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Document and Entity Information

v2.4.0.8
Document and Entity Information
6 Months Ended
Jun. 30, 2014
Aug. 13, 2014
Document And Entity Information    
Entity Registrant Name Targeted Medical Pharma, Inc.  
Entity Central Index Key 0001420030  
Document Type 10-Q  
Document Period End Date Jun. 30, 2014  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   26,552,847
Document Fiscal Period Focus Q2  
Document Fiscal Year Focus 2014  

Condensed Consolidated Balance Sheets (Unaudited)

v2.4.0.8
Condensed Consolidated Balance Sheets (Unaudited) (USD $)
Jun. 30, 2014
Dec. 31, 2013
CURRENT ASSETS    
Cash $ 25,144 $ 491,806
Accounts receivable, net 396,961 268,834
Inventories 383,622 595,753
Prepaid income taxes 543,961 900,863
Other current assets 307,847 372,262
TOTAL CURRENT ASSETS 1,657,535 2,629,518
Property and equipment, net 170,790 235,586
Intangible assets, net 1,992,763 2,132,649
TOTAL ASSETS 3,821,088 4,997,753
CURRENT LIABILITIES    
Accounts payable 1,378,735 1,497,425
Accrued liabilities 6,341,742 5,654,682
Notes payable, current portion - related parties 2,389,463 2,621,067
Notes payable, current portion 1,615,332 1,458,315
Derivative liability 30,500 29,134
TOTAL CURRENT LIABILITIES 11,755,772 11,260,623
Notes payable, less current portion, net    754,828
TOTAL LIABILITIES 11,755,772 12,015,451
COMMITMENTS AND CONTINGENCIES (SEE NOTE 10)      
STOCKHOLDERS' DEFICIT    
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; 26,422,847 shares issued and outstanding as of June 30, 2014; 25,741,181 shares issued and outstanding as of December 31, 2013 26,423 25,741
Additional paid-in capital 16,458,988 15,978,968
Accumulated deficit (24,420,095) (23,022,407)
TOTAL STOCKHOLDERS' DEFICIT (7,934,684) (7,017,698)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 3,821,088 $ 4,997,753

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical)

v2.4.0.8
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)
Jun. 30, 2014
Dec. 31, 2013
Statement of Financial Position [Abstract]    
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock, shares authorized 20,000,000 20,000,000
Preferred stock, shares issued      
Preferred stock, shares outstanding      
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 100,000,000 100,000,000
Common stock, shares issued 26,422,847 25,741,181
Common stock, shares outstanding 26,422,847 25,741,181

Condensed Consolidated Statements of Operations (Unaudited)

v2.4.0.8
Condensed Consolidated Statements of Operations (Unaudited) (USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
REVENUES        
Product revenue $ 2,065,923 $ 1,646,824 $ 3,699,203 $ 4,126,375
Service revenue 155,278 270,564 322,901 602,144
Total revenue 2,221,201 1,917,388 4,022,104 4,728,519
COST OF SALES        
Cost of product sold 123,654 297,452 262,973 648,931
Cost of services sold 386,310 438,018 806,525 985,213
Total cost of sales 509,964 735,470 1,069,498 1,634,144
Gross profit 1,711,237 1,181,918 2,952,606 3,094,375
OPERATING EXPENSES        
Research and development 29,278 34,033 87,761 66,113
Selling, general and administrative 1,778,002 2,965,944 3,671,674 5,354,582
Total operating expenses 1,807,280 2,999,977 3,759,435 5,420,695
Loss from operations (96,043) (1,818,059) (806,829) (2,326,320)
OTHER INCOME (EXPENSES)        
Interest income (expense) (264,465) (152,154) (523,665) (241,672)
Change in fair value of warrant liability 3,118 33,395 (1,366) 121,374
Total other income (expenses) (261,347) (118,759) (525,031) (120,298)
Loss before income taxes (357,390) (1,936,818) (1,331,860) (2,446,618)
Income tax expense 65,828 5,905,147 65,828 5,665,624
NET LOSS $ (423,218) $ (7,841,965) $ (1,397,688) $ (8,112,242)
Basic and diluted net loss per common share $ (0.02) $ (0.34) $ (0.05) $ (0.35)
Basic and diluted weighted average common shares outstanding 26,422,847 23,396,973 26,164,136 23,204,563

Condensed Consolidated Statements of Cash Flows (Unaudited)

v2.4.0.8
Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)
6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Cash flows from operating activities:    
Net loss $ (1,397,688) $ (8,112,242)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:    
Depreciation 64,796 70,025
Amortization 139,886 134,959
Amortization of debt discount 231,380 149,739
Stock-based compensation to employees and directors 24,902 388,243
Stock-based compensation to consultants 215,800 24,009
Deferred income tax benefit    5,665,624
Change in fair value of warrant derivative liability 1,366 (121,374)
Changes in operating assets and liabilities:    
Accounts receivable (128,127) 41,959
Inventories 212,131 (225,365)
Prepaid income taxes 356,902   
Other current assets 64,415 (203,296)
Accounts payable (118,690) (309,828)
Accrued liabilities 687,060 2,207,414
Net cash provided by (used in) operating activities 354,133 (290,133)
Cash flows from investing activities:    
Acquisition of intangible assets    (102,743)
Purchase of property and equipment    (23,481)
Net cash used in investing activities    (126,224)
Cash flows from financing activities:    
Proceeds from issuance of common stock 240,000   
Payments and decrease on notes payable - related parties (231,604) (470,000)
Proceeds from notes payable   585,703
Payments and decrease on notes payable (829,191)   
Net cash (used in) provided by financing activities (820,795) 115,703
Net decrease in cash (466,662) (300,654)
Cash at beginning of period 491,806 326,603
Cash at end of period 25,144 25,949
Supplemental disclosures of cash flow information:    
Cash paid during the period for interest 252,152 211,451
Non-cash Financing Activities:    
Escrow receivable    123,047
Deferred loan fees    41,250
Note discount    750,000
Conversion of notes payable - related parties    $ 1,287,648

Description of Business

v2.4.0.8
Description of Business
6 Months Ended
Jun. 30, 2014
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Description of Business

1. DESCRIPTION OF BUSINESS

 

Targeted Medical Pharma, Inc. (the “Company” or “TMP”), also doing business as Physician Therapeutics (“PTL”), is a specialty pharmaceutical company that develops and commercializes nutrient and pharmaceutical based therapeutic systems. On July 30, 2007, the Company formed Complete Claims Processing, Inc. (“CCPI”), a wholly owned subsidiary 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 did not recognize revenue outside of the United States during the three and six months ended June 30, 2014 and 2013. The Company’s operations are organized into two reportable segments: TMP and CCPI.

 

●      TMP: This segment includes PTL. TMP 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, is responsible for research and development relating to medical food products and 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.

 

Results for the three and six months ended June 30, 2014 and 2013, are reflected in the table below:

 

For the three months ended June 30,                  

 

2014 (Unaudited)   Total     TMP     CCPI  
Gross sales   $ 2,221,201     $ 2,065,923     $ 155,278  
Gross profit   $ 1,711,237     $ 1,942,269     $ (231,032 )
Net loss   $ (423,218 )   $ (192,186 )   $ (231,032 )
Total assets   $ 3,821,088     $ 3,780,270     $ 40,818  
                         
2013 (Unaudited)                        
Gross sales   $ 1,917,388     $ 1,646,824     $ 270,564  
Gross profit   $ 1,181,918     $ 1,349,372     $ (167,454 )
Net loss   $ (7,841,965 )   $ (7,674,511 )   $ (167,454 )
Total assets   $ 5,066,779     $ 5,066,779     $ -  

 

For the six months ended June 30,                  

 

2014 (Unaudited)   Total     TMP     CCPI  
Gross sales   $ 4,022,104     $ 3,699,203     $ 322,901  
Gross profit   $ 2,952,606     $ 3,436,230     $ (483,624 )
Net loss   $ (1,397,688 )   $ (914,064 )   $ (483,624 )
Total assets   $ 3,821,088     $ 3,780,270     $ 40,818  
                         
2013 (Unaudited)                        
Gross sales   $ 4,728,519     $ 4,126,375     $ 602,144  
Gross profit   $ 3,094,375     $ 3,477,444     $ (383,069 )
Net loss   $ (8,112,242 )   $ (7,729,173 )   $ (383,069 )
Total assets   $ 5,066,779     $ 5,066,779     $ -  

Liquidity and Going Concern

v2.4.0.8
Liquidity and Going Concern
6 Months Ended
Jun. 30, 2014
Liquidity And Going Concern  
Liquidity and Going Concern

2. LIQUIDITY AND GOING CONCERN

 

The accompanying consolidated financial statements have been prepared on the basis that the Company will continue as a going concern. The Company reported losses for the three and six months ended June 30, 2014, totaling $423,218 and $1,397,688, respectively, as well as an accumulated deficit as of June 30, 2014, amounting to $24,420,095. Contributing to the accumulated deficit was the Company’s decision to maintain a full valuation allowance for its net deferred tax assets. At June 30, 2014, the existence of a full valuation allowance represented $7,802,569 of the Company’s accumulated deficit. Further, the Company does not have adequate cash to cover projected operating costs for the next 12 months. As of June 30, 2014, the Company also owes $388,000 to the Internal Revenue Service (“IRS”) and the California Franchise Tax Board (“FTB”) for unpaid payroll taxes. These factors raise substantial doubt about the ability of the Company to continue as a going concern. In order to ensure the continued viability of the Company, either future equity financings must be obtained or profitable operations must be achieved in order to repay the existing short-term debt and to provide a sufficient source of operating capital. No assurances can be made that the Company will be successful obtaining the equity financing needed to continue to fund its operations, or that the Company will achieve profitable operations and positive cash flow. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Basis of Presentation and Significant Accounting Policies

v2.4.0.8
Basis of Presentation and Significant Accounting Policies
6 Months Ended
Jun. 30, 2014
Accounting Policies [Abstract]  
Basis of Presentation and Significant Accounting Policies

3. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Regulation S-X and do not include all the information and disclosures required by accounting principles generally accepted in the United States of America. The Company has made estimates and judgments affecting the amounts reported in our consolidated financial statements and the accompanying notes. The actual results experienced by the Company may differ materially from our estimates. The consolidated financial information is unaudited but reflects all normal adjustments that are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented. The consolidated balance sheet as of December 31, 2013 was derived from the Company’s audited financial statements. The consolidated financial statements should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. Results of the three and six months ended June 30, 2014, are not necessarily indicative of the results to be expected for the full year ending December 31, 2014.

 

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.

 

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. As of June 30, 2014 and 2013, the Company had no cash equivalents.

 

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. The Company’s critical accounting policies that involve significant judgment and estimates include revenue recognition, share based compensation, recoverability of intangibles, valuation of derivatives, and valuation of deferred income taxes. Actual results could differ from those estimates.

 

Revenue Recognition

 

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 six models: Physician Direct Sales, Distributor Direct Sales, Physician Managed, Hybrid Models, and two Cambridge Medical Funding Group Models.

 

Under the following revenue models, product sales are invoiced upon shipment. However, revenues are not recorded until collectability is reasonably assured, which the Company has determined is when the payment is received:

 

Physician Direct Sales Model (2% of product revenues for the six months ended June 30, 2014): 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 due from the physician 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 (18% of product revenues for the six months ended June 30, 2014): Under this model, a distributor purchases products from TMP, 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.

 

Physician Managed Model (38% of product revenues for the six months ended June 30, 2014): Under this model, a physician purchases products from TMP and retains CCPI’s services. TMP invoices the physician upon shipment 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 due from the physician 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.

 

Hybrid Model (7% of product revenues for the six months ended June 30, 2014): Under this model, a distributor purchases products from TMP and sells 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% may be applied to the outstanding balance.

 

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 from our Physician Managed and Hybrid models beyond the initial term of the invoice until the invoice is paid and not to apply a late payment fee to the outstanding balance.

 

Due to substantial uncertainties as to the timing and collectability of revenues derived from our Physician Managed and Hybrid models, which can take in excess of five years to collect, we have determined that these revenues do not meet the criteria for recognition, in accordance with The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. ASC 605, Revenue Recognition (“ASC 605”), upon shipment. These revenues are recorded when collectability is reasonably assured, which the Company has determined is when the payment is received, which is upon collection of the claim.

 

The Company has entered into an agreement with Cambridge Medical Funding Group, LLC (“CMFG”) related to California Workers’ Compensation (“WC”) benefit claims. Under this arrangement, we have determined that pursuant to FASB ASC Topic No. 860, Transfers of Financial Assets and ASC 605 we have met the criteria for revenue recognition on the date that payment is due from CMFG, which approximates the product shipment date.

 

CMFG #1 – WC Receivable Purchase Assignment Model (“CMFG #1”) (35% of product revenues for the six months ended June 30, 2014): Under this model, physicians who purchase products from TMP under the Company’s Physician Managed Model will have the option to assign their accounts receivables (primarily those accounts receivables with dates of service starting with the year 2013) from California WC benefit claims to CMFG at a discounted rate. Each agreement is executed among CMFG, TMP, and each individual physician, and serves as a master agreement for all assigned receivables by the physician to CMFG. Since these accounts receivable originated from the Company’s Physician Managed Model, CCPI’s services are also retained. The physician’s fees and financial obligations due to TMP, for the purchase of TMP product and use of CCPI’s services, are satisfied directly by CMFG, usually within seven (7) days of transmission of the accounts receivable to CMFG. CMFG has agreed to pay an amount equal to 23% of eligible assigned accounts receivable as an advance payment. CMFG makes this payment directly to TMP, on behalf of the physician. TMP applies this payment to the physician’s financial obligations due to CCPI for the physician’s use of the Company’s medical billing and claims processing services, and the physician’s financial obligation due to TMP for the cost of the product. The Company recognizes revenue on the date that payment is due from CMFG. Under CMFG #1, the Company only receives the 23% advance payment, where such payment is without recourse or future obligation for TMP to repay the 23% advanced amount back to CMFG or the physician. Actual amounts collected on the assigned accounts receivable are shared between CMFG and the physician, where the first 41% of amounts collected are disbursed to CMFG and additional amounts collected are shared at a ratio of 75:25, where 75% is disbursed to the physician and 25% is disbursed to CMFG.

 

During the six months ended June 30, 2014 and 2013, the Company issued billings to Physician Managed and Hybrid model customers aggregating $1.7 million and $3.5 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 the above billings are expensed as incurred. Direct costs associated with all billings, aggregating $262,973 and $648,931, respectively, were expensed in the accompanying consolidated financial statements at the time of such billings. In accordance with the Company’s revenue recognition policy, the Company recognized revenues from certain of these customers when cash was collected, aggregating $1,737,873 and $2,383,842 during the six months ended June 30, 2014 and 2013, respectively. As of June 30, 2014, we had approximately $7.8 million in unrecorded accounts receivable that potentially will be recorded as revenue in the future as our CCPI subsidiary secures claims payments on behalf of our PMM and Hybrid Customers. All unpaid invoices underlying claims assigned to CMFG pursuant to CMFG #1 are excluded from unrecorded accounts receivable.

 

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. The billing and claims processing agreement includes a service fee that is based upon 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 claims are paid. Under CMFG #1 the Company recognizes revenue related to CCPI’s services upon receipt of the 23% advance payment from CMFG.

 

No returns of products are allowed except for products damaged in shipment, which historically have been insignificant.

 

The rapid pay discounts to the AWP amount offered to the physician or distributor 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 various models, 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 AWP.

 

Allowance for Doubtful Accounts

 

Trade accounts receivable are stated at the amount management expects to collect from outstanding balances. Currently, accounts receivable are comprised of amounts due from our distributor customers and receivables from our PDRx equipment. The carrying amounts of accounts receivable are reduced by an allowance for doubtful accounts that reflects management’s best estimate of the amounts that will not be collected. The Company individually reviews all accounts receivable balances and based upon an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected. An allowance is recorded for those accounts that are determined to likely be uncollectible through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after we have used reasonable collection efforts will be written off. Based on an assessment as of June 30, 2014, of the collectability of invoices, we established an allowance for doubtful accounts of $55,773.

 

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 five years. The physician remains personally liable for purchases of product from TMP and TMP retains a security interest in all products sold to the physician, and the resulting claims receivable from sales of the products. CCPI maintains an accounting of all managed accounts receivable on behalf of 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, there is no related accounts receivable, and therefore no allowance for doubtful accounts is necessary.

 

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 depreciated 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 impairment indicators existed at December 31, 2013, or June 30, 2014, so no long-lived asset impairment was recorded for the year ended December 31, 2013, or the six months ended June 30, 2014.

 

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. The Company has one intangible asset with an indefinite life which is a domain name for medical foods. No impairment indicators existed at December 31, 2013, or June 30, 2014, so no intangible asset impairment was recorded for the year ended December 31, 2013, or the six months ended June 30, 2014.

 

Fair Value of Financial Instruments

 

The Company’s financial instruments are accounts receivable, accounts payable, notes payable, and warrant derivative liability. The recorded values of accounts receivable and accounts payable approximate their values based on their short term nature. Notes payable are recorded at their issue value or if warrants are attached at their issue value less the value of the warrant. Warrants issued with ratcheting provisions are revalued using the Black-Scholes model each quarter based on changes in the market value of our common stock and unobservable level 3 inputs.

 

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 assumptions: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities including liabilities resulting from imbedded derivatives associated with certain warrants to purchase common stock.

 

Derivative Financial Instruments

 

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 (“ASC 815-40”). Pursuant to ASC 815-40, an evaluation of specifically identified conditions is made to determine whether the fair value of warrants issued is required to be classified as a derivative liability instead of as equity. The estimated fair value of warrants classified as derivative liabilities is determined using the Black-Scholes option pricing model. The model utilizes Level 3 unobservable inputs to calculate the fair value of the warrants at each reporting period. The Company determined that using an alternative valuation model such as a Binomial-Lattice model would result in minimal differences. The fair value of warrants classified as derivative liabilities is adjusted for changes in fair value at each reporting period, and the corresponding non-cash gain or loss is recorded as other income or expense in the consolidated statement of operations. As of June 30, 2014, 95,000 warrants were classified as derivative liabilities. Each reporting period the warrants are re-valued and adjusted through the caption “change in fair value of warrant liability” on the consolidated statements of operations. The Company’s remaining warrants are recorded to additional paid in capital as equity instruments.

 

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. U.S. GAAP also requires management to evaluate tax positions taken by the Company and recognize a liability if the Company has taken uncertain tax positions that more likely than not would not be sustained upon examination by applicable taxing authorities. Management of the Company has evaluated tax positions taken by the Company and has concluded that as of June 30, 2014, there are no uncertain tax positions taken, or expected to be taken, that would require recognition of a liability that would require disclosure in the financial statements.

 

The Company’s effective tax rates were approximately 5% and 232% for the six months ended June 30, 2014 and 2013, respectively. During the six months ended June 30, 2014, the effective tax rate differed from the U.S. federal statutory rate primarily due to the change in the valuation allowance and final resolution of the Company’s Federal and state income tax audits for years 2010 through 2012, which resulted in $65,828 of income tax expense. In the previous year, management had decided to fully reserve the net deferred income tax assets by taking a full valuation allowance against these assets. During the six months ended June 30, 2013, the effective tax rate differed primarily due to the change in the valuation allowance.

 

During the quarter ended June 30, 2013, the Company decided to fully reserve the net deferred income tax assets by taking a full valuation allowance against these assets. As a result of this decision, during the six months ended June 30, 2014, the Company did not recognize any income tax benefit as a result of its net loss. The table below shows the balances for the deferred income tax assets and liabilities as of the dates indicated.

 

    June 30, 2014     December 31, 2013  
Deferred income tax asset-short-term   $ 1,524,383     $ 1,402,031  
Allowance     (1,524,383 )     (1,402,031 )
Deferred income tax asset-short-term, net            
                 
Deferred income tax asset-long-term     7,272,105       7,145,404  
Deferred income tax liability-long-term     (993,919 )     (1,177,716 )
Deferred income tax asset-long-term     6,278,186       5,967,688  
Allowance     (6,278,186 )     (5,967,688 )
Deferred income tax asset-long-term, net            
                 
Total deferred tax asset, net            

 

The ultimate realization of deferred tax assets is dependent upon the existence, or generation, of taxable income in the periods when those temporary differences and net operating loss carryovers are deductible. Management considers the scheduled reversal of deferred tax liabilities, taxes paid in carryover years, projected future taxable income, available tax planning strategies, and other factors in making this assessment. Based on available evidence, management believes it is more likely than not that all of the deferred tax assets will not be realized. Accordingly, the Company has maintained a valuation allowance for the current year.

 

At June 30, 2014, the Company had total domestic Federal and state net operating loss carryovers of approximately $6,029,000 and $9,078,000, respectively. Federal and state net operating loss carryovers expire at various dates between 2024 and 2032.

 

Under the Tax Reform Act of 1986, as amended, the amounts of and benefits from net operating loss carryovers and research and development credits may be impaired or limited in certain circumstances. Events which cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50%, as defined, over a three year period. The Company does not believe that such an ownership change has occurred.

 

Stock-Based Compensation

 

The Company accounts for stock option awards in accordance with FASB ASC Topic No. 718, Compensation-Stock Compensation. Under FASB ASC Topic No. 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 FASB ASC Topic No. 505-50, Equity Based Payments to Non-Employees. 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.

 

Loss per Common Share

 

The Company utilizes FASB ASC Topic No. 260, Earnings per Share. Basic loss per share is computed by dividing loss available to common shareholders by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar to basic 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. Diluted loss per common share reflects the potential dilution that could occur if convertible debentures, options and warrants were to be exercised or converted or otherwise resulted in the issuance of common stock that then shared in the earnings of the entity.

 

Since the effects of outstanding options, warrants, and the conversion of convertible debt are anti-dilutive in all periods presented, shares of common stock underlying these instruments have been excluded from the computation of loss per common share.

 

The following sets forth the number of shares of common stock underlying outstanding options, warrants, and convertible debt as of June 30, 2014 and 2013:

 

    June 30,  
    2014     2013  
Warrants     4,256,465       2,423,965  
Stock options     2,423,841       2,125,741  
Convertible promissory notes           287,648  
      6,680,306       4,837,354  

 

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. 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. 

 

Reclassifications

 

Certain prior year amounts have been reclassified for comparative purposes to conform to the current-year financial statement presentation. These reclassifications had no effect on previously reported results of operations.

 

Recent Accounting Pronouncements

 

In February 2013, the FASB issued guidance on disclosure requirements for items reclassified out of accumulated other comprehensive income. This new guidance requires entities to present (either on the face of the statement of operations or in the notes to the financial statements) the effects on the line items in the statement of operations for amounts reclassified out of accumulated other comprehensive income. The new guidance was effective for us beginning in the first quarter of fiscal 2014. The adoption of the guidance did not impact our financial statement presentation and/or our disclosures, our financial position, results of operations or cash flows.

Stock Based Compensation

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Jun. 30, 2014
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation

4. STOCK-BASED COMPENSATION

In January 2011 the Company’s stockholders approved the Company’s 2011 Stock Incentive Plan (the “Plan”), which provided for the issuance of a maximum of three million (3,000,000) shares of the Company’s common stock to be offered to the Company’s directors, officers, employees, and consultants. On August 26, 2013, the Company’s Board of Directors approved a two million (2,000,000) share increase in the number of shares issuable under the Plan, which was approved by the Company’s stockholders on June 6, 2014. Options granted under the Plan have an exercise price equal to or greater than the fair market value of the underlying common stock at the date of grant and become exercisable based on a vesting schedule determined at the date of grant. The options expire between 5 and 10 years from the date of grant. Restricted stock awards granted under the Plan are subject to a vesting period determined at the date of grant.

  

During the three and six months ended June 30, 2014, the Company had stock-based compensation expense of $12,451 and $24,902, respectively, related to issuances to the Company’s employees and directors, included in reported net loss. The total amount of stock-based compensation for the three and six months ended June 30, 2014, related solely to the issuance of stock options. During the three and six months ended June 30, 2013, the Company had stock-based compensation expense, related to issuances to the Company’s employees and directors, included in reported net loss of $291,178 and $388,243, respectively. The total amount of stock-based compensation for the six months ended June 30, 2013, of $388,243, included restricted stock grants valued at $6,540 and stock options valued at $381,703.

 

A summary of stock option activity for the six months ended June 30, 2014, is presented below:

 

          Outstanding Options  
    Shares Available for Grant     Number of Shares     Weighted Average Exercise Price     Weighted Average Remaining Contractual Life (years)     Aggregate Intrinsic Value  
                               
December 31, 2012     865,556       1,770,437     $ 2.31       8.10     $ 1,113,383  
Amendment of 2011 SIP     2,000,000                                
Grants     (1,198,300 )     1,198,300     $ 1.28                  
Cancellations and forfeitures     173,896       (173,896 )   $ 2.01                  
Restricted stock awards     (123,455 )                              
                                         
December 31, 2013     1,717,697       2,794,841     $ 1.89       7.03     $  
Cancellations and forfeitures     371,000       (371,000 )   $ 2.63                  
                                         
June 30, 2014     2,088,697       2,423,841     $ 1.77       6.38     $ 13,754  

 

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e., the difference between our closing stock price on the respective date and the exercise price, times the number of shares) that would have been received by the option holders had all option holders exercised their options. There have not been any options exercised during either the six months ended June 30, 2014 or the year ended December 31, 2013.

 

All options that the Company granted during the six months ended June 30, 2013, were granted at the per share fair value on the grant date. Vesting of options differs based on the terms of each option. The Company 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 an active public market for the Company’s shares. Accordingly, the fair value of the underlying options 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 as calculated using the simplified method. 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 Company utilized the Black-Scholes option pricing model. The Company did not issue any options during the six months ended June 30, 2014. The assumptions used for the six months ended June 30, 2013 are as follows:

 

    June 30, 2013  
Weighted average risk free interest rate     0.51% - 1.24%  
Weighted average life (in years)     3.5 - 5.0  
Volatility     87%  
Expected dividend yield     0%  
Weighted average grant-date fair value per share of options granted     $0.91  

 

A summary of the changes in the Company’s nonvested options during the six months ended June 30, 2014, is as follows:

 

    Number of Non-vested Options     Weighted Average Fair Value at Grant Date     Intrinsic Value  
                   
Non-vested at December 31, 2013     250,000     $ 0.60        
Vested in 6 months ended June 30, 2014     25,000     $ 0.93        
Non-vested at June 30, 2014     225,000     $ 0.56        
Exercisable at June 30, 2014     2,198,841     $ 0.94     $ 13,754  
Outstanding at June 30, 2014     2,423,841     $ 0.91     $ 13,754  

 

As of June 30, 2014, total unrecognized compensation cost related to unvested stock options was $97,197. The cost is expected to be recognized over a weighted average period of 2.53 years.

Warrants

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Warrants  
Warrants

5. WARRANTS

 

During the year ended December 31, 2013, the Company issued a total of 1,832,500 warrants, at an average exercise price of $2.01 per share. Included in this amount are 1,412,500 warrants issued to James Giordano, CEO of CMFG, and 400,000 to Raven Asset-Based Opportunity Fund I LP, in connection with the June 28, 2013 loan to the Company by CMFG (See Note 7). The warrants were valued using the Black-Scholes valuation model assuming expected dividend yield, risk-free interest rate, expected life and volatility of 0%, 0.75% – 2.66%, five to ten years and 70.82% – 86.35%, respectively.

 

The following table summarizes information about common stock warrants outstanding at June 30, 2014:

 

Outstanding     Exercisable  
            Weighted                    
            Average     Weighted           Weighted  
            Remaining     Average           Average  
Exercise     Number     Contractual     Exercise     Number     Exercise  
Price     Outstanding     Life (Years)     Price     Exercisable     Price  
$1.00       1,710,000       2.99     $ 1.00       1,710,000     $ 1.00  
$2.00       1,812,500       9.05     $ 2.00       1,812,500     $ 2.00  
$2.60       20,000       3.85     $ 2.60       20,000     $ 2.60  
$3.38       713,965       2.57     $ 3.38       713,965     $ 3.38  
$1.00 - 3.38       4,256,465       5.50     $ 1.83       4,256,465     $ 1.83  

 

 

Included in the Company’s outstanding warrants are 2,423,964 warrants that were issued to a related party over the period from August 2011 through July 2012 at exercise prices ranging from $1.00 to $3.38. One of the related party warrants contains provisions that require it to be accounted for as a derivative security. As of June 30, 2014, and December 31, 2013, the value of the related liability was $30,500 and $29,134, respectively. Changes in these values are recorded as income or expense during the reporting period that the change occurs.

Accrued Liabilities

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Payables and Accruals [Abstract]  
Accrued Liabilities

6. ACCRUED LIABILITIES

 

Accrued liabilities at June 30, 2014, and December 31, 2013, are comprised of the following:

 

    June 30, 2014     December 31, 2013  
             
Due to physicians   $ 2,635,529     $ 2,580,855  
Accrued salaries, payroll taxes and director fees     3,207,878       2,567,847  
Other     498,335       505,980  
Total accrued liabilities   $ 6,341,742     $ 5,654,682  

Notes Payable

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Jun. 30, 2014
Debt Disclosure [Abstract]  
Notes Payable

7. NOTES PAYABLE

 

Notes payable at June 30, 2014, and December 31, 2013, are comprised of the following:

 

    June 30, 2014     December 31, 2013  
Notes payable to William Shell Survivor’s Trust (a)   $ 1,874,411     $ 2,007,820  
Notes payable to Giffoni Family Trust (b)     15,052       113,247  
Notes payable to Lisa Liebman (c)     500,000       500,000  
Note payable to Cambridge Medical Funding Group, LLC (d)     2,078,093       2,907,284  
Total notes payable     4,467,556       5,528,351  
Less: debt discount     (462,761 )     (694,141 )
      4,004,795       4,834,210  
Less: current portion     (4,004,795 )     (4,079,382 )
Notes payable – long-term portion   $     $ 754,828  

 

(a) Between January 2011 and December 2012, William E. Shell, M.D., the Company’s Chief Executive Officer, Chief Scientific Officer, greater than 10% shareholder and a director, loaned $5,132,334 to the Company. As consideration for the loans, the Company issued promissory notes in the aggregate principal amount of (i) $4,982,334 to the Elizabeth Charuvastra and William Shell Family Trust dated July 27, 2006 and amended September 29, 2006 (the “Family Trust”), and (ii) $150,000 to the William Shell Survivor’s Trust (the “Survivor’s Trust”). On December 21, 2012, all notes issued to the Family Trust were assigned to the Survivor’s Trust (the “WS Trust Notes”) which in turn assigned certain promissory notes, in the aggregate principal amount of $500,000, to Lisa Liebman. The WS Trust Notes accrue interest at rates ranging between 3.25% and 12.0% per annum. The principal on the WS Trust Notes is payable on demand and interest is payable on a quarterly basis.

 

An aggregate of 2,423,965 warrants to purchase shares of the Company’s common stock were either issued to or subsequently assigned to the Survivor’s Trust, at exercise prices ranging between $1.00 and $3.38 per share, as additional consideration for entering into the loan agreements. The Company recorded debt discount in the amount of $2,091,538 as the estimated value of the warrants. The debt discount was amortized as non-cash interest expense over the term of the debt using the effective interest method. The debt discount had been fully amortized as of December 31, 2012. Thus, during the three and six months ended June 30, 2013 and 2014, no interest expense was recorded from the debt discount amortization.

 

During the three and six months ended June 30, 2014, the Company incurred interest expense of $21,455 and $43,591, respectively, on the WS Trust Notes. During the three and six months ended June 30, 2013, the Company incurred interest expense of $42,726 and $89,349, respectively. At June 30, 2014 and 2013, there wasn’t any accrued interest on the WS Trust Notes.

 

(b) Between January 2011 and December 2012, Kim Giffoni the Company’s Executive Vice President of Foreign Sales and Investor Relations, greater than 10% shareholder and a director, loaned $300,000 to the Company. As consideration for the loans, the Company issued promissory notes in the aggregate principal amount of $300,000 (the “Giffoni Notes”). The Giffoni Notes accrue interest at rates ranging between 3.25% and 6.0% per annum. During the three and six months ended June 30, 2014, the Company incurred interest expense of $296 and $981, respectively, on the Giffoni Notes. During the three and six months ended June 30, 2013, the Company incurred interest expense of $2,461 and $5,816, respectively. At June 30, 2014 and 2013, accrued interest on the Giffoni Notes totaled nil and $17,330, respectively.

 

(c) On December 21, 2012 the William Shell Survivor’s Trust assigned certain promissory notes, in the aggregate principal amount of $500,000, to Lisa Liebman (the “Liebman Notes”), a related party. Lisa Liebman is married to Dr. Shell. The Liebman Notes accrue interest at rates ranging between 3.25% and 3.95% per annum. The principal and interest on the Liebman Notes is payable on demand. During both the three and six months ended June 30, 2014, and 2013, the Company incurred interest expense on the Liebman Notes of $4,784 and $9,516, respectively. At June 30, 2014, and 2013, accrued interest on the Liebman Notes totaled $4,784 and $31,470, respectively.

 

(d) On June 28, 2013, the Company and CMFG entered into four contemporaneous agreements and thus are considered one arrangement. The components of the agreements are detailed as follows:

 

  Workers’ Compensation Receivables Funding, Assignment and Security Agreement, as amended (“CMFG #2”) – The Company has assigned the future proceeds of accounts receivable of WC benefit claims with dates of service between the year 2007 and December 31, 2012 (the “Funded Receivables”), to CMFG. In exchange, the Company received a loan of $3.2 million. Until such time as CMFG has been repaid the entire $3.2 million, the monthly division of collections on Funded Receivables will be distributed as follows: First, to CMFG as a servicing fee in an amount equal to five percent (5%) of the collections; Second, to CMFG to pay off any shortfalls from previous months (a shortfall will have been deemed to occur if CMFG receives less than $175,000 in a given month); Third, to CMFG in an amount up to $175,000; Fourth, to the Company in an amount of $125,000; Fifth, to CMFG and the Company, the remainder of the Funded Receivables split at a ratio of 50% to 50%. Once CMFG has received payment of $3.2 million in collections from Funded Receivables, the Funded Receivables will cease to be distributed as described above, and will instead be distributed as follows: First, to CMFG as a servicing fee in an amount equal to five percent (5%) of the collections; and Second, to CMFG and the Company, the remainder of the Funded Receivables split at a ratio of 45% to 55%, respectively.
     
  Common Stock Warrant to James Giordano, CEO of CMFG – The Company issued a ten (10) year warrant to purchase 1,412,500 shares of common stock at an exercise price of $2.00 per share (the “Giordano Warrant”) as consideration for consulting services performed by Mr. Giordano, as described below. The warrants became exercisable during December 2013. The exercisable amount is limited to the average trading volume for the ten days prior to the date of exercise.
     
  Professional Services and Consulting Agreement with Mr. Giordano – The Company entered into a consulting arrangement with Mr. Giordano for consulting services relating to medical receivable billing, billing/management strategies, and areas related to financing. Mr. Giordano’s only form of compensation for his consulting services was the issuance of the Giordano Warrant. The consulting agreement terminates at such time as all the obligations or contemplated transactions detailed in the Giordano Warrant have been satisfied.
     
  Professional Services and Consulting Agreement with CMFG – The Company entered into a consulting arrangement with CMFG for consulting services relating to medical receivable billing, billing/management strategies, and areas related to financing. The agreement provided for the Company to pay a one-time fee of $64,000 upon execution of the agreement.

 

On June 28, 2013, CMFG funded $750,000, net of an escrow amount of $123,047 and loan origination fees in the amount of $41,250. On October 1, 2013, simultaneous with an assignment of the Workers’ Compensation Receivables Funding, Assignment and Security Agreement, dated June 27, 2013, as amended by a First Amendment, dated as of September 30, 2013, by CMFG to Raven Asset-Based Opportunity Fund I LP, a Delaware limited partnership (“Raven”), the Company received the balance due from the Funded Receivables agreement. The Company received cash of $2,449,897, net of fees and a release of the escrow funds of $123,047.

 

As additional consideration, Raven received a warrant to purchase 400,000 shares of the Company’s common stock at an exercise price of $2.00 per share (the “Raven Warrant”) (See Note 5). The warrants became exercisable April 1, 2014. However, the exercisable amount is limited to the average trading volume for the ten days prior to the date of exercise. The Company accounted for the additional issuance of warrants as a modification of the original award issued June 28, 2013.

 

The Company recorded debt discount in the amount of $925,521 based on the estimated fair value of the Giordano and Raven Warrants. The debt discount will be amortized as non-cash interest expense over the term of the debt using the effective interest method. During the three and six months ended June 30, 2014, interest expense of $115,690 and $231,380, respectively, was recorded from the debt discount amortization.

Related Party Transactions

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6 Months Ended
Jun. 30, 2014
Related Party Transactions [Abstract]  
Related Party Transactions

8. RELATED PARTY TRANSACTIONS

 

Notes Payable

 

As of June 30, 2014, and December 31, 2013, the Company has notes payable agreements issued to related parties with aggregate outstanding principal balances of $2,389,463 and $2,621,067, respectively (See Note 7).

Equity Transactions

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Equity [Abstract]  
Equity Transactions

9. EQUITY TRANSACTIONS

 

On March 21, 2014, the Company entered into a subscription agreement with Ultera Pty Ltd ATF MPS Superannuation Fund (“Ultera”). Dr. Wenkart, a director of the Company, is the owner and director of Ultera. The Company issued and sold to Ultera 400,000 shares of its common stock. The issuance resulted in aggregate gross proceeds to the Company of $240,000.

 

During March 2014, the Company issued an aggregate of 281,666 shares of its common stock pursuant to agreements with its directors and consultants to the Company. The shares were valued at an average of $0.77 per share based on the fair market value of the common stock on the date of issuance. As a result of these issuances, the Company recorded a reduction in its liabilities of $176,500 and a prepaid asset of $39,300. The prepaid asset was amortized over three months.

Commitments and Contingencies

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Commitments and Contingencies
6 Months Ended
Jun. 30, 2014
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

10. COMMITMENTS AND CONTINGENCIES

 

Income Taxes

 

The Company filed its 2010 federal and state tax returns in April 2011 and June 2011, respectively, without including payment for amounts due. The 2010 federal and state tax returns reflected an amount owed to the IRS and California Franchise Tax Board of approximately $3,600,000 and $1,000,000, respectively. The Company had entered into agreements with the Internal Revenue Service and the California Franchise Tax Board to extend the payment of these taxes over a mutually agreeable period of time. In aggregate, the Company had paid $550,000 to the IRS and $350,000 to the California Franchise Tax Board.

 

In June of 2012 the Company filed amended tax returns for 2010 based upon its assessment that for certain sales collectability at the time of the sale could not be reasonably assured, therefore, these sales did not meet the criteria of a sale for tax purposes. The IRS commenced an audit of the Company’s 2010 amended tax return in November 2012. In March 2014 the IRS completed its examination. The IRS did not accept the Company’s assertion that certain sales did not meet the criteria of a sale for tax purposes, however; in part as a result of the utilization of NOL’s generated during 2011 and 2012, the IRS concluded that the Company’s aggregate tax liability for tax years 2010 through 2012 was $26,000. In July 2014 the FTB completed its examination for the tax years 2010 through 2012. The FTB determined that the Company’s state income tax liability for the years under examination was $39,704.

 

As of June 30, 2014, the Company had a remaining balance of $543,961 in prepaid federal and state income taxes on its balance sheet.

 

Leases

 

The Company leases its operating facility under a lease agreement expiring February 28, 2015 at the rate of $13,900 per month 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.

 

Legal Proceedings

 

The Company is a party to various legal proceedings. At present, the Company believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm our financial position, results of operations, cash flows, or overall trends. However, legal proceedings are subject to inherent uncertainties, and unfavorable rulings or other events could occur. Unfavorable resolutions could include substantial monetary damages. Were unfavorable resolutions to occur, the possibility exists for a material adverse impact on our business, results of operations, financial position, and overall trends. Management might also conclude that settling one or more such matters is in the best interests of our stockholders, employees, and customers, and any such settlement could include substantial payments. However, the Company has not reached this conclusion with respect to any particular matter at this time.

Subsequent Events

v2.4.0.8
Subsequent Events
6 Months Ended
Jun. 30, 2014
Subsequent Events [Abstract]  
Subsequent Events

11. SUBSEQUENT EVENTS

 

On July 9, 2014, the Company issued 130,000 shares of common stock as payment on a service contract. The shares were valued at $0.38 per share based on the balance of the amount owed pursuant to the service contract, $50,000.

 

On July 24, 2014, William E. Shell, M.D. loaned $130,000 to the Company. As consideration for the loan, the Company issued Dr. Shell a promissory note in the aggregate principal amount of $130,000 (the “Shell Note”). The Shell Note accrues interest at the rate of 8% per annum and is payable on demand. As additional consideration for entering into the loan agreement, Dr. Shell received 162,907 warrants to purchase shares of the Company’s common stock at an exercise price of $0.798 per share. The Company expects to record debt discount of approximately $75,000 as the estimated value of the warrants.

 

The Company has evaluated events that occurred subsequent to June 30, 2014 and through the date the financial statements were issued. Management concluded that no additional subsequent events required disclosure in these financial statements other than those disclosed in these notes to these financial statements.

Basis of Presentation and Significant Accounting Policies (Policies)

v2.4.0.8
Basis of Presentation and Significant Accounting Policies (Policies)
6 Months Ended
Jun. 30, 2014
Accounting Policies [Abstract]  
Basic of Presentation

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Regulation S-X and do not include all the information and disclosures required by accounting principles generally accepted in the United States of America. The Company has made estimates and judgments affecting the amounts reported in our consolidated financial statements and the accompanying notes. The actual results experienced by the Company may differ materially from our estimates. The consolidated financial information is unaudited but reflects all normal adjustments that are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented. The consolidated balance sheet as of December 31, 2013 was derived from the Company’s audited financial statements. The consolidated financial statements should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. Results of the three and six months ended June 30, 2014, are not necessarily indicative of the results to be expected for the full year ending December 31, 2014.

Principles of Consolidation

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.

Cash Equivalents

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. As of June 30, 2014 and 2013, the Company had no cash equivalents.

Accounting Estimates

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. The Company’s critical accounting policies that involve significant judgment and estimates include revenue recognition, share based compensation, recoverability of intangibles, valuation of derivatives, and valuation of deferred income taxes. Actual results could differ from those estimates.

Revenue Recognition

Revenue Recognition

 

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 six models: Physician Direct Sales, Distributor Direct Sales, Physician Managed, Hybrid Models, and two Cambridge Medical Funding Group Models.

 

Under the following revenue models, product sales are invoiced upon shipment. However, revenues are not recorded until collectability is reasonably assured, which the Company has determined is when the payment is received:

 

Physician Direct Sales Model (2% of product revenues for the six months ended June 30, 2014): 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 due from the physician 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 (18% of product revenues for the six months ended June 30, 2014): Under this model, a distributor purchases products from TMP, 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.

 

Physician Managed Model (38% of product revenues for the six months ended June 30, 2014): Under this model, a physician purchases products from TMP and retains CCPI’s services. TMP invoices the physician upon shipment 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 due from the physician 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.

 

Hybrid Model (7% of product revenues for the six months ended June 30, 2014): Under this model, a distributor purchases products from TMP and sells 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% may be applied to the outstanding balance.

 

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 from our Physician Managed and Hybrid models beyond the initial term of the invoice until the invoice is paid and not to apply a late payment fee to the outstanding balance.

 

Due to substantial uncertainties as to the timing and collectability of revenues derived from our Physician Managed and Hybrid models, which can take in excess of five years to collect, we have determined that these revenues do not meet the criteria for recognition, in accordance with The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. ASC 605, Revenue Recognition (“ASC 605”), upon shipment. These revenues are recorded when collectability is reasonably assured, which the Company has determined is when the payment is received, which is upon collection of the claim.

 

The Company has entered into an agreement with Cambridge Medical Funding Group, LLC (“CMFG”) related to California Workers’ Compensation (“WC”) benefit claims. Under this arrangement, we have determined that pursuant to FASB ASC Topic No. 860, Transfers of Financial Assets and ASC 605 we have met the criteria for revenue recognition on the date that payment is due from CMFG, which approximates the product shipment date.

 

CMFG #1 – WC Receivable Purchase Assignment Model (“CMFG #1”) (35% of product revenues for the six months ended June 30, 2014): Under this model, physicians who purchase products from TMP under the Company’s Physician Managed Model will have the option to assign their accounts receivables (primarily those accounts receivables with dates of service starting with the year 2013) from California WC benefit claims to CMFG at a discounted rate. Each agreement is executed among CMFG, TMP, and each individual physician, and serves as a master agreement for all assigned receivables by the physician to CMFG. Since these accounts receivable originated from the Company’s Physician Managed Model, CCPI’s services are also retained. The physician’s fees and financial obligations due to TMP, for the purchase of TMP product and use of CCPI’s services, are satisfied directly by CMFG, usually within seven (7) days of transmission of the accounts receivable to CMFG. CMFG has agreed to pay an amount equal to 23% of eligible assigned accounts receivable as an advance payment. CMFG makes this payment directly to TMP, on behalf of the physician. TMP applies this payment to the physician’s financial obligations due to CCPI for the physician’s use of the Company’s medical billing and claims processing services, and the physician’s financial obligation due to TMP for the cost of the product. The Company recognizes revenue on the date that payment is due from CMFG. Under CMFG #1, the Company only receives the 23% advance payment, where such payment is without recourse or future obligation for TMP to repay the 23% advanced amount back to CMFG or the physician. Actual amounts collected on the assigned accounts receivable are shared between CMFG and the physician, where the first 41% of amounts collected are disbursed to CMFG and additional amounts collected are shared at a ratio of 75:25, where 75% is disbursed to the physician and 25% is disbursed to CMFG.

 

During the six months ended June 30, 2014 and 2013, the Company issued billings to Physician Managed and Hybrid model customers aggregating $1.7 million and $3.5 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 the above billings are expensed as incurred. Direct costs associated with all billings, aggregating $262,973 and $648,931, respectively, were expensed in the accompanying consolidated financial statements at the time of such billings. In accordance with the Company’s revenue recognition policy, the Company recognized revenues from certain of these customers when cash was collected, aggregating $1,737,873 and $2,383,842 during the six months ended June 30, 2014 and 2013, respectively. As of June 30, 2014, we had approximately $7.8 million in unrecorded accounts receivable that potentially will be recorded as revenue in the future as our CCPI subsidiary secures claims payments on behalf of our PMM and Hybrid Customers. All unpaid invoices underlying claims assigned to CMFG pursuant to CMFG #1 are excluded from unrecorded accounts receivable.

 

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. The billing and claims processing agreement includes a service fee that is based upon 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 claims are paid. Under CMFG #1 the Company recognizes revenue related to CCPI’s services upon receipt of the 23% advance payment from CMFG.

 

No returns of products are allowed except for products damaged in shipment, which historically have been insignificant.

 

The rapid pay discounts to the AWP amount offered to the physician or distributor 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 various models, 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 AWP.

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

 

Trade accounts receivable are stated at the amount management expects to collect from outstanding balances. Currently, accounts receivable are comprised of amounts due from our distributor customers and receivables from our PDRx equipment. The carrying amounts of accounts receivable are reduced by an allowance for doubtful accounts that reflects management’s best estimate of the amounts that will not be collected. The Company individually reviews all accounts receivable balances and based upon an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected. An allowance is recorded for those accounts that are determined to likely be uncollectible through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after we have used reasonable collection efforts will be written off. Based on an assessment as of June 30, 2014, of the collectability of invoices, we established an allowance for doubtful accounts of $55,773.

 

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 five years. The physician remains personally liable for purchases of product from TMP and TMP retains a security interest in all products sold to the physician, and the resulting claims receivable from sales of the products. CCPI maintains an accounting of all managed accounts receivable on behalf of 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, there is no related accounts receivable, and therefore no allowance for doubtful accounts is necessary.

Inventory Valuation

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

 

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 depreciated 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

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 impairment indicators existed at December 31, 2013, or June 30, 2014, so no long-lived asset impairment was recorded for the year ended December 31, 2013, or the six months ended June 30, 2014.

Intangible Assets

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. The Company has one intangible asset with an indefinite life which is a domain name for medical foods. No impairment indicators existed at December 31, 2013, or June 30, 2014, so no intangible asset impairment was recorded for the year ended December 31, 2013, or the six months ended June 30, 2014.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

 

The Company’s financial instruments are accounts receivable, accounts payable, notes payable, and warrant derivative liability. The recorded values of accounts receivable and accounts payable approximate their values based on their short term nature. Notes payable are recorded at their issue value or if warrants are attached at their issue value less the value of the warrant. Warrants issued with ratcheting provisions are revalued using the Black-Scholes model each quarter based on changes in the market value of our common stock and unobservable level 3 inputs.

 

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 assumptions: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities including liabilities resulting from imbedded derivatives associated with certain warrants to purchase common stock.

Derivative Financial Instruments

Derivative Financial Instruments

 

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 (“ASC 815-40”). Pursuant to ASC 815-40, an evaluation of specifically identified conditions is made to determine whether the fair value of warrants issued is required to be classified as a derivative liability instead of as equity. The estimated fair value of warrants classified as derivative liabilities is determined using the Black-Scholes option pricing model. The model utilizes Level 3 unobservable inputs to calculate the fair value of the warrants at each reporting period. The Company determined that using an alternative valuation model such as a Binomial-Lattice model would result in minimal differences. The fair value of warrants classified as derivative liabilities is adjusted for changes in fair value at each reporting period, and the corresponding non-cash gain or loss is recorded as other income or expense in the consolidated statement of operations. As of June 30, 2014, 95,000 warrants were classified as derivative liabilities. Each reporting period the warrants are re-valued and adjusted through the caption “change in fair value of warrant liability” on the consolidated statements of operations. The Company’s remaining warrants are recorded to additional paid in capital as equity instruments.

Income Taxes

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. U.S. GAAP also requires management to evaluate tax positions taken by the Company and recognize a liability if the Company has taken uncertain tax positions that more likely than not would not be sustained upon examination by applicable taxing authorities. Management of the Company has evaluated tax positions taken by the Company and has concluded that as of June 30, 2014, there are no uncertain tax positions taken, or expected to be taken, that would require recognition of a liability that would require disclosure in the financial statements.

 

The Company’s effective tax rates were approximately 5% and 232% for the six months ended June 30, 2014 and 2013, respectively. During the six months ended June 30, 2014, the effective tax rate differed from the U.S. federal statutory rate primarily due to the change in the valuation allowance and final resolution of the Company’s Federal and state income tax audits for years 2010 through 2012, which resulted in $65,828 of income tax expense. In the previous year, management had decided to fully reserve the net deferred income tax assets by taking a full valuation allowance against these assets. During the six months ended June 30, 2013, the effective tax rate differed primarily due to the change in the valuation allowance.

 

During the quarter ended June 30, 2013, the Company decided to fully reserve the net deferred income tax assets by taking a full valuation allowance against these assets. As a result of this decision, during the six months ended June 30, 2014, the Company did not recognize any income tax benefit as a result of its net loss. The table below shows the balances for the deferred income tax assets and liabilities as of the dates indicated.

 

    June 30, 2014     December 31, 2013  
Deferred income tax asset-short-term   $ 1,524,383     $ 1,402,031  
Allowance     (1,524,383 )     (1,402,031 )
Deferred income tax asset-short-term, net            
                 
Deferred income tax asset-long-term     7,272,105       7,145,404  
Deferred income tax liability-long-term     (993,919 )     (1,177,716 )
Deferred income tax asset-long-term     6,278,186       5,967,688  
Allowance     (6,278,186 )     (5,967,688 )
Deferred income tax asset-long-term, net            
                 
Total deferred tax asset, net            

 

The ultimate realization of deferred tax assets is dependent upon the existence, or generation, of taxable income in the periods when those temporary differences and net operating loss carryovers are deductible. Management considers the scheduled reversal of deferred tax liabilities, taxes paid in carryover years, projected future taxable income, available tax planning strategies, and other factors in making this assessment. Based on available evidence, management believes it is more likely than not that all of the deferred tax assets will not be realized. Accordingly, the Company has maintained a valuation allowance for the current year.

 

At June 30, 2014, the Company had total domestic Federal and state net operating loss carryovers of approximately $6,029,000 and $9,078,000, respectively. Federal and state net operating loss carryovers expire at various dates between 2024 and 2032.

 

Under the Tax Reform Act of 1986, as amended, the amounts of and benefits from net operating loss carryovers and research and development credits may be impaired or limited in certain circumstances. Events which cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50%, as defined, over a three year period. The Company does not believe that such an ownership change has occurred.

Stock-Based Compensation

Stock-Based Compensation

 

The Company accounts for stock option awards in accordance with FASB ASC Topic No. 718, Compensation-Stock Compensation. Under FASB ASC Topic No. 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 FASB ASC Topic No. 505-50, Equity Based Payments to Non-Employees. 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.

Loss Per Common Share

Loss per Common Share

 

The Company utilizes FASB ASC Topic No. 260, Earnings per Share. Basic loss per share is computed by dividing loss available to common shareholders by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar to basic 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. Diluted loss per common share reflects the potential dilution that could occur if convertible debentures, options and warrants were to be exercised or converted or otherwise resulted in the issuance of common stock that then shared in the earnings of the entity.

 

Since the effects of outstanding options, warrants, and the conversion of convertible debt are anti-dilutive in all periods presented, shares of common stock underlying these instruments have been excluded from the computation of loss per common share.

 

The following sets forth the number of shares of common stock underlying outstanding options, warrants, and convertible debt as of June 30, 2014 and 2013:

 

    June 30,  
    2014     2013  
Warrants     4,256,465       2,423,965  
Stock options     2,423,841       2,125,741  
Convertible promissory notes           287,648  
      6,680,306       4,837,354  

Research and Development

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. 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

Reclassifications

 

Certain prior year amounts have been reclassified for comparative purposes to conform to the current-year financial statement presentation. These reclassifications had no effect on previously reported results of operations.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

 

In February 2013, the FASB issued guidance on disclosure requirements for items reclassified out of accumulated other comprehensive income. This new guidance requires entities to present (either on the face of the statement of operations or in the notes to the financial statements) the effects on the line items in the statement of operations for amounts reclassified out of accumulated other comprehensive income. The new guidance was effective for us beginning in the first quarter of fiscal 2014. The adoption of the guidance did not impact our financial statement presentation and/or our disclosures, our financial position, results of operations or cash flows.

Description of Business (Tables)

v2.4.0.8
Description of Business (Tables)
6 Months Ended
Jun. 30, 2014
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Summary of Segment Information

For the three months ended June 30,                  

 

2014 (Unaudited)   Total     TMP     CCPI  
Gross sales   $ 2,221,201     $ 2,065,923     $ 155,278  
Gross profit   $ 1,711,237     $ 1,942,269     $ (231,032 )
Net loss   $ (423,218 )   $ (192,186 )   $ (231,032 )
Total assets   $ 3,821,088     $ 3,780,270     $ 40,818  
                         
2013 (Unaudited)                        
Gross sales   $ 1,917,388     $ 1,646,824     $ 270,564  
Gross profit   $ 1,181,918     $ 1,349,372     $ (167,454 )
Net loss   $ (7,841,965 )   $ (7,674,511 )   $ (167,454 )
Total assets   $ 5,066,779     $ 5,066,779     $ -  

 

For the six months ended June 30,                  

 

2014 (Unaudited)   Total     TMP     CCPI  
Gross sales   $ 4,022,104     $ 3,699,203     $ 322,901  
Gross profit   $ 2,952,606     $ 3,436,230     $ (483,624 )
Net loss   $ (1,397,688 )   $ (914,064 )   $ (483,624 )
Total assets   $ 3,821,088     $ 3,780,270     $ 40,818  
                         
2013 (Unaudited)                        
Gross sales   $ 4,728,519     $ 4,126,375     $ 602,144  
Gross profit   $ 3,094,375     $ 3,477,444     $ (383,069 )
Net loss   $ (8,112,242 )   $ (7,729,173 )   $ (383,069 )
Total assets   $ 5,066,779     $ 5,066,779     $ -  

Basis of Presentation and Significant Accounting Policies (Tables)

v2.4.0.8
Basis of Presentation and Significant Accounting Policies (Tables)
6 Months Ended
Jun. 30, 2014
Accounting Policies [Abstract]  
Schedule of Deferred Income Tax Assets And Liabilities

The table below shows the balances for the deferred income tax assets and liabilities as of the dates indicated.

 

    June 30, 2014     December 31, 2013  
Deferred income tax asset-short-term   $ 1,524,383     $ 1,402,031  
Allowance     (1,524,383 )     (1,402,031 )
Deferred income tax asset-short-term, net            
                 
Deferred income tax asset-long-term     7,272,105       7,145,404  
Deferred income tax liability-long-term     (993,919 )     (1,177,716 )
Deferred income tax asset-long-term     6,278,186       5,967,688  
Allowance     (6,278,186 )     (5,967,688 )
Deferred income tax asset-long-term, net            
                 
Total deferred tax asset, net            

Schedule of Common Stock Underlying Outstanding Options Warrants and Convertible Debt

The following sets forth the number of shares of common stock underlying outstanding options, warrants, and convertible debt as of June 30, 2014 and 2013:

 

    June 30,  
    2014     2013  
Warrants     4,256,465       2,423,965  
Stock options     2,423,841       2,125,741  
Convertible promissory notes           287,648  
      6,680,306       4,837,354  

 

Stock Based Compensation (Tables)

v2.4.0.8
Stock Based Compensation (Tables)
6 Months Ended
Jun. 30, 2014
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Summary of Aggregate Stock Options Granted

A summary of stock option activity for the six months ended June 30, 2014, is presented below:

 

          Outstanding Options  
    Shares Available for Grant     Number of Shares     Weighted Average Exercise Price     Weighted Average Remaining Contractual Life (years)     Aggregate Intrinsic Value  
                               
December 31, 2012     865,556       1,770,437     $ 2.31       8.10     $ 1,113,383  
Amendment of 2011 SIP     2,000,000                                
Grants     (1,198,300 )     1,198,300     $ 1.28                  
Cancellations and forfeitures     173,896       (173,896 )   $ 2.01                  
Restricted stock awards     (123,455 )                              
                                         
December 31, 2013     1,717,697       2,794,841     $ 1.89       7.03     $  
Cancellations and forfeitures     371,000       (371,000 )   $ 2.63                  
                                         
June 30, 2014     2,088,697       2,423,841     $ 1.77       6.38     $ 13,754  

Schedule of Option Pricing Model

The Company utilized the Black-Scholes option pricing model. The Company did not issue any options during the six months ended June 30, 2014. The assumptions used for the six months ended June 30, 2013 are as follows:

 

 

    June 30, 2013  
Weighted average risk free interest rate     0.51% - 1.24%  
Weighted average life (in years)     3.5 - 5.0  
Volatility     87%  
Expected dividend yield     0%  
Weighted average grant-date fair value per share of options granted     $0.91  

Summary of Aggregate Non-Vested Shares

A summary of the changes in the Company’s nonvested options during the six months ended June 30, 2014, is as follows:

 

    Number of Non-vested Options     Weighted Average Fair Value at Grant Date     Intrinsic Value  
                   
Non-vested at December 31, 2013     250,000     $ 0.60        
Vested in 6 months ended June 30, 2014     25,000     $ 0.93        
Non-vested at June 30, 2014     225,000     $ 0.56        
Exercisable at June 30, 2014     2,198,841     $ 0.94     $ 13,754  
Outstanding at June 30, 2014     2,423,841     $ 0.91     $ 13,754  

Warrants (Tables)

v2.4.0.8
Warrants (Tables)
6 Months Ended
Jun. 30, 2014
Warrants  
Summary of Status of Outstanding Warrants

The following table summarizes information about common stock warrants outstanding at June 30, 2014:

 

Outstanding     Exercisable  
            Weighted                    
            Average     Weighted           Weighted  
            Remaining     Average           Average  
Exercise     Number     Contractual     Exercise     Number     Exercise  
Price     Outstanding     Life (Years)     Price     Exercisable     Price  
$1.00       1,710,000       2.99     $ 1.00       1,710,000     $ 1.00  
$2.00       1,812,500       9.05     $ 2.00       1,812,500     $ 2.00  
$2.60       20,000       3.85     $ 2.60       20,000     $ 2.60  
$3.38       713,965       2.57     $ 3.38       713,965     $ 3.38  
$1.00 - 3.38       4,256,465       5.50     $ 1.83       4,256,465     $ 1.83  

Accrued Liabilities (Tables)

v2.4.0.8
Accrued Liabilities (Tables)
6 Months Ended
Jun. 30, 2014
Payables and Accruals [Abstract]  
Schedule of Accrued Liabilities

Accrued liabilities at June 30, 2014, and December 31, 2013, are comprised of the following:

 

    June 30, 2014     December 31, 2013  
             
Due to physicians   $ 2,635,529     $ 2,580,855  
Accrued salaries, payroll taxes and director fees     3,207,878       2,567,847  
Other     498,335       505,980  
Total accrued liabilities   $ 6,341,742     $ 5,654,682  

Notes Payable (Tables)

v2.4.0.8
Notes Payable (Tables)
6 Months Ended
Jun. 30, 2014
Debt Disclosure [Abstract]  
Schedule of Long-term Debt Instruments

Notes payable at June 30, 2014, and December 31, 2013, are comprised of the following:

 

    June 30, 2014     December 31, 2013  
Notes payable to William Shell Survivor’s Trust (a)   $ 1,874,411     $ 2,007,820  
Notes payable to Giffoni Family Trust (b)     15,052       113,247  
Notes payable to Lisa Liebman (c)     500,000       500,000  
Note payable to Cambridge Medical Funding Group, LLC (d)     2,078,093       2,907,284  
Total notes payable     4,467,556       5,528,351  
Less: debt discount     (462,761 )     (694,141 )
      4,004,795       4,834,210  
Less: current portion     (4,004,795 )     (4,079,382 )
Notes payable – long-term portion   $     $ 754,828  

 

(a) Between January 2011 and December 2012, William E. Shell, M.D., the Company’s Chief Executive Officer, Chief Scientific Officer, greater than 10% shareholder and a director, loaned $5,132,334 to the Company. As consideration for the loans, the Company issued promissory notes in the aggregate principal amount of (i) $4,982,334 to the Elizabeth Charuvastra and William Shell Family Trust dated July 27, 2006 and amended September 29, 2006 (the “Family Trust”), and (ii) $150,000 to the William Shell Survivor’s Trust (the “Survivor’s Trust”). On December 21, 2012, all notes issued to the Family Trust were assigned to the Survivor’s Trust (the “WS Trust Notes”) which in turn assigned certain promissory notes, in the aggregate principal amount of $500,000, to Lisa Liebman. The WS Trust Notes accrue interest at rates ranging between 3.25% and 12.0% per annum. The principal on the WS Trust Notes is payable on demand and interest is payable on a quarterly basis.

 

An aggregate of 2,423,965 warrants to purchase shares of the Company’s common stock were either issued to or subsequently assigned to the Survivor’s Trust, at exercise prices ranging between $1.00 and $3.38 per share, as additional consideration for entering into the loan agreements. The Company recorded debt discount in the amount of $2,091,538 as the estimated value of the warrants. The debt discount was amortized as non-cash interest expense over the term of the debt using the effective interest method. The debt discount had been fully amortized as of December 31, 2012. Thus, during the three and six months ended June 30, 2013 and 2014, no interest expense was recorded from the debt discount amortization.

 

During the three and six months ended June 30, 2014, the Company incurred interest expense of $21,455 and $43,591, respectively, on the WS Trust Notes. During the three and six months ended June 30, 2013, the Company incurred interest expense of $42,726 and $89,349, respectively. At June 30, 2014 and 2013, there wasn’t any accrued interest on the WS Trust Notes.

 

(b) Between January 2011 and December 2012, Kim Giffoni the Company’s Executive Vice President of Foreign Sales and Investor Relations, greater than 10% shareholder and a director, loaned $300,000 to the Company. As consideration for the loans, the Company issued promissory notes in the aggregate principal amount of $300,000 (the “Giffoni Notes”). The Giffoni Notes accrue interest at rates ranging between 3.25% and 6.0% per annum. During the three and six months ended June 30, 2014, the Company incurred interest expense of $296 and $981, respectively, on the Giffoni Notes. During the three and six months ended June 30, 2013, the Company incurred interest expense of $2,461 and $5,816, respectively. At June 30, 2014 and 2013, accrued interest on the Giffoni Notes totaled nil and $17,330, respectively.

 

(c) On December 21, 2012 the William Shell Survivor’s Trust assigned certain promissory notes, in the aggregate principal amount of $500,000, to Lisa Liebman (the “Liebman Notes”), a related party. Lisa Liebman is married to Dr. Shell. The Liebman Notes accrue interest at rates ranging between 3.25% and 3.95% per annum. The principal and interest on the Liebman Notes is payable on demand. During both the three and six months ended June 30, 2014, and 2013, the Company incurred interest expense on the Liebman Notes of $4,784 and $9,516, respectively. At June 30, 2014, and 2013, accrued interest on the Liebman Notes totaled $4,784 and $31,470, respectively.

 

(d) On June 28, 2013, the Company and CMFG entered into four contemporaneous agreements and thus are considered one arrangement. The components of the agreements are detailed as follows:

 

  Workers’ Compensation Receivables Funding, Assignment and Security Agreement, as amended (“CMFG #2”) – The Company has assigned the future proceeds of accounts receivable of WC benefit claims with dates of service between the year 2007 and December 31, 2012 (the “Funded Receivables”), to CMFG. In exchange, the Company received a loan of $3.2 million. Until such time as CMFG has been repaid the entire $3.2 million, the monthly division of collections on Funded Receivables will be distributed as follows: First, to CMFG as a servicing fee in an amount equal to five percent (5%) of the collections; Second, to CMFG to pay off any shortfalls from previous months (a shortfall will have been deemed to occur if CMFG receives less than $175,000 in a given month); Third, to CMFG in an amount up to $175,000; Fourth, to the Company in an amount of $125,000; Fifth, to CMFG and the Company, the remainder of the Funded Receivables split at a ratio of 50% to 50%. Once CMFG has received payment of $3.2 million in collections from Funded Receivables, the Funded Receivables will cease to be distributed as described above, and will instead be distributed as follows: First, to CMFG as a servicing fee in an amount equal to five percent (5%) of the collections; and Second, to CMFG and the Company, the remainder of the Funded Receivables split at a ratio of 45% to 55%, respectively.
     
  Common Stock Warrant to James Giordano, CEO of CMFG – The Company issued a ten (10) year warrant to purchase 1,412,500 shares of common stock at an exercise price of $2.00 per share (the “Giordano Warrant”) as consideration for consulting services performed by Mr. Giordano, as described below. The warrants became exercisable during December 2013. The exercisable amount is limited to the average trading volume for the ten days prior to the date of exercise.
     
  Professional Services and Consulting Agreement with Mr. Giordano – The Company entered into a consulting arrangement with Mr. Giordano for consulting services relating to medical receivable billing, billing/management strategies, and areas related to financing. Mr. Giordano’s only form of compensation for his consulting services was the issuance of the Giordano Warrant. The consulting agreement terminates at such time as all the obligations or contemplated transactions detailed in the Giordano Warrant have been satisfied.
     
  Professional Services and Consulting Agreement with CMFG – The Company entered into a consulting arrangement with CMFG for consulting services relating to medical receivable billing, billing/management strategies, and areas related to financing. The agreement provided for the Company to pay a one-time fee of $64,000 upon execution of the agreement.

Description of Business - Summary of Segment Information (Details)

v2.4.0.8
Description of Business - Summary of Segment Information (Details) (USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Dec. 31, 2013
Gross sales $ 2,221,201 $ 1,917,388 $ 4,022,104 $ 4,728,519  
Gross profit (loss) 1,711,237 1,181,918 2,952,606 3,094,375  
Net loss (423,218) (7,841,965) (1,397,688) (8,112,242)  
Total assets 3,821,088 5,066,779 3,821,088 5,066,779 4,997,753
TMP [Member]
         
Gross sales 2,065,923 1,646,824 3,699,203 4,126,375  
Gross profit (loss) 1,942,269 1,349,372 3,436,230 3,477,444  
Net loss (192,186) (7,674,511) (914,064) (7,729,173)  
Total assets 3,780,270 5,066,779 3,780,270 5,066,779  
CCPI [Member]
         
Gross sales 155,278 270,564 322,901 602,144  
Gross profit (loss) (231,032) (167,454) (483,624) (383,069)  
Net loss (231,032) (167,454) (483,624) (383,069)  
Total assets $ 40,818    $ 40,818     

Liquidity and Going Concern (Details Narrative)

v2.4.0.8
Liquidity and Going Concern (Details Narrative) (USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Dec. 31, 2013
Dec. 31, 2011
Dec. 31, 2010
Liquidity And Going Concern Details Narrative              
Net Income (Loss) $ (423,218) $ (7,841,965) $ (1,397,688) $ (8,112,242)      
Accumulated Deficit (24,420,095)   (24,420,095)   (23,022,407)    
Deferred tax assets, valuation allowance 7,802,569   7,802,569        
Unpaid payroll taxes $ 39,704   $ 39,704     $ 26,000 $ 26,000

Basis of Presentation and Significant Accounting Policies (Details Narrative)

v2.4.0.8
Basis of Presentation and Significant Accounting Policies (Details Narrative) (USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Cash equivalents $ 0 $ 0 $ 0 $ 0
Accounts receivable distribution percentage     55.00%  
Revenue from customers 2,221,201 1,917,388 4,022,104 4,728,519
Unrecorded accounts receivable 7,800,000   7,800,000  
Allowance for doubtful accounts 55,773   55,773  
Number of warrants classified as derivative liability 95,000   95,000  
Domestic federal net operating loss carryovers 6,029,000   6,029,000  
State net operating loss carryovers 9,078,000   9,078,000  
Federal and state net operating loss carryovers, expiration date    

various dates between 2024 and 2032.

 
Effective tax rates     5.00% 232.00%
Income tax expense for years 2010 through 2012     65,828  
Percentage of change in cumulative ownership     50.00%  
Contract expense due within two years, percentage     50.00%  
Contract expense due with after two years, percentage     50.00%  
Impairment of Long-Lived Assets     0 0
Impairment of Intangible Assets     0 0
Leasehold Improvements [Member]
       
Estimated useful lives of related assets     15 years  
Minimum [Member]
       
Rapid pay discount to the customer, percentage     88.00%  
Minimum [Member] | Computer Equipment [Member]
       
Estimated useful lives of related assets     5 years  
Minimum [Member] | Furniture and Fixtures [Member]
       
Estimated useful lives of related assets     7 years  
Maximum [Member]
       
Rapid pay discount to the customer, percentage     40.00%  
Maximum [Member] | Computer Equipment [Member]
       
Estimated useful lives of related assets     3 years  
Maximum [Member] | Furniture and Fixtures [Member]
       
Estimated useful lives of related assets     5 years  
CMFG One And The Physician [Member]
       
Accounts receivable sharing percentage     41.00%  
Physician Direct Sales Model [Member]
       
Percentage of revenue from sales     2.00%  
Percentage of late payment fee for outstanding balance     20.00%  
Distributor Direct Sales Model [Member]
       
Percentage of revenue from sales     18.00%  
Percentage of late payment fee for outstanding balance     20.00%  
Physician Managed Model [Member]
       
Percentage of revenue from sales     38.00%  
Percentage of late payment fee for outstanding balance     20.00%  
Hybrid Model [Member]
       
Percentage of revenue from sales     7.00%  
Percentage of late payment fee for outstanding balance     20.00%  
CMFG One [Member]
       
Percentage of revenue from sales     35.00%  
Percentage of accounts receivable by advance payments     23.00%  
Repay the advance amount by the company, percentage     23.00%  
Accounts receivable distribution percentage     25.00%  
Physician [Member]
       
Accounts receivable distribution percentage     75.00%  
Physician Managed And Hybrid Model [Member]
       
Unbilled receivables from related parties     1,700,000 3,500,000
Direct cost associated with the billing     262,973 648,931
Revenue from customers     $ 1,737,873 $ 2,383,842
CCPI [Member]
       
Percentage of revenue from sales     23.00%  

Basis of Presentation and Significant Accounting Policies - Schedule of Deferred Income Tax Assets and Liabilities (Details)

v2.4.0.8
Basis of Presentation and Significant Accounting Policies - Schedule of Deferred Income Tax Assets and Liabilities (Details) (USD $)
Mar. 31, 2014
Dec. 31, 2013
Accounting Policies [Abstract]    
Deferred income tax asset-short-term $ 1,524,383 $ 1,402,031
Allowance (1,524,383) (1,402,031)
Deferred income tax asset-short-term, net      
Deferred income tax asset-long-term 7,272,105 7,145,404
Deferred income tax liability-long-term (993,919) (1,177,716)
Deferred income tax asset-long-term 6,278,186 5,967,688
Allowance (6,278,186) (5,967,688)
Deferred income tax asset-long-term, net      
Total deferred tax asset, net      

Basis of Presentation and Significant Accounting Policies - Schedule of Common Stock Underlying Outstanding Options Warrants and Convertible Debt (Details)

v2.4.0.8
Basis of Presentation and Significant Accounting Policies - Schedule of Common Stock Underlying Outstanding Options Warrants and Convertible Debt (Details)
6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount 6,680,306 4,837,354
Warrant [Member]
   
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount 4,256,465 2,423,965
Convertible promissory notes [Member]
   
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount    287,648
Stock Option [Member]
   
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount 2,423,841 2,125,741

Stock Based Compensation (Details Narrative)

v2.4.0.8
Stock Based Compensation (Details Narrative) (USD $)
3 Months Ended 6 Months Ended 1 Months Ended 6 Months Ended 0 Months Ended 1 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Jan. 31, 2011
Minimum [Member]
Jan. 31, 2011
Maximum [Member]
Jun. 30, 2013
Restricted Stock [Member]
Aug. 26, 2013
2011 Stock Incentive Plan [Member]
Jan. 31, 2011
2011 Stock Incentive Plan [Member]
Jun. 30, 2013
Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                    
Number of stock issued to the officers               2,000,000 3,000,000  
Stock option expiration period         5 years 10 years        
Stock option compensation $ 12,451 $ 291,178 $ 24,902 $ 388,243     $ 6,540     $ 381,703
Unrecognized compensation cost     $ 97,197              
Expected weighted average period for cost recognition     2 years 6 months 11 days              

Stock Based Compensation - Summary of Aggregate Stock Options Granted (Details)

v2.4.0.8
Stock Based Compensation - Summary of Aggregate Stock Options Granted (Details) (USD $)
6 Months Ended 12 Months Ended
Jun. 30, 2014
Dec. 31, 2013
Dec. 31, 2012
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]      
Shares Available for Grant, Outstanding, Beginning balance 1,717,697 865,556  
Shares Available for Grant, Amendment of 2011 SIP   2,000,000  
Shares Available for Grant, Grants   (1,198,300)  
Shares Available for Grant, Cancellations and Forfeitures 371,000 173,896  
Shares Available for Grant, Restricted Stock Awards   (123,455)  
Shares Available for Grant, Outstanding, Ending balance 2,088,697 1,717,697 865,556
Number of Shares, Outstanding, Beginning balance 2,794,841 1,770,437  
Number of Shares, Amendment of 2011 SIP       
Number of Shares, Grants   1,198,300  
Number of Shares, Cancellations and Forfeitures (371,000) (173,896)  
Number of Share, Restricted Stock Awards       
Number of Share, Outstanding, Ending balance 2,423,841 2,794,841 1,770,437
Weighted Average Exercise Price, Outstanding, Beginning $ 1.89 $ 2.31  
Weighted Average Exercise Price, Grants   $ 1.28  
Weighted Average Exercise Price, Cancellations and Forfeitures $ 2.63 $ 2.01  
Weighted Average Exercise Price, Outstanding, Ending $ 1.77 $ 1.89 $ 2.31
Weighted Average Remaining Contractual Life (years) 6 years 4 months 17 days 7 years 11 days 8 years 1 month 6 days
Aggregate Intrinsic Value, Outstanding, Beginning balance    $ 1,113,383  
Aggregate Intrinsic Value, Outstanding, Ending balance $ 13,754    $ 1,113,383