Item
1. Financial Statements
Our
condensed consolidated financial statements included in this Form 10-Q are as follows:
OPTIMIZERX
CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
15,210,069
|
|
|
$
|
18,852,680
|
|
Accounts receivable, net
|
|
|
9,061,520
|
|
|
|
7,418,025
|
|
Prepaid expenses
|
|
|
3,035,205
|
|
|
|
871,043
|
|
Total Current Assets
|
|
|
27,306,794
|
|
|
|
27,141,748
|
|
Property and equipment, net
|
|
|
170,123
|
|
|
|
176,014
|
|
Other Assets
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
14,740,031
|
|
|
|
14,740,031
|
|
Technology assets, net
|
|
|
5,980,607
|
|
|
|
6,238,453
|
|
Patent Rights, net
|
|
|
2,496,498
|
|
|
|
2,550,587
|
|
Right of use assets, net
|
|
|
531,844
|
|
|
|
559,863
|
|
Other intangible assets, net
|
|
|
4,993,215
|
|
|
|
5,151,102
|
|
Security deposits and other assets
|
|
|
16,013
|
|
|
|
80,727
|
|
Total Other Assets
|
|
|
28,758,208
|
|
|
|
29,320,763
|
|
TOTAL ASSETS
|
|
$
|
56,235,125
|
|
|
$
|
56,638,525
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable – trade
|
|
$
|
548,100
|
|
|
$
|
492,995
|
|
Accrued expenses
|
|
|
1,674,477
|
|
|
|
1,800,635
|
|
Revenue share payable
|
|
|
2,640,249
|
|
|
|
1,618,438
|
|
Current portion of lease obligations
|
|
|
117,479
|
|
|
|
115,431
|
|
Current portion of contingent purchase price payable
|
|
|
4,000,000
|
|
|
|
1,500,000
|
|
Deferred revenue
|
|
|
491,438
|
|
|
|
580,014
|
|
Total Current Liabilities
|
|
|
9,471,743
|
|
|
|
6,107,513
|
|
Non-current Liabilities
|
|
|
|
|
|
|
|
|
Lease obligations, net of current portion
|
|
|
418,390
|
|
|
|
448,753
|
|
Contingent purchase price payable, net of current portion
|
|
|
2,720,000
|
|
|
|
5,220,000
|
|
Total Non-current liabilities
|
|
|
3,138,390
|
|
|
|
5,668,753
|
|
Total Liabilities
|
|
|
12,610,133
|
|
|
|
11,776,266
|
|
Commitments and contingencies (See note 7)
|
|
|
-
|
|
|
|
-
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 10,000,000 shares authorized, none issued and outstanding at March 31, 2020 or December 31, 2019
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.001 par value, 166,666,667 shares authorized, 14,646,747 and 14,600,579 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively
|
|
|
14,647
|
|
|
|
14,601
|
|
Additional paid-in-capital
|
|
|
79,238,886
|
|
|
|
78,272,268
|
|
Accumulated deficit
|
|
|
(35,628,541
|
)
|
|
|
(33,424,610
|
)
|
Total Stockholders’ Equity
|
|
|
43,624,992
|
|
|
|
44,862,259
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
56,235,125
|
|
|
$
|
56,638,525
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
OPTIMIZERx
CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
For the Three Months
Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
TOTAL REVENUE
|
|
$
|
7,584,602
|
|
|
$
|
5,209,434
|
|
COST OF REVENUES
|
|
|
3,241,763
|
|
|
|
1,583,480
|
|
|
|
|
|
|
|
|
|
|
GROSS MARGIN
|
|
|
4,342,839
|
|
|
|
3,625,954
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
6,602,091
|
|
|
|
3,493,789
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS
|
|
|
(2,259,252
|
)
|
|
|
132,165
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Interest Income
|
|
|
55,321
|
|
|
|
22,364
|
|
Change in Fair Value of Contingent Consideration
|
|
|
-
|
|
|
|
(148,000
|
)
|
Interest (Expense)
|
|
|
-
|
|
|
|
-
|
|
TOTAL OTHER INCOME (EXPENSE)
|
|
|
55,321
|
|
|
|
(125,636
|
)
|
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
|
|
|
(2,203,931
|
)
|
|
|
6,529
|
|
PROVISION FOR INCOME TAXES
|
|
|
-
|
|
|
|
-
|
|
NET INCOME (LOSS)
|
|
$
|
(2,203,931
|
)
|
|
$
|
6,529
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
|
14,609,499
|
|
|
|
12,077,829
|
|
DILUTED
|
|
|
14,609,499
|
|
|
|
13,077,917
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
$
|
(0.15
|
)
|
|
$
|
0.00
|
|
DILUTED
|
|
$
|
(0.15
|
)
|
|
$
|
0.00
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
OPTIMIZERx
CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR
THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
(UNAUDITED)
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2020
|
|
|
14,600,579
|
|
|
$
|
14,601
|
|
|
$
|
78,272,268
|
|
|
$
|
(33,424,610
|
)
|
|
$
|
44,862,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued as board compensation
|
|
|
11,136
|
|
|
|
11
|
|
|
|
99,989
|
|
|
|
-
|
|
|
|
100,000
|
|
Shares issued for stock options exercised
|
|
|
35,032
|
|
|
|
35
|
|
|
|
112,117
|
|
|
|
-
|
|
|
|
112,152
|
|
Stock-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
754,512
|
|
|
|
-
|
|
|
|
754,512
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,203,931
|
)
|
|
|
(2,203,931
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2020
|
|
|
14,646,747
|
|
|
$
|
14,647
|
|
|
$
|
79,238,886
|
|
|
$
|
(35,628,541
|
)
|
|
$
|
43,624,992
|
|
|
|
Common
Stock
|
|
|
Additional Paid in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2019
|
|
|
12,038,618
|
|
|
$
|
12,039
|
|
|
$
|
48,725,211
|
|
|
$
|
(30,278,805
|
)
|
|
$
|
18,458,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting
principle related to lease accounting
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,229
|
)
|
|
|
(3,229
|
)
|
Shares issued for restricted stock awards
|
|
|
130,001
|
|
|
|
130
|
|
|
|
(130
|
)
|
|
|
-
|
|
|
|
-
|
|
Shares issued for stock options exercised
|
|
|
101,878
|
|
|
|
102
|
|
|
|
343,683
|
|
|
|
-
|
|
|
|
343,785
|
|
Shares issued as compensation
|
|
|
8,336
|
|
|
|
8
|
|
|
|
106,026
|
|
|
|
-
|
|
|
|
106,034
|
|
Stock compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
530,312
|
|
|
|
-
|
|
|
|
530,312
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,529
|
|
|
|
6,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2019
|
|
|
12,278,833
|
|
|
$
|
12,279
|
|
|
$
|
49,705,102
|
|
|
$
|
(30,275,505
|
)
|
|
$
|
19,441,876
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
OPTIMIZERx
CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
For the Three Months
Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net Income (loss)
|
|
$
|
(2,203,931
|
)
|
|
$
|
6,529
|
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation, amortization and non-cash lease expense
|
|
|
519,669
|
|
|
|
190,301
|
|
Stock-based compensation
|
|
|
754,512
|
|
|
|
530,312
|
|
Stock issued for board service
|
|
|
100,000
|
|
|
|
106,034
|
|
Change in fair value of contingent consideration
|
|
|
-
|
|
|
|
148,000
|
|
Changes in:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,643,495
|
)
|
|
|
1,554,953
|
|
Prepaid expenses and other assets
|
|
|
(2,099,448
|
)
|
|
|
(44,201
|
)
|
Accounts payable
|
|
|
55,105
|
|
|
|
173,810
|
|
Revenue share payable
|
|
|
1,021,811
|
|
|
|
(776,514
|
)
|
Accrued expenses and other liabilities
|
|
|
(154,473
|
)
|
|
|
(1,034,454
|
)
|
Deferred revenue
|
|
|
(88,576
|
)
|
|
|
35,199
|
|
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
|
|
(3,738,826
|
)
|
|
|
889,969
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS USED IN INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of equipment
|
|
|
(15,937
|
)
|
|
|
(13,848
|
)
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
(15,937
|
)
|
|
|
(13,848
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
112,152
|
|
|
|
343,785
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
112,152
|
|
|
|
343,785
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(3,642,611
|
)
|
|
|
1,219,906
|
|
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
|
|
|
18,852,680
|
|
|
|
8,914,034
|
|
CASH AND CASH EQUIVALENTS - END OF PERIOD
|
|
$
|
15,210,069
|
|
|
$
|
10,133,940
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Non-cash effect of cumulative adjustments to accumulated deficit
|
|
$
|
-
|
|
|
$
|
3,229
|
|
Lease liabilities arising from right of use assets
|
|
$
|
-
|
|
|
$
|
207,559
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH
31, 2020
NOTE
1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION
The
accompanying condensed consolidated financial statements include OptimizeRx Corporation and its wholly owned subsidiaries (collectively,
the “Company”, “we”, “our”, or “us”).
We
are a digital health company that facilitates communication at point-of-care among all stakeholders in healthcare. Primarily focused
on life science clients, our suite of digital and mobile SaaS-based solutions enables affordability, patient adherence and care
management. Our network reaches more than 60% of U.S. ambulatory providers, delivering therapeutic support on specialty medications
and patient financial assistance directly within a provider’s workflow through leading electronic health platforms. Our
fully integrated platform ensures the real-time exchange of information—connecting care to improve provider knowledge and
patient engagement.
The
condensed consolidated financial statements for the three months ended March 31, 2020 and 2019 have been prepared by us without
audit pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. In the opinion of management, all
adjustments necessary to present fairly our financial position at March 31, 2020, and our results of operations, changes in stockholders’
equity, and cash flows for the three months ended March 31, 2020 and 2019, have been made. Those adjustments consist of normal
and recurring adjustments. The condensed consolidated condensed balance sheet as of December 31, 2019, has been derived from the
audited consolidated condensed balance sheet as of that date.
Certain
information and note disclosures, including a detailed discussion about the Company’s significant accounting policies, normally
included in our annual financial statements prepared in accordance with generally accepted accounting principles have been condensed
or omitted. These consolidated condensed 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, 2019, as filed with the U.S.
Securities and Exchange Commission on March 26, 2020.
The
results of operations for the three-months ended March 31, 2020, are not necessarily indicative of the results to be expected
for the full year.
NOTE
2 – NEW ACCOUNTING STANDARDS
In
June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-13, Financial Instruments-Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 provides for a new impairment model that
requires measurement and recognition of expected credit losses for most financial assets and certain other instruments, including
but not limited to accounts receivable and available for sale debt securities. ASU 2016-13 was effective for the Company on January
1, 2020. The adoption of this standard did not have a material effect on our financial position, results of operations, or cash
flows.
In
August 2019, the FASB issued ASU 2019-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements
for Fair Value Measurement. ASU 2019-13 modifies the disclosure requirements on fair value measurements and became effective for
the Company on January 1, 2020. The adoption of this standard did not have a material effect on our financial position, results
of operations, or cash flows.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH
31, 2020
NOTE
2 – NEW ACCOUNTING STANDARDS (continued)
In
December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.
ASU 2019-12 is intended to improve consistent application and simplify the accounting for income taxes. ASU 2019-12 removes certain
exceptions to the general principles in Topic 740 and clarifies and amends existing guidance. ASU 2019-12 is effective for annual
and interim reporting periods beginning after December 12, 2020, with early adoption permitted. The adoption of this standard
is not expected to have a material effect on our financial position, results of operations, or cash flows.
In
January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.
ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test.
The second step measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with
the carrying amount of that goodwill. Under ASU 2017-04, a company will record an impairment charge based on the excess of a reporting
unit’s carrying amount over its fair value. ASU 2017-04 will be applied prospectively and is effective for annual or interim
goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual
goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this standard did not have a material
effect on our financial position, results of operations, or cash flows.
NOTE
3 – LEASES
We
have operating leases for office space in three multitenant facilities with lease terms greater than 12 months, which are recorded
as assets and liabilities on our balance sheet. These leases include our corporate headquarters, located in Rochester, Michigan,
a customer service facility in Cranbury, New Jersey, and a technical facility in Zagreb, Croatia. Certain leases contain renewal
options and for the headquarters lease, we have assumed renewal. Lease-related assets, or right-of-use assets, are recognized
at the lease commencement date at amounts equal to the respective lease liabilities, adjusted for prepaid lease payments, initial
direct costs, and lease incentives received. Lease-related liabilities are recognized at the present value of the remaining contractual
fixed lease payments, discounted using our incremental borrowing rate. Amortization of the right of use assets is recognized as
non-cash lease expense on a straight-line basis over the lease term, while variable lease payments are expensed as incurred. Short
term lease costs include month to month leases in shared office space facilities, such as WeWork, or similar locations.
For
the three months ended March 31, 2020 and 2019, the Company’s lease cost consists of the following components, each of which
is included in operating expenses within the Company’s condensed consolidated statements of operations:
|
|
Three Months
Ended
March 31,
2020
|
|
|
Three Months
Ended
March 31,
2019
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
$
|
32,814
|
|
|
$
|
30,684
|
|
Short-term lease cost
|
|
|
44,629
|
|
|
|
9,841
|
|
Total lease cost
|
|
$
|
77,443
|
|
|
$
|
40,525
|
|
OPTIMIZERx
CORPORATION
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH
31, 2020
NOTE
3 – LEASES (continued)
The
table below presents the future minimum lease payments to be made under operating leases as of March 31, 2020:
As of March 31, 2020
|
|
|
|
|
|
|
|
2020(a)
|
|
$
|
103,603
|
|
2021
|
|
|
140,367
|
|
2022
|
|
|
102,367
|
|
2023
|
|
|
99,209
|
|
2024
|
|
|
80,375
|
|
Thereafter
|
|
|
70,224
|
|
Total
|
|
|
596,145
|
|
Less: discount
|
|
|
60,276
|
|
Total lease liabilities
|
|
$
|
535,869
|
|
(a)
For the nine-month period beginning April 1, 2020.
The
weighted average remaining lease term at March 31, 2020 for operating leases is 4.9 years and the weighted average discount rate
used in calculating the operating lease asset and liability is 4.5%. Cash paid for amounts included in the measurement of lease
liabilities was $28,316 and $30,684 for the three months ending March 31, 2020 and 2019, respectively. For the three months ended
March 31, 2020 and 2019, payments on lease obligations were $34,416 and $25,208, respectively, and amortization on the right of
use assets was $28,019 and $25,245, respectively.
NOTE
4 – STOCKHOLDERS’ EQUITY
During
the quarters ended March 31, 2020 and 2019, we issued 11,136 and 8,336 shares, respectively, of our common stock to our independent
directors in connection with our Director Compensation Plan. These shares were valued at $100,000 and $106,834 at March 31, 2020
and 2019, respectively.
During
the quarter ended March 31, 2020, we issued 35,032 shares of our common stock and received proceeds of $112,152 in connection
with the exercise of stock options under our 2013 equity compensation plan. During the quarter ended March 31, 2019, we issued
89,826 shares of our common stock and received proceeds of $343,785 in connection with the exercise of stock options under our
2013 equity compensation plan. We issued an additional 12,052 shares of our common stock in connection with the exercise of options
using the net-settled method, which resulted in no cash received, but rather the exercise price was paid by the surrender of shares
underlying the options. We also issued 130,001 shares of our common stock in the quarter ended March 31, 2019 in connection with
restricted stock awards awarded in 2018.
OPTIMIZERx
CORPORATION
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH
31, 2020
NOTE
5 – SHARE BASED PAYMENTS – OPTIONS AND RESTRICTED STOCK
We use the fair value method to account for stock-based compensation.
We recorded $547,828 and $530,312 in compensation expense in the three months ended March 31, 2020 and 2019, 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 period as well as options issued in the current
period. The fair value of these instruments was calculated using the Black-Scholes option pricing model. There is $2,185,349 of
remaining expense related to unvested options to be recognized in the future over a weighted average period of 1.6 years. The
total intrinsic value of outstanding options at March 31, 2020 was $6,810,214.
We
also recorded $206,684 in compensation expense related to restricted stock awards that vest over time in the three months ended
March 31, 2020. There is $1,245,841 of remaining expense related to unvested restricted stock awards to be recognized in the future
over a weighted average period of 2.8 years.
NOTE
6 – NET INCOME (LOSS) PER SHARE
The
following table sets forth the computation of basic and diluted net income (loss) per share.
|
|
Three Months Ended
March 31
|
|
|
|
2020
|
|
|
2019
|
|
Numerator
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
(2,203,931
|
)
|
|
$
|
6,529
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding used in computing net income (loss) per share
|
|
|
|
|
|
|
|
|
Basic
|
|
|
14,609,499
|
|
|
|
12,077,829
|
|
Effect of dilutive stock options, warrants, and stock grants
|
|
|
-
|
|
|
|
1,000,088
|
|
Diluted
|
|
|
14,609,499
|
|
|
|
13,077,917
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) per share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.15
|
)
|
|
$
|
0.00
|
|
Diluted
|
|
$
|
(0.15
|
)
|
|
$
|
0.00
|
|
No
calculation of diluted earnings per share is included for 2020 as the effect of the calculation would be antidilutive. The number
of common shares potentially issuable upon the exercise of certain options that were excluded from the diluted loss per common
share calculation in 2020 was 779,670 related to options, and 174,176 related to restricted stock, for a total of 953,846.
NOTE
7 – CONTINGENCIES
Litigation
The
Company is not currently involved in any legal proceedings.
COVID-19
Due to the COVID-19 pandemic, there has been uncertainty
and disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance that
would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. These estimates could change in the future, as new events
occur, or additional information is obtained.
NOTE
8 – SUBSEQUENT EVENTS
In
accordance with ASC 855-10, we have analyzed our operations subsequent to March 31, 2020 through the date these financial
statements were issued and have determined that we do not have any material subsequent events to disclose or recognize in these
financial statements.
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
COVID-19
The
full extent of the impact of the COVID-19 pandemic on our business, operations and financial results will depend on numerous evolving
factors that we may not be able to accurately predict at the present time. In an effort to contain COVID-19 or slow its spread,
governments around the world have enacted various measures, including orders to close all businesses not deemed “essential,”
isolate residents to their homes or places of residence, and practice social distancing when engaging in essential activities.
We anticipate that these actions and the global health crisis caused by COVID-19 will negatively impact business activity across
the globe. While we have not observed any noticeable impact on our revenue related to these conditions in the past fiscal quarter,
or through the date of this filing, we cannot estimate the impact COVID-19 will have in the future as business and consumer activity
decelerates across the globe.
In March 2020, we enacted precautionary measures to protect
the health and safety of our employees and partners. These measures include closing all offices, having employees work from home,
and eliminating all travel. While having employees work from home may have a negative impact on efficiency and may result in negligible
increases in costs, it does not impact our ability to execute on our contracts or deliver our core services. Our customers provide
essential services in the healthcare industry and our digital communication technology is more important than ever in this environment.
However, our revenue often comes from advertising or marketing budgets, and in a sustained economic downturn, those categories
of spending may be cut.
We
will continue to actively monitor the situation and may take further actions that alter our business operations as may be required
by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, customers, partners
and stockholders. It is not clear what the potential effects any such alterations or modifications may have on our business, including
the effects on our customers, partners, or vendors, or on our financial results.
Company
Highlights through April 2020
1.
|
Our
sales for the first three months of 2020 were $7.6 million, a 46% increase over the same period in 2019.
|
2.
|
We
launched a new technology solution aimed at increasing speed to therapy for patients by providing timely access to enrollment
forms for specialty drugs within the provider workflow.
|
3.
|
We
launched a digital healthcare webinar series focused on COVID-19 issues and telehealth with several executives from the healthcare
industry.
|
4.
|
We launched TeleRep™, an EHR enabled digital health tool
designed to support physicians when they need to connect to pharmaceutical sales representatives with questions on medication therapy.
|
5.
|
We
commenced the process of converting our active clients to enterprise contracts covering multiple tactics and products to further
entrench our longstanding relationships.
|
Our
success in acquiring, integrating and expanding into new EHR/eRx platforms continues to grow as well. For the remainder of 2020,
we expect to expand our reach to physicians, pharmacies and patients, and also increase the utilization of our existing partners
as they improve their workflow and provider reach. With the growth of both our pharmaceutical products and our distribution network,
we expect that our messaging solutions, as well as our patient engagement activities, will continue to increase and show strong
growth throughout the year.
Results
of Operations for the Three Months Ended March 31, 2020 and 2019
Revenues
Our
total revenue reported for the three months ended March 31, 2020 was approximately $7.6 million, an increase of 46% over the approximately
$5.2 million from the same period in 2019. The increased revenue resulted primarily from increases in sales in our messaging products.
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.
Cost
of Revenues
Our
cost of revenue percentage, composed primarily of revenue share expense, increased as a percentage of revenues, from approximately
30% in the quarter ended March 31, 2019 to approximately 43% for the quarter ended March 31, 2020. This increase was a result
of product mix. The 2019 quarter contained an unusually high percentage of launch assistance services and other nonrecurring revenue
that was not subject to revenue share expense. As we have discussed, over the course of the year, we expect to normalize at 40%
or lower for our cost of revenues.
Gross
Margin
Our
gross margin declined from 69.6% in the quarter ended March 31, 2019 to 57.3% in the quarter ended March 31, 2020. As discussed
under cost of revenues above, we had an unusually favorable product mix in the 2019 quarter that had a positive impact on our
margin. Our gross margin for the entire calendar year of 2019 was 62.7% and our target for 2020 is 63%. We expect our gross margin
to improve on a quarter over quarter basis for the balance of the year.
Operating
Expenses
Operating
expenses increased from approximately $3.5 million for the three months ended March 31, 2019 to approximately $6.6 million for
the same period in 2020, an increase of approximately 89%. Overall, this increase results from our efforts to expand our product
line and build out our organization to establish a strong base for current and future growth. The detail by major category is
reflected in the table below.
|
|
Three months ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Salaries, Wages, & Benefits
|
|
$
|
3,206,137
|
|
|
$
|
1,689,034
|
|
Stock-based Compensation
|
|
|
854,512
|
|
|
|
636,346
|
|
Professional Fees
|
|
|
485,469
|
|
|
|
239,025
|
|
Board Compensation
|
|
|
51,375
|
|
|
|
34,250
|
|
Investor Relations
|
|
|
19,450
|
|
|
|
21,736
|
|
Consultants
|
|
|
91,415
|
|
|
|
38,090
|
|
Advertising and Promotion
|
|
|
179,399
|
|
|
|
196,580
|
|
Depreciation and Amortization
|
|
|
519,669
|
|
|
|
190,301
|
|
Research, Development, and Maintenance
|
|
|
558,658
|
|
|
|
176,218
|
|
Integration and Exclusivity Costs
|
|
|
207,973
|
|
|
|
41,878
|
|
Office, Facility, and Other
|
|
|
153,522
|
|
|
|
115,518
|
|
Travel
|
|
|
274,512
|
|
|
|
114,813
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expense
|
|
$
|
6,602,091
|
|
|
$
|
3,493,789
|
|
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 2019, we have significantly
expanded our sales force, made an acquisition to expand our product portfolio, and added to our product development, data, and
finance teams. These new hires have established a strong basis for significant future growth and have also resulted in increases
in benefits, payroll taxes, and related travel. The increased stock-based compensation results from the grant of new options and
the increased number of team members. We expect Salaries, Wages, & Benefits, as well as Stock-based Compensation to remain
at similar levels, or only increase slightly, for the balance of the year. We expect travel expense to decrease significantly for
the balance of the year as a result of the COVID-19 pandemic.
Professional
fees increased in 2020 as a result of our change in auditor to a larger firm and associated higher fees, as well as the acquisition
we completed in late 2019. This increased the complexity of our year-end audit and we were required to obtain third party valuations
of the allocation of our purchase price and the fair value of those assets and liabilities as of December 31, 2019, including
the contingent purchase price payable.
Depreciation
and amortization increased because of the amortizable assets acquired in connection with our acquisition of RMDY in the fourth
quarter of 2019. Office, facility, and other expenses also increased as a result of the acquisition, which resulted in an additional
office location for us, as well as the normal increased costs associated with increased business activity.
Research, development, and maintenance costs increased primarily
because our efforts to expand and enhance our patient engagement platforms and products, as well as integration costs related
to the combination, improvement and optimization of IT systems.
Integration
and exclusivity costs represent payment to partners for access and/or exclusivity. These payments are usually made in lump sums
and expensed over the term of the contracts. These expenses are an important part of our ability to expand our network and increased
in 2020 as a result of new agreements signed.
The
purchase price allocations for both of our recent acquisitions included potential additional consideration to be paid if certain
revenue levels are achieved in 2019, 2020, and 2021. That liability is required to be adjusted to fair value each quarter. The
increase in the fair value of contingent consideration in 2019 related to our acquisition of CareSpeak Communications in 2018.
The maximum amount of potential contingent consideration related to CareSpeak was recorded as of December 31, 2019 and we still
expect the maximum amount to be paid. We estimate there to be no change in the fair value of contingent consideration related
to RMDY since the time of our calculation as of December 31, 2019. Because the contingent consideration is partially fixed and
partially based on the increase in revenues from 2020 to 2021, no new information has come to light in the approximately 6 weeks
since we filed our 10-K that would enable us to make any better estimate than was previously done.
All
other variances in the table above are the result of normal fluctuations in activity.
We
expect our overall operating expenses to continue at the first quarter of 2020 level, or slightly above as we further implement
our business plan and expand our operations to grow the business in a very dynamic and active marketplace. However, we have established
a strong team as a base to support growth and we are seeing the results of the investment in our team last year in our strong
revenue growth this year. We do not expect human resource costs to increase as quickly as revenues.
Net
Income (Loss)
We
had a loss of approximately $2.2 million for the three months ended March 31, 2020, as compared to net income of approximately
$7,000 during the same period in 2019. The reasons and specific components associated with the change are discussed above. Overall,
the loss resulted from increased operating expenses to support the stated revenue growth throughout 2020 and beyond.
Liquidity
and Capital Resources
As
of March 31, 2020, we had total current assets of approximately $27.3 million, compared with current liabilities of approximately
$9.5 million, resulting in working capital of approximately $17.8 million and a current ratio of approximately 2.9 to 1. This
represents a decrease from our working capital of approximately $21.0 million and current ratio of 4.4 to 1 at December 31, 2019.
Our
operating activities used approximately $3.7 in cash flow during the three months ended March 31, 2020, compared with cash provided
of approximately $0.9 million in the same period in 2019. The cash used in the 2020 period was primarily the result of increased
investment in working capital; in particular, we made a $2.0 million prepayment to a partner that will be expensed over the balance
of the year. In addition, as a result of our strong revenue growth, our trade receivables increased by $1.6 million, which was
partially offset by increased revenue share of $1.0 million owed to our channel partners. The cash provided in the 2019 period
was the result of our net income increased by noncash expenses.
We
used insignificant amounts in investing activities in both the three months ended March 31, 2020, and 2019. These investments
related to purchases of equipment as well as investments related to the expansion of our network capabilities.
We
had proceeds from financing activities of approximately $112,000 and $344,000 related to the exercise of stock options during
the three months ended March 31, 2020 and 2019, respectively.
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 network. However, as a company in a market that is active with
merger and acquisition activity, 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.
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, 2019; however, we consider our critical accounting policies to be those related to determining
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, impairment of assets, and the fair value of liabilities.
Recently
Issued Accounting Pronouncements
In
June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-13, Financial Instruments-Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 provides for a new impairment model that
requires measurement and recognition of expected credit losses for most financial assets and certain other instruments, including
but not limited to accounts receivable and available for sale debt securities. ASU 2016-13 was effective for the Company on January
1, 2020. The adoption of this standard did not have a material effect on our financial position, results of operations, or cash
flows.
In
August 2019, the FASB issued ASU 2019-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements
for Fair Value Measurement. ASU 2019-13 modifies the disclosure requirements on fair value measurements and became effective for
the Company on January 1, 2020. The adoption of this standard did not have a material effect on our financial position, results
of operations, or cash flows.
In
December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.
ASU 2019-12 is intended to improve consistent application and simplify the accounting for income taxes. ASU 2019-12 removes certain
exceptions to the general principles in Topic 740 and clarifies and amends existing guidance. ASU 2019-12 is effective for annual
and interim reporting periods beginning after December 12, 2020, with early adoption permitted. The adoption of this standard
is not expected to have a material effect on our financial position, results of operations, or cash flows.
In
January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.
ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test.
The second step measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with
the carrying amount of that goodwill. Under ASU 2017-04, a company will record an impairment charge based on the excess of a reporting
unit’s carrying amount over its fair value. ASU 2017-04 will be applied prospectively and is effective for annual or interim
goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual
goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this standard did not have a material
effect on our financial position, results of operations, or cash flows.
Off
Balance Sheet Arrangements
As
of March 31, 2020, there were no off-balance sheet arrangements.