commentary
Liquidity and Going Concern: Management explicitly states that the company does not have sufficient cash to operate at current levels for the next twelve months. The auditors have issued a "going concern" opinion, noting substantial doubt about the company's ability to continue operations without additional capital. Management estimates a need for an additional $750,000 to $1,000,000 to fund operations through the end of 2010.
Strategic Outlook:
- SampleMD Launch: The company is in the launch phase of SampleMD, a direct-to-physician solution for distributing drug samples and co-pay coupons, with a full rollout targeted for summer/fall 2010.
- Revenue Generation: The company plans to monetize its database of over two million members through advertising sales, sponsorships, and platform fees. Several proposals are pending with major pharmaceutical companies (e.g., Lilly, AstraZeneca, Novartis).
- Financing Needs: The company intends to seek additional funding through private equity offerings, debt, or equity financing. There is no assurance that such funding will be available.
Risks and Contingencies:
- Regulatory Compliance: The business is subject to strict federal and state healthcare regulations, including the Anti-Kickback Statute, False Claims Act, and HIPAA. Violations could result in significant penalties or exclusion from federal healthcare programs.
- Internal Controls: Management identified a material weakness in internal controls over financial reporting due to a lack of segregation of duties (only one employee overseeing bank reconciliations and payables).
- Competition: The company faces intense competition from established players like WebMD, McKesson, and Drugs.com, which have significantly greater financial resources.
Investor Verification Checklist
- Cash Runway: Verify the company's ability to secure the estimated $750,000–$1,000,000 in additional financing required to survive until the end of 2010.
- Revenue Realization: Confirm the status of pending advertising proposals with major pharmaceutical partners and whether any have converted to signed contracts.
- Preferred Stock Obligations: Review the terms of the Series A Preferred Stock (35 shares issued for $3.5M), which bears a 10% cumulative dividend (accrued $547,774 as of year-end) and is redeemable on September 5, 2010.
- Internal Control Remediation: Assess the progress of remediation plans for the material weakness in internal financial controls identified by management.
- Stock Dilution: Monitor the impact of outstanding warrants (7,086,500 shares) and options on future share count and potential dilution.