OPRX 10-Q
OptimizeRx Corp (OPRX)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
For the quarterly period ended
For the transition period from ________ to __________
Commission File Number:
OptimizeRx Corporation
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
| (Address of principal executive offices) |
248-651-6568
(Registrant's telephone number)
(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
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).
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.
| ☐ Large accelerated filer | ☐ Accelerated filer |
| ☒ | |
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
State the number of shares outstanding of each
of the issuer’s classes of common stock, as of the latest practicable date:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol | Name of each exchange on which registered | ||
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 | 13 |
| Item 3: | Quantitative and Qualitative Disclosures About Market Risk | 17 |
| Item 4: | Controls and Procedures | 18 |
| PART II – OTHER INFORMATION | ||
| Item 1: | Legal Proceedings | 19 |
| Item 1A: | Risk Factors | 19 |
| Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds | 19 |
| 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
Item 1. Financial Statements
Our condensed consolidated financial statements included in this Form 10-Q are as follows:
1
OPTIMIZERx CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| June 30, 2021 | December 31, 2020 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Other Assets | ||||||||
| Goodwill | ||||||||
| Technology assets, net | ||||||||
| Patent rights, net | ||||||||
| Other intangible assets, net | ||||||||
| Right of use assets, net | ||||||||
| Other assets and deposits | ||||||||
| Total Other Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable – trade | $ | $ | ||||||
| Accrued expenses | ||||||||
| Revenue share payable | ||||||||
| Current portion of lease obligations | ||||||||
| Current portion of contingent purchase price payable | - | |||||||
| Deferred revenue | ||||||||
| Total Current Liabilities | ||||||||
| Non-current Liabilities | ||||||||
| Lease obligations, net of current portion | ||||||||
| Total Non-current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies (See Note 8) | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
OPTIMIZERx CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| NET REVENUE | $ | $ | $ | $ | ||||||||||||
| COST OF REVENUES | ||||||||||||||||
| GROSS MARGIN | ||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| INCOME (LOSS) FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ||||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Interest income | ||||||||||||||||
| Change in Fair Value of Contingent Consideration | - | ( | ) | - | ( | ) | ||||||||||
| TOTAL OTHER INCOME (EXPENSE) | ( | ) | ||||||||||||||
| INCOME(LOSS) BEFORE PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ( | ) | ||||||||||
| PROVISION FOR INCOME TAXES | - | - | ||||||||||||||
| NET INCOME (LOSS) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| WEIGHTED AVERGE SHARES OUTSTANDING | ||||||||||||||||
| BASIC | ||||||||||||||||
| DILUTED | ||||||||||||||||
| EARNINGS (LOSS) PER SHARE | ||||||||||||||||
| BASIC | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| DILUTED | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
OPTIMIZERx CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021
(UNAUDITED)
| Additional | ||||||||||||||||||||
| Common Stock | Paid in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance January 1, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Public offering of common shares, net of offering costs | ||||||||||||||||||||
| Shares issued as board compensation | ||||||||||||||||||||
| Shares issued for stock options exercised | ||||||||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance March 31, 2021 | ( | ) | ||||||||||||||||||
| Shares issued as board compensation | ||||||||||||||||||||
| Shares issued for stock options exercised | ||||||||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||
| Net income | - | |||||||||||||||||||
| Balance June 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
OPTIMIZERx CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020
(UNAUDITED)
| Additional | ||||||||||||||||||||
| Common Stock | Paid in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance January 1, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Shares issued as board compensation | ||||||||||||||||||||
| Shares issued for stock options exercised | ||||||||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance March 31, 2020 | ( | ) | ||||||||||||||||||
| Shares issued as board compensation | ||||||||||||||||||||
| Shares issued for stock options exercised | ||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance June 30, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
OPTIMIZERx CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Six
Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation, amortization, and non-cash lease expense | ||||||||
| Stock-based compensation | ||||||||
| Stock issued for board services | ||||||||
| Provision for loss on accounts receivable | ||||||||
| Change in fair value of contingent consideration | ||||||||
| Changes in: | ||||||||
| Accounts receivable | ( | ) | ) | |||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Accounts payable | ||||||||
| Revenue share payable | ( | ) | ||||||
| Accrued expenses and other liabilities | ( | ) | ||||||
| Deferred revenue | ||||||||
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of equipment | ( | ) | ( | ) | ||||
| Purchase of intangible assets | ( | ) | ||||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from public offering of common stock, net of commission costs | ||||||||
| Proceeds from the exercise of options | ||||||||
| Payment of contingent consideration | ( | ) | ( | ) | ||||
| NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | ( | ) | ||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | ||||||||
| CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Lease liabilities arising from right of use assets | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
OPTIMIZERx CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2021
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 provides communications solutions for life science companies, physicians and patients. Connecting over half of healthcare providers in the U.S. and millions of patients through a proprietary network, the OptimizeRx digital health platform helps patients afford and stay on medications. The platform unlocks new patient and physician touchpoints for life science companies along the patient journey, from point-of-care, to retail pharmacy, through mobile patient engagement.
The condensed consolidated financial statements for the three and six months ended June 30, 2021 and 2020 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 June 30, 2021, and our results of operations, changes in stockholders’ equity for the three and six months ended June 30, 2021 and 2020 and the statements of cash flows for the six months ended June 30, 2021 and 2020 have been made. Those adjustments consist of normal and recurring adjustments. The condensed consolidated balance sheet as of December 31, 2020 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 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, 2020, as filed with the U.S. Securities and Exchange Commission on March 8, 2021.
The results of operations for the three and six months ended June 30, 2021, are not necessarily indicative of the results to be expected for the full year.
NOTE 2 – NEW ACCOUNTING STANDARDS
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 Company adopted this standard effective January 1, 2021. The adoption of this standard did not have a material effect on our financial position, results of operations, or cash flows.
NOTE 3 – REVENUES
Under ASC 606, Revenue from Contracts with
Customers, we record revenue when earned, rather than when billed. From time to time, we may record revenue based on our revenue
recognition policies in advance of being able to invoice the customer, or we may invoice the customer prior to being able to recognize
the revenue. Included in accounts receivable are unbilled amounts of $
7
OPTIMIZERx CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2021
NOTE 3 – REVENUES (continued)
The majority of our revenue is earned from life sciences companies, such as pharmaceutical and biotech companies, or medical device makers. A small portion of our revenue is earned from other sources, such as associations and technology companies. A break down is set forth in the table below.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue from: | ||||||||||||||||
| Life Science Companies | $ | $ | $ | $ | ||||||||||||
| Other | ||||||||||||||||
| Total Revenue | $ | $ | $ | $ | ||||||||||||
NOTE 4 – 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 condensed consolidated balance sheets. 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 and six months ended June 30, 2021, 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:
8
OPTIMIZERx CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2021
NOTE 4 – LEASES (continued)
| Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | |||||||
| Operating lease cost | $ | $ | ||||||
| Short-term lease cost (1) | ||||||||
| Total lease cost | $ | $ | ||||||
| (1) | Short-term lease cost includes any lease with a term of less than 12 months. |
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 | $ | $ | ||||||
| Short-term lease cost (1) | ||||||||
| Total lease cost | $ | $ | ||||||
| (1) |
The table below presents the future minimum lease payments to be made under operating leases as of June 30, 2021:
| As of June 30, 2021 | ||||
| 2021(a) | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Total | ||||
| Less: imputed interest | ||||
| Total lease liabilities | $ | |||
(a)
9
OPTIMIZERx CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2021
NOTE 4 – LEASES (continued)
The weighted average remaining lease term at June 30, 2021 for operating
leases was
NOTE 5 – STOCKHOLDERS’ EQUITY
During the quarter ended March 31, 2021, in an underwritten primary
offering, we issued
During the quarters ended June 30, 2021 and March 31, 2021, we issued
During the quarters ended June 30, 2020, and March 31, 2020 we issued
We also issued
Our Director Compensation Plan calls for issuance of shares of common
stock each quarter to each independent director. In 2021, we issued
NOTE 6 – STOCK BASED COMPENSATION
We use the fair value method to account for stock-based compensation.
We recorded $
10
OPTIMIZERx CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2021
NOTE 6 – STOCK BASED COMPENSATION (continued)
In addition to the grants to independent Directors described in Note
5 – Stockholders’ Equity, we also recorded $
NOTE 7 – EARNINGS (LOSS) PER SHARE
Basic earnings per share (“EPS”) is computed by dividing net income (loss) by the weighted average number of common shares during the period.
The number of shares related to options, restricted stock and other similar instruments included in diluted EPS is based on the “Treasury Stock Method” prescribed in ASC 260-10, Earnings per Share. This method assumes the theoretical repurchase of shares using proceeds of the respective stock option exercised, and for restricted stock, the amount of compensation cost attributed to future services which have not yet been recognized, and the amount of current and deferred tax benefit, if any, that would be credited to additional paid in capital upon the vesting of the restricted stock, at a price equal to the issuer’s average stock price during the related earnings period. Accordingly, the number of shares includable in the calculation of EPS in respect of the stock options, restricted stock and similar instruments is dependent on this average stock price and will increase as the average stock price increases.
The following table sets forth the computation of basic and diluted earnings (loss) per share.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Numerator | ||||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Denominator | ||||||||||||||||
| Weighted average shares outstanding used in computing earnings per share | ||||||||||||||||
| Basic | ||||||||||||||||
| Effect of dilutive stock options, warrants, and unvested restricted stock awards | ||||||||||||||||
| Diluted | ||||||||||||||||
| Earnings (loss) per share | ||||||||||||||||
| Basic | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Diluted | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
No calculation of diluted earnings per share is included for either 2020 period or for the six months ended June 30, 2021, as the effect of the calculation would be antidilutive.
11
OPTIMIZERx CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2021
NOTE 7 – EARNINGS (LOSS) PER SHARE (CONTINUED)
The number of common shares potentially issuable upon the exercise of certain options or for unvested restricted stock awards are reflected in the table below.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Weighted average number of shares excluded from calculation | ||||||||||||||||
| Unvested restricted stock awards | ||||||||||||||||
| Options | ||||||||||||||||
| Total | ||||||||||||||||
NOTE 8 – CONTINGENCIES
Litigation
The Company is not currently involved in any legal proceedings.
NOTE 9 – SUBSEQUENT EVENTS
In July 2021, we received proceeds of $
In accordance with ASC 855-10, we have analyzed events and transactions that occurred subsequent to June 30, 2021 through the date these financial statements were issued and have determined that we do not have any other material subsequent events to disclose or recognize in these financial statements.
12
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 recently completed fiscal year or quarter, or through the date of this filing, we cannot estimate the impact COVID-19 will have in the future if 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 virtually 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. We opened our offices on a voluntary basis in June 2021 and we relaxed certain travel restrictions at the same time. 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.
13
Company Highlights through July 2021
| 1. | Generated sales of $13.6 million for the quarter ended June 30, 2021, a 55% increase over the same period in 2020. |
| 2. | Generated sales of $24.9 million for the six months ended June 30, 2021, a 52% increase over the same period in 2020. |
| 3. | Achieved positive cash flow from operations of $1.9 million for the six months ended June 30, 2021. |
| 4. | Launched our new Real World Evidence (“RWE”) messaging solution and generated revenue in Q2 from two leading brands. |
| 5. | Raised an additional $70.7 million of capital in a public offering. |
| 6. | Enhanced our leadership team by adding a General Counsel and Chief Compliance Officer as well as elevated the Chief Technology Officer to report directly to the CEO. |
| 7. | Committed to an inclusion and diversity pledge. |
| 8. | Enhanced our patient engagement commercial team to further scale that portion of the business. |
| Consolidated our technology centers of excellence in Zagreb, Croatia. | |
| 9. | Completed all integration work for previous two acquisitions and paid last earnout payment related to acquisitions. |
| 10. | Maintained a no travel, virtual operational plan with a particular focus on training, open communication, and great work culture. |
Results of Operations for the Three and Six Months Ended June 30, 2021 and 2020
Revenues
Our total revenue reported for the three months ended June 30, 2021 was approximately $13.6 million, an increase of 55% over the approximately $8.8 million from the same period in 2020. Our total revenue for the six months ended June 30, 2021 was approximately $24.9 million, an increase of 52% over the approximately $16.4 million from the same period in 2020. The increased revenue resulted from increases in sales in all our messaging products.
Cost of Revenues
Our cost of revenue percentage, comprised primarily of revenue share expense, decreased slightly as a percentage of revenue in the quarter ended June 30, 2021, as compared to the same period in 2020, while for the six month period ended June 30, 2021, it increased as a percentage of revenue. These changes were the result of solution mix, both as it relates to solutions itself and the partners through which the solutions are delivered. Additional discussion is included in the gross margin section below.
| Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Cost of Revenues % | 41.0 | % | 41.4 | % | 43.0 | % | 42.0 | % | ||||||||
| Gross Margin % | 59.0 | % | 58.6 | % | 57.0 | % | 58.0 | % | ||||||||
14
Gross Margin
As reflected in the table above, our gross margin increased slightly in the quarter ended June 30, 2021 compared with the prior year, but decreased slightly for the six month period then ended. This is the result of solution mix. In general, there has been an increase in the percentage of activity flowing through our higher cost channels compared with a year ago. In the second quarter, this was offset by the launch of our RWE solution. Our RWE solution includes a much higher percentage of program design, which carries a higher margin than the delivery of the actual messages. We expect our gross margin to improve on a quarter over quarter basis for the balance of the year as our RWE solution expands and we continue to launch new solutions that have higher margins.
Operating Expenses
Operating expenses increased from approximately $6.2 million for the three months ended June 30, 2020 to approximately $7.7 million for the same period in 2021. Operating expenses increased from approximately $12.8 million for the six months ended June 30, 2020 to approximately $14.5 million for the same period in 2021. 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. Our expenses increased at a substantially lower rate than our revenues as a result of the operating leverage of our model. The detail of expenditures by major category is reflected in the table below.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Salaries, Wages, & Benefits | $ | 3,906,796 | $ | 3,176,460 | $ | 7,487,612 | $ | 6,382,597 | ||||||||
| Stock-Based Compensation | 897,038 | 780,670 | 1,604,191 | 1,635,183 | ||||||||||||
| Contractors and Consultants | 486,577 | 560,991 | 785,963 | 1,022,236 | ||||||||||||
| Travel | 48,925 | 13,111 | 58,755 | 287,622 | ||||||||||||
| Board Compensation | 61,250 | 51,375 | 122,500 | 102,750 | ||||||||||||
| Professional Fees | 448,598 | 186,834 | 769,818 | 672,304 | ||||||||||||
| Investor Relations | 51,019 | 28,677 | 97,306 | 48,127 | ||||||||||||
| Advertising and Promotion | 255,680 | 154,166 | 384,565 | 289,068 | ||||||||||||
| Technology Infrastructure Costs | 256,291 | 218,079 | 469,570 | 399,791 | ||||||||||||
| Integration and Exclusivity Costs | 244,600 | 207,973 | 563,158 | 415,946 | ||||||||||||
| Data Costs | 257,484 | 72,942 | 545,396 | 124,554 | ||||||||||||
| Office, Facility, and Other | 262,320 | 227,955 | 524,480 | 381,477 | ||||||||||||
| Depreciation and Amortization | 527,958 | 520,794 | 1,054,138 | 1,040,463 | ||||||||||||
| Total Operating Expense | $ | 7,704,536 | $ | 6,200,027 | $ | 14,467,452 | $ | 12,802,118 | ||||||||
The increase in operating expenses related to salaries, wages, and benefits and other human resource related costs is due to the expansion of our team to support additional growth. This increase is partly offset by the decrease in contractors and consultants, as we have brought functions in house that were previously performed by outsiders.
We expect salaries, wages, and benefits to continue to increase on a quarter over quarter basis for the balance of the year due to the full impact of new hires already in place, as well as new hires in the pipeline.
Travel expense is down significantly on a year to date basis as a result of travel restrictions due to the pandemic. We expect travel expense to increase significantly starting in the third quarter of the year due to relaxed travel restrictions and pent up demand for meetings and visits.
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Professional fees increased significantly in the second quarter of 2021 compared with the prior year. With the assistance of an outside legal firm, we undertook a comprehensive governance review of our bylaws, board charters, equity compensation plan, and overall corporate policies. This review resulted in approximately $300,000 of expense in the second quarter. In the six month period ended June 30, 2021, this was partially offset by reduced audit fees as a result of our change in auditors, as well as a change in SEC rules that eliminated the need for a third-party opinion on our internal controls. We would expect professional fees to decrease from the second quarter level for the balance of the year.
Investor relations expense increased due to the expansion of our communication efforts to reach retail investors and expand our shareholder base.
Technology infrastructure costs increased due to continued investment in our operating systems to facilitate new products as well as the implementation of additional software products to increase efficiency and information dissemination.
Data costs increased as we have purchased more data, primarily to aid in our selling effort and allow customers to target their messages more appropriately, thereby increasing our ability to charge premium prices for more highly targeted messages.
Integration and exclusivity costs represent payments to partners for access and/or exclusivity and increased because of new agreements signed after the first quarter of 2020. 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.
Our office, facility and other expense increased primarily because of increased activity. The largest single increase related to hiring expenses associated with expanding our team, both for new additions so far, as well as new hires scheduled for the future, including recruiter fees in some instances.
All other variances in the table above are the result of normal fluctuations in activity.
We expect our overall operating expenses to increase on a quarterly basis for the balance of the year 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, however we do expect to continue to add people to accelerate our growth and invest in future growth.
Net Income (Loss)
We had net income of $0.4 million for the three months ended June 30, 2021, as compared to a net loss of $1.1 million during the same period in 2020. We had a loss of approximately $0.3 million for the six months ended June 30, 2021, as compared to net loss of approximately $3.3 million during the same period in 2020. The reasons and specific components associated with the change are discussed above. Overall, the net income for second quarter of 2021 and decreased loss for the six month period resulted from the increased margin generated by our higher revenues, partially offset by the increased operating expenses.
Liquidity and Capital Resources
As of June 30, 2021, we had total current assets of $105.0 million, compared with current liabilities of $6.7 million, resulting in working capital of approximately $98.3 million and a current ratio of 15.7 to 1. This represents an increase from our working capital of approximately $23 million and current ratio of 3 to 1 at December 31, 2020.
Our operating activities provided approximately $1.9 in cash flow during the six months ended June 30, 2021, compared with cash used of approximately $3.6 million in the same period in 2020. The cash provided in the 2021 period was the result of our net loss increased by noncash expenses, partially offset by working capital used in the reduction of liabilities. 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 was expensed over the balance of the year.
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We used insignificant amounts in investing activities in both the six months ended June 30, 2021 and 2020. These investments related to purchases of equipment as well as investments related to the expansion of our network capabilities in our patient engagement solution.
Our financing activities provided $71.8 million in the six months ended June 30, 2021, compared with cash used of approximately $1.1 million in the same period in 2020. We raised $70.7 million in a public offering of our common stock as well as generated $2.7 million from the issuance of shares related to the exercise of stock options. These were partially offset by the payment of $1.6 in earnout payments from a previous acquisition. We have no remaining earnout payments due in the future. Financing activities used approximately $1.3 million related to earnout payments from a previous acquisition, offset by $0.3 million from the issuance of shares related to the exercise of stock options.
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, 2020; 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 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 was effective for annual and interim reporting periods beginning after December 12, 2020, with early adoption permitted. 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 June 30, 2021, 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.
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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 this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the material information required to be included in our SEC reports is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms relating to our company, including, our consolidated subsidiaries, and was made known to them by others within those entities, particularly during the period when this report was being prepared.
Changes in Internal Control over Financial Reporting
During the quarter ended June 30, 2021, we made routine ongoing improvements in our internal control and processes and hired an additional finance department team member, however, no 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 error 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.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
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.
Item 1A: Risk Factors
See risk factors included in our Annual Report on Form 10-K for 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the quarter ended June 30, 2021, we issued 2,035 shares of restricted common stock to our independent directors in connection with our Director Compensation Plan. We also issued a total 232,806 shares of stock in connection with the exercise of options.
In July 2021, we issued 123,178 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
Item 5. Other Information
None
Item 6. Exhibits
| ** | Provided herewith |
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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: August 4, 2021 | ||
| By: | /s/ William J. Febbo | |
| William J. Febbo | ||
| Title: | Chief Executive Officer, Principal Executive Officer, and Director | |
| OptimizeRx Corporation | ||
| Date: August 4, 2021 | ||
| By: | /s/ Douglas P. Baker | |
| Douglas P. Baker | ||
| Title: | Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer | |
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