Item 1A. Risk Factors
Risks Relating to Our Business
Because we have historically experienced
losses, if we are unable to achieve profitability, our financial condition and company could suffer.
With the exception of 2021, we have historically
incurred losses as a result of investing in future growth. We incurred losses in 2022 as a result of our increased spending to build the
organization to support expected future growth – both through additional new hires, as well as through acquisitions. While we have
increased revenues, we have not yet consistently achieved profitability due to these investments and non-cash expenses. Our ability to
achieve consistent profitability depends on our ability to generate sales through our technology platform and advertising model, while
maintaining reasonable expense levels. If we do not achieve sustainable profitability, it may impact our ability to continue our operations.
Seasonal trends in the pharmaceutical brand marketing industry
could affect our operating results.
In general, the pharmaceutical brand marketing
industry experiences seasonal trends that affect the vast majority of participants in the pharmaceutical digital marketing industry. Many
pharmaceutical companies allocate the largest portion of their brand marketing to the fourth quarter of the calendar year. As a result,
the first quarter tends to reflect lower activity levels and lower revenue, with gradual increases in the following quarters. We generally
expect these seasonality trends to continue and our ability to effectively manage our resources in anticipation of these trends may affect
our operating results.
5
Developing and implementing new and updated
applications, features and services for our portals may be more difficult than expected, may take longer and cost more than expected and
may not result in sufficient increases in revenue to justify the costs.
Attracting and retaining users of our portals
requires us to continue to improve the technology underlying those portals and to continue to develop new and updated applications, features
and services for those portals. If we are unable to do so on a timely basis or if we are unable to implement new applications, features
and services without disruption to our existing ones, we may lose potential users and clients. The costs of development of these enhancements
may negatively impact our ability to achieve profitability.
We rely on a combination of internal development,
strategic relationships, licensing and acquisitions to develop our portals and related applications, features and services. Our development
and/or implementation of new technologies, applications, features and services may cost more than expected, may take longer than originally
expected, may require more testing than originally anticipated and may require the acquisition of additional personnel and other resources.
There can be no assurance that the revenue opportunities from any new or updated technologies, applications, features or services will
justify the amounts spent.
Any failure to offer high-quality customer
support for our portals may adversely affect our relationships with our customers and harm our financial results.
Once our solutions are implemented, our customers
use our support organization to resolve technical issues relating to our solutions. In addition, we also believe that our success in selling
our solutions is highly dependent on our business reputation and on favorable recommendations from our existing customers. Any failure
to maintain high-quality customer support, or a market perception that we do not maintain high-quality support, could harm our reputation,
adversely affect our ability to maintain existing customers or sell our solutions to existing and prospective customers, and harm our
business, operating results and financial condition.
We may be unable to respond quickly enough to
accommodate short-term increases in customer demand for support services. Increased customer demand for these services, without corresponding
revenues, could also increase costs and adversely affect our operating results.
We are dependent on a concentrated group
of customers.
Because the pharmaceutical industry is dominated
by large companies with multiple brands, our revenue is concentrated in a relatively small number of companies. We have approximately
100 pharmaceutical manufacturers as customers, and our revenues are concentrated in these customers. Loss of one or more of our larger
customers could have a negative impact on our operating results. Our top five customers represented 39% of revenue for the year ended
December 31, 2022. In each of 2022 and 2021, we had one customer that each represented slightly over 10% of our revenues.
We expect that we will continue to depend upon
a relatively small number of customers for a significant portion of our total revenues for the foreseeable future. The loss of any of
these customers or groups of customers for any reason, or a change of relationship with any of our key customers could cause a material
decrease in our total revenues.
Additionally, mergers or consolidations among
our customers in the healthcare industry could reduce the number of our customers and could adversely affect our revenues and sales. In
particular, if our customers are acquired by entities that are not also our customers, that do not use our solutions or that have more
favorable contract terms with competitors and choose to discontinue, reduce or change the terms of their use of our solutions, our business
and operating results could be materially and adversely affected.
6
If we are unable to maintain our contracts
with electronic prescription platforms, our business will suffer.
We are reliant upon our contracts with leading
electronic prescribing (“ERx”) platforms and electronic health record (“EHR”) systems to generate our revenues received
from customers. Such arrangements subject us to a number of risks, including the following:
We will need to maintain these relationships as
well as diversify them. The inability to do so could adversely impact our business. We generated 31.8% and 53.9% of our revenue through
our largest partner in 2022 and 2021, respectively.
Our agreements with ERx and EHR channel
partners are subject to audit.
Our agreements with our ERx and EHR channel partners
provide for revenue sharing payments to them based on the revenue we generate through their platforms and systems. These payments are
subject to audit by our channel partners, at their cost, and if there is a dispute as to the calculation, we may be liable for additional
payments. If an underpayment is determined to be in excess of a certain amount, for example 10%, some agreements would require us to pay
for the cost of the audit, as well.
If we fail to attract new customers or retain
and expand existing customers, our business and future prospects may be materially and adversely impacted.
We currently work with many leading pharmaceutical
companies, medical device manufacturers, associations, and other companies. While we have experienced customer growth, this growth may
not continue at the same pace in the future or at all. Achieving growth in our customer base may require us to engage in increasingly
sophisticated and costly sales and marketing efforts that may not result in additional customers. We may also need to modify our pricing
model to attract and retain such customers. If we fail to attract new customers or fail to maintain or expand existing relationships in
a cost-effective manner, our business and future prospects may be materially and adversely impacted.
Actual or perceived failures to comply with
applicable laws and regulations that affect the healthcare industry, including data protection, privacy and security, fraud and abuse
laws, regulations, standards and other requirements could adversely affect our business, results of operations, and financial condition.
The global data protection landscape is rapidly
evolving, and we are or may become subject to numerous state, federal and foreign laws, requirements and regulations governing the collection,
use, disclosure, retention, and security of personal information, including health-related information. This evolution may create uncertainty
in our business, affect our ability to operate in certain jurisdictions or to collect, store, transfer, use and share personal information,
necessitate the acceptance of more onerous obligations in our contracts, result in liability or impose additional costs on us. The cost
of compliance with these laws, regulations and standards is high and is likely to increase in the future. Any failure or perceived failure
by us to comply with federal, state or foreign laws or regulation, our internal policies and procedures or our contracts governing our
processing of personal information could result in negative publicity, government investigations and enforcement actions, claims by third
parties, and damage to our reputation, any of which could have a material adverse effect on our operations, financial performance and
business.
7
We also may be bound by contractual obligations
and other obligations relating to privacy, data protection, and information security that are more stringent than applicable laws and
regulations. The costs of compliance with, and other burdens imposed by, laws, regulations, standards, and other obligations relating
to privacy, data protection, and information security are significant. Although we work to comply with applicable laws, regulations, and
standards, our contractual obligations and other legal obligations, these requirements are evolving and may be modified, interpreted and
applied in an inconsistent manner from one jurisdiction to another, and may conflict with another or other legal obligations with which
we must comply. Accordingly, our failure, or perceived inability, to comply with these laws, regulations, standards, and other obligations
may limit the use and adoption of our solution, reduce overall demand for our solution, lead to regulatory investigations, breach of contract
claims, litigation, and significant fines, penalties, or liabilities for actual or alleged noncompliance or slow the pace at which we
close sales transactions, any of which could harm our business.
The Health Insurance Portability and Accountability
Act of 1996, or HIPAA, and the rules promulgated thereunder require certain entities, referred to as Covered Entities, to comply with
established standards, including standards regarding the privacy and security of protected health information, or PHI. HIPAA further requires
that Covered Entities enter into agreements meeting certain regulatory requirements with their business associates, as such term is defined
by HIPAA, which, among other things, obligate the business associates to safeguard the covered entity’s PHI against improper use
and disclosure. While we are not a Covered Entity, we have contracted as a business associate of our Covered Entity customers and, as
such, may be regulated by HIPAA and have contractual obligations unders such agreements, including to enter into business associate agreements
with our third-party vendors. We, and our Covered Entity customers might face significant contractual liability pursuant to such business
associate agreements if the business associate breaches the agreement or causes the Covered Entity to fail to comply with HIPAA. It is
possible that HIPAA compliance could become a substantial regulatory burden and expense to our operations as we expand our point of care
technology solutions to help patients start and stay on therapies.
Certain other laws and regulations such as federal
and state anti-kickback and false claims laws may apply to us indirectly through our relationships with our customers and partners. Violations
can result in considerable penalties and sanctions. If we are found to have violated, or to have facilitated the violation of such laws,
we could be subject to significant penalties.
The markets in which we operate are competitive,
continually evolving and, in some cases, subject to rapid change.
Our platforms face competition from numerous other
companies, both in attracting users and in generating revenue from advertisers and sponsors. We compete for users with online services
and websites that provide savings on medications and healthcare products, including both commercial sites and not-for-profit sites. We
compete for advertisers and sponsors with health-related web sites, general purpose consumer web sites that offer specialized health sub-channels,
other high-traffic web sites that include both healthcare-related and non-healthcare-related content and services, search engines that
provide specialized health searches, and advertising networks that aggregate traffic from multiple sites.
Many of our competitors have greater financial,
technical, product development, marketing and other resources than we do. These organizations may be better known than we are and have
more customers or users than we do. We cannot provide assurance that we will be able to compete successfully against these organizations
or any alliances they have formed or may form. Since there are no substantial barriers to entry into the markets in which our public portals
participate, we expect that competitors will continue to enter these markets.
Developments in the healthcare industry
could adversely affect our business.
Most of our revenue is derived from pharmaceutical
manufacturers and could be affected by changes affecting the broader healthcare industry, including decreased spending in the industry
overall.
General reductions in expenditures by healthcare
industry participants could result from, among other things:
● Consolidation of healthcare industry participants;
● Reductions in governmental funding for healthcare; and
8
Even if general expenditures by industry participants
remain the same or increase, developments in the healthcare industry may result in reduced spending in some or all of the specific market
segments that we serve now or may serve in the future. For example, use of our solutions and services could be affected by:
● A decrease in the number of new drugs or medical devices coming to market; and
The healthcare industry has changed significantly
in recent years and we expect that significant changes will continue to occur. However, the timing and impact of developments in the healthcare
industry are difficult to predict. We cannot assure you that the demands for our solutions and services will continue to exist at current
levels or that we will have adequate technical, financial and marketing resources to react to changes in the healthcare industry.
If we are unable to manage growth, our operations
could be adversely affected.
Our ability to manage growth effectively will
depend on our ability to improve and expand operations, including our financial and management information systems, and to recruit, train
and manage personnel. There can be no assurance that management will be able to manage growth effectively. To manage growth effectively,
we will be required to continue to implement and improve our operating and financial systems and controls to expand, train and manage
our employee base. Our ability to manage our operations and growth effectively will require us to continue to expend funds to enhance
our operational, financial and management controls, reporting systems and procedures, and to attract and retain sufficient talented personnel.
If we do not properly manage the growth of our
business, we may experience significant strains on our management and operations and disruptions in our business. Various risks arise
when companies grow too quickly. If our business grows too quickly, our ability to meet customer demand in a timely and efficient manner
could be challenged. We may also experience development delays as we seek to meet increased demand for our solutions. Our failure to properly
manage the growth that we or our industry might experience could negatively impact our ability to execute on our operating plan and, accordingly,
could have an adverse impact on our business, our cash flow and results of operations, and our reputation with our current or potential
customers.
Our growth may be impacted by acquisitions.
We may not be able to identify suitable acquisition candidates, complete acquisitions or integrate acquisitions successfully.
Our future growth is likely to depend to some
degree on our ability to acquire and successfully integrate new businesses. We may not be able to identify suitable acquisition candidates,
complete acquisitions, or integrate acquisitions successfully. We may seek additional acquisition opportunities, both to further diversify
our business and to penetrate or expand important product offerings or markets. There are no assurances, however, that we will be able
to successfully identify suitable candidates, negotiate appropriate terms, obtain financing on acceptable terms, complete proposed acquisitions,
successfully integrate acquired businesses, or expand into new markets. Once acquired, operations may not achieve anticipated levels of
revenues or profitability. Acquisitions involve risks, including difficulties in the integration of the operations, technologies, services
and products of the acquired companies and the diversion of management’s attention from other business concerns. Although our management
will endeavor to evaluate the risks inherent in any particular transaction, there are no assurances that we will properly ascertain all
such risks. Difficulties encountered with acquisitions could have a material adverse impact on our business.
9
Our business and growth may suffer if we
are unable to attract and retain members of our senior management team and other key employees.
Our success has been largely dependent on the
skills, experience and efforts of our senior management team and key employees and the loss of the services of any of our senior management
team or other key employees, without a properly executed transition plan, could have an adverse effect on us. The loss of any member of
our senior management team or any of our other key employees could damage critical customer relationships, result in the loss of vital
knowledge, experience and expertise, could lead to an increase in recruitment and training costs and make it more difficult to successfully
operate our business and execute our business strategy. We may not be able to find qualified potential replacements for these individuals
and the integration of potential replacements may be disruptive to our business.
Furthermore, our ability to expand operations
to accommodate our anticipated growth will also depend on our ability to attract and retain qualified management, sales and technical
personnel. However, competition for these types of employees is intense due to the limited number of qualified professionals. Our ability
to meet our business development objectives will depend in part on our ability to recruit, train and retain top quality people with advanced
skills who understand our industry, technology and business. If we are unable to engage and retain the necessary personnel, our business
may be materially and adversely affected.
We could be subject to economic, political,
regulatory and other risks arising from our international operations.
Operating in international markets requires significant
resources and management attention and will subject us to regulatory, economic and political risks that may be different from and incremental
to those in the United States. In addition to the risks that we face in the United States, our international operations in Israel and
Croatia, may involve risks that could adversely affect our business, including:
● unexpected changes in regulatory requirements;
● less favorable foreign intellectual property laws;
● profit repatriation and other restrictions on the transfer of funds;
● new and different sources of competition; and
Our failure to manage any of these risks successfully
could harm our international operations and our overall business, as well as results of our operations.
10
A global pandemic may disrupt our business
or the business of our customers.
In December 2019, a novel strain of corona virus,
which causes the infectious disease known as COVID-19 was reported. The World Health Organization declared COVID-19 a Public Health Emergency
and Global Pandemic. Although many economies around the world have started to rebound from the severe impact of COVID-19, the healthcare
industry in which we operate remains impacted. The emergence and spread of new variants and resurgences, or other epidemics or pandemics,
actions taken by governmental authorities and others in response to the pandemic, the acceptance, and the ability of pharmaceutical manufacturers
and other life sciences companies to develop effective and safe treatment, and global economic conditions could affect the desire and/or
need for our solutions. We are prepared to take steps to modify our business practices and mitigate the impact of the emergence and spread
of new variants and resurgences, or another pandemic or epidemic; however, there can be no assurance that such steps will be successful,
or that our business operations, or the operations of our customers or partners will not be materially and adversely affected by the consequences
of such pandemic or epidemic, which could materially impact our results of operations, cash flows, and financial condition.
Risks Related to Inflation and Other Adverse
Economic Conditions
Inflation and other adverse economic conditions
may adversely affect our business, results of operations and financial condition.
Recently, inflation has increased throughout the
U.S. economy. In an inflationary environment, we may experience increases in the prices of labor and other costs of doing business. Additionally,
cost increases may outpace our expectations, causing us to use our cash and other liquid assets faster than forecasted. If we are unable
to successfully manage the effects of inflation, our business, operating results, cash flows and financial condition may be adversely
affected.
The occurrence or perception of an economic slowdown
or recession, or of a further increase in inflation, may have a negative impact on the global economy and may reduce customer demand for
our products and services. In addition, macroeconomic effects such as increases in interest rates and other measures taken by central
banks and other policy makers could have a negative effect on overall economic activity that could reduce our customers’ demand
for our products and serves. Adverse changes in demand could impact our business, collection of accounts receivable and our expected cash
flow generation, which may adversely impact our financial condition and results of operations.
Risks Related to Our Intellectual Property
and Technology
We are dependent, in part, on our intellectual
property. If we are not able to protect our proprietary rights or if those rights are invalidated or circumvented, our business may be
adversely affected.
Our business is dependent, in part, on our ability
to innovate, and, as a result, we are reliant on our intellectual property. We generally protect our intellectual property through patents,
trademarks, trade secrets, confidentiality and nondisclosure agreements and other measures to the extent our budget permits. There can
be no assurance that patents will be issued from pending applications that we have filed or that our patents will be sufficient to protect
our key technology from misappropriation or falling into the public domain, nor can assurances be made that any of our patents, patent
applications, trademarks or our other intellectual property or proprietary rights will not be challenged, invalidated or circumvented.
In the event a competitor or other party successfully challenges our solutions, processes, patents or licenses or claims that we have
infringed upon their intellectual property, we could incur substantial litigation costs defending against such claims, be required to
pay royalties, license fees or other damages or be barred from using the intellectual property at issue, any of which could have a material
adverse effect on our business, operating results and financial condition. We cannot assure you that steps taken by us to protect our
intellectual property and other contractual agreements for our business will be adequate, that our competitors will not independently
develop or patent substantially equivalent or superior technologies or be able to design around patents that we may receive, or that our
intellectual property will not be misappropriated.
If we are unable to protect our proprietary rights,
we may be at a disadvantage to others who do not incur the substantial time and expense we incur. Preventing unauthorized use or infringement
of our intellectual property rights is inherently difficult. Moreover, it may be difficult or practically impossible to detect theft or
unauthorized use of our intellectual property. Any of the foregoing could have a material adverse effect upon our business, financial
condition and results of operations.
11
Cybersecurity incidents could disrupt business
operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations.
Global cybersecurity threats can range from uncoordinated
individual attempts to gain unauthorized access to our information technology (IT) systems to sophisticated and targeted measures known
as advanced persistent threats. While we employ comprehensive measures to prevent, detect, address and mitigate these threats (including
access controls, insurance, vulnerability assessments, continuous monitoring of our IT networks and systems, maintenance of backup and
protective systems and user training and education), cybersecurity incidents, depending on their nature and scope, could potentially result
in the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our own
or that of third parties) and the disruption of business operations. The potential consequences of a material cybersecurity incident include
reputational damage, loss of customers, litigation with customers and other parties, loss of trade secrets and other proprietary business
data and increased cybersecurity protection and remediation costs, which in turn could adversely affect our competitiveness and results
of operations.
We may be unable to support our technology
to further scale our operations successfully.
Our plan is to grow through further integration
of our technology in electronic platforms. Our growth will place significant demands on our management and technology development, as
well as our financial, administrative and other resources. We cannot guarantee that any of the systems, procedures and controls we put
in place will be adequate to support the commercialization of our operations. Our operating results will depend substantially on the ability
of our officers and key employees to manage changing business conditions and to implement and improve our financial, administrative and
other resources. If we are unable to respond to and manage changing business conditions, or the scale of our solutions, services and operations,
then the quality of our services, our ability to retain key personnel and our business could be harmed.
Our business will suffer if our network
systems fail or become unavailable.
A reduction in the performance, reliability and
availability of our network infrastructure would harm our ability to distribute our solutions to our users, as well as our reputation
and ability to attract and retain customers. Our systems and operations could be damaged or interrupted by fire, flood, power loss, telecommunications
failure, Internet breakdown, earthquake and similar events. Our systems could also be subject to viruses, break-ins, sabotage, acts of
terrorism, acts of vandalism, hacking, cyber-terrorism and similar misconduct. We might not carry adequate business interruption insurance
to compensate us for losses that may occur from a system outage. Any system error or failure that causes interruption in availability
of our solutions or an increase in response time could result in a loss of potential customers, which could have a material adverse effect
on our business, financial condition and results of operations. If we suffer sustained or repeated interruptions, then our solutions and
services could be less attractive to our users and our business would be materially harmed.
Risks Relating to Our Common Stock
If a market for our common stock is not
maintained, shareholders may be unable to sell their shares.
Our common stock is traded under the symbol “OPRX”
on the Nasdaq Capital Market. We do not currently have a consistent active trading market. There can be no assurance that a consistent
active and liquid trading market will develop or, if developed, that it will be sustained.
Historically, our securities have been thinly
traded. Accordingly, it may be difficult to sell shares of our common stock without significantly depressing the value of the stock. Unless
we are successful in developing continued investor interest in our stock, sales of our stock could continue to result in major fluctuations
in the price of the stock.
12
The market price of our common stock may
be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control.
Our stock price is subject to a number of factors,
including:
● Government regulation of our solutions and services;
● The establishment of partnerships with other healthcare companies;
● Intellectual property disputes;
● Additions or departures of key personnel;
● Sales of our common stock;
● Our ability to execute our business plan;
● Operating results below or exceeding expectations;
● Our operating and financial performance and prospects;
● Loss or addition of any strategic relationship;
● Period-to-period fluctuations in our financial results.
Our stock price may fluctuate widely as a result
of any of the above. In addition, the securities markets have from time to time experienced significant price and volume fluctuations
that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect
the market price of our common stock.
We do not expect to pay dividends in the
foreseeable future and any return on investment may be limited to the value of our common stock.
We have never declared or paid any cash dividends
on our common stock. We currently intend to retain all available funds and future earnings, if any, to fund our future growth and do not
expect to declare or pay any dividend on shares of our common stock in the foreseeable future. As a result, the success of an investment
in our common stock may depend entirely upon any future appreciation in its value. There is no guarantee that our common stock will appreciate
in value or even maintain the price at which it is purchased.
Anti-takeover provisions may make it more
difficult for a third party to acquire control of us, even if the change in control would be beneficial to shareholders.
The Company is a Nevada corporation. Anti-takeover
provisions in Nevada law and our charter and bylaws could make it more difficult for a third party to acquire control of us. These provisions
could adversely affect the market price of the common stock and could reduce the amount that shareholders might receive if the Company
is sold. For example, our charter provides that the board of directors may issue preferred stock without shareholder approval. In addition,
our bylaws provide that shareholders cannot act by written consent and that directors may be removed by shareholders only with the approval
of the holders of not less than two-thirds of the voting power of the issued and outstanding stock entitled to vote at an annual or special
meeting of the shareholders.
Risks Related to Being a Public Company
We have identified a material weakness in
our internal control over financial reporting. Failure to remediate the material weakness or any other material weaknesses that we identify
in the future could result in material misstatements in our financial statements.
Pursuant to Section 404 of the Sarbanes-Oxley
Act of 2002, as amended, our management is required to report on the effectiveness of our internal control over financial reporting. The
rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and
require significant documentation, testing and possible remediation. Annually, we perform activities that include reviewing, documenting
and testing our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over
financial reporting, we will not be able to conclude on an ongoing basis that we have effective internal control over financial reporting
in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. If we fail to achieve and maintain an effective internal control environment,
we could suffer misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors
to lose confidence in our reported financial information. This could result in significant expenses to remediate any internal control
deficiencies and lead to a decline in our stock price.
13
The Company has identified a material weakness
in the Company’s 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 a company’s
annual or interim financial statements will not be prevented or detected on a timely basis. For further discussion of the material weaknesses,
see Item 9A, Controls and Procedures.
We cannot provide assurance that we have identified
all, or that we will not in the future have additional, material weaknesses in our internal control over financial reporting. As a result,
we may be required to implement further remedial measures and to design enhanced processes and controls to address deficiencies. If we
do not effectively remediate the material weakness identified by management and maintain adequate internal controls over financial reporting
in the future, we may not be able to prepare reliable financial reports and comply with our reporting obligations under the Exchange
Act on a timely basis. Any such delays in the preparation of financial reports and the filing of our periodic reports may result in a
loss of public confidence in the reliability of our financial statements, which, in turn, could materially adversely affect our business,
the market value of our common stock and our access to capital markets.
Item 1B. Unresolved Staff comments
None
Item 2. Properties
Currently, we do not own any real estate. Our
principal executive offices are located at 400 Water Street, Suite 200, Rochester, Michigan 48307.
As of December 31, 2022, we have operating
leases for office space in two multitenant facilities. The leases include our headquarters space in Rochester, Michigan and a technical
facility in Zagreb, Croatia. The lease in Rochester, Michigan expires November 30, 2023, with a two-year renewal option through 2025,
and has a monthly rent of $6,384 to $6,688. The lease in Zagreb, Croatia expires February 2024 and has a monthly rent of approximately
$1,883. We also had a lease on office space in Cranbury, New Jersey which expired in January 2022; we did not renew this lease. We also
lease minor amounts of space in shared space facilities on a month-to-month basis as necessary.
Item 3. Legal Proceedings
We have no current legal proceedings.
Item 4. Mine Safety Disclosures
Not applicable.
Item 4.1 Information About Our Executive Officers
The following information sets forth the names,
ages, and positions of our executive officers as of March 10, 2023.
Name Age Positions and Offices Held
William J. Febbo 54 Chief Executive Officer
Stephen L. Silvestro 45 Chief Commercial Officer
Marion Odence-Ford 58 General Counsel and Chief Compliance Officer
Edward Stelmakh 57 Chief Financial Officer and Chief Operations Officer
Todd Inman 67 Chief Technology Officer
Doug Besch 41 Chief Product Officer
Set forth below is a brief description of the
background and business experience of each of our current executive officers.
14
William J. Febbo
Mr. Febbo joined the Company as Chief Executive
Officer and as a director in February 2016. Mr. Febbo founded Plexuus, LLC, a payment processing business for medical professionals in
September 2015 and remained its Chairman from September 2015 to December 2020. From April 2007 to September 2015, Mr. Febbo served as
Chief Operating Officer of Merriman Holdings, Inc., an investment banking firm, where he assisted with capital raises in the tech, biotech,
cleantech, consumer and resources industries. Mr. Febbo was a co-founder of, and from September 2013 to September 2015 served as Chief
Executive Officer of, Digital Capital Network, Inc., a transaction platform for institutional and accredited investors. Mr. Febbo was
a co-founder of, and from January 1999 to September 2015 was Chief Executive Officer of, MedPanel, LLC, a provider of market intelligence
and communications for the pharmaceutical, biomedical, and medical device industries. Since 2017, Mr. Febbo has been a faculty member
of the Massachusetts Institute of Technology’s linQ program, which is a collaborative initiative focused on increasing the potential
of innovative research to benefit society and the economy. Mr. Febbo currently serves as a director of Modular Medical (NASDAQ: MODD),
a development stage medical device company focused on the design, development and eventual commercialization of an innovative insulin
pump, and as a director of Augmedix, Inc. (NASDAQ: AUGX), a provider of automated medical
documentation and data services. In addition, Mr. Febbo has been a board member of the United Nations Association of Greater Boston, a
resource for the citizens of Greater Boston on the broad agenda of critical global issues addressed by the UN and its agencies, since
2004.
On January 29, 2018, FINRA accepted a Letter of
Acceptance, Waiver and Consent (the “Consent”) submitted by William Febbo. Without admitting or denying the findings, Mr.
Febbo consented to the sanctions and to the entry of findings that he permitted Merriman Capital, Inc. to conduct a securities business
while below its net capital requirement. From August 2012 to October 2015, Mr. Febbo was the Financial and Operations Principal (FinOp)
for a registered broker-dealer, Merriman Capital, Inc. (“Merriman”). During certain months while Mr. Febbo was FinOp, FINRA
found that certain of Merriman’s net capital filings with FINRA were inaccurate because of the method by which Merriman calculated
net capital and that, when corrected, it was retroactively determined that Merriman had operated below its minimum net capital requirements.
Mr. Febbo, as FinOp, signed certain of these reports and was thus held responsible. Based on the Consent, in settlement, Mr. Febbo, who
was then no longer registered with any broker-dealer, accepted a fine of $5,000, a 10-business day suspension from acting as FinOp for
any FINRA member and required to requalify by examination for the Series 27 license before again acting in a FinOp capacity.
Stephen L. Silvestro
Mr. Silvestro joined the Company as Chief Commercial
Officer on April 29, 2019. Mr. Silvestro was with CCH® Tagetik, a Wolters Kluwer company that provides corporate performance management
software solutions for planning, consolidation and reporting, as its Vice President and General Manager from January 2018 until April
2019. From April 2017 to January 2018, Mr. Silvestro was with Prognos Health, Inc., a healthcare data and analytics company, as its Chief
Commercial Officer and, before that, from September 2007 to April 2017, he was with Decision Resources Group, a multi-national corporation
that provides high value global data solutions, analytics and consulting services to pharmaceutical, biotech, medical device, healthcare
provider and payer, and managed care companies, in various capacities with him last serving as Executive Vice President, Head of Global
Sales.
Marion Odence-Ford
Ms. Odence-Ford joined the Company as General
Counsel & Chief Compliance Officer in February 2021. From April 2013 to June 2020, Ms. Odence-Ford was Vice President & Deputy
General Counsel at Decision Resources Group, a multi-national corporation that provides high value global data solutions, analytics and
consulting services to pharmaceutical, biotech, medical device, healthcare provider and payer, and managed care companies. From November
2004 to November 2012, Ms. Odence-Ford was Vice President & Associate General Counsel at CRA International, Inc. (dba Charles River
Associates) (NASDAQ: CRAI), a global consulting firm that offers economic, financial, and strategic expertise to major law firms, corporations,
accounting firms, and governments around the world. From May 2004 to November 2004, Ms. Odence-Ford was a member of the GTC Law Group,
LLP, a law firm specializing in the business affairs of companies in the high tech and biotech industries. Prior to joining the GTC Law
Group, Ms. Odence-Ford worked on the legal teams of Bank of America Corporation/Fleet Boston Financial Corporation (NYSE: BAC) from November
2002 to May 2004, and Akamai Technologies, Inc. (NASDAQ: AKAM) from October 1999 to November 2002. Ms. Odence-Ford began her legal career
in private practice at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, PC, where she advised public and private companies on corporate
matters.
15
Edward Stelmakh
Mr. Stelmakh joined the Company as Chief Financial
Officer and Chief Operating Officer on October 11, 2021. Prior to joining the Company, Mr. Stelmakh served as Senior Vice President, Chief
Financial Officer and Chief Operating Officer of Otsuka America Pharmaceuticals Inc. (“Otsuka”), a US division of a Japanese
global healthcare enterprise, since April 2020. Previously, he held various positions at Otsuka including Senior Vice President and Chief
Financial Officer (December 2017 – March 2020) and Vice President and Chief Financial Officer (December 2015 – November 2017).
From March 2010 to December 2015, Mr. Stelmakh worked at Covance, a division of LabCorp, Inc., as Vice President, Finance, Clinical Development
and Commercialization Services. Prior thereto, Mr. Stelmakh held a variety of positions of increasing responsibilities at Johnson &
Johnson, Sanofi-Aventis, Organon/Schering-Plough and Mylan.
Todd Inman
Mr. Inman joined the Company on January 1, 2019
as Vice President, Technology and became the Company’s Chief Technology Officer in November 2019. Prior to joining the Company,
from May 2017 to December 2018, Mr. Inman was the Founder and Chief Technology Officer of Meghadata, LLC, a master data management firm,
and from July 2016 to December 2017, Mr. Inman was the Founder and Managing Partner of Data Solutions Partners, a data intelligence solutions
company. From January 2011 through June 2016, Mr. Inman was Director of Data Solutions at Change HealthCare, a healthcare technology and
business solutions company, and from 2005 to 2011, Mr. Inman was the Director of Data Integration of Emdeon Business Services, LLC, an
information technology and services company. Prior to Emdeon, from 2001 to 2005, Mr. Inman was the Director of Clearinghouse Services
at WebMD Health Corp and, from 1996 to 2001, he was the Manager of Clearinghouse Operations at Professional Office Systems, a CareFirst
subsidiary, providing medical office electronic data interchange services.
Doug Besch
Dr. Besch joined the Company on May 24, 2021 as
SVP Product Strategy & Innovation and became the Company’s Chief Product Officer in October 2022. Prior to joining the Company, from
January 2018 to May 2021, Dr. Besch was the Vice President over Payor and Market Access Solutions for Clarivate (previously Decision Resources
Group (DRG)), a multi-national corporation that provides high value global data solutions, analytics and consulting services to pharmaceutical,
biotech, medical device, healthcare provider and payer, and managed care companies. Prior to Clarivate, from January 2012 to June 2017,
Dr. Besch was a co-founder and the Chief Product Officer for Rx Savings Solution, a company which helps members
and payers reduce prescription drug costs through a combination of clinical technology, transparency, member engagement and concierge
support. Dr. Besch holds a PharmD and MBA from Creighton University and practiced as a pharmacist for the Walgreens Boots Alliance
corporation from 2007 through 2013.
16
PART II
Item 5. Market for Registrant’s Common
Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded under the symbol “OPRX”
on the Nasdaq Capital Market. At February 28, 2023, there were approximately 350 shareholders of record of our common stock.
We currently intend to retain future earnings
for the operation of our business. We have never declared or paid cash dividends on our common stock, and we do not anticipate paying
any cash dividends in the foreseeable future. Any payment of future dividends will be at the discretion of our board of directors and
will depend upon, among other things, our earnings, financial condition, capital requirements, level of indebtedness, and other factors
that our board of directors deems relevant.
For the information regarding our equity compensation
plans, see PART III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
Issuer Purchases of Equity Securities
During the three months ended December 31, 2022, we purchased
shares of our common stock as follows:
Item 6. Reserved
Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Overview
We are a digital health technology company enabling
care-focused engagement between life sciences organizations, healthcare providers, and patients at critical junctures throughout the patient
care journey. Connecting over 60% of U.S. healthcare providers and millions of their patients through an intelligent technology platform
embedded within a proprietary point-of-care network, OptimizeRx helps patients start and stay on their medications.
Historically, our revenue was generated primarily
through the facilitation of financial messages to health care providers via their EHR and ePrescribe systems using the OptimizeRx proprietary
network to solve the ever-increasing communication barriers between pharmaceutical representatives and healthcare providers that have
presented in the rapidly changing healthcare industry. Over time, as the demand for communication of an increasing variety of different
health information between life science companies, providers, and patients continued to rise, our platform has expanded to encompass additional
solutions that enable healthcare providers to access information for patients at the point of care. These solutions include brand messaging,
therapeutic support messaging, brand support, and innovative patient engagement services, all of which now make up a significant portion
of our total revenue.
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We employ a “land and expand” strategy
focused on growing our existing client base and generating greater and more consistent revenues in part through the continued shift in
our business model toward enterprise level engagements, while also broadening our platform with innovative proprietary solutions such
as our TelaRepTM virtual communication solution and our AI-powered real-world evidence solution which uses sophisticated proprietary
algorithms to derive additional revenue from our existing network. In addition, we have continued to expand our team in preparation for
future growth aspirations, which may be supplemented with future acquisitions and other strategic collaborations and investments. Our
strategy for driving revenue growth is also expected to work in tandem with our efforts to increase margin and profitability using the
aforementioned recurring revenue models that have inherently higher margins.
Because the pharmaceutical industry is dominated by large companies
with multiple brands, our revenue is concentrated in a relatively small number of companies. We have approximately 100 pharmaceutical
companies as customers, and our revenues are concentrated in these customers. Loss of one of more of our larger customers could have a
negative impact on our operating results. Our top five customers represented 39% of our revenue for the year ended December 31, 2022.
In each of 2022 and 2021, we had one customer that each represented more than 10% of our revenues.
Seasonality
In general, the pharmaceutical brand marketing
industry experiences seasonal trends that affect the vast majority of participants in the pharmaceutical digital marketing industry. Many
pharmaceutical companies allocate the largest portion of their brand marketing to the fourth quarter of the calendar year. As a result,
the first quarter tends to reflect lower activity levels and lower revenue, with gradual increases in the following quarters. We generally
expect these seasonality trends to continue and our ability to effectively manage our resources in anticipation of these trends may affect
our operating results.
Impact of Macroeconomic Events
Unfavorable conditions in the economy may
negatively affect the growth of our business and our results of operations. For example, macroeconomic events including the COVID-19
pandemic, rising inflation and the U.S. Federal Reserve raising interest rates have led to economic uncertainty. In addition, high
levels of employee turnover across the pharmaceutical industry as well as fewer number of U.S. drug approvals could create
additional certainty within our target customer markets. Historically, during periods of economic uncertainty and downturns,
businesses may slow spending, which may impact our business and our customers’ businesses. Adverse changes in demand could
impact our business, collection of accounts receivable and our expected cash flow generation, which may adversely impact our
financial condition and results of operations.
Key Performance Indicators
We monitor the following key performance indicators
to help us evaluate our business, measure our performance, identify trends affecting our business and make strategic decisions.
Average revenue per top 20 pharmaceutical manufacturer.
Average revenue per top 20 pharmaceutical manufacturer is calculated by taking the total revenue the company recognized through pharmaceutical
manufacturers listed in Fierce Pharma’s “The top 20 pharma companies by 2020 revenue” over the last twelve months, divided
by the total number of the aforementioned pharmaceutical manufacturers that our solutions helped support over that time period. The Company
uses this metric to monitor its progress in “landing and expanding” with key customers within its largest customer vertical
and believe it also provides investors with a transparent way to chart our progress in penetrating this important customer segment. The
decrease in the average in 2022 as compared to 2021 is primarily the result of the convergence of numerous macroeconomic factors that
resulted in our customers slowing their rate of spend, particularly for large and/or new implementations, which we believe prolonged sales
cycles with the top 20 pharmaceutical manufacturers that were existing customers.
Twelve Months Ended December 31
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Percent of top 20 pharmaceutical manufacturers
that are customers. Percent of top 20 pharmaceutical manufacturers that are customers is calculated by taking the number of revenue
generating customers that are pharmaceutical manufacturers listed in Fierce Pharma’s “The top 20 pharma companies by 2020
revenue” over the last 12 months, which is then divided by 20—which is the number of pharmaceutical manufacturers included
in the aforementioned list. The Company uses this metric to monitor its progress in penetrating key customers within its largest customer
vertical and believes it also provides investors with a transparent way to chart our progress in penetrating this important customer segment.
The decrease in 2022 was due to the Company not supporting programs for a smaller revenue customer from 2021 in 2022.
Twelve Months Ended December 31
Percent of top 20 pharmaceutical manufacturers that are customers 90 % 95 %
Percent of total revenue attributable to top
20 pharmaceutical manufacturers. Percent of total revenue attributable to top 20 pharmaceutical manufacturers is calculated by taking
the total revenue the company recognized through pharmaceutical manufacturers listed in Fierce Pharma’s “The top 20 pharma
companies by 2020 revenue” over the last twelve months, divided by our consolidated revenue over the same period. The Company uses
this metric to monitor its progress in “landing and expanding” with key customers within its largest customer vertical and
believes it also provides investors with a transparent way to chart our progress in penetrating this important customer segment. Our revenue
from customers that aren’t top 20 pharmaceutical manufacturers increased faster than our overall revenue, decreasing the percentage of
our overall revenues from top 20 pharmaceutical manufacturers.
Twelve Months Ended December 31
Net revenue retention. Net revenue retention
is a comparison of revenue generated from all customers in the previous twelve-month period to total revenue generated from the same customers
in the following twelve-month period (i.e., excludes new customer relationships for the most recent twelve-month period). The Company
uses this metric to monitor its ability to improve its penetration with existing customers and believes it also provides investors with
a metric to chart our ability to increase our year-over-year penetration and revenue with existing customers. The retention rate in 2022
decreased due to the convergence of numerous macroeconomic factors that resulted in our customers slowing their rate of spend, particularly
for large and/or new implementations, which we believe prolonged sales cycles.
Twelve Months Ended December 31
Net revenue retention 90 % 127 %
Revenue per average full-time employee.
We define revenue per average full-time employee as total revenue over the last twelve months divided by the average number of employees
over the last twelve months (i.e., the average between the number of FTEs at the end of the reported period and the number of FTEs at
the end of the same period of the prior year). The Company uses this metric to monitor the productivity of its workforce and its ability
to scale efficiently over time and believes the metric provides investors with a way to chart our productivity and scalability. Our revenue
rate per employee declined year over year due to slower revenue growth and a higher average number of FTEs over the last 12 month period.
Twelve Months Ended December 31
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Results of Operations for the Years Ended December
31, 2022 and 2021
The following table sets forth, for the periods
indicated, the dollar value and percentage of total return represented by certain items in our consolidated statements of operations:
Years Ended December 31,
(in thousands, except percentage data) 2022 2021
Income (loss) before provision for income taxes (11,438 ) (18.3 )% 378 0.6 %
Income tax benefit — — % — — %
Net Revenue
Our net revenue increased 2% to $62.5 million
for the year ended December 31, 2022 from $61.3 million for the year ended December 31, 2021. This increase resulted from increases
in sales of our access solutions.
Cost of Revenues
Our total cost of revenues, composed
primarily of revenue share expense paid to our network partners, decreased in the year ended December 31, 2022 compared to the
year ended December 31, 2021. Our cost of revenues as a percentage of revenue decreased to approximately 38% in the year ended
December 31, 2022 from approximately 42% in the year ended December 31, 2021. This decrease in our cost of revenues as a