OptimizeRx(OPRX) - 2019 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements This section presents OptimizeRx Corporation's unaudited condensed consolidated financial statements, detailing its financial position, performance, and cash flows for specified periods Condensed Consolidated Balance Sheets Provides a snapshot of the company's assets, liabilities, and equity at specific dates | Metric | Sep 30, 2019 (Unaudited) | Dec 31, 2018 | Change (2019 vs 2018) | | :-------------------------- | :----------------------- | :----------- | :-------------------- | | ASSETS | | | | | Cash and cash equivalents | $29,759,967 | $8,914,034 | +234% | | Total Current Assets | $37,891,534 | $15,732,021 | +141% | | Total Assets | $48,553,731 | $25,054,578 | +94% | | LIABILITIES & EQUITY | | | | | Total Current Liabilities | $5,410,141 | $4,231,133 | +28% | | Total Liabilities | $7,418,342 | $6,596,133 | +12% | | Total Stockholders' Equity | $41,135,389 | $18,458,445 | +123% | Condensed Consolidated Statements of Operations Details the company's revenues, expenses, and net income or loss over specific periods | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | Change (YoY) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change (YoY) | | :-------------------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Net Revenue | $5,002,767 | $5,415,384 | -7.6% | $17,218,492 | $14,627,094 | +17.7% | | Gross Margin | $3,021,624 | $3,146,416 | -4.0% | $10,966,726 | $8,113,284 | +35.2% | | Income (Loss) From Operations | $(1,987,310) | $223,178 | N/A (loss from income) | $(1,375,101) | $305,579 | N/A (loss from income) | | Net Income (Loss) | $(1,570,942) | $244,928 | N/A (loss from income) | $(1,157,796) | $336,258 | N/A (loss from income) | | Basic EPS | $(0.11) | $0.02 | N/A (loss from income) | $(0.09) | $0.03 | N/A (loss from income) | | Diluted EPS | $(0.11) | $0.02 | N/A (loss from income) | $(0.09) | $0.03 | N/A (loss from income) | Condensed Consolidated Statements of Changes in Stockholders' Equity Outlines changes in the company's equity components, including common stock and accumulated deficit, over specific periods Changes in Stockholders' Equity (Jan 1 - Sep 30, 2019) | Metric | Balance Jan 1, 2019 | Public Offering (net) | Stock Options Exercised | Stock-based Comp. Expense | Net Loss | Balance Sep 30, 2019 | | :-------------------------------- | :------------------ | :-------------------- | :---------------------- | :------------------------ | :------- | :------------------- | | Common Stock Shares | 12,038,618 | 1,769,275 | 210,949 | - | - | 14,173,850 | | Common Stock Amount | $12,039 | $1,769 | $210 | - | - | $14,174 | | Additional Paid-in Capital | $48,725,211 | $21,302,057 | $764,211 | $1,407,938 | - | $72,561,045 | | Accumulated Deficit | $(30,278,805) | - | - | - | $(1,157,796) | $(31,439,830) | | Total Stockholders' Equity | $18,458,445 | $21,303,826 | $764,319 | $1,407,938 | $(1,157,796) | $41,135,389 | - The company completed a public offering of common shares for cash, net of offering costs, raising $21,303,826 during the nine months ended September 30, 2019[15][35] - A reverse stock split (1-for-3) was implemented effective May 14, 2018, in connection with the Nasdaq Capital Market listing, with fractional shares rounded up[40] Condensed Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows Highlights | Cash Flow Activity | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change (YoY) | | :-------------------------------- | :-------------------------- | :-------------------------- | :----------- | | Net (loss) income | $(1,157,796) | $336,258 | N/A (loss from income) | | Net Cash Used in Operating Activities | $(160,859) | $(140,206) | -14.7% | | Net Cash Used in Investing Activities | $(1,061,457) | $(79,782) | -1231% | | Net Cash Provided by Financing Activities | $22,068,249 | $8,620,417 | +156% | | Net Increase in Cash and Cash Equivalents | $20,845,933 | $8,400,429 | +148% | | Cash and Cash Equivalents - End of Period | $29,759,967 | $13,523,002 | +120% | - Significant non-cash activities for 2019 include intangible asset additions in accounts payable ($500,000) and lease liabilities from right-of-use assets ($672,809)[19] Notes to Condensed Consolidated Financial Statements Provides detailed explanations and disclosures for the financial statements, covering business, accounting standards, equity, compensation, contingencies, EPS, and subsequent events - The financial statements are unaudited and prepared according to SEC rules, with all necessary adjustments made for fair presentation, and should be read in conjunction with the 2018 Form 10-K[22][23] - Results for the three and nine months ended September 30, 2019, are not necessarily indicative of full-year results[24] NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION Describes OptimizeRx Corporation's business as a digital health messaging provider and the basis of financial statement presentation - OptimizeRx Corporation is a leading provider of digital health messaging via electronic health records (EHRs), connecting pharmaceutical companies with healthcare providers and patients[21] - The company's cloud-based solution supports patient medication adherence by offering real-time access to financial assistance, prior authorization, education, and clinical information to over half a million healthcare providers[21] NOTE 2 – NEW ACCOUNTING STANDARDS Details the adoption of new lease accounting guidance and the evaluation of other upcoming accounting standards - Effective January 1, 2019, the company adopted new lease accounting guidance (ASU 2016-13) using the modified retrospective method, recognizing operating leases on the balance sheet as right-of-use assets and lease liabilities[25][28] - Upon adoption, approximately $462,000 of right-of-use assets and $465,000 of lease-related liabilities were recorded, with a cumulative-effect adjustment to accumulated deficit[29] Lease Cost Components | Lease Cost Component | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2019 | | :------------------- | :-------------------------- | :-------------------------- | | Operating lease cost | $33,868 | $98,043 | | Short-term lease cost | $11,771 | $30,663 | | Total lease cost | $45,639 | $128,706 | - The company is currently evaluating the impact of ASU 2016-13 (Credit Losses), ASU 2017-04 (Goodwill Impairment), and ASU 2018-13 (Fair Value Measurement Disclosure) which become effective in 2020[32][33][34] NOTE 3 – STOCKHOLDERS' EQUITY Explains changes in stockholders' equity, including public offerings, stock option exercises, and a reverse stock split - In Q2 2019, the company issued 1,769,275 common shares in an underwritten public offering, generating net proceeds of $21.3 million after $1.7 million in issuance costs[35] - In Q2 2018, 1,666,669 common shares were issued in a private transaction, yielding net proceeds of $8.16 million after $0.84 million in costs[36] - Shares were issued for stock option exercises and as compensation to independent directors throughout 2019 and 2018[37][39] - A 1-for-3 reverse stock split was implemented on May 14, 2018, for Nasdaq listing, resulting in 908 additional shares due to rounding[40] NOTE 4 – STOCK BASED COMPENSATION Details stock-based compensation expenses and remaining unvested amounts for options and restricted stock awards Stock-Based Compensation Expense | Compensation Type | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :---------------- | :-------------------------- | :-------------------------- | | Stock options | $1,329,713 | $878,768 | | Restricted stock awards | $78,225 | $364,008 | - As of September 30, 2019, there is $1,462,423 of remaining expense for unvested options (weighted average remaining period < 1 year) and $1,513,475 for unvested restricted stock awards (140,000 shares)[43][44] NOTE 5 – CONTINGENCIES States that the company is not currently involved in any material legal proceedings - The company is not currently involved in any material legal proceedings[45] NOTE 6 – (LOSS) EARNINGS PER SHARE Presents the calculation of basic and diluted earnings per share, noting anti-dilutive effects for losses Earnings Per Share Calculation | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net (loss) income | $(1,570,942) | $244,928 | $(1,157,796) | $336,258 | | Basic Weighted Average Shares | 14,146,489 | 11,755,500 | 12,996,590 | 10,840,584 | | Diluted Weighted Average Shares | 14,146,489 | 12,921,768 | 12,996,590 | 11,776,754 | | Basic (Loss) Earnings Per Share | $(0.11) | $0.02 | $(0.09) | $0.03 | | Diluted (Loss) Earnings Per Share | $(0.11) | $0.02 | $(0.09) | $0.03 | - No diluted EPS calculation was included for 2019 as the effect would be anti-dilutive due to the net loss[48] NOTE 7 – SUBSEQUENT EVENTS Discloses significant events occurring after the reporting period, including the acquisition of RMDY Health - In October 2019, the company acquired RMDY Health, a provider of collaborative digital therapeutics SaaS solutions, for $16.0 million (subject to working capital adjustments)[49] - The RMDY Health acquisition involved an initial cash payment of $8.7 million and a portion of the purchase price ($5.9 million) payable in 382,893 common shares to be issued in November 2019[49][50] - Additional earnout payments up to $30.0 million may be due in future years based on RMDY product revenues in 2020 and 2021[50] - RMDY Health's operating results are not included in the Q3 2019 financial statements, and a preliminary purchase price allocation or pro forma financial information is impractical to disclose at this time[52] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis of financial condition and results of operations for the three and nine months ended September 30, 2019, highlighting performance, liquidity, and critical accounting policies - The company's revenues for the nine months ended September 30, 2019, increased by 18% to $17.2 million, driven by growth in clinical and brand messaging products[58][59] - Revenues for the three months ended September 30, 2019, decreased by 8% to $5.0 million, primarily due to a decline in financial messaging product revenue as two high-volume brands from 2018 were not active in 2019[58][59] - Gross margins improved in both the three and nine-month periods of 2019 due to product mix and a focus on reducing revenue share costs and higher-margin products, with an expectation to maintain at least 60% quarterly gross margins[60][61][62] - Operating expenses significantly increased in 2019 due to strategic hires, increased research and development, expanded marketing activities, higher professional fees related to Nasdaq listing and acquisitions, and acquisition-related costs for RMDY Health[63][65][66][67][68][69] - The company reported a net loss of $1.57 million for the three months and $1.16 million for the nine months ended September 30, 2019, compared to net income in the prior year periods, primarily due to increased growth-related expenses offsetting improved gross margins[74] - Working capital improved significantly to $32.5 million (current ratio 7.0:1) as of September 30, 2019, from $11.5 million (current ratio 3.7:1) at December 31, 2018[76] - The company does not anticipate needing to raise additional capital for operating purposes in the next 12 months but may seek capital for potential acquisitions or strategic partnerships[80] Overview Provides a high-level summary of the company's strategic direction, growth expectations, and key achievements - The company expects continued strong growth from its legacy and new solutions, and evolving network, driven by an increasing client base[57] - Key highlights include 18% revenue growth for the nine months ended Sep 30, 2019, $21.3 million in net equity raised, the acquisition of RMDY Health in October 2019, and a three-year exclusive agreement with NewCrop[58] Results of Operations for the Three and Nine Months Ended September 30, 2019 and 2018 Analyzes the company's financial performance, including revenues, costs, gross margin, and operating expenses, for the specified periods Revenues Examines net revenue performance and the factors influencing changes for the three and nine-month periods Net Revenue Performance | Period | Net Revenue (2019) | Net Revenue (2018) | YoY Change | | :-------------------- | :----------------- | :----------------- | :--------- | | 9 Months Ended Sep 30 | $17.2 million | $14.6 million | +18% | | 3 Months Ended Sep 30 | $5.0 million | $5.4 million | -8% | - Nine-month revenue increase was due to higher sales in clinical and brand messaging products from new channel partners[59] - Three-month revenue decrease was due to a decline in financial messaging, as two high-volume brands from 2018 shifted funds or were no longer active[59] Cost of Revenues Analyzes the cost of revenues and its percentage of net revenue, highlighting factors impacting changes Cost of Revenues Percentage | Period | Cost of Revenues % (2019) | Cost of Revenues % (2018) | Change (pp) | | :-------------------- | :------------------------ | :------------------------ | :---------- | | 3 Months Ended Sep 30 | 39.6% | 41.9% | -2.3 pp | | 9 Months Ended Sep 30 | 36.3% | 44.5% | -8.2 pp | - The decline in cost of revenue percentage was attributed to product mix and a strategic focus on reducing revenue share contracts and prioritizing higher-margin products[60] Gross Margin Discusses gross margin performance and the strategic factors contributing to its improvement Gross Margin Percentage | Period | Gross Margin % (2019) | Gross Margin % (2018) | Change (pp) | | :-------------------- | :-------------------- | :-------------------- | :---------- | | 3 Months Ended Sep 30 | 60.4% | 58.1% | +2.3 pp | | 9 Months Ended Sep 30 | 63.7% | 55.5% | +8.2 pp | - Gross margins improved in both periods due to the reasons mentioned in cost of revenues, with an expectation to maintain at least 60% quarterly gross margins for the rest of the year[62] Operating Expenses Details the components and changes in operating expenses, including salaries, R&D, and acquisition costs Operating Expenses by Category | Expense Category | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Operating Expense | $5,008,934 | $2,923,238 | $12,341,827 | $7,807,705 | | Salaries, Wages, & Benefits | $1,882,433 | $1,381,237 | $5,672,775 | $3,898,222 | | Stock-based compensation | $590,244 | $708,163 | $1,769,720 | $1,721,985 | | Professional Fees | $201,878 | $51,807 | $576,509 | $231,206 | | Acquisition Related Costs | $323,406 | $45,580 | $323,406 | $45,580 | | Research, Development, and Maintenance | $1,034,281 | $114,604 | $1,432,390 | $439,916 | | Advertising and Promotion | $137,276 | $106,920 | $491,989 | $225,648 | | Depreciation and Amortization | $320,055 | $54,473 | $745,927 | $163,418 | - Significant increases in operating expenses were driven by new hires (Chief Commercial Officer, VPs of sales, marketing, strategy, controller, financial analyst, CareSpeak employees), increased R&D for new offerings, and expanded marketing activities including physician surveys and industry conferences[65][66][67] - Professional fees rose due to the Nasdaq Capital Market move, increased market capitalization, and the CareSpeak acquisition, requiring a Sarbanes Oxley audit opinion on internal controls and third-party valuations[68] - Acquisition-related costs increased in 2019 due to the larger and more complex RMDY Health transaction compared to CareSpeak Communications in 2018[69] - Depreciation and amortization increased primarily due to amortizable assets acquired from CareSpeak Communications[70] - The decrease in the fair value of contingent consideration relates to the CareSpeak acquisition, reflecting adjustments to future revenue projections[71] - Operating expenses are expected to continue at or slightly above 2019 levels as the company expands, but human resource costs are not expected to increase as rapidly as revenues[73] Net Income (Loss) Analyzes the company's net income or loss and the primary drivers behind its performance Net Income (Loss) Performance | Period | Net Income (Loss) (2019) | Net Income (Loss) (2018) | | :-------------------- | :----------------------- | :----------------------- | | 3 Months Ended Sep 30 | $(1,570,942) | $244,928 | | 9 Months Ended Sep 30 | $(1,157,796) | $336,258 | - The shift from net income to net loss in 2019 was primarily due to increased growth-related expenses, which offset the improved gross margins[74] Liquidity and Capital Resources Assesses the company's financial liquidity, working capital, cash flow, and future capital needs Liquidity and Working Capital | Metric | Sep 30, 2019 | Dec 31, 2018 | Change | | :-------------------- | :----------- | :----------- | :------- | | Total Current Assets | $37.9 million | $15.7 million | +141% | | Total Current Liabilities | $5.4 million | $4.2 million | +28% | | Working Capital | $32.5 million | $11.5 million | +183% | | Current Ratio | 7.0 to 1 | 3.7 to 1 | +89% | Cash Flow Summary | Cash Flow Activity | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net Cash Used in Operating Activities | $(161,000) | $(140,000) | | Net Cash Used in Investing Activities | $(1.06 million) | $(79,782) | | Net Cash Provided by Financing Activities | $22.1 million | $8.6 million | - Investing activities in 2019 included $1.0 million for a perpetual software license (total cost $1.5 million, with $500,000 in accounts payable)[78] - The company used approximately $9.0 million of cash in October 2019 for the RMDY Health acquisition, leaving approximately $20 million for operations and potential future acquisitions[80] - No additional capital is anticipated for operating purposes in the next 12 months, but opportunities for acquisitions or strategic partnerships may require further capital[80] Critical Accounting Policies Identifies the key accounting policies requiring significant judgment and estimation in financial reporting - Critical accounting policies include revenue recognition, calculation of revenue share expense, stock-based compensation, capitalization and amortization of intangible assets, impairment of assets, and fair value of contingent purchase price payable[81] Recently Issued Accounting Pronouncements Discusses the company's evaluation of new accounting standards effective in 2020 - The company is evaluating the impact of ASU 2016-13 (Credit Losses), ASU 2017-04 (Goodwill Impairment), and ASU 2018-13 (Fair Value Measurement Disclosure), all effective for the company on January 1, 2020[83][84][85] Off Balance Sheet Arrangements Confirms the absence of any off-balance sheet arrangements as of the reporting date - As of September 30, 2019, there were no off-balance sheet arrangements[86] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is not required to provide disclosures regarding quantitative and qualitative information about market risk for this reporting period - The registrant is not required to provide information on market risk for this Item[87] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective due to material weaknesses in internal control over financial reporting, with remediation efforts underway - As of September 30, 2019, disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting[89] - Identified material weaknesses include inadequate segregation of duties and insufficient information technology reporting systems for accurate financial reporting under US GAAP and SEC guidelines[90] - Remediation efforts in 2019 included hiring two additional accounting personnel to address segregation of duties and implementing new accounting software in August to resolve IT issues[91] - A thorough assessment of the new system and associated controls is expected by the end of Q4, with management acknowledging that control systems provide reasonable, not absolute, assurance[91][93] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any material pending legal proceedings, nor is it aware of any such proceedings involving its officers, directors, or significant shareholders - The company is not a party to any material pending legal proceedings[96] Item 1A. Risk Factors For a comprehensive discussion of risk factors, readers are directed to the company's Annual Report on Form 10-K for 2018 - Risk factors are included in the Annual Report on Form 10-K for 2018[97] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details unregistered sales of common shares to independent directors and from stock option exercises in Q3 2019 under specific Securities Act exemptions - In September 2019, 8,336 common shares were issued to independent directors[98] - During the three months ended September 30, 2019, 48,775 shares were issued due to stock option exercises[98] - These securities were issued under Section 4(2) and/or Rule 506 of the Securities Act, with investors intending to acquire for investment and no general solicitation[99] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - No defaults upon senior securities were reported[100] Item 4. Mine Safety Disclosure This item is not applicable to the company - This item is not applicable (N/A)[100] Item 5. Other Information No other material information was disclosed under this item - No other information was reported[100] Item 6. Exhibits Lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL financial statements - Exhibits include CEO and CFO certifications (31.1, 31.2, 32.1) and XBRL formatted financial statements (101)[100]