(1) | otherwise indicated. Beneficial ownership is determined in accordance with the rules of the Commission and generally includes voting or investment power with respect to securities. Shares of Common Stock and non-qualified Company Options, Company Warrants, and convertible securities that are currently exercisable or convertible into shares of the Company’s Common Stock within sixty (60) days of the date of this document, are deemed to be outstanding and to be beneficially owned by the person holding the Company Options, Company Warrants, or convertible securities for the purpose of computing the percentage ownership of the person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the address for all beneficial owners is 951 Broken Sound Pkwy NW, #320, Boca Raton, FL 33487.
Name and Address of Beneficial Owner | | Title of Class | | Number of Shares Beneficially Owned(1) | | | Percent of Class | | | | | | | | | | | Robert G. Finizio Chairman and Chief Executive Officer | | Common Stock | | | 23,813,493 | (2) | | | 27.61 | % | John C.K. Milligan, IV President, Secretary and Director | | Common Stock | | | 8,660,642 | (3) | | | 9.97 | % | Daniel A. Cartwright Chief Financial Officer, Vice Pres. Finance, Treasurer | | Common Stock | | | 163,632 | (4) | | | 0.19 | % | Mitchell L. Krassan Executive Vice President, Chief Strategy Officer | | Common Stock | | | 677,128 | (5) | | | 0.79 | % | Brian Bernick, M.D. Director | | Common Stock | | | 10,654,049 | (6) | | | 12.37 | % | Samuel A. Greco Director | | Common Stock | | | 400,000 | (7) | | | 0.47 | % | Cooper C. Collins Director | | Common Stock | | | 2,631,579 | (8) | | | 3.11 | % | Robert V. LaPenta, Jr. Director | | Common Stock | | | 5,000 | (9) | | | 0.01 | % | Nicholas Segal Director | | Common Stock | | | 3,948,719 | (10) | | | 4.66 | % | | | | | | | | | | | | All directors and executive officers as a group (9 persons) | | Common Stock | | | 50,95,242 | (11) | | | 55.94 | % | | | | | | | | | | | | Steven G. Johnson, Shareholder 804 Tree Haven Ct., Highland Village, TX 75077 | | Common Stock | | | 8,318,283 | (12) | | | 9.38 | % | Robert J. Smith, Shareholder 13650 Fiddlesticks Blvd., #202-324; Ft. Myers, FL 33912 | | Common Stock | | | 8,304,334 | (13) | | | 9.36 | % | Wellington Management Company, LLP 280 Congress St., Boston, MA 02210 | | Common Stock | | | 5,000,000 | (14) | | | 5.90 | % |
(1) | Unless otherwise noted, we believe that all shares are beneficially owned and that all persons named in the table have sole voting and investment power with respect to securities.all shares of Common Stock owned by them. Applicable percentage of ownership is based on 84,608,826 shares of Common Stock currently outstanding as adjusted for each shareholder. |
(2) | This amount includes (i) 22,161,586 shares directly owned by Finizio, (ii) 1,472,910 shares due to Finizio upon exercise of vested shares under Options and (iii) 178,997 shares due to Finizio upon exercise of vested shares under a Warrant. The indication herein thatpercentage of class for Finizio is based on 86,260,733 shares which would be outstanding if all of Finizio’s vested shares under the Options and Warrant were exercised. | (3) | This amount includes (i) 6,368,018 shares directly owned by Milligan, (ii) 2,052,255 shares due to Milligan upon exercise of vested shares under Options, and (iii) 240,369 shares due to Milligan upon exercise of vested shares under Warrants. The percentage of class for Milligan is based on 86,901,450 shares which would be outstanding if all of Milligan’s vested shares under the Options and Warrants were exercised. | (4) | This amount includes 163,632 shares due to Cartwright upon exercise of vested shares under a Warrant. The percentage of class for Cartwright is based on 84,772,458 shares which would be outstanding if all vested shares under the Warrant were exercised. | (5) | This amount includes 677,128 shares due to Krassan upon exercise of vested shares under Options. The percentage of class for Krassan is based on 85,285,954 shares which would be outstanding if all of Krassan’s vested shares under the Options were exercised. | (6) | This amount includes (i) 9,119,767 shares beneficially owned by BF Investment Enterprises, Ltd., a company controlled by Mr. Bernick (“BF Investment”), (ii) 1,472,910 shares due to BF Investment upon exercise of vested shares under Options and (iii) 61,372 shares due to BF Investment upon exercise of vested shares under a Warrant. The percentage of class for Bernick is based on 86,143,108 shares which would be outstanding if all of BF Investment’s vested shares under the Options and Warrant were exercised. | (7) | This amount includes 400,000 shares directly owned by Greco, which shares are currently pledged as security for a promissory note. | (8) | These shares are beneficially owned by Pernix Therapeutics Holdings, Inc., of which Collins is not an admission onCEO, director and largest shareholder. Collins exercises voting control in part with the partremaining directors of Pernix and disclaims beneficial ownership of the listed stockholder that said listed stockholdershares. | (9) | These shares are directly owned by LaPenta. | (10) | This amount includes (i) 245,485 shares directly owned by Segal, (ii) 3,549,805 shares beneficially owned by Fourth Generation Equity Partners (“Fourth Generation”), (iii) 92,057 shares due to Segal upon exercise of vested shares under an Option, and (iv) 61,372 shares due to Fourth Generation upon exercise of vested shares under an Option. Segal owns 11.5812% of Fourth Generation equal to 411,110 shares and 5,299 vested shares under the Fourth Generation Option. Segal disclaims beneficial ownership to the remaining shares and remaining vested shares under the Option owned by Fourth Generation. The percentage of class for Segal is based on 84,762,255 shares which would be outstanding if all of Segal’s and Fourth Generation’s vested shares under Options were exercised. | (11) | This amount includes all shares directly and indirectly owned by all officers and directors and all shares to be issued directly and indirectly upon exercise of vested shares under Options and Warrants, The percentage of class for all officers and directors is based on 91,081,828 shares which would be outstanding if all of the officers’ and directors’ vested shares under Options and Warrants were exercised. | (12) | This amount includes (i) 4,245,540 shares beneficially owned through S.J. Capital, LLC, an entity solely owned by Johnson and (ii) 4,072,743 shares due to Johnson upon the exercise of vested Warrants. The percentage of class for Johnson is based on 88,681,569 shares which would be outstanding if all of Johnson’s shares under the vested Warrants were exercised. | (13) | This amount includes (i) 4,231,591 shares beneficially owned through Energy Capital, LLC, an entity solely owned by Smith and (ii) 4,072,743 shares due to Smith upon the exercise of vested Warrants. The percentage of class for Smith is based on 88,681,569 shares which would be outstanding if all of Smith’s shares under the vested Warrants were exercised. | (14) | The shares are beneficially owned by Wellington Management, in its capacity as investment adviser, for its clients. Those clients have the right to receive, or will be athe power to direct the receipt of, dividends from, or indirect beneficial ownerthe proceeds from the sale of thosesuch shares. No such client is known to have such right or power with respect to more than five percent. |
Under Rule 144 promulgated under the Securities Act, our officers, directors and beneficial shareholders may sell up to one percent (1%) of the total outstanding shares (or an amount of shares equal to the average weekly reported volume of trading during the four calendar weeks preceding the sale) every three months provided that (1)(i) current public information is available about the Company, (2)(ii) the shares have been fully paid for at least one year, (3)(iii) the shares are sold in a broker’s transaction or through a market-maker, and (4)(iv) the seller files a Form 144 with the SEC. Ms. Kelley is eligible to sell her shares pursuant to the selling restrictions of Rule 144.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires directors and certain officers of the Company, as well as persons who own more than 10% of a registered class of the Company’s equity securities (“Reporting Persons”), to file reports with the Commission. The Company believes that during fiscal 2011, all Reporting Persons timely complied with all filing requirements applicable to them.
| CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORINDEPENDENCE. |
None.Except for the transactions described below, none of our directors, officers or principal shareholders, nor any associate or affiliate of the foregoing, have any interest, direct or indirect, in any transaction or in any proposed transaction, which materially affected us during the year ended December 31, 2011.
Loan Guaranty
On March 7, 2011, VitaMed entered into a Business Loan Agreement and Promissory Note for a $300,000 bank line of credit (the “Bank LOC”) for which the bank required a personal guarantee and cash collateral. Personal guarantees and cash collateral limited to $100,000 each were provided by Robert Finizio and John Milligan, officers of VitaMed, and by Reich Family Limited Partnership, an entity controlled by Mitchell Krassan, also an officer of VitaMed. The Bank LOC accrued interest at the rate of 3.020% per annum based on a year of 360 days and was due on March 1, 2012. The bank and VitaMed negotiated a one-year extension to the Bank LOC which was executed on March 19, 2012 (the “Bank LOC Extension”). The Bank LOC Extension accrued interest at the rate of 2.35% and is due on March 1, 2013. In consideration for the personal guarantees and cash collateral, VitaMed issued VitaMed Warrants for an aggregate of 499,998 Units (or Company Warrants for an aggregate of 613,713 shares pursuant to the Conversion Ratio). The ten-year Warrants vest at the rate of an aggregate of 76,714 shares per calendar quarter end and have an exercise price of $0.2444 per share. In the event that the bank loan is repaid prior to being fully vested, the Company Warrants will be reissued only for the number of shares vested through the date of repayment. At March 31, 2012, an aggregate of 306,867 shares will be vested thereunder.
Loans from Affiliates
The VitaMed Promissory Notes for an aggregate of $500,000 included an aggregate of $200,000 being issued to certain officers and directors of the Company. John Milligan, President and Director, and Dr. Brian Bernick, Director, were issued VitaMed Promissory Notes for $50,000 each. Reich Family LP, an entity controlled by Mitchell Krassan, Executive Vice President, and Fourth Generation Equity Partners, LLC (“Fourth Generation”), an entity controlled by Nick Segal, a director of VitaMed at the time of the issuance, were issued VitaMed Promissory Notes for $50,000 each. The VitaMed Promissory Notes bear interest at the rate of four percent (4%) per annum. On October 6, 2011, (i) principal and interest of approximately $50,696 under the Note to Reich Family LP was repaid, (ii) principal and interest of approximately $50,696 under the Note to Fourth Generation was converted into 133,411 shares of the Company’s Common Stock at $0.38 per share, and (iii) the due date for the VitaMed Promissory Notes to Mr. Milligan and Dr. Bernick was extended to March 1, 2012. By mutual agreement of the parties, the VitaMed Promissory Notes to Mr. Milligan and Dr. Bernick were further extended to April 14, 2012.
In December 2011, the Company sold 4% Promissory Notes for an aggregate of $100,000 to Robert Finizio, Chief Executive Officer and Director, and Mr. Milligan. The original due dates of March 1, 2012 were subsequently extended to April 14, 2012 by mutual agreement of the parties.
Lock Up Agreements
As required by of the Merger Agreement, a Lock Up Agreement was entered into between the Company and security holders covering the aggregate of 70,000,000 shares of the Company’s Common Stock issued pursuant to the Merger or reserved for issuance pursuant to Company Options and Company Warrants. Each security holder agreed that from the date of the Agreement until eighteen (18) months thereafter (the “Lock-Up Period”), they would not make or cause any sale of the Company’s securities. After the completion of the Lock-Up Period, the security holder agreed not to sell or dispose of more than 2.5 percent (2.5%) of the aggregate Common Stock or shares reserved for issuance for Company Options and Company Warrants per quarter over the following twelve (12) month period (the “Dribble Out Period”). Upon the completion of the Dribble Out Period, the Lock Up Agreements shall terminate.
Agreements with Pernix Therapeutics, LLC
As previously mentioned, the Company closed a Stock Purchase Agreement with Pernix on October 4, 2011 which included a Lock Up Agreement. The President and largest shareholder of Pernix, Cooper C. Collins, was elected to serve on the Company’s Board of Directors on February 29, 2012. From time to time, the Company has and will continue to enter into agreements with Pernix in the normal course of business, which agreements are negotiated in arms-length transactions.
Non-qualified Stock Options and Warrants
As previously mentioned herein at Recent Sales of Unregistered Securities, from October 4, 2011 through the filing of this Report, the Company has issued Company Options and Company Warrants to its executive officers, directors, and non-executive employees.
| PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
Audit Fees. The aggregate amount expected to beIn 2011, Rosenberg Rich Baker Berman & Company (“RRBB”) billed the Company $24,410 for professional services rendered for the annual audit for the year ended December 31, 2010, the quarterly review of the Company’s financial statements for professional2011, and other services renderedthat are normally provided by Rosenberg Rich Baker Berman & Company is $15,000.an accountant in connection with statutory and regulatory filings or engagements for the fiscal year. In 2010, KBL, LLP (“KBL”) billed the Company $25,500 for professional services rendered for the annual audit fee for the year ended December 31, 2009, and for the quarterly review of the Company’s financial statements for 2010, and other services that are normally provided by an accountant in connection with statutory and regulatory filings or engagements for the fiscal year.
Tax Fees. The aggregate amount expected to beIn 2011, RRBB billed the Company $3,500 for the preparation of tax returns for the fiscal years ended December 31, 2010. In 2010, by Rosenberg Rich Baker Berman & Company is $2,500. KBL LLP billed the Company $1,500$2,500 for the preparation of tax returns for the 2009 tax return.fiscal years ended December 31, 2009.
All Other Fees. We incurred no other fees for the 2010years ended December 31, 2011 and 2009 fiscal years.2010. (Remainder of page intentionally left blank.)
| EXHIBITS, FINANCIAL STATEMENT SCHEDULES. |
Exh. | | Date | | Description | | | | | | 2.1 | | October 25, 2007 | | Croff Enterprises, Inc. Plan of Corporate Division and Reorganization(4)
| 2.2 | | July 6, 2009 | | Agreement and Plan of Reorganization among Croff Enterprises, Inc., AMHN Acquisition Corp., America’s Minority Health Network, Inc., and the Major Shareholders. (1) | 2.2 | | June 11, 2010 | | Agreement and Plan of Reorganization (for the acquisition of Spectrum Health Network, Inc.) (2) | 2.3 | | June 1, 2010October 25, 2007 | | Croff Enterprises, Inc. Plan of Corporate Division and Reorganization(3) | 2.4 | | July 18, 2011 | | Agreement and Plan of ReorganizationMerger by and among AMHN, Inc., SpectrumVitaMedMD, LLC and VitaMed Acquisition, Corp., Spectrum Health Network, Inc., and the Sole Shareholder of Spectrum.LLC (8)(9) | 3.1 | | December 7, 2007September 14, 2009 | | Articles of Amendment to Articles of Croff Enterprises,Incorporation (to change name to AMHN, Inc. (in Utah - to increase authorized common shares from 20,000,000 to 50,000,000))(4) | 3.2 | | July 27, 2009 | | Certificate of Merger of AMHN Acquisition Corp. with and into America’s Minority Health Network, Inc.(5) | 3.3 | | September 14, 2009December 7, 2007 | | Articles of Amendment of Croff Enterprises, Inc. (to increase authorized common shares from 20,000,000 to Articles of Incorporation (in Utah - to change name to AMHN, Inc.)50,000,000)(3) | 3.4 | | July 20, 2010 | | Articles of Conversion (infiled in the State of Nevada – to redomicile) (11 )(6) | 3.5 | | July 20, 2010 | | Articles of Incorporation filed in the State of Nevada(6) | 3.6 | | August 3, 2010 | | Certificate of Amendment and Restatement to the Articles of Incorporation of AMHN, Inc. (in Nevada) (11 )(to change name and increase authorized shares) | 3.63.7 | | n/a | | Bylaws for the State of AMHN, Inc., a Nevada corporation(7) | 4.1 | | July 27, 2009 | | Registration Rights Agreement with Terrance Lane, LLC(2)
| 10.0 | | September 11, 2009 | | Agreement with Global Arena Capital Corp.(3)
| 10.1 | | April 1,November 9, 2010 | | Promissory Note Purchase Agreement by and between the Company and Seatac Digital Resources, Inc.to Philip M. Cohen for a loan for $800,00$210,000(3)(8) | 10.2 | | April 1, 201018, 2011 | | 4% SecuredConvertible Promissory Note from the Company to Seatac Digital Resources, Inc.First Conquest Investment Group, L.L.C. for $800,000$105,000(6)(8)
| 10.3 | | April 1, 201018, 2011 | | Convertible Promissory Note to Energy Capital, LLC for $105,000Stock Pledge and Escrow Agreement by and between the Company and Seatac Digital Resources, Inc. (6)(8) | 10.4 | | April 1, 2010May 7, 2011 | | SecuritySales Representation Agreement by and between the Company and Seatac Digital Resources, Inc.with Mann Equity, LLC (6)(8)
| 10.5 | | April 1, 2010July 9, 2011 | | Lease AgreementGuarantor Security Agreement by and between America’s Minority Health Network, Inc. and Seatac Digital Resources, Inc. (6)(10) | 10.6 | | April 1, 2010September 8, 2011 | | GuarantyStock Purchase Agreement bybetween the Company and between American’s Minority Health Network, Inc. and Seatac Digital Resources, Inc.Pernix Therapeutics, LLC (6)(10)
| 10.7 | | September 8, 2011 | | Lock-Up Agreement between the Company and Pernix Therapeutics, LLCAMHN, Inc. 2009 Long Term Incentive Compensation Plan(7)(10) | 10.8 | | June 18, 2010n/a | | Common Stock Purchase Warrant, form ofNotice of Non-Renewal of April 2010 Note from Seatac Digital Resources, Inc. (9)(10) | 10.9 | | July 1, 2010n/a | | Non-Qualified Stock Option, form ofNotice of Default from Seatac Digital Resources, Inc.(10) | 10.10 | | July 23, 2010September 2011 | | Convertible Promissory Note, form ofSeatac’s Proposal to Accept Collateral(11)(12) | 10.11 | | July 30, 2010September 20, 2011 | | Lang Financing AgreementAgreement, Acknowledgment and Consent between the Company and Seatac(11)(15) | 10.12 | | July 30, 2010October 18, 2011 | | Joint Direction to Release Pledged Interests from EscrowDebt Conversion Agreement with Energy Capital, LLC(11)
| 10.13 | | July 30, 2010October 18, 2011 | | Trademark Assignment andDebt Conversion Agreement with First Conquest Investment Group, LLC(11)
| 10.14 | | July 30, 2010October 21, 2011 | | Consulting Agreement with Lang Naturals, Inc.Resignation of Larry Newman(11) | 10.15 | | August 2, 2010October 21, 2011 | | Warrant to Lang Naturals, Inc.Resignation of Andrew Golden(11) | 10.16 | | August 2, 2010October 21, 2011 | | Lock-Up Agreement with Lang Naturals, Inc.Resignation of Charles Richardson(11) | 10.17 | | August 2, 2010November 3, 2011 | | Software License Agreement with Pernix Therapeutics, LLCResignation of Kimberly Sarubbi(11)(18) | 10.18 | | December 16, 2010November 18, 2011 | | Promissory Note, Purchase Agreementform of(12) | 10.19 | | December 16, 2010February 24, 2012 | | Secured Promissory Note to Seatac Digital ResourcesPurchase Agreement between the Company and Johnson and Plato(12)(16)
| 10.20 | | December 16, 2010February 24, 2012 | | Stock Pledge and Escrow Agreement by andSecured Promissory Note between the Company and Seatac Digital Resources, Inc.Johnson and Plato, form of (12)(16)
| 10.21 | | December 16, 2010February 24, 2012 | | Security Agreement by and between the Company and Seatac Digital Resources, Inc.Johnson and Plato (12)(16) | 10.22 | | December 16, 2010February 24, 2012 | | Guarantor Security Agreement byCommon Stock Purchase Warrant to Johnson and between Spectrum Health Network, Inc. and Seatac Digital Resources, Inc.Plato, form of (12)(16)
| 10.23 | | December 16, 2010February 29, 2012 | | Audit Committee CharterGuaranty Agreement by and between Spectrum Health Network, Inc. and Seatac Digital Resources, Inc. (12)(17) | 10.24 | | December 16, 2010February 29, 2102 | | Compensation Committee CharterAssignment of IP Security Interest(12)(17) | 10.25 | | February 15, 201129, 2012 | | Corporate Governance Committee CharterConsulting Agreement with Back Office Consultants, Inc. (13)(17) | 10.2614.00 | | February 15, 2011n/a | | Agreement, Acknowledgment and Consent between the Company and Seatac(13)
| 10.27 | | February 15, 2011 | | Joint Direction to Release Pledged Interests from Escrow(13)
| 10.28 | | February 15, 2011 | | Trademark Assignment and Agreement(13)
|
10.29 | | February 15, 2011 | | Exclusive Licensing, Distribution and Advertising Sales Agreement(13)
| 10.30 | | February 15, 2011 | | Resignation of Robert Cambridge(13)
| 14.1 | | December 31, 2009 | | Code of Business Conduct and Ethics, form of(5) | 14.214.01 | | n/a | | Code of Business Ethics for Financial Executives, form of(5) | 14.02 | | n/a | | Insider Trading Policy, form of(5) | 16.1 | | December 31, 200914, 2011 | | Letter to the SEC from Parks & Company, LLCCode of Ethics for Financial Executives(5)(13) | 14.316.2 | | December 31, 2009February 1, 2012 | | Letter addressed to the SEC from Parks & Company, LLCInsider Trading Policy(5)(14) | 21.121.00 | | April 15, 2011March 27, 2012 | | ListSubsidiaries of Subsidiaries*the Registrant* | 31.1 | | April 15, 2011March 27, 2012 | | Certification of Chief Executive Officer of Periodic Report pursuant to Rule 13a-14a and Rule 14d-14(a).* | 31.2 | | April 15, 2011March 27, 2012 | | Certification of Chief Financial Officer of Periodic Report pursuant to Rule 13a-14a and Rule 15d-14(a).14d-14(a)* |
32.1 | | April 15, 2011March 27, 2012 | | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.*1350* | 32.2 | | April 15, 2011March 27, 2012 | | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.*1350* | 101.INS | | n/a | | XBRL Instance Document* | 101.SCH | | n/a | | XBRL Taxonomy Extension Schema Document* | 101.CAL | | n/a | | XBRL Taxonomy Extension Calculation Linkbase Document* | 101.DEF | | n/a | | XBRL Taxonomy Extension Definition Linkbase Document* | 101.LAB | | n/a | | XBRL Taxonomy Extension Label Linkbase Document* | 101.PRE | | n/a | | XBRL Taxonomy Extension Presentation Linkbase Document* |
(1) | Filed as an exhibit to Form 8-K filed with the Commission on July 10, 2009 and incorporated herein by reference. |
(2) | Filed as an exhibit to Current Report on Form 8-K filed with the Commission on July 29, 2009June 14, 2010 and incorporated herein by reference. |
(3) | Filed as an exhibit to Form 10-Q for quarter ending September 30, 2009 filed with the Commission on November 16, 2009 and incorporated herein by reference. |
(4)
| Filed as an exhibit to Form 10-K for the year ended December 31, 2007 filed with the Commission on May 8, 2008 and incorporated herein by reference. |
(4) | Filed as an exhibit to Form 10-Q for quarter ending September 30, 2009 filed with the Commission on November 16, 2009 and incorporated herein by reference. | (5) | Filed as an exhibit to Form 10-K filed with the Commission on March 17, 2010 and incorporated herein by reference. |
(6) | Filed as an exhibit to Current Report on Form 8-K filed with the Commission on April 7, 2010 and incorporated herein by reference. |
(7)
| Filed as an exhibit to Definitive 14C Information Statement filed with the Commission on June 29, 2010 and incorporated herein by reference. |
(8)
| Filed as an exhibit to Current Report on Form 8-K filed with the Commission on June 14, 2010 and incorporated herein by reference. |
(9)
| Filed as an exhibit to Current Report on Form 8-K filed with the Commission on June 25, 2010 and incorporated herein by reference. |
(10)
| Filed as an exhibit to Current Report on Form 8-K filed with the Commission on July 2, 2010 and incorporated herein by reference. |
(11)
| Filed as an exhibit to Form 10-Q for quarter ending June 30, 2010 filed with the Commission on August 3, 2010 and incorporated herein by reference. |
(12) (7) | Filed as an exhibit to Current ReportDefinitive 14C Information Statement filed with the Commission on June 29, 2010 and incorporated herein by reference. | (8) | Filed as an exhibit to Form 10-Q for quarter ending March 30, 2011 filed with the Commission on May 19, 2011 and incorporated herein by reference. | (9) | Filed as an exhibit to Form 8-K filed with the Commission on December 22, 2010July 21, 2011 and incorporated herein by reference. |
(13) (10) | Filed as an exhibit to Current Report on Form 8-K filed with the Commission on FebruaryOctober 11, 2011 and incorporated herein by reference. | (11) | Filed as an exhibit to Form 8-K filed with the Commission on October 24, 2011 and incorporated herein by reference. | (12) | Filed as an exhibit to Form 8-K filed with the Commission on November 18, 2011 and incorporated herein by reference. |
(13) | Filed as an exhibit to Form 8-K filed with the Commission on January 25, 2012 and incorporated herein by reference. | (14) | Filed as an exhibit to Form 8-K filed with the Commission on February 1, 2012 and incorporated herein by reference. | (15) | Filed as an exhibit to Form 8-K/A filed with the Commission on February 2, 2012 and incorporated herein by reference. | (16) | Filed as an exhibit to Form 8-K filed with the Commission on February 24, 2012 and incorporated herein by reference. | (17) | Filed as an exhibit to Form 8-K filed with the Commission on February 29, 2012 and incorporated herein by reference. | (18) | Filed as an exhibit to Form 10-Q for quarter ending September 30, 2011 filed with the Commission on November 7, 2011 and incorporated herein by reference. | * | Filed herewith. |
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATE: April 15, 2011
DATE: March 27, 2012 | AMHN, | | | | | | | | THERAPEUTICSMD, INC. | | | | | | | By: | /s/ Jeffrey D. HowesRobert G. Finizio | | | | Robert G. Finizio | | | | Chief Executive Officer | | | | Jeffrey D. Howes | | | By: | /s/ Daniel A. Cartwright | | | | Chief Executive Officer andDaniel A. Cartwright | | | | Chief Financial Officer | |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robert G. Finizio and Daniel A. Cartwright and each of them, his attorney-in-fact with power of substitution for him in any and all capacities, to sign any amendments, supplements or other documents relating to this Annual Report on Form 10-K he deems necessary or appropriate, and do file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that such attorney-in-fact or their substitute may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature | | Title | | Date | | | | | | /s/ John C.K. Milligan, IV | | President, Secretary, Director | | March 27, 2012 | John C.K. Milligan, IV | | | | | | | | | | /s/ Brian Bernick | | Director | | March 27, 2012 | Brian Bernick | | | | | | | | | | /s/ Samuel A. Greco | | Director | | March 27, 2012 | Samuel A. Greco | | | | | | | | | | /s/ Cooper C. Collins | | Director | | March 27. 2012 | Cooper C. Collins | | | | | | | | | | /s/ Robert V. LaPenta, Jr. | | Director | | March 27, 2012 | Robert V. LaPenta, Jr. | | | | | | | | | | /s/ Nicholas Segal | | Director | | March 27, 2012 | Nicholas Segal | | | | |
INDEX TO FINANCIAL STATEMENTS
| | Page | | | | | | F-1 & F-2 | | | | | | F-3 | | | | | | F-4 | | | | | | F-5 | | | | | | F-6 | | | | | | F-7 to F-23F-31 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and
Stockholders of AMHN, Inc.
We have audited the accompanying balance sheet of AMHN, Inc. as of December 31, 2010, and the related statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2010. AMHN, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of AMHN, Inc. as of December 31, 2009 were audited by other auditors whose report dated March 17, 2010, on those statements included an explanatory paragraph that described substantial doubt about the Company’s ability to continue as a going concern as discussed in Note 1 to the financial statements.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AMHN, Inc. as of December 31, 2010, and the results of its operations and its cash flows for the year ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note C to the financial statements, the Company has sustained operating losses and needs to obtain additional financing or restructure its current obligations. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note C. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Rosenberg Rich Baker Berman & Company
Somerset, New Jersey
April 15, 2011
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders AMHN,Stockholders of TherapeuticsMD, Inc.
We have audited the accompanying consolidated balance sheet of AMHN,TherapeuticsMD, Inc. (the “Company”) as of December 31, 20092011, and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for the period April 2, 2009 (Inception) through December 31, 2009. These consolidatedyear then ended. TherapeuticsMD, Inc’s management is responsible for these financial statements are the responsibility of the Company’s management.statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Companycompany is not required to have, nor were we engaged to perform, an audit of the Company’sits internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’scompany’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includesstatements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit providesprovide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AMHN,TherapeuticsMD, Inc. as of December 31, 2009,2011, and the results of its consolidated statements of operations changes in stockholders’ equity (deficit), and its cash flows for the period April 2, 2009 (Inception) through December 31, 2009year then ended in conformity with U.S.accounting principles generally accepted accounting principles.in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1C to the consolidated financial statements, the Company has sustained operating lossessuffered a loss from operations of approximately $5.4 million and needs to obtain additional financing or restructure its current obligations. These conditions raisehad negative cash flow from operations of approximately $5.0 million. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1.C. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ KBL, LLP
New York, NY
March 17, 2010/s/ Rosenberg Rich Baker Berman & Company | | | Somerset, NJ | March 27, 2012 | | | |
F-1 Parks & Company, LLC Certified Public Accountants & Consultants 1761 W. Hillsboro Boulevard, Suite 326 Deerfield Beach, FL 33442 Phone (954) 719-7569 www.parkscpas.com Fax (954) 719-3704 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Members’of VitamedMD, LLC We have audited the accompanying balance sheet of VitamedMD, LLC as of December 31, 2010, and the related statements of operations, changes in members’ equity and cash flows for the year ended December 31, 2010. VitamedMD, LLC’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of VitamedMD, LLC as of December 31, 2010, and the results of its operations and its cash flows for the year ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note C to the financial statements, the Company has not yet established profitable operations and has incurred significant losses since inception. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are also described in Note C. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. As discussed in Note N, the Company restated its 2010 financial statements to correct errors related to the valuation of compensation and consultant expense using the Black-Scholes option-pricing model. Parks & Company, LLC Deerfield Beach, Florida February 28, 2012
F-2 THERAPEUTICSMD, INC. AND SUBSIDIARY
| | December 31, | | | | 2011 | | | 2010 | | ASSETS | | | | | (Restated) | | Current Assets: | | | | | | | Cash | | $ | 126,421 | | | $ | 422,939 | | Accounts receivable, net of allowance for doubtful accounts of $1,500 and $0, respectively | | | 26,720 | | | | 11,812 | | Inventory | | | 588,073 | | | | 618,069 | | Other current assets | | | 496,060 | | | | 6,292 | | Total current assets | | | 1,237,274 | | | | 1,059,112 | | Fixed Assets: | | | | | | | | | Property and equipment, net of accumulated depreciation of $81,500 and $26,655, respectively | | | 70,113 | | | | 96,192 | | Other Assets: | | | | | | | | | Security deposit | | | 31,949 | | | | 31,949 | | Patent costs | | | 18,870 | | | | 10,000 | | Other assets | | | 80,515 | | | | - | | | | | 131,334 | | | | 41,949 | | Total assets | | $ | 1,438,721 | | | $ | 1,197,253 | | | | | | | | | | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | | Current Liabilities: | | | | | | | | | Notes payable | | $ | 2,150,000 | | | $ | - | | Accounts payable | | | 306,511 | | | | 117,636 | | Notes payable, related parties | | | 200,000 | | | | - | | Accrued interest | | | 28,321 | | | | - | | Other current liabilities | | | 465,747 | | | | 115,206 | | Total current liabilities | | | 3,150,579 | | | | 232,842 | | | | | | | | | | | Commitments and Contingencies | | | | | | | | | | | | | | | | | | Stockholders’ Equity: | | | | | | | | | Preferred stock - par value $0.001; 10,000,000 shares authorized; no shares issued and outstanding | | | - | | | | - | | Common stock - par value $0.001; 250,000,000 shares authorized; 82,978,804 and 55,487,321 issued and outstanding, respectively | | | 82,979 | | | | 55,487 | | Additional paid in capital | | | 15,198,241 | | | | 4,988,637 | | Accumulated deficit | | | (16,993,078 | ) | | | (4,079,713 | ) | Total stockholders' equity (deficit) | | | (1,711,858 | ) | | | 964,411 | | Total liabilities and stockholders' equity | | $ | 1,438,721 | | | $ | 1,197,253 | |
DECEMBER 31, 2010 AND 2009
The accompanying footnotes are an integral part of these consolidated financial statements.
| | 2010 | | | 2009 | | ASSETS | | | | | | | | | | | | | | Current Assets: | | | | | | | Cash | | $ | 1,497 | | | $ | 165 | | Accounts receivable | | | 5,588 | | | | — | | Prepaid expense | | | — | | | | 3,000 | | Assets of discontinued operations-current | | | — | | | | 66,707 | | | | | | | | | | | Total current assets | | | 7,085 | | | | 69,872 | | | | | | | | | | | Fixed Assets: | | | | | | | | | Fixed assets, net of accumulated depreciation of $109,134 and $0 at December 31, 2010 and 2009, respectively | | | 171,889 | | | | — | | | | | | | | | | | Assets of discontinued operations-non-current | | | — | | | | 779,893 | | | | | | | | | | | Other Assets: | | | | | | | | | Segment library, net of accumulated amortization of $13,495 and $0 at December 31, 2010 and 2009, respectively | | | — | | | | — | | Goodwill | | | 288,443 | | | | — | | | | | | | | | | | Total other assets | | | 288,443 | | | | — | | | | | | | | | . | | Total assets | | $ | 467,417 | | | $ | 849,765 | | | | | | | | | | | LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | | | | | | | | | | | | | | | Current Liabilities: | | | | | | | | | Accounts payable | | $ | 580,079 | | | $ | 90,186 | | Secured promissory note | | | 543,531 | | | | 175,138 | | Demand promissory note | | | 210,000 | | | | — | | Dividends payable | | | 41,359 | | | | 42,078 | | Liabilities of discontinued operations-current | | | — | | | | 853,415 | | | | | | | | | | | Total current liabilities | | | 1,374,969 | | | | 1,160,817 | | | | | | | | | | | Total liabilities | | | 1,374,969 | | | | 1,160,817 | | | | | | | | | | | Commitments and Contingencies | | | | | | | | | | | | | | | | | | Stockholders’ Deficit: | | | | | | | | | | | | | | | | | | Preferred stock - par value $0.001; 10,000,000 shares authorized; no shares issued and outstanding | | | — | | | | — | | Common stock - par value $0.001; 50,000,000 shares authorized; 16,575,209 and 15,790,209 shares issued and outstanding at | | | | | | | | | December 31, 2010 and 2009, respectively | | | 16,575 | | | | 15,790 | | Additional paid in capital | | | 1,661,321 | | | | 1,563,231 | | Accumulated deficit | | | (2,585,448 | ) | | | (1,890,073 | ) | | | | | | | | | | Total stockholders’ deficit | | | (907,552 | ) | | | (311,052 | ) | | | | | | | | | | Total liabilities and stockholders’ deficit | | $ | 467,417 | | | $ | 849,765 | |
THERAPEUTICSMD, INC AND SUBSIDIARY | | Year Ended December 31, | | | | 2011 | | | 2010 | | | | | | | (Restated) | | Revenues, net | | $ | 2,088,177 | | | $ | 1,241,921 | | | | | | | | | | | Cost of goods sold | | | 947,112 | | | | 556,390 | | | | | | | | | | | Gross profit | | | 1,141,065 | | | | 685,531 | | | | | | | | | | | Operating expenses: | | | | | | | | | Sales, general, and administration | | | 6,406,197 | | | | 3,464,810 | | Research and development | | | 107,241 | | | | 65,402 | | Depreciation and amortization | | | 54,845 | | | | 22,783 | | | | | | | | | | | Total operating expense | | | 6,568,283 | | | | 3,552,995 | | | | | | | | | | | Operating loss | | | (5,427,218 | ) | | | (2,867,464 | ) | | | | | | | | | | Other income and (expense) | | | | | | | | | Settlement of debt | | | (7,390,000 | ) | | | - | | Interest expense | | | (64,380 | ) | | | - | | Loan guaranty costs | | | (38,159 | ) | | | - | | Other income | | | 6,392 | | | | - | | | | | | | | | | | Total other income (expense) | | | (7,486,147 | ) | | | - | | | | | | | | | | | Loss before taxes | | | (12,913,365 | ) | | | (2,867,464 | ) | | | | | | | | | | Provision for income taxes | | | - | | | | - | | | | | | | | | | | Net loss | | $ | (12,913,365 | ) | | $ | (2,867,464 | ) | | | | | | | | | | Loss per share, basic and diluted: | | | | | | | | | | | | | | | | | | Net loss per share, basic and diluted | | $ | (0.21 | ) | | $ | (0.07 | ) | | | | | | | | | | Weighted average number of common shares outstanding | | | 62,516,461 | | | | 38,289,463 | |
The accompanying footnotes are an integral part of these consolidated financial statements.
THERAPEUTICSMD, INC. AND SUBSIDIARY FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
| | | | | | | | Additional | | | | | | | | | | Common Stock | | | Paid in | | | Accumulated | | | | | | | Shares | | | Amount | | | Capital | | | Deficit | | | Total | | | | | | | | | | | | | | | | | | Balance, December 31, 2009 | | | 39,516,450 | | | $ | 39,516 | | | $ | 1,656,364 | | | $ | (1,212,249 | ) | | $ | 483,631 | | | | | | | | | | | | | | | | | | | | | | | Shares issued in private placement | | | 15,970,871 | | | | 15,971 | | | | 3,154,672 | | | | - | | | | 3,170,643 | | Options issued as compensation | | | - | | | | - | | | | 177,601 | | | | - | | | | 177,601 | | Net loss | | | - | | | | - | | | | - | | | | (2,867,464 | ) | | | (2,867,464 | ) | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2010 (Restated) | | | 55,487,321 | | | | 55,487 | | | | 4,988,637 | | | | (4,079,713 | ) | | | 964,411 | | | | | | | | | | | | | | | | | | | | | | | Effect of merger and recapitalization pursuant to execution of Security Exchange Agreement | | | 165,879 | | | | 166 | | | | (255,919 | ) | | | - | | | | (255,753 | ) | Shares issued in private placement | | | 5,551,589 | | | | 5,552 | | | | 1,701,448 | | | | - | | | | 1,707,000 | | Shares issued in exchange for debt | | | 21,681,958 | | | | 21,682 | | | | 8,217,455 | | | | - | | | | 8,239,137 | | Shares issued in exercise of warrants | | | 92,057 | | | | 92 | | | | 17,158 | | | | - | | | | 17,250 | | Options issued as compensation | | | - | | | | - | | | | 183,355 | | | | - | | | | 183,355 | | Warrants issued for services | | | - | | | | - | | | | 190,280 | | | | - | | | | 190,280 | | Warrants issued for loan guaranty costs-related parties | | | - | | | | - | | | | 93,969 | | | | - | | | | 93,969 | | Warrants issued for financing costs | | | - | | | | - | | | | 45,362 | | | | - | | | | 45,362 | | Warrants issued as financing costs-related parties | | | | | | | | | | | 9,338 | | | | - | | | | 9,338 | | Warrants issued as compensation-related party | | | - | | | | - | | | | 7,158 | | | | - | | | | 7,158 | | Net loss | | | - | | | | - | | | | - | | | | (12,913,365 | ) | | | (12,913,365 | ) | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2011 | | | 82,978,804 | | | $ | 82,979 | | | $ | 15,198,241 | | | $ | (16,993,078 | ) | | $ | (1,711,858 | ) |
The accompanying footnotes are an integral part of these consolidated financial statements.
AMHN,THERAPEUTICSMD, INC. AND SUBSIDIARY
FOR THE YEAR ENDED DECEMBER 31,2010 AND
THE PERIOD FROM APRIL 2, 2009 THROUGH DECEMBER 31, 2009 | | Year Ended December, 31, | | | | 2011 | | | 2010 | | | | | | | (Restated) | | CASH FLOWS FROM OPERATING ACTIVITES | | | | | | | Net loss | | $ | (12,913,365 | ) | | $ | (2,867,463 | ) | Adjustments to reconcile net loss to net cash flows used in operating activities: | | | | | | | | | Effect of merger and recapitalization pursuant to execution of Security Exchange Agreement | | | (255,753 | ) | | | - | | Depreciation | | | 54,845 | | | | 22,783 | | Allowance for doubtful accounts | | | 1,500 | | | | - | | Amortization of debt discount | | | 28,719 | | | | - | | Stock based debt settlement | | | 7,600,000 | | | | - | | Stock based compensation | | | 190,513 | | | | 177,601 | | Warrants issued for services | | | 22,630 | | | | - | | Non-cash financing costs | | | 25,980 | | | | - | | Loan guaranty costs | | | 38,159 | | | | - | | Changes in operating assets and liabilities: | | | | | | | | | Accounts receivable | | | (16,409 | ) | | | (6,008 | ) | Inventory | | | 29,996 | | | | (454,683 | ) | Other current assets | | | (346,822 | ) | | | 152,916 | | Accounts payable | | | 188,876 | | | | 95,034 | | Accrued interest | | | 33,994 | | | | - | | Accrued expenses and other current liabilities | | | 350,541 | | | | 36,033 | | | | | | | | | | | Net cash flows used in operating activities | | | (4,966,596 | ) | | | (2,843,787 | ) | | | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | | Purchase of property and equipment | | | (28,766 | ) | | | (27,348 | ) | Patent costs, net of abandoned costs | | | (8,870 | ) | | | - | | | | | | | | | | | Net cash flows used in investing activities | | | (37,636 | ) | | | (27,348 | ) | | | | | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | Proceeds from notes and loans payable | | | 2,484,160 | | | | - | | Proceeds from sale of common stock | | | 1,000,000 | | | | - | | Proceeds from sale of membeship units, net of expenses | | | 707,000 | | | | 3,170,645 | | Proceeds bank line of credit | | | 300,000 | | | | - | | Proceeds from notes and loans payable-related parties | | | 300,000 | | | | - | | Proceeds from exercise of options | | | 17,250 | | | | - | | Repayment of notes payable-related party | | | (100,696 | ) | | | - | | | | | | | | | | | Net cash flows provided by financing activities | | | 4,707,714 | | | | 3,170,645 | | | | | | | | | | | Increase (decrease) in cash | | | (296,518 | ) | | | 299,510 | | Cash, beginning of period | | | 422,939 | | | | 123,429 | | Cash, end of period | | $ | 126,421 | | | $ | 422,939 | | | | | | | | | | | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | | | | | | | | | Cash paid for interest | | $ | 696 | | | $ | - | | | | | | | | | | | Cash paid for income taxes | | $ | - | | | $ | - | | | | | | | | | | | SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES: | | | | | | | | | Warrants issued for financing | | $ | 148,668 | | | $ | - | | | | | | | | | | | Warrants issued for services | | $ | 190,280 | | | $ | - | | | | | | | | | | | Conversion of notes payable and accrued interest into common stock | | $ | 849,137 | | | $ | - | |
| | | | | For the Period | | | | | | | April 2, 2009 | | | | Year Ended | | | through | | | | December 31, | | | December 31, | | | | 2010 | | | 2009 | | | | | | | | | Operating revenues | | $ | 48,217 | | | $ | — | | | | | | | | | | | Operating expenses: | | | | | | | | | Operating costs | | | 71,932 | | | | — | | General and administration | | | 376,873 | | | | 628,005 | | Sales and marketing | | | 5,988 | | | | — | | Depreciation and amortization | | | 61,383 | | | | — | | | | | | | | | | | | | | | | | | | | Total operating expense | | | 516,176 | | | | 628,005 | | | | | | | | | | | Other income and (expense): | | | | | | | | | Other income | | | 22,138 | | | | — | | Interest expense | | | (64,086 | ) | | | — | | | | | | | | | | | | | | | | | | | | Total other income and expense | | | (41,948 | ) | | | — | | | | | | | | | | | Loss from continuing operations before taxes | | | (509,907 | ) | | | (628,005 | ) | | | | | | | | | | Provision for income taxes | | | — | | | | — | | | | | | | | | | | | | | | | | | | | Loss from continuing operations | | | (509,907 | ) | | | (628,005 | ) | | | | | | | | | | | | | | | | | | | Discontinued Operations: | | | | | | | | | | | | | | | | | | Gain on disposal of discontinued operations | | | 259,693 | | | | — | | Loss from discontinued operations | | | (445,161 | ) | | | (1,026,536 | ) | | | | | | | | | | | | | | | | | | | Net loss from discontinued operations | | | (185,468 | ) | | | (1,026,536 | ) | | | | | | | | | | Net loss | | $ | (695,375 | ) | | $ | (1,654,541 | ) | | | | | | | | | | Net loss per share: | | | | | | | | | From continuing operations, basic and diluted | | $ | (0.03 | ) | | $ | (0.09 | ) | From discontinued operations, basic and diluted | | | (0.01 | ) | | | (0.14 | ) | Net loss per share, basic and diluted | | $ | (0.04 | ) | | $ | (0.23 | ) | | | | | | | | | | Weighted average number of shares outstanding | | | 16,420,489 | | | | 7,264,707 | |
The accompanying footnotes are an integral part of these financial statements. AMHN, INC. AND SUBSIDIARY
FOR THE PERIOD FROM JANUARY 1, 2009 TO DECEMBER 31, 2010
| | | | | | | | Additional Paid in Capital | | | | | | | | | | Common Stock | | | | | Accumulated Deficit | | | | | | | Shares | | | Amount | | | | | | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2008 | | | 1,017,573 | | | $ | 1,017 | | | $ | 596,298 | | | $ | (578,618 | ) | | $ | 18,697 | | | | | | | | | | | | | | | | | | | | | | | Effect of merger and recapitalization pursuant to execution of Security Exchange Agreement | | | 14,197,636 | | | | 14,198 | | | | 690,008 | | | | 343,086 | | | | 1,047,292 | | | | | | | | | | | | | | | | | | | | | | | Stock issued for services | | | 575,000 | | | | 575 | | | | 276,925 | | | | — | | | | 277,500 | | | | | | | | | | | | | | | | | | | | | | | Net loss | | | — | | | | — | | | | — | | | | (1,654,541 | ) | | | (1,654,541 | ) | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2009 | | | 15,790,209 | | | | 15,790 | | | | 1,563,231 | | | | (1,890,073 | ) | | | (311,052 | ) | | | | | | | | | | | | | | | | | | | | | | Stock issued to acquire Spectrum Health Network, Inc. | | | 500,000 | | | | 500 | | | | 49,500 | | | | — | | | | 50,000 | | Stock issued for services | | | 285,000 | | | | 285 | | | | 48,590 | | | | — | | | | 48,875 | | Net loss | | | — | | | | — | | | | — | | | | (695,375 | ) | | | (695,375 | ) | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2010 | | | 16,575,209 | | | $ | 16,575 | | | $ | 1,661,321 | | | $ | (2,585,448 | ) | | $ | (907,552 | ) |
The accompanying footnotes are an integral part of these financial statements.
AMHN, INC. AND SUBSIDIARY
FOR THE YEAR ENDED DECEMBER 31, 2010 AND
THE PERIOD FROM APRIL 2, 2009 THROUGH DECEMBER 31, 2009
| | | | | For the Period | | | | | | | April 2, 2009 | | | | Year Ended | | | through | | | | December 31, | | | December 31, | | | | 2010 | | | 2009 | | | | | | | | | CASH FLOWS FROM OPERATING ACTIVITIES - CONTINUING OPERATIONS | | | | | Net loss | | $ | (695,375 | ) | | $ | (1,654,541 | ) | Adjustments to reconcile net loss to net cash flows from operating activities - continuing operations: | | | | | | | | | Gain on disposal of discontinued operations | | | (259,693 | ) | | $ | — | | Depreciation | | | 55,048 | | | | — | | Amortization of intangible assets | | | 6,335 | | | | — | | Cash received in acquisition of Spectrum Health Network, Inc. | | | 2,844 | | | | — | | Shares issued for services | | | — | | | | 744,168 | | Liabilities assumed in reverse merger with Croff | | | — | | | | 42,079 | | Effect of recapitalization | | | — | | | | (100,679 | ) | Changes in assets and liabilities | | | | | | | | | Accounts receivable | | | 3,525 | | | | — | | Prepaid expense and other assets | | | 9,023 | | | | (3,000 | ) | Accounts payable | | | 19,051 | | | | 90,186 | | Accrued expenses and other liabilities | | | 607,696 | | | | 175,137 | | | | | | | | | | | Net cash flows used in operating activities | | | (251,546 | ) | | | (706,650 | ) | | | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES | | | — | | | | — | | | | | | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | Proceeds from issuance of common shares | | | — | | | | 700,000 | | Net cash flows provided by financing activities | | | — | | | | 700,000 | | | | | | | | | | | DISCONTINUED OPERATIONS | | | | | | | | | Operating activities | | | 1,088,378 | | | | 247,411 | | Investing activities | | | (285,500 | ) | | | (841,296 | ) | Financing activities | | | (550,000 | ) | | | 600,700 | | | | | | | | | | | Net cash flows provided by discontinued operations | | | 252,878 | | | | 6,815 | | | | | | | | | | | Increase in cash | | | 1,332 | | | | 165 | | Cash, beginning of period | | | 165 | | | | — | | Cash, end of period | | $ | 1,497 | | | $ | 165 | | | | | | | | | | | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | | | | | | | | | | | | | | | | | | Interest paid | | $ | — | | | $ | — | | | | | | | | | | | Income taxes paid | | $ | — | | | $ | — | | | | | | | | | | | SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES: | | | | | | | | | | | | | | | Shares issued in exchange for debt | | $ | 48,875 | | | $ | 277,500 | | Accounts receivable | | $ | 5,793 | | | $ | — | | Fixed assets | | | 231,580 | | | | — | | Intangible assets | | | 6,748 | | | | — | | Accounts payable | | | (461,272 | ) | | | — | | Accrued expenses | | | (18,448 | ) | | | — | | Goodwill | | | 288,443 | | | | — | | Common stock issued by AMHN, Inc. | | | (50,000 | ) | | | — | | Cash from acquisition of Spectrum Health Network, Inc. | | $ | 2,844 | | | $ | — | |
The accompanying footnotes are an integral part of theseconsolidated financial statements.
AMHN,THERAPEUTICSMD, INC. AND SUBSIDIARY DECEMBER 31, 20102011 AND 20092010
NOTE A – THE COMPANY
The CompanyCorporate Overview and History of Therapeutics
TherapeuticsMD, Inc., a Nevada corporation (“Therapeutics” or the “Company”) was incorporated in Utah in 1907 under the name Croff Mining Company (“Croff”).Company. The Company changed its name to Croff Oil Company in 1952 and in 1996 changed its name to Croff Enterprises, Inc. In the twenty (20) years prior to 2008, the Company’sCroff’s operations consisted entirely of oil and natural gas production.leases. Due to a spin-off of its operations in December 2007, Croff had no business operations or revenue source and had reduced its operations to a minimal level although it continued to file reports required under the Securities Exchange ActAct. As a result of 1934. Agreement and Planthe spin-off, Croff was a “shell company” under the rules of Reorganization
Onthe Commission. In July 6, 2009, Croff entered into an Agreement and Plan of Reorganization (the “Agreement”) with AMHN Acquisition Corp.,the Company (i) closed a newly formed Delaware corporation and wholly owned subsidiary of Croff (“Merger Sub”),transaction to acquire America’s Minority Health Network, Inc., a Delaware corporation (“America’s Minority Health Network”) and the major shareholders of the America’s Minority Health Network (the “Major Shareholders”). The terms of the Agreement provide for (i) the transfer of 100% of the issued and outstanding shares of common stock of America’s Minority Health Network in exchange for the issuance to the shareholders of American’s Minority Health Network of an aggregate of 13,693,689 shares of common stock of Croff (the “Croff Common Stock”) at a conversion ratio where one share of America’s Minority Health Network is converted into 13,693.689 shares of Croff; (ii) the resignations of the Company’s officers and directors prior to the consummation of the Agreement and the election and appointment of officers and directors as directed by America’s Minority Health Network; and (iii) America’s Minority Health Network to become a wholly owned subsidiary, of Croff. A full description of the terms of the Agreement (the “Transaction”) is set forth in the Agreement as filed as an exhibit to the Report on Form 8-K filed with the SEC on July 10, 2009.
On July 27, 2009, the Closing Date of the Transaction pursuant to the terms(ii) ceased being a shell company, and conditions of the Agreement, Croff acquired 100% of the issued and outstanding shares of America’s Minority Health Network in exchange for the issuance of an aggregate of 13,693,689 shares of Croff Common Stock. In accordance with the provisions of this triangulated merger, Merger Sub merged with and into America’s Minority Health Network as of the Effective Date of the Agreement, as that term is defined therein. Upon consummation of the Agreement and all transactions contemplated therein, the separate existence of Merger Sub ceased, Croff became the surviving parent corporation, and America’s Minority Health Network became its wholly owned subsidiary.
The sole business of Croff became that of its operating subsidiary, America’s Minority Health Network. Croff(iii) experienced a change in control andin which the former shareholders of America’s Minority Health Network, Inc. acquired control of the Company. On September 14, 2009, the Company changed its name to AMHN, Inc. On June 11, 2010, the Company closed a transaction to acquire Spectrum Health Network, Inc. as a wholly owned subsidiary. On July 20, 2010, the Company filed Articles of Conversion and Articles of Incorporation to redomicile in the reverse merger.
State of Nevada and changed the par value of its shares of capital stock to $0.001 per share. On July 31, 2010, the Company transferred the assets of America’s Minority Health Network, Inc. to a secured noteholder in exchange for the satisfaction of debt associated therewith. On February 15, 2011, the Company transferred the assets of Spectrum Health Network, Inc. to a secured noteholder in exchange for the satisfaction of debt associated therewith and in exchange for an Exclusive Licensing, Distribution and Advertising Sales Agreement with Global Arena Capital Corp On September 11, 2009, the Company’s Board of Directors approved an agreement with Global Arena Capital Corp. (the “Global(“Licensing Agreement”) throughunder which Global Arena Capital Corp. (“Global”) would serve as the Company’s exclusive placement agent in an attempt to raise up to five million dollars ($5,000,000) through the offer and sale by the Company could sell subscription services and advertising on the Spectrum Health Network for commissions. On August 3, 2011 (with an effective date of its securities. Under a related private placement memorandum (“PPM”)October 3, 2011), in anticipation of closing the Merger (as defined and described below), the Company offered twenty-five (25) units forfiled Amended and Restated Articles of Incorporation to change its name to TherapeuticsMD, Inc. and to increase the purchase price of two hundred thousand dollars ($200,000) each (the “Offering”). Each unit consisted of 200,000 shares of the Company’s Common Stock andauthorized for issuance to 250,000,000. On October 4, 2011, the Company closed the Merger with vitaMedMD, LLC, a detachable, transferable Warrant to purchase 70,000 sharesDelaware limited liability company (“VitaMed”). As of December 31, 2011, Company management determined that VitaMed would become the sole focus of the Company and services performed relative to the Licensing Agreement were discontinued. Unless otherwise stated or unless the context otherwise requires, the description of our business set forth below is provided on a combined basis, taking into account our newly-acquired wholly owned subsidiary, VitaMed.
The Company maintains a website at www.therapeuticsmd.com.
Agreement and Plan of Merger with VitaMed
On July 18, 2011, Therapeutics entered into an Agreement and Plan of Merger (“Merger Agreement”) by and among VitaMed and VitaMed Acquisition, LLC, a Delaware limited liability company and wholly owned subsidiary of the Company (the “Merger Sub”), pursuant to which the Company would acquire 100% of VitaMed. The proposed acquisition was to be accomplished by the merger of Merger Sub with and into VitaMed with VitaMed being the surviving limited liability company (the “Merger”) in accordance with the Limited Liability Company Act of the State of Delaware. The Merger became effective upon the filing of the Certificate of Merger with the Secretary of State of the State of Delaware on October 4, 2011 (the “Effective Time”). In preparation of and prior to the closing of the Merger Agreement, the Company completed the following required corporate actions with an effective date of October 3, 2011: AMHN,THERAPEUTICSMD, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 20102011 AND 20092010
NOTE A – THE COMPANY (Continued)
Company’s Common Stock. The Warrants were exercisable in whole or in part during the five-year period following issuance at an exercise price of $1.10 per share. The Offering period was for sixty (60) days and could be extended for an additional sixty (60) day period. No funds were raised under the Offering and the Offering was not extended.
Upon execution of the Global Agreement, the Company agreed to pay a retainer to Global through the issuance of 76,075 Warrants exercisable for one cent ($0.01) which represented one half of one percent (0.50%) of the then issued and outstanding shares of Common Stock of the Company. Due to Global’s non-performance under the terms of the Agreement, no fees were incurred or paid to Global and the Warrants were never issued although the Warrants were accounted for in the third quarter of 2009. In December 2010, the issue was amicably resolved between the parties by the Company agreeing not to pursue its legal remedies against Global pursuant to the Agreement in exchange for the Company not issuing the Warrant to Global.
Name Change, Redomicile, Change in Par Value, and Long Term Incentive Compensation Plan
On September 14, 2009, the Company changed its name to AMHN, Inc.
On September 25, 2009, the Company’s Board of Directors approved the redomicile of the Company from Utah to Nevada and approved the AMHN, Inc. 2009 Long Term Incentive Compensation Plan (“LTIP”). On March 28, 2010, the Company’s Board of Directors approved a revision to the Plan to increase the number of shares available for issuance to an aggregate of 1,500,000 shares. All other provisions of the Plan remain unchanged. The Company subsequently approved a change in the par value of the Company’s Common and Preferred Stock to $0.001 per share. On July 20, 2010, the Company’s shareholders owning an aggregate of 8,900,898 shares (or 55%) of the Company’s outstanding shares approved the actions.
Business Overview
Acquisition of Spectrum Health Network, Inc.
On June 1, 2010, AMHN entered into an Agreement and Plan of Reorganization (the “Spectrum Acquisition Agreement”)Merger with Spectrum Acquisition Corp., a newly formed Delaware corporation and wholly owned subsidiary of AMHN (“Merger Sub”), Spectrum Health Network, Inc., a Delaware corporation (“Spectrum”) and the sole shareholder of Spectrum (the “Sole Shareholder”). The terms of the Spectrum Acquisition Agreement provided for (i) the transfer of 100% of the issued and outstanding shares of common stock of Spectrum to AMHN in exchange for the issuance to the Sole Shareholder of Spectrum of an aggregate of 500,000 shares of common stock of AMHN (the “AMHN Common Stock”) at a conversion ratio where one share of Spectrum is converted into 500 shares of AMHN; (ii) AMHN’s assumption of all the assets and liabilities of Spectrum; (iii) the officers and directors of Spectrum to retain their respective positions in the Merger Sub; and (iv) Spectrum to become a wholly owned subsidiary of AMHN. VitaMed (continued)
| · | a reverse split of the Company’s 16,575,209 issued and outstanding shares of Common Stock on a ratio of 1 for 100 (the “Reverse Split”). As a result of the Reverse Split, each share of Common Stock outstanding on July 28, 2011 (the “Record Date”), without any action on the part of the holder thereof, became one one-hundredth of a share of Common Stock. The Reverse Split decreased the number of outstanding shares of the Company’s Common Stock by approximately 99% resulting in 165,856 shares outstanding after the Reverse Split. The effectuation of the Reverse Split did not result in a change in the relative equity position or voting power of the shareholders of the Company, | | · | an increase of its authorized shares of Common Stock to 250,000,000, | | · | a change in the name of the Company to TherapeuticsMD, Inc., and | | · | an amendment to the Company’s Long Term Incentive Compensation Plan (“LTIP”) to increase the authorized shares for issuance thereunder to 25,000,000. |
On June 11, 2010,October 4, 2011, the Closing Date of the Transaction pursuant toMerger Agreement, the terms and conditions of the Acquisition Agreement, AMHNCompany acquired 100% of the issued and outstanding shares of SpectrumVitaMed in exchange for the issuance of an aggregate of 500,000 shares of AMHNthe Company’s Common Stock.Stock, as more fully described below (the “Merger”). In accordance with the provisions of this triangulated merger, the Merger Sub was merged with and into SpectrumVitaMed as of the Effective DateDate. Upon consummation of the AcquisitionMerger Agreement and all transactions contemplated therein, the separate existence of the Merger Sub ceased and SpectrumVitaMed became a wholly owned subsidiary of AMHN.the Company.
Exchange of Securities
At the Effective Time, all outstanding membership units of VitaMed (the “Units”) were exchanged for shares of the Company’s Common Stock. In conjunction withaddition, all outstanding VitaMed options to purchase VitaMed membership units (the “VitaMed Options”) and all outstanding VitaMed warrants to purchase VitaMed membership units (the “VitaMed Warrants”) were exchanged and converted into options and warrants for the Acquisitionpurchase of the Company’s Common Stock (“Company Options” and “Company Warrants”, respectively). All Units, VitaMed Options and VitaMed Warrants were exchanged on a pro-rata basis for shares of the Company’s Common Stock which in the aggregate totaled 70,000,000 shares, resulting in a conversion ratio calculated by the sum of all outstanding Units, VitaMed Options and VitaMed Warrants divided by 70,000,000 (the “Conversion Ratio”). Pursuant to the Conversion Ratio, the Company issued 58,407,331 shares of the Company’s Common Stock in exchange for the outstanding Units, reserved for issuance an aggregate of 10,119,796 shares issuable upon the exercise of the Company Options, and reserved for issuance an aggregate of 1,472,916 shares issuable upon the exercise of the Company Warrants. After giving effect to the Reverse Split, and taking into consideration the 58,407,331 aforementioned shares issued in exchange for the Units, the number of shares of the Company’s Common Stock issued and outstanding as of the Closing Date was 58,573,187, of which the former members of VitaMed owned approximately 99%. All shares of the Company’s Common Stock issued in exchange for the Units, and to be issued upon exercise of the Company Options and Company Warrants, are subject to a lock-up agreement for a period of eighteen (18) months from the Closing.
AMHN,THERAPEUTICSMD, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 20102011 AND 20092010
NOTE A – THE COMPANY (Continued)
Agreement, AMHN assumedCorporate Overview and History of VitaMed
VitaMed is a specialty pharmaceutical company organized as a limited liability company in the assetsState of Delaware on May 13, 2008. VitaMed is focused on providing the highest quality products to the women’s health market. Our national sales force that calls on physicians and liabilitiespharmacies is enhanced by our patent-pending technology and business methodology. This combination allows us to market both over-the-counter (“OTC”) and prescription nutritional supplements, drugs, medical foods and other medical products through pharmacies and our web-site with the recommendation of Spectrum totaling approximately $247,000physicians by creating unique value propositions for patients, physician/providers and $480,000, respectively. The excessinsurance payors.
In the early part of 2009, we completed formulation of our first products, a prenatal multivitamin and a vegan docosahexaenoic acid (“DHA”) supplement and introduced the purchase price overproduct to the net liabilities assumed was recorded as goodwillmarket in June 2009 with sales primarily in South Florida. In September 2010, we achieved a milestone of $1 million in total sales and had begun to expand our sales force nationally and currently have product sales into 46 states. Our product line has been expanded to ten core products and our new product development continues to focus on the consolidated balance sheet. Spectrum sells its networkwomen’s health market. As we continue our product development efforts for both new products and refinements to independent physician associations (“IPAs”)existing products, we are also seeking proprietary ingredients and is supported by ad revenue. Currently the company has 182 offices subscribed to the service with 123 live sites. Spectrum’s new business plan is to market its network to IPAsformulations that can be exclusively licensed or patented for a fee of $3,500 per location for equipment and installation (“Subscription”), plus an ongoing monthly service fee ranging from $102 to $250 per month per location for content delivery and network maintenance (“Service Fees”). To date, Spectrum has not converted any of its existing clients to Subscriptions nor sold any Subscriptions. Spectrum has developed a primary target list of prospective IPAs, which if subscribed, would represent a minimum of 640 potential locations, with each location supporting its own system. There are approximately 3,500 IPAs operatinguse in the United States. Of this total, an estimated 2,000 fall under the category of the “Staff Model” where staff are fulltime employees directed under a corporate management structure. Another 1,500 are considered a “Staff/Hybrid Model” where the IPA is created to facilitate a Primary Care Group and still enable specialized physicians to maintain their own practices, but allows them to receive the benefits of achieving economies of scalewomen’s healthcare that will further differentiate our products from the formation of an association to operatecompetition.
VitaMed maintains websites at www.vitamedmd.com and help manage their practice. Spectrum implemented a media-buying branded program to offer the “Spectrum Health Network Rx Discount Drug Card” (“Discount Drug Card”)www.vitamedmdrx.com. Spectrum has already distributed 16,200 free Discount Drug Cards to its over 125 medical office locations. These Discount Drug Cards are given to patients by physicians or can be downloaded by patients from Spectrum’s website. The Discount Drug Cards have no expiration date, can be activated and used immediately, and allow consumers to save 35-75% off their retail prescriptions at more than 54,000 pharmacies. Each time a Discount Drug Card is used, Spectrum receives a commission. To date, no commissions have been received.
Discontinued Operations
America’s Minority Health Network is a place-based provider of digital video education for medical practices who primarily service minorities. Research has shown that due to socioeconomic and sociopolitical issues, African-Americans suffer from exceptionally high mortality and morbidity rates. Lack of proper healthcare education has been cited as one of the factors leading to higher health risks for the African-American community. America’s Minority Health Network provides a digital platform to increase African-American health education awareness that can increase the longevity and well-being of African-American men and women, while providing relevant advertising of related products. The America’s Minority Health Network has created a viable solution to meet the needs of physicians who are constantly searching for ways to better inform their patients and for advertisers that are searching for ad space to communicate specific products to African-Americans.
America’s Minority Health Network provides direct-to-consumer television programming across the United States to subscribing medical offices with a predominantly African-American patient base. Subscribing offices subscribe to the service to receive programming. Our rollout plan called for one thousand (1,000) subscribing locations in our first phase. Each month updated healthcare segments and relevant advertising are digitally delivered in high definition directly to waiting rooms filled with a well-defined African-American target audience. Medical office waiting rooms provide a captive audience with
AMHN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009
NOTE A – THE COMPANY (Continued)
the typical presence of over 1,000 patients per month per location, where viewers are pre-disposed to watch and listen to the pertinent information offered.
On July 30, 2010, after the Company defaulted under the payment terms of a Secured Promissory Note issued to Seatac Digital Resources, Inc. (“Seatac”) on April 1, 2010 (the “America’s Minority Note”), the Company and Seatac agreed that the America’s Minority Note be satisfied through the transfer of the collateral for the America’s Minority Note. In connection therewith, the shares of America’s Minority Health Network owned by the Company were transferred to Seatac and the America’s Minority Note was satisfied in full. See Note H, DISCONTINUED OPERATIONS.
Throughout these Notes to Consolidated Financial Statements, the terms “we,” “us,” “our,” “Therapeutics,” or the “Company” refers to TherapeuticsMD, Inc., and unless otherwise specified, includes our wholly owned subsidiary, VitaMed.
NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its continuing subsidiary, Spectrum, and the discontinued subsidiary, America’s Minority Health Network, through July 30, 2010.wholly owned subsidiary. All intra-company accountsmaterial intercompany balances and transactions have been eliminated in consolidation. Accounting Standard Codification
Effective July 1, 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted Accounting Principles – Overall (“ASC 105-10”). ASC 105-10 establishes the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretive releases of the Securities and Exchange Commission (the “SEC”) under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. The Codification superseded all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification is non-authoritative. The FASB will not issue new standards in the form of Statements, FASB Position or Emerging Issue Task Force Abstracts. Instead, it will issue Accounting Standards Updates (“ASUs”).
The FASB will not consider ASUs as authoritative in their own right; ASUs will serve only to update the Codification, provide background information about the guidance and provide the bases for conclusions on the change(s) in the Codification. References made to FASB guidance throughout this document have been updated for the Codification.
Cash and Cash Equivalents
Cash is maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company considers all highly liquid debt instrumentshas never experienced any losses related to these balances. All of our non-interest bearing cash balances were fully insured at December 31, 2011 and other short-term investments with maturity2010 due to a temporary federal program in effect from December 31, 2010 through December 31, 2012. Under the program, there is no limit to the amount of three months or less, when purchased,insurance for eligible accounts. Beginning 2013, insurance coverage will revert to be$250,000 per depositor at each financial institution, and our non-interest bearing cash equivalents.balances may again exceed federally insured limits. The Company maintains cashhad no interest-bearing amounts on deposit in excess of federally insured limits at December 31, 2011 and cash equivalent balances at one financial institution that is insured by the Federal Deposit Insurance Corporation.2010.
AMHN,THERAPEUTICSMD, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 20102011 AND 2009 2010 NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Trade Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are customer obligations for advertising revenue, Subscriptions, and Service Fees due under normal trade terms. The Company reviews the accounts receivable for uncollectible accounts and credit card charge-backs and provides an allowance for doubtful accounts which is based upon a review of outstanding receivables, historical collection information and existing economic conditions. Normal trade accounts receivable are due 30 days from invoice date and thereafter are considered past due. At December 31, 2010, there were no past due trade accounts receivable and therefore no allowance for doubtful accounts was provided. Trade accounts receivable past due more than 90 days are considered delinquent. Delinquent receivables are written off to bad debt expense based on individual credit evaluations, results of collection efforts, and specific circumstances of the customer. Recoveries of accounts previously written off are recorded as reductions of bad debt expense when received.Historically, our bad debt expense has been limited because the majority of our trade receivables are paid via credit card. Data we use to calculate these estimates does not accurately reflect bad debts; adjustments to these reserves may be required. At December 31, 2011 and 2010, the Company recorded an allowance for doubtful accounts of $1,500 and $0, respectively.
Inventories
Inventories represent packaged nutritional products and supplements which are valued at the lower of cost or market using the average cost method.
Fixed Assets
The Company, through Spectrum, had 182 offices subscribedProperty and 123 live sites commissioned asEquipment-Property and equipment is stated at cost, net of December 31, 2010. Depreciation commences onaccumulated depreciation. Maintenance costs, which do not significantly extend the first dayuseful lives of the month following the installation of the sitesrespective assets, and repair costs are charged to operating expense as incurred. Depreciation is calculatedcomputed using the straight-line method over the estimated useful lives of the related assets. Costs of maintenance and repairs are chargedassets, which range from 3 to expense as incurred.7 years. Depreciation expense of $55,048totaled $25,686 and $0 for continuing operations was recorded$5,105 for the yearyears ended December 31, 2011 and 2010, and the period from April 2, 2009 (Inception) through December 31, 2009, respectively.
Segment Library
The segment library of Spectrum is reflected as intangible assets on the accompanying consolidated balance sheet with a useful life of 5 years. These costs represent the production costs relating to producing the segments that will be presentedWebsite-Costs incurred in the subscribing offices. Management has determinedplanning stage of a website are expensed, while costs incurred in the development stage are capitalized and amortized over the estimated three-year life of the segment library to be 5 years. The Company amortizes the segments commencing on the first dayasset. Amortization of the month following the segments placed into service. Amortization expense of $6,335website development costs totaled $29,159 and $0 for continuing operations was recorded$17,678 for the yearyears ended December 31, 2011 and 2010, respectively.
Intangible Assets
The Company has adopted the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 350 Intangible-Goodwill and Other (“ASC 350”).
Capitalized patent costs, net of accumulated amortization, include legal costs incurred for a patent application. In accordance with ASC 350, once the period from April 2, 2009 (Inception) throughpatent is granted, the Company will amortize the capitalized patent costs over the remaining life of the patent using the straight-line method. If the patent is not granted, the Company will write-off any capitalized patent costs at that time. Intangible assets are reviewed annually for impairment or when events or circumstances indicate that their carrying amount may not be recoverable. There was no amortization expense related to patent costs for the years ended December 31, 2009, respectively.2011 and 2010 as patents have not yet been granted.
RecoverabilityTHERAPEUTICSMD, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010
NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impairment of Long-Lived Assets
Although the Company does not have any long-livedCarrying values of property and equipment and finite-lived intangible assets at this point,are reviewed for any long-lived assets acquired in the future the Company will review their recoverability on a periodic basisimpairment whenever events andor changes in circumstances have occurred whichindicate that their carrying values may indicate a possible impairment. The assessment for potentialnot be recoverable. Such events or circumstances include, but are not limited to:
| · | Significant declines in an asset’s market price; | | · | Significant deterioration in an asset’s physical condition; | | · | Significant changes in the nature or extent of an asset’s use or operation; | | · | Significant adverse changes in the business climate that could impact an asset’s value, including adverse actions or assessments by regulators; | | · | Accumulation of costs significantly in excess of original expectations related to the acquisition or construction of an asset; | | · | Current-period operating or cash flow losses combined with a history of such losses or a forecast that demonstrates continuing losses associated with an asset’s use; and | | · | Expectations that it is more likely than not that an asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. |
If impairment willindicators are present, the Company determines whether an impairment loss should be based primarily onrecognized by testing the Company’s ability to recover theapplicable asset or asset group’s carrying value of itsfor recoverability. This test requires long-lived assets from expectedto be grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities, the determination of which requires judgment. The Company estimates the undiscounted future cash flows from its operations on an undiscounted basis. If such assets are determinedexpected to be impaired,generated from the impairment recognized isuse and eventual disposal of the amount by whichassets and compares that estimate to the respective carrying values in order to determine if such carrying values are recoverable. This assessment requires the exercise of judgment in assessing the future use of and projected value to be derived from the eventual disposal of the assets to be held and used. Assessments also consider changes in asset utilization, including the temporary idling of capacity and the expected timing for placing this capacity back into production. If the carrying value of the assets exceedsis not recoverable, then a loss is recorded for the difference between the assets’ fair value and respective carrying value. The fair value of the assets is determined using an “income approach” based upon a forecast of all the expected discounted future net cash flows associated with the subject assets. Some of the more significant estimates and assumptions include: market size and growth, market share, projected selling prices, manufacturing cost and discount rate. The Company’s estimates are based upon its historical experience, its commercial relationships, market conditions and available external information about future trends. The Company believes its current assumptions and estimates are reasonable and appropriate; however, unanticipated events and changes in market conditions could affect such estimates, resulting in the need for an impairment charge in future periods.
Fair Value of Financial Instruments
The Company’s financial instruments consist primarily of receivables, accounts payable, accrued expenses and short-term debt. The carrying amount of receivables, accounts payable and accrued expenses approximates its fair value because of the short-term maturity of such instruments. Interest rates that are currently available to the Company for issuance of short-term debt with similar terms and remaining maturities are used to estimate the fair value of the assets. Fixed assets to be disposed of by sale will be carried at the lower of the then current carrying value or fair value less estimated costs to sell.Company’s short-term debt. AMHN,THERAPEUTICSMD, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 20102011 AND 2009 2010 NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Goodwill and Intangible Assets
The Company accounts for goodwill and intangible assets pursuant to ASC 350-20-55-24, “Intangibles – Goodwill and Other”. Under ASC 350, intangibles with definite lives continue to be amortized on a straight-line basis over the lesser of their estimated useful lives or contractual terms. Goodwill and intangibles with indefinite lives are evaluated at least annually for impairment by comparing the asset’s estimated fair value with its carrying value, based on cash flow methodology. Intangibles with definite lives are subject to impairment testing in the event of certain indicators. Impairment in the carrying value of an asset is recognized whenever anticipated future cash flows (undiscounted) from an asset are estimated to be less than its carrying value. The amount of the impairment recognized is the difference between the carrying value of the asset and its fair value. At December 31, 2010, the Company’s balance sheet included goodwill from the acquisition of Spectrum on June 11, 2010. No impairment has been recognized during 2010.
Fair Value of Financial Instruments (continued) The carrying amount reported in the balance sheet for cash and cash equivalents, accounts payable, and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. The Company does not utilize derivative instruments.
Stock-Based Compensation
The Company adopted the provisions of ASC 718-10 “Share Based Payments”. The adoption of this principle had no effect on the Company’s operations. ASC 718-10 requires recognition of stock-based compensation expense for all share-based payments based oncategorizes its assets and liabilities that are valued at fair value. The Company has elected to use the modified-prospective approach method. Stock-based compensation expense for all awards granted is based on the grant-date fair values. The Company recognizes these compensation costs, net of an estimated forfeiture rate,value on a pro ratarecurring basis over the requisite service period of each vesting tranche of each award. The Company considers voluntary termination behaviorinto a three-level fair value hierarchy as well as trends of actual option forfeitures when estimating the forfeiture rate.
The Company measures compensation expense for its non-employee stock-based compensation underdefined by ASC 505-50,820 “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”Fair Value Measurements and Disclosures” (“ASC 820”).The fair value ofhierarchy gives the option issued is usedhighest priority to measurequoted prices in active markets for identical assets and liabilities (Level 1) and lowest priority to unobservable inputs (Level 3).
Assets and liabilities recorded in the transaction, as this is more reliable than theconsolidated balance sheet at fair value are categorized based on a hierarchy of inputs, as follows:
| Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities; | | | | | Level 2 | Quoted prices for similar assets or liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; and | | | | | Level 3 | Unobservable inputs for the asset or liability. |
At December 31, 2011 and 2010, the services received. TheCompany had no assets or liabilities that are valued at fair value is measured at the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital. For common stock issuances to non-employees that are fully vested and are for future periods, the Company classifies these issuances as prepaid expenses and expenses the prepaid expenses over the service period. At no time has the Company issued common stock for a service period that exceeds one year.recurring basis.
AMHN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009
NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Company accounts for income taxes utilizing the liability method of accounting. Under the liability method, deferredIncome taxes are determined based on differences between financial statementaccounted for under the asset and liability method. Deferred tax bases of assets and liabilities atare recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in effect inthe years in which the related temporary differences are expected to reverse.
be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized when the rate change is enacted. Valuation allowances are established, when necessary,recorded to reduce deferred tax assets to amountsthe amount that are expected towill more likely than not be realized. In accordance with ASC 740, TheIncome Taxes, the Company follows ASC 740-10, “Accounting for Uncertainty in Income Taxes” (“ASC 740-10”). This interpretation requires recognition and measurementrecognizes the effect of uncertain income tax positions using a “more-likely-than-not” approach. Management evaluates theironly if the positions are more likely than not of being sustained in an audit, based on the technical merits of the position. Recognized uncertain income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which those changes in judgment occur. The Company recognizes both interest and penalties related to uncertain tax positions as part of the income tax provision. As of December 31, 2011 and 2010, the Company has no tax positions relating to open tax returns that were considered to be uncertain.
Stock Based Compensation
In December 2004, the FASB issued ASC 718, Compensation – Stock Compensation (“ASC 718”). ASC 718 companies are required to measure the compensation costs of unit-based compensation arrangements based on an annual basis.the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Unit-based compensation arrangements include unit options, restricted share plans, performance-based awards, share appreciation rights and employee
THERAPEUTICSMD, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010 Discontinued Operations
NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock Based Compensation (continued)
share purchase plans. As such, compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant. The gainsCompany uses the Black-Scholes option pricing model which requires the input of highly complex and losses fromsubjective variables including the dispositionexpected life of certain income-producing assetsoptions granted and associated liabilities, operating results,the Company’s expected stock price volatility over a period equal to or greater than the expected life of the options.
Equity instruments (“instruments”) issued to other than employees are recorded on the basis of the fair value of the instruments, as required by ASC 718. FASB ASC 505, Equity Based Payments to Non-Employees defines the measurement date and cash flowsrecognition period for such instruments. In general, the measurement date is when either a (a) performance commitment, as defined, is reached or (b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the ASC.
The Company recognizes compensation expense for all share-based payments granted based on the grant date fair value estimated in accordance with ASC 718-10, “Share Based Payments.” Compensation expense is generally recognized on a straight-line basis over the employee’s requisite service period.
Debt Discounts
Costs incurred with parties who are providing long-term financing, which include warrants issued with the underlying debt, are reflected as discontinued operationsa debt discount based on the relative fair value of the debt and warrants to the total proceeds. These discounts are generally amortized over the life of the related debt using the effective interest rate method. In connection with debt issued during the years ended December 31, 2011 and 2010, the Company recorded debt discounts totaling $28,719 and $0, respectively. Amortization expense related to debt discounts totaled $28,719 and $0 for the years ended December 31, 2011 and 2010, respectively, and is included in interest expense on the accompanying consolidated financial statements for all periods presented. Although net earnings are not affected, the Company has reclassified results that were previously included in continuing operations as discontinued operations for qualifying dispositions.statements. Debt discount was fully amortized at December 31, 2011.
Revenue Recognition
The Company generates revenue from the sale of advertising spots on its network, through Subscriptions and Service Fees. The Company recognizes revenuesrevenue on arrangements in accordance with the guidance in the SEC Staff Accounting Bulletin No. 104.ASC 605, “Revenue Recognition” (“ASC 605”). Revenue is recognized when persuasive evidence of a sales arrangement exists,only when the selling price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability is reasonably assured. The Company generates revenue by sales of products primarily to retail consumers. The Company’s policy is to recognize revenue from product sales upon shipment, when installationthe rights of ownership and official acceptance byrisk of loss have passed to the facility occurs,consumer. Outbound shipping and when collection is probable.handling fees are included in sales and are billed upon shipment. Shipping expenses are included in cost of sales. The majority of the Company’s sales are paid with credit cards and the Company usually receives the cash settlement in two to three banking days. Credit card sales minimize accounts receivable balances relative to sales. We provide an unconditional thirty-day money-back return policy whereby we accept product returns from our retail, wholesale and
THERAPEUTICSMD, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010 ConcentrationNOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition (continued)
eCommerce customers. Historically we have experienced returns (monitored on a daily basis) equal to approximately one percent of Credit Risks, Customer Data,sales. Total returns were $20,726 and Supplier Data During 2010 and 2009,$13,734 for the Company derived all of its revenue from one customer; outstanding accounts receivable atyears ended December 31, 2011 and 2010, respectively. We consider the potential returns to be de minimis and have not established an allowance for product returns at this time.
Shipping and Handling Costs
The Company expenses all shipping and handling costs as incurred. These costs are all due from this customer. Duringincluded in cost of sales on the accompanying consolidated financial statements.
Advertising Costs
The Company expenses advertising costs when incurred. Advertising expenses totaled $19,408 and $25,698 during the years ended December 31, 2011 and 2010, respectively.
Research and 2009,Development Expenses
Research and development expenditures, which are expensed as incurred, totaled $107,241 and $65,402 during the Company had one supplier, a minority shareholder, provide all of its programming contentyears ended December 31, 2011 and another supplier, also a minority shareholder, provide all of its installation and distribution services.2010, respectively.
Earnings perPer Share of Common Stock
The Company calculates earnings per share (“EPS”) in accordance with ASC 260, “Earnings perPer Share,” which requires the computation and disclosure of two EPS amounts, basic and diluted. Basic EPS is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed based on the weighted average number of common shares outstanding plus all potentially dilutive common shares outstanding during the period. Such potential dilutive common shares consist of stock options non-vested shares (restricted stock) and warrants. Potential common shares totaling 96,618,626 and 165,752 (Reverse Split shares) at December 31, 2011 and 2010, and 2009 thatrespectively, have an anti-dilutive effect totaling zero and 76,075, respectively arebeen excluded from the diluted earnings per share.share calculation as they are anti-dilutive due to the net loss reported by the Company.
Use of Estimates
The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates, including those related to contingencies, on an ongoing basis. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
AMHN,THERAPEUTICSMD, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 20102011 AND 2009 2010 NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of 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 disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Certain 2009 amounts have been reclassified to conform to current year presentation.
Recently Issued Accounting Standards Pronouncements
In December 2009, the2011, FASB issued Accounting Standards Update (“ASU”) 2009-17,2011-11, ConsolidationBalance Sheet - Offsetting. (ASC 810) Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (“ASU 2009-17), whichThis guidance requires disclosures about offsetting and related arrangements for recognized financial instruments and derivative instruments. The standard is effective for us as of January 1, 2013 and will not materially impact our financial statement disclosures.
In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment.” This guidance provides the option to evaluate prescribed qualitative factors to determine whether a calculated goodwill impairment test is necessary. The standard is effective for us as of January 1, 2012 and will not materially impact on our financial condition, results of operations, or financial statement disclosures.
In May 2011, FASB issued ASU 2011-05, Comprehensive Income: Presentation of Comprehensive Income, to allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments do not change the guidance regarding the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments should be applied retrospectively and is effective for fiscal years and interim periods within those years beginning after December 15, 2011. Early adoption is permitted. The adoption is not expected to have a material impact on the Company’s results of operations, financial position or cash flows.
In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU represents the converged guidance of the FASB and the IASB (the “Boards”) on fair value measurement, and results in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value.” These amendments change some of the terminology used to describe many of the existing requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The amendments should be applied prospectively, and they are effective during interim and annual periods beginning after NovemberDecember 15, 2009. ASU 2009-17 requires Company management2011. Early application by public entities is not permitted. The adoption is not expected to considerhave a variable entity’s purpose and design and the Company’s ability to direct the activities of the variable interest entity that most significantly impact such entity’s economic performance when determining whether such entity should be consolidated. The Company adopted the provisions of ASU 2009-17 as required on January 1, 2010. The provision had nomaterial impact on the Company’s consolidatedresults of operations, financial position or results of operation upon adoption.cash flows.
In January, 2010,Management does not believe there would be a material effect on the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures: Improving Disclosures about Fair Value Measurements, which amends ASC 820, Fair Value Measurements and Disclosures (“ASU 2010-06”) to add new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. ASU 2010-06 also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The Company adopted the provisions of ASU 2010-06 as required on January 1, 2010.
Allaccompanying financial statements had any other new accounting pronouncementsrecently issued but not yet effective oraccounting standards been adopted have been deemed not to be relevant to us, hence are not expected to have any impact once adopted.in the current period.
THERAPEUTICSMD, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010 NOTE C – GOING CONCERN
The accompanying financial statements of the Company have been prepared in conformity with generally accepted accounting principles in the United States of America, and assumeassuming that the Company will continue as a going concern. Due to the start-up natureThe Company incurred a loss from operations of the Company’s business, the Company expects to incur losses as it expands. To date, the Company’sapproximately $5,400,000, had negative cash flow requirements have been entirely met with funds raised through loans from a strategic vendoroperations of approximately $5,000,000 and shareholderhad an accumulated deficit of the Company. There is no assurance that additional funds will be available for the Company to finance its operations should the Company be unable to realize profitable operations.approximately $17,000,000 at December 31, 2011. These conditions, among others, give rise tomatters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans include raising additional proceeds from debt and equity transactions and to continue to increase its sales and marketing activities; however, there are no assurances that management will be successful in their efforts. The financial statements do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation. AMHN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009
NOTE C – GOING CONCERN (Continued)
These financial statements have been prepared on a going concern basis which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has generated revenues from continuing operations of only $48,217 since the acquisition of Spectrum and has an accumulated deficit of $2,585,448 through December 31, 2010.
Besides generating revenues from proposed operations, the Company will need to raise additional capital to expand operations to the point at which the Company can achieve profitability. The financing that may be raised may not be on terms acceptable by the Company. If adequate funds cannot be raised outside of the Company, the Company’s current shareholders may need to contribute funds to sustain operations. The Company is currently seeking a suitable acquisition candidate.
NOTE D – STOCKHOLDERS’ EQUITY
As previously mentioned herein, on October 4, 2011, all Units were exchanged for shares of the Company’s Common Stock. In addition, all VitaMed Options and VitaMed Warrants were exchanged and converted into Company Options and Company Warrants. All Units , VitaMed Options and VitaMed Warrants were exchanged on a pro-rata basis for shares of the Company’s Common Stock which in the aggregate totaled 70,000,000 shares, resulting in a conversion ratio calculated by the sum of all Units, VitaMed Options and VitaMed Warrants divided by 70,000,000 (the “Conversion Ratio”). Pursuant to the Conversion Ratio, the Company issued 58,407,331 shares of the Company’s Common Stock in exchange for the Units, reserved for issuance an aggregate of 10,119,796 shares issuable upon the exercise of the Company Options and reserved for issuance an aggregate of 1,472,916 shares issued upon the exercise of the Company Warrants.
Preferred Stock
TheAt December 31, 2011, the Company hashad 10,000,000 shares of noPreferred Stock, par value preferred stock authorized. No preferred$0.001 authorized and none outstanding, which shares have been issued. On July 20, 2010,can be designated by the Company’s shareholders approved a change in the par valueBoard of the Company’s Preferred Stock to $0.001 per share.Directors.
Common Stock
TheAt December 31, 2011, the Company was authorized to issue up to 50,000,000had 250,000,000 shares of common stock at $0.10Common Stock, $0.001 par value per share (“Common Stock”). On July 20, 2010, the Company shareholder’s approved a change in the par value of the Company’s Common Stock to $0.001 per share. As of December 31, 2010 and as of the date of this filing, the Company has 16,575,209authorized, with 82,978,781 shares of Common Stock issued and outstanding. All par value amounts
Between February and additional paid in capital amounts prior to the change have been reclassified in accordance with the staff accounting bulletin rules.May 2011, VitaMed sold 2,892,630 Units for an aggregate purchase price of $707,000. On July 27, 2009, as part ofOctober 3, 2011, the acquisition of the Company’s former subsidiary (America’s Minority Health Network, Inc.), the Company: (i)Company effected a forward stockreverse split on a basis of 3:1 which increased theits 16,575,209 issued and outstanding shares of Common Stock from 1,017,573 to 3,052,719, and this change was reflected retroactivelyon a ratio of 1 for 100 resulting in accordance with rules and regulations of SAB Topic 4C; (ii) accepted from a shareholder the surrender of and canceled 1,935,000165,856 shares of Common Stock which were returned to the Company’s authorized but unissued shares; (iii) issued 403,802 shares to the same shareholder who surrendered the above-mentioned shares; and (iv) issued 13,693,689 shares of its Common Stock to the shareholders of America’s Minority Health Network in exchange for 100% of the shares of America’s Minority Health Network. On September 25, 2009, the Company authorized the issuance of 350,000 shares of restricted Common Stock valued at $105,000 in exchange for consulting services. The Company also authorized the issuance of an aggregate of 510,000 additional shares of its Common Stock valued at $153,000 pursuant to a Form S-8 registration statement (“Form S-8”) to be filed by the Company. On November 4, 2010, the Company determined that it would not file the Form S-8 and instead issued 160,000 shares of its Common Stock valued at $48,875 to two individuals and issued a third individual an unsecured demand promissory note in the amount of $210,000 (the “Note”). The Note was subsequently assigned to an unaffiliated entity and remains unpaid as of December 31, 2010 and as of the date of this filing.
AMHN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009
NOTE D – STOCKHOLDERS’ EQUITY (Continued)
Common Stock (Continued)
On September 28, 2009, the Company issued 450,000 shares of stock valued at $112,500 in exchange for consulting services.
On each of October 20, 2009 and November 11, 2010, the Company issued 125,000 shares of its restricted Common Stock to Alliance Advisors, LLC pursuant to an Investor Relations Consulting Agreement, valued at $875 and $165,000 for the years ended December 31, 2010 and 2009, respectively.
On June 11, 2010, AMHN acquired 100% of the issued and outstanding thereafter.
On October 5, 2011, the Company closed a Stock Purchase Agreement with Pernix Therapeutics, LLC, a Louisiana limited liability company (“Pernix”). Pursuant to the terms of the Stock Purchase Agreement dated September 8, 2011, Pernix agreed to purchase 2,631,579 shares of Spectrum in exchange for the issuance of an aggregate of 500,000 shares of AMHNCompany’s Common Stock previously described in NOTE A – THE COMPANY, Acquisition of Spectrum Health Network, Inc. 2009 Long Term Incentive Compensation Plan
The Company’s Board of Directors and shareholders approved the LTIP on September 25, 2009 and July 20, 2010 respectively. The LTIP contains one million five hundred thousand shares that may be issued to provide financial incentives to employees, members of the Board, and advisers and consultants of the Company. In conjunction with approval of the Plan by the Company’s shareholders, the Board of Directors approved the granting of non-qualified stock options (the “Options”“Shares”) to officers and employees of the Company for an aggregate of 900,000 underlying shares. The exerciseat a purchase price of the Options was fixed at $0.30$0.38 per share for a total purchase price of $1,000,000 (“Purchase Price”). In connection with the underlying shares to vest at the rate of one-third on the date of the grant and one-third on each of the first and second anniversary dates of the grant. The Options were never issued. In December 2010,Stock Purchase Agreement, the Company and Pernix entered into a Lock-Up Agreement which, among other things, restricts the officerssale, assignment, transfer, encumbrance and employees verbally and mutually agreed to waive the Company’s commitment to issue the Options. As of December 31, 2010 and asother disposition of the date of this filing, no options have beenShares issued underto Pernix. Pursuant to the LTIP.
Warrant(s) to Purchase Common Stock
A summaryterms of the Company’s Warrant(s) to Purchase Common Stock (the “Warrant(s)”) and related information as of December 31, 2010 follows:Lock-Up Agreement, Pernix agreed
| | Number of Shares Under Warrant(s) | | | Range of Warrant(s) Price Per Share | | | Weighted Average Exercise Price | | Balance at December 31, 2008 | | | -0- | | | $ | -0- | | | $ | -0- | | Granted | | | 76,075 | | | | 0.01 | | | | 0.01 | | Exercised | | | -0- | | | | -0- | | | | -0- | | Cancelled | | | -0- | | | | -0- | | | | -0- | | Balance at December 31, 2009 | | | 76,075 | | | | 0.01 | | | | 0.01 | | Granted | | | -0- | | | | -0- | | | | -0- | | Exercised | | | -0- | | | | -0- | | | | -0- | | Cancelled | | | (76,075 | ) | | | 0.01 | | | | 0.01 | | Balance at December 31, 2010 | | | -0- | | | $ | -0- | | | $ | -0- | |
AMHN,THERAPEUTICSMD, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 20102011 AND 2009 2010 NOTE D – STOCKHOLDERS’ EQUITY (Continued)
Warrant(s) to Purchase Common Stock (Continued)(continued)
Asthat for a period of December 31, 2009, $22,138 was included in accrued expenses reflectingtwelve (12) months from the valuedate of the 76,075 Warrant(s)Lock-Up Agreement, it would not make or cause any sale of the Shares (the “Lock-Up Period”). After the completion of the Lock-Up Period, Pernix agreed not to sell or dispose of more than five percent (5%) of the Shares per quarter for the following twelve (12) month period.
In October and November 2011, the Company converted principle and accrued interest in the aggregate of $849,137 into shares of Common Stock of the Company totaling 20,000,000 and 1,681,958, respectively, as more fully described in NOTE I – NOTES PAYABLE.
In December 2010, pursuant2011, a former director of VitaMed, exercised Company Options to a letter agreement betweenpurchase 92,057 shares of the Company and the Warrant holder, the Warrants were cancelled and the Company recorded $22,138 as Other Income on the accompanying financial statements asCompany’s Common Stock at an aggregate exercise price of December 31, 2010.$17,250.
Warrants
The valuation methodology used to determine the fair value of the Warrant(s) issued wasCommon Stock purchase warrants is the Black-Scholes-Merton option-pricing model.model (“Black-Scholes Model”), an acceptable model in accordance with ASC 718-10. The Black-Scholes-Merton modelBlack-Scholes Model requires the use of a number of assumptions including volatility of the stock price, the weighted average risk-free interest rate and the term of the Common Stock purchase warrant.
As of December 31, 2011, the Company had Company Warrants outstanding for an aggregate of 3,057,627 shares of the Company’s Common Stock (including the conversion of VitaMed Warrants as described above) with a weighted average expectedcontractual life of 8.0 years and exercise prices ranging from $0.24 to $1.50 per share resulting in a weighted average exercise price of $0.39 per share.
As of December 31, 2011, unamortized costs associated with Company Warrants totaled approximately $349,000.
During the Warrant(s)year ended December 31, 2011, the Company issued the following:
Purpose | | Number of Shares Under Company Warrants | | | Exercise Price | | | Exercise Term in Years | | | Fair Value | | Loan guaranty | | | 613,713 | | | | $0.24 | | | | 10 | | | $ | 93,969 | | Loan consideration | | | 613,718 | | | | $0.41 | | | | 5 | | | | 30,993 | | Product consulting | | | 1,045,485 | | | | $0.38-$0.41 | | | | 5-10 | | | | 189,942 | | Services | | | 784,711 | | | | $0.38-$1.50 | | | | 5-10 | | | | 159,363 | | | | | 3,057,627 | | | | | | | | | | | $ | 474,267 | |
THERAPEUTICSMD, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010 NOTE D – STOCKHOLDERS’ EQUITY (Continued)
Warrants (continued)
On March 7, 2011, VitaMed entered into a Business Loan Agreement and Promissory Note for a $300,000 bank line of credit (the “Bank LOC”) for which the bank required a personal guarantee and cash collateral. Personal guarantees and cash collateral limited to $100,000 each were provided by Robert Finizio and John Milligan, officers of VitaMed, and by Reich Family Limited Partnership, an entity controlled by Mitchell Krassan, also an officer of VitaMed. The Bank LOC accrued interest at the rate of 3.020% per annum based on a year of 360 days and was due on March 1, 2012. The bank and VitaMed negotiated a one-year extension to the Bank LOC which was executed on March 19, 2012 (the “Bank LOC Extension”). The Bank LOC Extension accrues interest at the rate of 2.35% and is due on March 1, 2013. In consideration for the personal guarantees and cash collateral, VitaMed issued VitaMed Warrants for an aggregate of 499,998 Units (or Company Warrants for an aggregate of 613,713 shares pursuant to the Conversion Ratio). The ten-year Warrants vest at the rate of an aggregate of 76,714 shares per calendar quarter end and have an exercise price of $0.2444 per share. In the event that the bank loan is repaid prior to being fully vested, the Company Warrants will be reissued only for the number of shares vested through the date of repayment. At March 31, 2012, an aggregate of 306,867 shares will be vested thereunder. The VitaMed Warrants were valued on the date of the grant using a term of 10 years; a volatility of 47.89%; risk free rate of 3.48%; and a dividend yield of 0%. Of the $93,969 fair value, $38,159 was recorded as loan guaranty costs in other income and expense and $55,810 was recorded as prepaid expense on the accompanying consolidated financial statements.
In June 2011, VitaMed sold Promissory Notes (the “VitaMed Promissory Notes”) in the aggregate of $500,000 with accompanying VitaMed Warrants for an aggregate of 500,000 shares (or Company Warrants for an aggregate of 613,718 shares pursuant to the Conversion Ratio). The VitaMed Warrants were valued on the date of the grant using a term of five (5) years; a range of volatility from 39.13% to 39.15%; risk free rate ranging from 1.38-1.65%; and a dividend yield of 0%. The Company Warrants vested immediately. Although the fair value was $30,993, using the appropriate accounting treatment, $28,719 was recorded as debt discount and fully amortized during 2011 with the amortized amount recorded as interest expense on the accompanying consolidated financial statements.
On July 21, 2011,VitaMed entered into a one-year consulting agreement with Lang Naturals, Inc. (“Lang”), wherein Lang would assist in the design, development and distribution efforts of VitaMed’s initial product offering. As compensation, Lang received a VitaMed Warrant for 200,000 shares (or a Company Warrant for 245,485 shares pursuant to the Conversion Ratio). The VitaMed Warrant was valued on the date of the grant using a term of five (5) years; a volatility of 39.44%; risk free rate of 1.56%; and a dividend yield of 0%. The Company Warrant vested immediately. Of the $12,548 fair value, $5,612 was recorded as non-cash compensation and $6,936 was recorded as prepaid expense on the accompanying consolidated financial statements.
On October 21, 2011, the Company granted a Company Warrant to Daniel A. Cartwright, the Company's Chief Financial Officer, for 600,000 shares with a fair value of $133,045 for services performed. The Company Warrant was valued on the date of the grant using a term of 10 years; volatility of 45.94%; risk free rate of 2.23%; and a dividend yield of 0%. The Company Warrant vests over a 44-month period beginning on November 21, 2011 (or 13,636 shares for months 1-43 and 13,652 shares for month 44). Of the $133,045 fair value, $7,158 was recorded as non-cash compensation on the accompanying consolidated financial statements. The remaining $125,887 will be expense to non-cash compensation equitably over the remaining 42 months.
THERAPEUTICSMD, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010 NOTE D – STOCKHOLDERS’ EQUITY (Continued)
Warrants (continued)
Also on October 21, 2011, the Company granted a Company Warrant for 184,211 shares with a fair value of $25,980 to an unrelated entity for consulting services covered under a two (2) month agreement. The Company Warrant was valued on the date of the grant using a term of five (5) years; volatility of 41.04%; risk free rate of 1.08%; and a dividend yield of 0%. The $25,980 fair value was recorded as financing expense on the accompanying consolidated financial statements.
On October 23, 2011, VitaMed entered into a two-year consulting agreement with Lang wherein a Lang representative will help evaluate improvements to existing products and new products as well as services including but not limited to research, design, compliance, scientific and regulatory affairs and commercialization of products. As compensation, Lang received a Company Warrant for 800,000 shares. The Company Warrant was valued on the date of the grant using a term of 10 years; a volatility of 45.94%; risk free rate of 2.23%; and a dividend yield of 0%. The Company Warrant vested immediately. Of the $177,394 fair value, $17,010 was recorded as non-cash compensation and $160,384 was recorded as prepaid expense on the accompanying consolidated financial statements.
On December 28, 2011, the Company granted a Company Warrant for 500 shares with a fair value of $338 to an unrelated individual for consulting services covered under a three (3) month agreement. The Company Warrant was valued on the date of the grant using a term of 10 years; volatility of 51.83%; risk free rate of 0.91%; and a dividend yield of 0%. The Company Warrant vested immediately. Of the $338 fair value, $15 was recorded as non-cash compensation and $323 was recorded as prepaid expense on the accompanying consolidated financial statements.
The weighted average fair value per share of Company Warrants granted and the assumptions used in the Black-Scholes Model during the years ended December 31, 2011 are set forth in the table below.
| | 2011 | | Weighted average fair value | | | $0.36 | | Risk-free interest rate | | | 0.91-3.48 | % | Volatility | | | 39.13-51.83 | % | Term (in years) | | | 5-10 | | Dividend yield | | | 0.00 | % |
The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the Warrant(s) and is calculated by using the average daily historical stock prices through the day preceding the grant date.term. Estimated volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate each year during the expected lifeterm of the award. The Company’s estimated volatility is an average of the historical volatility of the stock prices of its peer entities whose stock prices were publicly available. The Company’s calculation of estimated volatility is based on historical stock prices of these peer entities over a period equal to the expected lifeterm of the awards. The Company usesused the historical volatility of peer entities due to the lack of sufficient historical data of its stock price.price during 2001-2011.
THERAPEUTICSMD, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010 NOTE D – STOCKHOLDERS’ EQUITY (Continued)
Warrants (continued)
The Company issued no Common Stock purchase warrants during the year ended December 31, 2010. A summary of the Company’s Common Stock purchase warrant activity and related information for 2011 follows:
| | Number of Shares Under Company Warrant | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Life | | | Aggregate Intrinsic Value | | Balance at December 31, 2010 | | | -0- | | | | | | | | | | | Granted | | | 3,057,627 | | | $ | 0.36 | | | | 8.7 | | | $ | 3,483,691 | | Exercised | | | -0- | | | | | | | | | | | | | | Expired | | | -0- | | | | | | | | | | | | | | Cancelled | | | -0- | | | | | | | | | | | | | | Balance at December 31, 2011 | | | 3,057,627 | | | $ | 0.36 | | | | 8.7 | | | $ | 3,483,691 | | Vested and Exercisable at December 31, 2011 | | | 2,254,758 | | | $ | 0.37 | | | | 5.6 | | | $ | 2,361,339 | |
Stock Options
In 2009, the Company adopted the 2009 Long Term Incentive Compensation Plan (the “LTIP”) to provide financial incentives to employees, members of the Board, and advisers and consultants of the Company who are able to contribute towards the creation of or who have created stockholder value by providing them stock options and other stock and cash incentives (the “Awards”). The weighted averageAwards available under the LTIP consist of stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock, performance units, EVA awards, and other stock or cash awards as described in the LTIP. There are 25,000,000 shares authorized for issuance thereunder. Prior to the Merger, no awards had been issued under the LTIP.
THERAPEUTICSMD, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010
NOTE D – STOCKHOLDERS’ EQUITY (Continued)
Stock Options (continued)
A summary of activity under the LTIP and related information follows:
| | Number of Shares Under Company Option | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Life | | | Aggregate Intrinsic Value | | Balance at December 31, 2010 | | | -0- | | | | | | | | | | | Granted (1) | | | 10,682,218 | | | $ | 0.16 | | | | 7.6 | | | $ | 14,188,484 | | Exercised | | | (92,057 | ) | | $ | 0.19 | | | | | | | | | | Expired | | | -0- | | | | | | | | | | | | | | Cancelled | | | -0- | | | | | | | | | | | | | | Balance at December 31, 2011 | | | 10,590,161 | | | $ | 0.16 | | | | 7.6 | | | $ | 14,067,649 | | Vested and Exercisable at December 31, 2011 | | | 6,581,049 | | | $ | 0.13 | | | | 7.5 | | | $ | 9,038,719 | |
(1) This includes: (i) VitaMed Options granted between October 2008 and December 31, 2010 for an aggregate of 7,639,722 Units of which 16,000 were canceled prior to conversion (or Company Options for 9,357,561 shares per the Conversion Ratio), (ii) VitaMed Options granted between January 1, 2011 and October 3, 2011 for an aggregate of 621,000 Units (or Company Options for 762,235 shares per the Conversion Ratio) and (iii) Company Options granted between October 4, 2011 and December 31, 2011 for an aggregate of 562,422 shares. The terms and conditions of the VitaMed Options were reflected in the replacement Company Options including the number of shares vested.
The weighted-average grant date fair value of Company Options granted during the Warrant(s) grantedyears ended December 31, 2011 and 2010 was $0.19 and $0.09, respectively.
As of December 31, 2011, Company Options outstanding covered an aggregate of 10,590,161 shares with a weighted average contractual life of 7.6 years and exercise prices ranging from $0.10 to $1.22 per share resulting in a weighted average exercise price of $0.16 per share.
The valuation methodology used to determine the fair value of Company Options is the Black-Scholes-Merton option-pricing model (“Black-Scholes Model”), an acceptable model in accordance with ASC 718-10. The Black-Scholes Model requires the use of a number of assumptions including volatility of the stock price, the risk-free interest rate, and the expected life.
The assumptions used in the Black-Scholes-Merton model used to valueBlack-Scholes Model during the 76,075 Warrant(s) listed in the table aboveyears ended December 31, 2011 and 2010 and are set forth in the table belowbelow.
| | 2011 | | 2010 | Risk-free interest rate | | 0.91-2.54% | | 1.27-3.12% | Volatility | | 37.92-40.48% | | 36.34-42.46% | Expected life (in years) | | 5.5-6.25 | | 5-6.25 | Dividend yield | | 0.00% | | 0.00% |
Weighted average fair value of Warrant(s) granted | | $ | 0.30 | | | | | 0.98 | % | Volatility | | | 129.39 | % | Expected life | | | 2 | | Dividend yield | | | 0.00 | % |
F-21
THERAPEUTICSMD, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010 NOTE ED – PROVISION FORSTOCKHOLDERS’ EQUITY (Continued)
Stock Options (continued)
The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the expected life. Estimated volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate each year during the term of the award. The Company’s estimated volatility is an average of the historical volatility of the stock prices of its peer entities whose stock prices were publicly available. The Company’s calculation of estimated volatility is based on historical stock prices over a period equal to the term of the awards. The Company used the historical volatility of peer entities due to the lack of sufficient historical data of its stock price during 2001-2011. The average expected life is based on the contractual term of the option using the simplified method.
Share-based compensation expense for Company Options recognized in our results for the years ended December 31, 2011 and 2010 ($180,087 and $177,601 respectively) is based on awards vested and we estimated no forfeitures. ASC 718-10 requires forfeitures to be estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from the estimates.
At December 31, 2011 and 2010, total unrecognized estimated compensation expense related to non-vested Company Options granted prior to that date was approximately $244,000 and $206,000, respectively, which is expected to be recognized over a weighted-average period of 3.3 years. No tax benefit was realized due to a continued pattern of operating losses.
NOTE E– INCOME TAXES
With the advent of the Merger, Company management determined that VitaMed would become the sole focus of the Company and previous business performed by Therapeutics was discontinued. Because of these events, deferred income taxes are determined by calculating the loss from operations of the Company from October 4, 2011 to December 31, 2011.Deferred income taxes are determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities. Deferred income taxes are measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. As of December 31, 2010,2011, there is no provision for income taxes, current or deferred. AMHN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009
NOTE E – PROVISION FOR INCOME TAXES (Continued)
At December 31, 2010 and 2009, deferred tax assets consist of the following: | | 2010 | | | 2009 | | Net operating losses | | $ | 408,000 | | | $ | 646,000 | | Valuation Allowance | | | (408,000 | ) | | | (646,000 | ) | | | $ | -0- | | | $ | -0- | |
At December 30, 2010,2011, the Company had a net operating loss carry forward of approximately $1,200,000,$2.1 million, available to offset future taxable income through 2030.2031. The Company established valuation allowances equal to the full amount of the deferred tax assets due to the uncertainty of the utilization of the operating losses in future periods.
A reconciliation of the Company’s effective tax rate as a percentage of income before taxes and federal statutory rate for the periods ended December 31, 2010 and 2009 is summarized as follows:
| | 2010 | | | 2009 | | Federal statutory rate | | | (34.0 | )% | | | (34.0 | )% | State income taxes, net of federal benefits | | | 3.3 | | | | 3.3 | | Valuation allowance | | | 30.7 | | | | 30.7 | | | | | 0 | % | | | 0 | % |
In 2010, the deferred tax valuation allowance decreased by $238,000. The realization of the tax benefits is subject to the sufficiency of taxable income in future years. The combined deferred tax assets represent the amounts expected to be realized before expiration. Certain tax losses were lost with the disposal of America’s Minority Health Network.
The Company periodically assesses the likelihood that it will be able to recover its deferred tax assets. The Company considers all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income. NOTE F – COMMITMENTS AND CONTINGENCIES
Service Agreement and License Agreement between Seatac and America’s Minority Health Network
As disclosed previously, America’s Minority Health Network entered into an Installation and Remote Transfer Testing Project Management and Service Agreement (“Service Agreement”) and a License Agreement (“License Agreement”) with Seatac on May 1, 2009 for a period of five (5) years. This Service Agreement and License Agreement were transferred from the Company to Seatac on July 30, 2010 along with the ownership of America’s Minority Health Network. See Note A, THE COMPANY, Discontinued Operations.
Consulting Agreement with Alliance Advisors, LLC
On October 1, 2009, the Company’s Board of Directors approved an Investor Relations Consulting Agreement with Alliance Advisors, LLC (the “Agreement”). The twelve-month Agreement called for cash payments of $5,000 per month for months 1-3, $6,000 per month for months 4-6, and $7,000 per
AMHN,THERAPEUTICSMD, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 20102011 AND 20092010
NOTE E– INCOME TAXES (Continued)
At December 31, 2011, the differences between the actual income tax benefit and the amount computed by applying the statutory federal tax rate (35%) to the loss before taxes are as follows: Expected income tax benefit at statutory rate | | $ | (4,519,678 | ) | Non-deductible expenses: | | | | | Debt settlement | | | 2,586,500 | | VitaMed pre-merger loss | | | 1,164,629 | | Other non-deductible expenses | | | 22,912 | | Change in valuation account | | | 745,637 | | Income tax expense (benefit) | | $ | -0- | |
NOTE F – COMMITMENTS AND CONTINGENCIES (Continued)OTHER CURRENT ASSETS
Consulting Agreement with Alliance Advisors, LLC (Continued)
month for the remaining six (6) months. In addition to the cash payments, the Agreement called for the issuance of 125,000 restricted sharesOther current assets consist of the Company’s Common Stock during the first thirty daysfollowing:
| | December 31, | | | | 2011 | | | 2010 | | Deposits with vendors | | $ | 300,503 | | | $ | -0- | | Prepaid consulting | | | 95,962 | | | | -0- | | Prepaid insurance | | | 52,611 | | | | 6,292 | | Prepaid guaranty costs | | | 46,984 | | | | -0- | | TOTAL OTHER CURRENT ASSETS | | $ | 496,060 | | | $ | 6,292 | |
NOTE G – FIXED ASSETS
Fixed assets consist of the Agreement with an additional 125,000 restricted shares of the Company’s Common Stock after the successful completion of the first six (6) months of service. The Company issued the first 125,000 shares calledfollowing: | | December 31, | | | | 2011 | | | 2010 | | Website | | $ | 91,743 | | | $ | 65,791 | | Equipment | | | 33,651 | | | | 30,837 | | Furniture and fixtures | | | 26,219 | | | | 26,219 | | | | | 151,613 | | | | 122,847 | | Accumulated depreciation | | | (81,500 | ) | | | (26,655 | ) | TOTAL FIXED ASSETS | | $ | 70,113 | | | $ | 96,192 | |
Depreciation expense for in the Agreement on October 20, 2009 and the second 125,000 shares on November 29, 2010. The Agreement expired on September 30, 2010; however, Alliance Advisors, LLC continued to provide services on a month-to-month basis at $5,000 per month through December 31, 2010. For the years ended December 31, 2011 and 2010 was $54,845 and 2009, the Company paid Alliance Advisors, LLC $63,000 and $15,000$22,783, respectively. NOTE G – PROMISSORY NOTES
Secured Promissory Notes to Seatac
At December 31, 2009, the Company had unsecured advances outstanding with Seatac in the amount of $175,138. From time to time thereafter, Seatac provided necessary working capital to the Company in the form of interest-free advances. On April 1, 2010, the Company converted the advances through April 1, 2010 into a Secured Promissory Note secured by its subsidiary, America’s Minority Health Network (the “April 2010 Note”). After defaulting under the payment terms of the April 2010 Note, the Company transferred ownership of America’s Minority Health Network to Seatac in full satisfaction thereof.
As previously reported, the Company acquired 100% of the issued and outstanding shares of Spectrum on June 11, 2010 in exchange for the issuance of an aggregate of 500,000 shares of AMHN’s Common Stock and Spectrum became a wholly owned subsidiary of the Company. Since the closing date of the Spectrum transaction, Seatac advanced approximately $487,532 to the Company specifically to address payables (the “Advances”). To date, the Advances have not been repaid. In order for Seatac to secure a first position for repayment of the Advances, the Company issued a Secured Demand Promissory Note dated December 16, 2010 for repayment of the Advances and any future advances made by Seatac (the “Note”). The Note, together with accrued interest at the annual rate of four percent (4%), is due in one lump sum payment on demand (the “Maturity Date”). If the Company commits any Event of Default (as defined in the Note Purchase Agreement), the interest rate shall be increased to a rate of ten percent (10%) per annum, subject to the limitations of applicable law. The Note Purchase Agreement contains a number of negative covenants with which the Company must comply so long as the Note remains outstanding. Such negative covenants include, but are not limited to, restrictions on the Company’s ability to (i) declare or pay any dividends or to purchase, redeem or otherwise acquire or retire any shares of the Company’s capital stock; (ii) create, incur or assume any lien or other encumbrance (with limited exceptions as set forth in the Note Purchase Agreement); (iii) create, incur or assume (directly or indirectly) any indebtedness (with limited exceptions as set forth in the Note Purchase Agreement); (iv) amend the Company’s Articles of Incorporation or Bylaws; and (vii) enter into any transactions with affiliates. As security for the Company’s obligations under the Note Purchase Agreement and Note, the Company pledged all of the capital stock of Spectrum pursuant to the terms of a Stock Pledge and Escrow Agreement dated December 16, 2010. Repayment of the Note is guaranteed by Spectrum and is secured by a blanket lien encumbering the assets of Spectrum. On December 31, 2010, the Company amended the December 2010 Note to increase the principal amount to $543,531 to include additional advances
AMHN,THERAPEUTICSMD, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 20102011 AND 20092010
NOTE GH – PROMISSORY NOTES (Continued)OTHER ASSETS
Secured Promissory Notes to Seatac (Continued)
made by Seatac from September through November in the aggregate of $56,000, which amount was inadvertently not included in the initial principal amount disclosed. The foregoing descriptionOther assets consist of the Note, the Stock Pledge and Escrow Agreement, and related agreements is qualified, in entirety, by reference to each agreement, copies of which are attached as exhibits to the Current Report on Form 8-K filed on December 22, 2010, which exhibits are incorporated herein by reference.following:
Demand Promissory Note | | December 31, | | | | 2011 | | | 2010 | | Prepaid consulting | | $ | 71,689 | | | $ | -0- | | Prepaid guaranty costs | | | 8,826 | | | | -0- | | TOTAL OTHER ASSETS | | $ | 80,515 | | | $ | -0- | |
NOTE I – NOTES PAYABLE
During 2009, an individuala non-affiliate business consultant (the “Consultant”) provided consulting services to the Company in the amount of $210,000 (the “Debt”). The Debt was to be paid through the issuance of restricted shares and shares issued pursuant to a Form S-8 to be filed by the Company. The Company subsequently determined that it would not file the Form S-8 and instead issued the individualConsultant a demand promissory note for $210,000 dated November 9, 2010 (the “November 2010 Note”) which was subsequently assigned to non-affiliate entities (the “Noteholders”). On April 18, 2011, the Company and the Noteholders agreed that in exchange for the forbearance of the Noteholders not to make demand for repayment of the November 2010 Note for a minimum of sixty (60) days, the Company would (i) cancel the November 2010 Note and (ii) issue two convertible promissory notes to the Noteholders in the principal amount of $105,000 each bearing interest at the rate of six percent (6%) per annum (the “Convertible Notes”). The Convertible Notes were due on demand any time after sixty (60) days from the date of issuance (the “Maturity Date”). At the option of the Noteholders, the Convertible Notes could be converted into shares of the Company’s Common Stock at any time after the Maturity Date at a fixed conversion price of $0.0105 per share. The Conversion Price was not subject to adjustment at any time for any future stock split, stock combination, dividend or distribution of any kind. On October 18, 2011, the Company and the Noteholders entered into Debt Conversion Agreements and converted the principal of the Convertible Notes into 20,000,000 shares of the Company’s Common Stock valued at $7,600,000. The transaction was recorded as debt settlement expense on the accompanying financial statements.
On March 1, 2011, the Company entered into a Demand Promissory Note with the Company’s then majority shareholder wherein the Company could periodically borrow funds to satisfy its operational requirements. Interest accrued at 20% per annum. On October 4, 2011, this Demand Promissory Note plus accrued interest totaling $170,152 was forgiven. The forgiveness of this related party debt was included in additional paid in capital on the accompanying financial statements.
On March 7, 2011, VitaMed entered into a Business Loan Agreement and Promissory Note for $210,000a $300,000 bank line of credit (the “Note”“Bank LOC”) for which the bank required a personal guarantee and cash collateral. Personal guarantees and cash collateral limited to $100,000 each were provided by Robert Finizio and John Milligan, officers of VitaMed, and by Reich Family Limited Partnership, an entity controlled by Mitchell Krassan, also an officer of VitaMed. The Bank LOC accrued interest at the rate of 3.020% per annum based on a year of 360 days and was due on March 1, 2012. The bank and VitaMed negotiated a one-year extension to the Bank LOC which was executed on March 19, 2012 (the “Bank LOC Extension”). The NoteBank LOC Extension accrues interest at the rate of 2.35% and is an unsecured and non-interest bearing. The Note was subsequently assigned to an unaffiliated entity and remains unpaid as ofdue on March 1, 2013. At December 31, 2010 and as2011, the outstanding principle balance of the dateBank LOC was $300,000. In consideration for the personal guarantees and cash collateral, VitaMed issued VitaMed Warrants for an aggregate of this filing. NOTE H – DISCONTINUED OPERATIONS
On July 1, 2010,499,998 Units (or Company Warrants for an aggregate of 613,713 shares pursuant to the terms of the 4% Secured Promissory Note (“April 2010 Note”), Seatac made demand for the aggregated amount of $925,885, including principal of $900,000 and interest through June 30, 2010. On July 11, 2010, Seatac added a one-time late charge equivalent to six percent (6%) of the unpaid amount, or $55,553, bringing the amount payable and past due under the April 2010 Note to $981,438. The Company’s obligation to repay the April 2010 Note is (i) secured by a pledge by the Company of all of the capital stock of the Company’s subsidiaries owned as of or acquired after the date of the April 2010 Note, pursuant to the terms of a Stock Pledge and Escrow Agreement dated April 1, 2010; (ii) guaranteed by the Company’s subsidiary, America’s Minority Health Network pursuant to a Guaranty Agreement dated April 1, 2010; and (iii) secured by a blanket lien encumbering the assets of the Company and the Company’s subsidiaries pursuant to Security Agreements dated April 1, 2010.
Payment of principal, interest and late charges under the April 2010 Note became past due, and as a result of the default, on July 30, 2010, Seatac informed the Company that it intended to exercise its remedies pursuant to which it may accept collateral in satisfaction of the Company’s obligations. More particularly, Seatac stated that it intended to accept the following collateral in full satisfaction of the $981,438 due under the April 2010 Note: (i) all rights, title and interest of AMHN in the 1,000 shares of common stock of America’s Minority Health Network, (ii) all rights, title and interest of AMHN in the mark “America’s Minority Health Network, Inc.” and the goodwill associated with such mark, and (iii) all books and records of America’s Minority Health Network held by AMHN (collectively, the “Collateral”).
Given the Company’s unsuccessful attempts to obtain additional financing or agree to alternative arrangements with Seatac, it agreed and consented to Seatac’s exercise of its remedies under the April 2010 Note and the foreclosure upon the Collateral. As part of the agreement and consent, the Company and its Subsidiaries acknowledged that the Company and its Subsidiaries are in default in payment of principal, interest, and late fees under the April 2010 Note and related loan documents in the aggregate of $981,438, and that the debt is secured by a first priority security interest in all of the assets of the Company and its subsidiaries. Accordingly, on July 30, 2010, the Company and Seatac sent joint
AMHN,THERAPEUTICSMD, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 20102011 AND 2009 2010 NOTE HI – DISCONTINUED OPERATIONSNOTES PAYABLE (Continued)
instructionConversion Ratio). The ten-year Company Warrants vest at the rate of an aggregate of 76,714 shares per calendar quarter end and have an exercise price of $0.2444 per share. In the event that the Bank LOC is repaid prior to being fully vested, the Company Warrants will be reissued only for the number of shares vested through the date of repayment. At March 31, 2012, an aggregate of 306,867 shares will be vested thereunder.
On June 1, 2011, VitaMed sold Promissory Notes (the “VitaMed Promissory Notes”) in the aggregate of $500,000 with accompanying VitaMed Warrants to purchase an aggregate of 500,000 Units (or Company Warrants to purchase an aggregate of 613,718 shares pursuant to the escrow agent, pursuant to whichConversion Ratio). The VitaMed Promissory Notes earn interest at the escrow agent was instructed to transferrate of four percent (4%) per annum and were due at the stock certificate representing allearlier of (i) the six (6) month anniversary of the outstandingdate of issuance and (ii) such time as VitaMed received the proceeds of a promissory note(s) issued in an amount of not less than $1,000,000 (the “Funding”). Upon the closing of the Funding on July 18, 2011, as more fully described in the following paragraph, two of the VitaMed Promissory Notes in the aggregate of $200,000 were paid in full. By mutual agreement, the remaining VitaMed Promissory Notes in the aggregate of $300,000 were extended until the Closing of the Merger. On October 6, 2011, one of the VitaMed Promissory Notes for $50,000 was paid in full. By mutual agreement, VitaMed Promissory Notes in the aggregate of $100,000 were converted into 266,822 shares of America’s Minority Health Network being heldthe Company’s Common Stock at $0.38 per share, which represents fair value of the shares on the date of conversion. Other VitaMed Promissory Notes in escrowthe aggregate of $150,000 were extended to Seatac.March 1, 2012. At December 31, 2011, the outstanding principle balance of the VitaMed Promissory Notes was an aggregate of $150,000. As mentioned hereinafter in FOOTNOTE O – SUBSEQUENT EVENTS, two VitaMed Promissory Notes in the aggregate of $100,000 were further extended to April 14, 2012 and one for $50,000 was further extended to June 1, 1012. The ten-year Company Warrants have an exercise price of $0.4074 per share and none have been exercised.
On July 18, 2011, VitaMed sold two Senior Secured Promissory Notes (the “Secured Notes”) in the amount of $500,000 each and also entered into a trademark assignment with Seatac wherebySecurity Agreement under which VitaMed pledged all of its assets to secure the obligation. The Secured Notes bear interest at the rate of six percent (6%) per annum and are due on the one (1) year anniversary thereof. The Senior Secured Notes bear interest at the rate of six percent (6%) per annum and are due on the one (1) year anniversary of the date thereof. The Company may pay the Senior Secured Notes by delivering such number of shares of the Company’s Common Stock as shall be determined by dividing the outstanding principal then due and owing by the Company’s Share Price. For purposes of the Senior Secured Notes, the “Share Price” shall mean the lower of the most recent price at which the Company transferred all rights, titleoffered and interestsold shares of its Common Stock (not including any shares issued upon the exercise of options and/or warrants or upon the conversion of any convertible securities) or the five-day average closing bid price immediately preceding the date of conversion. At December 31, 2011, the outstanding principle balance of the Secured Notes was $500,000 each.
In September and October 2011, VitaMed sold Convertible Promissory Notes (the “VitaMed Convertible Notes”) in the mark “America’s Minority Health Network, Inc.”aggregate of $534,160. The VitaMed Convertible Notes earned interest at the rate of four percent (4%) per annum and were due December 1, 2011. On November 18, 2011, the Company and the goodwill associated with such mark. The Company’s settlement with Seatac did not includeVitaMed Convertible Noteholders entered into Debt Conversion Agreements and converted the surrenderprincipal and accrued interest of Spectrum or the satisfactionVitaMed Convertible Notes into 1,415,136 shares of a trade payable to Seatac in the amount of $480,465. As a result of this transaction, the Company’s financial statements have been prepared withCommon Stock at $0.38 per share which represents the resultsfair value of operations and cash flowsthe shares on the date of this disposed property shown as discontinued operations. All historical statements have been restated in accordance with GAAP. Summarized financial information for discontinued operations for the years ended December 31, 2010 and 2009 follows:conversion.
| | Balances at | | | | December 31, 2010 | | | December 31, 2009 | | Assets of discontinued operations | | | | | | | Cash | | $ | -0- | | | $ | 41,901 | | Accounts receivable | | | -0- | | | | 10,569 | | Other current assets | | | -0- | | | | 14,237 | | Total current assets | | | -0- | | | | 66,707 | | Fixed assets, net | | | -0- | | | | 382,760 | | Intangible assets, net | | | -0- | | | | 382,333 | | Other assets | | | -0- | | | | 14,800 | | Total non-current assets | | | -0- | | | | 779,893 | | Total assets of discontinued operations | | $ | -0- | | | $ | 846,601 | | | | | | | | | | | Liabilities of discontinued operations | | | | | | | | | Accounts payable | | $ | -0- | | | $ | 138,860 | | Note payable | | | -0- | | | | 600,000 | | Accrued interest | | | -0- | | | | 8,856 | | Other current liabilities | | | -0- | | | | 105,699 | | Total current liabilities | | | -0- | | | | 853,415 | | Total liabilities of discontinued operations | | $ | -0- | | | $ | 853,415 | |
AMHN,THERAPEUTICSMD, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 20102011 AND 2009 2010 NOTE H – DISCONTINUED OPERATIONS (Continued)
| | | | | | | | | December 31, 2010 | | | December 31, 2009 | | Operating revenues | | $ | 60,645 | | | $ | 10,569 | | Operating expenses: | | | | | | | | | Operating costs | | | 81,084 | | | | 43,152 | | General and administration | | | 101,672 | | | | 690,473 | | Sales and marketing | | | 168,545 | | | | 218,421 | | Depreciation and amortization | | | 145,974 | | | | 76,203 | | Total operating expense | | | 497,275 | | | | 1,028,249 | | Other income and (expense) | | | | | | | | | Interest expense | | | (8,531 | ) | | | (8,856 | ) | Total other income and (expense) | | | (8,531 | ) | | | (8,856 | ) | Loss from discontinued operations | | | (445,161 | ) | | | (1,026,536 | ) | Gain on disposal of discontinued operations | | | 259,693 | | | | -0- | | Net loss from discontinued operations | | $ | (185,468 | ) | | $ | (1,026,536 | ) |
The gain on disposal of discontinued operations in 2010 of $259,693 is comprised of: (i) $967,888 from the disposal of assets of the discontinued operations; (ii) $1,167,917 from the disposal of liabilities of the discontinued operations; and (iii) $59,664 representing the forgiveness of debt in exchange for 100% of the issued and outstanding shares of common stock of America’s Minority Health Network.
NOTE I – RELATED PARTIESNOTES PAYABLE (Continued)
During 2010,In November and December, 2011, the Company made payments to certain officers and directors or companies owned by officers and directorssold six-percent Promissory Notes for consulting services (not associatedan aggregate of $800,000 with their directorship) as follows: (i) $48,000 to a director who resigneddue dates of March 1, 2012. At December 31, 2011, the outstanding principle balance of the Promissory Notes was $800,000. As mentioned hereinafter in August 2010; (ii) $26,500 toFOOTNOTE O – SUBSEQUENT EVENTS, these Notes were paid in full on February 24, 2012 through the companyissuance of an officer who resigned in July 2010; (iii); $6,000 to an officers/directors who resigned in July 2010 and (iv) $55,000 to the company of an officer/director. During 2010,Secured Promissory Notes.
In December 2011, the Company purchased content from a minority shareholder totaling $185,000 and atsold four-percent Promissory Notes for an aggregate of $100,000 with due dates of March 1, 2012. At December 31, 2010 owed that shareholder $245,000.2011, the outstanding principle balance of the Promissory Notes was $100,000. As mentioned hereinafter in FOOTNOTE O – SUBSEQUENT EVENTS, these Notes were further extended by mutual agreement to April 14, 2012. During 2009, the Company made payments to certain officers and directors or companies owned by officers and directors for consulting services (not associated with their directorship) as follows: (i) $12,000 to a director; (ii) $12,500 to the company of an officer; (iii) $12,000 to an officers/directors; and (iv) $10,000 to a company owned by an officer/director. During 2009, the Company purchased content from a minority shareholder totaling $410,000 and at December 31, 2009 owed that shareholder $60,000.
NOTE J – CHANGE OF CONTROLOTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
| | December 31, | | | | 2011 | | | 2010 | | Accrued payroll | | $ | 227.477 | | | $ | -0- | | Accrued vacation | | | 68,438 | | | | 24,208 | | Other accrued expenses | | | 128,473 | | | | 90,998 | | Dividends payable(1) | | | 41,359 | | | | -0- | | TOTAL OTHER CURRENT LIABILITIES | | $ | 465,747 | | | $ | 115,206 | |
(1) In June 2008, the Company declared and paid a special dividend of $0.40 per share of common stock to all shareholders of record as of June 10, 2008. This amount reflects moneys remaining unclaimed by the certain shareholders.
NOTE K – RELATED PARTIES
Loan Guaranty
On December 17, 2010,March 7, 2011, VitaMed entered into a Business Loan Agreement and Promissory Note for a $300,000 bank line of credit (the “Bank LOC”) for which the Company experiencedbank required a change in control when shareholders owningpersonal guarantee and cash collateral. Personal guarantees and cash collateral limited to $100,000 each were provided by Robert Finizio and John Milligan, officers of VitaMed, and by Reich Family Limited Partnership, an entity controlled by Mitchell Krassan, also an officer of VitaMed. The Bank LOC accrued interest at the rate of 3.020% per annum based on a year of 360 days and was due on March 1, 2012. The bank and VitaMed negotiated a one-year extension to the Bank LOC which was executed on March 19, 2012 (the “Bank LOC Extension”). The Bank LOC Extension accrues interest at the rate of 2.35% and is due on March 1, 2013. In consideration for the personal guarantees and cash collateral, VitaMed issued VitaMed Warrants for an aggregate of 8,900,898499,998 Units (or Company Warrants for an aggregate of 613,713 shares pursuant to the Conversion Ratio). The ten-year Warrants vest at the rate of an aggregate of 76,714 shares per calendar quarter end and have an exercise price of $0.2444 per share. In the Company’s Common Stock (or 53.7% ofevent that the Company’s 16,575,209 outstanding shares) sold those sharesbank loan is repaid prior to an entity not previously affiliated withbeing fully vested, the Company or its shareholders. Warrants will be reissued only for the number of shares vested through the date of repayment. At March 31, 2012, an aggregate of 306,867 shares will be vested thereunder.
AMHN,THERAPEUTICSMD, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 20102011 AND 20092010
NOTE K – RELATED PARTIES (Continued)
Loans from Affiliates
The VitaMed Promissory Notes for an aggregate of $500,000 (see NOTE I -- NOTES PAYABLE) included an aggregate of $200,000 being issued to certain officers and directors of the Company. John Milligan, President and Director, and Dr. Brian Bernick, Director, were issued VitaMed Promissory Notes for $50,000 each. Reich Family LP, an entity controlled by Mitchell Krassan, Executive Vice President, and Fourth Generation Equity Partners, LLC (“Fourth Generation”), an entity controlled by Nick Segal, a director of VitaMed at the time of the issuance, were issued VitaMed Promissory Notes for $50,000 each. The VitaMed Promissory Notes bear interest at the rate of four percent (4%) per annum. On October 6, 2011, (i) principal and interest of approximately $50,696 under the Note to Reich Family LP was repaid, (ii) principal and interest of approximately $50,696 under the Note to Fourth Generation was converted into 133,411 shares of the Company’s Common Stock at $0.38 per share, and (iii) the due date for the VitaMed Promissory Notes to Mr. Milligan and Dr. Bernick was extended to March 1, 2012. As mentioned hereinafter in FOOTNOTE O – SUBSEQUENT EVENTS, the VitaMed Promissory Notes to Mr. Milligan and Dr. Bernick were further extended by mutual agreement to April 14, 2012.
The 4% Promissory Notes issued in the aggregate of $100,000 (see NOTE I -- NOTES PAYABLE) included one issued to Robert Finizio, Chief Executive Officer and Director, and one issued to John Milligan, President and Director, in the amount of $50,000 each.
Lock Up Agreements
As required by of the Merger Agreement, a Lock Up Agreement (“Agreement”) was entered into between the Company and security holders covering the aggregate of 70,000,000 shares of the Company’s Common Stock issued pursuant to the Merger or reserved for issuance pursuant to Company Options and Company Warrants. Each security holder agreed that from the date of the Agreement until eighteen (18) months thereafter (the “Lock-Up Period”), they would not make or cause any sale of the Company’s securities. After the completion of the Lock-Up Period, the security holder agreed not to sell or dispose of more than 2.5 percent (2.5%) of the aggregate Common Stock or shares reserved for issuance for Company Options and Company Warrants per quarter over the following twelve (12) month period (the “Dribble Out Period”). Upon the completion of the Dribble Out Period, the Agreements shall terminate.
Sales to Related Parties
During 2011 and 2010, the Company sold its products to Dr. Brian Bernick, a director of the Company, in the amounts of $20,669 and $25,269, respectively. At December 31, 2011 and 2010, $0 and $79, respectively, remained outstanding.
Agreements with Pernix Therapeutics, LLC
As previously mentioned the Company closed a Stock Purchase Agreement with Pernix on October 4, 2011. From time to time, the Company has, and will continue to, enter into agreements with Pernix in the normal course of business, which agreements are, and will be negotiated in, arms-length transactions. The President and largest shareholder of Pernix, Cooper C. Collins, was recently elected to serve on the Company’s Board of Directors.
THERAPEUTICSMD, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010 NOTE L - BUSINESS CONCENTRATIONS
The Company purchases its products from several suppliers with approximately 95% and 93% coming from one supplier for the years ended ending December 31, 2011 and 2010, respectively.
NOTE M – COMMITMENTS AND CONTINGENCIES
The Company leases administrative and distribution facilities in Boca Raton, Florida pursuant to a forty-five month non-cancelable operating lease expiring in 2013. The lease stipulates, among other things, base monthly rents of $5,443 plus the Company’s share of monthly estimated operating expenses of $3,500 and sales tax. The lease contains one renewal option for an additional two-year period.
The rental expense related to this lease totaled $106,315 and $116,175 for the years ended December 31, 2011 and 2010.
As of December 31, 2011, future minimum rental payments are as follows:
Years Ending December 31, | | | | 2012 | | $ | 111,725 | | 2013 | | | 56,601 | | 2014 | | | -0- | | 2015 | | | -0- | | Thereafter | | | -0- | | Total | | $ | 168,326 | |
In December 2011, the Company paid approximately $245,000 to a non-affiliated third party for fees related to research and development of new products. The Company believes that it could incur additional related fees up to $950,000 in 2012. SettlementNOTE N – RESTATEMENT OF 2010 AUDITED FINANCIALS
Subsequent to the filing of the Company’s Current Report on Form 8-K, Amendment 3 filed on December 9, 2011, the Company determined that an error was made in certain assumptions used in the Black-Scholes calculation to determine the fair value of options issued from inception through December 31, 2010.
For the year ended December 31, 2010, $363,750 was recorded as non-cash compensation on the audited financial statements of VitaMed. The Company determined that the fair value should have been $177,601, an overstatement of $186,149. The Company is restating sales, general and administration for the year ended December 31, 2010 to include the $186,149 reduction in non-cash compensation expense. THERAPEUTICSMD, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010 NOTE N – RESTATEMENT OF 2010 AUDITED FINANCIALS (Continued) For the period from inception through December 31, 2010, $559,917 was recorded as non-cash compensation on the audited financial statements of VitaMed, of which $196,167 pertains to the period from May 13, 2008 (“Inception”) through December 31, 2009. The Company determined that the fair value should have been $283,530, of which $105,929 pertains to the period from Inception through December 31, 2009, an overstatement of $276,387, of which $90,238 pertains to the period from Inception through December 31, 2009. The Company is restating accumulated deficit for the year ended December 31, 2010 to include the $276,387 reduction for the year ended December 31, 2010 and the $90,238 reduction for the period from Inception through December 31, 2009.
The tables below summarize the impact of the restatements.
| | As of | | | | December 31, 2010 | | | | As Reported | | | As Restated | | | | | | | | | Additional paid in capital | | $ | 537,561 | | | $ | 261,174 | | Accumulated deficit | | $ | (4,356,100 | ) | | $ | (4,079,713 | ) | | | | | | | | | | | | For the Year Ended December 31, 2010 | | | | As Reported | | | As Restated | | | | | | | | | | | Sales, general and administration | | $ | 3,650,959 | | | $ | 3,464,810 | | Total operating expense | | $ | 3,739,144 | | | $ | 3,552,994 | | Operating loss | | $ | (3,053,613 | ) | | $ | (2,867,464 | ) | Net loss | | $ | (3,053,613 | ) | | $ | (2,867,464 | ) |
NOTE O – SUBSEQUENT EVENTS
Formation of New Subsidiary
On January 10, 2012, the Company formed a new wholly owned subsidiary, BocagreenMD, Inc., a Nevada corporation, for the purpose of selling certain of its products to select markets.
Issuance of Promissory Notes
Between January 2012 and February 10, 2012, the Company issued Promissory Notes for an aggregate of $700,000 (the “Notes”). The Notes bore interest at a rate of six (6%) per annum and were due on March 1, 2012. The Notes were repaid on February 24, 2012 through the issuance of Secured Promissory Note to SeatacNotes as outlined below.
THERAPEUTICSMD, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010 NOTE O – SUBSEQUENT EVENTS (Continued)
Issuance of Secured Promissory Notes The Company
On February 24, 2012, TherapeuticsMD, Inc. (the “Company”) sold and Seatac entered into aissued Secured Promissory Notes (the “Notes”) to Steven G. Johnson (“Johnson”) and Plato & Associates, LLC (“Plato”) in the principal base amount of $1,358,014 and $1,357,110 respectively (the “Principal Base Amount(s)”) pursuant to the terms of that certain Note Purchase Agreement (the “Note Purchase Agreement”) of even date therewith. As consideration for the Notes, Johnson and Plato surrendered certain promissory notes previously issued a Secured Demand Promissory Note dated December 16, 2010by the Company in the principalaggregate amount of $487,532 for repayment$858,014 and $857,110 respectively (which sums include principle and interest through February 24, 2011) (collectively known as the “Prior Notes”). As a result of the Advancesforegoing the Company received an aggregate of $1,000,000 of new funding from Johnson and Plato. On March 23, 2012, each of Johnson and Plato loaned the Company an additional $500,000 under the Notes for an aggregate of $1,000,000. The Principal Base Amount of each Note, plus any futureand all additional advances made by Seatacto the Company thereafter (the “Spectrum Note”“Aggregated Principal Amount”), together with accrued interest at the annual rate of six percent (6%), is due in one lump sum payment twenty-four (24) months from the date of issuance of the Notes (the “Maturity Date”). The Spectrum Note was subsequently amended to cover additional advances bringing the total principal amount due under the Spectrum Note to $543,531. As security for the Company’s obligations under the Note Purchase Agreement and Spectrum Note,the Notes, the Company entered into a Security Agreement of even date therewith and pledged all of its assets, tangible and intangible, as further described therein.
As an inducement for the capital stock of Spectrum pursuantPurchasers to lend additional funds to the terms of a Stock PledgeCompany as outlined therein on Schedule I to the Note Purchase Agreement, and Escrow Agreement dated December 16, 2010. Repaymentfor the Purchaser’s leniency to, in essence, extend the maturity date of the Spectrum Note was guaranteed by Spectrum and secured by a blanket lien encumberingPrior Notes for an additional twenty-four month period, the assetsPurchasers, and/or assigns, received Company Warrant(s) to purchase an aggregate of Spectrum. Seatac notified9,000,000 Shares. The Company Warrant(s) shall terminate on the Companydate that it intended to make demand for payment underis five (5) years from the Spectrum Note; however, the Company was unable to pay the Spectrum Note. In an effort to satisfy the Note in full, Seatac and the Company: (i) acknowledged that the Company and Spectrum are unable to pay the aggregated principal and interest of $547,155 due to Seatac under the Spectrum Note which was secured by a first priority security interest in alldate of the assetsissuance of the Notes and shall have an exercise price of $0.38 per share. The Company is currently evaluating and quantifying the affect of the issuance of the Company and Spectrum; (ii) sent joint instruction toWarrants on its financial statements.
Extension and/or Payment of Promissory Notes
As previously mentioned herein, on June 1, 2011, VitaMed Promissory Notes in the escrow agent, pursuant to which the escrow agent transferred the stock certificate representing allaggregate of $500,000. The due date for three of the outstanding shares of Spectrum being held in escrow to Seatac; (iii) entered into a trademark assignment to transfer all rights, title and interestVitaMed Promissory Notes in the mark “Spectrum Health Network, Inc.”aggregate of $150,000 had previously been extended to March 1, 2012. Two of the VitaMed Promissory Notes were further extended to April 14, 2012 and the goodwill associated with that mark;other was further extended to June 1, 2012.
In November and (iv) entered into an Exclusive Licensing, Distribution and Advertising Sales Agreement wherein Seatac and Spectrum licensedDecember, 2011, the Company sold six-percent Promissory Notes for an aggregate of $800,000 with due dates of March 1, 2012. As mentioned hereinabove, these Notes were paid in full on February 24, 2011 through the issuance of Secured Promissory Notes to sell subscriptionsJohnson and Plato.
In December 2011, the Company sold four-percent Promissory Notes for an aggregate of $100,000 with due dates of March 1, 2012. These Notes were further extended by mutual agreement to and advertising spots onApril 14, 2012.
As previously mentioned herein, the Spectrum digital-media network.Bank LOC in the principle amount of $300,000 was extended until March 1, 2013.
THERAPEUTICSMD, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010 NOTE O – SUBSEQUENT EVENTS (Continued)
Approval of 2012 Stock Incentive Plan
On February 23, 2012, the Company’s Board of Directors adopted the 2012 Stock Incentive Plan, a non-qualified plan not requiring approval by the Company’s shareholders (“2012 SOP”). There are 10,000,000 shares authorized for issuance thereunder. No shares have been issued under the 2012 SOP. Potential Acquisition
Election of Additional Directors On February 29, 2012, the Company’s Board of Directors elected four additional individuals to serve as members of its Board of Directors, including: Samuel A. Greco, Cooper Collins, Robert V. LaPenta, Jr. and Nicholas Segal. Issuance of Company Options On February 27, 2012, the Company issued Company Options to Robert G. Finizio and John Milligan, officers and directors of the Company. The ten-year Company Options are for 300,000 shares each and have an exercise price of $2.20 per share. The Company previously disclosed that it was involvedOptions vest in negotiations regardingfull on February 27, 2013. Approval of Committee Charters and Committee Appointments On February 29, 2012, the Company’s Board of Directors (i) approved charters for each of the Audit Committee, Compensation Committee and Corporate Governance Committee, (ii) appointed members to each committee and (iii) named a potential acquisition. At this time,Chair of each committee. Members of the intended potential acquisition is not a viable opportunity; however,Audit Committee include Robert V. LaPenta, Jr., Samuel A. Greco and Nicholas Segal. Mr. LaPenta, Jr. will serve as Chair. Members of the Compensation Committee include Cooper Collins, Robert G. Finizio and Nicholas Segal. Mr. Collins will serve as Chair. Members of the Corporate Governance Committee include John C.K. Milligan, IV, Brian Bernick and Robert LaPenta, Jr. Mr. Milligan will serve as Chair.
Release of First Prescription Product
On March 1, 2012, the Company is continuinglaunched its first prescription prenatal vitamin,vitaMedMD™ Plus Rx,a single-dose product containing one prenatal vitamin tablet and one life’s DHA™ capsule.
Cancelation of Options
Between January 1, 2012 and March 24, 2011, Company Options for an aggregate of 5,000 shares were canceled due to explore potential acquisition candidates. Change in Officers and Directors
In conjunction with the settlementexpiration of the Spectrum Note to Seatac, and immediately after the transferCompany Option or termination of the outstanding shares of Spectrum to Seatac, the Company’s sole officer and director, Robert Cambridge, resigned. Upon his resignation, the majority shareholder owning 53.7% of the Company’s 16,575,209 outstanding shares, elected Jeffrey D. Howes as the Company’s sole officer and director to serve until the next annual meeting of shareholders or until his earlier termination or resignation.employee.
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