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Document and Entity Information

v2.4.0.6
Document and Entity Information
9 Months Ended
Sep. 30, 2012
Document Information [Line Items]  
Document Type S-1
Amendment Flag false
Document Period End Date Sep. 30, 2012
Document Fiscal Year Focus 2012
Document Fiscal Period Focus Q3
Entity Registrant Name TARGETED MEDICAL PHARMA, INC.
Entity Central Index Key 0001420030
Current Fiscal Year End Date --12-31
Entity Filer Category Smaller Reporting Company

CONSOLIDATED BALANCE SHEETS

v2.4.0.6
CONSOLIDATED BALANCE SHEETS (USD $)
Sep. 30, 2012
Dec. 31, 2011
Dec. 31, 2010
Current Assets:      
Cash and Cash Equivalents $ 4,210 $ 147,364 $ 795,914
Investments     244,416
Inventory 854,202 495,821 365,350
Accounts Receivable 554,053 899,493 455,458 [1]
Loans Receivable - Employees 19,095 23,360 29,738
Prepaid Expenses - Short Term 357,646 241,208 113,688
Prepaid Taxes 894,301 792,301 167,301 [2]
Deferred Tax Asset - Short Term 222,628 300,170 30,773 [2]
Total Current Assets 2,906,135 2,899,717 2,202,638
Long Term Accounts Receivable       
Property and Equipment - Net of Accumulated Depreciation 384,217 411,823 535,488
Intangible Assets - Net of Accumulated Amortization 2,347,880 2,387,801 2,201,690
Prepaid Expenses - Long Term 53,451 111,259 202,073
Deferred Tax Asset - Long Term 5,326,093 3,141,176 [3] 783,720
Other Assets 46,000 26,000 26,000
Total Assets 11,063,776 8,977,776 5,951,609
Liabilities:      
Accounts Payable and Accrued Expenses 6,549,536 5,035,136 1,558,863
Notes Payable-Related Parties: Short-term 5,122,000 1,775,561 300,000
Other Amounts due to Related Parties   602,948  
Taxes Payable       
Deferred Tax Liability - Current 69,648 69,648 [3] 69,648 [2]
Derivative Liability 426,625    
Total Current Liabilities 12,167,809 7,483,293 1,928,511
Notes Payable-Related Parties:Long-term (net of $171,452 discount) 363,996 0  
Deferred Income Taxes 1,002,283 887,050 731,828
Total Liabilities 13,534,088 8,370,343 2,660,339
Shareholders' Equity:      
Preferred stock, $0.001 par value; 20,000,000 shares authorized, no shares issued and outstanding       
Common stock, $0.001 par value; 100,000,000 shares authorized, 22,049,576,21,949,576 and 18,308,576 shares issued and outstanding at September 30, 2012, December 31, 2011 and December 31, 2010, respectively 22,050 21,950 18,309
Additional Paid-In Capital 6,648,433 4,684,095 3,191,314
Accumulated Deficit (9,140,795) (4,098,612) [4] 78,438
Accumulated Other Comprehensive Income (Loss)     3,209
Total Shareholders' Equity (Deficit) (2,470,312) 607,433 3,291,270
Total Liabilities and Shareholders' Equity (Deficit) $ 11,063,776 $ 8,977,776 $ 5,951,609
[1] Restatement of Accounts Receivable resulting from unrecognized revenues
[2] Restatement of Income Taxes to reflect the affect of the change in revenues.
[3] Restatement of Income Taxes to reflect a correction in the calculation of deferred tax assets and liabilities
[4] Restatement of Accumulated Deficit to reflect changes to tax accounts reflected in 2010 restatement.

CONSOLIDATED BALANCE SHEETS (Parenthetical)

v2.4.0.6
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
Sep. 30, 2012
Dec. 31, 2011
Dec. 31, 2010
Notes Payable-Related Parties Long-term, discount $ 171,452 $ 566,439 $ 566,439
Preferred stock, par value $ 0.001 $ 0.001 $ 0.001
Preferred stock, shares authorized 20,000,000 20,000,000 20,000,000
Preferred stock, shares issued 0 0 0
Preferred stock, shares outstanding 0 0 0
Common stock, par value $ 0.001 $ 0.001 $ 0.001
Common stock, shares authorized 100,000,000 100,000,000 100,000,000
Common stock, shares issued 22,049,576 21,949,576 18,308,576
Common stock, shares outstanding 22,049,576 21,949,576 18,308,576

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

v2.4.0.6
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (USD $)
3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Dec. 31, 2011
Dec. 31, 2010
Revenues:            
Product Sales $ 1,812,306 $ 2,359,493 $ 4,416,121 $ 6,390,818 $ 8,282,734 $ 6,544,311 [1]
Service Revenue 264,226 99,505 483,822 478,437 526,934 1,078,166
Total Revenue 2,076,532 2,458,998 4,899,943 6,869,255 8,809,668 7,622,477
Cost of Product Sold 639,071 334,157 1,008,742 876,090 1,249,522 1,228,722
Cost of Services Sold 477,225 419,361 1,363,549 1,089,823 1,507,511 1,343,770
Total Cost of Sales 1,116,296 753,518 2,372,291 1,965,913 2,757,033 2,572,492
Total Gross Profit 960,236 1,705,480 2,527,652 4,903,342 6,052,635 5,049,985
Operating Expenses:            
Research and Development 36,816 50,600 94,089 119,720 163,081 320,106
Selling, General and Administrative 2,431,049 3,113,310 7,209,421 8,674,171 11,670,092 6,305,805
Total Operating Expenses 2,467,865 3,163,910 7,303,510 8,793,891 11,833,173 6,625,911 [2]
Net Income (Loss) before Other Income and Expense (1,507,629) (1,458,430) (4,775,858) (3,890,549) (5,780,538) (1,575,926)
Other Income and Expense:            
Interest Income (Expense) (326,587) (583,739) (2,269,244) (583,739) (875,783)  
Grant Income           733,439
Derivative Revaluation 10,777   10,777      
Investment Income (Loss)       7,638 7,641 3,970
Total Other Income and (Expense) (315,810) (583,739) (2,258,467) (576,101) (868,142) 737,409
Net Income (Loss) before Taxes (1,823,439) (2,042,169) (7,034,325) (4,466,650) (6,648,680) (838,517)
Income Taxes             
Deferred Income Tax Expense (Benefit) (581,996) (759,171) (1,992,142) (1,660,466) (2,471,630) (332,404) [3]
Net Income (Loss) before Comprehensive Income (1,241,443) (1,282,998) (5,042,183) (2,806,184) (4,177,050) (506,113)
Unrealized Gain or (Loss) on Investments           1,530
Reclassification for losses included in Net Income       (3,209) (3,209) 3,659
Comprehensive Income (Loss) $ (1,241,443) $ (1,282,998) $ (5,042,183) $ (2,809,393) $ (4,180,259) $ (500,924)
Basic and Diluted Loss Per Share (In dollars per share) $ (0.06) $ (0.06) $ (0.23) $ (0.13)    
Basic Loss Per Share (In dollars per share)         $ (0.19) $ (0.03)
Diluted Loss Per Share (In dollars per share)         $ (0.19) $ (0.03)
Basic and Diluted Weighted Average Number of Common Shares Outstanding (in shares) 22,010,446 21,949,576 21,970,014 21,536,821    
Basic Weighted Average Number of Common Shares Outstanding (in shares)         21,949,576 18,301,485 [4]
Diluted Weighted Average Number of Common Shares Outstanding (In shares)         22,678,788 18,493,173 [4]
[1] Restatement of Product revenue as described above
[2] Restatement of Operating Expenses to eliminate bad debts associated with unrecognized revenues
[3] Restatement of Income Taxes to reflect the affect of the change in revenues
[4] Restatement of Share Counts to reflect the number of shares outstanding and diluted prior to the January 2011 reorganization

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

v2.4.0.6
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (USD $)
Total
Common Stock
Additional Paid-In Capital
Accumulated Deficit
Accumulated Other Comprehensive Income (Loss)
Beginning Balance at Dec. 31, 2009 [1] $ 3,658,689 $ 18,314 $ 3,057,804 $ 584,551 $ (1,980)
Beginning Balance (in shares) at Dec. 31, 2009 [1]   18,313,455      
Stock Issued for Services (in shares)   14,789      
Stock Issued for Services 50,000 15 49,985    
Shares Retired (in shares)   (19,668)      
Shares Retired   (20) 20    
Reclassification of Gains to Net Income 3,659        
Stock Option Expense 83,505   83,505    
Net Loss (506,113)     (506,113)  
Unrealized Gain on Investments 5,189       5,189
Ending Balance at Dec. 31, 2010 3,291,270 18,309 [2] 3,191,314 [2] 78,438 [2] 3,209
Ending Balance (in shares) at Dec. 31, 2010 [2]   18,308,576      
Stock Issued for Services (in shares)   16,000      
Stock Issued for Services 40,800 16 40,784    
Shares issued to existing shell shareholders in the reorganization (in shares)   3,625,000      
Shares issued to existing shell shareholders in the reorganization (500,000) 3,625 (503,625)    
Reclassification of Gains to Net Income (3,209)   0   (3,209)
Warrants Issued in connection with loans from related party 591,702   591,702    
Stock Option Expense 1,363,920   1,363,920    
Net Loss (4,177,050)     (4,177,050)  
Ending Balance at Dec. 31, 2011 607,433 21,950 4,684,095 (4,098,612)  
Ending Balance (in shares) at Dec. 31, 2011   21,949,576      
Stock Issued for Services (in shares)   100,000      
Stock Issued for Services 100,000 100 99,900    
Warrants Issued in connection with loans from related party 1,301,457   1,301,457    
Stock Option Expense 562,981   562,981    
Net Loss (5,042,183)     (5,042,183)  
Ending Balance at Sep. 30, 2012 $ (2,470,312) $ 22,050 $ 6,648,433 $ (9,140,795)  
Ending Balance (in shares) at Sep. 30, 2012   22,049,576      
[1] The stockholders' equity has been recapitalized to give effect to the shares exchanged by existing shareholders pursuant to the merger agreement dated January 31, 2011, more fully discussed in Note 7 to these financial statements.
[2] The stockholders' equity has been recapitalized to give effect to the shares exchanged by existing shareholders pursuant to the merger agreement dated January 31, 2011, more fully discussed in Note 6 to these financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

v2.4.0.6
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
9 Months Ended 12 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Dec. 31, 2011
Dec. 31, 2010
Cash Flows from Operating Activities:        
Net Loss $ (5,042,183) $ (2,806,184) $ (4,177,050) $ (506,113)
Adjustments:        
Depreciation and Amortization 325,167 336,885 457,824 328,257
Stock Option Compensation 562,981 661,750 1,363,918 83,505
Stock Issued for Services 100,000 40,800 40,800 50,000
Deferred Income Taxes (1,992,142) (1,660,466) (2,471,630) (332,404) [1]
Bad Debts Expense         
Amortization of Note Discount 2,133,847      
Derivative Liability (10,777)      
Changes:        
Inventory (358,381) 36,582 (130,471) (12,464)
Accounts Receivable 345,440 (423,578) (444,035) (110,443)
Loans Receivable - Employees 4,265 5,832 6,378 93,699
Prepaid Expenses (58,630) (60,657) (661,703) (87,188)
Prepaid Taxes (102,000) (400,000)    
Deferred Tax Asset (115,233) 24,927 (53,293) (285,105)
Other Assets (20,000)      
Accounts Payable and Accrued Expenses 1,514,400 2,143,300 3,430,379 1,148,750
Taxes Payable 0 0   (76,199)
Deferred Tax Liability 115,233 104,280 53,293 285,105
Net Cash Flows from Operating Activities (2,598,013) (1,996,529) (2,585,590) 579,400
Cash Flows from Investing Activities:        
Net Sales or (Purchases) of Investments 0 241,207 244,416 302,053
Acquisition of Intangible Assets (145,779) (488,147) (430,039) (510,188)
Purchases of Property and Equipment (111,862) (83,819) (82,285) (196,567)
Net Cash Flows from Investing Activities (257,641) (330,759) (267,908) (404,702)
Cash Flows from Financing Activities:        
Proceeds from Issuance of Common Stock         
Notes Payable-Related Parties 2,980,000 932,000 1,602,000 300,000
Due to Related Parties (267,500) 602,948 602,948  
Net Cash Flows from Financing Activities 2,712,500 1,534,948 2,204,948 300,000
Net Change in Cash and Cash Equivalents (143,154) (792,340) (648,550) 474,698
Cash and Cash Equivalents - Beginning of Year 147,364 795,914 795,914 321,216
Cash and Cash Equivalents - End of Period 4,210 3,574 147,364 795,914
Supplemental Disclosure of Cash Flow Information        
Interest Paid         
Interest Expense     10,400  
Income Taxes Paid $ 102,000 $ 400,000   $ 150,000
[1] Restatement of Income Taxes to reflect the affect of the change in revenues

CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical)

v2.4.0.6
CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) (USD $)
9 Months Ended 12 Months Ended
Sep. 30, 2012
Dec. 31, 2011
Supplemental Disclosure of Non-Cash Investing and Financing Activities    
Note payable issued to Companies Founders in partial payment of stock purchase $ 440,000 $ 440,000
Shares issued to existing shell shareholders in the reorganization 500,000 500,000
Accrued Expenses related to stock purchase $ 60,000 $ 60,000

Business Activity

v2.4.0.6
Business Activity
9 Months Ended 12 Months Ended
Sep. 30, 2012
Dec. 31, 2011
Organization, Consolidation and Presentation Of Financial Statements [Abstract]    
Business Activity

Note 1: Business Activity

 

TARGETED MEDICAL PHARMA, INC. (“Company”), also doing business as Physician Therapeutics (“PTL”), is a specialty pharmaceutical company that develops and commercializes nutrient- and pharmaceutical-based therapeutic systems. The Company also does business as Laboratory Industry Services (“LIS”), which is a facility for the performance of diagnostic testing. On July 30, 2007, the Company formed the wholly-owned subsidiary, Complete Claims Processing, Inc. (“CCPI”), which provides billing and collection services on behalf of physicians for claims to insurance companies, governmental agencies and other medical payers.

 

Segment Information :

 

The Company had revenue outside of the United States of $0 and $168,244 for the three months ended September 30, 2012 and 2011, respectively. The Company’s operations are organized into two reportable segments: Targeted Medical Pharma (“TMP”) and CCPI.

 

 TMP : This segment includes PTL and LIS as described above. This segment develops and distributes nutrient based therapeutic products and distributes pharmaceutical products from other manufacturers through employed sales representatives and distributors. TMP also performs the administrative, regulatory compliance, sales and marketing functions of the corporation, owns the corporation’s intellectual property and is responsible for research and development relating to medical food products and the development of software used for the dispensation and billing of medical foods, generic and branded products. The TMP segment also manages contracts and chargebacks.

 

 CCPI : This segment provides point-of-care dispensing solutions and billing and collections services. It is responsible for the research and development of billing software and methodologies and the customization of hardware that supports dispensing, billing and collection operations.

 

Segment Information for the three months ended September 30,

 

2012 (unaudited) Total  TMP  CCPI 
Gross Sales $2,076,532  $1,812,306  $264,226 
Gross Profit (Loss) $960,236  $1,173,235  $(212,999)
Comprehensive Income (Loss) $(1,241,443) $(1,028,444) $(212,999)
Total Assets $11,063,776  $11,146,759  $(82,983)
less Eliminations $-  $(82,983) $82,983 
Net Total Assets $11,063,776  $11,063,776  $- 

  

2011 (Unaudited and restated) Total  TMP  CCPI 
Gross Sales $2,458,998  $2,359,493  $99,505 
Gross Profit (Loss) $1,705,480  $2,025,336  $(319,856)
Comprehensive Income (Loss) $(1,282,998) $(919,287) $(363,711)
Total Assets $7,627,293  $11,019,907  $(3,392,614)
less Eliminations $-  $(3,424,405) $3,424,405 
Net Total Assets $7,627,293  $7,595,502  $31,791 

 

Segment Information for the nine months ended September 30,

 

2012 (unaudited) Total  TMP  CCPI 
Gross Sales $4,899,943  $4,416,121  $483,822 
Gross Profit (Loss) $2,527,652  $3,407,379  $(879,727)
Comprehensive Income (Loss) $(5,042,183) $(4,162,456) $(879,727)
Total Assets $11,063,776  $11,146,759  $(82,983)
less Eliminations $-  $(82,983) $82,983 
Net Total Assets $11,063,776  $11,063,776  $- 

  

2011 (Restated) Total  TMP  CCPI 
Gross Sales $6,869,255  $6,390,818  $478,437 
Gross Profit (Loss) $4,903,342  $5,514,728  $(611,386)
Comprehensive Income (Loss) $(2,809,393) $(2,562,668) $(246,725)
Total Assets $7,627,293  $11,019,907  $(3,392,614)
less Eliminations $-  $(3,424,405) $3,424,405 
Net Total Assets $7,627,293  $7,595,502  $31,791

Note 1: Business Activity

 

TARGETED MEDICAL PHARMA, INC. (“Company”), also doing business as Physician Therapeutics (“PTL”), is a specialty pharmaceutical company that develops and commercializes nutrient- and pharmaceutical-based therapeutic systems. The Company also does business as Laboratory Industry Services (“LIS”), which is a facility for the performance of diagnostic testing. On July 30, 2007, the Company formed the wholly owned subsidiary, Complete Claims Processing, Inc. ("CCPI"), which provides billing and collection services on behalf of physicians for claims to insurance companies, governmental agencies and other medical payers.

 

Segment Information:

 

The Company had revenue outside of the United States of $455,200 and $191,800 for the years ended December 31, 2011 and 2010, respectively. The Company’s operations are organized into two reportable segments: TMP and CCPI.

 

·TMP: This segment includes PTL and LIS as described above. This segment develops and distributes nutrient based therapeutic products and distributes pharmaceutical products from other manufacturers through employed sales representatives and distributors. TMP also performs the administrative, regulatory compliance, sales and marketing functions of the corporation, owns the corporation’s intellectual property and is responsible for research and development relating to medical food products and the development of software used for the dispensation and billing of medical foods, generic and branded products. The TMP segment also manages contracts and chargebacks.

 

·CCPI: This segment provides point-of-care dispensing solutions and billing and collections services. It is responsible for the research and development of billing software and methodologies and the customization of hardware that supports dispensing, billing and collection operations.

  

Segment Information for the 12 months ended December 31,

2011 (Restated) Total  TMP  CCPI 
Gross Sales $8,809,668  $8,282,734  $526,934 
Gross Profit $6,052,635  $7,033,212  $(980,577)
Comprehensive Income $(4,180,259) $(3,089,429) $(1,090,830)
Total Assets $8,977,776  $12,844,524  $(3,866,748)
      less Eliminations $-  $(3,979,936) $3,979,936 
Net Total Assets $8,977,776  $8,864,588  $113,188 
             
2010 (Restated)            
Gross Sales $7,622,477  $6,544,311  $1,078,166 
Gross Profit $5,049,985  $5,315,589  $(265,604)
Comprehensive Income $(500,924) $(189,850) $(311,074)
Total Assets $5,951,609  $6,624,150  $(672,541)
      less Eliminations $-  $(777,416) $777,416 
Net Total Assets $5,951,609  $5,846,734  $104,875

Summary of Significant Accounting Policies

v2.4.0.6
Summary of Significant Accounting Policies
9 Months Ended 12 Months Ended
Sep. 30, 2012
Dec. 31, 2011
Accounting Policies [Abstract]    
Summary of Significant Accounting Policies

Note 2: Summary of Significant Accounting Policies

 

Going concern : – The 2011 audited consolidated financial statements were prepared on the basis that the Company would continue as a going concern. The Company has losses for the year ended December 31, 2011 totaling $4,177,050 as well as accumulated deficit amounting to $4,098,612. Further the Company appeared to have inadequate cash and cash equivalents of $147,364 as of December 31, 2011 to cover projected operating costs for the next 12 months. The loss for the nine months ended September 30, 2012 was $5,042,183, which increased the accumulated deficit to $9,140,795 As a result, the Company is dependent upon further financing including loans from related parties, development of revenue streams with shorter collection times and accelerating collections on our physician managed and hybrid revenue business models.

 

These factors raise substantial doubt about the ability of the Company to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. In this regard, management is planning to raise any necessary additional funds through loans and/or additional sales of its common stock, development of revenue streams with shorter collection times and accelerating collections on our physician managed and hybrid revenue streams. There is no assurance that the Company will be successful in raising additional capital at terms acceptable to the Company.

 

Principles of consolidation : The consolidated financial statements include accounts of TMP and its wholly owned subsidiary, CCPI, collectively referred to as “the Company”. All significant intercompany accounts and transactions have been eliminated in consolidation. In addition, TMP and CCPI share the common operating facility, certain employees and various costs. Such expenses are principally paid by TMP. Due to the nature of the parent and subsidiary relationship, the individual financial position and operating results of TMP and CCPI may be different from those that would have been obtained if they were autonomous.

 

Accounting estimates : The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash Equivalents : The Company considers all highly liquid investments purchased with an original or remaining maturity of three months or less when purchased to be cash equivalents. The recorded carrying amounts of the Company’s cash and cash equivalents approximate their fair market value.

 

Considerations of credit risk : Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable.

 

TMP markets medical foods and generic and branded pharmaceuticals through employed sales representatives, independent distributors and pharmacies. Product sales are invoiced upon shipment at Average Wholesale Price (“AWP”), which is a commonly used term in the industry, with varying rapid pay discounts, under four models: Physician Direct Sales, Distributor Direct Sales, Physician Managed and Hybrid.

 

Revenue Recognition :

 

Under the following revenue models product sales are invoiced upon shipment:

 

 Physician Direct Sales Model (1% of revenue for the nine months ended September 30, 2012): Under this model, a physician purchases products from TMP but does not retain CCPI’s services. TMP invoices the physician upon shipment under terms which allow a significant rapid pay discount off AWP for payment within discount terms in accordance with the product purchase agreement. The physicians dispense the product and perform their own claims processing and collections. TMP recognizes revenue under this model on the date of shipment at the gross invoice amount less the anticipated rapid pay discount offered in the product purchase agreement. In the event payment is not received within the term of the agreement, the amount payable for the purchased TMP products reverts to the AWP. In addition, if payment is not received within the agreed-upon term, a late payment fee of up to 20% may be applied to the outstanding balance. The physician is responsible for payment directly to TMP.

 

 Distributor Direct Sales Model (30% of revenue for the nine months ended September 30, 2012): Under this model, a distributor purchases products from TMP and sells those products to a physician and the physician does not retain CCPI’s services. TMP invoices distributors upon shipment under terms which include a significant discount off AWP. TMP recognizes revenue under this model on the date of shipment at the net invoice amount. In the event payment is not received within the term of the agreement, the amount payable for the purchased TMP products reverts to the AWP. In addition, if payment is not received within the agreed-upon term, a late payment fee of up to 20% may be applied to the outstanding balance.

 

Due to substantial uncertainties as to the timing and collectability of revenues derived from our Physician Managed and Hybrid models described below, which can take in excess of four years to collect, we have determined that these revenues did not meet the criteria for recognition in accordance with ASC 605, Revenue Recognition . These revenues are therefore required to be recorded when collectability is reasonably assured, which the Company has determined is when the payment is received.

 

 Physician Managed Model (46% of revenue for the nine months ended September 30, 2012): Under this model, a physician purchases products from TMP and retains CCPI’s services. TMP invoices physician upon shipment to physician under terms which allow a significant rapid pay discount for payment received within terms in accordance with the product purchase agreement which includes a security interest for TMP in the products and receivables generated by the dispensing of the products. The physician also executes a billing and claims processing services agreement with CCPI for billing and collection services relating to our products (discussed below). CCPI submits a claim for reimbursement on behalf of the physician client. The CCPI fee and product invoice amount are deducted from the reimbursement received by CCPI on behalf of the physician client before the reimbursement is forwarded to the physician client. In the event the physician fails to pay the product invoice within the agreed term, we can deduct the payment due from any of the reimbursements received by us on behalf of the physician client as a result of the security interest we obtained in the products we sold to the physician client and the receivables generated by selling the products in accordance with our agreement. In the event payment is not received within the term of the agreement, the amount payable for the purchased TMP products reverts to the AWP. In addition, if payment is not received within the agreed-upon term, a late payment fee of up to 20% is applied to the outstanding balance. However, since we are in the early stage of our business, as a courtesy to our physician clients, our general practice has been to extend the rapid pay discount beyond the initial term of the invoice until the invoice is paid and not to apply a late payment fee to the outstanding balance. TMP recognizes revenue under this model on the date payment is received at the gross invoice amount less the applicable rapid pay discount offered in the product purchase agreement

 

 Hybrid Model (13% of revenue for the nine months ended September 30, 2012): Under this model, a distributor purchase products from TMP and sell those products to a physician and the physician retains CCPI’s services. TMP invoices distributors upon shipment under terms which allow a significant rapid pay discount for payment received within terms in accordance with the product purchase agreements. The physician client of the distributor executes a billing and claims processing services agreement with CCPI for billing and collection services (discussed below). The distributor product invoice and the CCPI fee are deducted from the reimbursement received by CCPI on behalf of the physician client before the reimbursement is forwarded to the distributor for further delivery to their physician clients. In the event payment is not received within the term of the agreement, the amount payable for the purchased TMP products reverts to the AWP. In addition, if payment is not received within the agreed-upon term, a late payment fee of up to 20% is applied to the outstanding balance. However, since we are in the early stage of our business, as a courtesy to our physician clients, our general practice has been to extend the rapid pay discount beyond the initial term of the invoice until the invoice is paid and not to apply a late payment fee to the outstanding balance. TMP recognizes revenue under this model on the date payment is received at the net invoice amount.

 

In the nine months ended September 30, 2012 and 2011 the Company issued invoices to Physician Managed and Hybrid model customers aggregating $10,035,444 and $12,588,458, respectively, which were not recognized as revenues or accounts receivable in the accompanying consolidated financial statements at the time of such billings. Direct costs associated with these revenues are expensed as incurred. Direct costs associated with these billings aggregating $1,008,742 and $876,090, respectively, were expensed in the accompanying consolidated financial statements at the time of such billings. However, in accordance with the revenue recognition policy described above, the Company recognized revenues from customers under these business models when cash was collected aggregating $2,892,866 and $3,581,067 in the nine months ended September 30, 2012 and 2011, respectively. As of September 30, 2012, the Company had contractual receivables from its Physician Managed and Hybrid model customers totaling $37,106,714 which are not reflected in the accompanying consolidated balance sheet as of such dates and will be recorded as revenue only when payment is received.

 

CCPI receives no revenue in the physician direct or distributor direct models because it does not provide collection and billing services to these customers. In the Physician Managed and Hybrid models, CCPI has a billing and claims processing service agreement with the physician. That agreement includes a service fee defined as a percentage of collections on all claims. Because fees are only earned by CCPI upon collection of the claim and the fee is not determinable until the amount of the collection of the claim is known, CCPI recognizes revenue at the time that collections are received.

 

No returns of products are allowed except products damaged in shipment, which has been insignificant.

 

The rapid pay discounts to the AWP offered to the physician or distributor, under the models described above, vary based upon the expected payment term from the physician or distributor. The discounts are derived from the Company’s historical experience of the collection rates from internal sources and updated for facts and circumstances and known trends and conditions in the industry, as appropriate. As described in the models above, we recognize provisions for rapid pay discounts in the same period in which the related revenue is recorded. We believe that our current provisions appropriately reflect our exposure for rapid pay discounts. These rapid pay discounts, have typically ranged from 40% to 88% of Average Wholesale Price and we have monitored our experience ratio periodically over the prior twelve months and have made adjustments as appropriate.

 

Allowance for doubtful accounts : Under the direct sales to physician and direct sales to distributor models, product is sold under terms that allow substantial discounts (40-88%) for payment within terms. With such substantial discounts, it is rare that an invoice is not paid within terms. We have not experienced any write offs associated with these revenue models.

 

Under the Company’s physician managed model and hybrid model, CCPI performs billing and collection services on behalf of the physician client and deducts the CCPI fee and product invoice amount from the reimbursement received by CCPI on behalf of the physician client before the reimbursement is forwarded to the physician client . Extended collection periods are typical in the workers compensation industry with payment terms extending from 45 days to in excess of four years. The physician remains personally liable for purchases of product from TMP and, during this long collection cycle, TMP retains a security interest in all products sold to the physician along with the claims receivable that result from sales of the products. CCPI maintains an accounting of all managed accounts receivable on behalf of the physician and regularly reports to the physician. As described above, due to uncertainties as to the timing and collectability of revenues derived from these models, revenue is recorded when payment is received therefore no allowance for doubtful accounts is necessary.

 

In addition to the bad debt recognition policy above, it is also TMP’s policy to write down uncollectible loans and trade receivables when the payer is no longer in existence, is in bankruptcy or is otherwise insolvent. In such instances our policy is to reduce accounts receivable by the uncollectible amount and to proportionally reduce the allowance for doubtful accounts.

 

Inventory valuation : Inventory is valued at the lower of cost (first in, first out) or market and consists primarily of finished goods.

 

Property and equipment : Property and equipment are stated at cost. Depreciation is calculated using the straight line method over the estimated useful lives of the related assets. Computer equipment is amortized over three to five years. Furniture and fixtures are depreciated over five to seven years. Leasehold improvements are amortized over the shorter of fifteen years or term of the applicable property lease. Maintenance and repairs are expensed as incurred; major renewals and betterments that extend the useful lives of property and equipment are capitalized. When property and equipment is sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is recognized. Amenities are capitalized as leasehold improvements.

 

Impairment of long-lived assets : The long-lived assets held and used by the Company are reviewed for impairment no less frequently than annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the event that facts and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability is performed. No asset impairment was recorded for the nine months ended September 30, 2012 or 2011.

 

Intangible assets : Intangible assets with finite lives, including patents and internally developed software (primarily the Company’s PDRx Software), are stated at cost and are amortized over their useful lives. Patents are amortized on a straight line basis over their statutory lives, usually fifteen to twenty years. Internally developed software is amortized over three to five years. Intangible assets with indefinite lives are tested annually for impairment, during the fiscal fourth quarter and between annual periods, and more often when events indicate that an impairment may exist. If impairment indicators exist the intangible assets are written down to fair value as required. No asset impairment was recorded for the nine months ended September 30, 2012 or 2011. 

  

Fair value of financial instruments : The Company’s financial instruments are accounts receivable, accounts payable and notes payable. The recorded values of accounts receivable, accounts payable, and notes payable approximate their values based on their short term nature.

 

Derivative Financial Instruments: The Company’s objectives in using derivative financial instruments are to obtain the lowest cash cost-source of funds. Derivative liabilities are recognized in the consolidated balance sheets at fair value based on the criteria specified in FASB ASC topic 815-40 " Derivatives and Hedging – Contracts in Entity’s own Equity ". The estimated fair value of the derivative liabilities is calculated using the Black-Scholes-Merton method where applicable and such estimates are revalued at each balance sheet date, with changes in value recorded as other income or expense in the consolidated statement of operations. As a result of the Company’s adoption of ASC topic 815-40, effective January 1, 2009 some of the Company’s warrants are now accounted for as derivatives. As of September 30, 2012, 1,158,981 warrants were classified as derivative liabilities. Each reporting period the warrants are re-valued and adjusted through the caption “derivative revaluation” on the consolidated statements of operations.

 

Income taxes : The Company determines its income taxes under the asset and liability method. Under the asset and liability approach, deferred income tax assets and liabilities are calculated and recorded based upon the future tax consequences of temporary differences by applying enacted statutory tax rates applicable to future periods for differences between the financial statements carrying amounts and the tax basis of existing assets and liabilities. Generally, deferred income taxes are classified as current or non-current in accordance with the classification of the related asset or liability. Those not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. Valuation allowances are provided for significant deferred income tax assets when it is more likely than not that some or all of the deferred tax assets will not be realized. The Company currently has $37.1 million in unrecognized revenue which is based on the total discounted amounts owed to it by its PMM and Hybrid Model Customers. Although the uncertainties as to the timing and collectability of revenues derived from these models prevent the current recognition of revenue under ASC 605, the Company does estimate that it will collect sufficient revenues before the expiration of the net operating loss deductions. Thus the Company expects that it will utilize the existing net operating losses against future income taxes and therefore a valuation allowance against the Deferred Tax Asset-Long Term is not deemed necessary as of the date of the financial statements.

 

The Company recognizes tax liabilities by prescribing a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized, and also provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. To the extent that the final tax outcome of these matters is different than the amount recorded, such differences impact income tax expense in the period in which such determination is made. Interest and penalties, if any, related to accrued liabilities for potential tax assessments are included in income tax expense.

 

Stock-Based Compensation : The Company accounts for stock option awards in accordance with ASC 718. Under ASC 718, compensation expense related to stock-based payments is recorded over the requisite service period based on the grant date fair value of the awards. Compensation previously recorded for unvested stock options that are forfeited is reversed upon forfeiture. The Company uses the Black-Scholes option pricing model for determining the estimated fair value for stock-based awards. The Black-Scholes model requires the use of assumptions which determine the fair value of stock-based awards, including the option’s expected term and the price volatility of the underlying stock.

 

The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of ASC 505-50. Accordingly, the measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.

 

Income Per Share : The Company utilizes ASC 260, “Earnings per Share”. Basic income (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares outstanding. Diluted income (loss) per share is computed similar to basic income (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Common equivalent shares are excluded from the computation if their effect is anti-dilutive.

 

The following potential common shares have been excluded from the computation of diluted net income (loss) per share for the periods presented where the effect would have been anti-dilutive:

 

  September 30,
2012
  September 30,
2011
 
Options shares excluded  2,018,444   933,091 

 

Research and development : Research and development costs are expensed as incurred. In instances where we enter into agreements with third parties for research and development activities we may prepay fees for services at the initiation of the contract. We record the prepayment as a prepaid asset and amortize the asset into research and development expense over the period of time the contracted research and development services are performed. Most contract research agreements include a ten year records retention and maintenance requirement. Typically, we expense 50% of the contract amount within the first two years of the contract and 50% over the remainder of the record retention requirements under the contract based on our experience on how long the clinical trial service is provided.

 

Reclassification :

Certain accounts in the prior-year consolidated financial statements have been reclassified for comparative purposes to conform to the presentation in the current-year financial statements.

Note 2: Summary of Significant Accounting Policies

 

Going concern: – The accompanying financial statements have been prepared on the basis that the Company will continue as a going concern. The Company has losses for the year ended December 31, 2011 totaling $4,177,050 as well as accumulated deficit amounting to $4,491,737. Further the Company appears to have inadequate cash and cash equivalents of $147,364 as of December 31, 2011 to cover projected operating costs for the next 12 months. As a result, the Company is dependent upon further financing, development of revenue streams with shorter collection times and accelerating collections on our physician managed and hybrid revenue streams.

 

These factors raise substantial doubt about the ability of the Company to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. In this regard, management is planning to raise any necessary additional funds through loans and/or additional sales of its common stock development of revenue streams with shorter collection times and accelerating collections on our physician managed and hybrid revenue streams. There is no assurance that the Company will be successful in raising additional capital.

 

Principles of consolidation: The consolidated financial statements include accounts of TMP and its wholly owned subsidiary, CCPI, collectively referred to as "the Company". All significant intercompany accounts and transactions have been eliminated in consolidation. In addition, TMP and CCPI share the common operating facility, certain employees and various costs. Such expenses are principally paid by TMP. Due to the nature of the parent and subsidiary relationship, the individual financial position and operating results of TMP and CCPI may be different from those that would have been obtained if they were autonomous.

 

Accounting estimates: The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash Equivalents: The Company considers all highly liquid investments purchased with an original or remaining maturity of three months or less when purchased to be cash equivalents. The recorded carrying amounts of the Company’s cash and cash equivalents approximate their fair market value.

 

Considerations of credit risk: Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable.

 

TMP markets medical foods and generic and branded pharmaceuticals through employed sales representatives, independent distributors and pharmacies. Product sales are invoiced upon shipment at Average Wholesale Price (“AWP”), which is a commonly used term in the industry, with varying rapid pay discounts, under four models:Physician Direct Sales, Distributor Direct Sales, Physician Managed and Hybrid.

 

Revenue Recognition:

 

Under the following revenue modelsproduct sales are invoiced upon shipment:

 

·Physician Direct Sales Model (1% of revenue for 12 months ended December 31, 2011): Under this model, a physician purchases products from TMP but does not retain CCPI’s services. TMP invoices the physician upon shipment under terms which allow a significant rapid pay discount off AWP for payment within discount terms in accordance with the product purchase agreement. The physicians dispense the product and perform their own claims processing and collections. TMP recognizes revenue under this model on the date of shipment at the gross invoice amount less the anticipated rapid pay discount offered in the product purchase agreement. In the event payment is not received within the term of the agreement, the amount payable for the purchased TMP products reverts to the AWP. In addition, if payment is not received within the agreed-upon term, a late payment fee of up to 20% may be applied to the outstanding balance. The physician is responsible for payment directly to TMP.

  

·Distributor Direct Sales Model (40% of revenue for 12 months ended December 31, 2011): Under this model, a distributor purchases products from TMP and sells those products to a physician and the physician does not retain CCPI’s services. TMP invoices distributors upon shipment under terms which include a significant discount off AWP. TMP recognizes revenue under this model on the date of shipment at the net invoice amount. In the event payment is not received within the term of the agreement, the amount payable for the purchased TMP products reverts to the AWP. In addition, if payment is not received within the agreed-upon term, a late payment fee of up to 20% may be applied to the outstanding balance.

 

Due to substantial uncertainties as to the timing and collectability of revenues derived from our Physician Managed and Hybrid models described below, which can take in excess of four years to collect, we have determined that these revenues did not meet the criteria for recognition in accordance with SAB Topic 13, Revenue Recognition. These revenues are therefore required to be recorded when collectability is reasonably assured, which the Company has determined is when the payment is received.

 

·Physician Managed Model (48% of revenue for 12 months ended December 31, 2011): Under this model, a physician purchases products from TMP and retains CCPI’s services. TMP invoices physician upon shipment to physician under terms which allow a significant rapid pay discount for payment received within terms in accordance with the product purchase agreement which includes a security interest for TMP in the products and receivables generated by the dispensing of the products. The physician also executes a billing and claims processing services agreement with CCPI for billing and collection services relating to our products (discussed below). CCPI submits a claim for reimbursement on behalf of the physician client. The CCPI fee and product invoice amount are deducted from the reimbursement received by CCPI on behalf of the physician client before the reimbursement is forwarded to the physician client. In the event the physician fails to pay the product invoice within the agreed term, we can deduct the payment due from any of the reimbursements received by us on behalf of the physician client as a result of the security interest we obtained in the products we sold to the physician client and the receivables generated by selling the products in accordance with our agreement. In the event payment is not received within the term of the agreement, the amount payable for the purchased TMP products reverts to the AWP. In addition, if payment is not received within the agreed-upon term, a late payment fee of up to 20% is applied to the outstanding balance. However, since we are in the early stage of our business, as a courtesy to our physician clients, our general practice has been to extend the rapid pay discount beyond the initial term of the invoice until the invoice is paid and not to apply a late payment fee to the outstanding balance.

 

·Hybrid Model (11% of revenue for 12 months ended December 31, 2011): Under this model, a distributor purchase products from TMP and sell those products to a physician and the physician retains CCPI’s services. TMP invoices distributors upon shipment under terms which allow a significant rapid pay discount for payment received within terms in accordance with the product purchase agreements. The physician client of the distributor executes a billing and claims processing services agreement with CCPI for billing and collection services (discussed below). The distributor product invoice and the CCPI fee are deducted from the reimbursement received by CCPI on behalf of the physician client before the reimbursement is forwarded to the distributor for further delivery to their physician clients. In the event payment is not received within the term of the agreement, the amount payable for the purchased TMP products reverts to the AWP. In addition, if payment is not received within the agreed-upon term, a late payment fee of up to 20% is applied to the outstanding balance. However, since we are in the early stage of our business, as a courtesy to our physician clients, our general practice has been to extend the rapid pay discount beyond the initial term of the invoice until the invoice is paid and not to apply a late payment fee to the outstanding balance.

 

In 2011 and 2010, the Company issued billings to Physician Managed and Hybrid model customers aggregating $16.16 million and $15.70 million, respectively, which were not recognized as revenues or accounts receivable in the accompanying consolidated financial statements at the time of such billings. Direct costs associated with these revenues are expensed as incurred. Direct costs associated with these billings aggregating $1,249,522 and $1,228,722 respectively, were expensed in the accompanying consolidated financial statements at the time of such billings. However, in accordance with the revenue recognition policy described above, the Company recognized revenues from certain of these customers when cash was collected aggregating $4,937,529 and $3,134,775 in 2011 and 2010, respectively. As of December 31, 2011 and 2010, the Company had contractual receivables from its Physician Managed and Hybrid model customers totaling $33,767,275 and $22,937,666 respectively, which are not reflected in the accompanying consolidated balance sheet as of such dates and will be recorded as revenue only when payment is made.

 

CCPI receives no revenue in the physician direct or distributor direct models because it does not provide collection and billing services to these customers. In the Physician Managed and Hybrid models, CCPI has a billing and claims processing service agreement with the physician. That agreement includes a service fee defined as a percentage of collections on all claims. Because fees are only earned by CCPI upon collection of the claim and the fee is not determinable until the amount of the collection of the claim is known, CCPI recognizes revenue at the time that collections are received.

 

No returns of products are allowed except products damaged in shipment, which has been insignificant.

 

The rapid pay discounts to the AWP offered to the physician or distributor, under the models described above, vary based upon the expected payment term from the physician or distributor. The discounts are derived from the Company’s historical experience of the collection rates from internal sources and updated for facts and circumstances and known trends and conditions in the industry, as appropriate. As described in the models above, we recognize provisions for rapid pay discounts in the same period in which the related revenue is recorded. We believe that our current provisions appropriately reflect our exposure for rapid pay discounts. These rapid pay discounts, have typically ranged from 40% to 88% of Average Wholesale Price and we have monitored our experience ratio periodically over the prior twelve months and have made adjustments as appropriate.

 

Allowance for doubtful accounts: Under the direct sales to physician and direct sales to distributor models, product is sold under terms that allow substantial discounts (40-88%) for payment within terms. With such substantial discounts, it is rare that an invoice is not paid within terms. We have not experienced any write offs associated with these revenue models.

 

 Under the Company’s physician managed model and hybrid model, CCPI performs billing and collection services on behalf of the physician client and deducts the CCPI fee and product invoice amount from the reimbursement received by CCPI on behalf of the physician client before the reimbursement is forwarded to the physician client . Extended collection periods are typical in the workers compensation industry with payment terms extending from 45 days to in excess of four years. The physician remains personally liable for purchases of product from TMP and, during this long collection cycle, TMP retains a security interest in all products sold to the physician along with the claims receivable that result from sales of the products. CCPI maintains an accounting of all managed accounts receivable on behalf of the physician and regularly reports to the physician. As described above, due to uncertainties as to the timing and collectability of revenues derived from these models, revenue is recorded when payment is received therefore no allowance for doubtful accounts is necessary.

 

In addition to the bad debt recognition policy above, it is also TMP’s policy to write down uncollectible loans and trade receivables when the payer is no longer in existence, is in bankruptcy or is otherwise insolvent. In such instances our policy is to reduce accounts receivable by the uncollectible amount and to proportionally reduce the allowance for doubtful accounts.

 

Inventory valuation: Inventory is valued at the lower of cost (first in, first out) or market and consists primarily of finished goods.

 

Property and equipment: Property and equipment are stated at cost. Depreciation is calculated using the straight line method over the estimated useful lives of the related assets. Computer equipment is amortized over three to five years. Furniture and fixtures are depreciated over five to seven years. Leasehold improvements are amortized over the shorter of fifteen years or term of the applicable property lease. Maintenance and repairs are expensed as incurred; major renewals and betterments that extend the useful lives of property and equipment are capitalized. When property and equipment is sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is recognized. Amenities are capitalized as leasehold improvements.

 

Impairment of long-lived assets: The long-lived assets held and used by the Company are reviewed for impairment no less frequently than annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the event that facts and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability is performed. No asset impairment was recorded for the 12 months ended December 31, 2011 or 2010.

 

Intangible assets: Intangible assets with finite lives, including patents and internally developed software (primarily the Company’s PDRx Software), are stated at cost and are amortized over their useful lives. Patents are amortized on a straight line basis over their statutory lives, usually fifteen to twenty years. Internally developed software is amortized over three to five years. Intangible assets with indefinite lives are tested annually for impairment, during the fiscal fourth quarter and between annual periods, and more often when events indicate that an impairment may exist. If impairment indicators exist the intangible assets are written down to fair value as required. No asset impairment was recorded for the 12 months ended December 31, 2011 or 2010.

 

On September 18, 2009, TMP entered into a settlement with one if its distributors on its accounts receivable of $1,301,000. Pursuant to the agreement, the distributor agreed to: (1) sell all domain names and assets associated with the website, medicalfoods.com to TMP, and (2) surrender to TMP its entire PTL physician client list, except four individual PTL active physician groups, and waive all rights associated with its PTL physical client list. The client list had no value since most of the clients had become PLT clients already. The value of the domain name was based on the fair value of the asset exchanged.

 

 Fair value of financial instruments: The Company’s financial instruments are accounts receivable, accounts payable and notes payable. The recorded values of accounts receivable, accounts payable, and notes payable approximate their values based on their short term nature.

 

Income taxes: The Company determines its income taxes under the asset and liability method. Under the asset and liability approach, deferred income tax assets and liabilities are calculated and recorded based upon the future tax consequences of temporary differences by applying enacted statutory tax rates applicable to future periods for differences between the financial statements carrying amounts and the tax basis of existing assets and liabilities. Generally, deferred income taxes are classified as current or non-current in accordance with the classification of the related asset or liability. Those not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. Valuation allowances are provided for significant deferred income tax assets when it is more likely than not that some or all of the deferred tax assets will not be realized.

 

The Company recognizes tax liabilities by prescribing a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized, and also provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. To the extent that the final tax outcome of these matters is different than the amount recorded, such differences impact income tax expense in the period in which such determination is made. Interest and penalties, if any, related to accrued liabilities for potential tax assessments are included in income tax expense.

 

Stock-Based Compensation: The Company accounts for stock option awards in accordance with ASC 718. Under ASC 718, compensation expense related to stock-based payments is recorded over the requisite service period based on the grant date fair value of the awards. Compensation previously recorded for unvested stock options that are forfeited is reversed upon forfeiture. The Company uses the Black-Scholes option pricing model for determining the estimated fair value for stock-based awards. The Black-Scholes model requires the use of assumptions which determine the fair value of stock-based awards, including the option’s expected term and the price volatility of the underlying stock.

 

The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of ASC 505-50. Accordingly, the measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.

 

Income Per Share: The Company utilizes ASC 260, “Earnings per Share”. Basic income (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares outstanding. Diluted income (loss) per share is computed similar to basic income (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Common equivalent shares are excluded from the computation if their effect is anti-dilutive.

 

 The following potential common shares have been excluded from the computation of diluted net income (loss) per share for the periods presented where the effect would have been anti-dilutive:

 December 31, 2011  December 31, 2010 
Options shares excluded 941,357  291,347 

 

Research and development: Research and development costs are expensed as incurred. In instances where we enter into agreements with third parties for research and development activities we may prepay fees for services at the initiation of the contract. We record the prepayment as a prepaid asset and amortize the asset into research and development expense over the period of time the contracted research and development services are performed. Most contract research agreements include a ten year records retention and maintenance requirement. Typically, we expense 50% of the contract amount within the first two years of the contract and 50% over the remainder of the record retention requirements under the contract based on our experience on how long the clinical trial service is provided.

 

Reclassification

Certain accounts in the prior-year financial statements have been reclassified for comparative purposes to conform to the presentation in the current-year financial statements.

Net Property and Equipment

v2.4.0.6
Net Property and Equipment
12 Months Ended
Dec. 31, 2011
Property, Plant and Equipment [Abstract]  
Net Property and Equipment

Note 3: Net Property and Equipment

 

Net Property and Equipment for the year ending December 31, 2011  2010 
       
Computer Equipment $589,813  $547,642 
Furniture and Fixtures  237,923   215,794 
Leasehold Improvements  230,465   212,480 
Total, at cost $1,058,201  $975,916 
Accumulated Depreciation and Amortization  (646,378)  (440,428)
Total Property and Equipment $411,823  $535,488 

 

Depreciation expense for the years ended December 31, 2011 and 2010 was $205,950 and $176,420, respectively. Depreciation included in Cost of Services for the years ended December 31, 2011 and 2010 was $102,975 and $88,310. No depreciation is recorded in Cost of Product Sales since all production for TMP is outsourced to a third party and stored at an outsourced facility. All TMP depreciation is recorded as part of general and administrative expenses.

Stock Based Compensation

v2.4.0.6
Stock Based Compensation
9 Months Ended 12 Months Ended
Sep. 30, 2012
Dec. 31, 2011
Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]    
Stock Based Compensation

Note 3: Stock Based Compensation

 

For the nine months ended September 30, 2012 and 2011, the Company recorded compensation costs for options and stock grants amounting to $662,981 and $661,750 respectively. A deduction is not allowed for income tax purposes until nonqualified options are exercised. The amount of this deduction will be the difference between the fair value of the Company’s common stock and the exercise price at the date of exercise. Accordingly, there is a deferred tax asset recorded for the tax effect of the financial statement expense recorded. The tax effect of the income tax deduction in excess of the financial statement expense, if any, will be recorded as an increase to additional paid-in capital. No tax deduction is allowed for incentive stock options (ISO). Accordingly no deferred tax asset is recorded for GAAP expense related to these options.

 

Management has valued the options at their date of grant utilizing the Black Scholes option pricing model. As of the issuance of these consolidated financial statements, there was not a public market for the Company shares. Accordingly, the fair value of the underlying shares was determined based on the historical volatility data of similar companies, considering the industry, products and market capitalization of such other entities. The risk-free interest rate used in the calculations is based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the expected life of the options depending on the date of the grant and expected life of the options. The expected life of the options used was based on the contractual life of the option granted. Stock-based compensation is a non-cash expense because we settle these obligations by issuing shares of our common stock from our authorized shares instead of settling such obligations with cash payments.

 

The fair value of options granted in the nine months ended September 30, 2012 was determined using the following assumptions:

 

 Volatility factors of 91-97% were based on similar companies;
 Expected terms of 5 years based on one-half of the average of the vesting term and the ten year expiration of the option grant;
 A dividend rate of zero; and
 The risk free rate was the treasury rate with a maturity of the expected term (0.62% to 1.05%).

 

The following table summarizes the status of the Company’s aggregate stock options granted:

 

  Number of
Shares
Remaining
Options
  Weighted
Average
Exercise
Price
 
       
Outstanding at January 1, 2011  566,424  $2.11 
Options granted during 2011  1,382,538  $2.96 
Options exercised during 2011  0     
Options forfeited during 2011  365,871  $2.62 
Outstanding at December 31, 2011  1,583,091  $2.73 
Exercisable at December 31, 2011  1,147,909  $2.49 
Options granted during 2012  435,353  $1.06 
Options exercised during 2012  0     
Options forfeited during 2012  0     
Outstanding at September 30, 2012  2,018,444  $2.37 
Exercisable at September 30, 2012  1,669,303  $2.48 

 

The following table summarizes the status of the Company’s aggregate non-vested shares:

 

  Number of
Non-vested
Shares
  Weighted
Average
fair Value
at Grant
Date
 
         
Non-vested at December 31, 2010  206,310  $1.07 
Granted in 12 months ended December 31, 2011  1,382,538  $2.10 
Forfeited in 12 months ended December 31, 2011  365,871  $1.76 
Vested in 12 months ended December 31, 2011  941,599  $1.61 
Non-vested at December 31, 2011  435,182  $1.66 
Exercisable at December 31, 2011  1,147,909  $1.30 
Outstanding at December 31, 2011  1,583,091  $1.40 
Granted in nine months ended September 30, 2012  435,353  $0.43 
Forfeited in nine months ended September 30, 2012  -  $- 
Vested in nine months ended September 30, 2012  521,394  $1.08 
Non-vested at September 30, 2012  349,141  $0.93 
Exercisable at September 30, 2012  1,669,303  $1.24 
Outstanding at September 30, 2012  2,018,444  $1.19 

 

Per employment agreements with each of Dr. Shell and Mr. Giffoni (the “TMP Insiders”), each dated September 1, 2010 and amended on January 31, 2011, the TMP Insiders are entitled to 500,000 shares of common stock and annual base salary and benefits for the longer of the remaining term of the employment agreement or 30 months in the event the TMP Insider is terminated without cause by us or with cause by the TMP Insider. We would have “cause” to terminate the employment relationship upon (i) a TMP Insider’s conviction of or a plea of nolo contendere for the commission of a felony or (ii) the TMP Insider’s willful failure to substantially perform the TMP Insider’s duties under the employment agreement. A TMP Insider will have “cause” to terminate the employment relationship with us in the event any of the following circumstances are not remedied within 30 days of our receipt of a notice of termination from the TMP Insider: (i) a material change in the TMP Insider’s duties or a material limitation of the TMP Insider’s powers; (ii) a failure to elect the TMP Insider to the management position specified in such TMP Insider’s employment agreement or a reduction of the TMP Insider’s annual base salary; (iii) our failure to continue in effect any benefit plan in effect upon the execution of the initial employment agreement, (iv) a material breach by us of the employment agreement and (v) a change in control (which is defined in the TMP Insiders’ employment agreements). Amendment No. 1 to each of the TMP Insiders’ employment agreements deleted the change in control provisions.

 

 
 

 

Pursuant to the employment agreements, the TMP Insiders are also entitled to receive incentive stock options ranging from 7,394 options to 110,917 options, each at an exercise price of $3.49 per share (which numbers have been adjusted for the Reorganization), in the event we achieve certain EBITDA targets ranging from $50,000,000 to $250,000,000. The Company will grant additional incentive stock options upon achievement of each milestone set forth below. Milestone levels shall be based upon EBIDTA reported in the financial statements during any calendar year. EBIDTA is defined as earnings before taxes, interest, depreciation, and amortization.

 

EBIDTA  Options
$50,000,000  an option to purchase 5,000 shares Common Stock.
$60,000,000  an option to purchase 7,500 shares Common Stock.
$80,000,000  an option to purchase 7,500 shares Common Stock.
$100,000,000  an option to purchase 10,000 shares Common Stock.
$125,000,000  an option to purchase 10,000 shares Common Stock.
$150,000,000  an option to purchase 10,000 shares Common Stock.
$175,000,000  an option to purchase 15,000 shares Common Stock.
$200,000,000  an option to purchase 50,000 shares Common Stock.
$250,000,000  an option to purchase 75,000 shares Common Stock.

 

The fair value of warrants issued in connection with certain loans made by related parties during the three months ended September 30, 2012 was determined using the Black Scholes Option Pricing Model with the following assumptions:

 

 Stock price of $0.61
 Exercise price of $1.00
 Volatility factor of 91% based on similar companies;
 Expected term of 5 years based on the term of the warrant;
 A dividend rate of zero; and
 The risk free rate of .90-1.05%

 

The following table summarizes the status of the Company’s outstanding warrants

 

       Number of  Exercise  Expiration 
Issue Date Issued to    Warrants  Price  Date 
                   
08/19/11 EC and WS Family Trust     43,568  $3.38   08/19/16 
09/01/11 EC and WS Family Trust      23,237  $3.38   09/01/16 
09/23/11 EC and WS Family Trust      15,104  $3.38   09/23/16 
09/28/11 EC and WS Family Trust      58,091  $3.38   09/28/16 
10/17/11 EC and WS Family Trust      50,296  $3.38   10/17/16 
10/20/11 EC and WS Family Trust      36,982  $3.38   10/20/16 
11/08/11 EC and WS Family Trust      35,503  $3.38   11/08/16 
11/22/11 EC and WS Family Trust      41,420  $3.38   11/22/16 
12/07/11 EC and WS Family Trust      34,024  $3.38   12/07/16 
01/04/12 EC and WS Family Trust      8,876  $3.38   01/04/17 
01/18/12 EC and WS Family Trust      7,396  $3.38   01/18/17 
01/19/12 EC and WS Family Trust      29,586  $3.38   01/19/17 
01/31/12 EC and WS Family Trust      59,172  $3.38   01/31/17 
02/01/12 EC and WS Family Trust      73,964  $3.38   02/01/17 
02/15/12 EC and WS Family Trust      59,172  $3.38   02/15/17 
02/29/12 EC and WS Family Trust      71,006  $3.38   03/01/17 
03/15/12 EC and WS Family Trust      22,189  $3.38   03/15/17 
03/28/12 EC and WS Family Trust      44,379  $3.38   03/28/17 
06/22/12 EC and WS Family Trust      250,000  $1.00   04/11/17 
06/22/12 EC and WS Family Trust      100,000  $1.00   04/19/17 
06/22/12 EC and WS Family Trust      200,000  $1.00   04/26/17 
06/22/12 EC and WS Family Trust      150,000  $1.00   05/02/17 
06/22/12 EC and WS Family Trust      110,000  $1.00   05/10/17 
06/22/12 EC and WS Family Trust      220,000  $1.00   05/24/17 
06/22/12 EC and WS Family Trust      190,000  $1.00   05/25/17 
06/22/12 EC and WS Family Trust      175,000  $1.00   06/13/17 
06/27/12 EC and WS Family Trust      220,000  $1.00   06/27/17 
07/05/12 EC and WS Family Trust      95,000  $1.00   07/05/17 
09/26/12 Fred Sahakian      25,000  $1.00   09/26/17 
09/26/12 AFH Holding and Advisory, LLC      1,038,981  $1.00   09/26/17 
         3,487,946         

  

As approved on July 27, 2012, warrants issued by the Company after June 30, 2012 will contain a provision such that if and whenever the Company shall either (i) reduce, or be deemed to have reduced, the exercise price or conversion price of any of its outstanding warrants to purchase shares of Common Stock of the Company, or any other security exercisable for, or convertible into, shares of Common Stock of the Company, to a price lower than the Exercise Price of the Warrant in effect immediately prior to the time of such reduction, or (ii) issues or sells, or is deemed to have issued or sold, any additional warrants to purchase shares of Common Stock of the Company, or any other security exercisable for, or convertible into, shares of Common Stock of the Company, with a price lower than the Exercise Price of the Warrant in effect immediately prior to the time of such issuance or sale, then, and in each such case, the then-existing Exercise Price of the Warrant shall be reduced to a price equal to the exercise price or conversion price of such amended or newly-issued or sold security.

Note 4: Stock Based Compensation

 

For the 12 months ended December 31, 2011 and 2010, the Company recorded compensation costs for options amounting to $1,363,918 and $83,505 respectively. . A deduction is not allowed for income tax purposes until nonqualified options are exercised. The amount of this deduction will be the difference between the fair value of the Company’s common stock and the exercise price at the date of exercise. Accordingly, there is a deferred tax asset recorded for the tax effect of the financial statement expense recorded. The tax effect of the income tax deduction in excess of the financial statement expense, if any, will be recorded as an increase to additional paid-in capital. No tax deduction is allowed for incentive stock options (ISO). Accordingly no deferred tax asset is recorded for GAAP expense related to these options.

 

Management has valued the options at their date of grant utilizing the Black Scholes option pricing model. As of the issuance of these financial statements, there was not a public market for the Company shares. Accordingly, the fair value of the underlying shares was determined based on the historical volatility data of similar companies, considering the industry, products and market capitalization of such other entities. The risk-free interest rate used in the calculations is based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the expected life of the options depending on the date of the grant and expected life of the options. The expected life of the options used was based on the contractual life of the option granted. Stock-based compensation is a non-cash expense because we settle these obligations by issuing shares of our common stock from our authorized shares instead of settling such obligations with cash payments.

 

The fair value of options granted in the 12 months ended December 31, 2011 was determined using the following assumptions:

 

·Volatility factors of 83-97% were based on similar companies;
·Expected terms of 5.25-6 years based on one-half of the average of the vesting term and the ten year expiration of the option grant;
·A dividend rate of zero; and
·The risk free rate was the treasury rate with a maturity of the expected term (.90% to 2.46%).

 

The following table summarizes the status of the Company’s aggregate stock options granted:

 

  Number of
Shares
Remaining
Options
  Weighted
Average
Exercise
Price
 
       
Outstanding at January 1, 2011  566,424  $2.11 
Options granted during 2011  1,382,538  $2.96 
Options exercised during 2011  0     
Options forfeited during 2011  365,871  $2.62 
Outstanding at December 31, 2011  1,583,091  $2.73 
Exercisable at December 31, 2011  1,147,909  $2.49 

  

The following table summarizes the status of the Company’s aggregate non-vested shares

 

  Number of
Non-vested
Shares
  Weighted
Average
fair Value
at Grant
Date
 
       
Non-vested at December 31, 2010  206,310  $1.07 
Granted in 12 months ended December 31, 2011  1,382,538  $2.10 
Forfeited in 12 months ended December 31, 2011  365,871  $1.76 
Vested in 12 months ended December 31, 2011  941,599  $1.61 
Non-vested at December 31, 2011  435,182  $1.66 
Exercisable at December 31, 2011  1,147,909  $1.30 
Outstanding at December 31, 2011  1,583,091  $1.40 

 

Per employment agreements with each of Dr. Shell, Ms. Charuvastra and Mr. Giffoni (the “TMP Insiders”), each dated September 1, 2010 and amended on January 31, 2011, the TMP Insiders are entitled to 500,000 shares of common stock and annual base salary and benefits for the longer of the remaining term of the employment agreement or 30 months in the event the TMP Insider is terminated without cause by us or with cause by the TMP Insider. We would have “cause” to terminate the employment relationship upon (i) a TMP Insider’s conviction of or a plea of nolo contendere for the commission of a felony or (ii) the TMP Insider’s willful failure to substantially perform the TMP Insider’s duties under the employment agreement. A TMP Insider will have “cause” to terminate the employment relationship with us in the event any of the following circumstances are not remedied within 30 days of our receipt of a notice of termination from the TMP Insider: (i) a material change in the TMP Insider’s duties or a material limitation of the TMP Insider’s powers; (ii) a failure to elect the TMP Insider to the management position specified in such TMP Insider’s employment agreement or a reduction of the TMP Insider’s annual base salary; (iii) our failure to continue in effect any benefit plan in effect upon the execution of the initial employment agreement, (iv) a material breach by us of the employment agreement and (v) a change in control (which is defined in the TMP Insiders’ employment agreements). Amendment No. 1 to each of the TMP Insiders’ employment agreements deleted the change in control provisions.

 

Pursuant to the employment agreements, the TMP Insiders are also entitled to receive incentive stock options ranging from 7,394 options to 110,917 options, each at an exercise price of $3.49 per share (which numbers have been adjusted for the Reorganization), in the event we achieve certain EBITDA targets ranging from $50,000,000 to $250,000,000. The Company will grant additional incentive stock options upon achievement of each milestone set forth below. Milestone levels shall be based upon EBIDTA reported in the financial statements during any calendar year. EBIDTA is defined as earnings before taxes, interest, depreciation, and amortization.

 

EBIDTA  Options
$50,000,000  an option to purchase 5,000 shares Common Stock.
$60,000,000  an option to purchase 7,500 shares Common Stock.
$80,000,000  an option to purchase 7,500 shares Common Stock.
$100,000,000  an option to purchase 10,000 shares Common Stock.
$125,000,000  an option to purchase 10,000 shares Common Stock.
$150,000,000  an option to purchase 10,000 shares Common Stock.
$175,000,000  an option to purchase 15,000 shares Common Stock.
$200,000,000  an option to purchase 50,000 shares Common Stock.
$250,000,000  an option to purchase 75,000 shares Common Stock.

 

The fair value of warrants issued in connection with certain loans made by related parties during the 12 months ended December 31, 2011 was determined using the Black Scholes Option Pricing Model with the following assumptions:

 

·Stock price of $2.55
·Exercise price of $3.38
·Volatility factor of 96.66% based on similar companies;
·Expected term of 5 years based on the term of the warrant;
·A dividend rate of zero; and
·The risk free rate of 0.90%

 

The following table summarizes the status of the Company’s outstanding warrants

 

  Note  Interest  Number of  Value of  Discounted 
Date Amount  Rate  Shares  Warrant  Note Value 
                
08/19/11 $150,000   3.95%  43,568  $76,220  $73,780 
09/01/11 $80,000   3.95%  23,237  $40,651  $39,349 
09/23/11 $52,000   3.95%  15,104  $26,423  $25,577 
09/28/11 $200,000   3.95%  58,091  $101,627  $98,373 
10/17/2011 $170,000   3.95%  50,296  $87,989  $82,011 
10/20/2011 $125,000   3.95%  36,982  $64,698  $60,302 
11/8/2011 $120,000   3.95%  35,503  $62,110  $57,890 
11/22/2011 $140,000   3.95%  41,420  $72,462  $67,538 
12/7/2011 $115,000   3.95%  34,024  $59,522  $55,478 
as of 12/31/11          338,225  $591,702  $560,298

Investments and Fair Value Measurements

v2.4.0.6
Investments and Fair Value Measurements
12 Months Ended
Dec. 31, 2011
Investments, All Other Investments [Abstract]  
Investments and Fair Value Measurements

Note 5: Investments and Fair Value Measurements

 

Investments: The Company records its investments in accordance with ASC 320-10 Accounting for Certain Investments in Certain Debt and Equity Securities. As of December 31, 2011 and 2010, the Company has classified its portfolio as available-for-sale securities. These securities are recorded at fair value, based on quoted market prices in an active market, with net unrealized holding gains and losses reported in stockholders’ equity as accumulated other comprehensive income. At December 31, 2011 and 2010 the carrying value of investments approximated fair market value, and are classified as Level 1 Assets as defined by ASC 820-10.

 

Fair Value Measurements: The Company defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last is considered unobservable:

 

Level 1: Quoted prices in active markets for identical assets or liabilities.

 

Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

 The following table represents our fair value hierarchy for financial assets (cash equivalents and investments) measured at fair value on a recurring basis. Level 1 available-for-sale investments are primarily comprised of investments in U.S. Treasury securities, valued using market prices in active markets. All of our investments are priced by quoted prices in active markets for identical assets.

 

Assets measured at fair value as of December 31, 2011 and December 31, 2010 are summarized as follows:

 

  Level 1  Cost  Unrealized 
  Fair Value  Basis  Gain/(Loss) 
Investments on December 31, 2011            
None $-  $-  $- 
             
Investments on December 31, 2010            
Government money market fund $101,296  $101,296  $- 
High yield bond fund  90,290   88,183  $2,107 
Exchange traded equity fund  52,830   51,728  $1,102 
Total $244,416  $241,207  $3,209 

 

During the year ended December 31, 2011, the Company recognized a realized gain on the sale of an investment of $3, 209. $3,209 of this gain was previously recorded as an unrealized gain in comprehensive income for the year ended December 31, 2010. On December 31, 2010 the Company had unrealized gains of $3,209. The net change in unrealized gains and (losses) was 3,209 for the year ended December 31, 2011 and $5189 ) for the year ended December 31, 2010. The cost basis for all investments was the actual amount paid on a specifically identified basis, all investments were highly liquid and all investments were available for sale. The Company had no investments in the year ended December 31, 2011 and no Level 2 or Level 3 assets in the year ending December 31, 2010.

Intangible Assets

v2.4.0.6
Intangible Assets
12 Months Ended
Dec. 31, 2011
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets

Note 6: Intangible Assets

 

For the year ending December 31, 2011  2010 
Patents $328,070  $235,056 
Internally Developed Software  1,342,169   1,005,145 
Total, at cost $1,670,239  $1,240,201 
Accumulated Amortization  (583,438)  (339,511)
Net Intangible Assets $1,086,801  $900,690 
Intangible Assets held at cost:        
URL medicalfoods.com  1,301,000   1,301,000 
Total Intangible Assets $2,387,801  $2,201,690 

 

 Amortization over the next five years is as follows:

  

2012 $239,689 
2013 $227,707 
2014 $202,714 
2015 $132,778 
2016 $27,932 

 

Amortization expense for the years ended December 31, 2011 and 2010 was $243,928 and $151,838, respectively.

Notes Payable - Related Parties

v2.4.0.6
Notes Payable - Related Parties
9 Months Ended 12 Months Ended
Sep. 30, 2012
Dec. 31, 2011
Related Party Transactions [Abstract]    
Notes Payable - Related Parties

Note 4:  Notes Payable – Related Parties

 

The following table summarizes the status of the Company’s outstanding notes

 

        Note  Interest  Date 
 Date  Issued to    Amount  Rate  Payable 
                    
 01/31/11  EC and WS Family Trust (a)  (d)  $293,334   6.00% On Demand(b)
 01/31/12  Giffoni Family Trust  (d)  $146,666   6.00% 12/1/2012(b)
 05/04/11  EC and WS Family Trust     $200,000   3.25% On Demand 
 05/04/11  Giffoni Family Trust     $100,000   3.25% 5/4/2016 
 06/12/12  EC and WS Family Trust  (c)  $200,000   3.25% On Demand 
 06/12/11  Giffoni Family Trust  (c)  $100,000   3.25% 6/12/2016 
 06/18/11  EC and WS Family Trust     $150,000   3.25% On Demand 
 08/19/11  EC and WS Family Trust     $150,000   3.95% On Demand 
 09/01/11  EC and WS Family Trust     $80,000   3.95% On Demand 
 09/23/11  EC and WS Family Trust     $52,000   3.95% On Demand 
 09/28/11  EC and WS Family Trust     $200,000   3.95% On Demand 
 10/17/11  EC and WS Family Trust     $170,000   3.95% On Demand 
 10/20/11  EC and WS Family Trust     $125,000   3.95% On Demand 
 11/08/11  EC and WS Family Trust     $120,000   3.95% On Demand 
 11/22/11  EC and WS Family Trust     $140,000   3.95% On Demand 
 12/07/11  EC and WS Family Trust     $115,000   3.95% On Demand 
 01/04/12  EC and WS Family Trust     $30,000   3.95% On Demand 
 01/18/12  EC and WS Family Trust     $25,000   3.95% On Demand 
 01/19/12  EC and WS Family Trust     $100,000   3.95% On Demand 
 01/31/12  EC and WS Family Trust     $200,000   3.95% On Demand 
 02/01/12  EC and WS Family Trust     $250,000   3.95% On Demand 
 02/15/12  EC and WS Family Trust     $200,000   3.95% On Demand 
 02/29/12  EC and WS Family Trust     $240,000   3.95% On Demand 
 03/15/12  EC and WS Family Trust     $75,000   3.95% On Demand 
 03/28/12  EC and WS Family Trust     $150,000   3.95% On Demand 
 04/11/12  EC and WS Family Trust     $250,000   3.95% On Demand 
 04/19/12  EC and WS Family Trust     $100,000   3.95% On Demand 
 04/26/12  EC and WS Family Trust     $200,000   3.95% On Demand 
 05/02/12  EC and WS Family Trust     $150,000   3.95% On Demand 
 05/10/12  EC and WS Family Trust     $110,000   3.95% On Demand 
 05/24/12  EC and WS Family Trust     $220,000   3.95% On Demand 
 05/25/12  EC and WS Family Trust     $190,000   3.95% On Demand 
 06/13/12  EC and WS Family Trust     $175,000   3.95% On Demand 
 06/27/12  EC and WS Family Trust     $220,000   3.95% On Demand 
 07/05/12  EC and WS Family Trust     $95,000   3.95% On Demand 
 07/20/12  AFH Holding and Advisory, LLC   $335,448  8.50% 7/20/2014 
          $5,657,448        
                    
    Current     $5,122,000        
    Long-term     $535,448        
    Less Unamortized discount  $(171,452)       
    Net Long-term     $363,996        

 

(a) Elizabeth Charuvastra and William Shell Family Trust

 

(b) or on consumation of the Company’s initial public offering

 

(c) On December 12, 2010, the Company issued a promissory note to the Targeted Medical Pharma, Inc. Profit Sharing Plan (the “Plan”) in the amount of $300,000 (the “Plan Note”).  The note bears interest at a rate of 8.0 percent per annum and was payable on June 12, 2011. On June 12, 2011, the Company, the Plan, William E. Shell, Elizabeth Charuvastra, Kim Giffoni, the EC and WS Family Trust and the Giffoni Family Trust entered into an agreement  (the “Note Agreement”) pursuant to which the Plan assigned the Plan Note to Dr. Shell, Ms. Charuvastra and Mr. Giffoni in an amount of $100,000 each.  Moreover, pursuant to the Note Agreement, each of Dr. Shell and Ms. Charuvastra assigned their respective interests in the Plan Note to the EC and WS Family Trust.  In accordance with the Note Agreement, in connection with the assignments, the Plan Note was amended to extend the maturity date to December 15, 2015 and to reduce the interest rate from 8.0% per annum to 3.25% per annum.  The Company issued new notes to each of the WC and WS Family Trust (in the amount of $200,000) and to Mr. Giffoni (in the amount of $100,000) to memorialize the amendments pursuant to the Note Agreement.

 

(d) On January 31, 2011, the Company issued promissory notes to each of William Shell, our Chief Executive Officer, Chief Scientific Officer, interim Chief Financial Officer and a director, Elizabeth Charuvastra, our Chairman, Vice President of Regulatory Affairs and a director, and Kim Giffoni, our Executive Vice President of Foreign Sales and Investor Relations and a director, in an aggregate amount of $440,000.  The notes bear interest at a rate of 6% per annum and are payable on the earlier of December 1, 2012 or the consummation of the Company’s initial public offering.

 

On June 22, 2012 the terms of all notes listed above to the EC and WS Family Trust were modified to make the principal payable on demand and accrued interest payable on a quarterly basis. The Company recorded any remaining note discount as of June 22, 2012.

Note 7:  Notes Payable – Related Parties

 

On December 12, 2010, the Company issued a promissory note to the Targeted Medical Pharma, Inc. Profit Sharing Plan (the "Plan") in the amount of $300,000 (the "Plan Note").  The note bears interest at a rate of 8.0 percent per annum and was payable on June 12, 2011.

 

On January 31, 2011, the Company issued promissory notes to each of William Shell, our Chief Executive Officer, Chief Scientific Officer, interim Chief Financial Officer and a director, Elizabeth Charuvastra, our Chairman, Vice President of Regulatory Affairs and a director, and Kim Giffoni, our Executive Vice President of Foreign Sales and Investor Relations and a director, in an aggregate amount of $440,000.  The notes bear interest at a rate of 6% per annum and are payable on the earlier of December 1, 2012 or the consummation of the Company's initial public offering.

 

On May 4, 2011, the Company issued a promissory note to the Elizabeth Charuvastra and William Shell Family Trust dated July 27, 2006 and Amended September 29, 2006 (the "EC and WS Family Trust") in the amount of $200,000.  The note bears interest at a rate of 3.25% per annum and is payable on May 4, 2016.

 

On May 4, 2011, the Company issued a promissory note to the Giffoni Family Trust Dated September 26, 2008 (the "Giffoni Family Trust")  in the amount of $100,000.  The note bears interest at a rate of 3.25% per annum and is payable on May 4, 2016.

 

On June 12, 2011, the Company, the Plan, William E. Shell, Elizabeth Charuvastra, Kim Giffoni, the EC and WS Family Trust and the Giffoni Family Trust entered into an agreement  (the "Note Agreement") pursuant to which the Plan assigned the Plan Note to Dr. Shell, Ms. Charuvastra and Mr. Giffoni in an amount of $100,000 each.  Moreover, pursuant to the Note Agreement, each of Dr. Shell and Ms. Charuvastra assigned their respective interests in the Plan Note to the EC and WS Family Trust.  In accordance with the Note Agreement, in connection with the assignments, the Plan Note was amended to extend the maturity date to December 15, 2015 and to reduce the interest rate from 8.0% per annum to 3.25% per annum.  The Company issued new notes to each of the WC and WS Family Trust (in the amount of $200,000) and to Mr. Giffoni (in the amount of $100,000) to memorialize the amendments pursuant to the Note Agreement.

  

On June 18, 2011, the Company issued a promissory note to the EC and WS Family Trust in the amount of $150,000.  The note bears interest at a rate of 3.25% per annum and is payable on June 18, 2016.

 

August 19, 2011, the Company issued a promissory note to the EC and WS Family Trust in the amount of $150,000.  The note bears interest at a rate of 3.95% per annum and is payable on August 19, 2016. As an inducement to make this loan the EC and WS Family Trust was issued a warrant for 43,568 shares of Targeted Medical Pharma, Inc. common stock at an exercise price of $3.38 per share This warrant is dated November 7, 2011 and expires five years from date of issue.

 

On September 1, 2011, the Company issued a promissory note to the EC and WS Family Trust in the amount of $80,000.  The note bears interest at a rate of 3.95% per annum and is payable on September 1, 2016. As an inducement to make this loan the EC and WS Family Trust  was issued a warrant for 23,237 shares of Targeted Medical Pharma, Inc. common stock at an exercise price of $3.38 per share This warrant is dated November 7, 2011 and expires five years from date of issue.

 

On September 23, 2011, the Company issued a promissory note to the EC and WS Family Trust in the amount of $52,000.  The note bears interest at a rate of 3.95% per annum and is payable on September 23, 2016. As an inducement to make this loan the EC and WS Family Trust  was issued a warrant for 15,104 shares of Targeted Medical Pharma, Inc. common stock at an exercise price of $3.38 per share This warrant is dated November 7, 2011 and expires five years from date of issue.

 

On September 28, 2011, the Company issued a promissory note to the EC and WS Family Trust in the amount of $200,000.  The note bears interest at a rate of 3.95% per annum and is payable on September 28, 2016. As an inducement to make this loan the EC and WS Family Trust  was issued a warrant for 58,091 shares of Targeted Medical Pharma, Inc. common stock at an exercise price of $3.38 per share This warrant is dated November 7, 2011 and expires five years from date of issue.

 

On October 17, 2011, the Company issued a promissory note to the EC and WS Family Trust in the amount of $170,000.  The note bears interest at a rate of 3.95% per annum and is payable on October 17, 2016. As an inducement to make this loan the EC and WS Family Trust  was issued a warrant for 50,296 shares of Targeted Medical Pharma, Inc. common stock at an exercise price of $3.38 per share This warrant is dated October 17, 2011 and expires five years from date of issue.

 

On October 20, 2011, the Company issued a promissory note to the EC and WS Family Trust in the amount of $125,000.  The note bears interest at a rate of 3.95% per annum and is payable on October 20, 2016. As an inducement to make this loan the EC and WS Family Trust  was issued a warrant for 36,982 shares of Targeted Medical Pharma, Inc. common stock at an exercise price of $3.38 per share This warrant is dated October 20, 2011 and expires five years from date of issue.

 

On November 8, 2011, the Company issued a promissory note to the EC and WS Family Trust in the amount of $120,000.  The note bears interest at a rate of 3.95% per annum and is payable on November 8, 2016. As an inducement to make this loan the EC and WS Family Trust  was issued a warrant for 35,503 shares of Targeted Medical Pharma, Inc. common stock at an exercise price of $3.38 per share This warrant is dated November 8, 2011 and expires five years from date of issue.

 

On November 22, 2011, the Company issued a promissory note to the EC and WS Family Trust in the amount of $140,000.  The note bears interest at a rate of 3.95% per annum and is payable on November 22, 2016. As an inducement to make this loan the EC and WS Family Trust  was issued a warrant for 41,420 shares of Targeted Medical Pharma, Inc. common stock at an exercise price of $3.38 per share This warrant is dated November 22, 2011 and expires five years from date of issue.

 

On December 7, 2011, the Company issued a promissory note to the EC and WS Family Trust in the amount of $115,000.  The note bears interest at a rate of 3.95% per annum and is payable on December 7, 2016. As an inducement to make this loan the EC and WS Family Trust  was issued a warrant for 34,024 shares of Targeted Medical Pharma, Inc. common stock at an exercise price of $3.38 per share This warrant is dated December 7, 2011 and expires five years from date of issue.

Concentrations

v2.4.0.6
Concentrations
12 Months Ended
Dec. 31, 2011
Risks and Uncertainties [Abstract]  
Concentrations

Note 8: Concentrations

 

Major Vendor

The Company purchases its medical food manufacturing services from a single source. The Company is dependent on the ability of this vendor to provide inventory on a timely basis. The loss of this vendor or a significant reduction in product availability and quality could have a material adverse effect on the Company. While the Company keeps at least a two months inventory on hand, it could take between two and 12 months to set up and test a new supplier, leading to up to four months of product backorder. The Company’s relationship with this vendor is in good standing and the expiration date of the contract is December 31, 2016.

Lease Commitments

v2.4.0.6
Lease Commitments
12 Months Ended
Dec. 31, 2011
Leases [Abstract]  
Lease Commitments

Note 9: Lease Commitments

 

The Company leases its operating facility under a lease agreement expiring February 28, 2015 and several smaller storage spaces on a month-to-month basis. The Company, as lessee, is required to pay for all insurance, repairs and maintenance and any increases in real property taxes over the lease period on the operating facility. The Company’s net rent expense for the years ended December 31, 2011 and December 31, 2010 were approximately $206,000 and $175,000.

 

Minimum annual rentals on the operating facility for the fiscal years ending December 31 are as follows:

  

2012  158,196 
2013  158,196 
2014  158,196 
2015  26,366 
Total $500,954

Recently Issued Accounting Pronouncements

v2.4.0.6
Recently Issued Accounting Pronouncements
9 Months Ended 12 Months Ended
Sep. 30, 2012
Dec. 31, 2011
Accounting Changes and Error Corrections [Abstract]    
Recently Issued Accounting Pronouncements

Note 5: Recently Issued Accounting Pronouncements

 

Presentation of Comprehensive Income: In June 2011, the FASB issued ASU No.  2011-05 , “Presentation of Comprehensive Income” ( ASU 2011-05). The provisions of ASU 2011-05 amend FASB ASC Topic 220 “Comprehensive Income” to eliminate the current option to present the components of other comprehensive income in the statement of changes in equity, and require the presentation of net income and other comprehensive income (and their respective components) either in a single continuous statement or in two separate but consecutive statements. The amendments do not alter any current recognition or measurement requirements with respect to items of other comprehensive income. The provisions of ASU 2011-05 are effective for the Company’s first reporting period beginning on January 1, 2012, with early adoption permitted. The adoption of ASU 2011-05 did not have a material impact on the Company’s condensed consolidated financial statements.

  

Fair Value Measurement and Disclosure : In May 2011, the FASB issued ASC Update 2011-04, “Fair Value Measurement: (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASC Update 2011-04 amends current U.S. GAAP to create more commonality with IFRS by changing some of the wording used to describe requirements for measuring fair value and for disclosing information about fair value measurements. This update is effective for the first interim or annual reporting period beginning after December 15, 2011. The Company began application of ASC 2011-04 on January 1, 2012, which is not expected to have any effect on results of operations, financial position, and cash flows.

Note 10: Recently Issued Accounting Pronouncements

 

Fair Value Measurements and Disclosures: In January 2010, the FASB issued Accounting Standards Update No. 2010-06, topic 820, Fair Value Measurements and Disclosures, which amends existing fair value disclosure pronouncements. This update provides amendments to Subtopic 820-10 that require new disclosures as follows:

 

-Transfers in and out of Levels 1 and 2. A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers.

-Activity in Level 3 fair value measurements. In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number).

 

This update also provides amendments to Subtopic 820-10 that clarify existing disclosures as follows:

-Level of disaggregation. A reporting entity should provide fair value measurement disclosures for each class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. A reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities.

-Disclosures about inputs and valuation techniques. A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3.

 

This update also includes conforming amendments to the guidance on employers’ disclosures about postretirement benefit plan assets (Subtopic 715-20). The conforming amendments to Subtopic 715-20 change the terminology from major categories of assets to classes of assets and provide a cross reference to the guidance of Subtopic 820-10 on how to determine appropriate classes to present fair value disclosures.

This update is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.

The adoption of this guidance did not have a material impact on the Company’s financial statements.

 

Other Expenses: In December 2010, the FASB issued an accounting standard update that provides guidance on the recognition and presentation of the annual fee to be paid by pharmaceutical companies beginning on January 1, 2011 to the U.S. Treasury as a result of U.S. Healthcare Legislation. As a result of adopting this new standard, beginning on January 1, 2011, we will record the annual fee, if any, as an operating expense in our consolidated statements of income. The provisions of this standard did not have a significant impact on our consolidated financial statements.

 

 Business Combinations: In December 2010, the FASB issued Accounting Standards Update No. 2010-29, topic 805, Disclosure of Supplementary Pro Forma Information for Business Combinations, to clarify diversity in practice of applying this topic. Paragraph 805-10-50-2(h) requires a public entity to disclose pro forma information for business combinations that occurred in the current reporting period. The disclosures include pro forma revenue and earnings of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period. If comparative financial statements are presented, the pro forma revenue and earnings of the combined entity for the comparable prior reporting period should be reported as though the acquisition date for all business combinations that occurred during the current year had been as of the beginning of the comparable prior annual reporting period. The adoption of this guidance did not have a material impact on the Company’s financial statements.

Fair Value Measurement and Disclosure: In May 2011, the FASB issued ASC Update 2011-04, “Fair Value Measurement: (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASC Update 2011-04 amends current U.S. GAAP to create more commonality with IFRS by changing some of the wording used to describe requirements for measuring fair value and for disclosing information about fair value measurements. This update is effective for the first interim or annual reporting period beginning after December 15, 2011. The Company will begin application of ASC 2011-04 on January 1, 2012, which is not expected to have any effect on results of operations, financial position, and cash flows.

Reorganization

v2.4.0.6
Reorganization
9 Months Ended 12 Months Ended
Sep. 30, 2012
Dec. 31, 2011
Restructuring and Related Activities [Abstract]    
Reorganization

Note 6: 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, 2011, TMP Merger Sub merged (the “TMP Merger”) with and into Old TMP with Old TMP continuing as the surviving entity . 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 (the surviving entity of the AFH Merger, the “Subsidiary”). As a result of the Reorganization, the Subsidiary is the Company’s wholly-owned subsidiary.

 

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 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 the Company’s common stock and one option to purchase one share of the Company’s common stock. As a result of the Reorganization, holders of Old TMP common stock and options received 18,308,576 of the Company’s shares of common stock and options to purchase 566,424 of the Company’s shares, or 83.89% of the Company’s issued and outstanding common stock on a fully diluted basis. Former shareholders of AFH Advisory received 3,625,000 of the Company’s shares of common stock.

 

The exchange of shares between TMP and AFH has been accounted for as a recapitalization of the companies. Pursuant to the accounting for a recapitalization, the historical carrying value of the assets and liabilities of TMP carried over to the surviving company. The reorganization was reflected in the statements as of the earliest period presented.

 

Pursuant to the Merger Agreement, the TMP Insiders agreed that up to 1,906,768 of the Company’s shares of common stock they hold in the aggregate would be subject to forfeiture and cancellation to the extent that the Company fails 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 the Company’s 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 the Company’s public offering of its common stock (including the preparation of the registration statement) and the preparation of the Current Report on Form 8-K related to the Reorganization.

 

On October 17, 2011, the Company, AFH Holding and Advisory, LLC, William E. Shell, MD, the Estate of Elizabeth Charuvastra and Kim Giffoni entered into Amendment No. 1 (the “Amendment”) to the Merger Agreement. Pursuant to the Amendment, the “Make Good Period” was changed from the fiscal year ended December 31, 2011 to the twelve months following the consummation of a financing resulting in gross proceeds of $20 million to the Company.

 

On August 13, 2012, the Company, AFH Advisory, Dr. Shell, the Estate of Elizabeth Charuvastra (the “Estate”), our former Chairman and Vice President of Regulatory Affairs, and Mr. Giffoni (collectively Dr. Shell, the Estate and Mr. Giffoni, the “Insiders”) entered into Amendment No. 2  (“Amendment No. 2”) to the Agreement and Plan of Reorganization.  Pursuant to Amendment No. 2, the make good provision, pursuant to which the Insiders had agreed to cancel up to 1,906,768 shares in the aggregate in the event stated EBITDA targeted were not achieved by the Company, has been deleted in its entirety.

 

On July, 20,2012 $585,448 due AFH was converted from an accrued expense to a note payable. That amount was reduced to $335,448 by a prior payment that had been classified as a prepaid expense. Amounts due AFH resulting from this transaction totaling $335,448 and $602,948 as of September 30, 2012 and December 31, 2011 respectively are reflected in Notes Payable-Related Parties: Long-term and Other Amounts due to Related Parties respectively for the two periods.

Note 11: 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 . 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 (the surviving entity of the AFH Merger, the “Subsidiary”). As a result of the Reorganization, the Subsidiary is the Company’s wholly-owned subsidiary.

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 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 the Company’s common stock and one option to purchase one share of the Company’s common stock. As a result of the Reorganization, holders of Old TMP common stock and options received 18,308,576 of the Company’s shares of common stock and options to purchase 566,424 of the Company’s shares, or 83.89% of the Company’s issued and outstanding common stock on a fully diluted basis. Former shareholders of AFH Advisory received 3,625,000 of the Company’s shares of common stock.

The exchange of shares between TMP and AFH has been accounted for as a recapitalization of the companies. Pursuant to the accounting for a recapitalization, the historical carrying value of the assets and liabilities of TMP carried over to the surviving company. The reorganization was reflected in the statements as of the earliest period presented.

 

 Pursuant to the Merger Agreement, the TMP Insiders agreed that up to 1,906,768 of the Company’s shares of common stock they hold in the aggregate would be subject to forfeiture and cancellation to the extent that the Company fails 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 the Company’s 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 the Company’s public offering of its common stock (including the preparation of the registration statement) and the preparation of the Current Report on Form 8-K related to the Reorganization.

 

Amounts due AFH resulting from this transaction totaling $602,948 and $-0- as of December 31, 2011 and 2010 respectively are reflected as Other Amounts due to Related Parties.

 

Our general and administrative expenses include $230,447 of professional fees and filing costs associated with this reorganization that were expensed in the year ended December 31, 2011.

Defined Contribution Plans

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Defined Contribution Plans
12 Months Ended
Dec. 31, 2011
Compensation and Retirement Disclosure [Abstract]  
Defined Contribution Plans

Note 12: Defined Contribution Plans

 

The Company has a profit sharing plan for the benefit of eligible employees. The Company makes contributions to the plan out of its net profits in such amounts as the Board of Directors determines. The contribution each year in no event exceeds the maximum amount allowable under applicable provisions of the Internal Revenue Code. No contributions were made to the plan for the year ended December 31, 2011. Contributions of $205,329 were provided by the Company to the plan for the year ended December 31, 2010 and recognized in the same year. TMP also sponsors a 401(k) plan. The Company does not match employee contributions

Income Taxes

v2.4.0.6
Income Taxes
12 Months Ended
Dec. 31, 2011
Income Tax Disclosure [Abstract]  
Income Taxes

Note 13: Income Taxes

 

The Company’s provision for income taxes differs from applying the statutory U.S. federal income tax rate to income before taxes. The primary difference results from providing for state income taxes and from deducting certain expenses for financial statement purposes but not for federal income tax purposes.

The components of the income tax provision are as follows:

 

  Year Ended December 31, 
  2011 - Restated  2010 - Restated 
Current:        
Federal $-  $- 
State  -   - 
Total current  -   - 
Deferred:        
Federal  (1,935,400)  (258,694)
State  (536,230)  (73,710)
Total deferred  (2,471,630)  (332,404)
  $(2,471,630) $(332,404)

 

The reconciliation of income tax attributable to operations computed at the U.S. Federal statutory income tax rate of 35% for 2011 and for 2010 to income tax expense is as follows:

 

  Year Ended December 31, 
  2011 - Restated  2010 - Restated 
       
Statutory Federal tax rate  -35.0%  -35.0%
Increase (decrease) in tax rate resulting from:        
Statutory rate change and other  3.3%  -0.3%
U.S. state taxes, net of federal benefit  -5.3%  -5.3%
Nondeductible meals & entertainment expense  -0.1%  1.0%
Effective tax rate  -37.1%  -39.6%

 

Deferred tax components are as follows:

 

  At December 31, 
  2011 - Restated  2010 - Restated 
       
Deferred tax assets: