Business Context and Reporting Period
This Form 8-K, dated October 4, 2011, reports the completion of a merger between AMHN, Inc. (now renamed TherapeuticsMD, Inc.) and VitaMedMD, LLC. Following the transaction, TherapeuticsMD became the parent company, and VitaMed became its wholly-owned subsidiary. The company changed its name from AMHN, Inc. and executed a 1-for-100 reverse stock split effective October 3, 2011. The primary business focus is now the women's health market, specifically marketing nutritional supplements, medical foods, and OTC products directly to consumers and through physicians.
Key Financial Metrics
The filing provides historical financial data for VitaMedMD, LLC, as the combined entity's financials are not yet consolidated in this report.
| Metric | Six Months Ended June 30, 2011 | Year Ended Dec 31, 2010 | Year Ended Dec 31, 2009 |
|---|---|---|---|
| Net Revenue | $994,159 | $1,241,921 | $221,192 |
| Cost of Revenue | $444,849 | $556,390 | $205,097 |
| Operating Expenses | $2,551,909 | $3,739,144 | $1,304,603 |
| Net Loss | $(2,002,599) | $(3,053,613) | $(1,228,508) |
| Total Assets (as of June 30, 2011) | $1,152,879 | $1,197,253 (Dec 31, 2010) | $585,404 (Dec 31, 2009) |
| Total Liabilities (as of June 30, 2011) | $1,011,805 | $232,842 (Dec 31, 2010) | $101,774 (Dec 31, 2009) |
| Cash and Cash Equivalents (as of June 30, 2011) | $78,255 | $422,939 (Dec 31, 2010) | N/A |
Liquidity and Debt: As of June 30, 2011, working capital was negative at $(10,609). The company has incurred significant debt, including $500,000 in Senior Secured Promissory Notes (6% interest) and $530,160 in Convertible Promissory Notes (4% interest, convertible at $0.38/share). Management estimates a need for approximately $5 million in additional funding over the next 12 months.
Material Changes vs. Prior Period
- Revenue Growth: Net revenue for the six months ended June 30, 2011, increased by $526,031 (112%) compared to the same period in 2010, driven by product line expansion and increased sales.
- Expense Increase: Operating expenses rose by approximately $942,000 year-over-year for the six-month period. This was primarily due to increased salaries and commissions ($482,000), professional fees related to the merger ($122,000), and marketing expenses ($278,000).
- Net Loss Expansion: Despite revenue growth, the net loss increased by $716,676 to $(2,002,599) for the six months ended June 30, 2011, compared to $(1,285,923) in the prior year period.
- Capital Structure: The company executed a 1-for-100 reverse stock split and issued 58,407,331 shares of common stock to VitaMed members, resulting in a change of control where VitaMed members now own approximately 99% of the company.
Guidance, Outlook, and Risks
Outlook: Management does not anticipate profitable operations until late 2013. The company plans to expand its sales force from 27 to over 60 representatives and intends to introduce new medical food prescription products by the third quarter of 2012. The business model relies on the "OPERA" technology platform to improve patient compliance and data collection.
Risks and Contingencies:
- Going Concern: The filing explicitly states that cash flow deficiencies raise substantial doubt about the company's ability to continue as a going concern without additional financing.
- Regulatory: The company is subject to FDA and FTC regulations regarding dietary supplements and medical foods. There is a risk of enforcement actions regarding labeling claims or manufacturing practices.
- Third-Party Dependence: Over 90% of manufacturing is outsourced to Lang Naturals, Inc. Disruption in this relationship could halt production.
- Stock Liquidity: The stock is traded on the OTC Bulletin Board and is subject to "penny stock" rules, which may limit liquidity. Approximately 99% of outstanding shares are subject to an 18-month lock-up agreement.
Key Facts for Investor Verification
- Capital Needs: Verify the company's ability to raise the estimated $5 million required for operations over the next 12 months, given the negative working capital and history of losses.
- Debt Obligations: Confirm the status of the $500,000 Senior Secured Notes and $530,160 Convertible Notes, including interest rates and conversion terms ($0.38/share).
- Revenue Sustainability: Assess whether the 112% revenue growth in the first half of 2011 is sustainable given the significant increase in operating expenses.
- Lock-Up Expiration: Note that 99% of shares are locked up for 18 months; monitor for potential selling pressure upon expiration.
- Manufacturing Concentration: Verify the stability of the relationship with Lang Naturals, Inc., which manufactures over 90% of the product line.