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Document and Entity Information

v2.4.0.8
Document and Entity Information
6 Months Ended
Jun. 30, 2015
Aug. 13, 2015
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, 2015  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   27,397,400
Trading Symbol TRGM  
Document Fiscal Period Focus Q2  
Document Fiscal Year Focus 2015  

Condensed Consolidated Balance Sheets (Unaudited)

v2.4.0.8
Condensed Consolidated Balance Sheets (Unaudited) (USD $)
Jun. 30, 2015
Dec. 31, 2014
CURRENT ASSETS    
Cash $ 21,371 $ 11,739
Accounts receivable, net 181,621 203,348
Inventories 124,857 127,183
Other current assets 228,744 191,689
TOTAL CURRENT ASSETS 556,593 533,959
Property and equipment, net 79,020 107,185
Intangible assets, net 1,762,031 1,859,152
TOTAL ASSETS 2,397,644 2,500,296
CURRENT LIABILITIES    
Accounts payable 1,925,504 1,460,352
Accrued liabilities 7,270,724 7,273,980
Notes payable, current portion - related parties 2,504,411 2,504,411
Notes payable, current portion, net 1,475,128 1,092,762
Derivative liability 45,593 18,075
TOTAL CURRENT LIABILITIES 13,221,360 12,349,580
Notes payable, less current portion - related parties 547,331   
Notes payable, less current portion, net 741,195 122,290
TOTAL LIABILITIES 14,509,886 12,471,870
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; 27,397,400 shares issued and outstanding as of June 30, 2015; 26,768,756 shares issued and outstanding as of December 31, 2014 27,398 26,769
Additional paid-in capital 17,002,355 16,919,073
Accumulated deficit (29,141,995) (26,917,416)
TOTAL STOCKHOLDERS' DEFICIT (12,112,242) (9,971,574)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 2,397,644 $ 2,500,296

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical)

v2.4.0.8
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)
Jun. 30, 2015
Dec. 31, 2014
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 27,397,400 26,768,756
Common stock, shares outstanding 27,397,400 26,768,756

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, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
REVENUES        
Product revenue $ 1,212,856 $ 2,065,923 $ 2,147,909 $ 3,699,203
Service revenue 129,222 155,278 262,057 322,901
Total revenue 1,342,078 2,221,201 2,409,966 4,022,104
COST OF SALES        
Cost of product sold 150,568 123,654 272,424 262,973
Cost of services sold 384,071 386,310 812,982 806,525
Total cost of sales 534,639 509,964 1,085,406 1,069,498
Gross profit 807,439 1,711,237 1,324,560 2,952,606
OPERATING EXPENSES        
Research and development 3,289 29,278 10,393 87,761
Selling, general and administrative 1,175,219 1,778,002 2,960,008 3,671,674
Total operating expenses 1,178,508 1,807,280 2,970,401 3,759,435
Loss from operations (371,069) (96,043) (1,645,841) (806,829)
OTHER INCOME (EXPENSES)        
Interest expense (266,802) (264,465) (670,449) (523,665)
Change in fair value of derivative liabilities 91,701 3,118 91,711 (1,366)
Total other expenses (175,101) (261,347) (578,738) (525,031)
Loss before income taxes (546,170) (357,390) (2,224,579) (1,331,860)
Income tax expense    65,828    65,828
NET LOSS $ (546,170) $ (423,218) $ (2,224,579) $ (1,397,688)
Basic and diluted net loss per common share $ (0.02) $ (0.02) $ (0.08) $ (0.05)
Basic and diluted weighted average common shares outstanding 26,948,487 26,422,847 26,859,118 26,164,136

Condensed Consolidated Statements of Cash Flows (Unaudited)

v2.4.0.8
Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)
6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Cash flows from operating activities:    
Net loss $ (2,224,579) $ (1,397,688)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:    
Depreciation 28,165 64,796
Amortization 97,121 139,886
Amortization of debt discount 170,813 231,380
Stock-based compensation to employees and directors 44,832 24,902
Stock-based compensation to consultants 27,024 215,800
Change in fair value of derivative liabilities (91,711) 1,366
Changes in operating assets and liabilities:    
Accounts receivable 21,727 (128,127)
Inventories 2,326 212,131
Prepaid income taxes    356,902
Other current assets (37,055) 64,415
Accounts payable 465,152 (118,690)
Accrued liabilities 8,799 687,060
Net cash (used in) provided by operating activities (1,487,386) 354,133
Cash flows from financing activities:    
Proceeds from issuance of common stock    240,000
Proceeds from notes payable - related parties 650,000   
Payments on notes payable - related parties    (231,604)
Proceeds from notes payable, net 1,200,000   
Payments on notes payable (352,982) (829,191)
Net cash provided by (used in) financing activities 1,497,018 (820,795)
Net increase (decrease) in cash 9,632 (466,662)
Cash at beginning of period 11,739 491,806
Cash at end of period 21,371 25,144
Supplemental disclosures of cash flow information:    
Cash paid during the period for interest 95,394 252,152
Non cash investing and financing activities:    
Amortization of note discount 170,813 231,380
Issuance of common stock for interest 12,055   
Note discount from embedded conversion feature in connection with debenture $ 119,229   

Description of Business

v2.4.0.8
Description of Business
6 Months Ended
Jun. 30, 2015
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 amino acid based medications. On July 30, 2007, the Company formed Complete Claims Processing, Inc. (“CCPI”), a wholly owned subsidiary which provides specialty billing and collection services for our products dispensed by physician clients and to physician clients of some of our distributors.

 

Segment Information:

 

The Company recognized revenue outside of the United States during the three and six months ended June 30, 2015 of $32,370 and did not recognize revenue outside of the United States during the three and six months ended June 30, 2014. The Company has two principal business operations: (i) the distribution of proprietary medical foods and (ii) billing and collection services relating to our products. The Company’s operations are organized into two reportable segments during the six months ended June 30, 2015 and 2014.

 

  TMP: The Company distributes its proprietary medical foods and generic pharmaceuticals as PTL. TMP develops and distributes amino acid based therapeutic products and distributes pharmaceutical products from other manufacturers through employed sales representatives, independent distributors and pharmacies. 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 and generic 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, 2015 and 2014, are reflected in the table below:

 

For the three months ended June 30,                  
                   
2015 (Unaudited)   Total     TMP     CCPI  
Gross sales   $ 1,342,078     $ 1,212,856     $ 129,222  
Gross profit (loss)   $ 807,439     $ 1,062,288     $ (254,849 )
Net loss   $ (546,170 )   $ (291,321 )   $ (254,849 )
Total assets   $ 2,397,644     $ 2,364,606     $ 33,038  
                         
2014 (Unaudited)                        
Gross sales   $ 2,221,201     $ 2,065,923     $ 155,278  
Gross profit (loss)   $ 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  

 

For the six months ended June 30,                  
                   
2015 (Unaudited)   Total     TMP     CCPI  
Gross sales   $ 2,409,966     $ 2,147,909     $ 262,057  
Gross profit (loss)   $ 1,324,560     $ 1,875,485     $ (550,925 )
Net loss   $ (2,224,579 )   $ (1,673,654 )   $ (550,925 )
Total assets   $ 2,397,644     $ 2,364,606     $ 33,038  
                         
2014 (Unaudited)                        
Gross sales   $ 4,022,104     $ 3,699,203     $ 322,901  
Gross profit (loss)   $ 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  

Liquidity and Going Concern

v2.4.0.8
Liquidity and Going Concern
6 Months Ended
Jun. 30, 2015
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 has incurred recurring losses and reported losses for the three and six months ended June 30, 2015, totaling $546,170 and $2,224,579, respectively, as well as an accumulated deficit as of June 30, 2015, amounting to $29,141,995. As a result of our continued losses, at June 30, 2015, the Company’s current liabilities significantly exceed current assets, resulting in negative working capital of $12,664,767. Further, the Company does not have adequate cash to cover projected operating costs for the next 12 months. As of June 30, 2015, the Company also owes approximately $650,000 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, 2015
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, 2014 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, 2014. Results of the three and six months ended June 30, 2015, are not necessarily indicative of the results to be expected for the full year ending December 31, 2015.

 

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 with a 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 value. As of June 30, 2015 and 2014, 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 and sells medical foods 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 five models: Physician Direct Sales, Distributor Direct Sales, Physician Managed, Hybrid Models, and the Cambridge Medical Funding Group WC Receivable Purchase Assignment Model.

 

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 (9% of product revenues for the six months ended June 30, 2015): 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 (19% of product revenues for the six months ended June 30, 2015): 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 (33% of product revenues for the six months ended June 30, 2015): 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 (14% of product revenues for the six months ended June 30, 2015): 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”) (25% of product revenues for the six months ended June 30, 2015): 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 20% 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 20% advance payment, where such payment is without recourse or future obligation for TMP to repay the 20% 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 37% 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, 2015 and 2014, the Company issued billings to Physician Managed and Hybrid model customers aggregating $1.5 million and $1.7 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 $272,424 and $262,973, 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 $1,051,917 and $1,737,873 during the six months ended June 30, 2015 and 2014, respectively. As of June 30, 2015, we had approximately $7.0 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 on the claim, and the fee is not determinable until the amount of the collection 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 20% 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 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 CMFG #1, distributor customers and other miscellaneous receivables. 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, 2015 and December 31, 2014, of the collectability of invoices, we established an allowance for doubtful accounts of $9,408 and $55,773, respectively.

 

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 receivables 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 medical food products.

 

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 June 30, 2015 and December 31, 2014, so no long-lived asset impairment was recorded.

 

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. Taking into account the cyclical and non-recurring events that affected operations, the Company determined that no impairment indicators existed at June 30, 2015, or December 31, 2014, so no intangible asset impairment was recorded for the three or six months ended June 30, 2015, or the year ended December 31, 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 proportionate value of the warrant. Warrants issued with ratcheting provisions are classified as derivative liabilities and 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. Further, under ASC Topic 815-15 – Derivatives and Hedging – Embedded Derivatives (“ASC 815-15”) an evaluation of the embedded conversion feature of convertible debt is also evaluated to determine if the bifurcated debt conversion feature is required to be classified as a derivative liability. The estimated fair value of the warrants and the embedded conversion feature of debt classified as derivative liabilities are 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 the warrants and the embedded conversion feature of debt classified as derivative liabilities are 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, 2015, 95,000 warrants and the embedded conversion feature of the $650,000 Debenture were classified as derivative liabilities. Each reporting period the warrants and the embedded conversion feature are re-valued and adjusted through the caption “change in fair value of derivative liabilities” 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, 2015, 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 0% and 5% for the six months ended June 30, 2015 and 2014, respectively. During 2013, the Company decided to fully reserve its 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, 2015 and 2014, the Company did not recognize any income tax benefit as a result of its net loss. Further, during the six months ended June 30, 2014, the Company recognized $65,828 of income tax expense upon the final resolution of the Company’s Federal and state income tax audits for years 2010 through 2012. Thus, during the six months ended June 30, 2015 and 2014, the effective tax rate differed from the U.S. federal statutory rate primarily due to the change in the valuation allowance and to a lesser extent, for the six months ended June 30, 2014, upon the recognition of income tax expense resulting from the Company’s Federal and state income tax audits. The table below shows the balances for the deferred income tax assets and liabilities as of the dates indicated.

 

    June 30, 2015     December 31, 2014  
Deferred income tax asset-short-term   $ 1,564,915     $ 1,517,270  
Allowance     (1,564,915 )     (1,517,270 )
Deferred income tax asset-short-term, net            
                 
Deferred income tax asset-long-term     9,003,458       8,303,462  
Deferred income tax liability-long-term     (986,498 )     (1,074,928 )
Deferred income tax asset-long-term     8,016,960       7,228,534  
Allowance     (8,016,960 )     (7,228,534 )
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, 2015, the Company had total domestic Federal and state net operating loss carryovers of approximately $9,898,000 and $12,616,000, respectively. Federal and state net operating loss carryovers expire at various dates between 2021 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, 2015 and 2014:

 

    June 30,  
      2015       2014  
Warrants     4,699,372       4,256,465  
Stock options     2,357,341       2,423,841  
Convertible debentures     2,166,667        
      9,223,380       6,680,306  

 

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 expensed 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 May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” which supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605, Revenue Recognition. The purpose of ASU 2014-09 is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards. The amendments (i) remove inconsistencies and weaknesses in revenue requirements, (ii) provide a more robust framework for addressing revenue issues, (iii) improve comparability of revenue recognition across entities, industries, jurisdictions, and capital markets, (iv) provide more useful information to users of financial statements through improved disclosure requirements, and (v) simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. The new revenue recognition standard requires entities to recognize revenue in a way that reflects the transfer of promised goods or services to customers in an amount based on the consideration to which the entity expects to be entitled to in exchange for those goods or services. On July 9, 2015, the FASB agreed to delay the effective date by one year. Therefore, ASU 2014-09 is effective for interim and annual reporting periods beginning after December 15, 2017 and early adoption is not permitted. The amendments can be applied retrospectively to each prior reporting period or retrospectively with the cumulative effect of initially applying this update recognized at the date of initial application. The Company has not determined what transition method it will use and is currently assessing the impact that this guidance may have on its consolidated financial statements. 

 

In August 2014, the FASB issued ASU No. 2014-15 “Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” ASU 2014-15 is intended to define management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted. The adoption of this standard is not expected to have a material effect on the Company’s operating results or financial condition.

Stock-Based Compensation

v2.4.0.8
Stock-Based Compensation
6 Months Ended
Jun. 30, 2015
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”). The Plan, as amended, provides for the issuance of a maximum of five million (5,000,000) shares of the Company’s common stock to be offered to the Company’s directors, officers, employees, and consultants. Options granted under the Plan have an exercise price equal to or greater than the fair 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, 2015, the Company had stock-based compensation expense of $6,861 and $15,524, respectively, related to issuances from the Plan to the Company’s employees and directors, included in reported net loss. During the three and six months ended June 30, 2014, the Company had stock-based compensation expense included in reported net loss of $12,451 and $24,902, respectively. The total amount of stock-based compensation from issuances pursuant to the Plan to employees and directors for the three and six months ended June 30, 2015 and 2014, related solely to the issuance of stock options.

 

A summary of stock option activity for the six months ended June 30, 2015 and year ended December 31, 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, 2013     1,792,697       2,794,841     $ 1.89       7.03     $ 0  
Cancellations and forfeitures     373,800       (373,800 )   $ 2.62                  
Restricted stock awards     (75,000 )                              
                                         
December 31, 2014     2,091,497       2,421,041     $ 1.77       5.88     $ 0  
Grants     (200,000 )     200,000     $ 0.30                  
Cancellations and forfeitures     263,700       (263,700 )   $ 1.31                  
                                         
June 30, 2015     2,155,197       2,357,341     $ 1.70       5.33     $ 0  

 

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 the six months ended June 30, 2015 and year ended December 31, 2014. 

 

All options that the Company grants are 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 did not issue any options during the year ended December 31, 2014. The Company utilized the Black-Scholes option pricing model and the assumptions used for the six months ended June 30, 2015 are as follows:

 

   

Six Months Ended

June 30, 2015

 
Weighted average risk free interest rate     1.13 %
Weighted average life (in years)     3.4  
Volatility     66 %
Expected dividend yield     0 %
Weighted average grant-date fair value per share of options granted   $ 0.01  

 

A summary of the changes in the Company’s nonvested options during the six months ended June 30, 2015, is as follows:

 

    Number of 
Non-vested 
Options  
    Weighted 
Average Fair 
Value at Grant 
Date  
    Intrinsic 
Value
 
                   
Non-vested at December 31, 2014     170,833     $ 0.57     $  
Vested in six months ended June 30, 2015     25,000     $ 0.93     $  
Non-vested at June 30, 2015     345,833     $ 0.22     $  
Exercisable at June 30, 2015     2,011,508     $ 0.96     $  
Outstanding at June 30, 2015     2,357,341     $ 0.93     $  

 

As of June 30, 2015, total unrecognized compensation cost related to unvested stock options was $49,259. The cost is expected to be recognized over a weighted average period of 1.93 years.

Warrants

v2.4.0.8
Warrants
6 Months Ended
Jun. 30, 2015
Warrants  
Warrants

5. WARRANTS

 

During the year ended December 31, 2014, the Company issued a total of 662,907 warrants, at an average exercise price of $0.35 per share. Included in these issuances are 162,907 warrants issued to William E. Shell, M.D., the Company’s former Chief Executive Officer, in connection with the July 24, 2014 loan to the Company (See Note 7), and 500,000 warrants to several consultants for financial advisory and investor relations services. The Company has not issued any warrants during the six months ended June 30, 2015 and during the three months ended March 31, 2015, the Company cancelled 220,000 warrants, with an average exercise price of $0.42 per share. 

 

The Company utilized the Black-Scholes option pricing model and the assumptions used for the year ended December 31, 2014 are as follows:

 

   

Year Ended

December 31, 2014

 
Weighted average risk free interest rate     1.67% – 1.72 %
Weighted average life (in years)     5.0  
Volatility     67 %
Expected dividend yield     0 %
Weighted average grant-date fair value per share of options granted   $ 0.67  

  

The following table summarizes information about common stock warrants outstanding at June 30, 2015:

 

Outstanding     Exercisable  
Exercise 
Price
   

Number

Outstanding

   

Weighted

Average

Remaining

Contractual Life

(Years)

   

Weighted

Average

Exercise

Price

   

Number

Exercisable

   

Weighted

Average

Exercise

Price

 
                                 
$ 0.01       365,000       3.55     $ 0.01       365,000     $ 0.01  
$ 0.80       162,907       4.12     $ 0.80       162,907     $ 0.80  
$ 1.00       1,625,000       1.99     $ 1.00       1,625,000     $ 1.00  
$ 2.00       1,812,500       8.05     $ 2.00       1,812,500     $ 2.00  
$ 2.60       20,000       2.85     $ 2.60       20,000     $ 2.60  
$ 3.38       713,965       1.57     $ 3.38       713,965     $ 3.38  
                                             
  $0.01 - 3.38       4,699,372       4.46     $ 1.67       4,699,372     $ 1.67  

 

Included in the Company’s outstanding warrants are 2,586,872 warrants that were issued to a related party over the period from August 2011 through July 2014 at exercise prices ranging from $0.01 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, 2015 and December 31, 2014, the value of the related liability was $9,517 and $18,075, respectively. Changes in these values are recorded as income or expense during the reporting period that the change occurs.

Accrued Liabilities

v2.4.0.8
Accrued Liabilities
6 Months Ended
Jun. 30, 2015
Payables and Accruals [Abstract]  
Accrued Liabilities

6. ACCRUED LIABILITIES

 

Accrued liabilities at June 30, 2015, and December 31, 2014, are comprised of the following:

 

    June 30, 2015     December 31, 2014  
             
Due to physicians   $ 3,137,446     $ 2,659,698  
Accrued salaries and director fees     3,666,259       3,996,901  
Other     467,019       617,381  
Total accrued liabilities   $ 7,270,724     $ 7,273,980  

Notes Payable

v2.4.0.8
Notes Payable
6 Months Ended
Jun. 30, 2015
Debt Disclosure [Abstract]  
Notes Payable

7. NOTES PAYABLE

 

Notes payable at June 30, 2015, and December 31, 2014, are comprised of the following:

 

    June 30, 2015     December 31, 2014  
Notes payable to William Shell Survivor’s Trust (a)   $ 1,874,411     $ 1,874,411  
Notes payable to William Shell (b)     130,000       130,000  
Notes payable to Lisa Liebman (c)     500,000       500,000  
Note payable to Cambridge Medical Funding Group, LLC (d)     1,218,687       1,523,559  
Note payable to Derma Medical Systems, Inc. (e)     650,000        
Note payable to Shlomo Rechnitz (f)     1,151,890        
Total notes payable     5,524,988       4,027,970  
Less: debt discount     (256,923 )     (308,507 )
      5,268,065       3,719,463  
Less: current portion     (3,979,539 )     (3,597,173 )
Notes payable – long-term portion   $ 1,288,526     $ 122,290  

 

(a) Between January 2011 and December 2012, William E. Shell, M.D., the Company’s former Chief Executive Officer, former Chief Scientific Officer, greater than 10% shareholder and a former 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”). At the time these promissory notes were issued, all of these notes were issued with maturity dates of five years from the date of issuance with interest payable on the maturity date. On June 22, 2012, the Company’s Board of Directors ratified an amendment that modified all promissory notes that were issued prior to June 22, 2012 to demand notes with interest payable quarterly (the“June 2012 Amendment”). The Company disputes the validity of the June 2012 Amendment. 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.
   
  During the three and six months ended June 30, 2015, the Company incurred interest expense of $21,610 and $42,983, respectively, on the WS Trust Notes. During the three and six months ended June 30, 2014, the Company incurred interest expense of $21,455 and $43,591, respectively. At June 30, 2015 and December 31, 2014, accrued interest on the WS Trust Notes totaled $64,299 and 21,316, respectively.
   
  On March 13, 2015, we received from counsel for Dr. Shell, Ms. Liebman, the Elizabeth Charuvastra and William Shell Family Trust dated July 27, 2006 and amended September 29, 2006 (the “Family Trust”) and the William Shell Survivor’s Trust (the “Survivor’s Trust”), a written demand for repayment of all principal and interest outstanding on all outstanding notes. The Company disputes the enforceability of the demand

  

(b) On July 24, 2014, Dr. Shell 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 “Shell Warrant”). The Company recorded a debt discount in the amount of $44,867 based on the estimated fair value of the Shell Warrant. The debt discount was amortized as non-cash interest expense on the date of issuance using the effective interest method. During the three and six months ended June 30, 2015, the Company incurred interest expense of $2,593 and $5,157, respectively, on the Shell Note. At June 30, 2015 and December 31, 2014, accrued interest on the Shell Note totaled $7,095 and $1,938, 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 Liebman Notes were included in the disputed June 2012 Amendment. The principal and interest on the Liebman Notes is reflected as payable on demand. During the three and six months ended June 30, 2015, the Company incurred interest expense on the Liebman Notes of $4,784 and $9,516, respectively. During both the three and six months ended June 30, 2015 and 2014, the Company incurred interest expense of $4,784 and $9,516, respectively At June 30, 2015 and December 31, 2014, accrued interest on the Liebman Notes totaled $14,353 and $4,837, respectively.

 

(d) On June 28, 2013, the Company entered into an arrangement with CMFG which was governed pursuant to the terms of four contemporaneous agreements. On October 1, 2013, CMFG assigned its rights pursuant to the Workers’ Compensation Receivables Funding, Assignment and Security Agreement, to Raven Asset-Based Opportunity Fund I LP, a Delaware limited partnership (“Raven”). 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 Raven. In exchange, the Company received a loan of $3.2 million. Prior to July 1, 2014, the monthly division of collections on Funded Receivables was distributed as follows: First, to CMFG as a servicing fee in an amount equal to five percent (5%) of the collections; Second, to Raven to pay off any shortfalls from previous months (a shortfall will have been deemed to occur if Raven receives less than $175,000 in a given month); Third, to Raven in an amount up to $175,000; Fourth, to the Company in an amount of $125,000; Fifth, to Raven and the Company, the remainder of the Funded Receivables split at a ratio of 50% to 50%. Effective July 1, 2014, the monthly division of collections on the Funded Receivables was modified and until such time as Raven has received payment of $3.95 million in collections from Funded Receivables, the 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 Raven to pay off any shortfalls from previous months (a shortfall will have been deemed to occur if Raven receives less than $125,000 in a given month); Third, to Raven in an amount up to $125,000; Fourth, to the Company in an amount of $125,000; Fifth, to Raven and the Company, the remainder of the Funded Receivables split at a ratio of 50% to 50%. Once Raven has received payment of $3.95 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 Raven 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.
     
  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 a debt discount in the amount of $925,521 based on the estimated fair value of the Giordano and Raven Warrants. The debt discount is being 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, 2015, interest expense of $77,127 and $154,253, respectively, was recorded from the debt discount amortization. During the three and six months ended June 30, 2014, interest expense was $115,690 and $231,380, respectively.
     
  During the three and six months ended June 30, 2015, the Company incurred interest expense, excluding amortization of debt discount, of $67,085 and $154,253, respectively, pursuant to CMFG #2. During the three and six months ended June 30, 2014, the Company incurred interest expense, excluding amortization of debt discount, of $82,852 and $181,822, respectively.

  

(e) On January 13, 2015, the Company entered into a securities purchase agreement, pursuant to which the Company sold a senior secured convertible debenture (the “Debenture”) in the principal amount of $650,000, to Derma Medical Systems, Inc. (“Derma”). Thomas R. Wenkart, M.D., a director of the Company, is the owner and President of Derma. The Debenture accrues interest at 4% per annum, throughout the term of the Debenture, and unless earlier converted into shares of the Company’s common stock, has a maturity date of January 12, 2018. Interest on the Debenture is paid semi-annually, at the Company’s option, in either cash or shares of common stock. At Derma’s option, the principal amount of the Debenture is convertible into shares of common stock at a conversion price of $0.30, subject to adjustment. If, at any time while the Debenture is outstanding, the Company sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues, any Common Stock or Common Stock equivalents entitling any person to acquire shares of Common Stock at an effective price per share that is lower than the conversion price (such issuances, collectively, a “Dilutive Issuance”), then the conversion price shall be reduced. The conversion price shall be reduced by multiplying the conversion price by a fraction, the numerator of which is the number of shares of Common Stock issued and outstanding immediately prior to the Dilutive Issuance plus the number of shares of Common Stock which the offering price for such Dilutive Issuance would purchase at the then conversion price, and the denominator of which shall be the sum of the number of shares of Common Stock issued and outstanding immediately prior to the Dilutive Issuance plus the number of shares of Common Stock so issued or issuable in connection with the Dilutive Issuance.
   
  The debt conversion feature embedded in the Debenture is accounted for under ASC Topic 815 – Derivatives and Hedging. At issuance, the fair value of the debt conversion feature totaled $119,229 on the Debenture. The fair value of the debt conversion feature was allocated from the gross proceeds of the Debenture and the respective discount is being amortized to interest expense over the term of the Debenture using the effective interest method. The valuation of the bifurcated debt conversion feature was valued at the issue date utilizing the Black Scholes option pricing model. During the three and six months ended June 30, 2015, interest expense of $16,560, was recorded from the debt discount amortization. Additionally, the Company is required to mark to market the value of the conversion feature liability. Therefore, as of June 30, 2015, the Company revalued the fair value of the debt conversion feature for the Debenture and determined the conversion feature liability to be $36,075, a decrease of $83,154 from the fair value determined at the date of issuance. Changes in the conversion feature liability are recorded as income or expense during the reporting period that the change occurs.

  

  During the three and six months ended June 30, 2015, the Company incurred interest expense, excluding amortization of debt discount, of $6,570 and $12,055, respectively, on the Debenture. Pursuant to the terms of the Debenture, the Company issued 40,183 shares of its common stock in payment of the interest.
   
(f) On February 23, 2015, Shlomo Rechnitz loaned $1.2 million to the Company. As consideration for the loan, the Company issued Mr. Rechnitz a promissory note in the aggregate principal amount of $1.2 million (the “Rechnitz Note”). The Rechnitz Note accrues interest at 4% per annum, throughout its term, and has a maturity date of February 22, 2017. Principal and interest on the Rechnitz Note is payable in monthly installments of $52,110, beginning on March 22, 2015, and continuing until February 22, 2017. During the three and six months ended June 30, 2015, the Company incurred interest expense of $11,487 and $16,221, respectively, on the Rechnitz Note. At June 30, 2015, accrued interest on the Rechnitz Note totaled $12,222 and the Company is $156,330 in arrears on its monthly payment obligations.

Related Party Transactions

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Related Party Transactions
6 Months Ended
Jun. 30, 2015
Related Party Transactions [Abstract]  
Related Party Transactions

8. RELATED PARTY TRANSACTIONS

 

Notes Payable

 

As of June 30, 2015, and December 31, 2014, the Company has notes payable agreements issued to related parties with aggregate outstanding principal balances of $3,154,411 and $2,504,411, respectively (See Note 7).

Equity Transactions

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6 Months Ended
Jun. 30, 2015
Equity [Abstract]  
Equity Transactions

9. EQUITY TRANSACTIONS

 

During the six months ended June 30, 2015, the Company issued an aggregate of 588,461 shares of its common stock pursuant to agreements with its employees and consultants to the Company. The shares were valued at $35,307, an average of $0.06 per share. Additionally, pursuant to the terms of the Debenture, the Company issued 40,183 shares of its common stock in payment of interest in the amount of $12,055.

Commitments and Contingencies

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Commitments and Contingencies
6 Months Ended
Jun. 30, 2015
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

10. COMMITMENTS AND CONTINGENCIES

  

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 ongoing matter at this time.

 

On April 27, 2015, as a result of binding arbitration through JAMS, an award of $1.17 million dollars was issued against TMP for breach of contract, and in favor of PDR Medical Management, LLC (“PDR”), a former distributor of the Company’s products. The amount of the award was for sums previously included in the Company’s financial statements as “Due to Physicians” (See Note 6). Additionally, the arbitrator awarded an additional $333,274 to PDR which is reflected in accounts payable as of June 30, 2015. The additional amount consisted of attorneys’ fees and costs of $216,174 and prejudgment interest of $117,100.

 

On March 13, 2015, the Company received from counsel for Dr. Shell, Ms. Liebman, the Elizabeth Charuvastra and William Shell Family Trust dated July 27, 2006 and amended September 29, 2006 (the “Family Trust”) and the William Shell Survivor’s Trust (the “Survivor’s Trust”), a written demand for repayment of all principal and interest outstanding on all outstanding notes. The Company disputed the enforceability of the demand. On April 27, 2015, Dr. Shell, Ms. Liebman and the Survivor’s Trust filed suit in Superior Court of California, County of Los Angeles, for repayment of all principal and interest outstanding. Additionally, between June 4, 2013, and November 25, 2013, the William Shell Survivor’s Trust converted $2,000,000 of its notes into 1,769,629 shares of the Company’s common stock. The complaint now alleges that the conversion of $2,000,000 in notes held by the Survivor’s Trust did not occur. On May 28, 2015, The Survivor’s Trust applied for issuance of a right to attach order and for issuance of writ of attachment in the amount of $2,517,334 as a provisional remedy to secure enforcement of certain of the outstanding notes, which is currently set for hearing on September 1, 2015. The Company disputes the allegations of the Complaint and opposing the issuance of any provisional writ of attachment in connection with the allegations. In addition, the lawsuit may be deemed related to pending litigation between Dr. Shell and the beneficiaries of the Family Trust concerning the ownership and control of trust assets.

 

On May 13, 2015, the Company received from counsel for Dr. Shell, a written demand for arbitration primarily related to unpaid compensation Dr. Shell claims he is due. The demand is seeking an award of $1.9 million. The Company denies the allegations of the arbitration demand and will vigorously defend against the claims in the arbitration. On June 12, 2015, Dr. Shell filed a civil lawsuit which is substantially identical to the claims alleged in his May 13, 2015 demand for arbitration. The Company denies the allegations of the lawsuit on the same basis as the identical claims in arbitration and has moved to dismiss the civil lawsuit, which motion is currently set for hearing on November 16, 2016.

 

Leases

 

The Company leases its operating facility under a lease agreement expiring February 28, 2018 at the rate of $21,007 per month. 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.

Subsequent Events

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6 Months Ended
Jun. 30, 2015
Subsequent Events [Abstract]  
Subsequent Events

11. SUBSEQUENT EVENTS

 

The Company has evaluated events that occurred subsequent to June 30, 2015 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)

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Basis of Presentation And Significant Accounting Policies (Policies)
6 Months Ended
Jun. 30, 2015
Accounting Policies [Abstract]  
Basis 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, 2014 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, 2014. Results of the three and six months ended June 30, 2015, are not necessarily indicative of the results to be expected for the full year ending December 31, 2015.

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 with a 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 value. As of June 30, 2015 and 2014, 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 and sells medical foods 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 five models: Physician Direct Sales, Distributor Direct Sales, Physician Managed, Hybrid Models, and the Cambridge Medical Funding Group WC Receivable Purchase Assignment Model.

 

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 (9% of product revenues for the six months ended June 30, 2015): 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 (19% of product revenues for the six months ended June 30, 2015): 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 (33% of product revenues for the six months ended June 30, 2015): 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 (14% of product revenues for the six months ended June 30, 2015): 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”) (25% of product revenues for the six months ended June 30, 2015): 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 20% 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 20% advance payment, where such payment is without recourse or future obligation for TMP to repay the 20% 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 37% 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, 2015 and 2014, the Company issued billings to Physician Managed and Hybrid model customers aggregating $1.5 million and $1.7 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 $272,424 and $262,973, 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 $1,051,917 and $1,737,873 during the six months ended June 30, 2015 and 2014, respectively. As of June 30, 2015, we had approximately $7.0 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 on the claim, and the fee is not determinable until the amount of the collection 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 20% 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 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 CMFG #1, distributor customers and other miscellaneous receivables. 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, 2015 and December 31, 2014, of the collectability of invoices, we established an allowance for doubtful accounts of $9,408 and $55,773, respectively.

 

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 receivables 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 medical food products.

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 June 30, 2015 and December 31, 2014, so no long-lived asset impairment was recorded.

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. Taking into account the cyclical and non-recurring events that affected operations, the Company determined that no impairment indicators existed at June 30, 2015, or December 31, 2014, so no intangible asset impairment was recorded for the three or six months ended June 30, 2015, or the year ended December 31, 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 proportionate value of the warrant. Warrants issued with ratcheting provisions are classified as derivative liabilities and 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. Further, under ASC Topic 815-15 – Derivatives and Hedging – Embedded Derivatives (“ASC 815-15”) an evaluation of the embedded conversion feature of convertible debt is also evaluated to determine if the bifurcated debt conversion feature is required to be classified as a derivative liability. The estimated fair value of the warrants and the embedded conversion feature of debt classified as derivative liabilities are 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 the warrants and the embedded conversion feature of debt classified as derivative liabilities are 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, 2015, 95,000 warrants and the embedded conversion feature of the $650,000 Debenture were classified as derivative liabilities. Each reporting period the warrants and the embedded conversion feature are re-valued and adjusted through the caption “change in fair value of derivative liabilities” 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, 2015, 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 0% and 5% for the six months ended June 30, 2015 and 2014, respectively. During 2013, the Company decided to fully reserve its 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, 2015 and 2014, the Company did not recognize any income tax benefit as a result of its net loss. Further, during the six months ended June 30, 2014, the Company recognized $65,828 of income tax expense upon the final resolution of the Company’s Federal and state income tax audits for years 2010 through 2012. Thus, during the six months ended June 30, 2015 and 2014, the effective tax rate differed from the U.S. federal statutory rate primarily due to the change in the valuation allowance and to a lesser extent, for the six months ended June 30, 2014, upon the recognition of income tax expense resulting from the Company’s Federal and state income tax audits. The table below shows the balances for the deferred income tax assets and liabilities as of the dates indicated.

 

    June 30, 2015     December 31, 2014  
Deferred income tax asset-short-term   $ 1,564,915     $ 1,517,270  
Allowance     (1,564,915 )     (1,517,270 )
Deferred income tax asset-short-term, net            
                 
Deferred income tax asset-long-term     9,003,458       8,303,462  
Deferred income tax liability-long-term     (986,498 )     (1,074,928 )
Deferred income tax asset-long-term     8,016,960       7,228,534  
Allowance     (8,016,960 )     (7,228,534 )
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, 2015, the Company had total domestic Federal and state net operating loss carryovers of approximately $9,898,000 and $12,616,000, respectively. Federal and state net operating loss carryovers expire at various dates between 2021 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, 2015 and 2014:

 

    June 30,  
      2015       2014  
Warrants     4,699,372       4,256,465  
Stock options     2,357,341       2,423,841  
Convertible debentures     2,166,667        
      9,223,380       6,680,306  

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 expensed 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

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 May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” which supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605, Revenue Recognition. The purpose of ASU 2014-09 is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards. The amendments (i) remove inconsistencies and weaknesses in revenue requirements, (ii) provide a more robust framework for addressing revenue issues, (iii) improve comparability of revenue recognition across entities, industries, jurisdictions, and capital markets, (iv) provide more useful information to users of financial statements through improved disclosure requirements, and (v) simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. The new revenue recognition standard requires entities to recognize revenue in a way that reflects the transfer of promised goods or services to customers in an amount based on the consideration to which the entity expects to be entitled to in exchange for those goods or services. On July 9, 2015, the FASB agreed to delay the effective date by one year. Therefore, ASU 2014-09 is effective for interim and annual reporting periods beginning after December 15, 2017 and early adoption is not permitted. The amendments can be applied retrospectively to each prior reporting period or retrospectively with the cumulative effect of initially applying this update recognized at the date of initial application. The Company has not determined what transition method it will use and is currently assessing the impact that this guidance may have on its consolidated financial statements. 

 

In August 2014, the FASB issued ASU No. 2014-15 “Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” ASU 2014-15 is intended to define management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted. The adoption of this standard is not expected to have a material effect on the Company’s operating results or financial condition.

Description of Business (Tables)

v2.4.0.8
Description of Business (Tables)
6 Months Ended
Jun. 30, 2015
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Summary of Segment Information

Results for the three and six months ended June 30, 2015 and 2014, are reflected in the table below:

 

For the three months ended June 30,                  
                   
2015 (Unaudited)   Total     TMP     CCPI  
Gross sales   $ 1,342,078     $ 1,212,856     $ 129,222  
Gross profit (loss)   $ 807,439     $ 1,062,288     $ (254,849 )
Net loss   $ (546,170 )   $ (291,321 )   $ (254,849 )
Total assets   $ 2,397,644     $ 2,364,606     $ 33,038  
                         
2014 (Unaudited)                        
Gross sales   $ 2,221,201     $ 2,065,923     $ 155,278  
Gross profit (loss)   $ 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  

 

For the six months ended June 30,                  
                   
2015 (Unaudited)   Total     TMP     CCPI  
Gross sales   $ 2,409,966     $ 2,147,909     $ 262,057  
Gross profit (loss)   $ 1,324,560     $ 1,875,485     $ (550,925 )
Net loss   $ (2,224,579 )   $ (1,673,654 )   $ (550,925 )
Total assets   $ 2,397,644     $ 2,364,606     $ 33,038  
                         
2014 (Unaudited)                        
Gross sales   $ 4,022,104     $ 3,699,203     $ 322,901  
Gross profit (loss)   $ 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  

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, 2015
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, 2015     December 31, 2014  
Deferred income tax asset-short-term   $ 1,564,915     $ 1,517,270  
Allowance     (1,564,915 )     (1,517,270 )
Deferred income tax asset-short-term, net            
                 
Deferred income tax asset-long-term     9,003,458       8,303,462  
Deferred income tax liability-long-term     (986,498 )     (1,074,928 )
Deferred income tax asset-long-term     8,016,960       7,228,534  
Allowance     (8,016,960 )     (7,228,534 )
Deferred income tax asset-long-term, net            
                 
Total deferred tax asset, net   $     $  

Schedule of Common Stock Underlying Outstanding Options and Warrants

The following sets forth the number of shares of common stock underlying outstanding options, warrants and convertible debt as of June 30, 2015 and 2014:

 

    June 30,  
      2015       2014  
Warrants     4,699,372       4,256,465  
Stock options     2,357,341       2,423,841  
Convertible debentures     2,166,667        
      9,223,380       6,680,306  

Stock-Based Compensation (Tables)

v2.4.0.8
Stock-Based Compensation (Tables)
6 Months Ended
Jun. 30, 2015
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Summary of Stock Options Activity

A summary of stock option activity for the six months ended June 30, 2015 and year ended December 31, 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, 2013     1,792,697       2,794,841     $ 1.89       7.03     $ 0  
Cancellations and forfeitures     373,800       (373,800 )   $ 2.62                  
Restricted stock awards     (75,000 )                              
                                         
December 31, 2014     2,091,497       2,421,041     $ 1.77       5.88     $ 0  
Grants     (200,000 )     200,000     $ 0.30                  
Cancellations and forfeitures     263,700       (263,700 )   $ 1.31                  
                                         
June 30, 2015     2,155,197       2,357,341     $ 1.70       5.33     $ 0  

Schedule of Black-Scholes Option Pricing Model

The Company did not issue any options during the year ended December 31, 2014. The Company utilized the Black-Scholes option pricing model and the assumptions used for the six months ended June 30, 2015 are as follows:

 

   

Six Months Ended

June 30, 2015

 
Weighted average risk free interest rate     1.13 %
Weighted average life (in years)     3.4  
Volatility     66 %
Expected dividend yield     0 %
Weighted average grant-date fair value per share of options granted   $ 0.01  

Summary of Changes in Nonvested Options

A summary of the changes in the Company’s nonvested options during the six months ended June 30, 2015, is as follows:

 

    Number of 
Non-vested 
Options  
    Weighted 
Average Fair 
Value at Grant 
Date  
    Intrinsic 
Value
 
                   
Non-vested at December 31, 2014     170,833     $ 0.57     $  
Vested in six months ended June 30, 2015     25,000     $ 0.93     $  
Non-vested at June 30, 2015     345,833     $ 0.22     $  
Exercisable at June 30, 2015     2,011,508     $ 0.96     $  
Outstanding at June 30, 2015     2,357,341     $ 0.93     $  

Warrants (Tables)

v2.4.0.8
Warrants (Tables)
6 Months Ended
Jun. 30, 2015
Warrants  
Schedule of Warrants Valuation Assumptions

The Company utilized the Black-Scholes option pricing model and the assumptions used for the year ended December 31, 2014 are as follows:

 

   

Year Ended

December 31, 2014

 
Weighted average risk free interest rate     1.67% – 1.72 %
Weighted average life (in years)     5.0  
Volatility     67 %
Expected dividend yield     0 %
Weighted average grant-date fair value per share of options granted   $ 0.67  

Summary of Status of Outstanding Warrants

The following table summarizes information about common stock warrants outstanding at June 30, 2015:

 

Outstanding     Exercisable  
Exercise 
Price
   

Number

Outstanding

   

Weighted

Average

Remaining

Contractual Life

(Years)

   

Weighted

Average

Exercise

Price

   

Number

Exercisable

   

Weighted

Average

Exercise

Price

 
                                 
$ 0.01       365,000       3.55     $ 0.01       365,000     $ 0.01  
$ 0.80       162,907       4.12     $ 0.80       162,907     $ 0.80  
$ 1.00       1,625,000       1.99     $ 1.00       1,625,000     $ 1.00  
$ 2.00       1,812,500       8.05     $ 2.00       1,812,500     $ 2.00  
$ 2.60       20,000       2.85     $ 2.60       20,000     $ 2.60  
$ 3.38       713,965       1.57     $ 3.38       713,965     $ 3.38  
                                             
  $0.01 - 3.38       4,699,372       4.46     $ 1.67       4,699,372     $ 1.67  

Accrued Liabilities (Tables)

v2.4.0.8
Accrued Liabilities (Tables)
6 Months Ended
Jun. 30, 2015
Payables and Accruals [Abstract]  
Schedule of Accrued Liabilities

Accrued liabilities at June 30, 2015, and December 31, 2014, are comprised of the following:

 

    June 30, 2015     December 31, 2014  
             
Due to physicians   $ 3,137,446     $ 2,659,698  
Accrued salaries and director fees     3,666,259       3,996,901  
Other     467,019       617,381  
Total accrued liabilities   $ 7,270,724     $ 7,273,980  

Notes Payable (Tables)

v2.4.0.8
Notes Payable (Tables)
6 Months Ended
Jun. 30, 2015
Debt Disclosure [Abstract]  
Components of Notes Payable

Notes payable at June 30, 2015, and December 31, 2014, are comprised of the following:

 

    June 30, 2015     December 31, 2014  
Notes payable to William Shell Survivor’s Trust (a)   $ 1,874,411     $ 1,874,411  
Notes payable to William Shell (b)     130,000       130,000  
Notes payable to Lisa Liebman (c)     500,000       500,000  
Note payable to Cambridge Medical Funding Group, LLC (d)     1,218,687       1,523,559  
Note payable to Derma Medical Systems, Inc. (e)     650,000        
Note payable to Shlomo Rechnitz (f)     1,151,890        
Total notes payable     5,524,988       4,027,970  
Less: debt discount     (256,923 )     (308,507 )
      5,268,065       3,719,463  
Less: current portion     (3,979,539 )     (3,597,173 )
Notes payable – long-term portion   $ 1,288,526     $ 122,290  

 

(a) Between January 2011 and December 2012, William E. Shell, M.D., the Company’s former Chief Executive Officer, former Chief Scientific Officer, greater than 10% shareholder and a former 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”). At the time these promissory notes were issued, all of these notes were issued with maturity dates of five years from the date of issuance with interest payable on the maturity date. On June 22, 2012, the Company’s Board of Directors ratified an amendment that modified all promissory notes that were issued prior to June 22, 2012 to demand notes with interest payable quarterly (the“June 2012 Amendment”). The Company disputes the validity of the June 2012 Amendment. 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.
   
  During the three and six months ended June 30, 2015, the Company incurred interest expense of $21,610 and $42,983, respectively, on the WS Trust Notes. During the three and six months ended June 30, 2014, the Company incurred interest expense of $21,455 and $43,591, respectively. At June 30, 2015 and December 31, 2014, accrued interest on the WS Trust Notes totaled $64,299 and 21,316, respectively.
   
  On March 13, 2015, we received from counsel for Dr. Shell, Ms. Liebman, the Elizabeth Charuvastra and William Shell Family Trust dated July 27, 2006 and amended September 29, 2006 (the “Family Trust”) and the William Shell Survivor’s Trust (the “Survivor’s Trust”), a written demand for repayment of all principal and interest outstanding on all outstanding notes. The Company disputes the enforceability of the demand

  

(b) On July 24, 2014, Dr. Shell 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 “Shell Warrant”). The Company recorded a debt discount in the amount of $44,867 based on the estimated fair value of the Shell Warrant. The debt discount was amortized as non-cash interest expense on the date of issuance using the effective interest method. During the three and six months ended June 30, 2015, the Company incurred interest expense of $2,593 and $5,157, respectively, on the Shell Note. At June 30, 2015 and December 31, 2014, accrued interest on the Shell Note totaled $7,095 and $1,938, 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 Liebman Notes were included in the disputed June 2012 Amendment. The principal and interest on the Liebman Notes is reflected as payable on demand. During the three and six months ended June 30, 2015, the Company incurred interest expense on the Liebman Notes of $4,784 and $9,516, respectively. During both the three and six months ended June 30, 2015 and 2014, the Company incurred interest expense of $4,784 and $9,516, respectively At June 30, 2015 and December 31, 2014, accrued interest on the Liebman Notes totaled $14,353 and $4,837, respectively.

 

(d) On June 28, 2013, the Company entered into an arrangement with CMFG which was governed pursuant to the terms of four contemporaneous agreements. On October 1, 2013, CMFG assigned its rights pursuant to the Workers’ Compensation Receivables Funding, Assignment and Security Agreement, to Raven Asset-Based Opportunity Fund I LP, a Delaware limited partnership (“Raven”). 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 Raven. In exchange, the Company received a loan of $3.2 million. Prior to July 1, 2014, the monthly division of collections on Funded Receivables was distributed as follows: First, to CMFG as a servicing fee in an amount equal to five percent (5%) of the collections; Second, to Raven to pay off any shortfalls from previous months (a shortfall will have been deemed to occur if Raven receives less than $175,000 in a given month); Third, to Raven in an amount up to $175,000; Fourth, to the Company in an amount of $125,000; Fifth, to Raven and the Company, the remainder of the Funded Receivables split at a ratio of 50% to 50%. Effective July 1, 2014, the monthly division of collections on the Funded Receivables was modified and until such time as Raven has received payment of $3.95 million in collections from Funded Receivables, the 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 Raven to pay off any shortfalls from previous months (a shortfall will have been deemed to occur if Raven receives less than $125,000 in a given month); Third, to Raven in an amount up to $125,000; Fourth, to the Company in an amount of $125,000; Fifth, to Raven and the Company, the remainder of the Funded Receivables split at a ratio of 50% to 50%. Once Raven has received payment of $3.95 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 Raven 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.
     
  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 a debt discount in the amount of $925,521 based on the estimated fair value of the Giordano and Raven Warrants. The debt discount is being 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, 2015, interest expense of $77,127 and $154,253, respectively, was recorded from the debt discount amortization. During the three and six months ended June 30, 2014, interest expense was $115,690 and $231,380, respectively.
     
  During the three and six months ended June 30, 2015, the Company incurred interest expense, excluding amortization of debt discount, of $67,085 and $154,253, respectively, pursuant to CMFG #2. During the three and six months ended June 30, 2014, the Company incurred interest expense, excluding amortization of debt discount, of $82,852 and $181,822, respectively.

  

(e) On January 13, 2015, the Company entered into a securities purchase agreement, pursuant to which the Company sold a senior secured convertible debenture (the “Debenture”) in the principal amount of $650,000, to Derma Medical Systems, Inc. (“Derma”). Thomas R. Wenkart, M.D., a director of the Company, is the owner and President of Derma. The Debenture accrues interest at 4% per annum, throughout the term of the Debenture, and unless earlier converted into shares of the Company’s common stock, has a maturity date of January 12, 2018. Interest on the Debenture is paid semi-annually, at the Company’s option, in either cash or shares of common stock. At Derma’s option, the principal amount of the Debenture is convertible into shares of common stock at a conversion price of $0.30, subject to adjustment. If, at any time while the Debenture is outstanding, the Company sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues, any Common Stock or Common Stock equivalents entitling any person to acquire shares of Common Stock at an effective price per share that is lower than the conversion price (such issuances, collectively, a “Dilutive Issuance”), then the conversion price shall be reduced. The conversion price shall be reduced by multiplying the conversion price by a fraction, the numerator of which is the number of shares of Common Stock issued and outstanding immediately prior to the Dilutive Issuance plus the number of shares of Common Stock which the offering price for such Dilutive Issuance would purchase at the then conversion price, and the denominator of which shall be the sum of the number of shares of Common Stock issued and outstanding immediately prior to the Dilutive Issuance plus the number of shares of Common Stock so issued or issuable in connection with the Dilutive Issuance.
   
  The debt conversion feature embedded in the Debenture is accounted for under ASC Topic 815 – Derivatives and Hedging. At issuance, the fair value of the debt conversion feature totaled $119,229 on the Debenture. The fair value of the debt conversion feature was allocated from the gross proceeds of the Debenture and the respective discount is being amortized to interest expense over the term of the Debenture using the effective interest method. The valuation of the bifurcated debt conversion feature was valued at the issue date utilizing the Black Scholes option pricing model. During the three and six months ended June 30, 2015, interest expense of $16,560, was recorded from the debt discount amortization. Additionally, the Company is required to mark to market the value of the conversion feature liability. Therefore, as of June 30, 2015, the Company revalued the fair value of the debt conversion feature for the Debenture and determined the conversion feature liability to be $36,075, a decrease of $83,154 from the fair value determined at the date of issuance. Changes in the conversion feature liability are recorded as income or expense during the reporting period that the change occurs.

  

  During the three and six months ended June 30, 2015, the Company incurred interest expense, excluding amortization of debt discount, of $6,570 and $12,055, respectively, on the Debenture. Pursuant to the terms of the Debenture, the Company issued 40,183 shares of its common stock in payment of the interest.
   
(f) On February 23, 2015, Shlomo Rechnitz loaned $1.2 million to the Company. As consideration for the loan, the Company issued Mr. Rechnitz a promissory note in the aggregate principal amount of $1.2 million (the “Rechnitz Note”). The Rechnitz Note accrues interest at 4% per annum, throughout its term, and has a maturity date of February 22, 2017. Principal and interest on the Rechnitz Note is payable in monthly installments of $52,110, beginning on March 22, 2015, and continuing until February 22, 2017. During the three and six months ended June 30, 2015, the Company incurred interest expense of $11,487 and $16,221, respectively, on the Rechnitz Note. At June 30, 2015, accrued interest on the Rechnitz Note totaled $12,222 and the Company is $156,330 in arrears on its monthly payment obligations.

Description of Business (Details Narrative)

v2.4.0.8
Description of Business (Details Narrative) (USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Segment
Jun. 30, 2014
Number of reportable segments     2  
Revenue $ 1,342,078 $ 2,221,201 $ 2,409,966 $ 4,022,104
Out Side United States [Member]
       
Revenue $ 32,370   $ 32,370  

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, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Dec. 31, 2014
Gross sales $ 1,342,078 $ 2,221,201 $ 2,409,966 $ 4,022,104  
Gross profit (loss) 807,439 1,711,237 1,324,560 2,952,606  
Net loss (546,170) (423,218) (2,224,579) (1,397,688)  
Total assets 2,397,644 2,500,296 2,397,644 2,500,296 2,500,296
TMP [Member]
         
Gross sales 1,212,856 2,065,923 2,147,909 3,699,203  
Gross profit (loss) 1,062,288 1,942,269 1,875,485 3,436,230  
Net loss (291,321) (192,186) (1,673,654) (914,064)  
Total assets 2,364,606 3,780,270 2,364,606 3,780,270  
CCPI [Member]
         
Gross sales 129,222 155,278 262,057 322,901  
Gross profit (loss) (254,849) (231,032) (550,925) (483,624)  
Net loss (254,849) (231,032) (550,925) (483,624)  
Total assets $ 33,038 $ 40,818 $ 33,038 $ 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, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Dec. 31, 2014
Net loss $ 546,170 $ 423,218 $ 2,224,579 $ 1,397,688  
Accumulated deficit 29,141,995   29,141,995   26,917,416
Working capital negative 12,664,767   12,664,767    
Internal Revenue Service (IRS) [Member]
         
Unpaid payroll taxes $ 650,000   $ 650,000    

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 6 Months Ended 36 Months Ended 36 Months Ended 6 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Dec. 31, 2014
Jun. 30, 2015
Leasehold Improvements [Member]
Dec. 31, 2012
Federal [Member]
Jun. 30, 2015
Federal [Member]
Dec. 31, 2012
State [Member]
Jun. 30, 2015
State [Member]
Jun. 30, 2015
Minimum [Member]
Jun. 30, 2015
Minimum [Member]
Computer Equipment [Member]
Jun. 30, 2015
Minimum [Member]
Furniture and Fixtures [Member]
Jun. 30, 2015
Maximum [Member]
Jun. 30, 2015
Maximum [Member]
Computer Equipment [Member]
Jun. 30, 2015
Maximum [Member]
Furniture and Fixtures [Member]
Jun. 30, 2015
CMFG One And The Physician [Member]
Jun. 30, 2015
Physician Direct Sales Model [Member]
Jun. 30, 2015
Distributor Direct Sales Model [Member]
Jun. 30, 2015
Physician Managed Model [Member]
Jun. 30, 2015
Hybrid Model [Member]
Jun. 30, 2015
CMFG One [Member]
Jun. 30, 2014
CMFG One [Member]
Jun. 30, 2015
Physician [Member]
Jun. 30, 2015
Physician Managed And Hybrid Model [Member]
Jun. 30, 2014
Physician Managed And Hybrid Model [Member]
Jun. 30, 2015
CCPI [Member]
Cash equivalents $ 0 $ 0 $ 0 $ 0 $ 0                                            
Percentage of revenue from sales                                   9.00% 19.00% 33.00% 14.00% 25.00%         20.00%
Percentage of late payment fee for outstanding balance                                   20.00% 20.00% 20.00% 20.00% 20.00%          
Percentage of accounts receivable by advance payments                                           20.00%          
Repay the advance amount by the company, percentage                                           20.00%          
Accounts receivable sharing percentage                                 37.00%                    
Accounts receivable distribution percentage                                           25.00%   75.00%      
Unbilled receivables from related parties                                                 150,000 170,000  
Direct cost associated with the billing                                                 272,424 262,973  
Revenue from customers 1,342,078 2,221,201 2,409,966 4,022,104                                         1,051,917 1,737,873  
Unrecorded accounts receivable 7,000,000   7,000,000                                       700,000        
Rapid pay discount to the customer, percentage                     40.00%     88.00%                          
Allowance for doubtful accounts 9,408   9,408   55,773                                            
Estimated useful lives of related assets           15 years           3 years 5 years   5 years 7 years                      
Impairment of intangible assets     0 0                                              
Effective tax rate were during period     0.00% 0.00%                                              
Number of warrants classified as derivative liability 95,000   95,000                                                
Embedded conversion feature of debenture classified as derivative liabilities 650,000   650,000                                                
Effective tax rates     0.00% 5.00%                                              
Income tax expense    65,828    65,828     65,828   65,828                                    
Operating Loss Carryforwards               $ 9,898,000   $ 12,616,000                                  
Percentage of cumulative ownership change     50.00%                                                
Cumulative ownership change period     3 years                                                
Percentage of reseach and development expensed contract year basis     50.00%                                                
Percentage of remainder reseach and development expensed contract year basis     50.00%                                                

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 $)
Jun. 30, 2015
Dec. 31, 2014
Income Tax Disclosure [Abstract]    
Deferred income tax asset-short-term $ 1,564,915 $ 1,517,270
Allowance (1,564,915) (1,517,270)
Deferred income tax asset-short-term, net      
Deferred income tax asset-long-term 9,003,458 8,303,462
Deferred income tax liability-long-term (986,498) (1,074,928)
Deferred income tax asset-long-term 8,016,960 7,228,534
Allowance (8,016,960) (7,228,534)
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 and Warrants (Details)

v2.4.0.8
Basis of Presentation and Significant Accounting Policies - Schedule of Common Stock Underlying Outstanding Options and Warrants (Details)
6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount 9,223,380 6,680,306
Warrants [Member]
   
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount 4,699,372 4,256,465
Stock Options [Member]
   
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount 2,357,341 2,423,841
Convertible Debentures [Member]
   
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount 2,166,667   

Stock-Based Compensation (Details Narrative)

v2.4.0.8
Stock-Based Compensation (Details Narrative) (USD $)
3 Months Ended 6 Months Ended 1 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Jan. 31, 2011
Minimum [Member]
Jan. 31, 2011
Maximum [Member]
Jan. 31, 2011
2011 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]              
Number of stock issued to the officers             5,000,000
Stock option expiration period         5 years 10 years  
Stock-based compensation expense $ 6,861 $ 12,451 $ 44,832 $ 24,902      
Total unrecognized compensation cost related to unvested stock options $ 49,259   $ 49,259        
Expected weighted average period for cost recognition     1 year 11 months 5 days        

Stock Based Compensation - Summary of Stock Options Activity (Details)

v2.4.0.8
Stock Based Compensation - Summary of Stock Options Activity (Details) (USD $)
6 Months Ended 12 Months Ended
Jun. 30, 2015
Dec. 31, 2014
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]    
Shares Available for Grant, Outstanding, Beginning balance 2,091,497 1,792,697
Shares Available for Grant, Cancellations and forfeitures 263,700 373,800
Shares Available for Grant, Grants (200,000)  
Shares Available for Grant, Restricted stock awards   (75,000)
Shares Available for Grant, Outstanding, Ending balance 2,155,197 2,091,497
Number of Shares, Outstanding, Beginning balance 2,421,041 2,794,841
Number of Shares, Cancellations and forfeitures   (373,800)
Number of Shares, Grants 200,000  
Number of Shares, Restricted stock awards (263,700)   
Number of Shares, Outstanding, Ending balance 2,357,341 2,421,041
Weighted Average Exercise Price, Outstanding, Beginning $ 1.77 $ 1.89
Weighted Average Exercise Price, Grants $ 0.30  
Weighted Average Exercise Price, Cancellations and forfeitures $ 1.31 $ 2.62
Weighted Average Exercise Price, Outstanding, Ending $ 1.70 $ 1.77
Weighted Average Remaining Contractual Life (years), Beginning   7 years 11 days
Weighted Average Remaining Contractual Life (years), Ending 5 years 3 months 29 days 5 years 10 months 17 days
Aggregate Intrinsic Value, Outstanding, Beginning balance $ 0 $ 0
Aggregate Intrinsic Value, Outstanding, Ending balance $ 0 $ 0

Stock Based Compensation - Schedule of Black-Scholes Option Pricing Model (Details)

v2.4.0.8
Stock Based Compensation - Schedule of Black-Scholes Option Pricing Model (Details) (USD $)
6 Months Ended
Jun. 30, 2015
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Weighted average risk free interest rate 1.13%
Weighted average life (in years) 3 years 4 months 24 days
Volatility 66.00%
Expected dividend yield 0.00%
Weighted average grant-date fair value per share of options granted $ 0.01

Stock Based Compensation - Summary of Changes in Nonvested Options (Details)

v2.4.0.8
Stock Based Compensation - Summary of Changes in Nonvested Options (Details) (USD $)
6 Months Ended
Jun. 30, 2015
Dec. 31, 2014
Dec. 31, 2013
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]      
Number of Non-vested Options, Outstanding, Beginning balance 170,833    
Number of Non-vested Options, Vested 25,000    
Number of Non-vested Options, Non-vested 345,833    
Number of Non-vested Options, Exercisable 2,011,508    
Number of Shares, Outstanding, Ending balance 2,357,341 2,421,041 2,794,841
Weighted Average Fair Value at Grant Date, Non-vested, Beginning $ 0.57    
Weighted Average Fair Value at Grant Date, Vested $ 0.93    
Weighted Average Fair Value at Grant Date, Non-vested $ 0.22    
Weighted Average Fair Value at Grant Date, Exercisable $ 0.96    
Weighted Average Fair Value at Grant Date, Outstanding, Ending balance $ 0.93    
Intrinsic Value, Exercisable       
Intrinsic Value, Outstanding       

Warrants (Details Narrative)

v2.4.0.8
Warrants (Details Narrative) (USD $)
0 Months Ended 6 Months Ended 12 Months Ended
Jul. 24, 2014
Warrants [Member]
Consultants [Member]
Jun. 30, 2015
Warrants [Member]
William E Shell [Member]
Jun. 30, 2015
Warrants [Member]
Dec. 31, 2014
Warrants [Member]
Jun. 30, 2015
Warrants [Member]
August 2011 through July 2014 [Member]
Jun. 30, 2015
Warrants [Member]
August 2011 through July 2014 [Member]
Minimum [Member]
Jun. 30, 2015
Warrants [Member]
August 2011 through July 2014 [Member]
Maximum [Member]
Jun. 30, 2014
Warrant [Member]
Number of warrants issued 500,000 162,907   662,907        
Warrants outstanding, exercise price       $ 0.35   $ 0.01 $ 3.38 $ 0.42
Warrants outstanding, number outstanding         2,586,872      
Warrants and cancelled warrants     220,000          
Warrants related liability     $ 9,517 $ 18,075        

Warrants - Schedule of Warrants Valuation Assumptions (Details)

v2.4.0.8
Warrants - Schedule of Warrants Valuation Assumptions (Details) (USD $)
6 Months Ended 12 Months Ended
Jun. 30, 2015
Dec. 31, 2014
Warrants [Member]
Weighted average risk free interest rate, minimum   1.67%
Weighted average risk free interest rate, maximum   1.72%
Weighted average life (in years) 3 years 4 months 24 days 5 years
Volatility 66.00% 67.00%
Expected dividend yield   0.00%
Weighted average grant-date fair value per share of options granted