OptimizeRx Corporation — Q3 2013 Form 10-Q
Reporting period: Three and nine months ended September 30, 2013. The company provides healthcare technology and digital marketing solutions, including SampleMD, which lets physicians distribute medication coupons and sample vouchers through electronic prescribing and health-record platforms.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $1.373 million | $453,154 | $3.146 million | $1.298 million |
| Operating expenses | $1.362 million | $559,305 | $2.886 million | $1.781 million |
| Operating income (loss) | $10,694 | $(106,151) | $259,933 | $(483,277) |
| Net income (loss) | $10,776 | $(106,174) | $260,109 | $(482,969) |
| Operating cash flow | Not stated by quarter | $302,987 | $(625,666) |
Revenue grew approximately 203% year over year in Q3 and 142% for the first nine months. Operating and net margins were approximately 0.8% for Q3 and 8.3% for the nine-month period. The company attributed growth largely to SampleMD and pharmaceutical customer setup and integration fees. SampleMD generated about 327,115 coupon or voucher distributions through new e-prescriptions in Q3, versus 90,135 a year earlier.
Operating expenses rose about 144% in Q3 and 62% for the nine months. Notable nine-month costs included salaries and benefits of $1.040 million, revenue-share expense of $614,234, stock-based compensation of $310,823, and professional fees of $275,004. Q3 stock-based compensation was $281,925; management identified a one-time cost associated with the former CEO’s separation agreement.
Financial position and liquidity
- At September 30, cash was $486,692, accounts receivable $1.149 million, total current assets $1.662 million, and current liabilities $757,725. Working capital was $904,210; the current ratio was approximately 2.2.
- Total assets were $2.824 million and stockholders’ equity was $2.066 million. The filing reports no financing cash flows for the nine-month period and no interest expense in 2013; it does not present a conventional debt balance. Current liabilities include a $570,000 related-party payable associated with the SampleMD patent acquisition.
- Operating activities provided $302,987, while investing activities used $100,558, primarily for patent defense and web development. Accounts receivable growth used $532,109 of cash.
- Management said available cash was sufficient to operate at the current level for the next 12 months, but insufficient to achieve business goals without cash from sales and/or additional financing.
Material changes, outlook and risks
- CEO and chairman Shad Stastney departed on September 20, 2013. The separation arrangement provided 500,000 common shares valued at $505,000, half issued immediately and the remainder due by January 1, 2014; the former CEO was to provide transition consulting. The related options were terminated.
- Management reported two pharmaceutical EHR-strategy pilot projects and described continuing customer commitments, partner cooperation, and interest in its emerging OptimizeHR consulting practice. It provided no numerical revenue or earnings guidance and expects operating expenses to continue increasing as it expands.
- Three customers accounted for 68% of nine-month revenue, compared with two customers accounting for 50% in the prior-year period. This concentration exposes results to changes in a small number of customer relationships.
- The company reported $1.0 million of undeclared cumulative preferred-stock dividends at September 30, 2013. Preferred shares carry 10% cumulative dividends and conversion rights. There were 13.67 million warrants outstanding, in addition to common shares and other potential equity awards; diluted weighted-average shares reported for 2013 were about 34.1 million.
- Patent litigation with LDM remained active: LDM asserted infringement and alleged breach of a settlement, while OptimizeRx denied the claims and counterclaimed. The company also had a separate patent-infringement action against Physicians Interactive entities; defendants denied the allegations and the filing reported no further action by September 30.
- The company reported no material subsequent events, no off-balance-sheet arrangements, and effective disclosure controls as of September 30. Its interim results are not necessarily indicative of full-year results.
Key facts for investors to verify
- Whether receivables are collected as expected, given the $532,109 cash-flow use and customer concentration.
- Whether sales and cash generation can fund the growth plan, or additional financing will be needed.
- The status, potential cost, and business impact of the LDM dispute and other patent matters.
- The terms and potential dilution from preferred conversions, accumulated dividends, warrants, and the remaining separation-agreement shares.
- Whether growth in SampleMD and OptimizeHR engagements translates into sustainable profit after higher revenue-share, compensation, and stock-based costs.