OptimizeRx Corporation — Q1 2016 Form 10-Q
Business context and reporting period. OptimizeRx provides healthcare technology that delivers savings offers and clinical messaging through physician and patient platforms, including e-prescribing and electronic health record systems. This unaudited report covers the three months ended March 31, 2016, compared with the same period in 2015. Management cautions that quarterly results are not necessarily indicative of full-year results.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Revenue | $1.760 million | $1.488 million; up 18% |
| Gross profit (reported as gross margin) | $866,735; 49.3% of revenue | $731,113; 49.2% of revenue |
| Operating expenses | $1.229 million | $842,610; up about 46% |
| Operating loss | $361,829 | $111,497 |
| Net loss | $351,916; $0.01 per share | $111,201; reported loss per share of $0.00 |
| Operating cash flow | $(286,087) | $86,692 |
| Investing cash flow | $(15,802) | $(22,842) |
| Financing cash flow | $(357,415) | $0 |
| Cash and cash equivalents | $7.548 million at March 31 | $8.208 million at December 31, 2015 |
At March 31, current assets were $9.944 million and current liabilities $2.551 million, for working capital of approximately $7.392 million and a current ratio of about 3.9. Total liabilities were $2.551 million; the balance sheet reports no debt. Stockholders’ equity was $8.547 million. Deferred revenue rose to $845,226 from $227,002 at year-end, while revenue-share payable fell to $1.503 million from $2.356 million.
Material changes and management commentary
- Revenue growth reflected more pharmaceutical brands being promoted and expanded distribution channels. Management expected quarter-over-quarter revenue increases through the remainder of 2016.
- Cost of sales rose with revenue; revenue-share expense remained about 51% of revenue. Management aimed to reduce this percentage by at least 5% over time through lower-share channels and changes to existing agreements; this is a stated goal, not a forecasted result.
- Higher salaries, benefits, professional fees, travel, and other expenses contributed to the larger operating loss. The quarter included overlapping CEO costs, new hires, and increased litigation-related professional fees. Management expected operating expenses to continue increasing as it expanded operations.
- Operating cash outflow included a one-time $720,415 payment to the former CEO in lieu of issuing approximately 595,000 shares owed from prior years. Management presented adjusted operating cash flow of $76,913 and adjusted net cash increase of $61,111 after removing that payment’s effects. Reported cash decreased by $659,304 during the quarter.
- Business developments included hiring a new CEO and senior business-development executive, a TrialCard co-marketing agreement, an RxWiki independent-pharmacy partnership, and investment in sales capabilities and technology. Management described additional EHR integrations and client services as growth opportunities.
Risks, contingencies, and unusual items
- Litigation: A former CEO seeks $450,000 in a dispute over registration of shares; the company disputes liability and the matter was in discovery. In a separate Missouri case, the company pursued LDM Group and PDR Network over alleged agreement breaches, seeking recovery of more than $1 million paid under the settlement agreement plus alleged lost-income and business-value damages. Three of four claims remained after a court dismissed one claim; the parties were in discovery. The company expected significant ongoing legal costs.
- Internal controls: Management concluded disclosure controls were not effective due to material weaknesses involving segregation of duties, Board-to-management communication, and IT reporting systems. Remediation efforts were ongoing; management said full remediation of segregation-of-duties issues would require additional personnel.
- Former CEO arrangements: The filing describes a $720,415 share-related payment and continuing consulting and other arrangements. The text gives differing agreement timing and duration details: the notes describe an April agreement beginning April 1, while the later disclosure describes May 9 agreements, employment through May 31, and consulting effective June 1 for 16 months. The precise operative terms should be checked against the filed agreements and subsequent disclosures.
- Management identified economic conditions, regulatory changes, capital availability, competition, interest rates, and accounting rules among factors that could affect future results. No off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Whether revenue growth and the anticipated further quarterly increases materialize, and whether revenue-share costs decline as targeted.
- Whether operating expenses and litigation costs continue to rise, and the timing and outcome of both legal disputes.
- The cash impact and final terms of the former CEO’s payment, separation, consulting, and benefit arrangements, given the differing dates and durations in the filing.
- Progress in remediating the disclosed material weaknesses and whether additional staffing or systems investment is required.
- Cash conversion and working-capital movements, particularly the increase in deferred revenue and the reduction in revenue-share payable.