As filed with the Securities and Exchange Commission on July 14, 2011

Registration No.: 333-172243

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



 

Amendment No. 2 to

Form S-1

REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933



 

TARGETED MEDICAL PHARMA, INC.

(Exact name of registrant as specified in its charter)

   
Delaware   2834   20-5863618
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

2980 Beverly Glen Circle
Suite 301
Los Angeles, California 90077
(310) 474-9809

(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)



 

William E. Shell, MD
Chief Executive Officer
2980 Beverly Glen Circle
Suite 301
Los Angeles, California 90077
(310) 474-9809

(Name, address, including zip code, and telephone number,
including area code, of agent for service)



 

Copies to:

 
Barry I. Grossman, Esq.
Sarah E. Williams, Esq.
Ellenoff Grossman & Schole LLP
150 East 42nd Street, 11th Floor
New York, New York 10017
(212) 370-1300
(212) 370-7889 — Facsimile
  David N. Feldman, Esq.
Kevin Friedmann, Esq.
Richardson & Patel LLP
750 Third Avenue
New York, New York 10017
(212) 561-5559
(917) 591-6898 — Facsimile


 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check this box: x

If this Form is being filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 
Large accelerated filer o   Accelerated filer o
Non-accelerated filer o (Do not check if smaller reporting company)   Smaller reporting company x

Calculation of Registration Fee

   
Title of Each Class of Securities to be Registered   Proposed Maximum
Aggregate Offering Price(1)
  Amount of
Registration Fee(2)
Common Stock, par value $0.001 per share (3)     $30,000,000       $3,483.00  
Common Stock, par value $0.001 per share (4)     $87,734,304       $10,186.00  
Total     $117,734,304       $13,669.00(5)  

(1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2) Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.
(3) Offered pursuant to the Registrant’s initial public offering.
(4) Represents 21,933,576 shares of the Registrant’s common stock being registered for resale by the securityholders named in this registration statement at a price of $4.00 per share estimated solely for purposes of calculating the registration fee.
(5) Previously paid.


 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the SEC, acting pursuant to said Section 8(a), may determine.

 

 


 
 

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EXPLANATORY NOTE

This registration statement contains two forms of prospectus, as set forth below.

Public Offering Prospectus.  A prospectus to be used for the initial public offering by the Registrant of $30,000,000 of common stock (the “Public Offering Prospectus”) through the underwriter named on the cover page of the Public Offering Prospectus.
Selling Securityholder Prospectus.  A prospectus to be used in connection with the potential resale by certain selling securityholders of up to an aggregate of 21,933,576 shares of the Registrant’s common stock (the “Selling Securityholder Prospectus”).

The Public Offering Prospectus and the Selling Securityholder Prospectus will be identical in all respects except for the following principal points:

they contain different front covers;
they contain different tables of contents;
they contain different Use of Proceeds sections;
a Shares Registered for Resale section is included in the Selling Securityholder Prospectus;
a Selling Securityholders section is included in the Selling Securityholder Prospectus;
the Underwriting section from the Public Offering Prospectus is deleted from the Selling Securityholder Prospectus and a Plan of Distribution section is inserted in its place;
the Legal Matters section in the Selling Securityholder Prospectus deletes the reference to counsel for the underwriter; and
they contain different back covers.

The Registrant has included in this registration statement, after the financial statements, a set of alternate pages to reflect the foregoing differences between the Selling Securityholder Prospectus and the Public Offering Prospectus.


 
 

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The information in this prospectus is not complete and may be changed. We may not sell these securities until after the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 
PRELIMINARY PROSPECTUS   SUBJECT TO COMPLETION, DATED JULY 14, 2011

TARGETED MEDICAL PHARMA, INC.

[GRAPHIC MISSING]

            Shares

This is the initial public offering of shares of our common stock, $0.001 par value.

Currently, no public market exists for our securities. We intend to apply to have our shares of common stock listed on the Nasdaq Capital Market under the symbol “   ” on or promptly after the date of this prospectus. No assurance can be given that such listing will be approved.

On         , a registration statement under the Securities Act relating to the offer for sale of 21,933,576 shares of common stock by the existing holders of the securities was declared effective by the Securities and Exchange Commission. We will not receive any of the proceeds from the sale of common stock by the existing holders.

Investing in our common stock involves a high degree of risk. You should carefully consider the matters discussed under the section entitled “Risk Factors” beginning on page 7 of this prospectus.

   
  Per Share   Total
Public offering price(1)                  
Underwriter discounts and commissions                  
Proceeds to us (before expenses)                  

(1) The offering price to the public will be determined by negotiation between Targeted Medical Pharma and Sunrise Securities Corp.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

This is a firm commitment underwriting. The underwriters expect to deliver the shares of common stock to purchasers on or prior to            , 2011.

SUNRISE SECURITIES CORP.

The date of this prospectus is            , 2011.


 
 

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TARGETED MEDICAL PHARMA, INC.
  
TABLE OF CONTENTS

 
PROSPECTUS SUMMARY     1  
THE OFFERING     6  
RISK FACTORS     7  
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS     26  
USE OF PROCEEDS     28  
DILUTION     30  
DIVIDEND POLICY     31  
CAPITALIZATION     31  
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS     32  
BUSINESS     51  
MANAGEMENT     93  
PRINCIPAL STOCKHOLDERS     105  
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS     107  
DESCRIPTION OF SECURITIES     108  
UNDERWRITING     112  
LEGAL MATTERS     116  
EXPERTS     116  
WHERE YOU CAN FIND ADDITIONAL INFORMATION     116  
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS     F-1  

You should rely only on the information contained in this prospectus. We have not, and the underwriter has not, authorized anyone to provide you with information different from or in addition to that contained in this prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. We are offering to sell, and are seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock. Our business, financial conditions, results of operations and prospects may have changed since that date.

We obtained statistical data, market data and other industry data and forecasts used throughout this prospectus from publicly available information. While we believe that the statistical data, market data and other industry data and forecasts are reliable and we are responsible for all of the disclosure in this prospectus, we have not independently verified the data.

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PROSPECTUS SUMMARY

This summary highlights information contained throughout this prospectus and is qualified in its entirety by reference to the more detailed information and financial statements included elsewhere herein. This summary may not contain all of the information that may be important to you. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date. Before making an investment decision, you should read carefully the entire prospectus, including the information under “Risk Factors” beginning on page 7 and our financial statements and related notes thereto. Unless the context otherwise requires or indicates, when used in this prospectus,

references to “we,” “our,” “us,” “the Company” and “TMP” refer to Targeted Medical Pharma, Inc. and its subsidiaries;
references to “TMP Insiders” refers to William E. Shell, MD, Elizabeth Charuvastra and Kim Giffoni;
references to “Reorganization” refers to the merger by and between Targeted Medical Pharma, Inc. and AFH Acquisition III, Inc. and its subsidiaries, pursuant to which we became a publicly-held reporting company.
references to “CCPI” refer to Complete Claims Processing Inc., our wholly-owned subsidiary;
references to “PTL” refer to Physician Therapeutics, a division of our Company; and
references to “LIS” refer to Laboratory Industry Services, a division of our Company.

Our Business

Targeted Medical Pharma, Inc. is a specialty pharmaceutical company that develops and sells nutrient- and pharmaceutical-based therapeutic systems. We create and sell a line of patented prescription-only medical food products distributed in the United States through a network of distributors and directly to physicians who dispense medical foods and other pharmaceutical products through their office practices. Our patented technology underlying our medical food products uses a five component system to allow uptake and use of important neurotransmitter precursors to produce the neurotransmitters that control autonomic nervous system function, such as sleep and pain perception. The technology addresses neuron specificity and elimination of attenuation or tolerance that is characterized by the need for increased dosage. The combination of the neurotransmitters and their precise proportions allows for a wide range of products.

We have created and market nine core medical foods and 47 convenience-packed therapeutic systems consisting of a medical food and a generic pharmaceutical, which physicians can prescribe and dispense together. Our convenience-packed therapeutic systems address pain syndromes, sleep disorders, hypertension, viral infections and metabolic syndrome. We developed these convenience-packed products at the request of physician clients to allow for the co-administration of an FDA-approved dose of a drug with a medical food to optimize the use of the drug product under its approved labeling. Clinical practice, observation studies and independent controlled clinical trials have shown that co-administration of a pharmaceutical with a medical food product allows the physician to select the optimal dose of both agents. Most often, the optimal dose of the drug co-administered with a medical food is the lowest FDA-approved and recommended dose that maintains the efficacy and reduces the side effects of the drug. All convenience-packed drugs are within the FDA-approved label dose. These convenience packs are registered in the FDA National Drug Code (NDC) database and all convenience-packed products have been routinely reimbursed by third party payers.

The market for the sale of prepackaged medications to physicians for on-site point-of-care dispensing includes medications distributed for general medical practice, occupational health, workers compensation, urgent care and pain clinics. We distribute our products through an internal sales staff and a network of independent distributors to approximately 968 physicians or physician groups in the United States. On-site dispensing offers healthcare providers the opportunity to improve the financial performance of their practices by adding a source of revenue and reducing expenses related to prescription transmission, communications with pharmacists and billing and processing. From a patient’s perspective, the dispensing of medications at the point-of-care provides an increased level of convenience, privacy and treatment compliance. Patients who do

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not wish to receive medicines dispensed at the point-of-care are able to access our products through selected pharmacies who order product directly from us.

We support our physician clients with a proprietary pharmacy claims processing service specifically designed for billing and collecting insurance reimbursement from private insurance, workers compensation and Medicare for our proprietary prescription-only products, therapeutic systems and generic drugs. A wholly-owned subsidiary provides this service to physician offices for the specific purpose of optimizing insurance reimbursement for dispensed pharmaceutical products. We have developed a proprietary billing system based on recent advances in Cloud computing. We provide each client with a “Thin Client” device directly connected to our servers to give real time information on dispensing activity. This system also allows information to be delivered directly to us for purposes of future sales and educational content.

The Reorganization

Pursuant to an Agreement and Plan of Reorganization (the “Merger Agreement”), by and among AFH Acquisition III, Inc. (“AFH”), TMP Merger Sub, Inc. (“TMP Merger Sub”), AFH Merger Sub, Inc. (“AFH Merger Sub”), AFH Holding and Advisory, LLC (“AFH Advisory”), Targeted Medical Pharma, Inc. (“Old TMP”), William E. Shell, MD, Elizabeth Charuvastra and Kim Giffoni, on January 31, 2010, TMP Merger Sub merged (the “TMP Merger”) with and into Old TMP with Old TMP continuing as the surviving entity (we are the surviving entity of the TMP Merger). Immediately after the TMP Merger, AFH merged (the “AFH Merger” and, together with the TMP Merger, the “Reorganization”) with and into AFH Merger Sub with AFH continuing as the surviving entity under the name “TMP Sub, Inc.” (the surviving entity of the AFH Merger, the “Subsidiary”). As a result of the Reorganization, the Subsidiary is our wholly-owned subsidiary. The purpose of the Reorganization was to become a publicly reporting company providing regular updates on our business to our stockholders and to be able to access additional sources of financing to expand our business.

Below is a graphic depiction of the corporate structure of the Company after the Reorganization.

[GRAPHIC MISSING]

Upon consummation of the TMP Merger, (i) each outstanding share of Old TMP common stock was exchanged for approximately 1.48 shares of AFH common stock and (ii) each outstanding TMP option, which was exercisable for one share of Old TMP common stock, was exchanged for an option exercisable for approximately 1.48 shares of AFH common stock. Upon consummation of the AFH Merger, which occurred immediately upon consummation of the TMP Merger, each outstanding share of AFH common stock and each outstanding option to purchase AFH common stock were exchanged for one share of our common stock and one option to purchase one share of our common stock. As a result of the Reorganization, holders of Old TMP common stock and options received 18,308,576 of our shares of common stock and options to purchase 566,424 of our shares, or 83.89% of our issued and outstanding common stock on a fully diluted basis.

Pursuant to the Merger Agreement, the TMP Insiders agreed that up to 1,906,768 of our shares of common stock they hold in the aggregate would be subject to forfeiture and cancellation to the extent that we fail to achieve $22,000,000 in Adjusted EBITDA (the “Make Good Target”) for the fiscal year ended December 31, 2011. For purposes of the Merger Agreement, “Adjusted EBITDA” means our consolidated net earnings before interest expense, income taxes, depreciation, amortization and non-recurring expenses (as defined below) for the applicable period and as calculated on a consistent basis. Net earnings excludes, among other things, expenses incurred in connection with this offering (including the preparation of the registration statement of which this prospectus is a part) and the preparation of the Current Report on Form 8-K related to the Reorganization.

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The Reorganization resulted in a change in control of our Company from Mr. Amir F. Heshmatpour to the former stockholders of Old TMP. In connection with the change in control, William E. Shell, MD, Kim Giffoni, Maurice J. DeWald, Donald J. Webster, Arthur R. Nemiroff and John H. Bluher were appointed to our Board of Directors. Dr. Shell was appointed our Chief Executive Officer and Chief Scientific Officer, Ms. Charuvastra was appointed our Chairman and Vice President of Regulatory Affairs, Mr. Giffoni was appointed our Executive Vice President of Foreign Sales and Investor Relations, Mr. Steve B. Warnecke was appointed our Chief Financial Officer and Mr. Amir Blachman was appointed our Vice President of Strategy and Operations. Mr. Heshmatpour, an officer and director of AFH prior to the consummation of the Reorganization, resigned from these positions at the time the transaction was consummated. Ms. Charuvastra was elected to AFH’s Board of Directors on December 9, 2010. Following the Reorganization, she continued as one of our directors.

Risk Factors

Investing in our securities involves a high degree of risk. As an investor you should be able to bear a complete loss of your investment. You should carefully consider the information set forth in the section entitled “Risk Factors” immediately following this prospectus summary.

Company Information

Our executive offices are located at 2980 Beverly Glen Circle, Suite 301, Los Angeles, California 90077 and our telephone number at this location is (310) 474-9809. Our website address is wwwtargetedmedicalpharma.com. The information on our website is not part of this prospectus.

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SUMMARY FINANCIAL INFORMATION

In the table below, we provide you with historical selected consolidated financial data for the years ended December 31, 2010 and 2009, derived from our audited consolidated financial statements, and for the quarter ended March 31, 2011 and 2010, derived from our unaudited financial statements, all of which are included elsewhere in this prospectus. Historical results are not necessarily indicative of the results that may be expected for any future period. When you read this historical selected financial data, it is important that you read along with it the historical consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

Consolidated Statements of Operations (in thousands)

       
  For the Year Ended
December 31,
(audited)
  For the Quarter Ended
March 31,
(unaudited)
  2010   2009   2011   2010
Revenues:
 
Product Sales   $ 18,037     $ 11,494     $ 5,593     $ 3,592  
Service Revenue     1,078       705       154       451  
Total Revenue     19,115       12,199       5,747       4,043  
Cost of Sales     2,572       1,466       657       636  
Gross Profit     16,543       10,733       5,090       3,407  
Research and Development     320       22       37       84  
Selling     421       164       43       4  
Compensation     3,434       2,973       1,694       861  
General and Administrative     3,005       1,815       1,178       684  
Total Operating Expenses     7,180       4,974       2,952       1,632  
Net Income before Other Income     9,363       5,759       2,138       1,774  
Other Income and (Expense)     742       5       4       (2 ) 
Income Taxes     (4,292 )      (1,783 )      (730 )      (755 ) 
Net Income   $ 5,813     $ 3,981     $ 1,412     $ 1,018  
Diluted Earnings Per Share   $ 0.31     $ 0.21     $ 0.07     $ 0.05  
Weighted Average Number of Shares     18,493,173       18,588,532       21,668,753       18,588,532           

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  March 31,
2011
(unaudited)
  December 31,
2010
(audited)
Balance Sheet (in thousands)
              
Cash and Investments   $ 447     $ 1,040  
Inventory     278       365  
Accounts Receivable – Net of Allowance for Doubtful Accounts     23,866       20,360  
Other Current Assets     491       453  
Total Current Assets     25,082       22,219  
Long Term Accounts Receivable     2,456       2,512  
Property and Equipment – Net of Accumulated Depreciation     558       535  
Intangible Assets – Net of Accumulated Amortization     2,298       2,202  
Other Assets     480       228  
Total Assets   $ 30,874     $ 27,696  
Total Liabilities     12,550       10,797  
Common Stock and Paid in Capital     3,222       3,209  
Retained Earnings     15,102       13,689  
Total Shareholders’ Equity     18,324       16,899  
Total Liabilities and Shareholders’ Equity   $ 30,874     $ 27,696  

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THE OFFERING

Securities offered:    
                shares of common stock
Offering Price:    
    $    
Proposed NASDAQ Capital Market symbol:    
    “    ”
Use of Proceeds:    
    Our current estimate of the use of the net proceeds of this offering, which we expect to be approximately $27,689,000, is as follows: $3,989,000 for working capital, $3,000,000 for sales and marketing, $3,000,000 for distribution channel development, $2,000,000 for facility infrastructure, $2,000,000 for management expansion, $2,000,000 for scientific education, $1,500,000 for technical infrastructure, $1,500,000 for research and development, $1,000,000 for regulatory compliance, $500,000 for intellectual property $500,000 for scientific advisory board and $6,700,000 for taxes payable. We will, however, have broad discretion over the use of proceeds of this offering and the estimates may change over time.
Risk Factors:    
    See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

Except as otherwise set forth in this prospectus, the share information above and elsewhere in this prospectus is based on 21,949,576 shares of common stock outstanding on July 14, 2011.

The share information in this prospectus does not include:

933,091 shares of common stock issuable upon the exercise of stock options outstanding as of July 14, 2011 at a weighted average exercise price of $2.28 per share;
     shares of common stock issuable upon exercise of warrants issued to the underwriters in connection with this offering with an exercise price of $    ; and
     shares of common stock issuable upon exercise of warrants issued to AFH Holding and Advisory, LLC in connection with the Reorganization with an exercise price of $    .

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RISK FACTORS

An investment in our common stock involves a high degree of risk. You should carefully consider the risk factors described below together with all of the other information contained in this prospectus, including our consolidated financial statements and the notes thereto, before deciding whether to invest in shares of our common stock. Each of these risks could have a material adverse effect on our business, operating results, financial condition and/or growth prospects. As a result, you might lose all or part of your investment.

Risks Related to Our Business

Our products and facility and the facilities of our manufacturers are subject to federal laws and regulations. Failure to comply with any law or regulation could result in penalties and restrictions on our manufacturers’ ability to manufacture and our ability to distribute products. If any such action were to be imposed, it could have a material adverse effect on our business and results of operations.

Although medical foods do not require pre-market approval by the FDA, manufacturers of medical foods must be registered with the FDA under a provision promulgated by the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (the Bioterrorism Act). Manufacturers of medical foods are subject to periodic inspection by the FDA. The manufacture of our medical foods is outsourced in its entirety to a third party manufacturer. Our medical foods have been reviewed by the FDA on several occasions. The inspection process includes a review of our facility, sampling of our products and a review of labeling and other patient and promotional materials related to our products. The most recent routine facilities inspection by the Southwest Regional Office of the FDA was conducted in January 2011. A formal report will be issued by the agency in four to six months after laboratory analysis of product samples is completed. No deficiencies in the facility or operations were noted during the inspection. Even if the results of the current inspection are positive, there is no certainty that the FDA will favorably review new medical food products we introduce or our manufacturers’ facilities in the future. If the outcome of the inspection is negative or if we or our manufacturers fail to comply with any law or regulation, we could be subject to penalties and restrictions on our manufacturers’ ability to manufacture and distribute products. Any such action may result in a material adverse effect on our business and results of operations. For a more complete discussion of the laws and regulations to which we are subject, please see the section of this prospectus titled “Business —  Government Regulation”.

If we are unable to secure reimbursement for our products from insurance companies on behalf of our physician clients, or if the collection cycle is protracted, cash flow from product sales by PTL and the billing and collection fee CCPI charges to our physician clients may be adversely affected.

The collection cycle in the workers’ compensation portion of our business, which has historically accounted for up to approximately 75% of our revenue, may take from 45 days to four years after the initial submission of a claim by CCPI and may involve denials and an extensive appeals process. In the event a reimbursement claim is denied and we appeal the denial, there can be no assurance that we will be successful in such appeal. In the event a reimbursement is delayed, we may be required to wait in excess of an additional year before we are paid for the cost of product sold to our physician clients. In addition, because CCPI fee revenue is dependent on collections from insurance companies for physician clients, delays or difficulties with these collections will reduce collection revenue. In addition, collection issues on behalf of our physician clients may lead to dissatisfaction of our clients in our collection program and curtailed use of our products in their practice, which may adversely affect the growth of our business and our results of operations.

In the event the collection cycle for the reimbursement of our products is protracted, cash flow from the products sold and support services provided to our physician clients may be adversely affected and we may be unable to sustain the growth of our Company at its current rate without additional financing.

In the event the collection cycle for the reimbursement claims we make on behalf of our physician clients is protracted, revenue from the products sold and support services provided to physician clients, which is the most lucrative part of our business, may be adversely affected. A prolonged collection cycle may also reduce our cash flow and require us to seek additional financing to support our operations. Such additional financing may not be available on terms acceptable to us or at all. If we raise funds by issuing additional securities, the newly issued securities may further dilute your ownership interest. If adequate funds are not available, then

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we may be required to delay, reduce or eliminate product development or marketing programs. Our inability to take advantage of opportunities in the industry because of capital constraints may have a material adverse effect on our business and our prospects.

The Company filed its 2010 federal and California state income tax returns in April 2011 and June 2011, respectively, without paying the taxes due on the returns. The Company has also not made estimated tax payments for the current tax year. The Company has initiated discussions with the Internal Revenue Service and the California Franchise Tax Board to obtain extensions of time for payment of those taxes but there can be no assurance that we will be successful.

The Company filed its 2010 federal and state tax returns in April 2011 and June 2011, respectively, without including payment for amounts due and has not made estimated tax payments for the 2011 tax year. The Company has engaged in discussions with the Internal Revenue Service and the California Franchise Tax Board to extend the payment of these taxes over a mutually agreeable period of time. While we believe that we will be able to come to a mutually agreeable solution, there can be no assurance that this can be achieved and the Internal Revenue Service and the California Franchise Tax Board may employ other means of collection including tax liens and levies. In addition, any agreement may include the use of proceeds from any loans and from the equity raise to repay amounts due.

In the event this offering is not consummated, our sources of liquidity may be inadequate to support operations and pay all amounts due.

The Company has historically financed operations through cash flows from operations as well as equity transactions. In addition to taxes due for 2010, we will need to make estimated tax payments during 2011 for the year ending December 31, 2011 in amounts to be determined based on the 2010 tax return and estimates of the expected taxable income for the year ending December 31, 2011. We are exploring sources of debt and equity capital funding including discussions with debt capital providers and are continuing with the due diligence process. In the event this offering is not consummated, there can be no assurance that we will be able to secure funding on terms acceptable to us or that we will have adequate resources to make these payments or be able to fund our operations for the next twelve months. The Company is planning for future growth including investments beyond cash flow expected to be generated from current operations. Any significant growth will likely require significant additional expenditures, capital investments and operating capital. We may also pursue expansion through acquisition, joint venture or other business combination with other entities in order to expand our distribution network. There can be no assurance that we will be able to secure funding on terms acceptable to us and may have to curtail these expansion plans.

In April 2010, the FDA sent us a warning letter about our convenience-packed products. As a result of objections made by the FDA, we have removed reduced drug dosage claims in our patient and promotional materials. There can be no assurance that the FDA will not raise additional objections with respect to our products. Any such action could have a material adverse effect on our business, operations and results of operations.

One of our divisions, Physician Therapeutics (PTL), received a warning letter from the Los Angeles District of the FDA on April 8, 2010 related to our convenience-packed products. To facilitate discussions with the FDA, we voluntarily stopped providing our physician clients with completed convenience packs. We responded to the FDA on April 24, 2010 and met with the FDA on August 3, 2010. We then corresponded with the FDA on August 24, 2010 and September 13, 2010 with a plan to address the FDA’s concerns about our convenience-packed products. We agreed to remove from our patient and promotional materials a claim that the co-administration of our medical foods with the prescription drug could reduce the dose of the prescription drug. We further agreed to refrain from providing any materials that would promote any off-label use of a prescription drug, including both indication and dose of the drug. In the future, the FDA could raise additional objections about our products. As a result of these objections, we could be required to make further modifications in accordance with the FDA’s requests. Any such action could have a material adverse effect on our business and results of operations.

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A significant portion of the Company’s revenues are derived from the sale of a single product.

In fiscal years 2010 and 2009, the Company derived 53% and 54.4% of its revenues from the sale of Theramine , respectively. Following the receipt of the FDA warning letter, the Company voluntarily stopped shipping completed Theramine and instead began providing physician clients with the components of the convenience pack, which physician clients could determine to package together for a patient’s use. We have found that providing the various components and permitting our physician clients to assemble the convenience packs at the time they are dispensed to the patient is more convenient and cost effective. We cannot assure you that shifting the assembly of Theramine to our physician clients will not have a material adverse effect on the Company’s operating results.

A substantial portion of the Company’s revenue is derived from a limited number of physician clients and the loss of any one or more of them may have an immediate adverse effect on our financial results.

In the fiscal years 2010 and 2009, 41% and 51%, respectively, of the Company’s revenues were derived from individual customers representing 10% or more of the total sales. Four physician clients each represented 9% or more of total sales of the Company and contributed to 41% of the Company’s revenues in 2010. The Company does not receive purchase volume commitments from clients and physicians may stop purchasing our products and services with little or no warning. The loss of any one or more of these customers may have an immediate adverse effect on our financial results.

As of March 31, 2011, several of our physician clients had accounts receivable balances in excess of the total amount of all claims being processed by CCPI on their behalf. If these physician clients do not generate enough new claims, collection of amounts due from the physician clients may be more difficult.

As of March 31, 2011, several of our physician clients had accounts receivable balances in excess of the total amount of all claims being processed by CCPI on their behalf. One physician practice group, which consists of eleven clinics and multiple physicians and physicians’ assistants, had an accounts receivable balance of $2,845,476 in excess of the claims managed by CCPI on its behalf. Under our product purchase contract with the physician client, the physician client is responsible for the payment of product invoices to TMP regardless of reimbursement to them of any claims for product dispensed. For physician clients who also contract with CCPI for billing and collections services, we deduct the amount of product purchases from the collection received on behalf of the physician prior to forwarding the remaining payment to the physician. As of March 31, 2011, several of these physician clients maintained balances due to TMP for product invoices that were in excess of the total claims being processed by CCPI on their behalf. When outstanding accounts receivable are greater than managed accounts receivable, we consider taking alternative measures toward the collection of outstanding amounts due to the Company. For example, we recently modified our billing and collections agreement for the physician practice group mentioned above, as more fully discussed on page 38 of this prospectus to include one-third of all net reimbursements due to the physician client being retained by the Company for repayment of outstanding invoices. All of these physicians continue to dispense our products and are generating new claims for reimbursement. For example, the physician practice group mentioned above has been dispensing our products since 2007 and dispensed 4000 units and generated $700,000 of accounts receivable in April 2011 alone. Since then, this physician client’s dispense rate has remained at a similar level. In addition, we believe that these physicians have the financial ability to pay these outstanding invoices regardless of reimbursement in accordance with our agreement but there can be no assurance that we will be successful in these collection efforts, if needed, and pursuing legal remedies for the collection of these amounts may be costly and take considerable time.

There is no certainty that our products will continue to be reimbursed by private insurance, Medicare and workers compensation insurers. If these entities do not continue to reimburse for the costs of our products, this could have a material adverse effect on our business and results of operations.

In order for private insurance, Medicare and workers compensation insurers to reimburse the cost of our products, we must, among other things, maintain registration of the products in the National Drug Code (NDC) registry, maintain our relabeler license, maintain our company formulary approval by Pharmacy Benefits Managers and maintain recognition by insurance companies and the Center For Medicare and Medicaid Services (CMS) of the Department of Health and Human Services that our products are covered by

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various agencies. There is no certainty that we will be able to maintain these requirements for insurance reimbursement of our products. If our physician clients do not continue to be reimbursed for dispensing our products, they may choose not to purchase them and our business and results of operations may be adversely affected. If physician clients are unable to obtain adequate reimbursement for dispensing our products, they may not be able to pay us for outstanding product invoices currently included in our accounts receivable. While the physician client remains responsible for payment of product invoices in accordance with our agreement regardless of reimbursement, pursuing legal remedies for the collection of these amounts may be costly and take considerable time.

There is no guaranty that our products will remain registered in the NDC registry or in commercial databases. If we are unable to maintain our registration, our business and results of operations may be adversely affected.

The Drug Listing Act of 1972 requires registered drug establishments to provide the FDA with a current list of all drugs manufactured, prepared, propagated, compounded, or processed by it for commercial distribution. Drug products are identified and reported using a unique, three-segment number, called the National Drug Code (NDC), which is a universal product identifier for human drugs.

In order to obtain insurance reimbursement, products must be identified by their NDC numbers. Manufacturers of drugs, devices and biologics have traditionally registered their products in one or more of the NDC databases in order to be reimbursed by third party payers. The submission of establishment registration and drug listing forms has been completed exclusively on paper until recently. Beginning June 1, 2009 a new law became effective that requires that drug establishment registration and drug listing information be submitted electronically. Our medical food products are registered in the FDA NDC database in the previous paper format. The new Structured Product Labeling format introduced by the FDA in June 2009 is a very complex system that involves translating traditional registration information into XML format. As a result of difficulties with the electronic program, the FDA instituted weekly conference calls to resolve registration problems and, as a result of these obstacles, there can be no guarantee that these products can be registered in the new electronic format.

We have registered our medical foods and medical food convenience packs in the First Databank, Medispan and Redbook databases. All the core medical foods are registered in the FDA’s official National Drug Code database. In addition, the Company has registered 38 of its 47 convenience packs in the NDC database. There is no assurance that we can maintain our registrations in either the FDA NDC database or the private registration systems. The majority of insurance companies draw their information from the private databases but there is no assurance that our products will remain in the databases or that new products we develop will be added to such databases, which could leave doctors unable to obtain reimbursement for our products. If we are unable to maintain our registration, our business and results of operations may be adversely affected.

If we are forced to reduce our prices, our business, financial condition and results of operations may suffer.

We may be subject to pricing pressures with respect to our future sales arising from various sources, including practices of health insurance companies, Internet pharmacies, and pharmacy benefits managers, including those operating outside the United States, and government action affecting pharmaceutical reimbursement under Medicare. Our physician clients and the other entities with which we have a business relationship are affected by changes in regulations and limitations in governmental spending for Medicare and Medicaid programs. Recent government actions could limit government spending for the Medicare and Medicaid programs, limit payments to physicians and other providers and increase emphasis on competition and other programs that potentially could have an adverse effect on our customers and the other entities with which we have a business relationship. If our pricing experiences significant downward pressure, our business will be less profitable and our results of operations may be adversely affected. In addition, because cash from sales funds our working capital requirements, reduced profitability could require us to raise additional capital to support our operations.

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If we are unable to successfully introduce new products or services or fail to keep pace with medical advances and developments in billing services, our business, financial condition and results of operations may be adversely affected.

The successful implementation of our business model depends on our ability to adapt to evolving technologies and industry standards and introduce new products and services. We cannot assure you that we will be able to introduce new products on schedule, or at all, or that such products will achieve market acceptance. Moreover, competitors may develop competitive products that could adversely affect our results of operations. A failure by us to introduce planned products or other new products or to introduce these products on schedule may have an adverse effect on our business, financial condition and results of operations.

If we cannot adapt to changing technologies, our products and services may become obsolete, and our business could suffer. Because the Internet and healthcare information markets are characterized by rapid technological change, we may be unable to anticipate changes in our current and potential customers’ requirements that could make our existing technology obsolete. Our success will depend, in part, on our ability to continue to enhance our existing products and services, develop new technology that addresses the increasingly sophisticated and varied needs of our prospective customers, license leading technologies and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis. The development of our proprietary technology entails significant technical and business risks. We may not be successful in using new technologies effectively or adapting our proprietary technology to evolving customer requirements or emerging industry standards, and, as a result, our business may suffer.

If physicians do not accept our products and services, or delay in deciding whether to purchase our products and services, our business, financial condition and results of operations may be adversely affected.

Our business model depends on our ability to sell our products and services. Acceptance of our products and services requires physicians to adopt different behavior patterns and new methods of conducting business and exchanging information. We cannot assure you that physicians will integrate our products and services into their workflow or those participants in the healthcare market will accept our products and services as a replacement for traditional methods of delivering pharmaceutical therapies and billing for those products. Achieving market acceptance for our products and services will require substantial sales and marketing efforts and the expenditure of significant financial and other resources to create awareness and demand by participants in the healthcare industry. If we fail to achieve broad acceptance of our products and services by physicians, and other healthcare industry participants or if we fail to position our products and services as a preferred therapies and medication management and pharmaceutical healthcare delivery, our business, financial condition and results of operations may be adversely affected.

If our principal suppliers fail or are unable to perform their contracts with us, we may be unable to meet our commitments to our customers. As a result, our reputation and our relationships with our customers may be damaged and our business and results of operations may be adversely affected.

We currently purchase a majority of the medications that we repackage from Pharma Pac and manufacture all our medical food products at Arizona Nutritional Supplements Inc. These companies are subject to FDA regulation and they are responsible for compliance with current Good Manufacturing Practices. Although our agreements provide that our suppliers will abide by the FDA manufacturing requirements, we cannot control their compliance. If they fail to comply with FDA manufacturing requirements, the FDA could prevent Arizona Nutritional Supplements Inc. from manufacturing our products or, in the case of Pharma Pac, from selling its products to us. Although we believe that there are a number of other sources of supply of medications and manufacturers of medical food products, if these suppliers are unable to perform under our agreements, particularly at certain critical times such as when we add new physician clients that will require a large production of one or more products, we may be unable to meet our commitments to our customers. If this were to happen, our reputation as well as our relationships with our customers may suffer and our business and results of operations may be adversely affected.

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If our software products fail to perform properly due to undetected errors or similar problems, our business could suffer.

Complex software such as our PDRx system often contains undetected defects or errors. It is possible that such errors may be found after introduction of new software or enhancements to existing software. We continually introduce new solutions and enhancements to our products, and, despite testing by us, it is possible that errors might occur in our software. If we detect any errors before we introduce an upgrade or an enhancement, we might have to delay deployment for an extended period of time while we address the problem. If we do not discover errors that affect software or any upgrades or enhancements until after they are deployed, we would need to provide revisions to correct such errors. Errors in our software could result in harm to our reputation, lost sales, delays in commercial release, product liability claims, delays in or loss of market acceptance of our products and services and unexpected expenses and diversion of resources to remedy errors. Furthermore, our customers might use our products and software together with products from other companies. As a result, when problems occur, it might be difficult to identify the source of the problem and errors might cause us to incur significant costs, divert the attention of our technical personnel from our solution development efforts, impact our reputation and cause significant customer relations problems.

Factors beyond our control could cause interruptions in our operations, which may adversely affect our reputation in the marketplace and our business, financial condition and results of operations.

To succeed, we must be able to distribute our products and operate our support systems without interruption. We use certain third party suppliers to manufacture, supply and ship our medical food, branded and generic drug products to customers. If these third party suppliers fail to perform, we could experience an interruption in supplying our products to physician clients. In addition, although we have established a co-location site for our support services and we have disaster recovery programs in place, our operations could be vulnerable to interruption by damage from a variety of sources, many of which are not within our control, including without limitation: (1) power loss and telecommunications failures; (2) software and hardware errors, failures or crashes; (3) computer viruses and similar disruptive problems; and (4) fire, flood and other natural disasters. Any significant interruptions in the provision of our products or our services may damage our reputation in the marketplace and have a negative impact on our business, financial condition and results of operations.

If our security is breached, we could be subject to liability, and customers could be deterred from using our services.

The Health Information Technology for Economic and Clinical Health (HITECH) Act of 2009 controls all protocols for securely transmitting protected healthcare information over the Internet, via email and facsimile, including information protected by the Health Insurance Portability and Accountability Act of 1996 (HIPAA). Our business relies on using the Internet to transmit protected healthcare information. Regulations change rapidly and, if we cannot adapt our systems in a timely fashion, we could be liable for civil and criminal penalties. The HITECH Act provides a tiered system for assessing the level of each HIPAA privacy violation and, therefore, its penalty:

Tier A is for violations in which the offender didn’t realize he or she violated HIPAA and would have handled the matter differently if he or she had. A Tier A violation results in a $100 fine for each violation, and the total imposed for such violations cannot exceed $25,000 for the calendar year.
Tier B is for violations due to reasonable cause, but not “willful neglect.” The result is a $1,000 fine for each violation, and the fines cannot exceed $100,000 for the calendar year.
Tier C is for violations due to willful neglect that the organization ultimately corrected. The result is a $10,000 fine for each violation, and the fines cannot exceed $250,000 for the calendar year.
Tier D is for violations of willful neglect that the organization did not correct. The result is a $50,000 fine for each violation, and the fines cannot exceed $1,500,000 for the calendar year.

The HITECH Act also allows states’ attorneys general to levy fines and seek attorney’s fees from covered entities on behalf of victims. Courts now have the ability to award costs.

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It is also possible that third parties could penetrate our network security or otherwise misappropriate patient information and other data. If this happens, our operations could be interrupted, and we may be subject to liability and regulatory action. We may need to devote significant additional financial and other resources to protect against security breaches or to alleviate problems caused by breaches. We could face financial loss, litigation and other liabilities to the extent that our activities or the activities of third-party contractors involve the storage and transmission of confidential information like patient records or credit information.

We may be liable for use of data we provide. If the data is incorrect, we could be liable for product liability or other claims that may be in excess of, or not covered by, our product liability insurance. This may harm our business, financial condition and results of operations.

We provide data for use by healthcare providers in treating patients. Third-party contractors provide us with some of this data. If this data is incorrect or incomplete, adverse consequences may occur and give rise to product liability and other claims against us. In addition, certain of our services provide applications that relate to patient clinical information, and a court or government agency may take the position that our delivery of health information directly to licensed practitioners exposes us to liability for wrongful delivery or handling of health information. While we maintain product liability insurance coverage in an amount that we believe is sufficient for our business, we cannot assure you that this coverage will prove to be adequate or will continue to be available on acceptable terms, if at all. A claim brought against us that is uninsured or under-insured could harm our business, financial condition and results of operations. Even unsuccessful claims could result in substantial costs and diversion of management resources.

If we incur costs exceeding our insurance coverage in lawsuits that are brought against us in the future, it could adversely affect our business, financial condition and results of operations.

If we were to become a defendant in any lawsuits involving the manufacture and sale of our products and if our insurance coverage were inadequate to satisfy these liabilities, it may have an adverse effect on our business, financial condition and results of operations.

Our business depends on our intellectual property rights, and if we are unable to protect them, our competitive position may suffer.

Our business plan is predicated on our proprietary systems and technology. Accordingly, protecting our intellectual property rights is critical to our continued success and our ability to maintain our competitive position. We protect our proprietary rights through a combination of patents, trademark, trade secret and copyright law, confidentiality agreements and technical measures. We generally enter into non-disclosure agreements with our employees and consultants and limit access to our trade secrets and technology. We cannot assure you that the steps we have taken will prevent misappropriation of our technology. Misappropriation of our intellectual property would have an adverse effect on our competitive position. In addition, we may have to engage in litigation in the future to enforce or protect our intellectual property rights or to defend against claims of invalidity, and we may incur substantial costs and the diversion of management’s time and attention as a result.

If we are deemed to infringe on the proprietary rights of third parties, we could incur unanticipated expense and be prevented from providing our products and services.

We could be subject to intellectual property infringement claims as the number of our competitors grows and our products and applications’ functionality overlaps with competitive products. While we do not believe that we have infringed or are infringing on any proprietary rights of third parties, we cannot assure you that infringement claims will not be asserted against us or that those claims will be unsuccessful. We could incur substantial costs and diversion of management resources defending any infringement claims whether or not such claims are ultimately successful. Furthermore, a party making a claim against us could secure a judgment awarding substantial damages, as well as injunctive or other equitable relief that could effectively block our ability to provide products or services. In addition, we cannot assure you that licenses for any intellectual property of third parties that might be required for our products or services will be available on commercially reasonable terms, or at all.

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