Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2010, for AMHN, Inc. (formerly Croff Enterprises, Inc.). The company operates as a smaller reporting company and is currently focused on its subsidiary, Spectrum Health Network, Inc., following the disposal of its former subsidiary, America's Minority Health Network, Inc. (AMHN), which was surrendered as collateral to a lender in July 2010. Spectrum provides digital signage networks to independent physician associations (IPAs) and medical offices.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2010 | Nine Months Ended Sep 30, 2010 |
|---|---|---|
| Operating Revenues | $22,120 | $27,854 |
| Net Income (Loss) | $29,951 | $(586,528) |
| Loss from Continuing Operations | $(127,106) | $(341,396) |
| Cash and Cash Equivalents | $23,946 | $23,946 |
| Total Assets | $511,098 | $511,098 |
| Total Liabilities | $1,358,678 | $1,358,678 |
| Stockholders' Deficit | $(847,580) | $(847,580) |
| Working Capital Deficit | $(1,330,652) | $(1,330,652) |
Note: The net income for the three-month period was driven by a $200,029 gain on the disposal of discontinued operations, offsetting a loss from continuing operations.
Material Changes vs. Prior Period
- Revenue Generation: The company generated $22,120 in revenue for the quarter ended September 30, 2010, compared to $0 in the same period in 2009. This increase is attributed to active advertising contracts.
- Discontinued Operations: In July 2010, the company surrendered its former subsidiary, America's Minority Health Network, Inc., to Seatac Digital Resources, Inc., to satisfy a defaulted debt of approximately $981,438. This resulted in a recognized gain of $200,029 on disposal.
- Acquisition: In June 2010, the company acquired Spectrum Health Network, Inc. for 500,000 shares of common stock, assuming assets of approximately $247,000 and liabilities of $480,000. This acquisition introduced depreciation and amortization expenses not present in the prior year.
- Liquidity: Cash increased from $165 at year-end 2009 to $23,946 at September 30, 2010. However, total liabilities increased significantly to $1.36 million, primarily due to accounts payable and accrued expenses.
Outlook, Risks, and Management Commentary
- Going Concern: Management has expressed substantial doubt about the company's ability to continue as a going concern. The company has an accumulated deficit of $2.48 million and relies on additional financing to fund operations and convert existing clients to a subscription model.
- Business Model Shift: Spectrum is transitioning from an ad-supported model to a subscription service ($3,500 one-time fee plus monthly maintenance). As of the filing date, no existing clients had converted to this new model.
- Capital Needs: The company requires additional capital to expand operations. If external financing is unavailable, current shareholders may need to contribute funds.
- Management Changes: Following the default on the Seatac loan and subsequent resignations, Robert Cambridge served as the sole officer and director. On October 1, 2010, Jill B. Rollo was appointed President and CEO of Spectrum.
- Related Party Transactions: The company has significant outstanding liabilities to related parties, including Seatac Digital Resources, Inc., totaling over $1 million in accounts payable.
Investor Verification Checklist
- Verify the status of the $480,465 trade payable to Seatac that was not satisfied by the collateral surrender.
- Confirm the progress of converting the 148 subscribed offices to the new subscription-based revenue model.
- Assess the availability of additional financing given the substantial working capital deficit and going concern warning.
- Review the valuation of the $288,443 goodwill recorded from the Spectrum acquisition.
- Monitor the issuance of the 76,075 warrants to Global Arena Capital Corp., which were accrued but not yet issued as of the filing date.