OptimizeRx Corporation — Q2 2014 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2014. The unaudited statements cover the healthcare technology company’s patient savings and pharmaceutical promotion platforms, including SampleMD. Prior-period figures are identified as restated; the filing contains inconsistencies in some comparative figures, noted below.
Financial performance and position
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $1.454 million | $1.104 million | $2.772 million | $1.773 million |
| Gross margin dollars | $914,166 | $652,593 | $1.733 million | $1.038 million |
| Gross margin rate | 62.9% | 59.1% | 62.5% | 58.6% |
| Operating income (loss) | $(52,904) | $99,827 | $(706,326) | $(248,282) |
| Net income (loss) | $(52,681) | $99,865 | $(705,996) | $(248,188) |
| Operating cash flow | Not separately provided | Not separately provided | $(149,745) | $106,447 |
Revenue rose approximately 32% year over year in Q2 and 56% for the six-month period. Revenue-share expense was about 37% of revenue in 2014 versus about 41% in 2013, according to management. Q2 operating expenses were $967,070. Six-month operating expenses were $2.439 million, including $654,633 of stock-based compensation and a $400,000 lawsuit settlement. Management said operating expenses excluding those items increased about 11% year over year.
At June 30, 2014, cash was $3.550 million, current assets were $4.856 million, and current liabilities were $1.482 million. Working capital was approximately $3.374 million and the current ratio approximately 3.25, compared with about $0.728 million and 1.35 at year-end 2013. Total liabilities were $1.482 million; the filing reports no debt balance. Investing activities used $213,832 in the first half. Financing activities provided $2.795 million, principally reflecting the equity raise, issuance costs, and Vicis redemption. Cash increased $2.431 million to $3.550 million.
Material changes and notable items
- March 2014 offering of 8,333,333 common shares generated $10 million gross proceeds. The company used $6 million to redeem Vicis Capital’s shares and derivative securities; management said the transaction left approximately $3 million for working capital, reduced fully diluted shares by about 7 million, and eliminated unfavorable preferred-stock provisions.
- Management attributed first-half losses principally to the $400,000 LDM settlement and approximately $655,000 in noncash stock-based compensation, alongside increased operating costs. A further approximately $285,000 of stock grants was expected to vest in Q3.
- Allscripts distribution and technical issues constrained eCoupon volume; management said technical issues remained unresolved and volume in its e-prescribing platform was about half of potential. Management also described expansion plans involving Quest Diagnostics, eHealthline, LDM, and other platforms.
- The company settled its patent litigation with Physicians Interactive and related parties on August 7, 2014, with mutual releases. The filing says this is expected to reduce legal expense. Separately, plaintiffs sought to hold the company liable for a $929,559 default judgment against Continental Capital; the company contested liability and sought to vacate the judgment. Oral argument was scheduled for August 21, 2014.
Outlook, risks, and controls
Management expected quarter-over-quarter revenue growth, a significant second-half revenue ramp, positive operating cash flow in future quarters, and profitability by Q4, primarily on anticipated revenue growth and channel rollouts. It also expected the active network to nearly double by year-end. These are forward-looking expectations, not guarantees. Management cited Allscripts execution, platform rollouts, capital availability, competition, economic and regulatory changes, and accounting requirements among relevant uncertainties.
Management reported disclosure controls and procedures were not effective as of June 30, 2014, due to material weaknesses involving inadequate segregation of duties and risk assessment, and insufficient written accounting and reporting policies. The company planned remediation during 2014, including additional qualified personnel and written procedures, and expected remediation by year-end.
Key facts for investors to verify
- Comparative-period inconsistency: The statements of operations report six-month 2013 net loss of $248,188, while the restatement note gives corrected net loss of $224,188. The note also reports operating loss of $224,188 before tax, which does not match the statements’ $248,282 operating loss. Confirm the authoritative restated comparative figures.
- Cash-flow and management-adjusted cash claims: Reported first-half operating cash flow was negative $149,745, while management described positive cash generation excluding working-capital effects. Review the underlying reconciliation and assumptions.
- Contingency: Assess the possible exposure and status of the Continental successor-liability litigation; the filing does not state a clear expected loss or accrual amount.
- Execution and profitability outlook: Track Allscripts technical remediation, promised channel activations, revenue growth, and the Q4 profitability expectation against actual results.
- Internal controls: Verify whether the stated material weaknesses were remediated and whether control effectiveness improved after the reporting date.