OptimizeRx(OPRX) - 2019 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for OptimizeRx Corporation as of June 30, 2019, and for the three and six-month periods then ended, including balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with accompanying notes detailing accounting policies and specific financial activities Condensed Consolidated Balance Sheets The balance sheet as of June 30, 2019, shows a significant increase in total assets to $49.6 million from $25.1 million at year-end 2018, primarily driven by a substantial rise in cash and cash equivalents, with total liabilities increasing to $7.7 million and stockholders' equity growing to $41.9 million, reflecting proceeds from a recent stock offering Condensed Consolidated Balance Sheet Highlights (as of June 30, 2019 vs. Dec 31, 2018) | Account | June 30, 2019 ($) | December 31, 2018 ($) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $30,536,420 | $8,914,034 | | Total Current Assets | $38,588,492 | $15,732,021 | | Total Assets | $49,637,104 | $25,054,578 | | Liabilities & Equity | | | | Total Current Liabilities | $5,672,437 | $4,231,133 | | Total Liabilities | $7,727,341 | $6,596,133 | | Total Stockholders' Equity | $41,909,763 | $18,458,445 | Condensed Consolidated Statements of Operations The company reported significant growth in revenue and net income for both the three and six months ended June 30, 2019, compared to the same periods in 2018, with net revenue for the second quarter increasing by 37% year-over-year, leading to a net income of $406,617 Statement of Operations Summary (Unaudited) | Metric | Q2 2019 ($) | Q2 2018 ($) | Six Months 2019 ($) | Six Months 2018 ($) | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | $7,006,291 | $5,099,474 | $12,215,725 | $9,211,710 | | Gross Margin | $4,319,148 | $2,862,723 | $7,945,102 | $4,966,868 | | Income from Operations | $480,043 | $273,597 | $612,208 | $82,401 | | Net Income | $406,617 | $280,509 | $413,146 | $91,330 | | Diluted EPS | $0.03 | $0.02 | $0.03 | $0.01 | Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased from $18.5 million at the beginning of 2019 to $41.9 million by June 30, 2019, primarily driven by a public offering of common stock which raised net proceeds of $21.3 million, supplemented by stock option exercises and net income - A public offering of 1,769,275 common shares resulted in net proceeds of $21.3 million during the second quarter of 2019[15] - Total stockholders' equity grew from $18,458,445 on January 1, 2019, to $41,909,763 on June 30, 2019[15] Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2019, cash and cash equivalents increased by $21.6 million, primarily due to $21.9 million in net cash from financing activities, mainly from a stock offering, and $0.8 million from operating activities, offset by $1.05 million used in investing activities Cash Flow Summary for the Six Months Ended June 30 | Cash Flow Activity | 2019 ($) | 2018 ($) | | :--- | :--- | :--- | | Net Cash from Operating Activities | $808,200 | ($1,218,859) | | Net Cash used in Investing Activities | ($1,047,739) | ($69,244) | | Net Cash from Financing Activities | $21,861,925 | $8,169,394 | | Net Increase in Cash | $21,622,386 | $6,881,291 | | Cash at End of Period | $30,536,420 | $12,003,864 | Notes to Condensed Consolidated Financial Statements The notes provide context to the financial statements, detailing the nature of the business as a digital health messaging provider, the basis of presentation, adoption of new accounting standards for leases, details on stockholders' equity transactions including a major stock offering, stock-based compensation expenses, and earnings per share calculations - The company is a leading provider of digital health messaging via electronic health records (EHRs), connecting pharmaceutical companies with over half a million healthcare providers[22] - Effective January 1, 2019, the company adopted a new lease accounting standard, recognizing right-of-use assets of approximately $462,000 and lease liabilities of $465,000 on the balance sheet[26][30] - In Q2 2019, the company issued 1,769,275 shares of common stock in an underwritten primary offering, raising gross proceeds of $23.0 million and net proceeds of $21.3 million[36] - Stock-based compensation expense for the first six months of 2019 was $907,109 for options and $31,290 for restricted stock awards[43][44] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting a 37% revenue increase in Q2 2019 and a 33% increase for the first six months, driven by messaging products, with gross margins improving due to a favorable product mix and better revenue share contracts, and operating expenses rising primarily from increased headcount to support growth, leading to consistent profitability and significantly strengthened liquidity through a $21.3 million net equity raise, positioning it for potential acquisitions and continued expansion Results of Operations For the three and six months ended June 30, 2019, revenues grew 37% and 33% respectively, driven by messaging products, with gross margin improving to 61.6% for the quarter, up from 56.1% in the prior year, due to a better product mix and cost management, and operating expenses increasing significantly, mainly from higher salaries and benefits related to new hires to support growth, consequently, net income rose to $407,000 for the quarter Revenue Growth (YoY) | Period | 2019 Revenue ($ millions) | 2018 Revenue ($ millions) | Growth (%) | | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $7.0 million | $5.1 million | 37% | | Six Months Ended June 30 | $12.2 million | $9.2 million | 33% | Gross Margin Percentage Improvement | Period | 2019 (%) | 2018 (%) | | :--- | :--- | :--- | | Three Months Ended June 30 | 61.6% | 56.1% | | Six Months Ended June 30 | 65.0% | 54.0% | - Operating expenses increased from $2.6 million in Q2 2018 to $3.8 million in Q2 2019, primarily due to increased salaries, wages, and benefits from hiring a Chief Commercial Officer, four VPs of sales, and 10 employees from the CareSpeak acquisition[58][60] - Net income for Q2 2019 was $407,000, compared to $281,000 in Q2 2018, demonstrating consistent profitability[67] Liquidity and Capital Resources As of June 30, 2019, the company's liquidity position significantly improved, with working capital of $32.9 million and a current ratio of 6.8 to 1, largely due to net proceeds of $21.9 million from financing activities, including a common stock offering, and operating activities generating $808,000 in cash, a reversal from the cash used in the prior year, with management not anticipating needing to raise additional capital in the next 12 months for regular operations but remaining open to it for strategic M&A opportunities Liquidity Metrics | Metric | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Working Capital | $32.9 million | $11.5 million | | Current Ratio | 6.8 to 1 | 3.7 to 1 | - Net cash provided by financing activities was approximately $21.9 million for the first six months of 2019, primarily from an offering of common stock[72] - The company does not anticipate needing to raise additional capital in the next 12 months but remains open to it for strategic opportunities like acquisitions[73] Quantitative and Qualitative Disclosures About Market Risk The company states that it is not required to provide the information for this item - As a smaller reporting company, OptimizeRx is not required to provide quantitative and qualitative disclosures about market risk[80] Controls and Procedures Management concluded that as of June 30, 2019, the company's disclosure controls and procedures were not effective due to existing material weaknesses in internal control over financial reporting, including inadequate segregation of duties and insufficient IT reporting systems, with the company taking remedial steps such as hiring additional accounting staff and implementing new accounting software, expected to be fully operational in Q3 2019 - Management concluded that disclosure controls and procedures were not effective as of June 30, 2019[82] - Material weaknesses identified include: (i) inadequate segregation of duties and (ii) inadequate information technology reporting systems[83] - Remediation efforts include hiring an additional person in the accounting department and implementing new accounting software, expected to be complete in Q3 2019[84] PART II – OTHER INFORMATION Legal Proceedings The company reports that it is not involved in any material pending legal proceedings - The company is not involved in any material pending legal proceedings[89] Risk Factors The company refers to the risk factors previously disclosed in its Annual Report on Form 10-K for the year 2018 - For a discussion of risk factors, the report refers to the company's 2018 Annual Report on Form 10-K[90] Unregistered Sales of Equity Securities and Use of Proceeds This section discloses the issuance of unregistered securities during the quarter, specifically 8,336 shares to independent directors as part of their compensation plan and 60,295 shares upon the exercise of stock options in June 2019, made pursuant to Section 4(2) of the Securities Act - In Q2 2019, the company issued 8,336 shares to independent directors and 60,295 shares from the exercise of stock options[92] - These securities were issued as unregistered securities under Section 4(2) of the Securities Act and/or Rule 506[93] Exhibits This section lists the exhibits filed with the Form 10-Q, which include certifications by the CEO and CFO as required by the Sarbanes-Oxley Act of 2002, and XBRL data files - Filed exhibits include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[94]