Targeted Medical Pharma, Inc. - FORM 8-K/A - EX-99.1

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8-K/A - Targeted Medical Pharma, Inc.	v218613_8ka.htm

TARGETED MEDICAL PHARMA, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010

CONTENTS

		PAGE

Report of Registered Public Accounting Firm		2

Consolidated Balance Sheets		3

Consolidated Statements of Income		4

Consolidated Statements of Shareholders' Equity		5

Consolidated Statements of Cash Flows		6

Notes to Consolidated Financial Statements		7

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Targeted Medical Pharma, Inc.

We have audited the accompanying consolidated balance sheets of Targeted Medical Pharma, Inc. as of December 31, 2010 and 2009, and the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows for each of the years in the two-year period ended December 31, 2010. Targeted Medical Pharma, Inc.’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits 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 audits provide 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 Targeted Medical Pharma, Inc. as of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 15 to the consolidated financial statements, the Company restated its revenue recognition policy to properly reflect discounts given as rapid pay discounts and not industry chargebacks. There was no effect on assets, liabilities, or net income as of and for the year ended December 31, 2009.

/s/ EFP Rotenberg LLP

EFP Rotenberg, LLP

Rochester, New York

April 14, 2011

Page 2 of 22

TARGETED MEDICAL PHARMA, INC.

CONSOLIDATED BALANCE SHEETS

December 31, 2010 and 2009

	2010		2009

ASSETS

Current Assets:
Cash and Cash Equivalents	$	795,914	$	321,216
Investments		244,416		541,280
Inventory		365,350		352,886
Accounts Receivable - Net of Allowance for Doubtful Accounts		20,359,682		10,557,175
Loans Receivable - Employees		29,738		123,437
Prepaid Expenses - Short Term		113,691		309,563
Deferred Tax Asset		309,892		274,101
Total Current Assets		22,218,683		12,479,658
Long Term Accounts Receivable		2,512,426		1,230,000
Property and Equipment - Net of Accumulated Depreciation		535,488		515,341
Intangible Assets - Net of Accumulated Amortization		2,201,690		1,843,339
Prepaid Expenses - Long Term		202,073		86,314
Other Assets		26,000		26,000
Total Assets	$	27,696,360	$	16,180,652

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
Accounts Payable and Accrued Expenses	$	1,558,814	$	410,047
Note Payable		300,000		-
Taxes Payable		5,054,635		76,199
Deferred Tax Liability - Current		1,287,776		-
Total Current Liabilities		8,201,225		486,246
Deferred Income Taxes		2,595,975		4,742,201
Total Liabilities		10,797,200		5,228,447

Shareholders' Equity:
Preferred stock, $0.001 par value; 20,000,000 shares
authorized, no shares issued and outstanding		-		-
Common stock, $0.001 par value; 100,000,000 shares
authorized, 18,308,576 and 18,313,455 shares issued and
outstanding at December 31, 2010 and 2009, respectively		18,309		18,314
Additional Paid-In Capital		3,191,314		3,057,804
Retained Earnings		13,686,328		7,878,067
Accumulated Other Comprehensive Income (Loss)		3,209		(1,980	)
Total Shareholders' Equity		16,899,160		10,952,205
Total Liabilities and Shareholders' Equity	$	27,696,360	$	16,180,652

The accompanying notes are an itergral part of these financial statements.

Page 3 of 22

TARGETED MEDICAL PHARMA, INC.

CONSOLIDATED STATEMENTS OF INCOME

Years ended December 31, 2010 and 2009

	2010			2009
Revenues:
Product Sales	$	18,037,273		$	11,494,141
Service Revenue		1,078,166			705,074
Total Revenue		19,115,439			12,199,215

Cost of Product Sold		1,228,722			1,257,727
Cost of Services Sold		1,343,770			208,541
Total Cost of Sales		2,572,492			1,466,268

Total Gross Profit		16,542,947			10,732,947

Operating Expenses:
Research and Development		320,106			21,599
Selling		420,545			163,743
Compensation		3,434,081			2,973,612
General and Administrative		3,005,332			1,815,289
Total Operating Expenses		7,180,064			4,974,243

Net Income before Other Income		9,362,883			5,758,704
Other Income
Investment Income		3,970			7,180
Grant Income		733,439			-
Total Other Income		737,409			7,180

Net Income before Taxes		10,100,292			5,765,884
Deferred Income Tax Expense (Benefit)		(894,221	)		1,742,500
Income Taxes		5,186,252			40,505
Net Income before Comprehensive Income		5,808,261			3,982,879
Unrealized Gain or (Loss) on Investments		1,530			(1,980	)
Reclassification for losses included in Net Income		3,659			-
Comprehensive Income	$	5,813,450		$	3,980,899

Basic Earnings Per Share	$	0.32		$	0.22
Diluted Earnings Per Share	$	0.31		$	0.21
Basic Weighted Average Number of Common Shares Outstanding		18,301,485			18,313,455
Diluted Weighted Average Number of Common Shares Outstanding		18,493,173			18,588,532

The accompanying notes are an integral part of these financial statements.

Page 4 of 22

TARGETED MEDICAL PHARMA, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Years ending December 31, 2010 and 2009

	Number of Shares of Common Stock			Amount			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total

Balance - January 1, 2009 (1)		18,313,455		$	18,314		$	3,030,969	$	3,895,188	$	-		$	6,944,471
Stock Option Expense		-			-			26,835		-		-			26,835
Net Income		-			-			-		3,982,879		-			3,982,879
Unrealized Loss on Investments		-			-			-		-		(1,980	)		(1,980	)
Balance - December 31, 2009		18,313,455			18,314			3,057,804		7,878,067		(1,980	)		10,952,205
Stock Issued for Services		14,789			15			49,985		-		-			50,000
Shares Retired		(19,668	)		(20	)		20		-		-			-
Stock Option Expense		-			-			83,505		-		-			83,505
Net Income		-			-			-		5,808,261		-			5,808,261
Unrealized Gain on Investments		-			-			-		-		5,189			5,189
Balance - December 31, 2010		18,308,576		$	18,309		$	3,191,314	$	13,686,328	$	3,209		$	16,899,160

(1) The stockholders' equity has been recapitalized to give effect to the shares exchanged by existing shareholders pursuant to the merger agreement dated January 31, 2011, more fully discussed in the Subsequent Events footnote to these financial statements.

The accompanying notes are an integral part of these financial statements.

Page 5 of 22

TARGETED MEDICAL PHARMA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOW

Years ended December 31, 2010 and 2009

	2010			2009
Cash Flows from Operating Activities:
Net Income	$	5,808,261		$	3,982,879
Adjustments:
Depreciation and Amortization		328,257			121,038
Stock Option Compensation		83,505			26,835
Stock Issued for Services		50,000			-
Deferred Income Taxes		(894,221	)		1,742,500
Bad Debts Expense		518,470
Changes:
Accounts Receivable		(11,603,403	)		(4,975,840	)
Inventory		(12,464	)		175,032
Prepaid Taxes		-			357,603
Prepaid Expenses		80,113			(244,015	)
Loans Receivable - Employees		93,699			(98,021	)
Deferred Tax Asset		(35,791	)
Other Assets		-			(25,000	)
Accounts Payable and Accrued Expenses		1,148,767			(248,673	)
Taxes Payable		4,978,436			76,199
Deferred Tax Liability		35,771
Net Cash Flows from Operating Activities		579,400			890,537

Cash Flows from Investing Activities:
Net Sales or (Purchases) of Investments		302,053			(543,260	)
Acquisition of Intangible Assets		(510,188	)		(381,747	)
Purchases of Property and Equipment		(196,567	)		(456,995	)
Net Cash Flows from Investing Activities		(404,702	)		(1,382,002	)

Cash Flows from Financing Activities
Proceeds from Notes Payable		300,000			-
Net Cash Flows from Financing Activities		300,000			-

Net Change in Cash and Cash Equivalents		474,698			(491,465	)
Cash and Cash Equivalents - Beginning of Year		321,216			812,681
Cash and Cash Equivalents - End of Year	$	795,914		$	321,216

Supplemental Disclosure of Cash Flow Information
Interest Paid		-		$	296
Income Taxes Paid (Refunded)	$	150,000		$	(393,377	)
Non-Cash Investing and Financing Activities
Receipt of internet domain name for in exchange for Accounts Receivable		-		$	1,301,568

The accompanying notes are an integral part of these financial statements.

Page 6 of 22

Notes to Consolidated Financial Statements

December 31, 2010 and 2009

Note 1: Business Activity

TARGETED MEDICAL PHARMA, INC. (“Company”), also doing business as Physician Therapeutics (“PTL”), is a specialty pharmaceutical company that develops and commercializes nutrient- and pharmaceutical-based therapeutic systems. The Company also does business as Laboratory Industry Services (“LIS”), which is a facility for the performance of diagnostic testing. On July 30, 2007, the Company formed the wholly owned subsidiary, Complete Claims Processing, Inc. ("CCPI"), which provides billing and collection services on behalf of physicians for claims to insurance companies, governmental agencies and other medical payors.

Segment Information:

The Company had revenue outside of the United States of $191,757 for the year ended December 31, 2010 and $211,855 for the year ended December 31, 2009. The Company’s operations are organized into two reportable segments: TMP and CCPI.

TMP: This segment includes PTL and LIS as described above. This segment develops and distributes nutrient based therapeutic products and distributes pharmacy products from other manufacturers through employed sales representatives and distributors. TMP also performs the administrative, regulatory compliance, sales and marketing functions of the corporation, owns the corporation’s intellectual property and is responsible for research and development relating to medical food products and the development of software used for the dispensation and billing of medical foods, generic and branded products. The TMP segment also manages contracts and chargebacks.

·	CCPI: This segment provides point-of-care dispensing solutions and billing and collections services. It is responsible for the research and development of billing software and methodologies and the customization of hardware that supports dispensing, billing and collection operations.

Segment Information for the year ending December 31, 2010	Total		TMP		CCPI
Gross Sales	$	19,115,439	$	18,037,273	$	1,078,166
Gross Profit		16,542,947		16,808,551		(265,604	)
Net Income and Comprehensive Income		5,813,450		6,124,524		(311,074	)

Total Assets		23,521,638		24,194,180		(672,541	)
Less: Eliminations		4,174,721		3,397,305		777,416
Net Total Assets	$	27,696,360	$	27,591,485	$	104,875

Page 7 of 22

Segment Information for the year ending December 31, 2009	Total		TMP		CCPI
Gross Sales	$	12,199,215	$	11,494,141	$	705,074
Gross Profit		10,732,947		10,236,414		496,533
Net Income and Comprehensive Income		3,980,899		3,773,226		207,673

Total Assets		11,587,367		12,601,885		(1,014,518	)
Less: Eliminations		4,593,285		3,583,109		1,010,176
Net Total Assets	$	16,180,652	$	16,184,994	$	(4,342	)

Note 2: Summary of Significant Accounting Policies

Principles of consolidation: The consolidated financial statements include accounts of TMP and its wholly owned subsidiary, CCPI, collectively referred to as "the Company". All significant intercompany accounts and transactions have been eliminated in consolidation. In addition, TMP and CCPI share the common operating facility, certain employees and various costs. Such expenses are principally paid by TMP. Due to the nature of the parent and subsidiary relationship, the individual financial position and operating results of TMP and CCPI may be different from those that would have been obtained if they were autonomous.

Accounting estimates: The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash Equivalents: The Company considers all highly liquid investments purchased with an original or remaining maturity of three months or less when purchased to be cash equivalents. The recorded carrying amounts of the Company’s cash and cash equivalents approximate their fair market value.

Considerations of credit risk: Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. The Company maintains its cash balances at high credit quality financial institutions. The balances, at times, may exceed federally insured limits.

As of December 31, 2010, two customers constituted 31% (a practice with ten physicians) and 19%, respectively of our outstanding accounts receivable. As of December 31, 2009 two customers constituted 31% and 19%, respectively of our outstanding accounts receivable.

Revenue Recognition:

TMP markets medical foods and generic and branded pharmaceuticals through employed sales representatives, independent distributors and pharmacies. Product sales are invoiced upon shipment at Average Wholesale Price (“AWP”), which is a commonly used term in the industry, with varying rapid pay discounts, under four models:

Direct sales to physicians: TMP invoices the physician upon shipment to the physician under terms which allow a significant rapid pay discount for payment within discount terms in accordance with the product purchase agreement. The physicians dispense the product and perform their own claims processing and collections. TMP recognizes revenue under this model on the date of shipment at the gross invoice amount less the anticipated rapid pay discount offered in the product purchase agreement. The physician is responsible for payment directly to TMP.

Page 8 of 22

Direct sales to distributors: TMP invoices distributors upon shipment to distributors and physician clients of distributors under terms which allow a significant rapid pay discount for payment within discount terms in accordance with the product purchase agreement. The distributor markets the products to physicians. TMP recognizes revenue under this model on the date of shipment at the gross invoice amount less the anticipated rapid pay discount offered in the product purchase agreement.

Physician managed model: TMP invoices physician upon shipment to physician under terms which allow a significant rapid pay discount for payment received within terms in accordance with the product purchase agreement which includes a security interest for TMP in the products and receivables generated by the dispensing of the products. TMP recognizes revenue under this model on the date of shipment at the gross invoice amount less the anticipated rapid pay discount offered in the product purchase agreement. The physician also executes a billing and claims processing services agreement with CCPI for billing and collection services (discussed below). CCPI submits a claim for reimbursement on behalf of the physician client. The CCPI fee and product invoice amount are deducted from the reimbursement received by CCPI on behalf of the physician client before the reimbursement is forwarded to the physician client. In the event the physician fails to pay the product invoice within the agreed term, we can deduct the payment due from any of the reimbursements received by us on behalf of the physician client as a result of the security interest we obtained in the products we sold to the physician client and the receivables generated by selling the products in accordance with our agreement.

Hybrid model: TMP invoices distributors upon shipment under terms which allow a significant rapid pay discount for payment received within terms in accordance with the product purchase agreements. TMP recognizes revenue under this model on the date of shipment at the gross invoice amount less the anticipated rapid pay discount offered in the product purchase agreement. Distributors sell the products to physicians and collect the purchase price from the physician client directly. The physician client of the distributor executes a billing and claims processing services agreement with CCPI for billing and collection services (discussed below). The CCPI fee is deducted from the reimbursement received by CPPI on behalf of the physician client before the reimbursement is forwarded to the physician client.

CCPI receives no revenue in the physician direct or distributor direct models because it does not provide collection and billing services to the physician clients.

In the managed physician model and in the hybrid model, CCPI has a billing and claims processing service agreement with the physician. That agreement includes a service fee defined as a percentage of collections on all claims plus all or a portion of any penalties and interest collected. CCPI prepares the claim on behalf of the physician and administers the claim through collection. Collections from commercial insurers generally occur within 90 days. While ultimate collectability of workers’ compensation claims is very high, most workers’ compensation claims are denied on first claim attempt and can take from 45 days to four years to collect. The initial denial begins a process of correspondence designed to clear denial objections, submission of workers’ compensation lien filings against insurer settlements on behalf of physicians and settlement hearings. Because fees are only earned by CCPI upon collection of the claim and the fee is not determinable until the amount of the collection of the claim is known, CCPI recognizes revenue at the time that collections are received.

The impact of this extended collection cycle on CCPI is that revenue and receipt of revenue are delayed until collection of the claims on behalf of the physician. This has a direct impact on CCPI’s revenue and cash flow because CCPI’s revenue is recognized upon receipt of the claims collection on behalf of the physician. The long collection cycle does not directly impact TMP’s revenue from the sale of products because TMP recognizes revenue upon shipment to the physician clients and the physician client is obligated to pay the purchase price for the products within the prescribed terms whether or not the physician client has received reimbursement for the claims submitted. It does, however, impact the cash flow for TMP since most physician invoices are paid from the proceeds of claims managed on behalf of the physicians. The result is that invoices due from the physicians to TMP can have a long collection cycle even though revenue is recognized upon shipment of product.

No returns of products are allowed except products damaged in shipment, which has been insignificant.

Page 9 of 22

The rapid pay discounts to the AWP offered to the physician or distributor, under the models described above, vary based upon the expected payment term from the physician or distributor. The discounts are derived from the Company’s historical experience of the collection rates from internal sources and updated for facts and circumstances and known trends and conditions in the industry, as appropriate. As described in the models above, we recognize provisions for rapid pay discounts in the same period in which the related revenue is recorded. We believe that our current provisions appropriately reflect our exposure for rapid pay discounts. These rapid pay discounts, have typically ranged from 40% to 83% of Average Wholesale Price and we have monitored our experience ratio periodically over the prior twelve months and have made adjustments as appropriate.

Allowance for doubtful accounts: Under the direct sales to physician, direct sales to distributor and hybrid models, product is sold under terms that allow substantial discounts (40-83%) for payment within terms. With such substantial discounts, it is rare that an invoice is not paid within terms and no allowance is calculated because they are booked at the discounted amount in accounts receivable and revenue. Under the Company’s physician managed model and hybrid model, CCPI performs billing and collection services on behalf of the physician client and deducts the CCPI fee and product invoice amount from the reimbursement received by CCPI on behalf of the physician client before the reimbursement is forwarded to the physician client . Extended collection periods are typical in the workers compensation industry with payment terms extending from 45 days up to four years. The physician remains personally liable for purchases of product from TMP and, during this long collection cycle, TMP retains a security interest in all products sold to the physician along with the claims receivable that result from sales of the products. CCPI maintains an accounting of all managed accounts receivable on behalf of the physician and regularly reports to the physician. Bad debts are recognized on the allowance method based on historical experience, contractual payment terms and management's evaluation of outstanding accounts receivable. Included in this analysis is a comparison of the total amount of all invoices due from the physician to TMP for products purchased to all outstanding claims in the managed accounts receivable on behalf of the physician. To the extent that the amount due from the physician to TMP for product purchases exceeds the expected collectible value of outstanding claims in the managed accounts receivable, management takes additional measures including withholding additional amounts due from monthly residual payments to physicians under the billing and collection services agreement. To the extent that these efforts are unsuccessful, the Company may seek legal action for payment directly from the physician under the contract, although the Company has not yet pursued this type of action.

In addition to the bad debt recognition policy above, it is also TMP’s policy to write down uncollectible loans and trade receivables when the payor is no longer in existence, is in bankruptcy or is otherwise insolvent. In such instances our policy is to reduce accounts receivable by the uncollectible amount and to proportionally reduce the allowance for doubtful accounts.

Inventory valuation: Inventory is valued at the lower of cost (first in, first out) or market and consists primarily of finished goods.

Property and equipment: Property and equipment are stated at cost. Depreciation is provided for by the straight line method over the estimated useful lives of the related assets. Computer equipment is amortized over three to five years. Furniture and fixtures are depreciated over five to seven years. Leasehold improvements are amortized over the shorter of fifteen years or term of the applicable property lease. Maintenance and repairs are expensed as incurred; major renewals and betterments that extend the useful lives of property and equipment are capitalized. When property and equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is recognized. Amenities are capitalized as leasehold improvements.

Impairment of long-lived assets: The long-lived assets held and used by the Company are reviewed for impairment no less frequently than annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the event that facts and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability is performed. No asset impairment was recorded at December 31, 2010 or at December 31, 2009.

Page 10 of 22

Intangible assets: Indefinite lived intangible assets are measured for impairment at least annually, and more often when events indicate that an impairment may exist. Intangible assets with finite lives, including patents and internally developed software (primarily the Company’s PDRx Software), are stated at cost and are amortized over their useful lives. Patents are amortized on a straight line basis over their statutory lives, usually fifteen to twenty years. Internally developed software is amortized over three to five years. Intangible assets with indefinite lives are tested annually for impairment, during the fiscal fourth quarter and between annual periods, if impairment indicators exist, and are written down to fair value as required.

On June 18, 2009, TMP entered into a settlement with one if its distributors on its accounts receivable of $1,301,000. Pursuant to the agreement, the distributor agreed to: (1) sell all domain names and assets associated with the website, medicalfoods.com to TMP, and (2) surrender to TMP its entire PTL physician client list, except four individual PTL active physician groups, and waive all rights associated with its PTL physical client list. The client list had no value since most of the clients had become PLT clients already. The value of the domain name was based on the fair value of the asset exchanged.

Fair value of financial instruments: The Company’s financial instruments are accounts receivable and accounts payable. The recorded values of accounts receivable and accounts payable approximate their values based on their short term nature.

Income taxes: The Company determines its income taxes under the asset and liability method. Under the asset and liability approach, deferred income tax assets and liabilities are calculated and recorded based upon the future tax consequences of temporary differences by applying enacted statutory tax rates applicable to future periods for differences between the financial statements carrying amounts and the tax basis of existing assets and liabilities. Generally, deferred income taxes are classified as current or non-current in accordance with the classification of the related asset or liability. Those not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. Valuation allowances are provided for significant deferred income tax assets when it is more likely than not that some or all of the deferred tax assets will not be realized.

The Company recognizes tax liabilities by prescribing a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized, and also provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. To the extent that the final tax outcome of these matters is different than the amount recorded, such differences impact income tax expense in the period in which such determination is made. Interest and penalties, if any, related to accrued liabilities for potential tax assessments are included in income tax expense.

Stock-Based Compensation: The Company accounts for stock option awards in accordance with ASC 718. Under ASC 718, compensation expense related to stock-based payments is recorded over the requisite service period based on the grant date fair value of the awards. Compensation previously recorded for unvested stock options that are forfeited is reversed upon forfeiture. The Company uses the Black-Scholes option pricing model for determining the estimated fair value for stock-based awards. The Black-Scholes model requires the use of assumptions which determine the fair value of stock-based awards, including the option’s expected term and the price volatility of the underlying stock.

Page 11 of 22

The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of ASC 505-50. Accordingly, the measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.

Income Per Share: The Company utilizes ASC 260, “Earnings per Share”. Basic income (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares outstanding. Diluted income (loss) per share is computed similar to basic income (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Common equivalent shares are excluded from the computation if their effect is anti-dilutive.

The following potential common shares have been excluded from the computation of diluted net income (loss) per share for the periods presented where the effect would have been anti-dilutive:

At December 31,		2010				2009
Options outstanding			291,347				0

Research and development: Research and development costs are expensed as incurred. In instances where we enter into agreements with third parties for research and development activities we may prepay fees for services at the initiation of the contract. We record the prepayment as a prepaid asset and amortize the asset into research and development expense over the period of time the contracted research and development services are performed. Most contract research agreements include a ten year records retention and maintenance requirement. Typically, we expense 50% of the contract amount within the first two years of the contract and 50% over the remainder of the record retention requirements under the contract based on our experience on how long the clinical trial service is provided.

Reclassification

Certain accounts in the prior-year financial statements have been reclassified for comparative purposes to conform with the presentation in the current-year financial statements.

Note 3: Net Property and Equipment

Net Property and Equipment for the year ending December 31,	2010			2009

Computer Equipment	$	547,642		$	370,725
Furniture and Fixtures		215,794			204,094
Leasehold Improvements		212,480			204,530
Total, at cost	$	975,916		$	779,349
Accumulated Depreciation and Amortization		(440,428	)		(264,008	)
Total Property and Equipment	$	535,488		$	515,341

Depreciation expense for the years ended December 31, 2010 and 2009 was $176,420 and $69,322, respectively. Depreciation included in Cost of Services for the years ended December 31, 2010 and 2009 was $88,310 and $34,661. No depreciation is recorded in Cost of Product Sales since all production for TMP is outsourced to a third party and stored at an outsourced facility. All TMP depreciation is recorded as part of general and administrative expenses.

Page 12 of 22

Note 4: Stock Based Compensation

For the years ended December 31, 2010 and 2009, the Company recorded compensation costs for options amounting to $83,505 and $26,835, respectively. A deduction is not allowed for income tax purposes until nonqualified options are exercised. The amount of this deduction will be the difference between the fair value of the Company’s common stock and the exercise price at the date of exercise. Accordingly, there is a deferred tax asset recorded for the tax effect of the financial statement expense recorded. The tax effect of the income tax deduction in excess of the financial statement expense, if any, will be recorded as an increase to additional paid-in capital. No tax deduction is allowed for incentive stock options (ISO). Accordingly no deferred tax asset is recorded for GAAP expense related to these options.

Management has valued the options at their date of grant utilizing the Black Scholes option pricing model. As of the issuance of these financial statements, there was not a public market for the Company shares. Accordingly, the fair value of the underlying shares was determined based on the historical volatility data of similar companies, considering the industry, products and market capitalization of such other entities. The risk-free interest rate used in the calculations is based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the expected life of the options depending on the date of the grant and expected life of the options. The expected life of the options used was based on the contractual life of the option granted. Stock-based compensation is a non-cash expense because we settle these obligations by issuing shares of our common stock from our authorized shares instead of settling such obligations with cash payments.

The fair value of options granted in 2010 was determined using the following assumptions:

The volatility factor of 27% was based on similar companies;

The expected term was 6.5 years based on one-half of the average of the vesting term and the ten year expiration of the option grant;

A dividend rate of zero; and

The risk free rate was the treasury rate with a maturity of the expected term (3.14%).

The following table summarizes the status of the Company’s aggregate stock options granted:

	Number of Shares Remaining Options		Weighted Average Exercise Price
Outstanding at January 1, 2009 (1)		275,077		0.77
Options granted during 2009		0
Options exercised during 2009		0
Options forfeited during 2009		0
Outstanding at December 31, 2009		275,077		0.77
Exercisable at December 31, 2009		275,077		0.77

Outstanding at January 1, 2010		275,077		0.77
Options granted during 2010		291,347		3.38
Options exercised during 2010		0
Options forfeited during 2010		0
Outstanding at December 31, 2010		566,424		2.11
Exercisable at December 31, 2010		360,114		1.39

(1)

Recapitalized to give effect to the share exchange pursuant to the merger agreement dated January 31, 2011, more fully discussed in the subsequent events footnote.

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There were no options granted during the year ended December 31, 2009. The total fair value of options that vested during the years ended December 31, 2010 and 2009 was $83,505 and $26,835, respectively.

The following table summarizes the status of the Company’s aggregate non-vested shares granted:

	Number of Non- vested Shares		Weighted Average fair Value at Grant Date

Non-vested at December 31, 2009		0
Non-vested granted – year ended December 31, 2010		206,310		1.07
Vested		85,037		1.11
Non-vested at December 31, 2010		206,310		1.07

As of December 31, 2010, the unrecognized compensation cost related to non-vested share based compensation arrangements granted under the plan was approximately $226,300 which will be recognized over a weighted average 158 days.

Per employment agreements with each of Dr. Shell, Ms. Charuvastra and Mr. Giffoni (TMP Insiders), each dated June 1, 2010 and amended on January 31, 2011, the TMP Insiders are entitled to 500,000 shares of common stock and annual base salary and benefits for the longer of the remaining term of the employment agreement or 30 months in the event the TMP Insider is terminated without cause by us or with cause by the TMP Insider. We would have “cause” to terminate the employment relationship upon (i) a TMP Insider’s conviction of or a plea of nolo contendere for the commission of a felony or (ii) the TMP Insider’s willful failure to substantially perform the TMP Insider’s duties under the employment agreement. A TMP Insider will have “cause” to terminate the employment relationship with us in the event any of the following circumstances are not remedied within 30 days of our receipt of a notice of termination from the TMP Insider: (i) a material change in the TMP Insider’s duties or a material limitation of the TMP Insider’s powers; (ii) a failure to elect the TMP Insider to the management position specified in such TMP Insider’s employment agreement or a reduction of the TMP Insider’s annual base salary; (iii) our failure to continue in effect any benefit plan in effect upon the execution of the initial employment agreement, (iv) a material breach by us of the employment agreement and (v) a change in control (which is defined in the TMP Insiders’ employment agreements).

Note 5: Long Term Accounts Receivable

Long term accounts receivable: As of December 31, 2010, TMP maintained an accounts receivable balance for one physician practice of $2,982,119 in excess of the CCPI managed accounts receivable on behalf of that physician. The December 31, 2009 excess of accounts receivable over managed accounts receivable was $1,230,000. The physician’s billing and services agreement with CCPI provides for withholding one-third of all amounts due to physician from CCPI until the balance is paid in full. Management expects that these amounts will be collected as follows:

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			Principal		Interest 3%		Payment
2011 included in Accounts Receivable	$	288,170			$	61,048	$	349,218
2012			$	610,048		69,507		679,555
2013				1,300,640		44,861		1,345,501
2014				601,738		6,107		607,845
Total Long Term Accounts Receivable			$	2,512,426	$	181,523	$	2,982,119

Note 6: Investments and Fair Value Measurements

Investments: The Company records its investments in accordance with ASC 320-10 Accounting for Certain Investments in Certain Debt and Equity Securities. As of December 31, 2010 and 2009, the Company has classified its portfolio as available-for-sale securities. These securities are recorded at fair value, based on quoted market prices in an active market, with net unrealized holding gains and losses reported in stockholders’ equity as accumulated other comprehensive income. At December 31, 2010 and 2009 the carrying value of investments approximated fair market value, and are classified as Level 1 Assets as defined by ASC 820-10.

Fair Value Measurements: The Company defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last is considered unobservable:

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table represents our fair value hierarchy for financial assets (cash equivalents and investments) measured at fair value on a recurring basis. Level 1 available-for-sale investments are primarily comprised of investments in U.S. Treasury securities, valued using market prices in active markets. All of our investments are priced by quoted prices in active markets for identical assets.

Assets measured at fair value as of December 31, 2010 and December 31, 2009 are summarized as follows:

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	Level 1		Cost		Unrealized
Investments on December 31, 2010	Fair Value		Basis		Gain/(Loss)
Government money market fund	$	101,296	$	101,296	$	-
High yield bond fund		90,290		88,183	$	2,107
Exchange traded equity fund		52,830		51,728	$	1,102
Total	$	244,416	$	241,207	$	3,209

	Level 1		Cost		Unrealized
Investments on December 31, 2009	Fair Value		Basis		Gain/(Loss)
Treasury bond money market funds	$	261,450	$	268,076	$	(6,626	)
Corporate bond money market funds		279,830		275,184	$	4,646
Total	$	541,280	$	543,260	$	(1,980	)

During the year ended December 31, 2010, the Company recognized a realized loss on the sale of an investment of $3,659. $1,980 of this loss was previously recorded as an unrealized loss in comprehensive income for the year ended December 31, 2009. On December 31, 2010 the Company had unrealized gains of $3,209. The net change in unrealized gains and (losses) was $5,189 for the year ended December 31, 2010 and ($1,980) for the year ended December 31, 2009. The cost basis for all investments was the actual amount paid on a specifically identified basis, all investments were highly liquid and all investments were available for sale. The Company had no Level 2 or Level 3 assets in the years ending December 31, 2010 or 2009.

Note 7: Intangible Assets

For the year ending December 31,	2010		2009
Patents	$	235,056	$	152,010
Internally Developed Software		1,005,145		578,002
Total, at cost	$	1,240,201	$	730,012
Accumulated Amortization		339,511		187,673
Net Intangible Assets	$	900,690	$	542,339
Intangible Assets held at cost:
URL medicalfoods.com		1,301,000		1,301,000
Total Intangible Assets	$	2,201,690	$	1,843,339

Amortization over the next five years is as follows:

2011	$	194,132
2012	$	160,717
2013	$	150,298
2014	$	149,158
2015	$	54,225

Amortization expense for the years ended December 31, 2010 and 2009 was $151,838 and $51,716, respectively.

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Note 8: Notes Payable

On December 31, 2010, the Company owed the Targeted Medical Pharma, Inc. Profit Sharing Plan $300,000 on a promissory note dated December 12, 2010 with a maturity of June 12, 2011 and bearing interest at the rate of eight percent per annum.

Note 9: Concentrations

Major Vendor

The Company purchases its medical food manufacturing services from a single source. The Company is dependent on the ability of this vendor to provide inventory on a timely basis. The loss of this vendor or a significant reduction in product availability and quality could have a material adverse effect on the Company. While the Company keeps at least a two months inventory on hand, it could take between two and six months to set up and test a new supplier, leading to up to four months of product backorder. The Company’s relationship with this vendor is in good standing and the expiration date of the contract is December 31, 2011.

Revenue Concentration

TMP evaluates revenue concentration on a quarterly basis.

Distributors purchase product from TMP and resell those products to dispensing physicians. Clients are those dispensing physicians to whom TMP sells product directly. TMP had two physician managed model clients that represented 24.7% and 15.6% of gross sales, respectively for the year ended December 31, 2010. Loss of these clients could significantly impact the Company’s revenue.

On December 31, 2009, TMP had three distributors that represented 27%, 16% and 11% of gross sales, respectively and no clients that represented more than 10% of gross sales in the year ended December 31, 2009.

Note 10: Lease Commitments

The Company leases its operating facility under a lease agreement expiring February 28, 2012 and several smaller storage spaces on a month-to-month basis. The Company, as lessee, is required to pay for all insurance, repairs and maintenance and any increases in real property taxes over the lease period on the operating facility. The Company’s net rent expense for the years ended December 31, 2010 and December 31, 2009 were approximately $175,000 and $136,000.

Minimum annual rentals on the operating facility for the fiscal years ending December 31 are as follows:

2011		150,000
2012		25,000
Total	$	175,000

Note 11: Defined Contribution Plans

The Company has a profit sharing plan for the benefit of eligible employees. The Company makes contributions to the plan out of its net profits in such amounts as the Board of Directors determines. The contribution each year in no event exceeds the maximum amount allowable under applicable provisions of the Internal Revenue Code. Contributions of $205,329 were provided by the Company to the plan for the year ended December 31, 2010 and recognized in the same year. Contributions of $143,880 were provided by the Company to the plan for the year ended December 31, 2009 and recognized in the same year. TMP also sponsors a 401(k) plan. The Company does not match employee contributions.

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Note 12: Income Taxes

The Company’s provision for income taxes differs from applying the statutory U.S. federal income tax rate to income before taxes. The primary difference results from providing for state income taxes and from deducting certain expenses for financial statement purposes but not for federal income tax purposes.

The components of the income tax provision are as follows:

	Year Ended December 31,
	2010			2009
Current:
Federal	$	4,061,075		$	6,880
State		1,125,177			33,625
Total current		5,186,252			40,505
Deferred:
Federal		(1,015,581	)		295,973
State		121,360			1,446,527
Total deferred		(894,221	)		1,742,500
	$	4,292,031		$	1,783,005

The reconciliation of income tax attributable to operations computed at the U.S. Federal statutory income tax rate of 35% for 2010 and 34% for 2009 to income tax expense is as follows:

	Year Ended December 31,
	2010			2009

Statutory Federal tax rate		35.0	%		34.0	%
Increase (decrease) in tax rate resulting from:
U.S. state taxes, net of federal benefit		5.7	%		5.8	%
Rate Change		2.0	%		0.0	%
481(a) adjustment - cash to accrual and other miscellaneous adjustments		-0.3	%		-9.0	%
Nondeductible meals & entertainment expense		0.1	%		0.1	%

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Deferred tax components are as follows:

	At December 31,
	2010			2009
Deferred tax assets:
Accrued liability for vacation	$	30,774		$	-
Bad debt reserve		212,292			207,500
Net Operating Loss		-			34,537
Stock Compensation Expense		66,826			32,064
Total deferred tax assets		309,892			274,101
Valuation allowance		-
Net deferred tax assets		309,892			274,101
Deferred tax liabilities:
Depreciation		(18,920	)		295,062
481(a) Adjustment - Cash To Accrual		(3,864,831	)		(5,037,263	)
Total deferred tax liabilities		(3,883,751	)		(4,742,201	)
Net deferred tax liabilities	$	(3,573,859	)	$	(4,468,100	)

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

At December 31, 2010 and 2009, the Company had total domestic Federal and state net operating loss carryovers of approximately $0 and $86,658, respectively. Federal net operating loss carryovers expire at various dates between 2027 and 2030, while state net operating loss carryovers expire between 2024 and 2030. The net operating losses available at December 31, 2009 were fully utilized to offset taxable income for the year ended December 31, 2010.

Under the Tax Reform Act of 1986, as amended, the amounts of and benefits from net operating loss carryovers and research and development credits may be impaired or limited in certain circumstances. Events which cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50%, as defined, over a three year period. The Company does not believe that such an ownership change has occurred in 2010 or 2009.

The 2007 through 2009 tax years remain open to examination by the Internal Revenue Service and the 2005 to 2009 tax years remain open to the California Franchise Tax Board. These taxing authorities have the authority to examine those tax years until the applicable statute of limitations expire.

The Company did not recognize any interest or penalties related to income taxes for the years ended December 31, 2010 and 2009.

The Company is required to change from the cash method of accounting to the full accrual method of accounting for income tax purposes. Accordingly, a Form 3115 will be filed with the Internal Revenue Service requesting this change. The Form 3115 has not yet been filed and thus has not yet been accepted by the Internal Revenue Service. The income tax provision assumes the Form 3115 will be accepted and the tax liability from the beginning of the year change will be paid evenly from 2010 through 2013.

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Note 13: Recently Issued Accounting Pronouncements

Multiple-Deliverable Revenue Arrangements: In October 2009, the FASB issued Accounting Standards Update No. 2009-13, Multiple-Deliverable Revenue Arrangements, which amends existing revenue recognition accounting pronouncements that are currently within the scope of FASB Codification Subtopic 605-25 (previously included within EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, or EITF 00-21). The consensus to EITF Issue No. 08-01, Revenue Arrangements with Multiple Deliverables, or EITF 08-01, provides accounting principles and application guidance on whether multiple deliverables exist, how the arrangement should be separated, and the consideration allocated. This guidance eliminates the requirement to establish the fair value of undelivered products and services and instead provides for separate revenue recognition based upon management’s estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. EITF 00-21 previously required that the fair value of the undelivered item be the price of the item either sold in a separate transaction between unrelated third parties or the price charged for each item when the item is sold separately by the vendor. This was difficult to determine when the product was not individually sold because of its unique features. Under EITF 00-21, if the fair value of all of the elements in the arrangement was not determinable, then revenue was deferred until all of the items were delivered or fair value was determined. This new approach is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company will have to evaluate the impact of this standard on future revenue arrangements that we may enter into.

Compensation – Stock Compensation: In January 2010, the FASB issued ASU 2010-05, Compensation – Stock Compensation (Topic 718): Escrowed Share Arrangements and the Presumption of Compensation . ASU 2010-05 updates existing guidance to address the SEC staff’s views on overcoming the presumption that for certain shareholders escrowed share arrangements represent compensation. ASU 2010-05 is effective January 15, 2010. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operation.

Fair Value Measurements and Disclosures: In January 2010, the FASB issued Accounting Standards Update No. 2010-06, topic 820, Fair Value Measurements and Disclosures, which amends existing fair value disclosure pronouncements. This update provides amendments to Subtopic 820-10 that require new disclosures as follows:

-Transfers in and out of Levels 1 and 2. A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers.

-Activity in Level 3 fair value measurements. In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number).

This update also provides amendments to Subtopic 820-10 that clarify existing disclosures as follows:

-Level of disaggregation. A reporting entity should provide fair value measurement disclosures for each class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. A reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities.

-Disclosures about inputs and valuation techniques. A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3.

This update also includes conforming amendments to the guidance on employers’ disclosures about postretirement benefit plan assets (Subtopic 715-20). The conforming amendments to Subtopic 715-20 change the terminology from major categories of assets to classes of assets and provide a cross reference to the guidance of Subtopic 820-10 on how to determine appropriate classes to present fair value disclosures.

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This update is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.

The adoption of this guidance did not have a material impact on the Company’s financial statements.

Other Expenses: In December 2010, the FASB issued an accounting standard update that provides guidance on the recognition and presentation of the annual fee to be paid by pharmaceutical companies beginning on January 1, 2011 to the U.S. Treasury as a result of U.S. Healthcare Legislation. As a result of adopting this new standard, beginning on January 1, 2011, we will record the annual fee as an operating expense in our consolidated statements of income. The provisions of this standard will not have a significant impact on our consolidated financial statements.

Business Combinations: In December 2010, the FASB issued Accounting Standards Update No. 2010-29, topic 805, Disclosure of Supplementary Pro Forma Information for Business Combinations, to clarify diversity in practice of applying this topic. Paragraph 805-10-50-2(h) requires a public entity to disclose pro forma information for business combinations that occurred in the current reporting period. The disclosures include pro forma revenue and earnings of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period. If comparative financial statements are presented, the pro forma revenue and earnings of the combined entity for the comparable prior reporting period should be reported as though the acquisition date for all business combinations that occurred during the current year had been as of the beginning of the comparable prior annual reporting period. The adoption of this guidance did not have a material impact on the Company’s financial statements.

Note 14: Subsequent Events

Through the issuance of these financial statements:

Pursuant to an Agreement and Plan of Reorganization (the “Merger Agreement”), by and among AFH Acquisition III, Inc. (“AFH”), TMP Merger Sub, Inc. (“TMP Merger Sub”), AFH Merger Sub, Inc. (“AFH Merger Sub”), AFH Holding and Advisory, LLC (“AFH Advisory”), Targeted Medical Pharma, Inc. (“Old TMP”), William E. Shell, MD, Elizabeth Charuvastra and Kim Giffoni, on January 31, 2010, TMP Merger Sub merged (the “TMP Merger”) with and into Old TMP with Old TMP continuing as the surviving entity . Immediately after the TMP Merger, AFH merged (the “AFH Merger” and, together with the TMP Merger, the “Reorganization”) with and into AFH Merger Sub with AFH continuing as the surviving entity (the surviving entity of the AFH Merger, the “Subsidiary”). As a result of the Reorganization, the Subsidiary is the Company’s wholly-owned subsidiary.

Upon consummation of the TMP Merger, (i) each outstanding share of Old TMP common stock was exchanged for approximately 1.48 shares of AFH common stock and (ii) each outstanding TMP option, which was exercisable for one share of Old TMP common stock, was exchanged for an option exercisable for 1.48 shares of AFH common stock. Upon consummation of the AFH Merger, which occurred immediately upon consummation of the TMP Merger, each outstanding share of AFH common stock and each outstanding option to purchase AFH common stock were exchanged for one share of the Company’s common stock and one option to purchase one share of the Company’s common stock. As a result of the Reorganization, holders of Old TMP common stock and options received 18,308,576 of the Company’s shares of common stock and options to purchase 566,424 of the Company’s shares, or 83.89% of the Company’s issued and outstanding common stock on a fully diluted basis. Former shareholders of AFH Advisory received 3,625,000 of the Company’s shares of common stock.

The exchange of shares between TMP and AFH will be accounted for as a recapitalization of the companies. Pursuant to the accounting for a recapitalization, the historical carrying value of the assets and liabilities of TMP carried over to the surviving company.

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Pursuant to the Merger Agreement, the TMP Insiders agreed that up to 1,906,768 of the Company’s shares of common stock they hold in the aggregate would be subject to forfeiture and cancellation to the extent that the Company fails to achieve $22,000,000 in Adjusted EBITDA (the “Make Good Target”) for the fiscal year ended December 31, 2011. For purposes of the Merger Agreement, “Adjusted EBITDA” means the Company’s consolidated net earnings before interest expense, income taxes, depreciation, amortization and non-recurring expenses (as defined below) for the applicable period and as calculated on a consistent basis. Net earnings excludes, among other things, expenses incurred in connection with the Company’s public offering of its common stock (including the preparation of the registration statement) and the preparation of the Current Report on Form 8-K related to the Reorganization.

The Reorganization resulted in a change in control of the Company from Mr. Amir F. Heshmatpour to the former stockholders of Old TMP. In connection with the change in control, William E. Shell, MD, Kim Giffoni, Maurice J. DeWald, Donald J. Webster, Arthur R. Nemiroff and John H. Bluher were appointed to the Company’s Board of Directors. Dr. Shell was appointed the Company’s Chief Executive Officer and Chief Scientific Officer, Ms. Charuvastra was appointed as the Company’s Chairman and Vice President of Regulatory Affairs, Mr. Giffoni was appointed as the Company’s Executive Vice President of Foreign Sales and Investor Relations, Mr. Steve B. Warnecke was appointed as the Company’s Chief Financial Officer and Mr. Amir Blachman was appointed as the Company’s Vice President of Strategy and Operations. Mr. Heshmatpour, an officer and director of AFH prior to the consummation of the Merger Agreement, resigned from these positions at the time the transaction was consummated. Ms. Charuvastra was elected to AFH’s Board of Directors on December 9, 2010. Following the Reorganization, she continued as one of the Company’s directors.

On January 31, 2011, the Company entered into an employment agreement with Steve B. Warnecke pursuant to which Mr. Warnecke will serve as our Chief Financial Officer. The agreement shall continue through December 31, 2013 and provides that Mr. Warnecke will receive an annual base salary of $200,000, a quarterly cash bonus of $20,000 upon the completion of quarterly financial statements and the related public filings and an annual cash bonus of $5,000 upon the completion of our audited financial statements. The Company granted to Mr. Warnecke ten-year options to purchase 500,000 shares of common stock at an exercise price of $2.55 per share,166,667 options vested immediately and, beginning on January 31, 2012, 13,889 options will vest on the last day of each month. Mr. Warnecke’s employment agreement contains termination clauses. an indemnification provision wherein the Company promises to defend, indemnify, and hold Mr. Warnecke harmless to the fullest extent permitted by law against any and all liabilities incurred by him in connection with Mr. Warnecke’s good faith performance of such his employment with the Company, customary non-competition provisions and customary terms regarding the protection and confidentiality of trade secrets, proprietary information and technology, designs and inventions.

On February 11, 2011, the Company granted ten-year options to purchase 50,000 shares of common stock at $2.55 per share to each of its four independent directors. The options vest in 12,500 share increments on March 31, June 30, September 30 and December 31, 2011.

Note 15: Restatement

In 2010, the Company restated its revenue recognition policy to properly reflect discounts given as rapid pay discounts and not industry chargebacks. There was no affect on assets, liabilities, or net income as of and for the year ending December 31, 2009.

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Attached files

Targeted Medical Pharma, Inc. Reports

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