Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking
Statements
Certain
statements, other than purely historical information, including estimates, projections, statements relating to our business plans,
objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally
are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,”
“intends,” “strategy,” “plan,” “may,” “will,” “would,”
“will be,” “will continue,” “will likely result,” and similar expressions. We intend
such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking
statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual
results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future
plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and
future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory
changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties
should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We
undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future
events or otherwise. Further information concerning our business, including additional factors that could materially
affect our financial results, is included herein and in our other filings with the SEC.
Overview
Company
Highlights through April 2017
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1.
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Our
sales for the first three months of 2017 were approximately $2.15 million, a 22% increase
over the same period in 2016 attributable to financial and brand messaging growth from
new and returning clients.
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2.
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We
continue to expand our clients, brands, and agencies advising the industry on this new
channel and recently added another member to the sales team for greater penetration and
service as well as promoted Ed Berger to SVP of Marketing to increase awareness of our
unique value position within the marketplace.
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3.
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We
expanded our channel partners 20%, which included the launch of our financial messaging
capability within the Allscripts Touchworks network, as well as with other new EHRs,
such as EyeCare Leaders.
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4.
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We
partnered with SingleCare to bring their prescription savings program to our network.
This relationship also connects us into the retail pharmacy network where we hope to
increase the ability for patients to adjudicate their financial assistance more smoothly.
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5.
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We
partnered with PARx Solutions to enable us to bring prior authorization services to our
channel partners, as well as to distribute our financial messages through its solution
at the time of prior authorization.
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6.
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We
launched our own brand messaging system for use by our network partners as a complement
to our financial messaging system allowing further opportunity to access additional budget
per brand.
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Our
success in acquiring, integrating and expanding into new EHR/eRx platforms continues to grow as well. For the remainder of 2017,
we expect to expand our reach to physicians, pharmacies and patients, and also increase the utilization of our existing partners
as they improve their work flow and reach into the smaller EHR’s.
With
the growth of both our pharmaceutical products and our distribution network, we expect that our financial, brand, and clinical
messaging will continue to increase and show strong growth throughout the year.
Results
of Operations for the Three Months Ended March 31, 2017 and 2016
Revenues
Our
total revenue reported for the three months ended March 31, 2017 was approximately $2.15 million, an increase of 22% over the
approximately $1.76 million from the same period in 2016. These increased revenues result primarily from sales increases in our
clinical and brand messaging products. We do not breakout revenue by service at this stage, but as we achieve greater scale we
plan to determine the best way to present the growth by service.
Cost
of Sales
Our
cost of sales, composed primarily of revenue share expense, increased in 2017 over 2016 as a result of both revenue increases
and product mix. Our revenue related to brand messaging has a higher cost associated with it at the present time. We expect our
margins on brand messaging to improve throughout the year, and we expect our overall revenue share percentage to gradually decrease
in future quarters as we implement new channels with lower revenue share percentages and as we update our existing agreements
to share third party costs, with a goal of a decrease of at least 10% in total.
Operating
Expenses
Operating
expenses increased from approximately $1.23 million for the three months ended March 31, 2016 to approximately $1.66 million for
the same period in 2017, an increase of approximately 35%. The detail by major category is reflected in the table below.
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Three months ended
March 31,
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2017
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2016
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Salaries, Wages, & Benefits
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$
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779,278
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$
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557,206
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Stock-based compensation
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129,444
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106,384
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Professional Fees
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132,214
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179,278
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Board Compensation
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18,750
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12,500
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Investor Relations
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29,386
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28,019
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Consultants
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71,810
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31,323
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Advertising and Promotion
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107,063
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70,765
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Depreciation and Amortization
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84,473
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50,268
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Development, Maintenance, and Integration Costs
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182,339
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74,616
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Office, Facility, and other
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64,175
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43,440
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Travel
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71,846
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74,765
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Total Operating Expense
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$
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1,660,778
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$
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1,228,564
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The
largest increases in operating expenses related to human resource costs. Since the beginning of the first quarter of 2016, we
have hired a new CEO, a Senior Vice President of Strategy, a Vice President of Information Technology, two new Vice Presidents
of Sales, and a new Director of Sales. These new hires also resulted in increases in benefits and payroll taxes. The increase
in development, maintenance, and integration costs reflects start-up costs related to the integration of new EHRs as well as increased
capacity of our technology systems. These investments are starting to show their value through increased revenue growth and our
transition to a broader client base and scale potential.
We
expect our overall operating expenses to continue at the 2017 level or above as we further implement our business plan and expand
our operations to grow the business in a very dynamic and active marketplace.
Net
Loss
Our
net loss for the three months ended March 31, 2017 was approximately $880,000, as compared to a loss of approximately $350,000
during the same period in 2016. The reasons and specific components associated with the increased loss are discussed above. Overall,
the increased loss resulted from increased operating expenses and increased revenue share costs related to the expansion of our
brand messaging activities. We are focused on top line growth, while managing our expenses, so we expect to see a continued, but
managed, loss for the year.
Liquidity
and Capital Resources
As
of March 31, 2017, we had total current assets of approximately $9.6 million, compared with current liabilities of approximately
$3.9 million, resulting in working capital of approximately $5.7 million and a current ratio of approximately 2.5 to 1, slightly
lower than the working capital of approximately $6.5 million and current ratio of 2.8 to 1 at December 31, 2016.
Our
operating activities used approximately $200,000 in cash flow during the three months ended March 31, 2017, compared with cash
used of approximately $285,000 in the same period in 2016. The cash used in the 2017 period was the result of our net loss, partially
offset by working capital management. Our cash flow for the quarter ended March 31, 2016 was negatively impacted by a one-time
payment to our previous CEO in lieu of issuance of common shares due to him from prior years. Approximately $363,000 of this payment
impacted cash flow from operations, explaining the negative cash flow from operations in 2016.
We
used approximately $116,000 in investing activities in the three months ended March 31, 2017, compared with approximately $16,000
in the same period in 2016. These investments related to purchases of equipment as well as investments related to the expansion
of our network. We have a payment of $650,000 due in the quarter ended June 30, 2017 related to the expansion of our financial
messaging into the Allscripts Touchworks platform and related exclusivity throughout Allscripts, which will be capitalized and
amortized over the exclusivity period.
We
had no financing activities in 2017; however, we used approximately $357,000 in financing activities in 2016 by retiring stock
payable due to our previous CEO. These shares were due as a result of previously granted stock awards in 2014 and 2015, for which
shares had not yet been issued.
We
do not anticipate the need to raise additional capital in the short or long term for operating purposes or to fund our growth
plans. We are focused on growing our revenue, channel and partner network. However, as a Company in a market that is active with
merger and acquisition activity, we may have opportunities, such as, for instance, acquisitions or a strategic partner relationships,
which may require additional capital. We will assess these opportunities as they arise with the view of maximizing shareholder
value.
Off
Balance Sheet Arrangements
As
of March 31, 2017, there were no off-balance sheet arrangements.
Critical
Accounting Policies
In
December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management
Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the
portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Our accounting policies are discussed in the footnotes to our financial statements included in our annual report on Form 10-K
for the year ended December 31, 2016; however, we consider our critical accounting policies to be those related to the amount
of revenue to be billed, the timing of revenue recognition, calculation of revenue share expense, stock-based compensation, capitalization
and related amortization of intangible assets, and impairment of assets.
Recently
Issued Accounting Pronouncements
We
do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operation,
financial position or cash flow.