UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
x☒ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period endedSeptemberJune 30, 20192020
¨☐ Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ________ to __________
Commission File Number: 001-38543
OptimizeRx Corporation
(Exact name of registrant as specified in its charter)
Nevada | 26-1265381 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |
400 Water Street, Suite 200 Rochester, MI, 48307 |
(Address of principal executive offices) |
248-651-6568 |
( |
|
(Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes x☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x☒ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “small reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨ ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x☒
State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 14,173,85014,816,861 common shares as of November 1, 2019.August 3, 2020.
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol | Name of each exchange on which registered | ||
Common Stock | OPRX | Nasdaq Capital Market |
TABLE OF CONTENTS
Page | ||
PART I – FINANCIAL INFORMATION | ||
Item 1: | Financial Statements (unaudited) | 1 |
Item 2: | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3: | Quantitative and Qualitative Disclosures About Market Risk | |
Item 4: | Controls and Procedures | |
PART II – OTHER INFORMATION | ||
Item 1: | Legal Proceedings | |
Item 1A: | Risk Factors | |
Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 3: | Defaults Upon Senior Securities | 20 |
Item 4: | Mine Safety Disclosure | 20 |
Item 5: | Other Information | 20 |
Item 6: | Exhibits | 20 |
i
PART I - FINANCIAL INFORMATION
Our condensed consolidated financial statements included in this Form 10-Q are as follows:
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, 2019 | December 31, 2018 | June 30, 2020 | December 31, 2019 | |||||||||||||
(Unaudited) | ||||||||||||||||
ASSETS | ||||||||||||||||
Current Assets | ||||||||||||||||
Cash and cash equivalents | $ | 29,759,967 | $ | 8,914,034 | $ | 14,114,294 | $ | 18,852,680 | ||||||||
Accounts receivable | 7,158,390 | 6,457,841 | ||||||||||||||
Accounts receivable, net | 10,805,191 | 7,418,025 | ||||||||||||||
Prepaid expenses | 973,177 | 360,146 | 2,701,249 | 871,043 | ||||||||||||
Total Current Assets | 37,891,534 | 15,732,021 | 27,620,734 | 27,141,748 | ||||||||||||
Property and equipment, net | 156,809 | 149,330 | 156,550 | 176,014 | ||||||||||||
Other Assets | ||||||||||||||||
Goodwill | 3,678,513 | 3,678,513 | 14,740,031 | 14,740,031 | ||||||||||||
Technology assets, net | 5,722,762 | 6,238,453 | ||||||||||||||
Patent rights, net | 2,604,677 | 2,766,944 | 2,442,409 | 2,550,587 | ||||||||||||
Other intangible assets, net | 3,542,462 | 2,492,123 | 4,835,327 | 5,151,102 | ||||||||||||
Right of use assets, net | 587,497 | - | 503,506 | 559,863 | ||||||||||||
Other assets and deposits | 92,239 | 235,647 | 35,943 | 80,727 | ||||||||||||
Total Other Assets | 10,505,388 | 9,173,227 | 28,279,978 | 29,320,763 | ||||||||||||
TOTAL ASSETS | $ | 48,553,731 | $ | 25,054,578 | $ | 56,057,262 | $ | 56,638,525 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current Liabilities | ||||||||||||||||
Accounts payable – trade | $ | 1,095,474 | $ | 411,010 | $ | 496,742 | $ | 492,995 | ||||||||
Accrued expenses | 607,000 | 1,300,882 | 2,044,335 | 1,800,635 | ||||||||||||
Revenue share payable | 1,668,287 | 1,908,616 | 3,496,489 | 1,618,438 | ||||||||||||
Current portion of lease obligations | 113,476 | - | 119,512 | 115.431 | ||||||||||||
Current portion of contingent purchase price payable | 810,000 | - | 5,360,812 | 1,500,000 | ||||||||||||
Deferred revenue | 1,115,904 | 610,625 | 648,692 | 580,014 | ||||||||||||
Total Current Liabilities | 5,410,141 | 4,231,133 | 12,166,582 | 6,107,513 | ||||||||||||
Non-current Liabilities | ||||||||||||||||
Lease obligations, net of current portion | 478,201 | - | 387,654 | 448,753 | ||||||||||||
Contingent purchase price payable, net of current portion | 1,530,000 | 2,365,000 | - | 5,220,000 | ||||||||||||
Total Non-current liabilities | 2,008,201 | 2,365,000 | ||||||||||||||
Total Non-current Liabilities | 387,654 | 5,668,753 | ||||||||||||||
Total Liabilities | 7,418,342 | 6,596,133 | 12,554,236 | 11,776,266 | ||||||||||||
Commitments and contingencies (See Note 5) | ||||||||||||||||
Commitments and contingencies (See Note 6) | - | - | ||||||||||||||
Stockholders’ Equity | ||||||||||||||||
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no issued and outstanding at September 30, 2019 or December 31, 2018 | - | - | ||||||||||||||
Common stock, $0.001 par value, 500,000,000 shares authorized, 14,173,850 and 12,038,618 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively | 14,174 | 12,039 | ||||||||||||||
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no issued and outstanding at June 30, 2020 or December 31, 2019 | - | - | ||||||||||||||
Common stock, $0.001 par value, 500,000,000 shares authorized, 14,752,600 and 14,600,579 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively | 14,753 | 14,601 | ||||||||||||||
Additional paid-in-capital | 72,561,045 | 48,725,211 | 80,194,282 | 78,272,268 | ||||||||||||
Accumulated deficit | (31,439,830 | ) | (30,278,805 | ) | (36,706,009 | ) | (33,424,610 | ) | ||||||||
Total Stockholders’ Equity | 41,135,389 | 18,458,445 | 43,503,026 | 44,862,259 | ||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 48,553,731 | $ | 25,054,578 | $ | 56,057,262 | $ | 56,638,525 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
NET REVENUE | $ | 5,002,767 | $ | 5,415,384 | $ | 17,218,492 | $ | 14,627,094 | ||||||||
COST OF REVENUES | 1,981,143 | 2,268,968 | 6,251,766 | 6,513,810 | ||||||||||||
GROSS MARGIN | 3,021,624 | 3,146,416 | 10,966,726 | 8,113,284 | ||||||||||||
OPERATING EXPENSES | 5,008,934 | 2,923,238 | 12,341,827 | 7,807,705 | ||||||||||||
INCOME (LOSS) FROM OPERATIONS | (1,987,310 | ) | 223,178 | (1,375,101 | ) | 305,579 | ||||||||||
OTHER INCOME | ||||||||||||||||
Interest income | 136,368 | 21,750 | 192,305 | 30,679 | ||||||||||||
Change in Fair Value of Contingent Consideration | 280,000 | - | 25,000 | - | ||||||||||||
TOTAL OTHER INCOME | 416,368 | 21,750 | 217,305 | 30,679 | ||||||||||||
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES | (1,570,942 | ) | 244,928 | (1,157,796 | ) | 336,258 | ||||||||||
PROVISION FOR INCOME TAXES | - | - | - | - | ||||||||||||
NET INCOME (LOSS) | $ | (1,570,942 | ) | $ | 244,928 | $ | (1,157,796 | ) | $ | 336,258 | ||||||
WEIGHTED AVERGE SHARES OUTSTANDING | ||||||||||||||||
BASIC | 14,146,489 | 11,755,500 | 12,996,590 | 10,840,584 | ||||||||||||
DILUTED | 14,146,489 | 12,921,768 | 12,996,590 | 11,766,754 | ||||||||||||
EARNINGS (LOSS) PER SHARE | ||||||||||||||||
BASIC | $ | (0.11 | ) | $ | 0.02 | $ | (0.09 | ) | $ | 0.03 | ||||||
DILUTED | $ | (0.11 | ) | $ | 0.02 | $ | (0.09 | ) | $ | 0.03 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019
(UNAUDITED)
Additional | ||||||||||||||||||||
Common Stock | 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-based 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 | ||||||||||
Public offering of common shares for cash, net of offering costs | 1,769,275 | 1,769 | 21,302,057 | - | 21,303,826 | |||||||||||||||
Shares issued for stock options exercised | 60,295 | 61 | 214,253 | - | 214,314 | |||||||||||||||
Shares issued as compensation | 8,336 | 8 | 135,035 | - | 135,043 | |||||||||||||||
Stock-based compensation expense | 408,087 | - | 408,087 | |||||||||||||||||
Net income | - | - | - | 406,617 | 406,617 | |||||||||||||||
Balance June 30, 2019 | 14,116,739 | $ | 14,117 | $ | 71,764,534 | $ | (29,868,888 | ) | $ | 41,909,763 | ||||||||||
Shares issued for stock options exercised | 48,775 | 49 | 206,275 | - | 206,324 | |||||||||||||||
Shares issued as compensation | 8,336 | 8 | 120,697 | - | 120,705 | |||||||||||||||
Stock-based compensation expense | - | - | 469,539 | - | 469,539 | |||||||||||||||
Net loss | - | - | - | (1,570,942 | ) | (1,570,942 | ) | |||||||||||||
Balance September 30, 2019 | 14,173,850 | $ | 14,174 | $ | 72,561,045 | $ | (31,439,830 | ) | $ | 41,135,389 |
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
NET REVENUE | $ | 8,783,230 | $ | 7,006,291 | $ | 16,367,832 | $ | 12,215,725 | ||||||||
COST OF REVENUES | 3,639,016 | 2,687,143 | 6,880,779 | 4,270,623 | ||||||||||||
GROSS MARGIN | 5,144,214 | 4,319,148 | 9,487,053 | 7,945,102 | ||||||||||||
OPERATING EXPENSES | 6,200,027 | 3,839,105 | 12,802,118 | 7,332,894 | ||||||||||||
INCOME (LOSS) FROM OPERATIONS | (1,055,813 | ) | 480,043 | (3,315,065 | ) | 612,208 | ||||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||
Interest income | 8,345 | 33,574 | 63,666 | 55,938 | ||||||||||||
Change in Fair Value of Contingent Consideration | (30,000 | ) | (107,000 | ) | (30,000 | ) | (255,000 | ) | ||||||||
TOTAL OTHER INCOME (EXPENSE) | (21,655 | ) | (73,426 | ) | 33,666 | (199,062 | ) | |||||||||
INCOME(LOSS) BEFORE PROVISION FOR INCOME TAXES | (1,077,468 | ) | 406,617 | (3,281,399 | ) | 413,146 | ||||||||||
PROVISION FOR INCOME TAXES | - | - | - | - | ||||||||||||
NET INCOME (LOSS) | $ | (1,077,468 | ) | $ | 406,617 | $ | (3,281,399 | ) | $ | 413,146 | ||||||
WEIGHTED AVERGE SHARES OUTSTANDING | ||||||||||||||||
BASIC | 14,667,216 | 12,743,379 | 14,638,359 | 12,412,442 | ||||||||||||
DILUTED | 14,667,216 | 13,806,761 | 14,638,359 | 13,467,562 | ||||||||||||
EARNINGS (LOSS) PER SHARE | ||||||||||||||||
BASIC | $ | (0.07 | ) | $ | 0.03 | $ | (0.22 | ) | $ | 0.03 | ||||||
DILUTED | $ | (0.07 | ) | $ | 0.03 | $ | (0.22 | ) | $ | 0.03 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20182020
(UNAUDITED)
Additional | ||||||||||||||||||||
Common Stock | Paid in | Accumulated | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Balance January 1, 2018 | 9,772,694 | $ | 9,773 | $ | 36,573,888 | $ | (30,363,122 | ) | $ | 6,220,539 | ||||||||||
Cumulative effect of change in accounting principle related to revenue recognition | - | - | - | (142,027 | ) | (142,027 | ) | |||||||||||||
Shares issued for revenue share | 100,000 | 100 | 446,900 | - | 447,000 | |||||||||||||||
Shares issued as compensation | 6,249 | 6 | 28,869 | - | 28,875 | |||||||||||||||
Stock-based compensation expense | - | - | 468,247 | - | 468,247 | |||||||||||||||
Net loss | - | - | - | (189,179 | ) | (189,179 | ) | |||||||||||||
Balance March 31, 2018 | 9,878,943 | $ | 9,879 | $ | 37,517,904 | $ | (30,694,328 | ) | $ | 6,833,455 | ||||||||||
Public offering of common shares for cash, net of offering costs | 1,666,669 | 1,667 | 8,162,807 | - | 8,164,474 | |||||||||||||||
Shares issued in connection with reverse split | 908 | 1 | (1 | ) | - | - | ||||||||||||||
Shares issued for stock options exercised | 2,002 | 2 | 4,918 | - | 4,920 | |||||||||||||||
Shares issued as compensation | 8,336 | 8 | 89,937 | - | 89,945 | |||||||||||||||
Stock-based compensation expense | - | - | 426,755 | - | 426,755 | |||||||||||||||
Net income | - | - | - | 280,509 | 280,509 | |||||||||||||||
Balance June 30, 2018 | 11,556,858 | $ | 11,557 | $ | 46,202,320 | $ | (30,413,819 | ) | $ | 15,800,058 | ||||||||||
Shares issued for cashless exercise of warrants | 251,046 | 251 | (251 | ) | - | - | ||||||||||||||
Shares issued for stock options exercised | 141,403 | 141 | 450,881 | - | 451,022 | |||||||||||||||
Shares issued as compensation | 21,489 | 22 | 354,825 | - | 354,847 | |||||||||||||||
Stock-based compensation expense | - | - | 353,311 | - | 353,511 | |||||||||||||||
Net income | - | - | - | 244,928 | 244,928 | |||||||||||||||
Balance September 30, 2018 | 11,970,976 | $ | 11,971 | $ | 47,361,086 | $ | (30,168,891 | ) | $ | 17,204,366 |
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 | ||||||||||||||
Shares issued as board compensation | 7,748 | 8 | 100,019 | - | 100,027 | |||||||||||||||
Shares issued for stock options exercised | 55,731 | 56 | 174,775 | - | 174,831 | |||||||||||||||
Stock-based compensation expense | 42,374 | 42 | 680,602 | - | 680,644 | |||||||||||||||
Net loss | - | - | - | (1,077,468 | ) | (1,077,468 | ) | |||||||||||||
�� | ||||||||||||||||||||
Balance June 30, 2020 | 14,752,600 | $ | 14,753 | $ | 80,194,282 | $ | (36,706,009 | ) | $ | 43,503,026 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019
Additional | ||||||||||||||||||||
Common Stock | 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 board compensation | 8,336 | 8 | 106,026 | - | 106,034 | |||||||||||||||
Stock-based 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 | ||||||||||||||
Public offering of common shares for cash, net of offering costs | 1,769,275 | 1,769 | 21,302,057 | - | 21,303,826 | |||||||||||||||
Shares issued for stock options exercised | 60,295 | 61 | 214,253 | - | 214,314 | |||||||||||||||
Shares issued as board compensation | 8,336 | 8 | 135,035 | - | 135,043 | |||||||||||||||
Stock-based compensation expense | - | - | 408,087 | - | 408,087 | |||||||||||||||
Net income | - | - | - | 406,617 | 406,617 | |||||||||||||||
Balance June 30, 2019 | 14,116,739 | $ | 14,117 | $ | 71,764,534 | $ | (29,868,888 | ) | $ | 41,909,763 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended September 30, | For the Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
Net (loss) income | $ | (1,157,796 | ) | $ | 336,258 | |||||||||||
Adjustments to reconcile net (loss) income to net cash used in operating activities: | ||||||||||||||||
Depreciation and amortization | 745,928 | 163,418 | ||||||||||||||
Net Income (Loss) | $ | (3,281,399 | ) | $ | 413,146 | |||||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||||||
Depreciation, amortization, and non-cash lease expense | 1,040,463 | 425,873 | ||||||||||||||
Stock-based compensation | 1,407,938 | 1,242,776 | 1,435,156 | 938,399 | ||||||||||||
Stock issued for services | 361,782 | 479,203 | ||||||||||||||
Stock issued for board services | 200,027 | 241,077 | ||||||||||||||
Provision for loss on accounts receivable | 40,000 | - | ||||||||||||||
Change in fair value of contingent consideration | (25,000 | ) | - | 30,000 | 255,000 | |||||||||||
Changes in: | ||||||||||||||||
Accounts receivable | (700,549 | ) | (1,734,128 | ) | (3.427,166 | ) | (966,658 | ) | ||||||||
Prepaid expenses and other assets | (469,623 | ) | 54,108 | (1,785,422 | ) | (202,036 | ) | |||||||||
Accounts payable | 184,464 | (291,831 | ) | 3,747 | 785 | |||||||||||
Revenue share payable | (240,329 | ) | (414,722 | ) | 1,878,051 | 55,824 | ||||||||||
Accrued expenses and other liabilities | (772,953 | ) | (139,417 | ) | 186,682 | (511,976 | ) | |||||||||
Deferred revenue | 505,279 | 164,129 | 68,678 | 158,766 | ||||||||||||
NET CASH USED IN OPERATING ACTIVITIES | (160,859 | ) | (140,206 | ) | ||||||||||||
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | (3,611,183 | ) | 808,200 | |||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
Purchase of equipment | (61,457 | ) | (23,131 | ) | (24,998 | ) | (47,739 | ) | ||||||||
Purchase of intangible assets | (1,000,000 | ) | (56,651 | ) | - | (1,000,000 | ) | |||||||||
NET CASH USED IN INVESTING ACTIVITIES | (1,061,457 | ) | (79,782 | ) | (24,998 | ) | (1,047,739 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
Proceeds from issuance of common stock, net of commission costs | 22,369,960 | 9,455,943 | 286,983 | 22,163,636 | ||||||||||||
Offering costs related to issuance of common stock | (301,711 | ) | (835,526 | ) | ||||||||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | 22,068,249 | 8,620,417 | ||||||||||||||
Expenses related to issuance cost of common stock | - | (301,711 | ) | |||||||||||||
Payment of contingent consideration | (1,389,188 | ) | - | |||||||||||||
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | (1,102,205 | ) | 21,861,925 | |||||||||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 20,845,933 | 8,400,429 | (4,738,386 | ) | 21,622,386 | |||||||||||
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | 8,914,034 | 5,122,573 | 18,852,680 | 8,914,034 | ||||||||||||
CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | 29,759,967 | $ | 13,523,002 | $ | 14,114,294 | $ | 30,536,420 | ||||||||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||||||||||
Cash paid for interest | $ | - | $ | - | $ | - | $ | - | ||||||||
Cash paid for income taxes | $ | - | $ | - | $ | - | $ | - | ||||||||
NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||||||||||
Intangible asset additions included in accounts payable | $ | 500,000 | $ | - | $ | - | $ | 500,000 | ||||||||
Non-cash effect of cumulative adjustments to accumulated deficit | $ | 3,229 | $ | - | $ | - | $ | 3,229 | ||||||||
Lease liabilities arising from right of use assets | $ | 672,809 | - | $ | - | $ | 672,809 | |||||||||
Non-cash issuance of shares to WPP, plc | $ | - | $ | 447,000 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBERJUNE 30, 20192020
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 leading provider of digital health messaging via electronic health records (EHRs), providing a direct channel for pharmaceutical companies to communicate with healthcare providers and patients.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 a million healthcare providers access to these services within their workflow at the point of care.
The condensed consolidated financial statements for the three and ninesix months ended SeptemberJune 30, 20192020 and 20182019 are unaudited and have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments necessary to present fairly our consolidated financial position as of SeptemberJune 30, 2019,2020, and our results of operations, and changes in stockholders’ equity for the three and ninesix months ended SeptemberJune 30, 20192020 and 20182019 and the statements of cash flows for the ninesix months ended SeptemberJune 30, 20192020 and 20182019 have been made. Those adjustments consist of normal and recurring adjustments. The condensed consolidated balance sheet as of December 31, 20182019 has been derived from the audited consolidated 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 (“GAAP”) 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, 2018,2019, as filed with the U.S. Securities and Exchange Commission on March 12, 2019.26, 2020.
We operate in one reportable segment. The results of operations for the three and ninesix months ended SeptemberJune 30, 20192020 are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made in the prior period’s condensed consolidated financial statements to conform to the current period’s presentation.
NOTE 2 – NEW ACCOUNTING STANDARDS
In February 2016, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance on leases. The accounting standard, effective January 1, 2019, requires virtually all leases to be recognized on the balance sheet. Effective January 1, 2019, weRecently adopted the standard using the modified retrospective method, under which we elected the package of practical expedients and transition provisions allowing us to bring our existing operating leases onto the consolidated balance sheet without adjusting comparative periods, but recognizing a cumulative-effect adjustment to the opening balance of accumulated deficit on January 1, 2019. Under the guidance, we have also elected not to separate lease and non-lease components in recognition of the lease-related assets and liabilities, as well as the related lease expense.
We have operating leases with terms greater than 12 months for office space in three multitenant facilities, which are recorded as assets and liabilities. The lease on our headquarters space in Rochester, Michigan expires November 30, 2022, with a three-year renewal option through 2025, with monthly rent payable at rates ranging from $6,384 to $6,688. We have assumed renewal of the lease. We also have a lease on office space in Cranbury, New Jersey, expiring in 2022 with monthly payments ranging from $2,707 to $2,808, as well as a lease of approximately $1,800 per month in Zagreb, Croatia expiring in 2022.
OPTIMIZERx CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2019
NOTE 2 – NEW ACCOUNTING STANDARDS (continued)
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. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred.
Upon adoption of the standard on January 1, 2019, we recorded approximately $462,000 of right of use assets and $465,000 of lease-related liabilities, with the difference recorded in accumulated deficit as the cumulative effect of change in accounting principle at that date.
For the three and nine months ended September 30, 2019, the Company’s lease cost consisted of the following components, each of which is included in operating expenses within the Company’s consolidated statements of operations:
Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | |||||||
Operating lease cost | $ | 33,868 | $ | 98,043 | ||||
Short-term lease cost (1) | 11,771 | 30,663 | ||||||
Total lease cost | $ | 45,639 | $ | 128,706 |
The table below presents the future minimum lease payments to be made under operating leases as of September 30, 2019:
For the year ending December 31, | ||||
2019(a) | $ | 33,977 | ||
2020 | 138,019 | |||
2021 | 140,367 | |||
2022 | 102,367 | |||
2023 | 99,209 | |||
Thereafter | 150,599 | |||
Total | 664,538 | |||
Less: present value discount | 72,861 | |||
Total lease liabilities | $ | 591,677 |
The weighted average remaining lease term for operating leases is 5.2 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 is $94,105. For the nine months ended September 30, 2019, payments on lease obligations were $79,071 and amortization on the right of use assets was $80,022.
OPTIMIZERx CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2019
NOTE 2 – NEW ACCOUNTING STANDARDS (continued)
Recent Accounting Pronouncements
In June 2016, the FASB issuedFinancial Accounting Standards Update (“ASU”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 whichthat 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 will becomewas effective for the Company on January 1, 2020 and early2020. The adoption is permitted. The Company is currently evaluating the impact of this guidancestandard did not have a material effect on its consolidatedour financial statements.position, results of operations, or cash flows.
In August 2019, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 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.
7
OPTIMIZERx CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2020
NOTE 2 – NEW ACCOUNTING STANDARDS (continued)
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 Company is currently evaluating the impactadoption of this guidancestandard did not have a material effect on its consolidatedour financial statements.position, results of operations, or cash flows.
Not yet Adopted
In August 2018,December 2019, the FASB issued ASU 2018-13, Fair Value MeasurementNo. 2019-12, Income Taxes (Topic 820)740): Disclosure Framework-ChangesSimplifying 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 Disclosure Requirements for Fair Value Measurement.general principles in Topic 740 and clarifies and amends existing guidance. ASU 2018-13 modifies the disclosure requirements on fair value measurements and will become2019-12 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.
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 Companyheadquarters 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 Januarya 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 and six months ended June 30, 2020, the Company’s lease cost consisted of the following components, each of which is included in operating expenses within the Company’s condensed consolidated statements of operations:
Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 | |||||||
Operating lease cost | $ | 32,814 | $ | 65,627 | ||||
Short-term lease cost (1) | 36,186 | 80,815 | ||||||
Total lease cost | $ | 69,000 | $ | 146,442 |
(1) | Short-term lease cost includes any lease with a term of less than 12 months. |
8
OPTIMIZERx CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2020
NOTE 3 – LEASES (continued)
For the three and six months ended June 30, 2019, the Company’s lease cost consisted of the following components, each of which is included in operating expenses within the Company’s condensed consolidated statements of operations:
Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | |||||||
Operating lease cost | $ | 32,591 | $ | 64,175 | ||||
Short-term lease cost (1) | 9,951 | 18,892 | ||||||
Total lease cost | $ | 42,542 | $ | 83,067 |
(1) | Short-term lease cost includes any lease with a term of less than 12 months. |
The table below presents the future minimum lease payments to be made under operating leases as of June 30, 2020:
As of June 30, 2020 | ||||
2020(a) | $ | 69,119 | ||
2021 | 140,367 | |||
2022 | 102,367 | |||
2023 | 99,209 | |||
2024 | 80,375 | |||
Thereafter | 70,224 | |||
Total | 561,661 | |||
Less: imputed interest | 54,495 | |||
Total lease liabilities | $ | 507,166 |
(a) For the six-month period beginning July 1, 2020.
The weighted average remaining lease term at June 30, 2020 for operating leases is 4.7 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 $57,019 and $64,175 for the six months ending June 30, 2020 and early adoption is permitted. The Company is currently evaluating2019, respectively. For the impactsix months ended June 30, 2020 and 2019, payments on lease obligations were $68,900 and $51,937, respectively, and amortization on the right of this guidance on its consolidated financial statements.use assets was $56,357 and $52,592, respectively.
NOTE 34 – STOCKHOLDERS’ EQUITY
During the quarters ended June 30, 2020, and March 31, 2020 we issued 55,731 shares and 35,032 shares of our common stock, respectively, and received proceeds of $174,775 and $112,117, respectively, in connection with the exercise of stock options under our 2013 equity compensation plan.
During the quarters ended June 30, 2019 and March 31, 2019, we issued 60,295 shares and 101,878 shares of our common stock, respectively, and received proceeds of $214,314 and $343,785, respectively, in connection with the exercise of stock options under our 2013 equity compensation plan. 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)
JUNE 30, 2020
NOTE 4 – STOCKHOLDERS’ EQUITY (continued)
We also issued 42,374 shares in the six months ended June 30, 2020 in connection with restricted stock awards as described in more detail in Note 5 – Stock Based Compensation.
Our Director Compensation Plan calls for issuance of shares of common stock each quarter to each independent director. In 2020, we issued 11,136 shares valued at $100,000 in the quarter ended March 31, 2020 and 7,748 shares valued at $100,027 in the quarter ended June 30, 2020. In 2019, we issued 8,336 shares each quarter, valued at $106,834 and $135,043 for the quarters ended March 31, and June 30, respectively.
During the quarter ended June 30, 2019, in an underwritten primary offering, we issued 1,769,275 shares of our common stock for gross proceeds of $23,000,575. In connection with this transaction, we incurred equity issuance costs of $1,696,749 related to payments to the underwriter, advisors and legal fees associated with the transaction, resulting in net proceeds to the Company of $21,303,826.
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.
During the quarters ended September 30, 2019, June 30, 2019, and March 31, 2019, we issued 48,775, 60,295 and 89,826 shares, respectively, of our common stock and received proceeds of $206,324, $214,314, and $343,785, respectively, 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 the quarter ended March 31, 2019 in connection with the exercise of options using the net-settled method, whereby no cash was 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. We issued 141,403 and 2,002 shares of our common stock and received proceeds of $451,022 and $4,920 in connection with the exercise of options in the quarters ended September 30, 2018 and June 30, 2018, respectively.
OPTIMIZERx CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2019
NOTE 3 – STOCKHOLDERS’ EQUITY (continued)
Our Director Compensation Plan calls for issuance of 2,084 shares per quarter to each independent director. In 2019, we issued 8,336 shares each quarter, valued at $106,034, $135,043, and $120,705 for the quarters ended March 31, June 30, and September 30, respectively. In 2018, we issued 6,249 shares valued at $28,875, 8,336 shares valued at $89,945, and 11,489 shares valued at $206,082 for the quarters ended March 31, June 30, and September 30, respectively.
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. The effect of this reverse split is presented in the accompanying condensed consolidated financial statements as if it had been effective as of the beginning of the earliest period presented. 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.
In the quarter ended March 31, 2018, we issued 100,000 shares of common stock to a subsidiary of WPP, plc, a shareholder at the time, in full payment of all amounts due under a co-marketing agreement that covered certain WPP, plc agencies, whereby we shared a portion of our revenue with those agencies related to programs awarded to us by 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.
In the quarter ended September 30, 2018, we issued 10,000 shares valued at $148,050 in connection with investor relations services.
NOTE 45 – STOCK BASED COMPENSATION
We use the fair value method to account for stock-based compensation. We recorded $1,329,713$1,021,787 and $878,768$907,109 in compensation expense in the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, 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 $1,462,423$1,867,549 of remaining expense related to unvested options to be recognized in the future over a weighted average remaining period of less than one year.approximately 1.3 years. The total intrinsic value of outstanding options at SeptemberJune 30, 2019 is $13,318,970.2020 was $12,281,047.
The company also recorded expense related to restricted stock awards of $78,225$413,369 and $364,008$31,290 for the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, respectively. As of SeptemberJune 30, 2019,2020, there is $1,513,475was $1,039,157 of remaining expense related to unvested restricted stock awards to be recognized in the future related to 140,000132,374 shares of restricted stock awards that arewere unvested at SeptemberJune 30, 2019.2020. A total of 42,374 shares related to these restricted stock awards vested in 2020 and were issued during the six months ended June 30, 2020.
NOTE 56 – CONTINGENCIES
Litigation
The Company is not currently involved in any legal proceedings.
OPTIMIZERx CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBERJUNE 30, 2019
2020
NOTE 67 – EARNINGS (LOSS) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings (loss) earnings per share.
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||
Numerator | ||||||||||||||||||||||||||||||||
Net (loss) income | $ | (1,570,942 | ) | $ | 244,928 | $ | (1,157,796 | ) | $ | 336,258 | ||||||||||||||||||||||
Net income (loss) | $ | (1,077,468 | ) | $ | 406,617 | $ | (3,281,399 | ) | $ | 413,146 | ||||||||||||||||||||||
Denominator | ||||||||||||||||||||||||||||||||
Weighted average shares outstanding used in computing (loss) earnings per share | ||||||||||||||||||||||||||||||||
Weighted average shares outstanding used in computing earnings per share | ||||||||||||||||||||||||||||||||
Basic | 14,146,489 | 11,755,500 | 12,996,590 | 10,840,584 | 14,667,216 | 12,743,379 | 14,638,359 | 12,412,442 | ||||||||||||||||||||||||
Effect of dilutive stock options, warrants, and unvested restricted stock awards | - | 1,166,268 | - | 936,170 | - | 1,063,382 | - | 1,055,120 | ||||||||||||||||||||||||
Diluted | 14,146,489 | 12,921,768 | 12,996,590 | 11,776,754 | 14,667,216 | 13,806,761 | 14,638,359 | 13,467,562 | ||||||||||||||||||||||||
(Loss) earnings per share | ||||||||||||||||||||||||||||||||
Earnings (loss) per share | ||||||||||||||||||||||||||||||||
Basic | $ | (0.11 | ) | $ | 0.02 | $ | (0.09 | ) | $ | 0.03 | $ | (0.07 | ) | $ | 0.03 | $ | (0.22 | ) | $ | 0.03 | ||||||||||||
Diluted | $ | (0.11 | ) | $ | 0.02 | $ | (0.09 | ) | $ | 0.03 | $ | (0.07 | ) | $ | 0.03 | $ | (0.22 | ) | $ | 0.03 |
No calculation of diluted earnings per share is included for 20192020 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 826,777 and 782,575 shares in the three and six months ended June 30, 2020, respectively, related to options, and 132,374 shares related to restricted stock for the three and six months ended June 30, 2020. This results in total shares excluded from the calculation of 959,151 and 914,949 for the three and six month periods ended June 30, 2020, respectively.
NOTE 78 – SUBSEQUENT EVENTS
In October 2019,July 2020, we completed the acquisitionreceived proceeds of 100% of the outstanding$193,768 and issued 64,261 shares of RMDY Health, Inc., a privately held leading provider of collaborative digital therapeutics SaaS solutions for the healthcare industry. This strategic acquisition allows us to extend our ability to engage doctors and patients for our pharmaceutical clients, introduce important client segments to our solution site, and continue expanding on our patient engagement revenue stream. The purchase price was $16.0 million, which will be adjusted for final working capital acquired. Total cash paid in October as part of the transaction was $8.7 million, which included payments for closing indebtedness, transaction expenses, escrows, and payments to RMDY Health stockholders. There were approximately $300,000 of costs directly related to the acquisition included in the condensed consolidated statements of operations for the three and nine months ended September 30, 2019 as well.
Additionally, a portion of the purchase price, $5.9 million, is payable in shares of our common stock and 382,893 shares will be issued in November 2019 in connectionconjunction with this acquisition. Additional shares may be issued in future years at the timeexercise of the escrow release. Two additional payments not to exceed $30.0 million may become due as part of an earnout in the amount of 1.75 times the amount that we exceed $4.0 million of revenues related to the “RMDY” product in 2020, and 1.75 times the amount that we exceed 2020 revenues related to the "RMDY" product in 2021.
OPTIMIZERx CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2019
Since the acquisition occurred subsequent to September 30, 2019, no results from operations of RMDY Health are included in our consolidated statement of operations for the three and nine months ended September 30, 2019. It is currently impractical to disclose a preliminary purchase price allocation of RMDY Health or pro forma financial information combining both companies as of the earliest period presented in these financial statements as RMDY Health is currently in the process of both closing its books and records and converting them to U.S. GAAP.
Notwithstanding the foregoing, all required financial information concerning the RMDY Health acquisition will be included in an amended 8K with a due date of December 19, 2019.stock options.
In accordance with ASC 855-10, we have analyzed events and transactions that occurred subsequent to SeptemberJune 30, 20192020 through the date these financial statements were issued and have determined that other than as discussed above, we do not have any other 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, cybersecurity, 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
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 recently completed 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 offices remain closed and we continue to prohibit travel through the date of this filing and expect to continue operating in this fashion for the foreseeable future. Our customers provide essential services in the healthcare industry and we believe that 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 November 2019July 2020
1. | |
2. | Revenues for the |
Gross profit was $5.1 million in the | |
3. | |
4. | |
5. | |
6. | We |
7. | We expanded our Board of Directors, adding Greg Wasson, former President and CEO of Walgreens Boots Alliance, and a veteran of the retail pharmacy industry and a valuable and timely addition to our board as we |
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 number of clients,pharmaceutical products and our distribution network, we believeexpect that our legacy and newmessaging solutions, as well as our evolving network,patient engagement activities, will continue to expandincrease and show strong growth throughout the year.
Results of Operations for the Three and NineSix Months Ended SeptemberJune 30, 20192020 and 20182019
Revenues
Our total revenue reported for the ninethree months ended SeptemberJune 30, 20192020 was approximately $17.2$8.8 million, an increase of 18%25% over the approximately $14.6$7.0 million from the same period in 2018.2019. Our total revenue for the threesix months ended SeptemberJune 30, 20192020 was approximately $5.0$16.4 million, a decreasean increase of 8%34% over the approximately $5.4$12.2 million from the same period in 2018.2019. The increased revenue in the nine-month periodboth periods resulted primarily from increases in sales in our clinical and brand messaging products as a resultand patient engagement products, including from our acquisition of the launch of new channel partners since the third quarter of 2018. The decreaseRMDY Health in the three-month period resulted from a decline in revenue related to our financial messaging product, primarily because two high volume brands running in 2018 were not running in 2019, one of which shifted their funds from financial messaging to clinical messaging.2019. 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, comprised primarily of revenue share expense, declinedincreased as a percentage of revenues in both the three and nine-monthsix month periods ended SeptemberJune 30, 2019,2020, as compared to the same periods in 2018,2019, as set forth in the table below. This decreaseincrease was a result of product mixmix. Both 2019 periods contained an unusually high percentage of launch assistance services and our focus on reducingother nonrecurring revenue that was not subject to revenue share expense. As we have previously discussed, we expect our cost of revenues through improved revenue share contracts and our focus on products with higher margins.to normalize at 40.0% or lower for 2020.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
�� | ||||||||||||||||
Cost of Revenues % | 39.6 | % | 41.9 | % | 36.3 | % | 44.5 | % | ||||||||
Gross Margin % | 60.4 | % | 58.1 | % | 63.7 | % | 55.5 | % |
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Cost of Revenues % | 41.4 | % | 38.4 | % | 42.0 | % | 35.0 | % | ||||||||
Gross Margin % | 58.6 | % | 61.6 | % | 58.0 | % | 65.0 | % |
Gross Margin
Our gross margins improved from 2018 to 2019 in both the three and nine-month periods ended September 30, asAs reflected in the table above, andour gross margin decreased in both 2020 periods from the prior year periods. As discussed under cost of revenues above, we had an unusually favorable product mix in the 2019 periods that had a positive impact our margin in 2019. Our gross margin for the reasons reflectedfull year of 2019 was 62.7%. Our gross margin was 57.3% in the discussionfirst quarter of cost of revenues. We have been focused on improving our margins.2020 and improved to 58.0% in the second quarter. We expect our gross margin to maintain gross margins of at least 60%improve on a quarterlyquarter over quarter basis for the balance of the year.year, with a target of 63.0% for the year..
Operating Expenses
Operating expenses increased from approximately $2.9$3.8 million for the three months ended SeptemberJune 30, 20182019 to approximately $5.0$6.2 million for the same period in 2019.2020. Operating expenses increased from approximately $7.8$7.3 million for the ninesix months ended SeptemberJune 30, 20182019 to approximately $12.3$12.8 million for the same period in 2019.2020. Overall, the increase resulted 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 September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
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 | ||||||||||||
Board Fees | 34,250 | 45,875 | 102,750 | 104,500 | ||||||||||||
Investor Relations | 19,258 | 32,816 | 63,075 | 85,681 | ||||||||||||
Consultants | 81,411 | 66,830 | 176,911 | 106,639 | ||||||||||||
Advertising and Promotion | 137,276 | 106,920 | 491,989 | 225,648 | ||||||||||||
Depreciation and Amortization | 320,055 | 54,473 | 745,927 | 163,418 | ||||||||||||
Research, Development, and Maintenance | 1,034,281 | 114,604 | 1,432,390 | 439,916 | ||||||||||||
Integration Incentives | 47,032 | 70,626 | 136,825 | 151,878 | ||||||||||||
Office, Facility, and other | 117,028 | 137,889 | 363,191 | 364,861 | ||||||||||||
Travel and Entertainment | 220,382 | 106,418 | 486,359 | 268,171 | ||||||||||||
Total Operating Expense | $ | 5,008,934 | $ | 2,923,238 | $ | 12,341,827 | $ | 7,807,705 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Salaries, Wages, & Benefits | $ | 3,176,460 | $ | 2,101,309 | $ | 6,382,597 | $ | 3,790,343 | ||||||||
Stock-based Compensation | 780,670 | 543,130 | 1,635,182 | 1,179,476 | ||||||||||||
Professional Fees | 186,834 | 131,690 | 672,304 | 359,088 | ||||||||||||
Board Fees | 51,375 | 34,250 | 102,750 | 68,500 | ||||||||||||
Investor Relations | 28,677 | 22,081 | 48,127 | 43,817 | ||||||||||||
Consultants | 168,263 | 51,640 | 259,678 | 95,500 | ||||||||||||
Advertising and Promotion | 230,911 | 163,903 | 410,310 | 354,713 | ||||||||||||
Depreciation, Amortization, and Non-cash Lease Expense | 520,794 | 235,571 | 1,040,463 | 425,872 | ||||||||||||
Development and Maintenance | 607,003 | 221,891 | 1,165,661 | 398,109 | ||||||||||||
Integration Incentives | 207,973 | 47,914 | 415,946 | 89,792 | ||||||||||||
Office, Facility, and Other | 227,956 | 127,459 | 381,477 | 246,511 | ||||||||||||
Travel and Entertainment | 13,111 | 158,267 | 287,623 | 281,173 | ||||||||||||
Total Operating Expense | $ | 6,200,027 | $ | 3,839,105 | $ | 12,802,118 | $ | 7,332,894 |
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 2018,2019, we have hired a Chief Commercial Officer, four additional Vice Presidents ofsignificantly expanded our sales a vice president of marketingforce, made an acquisition to expand our product portfolio, and communications, a controller, a financial analyst, a vice president of strategy, 10 employees associated withadded to our CareSpeak acquisition,product development, data, and other related support personnel.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 is impacted by bothresults from the grant of new options and the increased number of options granted and the price of the stock at the time of grant.team members. We expect salaries, wages, & benefits, as well as stock-based compensation to remain at similar levels, or only increase slightly, infor the fourth quarterbalance of the year. We expect travel expense to remain low for the balance of the year as a result of grants to employees associated with the RMDY acquisition.
The increase in research, development, and maintenance costs reflects an increased level of activity to support our overall growth. Specifically, we are investing in research initiatives to develop new offerings to expand our overall product portfolio.
Advertising and promotion increased substantially in 2019 because of our increased focus on marketing activities. This increase includes costs associated with our physician survey on drug price transparency and patient cost challenges, our sponsorship of a healthcare panel on digital pharma marketing, and attendance at several industry conferences. We also hired a public relations firm in late 2018 that is included in 2019 costs, but was not there in 2018.COVID-19 pandemic.
Professional fees increased in 20192020 as a result of our movechange in auditor to a larger firm and associated higher fees, as well as the Nasdaq Capital Market in June 2018, our subsequent increase in market capitalization, and our acquisition of CareSpeak Communicationswe completed in late 2018.2019. This increased the complexity of our year-end audit and we were required to obtain an audit opinion on our internal controls under Sarbanes Oxley as of December 31, 2018 for the first time. We also were required to obtain third party valuations of the allocation of our purchase price of CareSpeak and the fair value of those assets and liabilities as of December 31, 2018, and on a quarterly basis moving forward.
Acquisition related costs in 2018 are2019, including the contingent purchase price payable. In addition, our legal fees have increased related to the acquisition of CareSpeak Communications and in 2019 are related to the acquisition of RMDY Health. While both transactions actually closed in the fourth quarter of the respective years, due diligence and document drafting began in the quarters ended in September. The increase in 2019 is because the RMDY transaction was a larger and more complex transaction requiring more due diligence and more complex documents.many new contracts we have signed.
Depreciation and amortization increased primarily because of the amortizable assets acquired in connection with our acquisition of CareSpeak Communications.RMDY in the fourth quarter of 2019. Office, facility, and other expenses also increased as a result of ourthe acquisition, of CareSpeak, which resulted in twoan additional office locationslocation for us, as well as the normal increased costs associated with increased business activity.
The decreaseResearch, 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 fair valueterm of contingent consideration relatesthe contracts. These expenses are an important part of our ability to expand our acquisitionnetwork and increased in 2020 as a result of CareSpeak Communications. 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 2020.2021. That liability is required to be adjusted to fair value each quarter and this represents the decreasequarter. The increase in the fair value of the liability during the threecontingent 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 nine months ended September 30, 2019. While we still expect the maximum amount to be paid. The increase in contingent consideration the fair value methodology results in changes2020 relates to our acquisition of RMDY Health, Inc. in 2019. We currently expect to pay $3.75 million of contingent consideration related to the fair value whenever adjustments are made to future revenue projections.
Travel expenses increased both becauseRMDY Health acquisition, up from the $3.72 million recorded at the time of the larger number of employees, as well as increased conference activity both related to investor relations and industry conferences.acquisition.
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 2019second quarter of 2020 level, or slightly abovelower 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 net loss of approximately $1.57$1.1 million for the three months ended SeptemberJune 30, 2019,2020, as compared to approximately $245,000net income of net income$0.4 million during the same period in 2018. Our net2019, and down from the $2.2 million loss in the three months ended March 31, 2020. We had a loss of approximately $3.3 million for the ninesix months ended SeptemberJune 30, 2019 was approximately $1.16 million,2020, as compared to net income of approximately $336,000$0.4 million during the same period in 2018.2019. The reasons forand specific components associated with the change are discussed above, however ourabove. Overall, the loss resulted from increased gross margin has been offset byoperating expenses to support strong revenue growth related expenses.throughout 2020 and beyond.
Liquidity and Capital Resources
As of SeptemberJune 30, 2019,2020, we had total current assets of approximately $37.9$27.6 million, compared with current liabilities of approximately $5.4$12.2 million, resulting in working capital of approximately $32.5$15.4 million and a current ratio of 7.02.3 to 1. This represents an improvementa decrease from our working capital of approximately $11.5$21.0 million and current ratio of 3.74.4 to 1 at December 31, 2018.2019.
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Our operating activities used approximately $161,000$3.6 in cash flow during the ninesix months ended SeptemberJune 30, 2019,2020, compared with cash usedprovided of approximately $140,000$0.8 million in the same period in 2018.2019. In the 2020 period, operating activities used $3.7 million in the first quarter and provided approximately $0.1 million in the quarter ended June 30, 2020. 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 accounts for the bulk of the increase in prepaid expenses and will be expensed over the balance of the year as revenue is generated through that channel. In addition, as a result of our strong revenue growth, our trade receivables increased by $3.4 million, which was partially offset by increased revenue share of $1.9 million owed to our channel partners. This increase in accounts receivable does not reflect on our customers’ ability to pay. Our customers are large multinational companies that generally dictate extended payment terms, but offer discounts for quick payment. Since we have sufficient cash reserves, we do not take advantage of the discounts, which translates to relatively high implied rates of interest. The cash provided in the 2019 period was the result of our net loss and offsetincome increased by noncash items included in the loss. The cash used in the 2018 period was the result of cash used for working capital. The main use of cash in 2018 resulted from a change in payment terms for one of our key partners, as well as payment of certain year end liabilities. We expect to have negative cash flow from operations in the fourth quarter as a result of expenses associated with the acquisition of RMDY Health.expenses.
We used approximately $1.06$25,000 and $1.05 million in investing activities infor the ninesix months ended SeptemberJune 30, 2020, and 2019, $1.0 million of which was related to the acquisition of a perpetual software license. The total cost of the license was $1.5 million. The remaining $500,000 is in accounts payable and is due in September 2019. We used insignificant amounts in investing activities in the nine months ended September 30, 2018respectively. These investments related to purchases of equipment.equipment as well as investments related to the expansion of our network capabilities.
We had a net use of cash in financing activities in the six months ended June 30, 2020. This included proceeds from financing activities of approximately $22.1$0.3 million and $8.6 million during the nine months ended September 30, 2019 and 2018, respectively. These resulted from offerings our common stock, as well asrelated to the exercise of stock options.options offset by approximately $1.4 million in payments related to contingent consideration. We did, as discussedhad net proceeds of $21.9 million from financing activities during the six months ended June 30, 2019, primarily from a secondary offering of common stock in Note 3 to the accompanying condensed consolidated financial statements, issue 300,000 shares valued at $447,000 in 2018 in a non-cash transaction in payment of revenue share due under a co-marketing agreement and the accompanying termination of the agreement.June 2019.
We do not anticipate the need to raise additional capital in the short or long term for operating purposes in 12 months from the issuance of this quarterly report.or to fund our growth plans. We are focused on growing our revenue, channel and partner networks.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. We used approximately $9.0 million of our cash in October 2019 related to the acquisition of RMDY Health, which still leaves us approximately $20 million of cash for operations and potential future acquisitions.
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, 2018;2019; however, we consider our critical accounting policies to be those related to determining the amount of revenue to be billed, the timing and amount 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 contingent purchase price payable.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 whichthat 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 will becomewas 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, andwith early adoption is permitted. The Company is currently evaluating the impactadoption of this guidancestandard is not expected to have a material effect on its consolidatedour financial statements.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 Company is currently evaluating the impactadoption of this guidancestandard did not have a material effect on its consolidatedour financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements on fair value measurements and will become effective for the Company on January 1, 2020 and early adoption is permitted. The Company is currently evaluating the impactposition, results of this guidance on its consolidated financial statements.operations, or cash flows.
Off Balance Sheet Arrangements
As of SeptemberJune 30, 2019,2020, there were no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of the period covered by this report (the “Evaluation Date”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of SeptemberJune 30, 2019,2020, our disclosure controls and procedures were not yet effective due to the presence of material weaknesses in internal control over financial reporting.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. As described in more detail in our annual report on Form 10-K for the year ended December 31, 2018,2019, management identified the following material weaknesses which have caused management to conclude that our disclosure controls and procedures were not effective: (i) inadequate segregationinformation technology general controls (ITGCs) in the areas of duties;user access security, change management, IT operations and third-party management over its key financial information technology (IT) systems; and (ii) inadequate information technology reporting systemscontrols to ensure that accurate financial informationdata received from third parties is provided for accountingcomplete and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.accurate. Those weaknesses have notlargely been completely remediated as of SeptemberJune 30, 2019.2020; however, the passage of additional time is required to be able to test the effectiveness of the remediation.
Changes in Internal Control over Financial Reporting
During 2019,the six months ended June 30, 2020, we hired twoimplemented additional peopleuser access security controls and other controls of IT security and are in our accounting department to address the segregationprocess of duties issue and improve our internal control over financial reporting. We also evaluated and selected new accounting software to address the information technology issues and implemented those systems in August 2019. We also improved the documentation of the review of data entered into our system. We are currently evaluating and testing this new system, along with associatedimplementing additional change management controls. We have also implemented and documented additional controls over data received from third parties. We expect that thisto have these new system will remediate our material weakness in internal controls; however a thorough assessment will not be completed untilcontrols fully implemented and tested by the end of Q4.the third quarter of 2020 and to be able to consider them fully remediated at that time.
While we made other routine ongoing improvements in our internal control and processes, no other material changes were made during the period.
Limitations on the Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errorserror and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.
We are not a party to any material pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.
See risk factors included in our Annual Report on Form 10-K for 2018.2019.
Our business, results of operations, and our financial condition may be further impacted by the outbreak of COVID-19 and such impact could be materially adverse.
The global spread of COVID-19 has created significant volatility, uncertainty and economic disruption. The extent to which the coronavirus pandemic impacts our business, operations, and financial results is uncertain and will depend on numerous evolving factors that we may not be able to accurately predict, including:
§ | the duration and scope of the pandemic; |
§ | governmental, business and individual actions taken in response to the pandemic and the impact of those actions on global economic activity; |
§ | the actions taken in response to economic disruption; |
§ | the impact of business disruptions; |
§ | the increase in business failures that we may utilize as industry partners and the customers we serve; |
§ | uncertainty as to the impact or staff availability during and post the pandemic; and |
§ | our ability to provide our services, including as a result of our employees or our customers and suppliers working remotely and/or closures of offices and facilities. |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In September 2019,June 2020, we issued 8,3367,748 shares of common stock to our independent directors in connection with our Director Compensation Plan. We also issued a total 48,77555,731 shares of common stock during the three months ended SeptemberJune 30, 2019,2020, in connection with the exercise of options under our 2013 equity compensation plan.plan and an additional 42,374 shares under the same plan in connection with restricted stock awards.
Subsequent to the reporting period, in July, 2020, we received proceeds of $193,768 and issued 64,261 shares of common stock in conjunction with the exercise of stock options.
These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.
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Item 3. Defaults upon Senior Securities
None
Item 4. Mine Safety Disclosure
N/A
None
Exhibit Number | Description of Exhibit | |
31.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101** | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended |
** | Provided herewith |
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
OptimizeRx Corporation | ||
Date: | ||
By: | /s/ William J. Febbo | |
William J. Febbo | ||
Title: | Chief Executive Officer, Principal Executive Officer, and Director | |
OptimizeRx Corporation | ||
Date: | ||
By: | /s/ Douglas P. Baker | |
Douglas P. Baker | ||
Title: | Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer |
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