Item
1. Financial Statements
Our
consolidated financial statements included in this Form 10-Q are as follows:
F-1
|
Condensed
Consolidated Balance Sheets as of September 30, 2018 (unaudited) and December 31, 2017;
|
F-2
|
Condensed Consolidated
Statements of Operations for the three and nine months ended September 30, 2018 and 2017 (unaudited);
|
F-3
|
Condensed Consolidated
Statements of Cash Flow for the nine months ended September 30, 2018 and 2017 (unaudited);
|
F-4
|
Notes to Condensed
Consolidated Financial Statements.
|
These
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. Operating results for the interim period ended September 30,
2018 are not necessarily indicative of the results that can be expected for the full year.
OPTIMIZERx
CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
ASSETS
|
|
|
(unaudited)
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
13,523,002
|
|
|
$
|
5,122,573
|
|
Accounts receivable
|
|
|
3,791,964
|
|
|
|
2,257,276
|
|
Accounts receivable – related party
|
|
|
1,373,054
|
|
|
|
1,173,614
|
|
Prepaid expenses
|
|
|
201,320
|
|
|
|
255,428
|
|
Total Current Assets
|
|
|
18,889,340
|
|
|
|
8,808,891
|
|
Property and equipment, net
|
|
|
149,936
|
|
|
|
167,305
|
|
Other Assets
|
|
|
|
|
|
|
|
|
Patent rights, net
|
|
|
587,848
|
|
|
|
638,766
|
|
Web development and other intangible costs, net
|
|
|
128,381
|
|
|
|
143,730
|
|
Security deposit
|
|
|
5,049
|
|
|
|
5,049
|
|
Total Other Assets
|
|
|
721,278
|
|
|
|
787,545
|
|
TOTAL ASSETS
|
|
$
|
19,760,554
|
|
|
$
|
9,763,741
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable – trade
|
|
$
|
165,458
|
|
|
$
|
457,289
|
|
Accrued expenses
|
|
|
814,530
|
|
|
|
953,947
|
|
Revenue share payable
|
|
|
763,084
|
|
|
|
1,177,136
|
|
Revenue share payable – related party
|
|
|
-
|
|
|
|
447,670
|
|
Deferred revenue
|
|
|
813,316
|
|
|
|
507,160
|
|
Total Liabilities
|
|
|
2,556,388
|
|
|
|
3,543,202
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no issued and outstanding at September 30, 2018 or December 31, 2017
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.001 par value, 166,666,667 shares authorized, 11,970,976 and 9,772,694 shares issued and outstanding at Sept 30, 2018 and December 31, 2017, respectively
|
|
|
11,971
|
|
|
|
9,773
|
|
Stock warrants
|
|
|
-
|
|
|
|
1,286,424
|
|
Additional paid-in-capital
|
|
|
47,361,086
|
|
|
|
35,287,464
|
|
Accumulated deficit
|
|
|
(30,168,891
|
)
|
|
|
(30,363,122
|
)
|
Total Stockholders’ Equity
|
|
|
17,204,166
|
|
|
|
6,220,539
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
19,760,554
|
|
|
$
|
9,763,741
|
|
The
accompanying notes are an integral part of these financial statements.
OPTIMIZERx
CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
|
|
For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
|
|
September 30
|
|
|
September 30
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
NET REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
3,990,486
|
|
|
$
|
2,076,736
|
|
|
$
|
9,951,743
|
|
|
$
|
5,729,275
|
|
Revenue – Related Party
|
|
|
1,424,898
|
|
|
|
1,025,871
|
|
|
|
4,675,351
|
|
|
|
2,391,227
|
|
TOTAL NET REVENUE
|
|
|
5,415,384
|
|
|
|
3,102,607
|
|
|
|
14,627,094
|
|
|
|
8,120,502
|
|
REVENUE SHARE EXPENSE
|
|
|
2,268,968
|
|
|
|
1,703,676
|
|
|
|
6,513,810
|
|
|
|
4,690,943
|
|
GROSS MARGIN
|
|
|
3,146,416
|
|
|
|
1,398,931
|
|
|
|
8,113,284
|
|
|
|
3,429,559
|
|
OPERATING EXPENSES
|
|
|
2,923,238
|
|
|
|
2,028,589
|
|
|
|
7,807,705
|
|
|
|
5,320,220
|
|
INCOME (LOSS) FROM OPERATIONS
|
|
|
223,178
|
|
|
|
(629,658
|
)
|
|
|
305,579
|
|
|
|
(1,890,661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
21,750
|
|
|
|
6,872
|
|
|
|
30,679
|
|
|
|
23,691
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL OTHER INCOME (EXPENSE)
|
|
|
21,750
|
|
|
|
6,872
|
|
|
|
30,679
|
|
|
|
23,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
|
|
|
244,928
|
|
|
|
(622,786
|
)
|
|
|
336,258
|
|
|
|
(1,866,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR INCOME TAXES
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
NET INCOME (LOSS)
|
|
$
|
244,928
|
|
|
$
|
(622,786
|
)
|
|
$
|
336,258
|
|
|
$
|
(1,866,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
|
11,755,500
|
|
|
|
9,752,122
|
|
|
|
10,840,584
|
|
|
|
9,839,325
|
|
DILUTED
|
|
|
12,921,768
|
|
|
|
9,752,122
|
|
|
|
11,766,754
|
|
|
|
9,839,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
$
|
0.02
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.19
|
)
|
DILUTED
|
|
$
|
0.02
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.19
|
)
|
The
accompanying notes are an integral part of these financial statements.
OPTIMIZERx
CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
For
the Nine Months Ended
September 30
|
|
|
|
2018
|
|
|
2017
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income (loss) for the period
|
|
$
|
336,258
|
|
|
$
|
(1,866,970
|
)
|
Adjustments to reconcile net income(loss) to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
163,418
|
|
|
|
212,918
|
|
Stock and options issued for services
|
|
|
1,721,979
|
|
|
|
497,033
|
|
Changes in:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,734,128
|
)
|
|
|
355,644
|
|
Prepaid expenses
|
|
|
54,108
|
|
|
|
(454,486
|
)
|
Accounts payable
|
|
|
(291,831
|
)
|
|
|
26,544
|
|
Revenue share payable
|
|
|
(414,722
|
)
|
|
|
(744,526
|
)
|
Accrued expenses
|
|
|
(139,417
|
)
|
|
|
146,291
|
|
Deferred revenue
|
|
|
164,129
|
|
|
|
342,511
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
(140,206
|
)
|
|
|
(1,485,041
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(23,131
|
)
|
|
|
(29,310
|
)
|
Web development and other intangible costs
|
|
|
(56,651
|
)
|
|
|
(117,168
|
)
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
(79,782
|
)
|
|
|
(146,478
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of common stock for cash
|
|
|
8,620,417
|
|
|
|
-
|
|
Repurchase of common stock and stock payable
|
|
|
-
|
|
|
|
(390,000
|
)
|
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
|
|
8,620,417
|
|
|
|
(390,000
|
)
|
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
8,400,429
|
|
|
|
(2,021,519
|
)
|
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
|
|
|
5,122,573
|
|
|
|
7,034,647
|
|
CASH AND CASH EQUIVALENTS - END OF PERIOD
|
|
$
|
13,523,002
|
|
|
$
|
5,013,128
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Non-cash issuance of shares to WPP
|
|
$
|
447,000
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these financial statements.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER
30, 2018
NOTE
1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION
We
are a leading digital health messaging platform via electronic health records (EHRs), providing a direct channel for pharmaceutical
companies to communicate with healthcare providers. Our cloud-based solution supports patient adherence to medications by providing
real-time access to financial assistance, prior authorization, education and critical clinical information. Our network is comprised
of leading EHR platforms and provides more than half of the ambulatory healthcare providers access to these benefits within their
workflow at the point of care.
The
consolidated financial statements for the three and nine months ended September 30, 2018 and 2017, have been prepared by us without
audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management,
all adjustments necessary to present fairly our financial position, results of operations, and cash flows as of September 30,
2018 and 2017, and for the periods then ended, have been made. Those adjustments consist of normal and recurring adjustments.
The consolidated balance sheet as of December 31, 2017, has been derived from the audited consolidated balance sheet as of that
date. Certain items in the 2017 financial statements have been reclassified to conform with the 2018 presentation.
Certain
information and note disclosures normally included in our annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with
a reading of the financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December
31, 2017, as filed with the SEC.
The
results of operations for the three and nine months ended September 30, 2018, are not necessarily indicative of the results to
be expected for the full year. Certain reclassifications have been made in our consolidated financial statements for the prior
periods to conform to the presentation of our consolidated financial statements for the current periods.
NOTE
2 – NEW FINANCIAL ACCOUNTING STANDARDS
On
January 1, 2018, we adopted the new accounting standard ASC 606,
Revenue from Contracts with Customers
, and all of the
related amendments (“new revenue standard”). We recorded the change, which was immaterial, related to adopting the
new revenue standard using the modified retrospective method. Under this method, we recognized the cumulative effect of initially
applying the new revenue standard as an adjustment to the opening balance of retained earnings. This results in no restatement
of prior periods, which continue to be reported under the accounting standards in effect for those periods. We expect the impact
of the adoption of the new revenue standard to continue to be immaterial on an ongoing basis.
We
have applied the new revenue standard to all contracts as of the date of initial application. The overwhelming majority of our
revenue continues to be recognized when transactions occur, such as the delivery of a message. We previously recognized revenue
related to set-ups when a program launched, and all related activities had been accomplished. Under the new revenue standard,
we are recognizing revenue related to these set ups over the term of the initial contract. Since set up fees are generally small
relative to the size of the overall contract and because most contracts are for a year or less, the impact of this change is immaterial.
The
impact of recording this change as of January 1, 2018 resulted in an increase in deferred revenue of $142,027 at that date and
a corresponding decrease in retained earnings as well. The impact of adopting the new revenue standard in 2018 resulted in lower
revenues in the nine months ended September 30, 2018. Had the new revenue standard not taken effect, our revenues for the period
would have been higher by $151,514 and deferred revenues lower by $151,514. Almost all of these revenues are expected to be recognized
by December 31, 2018, so the primary effect of the new revenue standard is to shift revenues between quarters by immaterial amounts.
The impact of adopting the new revenue standard in 2018 also resulted in lower revenues in the three months ended September 30,
2018. Had the new revenue standard not taken effect, our revenues for the period would have been higher by $7,252.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER
30, 2018
NOTE
3 – STOCKHOLDERS’ EQUITY
Effective
May 14, 2018, in connection with our listing on the Nasdaq Capital Market, we implemented a reverse split of our common stock
by exchanging each three shares of our common stock for one share. Our financial statements and all equity transactions have been
retroactively adjusted to account for the reverse stock split. We elected to round fractional shares up to the nearest whole number
rather than redeem them for cash, and as a result we issued 908 additional shares as a result of this rounding.
Our
Director Compensation Plan calls for issuance of 2,084 shares of common stock per quarter to each independent director. In 2018,
we issued 6,252 shares valued at $28,875, 8,336 shares valued at $89,945, and 11,489 shares valued at $206,802 for the quarters
ended March 31, June 30 and September 30, respectively. In 2017, we issued 6,252 shares in each of the quarters ended March 31,
June 30 and September 30 valued at $15,375, $19,312, and $23,250, respectively.
In
the quarter ended March 31, 2018, we issued 100,000 shares of common stock to a subsidiary of WPP, one of the world’s largest
media companies, and a shareholder, in full payment of all amounts due under a co-marketing agreement that covered certain WPP
agencies, whereby we shared a portion of our revenue with those agencies related to new programs through those agencies. The shares
were valued at $447,000, the market value of the stock on the date of issuance. The amount due was recorded as a liability in
revenue share payable at December 31, 2017.
During
the quarter ended June 30, 2018, in a private transaction, we issued 1,666,669 shares of our common stock for gross proceeds of
$9,000,000. In connection with this transaction, we incurred equity issuance costs of $835,526 related to payments to advisors
and legal fees associated with the transaction, resulting in net proceeds to the Company of $8,164,474.
We
also issued 143,405 shares of common stock and received proceeds of $455,942 in connection with the exercise of options in 2018.
During
the quarter ended September 30, 2018, we issued 10,000 shares of stock, valued at $148,050, for investor relations services.
During
the quarter ended September 30, 2018, we issued 251,046 shares of common stock in connection with the cashless exercise of a warrant
to purchase 348,194 shares.
NOTE
4 – SHARE BASED PAYMENTS – OPTIONS
We
use the fair value method to account for stock-based compensation. We recorded $1,248,307 and $439,095 in compensation expense
in the nine months ended September 30, 2018 and 2017, respectively, related to options issued under our stock-based incentive
compensation plan. This includes expense related to options issued in prior years for which the requisite service period for those
options includes the current year, options granted in the current year and options repriced in the current year. The assumptions
used in this model were similar to the assumptions set forth in our Annual Report on Form 10-K for the fiscal year ended December
31, 2017 related to grants in 2017. As also discussed in the 10-K, we increased the shares of common stock authorized under our
stock option plan during 2018 to 1,833,333 million shares. There is $879,250 of remaining expense related to unvested options
to be recognized in the future.
NOTE
5 – COMMITMENTS AND CONTINGENCIES
Litigation
The
company is not involved in any legal proceedings.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER
30, 2018
NOTE
6 – RELATED PARTY TRANSACTIONS
WPP,
a large international media conglomerate, owns approximately 18% of our common shares. As described in more detail in Note 3,
Stockholders’ Equity, we issued 100,000 shares of our common stock to a subsidiary of WPP related to the finalization and
termination of a co-marketing agreement.
Our
customers are primarily pharmaceutical companies; however, sometimes their messaging programs are billed through media agencies.
Revenues earned on messaging programs billed through media agencies owned by WPP are reflected as related party revenues on the
income statement and amounts due from those same agencies are reflected as related party accounts receivable on the balance sheet
since WPP, through a subsidiary company, owns a minority portion of our common shares, even though the party receiving the ultimate
services is not a related party.
NOTE
7 – NET INCOME (LOSS) PER SHARE
The
following tables sets forth the computation of basic and diluted net income per share.
|
|
Three Months Ended
Sept 30
|
|
|
Nine Months Ended
Sept 30
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
244,928
|
|
|
$
|
(622,786)
|
|
|
$
|
336,258
|
|
$
|
|
(1,866,970)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding used in computing net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
11,755,500
|
|
|
|
9,752,122
|
|
|
|
10,840,584
|
|
|
|
9,839,325
|
|
Effect of dilutive stock options, warrants, and stock grants
|
|
|
1,166,268
|
|
|
|
-
|
|
|
|
936,170
|
|
|
|
-
|
|
Diluted
|
|
|
12,921,768
|
|
|
|
9,752,122
|
|
|
|
11,766,754
|
|
|
|
9,839,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.02
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.19
|
)
|
Diluted
|
|
$
|
0.02
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.19
|
)
|
OPTIMIZERx
CORPORATION
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER
30, 2018
NOTE
8 – SUBSEQUENT EVENTS
In
October 2018, we issued 7,248 shares of common stock and received proceeds of $25,651 in connection with the exercise of options.
In addition, in October 2018, we issued 5,000 shares of our common stock in connection with investor relations services.
In
October 2018, we completed the acquisition of CareSpeak Communications, a leader in interactive health messaging for improved
medication adherence and care coordination to expand our reach to communicate directly to patients, resulting in greater medication
adherence, persistence and affordability. This strategic acquisition allows us to continue diversifying our revenue streams and
scaling our current solution.
The
purchase price was $6.0 million plus estimated working capital received of $91,411. A portion of the purchase price, $500,000,
was payable in shares of our common stock and 30,638 shares were issued in connection with this acquisition. Additional cash payments
of up to $3.0 million may be come due as part of an earnout if we achieve $2.0 million of revenues related to the “CareSpeak”
product in 2019, and $3.0 million in 2020.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking
Statements
Certain
statements, other than purely historical information, including estimates, projections, statements relating to our business plans,
objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally
are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,”
“intends,” “strategy,” “plan,” “may,” “will,” “would,”
“will be,” “will continue,” “will likely result,” and similar expressions. We intend
such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking
statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual
results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future
plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and
future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory
changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties
should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We
undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future
events or otherwise. Further information concerning our business, including additional factors that could materially
affect our financial results, is included herein and in our other filings with the SEC.
Overview
Company
Highlights through October, 2018
|
1)
|
Our revenues for the first
nine months of 2018 were approximately $14.6 million, an 80% increase over the same period in 2017, attributable to our messaging
platform growth from new and returning clients and expanded reach to health care providers.
|
|
2)
|
Our revenues for the third quarter of 2018 were
approximately $5.4 million, up 75% over the same quarter in 2017.
|
|
3)
|
In October, we acquired CareSpeak Communications,
a leader in interactive health messaging for improved medication adherence and care coordination.
|
|
4)
|
We completed a 1 for 3 reverse stock split in
May 2018 and up-listed our stock to the Nasdaq Capital Market in June 2018.
|
|
5)
|
We raised $9.0 million in common equity from
established funds that bolstered our balance sheet and provided investment capital to further grow our business.
|
|
6)
|
We expanded our board of directors, adding two
new independent directors, Patrick Spangler and Bryan Archambault, as well as established a formal audit committee.
|
|
7)
|
We continued to focus on adding additional brands
for existing clients, providing new solutions, expanding the utilization of our network for existing brands, and obtaining
new pharmaceutical manufacturer clients and advertising agencies.
|
Our
success in acquiring, integrating and expanding into new EHR/eRx platforms continues to grow. For the remainder of 2018, we expect
to expand our reach to physicians, pharmacies and patients, and also increase the utilization of our existing partners as they
improve their work flow and reach. With the growth of both our pharmaceutical products and our distribution network, we expect
that our financial, brand, and clinical messaging will continue to increase and show strong growth throughout the year.
Results
of Operations for the Three and Nine Months Ended September 30, 2018 and 2017
Revenues
Our
total revenue for the three months ended September 30, 2018 was approximately $5.4 million, an increase of 75% over the approximately
$3.1 million from the same period in 2017. Our total revenue for the nine months ended September 30, 2018 was approximately $14.6
million, an increase of 80% over the approximately $8.1 million from the same period in 2017. These increased revenues resulted
primarily from increases in our messaging products, as well as expanded distribution channels. Additionally, the launch of new
pharmaceutical brands, which total over 100 in our messaging platforms, also contributed to the increase.
We
do not breakout revenue by service at this stage, but as we achieve greater scale we plan to determine the best way to present
the growth by service. As described in greater detail in Note 2 to the financial statements, we adopted the new revenue standard
during the quarter ended March 31, 2018. The effect of that, which was immaterial, was to decrease our revenue by approximately
$7,000 during the quarter and by approximately $151,000 for the nine-month period. The vast majority of that revenue, however,
will be recognized throughout the remainder of 2018.
Cost
of Revenues
Our
cost of revenues, comprised primarily of revenue share expense, increased in the three and nine months ended September 30, 2018
over the same periods in 2017 as a result of the revenue increases. However, as a percentage of revenues, cost of revenues decreased
in 2018 over 2017 as reflected in the table below. This decrease in our cost of revenue percentages is primarily the result of
the launch of our brand messaging in 2017 and the expansion of those products in 2018. Our brand messaging revenues have a significant
fixed cost component to them. Revenue increases in brand messaging have a significant impact on improving our margins. During
the launch period in 2017, we had only nominal margins on these products, but by 2018 we had achieved greater scale on these products,
resulting in significant margin improvements.
|
|
Three Months Ended
Sept 30
|
|
|
Nine Months Ended
Sept 30
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues %
|
|
|
41.9
|
%
|
|
|
54.9
|
%
|
|
|
44.5
|
%
|
|
|
57.8
|
%
|
Gross Margin %
|
|
|
58.1
|
%
|
|
|
45.1
|
%
|
|
|
55.5
|
%
|
|
|
42.2
|
%
|
Gross
Margin
Our
gross margins improved from 2017 to 2018 in both the three and nine-month periods ended September 30, as reflected in the table
above and for the reasons reflected in the discussion of cost of revenues. We have been focused on improving our margins and were
targeting a gross margin of at least 55% by the fourth quarter of 2018. We achieved that goal ahead of schedule in both the recently
completed second and third quarters and are now focused on maintaining, or improving, those margins. Our overall margin is impacted
by product mix, so there may be variations in margin from quarter to quarter, depending on the product mix, introduction of new
products, and other factors.
Operating
Expenses
Operating
expenses increased from approximately $2.0 million for the three months ended September 30, 2017 to approximately $2.9 million
for the same period in 2018. Operating expenses increased from approximately $5.3 million for the nine months ended September
30, 2017 to approximately $7.8 million for the same period in 2018. The detail by major category is reflected in the table below.
|
|
Three
Months Ended
Sept
30,
|
|
|
Nine
Months Ended
Sept
30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, Wages, & Benefits
|
|
$
|
1,381,237
|
|
|
$
|
1,237,773
|
|
|
$
|
3,898,222
|
|
|
$
|
2,853,446
|
|
Stock-based Compensation
|
|
|
708,163
|
|
|
|
205,158
|
|
|
|
1,721,985
|
|
|
|
497,033
|
|
Professional Fees
|
|
|
97,387
|
|
|
|
35,661
|
|
|
|
276,786
|
|
|
|
219,323
|
|
Board Compensation
|
|
|
45,875
|
|
|
|
23,125
|
|
|
|
104,500
|
|
|
|
60,625
|
|
Investor Relations
|
|
|
32,816
|
|
|
|
26,887
|
|
|
|
85,681
|
|
|
|
79,031
|
|
Consultants
|
|
|
66,830
|
|
|
|
76,745
|
|
|
|
106,639
|
|
|
|
285,466
|
|
Advertising and Promotion
|
|
|
106,920
|
|
|
|
45,406
|
|
|
|
225,648
|
|
|
|
189,646
|
|
Depreciation and Amortization
|
|
|
54,473
|
|
|
|
70,973
|
|
|
|
163,418
|
|
|
|
212,918
|
|
Development and Maintenance
|
|
|
114,604
|
|
|
|
103,172
|
|
|
|
439,916
|
|
|
|
286,435
|
|
Integration Incentives
|
|
|
70,626
|
|
|
|
61,500
|
|
|
|
151,878
|
|
|
|
223,842
|
|
Office, Facility, and Other
|
|
|
137,889
|
|
|
|
75,068
|
|
|
|
364,861
|
|
|
|
210,989
|
|
Travel and Entertainment
|
|
|
106,418
|
|
|
|
67,121
|
|
|
|
268,171
|
|
|
|
201,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expense
|
|
$
|
2,923,238
|
|
|
$
|
2,028,589
|
|
|
$
|
7,807,705
|
|
|
$
|
5,320,220
|
|
The
largest increases in operating expenses are related to salaries, wages, and benefits and other human resource related costs. Since
the beginning of the first quarter of 2017, we have appointed a new president, a new VP of engineering and three new vice presidents
of sales, as well as hired a new account manager and related technical and administrative support. These new team members also
resulted in increases in benefits, payroll taxes, travel, and stock compensation. We also implemented new incentive compensation
plans for our sales force that increased their incentive compensation. In addition, virtually all of our incentive compensation
is tied to revenue and the strong revenue growth in 2018 resulted in increased incentive compensation. The increased stock-based
compensation results from the acceleration of vesting of previously granted options as well as the grant of options during the
period related to achievement of performance-based goals. The expense related to stock compensation is also correlated to our
stock price and the increase in our stock price results in an increase in stock compensation expense. We expect stock-based compensation
to remain at similar levels on a quarterly basis for the balance of the year.
As
reflected in the table below, our operating expenses decreased as a percentage of overall revenue.
|
|
Three Months Ended
Sept 30
|
|
|
Nine Months Ended
Sept 30
|
|
|
|
|
2018
|
|
|
|
2017
|
|
|
|
2018
|
|
|
|
2017
|
|
Operating expense as a percentage of revenue
|
|
|
54.0
|
%
|
|
|
65.4
|
%
|
|
|
53.4
|
%
|
|
|
65.5
|
%
|
We
expect our overall operating expenses to continue to increase slightly on a quarter to quarter basis as we further implement our
business plan and expand our operations to grow the business in a very dynamic and active marketplace; however, we expect operating
expense as a percentage of revenue to continue to decrease.
Net
Income (Loss)
We
had net income of approximately $245,000 for the three months ended September 30, 2018 as compared to a loss of approximately
$622,000 during the same period in 2017. Our net income for the nine months ended September 30, 2018 was approximately $336,000,
as compared to a loss of approximately $1.9 million during the same period in 2017. The reasons for specific components are discussed
above, however our increased revenues have resulted in us achieving profitability. We expect to continue to be profitable on a
quarterly basis, although in any particular quarter, expenses related to growth initiatives could result in a loss for a particular
quarter. In particular, costs related to our acquisition of CareSpeak Communications may result in a loss for the fourth quarter
of 2018.
Liquidity
and Capital Resources
As
of September 30, 2018, we had total current assets of approximately $18.9 million, compared with current liabilities of approximately
$2.6 million, resulting in working capital of approximately $16.3 million and a current ratio of approximately 7.4 to 1, improved
from the working capital of approximately $5.3 million and current ratio of 2.5 to 1 at December 31, 2017.
Our
operating activities used approximately $140,000 in cash during the nine months ended September 30, 2018, compared with cash used
of approximately $1.5 million in the same period in 2017. The cash used in the 2017 period was the result of our net loss, partially
offset by working capital management. The cash used in the 2018 period was primarily the result of our significant increase in
revenues, resulting in a significantly larger amount of accounts receivable. We also had a change in payment terms for one of
our key partners, which resulted in a reduction of our revenue share payable, as well as payment of certain year end liabilities
that occurred in 2018.We had positive cash flow from operations in the third quarter of 2018 of approximately $1.1 million and
we expect to have positive cash flow from operations for the balance of the year.
Investing
activities used approximately $80,000 in cash for the nine months ended September 30, 2018, compared with approximately $150,000
used in the same period in 2017. These investments related to purchases of equipment as well as investments related to the expansion
of our network capabilities.
We
had cash provided from financing activities of approximately $8.6 million during the nine months ended September 30, 2018, compared
with cash used of $390,000 in the same period in 2017. In 2018, we issued 1.667 million shares of our common stock for gross proceeds
of $9.0 million and approximate net proceeds of $8.2 million. We also issued approximately 143,000 shares and received proceeds
of approximately $455,000 from the exercise of stock options. In addition, as discussed in Note 3, we issued 100,000 shares valued
at $447,000 in a non-cash transaction in payment of revenue share due under a co-marketing agreement and the accompanying termination
of the agreement. We used cash in financing activities in the same period in 2017 for the repurchase of shares held by our previous
CEO.
With
the additional capital that we raised this year, we do not anticipate the need to raise additional capital in the short or long
term for operating purposes or to fund our growth plans. We are focused on growing our revenue, channel and partner networks.
However, as a company in a market that is active with merger and acquisition activities, we may have opportunities, such as for
acquisitions or strategic partner relationships, which may require additional capital. We will assess these opportunities as they
arise with the view of maximizing shareholder value.
Off
Balance Sheet Arrangements
As
of September 30, 2018, there were no off-balance sheet arrangements.
Critical
Accounting Policies
In
December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management
Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the
portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Our accounting policies are discussed in the footnotes to our financial statements included in our annual report on Form 10-K
for the year ended December 31, 2017; however, we consider our critical accounting policies to be those related to the amount
of revenue to be billed, the timing of revenue recognition, calculation of revenue share expense, stock-based compensation, capitalization
and related amortization of intangible assets, and impairment of assets.
Recently
Issued Accounting Pronouncements
As
described in greater detail in Note 2, we adopted the new accounting standard ASC 606,
Revenue from Contracts with Customers
,
and all of the related amendments, which had an immaterial impact on our financial statements.
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which modifies lease accounting
for lessees to increase transparency and comparability by recording lease assets and liabilities for operating leases and disclosing
key information about leasing arrangements. The Company will adopt ASU 2016-02 in its first quarter of 2019. While the Company
is currently evaluating the timing and impact of adopting ASU 2016-02, currently the Company anticipates no material impact to
its Consolidated Statements of Operations. However, the ultimate impact of adopting ASU 2016-02 will depend on the Company’s
lease portfolio as of the adoption date.