OptimizeRx Corporation — Q3 2011 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2011. Financial statements are unaudited. OptimizeRx provides healthcare technology and marketing solutions, including SampleMD, which enables clinicians to access pharmaceutical sample vouchers and copay offers.
Financial results and liquidity
- Revenue: Q3 revenue was $191,593, compared with $40,676 in Q3 2010. Nine-month revenue was $785,610, versus $58,679.
- Operating expenses and loss: Q3 operating expenses were $482,635 and operating loss was $291,042. For nine months, expenses were $1,445,070 and operating loss was $659,460. The filing presents no gross-profit or gross-margin figure.
- Net loss: Q3 net loss was $969,379 ($0.07 per share), versus $504,578 ($0.04 per share). Nine-month net loss was $1,616,994 ($0.12 per share), versus $1,640,449 ($0.13 per share).
- Interest and unusual expense: Interest expense was $678,543 in Q3 and $958,641 for the nine months. The company says the 2011 expense primarily reflects debt-related charges; $916,667 of debt-discount amortization was added back in the nine-month cash-flow reconciliation.
- Cash flow: Nine-month operating cash use was $604,364; investing cash use was $154,415, primarily for website development; financing provided $500,000. Cash declined by $258,779 to $1,019,315.
- Balance sheet: Current assets were $1,337,516 and current liabilities $739,440, yielding working capital of $598,076. Total assets were $2,649,597; stockholders’ equity was $1,910,157.
- Debt and financing: The $1 million investor note was repaid in September using proceeds from a $1.5 million Series B preferred-stock financing. At September 30, notes payable were zero. The preferred shares carry a 10% cumulative dividend, are convertible at $1.50 per common share, and were issued with warrants exercisable at $3.00. Further financings of up to $3.5 million were optional, not committed.
Changes versus prior-year periods
- Revenue rose substantially as SampleMD setup and integration activity contributed to sales.
- Operating expenses decreased 12% in Q3 and 15% year to date, primarily due to lower stock-based compensation and legal and accounting costs.
- Despite higher revenue and lower operating expenses, Q3 net loss widened, largely alongside the significant 2011 interest expense. Nine-month net loss was modestly lower than in 2010.
- Cash was lower than at December 31, 2010, while the company replaced its secured note with preferred equity and warrants. Common shares outstanding increased to 14,192,496 from 13,606,676.
Outlook, risks, and contingencies
- Management expected larger Q4 revenue as it pursued renewals, new contracts, and broader distribution through e-prescribing and electronic medical-record partners. It also expected higher Q4 operating expenses as it added account-management and sales staff. No quantified formal guidance was provided.
- Management stated that available cash and the financing were expected to fund operations and growth for the next 12 months. The company nevertheless disclosed substantial operating losses and said its ability to continue as a going concern depends on revenue growth and raising additional capital.
- Management reported 12 pharmaceutical manufacturers, 46 brands, and 60 offers on its distribution channels. One customer represented 50% of revenue for the nine months ended September 30, 2011, creating customer-concentration risk.
- An arbitration award dated September 30, 2011 entitled the company to $202,500 in damages and $88,000 in enforcement costs and fees from Beringea; no proceeds had been received as of November 7, 2011. Other claims were denied.
- A June 2011 settlement with Midtown Partners involved $57,500 and 100,000 common shares; the related litigation was dismissed. The company also disclosed a new office lease signed November 4, 2011 at approximately $5,000 per month, up from month-to-month rent of $2,500.
- Potential dilution arises from preferred-stock conversion, warrants, and cumulative preferred dividends. The filing also notes that tax-loss carryforwards may be limited following a change in ownership.
Important facts for investors to verify
- Whether the Beringea award is collected, and when any proceeds are received.
- Revenue growth, customer concentration, contract renewals, and adoption of SampleMD through health-system and technology partners.
- Actual cash burn and hiring costs relative to management’s stated 12-month liquidity expectation, including whether optional additional financing is pursued.
- Potential dilution and dividend obligations under Series B preferred stock and associated warrants.
- The filing’s tax note describes a nine-month loss of approximately $1.674 million, while the statements of operations report $1.617 million; clarify this discrepancy with the company.