Item 1A. Risk Factors
Risks Related to Our Financial Position
We have a history of losses, and may not
be able to achieve profitability, or, if achieved, sustain profitability.
With the exception of 2021, we have historically
incurred losses as a result of investing in future growth. 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.
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We may need to raise additional capital
to grow our business and may not be able to do so on favorable terms, if at all.
We may need to raise additional capital in the
future, including to expand our operations and pursue our growth strategies, to respond to competitive pressures, or to meet capital needs
in response to operating losses or unanticipated working capital requirements. Our inability to raise additional capital on acceptable
terms in the future may limit our ability to continue to operate our business and further expand our operations.
Servicing debt and funding other obligations
requires a significant amount of cash, and our ability to generate sufficient cash depends on many factors, some of which are beyond our
control.
Our ability to make payments on and refinance
our indebtedness and to fund our operations and capital expenditures depends on our ability to generate cash flow and secure financing
in the future. Our ability to generate future cash flow depends, among other things, on future operating performance, general economic
conditions, competition, and legislative and regulatory factors affecting our operations and business.
Some of these factors are beyond our control.
There is no assurance that our business will generate cash flow from operations or that future debt or equity financings will be available
to us to enable us to pay our indebtedness or to fund other needs. As a result, we may need to refinance all or a portion of our indebtedness
on or before maturity. There is no assurance that we will be able to refinance any of our indebtedness on favorable terms, or at all.
Any inability to generate sufficient cash flow or refinance our indebtedness on favorable terms could have an adverse effect on our financial
condition.
Restrictions in our Term Loan could adversely
affect our business, financial condition, results of operations, ability to make distributions, and the value of our securities.
Our Term Loan contains customary affirmative covenants,
including, among others, covenants pertaining to the delivery of financial statements; certain financial covenants; notices of default
and certain other material events; payment of obligations; preservation of corporate existence, rights, privileges, permits, licenses,
franchises and intellectual property; maintenance of property and insurance and compliance with laws, as well as customary negative covenants,
including, among others, limitations on the incurrence of liens and entering into capital leases, investments and indebtedness; mergers
and certain other fundamental changes; dispositions of assets; restricted payments; changes in our line of business; transactions with
affiliates and burdensome agreements. These covenants could affect our ability to operate our business, increase the amount of interest
expense we ultimately pay pursuant to the Term Loan, and may limit our ability to take advantage of potential business opportunities as
they arise.
Our ability to comply with the covenants and restrictions
contained in our Term Loan, may be affected by events beyond our control, including prevailing economic, financial, and industry conditions.
If market or other economic conditions deteriorate, our ability to comply with these covenants may be impaired. A failure to comply with
these provisions could result in a default or an event of default. Upon an event of default, unless waived, the lenders could elect to
terminate their commitments, cease making further loans, cause their loans to become
due and payable in full, foreclose against any assets securing the debt under our Term Loan and force us and our subsidiaries into bankruptcy
or liquidation. If the payment of our debt is accelerated, our assets may be insufficient to repay such debt in full, and the holders
of our stock could experience a partial or total loss of their investment.
Risks Related to Our Business: Our Industry,
Operations, and Competition
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.
Developing and implementing new and updated
applications, features and services for our solutions 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 solutions
requires us to continue to improve the technology underlying those solutions and to continue to develop new and updated applications,
features and services for those solutions. 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 solutions 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.
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Any failure to offer high-quality customer
support for our solutions 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. Increased demand for our support services may increase
our costs without corresponding revenue, which could adversely affect our operating results. Further, the sale of our solutions is highly
dependent on the ease of use of our solutions, on our business reputation, and on favorable recommendations from our existing customers.
Any failure to maintain high-quality and responsive customer support, or a market perception that we do not maintain high-quality support,
could harm our reputation, cause us to lose customers, adversely affect our ability to sell our solutions to prospective customers, and
harm our business, operating results and financial condition.
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 over 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 approximately 49% of revenue for the year ended December 31,
2024. In 2024 and 2023, respectively, we had two customers and one customer that represented 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.
If we are unable to maintain our contracts
with electronic prescription platforms and electronic health record systems, our business will suffer.
We are reliant upon our contracts with leading
electronic prescribing (“eRx”) platforms and electronic health record (“EHR”) systems to generate a portion of
the revenues received from our customers. Such arrangements subject us to a number of risks, including the following:
We generated 57.3% and 55.9% of our revenue through
our two largest channel partners in 2024 and 2023, respectively. As such, the inability to maintain these relationships could adversely
impact our business.
Our agreements with eRx and EHR channel
partners could be 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 could
be subject to an 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. Some agreements would require us to also pay for the cost of the audit if an underpayment is determined to be in excess of a
certain amount.
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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 solution
set and/or 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.
The markets in which we operate are competitive,
continually evolving and, in some cases, subject to rapid change.
Our solutions face competition from numerous other
companies. We compete for revenue from healthcare advertisers and sponsors (pharmaceutical manufacturers) with healthcare data suppliers,
health-focused demand-side platforms, and health-focused walled garden websites and web platforms, and advertising networks that aggregate
traffic from multiple web sites or point-of-care platforms such as telehealth, EHR, eRx, physician practice management, health information
exchanges (HIE), site-based platforms within large health systems, etc.
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 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 we 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
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 the specific market
segments that we serve now or may serve in the future. For example, the 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 demand 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.
Risks Related to Regulatory Matters
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. In addition, our customers and service providers may be or become subject
to these same rules. 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.
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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 under 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. Additionally,
even if we do not act as a Covered Entity or Business Associate, we process data that has been de-identified according to the expert determination
method under HIPAA’s Privacy Rule. This requires us to take measures to prevent the re-identification of that data and to comply
with HIPAA if that data is re-identified.
In the ordinary course of our business, we collect
and store sensitive data, including intellectual property, proprietary business information and personally identifiable information (including
of our employees, customers, suppliers and business partners). Any data breach may subject us to civil fines and penalties, or regulatory
orders, fines or sanctions under relevant state and federal privacy laws in the United States, including the California Consumer Privacy
Act (“CCPA”) and other laws and regulations. Our failure, or the failure of our third-party vendors, to comply with applicable
laws and regulations relating to data security and our involvement or the involvement of any of our third-party vendors in any data security
incidents could result in legal claims and liability, obligations to report incidents to governmental agencies, regulatory investigations
and penalties, and reputational damage, which could have a material adverse effect on our business, financial condition and results of
operations.
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.
Our operations may be impacted from changes
to current regulations and future legislation.
The current Executive Branch administration and
regulatory agencies may propose policy changes that create uncertainty for our business, including potentially implementing restrictions
on pharmaceutical direct to consumer (“DTC”) marketing.
Additionally, in its June 2024 decision in Loper
Bright Enterprises v. Raimondo (the “Loper decision”), the U.S. Supreme Court overturned the longstanding Chevron doctrine,
under which courts were required to give deference to regulatory agencies’ reasonable interpretations of ambiguous federal statutes.
The Loper decision could result in additional legal challenges to regulations and guidance issued by federal agencies applicable to our
customer’s operations, including those issued by the U.S. Food and Drug Administration (FDA), the U.S. Department of Health &
Human Services, and the U.S. Federal Trade Commission. Additionally, the Loper decision may result in increased regulatory uncertainty,
inconsistent judicial interpretations and other impacts to the agency rule-making process. We cannot predict which additional measures
may be adopted or the impact of current and additional measures on our business, or our customer’s businesses, which could have
a significant impact on our business, financial condition and results of operations.
If our customers, partners, and third-party
providers fail to comply with the extensive and changing landscape of legal and regulatory requirements affecting the pharmaceutical and
healthcare industries, they could face increased costs and/or penalties, which could lead to us losing business.
The FDA, U.S. state licensure bodies, other healthcare
regulators and other comparable agencies in other jurisdictions directly regulate many of the most critical business activities of our
customers, partners, and third-party providers, including R&D for biotechnology and pharmaceutical development, and pharmaceutical
advertising. States increasingly have been placing greater restrictions on the marketing and advertising practices of healthcare companies,
particularly pharmaceutical companies. In addition, pharmaceutical and biotechnology companies have been the target of lawsuits and investigations
alleging violations of government regulations, including claims asserting submission of incorrect pricing information, improper promotion
of pharmaceutical products, payments intended to influence the referral of federal or state healthcare business, submission of false claims
for government reimbursement, antitrust violations, violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and similar
anti-bribery or anti-corruption laws. Any failure to comply with applicable laws, rules and regulations may result in civil and/or criminal
legal proceedings and lead to fines, damages, mandatory compliance programs and other sanctions and remedies that may materially affect
the business, operations and reputations of our customers, partners and third-party providers which could adversely affect our business.
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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 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.
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 extensive 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, loss of income, 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. In addition, while we maintain insurance coverage, our insurance coverage for cyberattacks may not be sufficient to cover
all the losses, liabilities and costs we may experience as a result of a cybersecurity incident, including any disruptions resulting from
such an incident, or that applicable insurance will be available to us in the future on economically reasonable terms or at all.
A cybersecurity incident could be caused by disasters,
insiders (through inadvertence or with malicious intent) or malicious third parties using sophisticated, targeted methods, including hacking,
fraud, phishing or other forms of deception. The techniques used by threat actors change frequently, are becoming increasingly diverse
and sophisticated, and may be difficult to detect for long periods of time. Although we maintain information technology measures designed
to protect the confidentiality, availability, and integrity of our information systems, and protect us against intellectual property theft,
data breaches, and other cybersecurity incidents, such measures will require updates and improvements, and we cannot guarantee that such
measures will be adequate to detect, prevent or mitigate cybersecurity threats or incidents. The implementation, maintenance, segregation
and improvement of these information systems requires significant management time, support and cost. Moreover, there are inherent risks
associated with developing, improving, expanding and updating current systems, including the disruption of our data management, procurement,
finance, and sales and service processes. These risks may affect our ability to manage our data and adequately protect our intellectual
property or achieve and maintain compliance with, or realize available benefits under, applicable laws, regulations and contracts. Moreover,
our proprietary information, confidential information, intellectual property, or personal information that we hold could be compromised
or misappropriated and our reputation may be adversely affected. If these systems do not operate as we expect them to, we may be required
to expend significant resources to make corrections or find alternative sources for performing these functions.
We also work with partners and third-party service
providers or vendors that collect, store and process such data on our behalf and in connection with our services. There can be no assurance
that any security measures that we or our third-party service providers or vendors have implemented will be fully executed, adhered to,
or effective in protecting our systems and information, including against current or future cybersecurity threats. While we have designed
and developed systems and processes to protect the availability, integrity, and confidentiality of our data and information, as well as
those of our customers, website visitors, employees, and others, the security measures of our third-party service providers or vendors
could fail and result in security incidents, including unauthorized access to, or disclosure, acquisition, encryption, modification, misuse,
loss, destruction or other compromise of such data. If a compromise of such data were to occur, we may have liability under our contracts
with other parties and under applicable law for damages and incur penalties and other costs to respond to, investigate and remedy such
an incident. Laws require us to provide notice to customers, regulators, credit reporting agencies or others when certain sensitive information
has been compromised as a result of a security breach. There are significant differences between the laws of the U.S. and other jurisdictions,
and as a result compliance in the event of a widespread data breach could be complicated and costly. Such an event could harm our reputation
and result in litigation against us. Any of these results could materially adversely affect our business, prospects, financial condition
and operating results.
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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.
The use of AI technology in our operations
and IT infrastructure could improve internal processes, but poses security risks and privacy risks; the use of AI technology also faces
regulatory uncertainty and scrutiny given that AI technology is rapidly growing and evolving.
The rapid evolution of artificial intelligence
(AI) could exacerbate the information technology related risks described below.
We have increased efficiency through adoption
and use of AI, including with our DAAP programs, machine learning, and similar tools and technologies that collect, aggregate, analyze
or generate data or other materials or content, and we expect to continue to adopt such tools as appropriate. In addition, we expect our
third-party vendors and service providers to increasingly develop and incorporate AI into their product offerings.
While we anticipate that we will continue to utilize
our AI-powered Dynamic Audience and Activation Platform (DAAP), and to research and implement other potential AI-based technology solutions
to both mitigate risk and increase automation in our environment, it is possible that bad actors and/or competitors will leverage AI solutions
more effectively to either exploit vulnerabilities or take market share. Either outcome could negatively impact our business.
We are aware that generative AI tools may respond
with inaccurate or fabricated information, introduce bias or fail to provide traceability of source information.
The intellectual property risks associated with
AI include uncertainties around the ownership of AI-generated works, potential infringement of existing patents and copyrights, unauthorized
use of third-party data, and exposure of proprietary algorithms or trade secrets. Dependence on AI systems or AI vendors means that any
downtime or outages can disrupt business operations. Usage of our confidential data to train the AI models by us or our vendors, could
result in legal risk, especially if it involves customer data or our proprietary information.
There are significant and evolving risks involved
in utilizing AI, and no assurance can be provided that our, our third-party vendors’ or service providers’ use of AI will
enhance our, our third-party vendors’ or service providers’ products or services, or produce the intended results. The adoption
and incorporation of such AI tools can lead to concerns around safety and soundness, fair treatment of consumers, and compliance with
applicable laws and regulations. AI solutions may also be adversely impacted by unforeseen defects, technical challenges, cyber-attacks,
cybersecurity breaches, service outages or other similar incidents, or material performance issues.
In addition, various federal, state, and international
governments and regulatory agencies are reviewing the technologies underlying AI and its uses are applying, or are considering applying,
existing laws and regulations to AI. Some are considering adopting new general legal frameworks for AI. We may not be able to anticipate
how to respond to these rapidly evolving frameworks, and we may need to expend resources to adjust our operations or offerings in certain
jurisdictions if the legal frameworks are inconsistent across jurisdictions.
Furthermore, because AI technology itself is highly
complex and rapidly developing, it is not possible to predict all the legal, operational or technological risks that may arise relating
to the use of AI. We expect that our DAAP platform and use of AI will require additional resources, including incurring additional costs
to develop and maintain our products and solutions, to minimize potentially harmful or unintended consequences, to comply with applicable
and emerging laws and regulations, to maintain or extend our competitive position, and to address any ethical, reputational, technical,
operational, legal, competitive or regulatory issues which may arise as a result of any of the foregoing.
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Risks Related to Managing Our Growth
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.
We may not be able to identify suitable
acquisition candidates, complete acquisitions or integrate acquisitions successfully.
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.
Our
acquisition activities may disrupt our ongoing business and may involve increased expenses, and we may not realize the financial and strategic
goals contemplated at the time of a transaction.
We have
acquired, and may in the future acquire, companies, businesses, products, services and technologies. Acquisitions involve significant
risks and uncertainties, including:
– we may not further our business strategy as we expected;
Risks Related to Inflation, Interest Rates,
and Other Adverse Economic Conditions
Interest rate increases may adversely affect
our financial condition and results of operations.
Borrowings under our Term Loan are at variable
rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness
will increase even though the amount borrowed remains the same. As a result, our cash flows, including cash available for servicing our
indebtedness, will correspondingly decrease. A one-percentage-point increase in the interest rates on outstanding borrowings under our
Term Loan would have increased our interest expense by approximately $0.4 million for the year ended December 31, 2024.
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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.
Inflation, the current interest rate environment,
and other adverse economic conditions may adversely affect our business, results of operations and financial condition.
General global economic downturns and macroeconomic
trends, including heightened inflation, capital market volatility, interest rate fluctuations, tariffs, and economic slowdown or recession,
may result in unfavorable conditions that could negatively affect demand for our products and solutions and exacerbate some of the other
risks that affect our business, financial condition and results of operations. Domestic markets experienced significant inflationary pressures
in 2024. Threats of multinational tariffs and retaliatory tariffs provide uncertainty as to heightened inflation in the domestic markets
in the next twelve months. 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 changes
in interest rates, potential tariffs, 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 services. Changing interest rates may have
unpredictable effects on markets, may result in heightened market volatility and may detract from our performance to the extent we are
exposed to such interest rates and/or volatility. An adjustment in rates would impact our variable rate debt. If interest rates increase
or remain elevated, we could face higher debt service requirements, which would adversely affect our cash flow and could adversely impact
our results of operations. If we are unable to generate sufficient cash flow to service our debt or to fund our other liquidity needs,
we could need to restructure or refinance all or a portion of our debt. Any refinancing of indebtedness could be at higher interest rates,
thereby resulting in an overall increase in interest expense.
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.
13
Impairment
charges for goodwill or other long-lived assets may need to be recognized or increased as we shift our focus away from our non-core businesses,
lose a major customer or experience changes to the regulatory environment affecting pharmaceutical advertising restricting the use of
our technology.
Annually,
we evaluate goodwill and long-lived assets to determine if impairment has occurred. Additionally, interim reviews are performed whenever
events or changes to the business could indicate possible impairment. The future occurrence of a potential indicator of impairment could
include matters such as (i) a decrease in expected net earnings, (ii) adverse equity market conditions, (iii) a decline in current market
multiples, (iv) a decline in our common stock price, (v) a significant adverse change in legal factors or the general business climate,
and (vi) an adverse action or assessment by a regulator. Any future impairment of our goodwill or long-lived assets could require us to
record an impairment charge, which would negatively impact our results of operations. An impairment could be recorded as a result of changes
in assumptions, estimates or circumstances, some of which are beyond our control. Since a number of factors may influence determinations
of fair value, we are unable to predict whether impairments of goodwill and other long-lived assets will occur in the future, and we can
provide no assurance that continued conditions will not result in future impairments of these assets. For example, our strategic shift
away from non-core business, in 2023, resulted in an impairment of one or more of our long-lived assets and, in 2024, a decline in our
stock price and overall market capitalization resulted in goodwill impairment. See Part II, Item 7. “Management’s Discussion
and Analysis of Financial Condition and Results of Operations - Results of Operation of the Years Ended December 31, 2024 and 2023
- Operating Expenses.”
Market
conditions could adversely change and our earnings could decline resulting in charges to impair intangible assets, such as goodwill.
As a result
of our various acquisitions, the consolidated balance sheet at December 31, 2024 contains
goodwill of approximately $70.9 million and intangible assets, net of approximately $45.5
million. We evaluate on an ongoing basis whether facts and circumstances indicate any impairment
to the carrying value of indefinite-lived intangible assets such as goodwill. As circumstances after an acquisition can change, we may
not realize the value of these intangible assets. During the year ended December 31, 2024,
we recorded impairment charges, related to goodwill, of approximately $7.5 million. Any future
impairment charges related to our goodwill or long-lived assets could require us to record additional impairment charges, which would
negatively impact our results of operations.
Geopolitical
events may affect our business and our customer base and have a material adverse impact on our sales and operating results.
Our results
of operations may be affected by the conditions in the global capital markets and the economy generally, both in the U.S. and elsewhere
in the world. The ongoing war between Russia and Ukraine as well as the conflict between Israel and Hamas have caused uncertainty in the
credit markets and could cause our customers and potential customers to postpone or reduce spending on technology products or services
or put downward pressure on prices, which could have an adverse effect on our business.
General
Risk Factors
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, 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 business also depends 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 with expertise in our industry. Our ability to meet our business development objectives
will depend in part on our ability to recruit, train, incentivize, and retain top quality people with advanced skills who understand our
industry, technology, and business. Our compensation arrangements, including our equity award programs, are essential to retaining our
senior management team and other key employees, but may not always be successful in attracting new employees or retaining and motivating
our existing key employees for reasons that may include movement in our stock price or our ability to maintain or increase our equity
pool. If we are unable to engage, incentivize, and retain the necessary personnel, our business may be materially and adversely affected.
The impact and effects of public health
crises, pandemics and epidemics could have a material adverse effect on our business, prospects, financial condition, and operating results.
The actual or perceived effects of an epidemic,
pandemic, or similar widespread public health concern could negatively affect our business, financial condition, and result of operations.
The extent to which a pandemic, epidemic or outbreak of an infectious disease impacts our operations will depend on future occurrences,
which are highly uncertain and cannot be predicted with confidence, including the duration of any outbreak and the actions to contain
or treat its impact, among others. 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.
14
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.
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.
Certain provision of our articles of incorporation,
bylaws and Nevada law may discourage takeover attempts and business combinations that shareholders might consider in their best interests.
The Company is a Nevada corporation. Anti-takeover
provisions in Nevada law and our articles of incorporation and Third Amended and Restated Bylaws (our “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 articles of incorporation provides
that the board of directors may issue, without shareholder approval, preferred stock in one or more series, with such voting power, full
or limited, or without voting powers and with such designations, preferences and relative, participating, optional or other special rights,
qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions providing for the
issue thereof adopted by the board of directors. Such a series of preferred stock could be designated in connection with the adoption
by the board of directors of a shareholder rights plan. Pursuant to the provisions of Nevada Revised Statutes (“NRS”) §78.195(5),
Nevada corporations are generally permitted to adopt shareholder rights plans without shareholder approval. In addition, our bylaws require
shareholders to provide proper and timely advance notice of their intent to bring director nominations or other business before an annual
meeting of shareholders, provide that the Company’s secretary is only required to call shareholder requested special meetings upon
the written request of shareholders who together own of record not less than 50.1% of the capital stock of the Company issued and outstanding
and entitled to vote at such meeting, 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.
15
Nevada has a business combination law (NRS §78.411 through §78.444,
inclusive) which prohibits certain business combinations between certain Nevada corporations and any person deemed to be an “interested
stockholders” for two years after the “interested stockholder” first becomes an “interested stockholder,”
unless our Board approves the combination in advance or thereafter by both the Board and 60% of the disinterested stockholders. For purposes
of Nevada law, an “interested stockholder” is any person who is (i) the beneficial owner, directly or indirectly, of ten percent
or more of the voting power of the outstanding voting shares of the corporation, or (ii) an affiliate or associate of the corporation
and at any time within the two previous years was the beneficial owner, directly or indirectly, of ten percent or more of the voting power
of the then outstanding shares of the corporation. The definition of the term “business combination” is sufficiently broad
to cover virtually any kind of transaction that would allow a potential acquirer to use the corporation’s assets to finance the
acquisition or otherwise to benefit its own interests rather than the interests of the corporation and its other stockholders. This law
generally applies to Nevada corporations with 200 or more stockholders of record. The effect of Nevada’s business combination law
is to potentially discourage parties interested in taking control of us from doing so if it cannot obtain the approval of our Board. Pursuant
to NRS 78.434, a Nevada corporation may elect in its articles of incorporation not to be governed by these particular laws, but if such
election is not made in the corporation’s original articles of incorporation, the amendment (1) must be approved by the affirmative
vote of the holders of stock representing a majority of the outstanding voting power of the corporation not beneficially owned by interested
stockholders or their affiliates and associates, and (2) is not effective until 18 months after the vote approving the amendment
and does not apply to any combination with a person who first became an interested stockholder on or before the effective date of the
amendment. We have not made such an election in our original articles of incorporation, and we have not amended our articles of incorporation
to so elect. The NRS also contains provisions governing the acquisition of a controlling interest in certain Nevada corporations. Nevada’s
“acquisition of controlling interest” statutes (NRS §78.378 through §78.3793, inclusive) govern the acquisition
of a controlling interest in certain Nevada corporations. These “control share” laws provide generally that any person that
acquires a “controlling interest” in certain Nevada corporations may be denied voting rights, unless a majority of the disinterested
stockholders of the corporation elects to restore such voting rights. These laws will apply to us as of a particular date if we were to
have 200 or more stockholders of record (at least 100 of whom have addresses in Nevada appearing on our stock ledger at all times during
the 90 days immediately preceding that date) and do business in the State of Nevada directly or through an affiliated corporation,
unless our articles of incorporation or bylaws in effect on the tenth day after the acquisition of a controlling interest provide otherwise.
These laws provide that a person acquires a “controlling interest” whenever a person acquires shares of a subject corporation
that, but for the application of these provisions of the NRS, would enable that person to exercise (1) one-fifth or more, but less
than one-third, (2) one-third or more, but less than a majority or (3) a majority or more, of all of the voting power of the
corporation in the election of directors. Once an acquirer crosses one of these thresholds, shares which it acquired in the transaction
taking it over the threshold and within the 90 days immediately preceding the date when the acquiring person acquired or offered
to acquire a controlling interest become “control shares” to which the voting restrictions described above apply. These laws
may have a chilling effect on certain transactions if our articles of incorporation or bylaws are not amended to provide that these provisions
do not apply to us or to an acquisition of a controlling interest, or if our disinterested stockholders do not confer voting rights in
the control shares.
In addition, Nevada law also provides that directors
may resist a change or potential change in control of the corporation if the board of directors determines that the change or potential
change is opposed to or not in the best interest of the corporation upon consideration of any relevant facts, circumstances, contingencies
or constituencies.
Actions of activist stockholders could be
disruptive and costly and could adversely affect our results of operations, financial condition, and/or share price.
While we strive to maintain constructive communications
with our stockholders, we may, from time to time, be subject to demands from activist stockholders. Any activist campaign against the
Company that contests, conflicts with, or seeks to change, our board composition, leadership, strategic direction, or business mix could
have an adverse effect on us because: (i) responding to actions by activist stockholders could disrupt our operations, be costly or time-consuming,