Business Context and Reporting Period
Company: OptimizeRx Corporation (Nevada)
Reporting Period: Fiscal year ended December 31, 2010
Business Overview: OptimizeRx is a technology solutions provider targeting the healthcare industry. The company transitioned from a development stage to an operating company in 2010. Its primary focus is the "SampleMD" solution, a direct-to-physician platform that allows clinicians to distribute prescription drug vouchers and co-pay coupons at the point of care. The company also operates a direct-to-consumer portal (OptimizeRx.com) and platforms for manufacturers (OFFERx and ADHERxE).
Key Developments: During 2010, the company launched SampleMD beta versions with major partners including Walgreens Health Initiatives, Advocate Health Partners, NuHealth System, Carillion Health, Physicians Interactive, and Allscripts.
Key Financial Metrics
| Metric | 2010 | 2009 |
|---|---|---|
| Revenue | $71,065 | $26,723 |
| Operating Expenses | $1,917,296 | $4,613,039 |
| Net Loss | $(2,009,024) | $(4,555,689) |
| Net Loss Per Share (Basic/Diluted) | $(0.15) | $(0.36) |
| Cash and Cash Equivalents (End of Period) | $1,278,094 | $656,394 |
| Working Capital | $1,229,316 | $641,121 |
| Total Assets | $3,748,627 | $890,142 |
| Total Liabilities | $1,854,829 | $37,830 |
| Long-Term Debt | $1,000,000 | $0 |
Cash Flow Summary (2010):
- Operating Activities: Used $1,311,413
- Investing Activities: Used $225,637 (primarily web development)
- Financing Activities: Provided $2,158,750 (debt and preferred stock issuance)
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 166% to $71,065, driven by the initial launch of SampleMD and setup fees from pharmaceutical manufacturers.
- Expense Reduction: Operating expenses decreased significantly by 58% (from $4.6M to $1.9M). This was primarily due to a sharp decline in share-based compensation ($1.32M in 2009 vs. $6.2K in 2010), consulting fees, and advertising costs.
- Debt Financing: The company incurred $1,000,000 in long-term debt via a secured promissory note issued to Physicians Interactive, Inc. in October 2010. This contrasts with zero long-term debt in 2009.
- Asset Base: Total assets quadrupled to $3.7M, largely due to cash inflows from financing and the capitalization of patent rights and web development costs.
- Loss Reduction: Net loss improved by 56% to $2.0M, reflecting the reduction in operating expenses despite increased interest and impairment charges.
Outlook, Risks, and Contingencies
Management Commentary & Guidance: Management believes the company has sufficient cash to operate for the next twelve months at current levels. However, achieving business goals requires realizing cash revenues, meeting financing milestones with Vicis Capital, or securing additional financing. There is no assurance that additional capital will be available.
Going Concern: The auditors have expressed substantial doubt about the company's ability to continue as a going concern due to substantial losses since inception and limited working capital. Continued operations depend on revenue growth and capital raising.
Risks and Contingencies:
- Legal Proceedings: The company is involved in litigation against Midtown Partners & Co., LLC regarding a placement agent agreement dispute. The case is in the initial pleading stage.
- Regulatory Risk: The business is subject to federal and state healthcare fraud and abuse laws, including the Anti-Kickback Statute and False Claims Act, as well as HIPAA privacy regulations.
- Concentration Risk: Two major customers accounted for approximately 55% of 2010 revenues.
- Stock Liquidity: The common stock trades on the OTC Bulletin Board and is subject to "penny stock" rules, which may limit trading activity and liquidity.
Investor Verification Checklist
- Cash Runway: Verify if the $1.28M cash balance is sufficient to cover the projected burn rate given the $1.3M operating cash outflow in 2010.
- Debt Covenants: Review the terms of the $1M note to Physicians Interactive, specifically the 6% interest rate, maturity date (Sept 2012), and restrictive covenants (e.g., limitations on dividends, asset disposal, and additional indebtedness).
- Revenue Sustainability: Assess the durability of the 55% revenue concentration from two customers and the status of deferred revenue ($225,720).
- Legal Exposure: Monitor the status of the lawsuit against Midtown Partners regarding the Vicis investment placement fees.
- Dilution Risk: Note the significant number of outstanding warrants (10.36M) and options, which could lead to substantial dilution upon exercise.