TherapeuticsMD, Inc. (AMHN, Inc.) — Form 10-Q summary
Issuer and period: This filing is for AMHN, Inc. for the quarter and six months ended June 30, 2011. It is not yet filed under the TherapeuticsMD, Inc. name; the company described a planned name change in connection with a proposed VitaMed merger.
Business context and reporting period
AMHN had no revenue from continuing operations in the quarter or first half of 2011. After defaulting on secured debt, it transferred Spectrum Health Network to its lender in February 2011, while retaining a three-year renewable agreement to sell Spectrum network subscriptions and advertising in the southeastern United States. AMHN may receive up to 30% of related fees. The company had also previously surrendered America's Minority Health Network.
Financial results and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Continuing-operations revenue | $0 in 2011 and 2010 | $0 in 2011 and 2010 |
| General and administrative expense | $58,602 in 2011; $66,696 in 2010 | $100,339 in 2011; $196,710 in 2010 |
| Continuing-operations loss | $57,072 in 2011; $75,195 in 2010 | $102,704 in 2011; $205,209 in 2010 |
| Net income (loss) | $(57,072) in 2011; $(269,087) in 2010 | $556,373 in 2011; $(616,479) in 2010 |
The six-month 2011 net income includes a $705,668 gain on disposal of discontinued operations, partly offset by a $46,591 discontinued-operations loss; it does not indicate profitable continuing operations. Second-quarter results were also affected by discontinued operations in the prior-year comparison.
At June 30, cash was $3,456, current assets $5,453, current liabilities $356,631, and stockholders’ deficit $351,178. The working-capital deficit was $351,178. The balance sheet lists a $99,000 secured promissory note, $210,000 in demand promissory notes, $41,359 dividends payable, and $3,772 accrued interest. The filing describes the $99,000 as borrowing under a 20%-interest demand note from the majority shareholder; the differing balance-sheet label should be checked. Six-month operating cash use was $146,953; financing provided $99,000, and discontinued operations provided $50,164. Cash increased $2,211 to $3,456. Interest paid was $18.
Gross margin and other meaningful operating margins are not available because continuing operations reported no revenue.
Changes, outlook, and risks
- G&A declined year over year, which management attributed mainly to ending investor- and public-relations consulting arrangements; second-quarter legal and audit costs partly offset the reduction.
- The first-half net-income swing was driven principally by the disposal gain, not recurring operations. Spectrum generated a $46,591 loss before transfer to Seatac.
- Management said the company expects losses as it expands, needs additional capital, and may rely on shareholder funding. The filing states these conditions raise substantial doubt about the company’s ability to continue as a going concern.
- After quarter-end, AMHN signed a merger agreement to acquire VitaMed, with closing expected on or about September 7, 2011, subject to required corporate actions. The plan included a 1-for-100 reverse split, a name change to TherapeuticsMD, increased authorized common shares, and an expanded incentive plan. The filing estimated approximately 58.9 million shares outstanding after closing, with VitaMed owners holding approximately 99%; units, options, and warrants were to be exchanged for shares or purchase rights totaling 70 million in aggregate.
- Two $105,000 convertible notes remained unpaid at filing. They bear 6% interest, can be demanded after the initial 60-day forbearance period, and are convertible at $0.0105 per share, subject to anti-dilution provisions.
- The sole officer concluded disclosure controls and procedures were not effective. Management reported no significant changes in internal controls during the six-month period. No legal proceedings were reported.
Important facts for investors to verify
- Whether the VitaMed merger closed, the final terms and share count, and the effects of the reverse split and potential dilution.
- How the company will fund operations given its $3,456 cash balance, large working-capital deficit, and going-concern uncertainty.
- The status, maturity, conversion terms, and classification of the $99,000 shareholder note and $210,000 convertible notes.
- Whether the Spectrum sales license produces meaningful revenue and whether continuing operations can become profitable.
- The source statements and classifications underlying reported cash flows and the $705,668 disposal gain.