OptimizeRx Corporation — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013. OptimizeRx provides healthcare technology, including SampleMD, which distributes prescription coupons and vouchers through physician and electronic health platforms. The company describes a shift from advertising toward technology solutions. Interim results are not necessarily indicative of full-year performance.
Financial performance
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Revenue | $669,290 | $329,403 | Up $339,887, about 103% |
| Operating expenses | $774,172 | $630,322 | Up $143,850, about 23% |
| Operating loss | $(104,882) | $(300,919) | Loss narrowed |
| Net loss | $(104,826) | $(300,734) | Loss narrowed about 65% |
| Basic and diluted loss per share | $(0.01) | $(0.02) | Improved |
| Operating cash flow | $6,499 | $(128,004) | Improved |
The filing does not present gross profit or a clear gross-margin figure. Management attributed revenue growth mainly to SampleMD activity and setup/integration fees. Expense increases included development, payroll, legal and accounting, consulting, accrued compensation, and revenue-share costs. Stock-based compensation fell to $10,002 from $127,548, partly offsetting increases elsewhere. Management also stated that noncash-adjusted net income was $2,963 and attributed much of the period’s loss to a $150,000 Allscripts revenue-share and final-development payment; this characterization is not clearly reconciled to the financial statements, which report $40,203 of revenue-share expense.
Financial position and liquidity
- Cash was $260,394 at March 31, 2013, down $23,869 from year-end 2012. Investing used $30,368, all for patent rights.
- Current assets were $953,399; current liabilities were $751,208; working capital was $202,191. Accounts receivable was $660,669.
- Total assets were $2,141,841 and stockholders’ equity was $1,390,633. No conventional interest-bearing debt balance is listed; accounts payable to a related party was $570,000.
- Deferred revenue increased to $80,772 from $49,252. Three customers generated 72% of Q1 revenue, versus four customers generating 74% in Q1 2012.
- Management said cash on hand and existing financing were sufficient for 12 months at the current operating level, but not to achieve business goals without realizing cash from sales and/or obtaining additional financing. Discussions with Vicis were ongoing, with no financing agreement in place.
Business developments, outlook, and risks
- Management reported 177,000 new ePrescriptions with copay coupons or free-sample vouchers in Q1 and more than 85,000 coupons distributed in March. New promotional programs included Eli Lilly, Roche Diagnostics, Pfizer, Daiichi Sankyo, and Alcon Laboratories.
- Integration with HealthTronics, serving more than 2,200 physicians, was targeted for launch in Q2 2013. A PDR partnership was intended to expand SampleMD’s reach; these were forward-looking plans, not reported completed results.
- Management cited continued product development and intellectual-property protection as priorities. It reported a SampleMD patent award in Q4 2012 and two further patent filings.
- On January 10, 2013, the company obtained an option, expiring December 31, 2013, to buy Vicis-held shares and derivative securities for $9 million. Exercise would require substantial funding; the option could be extinguished if Vicis sold its securities.
- The CEO hired January 14 receives annual compensation of $175,000, accrued and deferred until at least January 1, 2014. His agreement also provides for 2 million options at $1.00, subject to vesting/exercise restrictions and financial conditions; no accrual for those options was recorded.
- Preferred shares carry cumulative 10% dividends and are convertible; the filing reports undeclared dividends for Series A and B. Warrants outstanding totaled 14,344,434 at a weighted-average exercise price of $2.41, a potential source of dilution.
- LDM Group’s patent-infringement suit was dismissed with prejudice after a February 2013 settlement and license agreement. On April 23, 2013, LDM notified the company it would attempt to terminate the agreement and reinstitute the action; OptimizeRx said it would enforce the agreement and defend the case. Separately, OptimizeRx had filed a patent-infringement suit against Physicians Interactive entities; no further action had occurred as of March 31.
- Other stated risks include access to capital, competition, economic conditions, and legislative or regulatory changes. Management reported disclosure controls effective as of March 31, with no significant internal-control changes during the quarter. No formal revenue or earnings guidance was provided.
Important facts for investors to verify
- Whether operating cash generation continues and the company secures funding needed for its growth plans.
- Customer concentration, accounts-receivable collection, and conversion of deferred revenue into recognized revenue and cash.
- The status and financial exposure of the LDM dispute, the company’s infringement action, and the $9 million Vicis redemption option.
- The precise amount and settlement terms of cumulative preferred dividends, and potential dilution from preferred conversions, warrants, and the CEO’s proposed options.
- The reconciliation of management’s $150,000 Allscripts payment explanation with the reported operating expenses and cash flows.